I do not know much about CRA, but am now responsible for it - my immediate question I need to understand is how do small business loans reported on LAR affect CRA consideration? (We are an ISB)

I am asking because notes taken from our last FDIC examination have a statement that the examiner could only take a sample of loans rather than the whole small business portfolio in consideration - but the notes do not say why that is. Can anyone please provide an explanation.

CB, first of all, an ISB isn't required to submit their data if they wish to be examined as an ISB, although it is a recommended practice to gather and anaylze your data so that you know how well (or not) the bank is doing.

Now to your question: the examiners will look at your LAR to see if you are lending in all areas of your assesment area and don't have an unexplained lack of activity in low and moderate income tracts. They also look at the gross revenues of the businesses that you are lending to to see that you are lending to small businesses in your AA.

Good luck in your new role and don't be afraid to ask questions here, there are great people here with helpful advice.

CB
As an ISB you are not required to report your small business and small farm loans. Unfortunately, many ISB's and small banks interpret this to mean they don't have to bother collecting and monitoring their small business and small farm lending activity. Technically, this is true. But from a prudent and practical perspective it is dead wrong! If you don't collect your data you can't monitor it and therefore you can't possibly know what your CRA performance looks like. Moreover, it means that examiners must use a "scientific sampling" of your loans.

Examiners are not required to collect the loan data for every loan you did not collect. This would be impractical. So examiner manuals direct examiners to develop a sampling of your loans for analysis purposes. The problem is that even a "scientific" sampling can be inaccurate, but you won't know it because you haven't bothered to collect the data. Furthermore, you can't anticipate examiner questions or respond very well to them because you don't know what your performance looks like since you haven't collected your data.

On the other hand, if you have collected your data and taken steps to assure the integrity of the records (edit checks for example) examiners will prefer to use your data. So we always recommend as a "best practice" the collection and scrubbing (and reporting) of your loan data. If you merely have perfunctorily collected your data without taking any steps to assure the integrity of the data, examiners may not use your data for analysis.

I agree with Len absolutely. Like any other business process, a bank needs to measure its progress and know how it is performing before it is examined. Don't go blindly into an examination.

We're one of those large banks that became an ISB when the definition came out. We opted to continue to be examined as a large bank during the last two exams, but now we're considering switching to the ISB exam. We will definitely continue to collect and monitor our small business and small farm loan data, but will the examiners have to do a data integrity review like they have in the past?

They will want to review any loans they are going to use for the exam to check the validity of the data. So they will depending on your regulator ask to see a sample of the files to test the data. Even if you did not submit the data