Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52105

and high cost areas; (6) support for lowincome consumers; (7) support for

schools, libraries, and health care

providers; (8) interstate subscriber line

charge and common line cost recovery;

and (9) administration of support

mechanisms. The reporting and

recordkeeping requirements contained

in CC Docket No. 96–45 are designed to

implement section 254 follow. The

reporting and recordkeeping are

necessary to ensure the integrity of the

program. All the collections are

necessary to implement the

congressional mandate for universal

service. The reporting and

recordkeeping requirements are

necessary to verify that the carriers and

other respondents are eligible to receive

universal service support. Obligation to

comply: mandatory.

Rule section/title (47 CFR) Hours per

response

Total annual

burden

a. 36.611(a) and 36.612—Submission and Updating information to NECA ............................................................. 20 ................ 26,800

b. 54.101(c)—Demonstration of exceptional circumstances for toll-limitation grace period ...................................... 50 ................ 100

c. 54.201(b)–(c)—Submission of eligibility criteria ..................................................................................................... 1 .................. 3,400

d. 54.201(d)(2)—Advertisement of services and charges ......................................................................................... 50 ................ 65,000

e. 54.205(a)—Advance notice of relinquishment of universal service ....................................................................... .5 ................. 50

f. 54.207(c)(1)—Submission of proposal for redefining a rural service area ............................................................. 125 .............. 6,250

g. 54.307(b)—Reporting of expenses and number of lines served ........................................................................... 2.5 (avg.) ..... 4,100

h. 54.401(b)(1)–(2)—Submission of disconnection waiver request ........................................................................... 2 .................. 100

i. 54.401(d)—Lifeline certification to the Administrator .............................................................................................. 1 .................. 1,300

j. 54.407(c)—Lifeline recordkeeping ........................................................................................................................... 80 ................ 104,000

k. 54.409(a)–(b)—Consumer qualification for Lifeline ................................................................................................ 5 min ........... 440,000

l. 54.409(b)—Consumer notification of Lifeline discontinuance ................................................................................. 5 min ........... 44,000

m. 54.418(b)—Link Up recordkeeping ....................................................................................................................... 80 ................ 104,000

n. 54.501(d)(4) and 54.516—Schools and Libraries recordkeeping .......................................................................... 41 (avg.) ...... 372,000

o. 54.504(b)–(c), 54.507(d) and 54.509(a)—Description of services requested and certification ............................. 2 .................. 100,000

p. 54.601(b)(4) and 54.609(b)—Calculating support for health care providers ......................................................... 100 .............. 340,000

q. 54.601(b)(3) and 54.619—Shared facility recordkeeping ...................................................................................... 21 (avg.) ...... 160,000

r. 54.607(b)(1)–(2)—Submission of proposed rural rate ............................................................................................ 3 .................. 150

s. 54.603(b)(1), 54.615(c)–(d) and 54.623(d)—Description of services requested and certification ........................ 1 .................. 12,000

t. 54.619(d)—Submission of rural health care report ................................................................................................. 40 ................ 40

u. 54.701(f)(1) and (f)(2)—Submission of annual report and CAM ........................................................................... 40 ................ 40

v. 54.701(g)—Submission of quarterly report ............................................................................................................ 10 ................ 40

w. 54.707—Submission of state commission designation ......................................................................................... .25 ............... 850

Public reporting burden for the

collections of information is as noted

above. Send comments regarding the

burden estimate or any other aspect of

the collections of information, including

suggestions for reducing the burden to

Performance Evaluation and Records

Management, Washington, DC 20554.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 97–26418 Filed 10–3–97; 8:45 am]

BILLING CODE 6712–01–U

FEDERAL FINANCIAL INSTITUTIONS

EXAMINATION COUNCIL

Community Reinvestment Act;

Interagency Questions and Answers

Regarding Community Reinvestment

AGENCY: Federal Financial Institutions

Examination Council.

ACTION: Notice and request for comment.

SUMMARY: The Consumer Compliance

Task Force of the Federal Financial

Institutions Examination Council

(FFIEC) is supplementing, amending,

and republishing its Interagency

Questions and Answers Regarding

Community Reinvestment. The

Interagency Questions and Answers

have been prepared by staff of the Office

of the Comptroller of the Currency

(OCC), the Federal Reserve Board

(Board), the Federal Deposit Insurance

Corporation (FDIC), and the Office of

Thrift Supervision (OTS) (collectively,

the ‘‘agencies’’) to answer most

frequently asked questions about

community reinvestment. The

Interagency Questions and Answers

contain informal staff guidance for

agency personnel, financial institutions,

and the public. Staff of the agencies seek

comment on the proposed questions and

answers concerning how to determine

whether particular activities have a

‘‘primary purpose’’ of community

development. In addition, staff also

invite public comment on the new and

revised questions and answers,

particularly the guidance regarding

home mortgage loans to middle- and

upper-income individuals in low- or

moderate-income areas.

DATES: Effective date of amended

Interagency Questions and Answers on

Community Reinvestment: October 6,

1997. The agencies request that

comments on the proposed questions

and answers be submitted on or before

December 5, 1997.

ADDRESSES: Questions and comments

may be sent to Joe M. Cleaver, Executive

Secretary, Federal Financial Institutions

Examination Council, 2100

Pennsylvania Avenue NW., Suite 200,

Washington, DC 20037, or by facsimile

transmission to (202) 634–6556.

FOR FURTHER INFORMATION CONTACT:

OCC: Malloy Harris, National Bank

Examiner, Community and Consumer

Policy Division, (202) 874–4446; or

Margaret Hesse, Senior Attorney,

Community and Consumer Law

Division, (202) 874–5750, Office of the

Comptroller of the Currency, 250 E

Street, SW., Washington, DC 20219.

Board: Glenn E. Loney, Associate

Director, Division of Consumer and

Community Affairs, (202) 452–3585; or

Robert deV. Frierson, Assistant General

Counsel, Legal Division, (202) 452–

3711, Board of Governors of the Federal

Reserve System, 20th Street and

Constitution Avenue, NW., Washington,

DC 20551.

FDIC: Bobbie Jean Norris, National

Coordinator, Community Affairs and

Community Reinvestment, Division of

Compliance and Consumer Affairs,

(202) 942–3090; or Ann Hume Loikow,

Counsel, Legal Division, (202) 898–

3796, Federal Deposit Insurance

Corporation, 550 17th Street, NW.,

Washington, DC 20429.

OTS: Theresa A. Stark, Project

Manager, Compliance Policy, (202) 906–

7054; or Richard R. Riese, Project

Manager, Compliance Policy, (202) 906–
52106 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

6134, Office of Thrift Supervision, 1700

G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

In 1995, the agencies revised their

Community Reinvestment Act (CRA)

regulations by issuing a joint final rule,

which was published on May 4, 1995

(60 FR 22156). See 12 CFR parts 25, 228,

345 and 563e, implementing 12 U.S.C.

2901 et seq. The agencies published two

notices of proposed rulemaking prior to

publishing the joint final rule. See 58 FR

67466 (Dec. 21, 1993); 59 FR 51232 (Oct.

7, 1994). The agencies published related

clarifying documents on December 20,

1995 (60 FR 66048) and May 10, 1996

(61 FR 21362).

On October 21, 1996, the Consumer

Compliance Task Force of the FFIEC

published ‘‘Interagency Questions and

Answers Regarding Community

Reinvestment’’ (hereinafter, Interagency

Questions and Answers) to provide

informal staff guidance for use by

agency personnel, financial institutions,

and the public. See 61 FR 54647. In the

supplementary information published

with the Interagency Questions and

Answers, the agencies’ staff requested

comments and indicated that they

intended to update the Interagency

Questions and Answers on a periodic

basis. 61 FR at 54648. This document

supplements, revises, and republishes

that guidance based, in part, on

questions and comments received from

examiners, financial institutions, and

other interested parties. The agencies

consider the Interagency Questions and

Answers to be their primary vehicle for

disseminating guidance interpreting

their CRA regulations.

This document includes new

questions and answers that: (1) Clarify

that not all activities that finance

businesses meeting certain size

eligibility standards necessarily promote

economic development under the CRA

regulations; (2) make a technical

correction to one of the questions and

answers published in the original

Interagency Questions and Answers; (3)

explain how the Agencies’ examiners

evaluate home mortgage loans to

middle- and upper-income borrowers in

low- and moderate-income areas under

the CRA regulations’ lending test; (4)

explain how a financial institution

should geocode a small business or

small farm loan where the borrower

provides only a post office box or rural

route and box number; and (5) caution

that the Agencies’ quarterly publication

of a list of financial institutions that will

be examined for CRA compliance is

subject to change. Finally, this

document especially seeks comment on

the proposed questions and answers

concerning how to determine whether

particular activities have a ‘‘primary

purpose’’ of community development,

and also invites public comment on the

new and revised questions and answers.

A discussion of the revised and new

questions and answers follows.

Questions and answers are grouped by

the provision of the CRA regulations

that they discuss and are presented in

the same order as the regulatory

provisions. The Interagency Questions

and Answers employ an abbreviated

method to cite to the regulations.

Because the regulations of the four

agencies are substantively identical,

corresponding sections of the different

regulations usually bear the same suffix.

Therefore, the Interagency Questions

and Answers typically cite only to the

suffix. For example, the small bank

performance standards for national

banks appear at 12 CFR 25.26; for

Federal Reserve member banks

supervised by the Board, they appear at

12 CFR 228.26; for nonmember banks, at

12 CFR 345.26; and for thrifts, at 12 CFR

563e.26. Accordingly, the citation in

this document would be to §——.26. In

the few instances in which the suffix in

one of the regulations is different, the

specific citation for that regulation is

provided.

Do All Activities That Finance

Businesses Meeting Certain Size

Eligibility Standards Promote Economic

Development?

The CRA Regulations define the term

‘‘community development’’ to include

‘‘activities that promote economic

development by financing businesses or

farms that meet the size eligibility

standards of the Small Business

Administration’s Development

Company or Small Business Investment

Company programs (13 CFR 121.301) or

have gross annual revenues of $1

million or less.’’ 12 CFR 25.12(h)(3),

228.12(h)(3), 345.12(h)(3) and

563e.12(g)(3).

The October 1996 Interagency

Questions and Answers included a

question and answer concerning

whether all activities that finance these

businesses or farms promote economic

development. That question and answer

(Q&A), Q&A1 addressing §§l.12(h)(3)

and 563e.12(g)(3), is being revised in

response to further questions and public

comments. The revised question and

answer clarifies that to be considered as

‘‘community development’’ under

§§ l.12(h)(3) and 563e.12(g)(3), a loan,

investment or service, whether made

directly or through an intermediary,

must meet both a size test and a purpose

test. An activity meets the size

requirement if it finances 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 activity must promote

economic development. An activity is

considered to promote economic

development if it supports 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 in lowor moderate-income geographies

targeted for redevelopment by Federal,

state, local or tribal governments. The

agencies will presume that any loan or

investment in or to a SBDC or SBIC

promotes economic development.

Funding provided in connection with

other SBA programs may also promote

economic development; however,

examiners will make that determination

based on business types, funding

purposes, and other relevant

information.

Where Do Institutions Find Income

Level Data

In the October 1996 Interagency

Questions and Answers, Q&A1

addressing §§l.12(n) and 563e.12(m)

contained an incorrect address for the

FFIEC’s internet home page. That

question and answer has been revised to

include the correct address: ‘http://

www.ffiec.gov/’.

Home Mortgage Loans to Middle- and

Upper-Income Borrowers in Low- and

Moderate-Income Areas

Several community development

organizations have notified the agencies

of their belief that the CRA regulations

do not sufficiently recognize the efforts

of financial institutions that make home

mortgage loans to middle- or upperincome borrowers in low- or moderateincome areas. These community

organizations have suggested to agency

staff that lower-income geographies

should be developed into mixed-income

geographies, inhabited with residents of

all income categories.

For example, one community

organization described problems that its

community encountered in

redeveloping an inner city area by

providing single family housing

affordable to low- and moderate-income

borrowers and other necessary services.

Although affordable housing was

provided, the community had difficulty

attracting retail services. A commercial

developer considered building a
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52107

shopping center near a new, affordable

housing development, but determined

that the center would not be profitable

because of the lower level of disposable

income of many of the low- and

moderate-income homeowners.

Consequently, the community

organization representative stressed

how important it is for future

development that distressed areas being

revitalized attract residents of all

income levels.

The Agencies previously considered

the appropriate weight that should be

accorded lending in low- and moderateincome areas to higher-income

borrowers. During the CRA reform

rulemaking process, however, the

agencies received public comment

opposed to a proposal that would have

evaluated an institution’s lending

primarily based on its lending activities

in low- and moderate-income

geographies. See, e.g., 58 FR 67,466,

67,480 (December 21, 1993). Those

commenters opposed the proposal,

stating that it would inappropriately

have given institutions a greater

incentive to make loans to high-income

borrowers located in low-income

geographies than to make loans to lowincome borrowers located in highincome geographies. In response to

these comments, the final interagency

CRA regulations de-emphasized the

location of the loans under the lending

test by also evaluating lending based on

borrower characteristics, i.e., income.

Because of the numerous inquiries the

agencies have received since the final

rules were issued, agency staff are

adding new guidance addressing

§ l.22(b)(2) & (3), answering how home

mortgage loans to borrowers of all

incomes, but especially to middle- and

upper-income borrowers, located in

low- or moderate-income areas will be

evaluated under the CRA regulations’

lending test.

The new question and answer

explains that examiners consider all

home mortgage loans under the

performance criteria of the lending test.

This means that examiners first evaluate

the institution’s lending activity based

on the number and amount of home

mortgage loans in the institution’s

assessment area(s). Examiners next

evaluate the geographic distribution of

all of the institution’s home mortgage

loans based on the loan location,

including (1) the portion of the

institution’s lending in the institution’s

assessment area(s); (2) the dispersion of

lending in the institution’s assessment

area(s); and (3) the number and amount

of loans in low-, moderate-, middle-,

and upper-income geographies in the

institution’s assessment area(s). Finally,

examiners evaluate these loans based on

borrower characteristics, i.e., the

number and amount of home mortgage

loans to low-, moderate-, middle-, and

upper-income individuals.

The regulation, however, allows

examiners flexibility in judging the

appropriate consideration of loans to

middle- or upper-income individuals in

low- or moderate-income areas. The

new question and answer explains that

all of the lending test criteria must be

considered in light of an institution’s

performance context. The performance

context will determine the importance

of the borrower distribution criterion,

particularly as it relates to the

geographic distribution of the loans. If

the performance context information

indicates, for example, that the loans are

for homes 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 mixedincome residents to establish a

stabilized, economically diverse

neighborhood, the examiner has the

flexibility to consider these loans as

favorably as loans to low- or moderateincome borrowers in the low- or

moderate-income geography. If, on the

other hand, no such plan exists and

there is no other evidence of

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 moderateincome 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. Thus, the

performance context may significantly

influence how these loans affect an

institution’s performance.

Geocoding Addresses Consisting of Post

Office Boxes or Rural Routes and Box

Numbers

Staff from the agencies previously

provided guidance about how to

geocode (i.e., assign a census tract or

block numbering area for) small

business or small farm loans for which

the borrower provides an address

consisting of either a post office box

number or a rural route and box

number. See Interagency Staff CRA

Interpretive Letter, published as OCC

Interpretive Letter No. 729, (1995–1996

Transfer Binder) Fed. Banking L. Rep.

(CCH), ¶ 81–046 (June 14, 1996). In this

letter, staff indicated that, if an

institution could not obtain from its

small business or small farm borrower a

street address in addition to a rural

route and box number or post office box

number, the institution could collect

and report the location of the loan based

on the town, state, and zip code

provided by the borrower. The location

of the borrower’s post office would

serve as a proxy for the location of the

small business or farm.

Staff have reconsidered this guidance

and are now providing a question and

answer based on §l.42(a)(3) addressing

this issue. The revised guidance states

that, for purposes of 1997 data

collection and reporting, financial

institutions may rely on the guidance

provided in the interpretive letter if a

small business or small farm borrower

provides only a rural route and box

number or a post office box number as

its address. Thus, for 1997, institutions

may collect and report the location of

small business or small farm loans for

which the institution has been unable to

ascertain a street address, using the

location (i.e., the census tract or block

numbering area) of the borrower’s post

office box as a proxy.

Because financial institutions

typically know where their small

business or small farm borrowers, or the

collateral securing their loans, are

located, staff have provided new

instructions for 1998 data collection and

reporting purposes. Beginning in 1998,

financial institutions should request the

street address of small business and

small farm borrowers, even if the

borrower initially provides only a post

office box number or rural route and box

number. If no street address exists,

institutions should not use the post

office box as a proxy, but instead

geocode the census tract or block

numbering area as ‘‘NA.’’

Is Publication of the List of Institutions

to be Examined in the Upcoming

Quarter Determinative of Whether an

Institution Will, in Fact, be Examined

in the Upcoming Quarter

Agency staff have added a new

question and answer addressing §l.45

relating to the publication of the

institutions to be examined in the

upcoming quarter. The question and

answer clarifies that whether or not an

institution is included on the published

list will not always indicate that the

institution will or will not be examined

in the upcoming quarter. Although the

agencies will attempt to ensure that the

published lists are as accurate as

possible, the agencies sometimes may

need to alter their examination plans.
52108 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

Because of the potential for such

adjustments, staff urge all interested

members of the public to file comments

regarding the CRA performance of an

institution whether or not the

institution has been scheduled for a

CRA examination.

Request for Comment and Proposed

Questions and Answers on Community

Development Explaining the ‘‘Primary

Purpose’’ for Community Development

Activities

The definitions of ‘‘community

development loan,’’ ‘‘community

development service,’’ and ‘‘qualified

investment’’ all require a ‘‘primary

purpose of community development.’’

See 12 CFR 25.12(i)(1), (j)(1), and (s);

228.12(i)(1), (j)(1), and (s); 345.12(i)(1),

(j)(1), and (s); and 563e.12(h)(1), (i)(1),

and (r). The agencies have received a

number of inquiries about whether

certain activities have the necessary

‘‘primary purpose’’ of community

development to qualify as a community

development loan, qualified investment

or community development service.

Some inquiries come from persons

interested in creating new community

development vehicles. These inquiries

typically ask what minimum

characteristics should be designed into

a targeted loan, investment or service to

possess the necessary primary purpose.

In answering these questions, the

agencies have generally stated that a

‘‘primary purpose’’ of community

development exists when the loan,

investment or service is divisible and

measurable in terms of dollars, housing

units built, or countable individuals

benefited, and when an identifiable

majority of the dollars expended, units

built or individuals benefited is clearly

attributable to one of the community

development purposes enumerated in

the regulation.

However, this answer does not

address other inquiries concerning

activities that are subject to certain legal

or market restraints, such that they do

not reach this threshold, yet often

display laudable community

development purposes and result in

real, long-term community development

benefits. In addition, many of the

projects occur within a performance

context that buttresses a conclusion that

the activity was ‘‘designed for the

express purpose’’ of achieving a

qualifying community development

purpose, even though less than half the

dollars involved in the entire project

have been concentrated on that purpose.

Federal tax-incentive affordable housing

projects, where less than half the units

or half the dollars go into the portion of

the project that represents affordable

housing for low- or moderate-income

persons, fall into this category.

A number of other inquiries are

characterized by a range of facts and

contexts. Given this variety, the

agencies recognize that many types of

endeavors have been devised to address

an array of community development

pursuits. In addition, the agencies have

observed that within the broad range of

qualifying activities, distinctions can

and should be made among those

activities. Accordingly, in publishing

proposed guidance on ‘‘primary

purpose,’’ the agencies are also

providing additional commentary that

emphasizes the quantitative and

qualitative distinctions that should be

made when applying the performance

criteria of the pertinent regulatory tests

to evaluate eligible community

development loans, qualified

investments or community development

services.

Proposed Q&A7 addressing §§l.12(i)

and 563e.12(h) is based on the preamble

to the final rule as set forth at 60 FR

22,156, 22,159 (May 4, 1995), which

states that activities not designed for the

express purpose of community

development (as defined in the

regulation) are not eligible for

consideration as community

development loans or services or

qualified investments. The preamble

further states that the provision of

indirect or short-term benefits to low- or

moderate-income persons does not

make an activity community

development. In addition to

incorporating this preamble language

into the Interagency Questions and

Answers, the answer identifies the kind

of information that would be reviewed

to determine whether an activity was

designed for the express purpose of

community development. The answer

adopts a simplified threshold rule and

an alternative approach for finding

sufficient bases to conclude that an

activity possesses the requisite primary

purpose.

Agency staff are also proposing

additional questions and answers that

provide relevant guidance on the

evaluation of activities whose primary

purpose is community development, as

well as the reporting of community

development loans. This additional

guidance emphasizes that once a loan or

investment is found to possess a

primary purpose of community

development, the evaluation of that

community development loan or

qualified investment under the relevant

performance criteria would allow for

differentiation among those activities

based not only on the differing dollar

amounts attributable to the underlying

community development purpose, but

also on the loan’s innovation or

complexity under §l.22(b)(4) or the

investment’s innovation, complexity,

responsiveness or non-routine

characteristics under §l.23(e). In

addition, proposed Q&A3 addressing

§ l.42(b)(2) discusses whether a loan

may be reported as a community

development loan if its primary purpose

is to finance an affordable housing

project for low- or moderate-income

individuals, but only 40% of the units

in question will actually be occupied by

individuals or families with low- or

moderate-incomes.

Staff request public comment

particularly addressing whether the

proposed primary purpose standard

over-inclusively qualifies activities as

having a community development

purpose, and, if so, is this adequately

balanced by the regulatory requirements

that allow marginal activities to be

weighted less heavily than those

activities that provide a greater benefit

related to the community development

purpose or demonstrate other

performance criteria, such as

innovation, complexity, or

responsiveness. Staff also invite

comment about whether the proposed

guidance may result in excluding, as not

having a primary purpose of community

development, deserving endeavors.

Sections l.12(i) & 563e.12(h)

Proposed Q7

What is meant by the term ‘‘primary

purpose’’ as that term is used to define

what constitutes a community

development loan, a qualified

investment or a community

development service?

Proposed A7

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, providing affordable housing for,

or community services targeted to, lowor moderate-income persons, or

promoting economic development by

financing small businesses and farms

that meet the requirements set forth in

§§ l.12(h) or 563e.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
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52109

the measurable portion of any benefit

bestowed or dollars applied to the

community development purpose is less

than a majority of the entire activity’s

benefits or dollar value, then the activity

may still be considered to possess the

requisite primary purpose if (1) the

express, bona fide intent of the activity,

as stated, for example, in a prospectus,

loan proposal, or community action

plan, is primarily one or more of the

enumerated community development

purposes; (2) the activity is specifically

structured (given any relevant market or

legal constraints or performance context

factors) to achieve the expressed

community development purpose; and

(3) the activity accomplishes, or is

reasonably certain to accomplish, the

community development purpose

involved. The fact that an activity

provides indirect or short-term benefits

to low-or moderate-income persons does

not make the activity community

development, nor does the mere

presence of such indirect or short-term

benefits constitute a primary purpose of

community development. Financial

institutions that want examiners to

consider certain activities under either

approach should be prepared to

demonstrate the activities’

qualifications.

Section l.22(b)(4)

Proposed Q1

When evaluating an institution’s

record of community development

lending, may an examiner distinguish

among community development loans

on the basis of the actual amount of the

loan that advances the community

development purpose?

Proposed A1

Yes. When evaluating the institution’s

record of community development

lending under §l.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% of its

units for low-income residents and the

other project allocates 65% of its units

for low-income residents. An institution

would report both loans as $10 million

community development loans under

the §l.42(b)(2) aggregate reporting

obligation. However, transaction

complexity, innovation and all other

relevant considerations being equal, the

65% project would receive greater

positive consideration under the

lending test than the 40% project. The

65% project provides more affordable

housing for more people per dollar

expended.

Under §l.22(b)(4), the amount 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 performance criteria, a

community development loan of a lower

dollar amount could receive more

favorable consideration under the

lending test than a community

development loan with a higher dollar

amount, but with less innovation,

complexity, or impact on the

community.

Section l.23(e)

Proposed Q1

When applying the performance

criteria of §l.23(e), may an examiner

distinguish among qualified investments

based on how much of the investment

actually supports the underlying

community development purpose?

Proposed A1

Yes. Although §l.23(e)(1) speaks in

terms of the dollar amount of qualified

investments, the criterion permits an

examiner to weight certain investments

differently or to make other appropriate

distinctions when evaluating an

institution’s record of making qualified

investments. For instance, a targeted

mortgage-backed security that qualifies

as an affordable housing issue that has

only 60% of its face value supported by

loans to low-or moderate-income

borrowers generally would not be

weighted as heavily under §l.23(e)(1)

as a targeted mortgage-backed security

with 100% 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 Public

Evaluation. However, no matter how a

qualified investment is handled for

purposes of §l.23(e)(1), it will also be

evaluated with respect to the

performance criteria set forth in

§ l.23(e) (2), (3) and (4) . By applying

all criteria, a qualified investment of a

lower dollar amount could receive more

favorable consideration under the

Investment Test than a qualified

investment with a higher dollar amount,

but with fewer qualitative

enhancements.

Sectionl.42(b)(2)

Proposed Q3

When the primary purpose of a loan

is to finance an affordable housing

project for low-or moderate-income

individuals, but only 40% 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?

Proposed A3

Yes. As long as the primary purpose

of the loan is a community development

purpose, the full amount of the

institution’s loan should be included in

its reporting of aggregate amounts of

community development lending.

General Comments

In addition to the specific request for

comments on the proposed ‘‘primary

purpose’’ questions and answers, staff

invite public comment on the new and

revised questions and answers,

particularly the guidance regarding

home mortgage loans to middle-and

upper-income individuals in low-or

moderate-income areas. Staff also invite

public comment on a continuing basis

on any issues raised by the CRA and

these Interagency Questions and

Answers. Staff of the agencies intend to

continue to update the Interagency

Questions and Answers periodically. If,

after reading the Interagency Questions

and Answers, financial institutions,

examiners, community groups, or other

interested parties have unanswered

questions or comments about the

agencies’ community reinvestment

regulations, they should submit them to

the agencies. Staff will consider

including questions received from the

public in future guidance.

Small Business Regulatory Enforcement

Fairness Act of 1996 (SBREFA)

The SBREFA requires an agency, for

each rule for which it prepares a final

regulatory flexibility analysis, to publish

one or more compliance guides to help

small entities understand how to

comply with the rule.

Pursuant to section 605(b) of the

Regulatory Flexibility Act, the agencies

certified that their proposed CRA rule

would not have a significant economic

impact on a substantial number of small

entities and invited public comments on

that determination. See 58 FR 67478

(Dec. 21, 1993); 59 FR 51250 (Oct. 7,

1994). In response to public comment,

the agencies voluntarily prepared a final

regulatory flexibility analysis for the

joint final rule, although the analysis

was not required because it supported
52110 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

the agencies’ earlier certification

regarding the proposed rule. Because a

regulatory flexibility analysis was not

required, section 212 of the SBREFA

does not apply to the final CRA rule.

However, in their continuing efforts to

provide clear, understandable

regulations and to comply with the

spirit of the SBREFA, the agencies have

compiled the Interagency Questions and

Answers. The Interagency Questions

and Answers serve the same purpose as

the compliance guide described in the

SBREFA by providing guidance on a

variety of issues of particular concern to

small banks and thrifts. The text of the

Interagency Questions and Answers

follows:

Text of the Interagency Questions and

Answers

Interagency Questions and Answers

Regarding Community Reinvestment

Table of Contents

The agencies are providing answers to

questions pertaining to the following

provisions and topics of the CRA regulations:

§l.11 Authority, purposes, and scope

§l.11(c) Scope

§§ 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3)

Certain special purpose banks

§l.12 Definitions

§l.12(a) Affiliate

§§l.12(f) & 563e.12(e) Branch

§§l.12(h) & 563e.12(g) Community

development

§l.12(h)(3) & 563e.12(g)(3) Activities

that promote economic development by

financing businesses or farms that meet

certain size eligibility standards

§§l.12(i) & 563e.12(h) Community

development loan

§§l.12(j) & 563e.12(i) Community

development service

§§l.12(k) & 563e.12(j) Consumer loan

§§l.12(m) & 563e.12(l) Home mortgage

loan

§§l.12(n) & 563e.12(m) Income level

§§l.12(o) & 563e.12(n) Limited purpose

institution

§§l.12(s) & 563e.12(r) Qualified

investment

l.12(t) Small institution

§l.12(u) Small business loan

§l.12(w) Wholesale institution

§l.21 Performance tests, standards, and

ratings, in general

§l.21(a) Performance tests and standards

§l.21(b) Performance context

§l.21(b)(2) Information maintained by

the institution or obtained from

community contacts

§l.21(b)(4) Institutional capacity and

constraints

§l.21(b)(5) Institution’s past

performance and the performance of

similarly situated lenders

§l.22 Lending test

§l.22(a) Scope of test

§l.22(a)(1) Types of loans considered

§l.22(a)(2) Other loan data

§l.22(b) Performance criteria

§l.22(b)(1) Lending activity

§l.22(b)(2) & (3) Geographic distribution

and borrower characteristics

§l.22(c) Affiliate lending

§l.22(c)(1) In general

§l.22(c)(2) Constraints on affiliate

lending

§l.22(c)(2)(i) No affiliate may claim a

loan origination or loan purchase if

another institution claims the same loan

origination or purchase

§l.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

§l.22(d) Lending by a consortium or a

third party

§l.23 Investment test

§l.23(b) Exclusion

§l.24 Service test

§l.24(d) Performance criteria—retail

banking services

§l.24(d)(3) Availability and

effectiveness of alternative systems for

delivering retail banking services

§l.25 Community development test for

wholesale or limited purpose institutions

§l.25(d) Indirect activities

§l.25(f) Community development

performance rating

§l.26 Small institution performance

standards

§l.26(a) Performance criteria

§l.26(a)(1) Loan-to-deposit ratio

§l.26(a)(2) Percentage of lending within

assessment area(s)

§l.26(a)(3) and (4) Distribution of

lending within assessment area(s) by

borrower income and geographic

location

§l.26(b) Performance rating

§l.27—Strategic plan

§l.27(c) Plans in general

§l.27(f) Plan content

§l.27(f)(1) Measurable goals

§l.27(g) Plan approval

§l.27(g)(2) Public participation

§l.28—Assigned ratings

§l.28(a) Ratings in general

§l.29—Effect of CRA performance on

applications

§l.29(a) CRA performance

§l.29(b) Interested parties

§l.41—Assessment area delineation

§l.41(a) In general

§l.41(c) Geographic area(s) for institutions

other than wholesale or limited purpose

institutions

§l.41(c)(1) Generally consist of one or

more MSAs or one or more contiguous

political subdivisions

§l.41(d) Adjustments to geographic area(s)

§l.41(e) Limitations on delineation of an

assessment area

§l.41(e)(3) May not arbitrarily exclude

low- or moderate-income geographies

§l.41(e)(4) May not extend substantially

beyond a CMSA boundary or beyond a

state boundary unless located in a

multistate MSA

§l.42—Data collection, reporting, and

disclosure

§l.42(a) Loan information required to be

collected and maintained

§l.42(a)(2) Loan amount at origination

§l.42(a)(3) The loan location

§l.42(a)(4) Indicator of gross annual

revenue

§l.42(b) Loan information required to be

reported

§l.42(b)(1) Small business and small

farm loan data

§l.42(b)(2) Community development

loan data

§l.42(b)(3) Home mortgage loans

§l.42(c) Optional data collection and

maintenance

§l.42(c)(1) Consumer loans

§l.42(c)(1)(iv) Income of borrower

§l.42(c)(2) Other loan data

§l.42(d) Data on affiliate lending

§l.43—Content and availability of public

file

§l.43(a) Information available to the

public

§l.43(a)(1) Public comments

§l.43(b) Additional information available

to the public

§l.43(b)(1) Institutions other than small

institutions

§l.43(c) Location of public information

§l.44—Public notice by institutions

§l.45—Publication of planned examination

schedule

APPENDIX B to PartlCRA Notice

The body of the Interagency

Questions and Answers Regarding

Community Reinvestment follows:

Section l .11—Authority, purposes,

and scope

Section l .11(c) Scope

Section 25.11(c)(3), 228.11(c)(3) &

345.11(c)(3) Certain Special Purpose

Banks

Q1. Is the list of special purpose

banks exclusive?

A1. No, there may be other examples

of special purpose banks. These banks

engage in specialized activities that do

not involve granting credit to the public

in the ordinary course of business.

Special purpose banks typically serve as

correspondent banks, trust companies,

or clearing agents or engage only in

specialized services, such as cash

management controlled disbursement

services. A financial institution,

however, does not become a special

purpose bank merely by ceasing to make

loans and, instead, making investments

and providing other retail banking

services.

Q2. To be a special purpose bank,

must a bank limit its activities in its

charter?

A2. No. A special purpose bank may,

but is not required to, limit the scope of

its activities in its charter, articles of

association or other corporate

organizational documents. A bank that
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52111

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. A bank

that believes it is exempt from CRA as

a special purpose bank should seek

confirmation of this status from its

supervisory agency.

Section l .12—Definitions

Section l .12(a) Affiliate

Q1. 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.

Sections l .12(f) & 563e.12(e) Branch

Q1. Do the definitions of ‘‘branch,’’

‘‘automated teller machine (ATM),’’ and

‘‘remote service facility (RSF)’’ include

mobile branches, ATMs, and RSFs?

A1. Yes. Staffed mobile offices that

are authorized as branches are

considered ‘‘branches’’ and mobile

ATMs and RSFs are considered ‘‘ATMs’’

and ‘‘RSFs.’’

Q2. 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.

Sections l.12(h) & 563e.12(g)

Community Development

Q1. 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 communityor tribal-based child care, educational,

health, or social services targeted to

low- or moderate-income persons,

affordable housing for low- or moderateincome individuals, and activities that

revitalize or stabilize low- or moderateincome areas.

Q2. Must a community development

activity occur inside a low- or moderateincome area in order for an institution

to receive CRA consideration for the

activity?

A2. No. Community development

includes activities outside of low- and

moderate-income areas that provide

affordable housing for, or community

services targeted to, low- or moderateincome individuals and activities that

promote economic development by

financing small businesses and farms.

Activities that stabilize or revitalize

particular low- or moderate-income

areas (including by creating, retaining,

or improving jobs for low- or moderateincome persons) also qualify as

community development, even if the

activities are not located in these lowor moderate-income 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.

Q3. 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 middleincome 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.

Sections l.12(h)(3) & 563e.12(g)(3)

Activities That Promote Economic

Development by Financing Businesses

or Farms That Meet Certain Size

Eligibility Standards

Q1. ‘‘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. To be considered as

‘‘community development’’ under

§§ ——.12(h)(3) and 563e.12(g)(3), a

loan, investment or service, whether

made directly or through an

intermediary, must meet both a size test

and a purpose test. An activity meets

the size requirement if it finances

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 activity must promote

economic development. An activity is

considered to promote economic

development if it supports 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 in lowor moderate-income geographies

targeted for redevelopment by Federal,

state, local or tribal governments. The

agencies will presume that any loan or

investment in or to a SBDC or SBIC

promotes economic development.

Sections l.12(i) & 563e.12(h)

Community Development Loan

Q1. 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 moderateincome areas or that serve primarily

low- and moderate-income individuals;

• Financial intermediaries including

Community Development Financial

Institutions (CDFIs), 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;

and
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• 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.

Q2. 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 CRA makes small business

and small farm loans and consumer

loans that would be collected and/or

reported if the institution were a large

institution, may the institution have

these loans considered as community

development loans?

A2. No. Although small institutions

are not required to report or collect

information on small business and small

farm loans and consumer loans, and

some institutions are not required to

report information about their home

mortgage loans under HMDA, if these

institutions are retail institutions, the

agencies will consider in their CRA

evaluations the institutions’ originations

and purchases of loans that would have

been collected or reported as small

business, small farm, consumer or home

mortgage loans, had the institution been

a collecting and reporting institution

under the CRA or the HMDA. Therefore,

these loans will not be considered as

community development loans.

Multifamily dwelling loans, however,

may be considered as community

development loans as well as home

mortgage loans. See also Q&A2

addressing §l.42(b)(2).

Q3. Do secured credit cards or other

credit card programs targeted to low- or

moderate-income individuals qualify as

community development loans?

A3. 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.’’

Q4. The regulation indicates that

community development includes

‘‘activities that revitalize or stabilize

low- or moderate-income geographies.’’

Do all loans in a low- to moderateincome geography have a stabilizing

effect?

A4. No. Some loans may provide only

indirect or short-term benefits to low- or

moderate-income individuals in a lowor moderate-income geography. These

loans are not considered to have a

community development purpose. For

example, a loan for upper-income

housing in a distressed area is not

considered to have a community

development purpose simply because of

the indirect benefit to low- or moderateincome 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 distressed 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 an underserved, distressed

area, a loan for a pharmacy that

employs, and provides supplies to,

residents of the area promotes

community development.

Q5. 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)?

A5. No. The regulations, for example,

recognize that community development

organizations and programs are

frequently efficient and effective ways

for institutions to promote community

development. These organizations and

programs often operate on a statewide or

even multi-state 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 need not

receive an immediate or direct benefit

from the institution’s specific

participation in the broader organization

or activity, provided the purpose,

mandate, or function of the organization

or activity includes serving geographies

or individuals located within the

institution’s assessment area.

Furthermore, the regulations permit a

wholesale or limited purpose institution

to consider community development

loans, community development

services, and qualified investments

wherever they are located, as long as the

institution has otherwise adequately

addressed the credit needs within its

assessment area(s).

Q6. What is meant by a ‘‘regional

area’’ in the requirement that a

community development loan must

benefit the institution’s assessment

area(s) or a broader statewide or

regional area that includes the

institution’s assessment area(s)?

A6. A ‘‘regional area’’ may be as small

as a city or county or as large as a

multistate area. For example, the ‘‘midAtlantic states’’ may comprise a regional

area. When examiners evaluate

community development loans that

benefit a regional area that includes the

institution’s assessment area, however,

the examiners will consider the size of

the regional area and the actual or

potential benefit to the institution’s

assessment area(s). In most cases, the

larger the regional area, the more diffuse

the benefit will be to the institution’s

assessment area(s). Examiners may view

loans with more direct benefits to an

institution’s assessment area(s) as more

responsive to the credit needs of the

area(s) than loans for which the actual

benefit to the assessment area(s) is

uncertain or for which the benefit is

diffused throughout a larger area that

includes the assessment area(s).

Sectionsl.12(j) & 563e.12(i)

Community Development Service

Q1. 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.

Q2. 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
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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.

Q3. What are examples of community

development services?

A3. Examples of community

development services include, but are

not limited to, the following:

• Providing technical assistance on

financial matters to nonprofit, tribal or

government organizations serving lowand moderate-income housing or

economic revitalization and

development needs;

• Providing technical assistance on

financial matters to small businesses or

community development organizations;

• Lending employees to provide

financial services for organizations

facilitating affordable housing

construction and rehabilitation or

development of affordable housing;

• Providing credit counseling, home

buyers and home maintenance

counseling, financial planning or other

financial services education to promote

community development and affordable

housing;

• Establishing school savings

programs 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;

and

• Providing other financial services

with the primary purpose of community

development, such as low-cost bank

accounts or free government check

cashing that increases access to

financial services for low- or moderateincome individuals.

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.

Sectionsl.12(k) & 563e.12(j)

Consumer Loan

Q1. 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.

Q2. 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.

Q3. 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.

Sectionsl.12(m) & 563e.12(l) Home

Mortgage Loan

Q1. Does the term ‘‘home mortgage

loan’’ include loans other than ‘‘home

purchase loans’’?

A1. Yes. ‘‘Home mortgage loan’’

includes a ‘‘home improvement loan’’ as

well as a ‘‘home purchase loan,’’ as both

terms are defined in the HMDA

regulation, Regulation C, 12 CFR part

203. This definition also includes

multifamily (five-or-more families)

dwelling loans, loans for the purchase of

manufactured homes, and refinancings

of home improvement and home

purchase loans.

Q2. 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 this 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-, middleand 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.

Sections l.12(n) & 563e.12(m) Income

Level

Q1. Where do institutions find income

level data for geographies and

individuals?

A1. The income levels for

geographies, i.e., census tracts and block

numbering areas, are derived from
52114 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

Census Bureau information and are

updated every ten years. Institutions

may contact their regional Census

Bureau office or the Census Bureau’s

Income Statistics Office at (301) 763–

8576 to obtain income levels for

geographies. See Appendix A of these

Interagency Questions and Answers for

a list of the regional Census Bureau

offices. The income levels for

individuals are derived from

information calculated by the

Department of Housing and Urban

Development (HUD) and updated

annually. Institutions may contact HUD

at (800) 245–2691 to request a copy of

‘‘FY [year number, e.g., 1996] Median

Family Incomes for States and their

Metropolitan and Nonmetropolitan

Portions.’’

Alternatively, institutions may obtain

a list of the 1990 Census Bureaucalculated and the annually updated

HUD median family incomes for

metropolitan statistical areas (MSAs)

and statewide nonmetropolitan areas by

calling the Federal Financial Institution

Examination Council’s (FFIEC’s) HMDA

Help Line at (202) 452–2016. A free

copy will be faxed to the caller through

the ‘‘fax-back’’ system. Institutions may

also call this number to have ‘‘faxedback’’ an order form, from which they

may order a list providing the median

family income level, as a percentage of

the appropriate MSA or

nonmetropolitan median family income,

of every census tract and block

numbering area (BNA). This list costs

$50. Institutions may also obtain the list

of MSA and statewide nonmetropolitan

area median family incomes or an order

form through the FFIEC’s home page on

the Internet at ‘‘http://www.ffiec.gov/’.

Sectionsl.12(o) & 563e.12(n) Limited

Purpose Institution

Q1. 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.

Q2. 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 other lending provided as an

incident to the institution’s wholesale

lending?

• Are the loans provided as an

accommodation to the institution’s

wholesale customers?

• Are the 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?

Q3. 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.

Sectionsl.12(s) & 563e.12(r) Qualified

Investment

Q1. 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.

Q2. Are mortgage-backed securities or

municipal bonds ‘‘qualified

investments’’?

A2. As a general rule, mortgagebacked 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 housingrelated. 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. Housingrelated bonds or securities must

primarily address affordable housing

(including multifamily rental housing)

needs in order to qualify.

Q3. Are Federal Home Loan Bank

stocks and membership reserves with

the Federal Reserve Banks ‘‘qualified

investments’’?

A3. No. Federal Home Loan Bank

stock and membership reserves with the

Federal Reserve Banks do not have a

sufficient connection to community

development to be qualified

investments.

Q4. 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), 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 moderateincome areas or to low- and moderateincome 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) and specialized

SBICs, that promote economic

development by financing small

businesses;

• Facilities that promote community

development in low- and moderateincome areas for low- and moderateincome 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
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52115

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, homeownership, home maintenance, and

other financial services education; 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 people to

work.

Q5. Will an institution receive

consideration for charitable

contributions as ‘‘qualified

investments’’?

A5. Yes, provided they have as their

primary purpose community

development as defined in the

regulations. A charitable contribution,

whether in cash or an in-kind

contribution of property, is included in

the term ‘‘grant.’’ A qualified investment

is not disqualified because an

institution receives favorable treatment

for it (for example, as a tax deduction

or credit) under the Internal Revenue

Code.

Q6. 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 innovativeness and

complexity of the community

development loan within the bounds of

safe and sound banking practices.

Q7. 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 in the

service test if the activity is a

community development service.

Sectionl.12(t) Small institution

Q1. How are the ‘‘total bank and thrift

assets’’ of a holding company

determined?

A1. ‘‘Total banking and thrift assets’’

of a holding company are determined by

combining the total assets of all banks

and/or thrifts that are majority-owned

by the holding company. An institution

is majority-owned if the holding

company directly or indirectly owns

more than 50 percent of its outstanding

voting stock.

Q2. How are Federal and State branch

assets of a foreign bank calculated for

purposes of the CRA?

A2. A Federal or State branch of a

foreign bank is considered a small

institution if the Federal or State branch

has less than $250 million in assets and

the total assets of the foreign bank’s or

its holding company’s U.S. bank and

thrift subsidiaries that are subject to the

CRA are less than $1 billion. This

calculation includes not only FDICinsured bank and thrift subsidiaries, but

also the assets of any FDIC-insured

branch of the foreign bank and the

assets of any uninsured Federal or State

branch (other than a limited branch or

a Federal agency) of the foreign bank

that results from an acquisition

described in section 5(a)(8) of the

International Banking Act of 1978 (12

U.S.C. § 3103(a)(8)).

Sectionl.12(u) Small business loan

Q1. 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 Reports’’

(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.

Q2. 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

less than $1 million.

Q3. Are loans secured by nonfarm

residential real estate to finance small

businesses ‘‘small business loans’’?

A3. No. Loans secured by nonfarm

residential real estate that are used to

finance small businesses are not

included as ‘‘small business’’ loans for

Call Report and TFR purposes. The

agencies recognize that many small

businesses are financed by loans

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.’’

Q4. 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.

Sectionl.12(w) Wholesale Institution

Q1. What factors will the agencies

consider in determining whether an

institution is in the business of

extending home mortgage, small

business, small farm, or consumer loans

to retail customers?

A1. The agencies will consider

whether:

• The institution holds itself out to

the retail public as providing such

loans; and

• The institution’s revenues from

extending such loans are significant

when compared to its overall

operations.

A wholesale institution may make

some retail loans without losing its

wholesale designation as described

above in Q&A2 addressing §§l.12(o)

and 563e.12(n).

Sectionl.21—Performance tests,

Standards, and Ratings, in General

Sectionl.21(a) Performance Tests and

Standards

Q1. Are all community development

activities weighted equally by

examiners?

A1. No. Examiners will consider the

responsiveness to credit and community

development needs, as well as the

innovativeness and complexity 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
52116 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

catalyst for other community

development activities. The criteria are

designed to add a qualitative element to

the evaluation of an institution’s

performance.

Sectionl.21(b) Performance Context

Q1. Is the performance context

essentially the same as the former

regulation’s needs assessment?

A1. No. 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 much of this

information prior to the examination.

The performance context is not a formal

or written assessment of community

credit needs.

Sectionl.21(b)(2) Information

Maintained by the Institution or

Obtained From Community Contacts

Q1. 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 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.

Q2. 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 will 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 will share community contact

information.

Sectionl.21(b)(4) Institutional

Capacity and Constraints

Q1. 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.

§ l.21(b)(5) Institution’s Past

Performance and the Performance of

Similarly Situated Lenders

Q1. 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’s past performance may

support a rating of ‘‘substantial

noncompliance’’ if the institution has

not improved performance rated as

‘‘needs to improve.’’

Q2. 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.

§ l.22—Lending Test

§ l.22(a) Scope of test

§ l.22(a)(1) Types of Loans

Considered

Q1. 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.

Q2. 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 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

or dollar volume of loans that the

lending test evaluation would not

meaningfully reflect its lending

performance if consumer loans were

excluded.

§ l.22(a)(2) Other Loan Data

Q1. 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.

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.

Q2. 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.

Q3. May a financial institution receive

consideration under CRA for

modification, extension, and

consolidation agreements (MECAs), in

which it obtains loans from other

institutions without actually purchasing
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52117

or refinancing the loans, as those terms

have been interpreted under CRA?

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. An

institution may present information

about its MECA activities to examiners

for consideration under the lending test

as ‘‘other loan data.’’

Section l.22(b) Performance Criteria

Q1. How will examiners apply the

performance criteria in the lending test?

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.

Section l.22(b)(1) Lending Activity

Q1. 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 lowand moderate-income areas and lowand 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 moderateincome individuals and areas and

referring the rest of the loan applicants

to an affiliate for the purpose of

receiving a favorable CRA rating,

examiners 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.

Section l.22(b)(2) & (3) Geographic

Distribution and Borrower

Characteristics

Q1. How do the geographic

distribution of loans and the

distribution of lending by borrower

characteristics interact in the lending

test?

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

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.

Q2. 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 has met the specific

performance tests and standards in the

rule. The agencies do not expect that

simply because a census tract or block

numbering area is within an

institution’s assessment area(s) the

institution must lend to that census tract

or block numbering area. 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 moderateincome 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 moderateincome 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).

Q3. 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.

Q4. When will examiners consider

loans (other than community

development loans) made outside an

institution’s assessment area(s)?

A4. Favorable consideration will be

given for loans to low- and moderateincome 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

institutions being evaluated under the

small institution 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).

Q5. Under the lending test, how will

examiners evaluate home mortgage

loans to middle- or upper-income

individuals in a low- or moderateincome 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

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
52118 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

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 moderateincome 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.

Sectionl.22(c) Affiliate Lending

Sectionl.22(c)(1) In General

Q1. If an institution elects to have

loans by its affiliate(s) considered, may

it elect to have only certain categories of

loans considered?

A1. Yes. An institution may elect to

have only a particular category of its

affiliate’s lending considered. The basic

categories of loans are home mortgage

loans, small business loans, small farm

loans, community development loans,

and the five categories of consumer

loans (motor vehicle loans, credit card

loans, home equity loans, other secured

loans, and other unsecured loans).

Sectionl.22(c)(2) Constraints on

Affiliate Lending

Sectionl.22(c)(2)(i) No Affiliate may

Claim a Loan Origination or Loan

Purchase if Another Institution Claims

the Same Loan Origination or Purchase

Q1. 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.

Sectionl.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

Q1. How is this constraint on affiliate

lending applied?

A1. This constraint prohibits ‘‘cherrypicking’’ 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 one or

more affiliates, such as a mortgage bank

that makes loans in the institution’s

assessment area. If the institution elects

to include the mortgage bank’s home

mortgage loans, it must include all of

mortgage bank’s home mortgage loans

made in its assessment area. The

institution cannot elect to include only

those low- and moderate-income home

mortgage loans made by the mortgage

bank affiliate and not home mortgage

loans to middle- and upper-income

individuals or areas.

Q2. 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.

Sectionl.22(d) Lending by a

Consortium or a Third Party

Q1. Will equity and equity-type

investments in a third party receive

positive consideration under the lending

test?

A1. If an institution has made an

equity or equity-type investment in a

third party, loans made by the third

party may be considered under the

lending test. On the other hand, assetbacked 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 moderateincome areas or to low-and moderateincome 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&A1 addressing §l.23(b) provides

information concerning consideration of

an equity or equity-type investment

under the investment test and both the

lending and investment tests.

Q2. How will examiners evaluate

loans made by consortia or third parties

under the lending test?

A2. Loans originated or purchased by

consortia in which an institution

participates or by third parties in which

an institution invests will only be

considered if they qualify as community

development loans and will only be

considered under the community

development criterion of the lending

test. However, loans originated directly

on the books of an institution or

purchased by the institution are

considered to have been 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

all the lending test criteria appropriate

to them depending on the type of loan.

Q3. 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

§ l.22(d), may the third party also

receive consideration for these loans?
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52119

A3. Yes, as long as the financial

institution and the third party are not

affiliates. The regulations state, at 12

CFR §l.22(c)(2)(i), that two affiliates

may not both claim the same loan

origination or loan purchase. However,

if the financial institution and the third

party are not affiliates, the third party

may receive consideration for the

community development loans it

originates, and the financial institution

that invested in the third party may also

receive consideration for its pro rata

share of the same community

development loans under 12 CFR

§ l.22(d).

Sectionl.23—Investment Test

Sectionl.23(b) Exclusion

Q1. 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 a 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

only receive consideration under the

investment test for the amount of its

investment multiplied by the percentage

of the CDC’s assets that meet the

definition of a qualified investment.

Sectionl.24—Service test

Sectionl.24(d) Performance Criteria—

Retail Banking Services

Q1. 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; therefore, an institution is not

required to expand its branch network

or operate unprofitable branches. Under

the service test, alternative systems for

delivering retail banking services, such

as ATMs, are considered only to the

extent that they are effective alternatives

in providing needed services to lowand moderate-income areas and

individuals.

Sectionl.24(d)(3) Availability and

Effectiveness of Alternative Systems for

Delivering Retail Banking Services

Q1. 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 positively

under the regulation to the extent that

they are effective alternatives to

branches in providing needed services

to low-and moderate-income areas and

individuals. The list of systems in the

regulation is not intended to be

inclusive.

Q2. Are debit cards considered under

the service test as an alternative delivery

system?

A2. By themselves, no. However, if

debit cards are a part of a larger

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.

Sectionl.25 Community Development

Test for Wholesale or Limited Purpose

Institutions

Sectionl.25(d) Indirect Activities

Q1. 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 §§l.22(d)

and l.23(b).

Section l.25(f) Community

Development Performance Rating

Q1. 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.

Section l.26—Small Institution

Performance Standards

Section l.26(a) Performance Criteria

Q1. 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.

Q2. What is meant by ‘‘as

appropriate’’ when referring to the fact

that lending-related activities will be

considered, ‘‘as appropriate,’’ under the
52120 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

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.

Q3. 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.

Q4. Under the small institution

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.

Q5. Under the small institution

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 performance

standards focus on lending and other

lending-related activities. Therefore,

examiners will consider only lendingrelated qualified investments for the

purposes of determining whether the

small institution receives a satisfactory

CRA rating.

Section l .26(a)(1) Loan-to-Deposit

Ratio

Q1. How is the loan-to-deposit ratio

calculated?

A1. A small institution’s loan-todeposit 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.

Q2. 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.

Q3. If an institution makes a large

number of loans off-shore, will

examiners segregate the domestic loanto-deposit ratio from the foreign loan-todeposit ratio?

A3. No. Examiners will look at the

institution’s net loan-to-deposit ratio for

the whole institution, without any

adjustments.

Section l .26(a)(2) Percentage of

Lending Within Assessment Area(s)

Q1. 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 bank’s

assessment area(s) is but one of the

performance criteria upon which small

institutions are evaluated. If the

percentage of loans and other lending

related activities in an institution’s

assessment area(s) is less than a

majority, then the institution does not

meet the standards for satisfactory

performance only under this criterion.

The effect on the overall performance

rating of the institution, however, is

considered in light of the performance

context, including information

regarding economic conditions, loan

demand, the institution’s size, financial

condition and business strategies, and

branching network and other aspects of

the institution’s lending record.

Section l.26(a) (3) & (4) Distribution

of Lending Within Assessment Area(s)

by Borrower Income and Geographic

Location

Q1. 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 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 proxies

such as loan size for estimating

borrower characteristics, where

appropriate.

Section l.26(b) Performance Rating

Q1. How can a small institution

achieve an ‘‘outstanding’’ performance

rating?

A1. A small institution that meets

each of the standards for a ‘‘satisfactory’’

rating and exceeds some or all of those

standards may warrant an

‘‘outstanding’’ performance rating. In

assessing performance at the

‘‘outstanding’’ level, the agencies

consider the extent to which the

institution exceeds each of the

performance standards and, at the

institution’s option, its performance in

making qualified investments and

providing services that enhance credit

availability in its assessment area(s). In

some cases, a small institution may

qualify for an ‘‘outstanding’’

performance rating solely on the basis of

its lending activities, but only if its

performance materially exceeds the

standards for a ‘‘satisfactory’’ rating,

particularly with respect to the

penetration of borrowers at all income

levels and the dispersion of loans

throughout the geographies in its

assessment area(s) that display income

variation. An institution with a high
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52121

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.’’

Q2. 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&A6 addressing §§l.12(i) and

563e.12(h).

Section l.27—Strategic plan

Section l.27(c) Plans in General

Q1. 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.

Q2. 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.

Section l.27(f) Plan Content

Section l.27(f)(1) Measurable Goals

Q1. How should ‘‘measurable goals’’

be specified in a strategic plan?

A1. Measurable goals (e.g., number of

loans, dollar amount, geographic

location of activity, and benefit to lowand 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.

Section l.27(g) Plan Approval

Section l.27(g)(2) Public Participation

Q1. 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.

Section l.28—Assigned Ratings

Section l.28(a) Ratings in General

Q1. 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.

Q2. 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.

Q3. How do the agencies weight

performance under the lending,

investment and service test for large

retail institutions?

A3. A rating of ‘‘outstanding,’’ ‘‘high

satisfactory,’’ ‘‘low satisfactory,’’ ‘‘needs

to improve,’’ or ‘‘substantial

noncompliance,’’ based on a judgment

supported by facts and data, will be

assigned under each performance test.

Points will then be assigned to each

rating as described in the first matrix set

forth below. A large retail institution’s

overall rating under the lending,

investment and service tests will then

be calculated in accordance with the

second matrix set forth below, which

incorporates the rating principles in the

regulation.

POINTS ASSIGNED FOR PERFORMANCE UNDER LENDING, INVESTMENT, AND SERVICE TESTS

Lending Service Investment

Outstanding .............................................................................................................................................. 12 6 6

High Satisfactory ...................................................................................................................................... 9 4 4

Low Satisfactory ....................................................................................................................................... 6 3 3

Needs to Improve ..................................................................................................................................... 3 1 1
52122 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

POINTS ASSIGNED FOR PERFORMANCE UNDER LENDING, INVESTMENT, AND SERVICE TESTS—Continued

Lending Service Investment

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.

Section l.29—Effect of CRA

Performance on Applications

Section l.29(a) CRA Performance

Q1. What weight is given to an

institution’s CRA performance

examination in reviewing an

application?

A1. In cases in which CRA

performance is a relevant factor,

information from a CRA performance

examination of the institution is a

particularly important consideration in

the applications process because it

represents a detailed evaluation of the

institution’s CRA performance by its

Federal supervisory agency. In this

light, an examination is an important,

and often controlling factor in the

consideration of an institution’s record.

In some cases, however, the

examination may not be recent or a

specific issue raised in the application

process, such as progress in addressing

weaknesses noted by examiners,

progress in implementing commitments

previously made to the reviewing

agency, or a supported allegation from

a commenter, is relevant to CRA

performance under the regulation and

was not addressed in the examination.

In these circumstances, the applicant

should present sufficient information to

supplement its record of performance

and to respond to the substantive issues

raised in the application proceeding.

Q2. 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.

Section l.29(b) Interested Parties

Q1. What consideration is given to

comments from interested parties in

reviewing an application?

A1. Materials relating to CRA

performance received during the

applications 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’

decision. 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.

Q2. 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. These agreements

are not monitored or enforced by the

agencies.

Section l.41—Assessment Area

Delineation

Section l ——.41(a) In General

Q1. How do the agencies evaluate

‘‘assessment areas’’ under the revised

CRA regulations compared to how they

evaluated ‘‘local communities’’ that

institutions delineated under the

original CRA regulations?

A1. The revised 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 ‘‘local

community’’ or 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 as they did under

the original regulation. Rather, the

agencies will only review whether the

assessment area delineated by the

institution complies with the limitations

set forth in the regulations at §l.41(e).

Q2. 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).

Q3. Can a financial institution

identify a specific ethnic group rather

than a geographic area as its assessment

area?

A3. No, assessment areas must be

based on geography.

Section l.41(c) Geographic Area(s) for

Institutions Other Than Wholesale or

Limited Purpose Institutions

Section l.41(c)(1) Generally Consist

of one or More MSAs or one or More

Contiguous Political Subdivisions

Q1. 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 or block numbering

areas (‘‘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).

Q2. 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 §l.41(d), adjust the

boundaries of the assessment area to
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52123

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 moderateincome geographies.

Section l.41(d) Adjustments to

Geographic Area(s)

Q1. 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 or block

numbering areas) in their assessment

areas and generally should include

entire political subdivisions. Because

census tracts and block numbering areas

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 moderateincome geographies or set boundaries

that reflect illegal discrimination.

Sectionl.41(e) Limitations on

Delineation of an Assessment Area

Sectionl.41(e)(3) May not Arbitrarily

Exclude Low- or Moderate-Income

Geographies

Q1. How will examiners determine

whether an institution has arbitrarily

excluded low- or moderate-income

geographies?

A1. Examiners will make this

determination on a case-by-case basis

after considering the facts relevant to

the institution’s assessment area

delineation. Information that examiners

will consider may include:

• Income levels in the institution’s

assessment area(s) and surrounding

geographies;

• Locations of branches and deposittaking 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.

Sectionl.41(e)(4) May not Extend

Substantially Beyond a CMSA Boundary

or Beyond a State Boundary Unless

Located in a Multistate MSA

Q1. What are the maximum limits on

the size of an assessment area?

A1. An institution shall not delineate

an assessment area extending

substantially across the boundaries of a

consolidated metropolitan statistical

area (CMSA) or the boundaries of an

MSA, if the MSA is not located in a

CMSA. Similarly, an assessment area

may not extend substantially across

state boundaries unless the assessment

area is located in a multistate MSA. An

institution may not delineate a whole

state as its assessment area unless the

entire state is contained within a CMSA.

These limitations apply to wholesale

and limited purpose institutions as well

as other institutions.

An institution shall delineate separate

assessment areas for the areas inside

and outside a CMSA (or MSA if the

MSA is not located in a CMSA) if the

area served by the institution’s branches

outside the CMSA (or MSA) extends

substantially beyond the CMSA (or

MSA) boundary. Similarly, the

institution shall delineate separate

assessment areas for the areas inside

and outside of a state if the institution’s

branches extend substantially beyond

the boundary of one state (unless the

assessment area is located in a

multistate MSA). In addition, the

institution should also delineate

separate assessment areas if it has

branches in areas 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.

Q2. Can 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 if the MSA is not located in a

CMSA. 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 (so, in this

example, there would be three

assessment areas). However, if the MSA

and the two counties were in the same

CMSA, then the institution could

delineate only one assessment area

including them all.

Sectionl.42—Data Collection,

Reporting, and Disclosure

Q1. 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. A small

institution is a bank or thrift that, as of

December 31 of either of the prior two

calendar years, had total assets of less

than $250 million and was independent

or an affiliate of a holding company

that, as of December 31 of either of the

prior two calendar years, had total

banking and thrift assets of less than $1

billion.

For example:

Date

Institution’s

asset size

(millions)

Data collection required for

following

calendar

year?

12/31/94 ............ $240 No.

12/31/95 ............ $260 No.

12/31/96 ............ $230 No.

12/31/97 ............ $280 No.

12/31/98 ............ $260 Yes,

beginning 1/

01/99.

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. In the example, above,

the institution would report the data

collected for calendar year 1999 by

March 1, 2000.

The Board of Governors of the Federal

Reserve System is handling the

processing of the reports for all of the

primary regulators. The reports should

be submitted in a prescribed electronic

format on a timely basis. The mailing

address for submitting these reports is:

Attention: CRA Processing, Board of

Governors of the Federal Reserve

System, 1709 New York Avenue, N.W.,

5th Floor, Washington, DC 20006.

Q2. 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 must

follow the precise format for the new
52124 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

CRA data collection and reporting rules.

This format may be obtained by

contacting the CRA Assistance Line at

(202) 872–7584.

Q3. 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.

Q4. Should renewals of lines of credit

be reported?

A4. No. Similar to loan renewals,

renewals of lines of credit are not

considered loan originations and should

not be reported.

Q5. When should merging institutions

collect data?

A5. Three scenarios of data collection

responsibilities for the calendar year of

a merger and subsequent data reporting

responsibilities are described below.

• Two institutions are exempt from

CRA collection and reporting

requirements because of asset size. The

institutions merge. No data collection is

required for the year in which the

merger takes place, regardless of the

resulting asset size. Data collection

would begin after two consecutive years

in which the combined institution had

year-end assets of at least $250 million

or was part of a holding company that

had year-end banking and thrift assets of

at least $1 billion.

• Institution A, an institution

required to collect and report the data,

and Institution B, an 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.

Q6. 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 send a written request to:

Attn.: CRA Processing, Board of

Governors of the Federal Reserve

System, 1709 New York Ave, N.W., 5th

Floor, Washington, DC 20006.

They may also call the CRA

Assistance Line at (202) 872–7584 or

send Internet e-mail to

CRAHELP@FRB.GOV.

Q7. 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

must be prepared to identify those

loans, investments and services to be

evaluated under the community

development test.

Sectionl.42(a) Loan Information

Required to be Collected and

Maintained

Q1. Must institutions collect and

report data on all commercial loans

under $1 million 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.

Q2. 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 or block

numbering area. 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.

Q3. Will farm loans need to be

segregated from business loans?

A3. Yes.

Q4. Should institutions collect and

report data on all agricultural loans

under $500,000 at origination?

A4. Institutions are to report those

farm loans that they capture in the Call

Report, Schedule RC–C, Part II and

Schedule SB of the TFR. Small farm

loans are defined as those whose

original 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 and TFR.

Q5. Should institutions collect and

report data about small business and

small farm loans that are refinanced or

renewed?

A5. An institution collects and reports

information about refinancings but does

not collect and report information about

renewals. A refinancing typically

involves the satisfaction of an existing

obligation that is replaced by a new

obligation undertaken by the same

borrower. When an institution

refinances a loan, it is considered a new

origination and loan data should be

collected and reported if otherwise

required. Consistent with HMDA,

however, if under the original loan

agreement, the institution is

unconditionally obligated to refinance

the loan, or is obligated to refinance the

loan subject to conditions within the

borrower’s control, the institution

would not report these events as

originations.

For purposes of the CRA data

collection and reporting requirements,

an extension of the maturity of an

existing loan is a renewal, and is not

considered a loan origination.

Therefore, institutions should not

collect and report data on loan

renewals.

Q6. Does a loan to the ‘‘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
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52125

definition for small business and small

farm loans in the revised regulation,

capture both ‘‘Loans to finance

agricultural production and other loans

to farmers’’ and ‘‘Loans secured by

farmland.’’

Q7. How should an institution report

a home equity line of credit, part of

which is for home improvement

purposes, but the predominant part of

which is for small business purposes?

A7. The institution has the option of

reporting the portion of the home equity

line that is for home improvement

purposes under HMDA. That portion of

the loan would then be considered

when examiners evaluate home

mortgage lending. 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.’’

Q8. 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.

Q9. 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.

Q10. 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

dictate that an institution know the

location of its customers or loan

collateral. 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 post office box numbers

or 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. Once the institution receives

this information from the borrower, it

should assign a census tract or block

numbering area to that location

(geocode) and report that information as

required under the regulation.

There may be cases in which a

borrower cannot provide a street

address because of the rural nature of

the community. If a borrower can

provide only a rural route and box

number, or in those rare instances in

which a borrower reports a post office

box and the institution cannot

determine the location of the business,

the following guidance will apply,

depending on the date the loan is

originated or purchased:

• For loans originated or purchased

in 1997, if an institution cannot

determine the borrower’s street address,

the institution should geocode the

location of the loan using the town,

state, and zip code of the location of the

post office as a proxy for the location of

the borrower. In cases where the

assigned location of the zip code for the

rural route and box number or post

office box encompasses more than one

census tract or block numbering area,

the institution should be able to provide

a specific rationale for the census tract

or block numbering area selected for

geocoding purposes.

• For loans originated or purchased

in 1998 or later, if the institution cannot

determine the borrower’s street address,

the institution should report the

borrower’s state, county, MSA, if

applicable, and ‘‘NA,’’ for ‘‘not

available,’’ in lieu of a census tract or

block numbering area code.

Section l.42(a)(2) Loan Amount at

Origination

Q1. When an institution purchases a

small business or small farm loan,

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, 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.

Q2. 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.

Q3. 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’ 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.

Sectionl.42(a)(3) The Loan Location

Q1. 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 business headquarters or the

location where the greatest portion of

the proceeds are applied, as indicated

by the borrower.

Sectionl.42(a)(4) Indicator of Gross

Annual Revenue

Q1. When indicating whether a small

business borrower had gross annual
52126 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

revenues of $1 million or less, upon

what revenues should an institution

rely?

A1. Generally, an institution should

rely on the revenues that it considered

in making its credit decision. For

example, in the case of affiliated

businesses, such as a parent corporation

and its subsidiary, if the institution

considered the revenues of the entity’s

parent or a subsidiary corporation of the

parent as well, then the institution

would aggregate the revenues of both

corporations to determine whether the

revenues are $1 million or less.

Alternatively, if the institution

considered the revenues of only the

entity to which the loan is actually

extended, the institution should rely

solely upon whether gross annual

revenues are above or below $1 million

for that entity. However, if the

institution considered and relied on

revenues or income of a cosigner or

guarantor that is not an affiliate of the

borrower, the institution should not

adjust the borrower’s revenues for

reporting purposes.

Q2. 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.

Q3. 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.

Sectionl.42(b) Loan Information

Required To Be Reported

Sectionl.42(b)(1) Small Business and

Small Farm Loan Data

Q1. 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 or block

numbering area 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; 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).

Section l.42(b)(2) Community

Development Loan Data

Q1. 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.

Q2. 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 definitions of home mortgage, small

business, or small farm loans only in

those respective categories even if they

also meet the definition of community

development loans. As a practical

matter, this is not a disadvantage for

retail institutions because any affordable

housing mortgage, small business, small

farm or consumer loan that would

otherwise meet the definition of a

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 favorable

consideration under the borrower

characteristic criteria of the lending test.

See Q&A4 under §l.22(b) (2) & (3).

Limited purpose and wholesale

institutions also must report loans that

meet the definitions of home mortgage,

small business, or small farm loans in

those respective categories; however,

they must also report any loans from

those categories that meet the regulatory

definition of ‘‘community development

loans’’ 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.

Section l.42(b)(3) Home Mortgage

Loans

Q1. 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.

Section l.42(c) Optional data

collection and maintenance

Section l.42(c)(1) Consumer loans

Q1. 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
Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52127

• The gross annual income of the

borrower that the institution considered

in making its credit decision.

Section l.42(c)(1)(iv) Income of

borrower

Q1. 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.

Q2. 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.

Section l.42(c)(2) Other Loan Data

Q1. Schedule RC–C, Part II of the Call

Report and schedule SB of the TFR do

not allow financial institutions to report

loans for commercial and industrial

purposes that are secured by residential

real estate. Loans extended to small

businesses with gross annual revenues

of $1 million or less may, however, be

secured by residential real estate. Is

there a way to collect this information

on the software to supplement an

institution’s small business lending data

at the time of examination?

A1. Yes. If these loans promote

community development, as defined in

the regulation, the institution should

collect and report information about

these loans as community development

loans. Otherwise, at an institution’s

option, it may collect and maintain data

concerning loans, purchases, and lines

of credit extended to small businesses

and secured by residential real estate for

consideration in the CRA evaluation of

its small business lending. To facilitate

this optional data collection, the

software distributed free-of-charge by

the FFIEC provides that an institution

may collect this information to

supplement its small business lending

data by choosing loan type, ‘‘Other

Secured Lines/Loans for Purposes of

Small Business,’’ in the individual loan

data. (The title of the loan type, ‘‘Other

Secured Lines of Credit for Purposes of

Small Business,’’ which was found in

the instructions accompanying the 1996

data collection software, is being

changed to ‘‘Other Secured Lines/Loans

for Purposes of Small Business’’ in order

to accurately reflect that lines of credit

and loans may be reported under this

loan type.) This information should be

maintained at the institution but should

not be submitted for central reporting

purposes.

Q2. 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.

Q3. 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 §l.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 §l.42(c)(2) for

consideration under the lending test.

Section l.42(d) Data on Affiliate

Lending

Q1. 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 either provide examiners with 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.

Section l.43—Content and Availability

of Public File

Section l.43(a) Information Available

to the Public

Section l.43(a)(1) Public Comments

Q1. 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.

Q2. 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)

(§ l.26(a)(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.

Q3. May an institution include a

response to its CRA Performance

Evaluation in its public file?

A3. Yes. However, the format and

content of the evaluation, as transmitted

by the supervisory agency, may not be

altered or abridged in any manner. In

addition, an institution that received a

less than satisfactory rating during it

most recent examination must include

in its public file a description of its

current efforts to improve its

performance in helping to meet the

credit needs of its entire community.

The institution must update the

description on a quarterly basis.

Section l.43(b) Additional

Information Available to the Public

Section l.43(b)(1) Institutions Other

Than Small Institutions

Q1. 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.

Sectionl.43(c) Location of Public

Information

Q1. 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.
52128 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices

Sectionl.44—Public Notice by

Institutions

Q1. 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.

Sectionl.45—Publication of Planned

Examination Schedule

Q1. 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 to 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.

Q2. 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 B to PartlCRA Notice

Q1. 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: 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 12 CFR § 4.5(a).

OCC-, FDIC-, and Board-supervised

institutions: ‘‘Officer in Charge of

Supervision’’ is the title of the

responsible official at the appropriate

Federal Reserve Bank.

Appendix A

Regional Offices of the Bureau of the

Census

To obtain median family income

levels of census tracts, MSAs, block

numbering areas and statewide

nonmetropolitan areas, contact the

appropriate regional office of the Bureau

of the Census as indicated below. The

list shows the states covered by each

regional office.

Atlanta, (404) 730–3833

Alabama, Florida, Georgia

Boston, (617) 424–0510

Connecticut, Maine, Massachusetts,

New Hampshire, Rhode Island, Vermont

Charlotte, (704) 344–6144

District of Columbia, Kentucky, North

Carolina, South Carolina, Tennessee,

Virginia

Chicago, (708) 562–1740

Illinois, Indiana, Wisconsin

Dallas, (214) 640–4470 or (800) 835–

9752

Louisiana, Mississippi, Texas

Denver, (303) 969–7750

Arizona, Colorado, Nebraska, New

Mexico, North Dakota, South Dakota,

Utah, Wyoming

Detroit, (313) 259–1875

Michigan, Ohio, West Virginia

Kansas City, (913) 551–6711

Arkansas, Iowa, Kansas, Minnesota,

Missouri, Oklahoma

Los Angeles, (818) 904–6339

California

New York, (212) 264–4730

New York, Puerto Rico

Philadelphia, (215) 597–8313 or (215)

597–8312

Delaware, Maryland, New Jersey,

Pennsylvania

Seattle, (206) 728–5314

Alaska, Hawaii, Idaho, Montana,

Nevada, Oregon, Washington

Dated: September 29, 1997.

Joe M. Cleaver,

Executive Secretary, Federal Financial

Institutions Examination Council.

[FR Doc. 97–26206 Filed 10–3–97; 8:45 am]

BILLING CODE 4810–33–P; 6714–01–P; 6210–01–P 6720–

01–P

FEDERAL MARITIME COMMISSION

Notice of Agreement(s) Filed

The Commission hereby gives notice

of the filing of the following

agreement(s) under the Shipping Act of

1984.

Interested parties can review or obtain

copies of agreements at the Washington,

DC offices of the Commission, 800

North Capitol Street, N.W., Room 962.

Interested parties may submit comments

on an agreement to the Secretary,

Federal Maritime Commission,

Washington, DC 20573, within 10 days

of the date this notice appears in the

Federal Register.

Agreement No.: 224–201033

Title: Broward County/Maritime

Entertainment Terminal Agreement

Parties:

Broward County, Florida (Port

Everglades)

Maritime Entertainment, Ltd., Inc.

Synopsis: The proposed Agreement

authorizes Broward County to provide

berthing and related terminal

facilities, and passenger wharfage at a

reduced rate, to Maritime

Entertainment in exchange for its

agreement to provide daily passenger

cruise service from Port Everglades.

Dated: September 30, 1997.

By Order of the Federal Maritime

Commission.

Joseph C. Polking,

Secretary.

[FR Doc. 97–26360 Filed 10–3–97; 8:45 am]

BILLING CODE 6730–01–M

FEDERAL RESERVE SYSTEM

Change in Bank Control Notices;

Acquisitions of Shares of Banks or

Bank Holding Companies

The notificants listed below have

applied under the Change in Bank

Control Act (12 U.S.C. 1817(j)) and §

225.41 of the Board’s Regulation Y (12

CFR 225.41) to acquire a bank or bank

holding company. The factors that are

considered in acting on the notices are

set forth in paragraph 7 of the Act (12

U.S.C. 1817(j)(7)).

The notices are available for

immediate inspection at the Federal

Reserve Bank indicated. The notices

also will be available for inspection at

the offices of the Board of Governors.

Interested persons may express their

views in writing to the Reserve Bank

indicated for that notice or to the offices

of the Board of Governors. Comments

must be received not later than October

21, 1997.