PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE January 28, 2002 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION The Callaway Bank RSSD# East Fifth Street Fulton, Missouri Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri NOTE: This document is an evaluation of this institutions record of meeting the credit needs of its entire community, including low- and moderateincome 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 the 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 Institutions CRA Rating...1 Description of Institution...1 Description of Assessment Area...2 Conclusions...7

3 INSTITUTION S CRA RATING: This institution is rated SATISFACTORY. The Callaway Bank meets the criteria for a satisfactory rating, based upon the performance evaluation of the bank s lending activity. A substantial majority of the bank s loans and other lending related activities are in the bank s assessment area. The bank s loan-to-deposit ratio is reasonable given the bank s size, financial condition, and assessment area credit needs. The loan activity analysis reveals reasonable penetration among individuals of different income levels (including low- and moderateincome levels) and businesses and farms of different sizes. Finally, the geographic distribution analysis reflects marginally acceptable dispersion throughout the bank s assessment area. DESCRIPTION OF INSTITUTION 1 The Callaway Bank is located in Fulton, Missouri, and is a wholly-owned subsidiary of Callaway Security Banks, Inc., a one-bank holding company. The bank is a full-service, retail bank offering both consumer and commercial loan and deposit products. The bank s branch network consists of five facilities (including the main office). In addition to the full-service main office, the bank has a full-service branch office with a drive-up facility in Fulton, a full-service branch in Mokane, Missouri, and a full-service branch with a drive-up facility in Columbia, Missouri. Each of these four offices has a 24-hour automated teller machine (ATM) on site. Finally, the bank also has a drive-in only facility in Fulton. Four of the bank s five facilities are located in Callaway County. The branch in Columbia, Missouri is new to the bank since the previous CRA examination and is the only facility the bank operates in Boone County. The branch was initially a mortgage company that was operated by The Callaway Bank. In addition to the five facilities, the bank has six stand-alone ATMs located throughout the state of Missouri. The Callaway Bank has the ability to meet the credit needs of its assessment area based on the bank s asset size, financial condition, and other resources. As of December 31, 2001, the bank reported total assets of $193.3 million. As of the same date, loans and leases outstanding were $124.4 million (64.4 percent of total assets) and deposits totaled $158.9 million. The bank s loan portfolio composition by credit category is displayed in the table below. 2 1 Any percentage row or column TOTAL figure displayed throughout this evaluation that does not equal exactly 100 percent is strictly due to rounding differences, which are considered immaterial to overall performance conclusions. 2 For purposes of this table, total loan information is derived from gross loans and leases data reported on the Consolidated Report of Condition and Income as of December 31,

4 Distribution of Total Loans Credit Product Type Amount in $000s Percentage of Total Loans Construction and Development $ 12, % Commercial Real Estate $ 14, % Multifamily Residential $ 1, % 1-4 Family Residential $ 39, % Farmland $ 19, % Farm Loans $ 12, % Commercial and Industrial $ 16, % Loans to Individuals $ 7, % Total Other Loans $ 1, % TOTAL $ 124, % As indicated by the table above, a significant portion of the bank s lending resources is directed to 1- to 4-family residential real estate, farmland, commercial and industrial and commercial real estate. As part of this evaluation under the CRA, the bank s performance was evaluated in relation to the performance of local competitors. Two financial institutions were identified as regional competitors with asset sizes of $30.0 million and $86.8 million, as of December 31, The bank received a satisfactory rating at its previous CRA evaluation conducted on January 26, 1998, by the Federal Reserve Bank of St. Louis. DESCRIPTION OF ASSESSMENT AREA 3 The bank s assessment area is comprised of all geographies contained in Boone and Callaway Counties 29 census tracts from Boone County and eight Block Numbering Areas (BNAs) in Callaway County. In its entirety, Boone County comprises the Columbia metropolitan statistical area (Columbia MSA #1740). 3 Statistical/demographic information cited in this evaluation, unless otherwise stated, is taken from 1990 United States Census Bureau data. 2

5 The following table reflects the number and population of the geographies within the assessment area in each income category. 4 Number and Percentage of Geographies by Income Category 1990 Census Data Low- Moderate- Middle- Upper- TOTAL Boone County Callaway County TOTAL Family Population % 17.2% 51.7% 13.8% 100% % 0.0% 37.5% 62.5% 100% % 13.5% 48.6% 24.3% 100% 1,468 3,205 19,043 10,966 34, % 9.2% 54.9% 31.6% 100% The above table reveals 27.0 percent of the geographies in the bank s assessment area are low- to moderate-income (LMI). All 10 of the LMI geographies are located in Boone County, and 13.4 percent of the family population resides in these LMI census tracts. The table also shows that there are more middle-income geographies in the assessment area than geographies of other income categories with the majority clustered in Boone County. Further, more than half of the assessment area s family population reside in the middle-income geographies. Based upon 1990 census data, the median family income for the assessment area was $34,362. Based on updated figures as compiled by The Department of Housing and Urban Development (HUD), the 2001 estimated median family income figure for the Columbia, Missouri MSA is $56,200. The 2001 HUD estimated median family income figure for the non-msa portions of Missouri is $39, See the glossary in Appendix B for the definitions of the low-, moderate-, middle-, and upper-income categories. 5 Based on these updated HUD estimates, the weighted average of updated median family income figure is $52,610. 3

6 Assessment Area Family Population by Income Level 1990 Census Data Low- Moderate- Middle- Upper- TOTAL 5,909 5,944 8,017 14,812 34,682 Assessment Area 17.0% 17.1% 23.1% 42.7% 100% Non-MSA Missouri 91,543 80,336 99, , , % 17.9% 22.2% 39.5% 100% Although the table on page 3 indicates that a majority of the assessment area population live in middle-income census tracts, the above table reveals that a significant portion of assessment area families (34.1 percent) are considered LMI, based on their income level. Housing in the assessment area is somewhat less affordable relative to the rest of the state, as shown by a higher median gross rent amount and also by a lower affordability ratio. 6 The 1990 median gross rent for the assessment area was $371 per month, compared to $368 for the entire state of Missouri. Further, the assessment area affordability ratio as of 1990 was 37.9 compared to the state figure of Therefore, affordable housing appears to be slightly less within reach of the assessment area population. The assessment area has experienced a population growth in recent years. According to the Bureau of Economic Development, the population of Callaway County in 2000 was 40,766, up 23.9 percent from the 1990 population of 32,891. In Boone County, the population increased 20.2 percent from 1990 to The population was 112,728 in 1990, and settled at 135,454 in For Boone County, the average annual unemployment rate between 1998 and 2000 has ranged from a high of 1.5 in 1998 to a low of 1.2 in Overall, the percentage has been decreasing. In Callaway County, the unemployment rate has been higher. Over the past three years, the average annual unemployment rate has varied from a high of 3.6 percent 1998 to a low of 2.5 percent in In 2000, the average annual unemployment rate was 2.6 percent. The assessment area employment base is supported by a number of sectors. According to the Fulton Area Development Corporation, the largest industries in Callaway County are state and local government, retail trade, manufacturing, service, and transportation and public utilities. One major employer in the area is the Ameren UE nuclear power plant in Callaway County. Another major employer, Dollar General, 6 This figure is calculated by dividing the median household income by the median housing value; it represents the amount of single family owner-occupied housing that a dollar of income can purchase for the median household in the geography. Values closer to 100 percent indicate greater affordability. 4

7 has both a new store and a new distribution center located in Fulton, Missouri, and employs a great number of people in Callaway County. There is also a new Dollar General store in Holts Summit, Missouri which one community contact stated has provided a significant amount of higher hourly wage employment for the area. In addition, RHI Refractories America has plants and distribution centers throughout Callaway County. The company produces specially engineered refractory products. Of the major employers in the area, many of them are headquartered in Fulton. One major employer, Fulton State Hospital, is the oldest public mental health facility west of the Mississippi River and is a 505-bed facility. Another company that is headquartered in Fulton, Central Electric Company, is a major employer in the area and is a manufacturer of electrical switchgear. The company also offers custom designed electrical distribution products for the open pit mining industry. The Danuser Machine Company, also headquartered in the town, employs a large number of people in the assessment area. The company manufactures equipment such as diggers, augers, post drivers, and wood chippers. Mid-America PreCast is also headquartered in Fulton and produces precast concrete products such as sanitary sewer manholes, curb inlets, septic tanks, and steam tunnel lids. Ovid Bell Press, Inc. is headquartered in Fulton, Missouri and prints magazines and books for publishers. The company binds and ships the publications, as well. In addition to the businesses located throughout the assessment area, the area is also home to many educational institutions that serve a large portion of Missouri. The Missouri School for Deaf is located in Fulton, Missouri, as are Westminster College and William Woods University. Similar to Callaway County, Boone County s diverse economy is also a part of The Callaway Bank s assessment area. According to the Bureau of Economic Development, the largest industries in the county in 1999 were state and local government, services, and retail trade. Top employers in the area include hospitals and universities/colleges. Columbia, Missouri is the home of the University of Missouri- Columbia, Columbia College, and Stephens College. Columbia was titled Collegetown USA by Kiplingers Personal Finance Magazine. In addition to the population of young adults in Columbia, the town is also a popular location for retirement. In 1998, Kiplingers magazine included Columbia in its list of Great Places to Retire. The September/October 2001 issue of Consumer s Digest Magazine listed Columbia as one of the best and most affordable retirement sites of the country. The city has received many similar recognitions. These facts support the statement by a community contact that there has been a growth in retirement communities throughout the area. Along with the colleges and universities in the assessment area, there are nine major hospitals located in Columbia. The town was named one of the nation s healthiest places to live by Kiplingers Personal Finance Magazine in 1996 and has the second highest doctor-to-patient ratio in the nation. 5

8 According to a community contact in the housing industry, there has been an increase in employment opportunities in the assessment area over the past four years. Lately, employment has been available for anyone looking for work. The contact stated that the Dollar General distribution center in Holts Summit has been a great benefit to the area. The starting wage there is usually eight to nine dollars an hour rather than minimum wage. The store has sparked some growth in the area. The contact also stated that there has been population movement into the Fulton area from the St. Louis area. Most of the population moving from St. Louis is reportedly comprised of LMI individuals looking for public housing. The waiting lists are reportedly shorter in Fulton than in larger cities like St. Louis. Some of the population shift from St. Louis may have to do with an FHA television advertisement that ran in St. Louis. The community contact stated that at one time, there were many homebuyer programs available to consumers. Primarily, there were information sessions that taught people how to rehabilitate their credit, obtain credit counseling, and maintain a home. These programs, held in Fulton, were mostly sponsored by agencies from Columbia, Missouri. The community contact stated that more homeownership programs are needed in the area. Local banks support Habitat for Humanity; however, the organization has not been able to keep up with the demand for housing. There is a need for housing in the $60,000 to $80,000 range for low-income individuals and for first-time homebuyers. Many of the new homes built in the last few years cost at least $150,000. The lower priced homes are older and have greater maintenance needs. Although a lot of houses are now on the market, there are very few homes in the $40,000 to $70,000 price range. Recently, more of the lower cost houses are available, but they require money for rehabilitation. The community contact stated that all of the local banks are involved in the community Bank Star One, Central Bank, and The Callaway Bank. 6

9 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA The Callaway Bank meets the criteria for a satisfactory rating, based upon its lending performance as measured by the CRA small bank performance standards. This lending performance was based upon loan information from 2001 Home Mortgage Disclosure Act (HMDA) data 7. In addition, statistical samples of consumer loans secured by automobiles, business loans, and farm loans, originated between January and November of 2001, were also used in evaluating the bank s lending performance. These four loan categories are considered the bank s primary lines of business, based upon lending volume by number and dollar amounts and in light of the bank s stated business strategy. Therefore, loan activity represented by these credit products is deemed indicative of the overall lending performance of the bank. The CRA small bank performance standards evaluate the following five criteria as applicable: The level of lending within the assessment area; The bank s average loan-to-deposit ratio; The distribution of loans by borrower income and business/farm revenue; The geographic distribution of loans; and A review of written complaints. The remaining sections of this evaluation discuss the analyses of the bank s lending performance under these five performance criteria. The analyses revealed satisfactory performance in every category except geographic distribution, where the bank s performance was only marginally satisfactory. 7 The HMDA loan category includes loans for the purpose of home purchase, refinancing, and home improvement. 7

10 Lending in the Assessment Area For the loan activity reviewed as part of this evaluation, the following table displays the number and dollar volume of loans inside the bank s combined assessment area. Loan Type HMDA Automobile Business/Farm TOTAL Lending Inside and Outside of Assessment Area Inside Assessment Area % $26, % % $ % % $2, % % $29, % Outside Assessment Area % $2, % 8 8.8% $67 8.4% % $ % % $2, % TOTAL % $28, % % $ % % $2, % % $31, % The above table demonstrates that, for each loan type reviewed, a substantial majority of the bank s loans were extended to borrowers residing inside the bank s assessment area. Of the 562 total loans reviewed, 520 (92.5 percent) were made within the bank s assessment area. By dollar amount, 91.7 percent of the bank s total loans reviewed were made inside its assessment area. Therefore, the bank s lending practices under this performance criterion exceed the standards for satisfactory performance. 8

11 Loan-to-Deposit Ratio One indication of the bank s overall level of lending activity is its loan-to-deposit (LTD) ratio. The table 8 below displays the bank s average LTD ratio 9 in comparison to that of the bank s regional competitors. Name Asset Size Headquarters Average LTD Ratio The Callaway Bank $ 193,258 Fulton, Missouri 74.5% Regional Bank Competitors $ 86,890 Fulton, Missouri 83.6% $ 30,015 Fulton, Missouri 79.8% Based on data from the table above, the bank s level of lending indicates a reasonable level of responsiveness to assessment area credit needs. For the last 16 quarters, the bank s LTD ratio has ranged from a low of 71.6 percent to a high of 78.0 percent. The bank s average LTD since the previous CRA examination is 74.5 percent. Since the competitor banks had asset sizes of $86.9 million and $30.0 million and have their own business strategies, they serve only as proxies rather than definite benchmarks for comparison purposes. Consequently, the bank s LTD average is considered reasonable and meets the standards for satisfactory performance for this performance criterion. Lending to Borrowers of Different Income Levels and to Businesses/Farms of Different Sizes The small bank performance standards evaluate the bank s lending to borrowers of various income levels. Borrowers are classified into low-, moderate-, middle- and upper-income categories by comparing their reported income to the most recent median family income figure as estimated by HUD These amounts represent total asset figures as of December 31, 2001 (in $000s). 9 The average LTD ratio represents a 16-quarter average, dating back to the bank s last CRA evaluation. 10 The Missouri 2001 HUD adjusted median family income figure for non-msa areas is $39,600. The 2001 HUD adjusted median family income figure for the Columbia, Missouri MSA is $56,200. 9

12 The following table shows the distribution of HMDA loans, by income level of the borrower. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Borrower Borrower Income Classification Loan Type TOTAL Low- Moderate- Middle- Upper- HMDA % 21.2% 25.4% 50.7% 100% $393 $3,650 $6,074 $ 14,458 $ 24, % 14.9% 24.7% 58.8% 100% Family Population 17.0% 17.1% 23.1% 42.7% 100% While the bank made residential loans to moderate-income borrowers in an amount commensurate with the moderate-income population, its level of residential lending to low-income borrowers is exceptionally low. When reviewed in connection with performance factors, the combined level of lending to LMI borrowers is adequate. Data in the above table indicate that 23.9 percent of the 339 HMDA 11 loans analyzed were originated to LMI borrowers. By dollar, 16.5 percent of the HMDA loans were made to LMI borrowers. In comparison, LMI families account for 34.1 percent of the assessment area family population. In addition, the 2000 HMDA aggregate lending 12 to LMI borrowers (by number) is 32.1 percent. The low level of LMI residential lending appears to be attributable to a number of factors. First, demographic data reflect that only 55.4 percent of housing units are owner occupied. In addition, the affordability ratio for the bank s assessment area is 37.9 compared to the state ratio of 44.4, indicating housing is less affordable. Data also reflect that 15.8 percent of the assessment area population is below the poverty level, which makes it difficult for low-income individuals to afford a home loan. Aggregate data indicate that lending to moderate-income borrowers is 21.2 percent, which is equal to the bank s lending level. However, the aggregate lending to low-income borrowers is only 10.9 percent, compared to the bank s 2.7 percent. Finally, The bank does not have any offices located within the LMI census tracts in Boone County. Based upon this information, the bank s distribution of HMDA loans to LMI borrowers, although low, is considered adequate in comparison to demographic and competitor data. Automobile Lending 11 Of the 354 HMDA loans originated within the bank s assessment area, 15 did not have income information and were therefore not able to be used in this analysis. 12 HMDA Aggregate Data represent all lending activity collected and reported under the HMDA for this assessment area, based upon all financial institutions required to report such data (less the subject bank if applicable). 10

13 As with the bank s HMDA loan activity, the borrower distribution of automobile loans was also analyzed. The following table shows the distribution of automobile loans by income level of the borrower. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Borrower Loan Type Borrower Income Classification TOTAL Low- Moderate- Middle- Upper- Automobile Household Population % 24.1% 19.3% 32.5% 100% $89 $158 $216 $268 $ % 21.6% 29.5% 36.7% 100% 22.7% 14.8% 17.7% 44.8% 100% The bank s distribution of automobile loans by borrower income is reasonable. Data in the above table indicate that of the 83 automobile loans reviewed for this analysis, 48.2 percent were extended to LMI borrowers. By dollar amount, 33.8 percent of the loans were made to LMI borrowers. In comparison, LMI households account for 37.5 percent of the assessment area population. Consequently, the borrower distribution of this loan product is considered reasonable. Business Lending Similar to the borrower distribution analysis conducted for the two consumer loan categories, the bank s distribution of loans to businesses and farms of various sizes was reviewed in light of assessment area demographic and market lending data. The following table reflects The Callaway Bank s distribution, across its assessment area, of business loans by gross annual revenue and loan amount. 13 Gross Revenue $1 Million or Less Greater Than $1 Million TOTAL Lending Distribution by Business Revenue Level Loan Origination Amount (in $000s) <$100 <$100>$250 >$250<$1,000 TOTAL % 11.1% 0.0% 100% % 0.0% 0.0% 0.0% % 11.1% 0.0% 100% 13 Under the CRA, a small business is considered to be one in which gross annual revenues for the preceding calendar year are $1 million or less. 11

14 Based on this analysis of business loans, the bank is meeting the credit needs of small businesses. The above table demonstrates that 100 percent of 27 loans reviewed were made to businesses with gross annual revenues of $1 million or less. In comparison, business geodemographic data as of 2001 from Dun and Bradstreet indicate that, of the businesses that reported their revenues, 92.3 percent of business institutions inside the assessment area are small businesses. The 2000 CRA Aggregate Data 14 for the assessment area reflect that 52.9 percent of business lending was to small businesses. Further, the fact that 88.9 percent (24 of 27) of loans to small businesses were in amounts of $100,000 or less indicates the bank s willingness to meet the credit needs of small businesses. Therefore, the borrower distribution of this loan product is considered reasonable. Agricultural Lending Like business loans, the bank s distribution of agricultural loans to farms of various sizes was reviewed in light of assessment area demographic and market lending data. The following table reflects The Callaway Bank s distribution of agricultural loans by gross annual farm revenue and loan amount. Gross Revenue $1 Million or Less Greater Than $1 Million TOTAL Lending Distribution by Farm Revenue Level Loan Origination Amount (in $000s) <$100 <$100>$250 >$250<$500 TOTAL % 0.0% 1.8% 96.4% % 0.0% 0.0% 3.6% % 0.0% 1.8% 100% Based on this analysis of agricultural loans, The Callaway Bank is meeting the credit needs of small farms. The above table demonstrates that 54 of 56 loans reviewed (96.4 percent) were made to small farms. In comparison, business geodemographic data as of 2001 from Dun and Bradstreet indicate that 97.7 percent of agricultural institutions inside the assessment area are small farms. Year 2000 CRA Aggregate Data for the assessment area reflect that 97.1 percent of agricultural lending was to small farms. Although The Callaway Bank s percentage of loans to small farms is slightly lower than that of the comparison data, the bank s percentage is strong, nonetheless. In addition, the fact that 98.1 percent (53 out of 54) of loans to small farms were in amounts of less than $100 thousand further indicates the bank s willingness to meet the credit needs of small farms. 14 CRA Aggregate Data represent all lending activity collected and reported under the CRA for this assessment area, based upon all financial institutions required to report such data (less the subject bank if applicable). 12

15 Therefore, based upon the distribution of The Callaway Bank s HMDA, automobile, small business, and small farm lending, the bank meets the standard for satisfactory performance under this performance criterion. Geographic Distribution As noted earlier, the bank s assessment area contains five low-income geographies, five moderate-income geographies, 18 middle-income geographies, and nine upperincome geographies. The analysis in this section illustrates the distribution of the bank s loan activity across these geographies. HMDA Lending The following table displays the geographic distribution of The Callaway Bank s HMDA data, in comparison to owner-occupied housing statistics for the assessment area. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Loan Type Geography Income Classification Low- Moderate- Middle- Upper- TOTAL HMDA % 2.8% 46.3% 49.7% 100% $ 131 $ 702 $ 11,993 $ 13,512 $ 26, % 2.7% 45.5% 51.3% 100% Owner Occupied Housing 1.7% 7.4% 55.9% 34.9% 100% From a narrow analysis, the level of HMDA lending throughout the assessment area does not reflect favorably upon the bank s overall performance under the CRA. The bank s penetration of HMDA reportable loans to LMI geographies represents only 3.9 percent (14 of 354) of loans by number. In comparison, 9.1 percent of the owneroccupied housing units are located in LMI tracts. Further, the bank s lending performance throughout the assessment area does not compare favorably to 2000 HMDA Aggregate Data for the assessment area, which indicate 10.0 percent of all HMDA loans originated to applicants inside the bank s assessment area, were made to applicants residing in LMI geographies. As previously mentioned, all 10 LMI geographies in the bank s assessment area are located in Boone County. The bank s Columbia branch is responsible for serving all of these LMI geographies because it is geographically the closest to this portion of this assessment area. 15 Consequently, the bank s geographic distribution was also 15 The Columbia facility generated only 22.6 percent (80 of the 354 loans, by number) of the loans reviewed for the entire assessment area. This is compared to 77.4 percent (274 of the 354 loans) originated by the four facilities in Callaway County. By dollar, the Columbia facility generated 30.6 percent ($8,071,000 of the $26,338,000) of the loans from the entire assessment area. 13

16 evaluated by analyzing its lending activity in Boone County alone, which presents a more accurate reflection of the bank s performance under this performance criterion. The following table displays the geographic distribution of The Callaway Bank s HMDA data for Boone County, in comparison to owner-occupied housing statistics for the portion of the bank s assessment area in Boone County. 14

17 Distribution of Loans (Number and Dollar Volume in $000s) Inside Boone County by Income Level of Geography Loan Type Geography Income Classification TOTAL Low- Moderate- Middle- Upper HMDA 5.0% 12.5% 61.3% 21.3% 100% $ 131 $ 702 $ 5,146 $ 2,092 $ 8, % 8.7% 63.8% 25.9% 100% Owner-occupied Housing 2.4% 10.3% 63.4% 23.8% 100% The table shows that 14 of the bank s HMDA loans were made in LMI geographies. The Columbia facility, therefore, made 17.5 percent (14 of 80 loans) of its HMDA loans in LMI geographies. By dollar amount, the facility made 10.3 percent of its loans in LMI geographies. In comparison, 12.7 percent of the owner-occupied housing units in the county are located in LMI tracts. Further insight into The Callaway Bank s lending performance in LMI geographies can be gained by reviewing its overall market share. While The Callaway Bank has the largest deposit market share of all lenders in Callaway County, it has only the ninth highest market share in Boone County. Similarly, in loan market share, the bank has the highest market share in Callaway County (20.8 percent of the market), but only the fourteenth highest ranking in Boone County (1.7 percent of the market). An additional indicator of The Callaway Bank s performance among its peers in geographic distribution of mortgage loans is its ranking for 2000 LMI loans originated. Peer HMDA data for the year 2000 revealed that The Callaway Bank made eight loans in low-income census tracts and 8 loans in moderate-income census tracts. In spite of being in fourteenth place for Boone County s lending market share, the 16 loans extended in LMI geographies placed the bank in ninth place for mortgage lending in LMI geographies in the assessment area. Of its LMI tract lending activity for mortgages, The Callaway Bank had 50 percent (8 out of 16) of its originations to low-income census tracts. Conversely, the competitor bank with the greatest market share and the greatest number of loans in LMI census tracts (63), only made 18.3 percent (17 of 63) of its LMI census tract loans to low-income census tracts. Thus, the bank s proportionate share of lending in LMI census tracts compares favorably to its peers. Automobile Lending The geographic distribution of automobile loan activity was also evaluated. The following table displays the geographic distribution of The Callaway Bank s automobile loans in comparison with household population statistics for the assessment area. 15

18 Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type TOTAL Low- Moderate- Middle- Upper % 1.2% 43.4% 54.2% 100% Automobile $ 4 $ 7 $ 355 $ 365 $ % 1.0% 48.6% 49.9% 100% Household Population 7.2% 14.7% 50.6% 27.4% 100% The bank originated 2.4 percent (2 out of 83) of automobile loans to individuals residing in LMI geographies in the entire assessment area. By dollar amount, the lending to individuals residing in LMI geographies is 1.5 percent. This percentage is significantly lower than the household population of the entire assessment that resides in LMI geographies, 21.9 percent. As with the distribution of HMDA loans, the bank s geographic distribution of automobile loans was also evaluated in Boone County alone. 16 The following table displays the geographic distribution of the bank s automobile loans in Boone County, in comparison to the household population statistics for the portion of the bank s assessment area in Boone County. Distribution of Loans (Number and Dollar Volume in $000s) Inside Boone County by Income Level of Geography Loan Type Geography Income Classification TOTAL Low- Moderate- Middle- Upper Automobile 7.1% 7.1% 64.3% 21.4% 100% $4 $7 $143 $74 $ % 3.1% 62.7% 32.5% 100% Household Population 9.2% 18.7% 54.2% 17.8% 100% The above table shows that two of the bank s automobile loans were made in LMI geographies. The Columbia facility, therefore, made 14.2 percent (2 of 14 loans) of its automobile loans from the selected sample in LMI geographies. By dollar amount, the facility made 4.9 percent of its loans in LMI geographies. In comparison, 27.9 percent of the household population in the county reside in LMI tracts. 16 The Columbia facility only generated 16.9 percent (14 of the 83 loans) by number of the sample loans reviewed for the entire assessment area compared to 83.1 percent (69 of the 354 loans) originated by the four facilities in Callaway County. By dollar amount, the Columbia facility generated 31.2 percent ($228,000 of the $731,000) of the sample loans from the entire assessment area. 16

19 While the performance in Boone County is better than for the combined assessment area, the bank s lending to LMI borrowers is weak in relation to borrowers in other income categories. While some mitigating circumstances do exist, they do not completely explain the difference in lending between income categories. The automobile distribution figures were partially impacted by the Columbia branch s market niche. Having initially been a mortgage company, the facility has specialized in real estate loans more so than automobile loans. In addition, it is the bank s policy not to consider dealer paper for automobile lending. This policy limits the bank s potential for increasing its motor vehicle loans. However, even considering this performance context, the borrower distribution of this loan product is considered marginally adequate. Business Loans As with the two consumer loan categories, the bank s geographic distribution of business loans was also reviewed. The following table displays the results of this review, along with estimated percentages of business institutions located in each geography income category, used for comparison. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type TOTAL Low- Moderate- Middle- Upper- Business % 0.0% 48.1% 44.4% 100% $ 178 $ - $ 379 $ 551 $ 1, % 0.0% 34.2% 49.7% 100% Business Institutions 20.5% 12.3% 48.5% 18.6% 100% Analysis of business lending throughout the assessment area does not reflect favorably upon the bank s overall lending performance under the CRA. As displayed in the table above, the bank s penetration of business loans to LMI geographies represents 7.4 percent (2 of 27) of lending by number. By dollar amount, the bank made 16.1 percent of its loans to businesses located in LMI geographies. In comparison, 32.8 percent of the assessment area businesses are located in LMI geographies. Data in the previous table indicate the bank s lending to LMI geographies is weak in relation to other income categories. The 2000 CRA Aggregate Data 17 indicate that 21.7 percent of small business loans made within the assessment area were located in LMI geographies. 17 CRA Aggregate Data represent all lending activity collected and reported under the CRA for this assessment area, based upon all financial institutions required to report such data (less the subject bank if applicable). 17

20 Again, the small business distribution figures were impacted by the Columbia branch s market niche. The Columbia branch facility has traditionally generated more real estate loans than business loans. As with the distribution of consumer loans, the bank s geographic distribution of business loans was evaluated in Boone County alone to help determine the bank s performance under the CRA. The following table displays the geographic distribution of the bank s business loans in Boone County, along with estimated percentages of business institutions located in each income geography category. Distribution of Loans (Number and Dollar Volume in $000s) Inside Boone County by Income Level of Geography Loan Type Geography Income Classification TOTAL Business Low- Moderate- Middle- Upper % $ % 0 0.0% $ - 0.0% % $ % % $ % 6 100% $ % Business Institutions 25.1% 15.0% 47.7% 12.2% 100% Analysis of business lending in Boone County reflects more favorably upon the bank s lending overall performance. As displayed in the table above, two of the bank s business loans were made in LMI geographies. The Columbia facility, therefore, had penetration into LMI geographies that represents 33.3 percent (2 of 6) of lending by number. By dollar, the facility made 40.7 percent of its loans to businesses located in LMI geographies. In comparison, 40.1 percent of the Boone County portion of the assessment area businesses are located in LMI geographies. Consequently, considering the Boone County market, the borrower distribution of this loan category is considered marginally adequate. Agricultural Lending As with business loans, the bank s geographic distribution of agricultural loans was also reviewed. The following table displays the results of this review, along with estimated percentages of agricultural institutions located in each geography income category, used for comparison. 18

21 Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type TOTAL Low- Moderate- Middle- Upper- Farm Agricultural Institutions % 0.0% 57.1% 42.9% 100% $ - $ - $ 480 $ 525 $ 1, % 0.0% 47.8% 52.2% 100% 2.3% 2.7% 70.4% 24.7% 100% Analysis of the agricultural lending activity in the assessment area does not provide much insight into the bank s overall lending performance under the CRA. As displayed in the table above, the bank had no penetration of farm loans in LMI geographies. In comparison, the business geodemographic data estimate that a strong majority of all agricultural institutions in the assessment area are located in middle-income census tracts. Only 5.0 percent of the assessment area farms are located in LMI geographies. Further, the 2000 CRA Aggregate Data indicate that only 3.7 percent of small farm loans made in the assessment area were located in LMI geographies. Based on the market s performance in the assessment area and the limited number of small farms in the LMI segment of the bank s assessment area, the bank s lack of lending does not appear unreasonable. Further, until October of 2000, the Columbia branch had no loan officers with a background in agricultural lending. One of the three loan officers in the facility generated a limited number of agricultural loans, but most customers who expressed an interest in farm loans were referred to a facility in Callaway County. Conclusion Geographic Distribution Based on reviews from all four loan categories, the geographic distribution of loans reflects marginally adequate penetration throughout the assessment area. As such, it meets the standard for satisfactory performance under this performance criterion. Review of Complaints No CRA related complaints were received for this institution during the timeframe used for this evaluation (January 26, 1998 through January 28, 2002). 19

22 Additional Information During the Consumer Affairs Examination conducted concurrently with this CRA evaluation, a fair lending analysis was performed to assess the bank s compliance under Regulation B (Equal Credit Opportunity) and the Fair Housing Act. The analysis concluded that the bank is in compliance with the substantive provisions of the antidiscrimination laws and regulations for the products and services reviewed. 20

23 Appendix A County The Callaway Bank Assessment Area Geography Number Geography Income Category MSA Contains Bank Office Boone Low 1740 No Boone Low 1740 No Boone Low 1740 No Boone Low 1740 No Boone Low 1740 No Boone Moderate 1740 No Boone Moderate 1740 No Boone Moderate 1740 No Boone Moderate 1740 No Boone Moderate 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No Boone Middle 1740 No 21

24 Callaway Middle 9999 No Callaway Middle 9999 No Callaway Middle 9999 Yes Boone Upper 1740 No Boone Upper 1740 No Boone Upper 1740 Yes Boone Upper 1740 No Callaway Upper 9999 Yes Callaway Upper 9999 No Callaway Upper 9999 Yes Callaway Upper 9999 No Callaway Upper 9999 No 22

25 Appendix B GLOSSARY Aggregate lending: The number of loans originated and purchased by all lenders subject to reporting requirements as a percentage of the aggregate number of loans originated and purchased by all lenders in the MSA/assessment area. Block numbering area ("BNA"): Statistical subdivisions of a county for grouping and numbering blocks in non-metropolitan counties where local census statistical area committees have not established census tracts. BNAs do not cross county lines. Census tract: Small subdivisions of metropolitan and other densely populated counties. Census tract boundaries do not cross county lines; however, they may cross the boundaries of metropolitan statistical areas. They usually have between 2,500 and 8,000 persons, and their physical size varies widely depending upon population density. Census tracts are designed to be homogeneous with respect to population characteristics, economic status, and living conditions to allow for statistical comparisons. Community development: Affordable housing for low- or moderate-income individuals; community services targeted to low- or moderate-income individuals, activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration's Development Company or Small Business Investment Company programs (13 CFR ) or have gross annual revenues of $1 million or less; or, activities that revitalize or stabilize low-or moderateincome geographies. Consumer loan: A loan to one or more individuals for household, family, or other personal expenditures. A consumer loan does not include a home mortgage, small business, or small farm loan. This definition includes the following categories of loans: motor vehicle, credit card, home equity, other secured loan, and other unsecured loan. Family: Includes a householder and one or more other persons living in the same household who are related to the householder by birth, marriage, or adoption. The number of family households always equals the number of families; however, a family household may also include non-relatives living with the family. Families are classified by type as either a married couple family or other family, which is further classified into "male householder" (a family with a male household and no wife present) or "female householder" (a family with a female householder and no husband present). Full review: Performance under the lending, investment, and service tests is analyzed considering performance context, quantitative factors (e.g., geographic distribution, borrower distribution, total number and dollar amount of investments, branch distribution) and qualitative factors (e.g., innovation, complexity). 23

26 Geography: A census tract or a block numbering area delineated by the U.S. Bureau of the Census in the most recent decennial census. Home Mortgage Disclosure Act ("HMDA"): The statute that requires certain mortgage lenders that do business or have banking offices in a metropolitan statistical area to file annual summary reports of their mortgage lending activity. The reports include such data as the race, gender, and the income of applications, the amount of loan requested, and the disposition of the application (e.g., approved, denied, and withdrawn). Home mortgage loans: Include home purchase and home improvement loans as defined in the HMDA regulation. This definition also includes multifamily (five or more families) dwelling loans, loans for the purchase of manufactured homes and refinancings of home improvement and home purchase loans. Household: Includes all persons occupying a housing unit. Persons not living in households are classified as living in group quarters. In 100 percent tabulations, the count of households always equals the count of occupied housing units. Low-income: Individual income that is less than 50 percent of the area median income, or a median family income that is less than 50 percent in the case of a geography. Limited review: Performance under the lending, investment, and service tests is analyzed using only quantitative factors (e.g., geographic distribution, borrower distribution, total number and dollar amount of investments, branch distribution). Market share: The number of loans originated and purchased by the institution as a percentage of the aggregate number of loans originated and purchased by all lenders in the MSA/assessment area. Metropolitan area: Any primary metropolitan statistical area ("PMSA"), metropolitan statistical area ("MSA"), or consolidated metropolitan area ("CMSA"), as defined by the Office of Management and Budget, with a population of 250 thousand or more, and any other area designated as such by the appropriate federal financial supervisory agency. Moderate-income: Individual income that is at least 50 percent and less than 80 percent of the area median income, or a median family income that is at least 50 percent and less than 80 percent in the case of a geography. Middle-income: Individual income that is at least 80 percent and less than 120 percent of the area median income, or a median family income that is at least 80 percent and less than 120 percent in the case of a geography. Multifamily: Refers to a residential structure that contains five or more units. Optional loans: Includes any unreported category of loans for which the institution collects and maintains data for consideration during a CRA examination. Also includes 24

27 consumer loans and other loan data an institution may provide concerning its lending performance. Owner-occupied units: Includes units occupied by the owner or co-owner, even if the unit has not been fully paid for or is mortgaged. Qualified investment: A qualified investment is defined as any lawful investment, deposit, membership share, or grant that has as its primary purpose community development. Small loans to business: A loan included in "loans to small businesses" as defined in the Consolidated Report of Condition and Income (Call Report). These loans have original amounts of $1 million or less and are either secured by nonfarm nonresidential properties or are classified as commercial and industrial loans. Small loans to farms: A loan included in "loans to small farms" as defined in the instructions for preparation of the Consolidated Report of Condition and Income (Call Report). These loans have original amounts of $500 thousand or less and are either secured by farmland, including farm residential and other improvements, or are classified as loans to finance agricultural production and other loans to farmers. Owner-occupied units: Includes units occupied by the owner or co-owner, even if the unit has not been fully paid for or is mortgaged. Qualified investment: A qualified investment is defined as any lawful investment, deposit, membership share, or grant that has as its primary purpose community development. Upper-income: Individual income that is more than 120 percent of the area median income, or a median family income that is more than 120 percent in the case of a geography 25