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A community bank appealed its Community Reinvestment Act (CRA) rating of "needs to improve" assigned by the supervisory office. The PE (PE) stated that the bank's lending performance was in need of improvement, and that the loan-to-deposit (LTD) ratio was les than reasonable, given the bank's size, financial condition, capacity to lend, and assessment area credit needs. It also stated that the public was not aware of the loan products offered by the bank, bank management had a reputation for conservative lending practices, and the community perception was that submitting a loan application would be futile.
The appeal focused on the LTD ratio component of the CRA evaluation process. The bank believed the LTD ratio was reasonable given the demographics, economic factors, and limited lending opportunities in the area.
The CRA regulation performance standards' criteria for evaluating a small bank's record of helping to meet the credit needs of its community include an evaluation of the bank's LTD ratio adjusted for seasonal variations and, as appropriate, other lending-related activities, such as loan originations for sale to the secondary markets, community development loans, or qualified investments, the reasonableness of the ratio is assessed considering the performance context in which the bank operates including its size, financial condition, and assessment area credit needs. This ratio is one indicator of a bank's ability and willingness to help meet the assessment area's credit needs.
The OCC recognizes that every bank is unique in its own right and evaluates each bank's CRA performance based on the context in which it operates. In reviewing the bank's performance in their assessment area, the ombudsman considered the following factors:
The performance context under which this bank operates is unique. It includes:
Therefore, considering the above factors the ombudsman opined that the bank's loan-to-deposit ratio was reasonable. In determining the appropriate overall CRA rating, the ombudsman also considered the following:
Based on the bank's performance context and the small bank performance criteria, the bank's performance under the Community Reinvestment Act was found to be more reflective of a "satisfactory" rating. In accordance with the regulation, the bank is helping to meet the credit needs of the communities in which it operates. A revised PE reflecting this change was forwarded to the bank from the supervisory office.
A large interstate bank filed a formal appeal concerning its Community Reinvestment Act (CRA) composite rating of "satisfactory record of meeting community credit needs"
(Satisfactory). Specifically, the bank appealed its lending test and service test ratings in one multi-state MSA and one state rating. The bank requested:
The bank offered four rationales to support its appeal for upgraded ratings. First, it felt that the selection of areas for a full-scope evaluation unfairly skewed the results of the examination, due to the recent merger and the additional assessment areas created. It also felt that more assessment areas within the one state should have received a full-scope review to provide a more balanced picture of the bank's performance in the state. Second, the bank stated that it had an even higher level of performance in the lending and service areas of community development than it had in the prior period when it was rated outstanding. Third, the bank felt its performance compared favorably to another large bank that had been rated outstanding during the same time period. Lastly, the bank provided additional investments made during the period that were inadvertently not provided to the examiners during the exam.
The bank's composite rating and ratings for the one state and multi-state MSA, in question, were based on the examiner's assignment of the following individual test ratings:
In evaluating a bank's lending performance, the OCC considers a bank's:
Performance Tests and Composite Ratings
Number and amount of home mortgage, small business, small farm and consumer loans, if applicable, in the bank's assessment area(s);
The ombudsman's analysis of bank and examination prepared work papers and the CRA Performance Evaluation (PE) identified that the bank:
Additionally, the ombudsman concluded that the descriptions of lending performance in the CRA PE were not consistent when describing similar performance among the various rating areas. Consequently, the PE provided a confusing picture of the bank's actual performance.
In evaluating a bank's investment performance, the OCC considers the:
The ombudsman's analysis of bank and examination prepared work papers and the CRA PE identified that:
In evaluating a bank's service performance, the OCC considers the:
The ombudsman agreed with the bank that the merged institution's data should not have been included in the evaluation of the bank's performance. Additionally, the examiners should have performed a full-scope review of more state assessment areas to better ascertain the bank's performance. However, the ombudsman concluded that altering the examination scope would not change the bank's state or composite rating.
The bank provided comparisons of its lending and investment data with that of another large bank. Comparing one bank's raw data to another bank's, without an appropriate context is difficult and does not necessarily result in being able to conclude that performance is similar or dissimilar. In the ombudsman's review, this bank's lending data was compared to nine other large banks examined during the same time period. The conclusion was that this bank's lending data was not inconsistent with other large banks that received a high satisfactory under the lending test.
Based on the above findings and others contained within the PE, the ombudsman concluded that some of the individual test ratings for the multi-state MSA, the state, and the bank overall should be upgraded.
Additionally, it was concluded that the merged institution's data should remain in the PE. The decision to leave the data in the evaluation was based on the bank having an assessment area in the applicable state prior to the merger. Accordingly, performance in the state would have to be rated and the inclusion of the merged institution's data did not negatively impact the bank's composite CRA rating.
Changing the examination scope in the state, in question, may have helped develop a better context in which to assess the bank's performance and provided more support for the rating assigned. However, analysis of this additional data would not change the state and composite ratings.
The revised ratings are reflected in the following table.
Performance Tests and Composite Ratings*
*Ratings in bold italic were upgraded.