Does any one know what the examiners will use to evaluate intermediate small banks if we are no longer required to collect data?
Also, as an intermediate small bank will the deposit ratio requirements come into play again?
Thank you.

I don't think anyone knows just yet how an exam will be conducted. IMO though you don't have to collect data for "reporting". I haven't seen where its not going to need to be collected at all.

Under the change, intermediate small banks will be evaluated under 2 separately rated tests. One of those is the small bank test that we have used for the last 10 years. The press release called it the small bank lending test because lending is just about all that the small banks are judged on, unless they opt to have investments and services reviewed, too.

Under that small bank test, there are what we call 5 performance criteria:
1. Loan to deposit ratio (This is used in place of the data collected by larger banks, as a proxy to answer the central question, Does the bank lend?)
2. Percentage of your lending within the assessment area
3. Distribution of loans to borrowers of different income levels, and businesses and farms of different sizes
4. Geographic distribution of loans
5. Your record of taking action on CRA related complaints

To do this type of exam without collected data, examiners will simply select samples of loans made since the last CRA examination to arrive at their conclusions regarding the performance criteria. For example, a sample of 30 loans may be selected. The examiners will determine what percentage of those loans are to low-, mod-, middle- and upper-income borrowers and compare those percentages to your assessment area's demographics. Same with the geo distribution and lending in the assessment area.

So, that's how we do it without collected data. AR.

Don, I'm with you on this one. We are an OCC bank and before we were a HMDA reporter, we were required to keep the same information as the HMDA reporters in a format that the examiners could use to review our HMDA activities. It just made sense to use the same form and keep it in a database that we could download to them for their review.

My first thought on the CRA data is that we have all the tools in place, we have been reporting, why not just keep on gathering it (now that we finally have those lenders 90% trained) and provide it at exam time?

"2. Percentage of your lending within the assessment area
3. Distribution of loans to borrowers of different income levels, and businesses and farms of different sizes
4. Geographic distribution of loans."

So all of this is done by pulling 30 - 40 loans? If it can be done then why have banks been required to collect this information for years.

Stastically the bulk of loans originated are in Middle and upper income tracts. So if 30 40 etc loans are pulled and geocoded by examiners the odds are most and perhaps all are going to me in Middle Upper tracts.

It therefor makes sense to me when examiner come up with little or no lending in LMI tracts the bank will still have to prove that loans are made in LMI areas.

Won't the bank still have to at least identify Small Business/Farm loans (which means tracking/collection of some sort)or will examiners search through the portfolio to find some for the test.

Unless there are loan programs like buying dealer paper or mortgage loans the average 500 million bank originates about 1,000 loans a year. If examiners come around every 3 years thats 3,000 loans originated since last exam.

I guess I'm a little dense on this but I'm not seeing where pulling 50 loans is going to provide a true picture of lending inside vs outside AA, Distribution or information on number and percentage of loans to tract classifications.

Sorry I still think thers more to it than meets the eye.

And under a separate "Community Development test", an intermediate will also be evaluated on:

The number and amount of CD loans
The number and amount of qualified investments
The extent of CD services
The responsiveness of the bank in providing the above acivities

So tell me again how this provided relief?

As for the CD loans, do they still have to be in the AA to get credit? We keep running into a wall with nothing available for years at a time (small rural community) and I seem to remember a little relaxing of the rules for banks that do participate in CD loans in surrounding AAs.

Even non-reporting banks are going to have to perform under CRA. Now, what kind of management would not monitor a bank's CRA performance given the serious implications of a failure to comply? This means every bank should have an ongoing CRA self-assessment process. But you can't have a self-assessment process without collecting the data! So the relief from reporting the data is not such a benefit for bankers who don't want to wait around for the next exam to find out how they're performing under CRA. On the other hand, every bank must now get a satisfactory rating on "community development activities". My experience consulting with many community banks suggest this will be a big problem. I have stated before that more than half the reporting banks reported 2 or fewer CD loans in 2003 (latest data now available). I know that some people suggest there is under reporting of CD loans. But I know of banks that have reported CD loans that were disqualified during a CRA exam. So it's hard for me to believe that there is a serious volume of unreported CD loans. There may be some under reporting, but at the same time there also may be some over reporting. Most bankers I have conferred with think the CD opportunities are very limited and often monopolized by the major lenders (which is corroborated by the reported data). So achieving a satisfactory level of CD activities may be very difficult. And if you don't have much in the way of CD activities you had better have the market data to prove that there are very limited opportunities in your community or that the pricing of CD loans and investments by the big guys makes it impossible for the community bank to compete. Finally, the only loan data that will be available to compare your performance with will be that of the big guys. There will be no peer data available except by the time-consuming process of reading one by one the performance evaluations of other lenders. But would you rather have the data on all competing lenders or only those examined in the last year and are you prepared to spend hours compiling the data so that you can then begin the process understanding what the market data is telling you about lending opportunities and benchmarks in LMI tracts and to very small businesses? IMO this "relief" is not the blessing many bankers think it is.

But the real question is - is an "intermediate small bank" really a small bank for examination frequency purposes??? That is where a lot of real burden will be lifted! I don't think they addressed that issue and unfortunately, when the examination frequency was changed by Congress in the GLBA in 1999 they specifically cited the $250MM threshold. I believe it would take another act of Congress to raise the frequency threshold as it is now specifically addressed in law.

I have read through the final rule and I have many questions as well and have a call in to our FDIC field supervisor but it may be too soon for him to have answers for me yet. We are just over the $250 million and have been since 2001. We had our first large bank exam in March of this year and it went well. However, I did a lot of preparation and put together an entire binder of everything CD loan, investment, service, flexible products, etc. that I could find. I did have more CD loan write-ups for my exam than what I had reported on my CRA LR because although I felt like I could not count all of the particular CD loan to account for it being on the CRA LR, I did feel that during an exam I could get partial credit which was the case on some of them.
It is my opinion that I will still have to compile these notebooks for the intermediate CD exam and pretty much not change anything that I did in preparing for the large bank exam. As far as data collection and having data on lending activities as Anon Regulator mentioned, I know they can go by the call report codes to find which are the farm and business loans to sample, etc. but our core system does not geocode so without continuing to use my CRA software and collecting that information we cannot have a picture ahead of their sampling of what our AA ins vs outs are and so on. Granted, not having to worry about the reporting will be nice since we won't have to worry about having an error free submission, etc. and I can concentrate solely on our HMDA scrub, submission, and edit reports.
I am looking forward to seeing the interim exam procedures to see what all they entail!

FWIW, our FDIC field examiner told us pretty much word for word what AnonRegulator stated above. It will fall on their shoulders once they are in to do a sample of files to determine our lending patterns. She also mentioned that we would have few peers to compare the information to with such a limited number of reporters in our area. I cannot remember what she said they would use as a comparison, but in a nutshell, she made it clear we would need to be in a strong leadership position to earn a satisfactory rating. She agreed with me when I stated that in our day-to-day duties we may experience some relief with not having to do data collection, but come exam time, there will be no relief. We will essentially graded the same way, just without the documentation & "tools" we are used to.

"She agreed with me when I stated that in our day-to-day duties we may experience some relief with not having to do data collection, but come exam time, there will be no relief."

Can you expound a little more on the No Relief part. Will you be asked to provide data at exam time?

I went through our recent performance evaluation (that was done in March) from our large bank exam and trying to "guess" as to what might be left out in the new "flexible community development exam" and I don't think there will be too much except for some of the tables, etc. that the examiner prepared from the data mining he did beforehand and on site.

I'm really not grasping the part of the final rule in which it expounds on the "flexible" part of this exam - can anyone provide your thoughts on that? I'm reading that the 3 CD categories will be weighted but how and by whom?

I'm with you 100%. I think we shouldn't even specifically tell lending staff that the data won't be reported, because they've worked so hard to try to get it right.

I recently changed banks. I went from a large bank to a small intermediate bank. Based on what I am reading here, it sounds like I should implement all the strategies that we used at the large bank to receive a satisfactory rating. I'm referring to the collection of information about CD loans and keeping track of CD services.

It doesn't appear that there is any relief for small intermediate banks (other than not having to remember to send the data). For me it will be business as usual.

Well Dolly - at least March 1st of each year will contain one less headache!

Amen to that!!!! Over the years, I have come to hate the months of January and February. I wonder why?

I'm concerned, as I can see most of you are, that real relief may not be there. I've read Anon regulator's response and I'm REALLY surprised. If, based on their really small sample, they draw conclusions that we disagree with, we MUST have the data available to be able to refute, right? I'm in a quandry as to how to change or if to change?

Ok wait all you middle sized boys and girls....YOU DON'T HAVE TO DO DATA COLLECTION! If that's not relief, I don't know what it. I certainly wouldn't bother if I didn't have to do it. No data integrity, not data gathering, reporting, geocoding! sheesh I could let a staff member go if I was in your shoes.

You have the ability to pull samples in the exact same manner your examiners do, and then compare that against peer data and market data. Geocoding 50 files or so is pretty darned easy using the FFIEC, so you also could let go of your CRA data collection software (that would save me $10M or so). Why on earth would you continue paying those bills and gathering that data when you can do exactly what your examiners are doing for MUCH less? I just don't get it. I don't care if the monkeys are fully trained, I would not gather the data if I wasn't darned close to hitting large bank status again within a year or two. If I was sitting pretty down in the $500MM or lower range...drop it all!!! You have call report data, pull the files from there and see how you look.

Now you do have to work a bit harder on CD activities than you have been, sure. But that's not unfair. So exam prep will be more, but generally reporting will be MUCH less. They've stated over and over again that CD activities will be rated by the needs of the community. What does this mean? It means you need to learn to develop a performance context You should have been doing this all along. If you haven't, so sorry, but you MUST do it now. You don't want to leave it to an examiner to determine if investments are more important than loans now do you? They don't live in your communities and so, if you leave them on their own, they'll have to do some guessing on the issue. Performance context will take care of this problem. If you choose not to do one, and fail the CD test, you have no one to blame but yourself.

Pulling exams and keeping your eyes on the competition is VERY simple, and VERY quick. I don't read the entire PE of all banks I pull (I pull hundreds annually) but I do a quick jot down of their figures on an excel spreadsheet. Typically this involves looking at 3 pages of the exam at most to gather NTO, (you'd also want LTV) Total CD Lending and Investments, and I scan for any "unique" mention that would have boosted their standing if the figures don't make sense. That's a 5 min read at the most. I read the entire PE of local folks, but that also should be part of your regular routine.

I forgot who asked, but CD lending, investments and services DO NOT need to be directly in your AA. If you can document that you are serving the needs of your AA (Performance context again) to the best of your ability, you can then step out and serve "A broader statewide or regional area". My PE would show you that a GREAT deal of the CD activity I get extra special credit for is actually located OUTSIDE of my AA, some quite a ways out of my AA. My performance context discusses our activities inside the AA, and the needs I've identified outside the AA and the "whys" that went through my head in making decisions to help these folks.

You all just had a gift thrown in your lap. Don't report for gads sake. If the HMDA or CRA gods would pop that gift on my lap I could cut my budget by a third or more, and fit in a little vacation time

I would be willing to bet $100 that I could go through your bank's portfolio, not knowing anything about your commmunity, and find at least 3 or 4 CD loans within a few hours of the files being pulled. I mean that about EVERY bank. I've done it at some who said they had "absolutely no opportunity because all the big banks sucked up the CD loans". You're just going to have to focus your learning in that direction now, and get darned good at write-ups That's not a bad thing at all.

One more thing, I totally agree with RFitzpatrick and Len S...The community development test is HARD in rural areas. This relief may actually make it harder to get a Sat rating.

I'll be in Texas in October...let me find you some loans tx sheesh you have SO MANY opportunities in rural communities you have no excuse not to succeed in the CD test on lending. (And, the majority of my AA is not only rural...but remote so I do know of what I speak). RFitz has a much harder challenge due to his locality than you do. He's smack in the middle of a pretty nifty little community with relative wealth in comparison to most of rural Texas.

Some of you have expressed concern over the small sample size I mentioned in my earlier post. That number was just an example. Examiners do adjust their sample sizes depending on the size of a bank. However, they are still relatively small compared to total lending, although they are usually statistically based. And if the results of that sampling are negative for the bank, we don't just stop there. We first ask bank management for their reaction to the results. Sometimes they agree that the sampling has reasonably represented the bank's overall lending patterns. If that's the case, our process stops.

Sometimes management disagrees with the sampling results. In that case, we expand our samples to see what that tells us. So, it's not quite the arbitrary process you thought. AR.

A few years ago, Dr Kenneth Thomas in "The CRA Handbook" was very critical of sampling techniques used by the regulatory agencies and cited numerous specific examples to support his criticism. He even questioned whether examiners were properly trained in sampling theory and techniques. AnonRegulator, was his criticism valid and if so, have examiners been better trained since then?

There seems to be a lot of second guessing about how intermediate banks will be evaluated. To me it seems like some "intermeidate banks" will be more umcomfortable having to rely on subjective community development activities. Why would that be?

The key to the subjective part of the assessment comes down to how well you present your case, in my opinion. Consider:

1. Documenting meetings related to community development.
2. Attend the meetings currently happening in your area.
3. Participate at community development meetings.
4. Start a community development organization if one doesn't exist.

None of the above are hard or costly. Starting a community developement group can consist of a few banks in the County and some Social service agencies that can meet in the often empty board room. Buy some sandwiches and soda. Agenda item: How can we work together to help more people with affordable housing? Done.

It seems that the burden is now on the banks to demonstrate that there is no "Community Development opportunity" as opposed to simply saying "there is no opportunity". The only way I would buy the statement, "There is no opportunity here.", would be if there are no B or C paper "mortgage specialists" in the area and no stand alone "check cashing" businesses. There are communities like that. And you could even point that out if a regulator wants market evidence of the lack of demand for such services.

The Community Reinvestment Act has been on the books for almost 30 years folks, what's the real issue here?

Dawnie, Thanks for your refreshing comments.