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FDIC Federal Register Citations

[Federal Register: May 3, 1999 (Volume 64, Number 84)]
[Notices]
[Page 23618-23648]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03my99-52]

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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL


Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment

AGENCY: Federal Financial Institutions Examination Council.

ACTION: Notice and request for comment.

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SUMMARY: The Consumer Compliance Task Force (we) of the Federal
Financial Institutions Examination Council (FFIEC) is supplementing,
amending, and republishing its Interagency Questions and Answers
Regarding Community Reinvestment, as well as proposing for comment
three new or revised questions and answers. The Interagency Questions
and Answers have been prepared by staff of the Office of the
Comptroller of the Currency (OCC), the Board of Governors of the
Federal Reserve System (Board), the Federal Deposit Insurance
Corporation (FDIC), and the Office of Thrift Supervision (OTS)
(collectively, the agencies) to answer frequently asked questions about
community reinvestment. These Interagency Questions and Answers contain
informal staff guidance for agency personnel, financial institutions,
and the public. We seek public comment on the proposed questions and
answers. In addition, we invite public comment on any of the new and
revised questions and answers, as well as other community reinvestment
issues that are not addressed in these Interagency Questions and
Answers.

DATES: Effective date of amended Interagency Questions and Answers on
Community Reinvestment: May 3, 1999. We request that comments on the
proposed questions and answers be submitted on or before: July 2, 1999.

ADDRESSES: Questions and comments may be sent to Keith J. Todd,
Executive Secretary, Federal Financial Institutions Examination
Council, 2000 K Street, NW, Suite 310, Washington, DC 20006, or by
facsimile transmission to (202) 872-7501.

FOR FURTHER INFORMATION CONTACT:
OCC: Malloy Harris, National Bank Examiner, Community and Consumer
Policy Division, (202) 874-4446; or Margaret Hesse, Senior Attorney,
Community and Consumer Law Division, (202) 874-5750, Office of the
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
Board: Catherine M.J. Gates, Senior Review Examiner, (202) 452-
3946; James H. Mann, Attorney, (202) 452-2412; or Kathleen C. Ryan,
Attorney, (202) 452-3667, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue, NW., Washington, DC 20551.
FDIC: Robert W. Mooney, Senior Fair Lending Specialist, Division of
Compliance and Consumer Affairs, (202) 942-3090; or A. Ann Johnson,
Counsel, Legal Division, (202) 898-3573, Federal Deposit Insurance
Corporation, 550 17th Street, NW., Washington, DC 20429.
OTS: Theresa A. Stark, Project Manager, Compliance Policy, (202)
906-7054; or Richard R. Riese, Project Manager, Compliance Policy,
(202) 906-6134, Office of Thrift Supervision, 1700 G Street, NW.,
Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

In 1995, the agencies revised the Community Reinvestment Act (CRA)
regulations by issuing a joint final rule, which was published on May
4, 1995 (60 FR 22156). See 12 CFR parts 25, 228, 345 and 563e,
implementing 12 U.S.C. 2901 et seq. The agencies published related
clarifying documents on December 20, 1995 (60 FR 66048) and May 10,
1996 (61 FR 21362).
The revised regulations are interpreted primarily through
``Interagency Questions and Answers Regarding Community Reinvestment,''
which provide informal staff guidance for use by agency personnel,
financial institutions, and the public, and which are supplemented
periodically. We published our most recent guidance on October 7, 1997
(1997 Interagency Questions and Answers). See 62 FR 52105. In addition
to issuing the 1997 Interagency Questions and Answers, we proposed
several questions and answers in the accompanying supplementary
information. These questions and answers were proposed to clarify what

[[Page 23619]]

is meant by ``primary purpose of community development.'' We
specifically requested comment addressing the proposed questions and
answers, as well as general comments and questions regarding the CRA
regulations. See 62 FR at 52108-09.
We received 44 letters in response to our request for comments in
the 1997 Interagency Questions and Answers. Comments came from
financial institutions (16), community groups (14), trade associations
(6), federal entities (6), and state/local agencies (2). This document
supplements, revises, and republishes the 1997 Interagency Questions
and Answers based, in part, on questions and comments received from
examiners, financial institutions, and other interested parties, and on
comments received in response to our request for comments.
This document adopts the four questions and answers proposed in
1997 and thirteen new questions and answers, revises seven other
questions and answers, and proposes three new or revised questions and
answers for comment. A discussion of these questions and answers
follows.
Questions and answers are grouped by the provision of the CRA
regulations that they discuss and are presented in the same order as
the regulatory provisions. The Interagency Questions and Answers employ
an abbreviated method to cite to the regulations. Because the
regulations of the four agencies are substantially identical,
corresponding sections of the different regulations usually bear the
same suffix. Therefore, the Interagency Questions and Answers typically
cite only to the suffix. For example, the small bank performance
standards for national banks appear at 12 CFR 25.26; for Federal
Reserve System member banks supervised by the Board, they appear at 12
CFR 228.26; for nonmember state banks, at 12 CFR 345.26; and for
thrifts, at 12 CFR 563e.26. Accordingly, the citation in this document
would be to Sec. ____.26. In the few instances in which the suffix in
one of the regulations is different, the specific citation for that
regulation is provided.

Adopting Questions and Answers Proposed in 1997

We are adopting the four questions and answers addressing ``primary
purpose'' of community development activities that were proposed in
1997. The definitions of ``community development loan,'' ``community
development service,'' and ``qualified investment'' all require a
``primary purpose of community development.'' See 12 CFR 25.12 (i)(1),
(j)(1), and (s); 228.12 (i)(1), (j)(1), and (s); 345.12 (i)(1), (j)(1),
and (s); and 563e.12 (h)(1), (i)(1), and (r). In response to inquiries
about whether certain activities have the necessary ``primary purpose''
of community development to qualify as a community development loan,
qualified investment or community development service, we proposed four
questions and answers (Q&As) to explain what is meant by ``primary
purpose.'' With one clarifying change, which is discussed below, we are
adopting the previously proposed Q&A7 addressing Secs. ____.12(i) and
563e.12(h), Q&A1 addressing Sec. ____.22(b)(4), Q&A1 addressing
Sec. ____.23(e), and Q&A3 addressing Sec. ____.42(b)(2).
Twenty commenters addressed topics related to the proposed Q&As.
The commenters were generally in favor of the proposed Q&As. Seven
commenters supported greater flexibility for examiners when considering
whether to give CRA consideration to certain loans. (These seven
commenters also raised issues regarding the definition of ``community
development'' in the regulations, which is discussed below.) Three
commenters, however, felt that examiners rely too heavily on
mathematical formulas in making this determination, such as the amount
of the low- or moderate-income set-aside, the number of units
constructed, or the number of jobs for low-income persons actually
created. Six commenters supported giving CRA consideration to community
development loans, even if 50% or less of the proceeds are used for
community development purposes. One commenter suggested, however, that
an institution should receive CRA consideration only for that portion
of a loan or investment expressly devoted to the community development
purpose.
The agencies have generally stated that a ``primary purpose'' of
community development exists when the loan, investment or service is
divisible and measurable in terms of the number of dollars spent,
housing units built, or individuals benefited, and when an identifiable
majority of the dollars expended, units built or individuals benefited
is clearly attributable to one of the community development purposes
enumerated in the regulations. However, this answer does not address
other activities that are subject to certain legal or market
restraints, such that they do not reach this threshold, even though
they have community development as their purpose and result in real,
long-term community development benefits. Many of these projects are
``designed for the express purpose'' of achieving a qualifying
community development purpose, even though less than half the dollars
involved in the entire project are concentrated on that purpose. For
example, federal tax-incentive affordable housing projects, where less
than half the units or half the dollars go into the portion of the
project that represents affordable housing for low- or moderate-income
persons, fall into this category. Accordingly, we are adopting without
change the proposed guidance that emphasizes the quantitative and
qualitative distinctions to be made when evaluating eligible community
development loans, qualified investments, or community development
services.
Q&A 7 addressing Secs. ____.12(i) and 563e.12(h) is based on the
preamble to the final rule set forth at 60 FR 22,156, 22,159 (May 4,
1995), which states that activities not designed for the express
purpose of community development (as defined in the regulations) are
not eligible for consideration as community development loans or
services or qualified investments. The preamble further states that
providing indirect or short-term benefits to low- or moderate-income
persons does not make an activity community development. In addition to
incorporating this guidance into these Interagency Questions and
Answers, the answer identifies the kind of information used to
determine whether an activity was designed for the express purpose of
community development. The answer adopts a simplified threshold rule
(i.e., majority) and an alternative approach for finding sufficient
bases to conclude that an activity possesses the requisite primary
purpose.
We are also adopting Q&A1 addressing Sec. ____.22(b)(4) and Q&A1
addressing Sec. ____.23(e), which provide guidance on the evaluation of
activities that have a primary purpose of community development, as
well as the reporting of community development loans. This additional
guidance emphasizes that once loans or investments are found to possess
a primary purpose of community development, examiners may differentiate
among community development loans or qualified investments under the
relevant performance criteria. This differentiation may be based not
only on the differing dollar amounts attributable to the underlying
community development purpose, but also on a loan's innovation or
complexity under Sec. ____.22(b)(4) or an investment's innovation,
complexity, responsiveness or non-routine characteristics under
Sec. ____.23(e).
Finally, we are adopting Q&A3 addressing Sec. ____.42(b)(2), which

[[Page 23620]]

explains that a loan may be reported as a community development loan if
its express primary purpose is to finance an affordable housing project
for low- or moderate-income individuals, although, for example, only
40% of the project's units will actually be occupied by individuals or
families with low or moderate incomes. Although an institution would
report the entire amount of the loan, we are expanding upon the answer
proposed in 1997 to clarify that examiners may make qualitative
distinctions among community development loans on the basis of how well
each loan advances its community development purpose.

New Questions and Answers

What is ``affordable'' housing? Institutions and others have asked
how to determine whether a housing development will provide
``affordable'' housing for low- and moderate-income individuals,
particularly in a new project where the units are not yet leased or
sold, or in other projects where the income of renters cannot be
verified. It has been suggested that a simple formula might be
appropriate, such as if the mortgage payments or rental expenses amount
to less than 30% of the income of individuals or families who are low-
or moderate-income (i.e., have an income that is less than 80% of the
area median income). We believe, however, that the critical
consideration is the extent to which a project is or likely will be
utilized by low- or moderate-income individuals. A formula based solely
on rents as a percentage of median family income may determine this
accurately in some circumstances, but may fail to do so in others. For
example, in an area with relatively low-cost housing, such a formula
may result in a calculation above even the median housing cost for the
area. Therefore, we believe that it is appropriate to look at several
factors, such as median rents of the assessment area and the project,
the median home value of either the assessment area, low- and moderate-
income geographies or the project, the low- and moderate-income
population in the area of the project, or the past performance record
of the organization(s) undertaking the project in determining whether a
housing development does or likely will benefit low- and moderate-
income individuals.
To clarify this position, we are adopting Q&A1 addressing
Secs. ____.12(h)(1) and 563e.12(g)(1), which discusses the types of
factors that examiners consider when determining whether housing is
``affordable'' to low- and moderate-income individuals.
Do institutions receive consideration for originating or purchasing
loans that are fully guaranteed? We are adopting a new Q&A, designated
as Q&A4 addressing Sec. ____.22(a)(2), to stress that the lending test
evaluates an institution's record of helping to meet the credit needs
of its assessment area(s) through the origination and purchase of
specified types of loans, but that the test criteria do not take into
account whether or not the loans are guaranteed.
What is the range of practices that examiners may consider in
evaluating the innovativeness, complexity, or flexibility of an
institution's lending? We have been asked whether contracting programs,
under which institutions may commit to contracting with small business
borrowers, may receive consideration under the CRA regulations. To
date, examiners generally have not been considering such programs in
reviewing an institution's CRA performance. New Q&A1 addressing
Sec. ____.22(b)(5) discusses the range of factors that examiners may
consider in evaluating the innovativeness and flexibility of an
institution's lending practices (and the complexity and innovativeness
of its community development lending). It makes clear that, even though
contracting programs are not, standing alone, considered in connection
with a CRA evaluation, such programs may enhance the success and
effectiveness of a related lending program. Therefore, certain
contracting programs may warrant consideration as examiners review the
innovativeness, complexity, and flexibility of an institution's lending
practices. The Q&A also provides another example of when examiners may
consider related program activities in connection with an evaluation of
an institution's lending performance.
May an institution receive consideration for a qualified investment
if it invests indirectly through a fund with a community development
purpose, as that is defined in the CRA regulations? We are adopting a
new Q&A, designated as Q&A1 addressing Sec. ____.23(a), that
incorporates guidance previously provided in interagency staff
interpretive letters. See, e.g., Interagency Staff CRA Interpretive
Letter, published as OCC Interpretive Letter No. 800, (1997 Transfer
Binder) Fed. Banking L. Rep. (CCH), para. 81-227 (Sept. 11, 1997). In
those letters, staff stated that the direct or indirect nature of a
qualified investment does not affect whether an institution will
receive consideration for the investment during its CRA evaluation. As
long as the primary purpose of the investment is community development,
as defined in the CRA regulations, an institution's investment in a
fund, which in turn invests in a community development project (e.g.,
affordable housing for low- and moderate-income individuals that
benefits the institution's assessment area(s) or a broader statewide or
regional area that includes one or more of the institution's assessment
area(s)), is a qualified investment.
How do examiners evaluate an institution's qualified investment in
a fund, the primary purpose of which is community development, as that
is defined in the CRA regulations? Many financial institutions have
made qualified investments in community development funds that operate
regionally or nationally. Examiners, institutions, and the funds have
asked for guidance on how to evaluate these investments. We are
adopting a new Q&A, designated as Q&A2 addressing Sec. ____.23(e),
reiterating guidance previously provided in an interagency staff CRA
interpretive letter. See Interagency Staff CRA Interpretive Letter,
published as OCC Interpretive Letter No. 800, supra.
The new Q&A explains that examiners evaluate investments that
benefit an institution's assessment area(s) or a broader statewide or
regional area that includes its assessment area(s) using the investment
test's four performance criteria. When determining the dollar amount of
the investment (the first criterion), examiners rely on the figures the
institution records according to generally accepted accounting
principles. Even though different institutions may employ different
investment strategies, institutions making the same dollar amount of
investments over the same number of years, all other performance
criteria being equal, would receive the same level of consideration.
The remaining three performance criteria--the ``qualitative''
criteria of innovativeness and complexity, responsiveness, and the
degree to which the investment is not routinely provided by private
investors--will provide the basis for examiner differentiation among
investments. Examiners also will consider factors relevant to the
institution's CRA performance context, such as the effect of
outstanding long-term qualified investments, the pay-in schedule, and
the amount of any cash call, on the capacity of the institution to make
new investments.
How do examiners evaluate an institution's activities in connection
with ``Individual Development Accounts''? Individual Development
Accounts (IDAs) generally are matched savings accounts designed to help
low-

[[Page 23621]]

and moderate-income families accumulate savings for education or job
training, down-payment and closing costs on a new home, or start-up
capital for a small business. Once IDA participants have successfully
funded an IDA, their personal IDA savings are matched by a public or
private entity, such as a state or local government, church,
foundation, or financial institution. Participating depositors often
receive training in the basics of money management, including
budgeting, saving, and credit repair. In addition, an entity, such as a
community organization, typically monitors participants' withdrawals
from their IDAs.
Financial institutions may participate in IDA programs in a number
of ways, including: offering accounts, which may be structured as
traditional savings accounts; enhancing accounts by offering special
account benefits, including higher interest rates, ATM services, or
waived minimum balance requirements; providing funding in the form of
matching funds for participants or operating support for community
organizations running the IDA program; helping to design and implement
IDA programs, including developing and teaching financial literacy
courses; and making loans to participants once they have achieved their
savings goals.
The extent of each financial institution's involvement in IDAs and
the products and services offered in connection with the accounts will
vary. Therefore, examiners will evaluate the actual services and
products provided by each institution in connection with the IDA
programs as one or more of the following: community development
services, retail banking services, qualified investments, home mortgage
loans, small business loans, consumer loans, or community development
loans. We are adopting a Q&A, designated as Q&A2 addressing
Sec. ____.24(d), which articulates this opinion.
How do examiners evaluate a wholesale or limited purpose
institution's qualified investment in a fund that invests in projects
nationwide, the purpose of which is community development, as that term
is defined in the CRA regulations? We are adopting a new Q&A,
designated as Q&A1 addressing Sec. ____.25(e), memorializing guidance
previously provided in interagency staff interpretive letters, which
clarifies how examiners evaluate qualified investments made by
wholesale or limited purpose institutions in a community development
fund that invests in projects nationwide. See, e.g., Interagency Staff
CRA Interpretive Letter, published as OCC Interpretive Letter No. 801,
(1997 Transfer Binder) Fed. Banking L. Rep. (CCH), para. 81-228 (Sept.
11, 1997). Examiners first determine whether the institution has
adequately addressed the needs of its assessment area(s). In doing so,
examiners also consider qualified investments that benefit a broader
statewide or regional area that includes the institution's assessment
area(s). If examiners find that the institution has adequately
addressed the needs of its assessment area(s), they will give
consideration to nationwide qualified investments, community
development loans, and community development services.
Are innovative loan products, innovative or complex qualified
investments, and innovative community development services necessary
for a ``satisfactory'' or ``outstanding'' CRA rating? Two commenters
expressed concern that examiners might discount community development
loans if they are not considered to be ``innovative.'' As one commenter
stated, innovation is only one of the four criteria considered when
examiners evaluate an institution's responsiveness to community
development needs.
We are adopting a new Q&A1, addressing Sec. ____.28, to clarify
that innovative practices are not required for an ``outstanding'' or
``satisfactory'' rating. Innovative loan products, innovative or
complex qualified investments, and innovative community development
services may augment consideration of an institution's performance
under the quantitative criteria of the performance tests, resulting in
a higher level of performance and rating. The Q&A also makes clear that
the lack of innovative or complex investments, loans, or services alone
will not result in a ``needs to improve'' rating.
How is performance under the quantitative and qualitative
performance criteria weighed when examiners assign a CRA rating? The
lending, investment, and service tests each contain a number of
performance criteria designed to measure whether an institution is
effectively helping to meet the credit needs of its entire community,
including low- and moderate-income neighborhoods, in a safe and sound
manner. Some of these criteria are quantitative (number and amount),
while others are qualitative (innovativeness, complexity,
responsiveness, or flexibility). The qualitative performance criteria
recognize that certain loans, qualified investments, and community
development services sometimes require special expertise and effort on
the part of the institution and provide a direct benefit to the
community that would not otherwise be possible.
We are adopting a new Q&A, designated as Q&A2 addressing
Sec. ____.28, which explains that the agencies consider the qualitative
aspects of an institution's activities when measuring the benefits
received by the community. These qualitative aspects of an
institution's performance may augment the consideration given to an
institution's performance under the quantitative criteria of the
regulations, resulting in a higher level of performance and rating.
When collecting and reporting, if applicable, the gross annual
revenue or income of small business or farm or consumer borrowers, do
institutions use the gross annual or the adjusted gross annual revenue
or income? In response to questions from financial institutions, we are
adopting two new Q&As clarifying that institutions should collect and
report gross annual revenue (for small businesses and small farms) and
gross annual income (for consumers) rather than adjusted gross annual
revenue or income. The new Q&As are designated as Q&A4 addressing
Sec. ____.42(a)(4) and Q&A3 addressing Sec. ____.42(c)(1)(iv).
The purpose of collecting and reporting gross annual revenue data
for small businesses and small farms is to enable examiners and the
public to judge whether an institution is lending to small businesses
and farms, or whether it is only making small loans to larger
businesses and farms. Similarly, gross annual income information is
collected from consumer borrowers to help examiners determine the
distribution of the institution's consumer loans based on borrower
characteristics, including the number and amount of consumer loans to
low-,
moderate-, middle-, and upper-income borrowers.
May an institution keep the compact disc that contains its CRA
Disclosure Statement, which is distributed by the FFIEC, in its public
file, rather than a paper copy of the information? Several institutions
asked whether they may retain the compact disc that contains the CRA
Disclosure Statement provided by the FFIEC in its public file rather
than a paper copy. We are adopting a new Q&A2 addressing
Sec. ____.43(b)(1), which clarifies that an institution may keep the
compact disc (or a duplicate of the compact disc) in its public file at
its main office and the designated branch in each state as long as the
institution

[[Page 23622]]

can readily print the information upon request.
Must an institution's performance fit each aspect of a particular
rating profile in order to receive that rating? We are adopting a new
Q&A1 addressing Appendix A to Part ____--Ratings to clarify that
exceptionally strong performance by an institution in some aspects of a
particular rating profile may compensate for weak performance in
others, thus permitting the institution to earn that rating. The Q&A
describes retail institutions that use non-branch delivery systems to
obtain deposits and to deliver loans, as an example. Almost all of the
loans originated by such an institution may be outside of its
assessment area(s). The Q&A assumes, for purposes of illustration, that
examiners may find, after considering the institution's performance
context and other regulatory considerations, that such an institution
shows weak performance under the lending test criteria applicable to
lending activity, geographic distribution, and borrower characteristics
within the assessment area. It clarifies that the institution may
compensate for such weak performance by exceptionally strong
performance in community development lending in its assessment area or
a broader statewide or regional area that includes its assessment area.

Revised Questions and Answers

What does ``promote economic development'' mean? The CRA
regulations define the term ``community development'' to include
``activities that promote economic development by financing businesses
or farms that meet the size eligibility standards of the Small Business
Administration's Development Company (SBDC) or Small Business
Investment Company (SBIC) programs (13 CFR 121.301) or have gross
annual revenues of $1 million or less.'' 12 CFR 25.12(h)(3),
228.12(h)(3), 345.12(h)(3) and 563e.12(g)(3).
The 1996 Interagency Questions and Answers included a Q&A, Q&A1
addressing Secs. ____.12(h)(3) and 563e.12(g)(3), concerning whether
all activities that finance small businesses or farms promote economic
development. The 1997 Interagency Questions and Answers revised that
Q&A in response to public comments. Since publication of the 1997
Interagency Questions and Answers, we have received 11 comments about
this revised Q&A.
One commenter asserted that the description of the purpose test,
i.e., that the activity must promote economic development, was too
restrictive. Specifically, the commenter believed that limiting the
purpose test to activities that, for example, provide jobs in low- and
moderate-income areas targeted for redevelopment by the government
would exclude financing to open a facility in a low- or moderate-income
area that is not targeted by the government for redevelopment.
We determined that the explanation of the purpose test in the 1997
Interagency Questions and Answers was incomplete. We are revising the
answer to be less restrictive by stating that an activity promotes
economic development if it supports ``permanent job creation,
retention, and/or improvement for persons who are currently low- or
moderate-income, or supports permanent job creation, retention, and/or
improvement either in low- or moderate-income geographies or in areas
targeted for redevelopment by Federal, state, local or tribal
governments.''
Examiners will continue to presume that any loan or investment in
or to a SBDC or SBIC promotes economic development. Funding provided in
connection with other SBA programs, as well as similar state and local
programs, may also promote economic development; however, examiners
will make their determinations based on business types, funding
purposes, and other relevant information.
Consistent with Q&A2 addressing Sec. ____.28, Q&A1 addressing
Secs. ____.12(h)(3) and 563e.12(g)(3) also clarifies that examiners
will make qualitative assessments in connection with an institution's
community development activities in addition to the quantitative
assessment of its activities.
Does ``rehabilitation of affordable housing or community
facilities'' include the abatement of environmental hazards, such as
lead-based paint, that are present in the housing or facilities? Three
commenters asked us to state that loans for the removal of
environmental hazards (particularly lead-based paint) may be community
development loans. We believe the abatement of environmental hazards
could be a part of rehabilitating affordable housing or community
facilities targeted to low- and moderate-income individuals;
rehabilitation of these facilities has already been identified as an
example of a community development purpose. To clarify this position,
we are adding a sentence to Q&A1 addressing Secs. ____.12(i) and
563e.12(h).
Are an institution's activities in connection with the Federal Home
Loan Banks' Affordable Housing Program (AHP) considered when the
institution's CRA performance is evaluated? We have consistently stated
that the mere purchase of stock in the Federal Home Loan Banks (FHLBs)
does not have a sufficient connection to community development to be
considered as a qualified investment.
Institutions, however, have asked us about how their activities in
connection with certain specific AHP projects are considered during
their CRA evaluations. Institutions that are members of a FHLB
typically provide a high level of technical assistance to prospective
borrowers in preparing the application for AHP funds and ensuring that
the borrower meets the eligibility criteria. Although an institution
does not necessarily provide a loan in connection with an AHP project,
it does disburse the funds for the FHLB and monitor the continued
qualified use of the funds. We believe these activities to be community
development services and are revising the second bullet in Q&A 3
addressing Secs. ____.12(j) and 563e.12(i) to so state.
If an institution's employees develop or teach financial education
curricula for low- or moderate-income students, are such activities
community development services? We are revising the fifth bullet of
Q&A3 addressing Secs. ____.12(j) and 563e.12(i) to incorporate guidance
previously provided in interagency staff interpretive letters. See,
e.g., Interagency Staff CRA Interpretive Letter, published as OCC
Interpretive Letter No. 802, (1997 Transfer Binder) Fed. Banking L.
Rep. (CCH), para. 81-229 (Sept. 17, 1997). Specifically, we are
clarifying that institutions may receive CRA consideration for the
services provided by its employees in developing financial education
curricula or teaching financial education courses to low- or moderate-
income students.
Is providing Electronic Transfer Accounts pursuant to the Debt
Collection Improvement Act of 1996 a community development service? The
terms, costs, and features of low-cost accounts offered by financial
institutions may vary depending on the particular needs of the
institutions' low- and moderate-income customers. In response to an
inquiry we received concerning whether a particular account for federal
benefits payments would be considered to be a community development
service, we are revising Q&A3 addressing Secs. ____.12(j) and
563e.12(i) by amending the seventh bullet to provide an example of one
low-cost transaction account targeted to low- and moderate-income
individuals.
Under the provisions of the Debt Collection Improvement Act of 1996
relating to electronic payment of federal

[[Page 23623]]

benefits payments (EFT ``99), codified at 31 U.S.C. 3332, insured
depository institutions may offer basic, low-cost ``electronic transfer
accounts'' (ETAs) specified in Treasury Department regulations (63 FR
51490) to recipients of federal benefits payments. These accounts are
designed to attract low-income persons who do not currently have
account relationships with insured depository institutions. A
demographic and market analysis commissioned by the Treasury Department
in connection with EFT ``99 concluded that ETA account holders are
likely to be primarily individuals with less than $10,000 in annual
income. Therefore, the ETA is an account targeted to low- and moderate-
income individuals and providing such accounts qualifies as a community
development service.
Under the lending test, how will examiners evaluate home mortgage
loans to middle- or upper-income individuals in a low- or moderate-
income geography? We received 24 letters commenting on Q&A5 addressing
Sec. ____.22(b) (2) & (3). The commenters generally were in agreement
that loans to middle- or upper-income individuals in a low- or
moderate-income geography should receive CRA consideration. Some
commenters were concerned that requiring that there be a revitalization
or stabilization plan for the area may be too restrictive, especially
in rural communities, where a formal plan may not exist. However, a
``formal'' plan is not necessary. An informal plan, such as town
council resolutions, or a plan developed by a private entity, such as a
community-based development organization, may be sufficient evidence,
so long as it offers evidence of a plan for development designed to
ensure economic diversity among the prospective residents and not just
displacement of low- and moderate-income individuals.
One commenter stated that examiners should compare an institution's
percentage of lending to low- and moderate-income households to the
aggregate percentage of lending by all reporting institutions to these
households and to the percentage of low- and moderate-income households
in the area. The agencies' examination procedures already suggest that
examiners may perform these types of comparisons and others, if
appropriate, to help them explain examination findings.
One commenter asked whether multifamily housing loans in low- and
moderate-income geographies would be considered in the same fashion as
loans for single family housing. In response to the comment, we are
clarifying the answer by adding the phrase, ``or multifamily housing.''
In addition, examiners may also consider loans for multifamily housing
as community development loans if they are targeted to low- and
moderate-income individuals, or if they benefit middle- or upper-income
borrowers as part of a plan to encourage attracting mixed-income
residents to stabilize and create an economically diverse area out of a
low- or moderate-income geography.
How should an institution collect and report the location of a loan
made to a small business or small farm if the borrower provides an
address consisting of a post office box number or rural route and box
number?
We adopted Q&A10 addressing Sec. ____.42(a) in the 1997 Interagency
Questions and Answers answering this question. In response to this Q&A,
we received nine comments. Several commenters questioned the accuracy
and usefulness of data collected and/or reported without the census
tract or block numbering area (BNA). One commenter stated that we
should allow institutions more lead time when providing interpretations
of data collection and reporting provisions to allow the institutions
to change their reporting systems, if necessary. We believe that data
collection according to this Q&A results in the most accurate data,
even though in some cases no information about census tract or BNA is
provided, but agree that sufficient time should be provided to
implement changes to data collection procedures, whenever possible.
In addition to formal comments on the Q&As, regulated institutions
requested clarification about whether an institution should report the
census tract or block numbering area (BNA) of a location, if known,
even if there is no street address for that location. We are amending
Q&A10 addressing Sec. ____.42(a) to clarify that if the census tract or
BNA is known, it should be reported, even if the institution does not
know the street address for that particular location (or there is no
street address). We are also revising the Q&A to delete obsolete 1997
data collection instructions.
What small business and small farm data should be reported?
We are making a technical change to Q&A1 addressing
Sec. ____.42(b)(1). The regulations define a ``small farm loan'' as
those included in ``loans to small farms'' as defined in the
instructions for preparation of the Consolidated Report of Condition
and Income or the Thrift Financial Report. These instructions define
such loans as having original amounts of $500,000 or less. Accordingly,
we are clarifying in Q&A1 that institutions need not report small farm
loan data as to loans having original amounts greater than $500,000.
What are the data requirements regarding consumer loans?
We have revised Q&A1 addressing Sec. ____.42(c)(1) to clarify that
our questions and answers written with respect to data collection (and
reporting) in connection with small business and small farm loans also
apply to the collection of consumer loan data.

Discussion of Other Comments Received

We received several other comments that are not addressed by
specific questions and answers.
Community development. Several commenters suggested that the
current definition of ``community development'' does not include all
the types of activities that institutions engage in and that should be
considered as having a community development purpose.
Before adopting the definition of ``community development'' in the
revised regulations in 1995, the agencies received and considered a
number of comments on the characteristics of activities with community
development purposes. The agencies also committed to conduct a complete
review of the regulations in 2002. See 60 FR 22,177. We will ensure
that comments on the definition of ``community development'' are
considered at that time.
Loan-to-deposit ratio. Two commenters raised issues regarding the
use of a loan-to-deposit ratio as a measure of performance in the small
institution performance test. One stated that the loan-to-deposit ratio
should not be the only indicator of performance. The other suggested
that, due to their volatility, public funds should be subtracted from
the deposit side of the ratio prior to calculation.
The first concern, the relative importance of the loan-to-deposit
ratio in the overall rating of a small institution, is one that the
agencies routinely address in examiner training. As a general matter,
we agree that the loan-to-deposit ratio is not the only indicator of
lending activity performance. However, there may be cases in which a
loan-to-deposit ratio is so low that it indicates that the institution
is not lending. In such cases, the proportion of lending inside the
institution's assessment area, together with the geographic and
borrower distribution of those loans, will not excuse the low level of
lending overall.
The second concern, the subtraction of public funds from the
calculations of loan-to-deposit ratios, is a performance

[[Page 23624]]

context issue. We believe that examiners have the flexibility to
consider the level of public funds on deposit, and their volatility, in
determining whether a particular loan-to-deposit ratio is reasonable.
Letters of credit. One commenter asserted that lenders should
receive consideration under the CRA regulations for providing letters
of credit because institutions often use letters of credit to meet
small business needs. Q&A1 addressing Sec. ____.22(a)(2) specifically
addresses this issue and permits information about letters of credit to
be used by examiners to enhance their understanding of an institution's
performance.
Loans to nonprofit organizations. One commenter suggested that
loans under $1 million for business purposes, or under $500,000 for
farm purposes, made to nonprofit organizations, should be considered
community development loans even though they are secured by real
property. Under the CRA regulations, these loans often must be counted
as loans to small businesses or small farms rather than community
development loans, depending on the type of property securing the loan.
Q&A1 addressing Sec. ____.12(u) addresses instances in which loans to
nonprofit organizations may be considered as community development
loans.
The number and dollar amount of community development loans is a
criterion under the lending test that is meant to capture any loans for
a community development purpose that are otherwise not reported as home
mortgage, small business or small farm loans. Institutions may wish to
highlight the community development purpose of particular loans that
are considered as home mortgage, small business or small farm loans
during an examination. Such information may be relevant to the
examiners' evaluation of qualitative lending test criteria or to the
performance context within which community development loans are
evaluated. The regulation is clear, however, that, except for loans for
multifamily housing targeted for low-and moderate-income individuals,
home mortgage, small farm, and small business loans may not be reported
as community development loans.
Assessment areas and non-branch delivery systems. We received
several letters requesting clarification of how examiners evaluate a
retail institution's lending, investment, and service activities
outside the institution's assessment area(s) and the broader statewide
or regional area that includes its assessment area(s). This question
has been of special concern to commenters in the context of
institutions that obtain deposits and deliver products and services
through non-branch systems, such as the Internet. We are adopting Q&A1
addressing Appendix A to Part ____--Ratings, and are proposing a
revision to Q&A5 addressing Secs. ____.12(i) and 563e.12(h), which may
be particularly relevant to issues arising in this context.
Furthermore, we expect to address comments relating to out-of-
assessment area activities through materials issued for public comment
later this year.

Proposed Questions and Answers and Request for Comment

Must there be some immediate or direct benefit to the institution's
assessment area(s) to satisfy the regulations' requirement that
qualified investments and community development loans or services
benefit an institution's assessment area(s) or a broader statewide or
regional area that includes the assessment area(s)? Q&A5 addressing
Secs. ____.12(i) and 563e.12(h) in the 1997 Interagency Questions and
Answers states that there does not need to be a direct benefit to the
institution's assessment area(s) to satisfy the regulation's
requirement that qualified investments and community development loans
or services benefit an institution's assessment area(s) or a broader
statewide or regional area that includes the institution's assessment
area, provided the purpose, mandate, or function of the organization or
activity includes serving geographies or individuals located within the
institution's assessment area.
The Q&A addresses organizations and activities, operating statewide
or regionally, that may ultimately have a direct benefit on an
assessment area. However, it does not specifically address local
community development organizations or activities serving a locale
somewhere in the broader statewide or regional area surrounding an
institution's assessment area(s), which may not benefit low- and
moderate-income areas or individuals located inside the assessment
area(s). We are proposing to revise that Q&A to address both types of
organizations or activities. The proposed Q&A would clarify that an
institution's assessment area(s) need not receive an immediate or
direct benefit from the institution's specific participation in a
community development organization or activity provided the purpose,
mandate, or activity benefits the broader statewide or regional area by
servicing geographies or individuals located somewhere within the
broader statewide or regional area that includes the institution's
assessment area(s).
The text of the proposed Q&A follows:
Sections ____.12(i) and 563e.12(h)
Proposed Q5. Must there be some immediate or direct benefit to the
institution's assessment area(s) to satisfy the regulations'
requirement that qualified investments and community development loans
or services benefit an institution's assessment area(s) or a broader
statewide or regional area that includes the institution's assessment
area(s)?
Proposed A5. No. The regulations, for example, recognize that
community development organizations and programs are frequently
efficient and effective ways for institutions to promote community
development. These organizations and programs often operate on a local,
statewide, or even multi-state basis. Therefore, an institution's
activity is considered a community development loan or service or a
qualified investment if it supports an organization or activity that
covers an area that is larger than, but is located in, the broader
statewide or regional area that includes the institution's assessment
area(s). The institution's assessment area need not receive an
immediate or direct benefit from the institution's specific
participation in the broader organization or activity, provided the
purpose, mandate, or function of the organization or activity includes
serving geographies or individuals located within the statewide or
regional area that includes the institution's assessment area.
Furthermore, the regulations permit a wholesale or limited purpose
institution to consider community development loans, community
development services, and qualified investments wherever they are
located, as long as the institution has otherwise adequately addressed
the credit needs within its assessment area(s).
In addition to general comments agreeing or disagreeing with the
proposed revisions to this Q&A, we would like comments on whether
community development organizations and programs that operate on a
local, statewide, or even multi-state basis ultimately provide benefit
to all surrounding areas.
May an institution receive consideration under the investment test
for mortgage-backed securities backed by home mortgages that the same
institution originated or purchased? We have received inquiries about
whether examiners will consider as qualified investments mortgage-
backed securities backed by home mortgages to low- and

[[Page 23625]]

moderate-income individuals that the investing institution initially
originated or purchased.
The revised regulations, at 12 CFR ____.23(b), provide that
activities considered under the lending or service tests may not be
considered under the investment test. Examiners consider the home
mortgages underlying mortgage-backed securities, if originated or
purchased by the institution, under the lending test when they examine
an institution. Therefore, examiners would not be permitted also to
consider as qualified investments mortgage-backed securities, purchased
or securitized by an institution, that are backed primarily or
exclusively by loans that the institution originated or purchased,
because the examiners would be considering the same activities under
both the lending and investment tests.
To clarify our opinion, we are proposing, and requesting public
comment specifically on, the following question and answer:

Section ____.23(b)

Proposed Q2: If home mortgage loans to low-and moderate-income
borrowers have been considered under an institution's lending test, may
the institution that originated or purchased them also receive
consideration under the investment test if it subsequently purchases
mortgage-backed securities that are primarily or exclusively backed by
such loans?
Proposed A2: No. Because the institution received lending test
consideration for the loans that underlie the securities, the
institution may not also receive consideration under the investment
test for its purchase of the securities. Of course, an institution may
receive investment test consideration for purchases of mortgage-backed
securities that are backed by loans to low-and moderate-income
individuals as long as the securities are not backed primarily or
exclusively by loans that the same institution originated or purchased.
Should renewals and refinancings of small business and small farm
loans be collected and reported? Six commenters inquired whether loans
to small businesses and small farms, when renewed or refinanced, should
be reported for CRA purposes. The 1997 Interagency Questions and
Answers, at Q&A5 addressing Sec. ____.42(a), provided guidance that
``refinancing'' such loans should be reported as originations, but that
``renewing'' them should not. According to the guidance, the primary
distinction between ``refinancing'' and ``renewing'' a loan is that, in
connection with a loan refinancing, the existing obligation or note is
satisfied, and a new note is written. Distinguishing refinancings and
renewals on this basis is consistent with the guidance provided by the
Board in connection with home mortgage loan data reporting pursuant to
the Home Mortgage Disclosure Act (HMDA) regulation (12 CFR part 203).
Commenters asserted that small business and small farm lending
practices are sufficiently different from home mortgage lending
practices that renewals and refinancings of small business and small
farm loans should be treated differently from renewals and refinancings
of home mortgage loans for CRA reporting and evaluation purposes.
Further, they suggested that there is very little distinction between
refinancings and renewals of small business and small farm loans. Based
on these comments and other inquiries from financial institutions, we
propose that refinancings and renewals of small business and small farm
loans be treated uniformly for CRA purposes. To that end, we are
proposing two alternative revised Q&A5s addressing Sec. ____.42(a).
Alternative I: The first proposed Q&A states that, for CRA
purposes, financial institutions should report neither renewals nor
refinancings of small business and small farm loans as loan
originations. However, if institutions increase the amount of a small
business or small farm loan or line of credit, the amount of the
increase should be reported as a loan origination. Institutions should
continue to report home mortgage loans according to the instructions
provided in 12 CFR part 203.
Reporting neither renewals nor refinancings of small business or
small loans reflects that the lending test's performance criteria
emphasize loan originations and purchases. Renewals and refinancings,
especially if made frequently, would inflate the actual amounts of
small business and small farm lending. In addition, we believe that
recordkeeping and reporting burden of large institutions will be
lessened if they need not collect and report information about small
business and small farm loan refinancings and renewals.
If this proposed Q&A is adopted, institutions would not collect or
report as loan originations data on either small business and small
farm loan refinancings or renewals. However, any institution could
bring to its examiners' attention data on small business and small farm
loan refinancing or renewals by providing ``other loan data'' pursuant
to Sec. ____.22(a)(2), including information about its small business
and small farm loans outstanding. The text of the first alternative
proposed Q&A follows:

Section ____.42(a)--Alternative I:

Proposed Q5: Should institutions collect and report data about
small business and small farm loans that are refinanced or renewed?
Proposed A5: No. When an institution extends the term of one of its
existing small business or small farm loans in the same or a lesser
amount as the existing obligation, the institution should not report
this event as a small business or small farm loan origination. If an
institution increases the amount of a small business or small farm loan
when it extends the term of the loan, however, it should report the
amount of the increase as a small business or small farm loan
origination. The institution should report only the amount of the
increase; the original or remaining amount of the loan is not reported
again as an origination. For example, a financial institution extends a
loan (as opposed to a line of credit) for $25,000; principal payments
have resulted in a present outstanding balance of $15,000. The customer
requests an additional $5,000, which is approved, and a new note is
written for $20,000. In this example, the institution should report the
$5,000 increase.
An institution may provide ``other loan data,'' including
information about small business or small farm loans outstanding, to
examiners for consideration as part of the institution's lending test
performance evaluation.
Alternative II: Several institutions have stressed that ongoing
credit availability is important to the economic condition of small
businesses and small farms, as well as the community as a whole. These
institutions suggested that both refinancings and renewals of small
business and small farm loans should be considered by examiners when
evaluating an institution's small business and small farm lending
performance. The second alternative proposed Q&A would take these
concerns into consideration.
Because small business and small farm loan refinancings and
renewals are nearly indistinguishable, Alternative II, like Alternative
I, would not treat small business and small farm refinancings and
renewals differently. Institutions would collect and report data about
both refinancings and renewals as loan originations. However, because
institutions often write small business and small farm loans for short
terms and refinance or renew them at the end of the term, in order to
avoid inflation of amounts actually lent, institutions

[[Page 23626]]

would be limited to reporting only one origination per year.
The text of the second alternative proposed Q&A follows:
Section ____.42(a)--Alternative II:
Proposed Q5: Should institutions collect and report data about
small business and small farm loans that are refinanced or renewed?
Proposed A5: An institution should collect information about small
business and small farm loans that they refinance or renew as loan
originations. (A refinancing generally occurs when the existing loan
obligation or note is satisfied, and a new note is written, while a
renewal refers to an extension of the term of a loan.) When reporting
small business and small farm loan data, however, an institution may
only report one origination per loan per year unless an increase in the
loan amount is granted.
If an institution increases the amount of a small business or small
farm loan when it extends the term of the loan, it should always report
the amount of the increase as a small business or small farm loan
origination. The institution should report only the amount of the
increase if the original or remaining amount of the loan has already
been reported one time that year. For example, a financial institution
makes a loan (as opposed to a line of credit) for $25,000; principal
payments have resulted in a present outstanding balance of $15,000. The
customer requests an additional $5,000, which is approved, and a new
note is written for $20,000. In this example, the institution should
report the $5,000 increase. The bank may also report the renewal or
refinancing of the $15,000 balance one time that year.
An institution may provide ``other loan data,'' including
information about small business or small farm loans outstanding, to
examiners for consideration as part of the institution's lending test
performance evaluation.
In addition to general comments about these proposed questions and
answers, we would also appreciate receiving your views on the following
questions:
<bullet> Are there other fair and meaningful alternative methods of
collecting data on small business and small farm loan renewals and
refinancings? If so, please describe.
<bullet> Does allowing collection and reporting data of one renewal
or refinancing per year make sense?
<bullet> Will these proposed questions and answers increase or
decrease substantially the data collection and reporting burden of
financial institutions? Which alternative is less burdensome?
<bullet> Which alternative (including the guidance currently in
effect) best promotes accurate data that reflects the actual lending
activity of financial institutions?
Depending on what final guidance we eventually adopt, we understand
that we may have to make conforming changes to other Q&As.
Until a new Q&A has been adopted through publication in the Federal
Register, the existing Q&A5 addressing Sec. ____.42(a) remains in
effect. This means that, for the time being, financial institutions
will continue to collect and report data about small business and small
farm loan refinancings, but not renewals.

General Comments

In addition to the specific request for comments on the proposed
questions and answers, we invite public comment on the new and revised
questions and answers. We also invite public comment on a continuing
basis on any issues raised by the CRA and these Interagency Questions
and Answers. If, after reading the Interagency Questions and Answers,
financial institutions, examiners, community organizations, or other
interested parties have unanswered questions or comments about the
agencies' community reinvestment regulations, they should submit them
to the agencies or the FFIEC. We will consider addressing such
questions in future revisions to the Interagency Questions and Answers.

Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

The SBREFA requires an agency, for each rule for which it prepares
a final regulatory flexibility analysis, to publish one or more
compliance guides to help small entities understand how to comply with
the rule.
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
agencies certified that their proposed CRA rule would not have a
significant economic impact on a substantial number of small entities
and invited public comments on that determination. See 58 FR 67478
(Dec. 21, 1993); 59 FR 51250 (Oct. 7, 1994). In response to public
comment, the agencies voluntarily prepared a final regulatory
flexibility analysis for the joint final rule, although the analysis
was not required because it supported the agencies' earlier
certification regarding the proposed rule. Because a regulatory
flexibility analysis was not required, section 212 of the SBREFA does
not apply to the final CRA rule. However, in their continuing efforts
to provide clear, understandable regulations and to comply with the
spirit of the SBREFA, the agencies have compiled the Interagency
Questions and Answers. The Interagency Questions and Answers serve the
same purpose as the compliance guide described in the SBREFA by
providing guidance on a variety of issues of particular concern to
small banks and thrifts.
The text of the Interagency Questions and Answers follows:

Text of the Interagency Questions and Answers

Interagency Questions and Answers Regarding Community Reinvestment

Table of Contents

This document provides answers to questions pertaining to the
following provisions and topics of the CRA regulations:

Sec. ____.11--Authority, Purposes, and Scope

Sec. ____.11(c) Scope
Secs. 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain special
purpose banks

Sec. ____.12--Definitions

Sec. ____.12(a) Affiliate
Secs. ____.12(f) & 563e.12(e) Branch
Secs. ____.12(h) & 563e.12(g) Community development
Secs. ____.12(h)(1) & 563e.12(g)(1) Affordable housing
(including multifamily rental housing) for low- or moderate-income
individuals
Secs. ____.12(h)(3) & 563e.12(g)(3) Activities that promote
economic development by financing businesses or farms that meet
certain size eligibility standards
Secs. ____.12(i) & 563e.12(h) Community development loan
Secs. ____.12(j) & 563e.12(i) Community development service
Secs. ____.12(k) & 563e.12(j) Consumer loan
Secs. ____.12(m) & 563e.12(l) Home mortgage loan
Secs. ____.12(n) & 563e.12(m) Income level
Secs. ____.12(o) & 563e.12(n) Limited purpose institution
Secs. ____.12(s) & 563e.12(r) Qualified investment
Sec. ____.12(t) Small institution
Sec. ____.12(u) Small business loan
Sec. ____.12(w) Wholesale institution

Sec. ____.21--Performance Tests, Standards, and Ratings, in General

Sec. ____.21(a) Performance tests and standards
Sec. ____.21(b) Performance context
Sec. ____.21(b)(2) Information maintained by the institution or
obtained from community contacts
Sec. ____.21(b)(4) Institutional capacity and constraints
Sec. ____.21(b)(5) Institution's past performance and the
performance of similarly situated lenders

Sec. ____.22--Lending Test

Sec. ____.22(a) Scope of test
Sec. ____.22(a)(1) Types of loans considered

[[Page 23627]]

Sec. ____.22(a)(2) Loan originations and purchases/other loan
data
Sec. ____.22(b) Performance criteria
Sec. ____.22(b)(1) Lending activity
Sec. ____.22(b)(2) & (3) Geographic distribution and borrower
characteristics
Sec. ____.22(b)(4) Community development lending
Sec. ____.22(b)(5) Innovative or flexible lending practices
Sec. ____.22(c) Affiliate lending
Sec. ____.22(c)(1) In general
Sec. ____.22(c)(2) Constraints on affiliate lending
Sec. ____.22(c)(2)(i) No affiliate may claim a loan origination
or loan purchase if another institution claims the same loan
origination or purchase
Sec. ____.22(c)(2)(ii) If an institution elects to have its
supervisory agency consider loans within a particular lending
category made by one or more of the institution's affiliates in a
particular assessment area, the institution shall elect to have the
agency consider all loans within that lending category in that
particular assessment area made by all of the institution's
affiliates
Sec. ____.22(d) Lending by a consortium or a third party

Sec. ____.23--Investment Test

Sec. ____.23(a) Scope of test
Sec. ____.23(b) Exclusion
Sec. ____.23(e) Performance criteria

Sec. ____.24--Service Test

Sec. ____.24(d) Performance criteria--retail banking services
Sec. ____.24(d)(3) Availability and effectiveness of alternative
systems for delivering retail banking services

Sec. ____.25--Community Development Test for Wholesale or Limited
Purpose Institutions

Sec. ____.25(d) Indirect activities
Sec. ____.25(e) Benefit to assessment area(s)
Sec. ____.25(f) Community development performance rating

Sec. ____.26--Small Institution Performance Standards

Sec. ____.26(a) Performance criteria
Sec. ____.26(a)(1) Loan-to-deposit ratio
Sec. ____.26(a)(2) Percentage of lending within assessment
area(s)
Sec. ____.26(a)(3) and (4) Distribution of lending within
assessment area(s) by borrower income and geographic location
Sec. ____.26(b) Performance rating

Sec. ____.27--Strategic Plan

Sec. ____.27(c) Plans in general
Sec. ____.27(f) Plan content
Sec. ____.27(f)(1) Measurable goals
Sec. ____.27(g) Plan approval
Sec. ____.27(g)(2) Public participation

Sec. ____.28--Assigned Ratings

Sec. ____.28(a) Ratings in general

Sec. ____.29--Effect of CRA Performance on Applications

Sec. ____.29(a) CRA performance
Sec. ____.29(b) Interested parties

Sec. ____.41--Assessment Area Delineation

Sec. ____.41(a) In general
Sec. ____.41(c) Geographic area(s) for institutions other than
wholesale or limited purpose institutions
Sec. ____.41(c)(1) Generally consist of one or more MSAs or one
or more contiguous political subdivisions
Sec. ____.41(d) Adjustments to geographic area(s)
Sec. ____.41(e) Limitations on delineation of an assessment area
Sec. ____.41(e)(3) May not arbitrarily exclude low- or moderate-
income geographies
Sec. ____.41(e)(4) May not extend substantially beyond a CMSA
boundary or beyond a state boundary unless located in a multistate
MSA
Sec. ____.42(a) Loan information required to be collected and
maintained
Sec. ____.42(a)(2) Loan amount at origination
Sec. ____.42(a)(3) The loan location
Sec. ____.42(a)(4) Indicator of gross annual revenue
Sec. ____.42(b) Loan information required to be reported
Sec. ____.42(b)(1) Small business and small farm loan data
Sec. ____.42(b)(2) Community development loan data
Sec. ____.42(b)(3) Home mortgage loans
Sec. ____.42(c) Optional data collection and maintenance
Sec. ____.42(c)(1) Consumer loans
Sec. ____.42(c)(1)(iv) Income of borrower
Sec. ____.42(c)(2) Other loan data
Sec. ____.42(d) Data on affiliate lending

Sec. ____.43--Content and Availability of Public File

Sec. ____.43(a) Information available to the public
Sec. ____.43(a)(1) Public comments
Sec. ____.43(b) Additional information available to the public
Sec. ____.43(b)(1) Institutions other than small institutions
Sec. ____.43(c) Location of public information

Sec. ____.44--Public Notice by Institutions

Sec. ____.45--Publication of Planned Examination Schedule

Appendix A to Part ____--Ratings

Appendix B to Part ____--CRA Notice

The body of the Interagency Questions and Answers Regarding
Community Reinvestment follows:

Sec. ____.11--Authority, Purposes, and Scope

Sec. ____.11(c) Scope

Sec. 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain special
purpose banks.
Q1. Is the list of special purpose banks exclusive?
A1. No, there may be other examples of special purpose banks. These
banks engage in specialized activities that do not involve granting
credit to the public in the ordinary course of business. Special
purpose banks typically serve as correspondent banks, trust companies,
or clearing agents or engage only in specialized services, such as cash
management controlled disbursement services. A financial institution,
however, does not become a special purpose bank merely by ceasing to
make loans and, instead, making investments and providing other retail
banking services.
Q2. To be a special purpose bank, must a bank limit its activities
in its charter?
A2. No. A special purpose bank may, but is not required to, limit
the scope of its activities in its charter, articles of association or
other corporate organizational documents. A bank that does not have
legal limitations on its activities, but has voluntarily limited its
activities, however, would no longer be exempt from Community
Reinvestment Act (CRA) requirements if it subsequently engaged in
activities that involve granting credit to the public in the ordinary
course of business. A bank that believes it is exempt from CRA as a
special purpose bank should seek confirmation of this status from its
supervisory agency.

Sec. ____.12--Definitions

Sec. ____.12(a) Affiliate

Q1. Does the definition of ``affiliate'' include subsidiaries of an
institution?
A1. Yes, ``affiliate'' includes any company that controls, is
controlled by, or is under common control with another company. An
institution's subsidiary is controlled by the institution and is,
therefore, an affiliate.

Secs. ____.12(f) & 563e.12(e) Branch

Q1. Do the definitions of ``branch,'' ``automated teller machine
(ATM),'' and ``remote service facility (RSF)'' include mobile branches,
ATMs, and RSFs?
A1. Yes. Staffed mobile offices that are authorized as branches are
considered ``branches'' and mobile ATMs and RSFs are considered
``ATMs'' and ``RSFs.''
Q2. Are loan production offices (LPOs) branches for purposes of the
CRA?
A2. LPOs and other offices are not ``branches'' unless they are
authorized as branches of the institution through the regulatory
approval process of the institution's supervisory agency.

Secs. ____.12(h) & 563e.12(g) Community Development

Q1. Are community development activities limited to those that
promote economic development?
A1. No. Although the definition of ``community development''
includes

[[Page 23628]]

activities that promote economic development by financing small
businesses or farms, the rule does not limit community development
loans and services and qualified investments to those activities.
Community development also includes community- or tribal-based child
care, educational, health, or social services targeted to low- or
moderate-income persons, affordable housing for low- or moderate-income
individuals, and activities that revitalize or stabilize low- or
moderate-income areas.
Q2. Must a community development activity occur inside a low- or
moderate-income area in order for an institution to receive CRA
consideration for the activity?
A2. No. Community development includes activities outside of low-
and moderate-income areas that provide affordable housing for, or
community services targeted to, low- or moderate-income individuals and
activities that promote economic development by financing small
businesses and farms. Activities that stabilize or revitalize
particular low- or moderate-income areas (including by creating,
retaining, or improving jobs for low- or moderate-income persons) also
qualify as community development, even if the activities are not
located in these low- or moderate-income areas. One example is
financing a supermarket that serves as an anchor store in a small strip
mall located at the edge of a middle-income area, if the mall
stabilizes the adjacent low-income community by providing needed
shopping services that are not otherwise available in the low-income
community.
Q3. Does the regulation provide flexibility in considering
performance in high-cost areas?
A3. Yes, the flexibility of the performance standards allows
examiners to account in their evaluations for conditions in high-cost
areas. Examiners consider lending and services to individuals and
geographies of all income levels and businesses of all sizes and
revenues. In addition, the flexibility in the requirement that
community development loans, community development services, and
qualified investments have as their ``primary'' purpose community
development allows examiners to account for conditions in high-cost
areas. For example, examiners could take into account the fact that
activities address a credit shortage among middle-income people or
areas caused by the disproportionately high cost of building,
maintaining or acquiring a house when determining whether an
institution's loan to or investment in an organization that funds
affordable housing for middle-income people or areas, as well as low-
and moderate-income people or areas, has as its primary purpose
community development.

Secs. ____.12(h)(1) & 563e.12(g)(1) Affordable Housing (Including
Multifamily Rental Housing) for Low- or Moderate-Income Individuals

Q1. When determining whether a project is ``affordable housing for
low- or moderate-income individuals,'' thereby meeting the definition
of ``community development,'' will it be sufficient to use a formula
that relates the cost of ownership, rental or borrowing to the income
levels in the area as the only factor, regardless of whether the users,
likely users, or beneficiaries of that affordable housing are low- or
moderate-income individuals?
A1. The concept of ``affordable housing'' for low- or moderate-
income individuals does hinge on whether low- or moderate-income
individuals benefit, or are likely to benefit, from the housing. It
would be inappropriate to give consideration to a project that
exclusively or predominately houses families that are not low- or
moderate-income simply because the rents or housing prices are set
according to a particular formula.
For projects that do not yet have occupants, and for which the
income of the potential occupants is not knowable in advance, examiners
will review factors such as demographic, economic and market data to
determine the likelihood that the housing will ``primarily''
accommodate low- or moderate-income individuals. For example, examiners
may look at median rents of the assessment area and the project; the
median home value of either the assessment area, low- or moderate-
income geographies or the project; the low- or moderate-income
population in the area of the project; or the past performance record
of the organization(s) undertaking the project. Further, such a project
could receive consideration if its express, bona fide intent, as
stated, for example, in a prospectus, loan proposal or community action
plan, is community development.

Secs. ____.12(h)(3) and 563e.12(g)(3) Activities That Promote Economic
Development by Financing Businesses or Farms That Meet Certain Size
Eligibility Standards

Q1. ``Community development'' includes activities that promote
economic development by financing businesses or farms that meet certain
size eligibility standards. Are all activities that finance businesses
and farms that meet these size eligibility standards considered to be
community development?
A1. No. To be considered as ``community development'' under
Secs. ----.12(h)(3) and 563e.12(g)(3), a loan, investment or service,
whether made directly or through an intermediary, must meet both a size
test and a purpose test. An activity meets the size requirement if it
finances entities that either meet the size eligibility standards of
the Small Business Administration's Development Company (SBDC) or Small
Business Investment Company (SBIC) programs, or have gross annual
revenues of $1 million or less. To meet the purpose test, the activity
must promote economic development. An activity is considered to promote
economic development if it supports permanent job creation, retention,
and/or improvement for persons who are currently low- or moderate-
income, or supports permanent job creation, retention, and/or
improvement either in low- or moderate-income geographies or in areas
targeted for redevelopment by Federal, state, local or tribal
governments. The agencies will presume that any loan to or investment
in a SBDC or SBIC promotes economic development.
In addition to their quantitative assessment of the amount of a
financial institution's community development activities, examiners
must make qualitative assessments of an institution's leadership in
community development matters and the complexity, responsiveness, and
impact of the community development activities of the institution. In
reaching a conclusion about the impact of an institution's community
development activities, examiners may, for example, determine that a
loan to a small business in a low- or moderate-income geography that
provides needed jobs and services in that area may have a greater
impact and be more responsive to the community credit needs than does a
loan to a small business in the same geography that does not directly
provide additional jobs or services to the community.

Secs. ____.12(i) and 563e.12(h) Community Development Loan

Q1. What are examples of community development loans?
A1. Examples of community development loans include, but are not
limited to, loans to:
<bullet> Borrowers for affordable housing rehabilitation and
construction, including construction and permanent financing of
multifamily rental property

[[Page 23629]]

serving low- and moderate-income persons;
<bullet> Not-for-profit organizations serving primarily low- and
moderate-income housing or other community development needs;
<bullet> Borrowers to construct or rehabilitate community
facilities that are located in low- and moderate-income areas or that
serve primarily low- and moderate-income individuals;
<bullet> Financial intermediaries including Community Development
Financial Institutions (CDFIs), Community Development Corporations
(CDCs), minority- and women-owned financial institutions, community
loan funds or pools, and low-income or community development credit
unions that primarily lend or facilitate lending to promote community
development.
<bullet> Local, state, and tribal governments for community
development activities; and
<bullet> Borrowers to finance environmental clean-up or
redevelopment of an industrial site as part of an effort to revitalize
the low- or moderate-income community in which the property is located.
The rehabilitation of affordable housing or community facilities,
referred to above, may include the abatement of environmental hazards,
such as lead-based paint, that are present in the housing or
facilities.
Q2. If a retail institution that is not required to report under
the Home Mortgage Disclosure Act (HMDA) makes affordable home mortgage
loans that would be HMDA-reportable home mortgage loans if it were a
reporting institution, or if a small institution that is not required
to collect and report loan data under CRA makes small business and
small farm loans and consumer loans that would be collected and/or
reported if the institution were a large institution, may the
institution have these loans considered as community development loans?
A2. No. Although small institutions are not required to report or
collect information on small business and small farm loans and consumer
loans, and some institutions are not required to report information
about their home mortgage loans under HMDA, if these institutions are
retail institutions, the agencies will consider in their CRA
evaluations the institutions' originations and purchases of loans that
would have been collected or reported as small business, small farm,
consumer or home mortgage loans, had the institution been a collecting
and reporting institution under the CRA or the HMDA. Therefore, these
loans will not be considered as community development loans.
Multifamily dwelling loans, however, may be considered as community
development loans as well as home mortgage loans. See also Q&A2
addressing Sec. ____.42(b)(2).
Q3. Do secured credit cards or other credit card programs targeted
to low- or moderate-income individuals qualify as community development
loans?
A3. No. Credit cards issued to low- or moderate-income individuals
for household, family, or other personal expenditures, whether as part
of a program targeted to such individuals or otherwise, do not qualify
as community development loans because they do not have as their
primary purpose any of the activities included in the definition of
``community development.''
Q4. The regulation indicates that community development includes
``activities that revitalize or stabilize low- or moderate-income
geographies.'' Do all loans in a low- to moderate-income geography have
a stabilizing effect?
A4. No. Some loans may provide only indirect or short-term benefits
to low- or moderate-income individuals in a low- or moderate-income
geography. These loans are not considered to have a community
development purpose. For example, a loan for upper-income housing in a
distressed area is not considered to have a community development
purpose simply because of the indirect benefit to low- or moderate-
income persons from construction jobs or the increase in the local tax
base that supports enhanced services to low- and moderate-income area
residents. On the other hand, a loan for an anchor business in a
distressed area (or a nearby area), that employs or serves residents of
the area, and thus stabilizes the area, may be considered to have a
community development purpose. For example, in an underserved,
distressed area, a loan for a pharmacy that employs, and provides
supplies to, residents of the area promotes community development.
Q5. Must there be some immediate or direct benefit to the
institution's assessment area(s) to satisfy the regulations'
requirement that qualified investments and community development loans
or services benefit an institution's assessment area(s) or a broader
statewide or regional area that includes the institution's assessment
area(s)?
A5. No. The regulations, for example, recognize that community
development organizations and programs are frequently efficient and
effective ways for institutions to promote community development. These
organizations and programs often operate on a statewide or even multi-
state basis. Therefore, an institution's activity is considered a
community development loan or service or a qualified investment if it
supports an organization or activity that covers an area that is larger
than, but includes, the institution's assessment area(s). The
institution's assessment area need not receive an immediate or direct
benefit from the institution's specific participation in the broader
organization or activity, provided the purpose, mandate, or function of
the organization or activity includes serving geographies or
individuals located within the institution's assessment area.
Furthermore, the regulations permit a wholesale or limited purpose
institution to consider community development loans, community
development services, and qualified investments wherever they are
located, as long as the institution has otherwise adequately addressed
the credit needs within its assessment area(s).
Q6. What is meant by a ``regional area'' in the requirement that a
community development loan must benefit the institution's assessment
area(s) or a broader statewide or regional area that includes the
institution's assessment area(s)?
A6. A ``regional area'' may be as small as a city or county or as
large as a multistate area. For example, the ``mid-Atlantic states''
may comprise a regional area. When examiners evaluate community
development loans that benefit a regional area that includes the
institution's assessment area, however, the examiners will consider the
size of the regional area and the actual or potential benefit to the
institution's assessment area(s). In most cases, the larger the
regional area, the more diffuse the benefit will be to the
institution's assessment area(s). Examiners may view loans with more
direct benefits to an institution's assessment area(s) as more
responsive to the credit needs of the area(s) than loans for which the
actual benefit to the assessment area(s) is uncertain or for which the
benefit is diffused throughout a larger area that includes the
assessment area(s).
Q7. What is meant by the term ``primary purpose'' as that term is
used to define what constitutes a community development loan, a
qualified investment or a community development service?
A7. A loan, investment or service has as its primary purpose
community development when it is designed for the express purpose of
revitalizing or stabilizing low- or moderate-income areas, providing
affordable housing for, or community services targeted to, low- or
moderate-income persons, or

[[Page 23630]]

promoting economic development by financing small businesses and farms
that meet the requirements set forth in Secs. ____.12(h) or 563e.12(g).
To determine whether an activity is designed for an express community
development purpose, the agencies apply one of two approaches. First,
if a majority of the dollars or beneficiaries of the activity are
identifiable to one or more of the enumerated community development
purposes, then the activity will be considered to possess the requisite
primary purpose. Alternatively, where the measurable portion of any
benefit bestowed or dollars applied to the community development
purpose is less than a majority of the entire activity's benefits or
dollar value, then the activity may still be considered to possess the
requisite primary purpose if (1) the express, bona fide intent of the
activity, as stated, for example, in a prospectus, loan proposal, or
community action plan, is primarily one or more of the enumerated
community development purposes; (2) the activity is specifically
structured (given any relevant market or legal constraints or
performance context factors) to achieve the expressed community
development purpose; and (3) the activity accomplishes, or is
reasonably certain to accomplish, the community development purpose
involved. The fact that an activity provides indirect or short-term
benefits to low- or moderate-income persons does not make the activity
community development, nor does the mere presence of such indirect or
short-term benefits constitute a primary purpose of community
development. Financial institutions that want examiners to consider
certain activities under either approach should be prepared to
demonstrate the activities' qualifications.

Secs. ____.12(j) and 563e.12(i) Community Development Service

Q1. In addition to meeting the definition of ``community
development'' in the regulation, community development services must
also be related to the provision of financial services. What is meant
by ``provision of financial services''?
A1. Providing financial services means providing services of the
type generally provided by the financial services industry. Providing
financial services often involves informing community members about how
to get or use credit or otherwise providing credit services or
information to the community. For example, service on the board of
directors of an organization that promotes credit availability or
finances affordable housing is related to the provision of financial
services. Providing technical assistance about financial services to
community-based groups, local or tribal government agencies, or
intermediaries that help to meet the credit needs of low- and moderate-
income individuals or small businesses and farms is also providing
financial services. By contrast, activities that do not take advantage
of the employees' financial expertise, such as neighborhood cleanups,
do not involve the provision of financial services.
Q2. Are personal charitable activities provided by an institution's
employees or directors outside the ordinary course of their employment
considered community development services?
A2. No. Services must be provided as a representative of the
institution. For example, if a financial institution's director, on her
own time and not as a representative of the institution, volunteers one
evening a week at a local community development corporation's financial
counseling program, the institution may not consider this activity a
community development service.
Q3. What are examples of community development services?
A3. Examples of community development services include, but are not
limited to, the following:
<bullet> Providing technical assistance on financial matters to
nonprofit, tribal or government organizations serving low- and
moderate-income housing or economic revitalization and development
needs;
<bullet> Providing technical assistance on financial matters to
small businesses or community development organizations, including
organizations and individuals who apply for loans or grants under the
Federal Home Loan Banks' Affordable Housing Program;
<bullet> Lending employees to provide financial services for
organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
<bullet> Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services
education to promote community development and affordable housing;
<bullet> Establishing school savings programs and developing or
teaching financial education curricula for low- or moderate-income
individuals;
<bullet> Providing electronic benefits transfer and point of sale
terminal systems to improve access to financial services, such as by
decreasing costs, for low- or moderate-income individuals; and
<bullet> Providing other financial services with the primary
purpose of community development, such as low-cost bank accounts,
including ``Electronic Transfer Accounts'' provided pursuant to the
Debt Collection Improvement Act of 1996, or free government check
cashing that increases access to financial services for low- or
moderate-income individuals.
Examples of technical assistance activities that might be provided
to community development organizations include:
<bullet> Serving on a loan review committee;
<bullet> Developing loan application and underwriting standards;
<bullet> Developing loan processing systems;
<bullet> Developing secondary market vehicles or programs;
<bullet> Assisting in marketing financial services, including
development of advertising and promotions, publications, workshops and
conferences;
<bullet> Furnishing financial services training for staff and
management;
<bullet> Contributing accounting/bookkeeping services; and
<bullet> Assisting in fund raising, including soliciting or
arranging investments.

Sec. ____.12(k) & 563e.12(j) Consumer Loan

Q1. Are home equity loans considered ``consumer loans''?
A1. Home equity loans made for purposes other than home purchase,
home improvement or refinancing home purchase or home improvement loans
are consumer loans if they are extended to one or more individuals for
household, family, or other personal expenditures.
Q2. May a home equity line of credit be considered a ``consumer
loan'' even if part of the line is for home improvement purposes?
A2. If the predominant purpose of the line is home improvement, the
line may only be reported under HMDA and may not be considered a
consumer loan. However, the full amount of the line may be considered a
``consumer loan'' if its predominant purpose is for household, family,
or other personal expenditures, and to a lesser extent home
improvement, and the full amount of the line has not been reported
under HMDA. This is the case even though there may be ``double
counting'' because part of the line may also have been reported under
HMDA.
Q3. How should an institution collect or report information on
loans the proceeds of which will be used for multiple purposes?
A3. If an institution makes a single loan or provides a line of
credit to a

[[Page 23631]]

customer to be used for both consumer and small business purposes,
consistent with the Call Report and TFR instructions, the institution
should determine the major (predominant) component of the loan or the
credit line and collect or report the entire loan or credit line in
accordance with the regulation's specifications for that loan type.

Sec. ____.12(m) & 563e.12(l) Home Mortgage Loan

Q1. Does the term ``home mortgage loan'' include loans other than
``home purchase loans''?
A1. Yes. ``Home mortgage loan'' includes a ``home improvement
loan'' as well as a ``home purchase loan,'' as both terms are defined
in the HMDA regulation, Regulation C, 12 CFR part 203. This definition
also includes multifamily (five-or-more families) dwelling loans, loans
for the purchase of manufactured homes, and refinancings of home
improvement and home purchase loans.
Q2. Some financial institutions broker home mortgage loans. They
typically take the borrower's application and perform other settlement
activities; however, they do not make the credit decision. The broker
institutions may also initially fund these mortgage loans, then
immediately assign them to another lender. Because the broker
institution does not make the credit decision, under Regulation C
(HMDA), they do not record the loans on their HMDA-LARs, even if they
fund the loans. May an institution receive any consideration under CRA
for its home mortgage loan brokerage activities?
A2. Yes. A financial institution that funds home mortgage loans but
immediately assigns the loans to the lender that made the credit
decisions may present information about these loans to examiners for
consideration under the lending test as ``other loan data.'' Under
Regulation C, the broker institution does not record the loans on its
HMDA-LAR because it does not make the credit decisions, even if it
funds the loans. An institution electing to have these home mortgage
loans considered must maintain information about all of the home
mortgage loans that it has funded in this way. Examiners will consider
this other loan data using the same criteria by which home mortgage
loans originated or purchased by an institution are evaluated.
Institutions that do not provide funding but merely take
applications and provide settlement services for another lender that
makes the credit decisions will receive consideration for this service
as a retail banking service. Examiners will consider an institution's
mortgage brokerage services when evaluating the range of services
provided to low-, moderate-, middle- and upper-income geographies and
the degree to which the services are tailored to meet the needs of
those geographies. Alternatively, an institution's mortgage brokerage
service may be considered a community development service if the
primary purpose of the service is community development. An institution
wishing to have its mortgage brokerage service considered as a
community development service must provide sufficient information to
substantiate that its primary purpose is community development and to
establish the extent of the services provided.

Sec. ____.12(n) & 563e.12(m) Income Level

Q1. Where do institutions find income level data for geographies
and individuals?
A1. The income levels for geographies, i.e., census tracts and
block numbering areas, are derived from Census Bureau information and
are updated every ten years. Institutions may contact their regional
Census Bureau office or the Census Bureau's Income Statistics Office at
(301) 763-8576 to obtain income levels for geographies. See Appendix A
of these Interagency Questions and Answers for a list of the regional
Census Bureau offices. The income levels for individuals are derived
from information calculated by the Department of Housing and Urban
Development (HUD) and updated annually. Institutions may contact HUD at
(800) 245-2691 to request a copy of ``FY [year number, e.g., 1996]
Median Family Incomes for States and their Metropolitan and
Nonmetropolitan Portions.''
Alternatively, institutions may obtain a list of the 1990 Census
Bureau-calculated and the annually updated HUD median family incomes
for metropolitan statistical areas (MSAs) and statewide nonmetropolitan
areas by calling the Federal Financial Institution Examination
Council's (FFIEC's) HMDA Help Line at (202) 452-2016. A free copy will
be faxed to the caller through the ``fax-back'' system. Institutions
may also call this number to have ``faxed-back'' an order form, from
which they may order a list providing the median family income level,
as a percentage of the appropriate MSA or nonmetropolitan median family
income, of every census tract and block numbering area (BNA). This list
costs $50. Institutions may also obtain the list of MSA and statewide
nonmetropolitan area median family incomes or an order form through the
FFIEC's home page on the Internet at ``http://www.ffiec.gov/''.

Sec. ____.12(o) & 563e.12(n) Limited Purpose Institution

Q1. What constitutes a ``narrow product line'' in the definition of
``limited purpose institution''?
A1. An institution offers a narrow product line by limiting its
lending activities to a product line other than a traditional retail
product line required to be evaluated under the lending test (i.e.,
home mortgage, small business, and small farm loans). Thus, an
institution engaged only in making credit card or motor vehicle loans
offers a narrow product line, while an institution limiting its lending
activities to home mortgages is not offering a narrow product line.
Q2. What factors will the agencies consider to determine whether an
institution that, if limited purpose, makes loans outside a narrow
product line, or, if wholesale, engages in retail lending, will lose
its limited purpose or wholesale designation because of too much other
lending?
A2. Wholesale institutions may engage in some retail lending
without losing their designation if this activity is incidental and
done on an accommodation basis. Similarly, limited purpose institutions
continue to meet the narrow product line requirement if they provide
other types of loans on an infrequent basis. In reviewing other lending
activities by these institutions, the agencies will consider the
following factors:
<bullet> Is the other lending provided as an incident to the
institution's wholesale lending?
<bullet> Are the loans provided as an accommodation to the
institution's wholesale customers?
<bullet> Are the loans made only infrequently to the limited
purpose institution's customers?
<bullet> Does only an insignificant portion of the institution's
total assets and income result from the other lending?
<bullet> How significant a role does the institution play in
providing that type(s) of loan(s) in the institution's assessment
area(s)?
<bullet> Does the institution hold itself out as offering that
type(s) of loan(s)?
<bullet> Does the lending test or the community development test
present a more accurate picture of the institution's CRA performance?
Q3. Do ``niche institutions'' qualify as limited purpose (or
wholesale) institutions?
A3. Generally, no. Institutions that are in the business of lending
to the public,

[[Page 23632]]

but specialize in certain types of retail loans (for example, home
mortgage or small business loans) to certain types of borrowers (for
example, to high-end income level customers or to corporations or
partnerships of licensed professional practitioners) (``niche
institutions'') generally would not qualify as limited purpose (or
wholesale) institutions.

Sec. ____.12(s) & 563e.12(r) Qualified Investment

Q1. Does the CRA regulation provide authority for institutions to
make investments?
A1. No. The CRA regulation does not provide authority for
institutions to make investments that are not otherwise allowed by
Federal law.
Q2. Are mortgage-backed securities or municipal bonds ``qualified
investments''?
A2. As a general rule, mortgage-backed securities and municipal
bonds are not qualified investments because they do not have as their
primary purpose community development, as defined in the CRA
regulations. Nonetheless, mortgage-backed securities or municipal bonds
designed primarily to finance community development generally are
qualified investments. Municipal bonds or other securities with a
primary purpose of community development need not be housing-related.
For example, a bond to fund a community facility or park or to provide
sewage services as part of a plan to redevelop a low-income
neighborhood is a qualified investment. Housing-related bonds or
securities must primarily address affordable housing (including
multifamily rental housing) needs in order to qualify.
Q3. Are Federal Home Loan Bank stocks and membership reserves with
the Federal Reserve Banks ``qualified investments''?
A3. No. Federal Home Loan Bank (FHLB) stock and membership reserves
with the Federal Reserve Banks do not have a sufficient connection to
community development to be qualified investments. However, FHLB member
institutions may receive CRA consideration for technical assistance
they provide on behalf of applicants and recipients of funding from the
FHLB's Affordable Housing Program. See Q&A 3 addressing
Secs. ____.12(j) and 563e.12(i).
Q4. What are examples of qualified investments?
A4. Examples of qualified investments include, but are not limited
to, investments, grants, deposits or shares in or to:
<bullet> Financial intermediaries (including, Community Development
Financial Institutions (CDFIs), Community Development Corporations
(CDCs), minority- and women-owned financial institutions, community
loan funds, and low- income or community development credit unions)
that primarily lend or facilitate lending in low- and moderate-income
areas or to low- and moderate-income individuals in order to promote
community development, such as a CDFI that promotes economic
development on an Indian reservation; Organizations engaged in
affordable housing rehabilitation and construction, including
multifamily rental housing;
<bullet> Organizations, including, for example, Small Business
Investment Companies (SBICs) and specialized SBICs, that promote
economic development by financing small businesses;
<bullet> Facilities that promote community development in low- and
moderate- income areas for low- and moderate-income individuals, such
as youth programs, homeless centers, soup kitchens, health care
facilities, battered women's centers, and alcohol and drug recovery
centers;
<bullet> Projects eligible for low-income housing tax credits;
<bullet> State and municipal obligations, such as revenue bonds,
that specifically support affordable housing or other community
development;
<bullet> Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling
for credit, home-ownership, home maintenance, and other financial
services education; and
<bullet> Organizations supporting activities essential to the
capacity of low- and moderate-income individuals or geographies to
utilize credit or to sustain economic development, such as, for
example, day care operations and job training programs that enable
people to work.
Q5. Will an institution receive consideration for charitable
contributions as ``qualified investments''?
A5. Yes, provided they have as their primary purpose community
development as defined in the regulations. A charitable contribution,
whether in cash or an in-kind contribution of property, is included in
the term ``grant.'' A qualified investment is not disqualified because
an institution receives favorable treatment for it (for example, as a
tax deduction or credit) under the Internal Revenue Code.
Q6. An institution makes or participates in a community development
loan. The institution provided the loan at below-market interest rates
or ``bought down'' the interest rate to the borrower. Is the lost
income resulting from the lower interest rate or buy-down a qualified
investment?
A6. No. The agencies will, however, consider the innovativeness and
complexity of the community development loan within the bounds of safe
and sound banking practices.
Q7. Will the agencies consider as a qualified investment the wages
or other compensation of an employee or director who provides
assistance to a community development organization on behalf of the
institution?
A7. No. However, the agencies will consider donated labor of
employees or directors of a financial institution in the service test
if the activity is a community development service.

Sec. ____.12(t) Small Institution

Q1. How are the ``total bank and thrift assets'' of a holding
company determined?
A1. ``Total banking and thrift assets'' of a holding company are
determined by combining the total assets of all banks and/or thrifts
that are majority-owned by the holding company. An institution is
majority-owned if the holding company directly or indirectly owns more
than 50 percent of its outstanding voting stock.
Q2. How are Federal and State branch assets of a foreign bank
calculated for purposes of the CRA?
A2. A Federal or State branch of a foreign bank is considered a
small institution if the Federal or State branch has less than $250
million in assets and the total assets of the foreign bank's or its
holding company's U.S. bank and thrift subsidiaries that are subject to
the CRA are less than $1 billion. This calculation includes not only
FDIC-insured bank and thrift subsidiaries, but also the assets of any
FDIC-insured branch of the foreign bank and the assets of any uninsured
Federal or State branch (other than a limited branch or a Federal
agency) of the foreign bank that results from an acquisition described
in section 5(a)(8) of the International Banking Act of 1978 (12 U.S.C.
3103(a)(8)).

Sec. ____.12(u) Small Business Loan

Q1. Are loans to nonprofit organizations considered small business
loans or are they considered community development loans?
A1. To be considered a small business loan, a loan must meet the
definition of ``loan to small business'' in the instructions in the
``Consolidated Reports of Conditions and Income'' (Call

[[Page 23633]]

Report) and ``Thrift Financial Reports'' (TFR). In general, a loan to a
nonprofit organization, for business or farm purposes, where the loan
is secured by nonfarm nonresidential property and the original amount
of the loan is $1 million or less, if a business loan, or $500,000 or
less, if a farm loan, would be reported in the Call Report and TFR as a
small business or small farm loan. If a loan to a nonprofit
organization is reportable as a small business or small farm loan, it
cannot also be considered as a community development loan, except by a
wholesale or limited purpose institution. Loans to nonprofit
organizations that are not small business or small farm loans for Call
Report and TFR purposes may be considered as community development
loans if they meet the regulatory definition.
Q2. Are loans secured by commercial real estate considered small
business loans?
A2. Yes, depending on their principal amount. Small business loans
include loans secured by ``nonfarm nonresidential properties,'' as
defined in the Call Report and TFR, in amounts less than $1 million.
Q3. Are loans secured by nonfarm residential real estate to finance
small businesses ``small business loans'?
A3. No. Loans secured by nonfarm residential real estate that are
used to finance small businesses are not included as ``small business''
loans for Call Report and TFR purposes. The agencies recognize that
many small businesses are financed by loans secured by residential real
estate. If these loans promote community development, as defined in the
regulation, they may be considered as community development loans.
Otherwise, at an institution's option, the institution may collect and
maintain data separately concerning these loans and request that the
data be considered in its CRA evaluation as ``Other Secured Lines/Loans
for Purposes of Small Business.''
Q4. Are credit cards issued to small businesses considered ``small
business loans''?
A4. Credit cards issued to a small business or to individuals to be
used, with the institution's knowledge, as business accounts are small
business loans if they meet the definitional requirements in the Call
Report or TFR instructions.

Sec. ____.12(w) Wholesale Institution

Q1. What factors will the agencies consider in determining whether
an institution is in the business of extending home mortgage, small
business, small farm, or consumer loans to retail customers?
A1. The agencies will consider whether:
<bullet> The institution holds itself out to the retail public as
providing such loans; and
<bullet> The institution's revenues from extending such loans are
significant when compared to its overall operations.
A wholesale institution may make some retail loans without losing
its wholesale designation as described above in Q&A2 addressing
Secs. ____.12(o) and 563e.12(n).

Sec. ____.21--Performance Tests, Standards, and Ratings, in General

Sec. ____.21(a) Performance Tests and Standards

Q1. Are all community development activities weighted equally by
examiners?
A1. No. Examiners will consider the responsiveness to credit and
community development needs, as well as the innovativeness and
complexity of an institution's community development lending, qualified
investments, and community development services. These criteria include
consideration of the degree to which they serve as a catalyst for other
community development activities. The criteria are designed to add a
qualitative element to the evaluation of an institution's performance.

Sec. ____.21(b) Performance Context

Q1. Is the performance context essentially the same as the former
regulation's needs assessment?
A1. No. The performance context is a broad range of economic,
demographic, and institution- and community-specific information that
an examiner reviews to understand the context in which an institution's
record of performance should be evaluated. The agencies will provide
examiners with much of this information prior to the examination. The
performance context is not a formal or written assessment of community
credit needs.

Sec. ____.21(b)(2) Information Maintained by the Institution or
Obtained From Community Contacts

Q1. Will examiners consider performance context information
provided by institutions?
A1. Yes. An institution may provide examiners with any information
it deems relevant, including information on the lending, investment,
and service opportunities in its assessment area(s). This information
may include data on the business opportunities addressed by lenders not
subject to the CRA. Institutions are not required, however, to prepare
a needs assessment. If an institution provides information to
examiners, the agencies will not expect information other than what the
institution normally would develop to prepare a business plan or to
identify potential markets and customers, including low- and moderate-
income persons and geographies in its assessment area(s). The agencies
will not evaluate an institution's efforts to ascertain community
credit needs or rate an institution on the quality of any information
it provides.
Q2. Will examiners conduct community contact interviews as part of
the examination process?
A2. Yes. Examiners will consider information obtained from
interviews with local community, civic, and government leaders. These
interviews provide examiners with knowledge regarding the local
community, its economic base, and community development initiatives. To
ensure that information from local leaders is considered--particularly
in areas where the number of potential contacts may be limited--
examiners may use information obtained through an interview with a
single community contact for examinations of more than one institution
in a given market. In addition, the agencies will consider information
obtained from interviews conducted by other agency staff and by the
other agencies. In order to augment contacts previously used by the
agencies and foster a wider array of contacts, the agencies will share
community contact information.

Sec. ____.21(b)(4) Institutional Capacity and Constraints

Q1. Will examiners consider factors outside of an institution's
control that prevent it from engaging in certain activities?
A1. Yes. Examiners will take into account statutory and supervisory
limitations on an institution's ability to engage in any lending,
investment, and service activities. For example, a savings association
that has made few or no qualified investments due to its limited
investment authority may still receive a low satisfactory rating under
the investment test if it has a strong lending record.

Sec. ____.21(b)(5) Institution's Past Performance and the Performance
of Similarly Situated Lenders

Q1. Can an institution's assigned rating be adversely affected by
poor past performance?

[[Page 23634]]

A1. Yes. The agencies will consider an institution's past
performance in its overall evaluation. For example, an institution's
past performance may support a rating of ``substantial noncompliance''
if the institution has not improved performance rated as ``needs to
improve.''
Q2. How will examiners consider the performance of similarly
situated lenders?
A2. The performance context section of the regulation permits the
performance of similarly situated lenders to be considered, for
example, as one of a number of considerations in evaluating the
geographic distribution of an institution's loans to low-, moderate-,
middle-, and upper-income geographies. This analysis, as well as other
analyses, may be used, for example, where groups of contiguous
geographies within an institution's assessment area(s) exhibit
abnormally low penetration. In this regard, the performance of
similarly situated lenders may be analyzed if such an analysis would
provide accurate insight into the institution's lack of performance in
those areas. The regulation does not require the use of a specific type
of analysis under these circumstances. Moreover, no ratio developed
from any type of analysis is linked to any lending test rating.

Sec. ____.22--Lending Test

Sec. ____.22(a) Scope of Test

Sec. ____.22(a)(1) Types of Loans Considered

Q1. If a large retail institution is not required to collect and
report home mortgage data under the HMDA, will the agencies still
evaluate the institution's home mortgage lending performance?
A1. Yes. The agencies will sample the institution's home mortgage
loan files in order to assess its performance under the lending test
criteria.
Q2. When will examiners consider consumer loans as part of an
institution's CRA evaluation?
A2. Consumer loans will be evaluated if the institution so elects;
and an institution that elects not to have its consumer loans evaluated
will not be viewed less favorably by examiners than one that does.
However, if consumer loans constitute a substantial majority of the
institution's business, the agencies will evaluate them even if the
institution does not so elect. The agencies interpret ``substantial
majority'' to be so significant a portion of the institution's lending
activity by number or dollar volume of loans that the lending test
evaluation would not meaningfully reflect its lending performance if
consumer loans were excluded.

Sec. ____.22(a)(2) Loan Originations and Purchases/Other Loan Data

Q1. How are lending commitments (such as letters of credit)
evaluated under the regulation?
A1. The agencies consider lending commitments (such as letters of
credit) only at the option of the institution. Commitments must be
legally binding between an institution and a borrower in order to be
considered. Information about lending commitments will be used by
examiners to enhance their understanding of an institution's
performance.
Q2. Will examiners review application data as part of the lending
test?
A2. Application activity is not a performance criterion of the
lending test. However, examiners may consider this information in the
performance context analysis because this information may give
examiners insight on, for example, the demand for loans.
Q3. May a financial institution receive consideration under CRA for
modification, extension, and consolidation agreements (MECAs), in which
it obtains loans from other institutions without actually purchasing or
refinancing the loans, as those terms have been interpreted under CRA?
A3. Yes. In some states, MECAs, which are not considered loan
refinancings because the existing loan obligations are not satisfied
and replaced, are common. Although these transactions are not
considered to be purchases or refinancings, as those terms have been
interpreted under CRA, they do achieve the same results. An institution
may present information about its MECA activities to examiners for
consideration under the lending test as ``other loan data.''
Q4: Do institutions receive consideration for originating or
purchasing loans that are fully guaranteed?
A4: Yes. The lending test evaluates an institution's record of
helping to meet the credit needs of its assessment area(s) through the
origination or purchase of specified types of loans. The test does not
take into account whether or not such loans are guaranteed.

Sec. ____.22(b) Performance Criteria

Q1. How will examiners apply the performance criteria in the
lending test?
A1. Examiners will apply the performance criteria reasonably and
fairly, in accord with the regulations, the examination procedures, and
this Guidance. In doing so, examiners will disregard efforts by an
institution to manipulate business operations or present information in
an artificial light that does not accurately reflect an institution's
overall record of lending performance.

Sec. ____.22(b)(1) Lending Activity

Q1. How will the agencies apply the lending activity criterion to
discourage an institution from originating loans that are viewed
favorably under CRA in the institution itself and referring other
loans, which are not viewed as favorably, for origination by an
affiliate?
A1. Examiners will review closely institutions with (1) a small
number and amount of home mortgage loans with an unusually good
distribution among low- and moderate-income areas and low- and
moderate-income borrowers and (2) a policy of referring most, but not
all, of their home mortgage loans to affiliated institutions. If an
institution is making loans mostly to low- and moderate-income
individuals and areas and referring the rest of the loan applicants to
an affiliate for the purpose of receiving a favorable CRA rating,
examiners may conclude that the institution's lending activity is not
satisfactory because it has inappropriately attempted to influence the
rating. In evaluating an institution's lending, examiners will consider
legitimate business reasons for the allocation of the lending activity.

Sec. ____.22(b)(2) & (3) Geographic Distribution and Borrower
Characteristics

Q1. How do the geographic distribution of loans and the
distribution of lending by borrower characteristics interact in the
lending test?
A1. Examiners generally will consider both the distribution of an
institution's loans among geographies of different income levels and
among borrowers of different income levels and businesses of different
sizes. The importance of the borrower distribution criterion,
particularly in relation to the geographic distribution criterion, will
depend on the performance context. For example, distribution among
borrowers with different income levels may be more important in areas
without identifiable geographies of different income categories. On the
other hand, geographic distribution may be more important in areas with
the full range of geographies of different income categories.
Q2. Must an institution lend to all portions of its assessment
area?
A2. The term ``assessment area'' describes the geographic area
within which the agencies assess how well an

[[Page 23635]]

institution has met the specific performance tests and standards in the
rule. The agencies do not expect that simply because a census tract or
block numbering area is within an institution's assessment area(s) the
institution must lend to that census tract or block numbering area.
Rather the agencies will be concerned with conspicuous gaps in loan
distribution that are not explained by the performance context.
Similarly, if an institution delineated the entire county in which it
is located as its assessment area, but could have delineated its
assessment area as only a portion of the county, it will not be
penalized for lending only in that portion of the county, so long as
that portion does not reflect illegal discrimination or arbitrarily
exclude low- or moderate-income geographies. The capacity and
constraints of an institution, its business decisions about how it can
best help to meet the needs of its assessment area(s), including those
of low- and moderate-income neighborhoods, and other aspects of the
performance context, are all relevant to explain why the institution is
serving or not serving portions of its assessment area(s).
Q3. Will examiners take into account loans made by affiliates when
evaluating the proportion of an institution's lending in its assessment
area(s)?
A3. Examiners will not take into account loans made by affiliates
when determining the proportion of an institution's lending in its
assessment area(s), even if the institution elects to have its
affiliate lending considered in the remainder of the lending test
evaluation. However, examiners may consider an institution's business
strategy of conducting lending through an affiliate in order to
determine whether a low proportion of lending in the assessment area(s)
should adversely affect the institution's lending test rating.
Q4. When will examiners consider loans (other than community
development loans) made outside an institution's assessment area(s)?
A4. Consideration will be given for loans to low- and moderate-
income persons and small business and farm loans outside of an
institution's assessment area(s), provided the institution has
adequately addressed the needs of borrowers within its assessment
area(s). The agencies will apply this consideration not only to loans
made by large retail institutions being evaluated under the lending
test, but also to loans made by small institutions being evaluated
under the small institution performance standards. Loans to low- and
moderate-income persons and small businesses and farms outside of an
institution's assessment area(s), however, will not compensate for poor
lending performance within the institution's assessment area(s).
Q5. Under the lending test, how will examiners evaluate home
mortgage loans to middle- or upper-income individuals in a low- or
moderate-income geography?
A5. Examiners will consider these home mortgage loans under the
performance criteria of the lending test, i.e., by number and amount of
home mortgage loans, whether they are inside or outside the financial
institution's assessment area(s), their geographic distribution, and
the income levels of the borrowers. Examiners will use information
regarding the financial institution's performance context to determine
how to evaluate the loans under these performance criteria. Depending
on the performance context, examiners could view home mortgage loans to
middle-income individuals in a low-income geography very differently.
For example, if the loans are for homes or multifamily housing located
in an area for which the local, state, tribal, or Federal government or
a community-based development organization has developed a
revitalization or stabilization plan (such as a Federal enterprise
community or empowerment zone) that includes attracting mixed-income
residents to establish a stabilized, economically diverse neighborhood,
examiners may give more consideration to such loans, which may be
viewed as serving the low- or moderate-income community's needs as well
as serving those of the middle- or upper-income borrowers. If, on the
other hand, no such plan exists and there is no other evidence of
governmental support for a revitalization or stabilization project in
the area and the loans to middle- or upper-income borrowers
significantly disadvantage or primarily have the effect of displacing
low- or moderate-income residents, examiners may view these loans
simply as home mortgage loans to middle- or upper-income borrowers who
happen to reside in a low- or moderate-income geography and weigh them
accordingly in their evaluation of the institution.

Sec. ____.22(b)(4) Community Development Lending

Q1. When evaluating an institution's record of community
development lending, may an examiner distinguish among community
development loans on the basis of the actual amount of the loan that
advances the community development purpose?
A1. Yes. When evaluating the institution's record of community
development lending under Sec. ____.22(b)(4), it is appropriate to give
greater weight to the amount of the loan that is targeted to the
intended community development purpose. For example, consider two $10
million projects (with a total of 100 units each) that have as their
express primary purpose affordable housing and are located in the same
community. One of these projects sets aside 40% of its units for low-
income residents and the other project allocates 65% of its units for
low-income residents. An institution would report both loans as $10
million community development loans under the Sec. ____.42(b)(2)
aggregate reporting obligation. However, transaction complexity,
innovation and all other relevant considerations being equal, an
examiner should also take into account that the 65% project provides
more affordable housing for more people per dollar expended.
Under Sec. ____.22(b)(4), the extent of CRA consideration an
institution receives for its community development loans should bear a
direct relation to the benefits received by the community and the
innovation or complexity of the loans required to accomplish the
activity, not simply to the dollar amount expended on a particular
transaction. By applying all lending test performance criteria, a
community development loan of a lower dollar amount could meet the
credit needs of the institution's community to a greater extent than a
community development loan with a higher dollar amount, but with less
innovation, complexity, or impact on the community.

Sec. ____.22(b)(5) Innovative or Flexible Lending Practices

Q1. What is the range of practices that examiners may consider in
evaluating the innovativeness or flexibility of an institution's
lending?
A1. In evaluating the innovativeness or flexibility of an
institution's lending practices (and the complexity and innovativeness
of its community development lending), examiners will not be limited to
reviewing the overall variety and specific terms and conditions of the
credit products themselves. In connection with the evaluation of an
institution's lending, examiners also may give consideration to related
innovations when they augment the success and effectiveness of the
institution's lending under its community development loan programs or,
more generally, its lending under its loan programs that address the
credit needs of low- and moderate-income

[[Page 23636]]

geographies or individuals. For example:
<bullet> In connection with a community development loan program, a
bank may establish a technical assistance program under which the bank,
directly or through third parties, provides affordable housing
developers and other loan recipients with financial consulting
services. Such a technical assistance program may, by itself,
constitute a community development service eligible for consideration
under the service test of the CRA regulations. In addition, the
technical assistance may be favorably considered as an innovation that
augments the success and effectiveness of the related community
development loan program.
<bullet> In connection with a small business lending program in a
low- or moderate-income area and consistent with safe and sound lending
practices, a bank may implement a program under which, in addition to
providing financing, the bank also contracts with the small business
borrowers. Such a contracting arrangement would not, standing alone,
qualify for CRA consideration. However, it may be favorably considered
as an innovation that augments the loan program's success and
effectiveness, and improves the program's ability to serve community
development purposes by helping to promote economic development through
support of small business activities and revitalization or
stabilization of low- or moderate-income geographies.

Sec. ____.22(c) Affiliate Lending

Sec. ____.22(c)(1) In General

Q1. If an institution elects to have loans by its affiliate(s)
considered, may it elect to have only certain categories of loans
considered?
A1. Yes. An institution may elect to have only a particular
category of its affiliate's lending considered. The basic categories of
loans are home mortgage loans, small business loans, small farm loans,
community development loans, and the five categories of consumer loans
(motor vehicle loans, credit card loans, home equity loans, other
secured loans, and other unsecured loans).

Sec. ____.22(c)(2) Constraints on Affiliate Lending

Sec. ____.22(c)(2)(i) No Affiliate May Claim a Loan Origination or Loan
Purchase if Another Institution Claims the Same Loan Origination or
Purchase

Q1. How is this constraint on affiliate lending applied?
A1. This constraint prohibits one affiliate from claiming a loan
origination or purchase claimed by another affiliate. However, an
institution can count as a purchase a loan originated by an affiliate
that the institution subsequently purchases, or count as an origination
a loan later sold to an affiliate, provided the same loans are not sold
several times to inflate their value for CRA purposes.
Sec. ____.22(c)(2)(ii) If an institution elects to have its
supervisory agency consider loans within a particular lending category
made by one or more of the institution's affiliates in a particular
assessment area, the institution shall elect to have the agency
consider all loans within that lending category in that particular
assessment area made by all of the institution's affiliates.
Q1. How is this constraint on affiliate lending applied?
A1. This constraint prohibits ``cherry-picking'' affiliate loans
within any one category of loans. The constraint requires an
institution that elects to have a particular category of affiliate
lending in a particular assessment area considered to include all loans
of that type made by all of its affiliates in that particular
assessment area. For example, assume that an institution has one or
more affiliates, such as a mortgage bank that makes loans in the
institution's assessment area. If the institution elects to include the
mortgage bank's home mortgage loans, it must include all of mortgage
bank's home mortgage loans made in its assessment area. The institution
cannot elect to include only those low- and moderate-income home
mortgage loans made by the mortgage bank affiliate and not home
mortgage loans to middle- and upper-income individuals or areas.
Q2. How is this constraint applied if an institution's affiliates
are also insured depository institutions subject to the CRA?
A2. Strict application of this constraint against ``cherry-
picking'' to loans of an affiliate that is also an insured depository
institution covered by the CRA would produce the anomalous result that
the other institution would, without its consent, not be able to count
its own loans. Because the agencies did not intend to deprive an
institution subject to the CRA of receiving consideration for its own
lending, the agencies read this constraint slightly differently in
cases involving a group of affiliated institutions, some of which are
subject to the CRA and share the same assessment area(s). In those
circumstances, an institution that elects to include all of its
mortgage affiliate's home mortgage loans in its assessment area would
not automatically be required to include all home mortgage loans in its
assessment area of another affiliate institution subject to the CRA.
However, all loans of a particular type made by any affiliate in the
institution's assessment area(s) must either be counted by the lending
institution or by another affiliate institution that is subject to the
CRA. This reading reflects the fact that a holding company may, for
business reasons, choose to transact different aspects of its business
in different subsidiary institutions. However, the method by which
loans are allocated among the institutions for CRA purposes must
reflect actual business decisions about the allocation of banking
activities among the institutions and should not be designed solely to
enhance their CRA evaluations.

Sec. ____.22(d) Lending by a Consortium or a Third Party

Q1. Will equity and equity-type investments in a third party
receive consideration under the lending test?
A1. If an institution has made an equity or equity-type investment
in a third party, community development loans made by the third party
may be considered under the lending test. On the other hand, asset-
backed and debt securities that do not represent an equity-type
interest in a third party will not be considered under the lending test
unless the securities are booked by the purchasing institution as a
loan. For example, if an institution purchases stock in a community
development corporation (``CDC'') that primarily lends in low- and
moderate-income areas or to low- and moderate-income individuals in
order to promote community development, the institution may claim a pro
rata share of the CDC's loans as community development loans. The
institution's pro rata share is based on its percentage of equity
ownership in the CDC. Q&A1 addressing Sec. ____.23(b) provides
information concerning consideration of an equity or equity-type
investment under the investment test and both the lending and
investment tests.
Q2. How will examiners evaluate loans made by consortia or third
parties under the lending test?
A2. Loans originated or purchased by consortia in which an
institution participates or by third parties in which an institution
invests will only be considered if they qualify as community
development loans and will only be considered under the community
development criterion of the lending test. However, loans originated
directly on the books of an institution or purchased by the institution
are considered to have been made or

[[Page 23637]]

purchased directly by the institution, even if the institution
originated or purchased the loans as a result of its participation in a
loan consortium. These loans would be considered under all the lending
test criteria appropriate to them depending on the type of loan.
Q3. In some circumstances, an institution may invest in a third
party, such as a community development bank, that is also an insured
depository institution and is thus subject to CRA requirements. If the
investing institution requests its supervisory agency to consider its
pro rata share of community development loans made by the third party,
as allowed under 12 CFR ____.22(d), may the third party also receive
consideration for these loans?
A3. Yes, as long as the financial institution and the third party
are not affiliates. The regulations state, at 12 CFR ____.22(c)(2)(i),
that two affiliates may not both claim the same loan origination or
loan purchase. However, if the financial institution and the third
party are not affiliates, the third party may receive consideration for
the community development loans it originates, and the financial
institution that invested in the third party may also receive
consideration for its pro rata share of the same community development
loans under 12 CFR ____.22(d).

Sec. ____.23--Investment Test

Sec. ____.23(a) Scope of Test

Q1: May an institution receive consideration under the CRA
regulations if it invests indirectly through a fund, the purpose of
which is community development, as that is defined in the CRA
regulations?
A1. Yes, the direct or indirect nature of the qualified investment
does not affect whether an institution will receive consideration under
the CRA regulations because the regulations do not distinguish between
``direct'' and ``indirect'' investments. Thus, an institution's
investment in an equity fund that, in turn, invests in projects that,
for example, provide affordable housing to low- and moderate-income
individuals, would receive consideration as a qualified investment
under the CRA regulations, provided the investment benefits one or more
of the institution's assessment area(s) or a broader statewide or
regional area(s) that includes one or more of the institution's
assessment area(s). Similarly, an institution may receive consideration
for a direct qualified investment in a nonprofit organization that, for
example, supports affordable housing for low- and moderate-income
individuals in the institution's assessment area(s) or a broader
statewide or regional area(s) that includes the institution's
assessment area(s).

Sec. ____.23(b) Exclusion

Q1. Even though the regulations state that an activity that is
considered under the lending or service tests cannot also be considered
under the investment test, may parts of an activity be considered under
one test and other parts be considered under another test?
A1. Yes, in some instances the nature of an activity may make it
eligible for consideration under more than one of the performance
tests. For example, certain investments and related support provided by
a large retail institution to a CDC may be evaluated under the lending,
investment, and service tests. Under the service test, the institution
may receive consideration for any community development services that
it provides to the CDC, such as service by an executive of the
institution on the CDC's board of directors. If the institution makes
an investment in the CDC that the CDC uses to make community
development loans, the institution may receive consideration under the
lending test for its pro-rata share of community development loans made
by the CDC. Alternatively, the institution's investment may be
considered under the investment test, assuming it is a qualified
investment. In addition, an institution may elect to have a part of its
investment considered under the lending test and the remaining part
considered under the investment test. If the investing institution opts
to have a portion of its investment evaluated under the lending test by
claiming a share of the CDC's community development loans, the amount
of investment considered under the investment test will be offset by
that portion. Thus, the institution would only receive consideration
under the investment test for the amount of its investment multiplied
by the percentage of the CDC's assets that meet the definition of a
qualified investment.

Sec. ____.23(e) Performance Criteria

Q1. When applying the performance criteria of Sec. ____.23(e), may
an examiner distinguish among qualified investments based on how much
of the investment actually supports the underlying community
development purpose?
A1. Yes. Although Sec. ____.23(e)(1) speaks in terms of the dollar
amount of qualified investments, the criterion permits an examiner to
weight certain investments differently or to make other appropriate
distinctions when evaluating an institution's record of making
qualified investments. For instance, an examiner should take into
account that a targeted mortgage-backed security that qualifies as an
affordable housing issue that has only 60% of its face value supported
by loans to low- or moderate-income borrowers would not provide as much
affordable housing for low- and moderate-income individuals as a
targeted mortgage-backed security with 100% of its face value supported
by affordable housing loans to low- and moderate-income borrowers. The
examiner should describe any differential weighting (or other
adjustment), and its basis in the Public Evaluation. However, no matter
how a qualified investment is handled for purposes of
Sec. ____.23(e)(1), it will also be evaluated with respect to the
qualitative performance criteria set forth in Sec. ____.23(e)(2), (3)
and (4). By applying all criteria, a qualified investment of a lower
dollar amount may be weighed more heavily under the Investment Test
than a qualified investment with a higher dollar amount, but with fewer
qualitative enhancements.
Q2: How do examiners evaluate an institution's qualified investment
in a fund, the primary purpose of which is community development, as
that is defined in the CRA regulations?
A2. When evaluating qualified investments that benefit an
institution's assessment area(s) or a broader statewide or regional
area that includes its assessment area(s), examiners will look at the
following four performance criteria:
(1) The dollar amount of qualified investments;
(2) The innovativeness or complexity of qualified investments;
(3) The responsiveness of qualified investments to credit and
community development needs; and
(4) The degree to which the qualified investments are not routinely
provided by private investors.
With respect to the first criterion, examiners will determine the
dollar amount of qualified investments by relying on the figures
recorded by the institution according to generally accepted accounting
principles (GAAP). Although institutions may exercise a range of
investment strategies, including short-term investments, long-term
investments, investments that are immediately funded, and investments
with a binding, up-front commitment that are funded over a period of
time, institutions making the same dollar amount of investments over
the same number of years, all other performance criteria being equal,
would receive the

[[Page 23638]]

same level of consideration. Examiners will include both new and
outstanding investments in this determination. The dollar amount of
qualified investments also will include the dollar amount of legally
binding commitments recorded by the institution according to GAAP.
The extent to which qualified investments receive consideration,
however, depends on how examiners evaluate the investments under the
remaining three performance criteria--innovativeness and complexity,
responsiveness, and degree to which the investment is not routinely
provided by private investors. Examiners also will consider factors
relevant to the institution's CRA performance context, such as the
effect of outstanding long-term qualified investments, the pay-in
schedule, and the amount of any cash call, on the capacity of the
institution to make new investments.

Sec. ____.24--Service Test

Sec. ____.24(d) Performance Criteria--Retail Banking Services

Q1. How do examiners evaluate the availability and effectiveness of
an institution's systems for delivering retail banking services?
A1. Convenient access to full service branches within a community
is an important factor in determining the availability of credit and
non-credit services. Therefore, the service test performance standards
place primary emphasis on full service branches while still considering
alternative systems, such as automated teller machines (``ATMs''). The
principal focus is on an institution's current distribution of
branches; therefore, an institution is not required to expand its
branch network or operate unprofitable branches. Under the service
test, alternative systems for delivering retail banking services, such
as ATMs, are considered only to the extent that they are effective
alternatives in providing needed services to low- and moderate-income
areas and individuals.
Q2. How do examiners evaluate an institution's activities in
connection with Individual Development Accounts (IDAs)?
A2. Although there is no standard IDA program, IDAs typically are
deposit accounts targeted to low- and moderate-income families that are
designed to help them accumulate savings for education or job-training,
down-payment and closing costs on a new home, or start-up capital for a
small business. Once participants have successfully funded an IDA,
their personal IDA savings are matched by a public or private entity.
Financial institution participation in IDA programs comes in a variety
of forms, including providing retail banking services to IDA account
holders, providing matching dollars or operating funds to an IDA
program, designing or implementing IDA programs, providing consumer
financial education to IDA account holders or prospective account
holders, or other means. The extent of financial institutions'
involvement in IDAs and the products and services they offer in
connection with the accounts will vary. Thus, subject to
Sec. ____.23(b), examiners evaluate the actual services and products
provided by an institution in connection with IDA programs as one or
more of the following: community development services, retail banking
services, qualified investments, home mortgage loans, small business
loans, consumer loans, or community development loans.

Sec. ____.24(d)(3) Availability and Effectiveness of Alternative
Systems for Delivering Retail Banking Services

Q1. How will examiners evaluate alternative systems for delivering
retail banking services?
A1. The regulation recognizes the multitude of ways in which an
institution can provide services, for example, ATMs, banking by
telephone or computer, and bank-by-mail programs. Delivery systems
other than branches will be considered under the regulation to the
extent that they are effective alternatives to branches in providing
needed services to low- and moderate-income areas and individuals. The
list of systems in the regulation is not intended to be inclusive.
Q2. Are debit cards considered under the service test as an
alternative delivery system?
A2. By themselves, no. However, if debit cards are a part of a
larger combination of products, such as a comprehensive electronic
banking service, that allows an institution to deliver needed services
to low- and moderate-income areas and individuals in its community, the
overall delivery system that includes the debit card feature would be
considered an alternative delivery system.

Sec. ____.25 Community Development Test for Wholesale or Limited
Purpose Institutions

Sec. ____.25(d) Indirect Activities

Q1. How are investments in third party community development
organizations considered under the community development test?
A1. Similar to the lending test for retail institutions,
investments in third party community development organizations may be
considered as qualified investments or as community development loans
or both (provided there is no double counting), at the institution's
option, as described above in the discussion regarding Secs. ____.22(d)
and ____.23(b).

Sec. ____.25(e) Benefit to Assessment Area(s)

Q1. How do examiners evaluate a wholesale or limited purpose
institution's qualified investment in a fund that invests in projects
nationwide and which has a primary purpose of community development, as
that is defined in the regulations?
A1. If examiners find that a wholesale or limited purpose
institution has adequately addressed the needs of its assessment
area(s), they will give consideration to qualified investments, as well
as community development loans and community development services, by
that institution nationwide. In determining whether an institution has
adequately addressed the needs of its assessment area(s), examiners
will consider qualified investments that benefit a broader statewide or
regional area that includes the institution's assessment area(s).

Sec. ____.25(f) Community Development Performance Rating

Q1. Must a wholesale or limited purpose institution engage in all
three categories of community development activities (lending,
investment and service) to perform well under the community development
test?
A1. No, a wholesale or limited purpose institution may perform well
under the community development test by engaging in one or more of
these activities.

Sec. ____.26--Small Institution Performance Standards

Sec. ____.26(a) Performance Criteria

Q1. May examiners consider, under one or more of the performance
criteria of the small institution performance standards, lending-
related activities, such as community development loans and lending-
related qualified investments, when evaluating a small institution?
A1. Yes. Examiners can consider ``lending-related activities,''
including community development loans and lending-related qualified
investments, when evaluating the first four performance criteria of the
small institution performance test. Although lending-related activities
are specifically mentioned in the regulation in

[[Page 23639]]

connection with only the first three criteria (i.e., loan-to-deposit
ratio, percentage of loans in the institution's assessment area, and
lending to borrowers of different incomes and businesses of different
sizes), examiners can also consider these activities when they evaluate
the fourth criteria--geographic distribution of the institution's
loans.
Q2. What is meant by ``as appropriate'' when referring to the fact
that lending-related activities will be considered, ``as appropriate,''
under the various small institution performance criteria?
A2. ``As appropriate'' means that lending-related activities will
be considered when it is necessary to determine whether an institution
meets or exceeds the standards for a satisfactory rating. Examiners
will also consider other lending-related activities at an institution's
request.
Q3. When evaluating a small institution's lending performance, will
examiners consider, at the institution's request, community development
loans originated or purchased by a consortium in which the institution
participates or by a third party in which the institution has invested?
A3. Yes. However, a small institution that elects to have examiners
consider community development loans originated or purchased by a
consortium or third party must maintain sufficient information on its
share of the community development loans so that the examiners may
evaluate these loans under the small institution performance criteria.
Q4. Under the small institution performance standards, will
examiners consider both loan originations and purchases?
A4. Yes, consistent with the other assessment methods in the
regulation, examiners will consider both loans originated and purchased
by the institution. Likewise, examiners may consider any other loan
data the small institution chooses to provide, including data on loans
outstanding, commitments and letters of credit.
Q5. Under the small institution performance standards, how will
qualified investments be considered for purposes of determining whether
a small institution receives a satisfactory CRA rating?
A5. The small institution performance standards focus on lending
and other lending-related activities. Therefore, examiners will
consider only lending-related qualified investments for the purposes of
determining whether the small institution receives a satisfactory CRA
rating.

Sec. ____.26(a)(1) Loan-to-deposit Ratio

Q1. How is the loan-to-deposit ratio calculated?
A1. A small institution's loan-to-deposit ratio is calculated in
the same manner that the Uniform Bank Performance Report/Uniform Thrift
Performance Report (UBPR/UTPR) determines the ratio. It is calculated
by dividing the institution's net loans and leases by its total
deposits. The ratio is found in the Liquidity and Investment Portfolio
section of the UBPR and UTPR. Examiners will use this ratio to
calculate an average since the last examination by adding the quarterly
loan-to-deposit ratios and dividing the total by the number of
quarters.
Q2. How is the ``reasonableness'' of a loan-to-deposit ratio
evaluated?
A2. No specific ratio is reasonable in every circumstance, and each
small institution's ratio is evaluated in light of information from the
performance context, including the institution's capacity to lend,
demographic and economic factors present in the assessment area, and
the lending opportunities available in the assessment area(s). If a
small institution's loan-to-deposit ratio appears unreasonable after
considering this information, lending performance may still be
satisfactory under this criterion taking into consideration the number
and the dollar volume of loans sold to the secondary market or the
number and amount and innovativeness or complexity of community
development loans and lending-related qualified investments.
Q3. If an institution makes a large number of loans off-shore, will
examiners segregate the domestic loan-to-deposit ratio from the foreign
loan-to-deposit ratio?
A3. No. Examiners will look at the institution's net loan-to-
deposit ratio for the whole institution, without any adjustments.

Sec. ____.26(a)(2) Percentage of Lending Within Assessment Area(s)

Q1. Must a small institution have a majority of its lending in its
assessment area(s) to receive a satisfactory performance rating?
A1. No. The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s) is but one
of the performance criteria upon which small institutions are
evaluated. If the percentage of loans and other lending related
activities in an institution's assessment area(s) is less than a
majority, then the institution does not meet the standards for
satisfactory performance only under this criterion. The effect on the
overall performance rating of the institution, however, is considered
in light of the performance context, including information regarding
economic conditions, loan demand, the institution's size, financial
condition and business strategies, and branching network and other
aspects of the institution's lending record.

Sec. ____.26(a)(3) & (4) Distribution of Lending Within Assessment
Area(s) by Borrower Income and Geographic Location

Q1. How will a small institution's performance be assessed under
these lending distribution criteria?
A1. Distribution of loans, like other small institution performance
criteria, is considered in light of the performance context. For
example, a small institution is not required to lend evenly throughout
its assessment area(s) or in any particular geography. However, in
order to meet the standards for satisfactory performance under this
criterion, conspicuous gaps in a small institution's loan distribution
must be adequately explained by performance context factors such as
lending opportunities in the institution's assessment area(s), the
institution's product offerings and business strategy, and
institutional capacity and constraints. In addition, it may be
impracticable to review the geographic distribution of the lending of
an institution with few demographically distinct geographies within an
assessment area. If sufficient information on the income levels of
individual borrowers or the revenues or sizes of business borrowers is
not available, examiners may use proxies such as loan size for
estimating borrower characteristics, where appropriate.

Sec. ____.26(b) Performance Rating

Q1. How can a small institution achieve an ``outstanding''
performance rating?
A1. A small institution that meets each of the standards for a
``satisfactory'' rating and exceeds some or all of those standards may
warrant an ``outstanding'' performance rating. In assessing performance
at the ``outstanding'' level, the agencies consider the extent to which
the institution exceeds each of the performance standards and, at the
institution's option, its performance in making qualified investments
and providing services that enhance credit availability in its
assessment area(s). In some cases, a small institution may qualify for
an ``outstanding''

[[Page 23640]]

performance rating solely on the basis of its lending activities, but
only if its performance materially exceeds the standards for a
``satisfactory'' rating, particularly with respect to the penetration
of borrowers at all income levels and the dispersion of loans
throughout the geographies in its assessment area(s) that display
income variation. An institution with a high loan-to-deposit ratio and
a high percentage of loans in its assessment area(s), but with only a
reasonable penetration of borrowers at all income levels or a
reasonable dispersion of loans throughout geographies of differing
income levels in its assessment area(s), generally will not be rated
``outstanding'' based only on its lending performance. However, the
institution's performance in making qualified investments and its
performance in providing branches and other services and delivery
systems that enhance credit availability in its assessment area(s) may
augment the institution's satisfactory rating to the extent that it may
be rated ``outstanding.''
Q2. Will a small institution's qualified investments, community
development loans, and community development services be considered if
they do not directly benefit its assessment area(s)?
A2. Yes. These activities are eligible for consideration if they
benefit a broader statewide or regional area that includes a small
institution's assessment area(s), as discussed more fully in Q&A6
addressing Secs. ____.12(i) and 563e.12(h).

Sec. ____.27--Strategic Plan

Sec. ____.27(c) Plans in General

Q1. To what extent will the agencies provide guidance to an
institution during the development of its strategic plan?
A1. An institution will have an opportunity to consult with and
provide information to the agencies on a proposed strategic plan.
Through this process, an institution is provided guidance on procedures
and on the information necessary to ensure a complete submission. For
example, the agencies will provide guidance on whether the level of
detail as set out in the proposed plan would be sufficient to permit
agency evaluation of the plan. However, the agencies' guidance during
plan development and, particularly, prior to the public comment period,
will not include commenting on the merits of a proposed strategic plan
or on the adequacy of measurable goals.
Q2. How will a joint strategic plan be reviewed if the affiliates
have different primary Federal supervisors?
A2. The agencies will coordinate review of and action on the joint
plan. Each agency will evaluate the measurable goals for those
affiliates for which it is the primary regulator.

Sec. ____.27(f) Plan Content

Sec. ____.27(f)(1) Measurable Goals

Q1. How should ``measurable goals'' be specified in a strategic
plan?
A1. Measurable goals (e.g., number of loans, dollar amount,
geographic location of activity, and benefit to low-and moderate-income
areas or individuals) must be stated with sufficient specificity to
permit the public and the agencies to quantify what performance will be
expected. However, institutions are provided flexibility in specifying
goals. For example, an institution may provide ranges of lending
amounts in different categories of loans. Measurable goals may also be
linked to funding requirements of certain public programs or indexed to
other external factors as long as these mechanisms provide a
quantifiable standard.

Sec. ____.27(g) Plan Approval

Sec. ____.27(g)(2) Public Participation

Q1. How will the public receive notice of a proposed strategic
plan?
A1. An institution submitting a strategic plan for approval by the
agencies is required to solicit public comment on the plan for a period
of thirty (30) days after publishing notice of the plan at least once
in a newspaper of general circulation. The notice should be
sufficiently prominent to attract public attention and should make
clear that public comment is desired. An institution may, in addition,
provide notice to the public in any other manner it chooses.

Sec. ____.28--Assigned Ratings

Q1. Are innovative lending practices, innovative or complex
qualified investments, and innovative community development services
required for a ``satisfactory'' or ``outstanding'' CRA rating?
A1. No. Moreover, the lack of innovative lending practices,
innovative or complex qualified investments, or innovative community
development services alone will not result in a ``needs to improve''
CRA rating. However, the use of innovative lending practices,
innovative or complex qualified investments, and innovative community
development services may augment the consideration given to an
institution's performance under the quantitative criteria of the
regulations, resulting in a higher level of performance rating.
Q2. How is performance under the quantitative and qualitative
performance criteria weighed when examiners assign a CRA rating?
A2. The lending, investment, and service tests each contain a
number of performance criteria designed to measure whether an
institution is effectively helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods, in
a safe and sound manner. Some of these performance criteria are
quantitative, such as number and amount, and others, such as the use of
innovative or flexible lending practices, the innovativeness or
complexity of qualified investments, and the innovativeness and
responsiveness of community development services, are qualitative. The
performance criteria that deal with these qualitative aspects of
performance recognize that these loans, qualified investments, and
community development services sometimes require special expertise and
effort on the part of the institution and provide a benefit to the
community that would not otherwise be possible. As such, the agencies
consider the qualitative aspects of an institution's activities when
measuring the benefits received by a community. An institution's
performance under these qualitative criteria may augment the
consideration given to an institution's performance under the
quantitative criteria of the regulations, resulting in a higher level
of performance and rating.

Sec. ____.28(a) Ratings in General

Q1. How are institutions with domestic branches in more than one
state assigned a rating?
A1. The evaluation of an institution that maintains domestic
branches in more than one state (``multistate institution'') will
include a written evaluation and rating of its CRA record of
performance as a whole and in each state in which it has a domestic
branch. The written evaluation will contain a separate presentation on
a multistate institution's performance for each metropolitan
statistical area and the nonmetropolitan area within each state, if it
maintains one or more domestic branch offices in these areas. This
separate presentation will contain conclusions, supported by facts and
data, on performance under the performance tests and standards in the
regulation. The evaluation of a multistate institution that maintains a
domestic branch in two or more states in a multistate metropolitan area
will

[[Page 23641]]

include a written evaluation (containing the same information described
above) and rating of its CRA record of performance in the multistate
metropolitan area. In such cases, the statewide evaluation and rating
will be adjusted to reflect performance in the portion of the state not
within the multistate metropolitan statistical area.
Q2. How are institutions that operate within only a single state
assigned a rating?
A2. An institution that operates within only a single state
(``single-state institution'') will be assigned a rating of its CRA
record based on its performance within that state. In assigning this
rating, the agencies will separately present a single-state
institution's performance for each metropolitan area in which the
institution maintains one or more domestic branch offices. This
separate presentation will contain conclusions, supported by facts and
data, on the single-state institution's performance under the
performance tests and standards in the regulation.
Q3. How do the agencies weight performance under the lending,
investment and service test for large retail institutions?
A3. A rating of ``outstanding,'' ``high satisfactory,'' ``low
satisfactory,'' ``needs to improve,'' or ``substantial noncompliance,''
based on a judgment supported by facts and data, will be assigned under
each performance test. Points will then be assigned to each rating as
described in the first matrix set forth below. A large retail
institution's overall rating under the lending, investment and service
tests will then be calculated in accordance with the second matrix set
forth below, which incorporates the rating principles in the
regulation.

Points Assigned for Performance Under Lending, Investment and Service
Tests
------------------------------------------------------------------------
Lending Service Investment
------------------------------------------------------------------------
Outstanding............................... 12 6 6
High Satisfactory......................... 9 4 4
Low Satisfactory.......................... 6 3 3
Needs to Improve.......................... 3 1 1
Substantial Noncompliance................. 0 0 0
------------------------------------------------------------------------

Composite Rating Point Requirements
[Add points from three tests]
------------------------------------------------------------------------
Rating Total points
------------------------------------------------------------------------
Outstanding............................ 20 or over.
Satisfactory........................... 11 through 19.
Needs to Improve....................... 5 through 10
Substantial Noncompliance.............. 0 through 4.
------------------------------------------------------------------------
Note: There is one exception to the Composite Rating matrix. An
institution may not receive a rating of ``satisfactory'' unless it
receives at least ``low satisfactory'' on the lending test. Therefore,
the total points are capped at three times the lending test score.

Sec. ____.29--Effect of CRA Performance on Applications

Sec. ____.29(a) CRA Performance

Q1. What weight is given to an institution's CRA performance
examination in reviewing an application?
A1. In cases in which CRA performance is a relevant factor,
information from a CRA performance examination of the institution is a
particularly important consideration in the applications process
because it represents a detailed evaluation of the institution's CRA
performance by its Federal supervisory agency. In this light, an
examination is an important, and often controlling, factor in the
consideration of an institution's record. In some cases, however, the
examination may not be recent or a specific issue raised in the
application process, such as progress in addressing weaknesses noted by
examiners, progress in implementing commitments previously made to the
reviewing agency, or a supported allegation from a commenter, is
relevant to CRA performance under the regulation and was not addressed
in the examination. In these circumstances, the applicant should
present sufficient information to supplement its record of performance
and to respond to the substantive issues raised in the application
proceeding.
Q2. What consideration is given to an institution's commitments for
future action in reviewing an application by those agencies that
consider such commitments?
A2. Commitments for future action are not viewed as part of the CRA
record of performance. In general, institutions cannot use commitments
made in the applications process to overcome a seriously deficient
record of CRA performance. However, commitments for improvements in an
institution's performance may be appropriate to address specific
weaknesses in an otherwise satisfactory record or to address CRA
performance when a financially troubled institution is being acquired.

Sec. ____.29(b) Interested Parties

Q1. What consideration is given to comments from interested parties
in reviewing an application?
A1. Materials relating to CRA performance received during the
applications process can provide valuable information. Written
comments, which may express either support for or opposition to the
application, are made a part of the record in accordance with the
agencies' procedures, and are carefully considered in making the
agencies' decision. Comments should be supported by facts about the
applicant's performance and should be as specific as possible in
explaining the basis for supporting or opposing the application. These
comments must be submitted within the time limits provided under the
agencies' procedures.
Q2. Is an institution required to enter into agreements with
private parties?
A2. No. Although communications between an institution and members
of its community may provide a valuable method for the institution to
assess how best to address the credit needs of the community, the CRA
does not require an institution to enter into agreements with private
parties. These agreements are not monitored or enforced by the
agencies.

Sec. ____.41--Assessment Area Delineation

Sec. ____.41(a) In General

Q1. How do the agencies evaluate ``assessment areas'' under the
revised CRA regulations compared to how they evaluated ``local
communities'' that institutions delineated under the original CRA
regulations?
A1. The revised rule focuses on the distribution and level of an
institution's lending, investments, and services rather than on how and
why an institution delineated its ``local community'' or assessment
area(s) in a particular manner. Therefore, the agencies will not
evaluate an institution's delineation of its assessment area(s) as a
separate performance criterion as they did under the original
regulation. Rather, the agencies will only review whether the
assessment area delineated by the institution complies with the
limitations set forth in the regulations at Sec. ____.41(e).
Q2. If an institution elects to have the agencies consider
affiliate lending, will this decision affect the institution's
assessment area(s)?

[[Page 23642]]

A2. If an institution elects to have the lending activities of its
affiliates considered in the evaluation of the institution's lending,
the geographies in which the affiliate lends do not affect the
institution's delineation of assessment area(s).
Q3. Can a financial institution identify a specific ethnic group
rather than a geographic area as its assessment area?
A3. No, assessment areas must be based on geography.

Sec. ____.41(c) Geographic Area(s) for Institutions Other Than
Wholesale or Limited Purpose Institutions

Sec. ____.41(c)(1) Generally Consist of One or More MSAs or One or More
Contiguous Political Subdivisions

Q1. Besides cities, towns, and counties, what other units of local
government are political subdivisions for CRA purposes?
A1. Townships and Indian reservations are political subdivisions
for CRA purposes. Institutions should be aware that the boundaries of
townships and Indian reservations may not be consistent with the
boundaries of the census tracts or block numbering areas
(``geographies'') in the area. In these cases, institutions must ensure
that their assessment area(s) consists only of whole geographies by
adding any portions of the geographies that lie outside the political
subdivision to the delineated assessment area(s).
Q2. Are wards, school districts, voting districts, and water
districts political subdivisions for CRA purposes?
A2. No. However, an institution that determines that it
predominantly serves an area that is smaller than a city, town or other
political subdivision may delineate as its assessment area the larger
political subdivision and then, in accordance with Sec. ____.41(d),
adjust the boundaries of the assessment area to include only the
portion of the political subdivision that it reasonably can be expected
to serve. The smaller area that the institution delineates must consist
of entire geographies, may not reflect illegal discrimination, and may
not arbitrarily exclude low- or moderate-income geographies.

Sec. ____.41(d) Adjustments to Geographic Area(s)

Q1. When may an institution adjust the boundaries of an assessment
area to include only a portion of a political subdivision?
A1. Institutions must include whole geographies (i.e., census
tracts or block numbering areas) in their assessment areas and
generally should include entire political subdivisions. Because census
tracts and block numbering areas are the common geographic areas used
consistently nationwide for data collection, the agencies require that
assessment areas be made up of whole geographies. If including an
entire political subdivision would create an area that is larger than
the area the institution can reasonably be expected to serve, an
institution may, but is not required to, adjust the boundaries of its
assessment area to include only portions of the political subdivision.
For example, this adjustment is appropriate if the assessment area
would otherwise be extremely large, of unusual configuration, or
divided by significant geographic barriers (such as a river, mountain,
or major highway system). When adjusting the boundaries of their
assessment areas, institutions must not arbitrarily exclude low- or
moderate-income geographies or set boundaries that reflect illegal
discrimination.

Sec. ____.41(e) Limitations on Delineation of an Assessment Area

Sec. ____.41(e)(3) May Not Arbitrarily Exclude Low- or Moderate-income
Geographies

Q1. How will examiners determine whether an institution has
arbitrarily excluded low- or moderate-income geographies?
A1. Examiners will make this determination on a case-by-case basis
after considering the facts relevant to the institution's assessment
area delineation. Information that examiners will consider may include:
<bullet> Income levels in the institution's assessment area(s) and
surrounding geographies;
<bullet> Locations of branches and deposit-taking ATMs;
<bullet> Loan distribution in the institution's assessment area(s)
and surrounding geographies;
<bullet> The institution's size;
<bullet> The institution's financial condition; and
<bullet> The business strategy, corporate structure and product
offerings of the institution.

Sec. ____.41(e)(4) May Not Extend Substantially Beyond a CMSA Boundary
or Beyond a State Boundary Unless Located in a Multistate MSA

Q1. What are the maximum limits on the size of an assessment area?
A1. An institution shall not delineate an assessment area extending
substantially across the boundaries of a consolidated metropolitan
statistical area (CMSA) or the boundaries of an MSA, if the MSA is not
located in a CMSA. Similarly, an assessment area may not extend
substantially across state boundaries unless the assessment area is
located in a multistate MSA. An institution may not delineate a whole
state as its assessment area unless the entire state is contained
within a CMSA. These limitations apply to wholesale and limited purpose
institutions as well as other institutions.
An institution shall delineate separate assessment areas for the
areas inside and outside a CMSA (or MSA if the MSA is not located in a
CMSA) if the area served by the institution's branches outside the CMSA
(or MSA) extends substantially beyond the CMSA (or MSA) boundary.
Similarly, the institution shall delineate separate assessment areas
for the areas inside and outside of a state if the institution's
branches extend substantially beyond the boundary of one state (unless
the assessment area is located in a multistate MSA). In addition, the
institution should also delineate separate assessment areas if it has
branches in areas within the same state that are widely separate and
not at all contiguous. For example, an institution that has its main
office in New York City and a branch in Buffalo, New York, and each
office serves only the immediate areas around it, should delineate two
separate assessment areas.
Q2. Can an institution delineate one assessment area that consists
of an MSA and two large counties that abut the MSA but are not adjacent
to each other?
A2. As a general rule, an institution's assessment area should not
extend substantially beyond the boundary of an MSA if the MSA is not
located in a CMSA. Therefore, the MSA would be a separate assessment
area, and because the two abutting counties are not adjacent to each
other and, in this example, extend substantially beyond the boundary of
the MSA, the institution would delineate each county as a separate
assessment area (so, in this example, there would be three assessment
areas). However, if the MSA and the two counties were in the same CMSA,
then the institution could delineate only one assessment area including
them all.

Sec. ____.42--Data Collection, Reporting, and Disclosure

Q1. When must an institution collect and report data under the CRA
regulations?
A1. All institutions except small institutions are subject to data
collection and reporting requirements. A small institution is a bank or
thrift that, as of December 31 of either of the prior two calendar
years, had total assets of less

[[Page 23643]]

than $250 million and was independent or an affiliate of a holding
company that, as of December 31 of either of the prior two calendar
years, had total banking and thrift assets of less than $1 billion.
For example:

------------------------------------------------------------------------
Data collection
Institution's required for following
Date asset size calendar year?
($ million) (million)
------------------------------------------------------------------------
12/31/94........................ $240 No.
12/31/95........................ 260 No.
12/31/96........................ 230 No.
12/31/97........................ 280 No.
12/31/98........................ 260 Yes, beginning
1/01/99.
------------------------------------------------------------------------

All institutions that are subject to the data collection and
reporting requirements must report the data for a calendar year by
March 1 of the subsequent year. In the example, above, the institution
would report the data collected for calendar year 1999 by March 1,
2000.
The Board of Governors of the Federal Reserve System is handling
the processing of the reports for all of the primary regulators. The
reports should be submitted in a prescribed electronic format on a
timely basis. The mailing address for submitting these reports is:
Attention: CRA Processing, Board of Governors of the Federal Reserve
System, 1709 New York Avenue, N.W., 5th Floor, Washington, DC 20006.
Q2. Should an institution develop its own program for data
collection, or will the regulators require a certain format?
A2. An institution may use the free software that is provided by
the FFIEC to reporting institutions for data collection and reporting
or develop its own program. Those institutions that develop their own
programs must follow the precise format for the new CRA data collection
and reporting rules. This format may be obtained by contacting the CRA
Assistance Line at (202) 872-7584.
Q3. How should an institution report data on lines of credit?
A3. Institutions must collect and report data on lines of credit in
the same way that they provide data on loan originations. Lines of
credit are considered originated at the time the line is approved or
increased; and an increase is considered a new origination. Generally,
the full amount of the credit line is the amount that is considered
originated. In the case of an increase to an existing line, the amount
of the increase is the amount that is considered originated and that
amount should be reported.
Q4. Should renewals of lines of credit be reported?
A4. No. Similar to loan renewals, renewals of lines of credit are
not considered loan originations and should not be reported.
Q5. When should merging institutions collect data?
A5. Three scenarios of data collection responsibilities for the
calendar year of a merger and subsequent data reporting
responsibilities are described below.
<bullet> Two institutions are exempt from CRA collection and
reporting requirements because of asset size. The institutions merge.
No data collection is required for the year in which the merger takes
place, regardless of the resulting asset size. Data collection would
begin after two consecutive years in which the combined institution had
year-end assets of at least $250 million or was part of a holding
company that had year-end banking and thrift assets of at least $1
billion.
<bullet> Institution A, an institution required to collect and
report the data, and Institution B, an exempt institution, merge.
Institution A is the surviving institution. For the year of the merger,
data collection is required for Institution A's transactions. Data
collection is optional for the transactions of the previously exempt
institution. For the following year, all transactions of the surviving
institution must be collected and reported.
<bullet> Two institutions that each are required to collect and
report the data merge. Data collection is required for the entire year
of the merger and for subsequent years so long as the surviving
institution is not exempt. The surviving institution may file either a
consolidated submission or separate submissions for the year of the
merger but must file a consolidated report for subsequent years.
Q6. Can small institutions get a copy of the data collection
software even though they are not required to collect or report data?
A6. Yes. Any institution that is interested in receiving a copy of
the software may send a written request to: Attn.: CRA Processing,
Board of Governors of the Federal Reserve System, 1709 New York Ave,
N.W., 5th Floor, Washington, DC 20006.
They may also call the CRA Assistance Line at (202) 872-7584 or
send Internet e-mail to CRAHELP@FRB.GOV.
Q7. If a small institution is designated a wholesale or limited
purpose institution, must it collect data that it would not otherwise
be required to collect because it is a small institution?
A7. No. However, small institutions must be prepared to identify
those loans, investments and services to be evaluated under the
community development test.

Sec. ____.42(a) Loan Information Required to be Collected and
Maintained

Q1. Must institutions collect and report data on all commercial
loans under $1 million at origination?
A1. No. Institutions that are not exempt from data collection and
reporting are required to collect and report only those commercial
loans that they capture in the Call Report, Schedule RC-C, Part II, and
in the TFR, Schedule SB. Small business loans are defined as those
whose original amounts are $1 million or less and that were reported as
either ``Loans secured by nonfarm or nonresidential real estate'' or
``Commercial and Industrial loans'' in Part I of the Call Report or
TFR.
Q2. For loans defined as small business loans, what information
should be collected and maintained?
A2. Institutions that are not exempt from data collection and
reporting are required to collect and maintain in a standardized,
machine readable format information on each small business loan
originated or purchased for each calendar year:
<bullet> A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
<bullet> The loan amount at origination; The loan location; and
<bullet> An indicator whether the loan was to a business with gross
annual revenues of $1 million or less.
<bullet> The location of the loan must be maintained by census
tract or block numbering area. In addition, supplemental information
contained in the file specifications includes a date associated with
the origination or purchase and whether a loan was originated or
purchased by an affiliate. The same requirements apply to small farm
loans.
Q3. Will farm loans need to be segregated from business loans?
A3. Yes.
Q4. Should institutions collect and report data on all agricultural
loans under $500,000 at origination?
A4. Institutions are to report those farm loans that they capture
in the Call Report, Schedule RC-C, Part II and Schedule SB of the TFR.
Small farm loans are defined as those whose original amounts are
$500,000 or less and were reported as either ``Loans to finance
agricultural production and other loans to farmers'' or ``Loans

[[Page 23644]]

secured by farmland'' in Part I of the Call Report and TFR.
Q5. Should institutions collect and report data about small
business and small farm loans that are refinanced or renewed?
A5. An institution collects and reports information about
refinancings but does not collect and report information about
renewals. A refinancing typically involves the satisfaction of an
existing obligation that is replaced by a new obligation undertaken by
the same borrower. When an institution refinances a loan, it is
considered a new origination, and loan data should be collected and
reported, if otherwise required. Consistent with HMDA, however, if
under the original loan agreement, the institution is unconditionally
obligated to refinance the loan, or is obligated to refinance the loan
subject to conditions within the borrower's control, the institution
would not report these events as originations.
For purposes of the CRA data collection and reporting requirements,
an extension of the maturity of an existing loan is a renewal, and is
not considered a loan origination. Therefore, institutions should not
collect and report data on loan renewals.
Q6. Does a loan to the ``fishing industry'' come under the
definition of a small farm loan?
A6. Yes. Instructions for Part I of the Call Report and Schedule SB
of the TFR include loans ``made for the purpose of financing fisheries
and forestries, including loans to commercial fishermen'' as a
component of the definition for ``Loans to finance agricultural
production and other loans to farmers.'' Part II of Schedule RC-C of
the Call Report and Schedule SB of the TFR, which serve as the basis of
the definition for small business and small farm loans in the revised
regulation, capture both ``Loans to finance agricultural production and
other loans to farmers'' and ``Loans secured by farmland.''
Q7. How should an institution report a home equity line of credit,
part of which is for home improvement purposes, but the predominant
part of which is for small business purposes?
A7. The institution has the option of reporting the portion of the
home equity line that is for home improvement purposes under HMDA. That
portion of the loan would then be considered when examiners evaluate
home mortgage lending. If the line meets the regulatory definition of a
``community development loan,'' the institution should collect and
report information on the entire line as a community development loan.
If the line does not qualify as a community development loan, the
institution has the option of collecting and maintaining (but not
reporting) the entire line of credit as ``Other Secured Lines/Loans for
Purposes of Small Business.''
Q8. When collecting small business and small farm data for CRA
purposes, may an institution collect and report information about loans
to small businesses and small farms located outside the United States?
A8. At an institution's option, it may collect data about small
business and small farm loans located outside the United States;
however, it cannot report this data because the CRA data collection
software will not accept data concerning loan locations outside the
United States.
Q9. Is an institution that has no small farm or small business
loans required to report under CRA?
A9. Each institution subject to data reporting requirements must,
at a minimum, submit a transmittal sheet, definition of its assessment
area(s), and a record of its community development loans. If the
institution does not have community development loans to report, the
record should be sent with ``0'' in the community development loan
composite data fields. An institution that has not purchased or
originated any small business or small farm loans during the reporting
period would not submit the composite loan records for small business
or small farm loans.
Q10. How should an institution collect and report the location of a
loan made to a small business or farm if the borrower provides an
address that consists of a post office box number or a rural route and
box number?
A10. Prudent banking practices dictate that an institution know the
location of its customers and loan collateral. Therefore, institutions
typically will know the actual location of their borrowers or loan
collateral beyond an address consisting only of a post office box.
Many borrowers have street addresses in addition to post office box
numbers or rural route and box numbers. Institutions should ask their
borrowers to provide the street address of the main business facility
or farm or the location where the loan proceeds otherwise will be
applied. Moreover, in many cases in which the borrower's address
consists only of a rural route number or post office box, the
institution knows the location (i.e., the census tract or block
numbering area) of the borrower or loan collateral. Once the
institution has this information available, it should assign a census
tract or block numbering area to that location (geocode) and report
that information as required under the regulation.
For loans originated or purchased in 1998 or later, if the
institution cannot determine the borrower's street address, and does
not know the census tract or block numbering area, the institution
should report the borrower's state, county, MSA, if applicable, and
``NA,'' for ``not available,'' in lieu of a census tract or block
numbering area code.

Sec. ____.42(a)(2) Loan Amount at Origination

Q1. When an institution purchases a small business or small farm
loan, which amount should the institution collect and report--the
original amount of the loan or the amount at purchase?
A1. When collecting and reporting information on purchased small
business and small farm loans, an institution collects and reports the
amount of the loan at origination, not at the time of purchase. This is
consistent with the Call Report's and TFR's use of the ``original
amount of the loan'' to determine whether a loan should be reported as
a ``loan to a small business'' or a ``loan to a small farm'' and in
which loan size category a loan should be reported. When assessing the
volume of small business and small farm loan purchases for purposes of
evaluating lending test performance under CRA, however, examiners will
evaluate an institution's activity based on the amounts at purchase.
Q2. How should an institution collect data about multiple loan
originations to the same business?
A2. If an institution makes multiple originations to the same
business, the loans should be collected and reported as separate
originations rather than combined and reported as they are on the Call
Report or TFR, which reflect loans outstanding, rather than
originations. However, if institutions make multiple originations to
the same business solely to inflate artificially the number or volume
of loans evaluated for CRA lending performance, the agencies may
combine these loans for purposes of evaluation under the CRA.
Q3. How should an institution collect data pertaining to credit
cards issued to small businesses?
A3. If an institution agrees to issue credit cards to a business'
employees, all of the credit card lines opened on a particular date for
that single business should be reported as one small business loan
origination rather than reporting each individual credit card line,
assuming the criteria in the ``small

[[Page 23645]]

business loan'' definition in the regulation are met. The credit card
program's ``amount at origination'' is the sum of all of the employee/
business credit cards'' credit limits opened on a particular date. If
subsequently issued credit cards increase the small business credit
line, the added amount is reported as a new origination.

Sec. ____.42(a)(3) The Loan Location

Q1. Which location should an institution record if a small business
loan's proceeds are used in a variety of locations?
A1. The institution should record the loan location by either the
location of the business headquarters or the location where the
greatest portion of the proceeds are applied, as indicated by the
borrower.

Sec. ____.42(a)(4) Indicator of Gross Annual Revenue

Q1. When indicating whether a small business borrower had gross
annual revenues of $1 million or less, upon what revenues should an
institution rely?
A1. Generally, an institution should rely on the revenues that it
considered in making its credit decision. For example, in the case of
affiliated businesses, such as a parent corporation and its subsidiary,
if the institution considered the revenues of the entity's parent or a
subsidiary corporation of the parent as well, then the institution
would aggregate the revenues of both corporations to determine whether
the revenues are $1 million or less. Alternatively, if the institution
considered the revenues of only the entity to which the loan is
actually extended, the institution should rely solely upon whether
gross annual revenues are above or below $1 million for that entity.
However, if the institution considered and relied on revenues or income
of a cosigner or guarantor that is not an affiliate of the borrower,
the institution should not adjust the borrower's revenues for reporting
purposes.
Q2. If an institution that is not exempt from data collection and
reporting does not request or consider revenue information to make the
credit decision regarding a small business or small farm loan, must the
institution collect revenue information in connection with that loan?
A2. No. In those instances, the institution should enter the code
indicating ``revenues not known'' on the individual loan portion of the
data collection software or on an internally developed system. Loans
for which the institution did not collect revenue information may not
be included in the loans to businesses and farms with gross annual
revenues of $1 million or less when reporting this data.
Q3. What gross revenue should an institution use in determining the
gross annual revenue of a start-up business?
A3. The institution should use the actual gross annual revenue to
date (including $0 if the new business has had no revenue to date).
Although a start-up business will provide the institution with pro
forma projected revenue figures, these figures may not accurately
reflect actual gross revenue.
Q4: When collecting and reporting the gross annual revenue of small
business or farm borrowers, do institutions collect and report the
gross annual revenue or the adjusted gross annual revenue of its
borrowers?
A4: Institutions collect and report the gross annual revenue,
rather than the adjusted gross annual revenue, of their small business
or farm borrowers. The purpose of this data collection is to enable
examiners and the public to judge whether the institution is lending to
small businesses and farms or whether it is only making small loans to
larger businesses and farms.
The regulation does not require institutions to request or consider
revenue information when making a loan; however, if institutions do
gather this information from their borrowers, the agencies expect them
to collect and report the borrowers' gross annual revenue for purposes
of CRA. The CRA regulations similarly do not require institutions to
verify revenue amounts; thus, institutions may rely on the gross annual
revenue amount provided by borrowers in the ordinary course of
business. If an institution does not collect gross annual revenue
information for its small business and small farm borrowers, the
institution would not indicate on the CRA data collection software that
the gross annual revenues of the borrower are $1 million or less. (See
Q&A2 regarding Sec. ____.42(a)(4).)

Sec. ____.42(b) Loan Information Required to be Reported

Sec. ____.42(b)(1) Small Business and Small Farm Loan Data

Q1. For small business and small farm loan information that is
collected and maintained, what data should be reported?
A1. Each institution that is not exempt from data collection and
reporting is required to report in machine-readable form annually by
March 1 the following information, aggregated for each census tract or
block numbering area in which the institution originated or purchased
at least one small business or small farm loan during the prior year:
<bullet> The number and amount of loans originated or purchased
with original amounts of $100,000 or less;
<bullet> The number and amount of loans originated or purchased
with original amounts of more than $100,000 but less than or equal to
$250,000;
<bullet> The number and amount of loans originated or purchased
with original amounts of more than $250,000 but not more than $1
million, as to small business loans, or $500,000, as to small farm
loans; and
<bullet> To the extent that information is available, the number
and amount of loans to businesses and farms with gross annual revenues
of $1 million or less (using the revenues the institution considered in
making its credit decision).

Sec. ____.42(b)(2) Community Development Loan Data

Q1. What information about community development loans must
institutions report?
A1. Institutions subject to data reporting requirements must report
the aggregate number and amount of community development loans
originated and purchased during the prior calendar year.
Q2. If a loan meets the definition of a home mortgage, small
business, or small farm loan AND qualifies as a community development
loan, where should it be reported? Can FHA, VA and SBA loans be
reported as community development loans?
A2. Except for multifamily affordable housing loans, which may be
reported by retail institutions both under HMDA as home mortgage loans
and as community development loans, in order to avoid double counting,
retail institutions must report loans that meet the definitions of home
mortgage, small business, or small farm loans only in those respective
categories even if they also meet the definition of community
development loans. As a practical matter, this is not a disadvantage
for retail institutions because any affordable housing mortgage, small
business, small farm or consumer loan that would otherwise meet the
definition of a community development loan will be considered elsewhere
in the lending test. Any of these types of loans that occur outside the
institution's assessment area can receive consideration under the
borrower characteristic criteria of the lending test. See Q&A4 under
Sec. ____.22(b)(2) & (3).

[[Page 23646]]

Limited purpose and wholesale institutions also must report loans
that meet the definitions of home mortgage, small business, or small
farm loans in those respective categories; however, they must also
report any loans from those categories that meet the regulatory
definition of ``community development loans'' as community development
loans. There is no double counting because wholesale and limited
purpose institutions are not subject to the lending test and,
therefore, are not evaluated on their level and distribution of home
mortgage, small business, small farm and consumer loans.
Q3. When the primary purpose of a loan is to finance an affordable
housing project for low-or moderate-income individuals, but, for
example, only 40% of the units in question will actually be occupied by
individuals or families with low or moderate incomes, should the entire
loan amount be reported as a community development loan?
A3. Yes. As long as the primary purpose of the loan is a community
development purpose, the full amount of the institution's loan should
be included in its reporting of aggregate amounts of community
development lending. However, as noted in Q&A1 addressing
Sec. ____.22(b)(4), examiners may make qualitative distinctions among
community development loans on the basis of the extent to which the
loan advances the community development purpose.

Sec. ____.42(b)(3) Home Mortgage Loans

Q1. Must institutions that are not required to collect home
mortgage loan data by the HMDA collect home mortgage loan data for
purposes of the CRA?
A1. No. If an institution is not required to collect home mortgage
loan data by the HMDA, the institution need not collect home mortgage
loan data under the CRA. Examiners will sample these loans to evaluate
the institution's home mortgage lending. If an institution wants to
ensure that examiners consider all of its home mortgage loans, the
institution may collect and maintain data on these loans.

Sec. ____.42(c) Optional Data Collection and Maintenance

Sec. ____.42(c)(1) Consumer Loans

Q1. What are the data requirements regarding consumer loans?
A1. There are no data reporting requirements for consumer loans.
Institutions may, however, opt to collect and maintain data on consumer
loans. If an institution chooses to collect information on consumer
loans, it may collect data for one or more of the following categories
of consumer loans: motor vehicle, credit card, home equity, other
secured, and other unsecured. If an institution collects data for loans
in a certain category, it must collect data for all loans originated or
purchased within that category. The institution must maintain these
data separately for each category for which it chooses to collect data.
The data collected and maintained should include for each loan:
<bullet> A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
<bullet> The loan amount at origination or purchase;
<bullet> The loan location; and
<bullet> The gross annual income of the borrower that the
institution considered in making its credit decision.
Generally, guidance given with respect to data collection of small
business and small farm loans, including, for example, guidance
regarding collecting loan location data, and whether to collect data in
connection with refinanced or renewed loans, will also apply to
consumer loans.

Sec. ____.42(c)(1)(iv) Income of Borrower

Q1. If an institution does not consider income when making an
underwriting decision in connection with a consumer loan, must it
collect income information?
A1. No. Further, if the institution routinely collects, but does
not verify, a borrower's income when making a credit decision, it need
not verify the income for purposes of data maintenance.
Q2. May an institution list ``0'' in the income field on consumer
loans made to employees when collecting data for CRA purposes as the
institution would be permitted to do under HMDA?
A2. Yes.
Q3. When collecting the gross annual income of consumer borrowers,
do institutions collect the gross annual income or the adjusted gross
annual income of the borrowers?
A3. Institutions collect the gross annual income, rather than the
adjusted gross annual income, of consumer borrowers. The purpose of
income data collection in connection with consumer loans is to enable
examiners to determine the distribution, particularly in the
institution's assessment area(s), of the institution's consumer loans,
based on borrower characteristics, including the number and amount of
consumer loans to low-, moderate-, middle-, and upper-income borrowers,
as determined on the basis of gross annual income.
The regulation does not require institutions to request or consider
income information when making a loan; however, if institutions do
gather this information from their borrowers, the agencies expect them
to collect the borrowers' gross annual income for purposes of CRA. The
CRA regulations similarly do not require institutions to verify income
amounts; thus, institutions may rely on the gross annual income amount
provided by borrowers in the ordinary course of business.

Sec. ____.42(c)(2) Other Loan Data

Q1. Schedule RC-C, Part II of the Call Report and schedule SB of
the TFR do not allow financial institutions to report loans for
commercial and industrial purposes that are secured by residential real
estate. Loans extended to small businesses with gross annual revenues
of $1 million or less may, however, be secured by residential real
estate. Is there a way to collect this information on the software to
supplement an institution's small business lending data at the time of
examination?
A1. Yes. If these loans promote community development, as defined
in the regulation, the institution should collect and report
information about these loans as community development loans.
Otherwise, at an institution's option, it may collect and maintain data
concerning loans, purchases, and lines of credit extended to small
businesses and secured by residential real estate for consideration in
the CRA evaluation of its small business lending. To facilitate this
optional data collection, the software distributed free-of-charge by
the FFIEC provides that an institution may collect this information to
supplement its small business lending data by choosing loan type,
``Other Secured Lines/Loans for Purposes of Small Business,'' in the
individual loan data. (The title of the loan type, ``Other Secured
Lines of Credit for Purposes of Small Business,'' which was found in
the instructions accompanying the 1996 data collection software, is
being changed to ``Other Secured Lines/Loans for Purposes of Small
Business'' in order to accurately reflect that lines of credit and
loans may be reported under this loan type.) This information should be
maintained at the institution but should not be submitted for central
reporting purposes.
Q2. Must an institution collect data on loan commitments and
letters of credit?
A2. No. Institutions are not required to collect data on loan
commitments and letters of credit. Institutions may, however, provide
for examiner

[[Page 23647]]

consideration information on letters of credit and commitments.
Q3. Are commercial and consumer leases considered loans for
purposes of CRA data collection?
A3. Commercial and consumer leases are not considered small
business or small farm loans or consumer loans for purposes of the data
collection requirements in 12 CFR Sec. ____.42(a) & (c)(1). However, if
an institution wishes to collect and maintain data about leases, the
institution may provide this data to examiners as ``other loan data''
under 12 CFR Sec. ____.42(c)(2) for consideration under the lending
test.

Sec. ____.42(d) Data on affiliate lending

Q1. If an institution elects to have an affiliate's home mortgage
lending considered in its CRA evaluation, what data must the
institution make available to examiners?
A1. If the affiliate is a HMDA reporter, the institution must
identify those loans reported by its affiliate under 12 CFR part 203
(Regulation C, implementing HMDA). At its option, the institution may
either provide examiners with the affiliate's entire HMDA Disclosure
Statement or just those portions covering the loans in its assessment
area(s) that it is electing to consider. If the affiliate is not
required by HMDA to report home mortgage loans, the institution must
provide sufficient data concerning the affiliate's home mortgage loans
for the examiners to apply the performance tests.

Sec. ____.43--Content and Availability of Public File

Sec. ____.43(a) Information Available to the Public

Sec. ____.43(a)(1) Public Comments

Q1. What happens to comments received by the agencies?
A1. Comments received by a Federal financial supervisory agency
will be on file at the agency for use by examiners. Those comments are
also available to the public unless they are exempt from disclosure
under the Freedom of Information Act.
Q2. Is an institution required to respond to public comments?
A2. No. All institutions should review comments and complaints
carefully to determine whether any response or other action is
warranted. A small institution subject to the small institution
performance standards is specifically evaluated on its record of taking
action, if warranted, in response to written complaints about its
performance in helping to meet the credit needs in its assessment
area(s) (Sec. ____.26(a)(5)). For all institutions, responding to
comments may help to foster a dialogue with members of the community or
to present relevant information to an institution's Federal financial
supervisory agency. If an institution responds in writing to a letter
in the public file, the response must also be placed in that file,
unless the response reflects adversely on any person or placing it in
the public file violates a law.
Q3. May an institution include a response to its CRA Performance
Evaluation in its public file?
A3. Yes. However, the format and content of the evaluation, as
transmitted by the supervisory agency, may not be altered or abridged
in any manner. In addition, an institution that received a less than
satisfactory rating during its most recent examination must include in
its public file a description of its current efforts to improve its
performance in helping to meet the credit needs of its entire
community. The institution must update the description on a quarterly
basis.

Sec. ____.43(b) Additional Information Available to the Public

Sec. ____.43(b)(1) Institutions Other Than Small Institutions

Q1. Must an institution that elects to have affiliate lending
considered include data on this lending in its public file?
A1. Yes. The lending data to be contained in an institution's
public file covers the lending of the institution's affiliates, as well
as of the institution itself, considered in the assessment of the
institution's CRA performance. An institution that has elected to have
mortgage loans of an affiliate considered must include either the
affiliate's HMDA Disclosure Statements for the two prior years or the
parts of the Disclosure Statements that relate to the institution's
assessment area(s), at the institution's option.
Q2. May an institution retain the compact disc provided by the
Federal Financial Institution Examination Council that contains its CRA
Disclosure Statement in its public file, rather than printing a hard
copy of the CRA Disclosure Statement for retention in its public file?
A2. Yes, if the institution can readily print out from the compact
disc (or a duplicate of the compact disc) its CRA Disclosure Statement
for a consumer when the public file is requested. If the request is at
a branch other than the main office or the one designated branch in
each state that holds the complete public file, the bank should provide
the CRA Disclosure Statement in a paper copy, or in another format
acceptable to the requestor, within 5 calendar days, as required by
Sec. ____.43(c)(2)(ii).

Sec. ____.43(c) Location of Public Information

Q1. What is an institution's ``main office''?
A1. An institution's main office is the main, home, or principal
office as designated in its charter.

Sec. ____.44--Public Notice by Institutions

Q1. Are there any placement or size requirements for an
institution's public notice?
A1. The notice must be placed in the institution's public lobby,
but the size and placement may vary. The notice should be placed in a
location and be of a sufficient size that customers can easily see and
read it.

Sec. ____.45--Publication of Planned Examination Schedule

Q1. Where will the agencies publish the planned examination
schedule for the upcoming calendar quarter?
A1. The agencies may use the Federal Register, a press release, the
Internet, or other existing agency publications for disseminating the
list of the institutions scheduled to for CRA examinations during the
upcoming calendar quarter. Interested parties should contact the
appropriate Federal financial supervisory agency for information on how
the agency is publishing the planned examination schedule.
Q2. Is inclusion on the list of institutions that are scheduled to
undergo CRA examinations in the next calendar quarter determinative of
whether an institution will be examined in that quarter?
A2. No. The agencies attempt to determine as accurately as possible
which institutions will be examined during the upcoming calendar
quarter. However, whether an institution's name appears on the
published list does not conclusively determine whether the institution
will be examined during that quarter. The agencies may need to defer a
planned examination or conduct an unforeseen examination because of
scheduling difficulties or other circumstances.

Appendix A to Part____--Ratings

Q1. Must an institution's performance fit each aspect of a
particular rating profile in order to receive that rating?
A1. No. Exceptionally strong performance in some aspects of a
particular rating profile may compensate for weak performance in
others. For example, a retail institution

[[Page 23648]]

that uses non-branch delivery systems to obtain deposits and to deliver
loans may have almost all of its loans outside the institution's
assessment area. Assume that an examiner, after consideration of
performance context and other applicable regulatory criteria, concludes
that the institution has weak performance under the lending test
criteria applicable to lending activity, geographic distribution, and
borrower characteristics within the assessment area. The institution
may compensate for such weak performance by exceptionally strong
performance in community development lending in its assessment area or
a broader statewide or regional area that includes its assessment area.

Appendix B to Part____--CRA Notice

Q1. What agency information should be added to the CRA notice form?
A1. The following information should be added to the form:
OCC-supervised institutions only: The address of the deputy
comptroller of the district in which the institution is located should
be inserted in the appropriate blank. These addresses can be found at
12 CFR 4.5(a).
OCC-, FDIC-, and Board-supervised institutions: ``Officer in Charge
of Supervision'' is the title of the responsible official at the
appropriate Federal Reserve Bank.

Appendix A--Regional Offices of the Bureau of the Census

To obtain median family income levels of census tracts, MSAs,
block numbering areas and statewide nonmetropolitan areas, contact
the appropriate regional office of the Bureau of the Census as
indicated below. The list shows the states covered by each regional
office.

Atlanta

(404) 730-3833

Alabama, Florida, Georgia

Boston

(617) 424-0510

Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island,
Vermont

Charlotte

(704) 344-6144

District of Columbia, Kentucky, North Carolina, South Carolina,
Tennessee, Virginia

Chicago

(708) 562-1740

Illinois, Indiana, Wisconsin

Dallas

(214) 640-4470 or (800) 835-9752

Louisiana, Mississippi, Texas

Denver

(303) 969-7750

Arizona, Colorado, Nebraska, New Mexico, North Dakota, South
Dakota, Utah, Wyoming

Detroit

(313) 259-1875

Michigan, Ohio, West Virginia

Kansas City

(913) 551-6711

Arkansas, Iowa, Kansas, Minnesota, Missouri, Oklahoma

Los Angeles

(818) 904-6339

California

New York

(212) 264-4730

New York, Puerto Rico

Philadelphia

(215) 597-8313 or (215) 597-8312

Delaware, Maryland, New Jersey, Pennsylvania

Seattle

(206) 728-5314

Alaska, Hawaii, Idaho, Montana, Nevada, Oregon, Washington

End of Text of the Interagency Questions and Answers

Dated: April 27, 1999.
Keith J. Todd,
Executive Secretary, Fed

Last Updated 05/03/1999 regs@fdic.gov