ABA Bank Compliance - March/April 2013

of and need for CRA-qualified investments in determining the appropriate level for the institution under evaluation. Here are ways to identify possible investments:

■ ■ Use all of the resources made available from the regulators in trying to identify possible CRA investments. The board publishes a periodic Community Investments Newsletter10 that can be accessed online. The OCC has also developed an online resource—the Community Developments Investments E-zine11”—to focus on community development investment topics of interest to bankers.

■ ■ Organize a Community Advisory Board to help identify community needs and investment opportunities.

■ ■ Analyze investments in light of community input and ensure coverage throughout your assessment areas.

■ ■ Don’t forget that qualified charitable donations (cash and non-cash/in-kind donations) will qualify as CRA investments under the investment test.

CHALLENGE #6: Service Test

The primary component to be evaluated in the service test is branch distribution. The regulators expect branch distribution to closely follow population distribution, with an emphasis on LMI branches. Keep in mind that examiners will evaluate low-income branch distribution separate from moderate-income branch distribution and will make conclusions regarding each. Here are suggestions for enhancing performance within the service test:

■ ■ Compare your institution’s branch distribution to population distribution based on the demographics of the census tract for each branch. For example, if the percentage of total population residing in low-income census tracts exceeds the percentage of branches located in low-income

data that crosses census periods, recognize that each census period adds complexity and nuance that needs to be documented in your performance context analysis for the regulators.

5. Keep in mind that the regulators evaluate performance in low-income tracts separately from moderate-income tracts and make a conclusion about your performance in each.

6. How does your market share in low- and moderate-income tracts compare to your market share overall?

7. Have the number/dollars of community development loans increased or declined over the period; how responsive are they to community need; and do you have community development loans that fit the expanded definitions of community development activities?

Investment Test: 25 percent of overall exam rating

1. How many qualified investments have you made during the period?

2. How many qualified charitable donations have you made during the period?

3. How are they distributed, and how do they compare to

census tracts, examiners will be looking for performance context to explain and support the institution’s branch distribution.

■ ■ Make sure that your CRA compliance officer is “at the table” when decisions are made to open or close branches. Each branch activity should be analyzed for CRA impact. When middle- and upper-income branches are being opened for competitive reasons, perhaps consideration can be given to opening an alternative service branch in a low- or moderate-income location so that distribution might remain more in line with population distribution.

■ ■ Document your analysis and the business justification for opening or closing branches. This becomes particularly important for closing LMI branches.

■ ■ Consider mapping your branches to identify whether there are any middle- or upper-income branches that are located across the street, or within very close proximity to low- or moderate-income census tracts. Consider plotting public transportation routes to determine whether you might be drawing LMI customers into your branches from outside the area. If there are branches that fit these definitions, build a performance context argument to support the position that LMI persons can be provided with access to banking services through these middle- and upper-income branches.

■ ■ Identify community development service activities and other services targeted to LMI persons and/or geographies, such low-cost or free checking/savings accounts for low-income persons, free check cashing on government benefit checks, or financial education directed to LMI persons.

■ ■ Analyze branch hours and ATM services across the branch network to ensure equality in LMI locations, as well as middle- and upper-income areas.

Tier 1 capital (*) allocated to each assessment area? 4. What has their impact been to your assessment areas?

Service Test: 25 percent of overall exam rating
1. Access: How does your branch distribution com-
pare to population distribution in low- and moderate-
income census tracts? (Population information is
available on the FFIEC website— www.ffiec.gov/census/
default.aspx

2. Responsiveness: How does the level of your community development services compare to the prior period? Are they responsive to community needs?

3. Consider calculating the number of community development service hours on a per-employee basis. What was it in the last exam? Has it improved over the period? Consider setting a benchmark to measure yourself against.

*Consult your institution’s most recently filed Call Report, Schedule RC-R (Regulatory Capital), which is available on the FDIC website— www2.fdic.gov/Call_TFR_ Rpts/ index.asp.