Assessment areas are not like the proverbial "one size fits all" "cape dress" advertised on late night television. Assessment areas are not even a "one size fits most" component of CRA. The size of each assessment area depends upon the bank's community, locations and asset size. It should include an area the bank can reasonably expect to service based upon the bank's business plan. The 2016 CRA Interagency Q&As provide assessment area guidance in Section 41 Assessment area delineation.
Definition of Assessment Area
When developing an assessment area, the bank must include the main office as well as any branches and deposit taking ATMS, including areas where the bank has originated (or purchased) the majority of its loans. An LPO (loan production office) may be included within the assessment area but a separate assessment area cannot be created just for an LPO.
Assessment areas must consist of whole geographic areas (i.e. census tracts). Cities, towns, counties, townships, and Indian reservations are governmental units which are considered political subdivisions for delineating CRA assessment areas. Wards, school districts, voting districts and water districts are not considered political subdivisions for assessment area purposes. When creating an assessment area, take into consideration the actual area served by the bank. The assessment area should not be so large that it includes geographies larger than what the bank can reasonably expect to service.
Purpose of the Assessment Area
While delineation of an assessment area is a required component of CRA, the assessment area can also assist the bank in understanding where and how it is meeting its community's needs through providing data on loan and deposit penetrations. By mapping the assessment area a bank can readily detect the locations where efforts have been focused to meet needs within the community it serves. Studying the lending patterns and credit requests from the various census tracts located within the assessment area provide insight to areas where loan coverage could be increased.
Adjusting the boundaries
As a bank monitors its total CRA program, there may be a need to increase or decrease the assessment area. Activities such as mergers, closing a branch, opening a branch, or installing an offsite deposit taking ATM can all affect the assessment area. As these activities occur, boundaries can be adjusted if necessary. When adjusting the boundaries of an assessment area, certain criteria must be considered. The boundaries must not arbitrarily exclude low to moderate income geographies or reflect illegal discrimination. Whole geographies (census tracts) and generally, entire political subdivisions, must be included in the assessment area. However, you may split a political subdivision if there is a natural, geographic boundary such as a river or major highway that divides the area.
To sum it all up, review your assessment area as a part of your quarterly or annual review of your CRA program. Note whether there have been any changes to asset size, locations and/or business plans as these changes may bring about the need to adjust the assessment area. If adjustments are needed, do not be afraid to make those adjustments. Remember, examiners will not evaluate the bank separately on the assessment area delineation, but will review whether the criteria for setting the assessment area have been followed. Asset size, community needs, business plans, and market outreach differ for each bank, thus the "one size fits all" concept doesn't work in this environment. So put down that remote and don't order that cape dress.