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Federal Reserve Bank
of

Dallas

ROBERT D. McTEER, JR.
DALLAS, TE XAS

PR ES ID EN T

75265-5906

AND C H IE F E X EC U TIVE O FFICER

October 24, 1997

Notice 97-98

TO:

The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Interagency Questions and Answers
Regarding Community Reinvestment;
Request for Public Comment
DETAILS
The Consumer Compliance Task Force of the Federal Financial Institutions Exami­
nation Council (FFIEC) is supplementing, amending, and republishing its Interagency Questions
and Answers Regarding Community Reinvestment. The publication answers questions most
frequently asked about community reinvestment.
In addition, public comment is requested on the proposed questions and answers
concerning how to determine whether certain activities have a “primary purpose” of community
development. Public comment is also requested on the new and revised questions and answers,
particularly the guidance regarding home mortgage loans to middle- and upper-income individu­
als in low- or moderate-income areas.
The FFIEC must receive comments by December 5, 1997. Please address comments
to Joe M. Cleaver, Executive Secretary, Federal Financial Institutions Examination Council,
2100 Pennsylvania Avenue NW, Suite 200, Washington, DC 20037.
ATTACHMENT
A copy of the FFIEC’s notice as it appears on pages 52105-28, Vol. 62, No. 193 of
the Federal Register dated October 6, 1997, is attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

-2-

MORE INFORMATION
For more information, please contact Mary Clouthier at (214) 922-6307. For addi­
tional copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254.
Sincerely yours,

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

FEDERAL FINANCIAL INSTITUTIONS
EXAMINATION COUNCIL
Community Reinvestment Act;
Interagency Questions and Answers
Regarding Community Reinvestment

Federal Financial Institutions
Examination Council.
ACTION: Notice and request for comment.
AGENCY:

The Consumer Compliance
Task Force of the Federal Financial
Institutions Exam ination Council
(FFIEC) is supplem enting, amending,
and republishing its Interagency
Questions and Answers Regarding
Community Reinvestment. The
Interagency Questions and Answers
have been prepared by staff of the Office

SUMMARY:

of the Comptroller of the Currency
(OCC), the Federal Reserve Board
(Board), the Federal Deposit Insurance
Corporation (FDIC), and the Office of
Thrift Supervision (OTS) (collectively,
the “agencies”) to answ er m ost
frequently asked questions about
com m unity reinvestm ent. The
Interagency Q uestions and Answers
contain inform al staff guidance for
agency personnel, financial institutions,
and the public. Staff of the agencies seek
com m ent on the proposed questions and
answers concerning how to determ ine
w hether particular activities have a
“prim ary p u rpose” of com m unity
development. In addition, staff also
invite public com m ent on the new and
revised questions and answers,
particularly the guidance regarding
hom e mortgage loans to m iddle- and
upper-incom e individuals in low- or
m oderate-incom e areas.
DATES: Effective date of am ended
Interagency Q uestions and Answers on
Com m unity Reinvestment: October 6,
1997. The agencies request that
comm ents on the proposed questions
and answers be subm itted on or before
December 5, 1997.
ADDRESSES: Questions and comments
may be sent to Joe M. Cleaver, Executive
Secretary, Federal Financial Institutions
Exam ination Council, 2100

52105

Pennsylvania A venue NW., Suite 200,
W ashington, DC 20037, or by facsimile
transm ission to (202) 634-6556.
FOR FURTHER INFORMATION CONTACT:

OCC: M alloy Harris, National Bank
Examiner, Com munity and Consumer
Policy Division, (202) 874^1446; or
Margaret Hesse, Senior Attorney,
Comm unity and Consumer Law
Division, (202) 874-5750, Office of the
Comptroller of the Currency, 250 E
Street, SW., W ashington, DC 20219.
Board: Glenn E. Loney, Associate
Director, Division of Consumer and
Comm unity Affairs, (202) 452-3585; or
Robert deV. Frierson, A ssistant General
Counsel, Legal Division, (202) 4523711, Board of Governors of the Federal
Reserve System, 20th Street and
C onstitution Avenue, NW., W ashington,
DC 20551.
FDIC: Bobbie Jean Norris, National
Coordinator, Comm unity Affairs and
Comm unity Reinvestment, Division of
Compliance and Consumer Affairs,
(202) 942-3090; or A nn H ume Loikow,
Counsel, Legal Division, (202) 898—
3796, Federal Deposit Insurance
Corporation, 550 17th Street, NW.,
W ashington, DC 20429.
OTS: Theresa A. Stark, Project
Manager, Compliance Policy, (202) 9067054; or Richard R. Riese, Project
Manager, Compliance Policy, (202) 906-

52106

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

6134, Office of Thrift Supervision, 1700
G Street, NW., W ashington, DC 20552.
SUPPLEMENTARY INFORMATION:

Background
In 1995, the agencies revised their
Com munity Reinvestm ent Act (CRA)
regulations by issuing a joint final rule,
w hich was published on May 4, 1995
(60 FR 22156). See 12 CFR parts 25, 228,
345 and 563e, im plem enting 12 U.S.C.
2901 et seq. The agencies published two
notices of proposed rulem aking prior to
publishing the joint final rule. See 58 FR
67466 (Dec. 21, 1993); 59 FR 51232 (Oct.
7,1994). The agencies p ublished related
clarifying docum ents on December 20,
1995 (60 FR 66048) and May 10, 1996
(61 FR 21362).
On October 21, 1996, the Consumer
Compliance Task Force of the FFIEC
published “Interagency Questions and
Answers Regarding Community
Reinvestm ent” (hereinafter, Interagency
Questions and Answers) to provide
informal staff guidance for use by
agency personnel, financial institutions,
and the public. See 61 FR 54647. In the
supplem entary inform ation published
w ith the Interagency Questions and
Answers, the agencies’ staff requested
comments and indicated that they
intended to update the Interagency
Questions and Answers on a periodic
basis. 61 FR at 54648. This docum ent
supplem ents, revises, and republishes
that guidance based, in part, on
questions and com ments received from
examiners, financial institutions, and
other interested parties. The agencies
consider the Interagency Q uestions and
Answers to be their prim ary vehicle for
dissem inating guidance interpreting
their CRA regulations.
This docum ent includes new
questions and answers that: (1) Clarify
that not all activities that finance
businesses meeting certain size
eligibility standards necessarily promote
economic developm ent under the CRA
regulations; (2) make a technical
correction to one of the questions and
answers published in the original
Interagency Q uestions and Answers; (3)
explain how the Agencies’ examiners
evaluate hom e mortgage loans to
m iddle- and upper-incom e borrowers in
low- and m oderate-incom e areas under
the CRA regulations’ lending test; (4)
explain how a financial institution
should geocode a small business or
small farm loan w here the borrower
provides only a post office box or rural
route and box number; and (5) caution
that the A gencies’ quarterly publication
of a list of financial institutions that will
be exam ined for CRA com pliance is
subject to change. Finally, this

docum ent especially seeks comm ent on
the proposed questions and answers
concerning how to determ ine w hether
particular activities have a “prim ary
p u rpose” of com m unity development,
and also invites public com m ent on the
n ew and revised questions and answers.
A discussion of the revised and new
questions and answers follows.
Q uestions and answers are grouped by
the provision of the CRA regulations
th at they discuss and are presented in
the same order as the regulatory
provisions. The Interagency Questions
and Answers em ploy an abbreviated
m ethod to cite to the regulations.
Because the regulations of the four
agencies are substantively identical,
corresponding sections of the different
regulations usually bear the same suffix.
Therefore, the Interagency Questions
and Answers typically cite only to the
suffix. For example, the small bank
perform ance standards for national
banks appear at 12 CFR 25.26; for
Federal Reserve member banks
supervised by the Board, they appear at
12 CFR 228.26; for nonm em ber banks, at
12 CFR 345.26; and for thrifts, at 12 CFR
563e.26. Accordingly, the citation in
this docum ent w ould be to § ------.26. In
the few instances in w hich the suffix in
one of the regulations is different, the
specific citation for that regulation is
provided.
Do All Activities That Finance
Businesses Meeting Certain Size
Eligibility Standards Promote Economic
Development?
The CRA Regulations define the term
“com m unity developm ent” to include
“activities th at prom ote economic
developm ent by financing businesses or
farms that m eet the size eligibility
standards of the Small Business
A dm inistration’s Development
Company or Small Business Investm ent
Company programs (13 CFR 121.301) or
have gross annual revenues of $1
m illion or less.” 12 CFR 25.12(h)(3),
228.12(h)(3), 345.12(h)(3) and
563e.12(g)(3).
The October 1996 Interagency
Q uestions and Answers included a
question and answ er concerning
w hether all activities that finance these
businesses or farms prom ote economic
developm ent. That question and answer
(Q&A), Q&A1 addressing § § _.12(h)(3)
and 563e.12(g)(3), is being revised in
response to further questions and public
comments. The revised question and
answ er clarifies that to be considered as
“com m unity developm ent” u nder
§ § _.12(h)(3) and 563e.12(g)(3), a loan,
investm ent or service, w hether made
directly or through an interm ediary,
m ust m eet both a size test and a purpose

test. An activity meets the size
requirem ent if it finances entities that
either m eet the size eligibility standards
of the Small Business A dm inistration’s
Development Company (SBDC) or Small
Business Investm ent Company (SBIC)
programs, or have gross annual revenues
of $1 m illion or less. To meet the
purpose test, the activity m ust promote
economic development. An activity is
considered to prom ote economic
developm ent if it supports perm anent
job creation, retention, and/or
im provem ent for persons w ho are
currently low- or moderate-income, or
supports perm anent job creation,
retention, an d / or im provem ent in lowor moderate-incom e geographies
targeted for redevelopm ent by Federal,
state, local or tribal governments. The
agencies w ill presum e that any loan or
investm ent in or to a SBDC or SBIC
prom otes economic development.
Funding provided in connection w ith
other SBA programs may also promote
economic development; however,
examiners w ill make that determ ination
based on business types, funding
purposes, and other relevant
information.
Where Do Institutions Find Income
Level Data
In the October 1996 Interagency
Questions and Answers, Q&Al
addressing § § __.12(n) and 563e.l2(m)
contained an incorrect address for the
FFIEC’s internet home page. That
question and answer has been revised to
include the correct address: ‘h ttp://
www.ffiec.gov/’.
Home Mortgage Loans to Middle- and
Upper-Income Borrowers in Low- and
Moderate-income Areas
Several com m unity development
organizations have notified the agencies
of their belief that the CRA regulations
do not sufficiently recognize the efforts
of financial institutions that make home
mortgage loans to middle- or upperincome borrowers in low- or moderateincome areas. These community
organizations have suggested to agency
staff that lower-income geographies
should be developed into mixed-income
geographies, inhabited w ith residents of
all income categories.
For example, one com munity
organization described problems that its
com m unity encountered in
redeveloping an inner city area by
providing single family housing
affordable to low- and moderate-income
borrowers and other necessary services.
Although affordable housing was
provided, the com m unity had difficulty
attracting retail services. A commercial
developer considered building a

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
shopping center near a new, affordable
housing development, but determ ined
that the center w ould not be profitable
because of the lower level of disposable
income of m any of the low- and
moderate-income homeowners.
Consequently, the community
organization representative stressed
how im portant it is for future
developm ent that distressed areas being
revitalized attract residents of all
incom e levels.
The Agencies previously considered
the appropriate weight that should be
accorded lending in low- and moderateincom e areas to higher-incom e
borrowers. During the CRA reform
rulem aking process, however, the
agencies received public com m ent
opposed to a proposal that w ould have
evaluated an institution’s lending
prim arily based on its lending activities
in low- and moderate-incom e
geographies. See, e.g., 58 FR 67,466,
67,480 (December 21, 1993). Those
commenters opposed the proposal,
stating that it w ould inappropriately
have given institutions a greater
incentive to make loans to high-income
borrowers located in low-income
geographies than to make loans to lowincome borrowers located in highincome geographies. In response to
these comments, the final interagency
CRA regulations de-em phasized the
location of the loans under the lending
test by also evaluating lending based on
borrower characteristics, i.e., income.
Because of the num erous inquiries the
agencies have received since the final
rules were issued, agency staff are
adding new guidance addressing
§ __.22(b)(2) & (3), answering how home
mortgage loans to borrowers of all
incomes, but especially to m iddle- and
upper-incom e borrowers, located in
low- or m oderate-incom e areas w ill be
evaluated u n d er the CRA regulations’
lending test.
The new question and answ er
explains that examiners consider all
hom e mortgage loans u nder the
performance criteria of the lending test.
This m eans that examiners first evaluate
the institu tio n ’s lending activity based
on the num ber and am ount of home
mortgage loans in the in stitu tio n ’s
assessm ent area(s). Examiners next
evaluate the geographic distribution of
all of the institution’s hom e mortgage
loans based on the loan location,
including (1) the portion of the
institu tio n ’s lending in the in stitution’s
assessm ent area(s); (2) the dispersion of
lending in the institution’s assessm ent
area(s); and (3) the num ber and am ount
of loans in low-, moderate-, middle-,
and upper-incom e geographies in the
institution’s assessm ent area(s). Finally,

examiners evaluate these loans based on
borrower characteristics, i.e., the
num ber and am ount of hom e mortgage
loans to low-, moderate-, m iddle-, and
upper-incom e individuals.
The regulation, however, allows
examiners flexibility in judging the
appropriate consideration of loans to
m iddle- or upper-incom e individuals in
low- or m oderate-incom e areas. The
new question and answ er explains that
all of the lending test criteria m ust be
considered in light of an in stitution’s
perform ance context. The performance
context w ill determ ine the im portance
of the borrower distribution criterion,
particularly as it relates to the
geographic distribution of the loans. If
the performance context inform ation
indicates, for example, that the loans are
for homes located in an area for w hich
the local, state, tribal, or Federal
Government or a com m unity-based
developm ent organization has
developed a revitalization or
stabilization plan (such as a Federal
Enterprise Comm unity or Em powerm ent
Zone) that includes attracting mixedincom e residents to establish a
stabilized, econom ically diverse
neighborhood, the exam iner has the
flexibility to consider these loans as
favorably as loans to low- or moderateincome borrowers in the low- or
moderate-income geography. If, on the
other hand, no such plan exists and
there is no other evidence of
governm ental support for a
revitalization or stabilization project in
the area and the loans to m iddle- or
upper-incom e borrowers significantly
disadvantage or prim arily have the
effect of displacing low- or moderateincome residents, examiners may view
these loans sim ply as hom e mortgage
loans to m iddle- or upper-incom e
borrowers w ho h appen to reside in a
low- or m oderate-incom e geography and
weigh them accordingly in their
evaluation of the institution. Thus, the
perform ance context m ay significantly
influence how these loans affect an
institution’s performance.
Geocoding Addresses Consisting of Post
Office Boxes or Rural Routes and Box
Numbers
Staff from the agencies previously
provided guidance about how to
geocode (i.e., assign a census tract or
block num bering area for) small
business or small farm loans for w hich
the borrower provides an address
consisting of either a post office box
num ber or a rural route and box
num ber. See Interagency Staff CRA
Interpretive Letter, published as OCC
Interpretive Letter No. 729, (1995-1996
Transfer Binder) Fed. Banking L. Rep.

52107

(CCH), H 81-046 (June 14, 1996). In this
letter, staff indicated that, if an
institution could not obtain from its
small business or small farm borrower a
street address in addition to a rural
route and box num ber or post office box
num ber, the institution could collect
and report the location of the loan based
on the tow n, state, and zip code
provided by the borrower. The location
of the borrow er’s post office w ould
serve as a proxy for the location of the
small business or farm.
Staff have reconsidered this guidance
and are now providing a question and
answ er based on § _.42(a)(3) addressing
this issue. The revised guidance states
that, for purposes of 1997 data
collection and reporting, financial
institutions may rely on the guidance
provided in the interpretive letter if a
small business or sm all farm borrower
provides only a rural route and box
num ber or a post office box num ber as
its address. Thus, for 1997, institutions
may collect and report the location of
small business or small farm loans for
w hich the institution has been unable to
ascertain a street address, using the
location (i.e., the census tract or block
num bering area) of the borrow er’s post
office box as a proxy.
Because financial institutions
typically know w here their small
business or small farm borrowers, or the
collateral securing their loans, are
located, staff have provided new
instructions for 1998 data collection and
reporting purposes. Beginning in 1998,
financial institutions should request the
street address of small business and
small farm borrowers, even if the
borrower initially provides only a post
office box num ber or rural route and box
num ber. If no street address exists,
institutions should not use the post
office box as a proxy, but instead
geocode the census tract or block
num bering area as “NA.”
Is Publication of the List of Institutions
to be Examined in the Upcoming
Quarter Determinative of Whether an
Institution Will, in Fact, be Examined
in the Upcoming Quarter
Agency staff have added a new
question and answ er addressing § __.45
relating to the publication of the
institutions to be examined in the
upcoming quarter. The question and
answer clarifies that w hether or not an
institution is included on the published
list w ill not always indicate that the
institution w ill or w ill not be examined
in the upcom ing quarter. Although the
agencies will attem pt to ensure that the
published lists are as accurate as
possible, the agencies sometimes may
need to alter their examination plans.

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

Because of the potential for such
adjustm ents, staff urge all interested
members of the public to file comments
regarding the CRA performance of an
institution w hether or not the
institution has been scheduled for a
CRA examination.
Request for Comment and Proposed
Questions and Answers on Community
Development Explaining the “Primary
Purpose” for Community Development
Activities
The definitions of “com m unity
developm ent loan,” “com m unity
developm ent service,” and “qualified
investm ent” all require a “prim ary
purpose of com m unity developm ent.”
See 12 CFR 25.12(i)(l), (j)(l), and (s);
228.12(i)(l), (j)(l), and (s); 345.12(i)(l),
(j)(l), and (s); and 563e.12(h)(1), (i)(l),
and (r). The agencies have received a
num ber of inquiries about w hether
certain activities have the necessary
“prim ary p urpose” of com m unity
developm ent to qualify as a com m unity
developm ent loan, qualified investm ent
or com m unity developm ent service.
Some inquiries come from persons
interested in creating new com m unity
developm ent vehicles. These inquiries
typically ask w hat m inim um
characteristics should be designed into
a targeted loan, investm ent or service to
possess the necessary prim ary purpose.
In answering these questions, the
agencies have generally stated that a
“prim ary purpose” of com m unity
developm ent exists w hen the loan,
investm ent or service is divisible and
m easurable in terms of dollars, housing
units built, or countable individuals
benefited, and w hen an identifiable
majority of the dollars expended, units
built or individuals benefited is clearly
attributable to one of the com m unity
developm ent purposes enum erated in
the regulation.
However, this answ er does not
address other inquiries concerning
activities that are subject to certain legal
or market restraints, such that they do
not reach this threshold, yet often
display laudable com m unity
developm ent purposes and result in
real, long-term com m unity developm ent
benefits. In addition, m any of the
projects occur w ithin a performance
context that buttresses a conclusion that
the activity was “ designed for the
express purpose” of achieving a
qualifying com m unity developm ent
purpose, even though less than half the
dollars involved in the entire project
have been concentrated on that purpose.
Federal tax-incentive affordable housing
projects, w here less than half the units
or half the dollars go into the portion of
the project that represents affordable

housing for low- or moderate-income
persons, fall into this category.
A num ber of other inquiries are
characterized by a range of facts and
contexts. Given this variety, the
agencies recognize that many types of
endeavors have been devised to address
an array of com m unity developm ent
pursuits. In addition, the agencies have
observed that w ithin the broad range of
qualifying activities, distinctions can
and should be m ade among those
activities. Accordingly, in publishing
proposed guidance on “primary
purpose,” the agencies are also
providing additional comm entary that
em phasizes the quantitative and
qualitative distinctions that should be
made w hen applying the performance
criteria of the pertinent regulatory tests
to evaluate eligible com m unity
developm ent loans, qualified
investm ents or com m unity developm ent
services.
Proposed Q&A7 addressing § § _.12(i)
and 563e. 12(h) is based on the preamble
to the final rule as set forth at 60 FR
22,156, 22,159 (May 4, 1995), w hich
states that activities not designed for the
express purpose of com m unity
developm ent (as defined in the
regulation) are not eligible for
consideration as com m unity
developm ent loans or services or
qualified investm ents. The preamble
further states that the provision of
indirect or short-term benefits to low- or
m oderate-incom e persons does not
make an activity com m unity
development. In addition to
incorporating this pream ble language
into the Interagency Questions and
Answers, the answ er identifies the kind
of inform ation that w ould be reviewed
to determ ine w hether an activity was
designed for the express purpose of
com m unity development. The answer
adopts a sim plified threshold rule and
an alternative approach for finding
sufficient bases to conclude that an
activity possesses the requisite prim ary
purpose.
Agency staff are also proposing
additional questions and answers that
provide relevant guidance on the
evaluation of activities w hose prim ary
purpose is com m unity developm ent, as
w ell as the reporting of com m unity
developm ent loans. This additional
guidance em phasizes that once a loan or
investm ent is found to possess a
prim ary purpose of com m unity
developm ent, the evaluation of that
com m unity developm ent loan or
qualified investm ent u n d er the relevant
performance criteria w ould allow for
differentiation among those activities
based not only on the differing dollar
am ounts attributable to the underlying

com m unity developm ent purpose, but
also on the loan’s innovation or
com plexity u nder § __.22(b)(4) or the
investm ent’s innovation, complexity,
responsiveness or non-routine
characteristics u n der § __.23(e). In
addition, proposed Q&A3 addressing
§ __.42(b)(2) discusses w hether a loan
may be reported as a com m unity
developm ent loan if its prim ary purpose
is to finance an affordable housing
project for low- or m oderate-incom e
individuals, b u t only 40% of the units
in question w ill actually be occupied by
individuals or families w ith low- or
m oderate-incomes.
Staff request public com ment
particularly addressing w hether the
proposed prim ary purpose standard
over-inclusively qualifies activities as
having a com m unity developm ent
purpose, and, if so, is this adequately
balanced by the regulatory requirem ents
that allow marginal activities to be
w eighted less heavily than those
activities that provide a greater benefit
related to the com m unity developm ent
purpose or dem onstrate other
perform ance criteria, such as
innovation, complexity, or
responsiveness. Staff also invite
comm ent about w hether the proposed
guidance may result in excluding, as not
having a prim ary purpose of com m unity
developm ent, deserving endeavors.
S ectio n s__,12(i) & 563e. 12(h)
Proposed Q7
W hat is m eant by the term “prim ary
p u rp o se” as that term is used to define
what constitutes a co m m u nity
developm ent loan, a qualified
investm ent or a co m m unity
developm ent service?
Proposed A7
A loan, investm ent or service has as
its prim ary purpose com m unity
developm ent w hen it is designed for the
express purpose of revitalizing or
stabilizing low- or moderate-income
areas, providing affordable housing for,
or com m unity services targeted to, lowor m oderate-incom e persons, or
prom oting economic developm ent by
financing sm all businesses and farms
that m eet the requirem ents set forth in
§ § _.12(h) or 563e. 12(g). To determ ine
w hether an activity is designed for an
express com m unity developm ent
purpose, the agencies apply one of two
approaches. First, if a majority of the
dollars or beneficiaries of the activity
are identifiable to one or more of the
enum erated com m unity developm ent
purposes, then the activity w ill be
considered to possess the requisite
prim ary purpose. Alternatively, where

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
the m easurable portion of any benefit
bestow ed or dollars applied to the
com m unity developm ent purpose is less
than a majority of the entire activity’s
benefits or dollar value, then the activity
may still be considered to possess the
requisite prim ary purpose if (1) the
express, bona fide intent of the activity,
as stated, for example, in a prospectus,
loan proposal, or com m unity action
plan, is prim arily one or more of the
enum erated com m unity developm ent
purposes; (2) the activity is specifically
structured (given any relevant market or
legal constraints or performance context
factors) to achieve the expressed
com m unity developm ent purpose; and
(3) the activity accom plishes, or is
reasonably certain to accom plish, the
com m unity developm ent purpose
involved. The fact that an activity
provides indirect or short-term benefits
to low-or m oderate-incom e persons does
not make the activity com m unity
developm ent, nor does the mere
presence of such indirect or short-term
benefits constitute a prim ary purpose of
com m unity development. Financial
institutions that w ant examiners to
consider certain activities u n der either
approach should be prepared to
dem onstrate the activities’
qualifications.
S e c tio n _.22(b)(4)
Proposed Q l
W hen evaluating an in stitu tio n ’s
record o f co m m u nity developm ent
lending, m a y an exam iner distinguish
am ong com m un ity developm ent loans
on the basis o f the actual a m ount o f the
loan that advances the co m m un ity
developm ent purpose?
Proposed A l
Yes. W hen evaluating the institution’s
record of com m unity developm ent
lending under § __.22(b)(4), it is
appropriate to give greater w eight to the
am ount of the loan that is targeted to the
intended com m unity developm ent
purpose. For example, consider two $10
m illion projects (with a total of 100
units each) that have as their express
prim ary purpose affordable housing and
Eire located in the same com m unity. One
of these projects sets aside 40% of its
units for low-income residents and the
other project allocates 65% of its units
for low-income residents. An institution
w ould report both loans as $10 m illion
com m unity developm ent loans under
the § __.42(b)(2) aggregate reporting
obligation. However, transaction
complexity, innovation and all other
relevant considerations being equal, the
65% project w ould receive greater
positive consideration under the

lending test than the 40% project. The
65% project provides more affordable
housing for more people per dollar
expended.
Under § __.22(b)(4), the am ount of
CRA consideration an institution
receives for its com m unity developm ent
loans should bear a direct relation to the
benefits received by the com m unity and
the innovation or complexity of the
loans required to accom plish the
activity, not sim ply to the dollar amount
expended on a particular transaction. By
applying all performance criteria, a
com m unity developm ent loan of a lower
dollar am ount could receive more
favorable consideration u nder the
lending test than a com munity
developm ent loan w ith a higher dollar
amount, but w ith less innovation,
complexity, or im pact on the
community.
S e c tio n _.23(e)
Proposed Q l
When applying the perform ance
criteria o f § __.23(e), m a y an exam iner
distinguish am ong qualified investm ents
based on h o w m uch o f the investm ent
actually supports the underlying
com m u nity developm ent purpose?
Proposed A l
Yes. Although § __.23(e)(1) speaks in
terms of the dollar am ount of qualified
investments, the criterion permits an
examiner to weight certain investments
differently or to make other appropriate
distinctions w hen evaluating an
institution’s record of making qualified
investments. For instance, a targeted
mortgage-backed security that qualifies
as an affordable housing issue that has
only 60% of its face value supported by
loans to low-or m oderate-income
borrowers generally w ould not be
weighted as heavily under § _.23(e)(1)
as a targeted mortgage-backed security
w ith 100% of its face value supported
by affordable housing loans to low-and
m oderate-incom e borrowers. The
exam iner should describe any
differential w eighting (or other
adjustment), and its basis in the Public
Evaluation. However, no m atter how a
qualified investm ent is handled for
purposes of § __.23(e)(1), it w ill also be
evaluated w ith respect to the
performance criteria set forth in
§ _.23(e) (2), (3) and (4) . By applying
all criteria, a qualified investm ent of a
lower dollar am ount could receive more
favorable consideration u nder the
Investm ent Test than a qualified
investm ent w ith a higher dollar amount,
b ut w ith fewer qualitative
enhancements.

52109

Section__.42(b)(2)
Proposed Q3
When the prim ary purpose o f a loan
is to finance an affordable housing
project fo r low-or m oderate-income
individuals, but only 40% o f the units
in question will actually be occupied by
individuals or fam ilies with low-or
moderate-incomes, should the entire
loan am ount be reported as a
com m unity developm ent loan?
Proposed A3
Yes. As long as the prim ary purpose
of the loan is a com m unity developm ent
purpose, the full am ount of the
institution’s loan should be included in
its reporting of aggregate amounts of
com m unity developm ent lending.
General Comments
In addition to the specific request for
comments on the proposed “primary
p urpose” questions and answers, staff
invite public comment on the new and
revised questions and answers,
particularly the guidance regarding
home mortgage loans to m iddle-and
upper-incom e individuals in low-or
moderate-income areas. Staff also invite
public comment on a continuing basis
on any issues raised by the CRA and
these Interagency Questions and
Answers. Staff of the agencies intend to
continue to update the Interagency
Questions and Answers periodically. If,
after reading the Interagency Questions
and Answers, financial institutions,
examiners, com m unity groups, or other
interested parties have unansw ered
questions or comments about the
agencies’ com m unity reinvestm ent
regulations, they should submit them to
the agencies. Staff will consider
including questions received from the
public in future guidance.
Small Business Regulatory Enforcement
Fairness Act of 1996 (SBREFA)
The SBREFA requires an agency, for
each rule for w hich it prepares a final
regulatory flexibility analysis, to publish
one or more compliance guides to help
small entities understand how to
comply w ith the rule.
Pursuant to section 605(b) of the
Regulatory Flexibility Act, the agencies
certified that their proposed CRA rule
w ould not have a significant economic
impact on a substantial num ber of small
entities and invited public comments on
that determination. See 58 FR 67478
(Dec. 21, 1993); 59 FR 51250 (Oct. 7,
1994). In response to public comment,
the agencies voluntarily prepared a final
regulatory flexibility analysis for the
joint final rule, although the analysis
was not required because it supported

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

the agencies’ earlier certification
regarding the proposed rule. Because a
regulatory flexibility analysis was not
required, section 21 2 of the SBREFA
does not apply to the final CRA rule.
However, in their continuing efforts to
provide clear, understandable
regulations and to com ply w ith the
spirit of the SBREFA, the agencies have
com piled the Interagency Questions and
Answers. The Interagency Questions
and Answers serve the same purpose as
the com pliance guide described in the
SBREFA by providing guidance on a
variety of issues of particular concern to
small banks and thrifts. The text of the
Interagency Q uestions and Answers
follows:
Text of the Interagency Questions and
A nsw ers
Interagency Questions and Answ ers
Regarding C om m unity R einvestm ent
Table of Contents
The agencies are providing answers to
questions pertaining to the following
provisions and topics of the CRA regulations:
§_.11 Authority, purposes, and scope
§_.11(c) Scope
§§ 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3)
Certain special purpose banks
§_.12 Definitions
§ _.12 (a) Affiliate
§§_.12(f) & 563e.12(e) Branch
§§_.12(h) & 563e.l2(g) Community
development
§_.12(h)(3) & 563e.12(g)(3) Activities
that promote economic development by
financing businesses or farms that meet
certain size eligibility standards
§§_.12(i) & 563e.l2(h) Community
development loan
§§_.12(j) & 563e.l2(i) Community
development service
§§_.12(k) & 563e.l2(j) Consumer loan
§§_.12(m) & 563e.l2(l) Home mortgage
loan
§§_.12(n) & 563e.l2(m) Income level
§§_.12(o) & 563e.l2(n) Limited purpose
institution
§§_.12(s) & 563e.l2(r) Qualified
investment
.12(t) Small institution
§_,12(u) Small business loan
§_.12(w) Wholesale institution
§_.21 Performance tests, standards, and
ratings, in general
§_.21 (a) Performance tests and standards
§ _.21(b) Performance context
§_.21(b)(2) Information maintained by
the institution or obtained from
community contacts
§_.21(b)(4) Institutional capacity and
constraints
§ _.21(b)(5) Institution’s past
performance and the performance of
similarly situated lenders
§ .22 Lending test
§ .22(a) Scope oftest
§ .22(a)(1) Types of loans considered
§ .22(a)(2) Other loan data
§_.22(b) Performance criteria

§_.22(b)(1) Lending activity
§_.22(b)(2) & (3) Geographic distribution
and borrower characteristics
§_.22(c) Affiliate lending
§_.22(c)(1) In general
§_.22(c)(2) Constraints on affiliate
lending
§_,22(c)(2)(i) No affiliate may claim a
loan origination or loan purchase if
another institution claims the same loan
origination or purchase
§_,22(c)(2)(ii) If an institution elects to
have its supervisory agency consider
loans within a particular lending
category made by one or more of the
institution’s affiliates in a particular
assessment area, the institution shall
elect to have the agency consider all
loans within that lending category in that
particular assessment area made by all of
the institution’s affiliates
§_.22(d) Lending by a consortium or a
third party
§_.23 Investment test
§_.23(b) Exclusion
§_.24 Service test
§_.24(d) Performance criteria—retail
banking services
§ _.24(d)(3) Availability and
effectiveness of alternative systems for
delivering retail banking services
§_.25 Community development test for
wholesale or limited purpose institutions
§_.25(d) Indirect activities
§_.25(f) Community development
performance rating
§_.26 Small institution performance
standards
§_.26(a) Performance criteria
§ _.26(a)(1) Loan-to-deposit ratio
§_.26(a)(2) Percentage of lending within
assessment area(s)
§_.26(a)(3) and (4) Distribution of
lending within assessment area(s) by
borrower income and geographic
location
§_.26(b) Performance rating
§ .27—Strategic plan
§_.27(c) Plans in general
§_.27(f) Plan content
§__.27(f)(1) Measurable goals
§ _.27(g) Plan approval
§_.27(g)(2) Public participation
§ .28—Assigned ratings
§_.28(a) Ratings in general
§ .29—Effect of CRA performance on
applications
§_.29(a) CRA performance
§_.29(b) Interested parties
§ .41—Assessment area delineation
§_.41(a) In general
§_.41(c) Geographic area(s) for institutions
other than wholesale or limited purpose
institutions
§ .41(c)(1) Generally consist of one or
more MSAs or one or more contiguous
political subdivisions
§_.41(d) Adjustments to geographic area(s)
§_.41 (e) Limitations on delineation of an
assessment area
§ .41(e)(3) May not arbitrarily exclude
low- or moderate-income geographies
§_.41(e)(4) May not extend substantially
beyond a CMSA boundary or beyond a
state boundary unless located in a
multistate MSA

§

.42—Data collection, reporting, and
disclosure
§ _.42(a) Loan information required to be
collected and maintained
§_.42(a)(2) Loan amount at origination
§_.42(a)(3) The loan location
§_.42(a)(4) Indicator of gross annual
revenue
§_.42(b) Loan information required to be
reported
§_.42(b)(1) Small business and small
farm loan data
§_.42 (b) (2) Community development
loan data
§_.42(b)(3) Home mortgage loans
§_.42(c) Optional data collection and
maintenance
§_.42(c)(1) Consumer loans
§_,42(c)(l)(iv) Income of borrower
§_.42(c)(2) Other loan data
§_.42(d) Data on affiliate lending
§ .43—Content and availability of public
file
§_.43(a) Information available to the
public
§_.43(a)(1) Public comments
§_.43(b) Additional information available
to the public
§_.43(b)(1) Institutions other than small
institutions
§_.43(c) Location of public information
§ .44—Public notice by institutions
§ .45—Publication of planned examination
schedule
APPENDIX B to Part_CRA Notice
The body of the Interagency
Q uestions and Answers Regarding
Com munity Reinvestm ent follows:
S e c tio n .11—A uthority, purposes,
and scope
S ectio n __.11(c) Scope
Section 25.11(c)(3), 228.11(c)(3) &
345.11(c)(3) Certain Special Purpose
Banks
Q l. Is the list o f special purpose
banks exclusive?
A l. No, there may be other examples
of special purpose banks. These banks
engage in specialized activities that do
not involve granting credit to the public
in the ordinary course of business.
Special purpose banks typically serve as
correspondent banks, trust companies,
or clearing agents or engage only in
specialized services, such as cash
management controlled disbursem ent
services. A financial institution,
however, does not become a special
purpose bank m erely by ceasing to make
loans and, instead, making investments
and providing other retail banking
services.
Q2. To be a special purpose bank,
m u st a bank lim it its activities in its
charter?
A2. No. A special purpose bank may,
b ut is not required to, lim it the scope of
its activities in its charter, articles of
association or other corporate
organizational documents. A bank that

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
does not have legal lim itations on its
activities, b u t has voluntarily lim ited its
activities, however, w ould no longer be
exem pt from Com munity Reinvestment
Act (CRA) requirem ents if it
subsequently engaged in activities that
involve granting credit to the public in
the ordinary course of business. A bank
that believes it is exem pt from CRA as
a special purpose bank should seek
confirm ation of this status from its
supervisory agency.

A2. No. Community developm ent
includes activities outside of low- and
m oderate-income areas that provide
affordable housing for, or community
services targeted to, low- or moderateincome individuals and activities that
promote economic developm ent by
financing small businesses and farms.
Activities that stabilize or revitalize
particular low- or moderate-income
areas (including by creating, retaining,
or improving jobs for low- or moderateincome persons) also qualify as
S e c tio n
.12— D efinitions
com m unity development, even if the
S ectio n __.12(a) Affiliate
activities are not located in these lowor m oderate-income areas. One example
Q l. Does the definition o f “affiliate”
is financing a superm arket that serves as
include subsidiaries o f an institution?
an anchor store in a small strip mall
A l. Yes, “affiliate” includes any
located at the edge of a m iddle-income
com pany that controls, is controlled by,
area, if the mall stabilizes the adjacent
or is under common control w ith
another company. An institution’s
low-income com m unity by providing
needed shopping services that are not
subsidiary is controlled by the
institution and is, therefore, an affiliate.
otherwise available in the low-income
community.
S ectio n s__.12(f) & 563e.12(e) Branch
Q3. Does the regulation provide
Q l. Do the definitions o f “branch,”
flexib ility in considering perform ance in
“autom ated teller m achine (ATM ),” and high-cost areas?
“remote service fa cility (RSF)” include
A3. Yes, the flexibility of the
m obile branches, ATM s, and RSFs?
performance standards allows
A l. Yes. Staffed mobile offices that
examiners to account in their
are authorized as branches are
evaluations for conditions in high-cost
considered “branches” and mobile
areas. Examiners consider lending and
ATMs and RSFs are considered “ATMs”
services to individuals and geographies
and “RSFs.”
of all income levels and businesses of
Q2. Are loan production offices
all sizes and revenues. In addition, the
(LPOs) branches fo r purposes o f the
flexibility in the requirem ent that
CRA?
com m unity developm ent loans,
A2. LPOs and other offices are not
com m unity developm ent services, and
“branches” unless they are authorized
qualified investments have as their
as branches of the institution through
“prim ary” purpose com munity
the regulatory approval process of the
developm ent allows examiners to
institution’s supervisory agency.
account for conditions in high-cost
S ectio n s__-12(h) & 563e.l2(g)
areas. For example, examiners could
Community Development
take into account the fact that activities
address a credit shortage among middleQ l. Are com m unity developm ent
income people or areas caused by the
activities lim ited to those that prom ote
disproportionately high cost of building,
econom ic development?
maintaining or acquiring a house w hen
A l. No. Although the definition of
determ ining w hether an institution’s
“ com m unity developm ent” includes
loan to or investm ent in an organization
activities that promote economic
that funds affordable housing for
developm ent by financing small
m iddle-income people or areas, as well
businesses or farms, the rule does not
as low- and moderate-income people or
lim it com m unity developm ent loans
areas, has as its prim ary purpose
and services and qualified investments
com m unity development.
to those activities. Community
developm ent also includes communitySections _.12(h)(3) & 563e.l2(g)(3)
or tribal-based child care, educational,
Activities That Promote Economic
health, or social services targeted to
Development by Financing Businesses
low- or m oderate-income persons,
or Farms That Meet Certain Size
affordable housing for low- or moderateEligibility Standards
income individuals, and activities that
Q l. “C om m unity developm ent”
revitalize or stabilize low- or moderateincludes activities that prom ote
income areas.
Q2. M ust a com m unity developm ent
econom ic developm ent by financing
activity occur inside a low- or moderate- businesses or farm s that m eet certain
incom e area in order fo r an institution
size eligibility standards. Are all
to receive CRA consideration fo r the
activities that finance businesses and
activity?
farm s that m eet these size eligibility

52111

standards considered to be com m unity
developm ent?
A l. No. To be considered as
“com m unity developm ent” under
§§ ------.12(h)(3) and 563e,12(g)(3), a
loan, investm ent or service, w hether
m ade directly or through an
interm ediary, m ust m eet both a size test
and a purpose test. A n activity meets
the size requirem ent if it finances
entities that either m eet the size
eligibility standards of the Small
B usiness A dm inistration’s Development
Company (SBDC) or Small Business
Investm ent Company (SBIC) programs,
or have gross annual revenues of $1
m illion or less. To m eet the purpose
test, the activity m ust promote
economic developm ent. An activity is
considered to prom ote economic
developm ent if it supports perm anent
job creation, retention, and/or
im provem ent for persons w ho are
currently low- or moderate-income, or
supports perm anent job creation,
retention, and/or im provem ent in lowor m oderate-incom e geographies
targeted for redevelopm ent by Federal,
state, local or tribal governments. The
agencies w ill presum e that any loan or
investm ent in or to a SBDC or SBIC
prom otes economic development.
S ectio n s_.12(i) & 563e.12(h)
Comm unity D evelopm ent Loan
Q l. W hat are exam ples o f co m m u n ity
developm ent loans?
A l. Examples of com m unity
developm ent loans include, but are not
lim ited to, loans to:
• Borrowers for affordable housing
rehabilitation and construction,
including construction and perm anent
financing of m ultifam ily rental property
serving low- and moderate-incom e
persons;
• Not-for-profit organizations serving
prim arily low- and moderate-income
housing or other com m unity
developm ent needs;
• Borrowers to construct or
rehabilitate com m unity facilities that
are located in low- and m oderateincome areas or that serve prim arily
low- and moderate-incom e individuals;
• Financial interm ediaries including
Com m unity D evelopment Financial
Institutions (CDFIs), Com munity
Development Corporations (CDCs),
m inority- and w om en-ow ned financial
institutions, com m unity loan funds or
pools, and low-income or com m unity
developm ent credit unions that
prim arily lend or facilitate lending to
prom ote com m unity development.
• Local, state, and tribal governments
for com m unity developm ent activities;
and

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

•
Borrowers to finance environm ental loans are not considered to have a
clean-up or redevelopm ent of an
com m unity developm ent purpose. For
industrial site as part of an effort to
example, a loan for upper-incom e
revitalize the low- or moderate-income
housing in a distressed area is not
com m unity in w hich the property is
considered to have a com m unity
located.
developm ent purpose sim ply because of
Q2. I f a retail institution that is n ot
the indirect benefit to low- or moderaterequired to report under the H ome
income persons from construction jobs
Mortgage Disclosure A c t (HMDA) m akes or the increase in the local tax base that
affordable hom e mortgage loans that
supports enhanced services to low- and
w ould be HMDA-reportable hom e
m oderate-income area residents. On the
mortgage loans i f it were a reporting
other hand, a loan for an anchor
institution, or i f a sm all institution that
business in a distressed area (or a
is not required to collect and report loan nearby area), that employs or serves
data under CRA m akes sm all business
residents of the area, and thus stabilizes
a nd sm all farm loans and consum er
the area, may be considered to have a
loans that w ould be collected and/or
com m unity developm ent purpose. For
reported i f the institution were a large
example, in an underserved, distressed
institution, m a y the institution have
area, a loan for a pharm acy that
these loans considered as com m unity
employs, and provides supplies to,
developm ent loans?
residents of the area promotes
A2. No. Although small institutions
com m unity development.
are not required to report or collect
Q5. M ust there be som e im m ediate or
inform ation on small business and small direct benefit to the institu tio n ’s
farm loans and consum er loans, and
assessm ent area(s) to satisfy the
some institutions are not required to
regulations’ requirem ent that qualified
report inform ation about their hom e
investm ents and co m m u n ity
mortgage loans u nder HMDA, if these
developm ent loans or services benefit an
institutions are retail institutions, the
in stitu tio n ’s assessm ent area(s) or a
agencies w ill consider in their CRA
broader statewide or regional area that
evaluations the institutions’ originations includes the institu tio n ’s assessm ent
and purchases of loans that w ould have
area(s)?
been collected or reported as small
A5. No. The regulations, for example,
business, small farm, consum er or home recognize that com m unity developm ent
mortgage loans, h ad the institution been organizations and programs are
a collecting and reporting institution
frequently efficient and effective ways
u nder the CRA or the HMDA. Therefore, for institutions to promote community
these loans w ill not be considered as
development. These organizations and
programs often operate on a statewide or
com m unity developm ent loans.
M ultifamily dwelling loans, however,
even multi-state basis. Therefore, an
institution’s activity is considered a
m ay be considered as com m unity
com m unity developm ent loan or service
developm ent loans as w ell as hom e
or a qualified investm ent if it supports
mortgage loans. See also Q&A2
an organization or activity that covers
addressing § __.42(b)(2).
an area that is larger than, but includes,
Q3. Do secured credit cards or other
credit card programs targeted to low- or the institution’s assessment area(s). The
m oderate-incom e individuals qualify as institution’s assessm ent area need not
receive an im m ediate or direct benefit
com m u nity developm ent loans?
A3. No. Credit cards issued to low- or from the institution’s specific
m oderate-incom e individuals for
participation in the broader organization
household, family, or other personal
or activity, provided the purpose,
expenditures, w hether as part of a
m andate, or function of the organization
program targeted to such individuals or
or activity includes serving geographies
otherwise, do not qualify as com m unity
or individuals located w ithin the
developm ent loans because they do not
institution’s assessment area.
have as their prim ary purpose any of the Furthermore, the regulations perm it a
activities included in the definition of
wholesale or lim ited purpose institution
to consider com m unity development
“com m unity developm ent.”
Q4. The regulation indicates that
loans, com m unity developm ent
co m m u nity developm ent includes
services, and qualified investments
“activities that revitalize or stabilize
wherever they are located, as long as the
low- or m oderate-incom e geographies.” institution has otherwise adequately
Do all loans in a low- to moderateaddressed the credit needs w ithin its
incom e geography have a stabilizing
assessment area(s).
effect?
Q6. W hat is m ean t by a “regional
A4. No. Some loans m ay provide only area” in the requirem ent that a
indirect or short-term benefits to low- or com m u nity developm ent loan m u st
m oderate-incom e individuals in a lowbenefit the in stitu tio n ’s assessm ent
or m oderate-income geography. These
area(s) or a broader statew ide or

regional area that includes the
in stitu tio n ’s assessm ent area(s)?
A6. A “regional area” m ay be as small
as a city or county or as large as a
m ultistate area. For example, the “midA tlantic states” may comprise a regional
area. W hen examiners evaluate
com m unity developm ent loans that
benefit a regional area that includes the
institu tio n ’s assessment area, however,
the examiners will consider the size of
the regional area and the actual or
potential benefit to the institution’s
assessm ent area(s). In m ost cases, the
larger the regional area, the m ore diffuse
the benefit w ill be to the institu tio n ’s
assessm ent area(s). Examiners may view
loans w ith more direct benefits to an
institu tio n ’s assessm ent area(s) as more
responsive to the credit needs of the
area(s) than loans for w hich the actual
benefit to the assessm ent area(s) is
uncertain or for w hich the benefit is
diffused throughout a larger area that
includes the assessm ent area(s).
Sections__.12(j) & 563e.l2(i)
Comm unity Development Service
Q l. In addition to m eeting the
definition o f “co m m u nity developm ent”
in the regulation, co m m u nity
developm ent services m u st also be
related to the provision o f financial
services. W hat is m eant by “provision o f
financial services”?
A l. Providing financial services
means providing services of the type
generally provided by the financial
services industry. Providing financial
services often involves informing
com m unity members about how to get
or use credit or otherwise providing
credit services or inform ation to the
community. For example, service on the
board of directors of an organization
that prom otes credit availability or
finances affordable housing is related to
the provision of financial services.
Providing technical assistance about
financial services to com munity-based
groups, local or tribal government
agencies, or interm ediaries that help to
m eet the credit needs of low- and
m oderate-incom e individuals or small
businesses and farms is also providing
financial services. By contrast, activities
that do not take advantage of the
em ployees’ financial expertise, such as
neighborhood cleanups, do not involve
the provision of financial services.
Q2. A re personal charitable activities
provided by an in stitu tio n ’s em ployees
or directors outside the ordinary course
o f their em ploym ent considered
com m un ity developm ent services?
A2. No. Services m ust be provided as
a representative of the institution. For
example, if a financial institution’s
director, on her own tim e and not as a

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
representative of the institution,
volunteers one evening a w eek at a local
com m unity developm ent corporation’s
financial counseling program, the
institution m ay n o t consider this
activity a com m unity developm ent
service.
Q3. W hat are exam ples o f com m un ity
developm ent services?
A3. Examples of com m unity
developm ent services include, b u t are
not lim ited to, the following:
• Providing technical assistance on
financial matters to nonprofit, tribal or
governm ent organizations serving lowand m oderate-incom e housing or
economic revitalization and
developm ent needs;
• Providing technical assistance on
financial m atters to small businesses or
com m unity developm ent organizations;
• Lending em ployees to provide
financial services for organizations
facilitating affordable housing
construction and rehabilitation or
developm ent of affordable housing;
• Providing credit counseling, home
buyers and hom e m aintenance
counseling, financial planning or other
financial services education to promote
com m unity developm ent and affordable
housing;
• Establishing school savings
programs for low- or moderate-incom e
individuals;
• Providing electronic benefits
transfer and point of sale term inal
systems to improve access to financial
services, such as by decreasing costs, for
low- or m oderate-incom e individuals;
and
• Providing other financial services
w ith the prim ary purpose of com m unity
developm ent, such as low-cost bank
accounts or free governm ent check
cashing that increases access to
financial services for low- or moderateincome individuals.
Examples of technical assistance
activities that m ight be provided to
com m unity developm ent organizations
include:
• Serving on a loan review
committee;
• Developing loan application and
underw riting standards;
• Developing loan processing
systems;
• Developing secondary market
vehicles or programs;
• Assisting in marketing financial
services, including developm ent of
advertising and promotions,
publications, workshops and
conferences;
• Furnishing financial services
training for staff and management;
• Contributing accounting/
bookkeeping services; and

52113

•
Assisting in fund raising, including take the borrower’s application and
perform other settlem ent activities;
soliciting or arranging investments.
however, they do n o t m a ke the credit
Sections .12(k) & 563e.l2(j)
decision. The broker institutions m ay
Consum er Loan
also initially fu n d these mortgage loans,
Q l. Are hom e equity loans considered then im m ediately assign them to
“consum er lo ans”?
another lender. Because the broker
A l. Home equity loans m ade for
institution does n o t m ake the credit
purposes other than hom e purchase,
decision, under Regulation C (HMDA),
hom e im provem ent or refinancing home they do n o t record the loans on their
purchase or hom e im provem ent loans
HM DA-LARs, even i f th ey fu n d the
are consum er loans if they are extended
loans. M ay an institution receive any
to one or more individuals for
consideration under CRA fo r its hom e
household, family, or other personal
mortgage loan brokerage activities?
A2. Yes. A financial institution that
expenditures.
Q2. M ay a h om e equity line o f credit
funds hom e mortgage loans but
be considered a “consum er lo a n ” even
im m ediately assigns the loans to the
lender that m ade the credit decisions
i f part o f the line is fo r hom e
m ay p resent inform ation about these
im provem ent purposes?
A2. If the predom inant purpose of the loans to examiners for consideration
line is hom e improvem ent, the line may u nder the lending test as “ other loan
only be reported u nder HMDA and may
data.” U nder Regulation C, the broker
not be considered a consum er loan.
institution does not record the loans on
However, the full am ount of the line
its HMDA-LAR because it does not
m ay be considered a “consum er loan” if make the credit decisions, even if it
funds the loans. An institution electing
its predom inant purpose is for
to have these hom e mortgage loans
household, family, or other personal
considered m ust m aintain inform ation
expenditures, and to a lesser extent
hom e im provem ent, and the full am ount about all of the hom e mortgage loans
that it has funded in this way.
of the line has not been reported under
Examiners w ill consider this other loan
HMDA. This is the case even though
there may be “ double counting” because data using the same criteria by w hich
hom e mortgage loans originated or
part of the line m ay also have been
purchased by an institution are
reported u n d er HMDA.
Q3. H ow should an institution collect
evaluated.
Institutions that do not provide
or report inform ation on loans the
funding b ut m erely take applications
proceeds o f which will be used for
and provide settlem ent services for
m u ltip le purposes?
another lender that makes the credit
A3. If an institution makes a single
decisions w ill receive consideration for
loan or provides a line of credit to a
this service as a retail banking service.
customer to be used for both consum er
and small business purposes, consistent Examiners w ill consider an institu tio n ’s
mortgage brokerage services w hen
w ith the Call Report and TFR
evaluating the range of services
instructions, the institution should
provided to low-, moderate-, m iddledeterm ine the major (predominant)
and upper-incom e geographies and the
com ponent of the loan or the credit line
degree to w hich the services are tailored
and collect or report the entire loan or
to m eet the needs of those geographies.
credit line in accordance w ith the
A lternatively, an institu tio n ’s mortgage
regulation’s specifications for that loan
brokerage service may be considered a
type.
com m unity developm ent service if the
Sections_.12(m) & 563e.l2(l) Home
prim ary purpose of the service is
Mortgage Loan
com m unity developm ent. An institution
Q l. Does the term “hom e mortgage
w ishing to have its mortgage brokerage
lo a n ” include loans other than “hom e
service considered as a com m unity
purchase lo a n s”?
developm ent service m ust provide
A l. Yes. “Home mortgage loan”
sufficient inform ation to substantiate
includes a “hom e im provem ent loan” as that its prim ary purpose is com m unity
w ell as a “hom e purchase loan,” as both developm ent and to establish the extent
term s are defined in the HMDA
of the services provided.
regulation, Regulation C, 12 CFR part
S ectio n s__.12(n) & 563e.l2(m) Income
203. This definition also includes
Level
m ultifam ily (five-or-more families)
Q l. Where do institutions fin d incom e
dwelling loans, loans for the purchase of
level data fo r geographies and
m anufactured homes, and refinancings
individuals?
of home im provem ent and home
A l. The income levels for
purchase loans.
Q2. Som e financial institutions broker geographies, i.e., census tracts and block
num bering areas, are derived from
h om e mortgage loans. T hey typically

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

Census Bureau inform ation and are
updated every ten years. Institutions
may contact their regional Census
Bureau office or the Census Bureau’s
Income Statistics Office at (301) 7638576 to obtain incom e levels for
geographies. See A ppendix A of these
Interagency Q uestions and A nsw ers for
a list of the regional Census Bureau
offices. The incom e levels for
individuals are derived from
inform ation calculated by the
Departm ent of Housing and Urban
Development (HUD) and updated
annually. Institutions may contact HUD
at (800) 245-2691 to request a copy of
“FY [year num ber, e.g., 1996] M edian
Fam ily Incomes for States and their
M etropolitan and N onm etropolitan
Portions.”
Alternatively, institutions may obtain
a list of the 1990 Census Bureaucalculated and the annually updated
HUD m edian family incom es for
m etropolitan statistical areas (MSAs)
and statew ide nonm etropolitan areas by
calling the Federal Financial Institution
Exam ination C ouncil’s (FFIEC’s) HMDA
Help Line at (202) 452-2016. A free
copy will be faxed to the caller through
the “fax-back” system. Institutions may
also call this num ber to have “faxedback” an order form, from w hich they
m ay order a list providing the m edian
family incom e level, as a percentage of
the appropriate MSA or
nonm etropolitan m edian family income,
of every census tract and block
num bering area (BNA). This list costs
$50. Institutions m ay also obtain the list
of MSA and statew ide nonm etropolitan
area m edian family incomes or an order
form through the FFIEC’s hom e page on
the Internet at “http://w w w .ffiec.gov/’.
Sections_,12(o) & 563e.l2(n) Limited
Purpose Institution
Q l. W hat constitutes a “narrow
product lin e ” in the definition o f
“lim ited purpose in stitu tio n ”?
A l. An institution offers a narrow
product line by limiting its lending
activities to a product line other than a
traditional retail product line required
to be evaluated u n d er the lending test
(i.e., hom e mortgage, small business,
and sm all farm loans). Thus, an
institution engaged only in making
credit card or m otor vehicle loans offers
a narrow product line, w hile an
institution lim iting its lending activities
to hom e mortgages is not offering a
narrow product line.
Q2. W hat factors will the agencies
consider to determ ine w hether an
institution that, i f lim ited purpose,
m akes loans outside a narrow product
line, or, i f wholesale, engages in retail
lending, will lose its lim ited purpose or

wholesale designation because o f too
m uch other lending?
A2. W holesale institutions may
engage in some retail lending w ithout
losing their designation if this activity is
incidental and done on an
accom m odation basis. Similarly, lim ited
purpose institutions continue to meet
the narrow product line requirem ent if
they provide other types of loans on an
infrequent basis. In reviewing other
lending activities by these institutions,
the agencies w ill consider the following
factors:
• Is the other lending provided as an
incident to the institu tio n ’s w holesale
lending?
• Are the loans provided as an
accom m odation to the institution’s
w holesale customers?
• Are the loans made only
infrequently to the lim ited purpose
institution’s customers?
• Does only an insignificant portion
of the institution’s total assets and
income result from the other lending?
• How significant a role does the
institution play in providing that type(s)
of loan(s) in the institution’s assessment
area(s)?
• Does the institution hold itself out
as offering that type(s) of loan(s)?
• Does the lending test or the
com m unity developm ent test present a
m ore accurate picture of the
institution’s CRA performance?
Q3. Do “niche in stitu tio n s” qualify as
lim ited purpose (or wholesale)
institutions?
A3. Generally, no. Institutions that are
in the business of lending to the public,
but specialize in certain types of retail
loans (for example, home mortgage or
sm all business loans) to certain types of
borrowers (for example, to high-end
income level custom ers or to
corporations or partnerships of licensed
professional practitioners) (“niche
institutions”) generally w ould not
qualify as lim ited purpose (or
wholesale) institutions.
Sections__.12(s) & 563e,12(r) Qualified
Investment
Q l. Does the CRA regulation provide
authority fo r institutions to m ake
investm ents?
A l. No. The CRA regulation does not
provide authority for institutions to
make investments that are not otherwise
allowed by Federal law.
Q2. Are mortgage-backed securities or
m unicipal bonds “qualified
investm ents”?
A2. As a general rule, mortgagebacked securities and m unicipal bonds
are not qualified investments because
they do not have as their primary
purpose com m unity development, as

defined in the CRA regulations.
Nonetheless, mortgage-backed securities
or m unicipal bonds designed prim arily
to finance com munity developm ent
generally are qualified investments.
M unicipal bonds or other securities
w ith a prim ary purpose of com munity
developm ent need not be housingrelated. For example, a bond to fund a
com m unity facility or park or to provide
sewage services as part of a plan to
redevelop a low-income neighborhood
is a qualified investment. Housingrelated bonds or securities must
prim arily address affordable housing
(including m ultifamily rental housing)
needs in order to qualify.
Q3. Are Federal Hom e Loan Bank
stocks and m em bership reserves with
the Federal Reserve Banks “qualified
investm ents”?
A3. No. Federal Home Loan Bank
stock and m em bership reserves w ith the
Federal Reserve Banks do not have a
sufficient connection to com m unity
developm ent to be qualified
investments.
Q4. W hat are exam ples o f qualified
investm ents?
A4. Examples of qualified
investments include, but are not lim ited
to, investments, grants, deposits or
shares in or to:
• Financial interm ediaries (including,
Community Development Financial
Institutions (CDFIs), Community
Development Corporations (CDCs),
minority- and wom en-owned financial
institutions, com m unity loan funds, and
low-income or com m unity development
credit unions) that prim arily lend or
facilitate lending in low- and moderateincome areas or to low- and moderateincome individuals in order to promote
com m unity development, such as a
CDFI that promotes economic
developm ent on an Indian reservation;
• Organizations engaged in affordable
housing rehabilitation and construction,
including m ultifamily rental housing;
• Organizations, including, for
example, Small Business Investment
Companies (SBICs) and specialized
SBICs, that promote economic
developm ent by financing small
businesses;
• Facilities that promote com munity
developm ent in low- and moderateincome areas for low- and moderateincome individuals, such as youth
programs, homeless centers, soup
kitchens, health care facilities, battered
w om en’s centers, and alcohol and drug
recovery centers;
• Projects eligible for low-income
housing tax credits;
• State and m unicipal obligations,
such as revenue bonds, that specifically

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
support affordable housing or other
com m unity development;
• Not-for-profit organizations serving
low- and m oderate-incom e housing or
other com m unity developm ent needs,
such as counseling for credit, homeow nership, hom e m aintenance, and
other financial services education; and
• Organizations supporting activities
essential to the capacity of low- and
m oderate-incom e individuals or
geographies to utilize credit or to
sustain economic developm ent, such as,
for example, day care operations and job
training programs that enable people to
work.
Q5. Will an institution receive
consideration fo r charitable
contributions as "qualified
in vestm en ts”?
A5. Yes, provided they have as their
prim ary purpose com m unity
developm ent as defined in the
regulations. A charitable contribution,
w hether in cash or an in-kind
contribution of property, is included in
the term “grant.” A qualified investm ent
is not disqualified because an
institution receives favorable treatm ent
for it (for example, as a tax deduction
or credit) u nder the Internal Revenue
Code.
Q6. A n institution m akes or
participates in a co m m u nity
developm ent loan. The institution
provided the loan at below-m arket
interest rates or “bought d o w n ” the
interest rate to the borrower. Is the lost
incom e resulting from the lower interest
rate or buy-down a qualified
investm ent?
A6. No. The agencies w ill, however,
consider the innovativeness and
com plexity of the com m unity
developm ent loan w ithin the bounds of
safe and sound banking practices.
Q7. Will the agencies consider as a
qualified investm ent the wages or other
com pensation o f an em ployee or
director who provides assistance to a
com m u nity developm ent organization
on beh a lf o f the institution?
A7. No. However, the agencies will
consider donated labor of em ployees or
directors of a financial institution in the
service test if the activity is a
com m unity developm ent service.
Section_. 12(t) Small institution
Q l. H ow are the “total bank and thrift
assets” o f a holding com pany
determined?
A l. “Total banking and thrift assets”
of a holding com pany are determ ined by
combining the total assets of all banks
and/or thrifts th at are majority-owned
by the holding company. An institution
is m ajority-owned if the holding
com pany directly or indirectly owns

more than 50 percent of its outstanding
voting stock.
Q2. H ow are Federal and State branch
assets o f a foreign bank calculated fo r
purposes o f the CRA?
A2. A Federal or State branch of a
foreign bank is considered a small
institution if the Federal or State branch
has less than $250 m illion in assets and
the total assets of the foreign b ank’s or
its holding com pany’s U.S. bank and
thrift subsidiaries that are subject to the
CRA are less than $1 billion. This
calculation includes not only FDICinsured bank and thrift subsidiaries, but
also the assets of any FDIC-insured
branch of the foreign bank and the
assets of any uninsured Federal or State
branch (other than a lim ited branch or
a Federal agency) of the foreign bank
that results from an acquisition
described in section 5(a)(8) of the
International Banking Act of 1978 (12
U.S.C. § 3103(a)(8)).
Section__.12(u)

Small business loan

Q l. A re loans to nonprofit
organizations considered sm all business
loans or are they considered co m m u nity
developm ent loans?
A l. To be considered a small business
loan, a loan m ust m eet the definition of
“loan to small b usiness” in the
instructions in the “Consolidated
Reports of Conditions and Incom e” (Call
Report) and “Thrift Financial Reports”
(TFR). In general, a loan to a nonprofit
organization, for business or farm
purposes, w here the loan is secured by
nonfarm nonresidential property and
the original am ount of the loan is $1
m illion or less, if a business loan, or
$500,000 or less, if a farm loan, w ould
be reported in the Call Report and TFR
as a small business or small farm loan.
If a loan to a nonprofit organization is
reportable as a small business or small
farm loan, it cannot also be considered
as a com m unity developm ent loan,
except by a w holesale or lim ited
purpose institution. Loans to nonprofit
organizations that are not small business
or sm all farm loans for Call Report and
TFR purposes may be considered as
com m unity developm ent loans if they
m eet the regulatory definition.
Q2. A re loans secured by comm ercial
real estate considered sm all business
loans?
A2. Yes, depending on their principal
amount. Small business loans include
loans secured by “nonfarm
nonresidential properties,” as defined in
the Call Report and TFR, in am ounts
less than $1 million.
Q3. A re loans secured by nonfarm
residential real estate to fina n ce sm all
businesses “sm all business lo a n s”?

52115

A3. No. Loans secured by nonfarm
residential real estate that are used to
finance small businesses are not
included as “small b usiness” loans for
Call Report and TFR purposes. The
agencies recognize that m any small
businesses are financed by loans
secured by residential real estate. If
these loans prom ote com m unity
developm ent, as defined in the
regulation, they may be considered as
com m unity developm ent loans.
Otherwise, at an institution’s option, the
institution may collect and m aintain
data separately concerning these loans
and request that the data be considered
in its CRA evaluation as “Other Secured
Lines/Loans for Purposes of Small
B usiness.”
Q4. A re credit cards issued to sm all
businesses considered “sm all business
loa ns”?
A4. Credit cards issued to a small
business or to individuals to be used,
w ith the institu tio n ’s knowledge, as
business accounts are sm all business
loans if they m eet the definitional
requirem ents in the Call Report or TFR
instructions.
Section__.12 (w)

W holesale Institution

Q l. W hat factors will the agencies
consider in determ ining whether an
institution is in the business o f
extending h om e mortgage, sm all
business, sm all farm , or consum er loans
to retail customers?
A l. The agencies w ill consider
whether:
• The institution holds itself out to
the retail public as providing such
loans; and
• The institutio n ’s revenues from
extending such loans are significant
w hen com pared to its overall
operations.
A wholesale institution may make
some retail loans w ithout losing its
wholesale designation as described
above in Q&A2 addressing § § _,12(o)
and 563e.l2(n).
Section__.21— Performance tests,
Standards, and Ratings, in General
Section_.21(a) Performance Tests and
Standards
Q l. A re all com m un ity developm ent
activities weighted equally by
examiners?
A l. No. Examiners w ill consider the
responsiveness to credit and com m unity
developm ent needs, as well as the
innovativeness and complexity of an
institution’s com m unity developm ent
lending, qualified investm ents, and
com m unity developm ent services.
These criteria include consideration of
the degree to w hich they serve as a

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

catalyst for other com m unity
developm ent activities. The criteria are
designed to add a qualitative elem ent to
the evaluation of an institution’s
performance.
Section__.21(b) Performance Context
Q l. Is the perform ance context
essentially the sam e as the form er
regulation’s needs assessm ent?
A l. No. The performance context is a
broad range of economic, demographic,
and institution-and community-specific
inform ation that an exam iner reviews to
u nderstand the context in w hich an
institution’s record of performance
should be evaluated. The agencies will
provide examiners w ith m uch of this
information prior to the examination.
The performance context is not a formal
or w ritten assessm ent of com m unity
credit needs.
Section_.21(b)(2) Information
M aintained by the Institution or
Obtained From Com munity Contacts
Q l. Will exam iners consider
perform ance context inform ation
provided by institutions?
A l. Yes. An institution may provide
examiners w ith any inform ation it
deems relevant, including inform ation
on the lending, investm ent, and service
opportunities in its assessm ent area(s).
This inform ation m ay include data on
the business opportunities addressed by
lenders not subject to the CRA.
Institutions are not required, however,
to prepare a needs assessment. If an
institution provides inform ation to
examiners, the agencies w ill not expect
inform ation other than w hat the
institution norm ally w ould develop to
prepare a business plan or to identify
potential markets and customers,
including low -and moderate-income
persons and geographies in its
assessm ent area(s). The agencies will
not evaluate an institution’s efforts to
ascertain com m unity credit needs or
rate an institution on the quality of any
inform ation it provides.
Q2. Will exam iners conduct
com m u nity contact interviews as part o f
the exam ination process?
A2. Yes. Examiners w ill consider
information obtained from interviews
w ith local com m unity, civic, and
governm ent leaders. These interviews
provide examiners w ith knowledge
regarding the local com m unity, its
economic base, and com m unity
developm ent initiatives. To ensure that
inform ation from local leaders is
considered—particularly in areas where
the num ber of potential contacts may be
lim ited—examiners may use
inform ation obtained through an
interview w ith a single com m unity

contact for exam inations of more than
one institution in a given market. In
addition, the agencies w ill consider
inform ation obtained from interviews
conducted by other agency staff and by
the other agencies. In order to augment
contacts previously used by the agencies
and foster a w ider array of contacts, the
agencies w ill share com m unity contact
information.
Section__.21(b)(4) Institutional
Capacity and Constraints
Q l. Will exam iners consider factors
outside o f an in stitu tio n ’s control that
prevent it from engaging in certain
activities?
A l. Yes. Examiners w ill take into
account statutory and supervisory
lim itations on an institu tio n ’s ability to
engage in any lending, investment, and
service activities. For example, a savings
association that has m ade few or no
qualified investm ents due to its lim ited
investm ent authority may still receive a
low satisfactory rating under the
investm ent test if it has a strong lending
record.
§ __.21(b)(5) Institution’s Past
Performance and the Performance of
Similarly Situated Lenders
Q l. Can an in stitu tio n ’s assigned
rating be adversely affected by poor pa st
perform ance?
A l. Yes. The agencies w ill consider
an institution’s past performance in its
overall evaluation. For example, an
institu tio n ’s past perform ance may
support a rating of “substantial
noncom pliance” if the institution has
not im proved perform ance rated as
“needs to im prove.”
Q2. H ow will exam iners consider the
perform ance o f sim ilarly situated
lenders?
A2. The perform ance context section
of the regulation perm its the
performance of sim ilarly situated
lenders to be considered, for example,
as one of a num ber of considerations in
evaluating the geographic distribution of
an institu tio n ’s loans to low-, moderatem iddle-, and upper-incom e geographies.
This analysis, as well as other analyses,
m ay be used, for example, w here groups
of contiguous geographies w ithin an
institution’s assessment area(s) exhibit
abnorm ally low penetration. In this
regard, the perform ance of sim ilarly
situated lenders may be analyzed if such
an analysis w ould provide accurate
insight into the institutio n ’s lack of
perform ance in those areas. The
regulation does not require the use of a
specific type of analysis u nder these
circumstances. Moreover, no ratio

developed from any type of analysis is
linked to any lending test rating.
§

.22— Len ding Test

§ __.22(a)

Scope of test

§ .22(a)(1)
Considered

Types of Loans

Q l. I f a large retail institution is not
required to collect and report hom e
mortgage data under the HMDA, will the
agencies still evaluate the in stitu tio n ’s
h om e mortgage lending performance?
A l. Yes. The agencies w ill sam ple the
institu tio n ’s hom e mortgage loan files in
order to assess its performance under
the lending test criteria.
Q2. When will exam iners consider
consum er loans as part o f an
in stitu tio n ’s CRA evaluation?
A2. Consum er loans w ill be evaluated
if the institution so elects; and an
institution that elects not to have its
consum er loans evaluated w ill not be
view ed less favorably by examiners than
one that does. However, if consumer
loans constitute a substantial majority of
the institution’s business, the agencies
w ill evaluate them even if the
institution does not so elect. The
agencies interpret “substantial m ajority”
to be so significant a portion of the
institution’s lending activity by num ber
or dollar volum e of loans that the
lending test evaluation w ould not
m eaningfully reflect its lending
performance if consum er loans were
excluded.
§ _.22(a)(2)

Other Loan Data

Q l. H ow are lending com m itm ents
(such as letters o f credit) evaluated
under the regulation?
A l. The agencies consider lending
com mitments (such as letters of credit)
only at the option of the institution.
Commitments m ust be legally binding
betw een an institution and a borrower
in order to be considered. Inform ation
about lending com m itm ents w ill be
used by examiners to enhance their
understanding of an institution’s
performance.
Q2. Will exam iners review application
data as part o f the lending test?
A2. A pplication activity is not a
performance criterion of the lending
test. However, examiners may consider
this inform ation in the performance
context analysis because this
inform ation may give examiners insight
on, for example, the dem and for loans.
Q3. M ay a financial institution receive
consideration under CRA fo r
m odification, extension, and
consolidation agreements (MECAs), in
which it obtains loans from other
institutions w ithout actually purchasing

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
or refinancing the loans, as those terms
have been interpreted under CRA?
A3. Yes. In some states, MECAs,
w hich are not considered loan
refinancings because the existing loan
obligations are not satisfied and
replaced, are common. Although these
transactions are not considered to be
purchases or refinancings, as those
term s have been interpreted u nder CRA,
they do achieve the same results. An
institution m ay present information
about its MECA activities to examiners
for consideration under the lending test
as “other loan data.”
S ectio n __.22(b)

Performance Criteria

Q l. H ow will exam iners apply the
perform ance criteria in the lending test?
A l. Examiners will apply the
performance criteria reasonably and
fairly, in accord w ith the regulations,
the exam ination procedures, and this
Guidance. In doing so, examiners will
disregard efforts by an institution to
m anipulate business operations or
present information in an artificial light
that does not accurately reflect an
institution’s overall record of lending
performance.
S ectio n __.22(b)(1)

Lending Activity

Q l. H ow will the agencies apply the
lending activity criterion to discourage
an institution from originating loans
that are view ed favorably under CRA in
the institution itse lf and referring other
loans, which are n o t viewed as
favorably, fo r origination b y an affiliate?
A l. Examiners will review closely
institutions w ith (1) a sm all num ber and
am ount of hom e mortgage loans w ith an
u nusually good distribution among lowand m oderate-incom e areas and lowand m oderate-incom e borrowers and (2)
a policy of referring most, but not all, of
their hom e mortgage loans to affiliated
institutions. If an institution is making
loans mostly to low-and moderateincome individuals and areas and
referring the rest of the loan applicants
to an affiliate for the purpose of
receiving a favorable CRA rating,
examiners m ay conclude that the
in stitu tio n ’s lending activity is not
satisfactory because it has
inappropriately attem pted to influence
the rating. In evaluating an in stitutio n ’s
lending, examiners w ill consider
legitimate business reasons for the
allocation of the lending activity.
S e c tio n __.22(b)(2) & (3) Geographic
D istribution and Borrower
Characteristics
Q l. H ow do the geographic
distribution o f loans and the
distribution o f lending by borrower

characteristics interact in the lending
test?
A l. Examiners generally w ill consider
both the distribution of an in stitu tio n ’s
loans among geographies of different
income levels and among borrowers of
different incom e levels and businesses
of different sizes. The im portance of the
borrower distribution criterion,
particularly in relation to the geographic
distribution criterion, w ill depend on
the perform ance context. For example,
distribution among borrowers w ith
different incom e levels may be more
im portant in areas w ithout identifiable
geographies of different income
categories. On the other hand,
geographic distribution m ay be more
im portant in areas w ith the full range of
geographies of different income
categories.
Q2. M ust an institution len d to all
portions o f its assessm ent area?
A2. The term “assessm ent area”
describes the geographic area w ithin
w hich the agencies assess how well an
institution has m et the specific
perform ance tests and standards in the
rule. The agencies do not expect that
sim ply because a census tract or block
num bering area is w ith in an
institution’s assessm ent area(s) the
institution m ust lend to that census tract
or block num bering area. Rather the
agencies w ill be concerned w ith
conspicuous gaps in loan distribution
that are not explained by the
performance context. Similarly, if an
institution delineated the entire county
in w hich it is located as its assessm ent
area, but could have delineated its
assessm ent area as only a portion of the
county, it w ill not be penalized for
lending only in that portion of the
county, so long as that portion does not
reflect illegal discrim ination or
arbitrarily exclude low- or moderateincom e geographies. The capacity and
constraints of an institution, its business
decisions about how it can best help to
meet the needs of its assessm ent area(s),
including those of low- and moderateincome neighborhoods, and other
aspects of the perform ance context, are
all relevant to explain w hy the
institution is serving or n ot serving
portions of its assessm ent area(s).
Q3. W ill exam iners take into account
loans m ade by affiliates when
evaluating the proportion o f an
in stitu tio n ’s lending in its assessm ent
area(s)?
A3. Examiners w ill not take into
account loans m ade by affiliates w hen
determ ining the proportion of an
institution’s lending in its assessment
area(s), even if the institution elects to
have its affiliate lending considered in
the rem ainder of the lending test

52117

evaluation. However, examiners may
consider an institution’s business
strategy of conducting lending through
an affiliate in order to determ ine
w hether a low proportion of lending in
the assessm ent area(s) should adversely
affect the institu tio n’s lending test
rating.
Q4. W hen will exam iners consider
loans (other than co m m u n ity
developm ent loans) m ade outside an
in stitu tio n ’s assessm ent area(s)?
A4. Favorable consideration w ill be
given for loans to low- and moderateincom e persons and small business and
farm loans outside of an in stitution’s
assessm ent area(s), provided the
institution has adequately addressed the
needs of borrowers w ithin its
assessm ent area(s). The agencies w ill
apply this consideration not only to
loans m ade by large retail institutions
being evaluated u n der the lending test,
but also to loans made by small
institutions being evaluated u nder the
small institution perform ance standards.
Loans to low -and m oderate-incom e
persons and small businesses and farms
outside of an institu tio n ’s assessm ent
area(s), however, w ill not com pensate
for poor lending performance w ithin the
institution’s assessm ent area(s).
Q5. Under the lending test, h o w will
exam iners evaluate hom e mortgage
loans to m iddle- or upper-incom e
individuals in a low- or moderateincom e geography?
A5. Examiners w ill consider these
hom e mortgage loans u nder the
performance criteria of the lending test,
i.e., by num ber and am ount of home
mortgage loans, w hether they are inside
or outside the financial institution’s
assessm ent area(s), their geographic
distribution, and the incom e levels of
the borrowers. Examiners w ill use
inform ation regarding the financial
institution’s perform ance context to
determ ine how to evaluate the loans
u nder these performance criteria.
D epending on the performance context,
examiners could view hom e mortgage
loans to m iddle-incom e individuals in a
low-income geography very differently.
For example, if the loans are for homes
located in an area for w hich the local,
state, tribal, or Federal governm ent or a
com m unity-based developm ent
organization has developed a
revitalization or stabilization plan (such
as a Federal enterprise com m unity or
em pow erm ent zone) that includes
attracting m ixed-incom e residents to
establish a stabilized, econom ically
diverse neighborhood, examiners may
give more consideration to such loans,
w hich may be view ed as serving the
low- or m oderate-incom e com m unity’s
needs as well as serving those of the

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m iddle-or upper-incom e borrowers. If,
on the other hand, no such plan exists
and there is no other evidence of
governmental support for a
revitalization or stabilization project in
the area and the loans to m iddle- or
upper-incom e borrowers significantly
disadvantage or prim arily have the
effect of displacing low- or moderateincom e residents, examiners may view
these loans sim ply as hom e mortgage
loans to m iddle- or upper-incom e
borrowers w ho happen to reside in a
low- or moderate-incom e geography and
weigh them accordingly in their
evaluation of the institution.
Section__.22(c)

Affiliate Lending

Section__.22(c)(1)

In General

Q l. I f an institution elects to have
loans by its affiliate(s) considered, m ay
it elect to have only certain categories o f
loans considered?
A l. Yes. An institution may elect to
have only a particular category of its
affiliate’s lending considered. The basic
categories of loans are home mortgage
loans, small business loans, small farm
loans, community developm ent loans,
and the five categories of consumer
loans (motor vehicle loans, credit card
loans, home equity loans, other secured
loans, and other unsecured loans).
Section__.22(c)(2)
Affiliate Lending

Constraints on

Section__,22(c)(2)(i) No Affiliate may
Claim a Loan Origination or Loan
Purchase if Another Institution Claims
the Same Loan Origination or Purchase
Q l. H ow is this constraint on affiliate
lending applied?
A l. This constraint prohibits one
affiliate from claiming a loan origination
or purchase claimed by another affiliate.
However, an institution can count as a
purchase a loan originated by an
affiliate that the institution
subsequently purchases, or count as an
origination a loan later sold to an
affiliate, provided the same loans are
not sold several times to inflate their
value for CRA purposes.
Section__,22(c)(2)(ii) If an Institution
Elects To Have its Supervisory Agency
Consider Loans W ithin a Particular
Lending Category Made by one or More
of the Institution’s Affiliates in a
Particular Assessment Area, the
Institution Shall Elect to Have the
Agency Consider all Loans W ithin That
Lending Category in That Particular
Assessment Area Made by all of the
Institution’s Affiliates
Q l . H ow is this constraint on affiliate
lending applied?

A l. This constraint prohibits “ cherrypicking” affiliate loans w ithin any one
category of loans. The constraint
requires an institution that elects to
have a particular category of affiliate
lending in a particular assessment area
considered to include all loans of that
type m ade by all of its affiliates in that
particular assessment area. For example,
assume that an institution has one or
more affiliates, such as a mortgage bank
that makes loans in the institution’s
assessment area. If the institution elects
to include the mortgage bank’s home
mortgage loans, it m ust include all of
mortgage bank’s home mortgage loans
m ade in its assessment area. The
institution cannot elect to include only
those low- and moderate-income home
mortgage loans made by the mortgage
bank affiliate and not home mortgage
loans to m iddle- and upper-incom e
individuals or areas.
Q2. H ow is this constraint applied if
an institu tio n ’s affiliates are also
insured depository institutions subject
to the CRA?
A2. Strict application of this
constraint against “cherry-picking” to
loans of an affiliate that is also an
insured depository institution covered
by the CRA w ould produce the
anomalous result that the other
institution w ould, w ithout its consent,
not be able to count its own loans.
Because the agencies did not intend to
deprive an institution subject to the
CRA of receiving consideration for its
own lending, the agencies read this
constraint slightly differently in cases
involving a group of affiliated
institutions, some of w hich are subject
to the CRA and share the same
assessment area(s). In those
circumstances, an institution that elects
to include all of its mortgage affiliate’s
hom e mortgage loans in its assessment
area w ould not automatically be
required to include all home mortgage
loans in its assessment area of another
affiliate institution subject to the CRA.
However, all loans of a particular type
m ade by any affiliate in the institution’s
assessment area(s) must either be
counted by the lending institution or by
another affiliate institution that is
subject to the CRA. This reading reflects
the fact that a holding com pany may, for
business reasons, choose to transact
different aspects of its business in
different subsidiary institutions.
However, the m ethod by w hich loans
are allocated among the institutions for
CRA purposes m ust reflect actual
business decisions about the allocation
of banking activities among the
institutions and should not be designed
solely to enhance their CRA evaluations.

Section_.22(d) Lending by a
Consortium or a Third Party
Q l. Will equity a nd equity-type
investm ents in a third p arty receive
positive consideration under the lending
test?
A l. If an institution has m ade an
equity or equity-type investm ent in a
third party, loans m ade by the third
party may be considered u nder the
lending test. On the other hand, assetbacked and debt securities that do not
represent an equity-type interest in a
third party w ill not be considered under
the lending test unless the securities are
booked by the purchasing institution as
a loan. For example, if an institution
purchases stock in a com m unity
developm ent corporation (“ CDC”) that
prim arily lends in low- and moderateincom e areas or to low-and moderateincom e individuals in order to promote
com m unity developm ent, the institution
m ay claim a pro rata share of the CDC’s
loans as com m unity developm ent loans.
The institu tio n’s pro rata share is based
on its percentage of equity ow nership in
the CDC.
Q&A1 addressing § _.23(b) provides
inform ation concerning consideration of
an equity or equity-type investm ent
u n d er the investm ent test and both the
lending and investm ent tests.
Q2. H ow will exam iners evaluate
loans m ade by consortia or third parties
under the lending test?
A2. Loans originated or purchased by
consortia in w hich an institution
participates or by third parties in w hich
an institution invests w ill only be
considered if they qualify as com m unity
developm ent loans and w ill only be
considered u nder the com m unity
developm ent criterion of the lending
test. However, loans originated directly
on the books of an institution or
purchased by the institution are
considered to have been m ade or
purchased directly by the institution,
even if the institution originated or
purchased the loans as a result of its
participation in a loan consortium.
These loans w ould be considered under
all the lending test criteria appropriate
to them depending on the type of loan.
Q3. In som e circum stances, an
institution m a y invest in a third party,
such as a com m un ity developm ent
bank, that is also an insured depository
institution a nd is thus subject to CRA
requirem ents. I f the investing institution
requests its supervisory agency to
consider its pro rata share o f com m unity
developm ent loans m ade by the third
party, as allowed under 12 CFR
§ __.22(d), m a y the third party also
receive consideration fo r these loans?

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
A3. Yes, as long as the financial
institution an d the th ird party are not
affiliates. The regulations state, at 12
CFR § __,22(c)(2)(i), that two affiliates
m ay not both claim the same loan
origination or loan purchase. However,
if the financial institution and the third
party are not affiliates, the third party
m ay receive consideration for the
com m unity developm ent loans it
originates, and the financial institution
that invested in the th ird party m ay also
receive consideration for its pro rata
share of the same com m unity
developm ent loans u n d er 12 CFR
§ __.22(d).
Section

.23— Investm ent Test

Section__.23(b)

Exclusion

Q l. Even though the regulations state
that an activity that is considered under
the lending or service tests cannot also
be considered under the investm ent test,
m a y parts o f an activity be considered
under one test a nd other parts be
considered under another test?
A l. Yes, in some instances the nature
of an activity may make it eligible for
consideration u nder m ore than one of
the performance tests. For example,
certain investm ents and related support
provided by a large retail institution to
a CDC m ay be evaluated u n d er the
lending, investm ent, an d service tests.
U nder the service test, the institution
m ay receive consideration for any
com m unity developm ent services that it
provides to the CDC, such as service by
an executive of the institution on the
CDC’s board of directors. If the
institution makes an investm ent in the
CDC that the CDC uses to make
com m unity developm ent loans, the
institution m ay receive consideration
u nder the lending test for its pro-rata
share of com m unity developm ent loans
m ade by the CDC. A lternatively, the
in stitu tion ’s investm ent m ay be
considered u n d er the investm ent test,
assum ing it is a qualified investment. In
addition, an institution may elect to
have a part of its investm ent considered
u nder the lending test and the
rem aining part considered u nder the
investm ent test. If the investing
institution opts to have a portion of its
investm ent evaluated u n d er the lending
test by claiming a share of the CDC’s
com m unity developm ent loans, the
am ount of investm ent considered u nder
the investm ent test w ill be offset by that
portion. Thus, the institution w ould
only receive consideration u nder the
investm ent test for the am ount of its
investm ent m ultiplied by the percentage
of the CDC’s assets that m eet the
definition of a qualified investment.

Section__.24— Service test
Section .24(d) Performance Criteria—
Retail Banking Services

Section__.25 C om m unity Developm ent
Test fo r Wholesale or Lim ited Purpose
Institutions
Section__.25(d)

Q l. H ow do exam iners evaluate the
availability and effectiveness o f an
in stitu tio n ’s system s fo r delivering retail
banking services?
A l. Convenient access to full service
branches w ithin a com m unity is an
im portant factor in determining the
availability of credit and non-credit
services. Therefore, the service test
performance standards place primary
emphasis on full service branches while
still considering alternative systems,
such as autom ated teller machines
(“ATMs”). The principal focus is on an
institution’s current distribution of
branches; therefore, an institution is not
required to expand its branch network
or operate unprofitable branches. Under
the service test, alternative systems for
delivering retail banking services, such
as ATMs, are considered only to the
extent that they are effective alternatives
in providing needed services to lowand moderate-income areas and
individuals.
Section__.24(d)(3) Availability and
Effectiveness of Alternative Systems for
Delivering Retail Banking Services
Q l. H ow will exam iners evaluate
alternative system s fo r delivering retail
banking services?
A l. The regulation recognizes the
m ultitude of ways in w hich an
institution can provide services, for
example, ATMs, banking by telephone
or computer, and bank-by-mail
programs. Delivery systems other than
branches will be considered positively
under the regulation to the extent that
they are effective alternatives to
branches in providing needed services
to low-and moderate-income areas and
individuals. The list of systems in the
regulation is not intended to be
inclusive.
Q2. Are debit cards considered under
the service test as an alternative delivery
system?
A2. By themselves, no. However, if
debit cards are a part of a larger
com bination of products, such as a
com prehensive electronic banking
service, that allows an institution to
deliver needed services to low- and
moderate-income areas and individuals
in its community, the overall delivery
system that includes the debit card
feature w ould be considered an
alternative delivery system.

52119

Indirect Activities

Q l. H ow are investm ents in third
party com m unity developm ent
organizations considered under the
com m unity developm ent test?
A l. Similar to the lending test for
retail institutions, investments in third
party com m unity developm ent
organizations m ay be considered as
qualified investments or as com munity
developm ent loans or both (provided
there is no double counting), at the
institution’s option, as described above
in the discussion regarding §§__.22(d)
a n d __.23(b).
S ectio n __.25(f) Community
Development Performance Rating
Q l. M ust a wholesale or lim ited
purpose institution engage in all three
categories o f com m unity developm ent
activities (lending, investm ent and
service) to perform well under the
com m unity developm ent test?
A l. No, a wholesale or limited
purpose institution may perform well
under the com m unity developm ent test
by engaging in one or more of these
activities.
S ectio n .26—Small Institution
Performance Standards
S ectio n _.26(a) Performance Criteria
Q l. M ay exam iners consider, under
one or m ore o f the perform ance criteria
o f the sm all institution perform ance
standards, lending-related activities,
such as com m un ity developm ent loans
and lending-related qualified
investm ents, when evaluating a sm all
institution?
A l. Yes. Examiners can consider
“lending-related activities,” including
com m unity developm ent loans and
lending-related qualified investm ents,
w hen evaluating the first four
perform ance criteria of the small
institution performance test. Although
lending-related activities are specifically
m entioned in the regulation in
connection w ith only the first three
criteria (i.e., loan-to-deposit ratio,
percentage of loans in the institution’s
assessm ent area, and lending to
borrowers of different incom es and
businesses of different sizes), examiners
can also consider these activities w hen
they evaluate the fourth criteria—
geographic distribution of the
institution’s loans.
Q2. W hat is m eant by “as
appropriate” when referring to the fa ct
that lending-related activities will be
considered, “as appropriate, ” under the

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various sm all institution perform ance
criteria?
A2. “As appropriate” m eans that
lending-related activities w ill be
considered w hen it is necessary to
determ ine w hether an institution meets
or exceeds the standards for a
satisfactory rating. Examiners w ill also
consider other lending-related activities
at an institu tio n ’s request.
Q3. W hen evaluating a sm all
in stitu tio n ’s lending performance, will
exam iners consider, at the in stitu tio n ’s
request, com m un ity developm ent loans
originated or purchased by a consortium
in which the institution participates or
by a third party in which the institution
has invested?
A3. Yes. However, a small institution
that elects to have examiners consider
com m unity developm ent loans
originated or purchased by a consortium
or third party m ust m aintain sufficient
inform ation on its share of the
com m unity developm ent loans so that
the examiners may evaluate these loans
u nder the small institution performance
criteria.
Q4. Under the sm all institution
perform ance standards, will exam iners
consider both loan originations and
purchases?
A4. Yes, consistent w ith the other
assessm ent m ethods in the regulation,
examiners w ill consider both loans
originated and purchased by the
institution. Likewise, examiners may
consider any other loan data the small
institution chooses to provide,
including data on loans outstanding,
comm itm ents and letters of credit.
Q5. Under the sm all institution
perform ance standards, h o w will
qualified investm ents be considered fo r
purposes o f determ ining w hether a
sm all institution receives a satisfactory
CRA rating?
A5. The small institution performance
standards focus on lending and other
lending-related activities. Therefore,
examiners w ill consider only lendingrelated qualified investm ents for the
purposes of determ ining w hether the
small institution receives a satisfactory
CRA rating.
S e c tio n _.26(a)(1) Loan-to-Deposit
Ratio
Q l. H ow is the loan-to-deposit ratio
calculated?
A l. A small institution’s loan-todeposit ratio is calculated in the same
m anner that the Uniform Bank
Performance Report/Uniform Thrift
Performance Report (UBPR/UTPR)
determ ines the ratio. It is calculated by
dividing the institution’s net loans and
leases by its total deposits. The ratio is
found in the Liquidity and Investment

Portfolio section of the UBPR and
UTPR. Examiners will use this ratio to
calculate an average since the last
exam ination by adding the quarterly
loan-to-deposit ratios and dividing the
total by the num ber of quarters.
Q2. H ow is the “reasonableness” o f a
loan-to-deposit ratio evaluated?
A2. No specific ratio is reasonable in
every circumstance, and each small
institu tio n ’s ratio is evaluated in light of
inform ation from the performance
context, including the in stitution’s
capacity to lend, demographic and
economic factors present in the
assessm ent area, and the lending
opportunities available in the
assessm ent area(s). If a small
in stitu tio n ’s loan-to-deposit ratio
appears unreasonable after considering
this information, lending performance
m ay still be satisfactory u nder this
criterion taking into consideration the
num ber and the dollar volum e of loans
sold to the secondary market or the
num ber and am ount and innovativeness
or complexity of com m unity
developm ent loans and lending-related
qualified investments.
Q3. I f an institution m akes a large
num ber o f loans off-shore, will
exam iners segregate the dom estic loanto-deposit ratio from the foreign loan-todeposit ratio?
A3. No. Examiners w ill look at the
institution’s net loan-to-deposit ratio for
the w hole institution, w ithout any
adjustm ents.
S ectio n __.26(a)(2) Percentage of
Lending W ithin A ssessm ent Area(s)
Q l. M ust a sm all institution have a
m ajority o f its lending in its assessm ent
area(s) to receive a satisfactory
perform ance rating?
A l. No. The percentage of loans and,
as appropriate, other lending-related
activities located in the bank’s
assessm ent area(s) is but one of the
perform ance criteria upon w hich small
institutions are evaluated. If the
percentage of loans and other lending
related activities in an institution’s
assessment area(s) is less than a
majority, then the institution does not
m eet the standards for satisfactory
perform ance only u nder this criterion.
The effect on the overall performance
rating of the institution, however, is
considered in light of the performance
context, including inform ation
regarding economic conditions, loan
dem and, the institution’s size, financial
condition and business strategies, and
branching netw ork and other aspects of
the institution’s lending record.

S e c tio n __.26(a) (3) & (4) Distribution
of Lending W ithin Assessm ent Area(s)
by Borrower Income and Geographic
Location
Q l. H ow will a sm all in stitu tio n ’s
perform ance be assessed under these
lending distribution criteria?
A l. D istribution of loans, like other
sm all institution performance criteria, is
considered in light of the performance
context. For example, a sm all institution
is not required to lend evenly
throughout its assessm ent area(s) or in
any particular geography. However, in
order to meet the standards for
satisfactory performance u nder this
criterion, conspicuous gaps in a small
institution’s loan distribution m ust be
adequately explained by performance
context factors such as lending
opportunities in the institution’s
assessm ent area(s), the institution’s
product offerings and business strategy,
and institutional capacity and
constraints. In addition, it m ay be
impracticable to review the geographic
distribution of the lending of an
institution w ith few dem ographically
distinct geographies w ithin an
assessment area. If sufficient
inform ation on the income levels of
individual borrowers or the revenues or
sizes of business borrowers is not
available, examiners m ay use proxies
such as loan size for estimating
borrow er characteristics, w here
appropriate.
S ectio n __.26(b)

Performance Rating

Q l. H ow can a sm all institution
achieve an “outstanding” performance
rating?
A l. A small institution that meets
each of the standards for a “satisfactory”
rating and exceeds some or all of those
standards may w arrant an
“ outstanding” performance rating. In
assessing performance at the
“outstanding” level, the agencies
consider the extent to w hich the
institution exceeds each of the
performance standards and, at the
institution’s option, its performance in
making qualified investments and
providing services that enhance credit
availability in its assessment area(s). In
some cases, a small institution may
qualify for an “outstanding”
performance rating solely on the basis of
its lending activities, b u t only if its
performance m aterially exceeds the
standards for a “satisfactory” rating,
particularly w ith respect to the
penetration of borrowers at all income
levels and the dispersion of loans
throughout the geographies in its
assessment area(s) that display income
variation. An institution w ith a high

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
loan-to-deposit ratio and a high
percentage of loans in its assessm ent
area(s), but w ith only a reasonable
penetration of borrowers at all income
levels or a reasonable dispersion of
loans throughout geographies of
differing incom e levels in its assessm ent
area(s), generally w ill not be rated
“outstanding” based only on its lending
performance. However, the institution’s
performance in making qualified
investm ents and its perform ance in
providing branches and other services
and delivery systems that enhance
credit availability in its assessm ent
area(s) m ay augm ent the institution’s
satisfactory rating to the extent that it
m ay be rated “outstanding.”
Q2. Will a sm all in stitu tio n ’s qualified
investm ents, co m m u nity developm ent
loans, and co m m u nity developm ent
services be considered i f th ey do not
directly benefit its assessm ent area(s)?
A2. Yes. These activities are eligible
for consideration if they benefit a
broader statew ide or regional area that
includes a small in stitu tio n ’s
assessment area(s), as discussed more
fully in Q&A6 addressing § § __.12(i) and
563e.12(h).
S e c tio n

S ectio n __.27(f)

Plan Content

S ectio n __.27(f)(1)

M easurable Goals

H ow sh ould “m easurable goals”
be specified in a strategic plan?
A l. M easurable goals (e.g., num ber of
loans, dollar am ount, geographic
location of activity, and benefit to lowand m oderate-incom e areas or
individuals) m ust be stated w ith
sufficient specificity to perm it the
public and the agencies to quantify w hat
perform ance w ill be expected. However,
institutions are provided flexibility in
specifying goals. For example, an
institution may provide ranges of
lending am ounts in different categories
of loans. M easurable goals may also be
linked to funding requirem ents of
certain public programs or indexed to
other external factors as long as these
m echanism s provide a quantifiable
standard.
Q l.

S ectio n

.2 7 (g)

Plan Approval

S e c tio n _.27(g)(2)

Public Participation

H ow will the public receive notice
o f a proposed strategic plan?
A l. An institution subm itting a
strategic plan for approval by the
agencies is required to solicit public
com m ent on the plan for a period of
thirty (30) days after publishing notice
of the plan at least once in a new spaper
of general circulation. The notice should
be sufficiently prom inent to attract
public attention and should make clear
that public com m ent is desired. An
institution may, in addition, provide
notice to the public in any other m anner
it chooses.
Q l.

.27— Strategic plan

S ectio n__.27(c) Plans in General
Q l. To w hat extent will the agencies
provide guidance to an institution
during the developm ent o f its strategic
plan?
A l. An institution w ill have an
opportunity to consult w ith and provide
inform ation to the agencies on a
proposed strategic plan. Through this
process, an institution is provided
guidance on procedures and on the
inform ation necessary to ensure a
com plete submission. For example, the
agencies w ill provide guidance on
w hether the level of detail as set out in
the proposed plan w ould be sufficient to
perm it agency evaluation of the plan.
However, the agencies’ guidance during
plan developm ent and, particularly,
prior to the public com m ent period, w ill
not include com m enting on the merits
of a proposed strategic plan or on the
adequacy of m easurable goals.
Q2. H ow will a jo in t strategic plan be
review ed i f the affiliates have different
prim ary Federal supervisors?
A2. The agencies w ill coordinate
review of and action on the joint plan.
P o in t s A s s ig n e d

Each agency w ill evaluate the
m easurable goals for those affiliates for
w hich it is the prim ary regulator.

fo r

S e c tio n

.28— A ssigned Ratings

S ectio n __.28(a)

Ratings in General

H ow are institutions with
dom estic branches in more than one
state assigned a rating?
A l. The evaluation of an institution
that m aintains domestic branches in
more than one state (“m ultistate
institution”) w ill include a w ritten
evaluation and rating of its CRA record
of perform ance as a w hole and in each
state in w hich it has a dom estic branch.
The w ritten evaluation w ill contain a
separate presentation on a m ultistate
Q l.

in stitution’s perform ance for each
m etropolitan statistical area and the
nonm etropolitan area w ithin each state,
if it m aintains one or more domestic
branch offices in these areas. This
separate presentation will contain
conclusions, supported by facts and
data, on performance u n d er the
perform ance tests and standards in the
regulation. The evaluation of a
m ultistate institution that m aintains a
domestic branch in two or more states
in a m ultistate m etropolitan area will
include a w ritten evaluation (containing
the same inform ation described above)
and rating of its CRA record of
performance in the m ultistate
m etropolitan area. In such cases, the
statew ide evaluation and rating w ill be
adjusted to reflect performance in the
portion of the state not w ithin the
m ultistate m etropolitan statistical area.
Q2. H ow are institutions that operate
within o nly a single state assigned a
rating?
A2. An institution that operates
w ithin only a single state (“single-state
institution”) w ill be assigned a rating of
its CRA record based on its performance
w ithin that state. In assigning this
rating, the agencies w ill separately
present a single-state institution’s
perform ance for each m etropolitan area
in w hich the institution m aintains one
or more domestic branch offices. This
separate presentation w ill contain
conclusions, supported by facts and
data, on the single-state institution’s
performance u nder the performance
tests and standards in the regulation.
Q3. H ow do the agencies weight
perform ance under the lending,
investm ent a nd service test fo r large
retail institutions?
A3. A rating of “ outstanding,” “high
satisfactory,” “low satisfactory,” “needs
to im prove,” or “ substantial
noncom pliance,” based on a judgm ent
supported by facts and data, w ill be
assigned u nder each performance test.
Points w ill then be assigned to each
rating as described in the first m atrix set
forth below. A large retail institution’s
overall rating u n d er the lending,
investm ent and service tests w ill then
be calculated in accordance w ith the
second m atrix set forth below, w hich
incorporates the rating principles in the
regulation.

P e r f o r m a n c e U n d e r L e n d in g , I n v e s t m e n t ,

and

S e r v ic e T e s t s

Lending
Outstanding .............................................................................
High Satisfactory ................................................................................................................................................
Low Satisfactory ..................................................................................................................................................
..........................................
Needs to Im p ro ve .........................................................................
..

Investment

Service

12
9
6
3

6

6

4

4

3
1

3
1

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

52122

P o in ts A s s ig n e d

for

P e r fo r m a n c e U n d er L e n d in g , In v e s t m e n t ,

and

S e r vic e T e sts — C ontinued

Substantial N oncom pliance...............................................................................................................................
C o m p o s it e R a t in g P o in t
R e q u ir e m e n t s
[Add points from three tests]
Rating

Total points

O utstanding...............
Satisfactory ...............
Needs to Improve ....
Substantial Noncompliance.

20 or over.
11 through 19.
5 through 10.
0 through 4.

applications process to overcome a
seriously deficient record of CRA
performance. However, comm itm ents
for im provem ents in an institu tio n ’s
perform ance may be appropriate to
address specific w eaknesses in an
otherwise satisfactory record or to
address CRA performance w hen a
financially troubled institution is being
acquired.
S ectio n __.29(b)

Note: There is one exception to the
Composite Rating matrix. An institution may
not receive a rating of “satisfactory” unless
it receives at least “low satisfactory” on the
lending test. Therefore, the total points are
capped at three times the lending test score.
S e c tio n .29— Effect o f CRA
Performance on A pplications
S ectio n__.29(a)

CRA Performance

Q l. W hat weight is given to an
in stitu tio n ’s CRA perform ance
exam ination in reviewing an
application?
A l. In cases in w hich CRA
perform ance is a relevant factor,
inform ation from a CRA performance
exam ination of the institution is a
particularly im portant consideration in
the applications process because it
represents a detailed evaluation of the
in stitu tion ’s CRA perform ance by its
Federal supervisory agency. In this
light, an exam ination is an im portant,
and often controlling factor in the
consideration of an institution’s record.
In some cases, however, the
exam ination may not be recent or a
specific issue raised in the application
process, such as progress in addressing
w eaknesses noted by examiners,
progress in im plem enting comm itm ents
previously m ade to the reviewing
agency, or a supported allegation from
a commenter, is relevant to CRA
perform ance u n d er the regulation and
was not addressed in the examination.
In these circumstances, the applicant
should present sufficient inform ation to
supplem ent its record of performance
and to respond to the substantive issues
raised in the application proceeding.
Q2. W hat consideration is given to an
in stitu tio n ’s com m itm ents fo r future
action in reviewing an application by
those agencies that consider such
com m itm ents?
A2. Commitments for future action
are not view ed as part of the CRA record
of performance. In general, institutions
cannot use com m itm ents m ade in the

Interested Parties

Q l. W hat consideration is given to
com m ents from interested parties in
reviewing an application?
A l. Materials relating to CRA
performance received during the
applications process can provide
valuable information. W ritten
comments, w hich m ay express either
support for or opposition to the
application, are m ade a part of the
record in accordance w ith the agencies’
procedures, and are carefully
considered in making the agencies’
decision. Comments should be
supported by facts about the ap plicant’s
performance and should be as specific
as possible in explaining the basis for
supporting or opposing the application.
These com ments m ust be subm itted
w ithin the tim e limits provided under
the agencies’ procedures.
Q2. Is an institution required to enter
into agreements with private parties?
A2. No. A lthough com m unications
betw een an institution and members of
its com m unity may provide a valuable
m ethod for the institution to assess how
best to address the credit needs of the
com m unity, the CRA does not require
an institution to enter into agreements
w ith private parties. These agreements
are not m onitored or enforced by the
agencies.
S e c tio n .41—A ssessm ent Area
Delineation
S e c tio n _____ -41(a)

In General

Q l. H ow do the agencies evaluate
“assessm ent areas” under the revised
CRA regulations com pared to h ow they
evaluated “local co m m unities” that
institutions delineated under the
original CRA regulations?
A l. The revised rule focuses on the
distribution and level of an institu tion ’s
lending, investments, and services
rather th an on how and w hy an
institution delineated its “local
com m unity” or assessment area(s) in a
particular m anner. Therefore, the

Investment

Service

Lending
0

0

0

agencies will not evaluate an
institution’s delineation of its
assessment area(s) as a separate
perform ance criterion as they did under
the original regulation. Rather, the
agencies w ill only review w hether the
assessm ent area delineated by the
institution complies w ith the lim itations
set forth in the regulations at § __.41(e).
Q2. I f an institution elects to have the
agencies consider affiliate lending, will
this decision affect the in stitu tio n ’s
assessm ent area(s)?
A2. If an institution elects to have the
lending activities of its affiliates
considered in the evaluation of the
institu tio n ’s lending, the geographies in
w hich the affiliate lends do not affect
the in stitution’s delineation of
assessm ent area(s).
Q3. Can a financial institution
id en tify a specific ethnic group rather
than a geographic area as its assessm ent
area?
A3. No, assessm ent areas m ust be
based on geography.
S ectio n __.41(c) Geographic Area(s) for
Institutions Other Than Wholesale or
Limited Purpose Institutions
S ectio n _.41(c)(1) Generally Consist
of one or More MSAs or one or More
Contiguous Political Subdivisions
Q l. Besides cities, towns, and
counties, what other units o f local
governm ent are political subdivisions
fo r CRA purposes?
A l. Tow nships and Indian
reservations are political subdivisions
for CRA purposes. Institutions should
be aware that the boundaries of
tow nships and Indian reservations may
not be consistent w ith the boundaries of
the census tracts or block num bering
areas (“geographies”) in the area. In
these cases, institutions m ust ensure
that their assessm ent area(s) consists
only of w hole geographies by adding
any portions of the geographies that lie
outside the political subdivision to the
delineated assessm ent area(s).
Q2. Are wards, school districts, voting
districts, and water districts political
subdivisions fo r CRA purposes?
A2. No. However, an institution that
determ ines that it predom inantly serves
an area that is sm aller than a city, town
or other political subdivision may
delineate as its assessm ent area the
larger political subdivision and then, in
accordance w ith § _.41(d), adjust the
boundaries of the assessm ent area to

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
include only the portion of the political
subdivision that it reasonably can be
expected to serve. The sm aller area that
the institution delineates m ust consist
of entire geographies, m ay n ot reflect
illegal discrim ination, and may not
arbitrarily exclude low-or moderateincom e geographies.
S e c tio n _.41(d) A djustm ents to
Geographic Area(s)
Q l. W hen m a y an institution adjust
the boundaries o f an assessm ent area to
include only a portion o f a political
subdivision?
A l. Institutions m ust include whole
geographies (i.e., census tracts or block
num bering areas) in their assessment
areas and generally should include
entire political subdivisions. Because
census tracts and block num bering areas
are the com m on geographic areas used
consistently nationw ide for data
collection, the agencies require that
assessm ent areas be m ade up of w hole
geographies. If including an entire
political subdivision w ould create an
area that is larger than the area the
institution can reasonably be expected
to serve, an institution may, b u t is not
required to, adjust the boundaries of its
assessm ent area to include only portions
of the political subdivision. For
example, this adjustm ent is appropriate
if the assessm ent area w ould otherwise
be extremely large, of unusual
configuration, or divided by significant
geographic barriers (such as a river,
m ountain, or major highw ay system).
W hen adjusting the boundaries of their
assessm ent areas, institutions m ust not
arbitrarily exclude low- or moderateincome geographies or set boundaries
that reflect illegal discrim ination.
Section__.41(e) Limitations on
Delineation of an Assessment Area
Section_.41(e)(3) May not Arbitrarily
Exclude Low- or M oderate-income
Geographies
Q l. H ow will exam iners determ ine
whether an institution has arbitrarily
excluded low- or m oderate-incom e
geographies?
A l. Examiners w ill make this
determ ination on a case-by-case basis
after considering the facts relevant to
the institu tio n ’s assessm ent area
delineation. Inform ation that examiners
w ill consider m ay include:
• Income levels in the institu tio n ’s
assessm ent area(s) and surrounding
geographies;
• Locations of branches and deposittaking ATMs;
• Loan distribution in the
institu tio n ’s assessm ent area(s) and
surrounding geographies;

• The institution’s size;
• The institution’s financial
condition; and
• The business strategy, corporate
structure and product offerings of the
institution.
Section__.41(e)(4) May not Extend
Substantially Beyond a CMSA Boundary
or Beyond a State Boundary Unless
Located in a Multistate MSA
Q l. W hat are the m axim um lim its on
the size o f an assessm ent area?
A l. An institution shall not delineate
an assessment area extending
substantially across the boundaries of a
consolidated m etropolitan statistical
area (CMSA) or the boundaries of an
MSA, if the MSA is not located in a
CMSA. Similarly, an assessment area
may not extend substantially across
state boundaries unless the assessment
area is located in a m ultistate MSA. An
institution may not delineate a whole
state as its assessm ent area unless the
entire state is contained w ithin a CMSA.
These lim itations apply to wholesale
and lim ited purpose institutions as well
as other institutions.
An institution shall delineate separate
assessment areas for the areas inside
and outside a CMSA (or MSA if the
MSA is not located in a CMSA) if the
area served by the institution’s branches
outside the CMSA (or MSA) extends
substantially beyond the CMSA (or
MSA) boundary. Similarly, the
institution shall delineate separate
assessment areas for the areas inside
and outside of a state if the institution’s
branches extend substantially beyond
the boundary of one state (unless the
assessment area is located in a
multistate MSA). In addition, the
institution should also delineate
separate assessment areas if it has
branches in areas w ithin the same state
that are w idely separate and not at all
contiguous. For example, an institution
that has its m ain office in New York
City and a branch in Buffalo, New York,
and each office serves only the
im m ediate areas around it, should
delineate two separate assessment areas.
Q2. Can an institution delineate one
assessm ent area that consists o f an M SA
and two large counties that abut the
M SA but are not adjacent to each other?
A2. As a general rule, an institution’s
assessment area should not extend
substantially beyond the boundary of an
MSA if the MSA is not located in a
CMSA. Therefore, the MSA w ould be a
separate assessment area, and because
the two abutting counties are not
adjacent to each other and, in this
example, extend substantially beyond
the boundary of the MSA, the
institution w ould delineate each county

as a separate assessment area (so, in this
example, there w ould be three
assessment areas). However, if the MSA
and the two counties were in the same
CMSA, then the institution could
delineate only one assessment area
including them all.
Section__.42—Data Collection,
Reporting, and Disclosure
Q l. When m u st an institution collect
and report data under the CRA
regulations?
A l. All institutions except small
institutions are subject to data collection
and reporting requirements. A small
institution is a bank or thrift that, as of
December 31 of either o f the prior two
calendar years, had total assets of less
than $250 m illion and was independent
or an affiliate of a holding company
that, as of December 31 of either of the
prior two calendar years, had total
banking and thrift assets of less than $1
billion.
For example:

Date

12/31/94
12/31/95
12/31/96
12/31/97
12/31/98

............
............
............
............
............

Institution’s
asset size
(millions)

$240
$260
$230
$280
$260

Data collec­
tion re­
quired for
following
calendar
year?
No.
No.
No.
No.
Yes,
beginning 1/
01/99.

All institutions that are subject to the
data collection and reporting
requirem ents m ust report the data for a
calendar year by M arch 1 of the
subsequent year. In the example, above,
the institution w ould report the data
collected for calendar year 1999 by
M arch 1, 2000.
The Board of Governors of the Federal
Reserve System is handling the
processing of the reports for all of the
prim ary regulators. The reports should
be subm itted in a prescribed electronic
format on a tim ely basis. The mailing
address for subm itting these reports is:
Attention: CRA Processing, Board of
Governors of the Federal Reserve
System, 1709 New York Avenue, N.W.,
5th Floor, W ashington, DC 20006.
Q2. S hould an institution develop its
own program fo r data collection, or will
the regulators require a certain form at?
A2. An institution m ay use the free
software that is provided by the FFIEC
to reporting institutions for data
collection and reporting or develop its
own program. Those institutions that
develop their own programs must
follow the precise format for the new

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

CRA data collection and reporting rules.
This format may be obtained by
contacting the CRA Assistance Line at
(202) 872-7584.
Q3. H ow should an institution report
data on lines o f credit?
A3. Institutions m ust collect and
report data on lines of credit in the same
way that they provide data on loan
originations. Lines of credit are
considered originated at the tim e the
line is approved or increased; and an
increase is considered a new
origination. Generally, the full am ount
of the credit line is the am ount that is
considered originated. In the case of an
increase to an existing line, the am ount
of the increase is the am ount that is
considered originated and that am ount
should be reported.
Q4. S hould renewals o f lines o f credit
be reported?
A4. No. Sim ilar to loan renewals,
renew als of lines of credit are not
considered loan originations and should
not be reported.
Q5. W hen should merging institutions
collect data?
A5. Three scenarios of data collection
responsibilities for the calendar year of
a m erger and subsequent data reporting
responsibilities are described below.
• Two institutions are exem pt from
CRA collection and reporting
requirem ents because of asset size. The
institutions merge. No data collection is
required for the year in w hich the
merger takes place, regardless of the
resulting asset size. Data collection
w ould begin after two consecutive years
in w hich the com bined institution had
year-end assets of at least $250 m illion
or was part of a holding com pany that
h ad year-end banking and thrift assets of
at least $1 billion.
• Institution A, an institution
required to collect and report the data,
and Institution B, an exem pt institution,
merge. Institution A is the surviving
institution. For the year of the merger,
data collection is required for Institution
A ’s transactions. Data collection is
optional for the transactions of the
previously exem pt institution. For the
following year, all transactions of the
surviving institution m ust be collected
and reported.
• Two institutions that each are
required to collect and report the data
merge. Data collection is required for
the entire year of the merger and for
subsequent years so long as the
surviving institution is not exempt. The
surviving institution m ay file either a
consolidated subm ission or separate
subm issions for the year of the merger
b u t m ust file a consolidated report for
subsequent years.

Q6. Can sm all institutions get a copy
o f the data collection software even
though they are not required to collect
or report data?
A6. Yes. Any institution that is
interested in receiving a copy of the
software may send a w ritten request to:
Attn.: CRA Processing, Board of
Governors of the Federal Reserve
System, 1709 New York Ave, N.W., 5th
Floor, W ashington, DC 20006.
They may also call the CRA
Assistance Line at (202) 872-7584 or
send Internet e-mail to
CRAHELP@FRB.GOV.
Q7. I f a sm all institution is designated
a wholesale or lim ited purpose
institution, m u st it collect data that it
w ould not otherwise be required to
collect because it is a sm all institution?
A 7. No. However, small institutions
m ust be prepared to identify those
loans, investm ents and services to be
evaluated u n d er the com m unity
developm ent test.
Section_.42(a) Loan Information
Required to be Collected and
M aintained
Q l. M ust institutions collect and
report data on all com m ercial loans
under $1 m illion at origination?
A l. No. Institutions that are not
exem pt from data collection and
reporting are required to collect and
report only those commercial loans that
they capture in the Call Report,
Schedule RC-C, Part II, and in the TFR,
Schedule SB. Small business loans are
defined as those w hose original
am ounts are $1 m illion or less and that
were reported as either “Loans secured
by nonfarm or nonresidential real
estate” or “Commercial and Industrial
loans” in Part I of the Call Report or
TFR.
Q2. For loans defined as sm all
business loans, w hat inform ation should
be collected and m aintained?
A2. Institutions that are not exempt
from data collection and reporting are
required to collect and m aintain in a
standardized, m achine readable format
inform ation on each small business loan
originated or purchased for each
calendar year:
• A u nique num ber or alpha-num eric
symbol th at can be used to identify the
relevant loan file;
• The loan am ount at origination;
• The loan location; and
• An indicator w hether the loan was
to a business w ith gross annual
revenues of $1 m illion or less.
The location of the loan m ust be
m aintained by census tract or block
num bering area. In addition,
supplem ental inform ation contained in
the file specifications includes a date

associated w ith the origination or
purchase and w hether a loan was
originated or purchased by an affiliate.
The same requirem ents apply to small
farm loans.
Q3. Will farm loans need to be
segregated from business loans?
A3. Yes.
Q4. Should institutions collect and
report data on all agricultural loans
under $500,000 at origination?
A4. Institutions are to report those
farm loans that they capture in the Call
Report, Schedule RC-C, Part II and
Schedule SB of the TFR. Small farm
loans are defined as those whose
original am ounts are $500,000 or less
and were reported as either “Loans to
finance agricultural production and
other loans to farmers” or “Loans
secured by farm land” in Part I of the
Call Report and TFR.
Q5. Should institutions collect and
report data about sm all business and
sm all farm loans that are refinanced or
renewed?
A5. An institution collects and reports
inform ation about refinancings but does
not collect and report inform ation about
renewals. A refinancing typically
involves the satisfaction of an existing
obligation that is replaced by a new
obligation undertaken by the same
borrower. W hen an institution
refinances a loan, it is considered a new
origination and loan data should be
collected and reported if otherwise
required. Consistent w ith HMDA,
however, if under the original loan
agreement, the institution is
unconditionally obligated to refinance
the loan, or is obligated to refinance the
loan subject to conditions w ithin the
borrow er’s control, the institution
w ould not report these events as
originations.
For purposes of the CRA data
collection and reporting requirem ents,
an extension of the m aturity of an
existing loan is a renewal, and is not
considered a loan origination.
Therefore, institutions should not
collect and report data on loan
renewals.
Q6. Does a loan to the “
fish in g
ind ustry” com e under the definition o f
a sm all farm loan?
A6. Yes. Instructions for Part I of the
Call Report and Schedule SB of the TFR
include loans “made for the purpose of
financing fisheries and forestries,
including loans to commercial
fisherm en” as a com ponent of the
definition for “Loans to finance
agricultural production and other loans
to farmers.” Part II of Schedule RC-C o “
the Call Report and Schedule SB of *’
TFR, w hich serve as the basis of thb

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
definition for small business and small
farm loans in the revised regulation,
capture both “Loans to finance
agricultural production and other loans
to farmers” and “Loans secured by
farm land.”
Q7. H ow should an institution report
a h om e equity line o f credit, part o f
which is fo r hom e im provem ent
purposes, but the predom inant part o f
which is fo r sm all business purposes?
A 7. The institution has the option of
reporting the portion of the hom e equity
line that is for home im provem ent
purposes u n der HMDA. That portion of
the loan w ould then be considered
w hen examiners evaluate home
mortgage lending. If the line meets the
regulatory definition of a “com m unity
developm ent loan,” the institution
should collect and report information
on the entire line as a com m unity
developm ent loan. If the line does not
qualify as a com m unity developm ent
loan, the institution has the option of
collecting and m aintaining (but not
reporting) the entire line of credit as
“Other Secured Lines/Loans for
Purposes of Small Business.”
Q8. When collecting sm all business
a nd sm all farm data fo r CRA purposes,
m a y an institution collect and report
inform ation about loans to sm all
businesses and sm all farm s located
outside the United States?
A8. At an institution’s option, it may
collect data about small business and
small farm loans located outside the
U nited States; however, it cannot report
this data because the CRA data
collection software w ill not accept data
concerning loan locations outside the
United States.
Q9. Is an institution that has no sm all
farm or sm all business loans required to
report under CRA?
A9. Each institution subject to data
reporting requirem ents m ust, at a
m inim um , subm it a transm ittal sheet,
definition of its assessm ent area(s), and
a record of its com m unity developm ent
loans. If the institution does not have
com m unity developm ent loans to
report, the record should be sent w ith
“ 0” in the com m unity developm ent
loan com posite data fields. An
institution that has not purchased or
originated any small business or small
farm loans during the reporting period
w ould not subm it the com posite loan
records for small business or small farm
loans.
Q10. H ow sh ould an institution
collect and report the location o f a loan
m ade to a sm all business or farm i f the
borrower provides an address that
consists o f a po st office box num ber or
a rural route and box num ber?

A10. Prudent banking practices
dictate that an institution know the
location of its custom ers or loan
collateral. Therefore, institutions
typically w ill know the actual location
of their borrowers or loan collateral
beyond an address consisting only of a
post office box.
M any borrowers have street addresses
in addition to post office box num bers
or rural route and box numbers.
Institutions should ask their borrowers
to provide the street address of the m ain
business facility or farm or the location
w here the loan proceeds otherw ise w ill
be applied. Once the institution receives
this inform ation from the borrower, it
should assign a census tract or block
num bering area to that location
(geocode) and report that inform ation as
required u nder the regulation.
There may be cases in w hich a
borrower cannot provide a street
address because of the rural nature of
the com m unity. If a borrow er can
provide only a rural route and box
number, or in those rare instances in
w hich a borrow er reports a post office
box and the institution cannot
determ ine the location of the business,
the following guidance w ill apply,
depending on the date the loan is
originated or purchased:
• For loans originated or purchased
in 1997, if an institution cannot
determ ine the borrow er’s street address,
the institution should geocode the
location of the loan using the town,
state, and zip code of the location of the
post office as a proxy for the location of
the borrower. In cases w here the
assigned location of the zip code for the
rural route and box num ber or post
office box encom passes more than one
census tract or block num bering area,
the institution should be able to provide
a specific rationale for the census tract
or block num bering area selected for
geocoding purposes.
• For loans originated or purchased
in 1998 or later, if the institution cannot
determ ine the borrow er’s street address,
the institution should report the
borrow er’s state, county, MSA, if
applicable, and “NA,” for “not
available,” in lieu of a census tract or
block num bering area code.
S ectio n __.42(a)(2) Loan A m ount at
Origination
Q l. When an institution purchases a
sm all business or sm all farm loan,
which am ount should the institution
collect and report— the original am ount
o f the loan or the am ount at purchase?
A l. W hen collecting and reporting
information on purchased small
business and small farm loans, an
institution collects and reports the

52125

am ount of the loan at origination, not at
the time of purchase. This is consistent
w ith the Call Report’s and TFR’s use of
the “original am ount of the loan” to
determ ine w hether a loan should be
reported as a “loan to a small business”
or a “loan to a small farm” and in w hich
loan size category a loan should be
reported. W hen assessing the volume of
small business and small farm loan
purchases for purposes of evaluating
lending test performance under CRA,
however, examiners will evaluate an
institution’s activity based on the
amounts at purchase.
Q2. How should an institution collect
data about m ultiple loan originations to
the sam e business?
A2. If an institution makes m ultiple
originations to the same business, the
loans should be collected and reported
as separate originations rather than
com bined and reported as they are on
the Call Report or TFR, w hich reflect
loans outstanding, rather than
originations. However, if institutions
make m ultiple originations to the same
business solely to inflate artificially the
num ber or volume of loans evaluated for
CRA lending performance, the agencies
may combine these loans for purposes
of evaluation under the CRA.
Q3. H ow should an institution collect
data pertaining to credit cards issued to
sm all businesses?
A3. If an institution agrees to issue
credit cards to a business’ employees,
all of the credit card lines opened on a
particular date for that single business
should be reported as one small
business loan origination rather than
reporting each individual credit card
line, assuming the criteria in the “small
business loan” definition in the
regulation are met. The credit card
program’s “am ount at origination” is the
sum of all of the em ployee/business
credit cards” credit limits opened on a
particular date. If subsequently issued
credit cards increase the small business
credit line, the added am ount is
reported as a new origination.
Section__.42(a)(3) The Loan Location
Q l. Which location should an
institution record i f a sm all business
lo a n ’s proceeds are used in a variety o f
locations?
A l. The institution should record the
loan location by either the location of
the business headquarters or the
location where the greatest portion of
the proceeds are applied, as indicated
by the borrower.
Section__.42(a)(4) Indicator of Gross
A nnual Revenue
Q l. When indicating whether a small
business borrower h a d gross annual

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Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

revenues o f $1 m illion or less, upon
what revenues should an institution
rely?
A l. Generally, an institution should
rely on the revenues that it considered
in making its credit decision. For
example, in the case of affiliated
businesses, such as a parent corporation
and its subsidiary, if the institution
considered the revenues of the entity’s
parent or a subsidiary corporation of the
parent as well, then the institution
w ould aggregate the revenues of both
corporations to determ ine w hether the
revenues are $1 m illion or less.
Alternatively, if the institution
considered the revenues of only the
entity to w hich the loan is actually
extended, the institution should rely
solely upon w hether gross annual
revenues are above or below $1 m illion
for that entity. However, if the
institution considered and relied on
revenues or incom e of a cosigner or
guarantor that is not an affiliate of the
borrower, the institution should not
adjust the borrow er’s revenues for
reporting purposes.
Q2. I f an institution that is n ot exem pt
from data collection and reporting does
n o t request or consider revenue
inform ation to m a ke the credit decision
regarding a sm all business or sm all farm
loan, m u st the institution collect
revenue inform ation in connection with
that loan?
A2. No. In those instances, the
institution should enter the code
indicating “revenues not know n” on the
individual loan portion of the data
collection software or on an internally
developed system. Loans for w hich the
institution did not collect revenue
inform ation may n ot be included in the
loans to businesses and farms w ith gross
annual revenues of $1 m illion or less
w hen reporting this data.
Q3. W hat gross revenue should an
institution use in determ ining the gross
annual revenue o f a start-up business?
A3. The institution should use the
actual gross annual revenue to date
(including $0 if the new business has
had no revenue to date). A lthough a
start-up business w ill provide the
institution w ith pro forma projected
revenue figures, these figures may not
accurately reflect actual gross revenue.
Section__.42(b) Loan Information
Required To Be Reported
Section__.42(b)(1) Small Business and
Small Farm Loan Data
Q l. For sm all business and sm all
farm loan inform ation that is collected
and m aintained, what data should be
reported?
A l. Each institution that is not
exem pt from data collection and

reporting is required to report in
machine-readable form annually by
March 1 the following information,
aggregated for each census tract or block
num bering area in w hich the institution
originated or purchased at least one
small business or small farm loan
during the prior year:
• The num ber and am ount of loans
originated or purchased w ith original
am ounts of $100,000 or less;
• The num ber and am ount of loans
originated or purchased w ith original
amounts of more than $100,000 but less
than or equal to $250,000;
• The num ber and am ount of loans
originated or purchased w ith original
amounts of more than $250,000 but not
more than $1 million; and
• To the extent that information is
available, the num ber and am ount of
loans to businesses and farms w ith gross
annual revenues of $1 m illion or less
(using the revenues the institution
considered in making its credit
decision).
S ectio n _.42(b)(2) Com munity
Development Loan Data
Q l. W hat inform ation about
com m u n ity developm ent loans m u st
institutions report?
A l. Institutions subject to data
reporting requirem ents m ust report the
aggregate num ber and am ount of
com m unity developm ent loans
originated and purchased during the
prior calendar year.
Q2. I f a loan m eets the definition o f
a h om e mortgage, sm all business, or
sm all farm loan AN D qualifies as a
com m un ity developm ent loan, where
should it be reported? Can FHA, VA and
SBA loans be reported as com m un ity
developm ent loans?
A2. Except for m ultifam ily affordable
housing loans, w hich may be reported
by retail institutions both u nder HMDA
as hom e mortgage loans and as
com m unity developm ent loans, in order
to avoid double counting, retail
institutions m ust report loans that m eet
the definitions of hom e mortgage, small
business, or small farm loans only in
those respective categories even if they
also m eet the definition of com m unity
developm ent loans. As a practical
matter, this is not a disadvantage for
retail institutions because any affordable
housing mortgage, small business, small
farm or consum er loan that w ould
otherwise m eet the definition of a
com m unity developm ent loan w ill be
considered elsewhere in the lending
test. Any of these types of loans that
occur outside the institution’s
assessment area can receive favorable
consideration u nder the borrower

characteristic criteria of the lending test.
See Q&A4 u n d er § __.22(b) (2) & (3).
Limited purpose and w holesale
institutions also m ust report loans that
m eet the definitions of hom e mortgage,
small business, or small farm loans in
those respective categories; however,
they m ust also report any loans from
those categories that m eet the regulatory
definition of “com m unity developm ent
loans” as com m unity developm ent
loans. There is no double counting
because w holesale and lim ited purpose
institutions are not subject to the
lending test and, therefore, are not
evaluated on their level and distribution
of home mortgage, small business, small
farm and consum er loans.
S e c tio n __.42(b)(3)
Loans

Home Mortgage

Q l. M ust institutions that are not
required to collect hom e mortgage loan
data by the HMDA collect hom e
mortgage loan data fo r purposes o f the
CRA?
A l. No. If an institution is not
required to collect hom e mortgage loan
data by the HMDA, the institution need
not collect hom e mortgage loan data
u nder the CRA. Examiners w ill sample
these loans to evaluate the institutio n ’s
hom e mortgage lending. If an institution
wants to ensure that examiners consider
all of its hom e mortgage loans, the
institution may collect and m aintain
data on these loans.
S ectio n __.42(c) Optional data
collection and m aintenance
S ectio n __.42(c)(1)

Consumer loans

Q l. W hat are the data requirem ents
regarding consum er loans?
A l. There are no data reporting
requirem ents for consum er loans.
Institutions may, however, opt to collect
and m aintain data on consum er loans. If
an institution chooses to collect
inform ation on consum er loans, it may
collect data for one or more of the
following categories of consum er loans:
m otor vehicle, credit card, hom e equity,
other secured, and other unsecured. If
an institution collects data for loans in
a certain category, it m ust collect data
for all loans originated or purchased
w ithin that category. The institution
m ust m aintain these data separately for
each category for w hich it chooses to
collect data. The data collected and
m aintained should include for each
loan:
• A unique num ber or alpha-num eric
symbol that can be used to identify the
relevant loan file;
• The loan am ount at origination or
purchase;
• The loan location; and

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices
•
The gross annual income of the
borrow er that the institution considered
in making its credit decision.
S e c tio n __.42(c)(l)(iv) Income of
borrower
Q l. I f an institution does n ot consider
incom e when m aking an underwriting
decision in connection with a consum er
loan, m u st it collect incom e
inform ation?
A l. No. Further, if the institution
routinely collects, but does not verify, a
borrow er’s incom e w hen making a
credit decision, it need not verify the
income for purposes of data
m aintenance.
Q2. M a ya n institution list “0 ” in the
incom e fie ld on consum er loans m ade
to em ployees when collecting data fo r
CRA purposes as the institution would
be perm itted to do under HMDA?
A2. Yes.
S e c tio n _.42(c)(2) O ther Loan Data
Q l. Schedule RC-C, Part II o f the Call
Report and schedule SB o f the TFR do
not allow fina ncial institutions to report
loans fo r com m ercial and industrial
purposes that are secured by residential
real estate. Loans extended to sm all
businesses with gross annual revenues
o f $1 m illion or less m ay, however, be
secured b y residential real estate. Is
there a w ay to collect this inform ation
on the software to su pp lem en t an
in stitu tio n ’s sm all business lending data
at the tim e o f exam ination?
A l. Yes. If these loans prom ote
com m unity developm ent, as defined in
the regulation, the institution should
collect and report inform ation about
these loans as com m unity developm ent
loans. Otherwise, at an in stitu tio n ’s
option, it may collect and m aintain data
concerning loans, purchases, and lines
of credit extended to small businesses
and secured by residential real estate for
consideration in the CRA evaluation of
its small business lending. To facilitate
this optional data collection, the
software distributed free-of-charge by
the FFIEC provides that an institution
may collect this inform ation to
supplem ent its small business lending
data by choosing loan type, “Other
Secured Lines/Loans for Purposes of
Small Business,” in the individual loan
data. (The title of the loan type, “Other
Secured Lines of Credit for Purposes of
Small Business,” w hich was found in
the instructions accompanying the 1996
data collection software, is being
changed to “Other Secured Lines/Loans
for Purposes of Small Business” in order
to accurately reflect that lines of credit
and loans m ay be reported u nder this
loan type.) This inform ation should be
m aintained at the institution but should

n o t be subm itted for central reporting
purposes.
Q2. M ust an institution collect data
on loan com m itm ents and letters o f
credit?
A2. No. Institutions are not required
to collect data on loan com mitments
and letters of credit. Institutions may,
however, provide for exam iner
consideration inform ation on letters of
credit and commitments.
Q3. A re com m ercial and consum er
leases considered loans fo r purposes o f
CRA data collection?
A3. Commercial and consum er leases
are not considered small business or
small farm loans or consum er loans for
purposes of the data collection
requirem ents in 12 CFR § __.42(a) &
(c)(1)- However, if an institution wishes
to collect and m aintain data about
leases, the institution may provide this
data to examiners as “other loan data”
under 12 CFR § _.42(c)(2) for
consideration u nder the lending test.
S e c tio n _.42(d)
Lending

Data on Affiliate

Q l. I f an institution elects to have an
affiliate’s h om e mortgage lending
considered in its CRA evaluation, what
data m u st the institution m ake available
to examiners?
A l. If the affiliate is a HMDA reporter,
the institution m ust identify those loans
reported by its affiliate u n d er 12 CFR
part 203 (Regulation C, im plem enting
HMDA). At its option, the institution
m ay either provide examiners w ith the
affiliate’s entire HMDA Disclosure
Statem ent or just those portions
covering the loans in its assessm ent
area(s) that it is electing to consider. If
the affiliate is not required by HMDA to
report hom e mortgage loans, the
institution m ust provide sufficient data
concerning the affiliate’s hom e mortgage
loans for the examiners to apply the
perform ance tests.
S ectio n .43—Content and Availability
of Public File
S ectio n .43(a)
to the Public

Inform ation Available

S e c tio n .43(a)(1) Public Comments
Q l. W hat ha ppens to com m ents
received b y the agencies?
A l. Comments received by a Federal
financial supervisory agency w ill be on
file at the agency for use by examiners.
Those com m ents are also available to
the public unless they are exem pt from
disclosure u nder the Freedom of
Information Act.
Q2. Is an institution required to
respond to public com m ents?
A2. No. All institutions should review
com ments and com plaints carefully to

52127

determ ine w hether any response or
other action is w arranted. A small
institution subject to the small
institution performance standards is
specifically evaluated on its record of
taking action, if w arranted, in response
to w ritten com plaints about its
perform ance in helping to meet the
credit needs in its assessm ent area(s)
(§_.26(a)(5)). For all institutions,
responding to com ments m ay help to
foster a dialogue w ith members of the
com m unity or to present relevant
inform ation to an institutio n ’s Federal
financial supervisory agency. If an
institution responds in writing to a
letter in the public file, the response
m ust also be placed in that file, unless
the response reflects adversely on any
person or placing it in the public file
violates a law.
Q3. M ay an institution include a
response to its CRA Performance
Evaluation in its public file?
A3. Yes. However, the format and
content of the evaluation, as transm itted
by the supervisory agency, may not be
altered or abridged in any m anner. In
addition, an institution that received a
less than satisfactory rating during it
m ost recent exam ination m ust include
in its public file a description of its
current efforts to im prove its
perform ance in helping to meet the
credit needs of its entire community.
The institution m ust update the
description on a quarterly basis.
S e c tio n __.43(b) Additional
Information Available to the Public
S ectio n __.43(b)(1) Institutions Other
Than Small Institutions
Q l. M ust an institution that elects to
have affiliate lending considered
include data on this lending in its
public file?
A l. Yes. The lending data to be
contained in an institution’s public file
covers the lending of the institution’s
affiliates, as well as of the institution
itself, considered in the assessment of
the institution’s CRA performance. An
institution that has elected to have
mortgage loans of an affiliate considered
m ust include either the affiliate’s
HMDA Disclosure Statements for the
two prior years or the parts of the
Disclosure Statements that relate to the
institution’s assessment area(s), at the
institution’s option.
Section_.43(c)
Information

Location of Public

Q l. W hat is an in stitu tio n ’s “m ain
office”?
A l. An institu tio n ’s m ain office is the
m ain, home, or principal office as
designated in its charter.

52128

Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

Section .44— Public Notice by
Institutions
Q l. A re there a n y pla cem ent or size
requirem ents fo r an in stitu tio n ’s public
notice?
A l. The notice m ust be placed in the
institu tio n ’s public lobby, but the size
and placem ent m ay vary. The notice
should be placed in a location and be of
a sufficient size that custom ers can
easily see and read it.

Appendix A
Regional Offices o f the Bureau o f the
Census
To obtain m edian family income
levels of census tracts, MS As, block
num bering areas and statewide
nonm etropolitan areas, contact the
appropriate regional office of the Bureau
of the Census as indicated below. The
list shows the states covered by each
regional office.

Section .45—Publication o f Planned
Exam ination Schedule

Atlanta, (404) 730-3833

Q l. Where will the agencies publish
the pla nned exam ination schedule fo r
the upcom ing calendar quarter?
A l. The agencies may use the Federal
Register, a press release, the Internet, or
other existing agency publications for
dissem inating the list of the institutions
scheduled to for CRA exam inations
during the upcom ing calendar quarter.
Interested parties should contact the
appropriate Federal financial
supervisory agency for inform ation on
how the agency is publishing the
planned exam ination schedule.
Q2. Is inclusion on the list o f
institutions that are scheduled to
undergo CRA exam inations in the n ext
calendar quarter determ inative o f
w hether an institution will be exam ined
in that quarter?
A2. No. The agencies attem pt to
determ ine as accurately as possible
w hich institutions w ill be exam ined
during the upcom ing calendar quarter.
However, w hether an in stitu tio n ’s name
appears on the published list does not
conclusively determ ine w hether the
institution w ill be exam ined during that
quarter. The agencies may need to defer
a planned exam ination or conduct an
unforeseen exam ination because of
scheduling difficulties or other
circum stances.

Boston, (617) 424-0510

A p p e n d ix B to Part_CRA Notice

N ew York, Puerto Rico

Q l. What agency inform ation should
be added to the CRA notice form ?
A l. The following inform ation should
be added to the form:
OCC-supervised institutions only: The
address of the deputy com ptroller of the
district in w hich the institution is
located should be inserted in the
appropriate blank. These addresses can
be found at 12 CFR § 4.5(a).
OCC-, FDIC-, and Board-supervised
institutions: “Officer in Charge of
S upervision” is the title of the
responsible official at the appropriate
Federal Reserve Bank.

Alabam a, Florida, Georgia

Connecticut, M aine, M assachusetts,
N ew Hampshire, R hode Island, Vermont
Charlotte, (704) 344-6144
District o f Columbia, Kentucky, North
Carolina, South Carolina, Tennessee,
Virginia
Chicago, (708) 562-1740
Illinois, Indiana, W isconsin
Dallas, (214) 640-4470 or (800) 8359752
Louisiana, M ississippi, Texas
Denver, (303) 969-7750
Arizona, Colorado, Nebraska, N ew
Mexico, North Dakota, South Dakota,
Utah, W yoming
Detroit, (313) 259-1875
M ichigan, Ohio, West Virginia
Kansas City, (913) 551-6711
A rkansas, Iowa, Kansas, M innesota,
Missouri, O klahoma
Los Angeles, (818) 904-6339
California
N ew York, (212) 264-4730

Philadelphia, (215) 597-8313 or (215)
597-8312
Delaware, Maryland, N ew Jersey,
Pennsylvania
Seattle, (206) 728-5314
A laska, Hawaii, Idaho, M ontana,
Nevada, Oregon, Washington
Dated: September 29,1997.
Joe M. Cleaver,

Executive Secretary, Federal Financial
Institutions Examination Council.

[FR Doc. 97-26206 Filed 10-3-97; 8:45 am]
BILLING CODE 4810-33-P; 6714-01-P; 6210-01-P 672001-P


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102