GNBank Issues Public Comment to Treasury Dept.

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WASHINGTON, Aug. 10 -- GNBank, National Association, Girard, Kansas, has issued a public comment to the U.S. Department of Treasury. The comment was written and posted on Aug. 3, 2022.

The comment, on Docket No. OCC-2022-0002-0001, was sent to James P. Sheesley, assistant executive secretary of Federal Deposit Insurance Corp., Ann Misback, secretary of the Federal Reserve Board, and Chief Counsel's Office in the Office of the Comptroller of the Currency.

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This letter is on behalf of GNBank, National Association (GNBank), a $954 million community bank with locations in fourteen rural communities in Kansas and Southeast Colorado. Our market areas include Native American tribal lands and one community with a large percentage of residents for whom English is a second language. We appreciate the opportunity afforded us by the Office of the Comptroller of the Currency (OCC), our primary regulator, and the Federal Deposit Insurance Corporation and Federal Reserve Board of Governors in your efforts to update the evaluation of financial institutions' Community Reinvestment Act (CRA) performance. It would be valuable to the banking industry to have a final CRA rule that is issued on an interagency basis.

GNBank has served the rural community of Girard, Kansas for over 100 years, and has expanded into similar markets mostly by acquisition over the past 35 years. Our primary lending is in the agricultural sector to finance cattle, grain crop production, equipment, farmland, and agribusinesses, and includes use of Farm Service Agency and FarmerMac programs. Other concentrations are in small business, commercial, and fixed and variable rate residential real estate loans. The bank also offers consumer loans, financing for municipalities, and a variety of consumer and business deposit services to support the full array of our communities' needs for financial services. Our assessment areas are comprised of census tracts that are moderate- and middle-income, some distressed and underserved. Local free and reduced-price lunch levels under USDA's National School Lunch Program hover around or above 50% in most schools in our markets. We are deeply committed to serving our communities' financial needs and offering our time and talent to help them survive and thrive.

GNBank strongly supports efforts for CRA modernization. CRA examination expectations have become unpredictable and overly complex, and it seems the focus has diverted from the original intent of the CRA over time, with added expectations that are more suited to metropolitan areas. GNBank is serving credit and community development needs, but the documentation required to prove that our loans, investments, donations, and services qualify is onerous. Oftentimes, the organizations, service providers, and landlords in our small towns do not collect income information required as proof for CRA performance purposes. The need to update CRA has existed for years. It is growing more pressing as technology and the financial services industry continue to evolve, erasing boundaries used in the existing CRA framework.

We support and sincerely appreciate your efforts to avoid imposing more regulatory burden on the smallest banks by raising the caps for Small Banks and Intermediate Banks to $600 million and $2 billion, respectively. Asset growth in the banking industry in the past two years has been driven by federal stimulus deposits and the impact of inflation, out of financial institutions' control. While GNBank is a single bank, it serves fourteen communities ranging in population size from 180 to just under 20,000 residents, and operates as fourteen small community banks. The burden of new data collection would require GNBank to add a full-time equivalent employee to collect data on deposits, retail services and products, and community development services, loans, and investments to prove our performance is strong.

We are not commenting on the full proposal and all 180 questions posed within, but would like to offer our following brief perspective on CRA program management under the proposed regulation, including criteria for community development activities.

We would welcome clearer expectations for each of the four proposed ratings. We would also like to have targeted performance standards to guide decisions whether to have a loan evaluated in the Retail Lending Test or the Community Development Financing Test. We are in favor of the single Community Development Financing Test combining lending and investments, the proposal for economic development loans to have no revenue limits, and defining a small business as having gross revenue of $5 million or less.

Your proposals surrounding community development activities would be helpful in our CRA program. Having a published list of qualifying activities and a process to receive preapproval would eliminate guesswork. We also look forward to agencies providing more examples on how to determine low- and moderate-income individuals and families, and ask you to consider a broader, more flexible framework than currently exists using enrollment in USDA's National School Lunch Program and Medicaid. (Kansas has not adopted expanded Medicaid.)

Partial credit for activities could be beneficial, but would help only if the beneficiary organizations would track and provide income data of those served. We are opposed to having proof that a minimum percentage of the activity has served low- and moderate-income individuals, geographies, or small businesses and farms. In our experience, many organizations in rural areas do not collect or share patrons' income information, including students by classroom in K-12 schools. Currently, the bank receives no credit for financial literacy education programs given by our employees to K-12 classrooms when less than 50% of the school's students receive free or reduced-price lunch.

Other examples receiving no CRA credit include donations to organizations providing school supplies or clothing to children in schools with over 50% receiving free or reduced-price lunch, or to the Court Appointed Special Advocates (CASA) program which does not collect the income data of children in foster care.

We support consideration to include non-financial services as community development service. Bank employees' service at a local, non-profit soup kitchen has not qualified under current regulation because the employees are not providing financial services.

We respectfully request that loans, investments, donations, and services to rural infrastructure and healthcare organizations be given full or partial community development credit when less than 50% of patients have Medicaid coverage. (Again, Kansas has not adopted expanded Medicaid.) Rural critical access hospitals and rural health clinics do not collect income information from patients, but many insured by Medicare or paying privately are low- or moderate-income. Studies show lack of healthcare options is a factor in the economic decline of rural communities. Economically, healthcare providers:

* Provide services in low- and moderate-income, distressed, underserved, or medically underserved areas.

* Provide charity (no or discounted cost) care.

* Boost local economies directly by creating and retaining jobs, including many low-and moderate-income.

* Boost local economies by spending at local small businesses.

Indirectly, healthcare providers' employees--including middle and upper income--are patrons at local businesses that provide low- and moderate-income jobs, such as farm supply, home improvement, or dollar stores, restaurants, and other service providers. Our activities supporting rural healthcare are not currently recognized with CRA credit. To us, our support exemplifies community and economic development in rural areas.

There are other cases when a community development activity supports the ability for residents to work and be financially self-sufficient, but the activity does not receive CRA credit. For example, the bank has provided loans, services and donations to a non-profit daycare in a rural town where childcare options were limited. This has allowed parents to hold a job, but the activities do not qualify for CRA credit because the daycare does not share patrons' income.

We strongly support that an activity may qualify for CRA credit without requiring 100% of recipients to be located in low- or moderate-income tracts or to provide proof that they are personally low- or moderate-income. In one case, donations to an economic development organization does not qualified because not all business served were in low- or moderate-income tracts. In another, donations to support individuals or families having a personal crisis do not receive CRA credit if their income levels do need meet the CRA definition of financial need. However, they navigate through a crisis with community support, including financial donations from the bank. This is an essential element in small communities' identity and helps them retain residents.

We have been frustrated with exam conclusions that loans primarily supporting low- and moderate-income jobs did not qualify because the bank lacked payroll records showing 100% of the employees are paid below 80% of the area's median income. To name an example, a Paycheck Protection Program loan during the COVID-19 pandemic retaining approximately 600 jobs at a locally-owned chain of fast food restaurants, with an average wage at $12 per hour, did not qualify because managers' jobs were also financed by the loan and not all of the restaurants were located in low- or moderate-income census tracts or within the bank's assessment areas.

We embrace the idea to allow neighborhoods or individual addresses identified as low- or moderate-income, within a middle income census tract, to qualify for CRA credit. Our communities are not homogenous regarding income levels.

Lastly, we respectfully ask for the updated regulation to set a Fair Market Rents standard to determine if single family rental residences or units in a multi-housing rental complex are affordable housing without tenant income data. This is a common sense approach in contrast to requiring a landlord to collect and divulge the tenants' income information to the lender in order for the loan to qualify. Rural areas have many unsubsidized single or multi-family rental units, and our experience is financing this type of affordable housing does not garner CRA credit. Also, we would welcome a path for loans to a nonprofit entity with the mission of providing affordable housing to receive CRA credit. In our experience, these loans do not qualify because the entities do not share tenants' or purchasers' income information.

Once the final regulation is released, we anticipate we would need 18-24 months to adapt to the new requirements as currently proposed. The vendor of our CRA program to track and analyze lending activity performance would need time to implement modifications and provide training. We also would need to revise our CRA program, including new questionnaires, forms, and training for bank employees.

Thank you again for the opportunity to comment on this joint CRA proposal. We look forward to a final rule that sets out appropriate ways to evaluate the CRA performance of rural Small and Intermediate community banks.

If you have questions about comments in this letter or would like further input, you may reach me by calling (620) 724-8223.

Respectfully submitted,

Nancy George

Chief Risk Officer

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Original text here: https://downloads.regulations.gov/OCC-2022-0002-0148/attachment_1.pdf

TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact MYRON STRUCK, editor, [email protected], Springfield, Virginia; 703/304-1897; https://targetednews.com