CRA Reporting, Action Date, and Letters of Credit

Issue/Inquiry

With respect to CRA reporting, the Bank asks whether the date of action taken for a loan is the date of the closing or the date entered on the Bank’s system. The dates are usually the same, but in the case of loan modifications and closings, the date the documents are signed may be different from the effective date on the system. For example, an extension might be signed on November 15^th, but the date on the system will be November 1^st.  Are evergreen letters of credit with a 60-day cancellation provision prior to maturity CRA-reportable?

Response Summary

The date of action taken is a date associated with the origination or purchase of a loan. Any appropriate date can be used, but it should be used consistently. The letters of credit could be reported as small business loans if they are reported as such in the Call Report, or as “other loan data” in community development lending.

Response Detail

Action Date

Neither Regulation BB nor its guidance specify what the date of action for a loan should be. “A Guide to CRA Data Collection” states that it is a “date associated with the origination or purchase” of a loan.

For loan originations, a financial institution generally reports the settlement or closing date. For loans acquired from a broker, it may use either the settlement or closing date, or the date of acquisition. If the disbursement of funds takes place after the settlement or closing date, the institution may use the settlement or closing date, or the date of disbursement.

As long as the Bank is consistent with the date being reported, there should not be a problem. Utilizing the note date would be the easiest and most consistent of the options.

Letters of Credit

Small business lending is evaluated as part of the lending test section of the large institution examination when such loans meet the definition of “loans to small businesses” on the Consolidated Report of Condition and Income (“Call Report”). 12 CFR §228.12(v). Generally, a loan for business or farm purposes, where it is secured by nonfarm, non-residential property and the original amount is $1 million or less (if a business loan) or $500,000 or less (if a farm loan), would be reported in the Call Report as a small business or small farm loan. Interagency Questions and Answers Regarding Community Reinvestment (“Interagency Q&A”), §___.12(v), A1.

If the letters of credit are reported in the Call Report as small business loans, then they would be reported as such for CRA purposes. However, a letter of credit that cannot be included in the Call Report might qualify as community development lending.

Regulation BB defines a “community development loan” as a loan that has “as its primary purpose community development”, is not reported as a home mortgage, small business, or consumer loan, and benefits the financial institution’s assessment areas, or a broader state-wide or regional area that includes the assessment area. 12 CFR §228.12(i). “Community development” includes, “activities that promote economic development by financing businesses” meeting the size eligibility standards of the Small Business Administration’s Development Company or Small Business Investment Company (“SBA SBIC”) programs, or have gross annual revenues of $1 million or less. 12 CFR §228.12(h)(3).

The SBA SBIC size eligibility standards are a tangible net worth of no more than $19.5 million and an average net income, after paying federal taxes, of no more than $6.5 million for the preceding two completed fiscal years. SBA, SBA Program Overview.

To be considered as promoting economic development, activities that finance small businesses must support:

• Permanent job creation, retention, and/or improvement for persons who are currently low or moderate-income
• Businesses located in low or moderate-income areas, or in areas targeted for redevelopment by federal, state, local, or tribal governments. Interagency Q&A, §___.12(h)(3), A1.

Therefore, a loan that promotes economic development by financing a business that meets the size eligibility standards of the SBA SBIC program would constitute as a “community development loan” under Regulation BB. In addition to originations and purchases of community development loans, examiners “will also consider any other loan data the bank may choose to provide, including data on loans outstanding, commitments and letters of credit.”   12 CFR §228.22(a)(2).

Since the Bank offers letters of credit, it can also provide data on such as “other loan data” to its CRA examiners, if such credit promotes economic development.

This entry was posted on Monday, February 5th, 2018 at 6:00 am.