PUBLIC DISCLOSURE May 21, 2012 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 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 Scope of Examination... 1 Conclusions... 1 Fair Lending or Other Illegal Credit Practices Review... 1 INSTITUTION... 2 Description of Institution... 2 Description of Assessment Area... 3 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS... 13 Lending Test... 13 Investment Test... 15 Service Test... 17 APPENDICES Appendix A: Glossary of Terms i
INSTITUTION RATING Scope of Examination Institution s CRA Rating Silicon Valley Bank is rated SATISFACTORY. Silicon Valley Bank (SVB) was evaluated under the Interagency Strategic Plan Community Reinvestment Act (CRA) Examination Procedures. The bank developed a CRA strategic plan for 2010 and 2011 that was approved by the Board of Governors of the Federal Reserve System. The plan outlines measureable goals for a satisfactory rating under the lending, investment, and service performance tests. Annual goals were developed for both 2010 and 2011. The bank did not establish goals for an outstanding rating. SVB s performance under the three performance tests was evaluated against the goals in the strategic plan for 2010 and 2011 to determine the overall CRA rating. The examination also included discussions with members of the bank s local communities and bank management, as well as a review of information regarding the local community and economic conditions to help provide a context for the bank s CRA performance. Conclusions SVB met or exceeded the requirements for a satisfactory CRA rating for the lending, investment, and service performance tests as measured against its approved CRA strategic plan. Fair Lending or Other Illegal Credit Practices Review The Consumer Financial Protection Bureau and the Federal Reserve have completed consumer compliance examinations within this CRA review period and did not cite the bank for any discriminatory or other illegal credit practices that would impact this CRA examination. 1
INSTITUTION Description of Institution SVB, headquartered in Santa Clara, California, is a wholly owned subsidiary of SVB Financial Group and reported total assets of $18.8 billion as of December 31, 2011. Established in 1983, the bank s core business is to provide diversified financial services to a specialized group of industries that includes technology, cleantech, life science, venture capital, private equity, and premium wineries and vineyards. The bank operates four full service branches, three in the Silicon Valley cities of Menlo Park, Palo Alto and Santa Clara, California, and one in the Napa County wine growing region in St Helena, California. SVB also operates twenty two loan production offices located in fifteen states across the continental United States; of these, four are located in the assessment area: Palo Alto, Pleasanton, San Francisco, and Santa Rosa, California. SVB offers a range of commercial credit facilities, including term loans, commercial construction, assetbased loans, bridge financing, lines of credit, loan syndications, sponsor led buyout financing, venture fund capital call loans, and business credit cards. Additional services such as cash management, investment, and international services are also available. The bank offers limited consumer loan products, including home mortgage loans, primarily to employees and individuals associated with the bank s corporate clients. Consistent with the bank s core business focus, commercial loans represent a significant majority of the loan portfolio, as data from the December 31, 2011 Consolidated Reports of Condition and Income indicate in Exhibit 1 below. EXHIBIT 1 LOANS AND LEASES AS OF DECEMBER 31, 2011 Loan Type $ ( 000s) % Commercial/Industrial & Non Farm Non Residential Real Estate 4,885,876 70.0 Loans to Purchase/Carry Securities 945,018 13.5 Secured by 1 4 Family Residential Real Estate 529,838 7.6 Farm Land & Agriculture 330,840 4.7 Consumer Loans & Credit Cards 157,407 2.3 Loans to Foreign Branches of U.S. Banks 74,279 1.1 Construction & Land Development 42,061 0.6 Multi Family Residential Real Estate 8,856 0.1 All Other 2,140 0.0 Total (Gross) 6,976,315 100.0% SVB faces no legal or financial impediments that would prevent it from helping to meet the credit needs of its assessment area consistent with its business strategy, size, financial capacity, and local economic conditions. The bank received a Satisfactory rating at its previous CRA examination conducted, as of February 22, 2010, by the Federal Reserve Bank of San Francisco, using the Interagency Strategic Plan CRA Examination Procedures. 2
Description of Assessment Area SVB s assessment area, which remains unchanged since the previous CRA examination, includes eight of the nine counties that comprise the San Francisco Bay Area (Bay Area). Alameda, Contra Costa, Marin, San Francisco, and San Mateo Counties comprise the San Francisco Oakland Fremont metropolitan statistical area (MSA). This MSA encompasses two metropolitan divisions (MDs): The San Francisco San Mateo Redwood City MD, and the Oakland Fremont Hayward MD; Napa County comprises the Napa MSA; Santa Clara County is included in the San Jose Sunnyvale Santa Clara MSA; and Sonoma County comprises the Santa Rosa Petaluma MSA. As of June 30, 2011, there were a total of 101 Federal Deposit Insurance Corporation insured financial institutions operating 1,586 offices within SVB s assessment area. The bank s deposit market share was 4.2 percent, ranking it fifth in terms of total insured deposits, behind four major money center banks with extensive branch networks in the assessment area. 1 In addition, in 2010, there were 160 lenders reporting 154,586 small business loans pursuant to the reporting requirements of the CRA. The majority of the loans were reported by large regional and national institutions; however, reporting institutions represent only a portion of the small business lenders in the assessment area. Accordingly, competition for small business loans is significant. The large number of CRA reporters operating in the assessment area makes the competition for community development loans and investments significant, as well. Exhibit 2 below presents key demographic and business information, obtained from the 2000 U.S. Census and 2010 Dun and Bradstreet data, used to help develop a performance context for the assessment area. Income Categories Tract Distribution EXHIBIT 2 ASSESSMENT AREA DEMOGRAPHICS SAN FRANCISCO BAY AREA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low income 94 7.1 76,142 5.0 17,724 23.3 307,356 20.3 Moderate income 276 20.8 272,819 18.1 29,496 10.8 266,535 17.6 Middle income 578 43.6 699,975 46.3 29,041 4.1 319,926 21.2 Upper income 374 28.2 462,441 30.6 9,597 2.1 617,560 40.9 Tract not reported 3 0.2 0 0.0 0 0.0 0 0.0 Total AA 1,325 100.0 1,511,377 100.0 85,858 5.7 1,511,377 100.0 EXHIBIT 2 (CONT.) ASSESSMENT AREA DEMOGRAPHICS SAN FRANCISCO BAY AREA 1 Federal Deposit Insurance Corporation, Deposit Market Share Report, June 30, 2011; available at: http://www2.fdic.gov/sod/sodmarketrpt, (accessed April 13, 2012). 3
Housing Housing Types by Tract Income Categories Units by Owner Occupied Rental Vacant Tract # % % # % # % Low income 149,433 27,430 2.0 18.4 113,840 76.2 8,163 5.5 Moderate income 457,609 175,842 13.1 38.4 264,526 57.8 17,241 3.8 Middle income 1,122,658 640,744 47.9 57.1 445,379 39.7 36,535 3.3 Upper income 688,144 494,983 37.0 71.9 172,827 25.1 20,334 3.0 Tract not reported 45 28 0.0 62.2 17 37.8 0 0.0 Total AA 2,417,889 1,339,027 100.0 55.4 996,589 41.2 82,273 3.4 Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Businesses by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Low income 28,875 8.4 24,030 7.9 2,732 12.3 2,113 12.8 Moderate income 61,128 17.9 53,026 17.5 4,650 20.9 3,452 20.9 Middle income 145,538 42.5 130,281 42.9 8,713 39.2 6,544 39.6 Upper income 106,537 31.1 96,033 31.6 6,118 27.5 4,386 26.6 Tract not reported 139 0.0 108 0.0 18 0.1 13 0.1 Total AA 342,217 100.0 303,478 100.0 22,231 100.0 16,508 100.0 2004 Median Family Income Percentage of Total Businesses 88.7 6.5 4.8 Alameda County Contra Costa County Marin County Napa County San Francisco County San Mateo County Santa Clara County Sonoma County 2011 HUD Adjusted Median Family Income Economic Conditions Alameda County Contra Costa County Marin County Napa County San Francisco County San Mateo County Santa Clara County Sonoma County $68,346 $68,346 $75,188 $61,203 $75,188 $75,188 $80,198 $61,922 $92,300 $92,300 $101,600 $85,000 $101,600 $101,600 $103,600 $81,500 December 2011 Median Housing Value 2 Alameda County Contra Costa County Marin County Napa County San Francisco County San Mateo County Santa Clara County Sonoma County December 2011 Unemployment Rate 3 Alameda County Contra Costa County Marin County Napa County San Francisco County San Mateo County Santa Clara County Sonoma County $325,000 $259,000 $517,818 $317,500 $590,500 $490,000 $440,000 $279,000 The bank s assessment area is home to more than 6.7 million people 4 and has a large and diverse economy. In 2010, the Bay Area s economy, as measured by its gross domestic product of $535 billion, 9.3% 9.3% 6.4% 8.8% 7.7% 7.1% 8.6% 9.0% 2 California Association of Realtors Trends in California Real Estate (January 2012 Volume 33, Number 1). 3 Bureau of Labor Statistics, Local Area Unemployment Statistics, Not Seasonally Adjusted. 4
was ranked 19 th in the world, just behind Indonesia and just ahead of Switzerland. 5 Many of the world s largest and fastest growing international firms are located in the Bay Area 6 and major industries include manufacturing, retail trade, information, professional and business services, education and health services, and leisure and hospitality. 7 Federal, state and local governments are also major employers and play an important role in the area s economy. 8 The extent of the area s diversity is seen more clearly at the individual county/regional level, as each area has its own characteristics that bring unique contributions to the overall economic mix. Santa Clara County, in the South Bay, includes the city of San Jose, and has the largest population of any county in the assessment area, as seen in Exhibit 3 on the following page. 9 The area is home to Stanford University, which is among the world s leading research and teaching schools, and attracts students from around the world. 10 The high tech industry s Silicon Valley is also located in Santa Clara, as well as the southern portions of neighboring San Mateo and Alameda counties. 11 As such, technology is an important part of the Bay Area economy. Three key sectors information technology, computer and electronic product manufacturing, and professional and scientific services account for approximately 30 percent of the Bay Area s employment, and are responsible for a large portion of the area s economic growth. 12 A distinctive element of this sector is venture capital funding, 13 which was created locally and continues to thrive here; during the review period between 35 and 45 percent of all venture capital in the U.S. was invested in the Bay Area. 14 Venture capital has been responsible for the development of many of the most successful technology companies in the area. 15 The East Bay counties of Alameda and Contra Costa are home to 38 percent of the area s residents. With the Port of Oakland and access to rail and highway transportation, 16 manufacturing, logistics and trade contribute significantly to the local economy. 17 Alameda County is also home to the University of 4 U.S. Census Bureau, 2010 Population Finder, figure quoted is for the eight Bay Area Counties of SVB s assessment area, available at http://www.census.gov/popfinder, (accessed June 6, 2012). 5 Bay Area Council Economic Institute, Innovation and Investment: Building Tomorrow s Economy in the Bay Area, March 2012, page 5, available at: http:/www.bayareaeconomy.org, (accessed June 6, 2012). 6 Ibid page 8. 7 Moody s Analytics, Precis U.S. Metro, West, August 2011 Oakland, San Francisco, and San Jose. 8 Ibid. 9 U.S. Census Bureau 2010 Population Finder 2010 Demographic Profile by County, available at: http://www.census.gov/popfinder, (accessed June 6, 2012). 10 Stanford University About Stanford, available at: http://www.stanford.edu/about, (accessed July 5, 2012). 11 Britannica Encyclopedia Online, Silicon Valley, available at http://www.britannica.com, (accessed July 2, 2012). 12 Bay Area Council Economic Institute, Innovation and Investment: Building Tomorrow s Economy in the Bay Area, March 2012, page 6. 13 Venture capital (VC) is a form of financing for startup or young companies which do not have access to traditional bank financing. VC investors provide funds for unknown companies to grow; in return for the risk, they expect a high return in a relatively short time frame. The investors are typically repaid by public stock sales or the outright sale of the company to another firm. VC started many well known companies including, Apple, Inc., Facebook, Inc., Google, Inc., and Genentech, Inc. Source Entrepreneur.com, available at: http://www.entrepreneur.com, (accessed July 3, 2012). 14 Bay Area Council Economic Institute, The Culture of Innovation, What Makes Bay Area Companies Different?, March 2012, page 7, available at: http:/www.bayareaeconomy.org, (accessed June 5, 2012). 15 Ibid. 16 Port of Oakland Maritime Introduction, available at: portofoakland.com/maritime/factsfig.asp, (accessed July 5, 2012). 17 Moody s Analytics, Precis U.S. Metro, West, December 2011 Oakland and San Jose. 5
California, Berkeley, the flagship school of the University of California system. Napa and Sonoma counties, located in the North Bay, have among the lowest populations of the eight assessment area counties. Wine manufacturing is a cornerstone industry in these rural counties, while the tourism sector is also a force, particularly in Napa County. 18 Sonoma County has a growing technology sector specializing in medical technology and devices. 19 Finally, Marin, San Francisco, and San Mateo counties have a quarter of the assessment area s population. San Francisco serves as a center of professional and business services and is seeing growth in high tech and internet based companies. 20 In addition, tourism is a mainstay to the local economy; 21 San Francisco is ranked as the 5 th most popular destination for overseas tourists visiting the United States. 22 Health services and education also play a strong role in the county as it is home to the University of California s San Francisco Medical Center, 23 a world renowned research and teaching hospital. EXHIBIT 3 SVB ASSESSMENT AREA POPULATION BY COUNTY 2010 Census Data County Population Alameda 1,510,271 Contra Costa 1,049,025 Marin 252,409 Napa 136,484 San Francisco 802,235 San Mateo 718,451 Santa Clara 1,781,642 Sonoma 483,878 Total for the Eight Counties 6,734,395 An array of small businesses (i.e., those with gross annual revenues of $1million or less), also comprise a substantial majority of all businesses in the assessment area and also provide an important source of employment. According to the Dun & Bradstreet data shown in Exhibit 2, over 88 percent of all assessment area businesses are small. During the review period, the Bay Area continued its recovery from the Great Recession, during which jobs were lost in nearly all industries. 24 By mid 2010, weak construction demand and mounting job losses in areas such as financial services were cooling the budding recovery. 25 By the end of the review period, however, the Bay Area s recovery was generally gaining momentum. As might be expected 18 Moody s Analytics, Precis U.S. Metro, West, August 2011 Napa and Santa Rosa. 19 Ibid. 20 Moody s Analytics, Precis Metro, West, December 2011 San Francisco. 21 Ibid. 22 U.S. Department of Commerce, Office of Travel and Tourism Industries Overseas Visitation Estimates for U.S. States, Cities, and Census Regions: 2010, available at: http://tinet.ita.doc.gov, (accessed, June 27, 2012). 23 Ibid. 24 Bay Area Council Economic Institute, Innovation and Investment: Building Tomorrow s Economy in the Bay Area, March 2012, page 27. 25 Moody s Analytics, Precis U.S. Metro, West, August 2010 Napa, Oakland, San Francisco, San Jose, and Santa Rosa. 6
given the diversity of the area, each of the counties proceeded at different rates and took a slightly different path toward that recovery. High tech manufacturing and information technology, along with job growth in the health care and education sectors, are helping lead the Silicon Valley region out of recession. 26 Similarly, in San Francisco, growth in high tech and internet based companies has countered poor performance in the financial services industry, which had long been a major part of the economy. 27 In the North Bay, recovery has been slower. Economists blame the lackluster pace, in part, on the high number of foreclosures in the area and a slower rate of new job creation than other parts of the state. 28 The East Bay may be the most negatively impacted of the assessment area counties. The manufacturing sector has been a drag on the economy as plant closures put people out of work. 29 These losses, along with cuts in government and finance, had pushed the area s economy back into recession by the end of the review period. 30 Despite continuing job losses in the government sector, construction, manufacturing and financial services, Bay Area unemployment decreased, overall, during the period. 31 However, as seen in Exhibit 4 on the following page, unemployment rates differed significantly by county. 32 As of December 31, 2011, Marin County reported the lowest unemployment rate of 6.4 percent, while Alameda and Contra Costa counties both reported the highest assessment area figures of 9.3 percent. Although, all counties reported unemployment rates below the state figure of 10.9 percent, only three counties, Marin, San Mateo, and San Francisco had unemployment rates that fell below the 8.5 percent national average. 26 Moody s Analytics, Precis U.S. Metro, West, December 2011 San Jose. 27 Moody s Analytics, Precis Metro, West, December 2011 San Francisco. 28 Sonoma Press Democrat Sonoma County to Continue its Slow Growth in 2012, available at: http//www.pressdemocrat.com, (accessed July 3, 2012). 29 Moody s Analytics, Precis Metro, West, December 2011 Oakland. 30 Ibid. 31 Moody s Analytics, Precis U.S. Metro, West, August 2011 Oakland, San Francisco, San Jose. 32 Bureau of Labor Statistics, Local Area Unemployment Statistics by State and County 2009 and 2010, available at: http://data.bls.gov, (accessed June 6, 2012). 7
14.0 12.0 10.0 8.0 6.0 4.0 2.0 EXHIBIT 4 ANNUAL UNEMPLOYMENT RATES 2010 2011 0.0 Marin San Mateo San Francisco Sonoma Santa Clara 2010 2011 Napa Alameda Contra Costa California U.S. Assessment area home prices generally declined in all assessment area counties during the review period. 33 This may be attributed, in part, to high unemployment and elevated levels of foreclosures that have created an excess supply of housing inventory in many counties. 34 As the banks release these properties, they put downward pressure on home prices. 35 However, as with the unemployment rates, the range of home price declines was uneven across the assessment area, with a low of 7.6 percent in Santa Clara County to a high of 21.5 percent in Marin County. 36 Even with the declines, however, by December 2011 median home prices ranged from $259,000 in Contra Costa County to as high as $590,500 in San Francisco County. Also having an impact on the housing market in the assessment area is an increase in the cost of rental accommodations. This results from the same factors contributing to the decline in home prices, namely, former homeowners who lost their homes to foreclosure entering the rental market and reducing available inventory. 37 Another factor is Silicon Valley s increasing technology employment, which has increased the demand for apartments. 38 In East Bay, rental vacancy rates fell from 5.5 to 3.8 percent between 2009 and 2011, 39 and in San Francisco, rental vacancy rates dropped from 5.0 to 3.3 percent for the same period. 40 As of 3Q 2011, five assessment area counties reported the largest quarter to 33 California Association of Realtors Trends in California Real Estate (January 2011 Volume 32, Number 1 and January 2012 Volume 33, Number 1). 34 Bay Area Council Economic Institute, Innovation and Investment: Building Tomorrow s Economy in the Bay Area, Page 48. 35 Moody s Analytics, Precis U.S. Metro, West, August 2010 Oakland, August 2011 San Jose. 36 Ibid. 37 Contra Costa Times, Bay Area Rents are Rising, October 28, 2011. 38 Ibid. 39 Reis, Inc. Performance Monitor, Apartment 4 th Quarter 2011, Metro: Oakland East, Page 8, available at: http://www.reis.com, (accessed March 7, 2012). 40 Reis, Inc. Performance Monitor, Apartment 4 th Quarter 2011, Metro: San Francisco, Page 8, available at: http://www.reis.com, (accessed March 7, 2012). 8
quarter rental increase among 47 U.S. metropolitan areas nationwide. 41 The region s average rent of $1,697 was up 3.3 percent from 2Q 2011 and 9.7 percent from 3Q 2010. 42 Exhibit 5 below indicates that, with the exception of San Francisco and San Mateo counties, an increasing percentage of renting households are paying more of their income for housing. 43 EXHIBIT 5 PERCENTAGE OF HOUSEHOLDS PAYING MORE THAN 35 PERCENT OF INCOME IN RENT County 2009 2010 Alameda 38.8 44.2 Contra Costa 44.7 46.4 Marin 45.4 51.4 Napa 41.7 44.9 San Francisco 37.2 36.5 San Mateo 42.2 37.7 Santa Clara 37.1 38 Sonoma 43.9 49.7 Finally, the recession has had a significant impact on the standard of living for residents across the assessment area. As shown in in Exhibit 6, on the following page, the percentage of families below the poverty level increased in all but one of the eight assessment area counties between 2009 and 2010, with Alameda, and Napa having the highest rates of poverty, both above 9 percent. 44 41 The 5 counties are: Alameda, Contra Costs, Marin, San Francisco, and San Mateo. From Contra Costa Times, Bay Area Rents are Rising, October 28, 2011. 42 Ibid. 43 Survey U.S. Census Bureau, American Community, Selected Housing Characteristics, 2009 and 2010, available at: http://factfinder.census.gov, (accessed July 3, 2012). 44 U.S. Census Bureau, 2009 and 2010 American Community Survey 1 Year Estimates: DP03, Selected Economic Characteristics (Includes Poverty Levels), available at http://factfinder2.census.gov, (accessed on June 6, 2012). Please note that 2009 and 2010 estimates use different Census base years (2000 vs. 2010). Accordingly, population sizes are not comparable and rates should be compared with caution. 9
EXHIBIT 6 PERCENT OF ASSESSMENT AREA FAMILIES BELOW POVERTY LEVEL 2009 2010 12 10 8 6 4 2 0 San Mateo Marin Contra Costa Santa Clara San Francisco 2009 2010 Sonoma Alameda Napa According to a survey conducted by the Federal Reserve Bank of San Francisco, demand for social services such as food stamps, homeless housing, and job training increased dramatically, outstripping the ability of local organizations to provide these services. 45 A reduction in funding from state and local government budget cuts also exacerbated the problem. 46 An example of the impact of recessionary pressures on area community services is seen in food stamp distribution. Between 2009 and 2010, the number of assessment area households receiving food stamps increased by over 27,000, representing a growth rate of 33.6 percent. 47 Credit Availability and Community Development Needs Small Business Access to credit for businesses, particularly for small business owners, was a concern during the Great Recession. 48 According to national data reported under the CRA, the number of small business loans reported decreased 31 percent from 2009 to 2010. 49 However, this decrease may reflect, in part, a limited demand for credit by small business owners. Further support for this conclusion is in a January 2011 National Federation of Independent Business (NFIB) survey of business owners with 250 employees or 45 Federal Reserve Bank of San Francisco, 2011 Vantage Point: The 12 th District Community Indicators Project, survey conducted September 2010. Available at http://www.frbsf.org/publications/community/vantage point, (accessed June 12, 2012). 46 Moody s Analytics, Precis U.S. Metro, West, August 2011 Oakland. 47 U.S. Census Bureau, 2009 and 2010 American Community Survey 1 Year Estimates: S2201, Food Stamps/SNAP, available at: http://factfinder2.census.gov, (accessed June 6, 2012). 48 The American Banker, February 8, 2010, Agencies Urge Loans to Small Businesses. 49 Federal Financial Institutions Examination Council (FFIEC), Findings from Analysis of Nationwide Summary Statistics for 2010 Community Reinvestment Act Data Fact Sheet (August 2011), Table 1, available at: http://www.ffiec.gov/hmcrpr.htm; (accessed June 8, 2012). 10
less, in which 80.5 percent of those polled did not apply for credit because they did not want credit. 50 In another survey of business owners conducted by the NFIB in January 2012, 93 percent reported that all of their credit needs were met or that they were not interested in borrowing. 51 In 2011, however, nationwide demand for credit appeared to be on the rise, as reflected in the results of the Federal Reserve System s January 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices. In that survey, approximately 15 percent of domestic banks reported stronger demand for commercial and industrial loans from businesses of all sizes; this was the highest level since 2005. 52 Similarly, community contacts with management at an assessment area organization that provides assistance to small businesses supported the conclusion that many businesses postponed borrowing during the recession but had started to borrow once again by the fall of 2011. Housing and Social Services Although home prices declined in the assessment area during the review period, affordability remains a challenge for low and moderate income families. The Bay Area is the third most expensive place to live in the U.S., after only New York and Honolulu. 53 The California Association of Realtors Traditional Housing Affordability Index provides a measure of the percentage of families that can afford a median priced home. According to this index, the percentage of Bay Area families that can afford a median priced home increased from 35 to 42 between the 4 th quarter of 2010 (4Q 2010) and 4Q 2011. 54 While the general direction is improving, overall, the figures still indicate that less than half of the assessment area s households can afford median priced homes. Another factor keeping many potential homebuyers out of the market is competition from investors who have turned buying and reselling foreclosed homes into a business. The National Association of Realtors noted that during 2011, the number of residences purchased by investors rose by 65 percent to 1.2 million homes, representing 27 percent of all U.S. home sales. 55 Additionally, as discussed above, the cost of rentals is also increasing, with a significant portion of the area s renters paying in excess of 35 percent of household income on rent. With housing generally considered affordable when it requires 30 percent of income or less, these figures demonstrate the need for affordable rental housing. This need is being addressed, in part, by government incentives available to area financial institutions. In 2010, Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara, and Sonoma counties received a total allocation of $330.5 million in low income housing tax 50 National Federation of Independent Businesses, Financing Small Businesses: Small Businesses and Credit Access, January 2011, page.44, available at: http://www.nfib.com; (accessed May 14, 2012). 51 National Federation of Independent Businesses, January 2012 NFIB Small Business Economic Trends, page 2 Credit Markets, available at: http://www.nfib.com; (accessed May 14, 2012). 52 Board of Governors of the Federal Reserve System, The January 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices, January 2012, Full Report Version, Table 1, question 4 B, Demand for C&I Loans from Small Firms; available at: Http://federalreserve.gov/boarddocs/snloansurvey, (accessed June 9, 2012.). Note that the 15 percent figure is net of those banks that did not respond to the question. 53 Bay Area Council Economic Institute, Innovation and Investment: Building Tomorrow s Economy in the Bay Area, Page 45. 54 California Association of Realtors, Traditional Housing Affordability Index; available at: http://www.car.org, (accessed June 9, 2012). 55 Wall Street Journal, April 4, 2012, As Home Rents Head Higher, Owning Regains Its Appeal, available at: http://online.wsj.com, (accessed June 9, 2012). 11
credits, 56 providing an opportunity to develop additional affordable housing units throughout the assessment area. In addition, in 2010 and 2011, community development financial institutions (CDFIs) serving the assessment area were allocated a total of $215 million in new markets tax credits from the CDFI Fund, 57 providing additional financial support for affordable housing construction and other community development projects. Finally, as previously discussed, the area has experienced high levels of unemployment and foreclosure combined with increasing government cutbacks, resulting in increases in poverty and a growing need for social services for low and moderate income families. 56 California Tax Credit Allocation Committee, 2010 Annual Report (9% and 4% Tax Credit Allocations), available at http://www.treasurer.ca.gov/ctcac/2010/annualreport.pdf, (accessed June 11, 2012). 57 Community Development Financial Institutions Fund, Awardees 2010 and 2011, available at http://www.cdfifund.gov/awardees, (accessed June 11, 2012). 12
CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS Lending Test SVB met or exceeded the requirements established under its CRA strategic plan for a satisfactory lending performance. The following table provides information about the bank s actual lending performance against the lending test goals set forth in the CRA strategic plan. EXHIBIT 7 LENDING TEST Strategic Plan Goals and Interim Annual Goals Actual Performance 350 Small Business Loans 410 Small Business Loans 2010 150 200 Loans 2010 209 Loans 2011 150 200 Loans 2011 201 Loans $110 Million in New CD Loans $ 116.0 Million in New CD Loans 2010 $30 $60 Million 2010 $55.2 Million 2011 $50 $80 Million 2011 $60.8 Million As shown in Exhibit 7, the bank either met or exceeded the goals of its plan in both years for a satisfactory rating. The bank s CRA strategic plan designated small business loans as a goal because small businesses represent a substantial majority of all businesses in the assessment area and, as such, provide an important source of employment, as well as economic development. Small business lending activity during the review period includes new and renewed small business loans, purchased loans, and business credit cards made to businesses with gross annual revenue of less than or equal to $1 million. The business credit card enables the bank to make credit available in smaller amounts than is generally available in a traditional small business loan, thereby reaching those business owners who need micro loans rather than larger credits. The bank takes a leadership role in originating a high level of community development loans, demonstrating responsiveness to the credit and housing needs of the assessment area. Specifically, the bank extended 24 community development loans, centered primarily in construction and permanent financing for affordable housing projects located throughout the assessment area. These loans have a high impact within the assessment area, as they are designed to provide over 1,100 affordable housing units for low and moderate income individuals, including seniors, mentally or physically disabled, and former homeless individuals. The majority of the community development loans are complex as they require several years of planning, the use of low income housing tax credits subsidies, and grants provided by the FHLB under its Affordable Housing Program. 13
The bank s community development lending goal is exclusively for new dollars advanced, participations, increases, and advances of credit under commitments, and does not include loan renewals or extensions which are allowable under the CRA. Management explained that because of the difficulty of predicting when an affordable housing developer may renew or extend a loan, the bank does not include them in the strategic plan goals. In addition to the community development loan amounts noted in Exhibit 7, the bank also had $78.3 million in existing community development loans that renewed during the review period. The following are some examples of community development loans originated in the bank s assessment area: A $22.4 million construction loan to develop a 100 unit facility for low income seniors in San Francisco s Chinatown neighborhood, 20 of the units are set aside for homeless seniors. Three loans totaling $16 million to a company targeting the unbanked and underbanked Hispanic market, helping borrowers build credit history and understand/gain access to mainstream financial services. The company, a certified CDFI, has grown from one office in San Jose to over 80 offices in California and Texas. Two loans totaling $13 million to a certified CDFI that provides financing and technical assistance to develop affordable housing. Since its inception, this organization has created over 32 thousand homes for those earning less than 60 percent of the area median income. Conversion of three outstanding construction loans to one permanent $12.3 million loan for 62 units of affordable multifamily housing in Sonoma County. Occupancy is restricted to households earning less than 60 percent of the area s median income. An affordable housing program grant from the Federal Home Loan Bank of San Francisco (FHLBSF) helped complete the project. As discussed in the Service Test section of this report beginning on page 17, bank staff monitors these loans for compliance with FHLBSF standards. A $10.1 million loan to finance construction of a 56 unit senior rental project in Palo Alto, for individuals earning less than 40 percent of the area s median income. Residents have access to services including comprehensive health care, adult day care, and individual case management. A $7 million loan for construction of a 180 unit multifamily and senior housing complex in Contra Costa County. There are 130 multi family units restricted to households earning no more than 60 percent of the area s median income and 50 units of senior housing set aside for individuals over 55 whose earnings are 50 percent or less of the area s median income. A $2.5 million loan to a non profit certified CDFI that was founded to make loans to affordable housing developers for projects in the Bay Area. In its 13 year history the organization has financed more than 8,000 homes, 94 percent of them for low and moderate income residents. 14
Investment Test As shown in Exhibit 8, SVB s investment performance in 2010 and 2011 either met or exceeded the CRA strategic plan goals for a satisfactory rating. The following table provides information about the bank s performance in meeting the investment test goals set forth in the CRA strategic plan. Strategic Plan Goals and Interim Annual Goals $100.0 Million in Community Development Investments and Investment Commitments EXHIBIT 8 INVESTMENT TEST Actual Performance $101.2 Million in Community Development Investments and Investment Commitments 2010 $20 $50 Million 2010 $30.7 Million 2011 $50 $80 Million 2011 $70.5 Million $500,000 in Grants and Donations $697,667 in Grants and Donations 2010 $200,000 $300,000 2010 $319,517 2011 $200,000 $300,000 2011 $378,150 The bank achieved its investment goal by making investments that supported a variety of community development needs. A particular area of focus was supporting both mortgages and affordable housing for low and moderate income people. SVB invested $74.9 million in mortgage backed securities that support loans to 307 low and moderate income borrowers in the assessment area. An investment of $1 million was made through the California Organized Investment Network to address affordable housing needs in Santa Clara County; this organization has created over 3,400 affordable housing units since 2000. A $23 million commitment was made in three low income housing tax credit funds to develop affordable housing. The funds projects cover a state wide region; however, of the 1,450 affordable housing units slated for development, 891 of these are located in SVB s assessment area. An investment of $1 million was made in a CDFI that is a finance company targeting the unbanked/underbanked Hispanic population and helping them enter the mainstream financial system. The company, which originated in San Jose, now has offices in California and Texas. An investment of $1 million was made in a small business venture capital fund that targets startups and small businesses in a regional area that includes the assessment area. The fund s mission includes social impact such as job creation in low income neighborhoods and community/company involvement. A $250 thousand investment was made in a fund pool that targets small business owners and provides low interest loans and technical assistance. Since inception, the organization has originated over 1,700 small business loans in California. 15
The bank also distributed $141 thousand in low income housing tax credit investment commitments originated in prior years. Although not included in the CRA strategic plan investment goal, the bank also holds $19.7 million in investments from prior periods. These are centered primarily in low income housing tax credit commitments and new market tax credits. The bank made a total of 131 qualified donations during the review period totaling $697.7 thousand. Of this amount, a total of $490.3 thousand was provided to organizations that exclusively benefit the assessment area, and $201.4 thousand was provided to organizations that benefit a broader state wide or regional area that includes the assessment area. Some noteworthy community development donations made during the review period include: Fifty five donations totaling $154.4 thousand, to non profits that develop, rehabilitate or finance affordable housing, and to organizations that expand affordable housing opportunities through education, advocacy and consensus building among housing providers, government, community leaders, and non profit organizations. Twelve donations totaling $107.2 thousand to two organizations that encourage and mentor urban children at risk of dropping out to complete high school and attend college; nearly 100 percent of program applicants are accepted at colleges. During the review period, 1,659 students were enrolled in the program; of these, over 85 percent came from low income families living in the assessment area. Three donations totaling $60.2 thousand to help support two food banks that distribute food to low and moderate income people in San Mateo, Santa Clara, and Sonoma counties. Together, the two food banks provide food to approximately 318,000 people a month. During fiscal year 2011, the food banks distributed over 58 million pounds of food. Two donations totaling $54 thousand to an organization that has been supporting health and welfare, youth programs, and affordable housing in Napa County for 31 years. During 2011, the organization provided $6.8 million to county programs bringing its 31 year history of giving to nearly $104 million. Three donations totaling $50 thousand to an organization that creates jobs and economic opportunity in low income communities through the direct support of small businesses and that advocates for increased investment in these areas. The organization s small businesses total 1,549 low and moderate income employees; of these, in 2011, 212 new employees were hired and 57 percent were low and moderate income individuals. A donation of $15 thousand to a health center based in East Palo Alto. The organization provides healthcare and wellness counseling to the underserved, uninsured, and most vulnerable low income residents of communities in San Mateo County. In one year, the organization served 14,108 patients, 96.3 percent of whom live at or below the federal poverty level and 59 percent of whom are uninsured. 16
Service Test As shown in Exhibit 9 below, SVB s service performance during the review period exceeded the CRA strategic plan goals for a satisfactory rating. The following table provides information about the bank s performance in meeting the service test goals set forth in the CRA strategic plan. Strategic Plan Goals and Interim Annual Goals EXHIBIT 9 SERVICE TEST Actual Performance 2,000 hours of Community Development Services 2,697 hours of Community Development Services 2010 1,000 hours 2010 1,221 hours 2011 1,000 hours 2011 1,476 hours Bank employees provided qualified services to non profit organizations and professional associations that helped to promote affordable housing, revitalization and stabilization of low and moderate income areas, services targeted to low and moderate income people, and economic development support to small businesses. Included in the actual performance figures shown above are qualified service hours of 492 hours that were provided to organizations that benefit the assessment area and also have a greater state wide reach. Some noteworthy community development services provided during the review period include: Over 600 hours of service were provided in connection with the FHLB s Affordable Housing Program, which provides grants to nonprofit housing developers for affordable multifamily housing projects. Employees analyzed applications and provided technical assistance for 36 applications totaling $24 million. In addition, the FHLB requires monitoring of completed projects for ongoing compliance. Employees are only involved in projects located in the assessment area. Over 250 hours of service were provided to a Bay Area program helping to keep urban high school students in school. SVB employees mentored students in developing business plans, pitching proposals to venture capital firms, preparing financial reports, and budgets. In 2011, the program helped 675 students, primarily from East Palo Alto and Oakland; 90 percent came from low income families. Over 108 hours of service were provided to an organization that has financed over 8,000 affordable housing units, established 3,600 individual development savings accounts, and originated 1,705 small business loans in the Bay Area and Northern California. Employees serve on the organization s board and are involved in fund raising, loan committees, and business plan development. A total of 70 hours of service was provided to an organization that supports health care for lowand moderate income people, food programs, foreclosure education, affordable housing, and youth programs in a North Bay county. The employees supported a fund raising auction by obtaining customer payment information and processing credit card payments. In 2011, the organization donated over $6.8 million to 51 organizations that provide community services. 17
A total of 48 hours of service was provided by participating on the board of a consortium of banks that finance multifamily affordable housing projects. Since inception, the organization has created 32,000 homes for people earning 60 percent or less of area median incomes. A total of 21 hours of service was provided to an organization that builds affordable housing in Marin, San Francisco, San Mateo, and Santa Clara counties. Employees created loan documents and conducted loan closings for completed housing units. The non profit has 36 homes under construction. 18