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#2093399 - 08/16/16 01:30 PM CRA Rating Lowered Retroactively
Happy Birthday Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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BancorpSouth announced in its 8K that the FDIC is retroactively downgrading the CRA rating to needs to improve, which puts planned mergers on hold. So, no waiting until the next exam for the downgrade! This is due to the recently fair lending problems.

On August 11, 2016, the Federal Deposit Insurance Corporation (the “FDIC”) notified BancorpSouth Bank (the “Bank”), the wholly-owned subsidiary of BancorpSouth, Inc. (the “Company”) that, in connection with the Bank’s entry into a Consent Order on June 29, 2016 (the “Consent Order”), with the United States Department of Justice and the Consumer Financial Protection Bureau to settle and resolve alleged violations of the Equal Credit Opportunity Act and the Fair Housing Act, the FDIC will be retroactively downgrading the Bank’s Community Reinvestment Act (“CRA”) rating from “Satisfactory” to “Needs to Improve,” effective as of the 2013 CRA evaluation. The FDIC routinely performs a CRA performance evaluation of the Bank, typically once every three years. The FDIC last conducted a CRA evaluation of the Bank in 2013, at which time, the Bank received a “Satisfactory” rating.
Among other things, the purpose of the CRA evaluation is to assess the Bank’s performance and initiatives that are designed to help meet the credit needs of the areas it serves, including low and moderate-income individuals, neighborhoods, and businesses.

The CRA evaluation is also a factor that the FDIC considers when reviewing applications by the Bank to acquire, merge, or consolidate with another banking institution, to establish a new branch office that will accept deposits, or to relocate an office. Similarly, the Federal Reserve considers such evaluations when reviewing applications by the Company to acquire another banking institution or its holding company.

As a result of the retroactive downgrade of the Bank’s CRA rating, the Company and the Bank likely will be unable to obtain the necessary Federal Reserve or FDIC regulatory approvals to complete the two pending mergers with Ouachita Bancshares Corp. and Central Community Corporation and their respective affiliated banks until such time as the Bank’s CRA rating is improved to “Satisfactory.” The Company presently understands that the FDIC expects to begin its next CRA evaluation of the Bank later this year and to complete that evaluation during the first quarter of 2017; however, the Company cannot make any assurances as to the timing or outcome of its next CRA evaluation.
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#2093406 - 08/16/16 01:44 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
MScarn6942 Offline
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So obviously what BancorpSouth Bank did was terribly, terribly wrong. But what does it say about the FDIC that they gave them a satisfactory rating when all of this was going on? Was BancorpSouth really that good at hiding things?
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#2093475 - 08/16/16 04:12 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Rocky P Offline
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WSB see https://www.bankersonline.com/penalty/151825

Apparently, there was someone internal who got the regulator's attention. Sad story.........
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#2093908 - 08/18/16 01:11 PM Re: CRA Rating Lowered Retroactively Rocky P
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Maybe the FDIC needs to be given a "Needs to Improve."
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#2093917 - 08/18/16 01:23 PM Re: CRA Rating Lowered Retroactively Sinatra Fan
kansas9839 Offline
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Sinatra Fan. I couldn't agree more! They are extremely vague in their definition of things. I do hope that someone in Congress starts to really break down and set forth clear guidelines in plan English, not in the language presented.

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#2093922 - 08/18/16 01:36 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Rocky P Offline
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The regulatory concept is:
"We don't get mad. We get even!"

Regulators do not like being caught being lied to, or with surprises.

When it happens, they have a "blamestorming" session to identify the punishment.
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#2093996 - 08/18/16 04:08 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Happy Birthday Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Well, why should this bank with such an egregious situation be allowed to go ahead with mergers etc. just because the fair lending issue came to light mid-CRA Exam cycle? That is certainly not the spirit of the law.

This bank is examined by the CFPB for consumer regulations, not by the FDIC.

If the situation, which apparently came to light at least in part via a whistleblower (we can only guess), came to light after the CRA exam, should there be no repercussions? New information shows they did not deserve the rating.
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#2094139 - 08/19/16 12:04 AM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Rocky P Offline
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The whistleblower is the only way that I can perceive it came to the regulator's attention. Regulators do not like being caught, being lied to (omission or commission) or surprises.
Like you mentioned KB, reading the Public Evaluation and Complaint, looks like 2 different banks.

PE
The bank demonstrated a good record regarding its lending activity.
• The institution exhibited a good record of concentrating its loans in its assessment areas.
• The bank displayed an adequate record regarding its borrower profile loan distribution.
• The institution established an adequate record regarding its geographic loan distribution.
• The bank achieved a poor record regarding its community development lending.
• The institution showed an excellent record regarding its innovative or flexible lending practices.

Complaint
33. The Bank's exclusion of nearly all majority-minority neighborhoods from its
CRA assessment area reduced credit availability and investment in those neighborhoods and
discouraged prospective applicants and lending in those neighborhoods.

35. Bank concentrated its branches to serve the credit needs in areas outside
of, and avoid lending in, minority neighborhoods, thereby discouraging prospective applicants in
those minority neighborhoods.

etc.
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#2094146 - 08/19/16 02:15 AM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
rlcarey Offline
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All I can say it is quite a disconnect.

* The Bank's exclusion of nearly all majority-minority neighborhoods from its CRA assessment area

* Bank concentrated its branches to serve the credit needs in areas outside of, and avoid lending in, minority neighborhoods

Why in world did they need a whistleblower to figure that out??? While I agree with the retroactive downgrade, somebody missed the boat on this one.
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#2094152 - 08/19/16 02:43 AM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Happy Birthday Kathleen O. Blanchard Offline

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I do agree this is a very strange case, and I absolutely agree with the retroactive downgrade.

I have not bothered to go back and look at prior exams to see if these were recent changes or how many years the assessment area was the way it was most recently.. Frankly, the case disgusts me.
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#2094168 - 08/19/16 12:49 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
kansas9839 Offline
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The fact that this practice is still happening in our country is an issue. I come from a community where the term redlining started sadly. I know that it is an issue by the government as well as banks. Further, I think the way to combat all these issues is for the government and private sector to be proactive in providing financial classes within the community. Schools are beginning to focus on this. I know you will never fully fix these issues but we can reduce some of these issues to almost non existent. Maybe I am a guy that is a half glass full person.

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#2094176 - 08/19/16 01:17 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Rocky P Offline
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Florida
Kansas, you are right of making sure people are informed. FDIC has a program which every CRA officer should be familiar with - it's been around for ages, and updated. Money Smart added Spanish, and now has one for young adults. 20 years ago, I was teaching it to first time homebuyers. It's also free.

https://www.fdic.gov/consumers/consumer/moneysmart/
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#2094194 - 08/19/16 02:05 PM Re: CRA Rating Lowered Retroactively Rocky P
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Thanks Rocky! I will look at this information.

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#2094283 - 08/19/16 04:46 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Happy Birthday Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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And banks need to focus on their own attitudes and staff attitudes and train and enforce. Things like this don't happen in a vacuum at a bank. It has to be going on all the way to the top.

Financial training for customers won't stop that.
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#2094570 - 08/22/16 06:35 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Len S Offline
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Connecticut
CRA exams aren't Fair Lending exams although a Fair Lending issue can impact a CRA rating. Typically that happens when, during the CRA exam, a Fair Lending performance issue comes to light by virtue of a previous or simultaneous Fair Lending exam. CRA examinations do not focus on lending within majority/minority tracts or mortgages extended to minority borrowers.

In this situation apparently Fair Lending issues came to light after the exam was complete. Rather than wait for the next CRA exam (which apparently was not too far off), the Agency decided the violations were so serious (the bank did sign a consent order) they would affect a CRA rating to the point it would be less than satisfactory, even if the CRA exam itself revealed the bank performance to be outstanding, Likely the Agency acted because an application to merge was pending.

Frankly, I think the term "retroactively" is not accurate. I think the term "immediately" is more accurate. If the bank had acquired another bank between now and the last CRA exam, the merger would not be undone (even though it would have been prevented if the the rating had been less than satisfactory at the time) because of the changed CRA rating subsequent to the latest CRA exam and the merger itself. I don't think anyone but the bank itself has seen the exact regulatory communication informing the bank of the change in its CRA rating. The Bank in its SEC Form 8-K filling used that term which may or may not be exactly the terminology used by the FDIC in its communication with the Bank.
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#2094590 - 08/22/16 07:27 PM Re: CRA Rating Lowered Retroactively Kathleen O. Blanchard
Happy Birthday Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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I agree totally that the pending merger application prompted the quick action. It would make no sense to allow such a merger to proceed given the consent order.
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