We delineate our CRA assessment area based on the location of our branches. We are located in an MSA with 6 counties, but only include 4 in our AA. During a recent exam, our examiner told us that we appear to be doing some "significant" lending in one of the counties we do not currently include. I'm wondering if there is any certain threshold for inclusion and would I compare it to only the 4 counties we currently include or to the entire MSA?

It is hard to answer this type of question without seeing all of the data. That said, if you are just basing your assessment area on where your branches are located, that could be a problem, especially if your branches are not in higher minority concentration areas. The concern, of course, is redlining as several banks have had issues when they haven't taken a full MSA as their assessment area (though there are typically other issues beyond just where the assessment area is drawn).

Here is one example of a bank that did not take all counties in an MSA in their assessment area, but ended up with a redlining settlement with the DOJ: https://www.justice.gov/opa/pr/just...k-resolve-lending-discrimination-claims. This complaint should give you some understanding of what the regulators concerns were (and again, it wasn't just where the assessment area was drawn). The link to the complaint (as well as exhibit A and exhibit B, which provide maps of the assessment area and branch locations - which helps to see visually) can be found at the bottom of the page on the left.

All of that said, you could have good reason to NOT add a census tract in an MSA to your assessment area - especially if the county does not have a higher minority concentration. Again, this will all depend upon your data and specific situation.

If you PM me, I can send you a link to a video I recently recorded on redlining that may assist you in making your determination.

How you delineate your Assessment Area is the most important CRA decision you will ever make because it dictates your "performance context" which drives performance expectations. We always encourage our clients to review their AA delineation every year because over time even a perfect AA (if that's possible) can become outdated. Too few banks give this much consideration and unknowingly configure unrealistic AA's that inflate their performance standards.

Here's a brief video explaining how it works: Assessment Area Configuration Impacts Everything

So what is realistic? How do I know what level of lending in a particular county warrants adding it to the AA?

You need to not only look at your lending, but you also need to consider the "performance context" of the areas you are considering adding and you will need to think about how your performance expectations will be affected. You should consider not only your defacto lending, but you should also look at your branch system, the credit markets including competitive structure, and the demographics of the potential AA or expanded AA. When we work with banks to help them develop practical and realistic AA's we always look at all these factors and we can compute them in real-time with live maps that allow instantaneous calculation of your results and the impact on performance benchmarks as you play around with different possible AA configurations. We can even calculate the "practical service area" served by your branches so you can be sure you delineate a realistic AA that doesn't inflate performance expectations.