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#443662 - 10/20/05 04:53 AM Intermediate-Small Bank PE
Len S Offline
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Connecticut
A midwest community bank client who is about to undergo a CRA PE told me yesterday that she had been asked by examiners whether she wanted to be evaluated under the Large Bank tests or the new ISB standards. She told me in response to the examiner's question that she asked the examiner if they had examined any banks under the new ISB standards since they became effective last month. She was told that one bank had been examined under the new ISB standards. She asked what the overall PE was and she was told the bank received a "needs to improve" rating. She asked why and the examiner told her because the bank did not get a satisfactory on the CD test. She then asked how the bank would have been rated under the old Large Bank standards and was told the bank would have received an overall PE of satisfactory because its loan performance was high satisfactory. The PE is too new and so has not yet been published on the FFIEC website. My client then elected to be evaluated under the Large Bank standards. I have encouraged her to write her experience here on threads and I hope she will soon. But I thought this anecdote would be interesting to BOL readers. Have any other BOL readers been evaluated under the new ISB standards and what have been the results?
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#443663 - 10/20/05 06:16 PM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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I wonder what agency they were examined by? It's very unusual for an examiner to do an exam under new procedures when the bulk of the exam (probably ALL of the exam) fell under old procedures. Were I the other bank, I'd be chatting with the ombudsman for the examining agency. It's not fair to expect them to meet standards that weren't even published as of the date of the exam request (consider if they have a rating now, they had to have been examined at least a month or two ago, with the request letter going out 60 days before that, far before September 1).

It's highly suspect that this is just a wierd rumor, because if the exam isn't public, it's against the rules to discuss the outcome of the exam. I'd guess that the exam will be reviewed in DC and changed due to the above issues, which means, that the bank will get a Sat and none of this will matter. But heck, who knows in the world of examiners
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#443664 - 10/20/05 06:44 PM Re: Intermediate-Small Bank PE
Len S Offline
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Connecticut
Dawnie, the agency was the Fed and all the agencies appear to be giving banks the choice. I have at least 3 clients undergoing CRA PE's right now and all have been given the option of which standard they would like to be examined under. I agree it seems wierd to be examined under standards that didn't exist during most of the time period under exam, but apparently the agencies think this is acceptable if the bank elects the option. The agencies won't force a bank to be rated under the new ISB standards. As far as the case I outlined, my client told me only a few minutes after she had discussed it with the examiner in charge. The conversation convinced her to opt for the Large Bank standards.
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#443665 - 10/20/05 07:10 PM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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Wow Len, that's absolutely bizzare. More bizzare though that a bank would have prepared for a large bank exam and then chose ISB what the heck were they thinking? (Ok likely they weren't thinking right?) Sounds like a CRA officer who needs to find another occupation
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#443666 - 10/20/05 09:22 PM Re: Intermediate-Small Bank PE
Len S Offline
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Connecticut
I think they were thinking that the "new flexible" community development test would be to their advantage. But obviously it wasn't. It may be new and flexible but you can't pass without it!
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#443667 - 10/20/05 10:04 PM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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It's only flexible if you prepare for it properly. It sounds like they would have skated by with a low investment and service score, but passed lending just high enough to get to Sat. Lack of documentation kills a lot of bank's ratings, but with the new test, it really will kill those who don't make the effort to cover their behinds It really does come down to a CRA officer not doing their job though, which is unfortunate for the bank involved.

If I were that bank I'd still hope for help from the ombudsman. I'd claim "stupid" on the CRA officer, let them go, and ask for a review under the old test, hoping for that Satisfactory. The choice to go with the ISB test, when the regulation wasn't even clearly defined, was really beyond idiotic.
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#443668 - 10/21/05 12:40 PM Re: Intermediate-Small Bank PE
Bartman Offline
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Quote:

...the agency was the Fed and all the agencies appear to be giving banks the choice. I have at least 3 clients undergoing CRA PE's right now and all have been given the option of which standard they would like to be examined under...




Len - under the pre-September CRA rules, we became a large bank on 1-1-05. The ISB rules took effect 9-1-05, and we received our FDIC exam notification later in September. Even though the regional supervisor told us (in June) that we'd be examined as a small bank - because we hadn't accumulated a year's worth of large bank small business lending data - the EIC for this exam told us that we fit the ISB standard; the rules are effective 9-1-05; and "you'll be examined as an intermediate small bank". The FDIC in Chicago is not offering a choice - for what it's worth.
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#443669 - 10/21/05 02:55 PM Re: Intermediate-Small Bank PE
Len S Offline
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Connecticut
Bartman - that's very interesting because I've got a client who is regulated by the FDIC and whose CRA PE began this week and the EIC gave her a clear choice, Large Bank or ISB. My client whose assets are about $750 million chose large bank because of concerns about CD activities. I'll try to get more feedback from the CRA officer as well as from other clients who are scheduled for examination. But so far, our FDIC and FRB regulated clients who are undergoing exams right now have all have been given the option of large bank or ISB by their EIC's. Go figure!!
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#443670 - 10/21/05 09:07 PM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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Once again I have to say...I'm so glad I'm not regulated by the FDIC!!! Bartman, call their ombudsman and have a chat. I'd do it sooner rather than later!
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#443671 - 10/24/05 03:56 AM Re: Intermediate-Small Bank PE
SMQ, CRCM Offline
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Between the lines
As a ISB bank I am curious as to how flexible the CD test will be. We are located primarily in small communities and 1 branch in a large MSA. Not a lot of opportunities in these communities and too small to compete in the MSA. I wonder how long we will have the choice of exams? We are going to be half and half by the time our exam comes around next year.

What do they mean by "flexible"? It's the same Q&A that is years old.
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#443672 - 10/24/05 05:13 AM Re: Intermediate-Small Bank PE
Princess Romeo Offline

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Quote:

It's only flexible if you prepare for it properly. It sounds like they would have skated by with a low investment and service score, but passed lending just high enough to get to Sat. Lack of documentation kills a lot of bank's ratings, but with the new test, it really will kill those who don't make the effort to cover their behinds It really does come down to a CRA officer not doing their job though, which is unfortunate for the bank involved.

If I were that bank I'd still hope for help from the ombudsman. I'd claim "stupid" on the CRA officer, let them go, and ask for a review under the old test, hoping for that Satisfactory. The choice to go with the ISB test, when the regulation wasn't even clearly defined, was really beyond idiotic.




Dawnie - what you don't seem to realize is that in banks under $1Billion, the CRA Officer is probably also the Compliance Office, and may also be the BSA Officer, Information Security Officer, Privacy Officer and head janitor.

Don't be so quite to "dismiss" the CRA Officer for not doing his or her job. The responsibility falls squarely on senior management of the bank.
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#443673 - 10/24/05 03:10 PM Re: Intermediate-Small Bank PE
Len S Offline
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Connecticut
SoccerMom - I believe the option to elect Large Bank PE will remain because it is consistent with the option that has existed since 1995 for small banks to elect to be evaluated as large banks (and some actually do!) and it was written explicitly into the revision. The critical condition however, is the the requirement to file annual CRA data. The relief from filing of course was the big benefit trumpeted for the revision. As Don Narup and I have repeatedly stated, the benefit is neglible because any ISB should continue to maintain a self-assessment process and that requires the collection and maintenance of loan data for evaluation. Even sampling is not a great money or time saver because many ISB's originate so few loans.
One of the big problems with the "pass or else" CD test is the ability to prove what CD opportunities actually exist in an Assessment Area. A CRA officer can never be certain that he/she has really identified the CD market (don't forget too that you're supposed to have the elements of a business plan in your CD program). And don't forget, those new "underserved" tracts are supposed to increase the CD opportunities for rural banks so the expectation of examiners will be higher now that there are more CD qualified tracts for you to conduct CD activities in!!! If you have done very little CD activity how can you really be comfortable that your examiner won't identify opportunities you overlooked and consequently will rate your performance as less than satisfactory? If you have little CD activity you have to prove a negative - i.e., that the market doesn't exist, but you can never really be sure you've covered all your bases. Unless you have really strong CD activity I don't know how you can be certain that your CD activity is going to satisfy your examiner.
Bonnie, your comment is well-taken. In my consulting work with community banks I have seen the CRA officer perform so many other functions that they hardly have time for CRA. Most community bank CRA officers are overwhelmed with multiple responsibilities that leave them inadequate time for CRA. That's why companies like mine and Don's are successful - we give the beleaguered community bank CRA officers some relief and save them lots of time for their other responsibilities.
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#443674 - 10/24/05 06:13 PM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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Soccer, I'd guess that (from conversations with examiners I know) that the choice will continue, but that means data collection must continue for you, which, as you probably know, means expense for the bank. I had a great conversation with an examiner about this very subject (data collection). His thoughts were that if you're dumb enough to waste the time and money...what the heck, it's easier on them than a sampling But they're not going to go fluffy on the CD test for a large bank if that option is selected, which they have done to some extent for "small" large banks in the past. I always joke about having to meet the same standard as BofA, and basically I do, but a bank at $300 million didn't get held to that level even if they were large, but now, they probably should expect it.

So ask yourself, if you're collecting CD data, (which you would do for either ISB or Large Bank Exams) do you want to focus on two pieces of it (Investment and Lending) or do you want three (add in Services)? And then add in reporting

Bonnie I do understand that many banks who were previously large and now are ISB have compliance staff handling many regulations. But if one takes on the responsability, they should understand the reg. To choose to be evaluated under a reg you don't understand, and didn't prepare for is a silly choice and there aren't any excuses that make that anyone's fault other than the person who chose it. It's a lot like the airport controller who says "I didn't have time to watch all the planes so those two crashed". If you're that overworked, that you can't make informed decisions, at some point it becomes a personal issue on your integrity if you choose to ignore some of the "Stuff" on your plate, ie CRA because your plate is full. If you don't speak up and say you can't handle it, who's to blame? As you know, you can always work elsewhere.

There are many great CRA officers and compliance officers who handle all regs (including CRA) at community banks. The one thing they have in common is that they don't dismiss any of their regs as unimportant.
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#443675 - 10/24/05 07:11 PM Re: Intermediate-Small Bank PE
wanted Offline
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Did anyone sit in on the FDIC Dallas Region Conference call 10-20, topic CRA? It was stated a ISB could choose to be examined as a large bank as long as they did data collection and reporting. It was also stated banks could go back and forth. Don't know who would want to. We may stay a large bank. We somewhat know what to expect as was stated in the conference call.

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#443676 - 10/24/05 08:40 PM Re: Intermediate-Small Bank PE
Don_Narup Offline

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Data Collection is one of the simplest processes a bank has to do. Its also the least expensive and 98% of it can be done with no duplication of effort.

Compliance officers spend many hours a day and probably worry half the night about "Getting it Right" So psychologically it seems like a huge burden.

I say the burden is not data collection, its the Data Scrubbing that causes the problems. It's data scrubbing that becomes expensive in labor costs due to having untrained people collect the data, management that does not support the CRA requirements, a lack of understanding of the requirements, and other than the CRA officer, not holding other clerical and officer staff responsible for the collection of incorrect data.

Both Data Collection and Data Scrubbing become costly, when the management of an institution decides they will not invest in any automation or tools to make these processes much more effective and efficient. Instead, what an institution winds up with is a hodge podge of homemade spread sheets and jury rigged databases that don't talk to each other, which only increases labor costs and the time to complete the tasks required. Dumping the CRA reporting requirement on an individual, and not provide the support or budget is what costs banks a lot of money unnecessarily.

Granted there is a cost to comply, but the cost, and the time can be greatly reduced. A couple thousand dollars is a small investment to make to save the thousands I have seen wasted in inefficient processes.

So what is the cost of Community Development? Think its less than data collection?

You may be able to count on one hand the number of banks that do not need to include in their Community Assessment Needs Report, low cost housing, economic development, and jobs programs.

Can you honestly say that your bank has a loan product that encourages developers to build low cost housing. If you don't do you have management willing to do so? Do you have a program that reduces rates and requirements, so LMI individuals can afford to buy a low cost home, if they can find one. How many thousands of dollars will an institution loose by providing lower rates, fees and other requirements to provide affordable housing in their community.

"His thoughts were that if you're dumb enough to waste the time and money...

Amazing that someone would even buy into this bit of drivel reportedly supplied by a field examiner. We all know how smart they are. Lets see banks complying with federal regulations are Dumb because the choose to comply.

Dawnie would you confirm that as a direct quote please and provide the name of the examiner that you are reporting as speaking on behalf of the agency they represent. Or is this your interpretation of a comment.

IMO I don't believe ANYONE has even begun to look at the cost associated with Community Development work. So I think its incredible to imply that the cost associated with Community development is less than data collection and reporting.

The cost associated with data collection and reporting is an EXPENSE and tax deductible. The costs of most Community Development loan programs will be a direct Loss to INCOME.

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#443677 - 10/24/05 11:41 PM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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Quote:

"His thoughts were that if you're dumb enough to waste the time and money...

Amazing that someone would even buy into this bit of drivel reportedly supplied by a field examiner. We all know how smart they are. Lets see banks complying with federal regulations are Dumb because the choose to do so.





Don I think you misunderstood my comment. The comment was in regards to banks that choose to collect data when they don't have to (due to the regulatory change), not remotely in regards to complying with a stated regulation.

I know we have a difference of opinion here, but there is room for that within the regulation on many issues. I try not to provide "drivel" in my comments. I'm sure you do the same. If we could agree to disagree, verses call each other's comments drivel...I'd really appreciate it!

As to the costs of CD "work"...there are collection costs associated with that as well (data collection and reporting). If you're an ISB you have to take that burden on given the change in the reg. It's not an option to avoid those costs with either the large bank exam or the ISB, but those costs should be limited to the costs of data collection. (IE mining your portfolio for CD deals, handling those write ups, documenting the CD value, documenting opportunity, etc.)

The balance of CD activity though I don't see as a cost. The reg does not require that you give away the bank to meet the goals of CRA. While I might discount a loan product (and that's a might), I'm never doing it for CRA purposes, but instead to attract a client. If it costs me $100 bucks in loan fees to pick up a mortgage I wouldn't have gotten without that discount, it's a cheap $100. That's no different than providing the higher end client with an increased something % on a savings account. We do it to attract and retain that client. That's more about competition than it is giving the bank away to meet any regulation.
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#443678 - 10/24/05 11:54 PM Re: Intermediate-Small Bank PE
Don_Narup Offline

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Dawnie my drivel comment was to the person that said it. Not your repeat of it.

If an ISB choose to be examined as a large bank, which means they have to comply with regulations, classifying that as dumb is unconscionable.

Picking up a deal here and ther by waiving a few fees is one thing. It's quite another to develop a mtg product that will stimulate growth of affordable housing. Current rates and terms with waiving a few fees is not going to do that.

Most banks have nothing in place that's going to do that. It going to take some creative ability to come up with a program that will. I'm sure that would have to include some rate as well as fee consessions. That going to add up to a lot of dollars.

The CD exam includes how well a bank does in meeting the Community needs. So the product has to work and achieve results in order to pass.
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#443679 - 10/25/05 12:06 AM Re: Intermediate-Small Bank PE
HRH Dawnie Offline
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Ok then to be clear...we were not discussing ISB's who choose to be examined as a large bank, but instead ISB's who will be rated under the ISB test.

Shew, glad we cleared that up! heh heh
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#443680 - 10/25/05 04:43 AM Re: Intermediate-Small Bank PE
Princess Romeo Offline

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Quote:

Bonnie I do understand that many banks who were previously large and now are ISB have compliance staff handling many regulations. But if one takes on the responsability, they should understand the reg. To choose to be evaluated under a reg you don't understand, and didn't prepare for is a silly choice and there aren't any excuses that make that anyone's fault other than the person who chose it. It's a lot like the airport controller who says "I didn't have time to watch all the planes so those two crashed". If you're that overworked, that you can't make informed decisions, at some point it becomes a personal issue on your integrity if you choose to ignore some of the "Stuff" on your plate, ie CRA because your plate is full. If you don't speak up and say you can't handle it, who's to blame? As you know, you can always work elsewhere.

There are many great CRA officers and compliance officers who handle all regs (including CRA) at community banks. The one thing they have in common is that they don't dismiss any of their regs as unimportant.




Dawnie - did I ever say a Compliance/CRA Officer is dismissing the regulations or regarding any as unimportant? Usually the problem is management that is dismissing the regulations over the protest of the Compliance/CRA Officer.

And how do you know it was the Compliance/CRA Officer that made the ISB exam decision? How do you know it wasn't the bonehead decision of the President or other Senior Officer who just heard the word "easier" and jumped on the buzzer? That kind of crap happens a lot at smaller institutions, as I am sure a lot of Compliance/CRA Officers can attest to.

I was fortunate enough to be able to walk away from a job when it became clear that management was not going to be supportive with anything more than lip service.
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#443681 - 10/25/05 02:41 PM Re: Intermediate-Small Bank PE
Hated By Some Offline
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Summary: Big Bank Test GOOD; ISB Bank Test BAD (Fire BAD too; RIP Phil Hartman)
Last edited by Ron Mexico; 10/25/05 02:42 PM.
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#443682 - 10/25/05 04:12 PM Re: Intermediate-Small Bank PE
Princess Romeo Offline

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Ron, I don't know if it's as simple as that. If you're an ISB and you struggle with meeting the numbers for small business and mortgage loans, but you have a good Community Development program, then the ISB test is just the ticket.

The warnings that Len and Don are saying are to those misguided CEO's and CFO's (because they are usually the ones that make the decisions on these issues in smaller banks and NOT the Compliance Officer) that don't have a CLUE about Community Development (they've blown off the many memos from the Compliance Officer and never have time to meet with him or her) and think, somehow, that the ISB exam will be a cakewalk to an easy Satisfactory.
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#443683 - 10/25/05 07:55 PM Re: Intermediate-Small Bank PE
Hated By Some Offline
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I understand. I was just being flip because I thought this thread was beaten to death.

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#443684 - 10/25/05 08:12 PM Re: Intermediate-Small Bank PE
Don_Narup Offline

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Ron
I'm sure you are a good guy but please go back to the Cooler and be flip. This is not a Flip forum.

Your intelligent contributions are appreciated.
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#443685 - 10/26/05 01:29 PM Re: Intermediate-Small Bank PE
Bartman Offline
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Just to close the loop -

I spoke yesterday with the examiner who will actually be doing the CRA portion of our exam. One throw-away comment - "let me know if you'd like to be examined as a large bank" caught my attention.

I don't want to say the EIC didn't know what she was talking about during our initial conversation, but I certainly got a different impression after speaking with the person who'll actually do the work.
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#443686 - 10/26/05 03:28 PM Re: Intermediate-Small Bank PE
Len S Offline
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Connecticut
Bartman - so you are being given the choice of Large Bank or IS Bank like my community bank clients have?
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#443687 - 10/26/05 04:42 PM Re: Intermediate-Small Bank PE
Bartman Offline
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Yes we are.
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#443688 - 10/26/05 06:00 PM Ron & being flip
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I didn't think you were flip, but concise.

Concise is good.

See.

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#443689 - 10/26/05 06:57 PM Re: Ron & being flip
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It is very easy to make things more difficult than they need to be in this industry.

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#443690 - 10/27/05 05:22 PM Re: Ron & being flip
Lu Offline
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I have been reading all of these threads and I'm more confused. 2005 will be our 1st year at $250m. Assuming we continue then 2007 we will be required to choose LB or SIB
requirements. We collect CRA info right now but do not scrub it or report it. Last CRA exam, they were impressed that we were collecting it. What is everyone recommendation that we do?
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#443691 - 10/27/05 07:18 PM Re: Ron & being flip
Don_Narup Offline

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Lu, If you are not required to make your first submission until 2007 which would be 2006 data. Then IMO I would continue on doing what you are now doing until we really know how the Community Development Test is going to effect a bank.

There are many unanswered questions about the CD test. These questions raise some real concerns, and until we actually know how examiners are going to treat this test, it makes sense in this posters mind to NOT DUMP data collection that is in place. Getting rid of it now and then finding out later that being examined as a large bank is a better choice for you, makes it very difficult to start the process up again.

In the next few months as more knowledge is gained better decisions can be made. In many ISB's there is a wait and see position being taken.

While we are all entitled to our opinions it needs to be understood that these are opinons of individuals, and do not represent any rules or guidence to follow. None of them, regardles of reported "quoate's" are representative of any regulatory agency. None of us have an inside track on whats best for all to do. That has to be a decision left to the institution.

Hopefully, LenS and I have raised enough logical concerns that are not based on personal emotions so that folks will weigh the arguments and make a choice that is best for them.

LenS has presented some compellig data that indicates taking the ISB route may not be the way to go.

Just my opinion but I think we still need some results of ISB exam procedures, and in particular how the CD part of the exam was handled by regulators, to make that intelligent decision.
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#443692 - 10/27/05 07:20 PM Choice between Large Bank or ISB
Len S Offline
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Posts: 2,084
Connecticut
There has been an on-going debate on a number of threads regarding this issue. I have taken the position that most IS banks would benefit from the Large Bank PE and not benefit from ISB status . The primary benefits of being an ISB are (1) you don't have to report your CRA data and (2) the "new flexible" CD test. The benefit of not reporting is almost worthless because you still are responsible to perform under CRA and the consequences of not performing are significant. This means you must have an on-going self-assessment process which means you must have the data to analyze. The collection and maintenance of data cost far more than merely reporting data. Ergo, the savings of not reporting are minimal at best - if you are going to be prudent and conduct an on-going self assessment process. The new flexible CD test is not really a benefit. In reality it is more of a threat because it is mandatory that you earn a satisfactory on the CD test to pass the entire PE as an ISB whereas you don't have to as a Large Bank. The public data in the form of the CRA disclosure statements and the PE's posted by regulators show that a very large number of IS-size banks would have difficulty earning a satisfactory rating on CD activity. About 40% of ISB-size lenders in 2004 didn't originate even 1 CD loan and nearly 20% of 500 FDIC PE's on ISB-size lenders showed a needs to improve or substantial non-compliance rating on the investment test. So our belief is many ISB lenders would be better off electing to be evaluated as Large Banks. You can maintain that elective if you continue to report your CRA data annually.
I suggest you go back to some previous threads in which this issue has been vigorously debated.
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#443693 - 10/28/05 01:01 PM Art of War: Know the Terrain
Anonymous
Unregistered

The "wait and see what the ISB exam results look like" is a valid perspective. But what banker that is facing an exam right now would really want to go there?

Posters pointing to the risks that bankers are facing if they choose the ISB route are important to banks with CRA evaluations coming up. Some are facing significant challenges in meeting the ISB community development criteria. These bankers need to understand the risks of going the ISB route.

One of the rules in the Art of War is to know the terrain where the battle will be fought.

Gotta go.

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#443694 - 10/28/05 06:27 PM Re: Ron & being flip
HRH Dawnie Offline
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Anchorage Alaska
Quote:

While we are all entitled to our opinions it needs to be understood that these are opinons of individuals, and do not represent any rules or guidence to follow. None of them, regardles of reported "quoate's" are representative of any regulatory agency. None of us have an inside track on whats best for all to do. That has to be a decision left to the institution.





So true. My suggestion would be to do what I do...Talk to examiners, particularly your examiner! See what they think. They know your bank most likely and they know what is coming down the pike before we do. I know several great examiners and enjoy having conversations with them about the challenges of CRA but the most important relationship I have is with my primary CRA examiner, who is always happy to take a call with questions about our upcoming exams. Most of the examiners are similar to mine. They are willing to work through this stuff with you, verses against you, despite what you might think otherwise.

I've shared conversations I've had with examiners at seminars and through personal acquintence in the past. Obviously those "reported quotes" are unwelcome. I'll be sure to quit sharing if that's the case. Hopefully most readers of the forum know that one examiners opinion can be different than anothers, but perhaps that isn't the case given Don's remarks.

Quote:

Hopefully, LenS and I have raised enough logical concerns that are not based on personal emotions so that folks will weigh the arguments and make a choice that is best for them.




Hopefully other posters who have shared their views are doing so with the same bend Regulatory compliance is not about emotions, but about interpretations of the regulation. Those can differ, even if it ticks those on the opposite of the opinion off. CRA is a silly subject to get emotional about. It's a great regulation to have passion to succeed in because of the value it brings to our communities, but letting it turn you into a big grump when someone differs with you is beyond goofy.

Maybe if we're all lucky we'll agree on things 100% of the time like little drones won't that be nifty!
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#443695 - 10/30/05 03:48 AM Re: Ron & being flip
Princess Romeo Offline

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Dawnie - you also need to remember that other agenices are not set up the same as the OCC, and if you are with one of the other agencies, you will probably get a CRA examiner that you have never seen nor spoken to before.

I had a very good relationship with the Community Outreach Officer for the Federal Reserve a few years back. It did me no good whatsoever in the CRA exam as we got a CRA examiner that didn't understand the "new" concept of the Assesment Area, was too fixated on a concentration in our HMDA data (we reported 50 applications/loans and 6 of them were from the same Census Tract.....our bank financed the manager's residence for a company that owned Mobile Home parks all in the same Census Tract and it took me way too long to explain why this was NOT discrimination....), and was dismissive of our efforts at new and innovated Community Development Lending, Services and Investments.

In the end we wound up with a Satisfactory, and that is all that bank management wanted. They felt getting an Outstanding would make us a target for community groups.

And the CRA examiners misunderstanding of what the "new" Assessment Area definitions really meant caused management to come down on me for making the area "too large." I had a nice long discussion with the EIC who agreed with me, but the damage was already done with respect to management's impression that we needed to "shrink" our area even after I demonstrated to them that it would actually hurt our performance.

(Shakes head and just walks away......)
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#443696 - 10/31/05 07:17 PM Re: Ron & being flip
Anonymous
Unregistered

I've been reading this forum and the Pros and Cons forum. This CRA stuff is just too subjective. I know that the agencies' re-write of the CRA regs a few years ago had some hard numbers in there (60% loan-to-deposit ratio was one, I think). If I recall, the CRA re-write came about in part because the original CRA was deemed too subjective. Still, it seems that two banks with the exact same hard numbers could be judged differently based on how well they document them or how good they are at persuading the examiners.

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#443697 - 10/31/05 07:32 PM Re: Ron & being flip
HRH Dawnie Offline
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Anchorage Alaska
Bonnie because I teach CRA 101ish classes, I make sure to talk to representatives in all of the agencies. One thing I advise all banks to do is to compare themselves against other banks examined by their respective agencies no matter the location, as well as their peer banks in market. It's much easier to get a clear picture of how your bank might do in an exam if you judge yourself against other OCC/FED, etc. I will say however that the OCC is the toughest agency out there, so meeting that standard is normally enough for any bank. Fortunately they're also the fairest in my experience, so I do place a high view on their publications and advice.

Anon....AMEN! The reg is very subjective, but the alternative (hard numbers to shoot for) would be unfair given that we all serve different markets. While many of us would love to have a hard number to shoot for, it would prove unfair to force bank A, with little capacity or opportunity to try to hit the same goals as bank B with significant capacity and opportunity. Even the LTD ratio is subjective. I think the most defined numbers we have in CRA are "the majority" which can of course mean "over 50%" or..."over 90%" depending on the examiner, agency, and market. It makes the reg special to say the least
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#443698 - 10/31/05 10:05 PM Re: subjective standards
Len S Offline
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Joined: Oct 2004
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Connecticut
There is certainly a lot of room for interpretation in the application of standards under the CRA tests, but as Dawnie points out, the reference to "performance context" data allows for a more fair interpretation of performance. Every bank should have an internal CRA self-assessment process that references the "standards" the bank thinks are representative of its performance "meeting the need for credit services in its community".
For example, with respect to lending in LMI geographies, the bank should know the market "penetration rate" in LMI geographies within the Assessment Area and what any competing lenders penetration rates are (this data is readily available). If the market shows that 20% of the reported HMDA mortgages are in LMI tracts but only 5% of your mortgages are in those areas, you have to be prepared to explain why you performance is so much below the market experience. This can be done by examining the penetration rates of other lenders and comparing your resources and history to theirs. The truth is too many banks wait for the examiners to rate their CRA performance rather than developing their own rating. A well run CRA program will have determined its performance rating with plenty of analysis and documentation so that you know what your rating is before the examiners even show up. Moreover, examiners will respect a well thought-out and documented self-assessment program that develops the local factors that affect performance.
In my discussions with examiners, I've been told they would rather see a bank with a well-documented "process" that assures data integrity and gives confidence in the conclusions of management about performance. There are no surprises in properly administered CRA programs. Examiners and bankers usually are much happier with such programs.
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#443699 - 11/01/05 02:24 AM Re: Ron & being flip
Princess Romeo Offline

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Quote:

Bonnie because I teach CRA 101ish classes, I make sure to talk to representatives in all of the agencies. One thing I advise all banks to do is to compare themselves against other banks examined by their respective agencies no matter the location, as well as their peer banks in market. It's much easier to get a clear picture of how your bank might do in an exam if you judge yourself against other OCC/FED, etc.




Well, in my situation, the CRA exam was still "new" so there weren't a lot of bank's PE's to review. I kept up with all of the community roundtables, outreach meetings, bankers CDC meetings, I talked to representatives from all agencies. I knew what everyone else was doing, but it did not matter during our exam. Our examiner felt that senior management did not take CRA seriously and there was no way to convince him otherwise.

That kind of thing can happen in a CRA exam. I had long talks with the EIC and we wound up with a Satisfactory, and all that additional effort that I did (being on loan committees of local lending initiatives, being on the boards of CDC's, finding new programs to benefit welfare families looking to find jobs, coordinating meetings between banks and city development departments to find ways to stimulate new small business, developing an innovate program to help low income residents learn to become self sufficient, the list goes on...) none of that mattered during the exam.

Discouraging? You betcha.
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#443700 - 11/01/05 10:53 PM Re: Intermediate-Small Bank PE
Skyline Offline
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Skyline
Joined: Sep 2005
Posts: 590
We were just notified by the OCC that we will be receiving a letter soon stating our CRA Exam date. Initially we had communicated that we wished to change to the new ISB guidelines. That was before September 1st. Then all the information came out about the new guidelines and we told the OCC that we were still reviewing the situation and had not decided on which guidelines to be examined under. At this date can we chose the exam or are we set.
Last edited by Skyline Viewer; 11/01/05 10:56 PM.
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#443701 - 11/01/05 11:03 PM Re: Intermediate-Small Bank PE
Len S Offline
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Joined: Oct 2004
Posts: 2,084
Connecticut
Most of my clients have been contacted by the EIC who has asked them which standards they want to be evaluated under. Normally, they don't give you much time to decide (my client undergoing a current Fed Exam was given 24 hours to decide after being told by EIC she could choose). So I don't think you are stuck with a choice yet. But you will get pressured to make a decision pretty quickly. If you are considering ISB make certain you have a comfortable level of CD activity (allow for some disqualifications of loans/investments as a margin of error) because you can't fail the CD test without drastic implications.
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#443702 - 11/04/05 03:37 PM Re: Choice between Large Bank or ISB
Anonymous
Unregistered

Quote:

So our belief is many ISB lenders would be better off electing to be evaluated as Large Banks. You can maintain that elective if you continue to report your CRA data annually.





So if we elect a Large Bank exam, we are also obliged to report, then?

the information in these threads is very good -has someone compiled a pro vs con document on choosing either large or ISB exam?

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#443703 - 11/04/05 05:24 PM Re: Choice between Large Bank or ISB
Len S Offline
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Joined: Oct 2004
Posts: 2,084
Connecticut
In order to have a choice you must continue to report the data. If you continue to report you can elect either ISB or Large Bank standards for your PE. But if you stop reporting, you will be examined as an ISB
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#443704 - 11/04/05 07:55 PM Re: Choice between Large Bank or ISB
Anonymous
Unregistered

Thanks, Len - In the revised reg, ISBs are a "Small Bank". So, those ISBs which used to be Large still need to decide which way they will go within a short period of time, because they will be again required to report by March 1st.

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#443705 - 11/04/05 11:22 PM Re: Choice between Large Bank or ISB
Len S Offline
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Joined: Oct 2004
Posts: 2,084
Connecticut
Chris, supposedly all the ISB's were collecting data until September. Why not continue collecting the data for the remainng one third of the year and report it next year so you can observe what happens with the ISB's after enough have undergone their PE examination and had it publicly posted? That seems to me to be the most prudent way to go.
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#443706 - 11/07/05 12:31 AM Re: Choice between Large Bank or ISB
SMQ, CRCM Offline
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Let me be sure that I have this. We have gone from Large to ISB and if I understand this correctly, we MUST file our CRA data in order to have a choice of exams. Are you saying that it is not acceptable to simply collect the data and give it to the EIC in a form that can be analyzed?

We are still a HMDA reporter and we still have the software to collect and manage the CRA data; but I am thinking that I would rather not report if I am not required to do so.
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#443707 - 11/07/05 02:58 AM Re: Choice between Large Bank or ISB
Anonymous
Unregistered

As a large bank you have to report. Just as large banks have always done. If you have already collected the data the process of reporting should not be difficult.

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#443708 - 11/07/05 03:05 AM Re: Choice between Large Bank or ISB
Len S Offline
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Joined: Oct 2004
Posts: 2,084
Connecticut
The revised regulation as published in the Federal Register / Vol. 70, No. 147 / Tuesday, August 2, 2005 / Rules and Regulations explicitly states, "Any small bank that opts to be evaluated under the lending,investment, and service tests will be required to collect and report small business, small farm, and community development loan data." The related FIL, FIL-79-2005 published on August 9, 2005 states, "the regulations continue to allow small banks, including intermediate small banks, to opt for an evaluation under the lending, investment and service tests, provided that the data are collected."

As can be seen the regulation published in the Federal Register explicitly requires the data be reported as well as collected whereas the FIL does not mention the requirement to report. It is my understanding that the Federal Register version trumps the FIL, but I am not certain. Also, there may have been a clarification issued of which I am not aware. I will contact the regulators on Monday to clarify, but for now I believe you must report as well as collect the data to preserve your choice to be evaluated under the Large Bank standards (which don't require a satisfactory on the CD elements of the tests).
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#443709 - 11/08/05 04:45 PM Re: ISB Reporting to preserve elective
Len S Offline
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Connecticut
FYI - I left a message in the voice mailbox for Robert Mooney of the FDIC regarding this issue and will post his response as soon as I receive it.
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#443710 - 11/17/05 08:39 PM Re: Intermediate-Small Bank PE
samsara Offline
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Joined: Mar 2004
Posts: 102
New York
I just asked this question on the FDIC's NY Region CRA teleconference. They said:

1) They have discussed this among themselves, and yes, it is true that it could be more beneficial to be evaluated as a large bank because it is not necessary to get a Satisfactory rating on all three tests.
2) An intermediate small bank that wants to have this option open needs to continue collecting and filing CRA small business data.

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#443711 - 11/17/05 10:43 PM Re: Intermediate-Small Bank PE
Len S Offline
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Joined: Oct 2004
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Connecticut
I spoke to the Chairperson of the FFIEC CRA Subcommitte earlier this week. She confirmed that the FDIC FIL issued with respect to the revised CRA regulations inadvertantly omitted the requirement to report the data as well as collect it. A new FIL or a revised FIL will be issued regarding this matter. So it is clear that if you want to preserve your option to be examined under the standards in effect since 1995 you must collect and report the data. Merely collecting it will be inadequate to perserve your option. Since you should have been collecting the data until September, and you need to collect the data only for the final third of the year I would encourage most banks to continue their data collection and maintenance and see how stringently the mandatory community development test is administered.
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#443712 - 11/18/05 01:11 AM Re: Intermediate-Small Bank PE
SMQ, CRCM Offline
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I got an answer from OCC as well, checked their in-house Q&A boards and yes, you have to report in order to preserve your option to go Large Bank exam. Additionally, if you are in smaller communities, it may be more difficult to get a satisfactory under the "new, flexible community development test". So would someone tell me how the banks benefitted from these new rules????
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#443713 - 11/18/05 03:59 PM Re: Intermediate-Small Bank PE
Don_Narup Offline

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The only possible benefit I see is if examiners make the CD Test a fluff piece. Its difficult to see right now how many ISB's are going to pass if examiners strictly enforce the requlation.

This is not meant to be a critism of anyone posting, so please don't take offense if I say something that resembles anything anyone posted, this is just my opinion.

Already there is a wide difference in what preparing a "Community Needs Assessment" means. IMO its an in-depth study, based on hard research, of what financial and economic assistance and services are needed primarily by LMI individuals in the community.

Some institutions are indicating that making a phone call or doing a mailing once a year is going to satisfy that requirement. No, I think to pass, it has to be a lot more than that. It has to be a real survey which contains a variety of information gathered from a variety of community groups and organizations. It should not be a bank officers opinion of what they think is needed, or is written as a creative writting piece that manipulates every tiny situation as providing some benefit to the community, as some have suggested.

I see in the Q&A proposal that they will be counting employee participation that offers financial advice and counciling to groups and organizations, and even some credit, if there is a branch in an LMI classified census tract. Unfortunately some ISB's are thinking that this is going to be the meat of the test. Again I don't think so, as there is a part of the exam that says examiners will look at the Number and the Dollar Amount of the banks Community Development lending activity. To me thats the meat of the test.

LenS and I have been espousing the problems and potential pitfalls of the Community Development Test since September. The dangeling carrot of not have to report anymore brought a lot of Yoo Hoo's isn't that great comment letters to the fed's. So here we are with a Community development Test.

A bigger question would be if it was intended to be a work reduction program, then why add this test at all? Who came up with the idea of a Community Development Test in the first place and why? Is there a social engineering motive behind its implementation? OR was this so horribally not thought out, that at this point even regulators are wondering what can of worms they opened up.

The upshot of this soap box missive, is that either there is an intent to perform some social engeneering via banks and a hard line will be adopted in the examination process, which many institutions will fail, Or its a can of worms not to be opened, and as long as a bank shows its employess belong to a couple organization that meet for lunch once a month, and it makes a couple loans a year,they are going to pass.

IMO we don't know yet. But if it's the latter,then what are we doing this at all for?
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