Federal Reserve lowers CRA rating for New York bank

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The Community Reinvestment Act rating for Financial Institutions Inc. in Warsaw N.Y., has been downgraded.

The $4.1 billion-asset parent of Five Star Bank disclosed in a regulatory filing Wednesday that the Federal Reserve recently lowered its CRA rating to "needs to improve." The move followed a review that covered the company's dealings from January 2011 to September 2013.

The evaluation included the geographic distribution of loans made in Buffalo, N.Y., and Rochester, N.Y.; the accessibility of the company’s retail delivery systems; and compliance with the Equal Credit Opportunity Act and the Fair Housing Act.

“We believe the bank has made significant improvements in these areas since September 2013 and we are firmly committed to fair and responsible banking and helping to meet the credit needs of all segments of the communities that we serve,” the filing said.

Financial Institutions said it is preparing its response to the evaluation.

In January 2015, the company signed an agreement with the New York State Attorney General’s Office tied to an investigation into lending practices for minority residents in Rochester from 2009 to June 2013. That included paying $150,000 to the state and setting aside $750,000 over three years for growth efforts in Rochester and Monroe County, including focusing on marketing to minority communities and lending discounts or subsidies.

The company said it met the terms of the agreement, which expired in January.

The New York State Department of Financial Services is assessing the company’s CRA performance since 2012. The company received an "outstanding" rating from that agency in 2011.

It’s likely Financial Institutions has resolved the issues necessary to improve its rating, Damon DelMonte, an analyst at Keefe, Bruyette & Woods, wrote in a note to clients. Management has “significantly shifted” the bank’s strategy away from its rural roots, opening three urban branches, hiring CRA officers and making numerous community investments in Buffalo and Rochester, DelMonte added.

“Of course, while our view may be for a quick and positive outcome to this situation, ultimately the final resolution rests in the hands of the [New York Fed] and if it deems actions taken by [Financial Institutions] to be sufficient enough to warrant a rating upgrade,” DelMonte said.

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