PUBLIC DISCLOSURE June 4, 2012 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Utah Independent RSSD # 256179 55 South State Street Salina, Utah 84654 Federal Reserve of San Francisco 101 Market Street San Francisco, California 94105 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 the 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.
TABLE OF CONTENTS INSTITUTION RATING... 1 INSTITUTION... 2 Description of Institution... 2 Description of Assessment Area... 3 Scope of Examination... 6 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA... 7 Loan to Deposit Ratio... 7 Lending in Assessment Area... 7 Lending Distribution by Borrower Income and Business Revenue... 7 Response to Complaints... 9 Community Development Activities... 9 Fair Lending or Other Illegal Practices Review... 9 GLOSSARY OF TERMS... 10 i
INSTITUTION RATING Institution s CRA Rating Utah Independent is rated OUTSTANDING The major factors supporting the institution s rating include: A substantial majority of small business, small farm and consumer lending in an assessment area which consists exclusively of underserved census tracts as defined by the Federal Financial Institutions Examination Council (FFIEC); An excellent level of lending to small businesses and small farms; An excellent distribution of consumer lending among individuals of different income levels, with a high level of lending to low and moderate income individuals; A substantial majority of small business, small farm and consumer loans extended in small dollar amounts and/or specifically tailored to the individual needs of the borrower; and A record of providing services which enhances credit availability in the assessment area. 1
INSTITUTION Description of Institution Utah Independent (UIB) is an independently owned community bank headquartered in Salina, Utah, with $61.6 million in total assets as of December 31, 2011. UIB currently operates three branch offices located in the cities of Beaver, Monroe, and Salina. The Beaver and Monroe branches each operate an on site ATM. UIB is a full service bank that strives to meet the banking service needs of the local community, specifically targeting small businesses, small farms, and consumers. UIB often demonstrates flexibility in structuring loan terms and collateral requirements to meet borrowers individual needs. The commercial loan portfolio includes business lines of credit, equipment, term, working capital, commercial real estate secured, and construction and land development loans. The agricultural portfolio includes agricultural lines of credit, installment loans, and equipment loans. The consumer loan portfolio includes auto loans, debt consolidation loans, personal loans, and various residential mortgage loans. UIB also offers a variety of deposit products including checking, savings, and money market accounts, certificates of deposit, and individual retirement accounts. Below is the bank s loan portfolio as stated in the December 31, 2011, Consolidated Reports of Condition and Income, which shows the bank s small business, small farm, and consumer focus. EXHIBIT 1 LOANS AND LEASES AS OF DECEMBER 31, 2011 Loan Type $ ( 000s) % Commercial/Industrial & Non Farm Non Residential Real Estate 15,600 44.2% Secured by 1 4 Family Residential Real Estate 7,181 20.4% Farm Land & Agriculture 6,897 19.6% Consumer Loans & Credit Cards 3,577 10.1% Construction & Land Development 1,877 5.3% State, Political Subdivisions and All Other 141 0.4% Total (Gross) 35,273 100.0% UIB did not face any legal or financial impediments during the review period that would have prevented it from helping to meet the credit needs of its assessment area consistent with its business strategy, size, financial capacity, and local economic conditions. The prior CRA examination, which was conducted by the Federal Reserve of San Francisco using the Interagency Small Institution CRA Examination Procedures and completed on May 21, 2007, resulted in an outstanding rating. 2
Description of Assessment Area UIB s one assessment area is comprised of the two adjacent whole counties of Beaver and Sevier, which are located approximately 140 miles south of Salt Lake County and which consist primarily of cropland and national forests. These counties are within a non metropolitan statistical area, and all seven are middle income census tracts (two in Beaver County and five in Sevier County) that are defined by the FFIEC as underserved, a designation that identifies geographically remote rural (low density) areas; 1 the combined population of Beaver and Sevier Counties is 27,518. 2 Despite the remote rural designation, some competition for bank services exists in Beaver and Sevier Counties. As of June 30, 2011, this area had four Federal Deposit Insurance Corporation (FDIC) insured commercial institutions operating nine offices; of these, notably, three offices belonged to one large national bank, and two belonged to one regional bank. UIB s deposit market share in the assessment area was 17.29 percent, 3 ranking UIB third of the four institutions in the market. It is important to note that UIB is the only FDIC insured institution in the assessment area with a branch in the town of Monroe, Utah. The following exhibit presents key demographic and business information, based upon the 2000 U.S. Census and 2010 Dun & Bradstreet data used to help develop a performance context for the assessment area. Income Categories Tract Distribution EXHIBIT 2 ASSESSMENT AREA DEMOGRAPHICS BEAVER SEVIER COUNTIES Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low income 0 0.0 0 0.0 0 0.0 1,063 16.3 Moderate income 0 0.0 0 0.0 0 0.0 1,379 21.2 Middle income 7 100.0 6,514 100.0 510 7.8 1,767 27.1 Upper income 0 0.0 0 0.0 0 0.0 2,305 35.4 Total AA 7 100.0 6,514 100.0 510 7.8 6,514 100.0 Housing Housing Types by Tract Income Categories Units by Owner Occupied Rental Vacant Tract # % % # % # % Middle income 9,676 6,548 100.0 67.7 1,515 15.7 1,613 16.7 1 Federal Financial Institutions Examination Council, Community Reinvestment Act, CRA Examinations, 2011 Distressed or Underserved Tract List, June 1, 2011 (accessed on June 28, 2012); available from http://www.ffiec.gov/cra/pdf/2011distressedorunderservedtracts.pdf. 2 Governor s Office of Planning and Budget, Demographic and Economic Analysis, Utah Population Estimates by County, July 1, 2011 (accessed on June 28, 2012); available from http://www.governor.utah.gov/dea/upec/2011_upec_pressrelease.pdf. 3 Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits, June 30, 2011 (accessed May 24, 2012); available from http://www2.fdic.gov/sod/sodmarketrpt.asp?baritem=2. 3
EXHIBIT 2 (Continued) ASSESSMENT AREA DEMOGRAPHICS BEAVER SEVIER COUNTIES Businesses by Tract & Revenue Size Total Businesses Income Categories by Tract Less Than or Equal Greater than Revenue Not to $1 Million $1 Million Reported # % # % # % # % Middle income 1,185 100.0 1,076 100.0 57 100.0 52 100.0 Income Categories Percentage of Total Businesses 90.8 4.8 4.4 Total Farms by Tract Less Than or Equal to $1 Million Farms by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Middle income 118 100.0 113 100.0 4 100.0 1 100.0 Percentage of Total Farms 95.8 3.4 0.8 2004 Median Family Income Beaver Co. Sevier Co. 2011 HUD Adjusted Median Family Income Beaver Co. Sevier Co. Economic Conditions $41,239 $41,239 $56,800 $56,800 2011 Median Housing Value Beaver Co. Sevier Co. 2011 Unemployment Rate 6 Beaver Co. Sevier Co. $121,100 4 $143,300 5 The main sources of economic activity in the assessment area are federal, state, and local governments, which account for more employment there than any other industry, and small businesses and small farms (i.e., those with gross annual revenues of $1 million or less). Employment in government sector includes education, law enforcement, parks and recreation, public health and safety, and public lands management. 7 6.3% 6.2% The very large proportion of small farms and businesses in the assessment area is consistent with its rural and remote designation, in that the population is too small to attract larger businesses. Although some business diversification is occurring in the assessment area, the economy in Beaver County continues to be characterized mainly by agriculture, accommodation and food services, and retail trade. 8 4 Sperling s Best Places, Beaver County, Housing in Beaver County, Utah, September 2011(accessed June 28, 2012); available from http://www.bestplaces.net/housing/county/utah/beaver. 5 Sperling s Best Places, Sevier County, Housing in Sevier County, Utah, September 2011(accessed June 28, 2012); available from http://www.bestplaces.net/housing/county/utah/sevier. 6 http://stats.bls.gov/lau. 7 Sperling s Best Places, Sevier County, Housing in Sevier County, Utah, September 2011(accessed June 28, 2012); available from http://www.bestplaces.net/housing/county/utah/sevier. 8 Department of Workforce Services, Beaver County Wage and Employment Data, 2011 (accessed on May 17, 2012); available from http://jobs.utah.gov/jsp/wi/utalmis/industrydetail.do. 4
In Sevier County, the economy is characterized mainly by retail trade, transportation and warehousing, mining, and healthcare. 9 The industries in the assessment area are marked generally by relatively low wages and by seasonal fluctuations in employment. In 2010, the median monthly household income was $3,460 in Beaver County and $3,802 in Sevier County. 10 Approximately 50 percent of homeowners allocated one fourth of their income to monthly mortgage expenses. Renters made up 19.1 percent and 18.9 percent of residents in Beaver and Sevier Counties, respectively, and nearly one third spent 27 percent of their income on housing costs. 11 The Great Recession hit the assessment area later than the rest of the country, as Beaver and Sevier Counties saw modest job growth and economic expansion until late 2009. Soon thereafter, however, both counties experienced significant job losses; in Beaver County, mining and construction were the hardest hit sectors, 12 and in Sevier County, the information, professional services, and construction sectors suffered the most losses. 13 As a result, unemployment in the assessment area jumped into the double digits, reaching 11.4 percent in Beaver County in April 2010 14 and 10.4 percent in Sevier County in February 2010. 15 By December 2011, the economy in the assessment area seemed to be recovering. Preliminary economic data show that during 2011, the fastest growing sectors were construction and manufacturing in Beaver County, 16 and information and mining in Sevier County. 17 Credit Needs By and large, credit needs within the assessment area are for loans that are underwritten specifically for the individual and provide flexibility in the terms and collateral requirements. Discussions with community representatives revealed that many of the area s small businesses and small farms typically need working capital loans, often in amounts less than $100,000. In addition, since consumers spend so much of their income on housing costs, they typically need to finance purchases, such as automobiles, major appliances, and so on, through a credit facility. 9 Utah Department of Workforce Services, Sevier County Wage and Employment Data, 2011 (accessed on May 17, 2012); available from http://jobs.utah.gov/jsp/wi/utalmis/industrydetail.do. 10 United States Census Bureau, State and County QuickFacts, Utah Counties, 2010 (accessed May 24, 2012) available from http://quickfacts.census.gov/qfd/states/49/49001.html and http://quickfacts.census.gov/qfd/states/49/49041.html. 11 USA.com., Housing Information for Beaver and Sevier County, 2005 2009 (accessed May 24, 2012) available from http://www.usa.com/beaver county ut housing.htm and http://www.usa.com/sevier county ut housing.htm. 12 Utah Department of Workforce Services, Workforce Development and Information Department, Current Economic Snapshot: Beaver County 2009 & 2010 (accessed on May 17, 2012); available from http://utah.ptfs.com/awweb/main.jsp. 13 Utah Department of Workforce Services, Workforce Development and Information Department, Current Economic Snapshot: Sevier County 2009 & 2010 (accessed on May 17, 2012); available from http://utah.ptfs.com/awweb/main.jsp. 14 Utah Department of Workforce Services, Beaver County Labor Force Data, 2011 (accessed on May 17, 2012); available from http://jobs.utah.gov/jsp/wi/utalmis/countyhistdata.do. 15 Utah Department of Workforce Services, Sevier County Labor Force Data, 2011 (accessed on May 17, 2012); available from https://jobs.utah.gov/jsp/wi/utalmis/countyhistdata.do. 16 Utah Department of Workforce Services, Workforce Development and Information Department, Current Economic Snapshot: Beaver County 2011 (accessed on May 17, 2012); available from http://utah.ptfs.com/awweb/main.jsp. 17 Utah Department of Workforce Services, Workforce Development and Information Department, Current Economic Snapshot: Sevier County 2009 & 2010 (accessed on May 17, 2012); available from http://utah.ptfs.com/awweb/main.jsp. 5
Scope of Examination The CRA evaluation was conducted using the Interagency Small Institution CRA Examination Procedures. The review period for the examination was January 1, 2010 to December 31, 2011. The evaluation was based upon the following performance criteria: Loan volume in comparison to deposits (Loan to Deposit Ratio); Lending inside and outside the assessment area (Lending in Assessment Area); and, Distribution of lending to businesses and farms with different revenue sizes and borrowers of different income levels (Lending by Business Revenue and Borrower Income). An analysis of the bank s lending by geographic distribution was not conducted, as the assessment area consists exclusively of seven middle income census tracts. An analysis would not be meaningful in light of the generic tract income composition of the assessment area. Additionally, responsiveness to consumer complaints was not evaluated since the bank did not receive any complaints related to CRA during the review period. The evaluation was based on 138 small business loans, 58 small farm loans, and 384 consumer loans originated from January 1, 2010 through December 31, 2011. All loans were used in the evaluation of Lending in Assessment Area; a sample of 89 small business loans, 42 small farm loans, and 141 consumer loans extended within the assessment area were used in the evaluation of Lending Distribution by Business Revenue and Borrower Income. Furthermore, home mortgage loans were considered during the review but did not influence the overall assessment due to their limited volume. 6
CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA Loan-to-Deposit Ratio The loan to deposit ratio is reasonable. Since the previous CRA examination conducted on May 21, 2007, the average loan to deposit ratio is 75.2 percent. This number is between the state average of 85.8 percent and national peer average of 73.0 percent, respectively. Lending in Assessment Area A substantial majority of small business, small farm and consumer loans were originated inside the bank s assessment area. As shown in Exhibit 3, the bank extended 86.9 percent of loans by number and 80.0 percent of loans by dollar volume within the assessment area. EXHIBIT 3 LENDING INSIDE AND OUTSIDE THE ASSESSMENT AREA JANUARY 1, 2010 DECEMBER 31, 2011 Inside Outside Loan Type $ $ # % % # % ( 000s) ( 000s) % Small Business 122 88.4% $6,807 88.0% 16 11.6% $927 12.0% Small Farm 42 72.4% $1,952 57.5% 16 27.6% $1,441 42.5% Total Business Related 164 83.7% $8,759 78.7% 32 16.3% $2,368 21.3% Consumer 340 88.5% $2,746 84.6% 44 11.5% $501 15.4% Total Loans 504 86.9% $11,505 80.0% 76 13.1% $2,869 20.0% Lending Distribution by Borrower Income and Business Revenue Overall, the bank s lending patterns demonstrate an excellent level of lending to small businesses and small farms as well as to individuals of different income levels, including low and moderate income individuals. These loans were often specifically tailored to the individual needs of the borrowers and in small dollar amounts, thus meeting the credit needs of the bank s assessment area. Small Business Lending The level of lending to small businesses is excellent. As shown in Exhibit 4, a substantial majority of the small business loans were extended to businesses with gross annual revenues of $1 million or less, which is consistent with the business concentrations in the assessment area and favorably exceeds the aggregate lending rate to these businesses. Furthermore, a substantial majority of loans were extended in amounts of less than $100,000, thus meeting the credit needs of the bank s assessment area. 7
Year Lending # EXHIBIT 4 BUSINESS REVENUE DISTRIBUTION OF SMALL BUSINESS LOANS Lending to Businesses with Revenue <=$1 Million Businesses <=$1M in Revenue Lending Aggregate Lending Originations Regardless of Revenue Size by Loan Amount <=$100K > $100K & <=$250K >250K & <=$1M 2010 50 72.0 90.8 41.2 90.0 6.0 4.0 2011 39 74.4 n/a 47.7 82.1 15.4 2.6 Combined 89 73.0 n/a n/a 86.5 10.1 3.4 Small Farm Lending The level of lending to small farms is excellent. As shown in Exhibit 5, a substantial majority of the small farm loans were extended to small farms with gross annual revenues of $1 million or less, which is consistent with the farm concentrations in the assessment area and favorably exceeds the aggregate lending rate to these farms. Furthermore, a substantial majority of loans extended to small farms were in amounts of $100,000 or less, thus meeting the articulated small farm credit needs in the area. Year Lending # EXHIBIT 5 BUSINESS REVENUE DISTRIBUTION OF SMALL FARM LOANS Lending to Farms with Revenue <=$1 Million Farms <=$1M in Revenue Lending Aggregate Lending Originations Regardless of Revenue Size by Loan Amount <=$100K > $100K & <=$250K >250K & <=$1M 2010 19 100 95.8 86.8 79.0 10.5 10.5 2011 23 91.3 n/a 84.6 91.3 8.7 0 Combined 42 95.2 n/a n/a 85.7 9.5 4.8 Consumer Lending The level of lending to individuals of different income levels, including low and moderate income individuals, is excellent. As shown in Exhibit 6, the level of lending to low and moderate income individuals favorably exceeds the number of such households in the assessment area. Year Lending # Lending EXHIBIT 6 BORROWER INCOME DISTRIBUTION OF CONSUMER LOANS Low Income Borrowers Households Moderate Income Borrowers Lending Households 8 Middle Income Borrowers Lending Households Lending Upper Income Borrowers Households 2010 67 29.9 21.1 26.9 17.5 25.4 23.4 17.9 37.9 2011 74 35.6 21.1 24.7 17.5 27.4 23.4 12.3 37.9 Combined 141 32.9 21.1 25.7 17.5 26.4 23.4 15.0 37.9
Response to Complaints UIB did not receive any complaints related to CRA during the review period. Consequently, the bank s performance in responding to complaints was not considered in evaluating CRA performance. Community Development Activities UIB s branch network provides critical banking services to underserved communities; for example, the sole banking facility in the town of Monroe is UIB s branch. The bank also engaged in community development activities by extending credit to the local medical clinic to purchase equipment and to the local fire district to purchase an ambulance. Fair Lending or Other Illegal Practices Review Concurrent with this CRA evaluation, a review of the bank's compliance with consumer protection laws and regulations was conducted, and no violations of the substantive provisions of anti discrimination, fair lending, or other illegal credit practice rules, laws, or regulations were identified. 9
GLOSSARY OF TERMS 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 lowor 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 (iii) Distressed or underserved nonmetropolitan 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 low and moderate income 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. Family: Includes a householder and one or more other persons living in the same household who are related to the householder by birth, marriage, or adoption. The number of family households always equals the number of families; however, a family household may also include non relatives living with the family. Families are classified by type as either a married couple family or other family, which is further classified into male householder (a family with a male householder and no wife present) or female householder (a family with a female householder and no husband present). 10
Full scope review: Performance under the lending and community development 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, 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 applications, 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 refinancings of home improvement and home purchase loans. Household: Includes all persons occupying a housing unit. Persons not living in households are classified as living in group quarters. In 100 percent tabulations, the count of households always equals the count of occupied housing units. Limited scope review: Performance under the lending and community development 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. Metropolitan area (MA): A metropolitan statistical area (MSA) or a metropolitan division (MD) as defined by the Office of Management and Budget. A MSA is a core area containing at least one urbanized area of 50,000 or more inhabitants, together with adjacent communities having a high degree of economic and social integration with that core. A MD is a division of a MSA based on specific criteria including commuting patterns. Only a MSA that has a population of at least 2.5 million may be divided into MDs. Middle income: Individual income that is at least 80 percent and less than 120 percent of the area median income, or a median family income that is at least 80 percent and less than 120 percent, in the case of a geography. Moderate income: Individual income that is at least 50 percent and less than 80 percent of the area median income, or a median family income that is at least 50 percent and less than 80 percent, in the case of a geography. 11
Multifamily: Refers to a residential structure that contains five or more units. Other products: Includes any unreported optional category of loans for which the institution collects and maintains data for consideration during a CRA examination. Examples of such activity include consumer loans and other loan data an institution may provide concerning its lending performance. Owner occupied units: Includes units occupied by the owner or co owner, even if the unit has not been fully paid for or is mortgaged. Qualified investment: A qualified investment is defined as any lawful investment, deposit, membership share, or grant that has as its primary purpose community development. Rated area: A rated area is a state or multistate metropolitan area. For an institution with domestic branches in only one state, the institution s CRA rating would be the state rating. If an institution maintains domestic branches in more than one state, the institution will receive a rating for each state in which those branches are located. If an institution maintains domestic branches in two or more states within a multistate metropolitan area, the institution will receive a rating for the multistate metropolitan area. Small loan(s) to business(es): A loan included in 'loans to small businesses' as defined in the Consolidated Report of Condition and Income (Call Report) and the Thrift Financial Reporting (TFR) instructions. These loans have original amounts of $1 million or less and typically are either secured by nonfarm or nonresidential real estate or are classified as commercial and industrial loans. However, thrift institutions may also exercise the option to report loans secured by nonfarm residential real estate as "small business loans" if the loans are reported on the TFR as nonmortgage, commercial loans. Small loan(s) to farm(s): A loan included in loans to small farms as defined in the instructions for preparation of the Consolidated Report of Condition and Income (Call Report). These loans have original amounts of $500,000 or less and are either secured by farmland, or are classified as loans to finance agricultural production and other loans to farmers. Upper income: Individual income that is more than 120 percent of the area median income, or a median family income that is more than 120 percent, in the case of a geography. 12