Like many black communities, Portland’s Albina was the place where the rest of the city originally forced its black residents to live, using a variety of segregation methods. Like many black communities, deprived of capital because of redlining, Albina’s built environment suffered from disrepair, eventually giving planners an excuse to ram highways through it and clear out a massive swath of the area to make way for a medical campus. Like many black communities, Albina managed to create a bank for itself, a bank that very nearly didn’t make it through the subprime mortgage crisis, Great Recession, and the slow recovery that the neighborhood continues to feel today.
Unlike many historically black communities, Albina’s bank was not shut down by federal regulators or taken over by a big Wall Street bank. Instead, it merged with a rather unusual bank from Oakland, California.
The bank that acquired Albina’s bank is a bank whose founders take zero profits from it. Instead all of the bank’s profits must flow into the charitable foundation that owns it. The foundation’s board members come from community-based organizations working in the low-to-moderate income neighborhoods where the bank does at least 60 percent of its lending every year. The foundation awards the equivalent of 5-10 percent of the bank’s net income every year to support community-based organizations and charitable work in the areas where the bank does business.
Around 250 bank mergers and acquisitions take place every year, according to federal records. This merger took several years to finalize, completed this month, resulting in last week’s signage and branding changes at Albina Community Bank’s five former branches in Portland. As the new signage now indicates, the five former Albina branches are now part of Beneficial State Bank, a regional bank founded in 2007.
The founders of Beneficial State Bank are billionaire couple Kat Taylor and Tom Steyer. They have signed The Giving Pledge, created by Warren Buffet and Bill and Melinda Gates, which asks wealthy people to give at least half of their net worth to charity. Rather than just pledging to donate all their money to various charities or causes (which they are also doing), the couple is also actively using their wealth to build a new kind of bank as an example to others—other bankers, regulators, and most importantly other potential bank investors—of what a bank can be and how one can operate. The couple’s charitable contributions to Beneficial State Foundation, which are tax deductible, are used to finance the growth of Beneficial State Bank, which has acquired four other banks in its relatively short life, including the former Albina Community Bank.
In a time when gentrification is gaining recognition as being about more than just housing, a bank created by a white couple acquiring a bank with a history of serving a black community is a sensitive topic, especially a bank with a history like Albina’s. But the alternatives were being shut down by regulators or taking money from investors who might erase the bank’s history and accountability to its community.
Albina Community Bank was created in December 1995, with initial financing from local investors and a settlement payment from the local energy utility. It was one of the early beneficiaries of the U.S. Treasury’s Community Development Financial Institutions Fund, which provided the bank a $400,000 grant in 1997, providing a early infusion of capital that allowed the young bank bank to mobilize up to $4 million in deposits as loans to the Albina area of Portland. Since then, the fund has awarded the bank more than $8 million in grants and awards, as well as $3.9 million in tax credits to support economic development in low-income communities.
Like many small banks, Albina Community Bank found itself in a tight spot after the subprime mortgage crisis. In response to the crisis, federal regulators required banks, from the very biggest to the very tiniest, to raise additional capital from investors to hold in their coffers as a buffer in case of future crises or recessions. Regulators required banks to raise even more of capital if they lent in neighborhoods considered risky, such as low-to-moderate income communities. The countdown clock had started for many community banks.
Many didn’t make it, especially if they focused on black communities. Before the recession, there were around 40 black-owned banks in the United States. Today, largely because of those capital requirements, there are less than 20.
Albina Community Bank, in its search for investor capital, got an introduction to Beneficial State, whose founders recognize a need for growth — not excessive, endless growth, but some growth to be sure.
“We knew to change the banking system for good, it was gonna require scale,” says Taylor. “Not scale enough to take over the banking system, because it’s massive, but enough scale to have influence over larger regional banks to suggest to them that if they act more like us, they’ll win deposits, they’ll win [investor dollars], they’ll win human talent—all of which is crucial to them.”
Like Albina Community Bank, Beneficial State Bank is another federally certified community development financial institution, gaining it access to the same U.S. Treasury fund to support access to capital and financial services in low-to-moderate income areas. Like Albina Community Bank, Beneficial State Bank is another Certified B Corporation, meaning it was one of 2,400 businesses whose bylaws commit it to voluntary annual external reporting on a wide range of social impact metrics.
Beneficial State Bank’s unusual ownership structure, combined with its track record, helped convince Albina Community Bank’s former board of directors that merging with them was an ideal way to preserve their bank’s mission and legacy while satisfying their regulatory requirements and keeping their five former Albina branches open. It took almost a year of courtship between the two boards of directors. As an additional measure to protect the former bank’s community mission, three Albina board members agreed to join Beneficial State Bank’s board (though one had to drop off after being appointed a judge).
“They wanted us to believe in them and we wanted them to believe in us,” says Taylor.
As reported on its website, at least three quarters of the Beneficial State Bank’s business and nonprofit lending goes to “mission-aligned” uses, like environmental sustainability or affordable housing, and the rest to uses that do not contradict the bank’s mission and values, as determined by its board of directors and defined on its website. The bank monitors how much lending goes to organizations or people in low-to-moderate income areas, as required by its federal certification as a community development financial institution—out of $215 million in business and nonprofit loans approved in 2017, $149 million was approved to go into low-and-moderate income communities.
The ownership model, with the foundation receiving all the profits not retained by the bank, is essential to maintaining that track record as the bank grows. At least one other bank, City First Bank in Washington D.C., has an ownership model with a charitable foundation at the top. New York City-based Amalgamated Bank, which recently acquired a San Francisco-based competitor, has a labor union at the top of its ownership structure.
“There’s no private individual who can take any profit from the bank, and therefore there’s no incentive for a shareholder to say, ‘you must maximize my profits,’” Taylor says.
Banks are likely to continue merging, due to the rise of online banking and other technologies changing the economics of banking, Wall Street demands, or regulatory requirements. It’s been a decades-long trend. In the mid 1980s, there were around 14,000 banks in the United States, while today there are around 5,700. It’s Taylor’s hope that Beneficial State Bank can show how scale and community accountability don’t have to be eternally at odds with each other. The real experiment has only just begun, now that this latest merger has the bank on the precipice of reaching a billion dollars in assets, across three different states.
“That starts getting us somewhere, in terms of bank economics, where scale starts to pay for overhead and also starts to become influential,” says Taylor.
UPDATE: We’ve clarified some of the language around how the bank founders give away their wealth to finance Beneficial State Bank.
Oscar is editor of Next City. Before that, he was a Next City contributing writer and 2015-2016 Equitable Cities Fellow. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.