Old-school banker takes on grass-roots challenge
In 2003 a plan by new management to take the then-mutual New Haven Savings Bank public - the entity that would become NewAlliance Bank - sparked considerable controversy and opposition. Many community groups as well as New Haven Mayor John DeStefano Jr. eventually agreed to drop their opposition in return for an agreement to create a "Community Development Bank" with at least $25 million of capital coming from proceeds of the public stock offering through the Placke plans that the bank will open two branches next spring.How did you get first tapped for this position?
John Carusone [of the Hartford-based Bank Analysis Center] was engaged in helping write the business plan. When Chandler [Howard] left, [Carusone] said, 'There's an opportunity here.' I jumped on, because I love the idea of coming back here.
How will the bank be capitalized?
As a result of the [opposition to the public stock offering that created NewAlliance] the bank agreed to set aside $25 million. An organization name First City Fund Corp. was formed. It's into that organization that the funds from the NewAlliance Foundation have flowed. At the moment we have approximately $17 million, they owe us another $8 million, which will be spread out depending on the value of NewAlliance [shares].
So if their stock goes up you'll get more?
Yes, if at the calculation date [the stock price meets or exceeds a predetermined value].
What's First City?
FCFC was chartered in 2004. Its primary mission is to get the bank opened. It's a 'community development bank,' but it has a broad mission in engaging in economic development. The money is primarily for the bank, but its charter and bylaws call for other activity for the economic benefit of New Haven in general. There are two activities that FCFC has funded: The creation of the so-called resident ID card was funded in part, and the ROOF Project (Real Options to Overcome Foreclosure) a foreclosure-mitigation project. Those kinds of activities the FCFC [can] engage in, but the principal focus is getting the bank up and running.
Well, $25 million for a start-up bank is pretty good. Are you getting any other funds?
We're expecting to see a grant for $2 million from Yale University.
Who are some of the directors?
Part of the agreement [that created the bank] was that certain positions will occupy a board seat - for example, the mayor of New Haven, the president of the Board of Aldermen, the [state] Senate majority leader. A fourth one is a prominent union executive, in our case Andrea van den Heever [president of the Connecticut Center for a New Economy]. There are 11 total board members [of FCFC]. The bank will have eight directors; Michael Schaffer and I are the only ones not on the FCFC board.
You have a temporary charter, what does that mean?
It's a big milestone, because it basically says we're going to be a state-chartered bank, [regulators] are satisfied there is a need - and boy, is there ever - and that the capital sources are adequate and in place. And the business plan is satisfactory.
What exactly is a Community Development Bank?
There are approximately 125 around the country. Often you will find them in large urban areas. Their job is to be a catalyst helping economically stressed areas get better. A catalyst for change. Our primary focus is on serving inner-city residents, under-banked or unbanked individuals. Helping small businesses, especially those that give evidence of job creation and for the development of a larger inventory of affordable housing.
You were a 'community banker' at Centerbank. Don't most bankers feel they have to and in fact are statutorily required to get into the 'community'? What makes the new bank different?
I think it is the more intense focus, compared to [traditional banks]. We were doing community development work at Centerbank, for instance. I'm sure NewAlliance, Webster, People's feel the same way. It's just that this will be a major part of our revenue-generation and focus. Having said this, to be successful as a CD bank you have to see yourself as a provider of traditional services on a broader basis, because the average of everything [deposits, fees, etc.] is smaller. It's very expensive to service someone with a $300 average deposit compared to someone with $5,000. That's where there are no passes from the regulators. You have to be capital-adequate, profitable in a certain period of time.
We have low-cost deposits, much less expensive products than you're reading about with huge overdraft fees, which are not conducive to this mission. We intend to do check cashing, and I'm hoping to replicate some of the services you would find at Western Union.
Isn't there going to be an expectation that will be difficult to meet considering those forces?
As a CDB one wants to be certified as a CDFI - Community Development Financial Institution. There is a CDFI fund from the Treasury. The greater New Haven loan fund is a CDFI; they just don't take deposits. Once you become a CDFI we can gain access to technical grants and bank enterprise awards. It allows you to get an award [grant to support certain loans made in the community].
The technical assistance grants are the ones I have my eye on because it will allow us to obviate some of the costs we will incur in satisfying some of mission.
For example?
We will be doing financial literacy [education to familiarize] people with the language of finance. Helping people understand, for example, what it means when there is a fee for a loan or what it means to the effective interest rate. A bank in West Hartford Center probably wouldn't have that service, and it's expensive [to offer]. We can petition the CDFI to get a grant to take care of some of these costs.
Right now it's difficult for many borrowers to pay, but by definition you're dealing with people who really are on the financial outs.
One of the characteristics of a CDB is that they develop strong partnerships to achieve their missions. This is not that other banks don't use them or have access, for example; the Connecticut Development Authority has Urbank, which helps banks make loans even where there is a gap [in equity required of the borrower].
You have some bricks and mortar here [at 299 Whalley Avenue in New Haven]. When will you begin regular operations?
We are now undergoing a field exam by the FDIC in conjunction with the state. I'm hopeful the recommendation will be made by the end of the year and that we will be able to open by the end of March.
Considering that you are capitalized in the current environment, wouldn't [regulators] want to fast-track this?
As a general proposition they're very supportive. In today's climate where they are simultaneously shutting down a bank every week and finding weaknesses in portfolios of existing banks, their disposition to rush is not there. I'm encouraged by the pace now and confident it won't be rushed and they'll take all due deliberation, evaluating our board, business plan. If it were a year and a half ago, if it had gotten to this point it probably would have gotten open faster.
Well, New Haven and New England generally are not suffering as much as the places that were super fast-growers before.
When you compare the First (Federal Reserve District) to the country as a whole, there are some obvious strengths in the aggregate picture of loans, delinquencies compared to the nation. On the other hand there are some weaknesses developing in the commercial real estate area. One of the reasons that the performance appears better is that the First District has a higher percentage of one- to four-family homes than the rest of the country [with larger residential units].
Arizona and Nevada are growing their populations at over 20 percent per year.
Sometime the tortoise gets there first. The Brookings Institute evaluates the 100 largest regions. New Haven ranked No. 32 in terms of the strongest economy. We've been trying to convey to our federal regulators please don't interpret this as Arizona or Nevada.
In New Haven some of the stressed communities are spread around, how do you service/reach them?
We'll have two branches, the other on Grand Avenue, which is a major change from the original plan, which was for one branch, with a citywide loan office. My view is you can only serve people well in these markets by having a full branch and services.
Many banks work hard to reach and service accounts in the Latino community, but in the end most aren't very effective and don't make any money. What can you do differently?
The Grand Avenue branch will have very much a storefront feel to it. We will quickly form relationships with many centers of influence including clergy, organizations like SOMA [the Spanish-American Merchants Association] including advocates, influencers and people who are really keen on seeing that we succeed. I've been working hard on developing deep relationships. One of the big differences for us is: who you see is what you get. It's me and four or five senior executives; we will be at ground level. For example, we've been invited to any number of church services to speak on Sunday mornings. I can guarantee you the senior people on any bank are not going to go to that level - they do it in a different way.
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