PUBLIC DISCLOSURE August 20, 2007 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Silicon Valley Bank RSSD #802866 3003 Tasman Drive Santa Clara, California 95054 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 S RATING... 1 Institution s Overall CRA Rating... 1 Table of Performance Test Ratings...1 Summary of Major Factors Supporting Rating... 1 INSTITUTION... 2 Description of Institution... 2 Scope of Examination... 3 Conclusions with Respect to Performance Tests... 4 FULL-SCOPE ASSESSMENT AREA CONCLUSIONS... 8 San Francisco Bay Area... 8 North Bay Area... 19 APPENDICES Appendix A: Glossary of Terms i
INSTITUTION S RATING INSTITUTION'S CRA RATING: Silicon Valley Bank is rated "SATISFACTORY" The following table shows the performance level of Silicon Valley Bank with respect to the lending, investment, and service tests. PERFORMANCE LEVELS LENDING TEST* PERFORMANCE TESTS INVESTMENT TEST SERVICE TEST OUTSTANDING HIGH SATISFACTORY X X LOW SATISFACTORY 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: A high level of community development lending with a number of complex and innovative affordable housing development transactions. The bank s community development lending substantially offset an otherwise poor overall level of lending within its assessment areas. A significant level of qualified investments and grants that was responsive to the needs of the assessment areas and which promote community development. A significant level of community development services which supported affordable housing development and small businesses. 1
DESCRIPTION OF INSTITUTION INSTITUTION Silicon Valley Bank (SVB), which is headquartered in Santa Clara, California, is a whollyowned subsidiary of SVB Financial Group which had assets totaling $5.7 billion as-of December 31, 2006. Established on October 17, 1983, the bank s strategic focus is to offer diversified and innovative financial services to niche markets, primarily emerging growth and established technology companies and the life science, private equity, and premium wine industry. SVB currently operates four full-service branch offices in Menlo Park, Palo Alto, Santa Clara and St. Helena, California. The Fremont branch was converted from a fullservice branch to a loan production office (LPO) in Pleasanton on July 1, 2005. SVB also operates 23 LPOs situated in 15 states across the continental United States. SVB offers a range of commercial credit facilities, including term loans, commercial construction, asset-based loans, venture fund capital call loans, and bridge loans. Additional services such as cash management, investment and international services are available to the bank s business customers as well as a limited number of consumer products. Consistent with the bank s historic focus, commercial loans represent a substantial majority of the loan portfolio, as data from the December 31, 2006, Consolidated Reports of Condition and Income indicate in the table below. LOAN TYPE DOLLAR AMOUNT PERCENT ( 000S) OF VALUE Commercial/Industrial & Non-Farm Non-Residential Real Estate 2,612,535 75.5 All Other 247,518 7.1 Farmland/Agriculture 226,055 6.5 Consumer Loans & Credit Cards 167,104 4.8 Secured by 1-4 Family Residential Real Estate 164,261 4.7 Construction & Land Development 39,250 1.1 Multifamily Residential Real Estate 5,485 0.2 Total (Gross) $3,462,208 100.0% 2
SVB s two assessment areas remain unchanged since the previous examination and consist of the San Francisco Bay Area assessment area and the North Bay Area assessment area. Each of the assessment areas are part of the San Jose-San Francisco-Oakland, California Combined Statistical Area. The composition of these assessment areas are as follows: San Francisco Bay Area Assessment Area Alameda County: Oakland-Fremont-Hayward, Metropolitan Division (MD); San Francisco and San Mateo Counties: part of the San Francisco-San Mateo-Redwood City, California MD; and Santa Clara County: part of the San Jose-Sunnyvale-Santa Clara, Metropolitan Statistical Area (MSA). North Bay Area Assessment Area Napa County: Napa MSA; and Sonoma County: Santa Rosa-Petaluma MSA. The San Francisco Bay assessment area continues to serve as SVB s primary market with three of the bank s four full-service branches located in this market. SVB also operates one fullservice branch in the North Bay assessment area. In addition, the bank operates six LPOs within its assessment areas located in Palo Alto, Pleasanton, San Francisco, Santa Clara and Santa Rosa. SVB 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 Community Reinvestment Act examination conducted as of August 22, 2005. SCOPE OF EXAMINATION This examination was conducted using the Interagency Large Institutions CRA Examination Procedures. As such, the bank s performance was evaluated under the lending, service and investment tests. The sample period for review for all three tests was January 1, 2005 to December 31, 2006. The examination also involved discussions with members of the bank s local communities and bank management as well as a review of relevant information and data to help provide context for the bank s performance. The evaluation of the bank s performance under the lending test was weighted in accordance with the lending activity and relative opportunities and needs in each assessment area. The lending performance, which is weighted more heavily than either the investment or service performance, was based on small business and community development loans originated during the review period. The relatively low level of home mortgage loans and small farm loans was insufficient to draw meaningful conclusions and as such these products were excluded from the analysis. Each assessment area received a full-scope review. The San Francisco Bay Area assessment area received greater weight in the analysis. 3
CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS LENDING TEST SVB s overall performance under the lending test is low satisfactory. This rating is based primarily on the exceptional level and impact of community development lending. Secondary factors include an adequate geographic distribution of small business loans and a good distribution of small business loans by business size. The limited level of lending within the assessment area is poor and detracted from the overall rating under this test. Lending Activity Overall, lending levels are adequate. Exhibit 1 below shows that the bank extended a reasonable level of small business loans. Given that SVB s target market generally requires loans of greater than $1 million, the bank has reasonably maintained its small business lending levels. EXHIBIT 1 SUMMARY OF LENDING ACTIVITY JANUARY 1, 2005 TO DECEMBER 31, 2006 Loan Type # % $ ('000s) % Small Business 956 95.3 553,464 94.6 Small Farm 11 1.1 2,853 0.4 Total Business/Farm-Related 967 96.4 556,317 95.1 HMDA Home Purchase 21 2.0 15,477 2.6 HMDA Refinance 14 1.4 11,936 2.0 HMDA Home Improvement 1 0.1 1,100 0.1 Total HMDA-Related 36 3.5 28,513 4.8 TOTAL LOANS 1,003 100.00 584,830 100.00 Assessment Area Concentration The level of lending within SVB s assessment areas, as shown in Exhibit 2 below, is poor. This level of lending is primarily a result of SVB following its niche markets around the country and generating the majority of its lending through loan production offices which are located near these niche markets. EXHIBIT 2 LOANS INSIDE AND OUTSIDE OF THE ASSESSMENT AREAS EVALUATION PERIOD: JANUARY 1, 2005 TO DECEMBER 31, 2006 Loan Type Inside Outside # % $ (000s) % # % $ (000s) % Small Business Loans 270 28.2 154,742 27.9 686 71.7 398,722 72.0 4
Geographic and Borrower Distribution Overall, the geographic distribution of loans demonstrates an adequate dispersion among census tracts of different income levels. Small business lending mirrored the distribution of aggregate lenders, particularly in the North Bay assessment area, while performance in the Bay Area assessment areas was adequate but not as strong. The bank s performance in lending to businesses with revenues of $1 million or less was good overall, generally better than that of aggregate lenders and reasonable in relation to the percentage of small businesses in the market. Community Development Lending The bank is consistently a leader in making a high level of community development loans which demonstrate excellent responsiveness to community credit needs. The bank is an active lender in the affordable housing construction market, with over 80 percent of the number of community development loans financing the construction of over 1,300 units of EXHIBIT 3 COMMUNITY DEVELOPMENT LOANS TOTAL # $ (000s) San Francisco Bay Area 22 128,070 North Bay Area 3 20,090 Statewide/Regional Area 1 3,000 TOTAL 26 151,160 affordable housing for low- and moderate-income individuals in the bank s assessment areas. Most of the bank s loans were also complex as they involved the use of low income housing tax credit subsidies and in some cases, consisted of multiple financing sources. One community development loan was made to a non-profit loan consortium which provides financing on affordable housing projects throughout California. INVESTMENT TEST SVB s overall performance under the investment test is high satisfactory. This assessment is based on a significant level of qualified investments and grants in relation to credit and community development needs within the bank s assessment areas as shown in Exhibit 4. Current period investments included charitable contributions, low income housing tax credits, targeted mortgage backed securities and an innovative capital investment in a non-profit housing development organization where funds will be used for land purchase, predevelopment costs and construction of affordable housing units. Prior period investments consist of capital investments in two affordable housing development organizations, low income housing tax credits, new markets tax credits, Small Business Investment Company (SBIC) investments and investments in two community development financial institutions. Unfunded commitments included low income housing tax credits and an innovative investment in a venture investment fund which will provide capital to growing companies throughout California that hire a large percentage of their workforce from low-income communities. 5
EXHIBIT 4 COMMUNITY DEVELOPMENT INVESTMENTS Prior Period Current Period Total Unfunded Commitments # $ (000s) # $ (000s) # $ (000s) # $ (000s) San Francisco Bay Area 5 10,150 39 1,681 44 11,831 3 5,618 North Bay Area 1 100 5 914 6 1,014 1 4,114 Statewide/Regional Area 11 14,059 57 12,291 68 26,350 1 1,000 TOTAL 17 24,309 101 14,886 118 39,195 5 10,732 SERVICE TEST SVB s overall performance under the service test is high satisfactory. Retail banking services are reasonably accessible to all portions of SVB s assessment areas. The excellent level of community development services provided by bank employees was a key driver of the overall performance under this test. Retail Banking Services Delivery systems are reasonably accessible to businesses in its assessment areas. The bank uses a network of four branches across six counties to deliver its commercial and retail banking products and services. All four branches, three in the San Francisco Bay Area assessment area and one in the North Bay Area, offer the full range of products and services and are open for business Monday through Friday, from 10:00 a.m. to 3:00 p.m. and by appointment. Although all of the bank s branches are located in middle- or upper-income census tracts, they are accessible to concentrations of the bank s niche clientele. The conversion of the bank s Fremont branch to an LPO in Pleasanton in July 2005 did not adversely affect the respective community as loan officers continue to serve the community and deposit services are available through a courier service. The bank effectively uses a variety of alternative delivery systems to allow access to banking services after normal branch hours. These include LPOs, on-line banking, automated telephone access, banking by mail, and a courier service. Given the bank s predominantly business clientele, its hours, product offerings, and retail delivery systems are reasonable and do not vary in any way that inconveniences any portion of its assessment areas. Community Development Services SVB provided a high level of community development services that addressed a variety of community development needs within its assessment areas. During the examination period, bank employees provided a total of 3,329 hours of qualified services to professional associations that helped promote affordable housing, economic development, revitalization and stabilization 6
of low- and moderate-income areas, and community services targeted to low- and moderateincome individuals. This included 1,946 hours to organizations serving a broader statewide or regional area, such as service on the board of directors and the loan committee of the California Community Reinvestment Corporation, a multi-bank loan consortium. The level and impact of qualified services provided during the period is significant considering the bank s capacity and community needs. The most significant community development service provided consisted of forums coordinated by the bank to present small startup businesses in emerging technologies to potential investors. This service, which introduces startup companies to potential venture capital investors, is a common method by which the bank s niche customers attract funding, but few if any of the bank s competitors offer similar services. Other activities included active participation in loan committees and on boards of affordable housing organizations and providing technical assistance to non-profit community development organizations in obtaining grants for affordable housing. Bank personnel often served in key roles on boards of directors and other committees within these organizations. A more in-depth description of the bank s community development service activities may be found under the appropriate assessment area conclusion. FAIR LENDING OR OTHER ILLEGAL CREDIT PRACTICES REVIEW The bank is in compliance with the substantive provisions of the anti-discrimination laws and regulations. The fair lending review performed concurrently with this examination did not evidence any type of discriminatory lending practices. 7
FULL-SCOPE ASSESSMENT AREA CONCLUSIONS For each assessment area where a full-scope review was performed using the examination procedures. SAN FRANCISCO BAY AREA DESCRIPTION OF OPERATIONS IN THE SAN FRANCISCO BAY AREA ASSESSMENT AREA The San Francisco Bay Area assessment area consists of Alameda, San Francisco, San Mateo, and Santa Clara Counties in their entirety, and is part of the San Jose-San Francisco-Oakland, California Combined Statistical Area (CSA). Alameda County is the Oakland-Fremont- Hayward, California Metropolitan Division (MD); San Francisco and San Mateo Counties are part of the San Francisco-San Mateo-Redwood City, California MD; and Santa Clara County is part of the San Jose-Sunnyvale-Santa Clara, California Metropolitan Statistical Area (MSA). SVB s operates three branches in this assessment area. As of June 30, 2006, these offices held $3.9 billion in deposits, representing 2.1 percent of the market share and ranking 10th out of 91 FDIC-insured financial institutions operating 1,039 offices. Primary competitors include three large regional and national institutions that collectively held 55.3 percent of the deposit market share. 1 In 2006, SVB ranked 40th out of 161 CRA lenders reporting small business loans with a 0.03 percent market share; however, CRA reportable lenders represent only a small portion of the overall market. Given the large number of institutions that operated in this market, competition for lending and deposit products as well as community development loans and investments was significant. The following table presents key demographic and business information, based on the 2000 U.S. Census and 2006 Dun & Bradstreet data, used to develop the performance context for this assessment area. 1 Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits, June 30, 2006; available from http//www2.fdic.gov/sod/. 8
Income Categories EXHIBIT 5 ASSESSMENT AREA DEMOGRAPHICS Tract Distribution SAN FRANCISCO BAY AREA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income 82 8.3 62,635 5.9 14,788 23.6 227,866 21.5 Moderate-income 223 22.5 212,185 20.0 22,642 10.7 188,301 17.7 Middle-income 416 41.9 478,015 45.0 19,489 4.1 222,514 21.0 Upper-income 269 27.1 308,721 29.1 6,523 2.1 422,875 39.8 Tract not reported 3 0.3 0 0.0 0 0.0 0 0.0 Total AA 993 100.0 1,061,556 100.0 63,442 6.0 1,061,556 100.0 Housing Housing Types by Tract Income Categories Units by Owner-occupied Units Rental Units Vacant Units Tract # % % # % # % Low-income 128,695 20,571 16.0 2.3 100,939 78.4 7,185 5.6 Moderate-income 359,278 129,542 36.1 14.4 217,748 60.6 11,988 3.3 Middle-income 768,169 418,891 54.5 46.7 328,460 42.8 20,818 2.7 Upper-income 470,428 327,489 69.6 36.5 129,347 27.5 13,592 2.9 Tract not reported 45 28 62.2 0.0 17 37.8 0 0.0 Total AA 1,726,615 896,521 51.9 100.0 776,511 45.0 53,583 3.1 Businesses by Tract & Revenue Size Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income 21,797 11.6 18,199 11.1 3,126 14.6 472 13.0 Moderate-income 40,425 21.5 34,658 21.2 4,746 22.2 1,021 28.2 Middle-income 73,803 39.2 64,857 39.7 7,647 35.8 1,299 35.9 Upper-income 52,149 27.7 45,492 27.9 5,830 27.3 827 22.8 Tract not reported 106 0.1 81 0.0 21 0.1 4 0.1 Total AA 188,280 100.0 163,287 100.0 21,370 100.0 3,623 100.0 Percentage of Total Businesses: 86.7 11.4 1.9 Median Family Income 2000 $73,475 2006 HUD Adjusted Median Family Income Alameda County San Francisco County San Mateo County Santa Clara County $83,800 $91,200 $91,200 $97,100 December 2006 Median Housing Value 2 Alameda County San Francisco County San Mateo County Santa Clara County 2006 Unemployment Rate 3 Alameda County San Francisco County San Mateo County Santa Clara County $597,500 $745,000 $745,500 $668,000 4.4% 4.2% 3.7% 4.5% 2 3 California Association of Realtors, Trends in California Real Estate, Volume 28, Number 1, January 2007. Bureau of Labor Statistics (Haver Analytics) created May 21, 2007. 9
The San Francisco Bay Area economy is ranked 24th in the world when compared to national economies and the area is a leader in regional, global and national competitiveness. The area is home to the highest density of venture capital firms in the world, with 32 percent of total U.S. venture capital funding invested in the region. 4 Major industries include computers and electronics, telecommunications, bioscience and biotechnology, health services, banking and financial services, business services, visitor and tourism, retail and wholesale trade, and agribusiness and food processing. 5 While the technology industry experienced a significant downturn from 2000-2005, the sector has experienced a strong rebound in the past few years. 6 Information technology and Internetrelated businesses have rebounded strongly and the biotechnology sector also has accelerated. Similarly, the pace of job growth also picked up significantly in recent years relative to other regions. From 2000 to 2005, the San Francisco-Oakland and San Jose metropolitan areas had low job creation, ranking 197th and 199th respectively among 200 areas examined by the Milken Institute. But by March 2007, the institute found that the San Francisco area ranked 25th and the San Jose area ranked 36 th. 7 While the San Francisco Bay Area is home to more Fortune 500 companies than anywhere in the country except New York City, it is also home to a much larger proportion of small businesses than other metropolitan regions. This reflects its entrepreneurial culture, and the fact that young companies can access the world s most educated labor pool as well as the world s largest pool of venture capital, and are supported by a highly developed financial and service infrastructure. 8 10 Most businesses in the Silicon Valley are small businesses with 130,000 businesses in Santa Clara County with fewer than 20 employees. About one-in-five people working in the county work for, or own, a small business. 911 Professional, scientific and technical services firms comprise a large share of Silicon Valley small businesses compared with California and the US (double the US). 10 12 4 Bay Area Economic Forum, Global and National Competitiveness http://www.bayeconfor.org/baefregion.html. 5 Bay Area Marketing Partnership, Bay Area demographics http://www.bayareafirst.org/demographics.html. 6 Bay Area economy, pay, cost of living are at the top of the heap by Sam Zuckerman, Chronicle Staff Writer, Thursday, September 27, 2007 http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/09/27/mnjiseng7.dtl Sources: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Milken Institute. 7 Bay Area economy, pay, cost of living are at the top of the heap by Sam Zuckerman, Chronicle Staff Writer, Thursday, September 27, 2007 http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/09/27/mnjiseng7.dtl Sources: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Milken Institute. 810 Bay Area Economic Forum, Key Issues: Business Development http://www.bayeconfor.org/keybusdev.html. 911 Santa Clara County Small Business Study, Silicon Valley Workforce Investment Network, http://www.work2future.biz/scc_report.pdf. 1012 Santa Clara County Small Business Study, Silicon Valley Workforce Investment Network, http://www.work2future.biz/scc_report.pdf. 10
The region's cost of living is about 40 percent higher than the nation's as a whole, according to the Bay Area Council. 11 13 Housing contributes most to the cost of living as local residents spend 48 percent of their income on housing, compared to 29 percent for the country as a whole. By federal standards, San Francisco Bay Area housing is unaffordable for individuals of median income. 12 14In recent years, new housing construction has not kept up with the pace of job growth, particularly in booming job centers such as Silicon Valley, where just over half the housing needed for expected workers and their families by 2010 is projected to be built. If current trends continue, the Bay Area economy is projected to grow by an additional one million new jobs in the next 20 years which clearly highlights the need for additional affordable housing. Credit and community development needs within the assessment area vary. As shown in Exhibit 5, a substantial majority of area businesses are small businesses with gross annual revenues of $1 million or less. Based on discussions with community representatives, small business loans and loans for affordable housing development are critical credit needs in the community. However, conversations with management revealed that many technology and life science companies which rely on a combination of bank financing and venture capital investment are seeking loans greater than $1 million, thus reducing demand for small business loans within this industry. 1113 Bay Area economy, pay, cost of living are at the top of the heap by Sam Zuckerman, Chronicle Staff Writer, Thursday, September 27, 2007 http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/09/27/mnjiseng7.dtl Sources: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Milken Institute. 12 The Innovation Economy: Protecting the Talent Advantage, Bay Area Economic Profile, February 2006. http://www.bayeconfor.org/pdf/baep_february06web.pdf. 11
CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN SAN FRANCISCO BAY AREA Exhibit 6 below recaps all of the lending investment and service activities in this assessment area that occurred during the review period. This data is the basis for the evaluation of performance in the assessment area. EXHIBIT 6 SUMMARY OF LENDING, INVESTMENT, AND SERVICE ACTIVITY SAN FRANCISCO BAY AREA ASSESSMENT AREA Distribution by Tract Income Products and Services # Low-Income Moderate-Income Middle-Income Upper-Income Small Business Loans Assessment Area Total Bank Lending 186 7.5 17.7 32.8 41.9 Business Distribution 188,280 11.5 21.5 39.2 27.7 Aggregate Lending 302,905 8.4 19.3 40.7 31.5 Market Share 0.0 0.0 0.0 0.0 0.0 Alameda County Bank Lending 17 17.6 5.8 58.8 17.6 Business Distribution 54,354 13.9 18.8 39.2 28.1 Aggregate Lending 84,712 10.1 16.4 39.8 33.7 Market Share 0.0 0.0 0.0 0.0 0.0 San Francisco and San Mateo Counties Bank Lending 79 13.9 16.4 20.2 49.4 Business Distribution 70,005 17.2 21.7 34.3 26.7 Aggregate Lending 113,959 12.4 21.2 36.9 29.5 Market Share 0.0 0.04 0.01 0.02 0.1 Santa Clara County Bank Lending 90 0.0 21.1 38.9 40.0 Business Distribution 63,921 3.4 23.4 44.6 28.5 Aggregate Lending 104,234 2.7 19.6 45.7 31.9 Market Share 0.0 0.0 0.0 0.0 0.1 Distribution by Business Revenue or Borrower Income Products and Services # Small Business Loans Assessment Area Total Business Revenue Loan Amount Loan Amount Loan Amount = < $1million = < $100k $100k - $250k $250k - $1 million Bank Lending 186 40.3 1.1 10.2 88.7 Business Distribution 188,280 86.7 NA NA NA Aggregate Lending 302,905 39.3 97.5 1.2 1.3 Alameda County Bank Lending 17 70.6 5.9 5.9 88.2 Business Distribution 54,354 87.1 NA NA NA Aggregate Lending 84,712 39.1 97.3 1.3 1.5 San Francisco and San Mateo Counties Bank Lending 79 26.6 0.00 12.7 87.34 Business Distribution 70,005 86.8 NA NA NA Aggregate Lending 113,959 39.1 97.5 1.2 1.3 Santa Clara County Bank Lending 90 46.7 1.1 8.9 90.0 Business Distribution 63,921 86.4 NA NA NA Aggregate Lending 104,234 39.8 97.6 1.1 1.3 Community Development Activities # $ ('000) Community Development Loans 22 128,070 Community Development Investments Prior Period Current Period Total Unfunded Qualified Investments - # 5 39 44 3 Qualified Investments - $ (000) $10,150 $1,681 $11,831 $5,618 Community Development Services Hours 1,156 12
LENDING TEST The bank s performance under the lending test in the assessment area is adequate. Although the geographic distribution of loans is adequate and the distribution of loans to businesses of different sizes is good, SVB made only a limited volume of small business loans within its assessment areas. As such, the overall lending test performance was driven by the significant level and impact of the bank s community development lending activities. Lending Distribution by Geography As seen in Exhibit 6, the geographic distribution of small business loans demonstrates adequate dispersion among census tracts of different income levels with no significant lending gaps. For the assessment area as a whole, the bank s small business lending performance generally mirrored the distribution of aggregate lenders in low- and moderate-income geographies. Lending Distribution by Business Revenue The level of lending to small businesses is good. As seen in Exhibit 6, while small business loans made by the bank were generally larger in dollar amount than those made by aggregate lenders in the assessment area, the bank provided a greater portion of its loans to businesses with less than $1 million in annual revenue across the assessment area. The bank s performance is also tempered by a lower level of demand for loans under $1 million within the bank s primary area of focus. Community Development Lending The bank is a leader in making community development loans within the assessment area. Loan proceeds were used to support the development of over 1,000 affordable housing units. Exhibit 7 details the significant number and dollar amount of community development loan activity in the assessment area. 13
San Francisco Bay Area Assessment Area Detail EXHIBIT 7 COMMUNITY DEVELOPMENT LENDING New Loans Renewals/Extension s Total Units Supported # $ (000s) # $ (000s) # $ (000s) # Affordable Housing Oakland-Fremont-Hayward MD 6 59,165 3 7,537 9 66,702 585 San Francisco MD 5 33,448 3 7,960 8 41,408 351 San Jose-Sunnyvale-Santa Clara MSA 1 500 2 14,000 3 14,500 175 Total 12 93,113 8 29,497 20 122,610 1,111 Revitalization or Stabilization of LMI Areas Oakland-Fremont-Hayward MD - - 2 5,460 2 5,460 NA San Francisco MD - - - - - - NA San Jose-Sunnyvale-Santa Clara MSA - - - - - - NA Total - - 2 5,460 2 5,460 NA San Francisco Bay Area AA Total 12 93,113 10 34,957 22 128,070 1,111 Some of the more notable projects financed included: An $11.6 million construction loan for a 196-unit rental project in Oakland for seniors earning less than 50 percent of area median income. All of the units have Section 8 housing subsidies. A $12.2 million construction loan on a 57-unit rental project in Hayward. All of the units are affordable to those earning between 40-60 percent of area median income. A loan of $13.2 million to demolish an existing structure in a low-income area of San Francisco and build 113 housing units. The project will consist of transitional housing and studio units for families with foster children and single adults in substance abuse recovery. All of the units are affordable to those earning less than 40 percent of area median income. The project was also awarded a $1 million grant from the Federal Home Loan Bank under the Affordable Housing Program. A $1.6 million participation in a construction loan and a $2.2 million tax credit bridge loan for a 42-unit apartment building in San Francisco. The project is located in a lowincome census tract and provides housing for those earning less than 40 percent of area median income. Renewal of a $2 million participation in a construction loan for a mixed use project with 32 units of rental housing and 1,450 square feet of commercial space in a moderateincome area in East Palo Alto. Rental units will be affordable to those earning less than 50 percent of area median income. 14
Renewal and increase from $2 million to $2.5 million of a loan to the non-profit Lenders for Community Development, a certified Community Development Financial Institution, for its affordable housing and community facilities loan fund. The fund supports projects in Alameda, Santa Clara and San Mateo Counties. INVESTMENT TEST SVB made a significant number and dollar amount of community development investments in the assessment area. Investments and donations were generally very responsive to community needs. Exhibit 8 notates all of the investment activity in this assessment area during the review period. San Francisco Bay Area Assessment Area Detail EXHIBIT 8 COMMUNITY DEVELOPMENT INVESTMENTS Prior Period Current Period Total Unfunded Commitments # $ (000s) # $ (000s) # $ (000s) # $ (000s) Affordable Housing Oakland-Fremont-Hayward MD 2 4,936 4 636 6 5,572 1 4,660 San Francisco MD 1 145 5 298 6 443 1 593 San Jose-Sunnyvale-Santa Clara MSA 1 4,197 1 610 2 4,807 1 365 Total 4 9,278 10 1,544 14 10,822 3 5,618 Community Services for Low- or Moderate-Income Individuals (LMI) Oakland-Fremont-Hayward MD - - 1 2.5 1 2 - - San Francisco MD - - 10 83 10 83 - - San Jose-Sunnyvale-Santa Clara MSA - - 10 18.5 10 19 - - Total - - 21 104 21 104 - - Investments Promoting Economic Development San Francisco MD - - 4 9 4 9 - - San Jose-Sunnyvale-Santa Clara MSA - - 4 24 4 24 - - Total - - 8 33 8 33 - - Revitalization or Stabilization of LMI Areas San Jose-Sunnyvale-Santa Clara MSA 1 872 - - 1 872 - - Total 1 872 - - 1 872 - - San Francisco Bay Area AA Total 5 10,150 39 1,681 44 11,831 3 5,618 15
More notable qualified community development investments made during the year included: Over $4 million in Low Income Housing Tax Credit investments used to provide equity for affordable housing projects. A $1 million unfunded commitment to a venture investment fund. The fund is designed to provide capital to growing companies in California that hire a large percentage of their workforce from low-income communities. The bank played a leadership role in this investment by serving as the largest early underwriter and investor and a source of information to other potential bank investors. A total of $7.8 million in mortgage backed securities secured predominantly by loans to low- and moderate-income people in San Mateo, Alameda, San Francisco and Santa Clara Counties. Charitable donations made during the period to 35 organizations totaling $176,850. These included donations to organizations such as Renaissance Entrepreneurship Center, which provides small business training and technical assistance, and Lenders for Community Development, which provides loans for non-bankable affordable housing and community facilities projects as well as small business loans. SERVICE TEST SVB s performance in the assessment area is high satisfactory. Although the bank s branch network is limited, retail banking services are reasonably accessible to the bank s niche markets. Performance under this test, however, was primarily driven by the high level and impact of community development services provided by SVB employees. Retail Banking Services The bank s retail service delivery systems are reasonably accessible. All three of the bank s branches in this assessment area are located in upper-income census tracts; however, these locations are central to concentrations of the bank s niche clientele. All branches offer the full range of the bank s products and hours. Given the bank s predominantly business clientele, its hours, product offerings, and retail delivery systems are reasonable. Additional delivery systems, including five LPOs, on-line banking, automated telephone access, banking by mail, and a courier service, provide customers additional access to bank services. The conversion of the Fremont branch to an LPO did not have an adverse affect as loan officers continue to serve the community and deposit services are available through a courier service. 16
Community Development Services During this evaluation period, the bank provided a high level of community development services as noted in Exhibit 9 below. These services were aligned with the bank s mission of supporting affordable housing, entrepreneurship and providing services to segments of the community that are most in need. Highlights of these services include coordination of various investor events, where emerging technology businesses are provided the opportunity to present their business strategy to potential venture investors. EXHIBIT 9 COMMUNITY DEVELOPMENT SERVICES San Francisco Bay Assessment Area 2005-2006 # Hours # Organizations Affordable Housing Oakland-Fremont-Hayward MD 104 7 San Francisco MD 194 8 San Jose-Sunnyvale-Santa Clara MSA 49 4 Total 347 19 Community Services for LMI Oakland-Fremont-Hayward MD 15 7 San Francisco MD 62 3 San Jose-Sunnyvale-Santa Clara MSA 9 2 Total 86 12 Services Promoting Economic Development San Francisco MD 491 7 San Jose-Sunnyvale-Santa Clara MSA 232 5 Total 723 12 San Francisco Bay Area AA Total 1,156 43 The following are some notable examples of community development services provided by the bank: Several employees are venture capital advisors for students involved in the Business United in Investing, Lending and Development (BUILD). Through the mentoring and technical assistance provided by bank employees, low- and-moderate income participants develop business plans and strategies for their small companies. Several employees in the bank s community development lending group spent significant hours working on applications for grants under the Federal Home Loan Bank s Affordable Housing Program (AHP), which provides subsidies for affordable housing projects. As a result of these efforts, the bank worked with affordable housing development clients to successfully obtain a number of grants under the Federal Home Loan Bank AHP. 17
Several bank employees provided a substantial number of hours of service on loan committees or boards of organizations that provide technical assistance to small businesses or financing for affordable housing. These organizations included the Northern California Community Loan Fund, Renaissance Entrepreneurship Center, Rebuilding Together, Lenders for Community Development, and the Housing Trust of Santa Clara County. Several bank employees provided technical assistance to non profit organizations that provide services directly to emerging small businesses or low- and moderate-income individuals and families, such as Silicon Valley Habitat for Humanity, East Bay Asian Local Development Corporation, Bay Area Start-Up Network, Silicon Valley Association of Start-up Entrepreneurs, Satellite Housing, Mandela Marketplace, and Silicon Valley Campaign for Legal Services. 18
NORTH BAY AREA DESCRIPTION OF OPERATIONS IN THE NORTH BAY ASSESSMENT AREA The North Bay Area Assessment Area consists of Napa and Sonoma Counties in their entirety and is part of the San Jose-San Francisco-Oakland, California CSA. Napa County is the Napa, California MSA and Sonoma County is the Santa Rosa-Petaluma, California MSA. The area is located approximately 40 miles north of San Francisco. SVB s operates one branch is this assessment area which as of June 30, 2006, held $36.8 million in deposits, representing 0.3 percent of the market share and ranking 23 rd out of 31 FDIC-insured financial institutions operating 171 offices. Primary competitors include four large regional and national institutions that collectively held 47.2 percent of the deposit market share. 13 15 In 2006, SVB ranked 27th out of 89 CRA lenders reporting small business loans with a 0.1 percent market share. These lenders represent only a portion of the overall market. Given the large number of institutions that operated in this market, competition for lending and deposit products as well as community development loans and investments was significant. The following table presents key demographic and business information, based on the 2000 U.S. Census and 2006 Dun & Bradstreet data, used to develop the performance context for this assessment area. 1315 Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits, June 30, 2006; available from http//www2.fdic.gov/sod/. 19
Income Categories EXHIBIT 10 ASSESSMENT AREA DEMOGRAPHICS Tract Distribution NORTH BAY AREA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income 0 0.0 0 0.0 0 0.0 25,840 17.9 Moderate-income 18 15.9 18,248 12.6 1,864 10.2 27,501 19.0 Middle-income 77 68.1 99,142 68.6 4,544 4.6 34,521 23.9 Upper-income 18 15.9 27,131 18.8 671 2.5 56,659 39.2 Tract not reported 0 0.0 0 0.0 0 0.0 0 0.0 Total AA 113 100.0 144,521 100.0 7,079 4.9 144,521 100.0 Housing Housing Types by Tract Income Categories Units by Owner-occupied Units Rental Units Vacant Units Tract # % % # % # % Low-income 0 0 0.0 0.0 0 0.0 0 0.0 Moderate-income 34,095 14,231 41.7 10.2 17,192 50.4 2,672 7.8 Middle-income 159,965 96,757 60.5 69.1 53,793 33.6 9,415 5.9 Upper-income 37,647 29,087 77.3 20.8 6,745 17.9 1,815 4.8 Tract not reported 0 0 0.0 0.0 0 0.0 0 0.0 Total AA 231,707 140,075 60.5 100.0 77,730 33.5 13,902 6.0 Businesses by Tract & Revenue Size Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income 0 0.0 0 0.0 0 0.0 0 0.0 Moderate-income 4,907 18.2 4,398 18.2 428 17.5 81 21.0 Middle-income 17,999 66.6 16,138 66.7 1,616 66.1 245 63.5 Upper-income 4,122 15.3 3,663 15.1 399 16.3 60 15.5 Tract not reported 0 0.0 0 0.0 0 0.0 0 0.0 Total AA 27,028 100.0 24,199 100.0 2,443 100.0 386 100.0 Percentage of Total Businesses: 89.5 9.0 1.4 Median Family Income 2000 $61,774 2006 HUD Adjusted Median Family Income Napa County Sonoma County $75,000 $75,100 December 2006 Median Housing Value 14 16 Napa County Sonoma County 2006 Unemployment Rate 15 17 Napa County Sonoma County $588,500 $530,000 3.9% 4.0% Napa County and Sonoma County are part of Napa Valley and Alexander Valley, respectively, popular tourist destinations and home to many wineries and vineyards. Consequently, the economic base within the two counties is similar and dominated by industries related to wine and tourism, high tech companies, services, retail trade, and manufacturing. The wine industry is easily Napa s largest employer, providing nearly 40,000 jobs, nearly half of the county s total employment. 16 18 1416 California Association of Realtors, Trends in California Real Estate, Volume 28, Number 1, January 2007. 1517 Bureau of Labor Statistics (Haver Analytics) created May 21, 2007. 1618 Economic Impact of Wine and Vineyards, http://www.napafarmbureau.org/pdf/impactstudy.pdf. 20
The North Bay s economy has fully recovered from the weaknesses present earlier this decade. Employment growth is now faster than at any time since the 2001 recession with an expanding labor force and an unemployment rate that has fallen below four percent. The winemaking industry, the tech-producing industries, and the travel and tourism industries are the primary drivers of growth in the local economy. 17 19The local growing conditions have been favorable and resulted in a record wine crush in 2005 which contributed to the health of the local economy. Although the area experienced increased competition from communities in California, Oregon and Washington, tourism continued to be favorable. The high tech segment has not performed as well with a general downward trend in hiring as the industry has consolidated during the review period. 18 20 Over the past year, the area has experienced increased housing inventory and fewer home sales which have caused a modest decline in home prices, but not enough to improve affordability. According to Moody s Economy.com, a family earning the median income in the Sonoma County can only qualify for a mortgage for a home priced at 48 percent of the median county sales price. Homebuilding activity has reacted to the market shift with a slowdown in new construction. Permits issued for new housing units fell by nearly 15 percent over the past year, with nearly all of the downturn in single-family units. Multi-family construction has held steady, which is indicative of the demand for more affordable rental or condominium units. 19 21 Not unlike the San Francisco Bay Area assessment area, Exhibit 10 shows that a substantial majority of area businesses are small businesses with gross annual revenues of $1 million or less. Similar to the San Francisco Bay Area assessment area, contacts in the North Bay assessment area indicate that small business loans and loans for affordable housing development are critical community credit needs. Nevertheless, the bank s niche clientele, premium wineries, generally are in need of larger dollar loans for their operations. 1719 Economic Briefing 2007: Sonoma County s Advantage in a Slowing Economy, http://www.sonomacounty.org/edb/pdf/2007/20070531msaa1.pdf. 1820 Moody s Economy.com Santa Rosa Metro Area, August 2006. 1921 Economic Briefing 2007: Sonoma County s Advantage in a Slowing Economy, http://www.sonomacounty.org/edb/pdf/2007/20070531msaa1.pdf. 21
CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN NORTH BAY ASSESSMENT AREA Exhibit 11 below recaps all of the lending investment and service activities in this assessment area that occurred during the review period. This data is the basis for the evaluation of performance in the assessment area. EXHIBIT 11 SUMMARY OF LENDING, INVESTMENT, AND SERVICE ACTIVITY NORTH BAY AREA ASSESSMENT AREA Distribution by Tract Income Products and Services # Low-Income Moderate-Income Middle-Income Upper-Income Small Business Loans Assessment Area Total Bank Lending 84 0.0 8.3 58.3 33.3 Business Distribution 27,028 0.0 18.2 66.6 15.2 Aggregate Lending 38,762 0.0 14.8 67.4 17.79 Market Share 0.10 0.0 0.1 0.1 0.2 Napa County Bank Lending 50 0.0 14.0 54.0 32.0 Business Distribution 6,089 0.0 25.6 56.2 18.1 Aggregate Lending 8,493 0.0 22.1 56.5 21.3 Market Share 0.28 0.0 0.1 0.4 0.4 Sonoma County Bank Lending 34 0.00 0.00 64.7 35.3 Business Distribution 20,939 0.00 15.9 69.6 14.4 Aggregate Lending 30,269 0.00 12.8 70.4 16.7 Market Share 0.05 0.00 0.00 0.04 0.1 Distribution by Business Revenue or Borrower Income Business Revenue Loan Amount Loan Amount Loan Amount Products and Services # =< $1million =< $100k $100k - $250k $250k - $1 million Small Business Loans Assessment Area Total Bank Lending 84 57.1 14.3 16.7 69.1 Business Distribution 27,028 89.5 NA NA NA Aggregate Lending 38,762 34.8 97.5 1.2 1.3 Napa County Bank Lending 50 64.0 16.0 10.0 74.0 Business Distribution 6,089 88.7 NA NA NA Aggregate Lending 8,493 35.5 96.9 1.4 1.6 Sonoma County Bank Lending 34 47.1 11.8 26.5 61.8 Business Distribution 20,939 89.8 NA NA NA Aggregate Lending 30,269 34.6 97.6 1.2 1.2 Community Development Activities # $ ('000) Community Development Loans 3 20 Community Development Investments Prior Period Current Period Total Unfunded Qualified Investments--# 1 5 6 1 Qualified Investments--$ (000) $ 100 $ 914 $ 1,014 $ 4,114 Community Development Services Hours 227 22
LENDING TEST Similar to the San Francisco Bay Area, the bank s performance under the lending test in this assessment area is adequate. Despite an adequate geographic distribution of loans and a good distribution of loans to businesses of different sizes is good, SVB made only a limited volume of small business loans within its assessment areas. As such, the overall lending test performance was driven by the significant level and impact of the bank s community development lending activities. Lending Distribution by Geography As seen in Exhibit 11, the geographic distribution of small business loans demonstrates adequate dispersion among census tracts of different income levels. While the overall level of lending in moderate-income census tracts is reasonable, the absence of lending in moderate-income census tracts in Sonoma County and the lower level of such in Napa County is somewhat explained by limited opportunities relative to the bank s niche focus on lending to premium wineries within this assessment area. Lending Distribution by Business Revenue The level of lending to small businesses is good. As seen in Exhibit 11, the bank s lending performance significantly exceeded the aggregate market and compared reasonably well to the percentage of small businesses in the assessment area. While small business loans were generally larger in dollar amount than those made by aggregate lenders in the assessment area, this performance is somewhat explained by the bank s niche market which tends to need larger dollar loans. Community Development Lending The bank made a relatively high level of community development loans within the North Bay Area assessment area during the period which supported the production of over 200 affordable housing units. Exhibit 12 details the significant number and dollar amount of community development loan activity in the assessment area. 23
Projects financed included the following: A $3.5 million participation loan for construction of a 45-unit housing project in American Canyon. The project helps to revitalize and stabilize the moderate-income census tract in which it is located. The project was also awarded a $675,000 grant from the Federal Home Loan Bank due to significant technical assistance provided by the bank s community development lending group. A $9.6 million construction loan on a 56-unit multi-family affordable housing project in Santa Rosa where 14 units are specifically set aside for farm workers. The project was also awarded a $302,500 grant from the Federal Home Loan Bank due to significant technical assistance provided by the bank s community development lending group. All units are affordable to those earning less than 60 percent of area median income. A $7 million construction loan on a 145-unit affordable housing project in American Canyon. The project is designed as rental housing for farm workers and all of the units are affordable to those earning between 30-55 percent of area median income. The project was also awarded a $870,000 grant from the Federal Home Loan Bank due to significant technical assistance provided by the bank s community development lending group. INVESTMENT TEST EXHIBIT 12 COMMUNITY DEVELOPMENT LENDING North Bay Assessment Area Detail New Loans Total Units Supported # $ (000s) # $ (000s) # Affordable Housing Napa County 1 7,000 1 7,000 145 Sonoma County 1 9,590 1 9,590 56 Total 2 16,590 2 16,590 201 Revitalization or Stabilization of LMI Areas Napa County 1 3,500 1 3,500 5 Sonoma County - - - - NA North Bay AA Total 3 20,090 3 20,090 206 During the review period the bank provided a significant number and dollar amount of community development investments in the assessment area. Investments and donations were generally very responsive to community needs. Exhibit 13 notates all of the investment activity in this assessment area during the review period. 24