Preparation: The Overlooked Key to CRA Success

By Krista Shonk

Growing up, I despised helping my parents in the garden. Most summer mornings, there was gardening to be done. The weeding, watering, pruning, and other garden chores had to be completed before I could ride bikes with friends, go swimming or do whatever else small-town kids do on lazy summer days.

As we extend the conversation throughout the year following ABA’s recent Regulatory Compliance Conference, ABA’s Krista Shonk follows up on her conference session on practical ways banks can identify Community Reinvestment Act needs in their communities, especially in light of expected changes.
Decades later, I have turned into my parents (gulp). I took up gardening a few years ago and savor summer suppers featuring something from the grill accompanied by homegrown green beans, a thick slice of an heirloom tomato, an ear of sweet corn and fresh berries for dessert.

Even though much of the harvest comes in the summer months, gardening is a year-round activity that requires planning and preparation. Over the past few months, ABA’s CRA working group has exchanged tips and information for assessing community CRA needs and setting CRA goals. In listening to these conversations between bankers, it struck me that CRA is a lot like gardening. Both are year-round and cyclical. Both require care, cultivation and time. And, for both, advance planning and preparation are the most overlooked keys to success.

Here are three top-line takeaways from the ABA working group’s discussions on CRA planning and goal setting:

1. Up your game in understanding community needs.

Many banks are confident that they understand the financial needs of their communities. After all, they do business locally; they volunteer with local organizations; they support local charities; they serve on boards of directors of nonprofit organizations; they play a critical role in financing affordable housing and community revitalization. In sum, they are the economic fuel that keeps the community running.

While engaging in these types of activities provides tremendous insight into community needs, some banks are taking additional steps to gather community input about CRA opportunities. They use this outreach as the basis for the bank’s CRA needs assessment, which in turn helps to inform and prioritize among potential CRA initiatives.

For example, several banks report that distributing annual surveys to internal and external stakeholders is an efficient way to generate a wide range of input, which can be especially helpful if a bank operates in several assessment areas. External survey recipients may include nonprofit leaders, health and human services providers, non-governmental organizations, small business owners, municipalities, affordable housing advocates, religious leaders, local chambers of commerce and other organizations. Some banks manage the survey process in-house using inexpensive, off-the-shelf survey tools that automate the process of compiling survey responses and generating reports, while other banks outsource the survey function to a third party.

Other working group participants shared that they host regular advisory forums or roundtables comprising community leaders and other CRA stakeholders. While these discussions are more time-intensive than automated surveys, working group members pointed out that such forums have the added benefit of helping to build trust and deepen relationships with community leaders.

Roundtables also provide opportunities for banks to educate community leaders about CRA requirements, bank business strategy and the many ways in which banks serve their communities and enhances economic prosperity. However, one drawback of this approach is the manual labor required to plan and attend the meetings and organize discussion notes into key takeaways for potential incorporation into the bank’s overall CRA strategy. Banks have used these meetings with varying frequency, with some meeting annually and others meeting semiannually or even quarterly.

Working group members offered several tips for hosting advisory forums:

  • Set the expectations of attendees. To avoid disappointment and negative feedback, make it clear to participants that the purpose of the forum is to generate ideas and obtain information. The bank may not pursue a particular suggestion that is surfaced at the meeting.
  • Invite leaders from the bank’s business units. This is especially important if the meeting is focused on specific topics or issues impacting a particular business area. Business unit leaders will be able to answer questions about products and address bank prioritization and resource allocation. It is also beneficial for the lines of business to hear directly from the community.
  • Be inclusive. Working group members recommended inviting as broad of a range of participants as possible. Inviting a narrow segment of community leaders and non-profit organizations has been a source of frustration for some groups in the past and has been a stumbling block to furthering relationships with those entities.

2. Develop a CRA business plan.

Working group members also discussed the development of their “CRA business plans” based on internal and external feedback about CRA needs and opportunities.

Generally speaking, a CRA business plan articulates a bank’s CRA lending, service, investment goals and strategies and helps the bank to measure its progress toward meeting those objectives. Banks that have developed a CRA business plan usually include annual goals as well as goals for the entire CRA exam cycle. In addition, some CRA business plans also address the development of new products and services or the bank’s plans for marketing existing products more effectively.

Importantly, an internally developed CRA business plan is different from the strategic plan process established by the CRA regulation and community benefit plans negotiated with external groups. CRA business plans are non-binding, can be adjusted without external or regulatory input, and vary in terms of their level of complexity. Banks that have developed CRA business plans do not typically make them available to the public, although a few working group members reported that they do so.

Finally, CRA business plans can provide important focus and direction to banks of all sizes, not just large or complex banks.

While banks are not required to develop CRA business plans, working group members cited multiple benefits of doing so, including:

  • Helping the bank to focus its CRA work on its strengths, expertise and community needs.
  • Providing a mechanism for periodically monitoring progress toward the bank’s articulated CRA goals, which improves the predictability of examination outcomes.
  • Assisting with CRA exam preparation and management by enabling the bank to describe in detail how it determined community needs, how it went about meeting those needs and what the bank accomplished.
  • Increasing business unit awareness of the bank’s CRA work and priorities, which in turn can enhance internal buy-in.
  • Providing helpful documentation of a bank’s CRA strategy as it seeks merger or acquisition opportunities.

3. Involve business lines in outreach, planning and governance.

The third major theme to emerge during working group conversations addressed the importance of involving leaders from lines of business as the bank solicits community input, sets CRA goals and tracks progress toward meeting those goals. As a practical matter, a CRA business plan dictated by CRA staff will not generate traction with other areas of the bank and is likely to be ineffective. Involving the lines of business will educate them about CRA needs and opportunities and will provide a view of the bank’s current CRA work as well as insight into how that effort can be strengthened.

One community bank working group member shared that each business line met with the bank’s community advisory forum, helped to draft the bank’s CRA business plan and served on the internal CRA steering committee that analyzes CRA performance data on an ongoing basis. While this was a significant culture shift for the bank, the work paid substantial dividends when the bank submitted a merger application for regulatory approval.

Parting thoughts

Gardeners do important work in the fall and winter when the earth is sleeping. This preparation—far in advance of harvest time—is the foundation upon which a successful growing season is built. The same is true for CRA. Banks should not neglect important CRA prep work, such as soliciting community input, crafting a CRA business plan and involving business leaders in the development of that plan. The investment of time and effort on the front end of a CRA cycle can yield notable benefits.

Krista Shonk is ABA’s VP and senior counsel, regulatory compliance and policy, fair and responsible banking.