PUBLIC DISCLOSURE. June 22, 2009 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION. Coastal Community Bank RSSD #

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1 PUBLIC DISCLOSURE June 22, 2009 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Coastal Community Bank RSSD # Colby Avenue Everett, Washington Federal Reserve Bank of San Francisco 101 Market Street San Francisco, California NOTE: This document is an evaluation of this institution s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS INSTITUTION RATING... 1 Institution s CRA Rating... 1 INSTITUTION... 2 Description of Institution... 2 Scope of Examination... 3 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA... 5 Loan-to-Deposit Ratio... 5 Lending in Assessment Areas... 5 Lending Distribution by Geography... 5 Lending Distribution by Business Revenue... 5 Response to Complaints... 6 Fair Lending or Other Illegal Practices Review... 6 FULL-SCOPE ASSESSMENT AREA CONCLUSIONS... 7 Snohomish County Assessment Area... 7 DESCRIPTION OF OPERATIONS IN SNOHOMISH COUNTY... 7 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA IN SNOHOMISH COUNTY LIMITED-SCOPE ASSESSMENT AREA CONCLUSIONS APPENDICES Appendix A: Glossary of Terms Appendix B: Limited-Scope Assessment Area Market Profiles i

3 INSTITUTION RATING Institution s CRA Rating Coastal Community Bank is rated "SATISFACTORY" The major factors supporting the institution s rating include: A reasonable loan to deposit ratio A majority of loans made within the assessment area Reasonable geographic distribution of small business loans, with excellent penetration in low-income census tracts A reasonable level of lending to small businesses with a notable percentage of those loans in small dollar amounts of $100,000 or less, addressing a stated small business need 1

4 INSTITUTION Description of Institution Coastal Community Bank (CCB) is headquartered in Everett, Washington, and reported total assets of $243 million as of December 31, The bank commenced operations in 1997 and currently operates 9 full-service branches and one loan production office (LPO) in Island, Snohomish, and Spokane counties. The Camano Island and Freeland branches are located in Island County. The bank s Darrington, Everett, Monroe, Silver Lake, Stanwood, and Sultan branches are located in Snohomish County. In addition to the Stanwood branch, the bank also operates its LPO in the city of Stanwood. The Spokane branch is the only branch located in Spokane County. Since the previous Community Reinvestment Act (CRA) examination, conducted by the Federal Deposit Insurance Corporation (FDIC) on February 3, 2004, the bank opened six branches and its LPO as follows: Island County s Freeland and Camano Island branches were opened in September 2004 and March 2005, respectively. In Snohomish County: o the Stanwood branch opened as a drive-in facility in December 2004 and converted to a full-service operation in June 2008; o the Darrington branch opened in August 2005; o the Stanwood LPO opened in April 2008; and, o the Silver Lake branch opened in February 2009, which is after the review period for this examination. In Spokane County, the Spokane branch opened in December CCB is a commercial lender with a focus on providing banking products to small- to mediumsized companies. The bank s primary lending focus is commercial credit facilities, including revolving lines of credit, term loans, commercial real estate, as well as construction and land development loans. CCB also offers consumer loans primarily to accommodate the personal needs of its business clientele. Consumer loans include auto, recreation vehicle, home equity loans and lines of credit, secured and unsecured personal loans, and overdraft protection. 2

5 Below is the bank s December 31, 2008, loan portfolio as stated in the Consolidated Reports of Condition and Income; the loan information reflects CCB s commercial lending focus. EXHIBIT 1 LOANS AND LEASES AS OF DECEMBER 31, 2008 Loan Type $ ( 000s) % Commercial/Industrial & Non-Farm Non-Residential Real Estate 110, Construction & Land Development 54, Secured by 1-4 Family Residential Real Estate 41, Multifamily loans 10, Real-estate secured by Farm Land 3, Consumer Loans & Credit Cards 1, All Other 1, Total (Gross) 224, CCB s assessment areas have expanded since the previous examination as a result of its branch expansion. The bank now delineates the following three assessment areas: Snohomish County in its entirety, which is part of the Seattle-Bellevue-Everett, Washington Metropolitan Division (MD); Island County in its entirety, which is not a Metropolitan Statistical Area (i.e., a non- Metropolitan Statistical Area (MSA)); and Nine census tracts located primarily along US Interstate 90 in Spokane County, which is part of the Spokane MSA. During this review period, CCB faced no legal or financial impediments to prevent it from helping to meet the credit needs of its assessment area consistent with its business strategy, size, financial capacity, and local economic conditions. Scope of Examination The bank s CRA performance was evaluated using the Interagency Small Institution CRA Examination Procedures. The evaluation was based on the following performance criteria: Loan volume in comparison to deposits (Loan to Deposit Ratio); Lending inside and outside the assessment area (Lending in Assessment Area); Dispersion of lending throughout the assessment area (Geographic Distribution of Loans; and Distribution of lending to businesses with different revenue sizes (Lending by Business Revenue). Responsiveness to consumer complaints was not evaluated since the bank did not receive any complaints related to its CRA performance during the review period. 3

6 The evaluation was based on small business loans originated from January 1, 2007 to December 31, During this period, the bank originated 254 small business loans. A sample of 113 loans were used to evaluate all criteria. The Snohomish County assessment area received a full-scope review due to the predominance of CCB branches and the bank s overall presence and level of activity in that assessment area during the review period. Because of the bank s more limited presence and branch representation in Island and Spokane Counties, these assessment areas were given limited scope reviews. 4

7 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA Loan-to-Deposit Ratio The loan to deposit ratio is reasonable. The eight-quarter average was percent as of December 31, 2008, and exceeded state and national peer averages of 98.1 and 85.2 percent, respectively. Lending in Assessment Areas A majority of loans were extended inside the bank s assessment areas. As seen in Exhibit 2, the bank extended 87.6 percent of small business loans by number and 73.8 percent by dollar volume within its assessment areas. EXHIBIT 2 LENDING INSIDE AND OUTSIDE THE ASSESSMENT AREAS JANUARY 1, 2007 TO DECEMBER 31, 2008 Inside Outside Loan Type $ $ # % % # % ( 000s) ( 000s) Small Business , , Lending Distribution by Geography Overall, the geographic distribution of loans is reasonable. Considering contextual factors such as competition from other financial institutions and the location of bank branches relative to specific census tracts as discussed in the each assessment area, the bank s lending demonstrates a generally good dispersion among census tracts of different income levels. Lending Distribution by Business Revenue The level of lending to small businesses is reasonable. As shown in Exhibit 5, which can be found on page 12, the percentage of loans made to small businesses by CCB exceeded the level of aggregate lending to such businesses by lenders subject to data reporting pursuant to the CRA. The bank also made a significant portion of its small business loans in small dollar amounts, thereby addressing an articulated credit need. % 5

8 Response to Complaints There were no complaints related to CRA received during the review period. Consequently, the bank s performance in responding to complaints was not considered in evaluating its overall CRA performance. Fair Lending or Other Illegal Practices Review The fair lending review performed concurrently with this examination did not evidence any discriminatory or other illegal credit practices. Fair lending policies, procedures, and training programs were found to be adequate and designed to ensure compliance with fair lending and other credit practices rules, laws, and regulations. 6

9 FULL-SCOPE ASSESSMENT AREA CONCLUSIONS For each assessment area where a full-scope review was performed using the examination procedures. Snohomish County Assessment Area DESCRIPTION OF OPERATIONS IN SNOHOMISH COUNTY Snohomish County is located on Puget Sound in the northwestern corner of Washington state. The sound is an inland body of water lying approximately 50 miles east of the Pacific Ocean to which it connects by way of Admiralty Inlet and the Strait of Juan de Fuca. 1 Snohomish is situated on the eastern side of the Sound, between Skagit County to the north and King County to the south. Covering 2,090 square miles, it is the 13th largest county in total land area in Washington. Sixty-eight percent of the county land area is forest land, 18 percent is rural, nine percent is urban/city and 5 percent is agricultural. 2 The assessment area is part of the Seattle- Bellevue-Everett, Washington MD. Based on 2008 population estimates by the State of Washington s Office of Financial Management, Snohomish County, with a population of 704,300, is ranked the third most populous county in the state behind King and Pierce Counties. 3 The bank operates six branches in this assessment area including two branches in Everett, which are the main office and the Silver Lake office, and one branch each in the towns of Darrington, Monroe, Stanwood, and Sultan. The bank also operates a loan production office in Stanwood. CCB has a somewhat limited presence in this highly competitive assessment area. As of June 30, 2008, the bank s five 4 offices held $186.7 million in deposits, representing 1.92 percent of the market share and ranking the bank 12th out of 32 institutions insured by the FDIC. In 2007, the most recent year for which data was available, the bank ranked 111 th out of 431 lenders that originated 59,376 mortgage loans subject to reporting pursuant to the Home Mortgage Disclosure Act (HMDA), which represents only a portion of the overall market. Competition for small business loans was also significant given that there were 74 lenders that originated 30,432 CRA reportable small business loans, which also represents only a portion of the market. Given the large number of institutions that operate in this area, competition for loan and deposit products was considerable. 1 Go Northwest Travel Guide Washington Puget Sound Region; (accessed August 21, 2009); available at 2 Snohomish County, Online Government Information and Services Information about the County; (accessed July 14, 2009); available from: 3 Office of Financial Management State of Washington, Historical/Current Data Set: Total Resident Population by Year by County, Washington ; (accessed July 28, 2009); available from: http// 4 As of June 30, 2008, the bank had five offices in Snohomish County. The sixth branch, the Silver Lake office, opened for business on February 1,

10 The following exhibit presents key demographic and business information used to help develop a performance context for the assessment area. Income Categories EXHIBIT 3 ASSESSMENT AREA DEMOGRAPHICS 5 Tract Distribution SNOHOMISH COUNTY Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income , , Moderate-income , , , Middle-income , , , Upper-income , , Total AA , , , Income Categories Housing Units by Tract Housing Types by Tract Owner-occupied Rental Vacant # % % # % # % Low-income 3, , Moderate-income 65,870 29, , , Middle-income 130,784 92, , , Upper-income 35,731 30, , Tract not reported Total AA 236, , , , Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Businesses by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income Moderate-income 7, , Middle-income 16, , Upper-income 4, , Total AA 28, , , Percentage of Total Businesses Median Family Income Seattle - Bellevue-Everett, WA Metropolitan 2008 Median Housing Value -Snohomish Division: $63, HUD Adjusted Median Family Income Seattle-Bellevue-Everett, WA Metropolitan Division: $81,400 County: 6 $325, Unemployment Rate Seattle-Bellevue-Everett, WA Metropolitan Division: 7 4.5% Snohomish County has a relatively diverse economy, with representation by industries such as aerospace manufacturing, software publishing, healthcare, electronics, insurance, construction, U.S. Census and 2008 Dun & Bradstreet Data. 6 Q42008 Housing Market Snapshot, Washington State University, Available at: (accessed June 4, 2009). 7 Federal Deposit Insurance Corporation, Regional and Economic Reports, 2008 Unemployment data for the Seattle- Bellevue-Everett, WA Metropolitan Division. 8

11 and the military. 8 The top employers include Boeing Company, Aviation Technical Services, Providence Everett Medical Center, Premera Blue Cross, Tulalip Tribes Enterprises, the U.S. Navy, and state and county government. 9 In addition to the large employers, small businesses (i.e., those with gross annual revenues of $1 million or less) provide a significant percentage of total employment as they comprise a substantial majority of all businesses in the assessment area. According to the Dun & Bradstreet data shown in Exhibit 3 above, approximately 91 percent of all assessment area businesses have gross annual revenues of less than or equal to $1 million. During the review period, the assessment area economy moved from strong expansion to the brink of recession. As of April 2007 Boeing Company was coming off of two years of record setting orders, and Microsoft had added 4,000 local jobs during The growth of these and other local companies resulted in strong job creation and the associated gains in wage income kept the housing market among the strongest in all U.S. metropolitan areas at that time. 11 Housing price growth was strong, and though starting to slow, still outpaced the national average. By year-end 2007, the Seattle-Bellevue-Everett MD remained among the best performing metro areas in the country, but there were signs that the expansion was beginning to moderate. The area s core industries of aerospace manufacturing and software publishing functioned as the primary drivers of the still relatively strong performance, as the high paying jobs these industries created kept the local economic engine running. The year-end unemployment rate was 3.8 percent, a figure below the national unemployment rate of 4.6 percent. Nevertheless, cooling was becoming evident in the housing sector. Housing price appreciation continued to slow as limited affordability and tighter credit conditions curbed demand, leading to a drop in single family housing permits and an increase in housing supply. Northwest Multiple Listing Service reported residential listings were approximately 50.0 percent higher than year-end And layoffs of local financial services staff were announced because of credit quality issues stemming from nationwide mortgage activities. 12 According to Moody s Economy.com, by year end 2008, the negative trends in the troubled housing sector brought the Seattle-Bellevue-Everett MD to the brink of recession. Housing price declines and falling demand were becoming more problematic as potential homebuyers were cautious due to uncertainties about job losses and tightened bank credit standards constrained some possible buyers. The declining demand also began to impact builders and the construction industry, which had previously managed to keep busy with projects started before the economy began to soften. In addition, the financial sector suffered as more financial service entities 8 Pacific Northwest Regional Economic Analysis Project - Snohomish County by Industry Sector, (accessed on July 14, 2009); available from 9 Economic Development Council of Snohomish County; Snohomish County Largest Public/Private Employers 2008; (accessed July 28, 2009); available from: 10 Moody s Economy.Com Precis METRO, Seattle, April Ibid. 12 Moody s Economy.Com Precis METRO, Seattle December

12 reduced staffing levels. Local manufacturers also began staffing reductions during this period. As a result, the unemployment rate rose sharply from its 3.4% low in April 2008 to 5.5 percent at year end. 13 However, unemployment remained below the national figure of 7.2 percent 14 as the local economy managed to stay afloat due to high paying jobs that were still being added in the area s primary industries, aerospace manufacturing and software publishing. 15 The declining economic conditions during the review period resulted in financial institutions nationwide generally tightening lending standards and terms on all major loan products. The move toward more stringent lending policies was a trend throughout According to the January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices conducted by the Board of Governors of the Federal Reserve System, the net percentages of respondents that reported tightening standards increased relative to the October survey for both commercial and industrial loans and commercial real estate loans. 16 Previous surveys follow the same pattern. Also, survey results indicate that the demand for loans from both businesses and households weakened in the review period. Although there has been some decline in demand, community representatives indicated that there is a continuing need for micro loans to start-up and provide working capital for small businesses despite the current economic environment. Community representative also identified a need for financial education and technical assistance for small business owners. The MD s strong housing price gains from 2005 to 2007, which were also reflected in Snohomish County, 17 reduced housing affordability for families. 18 While the economic slowdown led to a statewide drop in housing prices starting in mid-2008, the prices in the assessment area had only declined an average of 6 percent by year-end Therefore, housing affordability remained an issue in the area due to the fact that a family earning the median household income was only able to afford a home priced below a median priced house. 20 To illustrate, using figures from Exhibit 3 above, the fourth quarter median home price in Snohomish County was $325,000; however, this figure is still well beyond a low-income individual s means. A low-income individual earning 50.0 percent of the 2008 Housing and Urban Development (HUD) adjusted median family income for Snohomish County, or $40,700, may be able to qualify for a 30-year fixed mortgage of approximately $208,495 with an interest rate of five percent, zero down payment, and no existing debt Moody s Economy.Com Precis METRO, Seattle, December Bureau of Labor Statistics Data Labor Force Statistics from the Current Population Survey; (accessed July 30, 2009); available from LNS Moody s Economy.Com Precis METRO, Seattle, December The Federal Reserve Board. The January 2009 Senior Loan Officer Opinion Survey on Banking Lending Practices; available from 17 Moody s Economy.Com Precis METRO, Seattle, December The Seattle Times: Business & Technology: Home Values; (accessed on July 30, 2009): available from 19 Moody s Economy.Com, Precis METRO, Seattle, December Moody s Economy.Com Precis METRO, Seattle, April CNN Money.com, How Much House Can You Afford? (accessed July 15, 2009); available at: 10

13 The gap between incomes and home prices, coupled with tighter credit standards help corroborate community contact assertions that there is a continuing need for the support and development of affordable housing programs in the area. Community contacts also cited an increased need to assist homeowners experiencing mortgage delinquency and foreclosure by providing them with access to counseling services and other resources such as foreclosure prevention programs. CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA IN SNOHOMISH COUNTY The bank s CRA performance in the Snohomish County assessment area is reasonable. Loans are reasonably distributed among different geographies, and businesses of different sizes. Lending Distribution by Geography Overall, the bank s lending distribution for small business loans in the Snohomish County assessment area is reasonable, with particularly strong performance in low-income census tracts. As seen in Exhibit 4 below, the percentage of small business lending exceeds the percentage of business entities and the level of aggregate lending in the low-income census tracts. The performance in the moderate-income census tracts fell below the percentage of businesses and the aggregate lending in those geographies, primarily due to the location of the bank s branches relative to those tracts. Prior to the opening of the Silver Lake branch, which is outside of this review period, four of the bank s five branches adjoined eight of the county s 31 moderate-income census tracts; the remaining moderate tracts were more distant. Further, the Sultan and Darrington branches adjoined moderate-income census tracts with relatively low concentrations of small business. Because the bank generally lends around its offices, the distance from many moderate tracts and lower business representation in some areas close to the branches contributed to the bank s overall lower level of lending to these geographies. By contrast, the downtown Everett and Monroe branches adjoined moderate-income tracts with a higher number of small business entities and demonstrated relatively higher levels of lending in those tracts. 11

14 EXHIBIT 4 GEOGRAPHIC DISTRIBUTION OF SMALL BUSINESS LOANS Census Tract Income Business Aggregate Bank Lending (%) Category Concentration (%) Lending (%) Low Moderate Middle Upper Lending Distribution by Borrow Income and Business Revenue The level of lending to small businesses is reasonable. As shown in Exhibit 5 below, the percentage of loans made to small businesses, while lower than the percentage of small business in the area, exceeded the level of aggregate lending. In addition, a substantial portion of loans were extended in amounts of under $100,000 or less, thereby addressing an articulated need for small dollar loans. Businesses with Revenue <= $1 Million EXHIBIT 5 BUSINESS REVENUE DISTRIBUTION OF SMALL BUSINESS LOANS Originations Regardless of Revenue Size by Loan Amount Aggregate Lending Bank All Revenue <= > $100K and > $250K and <=$1M Lending Businesses <=$100K (%) All Loans $1 Million <=$250K (%) (%) (%) (%) (%) ,

15 LIMITED-SCOPE ASSESSMENT AREA CONCLUSIONS For each assessment area where a limited-scope review was performed using the examination procedures. The results of the limited scope reviews indicate that CCB s performance in the Island and Spokane County assessment areas is generally consistent in all categories of the lending test with the performance in the assessment area receiving a full scope review. Due to the bank s limited presence and corresponding lower levels of lending activities, these areas received less weight than the full-scope assessment area. Consequently, performance in these areas did not materially affect the bank s overall rating. ASSESSMENT AREA Island County Partial Spokane County SMALL BANK TEST Consistent Consistent Similar to the Snohomish County assessment area, the distribution of lending to low- and moderate-income tracts trailed that of aggregate lenders, but was determined to be satisfactory in light of contextual factors. In Island County, the bank made no loans in moderate-income census tracts. 22 It was determined, however, that the only two moderate-income tracts in the assessment were adjoining a navy base on the northern end of Whidbey Island. This area was not only distant from the closest CCB branch on the southern end of the island in Freeland, it had nominal representation by small business entities and was in an area where the bank had made no other loans in any of the surrounding tracts. The Spokane assessment area was comprised of only lowand moderate-income tracts and exhibited no lending in the low-income tracts. Of the two lowincome tracts in the assessment area, however, one not only had nominal small business presence, it had a level of lending by aggregate lenders that was comparable to the number of businesses in the tract, suggesting possible saturation. The other tract, which had a somewhat larger representation of businesses, was also home to a number of other financial institutions, suggesting significant competition for a limited customer base. Facts and data reviewed, including performance and demographic information, can be found in the exhibits within Appendix B accompanying this report. 22 There were no low-income tracts in this assessment area. 13

16 APPENDIX A GLOSSARY OF TERMS Aggregate lending: The number of loans originated and purchased by all reporting lenders in specified income categories as a percentage of the aggregate number of loans originated and purchased by all reporting lenders in the metropolitan area/assessment area. Census tract: A small subdivision of metropolitan and other densely populated counties. Census tract boundaries do not cross county lines; however, they may cross the boundaries of metropolitan statistical areas. Census tracts usually have between 2,500 and 8,000 persons, and their physical size varies widely depending upon population density. Census tracts are designed to be homogeneous with respect to population characteristics, economic status, and living conditions to allow for statistical comparisons. Community development: All Agencies have adopted the following language. Affordable housing (including multifamily rental housing) for low- or moderate-income individuals; community services targeted to low- or moderate-income individuals; activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration s Development Company or Small Business Investment Company programs (13 CFR ) or have gross annual revenues of $1 million or less; or, activities that revitalize or stabilize low- or moderate-income geographies. Effective September 1, 2005, the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have adopted the following additional language as part of the revitalize or stabilize definition of community development. Activities that revitalize or stabilize: (i) Low-or moderate-income geographies; (ii) Designated disaster areas; or (iii) Distressed or underserved nonmetropolitan middle-income geographies designated by the Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, based on: a. Rates of poverty, unemployment, and population loss; or b. Population size, density, and dispersion. Activities that revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals. Consumer loan(s): A loan(s) to one or more individuals for household, family, or other personal expenditures. A consumer loan does not include a home mortgage, small business, or small farm loan. This definition includes the following categories: motor vehicle loans, credit card loans, home equity loans, other secured consumer loans, and other unsecured consumer loans. Family: Includes a householder and one or more other persons living in the same household who are related to the householder by birth, marriage, or adoption. The number of family A - 1

17 households always equals the number of families; however, a family household may also include non-relatives living with the family. Families are classified by type as either a married-couple family or other family, which is further classified into male householder (a family with a male householder and no wife present) or female householder (a family with a female householder and no husband present). Full-scope review: Performance under the lending and community development tests is analyzed considering performance context, quantitative factors (for example, geographic distribution, borrower distribution, and total number and dollar amount of investments), and qualitative factors (for example, responsiveness). Geography: A census tract delineated by the United States Bureau of the Census in the most recent decennial census. Home Mortgage Disclosure Act (HMDA): The statute that requires certain mortgage lenders that do business or have banking offices in a metropolitan statistical area to file annual summary reports of their mortgage lending activity. The reports include such data as the race, gender, and the income of applications, the amount of loan requested, and the disposition of the application (for example, approved, denied, and withdrawn). Home mortgage loans: Includes home purchase and home improvement loans as defined in the HMDA regulation. This definition also includes multifamily (five or more families) dwelling loans, loans for the purchase of manufactured homes and refinancings of home improvement and home purchase loans. Household: Includes all persons occupying a housing unit. Persons not living in households are classified as living in group quarters. In 100 percent tabulations, the count of households always equals the count of occupied housing units. Limited-scope review: Performance under the lending and community development tests is analyzed using only quantitative factors (for example, geographic distribution, borrower distribution, total number and dollar amount of investments, and branch distribution). Low-income: Individual income that is less than 50 percent of the area median income, or a median family income that is less than 50 percent, in the case of a geography. Market share: The number of loans originated and purchased by the institution as a percentage of the aggregate number of loans originated and purchased by all reporting lenders in the metropolitan area/assessment area. Metropolitan area (MA): A metropolitan statistical area (MSA) or a metropolitan division (MD) as defined by the Office of Management and Budget. A MSA is a core area containing at least one urbanized area of 50,000 or more inhabitants, together with adjacent communities having a high degree of economic and social integration with that core. A MD is a division of a MSA based on specific criteria including commuting patterns. Only a MSA that has a population of at least 2.5 million may be divided into MDs. A - 2

18 Middle-income: Individual income that is at least 80 percent and less than 120 percent of the area median income, or a median family income that is at least 80 percent and less than 120 percent, in the case of a geography. Moderate-income: Individual income that is at least 50 percent and less than 80 percent of the area median income, or a median family income that is at least 50 percent and less than 80 percent, in the case of a geography. Multifamily: Refers to a residential structure that contains five or more units. Other products: Includes any unreported optional category of loans for which the institution collects and maintains data for consideration during a CRA examination. Examples of such activity include consumer loans and other loan data an institution may provide concerning its lending performance. Owner-occupied units: Includes units occupied by the owner or co-owner, even if the unit has not been fully paid for or is mortgaged. Qualified investment: A qualified investment is defined as any lawful investment, deposit, membership share, or grant that has as its primary purpose community development. Rated area: A rated area is a state or multistate metropolitan area. For an institution with domestic branches in only one state, the institution s CRA rating would be the state rating. If an institution maintains domestic branches in more than one state, the institution will receive a rating for each state in which those branches are located. If an institution maintains domestic branches in two or more states within a multistate metropolitan area, the institution will receive a rating for the multistate metropolitan area. Small loan(s) to business(es): A loan included in 'loans to small businesses' as defined in the Consolidated Report of Condition and Income (Call Report) and the Thrift Financial Reporting (TFR) instructions. These loans have original amounts of $1 million or less and typically are either secured by nonfarm or nonresidential real estate or are classified as commercial and industrial loans. However, thrift institutions may also exercise the option to report loans secured by nonfarm residential real estate as "small business loans" if the loans are reported on the TFR as nonmortgage, commercial loans. Small loan(s) to farm(s): A loan included in loans to small farms as defined in the instructions for preparation of the Consolidated Report of Condition and Income (Call Report). These loans have original amounts of $500,000 or less and are either secured by farmland, or are classified as loans to finance agricultural production and other loans to farmers. Upper-income: Individual income that is more than 120 percent of the area median income, or a median family income that is more than 120 percent, in the case of a geography. A - 3

19 APPENDIX B LIMITED-SCOPE ASSESSMENT AREA MARKET PROFILES Island County Assessment Area The Island County assessment area consists of the entire county which is located on Puget Sound. The county consists primarily of two large islands, Camano and Whidbey, and six smaller islands. The county has a total area of 517 square miles, of which 204 square miles are land and 309 square miles are water; 1 in land area it is the second smallest county in the state behind San Juan County at 175 square miles. 2 The assessment area is not part of an MSA. Based on 2008 population estimates by the State of Washington s Office of Financial Management, Island County with a population of 79,300 is ranked the 14th most populous county out of the state s 39 counties. 3 The bank operates two branches in this assessment area located in the cities of Camano Island and Freeland. Camano is primarily a residential island with limited areas zoned for commercial activities. The bank s Freeland branch is located in the southern portion of Whidbey Island where its primary activities are focused, while the northern portion of the island is largely given over to a navy base, and the bank does little business in that area. The relatively limited commercial operations in Island County 4 have restricted the volume of the bank s small business lending in the assessment area. In this assessment area, CCB faces significant competition for a limited market that is impacted by geographic barriers. As of June 30, 2008, the bank s two offices held $24.5 million in deposits, representing 2.72 percent of the market share and ranking the bank 8th out of 10 institutions insured by the FDIC operating 24 offices in the assessment area. 5 The bank originated no HMDA-reportable mortgage loans in this assessment area during the review period. Competition for the relatively limited number of small business loans was also significant given that there were 38 lenders that originated 3,747 CRA reportable small business loans and these lenders represent only a portion of the overall market. 6 In addition, as evidenced by the data in the table, below, the level of small business loans reported actually exceeded the 1 HistoryLink.org (accessed July 29, 2009). 2 NACO-National Association of Counties. 3 Office of Financial Management State of Washington, Historical/Current Data Set: Total Resident Population by Year by County, Washington ; (accessed July 28, 2009); available from: http// 4 Island County Planning, Island County Zoning Maps; available at: 5 Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits, June 30, 2008; (accessed July 28, 2009); available from: http//www3.fdic.gov/sod/ Large Bank CRA Reporting Data. B - 1

20 total number of businesses, suggesting a possibly saturated market and lower level of opportunities. The following table presents key demographic and business information concerning the assessment area. Income Categories ASSESSMENT AREA DEMOGRAPHICS 7 ISLAND COUNTY Tract Distribution Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income , Moderate-income , , Middle-income , , Upper-income , , Total AA , , , Income Categories Housing Units by Tract Housing Types by Tract Owner-occupied Rental Vacant # % % # % # % Moderate-income 1, , Middle-income 10,239 5, , , Upper-income 20,473 13, , , Total AA 32,378 19, , , Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Businesses by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Moderate-income Middle-income 1, , Upper-income 2, , Total AA 3, , Percentage of Total Businesses Median Family Income Non-Metro Areas: $42, HUD Adjusted Median Family Income Non-Metro Areas: $52, Median Housing Value Island County: 8 $298, Unemployment Rate Island County: 9 5.5% U.S. Census and 2008 Dun & Bradstreet Data. 8 Q42008 Housing Market Snapshot, Washington State University, Available at: (accessed June 4, 2009). 9 Historical Data for Civilian Labor Force and Unemployment Rate in Island County, Labor Market and Economic Analysis, Washington State Employment Security Department, Available at: (accessed May 21, 2009). B - 2

21 GEOGRAPHIC DISTRIBUTION OF SMALL BUSINESS LOANS Census Tract Income Business Aggregate Bank Lending (%) Category Concentration (%) Lending (%) Moderate Middle Upper Businesses with Revenue <= $1 Million Bank Lending (%) BUSINESS REVENUE DISTRIBUTION OF SMALL BUSINESS LOANS All Businesses (%) Originations Regardless of Revenue Size by Loan Amount <=$100K (%) > $100K and <=$250K (%) > $250K and <=$1M (%) Aggregate Lending All Loans Revenue <= $1 Million (%) , B - 3

22 Spokane County Assessment Area The Spokane County assessment area consists of nine census tracts clustered around U.S. Interstate 90 in the city of Spokane, which is located in northeastern Washington. 10 There are two low-income and seven moderate-income census tracts in the assessment area. With a population of 459,000 based on 2008 population estimates by the State of Washington s Office of Financial Management, Spokane County is the fourth most populous county in the state, while the city of Spokane is the second most populous city in the state, behind Seattle. The county covers 1,764 square miles, and ranks as the 19 th largest county in the state in terms of size. This assessment area is part of the Spokane MSA. CCB s presence is limited in this highly competitive assessment area. As of June 30, 2008, the bank s one office held $266 thousand in deposits, representing only a nominal portion of the market share and ranking the bank 18 th out of 18 institutions insured by the FDIC operating 130 offices in the county. 11 The bank was ranked 30 th out of 138 HMDA lenders that originated 1,566 reportable loans in the assessment area during 2007, which represents only a portion of the overall market. Competition for small business loans was also significant given that there were 28 lenders in the assessment area that originated 2,581 CRA reportable small business loans and these lenders also represent only a portion of the overall market. 12 Given the large number of institutions operating in the bank s nine census tract assessment area, competition for loans and deposit products was considerable. The following table presents key demographic and business information concerning the assessment area. 10 CCB s partial Spokane County assessment area includes the following nine census tracts: ; ; ; ; ; ; ; ; Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits by County, June 30, 2008; (accessed July 28, 2009); available from; http//www3.fdic.gov.sod/sodmarketrpt.asp?baritem= Large Bank CRA Reporting Data. B - 4

23 Income Categories ASSESSMENT AREA DEMOGRAPHICS 13 Tract Distribution SPOKANE COUNTY Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income , Moderate-income , , , Middle-income , Upper-income , Total AA , , , Income Categories Housing Units by Tract Housing Types by Tract Owner-occupied Rental Vacant # % % # % # % Low-income 3, , Moderate-income 12,920 4, , , Total AA 16,813 4, , , Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Businesses by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income Moderate-income 2, , Total AA 3, , Percentage of Total Businesses Median Family Income 2008 Median Housing Value Spokane MSA: $46, HUD Adjusted Median Family Income Spokane MSA: $56,700 Spokane County: 14 $185, Unemployment Rate Spokane MSA: % U.S. Census and 2008 Dun & Bradstreet Data. 14 Q42008 Housing Market Snapshot, Washington State University, Available at: (accessed June 4, 2009) 15 Federal Deposit Insurance Corporation, Regional and Economic Reports, 2008 Unemployment data for the Spokane MSA. B - 5

24 GEOGRAPHIC DISTRIBUTION OF SMALL BUSINESS LOANS Census Tract Income Business Aggregate Bank Lending (%) Category Concentration (%) Lending (%) Low Moderate Businesses with Revenue <= $1 Million Bank Lending (%) BUSINESS REVENUE DISTRIBUTION OF SMALL BUSINESS LOANS All Businesses (%) Originations Regardless of Revenue Size by Loan Amount <=$100K (%) > $100K and <=$250K (%) > $250K and <=$1M (%) Aggregate Lending All Loans Revenue <= $1 Million (%) , B - 6