Banc of California Looks to Reshape Industry's Views of CRA

Register now

Banc of California in Irvine, once the target of criticism for its community development efforts, is looking to reshape how banks approach this area.

Banks often view the requirements of the Community Reinvestment Act as another box to check, sometimes neglecting to consult with community organizations that may have a deeper understanding of where funds could be most useful. Meanwhile, advocacy groups frequently feel as though banks' community development funds were used to maximize profitability rather than focusing on those in need.

The $6.1 billion-asset Banc of California is hoping to change those perceptions by raising $200 million from a dozen banks over the next three years to address affordable housing, small- and micro-business lending, asset building and financial education. The effort was announced Tuesday during the opening session of a Clinton Global Initiative America event.

Banc of California plans to work with community leaders, including the California Reinvestment Coalition, its one-time adversary, to identify where the greatest needs are and then measure the fund's impact.

A continuing issue involves making sure invested funds "have the impact sought on communities," Steven Sugarman, Banc of California's chairman and chief executive, said during an interview after the announcement. "Over the course of several months, we continued to meet with different community groups to talk about our activities, and we realized that it is better to talk with them as part of the process of deploying the capital."

This approach seems to be a big change for a company that last summer faced opposition to its planned purchase of 20 branches from Banco Popular. The California Reinvestment Coalition, or CRC, initially opposed the deal, arguing that Banc of California lacked a strong history of serving low-income customers. Banc of California eventually won the group's support by agreeing to meet eight specific goals, including putting 20% of deposits toward loans, investments or donations to low-income or underserved communities.

That experience changed how Sugarman approached the CRA process.

Management realized that it needed to "not just engage in a thoughtful CRA process but also make sure we were inclusive with all of the community organizations … so we weren't coupled with the blemishes that the broader banking sector has had," Sugarman said.

The CRC is now one of Banc of California's biggest champions, with Paulina Gonzalez, the group's executive director, referring to the banking company's efforts to address concerns raised during the Popular deal "the gold standard."

"CRC has looked to identify the criteria for need," Gonzalez said. "One of the critiques we've had of the CRA process has been that there isn't a way to evaluate need, and that's one of the ideas behind this initiative. This fund puts identifying the need at the very core of the process."

Banc of California has yet to secure any commitments from other banks, but Sugarman is confident that the effort will be well received. After announcing its goals as part of the Popular deal, Sugarman said he had "numerous conversations with other banks trying to improve and think through the CRA obligations and strategies."

A panel will also be formed to help determine where funds will be spent, Sugarman said.

If you're going to do it, you need to do it right and make sure you have the maximum impact," Sugarman said. "But this is also the right thing to do."

For reprint and licensing requests for this article, click here.
Community banking M&A Career moves