Friday, March 15, 2019

McKinney’s Independent Bank and its CRA Obligations

Independent Bank’s decision to bring a Federally Qualified Health Center (FQHC) to McKinney in 2017 was heavily influenced by its Community Reinvestment Act (CRA) obligations. Banks and their CRA obligations are reviewed by the FDIC often and those evaluations have an impact on whether banks are allowed to expand or close branches in certain areas, for example.

According to the U.S. Department of Treasury’s website, banks can use investment in FQHCs to satisfy their CRA obligations:
The partnership is mutually beneficial [for banks and FQHCs]. Because demand for health centers has doubled since 2002 and is predicted to double again by 2020 to more than 32 million patients, the industry needs bank financing to expand. Banks looking to expand their lending and fulfill Community Reinvestment Act (CRA) commitments may achieve both objectives by helping finance the more than $8.5 billion needed by 2020 to finance the necessary expansion.
The website page goes on to add:
Banks have an obligation under the CRA to help meet the credit and deposit service needs of the communities where they are chartered to do business. In general, such communities are where a bank has at least one deposit-taking automated teller machine or branch. To help meet community needs, banks that meet certain asset thresholds must also provide community development loans, qualified investments, or community development services, or some combination thereof. The OCC is required to evaluate whether each bank is meeting its obligation, consistent with the safe and sound operation of the institution.The CRA definition of community development includes community services targeted to low- and moderate-income (LMI) individuals.
For the purposes of CRA evaluations, Independent Bank is considered a large bank because it has over $1.252 billion in assets (IB has over $8B). Since it is a large bank, it must be evaluated with a Lending Test, Investment Test, and Service Test to ensure it is meeting the needs of their low- and moderate-income neighborhoods in a manner that is matched to their resources and capabilities as a large bank. 

There are, of course, many options and opportunities for banks to score well on their CRA evaluations in each of the three test areas. However, the CRA evaluations seem to favor community involvement as a means of doing so in their reports, as the evaluation report will show.

Independent Bank was last evaluated in August of 2017. The entire Community Reinvestment Act Performance Evaluation report for Independent Bank details the criteria used and the complete results. Here's how Independent Bank scored on all three tests: 
From Independent Bank's CRA Performance Evaluation, 2017

Independent Bank was found to be low satisfactory in two areas: Lending Test and Service Test. Below are quotes from the report about Independent Bank that demonstrate what is expected of large banks and how well those expectations were met expectations:
Lending Test
· The bank demonstrated good performance regarding its lending activity.
· The institution originated a high percentage of loans in its designated assessment areas.
· The bank established an adequate record regarding its borrower profile loan distribution.
· The institution achieved an adequate record regarding its geographic loan distribution.
· The bank proved a leader in granting community development loans and demonstrated excellent responsiveness to community needs.
The institution made occasional use of innovative and flexible lending practices.  

Service Test
· The bank demonstrated a reasonably accessible level of delivery systems and tailored retail bank services.
· Changes to Independent Bank’s branch network were generally not adverse to low- and moderate-income individuals.
· The bank’s hours and services offered do not inconvenience low- and moderate-income individuals.
The institution provided an adequate level of community development services.

For the Lending Test, these 5 bank activities were listed as positive steps toward CRA goals in the report. 
Affordable Housing – In 2015, the bank funded a $2.7 million dollar loan to purchases a 50-unit apartment complex located in a low-income tract. The property provides housing for low- and moderate-income tenants. 
Affordable Housing – In 2017, Independent Bank funded five loans to construct low-income housing in the Waco MSA AA totaling $420,000. The borrower is a non-profit organization 31 whose mission is to “build stronger neighborhoods through homeownership, quality rental housing, and community building initiatives”. 
Community Service – In 2016, Independent Bank extended a loan totaling $5.9 million. The funds supported the purchase and renovation of a four-story building. The primary tenant, a Federally Qualified Health Clinic, serves the medically underserved population consisting primarily of low- or moderate-income individuals. This business operates in a moderate-income census tract. 
Economic Development – In 2017, the bank granted a $2.9 million dollar loan to provide financing of a convenience store consisting of a gas station and restaurant. The store will create new jobs for low- and moderate-income individuals. The business is located in a moderate income geography. 
Revitalize and Stabilize – In 2016, the bank provided a loan totaling $4.4 million for the acquisition of a foreclosed office building/warehouse located in a moderate-income census tract.
For the Service Test, these 3 activities of Independent Bank were seen as positive steps toward fulfilling CRA obligations:
Community Services – Multiple employees and officers participated in the planning and development of The Family Health Center at Virginia Parkway, a Federally Qualified Health Clinic. The bank identified a need for a clinic that services the medically underserved population of McKinney and Collin County, coordinated stakeholders to design and implement the clinic, and identified and coordinated various financial resources to fund the clinic. 
Affordable Housing – One officer served as a Board Member for the Houston Housing Finance Corporation, which finances low- and moderate-income housing projects in the Houston area through the issuance of single-family mortgage revenue bonds. 
Economic Development – A bank officer served as a Director for the McKinney Community Development Corporation and another officer served as a Director for the City of McKinney Economic Development Corporation. Both organizations work to revitalize the moderate-income areas in McKinney by bringing new business in and expanding current businesses using grants and tax incentives.
If Independent Bank is meeting its CRA banking obligation with this FQHC, why is Independent Bank asking the city and City Council to help pay for the cost of the clinic's relocation and expansion? 

Please go to FDIC for more information on Independent Bank

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