CRA Evaluation Examples from the FDIC & OCC

Both the FDIC and the OCC recently released their list of financial institutions that were evaluated for the Community Reinvestment Act (CRA), as well as the corresponding CRA ratings.  By law, the agencies are required to regularly publish this data and it is always insightful as to what examiners might be looking for when it comes to CRA.

In fact, I strongly believe that one of the best ways to understand CRA is to read the performance evaluations of other financial institutions, specifically those that are rated Outstanding and Substantial Noncompliance.  These two extreme ratings help us to understand things that get a bank credit for CRA as well as things that will get a bank in trouble.

The most recent CRA evaluations were pretty straightforward with the vast majority having the typical rating of Satisfactory.  The OCC had four Outstanding ratings and did not have any ratings below Satisfactory. On the other hand, the FDIC conducted approximately three times as many CRA performance evaluations than the OCC but only issued one Outstanding rating, though they did also issue two Needs to Improve ratings.

OCC CRA Performance Evaluations

The OCC released a list of twenty-four banks reviewed for CRA compliance during this most recent period.  Of these, twenty were rated Satisfactory and four were rated Outstanding.

The first Outstanding rating rating worth noting was assigned to The First National Bank of Fairbury, a $143 million community bank located in NE.  One key takeaway from this performance evaluation is that this small bank chose to be evaluated under the optional Community Development (CD) test. The CD test is not required for small banks, but this bank had exceptional community development contributions, such as 2,861 service hours from five bank employees, which helped them to achieve an Outstanding rating on their evaluation.  The bank received a Satisfactory rating on their lending test, but received an overall rating of Outstanding due to their Outstanding rating on the Community Development test.

The second Outstanding rating worth noting was assigned to the First National Bank of Groton, a 175.9 million community bank headquartered in Groton, New York.  This small bank has two somewhat unique approaches to their business model that helped them to achieve an Outstanding rating. First, the bank’s borrowers tend to be low - or moderate-income persons.  While the bank’s assessment areas reflect a limited percentage of low- and moderate-income individuals, the bank has originated over 60% of consumer loans to low- and moderate-income individuals as well as a fairly substantial amount of mortgage loans.  The second thing worth noting is that the bank offers loan products that meet the demands of their low- and moderate-income customer base including, direct mobile home financing as well as short-term time/demand notes. These time/demand notes can be and are often renewed multiple times in one year and occasionally beyond, but each time only after discussions, review, and contact between the lender and borrower.  The performance evaluation notes that this is a somewhat costly approach, but it meets the credit needs of the customer base as the bank often makes these low-dollar loans - sometimes in amounts below $1,000 - to meet the needs of customer who may not have any other financing options for these types of loans.

The final Outstanding rating worth noting comes from the Conway National Bank.  This large bank has total assets of about $1.1 billion with fifteen total branches.   One item worth noting in their lending test is that the bank uses flexible lending practices to serve the credit needs of its assessment area.  The bank does not have any minimum loan amounts for consumer, mortgage, or small business loans and the bank utilizes flexible underwriting criteria including utilizing an applicant’s history of making utility and rental payments.  Furthermore, the bank participated in a state-specific federal program where qualified borrowers can receive assistance to get caught up on past due mortgage loan payments. The bank’s Community Development test reflected that approximately 61 bank personnel provide leadership and banking expertise to approximately 50 community development organizations.  In addition, approximately 30 bank personnel provided financial literacy training for 17 schools serving primarily low- and moderate-income students.

FDIC CRA Performance Ratings

For this most recent period, the FDIC conducted approximately 75 CRA performance evaluations.  If these, one bank was given an Outstanding rating, while two banks were provided a rating of Needs to Improve.  

The FDIC’s sole Outstanding rating came from the Cambridge Savings Bank.  This large bank has total assets of approximately $3.5 billion and operates fourteen full-service brick and mortar branches.  Under the lending test, it is worth noting that the bank utilized innovative and flexible lending programs to assist the meeting the credit needs of its assessment area.  Specifically, by utilizing mostly government-related subsidies and guarantees, the bank received credit for originating 289 innovative and flexible loans, totaling approximately $59.7 million to both individuals and businesses.  These innovative and flexible loan products included several different first-time homebuyer programs, a Freddie Mac program that offers low down payments to low- and moderate-income homebuyers, and two small business lending programs such as an SBA program.  In addition to substantial Community Development lending and investments, the bank also had several items worth noting in their Service test. First, as the bank operates in a very diverse areas, they employ approximately thirty-eight individuals who speak at least one language outside of English including Arabic, Armenian, Cantonese and Mandarin Chinese, Greek, Hindi, Russian, Spanish, and American Sign Language.

Both of the FDIC’s Needs to Improve ratings both came from Pensacola, FL.  The first Needs to Improve rating was issued to the Bank of Pensacola while the second Needs to Improve rating was given to the Bank of the South.  Both of these banks are owned by the same holding company, Five Flags Holding Company, Inc. The Bank of Pensacola has two full-service branches with approximately $82.2 million in assets, including just $27.8 million in total loans.  The bank’s loan-to-deposit ratios averaged only 36.7 percent over the past nine quarters. Furthermore, the bank did not extend any automobile loans in low- or moderate-income census tracts, although the bank did extend two home mortgage loans in moderate-income census tracts.

The Bank of the South appears to be substantially similar to the Bank of Pensacola as this two-branch bank has approximately $78 million in assets but retains only $18 million in total loans. The result is a less than reasonable average loan-to-deposit ratio of 25.54% over the past nine calendar quarters.

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