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A formal appeal was received regarding a supervisory office's denial of a bank's application to open a fully constructed and staffed branch. The following summarizes, chronologically, the pertinent details that led to the denial.
On September 23, 1993, applications were filed with the Office of the Comptroller of the Currency (OCC) for a bank to open two branches (Branch A and Branch B). A month later, the OCC commenced an on-site Community Reinvestment Act (CRA) examination of the bank. This examination resulted in a rating of "Needs to Improve Record of Meeting Community Credit Needs" as documented in the bank's December 20, 1993 Performance Evaluation (PE).
In April 1994, the bank received preliminary approval to open Branches A and B, subject to the satisfaction of two conditions:
The examiners met with representatives of the bank in May to discuss the bank's CRA program. In June, they again met with the bank to discuss the bank's program. In addition, the bank provided the examiners with a written update of the bank's CRA compliance efforts/ Bank management stated that they felt the examiners were favorably impressed with the compliance efforts undertaken by the bank. Additional updates were provided to the examiners throughout the remainder of the year.
On June 23, 1994, the examiners met with the board of directors of the bank and, according to the bank, indicated that if the bank were to be examined that day, the rating would be "satisfactory." On July 14, the bank filed an application to open an additional branch (Branch C). A month later, the OCC Supervisory Office granted official authorization to establish Branch C without imposing any conditions, despite the bank's existing CRA rating of "Needs to Improve." In October, the bank began construction on Branch A.
On January 2, 1995, the OCC commenced an on-site compliance examination at the bank. The OCC concluded the on-site portion of the examination on February 2. On February 23, the bank notified the Supervisory Office that it had completed the construction and staffing of Branch A and planned to open it on March 11.
The Supervisory Office notified the bank by telephone on February 24 that the authorization for opening Branch A would not be given because the examiners' preliminary conclusion was that the bank would be assigned a "Needs to Improve" CRA rating. On March 9, the Supervisory Office notified the bank by letter that because the bank had not been able to satisfy the April 1994 conditions, the branch could not be opened on March 11, 1995, as planned.
The OCC's current corporate policy on banks with a less than a satisfactory CRA rating is detailed in a Bank Organization and Structure (BOS) memorandum dated August 15, 1990, "Corporate Decisions for Banks with Less than Satisfactory CRA Performance (Replaces BOS 89-2 and paragraph (5) of BOS 88-11)." The memorandum was revised to provide guidance for handling certain corporate fillings from banks with less than satisfactory CRA performance. Changes were necessary because of amendments to CRA resulting from the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Amendments to CRA required the OCC to (1) prepare a written evaluation of a bank's CRA record upon completing an examination, and (2) make that evaluation public for examinations started on or after July 1, 1990. The policy for actions on filings from banks with less than satisfactory CRA performance was revised as follows:
Conditional approval will generally be granted to applications from banks rated "needs to improve" under the new system or rated 3 under the old system. Applications from banks rated 5 under the old system of "substantial noncompliance" under the new system generally warrant denial. For banks with CRA rated 4 under the old system, conditional approval or denial may be appropriate, depending on the circumstances of the case.
When conditional approval is granted, OCC will grant final approval only after applicants satisfy conditions and improve performance to a satisfactory level. Satisfactory performance must be substantiated by a publicly available written evaluation.
OCC will generally not allow applicants to use commitments to improve performance to overcome a less than satisfactory CRA record. An exception to this rule is made for the acquisition of a troubled financial institution. Conditional approvals are not workable in this situation, since consummation cannot wait until CRA performance has improved. Approval of the Deputy Comptroller for BOS is required before a bank with a less than satisfactory CRA rating can bid for a failing institution. (Districts can request approval of the Deputy Comptroller for BOS by telephone or Email.)
Cases with final recommendations that conflict with this policy should be forwarded to Washington for decision.
Because the Supervisory Office had never formally changed the bank's CRA rating from "Needs to Improve," as published in the bank's December 20, 1993 Public Evaluation, the Supervisory Office did not follow corporate policy when granting official authorization for Branch C to open unconditionally.
The OCC is currently conducting a new CRA examination at the bank. If the examination again results in a less than satisfactory rating, the bank will be precluded from further expansion of corporate activity until CRA performance has been upgraded to a satisfactory level, as described in a new PE. Exceptions could be considered for proposals which would enhance the bank's CRA performance.
In evaluating the appeal, after reviewing the corporate policy, the ombudsman found that because the bank's CRA rating had remained "Needs to Improve" since the October 1993 examination, only two options existed to allow the bank to open the branch:
During the review of the appeal, bank officials met with the ombudsman and several senior officials of the OCC to present a Service Accessibility Plan for the bank. The plan established a framework that technically complied with option two listed above and satisfied senior OCC bank supervision managers. Accordingly, the ombudsman decided to reverse the Supervisory Office decision to deny the opening of the branch.
Note: This decision relates only to this branch. Consistent with established interagency guidelines, approval will not be granted on any additional corporate applications subject to CRA, until the bank's performance under CRA has been rated "satisfactory." The satisfactory rating for the bank must be in a published CRA performance evaluation. The Supervisory Office will consider, on an exception basis, corporate applications in which the bank is able to demonstrate that the filing will enhance the bank's CRA performance.
A newly chartered bank (the "submitter") appealed a Freedom of Information Act (FOIA) disclosure determination by the Chief Counsel Office's that certain information contained in the bank's de novo charter application is not exempt from FOIA disclosure.
The initial FOIA request came from a competing bank in the same town (the "requester"). OCC responded by providing a partial copy of the charter application to the requester. The agency omitted two pieces of information from the disclosure which the submitter had requested be given confidential treatment at the time of submission. This omission included four pages of pro forma financial information and a letter from the organizing group to OCC disclosing the proposed president/CEO of the bank. The requester then submitted a new request for the withheld information. OCC denied the request based on exemption 4 of the FOIA (5 U.S.C. 552(b)(4)) and 12 CFR 4.16 (b)(4). This exemption to the general disclosure requirements deals with trade secrets and privileged or confidential commercial or financial information. The requester filed an administrative appeal of this denial. OCC then notified the submitter of the FOIA request and gave the submitter an opportunity to justify continued confidential treatment.
After carefully considering the requester's appeal and the submitter's justification, the chief counsel's office provided the submitter notice of intent to disclosure. This notice stated the OCC must make partial release of the pro formas and full release of the letter. Regarding the pro formas, it acknowledged that the submitter showed the requisite level of harm required by exemption 4 of the FOIA that would likely follow from the release of certain details. However, the submitter did not show how release of certain other information in the pro formas would likely cause the requisite harm. This information includes 3-year projections for the balance sheet, income statement, and risk-based capital. The partial disclosures consist of the category titles and category aggregates on all three pro formas. The pro forma balance sheet discloses total assets, total liabilities, capital, and total liabilities and capital. Similarly, the pro forma income statement discloses total interest income, total interest expense, net interest expense, total other income, total operating expense, pretax income, and net income. The risk-based capital pages disclose total balance sheet assets, total off-balance sheet items, total deductions, total risk-based assets, total tier-1 capital, and total capital. They also disclose ratios for tier-1 and total capital. Subcategory items include the category components such as commercial loans, demand deposits, interest on credit card loans occupancy expense, etc.
The submitter maintains that both pieces of information should be kept confidential. It chose to appeal to the Comptroller rather than notifying OCC of an intent to seek judicial relief at this time. The submitter prefers that final agency action be taken by the comptroller because of the policy implications, procedural due process considerations, and the particular facts of this situation. The submitter also believes the requester, its only bank competitor, is seeking the information for purely competitive reasons. Further, it believes the required detailed objection letter may itself be subject to FOIA disclosure.
The town is small, with few customers and creditors. Therefore, even though names are not used in the pro formas, the submitter believes the figures could be used to deduce who these creditors and customers are. This would lead to an unfair competitive advantage for the requester. The submitter believes it received assurances from the OCC district office that information which was marked confidential, and kept in a confidential section, would remain confidential. The OCC district analyst responsible for processing this application acknowledges that discussion. However, he also told the submitter that OCC's disclosure officer would need to examine the material designated confidential and make a determination, if the documents were sought under FOIA. The submitter poses no objection to OCC's verbal disclosure of the president/CEO's name. However, it objects to the release of the actual letter, which discusses the proposed president/CEO's name. The Chief Counsel's Office noted that such a verbal disclosure is not what is mandated by the FOIA. FOIA requires the release of records, not the provision of answers by the agency (Fritz v. IRS, 862 F. Supp. 234, 236, W.D. Wis. 1994). Consequently, OCC is compelled to release the identification of the president/CEO as set out in the letter.
The primary objective of the FOIA is to promote greater public access to information held by the government. It reflects a general philosophy of full agency disclosure unless information is exempted under clearly delineated statutory language. The OCC's guidance with respect to public disclosure of information is found in 12 CFR 4 - Description of Office, Procedures, Public Information. The FOIA provides an exception to its disclosure requirements in 5 U.S.C. 552 (b)(4). This exception is discussed in OCC's rule at 4.16(b). Paragraph 4 defines this type of exempted material as "a record, or portion thereof, which is privileged or contains trade secrets and commercial or financial information which relates to the business, personal, or financial affairs of any person and is furnished in confidence."
At the time of the requester's appeal, the confidential portion of the bank's charter application was supported only by the applicants' prima facie assertion of the documents' confidentiality. OCC's policies allow a confidential designation of the CEO"s identity only until preliminary charter approval is granted (Comptroller's Manual for Corporate Activities, Policies & Procedures, Vol.1, Jan. 1992, at 2). Although the confidential designation in this case appears consistent with OCC's chartering rules, a greater responsibility is placed on a submitter of confidential information if the OCC receives a FOIA request for that information. OCC's rule at 12 CFR 4.18(d) requires a submitter who desires confidential treatment to submit a detailed statement of objection to disclosure. The submitter has the burden of supplying the agency with relevant facts to prove the likelihood that substantial competitive harm would result to the submitter from disclosure of the information (Lykes Bros. S.S. Co., Inc. V. Pena, 1993 U.S. Dist. LEXIS 20279, D.D.C. Sept 2, 1993). OCC views its ability to consider continued confidential treatment of such documents as dependent on the submitter's presentation of an adequate statement supporting confidentiality. The bank must show by specific factual evidentiary material, not conclusory or generalized allegations, that substantial competitive injury would likely result from disclosure (Sharyland water Supply Corp. V. Block, 755 F. 2d 397, 399 (5th Cir.) Cert. Denied; 471 U.S. 1137, 1985). Even where "specific worries are posited" by the submitter, the showing will be inadequate if ".none [of the worries] are more than general and conclusory allegations that harm may result, and [if] none detail with any specificity how or what kind of competitive harm could result from disclosure of the redacted (emphasis added) versions of the documents" (Lykes Bros. Supra, at *20).
The ombudsman concurred with the chief Counsel's Office that OCC should make partial release of the pro formas. He fully appreciated the submitter's concerns regarding the confidentiality of this information and the competitive pressures facing the bank. However, the submitter did not, in his opinion, provide the OCC an adequate basis which meets the legal standard upon which to withhold the summary totals and subcategory titles. The Ombudsman also concluded that the letter identifying the CEO should be released in its entirety. OCC's grant of preliminary approval of the charter expired and no exemptions exist to protect the identity of the CEO. Therefore, the agency has no basis upon which to retain this part of the letter as confidential.
The submitter also argues that OCC should maintain the confidentiality of the documents because of the policy implications, procedural due process considerations, and the particular facts of this situation. However, the fact that exemption 4 is not applied by the agency in this case has no precedential significance as to the application or non-application of the exemption to any other FOIA request (4.16 (c)).
