PUBLIC DISCLOSURE December 4, 2006 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Cache Valley Bank RSSD #995076 101 North Main Street Logan, Utah 84321 Federal Reserve Bank of San Francisco 101 Market Street San Francisco, California 94105 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.
TABLE OF CONTENTS INSTITUTION... 1 PERFORMANCE CONTEXT Description of Institution... 2 Description of Assessment Area... 3 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA Scope of Examination... 6 Loan-to-Deposit Ratio... 6 Lending in Assessment Area... 6 Lending by Borrower Income and Business Revenue... 7 Geographic Distribution of Loans...8 Response to Complaints... 9 Fair Lending or Other Illegal Credit Practices Review... 9 GLOSSARY OF TERMS... 10
INSTITUTION INSTITUTION S CRA RATING: This institution is rated Satisfactory. The major factors supporting the institution s rating include: A reasonable loan-to-deposit ratio; A substantial majority of loans originated within the assessment area; A good penetration to businesses of different sizes and borrowers of different income levels; and Reasonable geographic distribution of loans with no conspicuous gaps in lending patterns. - 1 -
PERFORMANCE CONTEXT Description of Institution Cache Valley Bank (CVB) is headquartered in Logan, Utah and was established on October 2, 1975. It is a wholly owned subsidiary of Cache Valley Banking Company, which was established on August 1, 1995. As of September 30, 2006, the bank reported total assets of $172 million. CVB currently operates two offices; the branch office is located in North Logan. CVB is a full-service bank, providing services to businesses, farms, and residents of Cache Valley. The bank prides itself on personalized customer service that complements its credit and deposit products. Commercial products include credit facilities for commercial real estate, working capital, operating lines of credit, equipment, and construction. Other commercial products include business checking and savings accounts, and merchant bankcard services. Farm and agricultural products include credit facilities for equipment, livestock, farm land, and lines of credit. The bank also offers a wide array of consumer deposit and loan products. These products include checking and savings accounts, auto loans, and a variety of home mortgage products. In the table below, the September 30, 2006, Consolidated Report of Condition and Income shows the loan portfolio composition. Loan Type Dollar Amount (000s) Percent of Total Loans Commercial/Industrial & Non-Farm Non-Residential Real Estate $65,018 58.8% Farm/Agriculture $18,883 17.1% Construction & Land Development $10,820 9.8% Secured by 1-4 Family Residential Real Estate $8,207 7.4% Consumer Loans & Credit Cards $4,687 4.2% Multifamily Residential Real Estate $2,526 2.3% All Other Loans $357 0.3% Total (Gross) $110,498 100% CVB faces no legal or financial impediments that would prevent it from helping to meet the credit needs of its assessment area consistent with its business strategy, size, financial capacity, and local economic conditions. The bank received a satisfactory rating at its previous Community Reinvestment Act examination conducted as of September 23, 2002. - 2 -
Description of Assessment Area The assessment area consists of Cache County, Utah in its entirety. This assessment area is a part of the Logan, UT-ID MSA, consisting of Cache County, Utah and Franklin County, Idaho. Logan is the principal city within the assessment area but it also includes the communities of Amalga, Avon, Ballard Junction, Benson, Cache Junction, Cardon, Clarkston, College Ward, Cornish, Cove, Greens Corner (Greenville), Holt, Hyde Park, Hyrum, La Plata, Lewiston, Mendon, Millville, Morton, Mount Sterling, Newton, Nibley, North Logan (Greenville), Paradise, Petersburg, Petersboro, Providence, Quigley, Richmond, River Heights, Riverside, Smithfield, Trenton, Wellsville, and White Horse Village. CVB has a strong presence in Cache County. As of June 30, 2006, CVB held $142 million in deposits which represented 16.1 percent of the market share and ranked third out of nine banks and thrifts operating 22 offices in the area. 1 The top two depository institutions are large national banks that hold 53 percent of the market share. In 2005, there were 23 aggregate small business lenders and ten small farm lenders, most were large regional and national banks. The market for home mortgage lenders was more competitive with a total of 207 lenders. 2 CVB ranked sixth with 4.4 percent of the home mortgage market share, while the top three lenders held 26 percent of the market share. The following table shows the distribution of families, housing, businesses, and farms in the assessment area, according to the 2000 U.S. Census. The majority of census tracts are middleand upper-income, and most families reside in these tracts. Owner-occupied housing units are primarily located in the middle- and upper-income tracts, while the majority of the renteroccupied units are in the moderate-income tracts. Businesses are generally located in the moderate- and middle-income tracts, and small businesses with gross annual revenues of $1 million or less accounted for 89 percent of all businesses in the area. Most farms are located in the middle-income tracts, and small farms with gross annual revenues of $1 million or less accounted for 98 percent of farms. According to community contacts, micro-loans and other credit facilities designed for early stage and expanding small businesses and farms represent a significant credit need. 1 Federal Deposit Insurance Corporation, Market Share and Bank Holding Company, Summary of Deposits Market Share Report, June 30, 2006; (accessed December 22, 2006) available at http://www3.fdic.gov/sod. 2 Information based on 2005 aggregate data consisting of institutions required to file annual CRA and HMDA data. - 3 -
Income Categories ASSESSMENT AREA DEMOGRAPHICS Cache County Tract Distribution Families by Tract Income Families< Poverty Level as % of Tract Families Families by Family Income # % # % # % # % Low-income 1 4.5 475 2.2 125 26.3 3,624 17.1 Moderate-income 5 22.7 6,442 30.4 917 14.2 4,263 20.1 Middle-income 9 40.9 7,798 36.8 385 4.9 4,967 23.4 Upper-income 7 31.8 6,489 30.6 262 4.0 8,350 39.4 Unknown income 0 0.0 0 0.0 0 0.0 0 0.0 Total 22 100.0 21,204 100.0 1,689 8.0 21,204 100.0 Housing Housing Types by Tract Income Income Categories Units by Owner-occupied Renter-occupied Vacant Tract # %-units %-tract # % # % Low-income 890 56 6.3 0.3 730 82.0 104 11.7 Moderate-income 10,942 3,670 33.5 20.6 6,700 61.2 572 5.2 Middle-income 9,449 7,551 79.9 42.4 1,496 15.8 402 4.3 Upper-income 7,754 6,525 84.2 36.7 815 10.5 414 5.3 Unknown income 0 0 0.0 0.0 0 0.0 0 0.0 Total 29,035 17,802 61.3 100.0 9,741 33.5 1,492 5.1 Businesses by Tract Income & Revenue Size Total Businesses by Income Categories Tract Less than or Equal to Greater Than Revenue Not $1 Million $1 Million Reported # % # % # % # % Low-income 53 1.5 43 1.3 4 1.4 6 5.5 Moderate-income 1,211 33.5 1,048 32.5 122 43.4 41 37.6 Middle-income 1,333 36.9 1,179 36.6 119 42.3 35 32.1 Upper-income 1,015 28.1 952 29.5 36 12.8 27 24.8 Unknown income 0 0.0 0 0.0 0 0.0 0 0.0 Total 3,612 100.0 3,222 100.0 281 100.0 109 100.0 Percent of Total Businesses 89.2 7.8 3.0 Income Categories Farms by Tract Income & Revenue Size Total Farms Entities by Tract Less than or Equal to Greater Than $1 Revenue Not $1 Million Million Reported # % # % # % # % Low-income 1 0.5 1 0.5 0 0.0 0 0.0 Moderate-income 14 6.9 13 6.5 1 25.0 0 0.0 Middle-income 139 68.1 137 68.5 2 50.0 0 0.0 Upper-income 50 24.5 49 24.5 1 25.0 0 0.0 Unknown income 0 0.0 0 0.0 0 0.0 0 0.0 Total 204 100.0 200 100.0 4 100.0 0 100.0 Percent of Total Farms 98.0 2.0 0.0 Median Family Income (2000 U.S. Census) $44,466 Median Housing Value (2005) 3 $148,400 HUD Adjusted Median Family Income (2006) $49,200 Unemployment Rate (2005) 4 3.5% 3 Ecanned: The Economy in a Can, Logan, UT-ID, Housing Report for Logan, November 11, 1006, (accessed November 14, 2006) available at http://www.ecanned.com/ut/logan_msa.shtml. 4 Bureau of Labor Statistics (Haver Analytics) created September 11, 2006. - 4 -
Housing, Business, and Economic Conditions While the housing market is relatively healthy, affordability remains a challenge for some lowand moderate-income residents in Cache County. According to the American Community Survey, the median home value in Logan was $148,400 in 2005 (an increase 5 percent from 2002) and was less than the overall Utah median home value of $167,200. However, median family income for the entire county equaled $46,300 in 2005 which represented an increase of 11.2 percent from 2003. While overall affordability improved as wage increases outstripped housing price increases during the review period, low- and moderate-income individuals sometimes have a comparatively difficult challenge in meeting the down payment and other requirements necessary to obtain a home. 5 As a result, first-time homebuyer and similar programs remain an important need. The economy has grown in recent years. Unemployment fell from 3.8 percent in 2004 to 3.5 percent in 2005, and fell further to 2.8 percent in the second quarter of 2006. 6 In fact, labor scarcity is an issue and was mentioned by community contacts as the most challenging problem facing both large and small businesses in the area. The metro area economy is primarily driven by government (24 percent), manufacturing (17 percent), professional and business services (14 percent), and retail trade (11 percent). However, Utah State University is a vital component of the economy and is both the largest employer and responsible for most of the economic activity in the metro area. 7 Demographic and economic information indicate that small business financing continues to be a significant credit need. As indicated in the table above, Dun and Bradstreet reports that small businesses with gross annual revenues of $1 million or less accounted for 89 percent of area businesses. In addition, farms having gross revenues of $1 million or less make up 98 percent of area farms. Community representatives indicate that micro-loans and other credit facilities designed for early stage businesses represent a notable credit need. Many small start-up companies are unable to meet some of the traditional underwriting requirements necessary to obtain credit and meet working capital needs or finance inventory and equipment purchases. 5 Ecanned: The Economy in a Can, Logan, UT-ID, Housing Report for Logan, November 11, 1006, (accessed November 14, 2006) available at http://www.ecanned.com/ut/logan_msa.shtml. 6 Bureau of Labor Statistics (Haver Analytics) created September 11, 2006. 7 Precis METRO: Logan (West Chester, Pennsylvania: Economy.com, August 2006). - 5 -
CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA Scope of Examination The CRA performance was evaluated using the small bank examination procedures. The evaluation was based upon the following performance criteria: Loan volume in comparison to deposits (Loan-to-Deposit Ratio). Lending inside and outside the assessment area (Lending in Assessment Area). Distribution of lending to borrowers of various income levels and to businesses and farms with different revenue sizes (Lending by Borrower Income and Business Revenue). Dispersion of lending throughout the assessment area (Geographic Distribution of Loans). Responsiveness to consumer complaints was not evaluated since the bank received no CRA-related complaints during the review period. The CRA performance review was based on loans originated between July 1, 2004, and June 30, 2006. CVB originated 638 small business loans, 176 small farm loans, 320 home purchase loans, and 236 refinance loans during the review period. These loans were used to evaluate the Lending in Assessment Area. A sample of 62 small business loans, 52 small farm loans, 52 home purchase loans, and 48 refinance loans were used to evaluate Geographic Distribution of Loans and Lending by Borrower Income and Business Revenue. Loan-to-Deposit Ratio The loan-to-deposit ratio meets standards for satisfactory performance. The eight-quarter average is reasonable at 81 percent and is comparable to the state average and national peer ratios at 90 and 73 percent, respectively. Local peers range from 81 percent to 88 percent. Lending in Assessment Area The concentration of loans extended inside the assessment area exceeds standards for satisfactory performance. As illustrated by the following table, a substantial majority of the loans were originated within the assessment area. Lower concentrations of small farm loans were extended within the assessment area because many of Cache Valley s farms are located in neighboring Franklin County, Idaho. However, a majority of the small farm loans were originated within the assessment area. LOAN TYPE Inside Outside # % $ ( 000s) % # % $ ( 000s) % Small Business Loans 559 87.6 35,385 85.7 79 12.4 5,927 14.4 Small Farm Loans 123 69.9 6,386 60.2 53 30.11 4,230 39.9 Home Purchase Loans 278 86.9 29,136 86.3 42 13.1 4,614 13.7 Refinance Loans 214 90.7 32,248 91.0 22 9.3 3,176 9.0 TOTAL LOANS 1,174 85.7 103,155 85.2 196 14.3 17,947 14.8-6 -
Lending by Borrower Income and Business Revenue The bank s record of lending to businesses and farms of different revenue sizes and borrowers of different income levels meets standards for satisfactory performance. Small Business Loans Lending patterns demonstrate a good penetration among businesses of different sizes. A majority (65 percent) of loans extended were to small businesses. Lending was below the concentration of small businesses in the area (89 percent) but significantly exceeded the aggregate market at 45 percent. Additionally, a substantial majority (82 percent) of small business loans was extended in amounts of $100,000 or less, addressing an identified need. Small Farm Loans Lending patterns demonstrate a good penetration among farms of different sizes. A substantial majority (94 percent) of loans extended in this category were to small farms. The level of lending to small farms was comparable to the concentration of small farms (98 percent) and exceeded the aggregate lending level of 84 percent. Additionally, a substantial majority (81 percent) of small farm loans was extended in amounts of $100,000 or less which also met articulated credit needs. Home Mortgage Loans As shown in the table below, lending patterns demonstrate a good penetration of home purchase loans and a reasonable penetration of refinance loans to borrowers of different income levels. The level of home purchase lending to low- and moderate-income individuals was mostly above the comparative measures of families and aggregate lending levels, especially in the low-income category. With regard to home refinance lending, lending to low- and moderate-income borrowers was below the concentration of families in those income levels but was generally commensurate with aggregate lending levels. Income Level Families Bank Home Purchase Lending Aggregate Home Purchase Lending 8 Bank Refinance Lending Aggregate Refinance Lending 9 Low-Income 17.1% 22.9% 7.1% 6.3% 4.2% Moderate-Income 20.1% 25.7% 26.7% 15.6% 19.9% Middle-Income 23.4% 14.3% 30.1% 25.0% 30.5% Upper-Income 39.4% 37.1% 36.0% 53.1% 45.5% 8 Information based on 2005 aggregate data consisting of institutions required to file annual HMDA data. 9 Ibid. - 7 -
Geographic Distribution of Loans The geographic distribution of loans meets standards for satisfactory performance. Loans are distributed throughout the assessment area with no significant lending gaps in the lending patterns. Small Business Loans Small business lending activity reflects adequate dispersion among different income tracts within the assessment area. While substantially exceeding comparative measures in upper-income census tracts, performance in the remaining tracts is generally comparable to the distribution of businesses and aggregate lending in low- and moderate-income tracts. Census Tract Type Bank Lending Business Concentrations 10 Aggregate Lending 11 Low-Income 0.0% 1.5% 0.4% Moderate-Income 27.4% 33.5% 33.8% Middle-Income 24.2% 36.9% 39.5% Upper-Income 48.4% 28.1% 26.4% Small Farm Loans Generally, the bank s activity reflects adequate dispersion among income tracts within the assessment area. While performance in moderate-income tracts is low when compared to farm concentrations and aggregate lending, the majority of the small farm loans were extended in middle-income tracts, which is where the majority of these entities are located. Census Tract Type Bank Lending Farm Concentrations 12 Aggregate Lending 13 Low-Income 0.0% 0.5% 0.0% Moderate-Income 1.9% 6.9% 8.2% Middle-Income 75.0% 68.1% 71.8% Upper-Income 23.1% 24.5% 20.0% Home Mortgage Loans As seen in the following table, the bank s activity generally reflects adequate dispersion among income tracts within the assessment area. The overall geographic distribution of home purchase loans and refinances is good; especially with regard to purchase activity. Home purchase lending in moderate-income geographies was above the comparative measures of owner occupied units and aggregate lending. With regard to home refinance loans, lending in low- and moderate-income tracts was comparable to owner occupied units and aggregate lending. 10 2006 Dun & Bradstreet Data. 11 Information based on 2005 aggregate data consisting of institutions required to file annual CRA data. 12 2006 Dun & Bradstreet Data. 13 Information based on 2005 aggregate data consisting of institutions required to file annual CRA data. - 8 -
Census Tract Type Owner Occupied Units Bank Home Purchase Lending Aggregate Home Purchase Lending 14 Bank Refinance Lending Aggregate Refinance Lending 15 Low-Income 0.3% 0.0% 0.2% 0.0% 0.1% Moderate-Income 20.6% 30.6% 28.0% 20.9% 20.0% Middle-Income 42.4% 34.7% 39.9% 37.2% 41.7% Upper-Income 36.7% 34.7% 31.9% 41.9% 38.2% Response to Complaints Cache Valley Bank received no CRA-related complaints since the previous examination. Accordingly, this component was not reviewed to determine the overall performance rating. Fair Lending or Other Illegal Credit Practices Review The bank is in compliance with the substantive provisions of the anti-discrimination and other fair lending laws and regulations. The compliance examination conducted concurrently with this CRA evaluation did not reveal any type of discriminatory or other illegal credit practices. 14 Information based on 2005 aggregate data consisting of institutions required to file annual HMDA data. 15 Ibid. - 9 -
GLOSSARY OF TERMS 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. 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: All Agencies have adopted the following language. 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 121.301) or have gross annual revenues of $1 million or less; or, activities that revitalize or stabilize low- or moderate-income geographies. Effective September 1, 2005, the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have adopted the following additional language as part of the revitalize or stabilize definition of community development. Activities that revitalize or stabilize: (i) Low-or moderate-income geographies; (ii) Designated disaster areas; or (iii) Distressed or underserved nonmetropolitan middle-income geographies designated by the Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, based on: a. Rates of poverty, unemployment, and population loss; or b. Population size, density, and dispersion. Activities that revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals. 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 - 10 -
non-relatives living with the family. Families are classified by type as either a married couple family or other family, which is further classified into male householder (a family with a male householder and no wife present) or female householder (a family with a female householder and no husband present). Full-scope review: Performance is analyzed considering performance context, quantitative factors (for example, geographic distribution and borrower distribution), and qualitative factors (for example, responsiveness). Geography: A census tract delineated by the United States Bureau of the Census in the most recent decennial census. Home Mortgage Disclosure Act (HMDA): The statute that requires certain mortgage lenders that do business or have banking offices in a metropolitan statistical area to file annual summary reports of their mortgage lending activity. The reports include such data as the race, gender, and the income of applications, the amount of loan requested, and the disposition of the application (for example, approved, denied, and withdrawn). Home mortgage loans: Includes home purchase and home improvement loans as defined in the HMDA regulation. This definition also includes multifamily (five or more families) dwelling loans, loans for the purchase of manufactured homes and refinancings of home improvement and home purchase loans. Household: Includes all persons occupying a housing unit. Persons not living in households are classified as living in group quarters. In 100 percent tabulations, the count of households always equals the count of occupied housing units. Limited-scope review: Performance is analyzed using only quantitative factors (for example, geographic distribution and borrower distribution). Low-income: Individual income that is less than 50 percent of the area median income, or a median family income that is less than 50 percent, in the case of a geography. Market share: The number of loans originated and purchased by the institution as a percentage of the aggregate number of loans originated and purchased by all reporting lenders in the metropolitan area/assessment area. Metropolitan area (MA): A metropolitan statistical area (MSA) or a metropolitan division (MD) as defined by the Office of Management and Budget. A MSA is a core area containing at least one urbanized area of 50,000 or more inhabitants, together with adjacent communities having a high degree of economic and social integration with that core. A MD is a division of a MSA based on specific criteria including commuting patterns. Only a MSA that has a population of at least 2.5 million may be divided into MDs. - 11 -
Middle-income: Individual income that is at least 80 percent and less than 120 percent of the area median income, or a median family income that is at least 80 percent and less than 120 percent, in the case of a geography. Moderate-income: Individual income that is at least 50 percent and less than 80 percent of the area median income, or a median family income that is at least 50 percent and less than 80 percent, in the case of a geography. Multifamily: Refers to a residential structure that contains five or more units. Other products: Includes any unreported optional category of loans for which the institution collects and maintains data for consideration during a CRA examination. Examples of such activity include consumer loans and other loan data an institution may provide concerning its lending performance. Owner-occupied units: Includes units occupied by the owner or co-owner, even if the unit has not been fully paid for or is mortgaged. Qualified investment: A qualified investment is defined as any lawful investment, deposit, membership share, or grant that has as its primary purpose community development. Rated area: A rated area is a state or multistate metropolitan area. For an institution with domestic branches in only one state, the institution s CRA rating would be the state rating. If an institution maintains domestic branches in more than one state, the institution will receive a rating for each state in which those branches are located. If an institution maintains domestic branches in two or more states within a multistate metropolitan area, the institution will receive a rating for the multistate metropolitan area. Small loan(s) to business(es): A loan included in 'loans to small businesses' as defined in the Consolidated Report of Condition and Income (Call Report) and the Thrift Financial Reporting (TFR) instructions. These loans have original amounts of $1 million or less and typically are either secured by nonfarm or nonresidential real estate or are classified as commercial and industrial loans. However, thrift institutions may also exercise the option to report loans secured by nonfarm residential real estate as "small business loans" if the loans are reported on the TFR as nonmortgage, commercial loans. Small loan(s) to farm(s): A loan included in loans to small farms as defined in the instructions for preparation of the Consolidated Report of Condition and Income (Call Report). These loans have original amounts of $500,000 or less and are either secured by farmland, or are classified as loans to finance agricultural production and other loans to farmers. Upper-income: Individual income that is more than 120 percent of the area median income, or a median family income that is more than 120 percent, in the case of a geography. - 12 -