New Jersey Banks Find Community Development Is ‘Good Business’
First of two parts
By Jennifer Jope
The Community Reinvestment Act is a fact of life for all financial institutions that receive deposits. For many banks, fulfilling the requirement is embedded in the institution’s mission, and most New Jersey banks are finding new and innovative ways to give back to the communities they serve.
Woodbury-based The Bank, which recently scored an “outstanding” CRA rating, views community reinvestment as both a requirement and as a way to stay involved in the community.
“We do think it’s something we should do as a good corporate citizen,” said David Hanrahan, executive vice president of The Bank. “We also think its good business.”
By reaching out to the community, Hanrahan said the bank is able to learn about community needs.
“Working with community groups enables us to keep a finger on the pulse of what the needs are in the community,” said Hanrahan.
Enacted by Congress in 1977, the Community Reinvestment Act was and is meant to encourage depository institutions to help meet the credit needs of the communities in which they operate, according to the Federal Financial Institutions Examinations Council Web site. Community agencies benefit because the bank acts as a bridge between nonprofit companies and funding opportunities they might not otherwise know about.
“Business owners or nonprofits don’t know of all the [available] programs,” Hanrahan said, adding, “The Bank is able to connect borrowers with the best government programs, such as affordable housing financing through the Federal Home Loan Bank of New York, which serves the financial needs of housing and community development lenders in New York, New Jersey, Puerto Rico and the U.S. Virgin Islands.
“It’s also important for us to know what government programs are available to help us meet the needs,” Hanrahan said.
The Bank was recently involved in a senior housing project in West Deptford, which was sponsored through the Federal Home Loan Bank of New York.
Old Bridge-based Amboy National Bank also works with the Federal Home Loan Bank of New York. A recent example involves the Crawford House in Skillman which was expanded and intended for homeless women recovering from substance abuse. Vice President Kenneth Greco said the bank monitored the subsidy from the FHLBNY to ensure the project was in compliance with the way the project was approved.
The Bank participated with the New Jersey Economic Development Authority to finance a project for a 25-year-old engineering and consulting business. Financing was made available through the EDA, The Bank and the borough of Glassboro to purchase and renovate an 8,500-square-foot building originally built in the mid-1920s and used by the First National Bank of Glassboro. The EDA provided a $175,000 loan for the $760,000 project. The Bank and the city provided the rest.
FINDING A NICHE
Valley National Bank in Wayne doesn’t make specific commitments to local communities, but does strive to create internal benchmarks, such as $30 million in community development loans annually. Finding its niche with community reinvestment has been important to the bank.
“Valley flies under the level that very large banks shoot for,” said Stephen Davey, senior vice president and CRA officer.
The bank targets projects that range between $2 million and $15 million with housing units of between 10 and 50. Unlike some banks which focus on unique opportunities, Davey said it is important for Valley to find credit-worthy deals with established nonprofits.
“We don’t do unique deals and we don’t break new ground,” Davey said.
The bank recently provided a $2 million construction loan to a borrower in Newark. The property, along Springfield Avenue, was gutted and made into four retail units which included a Chinese restaurant and cleaners. This project was also part of a federally designated urban enterprise zone. Newark, once a riskier area to do business, has improved, said Davey.
“Newark has followed the trends and demand for real estate,” Davey said.
Wachovia Bank has also invested in the Newark area in what it considers one of its most unique CRA projects. La Casa de Don Pedro, a community-based development corporation, and Wachovia have collaborated since the late 1980s to rebuild the infrastructure of Newark. For example, when La Casa developed Mt. Prospect Avenue Condos, an affordable housing project in 1992, Wachovia provided the financing to build the homes and first mortgages with 5 percent down payments and no private mortgage insurance requirements to the new homeowners.
The long-time relationship between the two organizations is reciprocal. Ray Ocasio, executive director of La Casa, serves on Wachovia's Community Development Advisory Council, providing advice and expertise on community reinvestment and fair lending practices.
Newark-based bcpbank focuses much of its community development efforts on both helping and bringing together the Portuguese and Brazilian populations, according to bank CFO Luis Folhadela. Through an internal movement called WE CARE, the bank recently raised $23,000 for an orphanage in Portugal. The bank also participated in a Portuguese-channel telethon rallying viewers from Florida to Maine to raise more than $110,000 for the Red Cross to help victims of last year’s Southeast Asia tsunami.
“The Red Cross was blown away with what we were able to achieve in two-and-a-half hours of live broadcast,” said Folhadela.
EMPLOYEES GET INVOLVED
In addition to its humanitarian efforts, bcpbank and its staff have been involved in more than 132 local community and contributions events in the last two years.
Aside from projects, Valley bank employees are expected to be involved in the community.
“Valley is a super community bank,” said Michael Fields, vice president at Valley. “We actively encourage our employees to get involved in local communities.”
Putting bank employees out there is another way to highlight the bank in the community. For instance, in Passaic, a Valley branch manager is involved in an enterprise zone association. By having a presence there, the bank has found out about other deals in the area.
RURAL DOWNTOWNS MATTER
For a smaller institution, like SussexBank with $275 million in assets, contributing to downtown revitalization is just as important.
Approximately five years ago, SussexBank provided the seed money to the Franklin Business Redevelopment Corp., a nonprofit organization dedicated to the revitalization of the downtown business district, said Donald L. Kovach, chairman and CEO of SussexBancorp.
In addition to seed money, the bank also made its meeting facilities available to the group as it began to organize. The association with the Franklin Business Redevelopment Corp. led to the bank becoming involved in the financing of a developer who had plans to build low- to moderate-income, senior citizen housing on a 2.2 acre piece of property located in a community redevelopment zone that formerly was the mine and milling site of the New Jersey Zinc Co.
When the original developer defaulted on the loan, the bank was forced to foreclose on the property. But, more recently, the bank made contact – through the Episcopal Diocese of Newark – with another interested developer that subsequently purchased the property. Today, Kovach said, the developer is moving forward on plans to build 94 housing units for low- to moderate-income residents.
“This initiative also provides a residual benefit to the Franklin Mineral Museum, which is dedicated to preserving the rich mining history of the region,” Kovach said. “Specifically, the developer has agreed to remove and donate all significant mineral deposits to the museum as the site is prepared for the new housing structures.”
Grand-scale community development
Some larger banks, like Merrill Lynch, have formed community development corporations in order to handle reinvestment goals for the bank. Founded in 2001, the Merrill Lynch Community Development Co. is led by Terri Ludwig, president of MLCDC. The for-profit CDC is a subsidiary of Merrill Lynch Bank USA. Unlike some banks that work directly with a community organization, the Merrill Lynch CDC works through intermediaries.
“We lend and invest through intermediaries,” said Jill Edwards, vice president at MLCDC. “We invest through a fund … [they] invest our money on our behalf.”
An example of this is Merrill Lynch’s $500,000 investment in the New Jersey Technology Council’s Venture Capital Fund, a $90 million small business investment company organized by the New Jersey Technology Council to provide seed and capital growth to New Jersey-based companies. The council is a private, nonprofit networking organization. The fund focuses on technology companies, primarily in the software, telecommunications and health care industries.
MLCDC also invested $5 million in the New Jersey Housing Opportunity Fund III, a $20 million tax credit equity fund managed by Garden State Affordable Housing, an affiliate of New Community Corp. The fund has invested in four socially oriented, inner-city properties developed by nonprofit developers in the area.
Ujima Village in Ewing is one example of the properties developed by the fund. According to MLCDC, the $8 million first phase of the project provides 52 units of low- and moderate-income senior and disabled housing and houses a state-of-the-art community center.
“We try to pick projects that will impact our policy areas,” Edwards said.
In the second and final installment, banks partner with community development organizations and take advantage of a variety of tax credit programs.
Jennifer Jope is a reporter for Banker & Tradesman, a Boston-based business newpaper.