PUBLIC DISCLOSURE April 5, 2010 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION The Callaway Bank RSSD #719656 5 East Fifth Street Fulton, Missouri 65251 Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri 63166-0442 NOTE: This document is an evaluation of this institution s 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.
TABLE OF CONTENTS Institution s CRA Rating...1 Scope of Examination...1 Description of Institution...2 Description of Assessment Areas...4 Conclusions with Respect to Performance Tests...7 Appendix A: CRA Assessment Areas...22 Appendix B: Glossary...24 Table of Contents
INSTITUTION'S CRA RATING: This institution is rated SATISFACTORY The Lending Test is rated: Satisfactory The Community Development Test is rated: Satisfactory The Callaway Bank meets the criteria for a satisfactory rating, based upon the performance evaluation of the bank s lending and community development activities. Borrower s profile analysis reveals reasonable penetration among individuals of different income levels, including low- and moderate-income (LMI) levels, and among businesses of different sizes. The geographic distribution of loans analysis reflects excellent dispersion throughout the bank s assessment areas. The bank made a substantial majority of its loans within its assessment areas, and, the bank s loan-to-deposit ratio is reasonable given the institution s size, financial condition, and assessment area credit needs. Lastly, under the lending test, no CRA related complaints were filed against the bank for this review period. Further, the institution s community development performance demonstrates adequate responsiveness to the community development needs of its assessment areas, considering the institution's capacity, the need for community development activities, and the availability of such opportunities within the institution s assessment areas. The bank has addressed these needs through various activities, including community development loans, qualified investments, and community development services. SCOPE OF EXAMINATION 1 The Callaway Bank s performance under the CRA was evaluated using the examination procedures for intermediate small banks (ISBs), and the review period was from the date of the bank s previous CRA evaluation, on April 3, 2006, to April 5, 2010. Lending performance for the evaluation period was primarily based on loans originated in 2009. Specifically, residential real estate loan activity reported under the Home Mortgage Disclosure Act (HMDA) for 2009 and small business and consumer motor vehicle loans originated from January 1, 2009 to December 31, 2009 formed the primary basis of the lending test review. These three 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. This evaluation is based upon bank performance in two assessment areas the bank s primary assessment area, which is located inside the Jefferson City, Missouri Multi-State Metropolitan Statistical Area (Jefferson City MSA) and a separate assessment area in nearby Boone County, which is part of the Columbia, Missouri MSA. These regions are comprised of geographies within two contiguous Missouri counties, Callaway and Boone. However, because these counties are separated by an MSA boundary, the bank must be evaluated under two separate assessment area analyses (for the Jefferson City MSA and Columbia MSA portions of the combined assessment area). Both assessment areas were reviewed using full-scope procedures. 1 Information presented in this section (review period dates and loan sample details, e.g.), pertains throughout the rest of this evaluation unless specifically noted otherwise. 1
However, when arriving at overall performance conclusions, performance in the Callaway County assessment area received primary consideration, as the majority of the bank activities and resources, including five of eight banking facilities, are within Callaway County. To augment this evaluation, two community contact interviews were conducted with members of the local community in order to ascertain specific credit needs, opportunities, and local market conditions within the bank s assessment areas. One interview took place with a member of an affordable housing agency, and one interview was completed with an executive of a business development corporation. Comments from these interviews were useful in determining the context in which to evaluate the bank s performance, and this information also assisted in evaluating the bank s responsiveness to identified community credit needs and developmental opportunities. 2 DESCRIPTION OF INSTITUTION 3 The Callaway Bank is a wholly-owned subsidiary of Callaway Security Banks Inc., a one-bank holding company headquartered in Fulton, Missouri. The bank s branch network consists of six full-service branches (including the main office) and two drive-up only facilities. Three of the six full-service branches and both drive-up branches are located in Callaway County. The other three full-service branches are located in Columbia, Missouri, which is in Boone County. All six full-service branches offer an automatic teller machine (ATM), of which all but one is depositaccepting. In addition, the bank s branch network includes eight stand-alone ATMs (two of which accept deposits) located throughout Callaway and Boone counties. During this review period, the bank opened one full-service facility in Columbia, Missouri. The bank did not close any branch offices during the review period. Based on this branch network and other delivery methods, the bank is well poised to deliver financial services to both of its assessment areas in their entirety. For this review period, no legal impediments or financial constraints were identified that would have hindered the bank from serving the credits needs of its customers, and the bank appeared capable of meeting assessment area credit needs based on its available resources and financial products. As of September 30, 2009, the bank reported total assets of $276.0 million. As of the same date, outstanding loans and leases were $185.1 million (67.1 percent of total assets), and deposits totaled $225.1 million. The bank s loan portfolio composition by credit category is displayed in the following table. 4 2 Key details from these community contact interviews are included in the Description of Assessment Areas section. 3 Any percentage row or column 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. 4 For purposes of this table, total loan information is derived from gross loans and leases data reported on the Consolidated Reports of Condition and Income as of September 30, 2009. 2
Distribution of Total Loans (as of September 30, 2009) Credit Product Type Amount in $000s 1-4 Family Residential Real Estate Construction Loans Other Construction, Land Development & Other Loans Loans Secured by Owner Occupied Non- Farm Non-Residential RE Loans Secured by Other Non-Farm Non- Residential RE Percentage of Total Loans $ 5,225 2.8% $ 19,166 10.4% $ 22,000 11.9% $ 19,771 10.7% 1-4 Family Revolving $ 5,615 3.0% 1-4 Family Residential $ 53,630 29.0% Multifamily $ 7,569 4.1% Farmland $ 16,279 8.8% Farm Loans $ 11,412 6.2% Commercial and Industrial $ 17,963 9.7% Loans to Individuals $ 3,759 2.0% Loans to States & Political Subs in U.S. $ 260 0.1% Total Other Loans $ 2,498 1.3% $ 185,147 100% As indicated by the preceding table, a significant portion of the bank s lending resources is directed to the following loan categories: 1-4 family residential real estate (29.0 percent by dollar), 5 loans secured by owner-occupied non-farm non-residential real estate (11.9 percent by dollar), and construction and development (10.4 percent by dollar). Although not necessarily reflected in the previous table, it is also worth noting that, by number of loans originated, loans to individuals (such as consumer motor vehicle loans) represents a significant product offering of the bank. 6 5 The bank also originates and subsequently sells a significant volume of loans related to residential real estate; as these loans are typically sold on the secondary market shortly after origination, this activity would not be captured in the data discussed here. 6 As consumer loans not related to residential real estate are likely smaller dollar loan amounts relative to other loan types, this loan category may often times represent a significant loan product by number of loans made, even if not reflected as such by dollar amount outstanding. 3
As part of this evaluation under the CRA, the bank s performance was evaluated in relation to the performance of other regional banks. According to FDIC deposit market share data 7 as of June 30, 2009, there were 24 financial institutions with 65 offices located in the Jefferson City MSA. In the Columbia MSA, there were 31 financial institutions with 82 offices. In terms of total deposit market share, the bank ranked 5 th having 4.6 percent of the deposit market share in the Jefferson City MSA. In the Columbia MSA, the bank ranked 10 th having 2.6 percent of the deposit market share. Using this market share data, four specific financial institutions were identified as comparable peers, with asset sizes ranging from $41.0 million to $1.1 billion. The bank received a satisfactory rating at its previous CRA evaluation conducted April 3, 2006, by this Reserve Bank, at which point the bank was reviewed under the procedures for small banks. DESCRIPTION OF ASSESSMENT AREAS 8 As noted under the Scope of Examination section of this report, The Callaway Bank operates in two CRA assessment areas. 9 The Callaway County assessment area, which is in the Jefferson City MSA, is comprised of Callaway County in its entirety. Secondly, the Boone County assessment area, which is in the Columbia MSA, west of, and contiguous to, Callaway County, is comprised of Boone County in its entirety. Both assessments areas are located in central Missouri. DESCRIPTION OF CALLAWAY COUNTY ASSESSMENT AREA The Callaway County assessment area is comprised of eight census tracts. This county is one of four within the Jefferson City MSA and its population of 40,766, accounted for 29.1 percent of the total MSA population, 140,052. As the demographics of this assessment area cover a metropolitan area and the population is from a diverse mix, credit needs in the area are also varied, including a standard blend of various consumer and business loan products; further, this area offers ample opportunity for community development involvement. The following table reflects the number and family population of Callaway County assessment area census tracts for each income category. 10 7 Source: Deposit market share is published by the Federal Deposit Insurance Company (FDIC) as of June 30 each year. 8 Statistical/demographic information cited in this evaluation, unless otherwise stated, is taken from 2000 United States Census Bureau data. 9 See Appendix A for a detail of the individual census tracts within these assessment areas. 10 See the glossary in Appendix B for the definitions of the low-, moderate-, middle-, and upper-income categories. 4
Assessment Area Geographical Information by Income Category Census Data Low- Moderate- Middle- Upper- Unknown Assessment Area Geographies Family Population 0 1 7 0 0 8 0.0% 12.5% 87.5% 0.0% 0.0% 100% 0 1,001 9,415 0 0 10,416 0.0% 9.6% 90.4% 0.0% 0.0% 100% The previous table reveals that this assessment area contains no low-income census tracts and only one moderate-income census tract. By far, the largest portion of the assessment area family population resides in middle-income census tracts. Based upon 2000 census data, the median family income for the assessment area was $44,432, which is below the comparable median family income figure for the Jefferson City MSA, $48,840. More recently, the U.S. Department of Housing and Urban Development (HUD) estimates the 2009 Jefferson City MSA median family income to be $61,700, which represents a 26.3 percent increase from 2000. The following table displays population percentages of assessment area families by income level, compared to the entire Jefferson City MSA family population. Assessment Area Family Population by Income Level Census Data Low- Moderate- Middle- Upper- Unknown Assessment Area Jefferson City MSA 2,027 2,282 2,837 3,270 0 10,416 19.5% 21.9% 27.2% 31.4% 0.0% 100% 6,205 6,538 9,657 13,350 0 35,750 17.4% 18.3% 27.0% 37.3% 0.0% 100% As displayed in the previous table, the assessment area population is less affluent compared to the entire Jefferson City MSA, particularly with regard to the percentage of upper-income families. Secondly, the table before this one indicated that the vast majority of assessment area families lived in middle-income census tracts; however, this table reveals that a significant portion of assessment area families (41.4 percent) is considered LMI. Based on unemployment data, 11 the assessment area is fairing worse locally, than as compared to statewide data. The 2009 annualized unemployment rate for Callaway County was 8.1 percent. In comparison, the 2009 annualized unemployment rates for the Jefferson City MSA and the state of Missouri were 7.3 and 9.3 percent, respectively. 11 Source: U.S. Department of Labor, Bureau of Labor Statistics (not seasonally adjusted). 5
As a part of this CRA examination, a community contact interview was utilized in order to obtain additional assessment area background, including information relating to credit needs, community development opportunities, and the local economy. The community contact in Callaway County, a president of a business development organization, stated that there were opportunities for financial institutions to assist small businesses. The contact also indicated that local financial institutions are involved in the community, pro-actively seeking ways to support local residents and businesses. The contact also stated that with the recent layoff of 300 workers at a major medical facility, the Callaway County area will soon feel more effects of the economic slowdown. However, this can be seen as an opportunity for the banks to do more in assisting in the surrounding communities. DESCRIPTION OF BOONE COUNTY ASSESSMENT AREA The Boone County assessment area is comprised of 29 census tracts. This county is one of two within the Columbia MSA and its population of 135,454, accounted for 93.0 percent of the total MSA population, 145,666. As the demographics of this assessment area come from a metropolitan area and the population is from a diverse mix, credit needs in the area are also varied, including a standard blend of various consumer and business loan products; further, based on the demographic makeup of this area, including multiple institutions of higher education, this area offers a high level of community development opportunity. The following table reflects the distribution of Boone County assessment area census tracts by each income category and the corresponding family populations within those census tracts. Assessment Area Geographical Information by Income Category 2000 Census Data Low- Moderate- Middle- Upper- Unknown Assessment Area Geographies Family Population 5 6 13 5 0 29 17.2% 20.7% 44.8% 17.2% 0.0% 100% 1,279 3,751 18,059 8,576 0 31,665 4.0% 11.8% 57.0% 27.1% 0.0% 100% The previous table reveals that the majority of the assessment area census tracts are middleincome, but the assessment area also includes a material portion of LMI census tracts and family populations within those census tracts. Based on 2000 census data, the median family income for the assessment area was $51,142, which was higher than the median family income of $46,044 for the entire state of Missouri. More recently, HUD estimates the 2009 Columbia MSA median family income to be $63,000. 6
The following table displays population percentages of assessment area families by income level, compared to the state of Missouri family population. Assessment Area Family Population by Income Level 2000 Census Data Low- Moderate- Middle- Upper- Unknown Assessment Area State of Missouri 6,047 5,673 7,245 12,700 0 31,665 19.1% 17.9% 22.9% 40.1% 0.0% 100% 282,730 278,477 345,089 580,250 0 1,486,546 19.0% 18.7% 23.2% 39.0% 0.0% 100% As displayed in the previous table, the assessment area population income level is just as affluent, compared to the state of Missouri. The first table in this section indicated that the majority of the assessment area families lived in middle-income census tracts; however, this table reveals that a significant portion of assessment area families (37.0 percent) is considered LMI. Boone County appears to be doing better, employment-wise, as compared to the state of Missouri, based on 2009 unemployment data. 12 The annualized 2009 unemployment rate for Boone County was 6.3 percent, which is significantly less the Missouri state figure of 9.3 percent. As a part of this CRA evaluation, a community contact interview was completed with a member of the Boone County community in order to obtain additional assessment area background, including information relating to credit needs, community development opportunities, and the local economy. This interview was with a manager of a local affordable housing agency. The community contact interviewee categorized the economy stabilizing, and he stated that he was not aware of any unmet credit needs in the Boone County area. Further, the contact stated that banks have been very willing to work with his agency in an effort to make homes affordable for Boone County residents. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS The Callaway Bank meets the criteria for a satisfactory rating based upon the performance evaluation of the bank s lending and community development activities. The bank s CRA performance was evaluated using the Federal Financial Institutions Examination Council s (FFIEC) Interagency CRA Procedures for Intermediate Small Institutions. The evaluation criteria for ISBs consist of two tests, the lending test and the community development test. The remaining sections of this evaluation are based upon analyses of the bank s performance under these two tests. 12 Source: U.S. Department of Labor, Bureau of Labor Statistics (not seasonally adjusted). 7
LENDING TEST Overall, the bank s lending test performance is satisfactory, which is based upon loan information from three categories: HMDA data, motor vehicle loans, and small business loans. The performance standards under the lending test evaluate the following five criteria as applicable. 14 Loan penetration by borrower s profile (applicant income or business revenue profile) The bank s geographic distribution of loans The concentration of lending within the assessment area The bank s average loan-to-deposit (LTD) ratio A review of the bank s response to written CRA complaints Loan Penetration by Borrower s Profile The borrower s profile analysis evaluates the bank s distribution of loans among individuals of different income (including LMI) levels and businesses of different sizes. In the Callaway County assessment area, the bank s performance by borrower s profile was reasonable. In the Boone County assessment area, the bank s borrower s profile performance was reasonable. Additional detail regarding the bank s borrower distribution performance is included later, under the section applicable to each individual assessment area analysis. Geographic Distribution of Loans The geographic distribution analysis evaluates the bank s distribution of loans within its assessment areas, focusing on LMI census tracts. The geographic distribution of loans in the Callaway County assessment area is excellent. In the Boone County assessment area, the geographic distribution of loans is reasonable. Additional detail regarding the bank s geographic distribution performance is included later, under the section applicable to each individual assessment area analysis. 14 The first two bullet items (borrower income and revenue distribution and geographic distribution) are evaluated at the individual assessment area level only. 8
Assessment Areas Concentration For the loan activity reviewed as part of this evaluation, the following table displays the number and dollar volume of loans extended inside and outside the bank s assessment areas. Loan Type 2009 HMDA Data 2009 Motor Vehicle 2009 Small Business Lending Inside and Outside of Assessment Area Inside Outside Assessment Area Assessment Area 599 58 657 91.2% 8.8% 100% $ 81,708 $ 9,3911 $ 91,099 89.7% 10.3% 100% 75 4 79 94.9% 5.1% 100% $ 587 $ 47 $ 634 92.6% 7.4% 100% 50 8 58 86.2% 13.8% 100% $ 2,765 $ 1,917 $ 4,682 59.1% 40.9% 100% 724 70 $ 794 91.2% 8.8% 100% $ 85,060 $ 11,355 $ 96,415 88.2% 11.8% 100% As shown in the table above, 724 (91.2 percent) of the 794 loans sampled were originated within the bank s assessment areas. By dollar volume, 88.2 percent of the loans were originated inside the assessment areas. Therefore, a substantial majority of loans (by number of loans and dollar amounts) was extended to borrowers residing inside the bank s assessment area for all loan types reviewed. 9
Loan-to-Deposit (LTD) Ratio One indication of the bank s overall level of lending activity is its LTD ratio. The following table displays the bank s quarterly average LTD ratio in comparison to that of regional peers. 15 Loan-to-Deposit Ratio Analysis Institution Asset Size (in 000s) 16 Headquarters Average LTD Ratio The Callaway Bank $275,986 Fulton, MO 88.5% Regional Bank Peers $40,996 Fulton, MO 89.9% $137,056 Columbia, MO 87.5% $97,079 Fulton, MO 80.1% $1,125,159 Columbia, MO 81.7% For the last 16 quarters, the bank s LTD ratio ranged from a low of 81.1 to a high of 95.3 percent. The bank s quarterly average LTD ratio was 88.5 percent for this evaluation period, similar to that of the regional banks reviewed in comparison, which ranged from 80.1 to 89.9 percent. During the previous evaluation, the bank s 16-quarter average LTD ratio was 82.0 percent. Therefore, in light of data from local banks as displayed in the table above, the bank s average LTD ratio appears to be reasonable given the bank s size, financial condition, and assessment area credit needs. Review of Complaints No CRA-related complaints were received for this institution during the time frame used for this evaluation (April 3, 2006, through April 5, 2010). COMMUNITY DEVELOPMENT TEST The Callaway Bank meets the criteria for a satisfactory rating under the community development test. This conclusion is based upon community development activity from three categories: community development loans, community development investments, and community development services. Further, these analyses took into account the institution s available resources, needs within the assessment areas, and level of community development opportunity. Specifically, bank performance in the Callaway County and Boone County assessment areas reflected an adequate amount of community development activity. Additional detail regarding the bank s community development performance is included later, under the sections applicable to each individual assessment area analysis. 15 The average LTD ratio represents a 16-quarter average, dating back to the bank s last CRA evaluation. 16 Asset size is as of September 30, 2009. 10
CONCLUSIONS WITH RESPECT TO PERFORMANCE IN THE CALLAWAY COUNTY ASSESSMENT AREA Loan Penetration by Borrower s Profile This performance criterion evaluates the bank s loan originations to borrowers of different income levels and businesses of varying revenue sizes. Borrowers are classified into low-, moderate-, middle-, and upper-income categories by comparing their reported income to the HUD estimated, median family income figure for the applicable region and time frame, which in this case is the 2009 Jefferson City MSA figure, $61,700. The following table shows the distribution of HMDA loans by income level of the borrower. Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Borrower Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 HMDA Data 36 73 73 93 27 302 11.9% 24.2% 24.2% 30.8% 8.9% 100% $ 2,028 $ 6,546 $ 8,742 $ 14,238 $ 3,070 $ 34,624 5.9% 18.9% 25.2% 41.1% 8.9% 100% Family Population 19.5% 21.9% 27.2% 31.4% 0.0% 100% As shown in the table above, the bank s penetration to the LMI population varied. By number of HMDA loans, 11.9 percent of the bank s activity was to low-income borrowers, which is significantly below the low-income family population figure (19.5 percent) used for comparison purposes. Conversely, 24.2 percent of the bank s HMDA loans was made to moderate-income borrowers, which is above the moderate-income family population figure (21.9 percent). Therefore, even though the bank s residential real estate lending to low-income borrowers appears weak, the bank s overall LMI lending performance is reasonable in consideration of excellent lending levels to moderate-income borrowers. The following table shows the distribution of motor vehicle loans by income level of the borrower. 11
Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Borrower Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 Motor Vehicle Household Population 15 18 14 11 5 63 23.8% 28.6% 22.2% 17.5% 7.9% 100% $ 95 $ 115 $ 116 $ 119 $ 43 $ 488 19.5% 23.6% 23.8.% 24.4% 8.8% 100% 22.1% 19.1% 22.4% 36.3% 0.0% 100% As shown in the table above, the bank s performance by borrower s profile compares very favorably to demographic data. The bank extended 52.4 percent of its motor vehicle loans to LMI borrowers. This is substantially higher than the percentage of LMI families (41.2 percent) in the assessment area. Further, this strong performance was reflected in both low-income and moderate-income categories. Based on this information, the bank s motor vehicle lending represents excellent penetration among individuals of different income levels. A sample of business loans was reviewed to determine the bank s level of lending to small businesses. 17 The following table illustrates the distribution of loans by revenue level of business and loan amount. Gross Revenue $1 Million or Less Greater Than $1 Million Lending Distribution by Business Revenue Level Loan Origination Amount (in $000s) <$100 >$100<$250 >$250<$1,000 19 2 0 21 82.6% 8.7% 0.0% 91.3% 0 1 1 2 0.0% 4.3% 4.3% 8.7% 19 3 1 23 82.6% 13.0% 4.3% 100% This analysis revealed that 91.3 percent of small business loans were made to businesses with gross revenues of $1 million or less, which matches 2009 Dun & Bradstreet data 18 indicating that 91.3 percent of assessment area business are small businesses. In addition, 82.6 percent of the loans were in amounts less than $100,000, further evidencing the bank s willingness to meet the 17 Under the CRA, a small business is considered to be one in which gross annual revenues for the preceding calendar year were $1 million or less. 18 These statistics are derived from assessment area business geodemographic data for the year 2009. 12
credit needs of small business. Therefore, the bank s distribution of loans to businesses of various revenue sizes is considered reasonable. Considering activity from all three loan categories analyzed in the Callaway County assessment area, the bank s overall borrower profile performance reflects reasonable penetration among individuals of different income levels (including LMI borrowers) and businesses of different revenue sizes. Geographic Distribution of Loans This assessment area contains one moderate-income and seven middle-income census tracts. The analysis in this section illustrates the distribution of the bank s loan activity across these geographies, in comparison to key assessment area demographics. The first review details the bank s geographic distribution of loans reported under the HMDA. The following table displays the results of this review, compared to the percentages of owner-occupied housing units located in each geography income category. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 HMDA Data Owner- Occupied Housing 0 44 258 0 0 302 0.0% 14.6% 85.4% 0.0% 0.0% 100% $ - $ 4,771 $ 29,853 $ 0 $ - $ 34,624 0.0% 13.8% 86.2% 0.0% 0.0% 100% 0.0% 10.4% 89.6 % 0.0% 0.0% 100% The above table reflects that 14.6 percent of HMDA loans was made in the one moderate-income census tract, where only 10.4 percent of owner-occupied housing units are located. Therefore, the bank s lending in this moderate-income census tract exceeds the owner-occupied housing statistics, reflecting excellent performance. 13
The geographic distribution of motor vehicle loans is displayed in the following table. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 Motor Vehicle Household Population 0 10 53 0 0 63 0.0% 15.9% 84.1% 0.0% 0.0% 100% $ - $ 85 $ 403 $ 0 $ - $ 488 0.0% 17.4% 82.6% 0.0% 0.0% 100% 0.0% 9.3% 90.7 % 0.0% 0.0% 100% The above table reflects that 15.9 percent of the bank s motor vehicle lending was made in the one moderate-income census tract, where only 9.3 percent of the household population is located. Therefore, the bank s lending in this moderate-income census tract exceeds comparable demographic data, reflecting excellent performance. The geographic distribution of small business loans is displayed in the following table. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 Small Business Business Institutions 0 3 28 0 0 31 0.0% 9.7% 90.3% 0.0% 0.0% 100% $ - $ 26 $ 1,534 $ - $ - $ 1,560 0.0% 1.7% 98.3% 0.0% 0.0% 100% 0.0% 7.1% 92.9% 0.0% 0.0% 100% As displayed in the table above, the bank extended three small business loans (9.7 percent) in the moderate-income census tract. This compares favorably to 2009 Dun & Bradstreet data, which show that 7.1 percent of businesses in the assessment area are located in the moderate-income census tract. Overall, in consideration of small business loan volume by number and dollar amounts, the bank s performance reflects reasonable dispersion throughout the assessment area. Considering activity from all three loan categories analyzed, the bank s overall geographic distribution of loans reflects excellent dispersion throughout the Callaway County assessment area. 14
Community Development The Callaway Bank community development performance demonstrates adequate responsiveness to the community development needs of the Callaway County assessment area, based on the bank s level of qualified community development loans, investments, and services. Community Development Loans The Callaway Bank demonstrates adequate responsiveness to assessment area needs through its community development loan activity. During the review period, the bank made three loans totaling $324,475 to entities serving the Callaway County assessment area with a community development purpose. Two of these loans went to businesses providing community services to the LMI population. The remaining loan went to an entity promoting economic development in the assessment area. Community Development Investments The bank demonstrated adequate responsiveness to community development needs in the Callaway County assessment area via investment activity. The bank made numerous monetary grants/donations to various entities serving community development needs. These donations totaled $97,574 to four organizations. The bank also made one investment outside the assessment area; a $245,000 certificate of deposit made with a minority owned community development financial institution. Community Development Services The Callaway Bank demonstrated an adequate level of community development services in this assessment area. Bank employees lent their financial expertise as members of various organizations within the community to support community development services. During the review period, six members of management provided qualifying financial technical assistance, as either board members or officers, to seven local organizations promoting economic development, affordable housing, or community services. 15
CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE BOONE COUNTY ASSESSMENT AREA Loan Penetration by Borrower s Profile The borrower s profile criterion evaluates the bank s loan penetration among borrowers of different income levels and businesses of varying revenue sizes. Borrowers are classified into low-, moderate-, middle-, and upper-income categories by comparing their reported income to the HUD estimated, median family income figure for the applicable region and time frame, which in this case is the 2009 Columbia MSA figure ($63,000). The following table shows the distribution of HMDA loans by income level of the borrower. Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Borrower Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 HMDA Data Family Population 20 59 51 149 18 297 6.7% 19.9% 17.2% 50.2% 6.1% 100% $ 1,547 $ 6,534 $ 7, 242 $ 29,543 $ 2,218 $ 47,084 3.3% 13.9% 15.4% 62.7% 4.7% 100% 19.1% 17.9% 22.9% 40.1% 0.0% 100% As the table above shows, the bank extended 26.6 percent of HMDA loans to LMI borrowers. While this performance includes a good level of lending to moderate-income borrowers, lending to low-income borrowers appears weak. By number of HMDA loans, 6.7 percent of the bank s activity was to low-income borrowers, which is significantly below the low-income family population figure (19.1 percent) used for comparison purposes. Conversely, 19.9 percent of the bank s HMDA loans were made to moderate-income borrowers, which is above the moderateincome family population figure (17.9 percent). Therefore, even though the bank s HMDA lending to low-income borrowers reflects weak performance, the bank s overall LMI lending performance is reasonable in consideration of excellent lending levels to moderate-income borrowers. 16
The following table shows the distribution of motor vehicle loans by income level of the borrower. Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Borrower Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 Motor Vehicle Household Population 1 3 3 3 2 12 8.3% 25.0% 25.0% 25.0% 16.7% 100% $ 9 $ 16 $ 37 $ 11 $ 26 $ 99 9.1% 16.2% 37.4% 11.1% 26.3% 100% 23.3% 16.5% 18.1% 42.1% 0.0% 100% As the table above shows, the bank extended 33.3 percent of motor vehicle loans to LMI borrowers. While this performance includes an excellent level of lending to moderate-income borrowers, lending to low-income borrowers appears weak. By number of motor vehicle loans, 8.3 percent of the bank s activity was to low-income borrowers, which is significantly below the low-income household population figure (23.3 percent) used for comparison purposes. Conversely, 25.0 percent of the bank s motor vehicle loans was made to moderate-income borrowers, which is above the moderate-income household population figure (16.5 percent). Therefore, even though the bank s motor vehicle lending to low-income borrowers reflects weak performance, the bank s overall LMI lending performance is reasonable in consideration of excellent lending levels to moderate-income borrowers. 17
A sample of business loans was reviewed to determine the bank s level of lending to small businesses. The following table illustrates the distribution of business loans by business revenue level and loan origination amount. Gross Revenue $1 Million or Less Greater Than $1 Million Lending Distribution by Business Revenue Level Loan Origination Amount (in $000s) <$100 >$100<$250 >$250<$1,000 12 1 0 13 85.7% 7.1% 0.0% 92.9% 0 1 0 1 0.0% 7.1% 0.0% 7.1% 12 2 0 14 85.7% 14.3% 0.0% 100% The analysis of small business loans revealed that 92.9 percent of small business loans was made to businesses with gross revenues of $1 million or less. In comparison, 2009 Dun & Bradstreet data indicate that 89.3 percent of the businesses within the assessment area are small businesses. Therefore, the bank s distribution of loans to businesses of various revenue sizes is considered reasonable. Considering activity from all three loan categories analyzed in the Boone County assessment area, the bank s overall borrower profile performance reflects reasonable penetration among individuals of different income levels (including LMI borrowers) and businesses of different revenue sizes. 18
Geographic Distribution of Loans This assessment area contains five low-income, six moderate-income, 13 middle-income, and five upper-income census tracts. The analysis in this section illustrates the distribution of the bank s loan activity across these geographies, in comparison to key assessment area demographics. The first review details the bank s geographic distribution of loans reported under the HMDA. The following table displays the results of this review, compared to the percentages of owner-occupied housing units located in each geography income category. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 HMDA Data Owner- Occupied Housing 1 16 169 111 0 297 0.3% 5.4% 56.9% 37.4% 0.0% 100% $ 61 $ 2,043 $ 25,788 $ 19,192 $ - $ 47,084 0.1% 4.3% 54.8% 40.8% 0.0% 100% 1.8% 10.6% 59.2 % 28.4% 0.0% 100% As displayed in the preceding table, the bank s geographic distribution of HMDA loans is somewhat below that of comparison data. The bank only made one loan in a low-income census tract; however, only a de minimis portion of the owner occupied assessment area housing is within these census tracts (1.8 percent). The bank made 5.4 percent of HMDA loans within moderate-income census tracts, which is also lower, but within range of the percentage of owneroccupied housing units within moderate-income census tracts (10.6 percent). Therefore, while low, the bank s geographic distribution of HMDA loans in LMI geographies is considered reasonable. 19
The geographic distribution of motor vehicle loans is displayed in the following table. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 Motor Vehicle Household Population 0 3 6 3 0 12 0.0% 25.0% 50.0% 25.0% 0.0% 100% $ - $ 18 $ 46 $ 35 $ - $ 99 0.0% 18.2% 46.5% 35.4% 0.0% 100% 7.8% 17.4% 50.0 % 24.9% 0.0% 100% As the table above shows, the bank extended 25.0 percent of motor vehicle loans in LMI geographies. While this performance includes an excellent level of lending in moderate-income geographies, lending in low-income geographies appears weak. Therefore, even though the bank s motor vehicle lending in low-income geographies reflects poor performance, the bank s overall LMI lending performance is reasonable in consideration of excellent lending levels in moderate-income geographies. The geographic distribution of small business loans is displayed in the following table. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Unknown 2009 Small Business Business Institutions 7 1 3 8 0 19 36.8% 5.3% 15.8% 42.1% 0.0% 100% $ 870 $ 30 $ 41 $ 263 $ - $ 1,204 72.3% 2.5% 3.4% 21.8% 0.0% 100% 19.0% 14.2% 43.3% 23.5% 0.0% 100% As displayed in the previous table, the bank s small business lending performance in LMI geographies varied. By number of loans, 42.1 percent of small business lending was in LMI geographies, which reflects excellent combined performance; however, when broken down separately, performance in moderate-income geographies appears to be weak. Only 5.3 percent of small business loans was in moderate-income census tracts, which is below the estimated percentage of businesses located in moderate-income census tracts (14.2 percent). Conversely, the bank made 36.8 percent of small business loans in low-income census tracts, which is well above the estimated percentage of business located in low-income census tracts (19.0 percent). 20
Therefore, even though the bank s small business lending in moderate-income geographies is weak, the bank s overall LMI lending performance is reasonable in consideration of excellent lending levels in low-income geographies. Considering activity from all three loan categories analyzed, the bank s overall geographic distribution of loans reflects reasonable dispersion throughout the Boone County assessment area. Community Development The Callaway Bank community development performance demonstrates adequate responsiveness to the community development needs of the Boone County assessment area based on the level of qualified community development loans, investments, and services. Community Development Loans The Callaway Bank demonstrates adequate responsiveness to assessment area needs through its community development loan activity. During the review period, the bank made two loans totaling $995,000 to entities serving the Boone County assessment area with a community development purpose. One loan was to a daycare facility primarily serving LMI families, and the other loan was related to affordable, multi-family housing for LMI tenants. Community Development Investments The bank demonstrated adequate responsiveness to community development needs in the Boone County assessment area via investment activity. The bank made numerous monetary grants/donations to various entities serving community development needs. These donations totaled $5,625 to three organizations. Community Development Services The Callaway Bank demonstrated an adequate level of community development services in this assessment area. Bank employees lent their financial expertise as members of various organizations within the community to support community development services. During the examination period, three members of management provided qualifying financial technical assistance, as either board members or officers, to two organizations providing community services and one offering affordable housing options to the community. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW Based upon past supervisory history and the Consumer Affairs review (including a fair lending analysis performed under Regulation B - Equal Credit Opportunity and the Fair Housing Act requirements) conducted concurrently with this CRA evaluation, the bank has demonstrated compliance with the substantive provisions of consumer protection laws and regulations for the products and services reviewed. 21
Appendix A County The Callaway Bank Assessment Area Geography Number Geography Income Category MSA Contains Bank Office Boone 1.00 Low 17860 No Boone 4.01 Low 17860 No Boone 5.00 Low 17860 No Boone 8.00 Low 17860 No Boone 9.00 Low 17860 No Boone 2.00 Moderate 17860 No Boone 7.00 Moderate 17860 No Boone 4.02 Moderate 17860 No Boone 11.01 Moderate 17860 No Boone 13.00 Moderate 17860 No Boone 15.02 Moderate 17860 No Callaway 9702.00 Moderate 27620 No Boone 3.00 Middle 17860 No Boone 10.02 Middle 17860 No Boone 14.00 Middle 17860 No Boone 15.01 Middle 17860 No Boone 16.01 Middle 17860 No Boone 16.02 Middle 17860 No Boone 17.01 Middle 17860 No Boone 17.02 Middle 17860 No Boone 18.03 Middle 17860 No Boone 18.05 Middle 17860 No Boone 19.01 Middle 17860 No Boone 19.02 Middle 17860 No Boone 20.00 Middle 17860 No Callaway 9701.00 Middle 27620 No Callaway 9703.00 Middle 27620 Yes Callaway 9704.00 Middle 27620 Yes 22
Callaway 9705.00 Middle 27620 No Callaway 9706.00 Middle 27620 Yes Callaway 9707.00 Middle 27620 No Callaway 9708.00 Middle 27620 No Boone 6.00 Upper 17860 Yes Boone 10.01 Upper 17860 No Boone 11.03 Upper 17860 No Boone 11.04 Upper 17860 No Boone 12.00 Upper 17860 Yes 23
GLOSSARY Appendix B Aggregate lending: The number of loans originated and purchased by all reporting lenders in specified income categories as a percentage of the aggregate number of loans originated and purchased by all reporting lenders in the metropolitan area/assessment area. Census tract: A small subdivision of metropolitan and other densely populated counties. Census tract boundaries do not cross county lines; however, they may cross the boundaries of metropolitan statistical areas. Census tracts usually have between 2,500 and 8,000 persons, and their physical size varies widely depending upon population density. Census tracts are designed to be homogeneous with respect to population characteristics, economic status, and living conditions to allow for statistical comparisons. Community development: All Agencies have adopted the following language. Affordable housing (including multifamily rental housing) for low- or moderate-income individuals; community services targeted to low- or moderate-income individuals; activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration s Development Company or Small Business Investment Company programs (13 CFR 121.301) or have gross annual revenues of $1 million or less; or, activities that revitalize or stabilize low- or moderate-income geographies. Effective September 1, 2005, the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have adopted the following additional language as part of the revitalize or stabilize definition of community development. Activities that revitalize or stabilize- (i) Low- or moderate-income geographies; (ii) Designated disaster areas; or (ii) Distressed or underserved non-metropolitan middle-income geographies designated by the Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, based on- a. Rates of poverty, unemployment, and population loss; or b. Population size, density, and dispersion. Activities that revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of LMI individuals. Consumer loan(s): A loan(s) to one or more individuals for household, family, or other personal expenditures. A consumer loan does not include a home mortgage, small business, or small farm loan. This definition includes the following categories: motor vehicle loans, credit card loans, home equity loans, other secured consumer loans, and other unsecured consumer loans. 24
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 nonrelatives living with the family. Families are classified by type as either a married-couple family or other family, which is further classified into male householder (a family with a male householder and no wife present) or female householder (a family with a female householder and no husband present). Full-scope review: Performance under the Lending, Investment, and Service Tests is analyzed considering performance context, quantitative factors (for example, geographic distribution, borrower distribution, and total number and dollar amount of investments), and qualitative factors (for example, innovativeness, complexity, and responsiveness). Geography: A census tract delineated by the United States Bureau of the Census in the most recent decennial census. Home Mortgage Disclosure Act (HMDA): The statute that requires certain mortgage lenders that do business or have banking offices in a metropolitan statistical area to file annual summary reports of their mortgage lending activity. The reports include such data as the race, gender, and the income of applicants, the amount of loan requested, and the disposition of the application (for example, approved, denied, and withdrawn). Home mortgage loans: Includes home purchase and home improvement loans as defined in the HMDA regulation. This definition also includes multifamily (five or more families) dwelling loans, loans for the purchase of manufactured homes and refinancing of home improvement and home purchase loans. Household: Includes all persons occupying a housing unit. Persons not living in households are classified as living in group quarters. In 100 percent tabulations, the count of households always equals the count of occupied housing units. Limited-scope review: Performance under the Lending, Investment, and Service Tests is analyzed using only quantitative factors (for example, geographic distribution, borrower distribution, total number and dollar amount of investments and branch distribution). Low-income: Individual income that is less than 50 percent of the area median income, or a median family income that is less than 50 percent, in the case of a geography. Market share: The number of loans originated and purchased by the institution as a percentage of the aggregate number of loans originated and purchased by all reporting lenders in the metropolitan area/assessment area. 25