The July 2015 release of CRA performance evaluations by the FDIC offers an example of how the loan-to-deposit (LTD) ratio test can over-shadow satisfactory performance in other tests under CRA. According to FDIC examiners, the LTD ratio for Intercontinental Bank of West Miami, FL did not meet expectations:
The average net loan-to-deposit ratio of 21 percent is less than reasonable given the institution’s size, financial condition, and credit needs of the assessment area. This factor received the most weight in assigning the overall CRA rating. The bank’s continued low level of lending limits the meaningfulness of the analysis that follows and diminishes overall from the bank’s performance under the categories below…
A review of the bank’s financial condition and legal structure was completed to determine if lending barriers, beyond management’s control, were present. This review did not reveal any barriers that would prevent IB from meeting the credit needs of its assessment area. Based on the comparison of the bank’s average net LTDR with similarly situated lenders, the lending philosophy, and the overall financial condition of the bank, the bank is reinvesting an unreasonably low volume of deposits as loans. Therefore, the bank is not satisfactorily meeting the credit needs of its assessment area.
The LTD ratio of Intercontinental was half that of the selected group of peer lenders, resulting in the third consecutive performance evaluation rated as Needs Improvement (NI). While this rating does not come with direct financial penalties, it can limit strategic opportunities in the future if the bank considers expansion or consolidation. This continuous pattern of adverse CRA performance gives community organizations and the FDIC leverage that can stall strategic initiatives. Increasing lending activity at a pace greater than the market will be crucial for Intercontinental to overcome this trend and clear away a potential barrier to future growth.