CRA - Large Bank_Part1.pdf

XI. Community Reinvestment Act — Large Bank Large Bank 1 The large institution performance criteria – the Lending, Investment, and Service Tests – cover institutions that meet large bank threshold criteria unless they requested designation and received approval as wholesale or limited-purpose instit...

XI. Community Reinvestment Act — Large Bank Large Bank 1 The large institution performance criteria – the Lending, Investment, and Service Tests – cover institutions that meet large bank threshold criteria unless they requested designation and received approval as wholesale or limited-purpose institutions or have been approved for evaluation under a strategic plan. 1. Review prior CRA performance evaluations, available community contact materials, HMDA and CRA 2. Select assessment areas for full scope review by considering the factors below. As under the streamlined small institution procedures, examiners are expected to exercise judgment and common sense to minimize the burden imposed by the examination process, consistent with a complete and accurate assessment of performance. Therefore, for example, examiners may be able to use economic and demographic data analyzed in an examination of an institution in examinations of other institutions serving the same or similar assessment areas. Community contacts may also be combined to cover more than one institution in a given market. In cases where an institution has analyzed its CRA performance, examiners may use those analyses, after verifying their accuracy and reliability, and should supplement those analyses when questions are raised. Examiners should consider any performance related information offered by an institution, and should request information called for by examination procedures. Large institutions are required to collect and report certain loan data relative to small business, small farm, and community development loans. The existence of those data in automated form will permit examiners to conduct much of the necessary analysis prior to the on-site examination and thereby reduce any disruptions caused by the presence of examiners at the institution. Although large institutions are subject to CRA data collection requirements, they cannot be examined under the large institution examination procedures until they have at least one full year of data collected. In addition, any size institution may opt to be examined as a large institution provided it has collected and reported the required CRA loan data. a. The lending, investment, and service opportunities in the different assessment areas, particularly areas where the need for bank credit, investments and services is significant; b. The level of the institution’s lending, investment, and service activity in the different assessment areas, including in low- and moderate-income areas, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies designated by the Agencies 3 based on (a) rates of poverty, unemployment, and population loss or (b) population size, density, and dispersion; 4 c. The number of other institutions in the different assessment areas and the importance of the institution under examination in serving the different areas, particularly any areas with relatively few other providers of financial services; d. Comments and feedback received from community groups and the public regarding the institution’s CRA performance; e. The size of the population; f. The existence of apparent anomalies in the reported CRA or HMDA data for any particular assessment area(s); g. The length of time since the assessment area(s) was last examined using a full scope review; h. The institution’s prior CRA performance in different assessment areas; i. Examiners’ knowledge of the same or similar assessment areas; and j. Issues raised in CRA examinations of other institutions and prior community contacts in the institution’s assessment areas or similar assessment areas. Examination Procedures for Large Institutions 2 Examination Scope For institutions (interstate and intrastate) with more than one assessment area, identify assessment areas for a full scope review. A full scope review is accomplished when examiners complete all of the procedures for an assessment area. For interstate institutions, a minimum of one assessment area from each state, and a minimum of one assessment area from each multistate metropolitan statistical area/metropolitan division (MSA/MD), must be reviewed using the full scope examination procedures. 3 1 Detailed in section XI - 1.1 are the asset threshold criteria used to determine the type of examination procedures that will be used for evaluating the institution’s ability to meet the needs of its community. 2 These reflect the interagency examination procedures in their entirety. The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. 4 A list of distressed or underserved nonmetropolitan middle-income geographies is available on the Federal Financial Institutions Examination Council (FFIEC) web site at www.ffiec.gov. FDIC Consumer Compliance Examination Manual — September 2015 XI–4.1 XI. Community Reinvestment Act — Large Bank Performance Context 1. 2. 3. 4. 5. 6. Review standardized worksheets and other agency information sources to obtain relevant demographic, economic, and loan data, to the extent available, for each assessment area under review. Compare the data to similar data for the MSA/MD, county, or state to determine how any similarities or differences will help in evaluating lending, investment, and service opportunities and community and economic conditions in the assessment area. Also consider whether the area has housing costs that are particularly high given area median income. Obtain for review the Consolidated Reports of Condition (Call Reports), Uniform Bank Performance Reports (UBPR), annual reports, supervisory reports, and prior CRA evaluations of the institution to help understand the institution’s ability and capacity, including any limitations imposed by size, financial condition, or statutory, regulatory, economic or other constraints, to respond to safe and sound opportunities in the assessment area(s) for retail loans, and community development loans, investments and services. 7. b. Constraints affecting the opportunities to make safe and sound retail loans, community development loans, qualified investments and community development services compatible with the institution’s business strategy in the assessment area(s); and c. Successful CRA-related product offerings or activities utilized by other lenders serving the same or similar assessment area(s). Document the performance context information, particularly community development needs and opportunities, gathered for use in evaluating the institution’s performance. Assessment Area 1. Discuss with the institution, and consider, any information the institution may provide about its local community and economy, including community development needs and opportunities, its business strategy, its lending capacity, or information that otherwise assists in the evaluation of the institution. Review community contact forms prepared by the regulatory agencies to obtain information that assists in the evaluation of the institution. Contact local community, governmental or economic development representatives to update or supplement this information. Refer to the Community Contact Procedures for more detail. Review the institution’s stated assessment area(s) to ensure that it: a. Consists of one or more MSAs/MDs or contiguous political subdivisions (i.e., counties, cities, or towns); b. Includes the geographies where the institution has its main office, branches, and deposit-taking (Automated Teller Machines (ATMs), as well as the surrounding geographies in which the institution originated or purchased a substantial portion of its loans; c. Consists only of whole census tracts; d. Consists of separate delineations for areas that extend substantially across MSA/MD or state boundaries unless the assessment area is in a multistate MSA/MD; e. Does not reflect illegal discrimination; and f. Does not arbitrarily exclude any low- or moderateincome area(s) taking into account the institution’s size, branching structure, and financial condition. Review the institution’s public file and any comments received by the institution or the agency since the last CRA performance evaluation for information that assists in the evaluation of the institution. 2. By reviewing performance evaluations and other financial data, determine whether any similarly situated institutions (in terms of size, financial condition, product offerings, and business strategy) serve the same or similar assessment area(s) and would provide relevant and accurate information for evaluating the institution’s CRA performance. Consider, for example, whether the information could help identify: If the assessment area(s) does not coincide with the boundaries of an MSA/MD or political subdivision(s), assess whether the adjustments to the boundaries were made because the assessment area would otherwise be too large for the institution to reasonably serve, have an unusual configuration, or include significant geographic barriers. 3. If the assessment area(s) fails to comply with the applicable criteria described above, develop, based on discussions with management, a revised assessment area(s) that complies with the criteria. Use this assessment area(s) to evaluate the institution’s performance, but do not otherwise consider the revision in determining the institution’s rating. a. XI–4.2 Lending and community development opportunities available in the institution’s assessment area(s) that are compatible with the institution’s business strategy and consistent with safe and sound banking practices; FDIC Consumer Compliance Examination Manual — September 2015 XI. Community Reinvestment Act — Large Bank consortia or affiliate lending does not account for more than the institution’s percentage share (based on the level of its participation or investment) of the total loans originated by the consortia, third parties, or affiliates; and Lending, Investment, and Service Tests for Large Retail Institutions Lending Test 1. Identify the institution’s loans to be evaluated by reviewing: c. 2. a. The most recent HMDA and CRA Disclosure Statements, the interim HMDA Loan Application Register (LAR), and any interim CRA loan data collected by the institution; b. A sample of consumer loans if consumer lending represents a substantial majority of the institution’s business so that an accurate conclusion concerning the institution’s lending record could not be reached without a review of consumer loans; and c. Any other information the institution chooses to provide, such as small business loans secured by nonfarm residential real estate, home equity loans not reported for HMDA, unfunded commitments, any information on loans outstanding, and loan distribution analyses conducted by or for the institution, including any explanations for identified concerns or actions taken to address them. 3. Identify the volume, both in number and dollar amount, of each type of loan being evaluated that the institution has made or purchased within its assessment area. Evaluate the institution’s lending volume considering the institution’s resources and business strategy and other information from the performance context, such as population, income, housing, and business data. Note whether the institution conducts certain lending activities in the institution and other activities in an affiliate in a way that could inappropriately influence an evaluation of borrower or geographic distribution. 4. Review any analyses prepared by or for and offered by the institution for insight into the reasonableness of the institution’s geographic distribution of lending. Test the accuracy of the data and determine if the analyses are reasonable. If areas of low or no penetration were identified, review explanations and determine whether action was taken to address disparities, if appropriate. 5. Supplement with an independent analysis of geographic distribution as necessary. As applicable, determine the extent to which the institution is serving geographies in each income category and whether there are conspicuous gaps unexplained by the performance context. Conclusions should recognize that institutions are not required to lend in every geography. The analysis should consider: Test a sample of loan files to verify the accuracy of data collected and/or reported by the institution. In addition, ensure that: a. b. Affiliate loans reported by the institution are not also attributed to the lending record of another affiliate subject to CRA. This can be accomplished by requesting the institution to identify how loans are attributed and how it ensures that all the loans within a given lending category (e.g., small business loans, home purchase loans, motor vehicle, credit card, home equity, other secured, and other unsecured loans) in a particular assessment area are reported for all of the institution’s affiliates if the institution elects to count any affiliate loans; All consumer loans in a particular loan category have been included when the institution collects and maintains the data for one or more loan categories and has elected to have the information evaluated. Loans reported as community development loans (including those originated or purchased by consortia or third parties) meet the definition of community development loans. Determine whether community development loans benefit the institution’s assessment area(s) or a broader statewide or regional area that includes the institution’s assessment area(s). Except for multifamily loans, ensure that community development loans have not also been reported by the institution or an affiliate as HMDA, small business or farm, or consumer loans. Review records provided to the institution by consortia or third parties or affiliates to ensure that the amount of the institution’s third party or FDIC Consumer Compliance Examination Manual — September 2015 a. (Excluding affiliate lending) the number, dollar amount, and percentage of the institution’s loans located within any of its assessment areas, as well as the number, dollar amount, and percentage of the institution’s loans located outside any of its assessment areas; b. The number, dollar amount, and percentage of each type of loan in the institution’s portfolio in each geography, and in each category of geography (low-, moderate-, middle-, and upper-income); c. The number of geographies penetrated in each income category, as determined in step (b), and the total number of geographies in each income category within the assessment area(s); XI–4.3