PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE October 27, 2003 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION First Financial Bank RSSD # North Washington El Dorado, Arkansas Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri NOTE: This document is an evaluation of this institution s record of meeting the credit needs of its entire community, including low- and moderateincome 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 the 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.

2 TABLE OF CONTENTS I. Institution Rating a. Institution s CRA Rating...1 b. Table of Performance Test Ratings...1 c. Summary of Major Factors Supporting Rating...1 II. Institution a. Description of Institution...2 b. Scope of Examination...7 c. Conclusions with Respect to Performance Tests...7 III. Appendices a. CRA Appendix A. Scope of Examination b. CRA Appendix B. Assessment Area c. CRA Appendix C. Glossary... 25

3 INSTITUTION S CRA RATING INSTITUTION S CRA RATING: First Financial Bank is rated SATISFACTORY. The following table indicates the performance level of First Financial Bank with respect to the lending, investment, and service tests. PERFORMANCE LEVELS First Financial Bank PERFORMANCE TESTS Lending Test 1 Investment Test Service Test Outstanding High Satisfactory Low Satisfactory X X X Needs to Improve Substantial Noncompliance First Financial Bank meets the criteria for a satisfactory overall rating. The rating is based upon an analysis of the bank s lending performance, level of qualified investments, and retail and community development services. An analysis of the bank s performance under the lending test revealed adequate responsiveness to assessment area credit needs. The geographic dispersion of loans reflects acceptable penetration throughout the bank s assessment area. Similarly, the distribution of loans among retail and business customers reflects sufficient penetration among individuals of different income levels and businesses of various sizes. Lending levels, as reflected by the bank s average loan-to-deposit ratio, reflect good responsiveness to assessment area credit needs, considering the bank s financial resources and the performance of other local financial institutions. In addition, the bank makes an acceptable level of community development loans. However, the bank did not meet the standards for satisfactory performance for lending within the assessment area. Specifically, only 21.6 percent of the loans reviewed were extended within the bank s assessment area. Finally, no complaints have been received relating to the bank s CRA performance. The bank s performance under the investment test indicates only a marginally adequate performance level. Although, the bank did not have any qualified investments, it did make contributions to community development organizations and agencies that benefit low- or 1 Note: The lending test is weighted more heavily than the investment and service tests when arriving at an overall rating. 1

4 moderate-income (LMI) individuals. These donations addressed the core financial needs identified within the bank s assessment area. Finally, the bank s performance under the service test is also considered to be low satisfactory. Delivery systems are readily accessible to all portions of the bank s assessment area. The bank s record of opening and closing branches since the previous examination has not adversely affected the accessibility of its delivery systems, particularly to LMI geographies and individuals. The bank s business hours and services do not vary in a way that inconvenience portions of the assessment area. In addition, sufficient levels of community development services are provided. DESCRIPTION OF INSTITUTION First Financial Bank is a $465.4 million, 2 full-service, retail bank, offering a wide range of consumer, agricultural, and commercial loan and deposit products. The bank is a wholly owned subsidiary of First Financial Banc Corporation, a one-bank holding company. The bank serves one market, which consists of Union County, in southern Arkansas. The bank s headquarters is located in the city of El Dorado, the county seat of Union County and has five branch offices in Union County. 3 In addition to this branch structure, the bank owns and operates five automated teller machines (ATMs) in Union County. The institution also has mortgage loan production offices located in Little Rock, North Little Rock, Jonesboro, and Fayetteville, Arkansas. The bank has agricultural loan production offices in Arkansas, Texas, Kentucky, Alabama, and Mississippi. 4 The bank has the ability to meet the credit needs of its defined assessment area based on the bank s asset size, financial condition, and other resources. As of June 30, 2003, total loans and leases represented 81.6 percent of total assets. The bank s allocation of loan assets, by category, is displayed in the following table. 2 Total Assets as of June 30, See Appendix A for a complete listing of bank branches by location. 4 El Dorado, Fayetteville, Morrilton, and Mena, Arkansas; Nacogdoches, Texas; Elizabethtown, Kentucky; Enterprise, Alabama; and Carthage, Mississippi 2

5 Distribution of Total Loans 5 Credit Product Type Amount in $000s Percentage of Total Loans Construction and Development $9, % Commercial Real Estate $17, % Multifamily Residential $ % 1-4 Family Residential $36, % Farmland $287, % Farm Loans $3, % Commercial and Industrial $14, % Loans to Individuals $9, % Total Other Loans $0 0.0% $379, % 6 As part of the CRA assessment, the bank s performance was evaluated in relation to the performance of its competitors. Three financial institutions were identified as regional competitors with asset sizes ranging from $96.5 million to $183.2 million. The bank s assessment area is comprised of all of Union County. Union County is located in the south central portion of the state of Arkansas and is not part of a metropolitan statistical area (MSA). Using 2000 census data, 7 the bank s assessment area is comprised of 10 census tracts, with a total population of 45,629. The following table reflects the number and population of geographies within the assessment area in each income category. 8 5 For purposes of this table, total loan information is derived from gross loans and leases data reported on the Consolidated Report of Condition and Income as of June 30, Any percentage row or column figure displayed throughout this evaluation that does not equal exa ctly 100 percent is strictly due to rounding differences, which are considered immaterial to overall performance conclusions. 7 The report analyzed lending activity using both the 1990 and 2000 census data. The bank reports CRA data (small business and farm loans) and the 2002 CRA data was analyzed in the report. This CRA lending was compared to the 1990 census data. A review was also performed of year-to-date lending for residential and consumer loans. This lending activity was compared to the 2000 census data. Since the bank is not a HMDA reporter, residential and consumer loan data was obtained from internal bank reports. 8 See Glossary for income definitions. 3

6 Assessment Area Geographical Information by Income Category 1990 Census Data Low- Moderate- Middle- Uppe r- Assessment Area Geographies 0.0% 10.0% 40.0% 50.0% 100% Family Population ,692 7,355 12, % 7.2% 36.1% 56.6% 100% As the previous table illustrates, according to the 1990 census data the bank s assessment area included one moderate-income geography. A majority of the geographies (9 out of 10) were middle- and upper-income, and comprised 92.7 percent of the population. Only 7.2 percent of the assessment area population resided in the moderate-income geography. This same census data revealed the median family income for the assessment area to be $26,366, and the median family income for the non-msa for Arkansas to be $22,208. Changes were made to the assessment area composition following the 2000 census. Based on this data, the assessment area still consisted of 10 census tracts. However, as depicted in the table below, the bank s assessment area now contains one moderate-, six middle-, and three upper-income geographies. According to the 2000 census data, the median family income for the assessment area was $37,135, and the median family income for the non-msa Arkansas was $34,709. HUD estimates the 2002 non-msa Arkansas median family income to be $34,200. Assessment Area Geographical Information by Income Category 2000 Census Data Low- Moderate- Middle- Upper- Assessment Area Geographies 0.0% 10.0% 60.0% 30.0% 100% Family Population 0 1,400 6,958 4,433 12, % 10.9% 54.4% 34.7% 100% The following table displays population percentages of the assessment area families by income level, compared to the non-msa Arkansas population using 1990 data. 4

7 Assessment Area Family Population by Income Level 1990 Census Data Low- Moderate- Middle- Upper- Assessment Area Non-MSA: Arkansas 2,552 1,872 2,295 6,268 12, % 14.4% 17.7% 48.3% 100% 75,923 61,938 74, , , % 17.6% 21.1% 39.7% 100% As shown in the preceding table using 1990 census data, the income level of the assessment area families is similar to that of the non-msa portion of the state. Of the assessment area families, 34.1 percent are LMI. In comparison, 39.1 percent of the families in the non-msa portions of the state are considered LMI. Using 2000 census data, 36.7 percent of the assessment area population are LMI. In comparison, 37.3 percent of the families in the non-msa in the state are considered LMI. This correlation is similar to that for 1990 census data, as noted above. Assessment Area Family Population by Income Level 2000 Census Data Low- Moderate- Middle- Upper- Assessment Area Non-MSA: Arkansas 2,674 2,022 2,543 5,552 12, % 15.8% 19.9% 43.4% 100% 77,308 67,991 83, , , % 17.9% 22.0% 39.7% 100% Union County is one of 75 counties in Arkansas. Its July 1, 2002 population of 45,279 ranked 16 th in the State. 9 The employment base is relatively diversified and consists of the poultry, timber, and light manufacturing industries. The following industries are the largest in the county in terms of the total numbers of people employed (in 2000): manufacturing (24.7 percent); education, health, and social services (20.5 percent); and retail trade (11.2 percent). For the year 2002, the unemployment rate for Union County was 5.6 percent (non-seasonally adjusted), slightly above that of the state of Arkansas (5.4 percent non-seasonally adjusted). Two community contact interviews were conducted in Union County as part of this evaluation. In general, both contacts, a realtor and a member of a local business organization, characterized the local economy as reasonably strong. However, both acknowledged that economic conditions 9 Source: data from the U.S. Census Bureau. 5

8 had slowed as a result of the September 11, 2001 incident. The impact of the economic slowdown was minimized as a result of the construction of a major merchant power plant north of the city, which cost approximately $2.1 billion. One contact indicated that this project brought in approximately 2,000 temporary construction and construction-related jobs to the city. As the project was recently completed, the area has experienced a slight decrease in economic activity. The temporary workers previously filled local motels, restaurants, and local retail establishments. Homebuilding activities are generally concentrated in homes in the higher price ranges. The realtor stated that rental properties were amply available in the city of El Dorado. However, the availability of homeownership for LMI families was a noted concern. One contact did acknowledge First Financial Bank as being a leader in the community for housing development targeted to LMI families through its strong participation in Habitat for Humanity. SCOPE OF EXAMINATION The bank s performance was evaluated for the calendar years 2002 and Given their significance in the bank s portfolio and the impact on communities the bank serves, residential real estate, consumer, small farm and small business loans were evaluated. Residential real estate loans included home purchase, home improvement, refinance, and multifamily housing loans. Small business/small farm loans are loans that are made to businesses/farms with gross annual revenues of $1 million or less. In total, these loans comprise the bank s primary lines of business and are, therefore, indicative of the bank s overall lending performance. The loan data was used to evaluate the bank s lending volume; geographic distribution among areas with different income characteristics; distribution of lending by borrower income, and business and farm characteristics. Furthermore, qualified community development investments and retail and community development services were considered. There are no legal impediments or financial constraints that would hinder the bank from serving the credit needs within its delineated assessment areas. As indicated earlier, two community contacts were performed in order to establish a context for the communities in which the bank operates and to solicit information on the bank s performance. Specific comments from the community contacts are addressed in the applicable section relating to the affected assessment areas. CONCLUSIONS WITH RESPECT TO THE PERFORMANCE TESTS During the Consumer Affairs Examination conducted concurrently with this CRA evaluation, a fair lending analysis was performed to assess the bank s compliance under Regulation B (Equal Credit Opportunity) and the Fair Housing Act. The analysis concluded that the bank is in compliance with the substantive provisions of the antidiscrimination laws and regulations for the products and services reviewed. No CRA-related complaints were received for this institution during the time frame used for this evaluation (October 29, 2001 through October 27, 2003). 6

9 LENDING TEST The bank meets the standards for a low satisfactory rating under the lending performance test. An analysis of the geographic dispersion of loans reflects adequate penetration throughout the bank s assessment area. However, only 21.6 percent of all lending activity reviewed was located inside the bank s assessment area. The distribution of loans among retail customers reflects sufficient penetration among individuals of different income levels and businesses of various sizes. Lending levels reflect good responsiveness to assessment area credit needs, considering the bank s financial resources and the performance of other local financial institutions. In addition, the bank has made a concerted effort to originate community development loans and to make use of innovative and/or flexible lending practices whenever possible in serving assessment area credit needs. Lending Activity: One indication of the bank s overall level of lending activity is its loan-to-deposit (LTD) ratio. The table below displays the bank s average LTD ratio in comparison to that of its regional competitors. LTD Ratio Analysis Name Asset Size 10 Headquarters Average LTD Ratio 11 First Financial Bank $465.4 El Dorado, AR 96.3 % Regional Bank Competitors $183.2 El Dorado, AR 73.6% $131.8 Smackover, AR 82.9% $ 96.5 El Dorado, Ark. 90.6% For the previous seven quarters (reported from December 31, 2001, to June 30, 2003), the bank has maintained an average LTD ratio of 96.3 percent. In comparison, the LTD ratios of the bank s three primary competitors ranged from 73.6 percent to 90.6 percent. The average LTD ratio for all the banks, excluding First Financial Bank, is 82.4 percent. First Financial Bank s ratio is satisfactory when compared to the average of each individual competitor, and is considered reasonable when compared to the three-bank average LTD ratio. Assessment Area Concentration: The following table identifies by loan type, the number, dollar volume, and percentage of loans originated inside the bank s assessment area. 10 These amounts represent total asset figures as of June 30, 2003 (in $000s). 11 The average LTD ratio represents an seven-quarter average, dating back to the bank s last CRA evaluation. 7

10 Lending Inside and Outside of Assessment Area Loan Type Residential Lending Consumer Lending Inside Assessment Area Outside Assessment Area % 85.3% 100% $ 13,927 $ 106,741 $ 120, % 88.5% 100% % 11.9% 100% $ 3,176 $ 489 $ 3, % 13.3% 100% , % 69.7% 100% $ 17,103 $ 107,230 $ 124, % 86.2% 100% The bank did not meet the standard for satisfactory performance for this performance criterion. Of the 1,266 residential real estate and consumer loans reviewed, 384, or 30.3 percent (13.8 percent by dollar volume), were originated within the assessment area. Further analysis reveals that only 14.7 percent of residential real estate loans were made inside the assessment area. However, 88.1 percent of consumer loans were made within the assessment area. The low percentage of real estate loans within the assessment area is not an indication that the bank is not serving the needs of its community; rather, it is more a reflection of the bank s origination of loans from more active real estate markets. The bank s low level of lending within the assessment area is a result of the bank having loan production offices located outside of its assessment area. These loan production offices are located in larger and more economically vibrant areas. As a result, it is reasonable to expect that those loan offices would make more real estate loans. 8

11 Lending Inside and Outside of Assessment Area Loan Type Small Business 2002 Small Farm 2002 Inside Assessment Area Outside Assessment Area % 9.5% 100% $ 8,179 $ 1,393 $ 9, % 14.6% 100% 18 1,049 1, % 98.3% 100% $ 1,583 $ 104,312 $ 105, % 98.5% 100% 151 1,063 1, % 87.6% 100% $ 9,762 $ 105,705 $ 115, % 91.5% 100% Similar to residential real estate lending, the bank s level of lending within the assessment area for small farm loans is low. Of the 1,067 small farm loans originated by the bank, only 18 (or 1.7 percent) were made to small farms within the assessment area. The bank did fair better with small business lending within the assessment area. Of the 147 small business loans made by the bank, 133 (or 90.5 percent) were originated within the assessment area. The low percentage of farm loans within the assessment area is not an indication that the bank is not serving the farming needs of its community; rather, it is more reflective of the bank s origination of loans from more active agricultural areas. The county s primary farming operations consist of timber and poultry, and these are large operations. The bank s low level of farm lending within the assessment area is a result of the bank having eight farm loan production offices located outside its assessment area, four of which are located in other states and target poultry operations. As a result, it is reasonable to expect that a majority of lending activity would be outside the assessment area. Geographic and Borrower Distribution: The bank s geographic distribution of loans reflects adequate penetration throughout the assessment area. The number and dollar volume of the bank s residential real estate (home purchase, home refinance, and home improvement), consumer, small business and small farm loans extended in low-, moderate-, middle-, and upper-income geographies is listed in the following tables. 9

12 Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Residential Lending Owner-Occupied Housing % 5.4% 49.0% 45.6% 100% $ -0- $ 331 $ 6,694 $ 6,902 $ 13, % 2.4% 48.1% 49.6% 100% 0.0% 9.0% 55.8% 35.3% 100% An analysis of lending to LMI geographies indicates that the number of residential real estate housing units in the LMI geographies is somewhat consistent with the population percentages used for comparison. Overall, the bank originated 5.4 percent of residential real estate loans in LMI geographies (2.4 percent by dollar amount), while 9.0 percent of the assessment area owner-occupied housing units are located in these geographies. As compared to the aggregate 2001 peer HMDA 12 data for Union County, the bank s residential real estate lending also demonstrates reasonable penetration among LMI geographies. The bank s lending level of 5.4 percent (2.4 percent by dollar volume) in LMI geographies is adequate, when compared to the market aggregate of 6.1 percent (5.0 percent by dollar volume). It is important to note that a community contact stated that residential development in the assessment area is focused on high-end housing, which indicates that there is less opportunity for residential lending in the moderate-income geography. Nevertheless, the distribution of real estate lending closely approximates the market aggregate in LMI geographies. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper- Consumer Lending Household Population % 4.2% 46.8% 49.0% 100% $ -0- $ 46 $ 1,348 $ 1,782 $ 3, % 1.5% 42.4% 56.1% 100% 0.0% 11.2% 53.6% 35.2% 100.0% 12 HMDA Aggregate Data represent all lending activity collected and reported under the HMDA for this assessment area, based upon all financial institutions required to report such data (less the subject bank if applicable). 10

13 Consumer lending in the LMI geography is low and is not reasonable. The bank made 4.2 percent of its consumer loans in the moderate-income geography, and 1.5 percent by dollar volume. This does not compare favorably to the geography household population of 11.2 percent. While 23.6 percent of households in this geography are below the poverty level and 18.2 percent of the households receive some form of public assistance, the lending levels within this geography are not reasonable and the bank needs to improve its performance in this area. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Loan Type Small Business 2002 Geography Income Classification Low- Moderate- Middle- Upper % 9.8% 36.1% 54.1% 100% $ -0- $ 612 $ 3,344 $ 4,223 $ 8, % 7.5% 40.9% 51.6% 100% Business Institutions 0.0% 8.5% 30.0% 61.5% 100% The bank s small business lending compares very favorably with the 2000 business aggregate data 13 for the defined assessment area. The bank made 9.8 percent (7.5 percent by dollar volume) of its small business loans 14 in LMI geographies. According to Dun & Bradstreet, 8.5 percent of the reporting small businesses in the assessment are located in LMI geographies. 15 For further comparison, the 2001 CRA aggregate lending figures for this assessment area reflect that 8.7 percent of all small business loans were made to businesses in LMI geographies. Based on these comparisons, the bank meets satisfactory performance standards for geographic distribution of small business loans. Distribution of Loans (Number and Dollar Volume in $000s) Inside Assessment Area by Income Level of Geography Loan Type Small Farm 2002 Geography Income Classification Low- Moderate- Middle- Upper % 0.0% 33.3% 66.7% 100% $ -0- $ -0- $ 259 $ 1,324 $ 1, % 0.0% 16.4% 83.6% 100% Agricultural Institutions 0.0% 7.0% 23.9% 69.0% 100% 13 CRA Aggregate Data represent all lending activity collected and reported under the CRA for this assessment area, based upon all financial institutions required to report such data (less the subject bank if applicable). 14 A small business loan is a loan to a business with gross annual revenues of $1 million or less. 15 Dun & Bradstreet data is based upon information supplied by reporting businesses. The source data used in this report are as of June

14 As illustrated in the previous table, all of the bank s small farm loans were made to farms located in the middle- and upper-income geographies. Since 93.0 percent of the small farms in the assessment area are located in the middle- and upper-income geographies, it is reasonable for the bank to make such a high number of loans in these geographies. For further comparison, the 2001 CRA aggregate lending figures for this assessment area reflect that no farm loans were made to small farms in LMI geographies. Based on these comparisons, the bank meets satisfactory performance standards for geographic distribution of small farm loans. Residential real estate loans were reviewed to determine the level of penetration among borrowers of different income levels. 16 Separately, small business and small farm loans originated by the bank were evaluated for distribution among businesses and farms of various revenue sizes. The table below shows the distribution of residential loans by income level of the borrower. Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Borrower Income Classification Loan Type Residential Lending Family Population Low- Moderate- Middle- Upper % 9.5% 15.6% 73.5% 100% $ 139 $ 761 $ 1,658 $ 11,369 $ 13, % 5.5% 11.9% 81.6% 100% 20.9% 15.8% 19.9% 43.4% 100% As shown in the above table, 10.9 percent of the residential real estate loans were extended to LMI borrowers, which is below the LMI population level of 36.7 percent. When comparing this level of lending to the MSA Aggregate HMDA data for 2001, the bank is also below the aggregate lending level of 19.9 percent, but by a smaller margin. The data indicate that the bank is doing a marginally adequate job originating residential real estate loans to LMI individuals. Poverty is a major factor in the assessment area and therefore a reason for lower levels of lending to LMI families. Census data reports 14.7 percent of the families and 18.5 percent of the households within the assessment area were below the poverty level, as compared to 14.7 percent of the families and 15.8 percent of the households statewide. Families and households below the poverty level find it harder to qualify for home purchase loans or other real estate-secured loans which leads to a lower level of lending to LMI individuals. In addition, community contacts stated that the economy was reasonably strong but that housing construction in the assessment area is generally focused more on higher-priced units. This also limits the ability of LMI borrowers to purchase new housing. Further, there is an ample supply 16 Borrower income is determined by using the income definitions in footnote six, but is based on the 200 Updated Median Family Income figure of $36,615, as made available by the Department of Housing and Urban Development, rather than the 1990 census data. 12

15 of rental properties available for LMI families; however, this may serve as a deterrent to LMI families seeking homeownership. Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Loan Type Consumer Lending Household Population Borrower Income Classification Low- Moderate- Middle- Upper % 12.7% 20.7% 50.6% 100% $ 185 $ 161 $ 526 $ 2,304 $ 3, % 5.1% 16.6% 72.5% 100% 24.6% 14.5% 17.3% 43.6% 100% The table above shows that the bank made 28.7 percent of its consumer loans to LMI borrowers. This is comparable to the LMI population level of 39.1 percent when taking the following additional factors into consideration. The assessment area has 14.7 percent of families below the poverty level and 18.7 percent of the population below the poverty level. In addition, the bank s lending to moderate-income households is closely comparable, 12.7 percent of lending to 14.5 percent household population. The lending to low-income households is not closely comparable but reflects the poverty level of low-income households. Year 1999 poverty status for the assessment area reflects that 21.4 percent of families with related children under 18 years of age are below the poverty level and 27.9 percent of families with related children under age 5 are below the poverty level. These statistics would support the inability of low-income families to qualify for credit. Therefore, the bank s consumer lending among retail customers of different incomes is considered adequate. 13

16 Lending Distribution by Business Revenue Level Gross Revenue $1 Million or Less Greater Than $1 Million Loan Origination Amount (in $000s) <$100 >100<250 >250<1, % 7.6% 1.5% 84.1% $ 2,698 $ 1,656 $ 765 $ 5, % 20.3% 9.4% 62.8% % 4.0% 3.0% 15.9% $ 515 $ 986 $ 1,534 $ 3, % 12.1% 18.8% 37.2% % 12.1% 4.5% 100% $ 3,213 $ 2,642 $ 2,299 $ 8, % 32.4% 28.2% 100% The bank s small business lending for 2002 was analyzed to determine lending by loan size and by business revenue size. For the year analyzed, the bank originated 132 business loans. Of these 132 loans, 111 (84.1 percent) were made to small businesses. In addition, 99 of the 111 loans (75.0 percent) were in amounts of $100,000 or less. When comparing these numbers to the CRA Aggregate Data and the Dun & Bradstreet information, the bank s level of lending compares favorably to the assessment area. The 2001 aggregate data indicate that 65.2 percent of all originated small businesses loans in the area reviewed 17 were to businesses with gross annual revenues of $1 million or less. Based on Dun & Bradstreet data, 91.8 percent of reporting businesses in the assessment area are classified as small businesses. 18 The data indicate that the bank is doing an adequate job originating loans to small businesses. 17 Aggregate data was only available for whole counties. Union County was the county reviewed. 18 Dun & Bradstreet provided the source data. This information is based upon information supplied by reporting businesses. The source data used in this report are as of June

17 Lending Distribution by Farm Revenue Level Gross Revenue $1 Million or Less Greater Than $1 Million Loan Origination Amount (in $000s) <$100 >100<250 >250< % 5.6% 16.7% 100.0% $ 145 $ 229 $ 1,209 $ 1, % 14.5% 76.4% 100.0% % 0.0% 0.0% 0.0% $ -0- $ -0- $ -0- $ % 0.0% 0.0% 0.0% % 5.6% 16.7% 100% $ 145 $ 229 $ 1,209 $ 1, % 14.5% 76.4% 100% The bank s small farm lending for 2002 was analyzed to determine lending by loan size and by farm revenue size. For the year analyzed, the bank originated 18 small farm loans. All 18 loans were made to small farms. In addition, 14 of the 18 loans (77.8 percent) were in amounts of $100,000 or less. When comparing these numbers to the CRA Aggregate Data and the Dun & Bradstreet information, the bank s level of lending compares favorably to the assessment area. The 2001 aggregate data indicate that 100 percent of all originated small farm loans in the area reviewed 19 were to farms with gross annual revenues of $1 million or less. Based on Dun & Bradstreet data, 92.9 percent of reporting farms in the assessment area are classified as small farms. 20 Community Development Lending: First Financial Bank makes an acceptable level of community development loans. 21 Since the last examination, the bank has originated $86,057 in loans to finance LMI housing which stabilizes and revitalizes LMI areas in the city of El Dorado. The bank s community development loans were made to Habitat for Humanity. Habitat for Humanity purchases run-down residential properties in LMI geographies and rehabilitates them, 19 Aggregate data was only available for whole counties. Union County was the county reviewed. 20 Dun & Bradstreet provided the source data. This information is based upon information supplied by reporting businesses. The source data used in this evaluation are as of June Community development under the CRA includes affordable housing for LMI individuals, community services targeted to LMI individuals, activities that promote economic development by financing businesses or farms that have gross annual revenues of $1 million or less, or activities that revitalized or stabilize LMI geographies. 15

18 when feasible, and makes them available to LMI families. The organization also constructs new housing on cleared lots. The bank lends 90.0 percent of the value of each house to Habitat for Humanity at zero percent financing. This type of lending is done in other markets across the country by various lenders; however, First Financial Bank may be the only financial institution that offers zero percent financing to Habitat for Humanity. The bank has committed to lending up to $300,000 under this program, and additional houses are in the planning stage. INVESTMENT TEST The bank is rated low satisfactory under the investment test for large banks. The bank has not made any qualified community development investments. However, the bank has made charitable contributions and grants to organizations that benefit LMI individuals. Since the previous examination, the bank made $15,130 in grants, sponsorships, and donations for projects that have a community development purpose. 22 In total, the bank made the qualified grants to six different organizations throughout the assessment area. These grants and donations varied from need based scholarships to general donations to the United Way and the local hospital. SERVICE TEST The bank is rated low satisfactory under the service test for large banks. The bank s delivery systems are readily accessible to all portions of the bank s assessment area, given the bank s branch network, hours of operation, and loan and deposit products. Further, services do not vary in a way that inconvenience certain portions of the assessment area, particularly LMI individuals. Moreover, the bank provides community development services and the bank s record of closing branches has not adversely affected the accessibility of its delivery systems, particularly to LMI geographies and/or LMI individuals. Retail Services The bank s delivery of retail services is good. Evaluation under this component focuses on the bank s system of delivery, including its distribution of branches, ATM network, and alternative delivery systems. In addition, consideration is given to the reasonableness of the bank s business hours and to retail services offered in meeting the various needs of its assessment area. Finally, the bank s record of opening and closing branches is evaluated to determine the effects of those decisions on the accessibility of the bank s delivery systems, especially as it pertains to LMI geographies and individuals. The bank operates six branch facilities and five ATMs in the assessment area. One branch office is located in the one moderate-income geography within the assessment area. Branch facility business hours in the assessment area are consistent across all branches regardless of the economic characteristics of the area or clientele that they serve. Most branch facilities are closed on Saturdays; however, they generally offer extended hours of operation on Friday evenings. It was also found that the services offered by the bank did not vary 22 Area organizations were aggregated because they were too numerous to list. 16

19 significantly from branch to branch. Overall, the analysis revealed that operations and services do not vary in a way that inconvenience certain portions of the assessment area. The bank offers services tailored to meet the needs of the community, including LMI borrowers. The bank offers standard retail products, including low-cost checking and savings accounts, certificates of deposit, and other services. In addition, bank staff offers assistance to all consumers in completing loan applications. The bank maintains alternate delivery systems designed to meet the needs of the community, including LMI borrowers. A telephone banking line with nationwide, 24-hour availability allows customers to conduct many bank transactions via telephone; customers can get information about deposit and loan accounts, rate information, and transfer funds between deposit accounts. Similarly, customers can access their accounts via the Internet using a service called NetConnect. Community Development Services The second component of consideration under the service test is the bank s level of involvement in qualified community development services. This portion of the service test evaluates the bank s responsiveness and innovation in meeting the needs of LMI individuals and geographies. The bank provides community development services for a variety of organizations and community initiatives. The bank is involved with at least six different organizations that benefit individuals and businesses in LMI communities. The bank s primary focus is to address individuals and community organizations counseling needs, and to provide technical assistance for its financial services area. The following is a listing and description of the more significant community development services and programs offered: Dollars & Sense This program teaches elementary school students about money. Students may open a savings account with the bank crediting an additional dollar to the balance. Students will attend two sessions each month with a bank representative, with the first session devoted to learning about saving, spending, borrowing, and money management, and the second session an opportunity to make deposits. The program was developed jointly between First Financial Bank and Northwest Elementary School. Habitat for Humanity The bank arranged office space for this community housing organization at a below-market rent. Community organizations The bank officers and directors serve on the boards of directors and finance boards of organizations such as the Union County Community Foundation, Chamber of Commerce, South Arkansas Regional Health Center, Single Parent Scholarship Fund, El Dorado Civitan, and the Salvation Army. Review of Complaints No CRA-related complaints were received for this institution during the time frame used for this evaluation (October 29, 2001 through October 27, 2003). 17

20 Appendix A SCOPE OF EXAMINATION Three of the bank s major product lines were reviewed for analysis under the lending test. The loans used in the analysis included the bank s consumer loan data, CRA data regarding small business and small farm loans, and residential real estate loans. Also, the bank was asked to provide information concerning the number and dollar volume of community development loans, the number and dollar volume of qualified community development investments, and retail services including any qualified community development services. The bank has one assessment area, and the bank s activities in this area were reviewed using the large bank examination procedures. TIME PERIOD REVIEWED 2002 and year to date 2003 FINANCIAL INSTITUTION First Financial Bank El Dorado, Arkansas PRODUCTS REVIEWED Consumer Retail Installment (Motor Vehicle, Personal Secured), Residential, and Small Business Small Farm Lending AFFILIATE(S) AFFILIATE PRODUCTS RELATIONSHIP REVIEWED N/A N/A N/A LIST OF ASSESSMENT AREAS AND TYPE OF EXAMINATION ASSESSMENT AREA TYPE OF EXAMINATION BRANCHES VISITED 10 of 10 Block Numbering Areas in Full-Procedures Corporate Union County, Arkansas. Office and Main Street Branches OTHER INFORMATION N/A 18

21 County First Financial Bank Assessment Area Geography Number Geography Income Category Contains Bank Office Union 9501 Middle No Union 9502 Upper No Union 9503 Middle Yes Union 9504 Upper No Union 9505 Upper No Union 9506 Middle No Union 9507 Upper Yes Union 9508 Upper Yes Union 9509 Moderate Yes Union 9510 Middle No 19

22 APPENDIX C GLOSSARY Aggregate lending: The number of loans originated and purchased by all reporting 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. Block numbering area ( BNA ): A statistical subdivision of a county for grouping and numbering blocks in non-metropolitan counties where local census statistical area committees have not established census tracts. A BNA does not cross county lines. Census tract: A small subdivision of metropolitan and other densely populated counties. Census tract boundaries do not cross county lines; however, they may cross the boundaries of metropolitan statistical area. Census tracts usually have between 2,500 and 8,000 persons, and their physical size varies widely depending upon population density. Census tracts are designed to be homogeneous with respect to population characteristics, economic status, and living conditions to allow for statistical comparisons. Community development: Affordable housing (including multifamily rental housing) for lowor moderate-income individuals; community services targeted to low- or moderate-income individuals; activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration s Development Company or Small Business Investment Company programs (13 CFR ) or have gross annual revenues of $1 million or less; or, activities that revitalize or stabilize low- or moderateincome geographies. 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 nonrelatives living with the family. Families are classified by type as either a married-couple family or other family, which 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). Full review: Performance under the lending, investment and service tests is analyzed considering performance context, quantitative factors (for example, geographic distribution, borrower distribution, and total number and dollar amount of investments), and qualitative factors (for example, innovativeness, complexity and responsiveness). 20

23 Geography: A census tract or a block numbering area delineated by the U.S. 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 data such as race, gender and income of applications, amount of loan requested, and disposition of the application (for example, approved, denied, and withdrawn). Home mortgage loans : Includes home purchase and home improvement loans as defined in the HMDA regulation. This definition also includes multifamily (five or more families) dwelling loans, loans for the purchase of 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. Limited review: Performance under the lending, investment and service tests is analyzed using only quantitative factors (for example, geographic distribution, borrower distribution, 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 a 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. Metropolitan area ( MA ): Any primary metropolitan statistical area ( PMSA ), metropolitan statistical area ( MSA ), or consolidated metropolitan statistical area ( CMSA ), as defined by the Office of Management and Budget, with a population of 250,000 or more, and any other area designated as such by the appropriate federal financial supervisory agency. 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 percent and less than 120 percent, in the case of a 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 percent and less than 80 percent, in the case of a geography. Multifamily: Refers to a residential structure that contains five or more units. 21

24 Other products: Includes any unreported optional category of loans for which the institution collects and maintains data for consideration during a CRA examination. Examples of such activity include consumer loans and other loan data an institution may provide concerning its lending performance. 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. Qualified investment: A qualified investment is defined as any lawful investment, deposit, membership share or grant that has as its primary purpose community development. 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. Small loan(s) to business(es): A loan included in loans to small businesses as defined in the Consolidated Report of Condition and Income ( Call Report ) and the Thrift Financial Reporting ( TFR ) instructions. These loans have original amounts of $1 million or less and typically are either secured by nonfarm or nonresidential real estate or are classified as commercial and industrial loans. However, thrift institutions may also exercise the option to report loans secured by nonfarm residential real estate as small business loans if the loans are reported on the TFR as non-mortgage, commercial loans. Small loan(s) to farm(s): A loan included in loans to small farms as defined in the instructions for preparation of the Call Report. These loans have original amounts of $500,000 or less and are either secured by farmland, or are classified as loans to finance agricultural production and other loans to farmers. Upper-income: Individual income that is more than 120 percent of the area median income, or a median family income that is more than 120 percent, in the case of a geography. 22