BankNotes ...

After a small profit rebound in the first quarter of 2009, insured banking institutions recorded another aggregate net loss in the second quarter. The $3.7 billion loss was primarily related to sharply increased loan-loss provisions, write-downs of asset-backed commercial paper, and increased deposit insurance assessments. The commercial paper write-downs contributed to a $3.3 billion increase in extraordinary losses. And, higher deposit insurance comprised a good part of the industry’s $1.7 billion increase in non-interest expenses.

More than 28 percent of insured institutions recorded a second quarter loss; in the year-ago period, 18 percent were unprofitable.

Bright spots: noninterest income, NIM

Some banks partially offset the rash of higher expenses with improved net interest margins (NIM) and higher noninterest income. The average NIM rose 9 basis points to 3.48 percent, and larger banks were the primary recipients of this improvement. Noninterest income increased by 10.6 percent or $6.5 billion. Other positives included reduced realized losses on securities, higher gains on assets sales, higher servicing fees and improved trading revenues.

Records set: net charge-offs, noncurrent loan rate

Net charge-offs spiked to $48.9 billion in the second quarter, sending the net charge-off rate to a record 2.55 percent. In dollars, charge-offs rose more than 85 percent from the second quarter of last year. Commercial and industrial loans (C&I) and credit card loans were the categories with the largest charged-off amounts in the second quarter.

Noncurrent loans and leases rose 14.3 percent, marking a thirteenth consecutive quarterly increase. The increase was driven by 1-4 family residential mortgages, real estate construction and development loans, and loans backed by nonfarm, nonresidential real estate. The noncurrent loan rate rose to 4.35 percent, the highest level on record, despite a record decrease in loans 30-89 days past due. All major loan categories contributed to this decrease, with real estate loans accounting for 83.5 percent of the improvement.

Capital improves, assets decline

Equity capital grew to 10.56 percent, its highest level since the spring of 2007. On average, capital ratios improved, although this improvement was concentrated in fewer than half of the insured institutions.

While 57 percent of insured institution increased their assets in the quarter, the industry average showed an asset decline of 1.8 percent. More than half of the decline was related to loans and leases. C&I loan balances were down, as were 1-4 family residential mortgages, and real estate construction and development loans. Small business loan balances also declined industry-wide.

Problem list

The FDIC’s problem list now includes 416 institutions, making it the largest problem list since 1994. Twenty-four institutions failed in the second quarter and thirty-nine were merged into other banks. Only twelve new charters were approved.

Insurance fund

At quarter-end, the FDIC imposed a special assessment on insured banks totaling 5 basis points of each institution’s assets less Tier 1 capital. Some 89 institutions with assets of $4 trillion were assessed 10 basis points of their second quarter assessment base.

During the second quarter, total deposits at insured institutions increased by 0.7 percent. Over the prior twelve months, total domestic deposits grew 7.5 percent.  

Brokered deposits exceeding 10 percent of a bank’s domestic deposits are now included in the FDIC’s assessment calculation. At quarter-end, 1488 banks had brokered deposits exceeding 10 percent of their domestic deposits. Aggregate brokered deposits decreased by 5.8 percent in the quarter.

The Deposit Insurance Fund (DIF) declined 20.3 percent during the second quarter to $10.4 billion. Factors that reduced the fund balance included:

•    Increased loss provisions of $11.6 billion
•    Unrealized losses on available-for-sale securities of $1.3 billion

Factors that increased the fund balance included:

•    Accrued assessment income, including the special assessment, of $9.1 billion
•    Interest earned, realized gains on securities, debt guarantee surcharges from TLGP of $1.1 billion

The DIF reserve ratio was 0.22 percent at quarter-end, vs. 1.01 percent at the end of last year’s second quarter.

The Congressional Oversight Panel (COP), tasked with monitoring the Treasury's progress combating the financial crisis, has released an update on the continued risk of troubled assets in the banking industry. While the report doesn't address bank organizing groups specifically, its content does emphasize the challenges of evaluating target banks during this financial crisis.

Those challenges include valuing the target bank's troubled assets and identifying the reasons why those assets became troubled in the first place. In the general sense of the term, troubled assets are loans or securities that no longer meet (or perhaps never did meet) acceptable underwriting standards. The credit risk on these assets exceeds acceptable levels, repayment is questionable, and the aggregate asset value is far lower than originally assumed. Troubled assets commonly include:

 Mortgage-backed securities

 Whole mortgages in the bank's portfolio

 Securities backed by credit card receivables

 Securities backed by commercial mortgages

Community banks generally have more exposure to troubled whole mortgages.

Underlying causes

The bank organizing group does have a certain level of negotiating power when the target bank's balance sheet is weighted down with too many troubled assets. That's where the advantages end, however. Even before the negotiating begins, organizers must identify the underlying causes of the bad assets:

 Were these assets bad from the start, due to lax underwriting or borrower fraud? Did the bank willingly overlook missing documentation or red flags on credit histories? Was it simply an over-reliance on the assumption that collateral values would continue to rise over time?

 Or did these assets become troubled over time due to extreme weakening of collateral values or borrowers' credit qualifications?

Procedural changes and capital requirements

The organizing group is then tasked with devising the underwriting, workout and procedural standards that will:

 maximize the return on existing troubled assets

 add new, high quality loans to the portfolio

 minimize the addition of new troubled assets

Obviously, these are relatively complex objectives in this economic environment. Unemployment is still rising and the outlook for property values, particularly commercial property values, remains uncertain. Excessively timid underwriting can minimize the creation of new problems, but it's counter-productive; banks have to make loans to survive. The new management team simply has to find a way to originate loans that make sense.

Setting appropriate capital requirements is also a key step in evaluating the target bank. Ample capital can be a buffer for future loan losses, but organizers have to balance the capital needs with the availability of investor funds. Under current conditions, it is possible for organizers to meet their capital raise targets-but it isn't easy. The process takes planning, knowledge and expertise.

Next week, we'll discuss the accounting for troubled assets, as discussed in the COP report. You can access the full COP report here: http://cop.senate.gov/documents/cop-081109-report.pdf

Underserved and underbanked communities are well documented in the banking industry: the FDIC and others have published numerous reports, surveys and case studies on the topic. And, the FFIEC produces an annual list of underbanked communities, segmented by county and state.

As capital flows into the banking industry via bank acquisitions, many new business plans are incorporating programs to attract and retain underserved/underbanked consumers. Some bank acquirers are even selecting target banks based on their locations relative to known underserved communities.

Creating a plan

A bank purchase, like a bank start-up, has a rigorous regulatory approval process. Part of that process involves documenting and defending a viable business and marketing plan for the target institution. This is no small undertaking, particularly when an underserved community is being addressed. Studies have repeatedly shown that underserved consumers do not respond consistently to traditional bank marketing programs.

Earlier this year, the FDIC completed a survey to identify initiatives and programs that had successfully attracted underserved consumers. Effective outreach efforts incorporated the following actions:

•    Early identification of suitable underserved populations
•    Early commitment to serve the targeted underserved population
•    Launch of educational programs, teaching consumers about managing their finances
•    Partnership with established community organizations
•    Off-site outreach visits and programs (at high schools and/or community organizations)
•    Providing educational pamphlets and brochures
•    Marketing specifically to certain demographics (such as Hispanic Americans)
•    Empowering bank employees to welcome underbanked customers  

The FDIC study concludes that educational programs, community partnership and off-site visits are among the most effective strategies. Subjects most commonly addressed in educational sessions are basic banking and savings programs. While the development of financial pamphlets and brochures is a popular strategy among banks, it is not considered one of the most effective methods.   

Widening the service set

An effective underserved outreach program must also include the establishment of services for noncustomers, such as:

•    Check cashing
•    Money orders
•    Bill-pay
•    Reloadable, prepaid cash cards

A challenge in offering these services to noncustomers is setting effective identification policies. Underserved customers are less likely to have traditional forms of I.D., such as a driver’s license or state-issued I.D. card. Also, the goal in developing relationships with noncustomers is to transition them into accountholder status over time. Banks must therefore establish identification policies for account openings as well. Lack of identification is a common reason new account applications are denied. Other reasons include negative results on a check screen and a low credit score.

Assuming noncustomers can be converted to accountholders, these entry-level customers will also have specialized service needs. Banking services to consider for this customer segment include:

•    Checking and savings accounts with no balance requirements
•    Accounts with less severe overdraft penalties
•    Short-term, unsecured loan facilities with specialized eligibility requirements

For further insights on working with underserved customers, read the full FDIC survey, available here: http://www.fdic.gov/unbankedsurveys/unbankedstudy/FDICBankSurvey_Report.pdf

The decision to acquire a bank in an underserved community is ultimately based on the investment value of the target bank. But determining that investment value is a tricky proposition; a low-income neighborhood may not offer much appeal currently, but infuse that low-income neighborhood with capital, and the situation might look quite different.

Residents of underbanked communities typically have their financial needs fulfilled by payday loan stores, check cashing establishments, and even unlicensed predatory lenders. The expense associated with these services creates inefficiencies in the cycling of cash within the community. In other words, predatory lenders can drain more money out of the community—through high finance and service charges—than they put into it.

A banking institution, however, can have the opposite effect. When a bank reaches out to underbanked consumers and educates them on the advantages of keeping a deposit account, that bank is also compiling assets that will be returned to the community in the form of loans. Those lend-able funds are the building blocks of home ownership and local business development.

Financial education creates financial efficiencies

Studies have repeatedly shown that financial education is a huge component of attracting and retaining underbanked consumers. A bank that operates effectively in a previously underserved community isn’t limited to showing consumers how to reduce their finance charges, however. The bank can also initiate programs to help consumers develop more efficient budgeting, spending, savings and even tax planning habits. Over time, those cumulative household savings can also be directed back into the community, through discretionary spending.

With a creative vision and effective outreach and education programs, then, a newly acquired bank can anchor a turnaround within an underserved community.

Overcoming the failures of previous banks

The challenges in initiating such a turnaround are large, but not insurmountable. If the target bank is already located within the underserved community, the bank organizers need to understand why that institution wasn’t previously effective. The product and service set, the brand image and the marketing programs (to name a few) need to be overhauled to address the needs and wants of local consumers.

If the target bank is to be relocated to the underserved area, the bank organizers must try to gain some insight from the history of banking in that community. Did previous banks or branches fail? If so, why?

Underserved communities and unbanked consumers obviously aren’t the low-hanging fruit of the banking industry. However, initiating real and positive change within a community is an endeavor that can be both rewarding and profitable. And, because there are many underserved locales in the U.S., the group of bank organizers that defines a workable model for one community has ample opportunity to roll out variations of that model to other areas.

Next week, we’ll discuss marketing strategies for attracting and retaining underbanked consumers.

An early decision bank organizers must address is whether to buy an existing bank or create a de novo bank. The right choice among these two options is always dictated by the particular set of circumstances faced by the group. At times, as circumstances and opportunities develop, bank organizers may even switch strategies in the middle of the process.

If the decision is made among the organizers to buy a bank, certain steps must be completed in order to get the transaction finalized. While each bank acquisition is unique, the steps generally fall into four major phases.

Phase One: corporation formation

Once the decision is made among the organizers to buy a bank, the group members create a stand-alone corporate entity. The newly formed corporation has two purposes: to purchase a bank and manage the organization’s funds. Other steps that are completed during this phase include:

•    Identification of the target bank
•    Negotiation of the purchase agreement
•    Sourcing and hiring of executive officers
•    Selection of a new bank location, as dictated by the business plan and/or assess the condition of the existing bank location

Phase Two: application

After the target is identified and the stock purchase agreement is in place, the group begins on the change of control application. The business plan within the application includes 10 separate sections; these sections are broken down and worked on until each is at least 80 percent or more complete.

Typically, each organizer must also complete an Interagency Biographical Financial Report (IBFR). This can be one of the most difficult sections; it must include each organizer’s personal and financial records for the previous two years and the current year, as well as projected records for the next year. The organizers should be compiling this information while the other sections of the application are being completed.

Phase Three: pre-file and comment letter  

Once the business plan is 80 to 90 percent complete, the organizers schedule a meeting with the regulating agency. At this meeting, the organizers must explain and defend their business plan to the regulators.

After the pre-file meeting, the group fine tunes and completes the business plan and sends it off to the regulating agency. The agency then has 30 days to make comments and request additional information. Once that request is made, the organizers have 30 days to compile the requested data.

Phase Four: Sell stock/capital and open doors

Often, when a bank is being purchased, a substantial amount (greater than 75 percent) of the capital must be raised by the time the application is filed with the regulators. In the current economic environment, regulators only want to approve “sure deals.” They are so busy with all the banking issues, that capital uncertainty is one issue they do not want to worry about in a purchase transaction.

For this reason, the organizing group is typically left with a private placement offering as the simplest way to raise the capital. Often this is done amongst the organizing group plus a few outsiders. The amount of capital required is dependent on the business plan approved. Typically, the regulators will require additional capital above the purchase price of the target bank to ensure that the new business plan has enough capital to succeed.

Once the capital has been transferred to the sellers of the bank, the doors may open “under new ownership.”

This is just a broad overview of the bank purchase process; each deal has unique circumstances that must be addressed. These circumstances could be legal in nature and involve counsel. Others are small details that can be easily overlooked by organizers. De Novo Strategy, Inc. has the experience and dedication to make the bank purchase project a reality and to help with every step.

The FDIC first began using loss-sharing arrangements in 1991, as the agency managed its way through the S&L crisis. Community banks benefited from these arrangements. These arrangements are associated with purchase and assumption agreements that transfer a failed bank's assets from the FDIC to a healthy bank. In the aftermath of the 2008 financial crisis, the loss-sharing arrangement has made a dramatic return to the forefront.

Under a simple loss-sharing deal, the FDIC might agree to absorb 80 percent of the losses associated with a specific pool of non-performing loans that the healthy bank acquires in the transaction. The healthy bank would absorb the first 20 percent of losses arising from that loan book. The FDIC's liability to share in these losses would last for a stated time period, such as three, five or seven years. There would be additional terms governing the deal-including maximum aggregate losses incurred by the healthy bank, FDIC reimbursement of net charge-offs of  shared loss assets, etc.

A proven strategy

Between September of 1991 and January of 1993, the FDIC made loss-sharing arrangements in connection with 24 bank failures. The aggregate value of assets covered by those arrangements was approximately $18.5 billion. After the fact, the FDIC compared the costs of purchase agreements made with and without loss-share arrangements. The agency concluded that loss-share transactions were less expensive than the conventional purchase and assumption agreements, for both large and small banks. http://www.fdic.gov/bank/historical/managing/history1-07.pdf

Besides reduced resolution costs, there are other advantages associated with loss sharing, including:

Greater incentive for the healthy bank to acquire more than just the failed bank's deposits

• Fewer disruptions for loan customers
• Fewer assets being absorbed and subsequently managed/liquidated by the FDIC 
• Fewer assets being removed from the private sector

FDIC loss-share arrangements have been called a win/win, but they are not without risks. The problem assets may be a distraction to the new management team, even if the potential for financial losses is limited. Where there is no loss-share agreement, the healthy bank takes only the deposits, thus beginning operations with a clean slate.

Today's crisis

In the first seven months of 2009, the FDIC has used loss share in at least 36 out of 64 bank failures. The aggregate value of assets covered by these arrangements is roughly $20 billion. Among the largest 2009 transactions are:

BankUnited FSB, $10.7 billion covered by loss-sharing

• Security Bank of Jones, $1.6 billion covered by loss-sharing
• Vineyard Bank, $1.5 billion covered by loss-sharing
• Temecula Valley Bank, $1.5 billion covered by loss-sharing

A complete list of 2009 bank failures, along with links to the associated Purchase and Assumption agreements is available here: http://www.fdic.gov/bank/individual/failed/banklist.html

Bank Regulators Solicit Comments on Proposed Liquidity Risk Managements

The U.S. federal bank regulators (OCC, FRB, FDIC, OTS) along with the National Credit Union Association (NCUA) have collectively produced a set of guidelines regarding liquidity risk management for financial institutions. The agencies are soliciting public comments on these guidelines through September 4.

The proposed guidelines define a framework for the identification, measurement and monitoring of funding and liquidity risk; they include specific recommendations for:

• corporate governance
• risk mitigation
• management of intraday liquidity

The responsibility of board members

Under the proposed guidelines, an institution's board members are ultimately responsible for managing liquidity risk. The board must therefore establish an appropriate level of risk tolerance for the institution, and then communicate that risk tolerance profile to the internal management team. At least annually, the board should revisit the liquidity strategy to ensure that:

• current liquidity risks are understood
• the liquidity policy is still relevant and appropriate
• the policy is being enforced
• it is clear internally which senior managers are responsible for making liquidity risk decisions

Key aspects of an institution's liquidity plan

The institution's liquidity management plan should:

• be appropriate given the complexity of the institution's structure and activities
• identify primary funding sources, both for daily needs and seasonal or cyclical needs
• define acceptable liquidity strategies, both for expected and unexpected business scenarios
• address liquidity management in terms of separate currencies and/or business lines, where appropriate
• address how the liquidity management practices dovetail with broader business strategies and contingency planning

The plan should establish liquidity projection assumptions and a periodic review process, to ensure that those assumptions continue to be valid over time. Qualitative targets and quantitative objectives should be clearly defined. Examples include:

• Unpledged liquid asset reserve targets
• Funding diversification targets
• Contingent liability exposures
• Desired asset concentrations
• Activity exposures
• Targeted level of unencumbered assets to serve as liquidity cushion

The guidelines also recommend that senior managers receive liquidity reports at least monthly, or more often when economic conditions are severe. Board members should be evaluating the institution's liquidity position at least quarterly.

It is also advised that complex institutions make efforts to build liquidity costs into internal product pricing and performance measurement.

Risk measurement and reporting

Institutions are expected to measure ongoing liquidity risk with short- and long-term cash flow projections that consider both on- and off-balance sheet items. As part of this process, the institution should have measures in place to ensure the appropriate valuation of assets. Other key components of an appropriate liquidity monitoring strategy include:

• regular stress testing
• collateral position management
• procedures to monitor liquidity across business lines and legal entities
• procedures to monitor and manage intraday liquidity position

The report also addresses liquidity risk management practices for holding companies. Read the Proposed Interagency Guidance here and (http://www.fdic.gov/news/news/press/2009/pr09107a.pdf ) let us know what you think. Are these recommended procedures detailed enough to head off unexpected liquidity crises when economic conditions sour? Have the agencies overlooked key liquidity management tactics? Or are these guidelines too much?

Given the large number of bank failures over the last 18 months, the FDIC is seeing increased interest from would-be investors interested in purchasing depository assets of the failed institutions. Concern has risen at the regulatory level about whether these new bank owners and investors have the qualifications necessary to keep the acquired assets from returning to the failed assets pool. That concern has led the FDIC to issue a proposed policy statement that would, if adopted, establish a new set of qualifications for investment groups intending to purchase failed bank assets. 

The proposed standards address the following topics:

• Ownership structure
• Capital levels
• Cross guarantees
• Affiliate transactions
• Continuity of ownership
• Secrecy law jurisdictions
• Limitations on the existing owners of the failed institution
• Disclosure requirements

Key measures of the proposal

1. Silo structures will not be deemed eligible for bidding.
2. A Tier 1 leverage ratio of 15 percent is required and must be maintained for three years. After that, the institution must remain "well capitalized."
3. The holding company must agree to sell stock or engage in capital qualifying borrowing to support the depository institution.
4. Investors with interests in more than one FDIC-insured institution have to pledge to the FDIC their proportionate interests in each institution.
5. Loans to investors or investors' affiliates would be prohibited.
6. Investors would have to retain ownership in the institution for at least three years. The FDIC can approve exceptions.
7. Ownership structures involving entities domiciled in bank secrecy jurisdictions will not be eligible bidders.
8. Investors owning 10 percent or more of the failed institution will not be eligible bidders.
9. Investors will have to disclose to the FDIC information pertaining to the size and composition of capital funds, the business plan, the management team, etc.

Bidders subject to proposed rules

Under the current proposal, these rules would only be applicable to certain types of bank acquirers, namely:

• Private capital investors attempting to take ownership of deposit liabilities that are currently in receivership
• De novo institutions applying for FDIC insurance in association with "the resolution of failed insurance depository institutions" 

Balancing capital needs with prudence

While the FDIC is conscious of the need to qualify bidders, regulators are also concerned about placing too many limitations on the inflow of new capital into the banking system. The banking system needs private investor capital. Are these proposed rules going to inhibit the flow of that new capital? Or will the new standards deliver the right amount of prudence? Feel free to sound off!

Read the full FDIC statement here: http://www.thefederalregister.com/d.p/2009-07-09-E9-16077 The proposal policy statement is open for public comments until early-August.

Last week, we addressed the FFIEC’s 2009 list of distressed and underserved communities in the context of identifying geographies appropriate for bank acquisitions. This week, we’ll look at how the composition of that list has changed between 2005 and 2009, and what that might mean for bank acquirers.

The chart below shows the ten states with the highest number of distressed or underserved counties in 2009, along with the data from 2008 through 2005 for those same states. To clarify, the FFIEC list identifies specific community tracts and the counties in which those tracts are located. The data below represents the number of counties in each state that have one or more distressed or underserved community tracts.

 

 

 

As the chart indicates, several of these states show relatively small changes over the five-year time period. Texas, Georgia, Mississippi, Missouri, Arkansas and Oklahoma show an increased number of counties in 2008 and 2009 compared to prior years. The data from Nebraska, Kentucky and Kansas, however, have remained almost flat.

Obviously, we don’t have the data here to understand why these particular states routinely have distressed or underserved community tracts in more counties than other states. But, since the composition of these “top ten” hasn’t changed much in five years, it’s probably safe to say the banking community hasn’t found an effective and sustainable means of serving many of these communities.

The 2009 data reports that in Texas alone, there are 335 distressed or underserved tracts, spread out among 126 counties. Among those tracts, poverty is the most pervasive problem; 173 tracts are designated as impoverished, while 120 have suffered from population loss. Another 85 tracts are in remote rural locations. Only five of the tracts have a noted unemployment problem. (Some tracts fall into more than one of these categories).  

In 2005, Texas had 258 distressed or underserved tracts among 109 counties; 125 of the tracts were designated as impoverished, 120 had experienced population loss, and 85 were in remote locations. Twenty-six tracts had problems with unemployment. The change from 2005 to 2009 in Texas’ data looks to be largely driven by an increase in the number of poverty-stricken communities.

Residents of poor, shrinking and/or remote communities aren’t the ideal “target” for most banks. But the conventional school of thought supports the notion that these customers do offer opportunity for banks. They can be weaned onto starter banking services and eventually converted into more sophisticated banking customers.

A bank acquisition team that addresses these customer segments early in the strategic planning process can devote the resources necessary to gain a foothold in underserved areas. That foothold can then develop into a strong competitive advantage, as residents and businesses benefit from the financial support of a community-oriented bank.

For additional reading on addressed underserved communities, see:

•    Dryades Savings Bank Case Study http://www.cdars.com/_docs/case-study-dryades.pdf
•    FDIC Advisory Committee on Economic Inclusion http://www.fdic.gov/about/comein/agendaFeb52009.html
•    Reaching Underserved Borrower Prospects: A Case Of A Small Rural Bank http://www.cluteinstitute-onlinejournals.com/PDFs/200632.pdf

In June, the Federal Financial Institutions Examination Council (FFIEC) released its 2009 list of middle-income, non-metropolitan community tracts that are distressed or underserved by the banking community. Banks that serve these communities can receive community development loan credits under the Community Reinvestment Act (CRA).

Prospective bank buyers could use the FFIEC list to identify geographic areas where competition is limited. The industry considers moderate-income and underserved communities to be one of the richest areas of opportunity, but has long struggled to reach those potential customers effectively. A comprehensive community development plan in the right geography could be one method of tapping that potential. Under the right circumstances, the bank has the opportunity to team with community leaders to spearhead economic development that will benefit local residents, businesses and the bank itself.

A strategy to acquire a bank with the intention of serving distressed or underserved markets could involve relocating the acquired institution to the targeted area. In the current regulatory environment, this process could be simpler than attempting to open a new bank. Another option would be to target acquisitions that could be expanded into the distressed/underserved areas with new branches.

Composition of the distressed/underserved list

The 2009 list contains about 4400 community tracts spread out across the U.S., including Puerto Rico, U.S. Virgin Islands, Guam, American Samoa and Northern Mariana Islands. The factors influencing the distressed and/or underserved designation include employment trends, poverty, population loss and distance from nearest urban area.

The chart included shows that these tracts are not evenly distributed throughout the country. In fact the state of Texas has more than its relative share, with distressed or underserved tracts located in 126 different counties. Georgia follows, with distressed or underserved tracts in 70 different counties. Mississippi and Kansas have more than 50, while Kentucky, Michigan and Nebraska each have 45 or more.

With the exception of Georgia, these top 12 are concentrated in the central U.S.—which begs some interesting strategic questions. Are these areas currently underserved because existing banks haven’t found a way to serve these communities profitably? Could a forward-thinking organization group create a viable plan to develop a new bank acquisition into a profitable, regional network of branches, with the products and services that would appeal to consumers in these areas? Are these communities underserved because the local economies have been particularly hard hit by the recession, or have they long been overlooked by banking institutions?

Top 12 states with the most underserved or distressed counties

Texas               126    
Georgia             70    
Mississippi         56    
Kansas              55    
Kentucky           49    
Michigan            48    
Nebraska           45    
Missouri             44    
Arkansas           41    
South Dakota    41    
Oklahoma          41    
Montana            41