federal reserve bank of san francisco community development june 8, 2015 webinar hosted by pacific...

F E D E R A L R E S E RV E B A N K O F S A N F R A N C I S C O

C O M M U N I T Y D E V E L O P M E N T

J U N E 8 , 2 0 1 5

W E B I N A R

H O S T E D B Y

PA C I F I C C O A S T A F F O R D A B L E H O U S I N G N E T W O R K

Understanding the CRA and How it May Benefit Your Organization

Craig Nolte, Regional Manager, Community DevelopmentFederal Reserve Bank of San Francisco

FRB San Francisco Community Development

2

Today’s Agenda

Purpose & Goals for Webinar Introduction to CRA Working with Financial Institutions – CRA Officers CRA Resources Overview Questions


3

This Webinar

Focus will be on CRA for housing organizations Let’s make this conversational – ask questions Feel free to contact me later


What Is CRA?4

CRA Statute --12 USC 2901 (Reg. 12 CFR 25)Enacted to prevent redlining – geographic lawEncourages financial institutions to help meet the credit needs

of all segments of their communities, including low- and moderate-income (LMI) neighborhoods, consistent with safe and sound operations of the institution.


5

What is CRA?

The CRA requires regulators of federal financial institutions to assess the record of each bank and thrift in helping to fulfill their obligations to the community and to consider that record in evaluating applications for charters or for the approval of bank mergers, acquisitions, and branch openings

Enforced under Regulation BB

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=b2445f90793a7550e47b9609efef326e&rgn=div5&view=text&node=12:3.0.1.1.9&idno=12


6

What is CRA?

CRA applies to federally insured depository institutions, national banks, thrifts, and state-chartered commercial and savings banks

The federal financial institution regulators are: Board of Governors of the Federal Reserve System (FRB) Federal Deposit Insurance Corporation (FDIC) Office of the Comptroller of the Currency (OCC) ; and

http://www.federalreserve.gov/

http://www.fdic.gov/

http://www.occ.treas.gov/


7

What is CRA?

Banks are evaluated based on asset size: Small Banks (under $300 million)* Intermediate Small Banks (ISB) ($300 million to $1.202

billion)* Large Banks (assets over $1.202 billion) Wholesale & limited purpose banks Banks with approved CRA strategic plans

*These thresholds are updated annually.


8

Why are CRA Ratings Important?

Regulators must take into account the bank’s record of helping to meet the community credit needs when considering any corporate or licensing action.

Examples include: Branching, mergers, acquisitions, consolidations


9

CRA History

CRA was amended in 2005 to focus on impact and: Community development definition expanded – activities

that revitalize or stabilize - applies to ALL BANKS Distressed or Underserved non metropolitan middle-income

geographies Designated disaster areas , as designated by FEMA

Large bank threshold raised to $1 billion New category of bank established - intermediate small bank Relationship of fair lending violations to CRA rating

clarified

http://www.ffiec.gov/cra/pdf/2010distressedorunderservedtracts.pdf

http://www.fema.gov/news/disasters.fema

http://www.fema.gov/news/disasters.fema


10

CRA History

Effective January 6, 2009: Participation in foreclosure prevention programs Investments in nationwide community development

funds Investments in minority- or women-owned financial

institutions and low-income credit unions Intermediate Small Bank’ affordable home mortgage

loans and small business and small farm loans may be considered as CD loans


11

Key Definitions Assessment Area

Each bank is evaluated on how well it serves its “assessment area”

Assessment area: Geographies in which bank has its main office,

branches, and deposit taking ATMs Surrounding areas where bank has originated or

purchased a substantial portion of its loans Must consist of “whole geographies”


12 Key Definitions Performance Context

A bank’s performance is judged in the context of information about the bank and its Assessment Area, includingo Demographic data on median income levels, distribution of household

income, nature of housing stock, housing costs and other relevant data Lending, investment and service opportunities The bank’s product offerings and business strategy, capacity and

constraints, past performance and the performance of similarly situated lenders

The bank’s public file and any written comments about the bank’s CRA performance

Any other relevant information


13

Key Definitions

LMI

Low- and Moderate-Income (LMI) is based on area median income (AMI) of a geography, based on census data Low-income: < 50% of median income Moderate-income: 50% - < 80% of median income Middle-income: 80% - < 120% of the median income Upper-income: 120% or more of the median income

AMI - annual income figure for which there are as many families with incomes below that level as there are above that level For metro areas use the MSA’s Median Family Income For rural areas use the Statewide

Non-metropolitan Median Family Income


14

Key Definitions Small Business/Farm

Small business loan – to enterprise with gross annual revenues of $1 million or less

Small business loan - loan with an original amount of $1 million or less

Small farm loan – to farm with gross annual revenues of $1 million or less

Small farm loan - loan included in “loans to small farms” as defined in the instructions for preparation of the Call Report with an original amount of $500 thousand or less


15

Key Definitions Community Development

Affordable Housing for LMI individuals; Community services targeted to LMI individuals; Activities that promote economic development by financing

small business/farms. Area Revitalization and Stabilization

Low- or moderate-income geographies; Designated disaster areas; or Distressed non-metropolitan middle-income geographies Underserved non-metropolitan

middle-income geographies


16

Key Definitions Qualified Investment

Lawful investment, deposit, membership share, or grant that has community development as its primary purpose

Examples: Financial intermediaries that lend in LMI areas or to LMI

individuals in order to promote community development Organizations that promote economic development by

financing small business Facilities that promote community development in LMI areas

for LMI individuals Projects eligible for low-income

housing tax credits.


17

Types of CRA Examinations

Exam Types Large Bank Intermediate Small Bank (ISB) Small Bank

http://www.ffiec.gov/cra/examinations.htm

http://www.ffiec.gov/cra/examinations.htm


18

Small Bank Test

Banks with assets under $300 million (small banks)

Examination Criteria:

1. Loan to deposit ratio

2. Lending inside and outside of the assessment area

3. Distribution of loans by geography

4. Distribution of loans by borrower income and revenue size

5. Responses to CRA related complaints


19

ISB and Large Bank Test

Banks with assets between $300 million and $1.202 billion are “intermediate small banks” or referred to as “ISBs.” Examination combines small bank test and Community

Development.

Large Bank exam criteria: Lending Test Investment Test Service Test


20

Large Bank Performance Standards

Lending Test Lending Activity

Number and dollar amount of loans Geographic distribution Borrower characteristics Community development lending Innovative/flexible lending practices

Community development (CD) test Community development loans must have community

development as their primary purpose and benefit a banks’s assessment area or a larger area that includes the bank’s assessment area.


21


Service test Has as its primary purpose community development. Is related to the provision of financial services to LMI people,

including through branches and other facilities in LMI areas.

Examples: Providing technical assistance on financial matters to nonprofit,

tribal or government organizations serving LMI housing or economic revitalization and development needs.

Serving on a board of organizations facilitating affordable housing construction and rehabilitation or development of affordable housing.

Developing and teaching financial education curricula for LMI individuals.


22


Investment test Qualified Investments are lawful investments, deposits, membership

shares, or grants that have community development as their primary purpose

Must meet one of four components of community development definition

Investments must benefit the financial institution’s assessment area or a broader statewide or regional area that includes the assessment area

Examiners will assess the following: Dollar amount, Innovativeness or complexity, Responsiveness, Whether they routinely provided by private investors.


23

CRA Ratings

A bank’s record of meeting community needs is considered during an application review for a merger, acquisition, or branching

Outstanding Satisfactory Needs to Improve Substantial Noncompliance


24

CRA Officer’s Responsibilities

Review Exam Request LetterKnow their bank's AA(s)Check CRA public files to make sure

information is up to datePerform a self assessment (not required)Document any important performance

context issues – ensuring that the bank understands its market


25

More CRA Officer Steps

Document all items to be considered for community development credit

Know the bank’s primary products

Prepare a communication plan– either one bank liaison, or

a list of bank contacts


26

Working with CRA Officers

What banks are looking for in partners:CapacityProven PerformanceSustainabilityAssessment and ResponsivenessInnovation Target Market PenetrationRecordkeeping and Accountability


27

Working with CRA Officers

Keeping the CRA Officer as a Good Partner

1. Provide reports on the impact of the bank’s assistance (#individuals served through housing development and other services, positive impact on community,

2. Communicate other CRA opportunities – with/outside your organization – local redevelopment plans

3. Organize media opportunities where the bank and your housing organization can share its story

4. Be available to talk to bank examiners about your partnership with the bank

5. Make available demographic and other info about your community


28

Bank Decision Factors

Assessment AreaRiskCostResponse to assessed needBusiness/skill alignmentLeverageValue to overall CRA strategy/portfolioBusiness development potential


29

Steps in Developing a CRA Strategy

Step 1. Understand CRA Performance Evaluation Criteria (i.e. Small Bank vs. ISB vs. Large Bank) Step 2. Assess bank performance context

Step 3. Assess community credit needs

Step 4. Match bank products, services with community

credit needs


30

Assessing Bank Performance Context

Identify and build on bank capacity, strengths and business model

Track economic and demographic trends in your community its housing stock, costs and income levels

Read local revitalization plans, such as HUD consolidated plans and those reports prepared by the Federal Home Loan Banks and others to help determine community credit needs

Develop a peer analysis of similarly situated institutions

Catalogue CD opportunities to lend, invest or provide services

Competitive Analysis What are other banks doing?


31

Assessing Community Credit Needs

Review written reports and publications on credit needs and programs to serve LMI families.

Become knowledgeable of reports by entities that specifically research and analyze policies affecting LMI populations and underserved areas.

Explore needs of the least-served areas, where opportunities may be greatest and the competition is least.

Compare and contrast products and services provided by the bank against the areas served.


32

Matching Bank Products and Services with Community Credit Needs

Compare the bank’s lending focus, its economic and performance context, and its products and services to community credit needs.

Use government loan programs as resources to enhance lending opportunities and to manage and mitigate lending risk.


33

Developing CRA Goals and Objectives

Performance Benchmarks based on the bank’s business model:

Lending Mortgage Lending Small Business/Small Farm Lending Consumer Lending Community Development Lending

Investments Qualified Community Development Investments

Services Qualified Community Development Services


34

CRA Goals and Objectives

Understand and communicate the role and function of CD activities

CD products generate revenue. CD initiatives can expand a bank’s market. CD initiatives may complement existing product lines. CD risks can be mitigated and managed

Consider costs!


35

CRA Strategy Development

Conclusion, a strong CRA Strategy:

Is by plan and not by chance Is founded on facts and research May be integrated into a bank’s business plan


36

Resources

FFIEC Community Reinvestment Act Page

http://www.ffiec.gov/cra/Federal Reserve Bank CRA Guide

http://www.dallasfed.org/ca/epersp/2007/4_2.cfmFFIEC CRA Q & As

http://www.fdic.gov/news/news/press/2009/E8-31116.pdf

http://www.ffiec.gov/cra/

http://www.dallasfed.org/ca/epersp/2007/4_2.cfm

http://www.fdic.gov/news/news/press/2009/E8-31116.pdf

FRB San Francisco Community Development 37

QUESTIONS

federal reserve bank of san francisco community development june 8, 2015 webinar hosted by pacific...

Documents

cra history cra

cra statute

cra history effective

cra ratings important

banks record

community credit needs

national banks

approved cra strategic