The case of University National Bank and Trust Co. is a microcosm of the conflicts that the Community Reinvestment Act has engendered between community banks and regulators.

But if University National chief executive Carl J. Schmitt is right, the bank's successful appeal could mean a change in how regulators interpret loan portfolios for all community banks.

"The OCC has a bona fide purpose in trying to implement the law," said George G.C. Parker, a University National Bank board member who is director of executive education at Stanford University's Graduate School of Business. "But I don't think the law was designed to deal with a bank like ours, but a large chain bank.

"When [CRA] is applied to us, it doesn't make any sense."

Affluent Population

University National Bank was founded in 1980 by Mr. Schmitt and a group of Palo Alto investors. The city has an extremely affluent and well-educated population that until then was being served primarily by Wells Fargo Bank of America, and the old Crocker National Bank.

Until last summer, however, University had never had a CRA exam. When the examiners finally arrived, they criticized the bank for having only 6% of its loans in "designated" - minority or low-income - areas of its delineated community, though designated areas make up 20% of that delineated community.

Using this logic, University had fallen short by 14%.

University hired Secura Group's San Francisco office to help it prove that the agency's methodology was wrong. University, though it caters to the wealthy people who make up the vast majority of its market, takes community involvement and reinvestment seriously, Mr. Schmitt said.

He and Secura argued that just because a loan is not in a "designated" area doesn't mean it's not a CRA credit. Using this methodology, and including small-business loans in the total, Secura found that more than 31% of University's credits were CRA-related.

Appealed to Ombudsman

The bank appealed the findings of the Comptroller's office all the way to the agency's new ombudsman, Samuel Golden. Mr. Golden, the bank said, gave it a "satisfactory" rating.

Mr. Golden, reached at his office in Houston, would not even confirm that University had appealed to his office; he cited the confidentiality of the process.

His remarks on the case, however, will be out next month in the quarterly journal of the Comptroller's office.

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