Appeals of Material Supervisory Determinations: Guidelines
SARC-99-02 (February 4, 1999)
On January 28, 1999, the Supervision Appeals Review
Committee ("Committee”) of the Federal Deposit Insurance Corporation (“FDIC”)
considered the appeal by [Bank] (“Bank”) of the Community Reinvestment Act
(“CRA”) rating and the compliance examination findings resulting from the
FDIC’s examination of the Bank dated April 13, 1998.
After carefully considering the issues raised in the
Bank’s appeal letter dated November 30, 1998, the Committee concluded that
the CRA rating and the examination findings should be affirmed.
As you know, the CRA regulations were revised in 1995 and
became finally effective in 1997 following a two-year transition period.
Prior to 1997, large retail institutions were evaluated using process-based
criteria. Under the “new” CRA regulations, however, large retail
are evaluated based upon the institution’s actual performance under lending,
investment, and service tests. In turn, each of the three performance tests
prescribed certain criteria against which an institution’s performance is
measured. The changes to the CRA regulations were made in order to promote
consistency in evaluations and to eliminate unnecessary burdens associated
with process-based evaluations. As a result of the changes, however, many of
the community development activities and donations that the Bank previously
received credit for are no longer considered during a CRA performance
As a result of the examination, the Bank was assigned an
overall CRA composite rating of “Satisfactory.” This composite rating was
based upon the Bank’s combined performance under the three performance
tests. The Bank was rated Highly Satisfactory under the lending test; Low
Satisfactory under the investment test; and Outstanding under the service
test. Aside from the CRA rating, the Bank received a consumer compliance
rating of “2” in the examination. It is evident that certain aspects of the
Bank’s performance under the applicable performance criteria were quite
strong. However, the Bank’s overall performance was not sufficient to merit
a CRA composite rating of Outstanding.
With regard to the lending test, there are many factors to
be considered when rating an institution under this test, including lending
activity, assessment area concentration, geographic distribution, and
borrower characteristics. Although the Bank performed well with regard to
certain components of the lending test, the Bank’s overall performance was
not sufficient to warrant an Outstanding rating in the lending category. For
example, the Bank’s lending in low- and moderate-income areas and to low-
and moderate-income individuals within all of its assessment areas is
generally at or below the aggregate percentages; the Bank’s performance in
comparison to aggregate lending within each Metropolitan Statistical Area (“MSA”),
not just in the Syracuse MSA, were contributing factors to the rating of
Satisfactory. Please be advised that the violations cited in the examination
report did not impact the Bank’s assigned CRA rating.
In reference to the Bank’s investment performance,
although the Bank may be making more community development investments than
their competitors, this not the standard used in assigning a rating under
the investment test. To receive an Outstanding rating under the investment
test, an institution must have an excellent level of qualified community
development investments and grants (particularly those that are not
routinely provided by private investors), often in a leadership position.
The institution must exhibit excellent responsiveness to credit and
community economic development needs and make extensive use of innovative
and/or complex investments. The Bank's qualified investments did not meet
The Committee also concluded that the composite “2”
compliance rating is appropriate given the violations cited at the
examination, which were determined to be valid, and the Bank’s deficiencies
in its compliance program at the time of the examination.
Lastly, the Bank expressed concerns that the Satisfactory
CRA rating will adversely affect the Bank. A Satisfactory CRA rating will
not have an adverse impact on applications to enter a new market or on the
Bank’s efforts to expand services in an existing one. In fact, those
institutions which have a Satisfactory or better CRA rating and have
compliance rating of “1” or “2”, which includes your institution, are
eligible for expedited application processing. The Committee acknowledges
the Bank’s statement that it is committed to community development and
affordable housing and encourages the Bank in its efforts to meet community
This determination of the Committee is considered a final
supervisory determination by the FDIC.
By direction of the Supervision Appeals Review Committee
of the Federal Deposit Insurance Corporation.