Showing posts with label American Banker. Show all posts
Showing posts with label American Banker. Show all posts

Thursday, February 25, 2021

Banks Redouble Efforts to Aid Black-owned Businesses. By John Reosti, The American Banker Newspaper. February 24, 2021.

Banks of all sizes are continuing to direct funds to minority-owned businesses months after the social unrest that followed last year’s death of George Floyd.

JPMorgan Chase just announced plans to invest $40 million in four Black-run banks. Ally Financial, Banner, Citigroup, Texas Capital Bancshares and First Republic Bank joined JPMorgan in providing capital to help fund Broadway Financial’s pending acquisition of the $435.4 million-asset CFBanc in Washington.

Four community banks — First National in Strasburg, Va.; Fauquier Bancorp in Warrenton, Va.; Eagle Financial Services in Berryville, Va.; and Potomac Bancshares in Charles Town, W.Va. — recently created a $1 million fund to provide loans to Black-owned businesses and farms in their markets.

The latest efforts show that the banking industry is still evaluating ways to help underserved markets.

“There’s no doubt we needed to do an assessment on what more we could do as a firm,” said Brian Lamb, global head of diversity and inclusion at the $3.4 trillion-asset JPMorgan. “I think we took the opportunity in the summer of 2020 to really do that assessment internally.”

Though JPMorgan declined to disclose how much it invested in the Black-run banks, the $686 million-asset Carver Bancorp in New York said it received $6 million and the $765 million-asset Liberty Financial in New Orleans brough in $10 million.

The $481.6 million-asset Broadway in Los Angeles disclosed that it will receive $20.2 million from a group of investors that includes six banks after completing its purchase of CFBanc in Washington. The Los Angeles company raised $12.7 million in November after Bank of America, Wells Fargo and Cedars-Sinai Medical Center made an investment.

The $309 million-asset M&F Bancorp in Durham, N.C., did not disclose the size of the investment made by JPMorgan Chase.

Bank of America invested $950,000 in Carver in October.

The equity injections may signal an “inflection point” for underserved markets, Carver CEO Michael Pugh said in a Tuesday press release. “Public and private firms are recognizing the importance of investing in communities of color and institutions that support economic empowerment.”

Smaller banks are finding their own ways to support minority communities.

Discussions among the Virginia and West Virginia banks that led to the creation of the Banking on Diversity Minority Business Fund began about two years ago, spurred by a task force the Virginia Bankers Association created to focus on financial inclusion and diversity, said Scott Harvard, CEO of the $951 million-asset First National.

“We were missing out on a really broad, diverse population, so we started talking about what we could do to bridge that gap,” Harvard said. “The events this summer clearly put a spotlight on things. It got everyone’s attention.”

First National, the $867 million-asset Fauquier, the $1.1 billion-asset Eagle and the $621 million-asset Potomac will use the fund to make interest-free loans to minority-owned enterprises.

“Initially, we talked about a grant program, but we figured we could leverage more money with a loan fund,” Harvard said. Loans also provide a surer foundation for building long-term relationship with minority businesses, he added.

The fund “stands out,” said William Michael Cunningham, the CEO of Creative Investment Research in Washington and an economist who has studied Black-owned banks for three decades. “I think it’s exactly the type of thing we need to see.”

The big banks that have invested in the Black banking sector might have produced more far-reaching results if they had acted in concert, though "it’s hard to question their intentions,” Cunningham said.

JPMorgan, for its part, plans to be a passive investor in the Black-run banks whose shares it has purchased.

“In terms of governance, our intent is much more about capacity building and end-to-end solutions for minority depository institutions,” Lamb said. “It’s a lot less focused on governance.”

The goal ultimately is to give Black-run banks enough tools to serve as long-term, durable financial partners in minority neighborhoods.

“We know there’s been a contraction in this space for the past two decades,” Lamb said. “When these institutions are active in their local communities, those communities have a better chance of growing and thriving.”

Thursday, June 25, 2020

Is capital haul too much of a good thing for Black-run banks? By John Reosti, American Banker Newspaper, June 24, 2020

An effort encouraging investors to buy stock in Black-run banks could create new challenges for
the leaders of those companies.

The Buying Black movement, which took root last week, led to sharp increases in the shares of
companies such as Broadway Financial in Los Angeles, Carver Bancorp in New York and M&F
Bancorp in Durham, N.C.

An influx of new investors could increase pressure to improve shareholder returns, while any
strategic effort designed to generate higher profits could also draw a backlash. At the same time,
markets are fickle — most shares in Black-run banks have fallen significantly in recent days as
some existing shareholders cashed out.

Indeed, Broadway's biggest investor — who had been pushing for the company's sale —
abruptly sold all of its stock after the value of its holdings soared.

Leaders of Black-run banks contend that what they need more than capital is more partnerships
with bigger banks to extend their reach to underserved customers.

Broadway has faced all of those challenges since Capital Corps bought a nearly 10% stake from
the Treasury Department in May 2019.

Capital Corps, a mortgage lender founded by former Banc of California CEO Steven Sugarman,
briefly mounted a proxy challenge after offering to buy Broadway. Sugarman claimed that the
$504 million-asset company had strayed from its mission of lending to minority communities.
After facing stiff resistance from Broadway’s management and board, Sugarman opted to sell
the shares. Capital Corps liquidated its stock at roughly $2.62 a share, or nearly double what it
paid the Treasury.

The saga at Broadway serves to illustrate why minority-run banks are often reluctant to court
new investors.

Black-run banks “like the status quo,” said William Michael Cunningham, CEO of Creative
Investment Research in Washington and a longtime proponent of Black-owned banks.
“They don’t necessarily want a lot of attention, and they’re super-conservative, in part because
they don’t have a sufficient asset base" to grow aggressively, Cunningham added. "They really
have to guard every penny.” (As the links below show, we forecast the decline in Black Banks.)

See: Crisis - The Current State of Black Banking. By: Creative Investment Research, Inc. June 14, 2011. 

The Current State of Black Banking. Aug. 12, 2016 

William Michael Cunningham announces support for USBC/Liberty Bank #BankBlack Credit Card. Jan. 23, 2017

See our Black Bank Survey.

 For a list of Black banks, see:

Instead, Black-run banks are eager to strike partnerships to access more customers, said Kenneth Kelly, CEO of First Independence Bank, a $265 million-asset Black-owned bank in Detroit. The bank's $102 million portfolio is split between commercial real estate and one- to four-family mortgages.

Establishing partnerships between African American banks and larger institutions has been a
priority for the Treasury Department. It established a mentor-protégé program that has helped
several Black-owned banks, including First Independence and the $108 million-asset Unity
National Bank in Houston, gain a share of fee income tied to processing financial transactions.
“We’re open to partnerships with larger banks that could allow us to deliver” more retail products,
Kelly said. “But that’s not where our business model is right now.”

Broadway, like First Independence, is limited by its lack of scale.

Balance sheet constraints, exacerbated by rising home prices around Los Angeles, have
influenced Broadway's business model. The company focuses more on lending to multifamily
developers than residential mortgages, said CEO Wayne-Kent Bradshaw.

More than three-fourths of Broadway’s $430 million loan portfolio was concentrated in
multifamily lending at March 31, according to the Federal Deposit Insurance Corp. Mortgages
made up less than 15% of total loans.

“Working poor people don’t have the opportunity to buy houses,” Bradshaw said in response to
Sugarman’s criticism.

Funding five- to 25-unit apartment buildings in minority communities “is damn near God’s work,”
Bradshaw added. “We’re very committed to the low- and middle-income community.”

Previous efforts designed to help Black-owned banks have delivered fleeting benefits.

The 2016 Black Money Matters movement, led by the rapper Michael Render, led to an initial
uptick in deposits. The lift was short-lived; deposits at Black-owned banks have fallen steadily in
recent years, according to FDIC data.

Total assets held by Black-owned banks have fallen by nearly 30% since peaking at $6.8 billion in

Capital Corps said in a letter included with Tuesday’s regulatory filing that it had offered to
provide Broadway with “at least $1 million in pro bono services and technical assistance” to help
the bank make more mortgage, consumer and small-business loans.

While he did not address Sugarman's offer, Bradshaw said he "was very glad" Capital Corps
cashed out. “They bought at a discount and sold for quite a premium.”

Shares of Black-owned banks are typically thinly traded and subject to wild fluctuations. While
they can shoot up quickly with an influx of investors, they can also plummet if shareholders like
Capital Corps decide to sell.

Carver’s stock, which rose sixfold last week to reach $12.20 a share on Friday, is down 28% this
week, ending Tuesday at $8.78 a share. While M&F’s shares increased by 57% last week, ending
Friday at $5.10, they closed at $3.50 on Tuesday.

Broadway’s stock got as high as $7.23 a share on Friday. It ended Tuesday at $2.56.
To be sure, some stocks have continued to rise, including IBW Financial, the parent of Industrial
Bank in Washington, which is up 9.3% this week after rising by 35% a week earlier. Shares of
Harbor Bankshares in Baltimore have quadrupled since June 12, closing at $2 a share on Tuesday.
Lenders need reliable long-term investment, said Kelly, who chairs the National Bankers
Association, the trade group representing African American banks.

“We really don’t need episodic support as much as we need systemic support,” Kelly said.
“I hope what we’re seeing in the high level of interest is something that is sustainable and is
systemic moving forward," he added. "We do serve a unique population, and it should be part of
the American Dream.”

John Reosti, Reporter, American Banker Newspaper.

Monday, June 9, 2014