PUBLIC DISCLOSURE. April 2, 2007 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION. Four Oaks Bank & Trust Company U.S.

Transcription

1 PUBLIC DISCLOSURE April 2, 2007 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Four Oaks Bank & Trust Company U.S. Highway 301 South Four Oaks, North Carolina Federal Reserve Bank of Richmond P. O. Box Richmond, Virginia 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 Rating Institution s CRA Rating... 1 Table of Performance Test Ratings... 1 Summary of Major Factors Supporting Rating... 1 Institution Description of Institution... 2 Scope of Examination... 2 Conclusions With Respect to Performance Tests... 3 Full Review Assessment Area Conclusions Raleigh-Cary, NC MSA Assessment Area... 7 Limited Review Assessment Area Conclusions CRA Appendices CRA Appendix A: Scope of Examination CRA Appendix B: Limited Review Tables CRA Appendix C: Loan, Branch, and Deposit Volume by Assessment Area 19 CRA Appendix D: Glossary... 20

3 INSTITUTION RATING INSTITUTION'S CRA RATING: Four Oaks Bank & Trust Company is rated "OUTSTANDING." The following table indicates the performance level of Four Oaks Bank & Trust Company with respect to the lending, investment, and service tests. PERFORMANCE LEVELS Four Oaks Bank & Trust Company PERFORMANCE TESTS Outstanding High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance Lending Test* X Investment Test X Service Test X * The lending test is weighted more heavily than the investment and service tests in determining the overall rating. The major factors supporting the institution s rating include: Overall lending activity is excellent in relation to the bank s capacity and assessment area needs. A substantial majority of the institution s small business, small farm, and Home Mortgage Disclosure Act (HMDA) loans were originated within the bank s assessment areas. Overall, the geographic and borrower lending distributions are considered excellent. Participation in qualified community development lending is responsive to community credit needs and is considered adequate. The level of qualified community development investments is considered good relative to available opportunities. Delivery systems and branch locations are readily accessible to all segments of the assessment areas. A relatively high level of community development services was identified. Page 1

4 DESCRIPTION OF INSTITUTION Four Oaks Bank & Trust Company (FOBTC) is headquartered in Four Oaks, North Carolina, and operates 13 full-service branch offices in central North Carolina. The institution is a subsidiary of Four Oaks Fincorp, Inc., a one-bank holding company also located in Four Oaks, North Carolina. The holding company also maintains a 49% ownership interest in Four Oaks Mortgage Services, L.L.C., which engages in mortgage banking activities. As of December 31, 2006, the bank s assets totaled $606.9 million, of which 75.2% were loans and 16.4% were securities. Various credit products are available through the institution including small business, commercial, consumer, and real estate secured loans. The loan portfolio, as of December 31, 2006, was comprised of 67.8% commercial/farm real estate secured, 19.7% one- to four-family residential real estate secured, 8.7% commercial and agriculture, 3.6% consumer, and.2% other loans. FOBTC received a Satisfactory rating at its prior CRA evaluation dated April 4, The following table reflects the current composition of the bank s assessment areas. Assessment Area City/County Census Tracts Included , Duplin Duplin Pender Sampson Lee * Lee All Johnston All , Harnett Raleigh-Cary, NC , MSA(6640) , Wake , * New assessment area since the previous evaluation on April 4, 2005 Since the previous evaluation, the bank opened two branch offices, one in Wake County (March 2006) and one in Lee County (September 2006). The addition of the branch location in Lee County necessitated the creation of the Lee assessment area. SCOPE OF EXAMINATION The institution was evaluated using the interagency examination procedures developed by the Federal Financial Institutions Examination Council (FFIEC). Consistent with these procedures, small business, small farm, and HMDA lending activity reported by the institution from January 1, 2005, through December 31, 2006, was reviewed. Loans extended or purchased by affiliates are not included or considered in this evaluation. Qualified community development loans and services are also considered for activities taking place since the previous evaluation. All qualified investments outstanding as of the examination date were also considered regardless of when made. Page 2

5 Overall ratings for the lending, investment, and service tests are assigned to the institution based on its performance in assessment areas subject to the FFIEC s full review evaluation process. Because of its relative size, determined by loan activity, proportion of bank branches and deposits, and market population, the Raleigh-Cary, NC Metropolitan Statistical Area (MSA) assessment area was subject to the full review evaluation process. When considering the loan volume from the evaluation period, this assessment area accounts for 94.9% of the number and 94.6% of the dollar volume of loans analyzed within the bank s assessment areas. Also, ten of the bank s 13 branches (76.9%) are located in the Raleigh-Cary, NC MSA market, and 94.6% of the bank s deposits (as of June 2006) are derived from this market. The remaining assessment areas were reviewed utilizing the limited review evaluation procedures, which require a determination as to whether performance was consistent with the assigned overall institution rating. Because of the recent addition (September 2006) of the Lee assessment area, only limited weight was placed on the bank s lending in that market area. According to the FFIEC s procedures, lending test performance accounts for one-half of the overall rating, while the investment and service tests are equally weighted and each account for one-quarter of the overall rating. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS LENDING TEST Overall, the lending test is rated outstanding based on lending activity, the distribution of loans, and community development lending. Area demographic data, Dun & Bradstreet (D&B) business data, and market aggregate information are used as proxies for demand when evaluating the bank s performance. Aggregate data includes FOBTC and all other reporting institutions that originated and/or purchased loans of the type considered within the bank s assessment areas. Demographic data is based on the 2000 census, while D&B business data is current as of 2005, and the small business, small farm, and HMDA aggregate data are from calendar year Within the bank s market areas, a high level of small business lending activity has been reported by specialized lenders, who often originate small business loans in the form of credit cards. These loans, however, tend to be much smaller in size than traditional small business bank loans. The presence of these lenders is reflected in a smaller market share for traditional lenders, such as FOBTC, and was considered as an aspect of performance context when evaluating the level and distribution of bank lending. Lending Activity: A bank s loan-to-deposit ratio is one measure of its lending relative to its capacity. The bank s quarterly loan-to-deposit ratio for the seven-quarter period ending December 31, 2006, averaged 96.1% and ranged from 92.9% to 98%. The quarterly average loan-to-deposit ratios for all banks headquartered in metropolitan areas of North Carolina and of similar asset size to FOBTC ranged from 86.7% to 91.3% for the same seven-quarter period. As of December 31, 2006, the institution s loan-to-deposit ratio equaled 96.7%. Since March 31, 2005, loans, deposits, and assets have increased by 43.5%, 37.1%, and 43%, respectively. No barriers to the bank's ability to lend were noted, and the bank s level of lending reflects an excellent responsiveness to area credit needs when considering market demand and bank capacity. Page 3

6 Assessment Area Concentration The institution's lending volume for HMDA, small business, and small farm loans from January 1, 2005, to December 31, 2006, is represented in the following table: Loan Type Lending Inside and Outside the Assessment Areas Inside Outside # % $('000s) % # % $('000s) % Total HMDA % $17, % % $6, % Total small farm % $17, % % $2, % Total small business 1, % $89, % % $13, % TOTAL LOANS 1, % $123, % % $23, % As depicted in the table, a substantial majority of loans, both by number (87.9%) and dollar amount (84.2%), for the product lines included in the analysis, have been provided to residents and businesses of the bank s assessment areas. Borrower and Geographic Distribution: An analysis of lending during the review period is discussed in greater detail in subsequent sections of this evaluation. While loan data from calendar years 2005 and 2006 were analyzed and considered in the evaluation, unless otherwise noted, bank and aggregate data from 2005 is presented in the following tables. In instances where the performance during 2005 varies significantly from performance in 2006, such variances and the corresponding impact on the overall performance is discussed. When evaluating the geographic and borrower distribution for a specific loan category (HMDA, small business, and small farm) within an assessment area, primary emphasis is placed on the number of loans originated or purchased. When considering the performance of all loan products to arrive at an overall conclusion, the level of performance of each category is weighted by the dollar volume of each category. All conclusions additionally take into consideration relevant performance context factors. As noted previously, a high level of small business lending activity has been reported by credit card lenders within the bank s market areas. Not only do such loans tend to be smaller, but when included in the aggregate, these reporters often tend to understate the proportion of reported loans to businesses with revenues of $1 million or less. Therefore, to better gauge performance, FOBTC s lending is also compared to a peer group of traditional small business lenders that excludes the credit card lenders. The bank s geographic and borrower distribution performance varies from good to excellent across the product lines evaluated within the Raleigh-Cary, NC MSA assessment area. Although the bank s performance in the limited review assessment areas is not also considered excellent, the performance is considered at least adequate. Overall, the bank s performance is considered excellent when considering the performance of each product line and across all market areas. Page 4

7 Community Development Lending: During the review period, the bank funded four loans for community development purposes totaling $1,095,500. The loans were to multiple organizations that specialized in affordable housing projects and the provision of services to lowand moderate-income families and areas. These loans benefited the Raleigh-Cary, NC MSA assessment area. INVESTMENT TEST The institution s level of responding to community development needs through its investment activities is rated high satisfactory. Currently (December 31, 2006), the institution reported $606.9 million in total assets and a securities portfolio totaling $99.7 million. Qualified investments benefiting the statewide area include the following: A $1,000,000 commitment to fund operations of the Triangle Mezzanine Fund L.L.P. This organization is a Small Business Investment Company (SBIC). SBICs are investment firms that are licensed and regulated by the Small Business Administration and provide venture capital to small businesses throughout the Mid-Atlantic region including North Carolina. FOBTC has funded $500,000 of this commitment. Six real estate mortgage investment conduits (REMICs) purchased from Ginnie Mae totaling $8 million. The REMICs are made up of mortgage loans primarily to low- and moderate-income borrowers from a multistate area that includes North Carolina. FOBTC maintains a $54,485 equity investment in the Pine Knoll Elderly Associates L.P., which operates a 32-unit apartment complex for elderly lowand moderate-income individuals. Since the previous evaluation period, the bank also has contributed approximately $117,500 in charitable donations to a variety of organizations that primarily assist low- and moderate-income residents or the promotion of community development in low- and moderate-income geographies. Of the total amount of charitable contributions, a small portion ($2,588) was for hurricane relief outside of the bank s combined assessment areas. The remaining contributions were to organizations operating within the bank s various assessment areas. SERVICE TEST The bank s overall performance under the service test is rated high satisfactory. Systems for delivering retail banking services appear effective and are readily accessible to all portions of the assessment areas. The bank offers a low-cost checking product to its customers and also actively supports community development organizations that provide community development services throughout its various assessment areas. Discussion of specific activities is included for each assessment area, as applicable. As required by the Federal Deposit Insurance Corporation Improvement Act of 1991, FOBTC has adopted a branch closing policy. Page 5

8 COMPLIANCE WITH ANTIDISCRIMINATION LAWS No credit practices inconsistent with the substantive provisions of the fair housing and fair lending laws and regulations were identified. Adequate policies, procedures, and training programs have been developed to support nondiscrimination in lending activities. Page 6

9 METROPOLITAN AREAS (For metropolitan areas with some or all of the assessment areas reviewed using the examination procedures) DESCRIPTION OF INSTITUTION S OPERATIONS IN RALEIGH-CARY, NC MSA ASSESSMENT AREA The bank's metropolitan assessment area is located in Harnett, Johnston, and Wake Counties, North Carolina, and as previously mentioned, is part of the Raleigh-Cary, NC MSA. According to the 2000 census data, the assessment area has a population of 339,651 and a median housing value of $116,637. The owner-occupancy rate for the assessment area equals 70.8% and is higher than the rates for the state (61.6%) and the MSA (63%). The assessment area poverty rate is 6.4%, which is comparable to the MSA s poverty rate of 5.9% and is less than the statewide rate of 9%. The 2006 median-family income for the MSA equals $71,600. The following table provides demographic data for the assessment area by the income level of families and the percentage of population living in census tracts of varying income levels. The table also displays the distribution of owner-occupied housing by income level of census tract, as well as D&B business and farm demographic information. Page 7

10 Raleigh-Cary, NC MA ASSESSMENT AREA DEMOGRAPHICS Categories Tract Distribution Families by Tract Families < Poverty as a % of Families by Tract Families by Family Low Moderate Middle Upper NA Total Low Moderate Middle Upper NA Total Low Moderate Middle Upper NA Total # % # % # % # % , , , , , , , , , , , , Housing Types by Tract Housing Units by Tract Owner Occupied Rental Vacant # % % # % # % ,753 19, , , ,922 66, , , ,262 10, , , ,937 96, , , Total Businesses by Tract Less than or = $1 Million Businesses by Tract and Revenue Size Over $1 Million Revenue not Reported # % # % # % # % , , , , , , , , Percentage of Total Businesses: Total Farms by Tract Less than or = $1 Million Farms by Tract and Revenue Size Over $1 Million Revenue not Reported Low Moderate Middle Upper NA Total # % # % # % # % Percentage of Total Farms: NA Tracts are tracts without household or family income. The market benefits from easy access to the Interstate 95 corridor and a healthy local economy. The local market is reliant on agriculture, although to a lesser degree in recent years, as well as manufacturing, textile, and pharmaceutical companies. As of March 2007, the unemployment rates for Harnett, Johnston, and Wake Counties are 4.6%, 3.8%, and 3.3%, respectively. North Carolina s unemployment rate is 4.5%. Page 8

11 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE RALEIGH-CARY, NC MSA ASSESSMENT AREA LENDING TEST The institution's overall lending performance within this assessment area is considered excellent. This conclusion is based on the evaluation of geographic and borrower distribution and the level of community development lending while taking into account the bank s market strategy, area demographic data, and aggregate loan data. Lending Activity: During the evaluation period, the proportion of the dollar volume of lending activity within this assessment area (94.6%) is generally consistent with the proportion of deposits (94.6%) derived from this market and the branch offices located in this market (76.9%). The level of lending activity is considered good. The following tables present data about the bank's lending distribution and discussion of the performance follows each table. Geographic Distribution: The following tables present data about the bank s lending. There are no lowincome census tracts within the assessment area. Because the bank s performance during 2005 is substantially similar to its performance during 2006, data from 2006 is not presented. The bank s geographic distribution of lending is considered excellent within this market area. Distribution of Small Business Loans by Level of Geography Moderate- Middle- Upper- Total Total Number of Loans Percentage of Total Loans 34.2% 64.4% 1.4% 100% Total Amount of Loans (000's) $12,662 $23,708 $619 $36,989 Percentage of Total Amount 34.2% 64.1% 1.7% 100% Within the assessment area, lending to businesses located in moderate-income census tracts (34.2%) exceeds both the 2005 aggregate lending level (19.2%) and the percentage of businesses located in such areas (23%). The level of lending to businesses in moderate-income areas is considered excellent. Distribution of Small Farm Loans by Level of Geography Moderate- Middle- Upper- Total Total Number of Loans Percentage of Total Loans 69.1% 30.2%.7% 100% Total Amount of Loans (000's) $4,795 $3,243 $15 $8,053 Percentage of Total Amount 59.5% 40.3%.2% 100% Lending to farms located in moderate-income census tracts (69.1%) exceeds the level of lending by aggregate reporters (53.6%) and the percentage of farms located within moderate-income areas (38.4%). This level of lending is considered excellent. Page 9

12 Distribution of HMDA Loans by Level of Geography Moderate- Middle- Upper- Total Total Number of Loans Percentage of Total Loans 38% 61% 1% 100% Total Amount of Loans (000's) $2,596 $5,794 $375 $8,765 Percentage of Total Amount 29.6% 66.1% 4.3% 100% Within the assessment area, 20.3% of all owner-occupied housing units are located in moderate-income geographies. According to 2005 aggregate HMDA data, 10.9% of all reported loans were to residents of moderate-income geographies. The bank s level of lending in moderate-income areas (38%) exceeds both proxies and is considered excellent. Distribution by Borrower and Revenue Size of the Business or Farm: The following tables present data about the bank's lending to borrowers of different income levels and to businesses and farms of different revenue sizes during Overall, the distribution of lending is considered excellent, when considering market demographics and aggregate data. Because the bank s performance during 2005 is substantially similar to its performance during 2006, data from 2006 is not presented. Distribution of Lending by Loan Amount and Size of Business For calendar year 2005, the bank reported a total of 641 small business loans within the assessment area. Of these transactions, 115 did not contain revenue data and are not included in the analysis. Revenues < $1 Million Revenues > $1 Million $0 - $100,000 >$100,000 to $250,000 >$250,000 Total % % % % % % 8 1.5% % Totals % % % % According to 2005 D&B data, 90.4% of businesses within the assessment area have revenues of $1 million or less. Aggregate small business data indicates that 49.3% of reported small business loans in 2005 were to businesses having revenues of $1 million or less. The remaining portion of businesses either had revenues exceeding $1 million or revenue data was not known. Because the aggregate data includes a significant volume of activity by credit card lenders that typically extend loans in very small amounts, data for a peer group of the ten largest traditional bank reporters was also considered. According to the 2005 data, 66.9% of the selected peer group s reported small business loans were to businesses having revenues of $1 million or less. Revenues were either unknown or in excess of $1 million for the remaining portion of loans. During the evaluation period, 81.9% of the bank s loans were to businesses with revenues of $1 million or less. This level of lending is considered excellent. Page 10

13 Distribution of Lending by Loan Amount and Size of Farm During 2005, the bank reported a total of 139 small farm loans within the assessment area. Of these transactions, 14 did not contain revenue data and are not included in the analysis. Revenues < $1 Million Revenues > $1 Million $0 - $100,000 >$100,000 to $250,000 >$250,000 Total % % 3 2.4% % 6 4.8% 2 1.6% 0 0% 8 6.4% Totals % % 3 2.4% % Of the 125 small farm loans provided in the assessment area during 2005, 93.6% were made to farms with revenues of $1 million or less. D&B data for 2005 indicates that 97.7% of all assessment area farms generated revenues of $1 million or less. Aggregate small farm data indicates that 79.8% of reported small farm loans in 2005 were to farms having revenues of $1 million or less. The remaining portion of farms either had revenues exceeding $1 million or revenue data was not known. This level of lending is considered excellent. Distribution of HMDA Loans by Level of Borrower The bank reported a combined total of 100 HMDA loans within the assessment area. Of these transactions, 65 did not contain income data and are not included in the analysis. Low- Moderate- Middle- Upper- Total Total Number of Loans Percentage of Total Loans 20% 28.6% 17.1% 34.3% 100% Total Amount of Loans (000's) $260 $394 $335 $1,491 $2,480 Percentage of Total Amount 10.5% 15.9% 13.5% 60.1% 100% The level of lending to low-income borrowers (20%) exceeds that of the 2005 aggregate lending (10.7%) and is comparable to the proportion of low-income families residing within the assessment area (20.4%). The bank s level of lending to moderate-income borrowers (28.6%) is analogous to the aggregate level (26.6%) and the proportion of moderate-income families within the assessment area (19.8%). Overall, the bank s performance is considered good. Community Development Lending: As previously mentioned, during the review period the bank extended four loans for community development purposes totaling $1,095,500 that benefited this assessment area. The community development loans made by the bank were to multiple organizations that specialized in affordable housing projects and the provision of services to low- and moderate-income families and areas. Page 11

14 INVESTMENT TEST As previously noted, the bank continues to hold an investment in a licensed SBIC and housing bonds that benefit a multistate area that includes North Carolina. Specific to this assessment area, the bank maintains a $54,485 equity investment in the Pine Knoll Elderly Associates L.P., which provides housing to low- and moderate-income elderly residents of Johnston County. In addition, the bank has made charitable donations in excess of $46,000 to a variety of organizations that facilitate community development within the assessment area. SERVICE TEST Within the Raleigh-Cary, NC MSA assessment area, the bank s performance under the service test is considered good. Systems for delivering retail banking services are readily accessible to essentially all portions of the assessment area, including moderate-income areas. Furthermore, the bank provides a relatively high level of community development services given the size, location, and financial capacity of the institution. Retail Services: Delivery systems are readily accessible to all portions of the assessment area. Bank-by-computer services are offered by the institution. In addition, the institution provides customers with 24-hour telephone access to their accounts through an automated system. Branch offices are generally open until 5:00 p.m. Monday through Thursday and until 6:00 p.m. on Fridays. Branch locations and business hours are considered convenient and meet the needs of assessment area residents and businesses. Six (60%) of the institution s ten branch offices within this assessment area are located in moderate-income geographies and the remaining offices are located in middle-income geographies. As previously indicated, there are no low-income census tracts in this market. Since the previous evaluation, one full-service branch has been opened in a moderate-income census tract and none have been closed. Community Development Services: FOBTC and its employees participate in a relatively high level of community development service endeavors that provide support to various local organizations whose operations directly benefit low- and moderate-income residents or encourage micro-enterprise development. These activities include but are not limited to the following: Triangle Mezzanine Fund L.L.P. A bank officer serves on the advisory board of this SBIC which provides venture capital to small businesses throughout the Mid-Atlantic region including North Carolina. Airport Authority Disadvantage Business Enterprise Program A board member serves as vice chairman of this organization that provides a variety of business opportunities to minority and women-owned businesses. Salvation Army A bank officer serves on the advisory board of the Smithfield chapter. Page 12

15 Johnston County Habitat for Humanity Two bank employees routinely participate in fundraising and other operational activities of this nonprofit organization that provides housing for area low- and moderate-income residents. Benson Small Business and Downtown Committee A bank employee is a member of this organization which promotes small business development throughout the Town of Benson. Fuquay-Varina Revitalization Association A bank employee is a member of this organization, which provides for small business development and historical preservation within the downtown area of the Town of Fuquay- Varina. A bank officer participated in a homebuyer workshop that was targeted toward low- and moderate-income individuals located in Fuquay-Varina, NC. YMCA WeBuildPeople A bank employee serves as treasurer of the YMCA s WeBuildPeople program. The program provides funding for children and adults to participate in Triangle area YMCA programs. Most of the funding recipients are from low-income families. Johnston Community College Foundation A bank employee serves on the investment committee of this foundation which provides tuition scholarships to area students in need of financial assistance. Johnston County Education Foundation A bank officer serves as president of the foundation which provides scholarships and grants to students in need of financial assistance. Partnership for Children of Johnston County A bank employee serves on the board of directors of this nonprofit organization that facilitates childcare services to area low-income families. Page 13

16 NONMETROPOLITAN STATEWIDE AREA (If none of the assessment areas within the nonmetropolitan statewide area were reviewed using the examination procedures) DESCRIPTION OF INSTITUTION S OPERATIONS IN NONMETROPOLITAN AREAS OF NORTH CAROLINA FOBTC s Duplin and Lee assessment areas were reviewed using the limited review examination procedures. Information detailing the composition of the assessment areas is included in the DESCRIPTION OF INSTITUTION section of this report. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN NONMETROPOLITAN AREAS OF NORTH CAROLINA The following table indicates for each test whether performance in an assessment area was generally below, consistent with, or exceeded performance of FOBTC overall. Facts and data reviewed, including performance and demographic information, can be found in APPENDIX B of this report. Conclusions regarding performance, which did not impact the overall rating, are as follows: Assessment Area LendingTest InvestmentTest ServiceTest Duplin Below Consistent Consistent Lee Below Consistent Consistent Although the bank s Lending Test performance in the Duplin and Lee assessment areas is considered "below" the outstanding performance in the Raleigh-Cary, NC MSA assessment area, the performance is considered at least adequate in each of the assessment areas. Page 14

17 CRA APPENDIX A SCOPE OF EXAMINATION LIST OF ASSESSMENT AREAS AND TYPE OF EXAMINATION ASSESSMENT AREA Raleigh-Cary, NC MSA Duplin Lee* TYPE OF EXAMINATION Full Review Limited Review Limited Review BRANCHES VISITED 6144 U.S. Highway 301 South Four Oaks, NC None None * New assessment area since the previous examination on April 4, Page 15

18 Duplin Assessment Area CRA APPENDIX B LIMITED REVIEW TABLES Summary of Demographic and Aggregate Data % Low- % Moderate- Families by Geography N/A 12.4% Families < Poverty Level as % of Families by Geography N/A 7.5% Owner-Occupied Housing Units by Geography N/A 13.4% Area Families by Level 27.3% 19.5% Aggregate HMDA Loans by Geography N/A 14.4% Aggregate HMDA Loans by Borrower 7.4% 20.2% Area Businesses by Geography N/A 9.1% Aggregate Small Business Loans by Geography N/A 8.6% Area Farms by Geography N/A 12.3% Aggregate Farms Loans by Geography N/A 13.4% Area Businesses with Revenues $1 million 89.6% Aggregate Small Business Loans with Revenues < $1 million 62.4% Area Farms with Revenues $1 million 94.3% Aggregate Farms with Revenues < $1 million 77.2% PERFORMANCE TEST DATA FOR DUPLIN ASSESSMENT AREA LENDING TEST There are no low-income census tracts in the assessment area. INVESTMENT TEST In Moderate- Areas Loan Originations/Purchases To Low- To Moderate- Borrowers Borrowers To Businesses with Revenues < $1 Million # % # % # % # % HMDA % 2 40% 0 0% Small Business % % Farm 1 5.6% % During the evaluation period, the bank made charitable contributions in excess of $68,000 to local organizations that facilitate community development within this assessment area. Other investments benefiting this market are limited to those previously discussed that benefit a multistate area that includes North Carolina. Page 16

19 SERVICE TEST The bank operates two branches within this assessment area. No branch offices have been opened or closed since the previous evaluation. Banking services offered in this assessment area are substantially the same as the services available to other communities the bank serves. Community development services benefiting this market include the following: Duplin County Habitat for Humanity A bank officer supports the local Habitat for Humanity chapter by taking and processing mortgage applications from area low- and moderate-income residents. Duplin County Education Foundation A bank officer serves as a director for the foundation which provides scholarships and grants to students in need of financial assistance. Lee Assessment Area As previously mentioned, the Lee assessment area was not formed until September 2006; therefore, only loan data from calendar year 2006 was analyzed and considered in the evaluation. Aggregate data from 2005 was used in the analysis as 2006 aggregate data was not yet available. Summary of Demographic and Aggregate Data % Low- % Moderate- Families by Geography N/A 28.5% Families < Poverty Level as % of Families by Geography N/A 20.5% Owner-Occupied Housing Units by Geography N/A 22.3% Area Families by Level 17.4% 15.4% Aggregate HMDA Loans by Geography N/A 20.4% Aggregate HMDA Loans by Borrower 5.7% 16.3% Area Businesses by Geography N/A 40.3% Aggregate Small Business Loans by Geography N/A 29.8% Area Farms by Geography N/A 14.3% Aggregate Farms Loans by Geography N/A 12.5% Area Businesses with Revenues $1 million 89.1% Aggregate Small Business Loans with Revenues < $1 million 57.5% Area Farms with Revenues $1 million 100% Aggregate Farms with Revenues < $1 million 89.6% Page 17

20 PERFORMANCE TEST DATA FOR LEE ASSESSMENT AREA LENDING TEST There are no low-income census tracts in the assessment area. In Moderate- Areas Loan Originations/Purchases To Low- To Moderate- Borrowers Borrowers To Businesses with Revenues < $1 Million # % # % # % # % HMDA 2 25% 0 0% 0 0% Small Business 0 0% 4 100% Farm 0 0% 0 0% A local economic development official was contacted to further assist in evaluating the bank's CRA performance. The individual indicated that area financial institutions appear to be meeting the credit needs of the community. INVESTMENT TEST During the evaluation period, the bank made charitable contributions totaling less than $1,000 to local organizations that facilitate community development within this assessment area. Other investments benefiting this market are limited to those previously discussed that benefit a multistate area that includes North Carolina. SERVICE TEST During 2006, the bank opened this assessment area s only office in an upper-income census tract. No offices have been closed since the previous evaluation. Banking services offered in this assessment area are substantially the same as the services available to other communities the bank serves. Community development services benefiting this market include the following: City of Sanford Habitat for Humanity A bank officer routinely participates in the operation of the local Habitat for Humanity chapter. Page 18

21 CRA APPENDIX C LOAN, BRANCH, AND DEPOSIT VOLUME BY ASSESSMENT AREA Loan volume data reflects the HMDA, small business, and small farm loans reported by the institution from January 1, 2005, through December 31, Deposit volume data was reported to the Federal Deposit Insurance Corporation and is current through June Assessment Loan Volume Branches Deposit Volume Area Name # % $(000s) % # % $(000s) % Duplin % $4, % % $23, % Lee * 14.8% $2, % 1 7.7% $0 0% Raleigh-Cary, NC MSA 1, % $116, % % $412, % Total 1, % $123, % % $436, % * New assessment area as of September 2006 Page 19

22 CRA APPENDIX D 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 areas. 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 low- or 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 moderate-income 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 non-relatives 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). Geography: A census tract or a block numbering area delineated by the U. S. Bureau of the Census in the most recent decennial census. Page 20

23 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 thousand 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. 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. Page 21

24 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 ("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 nonmortgage, 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 thousand 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. Page 22