CRA Manual September 2007

Transcription

1 CRA Manual September 2007 National Community Reinvestment Coalition * *

2 Table Contents Acknowledgments 3 Introduction 4 Summary CRA & How Public Can Be Involved 6 Outline CRA Regulation and Exams 9 Detailed Description CRA & How to Use It 24 Public Involvement in Bank Mergers & Applications 61 Beginner s Guide for Evaluating Bank CRA Performance 77 Case Study CRA Exam and Merger Application Comment 82 CRA Sunshine Requirements for Banks & Community Groups 90 National Community Reinvestment Coalition * *

3 Acknowledgments The National Community Reinvestment Coalition (NCRC) is nation s trade association for economic justice whose members consist local community based organizations. Since its inception in 1990, NCRC has spearheaded economic justice movement. NCRC s mission is to build wealth in traditionally underserved communities and bring low- and moderate-income populations across country into financial mainstream. NCRC members have constituents in every state in America, in both rural and urban areas. We would like to acknowledge Josh Silver, Vice President Research and Publication, who has updated CRA Manual a number times over years. More importantly, he has been a major participant during regulatory changes to CRA during last several years, helping to prevent a significant weakening law. A number research analysts and interns have also participated in updating this manual over years. The Board Directors would like to express ir appreciation to NCRC pressional staff who contributed to this publication and serve as a resource to all us in public and private sector who are committed to responsible lending. For more information, please contact: John Taylor, President and CEO David Berenbaum, Executive Vice President Joshua Silver, Vice President, Policy and Research 2007 by National Community Reinvestment Coalition Reproduction this document is permitted and encouraged, with credit given to National Community Reinvestment Coalition. National Community Reinvestment Coalition * *

4 Introduction The Community Reinvestment Act (CRA) is a remarkable law. Not only does it prohibit discrimination against working class and minority neighborhoods, it also imposes an affirmative obligation on banks to serve se communities. It is not good enough for a bank to establish branches and passively wait for customers to walk into branches. Instead, banks must proactively assess community needs, conduct marketing and outreach campaigns in all communities, and consult with community stakeholders in developing financing options for affordable housing and economic development activities. Anor ingenious aspect CRA is that it requires community participation. Banks are custodians community wealth; thus y have an obligation to determine credit needs bank customers and depositors. There is no better way for banks to serve credit needs than to listen to members community articulate what those needs are. Thus, CRA establishes formal mechanisms for banks and regulators to seriously consider community needs and input. Members community can comment at any time on a bank s CRA performance in a formal or informal manner. When federal agencies conduct CRA exams banks lending, investing, and service activities in low- and moderate-income communities, federal agencies are required to consider comments members public concerning bank performance. Likewise, federal agencies are required to consider public comments when deciding wher to approve a bank s application to merge or open and relocate branches. CRA has spawned an impressive amount collaboration among banks and community organizations. Every bank in this country has a CRA ficer, whose job it is to seek out pritable business opportunities and deals in low- and moderate-income communities. It is important for community organizations to contact CRA ficers several banks in ir community and discuss needs and opportunities with CRA ficers. As a result advocacy and collaboration, CRA has leveraged trillions dollars bank financing and services for low- and moderate-income communities over last three decades. Our nation s low- and moderate-income communities would stand no chance economic revitalization and empowerment if CRA was not law land. This manual is a how-to book for community organizations and any or stakeholder wishing to become engaged in CRA process and economic building activities for lowand moderate-income communities. The first chapter provides a quick summary CRA regulation and how members general public can become involved in CRA process. The second chapter outlines elements CRA exams for various types banks in a powerpoint format. The third chapter n provides a detailed description CRA exams. Commentary is fered on strengths and weaknesses CRA exams and issues community organizations should consider when commenting on CRA exams. The fourth chapter provides an overview bank application and merger process and how community groups can become involved. The manual n proceeds to one fictitious case study and one actual case study commenting on CRA exams. Finally, CRA National Community Reinvestment Coalition * *

5 sunshine requirements are described. CRA sunshine is a frivolous requirement; neverless, compliance requirements are straightforward for community organizations and banks. The intention this Manual is to bolster community group and public participation in CRA process. If banks and regulators are only stakeholders involved in a secretive or mysterious CRA process, chances increase that CRA exams and merger applications become rubber stamps without imposing meaningful obligations to serve community. On or hand, if general public is actively engaged in providing thoughtful and penetrating insights and comments on bank performance, CRA becomes a rigorous process, holding banks accountable to serving community needs. Consequently, bank lending, investing, and services increase for low- and moderate-income communities. During this 30 th Anniversary CRA, we hope that CRA Manual helps nurture a public that continues to be actively engaged in CRA process. We hope that community organizations and members public across country use this Manual and fer us input on how to make it more understandable and effective. September, 2007 National Community Reinvestment Coalition * *

6 SUMMARY OF THE CRA REGULATION: HOW COMMUNITY GROUPS CAN GET INVOLVED IN THE CRA PROCESS Passed by Congress in 1977, Community Reinvestment Act (CRA) states that regulated financial institutions have continuing and affirmative obligations to help meet credit needs local communities in which y are chartered. The act n establishes a regulatory regime for monitoring level lending, investments, and services in low- and moderate-income neighborhoods traditionally underserved by lending institutions. Examiners from four federal agencies assess and grade a lending institution s activities in low- and moderate-income neighborhoods. If a regulatory agency finds that a lending institution is not serving se neighborhoods, it can delay or deny that institution s request to merge with anor lender or to open a branch or expand any its or services. The financial institution regulatory agency can also approve merger application subject to specific improvements in a bank s lending or investment record in low- and moderate-income neighborhoods. In spring 1995, federal agencies released new CRA regulations. The regulations outline how federal agencies are to assess activities lending institutions in traditionally underserved neighborhoods. The federal agencies conducting CRA examinations are: Office Comptroller Currency ( that examines nationally chartered banks, Office Thrift Supervision ( that examines savings and loan institutions, and Federal Deposit Insurance Corporation ( and Federal Reserve Board ( - both whom examine state chartered banks. The CRA regulations had been revised as part Clinton administration s initiative to create performance-based and objective standards. The new regulations attempt to satisfy community activists by focusing more attention on lending, investment, and service records banks. The regulations also attempt to reduce amount paperwork required lending institutions. Gone are previous paper trail generating requirements such as documenting participation by a bank s board directors in reviewing CRA compliance. In ir place, are examinations that are suppose to flexibly assess lending activities in low- and moderate- income neighborhoods institutions various financial capacities. The CRA regulation establishes various tests for lending institutions different sizes and a strategic plan option. Under each test, examiners rate banks according to ir lending records and responsiveness to community needs. Banks receive a score based on ir evaluations outstanding, satisfactory, needs to improve, or substantial noncompliance. The last two scores can result in delays or denials mergers, acquisitions, or expansions services. Lending institutions with assets greater than $1 billion are subjected to most rigorous exams. They are evaluated under a lending test that considers number and percentages National Community Reinvestment Coalition * *

7 loans made to low- and moderate-income individuals and communities. Likewise, y are evaluated under an investment test and a service test that consider, respectively, number and types investments and services (branches and bank accounts) in low- and moderate-income communities. When conducting evaluations, examiners are to consider performance context lending institutions. In or words, examiners are advised to consider factors such as business opportunities available to a lending institution and size and financial condition lending institution. In 2005, federal agencies established a streamlined exam for intermediate small banks defined as institutions with assets $250 million to $1 billion ( asset range is adjusted annually to take inflation into account). These intermediate small banks or midsize banks undergo a lending test and a community development test. The community development test incorporates elements large bank s investment and service test. The community development test scrutinizes amount and responsiveness a midsize bank s community development lending, investing, and services. Unfortunately, mid-size banks are no longer required to report small business or community development lending data. Small banks, as defined as institutions with less than $250 million in assets, are evaluated under a test less encompassing than evaluation for ir larger counterparts. Small banks are not subjected to an investment and service test. Their lending test consists following five criteria: a reasonable loan-to-deposit ratio, percentage loans in bank s assessment area, bank s distribution loans to individuals different income levels and businesses and farms different sizes, geographic distribution loans, and bank s record responding to written complaints about its lending performance in its assessment area. The Gramm-Leach-Bliley Act 1999 established a less frequent exam cycle for small banks under $250 million in assets with passing CRA ratings. Small banks with outstanding ratings will be examined once every five years and those with satisfactory ratings will be examined once every four years. Banks with passing ratings can be examined more frequently if regulatory agencies believe a compelling reason, such as deteriorating CRA performance, makes it necessary to do so. Community groups should contact regulatory agencies if y believe that a particular small bank should be examined before its lengned time cycle. Wholesale and limited purpose banks are also assessed under a test tailored to ir capabilities. These banks provide services such as fering credit cards or specialize in large commercial deposits. Lending tests cannot adequately assess wholesale and limited purpose banks because many m do not accept consumer deposits or make home loans. Instead examiners are to focus ir evaluation se banks on number community development loans and investments (such as affordable housing rehabilitation loans, low-income housing tax credits, or investments in organizations that finance small businesses). The tests for mid-size and large banks also consider community development loans and investments. National Community Reinvestment Coalition * *

8 Any lending institution can opt for developing a strategic plan in lieu a regulator evaluation. Developed in conjunction with neighborhood organizations, a strategic plan seeks to satisfy credit needs a bank s assessment area and must address lending, investment, and service criteria that would have been part usual evaluation. Federal regulators must approve strategic plan and rate it at least satisfactory. If a bank receives a lower rating on its plan, it has option submitting to applicable tests for large, small, or limited purpose banks. A CRA rating can be downgraded if a federal agency uncovers evidence illegal, abusive or discriminatory lending on fair lending exams that occur at about same time as CRA exams. Community groups should bring fair lending concerns to attention CRA examiners. In addition to strategic plan option, community groups can be involved in CRA evaluation process. Federal agencies publish in advance a list banks that will be evaluated each quarter. Once every three months, NCRC notifies its members about banks scheduled for upcoming CRA exams. NCRC encourages its members and or neighborhood organizations to fer ir comments on CRA performance banks in advance ir examinations. Timely comments can influence a bank s CRA rating by directing examiners to particular areas strength or weakness in a bank s lending, investments, or services in low- and moderate-income neighborhoods. A community group s comment can have an influence on overall CRA rating for an institution or CRA rating for a state or one tests on CRA exam. Even changing a rating from Outstanding to Satisfactory in one state or one part exam can motivate a bank to increase number loans, investments, and services to low- and moderate-income communities. Also, community organizations can fer written comments on a bank s CRA and fair lending performance when a bank has submitted an application to merge or acquire anor bank or thrift. NCRC can assist community organizations in preparing comments on merger applications. The vast majority merger applications are approved, but comments can still direct regulatory agencies attention to areas weakness. The federal agency can approve merger application, but still indicate in approval order that bank should improve upon its area weakness. In addition, bank can pledge in writing to address its shortfall by implementing a fair lending reform and/or increasing its lending, investing, and services to traditionally underserved communities. National Community Reinvestment Coalition * *

9 Outline CRA Exams for Banks Various Sizes & Capacities Large Banks Mid-Size Banks Small Banks Wholesale and Limited Purpose Banks Strategic Plan Option

10 THE CRA REGULATION: OVERVIEW LARGE LARGE BANKS BANKS (Assets (Assets >= >= $1 $1 Billion): Billion): THREE THREE PERFORMANCE PERFORMANCE TESTS TESTS Lending Lending Test Test Investment Investment Test Test Service Service Test Test SMALL SMALL BANKS BANKS (Assets (Assets < $250 $250 Million) Million) and and Intermediate Intermediate Small Small Banks Banks (up (up to to $1 $1 Billion) Billion) Small Small banks banks are are not not subject subject to to three three performance performance tests, tests, but butare are evaluated evaluated under under a a streamlined streamlined evaluation evaluation procedure. procedure. SPECIAL SPECIAL TEST TEST FOR FOR WHOLESALE WHOLESALE AND AND LIMITED LIMITED PURPOSE PURPOSE BANKS BANKS Unlike Unlike existing existing regulation, regulation, wholesale wholesale and and limited-purpose limited-purpose banks banks will will be be evaluated evaluated under under a a special special test. test. CRA CRA compliance compliance will will be be judged judged primarily primarily on on a a lender s lender s community community development development activities. activities. STRATEGIC STRATEGIC PLAN PLAN OPTION OPTION All All lenders lenders have have option option submitting submitting a a strategic strategic plan plan developed developed with with community community input input detailing detailing how how a a lender lender intends intends to to meet meet its its CRA CRA obligation. obligation. The The strategic strategic plan plan must must contain contain measurable measurable performance performance goals. goals. DATA DATA DISCLOSURE DISCLOSURE Large Large banks banks are are required required to to report report small small business, business, small small farm, farm, community community development development lending lending data. data. In In addition, addition, some some lenders lenders will will be be reporting reporting consumer consumer lending lending data. data.

11 THE LENDING TEST: Banks With Assets >= $1 Billion FIVE PERFORMANCE INDICATORS Lending Activity: The number and amount Lending Activity: The number and amount bank's loans in bank's assessment area(s); bank's loans in bank's assessment area(s); Geographic Distribution: Geographic Distribution: a) The proportion bank's lending in its assessment a) The proportion bank's lending in its assessment area(s); area(s); b) The dispersion lending in bank's assessment b) The dispersion lending in bank's assessment area(s); area(s); c) The number and amount loans in low-, moderate-, c) The number and amount loans in low-, moderate-, middle-, and upper-income geographies; middle-, and upper-income geographies; Borrower Characteristics: Borrower Characteristics: a) The number and amount home mortgage loans to a) The number and amount home mortgage loans to low-, moderate-, middle-, and upper-income individuals; low-, moderate-, middle-, and upper-income individuals; b) Small business and small farm loans to businesses b) Small business and small farm loans to businesses and farms with gross revenues $1 million or less; and farms with gross revenues $1 million or less; c) Small business and small farm loans by loan amount; c) Small business and small farm loans by loan amount; d) Consumer loans to low-, moderate-, middle-, and d) Consumer loans to low-, moderate-, middle-, and upper-income individuals (optional); upper-income individuals (optional); PERFORMANCE CONTEXT 1. Demographic data on median income levels, 1. Demographic data on median income levels, distribution household income, nature housing distribution household income, nature housing stock, housing costs, and or data. stock, housing costs, and or data. 2. Lending, investment, and service opportunities in 2. Lending, investment, and service opportunities in bank s assessment area(s). bank s assessment area(s). 3. The bank s product ferings and business strategy. 3. The bank s product ferings and business strategy. 4. The institutional capacity and constraints, including 4. The institutional capacity and constraints, including size and financial condition bank, size and financial condition bank, economic climate (national, regional, and local), safety economic climate (national, regional, and local), safety and soundness limitations, and or considerations. and soundness limitations, and or considerations. 5. The bank s past performance and performance 5. The bank s past performance and performance similarly situated lenders. similarly situated lenders. 6. The bank s public file. 6. The bank s public file. CRA RATING ON CRA RATING ON LENDING TEST: LENDING TEST: Outstanding Outstanding High Satisfactory High Satisfactory Low Satisfactory Low Satisfactory Needs to Improve Needs to Improve Substantial Substantial Noncompliance Noncompliance Community Development Lending: The number Community Development Lending: The number and amount community development loans and ir and amount community development loans and ir complexity and innovativeness; complexity and innovativeness; Innovative or Flexible Lending Practices: The Innovative or Flexible Lending Practices: The bank's use innovative or flexible lending practices to bank's use innovative or flexible lending practices to meet credit needs low- and moderate-income meet credit needs low- and moderate-income individuals. individuals.

12 THE INVESTMENT TEST: Banks With Assets >= $1 Billion PERFORMANCE INDICATORS The dollar amount qualified investments The dollar amount qualified investments The innovativeness or complexity qualified The innovativeness or complexity qualified investments investments The responsiveness qualified investments to credit The responsiveness qualified investments to credit and community development needs and community development needs The degree to which qualified investments are not The degree to which qualified investments are not routinely provided by private investors routinely provided by private investors PERFORMANCE CONTEXT 1. Demographic data on median income levels, 1. Demographic data on median income levels, distribution household income, nature distribution household income, nature housing stock, housing costs, and or data. housing stock, housing costs, and or data. 2. Lending, investment, and service opportunities 2. Lending, investment, and service opportunities in bank s assessment area(s). in bank s assessment area(s). 3. The bank s product ferings and business 3. The bank s product ferings and business strategy. strategy. 4. The institutional capacity and constraints, 4. The institutional capacity and constraints, including size and financial condition including size and financial condition bank, economic climate (national, regional, bank, economic climate (national, regional, and local), safety and soundness limitations, and and local), safety and soundness limitations, and or considerations. or considerations. 5. The bank s past performance and 5. The bank s past performance and performance similarly situated lenders. performance similarly situated lenders. 6. The bank s public file. 6. The bank s public file. CRA RATING ON CRA RATING ON INVESTMENT TEST: INVESTMENT TEST: Outstanding Outstanding High Satisfactory High Satisfactory Low Satisfactory Low Satisfactory Needs to Improve Needs to Improve Substantial Substantial Noncompliance Noncompliance

13 THE SERVICE TEST: Banks With Assets >= $1 Billion PERFORMANCE CRITERIA 1. The current distribution bank s branches among 1. The current distribution bank s branches among low-, moderate-, middle-, and upper-income geographies low-, moderate-, middle-, and upper-income geographies 2. The bank s record opening and closing branches, 2. The bank s record opening and closing branches, particularly branches located in low- and moderate-income particularly branches located in low- and moderate-income geographies or primarily serving low- and moderate-income geographies or primarily serving low- and moderate-income individuals individuals 3. The availability and effectiveness alternative systems 3. The availability and effectiveness alternative systems for delivering retail banking services (e.g. ATMs, banking for delivering retail banking services (e.g. ATMs, banking by telephone or computer, loan production fices) in lowand moderate-income geographies or primarily serving low- by telephone or computer, loan production fices) in lowand moderate-income geographies or primarily serving lowand moderate-income individuals. and moderate-income individuals. 4. The range services provided in low-, moderate-, 4. The range services provided in low-, moderate-, middle-, and upper-income geographies and degree to middle-, and upper-income geographies and degree to which services are tailored to meet needs those which services are tailored to meet needs those geographies. In addition, extent to which bank geographies. In addition, extent to which bank provides community development services and provides community development services and innovativeness and responsiveness services. innovativeness and responsiveness services. PERFORMANCE CONTEXT 1. Demographic data on median income levels, 1. Demographic data on median income levels, distribution household income, nature distribution household income, nature housing stock, housing costs, and or data. housing stock, housing costs, and or data. 2. Lending, investment, and service opportunities 2. Lending, investment, and service opportunities in bank s assessment area(s). in bank s assessment area(s). 3. The bank s product ferings and business 3. The bank s product ferings and business strategy. strategy. 4. The institutional capacity and constraints, 4. The institutional capacity and constraints, including size and financial condition including size and financial condition bank, economic climate (national, regional, bank, economic climate (national, regional, and local), safety and soundness limitations, and and local), safety and soundness limitations, and or considerations. or considerations. 5. The bank s past performance and 5. The bank s past performance and performance similarly situated lenders. performance similarly situated lenders. 6. The bank s public file. 6. The bank s public file. CRA RATING ON CRA RATING ON SERVICE TEST: SERVICE TEST: Outstanding Outstanding High Satisfactory High Satisfactory Low Satisfactory Low Satisfactory Needs to Improve Needs to Improve Substantial Substantial Noncompliance Noncompliance

14 COMMUNITY DEVELOPMENT: Loans, Investments, & Services What What is is definition definition community community development? development? Affordable Affordable housing housing (including (including multifamily multifamily rental rental housing) housing) for for lowlowand and moderate-income moderate-income individuals; individuals; Community Community services services targeted targeted to to lowlowand and moderate-income moderate-income individuals; individuals; Activities Activities that that promote promote economic economic development development by by financing financing small small businesses businesses and and farms; farms; Activities Activities that that revitalize revitalize or or stabilize stabilize lowlowor or moderate-income moderate-income geographies. geographies. Examples Examples Community Community Development Development Loans: Loans: Loans for affordable housing Loans for affordable housing rehabilitation and construction, including rehabilitation and construction, including construction and permanent financing construction and permanent financing multifamily rental property serving lowand moderate-income persons; multifamily rental property serving lowand moderate-income persons; Loans to not-for-prit organizations Loans to not-for-prit organizations serving primarily low- and moderateincome housing or or community serving primarily low- and moderateincome housing or or community development needs; development needs; Loans in support community facilities Loans in support community facilities in low- and moderate-income areas or in in low- and moderate-income areas or in support low- and moderate-income support low- and moderate-income persons; persons; Loans to community development Loans to community development financial institutions (CDFIs), community financial institutions (CDFIs), community development corporations (CDCs), and development corporations (CDCs), and minority- and women-owned financial minority- and women-owned financial institutions; institutions; Loans to local, state, and tribal Loans to local, state, and tribal governments for community development governments for community development activities; activities; Loans to finance environmental clean-up Loans to finance environmental clean-up or redevelopment an industrial site in or redevelopment an industrial site in low- and moderate-income communities. low- and moderate-income communities. Examples Examples Community Community Development Development Investments. Investments, grants, deposits, or shares in or Investments. Investments, grants, deposits, or shares in or to: to: Financial intermediaries (e.g. CDFIs, CDCs, minorityand women-owned financial institutions) that primarily Financial intermediaries (e.g. CDFIs, CDCs, minorityand women-owned financial institutions) that primarily lend in low- and moderate-income areas or to low- and lend in low- and moderate-income areas or to low- and moderate-income persons; moderate-income persons; Organizations engaged in affordable housing and Organizations engaged in affordable housing and rehabilitation, including multifamily rental housing; rehabilitation, including multifamily rental housing; Organizations promoting economic development by Organizations promoting economic development by financing small businesses including Small Business financing small businesses including Small Business Investment Companies; Investment Companies; Projects eligible for low-income housing tax credits; Projects eligible for low-income housing tax credits; State and municipal obligations that specifically support State and municipal obligations that specifically support affordable housing or or community development; affordable housing or or community development; Not-for-prit organizations serving low- and moderateincome housing or or community development needs, Not-for-prit organizations serving low- and moderateincome housing or or community development needs, such as homeownership counseling, home maintenance such as homeownership counseling, home maintenance counseling, credit counseling, and or financial services counseling, credit counseling, and or financial services education; education; Organizations supporting activities essential to Organizations supporting activities essential to capacity low- and moderate-income individuals or capacity low- and moderate-income individuals or geographies to utilize credit or sustain economic geographies to utilize credit or sustain economic development. development. Examples Examples Community Community Development Development Services: Services: Technical assistance to not-for-prit, tribal, or Technical assistance to not-for-prit, tribal, or government organizations serving low- and government organizations serving low- and moderate-income housing needs or economic moderate-income housing needs or economic revitalization; revitalization; Lending executives to organizations Lending executives to organizations facilitating affordable housing construction and facilitating affordable housing construction and rehabilitation or development affordable rehabilitation or development affordable housing; housing; Providing credit counseling, home buyers Providing credit counseling, home buyers counseling, home maintenance counseling, counseling, home maintenance counseling, and/or financial planning to promote community and/or financial planning to promote community development and affordable housing; development and affordable housing; School savings programs; School savings programs; Financial services whose primary purpose is Financial services whose primary purpose is community development, such as low-cost or community development, such as low-cost or free government check cashing. free government check cashing.

15 ADDITION TO COMMUNITY DEVELOPMENT DEFINITION Effective Effective September, September, for for Banks Banks Regulated Regulated by by FDIC, FDIC, FRB, FRB, OCC OCC & Subsequently Subsequently for for Thrifts Thrifts Overseen Overseen by by Office Office Thrift Thrift Supervision Supervision Change Change criterion criterion community community development development that that entails entails revitalizing revitalizing and and stabilizing stabilizing communities communities In In addition addition to to targeting targeting lowlowand and moderate-income moderate-income census census tracts, tracts, activities activities can can revitalize revitalize designated designated disaster disaster areas; areas; or or distressed distressed or or underserved underserved non-metropolitan non-metropolitan middleincome middleincome census census tracts tracts designated designated by by agencies agencies based based on: on: Rates Rates poverty, poverty, unemployment, unemployment, and and population population loss; loss; or or Population Population size, size, density, density, and and dispersion dispersion (remote (remote rural rural areas) areas) This This change change to to community community development development criterion criterion was was intended intended to to increase increase effectiveness effectiveness targeting targeting underserved underserved rural rural areas areas The The FFIEC FFIEC website website ( ( will will maintain maintain a a list list underserved underserved or or distressed distressed non-metropolitan non-metropolitan census census tracts tracts

16 FINAL CRA RATINGS: Banks With Assets >= $1 Billion 1. Ratings on lending, service, and investment tests are assigned a score: Ratings on Tests Lending Service Investment Outstanding High Satisfactory Low Satisfactory Needs to Improve Noncompliance The points are added up for each test and a bank is awarded an overall rating based on following matrix: Points Composite Rating 20 or over Outstanding Satisfactory 5-10 Needs to Improve 0-4 Noncompliance 3. The agencies consider 3. The agencies consider any evidence any evidence discriminatory or or discriminatory or or illegal credit practices. illegal credit practices. 4. A final CRA rating is 4. A final CRA rating is awarded: awarded: Outstanding Outstanding Satisfactory Satisfactory Needs to Improve Needs to Improve Substantial Substantial Noncompliance Noncompliance Under weighting system for determining a CRA rating, a bank must receive at least a rating low satisfactory on lending test to receive an overall rating satisfactory. A bank that receives an outstanding rating on lending test will receive an overall rating at least satisfactory. A bank that receives an outstanding rating on both service and investment test and at least a high satisfactory on lending test will receive an overall outstanding rating.

17 SMALL BANK (< $250 Million Assets) STREAMLINED CRA TEST PERFORMANCE CRITERIA 1.The 1.The bank bank has has a a reasonable reasonable loan-to-deposit loan-to-deposit ratio ratio (considering (considering seasonal seasonal variations) variations) given given bank s bank s size, size, financial financial condition, condition, credit credit needs needs its its assessment assessment area(s), area(s), and and taking taking into into account, account, as as appropriate, appropriate, lending-related lending-related activities activities such such as as loan loan originations originations for for sale sale to to secondary secondary markets markets and and community community development development loans loans and and qualified qualified investments. investments A A majority majority its its loans loans and and or or lendingrelated lendingrelated activities activities are are in in its its assessment assessment area(s). area(s) The The bank bank has has a a reasonable reasonable distribution distribution loans loans and and or or lending lending related-activities related-activities for for individuals individuals different different income income levels levels and and businesses businesses and and farms farms different different sizes sizes given given demographics demographics assessment assessment area(s). area(s) The The bank bank has has a a reasonable reasonable geographic geographic distribution distribution loans loans given given bank s bank s assessment assessment area(s). area(s) The The bank bank has has a a record record taking taking appropriate appropriate action action in in response response to to written written complaints complaints about about bank s bank s performance performance in in meeting meeting credit credit needs needs its its assessment assessment area(s). area(s). IF A BANK MEETS THE 5 STANDARDS IF A BANK DOES NOT MEET THE 5 STANDARDS If If a a bank bank meets meets five five standards, standards, bank bank is is awarded awarded a a provisional provisional rating rating satisfactory. satisfactory. If If it it exceeds exceeds standards, standards, bank bank is is assigned assigned a a provisional provisional rating rating outstanding. outstanding. If If a a bank bank does does not not meet meet 5 5 standards, standards, lender lender is is awarded awarded a a provisional provisional needs needs to to improve improve or or substantial substantial noncompliance noncompliance CRA CRA rating. rating. The The agencies agencies consider consider any any evidence evidence discriminatory discriminatory or or or or illegal illegal credit credit practices. practices. A A final final CRA CRA rating rating is is awarded awarded

18 TEST FOR INTERMEDIATE SMALL BANKS Effective Effective September September 2005, 2005, mid-size mid-size banks banks regulated regulated by by FDIC, FDIC, FRB, FRB, and and OCC OCC with with assets assets between between $250 $250 million million to to $1 $1 billion billion are are eligible eligible for for a a streamlined streamlined test test consisting consisting a a lending lending test test and and a a community community development development (CD) (CD) test. test. This This asset asset size size threshold threshold will will be be adjusted adjusted upward upward every every year year to to take take inflation inflation into into account. account. All All banks banks in in this this asset asset threshold threshold are are eligible eligible for for streamlined streamlined test test regardless regardless wher wher y y are are part part a a holding holding company. company. OTS OTS adopts adopts this this exam exam for for intermediate intermediate small small thrifts thrifts in in July July The lending test is same as lending test for small banks with less than $250 million in assets The community development test includes following criteria: The number and amount community development loans The number and amount qualified investments The extent to which bank provides community development services The bank s responsiveness through such activities to community development lending, investment, and service needs. An intermediate small bank must score at least Satisfactory on both Lending and Community Development Tests to receive an overall Satisfactory rating. Intermediate small banks are no longer required to annually report small business, small farm, community development loan data or property location HMDA-reportable loans for those loans made outside metropolitan areas or metropolitan areas in which mid-size bank has branches.

19 CRA TEST FOR WHOLESALE AND LIMITED-PURPOSE BANKS DESIGNATION DESIGNATION AS AS A A WHOLESALE WHOLESALE OR OR LIMITED LIMITED PURPOSE PURPOSE BANK: BANK: To To qualify qualify for for examination examination under under this this test, test, a a lender lender must must apply apply to to regulatory regulatory agencies agencies requesting requesting designation designation as as a a wholesale wholesale or or limited-purpose limited-purpose bank. bank. A A limited-purpose limited-purpose bank bank is is a a bank bank that that only only fers fers a a narrow narrow product product line line (such (such as as credit credit card card or or motor motor vehicle vehicle loans) loans) to to a a regional regional or or broader broader market. market. A A wholesale wholesale bank bank is is a a bank bank that that is is not not in in business business extending extending home home mortgage, mortgage, small small business, business, small small farm, farm, or or consumer consumer loans loans to to retail retail customers. customers PERFORMANCE PERFORMANCE CRITERIA CRITERIA A. A. The The number number and and amount amount community community development development loans, loans, qualified qualified investments, investments, or or community community development development services; services; B. B. The The use use innovative innovative or or complex complex qualified qualified investments, investments, community community development development loans, loans, or or community community development development services services and and extent extent to to which which investments investments are are not not routinely routinely provided provided by by private private market; market; C. C. The The bank s bank s responsiveness responsiveness to to credit credit and and community community development development needs. needs. D. D. The The agencies agencies consider consider benefits benefits outside outside bank bank assessment assessment area(s) area(s) if if bank bank has has adequately adequately addressed addressed needs needs its its delineated delineated assessment assessment area. area. 3. The 3. The agencies agencies consider consider any any evidence evidence discriminatory discriminatory or or or or illegal illegal credit credit practices. practices A A final final CRA CRA rating rating is is awarded: awarded: Outstanding Outstanding Satisfactory Satisfactory Needs Needs to to Improve Improve Substantial Substantial Noncompliance Noncompliance

20 THE STRATEGIC PLAN OPTION 1. DEVELOP THE PLAN: Instead being evaluated under three performance 1. DEVELOP THE PLAN: Instead being evaluated under three performance tests (lending, investment, and services) or small bank test, a lender has option tests (lending, investment, and services) or small bank test, a lender has option developing a strategic plan detailing how it plans to meet credit needs developing a strategic plan detailing how it plans to meet credit needs community. A strategic plan must include following elements: community. A strategic plan must include following elements: Measurable goals for helping to meet credit needs assessment area(s) covered Measurable goals for helping to meet credit needs assessment area(s) covered by plan, particularly needs low- and moderate-income persons and geographies. by plan, particularly needs low- and moderate-income persons and geographies. The plan must detail goals necessary for a satisfactory rating and, at lenders The plan must detail goals necessary for a satisfactory rating and, at lenders option, goals for an outstanding CRA rating. option, goals for an outstanding CRA rating. The bank must address each three performance categories (lending, investment, The bank must address each three performance categories (lending, investment, and services)and shall emphasize lending and lending-related activities. and services)and shall emphasize lending and lending-related activities. The plan may be up to 5 years in duration, but must include annual interim performance The plan may be up to 5 years in duration, but must include annual interim performance goals. goals. 2. PUBLIC PARTICIPATION: A lender must seek 2. PUBLIC PARTICIPATION: A lender must seek public participation in development plan by: public participation in development plan by: Informally seeking suggestion from members public Informally seeking suggestion from members public in its assessment areas covered by plan while initially in its assessment areas covered by plan while initially developing plan. developing plan. Formally soliciting public comment on plan for at least Formally soliciting public comment on plan for at least 30 days by publishing notice in at least one newspaper 30 days by publishing notice in at least one newspaper general circulation in each assessment area covered by general circulation in each assessment area covered by plan. plan. Making copies plan available for review by public Making copies plan available for review by public at no cost and copies available for a reasonable fee to cover at no cost and copies available for a reasonable fee to cover copying and mailing. copying and mailing. 3. REGULATORY APPROVAL: The lender must submit plan for regulatory approval 3. REGULATORY APPROVAL: The lender must submit plan for regulatory approval based on following criteria: based on following criteria: The public s involvement in formulating plan, written comments on plan, and lender s The public s involvement in formulating plan, written comments on plan, and lender s response to comments. response to comments. The extent and breadth lending or lending related activities, including distribution loans The extent and breadth lending or lending related activities, including distribution loans among different geographies, businesses and farms different sizes, and individuals different among different geographies, businesses and farms different sizes, and individuals different income levels, extent community development lending, and extent and use innovative income levels, extent community development lending, and extent and use innovative or flexible lending practices. or flexible lending practices. The amount and innovativeness, complexity, and responsiveness bank s qualified The amount and innovativeness, complexity, and responsiveness bank s qualified investments. investments. The availability and effectiveness bank s systems for delivering retail banking services and The availability and effectiveness bank s systems for delivering retail banking services and extent and innovativeness bank s community development services. extent and innovativeness bank s community development services. 4. FINAL CRA RATING: 4. FINAL CRA RATING: A lender is assigned a CRA rating based on A lender is assigned a CRA rating based on performance standards detailed in plan. performance standards detailed in plan. If a lender does not meet performance If a lender does not meet performance standards for a satisfactory rating, bank standards for a satisfactory rating, bank has option being evaluated under large has option being evaluated under large bank performance standards or, if applicable, bank performance standards or, if applicable, small bank standards. small bank standards. Ratings are adjusted based on any evidence Ratings are adjusted based on any evidence discriminatory or or illegal credit practices. discriminatory or or illegal credit practices.

21 DATA DISCLOSURE CRA CRA DISCLOSURE DISCLOSURE STATEMENT STATEMENT Lenders with assets over $1 billion, and small banks that elect to be evaluated under lending, Lenders with assets over $1 billion, and small banks that elect to be evaluated under lending, investment, and service tests, are required to report to agencies small business and community investment, and service tests, are required to report to agencies small business and community development lending data. Each year regulatory agencies will prepare a CRA Disclosure development lending data. Each year regulatory agencies will prepare a CRA Disclosure Statement available from lender and at central data depositories. The CRA Disclosure Statement available from lender and at central data depositories. The CRA Disclosure Statement will contain following information for each lender: Statement will contain following information for each lender: Small Small Business Business Lending Lending 1. For each county with a population 500,000 or less in which a bank reported a small business 1. For each county with a population 500,000 or less in which a bank reported a small business or small business loan: or small business loan: The number and amount small business or small farm loans originates or purchased in low-, The number and amount small business or small farm loans originates or purchased in low-, moderate-, middle-, and upper-income census tracts; moderate-, middle-, and upper-income census tracts; A list grouping each census tract according to wher census tract is low-, moderate-, middle-, A list grouping each census tract according to wher census tract is low-, moderate-, middle-, and upper-income; and upper-income; A list each census tract in which bank reported a small business or small farm loan; A list each census tract in which bank reported a small business or small farm loan; The number and amount small business and small farm loans. The number and amount small business and small farm loans. 2. For each county with a population in excess 500,000 persons, lenders must disclose: 2. For each county with a population in excess 500,000 persons, lenders must disclose: The number and amount small business or small farm loans originated or purchased in census The number and amount small business or small farm loans originated or purchased in census tracts whose median family income is 0-10 % area median family income, 10-20%, 20-30%, 30- tracts whose median family income is 0-10 % area median family income, 10-20%, 20-30%, 30-40%, 40-50%, 50-60%, 60-70%, 70-80%, 80-90%, %, %, %, >120%.; 40%, 40-50%, 50-60%, 60-70%, 70-80%, 80-90%, %, %, %, >120%.; A list grouping each census tract according to wher census tract is is 0-10 % area A list grouping each census tract according to wher census tract is is 0-10 % area median family income, 10-20%, 20-30%, 30-40%, 40-50%, 50-60%, 60-70%, 70-80%, 80-90%, 90- median family income, 10-20%, 20-30%, 30-40%, 40-50%, 50-60%, 60-70%, 70-80%, 80-90%, %, %, %, >120%.; 100%, %, %, >120%.; A list each census tract in which bank reported a small business or small farm loan; A list each census tract in which bank reported a small business or small farm loan; The number and amount small business and small farm loans. The number and amount small business and small farm loans. 3. The number and amount small business and small farm loans located in lender s 3. The number and amount small business and small farm loans located in lender s assessment area and outside assessment area. assessment area and outside assessment area. Community Community Development Development The number and amount community development loans originated or purchased. The number and amount community development loans originated or purchased. Public Public File: A lender is required to maintain a public File: A lender is required to maintain a public file available for inspection at no cost at its main fice file available for inspection at no cost at its main fice and through its branches. The public file must contain... and through its branches. The public file must contain... All written comments received from public and All written comments received from public and response to those comments by bank for last three response to those comments by bank for last three years. years. A copy latest CRA Performance Evaluation. A copy latest CRA Performance Evaluation. A list bank s branches, ir street addresses, and A list bank s branches, ir street addresses, and census tracts. census tracts. A list branches opened or closed by bank during A list branches opened or closed by bank during last three years, ir street addresses, and geographies. last three years, ir street addresses, and geographies. A list services (including hours operation, available A list services (including hours operation, available loan and deposit services, and transaction fees) generally loan and deposit services, and transaction fees) generally fered at bank s branches. fered at bank s branches. A map each assessment area, including census A map each assessment area, including census tracts. tracts. If applicable, CRA Disclosure Statement. If applicable, CRA Disclosure Statement. If applicable, HMDA Disclosure Statement. If applicable, HMDA Disclosure Statement. If applicable, consumer lending data. If applicable, consumer lending data. If bank is a small bank, lender must include If bank is a small bank, lender must include loan-to-deposit ratio for each quarter prior calendar loan-to-deposit ratio for each quarter prior calendar year. year. If bank has a strategic plan, a copy plan must If bank has a strategic plan, a copy plan must be included in public file. be included in public file. If bank has a less than satisfactory CRA rating, it If bank has a less than satisfactory CRA rating, it must include a description its current efforts to improve must include a description its current efforts to improve its performance in helping meet credit needs its its performance in helping meet credit needs its entire community. The description must be updated entire community. The description must be updated quarterly. quarterly. Home Home Mortgage Mortgage Lending Lending If a bank is required to report mortgage If a bank is required to report mortgage lending activity under Home Mortgage lending activity under Home Mortgage Disclosure Act (HMDA), n it must Disclosure Act (HMDA), n it must include a copy its HMDA disclosure include a copy its HMDA disclosure statement in public file statement in public file Consumer Consumer Lending Lending If a bank elects to be evaluated on one or more its categories consumer lending (motor vehicle, credit card, If a bank elects to be evaluated on one or more its categories consumer lending (motor vehicle, credit card, home equity,secured, unsecured loan), and is not a small bank, it must include in its public file: home equity,secured, unsecured loan), and is not a small bank, it must include in its public file: The number and amount loans to low-, moderate-, middle-, and upper-income individuals; The number and amount loans to low-, moderate-, middle-, and upper-income individuals; The number and amount loans in low-, moderate-, middle-, and upper-income census tracts; The number and amount loans in low-, moderate-, middle-, and upper-income census tracts; The number and amount loans inside and outside bank s assessment area. The number and amount loans inside and outside bank s assessment area.