We are looking to expand our market area primarily on a referral basis and these will be commercial credits vs consumer credits. The purpose of this is to delineate some out of territory loan concentrations. Due to a large participation our out of territory loans are high and the S&S people are wanting us to reduce that amount. The only way for us to do this at this time is expand our market area.

We are not a CRA reporter and probably will not be, absent a change in the regulation or acquisition, within my life time.

In doing some crash reading I'm finding where in some discussions it appears AA & MA are synonymous and in other discussions they are separate. I would love for them to be separate as that would eliminate some of my concerns which if we expand this market area then we have to include the areas (census tracts) in between our nearest branch and the areas where the loans will be made.

While we would be able to service these referral loans on a limited basis my concern is due to the proximity of our branches to the area where some of the commercial credits will come from we would have a difficult time to effectively serve those markets on a full scale such as deposit relations, consumer lending, mortgage lending, etc. Our nearest branch to some of these areas will range from 25 to 75 miles.

So my question is can we expand our market area to include these areas so they will not be considered out of territory loans yet leave our current CRA AA in tact, or must we expand our AA to include these new market areas?

Our market area is much larger than our CRA assessment area. Always has been, and we've never been criticized.

Thank you.

Even though you do not report, your inside/outside ratios are very important for CRA. The effect will depend upon what loans in this new area do to your lending ratios. If they skew your inside/outside ratios (#s and $s) you will have to amend your assessment area. It will be important to keep a close eye on this so that you can make any needed changes.

You do need to be prepared to explain why you are doing these loans not lending in between your current AA and this area. It may come up and you should have your responses ready. Hopefully you are not skipping over lmi areas between this new area and your official AA. If you are, look to see if there is a low number of available businesses to lend to in that area.

Thanks Ms Kaybee.

I am aware if the concentration of these loans becomes too great we would have to expand the AA or have a good explanation.

And this is just not one area we're looking at. It's almost the whole southern half of IN, but these are strictly going to be referral loans and they will be considered on a case by case basis. We actually will have no calling officer within these market areas. We have a new Chairman that quite honestly has been beneficial to us in the short time he's been chairman and he has a lot of business contacts and clients both small and large state wide that he can refer to us on a limited basis. And yes I am well aware of keeping him at "arm's length" on any referrals he makes.

I'm not concerned about expanding the market area or accepting other applications if received. We just will have to underwrite them and make an informed credit decision vs automatically denying them for being out of market.

My big concern for the AA is as I said is the proximity of our branches to these new expanded counties. We honestly cannot effectively serve or market (nor do we have any intension of marketing, heck we do minimal marketing in our current area now) these counties on a full scale basis. We just don't have the manpower or the facilities. And I don't want to be dinged for the lack of concentration in these area if I have to include them in the AA.

For CRA it shouldn't present an issue unless the numbers grow out of proportion (as long as they don't cluster not to far from the AA - that could present an issue and examiners will want to know why that area and the tracts between the AA and this area are not in the AA.)

Regulators are paying a LOT of attention to AAs these days.

For safety and soundness, they will want to know who is calling on and checking collateral etc. for these out of market loans.

I wanted to tag along on this thread if I may - our Trade Area and our Assessment Area is the same. We do make loans outside of our Trade/AA area - primarily secondary market loans. Do I have any Fair Lending issues to deal with here if we deny an in-house loan because its out of territory (protected class) - but approve the secondary market loan (non-protected).

Thanks - beegee

So the loans you sell you are more inclined to go out of area than the loans you retain in portfolio. Am I reading that correctly? If you state that in policy, and treat all in house the same (other than a strict policy for occasional exceptions) you should be okay. But you need to adhere to policy.

Dan
Be careful not to substantially overlap a MSA boundary when you expand your AA into nearby counties. The regulation proscribes substantial overlap of AA and MSA boundaries. When that happens you will have to designate a separate AA. But the agencies also insist that you have at least one deposit-taking facility in each AA. That may present you with an unpleasant situation.

The original question re: assessment area vs. market area hits on a point of the current CRA regulation that has been lost over time. That point is that a bank's assessment area is merely the area in which its CRA performance will be evaluated. It's not the same as the bank's trade area, although it could be. It's not the same as the bank's service area, although it could be. And it's not the same as the bank's market area, although it could be.

So, yes, you can change your market area and keep your CRA assessment area intact. AR.

Absolutely correct AnonRegulator. Your branch locations and your in/out lending ratio is one of the main determining factors on if it makes sense to expand your assesment area. If your overall in/out ratio is >50% then your operations outside of your assessment area would not be a problem. when your ratio is a larger issue. The FDIC makes a huge deal out of this but it is possible to get an acceptable rating even with a <50% in/out, although your in for a huge fight. My advice expand operations (not physical locations) without expanding CRA assessment area, unless in/out is extremely low.

I have seen too many banks fail or gets needs to improve to ever advise pushing the envelope on in out ratios. The whole premise of CRA is to not take deposits from one area and lend them somewhere else. I have no problem with having a market area larger than the assessment area but it needs to be watched. You also have to consider, if you have developed that much of customer base in an area (unless it is via internet) why not put a branch where they are and capitalize on that market? Lending without accompanying deposits can affect the balance sheet over time, CRA aside.

I always have a fight when talking about size verse lending. One thing to keep in mind when looking at your AA. The Size of the AA does not matter as long as you are lending in the ratio of the peer banks that the exmainers are comparing you to. If you are a small bank and you take in the entire MSA where your branches are and you are lending in the proportions that make up that MSA your exmainers will never quesiton your CRA program. The same will be said for a really small AA.

The problems banks have is they are adjsuting the AA based on an upcoming exam and then it is to late.

That is very true. When a bank adds on to its AA just before an exam, they will likely have shortcomings.

CRA activities should be intentional. Not waiting until right before the exam, and hope it works out!

So, at the end of the day, it appears that the Bank's trade/market area can be larger than the bank's defined CRA Assessment Area, as long as there is some method to monitor and react to changes in the in/out ratio. Agreed?

I believe all would agree in general with your statement KMK.

In this age of online banking, the regulators need to look at assessment areas while they are reviewing the CRA.....