19 ISSUE 6 | 2021 Different evaluations The CRA performance of a “small bank” is evaluated under a streamlined process that focuses largely on its loan-to-deposit (LTD) ratio and its lending distribution. If the bank meets the following criteria, it can expect at least a “satisfactory” CRA rating: • Its LTD measure is “reasonable” • A majority of its loans are in its assessment area(s) • Its loans are distributed to individuals and businesses of different income levels • The geographic distribution of its loans is reasonable • There are no fair lending concerns An “intermediate small bank” is evaluated under the above process, plus the following additional criteria (a modified “lending test”): • Number and amount of community development loans • Number and amount of qualified investments • Extent to which the bank provides community development services, and • Responsiveness through such activities to community development lending, investment, and services needs On the other hand, a “large bank” faces a much more complicated evaluation. The CRA examination and rating systems for these institutions is a three-pronged process comprised of: • Lending test (responsiveness to credit needs; geographic and demographic distribution of loans; record of serving the credit needs of economically disadvantaged, areas, businesses, and individuals; use of innovative or flexible lending practices; level of community development loans) • Investment test (level of qualified investments, particularly those not routinely provided by private investors; use of innovative or complex qualified investments; responsiveness to area credit and community development needs) • Service test (accessibility of service-delivery systems to areas and individuals of different income levels; record of improving accessibility through branch openings and closings; extent to which services are tailored to convenience and needs of its area; record of providing community development services) Nine steps to success When you see that you are approaching graduation to “intermediate small bank” or especially to “large bank” status, you need to begin planning for a smooth transition. You should consider taking the following nine steps: 1. Set up a transition team. You can use an existing CRA committee, perhaps adding new or more senior members (if needed). Senior managers, including the CEO and compliance officer, should be involved in this process – including representatives of all functional areas within the bank. 2. Prepare for data collection and analysis requirements. As a “large bank,” the bank will be required to collect and submit data on its small business and small farm lending to your supervisor each year. Reports are generated from these data, reports that play an important part in your CRA evaluation. If you are subject to the Home Mortgage Disclosure Act (HMDA), then your home lending data is also considered. The bank may also choose to have its consumer lending considered if that lending makes up a significant portion of your lending. You will need to evaluate your current management information systems (MIS) to ensure that they will provide the required data – for small business and small farm lending, as well as expanded HMDA information. Do you already have reporting processes in place for community development loans and investments? Can your MIS be organized to reveal geographic and borrower characteristics, by assessment area, for bank and examiner analysis of the data? Should you collect data for consumer loans in one or more of the five optional categories? 3. Perform a baseline assessment. To gauge where your bank stands now, you should consider performing a thorough review of how the bank meets, as applicable, the modified “lending test” for an “intermediate small bank” or each of the three “large bank” CRA performance tests. Objectively assign ratings just like the examiners will, using the rating system in the CRA rules. You should assess areas for which you already have data and then create additional systems using new data sources and analysis tools. Is your assessment area still reasonable? Would you earn at least a “satisfactory” rating from CRA examiners? What performance areas need attention? What changes do you need to make? 4. Define your CRA mission, goals, and strategies. Performing some CRA strategic planning, as in other areas, can guide Continued on page 20 A “small bank” can become an “intermediate small bank” by growing beyond the $330 million threshold – through natural growth in loans and deposits or by acquisition of either whole institutions or portfolios of their assets or liabilities.