Community Reinvestment Act Performance Evaluation

Public Disclosure

July 15, 2019
COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Commercial Bank Certificate Number: 12246
401 South Main Street Nelson, Nebraska 68961

Federal Deposit Insurance Corporation Division of Depositor and Consumer Protection Kansas City Regional Office
1100 Walnut Street, Suite 2100
Kansas City, Missouri 64106

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

Institution Rating
Scope of Evaluation
Description of Institution
Description of Assessment Area
Conclusion on Performance Criteria
Discriminatory or Other Illegal Credit Practices Review
Glossary

Institution Rating

INSTITUTION’S CRA RATING: This institution is rated Satisfactory. An institution in this group has a satisfactory record of helping to meet the credit needs of its assessment area, including low- and moderate-income neighborhoods, in a manner consistent with its resources and capabilities.

Satisfactory performance under the Lending Test supports the rating. Examiners did not identify any evidence of discriminatory or other illegal credit practices. The following points summarize the bank’s performance.

• The loan-to-deposit ratio is reasonable given the institution’s size, financial condition, and assessment area credit needs.

• A majority of the small farm and small business loans reviewed were located inside the assessment area.
• The distribution of borrowers reflects excellent penetration among farms and businesses of different sizes.
• The assessment area does not include any low- or moderate-income census tracts. Therefore, examiners did not evaluate the geographic distribution of loans.
• The institution did not receive any CRA-related complaints since the previous evaluation. As a result, this criterion did not affect the rating

Scope of Evaluation

General Information
This evaluation covers the period from the prior evaluation dated January 21, 2014, to the current evaluation dated July 15, 2019.Examiners used Interagency Small Institution Examination Procedures to conduct the evaluation, which focused on the Lending Test. The evaluation does not include any affiliate lending activities. Examiners evaluated the bank’s perfom1ance based on the following criteria.

• Loan-to-deposit ratio
  • Assessment area concentration
  • Borrower profile
  • Geographic distribution
  • Response to CRA-related complaints

Loan Products Reviewed

Examiners reviewed small farm and small business Joans to evaluate the bank’s performance. They selected these products based on the bank’s business strategy and the number and dollar volume of loans originated during the evaluation period. No other loan types, such as consumer loans, represent a major product line. The bank no longer offers home mortgage loans. As a result, examiners did not review any other loan products, as they would provide no material support for conclusions or the rating.

Examiners reviewed all small farm and small business loans originated in 2018 to conduct the Assessment Area Concentration analysis. Examiners sampled small farm loans from inside the assessment area to conduct the Borrower Profile analysis. Examiners reviewed all small business loans originated inside the assessment area due to the limited volume of small business loans. Bank management indicated that the loans reviewed were representative of the institution’s perfo1mance during the entire evaluation period. The following table provides details.

Loan Products Reviewed

While the number and dollar volume of loans are presented, the number of loans received greater weight than the dollar volume of loans for the Borrower Profile analysis. This is because the number of loans is a better indicator of the borrowers served. Further, small farm loans received greater weight due to the larger number of loans originated during the review period.

Description of Institution

Background
Commercial Bank operates a single office in Nelson, Nebraska. CLC Enterprises Inc., a one­ bank holding company, owns the bank. The FDIC rated the institution “Satisfactory” at the prior CRA Performance Evaluation dated January 21, 2014, based on Interagency Small Institution Examination Procedures. The bank has not established or closed any branches and has not been involved in any mergers or acquisitions since the previous evaluation.

Operations
The bank offers a wide range of loan products including agricultural, commercial, and consumer loans, primarily focusing on agricultural lending. In addition, the institution provides a variety of deposit products including checking, savings, money market deposit accounts, and certificates of deposit. The bank also offers online banking and an automated teller machine.

Ability and Capacity
Assets totaled approximately $47.8 million as of March 31, 2019, and included loans totaling $32.5 million. Since the prior evaluation, assets and loans have grown significantly. Assets totaled approximately $39.2 million at the prior evaluation, and loans totaled approximately $21.7 million. Agricultural loans, including loans secured by farmland, represent the bank’s largest loan category at 46.7 percent of loans, followed closely by commercial loans, including loans secured by nonfarm, nonresidential properties, at 45.3 percent. The following table reflects the entire loan portfolio.

Loan Portfolio Distribution as of 3/31/19

Examiners did not identify any financial, legal, or other impediments that affect the bank’s ability to meet assessment area credit needs.

Description of Assessment Area

The CRA requires each financial institution to define one or more assessment areas within which its performance will be evaluated. Commercial Bank designated Clay, Nuckolls, and Thayer counties as its assessment area. The assessment area includes all census tracts in each of the three counties. The following sections describe the assessment area, including pertinent demographic and economic information.

Economic and Demographic Data
Clay, Nuckolls, and Thayer counties are in nonmetropolitan south-central Nebraska. According to the 2015 American Community Survey (ACS), the assessment area includes six middle-income census tracts. The following table illustrates select demographic characteristics of the assessment area.

Demographic Information of the Assessment Area

According to 2018 D&B data, service industries represent the largest sector of the economy at 30.2 percent, followed by agriculture at 23.6 percent. Retail trade was the third largest sector at 8.4 percent. In addition, 74.6 percent of area businesses have four or fewer employees, and 84.2 percent operate from a single location. Major employers include local schools, hospitals, and government offices.

The assessment area’s economy is generally stable, and unemployment is low. As of April 2019, the unemployment rates for Clay, Nuckolls, and Thayer counties were 2.5 percent, 3.1 percent, and 2.6 percent respectively. Comparatively, the state of Nebraska’s unemployment rate was 2.9 percent, while the national unemployment rate was 3.3 percent.

Competition
The assessment area is moderately competitive for financial services. According to the 2018 FDIC Deposit Market Share Report, 14 financial institutions operate 25 offices in the assessment area. Commercial Bank ranked 7th out of the 14 institutions with 5.9 percent of the assessment area’s deposits.

Community Contact
As part of the evaluation process, examiners contact third parties active in the assessment area to assist in identifying credit and community development needs. This information helps determine whether local financial institutions are responsive to these needs. It also shows what credit opportunities are available.

Examiners conducted two community contacts with local businesses in the area. The first contact from a local municipality stated that the local economy is stable; however, the contact mentioned that they were uncertain about the agricultural economy due to area floods. The contact stated that Commercial Bank has been very involved and helpful to local businesses.

The second contact from an education organization also stated that the local economy is stable with many diverse industries being well established. The contact stated that there are multiple banks in the area and there is a healthy level of competition.

Considering information from the community contact, bank management, and demographic and economic data, examiners determined that agricultural and commercial loans are the assessment area’s primary credit needs.

Conclusions on Performance Criteria

Lending Test
Commercial Bank demonstrated reasonable performance under the Lending Test. Loan-to-deposit ratio and Assessment Area Concentration performance primarily support this conclusion.

Loan-to-Deposit Ratio
The loan-to-deposit ratio is reasonable given the institution’s size, financial condition, and assessment area credit needs. The ratio averaged 67.6 percent during the evaluation period, based on Commercial Bank’s quarterly Reports of Condition and Income. During the evaluation period, the bank’s loan-to-deposit ratio ranged from a low of 47.2 percent as of March 31, 2014, to a high of 85.5 percent as of December 31, 2018. This indicates an upward trend since the previous evaluation.

Examiners compared the bank’s average net loan-to-deposit ratio to three similarly situated institutions to evaluate its performance. Similarly situated financial institutions are defined as institutions operating in and around the assessment area, with similar asset bases and product lines. Commercial Bank’s average net loan-to-deposit ratio was comparable to two of the similarly situated institutions and significantly lower than the third institution. The following table provides details.

Loans-to-Deposit Ratio Comparison

Assessment Area Concentration
A majority of the loans reviewed were within the assessment area. While most small farm loans reviewed were located inside the institution’s assessment area, most small business loans were located outside the assessment area. As stated previously, small fam1 loans received a greater weight due to the larger volume of loans. The following table provides details.

Lending Inside and Outside of the Assessment Area

Borrower Profile
The distribution of borrowers reflects excellent penetration among farms and businesses of different sizes. Examiners focused on the percentage of loans, by number, to farms and businesses with gross annual revenues of $1million or less.

Small Farm Loans
The distribution of small farm loans reflects an excellent record of lending to farms of different sizes. As shown in the following table, the bank’s lending performance exceeds demographic data.

Distribution of Small Farm Loans by Gross Annual Revenue Category

Small Business Loans
The distribution of small business loans reflects a reasonable record of lending to businesses of different sizes. As shown in the following table, the bank’s small business lending performance is consistent with demographic data.

Distribution of Small Business Loans by Gross Annual Revenue Category

Geographic Distribution
The assessment area does not contain any low- or moderate-income census tracts. Therefore, examiners did not evaluate the geographic distribution of loans.

Response to Complaints
The bank did not receive any CRA-related complaints since the previous evaluation. As a result, this criterion did not affect the rating.

Discriminatory or Other Illegal Credit Practices Review

Examiners did not identify any evidence of discriminatory or other illegal credit practices; therefore, this consideration did not affect the institution’s CRA rating.

Glossary

Aggregate Lending: The number of loans originated and purchased by all repo1iing 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.

Area Median Income: The median family income for the MSA, if a person or geography is in an MSA; or the statewide nonmetropolitan median family income, if a person or geography is located outside an MSA.

Assessment Area: A geographic area delineated by the bank under the requirements of the Community Reinvestment Act.

Census Tract: A small, relatively permanent statistical subdivision of a county or equivalent entity. The primary purpose of census tracts is to provide a stable set of geographic units for the presentation of statistical data. Census tracts generally have a population size between 1,200 and 8,000 people, with an optimnn1 size of 4,000 people. Census tract boundaries generally follow visible and identifiable features, but they may follow nonvisible legal boundaries in some instances. State and county bow1daries always are census tract boundaries.

Combined Statistical Arca (CSA): A combination of several adjacent metropolitan statistical areas or micropolitan statistical areas or a mix of the two, which are linked by economic ties.

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. Other family 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).

Family Income: Includes the income of all members of a family that are age 15 and older.

FFIEC-Estimated Income Data: The Federal Financial Institutions Examination Council (FFIEC) issues annual estimates which update median family income from the metropolitan and nonmetropolitan areas. The FFIEC uses American Community Survey data and factors in information from other sources to arrive at an annual estimate that more closely reflects current economic conditions.

Full-Scope Review: A full-scope review is accomplished when examiners complete all applicable interagency examination procedures for an assessment area. Performance under applicable tests is analyzed considering performance context, quantitative factors (for example, geographic distribution, borrower profile, and total number and dollar amount of investments), and qualitative factors (for example, innovativeness, complexity, and responsiveness).

Geography: A census tract delineated by the United States Bureau of the Census in the most recent decennial census.

Home Mortgage Disclosure Act (HMDA): The statute that requires certain mortgage lenders that do business or have banking offices in a metropolitan statistical area to file annual summary reports of their mortgage lending activity. The reports include such data as the race, gender, and the income of applicants; the amount of loan requested; and the disposition of the application (approved, denied, and withdrawn).

Home Mortgage Disclosure Loan Application Register (HMDA LAR): The HMDA LARs record all applications received for residential purchase, refinance, home improvement, and temporary-to-permanent construction loans.

Home Mortgage Loans: Includes home purchase and home improvement loans as defined in the HMDA regulation. This definition also includes multi-family (five or more families) dwelling loans, loans to purchase 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.

Household Income: Includes the income of the householder and all other persons that are age 15 and older in the household, whether related to the householder or not. Because many households are only one-person, median household income is usually less than median family income.

Housing Unit: Includes a house, an apartment, a mobile home, a group of rooms, or a single room that is occupied as separate living quarters.

Limited-Scope Review: A limited scope review is accomplished when examiners do not complete all applicable interagency examination procedures for an assessment area.

Performance under applicable tests is often analyzed using only quantitative factors (for example, geographic distribution, borrower profile, 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 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.

Median Income: The median income divides the income distribution into two equal parts, one having incomes above the median and other having incomes below the median.

Metropolitan Division (MD): A county or group of counties within a CBSA that contain(s) an urbanized area with a population of at least 2.5 million. A MD is one or more main/secondary counties representing an employment center or centers, plus adjacent counties associated with

the main/secondary county or counties through commuting ties.

Metropolitan Statistical Area (MSA): CBSA associated with at least one urbanized area having a population of at least 50,000. The MSA comprises the central county or counties or equivalent entities containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county, or counties as measured through commuting.

Micropolitan Statistical Area: CBSA associated with at least one urbanized area having a population of at least I 0,000, but less than 50,000.

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 and less than 120 percent in the case of 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 and less than 80 percent in the case of geography.

Multi-family: Refers to a residential structure that contains five or more units.

Nonmetropolitan Area: All areas outside of metropolitan areas. The definition of nonmetropolitan area is not consistent with the definition of rural areas. Urban and rural classifications cut across the other hierarchies. For example, there is generally urban and rural territory within metropolitan and nonmetropolitan areas.

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.

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.

Rural Area: Territories, populations, and housing units that are not classified as urban.

Small Business Loan: A loan included in “loans to small businesses” as defined in the Consolidated Report of Condition and Income (Call Report). These loans have original amounts of $I million or less and are either secured by nonfarm nonresidential properties or are classified as commercial and industrial loans.

Small Farm Loan: 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, including farm residential and other improvements, or are classified as loans to finance agricultural production and other loans to farmers.

Upper-Income: Individual income that is 120 percent or more of the area median income, or a median family income that is 120 percent or more in the case of geography.

Urban Area: All territories, populations, and housing units in urbanized areas and in places of 2,500 or more persons outside urbanized areas. More specifically, “urban” consists of territory, persons, and housing units in places of 2,500 or more persons incorporated as cities, villages, boroughs (except in Alaska and New York), and towns (except in the New England states, New York, and Wisconsin).

“Urban” excludes the rural portions of “extended cities”; census designated place of 2,500 or more persons; and other territory, incorporated or unincorporated, including in urbanized areas.