The OCC's CRA
Performance Evaluation (PE) listed the following factors in support
of the bank's rating:
- Lending
patterns show conspicuous gaps in lending in low- and
moderate-income (LMI) geographies which are predominately
African-American and Hispanic neighborhoods;
- The geographic
distribution of loans originated show very poor lending penetration
in LMI geographies; and
- Lending levels
reflect very poor responsiveness to assessment area credit
needs.
The PE
designated the performance ratings as "substantial non-compliance"
for the Lending Test and "low satisfactory" for the Investment and
Service Tests. The PE
also noted, consistent with the CRA regulation, that the Lending
Test is weighted more heavily than the Investment and Service Tests
when arriving at a composite CRA rating. The bank believed that each
of the three performance ratings should have been higher than
assigned during the examination, and that the overall rating should
have been "satisfactory record of meeting community credit
needs."
Discussion
The evaluation
of a bank's CRA activities requires a full understanding of the
performance context in which it operates. The performance context
considers the economic condition and demographics of the assessment
area, competition, and the types of products and services offered by
the bank. While the CRA
activities of other similarly situated financial institutions are
considered, bank-by-bank comparisons are not a component of the
overall rating process.
The
ombudsman's analysis included a review of the issues highlighted in
the bank's appeal letter, the Report of Examination, the PE, and all
supporting documentation.
Additionally, extensive discussions were held with
appropriate bank management and OCC supervisory
personnel.
The Lending
Test
The Lending
Test evaluates a bank's record of helping to meet the credit needs
of its assessment area(s) through its lending activities by
considering a bank's home mortgage, small business, small farm, and
community development lending.
Based upon the ombudsman's analysis of the bank's lending
performance during this evaluation period, it was clear that there
were conspicuous gaps in lending, particularly, in LMI
geographies. The
lending gaps identified during the examination were inclusive of
small business, home mortgage, home improvement, and community
development loans.
Further review of the Home Mortgage Disclosure Act (HMDA)
data indicated that lending opportunities did exist within these
same geographies.
The bank's
limited offering of HMDA products and a lack of marketing efforts
had affected its ability to effectively compete with other lenders
within these geographies.
Therefore, because of the significance of a potential SNC
rating, the ombudsman expanded the analysis to include retail
(non-HMDA) lending products for the same evaluation period.
The ombudsman
carefully reviewed the Lending Test analyses, related information
contained in the examiners' working papers, and the additional data
provided by the bank.
In considering all loan products, the ombudsman found that
the volume of the bank's lending within its assessment area to LMI
geographies essentially mirrored the examination findings. The inclusion of retail
(non-HMDA) products was not a significant factor. Some material conspicuous
gaps in both lending and in the origination of loan applications
remained, particularly in LMI geographies.
Comparing all
findings with the Lending Test rating guidelines and after a
detailed and extensive assessment of all the facts and
circumstances, the ombudsman concluded that the bank's performance
under the Lending Test was more appropriately reflective of a "needs
to improve" rating and not the "substantial non-compliance" rating
as assigned in the PE.
The Investment
Test
The Investment
Test evaluates a bank's record of helping to meet the credit needs
of its assessment area(s) through qualified investments that benefit
its assessment area(s) or a broader statewide or regional area that
includes the bank's assessment area(s).
The ombudsman
performed a detailed review of the examiners' findings, supporting
working papers and information contained in the appeal and provided
by the bank. Most
notable was the bank's investment in and support of two local
community development corporations. Qualified investments in
these types of organizations are consistent with the CRA. The regulation further
encourages banks to make investments that are innovative, complex,
and not routinely provided by the private sector. While the bank had some
participation in qualified investments, the ombudsman determined
that the bank's investment activity did not represent innovative
and/or complex transactions or investments that are not routinely
provided by private investors.
As a result of a detailed analysis of all documentation, and
the application of the CRA Investment Test rating guidelines, the
ombudsman concluded that the "low satisfactory" rating assigned in
the PE was appropriate.
The Service
Test
The Service
Test evaluates a bank's record of helping to meet the credit needs
of its assessment area(s) by analyzing both the availability and
effectiveness of a bank's systems for delivering retail banking
services and the extent and innovativeness of its community
development services.
The ombudsman
performed a detailed review of the examiners' findings, supporting
working papers and information contained in the appeal and provided
by the bank. The
ombudsman recognized and considered the other efforts the bank has
made relative to the service test including alternative product
delivery systems, the introduction of debit cards, and the opening
of a new branch in a moderate-income geography. However, as a result of a
detailed analysis of all documentation, and application of the CRA
Service Test rating guidelines, the ombudsman concluded that the
"low satisfactory" rating assigned in the PE was
appropriate.
Conclusion
The intent of
CRA is to encourage banks to help provide credit products and
services throughout its assessment area, including LMI geographies
and individuals. While
the ombudsman recognized the bank's efforts in general, its overall
performance was poor, specifically under the Lending
Test.
Owing to the
heavier weighting of the Lending Test in the overall rating process,
the "needs to improve" Lending Test rating consequently changed the
bank's overall CRA rating from the "substantial non-compliance
record of meeting community credit needs" to a "needs to improve
record of meeting community credit needs." A revised
CRA
PE was prepared to reflect these
changes and forwarded to the bank by the supervisory
office.