PUBLIC DISCLOSURE. December 6, 2004 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION BANK OF EUFAULA RSSD#

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1 PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION BANK OF EUFAULA RSSD# P.O. BOX 607 EUFAULA, OKLAHOMA Federal Reserve Bank of Kansas City 925 Grand Boulevard Kansas City, Missouri NOTE: This document is an evaluation of this institution s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS Institution s CRA Rating... 2 Description of Institution... 3 Description of Assessment Area... 4 Conclusions

3 GENERAL INFORMATION The Community Reinvestment Act (CRA) requires each federal financial supervisory agency to use its authority when examining financial institutions subject to its supervision, to assess the institution s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. Upon conclusion of each examination, the agency must prepare a written evaluation of the institution s record of meeting the credit needs of its community. This document is an evaluation of the CRA performance of (the bank), Eufaula, Oklahoma prepared by the Federal Reserve Bank of Kansas City (Reserve Bank), the institution s supervisory agency, as of. The agency rates the CRA performance of an institution consistent with the provisions set forth in Appendix A to 12 CFR Part 228. Definitions for many of the terms used in this performance evaluation can be found in Section of Regulation BB. For convenience, a Glossary of Common CRA Terms is attached at the end of this performance evaluation. INSTITUTION S CRA RATING: This institution is rated Satisfactory has a satisfactory record of helping to meet the credit needs of its entire assessment area (AA) in a manner consistent with its resources and capabilities. Four of the five criteria used in evaluating small bank CRA performance are relevant to this review and are as follows: Net Loan-to-Deposit (NLTD) Ratio; Lending Inside the AA; Lending to Borrowers of Different Income Levels and to Businesses of Different Revenue Sizes; Distribution of Loans by Income Level of Geographies. The fifth evaluation criteria, responsiveness to CRA complaints, were not reviewed because the bank had not received complaints about its CRA performance. Conclusions for each of the performance criteria were based, in part, on data from a statistically derived loan sample of the bank s major product lines. The major product lines were based on discussions with management, a review of the bank s Report of Condition and Income (Call Report), and a review of the volume of loans originated since the last examination. As a result, the major product lines selected for review were commercial loans and consumer motor vehicle loans. 2

4 DESCRIPTION OF INSTITUTION is a full-service bank located in Eufaula, Oklahoma, a community of approximately 1,200 residents in McIntosh County, Oklahoma. The bank s main office is located at 102 North Main in Eufaula, Oklahoma and a drive-up facility is located at 1 st and Pine Streets, also in Eufaula. In addition, the main bank location has a full-service automated teller machine (ATM) and cash dispensing ATMs are located at its drive-up branch, the Nichols Dollar Saver at 2 nd and Pine, and the Eufaula Indian Community Bingo Center at 806 Forrest Avenue; all in Eufaula. SNB Bancshares, Inc., a shell holding company with total assets of $70 million as of June 30, 2004, has a 98 percent ownership of. The bank offered a variety of loan products to meet the community s credit needs; however, it was primarily a consumer and commercial lender. The bank also originated real estate loans, including conventional 1- to 4-family residential real estate lending. The bank has the ability to meet the credit needs of its defined AA based on its financial condition, size, and credit product offerings. As of June 30, 2004, the bank s total assets were $69.3 million with net loans of $12.5 million. On June 30, 2004, the bank s deposits totaled $56.8 million and it ranked 11 th in terms of deposit market share out of 18 banks with offices in Haskell, McIntosh, Muskogee, and Pittsburg Counties in Oklahoma. As illustrated by Table 1, 67.5 percent of the bank s loan portfolio was comprised of consumer and commercial loans. Table 1 s Loan Portfolio (As of June 30, 2004 Report of Condition and Income) Percent of Loan Type Amount ($000) Total Consumer 5, Commercial 3, Real Estate 2, Agricultural 1, Other TOTAL GROSS LOANS 12, There are no legal, financial, or other factors that would affect the bank s ability to meet the credit needs of its AA. The bank received a satisfactory rating at its previous CRA evaluation conducted by the Office of the Comptroller of the Currency (OCC) on April 23,

5 DESCRIPTION OF THE BANK'S ASSESSMENT AREA The bank s AA included all of McIntosh County, two census tracts (tracts) in Pittsburg County, one tract in Muskogee County, and one tract in Haskell County, Oklahoma. Since the previous CRA evaluation, the bank had added one tract in McIntosh County to its AA. The AA included one moderate-income tract 1 in Muskogee County, but the bank lacked a physical presence in that tract. The city of Eufaula was the county seat for McIntosh County and was located on a peninsula that is surrounded on three sides by Lake Eufaula. The population of the AA increased by 14 percent from 31,318 in 1990 to 35,729 in 2000 compared to the state population increase of 9.6 percent for the same period. The population of Eufaula had stayed constant at 2,639 as of the 2000 Census compared to 2,652 at the 1990 Census, while the population of the whole AA had increased 14 percent from 31,318 in 1990 to 35,729 in The AA contained a larger older population with 19.9 percent of its residents over 64 years of age compared to 13.2 percent for the state of Oklahoma rural areas, according to 2000 Census data. This was confirmed by community members and bank management, who stated that the population is growing more elderly and the area around Eufaula had a high number of retired people on fixed incomes. In 2000, the bank s AA had a median-family income of $31,593 that was 89 percent of the Oklahoma statewide rural median-family income of $35,517. The area contained slightly higher concentrations of low- and moderate-income (LMI) families than in Oklahoma as a whole. LMI families in the AA comprised 43.9 percent of area families based on 2000 Census figures, compared to the state of Oklahoma at 38.4 percent. In addition families below the poverty level for 2000 equaled 14.1 percent, while 13.2 percent of families statewide lived in poverty. The AA s unemployment rate of 6.7 percent was significantly higher than the statewide rate of 5.2 percent, according to 2000 Census data. According to community members, major employers in the area included the local school districts, D.P Wrench, and Marine Development, Inc. Table 2 provides additional demographic information. 1 The income level of a Tract is determined by comparing the median-family income of the Tract to the statewide rural median-family income. If the Tract median income is less than 50 percent it is considered low-income. 4

6 Table 2 Assessment Area Characteristics (Based on 2000 Census Data with 2003 Tract Designations) Tract Summary Total Number of Census Tracts 11 Number of Moderate-Income Tracts 1 Number of Middle-Income Tracts 10 Income Summary Median Family Income (OK Rural Areas) * 31,593 Median Family Income 35,517 Percent Low-Income Families 23.7 Percent Moderate-Income Families 20.3 Percent Middle-Income Families 21.5 Percent Upper-Income Families 34.6 Unemployment Summary Labor Force Population 14,232 Percent Unemployment 6.7 Percent Unemployment (State non-msa) 5.9 Miscellaneous Information Total Population 35,729 Percentage of Families Below Poverty 14.1 Percentage of Population Age 65 and Over 19.9 Total Housing Units 1,088 Percentage Owner-Occupied Units to Total Units 58.9 Percentage Rental Units to Total Units 21.2 Percentage Vacant Units to Total Units 19.9 * The Department of Housing and Urban Development (HUD) Adjusted Median-Family Income for 2004 was $41,300 for statewide rural areas in Oklahoma. CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA As previously noted, various criteria were considered when evaluating the bank s overall CRA performance. In addition, three community members were interviewed to gather additional information about the AA s credit needs and to confirm that products and services offered by area financial institutions adequately met those needs. The bank s level of responsiveness to CRA complaints was not included in the evaluation, as the bank had received no complaints pertaining to its CRA performance since the previous examination. 5

7 Loan-to-Deposit Ratio The bank s NLTD ratio was first calculated on an average of the last 20 quarters since the previous CRA examination and the result was 27 percent. However, more weight was placed on the bank s performance over the most recent eight-quarter period. Table 3 shows the bank s eight-quarter average NLTD ratio as measured against other similarly-situated area financial institutions and against its state and national peer groups. The bank s average NLTD ratio during the eight-quarter analysis period was 24 percent and was substantially less than its competitor banks. Although the NLTD is considered low, the natural geographic boundaries around the bank, the aging nature of the AA population, and competition have limited the bank s lending opportunities. Community members confirmed that the area was primarily a retirement community whose population were mostly senior citizens who do not borrow frequently. Community members also had favorable comments about the local area banks. In addition, the bank is primarily a consumer lender. Consumer loans tend to be for smaller dollar amounts and would require many new loans to materially increase the total loans outstanding. Community members indicated that area loan demand by consumers was low. Given the bank s size, competitive factors, and local economic conditions, its average NLTD ratio was considered adequate. The bank was encouraged to seek additional lending opportunities within its AA Subject Bank 24.0 Table 3 Loan-to-Deposit Comparison (9/03/03 to 06/30/04-8 Quarter Average) Local Peer # Local Peer # Local Peer # Local Peer # State Peer National Peer 6

8 Lending Inside the Assessment Area A large majority of the bank s lending was inside of its AA. Table 4 shows the number and dollar volume of the bank s lending within its area by product type sampled. Table 4 Loans Inside the Bank s Assessment Area Loan Type Number Percent $ Volume (000) Percent Motor Vehicle Commercial , All Loans Reviewed , Distribution of Lending Among Borrowers of Different Income Levels and to Businesses of Different Revenue Sizes Considering the income levels of families within the area (see Table 2) and the volume of small businesses within the area, the bank s loan distribution represented strong penetration among individuals of different income levels and businesses of different revenue sizes. The analysis for each product focused on the number of loans originated, rather than the dollar volume, as it is a better indicator of the number of people and businesses benefiting from these products. Motor Vehicle Loans Based on the demographics of the AA, the bank s distribution of motor vehicle loans to borrowers of different income levels was excellent. The bank s percentage of loans made to borrowers of different income levels was compared to the percentage of families in the AA that were designated as low-, moderate-, middle-, and upper income. The bank s volume of lending to LMI borrowers was substantially higher than the concentrations of LMI families within the area as shown in Table 5. In total, the bank originated 76 percent of its motor vehicle loans to LMI borrowers, which was significantly higher than the 44 percent of families designated as LMI within the AA. 7

9 Table 5 Percentage Distribution of Motor Vehicle Loans Inside the Bank s Assessment Area By Income Level of Borrower Area Median Family Income* $41,300 Income Level of Borrower Percent of Motor Vehicle Loans Reviewed Percent of Families Within Bank s A.A. by Income Level** Low (0 to 50 percent of median income) Moderate (50 to 80 percent of median income) Middle (80 to 120 percent of median income) Upper (Greater than 120 percent of median income) 9 35 Totals * Area Median-Family Income was based on the 2004 HUD-adjusted median family income for the rural areas of Oklahoma. ** The Percentage of Families in AA was based on 2000 Census data Small Business Loans The bank's record of lending to small businesses, defined under the CRA as those with revenues of less than or equal to $1 million, is considered strong. Out of a sample of commercial loans reviewed, 95 percent by number were to small businesses which exceeded the level of small businesses in the AA at 87 percent. As shown in Table 6, the bank's small business lending activity represented 87 percent of its business loans and was in dollar amounts under $100,000, which also strongly supports that the bank was serving the credit needs of small businesses in the community, since this is the size of loans typically needed by small businesses. 8

10 Table 6 DISTRIBUTION OF SMALL BUSINESS LOANS ORIGINATED WITHIN THE BANK S ASSESSMENT AREA BY NUMBER AND DOLLAR AMOUNT OF LOANS Loan Value Category Percentage of Number of Loans Reviewed Small Business * Percentage of Total Dollar Amount Less than or Equal to $100, Greater than $100,000 and less than or Equal to $250,000 Greater than $250,000 and less than or equal to $1,000, TOTAL * Small businesses are defined as having gross annual revenues of less than or equal to $1,000,000. Distribution of Loans by Income Level of Geographies The bank s AA had one moderate-income tract and 10 middle-income tracts. As reflected in Table 7, all the motor vehicle and small business loans included in the statistical sample were located in middle-income tracts within the bank s AA. None were located in the moderateincome tract that was located at the eastern edge of the AA. Also, Lake Eufaula was a geographic barrier located between those residents and the bank s facilities. Bank management indicated there were other more convenient banks located in Muskogee County. Existing traffic patterns would cause many of the moderate-income tract residents to drive past other more convenient banks or branches in order to bank in Eufaula. In addition, a review of the bank s full loan portfolio did reveal some motor vehicle and business loans that were originated in the moderate-income tract. Considering the geographical barriers, available traffic patterns, locations of competing institutions, and the presence of other bank loans to residents of the moderate-income tract, the bank s loan distribution by income level of geography is reasonable. 9

11 Table 7 Distribution of Loans Reviewed Within the Bank s Assessment Area By Income Level of Geography Area Median Family Income as of 2000 Census data 41,300 Percentage of Motor Vehicle Loans Reviewed By Number Percentage of Small Business Loans Reviewed by Number Percentage of Geographies within Assessment Area Income Level of Geography Moderate (50 to 80 percent of median income) Middle (80 to 120 percent of median income) COMPLIANCE WITH ANTIDISCRIMINATION LAWS AND PRACTICES The bank is in compliance with the substantive provisions of the antidiscrimination laws and regulations. A review of bank policies, credit applications, loans, and interview procedures revealed no prohibited practices designed to discourage loan applicants. 10

12 GLOSSARY OF COMMON CRA TERMS (For additional information, please see the Definitions section of Regulation BB at 12 CFR ) Assessment Area The geographic area(s) delineated by the bank and used in evaluating the bank s record of helping to meet the credit needs of its community. The assessment area must include the geographies where the main office, branches, and deposit-taking automated tellers machines are located. The assessment area must consist only of whole geographies, may not reflect illegal discrimination, and may not arbitrarily exclude low- or moderate-income geographies. Census Tracts Census tracts are small, relatively permanent geographic entities within counties delineated by a committee of local data users. Generally, census tracts have between 2,500 and 8,000 residents and boundaries that follow visible features. Community Development Includes affordable housing (including multifamily rental housing) for low- and moderate-income individuals, community services targeted to low- and moderateincome individuals, activities that promote economic development by financing businesses or farms that have gross annual revenues of $1 million or less, or activities that revitalize or stabilize low- or moderate-income geographies. Community Development Loan A loan that has community development as its primary purpose and (except in the case of a wholesale or limited-purpose bank). 1. Has not been reported or collected by the bank or an affiliate as a home mortgage, small business, small farm, or consumer loan, unless it is a multifamily dwelling loan and 2. Benefits the bank s assessment area(s) or a broader statewide or regional area that includes the bank s assessment area(s). Community Development Service A service that has as its primary purpose community development, is related to the provision of financial services, has not been considered in the evaluation of the bank s retail banking services, benefits the banks assessment area(s) or a broader statewide or regional area that includes the bank s assessment area and has not been claimed by other affiliated institutions. Consumer Loans Loans to individuals for household, family and other personal expenditures. These loans do not include real estate-secured loans. Dun & Bradstreet Data Data collected by Dun & Bradstreet regarding types of businesses and their respective gross annual revenues. The data can be sorted by geographies. Geography A census tract or a block numbering area. 11

13 Income Level Both geographies and individuals can be described in terms of their income levels. In MSAs, the level is based on the MSA median income. In nonmsa areas, the level is based on the statewide, nonmsa median income. Low-Income Less than 50 percent of the area median income Moderate-Income At least 50 percent and less than 80 percent of the area median income Middle-Income At least 80 percent and less than 120 percent of the area median income Upper-Income At least 120 percent or more of the area median income Metropolitan Statistical Area (MSA) - The general concept of an MSA is that of a core area containing a large population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. Generally, a single city with at least 50,000 inhabitants or an urbanized area with a total population of at least 100,000 would meet the definition of an MSA. Qualified Investment A lawful investment, deposit, membership share or grant that has as its primary purpose community development. Small Business A business with gross annual revenues of $1 million or less. Small Business Loan A loan with an original amount of $1 million or less that has been reported in the Consolidated Report of Condition and Income in the category Loans secured by nonfarm nonresidential properties or Commercial and industrial loans. Small Farm A farm with gross annual revenues of $1 million or less. Small Farm Loan A loan with an original amount of $500,000 or less that has been reported in the Consolidated Report of Condition and Income in the category Loans secured by farmland or Loans to finance agricultural production and other loans to farmers. 12

PUBLIC DISCLOSURE. August 30, 2004 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION FARMERS STATE BANK RSSD#

PUBLIC DISCLOSURE. August 30, 2004 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION FARMERS STATE BANK RSSD# PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION FARMERS STATE BANK RSSD# 542854 P.O. BOX 458 PINE BLUFFS, WYOMING 82082 Federal Reserve Bank of Kansas City 925 Grand Boulevard Kansas