2015 Community Reinvestment Act Plan Approved at Board CRA Committee Meeting Wednesday, March 4, 2015 Table of Contents Community Reinvestment Act Plan 2015... 2 The Community Reinvestment Act Overview... 2 Tri Counties Bank s Mission and CRA Philosophy... 2 CRA Tests... 3 2013 CRA Rating... 3 2015 CRA Rating Goal... 3 Lending Goals 2015... 4 Small Business and Small Farm Lending... 4 Small Business Administration (SBA) Loans... 5 HMDA Reportable Mortgage Lending and Multi-Family Lending... 5 Community Development... 6 Investment Goals 2015... 7 Current Investment Summary... 7 Investments Goals... 7 Donation Goals... 8 Service Goals 2015... 8 Product Goals... 8 Employee Volunteerism... 9 1
Community Reinvestment Act Plan 2015 Margaret Holmes Tibbets, Compliance Officer Brent Warren, CRA Officer The Community Reinvestment Act Overview The Community Reinvestment Act (CRA) is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods, consistent with safe and sound banking practices. Primary goals of the CRA Act are to help ensure low and moderate income areas are not excluded from the Bank s service area, and that deposits taken within a community are reinvested in such a way that the community benefits, including low and moderate income areas. The Bank s CRA record is taken into consideration by regulators when the Bank applies to open or close branches, and during merger and acquisition activity. Each depository institution s record in helping to meet the credit needs of its entire community is evaluated periodically by its Regulators. In 2015, the FDIC will be reviewing Tri Counties Bank s record, and will be writing a Performance Evaluation (PE) which will be made available to the public. Community groups use these public PE s in making decisions on whether to file protests related to branch closing activity and mergers and acquisitions. In addition, Regulators expect insured institutions to at least annually perform self-evaluations related to its performance. The Annual Tri Counties Bank CRA Self-Evaluation will be presented to the Board in May 2015. Tri Counties Bank s Mission and CRA Philosophy It is the Board s goal to ensure that our CRA goals are in harmony with the Bank s mission statement: Tri Counties Bank exists for only one purpose: improving the financial success and well-being of our shareholders, customers, communities, and employees In accordance with this mission, the Bank s CRA philosophy embodies the following principles: TCB is a responsible lender, and will make all and investments in accordance with safe and sound banking practices. TCB strives to attract customers and businesses from throughout our assessment areas using our own brand of customer service with competitively priced deposit and lending products that meet their needs. TCB recognizes that good customers and credit worthy borrowers come from all assessment areas, including low and moderate income and minority neighborhoods. TCB recognizes that one of the best ways to understand the needs of customers in low and moderate income and minority census tracts within its assessment areas is through local involvement an input from community based organizations who promote small business development, economic development, paths to homeownership, financial education, and higher education. 2
CRA Tests Tri Counties Bank is examined under the Large Bank test. This includes an evaluation of the Bank CRA Record related to: Lending Investment Service The examination process has four overall possible CRA Ratings: Outstanding Satisfactory Needs Improvement Substantial Non-Compliance 2013 CRA Rating The Bank received an overall rating of Satisfactory in its 2013 CRA Examination. The component tests were rated as follows: Lending: High Satisfactory Investment: Low Satisfactory Service: High Satisfactory 2015 CRA Rating Goal It is the Bank s goal to receive at least a Satisfactory rating in its 2015 Performance Evaluation (PE), with a High Satisfactory in each of the three large bank tests listed above. 3
Lending Goals 2015 The Lending test makes up 50 the CRA rating. The Bank received a High Satisfactory rating in the 2013 CRA Exam. It is our goal to maintain this rating. Small Business and Small Farm Lending The Bank will continue its excellent overall record of serving small business and small farms across its entire footprint. Presently, the Bank s reach for small business and small farm is widespread throughout its footprint, including low and moderate census tracts. Over the past two years, over 60 the Bank s CRA reportable small business and small farm have been for of $100,000 or less. A key goal for 2015 is to develop a method to collect revenues on streamline renewals of small business credit. Currently, over 300 renewals a year are not reportable on the CRA LAR, because we do not collect revenues on these types of renewals. Reporting of these additional transactions on the CRA LAR would be most beneficial to the Bank s CRA statistics. Tri Counties Bank 2013-2014 Small Business/Small Farm Lending Report $100M or Less $100M up to $250M More Than $250M (up to $1,000M Buss or $500M Farm) ALL SMALL FARM & BUSSINESS LOANS # of Original $ (000) # of loa ns Original $ (000) # of Original $ (000) # of Original $ (000) 2013 Small Business 756 55.06% $36,762 17.47% 199 14% $37,128 18% 190 14% $ 98,021 46.57% 1145 83.40% $ 172,091 81.80% Small Farm 104 7.57% $ 4,959 2.36% 62 5% $11,059 5% 62 5% $ 22,377 10.63% 228 16.60% $ 38,395 18.20% Total 2013 860 62.64% $41,721 0.1982 261 19.01% $48,187 22.89% 252 18.35% $ 120,398 57.20% 1373 100% $ 210,486 100% Small 2014 Business 797 53.78% $37,965 15.15% 247 18% $45,197 18% 252 17% $ 133,582 53.30% 1296 83.40% $ 216,744 81.80% Small Farm 89 6.48% $ 4,753 1.90% 50 4% $ 9,032 4% 47 3% $ 20,113 8.02% 186 16.60% $ 33,898 18.20% Total 2014 886 60.26% $42,718 0.1704 297 21.63% $54,229 21.64% 299 20.18% $ 153,695 61.32% 1482 100% $ 250,642 100% 4
Small Business Administration (SBA) Loans The Bank received its SBA Preferred Lending Program approval in January 2015. SBA lending is a CRA qualified lending activity. SBA lending provides a premier opportunity to engage safely in higher LTV business lending throughout all of our assessment areas, including low and moderate income and minority areas, due to the government guarantee available. With the launch of the Government Guaranteed lending program, we hope to achieve both new lending volume and the ability to do second look counteroffers to those businesses who do not qualify for traditional commercial/business financing. The Government Lending group plans to do at least $16 million in volume in 2015. HMDA Reportable Mortgage Lending and Multi-Family Lending Mortgage lending is a cyclical business, largely driven by rates and investor requirements. Mortgage lending itself general bears a heavy burden of regulations, which has been further complicated by the Dodd Frank Act s Qualified Mortgage/Ability to Repay rules, the Loan Originator Rule, the ECOA Valuations Rule, and updates to the Higher Priced Mortgage and HOEPA (High Cost Mortgage) rules. The Bank s HMDA reportable lending, which includes loan purchases and multi-family lending, over the past four years is detailed as follows: Year HMDA Reportable Mortgage Applications HMDA Reportable Mortgage Originations Pull Through Rate 2011 1715 992 57% 2012 2481 1411 61.7% 2013 1340 1028 64.5% 2014 1328 ($334.1 million) 762 ($212.8 million) 57.4% The current rate environment is driving in more applications, and the pipeline has improved in the first two months of 2015. The Bank s historic mortgage lending business model is evolving from primarily serving business customers to a more pro-active sales force with targeted marketing efforts on Realtors, Builders, and attracting new customers. Additional steps taken for 2015 to help drive increasing applications for mortgage volume throughout the Bank s assessment areas, including low and moderate income areas are as follows: A dedicated Mortgage Operations Manager has been hired and is in place as of January 2015. A dedicated Mortgage Sales Manager is in place, and a dedicated trainer has been hired to train mortgage loan originators (MLOs). Fannie Mae added as an investor as part of the Tri Counties Bank/North Valley Bank merger. The mortgage sales force has been increased from 8 to 18. 3 MLOs are dedicated to the call center, taking applications by phone from all areas of the Bank s footprint, including low and moderate income areas and areas where the branch network is limited. An on-line web based application has been implemented on the new Bank website, with a link for a customer to submit a mortgage application from the home page. The on-line application can 5
service customers throughout the Bank s assessment areas, including low and moderate income areas and areas where the branch network is limited. Later in the year, work will begin to evaluate FHLB down payment assistance programs and both Freddie Mac and Fannie Mae low down payment programs for implementation in our product line up. Direct marketing to existing customers for mortgage refinance in 1 st Q 2015. Direct marketing to attract new customers, with a focus on areas south of Sacramento will be undertaken later in 2015. The focus will be to attract more consumer mortgage business to branches in the San Joaquin Valley where our branch network is sparse, and where the performance context for the branches has largely been focused on banking businesses and financing of small business/small farm and commercial lending. Brand marketing efforts now include specific product references and mortgage specific stories. Results of the above initiatives will be monitored during the first half of 2015 to determine if additional steps are needed to increase mortgage lending throughout our assessment areas. Consideration will be given in the second half of 2015 to purchasing HMDA reportable mortgage in our assessment areas, including low and moderate census tracts, if adequate penetration is not achieved. Community Development Community Development (CD) lending opportunities are highly profitable and competitive, yet scarce in the Bank s assessment areas. CD lending must have one or more of the following characteristics: Develop Affordable housing Economic development and job creation Revitalization or stabilization of an economically depressed or distressed area Provide basic education, fire, or medical services to low and moderate income areas or individuals Be located in a governmentally recognized redevelopment or enterprise zone In 2013 and 2014, the Bank originated $7.8 and $7.0 million respectively in CRA qualified CD. The Bank lost the opportunity to do at least one large $12 million CD loan in Butte County in 2014, because of lack of expertise in private placement bond financing. Goals to increase opportunities for more CD lending are long term, and based on building contacts and expertise in the industry and financing options that are required for success. Key actions for 2015 to help increase CD lending by at least 30% include: Engage with nonprofit housing organizations to build relationships and leverage contacts to gain access to CD lending opportunities. The Bank s CRA Officer will provide additional training to Bank Commercial lending staff regarding CD lending, particularly refinancing of Low Income Housing Tax Credit projects, and will refer potential CD lending opportunities to the Bank s Commercial Loan Officers. o A $2.5 million LIHTC refinance was just funded in the Sacramento area with support and assistance from the Bank s CRA officer. o Additional LIHTC refinance opportunities are currently being explored in the Sacramento area. o A potential CD loan with a hospital in the North Coast Region is being reviewed-private placement bond financing is required. 6
Another way to increase CD lending opportunity is through state-wide affordable housing funds. The Bank is a member of the California Community Reinvestment Corporation (CCRC) which has more than 25 member banks who pool resources to finance affordable housing throughout the state. In 2015, we will increase our outstanding loan commitment to CCRC from $3 million to $5 million, which will increase our pro rata share of CD. Investment Goals 2015 The Investment test makes up 25 the CRA rating. In 2013, the Bank was rated Low Satisfactory. It is our goal to improve this rating to at least a High Satisfactory. Current Investment Summary In 2014, the Board approved the purchase of $15 million in CRA qualified investments, including at least $5 million in creative and innovative investments such as Low Income Housing Tax Credit (LIHTC) investments. The current investment portfolio as of 3.1.2015 contains a mix of traditional and creative and innovative investments. The current CRA investment portfolio exceeds $25 million. CRA Qualified Fund Type Amount (000) CRA Investment Fund Traditional $ 2.9 Equity Equivalent Funds Creative & $ 1.25 (EQ2) Innovative Low Income Housing Tax Creative & $ 4.5 Credit Funds (LIHTC) Innovative Fannie Mae MBS Pools Traditional $ 10.7 GNMA Securities Traditional $ 2.8 Municipal Bonds Traditional $ 2.7 Investments Goals The Bank will purchase an additional $13.5 million in CRA qualified investments in 2015, with at least 70% focused on creative and innovative investments such as LIHTC and EQ2 investments. Given current market conditions, LIHTC and EQ2 investments provide a yield to the Bank far superior to traditional CRA investments, with after tax yields in the 6%-9%. The benchmark used to calculate the investment goal for 2015 is 5 Tier 1 Capital. Key areas of focus will be to find opportunities for: LIHTC investments with multi-family housing projects in any of our assessment areas. EQ2 investments in the North Coast, Redding, Fresno, and Bakersfield. 7
Donation Goals CRA qualified donations must primarily serve low and moderate income people within the Bank s assessment area. An additional goal for donations is to ensure they best support the business development and marketing needs of the Bank. Over the past two years, the Bank has donated about $240,000, with about 50 those donations CRA qualified. The Bank will donate $342,000 in 2015 to charitable organizations focusing primarily on: College Scholarship programs Affordable Housing Technical assistance for small business development Health & Wellness Financial Education At least 50% or more of the will be CRA qualified donations. The donation target is based on 1 the Bank s ten year average net profit before tax. Service Goals 2015 The Bank received a Satisfactory rating on the Service Test in 2013. The Service Test makes up 25% of the CRA rating. Product Goals The Bank discontinued collecting ATM fees on EBT cards in August 2014. The Bank will invite community development organizations in its assessment areas to submit applications for the Bank to sponsor FHLB of San Francisco Affordable Housing Program (AHP) grants, HomeStart, IDEA and other affordable housing programs sponsored by the FHLB-some of which are unique to the FHLB of San Francisco. o Three applications already in the works, one for an AHP sponsorship on a rental on an Indian Reservation, one for an AHP sponsorship on a senior housing project, and one AHEAD grant for home ownership in a rural, economically depressed area. The Bank will develop and launch its fiduciary Individual Development Accounts (IDA) in cooperation with the United Way of Northern California as the Trustee as a pilot project by yearend 2015 and expand system wide by year-end 2016. 8
Employee Volunteerism The Bank will focus on ensuring more CRA-qualified volunteer activities, and better collection of data from employees and Directors related to volunteer efforts in our communities. Emphasis will be on: Nonprofit board of director service for organizations primarily serving low/mod income people and areas, such as Habitat for Humanity and others where Bank employees can serve on selection, partnering or finance committees. o Recent positions include employees on the Boards of NeighborWorks Sacramento, North Valley Housing Trust, and Torres Shelter. o Additional future Board positions may include Community Housing Improvement Program (CHIP), The ARC of Butte County, Butte County Housing Authority, and 3CORE. Providing direct financial education to consumers. Other volunteer activities that utilize banking skills and a Banker s perspective, such as mentorships for small business incubators, loan committees, etc. By year end 2015, the Bank s goal is that: 70 our employees will report their volunteer activities using the on-line Navigator site 50 our community service hours are CRA qualified activities. 9