This article first appeared in the St. Louis Beacon, March 24, 2011 - Citing gaps in Midwest BankCentre's lending to low- and moderate-income borrowers, federal regulators have given the St. Louis institution an overall "needs to improve" rating in its Community Reinvestment Act (CRA) performance evaluation that was made public this week.
The bank scored a "low satisfactory" rating in two of three areas of its fair lending review -- the investment test and the service test -- and a "needs to improve" in the lending test, which is weighted more heavily by regulators. The full report is available on the Federal Reserve's website.
An overall "needs to improve" rating is seldom given. A search of the Fed's CRA database turned up four such ratings to Missouri banks since 1990; the three previous were given to banks in 1990 and 1991.
Banks undergo regular evaluations by the Federal Reserve to determine whether they are in compliance with fair lending laws. The reports evaluate an institution's record of meeting the credit needs of the communities it serves, including low- and moderate-income neighborhoods. Midwest BankCentre had a "satisfactory" rating in 2007, the last time it was reviewed.
Ron Barnes, chairman of Midwest BankCentre, said in a statement released Thursday that the bank's lending and banking policies and practices have always been designed to comply with laws and regulations.
"While it is important to point out that the findings in this performance evaluation involve activities from three and four years ago, the tough economy has had a significant impact on the ability to access credit for many people in our area," Barnes said in the statement. "Because of that, we recognize that more needs to be done to help address the economic challenges facing communities within the St. Louis region."
Barnes said the bank has taken steps to make it easier for potential customers to access branch locations and has worked to forge community partnerships, support neighborhood improvement programs and broaden credit assistance in underserved communities.
The statement listed steps the bank has taken, including plans for a new full-service branch in Pagedale in partnership with Beyond Housing, a nonprofit agency that provides housing and support services to low-income families. If approved by regulators, it would be the first bank branch ever located in Pagedale, a traditionally underserved area.
In October 2009, housing and community advocates with the St. Louis Equal Housing and Community Reinvestment Alliance accused Midwest BankCentre of failing to provide equal access to African-Americans in a public comment letter filed with the St. Louis Federal Reserve in advance of the CRA review.
The "needs to improve" evaluation is striking because regulators so rarely give it -- locally or nationally, said Mira Tanna, assistant director of the Metropolitan St. Louis Equal Housing Opportunity Council, an alliance member.
"On the one hand I would say this is a confirmation of our criticism of the bank's fair lending record, so it is positive in my mind that their regulator is scrutinizing their lending activities in terms of the Equal Credit Opportunity Act and the Fair Housing Act and the Community Reinvestment Act," she said.
But Tanna pointed out that the evaluation reflects the bank's previous record and not its recent actions, such as its decision to open a branch in Pagedale.
"We're beginning to see that the bank is diversifying staff, gaining contacts and is more connected with low- and moderate-income and minority communities," Tanna said. "I have great hope that they can begin to do something really positive within African-American communities, specifically."
Bank Cites Steps It is Taking
Midwest BankCentre, founded in 1906 as Lemay Bank and Trust Company, has $1 billion in deposits and seven full-service locations in St. Louis, Jefferson County and St. Charles County. The bank also has four partial-service locations in Garden Villa nursing homes.
The Fed report noted that Midwest BankCentre opened a branch in Rockford, Ill., in March 2008. The Illinois assessment area was also rated "needs to improve."
The current CRA review, which started in November 2009, looked at the bank's lending activities from Jan. 1, 2007 through Dec. 31, 2008.
In a summary of key points, the report noted areas of adequate service, as well as those needing improvement. According to the report:
- The geographic distribution of loans reflects poor penetration throughout the assessment areas, as evidenced by disproportionally low levels of lending to borrowers in low- and moderate-income (LMI) geographies and conspicuous lending gaps in LMI areas.
- Substantive violations of the Equal Credit Opportunity Act and the Fair Housing Act also influenced the bank's overall rating of Needs to Improve.
- The bank's delivery systems are unreasonably inaccessible due to portions of the assessment areas (particularly LMI areas) being underserved by the bank, based on limited use of alternative systems and a branch structure favoring middle- and upper-income areas.
On the plus side, the report noted:
- The distribution of loans by borrower's income/revenue profile reflects an adequate penetration among individuals of different income levels, including LMI levels, and businesses of different sizes.
- Overall, the bank has an adequate level of qualified community development loans.
- The bank's lending activity reflects adequate responsiveness to the credit needs of its designated assessment areas.
- A substantial majority of the bank's lending occurred inside its designated assessment areas.
- The bank's overall level of community development investment and grant activity was adequate.
In his statement Thursday, Barnes cited additional steps the bank is taking to meet the needs of area communities, including the creation of an affordable, home-improvement loan product to allow homeowners in low- and moderate-income neighborhoods to maintain and repair their homes at affordable rates.
The statement also noted that the bank serves on the steering committee of the St. Louis Regional Unbanked Task Force of the Federal Deposit Insurance Corporation and is working with community organizations that focus their efforts on affordable housing, strengthening communities and financial education.
"Throughout our 105 year history, the St. Louis area has been very good to Midwest BankCentre and our people," Barnes said. "We always have worked toward improving the communities in which we operate. So, we are committed to doing all that we can to support the people and communities of our region during these difficult times."
Community Alliance Issued a Challenge in 2009
Tanna said the alliance is waiting to hear more about the bank's plans in response to the criticisms of its fair lending efforts, but she commended the bank for taking positive steps, including its work with Beyond Housing. Chris Krehmeyer, the president and CEO of Beyond Housing, was recently appointed to the bank's board of directors.
"I think that kind of partnership with a nonprofit organization that has expertise working with moderate-income neighborhoods is critical," Tanna said.
The alliance was formed in the summer of 2009 and currently lists 15 member organizations on its website. Among them: the Community Action Agency of St. Louis County; the Citizens Coalition to Fight Eminent Domain Abuse; the Human Development Corporation; Justine Petersen; Lemay Housing Partnership; the NAACP St. Louis; Red Brick Community Land Trust and the Wellston Community Support Association.
Tanna said the alliance would continue to study banks coming up for CRA evaluations and would use public comment letters as a tool to focus public attention on their lending activities.
"Our goal is not to embarrass or humiliate banks," Tanna said. "We're actually a great champion of banks because we think that banks do a better job of providing equitable credit, and they are more heavily regulated and scrutinized than other financial institutions."
Those "other" institutions include high-interest payday loans or car title loan companies that have concentrated on low-income and minority neighborhoods where banks have had little or no presence, Tanna said.
"We would like consumers to use banks, and we would also like banks to make sure that they have the products and services and that they're doing a lot more than they have been in the past to reach out to low- and moderate-income communities, and minority communities and borrowers," she said.
In its public comment letter, the alliance had cited data collected under the Home Mortgage Disclosure Act that it said showed that Midwest BankCentre did not approve a home loan to a black borrower in five years -- from 2004 to 2008. By contrast, the bank approved 355 loans to white borrowers in three years, from 2006 to 2008.
In addition, the Metropolitan St. Louis Equal Housing Opportunity Council said it had conducted a test of the bank that showed that black and white borrowers appeared to be treated differently because of their race.
Tanna said the alliance took action against Midwest BankCentre because of timing -- the lender was undergoing its regular performance review -- but also because of its practices.
Midwest BankCentre denied the charges made by the alliance in its public comment letter.
"It has been and continues to be our policy to comply fully with the Community Reinvestment Act, the Equal Credit Opportunity Act and the Fair Housing Act. We do not tolerate discrimination on the basis of race, color or national origin," Barnes said in a statement in October 2009.
