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    New Opportunities to Excel
    Outstanding CRA Actions for Community Banks
    December 1996


    This pamphlet discusses some activities undertaken by small national banks that demonstrate exemplary performance under the Community Reinvestment Act. Those banks were some of the first examined under the revised regulation. We spoke to many of the bankers to elicit thoughts about the regulation and the OCC's examination process. We found that some bankers had developed partnerships with their local communities that benefited both the banks and the communities. The community banks featured provide diverse examples of CRA as good business. We convey those examples with the hope that they will provide inspiration and ideas to other small banks throughout the country.
    Bert A. Otto
    Assistant Deputy Comptroller
    Compliance Management

    New Opportunities to Excel

    In January 1996, the Community Reinvestment Act (CRA) regulation, revised to reward performance, not process, became effective for thousands of community banks in the United States. Regulators and bankers alike entered this new CRA arena with some degree of trepidation. New rules to learn and new concepts to understand presented challenges to everyone.

    Since the implementation of the new regulation, the OCC has examined several hundred community banks. The results of those examinations and the experiences and activities of the bankers merit comment, as they demonstrated exemplary performance, excellent community service, and activities that illustrated the philosophy that CRA means good business.

    This document is intended to recognize the special efforts of some community bankers who have made the revised CRA work for them. Some of the banks mentioned received "Satisfactory" CRA ratings; and many of them, "Outstanding" ratings. In all instances those banks have performed significant or ordinary acts in an extraordinary manner, meriting their inclusion here as examples of those who responded positively to CRA opportunities in their assessment areas. None of the banks' financial conditions impeded their ability to help meet the credit needs of their assessment areas.

    This publication contains "helpful hints" in the form of success stories. They enable banks to recognize that many opportunities exist for them to excel in the CRA area, but not all in the same way. Much depends on the content of their respective assessment areas. Mentioned here, for the most part, are ordinary banks with an extraordinary ability to look at the CRA potential of their communities and to make a firm commitment to help meet their credit needs. To these banks, CRA is not a burden. It is a daily business activity.

    This paper is divided into four areas: lending, service, community development, and "going the extra mile." It begins where most successful CRA journeys should begin, with lending:

    Innovative Lending Products

    The First National Bank in Hawley, Minnesota, with assets of about $30 million, serves a community of about 19,000 people. It offers at two locations residential real estate, consumer, agriculture, and commercial loans. The bank's CRA officer, Dave Brenna, said that its close knit employees work hard to "find a way not to turn customers away." As a reflection of this positive attitude, the bank offers a first-time home-buyer loan product in conjunction with the Minnesota Housing Finance Authority (MHFA). This product has below market interest rates and maximum income requirements. It helps low- and moderate-income persons buy affordable housing. The bank also participates in a MHFA loan program that provides down payment or monthly payment assistance to lower income borrowers.

    The Hawley bank started selling residential real estate mortgages to the secondary market earlier than most community banks and their 30-year loans are underwritten to Federal National Mortgage Association (FNMA) standards. However, the bank also offers and retains residential loans with flexible terms, including three-year and five-year balloons and adjustable-rate mortgages.

    Tri-County National Bank, a $38 million community bank, is located in Washington, Kansas, with branches in Linn and Concordia. President Dale Swenson said that the bank's size and locations in communities in north central Kansas and the presence of tough competition does not impede its ability to make loans to small and unusual businesses. Located in an area of the country known for its production of traditional agricultural products, Tri-County has granted small business loans to a variety of customers, including a manufacturer of frozen noodles, a grower of alfalfa sprouts, and a company that recycles oil.

    In 1995, despite solid competition, this bank was recognized by the United States Small Business Administration (SBA) as a leading provider of loans to small businesses in north central Kansas. The local economy depends largely on agriculture. The bank's balance sheet in 1995 indicated that 50 percent of its loans were for agricultural and farmland purposes, 22 percent for commercial purposes, including commercial real estate, 17 percent for 1-4 family residential properties, and 11 percent for consumer purposes.

    The Bank of Southern Oklahoma, N.A. is a $130 million bank located in Madill, Oklahoma, in the southeastern part of the state. The area is known for tourism, because of its proximity to Lake Texoma, and as the headquarters of the Native American people of the Choctaw Nation.

    In early 1995, the bank approached the Choctaw Nation to develop a home loan product. They agreed to work together to fund loans that allowed low- to moderate-income persons and families to purchase homes. The Choctaw Nation made available a $3 million grant to help its members with down payments, closing costs, and loan funding. The nation will also advance each member up to $2,000 for improvements. Applicants must first be qualified by the nation. The bank underwrites the loans that carry a below-market, fixed interest rate for 15 years. The bank funds 60 percent of the loan and the nation funds 40 percent, with the bank in first position. Borrowers repay both loans simultaneously. The bank has denied no loans so far, CRA officer Eva Moore pointed out. The program helped the bank to meet a credit need in its assessment area and the Choctaw Nation to leverage its funds to help its members.

    The First National Bank of Powell, in Powell, Wyoming, is the largest bank in town. It has $127 million in assets, three offices, and five ATMs, four of which were opened in 1995. The local economy is stable with adequate diversification and low unemployment. Major industries include oil, natural gas, mining, farming/ranching, sugar production, government services, medical, and education. Several years ago Powell's downtown had 22 vacant store fronts.

    The First National Bank, along with other local banks and the city of Powell, worked together to rehabilitate and revitalize the downtown business area. The city conducted a $1.5 million downtown rehabilitation project. In conjunction with the city's effort, the bank developed and offered a loan product specifically tailored to small business store front improvement. It carries a seven-year term and a 7 percent interest rate. The bank granted eight such small business loans in downtown Powell, totaling $88,000. Bank management also convinced other local banks to offer the same loan terms to their customers. The results were impressive: over the past 3.5 years, 21 of the 22 store fronts have been filled.

    Located in the Southwestern District, American National Bank in Wichita Falls, Texas, is a $166 million bank with two offices. It is located in the Wichita Falls metropolitan statistical area, which has a population of more than 122,000 people. The largest employer in the area is Sheppard Air Force Base, which recently expanded, causing demand for additional housing and home loans. The bank originated $43 million in residential mortgage loans in 1995, a large volume for a bank of its size. President John Stahler said that the bank underwrites the residential loans to FNMA standards and sells about 90 percent of them to the secondary market.

    In addition to granting loans underwritten to FNMA standards, the bank works with the Nortex Regional Housing Financing Corporation to make loans to first-time home buyers. American committed $8.75 million over three years to this program and the city of Wichita Falls provides down payment assistance to the borrowers. American developed an additional product for low-income home buyers that requires only a 5 percent down payment. To further enhance this low down payment loan, the bank will lend 2 percent unsecured, resulting in an actual down payment of only 3 percent.

    To help meet other credit needs of its community, American National Bank also offers Federal Housing Administration (FHA), Veterans Administration (VA), SBA, government guaranteed student loans, credit cards, and other general loan products for commercial and small businesses.

    First National Bank of the Berkshires is a small, community bank in Western Massachusetts which began its operations in a one room office in 1835. It has now grown to $62 million in asset size and operates from four offices. The bank's assessment area has a population of about 77,000 people. CRA officer Cathy Gilmore stressed that the county is community oriented and has a "small town atmosphere and philosophy." That philosophy includes hard work by the bank to grant loans within the local area. The bank had a loan-to-deposit ratio over 92 percent at year-end 1995.

    The Berkshires' loan portfolio consists mostly of real estate related loans and reflects positively on the bank's efforts to meet the credit needs of its assessment area. The bank's most innovative product is a mortgage loan, offered to customers of all income levels, that requires only a 3 percent down payment. In addition, the bank pays most of the closing costs and will escrow those to be paid by the borrowers. According to the bank officer, this product has received tremendous interest and represents about 80 percent of new loan originations.

    Citizens National Bank, a $169 million national bank in Athens, Tennessee, helped address the loan needs in its assessment area by offering loans through government-sponsored programs to small businesses and small farms. Citizens participates in the Federal Housing Administration (FHA), Farmers Home Administration (FmHA), Veterans Administration (VA), and Tennessee Housing Development Authority (THDA) guaranteed loans. During 1994, Citizens originated 30 of the 39 THDA loans made in its area. The $1.4 million in loans originated by Citizens represents 79 percent, by dollar, of the total number of THDA loans that were granted in its assessment area. In 1995, the bank originated seven THDA Home Ownership Program loans that allow low-income families to purchase a home for as little as $500 out-of-pocket expense. Total government-sponsored loans originated during 1995 were $2.7 million (56 loans).

    The bank also originated 409 small business loans in 1995, totaling $12.5 million. In the same year, Citizens originated 56 small farm loans totaling $774,000.

    The $200 million bank, First National Bank & Trust of Corbin, is located in southeastern Kentucky, an area marked by a high poverty rate, higher than average unemployment, and lower than average wages. To help meet the area's credit needs of consumer loans and residential mortgages for low- and moderate-income persons, the bank offers a wide variety of loans. They include low-income housing loans that carry flexible underwriting guidelines, reduced closing fees, and lower down payments.

    As of the last OCC examination, the bank had originated five low-income housing loans, totaling $125,000. The bank made business loans as small as $650 to purchase inventory and production loans as small as $300. In addition, the Corbin bank has originated home loans of $5,000 and instalment loans of $250.


    Pikes Peak National Bank of Colorado Springs is a community bank that pays special attention to customer service. This $57 million bank has three offices and a separate drive-up facility across the street from its main office. It also opened four ATMs during 1995. The bank is located in a section of Colorado Springs, which attracts many tourists and houses many small service-oriented shops and restaurants. President Dennis Richie described the bank's business customers as local "mom-and-pop" type businesses. To meet their needs, all of the bank's offices are open from 7 am to 10 pm, Monday through Saturday. Although the lobby does not stay open until 10 pm, many customers use the extended hours to make deposits or get change and to obtain or leave loan applications. President Richie said that these extended hours, combined with the bank's strong small business lending, have enhanced customer loyalty quite notable in a city marked by significant competition.

    Other small, national banks have demonstrated some innovative ways of expanding services to customers. For example, five years ago, Citizens National Bank in Athens, Tennessee, was the smallest bank in town and had mostly commercial customers. President Paul Wilson said that a strategic decision was made to attract more retail customers. The bank acquired three branches from a multinational bank in an adjacent county in 1992 and opened two grocery store branches in 1993. The grocery stores attracted new retail customers by staying open until 4 pm on Saturdays. The full service grocery branches allowed the bank to become more all-purpose and increased its loan portfolio. In an environment described as "intensely competitive," Citizens National Bank has steadily increased its loan-to-deposit ratio. By year-end 1995, the ratio rose to 75 percent, compared with 58.5 percent as of March 31, 1991.

    Other national banks provided extra service hours slightly differently. Tri-County National Bank, located in Washington, Kansas, has three offices. The lobbies are open until 5:30 pm daily and Saturday until noon. The bank also schedules after-hour appointments for customers.

    The management of the $30 million First National Bank in Hawley, Minnesota, responded to a geographic shift in loan demand near its main office by opening its first branch in late 1994. The result was a 50 percent increase in loans during 1995.

    Community Development

    Several small, community banks have demonstrated strong community development activity.

    Union National Mount Joy Bank, a $173 million institution in Mount Joy, Pennsylvania, is the sole and wholly owned subsidiary of Union National Financial Corporation. Recently, the Corporation invested $632,500 in Nissly Chocolate Factory Apartments Associates, a limited partnership, on behalf of the national bank. This partnership was formed to rehabilitate a former factory, in Mount Joy, into 28 affordable housing units for senior citizens. The project is eligible for low-income housing tax credits. Union National also made a direct grant of $250,000 to the Community Action Program of Lancaster County to assist in its development of this project.

    A $130 million bank, The Bank of Southern Oklahoma, N.A., recently originated a $273,000 community development loan to construct a health department and clinic. This facility is in a rural area and serves low- to moderate-income persons and families who reside in the bank's assessment area.

    The First National Bank of Powell (FNB) purchased a $324,000 Powell, Wyoming Hospital District general obligation bond. The bond proceeds financed construction of a new nursing home, connected to the hospital, for low- and moderate-income senior citizens.

    FNB of Powell also made substantial donations to various community development organizations or financial intermediaries that helped stabilize the moderate-income portion of its assessment area.

    To help address the area's credit needs, this community bank created the position of CRA officer and economic development officer to provide public finance expertise to the city, the bank, and local economic development organizations. The position was filled by Dave Reetz, who also serves as President of the Powell Valley Economic Development Alliance (part of the local Chamber of Commerce). The Alliance recruits prospective small businesses to locate in Powell and assists existing small businesses to expand and improve. Mr. Reetz said that the Alliance was instrumental in creating about 330 new jobs in Powell over the last four years, of which 70 percent were filled by low- and moderate-income persons.

    Going the Extra Mile

    Some banks want to do more than provide innovative lending, good service, and investments that enhance the community. This is especially true for the small and rural bank, First National Bank of Belfield, in North Dakota. This bank has one office, a "paying/receiving station," and one stand-alone ATM at a gas station/convenience store. It also has its own computer system that provides relatively sophisticated data for the use of management and the board of directors. This system tracks the geographic distribution of the bank's loan portfolio, by loan size, for both approvals and denials.

    Vice President Charles Steffan said that FNB Belfield prides itself on seriously considering every loan request it receives, working with its customers, and using reasonable flexibility in its underwriting even when it takes extra time. To ensure that all loan decisions are made in a professional and timely manner, this small bank employs three loan officers, a commendable commitment for a $26 million bank in a town of 1,000 people.

    The mix of loan types offered by Belfield includes Farm Service Agency guaranteed operating loans, FmHA, SBA low-doc, and guaranteed loans. The bank works with the Bank of North Dakota to offer Beginning Farmer, Family Farm, Micro Business, PACE and Ag PACE loans. The PACE program is a special funding program that purchases up to 50 percent of small business loans granted by banks in the state. That program helps banks improve their liquidity and fund additional small business loans. It is a state program that provides funds to buy down interest rates on certain farm operation loans, primarily nontraditional farm operations. Recently, the bank became eligible to sell Farm Service Agency guaranteed rural housing loans to the North Dakota Housing and Finance Agency under the North Dakota First Time Home Buyers Program. For a small bank, this is an unusually wide array of loan products. Belfield exceeded all expectations in serving its community and in offering mutual benefits to all parties.

    Among small banks, First National Bank of Mount Vernon is a leader in serving its community. This $57 million bank is located in Franklin County, Texas, which has a population of about 7,800 people. Until recently, this area depended largely on farming and agricultural-related businesses. Town leaders and the management of the First National Bank of Mount Vernon, and that of other local banks, recognized several years ago the need for additional employment opportunities. They worked together to provide leadership for the Mount Vernon Economic Development Corporation and the Franklin County Industrial Foundation, to bring new businesses to the community. First National's President, Ken Greer, became the treasurer of the Industrial Foundation, and many of the local bank officers and directors serve in various capacities in those organizations.

    Over the past two years, First National, the Mount Vernon-based Franklin National Bank ($33 million in assets), and Sulphur Springs Building and Loan, have brought several new employers into the Mount Vernon area. These new employers created hundreds of jobs for low- to moderate-income persons.

    Not all of the banks' efforts and accomplishments fit precisely into the definition of community development activities under the revised CRA regulation. However, the results of this cooperative spirit in the Mount Vernon area warrant recognition.

    One of the new employers, a large business, has to-date generated about 425 new jobs in the bank's assessment area. Approximately 300 of those jobs have been filled by low- and moderate-income persons. To help attract this business, First National granted loans totaling $600,000 to the Franklin County Industrial Foundation and the Mount Vernon Economic Development Corporation and purchased a $300,000 bond from the city of Mount Vernon. The loan funds were loaned to the business to purchase land for its site and to assist in building its facility. The investment was used to build a sewer system to serve the new facility. Franklin National Bank purchased the remaining half of the investment from the city and a $282,000 loan participation from First National.

    To help induce the relocation of a ceramics manufacturing company to Mount Vernon, First National originated a $150,000 loan to the Mount Vernon Economic Development Corporation (EDC). The EDC loaned the funds to the ceramics company to purchase equipment. The company acquired a previously abandoned plant and created over 50 new jobs for low- and moderate-income persons.

    First National also made about $25,000 in grants during the past two years to both the Franklin County Industrial Foundation and the Mount Vernon Economic Development Corporation for operating funds.

    The First National Bank of Raymond has operated in Raymond, Illinois, since 1903. It now has five offices and is an $86 million bank in rural Montgomery County. CRA Officer and Acting President Patty Clark described the bank's loan officers as strong lenders involved in the community. The bank sets and achieves high production goals for its five locations to help meet the area's loan demand. The bank's loan products center around agricultural, 1-4 family residential real estate, and small business loans.

    For the past three years, the Raymond bank has prepared an annual zip code analysis of all loans and deposits. The board of directors uses that information to understand the bank's sources and use of funds and to set production goals for its offices.

    These are only a few of the well-run community banks that demonstrated exemplary service to their communities. We congratulate them and all national banks for their dedication to their customers and others in need of assistance.

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