PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE May 11, 2009 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION First Interstate Bank RSSD North 31st Street Billings, Montana Federal Reserve Bank of Minneapolis 90 Hennepin Avenue, P.O. Box 291 Minneapolis, MN 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 Institution s CRA Rating... 1 Table of Performance Test Ratings... 1 Summary of Major Factors Supporting Rating... 1 INSTITUTION Description of Institution... 3 Scope of Evaluation... 5 Conclusions With Respect to Performance Tests... 6 STATE MONTANA State Rating Scope of Evaluation Description of Operations Conclusions With Respect to Performance Tests METROPOLITAN AREA BILLINGS MSA (Full Review) Description of Operations Conclusions With Respect to Performance Tests METROPOLITAN AREA (Limited Review) Description of Operations Conclusions With Respect to Performance Tests NONMETROPOLITAN AREA KALISPELL (Full Review) Description of Operations Conclusions With Respect to Performance Tests NONMETROPOLITAN AREA HELENA (Full Review) Description of Operations Conclusions With Respect to Performance Tests NONMETROPOLITAN STATEWIDE AREA (Limited Review) Description of Operations Conclusions With Respect to Performance Tests STATE - WYOMING State Rating Scope of Evaluation Description of Operations Conclusions With Respect to Performance Tests METROPOLITAN AREA - CHEYENNE MSA (Full Review) Description of Operations Conclusions With Respect to Performance Tests Page Page i

3 TABLE OF CONTENTS (Continued) METROPOLITAN AREA CASPER MSA (Limited Review) Description of Operations Conclusions With Respect to Performance Tests NONMETROPOLITAN AREA SHERIDAN (Full Review) Description of Operations Conclusions With Respect to Performance Tests NONMETROPOLITAN AREA JACKSON (Full Review) Description of Operations Conclusions With Respect to Performance Tests NONMETROPOLITAN STATEWIDE AREA (Limited Review) Description of Operations Conclusions With Respect to Performance Tests APPENDICES CRA Appendix A: Scope of Evaluation CRA Appendix B: Summary of State Ratings CRA Appendix C: Glossary CRA Appendix D: CRA Core Tables CRA Appendix E: Assessment Area Maps Page Page ii

4 INSTITUTION RATING INSTITUTION S CRA RATING: First Interstate Bank is rated OUTSTANDING. The following table indicates the performance level of First Interstate Bank with respect to the Lending, Investment, and Service Tests. First Interstate Bank Performance Tests Performance Levels Lending Test* Investment Test Service Test Outstanding X X X High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance *The Lending Test is weighted more heavily than the Investment and Service Tests in determining the overall rating. Major factors supporting the institution s rating include: Lending Test Lending activity reflects excellent responsiveness to assessment area credit needs. A substantial majority of loans are made within the Montana and Wyoming assessment areas. The geographic distribution of loans reflects very good penetration throughout the assessment areas. The distribution of borrowers reflects very good penetration among borrowers of different income levels and businesses and farms of different sizes. The bank s level of lending reflects very good responsiveness in serving the credit needs of lowand moderate-income individuals and small businesses and small farms. The bank is a leader in making community development loans. The bank makes extensive use of innovative and flexible lending practices in serving assessment area credit needs. Investment Test First Interstate Bank makes an excellent level of qualified investments and donations through its branches, its holding company, and the First Interstate BancSystem Foundation. The bank is a leader in making qualified investments and donations throughout its Montana and Wyoming assessment areas. The bank s level of qualified investments and donations reflects excellent responsiveness to the credit and community development needs of its assessment areas. Service Test Delivery systems are readily accessible to all portions of the bank s assessment areas. The bank s changes to its retail services since the previous evaluation have not adversely affected the accessibility of delivery systems, particularly to low- and moderate-income census tracts or residents. Page 1

5 Services are tailored to the convenience and needs of the assessment area, including low- and moderate-income census tracts and residents. The bank is a leader in providing community development services. Page 2

6 INSTITUTION DESCRIPTION OF INSTITUTION General. First Interstate Bank is a $5.7 billion bank with its headquarters in Billings, Montana. The bank operates branch locations throughout Montana and Wyoming. Based on its size and financial condition, the bank effectively meets the credit needs of the residents, businesses, and farms in its assessment areas. The bank received an outstanding rating at its previous evaluation dated June 4, First Interstate Bank is not hindered from servicing the credit needs within its delineated assessment areas in Montana and Wyoming by any legal impediments or financial constraints. Structure. First Interstate Bank is wholly owned by First Interstate BancSystem, Inc., Billings, Montana (BancSystem). BancSystem also owns the following: First Interstate Reinsurance Ltd, Nevis Island, West Indies; First Interstate Statutory Trust I, Billings, Montana; First Interstate Statutory Trust III, Billings, Montana; First Interstate Statutory Trust V, Billings, Montana; First Interstate Statutory Trust VI, Billings, Montana; First Interstate Capital Trust II, Billings, Montana; First Interstate Capital Trust IV, Billings, Montana; First Interstate Bank Capital Trust, LLC, Billings, Montana; Commerce Financial, Billings, Montana; and First Interstate Insurance Agency, Billings, Montana. During the evaluation period, BancSystem acquired The First Western Bank, Sturgis, South Dakota; First Western Bank, Wall, South Dakota; and First Western Data, Huron, South Dakota. First Interstate Bank merged with the South Dakota banks in September The bank s asset size increased by approximately $1.2 billion as a result of the merger. In addition, BancSystem sold i_tech Corporation, formerly of Billings, Montana. BancSystem continues to operate its charitable affiliate, First Interstate BancSystem Foundation (Foundation). The Foundation is a nonprofit organization with a mission of assisting the organization in being a leading corporate citizen. The Foundation achieves its mission by providing financial education and making donations in the communities served by First Interstate Bank. The Foundation receives funding for these activities through monetary allocations from BancSystem. BancSystem and the Foundation contribute at least 2% of pretax earnings to community activities and projects. Loan portfolio. According to the March 31, 2009, Report of Condition, the bank had total assets of $5.7 billion, an increase of 14.3% since the last evaluation. The bank s loan portfolio consists of 57.9% commercial, 18.2% residential real estate, 15.6% consumer, 6.4% agricultural loans, and 1.9% other loans. Credit products. The bank offers a wide variety of consumer, residential real estate, commercial, and agricultural loan products to fulfill the credit needs of the residents, businesses, and farms in its assessment areas. Financing for consumer, commercial, and agricultural borrowers is provided through various mortgage loan programs, lines of credit, and installment loan products. The bank also participates in indirect lending. In addition to conventional loan programs, the bank offers loans through or guaranteed by the following: Small Business Administration, Bureau of Indian Affairs, Farm Service Page 3

7 Agency, Federal Housing Administration (FHA), Department of Veterans Affairs (VA), Rural Housing Service, Wyoming Community Development Authority, Rocky Mountain Development Council, and Montana Board of Housing. Please refer to the Innovative and Flexible Lending Practices for information on additional programs provided by the bank. Offices. First Interstate Bank operates a network of offices and automated teller machines (ATM) throughout its assessment areas in Montana and Wyoming. During this evaluation, the bank operated 51 branches, 31 in Montana, including the main office in Billings and 20 in Wyoming; 39 of these offices have full-service ATMs and 11 have cash-dispensing-only ATMs. The bank opened two offices in Montana, one in Kalispell and one in Bigfork. In addition to the ATMs located at branch offices, the bank operates 51 cash-dispensing-only ATMs and 23 deposit-taking ATMs throughout the assessment areas. The bank closed 11 ATMs and opened nine ATMs since the last evaluation. Three of the ATMs the bank closed were in Yellowstone National Park outside of its assessment areas. Assessment areas. For this evaluation, the bank has 14 assessment areas, eight in Montana and six in Wyoming, which are described in Exhibit 1. The bank s assessment areas remain unchanged since the previous evaluation. EXHIBIT 1 Assessment Area Information Assessment Area Name Offices (#) Geographical Description State of Montana Billings MSA Billings (4), Red Lodge Yellowstone and Carbon counties Missoula MSA Missoula (4) Missoula County Great Falls MSA Great Falls (2) Cascade County Kalispell Kalispell (2), Evergreen, Whitefish, Polson, Eureka, Big Fork Flathead and Lake counties and part of Lincoln County Hamilton Hamilton Ravalli County Bozeman Bozeman (4), Belgrade, Gardiner, Park County and part of Gallatin Livingston Hardin/Miles City Hardin, Miles City, Colstrip, Lame Deer Helena Helena (2) Lewis and Clark County State of Wyoming Casper MSA Casper (3), Mills Natrona County Cheyenne MSA Cheyenne (2) Laramie County Laramie Laramie (3) Albany County Jackson Jackson (3) Teton County Riverton Riverton, Lander (2) Fremont County Sheridan Sheridan, Sugarland, Buffalo, Gillette (2) County Big Horn and Custer counties and part of Rosebud County Sheridan, Johnson, and Campbell counties The bank has three assessment areas with middle-income census tracts that were designated as distressed and/or underserved during the evaluation period. The Bozeman assessment area has distressed middleincome census tracts in Park County. The Hardin/Miles City assessment area includes distressed middleincome census tracts in Big Horn County and distressed and underserved middle-income census tracts in Custer and Rosebud counties. Finally, the Kalispell assessment area had a distressed middle-income Page 4

8 census tract in Lincoln County during 2006; the designation was removed for Due to a lag period, qualified community development activity in this Lincoln County census tract may count during this evaluation period if it occurred in Please refer to the glossary in Appendix C for definitions of distressed and underserved areas. SCOPE OF EVALUATION This evaluation of the bank s CRA performance is based, in part, on information provided by bank management and community contacts. Information from these sources, as well as economic and demographic characteristics of the assessment areas, competitive factors, and the size and financial condition of the bank, were analyzed to understand its performance. The CRA evaluation covers the period from January 1, 2007, through December 31, The analysis included review of the following loan types: residential real estate, consumer, small business, small business secured by real estate, and small farm. Full-scope reviews were conducted for six of the bank s 14 assessment areas. This included evaluating the bank s performance in each assessment area based on the following: the geographic distribution of loans throughout the assessment area, lending to borrowers of different income levels and businesses and farms of different sizes, community development lending, innovative and flexible lending practices, community development investments and donations, retail services, and community development services. Full-scope assessment areas were selected based on lending activity during 2007 and 2008, deposit market share as reported by the Federal Deposit Insurance Corporation (FDIC), and length of time since the last full-scope review. A total of 56.0% of the bank s 2007 and 2008 reported lending by dollar volume and 53.4% by number volume was included in the full-scope review. Assessment areas receiving full-scope review were: Billings, Montana MSA; Kalispell, Montana; Helena, Montana; Cheyenne, Wyoming, MSA; Sheridan, Wyoming; and Jackson, Wyoming. When determining the overall rating, the greatest weight was placed on the bank s performance in Montana as the majority of branches and lending is in this state. The bank has 31 branches in Montana and 20 in Wyoming. According to the bank s total HMDA and CRA data for 2007 and 2008, 62.1% of the bank s lending is in its Montana assessment areas and 37.9% of its lending is Wyoming assessment areas. Individual assessment areas receiving the greatest weight include Billings, Sheridan, and Kalispell as lending within the full-scope assessment areas is concentrated in these three areas. According the bank s total HMDA and CRA data for 2007 and 2008, the Billings, Kalispell, and Sheridan assessment areas account for 17.6%, 15.5%, and 11.6%, respectively, of the bank s overall reported lending, while Helena, Cheyenne, and Jackson assessment areas account for only 2.1%, 3.7%, and 5.7%, respectively. Although the Helena, Cheyenne, and Jackson assessment areas were chosen for a full-scope review, they were primarily chosen because they had not previously been included in an evaluation as a full-scope review assessment area. The expectations for performance in these areas differ from those where the bank is a market share leader because its opportunities and resources to meet community credit and development needs are significantly different. Page 5

9 Core tables in Appendix D provide 2007 loan data for all assessment areas. The core tables also include information on investments, branches, and demographics for each assessment area. Limited reviews were conducted on the remaining eight assessment areas. Please refer to Appendix A for a summary of the evaluation scope. The Lending Test analysis includes the bank s 2007 and 2008 Home Mortgage Disclosure Act (HMDA) reportable loans, which consist of home purchase, refinance, home improvement, and multifamily loans. The analysis also includes the bank s 2007 and 2008 CRA-reportable small business and small farm loans. The analysis of HMDA and CRA data includes a comparison of the bank s lending activity in 2007 and 2008 to the aggregate lending performance of all other financial institutions reporting these types of loans during that time. Several active lenders in the bank s assessment areas, particularly the rural assessment areas, are not reflected in the aggregate data because they are not subject to the data reporting requirements due to either their asset size or their location outside of a metropolitan area. Throughout this evaluation, demographic characteristics are used in evaluating the bank s record of lending in the individual assessment areas. Sources for the demographic information are primarily the 2000 U.S. Census and Dun & Bradstreet data, but include others as indicated. Demographic characteristics of a particular assessment area are useful in analyzing the bank s record of lending because they provide a means of estimating loan demand and identifying lending opportunities. For small business and small farm lending, the self-reported data collected and published by Dun & Bradstreet regarding the revenue size and location of businesses and farms is used to approximate loan demand. Comparisons to demographic characteristics should not be construed as an expected level of lending in a particular area or to a particular income or revenue level. The information is used to understand the bank s performance context and evaluate the bank accordingly. As part of this evaluation, several community contacts were made with individuals familiar with economic and demographic characteristics and community development opportunities in each of the fullscope assessment areas. Information obtained from these contacts was used to establish a context for the communities in which the bank operates and to gather information on the bank s performance. Specific information obtained from the community contacts is included in the applicable section of the evaluation for each assessment area. None of these contacts identified any unmet credit needs. Demographic characteristics as well as information obtained from community contacts and bank management are used to develop a unique performance context for each assessment area in which to evaluate the bank. The influence of the national economic recession could be seen as contraction in some assessment area economies during the evaluation period, but in other cases, economic conditions remained relatively stable for all or a large portion of the evaluation period. Other factors, such as changes in the housing market and low-interest rates, affected credit demand and community development opportunities in sometimes opposing ways. In some instances, the bank increased its opportunities due to decreased competition as other lenders exited the market; in other instances, declining real estate values meant significant reductions in credit demand and development projects. The major factors of the performance context are described in each full-review assessment area section. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS The bank s overall CRA rating is outstanding. The rating is based on outstanding ratings for the individual Lending, Investment, and Service Tests. The bank does an excellent job of serving the credit and community development need of the residents, businesses, and farms throughout its assessment areas. The following criteria were analyzed to determine the Lending Test rating: Page 6

10 Lending activity, Geographic distribution of loans, Lending to borrowers of different income levels and businesses and farms of different sizes, Lending inside the bank s assessment areas, Responsiveness to the credit needs of low- and moderate-income individuals and census tracts and to small businesses and farms, Community development lending activities, and Use of innovative and/or flexible lending practices. Qualified investments and donations were reviewed to determine the Investment Test rating. Retail and community development services were reviewed to determine a Service Test rating. LENDING TEST First Interstate Bank s performance under the Lending Test is outstanding. The bank s level of extending loans to borrowers of different income levels and businesses and farms of different sizes as well as the geographic distribution of loans is very good. Lending levels reflect excellent responsiveness to assessment area credit needs and do not reveal any unexplained gaps in lending practices. The bank s community development lending is excellent. Use of innovative and flexible lending practices is extensive and enhances the bank s overall lending performance. Since the bank has multiple assessment areas, including assessment areas in MSAs, the regulation requires a separate analysis for the bank s performance in each MSA. However, the bank s lending activity performance and the comparison of lending inside and outside the assessment area can only be done on a combined level. The discussion of these criteria follows subsequently. The detailed discussion of the other Lending Test criteria can be found in the individual assessment area sections. Please refer to Core Tables 1 through 13 for information regarding lending volume, geographic distribution, and borrower distribution by loan product for Core tables can be found in Appendix D of this evaluation. Lending Activity Exhibit 2 summarizes First Interstate Bank s overall reported lending activity from January 1, 2007, through December 31, Of these loans, the bank originated 81.6% within its assessment area. The bank actively originates and purchases loans. Lending activity for this evaluation is based on HMDA and CRA data reported by the bank. The bank s lending represents an excellent level of activity. EXHIBIT 2 Summary of Lending Activity Loan Type # % $(000s) % HMDA Home Purchase 5, , HMDA Refinancing 2, , HMDA Home Improvement 2, , HMDA Multifamily , Total HMDA 10, ,428, Small Business 9, , Small Business Real Estate Secured , Total Small Business 10, , Total Small Farm 1, , Page 7

11 EXHIBIT 2 Summary of Lending Activity Loan Type # % $(000s) % Home Equity 2, , Motor Vehicle 20, , Other - Secured 9, , Other - Unsecured 4, , Total Consumer 37, , TOTAL LOANS 59, ,191, During the evaluation period, consumer lending is the bank s largest product by volume; however, HMDA lending is the largest by dollar amount followed by small business lending. This level of activity is consistent throughout the bank s full-scope assessment areas. Detailed information on the bank s lending activity can be found in the following full-scope assessment area discussions. Assessment Area Concentration CRA emphasizes the importance of banks serving the convenience and credit needs of individuals, small businesses, and small farms inside the assessment areas. By extending credit inside their assessment areas, banks fulfill a financial need of the community. Exhibit 3 shows the percentages of residential real estate, small business, small farm, and consumer loans originated in the bank s assessment areas. The bank originates a substantial majority of loans within its assessment areas throughout Montana and Wyoming. EXHIBIT 3 Lending Inside and Outside the Assessment Area 2007 and 2008 Loan Type Inside Outside # % $(000s) % # % $(000s) % Home Improvement 2, , , Home Purchase - Conventional 3, , , Home Purchase - FHA , , Home Purchase - VA , , Multifamily Housing , Refinancing 2, , , Total HMDA 9, ,327, , Small Business Secured by Real Estate , , Small Business 8, , , Total Small Business Related 9, , , Small Farm 1, , , Total Small Farm Related 1, , , Home Equity 2, , , Motor Vehicle 14, , , , Other - Secured 7, , , , Other - Unsecured 4, , , Total Consumer Related 28, , , , TOTAL LOANS 48, ,811, , , Page 8

12 Geographic and Borrower Distribution The geographic distribution of loans is very good. The bank originates loans in all types of census tracts, including low- and moderate-income tracts. Lending patterns do not reveal any unexplained gaps or patterns. The bank s distribution of loans by borrower income and revenue size of businesses and farms is also very good. It actively lends to low- and moderate-income borrowers and to businesses and farms with gross annual revenues of $1 million or less. Please refer to the core tables in Appendix D for more information on the geographic and borrower distributions. Community Development Lending The bank is a leader in making community development loans in its assessment areas across Montana and Wyoming. The bank originated 71 community development loans totaling $57.0 million during the evaluation period. The bank s level of community development lending by dollar volume slightly increased since the last evaluation. The bank s level of activity is commendable given that opportunity for community development lending is quite limited and sought after by several financial institutions in most assessment areas. The bank is active in seeking out opportunities to increase its level of community development lending. Further, the bank compares favorably to other large financial institutions operating in some of the full-scope assessment areas. As shown in Exhibit 4, the majority of the bank s community development lending, by dollar and number volume, was focused on affordable housing and community services targeted to lowand moderate-income people. The bank s community development lending demonstrates its commitment to meeting the credit and community development needs of the residents, businesses, and farms within its assessment areas in Montana and Wyoming. The bank does an excellent job of originating community development loans. Innovative or Flexible Lending Practices EXHIBIT 4 Community Development Lending Purpose $ # Affordable Housing 21,261, Community Service 21,190, Economic Development 6,795,000 5 Revitalize and Stabilize 7,769,520 4 Total 57,016, The bank s extensive use of innovative or flexible lending practices to address the credit needs of low- or moderate-income individuals or census tracts enhances its performance under the Lending Test. The bank regularly looks for ways to ensure creditworthy customers are able to obtain loans either through flexibility in underwriting or specific programs. The following are programs offered by the bank during the evaluation period that are particularly noteworthy. City of Billings Revolving Loan Fund. The purpose of this fund is to provide financial assistance in the form of loans to projects in the central business district that are consistent with the Downtown Billings Improvement Plan. My Community Mortgage. This program helps lenders serve low- and moderate-income borrowers and communities with flexible terms and many options for first-time homebuyers in Page 9

13 Montana and Wyoming. The program offers low down payment, high loan-to-value mortgages with flexible credit guidelines. Wyoming Technology Access Program. This is a loan program for disabled persons to finance assistive technology devices and services. The program is offered by the Laramie branch, and borrowers pay low or no interest. HomeStart Savings Program. This Federal Home Loan Bank program assists low- and moderateincome borrowers with saving money for a down payment and closing costs by matching every dollar the first-time homebuyer saves for down payment with three dollars. Department of Housing and Urban Development (HUD) Section 184 Loan Guarantee Program. This HUD loan program offers a loan guarantee to private lenders who make mortgages on tribal trust land or on land held in trust for individual Native Americans. Melody Ranch loans. Lots in the Melody Ranch subdivision are set aside for affordable housing, a project in conjunction with the Teton County Housing Authority in the Jackson assessment area. First Interstate Bank originates land purchase loans with a 20% down payment requirement and waives fees and appraisal requirements; the bank also waives fees on the construction loans. Special land purchase loans. The Jackson branches offer lower down payment requirements on land purchase loans within a 150-mile radius of the city. Mobile home loans. Although the bank offers mobile home loans throughout both states, mobile home lending in the Jackson assessment area addresses a critical need for affordable housing. According to branch management, it is one of only a few lenders willing to make mobile home loans in the area. Fannie Mae and Wyoming Community Development Authority with Teton County Housing Authority or Jackson Hole Community Land Trust. This in-house program uses the market value of property rather than the appraised value or purchase price to alleviate the need for mortgage insurance providing substantial savings to first-time homebuyers in Jackson. Neighborworks Montana (formerly Neighborhood Housing Services (NHS). NHS has a number of programs that provide affordable housing opportunities. FirstCare Credit. This loan program finances medical bills or deductibles for persons without insurance or with limited insurance coverage. The program is now offered by health care providers in Billings, Red Lodge, Polson, and Missoula, Montana; and Casper, Sheridan, Cody, and Gillette, Wyoming. The bank originated loans through all of these programs during the evaluation period. The bank s participation in the HomeStart Savings Program assisted borrowers in many assessment areas, including Jackson, Billings, Kalispell, Sheridan, and Helena, which is responsive to the affordable housing needs in those full-review assessment areas. In addition, the bank originated loans in Jackson using each of the Jackson-specific programs, which is also responsive to the critical affordable needs in the area. The bank s innovative and flexible loan programs are essential to meeting certain assessment area needs and enhance the bank s overall Lending Test rating. INVESTMENT TEST The bank s overall performance under the Investment Test is outstanding. The bank is a leader in making qualified investments and donations throughout its Montana and Wyoming assessment areas. During the evaluation period, qualified investments totaled $44.0 million, which is a 13.1% increase from the previous evaluation. The bank acquired $14.5 million in new investments since the last evaluation and retains $29.6 million in qualified investments in its portfolio. Investments include revenue bonds, equity investments, and mortgage-backed securities. One of the new investments involves an entity that provides down payment and closing cost assistance to low- and moderate-income borrowers in Montana. The bank invested $100,000 during the evaluation period in this particular entity. The bank continues to Page 10

14 make significant investments in mortgage-backed securities that finance residential real estate loans to low- and moderate-income borrowers throughout Montana and Wyoming. In addition to its qualified investments, the bank also made significant qualified donations through branches, the holding company, and the Foundation. The Foundation continues to donate money through the employee gift match, community development, and leadership grant programs. First Interstate Bank s qualified donations totaled to $1.6 million, which is an increase of 8.3% since the last evaluation. The bank demonstrates its commitment to addressing community development needs in its assessment areas by its high level of donations. Collectively, the bank s qualified investments and donations total $45.6 million for the evaluation period, an increase of $5.2 million or 12.9% from the previous evaluation. The bank continues to provide a very high level of community development investments and donations across Montana and Wyoming. Qualified CRA investments and donations make up 4.6% of the bank s total securities, 10.5% of total equity, and 11.7% of tier 1 capital as of year-end The bank commits a significant portion of its investment portfolio, total equity, and tier 1 capital to CRA-qualified investments. The bank s level of investments is particularly noteworthy given the limited opportunities available in its assessment areas. Details regarding First Interstate Bank s investments and donations are discussed in the full-review assessment area sections of this evaluation. Core Table 14 in Appendix D contains information about the number and amount of community development investments by assessment area. SERVICE TEST Overall, the Service Test is rated outstanding. The bank s delivery systems, office locations, and operating hours are accessible to all portions of the assessment areas and accommodate the needs of residents, businesses, and farms within the communities the bank serves. First Interstate Bank is a leader in providing community development services in the assessment areas. The bank demonstrates an outstanding responsiveness to meeting the needs of residents, businesses, and farms throughout its assessment areas. Retail Services This portion of the Service Test evaluates the accessibility of the bank s branches, availability of alternative delivery systems, services and hours, and changes in branch locations. Refer to Core Table 15 in Appendix D for information about the bank s branches throughout the assessment areas. Since the previous evaluation, the bank opened two branches with ATMs at each location. In addition, the bank relocated two branches and the ATMs located at those branches. Finally, the bank closed 12 ATMs, including three ATMs outside of its assessment area and opened nine others. As shown in Exhibit 5, the distribution of the bank s offices and ATMs is very similar to the percentage of census tracts by income level. Page 11

15 EXHIBIT 5 Retail Services By Income Level Of Census Tract Low Moderate Middle Upper Total by Service Retail Service Type # % # % # % # % # % Main Office with Deposit-Taking ATM Branch with Deposit-Taking ATM Branch with Cash-Dispensing ATM Branch without ATM Total Branches Deposit-Taking ATM Cash-Dispensing ATM Total ATMs* Total by Census Tract Census Tracts in Assessment Area *Does not include ATMs at branches. In addition to office locations and ATMs, the bank offers alternative delivery systems through bank by mail, telephone banking, and a fully transactional web site for customers in all assessment areas. Electronic services available through the web site include online banking, bill payment, cash management, and consumer and mortgage loans. During the evaluation period, the bank introduced mobile banking services. With mobile banking, customers can view account balances and transactions, transfer funds, and make loan payments or advances. The bank also offers innovative savings programs to residents in its assessment areas through various individual development accounts (IDA). Overall, the bank s retail service delivery systems are accessible throughout its assessment areas. Retail services conveniently meet the needs of residents, businesses, and farms throughout the bank s assessment areas. Community Development Services The bank is a leader in providing community development services throughout its assessment areas. Although the number of services has declined since the last evaluation, the bank continues to be a leader by providing an excellent level of service that is responsive to community development needs in its assessment areas. Exhibit 6 provides information on the types of organizations to which bank employees have contributed their time and financial expertise. EXHIBIT 6 Community Development Services Purpose # Affordable Housing 83 Community Services 230 Economic Development 46 Revitalization and Stabilization 36 Throughout all assessment areas, bank staff actively serves on boards of directors or as other financial professionals of organizations that provide shelter, medical care, or food for low- and moderate-income people. Many of these organizations provide services to children, seniors, the disabled, and the homeless. During the evaluation period, bank staff devoted time and financial expertise to facilitate the pilot program for a new IDA program that is a matched savings program to help low-income families build assets. This is the first IDA program on the Northern Cheyenne Reservation. Bank staff also actively serves on organizations focusing on affordable housing, including providing support to a new organization in the Sheridan assessment area. As noted in Exhibit 6, the bank is also active in supporting organizations with a focus on economic development and revitalization and stabilization of low- and Page 12

16 moderate-income areas and distressed and/or underserved middle-income census tracts. As noted, the bank has distressed and underserved middle-income census tracts in its assessment areas in Montana, in addition to low- and moderate-income census tracts in various assessment areas in Montana and Wyoming. Finally, the bank continues to provide many community development services for affordable housing, community services, economic development, and revitalization and stabilization of specific areas that benefit the Native American reservations located in its assessment areas. First Interstate Bank and the Foundation continue their commitment to financial literacy by devoting significant time and resources to the Mini Bank education program. Developed primarily to teach children and families about banking in areas where the percentage of unbanked is high, the Bank and Foundation expanded the program since the last evaluation period to include additional locations. Students in the Mini Bank program learn about banking both from a customer and employee perspective. Students participating in the program tour the bank s local branches, work at the local branches, and make presentations to local branch management as well as manage their own savings accounts. Details regarding First Interstate Bank s community development services are discussed in the full-review assessment area sections of this evaluation. COMPLIANCE WITH ANTIDISCRIMINATION LAWS The evaluation revealed no evidence of violations of antidiscrimination laws or regulations, including Regulation B--Equal Credit Opportunity Act, Regulation C--Home Mortgage Disclosure Act, and Fair Housing Act, or other illegal credit practices inconsistent with the bank helping meet community credit needs. The bank has not received any CRA-related complaints since the previous evaluation. Page 13

17 MONTANA CRA RATING FOR Montana: The Lending Test is rated: The Investment Test is rated: The Service Test is rated: Outstanding Outstanding Outstanding Major factors supporting the rating include the following: The bank s level of lending reflects strong responsiveness to credit needs throughout Montana. The geographic distribution of loans reflects very good penetration throughout assessment areas. The bank originates a very good level of loans among borrowers of different income levels and businesses and farms of different sizes. The bank is a leader in making community development loans throughout the Montana assessment areas. The bank makes extensive use of innovative or flexible lending practices throughout the Montana assessment areas. The bank is a leader in making qualified investments and donations across Montana and is responsive to the community development needs of its assessment areas. Retail services are readily accessible to all portions of the Montana assessment areas and are tailored to meet the convenience needs of residents, businesses, and farms. The bank is a leader in providing community development services throughout the Montana assessment areas. SCOPE OF EVALUATION The scope of the evaluation for Montana is consistent with the overall scope described in the Description of the Institution section of the evaluation. Three of the eight Montana assessment areas received a fullscope review: Billings, Kalispell, and Helena. These assessment areas were evaluated based on the following factors: lending activity, geographic distribution of lending, lending to borrowers of different income levels and businesses and farms of different sizes, community development lending, innovative and/or flexible lending practices, qualified investments and donations, retail services, and community development services. The bank s performance in the Billings and Kalispell assessment areas received the greatest weight as they have the highest level of loan activity and percentage of market share for deposits. Limited reviews were conducted for the Missoula MSA, Great Falls MSA, Hamilton, Hardin/Miles City, and Bozeman assessment areas to determine if the bank s performance is consistent with overall performance. Community contacts were interviewed in conjunction with the CRA evaluation of the bank s operations in Montana in order to establish a context for the communities in which the bank operates and to solicit information on First Interstate Bank s performance. Contacts represented organizations familiar with economic and demographic characteristics of the three full-scope Montana assessment areas. Specific comments from the contacts are provided in the applicable section of the evaluation for each assessment area. Page 14

18 DESCRIPTION OF INSTITUTION S OPERATIONS IN MONTANA First Interstate Bank s Montana assessment areas include all three MSAs in Montana and portions of most regions of the state. First Interstate Bank has the following eight assessment areas in Montana: Billings MSA, Great Falls MSA, Missoula MSA, Kalispell, Helena, Hamilton, Bozeman, and Hardin/Miles City. The bank did not add any new assessment areas or change the composition of its assessment areas during the evaluation period. According to the June 30, 2008, FDIC Deposit Market Share Report, First Interstate Bank ranks first in total deposit market share at 15.4% in the state of Montana. Population and geographic characteristics. The population of Montana is 902,195. Based on a U.S. Census Bureau estimate for 2008, the population in Montana increased to approximately 967,440 or 7.2%. The total population of First Interstate Bank s 2008 assessment areas in Montana is 627,724, which represents 69.6% of the population of Montana based on 2000 U.S. Census figures. The three largest cities in Montana are Billings, Missoula, and Great Falls. First Interstate Bank s Montana assessment areas include 153 census tracts. Of these tracts, three are classified as low income, 24 are moderate income, 96 are middle income, and 30 are upper income. Approximately 88.0% of the population, 89.8% of families, and 87.7% of households in the assessment areas reside in middle- and upper-income census tracts, according to census data. Housing characteristics. According to bank management and community contacts, affordable housing concerns are present throughout various portions of the bank s Montana assessment areas. Some assessment areas have experienced recent downturns in their housing markets. More specific information on housing characteristics for each area that received a full-scope review can be found in the Billings, Kalispell, and Helena assessment area sections of the evaluation. According to census data, 60.7% of the housing units in First Interstate Bank s Montana assessment areas are owner-occupied. Of the remaining housing units, 28.8% are rental units and 10.5% are vacant units. General economic and business characteristics. Economic conditions vary throughout the Montana assessment areas according to community contacts, bank management, and unemployment information. Billings is a regional trade and medical center. Kalispell s economy is largely driven by commercial and residential real estate, while Helena s economy is primarily based on its local, state, and federal government work force. Economic conditions in these areas have generally been strong or stable with steady growth; however, these areas did start to experience downturns in their economies in Kalispell experienced the most significant downturn. Other parts of the Montana assessment areas, such as the Northern Cheyenne and Crow Indian reservations located in the Hardin/Miles City assessment area are generally considered distressed due to high unemployment and poverty levels. Specific information regarding general economic and business characteristics can be found in the individual assessment area sections of the evaluation. In 2007 in Montana, the following industries had the largest percentage of employment according to data from the Northwest Area Foundation: government (14.4%), retail trade (12.0%), health care and social assistance (10.1%), construction (8.5%), and accommodation and food services (7.9%). According to the Department of Labor and Industry, a few of the top private employers in the state of Montana based on fourth quarter 2008 data are a grocery chain, hospitals, a national discount retailer, an energy corporation, and a mining company. According to data from the Northwest Area Foundation, Montana s per capita income, adjusted for inflation, was $34,501 in 2007 compared to $40,098 in the United States. The state of Montana ranked 39th, from highest to lowest, out of the 50 states. Page 15

19 Competition in the financial services sector throughout many portions of the Montana assessment area is very strong based on loan and deposit data as well as information from bank management and community contacts. For additional information on the general economic and business characteristics of Montana, refer to the Billings, Kalispell, and Helena assessment area sections of the evaluation. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN MONTANA The following ratings are based on the full-scope review of the Billings, Kalispell, and Helena assessment areas and a limited review of the bank s other Montana assessment areas. An in-depth performance analysis of assessment areas receiving full-scope review follows this section. The overall rating for Montana is outstanding. First Interstate Bank does an excellent job of meeting the credit and community development needs of residents, businesses, and farms in the Montana assessment areas, as demonstrated by the outstanding performance under the Lending, Investment, and Service Tests. The rating under the Lending Test is outstanding. The bank originates loans throughout the assessment area. The bank extends loans to farms and businesses of different sizes and borrowers of different income levels. The bank is a leader in making community development loans. First Interstate Bank also makes extensive use of innovative and flexible lending programs that enhance its ability to meet the credit and community development needs in the Montana assessment areas. The bank s rating under the Investment Test is outstanding. First Interstate Bank makes numerous community development investments and donations to meet the community development needs throughout the Montana assessment areas. The bank s rating under the Service Test is also outstanding. Retail services are accessible to all portions of the assessment area, and the bank is a leader in provided community development services. LENDING TEST First Interstate Bank s rating under the Lending Test for Montana is outstanding. The bank s lending activity reflects excellent responsiveness to credit needs throughout the Montana assessment areas. The bank s level of extending community development loans and extensive use of innovative and flexible programs significantly contributed to the overall Lending Test rating. Lending Activity Lending levels reflect excellent responsiveness to the credit needs of the Montana assessment areas. Exhibit 7 shows lending activity in the Montana assessment areas from January 1, 2007, through December 31, First Interstate Bank does an excellent job originating loans in Montana. Please refer to discussions in the full-scope assessment area section for detailed information on lending activity. Based on aggregate lending data, the bank is a leading lender in many of its assessment areas, but not all. Information about the bank s portion of aggregate lending is included in each full-review assessment area. Page 16

20 EXHIBIT 7 Summary of Lending Activity in Montana (2007 and 2008) Amount of Loans ($ in thousands) Loan Type Number of Loans HMDA Home Purchase 2, % $ 357, % HMDA Refinancings 1, % $ 226, % HMDA Home Improvement 1, % $ 76, % HMDA Multifamily % $ 9, % Total HMDA-Related 5, % $ 669, % Small Business 5, % $ 460, % Small Business Real Estate Secured % $ 45, % Total Small Business 5, % $ 505, % Total Small Farm % $ 68, % Home Equity 1, % $ 114, % Motor Vehicle 9, % $ 141, % Other - Secured 4, % $ 68, % Other - Unsecured 2, % $ 36, % Total Consumer 18, % $ 361, % TOTAL LOANS 30, % $1,605, % Geographic and Borrower Distribution The geographic distribution of the bank s loans in the Montana assessment areas is very good and does not reveal any unexplained gaps or patterns. The bank originates all types of loans in all income levels of census tracts, including low- and moderate-income census tracts. Core Tables 2 through 7 and Core Table 13 in Appendix D show the distribution of the bank s lending in comparison to demographic characteristics and aggregate lending levels for The bank s distribution of loans by borrower income and revenue size of businesses and farms is also very good. The bank actively originates loans to low- and moderate-income borrowers and small businesses and farms throughout the Montana assessment areas. Core Tables 8 through 13 in Appendix D show the distribution of the bank s lending in comparison to demographic characteristics and aggregate lending levels for A detailed discussion of the borrower and geographic distribution of lending for all three full-scope assessments areas is included in the Conclusions with Respect to Performance Tests section for each assessment area. Community Development Loans The bank is a leader in originating community development loans throughout Montana. Since the last evaluation, the bank originated 46 community development loans totaling $42.9 million. The level of community development lending during the evaluation period increased by 39.4% by number volume and 27.1% by dollar volume when compared to lending levels during the last evaluation. A EXHIBIT 8 Community Development Lending in Montana Purpose $ # Affordable Housing 19,133, Community Services 19,659, Economic Development 3,655,000 2 Revitalize and Stabilize 500,000 1 Total 42,948, Page 17