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2000 - FDIC Rules and Regulations
NOTES
Interagency Questions and Answers Regarding Community
Reinvestment
§ 345.11--Authority,
Purposes, and Scope
§ 345.11(c) Scope
§ 345.11(c)(3) & 563e.11(c)(2) Certain special purpose
institutions.
§§ 345.11(c)(3) & 563e.11(c)(2)--1: Is the list of special
purpose institutions exclusive?
A1. No, there may be other examples of special purpose
institutions. These institutions engage in specialized activities that
do not involve granting credit to the public in the ordinary course of
business. Special purpose institutions 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 institution merely by ceasing to make loans and, instead,
making investments and providing other retail banking services.
§§ 345.11(c)(3) & 563e.11(c)(2)--2: To be a special purpose
institution, must an institution limit its activities in its
charter?
A2. No. A special purpose institution may, but is not required to,
limit the scope of its activities in its charter, articles of
association or other corporate organizational documents. An institution
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. An institution that believes it is exempt
from CRA as a special purpose institution should seek confirmation of
this status from its supervisory agency.
§ 345.12--Definitions
§ 345.12(a) Affiliate
§ 345.12(a)--1: 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.
§§ 345.12(f) & 563e.12(e) Branch
§§ 345.12(f) & 563e.12(e)--1: 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."
§§ 345.12(f) & 563e.12(e)--2: Are loan production offices
(LPOs) branches for purposes of the CRA?
{{2-28-02 p.2789}}
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.
§§ 345.12(h) & 563e.12(g) Community Development
§§ 345.12(h) & 563e.12(g)--1: Are community development
activities limited to those that promote economic development?
A1. No. Although the definition of "community development"
includes 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.
§§ 345.12(h) & 563e.12(g)--2: 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.
§§ 345.12(h) & 563e.12(g)--3: 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.
§§ 345.12(h)(1) & 563e.12(g)(1) Affordable housing
(including multifamily rental housing) for low- or moderate-income
individuals.
§§ 345.12(h)(1) & 563e.12(g)(1)--1: 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
{{2-28-02 p.2790}}potential
occupants cannot be determined in advance, or in other projects where
the income of occupants cannot be verified, 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.
§§ 345.12(h)(3) & 563e.12(g)(3) Activities that promote
economic development by financing businesses or farms that meet certain
size eligibility standards.
§§ 345.12(h)(3) & 563e.12(g)(3)--1: "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
§§ 345.12(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, or New Markets Venture Capital Company 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.
§§ 345.12(h)(4) & 563e.12(g)(4) Activities That Revitalize or
Stabilize Low- or Moderate-Income Geographies
§ 345.12(h)(4) & 563e.12(g)(4)--1: What are activities that
revitalize or stabilize a low- or moderate-income geography?
A1. Activities that revitalize or stabilize a low- or
moderate-income geography are activities that help to attract and
retain businesses and residents. Examiners will presume that an
activity revitalizes or stabilizes a low- or moderate-income geography
if the activity has been approved by the governing board of an
Enterprise Community or Empowerment Zone (designated pursuant to 26
U.S.C. 1391) and is consistent with the board's strategic plan. They
will make the same presumption if the activity has received similar
official designation as consistent with a federal, state, local or
tribal government plan for the revitalization or stabilization of the
geography. To determine whether other activities revitalize or
stabilize a low-or moderate-income geography, examiners will evaluate
the activity's actual impact on the geography, if information about
this is available. If not, examiners will determine whether the
activity is consistent with the community's formal or informal plans
for the revitalization and
{{2-28-02 p.2791}}stabilization
of the low- or moderate-income geography. For more information on what
activities revitalize or stabilize a low-or moderate-income geography,
see §§ 345.12(h) & 563e.12(g)--2 and §§ 345.12(i) &
563e.12(h)--4.
§§ 345.12(i) & 563e.12(h) Community Development Loan.
§§ 345.12(i) & 563e.12(h)--1: What are examples of
community development loans?
A1. Examples of community development loans include, but are not
limited to, loans to:
• Borrowers for affordable housing rehabilitation and
construction, including construction and permanent financing of
multifamily rental property serving low- or moderate-income
persons;
• Not-for-profit organizations serving primarily low- and
moderate-income housing or other community development needs;
• 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;
• 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.
• Local, state, and tribal governments for community
development activities; and
• 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 and construction of affordable housing or
community facilities, referred to above, may include the abatement or
remediation of, or other actions to correct, environmental hazards,
such as lead-based paint, that are present in the housing, facilities,
or site.
§§ 345.12(i) & 563e.12(h)--2: 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
§ 345.42(b)(2)--2.
§§ 345.12(i) & 563e.12(h)--3: 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."
§§ 345.12(i) & 563e.12(h)--4: 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
{{2-28-02 p.2792}}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.
§§ 345.12(i) & 563e.12(h)--5: 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 recognize that community development
organizations and programs are 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
institu- tion's assessment area(s). The institution's assessment
area(s) need not receive an immediate or direct benefit from the
institution's specific participation in the broader organization or
activity, provided that the purpose, mandate, or function of the
organization or activity includes serving geographies or individuals
located within the institution's assessment area(s). In addition, a
retail institution that, considering its performance context, has
adequately addressed the community development needs of its assessment
area(s) will receive consideration for certain other community
development activities. These community development activities must
benefit geographies or individuals located somewhere within a broader
statewide or regional area that includes the institution's assessment
area(s). Examiners will consider these activities even if they will not
benefit the institution's assessment area(s).
§§ 345.12(i) & 563e.12(h)--6: 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).
§§ 345.12(i) & 563e.12(h)--7: 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 promoting economic development by financing
small businesses and farms that meet the requirements set forth in
§§ _______.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 pur-
{{6-29-07 p.2793}}pose, 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.
§§ 345.12(j) & 563e.12(i) Community Development Service
§§ 345.12(j) & 563e.12(i)--1: 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.
§§ 345.12(j) & 563e.12(i)--2: 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.
§§ 345.12(j) & 563e.12(i)--3: What are examples of
community development services?
A3. Examples of community development services include, but are not
limited to, the following:
• Providing technical assistance on financial matters to
nonprofit, tribal or government organizations serving low- and
moderate-income housing or economic revitalization and development
needs;
• 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;
• Lending employees to provide financial services
for organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
• Providing credit counseling, home-buyer and
home-maintenance counseling, financial planning or other financial
services education to promote community development and affordable
housing;
• Establishing school savings programs and
developing or teaching financial education curricula for low- or
moderate-income individuals;
{{6-29-07 p.2794}}
• 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
• 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:
• Serving on a loan review committee;
• Developing loan application and underwriting
standards;
• Developing loan processing systems;
• Developing secondary market vehicles or programs;
• Assisting in marketing financial services, including
development of advertising and promotions, publications, workshops and
conferences;
• Furnishing financial services training for staff and
management;
• Contributing accounting/bookkeeping services; and
• Assisting in fund raising, including soliciting or
arranging investments.
§§ 345.12(k) & 563e.12(j) Consumer Loan
§§ _______.12(k) & 563e.12(j)--1: 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.
§§ 345.12(k) & 563e.12(j)--2: 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.
§§ 345.12(k) & 563e.12(j)--3: 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 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.
§§ 345.12(m) & 563e.12(l) Home Mortgage Loan
§§ 345.12(m) & 563e.12(l)--1: 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.
§§ 345.12(m) & 563e.12(l)--2: 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
{{2-28-02 p.2795}}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.
§§ 345.12(n) & 563e.12(m) Income Level.
§§ 345.12(n) & 563e.12(m)--1: 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 pages on the
Internet at
http://www.ffiec.gov/'.
§§ 345.12(o) and 563e.12(n) Limited Purpose Institution
§§ 345.12(o) and 563e.12(n)--1: 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.
§§ 345.12(o) & 563e.12(n)--2: 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
{{2-28-02 p.2796}}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:
• Is the other lending provided as an incident to the
institution's wholesale lending?
• Are the loans provided as an accommodation to the
institution's wholesale customers?
• Are the loans made only infrequently to the limited
purpose institution's customers?
• Does only an insignificant portion of the institution's
total assets and income result from the other lending?
• How significant a role does the institution play in
providing that type(s) of loan(s) in the institution's assessment
area(s)?
• Does the institution hold itself out as offering that
type(s) of loan(s)?
• Does the lending test or the community development test
present a more accurate picture of the institution's CRA
performance?
§§ 345.12(o) & 563e.12(n)--3: Do "niche institutions"
qualify as limited purpose (or wholesale) institutions?
A3. Generally, no. Institutions that are in the business of lending
to the public, 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.
§§ 345.12(s) & 563e.12(r) Qualified Investment
§§ 345.12(s) & 563e.12(r)--1: 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.
§§ 345.12(s) & 563e.12(r)--2: 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. See also
§ 345.23(b)--2.
§§ 345.12(s) & 563e.12(r)--3: 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 §§ 345.12(j) &
563e.12(i)--3.
§§ 345.12(s) & 563e.12(r)--4: 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:
• 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;
• Organizations, including, for example, Small Business
Investment Companies (SBICs) and specialized SBICs, that
pro-
{{10-29-04 p.2797}}mote economic
development by financing small businesses;
• 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;
• Projects eligible for low-income housing tax credits;
• State and municipal obligations, such as revenue bonds,
that specifically support affordable housing or other community
development;
• 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
• 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.
§§ 345.12(s) & 563e.12(r)--5: 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.
§§ 345.12(s) & 563e.12(r)--6. 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.
§§ 345.12(s) & 563e.12(r)--7: 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.
§§ 345.12(t) & 563e.12(s) Small Institution
§§ 345.12(t) & 563e.12(s)--1: 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.
§§ 345.12(t) & 563e.12(s)--2: 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)).
§§ 345.12(u) & 563e.12(t) Small Business Loan
§§ 345.12(u) & 563e.12(t)--1: 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 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
{{10-29-04 p.2798}}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.
§§ 345.12(u) & 563e.12(t)--2: 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.
§§ 345.12(u) & 563e.12(t)--3: Are loans secured by nonfarm
residential real estate to finance small businesses "small business
loans"?
A3. Applicable to banks filing Call Reports: Typically not. Loans
secured by nonfarm residential real estate that are used to finance
small businesses are not included as "small business" loans for
Call Report pur- poses unless the security interest in the nonfarm
residential real estate is taken only as an abundance of caution. (See
Call Report Glossary definition of "Loan Secured by Real
Estate.") The agencies recognize that many small businesses are
financed by loans that would not have been made or would have been made
on less favorable terms had they not been 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."
§§ 345.12(u) & 563e.12(t)--4: 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.
§§ 345.12(w) & 563e.12(v) Wholesale Institution
§§ 345.12(w) & 563e.12(v)--1: 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:
• The institution holds itself out to the retail public as
providing such loans; and
• 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 §§ 345.12(o) &
563e.12(n)--2.
§ 345.21--Performance
Tests, Standards, and Ratings, in General
§ 345.21(a) Performance Tests and Standards
§ 345.21(a)--1: 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.
§ 345.21(b) Performance Context
§ 345.21(b)--1: 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.
{{2-28-02 p.2799}}
§ 345.21(b)(2) Information maintained by the institution or
obtained from community contacts.
§ 345.21(b)(2)--1: 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.
§ 345.21(b)(2)--2: 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.
§ 345.21(b)(4) Institutional capacity and constraints.
§ 345.21(b)(4)--1: 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.
§ 345.21(b)(5) Institution's past performance and the
performance of similarly situated lenders.
§ 345.21(b)(5)--1: Can an institution's assigned rating be
adversely affected by poor past performance?
A1. Yes. The agencies will consider an institution's past
performance in its overall evaluation. For example, an institution that
received a rating of "needs to improve" in the past may receive a
rating of "substantial noncompliance" if its performance has not
improved.
§ 345.21(b)(5)--2: 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.
§ 345.22--Lending
Text
§ 345.22(a) Scope of Test
§ 345.22(a)--1: Are there any types of lending activities
that help meet the credit needs of an institution's assessment area(s)
and that may warrant favorable consideration as activities that are
responsive to the needs of the institution's assessment area(s)?
A1. Credit needs vary from community to community. However,
there are some lending activities that are likely to be
re-
{{2-28-02 p.2800}}sponsive in
helping to meet the credit needs of many communities. These activities
include:
Providing loan programs that include a financial education component
about how to avoid lending activities that may be abusive or otherwise
unsuitable;
Establishing loan programs that provide small, unsecured consumer
loans in a safe and sound manner (i.e., based on the borrower's
ability to repay) and with reasonable terms;
Offering lending programs, which feature reporting to consumer
reporting agencies, that transition borrowers from loans with higher
interest rates and fees (based on credit risk) to lower-cost loans,
consistent with safe and sound lending practices. Re- porting to
consumer reporting agencies allows borrowers accessing these programs
the opportunity to improve their credit histories and thereby improve
their access to competitive credit products.
Examiners may consider favorably such lending activities, which have
features augmenting the success and effectiveness of the institution's
lending programs.
§ 345.22(a)(1) Types of loans considered.
§ 345.22(a)(1)--1: 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.
§ 345.22(a)(1)--2: 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.
§ 345.22(a)(2) Loan originations and purchases/other loan
data.
§ 345.22(a)(2)--1: 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.
§ 345.22(a)(2)--2: 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.
§ 345.22(a)(2)--3: May a financial institution receive
considerations 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."
§ 345.22(a)(2)--4: 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.
§ 345.22(b) Performance Criteria
§ 345.22(b)--1: 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
{{2-28-02 p.2801}}procedures,
and this Guidance. In doing so, examiners will disregard efforts by an
insti-tution to manipulate business operations or present information
in an artificial light that does not accurately reflect an
institution's overall record of lending performance.
§ 345.22(b)(1) Lending activity.
§ 345.22(b)(1)--1: 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.
§ 345.22(b)(2) & (3) Geographic distribution and
borrower characteristics.
§ 345.22(b)(2) & (3)--1: 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.
§ 345.22(b)(2) & (3)--2: 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 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).
§ 345.22(b)(2) & (3)--3: 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.
§ 345.22(b)(2) & (3)--4: 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
{{2-28-02 p.2802}}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).
§ 345.22(b)(2) & (3)--5: 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.
§ 345.22(b)(4) Community development lending.
§ 345.22(b)(4)--1: 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 § 345.22(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 percent of its
units for low-income residents and the other project allocates 65
percent of its units for low-income residents. An institution would
report both loans as $10 million community development loans under the
§ 345.42(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 percent
project provides more affordable housing for more people per dollar
expended.
Under § 345.22(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.
§ 345.22(b)(5) Innovative or flexible lending
practices.
§ 345.22(b)(5)--1: 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 prac-
{{2-28-02 p.2803}}tices (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 geographies or individuals. For example:
• 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.
• 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.
§ 345.22(c) Affiliate Lending.
§ 345.22(c)(1) In general.
§ 345.22(c)(1)--1: 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).
§ 345.22(c)(2) Constraints on affiliate lending.
§ 345.22(c)(2)(i) No affiliate may claim a loan origination
or loan purchase if another institution claims the same loan
origination or purchase.
§ 345.22(c)(2)(i)--1: 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.
§ 345.22(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.
§ 345.22(c)(2)(ii)--1: 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-
{{2-28-02 p.2804}}income home
mortgage loans made by the mortgage bank affiliate and not home
mortgage loans to middle- and upper-income individuals or areas.
§ 345.22(c)(2)(ii)--2: 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.
§ 345.22(d) Lending by a Consortium or a Third Party
§ 345.22(d)--1: 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. § 345.23(b)--1 provides information concerning
consideration of an equity or equity-type investment under the
investment test and both the lending and investment tests.
§ 345.22(d)--2: 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 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.
§ 345.22(d)--3: 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 § 345.22(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
§ 345.22(c)(2)(i), that two affiliates may not both claim the same
loan origination or loan purchase. However, if the financial
institu-
{{2-28-02 p.2805}}tions 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 § 345.22(d).
§ 345.23--Investment
Test
§ 345.23(a) Scope of Test
§ 345.23(a)--1: 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 invest- ment 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).
§ 345.23(b) Exclusion
§ 345.23(b)--1: 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.
§ 345.23(b)--2: 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?
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.
§ 345.23(e) Performance criteria.
§ 345.23(e)--1: When applying the performance criteria of
§ 345.23(e), may an examiner distinguish among qualified investments
based on how much of the investment actually supports the underlying
community development purpose?
{{2-28-02 p.2806}}
A1. Yes. Although § 345.23(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 percent 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 percent 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 § 345.23(e)(1), it will also be evaluated
with respect to the qualitative performance criteria set forth in
§ 345.23(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.
§ 345.23(e)--2: 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 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.
§ 345.24--Service
Test
§ 345.24(d) Performance Criteria—Retail Banking Services
§ 345.24(d)--1: 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 consid-
{{2-28-02 p.2807}}ered only to
the extent that they are effective alternatives in providing needed
services to low- and moderate-income areas and individuals.
§ 345.24(d)--2: 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 pro- spective 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 § 345.23(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.
§ 345.24(d)(3) Availability and effectiveness of alternative
systems for delivering retail banking services.
§ 345.24(d)(3)--1: 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.
§ 345.24(d)(3)--2: 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.
§ 345.24(e) Performance Criteria—Community Development Services
§ 345.24(e)--1: Under what conditions may an institution
receive consideration for community development services offered by
affiliates or third parties?
A1. At an institution's option, the agencies will consider
services performed by an affiliate or by a third party on the
institution's behalf under the service test if the services provided
enable the institution to help meet the credit needs of its community.
Indirect services that enhance an institution's ability to deliver
credit products or deposit services within its community and that can
be quantified may be considered under the service test, if those
services have not been considered already under the lending or
investment test (see § 345.23(b)--1). For example, an institution
that contracts with a community organization to provide home ownership
counseling to low- and moderate-income home buyers as part of the
institution's mortgage program may receive consideration for that
indirect service under the service test. In contrast, donations to a
community organization that offers financial services to low- or
moderate-income individuals may be considered under the investment
test, but would not also be eligible for consideration under the
service test. Services performed by an affiliate will be treated the
same as affiliate loans and investments made in the institution's
assessment area and may be considered if the service is not claimed by
any other institution. See §§ 345.22(c) and .23(c).
{{2-28-02 p.2808}}
§ 345.25 Community
Development Test for Wholesale or Limited Purpose Institutions
§ 345.25(a) Scope of Test
§ 345.25(a)--1: How can certain credit card banks help to
meet the credit needs of their communities without losing their
exemption from the definition of "bank" in the Bank Holding
Company Act (the BHCA), as amended by the Competitive Equality Banking
Act of 1987 (CEBA)?
A1. Although the BHCA restricts institutions known as CEBA credit
card banks to credit card operations, a CEBA credit card bank can
engage in community development activities without losing its exemption
under the BHCA. A CEBA credit card bank could provide community
development services and investments without engaging in operations
other than credit card operations. For example, the bank could provide
credit card counseling, or the financial expertise of its executives,
free of charge, to community development organizations. In addition, a
CEBA credit card bank could make qualified investments, as long as the
investments meet the guidelines for passive and noncontrolling
investments provided in the BHC Act and the Board's Regulation Y.
Finally, although a CEBA credit card bank cannot make any loans other
than credit card loans, under § 345.25(d)(2) (community development
test--indirect activities), the bank could elect to have part of its
qualified passive and noncontrolling investments in a third-party
lending consortium considered as community development lending,
provided that the consortium's loans otherwise meet the requirements
for community development lending. When assessing a CEBA credit card
bank's CRA performance under the community development test, examiners
will take into account the bank's performance context. In particular,
examiners will consider the legal constraints imposed by the BHCA on
the bank's activities, as part of the bank's performance context in
§ 345.21(b)(4).
§ 345.25(d) Indirect Activities
§ 345.25(d)--1: 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 §§ 345.22(d)
and 345.23(b).
§ 345.25(e) Benefit to Assessment Area(s)
§ 345.25(e)--1: 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).
§ 345.25(f) Community Development Performance Rating
§ 345.25(f)--1: 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.
§ 345.26--Small
Institution Performance Standards
§ 345.26(a) Performance Criteria
§ 345.26(a)--1: 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?
{{2-28-02 p.2809}}
A1. Yes. Examiners can consider "lending-related activities,"
including com- munity 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 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.
§ 345.26(a)--2: 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.
§ 345.26(a)--3: 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.
§ 345.26(a)--4: 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.
§ 345.26(a)--5: 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.
§ 345.26(a)(1) Loan-to-deposit ratio.
§ 345.26(a)(1)--1: 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.
§ 345.26(a)(1)--2: 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.
§ 345.26(a)(1)--3: 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?
{{2-28-02 p.2810}}
A3. No. Examiners will look at the institution's net
loan-to-deposit ratio for the whole institution, without any
adjustments.
§ 345.26(a)(2) Percentage of lending within assessment
area(s).
§ 345.26(a)(2)--1: 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.
§ 345.26(a)(3) & (4) Distribution of lending within
assessment area(s) by borrower income and geographic location.
§ 345.26(a)(3) & (4)--1: 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.
§ 345.26(b) Performance Rating
§ 345.26(b)--1: 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 agreement area(s). In some cases, a small
institution may qualify for an "outstanding" 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."
§ 345.26(b)--2: 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
§§ 345.12(i) & 563e.12(h)--6.
{{2-28-02 p.2811}}
§ 345.27--Strategic
Plan
§ 345.27(c) Plans in General
§ 345.27(c)--1: 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.
§ 345.27(c)--2: 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.
§ 345.27(f) Plan Content
§ 345.27(f)(1) Measurable goals.
§ 345.27(f)(1)--1: 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.
§ 345.27(g) Plan Approval
§ 345.27(g)(2) Public participation.
§ 345.27(g)(2)--1: 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.
§ 345.28--Assigned
Ratings
§ 345.28--1: 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.
§ 345.28--2: 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
{{2-28-02 p.2812}}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.
§ 345.28(a) Ratings in General
§ 345.28(a)--1: 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 include a written evaluation (containing the same information
d
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