Bankers and others said they expect rural lenders to fare well under new Community Reinvestment Act provisions.

Guidelines that took effect Jan. 1 evaluate small banks on the basis of overall performance in lending.

Small banks - those with $250 million or less of assets - include many of the nation's agricultural lenders.

"The streamlined CRA will be appropriate for small banks, and almost all ag banks are under the $250 million cutoff," said Miami-based CRA consultant Kenneth H. Thomas.

He said he expects small-bank ratings to remain about the same under the new guidelines.

Exams will be based on loan-to-deposit ratios, where the bank lends, its lending history, and responsiveness to previous complaints.

The new exams deemphasize documentation.

"The biggest frustration smaller rural banks have had with CRA has been the documentation," said Jeffrey L. Plagge, president of $90 million-asset First National Bank, Waverly, Iowa. "With the new CRA ... there is a lot more emphasis on what (banks) are doing. That's what banks have been asking for all along."

But in terms of actually meeting rural communities' needs, community development lender Gloria Guerrero gives banks mixed marks.

"Most of the locally owned lenders are extremely conservative, and the ag lending they do is secured," said Ms. Guerrero, president and chief executive of National Rural Development and Finance Corp., based in San Antonio, Texas. "What's difficult for them is to look at projects such as low-income housing and anything that's out of their traditional lending framework."

Regulators give small rural banks mixed results as well. Only 6.2% of banks with less than $100 million in assets earned "outstanding" CRA ratings in 1991, compared with 15.6% of larger banks, according to Mr. Thomas.

Under the new rules, small rural banks also can expand their market "assessment area," that is, expand the area that is included in their CRA evaluation.

"I think it dilutes the concept of a local community," Mr. Thomas said. "By expanding the definition of the community, they are now making loans in it. That and other factors are going to result in smaller banks doing better."

Generally, CRA issues are different in rural areas than in urban ones. "The marketplace diversity is probably significantly less," said Mr. Plagge, also chairman of the American Bankers Association's economic development task force.

And markets are naturally larger geographically. The assessment areas of Elk Horn Bank and Trust, Arkadelphia, Ark., a community development- oriented bank, consists of more than 100 square miles and about 30,000 people.

Compared to a community bank serving part of an urban area, the bank's lending strategy is therefore markedly different, said George Surgeon, Elk Horn's president and chief executive.

"How does a small $100 million bank deal with credit needs ... in a very large geographic area that's sparsely situated?" Mr. Surgeon asked. Elk Horn, got a "satisfactory' rating in its last exam and has another rating scheduled this quarter.

Still, Mr. Plagge said rural banks tend to know their whole community. "In many cases, you may be the only bank," he said. "From a CRA standpoint, I think it's an advantage to be in a small market. You know your market better."

But Mr. Thomas is still concerned that some rural banks might not have the incentive to improve their lending records.

"A lot of small banks, because they're located in one-bank towns, don't have competition or community groups," he said. "There's not the urgency there to improve on CRA."

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