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Recipe for CRA Success
By
Justina Gamboa-Arce, CRA & Community Development Officer, Valley
Independent Bank
Introduction
For Valley Independent Bank (VIB), headquartered in El Centro, California,
community development is much like cooking -- an art requiring certain
skills, proper tools, attention to detail and a commitment to producing
a quality product. These are all factors that contribute to a successful
CRA program. The result of VIB’s efforts was an “outstanding” CRA
rating from the Federal Reserve Bank of San Francisco for the Bank’s
investment, service and lending performance within its largely rural
and economically challenged communities.
In the past six years, VIB has experienced
tremendous asset growth – expanding
from a $700 million institution to one of about $2.4 billion today. During
that time, VIB’s community development activities expanded on the
same scale. Examples of Valley Independent Bank’s community development
accomplishments include:
- Over $100 million in financing of community
facilities and rural service providers, including hospitals, water
districts, health clinics, schools
and affordable housing since January 2003.
- In 2003, Valley Independent Bank was
recognized by the United States Department of Agriculture as the
Lender of the
Year for “financing
businesses that improve the economic and environmental climate of rural
communities.”
This article highlights VIB’s key focus
areas for developing a successful CRA program: engaged leadership,
partnerships, documentation,
and motivation.
Progressive and Engaged Leadership
“
If you don’t know where you’re going, any road will get you
there.” This is certainly not the case in the operation of a successful
business. Our community development initiatives remain consistent with
our business goals and unquestionably contribute to “the bottom
line.” Any program, promotion, initiative, or objective worth pursuing
requires a plan and the commitment of management to achieve it. An effective
CRA program must be sold to management as an essential element to the
Bank’s overall business plan -- not just for compliance, but for
the development of the business base through sustainable, profitable,
and marketable tactics.
The commitment of a progressive and engaged
board of directors and management team are key factors in Valley Independent
Bank’s extraordinary
success in meeting the financial needs of its communities. The Board
and senior management are actively involved in the planning and implementation
of strategic community development initiatives. Eight members of senior
management and one director serve as the Bank’s CRA and Community
Development Committee, which meets quarterly and has a direct reporting
line to the Board.
The board and senior management team set the direction and commitment,
communicating the message to bank staff that the Community Reinvestment
Act is not just a regulatory requirement, but a true business strategy,
and perhaps more importantly, essential for the economic vitality of
our communities.
The leadership of the Bank has also made its
commitment to CRA clear by setting aggressive annual CRA performance
targets, as well as incorporating
specific CRA driven initiatives into Valley Independent Bank’s
Strategic Plan.
Select Your Partners Wisely
True in marriage, true in business, and true in terms of successful and
sustainable community development initiatives. Developing the right
partners is critical for successful project implementation and sustainable
community development initiatives. A bank should seek three different
types of partners: (1) local community partners who are keenly tied
to its target group be it the small business or farming community or
low- and moderate-income residents (e.g. nonprofit entities; community
development corporations, or local groups or associations); (2) industry
colleagues—partners with whom it can share resources and expertise
to effectively serve its target group (e.g. other financial institutions,
bank regulators and consultants); and (3) external resource partners
with whom its funds can be leveraged either through gap financing,
grant subsidies, or loan guarantees (e.g. USDA Rural Development, Federal
Home Loan Bank, Small Business Administration).
Local community partners are essential in
reaching target groups, particularly if these groups are not identified
as the bank’s direct target
market. For example, VIB has traditionally been regarded as a commercial
bank and agri-business lender; however, we also have an outstanding record
for meeting the affordable housing needs of low- and moderate-income
consumers and their families. VIB accomplishes this by partnering with
local public housing authorities and in-market housing developers to
serve this segment of the community.
Industry or colleague partners are important because they enable us
to share or trade expertise, allowing the Bank to adopt practices that
work well or that can mitigate potential issues early, resulting in a
stronger CRA program. Accessing the regulatory agencies as partners is
also a highly advisable practice as this communication enables us to
advance several community development initiatives with innovative and
flexible practices while retaining safety and soundness.
The final set of “right partners” is resource providers
such as the Federal Home Loan Bank, Department of the Treasury, and other
financially resourceful institutions including private foundations. These
organizations have the ability to leverage and maximize financial resources
with grant contributions or guarantees. Partnerships with these agencies
bring resources back into the community, rather than just making use
of what is currently available, thus maximizing a bank’s – and
the community’s – return on investment. For instance, during
2003, VIB secured over $3.5 million for local housing benefiting low-income
families by linking external resources such as the Federal Home Loan
Bank’s affordable housing grant program to local projects.
Document, Document, Document
It is not enough to be actively involved in community development projects.
You must document those activities for the regulators.
Valley Independent Bank has successfully implemented
an effective CRA data collection process. To document CRA-qualifying
lending activities,
VIB developed a one-page CRA data collection worksheet that captures
relevant CRA-related information, and requires attachments for address
and income verification, as well as geo-coding results. Through employee
training and attention to detail, Valley Independent Bank has perfected
the data collection process to ensure accurate reporting. The bank’s
regulators have come to rely on the accuracy of these worksheets and
the supporting documentation during the exam process.
Similarly, service and donation activities
must also be accompanied by a CRA activity log when submitted to the
bank’s CRA/community
development officer. Officers are encouraged to collect income and demographic
information related to the activity prior to service delivery or funding
commitment, which facilitates data collection and the reliability of
information reported.
The Bank’s CRA division is responsible for
complete file documentation, organization, and verification of all CRA
activities. VIB used the Federal
Reserve’s CRA data entry software through 2003 to track lending
performance. However, it recently became necessary to purchase a market
system to facilitate analysis of the Bank’s expanding service areas.
Documenting and tracking CRA activities is
essential for an effective CRA program. Recognizing and quantifying
trends is important and allows
the CRA division to keep management and the board informed. This is particularly
important if negative trends require immediate mitigating action. To
that end, the CRA officer prepares monthly, quarterly and annual performance
reports comparing performance to prior years and to peer banks. These
reports are provided to various management committees and to the board.
Consistent and timely communication provides management a very clear
picture of the bank’s performance and opportunities. There should
never be any surprises!
Motivate—If You Build It,
They Will Come:
In the movie “Field of Dreams,” Ray Kinsella is convinced
that if he builds a baseball diamond in a corn field, fans will come
to watch the great ones play. So it is with a bank’s CRA program – if
a successful, meaningful program is built, bank employees will come,
and not just to watch.
VIB’s employees are dedicated to community development because
it has created a successful program that makes a difference in its communities
and also recognizes its employees’ efforts. During 2003, VIB officers
volunteered at 130 community organizations and provided over 3,000 hours
of qualified community development services. These services ranged from
fund-raising and financial education in schools and housing centers to
technical services for nonprofit organizations, including financial audits
and loan underwriting services. The marketing department highlights an
outstanding officer’s CRA commitment in every internal newsletter
published. VIB believes that when employees see the results of their
efforts and understand that they have the opportunity to make a difference
in their own neighborhood, they will be motivated to engage in community
development activities.
If You Want to Be The
Best – Practice
The Best
Through trial and error, Valley Independent Bank has determined that
some things work better than others when it comes to community development.
Some examples of “best practices” that have proven successful
include:
- Senior management and the board of directors
adopted a specific CRA and community development component within the bank’s
strategic plan.
- Human Resources incorporates CRA service responsibilities
into all officer job descriptions and provides CRA orientation training
to new
employees.
- The Compliance Action Team facilitates mandatory
bank-wide training on CRA for all employees in the form of computer-based
training,
videos, and written study materials.
- Lending divisions incorporate quantifiable goals
and measurements for lending performance, compensating officers accordingly
or
conversely, holding them accountable for their performance.
- The marketing department provides external and
internal publicity of community development projects and programs,
including
press releases and publication of an internal newsletter featuring employee CRA
activities.
Final Thoughts on the Recipe for Success
Using the right tools, ingredients, and resources will produce a positive
outcome for any CRA program. Valley Independent Bank’s CRA program
is successful because we don’t just treat CRA as a regulatory
requirement; management and the board have made CRA a priority and
facilitated the development of skills and tools for employees to be
actively engaged in providing high-quality service. Add in great partners
with a shared community vision, a handful of motivated key players,
a good measure of effectively leveraged resources, and you have a recipe
for success.
Valley Independent Bank’s finished product—economically
stronger communities, an enhanced bottom line, a positive community image,
and employees who are proud of the company they work
for.
Justina Gamboa-Arce
Justina Gamboa-Arce is CRA and community development officer for Valley
Independent Bank. Her career-related experience includes both public
and private sector community development program administration and
implementation. She worked as a private planning consultant before
joining Valley Independent Bank.
Ms. Gamboa-Arce is a member of a number of local and regional organizations
and committees including local chambers, financial advisory committees,
and nonprofit boards. Born and raised in rural California, she continues
to work on behalf of smaller agricultural communities.
Ms. Gamboa-Arce earned a bachelor of science
in urban and regional planning from the California Polytechnic University,
Pomona. Her studies focused
on rural economic development and affordable housing issues. She is also
a graduate of the Federal Reserve Bank of San Francisco’s National
Community Development Lending School.
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