Hello, we're putting together a new Intermediate Small Bank CRA program and I'm having trouble understanding how important the bank's assessment area is when evaluating whether a loan, investment or service qualifies for community development credit. The Regulation only specifies that loans must be in the assessment area (or larger regional area containing the assessment area). Our FDIC examiners requested both loans and investments in our assessment area (or larger regional....) but said services can be from outside our area. Finally, the FDIC's CRA Q&A, 12(h)-6 makes it sound like all activities including loans, investments and services must be in the assessment area (or larger regional...). Should my bank bother with activities outside our assessment area? I can't seem to get a consistent take on what activities to apply this standard to. Any help is greatly appreciated.

You have raised a few important questions and have your work cut out for you as a new ISB.

First, your Assessment Area is by far the most important CRA decision because it not only affects your performance it affects the "performance context":factors that drive the performance standards that examiners use to evaluate your performance. Anytime you expand or contract your AA you are impacting everything and most bankers don't stop to understand how consequential their AA decision is. I teach a webinar that deals with nothing but AA delineation and how important it is and what every banker should consider when making that decision.

The only CRA test that examines what you do outside your AA is the very first test, your AA ratio. Other than that, everything else is focused on what you are doing inside your AA. Once you have established that you are doing a satisfactory job inside your AA examiners will then consider activity outside the AA towards a potential outstanding performance rating, but none of that activity will help you attain a composite satisfactory rating.

Second, as an ISB you are in for a shock. Small banks have no community development responsibilities but for ISB's, community development is absolutely critical to passing your CRA exam - and the ISB standards are put into effect immediately once you qualify. In fact, they are effective retroactively! - yes I said retroactively. If you become an ISB on January 1, your very next exam will be conducted based on ISB CRA standards, even if the exam starts on January 2. Moreover, the examiners will expect you to have anticipated your transition to ISB status and they will require you to demonstrate you engaged in sufficient CD activity since your last exam! - once again, you've read the right!

Do you think we could receive Community Development credit for a RLOC to an Investor/syndicator of LIHTC's whos uses the funds for purchasing interests in MF properties constructed or rehabbed for LMI tenants that qualify for LIHTC. All the properties they invest in all over the US are outside of our AA's, but every project benefits LMI and supports affordable housing. Thoughts?