Traders work on the floor of the New York Stock Exchange. Community bank stocks rallied at points in November, but they remain down for the year.
Michael Nagle/Bloomberg
Signs that interest rates may level off into 2024 — and ease pressure on both deposit costs and net interest margins — providedsubstantial boosts for community bank stocks at times in November. But the gains proved short-lived, and lenders’ shares finished the month where they’ve spent most of the year:depressed relative to the start of 2023 and compared to the market overall.
The S&P U.S. BMI Banks index, composed largely of community lenders, closed Thursday, the final trading day of November, down 6% from the beginning of the year. The S&P 500, in contrast, was up 19%.
On the bullish front, the S&P U.S. BMI Banks index posted its biggest gain of the year by far in the week that ended Nov. 3. The index recorded a 9.4% gain. During that week, Federal Reserve policymakers announced they would leave their benchmark interest rate unchanged. Afterhiking rates 11 times since March 2022 to cool inflation, the Fed has paused on that front for several months now.
The small bank indexjumped another 6.9% for the week ended Nov. 17. During that stretch, the Labor Department reported that the U.S. inflation rate slowed to 3.2% in October. That was down substantially from its peak of 9.1% in June 2022. This indicated that the Fed’s aggressive rate actions had largely worked. Futures markets started to price in an end to the Fed’s campaign and even the potential for rate cuts next year.
“More and more people are beating the rate-cut drum, maybe even a cut as soon as March,” said Robert Bolton, president of bank investor Iron Bay Capital. “That’s good news for community banks.”
The response from investors on interest rate and inflation news signaled bullish undercurrents are simmering — for community banks and favorably priced small-cap stocks broadly.
“We have seen a notable shift in underlying conditions — investors are sitting on record cash levels in money market funds, indexes are steadily outperforming, and strong institutional conviction is boding well for markets,” said Jeffrey O’Connor, head of market structure at Liquidnet, a trading and liquidity network.
“As thoughts of rate pressure subsides, the forward thinking prospects for small caps have improved while valuations are enticing, attracting investors searching for opportunities to put to work capital before year-end,” he added.
Lower rates could lead to lower deposit costs and stronger bank earnings in coming quarters after softer results for the third quarter. With rates elevated, banks have had to pay more in interest to depositors. This, by extension, has cut into NIMs — the profitability margin between the amount banks pay for deposits and earn in interest on the loans they make. Interest income is key for community banks, in particular, because they mostly rely on bread-and-butter lending activity, unlike more diverse megabanks that draw income from an array of business lines.
“We do think NIMs bottom” out by the first quarter of 2024, Piper Sandler analyst Stephen Scouten said.
And yet, despite the positives, confidence levels in small bank stocks remain lukewarm. Where’s the rub? “We expect that investors will need to be able to ring-fence the credit cycle before the group can move consistently higher,” Scouten added.
Analysts are focusing on threats embedded in commercial real estate, given many small banks’ dependence on such lending. In particular, the beleaguered office sector remains a source of concern. As lease agreements expire, more companies are expected to further scale back on office space, due to remote work trends and high costs in major cities. This could leave landlords grappling with falling revenue; many could struggle to service their debts.
The third-quarter CRE loan delinquency rate across the U.S. banking sector increased 21 basis points from the prior quarter to 1.03%, according to S&P Global Market Intelligence. That was the biggest sequential increase in at least five years and drove the delinquency rate above its early-pandemic high of 1.02% in the fourth quarter of 2020, the firm said.
There are other soft spots, including areas of consumer credit such as auto loans. The delinquency ratio for car and truck loans reached 2.95% in the third quarter, marking an increase of 20 basis points from the prior quarter and a jump of 56 basis points from a year earlier, the S&P Global data show.
But the potential for an improving rate environment could lay a foundation for sturdy credit quality and increased investor interest by early next year, Bolton said. He said that banks have robust reserves set aside to cover historically average loan losses, and many also have stout levels of excess capital that puts them in position to increase dividends, boot share buybacks and pursue acquisitions.
“We’ve got a lot of upside,” Bolton said of community bank stocks.
Investors generally are eager to put money to work in stocks, O’Connor said.
“The tug of war of narratives between the bulls and bears that has persisted for much of 2023 looks better for the bulls heading into the final month of the year, particularly on the inflation and rates front,” he said.
An Atlantic Union branch in Fredericksburg, Virginia. The $20.6 billion-asset company recently struck a deal to sell and lease back 25 of its 109 branches. Atlantic Union put the proceeds to work restructuring its securities portfolio.
Atlantic Union Bankshares recently sold 25 branches and leased them back from the buyer, then used the proceeds to restructure its securities portfolio. It’s a class of transaction that could become more attractive for banks seeking capital in a protracted high-interest-rate environment, according to experts.
The Richmond, Virginia-based Atlantic Union closed its sale-leaseback deal last month, netting about $22 million after taxes. At the same time, the $20.6 billion-asset Atlantic Union disclosed the sale of approximately $228 million in available-for-sale securities, adding that the after-tax loss of $27.7 million connected to the securities sale was largely offset by the sale-leaseback gain.
“The sale-leaseback of these properties was driven by our ongoing assessment of our balance sheet and enables us to turn a fixed asset into an earning asset,” Beth Shivak, Atlantic Union senior vice president and head of corporate communications wrote in an email to American Banker. “The gains for the transaction are being used to help reposition our balance sheet for a higher-for-longer rate environment.”
Tyler Swann, managing director, investments at W.P. Carey in New York, said sale-leaseback is seeing growing interest from companies “across the board, in all sorts of industries,” as rising rates have rendered capital scarce and more expensive. Indeed, once a management team gains a comfort level with the idea of selling its real estate, “then it’s purely a question of what’s my cheapest source of capital,” Swann said. “Is it to have capital tied up in my real estate … or can I take the money and redeploy it more efficiently in my business?”
“I have to imagine for a business as interest rate sensitive as banking, rising rates have to make you reevaluate what your sources of capital are,” added Swann, whose firm wasn’t involved in the Atlantic Union deal.
David Bishop, an analyst who covers Atlantic Union for Hovde, also predicted an uptick in sale-leaseback deals involving banks. “We think we will see more banks pursue strategies … to unlock embedded equity and reposition balance sheets for a higher-for-longer environment,” Bishop wrote Sept. 28 in a research note. Bishop stated he viewed Atlantic Union’s course as “positive,” predicting the overall result would be slightly accretive to 2024 full-year earnings. Bishop boosted his earnings-per-share estimate for 2024 by 5 cents, to $3.30, reiterating his outperform rating.
In a market forecast published at the beginning of 2023, New York-based Blue Owl Capital, which purchased the Atlantic Union branches, reported $3.1 billion of real estate acquisitions in 2020, followed by $5.1 billion in 2021. The volume of acquisitions surpassed $7.1 billion in 2022. As the pace of business has quickened, Blue Owl’s sale-leaseback revenue has increased correspondingly. Through the first six months of 2023, sale-leaseback revenue totaled $56.4 million, up 55% year over year, according to Blue Owl’s most recent 10-Q report filed with the Securities and Exchange Commission.
As part of the deal with Blue Owl, Atlantic Union, which operates a total of 109 branches, agreed to lease the locations it sold for 17 years. First-year rent will total approximately $2.9 million after taxes, according to a current events report Atlantic Union filed with the SEC on Sept. 21. “We like these locations and have no plans to close,” Shivak wrote in the email.
Once a sale-leaseback deal is consummated, little or nothing connected to a property’s operation changes, Swann said.
New renters “typically exercise the same level of control over real estate after a sale-leaseback as they did as owners,” Swann said. “Generally speaking, the tenant is going to be responsible for everything, just like they would have been if they owned the building,” Swann said. “Essentially, the [new] landlord’s only interaction is providing the capital upfront and collecting the rent check once a month.”
For Swann, the biggest precondition that needs to be satisfied before he considers a sale-leaseback deal is ensuring sellers are certain about their strategies. In the case of banks, “you’re making a commitment to your branches,” Swann said. “You have to really know you want to be in those buildings and paying rent for the long term.”
W.P. Carey has historically focused on industrial sale-leaseback transactions but has done a growing amount of retail business in recent years, according to Swann.
Atlantic Union’s deal came five months after the $46.9 billion-asset Pinnacle Financial Partners in Nashville, Tennessee, executed a sale-leaseback deal with Oak Street Capital Partners, a Blue Owl subsidiary. Pinnacle agreed to sell and lease back 49 properties, netting $85.7 million before taxes. Like Atlantic Union, Pinnacle used proceeds from the sale-leaseback to restructure its securities portfolio, selling $166 million of securities for a net loss of $9.2 million.
Banks’ aggregate cost of deposits rose to 1.78% in the second quarter, up 37 basis points from the prior quarter and more than offsetting the impact of higher rates on loan yields, according to S&P Global Market Intelligence.
torwaiphoto – stock.adobe.com
Inflation reached a 40-year high in 2022, topping 9% in the aftermath of the pandemic and the supply chain snarls it created. This set in motion a range of unique challenges for banks — from rising deposit costs to weaker loan growth to fresh threats to credit quality.
Prices have since been largely tamed — the Consumer Price Index increased at a relatively modest 3.2% rate in July — but this was due to aggressive interest rate hikes that have weighed on banks’ profitability in 2023.
The Federal Reserve has boosted rates 11 times since March 2022, driving borrowing costs higher, curbingconsumerspending and helping to curtail overall prices. However, the Fed’s actions also pushed up the interest rates that banks pay for deposits. When this happens, the margin between what banks pay for deposits and earn on loans — known as net interest margin — contracts. Shrinking margins tend to hurt banks’ bottom lines because most of them rely heavily on the income they earn from lending.
The median NIM for the U.S. banking industry fell to 3.40% in the second quarter, down 5 basis points from the prior quarter and down 20 basis points from the start of the year, according to S&P Global Market Intelligence data. The firm said banks’ aggregate cost of deposits rose to 1.78% in the second quarter, up 37 basis points from the prior quarter and more than offsetting the impact of higher rates on loan yields.
“No question in a high-rate environment, the pressure on margins becomes a challenge,” said Robert Bolton, president of bank investor Iron Bay Capital.
When NIMs dwindle, banks tend to scale back lending. They do this to reduce their need for high-cost deposits to fund loans and to minimize exposure to sectors vulnerable to an economic downturn. Historically, when spiking rates combine with inflation, the U.S. economy goes into a downturn. When lending slows, so does banks’ collective revenue.
For example, Optimum Bank in Fort Lauderdale, Florida, is methodically easing back on lending this year after strong growth in 2022. It still expects to expand this year, but investors should expect a noticeably slower pace, Moishe Gubin, chairman of the $622 million-asset bank, told shareholders in a second-quarter letter.
“I, for one, am in favor of slowing growth during this strange time in the world with interest rates being as high as they are,” Gubin said.
As Gubin suggested, lenders also grow more selective to avoid recession fallout — namely, souring loans and the losses that accompany them. In the current market, bankers are concerned about commercial real estate broadly and urban office properties in particular, given enduring remote-work trends and high vacancy rates.
With recession concerns, an increasing number of lenders boosted reserves for potential future loan losses during the first half of 2023.
Several community banks that cater to local businesses also said during second-quarter earnings season they were closely monitoring those customers’ ability to absorb both higher expenses imposed by inflation and increased borrowing costs.
Citizens Financial Group said its index of national business conditions worsened in the second quarter. It dipped to 48.5 from 53.9 the prior quarter. A reading below 50 indicates weakness.
Eric Merlis, managing director at Citizens, said that while the overall labor market remained strong in the second quarter, new business applications decreased in most states and manufacturing activity slowed. The Citizens index results show “a business environment where activity has slowed as interest rate hikes seem to be working to curb inflation,” Merlis said.
Bankers also are tempering fee-income expectations because of anticipated pullbacks in consumer spending and card use — on top of an already sharp drop in residential mortgage demand after interest rates spiked. Banks earn fees on home loan originations.
Against that backdrop, many banks are looking for ways to become more efficient to offset high deposit costs and falling revenue should lending recede in an economic downturn. Several have closed branches and laid off staff this year.
“I do think you see some urgency to rein in expenses,” said Michael Jamesson, a principal at the bank consulting firm Jamesson Associates.
William Mahon, George Kozdemba and Janice Weston conspired to falsify bank recordsshared withthe Office of the Comptroller of the Currency, according to the pleas lodged in federal court.
Andrew Harrer/Bloomberg
Three former board members of Chicago’s failed Washington Bank for Savings have pleaded guilty to trying to deceive the bank’s regulator to conceal rampant embezzlement.
William Mahon, George Kozdemba and Janice Weston conspired to falsify bank recordsshared withthe Office of the Comptroller of the Currency, according to the pleas lodged in federal court for the Northern District of Illinois this month.
The pleas are the latest legal moves in a yearslong case that stems from Washington Federal’s failure in December 2017, shortly after regulators learned the bank was insolvent and carrying at least $66 million in nonperforming loans. Since then, federal authorities have charged 16 high-ranking former employees of the bank with crimes ranging from fraud to conspiring to embezzle $31 million in bank money.
After the Office of the Comptroller of the Currency began to evaluate the bank’s loan portfolio before its failure, Mahon, Kozdemba and Weston made false entries in bank records in an attempt to obstruct the agency’s examination, according to a statement from the United States Attorney’s Office for the Northern District of Illinois issued after the pleas were entered.
“They also falsified records to make it appear Washington Federal was operating in compliance with banking rules and internal policies and controls,” the U.S. attorney’s office said in the statement.
The directors provided incorrect information on a range of topics, including loan approvals, loan maturity dates and borrower identities, according to the indictment of 14 defendants handed down in 2021.
Sentencing hearings are set for October and December, where Mahon, Kozdemba and Weston could each receive up to five years in prison, according to the U.S. attorney’s office. Mahon is also facing an additional three years for the willful filing of false income tax returns.
Attorneys for the defendants did not immediately respond to requests for comment.
Washington Federal’s former accounting firm, Bansley & Kiener, in 2020 agreed to pay $2.5 million to the Federal Deposit Insurance Corp. to resolve claims that it was liable for the bank’s collapse. Jan Kowalski, another defendant in the case, received three years in prison for fraud related to the bank failure earlier this year.
Prior to its failure, Washington Federal Bank had about $166 million of assets, $144 million of deposits and two branches in the working-class Bridgeport neighborhood of Chicago.
Bank CEOs and lobbyists argue against high capital requirements not because they harm the economy, but because they reduce the size of their bonuses, writes Dennis Kelleher, of Better Markets.
InsideCreativeHouse – stock.adobe.com
Well-capitalized large banks are essential for a strong banking sector, financial system and economy where Main Street families, businesses and community banks can thrive. That’s because appropriately capitalized banks are strong enough to continue providing credit through the economic cycle, in good times and bad, which keeps the economy growing and creates jobs. It also reduces the depth, length and cost of recessions that large bank failures usually cause. The only thing standing between a failing large bank, taxpayer bailouts and an economic downturn — if not catastrophe — is the amount of capital that a large bank has to absorb its own losses.
If large banks do not have enough capital to absorb their own losses and prevent their failure (i.e., if they are undercapitalized), then taxpayers end up providing that capital after the fact in the form of bailouts to prevent their failure and a collapse of the economy and a second Great Depression. That’s what happened recently with the failures and bailouts of Silicon Valley Bank, Signature Bank and First Republic Bank andwhat happened in 2008 with virtually all the giant Wall Street banks.
That’s why these large banks are called“too big to fail”: If they were allowed to fail, they would cause contagion and the collapse of the financial system and economy. It’s important to remember that the dangers to the country created by undercapitalized banks only arise from the largest, systemically important banks, which are those with more than $100 billion in assets, or just 33 out of the nearly 4,700 banks in the country.
Because history proves that undercapitalized large banks pose such grave and grievous threats to the country, policymakers and financial regulatorsmust require those banks to have sufficient capital to absorb the losses that their profit-making activities might cause. That’s why completion of the so-called Basel Endgame and othercapital measures are so important, as recentlydiscussed by Federal Reserve Vice Chair for Supervision Michael Barr and as proposed by the Fed and FDIC.
Unfortunately, what’s good for Main Street (well-capitalized banks) isn’t very good for Wall Street, especially for Wall Street CEOs and executives. While increased bank capital is essential to protect banks, the financial system and Main Street families’ jobs, homes and businesses, it reduces the size of bankers’ bonuses, which are greatly increased by having as little capital as possible. That’s becausebankers’ bonuses are based largely on what’s called return on equity (ROE) which is amplified by low capital and high leverage. Thus, the lower the capital a bank has the higher the ROE and the higher the executive bonuses.
This perverse anti-capital incentive is made worse by the threat posed by “too big to fail” banks. The CEOs of those banks don’t really have to worry about having enough capital or their banks collapsing into bankruptcy because, if they get into trouble, they won’t be allowed to fail and will be bailed out (as happened in 2023 and 2008). This is a moral hazard that incentivizes banks to engage in very high risk, highly leveraged activities that generate outsize returns and bonuses because if they fail, they get to shift their losses to taxpayers who fund the bailouts while the executives get to keep their bonuses.
Think ofthe Silicon Valley Bank CEO who had pocketed tens of millions of dollars in the years before it collapsed and then jetted off to his mansion in Hawaii literally as the FDIC was bailing out his bank to prevent its failure. That failure alone cost $16.1 billion, which was an injection of capital that the bank itself should have had to prevent its failure in the first place.
Put differently, if a bank CEO really doesn’t have to worry about his bank failing, then he really doesn’t care if his bank has enough capital to absorb losses and prevent a failure that won’t happen anyway. And, if that CEO’s bonus is bigger the less capital his bank has, then he wants to have the least amount of capital that he can get away with.
Unsurprisingly, Wall Street’s CEOs, trade groups, lobbyists, PR firms and allies never mention any of this. Instead, they repeatinaccurate, baseless and dangerous claims about capital requirements hurting lending, jobs, economic growth and competition — basically anything to avoid talking about their own bonuses. They are claiming that the real danger to Americans is from overcapitalized — not undercapitalized — banks. However, that is asmokescreen to conceal their self-interest in keeping the amount of capital as low as possible to keep their bonuses as high as possible. There is no evidence banks have ever been overcapitalized and there has never been a banking or financial crash caused by banks that had too much capital.
Regrettably, the large banks, their trade groups and allies are engaged in a comprehensive, coordinated and extremely well-funded two-part disinformation campaign. The first part is to deceive the public and elected officials into believing that higher capital hurts rather thanprotects them. The second part is to prevent regulators from requiring large banks to have enough capital to absorb their own losses and prevent failure, contagion, crashes and bailouts.
The real threat is from undercapitalized banks and regulators must require large banks to have enough capital to eliminate that threat.
The Jefferson Avenue commercial district in Buffalo, New York, is anchored by a supermarket.
There are dozens of other businesses and services along the 12-block corridor — a couple of bank branches, a library, a coffee shop, gas stations, a small plaza with a dollar store and a primary care clinic and a business incubator for entrepreneurs of color.
But Tops Friendly Markets, the only grocery store on Buffalo’s vast East Side, is the center of activity. More than just a place to buy food, pick up medications and use an ATM, the store is a communal gathering space in a predominantly Black neighborhood that, for generations, has been segregated, isolated and disenfranchised from the wealthier — and whiter — parts of the city.
Which explains how it came to be the site of a mass shooting on a spring day in May of last year. On that Saturday, a gunman, who lived 200 miles away in another part of the state, drove to Jefferson Avenue and went into Tops, and in just a few minutes killed 10 people, injured three and inflicted mass trauma across the community.
It is a scenario that has sadly, and repeatedly, played out in other parts of the country that have experienced mass shootings. But this one came with a twist: The gunman’s intention was to kill as many Black people as possible.
To achieve that, he specifically targeted a ZIP code with one of the highest percentages of Black residents in New York state. All 10 who died that day were Black.
“The mere fact that someone can research, ‘Where will the greatest number of Black people be … on a Saturday morning,’ that’s not by chance,” said Franchelle Parker, a community organizer and executive director of Open Buffalo, a nonprofit focused on racial, economic and ecological justice. “That’s not a mistake. It’s a community that’s been deeply segregated for decades.”
The day of the shooting, Parker, who grew up in nearby Niagara Falls, was driving to Tops, where she planned to buy a donut and an unsweetened iced tea before heading into the Open Buffalo office, which is located a block away from Tops. The mother of two had intended to complete the mundane task of cleaning up her desk — “old coffee cups and stuff” — after a busy week.
Franchelle Parker, executive director of Open Buffalo, stands in front of a mural that was created after the May 14, 2022, shooting at Tops Friendly Markets in Buffalo, New York.
Joed Viera
She saw the news on Twitter and didn’t know if she should keep driving to Jefferson Avenue or turn around and go back home. She eventually picked the latter.
When she showed up the next day, there were thousands of people grieving in the streets. “The only way that I could explain my feeling, it was almost like watching an old war movie when a bomb had gone off and someone’s in, like, shell shock. That’s how it felt,” said Parker, vividly recounting the community’s collective trauma in a meeting room tucked inside of Open Buffalo’s second-story office on Jefferson Avenue.
Almost immediately following the May 14, 2022, massacre, which was the second-deadliest mass shooting in the United States last year, conversations locally and nationally turned to the harsh realities of the East Side and how long-standing factors that affect the daily life of residents — racism, poverty and inequity — made the community an ideal target for a white supremacist.
Now, more than a year after the tragedy, there is growing concern that not enough is being done fast enough to begin to dismantle those factors. And amid those conversations, there are mounting calls for the banking industry — whose historical policies and practices helped cement the racial segregation and disinvestment that ultimately shaped the East Side — to leverage its collective power and influence to band together in an effort to create systemic change.
The ideas about how banks should support the East Side and better embed themselves in the neighborhood vary by people and organizations. But the basic argument is the same: Banks, in their role as financiers and because of the industry’s history of lending discrimination, are obligated to bring forth economic prosperity in disinvested communities like the East Side.
I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.
Chiwuike Owunwanne, corporate responsibility officer at KeyBank
“Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that,” said The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity, a four-year-old enterprise focused on racial, geographic and economic health disparities. “But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.”
To be sure, banks’ ability to reverse the course of the community isn’t guaranteed — and there is no formula to determine how much accountability they should hold to fix deeply entrenched problems like racism. Several Buffalo-area bankers said that while the Tops shooting heightened the urgency to help the East Side, the industry itself cannot be the sole driver of change.
“There are a lot of institutions … that can certainly play a part in reversing the challenges that we see today,” said Chiwuike “Chi-Chi” Owunwanne, a corporate responsibility officer at KeyBank, the second-largest bank by deposits in Buffalo. “I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this.”
This federal underwriting map from 1937 shows how redlining worked. Neighborhoods that were predominantly minority were given the lowest ratings, which were color coded red.
Residential Security Map Buffalo N.Y. City Survey File. Record Group 195. National Archives II College Park MD. Image courtesy of Carl Nightingale.
A long history of segregation
How the East Side — and the Tops store on Jefferson Avenue — became the destination for a racially motivated mass murderer is a story about racism, segregation and disinvestment.
Even as it bears the nickname “the city of good neighbors,” Buffalo has long been one of the most racially segregated cities in the United States. Of the 114,965 residents who live on the East Side, 59% are Black, according to data from the 2021 U.S. Census American Community Survey. The percentage is even higher in the 14208 ZIP code, where the Tops store is located. In that ZIP code, among 11,029 total residents, nearly 76% are Black, the census data shows.
The city’s path toward racial segregation started in the early 20th century when a small number of job-seeking Black Americans migrated north to Buffalo, a former steel and auto manufacturing hub at the far northwestern end of New York state. Initially, they moved into the same neighborhoods as many of the city’s poorer immigrants and lived just east of what is today the city’s downtown district. As the number of Blacks arriving in Buffalo swelled in the 1940s, they were increasingly confronted with various housing challenges, including racist zoning laws and restrictive deed covenants that kept them from buying homes in more affluent white areas.
Black Buffalonians also faced housing discrimination in the form of redlining, the practice of restricting the flow of capital into minority communities. In 1933, as the Great Depression roiled the economy, a temporary federal agency known as the Home Owners’ Loan Corporation used government bonds to buy out and refinance mortgages of properties that were facing or already in foreclosure. The point was to try to stabilize the nation’s real estate market.
“I know banks are often looked upon sort of like a panacea, but I don’t particularly see it that way. I think others have a role to play in all of this,” said Chiwuike Owunwanne, a corporate responsibility officer at KeyBank.
Joed Viera
As part of its program, HOLC created maps of American cities, including Buffalo, that used a color coding scheme — green, blue, yellow and red — to convey the perceived riskiness of making loans in certain neighborhoods. Green was considered minimally risky; other areas that were largely populated by immigrant, Black or Latino residents were labeled red and thus determined to be “hazardous.”
“The goal was to free up mortgage capital by going to cities and giving banks a way to unload mortgages, so they could turn around and make more mortgage loans,” said Jason Richardson, senior director of research at the National Community Reinvestment Coalition, an association of more than 750 community-based organizations that advocates for fair lending. “It was kind of a radical concept and it has evolved over the decades into our modern mortgage finance system.”
The Federal Housing Administration, which was established as a permanent agency in 1934, used similar methods to map urban areas and labeled neighborhoods from “A” to “D,” with “A” considered to be the most financially stable and “D” considered the least. Neighborhoods that were largely Black, even relatively stable ones, were put in the “D” category.
The result was that banks, which wanted to be able to sell mortgage loans to the FHA, were largely dissuaded from making loans in “risky” areas. And Buffalo’s East Side, where the majority of Blacks were settling, was deemed risky. Unable to get loans, Blacks couldn’t buy homes, start businesses or build equity. At the same time, large industrial factories on the East Side were closing or moving away, limiting job opportunities and contributing to rising poverty levels.
“Today what we’re left with is the residue of this process where we’ve enshrined … a pattern of economic segregation that favors neighborhoods that had fewer Black people in them and generally ignores neighborhoods that had African Americans living in them,” Richardson said.
Case in point: Research by the National Community Reinvestment Coalition shows that three-quarters of neighborhoods that were once redlined are low- to moderate-income neighborhoods today, and two-thirds of them are majority minority communities.
Adding to the division between Blacks and whites in Buffalo was the construction of a highway called the Kensington Expressway. Built during the 1960s, the below-grade, limited-access highway proved to be a speedy way for suburban workers to get to their downtown jobs. But its construction cut off the already-segregated East Side even more from other parts of the city, displacing residents, devaluing houses and destroying neighborhoods and small businesses.
As a result of those factors and more, many Black residents have become “trapped” on the East Side, according to Dr. Henry Louis Taylor Jr., a professor of urban and regional planning at the University at Buffalo. In 1987, Taylor founded the UB Center for Urban Studies, a research, neighborhood planning and community development institute that works on eliminating inequality in cities and metropolitan regions. In September 2021, eight months before the Tops shooting, the Center for Urban Studies published a report that compared the state of Black Buffalo in 1990 to present-day conditions. The conclusion: Nothing had changed for Blacks over 31 years.
As of 2019, the Black unemployment rate was 11%, the average household income was $42,000 and about 35% of Blacks had incomes that fell below the poverty line, the report said. It also noted that just 32% of Blacks own their homes and that most Blacks in the area live on the East Side.
“Those figures remain virtually unchanged while the actual, physical conditions that existed inside of the community worsened,” Taylor told American Banker in an interview in his sun-filled office at the center, located on the University at Buffalo’s city campus. “When we looked upstream to see what was causing it, it was clear: It was systemic, structural racism.”
Last fall, BankOnBuffalo launched a mobile bank on wheels truck that’s stationed on the East Side every Wednesday. Michael Noah, president of BankOnBuffalo, said that the shooting at Tops Friendly Markets “cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up.”
Joed Viera
Banks’ moral obligations
As the East Side struggled over the decades with rampant poverty, dilapidated housing, vacant lots and disintegrating infrastructure, banks kept a physical presence in the community, albeit a shrinking one. In mid-2000, there were at least 20 bank branches scattered across the East Side, but by mid-2022, the number had fallen to around 14, according to the Federal Deposit Insurance Corp.’s deposit market share data. The 14 include four new branches that have opened since early 2019 — Northwest Bank, KeyBank, Evans Bank and BankOnBuffalo.
The first two branches, operated by Northwest in Columbus, Ohio, and KeyBank, the banking subsidiary of KeyCorp in Cleveland, were requirements of community benefits agreements negotiated between each bank and the National Community Reinvestment Coalition. In both cases, Northwest and KeyBank agreed to open an office in an underserved community.
Evans Bank opened its first East Side branch in the fall of 2021. The office is located in the basement of an $84 million affordable senior housing building that was financed by Evans, a $2.1 billion-asset community bank headquartered south of Buffalo in Angola, New York.
Banks have been very good at providing charitable contributions to the Black community. They get an ‘A’ for that. But doing the things that banks can do in terms of being a catalyst for revitalization and investment in this community, they have not done that.
The Rev. George Nicholas, an East Side pastor who is also CEO of the Buffalo Center for Health Equity
On the community and economic development front, banks have had varying levels of participation. Buffalo-based M&T Bank, which holds a whopping 64% of all deposits in the Buffalo market and is one of the largest private employers in the region, has made consistent investments in the East Side by supporting Westminster Community Charter School, a kindergarten through eighth-grade school, and the Buffalo Promise Neighborhood, a nonprofit organization focused on improving access to education in the city’s 14215 ZIP code.
Currently, Buffalo Promise Neighborhood operates four schools. In addition to Westminster, it runs Highgate Heights Elementary, also K-8, as well as two academies that serve children ages six weeks through pre-kindergarten. Twelve M&T employees are dedicated to the program, according to the Buffalo Promise Neighborhood website. The bank has invested $31.5 million into the program since its 2010 launch, a spokesperson said.
Other banks are making contributions in other ways. In addition to the Jefferson Avenue branch and as part of its community benefits plan, Northwest Bank, a $14.2 billion-asset bank, supports a financial education center through a partnership with Belmont Housing Resources of Western New York. Meanwhile, the $198 billion-asset KeyBank gave $30 million for bridge and construction financing for Northland Workforce Training Center, a $100 million redevelopment project at a former manufacturing complex on the East Side that was partially funded by the state.
BankOnBuffalo’s East Side branch is located inside the center, which offers KeyBank training in advanced manufacturing and clean energy technology careers. A subsidiary of $5.6 billion-asset CNB Financial in Clearfield, Pennsylvania, BankOnBuffalo’s office opened a month after the shooting. The timing was coincidental, but important, said Michael Noah, president of BankOnBuffalo.
“I think it just cemented the point that this is a place we need to be, to be able to be part of these communities and this community specifically, and be able to build this community up,” Noah said.
In terms of public-private collaboration, some banks have been involved in a deeper way. In 2019, New York state, which had already been pouring $1 billion into Buffalo to help revitalize the economy, announced a $65 million economic development fund for the East Side. The initiative is focused on stabilizing neighborhoods, increasing homeownership, redeveloping commercial corridors including Jefferson Avenue, improving historical assets, expanding workforce training and development and supporting small businesses and entrepreneurship.
In conjunction with the funding, a public-private partnership called East Side Avenues was created to provide capital and organizational support to the projects happening along four East Side commercial corridors. Six banks — Charlotte, North Carolina-based Bank of America, the second-largest bank in the nation with $2.5 trillion of assets; M&T, which has $203 billion of assets; KeyBank; Warsaw, New York-based Five Star Bank, which has about $6 billion of assets; Northwest and Evans — are among the 14 private and philanthropic organizations that pledged a combined $8.4 million to pay for five years’ worth of operational support, governance and finance, fundraising and technical assistance to support the nonprofits doing the work.
Laura Quebral, director of the University at Buffalo Regional Institute, which is managing East Side Avenues, said the banks were the first corporations to step up to the request for help, and since then have provided loans and other products and education to keep the program moving.
Their participation “is a signal to the community that banks cared and were invested and were willing to collaborate around something,” Quebral said. “Being at the table was so meaningful.”
Richard Hamister is Northwest’s New York regional president and former co-chair of East Side Avenues. Hamister, who is based in Buffalo, said banks are a “community asset” that have a responsibility to lift up all communities, including those where conditions have arisen that allow it to be a target of racism like the East Side.
“We operate under federal charters, so we have an obligation to the community to not only provide products and services they need but also support when you go through a tragedy like that,” Hamister said. “We also have a moral obligation to try to help when things are broken … and to do what we can. We can’t fix everything, but we’ve got to fix our piece and try to help where we can.”
Allison Dehonney, founder of Buffalo Go Green, distributes strawberries at the Delavan-Grider Farmers’ Market. For a second year, KeyBank is sponsoring the event in the East Side as an attempt to help fill the food desert there. The community’s only grocery store, Tops Friendly Markets, was the site of the mass shooting last year.
Joed Viera
In the wake of a tragedy
After the massacre, there was a flurry of activity within banks and other organizations, local and out-of-town, to respond to the immediate needs of East Side residents. With the community’s only supermarket closed indefinitely, much of the response centered around food collection and distribution. Three of M&T’s five East Side branches, including the Jefferson Avenue branch across the street from Tops, became food distribution sites for weeks after the shooting. On two consecutive Fridays, Northwest provided around 200 free lunches to the community, using a neighborhood caterer who is also the bank’s customer. And BankOnBuffalo collected employee donations that amounted to more than 20 boxes of toiletries and other items that were distributed to a nonprofit.
At the same time, M&T, KeyBank and other banks began financial donations to organizations that could support the immediate needs of the community. KeyBank provided a van that delivered food and took people to nearby grocery stores. Providence, Rhode Island-based Citizens Financial Group, whose ATM inside Tops was inaccessible during the store’s temporary closure, installed a fee-free ATM near a community center located about a half-mile north of Tops, and later put a permanent ATM inside the center that remains there today. And M&T rolled out a short-term loan program to provide capital to East Side small-business owners.
One of the funds that benefited from banks’ support was the Buffalo Together Community Response Fund, which has raised $6.2 million to address the long-term needs of the East Side.
Bank of America and Evans Bank each donated $100,000 to the fund, whose list of major sponsors includes four other banks — JPMorgan Chase, Citigroup, M&T and KeyBank. Thomas Beauford Jr., a former banker who is co-chair of the response fund, said banks, by and large, directed their resources into organizations where the dollars would have an immediate impact.
“Banks said, ‘Hey, you know … it doesn’t make sense for us to try to build something right now. … We will fund you in the work you’re doing,’” said Beauford, who has been president and CEO of the Buffalo Urban League since the fall of 2020. “I would say banks showed up in a big way.”
Fourteen months later, banks say they are committed to playing a positive role on the East Side. For the second year, KeyBank is sponsoring a farmers’ market on the East Side, an attempt to help fill the food desert in the community. Last fall, BankOnBuffalo launched a mobile “bank on wheels” truck that’s stationed on the East Side every Wednesday. The 34-foot-long truck, which is staffed by two people and includes an ATM and a printer to make debit cards, was in the works before the shooting, and will eventually make four stops per week around the Buffalo area.
Evans has partnered with the city of Buffalo to construct seven market-rate single family homes on vacant lots on the East Side. The relationship with the city is an example of how banks can pair up with other entities to create something meaningful and lasting, more than they might be able to do on their own, said Evans President and CEO David Nasca.
The bank has “picked areas” where it can use its resources to make a difference, Nasca said.
“I don’t think the root causes can be ameliorated” by banks alone, he said. “We can’t just grant money. It has to be within our construct of a financial institution that invests and supports the public-private partnership. … All the oars [need to be] pulling together or this doesn’t work.”
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, according to a 2022 report from the group.
Bloomberg News
‘Little or no engagement with minorities’
All of these efforts are, of course, welcomed by the community, but there is still criticism that banks haven’t done enough to make up for their past contributions to segregating the city. And perhaps more importantly, some of that criticism centers on banks failing to do their most basic function in society — provide credit.
In 2021, the New York State Department of Financial Services issued a report about redlining in Buffalo. The regulator looked at banks and nonbank lenders and found that loans made to minorities in the Buffalo metro area made up 9.74% of total loans in Buffalo. Overall, Black residents comprise about 33% of Buffalo’s total population of more than 276,000, census data shows.
The department said its investigation showed the lower percentage was not due to “excessive denials of loan applications based on race or ethnicity,” but rather that “these companies had little or no engagement with minorities and generally made scant effort to do so.”
“The unsurprising result of this has been that few minority customers or individuals seeking homes in majority-minority neighborhoods have made loan applications … in the first instance.”
Furthermore, accusations of redlining persist today, even though the practice of discriminating in housing based on race was outlawed by the Fair Housing Act of 1968.
In 2014, Evans was accused of redlining by the New York State Attorney General, which said the community bank was specifically avoiding making mortgage loans on the East Side. The bank, which at the time had $874 million of assets, agreed to pay $825,000 to settle the case, but Nasca maintains that the charges were unfounded. He points to the fact that the bank never had a fair lending or fair housing violation, no specific incidents were ever claimed and that the bank’s Community Reinvestment Act exam never found evidence of discriminatory or illegal credit practices.
The bank has a greater presence on the East Side today, but that’s because it has grown in size, not because it is trying to make up for previous accusations of redlining, he said.
“Ten years ago, our involvement [on the East Side] certainly wasn’t what you’re seeing today,” Nasca said. “We were looking to participate more, but we were participating within our means and our reach. As we have grown, we have built more resources to be able to do more.”
Shortly after accusations were made against Evans, Five Star Bank, the banking arm of Financial Institutions in Warsaw, New York, was also accused of redlining by the state Attorney General. Five Star, which has been growing its presence in the Buffalo market for several years, wound up settling the charges for $900,000 and agreeing to open two branches in the city of Rochester.
KeyBank is currently being accused of redlining by the National Community Reinvestment Coalition. In a 2022 report, the group said that KeyBank is engaging in systemic redlining by making very few home purchase loans in certain neighborhoods where the majority of residents are Black. Buffalo is one of several cities where the bank’s mortgage lending “effectively wall[ed] out Black neighborhoods,” especially parts of the East Side, the report said.
KeyBank denied the allegations. In March, the coalition asked regulators to investigate the bank’s mortgage lending practices.
Beyond providing more credit, some community members believe that banks should be playing a larger role in addressing other needs on the East Side. And the list of needs runs the gamut from more grocery stores to safe, affordable housing to infrastructure improvements such as street and sidewalk repairs.
Alexander Wright is founder of the African Heritage Food Co-op, an initiative launched in 2016 to address the dearth of grocery store options on the East Side, where he grew up. Wright said that while banks’ philanthropic efforts are important, banks in general “need to be in a place of remediation” to fix underlying issues that the industry, as a whole, helped create. (After publication of this story, Wright left his job as CEO of the African Heritage Food Co-Op.)
Aside from charitable donations, banks should be finding more ways to work directly with East Side business owners and entrepreneurs, helping them with capital-building support along the way, Wright said. One place to start would be technical assistance by way of bank volunteers.
“Banks are always looking to volunteer. ‘Hey, want to come out and paint a fence? Want to come out and do a garden?’” Wright said. “No. Come out here and help Keshia with bookkeeping. Come out here and do QuickBooks classes for folks. Bring out tax experts. Because these are things that befuddle a lot of small businesses. Who is your marketing person? Bring that person out here. Because those are the things that are going to build the business to self-sufficiency.
“Anything short of the capacity-building … that will allow folks to rise to the occasion and be self-sufficient I think is almost a waste,” Wright added. “We don’t need them to lead the plan. What we need them to do is be in the community and [be] hearing the plan and supporting it.”
Franchelle Parker, a community organizer and executive director of Open Buffalo.
Joed Viera
Parker, of Open Buffalo, has similar thoughts about the role that banks should play. One day, soon after the massacre, an ATM appeared down the street from Tops, next to the library that sits across the street from Parker’s office. Soon after the ATM was installed, Parker began fielding questions from area residents who were skeptical of the machine and wanted to know if it was legitimate. But Parker didn’t have any information to share with them. “There was no outreach. There was no community engagement. So I’m like, ‘Let me investigate,’” she said. “I think that’s a symptom of how investment is done in Black communities, even though it may be well-intentioned.”
As it turns out, the temporary ATM belonged to JPMorgan Chase. The megabank has had a commercial banking presence in Buffalo for years, but it didn’t operate a retail branch in the region until last year. Today it has four branches in operation and plans to open another two by the end of the year, a spokesperson said.
After the Tops shooting, the governor’s office reached out to Chase asking if the bank could help in some way, the spokesperson said in response to the skepticism. The spokesperson said that while the Chase retail brand is new to the Buffalo region, the company has been active in the market for decades by way of commercial banking, private banking, credit card lending, home lending and other businesses.
In addition to the ATM, the bank provided funding to local organizations including FeedMore Western New York, which distributes food throughout the region.
“We are committed to continuing our support for Buffalo and helping the community increase access to opportunities that build wealth and economic empowerment,” the spokesperson said in an email.
In the year since the massacre, there has been some progress by banks in terms of their interest in listening to the East Side community and learning about its needs, said Nicholas. But he hasn’t felt an air of urgency from the banking community to tackle the issues right now.
“I do experience banks being a little more open to figuring out what their role is, but it’s slow. It’s slow,” said Nicholas. The senior pastor of the Lincoln Memorial United Methodist Church, located about a mile north from Tops, Nicholas is part of a 13-member local advisory committee for the New York arm of Local Initiatives Support Coalition, or LISC. The group is focused on mobilizing resources, including banks, to address affordable housing in Western New York, specifically in the inner city, as well as training minority developers and connecting them to potential investors, Nicholas said.
Of the 13 members, seven are from banks — one each from M&T, Bank of America, BankOnBuffalo, Evans and KeyBank, and two members from Citizens Financial Group. One of the priorities of LISC NY is health equity, and the fact that banks are becoming more engaged in looking at health disparities is promising, Nicholas said. Still, they have more work to do, he said.
Deja Griffin, an associate at BankOnBuffalo, sets up inside the institution’s bank on wheels. The 34-footlong truck, which is staffed by two people and includes an ATM and a printer to make debit cards, will eventually make four stops per week around the Buffalo area.
Joed Viera
“I need them to think more on how to strengthen and build the economy on the East Side and provide leadership around that, not only to provide charitable things, but using sound business and banking and community development principles to say, ‘OK, if we’re going to invest in this community, these are the types of things that need to happen in this community,’ and then encourage their partners and other people they work with … to come fully in on the East Side.”
Some bankers agree with the community activists.
“Putting a branch in is great. Having a bank on wheels is great,” said Noah of BankOnBuffalo. “But if you’re not embedded in the community, listening to the community and trying to improve it, you’re not creating that wealth and creating a better lifestyle for everyone.”
What could make a substantial difference in terms of banks’ impact on the community is a combination of collaboration and leadership, said Taylor. He supports the idea of banks leading the charge on the creation of a comprehensive redevelopment and reinvestment plan for the East Side, and then investing accordingly and collaboratively through their charitable foundations.
“All of them have these foundations,” Taylor said. “You can either spend that money in a strategic and intentional way designed to develop a community for the existing population, or you can spend that money alone in piecemeal, siloed, sectorial fashion that will look good on an annual report, but won’t generate transformational and generational changes inside a community.”
Banks might be incentivized to work together because it could mean two things for them, according to Taylor: First, they’d have an opportunity to spend money in a way that would have maximum impact on the East Side, and second, if done right, the city and the banks could become a model of the way to create high levels of diversity, equity and inclusion in an urban area.
“If you prove how to do that, all that does is open up other markets of consumption all over the country because people want to figure out how to do that same thing,” Taylor said.
Some of that is already happening, at least on a bank-by-bank case, said KeyBank’s Owunwanne. Through the KeyBank Foundation, the company is able to leverage different relationships that connect nonprofits to other entities and corporations that can provide help.
“I see this as an opportunity for us to make not just incremental changes, but monumental changes … as part of a larger group,” Owunwanne said “Again, I say that not to absolve the bank of any responsibility, but just as a larger group.”
Downstairs from Parker’s office, Golden Cup Coffee, a roastery and cafe run by a husband and wife team, and some other Jefferson Avenue businesses are trying to build up a business association for existing and potential Jefferson-area businesses. Parker imagined what the group could accomplish if one of the banks could provide someone on a part-time basis to facilitate conversations, provide administrative support and coordinate marketing efforts.
“In the grand scheme of things, when we’re talking about a multimillion dollar [bank], a part-time employee specifically dedicated to relationship-building and building out coalitions, it sounds like a small thing,” Parker said. “But that’s transformational.”
Attractive market: Santa Rosa, Calif., which is ensconced in the Sonoma County wine country, had a population of 177,000 and a median household income of $84,823 as of July 1, 2022, according to the Census Bureau.
Gary Hider/Gary L Hider – stock.adobe.com
A bank in Santa Rosa, California, is seeking to acquire a big stake in a crosstown rival.
Earlier this month, the $5.9 billion-asset Big Poppy Bancorp filed an application with the Federal Reserve to acquire up to 24.99% of Summit State Bank. Big Poppy currently owns about 4.9% of Summit State’s outstanding shares.
Summit Sate issued a statement Thursday noting “it is aware” of Big Poppy’s investment, as well as the company’s plans to boost its stake pending approval from the Federal Reserve. The public comment period on Big Poppy’s application ends Aug. 1.
In a brief interview Friday, Summit State CEO Brian Reed added that Summit State’s board is “evaluating our response,” to Big Poppy’s application. “Nothing’s been formalized.”
Big Poppy CEO Khalid Acheckzai did not respond to requests for comment. In a July 14 interview In the North Bay Business Journal, Acheckzai said Big Poppy was “accumulating shares” in Summit State, and he did not rule out a bid to buy the $1.1 billion-asset company.
Founded January 2005, Big Poppy, the holding company for Poppy Bank, has done one deal, acquiring Costa Mesa, California-based Blue Gate Bank in 2018. The bank is clearly in a de novo expansion mode. In a statement on its website, Acheckzai noted plans to open 10 branches in the San Francisco Bay Area, Sacramento and Southern California. So far this year, Big Poppy has opened branches in Folsom and Elk Grove in the Sacramento area and Laguna Hills in Orange County.
It’s easy to see why Big Poppy might consider acquiring Summit State. The combined institution would vault past industry giant Wells Fargo and the $3.3 billion-asset Exchange Bank — also headquartered in Santa Rosa — to become the city’s largest bank, with a 21% share of its $10.6 billion deposit market according to the Federal Deposit Insurance Corp.
According to the Census Bureau, the population of Santa Rosa, which is ensconced in the Sonoma County wine country wine country, totaled 177,000 on July 1, 2022. Santa Rosa’s median household income of $84,823 was slightly higher than the statewide total but substantially higher than the national median household income of $69,021.
Summit State reported second-quarter results Tuesday. Net income of $3 million declined 34% year over year due in large part to a significant spike in funding costs, with the net interest margin shrinking by 76 basis points over the past year to 3.56%.
Summit State also reported a major increase in nonperforming loans, which totaled 2.65% of total loans on June 30. Nonperformers totaled seven basis points a year earlier.
“Despite the challenges and headwinds facing the banking industry, our ability to grow our balance sheet organically will ultimately further enhance the value of our Bank over time,” Reed said Tuesday in a press release.
The privately held Big Poppy has not yet reported its second-quarter results. According to FDIC statistics, Big Poppy reported earnings of $14.3 million in the first quarter and $72.9 million in 2022.
Ted Peters, CEO at the Community Financial Institutions Fund and former CEO at Bryn Mawr Bank Corp. in Philadelphia, said it was “very rare” for one bank to seek to buy such a large stake in a competitor.
“Usually, if you want to buy the bank, you buy the bank,” Peters said Thursday.
An executive with the Federal Home Loan Bank of Chicago pushes back on a BankThink article criticizing the Mortgage Partnership Finance program.
Andrii – stock.adobe.com
The Federal Home Loan Bank System was created to provide a reliable and readily accessible flow of liquidity to member financial institutions more than 90 years ago. One way we do this is through products such as the Mortgage Partnership Finance (MPF) program, which is currently used by six Home Loan banks fulfilling our housing finance mission as we celebrated our 26th anniversary last week.
A recent BankThink article “The Federal Home Loan banks and the disappearing American dream” inaccurately describes our products and the role of the Home Loan banks in the mortgage markets. We are very proud of the MPF program’s success in enabling millions of American families in every U.S. state and territory to buy a new home or lower the cost of their existing homes in furtherance of our statutory mission. For example, the MPF program provides more than 700 community lenders across the nation with a competitive secondary mortgage market option to sell their fixed-rate residential mortgage loans. In 2022, Home Loan bank members used various MPF products to sell more than 33,500 mortgages totaling $8.1 billion. Over 80% of the MPF participants are small community lenders with assets under $1.5 billion that otherwise would not have the ability to offer mortgage loans to their customers, or do so competitively. Additionally, more than one third of the mortgage loans purchased by Home Loan banks through the MPF program for investment or securitized through our MPF products were made to low- or very low-income borrowers or made to borrowers in low-income areas.
The MPF program serves a critical need in the current mortgage landscape, particularly for small lenders that lack direct access to the broader secondary mortgage market. The program supports the mission of the Home Loan banks, and often it is the best way for participating community lenders to provide traditional fixed-rate, freely prepayable mortgages that their customers expect.
“The MPF program keeps us competitive in the markets we serve through their unique mortgage products. The fact that we are able to retain servicing is an important feature that allows us to keep that ‘small town bank’ feel as we continue to develop customer relationships,” said Joni Jorgenson, VP, Mortgage Lender at Western Nebraska Bank.
“For most people, purchasing a home or piece of real estate is one of the biggest transactions they’ll ever do,” said Nick Brooks, IAA Credit Union’s vice president of lending. “Since we now maintain control over the whole lending process, we can ease the anxiety that our members may have, and it gives them confidence in a transaction that’s new to them.”
The BankThink article infers that the Home Loan banks are partially responsible for “tens of millions of Americans who have been unfairly denied homeownership,” which is inaccurate. We do not impose technology on our ecosystem of lenders, nor are we “hamstrung by decades-old, loan underwriting technology.” In fact, quite the opposite. Unlike other secondary market entities, the traditional MPF products do not use proprietary underwriting software to underwrite loans and do not approve or reject the origination of loans. Rather, participating lenders use their own origination systems to submit loans into our systems.
We allow members to use Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Product Advisor Automated Underwriting Systems in submitting loans to us, but those are not our systems. Additionally, we do not mandate what technology must be used by members to underwrite loans. Some members choose to underwrite loans manually.
Regarding the real issues raised in the article, one is the statistical basis and appropriateness of FICO scores as opposed to more big-data driven types of statistical analyses — a concept we don’t oppose, but one to address with the mortgage marketplace in general, rather than the Federal Home Loan banks. Home Loan banks directly purchase mortgage loans from our member financial institutions. This gives them a liquidity alternative to the traditional government-sponsored enterprise securitization channels. The article’s implication that members in the MPF program would necessarily turn down loans to borrowers with low FICO scores because of the program is also incorrect, because the FICO score is just one of the data points used in assessing the credit quality of the loans. Loans can be sold into the MPF program in certain cases without FICO scores.
Another issue the authors raise is the racial homeownership gap, an issue that the Home Loan banks fully acknowledge and are committed to improve through different measures and programs. One example of such a program is the Home Loan Bank of Chicago’s Community First Housing Counseling Resource Program. Investment in education, training and additional resources are critical in assisting first-time homebuyers. We are working with housing counseling agencies to assist in expanding support to minority and low- and moderate-income homebuyers in need. Another example is the Home Loan Bank of Boston’s Lift Up Homeownership program, which provides down payment and closing-cost assistance to people of color purchasing their first home.
For 26 years, the Mortgage Partnership Finance program has provided community lenders with an innovative way to share mortgage risk as they originate loans to borrowers in their communities. We are always looking for new technology, better ways to serve communities across the country and to do our part in creating equitable solutions for all our members and their communities. We appreciate and share the concerns on the broader societal issues facing homeownership in America, but felt it appropriate to set the record straight on the scope of the MPF program.
The Philadelphia Fed is requiring Quontic Bank’s holding company to provide a cash-flow projection for the rest of 2023, and to submit a written plan for maintaining sufficient capital to provide financial support for the bank.
Mike Mergen/Bloomberg News
A small New York bank that previously ran afoul of risk-management requirements has agreed not to distribute capital without the permission of its regulators.
The holding company for Queens, New York-based Quontic Bank on Wednesday entered into a written agreement with the Federal Reserve Bank of Philadelphia.
Under the enforcement action, Quontic Bank Holdings Corp. pledged not to pay dividends, repurchase shares or make any other capital distributions without the Philadelphia Fed’s prior written approval.
The holding company also agreed to provide its regulator with a cash-flow projection for the rest of 2023, and to submit a written plan for maintaining sufficient capital to provide financial support for Quontic Bank.
Also party to the written agreement with the Philadelphia Fed is Quontic Bank Acquisition Corp., which owns and controls Quontic Bank Holdings Corp.
Steven Schnall, the founder and onetime CEO of Quontic Bank, died last summer in a motorcycle accident. After Schnall passed away, his ownership stake passed to his wife, Sherri Schnall, according to the bank.
“Since Steve’s passing, we have made some significant hires with substantial industry experience to ensure our mission remains intact,” Robert Russell, Quontic Bank’s president, said in an email Thursday.
The enforcement action by the Philadelphia Fed is the third against Quontic in five years. In 2018, the Office of the Comptroller of the Currency ordered Quontic Bank to develop a revised plan that assessed its capital adequacy in relation to its size and risk profile.
Then late last year, the OCC said in a second agreement with the $584 million-asset bank that Quontic had failed to address certain regulatory concerns outlined in 2018. The OCC ordered Quontic to maintain a total capital ratio of at least 13% and a leverage ratio of more than 9%.
Russell said Thursday that the bank’s total capital ratio as of March 31 was in excess of 20%. He also said that the bank’s management and board of directors remain fully committed to addressing the issues identified by the OCC.
“The Bank has already made substantial progress and has added resources throughout the organization,” Russell wrote in a response to a question about the OCC’s 2022 consent order. “It is important for our customers and the public to know the matters outlined in the Consent Order do not allege a risk to depositors’ funds and Quontic Bank is FDIC Insured.”
Russell also said that Quontic Bank’s holding company, which is not publicly traded, was not paying dividends prior to the most recent enforcement action by the Philadelphia Fed.
Piper Sandler found that 62% of the chief financial officers surveyed viewed funding costs as the biggest challenge in 2023.
lev dolgachov/Syda Productions – stock.adobe.c
The rapidly rising cost of deposits following prominent regional bank failures was by far the most commonly cited concern for chief financial officers, according to a new report.
The failures were hastened by runs on the banks’ deposits. This intensified competition for funding across the sector and compounded already elevated upward pressure on costs amid increasing interest rates. The collapse of First Republic Bank in early May amplified competitive pressures.
Another 16% surveyed by Piper Sandler said liquidity worried them most, followed by the 15% who noted increased regulation. Only 7% cited the potential for higher loan losses as their biggest source of apprehension.
“We were quite surprised that only 7% of the CFOs indicated that their greatest concern was asset quality,” said Mark Fitzgibbon, Piper Sandler’s research director. “Given how late we are in the economic cycle and the rapid move up in interest rates, we would have expected this to account for a much higher percentage of responses.”
With the specter of recession looming large following 10 Federal Reserve rate hikes since spring 2022, the CFOs were asked if they saw early cracks in credit quality. Loan losses tend to mount during recessions, but 65% said they saw no signs of deterioration. Some 12% said they spotted some early issues in consumer lending and 10% were concerned about commercial real estate vulnerability. Another 2% cited construction loan weakness and 2% indicated that credit was beginning to deteriorate across all segments.
Fitzgibbon said that, while loan portfolios appear healthy overall, the fact that a third of finance chiefs were at least concerned about pockets of credit suggests some weakness lies ahead. “It sounds like we could see some softening” with second-quarter earnings, he said.
With the cost to fund loans rising and threats to credit quality increasing,loan growth is expected to slow throughout 2023. Piper Sandler’s survey found that 38% of CFOs indicated that they expect loan growth of 3% to 6% for 2023. Another 35% expect up to 3% growth, while 5% expect their loan portfolios to contract. Only 2% expect double-digit loan growth this year.
During the first quarter, community banks’ collective loan growth rate fell to 1.3% from 3% in the previous quarter and 3.4% in the third quarter of 2022, according to S&P Global Market Intelligence data. Growth slowed across all loan types for banks under $10 billion of assets. Executives cautioned throughout the earnings season in April that lending activity was slowing further.
Old Second Bancorp, for one, increased its first-quarter loans 3.5% from the prior quarter. But James Eccher, chairman and CEO of the $5.9 billion-asset company, said that pace of growth “is not sustainable.” He anticipates the Aurora, Illinois-based bank’s loan portfolio will expand this year, but the rate of growth could get cut in half.
“I think if you step back and look at the macro environment, there’s certainly recession fears out there,” Eccher told analysts on the bank’s first-quarter earnings call. “Our borrowers are being very cautious.”
After hosting a bank conference in May, D.A. Davidson analysts said executives who spoke at the event reported loan pipelines were “down meaningfully, given reduced demand (on account of economic uncertainty and the impact of rising rates),” as well as more conservative underwriting.
“We suspect the latter stems from the increased cost to fund that growth — and likely tighter credit standards, including a number of banks citing a higher bar for putting new CRE loans on the books,” the Davidson analysts said in a report.
Signature Bank’s collapse served as a painful reminder for a community bank in St. Petersburg, Florida, that no deal is done until the cash is in the seller’s hand.
President Thomas Zernick, who is set to become CEO of BayFirst early next year, said that the company is looking to make more commercial and consumer loans in the Tampa area to decrease its reliance on gain-on-sale income.
The $1 billion-asset BayFirst Financial reported Thursday that its first-quarter net income dipped 43% on a linked-quarter basis. The decline was due in large part to a $60 million loan sale that was “canceled without cause” when regulators closed New York-based Signature, BayFirst CEO Anthony Leo said Friday on a conference call with analysts.
BayFirst made a company-record $121 million in government-guaranteed loans during the three months ended March 31 —including $61 million in March — selling much of that production to Signature before the Federal Deposit Insurance Corp. placed it in receivership, Leo said.
Though BayFirst, the holding company for BayFirst National Bank, quickly found a buyer for the $60 million in Small Business Administration 7(a) loans it failed to sell to Signature, market conditions had turned markedly less favorable. That resulted in $1.6 million in reduced income.
BayFirst, which has emerged as one of the nation’s most prolific SBA 7(a) lenders in recent years, is in the process of filing a breach-of-contract claim against the FDIC, according to Leo. “We have put the FDIC as receiver on notice of our claim for the differential in the gain,” Leo said. “While we cannot assess the likelihood of our claim being fully honored, we have received no indication to doubt that it will be.”
The FDIC declined to comment. As things stand, the agency expects Signature’s failure to cost the Deposit Insurance Fund $2.5 billion.
The loss of Signature as a buyer for its 7(a) loans should have little impact on BayFirst’s loan-sale prospects going forward, Chief Financial Officer Robin Oliver said on the conference call.
“We do bid our SBA-guaranteed loans to seven or eight investors each quarter, so there are multiple other players in the market we already have relationships with and sell to on a regular basis.”
In the first quarter, BayFirst gained $4.4 million on the sale of its government-guaranteed loans, down from $5.8 million during the quarter ending Dec. 31.
BayFirst, which has originated more than $252 million in 7(a) loans since Oct. 1, the start of the agency’s fiscal year, has no plans to scale back its SBA lending operation in the wake of the Signature loan-sale disruption. At the same time, the company intends to fund more commercial and consumer loans in the Tampa-area marketplace, boosting net interest income and lessening reliance on gain-on-sale, Leo said.
President Thomas Zernick said BayFirst originated $49 million of local consumer, mortgage and conventional business loans in the first quarter. BayFirst reported $933 million in deposits on March 31, up 17% since the end of 2022. Zernick isset to become CEO when Leo retires early next year.
BayFirst opened its ninth branch, in Tampa, in March and plans to open a tenth, in Sarasota, in June. “We are clearly in a growth mode,” Leo said.
For now, BayFirst has no plans to add branches outside of the fast-growing Tampa region, which has surpassed 4 million in population, according to Leo. “Frankly, we’ve just scratched the surface there,” he said. “We do not believe it would make sense for us to move outside the Tampa region, at least on an organic basis. …We’ve got a lot of work to do here, and we’ve got a lot of opportunity here.”
But Leo did not rule out a “strategic transaction” or a “significant lift-out” of a banking team to expand BayView’s presence in an adjacent or nearby market.
Banner Corp. in Walla Walla, Washington, will soon have a new chief financial officer.
The $15.8 billion-asset parent of Banner Bank said in a press release that longtime CFO Peter Conner plans to retire as the banking unit’s finance chief on April 10 and as the parent company’s top finance officer on Oct. 10. Robert Butterfield, currently the bank’s chief accounting officer, will succeed Conner in both positions.
Conner joined Banner Bank as CFO in 2015 following the company’s acquisition of AmericanWest Bank. He began his banking career in 1989 and progressed through several leadership positions with a variety of banks prior to joining AmericanWest as CFO in 2010.
Butterfield has more than 26 years of financial expertise, including 22 years in the financial services industry. He joined Banner Bank as chief accounting officer in 2015.
Butterfield’s appointments “are a natural progression of our succession planning and facilitate a seamless transition as he has worked alongside Peter for more than seven years. In fact, he has been instrumental in our successful implementation of our corporate value creation strategy the past two years,” Mark Grescovich, Banner’s president and CEO, said in the release.
For community banks, marketing often points to finding ways to educate, support and grow community, as well as customer knowledge and awareness.
True relationships withstand the test of time, and such is the case with the community bank/customer connection. It’s not unusual to hear about a community bank having served a family or a business for generations, and that’s a testament to the strength of the relationship.
As we consider marketing in this month’s issue, I took time to reflect on exactly what differentiates the community banker and how marketing can help in growing and retaining business. I kept coming back to the fact that for community banks, marketing often points to finding ways to educate, support and grow community, as well as customer knowledge and awareness. By extension, these promotional efforts assume a natural role in a community bank’s journey, just enhancing what are already mission-critical initiatives.
Where I’ll be this month
I’ll be connecting with community bankers from around the country at ICBA LIVE in Honolulu, Hawaii, from March 12–16. I hope to see you there!
For example, consider ICBA chairman Brad Bolton’s Community Spirit Bank in Red Bay, Ala., and its work to share tips for financial resolutions in the local paper. Offering that information to the community helps individuals strengthen their financial savvy and supports a broader story of community bank leadership.
Or look to ICBA past chairman Bob Fisher’s bank, Tioga State Bank in Spencer, N.Y., and how it teams up with local television stations to support cause-related activities, like the No Shave November Cure the Blue 5K. Not only does this event help raise funds for an important program, it also demonstrates the bank’s commitment to its community.
These examples offer only a snapshot of what community banks all over the country do to support their communities from a mission-based approach. In many cases, the added promotion these efforts deliver is a side benefit to serving the community.
That’s precisely why these efforts are successful: They garner attention because they are the right things to do. These stories create a value proposition around why banking with a community bank is so vital, and the differentiation from megabanks and credit unions happens by leading with the community bank relationship model front and center.
So, as you think about your bank’s planned storytelling this year, know that ICBA is standing by to help. In fact, stay tuned for a very exciting announcement that we’ll be making during ICBA LIVE, which will shine a light on what differentiates community banking. And our work won’t stop there. We invite to you join us as we continue to tell the community banking story.
Because beyond marketing, what you do matters to the customers and communities you serve. You are and will remain a partner through your customers’ lives and financial journeys. From a marketing perspective, that’s an ideal place to be.
Rebeca Romero Rainey President and CEO, ICBA Connect with Rebeca @romerorainey
The time has come for the long-awaited FedNow launch. As community banks navigate this process, there are plenty of resources available to answer questions and provide guidance.
By Colleen Morrison
Between May and July of this year, non-pilot instant payment transactions will be live on FedNow, the first new Federal Reserve payment rail in more than 40 years. After much strategy, planning and discussion, the implementation phase has arrived.
“As we near launch, I’m reminded of where we started,” says Nick Stanescu, senior vice president and business executive of the FedNow Service. “The decision to build the FedNow Service was the result of a multiyear initiative of collaborating with the industry to explore ways to modernize the U.S. payment system.”
He notes that the launch of FedNow will represent a major landmark in modernizing and improving the U.S. payment system. “Importantly, this will level the playing field by allowing financial institutions of every size to benefit from safe and efficient instant payments,” he adds.
Three sources of information on FedNow
As community banks look to take advantage of this new opportunity, they seek resources to help them navigate the journey. With that in mind, industry experts agree there are three key sources of information to support banks in honing their instant payments plans.
1. FedNow Explorer
The Federal Reserve launched the FedNow Explorer to help financial institutions establish their individual evaluation and implementation needs. Offering a guided journey, a self-explore option and a quick link to resources, this site incorporates the latest news and information from the Fed about FedNow. In particular, the Service Readiness Guide and the Service Provider Showcase provide insights into preparation requirements and available solutions.
“You have to educate yourself; you have to educate your employees and your management team. So, starting off with the FedNow Explorer has a lot of great resources,” says Sherri Reagin, chief financial officer at FedNow pilot participant North Salem State Bank, a $590 million-asset community bank in North Salem, Ind. “We even showed one of the videos at our annual training to all of our employees. They’ve heard me talking about FedNow for a couple of years now, but they didn’t fully understand it until there was a visual. There are so many great resources on that website where people can really get started.”
2. Your Federal Reserve account executive
The Federal Reserve account executive stands as a valuable resource for asking bank-specific questions about the FedNow Service and can benefit community banks that want to be early adopters. For example, Stanescu points out that there are four core capabilities of instant payments readiness that a community bank’s Federal Reserve account representative can help evaluate:
Connectivity to FedNow
Real-time posting and immediate funds availability
Settlement through either a Fed master account or a correspondent’s
Send and receive functionality
Each area creates important decisions for the bank, and the Fed account executive can help financial institutions navigate the pros and cons.
“Your Fed account executives are great places to start, as well as your technology solution providers, based on the product lines you think are going to use FedNow,” says Kari Mitchum, vice president of payments policy at ICBA.
3. Core and third-party providers
To that point, solution providers will play a crucial role in implementation from the core system to downstream customer-facing applications. Community banks will need to decide their required functionality in receive-only or a send-and-receive scenarios and work with their providers accordingly. For most, that process starts with talking to their cores.
“My advice: Build a plan, understand what partners must be involved and do a lot of exploring with vendors,” says Debra Matthews, chief of deposit operations at $2.1 billion-asset Texas First Bank in Texas City, Texas, a FedNow pilot participant. “Explore what your core has available and plans to do in the future and determine if any additional third parties are needed for implementation.”
Reagin agrees, emphasizing the enhanced role that core providers will play to accommodate FedNow. “Everything we do, all the fintechs that we use—if you’re going to settle a payment, it has to go through your core provider to get through your system,” she says. “So, they’re going to have to be involved, regardless of who you use to interface between the Federal Reserve and your financial institution.”
Instant payments will soon be table stakes
While the FedNow Service will launch in just a few months, the wide-scale rollout will take some time, and customer adoption will follow suit. However, if market history bears any indication, instant payments will be a critical part of payment processes in the future.
“Keep in mind Apple Pay has been out for almost 14 years, and QR codes were created in 1994. FedNow coming out is not going to be some overnight change,” Mitchum says. “There’s that story from [FedEx founder] Fred Smith that he had the idea for FedEx in the 1960s, and the paper got a ‘C’ on it. They said, ‘Nobody wants stuff next day; there’s no need for this.’
“Now we’re in the time of Amazon same-day delivery, two-hour delivery. But that doesn’t mean that we got rid of USPS. It doesn’t mean we got rid of two-day shipping. There are multiple choices for moving goods; there’s going to be multiple choices for moving money.”
But with the rate of change in today’s digital space and this immediate gratification environment, it won’t take long for demand for instant payments to accelerate.
“I think FedNow is going to transform the way that we do business, and the way that businesses operate in the future.” —Sherri Reagin, North Salem State Bank
Use cases like early wage access, P2P payments and insurance disbursement have already emerged, and others will continue to develop. Community banks that don’t begin exploring instant payments may find themselves at a competitive disadvantage more quickly than they might think.
“Financial institutions need to really learn the benefits of FedNow to be able to accelerate the services that we can offer to our customers. I think FedNow is going to transform the way that we do business, and the way that businesses operate in the future,” Reagin says. “The sooner we can get our customers and our employees acclimated to it, it’s just going to skyrocket.”
FedNow resources from ICBA
Community bankers benefit from education tailored directly to their needs, so ICBA has developed customized education to complement available resources. For example, ICBA Bancard ran a five-part webinar series called Ramping Up for the FedNow Launch, which includes the following sessions:
Delay No More: Creating Your FedNow Plan
FedNow Features, A Deep Dive
Lessons Learned from Community Banks Implementing Instant Payments
Preparing for 2023 and Q&A with a Fed Expert
Exploring Instant Payments Use Cases
ICBA is planning more events as the FedNow go-live date nears.
“We’re looking to put together a robust 2023, and it’s going to be dynamic,” says Kari Mitchum, ICBA’s vice president of payments policy. “So, as we get closer to launch, make sure you’re always reading NewsWatch Today. We’re going to make sure there are frequent webinars and lots of education out there.”
What about RTP?
Currently, more than 180 financial institutions belong to The Clearing House’s Real Time Payments Network (RTP), and 80% of network participants are community institutions with less than $10 billion in assets. It became an attractive option for banks that wanted to get an early jump on instant payments.
“We do think that there’s value in being set up to receive on both the RTP Network and FedNow,” said Nick Denning, senior vice president of payments industry relations at ICBA Bancard. “For a bank that is still trying to figure out what its broad instant payments and FedNow strategy will be, getting set up on RTP to receive now is one thing it can do to get moving forward while they figure out the nuances of their plans and approach.”
Many third-party providers will use the same instant payments solution to hook into FedNow and RTP, so setting up to receive RTP transactions will help banks prepare for FedNow.
I am grateful to have had the opportunity to serve as chairman. I will continue to advocate for community banking, and for the rest of my career, stand side by side with you to fight our future battles.
Serving as ICBA chairman has been one of the highest honors of my life. It’s hard to put into words how special this experience is. The work you’re doing every day puts real faces and names to the communities we’re fighting for, and it has been a privilege to be your representative at the national level.
Yet, it takes the voices of many to make a true impact. That’s why I’ve asked community bankers to sacrifice a few minutes every day to advocate for our industry. We are what stands between our customers and an overreaching federal government and regulatory system. We hold the line for Main Street America, which needs us.
My top three
Reflections on community banking:
Never take our community bank mission for granted; advocate for it.
Keep innovating and implementing new technologies for your customers.
Someone at your bank wants to lead it for the next generation. Let them.
In today’s environment, that vigilance is critical to staying ahead of emerging threats. Each day brings forward new concerns, and we have to stay focused on who we are and who we represent. So, keep pressing forward in defending this great industry we get the opportunity to serve.
For example, every community banker has a primary focus on how they can better serve their customers. It isn’t about making more money, but how we respond to community needs. We should also remind policymakers that community bankers are small business owners, too. And even though we have fiduciary and regulatory responsibilities to remain profitable and provide a return to our shareholders, our focus always comes back to how we can serve our customers better. In maintaining that focus on our relationship-centric mission, we will continue to thrive.
That’s why it’s vital for community banks to remain independent, and a big theme for me has been encouraging bank executives to identify their next generation of leaders. There are those within your institution who share your vision and passion. Support their development and groom them to take the reins. Without your bank, your communities are at risk. So, make a succession plan to ensure your bank remains the lifeblood of the community.
With that in mind, I implore you to keep fighting for Main Street. Keep raising your voices to advocate for your customers. Keep engaging with innovative companies to grow, evolve and better serve. Keep identifying future leaders to ensure the longevity of your institution, because your communities need you in their corner.
I want to close by saying I am grateful to have had the opportunity to serve as chairman. I will continue to advocate for community banking, and for the rest of my career, stand side by side with you to fight our future battles. With that passion leading, I’m confident we’ll witness the continued growth and success of our beloved industry.
Brad Bolton, Chairman, ICBA Brad Bolton is president and CEO of Community Spirit Bank in Red Bay, Ala. Connect with Brad @BradMBolton
BankOnBuffalo president Michael Noah says the bank’s mobile branch will provide service to those who don’t have easy access to banks. Photos by Luke Copping Photography
BankOnBuffalo has hit the road with its new mobile bank, BankOnWheels, to meet the needs of underserved communities.
By William Atkinson
Name: BankOnBuffalo
Assets: $1.1 billion
Location: Buffalo, N.Y.
This past November, BankOnBuffalo, a division of $5.5 billion-asset CNB Bank headquartered in Clearfield, Penn., added a new branch to its preexisting lineup of 12 branches and offices in or around Buffalo, N.Y.
Where is this newest office located? Well, it depends on the day of the week. The $1.1 billion-asset community bank division based out of Buffalo built and outfitted a “rolling branch,” called BankOnWheels, an innovative banking experience that makes full-service banking accessible to more consumers and small businesses, particularly those in underserved communities, according to BankOnBuffalo president Michael Noah.
“We are providing banking options in areas that have been known as ‘bank deserts,’ which is very important to us as a community bank.” —Michael Noah, BankOnBuffalo
The first of its kind among financial institutions in western New York, BankOnWheels is a full-service bank branch within a 34-foot recreational vehicle. It enables the community bank to deliver essential banking services to communities that previously had little to no access to them. “We are providing banking options in areas that have been known as ‘bank deserts,’ which is very important to us as a community bank,” Noah says.
All the bells and whistles
The mobile branch has all the essentials to fill that void. BankOnWheels includes a walk-up ATM and two exterior teller windows where transactions can be performed and a platform desk is located for customers to speak with a bank associate.
“Anything you can do in one of our branch locations, you can do in the BankOnWheels.” —Michael Noah, BankOnBuffalo
Inside, it has most of the features of a traditional bank: a lobby, teller window and an office for private conversations with a BankOnBuffalo associate.
“We saw the need, and we were eager to get the BankOnWheels rolling across our community,” says Noah. “Even with the rapid rise of technology allowing so much banking to be done remotely, research told us that consumers and business owners still greatly value branches where they can have face-to-face conversations with bankers, get answers to their questions and receive the assistance they need with transactions, loan applications and account openings.”
BankOnWheels has all the technology and services that the community bank’s brick-and-mortar locations do, including wire transfers, an ATM, a teller cash recycler and an instant-issue debit card machine. “Anything you can do in one of our branch locations, you can do in the BankOnWheels,” Noah says.
BankOnWheels evolved over several years as bank executives spoke with and listened to community leaders.
“People didn’t ask for another bank location that the community couldn’t get to,” Noah says. “They wanted a way to bring the bank to the people and make it more accessible for the community. That really was the evolution of BankOnWheels: listening to and responding to the community.”
Building a branch
The planning process took more than two years. “We were involved in a ground-up planning process, similar to opening a new branch,” says Noah. “The project evolved over time, because we had to make sure that BankOnWheels had all the necessary capabilities of one of our branches.”
BankOnBuffalo worked with local vendors to build and outfit the inside of the RV. A firm called Mobile Facilities LLC built the mobile banking unit, and multiple vendors were engaged in wrapping and servicing BankOnWheels. “This was an extensive process undertaken to bring the final product to the community,” says Noah.
The community bank uses its existing branch staff to operate BankOnWheels, with four to five employees working on rotation, two at a time. “This creates a consistent client experience from a very well-trained and versatile team,” Noah says.
As for security, BankOnBuffalo vetted and selected a third-party security firm, based on the firm’s ability to manage the complete security process and protect the community bank’s employees.
“They work closely with local law enforcement and our corporate security team,” Noah explains. In addition, a professional security team from the security firm drives the RV and provides comprehensive security for BankOnWheels and its staff when they’re on the road.
Expanding its footprint
When the branch first became operational, it began serving three communities through its deployment in Niagara Falls and Buffalo.
Within weeks of opening, BankOnBuffalo gained new customers in these areas and began opening new accounts. Based on the results and additional input from the communities, the bank plans to add other sites to the list in the future and keep this show on the road.
The theme for ICBA LIVE 2023 is “Light the Fire. Light the Way.” As leaders, that’s a huge part of what we do: spark enthusiasm, encourage creativity and guide our teams on the paths to success. But inspiration doesn’t always happen spontaneously, or even daily, so it’s incumbent upon us to develop strategies and create environments that inspire and motivate our teams, all while making sure we stay inspired ourselves.
Here are some great tools for cultivating inspiration.
Remove limitations. Sometimes a project or task seems, on its face, to have restrictions. But we can often remove those perceived limitations, be experimental and think outside the box. Yes, this could result in a few errors, but it might also generate successful new ideas or strategies. Let your team know that it’s OK to fail.
Don’t forget to dream. This idea is inspired by the book The Dream Manager by Matthew Kelly, and it’s a powerful message to share with your team. Encourage everyone to start a dream book, to write down their dreams (both professional and personal), and to dream without limits. The book can serve as a resource to remind us of the dreams (big or small) that we have, and that reminder can jump-start the enthusiasm needed to begin or continue a task.
Focus on strengths. Lean into your employees’ strengths and talents, and they’ll feel naturally more authentic and empowered. Cultivating a strengths-based environment increases creativity and productivity.
Focus on team bonding. On average, a full-time employee spends 40 hours a week working with the same people. Don’t underestimate the value of team-building exercises to bring them together. If they’re in the thick of a project, invite them to take a break, pose a fun question to the group or play a quick game. Fostering camaraderie cultivates a stronger team. Colleagues who are invested in each other will look forward to working together.
Make motivation a topic. Adopt “Motivation Monday” and ask the team to talk about what motivates them. Ask them how they find inspiration personally. This can give leaders and fellow colleagues a beneficial understanding of what each employee values.
Let people do their jobs. No one wants to be micromanaged. Allow for autonomy where possible and be clear in your words so that employees know they are empowered to do their job. It shows a level of trust and respect, which generally leads to higher job satisfaction and greater productivity.
Show appreciation. We’ve said this before, but leaders must show appreciation for the work their team is doing. It goes a long way.
But above all, remember that employees are individuals. What inspires or motivates one may not be as powerful for another. So, tailor your tactics to suit both your team and the individuals within it.
Lindsay LaNore (lindsay.lanore@icba.org) is ICBA’s group executive vice president and chief learning and experience officer
Valley Bank offers financial literacy education to women through Hoving Home.
Valley Bank is working side by side with Walter Hoving Home, a place of refuge for women struggling with addiction and other personal challenges, to offer residents financial empowerment.
By Roshan McArthur
For Valley Bank in Wayne, N.J., success brings with it an obligation to help others succeed, too. The near century-old, $57 billion-asset community bank believes deeply in financial empowerment, not just for its customers but for the most vulnerable community members, too.
For more than five years, Valley Bank has worked with Walter Hoving Home, a community nonprofit organization in Oxford, N.J. Hoving Home is a faith-based facility that helps mostly low-income women recover from issues like drug addiction, alcoholism, abuse, prostitution and human trafficking. In the 56 years since it was founded, the nonprofit has grown from one home in Garrison, N.Y., to six branches throughout the U.S., helping more than a quarter of a million women find their feet again.
Valley Bank’s relationship with Walter Hoving Home began in 2018.
“Hoving Home has provided them a safe place to recover from these situations, to reestablish themselves so they can reenter society, gain custody of their children and be productive,” says Karen Austin, Valley Bank’s VP and market manager. Austin initiated the relationship in 2018 after a chance encounter with one of Hoving Home’s team members during a conference at a local university.
“Valley was able to enter into this relationship by providing financial empowerment to the women who are residents of Hoving Home,” she explains. Over the years, that empowerment has taken the form of grants, donations of equipment and volunteer hours. In June 2022, for example, the community bank’s team members took part in a beautification day with shovels, rakes and “a lot of sweat equity,” preparing for the nonprofit’s annual graduation ceremony at its Oxford site. Valley Bank also provided laptops and printers for a new computer lab, and its property management group donated desks and cubicles from branches and departments that were being renovated to a new learning center.
“Our opportunity is to reach those who need it the most and provide a service so that, when they are able to regain their lives, they’re going to be able to make informed decisions and know there’s advocacy available to them.” —Karen Austin, Valley Bank
“Having a local impact is something that’s very important for us,” says Bernadette Mueller, Valley Bank’s EVP for corporate social responsibility. “We want to be viewed as partners in our local communities, serving not only the people who live there but the people who work there, our whole constituency in that area, whether that be community groups or households.”
Creating a path forward
In addition to donations and volunteer hours, Valley Bank also provides financial literacy education as part of Hoving Home’s Career Readiness Program. Using a Consumer Financial Protection Bureau curriculum called “Your Money, Your Goals,” Austin teaches nine one-hour sessions to the women, covering saving, spending, budgeting, credit, debt management, managing financial setbacks and more. She also makes a point of keeping her students informed about current events that illustrate why financial literacy is so important.
These days, she is reaching more women than ever. “I used to do the sessions in person in Oxford, N.J.,” she recalls, “so I would drive on a weekly basis from an office in the Wayne area, an hour and a half up to Oxford, and then back another hour and a half home to my house. When COVID hit, that changed everything. And I became a little bit more effective at using Zoom. So, I conducted Zoom classes for the individuals in Oxford.”
At the beginning of 2022, the director of Hoving Home asked her if she could conduct classes for its other facilities as well: two in Garrison, N.Y., one in Pasadena, Calif., and another in Las Vegas. By teaching virtually, Austin has expanded Valley Bank’s reach nationwide.
“I feel that we as Valley have to support our local community, wherever and whoever that might be,” says Austin. “And our opportunity is to reach those who need it the most and provide a service so that, when they are able to regain their lives, they’re going to be able to make informed decisions and know there’s advocacy available to them. I feel Valley has played an extraordinary part in that, and I’m grateful to be part of that work.”
That gratitude runs deep, says Mueller. “Our people, across the board—from the facilities and the property management people loading desks, to the tech people setting up laptops—have been feeling the same way, just feeling so good about what they’re doing,” she says. “We’re getting much more than we’re giving.”
From left: Coastal Heritage Bank staff Pat Driscoll, Sondra Krieg, Lisa Levy, Janet Joyce, Diane Calabro and Scott Ambroceo. Photo by Mike Ritter
Spurred by social distancing and shutdowns during the pandemic, many community banks turned to virtual financial advisory services, and these new practices are expected to stick around.
By Katie Kuehner-Hebert
The pandemic shutdowns expedited community banks’ digital transformation journeys—including the adoption of virtual financial advisory services. More and more community banks offering wealth management now provide these services, not as a substitute for in-person meetings, but rather as a supplement.
They are following a trend across the wealth management sector. While most financial advisors still prefer in-person meetings with clients, a 2021 survey by SmartAsset Advisors LLC found that the pandemic spurred most to offer video calls, and more than a third said they expected to continue the practice post-pandemic, in addition to sending emails and texts to clients.
By offering virtual advisory services, community banks have the potential to significantly reduce the amount of time required from, and friction for, customers, says Ashish Garg, cofounder and CEO of Eltropy Inc. in Milpitas, Calif., a fintech that provides a digital communications platform for community financial institutions.
“Traditionally, customers preferred going to a branch for financial advisory services, because they were discussing large sums of money,” Garg says. “With the rise of virtual and video banking technologies, however, customers still have the reassurance of talking to someone face to face, but they can do so from the comfort of their home, their car or wherever they may be.”
Like telehealth and healthcare, virtual options make financial advisory services more accessible for many people—especially if the level of service online is on par with what they would experience in person, he says.
Going digital
Coastal Heritage Bank in Weymouth, Mass., recently adopted Eltropy’s digital communications platform and plans to roll out virtual capabilities across the institution, including for its wealth management arm, says Scott Ambroceo, senior vice president at the $910 million-asset community bank.
“While the bank is starting slow in its deployment to develop internal subject matter experts on the platform,” he says, “it can see opportunities in the near term to expand on what it’s doing today, in order to assist in attracting and retaining relationships through a secure and convenient digital banking platform.”
The virtual capabilities are built on the success of Coastal Heritage Bank’s earlier digital transformation moves, in part due to customer preferences during the pandemic, he says.
“As we were seeing high adoption rates of our digital platform by our customers, we were also seeing significant success in managing our business, many times remotely, through internal web-based collaboration software, due to the ongoing pandemic,” Ambroceo says. “Naturally, we began focusing on our options to expand our digital banking platform to include a face-to-face experience from the comfort of the customer’s home, business or wherever life placed them at the moment they needed their bank.”
Via an interactive widget on Coastal Heritage Bank’s website, customers will be able to initiate video calls to staff, aided by technology to authenticate the customer’s identity, he says. Joint-account owners can join the calls from two different areas of the world, if needed.
Moreover, staff will be able to help customers complete forms through video calls using eSign, Ambroceo says. eSign documents can be presented for signature and retained as part of the bank’s permanent records, eliminating the need for single or joint account owners from having to provide wet signatures either in-branch or through the mail.
In addition, customers can use the digital platform for 24/7 chatbox conversations with automated responses to more than 100 common questions received by the bank, as well as text-only conversations for quick questions and audio-only conversations depending on customers’ preferences, he says.
To be more user-friendly, digital communication platforms need to offer all these capabilities in addition to video calls, Garg says.
“The fact that consumers have become used to so many different channels of communication—and prefer different kinds of communication for different situations—creates a challenge for community banks,” he says. “They need to offer the full suite of communications options that their consumers may want.”
Other needs for virtual advisory services
Integrations are another important consideration for community banks, because they navigate so many IT systems—a lending system, a CRM, and an e-signature system like DocuSign, among others, Garg says. Institutions need a solution that can automate the flow of information from one system to another.
Data security is also critical—digital communication platforms need to encrypt both stored data and data that is captured during a voice call, he says.
Offering virtual advisory services not only supplements in-person meetings; it can also help ensure that staffing levels are maintained—something particularly important in this era of the Great Resignation, Garg says.
“With ongoing labor shortages, this is a big challenge for community financial institutions, especially as they expand into new markets,” he says. “This kind of technology ensures that banks can address the concerns of customers no matter where they live.”
Derek Williams, president and CEO of Century Bank & Trust in Milledgeville, Ga., wanted to be a financier before finding his way to community banking. Photo by Harold Daniels
Derek Williams, president and CEO of Century Bank & Trust in Georgia, is bringing his passion for community banking to his term as ICBA chairman for 2023/24.
By Roshan McArthur
Derek Williams is, he says, excited, honored and humbled to make his debut as ICBA chairman at ICBA LIVE. A banking stalwart described by outgoing chairman Brad Bolton as “a passionate community leader and a staunch leader of our industry,” Williams has built a career by immersing himself in the community banking world. He has also served on ICBA’s executive committee for many years, including a term as treasurer from 2016 to 2018.
He has served as president and CEO of $365 million-asset Century Bank & Trust in Milledgeville, Ga., for eight years. But, unlike many in the industry, this profession wasn’t in his blood. Asked if there is a history of banking in his family, he laughs—something he does often.
“That’s an interesting story,” he says. “It’s kind of an anti-banking history!”
Williams grew up in Barnesville, Ga., at the time a small town of about 5,000 residents. It was something of a humble start, he says. He was raised by a mother who stayed home with her four kids and a father who built houses.
“He was a craftsman by nature,” Williams says of his father. “So the most experience I had with banking growing up was him as a bank customer. I knew the bankers in town because my dad knew them, and I learned a lot just from being around them and watching how dad dealt with them. He had a great relationship with banks and bankers, and that attracted me, just from the standpoint of what they did to help my dad.”
Williams (second from left) with ICBA’s 2022/23 executive committee, including outgoing chairman Brad Bolton, at ICBA LIVE 2022 in San Antonio. Photo by Chris Williams
That said, Williams left the University of Georgia, Terry College of Business, in 1984 with a BBA in finance, determined to get out of Barnesville and become “the next great corporate financier.” But the world had other plans. He graduated into a recession, one of two that would have a profound influence on his career. During that time, at an interview for a job as a stockbroker, he asked one of the brokers how well his office performed. The response he received reshaped his career. “I don’t have any idea what the office does,” the broker told him. “I only worry about what I do.”
The implication was simple: The broker didn’t care about anybody he worked with, which was anathema to Williams. “So many of the jobs that I looked at in the corporate finance world, and certainly the stockbroker world, were very much like that,” he recalls. “I was used to family, I was used to teamwork, and I need that. I needed camaraderie.”
So, he joined a training program at what was then Citizens & Southern National Bank, once the largest bank in the southeastern U.S., now part of Bank of America, before moving to Griffin, Ga., in 1987. “I went to work for a community bank, kind of by accident, and found the job love of my life,” he says. “I got a job with First National Bank of Griffin, and I’ve been a community banker ever since.”
That love of community has defined his career. “One thing about community banking that I love is we get paid to be active in the community; that’s part of what we do,” he explains. “We’re committed to the community, not just from the standpoint of its financial health, but community banks, especially in small towns, are really their financial centers. They’re where everybody gathers, where people come in the morning.
“I like that, and I like the idea of being able to be active in the chamber and active on the local boards. This was a job that not only allowed me to do that but encouraged me to do it.”
Williams has a passion for relationship building, whether it’s sitting on the boards of local museums or fundraising for Relay for Life, and he admits he’s always the first person to stand up and take on those roles as a way of getting to know the neighborhood he’s working in.
Derek Williams and fellow Georgia community bankers at the 2013 ICBA Washington Policy Summit, now the Capital Summit. Photo by Stephen Gosling
A rapid ascent
Williams set himself a goal of becoming CEO of a bank by the age of 40. He achieved it at 34 years old at First Peoples Bank in Pine Mountain, Ga., where he stayed for 15 years, from 1998 to 2013. During that time, he took the community bank through the Great Recession of 2008–09.
“That’s when the bottom fell out, and Georgia was markedly hit,” he reflects on the tumultuous period. “We lost 90-plus banks to failure in between 2008 and 2013. So, it was a very, very difficult time.”
Williams with Tori Kala, Century Bank & Trust’s assistant vice president, loans; and teller Filicia Mohammed.
What drives Williams—and what got him through that time—is “an absolute belief in and a love for the model of community banking.” As chairman of the Community Bankers Association of Georgia during that recession, he would remind others of the importance of their roles.
“I told them, ‘Guys, what we do matters, what we do works and the model works,’” he recalls. “‘And yes, we’re having some exceptionally tough economic times right now, but there’s always going to be a place for local banks to take deposits from people they know, live with and work with, people they understand, and loan that money to people that they know and understand—local community.’”
It’s a belief he still holds. “There’s always going to be place for it, no matter how big the big banks get, no matter how automated they get, no matter how much things change. There’s always going to be a place for that model.”
We use the word ‘family’ a lot. We’re serious about it at Century. We believe in it. We believe in each other.” —Derek Williams
Williams believes there is great potential for a resurgence in community banking, thanks to shifting demographics. He describes acquaintances in their twenties and thirties choosing local coffee shops over big names like Starbucks, local hardware stores over Lowe’s or Home Depot—so why not, he suggests, choose a community bank over a national bank?
Williams with head teller Connie Davis (left) and senior customer service representative Jennifer Tarver
He recalls serving on FDIC’s Community Bank Advisory Committee years ago and being introduced to a group of millennials who worked there. All but one of them had the same checking account they had opened in high school. When asked what they wanted from a bank, they told him, “If you’ll give us the technology, if you’ll give us the ability to bank on our phones … but assure us that Ms. Sally who we used to talk to at the bank is still there if we need to talk to somebody, then you’ve got us for life.”
This approach is key to Century Bank & Trust’s success. “If we can get them in the door, we can keep them,” he says, “because we can blow them away with the service that we provide.”
And that means putting ethics front and center. “We use the word ‘family’ a lot. We’re serious about it at Century. We believe in it. We believe in each other,” he says. “I had an HR attorney tell me one time, ‘Derek, I want you to remember something. Just because something is legal, doesn’t mean it’s right or ethical.’ So, I always think about that. When we have situations, I know [my team is] going to respond with what’s best for the people who work at the bank and what’s best for our customers.”
Community banks have a great reputation with legislators and regulators because of our track record of safe and sound performance and our support of consumers and small businesses.” —Derek Williams
It’s his confidence in Century’s culture and in his team that has allowed him the freedom to work closely with ICBA. As CEO, he says, his job is “to create a culture and to encourage and to motivate and to live at the 30,000-foot level, trying to make sure that everybody else has an opportunity to do their job as effectively as possible.”
Keeping the flame burning
Williams foresees a challenging year ahead, with issues from inflation and interest rates to the ripple effects of the pandemic, but he plans to spend his year as chairman lending support to ICBA president Rebeca Romero Rainey and her team, as well as reminding bankers that the community banking model works and to take pride in what they do every day.
He believes ICBA’s advocacy work in Washington D.C., is critical to shaping the industry and affects all community bankers in profound ways. “Community banks,” says Williams, “have a great reputation with legislators and regulators because of our track record of safe and sound performance and our support of consumers and small businesses. We just want that track record to be acknowledged and considered so that regulations can be tiered to fit the risk profile of the institutions.”
He believes passionately in the ThinkTECH Accelerator, saying it’s at the forefront of bringing technology to community banks and is making it possible for those millennials he met, plus the Gen Zers coming up behind them, to bank locally.
“There are some brilliant, brilliant people who are doing some really cool things with not only advocacy on the hill but from an education standpoint and also from an innovation standpoint,” Williams says. “ICBA is cutting edge on that. They’re working with technology firms to come in and not try to take our business away from us but help us do it better and more efficiently. Community banks can now provide technology that’s just as slick, mobile apps and all the technology that the big banks have, but we back it up with personal service.”
Williams during a Community Banker Association of Georgia meeting held at the U.S. Capitol. Photo by Stephen Gosling
Williams filming a video to be shown at ICBA LIVE 2023
March will be a busy month. Century Bank is celebrating 125 years in business, and he kicks off his term as chairman with a speech in front of a large crowd of bankers at ICBA LIVE in Honolulu.
But that’s not fazing him in the slightest. He recalls a conversation with Aleis Stokes, ICBA’s senior vice president of communications, at last year’s convention, when she warned him that she would need the first draft of his speech by November.
He laughs, “I said, ‘Aleis, that speech has been written for 10 years! This is something I’ve always wanted to do.’”
So, while community banking may not be in Derek Williams’ blood, it’s clearly a job he was born to do.
Family first—always
Derek Williams and his family at his daughter Betsy’s wedding in 2022. Photo by Justen Clay
Derek Williams has many strings to his bow, but ask him how he likes to spend his time most, and the answer is simple: with his family. He and his wife, Karen, just celebrated 37 years of marriage, and she has stayed by his side as he built his career, a fact he is keen to acknowledge, given the frequency of their moves from bank to bank as he advanced his career.
“Her dad is a retired lieutenant colonel in the army, and she still jokes that I moved her around more than he did,” he laughs. “That’s pretty bad!” The couple have three daughters and spend as much time as they can with them, whether it’s boating near their home on Lake Sinclair or playing with their three granddaughters.
Century Bank & Trust turns 125
Century Bank & Trust originally opened as Merchants and Farmers Bank on March 1, 1898, in Milledgeville, Ga. In 1993, it rebranded to reflect its evolving role in the financial services industry. Today, the $365 million-asset community bank has two branch offices in Milledgeville, plus a loan production office in Greensboro and a diverse team that reflects its community.
Community service is as much a pillar of the community bank as it has always been. In October 2021, the bank raised more than $13,000 for the American Cancer Society’s Relay for Life, and in March 2022, the bank made a $10,000 donation to John Milledge Academy to help provide scholarships for K–12 education in the local community. On March 1, 2023, it celebrates 125 years in business, with Derek Williams at its helm for the last eight.
