Three banks in three different regions collectively promised nearly $20 billion in home mortgages, small business loans, community development financing, and charitable contributions, as part of negotiations that included hundreds of community-based organizations in each region that were completed over the past month.
The negotiations were enabled by the Community Reinvestment Act (CRA), the 1977 law that says banks have a “continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.” While the law does not require banks to enter into agreements with local organizations, the law does give regulators authority to take such agreements into account as part of meeting that obligation, when considering a bank’s application to open a new branch or to acquire or merge with another bank.
The agreements continue momentum from 2016, a landmark year in which the National Community Reinvestment Coalition (NCRC) and its members negotiated $62.6 billion in community reinvestment agreements with banks. NCRC also facilitated all three of the agreements announced in the past month.
Santander Bank, the Boston-based subsidiary of Spain’s Banco Santander, on Oct. 30 announced an $11 billion, five-year commitment including $9.1 billion in lending to underserved communities across its 10-state footprint in the Northeast. That includes $4.2 billion in home mortgages for low- to moderate-income families, $1.9 billion in small business lending, and $3 billion in community development lending. The bank also promised an additional $1.9 billion in community development investments, $55 million in charitable contributions, 10 new branches in low- to moderate-income communities and communities of color, and 60,000 community development volunteer hours.
Santander failed its most recent CRA examination, prompting it to engage in what turned out to be a 10-month process drafting its new commitment, in partnership with more than 100 community-based organizations, according to NCRC.
“This was a unique opportunity to work with fellow community organizations to determine priority needs and where we want Santander to direct their resources to help address those needs,” Majeedah Rashid, COO of Nicetown Community Development Corporation, said in a statement.
Iberiabank, based in Lafayette, Louisiana, announced a $6.72 billion five-year commitment covering eight Southeastern states. The commitment includes $2 billion in promised mortgage lending for low- to moderate-income families and families of color, $3.2 billion in small business lending, $1.5 billion in community development financing including hurricane recovery, and $20 million in grants and philanthropy. The bank also promises two new branches, one each in a low- to moderate-income community of Atlanta and Miami-Dade.
A regional bank, Iberiabank has been in expansion mode, acquiring two other banks around the region in the past year, giving it incentive to make sure it remains in good CRA standing with bank regulators. Nearly 40 community-based groups spanning eight states signed on to its CRA agreement.
First Financial Bank, a regional bank based in Cincinnati, committed to a $1.75 billion CRA agreement covering the Cincinnati, Columbus, Dayton, Indianapolis, Gary and Louisville markets. That figure includes $510 million in home mortgage lending for low- to moderate-income families, $750 million in small business lending, $450 million in community development financing, and $8.5 million in grants and philanthropy to support unbanked or underbanked individuals. According to the FDIC, around 24.5 million U.S. households, composed of 51.1 million adults and 16.3 million children, were underbanked in 2015.
First Financial Bank merged with the former MainSource Bank this year, giving it incentive to clarify and expand its community reinvestment credentials.
“In this agreement, our communities will realize reinvestment where there has been disinvestment for decades,” Josephine Rogers-Smith at Indianapolis’ Martindale-Brightwood CDC said in a statement. “We should see growth in small business lending, affordable housing, home ownership, and economic and community development.”
One quick way to gauge the depth of any given CRA agreement is to consider the ratio of the agreement size to the bank’s total size. Santander has $79 billion in assets, so its agreement covers 14 percent of those assets; Iberiabank has $27 billion in assets, so its agreement covers 25 percent; First Financial has around $13.4 billion in assets after its recent merger, so its agreement covers around 13 percent of its assets.
Not all agreements cover exactly the same products or services. Iberiabank’s agreement includes a commitment to support community land trusts in the bank’s footprint. First Financial’s agreement includes a commitment to implement a formal supplier diversity program, with a goal of increasing corporate procurement from minority-, women-, or disability-owned businesses to 10 percent of procurement dollars by the time the agreement period ends in 2022.
Federal regulators do not provide any direct support to monitor or enforce CRA agreements. To help monitor and hold banks accountable for the plans, each agreement includes the establishment of an advisory board or council made up largely of representatives from both sides of the negotiation process.
Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.