`[Federal Register Volume 75, Number 47 (Thursday, March 11, 2010)]
[Notices]
[Pages 11642-11680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4903]



[[Page 11641]]

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Part II





Department of the Treasury





Office of the Comptroller of the Currency





Federal Reserve System Federal Deposit Insurance Corporation Department 
of the Treasury





Office of Thrift Supervision



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Community Reinvestment Act; Interagency Questions and Answers Regarding 
Community Reinvestment; Notice

  Federal Register / Vol. 75, No. 47 / Thursday, March 11, 2010 / 
Notices  

[[Page 11642]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket ID OCC-2010-0002]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1349]

FEDERAL DEPOSIT INSURANCE CORPORATION

RIN--3064-AC97

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

[Docket ID OTS-2010-0004]


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.

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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 January 6, 
2009. In response to comments received, the agencies made minor 
clarifications to the new and revised questions and answers that were 
proposed.

DATES: Effective Date: March 11, 2010.

FOR FURTHER INFORMATION CONTACT:
    OCC: Gregory Nagel or Karen Tucker, National Bank Examiners, 
Compliance Policy Division, (202) 874-4428; or Margaret Hesse, Special 
Counsel, Community and Consumer Law Division, (202) 874-5750, Office of 
the Comptroller of the Currency, 250 E Street, SW., Washington, DC 
20219.
    Board: Cathy Gates, Senior Project Manager, (202) 452-3946; or 
Brent Lattin, Attorney, (202) 452-3667, Division of Consumer and 
Community Affairs, Board of Governors of the Federal Reserve System, 
20th Street and Constitution Avenue, NW., Washington, DC 20551.
    FDIC: Janet R. Gordon, Senior Policy Analyst, Division of 
Supervision and Consumer Protection, Compliance Policy Branch, (202) 
898-3850; or Susan van den Toorn, Counsel, Legal Division, (202) 898-
8707, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    OTS: Stephanie M. Caputo, Senior Compliance Program Analyst, 
Compliance and Consumer Protection, (202) 906-6549; or Richard Bennett, 
Senior Compliance Counsel, Regulations and Legislation Division, (202) 
906-7409, 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 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 Institutions Examination Council 
(FFIEC) in 1996 (61 FR 54647), and were last revised on January 6, 2009 
(2009 Questions and Answers) (74 FR 498).
    The supplementary information published with the 2009 Questions and 
Answers also proposed for comment one new question and answer (Q&A) and 
two revised Q&As. 74 FR 504-06. Together, the agencies received 
comments from 19 different parties. The commenters represented 
financial institutions and their trade associations, community 
development advocates and organizations, and others.
    As discussed below, this document adopts the three new and revised 
Q&As that were proposed in January 2009, with minor clarifications, as 
appropriate, in response to comments received. The agencies are also 
adopting conforming revisions to an existing Q&A.
    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 Sec.  --
--.26--1.
    Although a particular Q&A may provide guidance on 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.

New and Revised Q&As

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

    The agencies proposed a new Q&A, Sec.  ----.12(g)(2)--1, that would 
provide examples of ways an institution that 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. Several comments were received 
from community groups and banking organizations that supported the 
examples in the proposal. In addition, one suggestion was made to 
clarify that community services can include those provided by an entity 
with a broad mission, provided that the activities themselves qualify 
as community services. This suggestion was incorporated into the Q&A 
examples as a new fourth bullet.
    Another commenter suggested that the definition of community 
services be broadened to cover financial literacy programs provided to 
school children of any income level in any school. Financial literacy 
programs are an example of community development services. See Q&A 
Sec.  ----.12(i)--3. The commenter's suggestion was not adopted because 
community development services must have a primary purpose of community 
development, which would require the financial literacy programs to be 
targeted to low- or moderate-income individuals.

[[Page 11643]]

    The new Q&A is being adopted as revised.

Revised Q&A Sec.  ----.12(h)--8: Primary Purpose of 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 Sec.  ----.12(h)--8 historically has 
provided 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.
    To date, 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 proposed to revise Q&A Sec.  ----.12(h)--8 to allow 
pro rata consideration for an activity that provides some affordable 
housing targeted to low- or moderate-income individuals, but when it 
would not be deemed to have a primary purpose of community development 
measured by a majority of the entire activity's beneficiaries or dollar 
value, or by relying on the express purpose of the activity. The 
proposed 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, the proposed Q&A would allow an institution to receive 
pro rata consideration for the portion of the activity that provides 
affordable housing to low- or moderate-income individuals.
    Commenters generally supported the proposed revision. One commenter 
suggested that the agencies should allow only pro rata treatment in all 
situations where less than a majority of an activity's dollars will be 
used for community development. This commenter further suggested that 
the agencies should eliminate full consideration of activities that 
have an ``express, bona fide intent'' of community development when the 
measurable portion of any benefit bestowed or dollars applied is less 
than a majority of the entire activity's benefits or dollar value. The 
agencies decline to adopt this suggestion. If the express, bona fide 
intent of an activity is community development, even though the 
measurable portion of any benefit bestowed or dollars applied is less 
than a majority of the entire activity's benefits or dollar value, the 
agencies continue to believe that it is important that such activities, 
such as projects involving low-income housing tax credits, receive full 
consideration.
    Several commenters were concerned that the proposal would result in 
a reduction of the amount of CRA consideration provided to financial 
institutions' loans or investments in mixed-income properties. The 
agencies do not intend this result. In fact, the proposed revision 
should increase the amount of consideration available to institutions. 
Some commenters believed that all activities in connection with 
properties with a set-aside for affordable units received total 
quantitative CRA consideration. Although this is true if the express, 
bona fide intent of the entire project is community development, that 
is not always the intent. For example, a private development in which a 
developer is required to set aside a small percentage of the units as 
affordable housing in order to receive zoning approval would not have 
the requisite express, bona fide intent. As a result of the revision, 
however, the financial institution could receive consideration for the 
pro rata amount of the affordable housing set-aside.
    The agencies had asked whether allowing pro rata consideration 
would spur the construction and rehabilitation of housing for low- or 
moderate-income persons. Commenters provided mixed responses. A number 
of commenters believed that allowing pro rata consideration may provide 
an added incentive to financial institutions. A couple of commenters, 
however, believed that the revision would not spur additional 
construction and rehabilitation because, for example, the development 
of local housing is based on a local agency's determination of its 
community housing needs and is not influenced by a financial 
institution's CRA requirements.
    Commenters responded nearly unanimously that the pro rata treatment 
should not be restricted only to instances where a governmental entity 
requires a set-aside. Commenters believed that the voluntary inclusion 
of affordable housing components in development by private developers 
should also receive consideration. As one commenter stated, 
``Affordable housing is affordable housing.'' The final question and 
answer would allow pro rata treatment in connection with any project 
that provides affordable housing, regardless of whether a governmental 
entity requires a set-aside.
    In response to the agencies' question about how the amount of the 
pro rata share should be determined for reporting purposes (by units or 
by loan proceeds), several commenters urged flexibility. Several 
commenters believed that the entire amount of the loan should be 
reported. Other commenters suggested that when the actual amount of 
funds attributed to the affordable units is readily apparent, for 
example in connection with a construction loan, the actual dollar 
amount should be considered. However, in other cases, where the actual 
amount of funds is not readily apparent, the pro rata share should be 
determined based on the percentage of set-aside units.
    The final question and answer has been clarified. Institutions will 
determine the pro rata share of the activity that provides affordable 
housing to low- or moderate-income individuals based on the percentage 
of units set-aside for affordable housing for low- or moderate-income 
individuals. The Agencies believe that this method of determining the 
portion of a loan or investment that provides affordable housing for 
low- or moderate-income individuals imposes the least amount of burden 
on developers and lenders to differentiate the construction costs, 
including the proportional share of costs related to infrastructure, 
common areas, and site amenities, between market and affordable units.
    The proposed revision restricted the pro rata treatment only to 
affordable housing activities by financial

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institutions. The agencies asked whether the pro rata treatment should 
apply only to affordable housing or whether the pro rata treatment 
should also apply to loans or investments with other community 
development purposes.
    Since the CRA regulations were revised in 1995, affordable housing 
initiatives have included more and more mixed-income housing. Fewer new 
or rehabilitated housing projects provide primarily low-income housing. 
Mixed-income housing is an important goal in government housing 
assistance programs. Because of the compelling public interest in 
affordable housing programs, the agencies believe that it is 
appropriate that the pro rata treatment be adopted with regard to 
affordable housing. However, the agencies decline to expand the 
coverage of this treatment to activities other than those providing 
affordable housing at this time. The agencies will keep abreast of 
developments in other types of community development activities and 
evaluate the effectiveness of the pro rata treatment in connection with 
affordable housing programs. We will reassess whether such treatment 
should be afforded other types of community development activities at a 
later date. The agencies have added clarifying language to the final 
answer to emphasize that the pro rata treatment applies only to 
affordable housing activities.
    Finally, the agencies asked for comment on whether the adoption of 
pro rata treatment would lead to unjustifiable inflation of community 
development activities. Commenters unanimously asserted that it would 
not.
    The agencies are adopting the revised Q&A with the clarifications 
described above.

Revised Q&A Sec.  ----.42(b)(2)--3: Data Collection

    The agencies explained in January 2009 that if the proposed 
revision to Q&A Sec.  ----.12(h)--8, described above, were adopted, the 
agencies would also revise Q&A Sec.  ----.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. The agencies proposed that, if an 
institution were to elect to have the portion of mixed-income housing 
loans that were 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 that 
is affordable for low- or moderate-income individuals.
    Three commenters addressed the proposed revision to this Q&A. The 
general concern addressed by the commenters was the potential for 
confusion in reporting the pro rata share of an affordable housing 
activity. As in the past, the full amount of the loan should be 
collected and reported if the majority of the dollars or beneficiaries 
are identifiable to a community development purpose. Similarly, the 
full amount of the loan should be collected and reported if the 
express, bona fide intent of the loan or investment is community 
development, even though a majority of the dollars or beneficiaries are 
not identifiable with a community development purpose. In connection 
with affordable housing projects that provide mixed-income housing, but 
where a majority of the dollars or units do not have a community 
development purpose and the express, bona fide intent of the loan is 
not community development, 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. The pro rata dollar 
amount of the total activity will be based on the percentage of units 
set-aside for affordable housing for low- or moderate-income 
individuals. The agencies are adopting the proposed revision to the 
Q&A, but have added a sentence to the final answer to clarify this 
guidance.

Conforming Revision to Q&A Sec.  ----.22(a)(2)--4: Other Loan Data

    Q&A Sec.  ----.22(a)(2)--4, as adopted in January of 2009 (74 FR 
517), stated that 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, should be submitted by the financial 
institution for consideration as ``other loan data.'' In the 
supplementary information published with the proposed revisions to the 
interagency questions and answers, the agencies advised that, if the 
proposed revision to Q&A Sec.  ----.12(h)--8 were adopted, a conforming 
change to Q&A Sec.  ----.22(a)(2)--4 would be made. The answer to Q&A 
Sec.  ----.22(a)(2)--4 has been revised to remove the reference to 
``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'' as an example of ``other loan data'' because such 
activities are eligible for pro rata treatment.
    The text of the final Interagency Questions and Answers follows:

Interagency Questions and Answers Regarding Community Reinvestment

Sec.  ----.11--Authority, purposes, and scope

Sec.  ----.11(c) Scope

Sec. Sec.  ----.11(c)(3) & 563e.11(c)(2) Certain special purpose 
institutions

    Sec. Sec.  ----.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.
    Sec. Sec.  ----.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.

Sec.  ----.12--Definitions

Sec.  ----.12(a) Affiliate

    Sec.  ----.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.

Sec.  ----.12(f) Branch

    Sec.  ----.12(f)--1: Do the definitions of ``branch,'' ``automated 
teller machine (ATM),'' and ``remote service facility

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(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.''
    Sec.  ----.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.

Sec.  ----.12(g) Community development

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.12(h)--8 for more 
information on ``primary purpose.''
    Sec.  ----.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.

Sec.  ----.12(g)(1) Affordable housing (including multifamily rental 
housing) for low- or moderate-income individuals

    Sec.  ----.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

[[Page 11646]]

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.

Sec.  ----.12(g)(2) Community services targeted to low- or moderate-
income individuals

    Sec.  ----.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 a clearly defined program that 
benefits primarily low- or moderate-income persons, even if it is 
provided by an entity that offers other programs that serve individuals 
of all income levels.
     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)).

Sec.  ----.12(g)(3) Activities that promote economic development by 
financing businesses or farms that meet certain size eligibility 
standards

    Sec.  ----.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 supports 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 a 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 Sec.  ----.42(b)(2)--2, Sec.  ----.12(h)--2, and Sec.  --
--.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.

Sec.  ----.12(g)(4) Activities that revitalize or stabilize certain 
geographies

    Sec.  ----.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).
    Sec.  ----.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,

[[Page 11647]]

unless it is a multifamily dwelling loan. See 12 CFR ----.12(h)(2)(i) 
and Q&As Sec.  ----.12(h)--2 and Sec.  ----.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 Sec.  --
--.12(g)(4)(i)--1 and Sec.  ----.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.

Sec.  ----.12(g)(4)(i) Activities that revitalize or stabilize low- or 
moderate-income geographies

    Sec.  ----.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. Sec.  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 Sec.  --
--.12(g)--2 and Sec.  ----.12(h)--5.

Sec.  ----.12(g)(4)(ii) Activities that revitalize or stabilize 
designated disaster areas

    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.12(i)--3; Sec.  --
--.12(t)--4; Sec.  ----.22(b)(2) & (3)--4; Sec.  ----.22(b)(2) & (3)--
5; and Sec.  ----.24(d)(3)--1).

Sec.  ----.12(g)(4)(iii) Activities that revitalize or stabilize 
distressed or underserved nonmetropolitan middle-income geographies

    Sec.  ----.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

[[Page 11648]]

Examination Council Web site (http://www.ffiec.gov).
    Sec.  ----.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.
    Sec.  ----.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 Sec.  --
--.12(g)(4)(i)--1 and Sec.  ----.12(h)--5.
    Sec.  ----.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 Sec.  ----.12(g)(4)(ii)--2 and Sec.  --
--.12(g)(4)(iii)--3.

Sec.  ----.12(h) Community development loan

    Sec.  ----.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.
    Sec.  ----.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

[[Page 11649]]

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 Sec.  ----.12(h)--3). Multifamily dwelling loans, 
however, may be considered as community development loans as well as 
home mortgage loans. See also Q&A Sec.  ----.42(b)(2)--2.
    Sec.  ----.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.
    Sec.  ----.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.''
    Sec.  ----.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.
    Sec.  ----.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).
    Sec.  ----.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).
    Sec.  ----.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

[[Page 11650]]

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 involving the 
provision of affordable housing 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, the 
institution may elect to treat $1 million of such loan as a community 
development loan. In other words, the pro rata dollar amount of the 
total activity will be based on the percentage of units set-aside for 
affordable housing for low- or moderate-income individuals.
    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 should be prepared to demonstrate the activities' 
qualifications.

Sec.  ----.12(i) Community development service

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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;

[[Page 11651]]

     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.

Sec.  ----.12(j) Consumer loan

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.12(l) Home mortgage loan

    Sec.  ----.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 Sec.  --
--.22(a)(2)--7.
    Sec.  ----.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.

Sec.  ----.12(m) Income level

    Sec.  ----.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

[[Page 11652]]

site at http://www.ffiec.gov/cra or by calling the FFIEC's CRA 
Assistance Line at (202) 872-7584.

Sec.  ----.12(n) Limited purpose institution

    Sec.  ----.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.
    Sec.  ----.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?
    Sec.  ----.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.

Sec.  ----.12(t) Qualified investment

    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.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 Sec.  ----.23(b)--2.
    Sec.  ----.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 Sec.  --
--.12(i)--3.
    Sec.  ----.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 Sec.  ----.12(g)(4)(ii)--2; Sec.  --
--.12(g)(4)(iii)--3; Sec.  ----.12(g)(4)(iii)--4.
    Sec.  ----.12(t)--5: Will an institution receive consideration for 
charitable

[[Page 11653]]

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.
    Sec.  ----.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.
    Sec.  ----.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.''
    Sec.  ----.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.

Sec.  ----.12(u) Small institution

    Sec.  ----.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.

Sec.  ----.12(u)(2) Small institution adjustment

    Sec.  ----.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.

Sec.  ----.12(v) Small business loan

    Sec.  ----.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.''
    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.12(x) Wholesale institution

    Sec.  ----.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?

[[Page 11654]]

    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 Sec.  ----.12(n)--
2.

Sec.  ----.21--Performance tests, standards, and ratings, in general

Sec.  ----.21(a) Performance tests and standards

    Sec.  ----.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.
    Sec.  ----.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.)

Sec.  ----.21(b) Performance context

    Sec.  ----.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.

Sec.  ----.21(b)(2) Information maintained by the institution or 
obtained from community contacts

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.21(b)(4) Institutional capacity and constraints

    Sec.  ----.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.

Sec.  ----.21(b)(5) Institution's past performance and the performance 
of similarly situated lenders

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.22--Lending test

Sec.  ----.22(a) Scope of test

    Sec.  ----.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

[[Page 11655]]

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.

Sec.  ----.22(a)(1) Types of loans considered

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.22(a)(2) Loan originations and purchases/other loan data

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.''
    Sec.  ----.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; 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.
    Sec.  ----.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.
    Sec.  ----.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., Sec.  
----.21(a)--1.
    Sec.  ----.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

[[Page 11656]]

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 Sec.  ----.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 Sec.  ----.12(v)--3. The refinancings of such loans 
would be reported under HMDA.

Sec.  ----.22(b) Performance criteria

Sec.  ----.22(b)(1) Lending activity

    Sec.  ----.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.

Sec.  ----.22(b)(2) & (3) Geographic distribution and borrower 
characteristics

    Sec.  ----.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.
    Sec.  ----.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).
    Sec.  ----.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.
    Sec.  ----.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

[[Page 11657]]

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).
    Sec.  ----.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.

Sec.  ----.22(b)(4) Community development lending

    Sec.  ----.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.

Sec.  ----.22(b)(5) Innovative or flexible lending practices

    Sec.  ----.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.

Sec.  ----.22(c) Affiliate lending

Sec.  ----.22(c)(1) In general

    Sec.  ----.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

[[Page 11658]]

loans, home equity loans, other secured loans, and other unsecured 
loans).

Sec.  ----.22(c)(2) Constraints on affiliate lending

Sec.  ----.22(c)(2)(i) No affiliate may claim a loan origination or 
loan purchase if another institution claims the same loan origination 
or purchase

    Sec.  ----.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 Sec.  ----.22(c)(2)(ii)--1 and 
Sec.  ----.22(c)(2)(ii)--2.

Sec.  ----.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

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.22(d) Lending by a consortium or a third party

    Sec.  ----.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 Sec.  ----.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.)
    Sec.  ----.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.
    Sec.  ----.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

[[Page 11659]]

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).

Sec.  ----.23--Investment test

Sec.  ----.23(a) Scope of test

    Sec.  ----.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).
    Sec.  ----.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 Sec.  ----.12(h)--6 and Sec.  ----12(h)--7 
(additional information about recognition of investments benefiting an 
area outside an institution's assessment area(s).)

Sec.  ----.23(b) Exclusion

    Sec.  ----.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.
    Sec.  ----.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

[[Page 11660]]

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.

Sec.  ----.23(e) Performance criteria

    Sec.  ----.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 Sec.  ----.12(t)--8 for a 
discussion about the qualitative consideration of prior period 
investments.
    Sec.  ----.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.

Sec.  ----.24--Service test

Sec.  ----.24(d) Performance criteria--retail banking services

    Sec.  ----.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.
    Sec.  ----.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 Sec.  --
--.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.

Sec.  ----.24(d)(3) Availability and effectiveness of alternative 
systems for delivering retail banking services

    Sec.  ----.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

[[Page 11661]]

moderate-income areas and individuals. The list of systems in the 
regulation is not intended to be comprehensive.
    Sec.  ----.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.

Sec.  ----.24(e) Performance criteria--community development services

    Sec.  ----.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 Sec.  ----.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).

Sec.  ----.25 Community development test for wholesale or limited 
purpose institutions

Sec.  ----.25(a) Scope of test

    Sec.  ----.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).

Sec.  ----.25(d) Indirect activities

    Sec.  ----.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).

Sec.  ----.25(e) Benefit to assessment area(s)

    Sec.  ----.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).

Sec.  ----.25(f) Community development performance rating

    Sec.  ----.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.

Sec.  ----.26--Small institution performance standards

    Sec.  ----.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.

[[Page 11662]]

Sec.  ----.26(a) Performance criteria

Sec.  ----.26(a)(2) Intermediate small institutions

    Sec.  ----.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.

Sec.  ----.26(b) Lending test

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.26(b)(1) Loan-to-deposit ratio
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.26(b)(2) Percentage of lending within assessment area(s)

    Sec.  ----.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

[[Page 11663]]

condition, business strategies, and branching network; and other 
aspects of the institution's lending record.

Sec.  ----.26(b)(3) & (4) Distribution of lending within assessment 
area(s) by borrower income and geographic location

    Sec.  ----.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.

Sec.  ----.26(c) Intermediate small institution community development 
test

    Sec.  ----.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.

Sec.  ----.26(c)(3) Community development services

    Sec.  ----.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.

Sec.  ----.26(c)(4) Responsiveness to community development needs

    Sec.  ----.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.

Sec.  ----.26(d) Performance rating

    Sec.  ----.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

[[Page 11664]]

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.''
    Sec.  ----.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 Sec.  
----.12(h)--6 and Sec.  ----.12(h)--7.

Sec.  ----.27--Strategic plan

Sec.  ----.27(c) Plans in general

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.27(f) Plan content

Sec.  ----.27(f)(1) Measurable goals

    Sec.  ----.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.

Sec.  ----.27(g) Plan approval

Sec.  ----.27(g)(2) Public participation

    Sec.  ----.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.

Sec.  ----.28--Assigned ratings

    Sec.  ----.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 Sec.  
----.26(c)(4)--1 for a discussion about responsiveness to community 
development needs under the community development test applicable to 
intermediate small institutions.

Sec.  ----.28(a) Ratings in general

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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

[[Page 11665]]

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.

Sec.  ----.28(b) Lending, investment, and service test ratings

    Sec.  ----.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.

Sec.  ----.28(c) Effect of evidence of discriminatory or other illegal 
credit practices

    Sec.  ----.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 Sec.  ----.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.

Sec.  ----.29--Effect of CRA performance on applications

Sec.  ----.29(a) CRA performance

    Sec.  ----.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

[[Page 11666]]

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.
    Sec.  ----.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.

Sec.  ----.29(b) Interested parties

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.41--Assessment area delineation

Sec.  ----.41(a) In general

    Sec.  ----.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 Sec.  ----.41(e).
    Sec.  ----.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).
    Sec.  ----.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.

Sec.  ----.41(c) Geographic area(s) for institutions other than 
wholesale or limited purpose institutions

Sec.  ----.41(c)(1) Generally consist of one or more MSAs or 
metropolitan divisions or one or more contiguous political subdivisions

    Sec.  ----.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).
    Sec.  ----.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.

Sec.  ----.41(d) Adjustments to geographic area(s)

    Sec.  ----.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.

Sec.  ----.41(e) Limitations on delineation of an assessment area

Sec.  ----.41(e)(3) May not arbitrarily exclude low- or moderate-income 
geographies

    Sec.  ----.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:

[[Page 11667]]

     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.

Sec.  ----.41(e)(4) May not extend substantially beyond an MSA boundary 
or beyond a state boundary unless located in a multistate MSA

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.42--Data collection, reporting, and disclosure

    Sec.  ----.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 Sec.  ----.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: [email protected]. 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.
    Sec.  ----.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 (202) 872-
7584 or click on ``How to File'' at http://www.ffiec.gov/cra.
    Sec.  ----.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.''
    Sec.  ----.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 Sec.  ----.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.
    Sec.  ----.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

[[Page 11668]]

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.
    Sec.  ----.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 (202) 872-7584 or send an e-mail to [email protected].
    Sec.  ----.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.

Sec.  ----.42(a) Loan information required to be collected and 
maintained

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.42(a)--3: Will farm loans need to be segregated from 
business loans?
    A3. Yes.
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.''
    Sec.  ----.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

[[Page 11669]]

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.''
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.42(a)(2) Loan amount at origination

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.42(a)(3) The loan location

    Sec.  ----.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.

Sec.  ----.42(a)(4) Indicator of gross annual revenue

    Sec.  ----.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.

[[Page 11670]]

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.
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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 
Sec.  ----.42(a)(4)--2.)

Sec.  ----.42(b) Loan information required to be reported

Sec.  ----.42(b)(1) Small business and small farm loan data

    Sec.  ----.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).

Sec.  ----.42(b)(2) Community development loan data

    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.12(h)--8, 
the full amount of the institution's loan should be included in its 
reporting of aggregate amounts of community development lending. Even 
though the entire amount of the loan is reported, as noted in Q&A Sec.  
----.22(b)(4)--1, examiners may make qualitative distinctions among

[[Page 11671]]

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. The pro rata 
dollar amount of the total activity will be based on the percentage of 
units that are affordable. See Q&A Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.42(a)--5.

Sec.  ----.42(b)(3) Home mortgage loans

    Sec.  ----.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.

Sec.  ----.42(c) Optional data collection and maintenance

Sec.  ----.42(c)(1) Consumer loans

    Sec.  ----.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.

Sec.  ----.42(c)(1)(iv) Income of borrower

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.42(c)(2) Other loan data

    Sec.  ----.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

[[Page 11672]]

security interest in the nonfarm residential real estate is taken only 
as an abundance of caution. (See Q&A Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.42(d) Data on affiliate lending

    Sec.  ----.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.

Sec.  ----.43--Content and availability of public file

Sec.  ----.43(a) Information available to the public

Sec.  ----.43(a)(1) Public comments related to an institution's CRA 
performance

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.43(a)(2) CRA performance evaluation

    Sec.  ----.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 its 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.

Sec.  ----.43(b) Additional information available to the public

Sec.  ----.43(b)(1) Institutions other than small institutions

    Sec.  ----.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.
    Sec.  ----.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 five 
calendar days, as required by 12 CFR ----.43(c)(2)(ii).

Sec.  ----.43(c) Location of public information

    Sec.  ----.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.
    Sec.  ----.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 Sec.  ----.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

[[Page 11673]]

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.

Sec.  ----.44--Public notice by institutions

    Sec.  ----.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.
    Sec.  ----.45--Publication of planned examination schedule
    Sec.  ----.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.
    Sec.  ----.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...............................  Sec.   ----.22(b)(2) & (3)--3
                                                  Sec.   ----.22(c)(1)--1
                                                  Sec.   ----.22(c)(2)(i)--1
                                                  Sec.   ----.22(c)(2)(ii)--1
                                                  Sec.   ----.22(c)(2)(ii)--2
                                                  Sec.   ----.26--1
                                                  Sec.   ----.41(a)--2
                                                  Sec.   ----.42(d)--1
                                                  Sec.   ----.43(b)(1)--1
Affiliates......................................  Sec.   ----.12(a)--1
                                                  Sec.   ----.22(d)--3
                                                  Sec.   ----.24(e)--1
Affordable housing..............................  Sec.   ----.12(g)--1
                                                  Sec.   ----.12(g)--2
                                                  Sec.   ----.12(g)(1)--1
Agreements, private.............................  Sec.   ----.29(b)--2
Alternative delivery systems....................  Sec.   ----.24(d)--1
                                                  Sec.   ----.24(d)(3)--1
                                                  Sec.   ----.24(d)(3)--2
Applications, corporate.........................  Sec.   ----.29(a)--1
                                                  Sec.   ----.29(a)--2
                                                  Sec.   ----.29(b)--1
Assessment areas................................  Sec.   ----.22(b)(2) & (3)--2
                                                  Sec.   ----.22(b)(2) & (3)--3
                                                  Sec.   ----.41(a)--1
                                                  Sec.   ----.41(a)--2
                                                  Sec.   ----.41(a)--3
                                                  Sec.   ----.41(c)(1)--1

[[Page 11674]]

 
                                                  Sec.   ----.41(c)(1)--2
                                                  Sec.   ----.41(d)--1
                                                  Sec.   ----.41(e)(3)--1
                                                  Sec.   ----.41(e)(4)--1
                                                  Sec.   ----.41(e)(4)--2
Assessment area, benefit to.....................  Sec.   ----.12(g)--4
                                                  Sec.   ----.12(h)--6
Assets..........................................  Sec.   ----.12(u)--1
                                                  Sec.   ----.12(u)(2)--1
ATMs............................................  Sec.   ----.12(f)--1
                                                  Sec.   ----.24(d)--1
                                                  Sec.   ----.24(d)(3)--1
Borrower characteristics........................  Sec.   ----.22(b)(2) & (3)--1
Branch..........................................  Sec.   ----.12(f)--1
                                                  Sec.   ----.12(f)--2
                                                  Sec.   ----.28(a)--1
Brokerage.......................................  Sec.   ----.12(l)--2
Capital investments.............................  Sec.   ----.12(g)--4
CEBA credit card banks..........................  Sec.   ----.25(a)--1
Charitable contributions or activities..........  Sec.   ----.12(i)--2
                                                  Sec.   ----.12(t)--5
Child care services.............................  Sec.   ----.12(g)--1
Commercial loans................................  Sec.   ----.12(v)--2
                                                  Sec.   ----.42(a)--1
Commitments.....................................  Sec.   ----.22(a)(2)--1
                                                  Sec.   ----.22(a)(2)--4
                                                  Sec.   ----.29(a)--2
                                                  Sec.   ----.42(c)(2)--2
Community contact interviews....................  Sec.   ----.21(b)(2)--2
Community development...........................  Sec.   ----.12(g)--1
                                                  Sec.   ----.12(g)(1)--1
                                                  Sec.   ----.12(g)(3)--1
                                                  Sec.   ----.12(g)(4)--1
                                                  Sec.   ----.12(h)--5
                                                  Sec.   ----.12(h)--8
                                                  Sec.   ----.12(t)--5
Community development activities................  Sec.   ----.12(g)--2
                                                  Sec.   ----.12(g)(4)--2
                                                  Sec.   ----.21(a)--2
Community development loan......................  Sec.   ----.12(h)--1
                                                  Sec.   ----.12(h)--2
                                                  Sec.   ----.12(h)--3
                                                  Sec.   ----.12(h)--4
                                                  Sec.   ----.12(h)--5
                                                  Sec.   ----.12(h)--6
                                                  Sec.   ----.12(h)--7
                                                  Sec.   ----.12(h)--8
                                                  Sec.   ----.12(t)--6
                                                  Sec.   ----.12(v)--1
                                                  Sec.   ----.22(b)(4)--1
                                                  Sec.   ----.22(d)--2
                                                  Sec.   ----.23(b)--1
                                                  Sec.   ----.26--1
                                                  Sec.   ----.26(b)--3
                                                  Sec.   ----.26(c)--1
                                                  Sec.   ----.26(d)--2
                                                  Sec.   ----.42(b)(2)--1
                                                  Sec.   ----.42(b)(2)--2
                                                  Sec.   ----.42(b)(2)--3
                                                  Sec.   ----.42(b)(2)--4
                                                  Sec.   ----.42(b)(2)--5
                                                  Sec.   ----.42(c)(2)--1
Community development service...................  Sec.   ----.12(h)--6
                                                  Sec.   ----.12(h)--7
                                                  Sec.   ----.12(h)--8
                                                  Sec.   ----.12(i)--1
                                                  Sec.   ----.12(i)--2
                                                  Sec.   ----.12(i)--3
                                                  Sec.   ----.12(l)--2
                                                  Sec.   ----.12(t)--7
                                                  Sec.   ----.12(v)--3
                                                  Sec.   ----.23(b)--1

[[Page 11675]]

 
                                                  Sec.   ----.24(e)--1
                                                  Sec.   ----.26--1
                                                  Sec.   ----.26(c)--1
                                                  Sec.   ----.26(c)(3)--1
                                                  Sec.   ----.26(d)--2
Community development test for intermediate       Sec.   ----.26(b)--1
 small institutions.
                                                  Sec.   ----.26(c)--1
                                                  Sec.   ----.26(c)(3)--1
                                                  Sec.   ----.26(c)(4)--1
                                                  Sec.   ----.28--1
Community development test for wholesale and      Sec.   ----.25(d)--1
 limited purpose institutions.
                                                  Sec.   ----.25(f)--1
Community services..............................  Sec.   ----.12(g)--2
                                                  Sec.   ----.12(g)(2)--1
                                                  Sec.   ----.12(t)--4
Complexity......................................  Sec.   ----.21(a)--2
                                                  Sec.   ----.22(b)(5)--1
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.28--1
Consortia.......................................  Sec.   ----.22(d)--2
                                                  Sec.   ----.26(b)--3
Consumer loan...................................  Sec.   ----.12(h)--2
                                                  Sec.   ----.12(j)--1
                                                  Sec.   ----.12(j)--2
                                                  Sec.   ----.12(x)--1
                                                  Sec.   ----.22(a)(1)--2
                                                  Sec.   ----.42(c)(1)--1
                                                  Sec.   ----.42(c)(1)(iv)--1
                                                  Sec.   ----.42(c)(1)(iv)--2
                                                  Sec.   ----.42(c)(1)(iv)--3
                                                  Sec.   ----.42(c)(1)(iv)--4
CRA disclosure statement........................  Sec.   ----.43(b)(1)--2
Credit cards....................................  Sec.   ----.12(h)--4
                                                  Sec.   ----.12(v)--4
                                                  Sec.   ----.42(a)(2)--3
Credit union, low-income........................  Sec.   ----.12(g)--4
                                                  Sec.   ----.12(t)--4
Data collection.................................  Sec.   ----.42--1
                                                  Sec.   ----.42--2
                                                  Sec.   ----.42--4
                                                  Sec.   ----.42--5
                                                  Sec.   ----.42--6
                                                  Sec.   ----.42--7
                                                  Sec.   ----.42(a)--1
                                                  Sec.   ----.42(a)--2
                                                  Sec.   ----.42(a)--4
                                                  Sec.   ----.42(a)--5
                                                  Sec.   ----.42(a)--8
                                                  Sec.   ----.42(a)--10
                                                  Sec.   ----.42(a)(2)--1
                                                  Sec.   ----.42(a)(2)--2
                                                  Sec.   ----.42(a)(2)--3
                                                  Sec.   ----.42(a)(4)--2
                                                  Sec.   ----.42(a)(4)--4
                                                  Sec.   ----.42(b)(2)--5
                                                  Sec.   ----.42(b)(3)--1
                                                  Sec.   ----.42(c)(1)--1
                                                  Sec.   ----.42(c)(1)(iv)--1
                                                  Sec.   ----.42(c)(1)(iv)--2
                                                  Sec.   ----.42(c)(1)(iv)--3
                                                  Sec.   ----.42(c)(1)(iv)--4
                                                  Sec.   ----.42(c)(2)--1
Data reporting..................................  Sec.   ----.42--1
                                                  Sec.   ----.42--3
                                                  Sec.   ----.42--4
                                                  Sec.   ----.42(a)--1
                                                  Sec.   ----.42(a)--4
                                                  Sec.   ----.42(a)--5
                                                  Sec.   ----.42(a)--8
                                                  Sec.   ----.42(a)--9
                                                  Sec.   ----.42(a)--10
                                                  Sec.   ----.42(a)(2)--1

[[Page 11676]]

 
                                                  Sec.   ----.42(b)(1)--1
                                                  Sec.   ----.42(b)(2)--1
                                                  Sec.   ----.42(b)(2)--2
                                                  Sec.   ----.42(b)(2)--3
                                                  Sec.   ----.42(b)(2)--4
                                                  Sec.   ----.42(b)(2)--5
Debit cards.....................................  Sec.   ----.24(d)(3)--2
Designated disaster area........................  Sec.   ----.12(g)(4)--2
                                                  Sec.   ----.12(g)(4)(ii)--1
                                                  Sec.   ----.12(g)(4)(ii)--2
Distressed nonmetropolitan middle-income          Sec.   ----.12(g)(4)--2
 geography.
                                                  Sec.   ----.12(g)(4)(iii)--1
                                                  Sec.   ----.12(g)(4)(iii)--2
                                                  Sec.   ----.12(g)(4)(iii)--3
Economic development............................  Sec.   ----.12(g)--1
                                                  Sec.   ----.12(g)--2
                                                  Sec.   ----.12(g)(3)--1
Education, financial literacy...................  Sec.   ----.12(i)--3
                                                  Sec.   ----.22(a)--1
Educational services............................  Sec.   ----.12(g)--1
Employees' charitable activities................  Sec.   ----.12(i)--2
Employees' income...............................  Sec.   ----.42(c)(1)(iv)--2
Environmental hazards...........................  Sec.   ----.12(h)--1
Examination schedule............................  Sec.   ----.45--1
                                                  Sec.   ----.45--2
Federal branch..................................  Sec.   ----.12(u)--1
Federal Home Loan Bank..........................  Sec.   ----.12(t)--3
Federal Reserve Bank membership reserves........  Sec.   ----.12(t)--3
Financial services, provision of................  Sec.   ----.12(i)--1
Fisheries.......................................  Sec.   ----.42(a)--6
Flexibility.....................................  Sec.   ----.12(g)--3
                                                  Sec.   ----.22(b)(5)--1
Foreclosure prevention program..................  Sec.   ----.12(g)(4)(i)--1
                                                  Sec.   ----.12(i)--3
                                                  Sec.   ----.22(a)--1
Forestries......................................  Sec.   ----.42(a)--6
Geographic distribution.........................  Sec.   ----.22(b)(2) & (3)--1
Geography.......................................  Sec.   ----.12(g)(4)(iii)--1
                                                  Sec.   ----.41(d)--1
                                                  Sec.   ----.41(e)(3)--1
Guaranteed loans................................  Sec.   ----.22(a)(2)--5
Guarantor.......................................  Sec.   ----.42(c)(1)(iv)--4
Health services.................................  Sec.   ----.12(g)--1
High cost area..................................  Sec.   ----.12(g)--3
HMDA reporting..................................  Sec.   ----.12(j)--2
                                                  Sec.   ----.12(l)--2
                                                  Sec.   ----.22(a)(1)--1
                                                  Sec.   ----.22(a)(2)--7
                                                  Sec.   ----.42(a)--7
                                                  Sec.   ----.42(b)(3)--1
Home equity line of credit......................  Sec.   ----.12(j)--2
                                                  Sec.   ----.42(a)--7
Home equity loan................................  Sec.   ----.12(j)--1
Home mortgage lending...........................  Sec.   ----.22(a)(1)--1
                                                  Sec.   ----.42(d)--1
Home mortgage loan..............................  Sec.   ----.12(h)--2
                                                  Sec.   ----.12(h)--3
                                                  Sec.   ----.12(j)--2
                                                  Sec.   ----.12(l)--1
                                                  Sec.   ----.12(l)--2
                                                  Sec.   ----.12(x)--1
                                                  Sec.   ----.22(b)(2) & (3)--5
                                                  Sec.   ----.23(b)--2
                                                  Sec.   ----.42(b)(2)--2
                                                  Sec.   ----.42(b)(3)--1
Illegal credit practices........................  Sec.   ----.28(c)--1
Income..........................................  Sec.   ----.42(c)(1)(iv)--1
                                                  Sec.   ----.42(c)(1)(iv)--2
                                                  Sec.   ----.42(c)(1)(iv)--3
                                                  Sec.   ----.42(c)(1)(iv)--4
Income level....................................  Sec.   ----.12(m)--1
Indirect investments............................  Sec.   ----.23(a)--1

[[Page 11677]]

 
Individual development accounts (IDAs)..........  Sec.   ----.12(i)--3
                                                  Sec.   ----.24(d)--2
Innovativeness..................................  Sec.   ----.21(a)--2
                                                  Sec.   ----.22(b)(5)--1
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.28--1
Institutional capacity and constraints..........  Sec.   ----.21(b)(4)--1
Intermediate small institution..................  Sec.   ----.12(h)--3
                                                  Sec.   ----.12(u)(2)--1
                                                  Sec.   ----.26(a)(2)--1
Internet/intranet...............................  Sec.   ----.43(b)(1)--2
                                                  Sec.   ----.43(c)--2
Investment authority............................  Sec.   ----.12(t)--1
Leases..........................................  Sec.   ----.22(a)(2)--4
                                                  Sec.   ----.42(c)(2)--3
Lending activity................................  Sec.   ----.22(b)(1)--1
Lending distribution............................  Sec.   ----.22(b)(2) & (3)--1
                                                  Sec.   ----.22(b)(2) & (3)--2
                                                  Sec.   ----.22(b)(2) & (3)--3
                                                  Sec.   ----.26(b)(3) & (4)--1
Lending within assessment area..................  Sec.   ----.26(b)(2)--1
Letters of credit...............................  Sec.   ----.22(a)(2)--1
                                                  Sec.   ----.22(a)(2)--4
                                                  Sec.   ----.42(c)(2)--2
Limited purpose institution.....................  Sec.   ----.12(n)--1
                                                  Sec.   ----.12(n)--2
                                                  Sec.   ----.12(n)--3
                                                  Sec.   ----.42--7
                                                  Sec.   ----.42(b)(2)--2
Lines of credit.................................  Sec.   ----.42--3
                                                  Sec.   ----.42--4
Loan amount.....................................  Sec.   ----.42(a)--2
                                                  Sec.   ----.42(a)(2)--1
Loan application activity.......................  Sec.   ----.22(a)(2)--2
Loan location...................................  Sec.   ----.42(a)--2
                                                  Sec.   ----.42(a)--10
                                                  Sec.   ----.42(a)(3)--1
Loan originations, multiple.....................  Sec.   ----.42(a)(2)--2
Loan participations.............................  Sec.   ----.12(g)--4
                                                  Sec.   ----.22(a)(2)--6
                                                  Sec.   ----.42(b)(2)--4
Loan production office (LPO)....................  Sec.   ----.12(f)--2
Loans, outside-assessment area..................  Sec.   ----.22(b)(2) & (3)--4
Loan-to-deposit ratio...........................  Sec.   ----.26(b)(1)--1
                                                  Sec.   ----.26(b)(1)--2
                                                  Sec.   ----.26(b)(1)--3
Main office.....................................  Sec.   ----.43(c)--1
Measurable goals................................  Sec.   ----.27(f)(1)--1
MECAs...........................................  Sec.   ----.22(a)(2)--3
                                                  Sec.   ----.22(a)(2)--4
Merging institutions............................  Sec.   ----.42--5
Minority-owned financial institution............  Sec.   ----.12(g)--4
                                                  Sec.   ----.12(t)--4
Mixed-income housing............................  Sec.   ----.12(h)--8
                                                  Sec.   ----.42(b)(2)--3
Mobile branch...................................  Sec.   ----.12(f)--1
Mortgage-backed securities......................  Sec.   ----.12(t)--2
                                                  Sec.   ----.23(b)--2
Multi-purpose loan..............................  Sec.   ----.12(j)--3
Municipal bonds.................................  Sec.   ----.12(t)--2
Nationwide fund.................................  Sec.   ----.23(a)--2
                                                  Sec.   ----.25(e)--1
New Markets Tax Credit Community Development      Sec.   ----.12(g)(3)--1
 Entity.
                                                  Sec.   ----.12(h)--1
                                                  Sec.   ----.12(t)--4
New Markets Venture Capital Company.............  Sec.   ----.12(g)(3)--1
Niche institution...............................  Sec.   ----.12(n)--3
Nonprofit organization..........................  Sec.   ----.12(v)--1
Other loan data.................................  Sec.   ----.22(a)(2)--4
                                                  Sec.   ----.42(c)(2)--1
Past performance................................  Sec.   ----.21(b)(5)--1
Performance context.............................  Sec.   ----.21(b)--1

[[Page 11678]]

 
                                                  Sec.   ----.21(b)(2)--1
                                                  Sec.   ----.21(b)(2)--2
                                                  Sec.   ----.21(b)(4)--1
                                                  Sec.   ----.21(b)(5)--1
                                                  Sec.   ----.21(b)(5)--2
                                                  Sec.   ----.22(a)(2)--2
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.26(c)(4)--1
Performance criteria............................  Sec.   ----.21(a)--1
                                                  Sec.   ----.23(e)--1
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.28(b)--1
Performance evaluation..........................  Sec.   ----.43(a)(2)--1
Performance rating..............................  Sec.   ----.26(d) -1
                                                  Sec.   ----.28--1
                                                  Sec.   ----.28(a)--1
                                                  Sec.   ----.28(a)--2
                                                  Sec.   ----.28(a)--3
                                                  Sec.   ----.28(b)--1
                                                  Sec.   ----.28(c)--1
                                                  APPENDIX A to Part ------1
Political subdivision...........................  Sec.   ----.41(c)(1)--1
                                                  Sec.   ----.41(c)(1)--2
                                                  Sec.   ----.41(d)--1
Primary purpose.................................  Sec.   ----.12(g)--3
                                                  Sec.   ----.12(h)--8
                                                  Sec.   ----.12(t)--5
Public comment..................................  Sec.   ----.27(g)(2)--1
                                                  Sec.   ----.29(b)--1
                                                  Sec.   ----.43(a)(1)--1
                                                  Sec.   ----.43(a)(1)--2
Public file.....................................  Sec.   ----.43(a)(1)--2
                                                  Sec.   ----.43(a)(2)--1
                                                  Sec.   ----.43(b)(1)--1
                                                  Sec.   ----.43(b)(1)--2
                                                  Sec.   ----.43(c)--2
Public notice...................................  Sec.   ----.27(g)(2)--1
                                                  Sec.   ----.44--1
                                                  APPENDIX B to Part ------1
Qualified investment............................  Sec.   ----.12(h)--6
                                                  Sec.   ----.12(h)--7
                                                  Sec.   ----.12(h)--8
                                                  Sec.   ----.12(t)--2
                                                  Sec.   ----.12(t)--3
                                                  Sec.   ----.12(t)--4
                                                  Sec.   ----.12(t)--5
                                                  Sec.   ----.12(t)--6
                                                  Sec.   ----.12(t)--7
                                                  Sec.   ----.12(t)--8
                                                  Sec.   ----.23(a)--1
                                                  Sec.   ----.23(b)--1
                                                  Sec.   ----.23(b)--2
                                                  Sec.   ----.23(a)--2
                                                  Sec.   ----.23(e)--1
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.26--1
                                                  Sec.   ----.26(b)--5
                                                  Sec.   ----.26(c)--1
                                                  Sec.   ----.26(d)--2
Qualitative factors.............................  Sec.   ----.12(g)(3)--1
                                                  Sec.   ----.12(t)--8
                                                  Sec.   ----.21(a)--2
                                                  Sec.   ----.22(b)(4)--1
                                                  Sec.   ----.22(b)(5)--1
                                                  Sec.   ----.23(e)--1
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.26(c)(4)--1
                                                  Sec.   ----.28(b)--1
Ratings matrix..................................  Sec.   ----.28(a)--3
Refinancings....................................  Sec.   ----.22(a)(2)--7
                                                  Sec.   ----.42(a)--5
                                                  Sec.   ----.42(b)(2)--5

[[Page 11679]]

 
Regional area...................................  Sec.   ----.12(h)--7
Remote service facility (RSF)...................  Sec.   ----.12(f)--1
Renewals........................................  Sec.   ----.42--4
                                                  Sec.   ----.42(a)--5
                                                  Sec.   ----.42(b)(2)--5
Responsiveness..................................  Sec.   ----.21(a)--2
                                                  Sec.   ----.22(a)--1
                                                  Sec.   ----.23(e)--2
                                                  Sec.   ----.26(c)(4)--1
                                                  Sec.   ----.28--1
Retail banking services.........................  Sec.   ----.12(l)--2
                                                  Sec.   ----.24(d)--1
Revenue.........................................  Sec.   ----.42(a)(4)--1
                                                  Sec.   ----.42(a)(4)--2
                                                  Sec.   ----.42(a)(4)--3
                                                  Sec.   ----.42(a)(4)--4
Revitalize or stabilize.........................  Sec.   ----.12(g)--1
                                                  Sec.   ----.12(g)--2
                                                  Sec.   ----.12(g)(4)--2
                                                  Sec.   ----.12(g)(4)(i)--1
                                                  Sec.   ----.12(g)(4)(ii)--2
                                                  Sec.   ----.12(g)(4)(iii)--3
                                                  Sec.   ----.12(g)(4)(iii)--4
                                                  Sec.   ----.12(h)--5
SBA 504 Certified Development Company program...  Sec.   ----.12(h)--1
SBIC or SBDC....................................  Sec.   ----.12(g)(3)--1
                                                  Sec.   ----.12(t)--4
Similarly situated lenders......................  Sec.   ----.21(b)(5)--2
Small business loan.............................  Sec.   ----.12(h)--2
                                                  Sec.   ----.12(v)--1
                                                  Sec.   ----.12(v)--2
                                                  Sec.   ----.12(v)--3
                                                  Sec.   ----.12(v)--4
                                                  Sec.   ----.12(x)--1
                                                  Sec.   ----.22(a)(2)--7
                                                  Sec.   ----.42(a)--2
                                                  Sec.   ----.42(a)--3
                                                  Sec.   ----.42(a)--5
                                                  Sec.   ----.42(a)--8
                                                  Sec.   ----.42(a)--10
                                                  Sec.   ----.42(a)(2)--1
                                                  Sec.   ----.42(a)(2)--3
                                                  Sec.   ----.42(a)(3)--1
                                                  Sec.   ----.42(a)(4)--1
                                                  Sec.   ----.42(a)(4)--2
                                                  Sec.   ----.42(b)(2)--2
                                                  Sec.   ----.42(c)(2)--1
Small farm loan.................................  Sec.   ----.12(h)--2
                                                  Sec.   ----.12(v)--1
                                                  Sec.   ----.12(x)--1
                                                  Sec.   ----.42(a)--2
                                                  Sec.   ----.42(a)--3
                                                  Sec.   ----.42(a)--4
                                                  Sec.   ----.42(a)--5
                                                  Sec.   ----.42(a)--6
                                                  Sec.   ----.42(a)--8
                                                  Sec.   ----.42(a)--10
                                                  Sec.   ----.42(a)(2)--1
                                                  Sec.   ----.42(a)(4)--2
                                                  Sec.   ----.42(b)(2)--2
Small institution...............................  Sec.   ----.12(u)--1
                                                  Sec.   ----.12(u)(2)--1
                                                  Sec.   ----.26(b)--1
                                                  Sec.   ----.42--1
                                                  Sec.   ----.42--6
                                                  Sec.   ----.42--7
Small institution performance standards.........  Sec.   ----.26--1
                                                  Sec.   ----.26(b)--1
                                                  Sec.   ----.26(b)--2
                                                  Sec.   ----.26(b)--3
                                                  Sec.   ----.26(b)--4
                                                  Sec.   ----.26(b)--5

[[Page 11680]]

 
                                                  Sec.   ----.26(b)(3) & (4)--1
                                                  Sec.   ----.26(d)-1
                                                  Sec.   ----.26(d)--2
Social services.................................  Sec.   ----.12(g)--1
Software for data collection and reporting......  Sec.   ----.42--2
                                                  Sec.   ----.42--6
Special purpose institution.....................  Sec.  Sec.   ----.11(c)(3) & 563e.11(c)(2)--1
                                                  Sec.  Sec.   ----.11(c)(3) & 563e.11(c)(2)--2
State branch....................................  Sec.   ----.12(u)--1
Strategic plan..................................  Sec.   ----.27(c)--1
                                                  Sec.   ----.27(c)--2
                                                  Sec.   ----.27(f)(1)--1
                                                  Sec.   ----.27(g)(2)--1
Subsidiary......................................  Sec.   ----.12(a)--1
Third-party investments.........................  Sec.   ----.22(d)--1
                                                  Sec.   ----.22(d)--2
                                                  Sec.   ----.22(d)--3
                                                  Sec.   ----.25(d)--1
                                                  Sec.   ----.26(b)--3
Underserved nonmetropolitan middle-income         Sec.   ----.12(g)(4)--2
 geography.
                                                  Sec.   ----.12(g)(4)(iii)--1
                                                  Sec.   ----.12(g)(4)(iii)--2
                                                  Sec.   ----.12(g)(4)(iii)--4
Wholesale institution...........................  Sec.   ----.12(n)--2
                                                  Sec.   ----.12(n)--3
                                                  Sec.   ----.12(x)--1
                                                  Sec.   ----.42--7
                                                  Sec.   ----.42(b)(2)--2
Women-owned financial institutions..............  Sec.   ----.12(g)--4
                                                  Sec.   ----.12(t)--4
----------------------------------------------------------------------------------------------------------------

    End of text of the Interagency Questions and Answers

    Dated: January 27, 2010.
John C. Dugan,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, March 2, 2010.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this 18th day of February, 2010.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
    Dated: February 12, 2010.

    By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
[FR Doc. 2010-4903 Filed 3-10-10; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P`