PUBLIC DISCLOSURE. October 27, 2003 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION F & M BANK RSSD#

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1 PUBLIC DISCLOSURE October 27, 2003 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION F & M BANK RSSD# SOUTH HARVARD AVENUE TULSA, OKLAHOMA, Federal Reserve Bank of Kansas City 925 Grand Boulevard Kansas City, Missouri NOTE: This document is an evaluation of this institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS Institution Rating Institution s CRA Rating... 3 Table of Performance Test Ratings... 3 Summary of Major Factors Supporting Rating... 3 Institution Description of Institution... 5 Scope of Examination... 8 Conclusions With Respect to Performance Tests... 9 CRA Appendices CRA Appendix A: Scope of Examination CRA Appendix B: Glossary

3 GENERAL INFORMATION The Community Reinvestment ACT (CRA) requires each federal financial supervisory agency to use its authority when examining financial institutions subject to its supervision, to assess the institution s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. Upon conclusion of such examination, the agency must prepare a written evaluation of the institution s record of meeting credit needs of its community. This document is an evaluation of the CRA performance of F & M Bank and Trust Company (F&M), chartered in Tulsa, Oklahoma, prepared by the Federal Reserve Bank of Kansas City (Reserve Bank), the institution s supervisory agency. The agency evaluates the bank s performance in its assessment area (AA), as delineated by the institution, rather than individual branches. This AA evaluation may include visits to some, but not necessarily all, of the institution s branches. The agency rates the CRA performance of an institution consistent with the provisions set forth in Appendix A of 12 CFR Part 228. Definitions for many of the terms used in the performance evaluation can be found in Section of Regulation BB. For additional convenience, a Glossary of Common CRA Terms is attached at the end of this performance evaluation. 2

4 INSTITUTION RATING INSTITUTION'S CRA RATING: F & M Bank and Trust Company is rated Satisfactory The following table indicates the performance level of F&M Bank and Trust Company with respect to the lending, investment, and service tests. PERFORMANCE LEVELS F & M BANK AND TRUST COMPANY PERFORMANCE TESTS Lending Test* Investment Test Service Test Outstanding High Satisfactory Low Satisfactory X X X Needs to Improve Substantial Noncompliance * 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: Lending: Lending levels reflect a reasonable responsiveness to AA credit needs. A substantial majority of F&M Home Mortgage Disclosure Act (HMDA) loans and small loans to businesses are within its designated AA; The geographic distribution of HMDA loans and small loans to businesses reflects a good penetration throughout the AA; 3

5 Investments: Services: The distribution of the HMDA loans and small loans to businesses by borrower profile reflects adequate penetration to individuals of different income levels and to businesses of different revenue sizes; While the bank is among market leaders for small business lending in the Tulsa Metropolitan Statistical Area (MSA), the bank has not originated any community development loans since the prior CRA evaluation. The bank extended a reasonable level of qualified investments throughout its AA. Delivery systems are reasonably accessible to geographies and individuals of different income levels. The bank s opening of branches has improved the accessibility of its delivery systems. The bank is engaged in an adequate level of community development services. 4

6 INSTITUTION DESCRIPTION OF INSTITUTION F&M is a $997 million financial institution headquartered in Tulsa, Oklahoma, and is a whollyowned subsidiary of F&M Bancorporation, Inc. The bank has seven branch locations, and with the exception of its most recent office opening, all are located south and east of downtown Tulsa. The bank s newest location opened May 1, 2003 in Owasso, a growing suburb just north of Tulsa city limits. No other branches have opened or closed since the previous examination. In addition, the bank owns seven automated teller machines (ATMs); six are located near or in bank facilities, and one is located in a large area medical facility. No financial or legal impediments exist that effect the institution s ability to meet the credit needs of its AA. The bank s performance under CRA was last evaluated on August 13, 2001, when an overall Satisfactory rating was assigned. The bank has grown steadily through branch expansions, effective marketing of its products and services, and establishing a solid commercial customer base. On September 30, 2003, the bank s total assets had grown 8 percent since the previous year, and by 16 percent since the last examination. As of September 30, 2003, the bank s total assets equaled $997 million, with gross loans of $789 million. Despite significant presence from larger area financial institutions F&M held the third largest deposit market share (7.04 percent) of the 59 Federal Deposit Insurance Corporation (FDIC) institutions in the MSA as of June 30, The bank offers a full range of credit products within its AA including consumer, commercial, and real estate loans. All lending activities are centered in the Tulsa metropolitan area with the bank establishing a solid market niche as a financial services provider for mid-sized Tulsa businesses. As illustrated in Table 1 on the following page, commercial lending is F&M s predominant product with commercial loans representing 88.1 percent of the bank s loan portfolio. While real estate lending follows distantly at 7.6 percent, the percentage of real estate loans is understated. The bank also originates a substantial volume of secondary market residential loans, which are not reflected on the loan portfolio mix. 5

7 Table 1 Loan Distribution as of the September 30, 2003 Call Report Loan Type Amount Percent of ($000) Total Commercial 695, to 4-Family Residential 59, Real Estate Consumer 21, Other 11, Farmland and Agricultural 554 GROSS LOANS 789, DESCRIPTION OF ASSESSMENT AREA The bank s AA consists of the entire Tulsa MSA, which is located in the northeast central part of Oklahoma and comprised of Creek, Osage, Rogers, Tulsa, and Wagner Counties. While the geographical boundaries of the AA remain the same since the last examination, the number of census tracts, as well as income designations for certain geographies have changed as a result of the 2000 Census. In 1990, the AA consisted of 11 low-income, 53 moderate-income, 91 middle-income, 50 upper-income census tracts, and 2 NA census tracts compared to 8 lowincome, 65 moderate-income, 102 middle-income, and 75 upper-income census tracts according to the 2000 Census. Although the 2000 Census designated an additional 43 census tracts in the area, the boundaries for geographies designated as either low- or moderate-income areas remained essentially unchanged from 1990 to Income Characteristics In 2000, the MSA was an upper middle-income MSA, and in 2000, its median family income ($46,552) was percent that of the state as a whole ($40,709). In 2000, families in the AA had the following income distribution: 19.7 percent low-income, 18.4 percent moderateincome, 21.8 percent middle-income, and 40.1 percent upper-income. In 2000, a large percentage of low-income tract families (40.0 percent) lived below the poverty level, which may prove to be a barrier to financial institutions lending in those tracts. In addition, 8.7 percent of families in the overall area lived in poverty. Housing Characteristics Housing stock composition in the low- and moderate-income tracts indicated lower housing loan demand based on the large percentage of rental units in those tracts. Of total housing stock in low and moderate-income tracts, 53.7 percent and 38.8 percent, respectively, were rental units. In comparison, the percentage of rental units in middle- and upper-income tracts was 6

8 29.1 percent and 22.5 percent, respectively. High median housing stock age and increased vacancy rates in low- and moderate-income tracts also indicate housing dilapidation. In 2000, the median age of housing stock was 42 years in low-income tracts, 37 years in moderateincome tracts, 27 years in middle-income tracts and 20 years in upper-income tracts. Vacancy rates for low- and moderate-income tracts were 13.4 percent and 10.9 percent, respectively, compared to 6.5 percent for middle-income tracts and 5.5 percent for upper-income tracts. Furthermore, there is a shortage of affordable housing in all areas of Tulsa according to community members. In 2000, 35.1 percent of owner occupied housing stock was valued at $100,000 or higher compared to the statewide level of 25.5 percent. In addition, the area s median family housing value at $81,917 was substantially higher than the statewide median housing value of $67,700. Labor, Employment and Economic Characteristics The MSA s economy is diverse and had expanded at a fast pace over the past decade. Service, retail and manufacturing industries, especially those related to aviation and medical services, were the MSA s primary employment sectors. According to FDIC RECON, the largest employers in January 2003 were American Airlines, St. Johns Medical Center, St. Francis Hospital, Medical Center, Avis Rent-A-Car, Bank of Oklahoma, Blue Cross and Blue Shield Association, Boeing Corporation, Centrilift, and EDS-Sabre, Inc. According to the Tulsa Metro Chamber Economic Profile, the economy slowed substantially in The MSA economy has remained in recession with little indication of sustainable growth. A majority of the industries experienced a decrease in jobs from January 2002 to January 2003 with the highest job losses in information services (12.2 percent), manufacturing (11.7 percent) and professional services (7.7 percent) (FDIC RECON). Lay-offs were prevalent in the past two years. According to one community leader, American Airlines had employed over 10,000 individuals in 2001, and with company restructuring and layoffs, the airline now employs less than 1,000 individuals in Tulsa. Unemployment figures released in July, 2003, revealed that the Tulsa MSA unemployment rate of 6.4 percent was the highest unemployment rate of the state s four MSAs, and was substantially higher than the statewide unemployment rate of 5.4 percent. Table 2 depicts general demographic and economic characteristics of the Tulsa MSA based upon 2000 Census Data. 7

9 Income Categories Tract Distribution TABLE 2 Assessment Area Demographics* Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income , , , Moderate-income , , , Middle-income , , , Upper-income , , , Total Assessment Area , , , Housing Housing Types by Tract Units by Owner-occupied Rental Vacant Tract # % % # % # % Low-income 8,259 2, , , Moderate-income 92,040 46, , , Middle-income 150,780 97, , , Upper-income 90,336 65, , , Total Assessment Area 341, , , , Businesses by Tract & Revenue Size** Total Businesses by Tract** Less Than or = Revenue Not Over $1 Million $1 Million Reported # % # % # % # % Low-income Moderate-income 6, , , Middle-income 8, , , Upper-income 6, , Total Assessment 22, , , Area Percentage of Total Businesses: * Based on 2000 Census Data; ** According to 2003 Dun and Bradstreet data SCOPE OF EXAMINATION An evaluation of F&M s performance under CRA was conducted as of October 27, 2003, using the interagency large bank examination procedures, which includes a review of the bank s lending, investment, and service activities since the last CRA evaluation. The evaluation included a comprehensive review of the bank s performance within its AA, the Tulsa MSA. Small business loan data was analyzed from August 13, 2001 through December 31, Residential mortgage loan data was analyzed from August 13, 2001 through June 30, It is important to note that geographic location of loans originated from August 13, 2001 through December 31, 2002 for both residential and business were based upon 1990 census 8

10 information. However, in accordance with interagency guidance, the geographic location of loans originated on or after January 1, 2003 were based upon the 2000 Census Data. Given demographic and economic shifts that have occurred since 1990, consideration was given to more current economic data, as well as comments from community members to determine the reasonableness of the bank s geographic distribution of loans, particularly for those loan locations based on 1990 Census Data. In addition, a comparative review of F&M with other commercial banks operating within the same market area was conducted. Specifically, the comparative review included an analysis of the 2002 Federal Financial Institutions Examination Council (FFIEC) aggregate share data among all CRA small business reporters in the Tulsa MSA. In addition, a comparative review of the 2002 FFIEC aggregate share data for residential mortgage loans was analyzed for HMDA reporters with activity reported in the Tulsa MSA. For community development loans and the investment and service test the evaluation period was August 13, 2001 to October 27, Other To obtain general information about local economic conditions, demographics and credit needs in the MSA, interviews with community members were conducted. One community member noted that the area has experienced massive layoffs in certain sectors; however, the unemployment rate has remained below the national average. In addition, two community members noted that affordable housing remains a primary focus in the MSA. All contacts indicated that the major credit needs in the MSA were generally being met by the area s financial institutions; however, lending efforts should be directed to northern Tulsa County where low-income tracts and moderate-income tracts are concentrated. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS The bank s performance was assessed under the lending, investment, and service tests established for large banks. Conclusions regarding each test are summarized in the following sections. Details regarding the AA s demographic characteristics and economic conditions are included in the preceding narrative. 9

11 LENDING TEST In assessing the bank s lending performance, the conclusions are based on the bank s performance with respect to overall lending activity, AA loan concentration, geographic distribution of loans, and originations to businesses of different revenue sizes and borrowers of different income levels. The bank s CRA performance is rated Satisfactory. This designation is supported by the following: Lending levels reflect an adequate responsiveness to AA credit needs. A high percentage of loan originations are within the bank s AA. The geographic distribution reflects an adequate penetration throughout the AA geographies, including low- and moderate-income areas. The borrower distribution reflects an adequate penetration of loans to businesses of different revenue sizes and borrowers of different income levels. The bank has engaged in no community development lending activities. The bank has made limited use of innovative and/or flexible lending programs in serving AA credit needs. Lending Activity: Based on a review of the bank s loan products, lending activity, and information gathered from community contacts, the bank s lending performance reflects a reasonable responsiveness to the AA s credit needs. The bank offers a full range of credit products, including traditional residential mortgages, refinancings, interim residential construction loans, land acquisition and development loans for small commercial and residential projects, consumer loans, and small business loans. Community contacts confirmed that small business and affordable housing are the major credit needs throughout the Tulsa MSA. As such, the bank s mortgage department offers conventional, Veterans Administration (VA), and Federal Housing Administration (FHA) loans for home purchase, refinance, and home improvement purposes and for placement into the secondary market. The bank originated 255 FHA and 69 VA loans totaling $148,159,000 and $9,080,000, respectively, during this evaluation period. The bank does not offer governmentinsured loan programs for small business. Table 3 on the following page depicts the bank s overall lending activity during the examination period. Of the products considered for this evaluation, small business comprised both the 10

12 largest number and dollar amount of loans originated at 50.2 percent and 54.4 percent, respectively, followed by home mortgage loans at 49.8 percent by number, and 45.6 percent by dollar volume: TABLE 3 Summary of Lending Activity Loan Type # % $(000s) % HMDA home purchase , HMDA refinancings , HMDA home improvement , Total HMDA-related 1, , Total small business 1, , TOTAL LOANS 3, , Assessment Area Concentration: The bank s lending activity reflects a strong responsiveness to the credit needs of the bank s AA. As shown in Table 4, a substantial majority of the bank s lending activities, both in terms of number and dollar amount of originations, occurred within the Tulsa MSA. Of all HMDArelated and small business loans originated during the evaluation period, approximately 95 percent by number and 92 percent by dollar amount were originated within the bank s AA. TABLE 4 Lending Inside and Outside the Assessment Area Inside Outside # % $( 000s) % # % $( 000s) % HMDA home purchase , ,283 5 HMDA refinancings , ,709 7 HMDA home improvement , Total HMDA-related 1, , ,083 6 Total small business 1, , ,606 9 TOTAL LOANS 3, , ,689 8 Note: Affiliate loans not included. Geographic Distribution: This performance criterion focuses on the bank s penetration of loans among geographies of different income levels in the bank s designated AA, primarily in low- and moderate-income geographies. The geographic distribution of small business loans is reasonable when compared to the demographic data and aggregate lending levels within the AA. The geographic distribution of home mortgage loans was reasonable; however, reflected low lending levels in low- and moderate-income census tracts. 11

13 As previously discussed, the geographic location of residential loans and business loans originated prior to January 1, 2003 is based upon 1990 Census Data. Therefore, the sample of residential loans and business loans from August 13, 2001 to December 31, 2002 is compared to the geographic distribution of tracts as identified by the 1990 Census. In addition, the review of the bank s residential lending activity includes HMDA loans originated for the first two quarters in Consequently, the analysis of the loans originated from January 1, 2003 to June 30, 2003 is compared to the geographic distribution of tracts as identified by the 2000 Census. Small Business Loans: Overall, the geographic distribution of small business loans reflects good penetration throughout the income categories in the Tulsa MSA. As reflected in Table 5, 22.5 percent of the number and 25.1 percent of the dollar volume of small business loans were originated in low- and moderate-income geographies. These percentages are comparable to the percentage of businesses located in low- and moderate-income census tracts in the bank s AA, which according to Dun & Bradstreet information is 25.4 percent. TABLE 5 DISTRIBUTION OF SMALL BUSINESS LOANS BY INCOME LEVEL OF CENSUS TRACT ACCORDING TO 1990 CENSUS BOUNDARIES Income Level of Census Tract Percent of All Tracts Percent of All Businesses 12 Small Business Loans # % of total $(000s) % of total Low (11) , Moderate (53) , Middle (91) , Upper (50) , NA Tract (2) 1.0 Total , , Business distribution based on 2003 D&B information according to 1990 Census Boundaries In addition, the bank s performance was compared to the 2002 FFIEC Aggregate Small Business Loan Data, which included 90 CRA-reporting institutions. The bank performed better than the aggregate lenders in originating small business loans in low- and moderate-income tracts. The aggregate lenders, excluding the bank, originated 4 percent and 15.9 percent of their small business lending activity in low- and moderate-income geographies in the Tulsa MSA. The bank s total small business lending activity in low- and moderate-income geographies at 25.4 percent exceeded the level of lending activity by the other CRA-reporters in the Tulsa MSA at 19.9 percent. As small business loans comprise the largest percentage of the bank s loan portfolio, the distribution of these loans was weighted more heavily in the overall evaluation of the bank s lending activity in the Tulsa MSA.

14 Home Mortgage Lending: As previously stated, home mortgage loans originated from August 13, 2001 through June 30, 2003 were included for the geographic analysis. The analysis for home mortgage lending includes two separate tables based upon the year of the loan origination. Table 6 includes HMDA loans originated from August 13, 2001 to December 31, 2002, and income tract designations based upon 1990 Census Data. The loans originated in 2003 are included in Table 7, and compared to demographic information obtained from the 2000 Census. While the number of census tracts in the bank s AA increased according to the 2000 Census Data, an analysis of the area revealed that boundaries for low- and moderate-income areas remained relatively unchanged. Based upon 2000 Census Data, low-income tracts and the majority of moderate-income tracts remain located in the northern portion of Tulsa County. In addition, a portion of the area s moderate-income geographies are located in the river bottoms of central Tulsa County, and along the outer perimeters of the bank s designated AA. Given its commercial focus, the bank is not a significant HMDA lender. In 2002, the bank had 0.2 percent of the market share for home mortgage loan origination activity. Nevertheless, the bank s geographic distribution of home mortgage loans (including home purchase, refinance, and home improvement) reflects adequate penetration in low- and moderate-income geographies throughout the Tulsa MSA, in light of economic factors that negatively impact financial institutions ability to lend in these areas. The analysis included a comparison between the bank s distribution of home mortgage loans by income level of geography and the percentage of owner-occupied housing units within census tracts at each income level. Table 6 Distribution of Real Estate Loans by Income Level of Geography HMDA Loans from August 13, 2001 to December 31, 2002 based on 1990 Census Data Loan Type Low-Income Moderate-Income Middle-Income Upper-Income # $ # $ # $ # $ Purchase 21 1, , ,327 Percentage Refinancing , ,821 Percentage Home Improvement ,195 Percentage Total Loans , , ,343 Percentage Number of Owner Occupied Unites 4,318 38,344 93,180 45,888 Percentage As the Table 6 shows, the bank s level of lending in low- and moderate-income tracts for purchase and refinance loans is substantially lower than the percentage of owner occupied units in those tracts. No purchase loans were made in low-income tracts, and 0.3 percent of the 13

15 bank s refinance loans were made in low-income tracts compared to 2.4 percent owneroccupied units. Similarly, there was a low level of lending for purchase and refinance loans in moderate-income tracts with 3.3 percent and 3.8 percent, respectively, compared to 21.1 percent owner occupied units. In contrast, the bank s level of lending for home improvement loans was excellent. The bank originated 7.9 percent of home improvement loans compared to 2.4 percent owner occupied units in low-income tracts and 19.8 percent in moderate-income tracts compared to 21.1 percent owner occupied units. Similar findings were noted in the following table in which loans from January 1, 2002 from January 1, 2003 were compared to 2000 census tracts. Table 7 Distribution of Real Estate Loans by Income Level of Geography HMDA Loans from January 1, 2003 to June 30, 2003 based on 2000 Census Data Loan Type Low-Income Moderate-Income Middle-Income Upper-Income # $ # $ # $ # $ Purchase , ,369 Percentage Refinancing 12 1, , ,281 Percentage Home Improvement Percentage Total Loans , , ,149 Percentage O Number of Owner Occupied Unites 2,715 46,310 97,061 65,031 Percentage As the Table 7 shows, the bank s level of lending in low- and moderate-income tracts for purchase and refinance loans is substantially lower than the percentage of owner occupied units in those tracts. No purchase or refinance loans were made in low-income tracts, although the tracts contain 1.3 percent of the area s owner occupied units. Similar to the findings in Table 6, there was a low level of lending in moderate-income tracts for purchase and refinance loans at 4.1 percent and 4.9 percent, respectively, compared to 21.9 percent owner occupied units. The findings for home improvement loans in Table 7 are consistent with findings for home improvement loan data in Table 6. The bank originated 3.6 percent of home improvement loans compared to 1.3 percent, owner occupied units in low-income tracts and 28.6 percent in moderate-income tracts compared to 21.9 percent owner occupied units. Consequently, the bank s level of lending for home improvement loans for loans originated in 2003 is excellent. In summary, the bank s distribution of home purchase and refinance loans in low- and moderateincome geographies is substantially less than the percentage of area owner-occupied housing units in those areas. However, when compared to the aggregate lenders, the bank level of 14

16 lending is comparable. According to 2002 FFIEC data, aggregate lenders originated 12.2 percent of purchase loans and 11.2 percent of refinance loans in LMI areas. In evaluating the bank s level of lending for home purchase and home refinance loans, consideration was also given to comments made by community members. Interviews with community members indicated that the home mortgage lending is limited in the northern portion of Tulsa County, which contains all the low-income tracts and a large portion of moderate-income tracts. In addition, low- and moderate-income tracts contain a large concentration of families that live below the poverty level. According to 2000 Census Data, 40.0 percent and 15.9 percent of the families in the low- and moderate-income tracts, respectively, are below the poverty level, which impacts an individual s ability to qualify for larger credits typically needed for residential purchases and refinances. Therefore, loan demand for home mortgage credit in these areas are generally low. Finally, community leaders stated that housing stock is aged and in need of rehabilitation in LMI areas. The bank has been responsive in providing home improvement loans in LMI areas as evidenced by the bank s excellent distribution of home improvement loans among geographies of different income levels. Furthermore, the bank level of lending for home improvement loans in LMI tracts far exceeded the aggregate lending level of 16.0 percent according to 2002 FFIEC data. Distribution by Borrower Income and Revenue Size of the Business: This performance criterion evaluates the bank s loan originations to borrowers of different income levels, particularly to low- and moderate-income individuals and businesses of different sizes. Small Business Lending: Although the CRA regulation requires lenders to report loans of $1 million or less made to businesses of any revenue size, emphasis is placed on loans made to businesses with revenues of $1 million or less, as these entities typically have more difficulty obtaining credit. Table 8 depicts the percentage of small business loans to entities of different revenue sizes, compared to the percentage of area businesses in these revenue categories. The analysis of the bank s small business loans revealed that 61.8 percent of the number and 49.3 percent of the dollar volume of the loans were to businesses with gross annual revenues of $1 million or less, which is less than the percentage of small businesses at 83.3 percent according to Dun & Bradstreet information. While the bank s level of lending was less than the percentage of businesses with revenues of $1 million or less, the bank exceeded the CRA aggregate reporter s level of 42.8 percent. In addition, according to 2002 FFIEC Aggregated Small Business Data, the bank s 7.2 percent of the aggregate share of small business originations ranked third when compared to the 90 CRA-reporting institutions in the Tulsa MSA. 15

17 Small business loan demand may be decreasing as a result of the area s sluggish economy. According to community contacts, the Tulsa MSA economy has been adversely effected by the national economic recession with several area businesses facing layoffs. Over the past two years, the city of Tulsa ranked second in job losses in the entire nation. According to community leaders, existing businesses are reluctant to incur additional debt until there is some economic stabilization. The bank s performance is considered adequate in light of the Tulsa economy. Table 8 DISTRIBUTION OF LOANS BY BUSNESS REVENUE SIZE AND BY CATEGORY Small Business Size of Business Number % Dollar Amount ($000) % Percent of Businesses in assessment Area Revenues <= $1 million , Revenues > $1 million , Not Known 2.9 Grand Total 1, , While the bank s ability to extend credit to smaller businesses is diminished by a stagnant economy, of the small business loans extended, a high percentage of loans are made for small dollar amounts. As shown in Table 9, 61.1 percent of small business loans were extended in amounts of less than $100,000. Overall, 84.1 percent of small business loans were for amounts less than $250,000. The results show the bank s commitment to serve the credit needs of very small businesses by extending credit in smaller loan amounts, which is typically needed by smaller business enterprises. TABLE 9 DISTRIBUTION OF ALL SMALL BUSINESS ORIGINATIONS BY LOAN SIZE Loan Size Number Percent $0 - $100M >$100M to <= $250M > $250 to <= $1,000M Grand Total 1, Home Mortgage Lending: The bank s distribution of home mortgage loans (including home purchase, refinance, and home improvement) reflects reasonable penetration to borrowers of all income levels. Table 10 details a comparison between the bank s percentage of home mortgage loans to each income level and the percentage of families in the AA that are designated low-, moderate-, middle- and upper- 16

18 income. It also highlights potential lending opportunities. The analysis focuses on the number of loans originated, rather than the dollar volume, as it is a better indicator of the number of people benefiting from the products. Borrower Income Level Percent of Families TABLE 10 DISTRIBUTION OF HMDA LOANS BY BORROWER INCOME LEVEL PURCHASE REFINANCE IMPROVEMENT TOTAL HMDA # % # % # % Low Moderate Middle Upper NA Grand Total The percentage of home purchase loans to low-income borrowers at 4.0 percent was substantially lower than the percentage of families in the area at 19.7 percent. However, the percentage of home purchase loans to moderate-income borrowers as 16.4 percent was similar to the percentage of moderate-income families at 18.4 percent. In comparison, the bank s level of refinance loans to low-income borrowers at 4.4 percent was substantially lower than the percent of families at 19.7 percent. In addition, the bank s level of refinance loans to moderateincome borrowers at 9.1 percent was also lower than the percent of families at 18.4 percent. Nonetheless, F&M bank s purchase and refinancing lending levels were similar to the 2002 aggregate lending levels to LMI borrowers. According to 2002 aggregate HMDA data, 22.7 percent of home purchases loans and 15.9 percent of the refinance loans were originated to LMI borrowers compared to the bank s level of 20.4 percent and 13.5 percent, respectively. For home improvement loans, the bank s level of lending to low- and moderate-income borrowers at 20.2 percent and 22.5 percent, respectively, both exceeded the percentage of low-income families at 19.7 percent and the percentage of moderate-income families at 18.4 percent. While the bank s level of lending in the home purchase and refinance loan categories appears to be reasonable, the home improvement loan category exhibits an excellent record of serving the credit needs of low- and moderate-income borrowers. Notwithstanding, the bank s level of lending to moderate-income borrowers demonstrates the bank s willingness to lend to low- and moderate-income individuals given area demographic issues. As previously mentioned, homes are less affordable in the Tulsa MSA when compared to the state of Oklahoma. Approximately 60 percent of the housing values in the Tulsa MSA are $60,000 and higher. A community contact stated that home improvement loans were a major credit need. Because increased housing costs have contributed to the decreased housing availability for low- and moderate-income individuals, low- and moderate-income individuals are rehabilitating and upgrading their existing residences. 17

19 Community Development Lending: The bank has not originated any qualified community development loans since the last CRA evaluation. Other Lending Activities F&M continues to participate as a network lender for the Oklahoma Student Loan Authority (OSLA). The bank funds the OSLA-approved loans and maintains the notes during the deferment period. Students that receive funds through the OSLA must meet certain income requirements to access this type of financial assistance. The bank s mortgage department is involved in Rogers County Housing Finance Authority Single Family Mortgage Revenue Bond and the USDA Rural Development Guaranteed Single Family Housing Program that benefit low- and moderate-income individuals. Rogers County Housing Finance Authority Single Family Mortgage Revenue Bond provides funds for home purchase loans to persons meeting certain Housing and Urban Development (HUD) median family income requirements. There were no originations related to this activity. The rates offered by the bond exceeded the current market rates; therefore, it was more advantageous to the borrower to uses other lending programs. The USDA Rural Development Guaranteed Single Family Housing Program has similar guidelines, although the restrictions are based on the national family income and the number of persons residing in the household. The bank originated six USDA Rural Development Guaranteed Single Family Housing loans totaling $657,833. INVESTMENT TEST In assessing the bank s investment performance, the review focused on its investment and grant activities; responsiveness to credit and community development needs; and initiatives with respect to community development. The bank s performance under the Investment Test is rated Low Satisfactory. designation is supported by the following: This The bank has made an adequate level of community development investments, given its size, financial capacity, and opportunities within the designated AA. The bank exhibits adequate responsiveness to credit and community development needs of its AA. The bank rarely uses innovative and/or complex investments to support community development initiatives. 18

20 Qualified Investments and Grants: Qualified investment are investments, deposits, or grants that have as a primary purpose community development as defined in Regulation BB. During the evaluation period, the bank extended $4,545,086 in investments and $62,400 in donations. The bank s primary means of making qualified investments continues to be through its investment portfolio. However, since the previous CRA evaluation, the bank has faced challenges in establishing a favorable equilibrium between its loan and investment portfolios. As previous stated, the Tulsa MSA has experienced significant economic growth in recent years with a corresponding increase in credit needs and demand. As evidenced by the bank s high level of lending activity, management is committed to meeting the area s increased loan demand. Yet, to accomplish this task and maintain adequate liquidity levels, the bank s shortterm investment portfolio continues to be restricted. Even with the restrictions in the investment portfolio, total investments increased significantly in dollar amount since the previous CRA evaluation. While the dollar amount for investments has doubled, the number of investments has remained essentially unchanged, with the addition of only one more community development investment since the last examination. The analysis included three qualified investments. The first investment was a bond issue for capital improvements to three area hospitals whose service coverage includes all or portions of the Tulsa MSA. A majority of the patient revenues are derived from Medicare and Medicaid. The second investment was a bond issue that provided permanent financing for a housing project consisting of 144 units for low-income handicapped and elderly persons. The third investment was a bond issue to provide funds for improvements in the water and sanitary sewer system in a moderate-income census tract. All the bond issues serve the bank s designated assessment area and provide economic revitalization and community services for low- and moderate- income individuals or geographies. From August 11, 2001 through October 27, 2003, the bank made donations totaling $62,400 to eight different organizations that promote community development. The donations were made to organizations that support the homeless, promote affordable housing, and provide general welfare assistance to low- and moderate-income persons. In addition, a large contribution was targeted for the redevelopment and revitalization of the Tulsa downtown and surrounding area. SERVICE TEST In assessing the bank s service performance, the review focused on the accessibility of the bank s delivery systems; reasonableness of its business hours and services in meeting the needs of its designated AA; and, community development services. 19

21 The bank s performance under the Service Test is rated low Satisfactory. This designation is supported by the following: The bank provides a satisfactory level of community development services. Delivery systems are accessible to limited portions of the bank s AA. Services do not vary in a way that inconveniences bank customers, particularly low- and moderate-income individuals. Retail Services: The bank s products and services are accessible to limited portions of the Tulsa MSA. In addition to its main facility, the bank has seven branches, including one branch that was opened in May All bank locations are within Tulsa County. While none of the bank offices are located in low- and moderate-income areas, several facilities are located in census tracts adjacent to these geographies. In addition, the bank continues to offer a full range of retail deposit and loan products available at all branch locations. All bank offices have hours of operation that are conducive to the needs of community residents. All bank-owned ATMs are serviced daily and associated with TransFund, the largest ATM network in the state of Oklahoma. TransFund ATMs are located throughout the Tulsa MSA. The bank, in consortium with other lenders, maintains an agreement that allows for the waiver of surcharges to its bank customers who utilize ATMs associated with the TransFund network. Bank-owned ATMs also accept Oklahoma Access Cards, which provide access to monthly government benefits for clients of the Oklahoma Department of Human Services. No fees are charged to these cardholders for the use of bankowned ATMs. Community Development Services: This criterion evaluates the extent of bank personnels involvement in community development services, the innovativeness of these services, and the degree to which they serve low- and moderate-income individuals. Qualified community development services include services that have as their primary purpose community development, are related to the provision of financial services, and have not been considered in the evaluation of the bank s other retail banking services. The bank provides an adequate level of community development services through bank personnel involvement in various community organizations. The following list describes the organizations in which bank management, officers, and staff provide particularly noteworthy financial expertise, involvement, and leadership: 20

22 A bank officer served as a board member of the Tulsa Habitat for Humanity. The organization s goal is to eliminate substandard housing and to provide simple affordable housing to low-income individuals and families. A bank officer also serves on a committee to identify and select families who qualify for the program, and provide financial counseling and home ownership classes to assist the program participants. In addition, another provides Web site programming assistance for the organization. A bank officer serves on the board and finance committee of the Mental Health Association of Tulsa. The organization provides temporary housing for mentally ill persons and women recently released from prison. Approximately 75 percent of the participants are low- and moderate-income individuals. A bank employee is a committee member for the Tulsa Preservation Commission who counsels individual homeowners in low- and moderate-income areas in north Tulsa with properties identified for the City Demolition List in the Brady Heights District. The committee corrects the abstract and title deficiencies that might prevent the property from being sold. All costs associated with the service are waived. A bank officer participated in the Tulsa Area Fair Housing Partnership Forum by providing information on various real estate loan programs, as well as education on completing loan applications and understanding the settlement booklets. The officer speaks fluent Spanish and meets with realtors doing business with the Hispanic community. The loan officer assists the realtors clients in cleaning up credit issues and eventually provide financing. The Hispanic area is designated as a redevelopment zone in Tulsa. A bank officer serves as treasurer for the Community Center Council of Greater Tulsa, which provides a family health coalition for pregnant women in low-income households. In addition, the organization provides leadership training for those residents at two lowincome apartment complexes. The information is translated into Spanish for the residents. Several employees donated their financial expertise to the Tulsa United Way. Employees were on the allocation committee, fund raising committee, and fund distribution committee. Approximately 88 percent of the related agencies under United Way target low- and moderate-income individuals and families in the Tulsa MSA. A bank officer serves on the Continuum of Care Grant Review Panel for various agencies applying for federal grants through the HUD Authority. Grant funds are to assist homeless people in securing permanent housing. A bank officer serves on the board of directors for the Tulsa Economic Development Corporation which partners with the City of Tulsa to promote, aid, develop, and advance the industrial and business prosperity and welfare of the City of Tulsa, including the growth and development of small business and minority business concerns. The 21

23 corporation targets the low- and moderate-income areas in northern Tulsa County and the Tulsa downtown redevelopment area. A bank officer is a board member and assists with investment and banking decisions for the Irongate Ministry. The organization provides meals for the homeless. A bank officer is a board member for the Hutcherson YMCA and researches legal issues for the organization. The YMCA is located in a low-income census tract in northern Tulsa, which is an area designated as a revitalization zone. A bank officer is the treasurer for the Quota International of Tulsa. The organization provides hearing aids for individuals who can not afford them and raises money to put machines in schools to assist the hearing impaired. Approximately 90 percent of the recipients are low- and moderate-income individuals or families. A bank officer is a board member of the Reaching Hands, Inc., which is a non-profit agency that assists frail, low-income, homebound senior citizens in remaining independent by providing weekly personal care and housekeeping services. A bank officer discussed banking services and banking as a career at the Barnard Elementary School. Fifty percent of the students are from low- and moderate-income families. A bank officer is a member of the committee of the Tulsa Airport Authority that provides noise abatement rehabilitation for homeowners within a defined area in the northern portion of Tulsa, which is a low- and moderate-income area. Most of the homeowners are low- and moderate-income families. COMPLIANCE WITH ANTIDISCRIMINATION LAWS An evaluation of the bank s fair lending activities was conducted during the examination to determine compliance with the broad, nondiscriminatory provisions of the Equal Credit Opportunity Act. The FFIEC Interagency Fair Lending Procedures were used for the analysis. No violations of the substantive provisions of the antidiscrimination laws and regulations were identified. Overall, satisfactory policies, procedures, and training programs have been developed to support nondiscrimination in lending activities. Further, the bank was not engaged in any other illegal credit practices inconsistent with helping to meet community credit needs. 22

24 CRA APPENDIX A SCOPE OF EXAMINATION Time Period Reviewed Lending, Investment, Service Tests, and CD loans August 13, 2001 to October 27, 2003 Financial Institution F&M Bank Tulsa, Oklahoma (Parent holding company is F&M Bancorporation, Inc.) Products Reviewed Home Mortgage Loans and Small Loans to Businesses AFFILIATE (S) AFFILIATE RELATIONSHIP PRODUCTS REVIEWED One Rich Hill Mining LLC Holding Company None One Rich Hill Land LTD Holding Company None Partnership F&M Bancorporation, Inc. Holding Company (Parent) None F&M Stat Tri Subsidiary of F&M BC None H&A Holdings, LLC Subsidiary of F&M Bank None Adams Hall Investment Subsidiary of H&A Holdings, None Management LLC Houchin Adamson LLC Subsidiary of H&A Holdings, None LLC FAMISCO Mgmt LP Subsidiary of F&M Bank None FAMISCO LP Subsidiary of FAMISCO None MGMT LP FAMISCO MGMT GP Subsidiary of F&M Bank None FAMISCO LP Subsidiary of FAMISCO None MGMT GP Wells and Associates, LLC Subsidiary of F&M Bank None F&M MTG CO, LLC Subsidiary of F&M Bank None FAMCORE Hold Subsidiary of F&M Bank None FAMCORE Subsidiary of FAMCORE None HOLD LIST OF ASSESSMENR AREA(S) AND TYPE OF EXAMINATION Assessment Area Type of Examination Branches Visited Other Information Tulsa, Oklahoma MSA Onsite 1 Tulsa (Harvard) 2 Tulsa (Owasso) 3 Tulsa (Utica) NA 23

25 CRA APPENDIX B 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 nonmetropolitan 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 nonrelatives living with the family. Families are classified by type as either a married-couple family or other family, which is further classified into male householder (a family with a male householder and no wife present) or female householder (a family with a female householder and no husband present). Full review: Performance under the lending, investment and service tests is analyzed considering performance context, quantitative factors (for example, geographic distribution, borrower distribution, and total number and dollar amount of investments), and qualitative factors (for example, innovativeness, complexity and responsiveness). 24