[Federal Register Volume 64, Number 84 (Monday, May 3, 1999)]
[Notices]
[Pages 23618-23648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10841]


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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.

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SUMMARY: The Consumer Compliance Task Force (we) of the Federal 
Financial Institutions Examination Council (FFIEC) is supplementing, 
amending, and republishing its Interagency Questions and Answers 
Regarding Community Reinvestment, as well as proposing for comment 
three new or revised questions and answers. The Interagency Questions 
and Answers have been prepared by staff of the Office of the 
Comptroller of the Currency (OCC), the Board of Governors of the 
Federal Reserve System (Board), the Federal Deposit Insurance 
Corporation (FDIC), and the Office of Thrift Supervision (OTS) 
(collectively, the agencies) to answer frequently asked questions about 
community reinvestment. These Interagency Questions and Answers contain 
informal staff guidance for agency personnel, financial institutions, 
and the public. We seek public comment on the proposed questions and 
answers. In addition, we invite public comment on any of the new and 
revised questions and answers, as well as other community reinvestment 
issues that are not addressed in these Interagency Questions and 
Answers.

DATES: Effective date of amended Interagency Questions and Answers on 
Community Reinvestment: May 3, 1999. We request that comments on the 
proposed questions and answers be submitted on or before: July 2, 1999.

ADDRESSES: Questions and comments may be sent to Keith J. Todd, 
Executive Secretary, Federal Financial Institutions Examination 
Council, 2000 K Street, NW, Suite 310, Washington, DC 20006, or by 
facsimile transmission to (202) 872-7501.

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: Catherine M.J. Gates, Senior Review Examiner, (202) 452-
3946; James H. Mann, Attorney, (202) 452-2412; or Kathleen C. Ryan, 
Attorney, (202) 452-3667, Board of Governors of the Federal Reserve 
System, 20th Street and Constitution Avenue, NW., Washington, DC 20551.
    FDIC: Robert W. Mooney, Senior Fair Lending Specialist, Division of 
Compliance and Consumer Affairs, (202) 942-3090; or A. Ann Johnson, 
Counsel, Legal Division, (202) 898-3573, 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) 906-6134, Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

    In 1995, the agencies revised the 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 related 
clarifying documents on December 20, 1995 (60 FR 66048) and May 10, 
1996 (61 FR 21362).
    The revised regulations are interpreted primarily through 
``Interagency Questions and Answers Regarding Community Reinvestment,'' 
which provide informal staff guidance for use by agency personnel, 
financial institutions, and the public, and which are supplemented 
periodically. We published our most recent guidance on October 7, 1997 
(1997 Interagency Questions and Answers). See 62 FR 52105. In addition 
to issuing the 1997 Interagency Questions and Answers, we proposed 
several questions and answers in the accompanying supplementary 
information. These questions and answers were proposed to clarify what

[[Page 23619]]

is meant by ``primary purpose of community development.'' We 
specifically requested comment addressing the proposed questions and 
answers, as well as general comments and questions regarding the CRA 
regulations. See 62 FR at 52108-09.
    We received 44 letters in response to our request for comments in 
the 1997 Interagency Questions and Answers. Comments came from 
financial institutions (16), community groups (14), trade associations 
(6), federal entities (6), and state/local agencies (2). This document 
supplements, revises, and republishes the 1997 Interagency Questions 
and Answers based, in part, on questions and comments received from 
examiners, financial institutions, and other interested parties, and on 
comments received in response to our request for comments.
    This document adopts the four questions and answers proposed in 
1997 and thirteen new questions and answers, revises seven other 
questions and answers, and proposes three new or revised questions and 
answers for comment. A discussion of these 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 substantially 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 System member banks supervised by the Board, they appear at 12 
CFR 228.26; for nonmember state banks, at 12 CFR 345.26; and for 
thrifts, at 12 CFR 563e.26. Accordingly, the citation in this document 
would be to Sec. ____.26. In the few instances in which the suffix in 
one of the regulations is different, the specific citation for that 
regulation is provided.

Adopting Questions and Answers Proposed in 1997

    We are adopting the four questions and answers addressing ``primary 
purpose'' of community development activities that were proposed in 
1997. 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). In response to 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, we proposed four 
questions and answers (Q&As) to explain what is meant by ``primary 
purpose.'' With one clarifying change, which is discussed below, we are 
adopting the previously proposed Q&A7 addressing Secs. ____.12(i) and 
563e.12(h), Q&A1 addressing Sec. ____.22(b)(4), Q&A1 addressing 
Sec. ____.23(e), and Q&A3 addressing Sec. ____.42(b)(2).
    Twenty commenters addressed topics related to the proposed Q&As. 
The commenters were generally in favor of the proposed Q&As. Seven 
commenters supported greater flexibility for examiners when considering 
whether to give CRA consideration to certain loans. (These seven 
commenters also raised issues regarding the definition of ``community 
development'' in the regulations, which is discussed below.) Three 
commenters, however, felt that examiners rely too heavily on 
mathematical formulas in making this determination, such as the amount 
of the low- or moderate-income set-aside, the number of units 
constructed, or the number of jobs for low-income persons actually 
created. Six commenters supported giving CRA consideration to community 
development loans, even if 50% or less of the proceeds are used for 
community development purposes. One commenter suggested, however, that 
an institution should receive CRA consideration only for that portion 
of a loan or investment expressly devoted to the community development 
purpose.
    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 the number of dollars spent, 
housing units built, or 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 regulations. However, this answer does not address 
other activities that are subject to certain legal or market 
restraints, such that they do not reach this threshold, even though 
they have community development as their purpose and result in real, 
long-term community development benefits. Many of these projects are 
``designed for the express purpose'' of achieving a qualifying 
community development purpose, even though less than half the dollars 
involved in the entire project are concentrated on that purpose. For 
example, 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. Accordingly, we are adopting without 
change the proposed guidance that emphasizes the quantitative and 
qualitative distinctions to be made when evaluating eligible community 
development loans, qualified investments, or community development 
services.
    Q&A 7 addressing Secs. ____.12(i) and 563e.12(h) is based on the 
preamble to the final rule 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 regulations) are 
not eligible for consideration as community development loans or 
services or qualified investments. The preamble further states that 
providing indirect or short-term benefits to low- or moderate-income 
persons does not make an activity community development. In addition to 
incorporating this guidance into these Interagency Questions and 
Answers, the answer identifies the kind of information used to 
determine whether an activity was designed for the express purpose of 
community development. The answer adopts a simplified threshold rule 
(i.e., majority) and an alternative approach for finding sufficient 
bases to conclude that an activity possesses the requisite primary 
purpose.
    We are also adopting Q&A1 addressing Sec. ____.22(b)(4) and Q&A1 
addressing Sec. ____.23(e), which provide guidance on the evaluation of 
activities that have a primary purpose of community development, as 
well as the reporting of community development loans. This additional 
guidance emphasizes that once loans or investments are found to possess 
a primary purpose of community development, examiners may differentiate 
among community development loans or qualified investments under the 
relevant performance criteria. This differentiation may be based not 
only on the differing dollar amounts attributable to the underlying 
community development purpose, but also on a loan's innovation or 
complexity under Sec. ____.22(b)(4) or an investment's innovation, 
complexity, responsiveness or non-routine characteristics under 
Sec. ____.23(e).
    Finally, we are adopting Q&A3 addressing Sec. ____.42(b)(2), which

[[Page 23620]]

explains that a loan may be reported as a community development loan if 
its express primary purpose is to finance an affordable housing project 
for low- or moderate-income individuals, although, for example, only 
40% of the project's units will actually be occupied by individuals or 
families with low or moderate incomes. Although an institution would 
report the entire amount of the loan, we are expanding upon the answer 
proposed in 1997 to clarify that examiners may make qualitative 
distinctions among community development loans on the basis of how well 
each loan advances its community development purpose.

New Questions and Answers

    What is ``affordable'' housing? Institutions and others have asked 
how to determine whether a housing development will provide 
``affordable'' housing for low- and moderate-income individuals, 
particularly in a new project where the units are not yet leased or 
sold, or in other projects where the income of renters cannot be 
verified. It has been suggested that a simple formula might be 
appropriate, such as if the mortgage payments or rental expenses amount 
to less than 30% of the income of individuals or families who are low- 
or moderate-income (i.e., have an income that is less than 80% of the 
area median income). We believe, however, that the critical 
consideration is the extent to which a project is or likely will be 
utilized by low- or moderate-income individuals. A formula based solely 
on rents as a percentage of median family income may determine this 
accurately in some circumstances, but may fail to do so in others. For 
example, in an area with relatively low-cost housing, such a formula 
may result in a calculation above even the median housing cost for the 
area. Therefore, we believe that it is appropriate to look at several 
factors, such as median rents of the assessment area and the project, 
the median home value of either the assessment area, low- and moderate-
income geographies or the project, the low- and moderate-income 
population in the area of the project, or the past performance record 
of the organization(s) undertaking the project in determining whether a 
housing development does or likely will benefit low- and moderate-
income individuals.
    To clarify this position, we are adopting Q&A1 addressing 
Secs. ____.12(h)(1) and 563e.12(g)(1), which discusses the types of 
factors that examiners consider when determining whether housing is 
``affordable'' to low- and moderate-income individuals.
    Do institutions receive consideration for originating or purchasing 
loans that are fully guaranteed? We are adopting a new Q&A, designated 
as Q&A4 addressing Sec. ____.22(a)(2), to stress that the lending test 
evaluates an institution's record of helping to meet the credit needs 
of its assessment area(s) through the origination and purchase of 
specified types of loans, but that the test criteria do not take into 
account whether or not the loans are guaranteed.
    What is the range of practices that examiners may consider in 
evaluating the innovativeness, complexity, or flexibility of an 
institution's lending? We have been asked whether contracting programs, 
under which institutions may commit to contracting with small business 
borrowers, may receive consideration under the CRA regulations. To 
date, examiners generally have not been considering such programs in 
reviewing an institution's CRA performance. New Q&A1 addressing 
Sec. ____.22(b)(5) discusses the range of factors that examiners may 
consider in evaluating the innovativeness and flexibility of an 
institution's lending practices (and the complexity and innovativeness 
of its community development lending). It makes clear that, even though 
contracting programs are not, standing alone, considered in connection 
with a CRA evaluation, such programs may enhance the success and 
effectiveness of a related lending program. Therefore, certain 
contracting programs may warrant consideration as examiners review the 
innovativeness, complexity, and flexibility of an institution's lending 
practices. The Q&A also provides another example of when examiners may 
consider related program activities in connection with an evaluation of 
an institution's lending performance.
    May an institution receive consideration for a qualified investment 
if it invests indirectly through a fund with a community development 
purpose, as that is defined in the CRA regulations? We are adopting a 
new Q&A, designated as Q&A1 addressing Sec. ____.23(a), that 
incorporates guidance previously provided in interagency staff 
interpretive letters. See, e.g., Interagency Staff CRA Interpretive 
Letter, published as OCC Interpretive Letter No. 800, (1997 Transfer 
Binder) Fed. Banking L. Rep. (CCH), para. 81-227 (Sept. 11, 1997). In 
those letters, staff stated that the direct or indirect nature of a 
qualified investment does not affect whether an institution will 
receive consideration for the investment during its CRA evaluation. As 
long as the primary purpose of the investment is community development, 
as defined in the CRA regulations, an institution's investment in a 
fund, which in turn invests in a community development project (e.g., 
affordable housing for low- and moderate-income individuals that 
benefits the institution's assessment area(s) or a broader statewide or 
regional area that includes one or more of the institution's assessment 
area(s)), is a qualified investment.
    How do examiners evaluate an institution's qualified investment in 
a fund, the primary purpose of which is community development, as that 
is defined in the CRA regulations? Many financial institutions have 
made qualified investments in community development funds that operate 
regionally or nationally. Examiners, institutions, and the funds have 
asked for guidance on how to evaluate these investments. We are 
adopting a new Q&A, designated as Q&A2 addressing Sec. ____.23(e), 
reiterating guidance previously provided in an interagency staff CRA 
interpretive letter. See Interagency Staff CRA Interpretive Letter, 
published as OCC Interpretive Letter No. 800, supra.
    The new Q&A explains that examiners evaluate investments that 
benefit an institution's assessment area(s) or a broader statewide or 
regional area that includes its assessment area(s) using the investment 
test's four performance criteria. When determining the dollar amount of 
the investment (the first criterion), examiners rely on the figures the 
institution records according to generally accepted accounting 
principles. Even though different institutions may employ different 
investment strategies, institutions making the same dollar amount of 
investments over the same number of years, all other performance 
criteria being equal, would receive the same level of consideration.
    The remaining three performance criteria--the ``qualitative'' 
criteria of innovativeness and complexity, responsiveness, and the 
degree to which the investment is not routinely provided by private 
investors--will provide the basis for examiner differentiation among 
investments. Examiners also will consider factors relevant to the 
institution's CRA performance context, such as the effect of 
outstanding long-term qualified investments, the pay-in schedule, and 
the amount of any cash call, on the capacity of the institution to make 
new investments.
    How do examiners evaluate an institution's activities in connection 
with ``Individual Development Accounts''? Individual Development 
Accounts (IDAs) generally are matched savings accounts designed to help 
low-

[[Page 23621]]

and moderate-income families accumulate savings for education or job 
training, down-payment and closing costs on a new home, or start-up 
capital for a small business. Once IDA participants have successfully 
funded an IDA, their personal IDA savings are matched by a public or 
private entity, such as a state or local government, church, 
foundation, or financial institution. Participating depositors often 
receive training in the basics of money management, including 
budgeting, saving, and credit repair. In addition, an entity, such as a 
community organization, typically monitors participants' withdrawals 
from their IDAs.
    Financial institutions may participate in IDA programs in a number 
of ways, including: offering accounts, which may be structured as 
traditional savings accounts; enhancing accounts by offering special 
account benefits, including higher interest rates, ATM services, or 
waived minimum balance requirements; providing funding in the form of 
matching funds for participants or operating support for community 
organizations running the IDA program; helping to design and implement 
IDA programs, including developing and teaching financial literacy 
courses; and making loans to participants once they have achieved their 
savings goals.
    The extent of each financial institution's involvement in IDAs and 
the products and services offered in connection with the accounts will 
vary. Therefore, examiners will evaluate the actual services and 
products provided by each institution in connection with the IDA 
programs as one or more of the following: community development 
services, retail banking services, qualified investments, home mortgage 
loans, small business loans, consumer loans, or community development 
loans. We are adopting a Q&A, designated as Q&A2 addressing 
Sec. ____.24(d), which articulates this opinion.
    How do examiners evaluate a wholesale or limited purpose 
institution's qualified investment in a fund that invests in projects 
nationwide, the purpose of which is community development, as that term 
is defined in the CRA regulations? We are adopting a new Q&A, 
designated as Q&A1 addressing Sec. ____.25(e), memorializing guidance 
previously provided in interagency staff interpretive letters, which 
clarifies how examiners evaluate qualified investments made by 
wholesale or limited purpose institutions in a community development 
fund that invests in projects nationwide. See, e.g., Interagency Staff 
CRA Interpretive Letter, published as OCC Interpretive Letter No. 801, 
(1997 Transfer Binder) Fed. Banking L. Rep. (CCH), para. 81-228 (Sept. 
11, 1997). Examiners first determine whether the institution has 
adequately addressed the needs of its assessment area(s). In doing so, 
examiners also consider qualified investments that benefit a broader 
statewide or regional area that includes the institution's assessment 
area(s). If examiners find that the institution has adequately 
addressed the needs of its assessment area(s), they will give 
consideration to nationwide qualified investments, community 
development loans, and community development services.
    Are innovative loan products, innovative or complex qualified 
investments, and innovative community development services necessary 
for a ``satisfactory'' or ``outstanding'' CRA rating? Two commenters 
expressed concern that examiners might discount community development 
loans if they are not considered to be ``innovative.'' As one commenter 
stated, innovation is only one of the four criteria considered when 
examiners evaluate an institution's responsiveness to community 
development needs.
    We are adopting a new Q&A1, addressing Sec. ____.28, to clarify 
that innovative practices are not required for an ``outstanding'' or 
``satisfactory'' rating. Innovative loan products, innovative or 
complex qualified investments, and innovative community development 
services may augment consideration of an institution's performance 
under the quantitative criteria of the performance tests, resulting in 
a higher level of performance and rating. The Q&A also makes clear that 
the lack of innovative or complex investments, loans, or services alone 
will not result in a ``needs to improve'' rating.
    How is performance under the quantitative and qualitative 
performance criteria weighed when examiners assign a CRA rating? The 
lending, investment, and service tests each contain a number of 
performance criteria designed to measure whether an institution is 
effectively helping to meet the credit needs of its entire community, 
including low- and moderate-income neighborhoods, in a safe and sound 
manner. Some of these criteria are quantitative (number and amount), 
while others are qualitative (innovativeness, complexity, 
responsiveness, or flexibility). The qualitative performance criteria 
recognize that certain loans, qualified investments, and community 
development services sometimes require special expertise and effort on 
the part of the institution and provide a direct benefit to the 
community that would not otherwise be possible.
    We are adopting a new Q&A, designated as Q&A2 addressing 
Sec. ____.28, which explains that the agencies consider the qualitative 
aspects of an institution's activities when measuring the benefits 
received by the community. These qualitative aspects of an 
institution's performance may augment the consideration given to an 
institution's performance under the quantitative criteria of the 
regulations, resulting in a higher level of performance and rating.
    When collecting and reporting, if applicable, the gross annual 
revenue or income of small business or farm or consumer borrowers, do 
institutions use the gross annual or the adjusted gross annual revenue 
or income? In response to questions from financial institutions, we are 
adopting two new Q&As clarifying that institutions should collect and 
report gross annual revenue (for small businesses and small farms) and 
gross annual income (for consumers) rather than adjusted gross annual 
revenue or income. The new Q&As are designated as Q&A4 addressing 
Sec. ____.42(a)(4) and Q&A3 addressing Sec. ____.42(c)(1)(iv).
    The purpose of collecting and reporting gross annual revenue data 
for small businesses and small farms is to enable examiners and the 
public to judge whether an institution is lending to small businesses 
and farms, or whether it is only making small loans to larger 
businesses and farms. Similarly, gross annual income information is 
collected from consumer borrowers to help examiners determine the 
distribution of the institution's consumer loans based on borrower 
characteristics, including the number and amount of consumer loans to 
low-, 
moderate-, middle-, and upper-income borrowers.
    May an institution keep the compact disc that contains its CRA 
Disclosure Statement, which is distributed by the FFIEC, in its public 
file, rather than a paper copy of the information? Several institutions 
asked whether they may retain the compact disc that contains the CRA 
Disclosure Statement provided by the FFIEC in its public file rather 
than a paper copy. We are adopting a new Q&A2 addressing 
Sec. ____.43(b)(1), which clarifies that an institution may keep the 
compact disc (or a duplicate of the compact disc) in its public file at 
its main office and the designated branch in each state as long as the 
institution

[[Page 23622]]

can readily print the information upon request.
    Must an institution's performance fit each aspect of a particular 
rating profile in order to receive that rating? We are adopting a new 
Q&A1 addressing Appendix A to Part ____--Ratings to clarify that 
exceptionally strong performance by an institution in some aspects of a 
particular rating profile may compensate for weak performance in 
others, thus permitting the institution to earn that rating. The Q&A 
describes retail institutions that use non-branch delivery systems to 
obtain deposits and to deliver loans, as an example. Almost all of the 
loans originated by such an institution may be outside of its 
assessment area(s). The Q&A assumes, for purposes of illustration, that 
examiners may find, after considering the institution's performance 
context and other regulatory considerations, that such an institution 
shows weak performance under the lending test criteria applicable to 
lending activity, geographic distribution, and borrower characteristics 
within the assessment area. It clarifies that the institution may 
compensate for such weak performance by exceptionally strong 
performance in community development lending in its assessment area or 
a broader statewide or regional area that includes its assessment area.

Revised Questions and Answers

    What does ``promote economic development'' mean? 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 (SBDC) or Small Business 
Investment Company (SBIC) 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 1996 Interagency Questions and Answers included a Q&A, Q&A1 
addressing Secs. ____.12(h)(3) and 563e.12(g)(3), concerning whether 
all activities that finance small businesses or farms promote economic 
development. The 1997 Interagency Questions and Answers revised that 
Q&A in response to public comments. Since publication of the 1997 
Interagency Questions and Answers, we have received 11 comments about 
this revised Q&A.
    One commenter asserted that the description of the purpose test, 
i.e., that the activity must promote economic development, was too 
restrictive. Specifically, the commenter believed that limiting the 
purpose test to activities that, for example, provide jobs in low- and 
moderate-income areas targeted for redevelopment by the government 
would exclude financing to open a facility in a low- or moderate-income 
area that is not targeted by the government for redevelopment.
    We determined that the explanation of the purpose test in the 1997 
Interagency Questions and Answers was incomplete. We are revising the 
answer to be less restrictive by stating that an activity promotes 
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 either in low- or moderate-income geographies or in areas 
targeted for redevelopment by Federal, state, local or tribal 
governments.''
    Examiners will continue to presume that any loan or investment in 
or to a SBDC or SBIC promotes economic development. Funding provided in 
connection with other SBA programs, as well as similar state and local 
programs, may also promote economic development; however, examiners 
will make their determinations based on business types, funding 
purposes, and other relevant information.
    Consistent with Q&A2 addressing Sec. ____.28, Q&A1 addressing 
Secs. ____.12(h)(3) and 563e.12(g)(3) also clarifies that examiners 
will make qualitative assessments in connection with an institution's 
community development activities in addition to the quantitative 
assessment of its activities.
    Does ``rehabilitation of affordable housing or community 
facilities'' include the abatement of environmental hazards, such as 
lead-based paint, that are present in the housing or facilities? Three 
commenters asked us to state that loans for the removal of 
environmental hazards (particularly lead-based paint) may be community 
development loans. We believe the abatement of environmental hazards 
could be a part of rehabilitating affordable housing or community 
facilities targeted to low- and moderate-income individuals; 
rehabilitation of these facilities has already been identified as an 
example of a community development purpose. To clarify this position, 
we are adding a sentence to Q&A1 addressing Secs. ____.12(i) and 
563e.12(h).
    Are an institution's activities in connection with the Federal Home 
Loan Banks' Affordable Housing Program (AHP) considered when the 
institution's CRA performance is evaluated? We have consistently stated 
that the mere purchase of stock in the Federal Home Loan Banks (FHLBs) 
does not have a sufficient connection to community development to be 
considered as a qualified investment.
    Institutions, however, have asked us about how their activities in 
connection with certain specific AHP projects are considered during 
their CRA evaluations. Institutions that are members of a FHLB 
typically provide a high level of technical assistance to prospective 
borrowers in preparing the application for AHP funds and ensuring that 
the borrower meets the eligibility criteria. Although an institution 
does not necessarily provide a loan in connection with an AHP project, 
it does disburse the funds for the FHLB and monitor the continued 
qualified use of the funds. We believe these activities to be community 
development services and are revising the second bullet in Q&A 3 
addressing Secs. ____.12(j) and 563e.12(i) to so state.
    If an institution's employees develop or teach financial education 
curricula for low- or moderate-income students, are such activities 
community development services? We are revising the fifth bullet of 
Q&A3 addressing Secs. ____.12(j) and 563e.12(i) to incorporate guidance 
previously provided in interagency staff interpretive letters. See, 
e.g., Interagency Staff CRA Interpretive Letter, published as OCC 
Interpretive Letter No. 802, (1997 Transfer Binder) Fed. Banking L. 
Rep. (CCH), para. 81-229 (Sept. 17, 1997). Specifically, we are 
clarifying that institutions may receive CRA consideration for the 
services provided by its employees in developing financial education 
curricula or teaching financial education courses to low- or moderate-
income students.
    Is providing Electronic Transfer Accounts pursuant to the Debt 
Collection Improvement Act of 1996 a community development service? The 
terms, costs, and features of low-cost accounts offered by financial 
institutions may vary depending on the particular needs of the 
institutions' low- and moderate-income customers. In response to an 
inquiry we received concerning whether a particular account for federal 
benefits payments would be considered to be a community development 
service, we are revising Q&A3 addressing Secs. ____.12(j) and 
563e.12(i) by amending the seventh bullet to provide an example of one 
low-cost transaction account targeted to low- and moderate-income 
individuals.
    Under the provisions of the Debt Collection Improvement Act of 1996 
relating to electronic payment of federal

[[Page 23623]]

benefits payments (EFT ``99), codified at 31 U.S.C. 3332, insured 
depository institutions may offer basic, low-cost ``electronic transfer 
accounts'' (ETAs) specified in Treasury Department regulations (63 FR 
51490) to recipients of federal benefits payments. These accounts are 
designed to attract low-income persons who do not currently have 
account relationships with insured depository institutions. A 
demographic and market analysis commissioned by the Treasury Department 
in connection with EFT ``99 concluded that ETA account holders are 
likely to be primarily individuals with less than $10,000 in annual 
income. Therefore, the ETA is an account targeted to low- and moderate-
income individuals and providing such accounts qualifies as a community 
development service.
    Under the lending test, how will examiners evaluate home mortgage 
loans to middle- or upper-income individuals in a low- or moderate-
income geography? We received 24 letters commenting on Q&A5 addressing 
Sec. ____.22(b) (2) & (3). The commenters generally were in agreement 
that loans to middle- or upper-income individuals in a low- or 
moderate-income geography should receive CRA consideration. Some 
commenters were concerned that requiring that there be a revitalization 
or stabilization plan for the area may be too restrictive, especially 
in rural communities, where a formal plan may not exist. However, a 
``formal'' plan is not necessary. An informal plan, such as town 
council resolutions, or a plan developed by a private entity, such as a 
community-based development organization, may be sufficient evidence, 
so long as it offers evidence of a plan for development designed to 
ensure economic diversity among the prospective residents and not just 
displacement of low- and moderate-income individuals.
    One commenter stated that examiners should compare an institution's 
percentage of lending to low- and moderate-income households to the 
aggregate percentage of lending by all reporting institutions to these 
households and to the percentage of low- and moderate-income households 
in the area. The agencies' examination procedures already suggest that 
examiners may perform these types of comparisons and others, if 
appropriate, to help them explain examination findings.
    One commenter asked whether multifamily housing loans in low- and 
moderate-income geographies would be considered in the same fashion as 
loans for single family housing. In response to the comment, we are 
clarifying the answer by adding the phrase, ``or multifamily housing.'' 
In addition, examiners may also consider loans for multifamily housing 
as community development loans if they are targeted to low- and 
moderate-income individuals, or if they benefit middle- or upper-income 
borrowers as part of a plan to encourage attracting mixed-income 
residents to stabilize and create an economically diverse area out of a 
low- or moderate-income geography.
    How should an institution collect and report the location of a loan 
made to a small business or small farm if the borrower provides an 
address consisting of a post office box number or rural route and box 
number?
    We adopted Q&A10 addressing Sec. ____.42(a) in the 1997 Interagency 
Questions and Answers answering this question. In response to this Q&A, 
we received nine comments. Several commenters questioned the accuracy 
and usefulness of data collected and/or reported without the census 
tract or block numbering area (BNA). One commenter stated that we 
should allow institutions more lead time when providing interpretations 
of data collection and reporting provisions to allow the institutions 
to change their reporting systems, if necessary. We believe that data 
collection according to this Q&A results in the most accurate data, 
even though in some cases no information about census tract or BNA is 
provided, but agree that sufficient time should be provided to 
implement changes to data collection procedures, whenever possible.
    In addition to formal comments on the Q&As, regulated institutions 
requested clarification about whether an institution should report the 
census tract or block numbering area (BNA) of a location, if known, 
even if there is no street address for that location. We are amending 
Q&A10 addressing Sec. ____.42(a) to clarify that if the census tract or 
BNA is known, it should be reported, even if the institution does not 
know the street address for that particular location (or there is no 
street address). We are also revising the Q&A to delete obsolete 1997 
data collection instructions.
    What small business and small farm data should be reported?
    We are making a technical change to Q&A1 addressing 
Sec. ____.42(b)(1). The regulations define a ``small farm loan'' as 
those included in ``loans to small farms'' as defined in the 
instructions for preparation of the Consolidated Report of Condition 
and Income or the Thrift Financial Report. These instructions define 
such loans as having original amounts of $500,000 or less. Accordingly, 
we are clarifying in Q&A1 that institutions need not report small farm 
loan data as to loans having original amounts greater than $500,000.
    What are the data requirements regarding consumer loans?
    We have revised Q&A1 addressing Sec. ____.42(c)(1) to clarify that 
our questions and answers written with respect to data collection (and 
reporting) in connection with small business and small farm loans also 
apply to the collection of consumer loan data.

Discussion of Other Comments Received

    We received several other comments that are not addressed by 
specific questions and answers.
    Community development. Several commenters suggested that the 
current definition of ``community development'' does not include all 
the types of activities that institutions engage in and that should be 
considered as having a community development purpose.
    Before adopting the definition of ``community development'' in the 
revised regulations in 1995, the agencies received and considered a 
number of comments on the characteristics of activities with community 
development purposes. The agencies also committed to conduct a complete 
review of the regulations in 2002. See 60 FR 22,177. We will ensure 
that comments on the definition of ``community development'' are 
considered at that time.
    Loan-to-deposit ratio. Two commenters raised issues regarding the 
use of a loan-to-deposit ratio as a measure of performance in the small 
institution performance test. One stated that the loan-to-deposit ratio 
should not be the only indicator of performance. The other suggested 
that, due to their volatility, public funds should be subtracted from 
the deposit side of the ratio prior to calculation.
    The first concern, the relative importance of the loan-to-deposit 
ratio in the overall rating of a small institution, is one that the 
agencies routinely address in examiner training. As a general matter, 
we agree that the loan-to-deposit ratio is not the only indicator of 
lending activity performance. However, there may be cases in which a 
loan-to-deposit ratio is so low that it indicates that the institution 
is not lending. In such cases, the proportion of lending inside the 
institution's assessment area, together with the geographic and 
borrower distribution of those loans, will not excuse the low level of 
lending overall.
    The second concern, the subtraction of public funds from the 
calculations of loan-to-deposit ratios, is a performance

[[Page 23624]]

context issue. We believe that examiners have the flexibility to 
consider the level of public funds on deposit, and their volatility, in 
determining whether a particular loan-to-deposit ratio is reasonable.
    Letters of credit. One commenter asserted that lenders should 
receive consideration under the CRA regulations for providing letters 
of credit because institutions often use letters of credit to meet 
small business needs. Q&A1 addressing Sec. ____.22(a)(2) specifically 
addresses this issue and permits information about letters of credit to 
be used by examiners to enhance their understanding of an institution's 
performance.
    Loans to nonprofit organizations. One commenter suggested that 
loans under $1 million for business purposes, or under $500,000 for 
farm purposes, made to nonprofit organizations, should be considered 
community development loans even though they are secured by real 
property. Under the CRA regulations, these loans often must be counted 
as loans to small businesses or small farms rather than community 
development loans, depending on the type of property securing the loan. 
Q&A1 addressing Sec. ____.12(u) addresses instances in which loans to 
nonprofit organizations may be considered as community development 
loans.
    The number and dollar amount of community development loans is a 
criterion under the lending test that is meant to capture any loans for 
a community development purpose that are otherwise not reported as home 
mortgage, small business or small farm loans. Institutions may wish to 
highlight the community development purpose of particular loans that 
are considered as home mortgage, small business or small farm loans 
during an examination. Such information may be relevant to the 
examiners' evaluation of qualitative lending test criteria or to the 
performance context within which community development loans are 
evaluated. The regulation is clear, however, that, except for loans for 
multifamily housing targeted for low-and moderate-income individuals, 
home mortgage, small farm, and small business loans may not be reported 
as community development loans.
    Assessment areas and non-branch delivery systems. We received 
several letters requesting clarification of how examiners evaluate a 
retail institution's lending, investment, and service activities 
outside the institution's assessment area(s) and the broader statewide 
or regional area that includes its assessment area(s). This question 
has been of special concern to commenters in the context of 
institutions that obtain deposits and deliver products and services 
through non-branch systems, such as the Internet. We are adopting Q&A1 
addressing Appendix A to Part ____--Ratings, and are proposing a 
revision to Q&A5 addressing Secs. ____.12(i) and 563e.12(h), which may 
be particularly relevant to issues arising in this context. 
Furthermore, we expect to address comments relating to out-of-
assessment area activities through materials issued for public comment 
later this year.

Proposed Questions and Answers and Request for Comment

    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 assessment area(s)? Q&A5 addressing 
Secs. ____.12(i) and 563e.12(h) in the 1997 Interagency Questions and 
Answers states that there does not need to be a direct benefit to the 
institution's assessment area(s) to satisfy the regulation's 
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, provided the purpose, mandate, or function of the organization or 
activity includes serving geographies or individuals located within the 
institution's assessment area.
    The Q&A addresses organizations and activities, operating statewide 
or regionally, that may ultimately have a direct benefit on an 
assessment area. However, it does not specifically address local 
community development organizations or activities serving a locale 
somewhere in the broader statewide or regional area surrounding an 
institution's assessment area(s), which may not benefit low- and 
moderate-income areas or individuals located inside the assessment 
area(s). We are proposing to revise that Q&A to address both types of 
organizations or activities. The proposed Q&A would clarify that an 
institution's assessment area(s) need not receive an immediate or 
direct benefit from the institution's specific participation in a 
community development organization or activity provided the purpose, 
mandate, or activity benefits the broader statewide or regional area by 
servicing geographies or individuals located somewhere within the 
broader statewide or regional area that includes the institution's 
assessment area(s).
    The text of the proposed Q&A follows:
Sections ____.12(i) and 563e.12(h)
    Proposed 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)?
    Proposed 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 local, 
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 is located in, the broader 
statewide or regional area that 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 statewide or 
regional area that includes 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).
    In addition to general comments agreeing or disagreeing with the 
proposed revisions to this Q&A, we would like comments on whether 
community development organizations and programs that operate on a 
local, statewide, or even multi-state basis ultimately provide benefit 
to all surrounding areas.
    May an institution receive consideration under the investment test 
for mortgage-backed securities backed by home mortgages that the same 
institution originated or purchased? We have received inquiries about 
whether examiners will consider as qualified investments mortgage-
backed securities backed by home mortgages to low- and

[[Page 23625]]

moderate-income individuals that the investing institution initially 
originated or purchased.
    The revised regulations, at 12 CFR ____.23(b), provide that 
activities considered under the lending or service tests may not be 
considered under the investment test. Examiners consider the home 
mortgages underlying mortgage-backed securities, if originated or 
purchased by the institution, under the lending test when they examine 
an institution. Therefore, examiners would not be permitted also to 
consider as qualified investments mortgage-backed securities, purchased 
or securitized by an institution, that are backed primarily or 
exclusively by loans that the institution originated or purchased, 
because the examiners would be considering the same activities under 
both the lending and investment tests.
    To clarify our opinion, we are proposing, and requesting public 
comment specifically on, the following question and answer:

Section ____.23(b)

    Proposed Q2: If home mortgage loans to low-and moderate-income 
borrowers have been considered under an institution's lending test, may 
the institution that originated or purchased them also receive 
consideration under the investment test if it subsequently purchases 
mortgage-backed securities that are primarily or exclusively backed by 
such loans? 
    Proposed A2: No. Because the institution received lending test 
consideration for the loans that underlie the securities, the 
institution may not also receive consideration under the investment 
test for its purchase of the securities. Of course, an institution may 
receive investment test consideration for purchases of mortgage-backed 
securities that are backed by loans to low-and moderate-income 
individuals as long as the securities are not backed primarily or 
exclusively by loans that the same institution originated or purchased.
    Should renewals and refinancings of small business and small farm 
loans be collected and reported? Six commenters inquired whether loans 
to small businesses and small farms, when renewed or refinanced, should 
be reported for CRA purposes. The 1997 Interagency Questions and 
Answers, at Q&A5 addressing Sec. ____.42(a), provided guidance that 
``refinancing'' such loans should be reported as originations, but that 
``renewing'' them should not. According to the guidance, the primary 
distinction between ``refinancing'' and ``renewing'' a loan is that, in 
connection with a loan refinancing, the existing obligation or note is 
satisfied, and a new note is written. Distinguishing refinancings and 
renewals on this basis is consistent with the guidance provided by the 
Board in connection with home mortgage loan data reporting pursuant to 
the Home Mortgage Disclosure Act (HMDA) regulation (12 CFR part 203).
    Commenters asserted that small business and small farm lending 
practices are sufficiently different from home mortgage lending 
practices that renewals and refinancings of small business and small 
farm loans should be treated differently from renewals and refinancings 
of home mortgage loans for CRA reporting and evaluation purposes. 
Further, they suggested that there is very little distinction between 
refinancings and renewals of small business and small farm loans. Based 
on these comments and other inquiries from financial institutions, we 
propose that refinancings and renewals of small business and small farm 
loans be treated uniformly for CRA purposes. To that end, we are 
proposing two alternative revised Q&A5s addressing Sec. ____.42(a).
    Alternative I: The first proposed Q&A states that, for CRA 
purposes, financial institutions should report neither renewals nor 
refinancings of small business and small farm loans as loan 
originations. However, if institutions increase the amount of a small 
business or small farm loan or line of credit, the amount of the 
increase should be reported as a loan origination. Institutions should 
continue to report home mortgage loans according to the instructions 
provided in 12 CFR part 203.
    Reporting neither renewals nor refinancings of small business or 
small loans reflects that the lending test's performance criteria 
emphasize loan originations and purchases. Renewals and refinancings, 
especially if made frequently, would inflate the actual amounts of 
small business and small farm lending. In addition, we believe that 
recordkeeping and reporting burden of large institutions will be 
lessened if they need not collect and report information about small 
business and small farm loan refinancings and renewals.
    If this proposed Q&A is adopted, institutions would not collect or 
report as loan originations data on either small business and small 
farm loan refinancings or renewals. However, any institution could 
bring to its examiners' attention data on small business and small farm 
loan refinancing or renewals by providing ``other loan data'' pursuant 
to Sec. ____.22(a)(2), including information about its small business 
and small farm loans outstanding. The text of the first alternative 
proposed Q&A follows:

Section ____.42(a)--Alternative I:

    Proposed Q5: Should institutions collect and report data about 
small business and small farm loans that are refinanced or renewed? 
    Proposed A5: No. When an institution extends the term of one of its 
existing small business or small farm loans in the same or a lesser 
amount as the existing obligation, the institution should not report 
this event as a small business or small farm loan origination. If an 
institution increases the amount of a small business or small farm loan 
when it extends the term of the loan, however, it should report the 
amount of the increase as a small business or small farm loan 
origination. The institution should report only the amount of the 
increase; the original or remaining amount of the loan is not reported 
again as an origination. For example, a financial institution extends a 
loan (as opposed to a line of credit) for $25,000; principal payments 
have resulted in a present outstanding balance of $15,000. The customer 
requests an additional $5,000, which is approved, and a new note is 
written for $20,000. In this example, the institution should report the 
$5,000 increase.
    An institution may provide ``other loan data,'' including 
information about small business or small farm loans outstanding, to 
examiners for consideration as part of the institution's lending test 
performance evaluation.
    Alternative II: Several institutions have stressed that ongoing 
credit availability is important to the economic condition of small 
businesses and small farms, as well as the community as a whole. These 
institutions suggested that both refinancings and renewals of small 
business and small farm loans should be considered by examiners when 
evaluating an institution's small business and small farm lending 
performance. The second alternative proposed Q&A would take these 
concerns into consideration.
    Because small business and small farm loan refinancings and 
renewals are nearly indistinguishable, Alternative II, like Alternative 
I, would not treat small business and small farm refinancings and 
renewals differently. Institutions would collect and report data about 
both refinancings and renewals as loan originations. However, because 
institutions often write small business and small farm loans for short 
terms and refinance or renew them at the end of the term, in order to 
avoid inflation of amounts actually lent, institutions

[[Page 23626]]

would be limited to reporting only one origination per year.
    The text of the second alternative proposed Q&A follows:
    Section ____.42(a)--Alternative II:
    Proposed Q5: Should institutions collect and report data about 
small business and small farm loans that are refinanced or renewed?
    Proposed A5: An institution should collect information about small 
business and small farm loans that they refinance or renew as loan 
originations. (A refinancing generally occurs when the existing loan 
obligation or note is satisfied, and a new note is written, while a 
renewal refers to an extension of the term of a loan.) When reporting 
small business and small farm loan data, however, an institution may 
only report one origination per loan per year unless an increase in the 
loan amount is granted.
    If an institution increases the amount of a small business or small 
farm loan when it extends the term of the loan, it should always report 
the amount of the increase as a small business or small farm loan 
origination. The institution should report only the amount of the 
increase if the original or remaining amount of the loan has already 
been reported one time that year. For example, a financial institution 
makes a loan (as opposed to a line of credit) for $25,000; principal 
payments have resulted in a present outstanding balance of $15,000. The 
customer requests an additional $5,000, which is approved, and a new 
note is written for $20,000. In this example, the institution should 
report the $5,000 increase. The bank may also report the renewal or 
refinancing of the $15,000 balance one time that year.
    An institution may provide ``other loan data,'' including 
information about small business or small farm loans outstanding, to 
examiners for consideration as part of the institution's lending test 
performance evaluation.
    In addition to general comments about these proposed questions and 
answers, we would also appreciate receiving your views on the following 
questions:
     Are there other fair and meaningful alternative methods of 
collecting data on small business and small farm loan renewals and 
refinancings? If so, please describe.
     Does allowing collection and reporting data of one renewal 
or refinancing per year make sense?
     Will these proposed questions and answers increase or 
decrease substantially the data collection and reporting burden of 
financial institutions? Which alternative is less burdensome?
     Which alternative (including the guidance currently in 
effect) best promotes accurate data that reflects the actual lending 
activity of financial institutions?
    Depending on what final guidance we eventually adopt, we understand 
that we may have to make conforming changes to other Q&As.
    Until a new Q&A has been adopted through publication in the Federal 
Register, the existing Q&A5 addressing Sec. ____.42(a) remains in 
effect. This means that, for the time being, financial institutions 
will continue to collect and report data about small business and small 
farm loan refinancings, but not renewals.

General Comments

    In addition to the specific request for comments on the proposed 
questions and answers, we invite public comment on the new and revised 
questions and answers. We also invite public comment on a continuing 
basis on any issues raised by the CRA and these Interagency Questions 
and Answers. If, after reading the Interagency Questions and Answers, 
financial institutions, examiners, community organizations, or other 
interested parties have unanswered questions or comments about the 
agencies' community reinvestment regulations, they should submit them 
to the agencies or the FFIEC. We will consider addressing such 
questions in future revisions to the Interagency Questions and Answers.

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 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

    This document provides answers to questions pertaining to the 
following provisions and topics of the CRA regulations:

Sec. ____.11--Authority, Purposes, and Scope

Sec. ____.11(c) Scope
    Secs. 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain special 
purpose banks

Sec. ____.12--Definitions

Sec. ____.12(a) Affiliate
Secs. ____.12(f) & 563e.12(e) Branch
Secs. ____.12(h) & 563e.12(g) Community development
    Secs. ____.12(h)(1) & 563e.12(g)(1) Affordable housing 
(including multifamily rental housing) for low- or moderate-income 
individuals
    Secs. ____.12(h)(3) & 563e.12(g)(3) Activities that promote 
economic development by financing businesses or farms that meet 
certain size eligibility standards
Secs. ____.12(i) & 563e.12(h) Community development loan
Secs. ____.12(j) & 563e.12(i) Community development service
Secs. ____.12(k) & 563e.12(j) Consumer loan
Secs. ____.12(m) & 563e.12(l) Home mortgage loan
Secs. ____.12(n) & 563e.12(m) Income level
Secs. ____.12(o) & 563e.12(n) Limited purpose institution
Secs. ____.12(s) & 563e.12(r) Qualified investment
Sec. ____.12(t) Small institution
Sec. ____.12(u) Small business loan
Sec. ____.12(w) Wholesale institution

Sec. ____.21--Performance Tests, Standards, and Ratings, in General

Sec. ____.21(a) Performance tests and standards
Sec. ____.21(b) Performance context
    Sec. ____.21(b)(2) Information maintained by the institution or 
obtained from community contacts
    Sec. ____.21(b)(4) Institutional capacity and constraints
    Sec. ____.21(b)(5) Institution's past performance and the 
performance of similarly situated lenders

Sec. ____.22--Lending Test

Sec. ____.22(a) Scope of test
    Sec. ____.22(a)(1) Types of loans considered

[[Page 23627]]

    Sec. ____.22(a)(2) Loan originations and purchases/other loan 
data
Sec. ____.22(b) Performance criteria
    Sec. ____.22(b)(1) Lending activity
    Sec. ____.22(b)(2) & (3) Geographic distribution and borrower 
characteristics
    Sec. ____.22(b)(4) Community development lending
    Sec. ____.22(b)(5) Innovative or flexible lending practices
Sec. ____.22(c) Affiliate lending
    Sec. ____.22(c)(1) In general
    Sec. ____.22(c)(2) Constraints on affiliate lending
    Sec. ____.22(c)(2)(i) No affiliate may claim a loan origination 
or loan purchase if another institution claims the same loan 
origination or purchase
    Sec. ____.22(c)(2)(ii) If an institution elects to have its 
supervisory agency consider loans within a particular lending 
category made by one or more of the institution's affiliates in a 
particular assessment area, the institution shall elect to have the 
agency consider all loans within that lending category in that 
particular assessment area made by all of the institution's 
affiliates
Sec. ____.22(d) Lending by a consortium or a third party

Sec. ____.23--Investment Test

Sec. ____.23(a) Scope of test
Sec. ____.23(b) Exclusion
Sec. ____.23(e) Performance criteria

Sec. ____.24--Service Test

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

Sec. ____.25--Community Development Test for Wholesale or Limited 
Purpose Institutions

Sec. ____.25(d) Indirect activities
Sec. ____.25(e) Benefit to assessment area(s)
Sec. ____.25(f) Community development performance rating

Sec. ____.26--Small Institution Performance Standards

Sec. ____.26(a) Performance criteria
    Sec. ____.26(a)(1) Loan-to-deposit ratio
    Sec. ____.26(a)(2) Percentage of lending within assessment 
area(s)
    Sec. ____.26(a)(3) and (4) Distribution of lending within 
assessment area(s) by borrower income and geographic location
Sec. ____.26(b) Performance rating

Sec. ____.27--Strategic Plan

Sec. ____.27(c) Plans in general
Sec. ____.27(f) Plan content
    Sec. ____.27(f)(1) Measurable goals
Sec. ____.27(g) Plan approval
    Sec. ____.27(g)(2) Public participation

Sec. ____.28--Assigned Ratings

Sec. ____.28(a) Ratings in general

Sec. ____.29--Effect of CRA Performance on Applications

Sec. ____.29(a) CRA performance
Sec. ____.29(b) Interested parties

Sec. ____.41--Assessment Area Delineation

Sec. ____.41(a) In general
Sec. ____.41(c) Geographic area(s) for institutions other than 
wholesale or limited purpose institutions
    Sec. ____.41(c)(1) Generally consist of one or more MSAs or one 
or more contiguous political subdivisions
Sec. ____.41(d) Adjustments to geographic area(s)
Sec. ____.41(e) Limitations on delineation of an assessment area
    Sec. ____.41(e)(3) May not arbitrarily exclude low- or moderate-
income geographies
    Sec. ____.41(e)(4) May not extend substantially beyond a CMSA 
boundary or beyond a state boundary unless located in a multistate 
MSA
Sec. ____.42(a) Loan information required to be collected and 
maintained
    Sec. ____.42(a)(2) Loan amount at origination
    Sec. ____.42(a)(3) The loan location
    Sec. ____.42(a)(4) Indicator of gross annual revenue
Sec. ____.42(b) Loan information required to be reported
    Sec. ____.42(b)(1) Small business and small farm loan data
    Sec. ____.42(b)(2) Community development loan data
    Sec. ____.42(b)(3) Home mortgage loans
Sec. ____.42(c) Optional data collection and maintenance
    Sec. ____.42(c)(1) Consumer loans
    Sec. ____.42(c)(1)(iv) Income of borrower
    Sec. ____.42(c)(2) Other loan data
Sec. ____.42(d) Data on affiliate lending

Sec. ____.43--Content and Availability of Public File

Sec. ____.43(a) Information available to the public
    Sec. ____.43(a)(1) Public comments
Sec. ____.43(b) Additional information available to the public
    Sec. ____.43(b)(1) Institutions other than small institutions
Sec. ____.43(c) Location of public information

Sec. ____.44--Public Notice by Institutions

Sec. ____.45--Publication of Planned Examination Schedule

Appendix A to Part ____--Ratings

Appendix B to Part ____--CRA Notice

    The body of the Interagency Questions and Answers Regarding 
Community Reinvestment follows:

Sec. ____.11--Authority, Purposes, and Scope

Sec. ____.11(c) Scope

    Sec. 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 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.

Sec. ____.12--Definitions

Sec. ____.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.

Secs. ____.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.

Secs. ____.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

[[Page 23628]]

activities that promote economic development by financing small 
businesses or farms, the rule does not limit community development 
loans and services and qualified investments to those activities. 
Community development also includes community- or tribal-based child 
care, educational, health, or social services targeted to low- or 
moderate-income persons, affordable housing for low- or moderate-income 
individuals, and activities that revitalize or stabilize low- or 
moderate-income areas.
    Q2. Must a community development activity occur inside a low- or 
moderate-income 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 moderate-income individuals and 
activities that promote economic development by financing small 
businesses and farms. Activities that stabilize or revitalize 
particular low- or moderate-income areas (including by creating, 
retaining, or improving jobs for low- or moderate-income persons) also 
qualify as community development, even if the activities are not 
located in these low- or 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 middle-income people or 
areas caused by the disproportionately high cost of building, 
maintaining or acquiring a house when determining whether an 
institution's loan to or investment in an organization that funds 
affordable housing for middle-income people or areas, as well as low- 
and moderate-income people or areas, has as its primary purpose 
community development.

Secs. ____.12(h)(1) & 563e.12(g)(1) Affordable Housing (Including 
Multifamily Rental Housing) for Low- or Moderate-Income Individuals

    Q1. When determining whether a project is ``affordable housing for 
low- or moderate-income individuals,'' thereby meeting the definition 
of ``community development,'' will it be sufficient to use a formula 
that relates the cost of ownership, rental or borrowing to the income 
levels in the area as the only factor, regardless of whether the users, 
likely users, or beneficiaries of that affordable housing are low- or 
moderate-income individuals?
    A1. The concept of ``affordable housing'' for low- or moderate-
income individuals does hinge on whether low- or moderate-income 
individuals benefit, or are likely to benefit, from the housing. It 
would be inappropriate to give consideration to a project that 
exclusively or predominately houses families that are not low- or 
moderate-income simply because the rents or housing prices are set 
according to a particular formula.
    For projects that do not yet have occupants, and for which the 
income of the potential occupants is not knowable in advance, examiners 
will review factors such as demographic, economic and market data to 
determine the likelihood that the housing will ``primarily'' 
accommodate low- or moderate-income individuals. For example, examiners 
may look at median rents of the assessment area and the project; the 
median home value of either the assessment area, low- or moderate-
income geographies or the project; the low- or moderate-income 
population in the area of the project; or the past performance record 
of the organization(s) undertaking the project. Further, such a project 
could receive consideration if its express, bona fide intent, as 
stated, for example, in a prospectus, loan proposal or community action 
plan, is community development.

Secs. ____.12(h)(3) and 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 
Secs. ----.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 either in low- or moderate-income geographies or in areas 
targeted for redevelopment by Federal, state, local or tribal 
governments. The agencies will presume that any loan to or investment 
in a SBDC or SBIC promotes economic development.
    In addition to their quantitative assessment of the amount of a 
financial institution's community development activities, examiners 
must make qualitative assessments of an institution's leadership in 
community development matters and the complexity, responsiveness, and 
impact of the community development activities of the institution. In 
reaching a conclusion about the impact of an institution's community 
development activities, examiners may, for example, determine that a 
loan to a small business in a low- or moderate-income geography that 
provides needed jobs and services in that area may have a greater 
impact and be more responsive to the community credit needs than does a 
loan to a small business in the same geography that does not directly 
provide additional jobs or services to the community.

Secs. ____.12(i) and 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

[[Page 23629]]

serving low- and moderate-income persons;
     Not-for-profit organizations serving primarily low- and 
moderate-income housing or other community development needs;
     Borrowers to construct or rehabilitate community 
facilities that are located in low- and moderate-income areas or that 
serve primarily low- and moderate-income individuals;
     Financial intermediaries including Community Development 
Financial Institutions (CDFIs), 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
     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.
    The rehabilitation of affordable housing or community facilities, 
referred to above, may include the abatement of environmental hazards, 
such as lead-based paint, that are present in the housing or 
facilities.
    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 Sec. ____.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 moderate-income 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 low- or moderate-income 
geography. These loans are not considered to have a community 
development purpose. For example, a loan for upper-income housing in a 
distressed area is not considered to have a community development 
purpose simply because of the indirect benefit to low- or moderate-
income persons from construction jobs or the increase in the local tax 
base that supports enhanced services to low- and moderate-income area 
residents. On the other hand, a loan for an anchor business in a 
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 ``mid-Atlantic 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).
    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?
    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, low- or 
moderate-income persons, or

[[Page 23630]]

promoting economic development by financing small businesses and farms 
that meet the requirements set forth in Secs. ____.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 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.

Secs. ____.12(j) and 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 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 low- and 
moderate-income housing or economic revitalization and development 
needs;
     Providing technical assistance on financial matters to 
small businesses or community development organizations, including 
organizations and individuals who apply for loans or grants under the 
Federal Home Loan Banks' Affordable Housing Program;
     Lending employees to provide financial services for 
organizations facilitating affordable housing construction and 
rehabilitation or development of affordable housing;
     Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services 
education to promote community development and affordable housing;
     Establishing school savings programs and developing or 
teaching financial education curricula for low- or moderate-income 
individuals;
     Providing electronic benefits transfer and point of sale 
terminal systems to improve access to financial services, such as by 
decreasing costs, for low- or moderate-income individuals; and
     Providing other financial services with the primary 
purpose of community development, such as low-cost bank accounts, 
including ``Electronic Transfer Accounts'' provided pursuant to the 
Debt Collection Improvement Act of 1996, or free government check 
cashing that increases access to financial services for low- or 
moderate-income 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.

Sec. ____.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

[[Page 23631]]

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

Sec. ____.12(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-, middle- and upper-income geographies and 
the degree to which the services are tailored to meet the needs of 
those geographies. Alternatively, an institution's mortgage brokerage 
service may be considered a community development service if the 
primary purpose of the service is community development. An institution 
wishing to have its mortgage brokerage service considered as a 
community development service must provide sufficient information to 
substantiate that its primary purpose is community development and to 
establish the extent of the services provided.

Sec. ____.12(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 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 
Bureau-calculated 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 ``faxed-back'' 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/''.

Sec. ____.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,

[[Page 23632]]

but specialize in certain types of retail loans (for example, home 
mortgage or small business loans) to certain types of borrowers (for 
example, to high-end income level customers or to corporations or 
partnerships of licensed professional practitioners) (``niche 
institutions'') generally would not qualify as limited purpose (or 
wholesale) institutions.

Sec. ____.12(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, mortgage-backed securities and municipal 
bonds are not qualified investments because they do not have as their 
primary purpose community development, as defined in the CRA 
regulations. Nonetheless, mortgage-backed securities or municipal bonds 
designed primarily to finance community development generally are 
qualified investments. Municipal bonds or other securities with a 
primary purpose of community development need not be housing-related. 
For example, a bond to fund a community facility or park or to provide 
sewage services as part of a plan to redevelop a low-income 
neighborhood is a qualified investment. Housing-related 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 (FHLB) stock and membership reserves 
with the Federal Reserve Banks do not have a sufficient connection to 
community development to be qualified investments. However, FHLB member 
institutions may receive CRA consideration for technical assistance 
they provide on behalf of applicants and recipients of funding from the 
FHLB's Affordable Housing Program. See Q&A 3 addressing 
Secs. ____.12(j) and 563e.12(i).
    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 moderate-income 
areas or to low- and moderate-income individuals in order to promote 
community development, such as a CDFI that promotes economic 
development on an Indian reservation; Organizations engaged in 
affordable housing rehabilitation and construction, including 
multifamily rental housing;
     Organizations, including, for example, Small Business 
Investment Companies (SBICs) and specialized SBICs, that promote 
economic development by financing small businesses;
     Facilities that promote community development in low- and 
moderate- income areas for low- and moderate-income individuals, such 
as youth programs, homeless centers, soup kitchens, health care 
facilities, battered women's centers, and alcohol and drug recovery 
centers;
     Projects eligible for low-income housing tax credits;
     State and municipal obligations, such as revenue bonds, 
that specifically support affordable housing or other community 
development;
     Not-for-profit organizations serving low- and moderate- 
income housing or other community development needs, such as counseling 
for credit, home-ownership, home maintenance, and other financial 
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.

Sec. ____.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 
FDIC-insured 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)).

Sec. ____.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

[[Page 23633]]

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.

Sec. ____.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 
Secs. ____.12(o) and 563e.12(n).

Sec. ____.21--Performance Tests, Standards, and Ratings, in General

Sec. ____.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 catalyst for other 
community development activities. The criteria are designed to add a 
qualitative element to the evaluation of an institution's performance.

Sec. ____.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.

Sec. ____.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.

Sec. ____.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.

Sec. ____.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?

[[Page 23634]]

    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.

Sec. ____.22--Lending Test

Sec. ____.22(a) Scope of Test

Sec. ____.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.

Sec. ____.22(a)(2) Loan Originations and Purchases/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 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.''
    Q4: Do institutions receive consideration for originating or 
purchasing loans that are fully guaranteed?
    A4: Yes. The lending test evaluates an institution's record of 
helping to meet the credit needs of its assessment area(s) through the 
origination or purchase of specified types of loans. The test does not 
take into account whether or not such loans are guaranteed.

Sec. ____.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.

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

Sec. ____.22(b)(2) & (3) Geographic Distribution and Borrower 
Characteristics

    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

[[Page 23635]]

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 moderate-income geographies. The capacity and 
constraints of an institution, its business decisions about how it can 
best help to meet the needs of its assessment area(s), including those 
of low- and moderate-income neighborhoods, and other aspects of the 
performance context, are all relevant to explain why the institution is 
serving or not serving portions of its assessment area(s).
    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. Consideration will be given for loans to low- and moderate-
income persons and small business and farm loans outside of an 
institution's assessment area(s), provided the institution has 
adequately addressed the needs of borrowers within its assessment 
area(s). The agencies will apply this consideration not only to loans 
made by large retail institutions being evaluated under the lending 
test, but also to loans made by small 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 
moderate-income geography?
    A5. Examiners will consider these home mortgage loans under the 
performance criteria of the lending test, i.e., by number and amount of 
home mortgage loans, whether they are inside or outside the financial 
institution's assessment area(s), their geographic distribution, and 
the income levels of the borrowers. Examiners will use information 
regarding the financial institution's performance context to determine 
how to evaluate the loans under these performance criteria. Depending 
on the performance context, examiners could view home mortgage loans to 
middle-income individuals in a low-income geography very differently. 
For example, if the loans are for homes or multifamily housing located 
in an area for which the local, state, tribal, or Federal government or 
a community-based development organization has developed a 
revitalization or stabilization plan (such as a Federal enterprise 
community or empowerment zone) that includes attracting mixed-income 
residents to establish a stabilized, economically diverse neighborhood, 
examiners may give more consideration to such loans, which may be 
viewed as serving the low- or moderate-income community's needs as well 
as serving those of the middle- or upper-income borrowers. If, on the 
other hand, no such plan exists and there is no other evidence of 
governmental support for a revitalization or stabilization project in 
the area and the loans to middle- or upper-income borrowers 
significantly disadvantage or primarily have the effect of displacing 
low- or moderate-income residents, examiners may view these loans 
simply as home mortgage loans to middle- or upper-income borrowers who 
happen to reside in a low- or moderate-income geography and weigh them 
accordingly in their evaluation of the institution.

Sec. ____.22(b)(4) Community Development Lending

    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?
    A1. Yes. When evaluating the institution's record of community 
development lending under Sec. ____.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 Sec. ____.42(b)(2) 
aggregate reporting obligation. However, transaction complexity, 
innovation and all other relevant considerations being equal, an 
examiner should also take into account that the 65% project provides 
more affordable housing for more people per dollar expended.
    Under Sec. ____.22(b)(4), the extent of CRA consideration an 
institution receives for its community development loans should bear a 
direct relation to the benefits received by the community and the 
innovation or complexity of the loans required to accomplish the 
activity, not simply to the dollar amount expended on a particular 
transaction. By applying all lending test performance criteria, a 
community development loan of a lower dollar amount could meet the 
credit needs of the institution's community to a greater extent than a 
community development loan with a higher dollar amount, but with less 
innovation, complexity, or impact on the community.

Sec. ____.22(b)(5) Innovative or Flexible Lending Practices

    Q1. What is the range of practices that examiners may consider in 
evaluating the innovativeness or flexibility of an institution's 
lending?
    A1. In evaluating the innovativeness or flexibility of an 
institution's lending practices (and the complexity and innovativeness 
of its community development lending), examiners will not be limited to 
reviewing the overall variety and specific terms and conditions of the 
credit products themselves. In connection with the evaluation of an 
institution's lending, examiners also may give consideration to related 
innovations when they augment the success and effectiveness of the 
institution's lending under its community development loan programs or, 
more generally, its lending under its loan programs that address the 
credit needs of low- and moderate-income

[[Page 23636]]

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

Sec. ____.22(c) Affiliate Lending

Sec. ____.22(c)(1) In General

    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).

Sec. ____.22(c)(2) Constraints on Affiliate Lending

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

    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.
    Sec. ____.22(c)(2)(ii) If an institution elects to have its 
supervisory agency consider loans within a particular lending category 
made by one or more of the institution's affiliates in a particular 
assessment area, the institution shall elect to have the agency 
consider all loans within that lending category in that particular 
assessment area made by all of the institution's affiliates.
    Q1. How is this constraint on affiliate lending applied?
    A1. This constraint prohibits ``cherry-picking'' affiliate loans 
within any one category of loans. The constraint requires an 
institution that elects to have a particular category of affiliate 
lending in a particular assessment area considered to include all loans 
of that type made by all of its affiliates in that particular 
assessment area. For example, assume that an institution has 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.

Sec. ____.22(d) Lending by a Consortium or a Third Party

    Q1. Will equity and equity-type investments in a third party 
receive consideration under the lending test?
    A1. If an institution has made an equity or equity-type investment 
in a third party, community development loans made by the third party 
may be considered under the lending test. On the other hand, asset-
backed and debt securities that do not represent an equity-type 
interest in a third party will not be considered under the lending test 
unless the securities are booked by the purchasing institution as a 
loan. For example, if an institution purchases stock in a community 
development corporation (``CDC'') that primarily lends in low- and 
moderate-income areas or to low- and moderate-income individuals in 
order to promote community development, the institution may claim a pro 
rata share of the CDC's loans as community development loans. The 
institution's pro rata share is based on its percentage of equity 
ownership in the CDC. Q&A1 addressing Sec. ____.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

[[Page 23637]]

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

Sec. ____.23--Investment Test

Sec. ____.23(a) Scope of Test

    Q1: May an institution receive consideration under the CRA 
regulations if it invests indirectly through a fund, the purpose of 
which is community development, as that is defined in the CRA 
regulations?
    A1. Yes, the direct or indirect nature of the qualified investment 
does not affect whether an institution will receive consideration under 
the CRA regulations because the regulations do not distinguish between 
``direct'' and ``indirect'' investments. Thus, an institution's 
investment in an equity fund that, in turn, invests in projects that, 
for example, provide affordable housing to low- and moderate-income 
individuals, would receive consideration as a qualified investment 
under the CRA regulations, provided the investment benefits one or more 
of the institution's assessment area(s) or a broader statewide or 
regional area(s) that includes one or more of the institution's 
assessment area(s). Similarly, an institution may receive consideration 
for a direct qualified investment in a nonprofit organization that, for 
example, supports affordable housing for low- and moderate-income 
individuals in the institution's assessment area(s) or a broader 
statewide or regional area(s) that includes the institution's 
assessment area(s).

Sec. ____.23(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.

Sec. ____.23(e) Performance Criteria

    Q1. When applying the performance criteria of Sec. ____.23(e), may 
an examiner distinguish among qualified investments based on how much 
of the investment actually supports the underlying community 
development purpose?
    A1. Yes. Although Sec. ____.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, an examiner should take into 
account that 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 would not provide as much 
affordable housing for low- and moderate-income individuals 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 
Sec. ____.23(e)(1), it will also be evaluated with respect to the 
qualitative performance criteria set forth in Sec. ____.23(e)(2), (3) 
and (4). By applying all criteria, a qualified investment of a lower 
dollar amount may be weighed more heavily under the Investment Test 
than a qualified investment with a higher dollar amount, but with fewer 
qualitative enhancements.
    Q2: How do examiners evaluate an institution's qualified investment 
in a fund, the primary purpose of which is community development, as 
that is defined in the CRA regulations?
    A2. When evaluating qualified investments that benefit an 
institution's assessment area(s) or a broader statewide or regional 
area that includes its assessment area(s), examiners will look at the 
following four performance criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    With respect to the first criterion, examiners will determine the 
dollar amount of qualified investments by relying on the figures 
recorded by the institution according to generally accepted accounting 
principles (GAAP). Although institutions may exercise a range of 
investment strategies, including short-term investments, long-term 
investments, investments that are immediately funded, and investments 
with a binding, up-front commitment that are funded over a period of 
time, institutions making the same dollar amount of investments over 
the same number of years, all other performance criteria being equal, 
would receive the

[[Page 23638]]

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

Sec. ____.24--Service Test

Sec. ____.24(d) Performance Criteria--Retail Banking Services

    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 low- and moderate-income 
areas and individuals.
    Q2. How do examiners evaluate an institution's activities in 
connection with Individual Development Accounts (IDAs)?
    A2. Although there is no standard IDA program, IDAs typically are 
deposit accounts targeted to low- and moderate-income families that are 
designed to help them accumulate savings for education or job-training, 
down-payment and closing costs on a new home, or start-up capital for a 
small business. Once participants have successfully funded an IDA, 
their personal IDA savings are matched by a public or private entity. 
Financial institution participation in IDA programs comes in a variety 
of forms, including providing retail banking services to IDA account 
holders, providing matching dollars or operating funds to an IDA 
program, designing or implementing IDA programs, providing consumer 
financial education to IDA account holders or prospective account 
holders, or other means. The extent of financial institutions' 
involvement in IDAs and the products and services they offer in 
connection with the accounts will vary. Thus, subject to 
Sec. ____.23(b), examiners evaluate the actual services and products 
provided by an institution in connection with IDA programs as one or 
more of the following: community development services, retail banking 
services, qualified investments, home mortgage loans, small business 
loans, consumer loans, or community development loans.

Sec. ____.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 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.

Sec. ____.25 Community Development Test for Wholesale or Limited 
Purpose Institutions

Sec. ____.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 Secs. ____.22(d) 
and ____.23(b).

Sec. ____.25(e) Benefit to Assessment Area(s)

    Q1. How do examiners evaluate a wholesale or limited purpose 
institution's qualified investment in a fund that invests in projects 
nationwide and which has a primary purpose of community development, as 
that is defined in the regulations?
    A1. If examiners find that a wholesale or limited purpose 
institution has adequately addressed the needs of its assessment 
area(s), they will give consideration to qualified investments, as well 
as community development loans and community development services, by 
that institution nationwide. In determining whether an institution has 
adequately addressed the needs of its assessment area(s), examiners 
will consider qualified investments that benefit a broader statewide or 
regional area that includes the institution's assessment area(s).

Sec. ____.25(f) Community Development Performance Rating

    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.

Sec. ____.26--Small Institution Performance Standards

Sec. ____.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

[[Page 23639]]

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 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 lending-related qualified investments for the purposes of 
determining whether the small institution receives a satisfactory CRA 
rating.

Sec. ____.26(a)(1) Loan-to-deposit Ratio

    Q1. How is the loan-to-deposit ratio calculated?
    A1. A small institution's loan-to-deposit ratio is calculated in 
the same manner that the Uniform Bank Performance Report/Uniform Thrift 
Performance Report (UBPR/UTPR) determines the ratio. It is calculated 
by dividing the institution's net loans and leases by its total 
deposits. The ratio is found in the Liquidity and Investment Portfolio 
section of the UBPR and UTPR. Examiners will use this ratio to 
calculate an average since the last examination by adding the quarterly 
loan-to-deposit ratios and dividing the total by the number of 
quarters.
    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 loan-to-deposit ratio from the foreign 
loan-to-deposit ratio?
    A3. No. Examiners will look at the institution's net loan-to-
deposit ratio for the whole institution, without any adjustments.

Sec. ____.26(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.

Sec. ____.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.

Sec. ____.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''

[[Page 23640]]

performance rating solely on the basis of its lending activities, but 
only if its performance materially exceeds the standards for a 
``satisfactory'' rating, particularly with respect to the penetration 
of borrowers at all income levels and the dispersion of loans 
throughout the geographies in its assessment area(s) that display 
income variation. An institution with a high loan-to-deposit ratio and 
a high percentage of loans in its assessment area(s), but with only a 
reasonable penetration of borrowers at all income levels or a 
reasonable dispersion of loans throughout geographies of differing 
income levels in its assessment area(s), generally will not be rated 
``outstanding'' based only on its lending performance. However, the 
institution's performance in making qualified investments and its 
performance in providing branches and other services and delivery 
systems that enhance credit availability in its assessment area(s) may 
augment the institution's satisfactory rating to the extent that it may 
be rated ``outstanding.''
    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 Secs. ____.12(i) and 563e.12(h).

Sec. ____.27--Strategic Plan

Sec. ____.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.

Sec. ____.27(f) Plan Content

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

Sec. ____.27(g) Plan Approval

Sec. ____.27(g)(2) Public Participation

    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.

Sec. ____.28--Assigned Ratings

    Q1. Are innovative lending practices, innovative or complex 
qualified investments, and innovative community development services 
required for a ``satisfactory'' or ``outstanding'' CRA rating?
    A1. No. Moreover, the lack of innovative lending practices, 
innovative or complex qualified investments, or innovative community 
development services alone will not result in a ``needs to improve'' 
CRA rating. However, the use of innovative lending practices, 
innovative or complex qualified investments, and innovative community 
development services may augment the consideration given to an 
institution's performance under the quantitative criteria of the 
regulations, resulting in a higher level of performance rating.
    Q2. How is performance under the quantitative and qualitative 
performance criteria weighed when examiners assign a CRA rating?
    A2. The lending, investment, and service tests each contain a 
number of performance criteria designed to measure whether an 
institution is effectively helping to meet the credit needs of its 
entire community, including low- and moderate-income neighborhoods, in 
a safe and sound manner. Some of these performance criteria are 
quantitative, such as number and amount, and others, such as the use of 
innovative or flexible lending practices, the innovativeness or 
complexity of qualified investments, and the innovativeness and 
responsiveness of community development services, are qualitative. The 
performance criteria that deal with these qualitative aspects of 
performance recognize that these loans, qualified investments, and 
community development services sometimes require special expertise and 
effort on the part of the institution and provide a benefit to the 
community that would not otherwise be possible. As such, the agencies 
consider the qualitative aspects of an institution's activities when 
measuring the benefits received by a community. An institution's 
performance under these qualitative criteria may augment the 
consideration given to an institution's performance under the 
quantitative criteria of the regulations, resulting in a higher level 
of performance and rating.

Sec. ____.28(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

[[Page 23641]]

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
Substantial Noncompliance.................        0        0          0
------------------------------------------------------------------------


                   Composite Rating Point Requirements
                      [Add points from three tests]
------------------------------------------------------------------------
                 Rating                            Total points
------------------------------------------------------------------------
Outstanding............................  20 or over.
Satisfactory...........................  11 through 19.
Needs to Improve.......................  5 through 10
Substantial Noncompliance..............  0 through 4.
------------------------------------------------------------------------
Note: There is one exception to the Composite Rating matrix. An
  institution may not receive a rating of ``satisfactory'' unless it
  receives at least ``low satisfactory'' on the lending test. Therefore,
  the total points are capped at three times the lending test score.

Sec. ____.29--Effect of CRA Performance on Applications

Sec. ____.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.

Sec. ____.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.

Sec. ____.41--Assessment Area Delineation

Sec. ____.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 Sec. ____.41(e).
    Q2. If an institution elects to have the agencies consider 
affiliate lending, will this decision affect the institution's 
assessment area(s)?

[[Page 23642]]

    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.

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

Sec. ____.41(c)(1) Generally Consist of One or More MSAs or 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 Sec. ____.41(d), 
adjust the boundaries of the assessment area to include only the 
portion of the political subdivision that it reasonably can be expected 
to serve. The smaller area that the institution delineates must consist 
of entire geographies, may not reflect illegal discrimination, and may 
not arbitrarily exclude low- or moderate-income geographies.

Sec. ____.41(d) Adjustments to Geographic Area(s)

    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 
moderate-income geographies or set boundaries that reflect illegal 
discrimination.

Sec. ____.41(e) Limitations on Delineation of an Assessment Area

Sec. ____.41(e)(3) May Not Arbitrarily Exclude Low- or Moderate-income 
Geographies

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

Sec. ____.41(e)(4) May Not Extend Substantially Beyond 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.

Sec. ____.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

[[Page 23643]]

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:

------------------------------------------------------------------------
                                                     Data collection
                                  Institution's   required for following
              Date                  asset size        calendar year?
                                   ($ million)          (million)
------------------------------------------------------------------------
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 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 [email protected].
    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.

Sec. ____.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

[[Page 23644]]

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 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 and 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. Moreover, in many cases in which the borrower's address 
consists only of a rural route number or post office box, the 
institution knows the location (i.e., the census tract or block 
numbering area) of the borrower or loan collateral. Once the 
institution has this information available, it should assign a census 
tract or block numbering area to that location (geocode) and report 
that information as required under the regulation.
    For loans originated or purchased in 1998 or later, if the 
institution cannot determine the borrower's street address, and does 
not know the census tract or block numbering area, 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.

Sec. ____.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

[[Page 23645]]

business loan'' definition in the regulation are met. The credit card 
program's ``amount at origination'' is the sum of all of the employee/
business credit cards'' credit limits opened on a particular date. If 
subsequently issued credit cards increase the small business credit 
line, the added amount is reported as a new origination.

Sec. ____.42(a)(3) The Loan Location

    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.

Sec. ____.42(a)(4) Indicator of Gross Annual Revenue

    Q1. When indicating whether a small business borrower had gross 
annual revenues of $1 million or less, upon what revenues should an 
institution rely?
    A1. Generally, an institution should rely on the revenues that it 
considered in making its credit decision. For example, in the case of 
affiliated businesses, such as a parent corporation and its subsidiary, 
if the institution considered the revenues of the entity's parent or a 
subsidiary corporation of the parent as well, then the institution 
would aggregate the revenues of both corporations to determine whether 
the revenues are $1 million or less. Alternatively, if the institution 
considered the revenues of only the entity to which the loan is 
actually extended, the institution should rely solely upon whether 
gross annual revenues are above or below $1 million for that entity. 
However, if the institution considered and relied on revenues or income 
of a cosigner or guarantor that is not an affiliate of the borrower, 
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.
    Q4: When collecting and reporting the gross annual revenue of small 
business or farm borrowers, do institutions collect and report the 
gross annual revenue or the adjusted gross annual revenue of its 
borrowers?
    A4: Institutions collect and report the gross annual revenue, 
rather than the adjusted gross annual revenue, of their small business 
or farm borrowers. The purpose of this data collection is to enable 
examiners and the public to judge whether the institution is lending to 
small businesses and farms or whether it is only making small loans to 
larger businesses and farms.
    The regulation does not require institutions to request or consider 
revenue information when making a loan; however, if institutions do 
gather this information from their borrowers, the agencies expect them 
to collect and report the borrowers' gross annual revenue for purposes 
of CRA. The CRA regulations similarly do not require institutions to 
verify revenue amounts; thus, institutions may rely on the gross annual 
revenue amount provided by borrowers in the ordinary course of 
business. If an institution does not collect gross annual revenue 
information for its small business and small farm borrowers, the 
institution would not indicate on the CRA data collection software that 
the gross annual revenues of the borrower are $1 million or less. (See 
Q&A2 regarding Sec. ____.42(a)(4).)

Sec. ____.42(b) Loan Information Required to be Reported

Sec. ____.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, as to small business loans, or $500,000, as to small farm 
loans; and
     To the extent that information is available, the number 
and amount of loans to businesses and farms with gross annual revenues 
of $1 million or less (using the revenues the institution considered in 
making its credit decision).

Sec. ____.42(b)(2) Community Development Loan Data

    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 consideration under the 
borrower characteristic criteria of the lending test. See Q&A4 under 
Sec. ____.22(b)(2) & (3).

[[Page 23646]]

    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.
    Q3. When the primary purpose of a loan is to finance an affordable 
housing project for low-or moderate-income individuals, but, for 
example, only 40% of the units in question will actually be occupied by 
individuals or families with low or moderate incomes, should the entire 
loan amount be reported as a community development loan?
    A3. Yes. As long as the primary purpose of the loan is a community 
development purpose, the full amount of the institution's loan should 
be included in its reporting of aggregate amounts of community 
development lending. However, as noted in Q&A1 addressing 
Sec. ____.22(b)(4), examiners may make qualitative distinctions among 
community development loans on the basis of the extent to which the 
loan advances the community development purpose.

Sec. ____.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.

Sec. ____.42(c) Optional Data Collection and Maintenance

Sec. ____.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
     The gross annual income of the borrower that the 
institution considered in making its credit decision.
    Generally, guidance given with respect to data collection of small 
business and small farm loans, including, for example, guidance 
regarding collecting loan location data, and whether to collect data in 
connection with refinanced or renewed loans, will also apply to 
consumer loans.

Sec. ____.42(c)(1)(iv) Income of Borrower

    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.
    Q3. When collecting the gross annual income of consumer borrowers, 
do institutions collect the gross annual income or the adjusted gross 
annual income of the borrowers?
    A3. Institutions collect the gross annual income, rather than the 
adjusted gross annual income, of consumer borrowers. The purpose of 
income data collection in connection with consumer loans is to enable 
examiners to determine the distribution, particularly in the 
institution's assessment area(s), of the institution's consumer loans, 
based on borrower characteristics, including the number and amount of 
consumer loans to low-, moderate-, middle-, and upper-income borrowers, 
as determined on the basis of gross annual income.
    The regulation does not require institutions to request or consider 
income information when making a loan; however, if institutions do 
gather this information from their borrowers, the agencies expect them 
to collect the borrowers' gross annual income for purposes of CRA. The 
CRA regulations similarly do not require institutions to verify income 
amounts; thus, institutions may rely on the gross annual income amount 
provided by borrowers in the ordinary course of business.

Sec. ____.42(c)(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

[[Page 23647]]

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 Sec. ____.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 Sec. ____.42(c)(2) for consideration under the lending 
test.

Sec. ____.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.

Sec. ____.43--Content and Availability of Public File

Sec. ____.43(a) Information Available to the Public

Sec. ____.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) (Sec. ____.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 its most recent examination must include in 
its public file a description of its current efforts to improve its 
performance in helping to meet the credit needs of its entire 
community. The institution must update the description on a quarterly 
basis.

Sec. ____.43(b) Additional Information Available to the Public

Sec. ____.43(b)(1) Institutions Other Than Small Institutions

    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.
    Q2. May an institution retain the compact disc provided by the 
Federal Financial Institution Examination Council that contains its CRA 
Disclosure Statement in its public file, rather than printing a hard 
copy of the CRA Disclosure Statement for retention in its public file?
    A2. Yes, if the institution can readily print out from the compact 
disc (or a duplicate of the compact disc) its CRA Disclosure Statement 
for a consumer when the public file is requested. If the request is at 
a branch other than the main office or the one designated branch in 
each state that holds the complete public file, the bank should provide 
the CRA Disclosure Statement in a paper copy, or in another format 
acceptable to the requestor, within 5 calendar days, as required by 
Sec. ____.43(c)(2)(ii).

Sec. ____.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.

Sec. ____.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.

Sec. ____.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 A to Part____--Ratings

    Q1. Must an institution's performance fit each aspect of a 
particular rating profile in order to receive that rating?
    A1. No. Exceptionally strong performance in some aspects of a 
particular rating profile may compensate for weak performance in 
others. For example, a retail institution

[[Page 23648]]

that uses non-branch delivery systems to obtain deposits and to deliver 
loans may have almost all of its loans outside the institution's 
assessment area. Assume that an examiner, after consideration of 
performance context and other applicable regulatory criteria, concludes 
that the institution has weak performance under the lending test 
criteria applicable to lending activity, geographic distribution, and 
borrower characteristics within the assessment area. The institution 
may compensate for such weak performance by exceptionally strong 
performance in community development lending in its assessment area or 
a broader statewide or regional area that includes its assessment area.

Appendix B to Part____--CRA Notice

    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

End of Text of the Interagency Questions and Answers

    Dated: April 27, 1999.
Keith J. Todd,
Executive Secretary, Federal Financial Institutions Examination 
Council.
[FR Doc. 99-10841 Filed 4-30-99; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P