The CD Test Prevents a Bank from Getting a “Satisfactory” CRA Rating

The CD Test Prevents a Bank from Getting a “Satisfactory” CRA Rating

Among the round of CRA ratings released for April 2015, the 2015 performance evaluation (PE) of Belmont Savings Bank (Belmont) highlights how a poor evaluation under the Community Development (CD) test can overshadow satisfactory lending to low- and moderate-income (LMI) geographies and borrowers:

Overall, Belmont’s level of CD lending since the previous evaluation demonstrates poor responsiveness to the credit needs of the AA considering the bank’s resources and available credit needs and opportunities.

The total CD lending for 2012, 2013, and YTD 2014 is two loans for a total of $259,000. This represents approximately 0.0004 percent of total assets and 0.003 percent of net loans (as of June 30, 2014), which is substantially lower than comparable banks. This activity is considered poor. One loan totaling $250,000 was made in 2012 to a small business secured by real estate for the purpose of revitalization and stabilization by providing jobs in a moderate-income tract. The other loan was made to a fire department for $9,000 to finance the purchase of a handicapped accessible small ambulance primarily serving LMI geographies in the AA.

Examiners compared Belmont’s CD lending to four comparable banks, each of which had CD lending or investment activity representing 0.01% of its total assets compared to Belmont’s 0.004%. While penetrating the market of LMI borrowers is a critical component of CRA compliance, this release underscores the need for banks to assess their CD lending and investment activity to achieve all of the goals related to CRA.

April 20th, 2015|