PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE January 19, 2016 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION RSSD# South Third Street Batesville, 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 a. Institution s CRA Rating...1 b. Scope of Examination...1 c. Description of Institution...4 d. Conclusions with Respect to Performance Criteria...6 II. III. IV. IV. North Central Arkansas Nonmetropolitan Statistical Area (full-scope review) a. Description of Assessment Area...10 b. Conclusions with Respect to Performance Criteria...13 Fayetteville-Springdale-Rogers, Arkansas-Missouri Metropolitan Statistical Area (limited-scope review) a. Description of Assessment Area...18 b. Conclusions with Respect to Performance Criteria...19 Hot Springs, Arkansas Metropolitan Statistical Area (limited-scope review) a. Description of Assessment Area...20 b. Conclusions with Respect to Performance Criteria...21 Southeast Arkansas Nonmetropolitan Statistical Area (limited-scope review) a. Description of Assessment Area...22 b. Conclusions with Respect to Performance Criteria...23 V. Appendices a. Appendix A: Detailed Tables for Limited-Scope Review Assessment Areas...24 b. Appendix B: Assessment Areas Detail...30 c. Appendix C: Glossary...32 Table of Contents

3 INSTITUTION INSTITUTION S CRA RATING: This institution is rated SATISFACTORY. The Lending Test is rated Satisfactory. The Community Development Test is rated Satisfactory. Overall, s (Citizens Bank s) CRA performance is considered Satisfactory. The major factors supporting the institution s rating include: The borrower s profile analysis reveals reasonable penetration among individuals of different income levels, including low- and moderate-income (LMI) levels and businesses of different sizes. The geographic distribution of loans analysis reflects poor dispersion throughout the bank s assessment areas, including LMI geographies. The bank has a reasonable loan-to-deposit (LTD) ratio given the bank s size, financial condition, and the credit needs of the assessment areas. A majority of the bank s lending activities are in the bank s assessment areas. No CRA-related complaints were filed against the bank for this review period. The bank s overall community development performance demonstrates adequate responsiveness to the community development needs of its assessment areas, considering the bank s capacity and the need and availability of such opportunities for community development in the bank s assessment areas. The bank has responded to these needs through qualified community development loans, investments, and services. SCOPE OF EXAMINATION The bank s CRA performance was evaluated using the Federal Financial Institutions Examination Council s (FFIEC s) Interagency CRA Procedures for Intermediate Small Institutions. The intermediate small bank examination procedures entail two performance tests, the Lending Test and the Community Development Test. Citizens Bank maintains operations in four delineated assessment areas within the state of Arkansas. The following table details branch and deposit distribution at the assessment area level and the scope of review procedures performed by assessment area. Deposit information in the following table, as well as deposit information throughout this evaluation, is taken from the Federal Deposit Insurance Corporation (FDIC) Deposit Market Share Report data as of June 30,

4 Assessment Area Office # Branch % Deposits ($000s) as of 6/30/15 Deposit % Review Procedures North Central Arkansas nonmsa % $435, % Full-Scope Fayetteville-Springdale-Rogers, Arkansas-Missouri MSA % $26,494* 4.9% Limited-Scope (Fayetteville MSA) Hot Springs, Arkansas MSA (Hot Springs MSA) % $1, % Limited-Scope Southeast Arkansas nonmsa % $75,663* 14.0% Limited-Scope 1 Full-Scope % $539, % 3 Limited-Scope *The deposit amounts in these assessment areas are for Parkway Bank, which was acquired by Citizens Bank during the review period; Citizens Bank had no deposit market share in these assessment areas reported by the FDIC as of June 30, Due to the bank s limited presence in and new entrance into the Fayetteville metropolitan statistical area (MSA), Hot Springs MSA, and Southeast Arkansas nonmsa assessment areas, its level of lending was limited in these areas. Therefore, performance in these three assessment areas was analyzed using limited-scope review procedures and did not play a material role in the overall evaluation. The period of review spanned from the date of the bank s previous CRA evaluation on February 4, 2013 to January 19, Lending Test Under the Lending Test, the bank s performance is evaluated under the following criteria, as applicable: Loan distribution by borrower s profile (applicant income or business revenue profile). The geographic distribution of loans. The bank s average LTD ratio. The concentration of lending within the assessment areas. A review of the bank s response to written CRA complaints. Lending performance was based on the following loan products and the corresponding time periods, as displayed in the following table. Loan Product 1 4 Family Residential Real Estate Small Business Consumer Motor Vehicle Time Period July 1, 2014 December 31, 2014 These three loan categories are considered the bank s primary lines of business, based on lending volume by number and dollar amounts and in light of the bank s stated business strategy. Therefore, loan activity represented by these credit products is deemed indicative of the bank s overall lending performance. 2

5 Lending Test analyses often entail comparisons of bank performance to assessment area demographics and the performance of other lenders, based on Home Mortgage Disclosure Act (HMDA) and CRA aggregate lending data. Unless otherwise noted, assessment area demographics are based on 2010 U.S. Census data; certain business geodemographics are based on Dun & Bradstreet data, which are applicable to the year When analyzing bank performance by comparing lending activity to both demographic data and aggregate lending data, greater emphasis is generally placed on the aggregate lending data, because it is expected to describe many factors impacting lenders within an assessment area. Aggregate lending datasets are also updated annually and are therefore expected to predict more relevant comparisons. In addition, the bank s lending levels were evaluated in relation to those of comparable financial institutions operating within the same general region. Three other banks were identified as similarly situated peers, with asset sizes ranging from $375.2 million to $1.0 billion. Community Development Test Under the Community Development Test, the bank s performance was evaluated via responsiveness to the following community development needs, considering the bank s capacity and the need and availability of such opportunities for community development in the bank s assessment areas. The number and dollar amount of community development loans. The number and dollar amount of qualified investments and grants. The extent to which the bank provides community development services. The review of the bank s performance under the Community Development Test included community development activities initiated in the period from the date of the bank s previous CRA evaluation to this review date. In addition, investments made prior to the date of the previous CRA evaluation, but still outstanding as of this review date, were also considered. Community Contacts To augment this evaluation, two community contact interviews were conducted with knowledgeable individuals residing or conducting business within the bank s assessment areas. In addition, three community contact interviews previously completed within the bank s assessment areas were referenced. These interviews were used in order to ascertain specific credit needs, opportunities, and local market conditions within the bank s assessment area. Key details from these interviews are included in the Description of Assessment Area section for the full-scope assessment area reviewed. 3

6 DESCRIPTION OF INSTITUTION Citizens Bank is a full-service retail bank offering both consumer and commercial loan and deposit products. The bank is wholly owned by Citizens Bancshares of Batesville, Inc., a onebank holding company headquartered in Batesville, Arkansas. On December 22, 2015, Citizens Bank merged with Parkway Bank and was the surviving institution. The following table shows the branching activity for the bank since the previous CRA evaluation on February 4, Assessment Area North Central Arkansas nonmsa Change in Citizens Bank s Offices During the Review Period (February 4, 2013 to January 19, 2016 ) Office # (Previous Examination) Closed Offices New Office Openings New Office Acquisitions Current Number of Offices 10 (1) Fayetteville MSA Hot Springs MSA Southeast Arkansas nonmsa (1) Of the 17 offices listed in the previous table, 14 are full-service offices and 3 are limited-service offices. The bank also operates ten full-service automated teller machines (ATMs) and three cash-dispensing-only ATMs at its various offices and one stand-alone ATM at White River Medical Center. Based on this branch network and other service delivery systems, such as online banking capabilities, the bank is well positioned to deliver financial services to substantially all of its assessment areas, with the exception of the moderate-income census tract in the eastern portion of Randolph County due to the proximity to the bank s branches. For this review period, no legal impediments or financial constraints were identified that would have hindered the bank from serving the credits needs of its customers, and the bank appeared capable of meeting assessment areas credit needs based on its available resources and financial products. As of December 31, 2015, the bank reported total assets of $722.4 million. As of the same date, loans and leases outstanding were $478.9 million (66.3 percent of total assets) and deposits totaled $574.8 million. The bank s loan portfolio composition by credit category is displayed in the following table: 4

7 Credit Category Distribution of Total Loans as of December 31, 2015 Amount ($000s) Percentage of Total Loans Construction and Development $41, % Commercial Real Estate $123, % Multifamily Residential $10, % 1 4 Family Residential $143, % Farmland $43, % Farm Loans $25, % Commercial and Industrial $57, % Loans to Individuals $17, % Total Other Loans $16, % $478, % As indicated in the table above, a significant portion of the bank s lending resources is directed to loans secured by 1 4 family residential properties, commercial real estate, and commercial and industrial loans. It is also worth noting that, by number of loans originated, loans to individuals (such as consumer motor vehicle loans) represent a significant product offering of the bank. The bank also originates and subsequently sells loans related to residential real estate; as these loans are typically sold on the secondary market shortly after origination, this activity would not be captured in the data discussed here. The bank received a Satisfactory rating at its previous CRA evaluation conducted on February 4, 2013, by this Reserve Bank. 5

8 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS LENDING TEST Citizens Bank s performance under the Lending Test is rated satisfactory. The borrower s profile analysis reveals reasonable penetration among individuals of different income levels, including LMI levels and businesses of different sizes. The geographic distribution of loans analysis reflects poor dispersion throughout the bank s assessment areas. However, the bank s LTD ratio is reasonable given the bank s size, financial condition, and assessment areas credit needs. A majority of the bank s loans are in the bank s assessment areas. Lastly, no CRA-related complaints were filed against the bank for this review period. Loan Distribution by Borrower s Profile This performance criterion focuses on the bank s lending penetration among borrowers of different income levels, with a specific emphasis on lending to LMI borrowers and businesses with gross annual revenues of $1 million or less. As displayed in the following table, the bank s overall loan distribution by borrower s profile reflects reasonable penetration throughout the bank s assessment areas. Assessment Area North Central Arkansas nonmsa Fayetteville MSA Hot Springs MSA Southeast Arkansas nonmsa OVERALL Loan Distribution by Borrower Profile Reasonable Consistent Below Consistent Reasonable Additional details regarding the loan distribution by borrower s profile are included later in this evaluation, under the sections applicable to individual assessment area analyses. Geographic Distribution of Loans This performance criterion focuses on the bank s lending penetration among geographies of different income levels, with specific emphasis placed on lending in LMI geographies. As displayed in the following table, the bank s overall geographic distribution of loans reflects poor dispersion throughout its assessment areas. Assessment Area North Central Arkansas nonmsa Fayetteville MSA Hot Springs MSA Southeast Arkansas nonmsa OVERALL Loan Distribution by Geography Poor Exceeds Below Exceeds Poor 6

9 Additional details regarding the loan distribution by geography are included later in this evaluation under the sections applicable to individual assessment area analyses. Loan-to-Deposit (LTD) Ratio One indication of the bank s overall level of lending activity is its LTD ratio. The table below displays the bank s quarterly average LTD ratio compared to those of regional peers with similar focus and branch structure. The quarterly average LTD ratio represents a 12-quarter average, dating back to the bank s last CRA evaluation. LTD Ratio Analysis Name Asset Size ($000s) as of December 31, 2015 Headquarters Average LTD Ratio Citizens Bank $722,365 Batesville, Arkansas 70.2% $1,046,238 Batesville, Arkansas 94.0% Regional Banks $375,191 Ash Flat, Arkansas 83.8% $390,027 Little Rock, Arkansas 42.7% Based on data from the previous table, the bank s level of lending is comparable to that of other banks in the region. During the review period, the bank s quarterly LTD ratio ranged from a low of 63.4 percent (December 2014) to a high of 82.1 percent (December 2015), representing an increasing trend. In comparison, the quarterly LTD ratios for the regional peers ranged from 38.3 percent to 98.0 percent, representing a generally increasing trend. Therefore, compared to data from regional banks displayed in the table above, the bank s average quarterly LTD ratio is reasonable given the bank s size, financial condition, and the credit needs of the assessment areas. 7

10 Assessment Area Concentration For the loan activity reviewed as part of this evaluation, the following table displays the number and dollar volume of loans inside and outside the bank s assessment areas. Lending Inside and Outside of Assessment Area ($000s) Loan Type Inside Assessment Area Outside Assessment Area 1 4 Family Residential Real Estate % % % $6, % $1, % $7, % Small Business Consumer Motor Vehicle LOANS % % % $4, % $3, % $7, % % 9 9.8% % $1, % $ % $1, % % % % $12, % $4, % $16, % As shown above, a majority of the loans originated were extended to borrowers or businesses that reside or operate in the bank s assessment areas. In total, 86.3 percent of the total loans were made inside the assessment areas, accounting for 73.6 percent of the dollar volume of total loans. Review of Complaints No CRA-related complaints were filed against the bank during this review period (February 4, 2013 through January 19, 2016). 8

11 COMMUNITY DEVELOPMENT TEST The bank s performance under the Community Development Test is rated satisfactory. The bank demonstrates adequate responsiveness to the community development needs of its assessment areas, considering the bank s capacity and the need for and availability of such opportunities for community development in the assessment areas. Rated Area North Central Arkansas nonmsa Fayetteville MSA Hot Springs MSA Southeast Arkansas nonmsa OVERALL RATING Community Development Test Performance Conclusion Adequate Below Consistent Below Satisfactory The bank s community development responsiveness is adequate given its level of community development activities. Within the assessment areas, the bank made 25 community development loans during the review period, totaling $3.0 million. Also, the bank made four new qualified investments totaling $1.7 million. Combined with the $6.8 million in qualified investments made prior to this review period but still outstanding, total investments benefiting the bank s assessment areas totaled $8.4 million. Additionally, the bank made 162 donations totaling $300,916 to community development organizations within its assessment areas. Lastly, 10 bank employees logged 22 service activities to the benefit of community development organizations operating within the bank s assessment areas. In addition to adequately meeting the community development needs of its own assessment areas, the bank made one community development loan to a low-income borrower outside of its assessment areas totaling $30,000, as well as a $300 donation to an organization outside its assessment areas. For the greater statewide area that includes the bank s assessment areas, Citizens Bank made one new qualified investment totaling $425,000 and one qualified investment prior to this review period but still outstanding totaling $172,125 to a small business investment company. Furthermore, the bank made $2,500 in donations to community development organizations that benefit the greater statewide region. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW Based on findings from the Consumer Affairs examination, including a fair lending analysis performed under Regulation B Equal Credit Opportunity and the Fair Housing Act requirements conducted concurrently with this CRA evaluation, no evidence of discriminatory or other illegal credit practices inconsistent with helping to meet community credit needs was identified. 9

12 NORTH CENTRAL ARKANSAS NONMSA ASSESSMENT AREA (Full-Scope Review) DESCRIPTION OF THE INSTITUTION S OPERATIONS IN THE NORTH CENTRAL ARKANSAS NONMSA ASSESSMENT AREA Bank Structure The bank maintains 9 of its 17 offices (52.9 percent) in this assessment area, which is considered to be the hub of the bank s core operations. Of the bank facilities in this assessment area, eight are in middle-income census tracts and one is located in an upper-income census tract. All eight branches in middle-income census tracts are located in tracts designated as distressed geographies due to poverty levels. Eight of these offices are full service, and one is limited service. The bank s branch network and other delivery systems in the assessment area are adequate for the bank to deliver financial services in all areas, with the exception of the moderate-income census tract in eastern Randolph County. This moderate-income tract is large and contains four small cities that are between minutes from Citizens Bank s nearest branch in Imboden, Arkansas. Additionally, the one road leading from the bank s nearest branch to this census tract passes through the county seat, Pocahontas, Arkansas, where five banks are located. General Demographics The bank s North Central Arkansas nonmsa assessment area, which has a population of 103,900, includes the entireties of Independence, Lawrence, Randolph, and Stone Counties and portions of Sharp and Cleburne Counties in nonmsa Arkansas. This assessment area is largely rural. The assessment area is comprised of 3 moderate-, 21 middle-, and 2 upper-income census tracts. Of the 21 middle-income tracts located in the assessment area, 19 are designated as distressed due to poverty levels. Since the majority of the bank s loans, deposits, and revenues are derived from activities in this assessment area, the bank considers it to be the primary assessment area. Of the 23 FDIC-insured depository institutions with a branch presence in this assessment area, the bank ranked first in terms of deposit market share, encompassing 18.3 percent of the total assessment area deposit dollars. This assessment area covers a wide area and includes a significant population; thus, the credit needs in the area are varied, including a standard blend of consumer and business loan products. Other particular credit needs in the assessment area, as noted primarily from community contacts, include residential real estate and construction loans for affordable housing. While not specifically stated by the community contacts, various community development opportunities exist in this assessment area due to the presence of distressed geographies. 10

13 Income and Wealth Demographics The following table reflects the number and population of the census tracts within the assessment area in each income category. Census Tracts Assessment Area Demographics by Geography Income Level Dataset Family Population % 11.5% 80.8% 7.7% 0.0% 100% 0 2,318 25,424 1, , % 8.0% 87.5% 4.5% 0.0% 100% The previous table reveals that this assessment area does not contain any census tracts designated as low-income. The three moderate-income census tracts are located in Independence, Stone, and Randolph Counties. The table reveals that a vast majority of families (87.5 percent) live in middle-income tracts compared to the lower percentage of families (8.0 percent) living in moderate-income tracts. Based on 2010 U.S. Census data, the median family income for the assessment area was $41,641, which is similar to the nonmsa Arkansas state median family income of $42,175. More recently, the FFIEC estimates the 2014 nonmsa Arkansas median family income to be $45,300. The following table displays population percentages of assessment area families by income level compared to the nonmsa Arkansas family population as a whole. Assessment Area NonMSA Arkansas Family Population by Income Level Dataset Low- Moderate- Middle- Upper- 6,051 5,493 5,855 11,641 29, % 18.9% 20.2% 40.1% 100% 65,135 57,160 62, , , % 18.3% 20.0% 41.0% 100% Based on the data in the preceding table, the assessment area is comparable to nonmsa Arkansas as a whole. Although the first table in this section indicated that the vast majority of the assessment area families lived in middle-income census tracts, this table reveals that a significant portion of assessment area families (39.7 percent) are considered LMI. This LMI family population figure is similar to that of the nonmsa state level (39.1 percent), and the assessment area also has a similar upper-income family population (40.1 percent) compared to nonmsa Arkansas (41.0 percent). Lastly, the level of assessment area families living below the poverty level (15.0 percent) is comparable to that of all nonmsa families (15.1 percent). 11

14 Housing Demographics Based on housing values, income levels, and rental costs, housing affordability in the assessment area appears to be comparable to nonmsa Arkansas overall. This is based on the figures shown in the table below. However, community contacts stated that there is a credit need for affordable housing in the area. Therefore, housing in the assessment area is likely out of reach for much of the population. Housing Affordability Dataset Median Housing Values Median Gross Rent Affordability Ratio Assessment Area $77,176 $ % NonMSA Arkansas $78,904 $ % Industry and Employment Demographics The assessment area economy is diverse and is supported by a mixture of service-oriented sectors. According to the U.S. Census Bureau 2013 County Business Patterns, by number of paid employees in the assessment area, health care and social assistance leads with 6,477, followed by manufacturing (6,256) and retail trade (5,208). Furthermore, business demographic estimates indicate that 89.9 percent of assessment area businesses have gross annual revenues of $1 million or less. Unemployment rates in the assessment area have remained consistently higher than nonmsa Arkansas levels. The table below details unemployment data from the U.S. Department of Labor, Bureau of Labor Statistics (not seasonally adjusted) for the assessment area compared to nonmsa Arkansas. As shown in the table, unemployment rates have continued to decrease for the assessment area and nonmsa Arkansas during the review period. Unemployment Levels for NonMSA Arkansas and the Assessment Area Time Period NonMSA Arkansas Assessment Area 2013 Annual Average 8.4% 8.9% 2014 Annual Average 7.0% 7.7% 2015 (9-month Average) 6.7% 7.3% Community Contact Information Information from two community contacts was used to help shape the performance context in which the bank s activities in this assessment area were evaluated. The interviews were conducted with local economic and business development professionals. The community contact interviewees categorized the economy as weak but improving slightly, with some growth over the past three years. Both contacts recognized a need for affordable housing in the assessment area, stating that the supply of affordable housing stock for low-income individuals is lacking, and housing options are limited. Contacts also expressed a need for small-dollar loans to businesses. 12

15 CONCLUSIONS WITH RESPECT TO PERFORMANCE IN THE NORTH CENTRAL ARKANSAS NONMSA ASSESSMENT AREA Loan Distribution by Borrower s Profile Borrowers are classified into low-, moderate-, middle-, and upper-income categories by comparing their reported income to the applicable median family income figure as estimated by the FFIEC ($45,300 for the assessment area as of 2014). Overall, the bank s borrower s profile performance, based on analyses of all three loan categories, is reasonable. The following table shows the distribution of 1 4 family residential real estate loans by borrower income level compared to family population income characteristics for the assessment area. Additionally, 2014 aggregate data for the assessment area is displayed. Distribution of Loans Inside Assessment Area by Borrower Income Borrower Income Level 1 4 Family Residential 4 7.7% % % % 0 0.0% % Real Estate Family Population 20.8% 18.9% 20.2% 40.1% 0.0% 100% 2014 HMDA Aggregate 7.0% 16.0% 19.5% 41.6% 16.0% 100% The bank s total percentage of lending to low-income borrowers (7.7 percent) is below the percentage of low-income families within the assessment area (20.8 percent). However, the aggregate performance to low-income borrowers was 7.0 percent in Based on this comparison, the bank s performance is considered reasonable to low-income borrowers. The bank s total percentage of lending to moderate-income borrowers (13.5 percent) is below the percentage of moderate-income families within the assessment area (18.9 percent). However, the bank s performance is similar to aggregate lender performance to moderate-income borrowers (16.0 percent). This reflects reasonable performance to moderate-income borrowers. Additionally, 15.0 percent of assessment area families live below the poverty line, diminishing the number of borrowers who are likely to qualify for traditional financing. Therefore, the bank s lending performance for 1 4 family residential real estate loans by borrower s income level is reasonable. As with the bank s 1 4 family residential real estate loan activity, the bank s distribution of small business loans to businesses of various sizes was reviewed. The following table reflects Citizens Bank s distribution of small business loans by gross annual business revenue and loan amount compared to Dun & Bradstreet and aggregate data. 13

16 Gross Revenue Distribution of Loans Inside Assessment Area by Business Revenue <$100 Loan Amounts in $000s >$100 and <$250 >$250 and <$1,000 $1 Million or Less % 3 8.6% 0 0.0% % Greater than $1 Million/Unknown 2 5.7% 1 2.9% 0 0.0% 3 8.6% % % 0 0.0% % Dun & Bradstreet Businesses < $1MM 89.9% 2014 CRA Aggregate Data 46.2% Based on this analysis of small business loans, Citizens Bank is doing an excellent job of meeting the credit needs of small businesses. The table above demonstrates that 32 of 35 loans reviewed (91.4 percent) were made to businesses with gross annual revenue of $1 million or less. In comparison, 2014 Dun & Bradstreet data indicate that 89.9 percent of business institutions inside the assessment area were small businesses. Additionally, CRA aggregate data for the assessment area indicates that 46.2 percent of total loans in 2014 were to business with revenues of $1 million or less. Furthermore, the highest percentage of the bank s loans to small businesses (29 of 31 loans, or 82.9 percent) were originated in amounts of $100,000 or less. Loans in these amounts further indicate the bank s willingness to meet the credit needs of small businesses, which was a direct need indicated by community contacts in the area. Similar to the borrower s profile analysis conducted for the two previous loan categories, the borrower distribution of consumer motor vehicle loans was also analyzed by borrower s income profile. The following table shows the distribution of consumer motor vehicle loans by income level of the borrower compared to household population income characteristics. Distribution of Loans Inside Assessment Area by Income Level of Borrower Dataset Consumer Motor Vehicle Loans Borrower Income Level % 21.9% 20.5% 30.1% 19.2% 100.0% Household Population 25.3% 16.9% 17.7% 40.2% 0.0% 100% The bank s total percentage of consumer motor vehicle lending to low-income borrowers (8.2 percent) is well below the household population of 25.3 percent, reflecting poor performance. However, the number of consumer motor vehicle loans to moderate-income individuals (21.9 percent) significantly exceeds the household population comparisons (16.9 percent), reflecting excellent performance. When combined, 30.1 percent of the consumer motor vehicle loans reviewed were made to LMI borrowers, which falls well below the LMI household population of 14

17 42.2 percent. Based on this data, the distribution of the bank s consumer motor vehicle loans reflects poor penetration among LMI borrowers. Geographic Distribution of Loans This test evaluates the bank s distribution of loans by the income level of the census tract, with special emphasis on loans originated within LMI geographies. As noted previously, the bank s assessment area contains 3 moderate-, 21 middle-, and 2 upper-income census tracts. Overall, the bank s geographic distribution of loans reflects poor penetration throughout the LMI census tracts in this assessment area, based on activity analyzed from all three loan categories. The following table displays the geographic distribution of 1 4 family residential real estate loans compared to owner-occupied housing demographics and 2014 aggregate lending data for the assessment area. Distribution of Loans Inside Assessment Area by Income Level of Geography Dataset Geography Income Level 1 4 Family Residential Real Estate 0 0.0% 0 0.0% % % 0 0.0% % Owner-Occupied Housing 0.0% 8.9% 86.8% 4.3% 0.0% 100% 2014 HMDA Aggregate % 86.1% 6.3% 0.1% 100% The bank made no loans in moderate-income census tracts, which is well below the percentage of owner-occupied housing units in moderate-income census tracts (8.9 percent). The bank s performance in moderate-income census tracts is also less than that of other lenders in the assessment area (7.6 percent). Therefore, the bank s overall geographic distribution of 1 4 family residential real estate loans in LMI geographies is very poor. As with the 1 4 family residential real estate loan category, the bank s geographic distribution of small business loans was reviewed. The following table displays the geographic distribution of 2014 small business loans compared to the estimated percentages of businesses located in each geography income category and 2014 small business aggregate data for the assessment area. Small Business Loans Business Institutions 2014 CRA Aggregate Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 3 8.6% % 1 2.9% 0 0.0% % 0.0% 7.2% 85.2% 7.6% 0.0% 100% 0.0% 5.7% 84.6% 5.8% 4.0% 100% 15

18 The bank originated 8.6 percent of small business loans to businesses within moderate-income census tracts. In comparison, 2014 business geodemographic data indicate that only 7.2 percent of assessment area businesses are located in moderate-income census tracts. Additionally, the bank s performance is above the 2014 small business aggregate lending percentage in moderateincome census tracts (5.7 percent). As a result, the overall geographic distribution of the bank s small business loans in LMI census tracts reflects excellent dispersion throughout the assessment area. Similar to the previous two loan categories, the bank s geographic distribution of consumer motor vehicle loans was also reviewed. The following table shows the distribution of consumer motor vehicle loans in each geography income category compared to household population demographics. Consumer Motor Vehicle Loans Household Population Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 2 2.7% % % 0 0.0% % 0.0% 9.0% 86.7% 4.2% % By number of loans, the bank originated 2.7 percent of its consumer motor vehicle loans to borrower in moderate-income census tracts, which is well below the percentage of households within moderate-income census tracts (9.0 percent). Therefore, the geographic distribution of the bank s consumer motor vehicle loans is poor. COMMUNITY DEVELOPMENT TEST The bank demonstrates adequate responsiveness to community development needs within this assessment area, considering the bank s capacity and the need and availability of such opportunities for community development. The bank has addressed the community development needs of this assessment area through community development loans, qualified investments, and community development services. During the review period, the bank extended 25 community development loans totaling $3.0 million in this assessment area, all of which were new originations. Seventeen of these loans qualified for the purpose of affordable housing, all of which were made to LMI borrowers; three of these were also made in moderate-income geographies. This shows the bank s willingness to meet the credit needs of the assessment area as both community contacts interviewed in this area highlighted a need for suitable affordable housing. During the review period, the bank made four new community development investments totaling $1.7 million. Additionally, the bank had 17 community development investments that were still outstanding at the date of this CRA evaluation, with current balances totaling $6.3 million. In addition to the investments noted above, the bank made 155 donations in this assessment area 16

19 totaling $296,966. The donations were made to various organizations having a community development purpose: 6 with an affordable housing purpose, 107 with a community service purpose, 1 with an economic development purpose, and 41 with a revitalization/stabilization purpose. Several bank officers used their financial expertise to assist organizations that are involved in community development activities within the assessment area. During the review period, 10 employees performed community development services for 16 different organizations within the assessment area. 17

20 FAYETTEVILLE MSA ASSESSMENT AREA (Limited-Scope Review) DESCRIPTION OF THE INSTITUTION S OPERATIONS IN THE FAYETTEVILLE MSA ASSESSMENT AREA This assessment area includes the entireties of Benton and Washington Counties, which are located in the Arkansas portion of the Fayetteville MSA. Citizens Bank operates two branch offices in this assessment area. One of these offices was converted from a commercial loan production office (LPO) to a full-service branch during the review period, while the other office was acquired in a merger occurring during the review period. The tables below detail key demographics relating to this assessment area. Assessment Area Demographics by Population Income Level Demographic Type Family Population Household Population Population Income Level Low- Moderate- Middle- Upper- 20,777 19,113 21,786 44, , % 18.0% 20.5% 41.9% 100% 34,367 26,027 28,646 65, , % 16.8% 18.5% 42.4% 100% Assessment Area Demographics by Geography Income Level Dataset Census Tracts Family Population Household Population Business Institutions Geography Income Level % 13.6% 54.3% 28.4% 0.0% 100% 3,082 12,710 59,840 30, , % 12.0% 56.3% 28.8% 0.0% 100% 7,206 19,475 85,422 42, , % 12.6% 55.3% 27.4% 0.0% 100% 566 2,979 8,014 4, , % 18.3% 49.2% 29.0% 0.0% 100% 18

21 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE FAYETTEVILLE MSA ASSESSMENT AREA LENDING TEST The bank s Lending Test performance in this assessment area is consistent with the bank s Lending Test performance in the full-scope assessment area (satisfactory), as detailed in the following table. For more detailed information relating to the bank s Lending Test performance in this assessment area, see the tables in Appendix A. Lending Test Criteria Distribution of Loans by Borrower s Profile Geographic Distribution of Loans OVERALL Performance Consistent Exceeds Consistent COMMUNITY DEVELOPMENT TEST The bank s Community Development Test performance in this assessment area is below the bank s Community Development Test performance in the full-scope assessment area (adequate). The bank did not make any loans or provide any community development-qualified services within the assessment area. Only two donations totaling $1,200 were made to organizations within this assessment area that have a community development purpose. While the number of community development activities in this assessment area is lower than that of the full-scope assessment area, the bank has only recently entered this market (in mid-july 2015). 19

22 HOT SPRINGS MSA ASSESSMENT AREA (Limited-Scope Review) DESCRIPTION OF THE INSTITUTION S OPERATIONS IN THE HOT SPRINGS MSA ASSESSMENT AREA This assessment area includes the entire Hot Springs MSA, which is comprised of Garland County. Citizens Bank operates two branch offices in this assessment area, both of which were opened during this review period (one being a de novo branch and the other being a conversion from a commercial LPO to a full-service branch). The tables below detail key demographics relating to this assessment area. Assessment Area Demographics by Population Income Level Demographic Type Family Population Household Population Population Income Level Low- Moderate- Middle- Upper- 5,342 4,439 5,434 10,516 25, % 17.3% 21.1% 40.9% 100% 9,285 6,642 7,425 16,794 40, % 16.5% 18.5% 41.8% 100% Assessment Area Demographics by Geography Income Level Dataset Census Tracts Family Population Household Population Business Institutions Geography Income Level % 20.0% 50.0% 25.0% 0.0% 100% 407 3,687 13,880 7, , % 14.3% 53.9% 30.1% 0.0% 100% 794 6,361 21,199 11, , % 15.8% 52.8% 29.4% 0.0% 100% ,289 1, , % 18.8% 48.3% 31.0% 0.0% 100% 20

23 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE HOT SPRINGS MSA ASSESSMENT AREA LENDING TEST The bank s Lending Test performance in this assessment area is below the bank s Lending Test performance in the full-scope assessment area (satisfactory), as detailed in the following table. For more detailed information relating to the bank s Lending Test performance in this assessment area, see the tables in Appendix A. Lending Test Criteria Distribution of Loans by Borrower s Profile Geographic Distribution of Loans OVERALL Performance Below Below Below COMMUNITY DEVELOPMENT TEST The bank s Community Development Test performance in this assessment area is consistent with the bank s Community Development Test performance in the full-scope assessment area (adequate). The bank had one community development investment that was still outstanding at the date of this CRA evaluation, with a current balance totaling $500,000. Additionally, the bank made five donations totaling $2,750 to various organizations within this assessment area that have a community development purpose; one of the donations was for community service, while the remaining four were for revitalizing and stabilizing moderate-income geographies in the assessment area. While the number of community development activities in this assessment area is lower than that of the full-scope assessment area, the bank has only recently entered this market (in mid-2015). The investment was a sizeable bond that supported the school district, and the donations focused on the revitalization efforts of the downtown Hot Springs area and supporting its local Boys & Girls Club. Downtown Hot Springs was noted by recent and previously conducted community contacts as the main area of Garland County needing assistance. The qualitative aspect of these investments outweighs the quantitative, and as a result, the investments made in this assessment area are consistent with the bank s performance in its North Central Arkansas nonmsa assessment area. 21

24 SOUTHEAST ARKANSAS NONMSA ASSESSMENT AREA (Limited-Scope Review) DESCRIPTION OF THE INSTITUTIONS OPERATIONS IN THE SOUTHEAST ARKANSAS NONMSA ASSESSMENT AREA This assessment area includes the entireties of Ashley and Drew Counties, which are located in the southeast portion of nonmsa Arkansas. Citizens Bank operates four branch offices in this assessment area, all of which were acquired through merger activity during the review period. Two of these offices are full-service and two are limited-service facilities. The tables below detail key demographics relating to this assessment area. Assessment Area Demographics by Population Income Level Demographic Type Family Population Household Population Population Income Level Low- Moderate- Middle- Upper- 2,267 1,915 1,944 5,033 11, % 17.2% 17.4% 45.1% 100% 4,195 2,566 2,580 6,943 16, % 15.8% 15.8% 42.6% 100% Assessment Area Demographics by Geography Income Level Dataset Census Tracts Family Population Household Population Business Institutions Geography Income Level % 0.0% 75.0% 25.0% 0.0% 100% 0 0 7,447 3, , % 0.0% 66.7% 33.3% 0.0% 100% ,721 5, , % 0.0% 65.8% 34.2% 0.0% 100% , % 0.0% 56.9% 43.1% 0.0% 100% 22

25 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE SOUTHEAST ARKANSAS NONMSA ASSESSMENT AREA LENDING TEST The bank s Lending Test performance in this assessment area is consistent with the bank s Lending Test performance in the full-scope assessment area (satisfactory), as detailed in the following table. This assessment area does not contain any LMI census tracts; therefore, a detailed geographic distribution of loans analysis would not prove meaningful and was not performed as part of this examination. Nevertheless, the loan dispersion within this assessment area s census tracts was reviewed. The results of the analysis showed loan activity was adequately dispersed throughout the assessment area and was consistent with demographics and branch structure. Therefore, the bank s geographic distribution of loans exceeds performance from the full-scope assessment area. For more detailed information relating to the bank s Lending Test performance in this assessment area, see the tables in Appendix A. Lending Test Criteria Distribution of Loans by Borrower s Profile Geographic Distribution of Loans OVERALL Performance Consistent Exceeds Consistent COMMUNITY DEVELOPMENT TEST The bank s Community Development Test performance in this assessment area is below the bank s Community Development Test performance in the full-scope assessment area (adequate). The bank did not conduct any qualified community development activities in this assessment area during the review period. However, the bank did not have this assessment area prior to the merger on December 22, The acquired institution was a small bank and was not required to engage in community development activities. Therefore, while performance is below that found in the full-scope assessment area, the overall impact of this level of community development activity is relatively low. 23

26 Appendix A LENDING PERFORMANCE TABLES FOR LIMITED-SCOPE REVIEW AREAS Fayetteville MSA Assessment Area 1 4 Family Residential Real Estate Distribution of Loans Inside Assessment Area by Borrower Income Borrower Income Level % 0 0.0% % % 0 0.0% 5 100% Family Population 19.6% 18.0% 20.5% 41.9% 0.0% 100% 2014 HMDA Aggregate 6.8% 15.1% 18.3% 41.7% 18.2% 100% Gross Revenue Distribution of Loans Inside Assessment Area by Business Revenue <$100 Loan Amounts in $000s >$100 and <$250 >$250 and <$1,000 $1 Million or Less % 0 0.0% % 3 100% Greater than $1 Million/Unknown 0 0.0% 0 0.0% 0 0.0% 0 0.0% % 0 0.0% % 3 100% Dun & Bradstreet Businesses < $1MM 90.0% 2014 CRA Aggregate Data 51.2% Dataset Consumer Motor Vehicle Loans Distribution of Loans Inside Assessment Area by Income Level of Borrower Borrower Income Level % % % % 0 0.0% 5 100% Household Population 22.2% 16.8% 18.5% 42.4% 0.0% 100% 24

27 Appendix A (continued) 1 4 Family Residential Real Estate Owner-Occupied Housing Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% % % % 0 0.0% 5 100% 1.7% 8.7% 57.2% 32.4% 0.0% 100% 2014 HMDA Aggregate 1.3% 7.7% 52.1% 38.9% 0.0% 100% Small Business Loans Business Institutions 2014 CRA Aggregate Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 0 0.0% % % 0 0.0% 3 100% 3.5% 18.3% 49.2% 29.0% 0.0% 100% 3.5% 16.2% 47.1% 31.4% 1.7% 100% Distribution of Loans Inside Assessment Area by Income Level of Geography Consumer Motor Vehicle Loans Household Population Geography Income Level 0 0.0% % % % 0 0.0% 5 100% 4.7% 12.6% 55.3% 27.4% 0.0% 100% 25

28 Appendix A (continued) Hot Springs MSA Assessment Area 1 4 Family Residential Real Estate Distribution of Loans Inside Assessment Area by Borrower Income Borrower Income Level 0 0.0% 0 0.0% 0 0.0% % 0 0.0% 1 100% Family Population 20.8% 17.3% 21.1% 40.9% 0.0% 100% 2014 HMDA Aggregate 4.4% 12.8% 16.8% 46.7% 19.3% 100% Gross Revenue Distribution of Loans Inside Assessment Area by Business Revenue <$100 Loan Amounts in $000s >$100 and <$250 >$250 and <$1,000 $1 Million or Less % 0 0.0% 0 0.0% % Greater than $1 Million/Unknown 0 0.0% 0 0.0% 0 0.0% 0 0.0% % 0 0.0% 0 0.0% 1 100% Dun & Bradstreet Businesses < $1MM 91.0% 2014 CRA Aggregate Data 51.7% Distribution of Loans Inside Assessment Area by Income Level of Borrower Dataset Borrower Income Level Consumer Motor Vehicle Loans 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 100% Household Population 23.1% 16.5% 18.5% 41.8% 0.0% 100% 26

29 Appendix A (continued) 1 4 Family Residential Real Estate Owner-Occupied Housing Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 0 0.0% 0 0.0% % 0 0.0% 1 100% 1.2% 11.6% 55.4% 31.7% 0.0% 100% 2014 HMDA Aggregate 1.1% 7.7% 49.7% 41.5% 0.0% 100% Small Business Loans Business Institutions 2014 CRA Aggregate Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 0 0.0% % 0 0.0% 0 0.0% 1 100% 1.9% 18.8% 48.3% 31.0% 0.0% 100% 0.9% 17.6% 46.2% 33.0% 2.4% 100% Consumer Motor Vehicle Loans Household Population Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 100% 2.0% 15.8% 52.8% 29.4% 0.0% 100% 27

30 Appendix A (continued) Southeast Arkansas nonmsa Assessment Area 1 4 Family Residential Real Estate Distribution of Loans Inside Assessment Area by Borrower Income Borrower Income Level 0 0.0% 0 0.0% 0 0.0% % 0 0.0% 5 100% Family Population 20.3% 17.2% 17.4% 45.1% 0.0% 100% 2014 HMDA Aggregate 4.1% 10.1% 19.2% 50.3% 16.3% 100% Gross Revenue Distribution of Loans Inside Assessment Area by Business Revenue <$100 Loan Amounts in $000s >$100 and <$250 >$250 and <$1,000 $1 Million or Less % % % % Greater than $1 Million/Unknown 0 0.0% 0 0.0% % % % % % % Dun & Bradstreet Businesses < $1MM 89.7% 2014 CRA Aggregate Data 33.7% Distribution of Loans Inside Assessment Area by Income Level of Borrower Dataset Borrower Income Level Consumer Motor Vehicle Loans 0 0.0% % % % % 5 100% Household Population 25.8% 15.8% 15.8% 42.6% 0.0% 100% 28

31 Appendix A (continued) 1 4 Family Residential Real Estate Owner-Occupied Housing Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 0 0.0% % % 0 0.0% 5 100% 0.0% 0.0% 70.6% 29.4% 0.0% 100% 2014 HMDA Aggregate 0.0% 0.0% 58.3% 41.2% 0.5% 100% Distribution of Loans Inside Assessment Area by Income Level of Geography Small Business Loans Business Institutions 2014 CRA Aggregate Geography Income Level 0 0.0% 0 0.0% % % 0 0.0% % 0.0% 0.0% 56.9% 43.1% 0.0% 100% 0.0% 0.0% 60.2% 30.7% 9.1% 100% Consumer Motor Vehicle Loans Household Population Distribution of Loans Inside Assessment Area by Income Level of Geography Geography Income Level 0 0.0% 0 0.0% % % 0 0.0% 5 100% 0.0% 0.0% 65.8% 34.2% 0.0% 100% 29

32 Appendix B ASSESSMENT AREA DETAIL North Central Arkansas nonmsa Assessment Area Fayetteville MSA Assessment Area 30

33 Appendix B (continued) Hot Springs MSA Assessment Area Southeast Arkansas nonmsa Assessment Area 31