Fla. Case Shows Small Banks Not Immune to CRA Protest

Two small Florida banks have found out that community-group protests aren't just big-bank problems anymore, and they certainly aren't cheap.

First Commerce Banks of Florida and Prime Bank of Central Florida spent thousands of dollars to fend off a Community Reinvestment Act challenge to their merger from the Fair Housing Coalition.

The Cocoa-based group's protest surprised First Commerce officials because both banks are small. The Winter Haven-based bank has $103 million in assets, while Prime, in Titusville, has $46 million.

Last year, nearly three-fourths of the CRA protests decided by the Federal Reserve Board involved a bank with more than $3 billion in assets, according to data provided by the central bank. Almost five of every six protests involved banks with assets of over $1 billion, the Fed data indicated.

Although the Fed ultimately approved the deal on June 5, the whole process left First Commerce chairman Charles E. Harris convinced that protests are no longer just a big-bank problem.

"It was very expensive given the size of the institutions involved," said Mr. Harris. "They say that in terms of legal fees and things like that that it costs about the same for a $500 million bank to fight a protest as it does for a $50 million bank."

Mr. Harris declined to reveal the exact amount of his legal bill.

Karen Thomas, director of regulatory affairs for the Independent Bankers Association of America, said First Commerce's experience should put other small banks on notice that they no longer are safe from CRA protests.

"This shows that they can't be complacent," Ms. Thomas said. "Community banks will have to think twice and know that a protest is a consideration if they apply for something that is subject to CRA."

Mr. Harris said he was stunned that the group would target Prime. "We were surprised because they have a 'satisfactory' CRA rating, and it's somewhat unusual for local groups to get involved with small transactions like these," Mr. Harris said.

The Fed said Prime adequately served its community, noting that it made VA and FHA loans to people with low and moderate incomes. The regulator also said the bank participated in the Brevard County Housing Authority bond program, through which banks make affordable mortgage loans to first- time homebuyers.

But the Fair Housing Coalition argued that the bank's Home Mortgage Disclosure Act data showed the institution was not serving those with low and moderate incomes.

From 1992 to 1994, Prime received nearly 15 times more mortgage applications from white borrowers than from blacks. Also, the bank was twice as likely to reject black applicants, according to David Baade, a fair-housing specialist with the year-old coalition.

Also, Mr. Baade said, Prime discriminated against minorities by opening branches in Melbourne and Palm Bay, 40 to 50 miles away in the southern part of the county. He said the banks passed over Cocoa and Rockledge, closer towns with bigger percentages of minorities and people with low and moderate incomes.

But Mr. Harris said there was no ulterior motive in the location of the branches.

The "reasons for not opening a branch in Cocoa had nothing to do with redlining or not serving a community," he said. "It was simply a financial reality of where we could afford to branch as a small bank."

Mr. Harris said the bank won't back away from future mergers as long as the acquired bank has a good CRA record.

Wayne Barnes, a consultant with Professional Bank Services in Louisville, Ky., said protests of small banks are less common because they tend to know their clients better.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER