1. UNDERSTANDING THE COMMUNITY REINVESTMENT ACT Federal Reserve Bank of Atlanta CED 1 National Disability Institute Real Economic Impact Tour 2011 Mayor’s Leadership Academy

2. What Is CRA? 2 CRA Statute --12 USC 2901 (Reg. 12 CFR 25) 1977: Congress passed the Community Reinvestment Act – Federal banking regulatory agencies issued Regulation BB to implement law. Enacted to prevent redlining and to encourage financial institutions to help meet the credit needs of all segments of their communities, including low- and moderate-income (LMI) neighborhoods  Including low- and moderate-income individuals and tracts.  Including businesses/farms of different sizes and borrowers of different income levels.  Consistent with safe and sound operations. Federal Reserve Bank of Atlanta CED

3. What is CRA? CRA requires regulators of federal financial institutions to assess the record of each bank and thrift in helping to fulfill their obligations to the community and to consider that record in evaluating applications for charters or for the approval of bank mergers, acquisitions, and branch openings CRA applies to federally insured depository institutions, national banks, thrifts, and state-chartered commercial and savings banks 3 Federal Reserve Bank of Atlanta CED

4. Key Definitions Assessment Area Each bank is evaluated on how well it serves its “assessment area” Assessment area:  Geographies in which bank has its main office, branches, and deposit taking ATMs  Surrounding areas where bank has originated or purchased a substantial portion of its loans  Must consist of “whole geographies” 4 Federal Reserve Bank of Atlanta CED

5. Key Definitions Performance Context A bank’s performance is judged in the context of information about the bank and its Assessment Area, including  demographic data on median income levels, distribution of household income, nature of housing stock, housing costs and other relevant data  lending, investment and service opportunities  the bank’s product offerings and business strategy, capacity and constraints, past performance and the performance of similarly situated lenders  the bank’s public file and any written comments about the bank’s CRA performance  any other relevant information 5 Federal Reserve Bank of Atlanta CED

6. Key Definitions LMI Low- and Moderate-Income (LMI) is based on area median income (AMI) of a geography, based on census data  Low-income: < 50% of median income  Moderate-income: 50% - < 80% of median income  Middle-income: 80% - < 120% of the median income  Upper-income: 120% or more of the median income AMI - annual income figure for which there are as many families with incomes below that level as there are above that level  For metro areas use the MSA’s Median Family Income  For rural areas use the Statewide Non-metropolitan Median Family Income 6 Federal Reserve Bank of Atlanta CED

7. Key Definitions Community Development Affordable Housing for LMI individuals; Community services targeted to LMI individuals; Activities that promote economic development by financing small business/farms. Area Revitalization and Stabilization  Low- or moderate-income geographies;  Designated disaster areas; or  Distressed non-metropolitan middle-income geographies  Underserved non-metropolitan middle-income geographies 7 Federal Reserve Bank of Atlanta CED

8. Key Definitions Qualified Investment Lawful investment, deposit, membership share, or grant that has community development as its primary purpose Examples:  financial intermediaries that lend in LMI areas or to LMI individuals in order to promote community development  organizations that promote economic development by financing small business  facilities that promote community development in LMI areas for LMI individuals  projects eligible for low-income housing tax credits. 8 Federal Reserve Bank of Atlanta CED

9. Types of CRA Examinations Exam Types  Small Bank  Intermediate Small Bank (ISB)  Large Bank http://www.ffiec.gov/cra/examinations.htm 9 Federal Reserve Bank of Atlanta CED

10. Small Bank Test Banks with assets under $280 million Exam Criteria: 1. Loan to deposit ratio 2. Lending inside and outside of the assessment area 3. Distribution of loans by geography 4. Distribution of loans by borrower income and revenue size 5. Responses to CRA related complaints 10 Federal Reserve Bank of Atlanta CED

11. ISB and Large Bank Test Banks with assets between $280 million and $1.122 billion are “intermediate small banks” or referred to as “ISBs.” Exam criteria:  Lending Test  Investment Test  Service Test 11 Federal Reserve Bank of Atlanta CED

12. CRA Ratings A bank’s record of meeting community needs is considered during an application review for a merger, acquisition, or branching Outstanding Satisfactory (High Sat/Low Sat) Needs to Improve Substantial Noncompliance 12 Federal Reserve Bank of Atlanta CED

13. Good CRA Opportunities for Banks Loans, services and investments that clearly benefit qualified populations and geographies. Loans, services and investments related to community development activities. For small banks, primarily Real Estate and Small Business Lending. For large banks and ISBs, can be greater regional market that includes assessment area – more complex activities. 13 Federal Reserve Bank of Atlanta CED

14. What Banks Look for in Partners Capacity Proven Performance Sustainability Assessment and Responsiveness Innovation Target Market Penetration Recordkeeping and Accountability 14 Federal Reserve Bank of Atlanta CED

15. CRA Challenges Documentation of eligibility and impact. Capturing income data related to activities. Ensuring activities fulfill intended outcome. Training and technical expertise in development programs. Adequate documentation for underwriting. Outreach to underserved and unbanked markets and populations. Identification of banking and development needs. 15 Federal Reserve Bank of Atlanta CED

16. Bank Decision Factors Assessment Area Risk Cost Response to assessed need Business/skill alignment Leverage Value to overall CRA strategy/portfolio Business development potential 16 Federal Reserve Bank of Atlanta CED

17. Public File for All Institutions 17 Full file at the main office and at one office in each state Limited file at branch locations All written comments for the current year and two previous years Most recent public evaluation List of all branches - address and geographies List of services Map of Assessment Areas Last two years HMDA Disclosure Statement Federal Reserve Bank of Atlanta CED

18. Resources FFIEC Community Reinvestment Act Page http://www.ffiec.gov/cra/ FFIEC Guide to CRA Data Collection and Reporting http://www.ffiec.gov/cra/guide.htm FFIEC Guide to HMDA Reporting http://www.ffiec.gov/hmda/guide.htm Federal Reserve Bank CRA Guide http://www.dallasfed.org/ca/epersp/2007/4_2.cfm FFIEC CRA Q & As 2009 http://www.fdic.gov/news/news/press/2009/E8-31116.pdf 18 Federal Reserve Bank of Atlanta CED

19. Thank You John Eric Nelson, Managing Partner Wall Street Without Walls john.nelson@wallstreetwithoutwalls.com Janet Hamer Federal Reserve Bank of Atlanta Janet.hamer@atl.frb.org Kip Child FDIC kchild@fdic.gov 19 Federal Reserve Bank of Atlanta CED