Background
The
board appealed the OCC supervisory office's decision to assign a CRA
performance rating of "needs to improve." The board disagreed with
this rating because they believed they were penalized for their
strategy to seek lending activities outside of their assessment area
(AA). Management
believed that this endeavor improved their ability to lend within
their market by offering fixed-rate loans. However, this practice
resulted in a majority of the current lending activities taking
place outside of their delineated AA, an area more narrowly focused
than their generally targeted market. The OCC supervisory office
stated that the "needs to improve" rating was based on poor lending
levels within the bank's delineated AA. They also stated that, while
the bank had the capacity and opportunity to help meet the
residential and business credit needs in their AA, management
directed lending activities to a market 60 miles away.
Discussion
The
ombudsman conducted a review of the information submitted by the
bank and support documentation from the supervisory office. The review included meetings
with the bank's senior management team as well as with members of
the supervisory office.
The
OCC concluded that the CRA rating was based on poor lending levels
within the bank's AA.
Although there were opportunities to help meet credit needs
in the bank's AA, management's decision to pursue a lending strategy
to purchase brokered, fixed-rate loans resulted in a very low level
of lending within the AA.
The number and dollar amounts of reportable Home Mortgage
Disclosure Act loans and commercial loans originated in the AA were
29 percent and 36 percent, respectively, for the evaluation
period. Management
entered into the mortgage broker relationship to improve
profitability by expanding its servicing portfolio (servicing loans
sold in the secondary market) and also to retain some of the
mortgages to replace existing mortgages refinanced elsewhere.
Conclusion
The
ombudsman gave consideration to the cumulative factors listed in the
CRA performance evaluation, the performance context, and
management's supporting documentation, including their
acknowledgement of additional lending opportunities existing within
the AA. As a result of
his review, the ombudsman opined that the rating assigned by the
supervisory office at the time of the examination was appropriate.