By: Danielle McCollian, CRP

Is your financial institution close to $274 million in total assets?  If so, you should start planning for the transition from small bank to intermediate small bank (ISB) for CRA.  For 2010, an intermediate small bank has greater than $274 million in total assets as of the end of the prior two years.  This means that your CRA performance will be evaluated based on the small bank lending test and the community development test.  Keep in mind that there is no lag period for the transition.  As soon as the institution reaches this threshold, you would be evaluated as an ISB that year if the bank receives a CRA exam.

It has been our experience that the key to success for a small bank transitioning to an ISB is developing a community development action plan.  The bank should start planning early enough so there would be measurable results for the first year the bank exceeds the ISB threshold.  The plan should include three phases – 1) determining community needs, 2) reviewing the bank’s current community development activities and resources, and 3) establishing annual goals for community development activities.

Determining Community Needs
In order to determine the community credit needs, you can leverage off of already established relationships with local community groups and government organizations. If you don’t have relationships with these types of organizations, you should start by researching the community groups that are active in your area and by contacting local government housing and economic development departments.  Information you have access to through these entities can provide the framework for determining what the most pressing needs are. When determining which needs the bank is able to focus on, you should consider the bank’s capacity, resources, and expertise.  For example, a bank that focuses on commercial lending and deposit relationships may focus more on small business assistance and less on other needs that they may not have the appropriate resources to address.

Reviewing Current Community Development Activities
The next step is to review the bank’s lending and investment portfolios, donations, programs and products offered to the public, and employee activities to determine if any meet the definition of community development.  The bank can use this base of community development activity to build on when determining goals for lending, investments, and services.

Establishing Annual Community Development Activity Goals
In order to determine what level of community development activity is satisfactory, the best resource is other local banks’ CRA performance evaluations.  Every bank’s evaluation completed by its regulator is available on the Internet.  Most reports describe the community development lending and investment activity in relation to total assets, total loans, total investments, or total equity capital.  By reviewing similar institutions and determining what volume of activity was considered satisfactory you can develop a goal for your bank.  Some other factors you should consider when establishing the goals include: any niche markets the bank has, local economic conditions, the number of employees and resources available, and any financial or regulatory restraints that may affect the bank’s ability to participate in community development activities.  
The important lesson here is not to wait until your due to be examined as an ISB to develop your plan.  The sooner you plan and implement the more effective your results will be at exam time.

Danielle McCollian serves as the Director of CRA and Fair Lending Services for ICS Compliance.