CRA and Small Bank Procedures

Question 1

What is the purpose of CRA?

Answer 1

To encourage depository institutions to help meet the credit needs of communities in which they operate, including LMI neighborhoods, consistent with safe and sound banking practices.

Question 2

What are the different types of institutions under CRA? (6)

Answer 2

• Small
• ISB
• Large
• Limited purpose
• Wholesale
• Strategic plan

Question 3

Asset size determined for each institution classification as of what date?

Answer 3

Asset size is determined as of December 31st of the prior two calendar years.

Question 4

How often are the asset thresholds adjusted, which determines the PE method to be performed by examiners?

Answer 4

The FFIEC adjusts them annually.

Question 5

What is the asset size threshold for a small institution ?

Answer 5

A Small institution means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.322 billion.

2022 ($1.384 billion)
2023 ($1.504 billion)

Question 6

What is the asset size threshold for a ISB? (2021)

Answer 6

An Intermediate small institution means a small institution with assets of at least $330 million as of December 31 of both of the prior two calendar years, and less than $1.322 billion as of December 31 of either of the prior two calendar years.

2022 (at least $346M and less than $1.384B)
2023 (at least $376M and less than $1.503B)

Question 7

True or false:

Since there is no CRA loan data requirement for an intermediate small institution, its next examination is under the intermediate small institution examination procedures even if that examination comes due during the institution’s first year as an intermediate small institution.

Answer 7

True

Therefore if an bank were to meet the asset threshold and have an evaluation prior to the two calendar year requirement, then they would still be examined using ISB procedures.

Question 8

What is the asset size threshold for a large institution? (2021)

Answer 8

A Large institution has total assets of at least $1.322 billion for December 31 of both of the prior two years

2022- $1,.384B

Question 9

True or false:

Large institutions are subject to CRA data collection requirements. Thus, they cannot be examined under the large institution examination procedures until they have at least one full year of data collected.

Answer 9

True

Question 10

Any size institution may opt to be examined as a ____ institution provided it has collected and reported the required CRA ____ ____.

Answer 10

Large

Loan Data

Question 11

What procedures should be used for the following bank during the 2021 evaluation period?

Based on 2021 asset thresholds

total assets 2019: $290MM
total assets 2020: $340MM

Answer 11

Small institution

Institution did not have assets of at least $330 million as of December 31 of both of the prior two calendar years.

Question 12

What procedures should be used for the following bank during the 2021 evaluation period?

Based on 2021 asset thresholds

Total Assets 2019: $925MM
Total Assets 2020: $1.025B

Answer 12

ISB

Institution had assets of at least $330 million as of December 31 of both of the prior two calendar years, and less than $1.322 billion as of December 31 of either of the prior two calendar years.

Question 13

What procedures should be used for the following bank during the 2021 evaluation period?

Based on 2021 asset thresholds

Total assets 2019: $1.025B
Total Assets 2020: $1.325B

Answer 13

ISB

Institution had assets of at least $330 million as of December 31 of both of the prior two calendar years, and less than $1.322 billion as of December 31 of either of the prior two calendar years.

Question 14

What procedures should be used for the following bank during the 2021 evaluation period?

Based on 2021 asset thresholds

Total Assets 2019 $1.325B
Total Assets 2020 $1.500B

(Assuming they have a full calendar year of collected data)

Answer 14

Large Bank

Institution had total assets of at least $1.322 billion as of December 31 of both of the prior two years.

Question 15

What are the five performance criteria under the small bank lending test?

Answer 15

1. The institution’s loan-to-deposit ratio adjusted for seasonal variation and, as appropriate, other lending related activities such as secondary market participation, community development loans or qualified investments;
2. The percentage of loans and other lending-related activities located in the institution’s assessment area(s);
3. The distribution of lending among borrowers of different income levels and businesses and farms of different sizes;
4. The distribution of lending among geographies of different income levels; and
5. The institution’s record of taking action, if warranted, in response to written complaints about its CRA performance.

Question 16

Are small institutions eligible for an outstanding rating?

Answer 16

Yes Outstanding as well as Satisfactory.

Examiners may conclude the bank’s performance exceeds the standards for a SAT under the 5 criteria. Additionally, at the bank’s option an examiner can consider the bank’s qualified investments and services to determine if a bank merits the rating of outstanding.

Question 17

For a small bank, what should an examiner consider if the bank’s LTD ratio is low?

Answer 17

They should evaluate the bank’s lending related activities, such as loan sales and CD lending and investments to determine if they materially supplement the lending performance as reflected in its average net LTD ratio.

Question 18

For a small bank with more than one AA, examiners should identify areas for a full scope review.

What factors should be considered when determining if an AA should have a full scope review?(8)

Answer 18

• Lending opportunities
• Lending activity in the AAs (LMI geography, disaster areas, and distressed or underserved areas)
• Number of other banks in the AA and importance of the bank being reviewed in serving the area (particularly in areas with few providers of financial services)
• existence of anomalies in HMDA data for an AA.
• length of time since the AA received a full scope review
• prior CRA performance
• examiner knowledge of the area
• Comments in the public file.

Question 19

Areas are designated as distressed or underserved based on what factors? (2)

Answer 19

Rates of poverty, unemployment and population loss.

Population size, density and dispersion.

Question 20

For interstate institutions (small bank) a rating must be assigned for each ___ where the bank has a ____ and for each____ ___ or __ where the bank has branches in two or more states that comprise that multi-state MSA/MD.

Answer 20

State

Branch

Multi-state MSA or MD

ex: First Bank of Greenwich - 3 rated areas, CSA overall rating, CT rating, and NY rating.

Question 21

When reviewing a bank’s AA what should be reviewed to ensure the AA is in compliance with the regulation? (6)

(small bank procedures)

Answer 21

They should ensure the AA:

• Consists of one or more MSAs/MDs or contiguous political subdivisions (counties, cities, or towns)
• includes the geographies where the bank has its main office, branches, and deposit taking ATMS. As well as, surrounding geographies where the bank originated or purchased a substantial portion of its loans.
• consists of only whole CTs
• Consists of separate delineations for areas that extend substantially across MSA/MD or state boundaries unless the AA is in a multi-state MSA/MD.
• does not reflect illegal discrimination
• does not arbitrarily exclude LMI areas, taking into account the bank’s size branching structure, and financial condition.

Question 22

If a bank’s AA fails to comply with the applicable criteria, what should examiner’s do?

(small bank procedures)

Answer 22

-develop based on discussions with the bank a revised AA that complies with the criteria. Use this AA to evaluate the bank’s performance.

Do not consider the revision in determining the rating.

Question 23

Small bank procedures: how do you calculate the average net LTD ratio?

Answer 23

Since the last examination, add the quarterly net LTD ratios and divide by the number of quarters.

Question 24

What should be done if the in an out ratio data is not available or comprehensive, or if the accuracy cant be verified?

Small bank procedures

Answer 24

Use sample guidelines to select a sample of loans originated, purchased or committed to calculate the percentage by number and dollar amount located within the AA.

Question 25

Under small bank procedures, can the in and out ratio rating be a satisfactory if the percentage of lending activity in the bank’s AA is less than a majority?

Answer 25

No it would not meet the standards for a satisfactory.

Consider the performance context when determining if this would impact the overall CRA rating.

Question 26

Under Small bank procedures is the distribution of credit (GD and BP) required to be reviewed for every CRA PE?

Answer 26

No

Only if the number and income distribution of geographies in the AA is sufficient for a meaningful analysis of the bank’s distribution of loans in the area.

If an analysis would not be meaning full or data is unavailable consider analyzing using a proxy, such as street address rather than geography or loan size rather than income or revenues.

Question 27

Are small institutions expected to lend in every geography for the GD analysis?

Answer 27

No

Question 28

Under small institution procedures, if a bank has low geographic distribution performance, what should examiners consider? (5)

Answer 28

Performance context including:

• bank size branch network, financial condition, supervisory restrictions, and CRA record.
• info from discussions with the bank and community contacts.
• economic conditions in the AA.
• demographics that could affect loan demand (existence of prison or college)
• info about other lenders service the same or similar AA.

Question 29

What should be included in the PE regarding complaints?

Small bank procedures

Answer 29

• total number of complaints and resolutions

- examples the illustrate the nature, responsiveness to, and resolution of the complaints.

Question 30

How can an evaluation of a bank’s investments and services be used under Small bank procedures?

Answer 30

Only at the bank’s option to improve a satisfactory rating.

Performance with respect to qualified investments and services may enhance the overall rating of “Satisfactory” but cannot be used to lower a rating that otherwise would have been assigned.

Question 31

Under Small bank procedures, what should examiners consider regarding investment activities if the bank opts to have it reviewed to improve the rating? (3)

What about services (record of providing branches and other services and delivery systems that enhance credit availability in the AA)? (4)

Answer 31

Investments:

• Dollar amount of qualified investments by type and location
• impact of those investments on the AA
• innovation and complexity of the investments

Services:

• number of branches and ATMs in the AA
• Number of branches and ATMs readily accessible to LMI tracts compared to those located in or near middle and upper tracts.
• type and level of services offered at branches and ATMs, and alternative delivery systems.
• bank’s record of opening and closing branches.

Question 32

How should ratings and analyses be grouped?

Answer 32

By MSAs, MDs, and nonmetropolitan areas within each state.

If a bank has branches in two or more states in a multistate MSA, group the assessment areas that are in that MSA.

Question 33

What should examiners consider when determining which assessment areas to give more weight? (4)

Answer 33

a. The significance of the institution’s activities in each compared to the institution’s overall activities;
b. The lending opportunities in each;
c. The importance of the institution in providing loans to each, particularly in light of the number of other institutions and the extent of their activities in each; and
d. Demographic and economic conditions in each.

Question 34

What should be considered/what level of analysis should be performed on AAs that receive a limited scope review?

Answer 34

Consider facts and data related to the bank’s lending to ensure that performance in those AAs is not inconsistent with the conclusions based on the AAs that received a full scope review.

Question 35

Assign one of the four preliminary ratings—“Satisfactory”, Outstanding”, “Needs to Improve”, and “Substantial Noncompliance”—for each ____ in which the institution has at least ___ branch and for each ________ ____
in which the institution has branches in two or more states.

Answer 35

State

One

Multi-state MSA

If the bank operates in only one state or one multistate MSA only one overall rating will be assigned.

Question 36

When should examiners assign a satisfactory rating under the small bank matrix?

Answer 36

if the institution’s performance meets each of the standards for a satisfactory rating or if exceptionally strong performance with respect to some of the standards compensates for weak performance in others;

Question 37

When should examiners assign a needs to improve or substantial noncompliance rating to a small bank?

Answer 37

if the institution’s performance fails to meet the standards for “Satisfactory” performance. Whether a rating is “Needs to Improve” or “Substantial Noncompliance” will depend upon the degree to which the institution’s performance has failed to meet the standards for a “Satisfactory” rating;

Question 38

What are the four possible ratings under the small bank matrix?

Answer 38

Outstanding
Satisfactory
Needs to Improve
Substantial noncompliance

Question 39

When should examiners assign an outstanding under small bank procedures?

Answer 39

If the institution meets the rating descriptions and standards for “Satisfactory” for each of the five core criteria, and materially exceeds the standards for “Satisfactory” in some or all of the criteria to the extent that an “Outstanding” rating is warranted, or if the institution’s performance with respect to the five core criteria generally exceeds “Satisfactory” and its performance in making qualified investments and providing branches and other services and delivery systems in the assessment area(s) supplement its performance under the five core criteria sufficiently to warrant an overall rating of “Outstanding”.

Question 40

For an institution with branches in more than one state or multi-state MSA, assign a preliminary rating to the institution as a ___ taking into account the institution’s record in different ___ or ____ ______.

Answer 40

whole

States

Multi-state MSAs

Question 41

Under Small bank procedures, what would be considered evidence of discriminatory or other illegal credit practices? (5)

Answer 41

• Discrimination against applicants on a prohibited basis in violation of ECOA or FHA
• Violations of the Home ownership and equity protection act
• Violations of UDAP
• Violations of Section 8 of RESPA
• Violations of TILA regarding a consumer’s right of rescission.

Question 42

Under Small bank procedures, when reviewing if Discrimination or other illegal credit practices will impact a rating, what should be considered? (4)

Answer 42

Review the results of the most recent compliance exam and if discrimination or other illegal credit practices exist consider:

a. The nature, extent, and strength of the evidence of the practices;
b. The policies and procedures that the institution (or affiliate, as applicable) has in place to prevent the practices;
c. Any corrective action the institution (or affiliate, as applicable) has taken, or has committed to take, including voluntary corrective action resulting from self-assessment; and
d. Any other relevant information.

Question 43

Under small bank procedures, examiners should assign a final rating for the institution as a ____ and if applicable, each ___ in which the bank has at least ___ branch and each ____ ____ in which it has branches in ___ or more states.

Answer 43

Whole

State

one

Multi-state MSA

Two

Question 44

When assigning final ratings, examiners should consider what two things?

Small bank

Answer 44

The bank’s preliminary rating

Any evidence of discriminatory or other illegal credit practices.

Question 45

Where must a bank’s public file be made available? (2)

Answer 45

• Public file notice must be available in each branch lobby

- Complete public file in the bank’s main office and at least one branch in each state

Question 46

What information is required to be included in the bank’s public file? (8)

Small Bank

Answer 46

• CRA comments and complaints and bank responses from current and preceding two calendar years
• Most recent CRA PE
• Map of each AA showing its boundaries and the geographies within the AA.(can be in a separate list)
• List of bank branches with addresses and geographies, and any branches opened or closed in the current or preceding two calendar years
• HMDA disclosure statement for the prior two calendar years if applicable.
• LTD ratio for each quarter of the prior calendar year.
• Quarterly report of bank’s efforts to improve its record if it received a less than satisfactory rating during its most recent CRA review
• List of services (loan and deposit products and fees generally offered, hours of operation at branches) and any material differences in availability or cost of services among locations.

Question 47

Under small bank procedures, what are the rating adjectives for LTD ratio?

Answer 47

O:The loan-to-deposit ratio is more than reasonable (considering seasonal variations and taking into account lending related activities) given the institution’s size, financial condition, and assessment area credit needs.

S: Reasonable

N: Less than Reasonable

SN: Unreasonable

Question 48

Under Small Bank procedures, what are the rating adjectives for AA concentration?

Answer 48

O:A substantial majority of loans and other lending related activities are in the institution’s assessment area(s).

S: majority

N: A majority of loans and other lending related activities are outside the institutions AA.

SN: Substantial majority Outside

Question 49

Under Small Bank procedures, what are the rating adjectives for Borrower Profile?

Answer 49

O:The distribution of borrowers reflects, given the demographics of the assessment area(s), excellent penetration among individuals of different income levels (including low- and moderate- income) and businesses of different sizes.

S: Reasonable penetration

N: Poor penetration

SN: Very Poor Penetration

Question 50

Under Small bank procedures, what are the rating adjectives for Geographic Distribution?

Answer 50

O: The Geographic distribution of loans reflects excellent dispersion throughout the assessment area(s).

S: Reasonable Dispersion

N: Poor dispersion

SN: very poor dispersion

Question 51

Under Small bank procedures, what are the rating adjectives for Response to Complaints?

Answer 51

O: The institution has taken noteworthy, creative action in response to substantiated complaints about its performance in meeting assessment area credit needs.

S: appropriate action

N: inadequate action

SN: unresponsive to

Question 52

Under Small bank procedures, what are the rating adjectives for Investments and services?

Answer 52

Only possible ratings are outstanding.

Investments:

O: The institution’s investment record enhances credit availability in its assessment area.

Services:

O: The institution’s record of providing branches, ATMs, loan production offices, and/or other services and delivery systems enhances credit availability in its assessment area(s)