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Distressed, Underserved Communities Represent Opportunity for Prospective Bank Buyers

Posted by Wendell Brock on Thu, Jul 02, 2009

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   

Topics: Bank Buyers, bank aquisition, banking opportunity, underserved tracts, distressed counties

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