Background
A formal appeal was received regarding a
supervisory office's denial of a bank's application to open a fully
constructed and staffed branch. The following summarizes,
chronologically, the pertinent details that led to the
denial.
On September 23, 1993, applications were filed
with the Office of the Comptroller of the Currency (OCC) for a bank
to open two branches (Branch A and Branch B). A month later, the OCC
commenced an on-site Community Reinvestment Act (CRA) examination of
the bank. This examination resulted in a rating of "Needs to Improve
Record of Meeting Community Credit Needs" as documented in the
bank's December 20, 1993 Performance Evaluation
(PE).
In April 1994, the bank received preliminary
approval to open Branches A and B, subject to the satisfaction of
two conditions:
(1) The bank's
submission of a comprehensive program designed to improve CRA
performance as set forth in separate correspondence between the OCC
and the bank's board of directors; and,
(2) The bank's CRA
performance returning to a "Satisfactory Record of Meeting Community
Credit Needs"
The examiners met with representatives of the
bank in May to discuss the bank's CRA program. In June, they again
met with the bank to discuss the bank's program. In addition, the
bank provided the examiners with a written update of the bank's CRA
compliance efforts/ Bank management stated that they felt the
examiners were favorably impressed with the compliance efforts
undertaken by the bank.
Additional updates were provided to the examiners throughout
the remainder of the year.
On June 23, 1994, the
examiners met with the board of directors of the bank and, according
to the bank, indicated that if the bank were to be examined that
day, the rating would be "satisfactory." On July 14, the bank filed
an application to open an additional branch (Branch C). A month
later, the OCC Supervisory Office granted official authorization to
establish Branch C without imposing any conditions, despite the
bank's existing CRA rating of "Needs to Improve." In October, the
bank began construction on Branch A.
On January 2, 1995, the
OCC commenced an on-site compliance examination at the bank. The OCC
concluded the on-site portion of the examination on February 2. On
February 23, the bank notified the Supervisory Office that it had
completed the construction and staffing of Branch A and planned to
open it on March 11.
The Supervisory Office
notified the bank by telephone on February 24 that the authorization
for opening Branch A would not be given because the examiners'
preliminary conclusion was that the bank would be assigned a "Needs
to Improve" CRA rating. On March 9, the Supervisory
Office notified the bank by letter that because the bank had not
been able to satisfy the April 1994 conditions, the branch could not
be opened on March 11, 1995, as planned.
Discussion and Conclusion
The OCC's current
corporate policy on banks with a less than a satisfactory CRA rating
is detailed in a Bank Organization and Structure (BOS) memorandum
dated August 15, 1990, "Corporate Decisions for Banks with Less than
Satisfactory CRA Performance (Replaces BOS 89-2 and paragraph (5) of
BOS 88-11)." The memorandum was revised to provide guidance for
handling certain corporate fillings from banks with less than
satisfactory CRA performance. Changes were necessary because of
amendments to CRA resulting from the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA). Amendments to CRA
required the OCC to (1) prepare a written evaluation of a bank's CRA
record upon completing an examination, and (2) make that evaluation
public for examinations started on or after July 1, 1990. The policy
for actions on filings from banks with less than satisfactory CRA
performance was revised as follows:
Conditional
approval will generally be granted to applications from banks rated
"needs to improve" under the new system or rated 3 under the old
system. Applications from banks rated 5 under the old system of
"substantial noncompliance" under the new system generally warrant
denial. For banks with CRA rated 4 under the old system, conditional
approval or denial may be appropriate, depending on the
circumstances of the case.
When
conditional approval is granted, OCC will grant final approval only
after applicants satisfy conditions and improve performance to a
satisfactory level. Satisfactory performance must
be substantiated by a publicly available written evaluation.
OCC will
generally not allow applicants to use commitments to improve
performance to overcome a less than satisfactory CRA record. An
exception to this rule is made for the acquisition of a troubled
financial institution. Conditional approvals are not workable in
this situation, since consummation cannot wait until CRA performance
has improved. Approval of the Deputy Comptroller for BOS is required
before a bank with a less than satisfactory CRA rating can bid for a
failing institution. (Districts can request approval of the Deputy
Comptroller for BOS by telephone or E-mail.)
Cases with
final recommendations that conflict with this policy should be
forwarded to
Washington for decision.
Because the Supervisory
Office had never formally changed the bank's CRA rating from "Needs
to Improve," as published in the bank's December 20, 1993 Public
Evaluation, the Supervisory Office did not follow corporate policy
when granting official authorization for Branch C to open
unconditionally.
The OCC is currently
conducting a new CRA examination at the bank. If the examination
again results in a less than satisfactory rating, the bank will be
precluded from further expansion of corporate activity until CRA
performance has been upgraded to a satisfactory level, as described
in a new PE. Exceptions could be considered for proposals which
would enhance the bank's CRA performance.
In evaluating the
appeal, after reviewing the corporate policy, the ombudsman found
that because the bank's CRA rating had remained "Needs to Improve"
since the October 1993 examination, only two options existed to
allow the bank to open the branch:
(1) Demonstrate that the bank's
actual CRA performance was deserving of an assigned rating of better
than "Needs to Improve," as documented in a PE. However, the
Supervisory Office had not finalized the January 1995 Report of
Examination or CRA performance evaluation.
(2)
Demonstrate that Branch A specifically, or other actions planned by
the bank, will measurably enhance the bank's CRA performance by
providing expanded access to its services for underserved low-to
moderate-income areas within the bank's delineated community.
During the review of the
appeal, bank officials met with the ombudsman and several senior
officials of the OCC to present a Service Accessibility Plan for the
bank. The plan established a framework that technically complied
with option two listed above and satisfied senior OCC bank
supervision managers. Accordingly, the ombudsman decided to reverse
the Supervisory Office decision to deny the opening of the branch.
Note: This decision
relates only to this branch. Consistent with established interagency
guidelines, approval will not be granted on any additional corporate
applications subject to CRA, until the bank's performance under CRA
has been rated "satisfactory." The satisfactory rating for the bank
must be in a published CRA performance evaluation. The Supervisory
Office will consider, on an exception basis, corporate applications
in which the bank is able to demonstrate that the filing will
enhance the bank's CRA performance.
APPEAL OF FOIA DISCLOSURE DETERMINATION
(Fourth Quarter 1995)