Intermediate Small Bank Procedures Flashcards
What two tests are ISBs evaluated under?
The small bank lending test and the community development test.
ISBs are not required to collect and report CRA data for ____ ____, _____ ____, and _____ _____ ____.
Small business, Small farm, and community development loans.
True or false:
CRA allows ISBs and Small banks to opt for an evaluation using Large bank lending, investment, and service tests.
True, provided the data is collected and reported.
When evaluating CD loans, investments and services under the CD test, examiners will review what two things?
Any info a bank may provide, including the results of any assessment of community development needs and opportunities, if conducted by the bank.
Performance context obtained from community, govt, civic or other resources.
What three areas should be incorporated into all ISB PEs?
- Total # and $ of CD loans, investments, and services
- A determination of the opportunity and need for CD activities
- An analysis of the bank’s capacity to meet the Community development needs of the AA including the use of quantitative performance measures.
The PE should include what two things regarding the total # and $ of CD loans, investments and services?
- the total # and $ of CD activities on an annual basis.
- complete listing of loans, investments, and services by CD category (affordable housing, economic dev, etc)
The PE should include what three things regarding the determination of the opportunity and need for CD activities?
- Info on any self-assessment performed by the bank
- Info on current economic and demographic conditions
- Activities of similarly situated banks based on a review of recent public evaluations and info from community contacts.
The PE should include what information regarding the analysis of the bank’s capacity to meet CD needs of the AA including the use of quantitative performance measures?
- Ratio of CD loans to net loans
- Ratio of CD investments to total investments or total assets
- Any other performance ratios which support the analysis.
For interstate institutions, a minimum of one assessment area from each ___, and a minimum of one assessment area from each _____ _____, must be reviewed using the full scope
examination procedures.
State
Multistate MSA/MD
To determine which areas should be given a full scope review what factors should be considered? (8)
- Retail lending and CD opportunities in each AA, particularly in areas where the need for credit and CD activities is significant
- Level of bank activities in the different AAs, including LMI areas, disaster areas, or distressed and underserved areas.
- Number of other banks in the AAs and the importance of the examined bank in serving the different AAs, particular in areas with few providers of credit services.
- existence of anomalies in the reported data for each AA
- length of time since last full scope review
- bank’s prior CRA performance in each AA
- examiner knowledge of same or similar areas
- comments from the public on the bank’s performance.
For interstate institutions, a rating must be assigned for each ___ where the bank has a ____ and for each ____ ____ where the bank has branches in ___ or more states.
State
Branch
Multi-state MSA/MD
Two
Reviewing PEs from similarly situated institutions can help identify what? (3)
- lending and CD opportunities available in the bank’s AA that are compatible with the bank’s business strategy
- Constraints affecting the opportunities to make safe and sound retail loans, CD loans, qualified investments and services compatible with the bank’s business strategy.
- Successful CRA related product offerings or activities utilized by other lenders serving the same or similar AAs.
What components should be considered when determining similarly situated institutions? (4)
- size
- financial condition
- product offerings
- business strategy
When reviewing a bank’s assessment area examiners should review what to ensure the AA is in compliance? (6)
Ensure it:
a. Consists of one or more MSAs/MDs or contiguous
political subdivisions (e.g., counties, cities, or towns);
b. Includes the geographies where the institution has its
main office, branches, and deposit-taking ATMs, as
well as the surrounding geographies in which the
institution originated or purchased a substantial
portion of its loans;
c. Consists only of whole census tracts;
d. Consists of separate delineations for areas that extend substantially across MSA/MD or state boundaries
unless the assessment area is located in a multistate
MSA/MD;
e. Does not reflect illegal discrimination; and
f. Does not arbitrarily exclude any low- or moderate income area(s), taking into account the institution’s size, branching structure, and financial condition.
What should examiners assess if the bank’s AA does not coincide with the boundaries of an MSA/MD or political subdivision?
assess whether the adjustments to the
boundaries were made because the assessment area would otherwise be too large for the institution to
reasonably serve, have an unusual configuration, or
include significant geographic barriers
What should examiners do if the assessment area fails to comply with the applicable criteria required of an AA?
develop, based on
discussions with management, a revised assessment area(s) that complies with the criteria. Use this assessment area(s) to evaluate the institution’s
performance, but do not otherwise consider the
revision in determining the institution’s rating.
What is evaluated under the lending test? (4)
- LTD ratio
- In and out ratio
- Distribution of credit (GD and BP)
- Complaints
How is the average LTD ratio calculated for the LTD ratio analysis?
From data contained in Call Reports or UBPRs, calculate
the average loan-to-deposit ratio since the last examination by adding the quarterly loan-to-deposit ratios and dividing by the number of quarters.
What should be analyzed under the LTD ratio analysis? (3)
- calculate the average LTD ratio
- determine if LTD ratio is reasonable in light of performance context (comparison to similarly situated institutions, demographic and economic factors, lending opportunities available all in AA)
- If unreasonable, consider if number and dollar of loans sold on secondary market compensates for low LTD.
What should be reviewed/considered when determining the adequacy of the in and out ratio? (2)
- review HMDA data or other reports to determine extent of lending in and out of AA (if unavailable or unverifiable use sample guidelines)
- If percentage of loans/ lending activities in the AA is less than the majority then it does not meet standards for “satisfactory”. Consider performance context (economic conditions, loan demand, bank size, financial condition, branching/business strategy) to determine effect of not meeting this criterion. on the overall rating.
What should be reviewed/considered when evaluating geographic distribution, under the distribution of credit evaluation of the PE? (4)
- determine if number and income distribution of geographies in the AA is sufficient for meaningful analysis of geographic distribution.
- If meaningful and Geo Data is available, determine distribution of bank’s loans in the AA by low, moderate, middle, and upper income geographies.
- identify any areas or groups of geographies where there is little to no loan penetration.
- if low penetration consider performance context when drawing conclusions
What should be reviewed/ considered when evaluating Borrower profile under the distribution of credit evaluation of the PE? (3)
- to the extent that borrower income information is collected by the bank in ordinary course of business, determine distribution of loans in AA by borrower income and business revenues.
- identify categories of borrowers by income or business revenue for which there is little or no loan penetration.
- if low penetration, consider performance context when drawing conclusions.
If an analysis of geographic information would not be meaningful or borrower income/business revenue information is not available for analysis what can be done as an alternative analysis?
- consider using proxies for analysis of the bank’s distribution of credit.
ex: street address, loan size
What performance context should be considered when drawing conclusions about low penetration in the distribution of credit within the AA (GD and BP)? (5)
- Info about the bank’s size, branch network, financial conditions, supervisory restrictions and prior CRA record.
- info from discussions with management, LOs and members of the community.
- info about economic conditions in the AA.
- info about demographics of particular geographies that could impact loan demand (existence of prison or college)
- info about other lenders serving the same or similar AA.
What should be reviewed or considered when evaluating complaints? (3)
- review all complaints related to the bank’s CRA performance (should be in the public file) and those received by agencies.
- if any complaints, evaluate the bank’s record of responding to written complaints.
- document the total number of complaints and resolutions with examples that illustrate the bank’s nature and responsiveness to and resolution of complaints.
What adjectives/conclusion should be used for each rating of LTD ratio? (4)
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
What are the four possible ratings for and ISB under CRA?
Outstanding
Satisfactory
Needs to improve
Substantial noncompliance
What adjectives/conclusion should be used for each rating of assessment area concentration? (4)
O: A substantial majority of loans and other lending related activities are in the bank’s assessment area.
S: majority
N: A majority of loans and other related activities are outside the bank’s assessment area.
SN: substantial majority
What adjectives/conclusion should be used for each rating of Geographic Distribution? (4)
O: The geographic distribution of loans reflects excellent dispersion throughout the assessment area
S: Reasonable
N: Poor
SN: very poor
What adjectives/conclusion should be used for each rating of Borrower Profile? (4)
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
N: Poor
SN: very poor
What adjectives/conclusion should be used for each rating of Response to Substantiated complaints? (4)
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
What procedures should examiners follow when evaluating a bank under the community development test? (4)
- Identify # and $ of bank’s CD loans, investments, and services. (can include CD loans from affiliates, consortia “participations” and third parties)
- Verify CD activities qualify as community development
- if the bank wishes to include lending activities from affiliates, by consortia, or through third parties review bank records to ensure the CD loans claimed by the bank do not account for more than its share of the total loans originated by the consortium or third party.
- With performance context in mind, form conclusions about the bank’s:
- -volume of CD loans and Investments
- -extent of CD services
- -responsiveness to the opportunities for CD activities (needs of the area)
When determining the bank’s responsiveness to CD opportunities and needs in the AA, what should examiners consider? (3)
- Results of any assessment of CD needs and opportunities provided by the bank.
- examiner’s review of performance context
- whether the amount and combination of CD loans, CD investments, and CD services along with qualitative aspects are responsive to community needs and opportunities.
What adjectives/conclusion should be used for each rating under the CD test? (4)
O: The institution’s community development performance demonstrates excellent responsiveness to community development needs in its assessment area(s) through community development loans, qualified investments, and community development
services, as appropriate,
considering the institution’s
capacity and the need and
availability of such opportunities for community development in the institution’s assessment
area(s)
S: Adequate responsiveness
N: Poor responsiveness
SN: Very Poor Responsiveness
How should the assessments of each AA be grouped in the PE?
By MSA and non-MSA areas within each state where the bank has branches.
If the bank has branches in two or more states of a multi-state MSA group the AAs in the multi-state MSA
If two or more AAs in an MSA or non-MSA portion of a state received full scope reviews, what should examiners consider when weighting the different AAs? (4)
a. The significance of the institution’s activities in each compared to the institution’s overall activities;
b. The retail lending and community development opportunities in each;
c. The importance of the institution in providing loans and community development activities 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.
When developing overall conclusions and ratings for CRA, how should examiners evaluate AAs that did not receive a full scope review?
Consider facts and data related to the bank’s lending and CD activities to ensure that performance in those AAs is not inconsistent with the conclusions given to full scope AAs.
For banks operating only in one multistate MSA or state how many ratings should be assigned?
One (overall rating)
A rating should be assigned in each ____ in which the bank has at least ____ branch and for each ______ ____ in which the bank has branches in ___ or more states.
State
One
Multi-state MSA
Two
What is the definition of a satisfactory overall rating?
“Satisfactory” if the institution’s performance is rated as “Satisfactory” in each test.
What is the definition of an overall Needs to improve or Substantial non-compliance rating?
“Needs to Improve” or “Substantial Noncompliance,” depending upon the degree to which the institution’s performance has failed to meet the standards for a “Satisfactory” rating on a test; or
What is the definition of an overall Outstanding rating?
“Outstanding” if the institution is rated an ”Outstanding” on both tests; or “Outstanding” on one test and the extent to which the institution meets or exceeds the “Satisfactory” criteria on the other test.
What analysis should be performed with regard to the Discrimination or other illegal credit practices section?
Review the results of the most recent compliance examination and determine whether evidence of discriminatory or other illegal credit practices should lower the institution’s overall CRA rating or, if applicable, its CRA rating in any state or multi-state MSA.
If evidence of discrimination or other illegal credit practices in any geography by the institution, or in any
assessment area by any affiliate whose loans were considered as part of the institution’s lending
performance, was found, what should examiners consider when drawing conclusions? (4)
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 that 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.
How should examiners determined the number of assigned ratings required for an ISB? (2)
Assign a final rating for the institution as a whole and, if applicable, each state in which the institution has at least one branch and each multi-state MSA in which it has branches in two or more states, considering:
a. The institution’s preliminary rating; and
b. Any evidence of discriminatory or other illegal credit practices.
Where are public files and public file notices required to be maintained?
- Branches must display an accurate public notice in their lobbies
- A complete public file is required to be available in the bank’s main office and at least one branch in each state.
What is the required content of the public file for an ISB? (8)
- Public comments about CRA performance from the last two calendar years.
- most recent CRA PE
- Map of each AA with boundaries and geographies (can be on a separate list)
- List of bank branches, branches opened and closed during current and last two years (street addresses and geographies required)
- list of services (loan/deposit products, transaction fees, hours of operation) and any material differences in availability or cost of services at each location.
- LTD ratio for each quarter of the prior calendar year.
- Quarterly report of the bank’s efforts to improve its record if it received a less than sat rating during most recent CRA exam.
- HMDA disclosure statements for prior two calendar years for the bank and each non-depository affiliate the bank elected to include in the CRA assessment, if applicable.
