[Federal Register Volume 75, Number 47 (Thursday, March 11, 2010)]
[Notices]
[Pages 11642-11680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4903]
[[Page 11641]]
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Part II
Department of the Treasury
Office of the Comptroller of the Currency
Federal Reserve System Federal Deposit Insurance Corporation Department
of the Treasury
Office of Thrift Supervision
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Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment; Notice
Federal Register / Vol. 75, No. 47 / Thursday, March 11, 2010 /
Notices
[[Page 11642]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket ID OCC-2010-0002]
FEDERAL RESERVE SYSTEM
[Docket No. OP-1349]
FEDERAL DEPOSIT INSURANCE CORPORATION
RIN--3064-AC97
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[Docket ID OTS-2010-0004]
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice
AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Office of Thrift Supervision,
Treasury (OTS).
ACTION: Notice.
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SUMMARY: The OCC, Board, FDIC, and OTS (the agencies) are adopting as
final the Interagency Questions and Answers Regarding Community
Reinvestment (Questions and Answers) that were proposed on January 6,
2009. In response to comments received, the agencies made minor
clarifications to the new and revised questions and answers that were
proposed.
DATES: Effective Date: March 11, 2010.
FOR FURTHER INFORMATION CONTACT:
OCC: Gregory Nagel or Karen Tucker, National Bank Examiners,
Compliance Policy Division, (202) 874-4428; or Margaret Hesse, Special
Counsel, Community and Consumer Law Division, (202) 874-5750, Office of
the Comptroller of the Currency, 250 E Street, SW., Washington, DC
20219.
Board: Cathy Gates, Senior Project Manager, (202) 452-3946; or
Brent Lattin, Attorney, (202) 452-3667, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve System,
20th Street and Constitution Avenue, NW., Washington, DC 20551.
FDIC: Janet R. Gordon, Senior Policy Analyst, Division of
Supervision and Consumer Protection, Compliance Policy Branch, (202)
898-3850; or Susan van den Toorn, Counsel, Legal Division, (202) 898-
8707, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
OTS: Stephanie M. Caputo, Senior Compliance Program Analyst,
Compliance and Consumer Protection, (202) 906-6549; or Richard Bennett,
Senior Compliance Counsel, Regulations and Legislation Division, (202)
906-7409, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552.
SUPPLEMENTARY INFORMATION:
Background
The OCC, Board, FDIC, and OTS implement the Community Reinvestment
Act (CRA) (12 U.S.C. 2901 et seq.) through their CRA regulations. See
12 CFR parts 25, 228, 345, and 563e. The agencies' regulations are
interpreted primarily through the ``Interagency Questions and Answers
Regarding Community Reinvestment'' (Questions and Answers), which
provide guidance for use by agency personnel, financial institutions,
and the public. The Questions and Answers were first published under
the auspices of the Federal Financial Institutions Examination Council
(FFIEC) in 1996 (61 FR 54647), and were last revised on January 6, 2009
(2009 Questions and Answers) (74 FR 498).
The supplementary information published with the 2009 Questions and
Answers also proposed for comment one new question and answer (Q&A) and
two revised Q&As. 74 FR 504-06. Together, the agencies received
comments from 19 different parties. The commenters represented
financial institutions and their trade associations, community
development advocates and organizations, and others.
As discussed below, this document adopts the three new and revised
Q&As that were proposed in January 2009, with minor clarifications, as
appropriate, in response to comments received. The agencies are also
adopting conforming revisions to an existing Q&A.
The Interagency Questions and Answers are grouped by the provision
of the CRA regulations that they discuss, are presented in the same
order as the regulatory provisions, and employ an abbreviated method of
citing to the regulations. For example, the small bank performance
standards for national banks appear at 12 CFR 25.26; for Federal
Reserve System member banks supervised by the Board, they appear at 12
CFR 228.26; for state nonmember banks, they appear at 12 CFR 345.26;
and for thrifts, the small savings association performance standards
appear at 12 CFR 563e.26. Accordingly, the citation would be to 12 CFR
----.26. Each Q&A is numbered using a system that consists of the
regulatory citation and a number, connected by a dash. For example, the
first Q&A addressing 12 CFR ----.26 would be identified as Sec. --
--.26--1.
Although a particular Q&A may provide guidance on one regulatory
provision, e.g., 12 CFR ----.22, which relates to the lending test
applicable to large institutions, its content may also be applicable
to, for example, small institutions, which are evaluated pursuant to
small institution performance standards found at 12 CFR ----.26. Thus,
readers with a particular interest in small institution issues, for
example, should also consult the guidance that describes the lending,
investment, and service tests.
The Questions and Answers are indexed to aid readers in locating
specific information in the document. The index contains keywords,
listed alphabetically, along with numerical indicators of questions and
answers that relate to that keyword. The list of Q&As addressing each
keyword in the index is not intended to be exhaustive.
New and Revised Q&As
New Q&A: Community Services Targeted to Low- or Moderate-Income
Individuals
The agencies proposed a new Q&A, Sec. ----.12(g)(2)--1, that would
provide examples of ways an institution that provides community
services could determine that the community services are targeted to
low- and moderate-income individuals when the institution does not know
the actual income of the individuals. Several comments were received
from community groups and banking organizations that supported the
examples in the proposal. In addition, one suggestion was made to
clarify that community services can include those provided by an entity
with a broad mission, provided that the activities themselves qualify
as community services. This suggestion was incorporated into the Q&A
examples as a new fourth bullet.
Another commenter suggested that the definition of community
services be broadened to cover financial literacy programs provided to
school children of any income level in any school. Financial literacy
programs are an example of community development services. See Q&A
Sec. ----.12(i)--3. The commenter's suggestion was not adopted because
community development services must have a primary purpose of community
development, which would require the financial literacy programs to be
targeted to low- or moderate-income individuals.
[[Page 11643]]
The new Q&A is being adopted as revised.
Revised Q&A Sec. ----.12(h)--8: Primary Purpose of Community
Development
The regulations require community development activities to have a
``primary purpose of community development.'' See 12 CFR ----.12(h), --
--.12(i), and ----.12(t). Q&A Sec. ----.12(h)--8 historically has
provided two methods of determining whether an activity has a primary
purpose of community development: (1) If a majority of the dollars or
beneficiaries of the activity are identifiable to one or more of the
enumerated community development purposes, then an activity will be
considered to possess the requisite primary purpose; and (2) if 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; the activity
is specifically structured (given any relevant market or legal
constraints or performance context factors) to achieve the expressed
community development purpose; and the activity accomplishes, or is
reasonably certain to accomplish, the community development purpose
involved, then the requisite primary purpose may be found.
To date, the agencies have generally indicated that if an activity
has a primary purpose of community development (determined by either
method above), the entire investment, loan, or service would be
considered in an institution's CRA evaluation. However, if an activity
does not have a primary purpose of community development applying these
standards, then it would not be considered as a qualified investment,
community development loan, or community development service.
The agencies proposed to revise Q&A Sec. ----.12(h)--8 to allow
pro rata consideration for an activity that provides some affordable
housing targeted to low- or moderate-income individuals, but when it
would not be deemed to have a primary purpose of community development
measured by a majority of the entire activity's beneficiaries or dollar
value, or by relying on the express purpose of the activity. The
proposed Q&A would specifically allow activities related to the
provision of mixed-income housing, such as in connection with a
development that has a mixed-income housing component or an affordable
housing set-aside required by federal, state, or local government, to
be eligible for consideration as an activity that has a ``primary
purpose'' of community development at the election of the institution.
In those cases, the proposed Q&A would allow an institution to receive
pro rata consideration for the portion of the activity that provides
affordable housing to low- or moderate-income individuals.
Commenters generally supported the proposed revision. One commenter
suggested that the agencies should allow only pro rata treatment in all
situations where less than a majority of an activity's dollars will be
used for community development. This commenter further suggested that
the agencies should eliminate full consideration of activities that
have an ``express, bona fide intent'' of community development when the
measurable portion of any benefit bestowed or dollars applied is less
than a majority of the entire activity's benefits or dollar value. The
agencies decline to adopt this suggestion. If the express, bona fide
intent of an activity is community development, even though the
measurable portion of any benefit bestowed or dollars applied is less
than a majority of the entire activity's benefits or dollar value, the
agencies continue to believe that it is important that such activities,
such as projects involving low-income housing tax credits, receive full
consideration.
Several commenters were concerned that the proposal would result in
a reduction of the amount of CRA consideration provided to financial
institutions' loans or investments in mixed-income properties. The
agencies do not intend this result. In fact, the proposed revision
should increase the amount of consideration available to institutions.
Some commenters believed that all activities in connection with
properties with a set-aside for affordable units received total
quantitative CRA consideration. Although this is true if the express,
bona fide intent of the entire project is community development, that
is not always the intent. For example, a private development in which a
developer is required to set aside a small percentage of the units as
affordable housing in order to receive zoning approval would not have
the requisite express, bona fide intent. As a result of the revision,
however, the financial institution could receive consideration for the
pro rata amount of the affordable housing set-aside.
The agencies had asked whether allowing pro rata consideration
would spur the construction and rehabilitation of housing for low- or
moderate-income persons. Commenters provided mixed responses. A number
of commenters believed that allowing pro rata consideration may provide
an added incentive to financial institutions. A couple of commenters,
however, believed that the revision would not spur additional
construction and rehabilitation because, for example, the development
of local housing is based on a local agency's determination of its
community housing needs and is not influenced by a financial
institution's CRA requirements.
Commenters responded nearly unanimously that the pro rata treatment
should not be restricted only to instances where a governmental entity
requires a set-aside. Commenters believed that the voluntary inclusion
of affordable housing components in development by private developers
should also receive consideration. As one commenter stated,
``Affordable housing is affordable housing.'' The final question and
answer would allow pro rata treatment in connection with any project
that provides affordable housing, regardless of whether a governmental
entity requires a set-aside.
In response to the agencies' question about how the amount of the
pro rata share should be determined for reporting purposes (by units or
by loan proceeds), several commenters urged flexibility. Several
commenters believed that the entire amount of the loan should be
reported. Other commenters suggested that when the actual amount of
funds attributed to the affordable units is readily apparent, for
example in connection with a construction loan, the actual dollar
amount should be considered. However, in other cases, where the actual
amount of funds is not readily apparent, the pro rata share should be
determined based on the percentage of set-aside units.
The final question and answer has been clarified. Institutions will
determine the pro rata share of the activity that provides affordable
housing to low- or moderate-income individuals based on the percentage
of units set-aside for affordable housing for low- or moderate-income
individuals. The Agencies believe that this method of determining the
portion of a loan or investment that provides affordable housing for
low- or moderate-income individuals imposes the least amount of burden
on developers and lenders to differentiate the construction costs,
including the proportional share of costs related to infrastructure,
common areas, and site amenities, between market and affordable units.
The proposed revision restricted the pro rata treatment only to
affordable housing activities by financial
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institutions. The agencies asked whether the pro rata treatment should
apply only to affordable housing or whether the pro rata treatment
should also apply to loans or investments with other community
development purposes.
Since the CRA regulations were revised in 1995, affordable housing
initiatives have included more and more mixed-income housing. Fewer new
or rehabilitated housing projects provide primarily low-income housing.
Mixed-income housing is an important goal in government housing
assistance programs. Because of the compelling public interest in
affordable housing programs, the agencies believe that it is
appropriate that the pro rata treatment be adopted with regard to
affordable housing. However, the agencies decline to expand the
coverage of this treatment to activities other than those providing
affordable housing at this time. The agencies will keep abreast of
developments in other types of community development activities and
evaluate the effectiveness of the pro rata treatment in connection with
affordable housing programs. We will reassess whether such treatment
should be afforded other types of community development activities at a
later date. The agencies have added clarifying language to the final
answer to emphasize that the pro rata treatment applies only to
affordable housing activities.
Finally, the agencies asked for comment on whether the adoption of
pro rata treatment would lead to unjustifiable inflation of community
development activities. Commenters unanimously asserted that it would
not.
The agencies are adopting the revised Q&A with the clarifications
described above.
Revised Q&A Sec. ----.42(b)(2)--3: Data Collection
The agencies explained in January 2009 that if the proposed
revision to Q&A Sec. ----.12(h)--8, described above, were adopted, the
agencies would also revise Q&A Sec. ----.42(b)(2)--3 to address data
collection and reporting of the pro rata share of the mixed-income
housing loans described in the Q&A. The agencies proposed that, if an
institution were to elect to have the portion of mixed-income housing
loans that were set aside for low- or moderate-income housing
considered as community development loans, in order to receive
consideration for such loans, the institution would need to collect and
report data on only the portions of the loans that provide housing that
is affordable for low- or moderate-income individuals.
Three commenters addressed the proposed revision to this Q&A. The
general concern addressed by the commenters was the potential for
confusion in reporting the pro rata share of an affordable housing
activity. As in the past, the full amount of the loan should be
collected and reported if the majority of the dollars or beneficiaries
are identifiable to a community development purpose. Similarly, the
full amount of the loan should be collected and reported if the
express, bona fide intent of the loan or investment is community
development, even though a majority of the dollars or beneficiaries are
not identifiable with a community development purpose. In connection
with affordable housing projects that provide mixed-income housing, but
where a majority of the dollars or units do not have a community
development purpose and the express, bona fide intent of the loan is
not community development, the institution must report only the pro
rata dollar amount of the portion of the loan that provides affordable
housing to low- or moderate-income individuals. The pro rata dollar
amount of the total activity will be based on the percentage of units
set-aside for affordable housing for low- or moderate-income
individuals. The agencies are adopting the proposed revision to the
Q&A, but have added a sentence to the final answer to clarify this
guidance.
Conforming Revision to Q&A Sec. ----.22(a)(2)--4: Other Loan Data
Q&A Sec. ----.22(a)(2)--4, as adopted in January of 2009 (74 FR
517), stated that loans that do not have a primary purpose of community
development, but where a certain amount or percentage of units is set
aside for affordable housing, should be submitted by the financial
institution for consideration as ``other loan data.'' In the
supplementary information published with the proposed revisions to the
interagency questions and answers, the agencies advised that, if the
proposed revision to Q&A Sec. ----.12(h)--8 were adopted, a conforming
change to Q&A Sec. ----.22(a)(2)--4 would be made. The answer to Q&A
Sec. ----.22(a)(2)--4 has been revised to remove the reference to
``loans that do not have a primary purpose of community development,
but where a certain amount or percentage of units is set aside for
affordable housing'' as an example of ``other loan data'' because such
activities are eligible for pro rata treatment.
The text of the final Interagency Questions and Answers follows:
Interagency Questions and Answers Regarding Community Reinvestment
Sec. ----.11--Authority, purposes, and scope
Sec. ----.11(c) Scope
Sec. Sec. ----.11(c)(3) & 563e.11(c)(2) Certain special purpose
institutions
Sec. Sec. ----.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.
Sec. Sec. ----.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.
Sec. ----.12--Definitions
Sec. ----.12(a) Affiliate
Sec. ----.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.
Sec. ----.12(f) Branch
Sec. ----.12(f)--1: Do the definitions of ``branch,'' ``automated
teller machine (ATM),'' and ``remote service facility
[[Page 11645]]
(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.''
Sec. ----.12(f)--2: Are loan production offices (LPOs) branches
for purposes of the CRA?
A2. LPOs and other offices are not ``branches'' unless they are
authorized as branches of the institution through the regulatory
approval process of the institution's supervisory agency.
Sec. ----.12(g) Community development
Sec. ----.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, designated disaster areas, or
underserved or distressed nonmetropolitan middle-income geographies.
Sec. ----.12(g)--2: Must a community development activity occur
inside a low- or moderate-income area, designated disaster area, or
underserved or distressed nonmetropolitan middle-income area in order
for an institution to receive CRA consideration for the activity?
A2. No. Community development includes activities, regardless of
their location, 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, designated disaster areas, or
underserved or distressed nonmetropolitan middle-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 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.
Sec. ----.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. See also Q&A Sec. ----.12(h)--8 for more
information on ``primary purpose.''
Sec. ----.12(g)--4: The CRA provides that, in assessing the CRA
performance of non-minority- and non-women-owned (majority-owned)
financial institutions, examiners may consider as a factor capital
investments, loan participations, and other ventures undertaken by the
institutions in cooperation with minority- or women-owned financial
institutions and low-income credit unions (MWLIs), provided that these
activities help meet the credit needs of local communities in which the
MWLIs are chartered. Must such activities also benefit the majority-
owned financial institution's assessment area?
A4. No. Although the regulations generally provide that an
institution's CRA activities will be evaluated for the extent to which
they benefit the institution's assessment area(s) or a broader
statewide or regional area that includes the institution's assessment
area(s), the agencies apply a broader geographic criterion when
evaluating capital investments, loan participations, and other ventures
undertaken by that institution in cooperation with MWLIs, as provided
by the CRA. Thus, such activities will be favorably considered in the
CRA performance evaluation of the institution (as loans, investments,
or services, as appropriate), even if the MWLIs are not located in, or
such activities do not benefit, the assessment area(s) of the majority-
owned institution or the broader statewide or regional area that
includes its assessment area(s). The activities must, however, help
meet the credit needs of the local communities in which the MWLIs are
chartered. The impact of a majority-owned institution's activities in
cooperation with MWLIs on the majority-owned institution's CRA rating
will be determined in conjunction with its overall performance in its
assessment area(s).
Examples of activities undertaken by a majority-owned financial
institution in cooperation with MWLIs that would receive CRA
consideration may include:
Making a deposit or capital investment;
Purchasing a participation in a loan;
Loaning an officer or providing other technical expertise
to assist an MWLI in improving its lending policies and practices;
Providing financial support to enable an MWLI to partner
with schools or universities to offer financial literacy education to
members of its local community; or
Providing free or discounted data processing systems, or
office facilities to aid an MWLI in serving its customers.
Sec. ----.12(g)(1) Affordable housing (including multifamily rental
housing) for low- or moderate-income individuals
Sec. ----.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 potential occupants cannot be determined in advance, or
in other projects where the income of occupants cannot be verified,
examiners will
[[Page 11646]]
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.
Sec. ----.12(g)(2) Community services targeted to low- or moderate-
income individuals
Sec. ----.12(g)(2)--1: Community development includes community
services targeted to low- or moderate-income individuals. What are
examples of ways that an institution could determine that community
services are offered to low- or moderate-income individuals?
A1: Examples of ways in which an institution could determine that
community services are targeted to low- or moderate-income persons
include:
The community service is targeted to the clients of a
nonprofit organization that has a defined mission of serving low- and
moderate-income persons, or, because of government grants, for example,
is limited to offering services only to low- or moderate-income
persons.
The community service is offered by a nonprofit
organization that is located in and serves a low- or moderate-income
geography.
The community service is conducted in a low- or moderate-
income area and targeted to the residents of the area.
The community service is a clearly defined program that
benefits primarily low- or moderate-income persons, even if it is
provided by an entity that offers other programs that serve individuals
of all income levels.
The community service is offered at a workplace to workers
who are low- and moderate-income, based on readily available data for
the average wage for workers in that particular occupation or industry
(see, e.g., http://www.bls.gov/bls/blswage.htm (Bureau of Labor
Statistics)).
Sec. ----.12(g)(3) Activities that promote economic development by
financing businesses or farms that meet certain size eligibility
standards
Sec. ----.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. The concept of ``community development'' under 12 CFR --
--.12(g)(3) involves both a ``size'' test and a ``purpose'' test. An
institution's loan, investment, or service meets the ``size'' test if
it finances, either directly or through an intermediary, 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 institution's loan, investment,
or service must promote economic development. These activities are
considered to promote economic development if they support 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, SBIC, Rural Business Investment Company,
New Markets Venture Capital Company, or New Markets Tax Credit-eligible
Community Development Entity promotes economic development. (But also
refer to Q&As Sec. ----.42(b)(2)--2, Sec. ----.12(h)--2, and Sec. --
--.12(h)--3 for more information about which loans may be considered
community development loans.)
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.
Sec. ----.12(g)(4) Activities that revitalize or stabilize certain
geographies
Sec. ----.12(g)(4)--1: Is the revised definition of community
development, effective September 1, 2005 (under the OCC, Board, and
FDIC rules) and effective April 12, 2006 (under OTS's rule), applicable
to all institutions or only to intermediate small institutions?
A1. The revised definition of community development is applicable
to all institutions. Examiners will not use the revised definition to
qualify activities that were funded or provided prior to September 1,
2005 (under the OCC, Board, and FDIC rules) or prior to April 12, 2006
(under OTS's rule).
Sec. ----.12(g)(4)--2: Will activities that provide housing for
middle-income and upper-income persons qualify for favorable
consideration as community development activities when they help to
revitalize or stabilize a distressed or underserved nonmetropolitan
middle-income geography or designated disaster areas?
A2. An activity that provides housing for middle- or upper-income
individuals qualifies as an activity that revitalizes or stabilizes a
distressed nonmetropolitan middle-income geography or a designated
disaster area if the housing directly helps to revitalize or stabilize
the community by attracting new, or retaining existing, businesses or
residents and, in the case of a designated disaster area, is related to
disaster recovery. The Agencies generally will consider all activities
that revitalize or stabilize a distressed nonmetropolitan middle-income
geography or designated disaster area, but will give greater weight to
those activities that are most responsive to community needs, including
needs of low- or moderate-income individuals or neighborhoods. Thus,
for example, a loan solely to develop middle- or upper-income housing
in a community in need of low- and moderate-income housing would be
given very little weight if there is only a short-term benefit to low-
and moderate-income individuals in the community through the creation
of temporary construction jobs. (Except in connection with intermediate
small institutions, a housing-related loan is not evaluated as a
``community development loan'' if it has been reported or collected by
the institution or its affiliate as a home mortgage loan,
[[Page 11647]]
unless it is a multifamily dwelling loan. See 12 CFR ----.12(h)(2)(i)
and Q&As Sec. ----.12(h)--2 and Sec. ----.12(h)--3.) An activity will
be presumed to revitalize or stabilize such a geography or area if the
activity is consistent with a bona fide government revitalization or
stabilization plan or disaster recovery plan. See Q&As Sec. --
--.12(g)(4)(i)--1 and Sec. ----.12(h)--5.
In underserved nonmetropolitan middle-income geographies,
activities that provide housing for middle- and upper-income
individuals may qualify as activities that revitalize or stabilize such
underserved areas if the activities also provide housing for low- or
moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income
geography would receive positive consideration if it also provides
housing for low- or moderate-income individuals.
Sec. ----.12(g)(4)(i) Activities that revitalize or stabilize low- or
moderate-income geographies
Sec. ----.12(g)(4)(i)--1: What activities are considered to
``revitalize or stabilize'' a low- or moderate-income geography, and
how are those activities considered?
A1. Activities that revitalize or stabilize a low- or moderate-
income geography are activities that help to attract new, or retain
existing, businesses or 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. Sec. 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 low- or moderate-income geography. For example,
foreclosure prevention programs with the objective of providing
affordable, sustainable, long-term loan restructurings or modifications
to homeowners in low- or moderate-income geographies, consistent with
safe and sound banking practices, may help to revitalize or stabilize
those geographies.
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 stabilization of the low- or moderate-income
geography. For more information on what activities revitalize or
stabilize a low- or moderate-income geography, see Q&As Sec. --
--.12(g)--2 and Sec. ----.12(h)--5.
Sec. ----.12(g)(4)(ii) Activities that revitalize or stabilize
designated disaster areas
Sec. ----.12(g)(4)(ii)--1: What is a ``designated disaster area''
and how long does it last?
A1. A ``designated disaster area'' is a major disaster area
designated by the federal government. Such disaster designations
include, in particular, Major Disaster Declarations administered by the
Federal Emergency Management Agency (FEMA) (http://www.fema.gov), but
excludes counties designated to receive only FEMA Public Assistance
Emergency Work Category A (Debris Removal) and/or Category B (Emergency
Protective Measures).
Examiners will consider institution activities related to disaster
recovery that revitalize or stabilize a designated disaster area for 36
months following the date of designation. Where there is a demonstrable
community need to extend the period for recognizing revitalization or
stabilization activities in a particular disaster area to assist in
long-term recovery efforts, this time period may be extended.
Sec. ----.12(g)(4)(ii)--2: What activities are considered to
``revitalize or stabilize'' a designated disaster area, and how are
those activities considered?
A2. The Agencies generally will consider an activity to revitalize
or stabilize a designated disaster area if it helps to attract new, or
retain existing, businesses or residents and is related to disaster
recovery. An activity will be presumed to revitalize or stabilize the
area if the activity is consistent with a bona fide government
revitalization or stabilization plan or disaster recovery plan. The
Agencies generally will consider all activities relating to disaster
recovery that revitalize or stabilize a designated disaster area, but
will give greater weight to those activities that are most responsive
to community needs, including the needs of low- or moderate-income
individuals or neighborhoods. Qualifying activities may include, for
example, providing financing to help retain businesses in the area that
employ local residents, including low- and moderate-income individuals;
providing financing to attract a major new employer that will create
long-term job opportunities, including for low- and moderate-income
individuals; providing financing or other assistance for essential
community-wide infrastructure, community services, and rebuilding
needs; and activities that provide housing, financial assistance, and
services to individuals in designated disaster areas and to individuals
who have been displaced from those areas, including low- and moderate-
income individuals (see, e.g., Q&As Sec. ----.12(i)--3; Sec. --
--.12(t)--4; Sec. ----.22(b)(2) & (3)--4; Sec. ----.22(b)(2) & (3)--
5; and Sec. ----.24(d)(3)--1).
Sec. ----.12(g)(4)(iii) Activities that revitalize or stabilize
distressed or underserved nonmetropolitan middle-income geographies
Sec. ----.12(g)(4)(iii)--1: What criteria are used to identify
distressed or underserved nonmetropolitan, middle-income geographies?
A1. Eligible nonmetropolitan middle-income geographies are those
designated by the Agencies as being in distress or that could have
difficulty meeting essential community needs (underserved). A
particular geography could be designated as both distressed and
underserved. As defined in 12 CFR ----.12(k), a geography is a census
tract delineated by the United States Bureau of the Census.
A nonmetropolitan middle-income geography will be designated as
distressed if it is in a county that meets one or more of the following
triggers: (1) An unemployment rate of at least 1.5 times the national
average, (2) a poverty rate of 20 percent or more, or (3) a population
loss of 10 percent or more between the previous and most recent
decennial census or a net migration loss of five percent or more over
the five-year period preceding the most recent census.
A nonmetropolitan middle-income geography will be designated as
underserved if it meets criteria for population size, density, and
dispersion that indicate the area's population is sufficiently small,
thin, and distant from a population center that the tract is likely to
have difficulty financing the fixed costs of meeting essential
community needs. The Agencies will use as the basis for these
designations the ``urban influence codes,'' numbered ``7,'' ``10,''
``11,'' and ``12,'' maintained by the Economic Research Service of the
United States Department of Agriculture.
The Agencies publish data source information along with the list of
eligible nonmetropolitan census tracts on the Federal Financial
Institutions
[[Page 11648]]
Examination Council Web site (http://www.ffiec.gov).
Sec. ----.12(g)(4)(iii)--2: How often will the Agencies update the
list of designated distressed and underserved nonmetropolitan middle-
income geographies?
A2. The Agencies will review and update the list annually. The list
is published on the Federal Financial Institutions Examination Council
Web site (http://www.ffiec.gov).
To the extent that changes to the designated census tracts occur,
the Agencies have determined to adopt a one-year ``lag period.'' This
lag period will be in effect for the twelve months immediately
following the date when a census tract that was designated as
distressed or underserved is removed from the designated list.
Revitalization or stabilization activities undertaken during the lag
period will receive consideration as community development activities
if they would have been considered to have a primary purpose of
community development if the census tract in which they were located
were still designated as distressed or underserved.
Sec. ----.12(g)(4)(iii)--3: What activities are considered to
``revitalize or stabilize'' a distressed nonmetropolitan middle-income
geography, and how are those activities evaluated?
A3. An activity revitalizes or stabilizes a distressed
nonmetropolitan middle-income geography if it helps to attract new, or
retain existing, businesses or residents. An activity will be presumed
to revitalize or stabilize the area if the activity is consistent with
a bona fide government revitalization or stabilization plan. The
Agencies generally will consider all activities that revitalize or
stabilize a distressed nonmetropolitan middle-income geography, but
will give greater weight to those activities that are most responsive
to community needs, including needs of low- or moderate-income
individuals or neighborhoods. Qualifying activities may include, for
example, providing financing to attract a major new employer that will
create long-term job opportunities, including for low- and moderate-
income individuals, and activities that provide financing or other
assistance for essential infrastructure or facilities necessary to
attract or retain businesses or residents. See Q&As Sec. --
--.12(g)(4)(i)--1 and Sec. ----.12(h)--5.
Sec. ----.12(g)(4)(iii)--4: What activities are considered to
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income geography, and how are those activities evaluated?
A4. The regulation provides that activities revitalize or stabilize
an underserved nonmetropolitan middle-income geography if they help to
meet essential community needs, including needs of low- or moderate-
income individuals. Activities such as financing for the construction,
expansion, improvement, maintenance, or operation of essential
infrastructure or facilities for health services, education, public
safety, public services, industrial parks, or affordable housing, will
be evaluated under these criteria to determine if they qualify for
revitalization or stabilization consideration. Examples of the types of
projects that qualify as meeting essential community needs, including
needs of low- or moderate-income individuals, would be a new or
expanded hospital that serves the entire county, including low- and
moderate-income residents; an industrial park for businesses whose
employees include low- or moderate-income individuals; a new or
rehabilitated sewer line that serves community residents, including
low- or moderate-income residents; a mixed-income housing development
that includes affordable housing for low- and moderate-income families;
or a renovated elementary school that serves children from the
community, including children from low- and moderate-income families.
Other activities in the area, such as financing a project to build
a sewer line spur that connects services to a middle- or upper-income
housing development while bypassing a low- or moderate-income
development that also needs the sewer services, generally would not
qualify for revitalization or stabilization consideration in
geographies designated as underserved. However, if an underserved
geography is also designated as distressed or a disaster area,
additional activities may be considered to revitalize or stabilize the
geography, as explained in Q&As Sec. ----.12(g)(4)(ii)--2 and Sec. --
--.12(g)(4)(iii)--3.
Sec. ----.12(h) Community development loan
Sec. ----.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- and 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), New Markets Tax Credit-eligible
Community Development Entities, 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;
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;
and
Businesses, in an amount greater than $1 million, when
made as part of the Small Business Administration's 504 Certified
Development Company program.
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.
Sec. ----.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
the 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
[[Page 11649]]
a collecting and reporting institution under the CRA or the HMDA.
Therefore, these loans will not be considered as community development
loans, unless the small institution is an intermediate small
institution (see Sec. ----.12(h)--3). Multifamily dwelling loans,
however, may be considered as community development loans as well as
home mortgage loans. See also Q&A Sec. ----.42(b)(2)--2.
Sec. ----.12(h)--3: May an intermediate small institution that is
not subject to HMDA reporting have home mortgage loans considered as
community development loans? Similarly, may an intermediate small
institution have small business and small farm loans and consumer loans
considered as community development loans?
A3. Yes. In instances where intermediate small institutions are not
required to report HMDA or small business or small farm loans, these
loans may be considered, at the institution's option, as community
development loans, provided they meet the regulatory definition of
``community development.'' If small business or small farm loan data
have been reported to the agencies to preserve the option to be
evaluated as a large institution, but the institution ultimately
chooses to be evaluated under the intermediate small institution
examination standards, then the institution would continue to have the
option to have such loans considered as community development loans.
However, if the institution opts to be evaluated under the lending,
investment, and service tests applicable to large institutions, it may
not choose to have home mortgage, small business, small farm, or
consumer loans considered as community development loans.
Loans other than multifamily dwelling loans may not be considered
under both the lending test and the community development test for
intermediate small institutions. Thus, if an institution elects to have
certain loans considered under the community development test, those
loans may not also be considered under the lending test, and would be
excluded from the lending test analysis.
Intermediate small institutions may choose individual loans within
their portfolio for community development consideration. Examiners will
evaluate an intermediate small institution's community development
activities within the context of the responsiveness of the activity to
the community development needs of the institution's assessment area.
Sec. ----.12(h)--4: Do secured credit cards or other credit card
programs targeted to low- or moderate-income individuals qualify as
community development loans?
A4. 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.''
Sec. ----.12(h)--5: 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?
A5. No. Some loans may provide only indirect or short-term benefits
to low- or moderate-income individuals in a low- or moderate-income
geography. These loans are not considered to have a community
development purpose. For example, a loan for upper-income housing in a
low- or moderate-income 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 low- or moderate-income 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 a
low-income area, a loan for a pharmacy that employs and serves
residents of the area promotes community development.
Sec. ----.12(h)--6: 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)?
A6. No. The regulations recognize that community development
organizations and programs are efficient and effective ways for
institutions to promote community development. These organizations and
programs often operate on a statewide or even multistate basis.
Therefore, an institution's activity is considered a community
development loan or service or a qualified investment if it supports an
organization or activity that covers an area that is larger than, but
includes, the institution's assessment area(s). The institution's
assessment area(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).
Sec. ----.12(h)--7: What is meant by the term ``regional area''?
A7. A ``regional area'' may be as large as a multistate area. For
example, the ``mid-Atlantic states'' may comprise a regional area.
Community development loans and services and qualified investments
to statewide or regional organizations that have a bona fide purpose,
mandate, or function that includes serving the geographies or
individuals within the institution's assessment area(s) will be
considered as addressing assessment area needs. When examiners evaluate
community development loans and services and qualified investments that
benefit a regional area that includes the institution's assessment
area(s), they will consider the institution's performance context as
well as the size of the regional area and the actual or potential
benefit to the institution's assessment area(s). With larger regional
areas, benefit to the institution's assessment area(s) may be diffused
and, thus, less responsive to assessment area needs.
In addition, as long as an institution has adequately addressed the
community development needs of its assessment area(s), it will also
receive consideration for community development activities that benefit
geographies or individuals located somewhere within the broader
statewide or regional area that includes the institution's assessment
area(s), even if those activities do not benefit its assessment
area(s).
Sec. ----.12(h)--8: What is meant by the term ``primary purpose''
as that term is used to define what constitutes a community development
loan, a
[[Page 11650]]
qualified investment, or a community development service?
A8. 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, designated
disaster areas, or underserved or distressed nonmetropolitan middle-
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 CFR ----.12(g). To determine whether an
activity is designed for an express community development purpose, the
agencies apply one of two approaches. First, if a majority of the
dollars or beneficiaries of the activity are identifiable to one or
more of the enumerated community development purposes, then the
activity will be considered to possess the requisite primary purpose.
Alternatively, where the measurable portion of any benefit bestowed or
dollars applied to the community development purpose is less than a
majority of the entire activity's benefits or dollar value, then the
activity may still be considered to possess the requisite primary
purpose, and the institution may receive CRA consideration for the
entire activity, 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.
Generally, a loan, investment, or service will be determined to
have a ``primary purpose'' of community development only if it meets
the criteria described above. However, an activity involving the
provision of affordable housing also may be deemed to have a ``primary
purpose'' of community development in certain other limited
circumstances in which these criteria have not been met. Specifically,
activities related to the provision of mixed-income housing, such as in
connection with a development that has a mixed-income housing component
or an affordable housing set-aside required by federal, state, or local
government, also would be eligible for consideration as an activity
that has a ``primary purpose'' of community development at the election
of the institution. In such cases, an institution may receive pro rata
consideration for the portion of such activities that helps to provide
affordable housing to low- or moderate-income individuals. For example,
if an institution makes a $10 million loan to finance a mixed-income
housing development in which ten percent of the units will be set aside
as affordable housing for low- and moderate-income individuals, the
institution may elect to treat $1 million of such loan as a community
development loan. In other words, the pro rata dollar amount of the
total activity will be based on the percentage of units set-aside for
affordable housing for low- or moderate-income individuals.
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 should be prepared to demonstrate the activities'
qualifications.
Sec. ----.12(i) Community development service
Sec. ----.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.
Sec. ----.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.
Sec. ----.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 financial services to low- and moderate-income
individuals through branches and other facilities located in low- and
moderate-income areas, unless the provision of such services has been
considered in the evaluation of an institution's retail banking
services under 12 CFR ----.24(d);
Increasing access to financial services by opening or
maintaining branches or other facilities that help to revitalize or
stabilize a low- or moderate-income geography, a designated disaster
area, or a distressed or underserved nonmetropolitan middle-income
geography, unless the opening or maintaining of such branches or other
facilities has been considered in the evaluation of the institution's
retail banking services under 12 CFR ----.24(d);
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,
including credit counseling to assist low- or moderate-income borrowers
in avoiding foreclosure on their homes;
[[Page 11651]]
Establishing school savings programs or developing or
teaching financial education or literacy curricula for low- or
moderate-income individuals;
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;
Providing international remittance services that increase
access to financial services by low- and moderate-income persons (for
example, by offering reasonably priced international remittance
services in connection with a low-cost account);
Providing other financial services with the primary
purpose of community development, such as low-cost savings or checking
accounts, including ``Electronic Transfer Accounts'' provided pursuant
to the Debt Collection Improvement Act of 1996, individual development
accounts (IDAs), or free or low-cost government, payroll, or other
check cashing services, that increase access to financial services for
low- or moderate-income individuals; and
Providing foreclosure prevention programs to low- or
moderate-income homeowners who are facing foreclosure on their primary
residence with the objective of providing affordable, sustainable,
long-term loan modifications and restructurings.
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.
Sec. ----.12(j) Consumer loan
Sec. ----.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.
Sec. ----.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.
Sec. ----.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.
Sec. ----.12(l) Home mortgage loan
Sec. ----.12(l)--1: Does the term ``home mortgage loan'' include
loans other than ``home purchase loans''?
A1. Yes. ``Home mortgage loan'' includes ``home improvement loan,''
``home purchase loan,'' and ``refinancing,'' as defined in the HMDA
regulation, Regulation C, 12 CFR part 203. This definition also
includes multifamily (five-or-more families) dwelling loans, and loans
for the purchase of manufactured homes. See also Q&A Sec. --
--.22(a)(2)--7.
Sec. ----.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 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
these other loan data using the same criteria by which home mortgage
loans originated or purchased by an institution are evaluated.
Institutions that do not provide funding but merely take
applications and provide settlement services for another lender that
makes the credit decisions will receive consideration for this service
as a retail banking service. Examiners will consider an institution's
mortgage brokerage services when evaluating the range of services
provided to low-, moderate-, middle- and upper-income geographies and
the degree to which the services are tailored to meet the needs of
those geographies. Alternatively, an institution's mortgage brokerage
service may be considered a community development service if the
primary purpose of the service is community development. An institution
wishing to have its mortgage brokerage service considered as a
community development service must provide sufficient information to
substantiate that its primary purpose is community development and to
establish the extent of the services provided.
Sec. ----.12(m) Income level
Sec. ----.12(m)--1: Where do institutions find income level data
for geographies and individuals?
A1. The income levels for geographies, i.e., census tracts, are
derived from Census Bureau information and are updated approximately
every ten years. The income levels for individuals are derived from
information calculated by the Department of Housing and Urban
Development (HUD) and updated annually.
Institutions may obtain 2000 geography income information and the
annually updated HUD median family incomes for metropolitan statistical
areas (MSAs) and statewide nonmetropolitan areas by accessing the
Federal Financial Institution Examination Council's (FFIEC's) Web
[[Page 11652]]
site at http://www.ffiec.gov/cra or by calling the FFIEC's CRA
Assistance Line at (202) 872-7584.
Sec. ----.12(n) Limited purpose institution
Sec. ----.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.
Sec. ----.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 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 retail lending provided as an incident to the
institution's wholesale lending?
Are the retail loans provided as an accommodation to the
institution's wholesale customers?
Are the other types of 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?
Sec. ----.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.
Sec. ----.12(t) Qualified investment
Sec. ----.12(t)--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.
Sec. ----.12(t)--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. Certain municipal bonds in
underserved nonmetropolitan middle-income geographies may also be
qualified investments. See Q&A Sec. ----.12(g)(4)(iii)--4. Housing-
related bonds or securities must primarily address affordable housing
(including multifamily rental housing) needs of low- or moderate-income
individuals in order to qualify. See also Q&A Sec. ----.23(b)--2.
Sec. ----.12(t)--3: Are Federal Home Loan Bank stocks or unpaid
dividends and membership reserves with the Federal Reserve Banks
``qualified investments''?
A3. No. Federal Home Loan Bank (FHLB) stocks or unpaid dividends,
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 as a community development service for technical
assistance they provide on behalf of applicants and recipients of
funding from the FHLB's Affordable Housing Program. See Q&A Sec. --
--.12(i)--3.
Sec. ----.12(t)--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), New Markets Tax Credit-eligible
Community Development Entities, 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), specialized SBICs, and Rural Business
Investment Companies (RBICs) that promote economic development by
financing small businesses;
Community development venture capital companies that
promote economic development by financing small businesses;
Facilities that promote community development by providing
community services 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
literacy programs; 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 low-
or moderate-income individuals to work.
See also Q&As Sec. ----.12(g)(4)(ii)--2; Sec. --
--.12(g)(4)(iii)--3; Sec. ----.12(g)(4)(iii)--4.
Sec. ----.12(t)--5: Will an institution receive consideration for
charitable
[[Page 11653]]
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.
Sec. ----.12(t)--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 responsiveness,
innovativeness, and complexity of the community development loan within
the bounds of safe and sound banking practices.
Sec. ----.12(t)--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 as a community
development service if the activity meets the regulatory definition of
``community development service.''
Sec. ----.12(t)--8: When evaluating a qualified investment, what
consideration will be given for prior-period investments?
A8. When evaluating an institution's qualified investment record,
examiners will consider investments that were made prior to the current
examination, but that are still outstanding. Qualitative factors will
affect the weighting given to both current period and outstanding
prior-period qualified investments. For example, a prior-period
outstanding investment with a multi-year impact that addresses
assessment area community development needs may receive more
consideration than a current period investment of a comparable amount
that is less responsive to area community development needs.
Sec. ----.12(u) Small institution
Sec. ----.12(u)--1: How are Federal and State branch assets of a
foreign bank calculated for purposes of the CRA?
A1. A Federal or State branch of a foreign bank is considered a
small institution if the Federal or State branch has assets less than
the asset threshold delineated in 12 CFR ----.12(u)(1) for small
institutions.
Sec. ----.12(u)(2) Small institution adjustment
Sec. ----.12(u)(2)--1: How often will the asset size thresholds
for small institutions and intermediate small institutions be changed,
and how will these adjustments be communicated?
A1. The asset size thresholds for ``small institutions'' and
``intermediate small institutions'' will be adjusted annually based on
changes to the Consumer Price Index. More specifically, the dollar
thresholds will be adjusted annually based on the year-to-year change
in the average of the Consumer Price Index for Urban Wage Earners and
Clerical Workers, not seasonally adjusted for each twelve-month period
ending in November, with rounding to the nearest million. Any changes
in the asset size thresholds will be published in the Federal Register.
Historical and current asset-size threshold information may be found on
the FFIEC's Web site at http://www.ffiec.gov/cra.
Sec. ----.12(v) Small business loan
Sec. ----.12(v)--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 Report'' (TFR). In general, a loan to a nonprofit
organization, for business or farm purposes, where the loan is secured
by nonfarm nonresidential property and the original amount of the loan
is $1 million or less, if a business loan, or $500,000 or less, if a
farm loan, would be reported in the Call Report and TFR as a small
business or small farm loan. If a loan to a nonprofit organization is
reportable as a small business or small farm loan, it cannot also be
considered as a community development loan, except by a wholesale or
limited purpose institution. Loans to nonprofit organizations that are
not small business or small farm loans for Call Report and TFR purposes
may be considered as community development loans if they meet the
regulatory definition of ``community development.''
Sec. ----.12(v)--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 of $1 million or less.
Sec. ----.12(v)--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 purposes 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.'' See also Q&A Sec. ----.22(a)(2)--7.
Applicable to institutions that file TFRs: Possibly, depending how
the loan is classified for TFR purposes. Loans secured by nonfarm
residential real estate to finance small businesses may be included as
small business loans only if they are reported on the TFR as
nonmortgage, commercial loans. (See TFR Q&A No. 62.) Otherwise, loans
that meet the definition of mortgage loans, for TFR reporting purposes,
may be classified as mortgage loans.
Sec. ----.12(v)--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.
Sec. ----.12(x) Wholesale institution
Sec. ----.12(x)--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?
[[Page 11654]]
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, including off-
balance sheet activities.
A wholesale institution may make some retail loans without losing
its wholesale designation as described above in Q&A Sec. ----.12(n)--
2.
Sec. ----.21--Performance tests, standards, and ratings, in general
Sec. ----.21(a) Performance tests and standards
Sec. ----.21(a)--1: How will examiners apply the performance
criteria?
A1. Examiners will apply the performance criteria reasonably and
fairly, in accord with the regulations, the examination procedures, and
this guidance. In doing so, examiners will disregard efforts by an
institution to manipulate business operations or present information in
an artificial light that does not accurately reflect an institution's
overall record of lending performance.
Sec. ----.21(a)--2: Are all community development activities
weighted equally by examiners?
A2. No. Examiners will consider the responsiveness to credit and
community development needs, as well as the innovativeness and
complexity, if applicable, 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. (``Innovativeness'' and ``complexity'' are
not factors in the community development test applicable to
intermediate small institutions.)
Sec. ----.21(b) Performance context
Sec. ----.21(b)--1: What is the performance context?
A1. 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 some of this information. The performance context is not
a formal assessment of community credit needs.
Sec. ----.21(b)(2) Information maintained by the institution or
obtained from community contacts
Sec. ----.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 formal 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.
Sec. ----.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 may 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 may share
community contact information.
Sec. ----.21(b)(4) Institutional capacity and constraints
Sec. ----.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.
Sec. ----.21(b)(5) Institution's past performance and the performance
of similarly situated lenders
Sec. ----.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.
Sec. ----.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.
Sec. ----.22--Lending test
Sec. ----.22(a) Scope of test
Sec. ----.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 responsive in helping
to meet the credit needs of many communities. These activities include:
Providing loan programs that include a financial education
[[Page 11655]]
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. Reporting 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;
Establishing loan programs with the objective of providing
affordable, sustainable, long-term relief, for example, through loan
refinancings, restructures, or modifications, to homeowners who are
facing foreclosure on their primary residences.
Examiners may consider favorably such lending activities, which
have features augmenting the success and effectiveness of the small,
intermediate small, or large institution's lending programs.
Sec. ----.22(a)(1) Types of loans considered
Sec. ----.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.
Sec. ----.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 has collected and maintained the data; 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 and dollar
volume of loans that the lending test evaluation would not meaningfully
reflect its lending performance if consumer loans were excluded.
Sec. ----.22(a)(2) Loan originations and purchases/other loan data
Sec. ----.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, regardless of
examination type. 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, but will be evaluated
separately from the loans.
Sec. ----.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.
Sec. ----.22(a)(2)--3: May a financial institution receive
consideration under CRA for home mortgage loan modification, extension,
and consolidation agreements (MECAs), in which it obtains home mortgage
loans from other institutions without actually purchasing or
refinancing the home mortgage loans, as those terms have been
interpreted under CRA and HMDA, as implemented by 12 CFR part 203?
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. A small,
intermediate small, or large institution may present information about
its MECA activities with respect to home mortgages to examiners for
consideration under the lending test as ``other loan data.''
Sec. ----.22(a)(2)--4: In addition to MECAs, what are other
examples of ``other loan data''?
A4. Other loan data include, for example:
Loans funded for sale to the secondary markets that an
institution has not reported under HMDA;
Unfunded loan commitments and letters of credit;
Commercial and consumer leases;
Loans secured by nonfarm residential real estate, not
taken as an abundance of caution, that are used to finance small
businesses or small farms and that are not reported as small business/
small farm loans or reported under HMDA; and
An increase to a small business or small farm line of
credit if the increase would cause the total line of credit to exceed
$1 million, in the case of a small business line; or $500,000, in the
case of a small farm line.
Sec. ----.22(a)(2)--5: Do institutions receive consideration for
originating or purchasing loans that are fully guaranteed?
A5. Yes. For all examination types, examiners evaluate 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. Examiners do not take into account whether or not such
loans are guaranteed.
Sec. ----.22(a)(2)--6: Do institutions receive consideration for
purchasing loan participations?
A6. Yes. Examiners will consider the amount of loan participations
purchased when evaluating 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, regardless of examination type.
As with other loan purchases, examiners will evaluate whether
participations in loan purchased, which have been sold and purchased a
number of times, artificially inflate CRA performance. See, e.g., Sec.
----.21(a)--1.
Sec. ----.22(a)(2)--7: How are refinancings of small business
loans, which are secured by a one-to-four family residence and that
have been reported under HMDA as a refinancing, evaluated under CRA?
A7. For banks subject to the Call Report instructions: A loan of $1
million or less with a business purpose that is secured by a one-to-
four family residence is considered a small business loan for CRA
purposes only if the security interest in the residential property was
taken as an abundance of caution and where the terms have not been made
more favorable than they would have been in the absence of the lien.
(See Call Report Glossary definition of ``Loan Secured by Real
Estate.'') If this same loan is refinanced and the new loan is also
secured by a one-to-four family residence, but only through an
abundance of caution, this loan is reported not only as a refinancing
under HMDA, but also as a small business loan under CRA. (Note that
small farm loans are similarly treated.)
It is not anticipated that ``double-reported'' loans will be so
numerous as to affect the typical institution's CRA rating. In the
event that an institution
[[Page 11656]]
reports a significant number or amount of loans as both home mortgage
and small business loans, examiners will consider that overlap in
evaluating the institution's performance and generally will consider
the ``double-reported'' loans as small business loans for CRA
consideration.
The origination of a small business or small farm loan that is
secured by a one-to-four family residence is not reportable under HMDA,
unless the purpose of the loan is home purchase or home improvement.
Nor is the loan reported as a small business or small farm loan if the
security interest is not taken merely as an abundance of caution. Any
such loan may be provided to examiners as ``other loan data'' (``Other
Secured Lines/Loans for Purposes of Small Business'') for consideration
during a CRA evaluation. See Q&A Sec. ----.12(v)--3. The refinancings
of such loans would be reported under HMDA.
For savings associations subject to the Thrift Financial Reporting
instructions: A loan of $1 million or less with a business purpose
secured by a one-to-four family residence is considered a small
business loan for CRA purposes if it is reported as a small business
loan for TFR purposes and was not reported on the TFR as a mortgage
loan (TFR Instructions for Commercial Loans: Secured). If this same
loan is refinanced and the new loan is also secured by a one-to-four
family residence, and was not reported for TFR purposes as a mortgage
loan, this loan is reported not only as a refinancing for HMDA, but is
also reported as a small business loan under the TFR and CRA. The
origination of a small business or small farm loan that is secured by a
one-to-four family residence is not reportable under HMDA, unless the
purpose of the loan is home purchase or home improvement. Nor is the
loan reported as small business or small farm if it was reported as a
mortgage on the TFR report.
OTS does not anticipate that ``double-reported'' loans will be so
numerous as to affect the typical institution's CRA rating. In the
event that an institution reports a significant number or amount of
loans as both home mortgage and small business loans, examiners will
consider that overlap in evaluating the institution's performance and
generally will consider the ``double-reported'' loans as small business
loans for CRA consideration.
The origination of a small business or small farm loan that is
secured by a one-to-four family residence should be reported in
accordance with Q&A Sec. ----.12(v)--3. The refinancings of such loans
would be reported under HMDA.
Sec. ----.22(b) Performance criteria
Sec. ----.22(b)(1) Lending activity
Sec. ----.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.
Sec. ----.22(b)(2) & (3) Geographic distribution and borrower
characteristics
Sec. ----.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 applicable to either large or small
institutions?
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 and farms 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.
Sec. ----.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, regardless of
examination type, has met the specific performance tests and standards
in the rule. The agencies do not expect that simply because a census
tract is within an institution's assessment area(s), the institution
must lend to that census tract. 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).
Sec. ----.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.
Sec. ----.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 this consideration not only to loans
made by large retail institutions being evaluated under the lending
test, but also to loans made by small and
[[Page 11657]]
intermediate small institutions being evaluated under their respective
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).
Sec. ----.22(b)(2) & (3)--5: Under the lending test applicable to
small, intermediate small, or large institutions, how will examiners
evaluate home mortgage loans to middle- or upper-income individuals in
a low- or moderate-income geography?
A5. Examiners will consider these home mortgage loans under the
performance criteria of the lending test, i.e., by number and amount of
home mortgage loans, whether they are inside or outside the financial
institution's assessment area(s), their geographic distribution, and
the income levels of the borrowers. Examiners will use information
regarding the financial institution's performance context to determine
how to evaluate the loans under these performance criteria. Depending
on the performance context, examiners could view home mortgage loans to
middle-income individuals in a low-income geography very differently.
For example, if the loans are for homes or multifamily housing located
in an area for which the local, state, tribal, or Federal government or
a community-based development organization has developed a
revitalization or stabilization plan (such as a Federal enterprise
community or empowerment zone) that includes attracting mixed-income
residents to establish a stabilized, economically diverse neighborhood,
examiners may give more consideration to such loans, which may be
viewed as serving the low- or moderate-income community's needs as well
as serving those of the middle- or upper-income borrowers. If, on the
other hand, no such plan exists and there is no other evidence of
governmental support for a revitalization or stabilization project in
the area and the loans to middle- or upper-income borrowers
significantly disadvantage or primarily have the effect of displacing
low- or moderate-income residents, examiners may view these loans
simply as home mortgage loans to middle- or upper-income borrowers who
happen to reside in a low- or moderate-income geography and weigh them
accordingly in their evaluation of the institution.
Sec. ----.22(b)(4) Community development lending
Sec. ----.22(b)(4)--1: When evaluating an institution's record of
community development lending under the lending test applicable to
large institutions, 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 12 CFR ----.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 12 CFR --
--.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 12 CFR ----.22(b)(4), the extent of CRA consideration an
institution receives for its community development loans should bear a
direct relation to the benefits received by the community and the
innovation or complexity of the loans required to accomplish the
activity, not simply to the dollar amount expended on a particular
transaction. By applying all lending test performance criteria, a
community development loan of a lower dollar amount could meet the
credit needs of the institution's community to a greater extent than a
community development loan with a higher dollar amount, but with less
innovation, complexity, or impact on the community.
Sec. ----.22(b)(5) Innovative or flexible lending practices
Sec. ----.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 under the lending test applicable to large
institutions?
A1. In evaluating the innovativeness or flexibility of an
institution's lending practices (and the complexity and innovativeness
of its community development lending), examiners will not be limited to
reviewing the overall variety and specific terms and conditions of the
credit products themselves. In connection with the evaluation of an
institution's lending, examiners also may give consideration to related
innovations when they augment the success and effectiveness of the
institution's lending under its community development loan programs or,
more generally, its lending under its loan programs that address the
credit needs of low- and moderate-income geographies or individuals.
For example:
In connection with a community development loan program,
an institution may establish a technical assistance program under which
the institution, 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, an institution may implement a program under which, in
addition to providing financing, the institution also contracts with
the small business borrowers. Such a contracting arrangement would not,
standing alone, qualify for CRA consideration. However, it may be
favorably considered as an innovation that augments the loan program's
success and effectiveness, and improves the program's ability to serve
community development purposes by helping to promote economic
development through support of small business activities and
revitalization or stabilization of low- or moderate-income geographies.
Sec. ----.22(c) Affiliate lending
Sec. ----.22(c)(1) In general
Sec. ----.22(c)(1)--1: If an institution, regardless of
examination type, 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
[[Page 11658]]
loans, home equity loans, other secured loans, and other unsecured
loans).
Sec. ----.22(c)(2) Constraints on affiliate lending
Sec. ----.22(c)(2)(i) No affiliate may claim a loan origination or
loan purchase if another institution claims the same loan origination
or purchase
Sec. ----.22(c)(2)(i)--1: Regardless of examination type, 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. For example,
assume that two institutions are affiliated. Bank A originates a loan
and claims it as a loan origination. Bank B later purchases the loan.
Bank B may count the loan as a purchased loan.
The same institution may not count both the origination and
purchase. Thus, for example, if an institution claims loans made by an
affiliated mortgage company as loan originations, the institution may
not also count the loans as purchased loans if it later purchases the
loans from its affiliate. See also Q&As Sec. ----.22(c)(2)(ii)--1 and
Sec. ----.22(c)(2)(ii)--2.
Sec. ----.22(c)(2)(ii) If an institution elects to have its
supervisory agency consider loans within a particular lending category
made by one or more of the institution's affiliates in a particular
assessment area, the institution shall elect to have the agency
consider all loans within that lending category in that particular
assessment area made by all of the institution's affiliates
Sec. ----.22(c)(2)(ii)--1: Regardless of examination type, 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 several
affiliates, including a mortgage company that makes loans in the
institution's assessment area. If the institution elects to include the
mortgage company's home mortgage loans, it must include all of its
affiliates' home mortgage loans made in its assessment area. In
addition, the institution cannot elect to include only those low- and
moderate-income home mortgage loans made by its affiliates and not home
mortgage loans to middle- and upper-income individuals or areas.
Sec. ----.22(c)(2)(ii)--2: Regardless of examination type, how is
this constraint applied if an institution's affiliates are also insured
depository institutions subject to the CRA?
A2. Strict application of this constraint against ``cherry-
picking'' to loans of an affiliate that is also an insured depository
institution covered by the CRA would produce the anomalous result that
the other institution would, without its consent, not be able to count
its own loans. Because the agencies did not intend to deprive an
institution subject to the CRA of receiving consideration for its own
lending, the agencies read this constraint slightly differently in
cases involving a group of affiliated institutions, some of which are
subject to the CRA and share the same assessment area(s). In those
circumstances, an institution that elects to include all of its
mortgage affiliate's home mortgage loans in its assessment area would
not automatically be required to include all home mortgage loans in its
assessment area of another affiliate institution subject to the CRA.
However, all loans of a particular type made by any affiliate in the
institution's assessment area(s) must either be counted by the lending
institution or by another affiliate institution that is subject to the
CRA. This reading reflects the fact that a holding company may, for
business reasons, choose to transact different aspects of its business
in different subsidiary institutions. However, the method by which
loans are allocated among the institutions for CRA purposes must
reflect actual business decisions about the allocation of banking
activities among the institutions and should not be designed solely to
enhance their CRA evaluations.
Sec. ----.22(d) Lending by a consortium or a third party
Sec. ----.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. Q&A Sec. ----.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. (Note
that in connection with an intermediate small institution's CRA
performance evaluation, community development loans, including pro-rata
shares of community development loans, are considered only in the
community development test.)
Sec. ----.22(d)--2: Regardless of examination type, how will
examiners evaluate loans made by consortia or third parties?
A2. Loans originated or purchased by consortia in which an
institution participates or by third parties in which an institution
invests will be considered only if they qualify as community
development loans and will be considered only under the community
development criterion. 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 the lending test or community development test criteria
appropriate to them depending on the type of loan and type of
examination.
Sec. ----.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 ----.22(d), may the
third party also receive consideration for these loans?
A3. Yes, regardless of examination type, as long as the financial
institution and the third party are not affiliates. The regulations
state, at 12 CFR ----.22(c)(2)(i), that two affiliates may not both
claim the same loan origination or loan purchase. However, if the
[[Page 11659]]
financial institution and the third party are not affiliates, the third
party may receive consideration for the community development loans it
originates, and the financial institution that invested in the third
party may also receive consideration for its pro rata share of the same
community development loans under 12 CFR ----.22(d).
Sec. ----.23--Investment test
Sec. ----.23(a) Scope of test
Sec. ----.23(a)--1: May an institution, regardless of examination
type, receive consideration under the CRA regulations if it invests
indirectly through a fund, the purpose of which is community
development, as that is defined in the CRA regulations?
A1. Yes, the direct or indirect nature of the qualified investment
does not affect whether an institution will receive consideration under
the CRA regulations because the regulations do not distinguish between
``direct'' and ``indirect'' investments. Thus, an institution's
investment in an equity fund that, in turn, invests in projects that,
for example, provide affordable housing to low- and moderate-income
individuals, would receive consideration as a qualified investment
under the CRA regulations, provided the investment benefits one or more
of the institution's assessment area(s) or a broader statewide or
regional area(s) that includes one or more of the institution's
assessment area(s). Similarly, an institution may receive consideration
for a direct qualified investment in a nonprofit organization that, for
example, supports affordable housing for low- and moderate-income
individuals in the institution's assessment area(s) or a broader
statewide or regional area(s) that includes the institution's
assessment area(s).
Sec. ----.23(a)--2: In order to receive CRA consideration, what
information may an institution provide that would demonstrate that an
investment in a nationwide fund with a primary purpose of community
development will directly or indirectly benefit one or more of the
institution's assessment area(s) or a broader statewide or regional
area that includes the institution's assessment area(s)?
A2. There are several ways to demonstrate that the institution's
investment in a nationwide fund meets the geographic requirements, and
the agencies will employ appropriate flexibility in this regard in
reviewing information the institution provides that reasonably supports
this determination.
As an initial matter, in making this determination, the agencies
would consider whether the purpose, mandate, or function of the fund
includes serving geographies or individuals located within the
institution's assessment area(s) or a broader statewide or regional
area that includes the institution's assessment area(s). Typically,
information about where a fund's investments are expected to be made or
targeted will be found in the fund's prospectus, or other documents
provided by the fund prior to or at the time of the institution's
investment, and the institution, at its option, may provide such
documentation in connection with its CRA evaluation. At the
institution's option, written documentation provided by fund managers
in connection with the institution's investment indicating that the
fund will use its best efforts to invest in a qualifying activity that
meets the institution's geographic requirements also may be used for
these purposes. Similarly, at the institution's option, information
that a fund has explicitly earmarked its projects or investments to its
investors and their specific assessment area(s) or broader statewide or
regional areas that include the assessment area(s) also may be used for
these purposes. (If any documentation that has been provided at the
institution's option as described above clearly indicates that the fund
``double-counts'' investments, by earmarking the same dollars or the
same portions of projects or investments in a particular geography to
more than one investor, the investment may be determined not to meet
the geographic requirements of the CRA regulations.) In addition, at
the institution's option, an allocation method may be used to permit
the institution to claim a pro-rata share of each project of the fund.
Nationwide funds are important sources of investments for low- and
moderate-income and underserved communities throughout the country and
can be an efficient vehicle for institutions in making qualified
investments that help meet community development needs. Prior to
investing in such a fund, an institution should consider reviewing the
fund's investment record to see if it is generally consistent with the
institution's investment goals and the geographic considerations in the
regulations. See also Q&As Sec. ----.12(h)--6 and Sec. ----12(h)--7
(additional information about recognition of investments benefiting an
area outside an institution's assessment area(s).)
Sec. ----.23(b) Exclusion
Sec. ----.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 its pro rata 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 receive
consideration under the investment test for only the amount of its
investment multiplied by the percentage of the CDC's assets that meet
the definition of a qualified investment.
Sec. ----.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
[[Page 11660]]
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.
Sec. ----.23(e) Performance criteria
Sec. ----.23(e)--1: When applying the four performance criteria of
12 CFR ----.23(e), may an examiner distinguish among qualified
investments based on how much of the investment actually supports the
underlying community development purpose?
A1. Yes. By applying all the 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 that has
fewer qualitative enhancements. The criteria permit an examiner to
qualitatively 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
Performance Evaluation. See also Q&A Sec. ----.12(t)--8 for a
discussion about the qualitative consideration of prior period
investments.
Sec. ----.23(e)--2: How do examiners evaluate an institution's
qualified investment in a fund, the primary purpose of which is
community development, as 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.
Sec. ----.24--Service test
Sec. ----.24(d) Performance criteria--retail banking services
Sec. ----.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
and its record of opening and closing branches, particularly branches
located in low- or moderate-income geographies or primarily serving
low- or moderate-income individuals. However, an institution is not
required to expand its branch network or operate unprofitable branches.
Under the service test, alternative systems for delivering retail
banking services, such as ATMs, are considered only to the extent that
they are effective alternatives in providing needed services to low-
and moderate-income areas and individuals.
Sec. ----.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 prospective account
holders, or other means. The extent of financial institutions'
involvement in IDAs and the products and services they offer in
connection with the accounts will vary. Thus, subject to 12 CFR --
--.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. See, e.g., Q&A Sec. --
--.12(i)--3.
Note that all types of institutions may participate in IDA
programs. Their IDA activities are evaluated under the performance
criteria of the type of examination applicable to the particular
institution.
Sec. ----.24(d)(3) Availability and effectiveness of alternative
systems for delivering retail banking services
Sec. ----.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
[[Page 11661]]
moderate-income areas and individuals. The list of systems in the
regulation is not intended to be comprehensive.
Sec. ----.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.
Sec. ----.24(e) Performance criteria--community development services
Sec. ----.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 Q&A Sec. ----.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 12 CFR ----.22(c) and ----.23(c).
Sec. ----.25 Community development test for wholesale or limited
purpose institutions
Sec. ----.25(a) Scope of test
Sec. ----.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 12 CFR ----.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 12 CFR ----.21(b)(4).
Sec. ----.25(d) Indirect activities
Sec. ----.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 12 CFR --
--.22(d) and ----.23(b).
Sec. ----.25(e) Benefit to assessment area(s)
Sec. ----.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).
Sec. ----.25(f) Community development performance rating
Sec. ----.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.
Sec. ----.26--Small institution performance standards
Sec. ----.26--1: When evaluating a small or intermediate small
institution's performance, will examiners consider, at the
institution's request, retail and community development loans
originated or purchased by affiliates, qualified investments made by
affiliates, or community development services provided by affiliates?
A1. Yes. However, a small institution that elects to have examiners
consider affiliate activities must maintain sufficient information that
the examiners may evaluate these activities under the appropriate
performance criteria and ensure that the activities are not claimed by
another institution. The constraints applicable to affiliate activities
claimed by large institutions also apply to small and intermediate
small institutions. See Q&As addressing 12 CFR ----.22(c)(2) and
related guidance provided to large institutions regarding affiliate
activities. Examiners will not include affiliate lending in calculating
the percentage of loans and, as appropriate, other lending-related
activities located in an institution's assessment area.
[[Page 11662]]
Sec. ----.26(a) Performance criteria
Sec. ----.26(a)(2) Intermediate small institutions
Sec. ----.26(a)(2)--1: When is an institution examined as an
intermediate small institution?
A1. When a small institution has met the intermediate small
institution asset threshold delineated in 12 CFR ----.12(u)(1) for two
consecutive calendar year-ends, the institution may be examined under
the intermediate small institution examination procedures. The
regulation does not specify an additional lag period between becoming
an intermediate small institution and being examined as an intermediate
small institution, as it does for large institutions, because an
intermediate small institution is not subject to CRA data collection
and reporting requirements. Institutions should contact their primary
regulator for information on examination schedules.
Sec. ----.26(b) Lending test
Sec. ----.26(b)--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?
A1. Yes. Examiners can consider ``lending-related activities,''
including community development loans and lending-related qualified
investments, when evaluating the first four performance criteria of the
small institution performance test. Although lending-related activities
are specifically mentioned in the regulation in 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.
Although lending-related community development activities are
evaluated under the community development test applicable to
intermediate small institutions, these activities may also augment the
loan-to-deposit ratio analysis (12 CFR ----.26(b)(1)) and the
percentage of loans in the intermediate small institution's assessment
area analysis (12 CFR ----.26(b)(2)), if appropriate.
Sec. ----.26(b)--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, provided they have not also been considered under the
community development test applicable to intermediate small
institutions.
Sec. ----.26(b)--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.
Sec. ----.26(b)--4: Under the small institution lending test
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.
Sec. ----.26(b)--5: Under the small institution lending test
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 lending test performance standards focus
on lending and other lending-related activities. Therefore, examiners
will consider only lending-related qualified investments for the
purpose of determining whether a small institution that is not an
intermediate small institution receives a satisfactory CRA rating.
Sec. ----.26(b)(1) Loan-to-deposit ratio
Sec. ----.26(b)(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.
Sec. ----.26(b)(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.
Sec. ----.26(b)(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?
A3. No. Examiners will look at the institution's net loan-to-
deposit ratio for the whole institution, without any adjustments.
Sec. ----.26(b)(2) Percentage of lending within assessment area(s)
Sec. ----.26(b)(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 institution'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
[[Page 11663]]
condition, business strategies, and branching network; and other
aspects of the institution's lending record.
Sec. ----.26(b)(3) & (4) Distribution of lending within assessment
area(s) by borrower income and geographic location
Sec. ----.26(b)(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 very 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 loan size as a proxy for
estimating borrower characteristics, where appropriate.
Sec. ----.26(c) Intermediate small institution community development
test
Sec. ----.26(c)--1: How will the community development test be
applied flexibly for intermediate small institutions?
A1. Generally, intermediate small institutions engage in a
combination of community development loans, qualified investments, and
community development services. An institution may not simply ignore
one or more of these categories of community development, nor do the
regulations prescribe a required threshold for community development
loans, qualified investments, and community development services.
Instead, based on the institution's assessment of community development
needs in its assessment area(s), it may engage in different categories
of community development activities that are responsive to those needs
and consistent with the institution's capacity.
An intermediate small institution has the flexibility to allocate
its resources among community development loans, qualified investments,
and community development services in amounts that it reasonably
determines are most responsive to community development needs and
opportunities. Appropriate levels of each of these activities would
depend on the capacity and business strategy of the institution,
community needs, and number and types of opportunities for community
development.
Sec. ----.26(c)(3) Community development services
Sec. ----.26(c)(3)--1: What will examiners consider when
evaluating the provision of community development services by an
intermediate small institution?
A1. Examiners will consider not only the types of services provided
to benefit low- and moderate-income individuals, such as low-cost
checking accounts and low-cost remittance services, but also the
provision and availability of services to low- and moderate-income
individuals, including through branches and other facilities located in
low- and moderate-income areas. Generally, the presence of branches
located in low- and moderate-income geographies will help to
demonstrate the availability of banking services to low- and moderate-
income individuals.
Sec. ----.26(c)(4) Responsiveness to community development needs
Sec. ----.26(c)(4)--1: When evaluating an intermediate small
institution's community development record, what will examiners
consider when reviewing the responsiveness of community development
lending, qualified investments, and community development services to
the community development needs of the area?
A1. When evaluating an intermediate small institution's community
development record, examiners will consider not only quantitative
measures of performance, such as the number and amount of community
development loans, qualified investments, and community development
services, but also qualitative aspects of performance. In particular,
examiners will evaluate the responsiveness of the institution's
community development activities in light of the institution's
capacity, business strategy, the needs of the community, and the number
and types of opportunities for each type of community development
activity (its performance context). Examiners also will consider the
results of any assessment by the institution of community development
needs, and how the institution's activities respond to those needs.
An evaluation of the degree of responsiveness considers the
following factors: the volume, mix, and qualitative aspects of
community development loans, qualified investments, and community
development services. Consideration of the qualitative aspects of
performance recognizes that community development activities sometimes
require special expertise or effort on the part of the institution or
provide a benefit to the community that would not otherwise be made
available. (However, ``innovativeness'' and ``complexity,'' factors
examiners consider when evaluating a large institution under the
lending, investment, and service tests, are not criteria in the
intermediate small institutions' community development test.) In some
cases, a smaller loan may have more qualitative benefit to a community
than a larger loan. Activities are considered particularly responsive
to community development needs if they benefit low- and moderate-income
individuals in low- or moderate-income geographies, designated disaster
areas, or distressed or underserved nonmetropolitan middle-income
geographies. Activities are also considered particularly responsive to
community development needs if they benefit low- or moderate-income
geographies.
Sec. ----.26(d) Performance rating
Sec. ----.26(d)--1: How can a small institution that is not an
intermediate small institution achieve an ``outstanding'' performance
rating?
A1. A small institution that is not an intermediate small
institution that meets each of the standards in the lending test for a
``satisfactory'' rating and exceeds some or all of those standards may
warrant an ``outstanding'' performance rating. In assessing performance
at the ``outstanding'' level, the agencies consider the extent to which
the institution exceeds each of the performance standards and, at the
institution's option, its performance in making qualified investments
and providing services that enhance credit availability in its
assessment area(s). In some cases, a small institution may qualify for
an ``outstanding'' 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
[[Page 11664]]
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.''
Sec. ----.26(d)--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 Q&As Sec.
----.12(h)--6 and Sec. ----.12(h)--7.
Sec. ----.27--Strategic plan
Sec. ----.27(c) Plans in general
Sec. ----.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.
Sec. ----.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.
Sec. ----.27(f) Plan content
Sec. ----.27(f)(1) Measurable goals
Sec. ----.27(f)(1)--1: How should annual measurable goals be
specified in a strategic plan?
A1. Annual measurable goals (e.g., number of loans, dollar amount,
geographic location of activity, and benefit to low- and moderate-
income areas or individuals) must be stated with sufficient specificity
to permit the public and the agencies to quantify what performance will
be expected. However, institutions are provided flexibility in
specifying goals. For example, an institution may provide ranges of
lending amounts in different categories of loans. Measurable goals may
also be linked to funding requirements of certain public programs or
indexed to other external factors as long as these mechanisms provide a
quantifiable standard.
Sec. ----.27(g) Plan approval
Sec. ----.27(g)(2) Public participation
Sec. ----.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.
Sec. ----.28--Assigned ratings
Sec. ----.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. The performance criterion of ``innovativeness'' applies
only under the lending, investment, and service tests applicable to
large institutions and the community development test applicable to
wholesale and limited purpose institutions. Moreover, even under these
tests, 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,
under these tests, 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. See also Q&A Sec.
----.26(c)(4)--1 for a discussion about responsiveness to community
development needs under the community development test applicable to
intermediate small institutions.
Sec. ----.28(a) Ratings in general
Sec. ----.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
described above) and rating of its CRA record of performance in the
multistate metropolitan area. In such cases, the statewide evaluation
and rating will be adjusted to reflect performance in the portion of
the state not within the multistate metropolitan statistical area.
Sec. ----.28(a)--2: How are institutions that operate within only
a single state assigned a rating?
A2. An institution that operates within only a single state
(``single-state institution'') will be assigned a rating of its CRA
record based on its performance within that state. In assigning this
rating, the agencies will separately present a single-state
institution's performance for each metropolitan area in which the
institution maintains one or more domestic branch offices. This
separate presentation will contain conclusions, supported by facts and
data, on the single-state institution's performance under the
performance tests and standards in the regulation.
Sec. ----.28(a)--3: How do the agencies weight performance under
the lending, investment, and service tests for large retail
institutions?
A3. A rating of ``outstanding,'' ``high satisfactory,'' ``low
satisfactory,'' ``needs
[[Page 11665]]
to improve,'' or ``substantial noncompliance,'' based on a judgment
supported by facts and data, will be assigned under each performance
test. Points will then be assigned to each rating as described in the
first matrix set forth below. A large retail institution's overall
rating under the lending, investment and service tests will then be
calculated in accordance with the second matrix set forth below, which
incorporates the rating principles in the regulation.
Points Assigned for Performance Under Lending, Investment and Service Tests
----------------------------------------------------------------------------------------------------------------
Lending Service Investment
----------------------------------------------------------------------------------------------------------------
Outstanding..................................................... 12 6 6
High Satisfactory............................................... 9 4 4
Low Satisfactory................................................ 6 3 3
Needs to Improve................................................ 3 1 1
Substantial Noncompliance....................................... 0 0 0
----------------------------------------------------------------------------------------------------------------
Composite Rating Point Requirements
[Add points from three tests]
------------------------------------------------------------------------
Rating Total points
------------------------------------------------------------------------
Outstanding............................ 20 or over.
Satisfactory........................... 11 through 19.
Needs to Improve....................... 5 through 10.
Substantial Noncompliance.............. 0 through 4.
------------------------------------------------------------------------
Note: There is one exception to the Composite Rating matrix. An
institution may not receive a rating of ``satisfactory'' unless it
receives at least ``low satisfactory'' on the lending test. Therefore,
the total points are capped at three times the lending test score.
Sec. ----.28(b) Lending, investment, and service test ratings
Sec. ----.28(b)--1: How is performance under the quantitative and
qualitative performance criteria weighed when examiners assign a CRA
rating?
A1. The lending, investment, and service tests each contain a
number of performance criteria designed to measure whether an
institution is effectively helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods, in
a safe and sound manner. Some of these performance criteria are
quantitative, such as number and amount, and others, such as the use of
innovative or flexible lending practices, the innovativeness or
complexity of qualified investments, and the innovativeness and
responsiveness of community development services, are qualitative. The
performance criteria that deal with these qualitative aspects of
performance recognize that these loans, qualified investments, and
community development services sometimes require special expertise and
effort on the part of the institution and provide a benefit to the
community that would not otherwise be possible. As such, the agencies
consider the qualitative aspects of an institution's activities when
measuring the benefits received by a community. An institution's
performance under these qualitative criteria may augment the
consideration given to an institution's performance under the
quantitative criteria of the regulations, resulting in a higher level
of performance and rating.
Sec. ----.28(c) Effect of evidence of discriminatory or other illegal
credit practices
Sec. ----.28(c)--1: What is meant by ``discriminatory or other
illegal credit practices''?
A1. An institution engages in discriminatory credit practices if it
discourages or discriminates against credit applicants or borrowers on
a prohibited basis, in violation, for example, of the Fair Housing Act
or the Equal Credit Opportunity Act (as implemented by Regulation B).
Examples of other illegal credit practices inconsistent with helping to
meet community credit needs include violations of:
The Truth in Lending Act regarding rescission of certain
mortgage transactions and regarding disclosures and certain loan term
restrictions in connection with credit transactions that are subject to
the Home Ownership and Equity Protection Act;
The Real Estate Settlement Procedures Act regarding the
giving and accepting of referral fees, unearned fees, or kickbacks in
connection with certain mortgage transactions; and
The Federal Trade Commission Act regarding unfair or
deceptive acts or practices.
Examiners will determine the effect of evidence of illegal credit
practices as set forth in examination procedures and Sec. ----.28(c)
of the regulation.
Violations of other provisions of the consumer protection laws
generally will not adversely affect an institution's CRA rating, but
may warrant the inclusion of comments in an institution's performance
evaluation. These comments may address the institution's policies,
procedures, training programs, and internal assessment efforts.
Sec. ----.29--Effect of CRA performance on applications
Sec. ----.29(a) CRA performance
Sec. ----.29(a)--1: What weight is given to an institution's CRA
performance examination in reviewing an application?
A1. In reviewing applications in which CRA performance is a
relevant factor, information from a CRA examination of the institution
is a particularly important consideration. The examination is a
detailed evaluation of the institution's CRA performance by its Federal
supervisory agency. In this light, an examination is an important, and
often controlling, factor in the consideration of an institution's
record. In some cases, however, the examination may not be recent, or a
specific issue raised in the application process, such as progress in
addressing weaknesses noted by examiners, progress in implementing
commitments previously made to the reviewing agency, or a supported
allegation from a commenter, is relevant
[[Page 11666]]
to CRA performance under the regulation and was not addressed in the
examination. In these circumstances, the applicant should present
sufficient information to supplement its record of performance and to
respond to the substantive issues raised in the application proceeding.
Sec. ----.29(a)--2: What consideration is given to an
institution's commitments for future action in reviewing an application
by those agencies that consider such commitments?
A2. Commitments for future action are not viewed as part of the CRA
record of performance. In general, institutions cannot use commitments
made in the applications process to overcome a seriously deficient
record of CRA performance. However, commitments for improvements in an
institution's performance may be appropriate to address specific
weaknesses in an otherwise satisfactory record or to address CRA
performance when a financially troubled institution is being acquired.
Sec. ----.29(b) Interested parties
Sec. ----.29(b)--1: What consideration is given to comments from
interested parties in reviewing an application?
A1. Materials relating to CRA performance received during the
application process can provide valuable information. Written comments,
which may express either support for or opposition to the application,
are made a part of the record in accordance with the agencies'
procedures, and are carefully considered in making the agencies'
decisions. Comments should be supported by facts about the applicant's
performance and should be as specific as possible in explaining the
basis for supporting or opposing the application. These comments must
be submitted within the time limits provided under the agencies'
procedures.
Sec. ----.29(b)--2: Is an institution required to enter into
agreements with private parties?
A2. No. Although communications between an institution and members
of its community may provide a valuable method for the institution to
assess how best to address the credit needs of the community, the CRA
does not require an institution to enter into agreements with private
parties. The agencies do not monitor compliance with nor enforce these
agreements.
Sec. ----.41--Assessment area delineation
Sec. ----.41(a) In general
Sec. ----.41(a)--1: How do the agencies evaluate ``assessment
areas'' under the CRA regulations?
A1. The rule focuses on the distribution and level of an
institution's lending, investments, and services rather than on how and
why an institution delineated its assessment area(s) in a particular
manner. Therefore, the agencies will not evaluate an institution's
delineation of its assessment area(s) as a separate performance
criterion. Rather, the agencies will only review whether the assessment
area delineated by the institution complies with the limitations set
forth in the regulations at Sec. ----.41(e).
Sec. ----.41(a)--2: If an institution elects to have the agencies
consider affiliate lending, will this decision affect the institution's
assessment area(s)?
A2. If an institution elects to have the lending activities of its
affiliates considered in the evaluation of the institution's lending,
the geographies in which the affiliate lends do not affect the
institution's delineation of assessment area(s).
Sec. ----.41(a)--3: Can a financial institution identify a
specific racial or ethnic group rather than a geographic area as its
assessment area?
A3. No, assessment areas must be based on geography. The only
exception to the requirement to delineate an assessment area based on
geography is that an institution, the business of which predominantly
consists of serving the needs of military personnel or their dependents
who are not located within a defined geographic area, may delineate its
entire deposit customer base as its assessment area.
Sec. ----.41(c) Geographic area(s) for institutions other than
wholesale or limited purpose institutions
Sec. ----.41(c)(1) Generally consist of one or more MSAs or
metropolitan divisions or one or more contiguous political subdivisions
Sec. ----.41(c)(1)--1: Besides cities, towns, and counties, what
other units of local government are political subdivisions for CRA
purposes?
A1. Townships and Indian reservations are political subdivisions
for CRA purposes. Institutions should be aware that the boundaries of
townships and Indian reservations may not be consistent with the
boundaries of the census tracts (``geographies'') in the area. In these
cases, institutions must ensure that their assessment area(s) consists
only of whole geographies by adding any portions of the geographies
that lie outside the political subdivision to the delineated assessment
area(s).
Sec. ----.41(c)(1)--2: Are wards, school districts, voting
districts, and water districts political subdivisions for CRA purposes?
A2. No. However, an institution that determines that it
predominantly serves an area that is smaller than a city, town, or
other political subdivision may delineate as its assessment area the
larger political subdivision and then, in accordance with 12 CFR --
--.41(d), adjust the boundaries of the assessment area to include only
the portion of the political subdivision that it reasonably can be
expected to serve. The smaller area that the institution delineates
must consist of entire geographies, may not reflect illegal
discrimination, and may not arbitrarily exclude low- or moderate-income
geographies.
Sec. ----.41(d) Adjustments to geographic area(s)
Sec. ----.41(d)--1: When may an institution adjust the boundaries
of an assessment area to include only a portion of a political
subdivision?
A1. Institutions must include whole geographies (i.e., census
tracts) in their assessment areas and generally should include entire
political subdivisions. Because census tracts are the common geographic
areas used consistently nationwide for data collection, the agencies
require that assessment areas be made up of whole geographies. If
including an entire political subdivision would create an area that is
larger than the area the institution can reasonably be expected to
serve, an institution may, but is not required to, adjust the
boundaries of its assessment area to include only portions of the
political subdivision. For example, this adjustment is appropriate if
the assessment area would otherwise be extremely large, of unusual
configuration, or divided by significant geographic barriers (such as a
river, mountain, or major highway system). When adjusting the
boundaries of their assessment areas, institutions must not arbitrarily
exclude low- or moderate-income geographies or set boundaries that
reflect illegal discrimination.
Sec. ----.41(e) Limitations on delineation of an assessment area
Sec. ----.41(e)(3) May not arbitrarily exclude low- or moderate-income
geographies
Sec. ----.41(e)(3)--1: How will examiners determine whether an
institution has arbitrarily excluded low- or moderate-income
geographies?
A1. Examiners will make this determination on a case-by-case basis
after considering the facts relevant to the institution's assessment
area delineation. Information that examiners will consider may include:
[[Page 11667]]
Income levels in the institution's assessment area(s) and
surrounding geographies;
Locations of branches and deposit-taking ATMs;
Loan distribution in the institution's assessment area(s)
and surrounding geographies;
The institution's size;
The institution's financial condition; and
The business strategy, corporate structure, and product
offerings of the institution.
Sec. ----.41(e)(4) May not extend substantially beyond an MSA boundary
or beyond a state boundary unless located in a multistate MSA
Sec. ----.41(e)(4)--1: What are the maximum limits on the size of
an assessment area?
A1. An institution may not delineate an assessment area extending
substantially across the boundaries of an MSA unless the MSA is in a
combined statistical area (CSA)). Although more than one MSA in a CSA
may be delineated as a single assessment area, an institution's CRA
performance in individual MSAs in those assessment areas will be
evaluated using separate median family incomes and other relevant
information at the MSA level rather than at the CSA level.
An assessment area also may not extend substantially across state
boundaries unless the assessment area is located in a multistate MSA.
An institution may not delineate a whole state as its assessment area
unless the entire state is contained within an MSA. These limitations
apply to wholesale and limited purpose institutions as well as other
institutions.
An institution must delineate separate assessment areas for the
areas inside and outside an MSA if the area served by the institution's
branches outside the MSA extends substantially beyond the MSA boundary.
Similarly, the institution must delineate separate assessment areas for
the areas inside and outside of a state if the institution's branches
extend substantially beyond the boundary of one state (unless the
assessment area is located in a multistate MSA). In addition, the
institution should also delineate separate assessment areas if it has
branches in areas within the same state that are widely separate and
not at all contiguous. For example, an institution that has its main
office in New York City and a branch in Buffalo, New York, and each
office serves only the immediate areas around it, should delineate two
separate assessment areas.
Sec. ----.41(e)(4)--2: May an institution delineate one assessment
area that consists of an MSA and two large counties that abut the MSA
but are not adjacent to each other?
A2. As a general rule, an institution's assessment area should not
extend substantially beyond the boundary of an MSA. Therefore, the MSA
would be a separate assessment area, and because the two abutting
counties are not adjacent to each other and, in this example, extend
substantially beyond the boundary of the MSA, the institution would
delineate each county as a separate assessment area, assuming branches
or deposit-taking ATMs are located in each county and the MSA. So, in
this example, there would be three assessment areas. However, if the
MSA and the two counties were in the same CSA, then the institution
could delineate only one assessment area including them all. But, the
institution's CRA performance in the MSAs and the non-MSA counties in
that assessment area would be evaluated using separate median family
incomes and other relevant information at the MSA and state, non-MSA
level, rather than at the CSA level.
Sec. ----.42--Data collection, reporting, and disclosure
Sec. ----.42--1: When must an institution collect and report data
under the CRA regulations?
A1. All institutions except small institutions are subject to data
collection and reporting requirements. (``Small institution'' is
defined in the agencies' CRA regulations at Sec. ----.12(u).) Examples
describing the data collection requirements of institutions, in
particular those that have just surpassed the asset-size threshold of a
small institution, may be found on the FFIEC Web site at http://www.ffiec.gov/cra. All institutions that are subject to the data
collection and reporting requirements must report the data for a
calendar year by March 1 of the subsequent year.
The Board of Governors of the Federal Reserve System processes the
reports for all of the primary regulators. Data may be submitted on
diskette, CD-ROM, or via Internet e-mail. CRA respondents are
encouraged to send their data via the Internet. E-mail a properly
encrypted CRA file (using the FFIEC software only Internet e-mail
export feature) to the following e-mail address: [email protected]. Please
mail diskette or CD-ROM submissions to: Board of Governors of the
Federal Reserve System, Attention: CRA Processing, 20th & Constitution
Avenue, NW., MS N502, Washington, DC 20551-0001.
Sec. ----.42--2: Should an institution develop its own program for
data collection, or will the regulators require a certain format?
A2. An institution may use the free software that is provided by
the FFIEC to reporting institutions for data collection and reporting
or develop its own program. Those institutions that develop their own
programs may create a data submission using the File Specifications and
Edit Validation Rules that have been set forth to assist with
electronic data submissions. For information about specific electronic
formatting procedures, contact the CRA Assistance Line at (202) 872-
7584 or click on ``How to File'' at http://www.ffiec.gov/cra.
Sec. ----.42--3: How should an institution report data on lines of
credit?
A3. Institutions must collect and report data on lines of credit in
the same way that they provide data on loan originations. Lines of
credit are considered originated at the time the line is approved or
increased; and an increase is considered a new origination. Generally,
the full amount of the credit line is the amount that is considered
originated. In the case of an increase to an existing line, the amount
of the increase is the amount that is considered originated and that
amount should be reported. However, consistent with the Call Report and
TFR instructions, institutions would not report an increase to a small
business or small farm line of credit if the increase would cause the
total line of credit to exceed $1 million, in the case of a small
business line, or $500,000, in the case of a small farm line. Of
course, institutions may provide information about such line increases
to examiners as ``other loan data.''
Sec. ----.42--4: Should renewals of lines of credit be collected
and/or reported?
A4. Renewals of lines of credit for small business, small farm,
consumer, or community development purposes should be collected and
reported, if applicable, in the same manner as renewals of small
business or small farm loans. See Q&A Sec. ----.42(a)--5. Institutions
that are HMDA reporters continue to collect and report home equity
lines of credit at their option in accordance with the requirements of
12 CFR part 203.
Sec. ----.42--5: When should merging institutions collect data?
A5. Three scenarios of data collection responsibilities for the
calendar year of a merger and subsequent data reporting
responsibilities are described below.
Two institutions are exempt from CRA collection and
reporting requirements because of asset size. The
[[Page 11668]]
institutions merge. No data collection is required for the year in
which the merger takes place, regardless of the resulting asset size.
Data collection would begin after two consecutive years in which the
combined institution had year-end assets at least equal to the small
institution asset-size threshold amount described in 12 CFR --
--.12(u)(1).
Institution A, an institution required to collect and
report the data, and Institution B, an exempt institution, merge.
Institution A is the surviving institution. For the year of the merger,
data collection is required for Institution A's transactions. Data
collection is optional for the transactions of the previously exempt
institution. For the following year, all transactions of the surviving
institution must be collected and reported.
Two institutions that each are required to collect and
report the data merge. Data collection is required for the entire year
of the merger and for subsequent years so long as the surviving
institution is not exempt. The surviving institution may file either a
consolidated submission or separate submissions for the year of the
merger but must file a consolidated report for subsequent years.
Sec. ----.42--6: Can small institutions get a copy of the data
collection software even though they are not required to collect or
report data?
A6. Yes. Any institution that is interested in receiving a copy of
the software may download it from the FFIEC Web site at http://www.ffiec.gov/cra. For assistance, institutions may call the CRA
Assistance Line at (202) 872-7584 or send an e-mail to [email protected].
Sec. ----.42--7: If a small institution is designated a wholesale
or limited purpose institution, must it collect data that it would not
otherwise be required to collect because it is a small institution?
A7. No. However, small institutions that are designated as
wholesale or limited purpose institutions must be prepared to identify
those loans, investments, and services to be evaluated under the
community development test.
Sec. ----.42(a) Loan information required to be collected and
maintained
Sec. ----.42(a)--1: Must institutions collect and report data on
all commercial loans of $1 million or less at origination?
A1. No. Institutions that are not exempt from data collection and
reporting are required to collect and report only those commercial
loans that they capture in the Call Report, Schedule RC-C, Part II, and
in the TFR, Schedule SB. Small business loans are defined as those
whose original amounts are $1 million or less and that were reported as
either ``Loans secured by nonfarm or nonresidential real estate'' or
``Commercial and industrial loans'' in Part I of the Call Report or
TFR.
Sec. ----.42(a)--2: For loans defined as small business loans,
what information should be collected and maintained?
A2. Institutions that are not exempt from data collection and
reporting are required to collect and maintain, in a standardized,
machine-readable format, information on each small business loan
originated or purchased for each calendar year:
A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
The loan amount at origination;
The loan location; and
An indicator whether the loan was to a business with gross
annual revenues of $1 million or less.
The location of the loan must be maintained by census tract. In
addition, supplemental information contained in the file specifications
includes a date associated with the origination or purchase and whether
a loan was originated or purchased by an affiliate. The same
requirements apply to small farm loans.
Sec. ----.42(a)--3: Will farm loans need to be segregated from
business loans?
A3. Yes.
Sec. ----.42(a)--4: Should institutions collect and report data on
all agricultural loans of $500,000 or less at origination?
A4. Institutions are to report those farm loans that they capture
in the Call Report, Schedule RC-C, Part II and Schedule SB of the TFR.
Small farm loans are defined as those whose original amounts are
$500,000 or less and were reported as either ``Loans to finance
agricultural production and other loans to farmers'' or ``Loans secured
by farmland'' in Part I of the Call Report or TFR.
Sec. ----.42(a)--5: Should institutions collect and report data
about small business and small farm loans that are refinanced or
renewed?
A5. An institution should collect information about small business
and small farm loans that it refinances or renews as loan originations.
(A refinancing generally occurs when the existing loan obligation or
note is satisfied and a new note is written, while a renewal refers to
an extension of the term of a loan. However, for purposes of small
business and small farm CRA data collection and reporting, it is not
necessary to distinguish between the two.) When reporting small
business and small farm data, however, an institution may only report
one origination (including a renewal or refinancing treated as an
origination) per loan per year, unless an increase in the loan amount
is granted. However, a demand loan that is merely reviewed annually is
not reported as a renewal because the term of the loan has not been
extended.
If an institution increases the amount of a small business or small
farm loan when it extends the term of the loan, it should always report
the amount of the increase as a small business or small farm loan
origination. The institution should report only the amount of the
increase if the original or remaining amount of the loan has already
been reported one time that year. For example, a financial institution
makes a term loan for $25,000; principal payments have resulted in a
present outstanding balance of $15,000. In the next year, the customer
requests an additional $5,000, which is approved, and a new note is
written for $20,000. In this example, the institution should report
both the $5,000 increase and the renewal or refinancing of the $15,000
as originations for that year. These two originations may be reported
together as a single origination of $20,000.
Sec. ----.42(a)--6: Does a loan to the ``fishing industry'' come
under the definition of a small farm loan?
A6. Yes. Instructions for Part I of the Call Report and Schedule SB
of the TFR include loans ``made for the purpose of financing fisheries
and forestries, including loans to commercial fishermen'' as a
component of the definition for ``Loans to finance agricultural
production and other loans to farmers.'' Part II of Schedule RC-C of
the Call Report and Schedule SB of the TFR, which serve as the basis of
the definition for small business and small farm loans in the
regulation, capture both ``Loans to finance agricultural production and
other loans to farmers'' and ``Loans secured by farmland.''
Sec. ----.42(a)--7: How should an institution report a home equity
line of credit, part of which is for home improvement purposes and part
of which is for small business purposes?
A7. When an institution originates a home equity line of credit
that is for both home improvement and small business purposes, the
institution has the option of reporting the portion of the home equity
line that is for home improvement purposes as a home improvement loan
under HMDA. Examiners would consider that portion
[[Page 11669]]
of the line when they evaluate the institution's home mortgage lending.
When an institution refinances a home equity line of credit into
another home equity line of credit, HMDA reporting continues to be
optional. If the institution opts to report the refinanced line, the
entire amount of the line would be reported as a refinancing and
examiners will consider the entire refinanced line when they evaluate
the institution's home mortgage lending.
If an institution that has originated a home equity line of credit
for both home improvement and small business purposes (or if an
institution that has refinanced such a line into another line) chooses
not to report a home improvement loan (or a refinancing) under HMDA,
and if the line meets the regulatory definition of a ``community
development loan,'' the institution should collect and report
information on the entire line as a community development loan. If the
line does not qualify as a community development loan, the institution
has the option of collecting and maintaining (but not reporting) the
entire line of credit as ``Other Secured Lines/Loans for Purposes of
Small Business.''
Sec. ----.42(a)--8: When collecting small business and small farm
data for CRA purposes, may an institution collect and report
information about loans to small businesses and small farms located
outside the United States?
A8. At an institution's option, it may collect data about small
business and small farm loans located outside the United States;
however, it cannot report this data because the CRA data collection
software will not accept data concerning loan locations outside the
United States.
Sec. ----.42(a)--9: Is an institution that has no small farm or
small business loans required to report under CRA?
A9. Each institution subject to data reporting requirements must,
at a minimum, submit a transmittal sheet, definition of its assessment
area(s), and a record of its community development loans. If the
institution does not have community development loans to report, the
record should be sent with ``0'' in the community development loan
composite data fields. An institution that has not purchased or
originated any small business or small farm loans during the reporting
period would not submit the composite loan records for small business
or small farm loans.
Sec. ----.42(a)--10: How should an institution collect and report
the location of a loan made to a small business or farm if the borrower
provides an address that consists of a post office box number or a
rural route and box number?
A10. Prudent banking practices and Bank Secrecy Act regulations
dictate that institutions know the location of their customers and loan
collateral. Further, Bank Secrecy Act regulations specifically state
that a post office box is not an acceptable address. Therefore,
institutions typically will know the actual location of their borrowers
or loan collateral beyond an address consisting only of a post office
box.
Many borrowers have street addresses in addition to rural route and
box numbers. Institutions should ask their borrowers to provide the
street address of the main business facility or farm or the location
where the loan proceeds otherwise will be applied. Moreover, in many
cases in which the borrower's address consists only of a rural route
number, the institution knows the location (i.e., the census tract) of
the borrower or loan collateral. Once the institution has this
information available, it should assign the census tract to that
location (geocode) and report that information as required under the
regulation.
However, if an institution cannot determine a rural borrower's
street address, and does not know the census tract, the institution
should report the borrower's state, county, MSA or metropolitan
division, if applicable, and ``NA,'' for ``not available,'' in lieu of
a census tract code.
Sec. ----.42(a)(2) Loan amount at origination
Sec. ----.42(a)(2)--1: When an institution purchases a small
business or small farm loan, in whole or in part, which amount should
the institution collect and report--the original amount of the loan or
the amount at purchase?
A1. When collecting and reporting information on purchased small
business and small farm loans, including loan participations, an
institution collects and reports the amount of the loan at origination,
not at the time of purchase. This is consistent with the Call Report's
and TFR's use of the ``original amount of the loan'' to determine
whether a loan should be reported as a ``loan to a small business'' or
a ``loan to a small farm'' and in which loan size category a loan
should be reported. When assessing the volume of small business and
small farm loan purchases for purposes of evaluating lending test
performance under CRA, however, examiners will evaluate an
institution's activity based on the amounts at purchase.
Sec. ----.42(a)(2)--2: How should an institution collect data
about multiple loan originations to the same business?
A2. If an institution makes multiple originations to the same
business, the loans should be collected and reported as separate
originations rather than combined and reported as they are on the Call
Report or TFR, which reflect loans outstanding, rather than
originations. However, if institutions make multiple originations to
the same business solely to inflate artificially the number or volume
of loans evaluated for CRA lending performance, the agencies may
combine these loans for purposes of evaluation under the CRA.
Sec. ----.42(a)(2)--3: How should an institution collect data
pertaining to credit cards issued to small businesses?
A3. If an institution agrees to issue credit cards to a business's
employees, all of the credit card lines opened on a particular date for
that single business should be reported as one small business loan
origination rather than reporting each individual credit card line,
assuming the criteria in the ``small business loan'' definition in the
regulation are met. The credit card program's ``amount at origination''
is the sum of all of the employee/business credit cards' credit limits
opened on a particular date. If subsequently issued credit cards
increase the small business credit line, the added amount is reported
as a new origination.
Sec. ----.42(a)(3) The loan location
Sec. ----.42(a)(3)--1: Which location should an institution record
if a small business loan's proceeds are used in a variety of locations?
A1. The institution should record the loan location by either the
location of the small business borrower's headquarters or the location
where the greatest portion of the proceeds are applied, as indicated by
the borrower.
Sec. ----.42(a)(4) Indicator of gross annual revenue
Sec. ----.42(a)(4)--1: When indicating whether a small business
borrower had gross annual revenues of $1 million or less, upon what
revenues should an institution rely?
A1. Generally, an institution should rely on the revenues that it
considered in making its credit decision. For example, in the case of
affiliated businesses, such as a parent corporation and its subsidiary,
if the institution considered the revenues of the entity's parent or a
subsidiary corporation of the parent as well, then the institution
would aggregate the revenues of both corporations to determine whether
the revenues are $1 million or less.
[[Page 11670]]
Alternatively, if the institution considered the revenues of only the
entity to which the loan is actually extended, the institution should
rely solely upon whether gross annual revenues are above or below $1
million for that entity. However, if the institution considered and
relied on revenues or income of a cosigner or guarantor that is not an
affiliate of the borrower, such as a sole proprietor, the institution
should not adjust the borrower's revenues for reporting purposes.
Sec. ----.42(a)(4)--2: If an institution that is not exempt from
data collection and reporting does not request or consider revenue
information to make the credit decision regarding a small business or
small farm loan, must the institution collect revenue information in
connection with that loan?
A2. No. In those instances, the institution should enter the code
indicating ``revenues not known'' on the individual loan portion of the
data collection software or on an internally developed system. Loans
for which the institution did not collect revenue information may not
be included in the loans to businesses and farms with gross annual
revenues of $1 million or less when reporting this data.
Sec. ----.42(a)(4)--3: What gross revenue should an institution
use in determining the gross annual revenue of a start-up business?
A3. The institution should use the actual gross annual revenue to
date (including $0 if the new business has had no revenue to date).
Although a start-up business will provide the institution with pro
forma projected revenue figures, these figures may not accurately
reflect actual gross revenue and, therefore, should not be used.
Sec. ----.42(a)(4)--4: When indicating the gross annual revenue of
small business or small farm borrowers, do institutions rely on the
gross annual revenue or the adjusted gross annual revenue of their
borrowers?
A4. Institutions rely on the gross annual revenue, rather than the
adjusted gross annual revenue, of their small business or small farm
borrowers when indicating the revenue of small business or small farm
borrowers. The purpose of this data collection is to enable examiners
and the public to judge whether the institution is lending to small
businesses and small farms or whether it is only making small loans to
larger businesses and farms.
The regulation does not require institutions to request or consider
revenue information when making a loan; however, if institutions do
gather this information from their borrowers, the agencies expect them
to collect and rely upon the borrowers' gross annual revenue for
purposes of CRA. The CRA regulations similarly do not require
institutions to verify revenue amounts; thus, institutions may rely on
the gross annual revenue amount provided by borrowers in the ordinary
course of business. If an institution does not collect gross annual
revenue information for its small business and small farm borrowers,
the institution should enter the code ``revenues not known.'' (See Q&A
Sec. ----.42(a)(4)--2.)
Sec. ----.42(b) Loan information required to be reported
Sec. ----.42(b)(1) Small business and small farm loan data
Sec. ----.42(b)(1)--1: For small business and small farm loan
information that is collected and maintained, what data should be
reported?
A1. Each institution that is not exempt from data collection and
reporting is required to report in machine-readable form annually by
March 1 the following information, aggregated for each census tract in
which the institution originated or purchased at least one small
business or small farm loan during the prior year:
The number and amount of loans originated or purchased
with original amounts of $100,000 or less;
The number and amount of loans originated or purchased
with original amounts of more than $100,000 but less than or equal to
$250,000;
The number and amount of loans originated or purchased
with original amounts of more than $250,000 but not more than $1
million, as to small business loans, or $500,000, as to small farm
loans; and
To the extent that information is available, the number
and amount of loans to businesses and farms with gross annual revenues
of $1 million or less (using the revenues the institution considered in
making its credit decision).
Sec. ----.42(b)(2) Community development loan data
Sec. ----.42(b)(2)--1: What information about community
development loans must institutions report?
A1. Institutions subject to data reporting requirements must report
the aggregate number and amount of community development loans
originated and purchased during the prior calendar year.
Sec. ----.42(b)(2)--2: If a loan meets the definition of a home
mortgage, small business, or small farm loan AND qualifies as a
community development loan, where should it be reported? Can FHA, VA,
and SBA loans be reported as community development loans?
A2. Except for multifamily affordable housing loans, which may be
reported by retail institutions both under HMDA as home mortgage loans
and as community development loans, in order to avoid double counting,
retail institutions must report loans that meet the definition of
``home mortgage loan,'' ``small business loan,'' or ``small farm loan''
only in those respective categories even if they also meet the
definition of ``community development loan.'' As a practical matter,
this is not a disadvantage for institutions evaluated under the
lending, investment, and service tests because any affordable housing
mortgage, small business, small farm, or consumer loan that would
otherwise meet the definition of ``community development loan'' will be
considered elsewhere in the lending test. Any of these types of loans
that occur outside the institution's assessment area can receive
consideration under the borrower characteristic criteria of the lending
test. See Q&A Sec. ----.22(b)(2) & (3)--4.
Limited purpose and wholesale institutions that meet the size
threshold for reporting purposes also must report loans that meet the
definitions of home mortgage, small business, or small farm loans in
those respective categories. However, these institutions must also
report any loans from those categories that meet the regulatory
definition of ``community development loan'' as community development
loans. There is no double counting because wholesale and limited
purpose institutions are not subject to the lending test and,
therefore, are not evaluated on their level and distribution of home
mortgage, small business, small farm, and consumer loans.
Sec. ----.42(b)(2)--3: When the primary purpose of a loan is to
finance an affordable housing project for low- or moderate-income
individuals, but, for example, only 40 percent of the units in question
will actually be occupied by individuals or families with low or
moderate incomes, should the entire loan amount be reported as a
community development loan?
A3. It depends. As long as the primary purpose of the loan is a
community development purpose as described in Q&A Sec. ----.12(h)--8,
the full amount of the institution's loan should be included in its
reporting of aggregate amounts of community development lending. Even
though the entire amount of the loan is reported, as noted in Q&A Sec.
----.22(b)(4)--1, examiners may make qualitative distinctions among
[[Page 11671]]
community development loans on the basis of the extent to which the
loan advances the community development purpose.
In addition, if an institution that reports CRA data elects to
request consideration for loans that provide mixed-income housing where
only a portion of the loan has community development as its primary
purpose, such as in connection with a development that has a mixed-
income housing component or an affordable housing set-aside required by
federal, state, or local government, the institution must report only
the pro rata dollar amount of the portion of the loan that provides
affordable housing to low- or moderate-income individuals. The pro rata
dollar amount of the total activity will be based on the percentage of
units that are affordable. See Q&A Sec. ----.12(h)--8 for a discussion
of ``primary purpose'' of community development describing the
distinction between the types of loans that would be reported in full
and those for which only the pro rata amount would be reported.
Sec. ----.42(b)(2)--4: When an institution purchases a
participation in a community development loan, which amount should the
institution report--the entire amount of the credit originated by the
lead lender or the amount of the participation purchased?
A4. The institution reports only the amount of the participation
purchased as a community development loan. However, the institution
uses the entire amount of the credit originated by the lead lender to
determine whether the original credit meets the definition of a ``loan
to a small business,'' ``loan to a small farm,'' or ``community
development loan.'' For example, if an institution purchases a $400,000
participation in a business credit that has a community development
purpose, and the entire amount of the credit originated by the lead
lender is over $1 million, the institution would report $400,000 as a
community development loan.
Sec. ----.42(b)(2)--5: Should institutions collect and report data
about community development loans that are refinanced or renewed?
A5. Yes. Institutions should collect information about community
development loans that they refinance or renew as loan originations.
Community development loan refinancings and renewals are subject to the
reporting limitations that apply to refinancings and renewals of small
business and small farm loans. See Q&A Sec. ----.42(a)--5.
Sec. ----.42(b)(3) Home mortgage loans
Sec. ----.42(b)(3)--1: Must institutions that are not required to
collect home mortgage loan data by the HMDA collect home mortgage loan
data for purposes of the CRA?
A1. No. If an institution is not required to collect home mortgage
loan data by the HMDA, the institution need not collect home mortgage
loan data under the CRA. Examiners will sample these loans to evaluate
the institution's home mortgage lending. If an institution wants to
ensure that examiners consider all of its home mortgage loans, the
institution may collect and maintain data on these loans.
Sec. ----.42(c) Optional data collection and maintenance
Sec. ----.42(c)(1) Consumer loans
Sec. ----.42(c)(1)--1: What are the data requirements regarding
consumer loans?
A1. There are no data reporting requirements for consumer loans.
Institutions may, however, opt to collect and maintain data on consumer
loans. If an institution chooses to collect information on consumer
loans, it may collect data for one or more of the following categories
of consumer loans: motor vehicle, credit card, home equity, other
secured, and other unsecured. If an institution collects data for loans
in a certain category, it must collect data for all loans originated or
purchased within that category. The institution must maintain these
data separately for each category for which it chooses to collect data.
The data collected and maintained should include for each loan:
A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
The loan amount at origination or purchase;
The loan location; and
The gross annual income of the borrower that the
institution considered in making its credit decision.
Generally, guidance given with respect to data collection of small
business and small farm loans, including, for example, guidance
regarding collecting loan location data, and whether to collect data in
connection with refinanced or renewed loans, will also apply to
consumer loans.
Sec. ----.42(c)(1)(iv) Income of borrower
Sec. ----.42(c)(1)(iv)--1: If an institution does not consider
income when making an underwriting decision in connection with a
consumer loan, must it collect income information?
A1. No. Further, if the institution routinely collects, but does
not verify, a borrower's income when making a credit decision, it need
not verify the income for purposes of data maintenance.
Sec. ----.42(c)(1)(iv)--2: May an institution list ``0'' in the
income field on consumer loans made to employees when collecting data
for CRA purposes as the institution would be permitted to do under
HMDA?
A2. Yes.
Sec. ----.42(c)(1)(iv)--3: When collecting the gross annual income
of consumer borrowers, do institutions collect the gross annual income
or the adjusted gross annual income of the borrowers?
A3. Institutions collect the gross annual income, rather than the
adjusted gross annual income, of consumer borrowers. The purpose of
income data collection in connection with consumer loans is to enable
examiners to determine the distribution, particularly in the
institution's assessment area(s), of the institution's consumer loans,
based on borrower characteristics, including the number and amount of
consumer loans to low-, moderate-, middle-, and upper-income borrowers,
as determined on the basis of gross annual income.
The regulation does not require institutions to request or consider
income information when making a loan; however, if institutions do
gather this information from their borrowers, the agencies expect them
to collect the borrowers' gross annual income for purposes of CRA. The
CRA regulations similarly do not require institutions to verify income
amounts; thus, institutions may rely on the gross annual income amount
provided by borrowers in the ordinary course of business.
Sec. ----.42(c)(1)(iv)--4: Whose income does an institution
collect when a consumer loan is made to more than one borrower?
A4. An institution that chooses to collect and maintain information
on consumer loans collects the gross annual income of all primary
obligors for consumer loans, to the extent that the institution
considered the income of the obligors when making the decision to
extend credit. Primary obligors include co-applicants and co-borrowers,
including co-signers. An institution does not, however, collect the
income of guarantors on consumer loans, because guarantors are only
secondarily liable for the debt.
Sec. ----.42(c)(2) Other loan data
Sec. ----.42(c)(2)--1: Schedule RC-C, Part II of the Call Report
does not allow banks to report loans for commercial and industrial
purposes that are secured by residential real estate, unless the
[[Page 11672]]
security interest in the nonfarm residential real estate is taken only
as an abundance of caution. (See Q&A Sec. ----.12(v)--3.) Loans
extended to small businesses with gross annual revenues of $1 million
or less may, however, be secured by residential real estate. May a bank
collect this information to supplement its small business lending data
at the time of examination?
A1. Yes. If these loans promote community development, as defined
in the regulation, the bank should collect and report information about
the loans as community development loans. Otherwise, at the bank's
option, it may collect and maintain data concerning loans, purchases,
and lines of credit extended to small businesses and secured by nonfarm
residential real estate for consideration in the CRA evaluation of its
small business lending. A bank may collect this information as ``Other
Secured Lines/Loans for Purposes of Small Business'' in the individual
loan data. This information should be maintained at the bank but should
not be submitted for central reporting purposes.
Sec. ----.42(c)(2)--2: Must an institution collect data on loan
commitments and letters of credit?
A2. No. Institutions are not required to collect data on loan
commitments and letters of credit. Institutions may, however, provide
for examiner consideration information on letters of credit and
commitments.
Sec. ----.42(c)(2)--3: Are commercial and consumer leases
considered loans for purposes of CRA data collection?
A3. Commercial and consumer leases are not considered small
business or small farm loans or consumer loans for purposes of the data
collection requirements in 12 CFR ----.42(a) & (c)(1). However, if an
institution wishes to collect and maintain data about leases, the
institution may provide this data to examiners as ``other loan data''
under 12 CFR ----.42(c)(2) for consideration under the lending test.
Sec. ----.42(d) Data on affiliate lending
Sec. ----.42(d)--1: If an institution elects to have an
affiliate's home mortgage lending considered in its CRA evaluation,
what data must the institution make available to examiners?
A1. If the affiliate is a HMDA reporter, the institution must
identify those loans reported by its affiliate under 12 CFR part 203
(Regulation C, implementing HMDA). At its option, the institution may
provide examiners with either the affiliate's entire HMDA Disclosure
Statement or just those portions covering the loans in its assessment
area(s) that it is electing to consider. If the affiliate is not
required by HMDA to report home mortgage loans, the institution must
provide sufficient data concerning the affiliate's home mortgage loans
for the examiners to apply the performance tests.
Sec. ----.43--Content and availability of public file
Sec. ----.43(a) Information available to the public
Sec. ----.43(a)(1) Public comments related to an institution's CRA
performance
Sec. ----.43(a)(1)--1: What happens to comments received by the
agencies?
A1. Comments received by a Federal financial supervisory agency
will be on file at the agency for use by examiners. Those comments are
also available to the public unless they are exempt from disclosure
under the Freedom of Information Act.
Sec. ----.43(a)(1)--2: Is an institution required to respond to
public comments?
A2. No. All institutions should review comments and complaints
carefully to determine whether any response or other action is
warranted. A small institution subject to the small institution
performance standards is specifically evaluated on its record of taking
action, if warranted, in response to written complaints about its
performance in helping to meet the credit needs in its assessment
area(s) (12 CFR ----.26(b)(5)). For all institutions, responding to
comments may help to foster a dialogue with members of the community or
to present relevant information to an institution's Federal financial
supervisory agency. If an institution responds in writing to a letter
in the public file, the response must also be placed in that file,
unless the response reflects adversely on any person or placing it in
the public file violates a law.
Sec. ----.43(a)(2) CRA performance evaluation
Sec. ----.43(a)(2)--1: May an institution include a response to
its CRA performance evaluation in its public file?
A1. Yes. However, the format and content of the evaluation, as
transmitted by the supervisory agency, may not be altered or abridged
in any manner. In addition, an institution that received a less than
satisfactory rating during its most recent examination must include in
its public file a description of its current efforts to improve its
performance in helping to meet the credit needs of its entire
community. See 12 CFR ----.43(b)(5). The institution must update the
description on a quarterly basis.
Sec. ----.43(b) Additional information available to the public
Sec. ----.43(b)(1) Institutions other than small institutions
Sec. ----.43(b)(1)--1: Must an institution that elects to have
affiliate lending considered include data on this lending in its public
file?
A1. Yes. The lending data to be contained in an institution's
public file covers the lending of the institution's affiliates, as well
as of the institution itself, considered in the assessment of the
institution's CRA performance. An institution that has elected to have
mortgage loans of an affiliate considered must include either the
affiliate's HMDA Disclosure Statements for the two prior years or the
parts of the Disclosure Statements that relate to the institution's
assessment area(s), at the institution's option.
Sec. ----.43(b)(1)--2: May an institution retain its CRA
disclosure statement in electronic format in its public file, rather
than printing a hard copy of the CRA disclosure statement for retention
in its public file?
A2. Yes, if the institution can readily print out its CRA
disclosure statement from an electronic medium (e.g., CD, DVD, or
Internet Web site) when a consumer requests the public file. If the
request is at a branch other than the main office or the one designated
branch in each state that holds the complete public file, the
institution should provide the CRA disclosure statement in a paper
copy, or in another format acceptable to the requestor, within five
calendar days, as required by 12 CFR ----.43(c)(2)(ii).
Sec. ----.43(c) Location of public information
Sec. ----.43(c)--1: What is an institution's ``main office''?
A1. An institution's main office is the main, home, or principal
office as designated in its charter.
Sec. ----.43(c)--2: May an institution maintain a copy of its
public file on an intranet or the Internet?
A2. Yes, an institution may keep all or part of its public file on
an intranet or the Internet, provided that the institution maintains
all of the information, either in paper or electronic form, that is
required in Sec. ----.43 of the regulations. An institution that opts
to keep part or all of its public file on an intranet or the Internet
must follow the rules in 12 CFR ----.43(c)(1) and (2) as to what
information is required to be kept at a
[[Page 11673]]
main office and at a branch. The institution also must ensure that the
information required to be maintained at a main office and branch, if
kept electronically, can be readily downloaded and printed for any
member of the public who requests a hard copy of the information.
Sec. ----.44--Public notice by institutions
Sec. ----.44--1: Are there any placement or size requirements for
an institution's public notice?
A1. The notice must be placed in the institution's public lobby,
but the size and placement may vary. The notice should be placed in a
location and be of a sufficient size that customers can easily see and
read it.
Sec. ----.45--Publication of planned examination schedule
Sec. ----.45--1: Where will the agencies publish the planned
examination schedule for the upcoming calendar quarter?
A1. The agencies may use the Federal Register, a press release, the
Internet, or other existing agency publications for disseminating the
list of the institutions scheduled for CRA examinations during the
upcoming calendar quarter. Interested parties should contact the
appropriate Federal financial supervisory agency for information on how
the agency is publishing the planned examination schedule.
Sec. ----.45--2: Is inclusion on the list of institutions that are
scheduled to undergo CRA examinations in the next calendar quarter
determinative of whether an institution will be examined in that
quarter?
A2. No. The agencies attempt to determine as accurately as possible
which institutions will be examined during the upcoming calendar
quarter. However, whether an institution's name appears on the
published list does not conclusively determine whether the institution
will be examined during that quarter. The agencies may need to defer a
planned examination or conduct an unforeseen examination because of
scheduling difficulties or other circumstances.
APPENDIX A to Part ------Ratings
APPENDIX A to Part ------1: Must an institution's performance fit
each aspect of a particular rating profile in order to receive that
rating?
A1. No. Exceptionally strong performance in some aspects of a
particular rating profile may compensate for weak performance in
others. For example, a retail institution other than an intermediate
small institution that uses non-branch delivery systems to obtain
deposits and to deliver loans may have almost all of its loans outside
the institution's assessment area. Assume that an examiner, after
consideration of performance context and other applicable regulatory
criteria, concludes that the institution has weak performance under the
lending criteria applicable to lending activity, geographic
distribution, and borrower characteristics within the assessment area.
The institution may compensate for such weak performance by
exceptionally strong performance in community development lending in
its assessment area or a broader statewide or regional area that
includes its assessment area.
APPENDIX B to Part ------CRA Notice
APPENDIX B to Part ------1: What agency information should be added
to the CRA notice form?
A1. The following information should be added to the form:
OCC-supervised institutions only: For community banks, the address
of the deputy comptroller of the district in which the institution is
located should be inserted in the appropriate blank. These addresses
can be found at http://www.occ.gov. For banks supervised under the
large bank program, insert ``Large Bank Supervision, 250 E Street, SW.,
Washington, DC 20219-0001.'' For banks supervised under the mid-size/
credit card bank program, insert ``Mid-Size and Credit Card Bank
Supervision, 250 E Street, SW., Washington, DC 20219-0001.''
OCC-, FDIC-, and Board-supervised institutions: ``Officer in Charge
of Supervision'' is the title of the responsible official at the
appropriate Federal Reserve Bank.
INDEX
----------------------------------------------------------------------------------------------------------------
Keyword Q&A
----------------------------------------------------------------------------------------------------------------
Affiliate lending............................... Sec. ----.22(b)(2) & (3)--3
Sec. ----.22(c)(1)--1
Sec. ----.22(c)(2)(i)--1
Sec. ----.22(c)(2)(ii)--1
Sec. ----.22(c)(2)(ii)--2
Sec. ----.26--1
Sec. ----.41(a)--2
Sec. ----.42(d)--1
Sec. ----.43(b)(1)--1
Affiliates...................................... Sec. ----.12(a)--1
Sec. ----.22(d)--3
Sec. ----.24(e)--1
Affordable housing.............................. Sec. ----.12(g)--1
Sec. ----.12(g)--2
Sec. ----.12(g)(1)--1
Agreements, private............................. Sec. ----.29(b)--2
Alternative delivery systems.................... Sec. ----.24(d)--1
Sec. ----.24(d)(3)--1
Sec. ----.24(d)(3)--2
Applications, corporate......................... Sec. ----.29(a)--1
Sec. ----.29(a)--2
Sec. ----.29(b)--1
Assessment areas................................ Sec. ----.22(b)(2) & (3)--2
Sec. ----.22(b)(2) & (3)--3
Sec. ----.41(a)--1
Sec. ----.41(a)--2
Sec. ----.41(a)--3
Sec. ----.41(c)(1)--1
[[Page 11674]]
Sec. ----.41(c)(1)--2
Sec. ----.41(d)--1
Sec. ----.41(e)(3)--1
Sec. ----.41(e)(4)--1
Sec. ----.41(e)(4)--2
Assessment area, benefit to..................... Sec. ----.12(g)--4
Sec. ----.12(h)--6
Assets.......................................... Sec. ----.12(u)--1
Sec. ----.12(u)(2)--1
ATMs............................................ Sec. ----.12(f)--1
Sec. ----.24(d)--1
Sec. ----.24(d)(3)--1
Borrower characteristics........................ Sec. ----.22(b)(2) & (3)--1
Branch.......................................... Sec. ----.12(f)--1
Sec. ----.12(f)--2
Sec. ----.28(a)--1
Brokerage....................................... Sec. ----.12(l)--2
Capital investments............................. Sec. ----.12(g)--4
CEBA credit card banks.......................... Sec. ----.25(a)--1
Charitable contributions or activities.......... Sec. ----.12(i)--2
Sec. ----.12(t)--5
Child care services............................. Sec. ----.12(g)--1
Commercial loans................................ Sec. ----.12(v)--2
Sec. ----.42(a)--1
Commitments..................................... Sec. ----.22(a)(2)--1
Sec. ----.22(a)(2)--4
Sec. ----.29(a)--2
Sec. ----.42(c)(2)--2
Community contact interviews.................... Sec. ----.21(b)(2)--2
Community development........................... Sec. ----.12(g)--1
Sec. ----.12(g)(1)--1
Sec. ----.12(g)(3)--1
Sec. ----.12(g)(4)--1
Sec. ----.12(h)--5
Sec. ----.12(h)--8
Sec. ----.12(t)--5
Community development activities................ Sec. ----.12(g)--2
Sec. ----.12(g)(4)--2
Sec. ----.21(a)--2
Community development loan...................... Sec. ----.12(h)--1
Sec. ----.12(h)--2
Sec. ----.12(h)--3
Sec. ----.12(h)--4
Sec. ----.12(h)--5
Sec. ----.12(h)--6
Sec. ----.12(h)--7
Sec. ----.12(h)--8
Sec. ----.12(t)--6
Sec. ----.12(v)--1
Sec. ----.22(b)(4)--1
Sec. ----.22(d)--2
Sec. ----.23(b)--1
Sec. ----.26--1
Sec. ----.26(b)--3
Sec. ----.26(c)--1
Sec. ----.26(d)--2
Sec. ----.42(b)(2)--1
Sec. ----.42(b)(2)--2
Sec. ----.42(b)(2)--3
Sec. ----.42(b)(2)--4
Sec. ----.42(b)(2)--5
Sec. ----.42(c)(2)--1
Community development service................... Sec. ----.12(h)--6
Sec. ----.12(h)--7
Sec. ----.12(h)--8
Sec. ----.12(i)--1
Sec. ----.12(i)--2
Sec. ----.12(i)--3
Sec. ----.12(l)--2
Sec. ----.12(t)--7
Sec. ----.12(v)--3
Sec. ----.23(b)--1
[[Page 11675]]
Sec. ----.24(e)--1
Sec. ----.26--1
Sec. ----.26(c)--1
Sec. ----.26(c)(3)--1
Sec. ----.26(d)--2
Community development test for intermediate Sec. ----.26(b)--1
small institutions.
Sec. ----.26(c)--1
Sec. ----.26(c)(3)--1
Sec. ----.26(c)(4)--1
Sec. ----.28--1
Community development test for wholesale and Sec. ----.25(d)--1
limited purpose institutions.
Sec. ----.25(f)--1
Community services.............................. Sec. ----.12(g)--2
Sec. ----.12(g)(2)--1
Sec. ----.12(t)--4
Complexity...................................... Sec. ----.21(a)--2
Sec. ----.22(b)(5)--1
Sec. ----.23(e)--2
Sec. ----.28--1
Consortia....................................... Sec. ----.22(d)--2
Sec. ----.26(b)--3
Consumer loan................................... Sec. ----.12(h)--2
Sec. ----.12(j)--1
Sec. ----.12(j)--2
Sec. ----.12(x)--1
Sec. ----.22(a)(1)--2
Sec. ----.42(c)(1)--1
Sec. ----.42(c)(1)(iv)--1
Sec. ----.42(c)(1)(iv)--2
Sec. ----.42(c)(1)(iv)--3
Sec. ----.42(c)(1)(iv)--4
CRA disclosure statement........................ Sec. ----.43(b)(1)--2
Credit cards.................................... Sec. ----.12(h)--4
Sec. ----.12(v)--4
Sec. ----.42(a)(2)--3
Credit union, low-income........................ Sec. ----.12(g)--4
Sec. ----.12(t)--4
Data collection................................. Sec. ----.42--1
Sec. ----.42--2
Sec. ----.42--4
Sec. ----.42--5
Sec. ----.42--6
Sec. ----.42--7
Sec. ----.42(a)--1
Sec. ----.42(a)--2
Sec. ----.42(a)--4
Sec. ----.42(a)--5
Sec. ----.42(a)--8
Sec. ----.42(a)--10
Sec. ----.42(a)(2)--1
Sec. ----.42(a)(2)--2
Sec. ----.42(a)(2)--3
Sec. ----.42(a)(4)--2
Sec. ----.42(a)(4)--4
Sec. ----.42(b)(2)--5
Sec. ----.42(b)(3)--1
Sec. ----.42(c)(1)--1
Sec. ----.42(c)(1)(iv)--1
Sec. ----.42(c)(1)(iv)--2
Sec. ----.42(c)(1)(iv)--3
Sec. ----.42(c)(1)(iv)--4
Sec. ----.42(c)(2)--1
Data reporting.................................. Sec. ----.42--1
Sec. ----.42--3
Sec. ----.42--4
Sec. ----.42(a)--1
Sec. ----.42(a)--4
Sec. ----.42(a)--5
Sec. ----.42(a)--8
Sec. ----.42(a)--9
Sec. ----.42(a)--10
Sec. ----.42(a)(2)--1
[[Page 11676]]
Sec. ----.42(b)(1)--1
Sec. ----.42(b)(2)--1
Sec. ----.42(b)(2)--2
Sec. ----.42(b)(2)--3
Sec. ----.42(b)(2)--4
Sec. ----.42(b)(2)--5
Debit cards..................................... Sec. ----.24(d)(3)--2
Designated disaster area........................ Sec. ----.12(g)(4)--2
Sec. ----.12(g)(4)(ii)--1
Sec. ----.12(g)(4)(ii)--2
Distressed nonmetropolitan middle-income Sec. ----.12(g)(4)--2
geography.
Sec. ----.12(g)(4)(iii)--1
Sec. ----.12(g)(4)(iii)--2
Sec. ----.12(g)(4)(iii)--3
Economic development............................ Sec. ----.12(g)--1
Sec. ----.12(g)--2
Sec. ----.12(g)(3)--1
Education, financial literacy................... Sec. ----.12(i)--3
Sec. ----.22(a)--1
Educational services............................ Sec. ----.12(g)--1
Employees' charitable activities................ Sec. ----.12(i)--2
Employees' income............................... Sec. ----.42(c)(1)(iv)--2
Environmental hazards........................... Sec. ----.12(h)--1
Examination schedule............................ Sec. ----.45--1
Sec. ----.45--2
Federal branch.................................. Sec. ----.12(u)--1
Federal Home Loan Bank.......................... Sec. ----.12(t)--3
Federal Reserve Bank membership reserves........ Sec. ----.12(t)--3
Financial services, provision of................ Sec. ----.12(i)--1
Fisheries....................................... Sec. ----.42(a)--6
Flexibility..................................... Sec. ----.12(g)--3
Sec. ----.22(b)(5)--1
Foreclosure prevention program.................. Sec. ----.12(g)(4)(i)--1
Sec. ----.12(i)--3
Sec. ----.22(a)--1
Forestries...................................... Sec. ----.42(a)--6
Geographic distribution......................... Sec. ----.22(b)(2) & (3)--1
Geography....................................... Sec. ----.12(g)(4)(iii)--1
Sec. ----.41(d)--1
Sec. ----.41(e)(3)--1
Guaranteed loans................................ Sec. ----.22(a)(2)--5
Guarantor....................................... Sec. ----.42(c)(1)(iv)--4
Health services................................. Sec. ----.12(g)--1
High cost area.................................. Sec. ----.12(g)--3
HMDA reporting.................................. Sec. ----.12(j)--2
Sec. ----.12(l)--2
Sec. ----.22(a)(1)--1
Sec. ----.22(a)(2)--7
Sec. ----.42(a)--7
Sec. ----.42(b)(3)--1
Home equity line of credit...................... Sec. ----.12(j)--2
Sec. ----.42(a)--7
Home equity loan................................ Sec. ----.12(j)--1
Home mortgage lending........................... Sec. ----.22(a)(1)--1
Sec. ----.42(d)--1
Home mortgage loan.............................. Sec. ----.12(h)--2
Sec. ----.12(h)--3
Sec. ----.12(j)--2
Sec. ----.12(l)--1
Sec. ----.12(l)--2
Sec. ----.12(x)--1
Sec. ----.22(b)(2) & (3)--5
Sec. ----.23(b)--2
Sec. ----.42(b)(2)--2
Sec. ----.42(b)(3)--1
Illegal credit practices........................ Sec. ----.28(c)--1
Income.......................................... Sec. ----.42(c)(1)(iv)--1
Sec. ----.42(c)(1)(iv)--2
Sec. ----.42(c)(1)(iv)--3
Sec. ----.42(c)(1)(iv)--4
Income level.................................... Sec. ----.12(m)--1
Indirect investments............................ Sec. ----.23(a)--1
[[Page 11677]]
Individual development accounts (IDAs).......... Sec. ----.12(i)--3
Sec. ----.24(d)--2
Innovativeness.................................. Sec. ----.21(a)--2
Sec. ----.22(b)(5)--1
Sec. ----.23(e)--2
Sec. ----.28--1
Institutional capacity and constraints.......... Sec. ----.21(b)(4)--1
Intermediate small institution.................. Sec. ----.12(h)--3
Sec. ----.12(u)(2)--1
Sec. ----.26(a)(2)--1
Internet/intranet............................... Sec. ----.43(b)(1)--2
Sec. ----.43(c)--2
Investment authority............................ Sec. ----.12(t)--1
Leases.......................................... Sec. ----.22(a)(2)--4
Sec. ----.42(c)(2)--3
Lending activity................................ Sec. ----.22(b)(1)--1
Lending distribution............................ Sec. ----.22(b)(2) & (3)--1
Sec. ----.22(b)(2) & (3)--2
Sec. ----.22(b)(2) & (3)--3
Sec. ----.26(b)(3) & (4)--1
Lending within assessment area.................. Sec. ----.26(b)(2)--1
Letters of credit............................... Sec. ----.22(a)(2)--1
Sec. ----.22(a)(2)--4
Sec. ----.42(c)(2)--2
Limited purpose institution..................... Sec. ----.12(n)--1
Sec. ----.12(n)--2
Sec. ----.12(n)--3
Sec. ----.42--7
Sec. ----.42(b)(2)--2
Lines of credit................................. Sec. ----.42--3
Sec. ----.42--4
Loan amount..................................... Sec. ----.42(a)--2
Sec. ----.42(a)(2)--1
Loan application activity....................... Sec. ----.22(a)(2)--2
Loan location................................... Sec. ----.42(a)--2
Sec. ----.42(a)--10
Sec. ----.42(a)(3)--1
Loan originations, multiple..................... Sec. ----.42(a)(2)--2
Loan participations............................. Sec. ----.12(g)--4
Sec. ----.22(a)(2)--6
Sec. ----.42(b)(2)--4
Loan production office (LPO).................... Sec. ----.12(f)--2
Loans, outside-assessment area.................. Sec. ----.22(b)(2) & (3)--4
Loan-to-deposit ratio........................... Sec. ----.26(b)(1)--1
Sec. ----.26(b)(1)--2
Sec. ----.26(b)(1)--3
Main office..................................... Sec. ----.43(c)--1
Measurable goals................................ Sec. ----.27(f)(1)--1
MECAs........................................... Sec. ----.22(a)(2)--3
Sec. ----.22(a)(2)--4
Merging institutions............................ Sec. ----.42--5
Minority-owned financial institution............ Sec. ----.12(g)--4
Sec. ----.12(t)--4
Mixed-income housing............................ Sec. ----.12(h)--8
Sec. ----.42(b)(2)--3
Mobile branch................................... Sec. ----.12(f)--1
Mortgage-backed securities...................... Sec. ----.12(t)--2
Sec. ----.23(b)--2
Multi-purpose loan.............................. Sec. ----.12(j)--3
Municipal bonds................................. Sec. ----.12(t)--2
Nationwide fund................................. Sec. ----.23(a)--2
Sec. ----.25(e)--1
New Markets Tax Credit Community Development Sec. ----.12(g)(3)--1
Entity.
Sec. ----.12(h)--1
Sec. ----.12(t)--4
New Markets Venture Capital Company............. Sec. ----.12(g)(3)--1
Niche institution............................... Sec. ----.12(n)--3
Nonprofit organization.......................... Sec. ----.12(v)--1
Other loan data................................. Sec. ----.22(a)(2)--4
Sec. ----.42(c)(2)--1
Past performance................................ Sec. ----.21(b)(5)--1
Performance context............................. Sec. ----.21(b)--1
[[Page 11678]]
Sec. ----.21(b)(2)--1
Sec. ----.21(b)(2)--2
Sec. ----.21(b)(4)--1
Sec. ----.21(b)(5)--1
Sec. ----.21(b)(5)--2
Sec. ----.22(a)(2)--2
Sec. ----.23(e)--2
Sec. ----.26(c)(4)--1
Performance criteria............................ Sec. ----.21(a)--1
Sec. ----.23(e)--1
Sec. ----.23(e)--2
Sec. ----.28(b)--1
Performance evaluation.......................... Sec. ----.43(a)(2)--1
Performance rating.............................. Sec. ----.26(d) -1
Sec. ----.28--1
Sec. ----.28(a)--1
Sec. ----.28(a)--2
Sec. ----.28(a)--3
Sec. ----.28(b)--1
Sec. ----.28(c)--1
APPENDIX A to Part ------1
Political subdivision........................... Sec. ----.41(c)(1)--1
Sec. ----.41(c)(1)--2
Sec. ----.41(d)--1
Primary purpose................................. Sec. ----.12(g)--3
Sec. ----.12(h)--8
Sec. ----.12(t)--5
Public comment.................................. Sec. ----.27(g)(2)--1
Sec. ----.29(b)--1
Sec. ----.43(a)(1)--1
Sec. ----.43(a)(1)--2
Public file..................................... Sec. ----.43(a)(1)--2
Sec. ----.43(a)(2)--1
Sec. ----.43(b)(1)--1
Sec. ----.43(b)(1)--2
Sec. ----.43(c)--2
Public notice................................... Sec. ----.27(g)(2)--1
Sec. ----.44--1
APPENDIX B to Part ------1
Qualified investment............................ Sec. ----.12(h)--6
Sec. ----.12(h)--7
Sec. ----.12(h)--8
Sec. ----.12(t)--2
Sec. ----.12(t)--3
Sec. ----.12(t)--4
Sec. ----.12(t)--5
Sec. ----.12(t)--6
Sec. ----.12(t)--7
Sec. ----.12(t)--8
Sec. ----.23(a)--1
Sec. ----.23(b)--1
Sec. ----.23(b)--2
Sec. ----.23(a)--2
Sec. ----.23(e)--1
Sec. ----.23(e)--2
Sec. ----.26--1
Sec. ----.26(b)--5
Sec. ----.26(c)--1
Sec. ----.26(d)--2
Qualitative factors............................. Sec. ----.12(g)(3)--1
Sec. ----.12(t)--8
Sec. ----.21(a)--2
Sec. ----.22(b)(4)--1
Sec. ----.22(b)(5)--1
Sec. ----.23(e)--1
Sec. ----.23(e)--2
Sec. ----.26(c)(4)--1
Sec. ----.28(b)--1
Ratings matrix.................................. Sec. ----.28(a)--3
Refinancings.................................... Sec. ----.22(a)(2)--7
Sec. ----.42(a)--5
Sec. ----.42(b)(2)--5
[[Page 11679]]
Regional area................................... Sec. ----.12(h)--7
Remote service facility (RSF)................... Sec. ----.12(f)--1
Renewals........................................ Sec. ----.42--4
Sec. ----.42(a)--5
Sec. ----.42(b)(2)--5
Responsiveness.................................. Sec. ----.21(a)--2
Sec. ----.22(a)--1
Sec. ----.23(e)--2
Sec. ----.26(c)(4)--1
Sec. ----.28--1
Retail banking services......................... Sec. ----.12(l)--2
Sec. ----.24(d)--1
Revenue......................................... Sec. ----.42(a)(4)--1
Sec. ----.42(a)(4)--2
Sec. ----.42(a)(4)--3
Sec. ----.42(a)(4)--4
Revitalize or stabilize......................... Sec. ----.12(g)--1
Sec. ----.12(g)--2
Sec. ----.12(g)(4)--2
Sec. ----.12(g)(4)(i)--1
Sec. ----.12(g)(4)(ii)--2
Sec. ----.12(g)(4)(iii)--3
Sec. ----.12(g)(4)(iii)--4
Sec. ----.12(h)--5
SBA 504 Certified Development Company program... Sec. ----.12(h)--1
SBIC or SBDC.................................... Sec. ----.12(g)(3)--1
Sec. ----.12(t)--4
Similarly situated lenders...................... Sec. ----.21(b)(5)--2
Small business loan............................. Sec. ----.12(h)--2
Sec. ----.12(v)--1
Sec. ----.12(v)--2
Sec. ----.12(v)--3
Sec. ----.12(v)--4
Sec. ----.12(x)--1
Sec. ----.22(a)(2)--7
Sec. ----.42(a)--2
Sec. ----.42(a)--3
Sec. ----.42(a)--5
Sec. ----.42(a)--8
Sec. ----.42(a)--10
Sec. ----.42(a)(2)--1
Sec. ----.42(a)(2)--3
Sec. ----.42(a)(3)--1
Sec. ----.42(a)(4)--1
Sec. ----.42(a)(4)--2
Sec. ----.42(b)(2)--2
Sec. ----.42(c)(2)--1
Small farm loan................................. Sec. ----.12(h)--2
Sec. ----.12(v)--1
Sec. ----.12(x)--1
Sec. ----.42(a)--2
Sec. ----.42(a)--3
Sec. ----.42(a)--4
Sec. ----.42(a)--5
Sec. ----.42(a)--6
Sec. ----.42(a)--8
Sec. ----.42(a)--10
Sec. ----.42(a)(2)--1
Sec. ----.42(a)(4)--2
Sec. ----.42(b)(2)--2
Small institution............................... Sec. ----.12(u)--1
Sec. ----.12(u)(2)--1
Sec. ----.26(b)--1
Sec. ----.42--1
Sec. ----.42--6
Sec. ----.42--7
Small institution performance standards......... Sec. ----.26--1
Sec. ----.26(b)--1
Sec. ----.26(b)--2
Sec. ----.26(b)--3
Sec. ----.26(b)--4
Sec. ----.26(b)--5
[[Page 11680]]
Sec. ----.26(b)(3) & (4)--1
Sec. ----.26(d)-1
Sec. ----.26(d)--2
Social services................................. Sec. ----.12(g)--1
Software for data collection and reporting...... Sec. ----.42--2
Sec. ----.42--6
Special purpose institution..................... Sec. Sec. ----.11(c)(3) & 563e.11(c)(2)--1
Sec. Sec. ----.11(c)(3) & 563e.11(c)(2)--2
State branch.................................... Sec. ----.12(u)--1
Strategic plan.................................. Sec. ----.27(c)--1
Sec. ----.27(c)--2
Sec. ----.27(f)(1)--1
Sec. ----.27(g)(2)--1
Subsidiary...................................... Sec. ----.12(a)--1
Third-party investments......................... Sec. ----.22(d)--1
Sec. ----.22(d)--2
Sec. ----.22(d)--3
Sec. ----.25(d)--1
Sec. ----.26(b)--3
Underserved nonmetropolitan middle-income Sec. ----.12(g)(4)--2
geography.
Sec. ----.12(g)(4)(iii)--1
Sec. ----.12(g)(4)(iii)--2
Sec. ----.12(g)(4)(iii)--4
Wholesale institution........................... Sec. ----.12(n)--2
Sec. ----.12(n)--3
Sec. ----.12(x)--1
Sec. ----.42--7
Sec. ----.42(b)(2)--2
Women-owned financial institutions.............. Sec. ----.12(g)--4
Sec. ----.12(t)--4
----------------------------------------------------------------------------------------------------------------
End of text of the Interagency Questions and Answers
Dated: January 27, 2010.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, March 2, 2010.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this 18th day of February, 2010.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: February 12, 2010.
By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
[FR Doc. 2010-4903 Filed 3-10-10; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P