Federal Deposit
Insurance Corporation

October 13, 2004

Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold for the Small Bank CRA Streamlined Examination

Dear Sir:

We are the President and Assistant Vice President/CRA Officer of Premier Community Bank, a $156 million community bank located in Marion, Wisconsin. Marion is a rural town with approximately 1,200 residents. Premier Community Bank also has branches in five other rural towns with populations ranging from 1,000 to 2,500 residents. We are writing to strongly support the FDIC’s proposal to raise the threshold for the streamlined small bank CRA examination to $1 billion with out regard to the size of the bank’s holding company. This would greatly relieve the regulatory burden imposed on many community banks under the current regulation, which are required to meet the standards imposed on the nation’s largest $1 trillion banks. We understand that this is not an exemption from CRA and that our bank would still have to help meet the credit needs of its entire community and be evaluated by our regulator.

The FDIC’s small bank CRA examination proposal does provide a very understandable assessment test of the bank’s record of providing credit in its community. Added to this is the fact that the survival of many community banks is closely intertwined with the success and viability of the community that they are in.

We applaud the FDIC for recognizing that it is time to expand this critical burden reduction benefit to community banks that are $250 million to $1 billion in asset size. When a bank must comply with the requirements of the Large Bank CRA evaluation process, the costs and burdens increase dramatically. The resources devoted to this strenuous evaluation process ultimately take away valuable resources needed to meet the credit demands of the community. Small community banks should not have to be burdened with the same strenuous CRA evaluation processes as the large banking company conglomerates that stretch across large regions of the United States.

We also support the addition of a community development criterion to the small bank examination for larger community banks. It appears to be a significant improvement over the investment test. However, we urge the FDIC to adopt its original $500 million threshold for small banks without a CD criterion and only apply the new CD criterion to community banks greater than $500 million up to $1 billion. Banks under $500 million now hold about the same percent of overall industry assets as community banks under $250 million did a decade ago when the revised CRA regulations were adopted, so this adjustment in the CRA threshold is appropriate. As FDIC examiners know, it has proven extremely difficult for small banks, especially those in rural areas, to find appropriate CRA qualified investments in their communities. May small banks have had to make regional or statewide investments that are extremely unlikely to ever benefit the banks’ own communities. That was certainly not the intent of Congress when it enacted CRA.

An additional reason to support the FDIC’s CD criterion is that it significantly reduces the current regulation’s “cliff effect.” Today, when a small bank goes over $250 million, it must completely reorganize its CRA program and begin a massive new reporting, monitoring and investment program. If the FDIC adopts its proposal, a state nonmember bank would move from the small bank examination to an expanded but still streamlined small bank examination, with the flexibility to mix Community Development loans, services and investments to meet the new CD criterion. This would be far more appropriate to the size of the bank, and far better than subjecting the community bank to the same large bank examination that applies to $1 trillion banks. This more graduated transition to the large bank examination is a significant improvement over the current regulation.

We strongly oppose making the CD criterion a separate test from the bank’s overall CRA evaluation. For a community bank, CD lending is not significantly different from the provision of credit to the entire community. The current small bank test considers the institution’s overall lending in its community. The addition of a category of CD lending (and services to aid lending and investments as a substitute for lending) fits well within the concept of serving the whole community. A separate test would create an additional CD obligation and regulatory burden that would erode the benefit of the streamlined exam. The majority of our lending is to small businesses, small farms and rural individuals within the communities which we serve. Our bank also administers the Revolving Loan Fund for the City of Marion and is involved in the revolving loan funds for the counties we are located in. I believe these are examples that would be treated as Community Development lending under the new criterion.

We strongly support the FDIC’s proposal to change the definition of “community development” from only focusing on low- and moderate-income area residents to including rural residents. I think that this change in the definition will go a long way toward eliminating the current distortions in the regulation. We caution the FDIC to provide a definition of “rural” that will not be subject to misuse to favor just affluent residents of rural areas.

Community activists who are against the FDIC proposal appear to be oblivious to the cost and burdens that a community bank experiences with a Large Bank CRA exam. Yet, at the same time, they object to bank mergers that remove the local community bank from the community. If community groups want to continue to see community banks in the community providing local decision making and support, then they must recognize that regulatory burdens are strangling smaller institutions and forcing them to consider selling to larger institutions that have more resources to manage the burdens.

In conclusion, we believe that the FDIC has proposed a major improvement in the CRA regulations, one that much more closely aligns the regulations with the Community Reinvestment Act itself, and we urge the FDIC to adopt its proposal with the recommendations above. We will be happy to discuss these issues further with you, if that would be helpful.

Sincerely,
Richard Pamperin Jeff Wilke
President Assistant Vice President/CRA Officer