CRAIn August 2015, the OCC announced Community Reinvestment Act performance evaluations for 30 national banks and federal savings associations. Of those evaluations 5 were rated outstanding and 24 were found satisfactory; however, one bank was rated “substantial noncompliance.” The Lemont National Bank was found to be exceptionally lacking in meeting the credit needs of its entire community, specifically the low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution.
Substantial noncompliance ratings are fairly rare these days. In fact, Lemont is only the fourth bank to have received this rating in 2015. But a post-mortem of Lemont’s mistakes could help your financial institution see if it has any areas it needs to strengthen before examiners come knocking on your door.
Bottom line: examiners found the bank’s lending reflects very poor responsiveness in helping to meet the credit needs of its assessment area. The major factors that support the Lemont’s overall unfortunate CRA rating include:

Loan-to-Deposit Ratio

The OCC’s performance evaluation noted that the bank’s “loan-to-deposit (LTD) ratio is unreasonable and reflects a very poor level of lending. This ratio is substantively lower than all similarly situated lenders in the area and indicates the bank is not lending at a reasonable level given the opportunities in the assessment area.”
The OCC found Lemont’s volume of loan originations very low considering the financial and personnel resources of the bank, in addition to the lending opportunities found in the bank’s assessment area. This finding was supported by Lemont’s quarterly average LTD ratio of 14.81% for March 2012 through December 2014. The average LTD ratio of similarly situated banks for that same time period was 64.47%.
Lemont’s loan growth was also reviewed as part of the performance context, revealing a decline in loans every year since January 2012. While economic conditions have led to an industry-wide waning in lending, the OCC found that Lemont’s loan growth has ranked well below its peer group.

Lending in its Assessment Area

“The bank’s lending activity in its assessment area needs improvement. The majority of loans originated during the evaluation period were made within the bank’s assessment area, but the low level of lending activity indicates a lack of commitment to address the credit needs of the community,” wrote the OCC.
Examiners determined that Lemont’s lending in its assessment area had great room for improvement. Lemont’s level of lending was so low that the minimum sample of 20 loans was not met for the OCC’s evaluation. Lemont had only 16 total mortgage loan originations during the evaluation period. Though the majority of loans originated during the evaluation period were made within the bank’s assessment area, the low level of lending activity indicates lending opportunities that Lemont had not actively pursued.

Lending to Borrowers of Different Incomes and to Businesses of Different Sizes

“Given the demographics of the assessment area, the distribution of loans to borrowers reflects very poor penetration among individuals of different income levels. LNB did not originate any loans in the assessment area to low- or moderate-income borrowers,” was the third major criticism the OCC leveled at Lemont.
The bank did not make any home mortgage loans (home purchase, home improvement, or home mortgage refinance) to low- or moderate-income individuals during the evaluation period. Of the 10 loans Lemont originated in the assessment area, two were to middle-income borrowers and eight were to upper-income borrowers.
Compared to its peers, Lemont’s lending levels to low or moderate-income borrowers did not come near to meeting the standards for satisfactory performance.

The Bigger Picture

Lemont came into this game already behind. It is located in a village 30 miles southwest of Chicago, and its assessment area includes no low- or moderate-income geographies. It was coming off a “needs to improve” rating in its last CRA examination, conducted in 2012.
Certainly there may be legitimate business reasons for its performance in each of the areas criticized above, but the key takeaway from Lemont is that if your financial institution is facing challenging circumstances from a CRA perspective, extra effort is required to mitigate those circumstances. This might include working with community groups to identify other opportunities that may be worthwhile to support, and making sure your bank’s efforts to lend to all segments of its community are well-documented so that context for its performance is clearly indicated.