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Appeal of "Needs to Improve" Community Reinvestment Act (CRA) Rating - (Second Quarter 2007)


A bank appealed to the ombudsman the decision by the supervisory office to assign a rating of “needs to improve” for the most recent CRA examination. The primary reason for the rating was the bank’s low loan-to-deposit ratio.


The appeal states that the rating is unfair due to circumstances beyond the bank’s control. A number of banks, including a mid-size and a large bank, have opened branches in this community of 5,000 residents causing competition among financial service providers to increase. The bank’s loan-to-deposit ratio had declined from 34% at the previous examination to 24% at the current examination. However, when adjusted for the loans sold in the secondary market, the bank’s loan-to-deposit ratio was 29%. The appeal stated that the bank did not want to change its underwriting standards to increase loan volume.

The supervisory office acknowledged that banking competition had increased significantly since the previous CRA exam. However, those banks had maintained or increased their loan-to-deposit ratio during this same time period. The loan-to-deposit ratio for the competing banks ranged from 57% to 65%. The examination also disclosed that not only had the loan-to-deposit ratio declined but total loan volume had declined by 40%.

The ombudsman reviewed the examination work papers and applied the small bank performance criteria as detailed in the regulation. Members of the ombudsman’s staff also visited the bank to gain a better perspective of the bank’s concerns and to view the assessment area.


The ombudsman’s review disclosed that the increase in competition among financial service providers did not impede FNB’s capacity to meet the credit needs of its community. Based on the analysis of the bank’s lending performance and discussions with bank management, the primary cause of the decline is the bank’s conservative lending philosophy. During the visit to the bank, the ombudsman’s staff noted opportunities for the bank to increase lending without compromising the safety and soundness.

In conclusion, the ombudsman opined that the “Needs to Improve” CRA rating assigned by the supervisory office was appropriate. The low level of lending was not consistent with the financial condition of the bank, the local economic condition, or the spirit of the regulation. The bank was strongly encouraged to continue to work with the supervisory office and OCC community development specialists to improve lending efforts.