We currently have an assessment area which includes an entire county (main office and one branch)plus three additional tracts in an ajoining county for another office. All of these tracts are contiguous. We now want to open a second office in this second county and wanted to know if once we identify our asessment area for the new office, must its assessment area be contiguous to the current assessment area for the current office? 228.41(c)mentions contiguous areas.

Maya, read on to 228.41(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.

This paragraph would appear to justify removing census tracts within a county from your assessment area, so long as the CTs you keep contain your branch location and are contiguous to one another. I don't know your area; however, in my past experience with the OCC and OTS it's been hard to justify not including whole counties.

We are in a rural area, where there may be several towns to a Census Tract, and one or two instances with several tracts in a town. We have two banks, one FDIC and one OCC, and they have never remarked about needing to have whole counties. The key to §228.41(d) is the first sentence. If there are tracts away from your branches you are not lending to, it will hurt your assessment. You will have enough challenge to try to get your commercial and residential lenders to lend in the same areas.

There is no need to have an entire county inside your AA. You must include only census tracts you can reasonably expect to serve and you cannot avoid low or moderate income tracts. We consult for many community banks regarding CRA and HMDA. Some of our clients even subdivide towns and none ever have been criticized for subdividing the AA. The only thing you cannot subdivide is a tract. You must include entire geographies. Moreover AA's don't have to be contiguous. Most of our clients with multiple AA's have AA's that are not contiguous.

No, that is stating that census tracts must be contiguous within your assessment area. one of the major reasons for having separate assessment areas is that you may have large gaps between your branches that you cannot support with lending, investment and services.

Here are some threads which may help you:
Expanding your AA
AA and new branches
Additional assessment areas

THe majority of my AA's do not include whole counties GRM, nor whole MSA's. The geography I serve makes this reasonable. I wouldn't take a blanket approach that it was necessary to take either a whole county or geography if the area makes sense. The ugly stuff is when you take half of AA #1, skip right over the middle (all low income tracts) and take the back half, even if you have branches on the sidelines of that middle area, THAT gets very questionable.

I have 10AA's by the way, none of which are contiguious and gosh darn it, I don't think I have one whole county in the mix but now you've made me so curious I have to check I also do not have the entire MSA in either of the two in my state, just bits and pieces (which are contiguous but not the whole MSA).