We are in the process of opening a full-service branch in a new county outside our existing AA's, so I am in the process of evaluating how to expand our AA to account for this.

The new branch will be located in a MSA. This MSA/new county is not quite perfectly adjacent to an existing AA, but a small portion of the new MSA/county touches one of our existing AAs. This existing AA is am referring to is also designated as a MSA and is separate from the MSA where the new branch is located. These MSAs do not appear to be within a larger CSA.

If I am understanding 12 CFR 228.41(e)(4) - "may not extend substantially beyond an MSA boundary," it seems that instead of expanding our current AA to include this new location, I need to establish a new AA specifically because the new branch is located in a separate MSA. Am I approaching this right?

What is throwing me off a bit is 228.41(c)(1) says "The AA for a bank must consist generally of one or more MSAs or metropolitan divisions or one or more contiguous political subdivisions, such as counties, cities, or towns."

As I mentioned, an existing AA and the county where the new branch will be located do touch, so I think that meets the contiguous definition. Should I just interpret this as 228.41(e)(4) supersedes (c)(1) and establish an entirely new AA for this one branch since its in its own MSA?

Your AA delineation is the most important CRA decision you will make because it affects your results and the performance context factors that are used to develop your performance standards. So aside from trying to comply with the regulation you should be seriously looking at how different AA configurations reflect your true defined community and minimize performance pressure on the bank.

You are on the right track regarding the MSA and the prescriptions and proscriptions of AA delineation. The fact that you have a deposit-taking branch in another MSA requires you to delineate that AA separately from existing AA's. You cite one of the exceptions to this prohibition, namely that the areas are in a CSA. But you state that the areas in question are not within a CSA. There is a Q&A that says you can adjust your AA to the area you can "reasonably" be expected to serve.

I encourage you to take a hard look at the configuration options for your new AA. As I stated above, this is by far the most critical CRA decision you will make - it can make your job a lot easier and it's worth the extra effort.