Background
A formal appeal was received requesting changes
to the public comment section of the Community Reinvestment Act
(CRA) examination report.
The bank did not appeal the "Needs to Improve" rating. Management argued that the
comments under Assessment Factor C stating that the Board of
Directors had not provided a methodology for self-assessment were
incorrect. Management also contended that
the issue of self-assessment was not mentioned by the OCC prior to
the bank's receipt of the report of examination and the formal board
meeting, the bank's letter cited the following as evidence that a
self-assessment program was in effect:
- The bank's
records reflect that the internal auditor of the bank holding
company performed a self-assessment in 1993.
- In 1994,
the bank holding company's Audit Review Committee (ARC) retained
an external audit firm to perform a compliance examination
including a review of CRA compliance.
- The bank
collected the necessary data to track its loan application,
declination, and origination records during the years 1993 and
1994.
- In 1994,
the bank's auditor periodically reported the status of CRA mapping
developments to the ARC.
The bank's chairman of the board regularly attends ARC
meetings, and several other board members are also members of the
committee.
Discussion
This is the second
consecutive "Needs to Improve" CRA rating for the bank, the bank is
owned by a two-bank holding company. The ARC of the holding
company has regularly discussed CRA activities during meetings, as
noted in the minutes.
Three of the five members of the ARC are directors of the
bank, and the chairman of the bank attends the meetings
regularly. However, minutes of the bank's board of directors meeting do
not incorporate the CRA discussions held by the Audit Review
Committee.
The OCC supervisory
office accurately stated that the bank is a separate legal entity
from the holding company.
Its
directors must ensure that they actively and effectively monitor the
banks CRA performance and that the bank's board minutes document
that performance.
The Ombudsman
reviewed the information submitted by the bank and the OCC. The bank's answers to the
CRA questionnaire submitted before the examination reflect that the
bank had taken several steps to complete a self-assessment: (1) In
January 1993 and January 1994, the bank conducted assessments to
determine the credit needs of the delineated community; (2) geocoded
loan data were prepared in 1993 and 1994; and (3) color-coded
mapping of the loan data was being processed in 1994. The previous CRA report of
examination reflected that the board had designed a number of
reasonable written programs to guide the bank's CRA process;
however, the programs had not been fully implemented. The report of examination also
showed that the bank had made a geographic analysis of its lending
patterns.
The external audit
firm retained by the bank in 1994 stated in its report that the
auditors did not see evidence of a self-assessment being performed
internally or by an outside entity other than the OCC. The report goes on to state that
the consultant was told that geocoded loan data were in the
possession of an outside group for the purpose of analysis and
mapping.
During the most
current examination, the OCC completed the bank's assessment of
lending performance using the geocoded loan distribution data that
had been collected by the bank. Management committed to completing a self-assessment with 90
days.
Conclusion
The Ombudsman found
that there was sufficient information indicating that the board of
directors did have a program to assess how the bank was meeting the
purpose of the CRA.
Four of the six bank board members are regularly involved in
the bank holding company's Audit Review Committee, which had
discussed CRA self-assessment activities and provided for external
reviews. These
discussions, however, had not been entered into the bank's board
minutes. The bank had spent resources to
gather geocoded loan distribution information but analysis of the
data was delayed because of problems with mapping software.
The Ombudsman agrees
that the bank's self-assessment had not been fine-tuned and
completed at the time of the report of examination. Nevertheless, the board did
have a program and had started a self-assessment; in the future,
such self-assessment activities should be documented in the bank's
board minutes. The OCC supervisory office will modify the comments under
Assessment Factor C in the public section of the report of
examination to reflect that the board had initiated but not
completed a self-assessment.