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Southern Bancorp Bank of Arkansas, Arkadelphia, AR, 12/1/08 CRA Performance EvaluationSouthern Bancorp Bank of Arkansas RSSD # 852544
601 Main Street
Arkadelphia, Arkansas 71923
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 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.
Table of Contents
Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
INSTITUTION’S CRA RATING: This institution is rated Satisfactory. Southern Bancorp Bank of Arkansas (SBB) meets the criteria for a satisfactory rating based upon an evaluation of the bank’s overall lending performance. This conclusion is based on the satisfactory distribution of loans to borrowers of different income levels, especially among low- and moderate-income (LMI) individuals, and to businesses of varying revenues. Also, a significant majority of the bank’s loans were made within its assessment area. The loan-to- deposit (LTD) ratio is considered reasonable, given the institution’s size, financial condition, performance of its competitors, and the credit needs of the assessment area. The geographic distribution of loans is adequate. Lastly, no Community Reinvestment Act (CRA) related complaints were filed against the bank for this review period. SCOPE OF EXAMINATION The bank’s CRA performance was evaluated using the small bank examination procedures. This review period covered the date of the bank’s previous CRA evaluation on September 20, 2004, to December 1, 2008. The bank’s lending performance in residential real estate was evaluated using information from Home Mortgage Disclosure Act (HMDA) data for the period from January 1, 2007, through May 15, 2008. The evaluation of consumer motor vehicle and small business loans was based on a statistical sample of loans for the period from January 1, 2007, through September 30, 2008.1 These three loan categories are considered the bank’s primary lines of business, based upon lending volume by number and dollar amount, and are indicative of the overall lending by the bank. The loan data evaluation involved an analysis of the bank’s distribution of loans by borrower income and business revenues, lending within the bank’s assessment area, lending volume relative to bank deposits, and the distribution of loans among different geographical categories. One community contact was performed in the Garland County assessment area to establish a performance context for the communities in which the bank operates and to better understand the credit needs of those communities. Information was solicited on the overall economic condition of the bank’s assessment area and how financial institutions meet any credit needs identified. Specific comments from the community contact are addressed in the applicable section relating to the assessment area. DESCRIPTION OF INSTITUTION2 SBB is owned by Southern Bancorp, a multi-bank holding company located in Arkadelphia, Arkansas, and designated as a Community Development Financial Institution by the Community Development Financial Institution Fund, a division of the U. S. Department of Treasury. Community Development Financial Institutions have a primary mission of promoting community development, principally serving and maintaining accountability to an eligible target market or markets, and providing development services. SBB currently operates six full-service
1 In the narrative and applicable tables that follow in this document, the reference to HMDA loans, consumer motor vehicle loans, and small business loans will use the loans originated in the time periods shown here. 2 Any percentage row or column “Total” figure displayed throughout this evaluation that does not equal exactly 100 percent is strictly due to rounding differences, which are considered immaterial to overall performance conclusions.
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Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
banking facilities located in Arkansas in the cities of Arkadelphia (Clark County), Bismark, Malvern (Hot Springs County), and Hot Springs (Garland County). The main office and two branches are located in the city of Arkadelphia. The bank opened the Hot Springs branch on July 5, 2005. The Hot Springs office was previously a loan production office. Loan applications are accepted and processed at all locations. All bank locations have automated teller machines (ATMs) located onsite. Additionally, the bank has a freestanding, full-service ATM located at a branch location in Arkadelphia that was closed in 2008. For this evaluation, the bank’s assessment area is comprised of three contiguous counties. Although the counties are contiguous, Clark County and Hot Springs County are part of the non- metropolitan areas in Arkansas (non-MSA AR) and Garland County is located in the Hot Springs, AR MSA #26300 (MSA AR ). As of September 30, 2008, the bank had total assets of $198.7 million, with gross loans and leases representing 61.0 percent of total assets ($121.1 million). The composition of the bank’s loan portfolio is shown below.3
Distribution of Total Loans
Credit Product Type Amount in $000s Percentage of Total Loans
Construction and Development $ 15,246 12.6%
Commercial Real Estate 54,552 45.0%
Multifamily Residential 2,274 1.9%
Farmland 5,800 4.8%
Agricultural 555 0.5%
Total Other Loans & Leases 240 0.2%
TOTAL Gross Loans $ 121,146 100%
As indicated in the preceding table, a significant portion (45.0 percent) of the bank’s lending resources is directed to commercial real estate lending. By dollar volume, the other products
3 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, 2008.
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Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
with a high concentration of loans is 1-to-4 family residential loans (16.3 percent) and construction and development loans (12.6 percent). As part of this evaluation under the CRA, the bank’s performance was evaluated in relation to local competitors. Four financial institutions were identified as regional competitors with asset sizes ranging from $90.8 million to $1.0 billion as of September 30, 2008. There are no apparent legal or financial impediments that would prevent the bank from meeting assessment area credit needs. The bank received a satisfactory rating at its previous CRA evaluation conducted by the Federal Deposit Insurance Corporation (FDIC) on September 20, 2004. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS SBB meets the criteria for a satisfactory rating based upon its lending performance as measured by the CRA small bank performance standards. This lending performance was based upon HMDA residential mortgages, consumer motor vehicle, and small business loans.4 These loan categories are considered the bank’s primary lines of business, based upon lending volume by number and dollar amounts. Therefore, loan activity represented by these credit products is deemed indicative of the overall lending performance of the bank. The CRA small bank performance standards evaluate the following five criteria as applicable: • The bank’s level of lending within the assessment area. • The bank’s average LTD ratio. • The bank’s distribution of loans by borrower income and business revenue. • The bank’s geographic distribution of loans. • A review of written complaints directed to the bank. The remaining sections of this evaluation are based upon analyses of the bank’s lending performance under these five performance criteria.
4 Refer to page 1 for the time periods used for the loans in this evaluation.
3
Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
Lending in the Assessment Area For the loan activity reviewed as part of this evaluation, the following table displays the number and dollar volume of loans extended inside and outside the bank’s assessment area.
Lending Inside and Outside of the Bank’s Assessment Area
Loan Type Inside Assessment Area
Outside Assessment Area TOTAL
HMDA Residential Real Estate
Motor Vehicle
Small Business
TOTAL
471 74 545 86.4% 13.6% 100%
$ 29,086 $ 4,545 $ 33,631 86.5% 13.5% 100%
The analysis of the loan sample revealed that the bank originated a substantial majority of its loans within its assessment area. As shown in the table above, 471 (86.4 percent) of the 545 loans sampled were originated within the bank’s assessment area. By dollar volume, 86.5 percent of the loans were originated inside the assessment areas. Therefore, the bank’s lending practices under this criterion is strong and exceeds the standard for satisfactory performance. Loan-to-Deposit (LTD) Ratio Another indication of the bank’s overall lending activity is its LTD ratio. The following table displays the bank’s quarterly average LTD ratio in comparison to that of regional competitors.5 These financial institutions were determined to be similarly situated to Southern Bancorp Bank of Arkansas, Arkadelphia, Arkansas.
5 The average net LTD ratio represents a 17-quarter average dating back to the first quarter (September 30, 2004) after the bank’s last CRA examination to September 30, 2008.
4
Loan-to-Deposit Ratio Analysis
Regional Bank Competitors
Malvern, AR Arkadelphia, AR Hot Springs, AR Hot Springs, AR
66.9% 98.2% 62.2% 92.7%
Based on the data from the above table, the bank’s level of lending indicates reasonable responsiveness to assessment area credit needs. For the last 17 quarters, the bank’s LTD ratio ranged from a low of 55.0 to a high of 74.0 percent. The bank’s quarterly average LTD ratio was 62.4 percent for this current evaluation period. In comparison, the bank’s regional competitors’ average LTD ratios ranged from 62.2 to 98.2 percent. Though lower than three of the local competitors, the bank’s quarterly average LTD ratio meets the standard for satisfactory performance for this criterion. Lending to Borrowers of Different Incomes and to Businesses of Different Sizes The bank’s distribution of loans by borrower income and revenue size of businesses is satisfactory. In the Clark and Hot Springs County assessment area, the bank’s record of originating residential mortgage and consumer loans to borrowers of various income levels is satisfactory. The bank record of originating small business loans to businesses of different sizes for varying amounts is reasonable. The Clark and Hot Springs County assessment area makes up a substantial portion of the bank’s lending and deposit activity and was therefore afforded more weight in this analysis. In the Garland County assessment area, the bank’s record of originating residential mortgage and consumer loans to borrowers of various income levels is marginally adequate, given the performance context factors. The bank’s record of originating small business loans to businesses of different sizes for varying amounts is reasonable. The Garland County assessment area is a small portion of the bank’s overall lending activity and was afforded less weight in this analysis. There is a detailed discussion of the borrower and business distribution in the Conclusions with Respect to Performance Tests section of each assessment area. Geographic Distribution of Loans The analysis of the geographic distribution of loans evaluates the bank’s distribution of loans within its assessment area. The review focuses on loans in LMI census tracts. Though there are no low- or moderate-income census tracts in the Clark and Hot Springs County assessment area, the loan dispersion among the other census tracts is considered adequate. In the Garland County assessment area, there are 6 moderate census tracts. The geographic distribution of
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Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
loans in this assessment area is reasonable, based upon performance context information obtained from the community contacts interviewed during this examination. A detailed discussion of the geographic distribution in the non-metropolitan statistical area and the metropolitan statistical area sections that follow. Complaints No CRA-related complaints were received for this institution during the time frame used for this evaluation (September 20, 2004, through December 1, 2008). Additional Information During the Consumer Affairs examination conducted concurrently with this CRA evaluation, a fair lending analysis was performed to assess the bank’s compliance under Regulation B (Equal Credit Opportunity) and the Fair Housing Act. The analysis concluded that the bank is in compliance with the substantive provisions of the antidiscrimination laws and regulations for the products and services reviewed. DESCRIPTION OF COMMUNITY DEVELOPMENT INVESTMENTS AND SERVICES As part of the performance analysis of the bank during this examination, this Reserve Bank’s examiners were asked by senior management at the bank to consider the bank’s community development investment and services activities to enhance the CRA performance. Based upon the examiners’ review of the bank’s five core lending criteria, it was determined that the bank did not exceed the standard in any of the loan categories and therefore was not eligible to receive an enhanced rating. Consequently, the bank maintained a satisfactory rating for the evaluation period. Even though the rating could not be raised to an outstanding rating, it is noted that the bank’s community development investment and services activities were considered excellent in addressing the community development needs of its assessment areas considering its capacity and the need and availability of such opportunities. Community Development Investments The bank, holding company, and affiliates had numerous investments. These largely took the form of grants and donations to various community groups and organizations which met various community development purposes. The total amount of grants and donations was $1,332,065. The largest of the grants and donations included affordable housing, construction of a childcare center, and implementation of various aspects of the Clark County strategic plan. In addition, the bank’s investment portfolio contains $3,425,000 in school bond issues. Greater than 50 percent of the student population in each school district receives free or subsidized lunches.
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Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
The bank’s total community development investments demonstrate an excellent responsiveness to community development needs of the assessment area based upon the opportunities for such investments. Community Development Services Officers and employees of the bank, holding company, and affiliates were involved in numerous community organizations within the Clark and Hot Springs County assessment area. To a lesser extent, staff was also involved in community organizations in the Garland County assessment area. A significant portion of these organizations had a primary purpose of community development. The bank often assumed a leadership role in these organizations and provided significant financial guidance. The bank provides ready access to financial services in all parts of its assessment area. The bank has six offices, with four located in middle-income census tracts and two located in the same upper-income census tract. The Clark and Hot Springs County assessment area does not contain any low- or moderate-income tracts; however, three of the four middle-income tracts in Clark are classified as distressed in 2008 due to the levels of poverty of the residents. The bank has only one office currently in the Garland County assessment area, which is located in a middle-income tract and somewhat removed from the two moderate-income tracts in that county. All branches have ATM availability. The bank has closed one branch since the previous evaluation that was located in an upper-income tract in Clark. Banking services do not vary in a manner that would inconvenience certain portions of the bank’s assessment areas. The level of community development services demonstrates the bank is a leader in providing community development services in its assessment areas.
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Southern Bancorp Bank of Arkansas CRA Performance Evaluation Arkadelphia, Arkansas December 1, 2008
NON-METROPOLITAN STATISTICAL AREA DESCRIPTION OF CLARK AND HOT SPRINGS COUNTY ASSESSMENT AREA Clark and Hot Springs County are part of non-MSA Arkansas. Appendix A contains a listing of the four census tracts within this assessment area. Three of the four census tracts in Clark are considered distressed for the year 2008 due to the level of poverty in the area even though these census tracts are categorized as being middle-income. The other census tract in Clark is in an upper-income category. According to the FDIC market share information as of June 30, 2008, the bank has a deposit market share of 20.3 percent and is one of eight financial institutions operating in the Clark and Hot Springs County assessment area. The bank is ranked third in terms of deposits in the assessment area. The following table reflects the number of census tracts within the Clark and Hot Springs County assessment area by each income category and the corresponding family populations within those census tracts.6
Assessment Area Geographical Information by Income Category
2000 Census Data Low- Moderate- Middle- Upper- TOTAL
Assessment Area Census Tracts
Family Population 0 0 13,016 1,765 14,781
0.0% 0.0% 88.1% 11.9% 100% As shown in the table above, the assessment area contains no low-or moderate-income census tracts, 10 middle-income census tracts, and one upper-income census tract. Four of the bank locations, including the main office, are located in middle-income census tracts. The largest portion of the bank’s assessment area family population resides in middle-income census tracts. According to 2000 census data, the total population of this assessment area was 53,899. A slight majority of this assessment area’s population (56.4 percent) are found within Hot Springs County. The following table displays the distribution of assessment area families by income level, compared to non-MSA Arkansas and the entire state.7
6 See the glossary in Appendix B for the definitions of the low-, moderate-, middle-, and upper-income categories. 7 Statistical/demographic information cited in this evaluation, unless stated otherwise, is taken from 2000 United States Census Bureau data.
8
Assessment Area Family Population by Income Level
2000 Census Data Low- Moderate- Middle- Upper- TOTAL
Assessment Area 2,569 2,300 3,448 6,464 14,781
17.4% 15.6% 23.3% 43.7% 100%
State of Arkansas 148,233 131,570 163,567 292,693 736,063 20.1% 17.9% 22.2% 39.8% 100%
Non-MSA AR 66,236 58,047 70,642 129,307 324,232
20.4% 17.9% 21.8% 39.9% 100% Although the assessment area’s census tracts are middle- and upper-income, LMI families make up 33.0 percent of the assessment area’s family population, as shown in the table above. The LMI families are dispersed throughout the assessment area, including the upper-income census tract. In comparison to the state as a whole and non-MSA Arkansas, the bank’s assessment area has a slightly lower percentage of LMI families. The percentage of LMI families is 33.0 percent in the assessment area, compared to 38.0 percent for the state of Arkansas and 38.3 percent for non-MSA Arkansas. Based on 2000 census data, the median family income of the Clark and Hot Springs County assessment area was $37,092 and $37,077, respectively, compared to $34,263 for non-MSA Arkansas and $38,663 for the state of Arkansas. For 2008, the Department of Housing and Urban Development (HUD) estimates Clark and Hot Springs County median family income to be $45,400. Housing in the assessment area is somewhat more affordable relative to non-MSA Arkansas and the state of Arkansas, as shown by a lower median gross rent value and also by a higher affordability ratio.8 The 2000 median gross rent for the assessment area was $402 per month, compared to $389 for non-MSA Arkansas and $453 for the state of Arkansas. Further, the assessment area affordability ratio was 51.0 percent, compared to non-MSA Arkansas figure of 50.0 percent and the state of Arkansas figure of 47.0 percent. Therefore, not only is the assessment area slightly more affluent than non-MSA Arkansas, but housing also appears to be slightly more affordable. According to the U. S. Department of Labor, Bureau of Labor Statistics, the October 2008 (not seasonally adjusted) unemployment rates for the counties comprising the Clark and Hot Springs assessment area and the statewide figure were: Clark (5.5 percent), Hot Springs (5.7 percent), and statewide Arkansas (4.7 percent).
8 This figure is calculated by dividing the median household income by the median housing value; it represents the amount of single family owner-occupied housing that a dollar of income can purchase for the median household in the geography.…