PUBLIC DISCLOSURE COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION

Transcription

1 PUBLIC DISCLOSURE October 29, 2007 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION First Financial Bank RSSD# North Washington El Dorado, Arkansas Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, Missouri NOTE: This document is an evaluation of this institution s record of meeting the credit needs of its entire community, including low- and 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 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. First Financial Bank a. Institution Rating. 1 b. Scope of Examination...2 c. Description of Institution...3 d. Description of Combined Assessment Area....5 e. Conclusions with Respect to Performance Tests.7 II. III. State of Arkansas (Full-Scope Review) a. State CRA Rating...18 b. Description of Institution s Operations...18 c. Conclusions with Respect to Performance Tests...21 State of Mississippi (Full-Scope Review) a. State CRA Rating...29 b. Description of Institution s Operations...29 c. Conclusions with Respect to Performance Tests Memphis, TN-MS-AR MSA (Full-Scope Review) a. Description of Institution s Operations b. Conclusions with Respect to Performance Tests Mississippi Non -MSA (Full-Scope Review) a. Description of Institution s Operations...47 b. Conclusions with Respect to Performance Tests...49 IV. Appendices Appendix A: Summary Scope of Examination Appendix B: List of Census Tracts in CRA Assessment Area Appendix C: Glossary.59 Table of Contents

3 INSTITUTION FIRST FINANCIAL BANK CRA RATING: SATISFACTORY. The Lending Test is rated: SATISFACTORY. The Community Development Test is rated: SATISFACTORY. The major factors supporting the institution s rating include: The distribution of loans to borrowers reflects reasonable penetration among individuals of different income levels, including low- and moderate-income (LMI) individuals, and among small business and farm entities. The overall geographic distribution of the loan products reviewed reflects good dispersion throughout the combined assessment area. The bank s loan-to-deposit (LTD) ratio is reasonable based upon lending activity within its combined assessment area. The bank s level of lending within its combined assessment area, while quite low, is considered to be adequate given the bank s lending focus. Although low, the overall level of community development performance demonstrates adequate responsiveness to community development needs of the combined assessment area through qualified loans, investments, donations, and services. There have been no CRA-related complaints against the bank. 1

4 SCOPE OF EXAMINATION First Financial Bank s CRA performance was evaluated using the Federal Financial Institutions Examination Council s (FFIEC) Interagency CRA Procedures for Intermediate Small Banks (ISBs). The evaluation criteria for ISBs consist of two tests: the small bank lending test and the flexible community development test. The lending test includes the same performance criteria used in the assessment of small banks, which includes the evaluation of an institution s performance for the following: Lending to borrowers of different income levels and to businesses and farms of different revenue sizes. The geographic distribution of loans among the census tracts of the assessment areas. The bank s LTD ratio. The percentage of loans originated inside the bank s designated assessment areas. The bank s record of taking appropriate action on lending-related complaints. The community development test considers the bank s responsiveness to community development needs through its level of community development loans originated, qualified investments and donations made, and the level of community development services provided. First Financial Bank s performance for all assessment areas throughout this evaluation was reviewed using full-scope examination procedures. For all assessment areas, the lending test was evaluated using loans originated during Specifically, the bank s lending performance was evaluated using 2006 residential real estate loans, consumer loans, and small business and small farm loans. 1 For the community development test, qualified community development loans originated since the previous examination were considered. Additionally, qualified community development investments, including those outstanding since the previous evaluation, were considered. Finally, qualified monetary contributions made and services provided since the previous evaluation were considered. Throughout this evaluation, the lending test for 2006 residential real estate loans entailed comparisons of the bank s lending performance to relevant demographics and 2006 Home Mortgage Disclosure Act (HMDA) aggregate lending data. 2 For small business and small farm lending, the performance tests used 2006 Dun & Bradstreet demographic data and 2006 CRA aggregate data. 3 The HMDA and CRA aggregate data (hereafter referred to as the aggregate ) were used in the evaluation of both the geographic distribution and the borrower income or business/farm revenue distribution. 1 The bank was required to report HMDA loans originated by an institution that it purchased during 2006 only; however, the loans used in the CRA analysis include all residential real estate loans for The bank is now subject to full HMDA reporting and will be reporting all activity for See the Glossary in Appendix C for the definitions of HMDA loans, small business loans, and small farm loans. 2 HMDA aggregate data represents all lending activity collected and reported under HMDA for the assessment area based upon all financial institutions required to report such data. 3 CRA aggregate represents all lending activity collected and reported under the CRA for this assessment area based upon all financial institutions required to report such data. 2

5 A community contact was conducted to establish a performance context for the communities in which the bank operates and to understand the community s credit needs. The contact was with the Chamber of Commerce s community development division. Information was solicited on the overall economic condition of the bank s assessment areas, credit needs, and how the financial institutions meet the credit needs of the communities. The bank s overall rating represents a blend of its performance within its assessment areas in the states of Arkansas and Mississippi. Full scope examination procedures were used in each geographical area analyzed. Performance within the state of Arkansas received the most consideration in the evaluation of the bank s CRA performance. DESCRIPTION OF INSTITUTION 4 First Financial Bank is a full-service, retail bank, offering various types of consumer, agricultural, and commercial loans as well as a wide array of deposit products. The bank, headquartered in El Dorado, Arkansas, is a wholly-owned subsidiary of First Financial Banc Corporation, a one-bank holding company, also located in El Dorado, Arkansas. The bank reported total assets of $574.5 million as of September 30, 2007, which represents an increase in assets of about 21.1 percent since the previous evaluation (assets totaled $474.2 million as of September 30, 2005). As of September 30, 2007, the bank reported total loans of approximately $512.5 million and total deposits of $453.9 million. Total loans represent about 89.2 percent of assets and percent of total deposits. There are no apparent impediments that affect the bank s ability to meet the credit needs of its defined assessment areas. Considering the bank s asset size, financial condition and other resources, First Financial Bank has the ability to meet the credit needs of its assessment areas. A distribution of the bank s lending portfolio, by both dollar amount and percentage, is displayed in the following table. 4 Any percentage row or column figure displayed throughout this evaluation that does not equal exactly 100 percent is strictly due to rounding differences, which are considered immaterial to overall performance conclusions. 3

6 Distribution of Total Loans as of September 30, 2007 Credit Product Type Amount in $000s Percentage of Total Loans Construction and Development $ 74, % Commercial Real Estate 28, % Multifamily Residential % 1-4 Family Residential - Revolving 3, % 1-4 Family Residential - Other 31, % Farmland 326, % Agricultural 4, % Commercial and Industrial 26, % Loans to Individuals 18, % Total Other Loans & Leases % Gross Loans $ 512, % As illustrated in the above table, First Financial Bank s primary lending focus continues to be loans secured by farmland, which represents 63.6 percent of its loan portfolio. The bank is actively involved with originating loans to poultry farmers, which is the primary focus of the bank. Other significant products include commercial and industrial loans, which represent 14.5 percent of the bank s loan portfolio. Even though the above table shows that only 6.1 percent of the loan portfolio consists of residential real estate loans, the bank is actively involved with the origination of such loans. The percentage of loans shown in the loan portfolio does not reflect all loans originated because the bank sells the majority of the 1-4 family residential mortgage loans originated into the secondary market. First Financial Bank is an interstate retail bank, with branch offices in the states of Arkansas and Mississippi. In addition to its main office, the bank operates a total of eight branch offices. The branches are full-service facilities with drive-up availability. Additionally, all eight branches are equipped with full-service automatic teller machines (ATMs). The main office and five branches are located in Union County Arkansas, including five branches in the city of El Dorado and one branch in Smackover, Arkansas. The bank expanded it branching structure by one branch each in three Mississippi counties since the previous performance evaluation. The bank acquired two offices when it purchased Cornerstone Bank of Mississippi in Northwest Mississippi during May, This small bank operated one office in the city of Hernando (DeSoto County) and one in Senatobia (Tate 4

7 County), which First Financial Bank retained as branches. Additionally, the bank opened a branch office in the city of Carthage (Leake County) in central Mississippi during July, In addition to the nine bank locations, the bank has four mortgage loan production offices in Arkansas (Little Rock, North Little Rock, Jonesboro and Fort Smith), plus eleven agricultural production offices dispersed in the states of Alabama (Enterprise), Arkansas (Fayetteville, Mena, Morrilton), Georgia (Gainesville), Kentucky (Elizabethtown), Mississippi (Carthage, Magee), Missouri (Neosho), North Carolina (Monroe), and Texas (Nacogdoches). First Financial Bank received a satisfactory rating at the previous CRA evaluation conducted on November 7, 2005 by this Federal Reserve Bank, using the performance standards for ISBs. DESCRIPTION OF COMBINED ASSESSMENT AREA 5 First Financial Bank has designated three assessment areas (referenced collectively as combined assessment area ) covering portions of two states, Arkansas and Mississippi. Assessment Areas Two and Three in Mississippi have been added to the bank s assessment area since the previous evaluation in November, Assessment Area One (referenced as the Union County assessment area ) is located in a nonmetropolitan statistical area (non-msa) in the South Central part of the state of Arkansas, bordering the state of Louisiana. The county seat of Union County, Arkansas is El Dorado. The lack of a strong highway system remains a primary detriment to Union County because of its remote location. 6 As indicated earlier, the bank s main office and five branch offices are located within Union County. Specifically, the main office and four branch offices are located in the city of El Dorado and one branch is located in the city of Smackover, Arkansas. Two of the offices are located in middle-income and four are in upper-income census tracts. Assessment Area Two (referenced as the Leake County assessment area ) is located in a non- MSA in the middle of the state of Mississippi. The bank operates one branch in the Leake County assessment area, which is located in the city of Carthage. The city of Carthage is the county seat of Leake County, Mississippi. The branch is located in a middle-income census tract. Assessment Area Three (referenced as the MSA assessment area ) is a part of the Memphis, TN-MS-AR multi-state MSA This assessment area consists of two contiguous counties (De Soto and Tate) within the state of Mississippi. As previously mentioned, the bank operates two branch offices within this assessment area. One branch is located in a moderate-income census tract in the city of Senatobia (in Tate County) and one is located within a middle-income census tract in the city of Hernando (in De Soto County). 5 Statistical and demographic information cited in this evaluation, unless otherwise stated, is taken from 2000 U.S. Census Bureau data. 6 Source: Union County, Arkansas Economic Development Strategic Plan by T-I-P Strategies 5

8 The following table reflects the number of census tracts by income level in the combined assessment area and the family population residing within those tracts. 7 Combined Assessment Area Geographical Information by Income Category 2000 Census Data Low- Moderate- Middle- Upper- Assessment Area Census Tracts 0.0% 7.1% 59.5% 33.3% 100% Family Population 0 3,728 33,897 17,821 55, % 6.7% 61.1% 32.1% 100% As shown in the table, there are no low-income census tracts within the bank s combined assessment area, and only 7.1 percent of the combined assessment area census tracts are designated as moderate-income. Approximately 6.7 percent of the combined assessment area s family population resides within these moderate-income geographies. Further, 9.6 percent of the combined area s family population is below the poverty level, and 17.8 percent of the total families below the poverty threshold reside in the moderate-income census tracts. The following table displays population percentages of the combined assessment area families by income level, compared to the population of the states of AR and MS, the statewide non-msa areas for those states, and the entire Memphis, TN-MS-AR MSA. Combined Assessment Area Family Population by Income Level 2000 Census Data Low- Moderate- Middle- Upper- Assessment Area State of Arkansas State of Mississippi Non-MSA Arkansas Non-MSA Mississippi Memphis MSA # ,556 9,156 12,365 24,369 55, % 16.5% 22.3% 44.0% 100% 148, , , , , % 17.9% 22.2% 39.8% 100% 171, , , , , % 16.5% 19.9% 40.9% 100% 66,236 58,047 70, , , % 17.9% 21.8% 39.9% 100% 103,223 70,831 83, , , % 16.2% 19.0% 41.2% 100% 71,723 52,175 62, , , % 16.6% 19.7% 40.9% 100% 7 See the Glossary in Appendix C for a description of each of the income level classifications, which include low-, moderate-, middle-, and upper-income levels. Appendix B lists individual census tracts by income level. 6

9 As reflected in the above table, the LMI family population within the bank s combined assessment area is lower than the percentages for the entire states of Arkansas and Mississippi, as well as the statewide non-msa areas, and the multi-state MSA. Specifically, the LMI family population for the bank s combined assessment area is 33.7 percent, compared to 38.0 percent for the entire state of Arkansas, 39.3 percent for Mississippi, 38.3 percent for the statewide Arkansas non-msa areas and 39.8 percent for statewide Mississippi non-msa areas. The LMI family population for the entire Memphis multi-state MSA is 39.4 percent. The one assessment area in AR and the two assessment areas in MS contain diverse markets with varied economic conditions and demographics. Housing and community development needs differ, and credit needs are unique to each assessment area. Detailed information pertaining to each of the bank s assessment areas can be found in the description of the bank s operations for each assessment area. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN COMBINED ASSESSMENT AREA LENDING TEST First Financial Bank meets the criteria for a satisfactory rating under the lending test. The analysis of lending activity to borrowers by income level revealed reasonable borrower penetration among individuals of different income levels, including LMI individuals, and small businesses and farms of different revenue sizes. Overall, the geographic distribution analysis reveals good dispersion throughout the bank s assessment areas, including LMI geographies. Additionally, the bank s LTD ratio is reasonable. The bank s lending inside its assessment areas, although quite low, is considered adequate. Even though some improvement is noted since the previous evaluation, a majority of the loans originated by the bank were outside of the combined assessment area. Lending to Borrowers of Different Income Levels and to Businesses and Farms of Different Revenue Sizes For this performance criterion, the bank s residential real estate loans were first analyzed to determine the reasonableness of lending to borrowers of different income levels within the combined assessment area. The Department of Housing and Urban Development (HUD) estimated the 2006 median family income for the non-msa areas of the states of Arkansas and Mississippi to be $38,000 and $36,100 respectively. HUD estimated the 2006 median family income for the Memphis multi-state MSA to be $54,400. 7

10 First Financial Bank originated 190 residential real estate loans totaling $18.6 million inside the combined assessment area during The following table shows the distribution of the bank s residential real estate loans by the income level of the borrower. Distribution of Loans (Number and Dollar Volume) Inside the Combined Assessment Area by Income Level of Borrower Loan Type Borrower Income Classification Low- Moderate- Middle- Upper Residential 6.3% 14.2% 21.1% 58.4% 100% Real Estate Loans $ 348 $ 1,278 $ 2,612 $ 14,341 $ 18, % 6.9% 14.1% 77.2% 100% Family Population 17.2% 16.5% 22.3% 44.0% 100% First Financial Bank s lending performance to low-income borrowers within the combined assessment area is substantially lower than the family population percentage, although the number of loans to moderate-income borrowers approximates the moderate-income family population percentage. Overall, the level of LMI lending it is comparable to the aggregate s lending percentage. The bank originated 20.5 percent of its residential real estate loans (8.8 percent by dollar volume) to LMI borrowers compared to a LMI family population of 33.7 percent within the combined assessment area. The aggregate originated 21.8 percent (15.6 percent by dollar volume) of residential real estate loans to LMI borrowers within the combined assessment areas. Consideration is given to high poverty rates and low housing affordability ratios 8 within the combined assessment area. The poverty rate is 14.7 percent for Union County, AR, 5.6 percent and 10.6 percent, respectively, for DeSoto and Tate Counties in MS, and 18.2 percent for Leake County in MS. Generally, community members below the poverty threshold are unable to qualify for a loan. Further, housing affordability is low in the two Mississippi assessment areas: 47 percent for DeSoto County and 48 percent for Tate County in the MSA assessment area, and 53 percent for Leake County in a non-msa assessment area. The cost of housing coupled with the lack of affordability impacts the bank s lending ability. Recognizing the fact that some of the assessment areas have low housing affordability ratios and sizeable percentages of families below the poverty threshold, the bank s level of lending is reasonable. Second, consumer loans were analyzed to determine the reasonableness of lending to borrowers of different income levels within the combined assessment area. The consumer loan review consisted of 772 loan originations for The housing affordability ratio is calculated by dividing the median household income by the median housing value. It represents the amount of single family, owner-occupied housing that a dollar of income can purchase for the median household in the census tract. Values closer to 100 percent indicate greater affordability. 8

11 The following table shows the distribution of the loans by the income level of the borrower in comparison to the household population. Distribution of Loans (Number and Dollar Volume) Inside the Combined Assessment Area by Income Level of Borrower Loan Type 2006 Consumer Household Population Borrower Income Classification Low- Moderate- Middle- Upper- Unknown % 24.0% 20.2% 40.2% 0.1% 100% $ 393 $ 868 $ 1,328 $ 5,253 $ 22 $ 7, % 11.0% 16.9% 66.8% 0.3% 100% 19.7% 14.3% 19.4% 46.7% 0.0% 100% This analysis of First Financial Bank s consumer loans to LMI borrowers revealed excellent lending performance. The bank made 39.5 percent of its consumer loans to LMI borrowers, which exceeds the 34.0 percent LMI households residing within the combined assessment area. Third, commercial loans were reviewed to determine the bank s lending level to small business entities. The sample of loans was analyzed by the revenue size of the business and by the loan amount. The review of commercial loans consisted of 249 loans, including 190 loans made to small business entities. To measure the bank s performance for small business lending, 2006 Dun & Bradstreet data and 2006 aggregate lending statistics were used for comparison. The following table shows the distribution of business loans by revenue level. Lending Distribution in the Combined Assessment Area by Business Revenue Level Gross Revenue $1 Million or Less Greater Than $1 Million Loan Origination Amount (in $000s) <$100 >$100<$250 >$250<$1, % 8.8% 4.8% 76.3% % 2.4% 4.0% 23.7% % 11.2% 8.8% 100% First Financial Bank s lending to small business entities was somewhat lower than the percentage of small businesses operating within the combined assessment area; however, it significantly exceeded the aggregate s lending percentage to small business entities. The bank originated 76.3 percent of the business loans made during 2006 to small businesses, with the 9 This total does not include 2 loans for which business revenue was not reported. 9

12 aggregate s lending to small businesses at only 39.3 percent. According to Dun & Bradstreet data, 89.8 percent of the commercial entities within the assessment areas are small businesses. Additionally, a good volume of the bank s loans were in small dollar amounts, which further evidences the bank s willingness to meet the credit needs of smaller entities. The bank originated 62.7 percent of its small business loans (79.9 percent of total loans) in dollar amounts of $100,000 or less. The bank s distribution of loans to small business entities of various revenue sizes within this assessment area is considered reasonable. Finally, agricultural loans were reviewed to evaluate the bank s small farm lending performance. The bank s, agricultural lending performance was analyzed by the revenue of the farm and by the dollar amount of the loan. To measure the bank s performance for small farm lending, Dun & Bradstreet data on farms within the assessment area was used for comparison. The review of agricultural loans consisted of 130 loans and all except one loan was to a small farm entity. The following table shows the distribution of agricultural loans by revenue level. Lending Distribution in the Combined Assessment Area by Farm Revenue Level Gross Revenue Loan Origination Amount (in $000s) <$100 >$100<$250 >$250<$500 $1 Million or Less % 16.2% 9.2% 99.2% Greater Than $ Million 0.8% 0.0% 0.0% 0.8% % 16.2% 9.2% 100% First Financial Bank s lending to small farm entities is considered excellent. According to data from Dun & Bradstreet, 94.4 percent of the reporting farms inside the combined assessment area are small farms. As illustrated in the above table, the bank originated 99.2 percent of its farm loans to small farms. The bank s lending percentage exceeded the aggregate s lending of 77.7 percent. Additionally, a good percentage of the bank s loans were in small dollar amounts, which further evidences the bank s willingness to meet the credit needs of small farmers. The bank originated 73.8 percent of its small farm loans (74.6 percent of total loans) in dollar amounts of $100,000 or less. In summary, the analyses of all four loan categories revealed that the overall distribution of the bank s lending reflects reasonable penetration among individuals of different income levels, including LMI individuals and businesses and farms of different revenue sizes. 10

13 Geographic Distribution of Loans The geographic distribution performance criterion focuses on the bank s lending penetration within the assessment area among geographies of different income levels, with a specific emphasis placed on the bank s performance in LMI geographies. As previously discussed, First Financial Bank s combined assessment area does not include any low-income census tracts, but does include three moderate-income tracts. The loans used to evaluate the bank s lending to borrowers of different income levels were also used in the geographic distribution analyses. First, the bank s residential real estate loans were analyzed according to the income level of the census tract in order to evaluate the bank s lending in LMI tracts. The percentage of loans originated by the bank within the various-income census tracts was compared to the owneroccupancy statistics and to the aggregate lending percentage within those tracts. The following table displays the geographic distribution of 2006 residential real estate loans data in comparison to owner-occupied housing statistics for the combined assessment area. Distribution of Loans (Number and Dollar Volume in $000s) Inside the Combined Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper Residential Real Estate Loans % 8.9% 46.8% 44.2% 100% $ - $ 811 $ 8,324 $ 9,444 $ 18, % 4.4% 44.8% 50.8% 100% Owner Occupied Housing 0.0% 6.0% 60.9% 33.2% 100% The analysis of the geographic distribution of the bank s residential real estate loans reflects good lending penetration throughout the combined assessment area, including the moderateincome census tracts. First Financial Bank s residential real estate lending in moderate-income census tracts exceeded both the owner-occupied housing percentage and the aggregate lending percentage for the combined assessment area. The bank made 8.9 percent of its residential real estate loans (4.4 percent of dollar volume) within moderate-income census tracts. In comparison, aggregate lenders originated only 2.7 percent of the number of loans made (1.8 percent of the dollar volume) within these tracts. Further, the LMI owner-occupied housing percentage for the combined assessment areas is only 6.0 percent. Second, consumer loans were reviewed to determine their geographic distribution within the bank s combined assessment area, including the moderate-income census tracts. The table that follows depicts the geographic distribution of the bank s consumer loans by the income level of the census tract. 11

14 Distribution of Loans (Number and Dollar Volume in $000s) Inside the Combined Assessment Area by Income Level of Geography Geography Income Classification Loan Type Low- Moderate- Middle- Upper Consumer 0.0% 11.4% 54.1% 34.5% 100% $ - $ 556 $ 3,598 $ 3,710 $ 7, % 7.1% 45.8% 47.2% 100% Household Population 0.0% 7.2% 61.8% 30.9% 100% Consistent with the bank s residential real estate lending in the moderate-income geographies, the analysis of the bank s consumer loans in these geographies revealed good lending penetration. First Financial Bank made 11.4 percent of the number (7.1 percent of dollar volume) of its consumer loans in moderate-income geographies, which exceeds the 7.2 percent LMI households residing within those census tracts within the combined assessment area. Third, the bank s commercial loans were analyzed to assess the geographic distribution of small business loans within the combined assessment area, including moderate-income census tracts. The review consisted of 251 small business loans with a dollar volume of approximately $21.0 million. The following table displays the geographic distribution of small business loans in comparison to the percentage of small businesses operating in the combined assessment area. Distribution of Loans (Number and Dollar Volume in $000s) Inside the Combined Assessment Area by Income Level of Geography Loan Type 2006 Small Business Business Institutions Geography Income Classification Low- Moderate- Middle- Upper % 13.1% 56.6% 30.3% 100% $ - $ 3,221 $ 10,793 $ 6,956 $ 20, % 15.4% 51.5% 33.2% 100% 0.0% 8.2% 54.8% 36.9% 100% First Financial Bank s lending level in moderate-income geographies during 2006 exceeds the benchmarks used for comparison. The bank made 13.1 percent of the number of loans originated (15.4 percent of dollar volume) in moderate-income geographies. In comparison, the aggregate s data reflected that only 4.7 percent of the number of loans they originated (4.0 percent by dollar volume) were in these census tracts. Additionally, according to 2006 data from Dun & Bradstreet, only 8.2 percent of the reporting businesses within the combined assessment area operate in the moderate-income census tracts. The bank s small business lending penetration in the moderate-income census tracts within the assessment area is considered good. 12

15 Finally, agricultural loans were reviewed to determine the reasonableness of the geographic dispersion of the bank s lending. The review consisted of 130 small farm loans with a dollar volume of $10.2 million. The geographic distribution of small farm loans is displayed in the following table. Distribution of Loans (Number and Dollar Volume in $000s) Inside the Combined Assessment Area by Income Level of Geography Loan Type 2006 Small Farm Agricultural Institutions Geography Income Classification Low- Moderate- Middle- Upper % 8.5% 89.2% 2.3% 100% $ - $ 1,117 $ 8,943 $ 145 $ 10, % 10.9% 87.6% 1.4% 100% 0.0% 9.4% 72.3% 18.3% 100% The analysis of agricultural loans revealed that First Financial Bank s lending in moderateincome geographies exceeded the aggregate s lending in these geographies, but was slightly lower than the percentage of reporting farms in those geographies. The bank originated 8.5 percent of its farm loans in moderate-income census tracts. In comparison, the aggregate small farm lending percentage in moderate-income census tracts was only 7.0 percent. Further, 9.4 percent of the reporting farms are located in moderate-income census tracts, according to Dun & Bradstreet data. The bank s level of small farm lending in moderate-income census tracts reflects reasonable lending penetration. In conclusion, the analyses of the geographic distribution of the four loan products within the combined assessment area reflect good dispersion throughout the assessment area, including the moderate-income census tracts. 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 average LTD ratio for its combined assessment area in comparison to that of three local competitors. These financial institutions were determined to be similarly situated to First Financial Bank. Asset size figures in this table are as of September 30,

16 Name As shown in the preceding table, First Financial Bank s LTD ratio for the eight quarters since the previous examination is percent. 10 The bank s high LTD ratio is attributed to the high volume of loan originations generated through 4 mortgage loan production offices in Arkansas and 11 agricultural loan production offices in the states listed in the section that follows. The competitor banks LTD ratios range from a low of 44.7 percent to a high of 95.9 percent. First Financial Bank s LTD ratio is considered reasonable. Lending Inside and Outside of the Combined Assessment Area The analysis of loan activity revealed that the majority of First Financial Bank s loans were originated to borrowers outside of its designated assessment areas. Specifically, a total of 2,804 loans were reviewed during this evaluation. Of this amount, only 47.9 percent of the number of loans originated and 28.8 percent of the dollar volume were made to borrowers inside the bank s designated assessment areas. Loan-to-Dep Asset Size (in $000 s) First Finan $ cial 574,5 Bank 11 $ 163,2 61 Local $ Comp 213,4 etitors 99 $ 138, This average LTD ratio represents an 8-quarter average dating back to the previous CRA evaluation. 14

17 The following table shows the number and dollar amount of lending inside and outside the combined assessment area. Lending Inside and Outside of the Combined Assessment Area Loan Type Inside Outside 2006 Residential Mortgage Loans 2006 Consumer 2006 Small Business 2006 Small Farm % 75.2% 100% $ 18,579 $ 71,837 $ 90, % 79.5% 100% % 11.9% 100% $ 7,864 $ 1,039 $ 8, % 11.7% 100% % 19.3% 100% $ 20,970 $ 10,364 $ 31, % 33.1% 100% % 84.7% 100% $ 10,205 $ 59,152 $ 69, % 85.3% 100% 1,343 1,461 2, % 52.1% 100% $ 57,618 $ 142,392 $ 200, % 71.2% 100% As shown in the table above, the bank s lending inside its designated assessment areas is favorable for two of the four loan products reviewed. Specifically, a substantial majority of the consumer (88.1 percent by number and 88.3 percent by dollar volume) and small business (80.7 percent by number and 66.9 percent by dollar volume) loans were made to borrowers inside the designated assessment areas. The bank s lending inside the combined assessment area remains significantly low for residential real estate loans and small farm loans. Only 24.8 percent of the number of residential real estate loans (20.5 percent of dollar volume) and 15.3 percent of the number of small farm loans (14.7 percent of dollar volume) were made to borrowers inside the combined assessment area. The low percentage of residential real estate loans and small farm loans within the combined assessment area is not an indication that the bank is not serving the needs of its community. Rather, it is more reflective of the bank s origination of loans from more active real estate markets and agricultural areas. In addition, a community contact indicated that the bank willingly works with all potential borrowers and did not feel that local credit needs were unmet. 15

18 Residential real estate loans and small farm lending inside the assessment area continue to be low because the bank operates four mortgage loan production offices and 11 agricultural (poultry) loan production offices outside of its designated assessment areas. The mortgage loan production offices are located in larger metropolitan areas with higher loan demand. The mortgage loan production offices are located in North Little Rock, Little Rock, Jonesboro and Fort Smith, Arkansas. The majority of the bank s agricultural loan production offices are located outside of its designated assessment areas. The bank operates agricultural loan production offices in Enterprise, Alabama; Carthage, Mississippi; Magee, Mississippi; Elizabethtown, Kentucky; Nacogdoches, Texas; Fayetteville, Arkansas; Mena, Arkansas; Morrilton, Arkansas; Neosho, Missouri; Gainesville, Georgia; and Monroe, North Carolina. In conclusion, First Financial Bank s lending strategy, branch structure, and location of loan production offices are mitigating factors for what would generally be considered as needs to improve. Under these performance context parameters and business development strategy, this lending performance criterion is nevertheless considered to be reasonable. Review of Complaints Neither this Reserve Bank nor First Financial Bank has received any CRA-related consumer complaints in the period since the previous November 7, 2005 evaluation. In addition, a review of the bank s CRA public file did not reveal any such complaints in that period. COMMUNITY DEVELOPMENT TEST 11 Overall, First Financial Bank s community development performance demonstrates marginally adequate responsiveness to the community development needs of its assessment areas through community development loans, investments/donations, and services. Detailed discussions of the bank s community development lending, investment, and services are included under the discussion for each individual assessment area evaluation within this public evaluation. Loans First Financial Bank originated two qualifying community development loans totaling $1.1 million inside its combined assessment area since the previous CRA performance review. The loans were for economic development / stabilization purposes. Investments/Donations Overall, the bank s level of qualified investments and donations demonstrates marginally adequate responsiveness to community development needs. The bank has one qualified investment with an outstanding balance of $347 thousand in its investment portfolio. The bank has made donations of $28 thousand to qualified organizations within the combined assessment area during this review period. 11 Effective September 1, 2005, the agencies revised the term community development to include banks activities that revitalize or stabilize designated distressed or underserved nonmetropolitan middle-income areas or designated disaster areas. 16

19 Services First Financial Bank operates nine branches, including the main office, within the combined assessment area. Eight branches have full service ATMs. Banking hours and services have been customized to meet the convenience and needs of the community. Services, including business hours, do not vary in a way that inconveniences LMI individuals. One of the bank s branches is located in a moderate-income census tract. Finally, the bank provides a reasonable level of qualified community development services to qualifying community organizations. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW During the Consumer Affairs Examination conducted concurrently with this CRA evaluation, a fair lending analysis was performed to assess the bank s compliance under Regulation B (Equal Credit Opportunity) and the Fair Housing Act. The analysis concluded that the bank is in compliance with the substantive provisions of the antidiscrimination laws and regulations for the products and services reviewed. 17

20 STATE OF ARKANSAS CRA RATING FOR ARKANSAS: SATISFACTORY. The Lending Test is rated: SATISFACTORY. The Community Development Test is rated: SATISFACTORY. Major factors supporting the rating include: Based upon the loan products reviewed, the distribution of loans to borrowers of different income levels and businesses and farms of different revenue sizes reflects reasonable penetration throughout all income levels. The overall geographic distribution of loans indicates a reasonable dispersion throughout the assessment area. Community development performance demonstrates marginally adequate responsiveness to the community development needs of the assessment area through community development loans, investments, and services. DESCRIPTION OF INSTITUTION S OPERATIONS IN ARKANSAS First Financial Bank s operations for the state of Arkansas include one non-msa assessment area, which consists of Union County, Arkansas (Assessment Area One). The bank s main office and five branch offices are located within Union County. The main offices and three branches are located in upper-income census tracts and two branches are located in middleincome tracts. According to FDIC deposit market share data as of June 30, 2007, First Financial Bank has the highest deposit market share (35.01 percent) within Union County, ranking first out of a total of seven banks operating within this market. According to 2000 census data, the population of Arkansas is 2,673,400. The total population of Union County in Arkansas is 45,629. As of July, 2006, the population of the state of Arkansas is estimated to be 2,810,872, which represents a population increase of 5.1 percent. Conversely, the estimated population of Union County decreased to 44,170 as of July, 2006, which represents a 3.2 percent decrease in the population The source for the July 2006 population data in this evaluation is the US Census Bureau State and County Quick Facts 18

21 The following table summarizes the distribution of geographies by income level and the family population of those census tracts within the assessment area. Assessment Area Geographical Information by Income Category 2000 Census Data Low- Moderate- Middle- Upper- Assessment Area Census Tracts 0.0% 10.0% 60.0% 30.0% 100% Family Population 0 1,400 6,958 4,433 12, % 10.9% 54.4% 34.7% 100% As shown in the above table, there are no low-income geographies within the Union County Arkansas assessment area and only one of the 10 geographies has been designated as moderateincome. Further, 10.9 percent of the family population resides in the moderate-income census tract, 54.4 in middle-income tracts and 34.7 percent in upper-income census tracts. According to 2000 census data, the assessment area has a total family population of 12,791. Approximately, 36.2 percent of families within the Arkansas assessment area are considered LMI and 14.7 percent live below the poverty threshold. The following chart depicts the percentage of families, by income level, that reside in the Union County assessment area, the statewide percentages for non-msa areas in Arkansas as well as the percentages for the entire state of Arkansas. Assessment Area Family Population by Income Level 2000 Census Data Low- Moderate- Middle- Upper- Assessment Area State of Arkansas Non-MSA Arkansas 2,630 1,995 2,529 5,637 12, % 15.6% 19.8% 44.1% 100% 148, , , , , % 17.9% 22.2% 39.8% 100% 66,236 58,047 70, , , % 17.9% 21.8% 39.9% 100% As reflected in the preceding table, the assessment area s LMI family population is slightly lower than the entire state of Arkansas as well as for the total statewide non-msa areas of Arkansas. The LMI family population within the bank s assessment area is 36.2 percent compared to 38.0 percent for the state of Arkansas, 38.3 percent for statewide non-msa areas throughout Arkansas. Further, the 2000 median family income for the state of Arkansas was $38,663 compared to $36,614 for the bank s assessment and $34,263 for statewide non-msa areas as of the

22 census. The 2006 HUD estimated median family income for the entire state of Arkansas is $38,000. The unemployment rate for Union County exceeded both the national average rate and the statewide unemployment rate for Specifically, the 2006 annual unemployment rate for Union County was 6.8 percent. In comparison, the national average annual unemployment rate for 2006 was 4.6 percent and the Arkansas statewide rate was 5.3 percent. Further, the Union County unemployment rate for the current year has lagged behind the state percentage and the national average unemployment rate. The unemployment rate for January through August 2007 has ranged from 6.4 percent to 7.5 percent for Union County, and the Arkansas statewide rate ranged from 4.8 percent to 5.9 percent. The national average unemployment rate for this same period ranged from a low of 4.3 percent to a high of 5.0 percent. The assessment area s workforce is supported by a mixture of occupations. The highest percentage of the workforce is employed in management, professional and related occupations (25.6 percent), followed by production, transportation and moving occupations (24.5 percent), then by sales and office occupations (23.8 percent), and by service related occupations (13.4 percent). Despite the rural nature of a large part of the Union County assessment area, the farming, fishing, and forestry occupations accounted for only 1.4 percent of the workforce. Finally, the assessment area s industrial base is diverse. The three highest industry categories include the manufacturing sectors (24.7 percent), followed by the educational, health and social service industries (20.5 percent), and then the retail trade industries (11.2 percent). Although First Financial Bank s primary focus continues to be agricultural based (poultry farming), the agricultural, forestry, fishing, hunting, and mining industry accounted for only 4.5 percent of the industrial base of Union County as of the 2000 census. According to 2006 Dun & Bradstreet data, 87.4 percent of the 1,703 reporting businesses within the Union County assessment area reported gross annual revenues of $1 million or less. Further, the 2006 Dun & Bradstreet data shows that 87.3 percent of the 55 reporting farms submitted revenues of $1 million or less. 13 Source: U.S. Department of Labor, Bureau of Labor Statistics (reflects not seasonally adjusted rates) 20

23 The owner-occupancy rate for housing within the bank s Arkansas assessment area is fairly close to the rate for statewide non-msa areas and the overall state of Arkansas. Approximately, 63.4 percent of the housing units within the assessment area are owner-occupied. In comparison, the owner-occupancy rate of housing for statewide non-msa areas and the overall state is 62.8 percent and 61.7 percent, respectively. The vacancy rate for the assessment area is 13.0 percent compared to 11.1 percent for the overall state and 13.6 percent for statewide non-msa areas. Consist with other non-msa areas of the state; approximately 24.0 percent of the housing in the assessment area is rental units. About 27.2 percent of housing units in the overall state are rental properties. The median age of housing stock in the assessment area is 34 years and the median housing value in is $49,272. In comparison, for statewide non-msa areas, the median age of housing stock is 26 years, and the median housing value is $55,810 for statewide non-msa areas. For the overall state of Arkansas, the median age of housing stock is 24 years, and the median housing value is $67,400. The median gross rent for the Union County assessment area, the state of Arkansas, as well as statewide non-msa areas is fairly close at $408, $453, and $389 per month, respectively. Housing costs within the bank s assessment area are slightly more affordable than for statewide non-msa areas and the overall state. According to the 2000 census data, the assessment area had a housing affordability ratio of 59.0 percent. In comparison, the affordability ratios for statewide non-msa areas and the overall state was 50.0 percent and 47.0 percent respectively. Finally, there are a total of 20,676 housing units within the assessment area. About 11.3 percent of the units are located in the moderate-income census tract, 54.7 percent are in middle-income tracts, and 34.0 percent are located upper-income census tracts. About 50.2 percent of the housing units in the moderate-income census tract are owner-occupied, 64.6 percent in middleincome tracts are owner-occupied, and 65.8 percent in upper-income census tracts is owneroccupied. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN ARKANSAS LENDING TEST First Financial Bank s rating for its lending performance in Arkansas is satisfactory. Overall, lending levels exhibit a satisfactory record of serving the credit needs of LMI individuals, areas, and small businesses and farms. Overall, the geographic distribution of loans reflects a reasonable dispersion throughout the assessment area. Based upon the loan products reviewed, the distribution of loans to borrowers of different income levels and businesses and farms of different revenue sizes reflects reasonable penetration throughout all income levels. Lending to Borrowers of Different Income Levels and to Businesses and Farms of Different Revenue Sizes For this performance criterion, the bank s residential real estate loans were first analyzed to determine the reasonableness of lending to borrowers of different income levels within the Union County assessment area. Borrowers were classified into low-, moderate-, middle-, and upperincome categories by comparing their reported income to the 2006 median family income figure 21

24 of $38,000 as estimated by HUD for non-msa areas in Arkansas. The percentage of loans (by income level of the borrower) originated by the bank was then compared to the aggregate lending statistics and to the percentage of LMI families within the Union County assessment area. The following table shows the distribution of loans originated by the income level of the borrower. Distribution of Loans (Number and Dollar Volume) Inside Assessment Area by Income Level of Borrower Loan Type 2006 Residential Real Estate Loans Family Population Borrower Income Classification Low- Moderate- Middle- Upper % 14.8% 20.1% 59.8% 100% $ 265 $ 1,232 $ 2,275 $ 13,520 $ 17, % 7.1% 13.2% 78.2% 100% 20.6% 15.6% 19.8% 44.1% 100% The analysis of residential real estate loans revealed that First Financial Bank s lending percentage to LMI borrowers within the Union County assessment area is higher than the aggregate lending percentage, but lower than the overall family population percentage of these borrowers. For moderate-income borrowers, the bank s level of lending approximates the family population income percentages. The bank made 20.1 percent of its residential real estate loans (8.6 percent by dollar volume) to LMI borrowers compared to only 15.1 percent (8.6 percent by dollar volume) by aggregate lenders within this assessment area. The LMI family population percentage for this assessment area is 36.2 percent. Union County has a high poverty rate, 14.7 percent, which impacts the bank s lending ability since community members below the poverty threshold are generally unable to qualify for a loan. Considering the fact that the bank s lending percentage exceeded aggregate lenders and the fact that Union County has a high poverty rate, the bank s residential real estate lending to LMI borrowers is considered reasonable. Second, the distribution of the bank s consumer loans among borrowers of different income levels were reviewed in assessing the reasonableness of the bank s lending to LMI individuals. The percentage of loans originated by the bank was compared to the percentage of LMI households within the assessment area. The table that follows shows the distribution of the bank s consumer loans by the income level of the borrower in comparison to the household population. 22