This case study, prepared by Premier Insights, examines the methodologies and outcomes of a CRA and Fair Lending analysis conducted by Premier for a financial institution. To maintain confidentiality, all bank and market names have been changed or withheld. The underlying data, analysis, and strategic approach are based on actual client engagement with Premier Insights. The analysis demonstrates how CRA and Fair Lending performance may be evaluated for smaller institutions.
This report assessed the Bank's compliance with the Community Reinvestment Act (CRA) and fair lending regulations. The analysis examined loan distribution across various income levels and geographic areas, including minority populations. A statistical review of Home Mortgage Disclosure Act (HMDA) data was conducted to identify potential discriminatory lending practices based on race and gender. The report concluded that the Bank was meeting its regulatory obligations and showed no evidence of discriminatory lending. Specific loan data, including amounts and locations, were provided to support the findings.
Introduction
This case study presented an analysis conducted by Premier of the Bank's lending performance under the Community Reinvestment Act (CRA) and an assessment of fair lending practices for a calendar year. The analysis utilized loan origination data for the year, and comparisons with previous years where appropriate, to provide a comprehensive view of the Bank's performance. This analysis included geographic and borrower income distributions of all loan types, corresponding to census geographies, within the Bank’s assessment areas.
Institution Overview
The Bank had $227 million in assets as of year-end. The Bank operated a home office in Willow County, and five branch offices: two in Willow County, one in Aspen County, one in Cedar County, and one in Pine County. The Bank engaged in consumer, mortgage, and commercial lending.
Assessment Areas
The Bank's assessment area included Willow, Aspen, Cedar, and Pine counties. These counties were divided into two assessment areas:
- A non-Metropolitan Statistical Area (MSA) portion, consisting of Willow and Aspen counties.
- An MSA portion, consisting of Cedar and Pine counties.
The combined assessment area had a population of 232,888. The non-MSA area had a population of 60,858 with a median family income of $43,800 and was 63.3% minority. The MSA area had a population of 172,030 with a median family income of $59,800 and was 35.7% minority.
Geographic Analysis
There were 49 census tracts within the combined assessment area. None of these tracts were low-income, and 11 were moderate-income. The moderate-income tracts were located in Willow (6), Cedar (3), and Pine (2) counties. The Bank originated 862 loans totaling $43.3 million in moderate-income census tracts. The Bank originated loans in all but a few census tracts in Pine County during the reporting period.
Loan Portfolio
The Bank originated 1,968 loans, totaling $116.2 million in year analyzed. The distribution of loans within the assessment area was 52.4% in Willow County, 19.3% in Aspen County, 17.0% in Cedar County, and 11.4% in Pine County. The breakdown of loan dollars within the assessment area by type was:
- Commercial: 77.3%
- Residential Mortgage: 15.2%
- Secured: 5.8%
- Unsecured: 1.7%
Market Share
The Bank ranked 6th in market share among 22 banks in the assessment area, with 6.10% of total deposits. The market was competitive, including both smaller local banks and larger institutions, particularly in Pine County.
Borrower Income Levels
The Bank tracked borrower income data.
The distribution of consumer loans by borrower income reflected:
- 43.46% to upper-income borrowers
- 24.18% to middle-income borrowers
- 19.61% to moderate-income borrowers
- 12.75% to low-income borrowers.
The distribution of loan dollars by borrower income reflected:
- 62.40% to upper-income borrowers
- 17.30% to middle-income borrowers
- 10.00% to moderate-income borrowers
- 10.31% to low-income borrowers.
The data indicated the Bank was lending to borrowers of all income categories within the assessment area.
Loan-to-Deposit Ratio
The Bank's loan-to-deposit ratio was estimated at 89% at the year end. Based on previous examinations and comparisons to similarly situated institutions, this is in line with regulatory expectations.
Home Mortgage Disclosure Act (HMDA) Analysis
The Bank originated 45 HMDA loans in moderate income tracts totaling $1.5 million. Analysis of HMDA data showed that 52.78% of loans went to upper income tracts and 23.61% to middle income tracts, while 11.11% of loans went to moderate income tracts, and 12.50% to low income tracts.
Loans Inside and Outside Assessment Area
The majority of the Bank's loans were originated within its assessment area: 83% of total loans and 73% in terms of dollars.
Fair Lending Analysis
In addition to the CRA assessment, a fair lending analysis was conducted including a statistical analysis of HMDA data for potential disparities based on prohibited factors like race and gender. A risk-based, targeted file review was also conducted using methodologies contained in the Interagency Fair Lending Examination Procedures. Statistical tests of denial incidences for HMDA applications showed no significant differences by race or gender. The file review of home purchase applications did not reveal any evidence of disparate treatment or gender preference, and decisions were made based on relevant credit criteria.
Summary
The analysis by Premier Insights, Inc. demonstrates that the Bank was meeting regulatory obligations regarding the Community Reinvestment Act and fair lending. The Bank's CRA lending activity appeared to be reasonable within low and moderate-income areas, and no evidence of disparate treatment was observed in the fair lending analysis.
Conclusion
This case study demonstrated Premier Insights, Inc.’s ability to provide a comprehensive, in-depth analysis of a financial institution's lending practices, ensuring compliance with CRA and fair lending regulations. The work done by Premier offered valuable insight into the distribution of loans, identification of areas of strength and potential areas for improvement, and ultimately helped the financial institution serve their communities effectively.