E8-31116. Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Notice

AGENCIES:

Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS).

ACTION:

Notice and request for comment.

SUMMARY:

The OCC, Board, FDIC, and OTS (the agencies) are adopting as final the Interagency Questions and Answers Regarding Community Reinvestment (Questions and Answers) that were proposed on July 11, 2007. In response to comments received, the agencies clarified several of the new and revised questions and answers that were proposed and are withdrawing the proposed revisions to an existing question and answer. Also, in response to comments we received, the agencies are proposing a new question and answer that would provide examples of how an institution can determine that community services it provides are targeted to low- and moderate-income individuals. The agencies are also proposing to revise two existing questions and answers to allow pro rata consideration in certain circumstances for an activity that provides affordable housing targeted to low-or moderate-income individuals. The agencies invite public comment on these proposed new and revised questions and answers.

DATES:

Effective date of amended Interagency Questions and Answers Regarding Community Reinvestment: January 6, 2009. We request that comments on the proposed questions and answers be submitted on or before: March 9, 2009.

ADDRESSES:

Comments should be directed to:

OCC: Because paper mail in the Washington, DC area and at the Agencies is subject to delay, commenters are encouraged to submit comments by e-mail, if possible. Please use the title “Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment” to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods:

• E-mail: [e-mail].
• Mail: Office of the Comptroller of the Currency, 250 E Street, SW., Mail Stop 1-5, Washington, DC 20219.
• Fax: [phone].
• Hand Delivery/Courier: 250 E Street, SW., Attn.: Public Information Room, Mail Stop 1-5, Washington, DC 20219.

Instructions: You must include “OCC” as the agency name and “Docket ID OCC-2008-0027” in your comment. In general, OCC will enter all comments received into the docket without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

You may review comments and other related materials that pertain to this notice by any of the following methods:

• Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC's Public Information Room, 250 E Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling [phone]. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments.
• Docket: You may also view or request available background documents and project summaries using the methods described above.

Board: You may submit comments, identified by Docket No. OP-1349, by any of the following methods:

• Agency Web Site: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/​generalinfo/​foia/​ProposedRegs.cfm.
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• E-mail: [e-mail]. Include docket number in the subject line of the message.
• Fax: [phone] or 202-452-3102.
• Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551.

All public comments are available from the Board's Web site at http://www.federalreserve.gov/​generalinfo/​foia/​ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP-500 of the Board's Martin Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FDIC: You may submit comments, identified by RIN number 3064-AC97 by any of the following methods:

• Agency Web site: http://www.fdic.gov/​regulations/​laws/​federal/​propose.html. Follow instructions for submitting comments on the Agency Web Site.
• E-mail: [e-mail]. Include the RIN number in the subject line of the message.
• Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
• Hand Delivery/Courier: Guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m.

Instructions: All submissions received must include the agency name and RIN number. All comments received will be posted without change to http://www.fdic.gov/​regulations/​laws/​federal/​propose.html including any personal information provided.

OTS: You may submit comments, identified by OTS-2008-0022, by any of the following methods:

• E-mail: [e-mail]. Please include ID OTS-2008-0022 in the subject line of the message and include your name and telephone number in the message.
• Fax: [phone].
• Mail: Regulation Comments, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: OTS-2008-0022.
• Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel's Office, Attention: OTS-2008-0022.

Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be entered into the docket and posted on Regulations.gov without change, including any personal information provided. Comments, including attachments and other supporting materials received are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

Viewing Comments Electronically: OTS will post comments on the OTS Internet Site at http://www.ots.treas.gov/​pagehtml.cfm?​catNumber=​67&​an=​1.

Viewing Comments On-Site: You may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call [phone], send an e-mail to [e-mail], or send a facsimile transmission to [phone]. (Prior notice identifying the materials you will be requesting will assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the next business day following the date we receive a request.

FOR FURTHER INFORMATION CONTACT:

OCC: Karen Tucker, National Bank Examiner, Compliance Policy Division, [phone]; or Margaret Hesse, Special Counsel, Community and Consumer Law Division, [phone], Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

Board: Anjanette M. Kichline, Senior Supervisory Consumer Financial Services Analyst, [phone]; or Brent Lattin, Attorney, [phone], Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551.

FDIC: Deirdre Foley, Senior Policy Analyst, Division of Supervision and Consumer Protection, Compliance Policy Branch, [phone]; or Susan van den Toorn, Counsel, Legal Division, [phone], Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

OTS: Celeste Anderson, Senior Project Manager, Compliance and Consumer Protection, [phone]; or Richard Bennett, Senior Compliance Counsel, Regulations and Legislation Division, [phone], Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

The OCC, Board, FDIC, and OTS implement the Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq.) through their CRA regulations. See 12 CFR parts 25, 228, 345, and 563e. The OCC, Board, and FDIC revised their CRA regulations in a joint final rule published on August 2, 2005 (70 FR 44256) (2005 joint final rule). OTS did not join the agencies in adopting the August 2005 joint final rule; OTS published separate final rules on August 18, 2004 (69 FR 51155), March 2, 2005 (70 FR 10023), April 12, 2006 (71 FR 18614), and March 22, 2007 (72 FR 13429). On July 1, 2007, the March 2007 revisions to OTS's CRA regulation became effective, making OTS's CRA regulation substantially the same as the CRA regulations of the OCC, Board, and FDIC.

The agencies' regulations are interpreted primarily through the “Interagency Questions and Answers Regarding Community Reinvestment” (Questions and Answers), which provide guidance for use by agency personnel, financial institutions, and the public. The Questions and Answers were first published under the auspices of the Federal Financial Institution Examination Council (FFIEC) in 1996 (61 FR 54647), and were revised on July 12, 2001 (2001 Questions and Answers) (66 FR 36620).

Subsequent to the adoption of the 2005 joint final rule, the OCC, Board, and FDIC, after notice and public comment, published new guidance in the form of questions and answers on March 10, 2006 (71 FR 12424) (2006 Questions and Answers). The 2006 Questions and Answers addressed primarily matters related to the 2005 joint final rule. On September 5, 2006, after notice and public comment, OTS published new guidance in the form of questions and answers pertaining to the revised definition of “community development” and certain other provisions of the CRA rule common to all four agencies (OTS's September 2006 Questions and Answers). 71 FR 52375.

On July 11, 2007, the agencies published for comment proposed guidance, which updated and revised the 2001 Questions and Answers and combined the 2006 Questions and Answers and OTS's September 2006 Questions and Answers. The proposal also introduced nine proposed new questions and answers (Q&As). 72 FR 37922. OTS also proposed four new and revised Q&As that the OCC, Board, and FDIC had adopted in the 2006 Questions and Answers, primarily relating to intermediate small savings associations.

Together, the agencies received comments from 58 different parties. The commenters represented financial institutions and their trade associations, community development advocates and organizations, members of Congress, and others.

As discussed below, this document adopts the nine new Q&As that were proposed in 2007, with revisions, as appropriate, in response to comments received. The agencies are also adopting, with minor revisions, as appropriate, all but one of the proposed revised Q&As. The agencies are withdrawing the proposed revisions to Q&A § __.23(e)-2.

The agencies also are proposing one new and two revised Q&As, which are discussed below. These proposed Q&As have been developed in response to comments received by the agencies.

The Interagency Questions and Answers are grouped by the provision of the CRA regulations that they discuss, are presented in the same order as the regulatory provisions, and employ an abbreviated method of citing to the regulations. For example, the small bank performance standards for national banks appear at 12 CFR 25.26; for Federal Reserve System member banks supervised by the Board, they appear at 12 CFR 228.26; for state nonmember banks, they appear at 12 CFR 345.26; and for thrifts, the small savings association performance standards appear at 12 CFR 563e.26. Accordingly, the citation would be to 12 CFR__.26. Each Q&A is numbered using a system that consists of the regulatory citation and a number, connected by a dash. For example, the first Q&A addressing 12 CFR__.26 would be identified as § __.26-1.

Although a particular Q&A may be found under one regulatory provision, e.g., 12 CFR__.22, which relates to the lending test applicable to large institutions, its content may also be applicable to, for example, small institutions, which are evaluated pursuant to small institution performance standards found at 12 CFR__.26. Thus, readers with a particular interest in small institution issues, for example, should also consult the guidance that describes the lending, investment, and service tests.

The Questions and Answers are indexed to aid readers in locating specific information in the document. The index contains keywords, listed alphabetically, along with numerical indicators of questions and answers that relate to that keyword. The list of Q&As addressing each keyword in the index is not intended to be exhaustive. We welcome suggestions for additional entries to the index.

Discussion of the Q&As Being Adopted as Final

New Q&As Proposed in 2007

I. Investments in minority- or women-owned financial institutions and low-income credit unions. The agencies proposed a new Q&A § __.12(g)-4 that would interpret the statutory provision that allows the agencies to consider as a factor a majority-owned financial institution's activities in cooperation with a minority- or women-owned financial institution or low-income credit union. See 12 U.S.C. 2903(b). Twenty-five commenters addressed the new Q&A as proposed. Although five commenters believed that the proposed guidance went directly against the intent of the CRA regulations, the rest of the commenters were generally in favor of the new Q&A. Several commenters, however, suggested additions or modifications that could be made to the guidance.

We are modifying the proposed Q&A to address some of these comments. Four commenters urged the agencies to allow consideration of activities in cooperation with minority- or women-owned financial institutions or low-income credit unions only if the majority-owned institution had adequately addressed the credit needs of its assessment area(s). The agencies believe that the statute currently does not impose such a limitation. However, in response to the comment, we have clarified that the impact of such activities on a majority-owned institution's rating will be determined in conjunction with an assessment of its overall performance in its assessment area(s).

Two commenters specifically asked the agencies to provide examples of “other ventures” that could receive consideration if engaged in by a majority-owned financial institution in cooperation with a minority- or women-owned financial institution or low-income credit union. Several examples of “other ventures” have been added to the answer.

Six commenters suggested that activities in cooperation with community development financial institutions (CDFIs) should be allowed the same broader geographic allowance that the statute allows for activities in cooperation with minority- or women-owned financial institutions or low-income credit unions. The statute does not provide a similar provision for activities in cooperation with CDFIs. Because the statute and regulation otherwise generally focus on a financial institution's activities that benefit its local community, the agencies do not believe it is appropriate to apply the relaxed geographic requirement to CDFIs or other entities.

One other commenter suggested that the agencies should delete the final sentence of the proposed Q&A: “The activities must, however, help meet the credit needs of the local communities in which the minority- or women-owned institutions or low-income credit unions are chartered.” The commenter's concern was that this sentence might be read to require the majority-owned financial institution to prove that its involvement with the minority- or women-owned institution or low-income credit union ultimately can be directly linked to a specific CRA-related activity of the minority bank. The CRA statute specifically conditions consideration of activities in cooperation with minority- or women-owned institutions or low-income credit unions on those activities helping to meet the credit needs of the local communities in which the minority- or women-owned institutions or low-income credit unions are chartered. Therefore, the sentence has not been removed. The majority-owned financial institution should have a general understanding, prior to engaging in an activity in cooperation with a minority- or women-owned institution or low-income credit union, about how the activity will help to meet the credit needs of the community in which the minority- or women-owned institution or low-income credit union is chartered; however, no specific type of proof is required.

II. Intermediate small institutions' affordable home mortgage loans and small business and small farm loans. The agencies received eleven comments addressing proposed new Q&A § __.12(h)-3, which would allow an intermediate small institution to select certain home mortgage, small business, and small farm loans, which are not required to be reported under the CRA or Home Mortgage Disclosure Act (HMDA) regulations, to be considered as community development loans. All of the commenters supported the proposed Q&A.

The agencies are adopting the Q&A with clarifying revisions based on commenters' questions and suggestions. For example, one commenter asked whether an intermediate small institution's voluntary reporting of small business or small farm loan data would disqualify it from the optional selection of some of those loans as community development loans. The guidance clarifies that optional reporting of small business or small farm loan data will not prevent an intermediate small institution from choosing some of those loans to be considered as community development loans unless the intermediate small institution opts to be evaluated under the lending, investment, and service tests applicable to large institutions.

One commenter asked whether an intermediate small institution that is required to report home mortgage lending under HMDA would be able to opt to have some of its home mortgage loans considered as community development loans. Because the home mortgage loans are required to be reported under HMDA, they may be considered only as home mortgage loans (unless they are multifamily dwelling loans).

The guidance has also been revised to clarify that an intermediate small institution may select individual loans (other than home mortgage loans reported under HMDA) to be considered as community development loans. An institution need not select an entire portfolio for consideration as community development loans.

The agencies note that intermediate small institutions that opt to have certain home mortgage, small business, and small farm loans considered as community development loans should notify their examiners which loans it has elected for this consideration prior to or at the start of their CRA examinations.

III. Examples of “other loan data.” The agencies received seventeen comments addressing proposed new Q&A § __.22(a)(2)-4, which listed examples of “other loan data” that would be considered under the lending test. Most of the commenters supported the proposed Q&A. However, a number of commenters suggested that some of the types of “other loan data” should be treated the same as direct lending.

Several commenters asserted that letters of credit should be treated as loan originations. They noted that, although letters of credit are not immediately (if ever) funded, the institution must underwrite them in the same way direct loans are underwritten and must also ensure that funds are available for eventual funding. Further, many community development projects would not be financed without the back-up support provided by a financial institution's letter of credit. For these reasons, commenters urged that letters of credit be considered as loan originations.

The CRA regulations provide that letters of credit will be considered as “other loan data.” The agencies cannot change treatment of letters of credit in the regulations through interpretation. However, the agencies will consider the issue again in the event they undertake more comprehensive changes to the CRA regulations. The agencies also plan to remind examiners that letters of credit may deserve specific mention in the narrative of an institution's public performance evaluation.

Commenters also asserted that an institution's loans for mixed-income housing should not be considered under “other loan data.” Instead, commenters proposed that institutions should receive consideration for such loans (or investments) that enable community development, such as mixed-income projects that have an affordable housing component, as community development loans (or qualified investments).

The agencies are adopting Q&A § __.22(a)(2)-4 as proposed. However, as discussed below, we are also proposing for comment a revised Q&A § __.12(h)-8 discussing what is meant by a “primary purpose of community development.” If this proposed revision is adopted as final, “loans that do not have a primary purpose of community development, but where a certain amount or percentage of units is set aside for affordable housing” would be deleted from the list of examples of “other loan data” because these would be covered in that revised guidance which would allow an institution to receive pro rata consideration for the portion of a loan or investment that helps to provide affordable housing to low- or moderate-income individuals. In the meantime, however, institutions may continue to present such loans to examiners as “other loan data.”

IV. Purchased loan participations. Ten commenters addressed proposed Q&A § __.22(a)(2)-6, which clarified that the purchase of a loan participation is treated as the purchase of a loan. The majority of the commenters supported the proposed guidance; however, one commenter expressed concern that loans could be resold numerous times merely to inflate their value for CRA evaluation purposes. We have modified this Q&A to clarify that examiners will consider whether loan participations (and other loan purchases) have been resold merely to inflate their value for CRA purposes when they evaluate an institution's lending activity.

V. Small business loans secured by a one-to-four family residence. The agencies proposed § __.22(a)(2)-7 to provide guidance about small business and small farm loans where a dwelling serves as collateral. As discussed in the supplementary information published with the proposed guidance, the new Q&A was called for because of changes to the Board's Regulation C regarding the treatment of refinancings of home mortgage loans. See 72 FR at 37925. We received twelve comments addressing this proposed Q&A, primarily in support of the proposed Q&A. We are adopting the Q&A as proposed.

VI. Investments in a national or regional fund. The agencies proposed Q&A § __.23(a)-2 to clarify how an institution that makes a loan or investment in a national or regional community development fund may demonstrate that the investment meets the geographic requirements of the CRA regulation. The proposed Q&A suggested alternative methods for documenting that the investment was intended to benefit the institution's assessment area.

Thirty-three commenters addressed this guidance. One theme in many of the comments was that investments in national funds should be treated in the same manner as statewide or regional funds. The regulations state that the investment test evaluates an institution's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s). See 12 CFR 25.23(a), 228.23(a), 345.23(a), and 563e.23(a). Investments in nationwide funds, like investments in other funds, are subject to these standards. An institution may wish to provide documentation from a nationwide fund to demonstrate the geographic benefit to the institution's assessment area(s) or the broader statewide or regional area that includes its assessment area(s).

Because the proposed Q&A addressed investments in both national and regional funds, some commenters were confused about the types of investments the agencies intended to address in the proposed Q&A. The proposed Q&A was intended to address investments in nationwide funds or in any fund that is not limited to the statewide or regional area that includes the institution's assessment area(s). Because other existing Q&As address investments in statewide and regional funds, Q&A § __.23(a)-2 has been revised to address specifically investments in “nationwide” funds. Institutions that invest in statewide or regional funds should refer to Q&As § __.12(h)-6 and § __.12(h)-7 for guidance. The guidance in these Q&As has not been changed.

Commenters also addressed a number of other issues. One commenter believed that the requirements in the proposed Q&A for an investment in a nationwide fund were more rigorous than the regulations required, in that the proposed Q&A focused on benefit to an institution's assessment area, without also considering benefit to the broader statewide or regional area that includes the institution's assessment area(s). The Q&A has been revised to clarify that investments in nationwide funds will be reviewed to determine whether they directly or indirectly benefit one or more of an institution's assessment areas or a broader statewide or regional area that includes the institution's assessment area(s).

Several commenters understood the proposal to suggest that the documentation methods put forward in the proposed Q&A was an exclusive, mandatory list. The agencies have clarified the final Q&A to provide that the documentation methods identified are among those that may, at the institution's option, be provided. The agencies will accept any information provided by an institution that reasonably demonstrates that the purpose, mandate, or function of a nationwide fund includes serving geographies or individuals located within the institution's assessment area(s) or a broader statewide or regional area that includes its assessment area(s). Typically, information about where a fund's investments are expected to be made or targeted often will be found in the fund's prospectus, or other documents provided by the fund prior to or at the time of the institution's investment, and the institution, at its option, may provide such documentation in connection with its CRA evaluation.

Some commenters also asserted that institutions should receive consideration for the full dollar amount of any investment in a nationwide fund if at least one project in which the fund invests is located in the institution's assessment area or the broader statewide or regional area that includes the institution's assessment area. The agencies have not incorporated this specific recommendation into the text of the Q&A. The agencies believe that the final Q&A provides sufficient flexibility to address a variety of different circumstances, given the evolving nature and significance of nationwide funds.

VII. Examination as an intermediate small institution. Proposed new Q&A § __.26(a)(2)-1 clarified that there is no lag period between becoming an intermediate small institution and being examined as an intermediate small institution. Eight commenters addressed this new guidance; all were supportive. The agencies are adopting this new Q&A as proposed.

Several commenters suggested that the agencies should provide technical assistance to small institutions that are about to become intermediate small institutions at the institutions' request. The agencies currently provide technical assistance to small institutions in transition to becoming “intermediate small” institutions.

VIII. Reporting of a participation in a community development loan. The agencies proposed Q&A § __.42(b)(2)-4 to clarify that institutions that purchase community development loan participations should report only the amount of their purchase. The supplementary information published with the proposal noted that the requirement to report only the dollar amount of the participation purchased for community development loans differs from the requirements for reporting small business and small farm loan participations. When an institution reports participations or purchases of small business and small farm loans, it must report the entire loan amount at origination.

Eight commenters addressed this proposed Q&A. One commenter recommended the agencies adopt consistent requirements governing the way loans are reported. Another commenter noted that different requirements may be appropriate because reporting the purchased amount of the loan more accurately reflects the actual dollar amount of an institution's community development lending. After consideration of the comments received, the agencies are adopting the Q&A as proposed because the agencies believe that reporting the amount purchased, rather than the amount at origination, more accurately portrays the institution's involvement in community development lending.

IX. Refinanced or renewed community development loans. The agencies proposed Q&A § __.42(b)(2)-5 to clarify that institutions should collect information about community development loans that they refinance or renew as loan originations. The Q&A also notes that, generally, the same limitations that apply to the reporting of refinancings and renewals of small business and small farm loans apply to the reporting of refinancings and renewals of community development loans. For example, an institution may only report one origination (including a renewal or refinancing treated as an origination) per loan per year, unless an increase in the loan amount is granted. Eight commenters commented on, and supported adoption of this proposed Q&A. The agencies are adopting the Q&A as proposed.

Revised Q&As Proposed in 2007 That Were Specifically Described in the Supplementary Information

I. Activities that promote economic development. The agencies proposed to revise Q&A § __.12(g)(3)-1, which describes the types of activities that promote economic development by financing small businesses and small farms. The revisions clarified the language of the guidance, and added loans to or investments in Rural Business Investment Companies (RBICs) and New Markets Tax Credit-Eligible Community Development Entities (CDEs) as types of loans or investments that the agencies will presume to promote economic development. Fourteen commenters addressed these proposed revisions, including five that represented community development financial institutions (CDFIs). All fourteen commenters supported adoption of the proposed revisions. The agencies are adopting the revised Q&A as proposed.

CDFI representative commenters urged the agencies to also presume that loans to or investments in CDFIs promote economic development. Q&A § __.12(g)(3)-1 applies only to the prong of the definition of “community development” addressing promoting economic development by financing small businesses and small farms. The agencies have not adopted this suggestion. Existing Q&A § __.12(t)-4 lists as examples of qualified investments “investments, grants, deposits, or shares in or to * * * CDFIs that primarily lend or facilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development, such as a CDFI that promotes economic development on an Indian reservation.” In addition, if a CDFI were engaged in activities that promote economic development by financing small businesses or small farms, investments in or loans to the CDFI would have a primary purpose of community development.

II. Examples of community development loans. The agencies proposed to revise Q&A § __.12(h)-1, which provides examples of community development loans, to add a loan to a New Markets Tax Credit-Eligible CDE as an example of a community development loan. The agencies also proposed to revise this Q&A by adding a new bullet explaining that another example of a community development loan is a loan in an amount greater than $1 million to a business, when the loan is made as part of the Small Business Administration's 504 Certified Development Company program. The three commenters that addressed the proposed revisions to this Q&A recommended that they be adopted. The agencies are adopting this Q&A as proposed.

III. Examples of community development services. The agencies proposed to revise Q&A § __.12(i)-3, which lists examples of community development services, to add as a new example of a community service “increasing access to financial services by opening or maintaining branches and other facilities that help to revitalize or stabilize a low- or moderate-income geography, a designated disaster area, or a distressed or underserved nonmetropolitan middle-income geography, unless the opening or maintaining of such branches or other facilities has been considered in the evaluation of the institution's retail banking services under 12 CFR __.24(d).” The agencies also proposed to revise this Q&A to highlight that credit counseling that can assist borrowers in avoiding foreclosure on their homes would be a community development service. Finally, the agencies proposed to add individual retirement accounts (IDAs) and free payroll check cashing services that increase access to financial services for low- or moderate-income individuals to the examples of financial services with the primary purpose of community development.

The agencies received ten comments addressing these proposed revisions. All of the commenters generally favored adopting the proposed revisions. The agencies are adopting the proposed Q&A with several revisions.

One commenter suggested that the reference to “free” check cashing should be changed to “affordable” or “low-cost” check cashing services that increase access to financial services for low- or moderate-income individuals. The agencies have revised the Q&A to reference free and low-cost check cashing. In addition, the agencies have clarified that low-cost bank accounts can be either savings or checking accounts.

To help to address current economic conditions and issues, the agencies have added an additional example of a community development service: Foreclosure prevention programs to low-or moderate-income homeowners who are facing foreclosure on their primary residence with the objective of providing affordable, sustainable, long-term loan modifications and restructurings. The agencies have also clarified that, to qualify as a community development service, credit counseling to assist borrowers in avoiding foreclosure on their homes should be targeted to low- and moderate-income borrowers, based on the definition of community development at 12 CFR __ .12(g)(2).

Finally, in the proposed Q&A, an existing bullet addressing school savings programs and financial education was split into two separate bullets. This change has not been adopted; however, the agencies are adopting a minor revision incorporating the commonly used term, “financial literacy,” to the bullet.

IV. Federal Home Loan Bank (FHLB) unpaid dividends. The agencies proposed to revise Q&A § __.12(t)-3 to clarify that funds retained by FHLBs to support the Affordable Housing Program (AHP), rather than being paid out to investor financial institutions as dividends, are not qualified investments by the financial institutions. The agencies received three comments addressing this proposed revision. One commenter supported confirmation of the existing policy. The other two commenters were concerned that this position may have the unintended effect of creating a disincentive for FHLB member institutions to participate in the AHP and, ultimately, undermine industry support for the program. The agencies considered this comment, but still believe that funds that are retained by the FHLBs are not qualified investments by the financial institutions that do not receive them as dividends. The Q&A continues to point out that institutions' other activities in connection with the FHLBs' AHP program would be considered in an institution's CRA evaluation—for example, providing technical assistance to applicants would be considered as a community development service. The agencies are adopting this Q&A as proposed.

V. Examples of qualified investments. The agencies proposed to revise Q&A § __.12(t)-4, which lists examples of qualified investments, to add an investment in a New Markets Tax Credit-Eligible CDE as an additional example. The proposal also would have added as an example of a qualified investment an investment in a community development venture capital company that promotes economic development by financing small businesses. The agencies received two comments on these proposed revisions, which recommended adoption. The Q&A is being adopted as proposed.

VI. Small institution adjustment. The agencies proposed to revise Q&A § __.12(u)(2)-1, which provides information about the annual adjustments to the asset-size thresholds for small institutions and intermediate small institutions, to refer the reader to the FFIEC's Web site for historical and current asset-size threshold information. The two commenters that addressed this proposed change supported its adoption. The agencies are adopting the Q&A as proposed.

VII. Responsive lending activities. The agencies proposed to revise Q&A § __.22(a)-1, which discusses types of lending activities that may warrant favorable consideration as being responsive to the credit needs of the institution's assessment area(s). The proposed revision highlighted that establishing loan programs that provide relief to low- and moderate-income homeowners who are facing foreclosure is a lending activity that would warrant consideration as being responsive to the needs of an institution's assessment areas. The agencies received six comments addressing this proposed revision. All supported the proposed revision.

The agencies are adopting the proposed revised Q&A with clarifying changes. First, the agencies have provided examples of the types of loan programs that provide relief from foreclosure, e.g., establising loan programs with the objective of providing affordable, sustainable, long-term relief through refinancings, restructures, or modifications. Second, the word, “homes,” has been replaced by “primary residences” to clarify the scope of the Q&A.

In April 2007, the agencies issued a joint statement entitled, “Statement on Working With Mortgage Borrowers.” In that statement, the agencies encouraged institutions to work with borrowers who are financially unable to make their contractual payment obligations on their home loans. The statement noted that financial institutions may receive favorable CRA consideration for programs that transition low- and moderate-income borrowers from higher cost loans to lower cost loans, provided the loans are made in a safe and sound manner. Consistent with the statement, the proposed Q&A addressed only loan programs that provide relief to low- and moderate-income homeowners who are facing foreclosure as a type of lending activity that would warrant consideration as being responsive to the credit needs of an institution's assessment areas. However, under the regulation, the agencies assess an institution's responsiveness to credit needs in each of its assessment area(s). See 12 CFR parts 25, 228, 345 and 563e at App. A(b)(1)(i). The agencies believe that foreclosure assistance to homeowners who are facing foreclosure on their primary residences would be responsive to the needs of an institution's assessment area(s). Therefore, the agencies have revised the final Q&A to refer to “homeowners” generally.

VIII. Constraints on affiliate lending. Q&A § __.22(c)(2)(i)-1 provides that an affiliate may not claim a loan origination or loan purchase for CRA purposes if another institution claims the same loan origination or loan purchase. The agencies proposed to revise this Q&A to add an example and to clarify that the guidance applies to all institutions, whether they are subject to the lending test, small institution examination standards, or the community development test applicable to wholesale or limited purpose institutions. Six commenters addressed these proposed revisions.

Two commenters supported the clarifications. Four commenters expressed concern that the new example appears to give “double credit” for one loan because the purchasing institution is an affiliate of the originator. Each financial institution that is subject to CRA is separately evaluated for its CRA performance, regardless of whether it has affiliates that are also institutions subject to the CRA. The CRA regulations provide that the agencies will consider both loan originations and loan purchases when evaluating an institution's CRA performance. To address commenters' concerns about sales of loans merely to inflate their value for CRA purposes, however, the agencies are adopting the revised Q&A with a new cross reference to Q&As § __.22(c)(2)(ii)-1 and § __.22(c)(2)(ii)-2. These Q&As provide that the manner in which loans are allocated among affiliated institutions for CRA purposes must reflect actual business decisions about the allocation of banking activities, and should not be designed solely to enhance their CRA evaluations.

IX. Retail banking services delivery systems. The agencies proposed to revise Q&A § __.24(d)-1, which explains how examiners evaluate the availability of an institution's systems for delivering retail banking services. The proposed revision would conform the existing Q&A to more closely track the service test performance criteria in the regulations. The agencies received only one comment on the proposed revisions to this Q&A, which supported the clarifications to the Q&A. The agencies are adopting the revised Q&A as proposed.

X. Assessment areas may not extend substantially beyond metropolitan statistical area (MSA) boundaries. The agencies proposed to revise Q&As § __.41(e)(4)-1 and § __.41(e)(4)-2, which address the maximum size of an assessment area, to adopt the revised terminology in the Standards for Defining Metropolitan and Micropolitan Statistical Areas adopted by the Office of Management and Budget, and to incorporate guidance that the agencies provided in connection with the technical corrections made to the CRA regulations in 2005. See 70 FR 15570. The two comments on these proposed revisions supported adopting them. The agencies are adopting the revised Q&As as proposed.

XI. Reporting data under the CRA regulations. The agencies proposed to revise Q&A § __.42-1, which addresses when an institution must collect and report data, to refer generally to the definition of a small institution, rather than to the current dollar amount of the asset threshold of such institutions, because the asset threshold is revised annually. The agencies also revised the mailing address in the Q&A. The agencies received no comments on these proposed revisions. The revised Q&A is being adopted as proposed.

XII. Reporting home equity lines of credit for both home improvement and business purposes. The agencies proposed to revise Q&A § __.42(a)-7, which addresses the reporting of a home equity line of credit, used in part for home improvement purposes and used in part for small business purposes, to make the Q&A consistent with changes that were made to the Board's Regulation C requirements. The agencies received only one comment addressing the proposed revised Q&A in support of the proposed revision. The agencies are adopting the revised Q&A as proposed.

XIII. Participations in small business or small farm loans. The agencies proposed to revise Q&A § __.42(a)(2)-1, which provides guidance regarding the reporting of the amount of a small business or small farm loan that an institution purchases, to clarify that the guidance also applies to purchases of small business or small farm loan participations. The agencies received five comments addressing this proposed revision. One commenter agreed that the reporting of loan participations purchased should be treated in the same manner as the reporting of whole loans purchased. The other four commenters addressed the inconsistency between the reporting requirements for small business and small farm loan purchases (either whole loans or participations in loans) and the reporting requirements for community development loan purchases (whole or partial). As discussed above, the CRA regulations at 12 CFR __.42(a)(2) require the reporting of the loan amount at origination when reporting small business and small farm loan data. Thus, the agencies are adopting the revised Q&A as proposed.

Withdrawal of Proposed Revisions to Existing Q&A § __.23(e)-2

Q&A § __.23(e)-2 addresses how examiners evaluate an institution's qualified investment in a fund with a primary purpose of community development. The agencies proposed to revise the Q&A's discussion of consideration of legally binding commitments recorded by the institution according to GAAP. The agencies received two comments, both of which opposed the change. In response to these comments, and because the proposal was inconsistent with an interagency CRA interpretive letter published by the agencies in 1997 (OCC I.L. No. 800 (Sept. 11, 1997)), the agencies are withdrawing the proposal. Therefore, when evaluating a financial institution, examiners will continue to include in the dollar amount of qualified investments any legally binding commitments recorded by the institution according to GAAP.

Clarifying Revisions to Existing Q&As

Q&A § __.12(g)-3

Three commenters addressed Q&A § __.12(g)-3, which addresses flexibility in considering performance in high-cost areas. Q&A § __.12(g)-3 provides an example of a situation when examiners could take into account the high cost of housing when an institution provides a community development loan or qualified investment to an organization that assists middle-income, as well as low- and moderate-income, people and areas. Even though the agencies had not proposed revisions to this existing guidance, after consideration of the comments, the agencies are revising this Q&A by adding a cross reference to Q&A § __.12(h)-8, which provides information on “primary purpose” of community development.

Q&A § __.12(g)(4)(i)-1

The agencies did not receive any comments directly mentioning Q&A § __.12(g)(4)(i)-1. However, several commenters expressed their general support for the additional foreclosure prevention references that were proposed in other Q&As. Q&A § __.12(g)(4)(i)-1 addresses activities that are considered to “revitalize or stabilize” a low- or moderate-income geography. Based on these comments, the following example has been added to the answer: “For example, providing foreclosure prevention programs with the objective of providing affordable, sustainable, long-term loan restructurings or modifications to homeowners in low- and moderate-income geographies, consistent with safe and sound banking practices, may help to revitalize or stabilize those geographies.”

OTS Request for Comments on Conforming Revisions

OTS specifically requested comment on several Q&As that it proposed to conform OTS guidance to guidance previously adopted by the OCC, Board, and FDIC. Five commenters addressed OTS's conforming revisions. They unanimously supported the efforts of OTS to be consistent with the other agencies. OTS is adopting the Q&As as proposed.

Revised and New Q&As Being Proposed for Comment

Proposed New Q&A: Community Services Targeted to Low- or Moderate-income Individuals

In response to suggestions made by commenters, the agencies are proposing a new Q&A that would provide examples of ways an institution, which provides community services, could determine that the community services are targeted to low- and moderate-income individuals when the institution does not know the actual income of the individuals. The text of the proposed Q&A follows:

▸§ __.12(g)(2)- 1: Community development includes community services targeted to low- or moderate-income individuals. What are examples of ways that an institution could determine that community services are offered to low- or moderate-income individuals?

A1: Examples of ways in which an institution could determine that community services are targeted to low- or moderate-income persons include:

• The community service is targeted to the clients of a nonprofit organization that has a defined mission of serving low- and moderate-income persons, or, because of government grants, for example, is limited to offering services only to low- or moderate-income persons.
• The community service is offered by a nonprofit organization that is located in and serves a low- or moderate-income geography.
• The community service is conducted in a low- or moderate-income area and targeted to the residents of the area.
• The community service is offered at a workplace to workers who are low- and moderate-income, based on readily available data for the average wage for workers in that particular occupation or industry (see, e.g., http://www.bls.gov/​bls/​blswage.htm (Bureau of Labor Statistics)).◂

Proposed Revised Q&As: Primary Purpose of Community Development

As discussed above, a number of commenters suggested that loans or investments that provide some affordable housing to low- or moderate-income individuals should be considered as “community development.” The regulations require community development activities to have a “primary purpose of community development.” See 12 CFR__.12(h), __.12(i), and .12(t).

Q&A § __.12(h)-8 generally provides two methods of determining whether an activity has a primary purpose of community development: (1) If a majority of the dollars or beneficiaries of the activity are identifiable to one or more of the enumerated community development purposes, then an activity will be considered to possess the requisite primary purpose; and (2) If the express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed community development purpose; and the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved, then the requisite primary purpose may be found.

The agencies have generally indicated that if an activity has a primary purpose of community development (determined by either method above), the entire investment, loan, or service would be considered in an institution's CRA evaluation. However, if an activity does not have a primary purpose of community development applying these standards, then it would not be considered as a qualified investment, community development loan, or community development service.

The agencies are proposing to revise Q&A § __.12(h)-8 to allow consideration for an activity that provides some affordable housing targeted to low- or moderate-income individuals, but where it would not be deemed to have a primary purpose of community development measured by a majority of the entire activity's benefits or dollar value, or by relying on the express purpose of the activity. The Q&A would specifically allow activities related to the provision of mixed-income housing, such as in connection with a development that has a mixed-income housing component or an affordable housing set-aside required by federal, state, or local government, to be eligible for consideration as an activity that has a “primary purpose” of community development at the election of the institution. In those cases, an institution would receive pro rata consideration for the portion of the activity that helps to provide affordable housing to low- or moderate-income individuals.

The text of the proposed revised Q&A follows:

§ __.12(h)—8: What is meant by the term “primary purpose” as that term is used to define what constitutes a community development loan, a qualified investment, or a community development service?

A8. A loan, investment, or service has as its primary purpose community development when it is designed for the express purpose of revitalizing or stabilizing low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas, providing affordable housing for, or community services targeted to, low- or moderate-income persons, or promoting economic development by financing small businesses and farms that meet the requirements set forth in 12 CFR __.12(g). To determine whether an activity is designed for an express community development purpose, the agencies apply one of two approaches. First, if a majority of the dollars or beneficiaries of the activity are identifiable to one or more of the enumerated community development purposes, then the activity will be considered to possess the requisite primary purpose. Alternatively, where the measurable portion of any benefit bestowed or dollars applied to the community development purpose is less than a majority of the entire activity's benefits or dollar value, then the activity may still be considered to possess the requisite primary purpose▸, and the institution may receive CRA consideration for the entire activity,◂ if (1) The express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; (2) the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed community development purpose; and (3) the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved.

▸Generally, a loan, investment, or service will be determined to have a “primary purpose” of community development only if it meets the criteria described above. However, an activity also may be deemed to have a “primary purpose” of community development in certain other limited circumstances in which these criteria have not been met. Specifically, activities related to the provision of mixed-income housing, such as in connection with a development that has a mixed-income housing component or an affordable housing set-aside required by federal, state, or local government, also would be eligible for consideration as an activity that has a “primary purpose” of community development at the election of the institution. In such cases, an institution may receive pro rata consideration for the portion of such activities that helps to provide affordable housing to low- or moderate-income individuals. For example, if an institution makes a $10 million loan to finance a mixed-income housing development in which ten percent of the units will be set aside as affordable housing for low- and moderate-income individuals and ten percent of the funds will be used for the cost of constructing those units, the institution may elect to treat $1 million of such loan as a community development loan.◂

The fact that an activity provides indirect or short-term benefits to low- or moderate-income persons does not make the activity community development, nor does the mere presence of such indirect or short-term benefits constitute a primary purpose of community development. Financial institutions that want examiners to consider certain activities (under either approach) should be prepared to demonstrate the activities' qualifications.

Because this proposed revision would be a significant change to the agencies' general “all or nothing” CRA consideration policy for community development loans, qualified investments, and community development services, the agencies solicit public comment on the proposed revision. We specifically request comment on the following:

• Will the proposed revision, allowing pro rata CRA consideration for low- and moderate-income housing set-asides, spur the construction and rehabilitation of housing for low- and moderate-income persons? Why or why not?
• Should the special pro rata consideration be restricted only to instances where a governmental entity requires a set aside of a certain number or percentage of units as housing affordable for low- or moderate-income housing (as opposed to voluntary designation of low- and moderate-income units by a developer)?
• How should the amount of the pro rata share be determined for reporting purposes—should institutions be required to report the actual funds attributable to the targeted units or should they report a proportional share, based on the percentage of set-aside units? For example, if an institution makes a $1 million loan for a development in which ten percent of the units are set aside as affordable housing for low- or moderate-income individuals, but only six percent of the loan proceeds are used to construct the units, should the intitution report ten percent of the total amount of the loan ($1 million) or six percent ($600,000)?
• Should the pro rata treatment apply only to affordable housing or should institutions also be able to receive pro rata treatment for loans or investments with other community development purposes?
• Would this change in policy lead to unjustifiable inflation of community development activities?

If the proposed revision to Q&A § __.12(h)-8, above, is adopted, the agencies would also revise Q&A § __.42(b)(2)-3 to address data collection and reporting of the pro rata share of the mixed-income housing loans described in the Q&A. If an institution were to elect to have the portion of mixed-income housing loans set aside for low- or moderate-income housing considered as community development loans, in order to receive consideration for such loans, the institution would need to collect and report data on only the portions of the loans that provide housing for low- or moderate-income individuals. The proposed revision to Q&A § __.42(b)(2)-3 follows:

§ __.42(b)(2)-3: When the primary purpose of a loan is to finance an affordable housing project for low- or moderate-income individuals, but, for example, only 40 percent of the units in question will actually be occupied by individuals or families with low or moderate incomes, should the entire loan amount be reported as a community development loan?

A3.▸It depends.◂ As long as the primary purpose of the loan is a community development purpose ▸as described in Q&A § __.12 (h)-8◂, the full amount of the institution's loan should be included in its reporting of aggregate amounts of community development lending. [However]▸Even though the entire amount of the loan is reported◂, as noted in Q&A § __.22(b)(4)-1, examiners may make qualitative distinctions among community development loans on the basis of the extent to which the loan advances the community development purpose.

▸In addition, if an institution that reports CRA data elects to request consideration for loans that provide mixed-income housing where only a portion of the loan has community development as its primary purpose, such as in connection with a development that has a mixed-income housing component or an affordable housing set-aside required by federal, state, or local government, the institution must report only the pro rata dollar amount of the portion of the loan that provides affordable housing to low- or moderate-income individuals. See Q&A § __.12(h)-8 for a discussion of “primary purpose” of community development describing the distinction between the types of loans that would be reported in full and those for which only the pro rata amount would be reported.◂

Finally, as previously discussed, if the proposed revision to Q&A § __.12(h)-8 is adopted as final, Q&A § __.22(a)(2)-4, which provides examples of “other loan data,” would be revised to delete “loans that do not have a primary purpose of community development, but where a certain amount or percentage of units is set aside for affordable housing.”

Solicitation of Comments Regarding the Use of “Plain Language”

Section 722 of the Gramm-Leach-Bliley Act of 1999, 12 U.S.C. 4809, requires the agencies to use “plain language” in all proposed and final rules published after January 1, 2000. Although this guidance is not a proposed or final rule, comments are nevertheless invited on whether the interagency questions and answers are stated clearly and effectively organized, and how the guidance might be revised to make it easier to read.

The text of the final Interagency Questions and Answers follows:

Interagency Questions and Answers Regarding Community Reinvestment

§ __.11—Authority, purposes, and scope

§ __.11(c) Scope

§§ __.11(c)(3) & 563e.11(c)(2) Certain special purpose institutions

§§ __.11(c)(3) & 563e.11(c)(2)-1: Is the list of special purpose institutions exclusive?

A1. No, there may be other examples of special purpose institutions. These institutions engage in specialized activities that do not involve granting credit to the public in the ordinary course of business. Special purpose institutions typically serve as correspondent banks, trust companies, or clearing agents or engage only in specialized services, such as cash management controlled disbursement services. A financial institution, however, does not become a special purpose institution merely by ceasing to make loans and, instead, making investments and providing other retail banking services.

§§ __.11(c)(3) & 563e.11(c)(2)-2: To be a special purpose institution, must an institution limit its activities in its charter?

A2. No. A special purpose institution may, but is not required to, limit the scope of its activities in its charter, articles of association, or other corporate organizational documents. An institution that does not have legal limitations on its activities, but has voluntarily limited its activities, however, would no longer be exempt from Community Reinvestment Act (CRA) requirements if it subsequently engaged in activities that involve granting credit to the public in the ordinary course of business. An institution that believes it is exempt from CRA as a special purpose institution should seek confirmation of this status from its supervisory agency.

§ __.12—Definitions

§ __.12(a) Affiliate

§ __.12(a)-1: Does the definition of “affiliate” include subsidiaries of an institution?

A1. Yes, “affiliate” includes any company that controls, is controlled by, or is under common control with another company. An institution's subsidiary is controlled by the institution and is, therefore, an affiliate.

§ __.12(f) Branch

§ __.12(f)-1: Do the definitions of “branch,” “automated teller machine (ATM),” and “remote service facility (RSF)” include mobile branches, ATMs, and RSFs?

A1. Yes. Staffed mobile offices that are authorized as branches are considered “branches,” and mobile ATMs and RSFs are considered “ATMs” and “RSFs.”

§ __.12(f)-2: Are loan production offices (LPOs) branches for purposes of the CRA?

A2. LPOs and other offices are not “branches” unless they are authorized as branches of the institution through the regulatory approval process of the institution's supervisory agency.

§ __.12(g) Community development

§ __.12(g)-1: Are community development activities limited to those that promote economic development?

A1. No. Although the definition of “community development” includes activities that promote economic development by financing small businesses or farms, the rule does not limit community development loans and services and qualified investments to those activities. Community development also includes community-or tribal-based child care, educational, health, or social services targeted to low- or moderate-income persons, affordable housing for low- or moderate-income individuals, and activities that revitalize or stabilize low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income geographies.

§ __.12(g)-2: Must a community development activity occur inside a low- or moderate-income area, designated disaster area, or underserved or distressed nonmetropolitan middle-income area in order for an institution to receive CRA consideration for the activity?

A2. No. Community development includes activities, regardless of their location, that provide affordable housing for, or community services targeted to, low- or moderate-income individuals and activities that promote economic development by financing small businesses and farms. Activities that stabilize or revitalize particular low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas (including by creating, retaining, or improving jobs for low- or moderate-income persons) also qualify as community development, even if the activities are not located in these areas. One example is financing a supermarket that serves as an anchor store in a small strip mall located at the edge of a middle-income area, if the mall stabilizes the adjacent low-income community by providing needed shopping services that are not otherwise available in the low-income community.

§ __.12(g)-3: Does the regulation provide flexibility in considering performance in high-cost areas?

A3. Yes, the flexibility of the performance standards allows examiners to account in their evaluations for conditions in high-cost areas. Examiners consider lending and services to individuals and geographies of all income levels and businesses of all sizes and revenues. In addition, the flexibility in the requirement that community development loans, community development services, and qualified investments have as their “primary” purpose community development allows examiners to account for conditions in high-cost areas. For example, examiners could take into account the fact that activities address a credit shortage among middle-income people or areas caused by the disproportionately high cost of building, maintaining or acquiring a house when determining whether an institution's loan to or investment in an organization that funds affordable housing for middle-income people or areas, as well as low- and moderate-income people or areas, has as its primary purpose community development. See also Q&A § __.12(h)-8 for more information on “primary purpose.”

§ __.12(g)-4: The CRA provides that, in assessing the CRA performance of non-minority- and non-women-owned (majority-owned) financial institutions, examiners may consider as a factor capital investments, loan participations, and other ventures undertaken by the institutions in cooperation with minority- or women-owned financial institutions and low-income credit unions (MWLIs), provided that these activities help meet the credit needs of local communities in which the MWLIs are chartered. Must such activities also benefit the majority-owned financial institution's assessment area?

A4. No. Although the regulations generally provide that an institution's CRA activities will be evaluated for the extent to which they benefit the institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s), the agencies apply a broader geographic criterion when evaluating capital investments, loan participations, and other ventures undertaken by that institution in cooperation with MWLIs, as provided by the CRA. Thus, such activities will be favorably considered in the CRA performance evaluation of the institution (as loans, investments, or services, as appropriate), even if the MWLIs are not located in, or such activities do not benefit, the assessment area(s) of the majority-owned institution or the broader statewide or regional area that includes its assessment area(s). The activities must, however, help meet the credit needs of the local communities in which the MWLIs are chartered. The impact of a majority-owned institution's activities in cooperation with MWLIs on the majority-owned institution's CRA rating will be determined in conjunction with its overall performance in its assessment area(s).

Examples of activities undertaken by a majority-owned financial institution in cooperation with MWLIs that would receive CRA consideration may include:

• Making a deposit or capital investment;
• Purchasing a participation in a loan;
• Loaning an officer or providing other technical expertise to assist an MWLI in improving its lending policies and practices;
• Providing financial support to enable an MWLI to partner with schools or universities to offer financial literacy education to members of its local community; or
• Providing free or discounted data processing systems, or office facilities to aid an MWLI in serving its customers.

§ __.12(g)(1) Affordable Housing (Including Multifamily Rental Housing) for Low- or Moderate-income Individuals

§ __.12(g)(1)-1: When determining whether a project is “affordable housing for low- or moderate-income individuals,” thereby meeting the definition of “community development,” will it be sufficient to use a formula that relates the cost of ownership, rental, or borrowing to the income levels in the area as the only factor, regardless of whether the users, likely users, or beneficiaries of that affordable housing are low- or moderate-income individuals?

A1. The concept of “affordable housing” for low- or moderate-income individuals does hinge on whether low- or moderate-income individuals benefit, or are likely to benefit, from the housing. It would be inappropriate to give consideration to a project that exclusively or predominately houses families that are not low- or moderate-income simply because the rents or housing prices are set according to a particular formula.

For projects that do not yet have occupants, and for which the income of the potential occupants cannot be determined in advance, or in other projects where the income of occupants cannot be verified, examiners will review factors such as demographic, economic, and market data to determine the likelihood that the housing will “primarily” accommodate low- or moderate-income individuals. For example, examiners may look at median rents of the assessment area and the project; the median home value of either the assessment area, low- or moderate-income geographies or the project; the low- or moderate-income population in the area of the project; or the past performance record of the organization(s) undertaking the project. Further, such a project could receive consideration if its express, bona fide intent, as stated, for example, in a prospectus, loan proposal, or community action plan, is community development.

§ __.12(g)(3) Activities That Promote Economic Development by Financing Businesses or Farms That Meet Certain Size Eligibility Standards

§ __.12(g)(3)-1: “Community development” includes activities that promote economic development by financing businesses or farms that meet certain size eligibility standards. Are all activities that finance businesses and farms that meet these size eligibility standards considered to be community development?

A1. No. The concept of “community development” under 12 CFR__.12(g)(3) involves both a “size” test and a “purpose” test. An institution's loan, investment, or service meets the “size” test if it finances, either directly or through an intermediary, entities that either meet the size eligibility standards of the Small Business Administration's Development Company (SBDC) or Small Business Investment Company (SBIC) programs, or have gross annual revenues of $1 million or less.

To meet the “purpose test,” the institution's loan, investment, or service must promote economic development. These activities are considered to promote economic development if they support permanent job creation, retention, and/or improvement for persons who are currently low- or moderate-income, or support permanent job creation, retention, and/or improvement either in low- or moderate-income geographies or in areas targeted for redevelopment by Federal, state, local, or tribal governments. The agencies will presume that any loan to or investment in an SBDC, SBIC, Rural Business Investment Company, New Markets Venture Capital Company, or New Markets Tax Credit-eligible Community Development Entity promotes economic development. (But also refer to Q&As § __.42(b)(2)-2, § __.12(h)-2, and § __.12(h)-3 for more information about which loans may be considered community development loans.)

In addition to their quantitative assessment of the amount of a financial institution's community development activities, examiners must make qualitative assessments of an institution's leadership in community development matters and the complexity, responsiveness, and impact of the community development activities of the institution. In reaching a conclusion about the impact of an institution's community development activities, examiners may, for example, determine that a loan to a small business in a low- or moderate-income geography that provides needed jobs and services in that area may have a greater impact and be more responsive to the community credit needs than does a loan to a small business in the same geography that does not directly provide additional jobs or services to the community.

§ __.12(g)(4) Activities That Revitalize or Stabilize Certain Geographies

§ __.12(g)(4)-1: Is the revised definition of community development, effective September 1, 2005 (under the OCC, Board, and FDIC rules) and effective April 12, 2006 (under OTS's rule), applicable to all institutions or only to intermediate small institutions?

A1. The revised definition of community development is applicable to all institutions. Examiners will not use the revised definition to qualify activities that were funded or provided prior to September 1, 2005 (under the OCC, Board, and FDIC rules) or prior to April 12, 2006 (under OTS's rule).

§ __.12(g)(4)-2: Will activities that provide housing for middle-income and upper-income persons qualify for favorable consideration as community development activities when they help to revitalize or stabilize a distressed or underserved nonmetropolitan middle-income geography or designated disaster areas?

A2. An activity that provides housing for middle- or upper-income individuals qualifies as an activity that revitalizes or stabilizes a distressed nonmetropolitan middle-income geography or a designated disaster area if the housing directly helps to revitalize or stabilize the community by attracting new, or retaining existing, businesses or residents and, in the case of a designated disaster area, is related to disaster recovery. The Agencies generally will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography or designated disaster area, but will give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods. Thus, for example, a loan solely to develop middle- or upper-income housing in a community in need of low- and moderate-income housing would be given very little weight if there is only a short-term benefit to low- and moderate-income individuals in the community through the creation of temporary construction jobs. (Except in connection with intermediate small institutions, a housing-related loan is not evaluated as a “community development loan” if it has been reported or collected by the institution or its affiliate as a home mortgage loan, unless it is a multifamily dwelling loan. See 12 CFR__.12(h)(2)(i) and Q&As § __.12(h)-2 and § __.12(h)-3.) An activity will be presumed to revitalize or stabilize such a geography or area if the activity is consistent with a bona fide government revitalization or stabilization plan or disaster recovery plan. See Q&As § __.12(g)(4)(i)-1 and § __.12(h)-5.

In underserved nonmetropolitan middle-income geographies, activities that provide housing for middle- and upper-income individuals may qualify as activities that revitalize or stabilize such underserved areas if the activities also provide housing for low- or moderate-income individuals. For example, a loan to build a mixed-income housing development that provides housing for middle- and upper-income individuals in an underserved nonmetropolitan middle-income geography would receive positive consideration if it also provides housing for low- or moderate-income individuals.

§ __.12(g)(4)(i) Activities That Revitalize or Stabilize Low- or Moderate-income Geographies

§ __.12(g)(4)(i)-1: What activities are considered to “revitalize or stabilize” a low- or moderate-income geography, and how are those activities considered?

A1. Activities that revitalize or stabilize a low- or moderate-income geography are activities that help to attract new, or retain existing, businesses or residents. Examiners will presume that an activity revitalizes or stabilizes a low- or moderate-income geography if the activity has been approved by the governing board of an Enterprise Community or Empowerment Zone (designated pursuant to 26 U.S.C. 1391) and is consistent with the board's strategic plan. They will make the same presumption if the activity has received similar official designation as consistent with a federal, state, local, or tribal government plan for the revitalization or stabilization of the low- or moderate-income geography. For example, foreclosure prevention programs with the objective of providing affordable, sustainable, long-term loan restructurings or modifications to homeowners in low- or moderate-income geographies, consistent with safe and sound banking practices, may help to revitalize or stabilize those geographies.

To determine whether other activities revitalize or stabilize a low- or moderate-income geography, examiners will evaluate the activity's actual impact on the geography, if information about this is available. If not, examiners will determine whether the activity is consistent with the community's formal or informal plans for the revitalization and stabilization of the low- or moderate-income geography. For more information on what activities revitalize or stabilize a low- or moderate-income geography, see Q&As § __.12(g)-2 and § __.12(h)-5.

§ __.12(g)(4)(ii) Activities That Revitalize or Stabilize Designated Disaster Areas

§ __.12(g)(4)(ii)-1: What is a “designated disaster area” and how long does it last?

A1. A “designated disaster area” is a major disaster area designated by the federal government. Such disaster designations include, in particular, Major Disaster Declarations administered by the Federal Emergency Management Agency (FEMA) (http://www.fema.gov), but excludes counties designated to receive only FEMA Public Assistance Emergency Work Category A (Debris Removal) and/or Category B (Emergency Protective Measures).

Examiners will consider institution activities related to disaster recovery that revitalize or stabilize a designated disaster area for 36 months following the date of designation. Where there is a demonstrable community need to extend the period for recognizing revitalization or stabilization activities in a particular disaster area to assist in long-term recovery efforts, this time period may be extended.

§ __.12(g)(4)(ii)-2: What activities are considered to “revitalize or stabilize” a designated disaster area, and how are those activities considered?

A2. The Agencies generally will consider an activity to revitalize or stabilize a designated disaster area if it helps to attract new, or retain existing, businesses or residents and is related to disaster recovery. An activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization or stabilization plan or disaster recovery plan. The Agencies generally will consider all activities relating to disaster recovery that revitalize or stabilize a designated disaster area, but will give greater weight to those activities that are most responsive to community needs, including the needs of low- or moderate-income individuals or neighborhoods. Qualifying activities may include, for example, providing financing to help retain businesses in the area that employ local residents, including low- and moderate-income individuals; providing financing to attract a major new employer that will create long-term job opportunities, including for low- and moderate-income individuals; providing financing or other assistance for essential community-wide infrastructure, community services, and rebuilding needs; and activities that provide housing, financial assistance, and services to individuals in designated disaster areas and to individuals who have been displaced from those areas, including low- and moderate-income individuals (see, e.g., Q&As § __.12(i)-3; § __.12(t)-4; § __.22(b)(2) & (3)-4; § __.22(b)(2) & (3)-5; and § __.24(d)(3)-1).

§ __.12(g)(4)(iii) Activities That Revitalize or Stabilize Distressed or Underserved Nonmetropolitan Middle-income Geographies

§ __.12(g)(4)(iii)-1: What criteria are used to identify distressed or underserved nonmetropolitan, middle-income geographies?

A1. Eligible nonmetropolitan middle-income geographies are those designated by the Agencies as being in distress or that could have difficulty meeting essential community needs (underserved). A particular geography could be designated as both distressed and underserved. As defined in 12 CFR __.12(k), a geography is a census tract delineated by the United States Bureau of the Census.

A nonmetropolitan middle-income geography will be designated as distressed if it is in a county that meets one or more of the following triggers: (1) An unemployment rate of at least 1.5 times the national average, (2) a poverty rate of 20 percent or more, or (3) a population loss of 10 percent or more between the previous and most recent decennial census or a net migration loss of five percent or more over the five-year period preceding the most recent census.

A nonmetropolitan middle-income geography will be designated as underserved if it meets criteria for population size, density, and dispersion that indicate the area's population is sufficiently small, thin, and distant from a population center that the tract is likely to have difficulty financing the fixed costs of meeting essential community needs. The Agencies will use as the basis for these designations the “urban influence codes,” numbered “7,” “10,” “11,” and “12,” maintained by the Economic Research Service of the United States Department of Agriculture.

The Agencies publish data source information along with the list of eligible nonmetropolitan census tracts on the Federal Financial Institutions Examination Council Web site (http://www.ffiec.gov).

§ __.12(g)(4)(iii)-2: How often will the Agencies update the list of designated distressed and underserved nonmetropolitan middle-income geographies?

A2. The Agencies will review and update the list annually. The list is published on the Federal Financial Institutions Examination Council Web site (http://www.ffiec.gov).

To the extent that changes to the designated census tracts occur, the Agencies have determined to adopt a one-year “lag period.” This lag period will be in effect for the twelve months immediately following the date when a census tract that was designated as distressed or underserved is removed from the designated list. Revitalization or stabilization activities undertaken during the lag period will receive consideration as community development activities if they would have been considered to have a primary purpose of community development if the census tract in which they were located were still designated as distressed or underserved.

§ __.12(g)(4)(iii)-3: What activities are considered to “revitalize or stabilize” a distressed nonmetropolitan middle-income geography, and how are those activities evaluated?

A3. An activity revitalizes or stabilizes a distressed nonmetropolitan middle-income geography if it helps to attract new, or retain existing, businesses or residents. An activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization or stabilization plan. The Agencies generally will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography, but will give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods. Qualifying activities may include, for example, providing financing to attract a major new employer that will create long-term job opportunities, including for low- and moderate-income individuals, and activities that provide financing or other assistance for essential infrastructure or facilities necessary to attract or retain businesses or residents. See Q&As § __.12(g)(4)(i)-1 and § __.12(h)-5.

§ __.12(g)(4)(iii)-4: What activities are considered to “revitalize or stabilize” an underserved nonmetropolitan middle-income geography, and how are those activities evaluated?

A4. The regulation provides that activities revitalize or stabilize an underserved nonmetropolitan middle-income geography if they help to meet essential community needs, including needs of low- or moderate-income individuals. Activities such as financing for the construction, expansion, improvement, maintenance, or operation of essential infrastructure or facilities for health services, education, public safety, public services, industrial parks, or affordable housing, will be evaluated under these criteria to determine if they qualify for revitalization or stabilization consideration. Examples of the types of projects that qualify as meeting essential community needs, including needs of low- or moderate-income individuals, would be a new or expanded hospital that serves the entire county, including low- and moderate-income residents; an industrial park for businesses whose employees include low- or moderate-income individuals; a new or rehabilitated sewer line that serves community residents, including low- or moderate-income residents; a mixed-income housing development that includes affordable housing for low- and moderate-income families; or a renovated elementary school that serves children from the community, including children from low- and moderate-income families.

Other activities in the area, such as financing a project to build a sewer line spur that connects services to a middle-or upper-income housing development while bypassing a low- or moderate-income development that also needs the sewer services, generally would not qualify for revitalization or stabilization consideration in geographies designated as underserved. However, if an underserved geography is also designated as distressed or a disaster area, additional activities may be considered to revitalize or stabilize the geography, as explained in Q&As § __.12(g)(4)(ii)-2 and § __.12(g)(4)(iii)-3.

§ __.12(h) Community Development Loan

§ __.12(h)-1: What are examples of community development loans?

A1. Examples of community development loans include, but are not limited to, loans to:

• Borrowers for affordable housing rehabilitation and construction, including construction and permanent financing of multifamily rental property serving low- and moderate-income persons;
• Not-for-profit organizations serving primarily low- and moderate-income housing or other community development needs;
• Borrowers to construct or rehabilitate community facilities that are located in low- and moderate-income areas or that serve primarily low- and moderate-income individuals;
• Financial intermediaries including Community Development Financial Institutions (CDFIs), New Markets Tax Credit-eligible Community Development Entities, Community Development Corporations (CDCs), minority- and women-owned financial institutions, community loan funds or pools, and low-income or community development credit unions that primarily lend or facilitate lending to promote community development;
• Local, state, and tribal governments for community development activities;
• Borrowers to finance environmental clean-up or redevelopment of an industrial site as part of an effort to revitalize the low- or moderate-income community in which the property is located; and
• Businesses, in an amount greater than $1 million, when made as part of the Small Business Administration's 504 Certified Development Company program.

The rehabilitation and construction of affordable housing or community facilities, referred to above, may include the abatement or remediation of, or other actions to correct, environmental hazards, such as lead-based paint, that are present in the housing, facilities, or site.

§ __.12(h)-2: If a retail institution that is not required to report under the Home Mortgage Disclosure Act (HMDA) makes affordable home mortgage loans that would be HMDA-reportable home mortgage loans if it were a reporting institution, or if a small institution that is not required to collect and report loan data under the CRA makes small business and small farm loans and consumer loans that would be collected and/or reported if the institution were a large institution, may the institution have these loans considered as community development loans?

A2. No. Although small institutions are not required to report or collect information on small business and small farm loans and consumer loans, and some institutions are not required to report information about their home mortgage loans under HMDA, if these institutions are retail institutions, the agencies will consider in their CRA evaluations the institutions' originations and purchases of loans that would have been collected or reported as small business, small farm, consumer or home mortgage loans, had the institution been a collecting and reporting institution under the CRA or the HMDA. Therefore, these loans will not be considered as community development loans, unless the small institution is an intermediate small institution (see § __.12(h)-3). Multifamily dwelling loans, however, may be considered as community development loans as well as home mortgage loans. See also Q&A § __.42(b)(2)-2.

§ __.12(h)-3: May an intermediate small institution that is not subject to HMDA reporting have home mortgage loans considered as community development loans? Similarly, may an intermediate small institution have small business and small farm loans and consumer loans considered as community development loans?

A3. Yes. In instances where intermediate small institutions are not required to report HMDA or small business or small farm loans, these loans may be considered, at the institution's option, as community development loans, provided they meet the regulatory definition of “community development.” If small business or small farm loan data have been reported to the agencies to preserve the option to be evaluated as a large institution, but the institution ultimately chooses to be evaluated under the intermediate small institution examination standards, then the institution would continue to have the option to have such loans considered as community development loans. However, if the institution opts to be evaluated under the lending, investment, and service tests applicable to large institutions, it may not choose to have home mortgage, small business, small farm, or consumer loans considered as community development loans.

Loans other than multifamily dwelling loans may not be considered under both the lending test and the community development test for intermediate small institutions. Thus, if an institution elects to have certain loans considered under the community development test, those loans may not also be considered under the lending test, and would be excluded from the lending test analysis.

Intermediate small institutions may choose individual loans within their portfolio for community development consideration. Examiners will evaluate an intermediate small institution's community development activities within the context of the responsiveness of the activity to the community development needs of the institution's assessment area.

§ __.12(h)-4: Do secured credit cards or other credit card programs targeted to low- or moderate-income individuals qualify as community development loans?

A4. No. Credit cards issued to low- or moderate-income individuals for household, family, or other personal expenditures, whether as part of a program targeted to such individuals or otherwise, do not qualify as community development loans because they do not have as their primary purpose any of the activities included in the definition of “community development.”

§ __.12(h)-5: The regulation indicates that community development includes “activities that revitalize or stabilize low- or moderate-income geographies.” Do all loans in a low- to moderate-income geography have a stabilizing effect?

A5. No. Some loans may provide only indirect or short-term benefits to low- or moderate-income individuals in a low- or moderate-income geography. These loans are not considered to have a community development purpose. For example, a loan for upper-income housing in a low- or moderate-income area is not considered to have a community development purpose simply because of the indirect benefit to low- or moderate-income persons from construction jobs or the increase in the local tax base that supports enhanced services to low- and moderate-income area residents. On the other hand, a loan for an anchor business in a low- or moderate-income area (or a nearby area) that employs or serves residents of the area and, thus, stabilizes the area, may be considered to have a community development purpose. For example, in a low-income area, a loan for a pharmacy that employs and serves residents of the area promotes community development.

§ __.12(h)-6: Must there be some immediate or direct benefit to the institution's assessment area(s) to satisfy the regulations' requirement that qualified investments and community development loans or services benefit an institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s)?

A6. No. The regulations recognize that community development organizations and programs are efficient and effective ways for institutions to promote community development. These organizations and programs often operate on a statewide or even multistate basis. Therefore, an institution's activity is considered a community development loan or service or a qualified investment if it supports an organization or activity that covers an area that is larger than, but includes, the institution's assessment area(s). The institution's assessment area(s) need not receive an immediate or direct benefit from the institution's specific participation in the broader organization or activity, provided that the purpose, mandate, or function of the organization or activity includes serving geographies or individuals located within the institution's assessment area(s).

In addition, a retail institution that, considering its performance context, has adequately addressed the community development needs of its assessment area(s) will receive consideration for certain other community development activities. These community development activities must benefit geographies or individuals located somewhere within a broader statewide or regional area that includes the institution's assessment area(s). Examiners will consider these activities even if they will not benefit the institution's assessment area(s).

§ __.12(h)-7: What is meant by the term “regional area”?

A7. A “regional area” may be as large as a multistate area. For example, the “mid-Atlantic states” may comprise a regional area.

Community development loans and services and qualified investments to statewide or regional organizations that have a bona fide purpose, mandate, or function that includes serving the geographies or individuals within the institution's assessment area(s) will be considered as addressing assessment area needs. When examiners evaluate community development loans and services and qualified investments that benefit a regional area that includes the institution's assessment area(s), they will consider the institution's performance context as well as the size of the regional area and the actual or potential benefit to the institution's assessment area(s). With larger regional areas, benefit to the institution's assessment area(s) may be diffused and, thus, less responsive to assessment area needs.

In addition, as long as an institution has adequately addressed the community development needs of its assessment area(s), it will also receive consideration for community development activities that benefit geographies or individuals located somewhere within the broader statewide or regional area that includes the institution's assessment area(s), even if those activities do not benefit its assessment area(s).

§ __.12(h)-8: What is meant by the term “primary purpose” as that term is used to define what constitutes a community development loan, a qualified investment or a community development service?

A8. A loan, investment or service has as its primary purpose community development when it is designed for the express purpose of revitalizing or stabilizing low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas, providing affordable housing for, or community services targeted to, low- or moderate-income persons, or promoting economic development by financing small businesses and farms that meet the requirements set forth in 12 CFR __.12(g). To determine whether an activity is designed for an express community development purpose, the agencies apply one of two approaches. First, if a majority of the dollars or beneficiaries of the activity are identifiable to one or more of the enumerated community development purposes, then the activity will be considered to possess the requisite primary purpose. Alternatively, where the measurable portion of any benefit bestowed or dollars applied to the community development purpose is less than a majority of the entire activity's benefits or dollar value, then the activity may still be considered to possess the requisite primary purpose if (1) The express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; (2) the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed community development purpose; and (3) the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved. The fact that an activity provides indirect or short-term benefits to low- or moderate-income persons does not make the activity community development, nor does the mere presence of such indirect or short-term benefits constitute a primary purpose of community development. Financial institutions that want examiners to consider certain activities under either approach should be prepared to demonstrate the activities' qualifications.

§ __.12(i) Community Development Service

§ __.12(i)-1: In addition to meeting the definition of “community development” in the regulation, community development services must also be related to the provision of financial services. What is meant by “provision of financial services”?

A1. Providing financial services means providing services of the type generally provided by the financial services industry. Providing financial services often involves informing community members about how to get or use credit or otherwise providing credit services or information to the community. For example, service on the board of directors of an organization that promotes credit availability or finances affordable housing is related to the provision of financial services. Providing technical assistance about financial services to community-based groups, local or tribal government agencies, or intermediaries that help to meet the credit needs of low- and moderate-income individuals or small businesses and farms is also providing financial services. By contrast, activities that do not take advantage of the employees' financial expertise, such as neighborhood cleanups, do not involve the provision of financial services.

§ __.12(i)-2: Are personal charitable activities provided by an institution's employees or directors outside the ordinary course of their employment considered community development services?

A2. No. Services must be provided as a representative of the institution. For example, if a financial institution's director, on her own time and not as a representative of the institution, volunteers one evening a week at a local community development corporation's financial counseling program, the institution may not consider this activity a community development service.

§ __.12(i)-3: What are examples of community development services?

A3. Examples of community development services include, but are not limited to, the following:

• Providing financial services to low- and moderate-income individuals through branches and other facilities located in low- and moderate-income areas, unless the provision of such services has been considered in the evaluation of an institution's retail banking services under 12 CFR __.24(d);
• Increasing access to financial services by opening or maintaining branches or other facilities that help to revitalize or stabilize a low- or moderate-income geography, a designated disaster area, or a distressed or underserved nonmetropolitan middle-income geography, unless the opening or maintaining of such branches or other facilities has been considered in the evaluation of the institution's retail banking services under 12 CFR __.24(d);
• Providing technical assistance on financial matters to nonprofit, tribal, or government organizations serving low- and moderate-income housing or economic revitalization and development needs;
• Providing technical assistance on financial matters to small businesses or community development organizations, including organizations and individuals who apply for loans or grants under the Federal Home Loan Banks' Affordable Housing Program;
• Lending employees to provide financial services for organizations facilitating affordable housing construction and rehabilitation or development of affordable housing;
• Providing credit counseling, home-buyer and home-maintenance counseling, financial planning or other financial services education to promote community development and affordable housing, including credit counseling to assist low- or moderate-income borrowers in avoiding foreclosure on their homes;
• Establishing school savings programs or developing or teaching financial education or literacy curricula for low- or moderate-income individuals;
• Providing electronic benefits transfer and point of sale terminal systems to improve access to financial services, such as by decreasing costs, for low- or moderate-income individuals;
• Providing international remittance services that increase access to financial services by low- and moderate-income persons (for example, by offering reasonably priced international remittance services in connection with a low-cost account);
• Providing other financial services with the primary purpose of community development, such as low-cost savings or checking accounts, including “Electronic Transfer Accounts” provided pursuant to the Debt Collection Improvement Act of 1996, individual development accounts (IDAs), or free or low-cost government, payroll, or other check cashing services, that increase access to financial services for low- or moderate-income individuals; and
• Providing foreclosure prevention programs to low- or moderate-income homeowners who are facing foreclosure on their primary residence with the objective of providing affordable, sustainable, long-term loan modifications and restructurings.

Examples of technical assistance activities that might be provided to community development organizations include:

• Serving on a loan review committee;
• Developing loan application and underwriting standards;
• Developing loan processing systems;
• Developing secondary market vehicles or programs;
• Assisting in marketing financial services, including development of advertising and promotions, publications, workshops and conferences;
• Furnishing financial services training for staff and management;
• Contributing accounting/bookkeeping services; and
• Assisting in fund raising, including soliciting or arranging investments.

§ __.12(j) Consumer Loan

§ __.12(j)-1: Are home equity loans considered “consumer loans”?

A1. Home equity loans made for purposes other than home purchase, home improvement or refinancing home purchase or home improvement loans are consumer loans if they are extended to one or more individuals for household, family, or other personal expenditures.

§ __.12(j)-2: May a home equity line of credit be considered a “consumer loan” even if part of the line is for home improvement purposes?

A2. If the predominant purpose of the line is home improvement, the line may only be reported under HMDA and may not be considered a consumer loan. However, the full amount of the line may be considered a “consumer loan” if its predominant purpose is for household, family, or other personal expenditures, and to a lesser extent home improvement, and the full amount of the line has not been reported under HMDA. This is the case even though there may be “double counting” because part of the line may also have been reported under HMDA.

§ __.12(j)-3: How should an institution collect or report information on loans the proceeds of which will be used for multiple purposes?

A3. If an institution makes a single loan or provides a line of credit to a customer to be used for both consumer and small business purposes, consistent with the Call Report and TFR instructions, the institution should determine the major (predominant) component of the loan or the credit line and collect or report the entire loan or credit line in accordance with the regulation's specifications for that loan type.

§ __.12(l) Home Mortgage Loan

§ __.12(l)-1: Does the term “home mortgage loan” include loans other than “home purchase loans”?

A1. Yes. “Home mortgage loan” includes “home improvement loan,” “home purchase loan,” and “refinancing,” as defined in the HMDA regulation, Regulation C, 12 CFR part 203. This definition also includes multifamily (five-or-more families) dwelling loans, and loans for the purchase of manufactured homes. See also Q&A § __.22(a)(2)-7.

§ __.12(l)-2: Some financial institutions broker home mortgage loans. They typically take the borrower's application and perform other settlement activities; however, they do not make the credit decision. The broker institutions may also initially fund these mortgage loans, then immediately assign them to another lender. Because the broker institution does not make the credit decision, under Regulation C (HMDA), they do not record the loans on their HMDA-LARs, even if they fund the loans. May an institution receive any consideration under CRA for its home mortgage loan brokerage activities?

A2. Yes. A financial institution that funds home mortgage loans but immediately assigns the loans to the lender that made the credit decisions may present information about these loans to examiners for consideration under the lending test as “other loan data.” Under Regulation C, the broker institution does not record the loans on its HMDA-LAR because it does not make the credit decisions, even if it funds the loans. An institution electing to have these home mortgage loans considered must maintain information about all of the home mortgage loans that it has funded in this way. Examiners will consider these other loan data using the same criteria by which home mortgage loans originated or purchased by an institution are evaluated.

Institutions that do not provide funding but merely take applications and provide settlement services for another lender that makes the credit decisions will receive consideration for this service as a retail banking service. Examiners will consider an institution's mortgage brokerage services when evaluating the range of services provided to low-, moderate-, middle- and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies. Alternatively, an institution's mortgage brokerage service may be considered a community development service if the primary purpose of the service is community development. An institution wishing to have its mortgage brokerage service considered as a community development service must provide sufficient information to substantiate that its primary purpose is community development and to establish the extent of the services provided.

§ __.12(m) Income Level

§ __.12(m)-1: Where do institutions find income level data for geographies and individuals?

A1. The income levels for geographies, i.e., census tracts, are derived from Census Bureau information and are updated approximately every ten years. The income levels for individuals are derived from information calculated by the Department of Housing and Urban Development (HUD) and updated annually.

Institutions may obtain 2000 geography income information and the annually updated HUD median family incomes for metropolitan statistical areas (MSAs) and statewide nonmetropolitan areas by accessing the Federal Financial Institution Examination Council's (FFIEC's) Web site at http://www.ffiec.gov/​cra or by calling the FFIEC's CRA Assistance Line at [phone].

§ __.12(n) Limited Purpose Institution

§ __.12(n)-1: What constitutes a “narrow product line” in the definition of “limited purpose institution”?

A1. An institution offers a narrow product line by limiting its lending activities to a product line other than a traditional retail product line required to be evaluated under the lending test (i.e., home mortgage, small business, and small farm loans). Thus, an institution engaged only in making credit card or motor vehicle loans offers a narrow product line, while an institution limiting its lending activities to home mortgages is not offering a narrow product line.

§ __.12(n)-2: What factors will the agencies consider to determine whether an institution that, if limited purpose, makes loans outside a narrow product line, or, if wholesale, engages in retail lending, will lose its limited purpose or wholesale designation because of too much other lending?

A2. Wholesale institutions may engage in some retail lending without losing their designation if this activity is incidental and done on an accommodation basis. Similarly, limited purpose institutions continue to meet the narrow product line requirement if they provide other types of loans on an infrequent basis. In reviewing other lending activities by these institutions, the agencies will consider the following factors:

• Is the retail lending provided as an incident to the institution's wholesale lending?
• Are the retail loans provided as an accommodation to the institution's wholesale customers?
• Are the other types of loans made only infrequently to the limited purpose institution's customers?
• Does only an insignificant portion of the institution's total assets and income result from the other lending?
• How significant a role does the institution play in providing that type(s) of loan(s) in the institution's assessment area(s)?
• Does the institution hold itself out as offering that type(s) of loan(s)?
• Does the lending test or the community development test present a more accurate picture of the institution's CRA performance?

§ __.12(n)-3: Do “niche institutions” qualify as limited purpose (or wholesale) institutions?

A3. Generally, no. Institutions that are in the business of lending to the public, but specialize in certain types of retail loans (for example, home mortgage or small business loans) to certain types of borrowers (for example, to high-end income level customers or to corporations or partnerships of licensed professional practitioners) (“niche institutions”) generally would not qualify as limited purpose (or wholesale) institutions.

§ __.12(t) Qualified Investment

§ __.12(t)-1: Does the CRA regulation provide authority for institutions to make investments?

A1. No. The CRA regulation does not provide authority for institutions to make investments that are not otherwise allowed by Federal law.

§ __.12(t)-2: Are mortgage-backed securities or municipal bonds “qualified investments”?

A2. As a general rule, mortgage-backed securities and municipal bonds are not qualified investments because they do not have as their primary purpose community development, as defined in the CRA regulations. Nonetheless, mortgage-backed securities or municipal bonds designed primarily to finance community development generally are qualified investments. Municipal bonds or other securities with a primary purpose of community development need not be housing-related. For example, a bond to fund a community facility or park or to provide sewage services as part of a plan to redevelop a low-income neighborhood is a qualified investment. Certain municipal bonds in underserved nonmetropolitan middle-income geographies may also be qualified investments. See Q&A § __.12(g)(4)(iii)-4. Housing-related bonds or securities must primarily address affordable housing (including multifamily rental housing) needs of low- or moderate-income individuals in order to qualify. See also Q&A § __.23(b)-2.

§ __.12(t)-3: Are Federal Home Loan Bank stocks or unpaid dividends and membership reserves with the Federal Reserve Banks “qualified investments”?

A3. No. Federal Home Loan Bank (FHLB) stocks or unpaid dividends, and membership reserves with the Federal Reserve Banks do not have a sufficient connection to community development to be qualified investments. However, FHLB member institutions may receive CRA consideration as a community development service for technical assistance they provide on behalf of applicants and recipients of funding from the FHLB's Affordable Housing Program. See Q&A § __.12(i)-3.

§ __.12(t)-4: What are examples of qualified investments?

A4. Examples of qualified investments include, but are not limited to, investments, grants, deposits, or shares in or to:

• Financial intermediaries (including Community Development Financial Institutions (CDFIs), New Markets Tax Credit-eligible Community Development Entities, Community Development Corporations (CDCs), minority- and women-owned financial institutions, community loan funds, and low-income or community development credit unions) that primarily lend or facilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development, such as a CDFI that promotes economic development on an Indian reservation;
• Organizations engaged in affordable housing rehabilitation and construction, including multifamily rental housing;
• Organizations, including, for example, Small Business Investment Companies (SBICs), specialized SBICs, and Rural Business Investment Companies (RBICs) that promote economic development by financing small businesses;
• Community development venture capital companies that promote economic development by financing small businesses;
• Facilities that promote community development by providing community services for low- and moderate-income individuals, such as youth programs, homeless centers, soup kitchens, health care facilities, battered women's centers, and alcohol and drug recovery centers;
• Projects eligible for low-income housing tax credits;
• State and municipal obligations, such as revenue bonds, that specifically support affordable housing or other community development;
• Not-for-profit organizations serving low- and moderate-income housing or other community development needs, such as counseling for credit, home-ownership, home maintenance, and other financial literacy programs; and
• Organizations supporting activities essential to the capacity of low- and moderate-income individuals or geographies to utilize credit or to sustain economic development, such as, for example, day care operations and job training programs that enable low- or moderate-income individuals to work.

See also Q&As § __.12(g)(4)(ii)-2; § __.12(g)(4)(iii)-3; § __.12(g)(4)(iii)-4.

§ __.12(t)-5: Will an institution receive consideration for charitable contributions as “qualified investments”?

A5. Yes, provided they have as their primary purpose community development as defined in the regulations. A charitable contribution, whether in cash or an in-kind contribution of property, is included in the term “grant.” A qualified investment is not disqualified because an institution receives favorable treatment for it (for example, as a tax deduction or credit) under the Internal Revenue Code.

§ __.12(t)-6: An institution makes or participates in a community development loan. The institution provided the loan at below-market interest rates or “bought down” the interest rate to the borrower. Is the lost income resulting from the lower interest rate or buy-down a qualified investment?

A6. No. The agencies will, however, consider the responsiveness, innovativeness, and complexity of the community development loan within the bounds of safe and sound banking practices.

§ __.12(t)-7: Will the agencies consider as a qualified investment the wages or other compensation of an employee or director who provides assistance to a community development organization on behalf of the institution?

A7. No. However, the agencies will consider donated labor of employees or directors of a financial institution as a community development service if the activity meets the regulatory definition of “community development service.”

§ __.12(t)-8: When evaluating a qualified investment, what consideration will be given for prior-period investments?

A8. When evaluating an institution's qualified investment record, examiners will consider investments that were made prior to the current examination, but that are still outstanding. Qualitative factors will affect the weighting given to both current period and outstanding prior-period qualified investments. For example, a prior-period outstanding investment with a multi-year impact that addresses assessment area community development needs may receive more consideration than a current period investment of a comparable amount that is less responsive to area community development needs.

§ __.12(u) Small Institution

§ __.12(u)-1: How are Federal and State branch assets of a foreign bank calculated for purposes of the CRA?

A1. A Federal or State branch of a foreign bank is considered a small institution if the Federal or State branch has assets less than the asset threshold delineated in 12 CFR __.12(u)(1) for small institutions.

§ __.12(u)(2) Small Institution Adjustment

§ __.12(u)(2)-1: How often will the asset size thresholds for small institutions and intermediate small institutions be changed, and how will these adjustments be communicated?

A1. The asset size thresholds for “small institutions” and “intermediate small institutions” will be adjusted annually based on changes to the Consumer Price Index. More specifically, the dollar thresholds will be adjusted annually based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted for each twelve-month period ending in November, with rounding to the nearest million. Any changes in the asset size thresholds will be published in the Federal Register. Historical and current asset-size threshold information may be found on the FFIEC's Web site at http://www.ffiec.gov/​cra.

§ .12(v) Small Business Loan

§ .12(v)-1: Are loans to nonprofit organizations considered small business loans or are they considered community development loans?

A1. To be considered a small business loan, a loan must meet the definition of “loan to small business” in the instructions in the “Consolidated Reports of Conditions and Income” (Call Report) and “Thrift Financial Report” (TFR). In general, a loan to a nonprofit organization, for business or farm purposes, where the loan is secured by nonfarm nonresidential property and the original amount of the loan is $1 million or less, if a business loan, or $500,000 or less, if a farm loan, would be reported in the Call Report and TFR as a small business or small farm loan. If a loan to a nonprofit organization is reportable as a small business or small farm loan, it cannot also be considered as a community development loan, except by a wholesale or limited purpose institution. Loans to nonprofit organizations that are not small business or small farm loans for Call Report and TFR purposes may be considered as community development loans if they meet the regulatory definition of “community development.”

§ .12(v)-2: Are loans secured by commercial real estate considered small business loans?

A2. Yes, depending on their principal amount. Small business loans include loans secured by “nonfarm nonresidential properties,” as defined in the Call Report and TFR, in amounts of $1 million or less.

§ .12(v)-3: Are loans secured by nonfarm residential real estate to finance small businesses “small business loans”?

A3. Applicable to banks filing Call Reports: Typically not. Loans secured by nonfarm residential real estate that are used to finance small businesses are not included as “small business” loans for Call Report purposes unless the security interest in the nonfarm residential real estate is taken only as an abundance of caution. (See Call Report Glossary definition of “Loan Secured by Real Estate.”) The agencies recognize that many small businesses are financed by loans that would not have been made or would have been made on less favorable terms had they not been secured by residential real estate. If these loans promote community development, as defined in the regulation, they may be considered as community development loans. Otherwise, at an institution's option, the institution may collect and maintain data separately concerning these loans and request that the data be considered in its CRA evaluation as “Other Secured Lines/Loans for Purposes of Small Business.” See also Q&A § __.22(a)(2)-7.

Applicable to institutions that file TFRs: Possibly, depending how the loan is classified for TFR purposes. Loans secured by nonfarm residential real estate to finance small businesses may be included as small business loans only if they are reported on the TFR as nonmortgage, commercial loans. (See TFR Q&A No. 62.) Otherwise, loans that meet the definition of mortgage loans, for TFR reporting purposes, may be classified as mortgage loans.

§ .12(v)-4: Are credit cards issued to small businesses considered “small business loans”?

A4. Credit cards issued to a small business or to individuals to be used, with the institution's knowledge, as business accounts are small business loans if they meet the definitional requirements in the Call Report or TFR instructions.

§ __.12(x) Wholesale Institution

§ __.12(x)-1: What factors will the agencies consider in determining whether an institution is in the business of extending home mortgage, small business, small farm, or consumer loans to retail customers?

A1. The agencies will consider whether:

• The institution holds itself out to the retail public as providing such loans; and
• The institution's revenues from extending such loans are significant when compared to its overall operations, including off-balance sheet activities.

A wholesale institution may make some retail loans without losing its wholesale designation as described above in Q&A § __.12(n)-2.

§ __.21—Performance Tests, Standards, and Ratings, in General

§ __.21(a) Performance Tests and Standards

§ __.21(a)-1: How will examiners apply the performance criteria?

A1. Examiners will apply the performance criteria reasonably and fairly, in accord with the regulations, the examination procedures, and this guidance. In doing so, examiners will disregard efforts by an institution to manipulate business operations or present information in an artificial light that does not accurately reflect an institution's overall record of lending performance.

§ __.21(a)-2: Are all community development activities weighted equally by examiners?

A2. No. Examiners will consider the responsiveness to credit and community development needs, as well as the innovativeness and complexity, if applicable, of an institution's community development lending, qualified investments, and community development services. These criteria include consideration of the degree to which they serve as a catalyst for other community development activities. The criteria are designed to add a qualitative element to the evaluation of an institution's performance. (“Innovativeness” and “complexity” are not factors in the community development test applicable to intermediate small institutions.)

§ __.21(b) Performance Context

§ __.21(b)-1: What is the performance context?

A1. The performance context is a broad range of economic, demographic, and institution- and community-specific information that an examiner reviews to understand the context in which an institution's record of performance should be evaluated. The agencies will provide examiners with some of this information. The performance context is not a formal assessment of community credit needs.

§ __.21(b)(2) Information Maintained by the Institution or Obtained From Community Contacts

§ __.21(b)(2)-1: Will examiners consider performance context information provided by institutions?

A1. Yes. An institution may provide examiners with any information it deems relevant, including information on the lending, investment, and service opportunities in its assessment area(s). This information may include data on the business opportunities addressed by lenders not subject to the CRA. Institutions are not required, however, to prepare a formal needs assessment. If an institution provides information to examiners, the agencies will not expect information other than what the institution normally would develop to prepare a business plan or to identify potential markets and customers, including low- and moderate-income persons and geographies in its assessment area(s). The agencies will not evaluate an institution's efforts to ascertain community credit needs or rate an institution on the quality of any information it provides.

§ __.21(b)(2)-2: Will examiners conduct community contact interviews as part of the examination process?

A2. Yes. Examiners will consider information obtained from interviews with local community, civic, and government leaders. These interviews provide examiners with knowledge regarding the local community, its economic base, and community development initiatives. To ensure that information from local leaders is considered—particularly in areas where the number of potential contacts may be limited—examiners may use information obtained through an interview with a single community contact for examinations of more than one institution in a given market. In addition, the agencies may consider information obtained from interviews conducted by other agency staff and by the other agencies. In order to augment contacts previously used by the agencies and foster a wider array of contacts, the agencies may share community contact information.

§ __.21(b)(4) Institutional Capacity and Constraints

§ __.21(b)(4)-1: Will examiners consider factors outside of an institution's control that prevent it from engaging in certain activities?

A1. Yes. Examiners will take into account statutory and supervisory limitations on an institution's ability to engage in any lending, investment, and service activities. For example, a savings association that has made few or no qualified investments due to its limited investment authority may still receive a low satisfactory rating under the investment test if it has a strong lending record.

§ __.21(b)(5) Institution's Past Performance and the Performance of Similarly Situated Lenders

§ __.21(b)(5)-1: Can an institution's assigned rating be adversely affected by poor past performance?

A1. Yes. The agencies will consider an institution's past performance in its overall evaluation. For example, an institution that received a rating of “needs to improve” in the past may receive a rating of “substantial noncompliance” if its performance has not improved.

§ __.21(b)(5)—2: How will examiners consider the performance of similarly situated lenders?

A2. The performance context section of the regulation permits the performance of similarly situated lenders to be considered, for example, as one of a number of considerations in evaluating the geographic distribution of an institution's loans to low-, moderate-, middle-, and upper-income geographies. This analysis, as well as other analyses, may be used, for example, where groups of contiguous geographies within an institution's assessment area(s) exhibit abnormally low penetration. In this regard, the performance of similarly situated lenders may be analyzed if such an analysis would provide accurate insight into the institution's lack of performance in those areas. The regulation does not require the use of a specific type of analysis under these circumstances. Moreover, no ratio developed from any type of analysis is linked to any lending test rating.

§ __.22—Lending Test

§ __.22(a) Scope of Test

§ __.22(a)-1: Are there any types of lending activities that help meet the credit needs of an institution's assessment area(s) and that may warrant favorable consideration as activities that are responsive to the needs of the institution's assessment area(s)?

A1. Credit needs vary from community to community. However, there are some lending activities that are likely to be responsive in helping to meet the credit needs of many communities. These activities include:

• Providing loan programs that include a financial education component about how to avoid lending activities that may be abusive or otherwise unsuitable;
• Establishing loan programs that provide small, unsecured consumer loans in a safe and sound manner (i.e., based on the borrower's ability to repay) and with reasonable terms;
• Offering lending programs, which feature reporting to consumer reporting agencies, that transition borrowers from loans with higher interest rates and fees (based on credit risk) to lower-cost loans, consistent with safe and sound lending practices. Reporting to consumer reporting agencies allows borrowers accessing these programs the opportunity to improve their credit histories and thereby improve their access to competitive credit products;
• Establishing loan programs with the objective of providing affordable, sustainable, long-term relief, for example, through loan refinancings, restructures, or modifications, to homeowners who are facing foreclosure on their primary residences.

Examiners may consider favorably such lending activities, which have features augmenting the success and effectiveness of the small, intermediate small, or large institution's lending programs.

§ __.22(a)(1) Types of Loans Considered

§ __.22(a)(1)-1: If a large retail institution is not required to collect and report home mortgage data under the HMDA, will the agencies still evaluate the institution's home mortgage lending performance?

A1. Yes. The agencies will sample the institution's home mortgage loan files in order to assess its performance under the lending test criteria.

§ __.22(a)(1)-2: When will examiners consider consumer loans as part of an institution's CRA evaluation?

A2. Consumer loans will be evaluated if the institution so elects and has collected and maintained the data; an institution that elects not to have its consumer loans evaluated will not be viewed less favorably by examiners than one that does. However, if consumer loans constitute a substantial majority of the institution's business, the agencies will evaluate them even if the institution does not so elect. The agencies interpret “substantial majority” to be so significant a portion of the institution's lending activity by number and dollar volume of loans that the lending test evaluation would not meaningfully reflect its lending performance if consumer loans were excluded.

§ __.22(a)(2) Loan Originations and Purchases/Other Loan Data

§ __.22(a)(2)-1: How are lending commitments (such as letters of credit) evaluated under the regulation?

A1. The agencies consider lending commitments (such as letters of credit) only at the option of the institution, regardless of examination type. Commitments must be legally binding between an institution and a borrower in order to be considered. Information about lending commitments will be used by examiners to enhance their understanding of an institution's performance, but will be evaluated separately from the loans.

§ __.22(a)(2)-2: Will examiners review application data as part of the lending test?

A2. Application activity is not a performance criterion of the lending test. However, examiners may consider this information in the performance context analysis because this information may give examiners insight on, for example, the demand for loans.

§ __.22(a)(2)-3: May a financial institution receive consideration under CRA for home mortgage loan modification, extension, and consolidation agreements (MECAs), in which it obtains home mortgage loans from other institutions without actually purchasing or refinancing the home mortgage loans, as those terms have been interpreted under CRA and HMDA, as implemented by 12 CFR part 203?

A3. Yes. In some states, MECAs, which are not considered loan refinancings because the existing loan obligations are not satisfied and replaced, are common. Although these transactions are not considered to be purchases or refinancings, as those terms have been interpreted under CRA, they do achieve the same results. A small, intermediate small, or large institution may present information about its MECA activities with respect to home mortgages to examiners for consideration under the lending test as “other loan data.”

§ __.22(a)(2)-4: In addition to MECAs, what are other examples of “other loan data”?

A4. Other loan data include, for example:

• Loans funded for sale to the secondary markets that an institution has not reported under HMDA;
• Unfunded loan commitments and letters of credit;
• Commercial and consumer leases;
• Loans secured by nonfarm residential real estate, not taken as an abundance of caution, that are used to finance small businesses or small farms and that are not reported as small business/small farm loans or reported under HMDA;
• Loans that do not have a primary purpose of community development, but where a certain amount or percentage of units is set aside for affordable housing; and
• An increase to a small business or small farm line of credit if the increase would cause the total line of credit to exceed $1 million, in the case of a small business line, or $500,000, in the case of a small farm line.

§ __.22(a)(2)-5: Do institutions receive consideration for originating or purchasing loans that are fully guaranteed?

A5. Yes. For all examination types, examiners evaluate an institution's record of helping to meet the credit needs of its assessment area(s) through the origination or purchase of specified types of loans. Examiners do not take into account whether or not such loans are guaranteed.

§ __.22(a)(2)-6: Do institutions receive consideration for purchasing loan participations?

A6. Yes. Examiners will consider the amount of loan participations purchased when evaluating an institution's record of helping to meet the credit needs of its assessment area(s) through the origination or purchase of specified types of loans, regardless of examination type. As with other loan purchases, examiners will evaluate whether participations in loan purchased, which have been sold and purchased a number of times, artificially inflate CRA performance. See, e.g., § __.21(a)-1.

§ __.22(a)(2)-7: How are refinancings of small business loans, which are secured by a one-to-four family residence and that have been reported under HMDA as a refinancing, evaluated under CRA?

A7. For banks subject to the Call Report instructions: A loan of $1 million or less with a business purpose that is secured by a one-to-four family residence is considered a small business loan for CRA purposes only if the security interest in the residential property was taken as an abundance of caution and where the terms have not been made more favorable than they would have been in the absence of the lien. (See Call Report Glossary definition of “Loan Secured by Real Estate.”) If this same loan is refinanced and the new loan is also secured by a one-to-four family residence, but only through an abundance of caution, this loan is reported not only as a refinancing under HMDA, but also as a small business loan under CRA. (Note that small farm loans are similarly treated.)

It is not anticipated that “double-reported” loans will be so numerous as to affect the typical institution's CRA rating. In the event that an institution reports a significant number or amount of loans as both home mortgage and small business loans, examiners will consider that overlap in evaluating the institution's performance and generally will consider the “double-reported” loans as small business loans for CRA consideration.

The origination of a small business or small farm loan that is secured by a one-to-four family residence is not reportable under HMDA, unless the purpose of the loan is home purchase or home improvement. Nor is the loan reported as a small business or small farm loan if the security interest is not taken merely as an abundance of caution. Any such loan may be provided to examiners as “other loan data” (“Other Secured Lines/Loans for Purposes of Small Business”) for consideration during a CRA evaluation. See Q&A § __.12(v)-3. The refinancings of such loans would be reported under HMDA.

For savings associations subject to the Thrift Financial Reporting instructions: A loan of $1 million or less with a business purpose secured by a one-to-four family residence is considered a small business loan for CRA purposes if it is reported as a small business loan for TFR purposes and was not reported on the TFR as a mortgage loan (TFR Instructions for Commercial Loans: Secured). If this same loan is refinanced and the new loan is also secured by a one-to-four family residence, and was not reported for TFR purposes as a mortgage loan, this loan is reported not only as a refinancing for HMDA, but is also reported as a small business loan under the TFR and CRA. The origination of a small business or small farm loan that is secured by a one-to-four family residence is not reportable under HMDA, unless the purpose of the loan is home purchase or home improvement. Nor is the loan reported as small business or small farm if it was reported as a mortgage on the TFR report.

OTS does not anticipate that “double-reported” loans will be so numerous as to affect the typical institution's CRA rating. In the event that an institution reports a significant number or amount of loans as both home mortgage and small business loans, examiners will consider that overlap in evaluating the institution's performance and generally will consider the “double-reported” loans as small business loans for CRA consideration.

The origination of a small business or small farm loan that is secured by a one-to-four family residence should be reported in accordance with Q&A § __.12(v)-3. The refinancings of such loans would be reported under HMDA.

§ __.22(b) Performance Criteria

§ __.22(b)(1) Lending Activity

§ __.22(b)(1)-1: How will the agencies apply the lending activity criterion to discourage an institution from originating loans that are viewed favorably under CRA in the institution itself and referring other loans, which are not viewed as favorably, for origination by an affiliate?

A1. Examiners will review closely institutions with (1) a small number and amount of home mortgage loans with an unusually good distribution among low- and moderate-income areas and low- and moderate-income borrowers and (2) a policy of referring most, but not all, of their home mortgage loans to affiliated institutions. If an institution is making loans mostly to low- and moderate-income individuals and areas and referring the rest of the loan applicants to an affiliate for the purpose of receiving a favorable CRA rating, examiners may conclude that the institution's lending activity is not satisfactory because it has inappropriately attempted to influence the rating. In evaluating an institution's lending, examiners will consider legitimate business reasons for the allocation of the lending activity.

§ __.22(b)(2) & (3) Geographic Distribution and Borrower Characteristics

§ __.22(b)(2) & (3)-1: How do the geographic distribution of loans and the distribution of lending by borrower characteristics interact in the lending test applicable to either large or small institutions?

A1. Examiners generally will consider both the distribution of an institution's loans among geographies of different income levels, and among borrowers of different income levels and businesses and farms of different sizes. The importance of the borrower distribution criterion, particularly in relation to the geographic distribution criterion, will depend on the performance context. For example, distribution among borrowers with different income levels may be more important in areas without identifiable geographies of different income categories. On the other hand, geographic distribution may be more important in areas with the full range of geographies of different income categories.

§ __.22(b)(2) & (3)-2: Must an institution lend to all portions of its assessment area?

A2. The term “assessment area” describes the geographic area within which the agencies assess how well an institution, regardless of examination type, has met the specific performance tests and standards in the rule. The agencies do not expect that simply because a census tract is within an institution's assessment area(s), the institution must lend to that census tract. Rather the agencies will be concerned with conspicuous gaps in loan distribution that are not explained by the performance context. Similarly, if an institution delineated the entire county in which it is located as its assessment area, but could have delineated its assessment area as only a portion of the county, it will not be penalized for lending only in that portion of the county, so long as that portion does not reflect illegal discrimination or arbitrarily exclude low- or moderate-income geographies. The capacity and constraints of an institution, its business decisions about how it can best help to meet the needs of its assessment area(s), including those of low- and moderate-income neighborhoods, and other aspects of the performance context, are all relevant to explain why the institution is serving or not serving portions of its assessment area(s).

§ __.22(b)(2) & (3)-3: Will examiners take into account loans made by affiliates when evaluating the proportion of an institution's lending in its assessment area(s)?

A3. Examiners will not take into account loans made by affiliates when determining the proportion of an institution's lending in its assessment area(s), even if the institution elects to have its affiliate lending considered in the remainder of the lending test evaluation. However, examiners may consider an institution's business strategy of conducting lending through an affiliate in order to determine whether a low proportion of lending in the assessment area(s) should adversely affect the institution's lending test rating.

§ __.22(b)(2) & (3)-4: When will examiners consider loans (other than community development loans) made outside an institution's assessment area(s)?

A4. Consideration will be given for loans to low- and moderate-income persons and small business and farm loans outside of an institution's assessment area(s), provided the institution has adequately addressed the needs of borrowers within its assessment area(s). The agencies will apply this consideration not only to loans made by large retail institutions being evaluated under the lending test, but also to loans made by small and intermediate small institutions being evaluated under their respective performance standards. Loans to low- and moderate-income persons and small businesses and farms outside of an institution's assessment area(s), however, will not compensate for poor lending performance within the institution's assessment area(s).

§ __.22(b)(2) & (3)-5: Under the lending test applicable to small, intermediate small, or large institutions, how will examiners evaluate home mortgage loans to middle- or upper-income individuals in a low- or moderate-income geography?

A5. Examiners will consider these home mortgage loans under the performance criteria of the lending test, i.e., by number and amount of home mortgage loans, whether they are inside or outside the financial institution's assessment area(s), their geographic distribution, and the income levels of the borrowers. Examiners will use information regarding the financial institution's performance context to determine how to evaluate the loans under these performance criteria. Depending on the performance context, examiners could view home mortgage loans to middle-income individuals in a low-income geography very differently. For example, if the loans are for homes or multifamily housing located in an area for which the local, state, tribal, or Federal government or a community-based development organization has developed a revitalization or stabilization plan (such as a Federal enterprise community or empowerment zone) that includes attracting mixed-income residents to establish a stabilized, economically diverse neighborhood, examiners may give more consideration to such loans, which may be viewed as serving the low- or moderate-income community's needs as well as serving those of the middle- or upper-income borrowers. If, on the other hand, no such plan exists and there is no other evidence of governmental support for a revitalization or stabilization project in the area and the loans to middle- or upper-income borrowers significantly disadvantage or primarily have the effect of displacing low- or moderate-income residents, examiners may view these loans simply as home mortgage loans to middle- or upper-income borrowers who happen to reside in a low- or moderate-income geography and weigh them accordingly in their evaluation of the institution.

§ __.22(b)(4) Community Development Lending

§ __.22(b)(4)-1: When evaluating an institution's record of community development lending under the lending test applicable to large institutions, may an examiner distinguish among community development loans on the basis of the actual amount of the loan that advances the community development purpose?

A1. Yes. When evaluating the institution's record of community development lending under 12 CFR __.22(b)(4), it is appropriate to give greater weight to the amount of the loan that is targeted to the intended community development purpose. For example, consider two $10 million projects (with a total of 100 units each) that have as their express primary purpose affordable housing and are located in the same community. One of these projects sets aside 40 percent of its units for low-income residents and the other project allocates 65 percent of its units for low-income residents. An institution would report both loans as $10 million community development loans under the 12 CFR __.42(b)(2) aggregate reporting obligation. However, transaction complexity, innovation and all other relevant considerations being equal, an examiner should also take into account that the 65 percent project provides more affordable housing for more people per dollar expended.

Under 12 CFR __.22(b)(4), the extent of CRA consideration an institution receives for its community development loans should bear a direct relation to the benefits received by the community and the innovation or complexity of the loans required to accomplish the activity, not simply to the dollar amount expended on a particular transaction. By applying all lending test performance criteria, a community development loan of a lower dollar amount could meet the credit needs of the institution's community to a greater extent than a community development loan with a higher dollar amount, but with less innovation, complexity, or impact on the community.

§ __.22(b)(5) Innovative or Flexible Lending Practices

§ __.22(b)(5)-1: What is the range of practices that examiners may consider in evaluating the innovativeness or flexibility of an institution's lending under the lending test applicable to large institutions?

A1. In evaluating the innovativeness or flexibility of an institution's lending practices (and the complexity and innovativeness of its community development lending), examiners will not be limited to reviewing the overall variety and specific terms and conditions of the credit products themselves. In connection with the evaluation of an institution's lending, examiners also may give consideration to related innovations when they augment the success and effectiveness of the institution's lending under its community development loan programs or, more generally, its lending under its loan programs that address the credit needs of low- and moderate-income geographies or individuals. For example:

• In connection with a community development loan program, an institution may establish a technical assistance program under which the institution, directly or through third parties, provides affordable housing developers and other loan recipients with financial consulting services. Such a technical assistance program may, by itself, constitute a community development service eligible for consideration under the service test of the CRA regulations. In addition, the technical assistance may be favorably considered as an innovation that augments the success and effectiveness of the related community development loan program.
• In connection with a small business lending program in a low- or moderate-income area and consistent with safe and sound lending practices, an institution may implement a program under which, in addition to providing financing, the institution also contracts with the small business borrowers. Such a contracting arrangement would not, standing alone, qualify for CRA consideration. However, it may be favorably considered as an innovation that augments the loan program's success and effectiveness, and improves the program's ability to serve community development purposes by helping to promote economic development through support of small business activities and revitalization or stabilization of low- or moderate-income geographies.

§ __.22(c) Affiliate Lending

§ __.22(c)(1) In General

§ __.22(c)(1)-1: If an institution, regardless of examination type, elects to have loans by its affiliate(s) considered, may it elect to have only certain categories of loans considered?

A1. Yes. An institution may elect to have only a particular category of its affiliate's lending considered. The basic categories of loans are home mortgage loans, small business loans, small farm loans, community development loans, and the five categories of consumer loans (motor vehicle loans, credit card loans, home equity loans, other secured loans, and other unsecured loans).

§ __.22(c)(2) Constraints on Affiliate Lending

§ __.22(c)(2)(i) No Affiliate May Claim a Loan Origination or Loan Purchase if Another Institution Claims the Same Loan Origination or Purchase

§ __.22(c)(2)(i)-1: Regardless of examination type, how is this constraint on affiliate lending applied?

A1. This constraint prohibits one affiliate from claiming a loan origination or purchase claimed by another affiliate. However, an institution can count as a purchase a loan originated by an affiliate that the institution subsequently purchases, or count as an origination a loan later sold to an affiliate, provided the same loans are not sold several times to inflate their value for CRA purposes. For example, assume that two institutions are affiliated. Bank A originates a loan and claims it as a loan origination. Bank B later purchases the loan. Bank B may count the loan as a purchased loan.

The same institution may not count both the origination and purchase. Thus, for example, if an institution claims loans made by an affiliated mortgage company as loan originations, the institution may not also count the loans as purchased loans if it later purchases the loans from its affiliate. See also Q&As § __.22(c)(2)(ii)-1 and § __.22(c)(2)(ii)-2.

§ __.22(c)(2)(ii) If an Institution Elects To Have Its Supervisory Agency Consider Loans Within a Particular Lending Category Made by One or More of the Institution's Affiliates in a Particular Assessment Area, the Institution Shall Elect To Have the Agency Consider All Loans Within That Lending Category in That Particular Assessment Area Made by All of the Institution's Affiliates

§ __.22(c)(2)(ii)-1: Regardless of examination type, how is this constraint on affiliate lending applied?

A1. This constraint prohibits “cherry-picking” affiliate loans within any one category of loans. The constraint requires an institution that elects to have a particular category of affiliate lending in a particular assessment area considered to include all loans of that type made by all of its affiliates in that particular assessment area. For example, assume that an institution has several affiliates, including a mortgage company that makes loans in the institution's assessment area. If the institution elects to include the mortgage company's home mortgage loans, it must include all of its affiliates' home mortgage loans made in its assessment area. In addition, the institution cannot elect to include only those low- and moderate-income home mortgage loans made by its affiliates and not home mortgage loans to middle- and upper-income individuals or areas.

§ __.22(c)(2)(ii)-2: Regardless of examination type, how is this constraint applied if an institution's affiliates are also insured depository institutions subject to the CRA?

A2. Strict application of this constraint against “cherry-picking” to loans of an affiliate that is also an insured depository institution covered by the CRA would produce the anomalous result that the other institution would, without its consent, not be able to count its own loans. Because the agencies did not intend to deprive an institution subject to the CRA of receiving consideration for its own lending, the agencies read this constraint slightly differently in cases involving a group of affiliated institutions, some of which are subject to the CRA and share the same assessment area(s). In those circumstances, an institution that elects to include all of its mortgage affiliate's home mortgage loans in its assessment area would not automatically be required to include all home mortgage loans in its assessment area of another affiliate institution subject to the CRA. However, all loans of a particular type made by any affiliate in the institution's assessment area(s) must either be counted by the lending institution or by another affiliate institution that is subject to the CRA. This reading reflects the fact that a holding company may, for business reasons, choose to transact different aspects of its business in different subsidiary institutions. However, the method by which loans are allocated among the institutions for CRA purposes must reflect actual business decisions about the allocation of banking activities among the institutions and should not be designed solely to enhance their CRA evaluations.

§ __.22(d) Lending by a Consortium or a Third Party

§ __.22(d)-1: Will equity and equity-type investments in a third party receive consideration under the lending test?

A1. If an institution has made an equity or equity-type investment in a third party, community development loans made by the third party may be considered under the lending test. On the other hand, asset-backed and debt securities that do not represent an equity-type interest in a third party will not be considered under the lending test unless the securities are booked by the purchasing institution as a loan. For example, if an institution purchases stock in a community development corporation (“CDC”) that primarily lends in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development, the institution may claim a pro rata share of the CDC's loans as community development loans. The institution's pro rata share is based on its percentage of equity ownership in the CDC. Q&A § __.23(b)-1 provides information concerning consideration of an equity or equity-type investment under the investment test and both the lending and investment tests. (Note that in connection with an intermediate small institution's CRA performance evaluation, community development loans, including pro-rata shares of community development loans, are considered only in the community development test.)

§ __.22(d)-2: Regardless of examination type, how will examiners evaluate loans made by consortia or third parties?

A2. Loans originated or purchased by consortia in which an institution participates or by third parties in which an institution invests will be considered only if they qualify as community development loans and will be considered only under the community development criterion. However, loans originated directly on the books of an institution or purchased by the institution are considered to have been made or purchased directly by the institution, even if the institution originated or purchased the loans as a result of its participation in a loan consortium. These loans would be considered under the lending test or community development test criteria appropriate to them depending on the type of loan and type of examination.

§ __.22(d)-3: In some circumstances, an institution may invest in a third party, such as a community development bank, that is also an insured depository institution and is thus subject to CRA requirements. If the investing institution requests its supervisory agency to consider its pro rata share of community development loans made by the third party, as allowed under 12 CFR __.22(d), may the third party also receive consideration for these loans?

A3. Yes, regardless of examination type, as long as the financial institution and the third party are not affiliates. The regulations state, at 12 CFR __.22(c)(2)(i), that two affiliates may not both claim the same loan origination or loan purchase. However, if the financial institution and the third party are not affiliates, the third party may receive consideration for the community development loans it originates, and the financial institution that invested in the third party may also receive consideration for its pro rata share of the same community development loans under 12 CFR __.22(d).

§ __.23—Investment Test

§ __.23(a) Scope of Test

§ __.23(a)-1: May an institution, regardless of examination type, receive consideration under the CRA regulations if it invests indirectly through a fund, the purpose of which is community development, as that is defined in the CRA regulations?

A1. Yes, the direct or indirect nature of the qualified investment does not affect whether an institution will receive consideration under the CRA regulations because the regulations do not distinguish between “direct” and “indirect” investments. Thus, an institution's investment in an equity fund that, in turn, invests in projects that, for example, provide affordable housing to low- and moderate-income individuals, would receive consideration as a qualified investment under the CRA regulations, provided the investment benefits one or more of the institution's assessment area(s) or a broader statewide or regional area(s) that includes one or more of the institution's assessment area(s). Similarly, an institution may receive consideration for a direct qualified investment in a nonprofit organization that, for example, supports affordable housing for low- and moderate-income individuals in the institution's assessment area(s) or a broader statewide or regional area(s) that includes the institution's assessment area(s).

§ __.23(a)-2: In order to receive CRA consideration, what information may an institution provide that would demonstrate that an investment in a nationwide fund with a primary purpose of community development will directly or indirectly benefit one or more of the institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s)?

A2. There are several ways to demonstrate that the institution's investment in a nationwide fund meets the geographic requirements, and the agencies will employ appropriate flexibility in this regard in reviewing information the institution provides that reasonably supports this determination.

As an initial matter, in making this determination, the agencies would consider whether the purpose, mandate, or function of the fund includes serving geographies or individuals located within the institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s). Typically, information about where a fund's investments are expected to be made or targeted will be found in the fund's prospectus, or other documents provided by the fund prior to or at the time of the institution's investment, and the institution, at its option, may provide such documentation in connection with its CRA evaluation. At the institution's option, written documentation provided by fund managers in connection with the institution's investment indicating that the fund will use its best efforts to invest in a qualifying activity that meets the institution's geographic requirements also may be used for these purposes. Similarly, at the institution's option, information that a fund has explicitly earmarked its projects or investments to its investors and their specific assessment area(s) or broader statewide or regional areas that include the assessment area(s) also may be used for these purposes. (If any documentation that has been provided at the institution's option as described above clearly indicates that the fund “double-counts” investments, by earmarking the same dollars or the same portions of projects or investments in a particular geography to more than one investor, the investment may be determined not to meet the geographic requirements of the CRA regulations.) In addition, at the institution's option, an allocation method may be used to permit the institution to claim a pro-rata share of each project of the fund.

Nationwide funds are important sources of investments for low- and moderate-income and underserved communities throughout the country and can be an efficient vehicle for institutions in making qualified investments that help meet community development needs. Prior to investing in such a fund, an institution should consider reviewing the fund's investment record to see if it is generally consistent with the institution's investment goals and the geographic considerations in the regulations. See also Q&As § __.12(h)-6 and § __12(h)-7 (additional information about recognition of investments benefiting an area outside an institution's assessment area(s)).

§ __.23(b) Exclusion

§ __.23(b)-1: Even though the regulations state that an activity that is considered under the lending or service tests cannot also be considered under the investment test, may parts of an activity be considered under one test and other parts be considered under another test?

A1. Yes, in some instances the nature of an activity may make it eligible for consideration under more than one of the performance tests. For example, certain investments and related support provided by a large retail institution to a CDC may be evaluated under the lending, investment, and service tests. Under the service test, the institution may receive consideration for any community development services that it provides to the CDC, such as service by an executive of the institution on the CDC's board of directors. If the institution makes an investment in the CDC that the CDC uses to make community development loans, the institution may receive consideration under the lending test for its pro-rata share of community development loans made by the CDC. Alternatively, the institution's investment may be considered under the investment test, assuming it is a qualified investment. In addition, an institution may elect to have a part of its investment considered under the lending test and the remaining part considered under the investment test. If the investing institution opts to have a portion of its investment evaluated under the lending test by claiming its pro rata share of the CDC's community development loans, the amount of investment considered under the investment test will be offset by that portion. Thus, the institution would receive consideration under the investment test for only the amount of its investment multiplied by the percentage of the CDC's assets that meet the definition of a qualified investment.

§ __.23(b)-2: If home mortgage loans to low- and moderate-income borrowers have been considered under an institution's lending test, may the institution that originated or purchased them also receive consideration under the investment test if it subsequently purchases mortgage-backed securities that are primarily or exclusively backed by such loans?

A2. No. Because the institution received lending test consideration for the loans that underlie the securities, the institution may not also receive consideration under the investment test for its purchase of the securities. Of course, an institution may receive investment test consideration for purchases of mortgage-backed securities that are backed by loans to low- and moderate-income individuals as long as the securities are not backed primarily or exclusively by loans that the same institution originated or purchased.

§ __.23(e) Performance Criteria

§ __.23(e)-1: When applying the four performance criteria of 12 CFR __.23(e), may an examiner distinguish among qualified investments based on how much of the investment actually supports the underlying community development purpose?

A1. Yes. By applying all the criteria, a qualified investment of a lower dollar amount may be weighed more heavily under the investment test than a qualified investment with a higher dollar amount that has fewer qualitative enhancements. The criteria permit an examiner to qualitatively weight certain investments differently or to make other appropriate distinctions when evaluating an institution's record of making qualified investments. For instance, an examiner should take into account that a targeted mortgage-backed security that qualifies as an affordable housing issue that has only 60 percent of its face value supported by loans to low- or moderate-income borrowers would not provide as much affordable housing for low- and moderate-income individuals as a targeted mortgage-backed security with 100 percent of its face value supported by affordable housing loans to low- and moderate-income borrowers. The examiner should describe any differential weighting (or other adjustment), and its basis in the Performance Evaluation. See also Q&A § __.12(t)-8 for a discussion about the qualitative consideration of prior period investments.

§ __.23(e)-2: How do examiners evaluate an institution's qualified investment in a fund, the primary purpose of which is community development, as defined in the CRA regulations?

A2. When evaluating qualified investments that benefit an institution's assessment area(s) or a broader statewide or regional area that includes its assessment area(s), examiners will look at the following four performance criteria:

(1) The dollar amount of qualified investments;

(2) The innovativeness or complexity of qualified investments;

(3) The responsiveness of qualified investments to credit and community development needs; and

(4) The degree to which the qualified investments are not routinely provided by private investors.

With respect to the first criterion, examiners will determine the dollar amount of qualified investments by relying on the figures recorded by the institution according to generally accepted accounting principles (GAAP). Although institutions may exercise a range of investment strategies, including short-term investments, long-term investments, investments that are immediately funded, and investments with a binding, up-front commitment that are funded over a period of time, institutions making the same dollar amount of investments over the same number of years, all other performance criteria being equal, would receive the same level of consideration. Examiners will include both new and outstanding investments in this determination. The dollar amount of qualified investments also will include the dollar amount of legally binding commitments recorded by the institution according to GAAP.

The extent to which qualified investments receive consideration, however, depends on how examiners evaluate the investments under the remaining three performance criteria—innovativeness and complexity, responsiveness, and degree to which the investment is not routinely provided by private investors. Examiners also will consider factors relevant to the institution's CRA performance context, such as the effect of outstanding long-term qualified investments, the pay-in schedule, and the amount of any cash call, on the capacity of the institution to make new investments.

§ __.24—Service Test

§ __.24(d) Performance criteria—Retail Banking Services

§ __.24(d)-1: How do examiners evaluate the availability and effectiveness of an institution's systems for delivering retail banking services?

A1. Convenient access to full service branches within a community is an important factor in determining the availability of credit and non-credit services. Therefore, the service test performance standards place primary emphasis on full service branches while still considering alternative systems, such as automated teller machines (“ATMs”). The principal focus is on an institution's current distribution of branches and its record of opening and closing branches, particularly branches located in low- or moderate-income geographies or primarily serving low- or moderate-income individuals. However, an institution is not required to expand its branch network or operate unprofitable branches. Under the service test, alternative systems for delivering retail banking services, such as ATMs, are considered only to the extent that they are effective alternatives in providing needed services to low- and moderate-income areas and individuals.

§ __.24(d)-2: How do examiners evaluate an institution's activities in connection with Individual Development Accounts (IDAs)?

A2. Although there is no standard IDA program, IDAs typically are deposit accounts targeted to low- and moderate-income families that are designed to help them accumulate savings for education or job-training, down-payment and closing costs on a new home, or start-up capital for a small business. Once participants have successfully funded an IDA, their personal IDA savings are matched by a public or private entity. Financial institution participation in IDA programs comes in a variety of forms, including providing retail banking services to IDA account holders, providing matching dollars or operating funds to an IDA program, designing or implementing IDA programs, providing consumer financial education to IDA account holders or prospective account holders, or other means. The extent of financial institutions' involvement in IDAs and the products and services they offer in connection with the accounts will vary. Thus, subject to 12 CFR __.23(b), examiners evaluate the actual services and products provided by an institution in connection with IDA programs as one or more of the following: Community development services, retail banking services, qualified investments, home mortgage loans, small business loans, consumer loans, or community development loans. See, e.g., Q&A § __.12(i)-3.

Note that all types of institutions may participate in IDA programs. Their IDA activities are evaluated under the performance criteria of the type of examination applicable to the particular institution.

§ __.24(d)(3) Availability and Effectiveness of Alternative Systems for Delivering Retail Banking Services

§ __.24(d)(3)-1: How will examiners evaluate alternative systems for delivering retail banking services?

A1. The regulation recognizes the multitude of ways in which an institution can provide services, for example, ATMs, banking by telephone or computer, and bank-by-mail programs. Delivery systems other than branches will be considered under the regulation to the extent that they are effective alternatives to branches in providing needed services to low- and moderate-income areas and individuals. The list of systems in the regulation is not intended to be comprehensive.

§ __.24(d)(3)-2: Are debit cards considered under the service test as an alternative delivery system?

A2. By themselves, no. However, if debit cards are a part of a larger combination of products, such as a comprehensive electronic banking service, that allows an institution to deliver needed services to low- and moderate-income areas and individuals in its community, the overall delivery system that includes the debit card feature would be considered an alternative delivery system.

§ __.24(e) Performance Criteria-Community Development Services

§ __.24(e)-1: Under what conditions may an institution receive consideration for community development services offered by affiliates or third parties?

A1. At an institution's option, the agencies will consider services performed by an affiliate or by a third party on the institution's behalf under the service test if the services provided enable the institution to help meet the credit needs of its community. Indirect services that enhance an institution's ability to deliver credit products or deposit services within its community and that can be quantified may be considered under the service test, if those services have not been considered already under the lending or investment test (see Q&A § __.23(b)-1). For example, an institution that contracts with a community organization to provide home ownership counseling to low- and moderate-income home buyers as part of the institution's mortgage program may receive consideration for that indirect service under the service test. In contrast, donations to a community organization that offers financial services to low- or moderate-income individuals may be considered under the investment test, but would not also be eligible for consideration under the service test. Services performed by an affiliate will be treated the same as affiliate loans and investments made in the institution's assessment area and may be considered if the service is not claimed by any other institution. See 12 CFR __.22(c) and __.23(c).

§ __.25 Community Development Test for Wholesale or Limited Purpose Institutions

§ __.25(a) Scope of Test

§ __.25(a)-1: How can certain credit card banks help to meet the credit needs of their communities without losing their exemption from the definition of “bank” in the Bank Holding Company Act (the BHCA), as amended by the Competitive Equality Banking Act of 1987 (CEBA)?

A1. Although the BHCA restricts institutions known as CEBA credit card banks to credit card operations, a CEBA credit card bank can engage in community development activities without losing its exemption under the BHCA. A CEBA credit card bank could provide community development services and investments without engaging in operations other than credit card operations. For example, the bank could provide credit card counseling, or the financial expertise of its executives, free of charge, to community development organizations. In addition, a CEBA credit card bank could make qualified investments, as long as the investments meet the guidelines for passive and noncontrolling investments provided in the BHC Act and the Board's Regulation Y. Finally, although a CEBA credit card bank cannot make any loans other than credit card loans, under 12 CFR __.25(d)(2) (community development test—indirect activities), the bank could elect to have part of its qualified passive and noncontrolling investments in a third-party lending consortium considered as community development lending, provided that the consortium's loans otherwise meet the requirements for community development lending. When assessing a CEBA credit card bank's CRA performance under the community development test, examiners will take into account the bank's performance context. In particular, examiners will consider the legal constraints imposed by the BHCA on the bank's activities, as part of the bank's performance context in 12 CFR __.21(b)(4).

§ __.25(d) Indirect Activities

§ __.25(d)-1: How are investments in third party community development organizations considered under the community development test?

A1. Similar to the lending test for retail institutions, investments in third party community development organizations may be considered as qualified investments or as community development loans or both (provided there is no double counting), at the institution's option, as described above in the discussion regarding 12 CFR __.22(d) and __.23(b).

§ __.25(e) Benefit to Assessment Area(s)

§ __.25(e)-1: How do examiners evaluate a wholesale or limited purpose institution's qualified investment in a fund that invests in projects nationwide and which has a primary purpose of community development, as that is defined in the regulations?

A1. If examiners find that a wholesale or limited purpose institution has adequately addressed the needs of its assessment area(s), they will give consideration to qualified investments, as well as community development loans and community development services, by that institution nationwide. In determining whether an institution has adequately addressed the needs of its assessment area(s), examiners will consider qualified investments that benefit a broader statewide or regional area that includes the institution's assessment area(s).

§ __.25(f) Community Development Performance Rating

§ __.25(f)-1: Must a wholesale or limited purpose institution engage in all three categories of community development activities (lending, investment, and service) to perform well under the community development test?

A1. No, a wholesale or limited purpose institution may perform well under the community development test by engaging in one or more of these activities.

§ __.26—Small Institution Performance Standards

§ __.26-1: When evaluating a small or intermediate small institution's performance, will examiners consider, at the institution's request, retail and community development loans originated or purchased by affiliates, qualified investments made by affiliates, or community development services provided by affiliates?

A1. Yes. However, a small institution that elects to have examiners consider affiliate activities must maintain sufficient information that the examiners may evaluate these activities under the appropriate performance criteria and ensure that the activities are not claimed by another institution. The constraints applicable to affiliate activities claimed by large institutions also apply to small and intermediate small institutions. See Q&As addressing 12 CFR __.22(c)(2) and related guidance provided to large institutions regarding affiliate activities. Examiners will not include affiliate lending in calculating the percentage of loans and, as appropriate, other lending-related activities located in an institution's assessment area.

§ __.26(a) Performance Criteria

§__.26(a)(2) Intermediate Small Institutions

§ __.26(a)(2)-1: When is an institution examined as an intermediate small institution?

A1. When a small institution has met the intermediate small institution asset threshold delineated in 12 CFR __.12(u)(1) for two consecutive calendar year-ends, the institution may be examined under the intermediate small institution examination procedures. The regulation does not specify an additional lag period between becoming an intermediate small institution and being examined as an intermediate small institution, as it does for large institutions, because an intermediate small institution is not subject to CRA data collection and reporting requirements. Institutions should contact their primary regulator for information on examination schedules.

§ __.26(b) Lending Test

§ __.26(b)-1: May examiners consider, under one or more of the performance criteria of the small institution performance standards, lending-related activities, such as community development loans and lending-related qualified investments, when evaluating a small institution?

A1. Yes. Examiners can consider “lending-related activities,” including community development loans and lending-related qualified investments, when evaluating the first four performance criteria of the small institution performance test. Although lending-related activities are specifically mentioned in the regulation in connection with only the first three criteria (i.e., loan-to-deposit ratio, percentage of loans in the institution's assessment area, and lending to borrowers of different incomes and businesses of different sizes), examiners can also consider these activities when they evaluate the fourth criteria—geographic distribution of the institution's loans.

Although lending-related community development activities are evaluated under the community development test applicable to intermediate small institutions, these activities may also augment the loan-to-deposit ratio analysis (12 CFR __.26(b)(1)) and the percentage of loans in the intermediate small institution's assessment area analysis (12 CFR __.26(b)(2)), if appropriate.

§ __.26(b)-2: What is meant by “as appropriate” when referring to the fact that lending-related activities will be considered, “as appropriate,” under the various small institution performance criteria?

A2. “As appropriate” means that lending-related activities will be considered when it is necessary to determine whether an institution meets or exceeds the standards for a satisfactory rating. Examiners will also consider other lending-related activities at an institution's request, provided they have not also been considered under the community development test applicable to intermediate small institutions.

§ __.26(b)-3: When evaluating a small institution's lending performance, will examiners consider, at the institution's request, community development loans originated or purchased by a consortium in which the institution participates or by a third party in which the institution has invested?

A3. Yes. However, a small institution that elects to have examiners consider community development loans originated or purchased by a consortium or third party must maintain sufficient information on its share of the community development loans so that the examiners may evaluate these loans under the small institution performance criteria.

§ __.26(b)-4: Under the small institution lending test performance standards, will examiners consider both loan originations and purchases?

A4. Yes, consistent with the other assessment methods in the regulation, examiners will consider both loans originated and purchased by the institution. Likewise, examiners may consider any other loan data the small institution chooses to provide, including data on loans outstanding, commitments, and letters of credit.

§ __.26(b)-5: Under the small institution lending test performance standards, how will qualified investments be considered for purposes of determining whether a small institution receives a satisfactory CRA rating?

A5. The small institution lending test performance standards focus on lending and other lending-related activities. Therefore, examiners will consider only lending-related qualified investments for the purpose of determining whether a small institution that is not an intermediate small institution receives a satisfactory CRA rating.

§ __.26(b)(1) Loan-to-Deposit Ratio

§ __.26(b)(1)-1: How is the loan-to-deposit ratio calculated?

A1. A small institution's loan-to-deposit ratio is calculated in the same manner that the Uniform Bank Performance Report/Uniform Thrift Performance Report (UBPR/UTPR) determines the ratio. It is calculated by dividing the institution's net loans and leases by its total deposits. The ratio is found in the Liquidity and Investment Portfolio section of the UBPR and UTPR. Examiners will use this ratio to calculate an average since the last examination by adding the quarterly loan-to-deposit ratios and dividing the total by the number of quarters.

§ __.26(b)(1)-2: How is the “reasonableness” of a loan-to-deposit ratio evaluated?

A2. No specific ratio is reasonable in every circumstance, and each small institution's ratio is evaluated in light of information from the performance context, including the institution's capacity to lend, demographic and economic factors present in the assessment area, and the lending opportunities available in the assessment area(s). If a small institution's loan-to-deposit ratio appears unreasonable after considering this information, lending performance may still be satisfactory under this criterion taking into consideration the number and the dollar volume of loans sold to the secondary market or the number and amount and innovativeness or complexity of community development loans and lending-related qualified investments.

§ __.26(b)(1)-3: If an institution makes a large number of loans off-shore, will examiners segregate the domestic loan-to-deposit ratio from the foreign loan-to-deposit ratio?

A3. No. Examiners will look at the institution's net loan-to-deposit ratio for the whole institution, without any adjustments.

§ __.26(b)(2) Percentage of Lending Within Assessment Area(s)

§ __.26(b)(2)-1: Must a small institution have a majority of its lending in its assessment area(s) to receive a satisfactory performance rating?

A1. No. The percentage of loans and, as appropriate, other lending-related activities located in the institution's assessment area(s) is but one of the performance criteria upon which small institutions are evaluated. If the percentage of loans and other lending related activities in an institution's assessment area(s) is less than a majority, then the institution does not meet the standards for satisfactory performance only under this criterion. The effect on the overall performance rating of the institution, however, is considered in light of the performance context, including information regarding economic conditions; loan demand; the institution's size, financial condition, business strategies, and branching network; and other aspects of the institution's lending record.

§ __.26(b)(3) & (4) Distribution of Lending Within Assessment Area(s) by Borrower Income and Geographic Location

§ __.26(b)(3) & (4)-1: How will a small institution's performance be assessed under these lending distribution criteria?

A1. Distribution of loans, like other small institution performance criteria, is considered in light of the performance context. For example, a small institution is not required to lend evenly throughout its assessment area(s) or in any particular geography. However, in order to meet the standards for satisfactory performance under this criterion, conspicuous gaps in a small institution's loan distribution must be adequately explained by performance context factors such as lending opportunities in the institution's assessment area(s), the institution's product offerings and business strategy, and institutional capacity and constraints. In addition, it may be impracticable to review the geographic distribution of the lending of an institution with very few demographically distinct geographies within an assessment area. If sufficient information on the income levels of individual borrowers or the revenues or sizes of business borrowers is not available, examiners may use loan size as a proxy for estimating borrower characteristics, where appropriate.

§ __.26(c) Intermediate Small Institution Community Development Test

§ __.26(c)-1: How will the community development test be applied flexibly for intermediate small institutions?

A1. Generally, intermediate small institutions engage in a combination of community development loans, qualified investments, and community development services. An institution may not simply ignore one or more of these categories of community development, nor do the regulations prescribe a required threshold for community development loans, qualified investments, and community development services. Instead, based on the institution's assessment of community development needs in its assessment area(s), it may engage in different categories of community development activities that are responsive to those needs and consistent with the institution's capacity.

An intermediate small institution has the flexibility to allocate its resources among community development loans, qualified investments, and community development services in amounts that it reasonably determines are most responsive to community development needs and opportunities. Appropriate levels of each of these activities would depend on the capacity and business strategy of the institution, community needs, and number and types of opportunities for community development.

§ __.26(c)(3) Community Development Services

§ __.26(c)(3)-1: What will examiners consider when evaluating the provision of community development services by an intermediate small institution?

A1. Examiners will consider not only the types of services provided to benefit low- and moderate-income individuals, such as low-cost checking accounts and low-cost remittance services, but also the provision and availability of services to low- and moderate-income individuals, including through branches and other facilities located in low- and moderate-income areas. Generally, the presence of branches located in low- and moderate-income geographies will help to demonstrate the availability of banking services to low- and moderate-income individuals.

§ __.26(c)(4) Responsiveness to Community Development Needs

§ __.26(c)(4)-1: When evaluating an intermediate small institution's community development record, what will examiners consider when reviewing the responsiveness of community development lending, qualified investments, and community development services to the community development needs of the area?

A1. When evaluating an intermediate small institution's community development record, examiners will consider not only quantitative measures of performance, such as the number and amount of community development loans, qualified investments, and community development services, but also qualitative aspects of performance. In particular, examiners will evaluate the responsiveness of the institution's community development activities in light of the institution's capacity, business strategy, the needs of the community, and the number and types of opportunities for each type of community development activity (its performance context). Examiners also will consider the results of any assessment by the institution of community development needs, and how the institution's activities respond to those needs.

An evaluation of the degree of responsiveness considers the following factors: the volume, mix, and qualitative aspects of community development loans, qualified investments, and community development services. Consideration of the qualitative aspects of performance recognizes that community development activities sometimes require special expertise or effort on the part of the institution or provide a benefit to the community that would not otherwise be made available. (However, “innovativeness” and “complexity,” factors examiners consider when evaluating a large institution under the lending, investment, and service tests, are not criteria in the intermediate small institutions' community development test.) In some cases, a smaller loan may have more qualitative benefit to a community than a larger loan. Activities are considered particularly responsive to community development needs if they benefit low- and moderate-income individuals in low- or moderate-income geographies, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies. Activities are also considered particularly responsive to community development needs if they benefit low- or moderate-income geographies.

§ __.26(d) Performance Rating

§ __.26(d)-1: How can a small institution that is not an intermediate small institution achieve an “outstanding” performance rating?

A1. A small institution that is not an intermediate small institution that meets each of the standards in the lending test for a “satisfactory” rating and exceeds some or all of those standards may warrant an “outstanding” performance rating. In assessing performance at the “outstanding” level, the agencies consider the extent to which the institution exceeds each of the performance standards and, at the institution's option, its performance in making qualified investments and providing services that enhance credit availability in its assessment area(s). In some cases, a small institution may qualify for an “outstanding” performance rating solely on the basis of its lending activities, but only if its performance materially exceeds the standards for a “satisfactory” rating, particularly with respect to the penetration of borrowers at all income levels and the dispersion of loans throughout the geographies in its assessment area(s) that display income variation. An institution with a high loan-to-deposit ratio and a high percentage of loans in its assessment area(s), but with only a reasonable penetration of borrowers at all income levels or a reasonable dispersion of loans throughout geographies of differing income levels in its assessment area(s), generally will not be rated “outstanding” based only on its lending performance. However, the institution's performance in making qualified investments and its performance in providing branches and other services and delivery systems that enhance credit availability in its assessment area(s) may augment the institution's satisfactory rating to the extent that it may be rated “outstanding.”

§ __.26(d)-2: Will a small institution's qualified investments, community development loans, and community development services be considered if they do not directly benefit its assessment area(s)?

A2. Yes. These activities are eligible for consideration if they benefit a broader statewide or regional area that includes a small institution's assessment area(s), as discussed more fully in Q&As § __.12(h)-6 and § __.12(h)-7.

§ __.27—Strategic Plan

§ __.27(c) Plans in General

§ __.27(c)-1: To what extent will the agencies provide guidance to an institution during the development of its strategic plan?

A1. An institution will have an opportunity to consult with and provide information to the agencies on a proposed strategic plan. Through this process, an institution is provided guidance on procedures and on the information necessary to ensure a complete submission. For example, the agencies will provide guidance on whether the level of detail as set out in the proposed plan would be sufficient to permit agency evaluation of the plan. However, the agencies' guidance during plan development and, particularly, prior to the public comment period, will not include commenting on the merits of a proposed strategic plan or on the adequacy of measurable goals.

§ __.27(c)-2: How will a joint strategic plan be reviewed if the affiliates have different primary Federal supervisors?

A2. The agencies will coordinate review of and action on the joint plan. Each agency will evaluate the measurable goals for those affiliates for which it is the primary regulator.

§ __.27(f) Plan Content

§ __.27(f)(1) Measurable Goals

§ __.27(f)(1)-1: How should annual measurable goals be specified in a strategic plan?

A1. Annual measurable goals (e.g., number of loans, dollar amount, geographic location of activity, and benefit to low- and moderate-income areas or individuals) must be stated with sufficient specificity to permit the public and the agencies to quantify what performance will be expected. However, institutions are provided flexibility in specifying goals. For example, an institution may provide ranges of lending amounts in different categories of loans. Measurable goals may also be linked to funding requirements of certain public programs or indexed to other external factors as long as these mechanisms provide a quantifiable standard.

§ __.27(g) Plan Approval

§ __.27(g)(2) Public Participation

§ __.27(g)(2)-1: How will the public receive notice of a proposed strategic plan?

A1. An institution submitting a strategic plan for approval by the agencies is required to solicit public comment on the plan for a period of thirty (30) days after publishing notice of the plan at least once in a newspaper of general circulation. The notice should be sufficiently prominent to attract public attention and should make clear that public comment is desired. An institution may, in addition, provide notice to the public in any other manner it chooses.

§ __.28—Assigned Ratings

§ __.28-1: Are innovative lending practices, innovative or complex qualified investments, and innovative community development services required for a “satisfactory” or “outstanding” CRA rating?

A1. No. The performance criterion of “innovativeness” applies only under the lending, investment, and service tests applicable to large institutions and the community development test applicable to wholesale and limited purpose institutions. Moreover, even under these tests, the lack of innovative lending practices, innovative or complex qualified investments, or innovative community development services alone will not result in a “needs to improve” CRA rating. However, under these tests, the use of innovative lending practices, innovative or complex qualified investments, and innovative community development services may augment the consideration given to an institution's performance under the quantitative criteria of the regulations, resulting in a higher level of performance rating. See also Q&A § __.26(c)(4)-1 for a discussion about responsiveness to community development needs under the community development test applicable to intermediate small institutions.

§ __.28(a) Ratings in General

§ __.28(a)-1: How are institutions with domestic branches in more than one state assigned a rating?

A1. The evaluation of an institution that maintains domestic branches in more than one state (“multistate institution”) will include a written evaluation and rating of its CRA record of performance as a whole and in each state in which it has a domestic branch. The written evaluation will contain a separate presentation on a multistate institution's performance for each metropolitan statistical area and the nonmetropolitan area within each state, if it maintains one or more domestic branch offices in these areas. This separate presentation will contain conclusions, supported by facts and data, on performance under the performance tests and standards in the regulation. The evaluation of a multistate institution that maintains a domestic branch in two or more states in a multistate metropolitan area will include a written evaluation (containing the same information described above) and rating of its CRA record of performance in the multistate metropolitan area. In such cases, the statewide evaluation and rating will be adjusted to reflect performance in the portion of the state not within the multistate metropolitan statistical area.

§ __.28(a)-2: How are institutions that operate within only a single state assigned a rating?

A2. An institution that operates within only a single state (“single-state institution”) will be assigned a rating of its CRA record based on its performance within that state. In assigning this rating, the agencies will separately present a single-state institution's performance for each metropolitan area in which the institution maintains one or more domestic branch offices. This separate presentation will contain conclusions, supported by facts and data, on the single-state institution's performance under the performance tests and standards in the regulation.

§ __.28(a)-3: How do the agencies weight performance under the lending, investment, and service tests for large retail institutions?

A3. A rating of “outstanding,” “high satisfactory,” “low satisfactory,” “needs to improve,” or “substantial noncompliance,” based on a judgment supported by facts and data, will be assigned under each performance test. Points will then be assigned to each rating as described in the first matrix set forth below. A large retail institution's overall rating under the lending, investment, and service tests will then be calculated in accordance with the second matrix set forth below, which incorporates the rating principles in the regulation.

Points Assigned for Performance Under Lending, Investment, and Service Tests

	Lending	Service	Investment
Outstanding	12	6	6
High Satisfactory	9	4	4
Low Satisfactory	6	3	3
Needs To Improve	3	1	1
Substantial Noncompliance	0	0	0

Composite Rating Point Requirements

[Add points from three tests]

Rating	Total points
Outstanding	20 or over.
Satisfactory	11 through 19.
Needs to Improve	5 through 10.
Substantial Noncompliance	0 through 4.

Note:

There is one exception to the Composite Rating matrix. An institution may not receive a rating of “satisfactory” unless it receives at least “low satisfactory” on the lending test. Therefore, the total points are capped at three times the lending test score.

§ __.28(b) Lending, Investment, and Service Test Ratings

§ __.28(b)-1: How is performance under the quantitative and qualitative performance criteria weighed when examiners assign a CRA rating?

A1. The lending, investment, and service tests each contain a number of performance criteria designed to measure whether an institution is effectively helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, in a safe and sound manner. Some of these performance criteria are quantitative, such as number and amount, and others, such as the use of innovative or flexible lending practices, the innovativeness or complexity of qualified investments, and the innovativeness and responsiveness of community development services, are qualitative. The performance criteria that deal with these qualitative aspects of performance recognize that these loans, qualified investments, and community development services sometimes require special expertise and effort on the part of the institution and provide a benefit to the community that would not otherwise be possible. As such, the agencies consider the qualitative aspects of an institution's activities when measuring the benefits received by a community. An institution's performance under these qualitative criteria may augment the consideration given to an institution's performance under the quantitative criteria of the regulations, resulting in a higher level of performance and rating.

§ __.28(c) Effect of Evidence of Discriminatory or Other Illegal Credit Practices

§ __.28(c)-1: What is meant by “discriminatory or other illegal credit practices”?

A1. An institution engages in discriminatory credit practices if it discourages or discriminates against credit applicants or borrowers on a prohibited basis, in violation, for example, of the Fair Housing Act or the Equal Credit Opportunity Act (as implemented by Regulation B). Examples of other illegal credit practices inconsistent with helping to meet community credit needs include violations of:

• The Truth in Lending Act regarding rescission of certain mortgage transactions and regarding disclosures and certain loan term restrictions in connection with credit transactions that are subject to the Home Ownership and Equity Protection Act;
• The Real Estate Settlement Procedures Act regarding the giving and accepting of referral fees, unearned fees or kickbacks in connection with certain mortgage transactions; and
• The Federal Trade Commission Act regarding unfair or deceptive acts or practices. Examiners will determine the effect of evidence of illegal credit practices as set forth in examination procedures and § __.28(c) of the regulation.

Violations of other provisions of the consumer protection laws generally will not adversely affect an institution's CRA rating, but may warrant the inclusion of comments in an institution's performance evaluation. These comments may address the institution's policies, procedures, training programs, and internal assessment efforts.

§ __.29—Effect of CRA Performance on Applications

§ __.29(a) CRA Performance

§ __.29(a)-1: What weight is given to an institution's CRA performance examination in reviewing an application?

A1. In reviewing applications in which CRA performance is a relevant factor, information from a CRA examination of the institution is a particularly important consideration. The examination is a detailed evaluation of the institution's CRA performance by its Federal supervisory agency. In this light, an examination is an important, and often controlling, factor in the consideration of an institution's record. In some cases, however, the examination may not be recent, or a specific issue raised in the application process, such as progress in addressing weaknesses noted by examiners, progress in implementing commitments previously made to the reviewing agency, or a supported allegation from a commenter, is relevant to CRA performance under the regulation and was not addressed in the examination. In these circumstances, the applicant should present sufficient information to supplement its record of performance and to respond to the substantive issues raised in the application proceeding.

§ __.29(a)-2: What consideration is given to an institution's commitments for future action in reviewing an application by those agencies that consider such commitments?

A2. Commitments for future action are not viewed as part of the CRA record of performance. In general, institutions cannot use commitments made in the applications process to overcome a seriously deficient record of CRA performance. However, commitments for improvements in an institution's performance may be appropriate to address specific weaknesses in an otherwise satisfactory record or to address CRA performance when a financially troubled institution is being acquired.

§ __.29(b) Interested Parties

§ __.29(b)-1: What consideration is given to comments from interested parties in reviewing an application?

A1. Materials relating to CRA performance received during the application process can provide valuable information. Written comments, which may express either support for or opposition to the application, are made a part of the record in accordance with the agencies' procedures, and are carefully considered in making the agencies' decisions. Comments should be supported by facts about the applicant's performance and should be as specific as possible in explaining the basis for supporting or opposing the application. These comments must be submitted within the time limits provided under the agencies' procedures.

§ __.29(b)-2: Is an institution required to enter into agreements with private parties?

A2. No. Although communications between an institution and members of its community may provide a valuable method for the institution to assess how best to address the credit needs of the community, the CRA does not require an institution to enter into agreements with private parties. The agencies do not monitor compliance with nor enforce these agreements.

§ __.41—Assessment Area Delineation

§ __.41(a) In General

§ __.41(a)-1: How do the agencies evaluate “assessment areas” under the CRA regulations?

A1. The rule focuses on the distribution and level of an institution's lending, investments, and services rather than on how and why an institution delineated its assessment area(s) in a particular manner. Therefore, the agencies will not evaluate an institution's delineation of its assessment area(s) as a separate performance criterion. Rather, the agencies will only review whether the assessment area delineated by the institution complies with the limitations set forth in the regulations at § __.41(e).

§ __.41(a)-2: If an institution elects to have the agencies consider affiliate lending, will this decision affect the institution's assessment area(s)?

A2. If an institution elects to have the lending activities of its affiliates considered in the evaluation of the institution's lending, the geographies in which the affiliate lends do not affect the institution's delineation of assessment area(s).

§ __.41(a)-3: Can a financial institution identify a specific racial or ethnic group rather than a geographic area as its assessment area?

A3. No, assessment areas must be based on geography. The only exception to the requirement to delineate an assessment area based on geography is that an institution, the business of which predominantly consists of serving the needs of military personnel or their dependents who are not located within a defined geographic area, may delineate its entire deposit customer base as its assessment area.

§ __.41(c) Geographic Area(s) for Institutions Other Than Wholesale or Limited Purpose Institutions

§ __.41(c)(1) Generally Consist of One or More MSAs or Metropolitan Divisions or One or More Contiguous Political Subdivisions

§ __.41(c)(1)-1: Besides cities, towns, and counties, what other units of local government are political subdivisions for CRA purposes?

A1. Townships and Indian reservations are political subdivisions for CRA purposes. Institutions should be aware that the boundaries of townships and Indian reservations may not be consistent with the boundaries of the census tracts (“geographies”) in the area. In these cases, institutions must ensure that their assessment area(s) consists only of whole geographies by adding any portions of the geographies that lie outside the political subdivision to the delineated assessment area(s).

§__.41(c)(1)-2: Are wards, school districts, voting districts, and water districts political subdivisions for CRA purposes?

A2. No. However, an institution that determines that it predominantly serves an area that is smaller than a city, town, or other political subdivision may delineate as its assessment area the larger political subdivision and then, in accordance with 12 CFR __.41(d), adjust the boundaries of the assessment area to include only the portion of the political subdivision that it reasonably can be expected to serve. The smaller area that the institution delineates must consist of entire geographies, may not reflect illegal discrimination, and may not arbitrarily exclude low-or moderate-income geographies.

§__.41(d) Adjustments to Geographic Area(s)

§__.41(d)-1: When may an institution adjust the boundaries of an assessment area to include only a portion of a political subdivision?

A1. Institutions must include whole geographies (i.e., census tracts) in their assessment areas and generally should include entire political subdivisions. Because census tracts are the common geographic areas used consistently nationwide for data collection, the agencies require that assessment areas be made up of whole geographies. If including an entire political subdivision would create an area that is larger than the area the institution can reasonably be expected to serve, an institution may, but is not required to, adjust the boundaries of its assessment area to include only portions of the political subdivision. For example, this adjustment is appropriate if the assessment area would otherwise be extremely large, of unusual configuration, or divided by significant geographic barriers (such as a river, mountain, or major highway system). When adjusting the boundaries of their assessment areas, institutions must not arbitrarily exclude low- or moderate-income geographies or set boundaries that reflect illegal discrimination.

§__.41(e) Limitations on Delineation of an Assessment Area

§__.41(e)(3) May Not Arbitrarily Exclude Low- or Moderate-Income Geographies

§__.41(e)(3)-1: How will examiners determine whether an institution has arbitrarily excluded low-or moderate-income geographies?

A1. Examiners will make this determination on a case-by-case basis after considering the facts relevant to the institution's assessment area delineation. Information that examiners will consider may include:

• Income levels in the institution's assessment area(s) and surrounding geographies;
• Locations of branches and deposit-taking ATMs;
• Loan distribution in the institution's assessment area(s) and surrounding geographies;
• The institution's size;
• The institution's financial condition; and
• The business strategy, corporate structure and product offerings of the institution.

§__.41(e)(4) May Not Extend Substantially Beyond an MSA Boundary or Beyond a State Boundary Unless Located in a Multistate MSA

§__.41(e)(4)-1: What are the maximum limits on the size of an assessment area?

A1. An institution may not delineate an assessment area extending substantially across the boundaries of an MSA unless the MSA is in a combined statistical area (CSA)). Although more than one MSA in a CSA may be delineated as a single assessment area, an institution's CRA performance in individual MSAs in those assessment areas will be evaluated using separate median family incomes and other relevant information at the MSA level rather than at the CSA level.

An assessment area also may not extend substantially across state boundaries unless the assessment area is located in a multistate MSA. An institution may not delineate a whole state as its assessment area unless the entire state is contained within an MSA. These limitations apply to wholesale and limited purpose institutions as well as other institutions.

An institution must delineate separate assessment areas for the areas inside and outside an MSA if the area served by the institution's branches outside the MSA extends substantially beyond the MSA boundary. Similarly, the institution must delineate separate assessment areas for the areas inside and outside of a state if the institution's branches extend substantially beyond the boundary of one state (unless the assessment area is located in a multistate MSA). In addition, the institution should also delineate separate assessment areas if it has branches in areas within the same state that are widely separate and not at all contiguous. For example, an institution that has its main office in New York City and a branch in Buffalo, New York, and each office serves only the immediate areas around it, should delineate two separate assessment areas.

§__.41(e)(4)-2: May an institution delineate one assessment area that consists of an MSA and two large counties that abut the MSA but are not adjacent to each other?

A2. As a general rule, an institution's assessment area should not extend substantially beyond the boundary of an MSA. Therefore, the MSA would be a separate assessment area, and because the two abutting counties are not adjacent to each other and, in this example, extend substantially beyond the boundary of the MSA, the institution would delineate each county as a separate assessment area, assuming branches or deposit-taking ATMs are located in each county and the MSA. So, in this example, there would be three assessment areas. However, if the MSA and the two counties were in the same CSA, then the institution could delineate only one assessment area including them all. But, the institution's CRA performance in the MSAs and the non-MSA counties in that assessment area would be evaluated using separate median family incomes and other relevant information at the MSA and state, non-MSA level, rather than at the CSA level.

§__.42—Data Collection, Reporting, and Disclosure

§__.42-1: When must an institution collect and report data under the CRA regulations?

A1. All institutions except small institutions are subject to data collection and reporting requirements. (“Small institution” is defined in the agencies’ CRA regulations at §__.12(u).) Examples describing the data collection requirements of institutions, in particular those that have just surpassed the asset-size threshold of a small institution, may be found on the FFIEC Web site at http://www.ffiec.gov/​cra. All institutions that are subject to the data collection and reporting requirements must report the data for a calendar year by March 1 of the subsequent year.

The Board of Governors of the Federal Reserve System processes the reports for all of the primary regulators. Data may be submitted on diskette, CD-ROM, or via Internet e-mail. CRA respondents are encouraged to send their data via the Internet. E-mail a properly encrypted CRA file (using the FFIEC software only Internet e-mail export feature) to the following e-mail address: [e-mail]. Please mail diskette or CD-ROM submissions to: Board of Governors of the Federal Reserve System, Attention: CRA Processing, 20th & Constitution Avenue, NW., MS N502, Washington, DC 20551-0001.

§__.42-2: Should an institution develop its own program for data collection, or will the regulators require a certain format?

A2. An institution may use the free software that is provided by the FFIEC to reporting institutions for data collection and reporting or develop its own program. Those institutions that develop their own programs may create a data submission using the File Specifications and Edit Validation Rules that have been set forth to assist with electronic data submissions. For information about specific electronic formatting procedures, contact the CRA Assistance Line at [phone] or click on “How to File” at http://www.ffiec.gov/​cra.

§__.42-3: How should an institution report data on lines of credit?

A3. Institutions must collect and report data on lines of credit in the same way that they provide data on loan originations. Lines of credit are considered originated at the time the line is approved or increased; and an increase is considered a new origination. Generally, the full amount of the credit line is the amount that is considered originated. In the case of an increase to an existing line, the amount of the increase is the amount that is considered originated and that amount should be reported. However, consistent with the Call Report and TFR instructions, institutions would not report an increase to a small business or small farm line of credit if the increase would cause the total line of credit to exceed $1 million, in the case of a small business line, or $500,000, in the case of a small farm line. Of course, institutions may provide information about such line increases to examiners as “other loan data.”

§__.42-4: Should renewals of lines of credit be collected and/or reported?

A4. Renewals of lines of credit for small business, small farm, consumer, or community development purposes should be collected and reported, if applicable, in the same manner as renewals of small business or small farm loans. See Q&A §_.42(a)-5. Institutions that are HMDA reporters continue to collect and report home equity lines of credit at their option in accordance with the requirements of 12 CFR part 203.

§__.42-5: When should merging institutions collect data?

A5. Three scenarios of data collection responsibilities for the calendar year of a merger and subsequent data reporting responsibilities are described below.

• Two institutions are exempt from CRA collection and reporting requirements because of asset size. The institutions merge. No data collection is required for the year in which the merger takes place, regardless of the resulting asset size. Data collection would begin after two consecutive years in which the combined institution had year-end assets at least equal to the small institution asset-size threshold amount described in 12 CFR __.12(u)(1).
• Institution A, an institution required to collect and report the data, and Institution B, an exempt institution, merge. Institution A is the surviving institution. For the year of the merger, data collection is required for Institution A's transactions. Data collection is optional for the transactions of the previously exempt institution. For the following year, all transactions of the surviving institution must be collected and reported.
• Two institutions that each are required to collect and report the data merge. Data collection is required for the entire year of the merger and for subsequent years so long as the surviving institution is not exempt. The surviving institution may file either a consolidated submission or separate submissions for the year of the merger but must file a consolidated report for subsequent years.

§__.42-6: Can small institutions get a copy of the data collection software even though they are not required to collect or report data?

A6. Yes. Any institution that is interested in receiving a copy of the software may download it from the FFIEC Web site at http://www.ffiec.gov/​cra. For assistance, institutions may call the CRA Assistance Line at [phone] or send an e-mail to [e-mail].

§__.42-7: If a small institution is designated a wholesale or limited purpose institution, must it collect data that it would not otherwise be required to collect because it is a small institution?

A7. No. However, small institutions that are designated as wholesale or limited purpose institutions must be prepared to identify those loans, investments, and services to be evaluated under the community development test.

§__.42(a) Loan Information Required To Be Collected and Maintained

§__.42(a)-1: Must institutions collect and report data on all commercial loans of $1 million or less at origination?

A1. No. Institutions that are not exempt from data collection and reporting are required to collect and report only those commercial loans that they capture in the Call Report, Schedule RC-C, Part II, and in the TFR, Schedule SB. Small business loans are defined as those whose original amounts are $1 million or less and that were reported as either “Loans secured by nonfarm or nonresidential real estate” or “Commercial and Industrial loans” in Part I of the Call Report or TFR.

§__.42(a)-2: For loans defined as small business loans, what information should be collected and maintained?

A2. Institutions that are not exempt from data collection and reporting are required to collect and maintain, in a standardized, machine-readable format, information on each small business loan originated or purchased for each calendar year:

• A unique number or alpha-numeric symbol that can be used to identify the relevant loan file;
• The loan amount at origination;
• The loan location; and
• An indicator whether the loan was to a business with gross annual revenues of $1 million or less.

The location of the loan must be maintained by census tract. In addition, supplemental information contained in the file specifications includes a date associated with the origination or purchase and whether a loan was originated or purchased by an affiliate. The same requirements apply to small farm loans.

§__.42(a)-3: Will farm loans need to be segregated from business loans?

A3. Yes.

§__.42(a)-4: Should institutions collect and report data on all agricultural loans of $500,000 or less at origination?

A4. Institutions are to report those farm loans that they capture in the Call Report, Schedule RC-C, Part II and Schedule SB of the TFR. Small farm loans are defined as those whose original amounts are $500,000 or less and were reported as either “Loans to finance agricultural production and other loans to farmers” or “Loans secured by farmland” in Part I of the Call Report or TFR.

§__.42(a)-5: Should institutions collect and report data about small business and small farm loans that are refinanced or renewed?

A5. An institution should collect information about small business and small farm loans that it refinances or renews as loan originations. (A refinancing generally occurs when the existing loan obligation or note is satisfied and a new note is written, while a renewal refers to an extension of the term of a loan. However, for purposes of small business and small farm CRA data collection and reporting, it is not necessary to distinguish between the two.) When reporting small business and small farm data, however, an institution may only report one origination (including a renewal or refinancing treated as an origination) per loan per year, unless an increase in the loan amount is granted. However, a demand loan that is merely reviewed annually is not reported as a renewal because the term of the loan has not been extended.

If an institution increases the amount of a small business or small farm loan when it extends the term of the loan, it should always report the amount of the increase as a small business or small farm loan origination. The institution should report only the amount of the increase if the original or remaining amount of the loan has already been reported one time that year. For example, a financial institution makes a term loan for $25,000; principal payments have resulted in a present outstanding balance of $15,000. In the next year, the customer requests an additional $5,000, which is approved, and a new note is written for $20,000. In this example, the institution should report both the $5,000 increase and the renewal or refinancing of the $15,000 as originations for that year. These two originations may be reported together as a single origination of $20,000.

§ __.42(a)-6: Does a loan to the “fishing industry” come under the definition of a small farm loan?

A6. Yes. Instructions for Part I of the Call Report and Schedule SB of the TFR include loans “made for the purpose of financing fisheries and forestries, including loans to commercial fishermen” as a component of the definition for “Loans to finance agricultural production and other loans to farmers.” Part II of Schedule RC-C of the Call Report and Schedule SB of the TFR, which serve as the basis of the definition for small business and small farm loans in the regulation, capture both “Loans to finance agricultural production and other loans to farmers” and “Loans secured by farmland.”

§ __.42(a)-7: How should an institution report a home equity line of credit, part of which is for home improvement purposes and part of which is for small business purposes?

A7. When an institution originates a home equity line of credit that is for both home improvement and small business purposes, the institution has the option of reporting the portion of the home equity line that is for home improvement purposes as a home improvement loan under HMDA. Examiners would consider that portion of the line when they evaluate the institution's home mortgage lending. When an institution refinances a home equity line of credit into another home equity line of credit, HMDA reporting continues to be optional. If the institution opts to report the refinanced line, the entire amount of the line would be reported as a refinancing and examiners will consider the entire refinanced line when they evaluate the institution's home mortgage lending.

If an institution that has originated a home equity line of credit for both home improvement and small business purposes (or if an institution that has refinanced such a line into another line) chooses not to report a home improvement loan (or a refinancing) under HMDA, and if the line meets the regulatory definition of a “community development loan,” the institution should collect and report information on the entire line as a community development loan. If the line does not qualify as a community development loan, the institution has the option of collecting and maintaining (but not reporting) the entire line of credit as “Other Secured Lines/Loans for Purposes of Small Business.”

§ __.42(a)-8: When collecting small business and small farm data for CRA purposes, may an institution collect and report information about loans to small businesses and small farms located outside the United States?

A8. At an institution's option, it may collect data about small business and small farm loans located outside the United States; however, it cannot report this data because the CRA data collection software will not accept data concerning loan locations outside the United States.

§ __.42(a)-9: Is an institution that has no small farm or small business loans required to report under CRA?

A9. Each institution subject to data reporting requirements must, at a minimum, submit a transmittal sheet, definition of its assessment area(s), and a record of its community development loans. If the institution does not have community development loans to report, the record should be sent with “0” in the community development loan composite data fields. An institution that has not purchased or originated any small business or small farm loans during the reporting period would not submit the composite loan records for small business or small farm loans.

§ __.42(a)-10: How should an institution collect and report the location of a loan made to a small business or farm if the borrower provides an address that consists of a post office box number or a rural route and box number?

A10. Prudent banking practices and Bank Secrecy Act regulations dictate that institutions know the location of their customers and loan collateral. Further, Bank Secrecy Act regulations specifically state that a post office box is not an acceptable address. Therefore, institutions typically will know the actual location of their borrowers or loan collateral beyond an address consisting only of a post office box.

Many borrowers have street addresses in addition to rural route and box numbers. Institutions should ask their borrowers to provide the street address of the main business facility or farm or the location where the loan proceeds otherwise will be applied. Moreover, in many cases in which the borrower's address consists only of a rural route number, the institution knows the location (i.e., the census tract) of the borrower or loan collateral. Once the institution has this information available, it should assign the census tract to that location (geocode) and report that information as required under the regulation.

However, if an institution cannot determine a rural borrower's street address, and does not know the census tract, the institution should report the borrower's state, county, MSA or metropolitan division, if applicable, and “NA,” for “not available,” in lieu of a census tract code.

§ __.42(a)(2) Loan Amount at Origination

§ __.42(a)(2)-1: When an institution purchases a small business or small farm loan, in whole or in part, which amount should the institution collect and report—the original amount of the loan or the amount at purchase?

A1. When collecting and reporting information on purchased small business and small farm loans, including loan participations, an institution collects and reports the amount of the loan at origination, not at the time of purchase. This is consistent with the Call Report's and TFR's use of the “original amount of the loan” to determine whether a loan should be reported as a “loan to a small business” or a “loan to a small farm” and in which loan size category a loan should be reported. When assessing the volume of small business and small farm loan purchases for purposes of evaluating lending test performance under CRA, however, examiners will evaluate an institution's activity based on the amounts at purchase.

§ __.42(a)(2)-2: How should an institution collect data about multiple loan originations to the same business?

A2. If an institution makes multiple originations to the same business, the loans should be collected and reported as separate originations rather than combined and reported as they are on the Call Report or TFR, which reflect loans outstanding, rather than originations. However, if institutions make multiple originations to the same business solely to inflate artificially the number or volume of loans evaluated for CRA lending performance, the agencies may combine these loans for purposes of evaluation under the CRA.

§ __.42(a)(2)-3: How should an institution collect data pertaining to credit cards issued to small businesses?

A3. If an institution agrees to issue credit cards to a business's employees, all of the credit card lines opened on a particular date for that single business should be reported as one small business loan origination rather than reporting each individual credit card line, assuming the criteria in the “small business loan” definition in the regulation are met. The credit card program's “amount at origination” is the sum of all of the employee/business credit cards’ credit limits opened on a particular date. If subsequently issued credit cards increase the small business credit line, the added amount is reported as a new origination.

§ __.42(a)(3) The Loan Location

§ __.42(a)(3)-1: Which location should an institution record if a small business loan's proceeds are used in a variety of locations?

A1. The institution should record the loan location by either the location of the small business borrower's headquarters or the location where the greatest portion of the proceeds are applied, as indicated by the borrower.

§ __.42(a)(4) Indicator of Gross Annual Revenue

§ __.42(a)(4)-1: When indicating whether a small business borrower had gross annual revenues of $1 million or less, upon what revenues should an institution rely?

A1. Generally, an institution should rely on the revenues that it considered in making its credit decision. For example, in the case of affiliated businesses, such as a parent corporation and its subsidiary, if the institution considered the revenues of the entity's parent or a subsidiary corporation of the parent as well, then the institution would aggregate the revenues of both corporations to determine whether the revenues are $1 million or less. Alternatively, if the institution considered the revenues of only the entity to which the loan is actually extended, the institution should rely solely upon whether gross annual revenues are above or below $1 million for that entity. However, if the institution considered and relied on revenues or income of a cosigner or guarantor that is not an affiliate of the borrower, such as a sole proprietor, the institution should not adjust the borrower's revenues for reporting purposes.

§ __.42(a)(4)-2: If an institution that is not exempt from data collection and reporting does not request or consider revenue information to make the credit decision regarding a small business or small farm loan, must the institution collect revenue information in connection with that loan?

A2. No. In those instances, the institution should enter the code indicating “revenues not known” on the individual loan portion of the data collection software or on an internally developed system. Loans for which the institution did not collect revenue information may not be included in the loans to businesses and farms with gross annual revenues of $1 million or less when reporting this data.

§ __.42(a)(4)-3: What gross revenue should an institution use in determining the gross annual revenue of a start-up business?

A3. The institution should use the actual gross annual revenue to date (including $0 if the new business has had no revenue to date). Although a start-up business will provide the institution with pro forma projected revenue figures, these figures may not accurately reflect actual gross revenue and, therefore, should not be used.

§ __.42(a)(4)-4: When indicating the gross annual revenue of small business or small farm borrowers, do institutions rely on the gross annual revenue or the adjusted gross annual revenue of their borrowers?

A4. Institutions rely on the gross annual revenue, rather than the adjusted gross annual revenue, of their small business or small farm borrowers when indicating the revenue of small business or small farm borrowers. The purpose of this data collection is to enable examiners and the public to judge whether the institution is lending to small businesses and small farms or whether it is only making small loans to larger businesses and farms.

The regulation does not require institutions to request or consider revenue information when making a loan; however, if institutions do gather this information from their borrowers, the agencies expect them to collect and rely upon the borrowers' gross annual revenue for purposes of CRA. The CRA regulations similarly do not require institutions to verify revenue amounts; thus, institutions may rely on the gross annual revenue amount provided by borrowers in the ordinary course of business. If an institution does not collect gross annual revenue information for its small business and small farm borrowers, the institution should enter the code “revenues not known.” (See Q&A § __.42(a)(4)-2.)

§__.42(b) Loan Information Required To Be Reported

§__.42(b)(1) Small Business and Small Farm Loan Data

§ __.42(b)(1)-1: For small business and small farm loan information that is collected and maintained, what data should be reported?

A1. Each institution that is not exempt from data collection and reporting is required to report in machine-readable form annually by March 1 the following information, aggregated for each census tract in which the institution originated or purchased at least one small business or small farm loan during the prior year:

• The number and amount of loans originated or purchased with original amounts of $100,000 or less;
• The number and amount of loans originated or purchased with original amounts of more than $100,000 but less than or equal to $250,000;
• The number and amount of loans originated or purchased with original amounts of more than $250,000 but not more than $1 million, as to small business loans, or $500,000, as to small farm loans; and
• To the extent that information is available, the number and amount of loans to businesses and farms with gross annual revenues of $1 million or less (using the revenues the institution considered in making its credit decision).

§ __.42(b)(2) Community Development Loan Data

§ __.42(b)(2)-1: What information about community development loans must institutions report?

A1. Institutions subject to data reporting requirements must report the aggregate number and amount of community development loans originated and purchased during the prior calendar year.

§ __.42(b)(2)-2: If a loan meets the definition of a home mortgage, small business, or small farm loan AND qualifies as a community development loan, where should it be reported? Can FHA, VA and SBA loans be reported as community development loans?

A2. Except for multifamily affordable housing loans, which may be reported by retail institutions both under HMDA as home mortgage loans and as community development loans, in order to avoid double counting, retail institutions must report loans that meet the definition of “home mortgage loan,” “small business loan,” or “small farm loan” only in those respective categories even if they also meet the definition of “community development loan.” As a practical matter, this is not a disadvantage for institutions evaluated under the lending, investment, and service tests because any affordable housing mortgage, small business, small farm, or consumer loan that would otherwise meet the definition of “community development loan” will be considered elsewhere in the lending test. Any of these types of loans that occur outside the institution's assessment area can receive consideration under the borrower characteristic criteria of the lending test. See Q&A § __.22(b)(2) & (3)-4.

Limited purpose and wholesale institutions that meet the size threshold for reporting purposes also must report loans that meet the definitions of home mortgage, small business, or small farm loans in those respective categories. However, these institutions must also report any loans from those categories that meet the regulatory definition of “community development loan” as community development loans. There is no double counting because wholesale and limited purpose institutions are not subject to the lending test and, therefore, are not evaluated on their level and distribution of home mortgage, small business, small farm, and consumer loans.

§ __.42(b)(2)-3: When the primary purpose of a loan is to finance an affordable housing project for low- or moderate-income individuals, but, for example, only 40 percent of the units in question will actually be occupied by individuals or families with low or moderate incomes, should the entire loan amount be reported as a community development loan?

A3. Yes. As long as the primary purpose of the loan is a community development purpose, the full amount of the institution's loan should be included in its reporting of aggregate amounts of community development lending. However, as noted in Q&A § __.22(b)(4)-1, examiners may make qualitative distinctions among community development loans on the basis of the extent to which the loan advances the community development purpose.

§ __.42(b)(2)-4: When an institution purchases a participation in a community development loan, which amount should the institution report—the entire amount of the credit originated by the lead lender or the amount of the participation purchased?

A4. The institution reports only the amount of the participation purchased as a community development loan. However, the institution uses the entire amount of the credit originated by the lead lender to determine whether the original credit meets the definition of a “loan to a small business,” “loan to a small farm,” or “community development loan.” For example, if an institution purchases a $400,000 participation in a business credit that has a community development purpose, and the entire amount of the credit originated by the lead lender is over $1 million, the institution would report $400,000 as a community development loan.

§ __.42(b)(2)-5: Should institutions collect and report data about community development loans that are refinanced or renewed?

A5. Yes. Institutions should collect information about community development loans that they refinance or renew as loan originations. Community development loan refinancings and renewals are subject to the reporting limitations that apply to refinancings and renewals of small business and small farm loans. See Q&A § __.42(a)-5.

§ __.42(b)(3) Home Mortgage Loans

§ __.42(b)(3)-1: Must institutions that are not required to collect home mortgage loan data by the HMDA collect home mortgage loan data for purposes of the CRA?

A1. No. If an institution is not required to collect home mortgage loan data by the HMDA, the institution need not collect home mortgage loan data under the CRA. Examiners will sample these loans to evaluate the institution's home mortgage lending. If an institution wants to ensure that examiners consider all of its home mortgage loans, the institution may collect and maintain data on these loans.

§ __.42(c) Optional Data Collection and Maintenance

§ __.42(c)(1) Consumer Loans

§ __.42(c)(1)-1: What are the data requirements regarding consumer loans?

A1. There are no data reporting requirements for consumer loans. Institutions may, however, opt to collect and maintain data on consumer loans. If an institution chooses to collect information on consumer loans, it may collect data for one or more of the following categories of consumer loans: motor vehicle, credit card, home equity, other secured, and other unsecured. If an institution collects data for loans in a certain category, it must collect data for all loans originated or purchased within that category. The institution must maintain these data separately for each category for which it chooses to collect data. The data collected and maintained should include for each loan:

• A unique number or alpha-numeric symbol that can be used to identify the relevant loan file;
• The loan amount at origination or purchase;
• The loan location; and
• The gross annual income of the borrower that the institution considered in making its credit decision.

Generally, guidance given with respect to data collection of small business and small farm loans, including, for example, guidance regarding collecting loan location data, and whether to collect data in connection with refinanced or renewed loans, will also apply to consumer loans.

§ __.42(c)(1)(iv) Income of Borrower

§ __.42(c)(1)(iv)-1: If an institution does not consider income when making an underwriting decision in connection with a consumer loan, must it collect income information?

A1. No. Further, if the institution routinely collects, but does not verify, a borrower's income when making a credit decision, it need not verify the income for purposes of data maintenance.

§ __.42(c)(1)(iv)-2: May an institution list “0” in the income field on consumer loans made to employees when collecting data for CRA purposes as the institution would be permitted to do under HMDA?

A2. Yes.

§ __.42(c)(1)(iv)-3: When collecting the gross annual income of consumer borrowers, do institutions collect the gross annual income or the adjusted gross annual income of the borrowers?

A3. Institutions collect the gross annual income, rather than the adjusted gross annual income, of consumer borrowers. The purpose of income data collection in connection with consumer loans is to enable examiners to determine the distribution, particularly in the institution's assessment area(s), of the institution's consumer loans, based on borrower characteristics, including the number and amount of consumer loans to low-, moderate-, middle-, and upper-income borrowers, as determined on the basis of gross annual income.

The regulation does not require institutions to request or consider income information when making a loan; however, if institutions do gather this information from their borrowers, the agencies expect them to collect the borrowers' gross annual income for purposes of CRA. The CRA regulations similarly do not require institutions to verify income amounts; thus, institutions may rely on the gross annual income amount provided by borrowers in the ordinary course of business.

§ __.42(c)(1)(iv)-4: Whose income does an institution collect when a consumer loan is made to more than one borrower?

A4. An institution that chooses to collect and maintain information on consumer loans collects the gross annual income of all primary obligors for consumer loans, to the extent that the institution considered the income of the obligors when making the decision to extend credit. Primary obligors include co-applicants and co-borrowers, including co-signers. An institution does not, however, collect the income of guarantors on consumer loans, because guarantors are only secondarily liable for the debt.

§ __.42(c)(2) Other Loan Data

§ __.42(c)(2)-1: Schedule RC-C, Part II of the Call Report does not allow banks to report loans for commercial and industrial purposes that are secured by residential real estate, unless the security interest in the nonfarm residential real estate is taken only as an abundance of caution. (See Q&A § __.12(v)-3.) Loans extended to small businesses with gross annual revenues of $1 million or less may, however, be secured by residential real estate. May a bank collect this information to supplement its small business lending data at the time of examination?

A1. Yes. If these loans promote community development, as defined in the regulation, the bank should collect and report information about the loans as community development loans. Otherwise, at the bank's option, it may collect and maintain data concerning loans, purchases, and lines of credit extended to small businesses and secured by nonfarm residential real estate for consideration in the CRA evaluation of its small business lending. A bank may collect this information as “Other Secured Lines/Loans for Purposes of Small Business” in the individual loan data. This information should be maintained at the bank but should not be submitted for central reporting purposes.

§ __.42(c)(2)-2: Must an institution collect data on loan commitments and letters of credit?

A2. No. Institutions are not required to collect data on loan commitments and letters of credit. Institutions may, however, provide for examiner consideration information on letters of credit and commitments.

§ __.42(c)(2)-3: Are commercial and consumer leases considered loans for purposes of CRA data collection?

A3. Commercial and consumer leases are not considered small business or small farm loans or consumer loans for purposes of the data collection requirements in 12 CFR__.42(a) & (c)(1). However, if an institution wishes to collect and maintain data about leases, the institution may provide this data to examiners as “other loan data” under 12 CFR__.42(c)(2) for consideration under the lending test.

§ __.42(d) Data on Affiliate Lending

§ __.42(d)-1: If an institution elects to have an affiliate's home mortgage lending considered in its CRA evaluation, what data must the institution make available to examiners?

A1. If the affiliate is a HMDA reporter, the institution must identify those loans reported by its affiliate under 12 CFR part 203 (Regulation C, implementing HMDA). At its option, the institution may provide examiners with either the affiliate's entire HMDA Disclosure Statement or just those portions covering the loans in its assessment area(s) that it is electing to consider. If the affiliate is not required by HMDA to report home mortgage loans, the institution must provide sufficient data concerning the affiliate's home mortgage loans for the examiners to apply the performance tests.

§ __.43—Content and Availability of Public File

§ __.43(a) Information Available to the Public

§ __.43(a)(1) Public Comments Related to an Institution's CRA Performance

§ __.43(a)(1)-1: What happens to comments received by the agencies?

A1. Comments received by a Federal financial supervisory agency will be on file at the agency for use by examiners. Those comments are also available to the public unless they are exempt from disclosure under the Freedom of Information Act.

§ __.43(a)(1)-2: Is an institution required to respond to public comments?

A2. No. All institutions should review comments and complaints carefully to determine whether any response or other action is warranted. A small institution subject to the small institution performance standards is specifically evaluated on its record of taking action, if warranted, in response to written complaints about its performance in helping to meet the credit needs in its assessment area(s) (12 CFR__ .26(b)(5)). For all institutions, responding to comments may help to foster a dialogue with members of the community or to present relevant information to an institution's Federal financial supervisory agency. If an institution responds in writing to a letter in the public file, the response must also be placed in that file, unless the response reflects adversely on any person or placing it in the public file violates a law.

§ __.43(a)(2) CRA Performance Evaluation

§ __.43(a)(2)-1: May an institution include a response to its CRA performance evaluation in its public file?

A1. Yes. However, the format and content of the evaluation, as transmitted by the supervisory agency, may not be altered or abridged in any manner. In addition, an institution that received a less than satisfactory rating during it most recent examination must include in its public file a description of its current efforts to improve its performance in helping to meet the credit needs of its entire community. See 12 CFR__ .43(b)(5). The institution must update the description on a quarterly basis.

§ __.43(b) Additional Information Available to the Public

§ __.43(b)(1) Institutions Other Than Small Institutions

§ __.43(b)(1)-1: Must an institution that elects to have affiliate lending considered include data on this lending in its public file?

A1. Yes. The lending data to be contained in an institution's public file covers the lending of the institution's affiliates, as well as of the institution itself, considered in the assessment of the institution's CRA performance. An institution that has elected to have mortgage loans of an affiliate considered must include either the affiliate's HMDA Disclosure Statements for the two prior years or the parts of the Disclosure Statements that relate to the institution's assessment area(s), at the institution's option.

§ __.43(b)(1)-2: May an institution retain its CRA disclosure statement in electronic format in its public file, rather than printing a hard copy of the CRA disclosure statement for retention in its public file?

A2. Yes, if the institution can readily print out its CRA disclosure statement from an electronic medium (e.g., CD, DVD, or Internet Web site) when a consumer requests the public file. If the request is at a branch other than the main office or the one designated branch in each state that holds the complete public file, the institution should provide the CRA disclosure statement in a paper copy, or in another format acceptable to the requestor, within 5 calendar days, as required by 12 CFR__.43(c)(2)(ii).

§ __.43(c) Location of Public Information

§ __.43(c)-1: What is an institution's “main office”?

A1. An institution's main office is the main, home, or principal office as designated in its charter.

§ __.43(c)-2: May an institution maintain a copy of its public file on an intranet or the Internet?

A2. Yes, an institution may keep all or part of its public file on an intranet or the Internet, provided that the institution maintains all of the information, either in paper or electronic form, that is required in § __.43 of the regulations. An institution that opts to keep part or all of its public file on an intranet or the Internet must follow the rules in 12 CFR__.43(c)(1) and (2) as to what information is required to be kept at a main office and at a branch. The institution also must ensure that the information required to be maintained at a main office and branch, if kept electronically, can be readily downloaded and printed for any member of the public who requests a hard copy of the information.

§ __ .44—Public Notice by Institutions

§ __.44-1: Are there any placement or size requirements for an institution's public notice?

A1. The notice must be placed in the institution's public lobby, but the size and placement may vary. The notice should be placed in a location and be of a sufficient size that customers can easily see and read it.

§ __.45—Publication of Planned Examination Schedule

§ __.45-1: Where will the agencies publish the planned examination schedule for the upcoming calendar quarter?

A1. The agencies may use the Federal Register, a press release, the Internet, or other existing agency publications for disseminating the list of the institutions scheduled for CRA examinations during the upcoming calendar quarter. Interested parties should contact the appropriate Federal financial supervisory agency for information on how the agency is publishing the planned examination schedule.

§ __.45-2: Is inclusion on the list of institutions that are scheduled to undergo CRA examinations in the next calendar quarter determinative of whether an institution will be examined in that quarter?

A2. No. The agencies attempt to determine as accurately as possible which institutions will be examined during the upcoming calendar quarter. However, whether an institution's name appears on the published list does not conclusively determine whether the institution will be examined during that quarter. The agencies may need to defer a planned examination or conduct an unforeseen examination because of scheduling difficulties or other circumstances.

Appendix A to Part__—Ratings

Appendix A to Part__-1: Must an institution's performance fit each aspect of a particular rating profile in order to receive that rating?

A1. No. Exceptionally strong performance in some aspects of a particular rating profile may compensate for weak performance in others. For example, a retail institution other than an intermediate small institution that uses non-branch delivery systems to obtain deposits and to deliver loans may have almost all of its loans outside the institution's assessment area. Assume that an examiner, after consideration of performance context and other applicable regulatory criteria, concludes that the institution has weak performance under the lending criteria applicable to lending activity, geographic distribution, and borrower characteristics within the assessment area. The institution may compensate for such weak performance by exceptionally strong performance in community development lending in its assessment area or a broader statewide or regional area that includes its assessment area.

Appendix B to Part__—CRA Notice

Appendix B to Part__-1: What agency information should be added to the CRA notice form?

A1. The following information should be added to the form:

OCC-supervised institutions only: For community banks, the address of the deputy comptroller of the district in which the institution is located should be inserted in the appropriate blank. These addresses can be found at http://www.occ.gov. For banks supervised under the large bank program, insert “Large Bank Supervision, 250 E Street, SW., Washington, DC 20219-0001.” For banks supervised under the mid-size/credit card bank program, insert “Mid-Size and Credit Card Bank Supervision, 250 E Street, SW., Washington, DC 20219-0001.”

OCC-, FDIC-, and Board-supervised institutions: “Officer in Charge of Supervision” is the title of the responsible official at the appropriate Federal Reserve Bank.

Index

Keyword	Q&A
Affiliate lending	§ __.22(b)(2) & (3)-3
	§ __.22(c)(1)-1
	§ __.22(c)(2)(i)-1
	§ __.22(c)(2)(ii)-1
	§ __.22(c)(2)(ii)-2
	§ __.26-1
	§ __.41(a)-2
	§ __.42(d)-1
	§ __.43(b)(1)-1
Affiliates	§ __.12(a)-1 § __.22(d)-3
Affordable housing	§ __.12(g)-1
	§ __.12(g)-2
	§ __.12(g)(1)-1
Agreements, private	§ __.29(b)-2
Alternative delivery systems	§ __.24(d)-1 § __.24(d)(3)-1 § __.24(d)(3)-2
Applications, corporate	§ __.29(a)-1 § __.29(a)-2 § __.29(b)-1
Assessment areas	§ __.22(b)(2) & (3)-2
	§ __.22(b)(2) & (3)-3
	§ __.41(a)-1
	§ __.41(a)-2
	§ __.41(a)-3
	§ __.41(c)(1)-1
	§ __.41(c)(1)-2
	§ __.41(d)-1
	§ __.41(e)(3)-1
	§ __.41(e)(4)-1
	§ __.41(e)(4)-2
Assessment area, benefit to	§ __.12(g)-4 § __.12(h)-6
Assets	§ __.12(u)-1 § __.12(u)(2)-1
ATMs	§ __.12(f)-1
	§ __.24(d)-1
	§ __.24(d)(3)-1
Borrower characteristics	§ __.22(b)(2) & (3)-1
Branch	§ __.12(f)-1 § __.12(f)-2 § __.28(a)-1
Brokerage	§ __.12(l)-2
Capital investments	§ __.12(g)-4
CEBA credit card banks	§ __.25(a)-1
Charitable contributions or activities	§ __.12(i)-2
	§ __.12(t)-5
Child care services	§ __.12(g)-1
Commercial loans	§ __.12(v)-2
	§ __.42(a)-1
Commitments	§ __.22(a)(2)-1
	§ __.22(a)(2)-4
	§ __.29(a)-2
	§ __.42(c)(2)-2
Community contact interviews	§ __.21(b)(2)-2
Community development	§ __.12(g)-1
	§ __.12(g)(1)-1
	§ __.12(g)(3)-1
	§ __.12(g)(4)-1
	§ __.12(h)-5
	§ __.12(h)-8
	§ __.12(t)-5
Community development activities	§ __.12(g)-2 § __.12(g)(4)-2 § __.21(a)-2
Community development loan	§ __.12(h)-1
	§ __.12(h)-2
	§ __.12(h)-3
	§ __.12(h)-4
	§ __.12(h)-5
	§ __.12(h)-6
	§ __.12(h)-7
	§ __.12(h)-8
	§ __.12(t)-6
	§ __.12(v)-1
	§ __.22(b)(4)-1
	§ __.22(d)-2
	§ __.23(b)-1
	§ __.26-1
	§ __.26(b)-3
	§ __.26(c)-1
	§ __.26(d)-2
	§ __.42(b)(2)-1
	§ __.42(b)(2)-2
	§ __.42(b)(2)-3
	§ __.42(b)(2)-4
	§ __.42(b)(2)-5
	§ __.42(c)(2)-1
Community development service	§ __.12(h)-6
	§ __.12(h)-7
	§ __.12(h)-8
	§ __.12(i)-1
	§ __.12(i)-2
	§ __.12(i)-3
	§ __.12(l)-2
	§ __.12(t)-7
	§ __.12(v)-3
	§ __.23(b)-1
	§ __.24(e)-1
	§ __.26-1
	§ __.26(c)-1
	§ __.26(c)(3)-1
	§ __.26(d)-2
Community development test for intermediate small institutions	§ __.26(b)-1
	§ __.26(c)-1
	§ __.26(c)(3)-1
	§ __.26(c)(4)-1
	§ __.28-1
Community development test for wholesale and limited purpose institutions	§ __.25(d)-1
	§ __.25(f)-1
Community services	§ __.12(g)-2 § __.12(t)-4
Complexity	§ __.21(a)-2
	§ __.22(b)(5)-1
	§ __.23(e)-2
	§ __.28-1
Consortia	§ __.22(d)-2 § __.26(b)-3
Consumer loan	§ __.12(h)-2
	§ __.12(j)-1
	§ __.12(j)-2
	§ __.12(x)-1
	§ __.22(a)(1)-2
	§ __.42(c)(1)-1
	§ __.42(c)(1)(iv)-1
	§ __.42(c)(1)(iv)-2
	§ __.42(c)(1)(iv)-3
	§ __.42(c)(1)(iv)-4
CRA disclosure statement	§ __.43(b)(1)-2
Credit cards	§ __.12(h)-4
	§ __.12(v)-4
	§ __.42(a)(2)-3
Credit union, low-income	§ __.12(g)-4 § __.12(t)-4
Data collection	§ __.42-1
	§ __.42-2
	§ __.42-4
	§ __.42-5
	§ __.42-6
	§ __.42-7
	§ __.42(a)-1
	§ __.42(a)-2
	§ __.42(a)-4
	§ __.42(a)-5
	§ __.42(a)-8
	§ __.42(a)-10
	§ __.42(a)(2)-1
	§ __.42(a)(2)-2
	§ __.42(a)(2)-3
	§ __.42(a)(4)-2
	§ __.42(a)(4)-4
	§ __.42(b)(2)-5
	§ __.42(b)(3)-1
	§ __.42(c)(1)-1
	§ __.42(c)(1)(iv)-1
	§ __.42(c)(1)(iv)-2
	§ __.42(c)(1)(iv)-3
	§ __.42(c)(1)(iv)-4
	§ __.42(c)(2)-1
Data reporting	§ __.42-1
	§ __.42-3
	§ __.42-4
	§ __.42(a)-1
	§ __.42(a)-4
	§ __.42(a)-5
	§ __.42(a)-8
	§ __.42(a)-9
	§ __.42(a)-10
	§ __.42(a)(2)-1
	§ __.42(b)(1)-1
	§ __.42(b)(2)-1
	§ __.42(b)(2)-2
	§ __.42(b)(2)-3
	§ __.42(b)(2)-4
	§ __.42(b)(2)-5
Debit cards	§ __.24(d)(3)-2
Designated disaster area	§ __.12(g)(4)-2
	§ __.12(g)(4)(ii)-1
	§ __.12(g)(4)(ii)-2
Distressed nonmetropolitan middle-income geography	§ __.12(g)(4)-2
	§ __.12(g)(4)(iii)-1
	§ __.12(g)(4)(iii)-2
	§ __.12(g)(4)(iii)-3
Economic development	§ __.12(g)-1
	§ __.12(g)-2
	§ __.12(g)(3)-1
Education, financial literacy	§ __.12(i)-3 § __.22(a)-1
Educational services	§ __.12(g)-1
Employees' charitable activities	§ __.12(i)-2
Employees' income	§ __.42(c)(1)(iv)-2
Environmental hazards	§ __.12(h)-1
Examination schedule	§ __.45-1 § __.45-2
Federal branch	§ __.12(u)-1
Federal Home Loan Bank	§ __.12(t)-3
Federal Reserve Bank membership reserves	§ __.12(t)-3
Financial services, provision of	§ __.12(i)-1
Fisheries	§ __.42(a)-6
Flexibility	§ __.12(g)-3 § __.22(b)(5)-1
Foreclosure prevention program	§ __.12(g)(4)(i)-1
	§ __.12(i)-3
	§ __.22(a)-1
Forestries	§ __.42(a)-6
Geographic distribution	§ __.22(b)(2) & (3)-1
Geography	§ __.12(g)(4)(iii)-1
	§ __.41(d)-1
	§ __.41(e)(3)-1
Guaranteed loans	§ __.22(a)(2)-5
Guarantor	§ __.42(c)(1)(iv)-4
Health services	§ __.12(g)-1
High cost area	§ __.12(g)-3
HMDA reporting	§ __.12(j)-2
	§ __.12(l)-2
	§ __.22(a)(1)-1
	§ __.22(a)(2)-7
	§ __.42(a)-7
	§ __.42(b)(3)-1
Home equity line of credit	§ __.12(j)-2 § __.42(a)-7
Home equity loan	§ __.12(j)-1
Home mortgage lending	§ __.22(a)(1)-1 § __.42(d)-1
Home mortgage loan	§ __.12(h)-2
	§ __.12(h)-3
	§ __.12(j)-2
	§ __.12(l)-1
	§ __.12(l)-2
	§ __.12(x)-1
	§ __.22(b)(2) & (3)-5
	§ __.23(b)-2
	§ __.42(b)(2)-2
	§ __.42(b)(3)-1
Illegal credit practices	§ __.28(c)-1
Income	§ __.42(c)(1)(iv)-1
	§ __.42(c)(1)(iv)-2
	§ __.42(c)(1)(iv)-3
	§ __.42(c)(1)(iv)-4
Income level	§ __.12(m)-1
Indirect investments	§ __.23(a)-1
Individual development accounts (IDAs)	§ __.12(i)-3 § __.24(d)-2
Innovativeness	§ __.21(a)-2
	§ __.22(b)(5)-1
	§ __.23(e)-2
	§ __.28-1
Institutional capacity and constraints	§ __.21(b)(4)-1
Intermediate small institution	§ __.12(h)-3
	§ __.12(u)(2)-1
	§ __.26(a)(2)-1
Internet/intranet	§ __.43(b)(1)-2 § __.43(c)-2
Investment authority	§ __.12(t)-1
Leases	§ __.22(a)(2)-4 § __.42(c)(2)-3
Lending activity	§ __.22(b)(1)-1
Lending distribution	§ __.22(b)(2) & (3)-1
	§ __.22(b)(2) & (3)-2
	§ __.22(b)(2) & (3)-3
	§ __.26(b)(3) & (4)-1
Lending within assessment area	§ __.26(b)(2)-1
Letters of credit	§ __.22(a)(2)-1
	§ __.22(a)(2)-4
	§ __.42(c)(2)-2
Limited purpose institution	§ __.12(n)-1
	§ __.12(n)-2
	§ __.12(n)-3
	§ __.42-7
	§ __.42(b)(2)-2
Lines of credit	§ __.42-3 § __.42-4
Loan amount	§ __.42(a)-2 § __.42(a)(2)-1
Loan application activity	§ __.22(a)(2)-2
Loan location	§ __.42(a)-2
	§ __.42(a)-10
	§ __.42(a)(3)-1
Loan originations, multiple	§ __.42(a)(2)-2
Loan participations	§ __.12(g)-4
	§ __.22(a)(2)-6
	§ __.42(b)(2)-4
Loan production office (LPO)	§ __.12(f)-2
Loans, outside-assessment area	§ __.22(b)(2) & (3)-4
Loan-to-deposit ratio	§ __.26(b)(1)-1
	§ __.26(b)(1)-2
	§ __.26(b)(1)-3
Main office	§ __.43(c)-1
Measurable goals	§ __.27(f)(1)-1
MECAs	§ __.22(a)(2)-3 § __.22(a)(2)-4
Merging institutions	§ __.42-5
Minority-owned financial institution	§ __.12(g)-4 § __.12(t)-4
Mobile branch	§ __.12(f)-1
Mortgage-backed securities	§ __.12(t)-2 § __.23(b)-2
Multi-purpose loan	§ __.12(j)-3
Municipal bonds	§ __.12(t)-2
Nationwide fund	§ __.23(a)-2 § __.25(e)-1
New Markets Tax Credit Community Development Entity	§ __.12(g)(3)-1
	§ __.12(h)-1
	§ __.12(t)-4
New Markets Venture Capital Company	§ __.12(g)(3)-1
Niche institution	§ __.12(n)-3
Nonprofit organization	§ __.12(v)-1
Other loan data	§ __.22(a)(2)-4 § __.42(c)(2)-1
Past performance	§ __.21(b)(5)-1
Performance context	§ __.21(b)-1
	§ __.21(b)(2)-1
	§ __.21(b)(2)-2
	§ __.21(b)(4)-1
	§ __.21(b)(5)-1
	§ __.21(b)(5)-2
	§ __.22(a)(2)-2
	§ __.23(e)-2
	§ __.26(c)(4)-1
Performance criteria	§ __.21(a)-1
	§ __.23(e)-1
	§ __.23(e)-2
	§ __.28(b)-1
Performance evaluation	§ __.43(a)(2)-1
Performance rating	§ __.26(d)-1
	§ __.28-1
	§ __.28(a)-1
	§ __.28(a)-2
	§ __.28(a)-3
	§ __.28(b)-1
	§ __.28(c)-1
	APPENDIX A to Part_-1
Political subdivision	§ __.41(c)(1)-1
	§ __.41(c)(1)-2
	§ __.41(d)-1
Primary purpose	§ __.12(g)-3
	§ __.12(h)-8
	§ __.12(t)-5
Public comment	§ __.27(g)(2)-1
	§ __.29(b)-1
	§ __.43(a)(1)-1
	§ __.43(a)(1)-2
Public file	§ __.43(a)(1)-2
	§ __.43(a)(2)-1
	§ __.43(b)(1)-1
	§ __.43(b)(1)-2
	§ __.43(c)-2
Public notice	§ __.27(g)(2)-1
	§ __.44-1
	APPENDIX B to Part_-1
Qualified investment	§ __.12(h)-6
	§ __.12(h)-7
	§ __.12(h)-8
	§ __.12(t)-2
	§ __.12(t)-3
	§ __.12(t)-4
	§ __.12(t)-5
	§ __.12(t)-6
	§ __.12(t)-7
	§ __.12(t)-8
	§ __.23(a)-1
	§ __.23(b)-1
	§ __.23(b)-2
	§ __.23(a)-2
	§ __.23(e)-1
	§ __.23(e)-2
	§ __.26-1
	§ __.26(b)-5
	§ __.26(c)-1
	§ __.26(d)-2
Qualitative factors	§ __.12(g)(3)-1
	§ __.12(t)-8
	§ __.21(a)-2
	§ __.22(b)(4)-1
	§ __.22(b)(5)-1
	§ __.23(e)-1
	§ __.23(e)-2
	§ __.26(c)(4)-1
	§ __.28(b)-1
Ratings matrix	§ __.28(a)-3
Refinancings	§ __.22(a)(2)-7
	§ __.42(a)-5
	§ __.42(b)(2)-5
Regional area	§ __.12(h)-7
Remote service facility (RSF)	§ __.12(f)-1
Renewals	§ __.42-4
	§ __.42(a)-5
	§ __.42(b)(2)-5
Responsiveness	§ __.21(a)-2
	§ __.22(a)-1
	§ __.23(e)-2
	§ __.26(c)(4)-1
	§ __.28-1
Retail banking services	§ __.12(l)-2 § __.24(d)-1
Revenue	§ __.42(a)(4)-1
	§ __.42(a)(4)-2
	§ __.42(a)(4)-3
	§ __.42(a)(4)-4
Revitalize or stabilize	§ __.12(g)-1
	§ __.12(g)-2
	§ __.12(g)(4)-2
	§ __.12(g)(4)(i)-1
	§ __.12(g)(4)(ii)-2
	§ __.12(g)(4)(iii)-3
	§ __.12(g)(4)(iii)-4
	§ __.12(h)-5
SBA 504 Certified Development Company program	§ __.12(h)-1
SBIC or SBDC	§ __.12(g)(3)-1
	§ __.12(t)-4
Similarly situated lenders	§ __.21(b)(5)-2
Small business loan	§ __.12(h)-2
	§ __.12(v)-1
	§ __.12(v)-2
	§ __.12(v)-3
	§ __.12(v)-4
	§ __.12(x)-1
	§ __.22(a)(2)-7
	§ __.42(a)-2
	§ __.42(a)-3
	§ __.42(a)-5
	§ __.42(a)-8
	§ __.42(a)-10
	§ __.42(a)(2)-1
	§ __.42(a)(2)-3
	§ __.42(a)(3)-1
	§ __.42(a)(4)-1
	§ __.42(a)(4)-2
	§ __.42(b)(2)-2
	§ __.42(c)(2)-1
Small farm loan	§ __.12(h)-2
	§ __.12(v)-1
	§ __.12(x)-1
	§ __.42(a)-2
	§ __.42(a)-3
	§ __.42(a)-4
	§ __.42(a)-5
	§ __.42(a)-6
	§ __.42(a)-8
	§ __.42(a)-10
	§ __.42(a)(2)-1
	§ __.42(a)(4)-2
	§ __.42(b)(2)-2
Small institution	§ __.12(u)-1
	§ __.12(u)(2)-1
	§ __.26(b)-1
	§ __.42-1
	§ __.42-6
	§ __.42-7
Small institution performance standards	§ __.26-1
	§ __.26(b)-1
	§ __.26(b)-2
	§ __.26(b)-3
	§ __.26(b)-4
	§ __.26(b)-5
	§ __.26(b)(3) & (4)-1
	§ __.26(d)-1
	§ __.26(d)-2
Social services	§ __.12(g)-1
Software for data collection and reporting	§ __.42-2 § __.42-6
Special purpose institution	§§ __.11(c)(3) & 563e.11(c)(2)-1 §§ __.11(c)(3) & 563e.11(c)(2)-2
State branch	§ __.12(u)-1
Strategic plan	§ __.27(c)-1
	§ __.27(c)-2
	§ __.27(f)(1)-1
	§ __.27(g)(2)-1
Subsidiary	§ __.12(a)-1
Third party investments	§ __.22(d)-1
	§ __.22(d)-2
	§ __.22(d)-3
	§ __.25(d)-1
	§ __.26(b)-3
Underserved nonmetropolitan middle-income geography	§ __.12(g)(4)-2
	§ __.12(g)(4)(iii)-1
	§ __.12(g)(4)(iii)-2
	§ __.12(g)(4)(iii)-4
Wholesale institution	§ __.12(n)-2
	§ __.12(n)-3
	§ __.12(x)-1
	§ __.42-7
	§ __.42(b)(2)-2
Women-owned financial institutions	§ __.12(g)-4 § __.12(t)-4

End of text of the Interagency Questions and Answers

Dated: December 9, 2008.

John C. Dugan,

Comptroller of the Currency.

By order of the Board of Governors of the Federal Reserve System, December 19, 2008.

Jennifer J. Johnson,

Secretary of the Board.

Dated at Washington, DC, this 23rd day of December 2008.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

Dated: December 11, 2008.

By the Office of Thrift Supervision.

John M. Reich,

Director.