NCRC Presentation on CRA: Empowering Communities and Building Wealth

1. NCRC Presentation on CRA: Empowering Communities and Building Wealth Josh Silver, Vice President of Research and Policy March 2009

2. How CRA Works • Passed in 1977, CRA makes redlining, or discrimination against neighborhoods illegal • CRA establishes an affirmative and continual obligation to serve credit needs of low- and moderate-income (LMI) communities • CRA empowers via public participation – CRA exams and bank mergers. • CRA is a win-win proposition: more safe and sound loans, building community wealth, more profitable business opportunities for banks

3. CRA’s Effectiveness • More than $6 trillion in CRA agreements – to make loans, investments, and services to LMI and minority communities • NCRC database of CRA agreements used by Fed Reserve economists and Harvard Univ. – home lending to LMI and minority borrowers higher in communities covered by CRA agreements and CRA exams • The Treasury Dept. - banks increased home loans to LMI areas and borrowers by 39 percent from 1993 to 1998, more than twice the increase (of 17 percent) to middle- and upper-income borrowers and areas.

4. CRA’s Effectiveness contd. • CD Lending - $407 billion since 1996 • Small Business Lending - $581 billion in low/mod neighborhoods since 1996 • CRA-covered banks less likely to issue high-cost loans & piggybacks. Only 6% of high-cost loans issued by banks to LMI people and n’hoods in CRA AA’s

5. CRA Exams: Frequency & Ratings • CRA exams scrutinize banks once every two years for banks or thrifts with assets > $250 million. Once every four or five years for small banks with assets < $250 million • Banks and thrifts receive one of four grades: Outstanding, Satisfactory, Needs-to-Improve, and Substantial Non-Compliance

6. Federal Agencies Conducting CRA Exams • Federal Reserve Board http://www.federalreserve.gov • Federal Deposit Insurance Corporation http://www.fdic.gov • Office of Thrift Supervision http://www.ots.treas.gov • Office of the Comptroller of the Currency http://occ.gov • Federal Financial Institutions Examination Council http://www.ffiec.gov

7. How to Find Out About CRA Exams • Every 3 months, the federal agencies publish a schedule of CRA exams. • Obtain the schedule from the federal agency websites or from NCRC. • Locate regional office of agency conducting CRA exam – NCRC can help

8. How and Why the Public Should Comment on CRA Exams • Despite CRA inflation, banks can score a low satisfactory on a state level (like a B- or C+) or a bank can score low satis. or worse on one of its tests (like lending or investment). Low grades on a part of the CRA exam motivate banks to improve their ratings. • NCRC & member in West Virginia commented on WesBanco’s CRA exam. Bank almost failed; this held up bank’s merger for almost a year; bank then hired new CRA officer and increased its lending to LMI borrowers.

9. Small Banks • Less than $250 million • Lending test only • Five factors including responses to public complaints • No reporting of CRA data on small business or community development lending

10. Intermediate Small Banks • Banks and thrifts with assets between $250 million and $1 billion. • Lending and community development (CD) test. • Not required to report CRA data on small business or farm lending

11. Large Bank CRA Exams • Large bank exam – banks with assets above $1 billion • Lending, investment, and service test. • Large banks must report CRA small business, farm and CD loan data.

12. Exams for Non-Retail Banks • Wholesale and Limited Purpose – Community Development Test • Strategic Plan – in lieu of regular exam, mostly used by non-retail banks

13. Foreclosure Prevention • CRA Question and Answer document affirms CRA points for loan programs with the objective of providing affordable, sustainable, long-term relief….through loan refinancing…or modifications to homeowners who are facing foreclosure on their primary residence.

14. Foreclosure Prevention • Q&As lists foreclosure prevention counseling as a community development service eligible for CRA points • Evidence of predatory and illegal lending, if widespread, can result in lower CRA ratings

15. New York Community Bank – CD Service • FDIC CRA Exam – January 2008 • Bank has $28 billion in assets • During tax season, NYCB provides branch space for AARP volunteers to help with income tax preparation free of charge • Consumers coached on EITC program

16. First Financial Bank, NA – CD Service • OCC Exam Sept 07 • $916 million in assets, based in Abilene TX • FFB partner with NPO, FREE, to provide tax preparation for LMI people • FFB offers IDAs for homeownership, startup business costs, or college • Bank does a 4 to 1 match up to $5,000

17. The National Bank: Intermediate Small Bank • Headquartered in Bettendorf, IA (Davenport MSA) • TNB originated 4 community development loans of $12.4 million with majority of the dollars to revitalize a low income area in the MSA • Includes a loan for $7.7 million for building renovations in a low-income tract, part of the Davenport One / Vision Iowa revitalization plan • Home Purchase loans: 21.87% of loans were given to the 19.12% of low income borrowers; 26.13% of loans were given to the 18.41% of moderate income borrowers • Rated as Outstanding on the Lending Test

18. Hills Bank & Trust Company: Large Bank • Located in Hills, IA, with assets of $1.3 billion in 2006 • Rated as Outstanding on the Investment and Service Tests • Small farm lending: In 2004, 92 percent of farm loans extended to farms with revenues of $1 million or less; 86% of loans were in amounts of $100,000 or less • Since the prior exam, the bank extended 24 community development loans of over $21 million • The bank has committed to a $645,000 loan for a low-income senior housing complex in Linn County. • Hills contributed to 67 organizations that primarily benefit LMI people and small businesses (such as Big Brothers/Big Sisters, Habitat for Humanity); donations totaled $507,541

19. Community Bank, Coast: Small Bank • Located in Biloxi, MS (Harrison County) with assets of $275 million (as of March 31, 2006) • Rated as overall Satisfactory (last exam released June 12, 2006), with a high percentage of loans made within the bank’s total assessment area. • After Hurricane Katrina, extended 66 loans totaling about $3.6 million to customers for recovery efforts in fourth quarter 2005. Loans for rehabbing homes & customers’ business offices. • The institution was a founding member of The Financial Institutions Housing Opportunity Pool (FIHOP), and a Senior Vice President serves on the Board. The total commitment by all members is $8.6 million.

20. Hancock Bank: Large Bank • Headquartered in Gulfport, MS, with $2.7 billion in assets • One of the top lenders in MS, having great market share in Gulfport (#1), Hattiesburg (#4), and Pascagoula (#2). • Hancock made a $8.9 million loan to a school district to fund capital improvements in school buildings and purchase educational equipment. The majority of the students were from low- or moderate-income families. • The bank extended a $1.4 million loan to refinance a nursing home, where approximately 70% of residents received Medicaid assistance. • A $930,000 loan for a rural water association for capital improvements, covering the moderate-income area of Lamar County, MS.

21. Parameters for CRA Exams • Assessment Areas – Make sure do not exclude LMI areas • Affiliates – Bank can choose to include/exclude affiliates • Performance context – make sure examiners adequately asses needs; don’t excuse poor performance on poverty rates, or lack of investment opportunities

22. Office of Thrift Supervision • Had enacted very watered down exams for savings and loans from 2005 through first half of 2007 • Now, OTS exams are same as other agencies

23. Merger Application Process • When banks acquire other banks, they must submit an application to a federal regulator. • The regulators consider many factors including anti-trust, managerial competence, and convenience and needs (the CRA factor). • Public comment periods are 30 days after submission of the application. • Regulators can deny mergers (rare) or approve them with conditions (occasional)

24. CRA Merger Application Process and CRA Agreements • The merger application process has also stimulated CRA agreements • These can be multi-billion dollar commitments • Most effective are smaller agreements describing in detail promises to increase lending in specific neighborhoods or cities. • Also, CRA agreements can specify new or improved products or practices. Examples are a home mortgage lending product, counseling programs, fair lending reforms such as “referral up” programs.

25. Collaboration as well as Advocacy • Contact CRA officers of banks in your area • See if they are interested in a programmatic relationship • Homeownership counseling, financial education, small business counseling, and other programs

26. Quote on CRA • The revisions (in 1995) helped to stimulate increased lending and investment activity in low- and moderate-income areas.  In fact, some studies suggest that these changes to the regulations coincided with an increase in annual lending commitments from $ 1.6 billion in 1990 to $103 billion in 1999.

27. Quote on CRA contd. • From a consumer perspective, the fact that Congress amended the CRA statute in 1989 to make evaluations public provided the transparency necessary to help create a dialogue between banks and community advocates.  This dialogue contributed to an increased number of public/private partnerships that were uniquely successful in addressing the economic and community development needs of lower-income communities

28. Conclusion: CRA Only as Good as You Make It • CRA exams and merger applications more likely to hold banks and thrifts of all sizes accountable if citizens, community groups and public officials are involved • Join NCRC, use CRA and change lending and investing in the USA. We are at 202-628-8866 or http://www.ncrc.org

29. The National Community Reinvestment Coalition The National Community Reinvestment Coalition (NCRC) is an association of more than 600 community-based organizations that promote access to basic banking services including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families. Our members include community reinvestment organizations, community development corporations, local and state government agencies, faith-based institutions, community organizing and civil rights groups, minority and women-owned business associations, local and social service providers from across the nation

30. For more information: National Community Reinvestment Coalition 727 15th Street, Suite 900 Washington, DC 20005 P: (202) 628.8866 F: (202) 628.9800 www.ncrc.org