Hmmm, so much to say. So little time to type. Let me start with SJB's question to his regulator about expanding the AA to include the non-branched counties. Something that's been lost since 1995 is the concept that examiners are not supposed to be in the business of telling bankers whether their assessment area is too small or large. Under the current CRA reg, as long as your AA meets the restrictions of paragraph .41, the AA really isn't to be a topic of discussion for an examiner. This was an attempt to simplify from the old 12 assessment factor CRA reg under which it was somewhat common for a bank to be told at one exam that the delineated community was too big, only to be told at the next exam it was too small. So, if including the nonbranched counties complies with the AA restrictions of .41, your new AA will "fly."
Now to the matter of "acceptable concentration ratios for a community bank." I'm assuming you really are a community bank, meaning you are subject to the small bank CRA test. If that's correct, check out the CRA reg in Appendix A - Ratings, paragraph (d) Banks evaluated under the small bank performance standards. There are 5 performance standards, one of which is lending within the AA. Examiners call it the in/out ratio, which baffles me because we don't calculate a ratio of loans made in the AA to loans made outside of the AA.
It's a ratio of loans made in the AA to all loans made during the evaluation period.
Anyway, paragraph (d)(1) talks about eligibility for a Satisfactory rating. Subparagraph (ii) to that speaks to lending in the AA. It says that for satisfactory performance in this one performance category, a bank must have at least a majority of its loans in the AA. So, anything over 50% gets you into satisfactory territory for this one element of the overall CRA rating.
"But AR," you gasp, "this doesn't comport with what The Queen said." Far be it for me to take on Dawnie, but I'm confident her bank was gunning for an Outstanding CRA rating. In that scenario, some examiners would expect to see a "substantial majority" of loans in the AA. Substantial majority is probably something over 80%, maybe even 90%, depending on performance context.
Keep in mind that having, say, 65% of your loans in the AA doesn't preclude an Outstanding rating. The loan-to-deposit ratio and the lending in the AA % just tell us if and where you lend. Clearly, the more important criteria to focus on are borrower and geographic distribution. If your LTD ratio is reasonable, at least a majority of your lending is in the AA, AND you meet or exceed demographics in your borrower and geographic distributions, you may very well be in Outstanding territory. This is consistent with the verbiage in Appendix A regarding eligibility for Outstanding ratings. Hope this helps. AR.