Is it permissable to define the bank's CRA Asessment area strictly by
1) MSA area delineations ?

2) census tract delineations ?

rather than by county.
Management does not want to include the whole county of some of the counties our branches are located in.

your AA needs to be closely associated with deposits and loan applications/originations, geocoding will tell you this

one caveat: do not appear to be excluding LMI CTs

the AA could be the MSA, the answer to your question could be yes, but..........

See Section 228.41 of Reg BB below - (d) on limiting, or adjusting the assessment area.

There is always a danger if you start adjusting the area down from an entire MSA or an entire county. Examiners will immediately wonder if you are limiting in order to try and discriminate. At a previous bank I did just what you are proposing - we were expanding and had put one branch location in a county, logically we could not expect to serve the entire county from the one location BUT examiners did not like the limitation. So my experience says your logic for excluding certain census tracts or parts of a county might pass muster only if what you are excluding is high income areas ???

(c) Geographic area(s) for other banks. The assessment area(s) for a bank other than a wholesale or limited purpose bank must:
(1) Consist generally of one or more MSAs or metropolitan divisions (using the MSA or metropolitan division boundaries that were in effect as of January 1 of the calendar year in which the delineation is made) or one or more contiguous political subdivisions, such as counties, cities, or towns; and
(2) Include the geographies in which the bank has its main office, its branches, and its deposit-taking ATMs, as well as the surrounding geographies in which the bank has originated or purchased a substantial portion of its loans (including home mortgage loans, small business and small farm loans, and any other loans the bank chooses, such as those consumer loans on which the bank elects to have its performance assessed).

(d) Adjustments to geographic area(s). A bank may adjust the boundaries of its assessment area(s) to include only the portion of a political subdivision that it reasonably can be expected to serve. An adjustment is particularly appropriate in the case of an assessment area that otherwise would be extremely large, of unusual configuration, or divided by significant geographic barriers.

We have a few counties with only one branch but we still use the entire county as the AA. The examiners will know that one branch cannot logically serve the whole county and they will also know that you are not purposely excluding certain areas. Win-Win.

Boat: we do the same in Texas, and those counties are huge!

Well pardner, I hear thay grow everthin big in Texas!!

Charter Oak Bank in Napa, CA is searching for a compliance officer that would also entail CRA- check out their website if interested.

Thanks Princess!!

We consult with hundreds of banks all over the country and we routinely advise banks to designate those areas that their branch network reasonably can be expected to serve. Most of these banks select parts of counties and MSA's. Section -.41(d) allows banks to adjust their AA's to areas they can "reasonably be expected to serve". The fact is that many banks adopt entire counties and MSA's with the mistaken idea that they must do so. We have never seen a client of ours criticized for adjusting their AA to smaller political subdivisions. In fact, not only is that unrealistic, it can create artificial pressure on the bank because performance standards are performance context driven and the description of the AA is one of the biggest performance context factors. Everything else is related including demographic and loan market data. In other threads I have written about a step by step process that will assure your bank is in compliance with the regulation's technical requirements while simultaneously adopting an AA that will minimize performance expectations.

Yes - it's that infamous "Compliance Answer" we all dread...

Q: "Should an Assessment Area consist of an entire MSA or county? Or should it consist of a smaller subdivision?"

A: It depends.

There are several things to consider when selecting only some track in a county.

You must know the census tract income classifications of all the tracks in a county and the municipal boundaries of cities in the county.

You need to know the track classifications and some demographic information in order to demonstrate that the tracks you select do not appear to arbitrarily omit low and moderate income census tracts or areas of high concentrations of a minority population. This can get tricky especially when it can appear that you purposely omit and do not lend in these areas.

Whole counties are usually picked because they eliminate the possibility of this happening. Whole counties are also NORMALLY AND USUALLY selected because census data is broken down by county and easier to obtain. You can get data on selected tracts but its more time consuming to obtain the data.

The assessment area tracts must be whole geographies so you need to make sure you have all the tracts of a municipality in the area you select.

So do you have to select whole counties - No but you better know what your are doing in order to comply with establishing assessment area per regulations.

Another reason to select whole counties is the examiners are using a product and procedures that makes it difficult for them to do an analysis with just some tracts being in an assessment area. I find that some institutions that have selected some tracts in a county wind up eventually selecting the whole county because regulators find reason for them to do so. Examiners know full well an make allowances for areas that you cannot service but are in your assessment area just beause the tract is in a county.

Because not all geographic areas are the same it is much easier for some institutions to select some tracts in a county and very difficult for some in more populated counties to do so.

As Bonnie M stated "it depends" It is not always reasonable to do something just because you can,

For those familiar with Southern California, a perfect example of this conundrum is for very small banks located in either Los Angeles County or San Bernardino County.

Los Angeles County is quite large and extends from the densly populated ocean areas all the way to the sparsely populated high desert. There are some pronouced geopgraphical barriers in between a few of the areas in this county, and traffic is a nightmare. Most rational people simply do not contemplate driving from one end of the county to another unless forced to do so because of the job they have taken.

San Bernardino County is quite simply thee largest county in the nation. It's huge and relatively empty. Lots of tumbleweeds that don't necessarily need banking services.

There is an area where Los Angeles County is right next to San Bernardino County.

So imagine the dilema of a very small bank located in one corner of one of these counties, or worse, a very small bank that straddles both sides of these counties.

Even worse is the ISB in the same situation.

It's one of those situations where one has to step back and simply say..."Dear lord...give me a break!"


P.S. Edited to say - a pleasant surprise to see you Don!