CRA and Community Development

1
An Overview of the Community Reinvestment Act
Barry Wides Deputy Comptroller, Community
Affairs Office of the Comptroller of the Currency
2
CRA Overview

• Federal Bank Regulators
• Office of the Comptroller of the Currency
• Charters, regulates and examines national banks
• Office of Thrift Supervision
• Charters, regulates and examines federally
  chartered thrift institutions
• Federal Deposit Insurance Corporation
• Regulates and examines state, non-member banks
• Federal Reserve System
• Regulates and examines state, member banks

3
CRA Overview

• CRA Statute --12 USC 2901 (Reg. 12 CFR 25)
• Regulated financial institutions have an
  continuing and affirmative obligation to help
  meet the credit needs of the communities in which
  they operate.
• In connection with its examination of a financial
  institution, the appropriate Federal financial
  supervisory agency shall assess the institutions
  record of meeting the credit needs of its entire
  community, including LMI neighborhoods,
  consistent with the safe and sound operation of
  such institution.

4
CRA Overview

• The bank regulatory agencies take into account
  the CRA record of a bank or thrift when it
  applies to open a new branch or merge with or
  acquire another institution.
• CRA ratings are made public. Each bank or thrift
  must maintain a public file that contains the
  public section of its most recent CRA performance
  review, a list of its services and branches,
  written comments from the public, and certain
  other information.

5
CRA Overview

• Bank Performance Tests
• Large Bank (assets over 1.061 billion)
• Intermediate Small Bank (265 million to 1.061
  billion)
• Small Bank (under 265 million)

6
CRA Overview

• Bank Performance Tests (cont.)
• Strategic Plan
• Bank develops its own strategic plan to be
  evaluated by rather than use the defined
  standards. Such a plan must be open to public
  comment and must be approved by the banks
  federal regulatory agency before it can go into
  effect.
• Wholesale/Limited Purpose Banks
• Wholesale banks do not make loans to retail
  customers, and limited purpose banks, which only
  offer a few products (such as credit cards or
  auto loans), also receive CRA ratings. These
  ratings are based on different standards since
  the banks activities are more limited.

7
Getting Ready for the Exam

• Establishing the performance context for a
  banks CRA examination
• What is the makeup of the community?
• What are the local and regional economic
  conditions?
• What kinds of opportunities exist for serving the
  community through lending, investments, and
  services?
• What is the banks business strategy and what
  products does the bank offer?
• How is the bank is doing financially?
• What CRA rating has the bank received in the past
  and how have other local institutions have been
  doing on their CRA performance?
• What does the bank sees as the credit needs of
  the community?
• What do individuals, community and civic
  organizations, and businessesas well as state,
  local, and tribal governments - think the
  community's credit needs are?

8
Key Definitions Assessment Areas

• Each bank is evaluated on how well it serves its
  assessment area
• Assessment area
• Geographies in which bank has its main office,
  branches, and deposit taking ATMs
• Surrounding areas where bank has originated or
  purchased a substantial portion of its loans
• Must consist of whole geographies

9
Key DefinitionsCommunity Development

• Community Development
• Affordable housing for LMI individuals
• Community services targeted to LMI individuals
• Activities that promote econ dev by financing
  biz/farms meeting size requirements of SBA Dev Co
  or SBIC Programs, or gross revs

10
Key DefinitionsCommunity Development

• Community Development (continued)
• Activities that revitalize/stabilize
• LMI geographies
• Designated disaster areas
• Distressed/underserved non-metro, middle-income
  geographies

11
Key DefinitionsSmall Business/Farm

• Small business loans
• Included in loans to small business as defined
  by call report instructions, RC-C, II
• Generally, those w/orig amounts
• Small farm loans
• Included in loans to small farms as defined by
  call report instructions
• Generally, those w/orig amounts

12
Key DefinitionsQualified Investments

• Qualified investments
• Lawful investment, deposit, membership share, or
  grant that has community development as its
  primary purpose
• Must meet one of four components of community
  development definition (see previous slide)

13
Large Bank CRA Evaluation Lending Test

• When evaluating a bank's lending activities and
  the borrowers it reaches, examiners analyze loans
  for home mortgages, small businesses, small
  farms, and community development (as well as
  consumer loans, in some cases)
• number and total dollar amount of loans
• geographic distribution of loansthat is, the
  proportion of the bank's total loans made within
  its assessment area how these loans are
  distributed among low-, moderate-, middle-, and
  upper income locations
• characteristics of borrowershow loans are
  distributed to people at various income levels
  and to small businesses and small farms
• activity in community developmenthow many and
  what dollar amount of loans benefit low- and
  moderate-income people or geographic areas? how
  many and what size loans promote small business
  or small farm development? how complex or
  creative are these loans?
• whether the bank uses flexible lending practices
  to address the credit needs of low- or
  moderate-income individuals or neighborhoods.

14
Lending Test Examples

• Examples of community development loans
• Loans to borrowers for affordable housing
  rehabilitation and construction and permanent
  financing of multifamily rental property serving
  LMI persons
• Loans to nonprofit organizations serving
  primarily LMI housing or other community
  development needs
• Loans to financial intermediaries, including
  CDFIs or community loans funds/pools that
  primarily lend to (or facilitate lending to)
  promote community development
• Loans to local, state, and tribal governments for
  community development activities

15
Large Bank CRA Evaluation Investment Test

• When evaluating a bank's investments, examiners
  look not only at a bank's assessment area but
  also at a broader statewide or regional area
  surrounding it. Examiners want to know
• how much money the bank has invested
• how innovative or complex the investments are
• how well the investments respond to credit and
  community development needs
• whether the investments are a different type from
  those provided by most other investors.

16
Investment Test Examples

• Examples of qualified investments
• Investments, grants, deposits or shares in or to
• financial intermediaries that lend in LMI areas
  or to LMI people in order to promote CD
• CDFIs
• Minority-, women-owned financial institutions
• Low-income or community development CUs
• Organizations engaged in affordable housing
  rehab
• Organizations promoting economic development by
  financing small biz, including small biz
  investment companies

17
Investment Test Examples

• Examples of qualified investments
• LIHTCs
• Targeted state and municipal obligations that
  support affordable housing or other community
  development needs
• Contributions or investments in non-profit
  organizations serving LMI housing or other CD
  needs
• Contributions or investments in organizations
  supporting activities essential to sustain
  economic development

18
Large Bank CRA Evaluation Service Test

• When evaluating retail and community development
  services, examiners focus on how well these
  services help meet the credit needs of the
  institution's community. In the area of retail
  banking, examiners look at
• how branches are distributed throughout the
  community
• the bank's history of opening and closing
  branches, particularly those serving low- or
  moderate-income people or geographic areas
• what alternative systems (such as ATMs or
  telephone, computer, or by-mail banking services)
  the bank provides for delivering services to low-
  and moderate-income areas and individuals and
  whether the range of services provided meets the
  needs of various neighborhoods at all income
  levels.
• Examiners also consider how responsive and
  creative a bank is in providing or helping other
  organizations provide financial services that
  address special credit needs in the community or
  regionfor example, more affordable housing or
  more available credit.

19
Community Development Services Examples

• Examples of community development services
• Providing technical assistance on financial
  matters to nonprofit, tribal, or government
  organizations serving low- and moderate-income
  housing
• Lending employees to provide financial services
  for organizations facilitating affordable housing
  construction or rehabilitation or development of
  affordable housing
• Providing technical assistance on financial
  matters to small businesses or community
  development organizations, which might include
• Furnishing financial services training for staff
  and management
• Contributing accounting/bookkeeping services
• Assisting in fundraising, including soliciting or
  arranging investments.

20
Intermediate Small BankCRA Evaluation

• Intermediate small banks are those institutions
  with assets between 265 million and 1.065
  billion.
• Lending activities (similar to large banks, but
  excludes community development loans and
  evaluation of innovative or flexible lending
  practices)
• Community development activities
• Community development lending
• Qualified investments
• Community development services

21
Small Bank CRA Evaluation

• Small banksthose with total assets of less than
  265 million, either independent or an affiliate
  of a holding company with total assets of less
  than 1.065 billionare evaluated by more
  streamlined standards than those used for larger
  banks. At a small bank, examiners look at
• the share of the bank's deposits used to make
  loans (loan-to-deposit ratio)
• the percentage of loans made within the bank's
  assessment area (in/out ratio)
• its record of lending to borrowers of different
  income levels as well as businesses and farms of
  different sizes
• the geographic distribution of its loans
• its record of taking action in response to
  written complaints about its performance in
  helping meet the community's credit needs.

22
CRA Overview

• Public Evaluation (PE)
• Public document
• Demographic information
• Performance context
• Ratings given

23
Ratings

• Five possible ratings for lending, investment,
  and service tests
• Outstanding
• High satisfactory
• Low satisfactory
• Needs to improve
• Substantial noncompliance

24
Ratings

• Lending Investment Service
• Outstanding 12 6 6
• High Sat 9 4 4
• Low Sat 6 3 3
• Needs to Improve 3 1 1
• Substantial Noncompliance 0 0 0

25
Ratings

• Four possible composite ratings
• Points Ratings
• 20 Outstanding
• 11-19 Satisfactory
• 5-10 Needs to Improve
• 0 - 4 Substantial Noncompliance
• Regardless of point total, Lending Test must
  be at least Low Sat for overall rating to be
  Satisfactory or higher.

26
Criteria for a Large Banks CRA Rating Lending
Test
Criteria for a Large Banks CRA Rating Lending
Test
27
Criteria for a Large Banks CRA Rating Service
Test
Criteria for a Large Banks CRA Rating Service
Test
28
Criteria for a Large Banks CRA Rating
Investment Test
Criteria for a Large Banks CRA Rating
Investment Test
29
CRA Public File

• Banks must maintain a public file, updated as of
  April 1 each year, that includes the following
  information
• For the current year and two previous years, all
  written comments from the public about how the
  bank is helping to meet community credit needs
  (and bank response)
• If a bank received a less-than-satisfactory CRA
  rating, a description of efforts to improve its
  performance and update that report every 3 months
• A list of the banks branches and the geographic
  areas they serve. It must also show information
  for any branches that have opened or closed
  during the current year and previous two years

30
CRA Public File (cont)

• A list of services (including hours of operation,
  available loan and deposit products, and fees)
  offered at the banks branches. The list must
  note any significant differences in services at
  particular branches.
• A map of the banks assessment area showing its
  boundaries and identifying the various geographic
  areas within it, either on the map or in a
  separate list.
• A copy of the banks strategic plan if the bank
  is evaluated by one.

31
Commenting on CRA Performance

• Meet with bank management or directors
• Write a letter stating you want it included in
  your banks CRA public file
• For national banks, contact your Community
  Affairs Officer

32
Community AffairsField Locations
Central Paul Ginger (Chicago) (312)
360-8876 Norma Polanco-Boyd (Cleveland) (216)
447-8866
Northern Denise Kirk-Murray (New York) (212)
790-4053 Bonita Irving (Boston) [phone]
Southern Karol Klim (Atlanta) [phone]
x252 David Lewis (Dallas) (214)
720-7027 Scarlett Duplechain (New Orleans) (504)
828-6555
Western Susan Howard (Glendale, CA) (818)
240-5175 Dave Miller (Denver) [phone]
33
Governing CRA Policies

• CRA Regulation
• CRA Qs and As
• Examination Procedures
• http//www.occ.gov/crainfo.htm

34
OCC Resources

• Upcoming CRA Examinations
• http//www.occ.gov/cra/duecra.htm
• Past CRA Examinations
• http//www.occ.gov/cra/crasrch.htm
• Community Affairs Publications
• http//www.occ.gov/cdd/commfoc.htm