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EDERÂL DEPOSIT INSURANCE CORPORATION
T E S T I M O N Y OF
A N D R E W C. HOVE, JR.
ACTING CHAIRMAN
F E D E R A L D E P O S I T INS U R A N C E C O R P O R A T I O N
ON
C H A L L E N G I N G T HE R E G U L A T O R S A N D IN D U S T R Y
T O M E E T T HE B A N K I N G A N D C R E D I T N E E D S OF M I N O R I T Y C O M M U N I T I E S
B E F O R E THE
C O M M I T T E E O N BANKING, F I N A N C E A N D U R B A N A F F A I R S
U N I T E D S T A T E S H O U S E OF R E P R E S E N T A T I V E S
10:00 A.M.
S E P T E M B E R 24, 1993
P R I N C E G E O R G E 'S C O M M U N I T Y COLLEGE, LARGO,
MARYLAND
G o o d morning,
Committee.
Corporation
C h a i r m a n G o n z a l e z a n d M e m b e r s of the
O n b e h a l f of the F e deral D e p o s i t
Ins u r a n c e
("FDIC"), t h a n k y o u for i n v i t i n g us to t e s t i f y on the
c h a l l e n g e of fin a n c i a l
i n s t i t u t i o n s a n d t h e i r r e g u l a t o r s to meet
the b a n k i n g a n d credit n e e d s of m i n o r i t y communities.
In this context,
b a n k i n g industry,
I wil l a d d r e s s the c u r rent state of the
n a t i o n a l l y a n d in Prince G e o r g e ' s County,
and
wha t the F D I C is d o i n g to e n c o u r a g e fai r l e n d i n g c o n s i s t e n t w i t h
safe a n d s o u n d operations.
I.
T HE C U R R E N T S T ATE OF B A N K I N G
As y o u are aware,
i n c rease lending.
the b a n k i n g i n d u s t r y is w ell p o s i t i o n e d to
B a n k e a r n i n g s c o n t i n u e to b e n e f i t f rom w i d e
interest rate m a r g i n s a n d l o wer loa n loss p rovisions.
Equity
capital g r e w b y $34.1 b i l l i o n in 1992 a n d b y a n o t h e r $18.8
b i l l i o n d u r i n g the first half of 1993.
At y e a r e n d 1992,
e q u i t y c a p i t a l - t o - a s s e t s r a t i o for the i n d u s t r y wa s 7.5%,
hi g h e s t since y e a r e n d 1965.
A s of J une 30,
1993,
the
the
the e q u i t y
capital r a t i o h a d f u r t h e r i n c r e a s e d to 7.9%.
D e s p i t e this c a p a c i t y in the c o m m e r c i a l b a n k i n g industry,
l e n d i n g l a g g e d t h r o u g h 1992.
Total loans s h r a n k b y $4.2 b i l l i o n
in the f o u r t h q u a r t e r of 1992,
s e v e n t h time in e i ght quarters,
a d e c l i n e w h i c h r e p r e s e n t e d the
d a t i n g b a c k to the first q u a r t e r
2
of 1991.
D u r i n g this interval,
total loans d e c l i n e d b y $77.2
billion.
T h i s d e c l i n e has b e e n the focus of m u c h a t t e n t i o n in
terms of the impact on o ur n a t i o n ' s fin a n c i a l recovery.
n o t e worthy;
however,
It is
that a $31.1 b i l l i o n i n c r e a s e in loans was
r e f l e c t e d for the first half of 1993.
We r e m a i n o p t i m i s t i c for
s i m i l a r r e s u l t s for the year.
The d e c l i n e in a g g r e g a t e l oan v o l u m e a p p e a r s a t t r i b u t a b l e to
a n u m b e r of factors,
but p r i m a r i l y seems to re f l e c t s l ack d e m a n d
r e s u l t i n g from the 1990-91 r e c e s s i o n a n d the s l o w p a c e of
recovery.
A n o r m a l r e a c t i o n of b u s i n e s s e s in these times,
p a r t i c u l a r l y small b u s i n e s s e s
(which are o f t e n p r e v a l e n t
s u c h as the one w h i c h is this h e a r i n g ' s focus),
in areas
is to shore up
t h e i r b a l a n c e sheets b y c o n s e r v i n g c a s h a n d r e d u c i n g borrowings.
O f t e n t h e y wil l await an u p t u r n in b u s i n e s s or p r o s p e c t s b e f o r e
c o m m i t t i n g to a d d i t i o n a l b o r r o w i n g s to f i n ance w o r k i n g capital
needs,
expansion,
a n d capital expenditures.
Similarly,
consumers
are r e l u c t a n t to b e c o m e i n d e b t e d in times of u n c e r tainty.
In addition,
f i n ancial i n s t i t u t i o n s hav e g e n e r a l l y
s t r e n g t h e n e d t h e i r u n d e r w r i t i n g s t a n d a r d s in the a f t e r m a t h of the
e x c e s s e s a n d losses of the 1980s.
rate of fin a n c i a l
We n e e d to r e m e m b e r the h i g h
i n s t i t u t i o n f a i lures o v e r r e c e n t y e a r s a n d that
the i n d u s t r y has b e e n u n d e r intense scrutiny.
M a n y f i n a ncial
i n s t i t u t i o n s are c o n t i n u i n g to w o r k off t r o u b l e d a s s e t s a n d have
l e a r n e d some d i f f i c u l t lessons.
Consequently,
t h e y are m o r e
3
sel e c t i v e a n d h e s i t a n t to finance n e w businesses,
e x p a n s i o n or
e v e n c o n t i n u a t i o n of e s t a b l i s h e d b u s i n e s s e s w i t h o u t a s u b s t a n t i a l
c o m m i t m e n t of e q u i t y fro m the b o r r o w e r a n d a d e m o n s t r a t e d
r e p a y m e n t record.
A s i d e f r o m the ge n e r a l e n v i r o n m e n t of banking,
we r e a lize
there are a v a r i e t y of i m p e d i m e n t s to l e n d i n g e s p e c i a l l y in
e c o n o m i c a l l y d i s t r e s s e d areas,
p r e d o m i n a t e l y minority.
m a n y of w h i c h are als o
One impe d i m e n t is the ge n e r a l p e r c e p t i o n
b y m a n y l e nders that loans d i r e c t e d t o w a r d e c o n o m i c a l l y
d i s t r e s s e d a r eas m a y be h i g h r isk a n d t h e r e f o r e g e n e r a l l y
unsound.
M o r e lenders are r e a l i z i n g that s o u n d a n d p r o f i t a b l e
loans c a n be m a d e in these areas,
a l t h o u g h it m a y r e q u i r e mor e
time a n d s c r u t i n y to m a k e n e c e s s a r y credit j u d g m e n t s or
enhancements.
O u r d i s c u s s i o n s w i t h r e p r e s e n t a t i v e s of the
i n d u s t r y ind i c a t e g r o w i n g r e c o g n i t i o n of that l e n d i n g p o t e n t i a l
a n d the p r o f i t a b i l i t y of l e n d i n g in these areas.
That
r e c o g n i t i o n q u i c k l y d e v e l o p s the s p e c i a l i z e d e x p e r t i s e a n d
c o m m i t m e n t r e q u i r e d to take a d v a n t a g e of this opportunity.
A n o t h e r s i g n i f i c a n t i m p e diment a p p e a r s to be a lack of focus
o n l e n d i n g o b j e c t i v e s b y b o t h l e n ders a n d borrowers.
example,
For
a l e n d e r m a y lack k n o w l e d g e of q u a l i f i e d b o r r o w e r s
a n d / o r the credit n e e d s of c o m m u n i t y members.
Community members
m a y a l s o lack k n o w l e d g e r e g a r d i n g a l e n der's a p p l i c a t i o n
p r o c e d u r e s or the le n d e r ' s p r o d u c t s or services.
The i n d u s t r y
4
a n d r e g u l a t o r s n e e d to in c r e a s e o u t r e a c h o p p o r t u n i t i e s that will
further educational
i n i t i a t i v e s to e l i m i n a t e these d i f f i c ulties.
We b e l i e v e this h e a r i n g b r i n g s focus to that objective.
F r o m a m a r k e t i n g a n d b u s i n e s s outlook,
some e c o n o m i c a l l y
d i s t r e s s e d areas m a y a p p e a r to no l o n g e r h o l d s u f f i c i e n t b u s i n e s s
leadership,
lenders,
a nd c o m m u n i t y i n t erest g r o u p s to focus on
the a b s e n c e of investing.
W i t h o u t i n v e s t m e n t s a n d loans,
e c o n o m y of a n y d i s t r e s s e d a rea will n e v e r recover.
types of communities,
the
In these
the b a n k i n g s y s t e m a l one c an r a r e l y t urn
the s i t u a t i o n around.
R e d u c e d federal s p e n d i n g a n d the g r o w i n g
e c o n o m i c a n d social p r o b l e m s of central c i t i e s a n d rural areas
that c o n t i n u e to result f rom indu s t r i a l r e s t r u c t u r i n g c l e a r l y
s u g gest that n e w sol u t i o n s m ust i n c lude p a r t n e r s h i p s of p u b l i c
a n d p r i v a t e entities.
W h i l e the a b ove d i s c u s s i o n o n the state of b a n k i n g is
national
in scope,
it a p p l i e s e q u a l l y to P r ince G e o r g e ' s C o u n t y
a n d that are a of the c o u n t y d e l i n e a t e d b y the Committee.
F D I C - s u p e r v i s e d institutions,
billion
(as of Jun e 30,
1993),
Eleven
w i t h c o m b i n e d a s s e t s of $7.1
serve P r i n c e G e o r g e ' s County.
E q u i t y c a p ital of t h ese i n s t i t u t i o n s g r e w b y $35 m i l l i o n in 1992
a n d a n o t h e r $69 m i l l i o n d u r i n g the first half of 1993.
The
c o m b i n e d e q u i t y c a p i t a l - t o - a s s e t s r a t i o as of Jun e 30,
1993,
8.2%,
up f r o m 7.2% at y e a r e n d 1992,
a n d 6% at y e a r e n d 1991.
was
5
A g g r e g a t e loans,
period,
however,
h ave s t e a d i l y d e c l i n e d o v e r this
f r o m $5.2 b i l l i o n to $4.1 billion.
T h r e e of these F D I C - s u p e r v i s e d institutions,
asse t s of $4.1 b i l l i o n
(as of June 30,
C o m m i t t e e ' s d e l i n e a t e d area.
o f f i c e s in the area.
1993),
with combined
serve the
The three i n s t i t u t i o n s have 16
A g g r e g a t e e q u i t y c a pital of these
i n s t i t u t i o n s g r e w b y $14 m i l l i o n in 1992 a nd a n o t h e r $38 m i l l i o n
d u r i n g the first half of 1993.
ratio,
as of June 30,
1993,
The c o m b i n e d e q u i t y capital
was 8.9% c o m p a r e d to 8.0% at y e a r e n d
1992 a n d 7.7% at y e a r e n d 1991.
As w i t h the e l e v e n FDIC-
s u p e r v i s e d i n s t i t u t i o n s s e r v i n g P r ince G e o r g e ' s County,
aggregate
loans for the three i n s t i t u t i o n s als o d e c l i n e d o v e r this period,
f r o m $2.6 b i l l i o n at y e a r e n d 1991 to $2.2 b i l l i o n as of June 30,
1993.
P r i n c e G e o r g e ' s County,
therefore,
c l e a r l y d e m o n s t r a t e s the
d i l e m m a f a c e d b y r e g u l a t o r s a nd the Committee.
The financial
s t r e n g t h of its b a n k s a p p e a r s s t r o n g yet l e n d i n g has b e e n o n a
decline.
A n d as I s aw f i r s t h a n d d u r i n g a tou r of p o r t i o n s of
Prince G e o r g e ' s C o u n t y e a r l i e r this week,
increased,
a f f o r d a b l e b a n k i n g services.
b u s i n e s s e s of
any
R e s i d e n t s a n d small
c o m m u n i t y s h o u l d not have to r e l y on c h eck
c a s h i n g o u t l e t s for f i n ancial services.
financial
t h ere is a n e e d for
institutions,
The regulators,
and community groups must work together
to e n sure cred i t n e e d s are a d e q u a t e l y i d e n t i f i e d a n d served.
6
C o m b i n e d 1992 H M D A d a t a a p p l i c a b l e to F D I C - s u p e r v i s e d
i n s t i t u t i o n s s e r v i n g the d e l i n e a t e d a rea r e f l e c t that of all H M D A
r e p o r t a b l e loan a p p l i c a t i o n s received,
19.9% w e r e fro m A f r i c a n -
A m e r i c a n s a n d 47.5% w e r e a t t r i b u t e d to whites.
applications from African-Americans,
w e r e denied,
73.4% w e r e approved,
17.8%
a n d the r e m a i n d e r w e r e e i t h e r w i t h d r a w n or a p p r o v e d
b ut not accepted.
approved,
Of the
Of the a p p l i c a t i o n s fro m whites,
64.7% w ere
17.6% w ere d e n i e d a nd the r e m a i n d e r w e r e e i t h e r
w i t h d r a w n or a p p r o v e d but not accepted.
Our minority comparison
w a s l i m i t e d to A f r i c a n - A m e r i c a n s since t h e y c o n s t i t u t e the
p r e d o m i n a n t m i n o r i t y in the area.
It is o u r u n d e r s t a n d i n g that
the Fe d e r a l R e s e r v e has p r o v i d e d the C o m m i t t e e w i t h H M D A data,
for all b a n k s that serve the d e l i n e a t e d area.
The F D I C has f o und the C R A p e r f o r m a n c e s of the three
i n s t i t u t i o n s s e r v i n g the d e l i n e a t e d a r e a satisfactory,
consistent
w i t h the r e s o u r c e s a n d c a p a b i l i t i e s of the institutions.
A d d i t ionally,
the C R A P e r f o r m a n c e E v a l u a t i o n s ind i c a t e some
i n v o l v e m e n t in v a r i o u s o u t r e a c h a c t i v i t i e s in c o m m u n i t i e s s e r v e d
b y the institutions.
p e r i o d i c seminars,
Administration
communities,
procedures,
instance,
F or example,
one i n s t i t u t i o n is c o n d u c t i n g
in c o n j u n c t i o n w i t h the Small B u s i n e s s
("SBA")
a n d local e c o n o m i c d e v e l o p m e n t
a d d r e s s i n g e l i g i b i l i t y requirements,
a nd d o c u m e n t a t i o n n e e d s for S B A loans.
application
In a n o t h e r
the i n s t i t u t i o n has b e e n i n v o l v e d in c o m m u n i t y
r e v i t a l i z a t i o n p r o j e c t s a n d r e d e v e l o p m e n t p r o g r a m s for low- and
7
moderate-
income c o m m e r c i a l a n d r e s i d e n t i a l a r eas w i t h i n its
d e l i n e a t e d community.
All three i n s t i t u t i o n s a p p e a r to be m a k i n g
v a l i d e f f o r t s to a s c e r t a i n the credit n e e d s of t h e i r c o m m u n i t i e s
an d to m a r k e t a n d o f f e r p r o d u c t s to h e l p serve those needs.
This
is not to say there are not d e f i c i e n c i e s in t h e i r i n d i vidual CR A
performances,
part,
as n o t e d b y examinations.
However,
for the most
w h e n these d e f i c i e n c i e s have b e e n d i s c u s s e d w i t h b a n k
management,
e f f o r t s have b e e n f o r t h c o m i n g to c o r rect them.
Attachment 2 provides publicly available CRA Performance
Evaluations.
II.
FDIC'S EFFORTS TO ENCOURAGE LENDING AND ENSURE COMPLIANCE
W I T H C R A A N D FAI R L E N D I N G LAWS__________ ______________________
A s a r e g u l a t o r w i t h r e s p o n s i b i l i t i e s for s a f e t y a nd
s o u n d n e s s in the b a n k i n g industry,
we are a l w a y s m i n d f u l of the
c o n f l i c t s w h i c h arise w h e n i n v o l v e d in a r eas p r o m o t i n g credit
expansion.
Like the o t h e r financial
i n s t i t u t i o n regulators,
the
F D I C is c o m m i t t e d to e n f o r c i n g c o m p l i a n c e w i t h the fai r l e n d i n g
laws
(e.g.,
ECOA,
CRA,
and H M D A ) .
D u r i n g the p a s t few years,
we
have s t r e n g t h e n e d o u r staff a nd e f f o r t s to e n c o u r a g e c o m p l i a n c e
w i t h all fair l e n d i n g laws.
The vas t m a j o r i t y of i n s t i t u t i o n s
c o o p e r a t e w i t h o u r efforts.
We,
however,
a c t i o n in cases of flagrant ignorance,
the law.
or w i l l f u l disregard,
of
We b e l i e v e e x a m i n a t i o n a n d e n f o r c e m e n t m e a s u r e s
e n c o u r a g e m o r e l e n d i n g in all communities,
d i s t r e s s e d areas.
including economically
T w o of o u r m ost s i g n i f i c a n t i n i t i a t i v e s have
b e e n the e s t a b l i s h m e n t
initiate enforcement
in 1990 of an e x a m i n a t i o n staff d e d i c a t e d
8
to the c o n s u m e r c o m p l i a n c e e x a m i n a t i o n p r o g r a m a n d the
e s t a b l i s h m e n t of a C o m m u n i t y A f f a i r s P r o g r a m
Previously,
("CAP").
the F D I C r e l i e d on s a f e t y a n d s o u n d n e s s
e x a m i n e r s w i t h some t r a i n i n g in c o m p l i a n c e an d a small cadre of
s p e c i a l i z e d e x a m i n e r s to conduct c o m p l i a n c e e x aminations.
are n o w 250 f i eld e x a m i n e r p o s i t i o n s at the FDIC,
There
p l u s an
A s s i s t a n t R e g i o n a l D i r e c t o r a n d e x a m i n a t i o n r e v i e w staff w i t h
s p e c i f i c r e s p o n s i b i l i t y for the c o n s u m e r c o m p l i a n c e e x a m i n a t i o n
p r o g r a m in e a c h of the FDIC's eight re g i o n a l D i v i s i o n of
S u p e r v i s i o n offices.
necessary.
A d d i t i o n a l staff will be a d d e d as
The F D I C has a lso e s t a b l i s h e d an e x t e n s i v e e x a m i n e r
t r a i n i n g program,
a p o r t i o n of w h i c h is d e v o t e d to c o m m u n i t y
d e v e l o p m e n t lending,
a n d C R A a n d fair l e n d i n g enforcement.
T he p r i m a r y m i s s i o n of o u r CAP is to e n c o u r a g e c o m m u n i t y
o u t r e a c h a c t i v i t y in o r d e r to p r o m o t e fair a n d n o n d i s c r i m i n a t o r y
lending,
a n d to p r o v i d e g r e a t e r a w a r e n e s s of the fair l e n d i n g
laws a n d r e g u l a t i o n s o n a n a t i o n w i d e basis.
The p r o g r a m as s i s t s
e x a m i n e r s in c a r r y i n g out t h e i r fair l e n d i n g e n f o r c e m e n t
responsi b i l i t i e s ,
as wel l as c o n s u m e r a n d c o m m u n i t y groups,
g o v e r n m e n t officials,
and other interested groups and individuals
in u n d e r s t a n d i n g a n d p a r t i c i p a t i n g in the fair l e n d i n g a nd
c o m m u n i t y d e v e l o p m e n t processes.
9
The CAP p r o v i d e s for a C o m m u n i t y A f f a i r s O f f i c e r a n d staff
in e a c h of the F D I C ' s eight regio n a l offices.
a d d i n g a Fai r L e n d i n g S p e c i a l i s t
We are c u r r e n t l y
in e a c h re g i o n a l o f f i c e a n d in
the O f f i c e of C o n s u m e r A f f a i r s
("OCA")
in the W a s h i n g t o n office.
CAP staff w o r k w i t h examiners,
financial
c o m m u n i t y grou p s to e x c h a n g e information,
institutions,
a nd
to share knowledge,
and
to redu c e the impe d i m e n t s a nd a n y m i s i n f o r m a t i o n r e g a r d i n g
r e i n v e s t m e n t in c o m m u n i t i e s that are disadvantaged.
T he F D I C also d i s s e m i n a t e s fair le n d i n g i n f o r m a t i o n to the
i n d u s t r y a nd the public.
This i n f o r m a t i o n i n c ludes v a r i o u s
p a m p h l e t s d e v e l o p e d on an i n t e r a g e n c y b a s i s that a d d ress
p r a c t i c e s that c o n s t i t u t e u n l a w f u l d i scrimination.
spe a k e r s for,
a nd p a r t i c i p a t e in,
We p r o v i d e
fair l e n d i n g c o n f e r e n c e s and
s e m inars t h r o u g h o u t the country.
The FDI C a lso sponsors,
at
l o c a t i o n s t h r o u g h o u t the country,
o n e - d a y c o m p l i a n c e s e m inars for
f i n a ncial i n s t i t u t i o n s w h e r e fair le n d i n g laws are f r e q u e n t l y a
s i g n i f i c a n t par t of the agenda.
In addition,
for o v e r a decade,
the F D I C has p r o v i d e d a t o l l - f r e e c o n s u m e r h o t l i n e for c o n s u m e r s
to call w i t h c o m p l a i n t s a n d inquiries about v a r i o u s c o n s u m e r
p r o t e c t i o n laws.
E a r l i e r this year,
the FDI C e s t a b l i s h e d an internal Fai r
L e n d i n g W o r k i n g G r o u p to f u rther ex p l o r e w a y s of s t r e n g t h e n i n g
e n f o r c e m e n t of,
group,
a nd c o m p l i a n c e with,
the fair l e n d i n g laws.
This
c o m p r i s e d of s e n i o r - l e v e l staff fro m a r o u n d the country,
10
w as c h a r g e d w i t h the m i s s i o n of a n a l y z i n g the F D IC's e x i s t i n g
p r o g r a m s a nd p r o c e d u r e s
for preventing,
d i s c r i m i n a t o r y credit practices.
F DIC m a n a g e m e n t
detecting,
and correcting
A report has b e e n p r e s e n t e d to
for c o n s i d e r a t i o n of s p e c i f i c r e c o m m e n d a t i o n s for
improvement.
The report includes o v e r f o r t y r e c o m m e n d a t i o n s addressing:
(1) the FDIC's o r g a n i z a t i o n a l
p r o c edures;
structure,
culture,
policies,
and
(2) the FDIC's e x a m i n a t i o n a nd s u p e r v i s o r y p r o c e s s
for m o n i t o r i n g c o m p l i a n c e w i t h the fair l e n d i n g a nd o t h e r
c o n s u m e r p r o t e c t i o n laws an d regulations;
c o n s u m e r complaints;
and
(3) the h a n d l i n g of
(4) o u r o u t r e a c h ef f o r t s to p r o v i d e
i n f o r m a t i o n to the public,
financial institutions,
a n d Con g r e s s
a n d to e n h a n c e o ur c r e d i b i l i t y in d e t e r r i n g d i s c r i m i n a t i o n a nd
e n f o r c i n g c o m p l i a n c e w i t h the fair l e n d i n g laws.
A n u m b e r of
these r e c o m m e n d a t i o n s are b e i n g i m p l e m e n t e d a nd a d e c i s i o n b y
F D I C m a n a g e m e n t o n the o t h e r s has b e e n c o m m i t t e d to m i d - N o v e m b e r
of this year.
III.
F D I C E F F O R T S TO C O O R D I N A T E W I T H T HE O T H E R F E D E R A L F I N A N C I A L
I N S T I T U T I O N R E G U L A T O R Y A G E N C I E S __________ _ _____________________
T h e r e are two s i g n i f i c a n t d e v e l o p m e n t s in the areas of the
C o m m i t t e e ' s focus.
One is the P r e s i d e n t ' s C R A r e f o r m initiative.
This i n i t i a t i v e is d e s i g n e d to increase l e n d i n g a n d inv e s t m e n t
u n d e r s e r v e d c o m m u n i t i e s w h i l e a lso streamlining,
m a k i n g the r e g u l a t o r y p r o c e s s m o r e objective.
clarifying,
in
and
11
T he P r e s i d e n t has d i r e c t e d the federal
fin a n c i a l
institution
r e g u l a t o r y a g e n c i e s to d e v e l o p n e w C R A r e g u l a t i o n s an d
e x a m i n a t i o n p r o c e d u r e s b y J a n u a r y 1,
1994.
To a c c o m p l i s h this
g o a l , the a g e n c i e s d e s i g n a t e d k e y staff to serve on i n t e r a g e n c y
p r o j e c t groups.
P r o j e c t s include:
of p e r t i n e n t legal issues;
i d e n t i f i c a t i o n a nd r e s o l u t i o n
c o n d u c t i n g p u b l i c hearings;
a nd p u b l i s h i n g for c o m ment r e v i s e d regulations;
developing
a nd r e v i s i n g
e x a m i n a t i o n procedures.
The p u b l i c h e a r i n g s w e r e in r e s p o n s e to the P r e s i d e n t ' s
r e q uest that the age n c i e s w o r k t o g e t h e r w i t h the public,
c o m m u n i t y groups,
a n d the financial i n s t i t u t i o n i n d u s t r y to mak e
C R A i m p l e m e n t a t i o n m o r e effective.
w i t h the o t h e r agencies,
We have participated,
a l ong
in s e v e n p u b l i c h e a r i n g s t h r o u g h o u t the
country.
T he h e a r i n g s have p r o v i d e d us w i t h a b e t t e r u n d e r s t a n d i n g of
the v i e w s a n d co n c e r n s of b o t h the financial i n s t i t u t i o n i n d u s t r y
a n d c o m m u n i t y r e p r e s e ntatives.
The h e a r i n g s m a d e m o r e evident,
as does o ur a n a l y s i s of the subject at to d a y ' s meeting,
that
c o o p e r a t i o n b e t w e e n financial i n s t i t u t i o n s a n d c o m m u n i t y g r oups
is n e c e s s a r y for the b e n e f i t of communities.
T h ese two e n t i t i e s
n e e d e a c h o t h e r to mee t t h e i r r e s p e c t i v e g o a l s a n d the
communities'
goals.
A financial
i n s t i t u t i o n cannot be e x p e c t e d
to mee t all of its c o m m u n i t y ' s financial needs,
but it can p l a y a
m a j o r role t o w a r d the fulf i l l m e n t of those needs.
12
The input g a i n e d f rom the h e a r i n g s will be h e l p f u l to the
agencies'
e f f o r t s to r e f o r m the C R A r e g u l a t i o n s a n d the
s u p e r v i s o r y process.
We want o u r i n i t i a t i v e s to result
in mor e
c l e a r a n d o b j e c t i v e s t a n d a r d s to g u i d e i n s t i t u t i o n s in t h e i r C R A
r e s p o n s i b i l i t i e s a n d to a l l o w c o m m u n i t y groups,
the public,
a nd
the r e g u l a t o r y a g e n c i e s to b e t t e r e v a l u a t e this p erformance.
A n o t h e r s i g n i f i c a n t d e v e l o p m e n t is the A d m i n i s t r a t i o n ' s
Credit A v a i l a b i l i t y Program,
the
as a n n o u n c e d on M a r c h 10,
1993,
in
" I n t e r a g e n c y P o l i c y Sta t e m e n t on Credit A v a i l a b i l i t y " b y the
four federal b a n k i n g a n d thrift regulators,
i n c l u d i n g the FDIC.
T h i s p o l i c y seeks to improve credit availability,
e s p e c i a l l y for
low- a n d m o d e r a t e - i n c o m e n e i g h b o r h o o d s a n d d i s a d v a n t a g e d rural
a r eas s e r v e d b y small- a n d m e d i u m - s i z e d businesses.
The p o l i c y
is p r o v i d e d as A t t a c h m e n t 2.
T o i m p l ement the credit a v a i l a b i l i t y program,
the ag e n c i e s
s u b s e q u e n t l y a n n o u n c e d several i n i t i a t i v e s w h i c h address:
d i s c r i m i n a t i o n a n d fair lending;
a p p r a i s a l requirements;
d o c u m e n t a t i o n of loans;
r e g u l a t o r y r e p o r t i n g r e quirements;
v a l u a t i o n of real e s t a t e collateral;
a n d e x a m i n e r loa n r e v i e w a nd
i m p r o v e d c o o r d i n a t i o n of examinations.
designed,
lending
first a n d foremost,
T h e s e i n i t i a t i v e s are
to m a k e credit a v a i l a b l e in an
e q u i t a b l e a n d n o n d i s c r i m i n a t o r y fashion.
Further,
the
i n i t i a t i v e s are i n t e n d e d to e l i m i n a t e i m p e d i m e n t s to l e n d i n g to
small- a n d m e d i u m - s i z e d b u s i n e s s e s by:
(1)
reducing documentation
13
n e c e s s a r y for these loans to a minimum,
a p p l i c a b l e law;
consistent with
(2) e n c o u r a g i n g g r e a t e r use of ju d g m e n t a nd
re l i a n c e on an a p p l i c a n t ' s r e p u t a t i o n in a r r i v i n g at a d e c i s i o n
on these loans;
(3) r e d u c i n g the a p p r a i s a l b u r d e n and,
thus,
i m p r o v i n g the l e n d i n g c l i mate for suc h loans w h i c h are
c o l l a t e r a l i z e d b y real estate;
an d
(4)
c l a r i f y i n g o ur e x a m i n a t i o n
p r o c e d u r e s w i t h respect to these loans w h i c h s h o u l d l e a s e n the
b u r d e n of the e x a m i n a t i o n process.
The e n d result of the
i n i t i a t i v e s s h o u l d be mor e a v a i l a b l e credit to m i n o r i t y and
small- a n d m e d i u m - s i z e d b u s i n e s s e s in c o m m u n i t i e s s u c h as the one
we are f o c u s i n g on here today.
D e t a i l s on the l e n d i n g
d i s c r i m i n a t i o n a nd fair le n d i n g init i a t i v e s are p r o v i d e d in
A t t a c h m e n t 3.
In a d d i t i o n to these efforts,
the D i r e c t o r of the FDIC's O C A
c u r r e n t l y c h a i r s the C o n s u m e r C o m p l i a n c e T a s k Force of the
Federal Fi n a n c i a l
I n s t i tutions E x a m i n a t i o n Council
("FFI E C " ) and
is als o a m e m b e r of an I n t e r a g e n c y Fai r L e n d i n g W o r k i n g Group.
These two g r o u p s have a n u m b e r of i n i t i a t i v e s u n d e r w a y to a d d ress
C R A a n d o t h e r fair l e n d i n g issues,
efforts.
a n d to s t r e n g t h e n e n f o r c e m e n t
T h e s e init i a t i v e s include a c o m p r e h e n s i v e r e v i e w of the
C R A r e g u l a t i o n s a n d e x a m i n a t i o n procedures,
l e n d i n g e x a m i n a t i o n procedures.
a n d i m p r o v i n g fair
T h e s e ef f o r t s hav e b e e n
i n t e g r a t e d w i t h the P r e s i d e n t ' s C R A r e f o r m initiative.
14
In April,
1993,
the T a s k Force i s s u e d the
" R e vised G u i d a n c e
on C R A C o m p liance," w h i c h will be p a r t i c u l a r l y imp o r t a n t
i n c r e a s i n g r e i n v e s t m e n t b y financial
in
i n s t i t u t i o n s since it
e m p h a s i z e s that r e g u l a t o r s are s e e k i n g
"results o v e r p r o c ess."
The g u i d a n c e stres s e s that r e g u l a t o r s focus on l e n d i n g a nd o t h e r
a c t i v i t i e s w i t h i n the c o m m u n i t y w h i c h r e sult in e x t e n s i o n s of
credit that h elp meet i d e n t i f i e d credit needs.
g u i d a n c e d i s c u s s e s s p e cific activities,
investments,
Additionally,
the
s uch as debt a nd e q u i t y
p u r c h a s e of g o v e r n m e n t g u a r a n t e e d loans or
p a r t i c i p a t i o n in loans for low- a n d m o d e r a t e - i n c o m e or small
b u s i n e s s purposes,
a n d t e c hnical a s s i s t a n c e to c o m m u n i t y b e n efit
r e l a t e d o r ganizations.
c e r t a i n circumstances,
The g u i d a n c e i n d icates that,
under
the r e g u l a t o r s w ill giv e p o s i t i v e
c o n s i d e r a t i o n to p a r t i c i p a t i o n in c o m m u n i t y p r o g r a m s a nd
m e c h a n i s m s w h e r e the f i n a n c i n g p r o v i d e d m a y u l t i m a t e l y be n e f i t
low- a n d m o d e r a t e - i n c o m e b o r r o w e r s a n d small b u s i n e s s e s of
n e i g h b o r h o o d s l o c a t e d ou t s i d e of the institutions'
community.
IV.
delineated
A t t a c h m e n t 4 is a c o p y of the r e v i s e d guidance.
CONCLUSION
The F D I C b e l i e v e s that s t r o n g a n d c o o p e r a t i v e fair l e n d i n g
e f f o r t s b y the f i n ancial
regulators,
i n s t i t u t i o n industry,
a n d "partnership"
s u p e r v i s i o n b y its
ef f o r t s b y c o m m u n i t y g r o u p s a nd
p r i v a t e individuals,
as well as federal,
g o v e r n m e n t agencies,
c an be n e f i t all n e i g h b o r h o o d s an d
state,
a n d local
15
communities,
e s p e c i a l l y small businesses,
income individuals,
low- a nd m o d e r a t e -
a n d those r e s i d i n g in a r eas s u c h as the one
we are f o c u s i n g on t o d a y in Prince G e o r g e ' s County.
economy,
a h e a l t h y financial
i n s t i t u t i o n industry,
An improving
a nd v i g o r o u s
e f forts to implement a nd e n f orce fair l e n d i n g laws can have a
m a r k e d impact on the ec o n o m i c g r o w t h of these areas.
o ur s a f e t y a n d s o u n dness o b l i g a t i o n s as regulators,
M i n d f u l of
we will
con t i n u e to support init i a t i v e s t o w a r d i m p r o v e d credit
a v a i l a b i l i t y a n d fair le n d i n g w h i l e als o f u r t h e r s t r i v i n g to
improve ou r o w n o u t r e a c h e f f orts a n d e n f o r c e m e n t of the fair
l e n d i n g laws.
This c o n c l u d e s m y p r e p a r e d testimony.
I will be p l e a s e d to
r e s p o n d to a n y q u e s t i o n s M e m b e r s of the C o m m i t t e e m a y have.
Attachments
PTw.Tr m s r r rentra
September 11, 1992
O M M T Y REINVESTMENT ACT PERFORMANCE EVALUATION
Suburban Bank of Maryland
Greenbelt, Maryland
23150-9
Federal Deposit Insurance Corporation
452 Fifth Avenue, 21st Floor
New York, New York 10018
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n NOTE:
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This evaluation is not, nor should it be
construed as, an assessment of the financial
condition of this institution. The rating
assigned to this institution does not represent
an analysis, conclusion or opinion of the
federal financial supervisory agency concerning
the safety and soundness of this financial
institution.
n
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*
rreMire&r,
information
This document is an evaluation of the Oniuiumty Reinvestment
Act (CRA) performance of the Suburban Bank of Maryland,
Greenbelt, Maryland prepared by the Federal Deposit
Insurance Corporation the institution's supervisory agency.
The evaluation represents the agency's current assessment
and rating of the institution's CRA performance based an an
examination conducted as of September 11, 1992. It does not
reflect any CRA-related activities that may have been
initiated or discontinued by the institution after the
completion of the examination.
The purpose of the Community Reinvestment Act of 1977 (12
U.S.C. 2901), as amended, is to encourage each financial
institution to help meet the credit needs of the communities
in which it operates. The Act requires that in connection
with its examination of a financial institution, each
federal financial supervisory agency shall (1) assess the
institution's record of helping to meet the credit needs of
its entire community, including lew- and moderate-income
neighborhoods, consistent with safe and sound operations of
the institution, and (2) take that record of performance
into account when deciding whether to approve an application
of the institution for a deposit facility.
The Financial Institutions Reform, Recovery and Enforcement
Act of 1989, Pub. L. No. 101-73, amended the ORA to require
the Agencies to make public certain portions of their CRA
performance assessments of financial institutions.
Basis for the Rating
The assessment of the institution's record takes into
account its financial capacity and size, legal impediments
and local economic conditions and demographics, including
the competitive environment in which it operates. Assessing
the CRA performance is a process that does not rely on
absolute standards. Institutions are not required to adopt
specific activities, nor to offer specific types or amounts
of credit. Each institution has considerable flexibility in
determining how it can best help to meet the credit needs of
its entire community. In that light, evaluations are based
on a review of 12 assessment factors, which are grouped
together under 5 performance categories, as detailed in the
following section of this evaluation.
1
ASSIGNMENT OF RATING
Identificatian of Ratings
In connection with the assessment of each insured
depository institution's CRA performance, a rating is
assigned from the following groups:
Outstanding record of meeting community credit needs.
An institution in this group has an outstanding
record of, and is a leader in, ascertaining and
helping to meet the credit needs of its entire
delineated cornmunity, including lew- and
moderate-income neighborhoods, in a manner
consistent with its resources and capabilities.
Satisfactory record of meeting ccrnnunity credit needs.
An institution in this group has a satisfactory
record of ascertaining and helping to meet the
credit needs of its entire delineated ccmnunity,
including low- and moderate-income neighborhoods,
in a manner consistent with its resources and
capabilities.
Needs to inprove record of meeting comnunity credit
needs.
An institution in this group needs to inprove its
overall record of ascertaining and helping to
meet the credit needs of its entire delineated
comnunity, including low- and moderate-income
neighborhoods, in a manner consistent with its
resources and capabilities.
Substantial ncnconpliance in meeting comnunity credit
needs.
An institution in this group has a substantially
deficient record of ascertaining and helping to
meet the credit needs of its entire delineated
comnunity, including low- and moderate-income
neighborhoods, in a manner consistent with its
resources and capabilities.
2
DISCUSSICN OF INSTITUTION'S PERFORMANCE
Institution's Rating:
This institution is rated Satisfactory based on the
findings presented below.
I. ASCERTAINMENT OF CCMCINITY CREDIT NEEDS
Assessment Factor A - Activities conducted by the
institution to ascertain the credit needs of its
comrnmity, including the extent of the institution's
efforts to carmunicate with members of its caimunity
regarding the credit services being provided by the
institution.
The bank ascertains the needs of its comnunity
through the involvement of its officers, directors
and employees in various civic and cannunity
organizations throughout its delineated area. The
extent of such contacts is not documented.
An officer f a n program was instituted before the
previous examination. All branch managers, assistant
branch managers and lending officers are expected to
make at least 20 calls per month to small
businesses. Calls are made based on referrals from
various sources; follow-ups founded on information
obtained through other ascertainment activities,
calls to existing customers or random "cold" calls to
various businesses. Reports on the call program were
made to Senior Vice President Burnett who reported to
the board of directors monthly; however, formal
reporting has lapsed. Mr. Burnett continues to
informally track calls based on the submission of new
loans and declinations.. Mr. Burnett stated that he
expects each officer to continue averaging 20 calls
per month and the current volume of calls is meeting
that expectation.
3
The bank has conducted several customer surveys
during 1992. One of the surveys began in April, 1992
and has continued to the present time. J The bank
distributed 1,600 surveys randomly via hand-outs at
the branches and at ccmnunity activities and bank
seminars on small business lending. To date 82, or
approximately 5%, of the hand-outs have been
returned. All responses have been favorable. The
survey was entitled "Tell Us How We're Doing" and
included questions regarding various bank services.
Tabulation of the survey will be performed at the end
of October 1992. Findings will be presented to the
board of directors and branch managers will follow up
on any negative carments.
During February and March of 1992, 10,000
questionnaires were mailed out to the residents of
Greenbelt and North Rockville, Maryland. The
questionnaires were distributed by Money Mailer, Inc.
and Mercury Advertising Distributors who used their
own mailing lists for distribution. The
questionnaires stated the following: "So that we can
more effectively serve our ccmnunity, we'd like to
know what banking services you have the greatest need
for and use the most frequently. ____Checking
Accounts,
Savinas Accounts,
Home Equity
Loans, ____Car Loans, ____Personal Loans." To date
the bank has received no responses from the survey.
The bank plans to continue the survey until year end
at which time a complete report of all survey
responses will be made to management and the board of
directors.
The results of the bank's ascertainment efforts have
indicated that the predominant credit need in the
bank's comm unity is for small business loans.
Consumer lending, particularly for automobile
purchases and home equity loans, has also been
determined to be needed although on a lesser scale
than small business loans. Ihe loan products
detailed under Assessment Factors I and J indicate
that the bank is attempting to meet these needs;
however, as indicated under Assessment Factor I the
penetration of the consumer market has been extremely
slew.
4
Assessment Factor C - The extent of participation by
the institution's board of directors in formulating
the institution's policies and reviewing its
performance with respect to the purposes of the
Community Reinvestment Act.
A review of the minutes of the board of directors'
meetings and other documentation indicates that ORA
is routinely considered by the board. A ORA
committee was established in June 1990 and is made up
of entirely of directors. The committee was charged
with monitoring and reporting the bank's compliance
with ORA, ensuring thorough documentation,
supervising the training of employees and
communicating the bank's CRA involvement to
customers. The committee reports to the board on a
frequent though irregular basis. The CRA statement
has been reviewed and approved annually since the
last examination and has been expanded in accordance
with the regulation. The 1992 business plan
presented to the board during December 1991 states as
one of its objectives "To support comnunity
reinvestment through personal service and snail
business lending".
Although the board appears keenly aware of the CRA
and is active, the confusion surrounding certain
aspects of the CRA statement, detailed under
"Reasonableness of Delineated Community" indicates
misinterpretation and/or unfamiliarity with the
technical requirements of the regulation.
II. MARKETING AND TYPES OF CREDIT OFFERED AND EXTENDED
Assessment Factor B - The extent of the institution's
marketing and special credit-related programs to make
members of the community aware of the credit services
offered by the institution.
The bank's marketing programs are initiated by the
holding company and are reviewed and approved by
senior management of the bank. The programs are
designed to reach all segments of the bank's business
marketing area. Advertising is conducted through
area business magazines which are published weekly
and cover the bank's entire designated community.
Marketing efforts through 1991 enphasized corporate
image; however, in 1992 promotional efforts were
focused on the bank's small business loan programs
through the use of Small Business Administration
seminars and consulting programs as detailed below.
Very little marketing of consumer based credit has
been performed.
Beginning in March 1992, the bank has conducted
periodic seminars in conjunction with the Small
Business Administration (SBA). The seminars are held
in Rockville, MD and among other topics address
eligibility requirements, application procedures and
documentation needs for SBA loans. The seminars are
advertised in a local publication, in customer
account statements and in flyers distributed to
accountants throughout the designated ccmnunity.
During mid 1992 a joint seminar was held with a local
economic development ccmnission covering the same
material previously detailed. In addition,
semi-monthly seminars have been held at various
accounting and legal firms since September 1991,
detailing the accounting and legal benefits of SBA
loans as well as application procedures, etc.
However, these semi-monthly seminars were
discontinued during the summer months of 1992. They
are to be reinstituted in the near future.
The bank's marketing and advertising programs
adequately inform the small business segment of the
bank's community of the various credit products
offered. However, advertising of consumer oriented
products is extremely limited.
6
Assessment Factor I - The institution's origination
of residential mortgage loans, housing rehabilitation
loans, hone improvement loans, and small business or
small farm loans within its cannunity, or the
purchase of such loans originated in its community.
The bank's CRA statement lists the following types of
credit as being available within the designated
community: Secured and unsecured loans for
businesses and individuals for business purposes,
such as lines of credit, term loans, equipment lines
and loans, letters of credit, Small Business
Administration (SBA) lending program; Real Estate
Loans; secured loans to individuals and businesses to
construct, improve, or purchase real property and
inprovements or both such as income property and
commercial property loans, owner occupied residential
loans and Small Business Administration 504 Program;
Consumer loans such as secured and unsecured loans to
individuals for personal, family or household
purposes such as; revolving personal lines of credit,
chargecards, home equity loans, overdraft protection
lines of credit and installment loans. The following
loan mix analysis taken from the 12-31-89, 12-31-90,
12-31-91 and 6-30-92 Reports of Condition indicates
that the bank is funding the types of loans listed on
the CRA statement. However, the growth in consumer
lending has been extremely slow.
1989
1990
1991
1992
82%
79%
72%
77%
Construction &
2%
Development
1-4 Family
*
7%
Residential
Home Equity Loans
0%
Loans to Depository 0%
Institutions
Other Real Estate 42%
Loans
Commercial &
44%
Industrial Loans
Loans to
0%
Individuals
4%
1%
1%
9%
12%
11%
0%
1%
2%
0%
3%
0%
43%
48%
47%
38%
30%
30%
1%
2%
3%
Total loans to
deposits
*For the purposes of CRA the loan mix analysis
distorts the volume of 1-4 Family Residential loans.
7
According to instructions for Reports of Condition if
a business loan is more than 50% collateraled by
residential real estate that loan is placed under
loans for 1-4 family residences. The loans indicated
in the analysis above as 1-4 family residential are
in actuality business loans which are more than 50%
secured by 1-4 family residential dwellings.
Information generated internally, during the
examination, was used to determine the volume of
installment and comercial loans made within the
designated community. The bank's data processing
servicer purges loans at the end of the year in which
they are paid off, thus installment and comercial
loan volume (number and dollar amount) and
percentages are based on those loans currently
remaining on the bank's books for the applicable
years, hence the phrase "were originated" actually
refers to the loans remaining on the bank's books.
The 1989 Home Mortgage Disclosure Statement and the
1990 Loan/Application Registers (Form FR HMDA-LAR)
were used to determine mortgage related loan
information. In addition, neither consumer or
comercial loans are geocoded by census tract
therefore zip codes were used to plot these loans.
All percentages used in this assessment factor are
based on the number of loans rather than dollar
volume.
During 1989 the bank originated no mortgage related
loans. During the same year 36 consumer loans, in
the amount of $375,044, were originated of which 25
in the amount of $276,559, or approx imately 69%, were
made within the designated camunity. In addition,
84 commercial loans in the amount of $9,920,731 were
originated of which 66 in the amount of $7,930,103,
or approximately 79%, were made within the designated
camunity. The overall percentage of loans
originated within the designated c a m unity during
1989 was approx imately 76%.
During 1990 the bank originated no mortgage related
loans. During the same year 111 consumer loans, in
the amount of $824,701, were originated of which 72
in the amount of $717,584, or approximately 65%, were
made within the designated camunity. In addition,
78 comercial loans in the amount of $10,801,926 were
originated of which 59 in the amount of $8,503,275,
or approximately 76%, were made within the designated
8
cornmnity. The overall percentage of loans
originated within the designated community during
1990 was approximately 69%.
During 1991 the bank did not originate any mortgage
related loans. During this year 192 consumer loans,
in the amount of $1,242,477, were originated of which
133 in the amount of $871,821, or approximately 69%,
were made within the designated comnunity. In
addition, 85 commercial loans in the amount of
$5,468,203 were originated of which 60 in the amount
of $3,960,848, or approximately 71%, were made within
the designated community. The overall percentage of
loans originated within the designated comnunity
during 1991 was approximately 70%.
During 1992 the bank originated cne mortgage related
loan in the amount of $265,900 which was made within
the designated community. During this year 132
consumer loans, in the amount of $978,714, were
originated, of which 79 in the amount of $498,791, or
approximately 60%, ware made within the designated
comnunity. In addition, 84 commercial loans in the
amount of $9,054,585 were originated, of which 62 in
the amount of $8,378,894, or approximately 74%, were
made within the designated comnunity. The overall
percentage of loans originated within the designated
community during 1992 was approximately 65%.
During the time period detailed above, 1-1-89 through
9-11-92, the bank has originated 803 loans of which
557, or approximately 69%, have been made within the
designated comnunity.
A random sanple of 85 credit denials made since the
previous examination indicated that approximately 28%
of the denials came from within the designated
comnunity.
The analysis detailed above indicates that the bank
has undertaken efforts to
the primary
comnunity needs as identified through its
ascertainment program. Although a substantial
portion of the bank's loans are originated within the
designated comnunity the volume of loans originated
outside of the bank's designated comnunity indicates
that consideration should be given to performing a
réévaluation of the bank's designated comnunity.
Assessment Factor J - The institution's participation
in govemmentally- insured, guaranteed ór subsidized
loan programs for housing, small businesses, or small
farms.
Management stated that the credit enphasis of the
bank is the origination of small business loans,
which has recently focused on SBA programs with
secondary interest on consumer lending. Consumer
based credits have only been actively sought since
1991 with major enphasis being placed an automobile
and home equity lending. Management has indicated
that there is no current consideration being given to
the origination of first or purchase money
mortgages. Thus, the bank has not participated in
any govemmentally- insured, guaranteed or subsidized
loan programs for consumer oriented mortgage
products. The loan mix analysis contained in
Assessment Factor I substantiates these findings.
Management has determined that one of the major
community needs is the development of small
businesses. The bank began participating with the
SBA. in November 1991 and has originated ten SBA loans
in the original amount of $3,245,000. Nine of the
loans, or approximately 90%, in the amount of
$3,095,000 were originated within the bank's
designated community.
III. GEOGRAPHIC DISTRIBUTION AND RECORD OF OPENING
AND CLOSING OFFICES
Reasonablpttpss of Delineated Oomnunitv
The board of directors last reviewed and approved the
Oomnunity Reinvestment Act (CRA) statement an July
23, 1992. The bank's delineation of its community
provides for a primary and secondary lending area and
the written delineation, which is a part of the
bank's CRA statement, does not conform to the
required map of the bank's designated community. The
bank's written delineation defines the oomnunity as
follows:
"The Suburban Bank of Maryland is committed to
providing commercial banking services in a
primary trade area within the counties of Prince
George's and Montgomery in Maryland.
10
The secondary trade area includes Washington,
D.C., and the counties of CharlesCalvert, Anne
Arundel, Howard and Frederick in Maryland and
Alexandria, Arlington, Fairfax and Louden in
Virginia."
The bank's "primary trade area" was principally based
on effective lending territory with consideration
also given to political boundaries. The "secondary
trade area" was partially based on the lending
territory of the bank's affiliate, Suburban Bank of
Virginia, and an expansion of the "primary trade
area" to cover the majority of loans made outside of
this area. No documented analysis of the geographic
distribution of loans supporting management's method
of determining the designated carmunity was
available.
The maps attached to and made part of the ORA
statement are as follows: a map, entitled CRA
Primary Market Area, showing portions of Maryland and
Virginia and all of Washington, D.C. with concentric
circles of five mile increments ranging out to a 30
mile diameter with Washington, D.C. being the
approximate center. The second map, entitled CRA
Secondary Market Area, details Prince George's County
and part of Montgomery County. The second map also
shows undefined portions of Montgomery, Anne Arundel,
Calvert, and Charles counties in Maryland, undefined
portions of Virginia and an outline of Washington,
D.C.'s boundaries. Neither map indicates the extent
of the carmunity by boundary lines or other means.
Due to the breakdown of the "trade area" into primary
and secondary, the lack of definition on the maps and
the overall size of the trade area which the
combination of the two maps portrays, the bank's
delineation of its designated community is not
considered to be in conformance with the regulation.
For the purposes of this examination the bank's
designated carmunity will be considered as Prince
George's and Montgomery counties, Maryland, in their
entireties, which management has indicated was the
original intent.
11
A caiprehensive market share analysis of the bank's
deposit base was performed during mid 1992. No
analysis was Trade of the bank's market share in
reference to credits; however, the deposit analysis
indicates management's awareness of the volume of the
bank's competitors.
The designated community is primarily urban with
major sources of enployment being federal, county and
local governments, military, retail establishments
and government contractors. The bank's designated
community (Prince George's and Montgomery counties,
Maryland) is contained within the Washington,
D.C.-MD-VA Metropolitan Statistical Area (MSA) #8840
and is made up of 321 census tracts of which 84, or
approximately 26%, are considered to be lew- and
moderate-income census tracts. A lew- and
moderate-income census tract as defined in the FF3EC
HMDA Aggregation Tables, is a census tract in which
the median family income is less than 80% of the MSA
median family income. The FF3EC HMEA Aggregation
Tables for 1989 indicate that there are a total of
259,666 owner occupied housing units in the
delineated community, of which 39,072, or
approximately 15%, are considered to be in lew- and
moderate-income census tracts.
The delineation of the bank's ccmnunity, considering
the ccmnunity to be Prince George's and Montgomery
counties, does not exclude lew- and noderate-income
neighborhoods. However, the geographical analysis of
loan originations, detailed under Assessment Factor
I, indicates that approx imately 31% of the loans made
between 1-1-89 and 9-11-92 were originated outside of
the bank's designated ccmnunity and that a
reassessment of the delineation may be warranted.
Assessment Factor E - The geographic distribution of
the institution's credit extensions, credit
applications, and credit denials.
As previously mentioned under Assessment Factor I,
information generated internally during the
examination was used to determine the volume of
installment and ccmnercial loans made within the
designated community. The bank's data processing
servicer purges loans at the end of the year in which
they are paid off, thus installment and commercial
12
loan volume (number and dollar amount) and
percentages are based an those loans currently
remaining an the bank's books for the applicable
years, hence the phrase "were originated" actually
refers to the loans remaining an the bank's books.
The 1989 Hone Mortgage Disclosure Statement and the
1990 Loan/Applicaticn Registers (Farm FR HMDA-LAR)
were used to determine mortgage related loan
information. In addition, neither consumer or
commercial loans are geoooded by census tract
therefore zip codes were used to plot these loans.
All percentages used in this assessment factor are
based an the number of loans rather than dollar
volume. Low- and moderate-income census tracts as
defined by the 1980 census have been used for the
following analysis.
No mortgage related loans were made during 1989.
During this time period 36 consumer loans, in the
amount of $375,044, were originated of which one in
the amount of $7,000, or approximately 3%, was made
in zip codes containing lew- and moderate-income
census tracts. In addition, 84 commercial loans in
the amount of $9,920,731 were originated of which 16
in the amount of $1,520,222, or approximately 19%,
were made in zip codes containing low- and
moderate-income census tracts. The overall
percentage of loans originated during 1989 in zip
codes containing lew- and moderate-income census
tracts was approximately 14%.
Mo mortgage related loans were originated during
1990. During this time period 111 consumer loans, in
the amount of $824,701 were originated of which 11 in
the amount of $151,438, or approximately 10%, were
made in zip codes containing lew- and moderate-income
census tracts. In addition, 78 commercial loans in
the amount of $10,801,926 were originated of which 15
in the amount of $1,414,574, or app roximately 19%,
were made in zip codes containing lew- and
moderate-income census tracts. The overall
percentage of loans originated during 1990 in zip
codes containing lew- and moderate-income census
tracts was approximately 14%.
13
No mortgage related loans were originated during
1991. During this time period 192 consumer loans, in
the amount of $1,242,477 were originated of which 29
in the amount of $208,223, or approximately 15%, were
made in zip codes containing lew- and moderate-income
census tracts. In addition, 85 caimercial loans in
the anount of $5,468,203 were originated of which 22
in the anount of $1,392,322, or approximately 26%,
were made in zip codes containing low- and
moderate-income census tracts. The overall
percentage of loans originated during 1991 in zip
r w ^ p containing low- and moderate-income census
tracts was approximately 18%.
The single mortgage related loan made during 1992 in
the anount of $265,900 was not made in a lew- and
moderate-income census tract. During this time
period 132 consumer loans, in the anount of $978,714,
were originated of which 14 in the amount of $51,228,
or approximately 11%, was made in zip codes
containing low- and moderate-income census tracts.
In addition, 84 ccrmercial loans in the amount of
$9,054,585 were originated of which 17 in the amount
of $1,434,298, or approximately 20%, were made in zip
codes containing low- and moderate-income census
tracts. The overall percentage of loans originated
during 1992 in zip codes containing low- and
moderate-income census tracts was approximately 14%.
From 1-1-89 through 9-11-92 the bank has originated
803 loans of which 126, or approximately 16%, were
made in zip codes containing low- and moderate-income
census tracts.
A random sample of 85 credit denials made since the
previous examination indicated that approximately 21%
of the denials came from within zip codes containing
low- and moderate-income census tracts.
The information illustrated under this assessment
factor together with the analysis from Assessment
Factor I suggests that the bank has achieved a
reasonable penetration of all segments of its
designated cannunity, including low- and
moderate-income neighborhoods.
14
Assessment Factor G - The institution's record of
opening and closing offices and providing services at
offices.
Each of the bank's four offices provide full service
banking and are generally accessible to all segments
of the bank's community within their particular
service areas. The three Prince George's County
offices are located in Greeribelt (Main Office),
Maryland which is in the northwestern quadrant of the
county. The Capitol Heights Office is located on the
western boundary and in the approximate middle of the
county on a north-south axis. The Oxen Hill Office
is in the southwestern quadrant of the county. Since
the previous examination, the bank has opened the
Rockville Office, which is in the southwestern
quadrant of Montgomery County, Maryland. All offices
with the exception of Greenbelt have a drive-in or
walk up. Two of the offices offer extended hours on
Friday and Saturday. Although the bank has no AIMS
of its own, cards are issued that are connected to
the MDST system and no fee is charged for their use
on foreign AIMS.
IV.
DISCRIMINATION AND OTHER ILLEGAL CREDIT PRACTICES
Assessment Factor D - Any practices intended to
discourage applications for types of credit set forth
in the institution's CRA Statement (s).
No evidence of any practice designed or intended to
discourage applications for the types of credit
listed in the bank's CRA statement were disclosed.
Credit applications are solicited from all segments
of the designated comnunity and are approved or
denied based on an applicant's general
creditworthiness. No written policies or procedures
are currently in place.
Assessment Factor F - Evidence of prohibited
discriminatory or other illegal credit practices.
The bank is in compliance with the substantive
provisions of the antidiscrimination laws and
regulations including Equal Credit Opportunity, Fair
Housing, Home Mortgage Disclosure and any agency
regulations pertaining to ncn-discriminatory
treatment of credit applications.
15
V.
OCWUNITY DEVELOPMENT
Assessment Factor H - The institution's participation,
including investments, in local community development and
redevelopment projects or programs.
The bank is not participating in any development or
redevelopment projects or programs. Senior Vice President
Burnett stated that the bank remains informed as to
various projects through, its contact with the Economic
Development Corporations of the respective counties. The
bank currently has a SEA loan to a local small business
within the Capitol Heights Enterprise Trade Zone. The
bank also bid on a SBA loan to a small business located in
Upper Marlboro, Maryland within the Collingtan Free Trade
Zone. However, the company accepted the terms offered by
one of the bank's oorrpetitors. Management stated that to
their knowledge there are no programs available for the
bank to participate in at the present time.
Assessment Factor K - The institution's ability to meet
various community credit needs based an its financial
condition and size, legal inpediments, local economic
conditions and other factors.
Suburban Bank of Maryland (SBM) was formed as the result
of Bancshares 2000, Inc., McLean, Virginia's (new Suburban
Bancshares Inc., McLean, Virginia) acquisition of the
former Jefferson Bank and Trust Ccnpany, Greeribelt,
Maryland (now SBM). SBM is also an affiliate of Suburban
Bank of Virginia, McLean, Virginia. The bank currently
has assets of $71,296,000 of which $49,819,000, or
approximately 70%, represents the loan portfolio.
Commercial loans represent $43,574,000 or approximately
87%, heme equity loans represent $1,459,000, or
approximately 3%, and installment loans represent
$4,763,000, or approximately 10% of the loan portfolio.
The bank offers 25 credit products to its cannunity.
Solicitation of heme equity and installment (automobile)
loans has been intensified since 1991; however, small
business loans remain the bank's major product.
16
t
No legal impediments were noted v M c h restrict the bank
from offering its credit services to all segments of the
comnunity. The financial condition size and local
economic conditions or other known factors also offer no
restrictions to the offering of credit products to all
areas of the community.
Although the bank does not currently participate in any
local development or redevelopment projects, the detail
contained under Assessment Factors A, I, E and H indicate
that the bank has established the necessary relationships
to help it meet its CRA responsibilities to the community.
Assessment Factor L - Any other factors that, in the
regulatory authority's judgment, reasonably bear upon the
extent to which an institution is helping to meet the
credit needs of its entire community.
None.
17
£o
ÀA/s ÍJ-t
/
PUBLIC DISCLOSURE
DECEMBER 11, 1991
COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION
CITIZENS BANK OF MARYLAND
09702-1
14401 SWEITZER LANE
LAUREL, MARYLAND 20707
FEDERAL DEPOSIT INSURANCE CORPORATION
DIVISION OF SUPERVISION
452 FIFTH AVENUE, 21ST FLOOR
NEW YORK. NEW YORK 10018
NOTE:
This evaluation is not, nor should it be
construed as, an assessment of the financial
condition of this Institution. The rating
— lgned to this institution does not represent
an analysis, conclusion or opinion of the
federal financial supervisory agency concerning
the safety and soundness of this financial
institution.
CRWTOAL INFORMATION
This document is an evaluation of the Community Reinvestment Act
(CRA) performance of the
Bank of Marvland Prepared by
the Federal Deposit Insurance Corporation, the institution's
supervisory agency.
The evaluation represents the agency's current assessment and
rating of the institution's CRA performance based on an
examination conducted as of December 11. 1991. It does not
reflect any CRA-related activities that may have been initiated
or discontinued by the institution after the completion of the
examination.
The purpose of the Community Reinvestment Act of 1977 (12 U.S.C.
2901), as amended, is to encourage each financial institution to
help meet the credit needs of the communities in which it
operates. The Act requires that in connection vith its
examination of a financial institution, each federal financial
supervisory agency shall (1) assess the institution's record of
helping to meet the credit needs of its entire community,
including low* and moderate«income neighborhoods, consistent
vith safe and sound operations of the institution, and (2) take
that record of performance into account when deciding whether to
approve an application of the institution for a deposit
facility.
The Financial Institutions Reform, Recovery and Enforcement Act
of 1989, Pub. L. No. 101-73, amended the CRA to require the
Agencies to make public certain portions of their CRA
performance assessments of financial institutions.
Basis for the Rating
The assessment of the institution's record takes into account
its financial capacity and size, legal impediments and local
economic conditions and demographics, including the competitive
environment in which it operates. Assessing the CRA performance
is a process that does not rely on absolute standards.
Institutions are not required to adopt specific activities, nor
to offer specific types or amounts of credit. Each institution
has considerable flexibility in determining how it can best help
to meet the credit needs of its entire community. In that
light, evaluations are based on a review of 12 assessment
factors, which are grouped together under 5 performance
categories, as detailed in the following section of this
evaluation.
2
ASSIGNMENT OF RATING
Identification of Ratings
In connection vith the assessment of each insured depository
institution's CRA performance, a rating is assigned from the
following groups:
Outstanding record of meeting community credit needs.
An institution in this group has an outstanding record of,
and is a leader in, ascertaining and helping to meet the
credit needs of its entire delineated community, including
low- and moderate-income neighborhoods, in a manner
consistent vith its resources and capabilities.
Satisfactory record of meeting community credit needs.
An institution in this group has a satisfactory record of
ascertaining and helping to meet the credit needs of its
entire delineated community, including low- and
moderate-income neighborhoods, in a manner consistent vith
its resources and capabilities.
Needs to improve record of meeting community credit needs.
An institution in this group needs to improve its overall
record of ascertaining and helping to meet the credit needs
of its entire delineated community, including low- and
moderate-income neighborhoods, in a manner consistent vith
its resources and capabilities.
Substantial noncompliance in meeting community credit
needs.
An institution in this group has a substantially deficient
record of ascertaining and helping to meet the credit needs
of its entire delineated community, including lov- and
moderate-income neighborhoods, in a manner consistent vith
its resources and capabilities.
3
DISCUSSION OF INSTITUTION'S PERFORMANCE
Institution *s Rating:
This institution is rated Satisfactory based on the findings
presented below.
I.
ASCERTAINMENT OF COMMUNITY CREDIT NEEDS
Assessment Factor A - Activities conducted by the institution to
ascertain the credit needs of its community, including the extent of
the institution's efforts to communicate with members of its
community regarding the credit services being provided by the
institution.
The board of directors and senior bank management have implemented an
outreach program to maintain contact with various sectors of the
bank's delineated community.
The bank's president has been involved in a variety of outreach
activities. In July 1991, he made a presentation to a homebuilders
association concerning credit and banking issues related to
financing residential home construction. In December 1991, he taped
an interview on a local radio station concerning consumer credit and
banking. Management stated that this station reaches a large lowand moderate-income audience which is centered in Prince George's
County, Maryland and the Washington D.C. area. On August 28, 1991,
the bank's president was the keynote speaker at a roundtable
discussion sponsored by a nonprofit, self-help economic advisory
group based in Maryland. He was also the keynote speaker at an
economic conference in September 1991, given jointly by the Prince
George's County government and concerned local small businesses. His
discussion identified credit needs of Prince George's County and the
degree of credit availability for small businesses in the county. He
also attended a conference in December 1991, sponsored by two private
sector groups concerned with improving the economic condition of
Montgomery and Prince George's Counties. In addition, as president
of the state bankers association, he regularly addresses the
organization on various topics, including credit topics affecting the
Maryland community. The bank's president was also instrumental in
sponsoring banking seminars at a low-Income area public high school
in Prince George's County.
The board of directors also plays an active role in outreach
activities as illustrated by the following: Citizens Bank of
Maryland (Citizens) volunteers ongoing technical assistance to a
4
non-profit, snail business organization encompassing Prince George's
and Charles Counties. The bank donated funds to this organization in
1990 and 1991. Or.« of the bank's directors is an active member of
this organization. This individual is also the owner of a consulting
firm specializing in minority and small businesses. In this regard,
he frequently organizes and hosts meetings at the bank for various
minority church and business organizations. Topics covered include a
presentation of the types of consumer services offered by this
institution and the procedures involved in acquiring consumer
credit. In December 1991, he hosted a meeting attended by members of
a church group located in Prince George's County. His discussion
centered on the mechanics of extending consumer credit.
Another of the bank's directors is a member and past president of a
local chapter of a national non-profit business association in
Prince George's County. He periodically brings the members of this
organization up to date on current consumer banking issues, and
apprises them of the various banking services offered at Citizens
Bank. This individual is also a member of a non-profit consumer
action group whose goal is to encourage economic growth, housing
revitalization and job creation in depressed areas of the county.
This organization is an official advisory council to the Prince
George's County government.
This same director is a member of a local advisory council whose goal
is to determine ways to revitalize and improve a part of the local
community. This area is located in Prince George's County and is
comprised of both residential neighborhoods and commercial
locations. This council is relatively nev and, to date, no
definitive plan of action has been established. This director is
also the chairman of a local business group that supports public
libraries. This organization has obtained a bookmobile for Spanish
language text to serve the Langley Park, Maryland area, a
predominantly low- and moderate-income neighborhood.
In addition to the above stated efforts of the directorate to
ascertain the credit needs of the bank's community, the following
senior management activities further demonstrate an ongoing
commitment to this institution's outreach efforts.
In September 1991, a member of senior management addressed the local
chapter of a national contractors association to discuss various
topics relative to the credit services offered by Citizens Bank. In
October and December 1991, a bank vice president held meetings with a
local homebuilders association to discuss the credit services being
provided by this institution. Additionally, an assistant vice
president of the bank is an active member of a state sponsored
organization created to provide a clearinghouse for various types of
small business consortium lending.
5
The outreach efforts of Citizens* employees ere reaching some of the
lesser known minority groups in the bank's market area. A bank
employee is the treasurer of a non-profit organization1made up of
ethnically Middle Eastern women. This employee periodically
discusses the credit services Citizens offers*. Also, employees of
the bank's Olney Branch perform various interactive outreach
activities on a volunteer basis for a Korean American community
organization. This is a non-profit organization that disseminates
credit. Job, and life support information to Korean consumers who
speak little English. Branch personnel p e r f o n various tasks such as
translating, helping to place phone calls, filling out applications,
and answering various consumer credit questions.
On September 19, 1991, Citizens Bank of Maryland hosted a special
seminar which was conducted entirely in Spanish at a major hotel in
Silver Spring, Maryland. This seminar was conducted to increase the
Hispanic community's awareness of the types of consumer financial
services offered to the consumer. The topics discussed included bank
safety, how to establish credit, and the procedures necessary for a
consumer vishing to purchase a home. Several radio stations and a
cable television station covered the seminar, and are interested in
promoting future financial advice seminars on consumer credit needs.
Two of the bank's branch managers coordinated this seminar. Both of
these individuals speak Spanish fluently and hope to expand the
promotion of the bank's consumer and small business services by
offering future presentations. The bank was also represented at a
business exposition Gaithersburg, Maryland on May 8, 1991. Citizens'
theme was geared to the local small businessman with topics including
economic development and strategic marketing.
Through the volunteer efforts of its employees. Citizens is also
addressing the special needs of the low- to moderate-income elderly.
Branch management has taken the lead in this regard, and meets
frequently with the elderly at a home for the aged located near the
branch office. Residents are brought up to date on the banking
products offered by Citizens Bank. Employees at another Citizens
branch provide a similar service for the elderly at a retirement home
near the branch office. These employees perform help sessions on
banking for these senior residents.
Assessment Factor C - The extent of participation by the
institution's board of directors in formulating the institution's
policies and reviewing its performance with respect to the purposes
of the Community Reinvestment Act.
The board of directors of Citizens Bank of Maryland annually reviews
and approves the Community Reinvestment Act statement, policy and
future plans. The CRA statement was last approved in March 1991.
There are also periodic presentations on CRA to the bank's holding
company board.
6
II. MARKETING AND TYPES OF CREDIT OFFERED AND EXTENDED
Assessment Factor B - The extent of the institution's marketing and
special credit-related programs to make members of the community
evare of the credit services offered by the institution.
Marketing of the bank's services throughout its delineated community
is accomplished through various media including newspapers, radio
advertisements, television appearances, pamphlets and lobby
brochures. The bank's marketing program has been reviewed and
approved by senior management and is designed to reach all segments
of the bank's market area. In 1991, this institution placed 53
advertisements in eight different newspapers covering the Maryland
area. These advertisements covered a vide range of topics from
consumer loan information, checking, and investments, to informing
the public when a new branch opens. In addition, in October 1991, a
bank branch manager participated in an interview on a Spanish
language cable television station. The interview highlighted the
banking services offered at Citisens and discussed how the consumer
credit needs of the Hispanic community might be addressed.
The Marketing Department helped to coordinate the development of two
Spanish language brochures. The first brochure is designed to give
information on the different typer of checking accounts, how to open
a checking account, overdraft protection, an explanation of various
banking terminologies, and how to obtain a money access card. The
second brochure gives an explanation of savings and investment
terminology and discusses the various ways a consumer can save and
invest at Citizens Bank.
Assessment Factor I - The institution's origination of residential
mortgage loans, housing rehabilitation loans, home improvement loans,
and small business or small farm loans within its community, or the
purchase of such loans originated in its community.
The bank's lending is characterized by an approximate 50X balance
between commercial and consumer loans. Residential mortgage and
small business loans are among those listed in the bank's most recent
CRA statement as being available to the public. However, management
stated that these types of loans are not actively solicited by lut
bank due to a lack of expertise in these lending areas. The bank
will consider such loans only if specifically requested by a
customer. The bank's CRA statement as of March 19, 1991 lists the
following lending services normally available to customers who
qualify within the bank's underwriting criteria:
7
Home improvement loans;
Home equity lines of credit;
Overdraft protection for checking accounts;
Consumer loans;
Auto loans;
Residential mortgage loans (first and second mortgages);
Commercial loans for all sixes of businesses;
Commercial real estate loans;
Community development loans;
Loans to government entities; and
Credit cards (Visa and Mastercard).
A reviev vas conducted of the bank's consumer and commercial loans
utilising sip code reports generated by the bank. Bank officials
stated that average turnover for consumer loans vas approximately 2.5
years, suggesting that the majority of the loans in the consumer loan
portfolio vere originated since the previous evaluation (10-11-88).
The analysis of this report indicated that 81.4X of the consumer loan
originations vere extended to borrowers vithin the bank's entire
delineated community, vith 54X extended vithin Montgomery and Prince
George's Counties, vhich have the heaviest concentration of bank
offices. For commercial loans, the analysis of the sip code report
as of the evaluation date Indicated that 83.3X of total commercial
loan originations vere extended vithin the bank's entire delineated
community, vith 68X occurring in Montgomery and Prince George's
Counties.
An analysis of housing related credit vas also performed utilising
the bank's 1? ° n and 1990 Home Mortgage Disclosure data. As indicated
above, the bank does not actively seek home mortgage loans and only
12 such credits in 1989 and 22 in 1990 vere originated in response to
the direct requests of those specific customers. All vere vithin the
bank's delineated community. For home improvement loans, Citisens
Bank originated 371 vithin its community in 1989, and 239 in 1990.
Home Equity accounts vere also reviewed utilising sip code
information, and 87.7X vere originated vithin the bank'*; delineated
community, vith 68X in Montgomery and Prince George's Counties.
This overall analysis indicates that a significant volume of loans is
extended vithin the bank's community. This loan volume is considered
adequate in relation to the bank's resources and its community credit
needs.
Assessment Factor J - The institution's participation in
governmentally-insured, guaranteed or subsidised loan programs for
housing, small businesses, or small farms.
8
Small business loans are among those listed in the bank's CRA
statement(s) as being offered to the public as stated in Assessment
Factor I. However, management states that conventional, VA, FHA and
small business loans are not solicited by the bank. These loans are
considered if specifically requested by an applicant. Management
states that a lack of expertise precludes solicitation in these
lending areas.
III. GEOGRAPHIC DISTRIBUTION AND RECORD OF OPENING' AND CLOSING OFFICES
Reasonableness of Delineated Community
Citizens Bank of Maryland defines its delineated community as
consisting of all of Montgomery and Prince George's Counties and
portions of Baltimore, Frederick, Charles, Calvert, Anne Arundel,
Hovard and St. Mary's Counties, and a portion of Baltimore City.
Eighty-two percent of the bank's 111 offices are located in
Montgomery and Prince George's Counties. Of these, 30X serve areas
primarily identified as lov- and moderate-income. Given the location
of the bank's offices and the loan analysis presented in Assessment
Factor I, the bank's community delineation appears to essentially
meet the purpose of the Community Reinvestment Act, vith one notable
exception.
The bank's community delineation does not include any portions of the
District of Columbia, including areas in which it has regularly
extended loans to District residents. The District is bordered on
the North and East by Montgomery and Prince George's Counties, which
are the two counties that have the largest concentration of the
bank's 111 offices. Several of these offices are in close proximity
to the District border and others are within a few miles of the
District line. In some cases, lov- and moderate-income neighborhoods
are divided by the District border, however the bank has not
continued its delineation into that portion of the District even
though it has extended credit to those areas. For example, the
review of the bank's home improvement loans originated in Montgomery
and Prince George's Counties plus the District of Columbia, indicated
that 13X of these loans were originated in the District vith 5.72X
extended in lov- and moderate-income neighborhoods of the District.
The CRA regulation, while establishing state and other geopolitical
boundaries»
«ne option for delineation, provides for the inclusion
of appropriate adjacent areas, absent some physical, economic or
legal barrier to that inclusion.
Assessment Factor E - The geographic distribution of the
institution's credit extensions, credit applications, and credit
denials.
9
The geographic distribution of the bank's credit extensions was
reviewed to determine if the bank is adequately serving all segments
of its delineated community. Data used for this analysis consisted
of FFIEC HMDA Aggregation Tables, the bank's 1989 and 1990 HMDA
statements for housing related credit, and a bank generated sip code
analysis of consumer and commercial loans. Based on the FFIEC HMDA
Aggregation Tables, a low* and moderate-income census tract is
defined as a census tract in which the median family income is less
than 80% of the MSA median family income.
As indicated under Assessment Factor I, Citizens Bank is not a
significant lender in terms of housing related credit, particularly
residential mortgage loans. Therefore, the loan analysis which
follows is focused primarily on the bank's lending record relative to
its consumer and commercial extensions of credit. This analysis
utilized zip code reports generated by the bank. To facilitate the
use of the zip code information, the bank's record of lending,
relative to low- and moderate-income neighborhoods, was measured in
terms of loans extended in zip codes where low- and moderate-income
census tracts are located.
Using the FFIEC HMDA Aggregation Table low- and moderate-income
census tract definition, and concentrating primarily on Montgomery
and Prince George's Counties, where the majority of the bank's
offices are located, 14.8% of the tracts in Montgomery County and
36.6% of the tracts in Prince George's County qualify as low- and
moderate-income tracts. Combined, these tracts comprise 26% of the
total tracts in the two counties and encompass 13.6% of the
owner-occupied housing units in this area.
For consumer loans, the bank extended 4.2% of these loans in low- and
moderate-income neighborhoods in Montgomery County, where 6.3% of the
owner-occupied housing units are considered low- and
moderate-income. In Prince George's County, where 21.7% of the
owner-occupied housing units are considered low- and moderate-income,
the bank extended 46.7% of these loans to those areas.
Utilizing 1989 and 1990 HMDA statements, a review was also performed
of the bank's lending record relative to home improvement loans. In
1989, the bank originated 15.8% and 22.9% of these loans in low- and
moderate-income neighborhoods in Montgomery and Prince George*s
Counties respectively. In 1990, the figures were 7.3% and 14.6k
respectively.
Citizens Bank's lending record in other portions of its delineated
community, show similar results in those areas where it was possible
to overlay zip code locations with census tract locations.
Overall, the above analysis in combination with the information
detailed in Assessment Factor I, indicates a satisfactory level of
performance relative to the bank's lending record in its delineated
community, particularly low- and moderate-income areas.
10
Assessment Factor G - The institution's record of opening end closing
offices end providing services et offices.
Citizens Bank of Maryland is e full service stete chartered
non-member bank. This institution operates 111 branch offices of
which 93 ere in Prince George's and Montgomery counties. Effective
March 1, 1992, the bank will have new Saturday hours for 16 of its
branches. These new Saturday hours will extend from 9 A.M. to
3 P.M. to better service the needs of the local community. The
remaining branches vill continue to operate on Saturday from 9 A.M.
to 12 P.M.
IV.
DISCRIMINATION AND OTHER ILLEGAL CREDIT PRACTICES
Assessment Factor D - Any practices intended to discourage
applications for types of credit set forth in the institution's CRA
Statement(s).
Discussions vith bank personnel along vith a review of the bank's
credit extensions, applications, and denials revealed no evidence of
any practices designed or intended to discourage applications for any
of the types of credit listed in the bank's CRA statement(s) There
was no prescreening of applicants noted at this examination.
Assessment Factor F - Evidence of prohibited discriminatory or other
illegal credit practices.
There was no evidence revealed during this examination of prohibited
discrimination or other illegal credit practices.
V.
COMMUNITY DEVELOPMENT
Assessment Factor H - The institution's participation including
investments in local community development and redevelopment projects
or programs.
Citizens investment portfolio reflects a sensitivity to the
development need.: of its local community. This portfolio Includes
bond investments issued by various federal, state and local
governmental agencies. These bonds total approximately $5.4 million.
This institution has approximately 27 local community industrial
development loan/bond projects presently on the books. These assets
total approximately $36 Million, including bonds supporting the
construction financing for a veterans association building and a
number of local volunteer fire department buildings. These community
industrial development bonds are further examples of the diversified
outreach efforts undertaken by this institution.
11
In April 1991, a non-profit organization cantered
primarily in Prince George's County vas formed. The
purpose of this organization is to bring together the
banking community to collectively develop strategies to
support economic development initiatives in and around
Prince George's County. This organization is presently
working in the following three specific areas: (1) To
explore public financing assistance tools and create
strategies to make those programs more effective;
(2) To
explore the practices and resources of the banking
institutions to identify individual and collective
strategies to broaden the availability of capital to
start-up and/or to expand small businesses; and (3) To
critique government and private sector revitalization
strategies to ensure that the resulting products are
feasible and sound. The President of Citizens Bank is a
member of this organization and another senior executive
bank officer is the Chairman of this organization.
Citizens Bank provides free office space, other
operational hardware, and technical assistance to this
organization.
One of the bank's branch managers coordinates the bank's
Involvement in a local community revitalization project.
This project is a four year endeavor which involves the
revitalization of a low- and moderate-income commercial
and residential area of Montgomery County. It is a joint
public and private sector project. This project provides
assistance to residents for the renovation of homes,
storefronts and the surrounding landscape in an effort to
upgrade overall living standards.
This institution's participation in community
redevelopment programs can further be seen by the work
that is being done at a local community development
group. This group vas formed to identify and address
housing and credit needs of low- and moderate-income
consumers and small businesses in the Randallstovn,
Maryland area. On October 21, 1991, a bank officer met
with this group to discuss and give technical assistance
in the areas of fund raising activities, capital
improvement projects, and advertising. Bank management
plans to continue these meetings and Increase its
involvement as progress is made.
Assessment Factor K - The institution's ability to meet
various community credit needs, based on its financial
condition, size, legal impediments, local economic
conditions, and other factors.
12
As indicated under Assessment Factor I, the bank's lending is
balanced betveen commercial and consumer loans• As stated under
Assessment Factor J, the bank does not actively seek Small Business
Association loans nor do they, in general, participate in government
insured, guaranteed, or subsidised lending due to what management
feels is a lack of expertise in these areas. ‘However, the variety of
credit products offered by the bank appears adequate to meet the
various credit needs of its delineated community.
Assessment Factor L - Any other factors that,'in the regulatory
authority's judgment, reasonably bear upon the extent to which an
institution is helping to meet the credit needs of its entire
community.
The manager of the Lanham office in Prince George's County is an
active member of a prominent business women's association. Also,
another bank employee is an active member of an additional business
and professional women's organization in the Prince George's County
area. Both of these organizations are non-profit and strive to aid
prospective business women in how to get started in business. These
employees will give talks periodically concerning various community
redevelopment issues and discuss the technical aspects of obtaining
small business loans.
Another of the bank's branch managers donates his organizational
expertise to a project that brings together employers and the
unemployed to a type of job fair. This project is an annual event
and well received by the local community. This organization, in
conjunction with a nationally known organization that helps the
homeless, sponsored its latest job fair for unemployed adults on
April 30, 1991.
13
Attachm ent 2
______ Office o f the Comptroller o f the Currency
Joint Release _ _ ______ Federal Deposit Insurance Corporation
_______________________ Federal Reserve Board
______________________________________ Office o f Thrift Supervision
(PR-20-93)
Interagency Policy Statement on
Credit Availability
March 10, 1993
The four federal regulators o f banks and thrifts — the Office o f the Comptroller o f the
Currency, the Federal Deposit Insurance Corporation, the Board o f Governors o f the
Federal Reserve System, and the Office o f Thrift Supervision — today announced a
program directed at dealing with problems o f credit availability, especially for small and
medium-sized businesses.
The program w ill focus on the five areas in which the agencies w ill take action designed
to alleviate the apparent reluctance by banks and thrifts to lend. Those areas are:
•
Lending to Small- and Medium-sized Businesses
•
Real Estate Lending and Appraisals
•
Appeals o f Examination Decisions and Complaint Handling
•
Examination Processes and Procedures
•
Paperwork and Regulatory Burden.
The agencies intend to complete virtually all o f the changes proposed in the program
within the next few months. As the specifics o f any change are finalized, that change will
be made and published while details o f other changes are in the process o f being
finalized.
A complete statement about the actions the agencies have planned is attached. The
statement reaffirms the agencies' belief that it is in the interest o f lenders, borrowers and
the general public that creditworthy borrowers have access to credit.
T his policy statem ent w ill be distributed to all federally exam ined banks and thrifts
and to all regulatory agency o ffices and exam iners.
Office of the Comptroller of the Currency
Federal Deposit Insurance Corporation
Federal Reserve Board
Office of Thrift Supervision
Interagency Policy Statement on
Credit Availability
M arch 10,1993
Problems with the availability o f credit over the last few years have been especially
significant for small- and medium-sized businesses and farms. This reluctance to lend
may be attributed to many factors, including general trends in the economy; a desire by
both borrowing and lending institutions to improve their balance sheets; the adoption o f
more rigorous underwriting standards after the losses associated with some laxities in the
1980s; the relative attractiveness o f other types o f investments; the impact o f higher
capital requirements, supervisory policies, and examination practices; and the increase in
regulation mandated by recent legislation — specifically, the Financial Institutions Reform
Recovery and Enforcement Act (FIRREA) and the Federal Deposit Insurance Corporation
Improvement Act (FDICIA).
The four federal regulators o f banks and thrifts — the Office o f the Comptroller o f the
Currency, the Federal Deposit Insurance Corporation, the Board o f Governors o f the
Federal Reserve System, and the Office o f Thrift Supervision — recognize that in the last
several years the buildup o f certain regulations and practices has become overly
burdensome. Indeed, those regulations and practices may have, in some cases, stifled
lending, particularly to small- and medium-sized businesses that met prudent underwriting
standards.
It is in the interest o f lenders, borrowers, and the general public that creditworthy loans
be made. Since economic growth, especially job growth, is fueled primarily by smalland medium-sized businesses, credit availability to those borrowers is especially
important. Accordingly, the agencies are working on the details o f a new program to help
ensure that regulatory policies and practices do not needlessly stand in the way o f lending.
Loans to creditworthy borrowers should be made whenever possible, as long as they are
fully consistent with safe and sound banking practices.
-
2
-
B ackground
The new program is one aspect o f an overall effort by the agencies to evaluate carefully
and react appropriately to risk in the United States financial -services industry. That
overall effort envisions substantial oversight, in some cases more than we have now, in
areas that pose greater risk to the system. By the same token, regulatory burden w ill be
reduced where risk is low, especially for strong, well-managed banks and thrifts. This
program is also part o f a broader effort to ensure equal credit opportunity for all
Americans and to make credit and other financial services available to low- and moderateincome neighborhoods and disadvantaged rural areas.
T he P ro g ram
The new program involves a variety o f regulatory and other administrative changes which
have been agreed to in principle by the agencies. These changes fall into five categories,
each o f which is discussed below.
Timing. The agencies w ill work to complete virtually all o f the changes outlined below
within the next three months. Once the specifics o f any o f the changes are agreed upon,
that change w ill be made and published, while distribution o f other changes remain* to
be made.
1«
Elim inating Impediments to Loans to Small- and Medium-Sized Businesses
Reducing Documentation. Strong and well-managed banks and thrifts w ill be permitted
to make and carry a basket o f loans with minimal documentation requirements, consistent
with applicable law. To ensure that these loans are made to small- and medium-sized
businesses, there w ill be a ceiling on the size o f such loans and lim its on the aggregate
o f such loans a bank may make.
Encouraging Use of Judgm ent\Borrower’s Reputation.
The agencies w ill issue
guidance to make it clear that banks and thrifts are encouraged to make loans to smalland medium-sized businesses, particularly loans in the basket discussed above, and to use
their judgment in broadly assessing the creditworthy nature o f the borrower — general
reputation and good character as w ell as financial condition may be elements in making
these judgments.
Reliance on a broad range o f factors when making a credit
determination is especially important.
O ther Assets Especially Mentioned. Improper use o f the category o f Other Assets
Especially Mentioned (OAEM) may inhibit lending to small- and medium-sized
businesses. Accordingly, the agencies w ill clarify that examination and rating procedures
do not group OAEM loans with classified loans.
2.
R educing Appraisal Burden and Im proving the C lim ate for R eal Estate
The experience o f the last decade has underscored the importance o f sound underwriting
standards and effective supervision for commercial real estate loans. Nonetheless, in
certain instances regulatory burdens may be adversely affecting loans to sound borrowers.
This may be particularly so in the case o f loans secured by real estate that are primarily
used for non-real estate business purposes. Real estate collateral is often pledged for
loans to small- and medium-sized companies that have few other tangible assets.
U sing R eal E state Appraisals Prudently. In some cases currently required real estate
appraisals may not add to the safety and soundness o f the credit decision. Indeed, in
some cases, appraisals may prove so expensive that they make a sound small- or medium
sized business loan uneconomical. Accordingly, the agencies w ill make changes to their
rules relating to real estate appraisals along the following lines:
•
A ccept A dditional Collateral
When real estate is offered as additional collateral for a business loan, both the
time and expense involved in obtaining an appraisal from a certified or licensed
real estate appraiser may discourage a bank or thrift from taking the collateral,
may increase the cost o f credit significantly, or even may cause the loan not to be
made.
In some such cases, the real estate appraisal requirement is
counterproductive from a safety and soundness perspective. Moreover, the
constraint on credit flow s to sound businesses may be substantial. Accordingly,
the agencies w ill alter their real estate appraisal rules so as not to require an
appraisal by a licensed or certified appraiser for such loans.
•
Reexam ine Appraisal Thresholds
Appraisals conducted by licensed and certified real estate appraisers, even on real
estate o f modest value can be quite costly. In the case o f a smaller loan, the
requirement o f an appraisal by a licensed or certified real estate appraiser may
make a sound loan uneconomical. Accordingly, the agencies w ill reexamine their
existing rules to make certain that thresholds below which formal appraisals are
not needed are reasonable.
•
L im it Periodic Appraisals
In some cases real estate appraisals have been required after a loan has been made,
and in circumstances where the appraisal did not add to the safety and soundness
o f the loan. Accordingly, the agencies w ill work to make certain that real estate
appraisals are required after a loan is made only when clearly needed for safety
and soundness purposes, provided o f course, that all requirements under law have
been met.
-4 Changing Rules on Financing of O ther Real Estate Owned. Currently, accounting and
other rules may discourage banks and thrifts from providing financing to borrowers who
wish to purchase real estate classified as Other Real Estate “Owned. The agencies w ill
review rules relating to the reporting treatment and classification o f such loans and make
appropriate changes to facilitate financing to creditworthy borrowers, consistent with safe
and sound banking and accounting practices.
Reviewing In Substance Foreclosure Rules. The inappropriate use o f in substance
foreclosure rules have required foreclosure valuation treatment o f loans when borrowers
were current on principal and interest payments and could reasonably be expected to repay
the loan in a tim ely fashion. The agencies w ill work with the appropriate authorities to
alter that treatment and to coordinate a change in accounting principles and reporting
standards.
Avoiding Liquidation Values on Real Estate Loans. Loans secured by real estate
should be evaluated based on the borrower’s ability to pay over tim e, rather than a
presumption o f immediate liquidation. The agencies w ill work with their examination
staffs to ensure that real estate loans are evaluated in accordance with agency policy.
_
3.
Enhancing and Stream lining Appeals and Com plaint Processes
Appeals. It is important for bankers to have an avenue by which they can obtain a
review o f an examiner’s decision when they wish. For that reason, each o f the agencies
has established an appeals process. To ensure the effectiveness o f those processes, each
agency w ill take appropriate steps to ensure that its appeals process is fair and effective.
In particular, each agency w ill ensure that its process provides a fair and speedy review
o f examination complaints and that there is no retribution against either the bank or the
examiner as the result o f an appeal.
C om plaints. Each o f the agencies has a process to handle more general complaints from
the institutions they regulate and from the general public. Although the volume o f such
complaints can be high, each agency recognizes that reviewing and responding to these
complaints is an important element o f proper supervision. The agencies are particularly
concerned that complaints o f discriminatory lending practices be handled with the utmost
seriousness and on an expedited basis.
Accordingly, the agencies w ill review their complaint processes to improve both the care
with which complaints are scrutinized and the timeliness o f responses.
4.
Im proving Exam ination Process and Procedures
R educing the Burden o f the Exam ination Process. A proper examination o f a bank or
thrift by its very nature involves some disruption to die examined institution. Such
disruptions, however, are costly to the institution and can interfere with its credit
functions. It is highly desirable that examination disruptions be minimized.
Accordingly, the agencies have agreed to intensify efforts to minimize such disruptions
and, in particular, to take the following steps: (i) eliminate duplication in examinations
by multiple agencies, unless clearly required by law, (ii) increase coordination o f
examinations among the agencies when duplication is required, and (iii) establish
procedures to centralize and streamline examination in multibank organizations.
R efocusing the Exam ination Process. If examinations are to fulfill their functions both
in the areas o f safety and soundness, fair lending, and consumer protection compliance,
it is important constantly to reexamine the elements o f the examination to determine
whether the process is effective.
Similarly, regulations and interpretations must
continually be assessed to determine whether they are fulfilling these functions.
To improve the regulatory process, the agencies have agreed to heighten their emphasis
in examinations on risk to the institution and to issues involving fair lending in place o f
areas that have become less productive over time. Agency policies and procedures w ill
be reviewed with this focus in mind.
Reducing Regulatory Uncertainty. Uncertainty is part o f the regulatory burden that
banks and thrifts face and that contributes to their reluctance to make some credits
available. This uncertainty can stem from ambiguous language in regulations and
interpretations, from delays in publishing regulations and interpretations, and from failures
to follow uniform examination standards that clearly reflect agency policies.
Accordingly, the agencies w ill review their regulations and interpretations to minimise
ambiguity wherever possible and w ill step up efforts to publish regulations and
interpretations required by law or sound regulatory practice. In addition, the agencies w ill
reemphasize to their examiners to follow agency policies and guidelines carefully and
accurately in carrying out examinations and reviewing applications. The agencies w ill
make every effort to ensure that examination and application processing is performed
uniformly across the country.
5.
Continuing Further Efforts and Reducing Burden
Further Efforts. Additional items w ill be reviewed for possible change. One item that
w ill be reviewed relates to the treatment o f partially charged-off loans. Under current
practice delinquent loans that have been partially charged o ff cannot be returned to
-
6
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performing status even when the borrower is able to and folly intends to, pay the
remaining interest and principal to the bank in a tunely fashion. The a g e n c y w ill work
to develop common standards for determining when a loan may be returned to accrual
status.
Paperw ork Burden. No good is served by forcing banks to bear an excessive regulatory
paperwork burden. Accordingly, the agencies have begun and w ill continue to review all
paperwork requirements to eliminate duplication and other excesses that do not contribute
substantially to safety and soundness.
Regulatory Burden. It is not paperwork alone that unnecessarily burdens banks and
thrifts. Regulations and interpretations also may be unnecessarily burdensome. In some
cases the passage o f time has made regulations outmoded. In other cases the regulations
may not have fulfilled their goals.
Accordingly, the agencies also have begun and w ill continue to review all regulations and
interpretations to minimize burden while maintaining safety and soundness standards.
Distribution: FDIC-supervised banks (Commercial and Savings)
Attachm ent 3
O ffice o f the Comptroller o f the Currency
Joint Release
______Federal Deposit Insurance Corporation
_____________ ________ Federal Reserve Board
____ _______________ ______________ Office o f Thrift Supervision
For im m ediate release
Interagency Policy Statement on
Fair Lending Initiatives
Jan e 10,1993
The four financial institution regulatory agencies are announcing initiatives that they
will pursue over the next several months to enhance their ability to detect lending
discrimination, to improve the level o f education they provide to the industry and to
their examiners, and to strengthen fair lending enforcement
Background
A number o f interagency efforts are already completed or are under way to improve fair
lending detection techniques, enforcement, and education. For example:
■
The agencies have issued a joint statement to financial institutions that reaffirms
their commitment to the enforcement o f the fair lending laws and provides the
industry with guidance and suggestions on fair lending matters.
■
The agencies are working on a revised supervisory enforcement policy for
dealing with violations o f the Equal Credit Opportunity and Fair Housing Acts.
This revised policy will replace a policy issued in 1981. The revised policy
specifies corrective actions for several different substantive violations o f the
ECOA and FHA
■
The agencies are developing uniform fair lending examination procedures and
training programs. The agencies believe these new procedures will significantly
strengthen existing discrimination detection programs. These new examination
procedures will be publicly available this summer.
New Initiatives
The four agencies will pursue .the following new initiatives over the next several
months:
(more)
)
-
1.
2
-
Fair Lending Training for Examiners
The agencies will develop a new training program in fair lending for
experienced compliance examiners that will be conducted on a regional basis.
A pilot program could be held as early as Fall 1993.
2.
Fair Lending Seminar for Industry Executives
The agencies will develop and sponsor regional fair lending programs for top
level industry executives (chief executive officers and executive vice presidents)
to explain their efforts to enforce fair lending laws and to foster additional
sensitivity and awareness among lenders about discrimination issues, specifically
subtle practices that impede the availability o f credit to low-income and minority
individuals. The first session o f this program could be held later this year.
3.
Alternative Discrimination Detection Methods
The agencies will explore statistically-based discrimination analysis models.
These models may help identify loan applications files for review as part o f the
examination process. This will significantly enhance die agencies' abilities to
identify loan applicants that may have received differential treatm ent
4.
Stronger Enforcement o f Fair Lending Laws
Each agency will implement an internal process for making referrals to the
Department o f Justice for violations o f the Equal Credit Opportunity A ct These
internal procedures will ensure that appropriate cases are being put forth for
consideration by senior management
5.
Improved Consumer Complaint Programs
The agencies believe that refinements to their consumer complaint systems can
also better promote die broad availability o f credit on a non-discriminatory basis.
During the next few months, each agency will evaluate the effectiveness o f its
consumer complaint system in detecting and correcting credit discrimination, and
alerting the agencies to industry practices that may inhibit the free flow o f
credit Each agency will announce its own specific initiatives in these areas.
#####
Joint News Release
Federal Reserve Board
Comptroller o f the Currency
O ffice o f Thrift Supervision
Federal Deposit Insurance Corporation
For immediate release
Uav 21,
1993
To address the concern that sane minority consumers and small
business owners are experiencing discrimination b y lenders, federal bank and
thrift supervisors today reiterated their counitment to effective enforcement
of fair lending laws and urged bank and thrift institutions to increase their
fair lending activities.
In a letter to all banks and thrifts, the heads of the four
agencies said that discrimination strikes at a basic tenet of a free market
system:
equal opportunity for all to gain access to bank services.
The
letter said the regulators expect all financial institutions t o do their part
to design programs to ensure access to credit o n a non-discriminatory basis.
The letter urged special attention t o 11 specific fair lending
activities, including enhanced employee training, internal second review
programs for loan applications that might otherwise be denied, participation
on multi-lender mortgage rsvirnr boards, and affirmative marketing and call
programs.
A copy of the l.tter and the suggested fair landing activities is
Attachments
May 27, 1993
TO THE CHIEF EXECUTIVE OFFICER:
The federal financial institutions supervisory agencies, are deeply concerned that some
minority consumers and small business owners may be experiencing discriminatory treatment in
their efforts to obtain credit from financial institutions. Discrimination in lending, on any prohibited
basis, strikes at the fabric of both our political commitment to equal opportunity and our economic
commitment to free and competitive markets.
Our agencies are committed to making sure that financial institutions understand their fair
lending obligations and respond appropriately. We will continue to strengthen and refine our fair
lending enforcement activities. Examiners will routinely use HMDA data, as well as other
information, to identify cases which require closer examination. Examiners will then conduct
detailed reviews and comparisons o f loan and application files to examine for compliance with fair
lending laws and regulations. The agencies will continue to develop and refine computer-based
programs to facilitate and improve this process. This is part o f an ongoing effort to develop tools
that will further help examiners and institutions analyze HMDA data, review examination
procedures and determine how they can be strengthened to detect and deter discrimination in
lending.
In cases where examination results or other information suggest probable fair lending
violations, we will cooperate with the U.S. Department o f Justice and the Department o f Housing
and Urban Development.
We further believe that a sustained national effort to expand and intensify educational
programs for both lenders and consumers is necessary, with an emphasis on greater sensitivity to
fair lending issues. We urge financial institutions to use their maximum creativity to design
appropriate programs. We especially urge consideration of the ideas listed on the appended sheet.
It is clear to the agencies that more needs to be done to assure equal access to credit by
everyone in our country. We expect all financial institutions to participate in this e ffo rt
Alan Greenspan, Chairman
Board of Governors ¿ f the
Federal Reserve System
C. Hove, Jr.
Acting Chairman
Federal Deposit Insurance Corporation
of the Currency
SUGGESTED FAIR LENDING ACTIVITIES
Use of an internal second review system for consumer, mortgage 2nd small business loan
applications that would otherwise be denied.
Enhanced employee training that engenders greater sensitivity by financial institution
management, and employees, to racial and cultural differences in our society.
Training of loan application processors to assure that any assistance provided to applicants in
how to best qualify for credit is provided consistently to all loan applicants.
Efforts to ensure that all persons inquiring about credit are provided equivalent information
and encouragement.
Use of flexible underwriting and appraisal standards that preserve safety and soundness
criteria while responding to special factors in low- and moderate-income and minority
communities.
Efforts to encourage equal employment opportunity at all levels throughout the institution,
including lending, credit review, platform and other key positions related to credit
applications and decisions.
Affirmative marketing and call programs designed to assure minority consumers, realtors,
and business owners that credit is available on an equitable basis; marketing may involve
sustained advertising programs covering publications and electronic media that are targeted to
minority audiences.
Ongoing outreach programs that provide the institution with useful information about the
minority community, its resources, credit needs and business opportunities.
Participation on multi-lender Mongage Review» Boards which provide second reviews of
applications rejected by participating lenders.
Participation in public or private subsidy or guarantee programs that would provide financing
on an affordable basis in targeted neighborhoods and communities.
Use of commissions or other monetary or nonmonetary incentives for loan officers to seek
and make safe and sound consumer and small business loans in minority communities.
Attachm ent 4
Office cf Consumer Affairs
Mtftf Deposit Ineurme Corporation
(202) 896-3536 • <800) 03*-3342
WmMngton. DC 204290900_________________
FIIr-24-93
A p r i l 7., 1993
O d t C N I K REINVESTMENT A C T (CRA)
TO:
CHIEF EXEU/nVE OFFICER
AND OCKPUANGE OFFICER
SUBJECT: Pwigprt Guidance on H * * Oemlianoe fPart_3251
The Federal Deposit Insurance Corp o r ation, the Federal Reserve Board, the
Office of the g m i t - i n i w of the Currency and t h e Office o f Thri f t Supervision
have revised and
zed the (questions and answers t h a t foil car Fart 345 of
the FDXC's rules and regulations relating t o t h e C o m u n i t y Reinvestment A c t
(q r a ) •
These
q uestions end answers ere intended t o h e l p financial
institutions
effectively m e e t their Q A respcnslhil itias and increase
public understanding of t h e CRA. T h e questions and a i m e r s address some of
the
ccnoonly asked questions about causality reinvestment* They s h w l d
b e regarded as inrfnl guidanoe, n o t as official interpretations*
A copy of t h e revised questions and answers is attached. Th i s document
differs from t h e previous version in several respects: i t h a s b e e n reorganized
according t o subje c t natter;
four n e w questions ha v e b e e n added; and four
previous questions have been deleted.
The four n e w questions address t h e following:
o
can a n institution t arget a specific ethnic
get »jv-wpH-if? area, as its delineated ccenunity
narketing p rodu cts? (Question 5);
o
M a y a state-chartered institution place a copy o f its G t k performance
evaluation p r epared b y a state regulatory agency i n its public ocmuent
file maintained far public inspection? (Question 13);
o
What criteria d o examiners u s e t o determine whether t h e outside
activities of a n institution's officers o r CEplcyea6, a n d whether the
institution's charitable donations, contribute t o OlA performance?
(Question 22); and
o
What aiphas is are the agencies giving t o lending a n d investment versus
OtA procedures and documenta tion? (Question 23) •
Questions previously n umbered 4
(CRA statements),
credit extended), 11
(the placing of c a n uents in
(policies that r estrict certain types of credit) have
reiteration o r redundancy.
Other minor clarifying
been made .
grop,
rather than a
a n d i n designing and
5 (listings of types of
t h e public file) and 19
be e n deleted because of
modifications also have
-2-
I**?'
far further information about the FEEC's enforcement &£
please
contact your Regional Office of the fDXC's Division of Si^jerv^UOT.,^^
at fattami
1$££%Pa.
7'j;€-rrdficnij
•*’'''¡WWKTÀ C>;
/Y
)
^Jmice M. Smith
Director
¿Ìr^iSiSfey
-'^si
rsuf**j.
teL\ v
Attachments
Distribution:
FEEC-Supervisad Baita (Com e r cial a n d Savings)
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9176
Federal la g iitp / VtiL 58, No. 32 / Friday, February 19,.1903 / Notices
FEDERAL FINANCIAL INSTITUTIONS
EXAMINATION COUNCIL
C om m unity R etg çeeg fü f nt Apt
:
In teragen cy Q u e e tio M th l'A n e w e r*
agency :
F ederal F in a n cia l In stitu tion s
F-vmlimtinw (VnmHl
ACTION: Adoption o f the-Interagency
Questions and Answers regarding
community reinvestment
SUMMARY: Hie C onsular Compliance
Task Force of the Federal Financial
Institutions Examination Council
(FF1EC) today has adopted revised
Interagency Questions and Answers
Regarding Community Reinvestment To
help financial institutions meet their
responsibilities under the Community
Reinvestment Act (CRA) and to increase
public understanding .of the regulations
end examination procedures, the e i l h
of the Federal Reserve Board, the
Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, and this
Office of the Comptroller of the
Currency have prepared answers to the
most commonly asked questions «bout
community reinvestment The
Questions and Answers should not be
regarded as official interpretations.
Their purpose is to provide useful
guidance to agency personnel, financial
institutions and the publia
The document includes four new
questions, which address the following:
• The agencies' emphasis on lending
end investment rather than
documentation (23);
Washington, DC 20037. Specific agency
related questions should be directed to
the following: Federal Reserve Board—
Divison of Consumer and Community
Affairs (202) 452-2631; Federal Deposit
Insurance Corporation—Office of
Consumer Affairs (202) 806-3536, or
Division of Special Supervision (202)
898-7155; Office of Thrift
Supervision—Specialized Programs
(202) 906-6000; Office of the
Comptroller of the C urrencyCompliance Management (202) 8744446.
EFFECTIVE DATE: February 17.1993.
SUPPLEMENTARY INFORMATION:
Interagency Questions and Anaw en
Regarding CRA Scope of the CRA'a
Coverage
1. (26) Are there any “regulated
financial institutions" that are
excluded from the scope of CRA?
In general, the CRA defines •
"regulated financial institution" as ona
that meets the definition of an insured
depository institution, under Section 3
of the Federal Deposit Insurance Act.
However, the banking agency CRA
"Interpretation 101" (12 CFR 25.101.12
CFR 228.100. and 12 CFR 345.101)
excludes from CRA requirements certain
institutions that serve solely as
correspondent banks, trust companies,
or clearing agents. The banking agencies
have also excluded from CRA certain
financial institutions whose activities
arc limited to providing cash
management controlled disbursement
services.
The rationale used in allowing
• State CRA performance evaluations
certain financial institutions to bo
and the public file (13);
excluded from the scope of CRA is that
• Outside activities and CRA
theta institutions a n only incidentally
performance (22); and
involved, if at all, in granting credit to
• Institutions* targeting specific ethnic
the public. The financial supervisory
groups and CRA considerations (5).
agencies periodically review the
The Questions and Answers are now
applicability of CRA to other types of
organised by subject matter with the
financial institutions.
previoualy assigned numbers appearing
2. (i) What does the term ~office" mean
in parentheses. Questions and answers
as used in the regulation?
previously numbered 4 and 5 were
deleted because they were basically a
Office refers generally to a facility of
reiteration of the regulation, and those
an institution that accepts deposits,
previously numbered 11 and 19 were
including an electronic deposit facility.
deleted because other questions end
It does not include purely
answers address the same issues. Other
administrative offices, agencies, loan
minor modifications were made as
production offices or facilities used, for
necessary to improve clarity.
example, only for the check collection
process. In delineating a local
ADDRESSES: Federal Financial
Institutions Examination Council. 2100 community, an institution need not
consider shared electronic deposit
Pennsylvania Avenue. NW., suite 200.
Washington. DC 20037.
facilities, unless otherwise directed by
the appropriste financial supervisory
FOR FURTHER »(FORMATION CONTACT:
Debra D. Clements. Compliance Analyst. agency.
Federal Financial Institutions
3. (24) How are bank and savings
Examination Council. 2100
association holding companies
Pennsylvania Avenus. NW.. suite 200.
affected by the CRA?
The CRA applies to applications filed
by holding companies to merge or to
acquire banks and savings associations.
Whan decisions on such applications
are made, the Federal Reserve Board
and the Office of Thrift Supervision will
consider the CRA records of all the bank
or savings association subsidiaries of the
applicant holding company. The parent
holding company need not prepare e
CRA Statement or public notice, or
maintain public comment files; but are
encouraged to ensure that subsidiary
financial institutions hsve expanded
CRA statements that include a
description of the institution's CRA
performance. The holding compeny
must conform to the requirements of the
applicable regulation for media notices
of corporate applications filed to acquire
s bank or savings association.
Delineation of the CRA Community
4. (2) What is meant by “local
community" and how detailed o
map should be used to portray it?
The term "local community" refers to
the contiguous area surrounding etch
office or group of offices of an
institution. Although the geographic
areas served by an institution may vary
with the type of service, only one Iocs)
community is to be delineated for •
particular office or group of offices. Any
map which depicts in institution's local
community or communities with
reasonable clarity may be used. The
map need not show each street in the
community, nor be prepared
professionally by • cartographer. Lowend moderate-income neighborhoods
should not be specifically indicated on
the map. The community delineation,
however, must not unreasonably
•xclude such neighborhoods. An
institution may delineate several local
communities on one map. However,
each local community, comprising the
entire community, must be delineated
with sufficient clarity so that the areas
included in those local communities ere
obvious. If the entire community is
made up of more than a few local
communities, or the local communities
are separated by significant distances, it
may be easier and clearer to use a
separate map for each local community.
Furthermore, the locations of the
institution's offices need not be shown
on the maps.
5. (new) Can a financial institution
identify a specific ethnic group,
rather than a geographic area, as its
delineated community; and con this
financial institution target o specific
ethnic group in designing and
marketing products and services?
9178
Federal. Register / Vol. 58, No. 32 / Friday, February 19, 1993 / Notices
13. (new) May a State<hartered >-*
The answer to tJ^» q$ssiion is
pertaining to a particular fo a l
financial institution place a copy of
community must be retained i t a
jfo provide guidance
a community reinvestm ent
designated office frj that community. A
iliastitutions that
performance evaluation prepared
cam of the most recent public CRA ^
x«|m rida».Tlk)
by o State regulatory agency in the
Performance Evaluation prepared by the
jLjiaobe utilized by
k
comment filefs) maintained for
institution's Federal financial
m aa a means of
supervisory a g i c y must be maintained a u ^ a n t i ^ g ^ t a ^ o n a l lending
public inspection pursuant to
Federal rulesT
in each of the public comment filee.
activities I w qjfpcomprehensive
CRA propers; Sam®a t tj»«*e activities
A signed written comment, that
Aetseeing the Record oTPerformanee
may require p ||q |j ^ ^ d y supervisory
addresses an institution's GRA
Under the CRA
Statement or performance in helping to
16. (17) Will an institution’s
■, o
meet the credit needs of its community,
" performance in helping le m eet . activities t^ tfi|^ q ia l|z M |t^ tio n i may
received from the public during the past
community credit needs be assessed consider to h e lp jd ^ f |^ r jr
two years should be placed in the public
y- even If an institution does not
respontibititietuhdfrihe Community
comment file. For the purposes of the
' intend to make an application
Reinvestment
Federal financial supervisory agencies'
*'* covered by the CRAT
CRA implementing rules, any comment
Debt Investments andRM ated Securities
not prepared by the institution itself or
Yes. While Congrem directed that the
• Purchase of :
;b*cUd
its Federal financial supervisory agency
approval or rejection of applications be
securities or i
may be considered to be fronv "the.
tnotas from
used to encourage community
lenders or other
public." InstituUons should consider
reinvestment by bank» and savines
development finance*,
the answers to Questions 10 and 11 of
lanes
associations on a safe and sound basis,
serving primarily ld«^
this series if they are concerned that the
. moderate*
it also sought to have each financial
income areas
^
disclosure of information received from
supervisory agency use its examination
>• Purchase bfnot
community
a State regulatory agency or other source
process **lo encourage** institutions to
and economic devél _
Ior
would violate Federal rules. Institutions
be sensitive to their responsibilities to
participations in Joenror Iban pools
are also advised to consult with their
help meet local a e d it needs.
from other finandafyhgtitujjoD^ state
State regulatory agencies if they are
17. (16) Will octM ties in addition to
unsure of what material received from
and local goveremAitÎMncfe*,
lending
be
considered
in
the
CRA
the State is intended for public
nonprofit commuaity-based ; * ^
assessment?
availability.
development corporations, community
Yes. Although the principal focus is
loan fund», or bthercomniuiiity
14. (12) Must the institution respond to
on lending, the
supervisory
development intérmadiaries originating
any or all comments received from
agendas recognize that other activities
the public?
loans to help bM the heeds oflow - and
end efforts contribute toward the CRA's moderat*tacofoip«fttbni or small
There is no requirement that the
goals. The financial supervisory
buaineaaes.J So«»® V*ï i
institution respond. However, the
agoodea will consider the extent to
i*■.,• Pw rbes*?h^ b ;H^^ mt,guan|Titeed
institution may find it helpful to
.which an Institution's activities foster ** foana foryiartfoÇtfiM ppooU^
.«. respond to certain comments to foster a
local community revitalization. For
^presenting shdtffoiiirtj^
tp lowdialogue with members of the
example, the agendas will r*m*iAmr the and modente-focmme jpenons, or to
community or to present relevant
institution's purchase of state or
small fum^d^âmàlfouiiDess owners,
information to a financial supervisory
mrh u; ■*•isUOithOtf-"■‘O TOST...r
municipal bands a t Involvement
agency. If any institution responds to a
through investment or other
letter in the public comment file, the
—SBA guarsntsed loansov loan pools;
contributions in a local community
response must also be placed in that
?mHA guirafrieed
development project. The agendas also
file, unless it reflects adversely on any
Ahousing lours: J
will consider activities such is:
person or violates a law.
—FHA insured loans;. , _t„.; a
-E D A (UA. X o a o tm tDevelopment
15. (8) How should past and current
• Efforts to astshllih meaningful
AdmirtirtrstiiMj «tunrabtaad owns;
w dialogue with community members
CRA Statements end public
—Slate housing ofirtS tíltóic
comment files be made available to
concerning a e d it needs of the
development agency jtj^ranteqd .
community;
the public in each office of an
loans.
tw t
k
institution, particularly an
• The institution's record of opening
• Purchase-of ifotfriÉíinpfeai ■!'institution that has. offices in more
$ and dosing branches and offering
government agenéy h o t i s ^ rae^gege
than one local community?
„ services (including nonaedit
revenue bonds or industrial revenue
services):
m An institution that has officer in more
bonds.
•
■
than one local community should
• Marketing and special aedit-releted
y&Zm
bar■
»
programs to make community,
maintain current CRA Statements for ail
Equity Investments j
:
its local communities at its head office
members iware of credit services
Some activities
offered at its officer,
and current CRA Statements for each
a e d it needs may be'cbftibd out through
local community in each office of the
• Thf extent of participation by the
cartain federal and feafoñfoharyfeory
institution in that local community,
frutitution's board of directors in
formulating policies and reviewing its agencias'programs
except off*premiaes electronic deposit
community developthfoilfioWEtmfoita.
CRA performance.
facilities. Any CRA Statements that
Such investments arlFÍ'mafrifotq serve
were in effect during the past two years
16. (29) In addition to traditional direct predominantly a
should be retained with toe public
lending activities, what activities
purpose. Activities that tfight R eamed
comment letters in the public comment
can financial institutions consider
out directly by an institution under
file. A comment file for the entire
in meeting obligations and ■'*
these programs
uomc’
institution must ha maintained at the
responsibilities under the
'\
head office, and a comment file
Community Reinvestment Act? ^ shares to f ^ d a A c »qofry fihencing
?-*:Jt .few**'
f a d S S f e 1 VoL SB. No. 32 / Friday, .February 19, 1993 / Notices
p T o v S a ^ i à ^ { t y i & r benefit lowand mòderawTOdSme bor^w ers or
ovtiide of the
in itìE ffim ^ S im M è^ . j^m,munlty. Is
d e to rd f fià i$ % $ !B ^ I ^ to whet extent
will be given» the
vitiee undertaken
in th rb ra tfe x t^ a s laftitutien'e overall
CRA p ro g riffi^^èra such participation
.i tt^ tìé à w è f tómplement* an overall
CRA proBamjÉat is directly reeponsive
tothelhedK ne#dls in an institution's
w d elir^d^eb^ninunity, it will be "’*•
conaidOTedSwably in reaching an
i o v é rìn o U t condtiBicm. However, sudi
activities and involvements will be
Insuffiafpt to compensate for an
^otherwise d e h d ra t record of addressing
l^ t H r a a É m ^ s of an institution's
<iÌIÌnél^i;pommunity. .
of such programs or
intbrmp., " organisations (other than
rtradSSm^ reel lending] aro:
• Lan ig consortia or loan pools that
unity development
mükcma technical assistance for
ratfrincame housing,
low* tondi
sid allah d i
ritybusiness
development*o r other neighborhood
revitalisatro^ projects; .* » V ^
c-» M ulti^vestcr community t,JJï
developmeniçprpfridons;
• Li mi ted paLftne^hips that invest in
low- and m o|^^et[|icom e housing;
Secondary market corporations and
p r o g r ^ ^ y ^ y g ^ e y d y i a r g e t loans
« housing.
small and
ty^MûneSMs, or sfoall
SStoP3
;-et«v^ "
il
___
community
deVél
or economic development
finance corporations inw hich state or
loGS]govêm|^^uencfees partidpste,
oftin w idi nnindoT institutions or other
contributors; . ¿ ^ "jbeMK -, yS mm
Statç j^d^pgpgrams for housing.
||8 Ity ap^ifponomic development,
lU ^ty^^écU iie' projects;
Pub^c^Dsm|%stt. intermediaries
whhM provide loan guarantees or other
credit anhuragaenta used by finandal
instituions jjo^pport community
devllbptiim tj^dm g and investment;
* t^pV unn vestment. loan
participation and other co-venture*
undertsken with minbrity and women*
owned fiy^çj^lalPiUtutions.
T h^lm jy^ip^aiiyehicles help
instH udb^aj^^|p4 support community
devflfd6xnv^|w^M>g and investment. In
genei^feega^iHSffeithe capacity of
findrfou
halp meet
con^,uiitg.p^uli8ieeds. including ^
those of low- agdimorfarate-incoma
n e i g h ^ o ^ ^ l w e* V
; •. 7 '
21. (20j May an foibtflâifoin use o policy
o jm ^ k in g ^ h r^ ^ é ^ M ly to ***
: agencies em phasize assessm ent
adversely affecting its CRA
performance?
^ «r criteria relating to the CRA process
- ja* tmgr results such as lending. Whet
]n examining an institution« the
ois the current em phasis o f the
finandal supervisory agencies will payt
i, agencies in their supervisory
particular attention to any restrictions
efforts?
placed on the availability of thoee types
Tbe prindpal focus of the finandal
of credit that an institution has
indicated on its CRA Statement that it - fuperviaaiy agsndes and the activity
m ost encouraged through an
would extend in its local community.
Examiners will focus on whether any , examination continues to be landing
such restrictions have or would have a * and other activities within tha
:on low- and community that result in extensions o f
11credit that help meet identified credit
moderate-income neighborhoods. In
needs. The answers to Questions 20 end
everycase, examiners will conakfor
• The business rationale for adopting *30 in this stories also address this issue.
* A conclusion that performance is
a particular policy;
• Whether other policies would serve .«setisfocuey or batter eaiieraUy requires
the same business purpose «nth lees
that tha community dalinaation ls
adverse impact;
reasonable; that credit extensions are
• The relative ease of becoming a
consistent with the capacity of tha
customer eligible for credit under tha
institution and the identified needs of
restriction;
the community; and that landing
• Whether the institution has adopted activity reflects a reasonable penetration
a policy of limiting certain loans to
bf all segments of thocommunity,
customers as a temporary response to
indudine its low- and moderate-income
tight money conditions or asa
neighborhoods.
A
Whan tha above characteristics are
permanent policy.
Loans available on any restrictive
not found to be present in an
basis should be listed on the QtA
institution's reinvestment record, the
Statement with the restriction« noted.
underlying causes identified by the
finmnnimi supervisory agendas7
However, the agendas recognise that
institutions occasionally made# certain
examiners era likely related to
specialized loans to "good“ customers.
defidendes in the institution's A
Ib is type of spot landing activity need
community reinvestment process.
not be listed on the CRA Statement
Agency recommendations forimproving
Any restrictive lending polides dr
the institution's CRA performance
practices found to be discriminatory on usually involve:
e prohibited basis will have a
• Oversight by the board of directors
substantial adverse im pact on am
and management;
*
institution's C31A performance. v >
* ■’*• The establishment of goals and
objectives^. ' " ,
22. (new) What criteria do examiners
• Community outreach, product
use to determine* whether a development and marketing; o r *
director's, officer's or employee's
• Management and employee
outside activities contribute to an
training;
n-,
institution's CRA performance?
• Regular monitoring of the ^
What criteria do tneexam iners use
institution's progress and performance.
to determine whether on ¿c at'
Procesa-onentedcorrective measures
institution’« charitable donations
contribute to its CRA performance? should beirapltogwnted to make the
To contribute to ap Institution's CRA institution more responsive to local
credit needi'on a tegular, ongoing basis.
performance, an activity or charitable
However, no level of emphasis by an J
donation should foil into one of the
institution on the CRA process can ^ ^
following categories:
make upon for a seriously deficient *•-*
• It resulted in the shaiing of A
record of lending end investment in the
information about tha institution's 1
community.*** *
n
,
*
lending services;
:,#s / ‘
• Information was obtained regarding 24. (7) What is d "small" business or
the community's creditj^fdni fir a
farmT \
. ;4 .**<
r,
s ^ x;;
• Community members were * "1
For CRA purposes, tire term “sntiitt*'
informed about how to gat or use credit; refers to the absolute sixe of the “
• The activity or charitable donation
busineu and form rather than the
assisted in providing credit services or
relative size in their industries. Because
information to the community;
a major concern of CRA is that all
• The activity or donation assisted a
creditworthy borrowers have reasonable
community development or
access to loans from banks and savings
redevelopment effort.
auodations, small businesses and farms
23. (new) Some parties hove commented generally are viewed as th o u which do
that the financial supenisory
not have access to regional and national
I*
9182
•"
w.qwk**fc
cqpznunity ho coniidertijl hy/tiba.
ÄiwsMiog ti^cvwrSFâSwcoiti of tha
applicant
m
\
Batair February 12, 18« .
4'
ÉjucutirtSxntary. F*hmdPininciaI
lnstitutiotuMxaminatioti Cmincti.
>Matit i t »*&|»1
n
'
Fade»«! Register / ffo lftB * fa». 3 2 ¿jftid a y r F eb n agy l9!_ i r o p ^ ^ ^ g ^
apptieant bank or aa< ?s «esodatilo rf
hfc»to *» b *t* conun ~ai|y day^opm^t
corporation operating in tipfuti£. ^ .
community «s tira applicant, th* ^
applicant maynik that tha contrition»
of that corporation in helping tnmeat
i n i i Owwi,
I
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