PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE March 11, 2013 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Banner Certificate Number: South First Street Walla Walla, Washington Federal Deposit Insurance Corporation 25 Jessie Street at Ecker Square, Suite 2300 San Francisco, California NOTE: This document is an evaluation of this institution's record of meeting the credit needs of its entire community, including low and moderate-income neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS I. General Information...1 II. III. IV. Institution Rating a. Institution s CRA Rating...2 b. Description of Institution...3 c. Scope of Evaluation...4 d. Description of the AAs...5 e. -Wide Performance Test Conclusions...7 Washington a. State Rating...14 i. Description of Operations and Assessment Areas...14 ii. Statewide Performance Test Conclusions...17 b. Seattle Assessment Area Full-Scope Evaluation...34 Portland-Vancouver Multi-State Metropolitan Statistical Area a. Multi-State Metropolitan Statistical Area Rating...39 i. Description of Operations and Assessment Areas...39 ii. Performance Test Conclusions...41 V. Oregon a. State Rating...50 i. Description of Operations and Assessment Areas...50 ii. Non-Metropolitan Statistical Area Full-Scope Assessment Area Performance Test Conclusions...52 VI. VII. Idaho a. State Rating...62 i. Description of Operations and Assessment Areas...62 ii. Statewide Performance Test Conclusions...64 b. Boise Assessment Area Full-Scope Evaluation...74 Lewiston-Clarkston Multi-State Metropolitan Statistical Area a. Multi-State Metropolitan Statistical Area Rating...79 i. Description of Operations and Assessment Areas...80 ii. Performance Test Conclusions...81 VIII. Appendices a. Scope of Examination Tables b. Summary of State/Multi-State Ratings...92 c. Limited Scope Assessment Area Analyses...93 d. General Definitions...101

3 GENERAL INFORMATION The Community Reinvestment Act (CRA) requires each federal financial supervisory agency to use its authority when examining financial institutions subject to its supervision, to assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income (LMI) neighborhoods, consistent with safe and sound operation of the institution. Upon conclusion of such examination, the agency must prepare a written evaluation of the institution's record of meeting the credit needs of its community. This document is an evaluation of the CRA performance of Banner (BB) prepared by the Federal Deposit Insurance Corporation (FDIC), the institution's supervisory agency, as of March 11, The agency rates the CRA performance of an institution consistent with the provisions set forth in Appendix A to 12 CFR Part

4 INSTITUTION S CRA RATING INSTITUTION'S CRA RATING: This institution is rated SATISFACTORY. LENDING, INVESTMENT, AND SERVICE TESTS TABLE The following table indicates the performance level of BB with respect to the lending, investment, and service tests. PERFORMANCE LEVELS BB PERFORMANCE TESTS Lending Test* Investment Test Service Test Outstanding High Satisfactory X X X Low Satisfactory Needs to Improve Substantial Noncompliance (*) The lending test is weighted the most when arriving at an overall rating. SUMMARY OF MAJOR FACTORS SUPPORTING RATING BB s overall CRA Rating is Satisfactory. The institution s bank-wide performance was High Satisfactory Ratings in the lending, investment, and service tests. BB s performance in all assessment areas (AAs) is Satisfactory. Since the majority of the bank s business operations are centered in Washington, performance in this state had the most impact on the overall CRA Rating. Refer to the following bank-wide Performance Test Conclusions section for details regarding the factors underlying each state rating. 2

5 DESCRIPTION OF INSTITUTION BB is a state-chartered, full-service commercial bank headquartered in Walla Walla, Washington. The bank began operations in 1890 and offers a variety of lending and deposit products through a network of 85 full-service branches and 8 loan-production centers in Washington, Idaho, and Oregon. BB is a wholly-owned subsidiary of bank holding company, Banner Corporation. The bank had one affiliate during the review period, Community Financial Corporation (CFC), a residential mortgage lender operating in the Portland-Vancouver- Beaverton (PV) Metropolitan Statistical Area (MSA). CFC was dissolved in April and all activities of CFC became a part of BB. As of December 31,, the bank reported total assets of $4.0 billion, total deposits of $3.4 billion, and total equity capital of $524.6 million. The loan portfolio, totaling $3.1 billion, is comprised primarily of construction and land development, residential and commercial real estate, and commercial and industrial loans. Table 1 details the bank s loan portfolio as of December 31,. Table 1 - Loan Portfolio Distribution as of December 31, Loan Type Dollar Volume (000) Percentage of Total Loans Construction and Land Development 317, Secured by Farmland 74, Revolving Open-end 1 to 4 Family Residential 140, Closed-end 1 to 4 Family Residential First Lien 558, Closed-end 1 to 4 Family Residential Junior Lien 25, Multi-family Residential 136, Commercial Real Estate 988, Total Real Estate Secured 2,241, Loans to Finance Agricultural Production 155, Commercial and Industrial Loans 554, Consumer Credit Cards 13, Other Consumer Revolving Loans 18, Closed-end Consumer Loans 58, Obligations of States and Political Subdivisions 20, Other Loans Less: Any Unearned Income on Loans 8, Total Loans 3,054, Source: December 31,, Consolidated Report of Condition No legal or financial impediments currently prevent the institution from helping to meet the credit needs of its AAs. The bank s prior CRA Evaluation, dated December 24, 2009, resulted in a Satisfactory rating. 3

6 SCOPE OF EVALUATION The current evaluation was conducted at the bank s administrative office in Walla Walla, Washington. Examiners relied on records provided by the bank, public loan and financial information, U.S. Census and D&B demographic data, community contacts, and loan information reported on the bank s CRA small business and small farm loan register (LR) and Home Mortgage Disclosure (HMDA) loan application register (LAR). CRA procedures require examiners to consider the bank s performance regarding home mortgage, small business, and small farm lending. Small farm loans were analyzed where small farm lending was deemed to have a significant volume and would lead to a meaningful analysis. This evaluation reflects BB s performance since the last evaluation, dated December 24, The evaluation period for small business loans, small farm loans, and home mortgages is January 1,, through December 31,. The evaluation period for community development (CD) loans, investments, and services is also January 1,, through December 31,. All lending activities that occurred in and are compared to the 2000 U.S. Census and all lending activities that occurred in are compared to the U.S. Census. Examiners evaluated HMDA, small business, and small farm loans in this report using large bank examination procedures. BB s residential mortgage lending performance reported under HMDA during and is compared to the aggregate performance of other lenders during the respective year, which is referred to as market data in this evaluation. Certain aspects of BB s small business and small farm lending performance are compared to market data for and. Small business, small farm, and HMDA aggregate market data for is not yet available as of the date of this evaluation; however, bank performance will be evaluated using the D&B demographic data as a basis but not as an absolute comparison. Given the fairly equal distribution of small business and HMDA loans originated by the bank during the evaluation period, each loan type is weighted relatively equally in arriving at overall conclusions. Given that loan production and branch infrastructure are concentrated in the State of Washington, the Washington portion of this evaluation carries the most weight in determining the overall rating. BB s performance in the State of Washington is presented first, followed by PV MSA, the State of Oregon, the State of Idaho, and the Lewiston-Clarkston (LC) Multi-State MSA. Facts and data are presented for all states and multi-state areas, but not to the same degree as Washington. The level of examiner scrutiny and analysis was not reduced for the other states. Rather, the extent of lending data presentation, AA description, and community contact information is scaled back to produce a more concise report. 4

7 Table 2 details the distribution of AA loans by state or multi-state MSA. Table 2 Loans by State and Multi-State MSA State or Multi-State MSA # # # Small Business Loans Washington 1, , , Oregon Idaho PV LC Total 2, , , Residential Mortgages Washington 1, , , Oregon Idaho PV LC Total 1, , , Small Farm Loans Washington Oregon Idaho PV LC Total Source: Records;,, and CRA LR;,, and HMDA LAR This evaluation presents HMDA-reportable loans grouped together as one loan category. Performance by separate loan purpose is presented only if the information yields a different conclusion or significantly adds to the analysis. All lending pattern analyses are presented based on the number of loans originated. Dollar volumes are excluded unless the information yields a different conclusion or in some manner significantly adds to the analysis. AAs DESCRIPTION OF THE AAs BB operates 85 branches throughout 13 AAs within 3 states and 2 multi-state MSAs. Table 3 details the AAs delineated by BB, including the title of the area used in this report, the MSA or Metropolitan Division (MD) number if applicable, the number of counties in each area, and 5

8 number of branches operated by the bank in each AA. Table 3 AA Composition, Branches, and Automated Teller Machines (ATMs) AA MSA or MD MSA or MD # Counties Branches ATMs Washington Spokane Spokane, WA MSA Spokane Wenatchee Wenatchee, WA MSA Chelan, Douglas 2 2 Tri-cities Kennewick-Richland-Pasco, WA MSA Benton, Franklin 4 4 Seattle Seattle-Bellevue-Everett, WA MD King, Snohomish Bellingham Bellingham, WA MSA Whatcom 7 7 Burlington Mount Vernon-Anacortes, WA MSA Skagit 1 1 Yakima Yakima, WA MSA Yakima 6 6 Island, Columbia, Walla Non-MSA N/A Walla 6 6 Idaho Boise Boise City-Nampa, ID MSA Ada, Canyon 5 5 Twin Falls Non-MSA Twin Falls 1 1 Oregon Baker, Morrow, Umatilla, Union 8 7 Clackamas, Clark, Multnomah, Washington 8 7 Oregon Non-MSA Portland-Vancouver-Beaverton, OR- PV WA MSA LC Lewiston, ID-WA MSA Nez Perce, Asotin 3 3 Total Branches Source: Records BB has not revised its AA composition since the prior evaluation period. BB closed two branches since the previous evaluation, one each in Spokane Valley and Portland. One new branch in Seattle was opened during the evaluation period. The closures and openings did not affect the bank s AAs. AA Presentation BB operates in multiple AAs in several states as described above. Full-scope AA descriptions, including demographic data are included in the body of this report. Limited-scope AA descriptions and demographic data are presented in Appendix C. While the analyses are the same, the level of information presented for full-scope AAs in the states with multiple AAs, following the Washington State analysis, is limited to produce a concise report. 6

9 BANK-WIDE PERFORMANCE TEST CONCLUSIONS LENDING TEST The lending test evaluates the institution s record of helping to meet the credit needs of its AAs by considering an institution s home mortgage, small business, small farm, and CD lending. The institution s lending performance is evaluated under the following criteria: Volume of lending activity or level of lending Proportion of lending within the AAs Borrower profile Geographic distribution Responsiveness to disadvantaged geographies, individuals, and very small businesses Quality and volume of CD lending Use of innovative or flexible lending practices The seven components of the lending test are not weighted equally. Borrower profile and geographic distribution are weighted the heaviest in the overall lending test rating. Borrower profile refers to the record of lending to borrowers of different income levels and businesses and farms of different revenue sizes. Geographic distribution refers to the record of lending in geographies of different income levels. BB s performance in each state is also not weighted equally. The bank s performance in the State of Washington comprises a greater percentage of the overall rating given that a majority of its operations are focused in Washington. BB is rated High Satisfactory in the lending test. Performance differs by state and is discussed in detail in the respective state analysis. The following sections summarize BB s performance by lending test component. Lending Activity BB s overall level of lending reflects good responsiveness to AA credit needs. To evaluate small business, small farm, and residential mortgage loan-lending levels, examiners review marketshare figures and changes in market shares over the review period. Performance by state or multi-state varies somewhat. Refer to each respective state analysis for details. AA Concentration Table 4 summarizes BB s HMDA-reportable residential mortgages, small business loans, and small farm loans originated within all AAs combined over the review period. 7

10 Table 4 - Distribution of Loans Inside and Outside the AA Number of Loans Dollar Amount of Loans Loan Type Inside AA Outside AA Total Inside AA Outside AA Total # # $ (000) $ (000) Small Business 2, , , , , , Subtotal 6, ,840 1, ,086.8 HMDA 1, , , , , , Subtotal 6, ,284 1, ,445.9 Small Farm Subtotal , Total 13, , ,410 2, ,744 Source:,, and CRA LR;,, and HMDA LAR At 90.6 percent by number of loans originated, BB originated a substantial majority of loans within its AAs over the review period. The dollar volume of loans originated in the AAs is similar at 89.2 percent. The AA concentration performance is only discussed in the bank-wide section of the evaluation, as the various states and AAs are combined to determine the overall AA concentration. Borrower Profile Overall, BB s distribution of borrowers reflects, given the product lines offered by the institution, good penetration among retail customers of different income levels and businesses and farms of different revenue sizes. The small business and small farm conclusions are based primarily on BB s rate of lending to businesses and farms with gross annual revenues (GARs) of $1 million or less, as compared to other small business and small farm lenders and demographics of the AAs. Residential mortgage conclusions are based primarily on the bank s rate of lending to LMI borrowers relative to other lenders and compared to AA demographics. Performance by 8

11 state or multi-state AA varies somewhat. Refer to each respective state analysis for further detail. Geographic Distribution BB s overall geographic distribution of loans reflects adequate penetration throughout the AAs. To evaluate geographic distribution, examiners compared BB s rate of lending in census tracts (CTs) of different income levels to other lenders and demographic information. BB s performance by state or multi-state AA varies somewhat. Refer to each respective analysis for further details. Serving the Credit Needs of the Highly Economically Disadvantaged Overall, BB exhibited a good record of serving the credit needs of the most economically disadvantaged geographies of its AAs, low-income individuals, and very small businesses and small farms, consistent with safe and sound banking practices. Refer to each respective analysis for further details. CD Lending BB originated 41 CD loans totaling $66.0 million during the evaluation period, which reflects a relatively high level of CD lending. A total of 27 CD loans for $32.9 million were originated during the previous evaluation period. The bank s CD lending focused on affordable housing. BB extended $29.2 million in CD loans in the Washington AAs. The bank s level of CD lending in AAs outside of Washington is mostly good, with the exception of the LC AA. Only one loan was applied directly to the LC AA. Refer to the respective State analysis for further detail. Table 5 illustrates the bank s CD loans by state and multi-state MSA. Table 5 CD Lending Qualifying Category State or Multi-State MSA Total Affordable Housing CD Services Economic Development Revitalization or Stabilization # $ (000) # $ (000) # $ (000) # $ (000) # $ (000) Washington 27 46, , , Idaho 6 10, , Oregon 3 2, , PV 4 5, , LC Total 41 65, , , , Source: Records Innovative and Flexible Lending Practices 9

12 Overall, BB uses flexible lending practices in serving AA credit needs during the review period. To avoid redundancy, the programs and practices discussed in this section are not repeated in each state/multi-state AA analysis. Table 6 details programs employed by the bank during the review period. Although these programs are not considered particularly innovative because they are neither original nor unique, they do incorporate flexible features that assist with credit needs identified by community contacts. Table 6 Innovative and/or Flexible Loan Programs Program Type 10 # of Loans $ of Loans (000) FHA* and VA* Mortgage Loans ,359 SBA* Loans ,662 FSA AG* Government Guaranteed 72 22,274 House Key WSHFC* 46 5,988 House Key Plus WSHFC NOAH* Participations Oregon Bond Oregon State Housing Washington State Linked Deposit Program 4 2,025 WCRA* Participations 31 1,102 ICRC* Participations 4 53 CEC* Home Improvement Loan Program 134 1,883 Source: Records, *Terms are defined following the table FHA and VA Mortgage Loans Federal Housing Administration (FHA) and Veterans Administration (VA) programs offer flexible underwriting terms such as low, or no, down-payment requirements. Although not income restricted, most borrowers under these programs are LMI individuals or families. Originations under these programs are applicable to all of the bank s AAs. During the evaluation period, the bank originated 388 FHA loans and 189 VA loans totaling $111.4 million. SBA Loans The Small Business Administration (SBA) offers programs that include financial and federal contract procurement and management assistance, and specialized outreach to women, minorities, and armed forces veterans. BB offers SBA guaranteed commercial loans that typically are extended to small companies that would not otherwise qualify for bank loans. These loans are applicable to all of the bank s AAs. During the review period, the bank originated 241 SBA loans totaling $54.7 million. FSA AG Government Guaranteed Farm Services Agency (FSA) guaranteed loans provide lenders with a guarantee of up to 95 percent of the loss of principal and interest. Farmers and ranchers apply to an agricultural lender, which then arranges for the guarantee. The FSA guarantee permits lenders to make agricultural

13 credit available to borrowers that do not meet the lenders normal underwriting criteria. A percentage of guaranteed funds are targeted to beginning farmers and ranchers and minority applicants. Originations under this program are applicable to several of the bank s AAs. During the evaluation period, BB originated 72 loans totaling $22.3 million under this program. WSHFC House Key and House Key Plus The Washington State Housing Finance Commission (WSHFC) administers and supports the House Key State Bond Loan Program through the use of bonds as authorized by the State of Washington. In addition to other requirements, the House Key program requires that a buyer must earn 80 percent or less of the area s median income adjusted for family size. The House Key Plus program is offered to qualified LMI families to provide down payment assistance. This program is subject to the same income restrictions as noted above. BB originated 68 loans totaling $6.1 million under the House Key and House Key Plus programs during the evaluation period. NOAH Participations The Network for Affordable Housing (NOAH) is an affordable housing consortium that operates in the state of Oregon. During the evaluation period, BB participated in 25 loan pools for a total of $720,834. OHCS Oregon Bond The Oregon State Housing and Community Services (OHCS) bond program helps LMI borrowers purchase first homes by providing below market rate financing and cash assistance through the Residential Loan Program, also known as the Oregon Bond Loan. This program helps qualified families increase their home purchasing capability and lower their monthly payments. BB originated 7 loans totaling $692,141 under this program during the evaluation period. Washington State Linked Deposit Program The Washington State Linked Deposit Program benefits the development of minority- and women-owned businesses in Washington State by providing below market interest rates to qualified businesses. BB originated 4 loans totaling $2.0 million during the evaluation period. WCRA Participation The Washington Community Reinvestment Association (WCRA) loan consortium supports affordable housing within the State of Washington. Lending programs provide long-term financing to support the creation and preservation of low-income and special-needs housing as well as real estate based economic development projects in all parts of Washington. During the evaluation period, BB participated in 31 loan pools for a total of $1.1 million. ICRC Participations The Idaho Community Reinvestment Corporation (ICRC) loan consortium supports affordable housing within the State of Idaho. The ICRC works in partnership with the Idaho Housing and 11

14 Financing Association to provide multi-family housing to LMI families. During the evaluation period, BB participated in 4 consortium loan pools for a total of $52,800. CEC Home Improvement Loan Program The Community Energy Challenge (CEC) makes energy efficiency easy and affordable by providing low-interest loans with no equity requirements. By providing local homes and businesses with energy assessments, personalized recommendations, energy advisors, vetted local contractors, quality assurance, and financial incentives, the CEC has helped families and businesses in Whatcom County save energy and money. This is a public/private partnership between BB, Whatcom County and the Cities of Bellingham and Ferndale. During the evaluation period, BB originated 134 loans for a total of $1.9 million. INVESTMENT TEST The investment test evaluates the institution s record of helping to meet credit needs through qualified investments that benefit the AAs or a broader statewide or regional area that includes the bank s AAs. A qualified investment is defined as a lawful investment, deposit, membership share, or grant that has as its primary purpose CD. CD purposes include those that either: 1) Provide affordable housing for LMI individuals or areas; 2) provide community services targeting LMI individuals or areas; 3) promote economic development by financing small businesses; or, 4) revitalize or stabilize LMI geographies. Activities considered under the lending or service tests may not be considered under the investment test. The institution's investment performance is evaluated pursuant to the following criteria: 1) the dollar amount of qualified investments; 2) the innovativeness or complexity of qualified investments; 3) the responsiveness of qualified investments to credit and CD needs; and, 4) the degree to which the qualified investments are not routinely provided by private investors. The regulation states that qualified investments considered in this evaluation include all those acquired or made since the previous CRA Evaluation. Also included in the evaluation are those qualified investments made prior to the previous CRA Evaluation that are still outstanding and are carried on the bank s balance sheet. Overall, BB is rated High Satisfactory in the investment test. For an institution of this size, BB has a significant level of qualified CD investments and grants, although only occasionally in a leadership position, particularly those that are not routinely provided by private investors. During the evaluation period, the bank reported 70 qualified investments and donations totaling $50.0 million. Since the previous CRA Evaluation, BB made $1.9 qualified CD grants, which are represented in the investments total previously listed. Total investments increased by $25.0 million, or doubled in amount, since the previous evaluation. During the current evaluation period, the bank exhibited good responsiveness to AA CD needs, and occasionally uses 12

15 innovative and complex investments to support CD initiatives given current economic conditions. The bank s current level of CD investments and grants represent 0.9 percent of total assets as of December 31,. This ratio at the previous evaluation was 0.6 percent. The bank s performance in the State of Washington is assigned the most weight when arriving at this overall conclusion. Please refer to the respective state analysis for additional detail. SERVICE TEST The service test evaluates the institution's record of helping to meet the credit needs of its AA by analyzing both the availability and effectiveness of the institution's systems for delivering retail banking services and the extent and innovativeness of its CD services. Overall, BB is rated High Satisfactory in the service test. Delivery systems are accessible to all portions of the institution s AAs. BB s record of opening and closing branches has not adversely affected the accessibility of its delivery systems, particularly in LMI geographies and/or to LMI individuals. BB closed branches in both the Washington and the PV AA. The bank s activity in Washington and the PV AA decreased accessibility in middle-income areas; but not in LMI areas. Refer to the respective state and multi-state analysis for details. Services and business hours do not vary in a way that inconveniences portions of the AAs, particularly LMI geographies. BB provided a relatively high level of CD services. Refer to the respective state analysis for further detail. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW No evidence of discriminatory or other illegal credit practices inconsistent with helping to meet community credit needs was identified at the current examination. 13

16 WASHINGTON WASHINGTON CRA RATING: SATISFACTORY The Lending Test is rated: The Investment Test is rated: The Service Test is rated: High Satisfactory High Satisfactory High Satisfactory SCOPE OF EXAMINATION Examiners conducted a full-scope evaluation of the bank s performance in the Seattle AA, and a limited-scope, on-site evaluation of the bank s performance in the other Washington State AAs. A review of FDIC records and the bank s CRA public file did not reveal any complaints regarding BB s performance in the State of Washington since the prior evaluation. DESCRIPTION OF OPERATIONS AND AAs BB operates 60 branches in the Washington AAs. Refer to the service test discussion for details regarding bank operations. The bank operates in 8 AAs covering 13 counties in Washington. The majority of counties are located in metropolitan areas. Refer to the bank-wide tables for further details regarding the MSAs and counties comprising the eight AAs. The AAs include the Seattle-Bellevue-Everett MD; Kennewick-Pasco-Richland MSA; Wenatchee MSA; Bellingham MSA; Mount Vernon-Anacortes MSA; Spokane MSA; Yakima MSA; and Columbia, Walla Walla, and Island Counties, which are not part of an MSA. The Seattle-Bellevue-Everett MD includes King and Snohomish Counties and is referred to as the Seattle AA in this evaluation. The major Cities of Seattle and Bellevue are located within King County. Seattle is a center for trade, commerce, and port activity, and is the largest city in the State of Washington. Refer to the Seattle AA full-scope evaluation for AA information and community contact observations. The Kennewick-Richland-Pasco MSA, consisting of Benton and Franklin counties, is referred to as the Tri-Cities AA in this evaluation. Pasco, the largest city, has the only commercial airport in the Tri-Cities area, as well as an Amtrak station, commercial ports on the Snake and Columbia Rivers, and close access to major highways such as Interstate 182 and U.S. Route 395. The Wenatchee AA consists of all CTs in Chelan and Douglas Counties, Washington, which includes the Cities of Wenatchee, East Wenatchee, and Chelan. The area has a high dependence on agriculture and tourism. The Bellingham AA consists of Whatcom County, and is located approximately 90 miles north 14

17 of Seattle, 21 miles south of the Canadian border and about 52 miles south of Vancouver, British Columbia. The City of Bellingham is the largest city in the AA, and has a concentration of retirees, as well as college students attending Western Washington University. The Mount Vernon-Anacortes MSA consists of Skagit County, and is referred to the Burlington AA in this evaluation. Agriculture, fishing, wood products, tourism, international trade, and specialized manufacturing make up the economy of Skagit Valley. With its accessible ports and refineries, Skagit County is also the center of the states petroleum industry. The Spokane MSA wholly encompasses Spokane County, and is referred to the Spokane AA in this evaluation. Spokane is a regional service community in northeast Washington bordering Idaho. The Yakima AA wholly encompasses Yakima County and is located in central Washington. Agriculture makes up the majority of the local economy and the Yakima Valley Memorial Hospital, Yakima School District, and Department of Social and Health Services are the top employers in the county. The Washington Non-MSA AA consists of Walla Walla, Columbia, and Island Counties. The Walla Walla AA is located in the southeastern portion of Washington and borders Oregon. Walla Walla County has a large focus on agriculture. Island County is located in northwest Washington and incorporates Camano Island and Whidbey Island. Top employers in the county include Naval Air Station Whidbey, Oak Harbor School District, and Whidbey General Hospital. Table WA-1 details the loan activity and distribution by AA in Washington from through combined. Residential mortgage and small business loans make up the majority of the bank s loan activity during the review period for State of Washington. Since small farm loan originations for the evaluation period are relatively insignificant compared to residential mortgage and small business loans, it is not included in the State of Washington analysis. 15

18 Table WA-1 Loans by AA Washington Grand Totals # # # # Small Business Loans Seattle , Tri-Cities Wenatchee Bellingham Spokane , Burlington Yakima Non-MSA Total 1, , , , HMDA Loans Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Total 1, , , , Small Farm Loans Seattle Tri-Counties Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Total Source: Records,, ; and CRA LR,, ;and HMDA LAR Community Contact Observations Two community contacts, one new and one existing, were utilized for the Seattle AA. The first community contact represents a small business development center headquartered in the Seattle AA. The second community contact represents an affordable housing agency also headquartered in the Seattle AA that buys, builds, and manages LMI apartments in urban locations. The first community contact stated that over the past 12 months, local economic conditions have improved as the number of bankruptcies has dropped and the number of new start-up businesses has risen. However, the individual stressed that one of the major challenges facing small 16

19 business owners is the need for additional funding sources. Furthermore, the contact stated lending restrictions have remained tight with strict underwriting standards, limiting the availability of funds for small businesses. When asked about experiences with local financial institutions, BB was specifically mentioned as one of four financial institutions that actively attempt to service local small business ventures in the area. The second community contact stated that the demand for affordable housing in the Seattle AA continues to be strong and that the availability remains limited. The contact stressed that obtaining credit from lending institutions remains difficult, and bank lending and underwriting criteria are very tight for most non-profits. When asked about local financial institutions, the contact perceived a loosening of CRA requirements for banks. The contact stated that most institutions in the Seattle AA were well rated, but the banks did not seem as involved in community outreach and were extending fewer dollars for supporting affordable housing for the Seattle AA. LENDING TEST STATEWIDE PERFORMANCE TEST CONCLUSIONS BB is rated High Satisfactory in the lending test for the State of Washington. Lending Activity Overall, BB s lending levels reflect excellent responsiveness to AA credit needs. Examiners reviewed the number and dollar volume of loans originated over the review period as well as market share and market ranking figures for primary loan products to determine the bank s level of lending relative to AA credit needs. To gain perspective of a bank s presence in a community, examiners reviewed deposit market share data. The following sections provide details regarding BB s deposit, small business, and residential mortgage market share throughout its AAs. Small Business Loans Table WA-2 details BB s small business loan market ranking and market shares from through based on dollar volume of loans originated for all Washington AAs combined and for each individual AA. 17

20 Table WA-2 Small Business Loan and Deposit Market Shares Deposit Market AA Market Market Share Rank ($) Share Rank ($) Share All Washington Areas 4 of of Seattle 6 of of Tri-Cities 1 of of Wenatchee 5 of of Bellingham 3 of of Spokane 2 of of Burlington 13 of of Yakima 1 of of Non-MSA 2 of of Source: and CRA Data, FDIC Summary of Deposits Examiners reviewed small business loan market share and market ranking data based on dollar volume rather than number of loans originated. Dollar volumes represent a more relevant comparison because the market share data includes national credit card lenders. The credit card lenders report numerous small dollar loans that skew the market share ranking based on number of loans originated. Credit card lenders do not provide traditional small business loans in the same manner as BB and local competitors. While the number of institutions in the rankings changed each year, BB s market share and rankings are relatively consistent over the review period, demonstrating excellent responsiveness to the credit needs of the Washington AAs. Residential Mortgage Loans Table WA-3 details BB s residential mortgage loan market ranking and market shares for and based on number of loans originated for all Washington AAs combined and for each individual AA. 18

21 Table WA-3 HMDA Loan and Deposit Market Shares AA Rank (#) Market Share Rank (#) Market Share All Washington Areas 30 of of Seattle 77 of of Tri-Cities 15 of of Wenatchee 11 of of Bellingham 15 of of Spokane 25 of of Burlington 60 of of Yakima 14 of of Non-MSA 9 of of Source: and CRA Data While the number of HMDA reporting financial institutions decreased in the combined Washington AAs from to, the bank s overall market share increased from 0.6 to 0.7 percent. The bank s market ranking also increased from 30 th in to 28 th in. Overall, the bank s residential mortgage lending activity during the evaluation period reflects excellent responsiveness to the credit needs of the Washington AAs. Borrower Profile BB s distribution of borrowers in Washington reflects good penetration among businesses of different revenue sizes and mortgage borrowers of different income levels. Due to similar origination volume in the Washington AAs, relatively equal weight is assigned to small business lending and residential mortgage loans in arriving at overall conclusions. The following sections describe the bank s performance by loan type. Small Business Loans Table WA-4 details BB s rate of lending to businesses with GARs of $1 million or less compared to other lenders over the review period. Market data represents the performance of all other lenders, BB excluded. The second column illustrates the distribution of businesses by revenue level estimated by D&B surveys. Market data for is not yet available. Table WA-4 Small Business Loan Borrower Profile 19

22 GARs D&B # # # < $1 Million > $1 Million Not Applicable Total , , , Source: D&B; & Lending Data;,, and CRA LR Table WA-5 presents BB s penetration rate of lending to businesses with GARs of $1 million or less compared to the percentage of small businesses within those areas, market data regarding other lenders, and the bank s percentage of loans originated in each Washington AA over the review period. Table WA-5 Small Business Penetration Rate by AA AA D&B Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: D&B; and Lending Data;,, and CRA LR, Overall, BB s distribution of loans reflects good penetration among businesses of different revenue sizes over the review period as indicated by the high rate of lending to businesses with GARs revenues of $1 million or less. BB s rate of lending to small businesses with GARs of $1 million or less is below D&B estimates; however, the bank exceeds market performance throughout the evaluation period. Given that the D&B survey is voluntary and includes very small businesses, which may not be credit worthy or have credit needs, D&B data is more of a reflection of credit opportunity and less so on credit demand. Market data for was not yet available. BB s performance by AA relative to other lenders is good in all AAs, with the exception of the Burlington AA, which is below market data. Residential Mortgage Loans Table WA-6 details BB s distribution of loans by borrower income level over the review period compared to the market. Similar to the small business market data, the market data represents the performance of all other lenders, excluding BB. The market data is not yet available; therefore, only BB data is presented for that year. The percentage of families by income level from the U.S. Census is included in the second column for demographic reference. Tables 20

23 WA-7 and WA-8 detail low-income and moderate-income borrower penetration rates, respectively, over the review period compared to the market for each AA. Borrower Income Level Census Families Table WA-6 HMDA Borrower Profile # # # Low Moderate Middle Upper , N/A Total , , , Source: U.S. Census; and Lending Data;, and HMDA LAR WA-7 Low-Income Borrower Penetration Rate By AA Census Families AA Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: U.S. Census; and Lending Data;,, & HMDA LAR WA-8 Moderate-Income Borrower Penetration Rate By AA 21

24 AA Census Families Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: U.S. Census; and Lending Data;,, & HMDA LAR BB s distribution of borrowers reflects adequate penetration among retail customers of different income levels. As seen in Table WA-6, the bank s overall level of lending to LMI borrowers in Washington State is lower than market data. In addition, BB s penetration rate of lending to LMI borrowers is consistently below other lenders in a majority of the bank s AAs. The lack of availability to purchase residential mortgage loans on the secondary market during the review period, have contributed to the decline. BB has traditionally supplemented their own residential mortgage loans with those purchased from other lenders but was unable to do so during this evaluation period. These purchased loans are primarily to LMI individuals and geographies. Furthermore, low volume can also be attributed to the small amount of residential loan officers in some of the bank s Washington AAs. Several AAs such as Burlington, Yakima, and Tri-Cities only have one residential loan officer. Geographic Distribution BB s overall geographic distribution of small business and residential mortgage loans reflects adequate penetration throughout the AAs. The following sections provide additional detail regarding these conclusions by product type. Small Business Loans Table WA-9 presents BB s small business lending record by CT income level for all Washington AAs combined. The second and third columns present the distribution of businesses by CT income level as estimated by D&B for and, and the remaining columns compare BB s loan distribution to market data over the review period. Tables WA-10 and WA-11 detail BB s rate of lending in LMI geographies, respectively, over the review period by AA compared to other lenders. CT Income D&B Table WA-9 Small Business Loan Geographic Distribution D&B 22

25 Level # # # Low Moderate Middle Upper N/A Total , , , Source: and D&B; and Lending Data;,, and CRA LR Table WA-10 Small Business Low-Income Tract Penetration by AA AA D&B Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: D&B, and Lending Data, Records Table WA-11 Small Business Moderate-Income Tract Penetration by AA AA D&B Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: D&B, and Lending Data, Records BB s geographic distribution of small business loans reflects a good penetration throughout the AAs due to good rates of lending in LMI geographies. BB s rate of lending in LMI geographies met or exceeded the market each year for which data is available in the Washington AAs combined during the review period. The bank s performance in LMI tracts in and exceeded the distribution of CTs as indicated by D&B. 23

26 Table WA-10 demonstrates that BB s low-income tract penetration rates displayed an upward trend in comparison to the market in the Seattle and Spokane AAs, the areas where the majority of loans were originated. In Table WA-11, the bank s performance in moderate-income tracts exceeded the market for both AAs for all years with the exception of in Seattle, but shows a declining trend in data. Residential Mortgage Loans Table WA-12 details BB s residential mortgage lending distribution by CT income level for all Washington AAs combined. The second and third columns present the distribution of owneroccupied housing units according to the 2000 and U.S. Census. Subsequent columns represent BB s distribution compared to other lenders in and. The data is presented without market comparisons as HMDA market data is not yet available. Tables WA-13 and WA-14 detail BB s rate of lending in LMI geographies, respectively, by AA compared to other lenders. CT Income Level 2000 Census Owner- Occupied Housing Units * Table WA-12 HMDA Geographic Distribution Census Owner- Occupied Housing Units ** # # # Low Moderate Middle Upper N/A Total , , , Source: *2000 U.S Census; ** U.S. Census; and Lending Data;, and HMDA LAR Table WA-13 HMDA Low-Income Tract Penetration by AA AA Census 24

27 Owner- Occupied Housing Units Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: U.S. Census, and Lending Data, Records Table WA-14 HMDA Moderate-Income Tract Penetration by AA AA Census Owner- Occupied Housing Units Seattle Tri-Cities Wenatchee Bellingham Spokane Burlington Yakima Non-MSA Source: U.S. Census, and Lending Data, Records BB s distribution of residential mortgage loans represents an adequate penetration throughout the AAs. Over the review period, the bank extended an adequate amount of loans in low-income tracts, similar to market data. Given that the percentage of owner-occupied housing units in lowincome tracts is less than 1.0 percent according to the 2000 U.S. Census data and less than 2.0 percent according to the U.S. Census data, residential mortgage loan origination opportunity is limited. On a statewide basis, BB s rate of lending in moderate-income areas slightly lagged the market in the two years of the review period, but is still considered reasonable. As previously mentioned, the lack of availability to purchase mortgage loans in LMI geographies and a small amount of residential loan officers in some of the bank s Washington AAs, have caused this decline. Overall, BB s residential mortgage performance under this criterion is adequate. 25