PUBLIC DISCLOSURE July 30, 2012 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION RSSD #3453737 3725 Westwind Boulevard, Suite 100 Santa Rosa, California 95403 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 the 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 RATING... 1 Institution s CRA Rating... 1 INSTITUTION... 2 Description of Institution... 2 Scope of Examination... 3 DESCRIPTION OF NORTHERN CALIFORNIA... 4 ASSESSMENT AREA... 4 CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA... 10 Loan to Deposit Ratio... 10 Lending in Assessment Areas... 10 Lending Distribution by Geography... 11 Lending Distribution by Business Revenue... 12 Response to Complaints... 12 Fair Lending or Other Illegal Practices Review... 12 APPENDICES Appendix A: Glossary of Terms i
INSTITUTION RATING Institution s CRA Rating is rated "SATISFACTORY The major factors supporting the institution s rating include: A reasonable loan to deposit ratio; A substantial majority of loans made within the assessment areas; A reasonable dispersion of small business loans in tracts of all income levels, including low and moderate income; and An adequate level of lending to small businesses. 1
INSTITUTION Description of Institution (APB), a wholly owned subsidiary of AltaPacific Bancorp, headquartered in Santa Rosa, California, reported $115.3 million in total assets as of December 31, 2011. APB began operations on July 10, 2006, and currently operates three branch offices in the California cities of Santa Rosa, Rancho Cucamonga (opened in May 2011), and Covina (acquired through the purchase of Stellar Business Bank in February 2012). APB s mission is to provide relationship focused business banking to small to medium sized businesses, professionals, and entrepreneurs. The bank offers a range of commercial credit products, including term loans, lines of credit, construction loans, machinery and equipment loans, working capital, business acquisition and expansion financing, and land loans. Consumer loans, which are offered as accommodations to the bank s business clients, are limited in number and include secured and unsecured personal loans, automobile loans, home equity loans, and construction loans. APB also offers business and consumer credit cards through a third party provider. Finally, the bank has a variety of deposit products, including business and personal checking, savings, money market, certificates of deposit, and overdraft protection. The composition of the bank s loan portfolio, as stated in the December 31, 2011 Consolidated Reports of Condition and Income and shown in Exhibit 1 below, reflects the bank s focus on construction and land development loans, the vast majority of which are commercial rather than consumer purpose. Commercial and industrial loans and loans secured by non farm, non residential real estate which are the loans evaluated pursuant to the CRA represent approximately one third of the bank s total lending activity. Accordingly, they represent a significant portion of the loan portfolio, but are not the bank s primary business focus. EXHIBIT 1 LOANS AND LEASES AS OF DECEMBER 31, 2011 Loan Type $ ( 000s) % Construction & Land Development 26,390 43.9 Commercial/Industrial & Non Farm Non Residential Real Estate 21,235 35.3 Multi Family Residential Real Estate 6,252 10.4 Secured by 1 4 Family Residential Real Estate 4,473 7.4 Consumer Loans & Credit Cards 1,823 3.0 Total (Gross) $60,173 100.0% APB has defined two assessment areas in the state of California: Northern California and Southern California. At the previous CRA examination, APB operated in only the Northern California assessment area. During the current review period, the bank opened its first Southern California location in Rancho Cucamonga and expanded its assessment area accordingly. 1 1 The bank established its second Southern California branch (in Covina) after the review period considered for this CRA evaluation. 2
The bank s Northern California Assessment Area consists of the entire counties of: Sonoma, which comprises the Santa Rosa Petaluma Metropolitan Statistical Area (MSA); and San Francisco and Marin, both of which are part of the San Francisco San Mateo Redwood City Metropolitan Division (MD) and the San Francisco Oakland Fremont MSA. The bank s Southern California Assessment Area consists of the entire counties of: Riverside and San Bernardino, which comprise the Riverside San Bernardino Ontario MSA; and Los Angeles, which comprises the Los Angeles Long Beach Glendale MD and is part of the Los Angeles Long Beach Santa Ana MSA. APB faces no legal or financial impediments that would prevent it from helping to meet the credit needs of its assessment areas consistent with its business strategy, size, financial capacity, and local economic conditions. The bank received a satisfactory rating at its previous CRA examination, conducted as of July 24, 2008, by the Federal Deposit Insurance Corporation, using the Interagency Small Institution CRA Examination Procedures. Scope of Examination The bank s CRA performance was evaluated using the Interagency Small Institution CRA Examination Procedures. The review period for the evaluation was January 1, 2010, to December 31, 2011. 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); Dispersion of lending throughout the assessment area (Lending Distribution by Geography); and Distribution of lending to businesses with different revenue sizes (Lending by Business Revenue). Responsiveness to consumer complaints was not evaluated since the bank did not receive any complaints related to its CRA performance during the review period. During the review period, the bank originated Forty six small business loans and three mortgage loans subject to the Home Mortgage Disclosure Act (HMDA). Forty two of the small business loans and all of the HMDA loans are located in the Northern California assessment area; four small business loans are located in Southern California. The nominal level of lending in the Southern California assessment area is attributable to the limited length of the bank s operations in this new market. The bank s first branch in Southern California was opened only seven months prior to the end of the review period. All of the loans were used in the evaluation of the bank s lending within its assessment area. Given the small volume, HMDA loans were considered during the review but did not influence the overall assessment. Similarly, given the bank s limited presence and lending activity in Southern California, lending in this area was considered but carried no weight in the overall assessment. Accordingly, the scope of this examination consisted of a full scope review of the northern California assessment area and was based on the bank s small business lending record. 3
DESCRIPTION OF NORTHERN CALIFORNIA ASSESSMENT AREA The Northern California assessment area consists of Sonoma, Marin, and San Francisco Counties in their entirety and is part of the nine county San Francisco Bay Area. This area is home to more than 1.5 million people. 2 Sonoma County, where the bank is headquartered, has the largest geographic footprint of the three county area, covering 1,576 square miles; 3 it has a population of 483,878. 4 Sonoma County is bordered by Mendocino County to the north, Lake County to the northeast, Napa County to the east, Marin County to the south, and the Pacific Ocean to the west. Marin County has a population of 252,409 5 and covers 520 square miles. 6 The majority of Marin s population is concentrated along the eastern side of the county, with the western side dominated by agricultural and coastal areas. South of Marin County, across the Golden Gate Bridge, is San Francisco County. San Francisco, a consolidated city county, is the fourth most populous city in California, with a population of 805,235. 7 Over half of the bank s Northern California assessment area s population resides within San Francisco. APB has a limited presence within this highly competitive assessment area. As of June 30, 2011, there were a total of 62 FDIC insured financial institutions operating 506 offices within Sonoma, Marin, and San Francisco Counties, with deposits totaling over $176 billion. 8 With only one branch, located in the northern reaches of the three county area, APB s $56.8 million in deposits accounted for just 0.03 percent of the total insured deposits in the area. 9 In 2011, 108 Northern California assessment area lenders reported small business loans pursuant to the reporting requirements of the CRA, and 463 lenders reported loans pursuant to HMDA. These lenders extended 55,947 small business loans totaling $1.7 billion, and 63,758 HMDA loans totaling $28.9 billion. 10 Most of these were large regional and national institutions; however, reporting institutions represent only a portion of the small business and home mortgage lending market in this assessment area. Accordingly, competition for small business and home mortgage loans is significant. 2 U.S. Census Bureau, 2010 Population Finder, Counties of Marin, San Francisco, and Sonoma (accessed September 10, 2012); available from http://www.census.gov/popfinder. 3 U.S. Census Bureau, 2010 State and County Quick Facts, Sonoma County (accessed September 10, 2012); available from http://quickfacts.census.gov/qfd/states/06/06097.html. 4 U.S. Census Bureau, 2010 Population Finder, Sonoma County (accessed September 10, 2012); available from http://www.census.gov/popfinder. 5 U.S. Census Bureau, 2010 Population Finder, Marin County (accessed September 10, 2012); available from http://www.census.gov/popfinder. 6 U.S. Census Bureau, 2010 State and County Quick Facts, Marin County (accessed September 10, 2012); available from http://quickfacts.census.gov/qfd/states/06/06097.html. 7 U.S. Census Bureau, 2010 Population Finder, San Francisco County (accessed September 10, 2012); available from http://www.census.gov/popfinder. 8 Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits, June 30, 2011 (accessed September 10, 2012); available from http://www2.fdic.gov/sod/index.asp. 9 Ibid. 10 Information based on 2011 aggregate data consisting of institutions required to file annual CRA data. 4
The following exhibit presents key demographic and business information, based on the 2000 U.S. Census and 2010 Dun and Bradstreet data, used to help develop a performance context for the assessment area. Income Categories Tract Distribution EXHIBIT 2 ASSESSMENT AREA DEMOGRAPHICS 11 NORTHERN CALIFORNIA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low income 26 8.3 19,927 6.2 4,250 21.3 72,202 22.4 Moderate income 70 22.4 56,137 17.4 5,580 9.9 58,796 18.3 Middle income 144 46.0 166,359 51.6 7,421 4.5 66,207 20.6 Upper income 73 23.3 79,737 24.8 1,873 2.3 124,955 38.8 Total AA 313 100.0 322,160 100.0 19,124 5.9 322,160 100.0 Housing Housing Types by Tract Income Categories Units by Owner Occupied Rental Vacant Tract # % % # % # % Low income 55,098 4,670 1.6 8.5 46,960 85.2 3,468 6.3 Moderate income 118,787 38,456 13.3 32.4 74,019 62.3 6,312 5.3 Middle income 302,570 157,497 54.3 52.1 129,390 42.8 15,683 5.2 Upper income 158,215 89,221 30.8 56.4 62,540 39.5 6,454 4.1 Total AA 634,670 289,844 100.0 45.7 312,909 49.3 31,917 5.0 Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Businesses by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Low income 14,095 14.3 11,464 13.1 1,481 24.0 1,150 23.3 Moderate income 18,068 18.3 15,464 17.6 1,459 23.6 1,145 23.2 Middle income 40,975 41.5 37,406 42.7 1,947 31.6 1,622 32.8 Upper income 25,663 26.0 23,351 26.6 1,284 20.8 1,028 20.8 Total AA 98,801 100.0 87,685 100.0 6,171 100.0 4,945 100.0 Percentage of Total Businesses 88.7 6.2 5.0 2004 Median Family Income Sonoma County Marin County San Francisco County 2011 HUD Adjusted Median Family Income Sonoma County Marin County San Francisco County $61,922 $75,188 $75,188 $81,500 $101,600 $101,600 December 2011 Median Housing Value 12 Sonoma County Marin County San Francisco County December 2011 Unemployment Rate 13 Sonoma County Marin County San Francisco County $279,000 $517,818 $590,500 9.0% 6.4% 7.7% 11 2000 U.S. Census and 2010 Dun & Bradstreet Data. 12 California Association of Realtors Trends in California Real Estate Volume 33, Number 1, January 2012. 13 Bureau of Labor Statistics, Local Area Unemployment Statistics by County, Not Seasonally Adjusted. 5
Economic Conditions The Northern California assessment area has a large and diverse economy. Each county within the area has unique characteristics that add to the economic diversity of the region as a whole. The three county area contains major economic centers as well as productive agricultural regions. Major industries in Sonoma County include wine, tourism, and medical technology. 14 The county is home to over 300 wineries, 15 and tourism generates over $1.3 billion per year for the local economy. 16 Medical technology and devices are also a growing sector. 17 Health services and technology are significant industries in Marin, 18 which is one of the more affluent counties in the nation, with consistently high income per capita. Marin also enjoys close proximity to San Francisco s financial district. 19 Finally, finance, high tech, and tourism are key industries in San Francisco. 20 In addition to serving as a center of professional and business services, the city is one of the world s top tourist destinations. 21 In 2010, San Francisco was the 5 th most popular destination for foreign tourists visiting the United States, 22 and in 2011 over 16 million tourists visited the city. 23 Health services and education also play a strong role in San Francisco s economy. 24 Major employers in the assessment area are in the fields of health care, higher education, and finance, and include the University of California at San Francisco, Kaiser Permanente, and Wells Fargo & Company. 25 Although these large employers exert a significant influence on the overall economy, an array of small businesses (i.e., those with gross annual revenues of $1 million or less) make up a substantial majority of all businesses in the three county assessment area and provide an important source of employment. According to the Dun & Bradstreet data shown in Exhibit 2, nearly 89 percent of all assessment area businesses are small. 14 Moody s Economy.com Inc., Précis U.S. State / West / August 2011; Santa Rosa. 15 Sonoma County Tourism Bureau (accessed September 10, 2012); available from http://www.sonomacounty.com/what to do/wineries. 16 Sonoma County Tourism Bureau, New Numbers Show Sonoma County Tourism Economy Growing, May 21, 2012 (accessed September 10, 2012); available from http://www.sonomacounty.com/media/pressreleases/index.php?view=release&releaseid=133. 17 Moody s Economy.com Inc., Précis U.S. State / West / December 2011; Napa and Santa Rosa. 18 Marin County Demographic and Statistical Profile, 2009 2010 (accessed September 10, 2012); available from http://www.co.marin.ca.us/depts/ad/main/bgt09/community_profile_09_10.pdf. 19 Forbes Magazine, America s 25 Richest Counties (Marin ranked #18), March 4, 2010 (accessed September 10, 2012); available from http://www.forbes.com/2010/03/04/america richest counties lifestyle realestate wealthy suburbs.html. 20 Moody s Economy.com Inc., Précis U.S. State / West / December 2011; San Francisco. 21 San Francisco Chronicle, SF Tourism Picks Up, But Spending Stays Flat, September 3, 2010 (accessed September 10, 2012); available from http://www.sfgate.com/business/article/s F tourism picks up but spendingstays flat 3253943.php. 22 U.S. Department of Commerce, Office of Travel and Tourism Industries, Overseas Visitation Estimates for U.S. States, Cities, and Census Regions: 2010 (accessed September 10, 2012); available from http://tinet.ita.doc.gov/outreachpages/download_data_table/2010_states_and_cities.pdf. 23 San Francisco Chronicle, SF Tourism Bounces Back as Economy Recovers, March 27, 2012 (accessed September 10, 2012); available from http://www.sfgate.com/business/article/s F tourism bounces back aseconomy recovers 3437428.php. 24 Moody s Economy.com Inc., Précis U.S. State / West / December 2011; San Francisco. 25 Ibid. 6
All three counties have been affected by the recent economic downturn, though to differing degrees. December 2011 unemployment in the assessment area ranged from 6.4 percent in Marin to a high of 9.0 percent in Sonoma. 26 Sonoma s recovery has been comparatively lackluster, which economists blame, in part, on the high number of foreclosures in the area and a slower pace of new job creation than other parts of the state. 27 However, by the second half of 2011, the tourism industry in the county was starting to recover 28 and the outlook for both the technology and wine industries was positive. 29 The labor market was also showing signs of improvement as the 9.0 percent December 2011 unemployment rate was down from the December 2009 and December 2010 levels of 10.2 and 10.0 percent, respectively. 30 Marin s lower unemployment rate is consistent with its standing as one of the more affluent counties in the nation, with consistently high income and low unemployment figures. While Marin s unemployment rate did rise during and after the Great Recession, Marin has remained somewhat insulated from the economic downturn. For example, by mid year 2010, the most recent year for which data was available, Marin had the third highest personal per capita income among all counties in the United States. 31 At the same time, the county had the lowest unemployment rate in the state of California, at 7.9 percent. 32 San Francisco has historically felt the effects of the national economy later than the rest of the state and the nation. 33 Thus, while the US recession had officially ended by mid 2009, and private sector job growth started to increase in the summer of 2010, San Francisco s economy continued to feel the effects of the recession through 2010 and 2011. 34 However, despite the financial crisis and recession, San Francisco performed better than the state as a whole in many respects. San Francisco began the period of review with an unemployment rate of 10.1 percent, 35 below the state s 12.9 percent. 36 By December 2011, San Francisco s unemployment rate had dropped to 7.7 percent, representing the lowest unemployment rate in the city since January 2009. 37 By the end of 2010, the tourism industry 26 Bureau of Labor Statistics, Local Area Unemployment Statistics by County, Not Seasonally Adjusted. 27 Sonoma Press Democrat, Sonoma County to Continue its Slow Growth in 2012, January 13, 2012 (accessed September 10, 2012); available from http://www.pressdemocrat.com/article/20120113/business/120119782. 28 Sonoma County Economic Development Board, Annual Tourism Report, 2011 (accessed September 10, 2012); available from http://www.sonomacounty.com/docs/media/annual tourism report 2011.pdf. 29 Moody s Economy.com Inc., Précis U.S. State / West / August 2011; Santa Rosa. 30 California Employment Development Department, Sonoma County Monthly Employment Data (accessed September 10, 2012); available from http://www.calmis.ca.gov/htmlfile/county/sonoma.htm. 31 U.S. Department of Commerce, Bureau of Economic Analysis, Regional Data, Personal Income, Per Capita Personal Income and Population (CA1 3), available at http://www.bea.gov/itable/itable.cfm?reqid=70&step=1&isuri=1&acrdn=5 (accessed September 16, 2012). 32 Marin Independent Journal, Marin Regains Title of Lowest Jobless Rate in State, June 18, 2010 (accessed September 10, 2012); available from http://www.marinij.com/ci_15326659. 33 City and County of San Francisco, Comprehensive Annual Financial Report, Year Ended June 30, 2010 (accessed September 10, 2012); available from http://www.sfcontroller.org/modules/showdocument.aspx?documentid=2742. 34 Moody s Economy.com Inc., Précis U.S. State / West / December 2011; San Francisco. 35 California Employment Development Department, San Francisco County Monthly Employment Data (accessed September 10, 2012); available from http://www.calmis.ca.gov/htmlfile/county/sanfran.htm. 36 California Employment Development Department, California Monthly Employment Data (accessed September 10, 2012); available from http://www.calmis.ca.gov/htmlfile/county/califhtm.htm. 37 California Employment Development Department, San Francisco County Monthly Employment Data (accessed September 10, 2012); available from http://www.calmis.ca.gov/htmlfile/county/sanfran.htm. 7
appeared to be close to a full recovery, approaching its pre recession levels. 38 Additionally, in 2011, growth in high tech and internet based companies mitigated weaker performance in the financial industry, which had long been a major part of the local economy. 39 Home prices in the three counties generally declined during the review period. 40 Median housing prices are significantly below their pre recession peaks. 41 This may be attributed, in part, to relatively high unemployment and elevated levels of foreclosures and vacancies that have created an excess supply of housing in many areas. 42 Despite the decline in prices, overall housing prices in the assessment area have remained higher than those in much of the rest of the state and the nation, making housing affordability challenging, particularly for low income families. 43 San Francisco and Marin are often ranked among the least affordable areas in the nation, with median home prices in December 2011 of $590,500 and $517,818, respectively. 44 Housing in Sonoma County is somewhat more affordable, with a median home price of $279,000 in December 2011. The third quarter 2011 First Time Buyer Housing Affordability Index, prepared by the California Association of Realtors to measure the percentage of households that can afford to purchase an entry level home, scores Marin at 47 percent, San Francisco at 48 percent and Sonoma at 70 percent. 45 Credit Availability and Needs With regard to credit needs, access to credit for businesses, particularly for small business owners, was a concern during the Great Recession. 46 According to national data reported under the CRA, the number and dollar amount of small business loans each declined approximately nine percent between 2009 and 2010. 47 Lower demand for credit appeared to be a contributing factor to the decline; however, by the end of 2011, demand for credit was on the rise, as reflected in the results of the Federal Reserve System s January 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices. 38 City and County of San Francisco, Comprehensive Annual Financial Report, Year Ended June 30, 2010 (accessed September 10, 2012); available from http://www.sfcontroller.org/modules/showdocument.aspx?documentid=2742. 39 Moody s Economy.com Inc., Précis U.S. State / West / December 2011; San Francisco. 40 California Association of Realtors Trends in California Real Estate, Volume 33, Number 1, January 2012. 41 See the City and County of San Francisco s Comprehensive Annual Financial Report Year ended June 30, 2011 (accessed September 10, 2012), Controller s Letter of Transmittal, page ii, available from http://www.sfcontroller.org/modules/showdocument.aspx?documentid=2742. 42 Bay Area Council Economic Institute, Innovation and Investment: Building Tomorrow s Economy in the Bay Area, page 48, March 2012 (accessed September 10, 2012); available from http://www.bayareaeconomy.org/media/files/pdf/bayareaeconomicprofile2012web.pdf. 43 California Association of Realtors news release dated January 17, 2012 (accessed September 10, 2012); available from http://www.car.org/newsstand/newsreleases/2012releases/decembersales/. 44 California Association of Realtors Trends in California Real Estate Volume 33, Number 1, January 2012. 45 Ibid. 46 The American Banker, February 8, 2010, Agencies Urge Loans to Small Businesses. 47 Federal Financial Institutions Examination Council, Findings from Analysis of Nationwide Summary Statistics for 2010 Community Reinvestment Act Data Fact Sheet (August 2011) (accessed September 10, 2012); available from http://www.ffiec.gov/hmcrpr/cra_fs11.htm. 8
In that survey, approximately 15 percent of domestic banks reported increased demand for commercial and industrial loans from small businesses, representing the largest net percentage reported since 2005. 48 As noted above, a substantial majority of area businesses are small businesses. Discussions with community contacts representing a Northern California non profit that provides microloans to small businesses revealed that such businesses typically need loans in amounts under $300,000. Similarly, in March 2011, the Federal Reserve Bank of San Francisco Community Development Department and the Office of the Comptroller of the Currency hosted a forum in San Francisco focusing on access to credit to small businesses, and business ownership. At this forum, a variety of academic and community development speakers identified access to credit and technical assistance for small businesses as being a critical credit need in the community. 48 Board of Governors of the Federal Reserve System, The January 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices (accessed September 10, 2012); available from http://federalreserve.gov/boarddocs/snloansurvey/201201/default.htm. 9
CONCLUSIONS WITH RESPECT TO PERFORMANCE CRITERIA Loan-to-Deposit Ratio The bank s loan to deposit ratio is reasonable. The loan to deposit ratio as of December 31, 2011, is 76.5 percent, comparable to both the state average of 78.5 percent and the national peer average of 75 percent. The bank s average loan to deposit ratio for the 13 quarters ending December 31, 2011, is 105.7 percent, which exceeds both the state average of 84.1 percent and the national peer average of 83.6 percent. The bank s overall level of lending, as measured in number of loans, was relatively low during the review period. This is likely a consequence of the bank s age (at the start of the review period, the bank had been operating for just three and one half years) and the natural growth process of operating in a heavily banked and highly competitive market in the midst of an economic downturn. The loan todeposit ratio, however, particularly when considering the average over the review period, demonstrates that the bank is lending in its market at a level that is comparable to its peers. Accordingly, the level is considered reasonable. Lending in Assessment Areas The bank originated a substantial majority of its loans inside its two assessment areas. As shown in Exhibit 3, below, the bank extended 94.2 percent of loans by number and 93.5 percent of loans by dollar volume within the assessment areas. Given the large geographic size of the assessment areas in relation to the bank s size, this high level of lending within the assessment area is expected. EXHIBIT 3 LENDING INSIDE AND OUTSIDE THE ASSESSMENT AREAS JANUARY 1, 2010 DECEMBER 31, 2011 Inside Outside Loan Type $ $ # % % # % ( 000s) ( 000s) % Small Business Loans 46 93.9 11,968 91.2 3 6.1 1,157 8.8 Total Business Related 46 93.9 11,968 91.2 3 6.1 1,157 8.8 HMDA Refinance 1 100.0 425 100.0 0 0.0 0 0.0 HMDA Multi Family 2 100.0 4,300 100.0 0 0.0 0 0.0 Total HMDA Related 3 100.0 4,725 100.0 0 0.0 0 0.0 All Loan Types 49 94.2 16,693 93.5 3 5.8 1,157 6.5 10
Lending Distribution by Geography Overall, the geographic distribution of small business loans during the review period is adequate. Loans were made in all income categories and there were no conspicuous lending gaps. As shown in Exhibit 4, below, lending levels in low income census tracts were generally below the level of business entities and aggregate lending. Lending levels in moderate income census tracts were higher than the level of business entities and aggregate lending in 2010, but lower than the level of aggregate lending in 2011. The lower lending levels seen in low and moderate income areas is likely attributable to the location of the bank s branch in the Northern California assessment area. The bank s small business loans were generally concentrated in census tracts along the Highway 101 corridor that runs through Sonoma, Marin and San Francisco Counties. The sole branch in the area is located at the northern end of the population center (the city of Santa Rosa), in the northern most county (Sonoma County) within the area. In Sonoma County, there are no low income census tracts and just 12 moderate income census tracts. In Marin County, there are two low income census tracts and three moderate income census tracts. Consequently, the vast majority of the low and moderate income census tracts within the bank s assessment area are located in San Francisco, over 50 miles from the branch, resulting in more limited opportunities to reach these areas. Nevertheless, the bank is reaching low and moderateincome census tracts, even some of those within San Francisco County. The level of lending in low and moderate income tracts declined from 2010 to 2011. Contextual factors could not explain the decline; however, given the small universe of loans being assessed, relatively small changes in the actual number of loans originated can result in significant changes in the percentage. Further, the bank extended other types of commercial credit in a variety of geographies, including lowand moderate income tracts. Although these loan types are not considered for the purposes of CRA, they do demonstrate the bank s willingness to extend credit in all geographies within its assessment area. EXHIBIT 4 GEOGRAPHIC DISTRIBUTION OF SMALL BUSINESS LOANS NORTHERN CALIFORNIA Census Tract Low Moderate Middle Upper # % # % # % # % 2010 Bank Lending 1 5.6 5 27.8 6 33.3 6 33.3 Aggregate Lending 5,669 12.7 8,272 18.5 17,742 39.6 13,094 29.2 Business Concentration 14,095 14.3 18,068 18.3 40,975 41.5 25,663 26.0 2011 Bank Lending 1 4.2 1 4.2 16 66.7 6 25.0 Aggregate Lending 7,026 12.6 10,846 19.4 22,565 40.3 15,510 27.7 Business Concentration N/A N/A N/A N/A N/A N/A N/A N/A 11
Lending Distribution by Business Revenue The bank s lending patterns demonstrate an adequate distribution of loans to small businesses. As shown in Exhibit 5 below, in 2010, a substantial majority of the small business loans were extended to businesses with gross annual revenues of $1 million or less. In 2011, the bank s lending to such businesses declined significantly from the 2010 levels. The decline cannot be explained by contextual factors; nevertheless, the level of lending remained comparable to that of aggregate lenders in the area. Further, a majority of loans extended in both years were in amounts of $250,000 or less, thus addressing a credit need for small businesses that was articulated by community contacts. Year Bank Lending # EXHIBIT 5 BUSINESS REVENUE DISTRIBUTION OF SMALL BUSINESS LOANS NORTHERN CALIFORNIA Lending to Businesses with Revenue <=$1 Million Businesses <=$1M in Revenue (%) Bank Lending (%) Aggregate Lending (%) Originations Regardless of Revenue Size by Loan Amount <=$100K (%) > $100K & <=$250K (%) >250K & <=$1M (%) 2010 18 77.8 88.8 40.8 27.8 44.4 27.8 2011 24 45.8 N/A 49.2 37.5 20.8 41.7 Response to Complaints APB did not receive any CRA related complaints during the review period. Consequently, the bank s performance in responding to complaints was not considered in evaluating CRA performance. Fair Lending or Other Illegal Practices Review Concurrent with this CRA evaluation, a review of the bank's compliance with consumer protection laws and regulations was conducted. No violations of the substantive provisions of anti discrimination, fair lending, or other illegal credit practice rules, laws or regulations were identified. 12
APPENDIX A 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 lowor 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 non relatives living with the family. Families are classified by type as either a married couple family or other family, which is A 1
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 under the lending and community development 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, 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 under the lending and community development tests is analyzed using only quantitative factors (for example, geographic distribution, borrower distribution, total number and dollar amount of investments, and branch distribution). Low income: Individual income that is less than 50 percent of the area median income, or a median family income that is less than 50 percent, in the case of a geography. Market share: The number of loans originated and purchased by the institution as a percentage of the aggregate number of loans originated and purchased by all reporting lenders in the metropolitan area/assessment area. Metropolitan area (MA): 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. 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. A 2
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. A 3