PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE July 12, 2004 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION 202 Main Street P.O. Box 27 Kalispell, MT RSSD Federal Reserve Bank of Minneapolis 90 Hennepin Avenue, P.O. Box 291 Minneapolis, MN NOTE: This document is an evaluation of this institution s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion, or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS INSTITUTION RATING Institution s CRA Rating... 1 Table of Performance Test Ratings... 1 Summary of Major Factors Supporting Rating... 1 INSTITUTION Description of Institution... 2 Scope of Evaluation... 6 Conclusions With Respect to Performance Tests... 7 FULL REVIEW ASSESSMENT AREACONCLUSIONS Kalispell, Montana - Nonmetropolitan Limited Review Assessment Areas Conclusions CRA APPENDICES CRA Appendix A: Scope of Examination CRA Appendix B: Glossary CRA Appendix C: Core CRA Tables CRA Appendix D: ATM Locations CRA Appendix E: Assessment Area Maps Page i

3 INSTITUTION RATING INSTITUTION S CRA RATING: is rated SATISFACTORY. The following table indicates the performance level of with respect to the Lending, Investment, and Service Tests. PERFORMANCE LEVELS Outstanding High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance GLACIER BANK PERFORMANCE TESTS Lending Test* Investment Test Service Test X X X *The Lending Test is weighted more heavily than the Investment and Service Tests in determining the overall rating. Major factors supporting the institution s rating include: Lending Test The distribution of small business loans to entities of various sizes is good. The distribution of residential real estate loans to low- and moderate-income borrowers is very good. The distribution of consumer loans to low- and moderate-income borrowers is excellent. The geographic distribution of loans is reasonable. The substantial majority of the bank s lending is to residents, businesses, and farms located within its assessment areas. In addition to the wide variety of credit products offered, the bank originates community development loans within its assessment area. Investment Test The bank donates and contributes funds to organizations that promote economic development and serve low- and moderate-income people and areas. The bank has not made any new qualified investments since the previous evaluation. Service Test The bank s retail banking services and variety of products, offices and automated teller machine ( ATM ) locations, and business hours are highly accessible to residents, businesses, and farms throughout the assessment area. The bank continues to be a leader in providing community development services in its assessment areas. Page 1

4 INSTITUTION DESCRIPTION OF GLACIER BANK General. Based on its size and financial condition, ( GB ) effectively meets the credit needs of the residents, businesses, and farms in its assessment areas. The bank received an outstanding rating at its previous CRA performance evaluation, dated April 29, 2002, under the Large Bank Evaluation Procedures. Structure. GB is a full-service financial institution with its main office in Kalispell, Montana. The bank is a subsidiary of Glacier Bancorp, Inc., Kalispell, Montana ( GBCI ), a multibank holding company, which also owns the following other financial institutions: Western Security Bank, Billings, Montana of Whitefish, Whitefish, Montana Valley Bank of Helena, Helena, Montana Big Sky Western Bank, Gallatin Gateway, Montana First Security Bank of Missoula, Missoula, Montana Mountain West Bank, Coeur d Alene, Idaho Offices and retail delivery systems. As previously mentioned, GB s main office, which is a full-service office, is in Kalispell. The bank operates ten full-service branches in its assessment areas. In addition, the bank operates 32 ATMs, including eight on-site ATMs located at bank offices. Of the 32 ATMs, two are deposit taking. A complete listing of the bank s offices, on-site ATMs, and drive-up facilities are shown in Exhibit 1. EXHIBIT 1 Retail Branch Information Office Assessment Area Branch ATM Drive-Up Main Office 202 Main Street Kalispell Yes (2) Yes Kalispell, MT Evergreen Office 2199 Highway 2 East Kalispell Yes Yes Kalispell, MT Buffalo Hill Office 49 Commons Loop Kalispell Yes Yes Kalispell, MT Bigfork Office 8111 Highway 35 Kalispell No Yes Bigfork, MT Columbia Falls Office 822 Nucleus Avenue Kalispell Yes Yes Columbia Falls, MT Libby Office 615 California Avenue Kalispell No Yes Libby, MT Polson Office 14 Second Avenue West Polson, MT Kalispell Yes Yes Page 2

5 EXHIBIT 1 Retail Branch Information Office Assessment Area Branch ATM Drive-Up Anaconda Office 307 East Park Street Anaconda No Yes Anaconda, MT Butte Main Office 49 North Main Butte No No Butte, MT Butte Harrison Office 1880 Harrison Avenue Butte Yes Yes Butte, MT Butte Tamarack Office 3701 Harrison Avenue Butte, MT Butte Yes Yes In 2003, the bank added one off-site ATM in each of the following cities: Anaconda, Columbia Falls, and Lakeside, Montana. These three ATMs are cash-dispensing only. The Columbia Falls and Lakeside ATMs are in the Kalispell assessment area. The new ATM in Anaconda is in the Anaconda assessment area. For a list of all off-site ATMs, refer to Appendix D. Since the last evaluation, the bank has made other changes to its ATM network. It stopped operating four ATMs in Butte, which were located in convenience stores. These ATMs were in middle-income tracts. The bank continues to operate nine ATMs in Butte. The change does not significantly reduce the delivery of bank services in the Butte assessment area. In addition to ATMs, the bank also delivers its products and services through telephone banking and an Internet web site at with transactional banking capability. Both allow 24-hour access to account information. Customers are able to perform transactions such as account inquiries and fund transfers between accounts and make loan payments. These services are available to consumer, business, and agricultural customers. Assessment area. GB has three assessment areas for the purposes of CRA. All three assessment areas are in nonmetropolitan areas of Montana. Refer to Appendix E for maps of GB s assessment areas. The 2000 U.S. Census data was released during the evaluation period; therefore, the analysis compares the bank s 2002 lending to 1990 census data and 2003 lending to 2000 census data. Exhibit 2 displays the different assessment areas along with the offices and counties that comprise each assessment area. EXHIBIT 2 Assessment Area Information Assessment Area Name Offices Geographical Description Based on 1990 Census Anaconda Anaconda A portion of Deer Lodge County Butte Butte Main, Butte Harrison, Silver Bow County Butte Tamarack Kalispell Main, Evergreen, Buffalo Flathead County, a portion Hill, Bigfork, Columbia of Lake County, a portion Falls, Libby, Polson of Lincoln County Geographical Description Based on 2000 Census A portion of Deer Lodge County Silver Bow County Flathead County, Lincoln County, a portion of Lake County Page 3

6 The bank s assessment areas have changed since the last evaluation due to the release of the 2000 U.S. Census data. In addition, the bank expanded the Kalispell and Anaconda assessment areas. According to 1990 census data, the bank s overall assessment area had three moderate-income census tracts and no low-income census tracts. The total number of census tracts in the overall assessment area increased by six due to the remapping that resulted from the 2000 U.S. Census and the bank s addition of three census tracts in the Anaconda and Kalispell assessment areas. Based on the 2000 census data, there are six moderate-income census tracts in the bank s overall assessment area. The changes to the individual assessment areas are as follows. The bank expanded the Anaconda assessment area; it now consists of three middle-income census tracts. Based on the 2000 census data, the Butte assessment area consists of eight census tracts. Two upper-income census tracts were combined with a middle-income census tract into one upperincome census tract. There were several changes to the Kalispell assessment area, which now consists of 28 census tracts. Based on 2000 census data, the Lake County portion of the assessment area increased from four to eight census tracts. Two of the new census tracts are classified as moderate income. The bank now includes all of Lincoln County in the Kalispell assessment area. The county has five census tracts, one of which was reclassified as moderate income from middle income. Based on the 2000 census data, the number of census tracts in Flathead County increased from 14 to 15. A middle-income census tract was split into two census tracts, one moderate income and one middle income. Another moderate-income census tract was reclassified as middle income. According to 2000 U.S. Census data, the bank has two offices in moderate-income census tracts and nine offices in middle-income census tracts. As a result of the 2000 census, the bank s Libby office, which was in a middle-income census tract according to the 1990 census, is now in a moderate-income census tract. Two of the bank s off-site ATMs are also in moderate-income census tracts, while the remaining off-site ATMs are in middle-income and upper-income census tracts. As mentioned, the release of the 2000 U.S. Census data during the evaluation period requires the use of both 1990 and 2000 census data for purposes of the analysis in this evaluation. Exhibit 3 lists demographic characteristics of the bank s overall assessment area, according to both 1990 and 2000 U.S. Census data. Page 4

7 EXHIBIT 3 Bank Overall Assessment Area Characteristics Assessment Area Based on 1990 Census Assessment Area Based on 2000 Census CT 1 Summary Total Number of CTs Number of Low-Income 2 CTs 0 0 Number of Moderate-Income CTs 3 6 Number of Middle-Income CTs Number of Upper-Income CTs 8 4 Income Summary Median Family Income $27,435 $38,012 Percentage of Low-Income Families 20% 20% Percentage of Moderate-Income Families 17% 19% Percentage of Middle-Income Families 23% 23% Percentage of Upper-Income Families 40% 38% Miscellaneous Information Total Population 124, ,728 Percentage of Families Below Poverty Level 12% 11% Total Housing Units 58,287 77,517 Percentage of Owner-Occupied to Total Units 59% 61% Percentage of Rental to Total Units 25% 23% Percentage of Vacant to Total Units 16% 16% Affordability Ratio Median Housing Age (years) Median Housing Value $54,525 $97,911 According to the June 30, 2003, FDIC Summary of Deposits, GB had total deposits of approximately $346 million, which represents 3% of the total deposits in the state of Montana. For the same date, the bank had 21% and 22% of the deposit market share in Silver Bow and Deer Lodge counties, respectively. The bank s combined deposits in Lake, Lincoln, and Flathead counties were approximately $240 million, which represents nearly 19% of the combined total deposits in the those counties. GB ranked second in percentage for deposit market share in the same counties. The financial institution ranked first was First Interstate Bank, Billings, Montana, which is significantly larger than GB based on asset size. The bank is successful in attracting and maintaining deposits because of its strong presence in this competitive banking market. Loan Portfolio. According to the June 30, 2004, Report of Condition ( ROC ), the bank had total assets of $638 million. Although GB is a full-service bank, the ROC data indicate it is primarily a commercial and residential real estate lender. The loan portfolio consists of 53% commercial, 39% residential real estate, 7% consumer, and 1% agricultural loans. Since December 31, 2001, the bank has experienced moderate growth in assets. 1 Census tract ( CT ). 2 See Appendix B for definitions of low, moderate, middle, and upper income. 3 This ratio is defined as the median household income divided by the median housing value. A higher ratio means the housing is considered more affordable. Page 5

8 Credit products. The bank offers a wide variety of consumer, residential real estate, commercial, and agricultural loan products to fulfill the credit needs of the residents, businesses, and farms in all assessment areas. Financing for consumer, commercial, and agricultural borrowers is provided through various mortgage loan programs, lines of credit, and several installment loan products. In addition to conventional loan programs, GB offers loans through the following agencies: Federal Housing Administration, Department of Veterans Affairs, Small Business Administration, Rural Development Authority, and the Montana Board of Housing. Also, in the Kalispell assessment area, the bank continues to partner with the Glacier Affordable Housing Foundation ( GAHF ) to provide mortgage loans to lowand moderate-income borrowers. GAHF provides down payment and closing cost assistance for low- and moderate-income first-time homebuyers in the Kalispell assessment area. Funds are received from a variety of sources including grants from the U.S. Department of Housing and Urban Development, the Federal Home Loan Bank of Seattle, and community development block grants. Prospective homebuyers must qualify based on income restrictions and complete homebuyer education courses. GAHF was created by the efforts of bank officers and continues to receive substantial support from the bank. Since the previous evaluation, the bank began offering a new home mortgage loan product. The new product is a second mortgage loan that allows 100% loan-to-value ratios on loans up to $100,000 for qualified borrowers. The loans are guaranteed by a third party and allow the borrower to obtain credit with a loan-to-value ratio higher than the bank s normal 80% underwriting standard. Community contact information. As part of the evaluation, examiners made several community contacts in the Kalispell assessment area with individuals familiar with economic and demographic characteristics of the area. Examiners used information obtained from these interviews in evaluating the bank s performance. Specific information obtained from community contacts is addressed in the applicable section of the evaluation for the Kalispell assessment area. None of the contacts identified any unmet credit needs in the bank s assessment area. Active participation with GAHF and the bank s willingness to offer a variety of financing products to applicants demonstrates GB s strong commitment to meeting the credit needs of its assessment areas. Based on the bank s financial condition, credit products, and assessment areas, the bank is able to fulfill the credit needs of its assessment areas. Further, the evaluation did not reveal any unmet credit needs in the assessment areas. SCOPE OF EVALUATION This evaluation of the bank s performance is partially based on information provided by bank management and community contacts. Information from these sources was used in conjunction with economic and demographic data for the assessment areas, competitive factors, and the size and financial condition of the bank. This CRA evaluation covers the period from the last evaluation dated April 29, 2002, through July 12, A full-scope review was conducted for the Kalispell assessment area. The remaining two assessment areas, Anaconda and Butte, received limited reviews. The selection of assessment areas for full-scope review was based on the volume of loans as well as the length of time since the last full-scope evaluation. Lending Test Scope The scope of the Lending Test includes all the major loan products offered by the bank. The analysis is based on small business and small farm lending activity from January 1, 2002, through December 31, Page 6

9 The analysis is also based on statistical sample of consumer motor-vehicle ( consumer ) and residential real estate loans originated between January 1, 2003, and December 31, Refer to the glossary in Appendix B for definitions of small business and small farm loans. Finally, the bank s community development lending is based on activity since the last evaluation date. Even though the bank is a large institution under CRA and reports small business, small farm, and community development loan data, it is not located in a metropolitan statistical area and, therefore, not required to collect mortgage lending data as required by Regulation C--Home Mortgage Disclosure Act. The bank s performance by loan type and performance category is weighted as follows: The bank s small business and residential real estate lending activity were weighted more than consumer lending activity. Commercial and residential real estate loans are the bank s largest product lines. At the last evaluation, the bank s residential real estate lending was weighted more than small business lending. The weighting for this evaluation reflects the shift in the composition of the bank s loan portfolio to commercial lending. The distributions of lending by income level of borrowers and geographies received the greatest weight. Given that more families in the assessment area are low or moderate income than are residing in moderate-income geographies, the most weight was given to the distribution of lending by the income level of borrowers. The core tables in Appendix C provide loan data for all of GB s assessment areas. The core tables also provide qualified investment, branch, demographic, and aggregate lender information and data for each assessment area. Investment Test Scope The overall Investment Test analysis is based on the bank s community development investment and donation activity since the last evaluation. Service Test Scope The overall Service Test analysis is based on the bank s retail services, branch distribution, alternative delivery channels, and community development activities, including GB s support of and involvement with GAHF, since the last evaluation. The bank s retail banking services received equal weight to community development services. A summary of the scope of the evaluation is included in Appendix A. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS LENDING TEST The bank s performance under the Lending Test is rated high satisfactory. For the most part, the conclusions regarding the bank s performance are discussed in detail in the next section of the public evaluation, which details the bank s performance in the Kalispell assessment area. Comments applicable to the bank s activities in all three assessment areas are set forth below. 4 The bank s small farm lending represents 1% of the loan portfolio as of June 30, The core tables show loan distribution information for the small farm loans in the assessment areas. Due to the small number of small farm loans originated by the bank, meaningful analyses of small farm lending cannot be completed. A cursory review of the small farm loan data did not reveal any CRA performance issues. Thus, the evaluation will not discuss small farm lending in further detail. Page 7

10 Lending Activity Bank lending levels reflect strong responsiveness to credit needs of the overall assessment area. The bank is an active lender in the assessment area. The evaluation did not reveal any unmet credit needs in the overall assessment area. Exhibit 4 shows the bank s level of lending in the overall assessment area during the evaluation period. While the numbers for small business and small farm loans are total lending activity for the years shown, the lending activity for consumer and residential real estate products reflects a statistical sample of loans from Assessment Area Concentration Small business and small farm lending activity for this evaluation uses required CRA data collected and reported by the bank. The reported lending data covers the period from January 1, 2002, through December 31, The analysis also includes a statistical sample of residential real estate and consumer loans from As shown in Exhibit 4, the bank originates the majority of its loans within its assessment areas. EXHIBIT 4 Lending Inside and Outside the Assessment Area Inside Outside 2002 # % $(000s) % # % $(000s) % Total Small Business , ,125 7 Total Small Farm TOTAL LOANS , , # % $(000s) % # % $(000s) % Total Consumer , Total Residential Real Estate , Total Small Business , ,986 5 Total Small Farm TOTAL LOANS , ,299 4 The conclusions regarding the bank s performance under the remaining performance criteria in the Lending Test are discussed in detail in the next section of this public evaluation, which details the bank s performance in the Kalispell assessment area. INVESTMENT TEST The bank s performance under the Investment Test is rated low satisfactory. The bank has not purchased any qualified investments since the last evaluation, but holds one qualified investment acquired prior to the last evaluation. The total qualified donations in all three assessment areas since the last evaluation are as follows: 2002 (Last Evaluation through December 31, 2002) (January 1, 2004, to July 12, 2004) $43, 970 $14,342 $16,613 The conclusions regarding the bank s performance in the Kalispell assessment area are discussed in detail in the next section of this public evaluation. Page 8

11 SERVICE TEST The bank s performance under the Service Test is rated outstanding. The bank s extensive support of GAHF makes it unique among state member banks in the Ninth Federal Reserve District. The activities of the GAHF have provided significant benefits to low- and moderate-income people needing affordable housing within the bank s assessment areas. The conclusions regarding the bank s performance are discussed in detail in the next section of this public evaluation, which details the bank s performance in the Kalispell assessment area. COMPLIANCE WITH ANTIDISCRIMINATION LAWS The evaluation did not reveal any substantive violations of the antidiscrimination laws or regulations. In addition, the bank has not received any CRA-related complaints since its April 29, 2002, evaluation. Page 9

12 NONMETROPOLITAN AREA DESCRIPTION OF INSTITUTION S OPERATIONS IN KALISPELL, MONTANA Offices. GB has seven offices, including its main office, in the Kalispell assessment area. All offices are full-service and most operate a cash-dispensing ATM. The bank has not opened or closed any offices in the Kalispell assessment area since the previous examination. The bank added two cash-dispensing ATMs in the assessment area. One is located in Lakeside and the other is located in Columbia Falls. Of all three of the bank s assessment areas, the majority of the bank s lending and deposit activity is in the Kalispell assessment area. Offices in the Kalispell assessment area originated 91% of the total number and 90% of the total dollar amount of loans for In 2003, the offices in the Kalispell assessment area originated 84% of the total number and 86% of the total dollar amount of loans. As mentioned earlier, the bank s total deposits in Lake, Lincoln, and Flathead counties were approximately $240 million, which represents nearly 19% of the total deposits in those counties. GB ranked second in percentage for deposit market share in the same counties. The financial institution ranked first was First Interstate Bank, which is significantly larger than GB based on asset size. Assessment area. The Kalispell assessment area includes all of Flathead and Lincoln counties and a portion of Lake County. Previously, the Kalispell assessment area included only a portion of Lincoln County. As mentioned earlier, the bank chose to expand the assessment area to include all census tracts in Lincoln County after the release of the 2000 U.S. Census data. A majority of the Flathead Indian Reservation ( Reservation ) in Lake County makes up the southernmost portion of the assessment area. Three of the five moderate-income tracts in the assessment area are within the Reservation s boundaries. Exhibits 5 and 6 provide 1990 and 2000 demographic data about the assessment area. EXHIBIT Assessment Area Demographics Tract Distribution Families by Tract Income Families Below Poverty Level as % of Families by Tract Families by Family Income Income Categories # % # % # % # % Low Income , Moderate Income 2 9 1, , Middle Income , , , Upper Income , , Total Assessment Area , , , Housing Housing Types by Tract Units by Owner-Occupied Rental Vacant Tract # % % # % # % Low Income Moderate Income 3,316 1, , Middle Income 32,591 19, , , Upper Income 5,310 3, , , Total Assessment Area 41,217 23, , , Businesses by Tract and Revenue Size Total Businesses by Tract Less Than or Equal to $1 Million Over $1 Million Revenue Not Reported # % # % # % # % Low Income Moderate Income Middle Income 3, , Upper Income Total Assessment Area 4, , Percentage of Total Businesses: Page 10

13 EXHIBIT Assessment Area Demographics Farms by Tract and Revenue Size Total Farms Less Than or Equal by Tract to $1 Million Over $1 Million Revenue Not Reported # % # % # % # % Low Income Moderate Income Middle Income Upper Income Total Assessment Area Percentage of Total Farms: EXHIBIT Assessment Area Demographics Income Categories Tract Distribution Families by Tract Income Families Below Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low Income , Moderate Income , , Middle Income , , , Upper Income 2 7 3, , Total Assessment Area , , , Housing Housing Types by Tract Units by Owner-Occupied Rental Vacant Tract # % % # % # % Low Income Moderate Income 4,531 2, , Middle Income 47,893 28, , , Upper Income 4,528 3, Total Assessment Area 56,952 34, , , Businesses by Tract and Revenue Size Less Than or Total Businesses Equal to Revenue Not by Tract $1 Million Over $1 Million Reported # % # % # % # % Low Income Moderate Income Middle Income 4, , Upper Income Total Assessment Area 5, , Percentage of Total Businesses: Farms by Tract and Revenue Size Less Than or Total Farms Equal to Revenue Not by Tract $1 Million Over $1 Million Reported # % # % # % # % Low Income Moderate Income Middle Income Upper Income Total Assessment Area Percentage of Total Farms: Page 11

14 Population. The population of the Kalispell assessment area is 118,044 according to 2000 U.S. Census data. This is an increase of 34% from 1990 U.S. Census data. U.S. Census data indicates that from 1990 to 2000, Lake and Flathead counties experienced 26% population growth while Lincoln County experienced only 8% population growth. Income. For purposes of classifying borrower income, this evaluation uses the HUD estimated 2003 median family income when evaluating the bank s residential real estate and consumer lending data for The 2003 median family income for the nonmetropolitan areas of Montana is $42,200. For purposes of classifying the income level of census tracts, this evaluation uses the median family income for nonmetropolitan areas of Montana from the 1990 and 2000 census data, which are $28,044 and $40,487, respectively. General economic and housing characteristics. According to bank management and community contacts, the economy in the Kalispell assessment area is generally good. The population continues to grow steadily due to the influx of people who are relocating from other states. Retirees and wealthy individuals are among the variety of people relocating to the area. Information provided by community contacts in Flathead County indicates that the economy in the Flathead Valley is stable and continues to improve. The makeup of area businesses has become more diverse with growth in banking services, manufacturing, retail, and health care. Although diverse, the economy is still struggling to attract new businesses into the area. During the past few years, local organizations have made efforts in economic development and attracted new businesses to the area. Community contacts in the Lake County area stated the local economy is stable with little growth during the past two years. Lake County s July 2004 unemployment rate of 5.5% is about 41% higher than the state s unemployment rate of 3.9%. Some of the largest employers in assessment area are health services, government, capital manufacturing for the semiconductor industry, timber and electronics manufacturing, retail and services, agriculture, and tourism. The Confederated Salish and Kootenai Tribes ( Tribes ) is the largest employer in Lake County. According to community contacts, tribal jobs often pay more than nontribal jobs. Community contacts and bank management in the Kalispell assessment area indicated that wages have not increased proportionately to the quickly increasing housing costs. Affordable housing continues to be an issue in the Kalispell assessment area. Housing prices for existing homes and new construction have steadily increased in most of the assessment area, while wage and salary increases lag. Community contacts stated affordable housing is in high demand and in short supply. For example, in the Lake County area, an organization that provides affordable housing has a long waiting list of people in need of affordable housing. According to the contact, the current average rent of $532 for a three-bedroom unit is typically not affordable for most people in the community. Consequently, the waiting list for reduced-rent units continues to grow. According to U.S. Census data, the median housing prices of owner-occupied units in the assessment area are $104,000 in Kalispell, $125,600 in Flathead County, $117,200 in Lake County, and $82,600 in Lincoln County. A portion of the assessment area is made up of the Reservation. Community contacts stated that tribal members have access to nontraditional means of credit through the Tribes. A tribal housing authority located on the Reservation provides affordable housing assistance to borrowers, including mortgage financing and home improvement loans. According to bank management, the bank operates in very competitive markets, especially the Kalispell assessment area. Competition among financial institutions is very strong. There are 16 commercial banks, 4 credit unions, and 34 mortgage institutions in Flathead County alone, according to information provided by a local economic development organization. Some of the competing institutions are large, multibillion dollar financial institutions. GB has a strong and reputable retail branch presence in the Kalispell assessment area. Page 12

15 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN KALISPELL, MONTANA GB s CRA performance in the Kalispell assessment area is highly satisfactory. The bank s lending performance is highly satisfactory and the level of community development services is excellent. The bank s qualified investment activity is adequate. Thus, the bank s overall CRA rating is high satisfactory. LENDING TEST The bank s performance under the Lending Test is highly satisfactory. The bank also does a good job of lending to businesses with gross annual revenues of $1 million or less. The bank s level of lending to low- and moderate-income residential real estate and consumer borrowers is very good and excellent, respectively. The bank s geographic distribution of lending is satisfactory given the demographic characteristics of the Kalispell assessment area. The bank s community development lending is adequate. Lending Activity GB s level of lending reflects strong responsiveness to assessment area credit needs in the Kalispell assessment area. This evaluation is based on lending activity for 2002 and 2003, which is compared to 1990 and 2000 census data, respectively. For 2002, small business loans were analyzed. For 2003, small business, residential real estate, and consumer loans were analyzed. In 2002, the bank originated a total of 314 small business loans. In 2003, the bank originated 367 small business loans, 940 residential real estate loans, and 827 consumer loans. Overall, the bank s lending focus is commercial and residential real estate lending. For 2003 small business lending, the bank s lending accounted for 24% of the total loans reported by aggregate lenders in the Kalispell assessment area. As of June 30, 2003, First Interstate Bank had the largest deposit market share (22%) in the three counties that make up the Kalispell assessment area, and its lending totaled 27% of small business loans reported under CRA by aggregate lenders for Although the difference between GB and First Interstate Bank s deposits was approximately $35 million, the difference between small business loans was approximately $3 million. Of the entities required to collect CRA data with offices in the Kalispell assessment area, GB and First Interstate Bank have 36% and 41% of the small business loan market share, respectively. The comparable numbers for deposit market share are also 39% and 45%. Overall, the data shows that GB is a reasonably active small business lender relative to its size. Although similar figures are not available for residential real estate and consumer loans, community contacts mentioned that the bank is a lending leader in the assessment area and identified no unmet credit needs. Further, RMS Information Services data for January through April 2004 shows that the bank is the leading residential real estate lender in Flathead County. According to bank management, the bank operates in extremely competitive banking markets and competes against large multibillion dollar financial institutions. The bank enhances its residential real estate lending by providing a wide array of private and government-sponsored innovative and flexible mortgage loans. The bank s net loan-to-deposit ratio compares favorably to the net loan-to-deposit ratios of the bank s national peer group. From March 31, 2002, to June 30, 2004, the bank s quarterly net loan-to-deposit ratio fluctuated between 92% and 100%. The quarterly average net loan-to-deposit ratio since the previous CRA evaluation was 96%. Page 13

16 As the data shows, the bank s lending activity reflects strong responsiveness to assessment area credit needs. The bank is a leading lender of small business and residential real estate loans. Also, the bank makes almost all of its loans in the three assessment areas. Distribution by Borrower Income and Revenue Size of the Business GB s distribution of lending based on borrower income and revenue size of businesses is very good. The bank s loan distribution for small business loans is good and for residential real estate loans is very good. The bank s lending to low- and moderate-income consumer borrowers is strong. GB offers loans through the following agencies: Federal Housing Administration, Department of Veterans Affairs, Small Business Administration, Rural Development, and the Montana Board of Housing. These loan programs allow the bank to fulfill the credit needs of borrowers needing flexibility in underwriting standards. Small business lending. Overall, the bank s lending to small businesses is good. The bank is an active lender to entities with gross annual revenues of $1 million or less. It also regularly originates small business loans for small-dollar amounts. Finally, the bank s lending performance for both 2002 and 2003 compares favorably to the aggregate lenders performance. In 2002, the bank made 68% of its small business loans to small businesses. This is a decline from 2001 when the bank originated 87% of its small business loans to small businesses. According to data published in 2002 by Dun & Bradstreet, 91% of the businesses in the assessment area reported having gross annual revenues of $1 million or less. The bank s lending activity compares favorably to the aggregate CRA data, which shows that 41% of the small business loans in the assessment area were made to small businesses. Aggregate data includes data from all financial institutions required to report small business and small farm loan data. A number of the reporters are national lenders that do not have banking offices in the assessment area. In 2002, financial institutions subject to CRA data collection with offices in the bank s assessment area originated 80% of their small business loans to small businesses. In 2003, the bank made 69% of its small business loans to small businesses, an increase from The Dun & Bradstreet data for 2003 still shows that 91% of the businesses in the assessment area reported gross annual revenues of $1 million or less. The aggregate CRA data shows that 43% of the small business loans were to small businesses. In 2003, financial institutions subject to CRA data collection with offices in the bank s assessment area originated 74% of their small business loans to small businesses. The bank s lending to small businesses is good. The bank originates small business loans to small businesses and originates small business loans in small-dollar amounts. During the evaluation period, the bank s small business lending improved after declining between evaluation periods. However, it remains lower than small business lending in Refer to Core Table 4 in Appendix C for additional information. Residential real estate lending. The bank s lending to low- and moderate-income borrowers in 2003 is very good. The bank originated 2% and 20% of residential real estate loans to low- and moderate-income borrowers, respectively. The bank s lending to moderate-income borrowers is excellent, especially in light of the housing market characteristics discussed below. Approximately 20% of the assessment area s families are moderate income. The bank s residential real estate lending to low-income borrowers is low but reasonable. In 2003, financial institutions subject to HMDA data collection with offices in the bank s Kalispell assessment area originated 5% of their HMDA-reportable loans to low-income borrowers and 14% of their HMDA-reportable loans to moderate-income borrowers. The bank s level of lending to moderate-income borrowers significantly exceeds the peer institutions level of lending. Page 14

17 The bank s residential real estate lending is a function of the assessment area s housing market. It is particularly pertinent to discuss the affordability of housing for low-income borrowers in the Kalispell assessment area. As mentioned earlier, community contacts indicate there is a shortage of affordable housing. It is not likely that many low-income individuals would be able to afford to purchase a home given the following median housing prices of owner-occupied units in the assessment area: $104,000 in Kalispell, $125,600 in Flathead County, $117,200 in Lake County, and $82,600 in Lincoln County. Using the assumption that an individual can obtain a loan for roughly three times annual income, an individual with the highest income in the low-income bracket, $21,200, could afford a $63,600 home. According to census data, approximately 18% of owner-occupied units in the assessment area have values of $59,999 or less. Based on this data, most low-income borrowers cannot afford to purchase homes in the assessment area. This explains the low penetration of residential real estate lending to low-income borrowers. In the Kalispell assessment area, the bank continues to partner with GAHF. As previously stated, the purpose of GAHF is to provide a pool of funds dedicated to down payment and closing cost assistance for low- and moderate-income first-time homebuyers in the Kalispell assessment area. Also, since the previous evaluation, the bank began offering a new home mortgage loan product, which is flexible and responsive to needs of low- and moderate-income borrowers. Despite the low penetration of residential real estate loans to low-income borrowers, the bank s distribution of residential real estate loans by borrower income is very good. Given the assessment area demographics and housing characteristics, the bank s lending to moderate-income borrowers is excellent. Consumer lending. The bank s consumer lending to low- and moderate-income borrowers in 2003 is excellent. The bank originated 25% and 27% of consumer loans to low- and moderate-income borrowers in the Kalispell assessment area, respectively. This compares very favorably with the demographic data, which shows that 20% of families are low income and another 20% are moderate income. In the assessment area, 23% of the households are low income and 17% are moderate income. The consumer lending performance is excellent given the bank s flexible underwriting standards. The bank attempts to originate loans for all applicants within safe and sound underwriting criteria. The bank is also willing to extend small-dollar amount consumer loans. In summary, GB s lending by borrower income levels is very good. The bank s residential real estate lending to moderate-income borrowers is very strong; the level of lending to low-income borrowers is reasonable given the high cost of housing in the assessment area. The bank is also strong in lending to low- and moderate-income borrowers for consumer loans. The bank s level of lending to small businesses is good. Geographic Distribution The geographic dispersion and distribution of the bank s loans reflect satisfactory performance in the Kalispell assessment area. The bank does not regularly extend loans to borrowers in the moderate-income geographies in Flathead and Lake counties. This situation, however, appears to reflect assessment area characteristics. Thus, the bank s lending in moderate-income areas is satisfactory. Small business lending. The geographic dispersion and distribution of the bank s small business loans are good for 2002 and In 2002 and 2003, respectively, the bank extended small business loans in 86% and 75% of the geographies in the assessment area. For 2002 and 2003, respectively, the bank extended small business loans in 50% and 40% of the moderate-income geographies in the assessment area. The geographic distribution of small business loans for 2002 and 2003 is highly satisfactory. Page 15

18 The evaluation did not reveal any unexplained gaps in the bank s small business lending for The bank originated 2% of its small business loans in the assessment area s moderate-income census tracts. At the previous evaluation, this figure was 1% for 2000 and 3% for 2001 when 4% of the businesses were located in moderate-income geographies. According to data published by Dun & Bradstreet, 5% of the assessment area s businesses are located in moderate-income census tracts. The bank s small business lending in moderate-income areas is somewhat low compared to aggregate lenders who originated 4% of their small business loans in the assessment area s moderate-income census tracts in Based on the 1990 census, the two moderate-income census tracts covered large geographic areas that were some distance from any of the bank s offices. The moderate-income census tract in Lincoln County had Idaho as its western border. The moderate-income census tract in Flathead County covered a large wilderness area. Thus, while the bank s level of small business lending in the moderate-income census tracts for 2002 is low, it is not unreasonable. In 2003, the bank originated 4% of its small business loans in the moderate-income census tracts. With the changes from the 2000 census, the assessment area now has five moderate-income census tracts. According to Dun & Bradstreet data, 8% of the assessment area s businesses are in moderate-income census tracts. The bank s 2003 lending activity compares favorably to the aggregate lenders who originated 4% of their small business loans in moderate-income census tracts. The bank did not originate any small business loans in the three moderate-income census tracts in Flathead and Lake counties in It is important to note that the moderate-income census tract 9401 in Flathead County is new. The previous moderate-income census tract in Flathead County was reclassified as middle income as a result of the 2000 census. Census tract 9401 has a total population of 17, according to 2000 census data, and, according to Dun & Bradstreet data, there are no businesses located in this census tract. Similarly, Lake County also has two new moderate-income census tracts. Lake County s census tract 9401 is sparsely populated. According to 2000 census data, the population is 426. There are eight businesses located in this census tract, according to Dun & Bradstreet data. Census tract 9404 has a population of 3,459, according to 2000 census data, and 105 businesses, according to Dun & Bradstreet data. The town of Pablo is located in census tract 9404 and is also the location of the Tribes headquarters. Information from community contacts indicate that the Tribes have the ability to provide small business financing to tribal members. According to 2003 aggregate lending data, there was very limited lending activity in Lake County s moderate-income census tracts. The aggregate lenders originated 66 loans in these tracts, which represents approximately 1% of the aggregate lending activity in the bank s Kalispell assessment area. None of the financial institutions with offices in the Kalispell assessment area that report CRA data originated any loans in these census tracts. According to bank management and community contacts, there are several financial institutions with offices located in Ronan that are not subject to CRA data collection that serve this area. Overall, the geographic dispersion and distribution of the bank s small business loans are good. In both years, the bank originated small business loans in a significant majority of the geographies in the assessment area. Although the bank s small business lending is low or comparable to the aggregate data, it appears reasonable given the assessment area s demographics. Thus, the geographic distribution of small business loans for 2002 and 2003 is highly satisfactory. Refer to Core Table 2 in Appendix C for additional information. Residential real estate lending. The geographic distribution of real estate loans in 2003 is adequate. The bank originated 3% of the number of residential real estate loans in moderate-income tracts. Based on the loans in the residential real estate loan sample, the bank did not originate any loans in the moderateincome census tracts in Lake and Flathead counties. Although 20% of the population, based on 2000 census data, resides in moderate-income tracts, only 8% of the owner-occupied units are in these moderate-income tracts. Within the moderate-income tracts, 60% of the housing units are owner occupied. Page 16

19 As previously mentioned, three of the moderate-income tracts are in Lake and Flathead counties. The moderate-income census tract in Flathead County is sparsely populated; only five families reside and three owner-occupied housing units exist in this tract. In the other two moderate-income census tracts in Lake County, there are 1,052 families and 932 owner-occupied units. The nearest GB branch to these areas is in Polson. As discussed in the small business section, the town of Pablo is located in census tract Several factors about the bank and the assessment area contribute to the level of residential real estate lending in the moderate-income tracts in Lake County. As previously mentioned, community contacts indicated tribal members have access to nontraditional credit through the Tribes, including affordable housing assistance. Further, Lake County is experiencing high unemployment compared to the state unemployment rate. These factors are significant and partially explain why the bank may have fewer opportunities to make residential real estate loans in Lake County s moderate-income census tracts. In addition, there are several local financial institutions with offices in Ronan and Pablo that are active residential real estate lenders. Given these factors and the very competitive banking market in the Kalispell assessment area, the bank s lending performance in Lake County is reasonable. The remaining two moderate-income census tracts are in Lincoln County. The bank originated two residential real estate loans in each of these moderate-income census tracts. The moderate-income census tracts are home to 1,678 families and have 1,776 owner-occupied units, representing 5% of the assessment area s owner-occupied units. According to bank management, turnover of houses in Libby, which is one of Lincoln County s moderate-income census tracts, is low. The unemployment rate in Libby is slightly higher than the state s unemployment rate. These factors likely explain the low level of lending in Lincoln County s moderate-income areas. In summary, the geographic distribution of the residential real estate loans in 2003 is adequate. The bank originated 3% of the number of residential real estate loans in moderate-income tracts. Factors about the bank and assessment area explain the bank s low lending levels in moderate-income tracts. Thus, the geographic distribution of residential real estate loans is reasonable. Consumer lending. The geographic distribution of consumer loans in 2003 is reasonable. The bank originated 5% of the number of consumer loans in moderate-income tracts. The 2000 demographic data reveals that 9% of the assessment area s census tracts are moderate income. In addition, 20% of the population resides in moderate-income census tracts. The bank did not originate any consumer loans in census tract 9401 in Flathead County and census tract 9401 in Lake County. As discussed in the small business and residential real estate sections, these census tracts are sparsely populated, so the lack of lending is not unreasonable. The bank originated a consumer loan in census tract As discussed, community contacts indicated tribal members have access to nontraditional credit through the Tribes. Further, Lake County is experiencing high unemployment compared to the state unemployment rate. These factors are significant and partially explain why the bank may have fewer opportunities to make loans in Lake County s moderate-income census tracts. This area is also served by many financial institutions that have offices that are more convenient than the bank s office in Polson. Given these factors and the very competitive banking market in the Kalispell assessment area, the bank s lending performance in moderate-income census tracts is reasonable. As previously mentioned, the remaining two moderate-income census tracts are in Lincoln County. The bank originated five consumer loans in one of these moderate-income census tracts. The moderateincome tracts are home to 1,678 families. The unemployment rate in Libby is slightly higher than the state s unemployment rate. These factors likely explain the low level of lending in Lincoln County s moderate-income areas. Page 17