PUBLIC DISCLOSURE February 8, 2016 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Presidio Bank RSSD # 3398100 One Montgomery Street, Suite 2300 San Francisco, California 94104 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 Description of Assessment Area... 3 Scope of Examination... 13 LENDING TEST... 13 COMMUNITY DEVELOPMENT TEST... 13 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS... 14 Lending Test... 14 LOAN TO DEPOSIT RATIO... 14 LENDING IN ASSESSMENT AREA... 14 LENDING DISTRIBUTION BY GEOGRAPHY... 14 LENDING DISTRIBUTION BY BUSINESS REVENUE... 15 RESPONSE TO COMPLAINTS... 16 Community Development Test... 16 COMMUNITY DEVELOPMENT LENDING... 16 COMMUNITY DEVELOPMENT INVESTMENTS... 17 COMMUNITY DEVELOPMENT SERVICES... 17 Fair Lending or Other Illegal Practices Review... 18 GLOSSARY OF TERMS... 19
INSTITUTION RATING Institution s CRA Rating Presidio Bank is rated "OUTSTANDING The following table shows the performance ratings for the lending and community development tests. OUTSTANDING SATISFACTORY PERFORMANCE LEVELS PERFORMANCE TESTS COMMUNITY LENDING DEVELOPMENT TEST TEST X X NEEDS TO IMPROVE SUBSTANTIAL NONCOMPLIANCE The major factors supporting the institution s rating include: A reasonable loan to deposit ratio; A substantial majority of loans made within the assessment area; A reasonable geographic distribution of small businesses loans with strong penetration in lowincome census tracts; A reasonable distribution loans to businesses of different sizes, including businesses with gross annual revenues of $1 million or less; and Excellent responsiveness to the community development needs of its assessment area through a significant volume of community development activities that were particularly responsive to the needs for affordable housing and access to credit for small businesses. 1
INSTITUTION Description of Institution Presidio Bank (Presidio) headquartered in San Francisco, California, reported total assets of $594 million as of June 30, 2015. Presidio operates without a holding company and has no subsidiaries. The bank operates five full service branches in California located in San Francisco, Palo Alto, San Mateo, San Rafael, and Walnut Creek along with one loan production office in Santa Rosa, CA. Presidio s primary business focus is to provide commercial banking products and services to small and medium sized businesses, including professional service firms, non profit organizations, and real estate investors and developers. As such, business purpose loans represent the majority loan types within the bank s portfolio. Commercial loan products include term loans, lines of credit, commercial real estate loans, commercial construction and land loans, and letters of credit. Presidio originates consumer loans primarily to existing business customers on an accommodation basis, and offers commercial and consumer credit cards through a third party credit card issuer. The bank has a variety of deposit products, including business and personal checking, savings, money market, and certificates of deposit. Presidio also offers merchant card services and mobile deposit services. Although the bank does not have ATM machines, it does offer business and personal debit cards. Exhibit 1 below shows the bank s loan portfolio, as disclosed in its June 30, 2015, Consolidated Reports of Condition and Income, demonstrating the bank s commercial lending focus. EXHIBIT 1 LOANS AND LEASES AS OF JUNE 30, 2015 Loan Type $ ( 000s) % Commercial/Industrial & Non Farm Non Residential Real Estate 303,789 68.0 Secured by 1 4 Family Residential Real Estate 57,217 12.8 Multi Family Residential Real Estate 36,231 8.1 Construction & Land Development 29,381 6.6 Consumer Loans & Credit Cards 18,137 4.1 Farm Land & Agriculture 1,994 0.4 All Other 77 0.0 Total (Gross) 446,826 100.0 Presidio did not face any legal or financial impediments during the review period that would have prevented 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 an outstanding rating at its previous Community Reinvestment Act (CRA) examination, conducted as of January 14, 2013 by the Federal Reserve Bank of San Francisco (FRBSF), using the Interagency Intermediate Small Institution Examination Procedures. 2
Description of Assessment Area Presidio s assessment area, which remains unchanged since the previous examination, consists of seven of the nine San Francisco Bay Area counties that compose the San Jose San Francisco Oakland Combined Statistical Area: Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara, and Sonoma. Alameda and Contra Costa Counties compose the Oakland Fremont Hayward Metropolitan Division (Oakland MD); Marin, San Francisco, and San Mateo Counties compose the San Francisco San Mateo Redwood City MD (San Francisco MD); is a part of the San Jose Sunnyvale Santa Clara MSA (San Jose MSA); and composes the Santa Rosa Petaluma Metropolitan Statistical Area (Santa Rosa MSA). Presidio has a relatively small presence and portion of the overall market share in this highly competitive assessment area, ranking 33 rd among competing institutions within the area. As of June 30, 2015, the assessment area includes 88 Federal Deposit Insurance Corporation insured institutions operating 1,537 offices with total deposits of $436.8 billion. Presidio s five branches within the assessment area held total deposits of $516.0 million, accounting for 0.12 percent of the total market share. 1 Exhibits 2, 3 and 4 on the following pages present key demographic and business information used to help develop a performance context for the assessment area. All of the exhibits are based on the 2010 U.S. Census, while Exhibits 2, 3 and 4 are based on the 2013, 2014 and 2015 Dun and Bradstreet data, respectively. 1 Federal Deposit Insurance Corporation, Deposit Market Share Report, June 30, 2015; available from: http://www2.fdic.gov/sod/sodmarketbank.asp?baritem=2 3
Income Categories Tract Distribution EXHIBIT 2 ASSESSMENT AREA DEMOGRAPHICS San Francisco Bay Area ASSESSMENT AREA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low income 162 11.2 127,390 8.4 27,228 21.4 354,255 23.3 Moderate income 300 20.7 298,207 19.6 30,423 10.2 250,443 16.4 Middle income 528 36.4 583,515 38.3 28,565 4.9 292,331 19.2 Upper income 450 31.0 513,690 33.7 12,020 2.3 625,792 41.1 Unknown income 12 0.8 19 0.0 0 0.0 0 0.0 Total AA 1,452 100.0 1,522,821 100.0 98,236 6.5 1,522,821 100.0 Income Categories Housing Units by Tract Housing Types by Tract Owner Occupied Rental Vacant # % % # % # % Low income 260,739 59,310 4.3 22.7 170,763 65.5 30,666 11.8 Moderate income 526,341 218,675 16.0 41.5 267,957 50.9 39,709 7.5 Middle income 968,427 543,605 39.8 56.1 359,846 37.2 64,976 6.7 Upper income 800,637 543,577 39.8 67.9 211,303 26.4 45,757 5.7 Unknown income 298 0 0.0 0.0 298 100.0 0 0.0 Total AA 2,556,442 1,365,167 100.0 53.4 1,010,167 39.5 181,108 7.1 Businesses by Tract & Revenue Size Total Businesses by Less Than or Equal Greater than Income Categories Tract Revenue Not Reported to $1 Million $1 Million # % # % # % # % Low income 40,126 10.9 34,611 10.5 3,627 14.0 1,888 14.6 Moderate income 65,811 17.9 57,881 17.6 5,386 20.8 2,544 19.7 Middle income 126,774 34.4 114,405 34.7 7,920 30.6 4,449 34.4 Upper income 135,315 36.7 122,353 37.1 8,928 34.5 4,034 31.2 Unknown income 185 0.1 152 0.0 17 0.1 16 0.1 Total AA 368,211 100.0 329,402 100.0 25,878 100.0 12,931 100.0 % of Total Businesses 89.5 7.0 3.5 2013 Median Family Income 2 2013 HUD Adjusted Median Family Income 4 $88,720 $94,574 $120,519 $95,421 $108,410 $104,307 $73,969 $89,200 $89,200 $101,200 $101,200 $101,200 $101,300 $74,900 December 2013 Median Housing Value 3 2013 Unemployment Rate 5 $609,370 $451,492 $893,750 $951,754 $1,000,000 $769,900 $464,190 7.3% 7.3% 4.9% 5.7% 5.3% 6.7% 6.7% 2 U.S. Census Bureau, American Community Survey 1 Yr Estimates, DP03, 2013, available from: http://factfinder2.census.gov (accessed January 6, 2016). 3 California Association of Realtors, Sales and Median Prices for Existing Detached Homes; available from: http://www.car.org/marketdata/data/housingdata/ (accessed January 6, 2016). 4 U.S. Department of Housing and Urban Development, Adjusted Median Family Income; available from: http://www.huduser.org/portal/datasets/il/il14/index.html (accessed January 6, 2016). 5 U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics by County; available from: http://www.bls.gov/lau/ (accessed January 6, 2016). 4
Income Categories Tract Distribution EXHIBIT 3 ASSESSMENT AREA DEMOGRAPHICS San Francisco Bay Area ASSESSMENT AREA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low income 157 10.8 123,760 8.1 26,778 21.6 352,457 23.1 Moderate income 295 20.3 292,763 19.2 30,358 10.4 250,740 16.5 Middle income 543 37.4 602,351 39.6 29,472 4.9 291,858 19.2 Upper income 445 30.6 503,928 33.1 11,628 2.3 627,766 41.2 Unknown income 12 0.8 19 0.0 0 0.0 0 0.0 Total AA 1,452 100.0 1,522,821 100.0 98,236 6.5 1,522,821 100.0 Income Categories Housing Units by Tract Housing Types by Tract Owner Occupied Rental Vacant # % % # % # % Low income 253,194 57,395 4.2 22.7 165,733 65.5 30,066 11.9 Moderate income 516,824 212,835 15.6 41.2 265,094 51.3 38,895 7.5 Middle income 998,685 562,454 41.2 56.3 370,095 37.1 66,136 6.6 Upper income 787,441 532,483 39.0 67.6 208,947 26.5 46,011 5.8 Unknown income 298 0 0.0 0.0 298 100.0 0 0.0 Total AA 2,556,442 1,365,167 100.0 53.4 1,010,167 39.5 181,108 7.1 Businesses by Tract & Revenue Size Total Businesses by Less Than or Equal to Greater than Income Categories Tract Revenue Not Reported $1 Million $1 Million # % # % # % # % Low income 36,985 10.2 31,569 9.7 3,699 13.8 1,717 13.9 Moderate income 62,489 17.2 54,990 16.9 5,188 19.4 2,311 18.7 Middle income 132,150 36.3 118,933 36.7 8,779 32.8 4,438 35.9 Upper income 131,808 36.3 118,875 36.6 9,060 33.9 3,873 31.4 Unknown income 163 0.0 132 0.0 16 0.1 15 0.1 Total AA 363,595 100.0 324,499 100.0 26,742 100.0 12,354 100.0 % of Total Businesses 89.2 7.4 3.4 2014 Median Family Income 6 2014 HUD Adjusted Median Family Income 8 $77,214 $80,361 $95,749 $85,070 $101,051 $97,532 $67,771 $88,500 $88,500 $97,100 $97,100 $97,100 $101,900 $76,900 December 2014 Median Housing Value 7 2014 Unemployment Rate 9 $645,680 $483,333 $990,130 $1,058,820 $980,000 $846,500 $519,470 6.6% 6.9% 4.8% 5.0% 4.7% 5.8% 6.3% 6 U.S. Census Bureau, American Community Survey 1 Yr Estimates, DP03, 2014, available from: http://factfinder2.census.gov (accessed January 6, 2016). 7 California Association of Realtors, Sales and Median Prices for Existing Detached Homes; available from: http://www.car.org/marketdata/data/housingdata/ (accessed January 6, 2016). 8 U.S. Department of Housing and Urban Development, Adjusted Median Family Income; available from: http://www.huduser.org/portal/datasets/il/il14/index.html (accessed January 6, 2016). 9 U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics by County; available from: http://www.bls.gov/lau/ (accessed January 6, 2016). 5
Income Categories Tract Distribution EXHIBIT 4 ASSESSMENT AREA DEMOGRAPHICS San Francisco Bay Area ASSESSMENT AREA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low income 157 10.8 123,760 8.1 26,778 21.6 352,457 23.1 Moderate income 295 20.3 292,763 19.2 30,358 10.4 250,740 16.5 Middle income 543 37.4 602,351 39.6 29,472 4.9 291,858 19.2 Upper income 445 30.6 503,928 33.1 11,628 2.3 627,766 41.2 Unknown income 12 0.8 19 0.0 0 0.0 0 0.0 Total AA 1,452 100.0 1,522,821 100.0 98,236 6.5 1,522,821 100.0 Income Categories Housing Units by Tract Housing Types by Tract Owner Occupied Rental Vacant # % % # % # % Low income 253,194 57,395 4.2 22.7 165,733 65.5 30,066 11.9 Moderate income 516,824 212,835 15.6 41.2 265,094 51.3 38,895 7.5 Middle income 998,685 562,454 41.2 56.3 370,095 37.1 66,136 6.6 Upper income 787,441 532,483 39.0 67.6 208,947 26.5 46,011 5.8 Unknown income 298 0 0.0 0.0 298 100.0 0 0.0 Total AA 2,556,442 1,365,167 100.0 53.4 1,010,167 39.5 181,108 7.1 Businesses by Tract & Revenue Size Total Businesses by Tract Income Categories Less Than or Equal to Greater than Revenue Not $1 Million $1 Million Reported # % # % # % # % Low income 39,258 10.2 34,757 9.8 4,365 14.1 136 16.9 Moderate income 65,686 17.0 59,628 16.8 5,894 19.1 164 20.4 Middle income 139,676 36.1 129,456 36.5 9,941 32.2 279 34.7 Upper income 141,921 36.7 131,031 36.9 10,666 34.5 224 27.9 Unknown income 183 0.0 154 0.0 29 0.1 0 0.0 Total AA 386,724 100.0 355,026 100.0 30,895 100.0 803 100.0 % of Total Businesses 91.8 8.0 0.2 2015 Median Family Income 10 2015 HUD Adjusted Median Family Income 12 $77,214 $80,361 $95,749 $85,070 $101,051 $97,532 $67,771 $88,500 $88,500 $97,100 $97,100 $97,100 $101,900 $76,900 December 2015 Median Housing Value 11 2015 Unemployment Rate 13 $645,680 $483,333 $990,130 $1,058,820 $980,000 $846,500 $519,470 6.6% 6.9% 4.8% 5.0% 4.7% 5.8% 6.3% 10 U.S. Census Bureau, American Community Survey 1 Yr Estimates, DP03, 2014, available from: http://factfinder2.census.gov (accessed January 6, 2016). 11 California Association of Realtors, Sales and Median Prices for Existing Detached Homes; available from: http://www.car.org/marketdata/data/housingdata/ (accessed January 6, 2016). 12 U.S. Department of Housing and Urban Development, Adjusted Median Family Income; available from: http://www.huduser.org/portal/datasets/il/il14/index.html (accessed January 6, 2016). 13 U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics by County; available from: http://www.bls.gov/lau/ (accessed January 6, 2016). 6
Economic Conditions The Bay Area s diverse economy, which in 2013 ranked 21 st in the world in terms of its gross domestic product, 14 continued an ongoing economic recovery from the Great Recession during the review period. Many of the world s largest and fastest growing international firms are located in the Bay Area and major industries include manufacturing, retail trade, professional services, education and health, and leisure and hospitality. While there has been dramatic growth in the professional, scientific, technical services, and health care sectors in recent years, there have been marked declines in the manufacturing and finance industries. 15 Nevertheless, the Bay Area as a whole added 117,000 jobs in 2013, 16 which was the strongest annual performance in over a decade, and 113,500 jobs in 2014. 17 Each of the counties play a unique role in the overall economy as discussed in the following paragraphs. Within the East Bay counties of Alameda and Contra Costa, the Port of Oakland and access to rail and highway transportation, manufacturing, logistics and trade contribute significantly to the local economy. also is home to the University of California, Berkeley, the flagship school of the University of California system, which employs 21,000 people and is a strong economic catalyst in the area. 18 The area has seen benefits from the rise in technology investments across the broader Bay Area, and increasing rents in San Francisco and San Jose have caused many startup businesses to look to the Oakland Metro Area as an alternative for office locations. Additionally, the automobile manufacturer Tesla recently received a $35 million tax incentive to increase electric automobile production at its Oakland plant, serving to bolster the technology and manufacturing sectors further. 19 During the review period, added 49,069 jobs and added 14,059 jobs. 20 Marin and Sonoma Counties are located in the North Bay, with wine manufacturing a cornerstone industry in Sonoma, and the tourism sector prominent in both counties. has a growing technology sector specializing in medical devices and computer equipment. 21, located directly to the north of San Francisco, supports thriving agricultural, tourism, and biomedical industries. 22 The county is home to many attractions and outdoor activities and provides an appealing alternative to travelers looking for lower cost hotel rates than nearby San Francisco. 23 Additionally, the county s wide open space provides numerous opportunities for agricultural activity, and approximately 14 Center for Continuing Study of the California Economy, LA Basin and Bay Area Economies Top All But 6 States in 2013; available from: http://www.ccsce.com/pdf/numbers July 2014 CA Regional Economy Rankings 2013a.pdf 15 Bay Area Council Economic Institute, The Bay Area a regional Economic Assessment (pg. 28), October 2012; available from: http://www.bcdc.ca.gov/meetings/commission/2012/baeconassessment.pdf (accessed April 7, 2014). 16 Avalos, George. Bay Area job picture is much stronger than initially thought. San Jose Mercury News. March 7, 2013; available from: http://www.mercurynews.com/business/ci_25295321/bay area job picture stronger blowoutnumbers 17 Avalos, George. Bay Area adds 11,000 jobs in December. San Jose Mercury News; available from: http://www.mercurynews.com/business/ci_27379693/bay area adds 11 000 jobs december and 18 Krupnick, Matt. UC Berkeley to lay off nearly 150 employees. January 13, 2011 Contra Costa Times; available from: http://www.contracostatimes.com/top stories/ci_17089989?nclick_check=1 19 Moody s Analytics, Précis Report, December 2013, Oakland. 20 Bureau of Labor Statistics, Quarterly Census of Employment and Wages; available from: http://www.bls.gov/cew/ 21 Moody s Analytics, Précis Report, Napa, Santa Rosa, and Vallejo, December 2013. 22 California Employment Development Department, Profile; available from: http://www.labormarketinfo.edd.ca.gov (accessed April 8, 2014). 23 Halstead, Richard. Marin Tourism Continues Recovery. The Huffington Post. February 2, 2013; available from: http://www.huffingtonpost.com/2013/02/16/marin tourism_n_2700971.html 7
50 percent of the county is comprised of farmland. 24 During the review period, added 3,544 jobs and added 13,242 jobs. 25 serves as the area s financial hub and has seen increasing growth in the technology field. 26 Additionally, San Francisco is home to a thriving tourism sector; the city ranks as the fifth most popular tourist destination for overseas travelers 27 and the seventh most popular destination for domestic travelers. 28 Education and health services also play a strong role in the county, and the area is home to several universities and hospitals. 29 During the review period, added 59,444 jobs. 30 The South Bay Counties of San Mateo and Santa Clara are located in the heart of Silicon Valley, and as such, technology is a cornerstone industry in both counties. San Mateo is home to numerous technology companies including Oracle, Electronic Arts, and Genentech. Additionally, the county supports 19 of the top 25 largest venture capital firms in the Bay Area, which help fuel innovation in the area. 31 Transportation is also an important part of the local economy, and the county is home to the Port of Redwood City and the San Francisco International Airport. 32 is home to one of the most prolific economies in the nation and ranks third in the country in job growth. 33 Propelled by the thriving technology sector, the labor market has recently reached full employment and high wage jobs are growing at a rate of nearly four times the national average. 34 During the review period, San Mateo County added 27,082 jobs and added 81,314 jobs. 35 24 Facts About Agriculture, University of California Cooperative Extension; available from: http://www.keegancoppin.com/pdf/market/marin/marin_county_2014_forecast.pdf and http://ucanr.org/sites/uccemarin/files/30457.pdf 25 Bureau of Labor Statistics, Quarterly Census of Employment and Wages; available from: http://www.bls.gov/cew/ 26 Moody s Analytics, Précis Report, December 2013, San Francisco. 27 U.S. Department of Commerce, Overseas Visitation Estimates for U.S. States, Cities, and Census Regions: 2014; available from http://travel.trade.gov/outreachpages/download_data_table/2014_states_and_cities.pdf (accessed February 29, 2016). 28 Poland, Jennifer. Here Are The Cities That Americans Love To Visit In The US. Business Insider. September 11, 2013; available from: http://www.businessinsider.com/most popular us travel destinations 2013 9 (accessed April 8, 2014). 29 Moody s Analytics, Précis Report, December 2013, San Francisco. 30 Bureau of Labor Statistics, Quarterly Census of Employment and Wages; available from: http://www.bls.gov/cew/ 31 Economic & Industry Overview, June 2015, available from: http://samceda.org/sites/default/files/smc%20economic%20%26%20industry%20overview%20june%202015.pdf (accessed March 1, 2016). 32 County of San Mateo, 2015 2017 Profile (pg. 10); available from: https://www.smcgov.org/sites/smcgov.org/files/documents/files/county_profile_2015_17.pdf (accessed February 29, 2016). 33 Moody s Analytics, Précis Report, August 2015,. 34 Ibid. 35 Bureau of Labor Statistics, Quarterly Census of Employment and Wages; available from: http://www.bls.gov/cew/ 8
The improvements in the economy also appear to have started to benefit smaller businesses. An analysis of loans to businesses with revenues of less than $1 million by institutions subject to the reporting requirements of CRA shows some improvements in lending levels within the assessment area as depicted in Exhibit 5 below. From 2012 to 2014, the number of loans in the assessment area increased from 81,028 to 90,303 and the dollar amount of those loans increased from $1.9 to $2.0 billion. 36 These trends are important given that there were approximately 355,026 small businesses operating within the assessment area in 2015, representing 91.8 percent of all assessment area businesses as shown earlier in Exhibit 4. These improvements notwithstanding, this level of lending is still a fraction of what it was prior to the recession. 37 Number of Loans Annually 250,000 200,000 150,000 100,000 50,000 0 Exhibit 5 Loans to Small Businesses in Assessment Area Number of loans Amount of loans, $billions 2007 2008 2009 2010 2011 2012 2013 2014 5 4 4 $ Amount of Loans (Billions) 3 3 2 2 1 1 0 The favorable economic growth discussed previously is also reflected in the declining unemployment rates seen in Exhibit 6 38 on the following page. Annual unemployment rates in each of the counties declined consistently over the past three years and remained significantly below statewide averages. 36 Banks and thrifts are required to report CRA small business data only if they have total assets greater than $1 billion. While Exhibit 5 provides information on small businesses lending trends among large banks, these trends are not necessarily representative of those among small and intermediate sized banks. Information based on 2007 2014 aggregate data consisting of institutions required to file annual CRA data; available from: https://www.ffiec.gov/cra/craproducts.htm 37 Wiersch, Ann Marie. Good News and Bad News on Small Business Lending in 2014. Federal Reserve Bank of Cleveland; available from: https://www.clevelandfed.org/en/newsroom%20and%20events/publications/community%20development%20bri efs/briefs/db%2020150105%20good%20news%20bad%20news%20small%20bus%20lending.aspx 38 U.S. Bureau of Labor Statistics. Local Area Unemployment Statistics by County, 2013 2015 Annual Average; available from: http://www.bls.gov/lau/#tables 9
10.0 Exhibit 6 County Unemployment Rates 2013 2014 Jun 15 8.0 8.9 6.0 4.0 2.0 7.3 7.5 5.9 6.2 4.6 4.9 5.2 5.5 5.2 4.3 4.4 4.2 3.4 3.5 3.3 6.5 5.2 3.9 7.0 5.6 4.3 7.5 6.2 0.0 Alameda Contra Costa Marin San Francisco San Mateo Santa Clara Sonoma California Assessment area median home prices generally increased during the review period, consistent with statewide increases as reflected below in Exhibit 7. Strong job growth and high payrolls have led to housing price increases that far exceeded the statewide average. As a whole, Bay Area median home prices increased by 17.1 percent during the review period, rising from $711,410 in July 2013 to $833,330 in June 2015. As with unemployment rates, median home prices differed by county; at the end of the review period, they were as high as $1,339,290 in and as low as $573,640 in. 39 $900,000 $800,000 $700,000 $600,000 $500,000 Exhibit 7 Median Home Prices 2004 2015 Bay Area Median Home Prices Since 2004 County Median Home Prices, June 2015 CA Bay Area $1,400,000 $1,200,000 $1,000,000 $800,000 $400,000 $300,000 $200,000 $100,000 $0 Jan 04 Oct 04 Jul 05 Apr 06 Jan 07 Oct 07 Jul 08 Apr 09 Jan 10 Oct 10 Jul 11 Apr 12 Jan 13 Oct 13 Jul 14 Apr 15 $600,000 $400,000 $200,000 $0 The rapid rise of home prices in the assessment area has caused home ownership to become less affordable to many households. According to the California Association of Realtors (C.A.R.) Traditional Housing Affordability Index, the percentage of households that could afford to purchase the median 39 California Association of Realtors, Sales and Median Prices for Existing Detached Homes; available from: http://www.car.org/marketdata/data/housingdata/ 10
priced home dropped in all counties of the assessment area during the review period. By the second quarter of 2015, the most affordable county in the assessment area was Sonoma where only 25 percent of families could afford the median priced home. The least affordable was San Francisco where only 10 percent of families could afford the median priced home. 40 Similarly, rental prices also increased during the review period and at the end of 2014, every geography within the assessment area had higher median rents than the state. 41 Despite this, every geography within the assessment area also had a smaller share of residents paying more than 35 percent of their income on rent than the state as a whole (households that spend more than 30 percent of their income on rent are considered cost burdened), due in large part to higher than average salaries within the assessment area. 42 However, these data do not take into account the individuals that may be leaving the assessment area due to high housing costs. For example, in alone, between 2008 and 2012, the county experienced a net loss of approximately 30,000 individuals with incomes less than $35,000. 43 The improving economy has led to an overall drop in poverty and food stamp usage rates. From 2013 to 2014, the percentage of people living below the poverty level and the percentage of households on food stamps generally decreased across the assessment area, as reflected on the following page in Exhibit 8. 44 At the end of 2014, these rates were well below statewide averages for each county in the assessment area. Despite the improvements, there are still large populations of people living in poverty with many families struggling. In a survey conducted by the FRBSF, community development practitioners pointed to three interwoven factors contributing to the challenges of low and moderate income communities: unemployment, instability in household finances, and rising housing costs. 45 40 California Association of Realtors, Housing Affordability Index Traditional; available from: http://www.car.org/marketdata/data/haitraditional/ 41 U.S. Census Bureau, American Community Survey 1 Yr Estimates, DP04, 2014; available from: http://factfinder2.census.gov 42 Ibid. 43 Dowling, William Are San Francisco s Low Income Residents Moving Up or Moving Out? FRBSF; available from: http://www.frbsf.org/community development/blog/san francisco low income residents moving outgentrification/ 44 U.S. Census Bureau, American Community Survey 1 Yr Estimates, DP03, 2013 and 2014, available from: http://factfinder2.census.gov (accessed January 6, 2016). 45 FRBSF, 2014. Vantage Point: The 12 th District Community Indicators Project (pg. 2), survey conducted in 2013; available from: http://www.frbsf.org/community development/publications/vantage point/2014/march/2013 community indicators survey/ (accessed April 11, 2014). 11
18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% All People in Poverty 2013 2014 Exhibit 8 Poverty and Food Stamp Usage Rates 2013 2014 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% With Food Stamp/SNAP Benefits 2013 2014 Credit and Community Development Needs The economic data previously discussed, as well as feedback from community contacts suggest that small businesses face challenges in accessing credit and that some level of small business credit needs remain unmet by area banks. As previously mentioned, data reported by banks subject to the CRA within the assessment area indicates that while small businesses lending levels are improving, they remain significantly depressed relative to levels experienced prior to the Great Recession. Studies suggest that weaker demand for credit among small businesses recovering from the recession and tighter lending standards among banks relative to the prior decade are contributing factors. 46 Information obtained from community contacts within the assessment area suggests that small businesses are often unable to obtain loans because they do not have stellar credit, meet collateral requirements, or have insufficient initial investment in their business. Furthermore, a review of information obtained from the community suggests that small businesses are most in need of startup financing, lines of credit, and working capital loans in smaller dollar amounts. A variety of factors also suggest that there is a need for affordable housing development and financing within the assessment area. High housing costs and low rental affordability and availability highlight a need for products and services that support access to affordable housing. Assessment area respondents to the FRBSF s Vantage Point Survey echoed these sentiments, noting that the lack of housing stock and the price of the available stock are impediments to low income individuals looking to rent or buy a home. Finally, the prevalence of poverty and the factors inhibiting economic recovery in low and moderateincome communities previously discussed highlight the importance of community service organizations within the bank s communities. Lower revenues resulting from decreased government support and difficulty attracting donations, among other factors, have also challenged local non profits in their 46 Federal Reserve Board, Senior Loan Officer Survey, July and October 2015; available from: http://www.federalreserve.gov/boarddocs/snloansurvey/201508/default.htm 12
efforts to meet the needs of these communities. 47 The ongoing demand for services often results in needs for these organizations in terms of financial support and technical assistance as they attempt to service significant low and moderate income populations within the bank s assessment areas. Ultimately, this has the potential to create community development service or investment opportunities for financial institutions. Scope of Examination The CRA performance of Presidio was evaluated using the Intermediate Small Institution Examination Procedures. Performance for intermediate small banks is evaluated using the lending and community development tests. LENDING TEST The lending test portion of the evaluation was based on the following performance criteria: Loan volume compared to deposits (Loan to Deposit Ratio); Lending inside versus outside of the assessment area (Lending in the Assessment Area); Dispersion of lending throughout the assessment area (Lending Distribution by Geography); and Lending to businesses of different revenue sizes (Lending Distribution by Business Revenue). Presidio s responsiveness to consumer complaints was not evaluated since the bank did not receive any CRA related complaints during the review period. The lending test evaluation was based on 306 small business loans originated between July 1, 2013 and June 30, 2015. All 306 small business loans were considered in the evaluation of Lending in the Assessment Area. Of that total, the 286 small business loans extended within the bank s assessment area were used in the evaluation of Lending Distribution by Geography and Lending Distribution by Business Revenue. At the bank s request, the lending test evaluation was also based on 31 letters of credit originated between July 1, 2013 and June 30, 2015. All 31 letters of credit, which were considered as other loan data, were also used in the evaluation of Lending in the Assessment Area. Of that total, 29 letters of credit extended within the bank s assessment area were considered in the evaluation of Lending Distribution by Geography and Lending Distribution by Business Revenue; however, these products did not influence the overall assessment as their limited volume was insufficient to draw meaningful conclusions. COMMUNITY DEVELOPMENT TEST The community development test portion of the examination include an evaluation of Presidio s level of community development activities in relation to local needs, as well as the bank s capacity to participate in such activities. The evaluation was based on qualified community development loans, investments, and services from July 1, 2013 through February 8, 2016. 47 UCLA Center for Civil Society. Stressed and Stretched: The Recession, Poverty, and Human Services Nonprofits in Los Angeles, p. vii. Available from http://civilsociety.ucla.edu/ (accessed August 2, 2014). 13
CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS Lending Test LOAN TO DEPOSIT RATIO Presidio s loan to deposit ratio is reasonable. The average loan to deposit ratio over the eight quarters since the previous examination was 89.3 percent. LENDING IN ASSESSMENT AREA A substantial majority of the small business loans evaluated were extended within the bank s assessment area. As shown in Exhibit 9 below, the bank extended the vast majority of its loans, by number and dollar volume, within the assessment area. EXHIBIT 9 LENDING INSIDE AND OUTSIDE THE ASSESSMENT AREAS JULY 1, 2013 TO JUNE 20, 2015 Inside Outside Loan Type $ # % $ ( 000s) % # % ( 000s) % Small Business Loans 286 93.5 107,243 92.0 20 6.5 9,337 8.0 Other Loan Data 29 93.5 4,416 92.6 2 6.5 355 7.4 Total Loans 315 93.5 111,659 92.0 22 6.5 9,692 8.0 LENDING DISTRIBUTION BY GEOGRAPHY The geographic distribution of small business loans throughout the assessment area is reasonable. As shown in Exhibit 10 on the following page, small business loans were extended throughout census tracts of all income levels. Performance was very strong in low income census tracts, significantly exceeding the aggregate market performance and the concentration of businesses. However, overall performance was only reasonable given the bank underperformed in moderate income geographies, falling below aggregate market performance and the concentration of businesses. 14
Census Tract EXHIBIT 10 GEOGRAPHIC DISTRIBUTION OF SMALL BUSINESS LOANS Low Moderate Middle Upper # % # % # % # % San Francisco Bay Area Assessment Area 2013 Bank Lending 14 20.0 6 8.6 9 12.9 41 58.6 Aggregate Lending 15,161 9.2 28,215 17.1 56,338 34.1 65,490 39.6 Business Concentration 40,126 10.9 65,811 17.9 126,774 34.4 135,315 36.8 San Francisco Bay Area Assessment Area 2014 Bank Lending 27 19.4 11 7.9 43 30.9 58 41.7 Aggregate Lending 17,059 9.0 31,948 16.9 68,310 36.2 71,550 37.9 Business Concentration 36,985 10.2 62,489 17.2 132,150 36.4 131,808 36.3 San Francisco Bay Area Assessment Area 2015 Bank Lending 17 22.1 8 10.4 25 32.5 27 35.1 Aggregate Lending N/A N/A N/A N/A N/A N/A N/A N/A Business Concentration 39,258 10.2 65,686 17.0 139,676 36.1 141,921 36.7 LENDING DISTRIBUTION BY BUSINESS REVENUE The bank s lending patterns demonstrate a reasonable distribution of loans to small businesses. As shown in Exhibit 11 below, Presidio extended a reasonable percentage of lending to small businesses, although the bank underperformed relative to the percentage of businesses with gross revenues of $1 million or less and the aggregate market. To some extent, competition from larger financial institutions for smaller business loans contributed to this performance. Presidio s lending helped address the need of small businesses for smaller dollar loans as discussed earlier. Presidio extended over 40 percent of its loans in amounts under $250,000 and a majority of its loans amounts between $250,000 and $1 million. Although separate from this test, the bank also supported access to credit for small businesses through a variety of community development activities as discussed in the community development test section. In particular, bank staff and board members have been active in community based organizations that cater to small businesses, by serving on boards and on finance committees. Year Bank Lending # EXHIBIT 11 BUSINESS REVENUE DISTRIBUTION OF SMALL BUSINESS LOANS 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 (%) 2013 70 30.0 89.5 51.9 24.3 18.6 57.1 2014 139 23.7 89.2 46.6 22.3 22.3 55.4 2015 77 32.5 91.8 N/A 15.6 27.3 57.1 15
RESPONSE TO COMPLAINTS Presidio received no consumer complaints related to CRA during the review period. Accordingly, the bank s performance in responding to complaints was not considered in evaluating its overall CRA performance. Community Development Test Presidio s performance under the community development test is outstanding. The bank engaged in a significant volume of community development activities that demonstrated excellent responsiveness to the articulated community development needs of its assessment area. Presidio engaged in all aspects of community development activities, including loans, investments and services and these activities were particularly responsive to the need for affordable housing and access to credit for smaller businesses. Exhibit 12 below shows the bank s community development lending, investment, and service activities engaged in during this review period. Assessment Area # EXHIBIT 12 COMMUNITY DEVELOPMENT ACTIVITIES Loans $ ( 000s) Current Period # Investments $ ( 000s) Unfunded Commitments $ # ( 000s) Services # Hours San Francisco Bay Area 32 31,801 134 5,212 1 4,594 17 2,308 Broader Statewide or Regional Area 2 7,800 0 0 0 0 0 0 Total 34 39,601 134 5,212 1 4,594 17 2,308 COMMUNITY DEVELOPMENT LENDING Presidio originated a significant level of community development loans totaling approximately $39.6 million during the review period. Two of these loans benefitted a broader statewide or regional area that includes the assessment area. Lending was responsive to the needs of the community and served all community development purposes with significant funds originated in support of affordable housing development, a critical area need. Other loans supported economic development, job creation, and community services targeted to low and moderate income individuals. Notable loans included: $12.8 million to provide financing for three projects that will provide 290 units of affordable housing. $10.9 million to Small Business Administration (SBA) qualified small businesses (504) that will help create jobs for approximately 90 individuals. $3.1 million to a Certified Development Corporation to fund SBA 7A loans pending lender financing. $2.0 million to fund the acquisition and rehabilitation of homes for sale to low and moderate income families. $475 thousand for loans to small businesses through the California State Assistance Fund for Enterprise, Business, and Industrial Development Corporation (SAFE BIDCO). SAFE BIDCO programs are designed to enhance economic development by fostering the creation of jobs and industrial development. 16
COMMUNITY DEVELOPMENT INVESTMENTS Presidio made $5.2 million in community development investments, grants, and donations that served a variety of community development purposes. The substantial majority of the total dollar volume of investments supported the development of affordable housing within the assessment area, which has been identified as a critical need. Investments also enhanced the provision of services to low and moderate income individuals and fostered economic development. Notable investments included: One investment for $5.0 million for a Low Income Housing Tax Credit (LIHTC) that will help create 240 units of affordable housing. Over $100,000 contributed to nonprofit legal services organizations via the State Bar of California through the bank s participation as a Leadership Bank in the Interest on Lawyers Trust Accounts (IOLTA) program. IOLTA was created by the California legislature to fund civil legal services to indigent people. Funds are distributed to legal service providers providing assistance to low income individuals in areas including consumer finance, education and health care access, housing, income maintenance, and community economic development. Approximately $5,000 donated to an organization providing emergency food services, employment assistance, and other services to low income families. $4,500 donated to a Community Development Financial Institution that provides microentrepreneurs with access to capital and resources to start or grow businesses. $2,300 donated to two qualified nonprofit organizations through the bank s Community Values Certificate of Deposit program. Through this innovative program, a depositor receives the bank s market rate on a business certificate of deposit (CD), and the bank will contribute 0.25 percent of the average quarterly principal balance of the CD to any qualifying Bay Area nonprofit of the depositor s choice. COMMUNITY DEVELOPMENT SERVICES Presidio s community development services also demonstrated excellent responsiveness to critical needs in the assessment area. The bank provided approximately 2,300 hours of service to 25 different organizations. As highlighted below, a significant portion of services supported homeless and low and moderate income individuals. Additionally, to help address the articulated need for access to credit for small businesses, bank staff spent significant time in service to organizations that provide technical assistance and financial expertise to small business owners to help them obtain loans, and to organizations that engage in direct lending to small businesses. Notable services provided included: Over 750 hours were provided to organizations that provide affordable housing and emergency shelter, among other services, to low and moderate income and homeless individuals within the assessment area. Examples include: o Over 230 hours providing financial expertise and leadership by serving as a member of the executive council, finance, investment, and budget committees of an organization that provides temporary and permanent housing, job and educational training, and counseling to homeless adults and families. o Providing 240 hours of financial expertise by serving on the board of an organization that provides affordable housing for homeless and low and moderate income individuals. o Providing 180 hours of service in leadership capacity by serving on the board and fundraising committee of an organization that provides housing, medical care, and educational and employment referrals for homeless substance abusers. 17
o 100 hours providing financial expertise by serving on the board of directors for a nonprofit organization that provides food and shelter for thousands of very low or no income homeless individuals. Over 220 hours were provided to several organizations that provide technical assistance and financial expertise to small business owners to help them secure loans and build their businesses, and to organizations that provide funding to small businesses that often are unable to secure funding from traditional banks. Over 180 hours providing financial expertise by serving as president and board member for an organization that provides emergency food services, programs for youth and seniors, employment assistance, and other services to families who are predominantly below the poverty line. 150 hours providing financial expertise by serving as director and treasurer of a community development organization that raises funds for local food banks and homeless shelters. 90 hours providing financial expertise by serving as director and member of the finance and fund development committees for a nonprofit child care program that offers subsidy programs for low income families. 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. That review found no violations of the substantive provisions of the anti discrimination, fair lending, or other illegal credit practice rules, laws or regulations that was inconsistent with helping to meet community credit needs. 18
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 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 under the lending and community development tests is analyzed considering performance context, quantitative factors (for example, geographic distribution, borrower 19
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. 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. 20