I've been out of touch with CRA for a few years and need some guidance please. Here it goes-
1. Do we have to use CRA geocoding software? We did not have such at our last exam (2001) and we were not criticized.
2. We have added a new branch in an adjoining state - most of the loans we make there are in three counties within that state (that are connected to our current assessment area) we also have a very large non cra loan in a separate county in that state. Regarding an examiner's assessment of loans in or out of our AA - is it best to include that separate county - it's only 1 loan but $8 MM. -Do examiners care about $ amt or # of loans?
3. Is it true that large banks w/Satisfactory rating are now on the 48 month cycle for exams - does that go for the compliance exam as well - we are FDIC regulated and have always had a combined CRA/Compliance exam every 2 years ?

1. No you don't have to use Geocoding software . You can obtain geocoding on line at the FFIEC or Census Bureau. It just time consuming and a duplication of efforts. In house software or outsourced may be more efficient and accurate and depending on how many records you are processing more economical.

2.You don't have to make a separate AA to accommodate 1 loan. Not all loans have to be inside your assessment area just a majority which is in the neighborhood of 70%

3. The 48 month cycle is being implemented but don't count on it being exactly 48 months. Regulators can still schedule an exam when they deem it prudent to do so.

1) It isn't necessary you just have to geocode, and do it correctly. It is a cost-justification decision based on your volume of CRA and HMDA, expertise and what you want to do with your data. Third party software allows you maximize your time and data use.

2) Small bank tests look at the loans in and out of the area. If it is just one, I would make a permanent note of this and not include the area as you won't be doing much there. I assume the new branch is a new assessment area? It should be in a different MSA as I don't think they cross state lines.

3) GLBA changed the exam cycle for small banks to 48 months for Sat, 60 months for Outstanding.

thanks for the reponses
1 thing to clarify - we are a large bank - does the 48 month exam cycle correspond only to small banks and is it the CRA exam only or compliance and CRA??

The FDIC is our regulator for compliance/CRA. They are still done contemporaneously. We have been on a 2 year schedule for a number of years. I believe only the small banks went to a 4 year schedule. They are a bit behind so last the exam was (June, 2002) was actually 2 and 1/2 years from the previous.

Sorry for the poor syntax and grammar. I really should edit before I hit the submit button.

You might want to check in the Learning Connect library here in BOL. A CRA webinar was just done last week. It will be available in the archives. The materials and oral presentation would get you back up to speed.

As was noted, I don't believe the large bank exam cycle has changed. The 48 and 60 months are small bank cycles.

Here is a Dallas FRB Quick Reference Guide to CRA. It should prove helpful. From the same source, here is a Data Collection Guide.

Don,

Need help now!

I'm curious about your comment about small bank CRA Exam "not all loans have to be in your AA, just a majority, which is in the neighborhood of 70%". Yikes, we're in trouble! Couple of questions/panic flashes (loss of job, evrybody yelling at me, kids have to drop out of college or finish in 4 years), Less than Satisfactory rating, bad publicity for bank, aging prematurely, that type of thing...).

1. When I hear the term "majority" I think 51%? Please discuss the 70% issue more....Our bank is currently much closer to the 51% than we are to the 70%. We could expand our AA to increase the Inside AA loan percentage, but we would be adding numerous (150-200 if we take whole counties)suburban census tracts, with NONE of them being low and moderate. If we add those middle and upper income tracts than our percentage of loans within our AA to low and moderate income borrowers would decrease, although our loans inside assessment area would move to the 70%-75% range. Currently, the percent of our loans within our AA to low and moderate census tracts are in step with the percent of L/M tracts within the AA. For example, in our current AA, 10% of the tracts are low income and approx. 10% of our loans are within those tratcs. There are approx. 23% mod. income tracts within our AA and our loans to those tracts are a similar number. Not sure what to do. We have not been examined for CRA since May-1999 (Satisfactory). Our average Loan to Deposit ratio since then has been 73% (the May, 1999 CRA Exam it was 57% (ouch).

2. In your experience of "70%" is that by $ volume or number of loans? Many times a bank, with most branches in an urban area will have a higher percentage of loans in an AA by number of loans and a smaller percentage by dollar amount because the loan amounts tend to be smaller in the urban areas (lower incomes, etc.).

Not sure whether I should recommend AA expansion before next CRA Exam (2004?).

First off its not the end of the world, and your job and kids are safe. The percentage is based on the number of loans. 70% is an arbitrary figure used by many examners. It not a regulation that you have exactly 70% or more, but its a number that does indicate originations are "predominately" within your AA,

Ask yourself why a big percentage of loans are being made outside your AA, and see if its reasonable to expand your AA. Remember you are supposed to be serving all social/economic ranges within your AA and you have indicated this is your "Primary" marketing area. The question is, if it's "Primary" why are marketing efforts and so many loans being made outside of it?

Determining the adaquacy of an the assessmenta area should be done periodically IMO at least once a year. You can adjust smaller or larger anytime.

Obviously 50% of your loans are outside the AA somewhere and you should find out where they are, so you can set up an assessment area that you are actually serving. You are only kidding yourself into believing you are serving the AA by manipulating it the way you are doing. IMO Examiners are not going to look at it the same way. You should take a look now before they arrive to see what you actualy have, instead of finding it out from them.

You don't have to pick the whole county but make sure you have included ALL tracts that are located within an municipal boundary regardelss of their income classification.

The percentages you are using as 10% Low classified tract and 10% of loans in low is not the whole picture. If 10% of tract are classified low, whats the percentage of the number of families that reside in the low income tracts that are being served? If you have 10% penetration in the number of low tracts and the family population residing in low income tracts is 30%, then you met the credit needs of 1/3. That may be good or bad depending on the demographics of your area and what your peer group is doing.

I can help you some without cost, but I suspect you may need to get some outside help to figure out exactly what needs to be done.

I'm sure a few other will jump in here and add to what I have said which will give you some good information on their personal experience with examiers.

Anonymous - Restricting your Assessment Area to a smaller area just to pump up the percentage of your loans to low/mod income tracts will likely be seen as "fluffing" by your examiner.

Take a good look at the numbers if you expand your area so that you capture around 70% of your loans. It may well be that you will have a higher percentage of loans to middle/upper tracts, but that raw number isn't the whole story.

Take a look at the larger area, and the percentage of low/mod tracts within that larger area. Then take a look at the percentage of loans to low/mod tracks. If the percentages are roughly the same, you should be fine.

Example:
Larger area has only 5% low income tracts, and if your percentage of loans in low income tracts is also around 5%, give or take a percentage, you should be fine.

The other thing to do is to really look at the lending opportunities in those low and mod tracts. There are many ways to develop your Performance Context. A simple slice of raw data really cannot tell the entire story.

Also consider the level of low/mod BORROWERS, not just tracts - there are low/mod people who live in mid/upper tracts, just as there are upper-income borrowers who take out loans in low/mod tracts.

The in/out ratio is really just a very small piece of the CRA exam; it's basically just something you have to get checked off - a majority in? Check, move on. The real test is how are you serving borrowers of different income levels, and what level of service is afforded to different tract strata. And if you are solid on the income level split, you're going to be fine. If you can also demonstrate a good level of lending to small businesses, that's going to shore up your rating even more.

Thank you Don, Bonnie and EGB...

I am leaning towards recommending to management that we expand our AA.