UNION BANK AND THE BANK OF CALIFORNIA
C o m m u n i t y R e i n v e s t m e n t C o m m i t m e n t
JULY 2005
“Our intent is to reflect the very deep commitment of Union Bank of California to the principles embodied in the Community Reinvestment Act and to, thereby, assure a continuing commitment to these principles by theBank.” – Union Bank of California, October 1995
“UNION BANK OF CALIFORNIA IS COMMITTED to being the leader in Community Reinvestment among banks its size. Leadership is broadly defined as access to banking services, social investing, supplier diversity, staff and board diversity, and loans for affordable housing, small businesses, and consumer purchases. Our demonstrated performance during the first Ten-year Community Reinvestment Act Commitment is evidence of our strong support for the communities we serve.” - Union Bank of California, 2005
History
In 1995 Union Bank and Bank of California announced plans to merge their two organizations into one banking corporation known as Union Bank of California (UBOC). Consistent with their plans to merge, discussions were held with several community-based organizations including The Greenlining Institute and the California Reinvestment Committee. Subsequent to these discussions, a Ten-year Community Reinvestment Act (CRA) Commitment (Commitment) was created and submitted to regulators in support of their approval of the merger between Union Bank and Bank of California.
In subsequent years, Bank management met regularly with The Greenlining Institute and the California Reinvestment Coalition to evaluate progress in meeting the Ten-year CRA Commitment. In addition, Bank management met regularly with the UBOC Public Policy Committee of the Board, the UBOC Community Advisory Board, the Bank’s independent compliance staff, and the Bank’s primary regulator, the Office of the Comptroller of the Currency (OCC). Each of the groups with which the Bank has met, continue to express satisfaction with the CRA performance by the Bank.
In April 2006, the initial Ten-year CRA Commitment will expire. In consultation with the UBOC Public Policy Committee and Community Advisory Board, Bank management will establish an early renewal of its Commitment commencing in July 2005. Bank management has undertaken a review of its performance with the current Commitment, the current environment, and the position of the Bank in the marketplace. The findings have been incorporated into the new Commitment for an additional ten years through the year 2015. Also, in conjunction with the development of the new Commitment, the Bank has conducted a formal community-needs assessment to assure all appropriate community needs are addressed now and in the years to come.
Overall Commitment 2005 - 2015
Union Bank of California (the Bank) will commit a minimum of 6.5% of assets each year for a period of ten years, beginning July 1, 2005, in CRA-related loan commitments and activities. For monitoring purposes, the Bank will be guided by measurements in use by similarly situated banks on the West Coast and appropriate regulatory agencies. The Bank will comply with all State and Federal laws in all areas of bank activities. The Bank is committed to maintaining the position of a leader in its industry in setting and achieving CRA goals and will strive to achieve the highest CRA rating in a performance-based regulatory environment. The Bank will continue to re-evaluate its Commitment annually based on the Bank’s previous year’s performance, with a view to the current economic environment and adjust accordingly as part of its CSAP[1].
Economic Development Loans
Because of the lending history of the Bank, a major emphasis of this Commitment will be the origination and retention of small business loans. The Bank will set a good faith dollar target of 65% of all loans under this Commitment in the Economic Development Loan category.
Small business loans will be defined as commitments of $1 million or less (and all SBA[2] loans regardless of size) and small farm loans will be defined as loans of $500 thousand or less. As in our past Commitment, it is understood that these loans will be spread throughout this spectrum in a relatively balanced fashion. For CSAP reporting purposes, the Bank will continue to track and specifically target growth in commitments to businesses with annual revenues of $1 million or less; and, secondarily, $3 million or less. Tracking the size of loan commitments incrementally below the $1 million level will be provided for monitoring purposes. The Bank will report loans by loan size as a minimum requirement. It is understood that all such data gathering will be in compliance with applicable laws. A specific dollar commitment will be established annually as part of the Bank’s overall Commitment.
Union Bank of California has emerged as one of the most successful small business lenders in the United States. Our statistics are even more impressive when the fact that we do not have the ability to issue credit cards to small business owners is taken into consideration.
We are a direct lender (every transaction is effectively “face to face”) of small loans to small businesses. Admittedly, we have not developed a competitive position in SBA loans (7A, 7A Express or 504). As part of this Commitment we intend to rectify that.
Our small business lending objectives over the next 10 years are:
A. Consistent with maintaining current credit quality metrics:
1. Be one of the top three banks in small business lending (net of credit cards) in California, measured in dollars.
2. Grow our annual SBA production to be ranked among the top ten California-based SBA lenders to California companies, measured in units, and in the top 50 SBA lenders nationally measured in units.
3. Grow, at the fastest possible rate consistent with maintaining current credit quality metrics, our originations of small business loans to women and to minority-owned firms.
B. Consider participating with other government-guaranteed small business lending programs (e.g., state guaranty loan program)
C. Endeavor to offer favorable rates and/or terms on business loans that support environmental/green policies (e.g., environmentally sensitive automobile loans, alternative energy system loans, etc.)
In recognition of the importance of developing businesses owned by women and minorities as a vital part of the economy, we will continue to expand and strengthen the Business Diversity Lending Program. This program operates as a Special Purpose Credit Program under Regulation B (the implementing regulation of the Equal Credit Opportunity Act) in order to increase access to business financing for businesses that are at least 51% owned and operated by a woman and/or a minority. This program offers more flexible underwriting.
As appropriate, the Bank will purchase small business loans, particularly those under $50 thousand, from local consortia and community-based non-profit financial intermediaries. In addition, the Bank will continue with its programs for equity investment, low interest loans, and other support for local non-profit community development intermediaries.
The Bank will continue to provide access to bank credit and deposit products for community-based non-profit organizations. The Bank will continue to pursue development of special deposit products for use by non-profit organizations. These programs will be specifically targeted to non-profit community-based organizations.
Multi-Family Housing Lending
The Bank will continue its efforts to increase direct loans for construction of affordable multi-family housing with priority given to loans for not-for-profit organizations. The Bank will set a good-faith dollar target of 9% of all loans under this Commitment in the Multi-Family Housing category.
The multi-family housing loan program shall be structured so that: (a) priority will be given for projects with tenants who earn no more than 60% of local area median income; (b) there will be a maximum level and length of affordability; and, (c) priority will also be given to HUD[3] preservation projects, special needs, and SRO[4] projects.
All foreclosed multi-family housing projects will be made available for sale to qualified non-profit housing developers. The Bank will do everything reasonable to ensure that such developers have an opportunity to obtain the properties at the market price. In selected instances (and subject to regulatory restrictions), the Bank may provide customized financing arrangements to support the purchase of these properties by non-profit developers subject to the fiduciary responsibility by management, to get full value for all assets of the corporation.
The Bank will establish a significant revolving loan program (either directly or through a community-based organization) for the purpose of providing pre-development funding for affordable multi-family housing development, which will take into account evaluating risks, rewards, underwriting criteria, and operating costs involved. Subject to results, the Bank will entertain appropriate requests from qualified non-profit developers of affordable housing for pre-development funding of projects where the Bank would have additional participation.
The Bank will continue to purchase Low Income Housing Tax Credits as appropriate to the profitability and tax appetite of the Bank.
Single Family Housing Lending
The Bank will set a good-faith dollar target of 10% of all loans under this Commitment in the Single Family Housing Lending category.
In California, access to home mortgage credit is no longer a real issue for families at any income level. The challenge facing homebuyers will continue to be the lack of affordable homes to buy.
During the past several years, the Bank has originated and/or purchased a sizable portfolio of residential real estate loans; however, the Bank lacks the scale and distribution system to compete with many of its competitors (Wells Fargo, Bank of America, Citicorp, Washington Mutual, World Savings, Countrywide or Ditech, all national-scale players) in the long term, fixed rate, conventional, or FHA/VA markets.
The appropriate role for the Bank continues to be the provider of a ready supply of funds for real estate finance in low-to-moderate-income[5] communities.
As such, we will continue to buy mortgages in low-to-moderate-income communities from the secondary market and will continue to originate our Economic Opportunity Mortgage loan product through appropriately located branches in targeted areas.
A specific dollar commitment will be established annually as part of the overall housing plan for the Bank. The Bank will continue its practice of using flexible credit underwriting and will continue to develop innovative mortgage loan products to accomplish this goal. This commitment will be established annually in accordance with the economic opportunities available. Priority will be given to increasing home purchase financing. It is understood that in economic circumstances that limit Bank targets for this area, resources will be shifted to additional multi-family and non-profit developer support. Support will be continued for effective outreach mechanisms, to include home loan counseling, first-time home-buyer programs, etc. and other such focused organizations. In addition, the Bank will designate Residential Mortgage Loan Officers to source/originate loans to low-moderate income communities, and assist borrowers with the application process.
Low-Income Consumer Loans
The Bank will set a good faith dollar target of 9% of all loans under this Commitment in the Low-Income Consumer Loans category.
The Bank has developed a Consumer Loan Program targeted to low-income applicants whose annual gross family income falls within guidelines for lower-income families as established by HUD.
Features of this program will include but are not limited to:
Secured loans for any consumer purpose, including home improvement, which are made to applicants with established credit histories who would not qualify for the normal Bank program.
The Bank will endeavor to offer favorable rates and/or terms on consumer loans that support environmental/green policies (e.g., environmentally sensitive automobile loans, alternative energy system loans, etc.).
Flexible underwriting criteria has been established for those underwriter-reviewed applicants that require that their credit record not show any flagrant delinquency without a satisfactory explanation, who have established a stable documented income stream, and who demonstrate residence longevity in the area. As appropriate, the Bank will offer extended terms over conventional loan programs for these individuals to increase the affordability of these loans through lower payments, and by allowing debt-to-income ratios not to exceed 50%.
No application fee will be charged for loans under this program. A specific dollar commitment will be established annually as part of the Bank’s overall Commitment.
Community Reinvestment Act Investments
The Bank will set a good faith target of 5% of its unimpaired capital and surplus for originations and outstandings of CRA investments over the life of this Commitment. At a minimum, the Bank will set dollar targets representing 5% of the overall annual target.
Rural Priority
The Bank will join with non-profit community development organizations in an attempt to develop demonstration projects designed to lead to multi-year lending commitments that finance the following types of projects: (a) mobile home park loans for tenant associations, cooperatives, and non-profit organizations, (b) construction loans to non-profit developers in rural areas for development of self-help housing, (c) long term mortgages for single-family homes for self-help home buyers, and (d) farm worker housing. Annual production goals will be set after evaluation of the demonstration projects as part of the annual review process. The Bank will expand its non-profit and financial intermediary activities with groups in rural areas that support the development of self-help housing. In addition, the Bank will develop products targeted to rural communities and support new opportunities for rural entrepreneurship.
Bank Access
Union Bank of California recognizes that consumers are attracted to locations that are convenient to their homes or places of employment. The Bank will pursue the opening of branches in low-income communities utilizing a unique branching strategy and offer other hybrid delivery systems.
The Bank will continue to support the expansion and delivery of banking services to low-income and minority communities. The Bank has several of its branches in low-to-moderate income communities. During this Commitment period, the Bank will maintain a minimum ratio of 10 to 1, conventional branches to low-income branches for all de novo branch expansion in the State of California. A long-term goal will be to increase our branch distribution in low-moderate communities. In recent months, the Bank established branches in the low-income communities of South Gate, Long Beach and San Fernando Valley (currently under construction).
The Bank has expanded the CASH & SAVE banking offices to serve low-income communities. Through this network of branches, the Nest Egg Account was introduced and combined with the Individual Development Account to assist individuals with an opportunity to save for a home purchase, education or establishment of a small business.