A statement in the CRA examination procedures for small banks "if the percentage of loans or other lending related activities in the assessment area is less than a majority, then the institution does not meet the standards for "Satisfactory" has me worried since our bank (small) funds brokered loans and then sells them on the secondary market. These loans come from areas that are NOT in our assessment area. The result is a higher percentage of loans outside our assessment area. Will examiners look at this secondary market lending seperately or will it cause a problem with our receiving a "satisfactory" and our HMDA data?

Write it up in your CRA context what your business reasons are for this.

Are the loans you are keeping in your market areas? If so, I'd document the heck out of that and explain the difference between the two. (EX: The former is an opportunity to use excess deposits for short term, profitable loans. The latter is your investment back into your depositors geographies.) I'd do number crunching to satisfy the examiners and make sure that the next question is always answered. In this case, the next question is "excess deposits for loans?", make sure there are few or no unmet needs those funds could have gone to within your market areas.

The basic rule for CRA is still document, document, document. This is true whether it be for you, your regulators or your public file.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

Just received feedback a few days ago from one of our customers, that regulators critized them for only having 62% inside their assessment area. They also originate and sell real estate loans, as well as purchase dealer auto paper,from outside their assessment area.

The actual percentage of your loans originated outside the assessment area, and the effort the banks is making to generate them, vs inside the assessment area, will influence the examiners opinion.

If it looks like the bank is circumventing making loans in areas inside the assessment area, then a critism will be made.

Knowing your market area, the competition, and how well you are meeting the credit needs of those inside the assessment area will go a long way in justifying out of assessment area originations.