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Community Bank Charter

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									5.03.05
                     Communities First Act Summary
Purpose. An Act to enhance the ability of community banks to foster economic growth
and serve their communities.

Short Title. This Act may be cited the "Community Banks Serving Their Communities
First Act" or the "Communities First Act".

          Title I – Targeted Regulatory Relief for Community Banks
Home Mortgage Disclosure Act
   Increase exemption levels to include banks with assets of $250 million and adjust
     according to procedures specified in HMDA.

Call Reports
    Permit highly rated, well-capitalized banks with assets of $1 billion or less to file
       a short form in two quarters of each year.

Sarbanes-Oxley Act
    Exempt banks with assets up to $1 billion from internal control attestation and
      audit requirement.

Bank Holding Companies (Federal Reserve Regulation Y)
    Direct the Federal Reserve to make bank holding companies with assets up to $1
      billion eligible for the Small Bank Holding Company Policy Statement on
      Assessment of Financial and Managerial Factors. To qualify, the holding
      company must also (1) not be engaged in any non-banking activities involving
      significant leverage, and (2) not have a significant amount of outstanding debt
      that is held by the general public.
    Increase the debt-to-equity ratio to 3:1 for banks in holding companies with assets
      up to $1 billion.

Depository Institution Management Interlocks
    Exempt banks of $500 million or less in assets.

SIPC Coverage
    Provide banks with assets up to $1 billion the same protection afforded other
      investors and other depository institutions for their brokerage account assets when
      a broker dealer fails.

Examinations
    Give federal regulators flexibility to determine the examination interval for well-
      rated, well-capitalized banks with up to $1 billion in assets.
Loans to Executive Officers
    Provide a two-times-capital aggregate limit for banks with assets up to $1 billion.

Additional Relief by Agencies
    The appropriate agencies shall tailor any new reporting, examination, or other
       requirements to take into account their effects on community banks.

Community Reinvestment Act
   Increase CRA examination intervals for banks up to $1 billion.

Annual Adjustment:
    Unless otherwise specifically provided, the asset levels specified in this title shall
      be annually adjusted by the percentage of increase in total assets held by
      institutions insured by the FDIC.

Title II – Additional Regulatory Relief for Community Banks and their
                              Customers
             Note: These changes are of special interest to community banks,
                            but would not be limited to them.

Truth in Lending (Federal Reserve Regulation Z)
    Direct the Federal Reserve to prescribe regulations authorizing customers who
       borrow from Federally insured depository institutions to waive the three-day right
       of rescission.

      Exempt a refinancing with a new lender from the three-day right of rescission
       where no new money is advanced.

      Exempt home equity lines of credit from the three-day right of rescission.

Home Mortgage Disclosure Act (HMDA) (Federal Reserve Regulation C)
   Exempt banks with fewer than 100 reportable loan applications per year per
     category.

      Allow the Federal Reserve to develop a definition of Metropolitan Statistical Area
       for HMDA purposes, instead of using Census Bureau definition created for
       entirely different reasons, to avoid covering certain rural banks.

      Direct the Federal Reserve to streamline HMDA data collection and reporting and
       eliminate requirements that are not cost-justified.



Gramm-Leach-Bliley Act Privacy Notices



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      Allow a bank that does not share customer information, other than as permitted by
       one of the exceptions, the option to forego delivery of the annual notice unless
       there has been a change in the bank’s privacy policy.

Call Report Streamlining
    Requires the FDIC, in conjunction with the other Federal banking agencies, to
       review Call Report requirements every five years to determine if some of the
       information and schedules can be eliminated.

Loans to Executive Officers
    Increase the special regulatory lending limit on loans to executive officers for
       loans other than those for housing, education, and certain secured loans to
       $250,000. (Note: Executive officers would remain subject to the same limit on
       directors and principal shareholders, the loans-to-one-borrower limit.)

Title III – Tax Relief for Bank Depositors, Rural Banks, Municipalities,
          and Banks Organized as Limited Liability Companies
Defer Recognition of Income on Long-Term Deposits and Reduce Rate

      Defer recognition of interest income on long-term CDs (CDs with a term of 12
       months or more) until maturity for individual taxpayers.

      Reduce top tax rate applied to interest income on long-term CDs (CDs with a term
       of 12 months or more) to equal the long-term capital gains rate for assets held
       more than 12 months.

Relief for Agricultural and Small-town Mortgage Lenders

      Exempt from taxation income earned on –

           o agricultural real estate loans, and

           o mortgage loans in communities of 2,500 or less population.

Increase Muni-Bond Bank Qualified Obligation Limits

      Increase the $10 million expected annual issuance limitation to $30 million for
       tax-exempt obligations and index future limitation levels.

Provide Limited Liability Company Tax Treatment to FDIC-Insured LLCs
    Direct the Treasury to amend regulation § 301.7701-2(b)(5) to provide limited
       liability corporation tax treatment to banks operating as LLCs.




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          Allow existing privately-held banks to convert their state or federal charters to an
           LLC charter in a tax-free transaction.1 Create an LLC-level tax structure similar
           to the corporate built-in gains tax provisions under IRC § 1374 imposed upon C
           Corporations that convert to S Corporation status.

        Title IV – Tax Relief Community Banks and Holding Companies
Tax Credit for Community Banking
    Allow a 20% tax credit for banks and bank holding companies up to $5 billion in
      assets (“community banks”). The 20% tax credit would be applied to offset the
      tax liability of community-based C corporation banks. The C corporation
      community bank tax credit maximum is not to exceed $250,000.00. S
      corporation banks would be able to exclude 20% of distributable income not to
      exceed $1,250,000.00 of income.

Repeal Alternative Minimum Tax for Community Banks

          Replace the $5 million average annual gross receipts threshold for banks with a
           rule that applies the AMT only to banks or bank holding companies over $5
           billion in assets. For purposes of this provision, a bank is any institution that
           satisfies the definition of a bank under IRC § 581 or is a bank or bank holding
           company that owns a bank.

Tax Credit for Community Banking in Distressed Areas

          Create a 50% tax credit for qualified community banks and bank holding
           companies (“community banks”) operating in distressed communities and/or
           designated enterprise or empowerment zones, or qualifying New Market Tax
           Credit Census tracts. The 50% tax credit would be applied to offset the tax
           liability of community-based C corporation banks. The C corporation community
           bank tax credit maximum is not to exceed $500,000.00. S corporation banks
           would be able to exclude 50% of income not to exceed $2,500,000.00 of income.
           The term `distressed community' has the meaning given the term `qualified
           distressed community' by section 233 of the Bank Enterprise Act of 1991 (12
           U.S.C. 1834a(b)).'.




1   Publicly traded partnerships are treated as corporations per IRC § 7704(a).


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