PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE November 3, 2008 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION PlainsCapital Bank RSSD University Avenue Lubbock, Texas Federal Reserve Bank of Dallas 2200 North Pearl Street Dallas, Texas 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 I. INSTITUTION RATING Overall Rating...1 Performance Test Ratings Table...1 Summary of Major Factors Supporting Rating...2 II. III. INSTITUTION Description of Institution...3 Scope of Examination...4 Conclusions with Respect to Performance Tests...5 APPENDICES Appendix A: Lubbock, Texas MSA Loan Distribution Tables...32 Appendix B: Dallas-Fort Worth, Texas Area Loan Distribution Tables...41 Appendix C: Austin, Texas Area Loan Distribution Tables...50 Appendix D: San Antonio, Texas Area Loan Distribution Tables...59 Appendix E: Glossary...69

3 INSTITUTION S CRA RATING INSTITUTION'S CRA RATING: PlainsCapital Bank is rated NEEDS TO IMPROVE. 1 The following table indicates the performance level of PlainsCapital Bank with respect to the lending, investment, and service tests. Performance Test Ratings Table PERFORMANCE LEVELS PLAINSCAPITAL BANK PERFORMANCE TESTS Lending Test* Investment Test Service Test Outstanding X High Satisfactory X X Low Satisfactory Needs to Improve Substantial Noncompliance *Note: The lending test is weighted more heavily than the investment and service tests when arriving at an overall rating. 1 The initial analysis of the bank s performance, as detailed herein, resulted in a satisfactory rating. During the CRA performance evaluation, however, the bank was found to be in substantive non-compliance with the Equal Credit Opportunity Act and the Fair Housing Act. As a result, the bank s overall CRA rating was lowered from Satisfactory to Needs to Improve. 1

4 Summary of Major Factors Supporting Rating Finding of discrimination related to the mortgage loan pricing policies of PrimeLending, a wholly-owned subsidiary Excellent overall volume of lending 16,444 loans for $2.3 billion Overall lending performance is good as evidenced by the geographic and borrower distribution of HMDA reportable loans in all assessment areas Excellent small business lending distribution in Lubbock A leader in originating community development loans to support revitalization and stabilization and affordable housing initiatives in its assessment areas, excluding DFW Excellent level of community development investments totaling $32 million throughout assessment areas Retail banking services are accessible to the varying geographies and individuals of different income levels in the bank s assessment areas, while the level of community development services is limited 2

5 DESCRIPTION OF INSTITUTION INSTITUTION PlainsCapital Bank (PCB) is a $3.3 billion institution headquartered in the west Texas city of Lubbock, with banking operations in four major Texas metropolitan areas. The bank is a wholly owned subsidiary of PlainsCapital Corporation (PCC), an independent Texas financial services company offering commercial and private banking, trust and wealth management, treasury management, capital equipment leasing and residential mortgages. PlainsCapital Corporation owns 100% of the outstanding common stock of PCB; PCC Statutory Trusts I, II, III and IV; PlainsCapital Equity, LLC; and 61% percent of Hester Capital Management, LLC., Austin, Texas (Hester). Subsidiaries of PCB include PrimeLending, A PlainsCapital Company (Prime); PrimeLending Vent Management; PrimeLending Vent; Plains Financial Corporation; PlainsCapital Leasing LLC., PlainsCapital Security, LLC; PNB Aero Services, Inc; and PlainsCapital Insurance Services, LLC. PCB s former mortgage subsidiary, PlainsCapital McAfee Mortgage was merged into Prime in 2006 and Momentum Funding was merged into Prime in At June 30, 2008, PCB reported total assets of approximately $3.3 billion, total loans of $2.8 billion, and shareholders equity of $318.7 million. The following table reflects the loan portfolio mix: LOAN TYPE Real Estate Other Construction & Land Development Commercial 1-4 Family 1 st Liens 1-4 Family Construction Commercial Owner Occupied Farm Land JUNE 30, 2008 $(000S) 442, , , , ,282 70,251 % OF GROSS LOANS Family 2 nd Liens 39,905 Multifamily 24, Family Revolving 1, Total Real Estate 1,505, Commercial and Industrial 949, Agricultural 94, Consumer 33, State and Political 135, Lease Financing 126, GROSS LOANS 2,845, * *Percentage might not equal 100 because of rounding. 3

6 PCB s principal activities are centered in commercial lending, including commercial real estate lending, and mortgage loan origination and sales through Prime, its nonbank subsidiary mortgage company. The company offers FHA and VA loans with flexible loan programs and participates in a number of national down payment assistance programs to help low- and moderate-income (LMI) borrowers become homeowners. As of the examination date, PCB operated 29 retail branches in the following Texas metropolitan areas: twelve in the Lubbock MSA; twelve in the Dallas-Fort Worth-Arlington MSA; three in the Austin-Round Rock MSA; and two in the San Antonio MSA. There are no legal or financial impediments that would inhibit the bank s ability to meet the credit needs of its communities, consistent with its business strategy, size, resources, and local economic climate. PCB received a Satisfactory rating at the previous CRA evaluation conducted by this Reserve Bank as of October 30, SCOPE OF EXAMINATION The institution was evaluated using the Interagency Examination Procedures for Large Retail Institutions, developed by the Federal Financial Institutions Examination Council. According to these procedures, HMDA, small business, and small farm lending activity reported by the bank from January 1, 2006 through December 31, 2007 were reviewed. The activity includes all loans originated and purchased by PCB and its affiliates, PrimeLending and Momentum Funding. Qualified community development loans and services are also considered for activities during the same period. All qualified investments made during the assessment period were considered, regardless of when made. HMDA loans were the largest product and received the greatest weight. The HMDA analysis is based on the total HMDA-reportable loans, rather than a product-by-product approach. Home purchase loans represent 86% of total HMDA loans and are the dominant product, which drives performance. This information pertains throughout the remainder of the evaluation, unless specifically noted otherwise. In order to evaluate the geographic distribution of loans, geographies were classified on the basis of the U.S. Census Bureau s 2000 data. The distribution of loans to borrowers of different income levels was determined based on 2006 and 2007 median family income data as estimated by the U.S. Department of Housing and Urban Development (HUD). Area demographic data, Dun & Bradstreet (D&B) business data, and market aggregate information are used as proxies for demand when evaluating the bank s performance. The assessment areas (AAs) reviewed using full review procedures were the Dallas-Fort Worth- Arlington MSA (DFW AA), the Lubbock MSA (Lubbock AA), and the Austin-Round Rock MSA (Austin AA). Limited review procedures were applied to the San Antonio MSA. The greatest weight was placed on the bank s performance in the DFW AA because of the high concentration of lending and branch distribution in this area, followed by the Lubbock area. Austin and San Antonio were weighted less heavily due to the smaller percentage of lending volume and branch distribution in these areas. There have been no changes to the bank s assessment areas since the previous evaluation. 4

7 Examiners met with five community contacts located throughout the assessment areas. The organizations specialize in economic development, small business development, affordable housing, and social services for LMI individuals. Contacts identified affordable housing, financial literacy programs, loans for small businesses, opportunities to serve on boards, flexible lending programs, and low-cost checking accounts as community priorities and areas of opportunity for local financial institutions participation. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS LENDING TEST PCB s overall performance under the lending test is High Satisfactory based on adequate distribution of loans, excellent lending activity, and strong community development lending, notably in the Lubbock, Austin, and San Antonio MSAs. The bank exhibits an overall adequate record of serving the credit needs of low-income individuals and small businesses. The level and impact of its community development lending complements the bank s lending performance. Lending Activity: PCB s lending levels reflect excellent responsiveness to the credit needs of its assessment areas. As noted in the table below, 16,444 loans for a total dollar volume of $2.3 billion were reported by PCB and its affiliates during the 2006 and 2007 review period. More than 11,000 of the total loans are HMDA loan originations reported by the bank s affiliates. The total CRA reportable loan volume is down approximately 18% since the previous evaluation. Aggregate lenders also experienced a decrease in CRA reportable loans during this time period. In addition to its HMDA, small business and small farm lending, PCB helps to meet community credit needs by originating a significant number of consumer loans, with $33.5 million in its portfolio as of June 30, The bank s lending volume is further substantiated by its net loanto-deposit ratio of 85% as of the same date. Summary of Lending Activity January 1, 2006 December 31, 2007 Loan Type # % $(000s) % Home Improvement $17, Home Purchase 10, $1,551, Multi-Family Housing 5 -- $8, Refinancing 1, $308, Total HMDA related 12, $1,887, Total Small Business related 3, $414, Total Small Farm related $30,091 1 TOTAL LOANS* 16, $2,332, *Affiliate loans include only loans originated or purchased within the bank s assessment areas. Assessment Area Concentration: The following table includes all loan data reported by the bank during the evaluation period for the categories noted. As required by examination procedures, the evaluation of the concentration of the institution s loans inside its assessment 5

8 areas does not include affiliate lending in order to avoid penalizing the bank for loans made by its affiliates in markets not served by PCB s retail branch network. Lending Inside and Outside the Assessment Areas* Inside Outside # % $ (000s) % # % $ (000s) % Home Improvement $11, $5, Home Purchase $99, $22, CMulti-Family i l $ $8, H Refinancing i $4, $1, Total HMDA $115, $37, Total Small Business 3, $341, $73, Total Small Farm $10, $19, TOTAL LOANS 4, $467, $130, *Affiliate loans not included. As noted in the above chart, PCB originated or purchased 4,240 loans for almost $468 million inside its assessment areas during the review period. Eighty-four percent of the total volume and 78% of the total dollar amount of loans were made to borrowers living or operating businesses in the assessment areas. The tables in Appendices, on pages 32-68, contain additional information regarding assessment areas lending, including those loans originated by PCB s affiliates. Geographic and Borrower Distribution: PCB has an overall good record of lending throughout the geographic areas and to borrowers of different income levels in its assessment areas. The bank s HMDA, small business and small farm loans were distributed throughout the assessment areas with no conspicuous lending gaps. The distribution by borrower income reflects good penetration among customers of different income levels and businesses of different sizes. Small business lending performance was better in Lubbock and HMDA lending is notable in Austin. The bank s home purchase lending to low- and moderate-income borrowers in the Austin area was excellent during Performance context issues in the separate assessment areas determined the overall conclusion. The facts and data supporting that conclusion are presented within the separate assessment area analyses. Community Development Lending: PCB is a leader in making community development loans with 23 loans totaling $78.6 million. The amount of community development loans originated by the bank was a significant increase (197%) from the $26.5 million at the last evaluation. Listed in the table below are total community development loans for each assessment area: 6

9 Area Number Amount Lubbock 16 $45,276,450 DFW 1 $1,102,000 Austin 4 $21,602,224 San Antonio 2 $10,665,000 Total 23 $78,645,674 A majority of the community development lending is in the Lubbock MSA where 16 loans totaling $45.3 million (57.5%) were originated. PCB is a leader in the provision of community development loans in the Lubbock AA, and exhibited strong performance in the Austin as well as San Antonio areas. The loans addressed vital needs for affordable housing, revitalization and stabilization of low- and moderate-income areas, and economic development and had a material impact on the communities the bank serves. Individual community development loans are discussed in the assessment area that they benefited. INVESTMENT TEST PCB s investment test rating is Outstanding and represents a 41% increase in volume from the prior evaluation when investments totaled $22.5 million. Investments were dispersed throughout the assessment areas. The investments consist primarily of low-income housing tax credits (LIHTC) and targeted mortgage-backed securities. The investments are designed to create or rehabilitate housing units for low- and moderate-income people throughout the bank s assessment areas. The overall dollar volume of new investment activity covering 2006 and 2007 totaled $18.4 million. The majority of investments (57.3%) are in the DFW assessment area, where $13 million are outstanding from the prior evaluation period. Additionally, a $1 million commitment in the Independent Bankers Capital Fund, which benefits all of its assessment areas, has $340,000 unfunded as of the evaluation period. Charitable donations/grants of $433,065 were made to various organizations throughout the four assessment areas; a substantial increase over the $93,000 that was contributed during the last evaluation period. Individual investments are more fully discussed under each assessment area. Listed below are total qualified investments/donations for each assessment area: Area Bond Investments Donations/ Grants Total Prior Period Current Period $ % Lubbock $0 $2,360,000 $197,236 $2,557, DFW $13,000,000 $5,000,000 $231,729 $18,231, Austin $0 $6,393,310 $3,700 $6,397, San Antonio $0 $4,286,000 $400 $4,286, Statewide $340,000 $0 $0 $340, Total $13,340,000 $18,039,310 $433,065 $31,812,

10 While PCB does not offer many complex or innovative investments, the bank exhibits excellent responsiveness to community development needs and occasionally uses innovative investments to support community development initiatives. The bank is commended for making qualified investments in all of its assessment areas. SERVICE TEST The bank s performance in providing retail banking and community development services is rated High Satisfactory. Branches and other delivery systems are accessible to the varying geographic and individual income levels in the bank s assessment areas. The bank s business hours and services do not vary in a way that inconveniences certain portions of its assessment areas, and the bank provides an adequate level of community development services that benefits its assessment areas. Retail Banking Services: PCB s retail delivery systems are readily accessible in Lubbock and reasonably accessible to the geographies and individuals of different income levels in the DFW and Austin assessment areas. Its record of opening branches has not adversely affected the accessibility of its delivery systems to LMI individuals. The following table details the distribution of the bank s retail branch delivery system. While not apparent in the table, several of the bank s branches in Lubbock are immediately adjacent to moderate-income census tracts, and the branches are conveniently located throughout the city, providing a high level of retail banking services to the community. DISTRIBUTION OF BRANCH DELIVERY SYSTEM AS OF NOVEMBER 3, 2008 Deposits# Branches % of Rated Area Deposits in MSA/AA # of Bank Branches % of Rated Area Branches in MSA/AA* Location of Branches by Income Level of Geographies MSA/AA Full-Review: Lubbock 54% 12 41% Dallas-Fort Worth 30% 12 41% Austin 14% 3 10% Limited-Review: San Antonio 2% 2 7% *Percentage might not add to 100 because of rounding #Deposits as of June 30, 2008 Low Mod Middle Upper PCB s ATM network includes multiple off-premises sites in the Lubbock area, as well as onpremises at most branch locations in each assessment area. Alternative delivery systems include banking by telephone, mail, and through the internet. A student loan center in the Lubbock area offers onsite computers and assistance with navigating the financial aid and loan application process to enable area students to obtain funding for higher education. The bank s business hours are reasonable and do not vary in a way that inconveniences any portions of its assessment areas, and the extensive products and services offered include free checking and low-fee 8

11 accounts for students to provide reasonable banking alternatives for low- and moderate-income individuals in the communities it serves. Community Development Services: PCB provided a limited level of community development services throughout its assessment areas. The institution and its employees provide leadership and support for economic development, and social service and educational initiatives in its local communities. Bank management, directors, and employees serve in leadership roles in few organizations, providing financial expertise and technical advice to entities that are detailed in the individual assessment area discussions. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW During a consumer compliance examination conducted simultaneously with the CRA evaluation, substantive violations of the Equal Credit Opportunity Act and Fair Housing Act were identified. The violations represented a widespread practice of discrimination on a prohibitive basis at one bank subsidiary and caused the bank's CRA rating to be adjusted downward. The institution s fair lending program did not effectively prevent the discriminatory credit practices. Bank management is implementing enhancements to strengthen its policies, procedures, training programs, and internal assessment efforts. 9

12 METROPOLITAN AREA (Full Review) DESCRIPTION OF INSTITUTION S OPERATIONS IN LUBBOCK, TEXAS MSA (31180) Located in the High Plains of west Texas, the Lubbock assessment area consists of the Lubbock MSA, which is comprised of Lubbock and Crosby counties. Lubbock County s population was estimated at 267,211 in 2007, a seven percent increase since Eighty-three percent live in the city of Lubbock. Other municipalities include Idalou, Slaton, Shallowater, and Wolfforth. The estimated population of Crosby County, east of Lubbock, was 6,310. Crosbyton is the largest city and county seat. Other towns include Lorenzo and Ralls. As of the examination date, November 3, 2008, PCB operated 12 retail branches in the Lubbock assessment area, representing 41% of all retail branches in the bank s combined assessment areas. PCB s Lubbock area branches contained $1.2 billion in deposits at June 30, 2008, or 54% of the bank s total branch deposits in its combined assessment areas. All of the bank s branches in this assessment area are located in the city of Lubbock. PCB ranks first in deposit market share out of 24 FDIC-insured financial institutions operating in the Lubbock banking market. Total market deposits as of June 30, 2008 were $5.1 billion in 105 banking offices, with PCB holding a 22.6% market share in the MSA. City Bank and American State Bank, also based in Lubbock, hold 16.3% and 12.5%, respectively, of total deposits in the market. In addition to its retail banking services, PCB provides commodities brokerage services to facilitate the sale of cotton for local farmers. The bank s cotton merchant business brokers sales of cotton to foreign and domestic textile companies directly, as well as through other merchants that facilitate the exporting of cotton crops. Demographic and economic information impacting the bank s performance context are discussed below. Information was obtained from publicly available sources including the U.S. Department of Commerce s Bureau of the Census, 2000; the U.S. Department of Labor; the U.S. Department of Housing and Urban Development; and the Texas Workforce Commission. Income - As of the 2000 census, there were 62,550 total families living in the Lubbock assessment area (AA). Overall, 21% of the families are low-income, 18% are moderate-income, 21% are middle-income, and 40% are upper-income families. The HUD-adjusted median family income for this assessment area was $48,500 in 2006 and $48,900 in Twelve percent of assessment area families live below the poverty level. The percentages of LMI families and poverty levels exactly mirror state averages. The assessment area contains 64 census tracts, with only one low-income, 21 moderate-income, 27 middle-income, and 15 upper-income geographies. 10

13 Housing - According to the 2000 census, there were 103,797 housing units in the assessment area. Less than one-half of one percent of owner-occupied housing units are located in the lowincome census tract, 24% in moderate-income, 44% in middle-income, and 32% in upperincome census tracts. The homeownership rate is slightly below the state average of 58%, with 54% of Lubbock MSA housing units being owner-occupied, 37% rental, and 8% vacant. Almost 4% of the assessment area population lives in college dormitories, other group quarters, nursing homes and correctional institutions. Housing is more affordable than the state average. Lubbock s 2007 median-priced home was $104,200 as compared to Texas at $147,500. Employment - Lubbock is the center of a 26-county regional trading area. The local economy is driven by the agricultural industry (primarily cotton) and Texas Tech University. Other major employers include Covenant Medical Hospital, the Lubbock ISD, University Medical Center, United Supermarkets, and the City of Lubbock. According to Dun & Bradstreet, there were approximately 11,631 business establishments in the assessment area as of June 2007, with 90% reporting gross annual revenues less than $1 million. Less than one percent of the businesses were located in the low-income census tract, 23.6% in moderate-income census tracts, 42.8% in middle-income census tracts, and 33.1% in upperincome census tracts. The MSA enjoys one of the state s lowest 2007 annual average unemployment rates at 3.7%, below the state average of 4.4%. The chart on the following page details demographic information for the Lubbock assessment area obtained from the 2000 U.S. Census and 2007 Dun & Bradstreet data. 11

14 Assessment Area Demographics Assessment Area: Lubbock - Lubbock, Crosby Income Categories 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 , , Unknown-income Total Assessment Area , , , Housing Units by Tract Housing Types by Tract Owner-Occupied Rental Vacant Low-income # % % # % # % 2, , Moderate-income 30,201 13, , , Middle-income 45,208 24, , , Upper-income 26,048 18, , , Unknown-income Total Assessment Area 103,797 56, , , Total Businesses by Tract Businesses by Tract & Revenue Size Less Than or = $1 Million Over $1 Million Revenue Not Reported # % # % # % # % Low-income Moderate-income 2, , Middle-income 4, , Upper-income 3, , Unknown-income Total Assessment Area 11, , Percentage of Total Businesses: Based on 2000 Census Information. 12

15 Community Contacts Discussions with community leaders indicated the Lubbock economy was stable and fairly strong. The primary credit need in the community is for decent affordable housing. The area also needs public transportation. Contacts stated that financial institutions could provide much needed financial literacy which focused on becoming credit worthy and the home buying process. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN LUBBOCK, TEXAS MSA LENDING TEST Commercial loans are the bank s primary loan product in the Lubbock MSA and are weighted more heavily. Additionally, PCB s community development lending efforts in the Lubbock assessment area significantly enhance its overall lending performance. Detailed information on the bank s and aggregate lending performance in the Lubbock AA is located in Appendix A on pages PCB s performance under the lending test in the Lubbock assessment area is excellent, with an excellent volume of small business loans and good distribution of loans to businesses of different sizes. Lending levels in the Lubbock MSA reflect excellent responsiveness to assessment area credit needs. However, HMDA lending performance is adequate. Competition among financial service providers was intense, with 252 HMDA reporters originating and/or purchasing mortgage loans in this area during PCB was ranked 21 st, with 1% of the market and Prime was 10 th, for 2.6% of the market share. In 2006, the bank was ranked 16 th, with 1.4% of the market share, with Prime ranked 10 th, with 2.5% of the market share, out of 282 HMDA lenders reporting data. For 2006 and 2007, the top three reporters accounted for approximately 26% of the market share and included subprime lenders. Neither the bank nor aggregate lenders performed at or above the demographics for low- and moderate-income geographies or borrower income levels. Lending Activity: Lending levels in the Lubbock MSA are excellent. Forty-seven percent of PCB s total reported small business, approximately 61% of small farm, as well as 7.4% of the bank s total HMDA loans were made in the Lubbock AA. PCB originated 1,473 small business loans for $87 million, 911 HMDA loans for $100.4 million, and 82 small farm loans for $7.1 million in the Lubbock area during the review period. While overall HMDA and CRAreportable loans have declined 19% in the Lubbock MSA, the bank s community development lending has increased tremendously. PCB ranked fifth in total loan originations of 46 lenders reporting small business loans in the Lubbock MSA in 2006, and eighth of 52 lenders in In 2006, the bank originated 8.2% of all small business and 13.9% of small farm loans in the Lubbock MSA, and 6.5% of all small business and 13.5% of small farm loans in Geographic Distribution: The geographic distribution of the bank s lending is good. For this analysis, the geographic distribution of the bank s HMDA lending and small business lending 13

16 originations was compared to available demographic information. Performance context issues, such as the performance of other banks and the economic conditions were also considered. Lending in the low-income census tract is not weighted heavily in the analysis because less than one percent of the area families and less than one percent of the businesses are located in that census tract. However, the area is undergoing a major redevelopment project that commenced following the 2000 census. The majority of the bank s lending activity in the low-income tract is discussed in the community development section. Small business lending in moderate-income census tracts at 16.3% in 2006 and 21.4% in 2007 is good. Although below the percentage of small businesses located in these census tracts at 24.5%, the 2007 aggregate small business lending at 16.6% in moderate-income census tracts is significantly below the bank s as well as the percentage of small businesses located in these census tracts. Additionally, PCB originated four or 0.6% small business loans in the low-income census tract in Aggregate banks reported 25 or 0.2% small business loans in the lowincome census tract in While not a major lending product for the bank, the geographic distribution of PCB s small farm loans is adequate in the Lubbock MSA. PCB originated 6 out of 38 small farm loans in moderate-income census tracts (15.8%) in Total small farm lending increased to 44 loans in 2007, with eight or 18.2% in moderate-income census tracts compared to 10.6% for the aggregate. While no HMDA loans were originated in the low-income census tract, this is reasonable given less than one percent of the assessment area families reside in that census tract. PCB s HMDA lending performance in moderate-income census tracts was adequate when compared to demographics and the performance of the aggregate lenders, particularly in light of the dominance of subprime lenders in the market. In addition, 24% of families with incomes below the poverty level live in moderate-income census tracts. Approximately 13% of the bank s HMDA loans were originated in moderate-income census tracts in 2006; the distribution decreased to 9.4% in Aggregate lending was 13.9% in Both the aggregate lenders and PCB are performing considerably below the 24% of owner-occupied housing units located in moderate-income census tracts in the Lubbock assessment area. Distribution by Borrower Income and Revenue Size of the Business: PCB s lending performance reflects good penetration among individuals of different income levels and businesses of different sizes. For this analysis, the distribution of HMDA lending across borrower income levels and small business lending across business revenue sizes was compared with available demographic information. Performance context issues were also considered, as well as the performance of other banks. The distribution of PCB s small business loans by revenue size of the business and loan size is excellent. Of the 1,473 reportable loans to small businesses, 1,216 or 82.6% were originated to businesses with revenues of $1 million or less, which is less than the percentage of businesses in the Lubbock MSA that are considered small businesses at 90%. The 2006 data reflects 81.3% of PCB s loans were made to businesses with $1 million or less in revenues. However, the bank s 14

17 2007 loan distribution to small businesses increased to 83.9%, which substantially exceeds the aggregate reporters at 42.7%. Further, the distribution by loan size indicates PCB is doing a good job of making smaller dollar loans available to small business owners. Ninety-three percent of the bank s 2006 small business loans were for amounts of $100,000 or less and 87.1% in 2007, compared to 95.8% for aggregate in PCB s HMDA lending distribution by borrower income is adequate in the Lubbock AA. Census data indicates 21% of area families are low-income, 18% are moderate-income, and 12% live below the poverty level, making it difficult to qualify for loans without credit enhancement features. For the review period, 2.9% of PCB s 911 HMDA loans were made to low-income borrowers and 9.7% were to moderate-income borrowers. In 2006, PCB made 3.4% of HMDA loans to low-income borrowers and 7.1% to moderate-income borrowers. In 2007, PCB made 2.2% of HMDA loans to low-income borrowers and 12.8% to moderate-income borrowers, while the aggregate made 4.3% to low-income borrowers and 14.6% to moderate-income borrowers. PCB s distribution was slightly below the performance of aggregate HMDA reporters; however, it is reasonable given the previously mentioned performance context factors. PCB s small farm loan distribution to farms of different sizes is adequate. Farms with $1 million or less in gross annual revenues received 76.3% of the bank s loans in 2006 and 77.3% in This compares reasonably to the demographics of 96% small farms in the area, and the aggregate banks performance. Peer banks reported 82.2% of loans to small farms in Community Development Lending: PCB is a leader and demonstrates excellence in the origination of community development loans in the Lubbock MSA. The bank originated 16 community development loans totaling $45.3 million during the review period, an increase from $7.5 million during the prior evaluation. Since 2002, PCB has been the lead bank providing financing for the developer of one of the largest privately funded urban renewal projects in the nation. McDougal Corporation, in conjunction with the City of Lubbock, is working to revitalize the area s only low-income census tract into a livable mixed-use community called Overton Park, which will serve as a link between Texas Tech University and downtown Lubbock. The 325-acre site located east of the university includes a commercial, mixed-use and/or high density residential area on the western segment, and a single-family residential neighborhood in the eastern portion of the development. Jobs created in the revitalization project include 475 new permanent jobs, as well as over 400 construction jobs for demolition, construction, engineering, and management. During the review period, a loan for $24.8 million was extended to construct a 285-room full-service luxury hotel and conference center, a public-private partnership. In addition to the 14 Overton Park project loans, PCB provided two loans totaling $9,340 to a local non-profit organization servicing the needs of low- and moderate-income children. PCB s community development lending activities evidence its commitment to meeting the credit and economic development needs of the entire Lubbock community. 15

18 INVESTMENT TEST PCB s qualified community development investments in the Lubbock assessment area increased substantially since the last evaluation and the performance is considered good. The bank now provides a significant level of qualified investments. Total investment activity for this assessment area increased from $31,000 to $2.6 million. PCB invested approximately $2.4 million in a FNMA pool targeted to affordable housing. Further $197,236 in qualified charitable grants and donations were made during this evaluation period. Although a part of the total qualified charitable grants and donations, the bank received two grants totaling $5,500 on behalf of Momentum Texas that was matched by the Federal Home Loan Bank for a total of $22,000. Covenant Foundation, Lubbock Area Foundation, Lubbock Economic Development Alliance, North & East Lubbock CDC, the Boys & Girls Club, and Lubbock Meals on Wheels, among others, were recipients of these funds. The bank makes occasional use of innovative and/or complex investments to support community development initiatives in this assessment area. This level of investment exhibits adequate responsiveness to credit and community development needs. Only 8.5% of total investments are in this assessment area, where 54% of deposits are maintained and 41% of branches are located. Given those factors, investments in this assessment area are adequate. SERVICE TEST PCB s performance under the service test in the Lubbock assessment area is good. Systems for delivering retail banking services appear effective and are readily accessible to all portions of the assessment area, including low- and moderate-income areas. Business hours and services do not vary in a way that inconveniences its assessment area, particularly low- and moderate-income geographies and/or low- and moderate-income individuals. The bank also provides an adequate level of community development services for the Lubbock area. Retail Services: Retail delivery systems are readily accessible to all portions of the assessment area. PCB operates 12 full-service branches distributed throughout the city of Lubbock, one (8%) of which is located in a low-income census tract, one (8%) in a moderate-income census tract, five (42%) in middle-income, and five (42%) in upper-income census tracts. Several of the bank s branches are immediately adjacent to moderate-income census tracts. Two branches were opened since the last evaluation. One of them is located within a senior assisted living center in a moderate-income census tract and the other branch is in an upper-income census tract. No branches have closed. This record of opening branches did not necessarily improve the accessibility of the bank s delivery systems to the assessment area for low- and moderate-income individuals because access to the branch located in the assisted living center is restricted. In addition to alternative delivery systems such as bank by phone, mail and the Internet, PCB operates a student loan center in Lubbock, offering onsite computers and assistance with navigating the financial aid and loan application process to enable area students to obtain funding for higher education. There are two motor banks, one in a moderate-income census tract and one in an upper-income census tract. There are automated teller machines (ATMs) at every branch. PCB s 15 stand- 16

19 alone ATMs are located in locations such as the Texas Tech University campus, Overton Hotel, a supermarket, a shopping center, and the Lubbock Airport. In the moderate-income census tracts, there are two deposit-taking off-premises ATMs and three cash-only ATMs. The ATM in northeast Lubbock is one of the few banking facilities serving this area. The geographic distribution of the off-site ATMs throughout the area is 7% low-, 33% moderate-, 33% middle-, and 27% upper-income census tracts. Products are virtually identical in all offices and business hours do not vary in a way that inconveniences certain portions of the assessment area. Standard branch hours are 8:30 a.m. to 4 p.m. Monday through Friday, with drive-through lanes generally open weekdays from 7:30 a.m. to 6 p.m. and 7:30 a.m. to noon on Saturdays. The branch located in the low-income census tract has expanded weekend hours from 9 a.m. to 4 p.m. on Saturdays and Sundays. The South Plains Mall branch, located in a middle-income census tract, offers expanded evening and weekend hours. The branch is open 9 a.m. to 5 p.m. Monday through Saturdays, and noon to 4 p.m. on Sundays. The new branch in the moderate-income census tract is open from 1 p.m. to 4 p.m. Monday through Friday. Community Development Services: The volume of community development services has decreased since the previous examination and is now at a limited level. Bank management and staff contribute their time and financial expertise to several organizations providing social and educational services to LMI people and promoting economic and community development in the area, including the following: LISD Foundation for Excellence Texas Tech Chancellor s Council Lubbock Chamber of Commerce Partners-in-Education City of Lubbock Covenant Health Systems United Way Programs and Allocations Committee Lubbock Reese Economic Development Authority In addition to the foregoing, PCB management and staff contribute numerous volunteer hours to healthcare related initiatives that benefit individuals of varying income levels in the community and provide significant leadership and support to the area s largest employer, Texas Tech University. 17

20 DESCRIPTION OF INSTITUTION S OPERATIONS IN DALLAS-FORT WORTH- ARLINGTON, TEXAS MSA The Dallas-Fort Worth (DFW) assessment area consists of portions of the Dallas-Fort Worth- Arlington, Texas MSA, which encompasses the Dallas-Plano-Irving Metropolitan Division (Dallas MD) and the Fort Worth-Arlington MD (Fort Worth MD). PCB s DFW AA includes Dallas, Collin, and Denton Counties in the Dallas MD and Tarrant and Parker Counties in the Fort Worth MD. The assessment area includes the most populous counties in the north Texas area known as the Metroplex, and contains some of the fastest growing suburban areas in the state. The total population of the five-county area was estimated at 5.5 million as of July 2007, an 18% overall increase since The table below provides further information by county. County 2007 Population Estimate % Increase Since 2000 Dallas 2,366, % Tarrant 1,717, % Collin 730, % Denton 612, % Major Cities Dallas, Garland, Irving, Carrollton, Mesquite Fort Worth, Arlington, North Richland Hills Plano, McKinney, Allen, Frisco Denton, Lewisville, Flower Mound 2007 Annual Unemployment Rate 4.6% 4.3% 3.9% 3.9% Parker 108, % Weatherford 4.1% As of the examination date, November 3, 2008, PCB operated 12 retail branches in the DFW assessment area, representing 44% of all retail branches in the bank s combined assessment areas. The DFW area branches contained $642.6 million in deposits at June 30, 2008, or almost 43% of the bank s total branch deposits in its combined assessment areas. PCB s branches are located in the cities of Dallas, Fort Worth, Carrollton, Frisco, and Weatherford. PCB ranks 22 nd in deposit market share out of 168 FDIC-insured financial institutions operating in the competitive north Texas banking market. The bank held 0.35% of the total market deposits as of June Countrywide Bank, N.A. ranked first in the DFW AA with 34% of total deposits, followed by Bank of America, N.A. with 20%, and JP Morgan Chase Bank, N.A. with 14%. Demographic and economic information impacting the bank s performance context are discussed below. Information was obtained from publicly available sources including the U.S. Department of Commerce s Bureau of the Census, 2000; the U.S. Department of Labor; the U.S. Department of Housing and Urban Development; and the Texas Workforce Commission. Income - According to the 2000 census, there are 1.1 million families in the assessment area, 8% of which live below the poverty level. Twenty-one percent of families are low-income, 18% are moderate-income, 20% are middle-income, and 41% are upper-income families. The median family incomes declined between 2006 and They are listed below: 18

21 MD Dallas-Plano-Irving, TX (19124) Fort Worth-Arlington, TX (23104) HUD-Adjusted Median Family Income $66,700 $63,200 $63,100 $60,500 The DFW AA contained 951 census tracts in 2000, including 9% low-income, 28.3% moderateincome, 32.3% middle-income, 30% upper-income census tracts, and 0.4% unknown-income census tracts. Low-income census tracts in the assessment area are primarily located in the cities of Dallas and Fort Worth. Housing - There were 1.8 million housing units in the area as of 2000, 55% of which were owner-occupied, 39% rental, and 6% vacant. A little more than 63% of housing units are singlefamily homes, 28% are five or more family units, 6% are 2-4 family units, and 3% are mobile homes. Three percent of owner-occupied housing units are located in low-income census tracts, 19% in moderate-income census tracts, 36% in middle-income, and 42% in upper-income census tracts. The median age of the housing stock is 22 years. In 2007, median home prices in the area ranged from $118,300 in Fort Worth, $161,300 in Dallas, to a high of $200,000 in Collin County. The state average median home price was $147,500. Employment - The DFW Metroplex is a major trade center and transportation hub, home to DFW Airport, Love Field, Alliance Airport, and American Airlines. Other industries include electronics manufacturing, data processing, retail trade, conventions and trade shows, education and health care. Major employers, in addition to the airline industry, include Lockheed Martin, Texas Instruments, EDS, JC Penney Co., Frito-Lay, Parkland Memorial Hospital, University of Texas Southwestern Medical Center, and the University of North Texas. According to 2007 Dun & Bradstreet data, 254,010 businesses are located in the DFW AA. Approximately 90% reported gross annual revenues less than or equal to $1 million. Slightly below 5% of businesses are located in low-income census tracts, 24.2% in moderate-income, 34% in middle-income, and 36.4% are in upper-income census tracts. The unemployment rates for the Dallas and Fort Worth MDs have been steadily declining since reaching annual average highs of 6.8% and 6.3% in According to the Texas Workforce Commission, the 2007 annual average unemployment rate for the Dallas MD stood at 4.4%, comparable to the state s 4.4% average rate, while the annual average in Fort Worth was 4.3%. The following chart details demographic information for the DFW assessment area obtained from the 2000 U.S. Census and 2007 Dun & Bradstreet data. 19

22 Assessment Area Demographics Assessment Area: Dallas-Fort Worth-Arlington Income Categories 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 , , , Unknown-income Total Assessment Area ,179, , ,179, Housing Units by Tract Housing Types by Tract Owner-Occupied Rental Vacant Low-income # % % # % # % 126,129 30, , , Moderate-income 451, , , , Middle-income 655, , , , Upper-income 584, , , , Unknown-income Total Assessment Area 1,816,994 1,002, , , Total Businesses by Tract Businesses by Tract & Revenue Size Less Than or = $1 Million Over $1 Million Revenue Not Reported # % # % # % # % Low-income 12, , Moderate-income 61, , , , Middle-income 86, , , , Upper-income 92, , , , Unknown-income 1, , Total Assessment Area 254, , , , Percentage of Total Businesses: Based on 2000 Census Information. 20

23 Community Contacts Discussions with community leaders indicate that foreclosures rates are climbing and affordable housing is harder to obtain. Credit needs include smaller dollar business loans. In addition, access to credit for non-profit organizations is becoming harder. As in the Lubbock AA, contacts indicated financial literacy education is needed and believe that banks are uniquely qualified to provide this training. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN DALLAS-FORT WORTH-ARLINGTON, TX MSA LENDING TEST Lending test performance in the Dallas-Fort Worth AA is good based on distribution of the bank s HMDA as well as small business loans. HMDA reportable loans are the dominant credit product for PCB as well as in this assessment area and are given the greatest weight. Data supporting this analysis can be seen in detail in Appendix B on pages Lending Activity: PCB s lending levels in the Dallas-Fort Worth assessment area reflect excellent responsiveness to the credit needs of the community. Overall, 9,293 or 59.3% of the bank s total loans were reported in this assessment area. PCB reported 7,981 HMDA loans in the DFW area during the review period, totaling approximately $1.3 billion. This is 64.4% of all HMDA reportable loans made by the bank and its affiliates. Competition among financial service providers was intense, with 893 HMDA reporters originating and/or purchasing mortgage loans in this area during PCB was ranked 116 st, with 0.1% of the market and Prime was 14th, for 1.2% of the market share. In 2006, the bank was ranked 146 th, with 0.1% of the market share, with Prime ranked 18 th, or 1.0% of the market share, and Momentum was ranked 129 th, with 0.1%, out of 908 HMDA lenders reporting data. For 2007, the top three reporters accounted for approximately 24% of the market share and included subprime lenders. For 2006, the top three reporters had 18% of the market and included subprime lenders. Neither the bank nor aggregate lenders performed at or above the demographics for low- and moderate-income geographies or borrower income levels. There were 1,264 small business loans totaling $179.1 million and 48 small farm loans totaling $2.6 million reported. Small business lending decreased in number volume by 15% between 2006 and PCB ranked 22 out of 220 lenders reporting small business loans in the assessment area in Small farm loans are not analyzed separately since they are an insignificant product in this urban market. Geographic Distribution: The geographic distribution of the bank s lending for this assessment reflects good penetration throughout the assessment area. For this analysis, the geographic distribution of the bank s HMDA lending and small business lending originations was compared to available demographic information. Performance context issues such as poverty level, population trends, and occupancy levels, as well as the performance of other banks were reviewed when assessing PCB s performance. 21