Community Lending

Reduced BEA awards still reaching some high flyers
By Martha Bridegam

The first Bank Enterprise Awards (BEA) since a major rule change are smaller on average and in total volume than before, but larger banks were not all squeezed out, as some in the industry had feared (see Affordable Housing Finance, October 2003, page 23). In fact, Bank of America got $2.1 million.

Administered by the Treasury Department’s Community Development Financial Institutions (CDFI) Fund, the BEA program, under the new rules, makes grants to banks at rates of 3% to 18% for putting money into CDFI institutions that serve disadvantaged areas or for increasing their own services in such areas.

The new rules say banks may earn awards by helping small “CDFI partner” institutions that have $25 million or less in assets, or $500 million in the case of CDFI banks. Larger CDFIs can qualify as “CDFI partners” only if they promise to serve “hot zones” of concentrated poverty.

BEA program director Margaret Nilson said, “Bank of America didn’t do anything significantly different from what they’ve done in the past.” She said the bank had always worked with a variety of CDFIs, including midsize and small institutions, and “they are an example of how we want to see the large banks use the BEA program.”

Nilson said the October 2003 awardees included five large CDFIs, among them ShoreBank, which has more than $1 billion in assets. “All they had to do was designate a hot zone,” she added. ShoreBank received $4.4 million in deposits from seven other Illinois banks that earned $264,000 in BEA awards.

Bankers and industry representatives said the new rules nevertheless discouraged institutions that cannot spare time to search for ways to qualify or are unwilling to shift programs into hot zones.

The 2003 BEA awards gave $13.9 million to 75 banks based on $14.3 million of applications for $17 million available, compared with 2002 grants of $23 million to 81 banks, and 2001 grants of $46 million to 139 banks. The CDFI Fund’s parallel Financial Assistance program, which helps CDFIs directly, awarded almost $23 million in October 2003.

The Financial Assistance program is the largest part of the former CDFI “Core and Intermediary Component,” which in 2002 awarded $41.5 million.

Judy Kennedy of the National Association of Affordable Housing Lenders provided an analysis showing drops in BEA-awarded and Core/Intermediary support for low-income areas. She wrote: “Under-served areas are being starved by the new rules under which the Fund is now awarding grants.”

John Taylor, president of the National Community Reinvestment Coalition and a member of the BEA advisory board, had supported the rule changes in early 2003. However, he has commented that he still has not seen proof that the awards were truly “expanding the banks’ ability to do more” lending and investment in low- and moderate-income areas.

While BEA requires increased effort in particular areas, he said the banks might not necessarily increase their total service to under-served populations.

Nilson said, “Our intention was not to discourage applicants. Our intention was to more evenly allocate award dollars.” She said the Fund wanted to stop turning away banks applying in the financing and services categories based on direct community service, which by statute get low priority.

Nilson acknowledged that 2002 demand for BEA awards was higher – at about a 2-to-1 ratio – but said the October 2003 awards reflected “kind of an artificial undersubscription” because of a transition to a new application calendar.

The BEA program rewards past activities in specified assessment periods that are now changing from six to 12 months. Banks were invited to apply either in July 2003 based on the first six months of 2003, or by Feb. 25, 2004, based on all of 2003. The October awards reflect only July applications.

February round expected to
leave nothing on the table

Nilson said she was confident that the February round would allocate all available BEA money – that is, the leftover $3.1 million from October, plus an amount projected to be $8 million that was still undetermined pending Congressional action.

Abbie McBride, development director with the Low-Income Investment Fund (LIIF), said the October awardees included “a lot of people I’d never heard of.” Among usual applicants, she said, “It’s hard to say how many people were just holding off [until February] and how many were just saying ‘we’re not going to qualify.’”

Although LIIF is a large CDFI, McBride said it qualified as “integrally involved” in a “distressed community” because of one large grant in a qualifying area. It received a $1.3 million Financial Assistance award for affordable housing work partly in hot zones,” and McBride expected that three banks would apply for awards in February naming LIIF as a CDFI partner.

Jeannine Jacokes, senior advisor to the Community Development Bankers’ Association (CDBA), which generally represents smaller institutions, said most members who applied were pleased with the results, but those with a “deposit-raising strategy” were not so happy.

The new rules slashed rewards to banks for placing three-year deposits in other banks. The award rate is now 6%, and CDFI banks may not get awards by depositing in other CDFI banks. Previously, conventional banks got 11% and CDFI banks got 33%.

Nilson said the Fund blocked CDFI-to-CDFI deposits because of “some deposit-swapping,” which CDFI spokesman William Luecht Jr. wrote was “contrary to” the goal of “encouraging traditional banks to support CDFIs.”

As one example among many, 2001 awardee profiles show the Louisville Community Development Bank received 26 deposits that brought 11% or 33% awards to other banks, and it in turn made $100,000 deposits in 20 CDFI banks, receiving $660,000 in 33% awards. At least 10 banks both placed award-earning deposits in the Louisville bank and received award-earning deposits from it.

The bank’s marketing director, Gary Gambrell, said “When we did it, it surely wasn’t reciprocal. We never discussed it in those terms.” He said each deposit received due diligence consideration, and the bank’s president, in approving a deposit in another bank, never knew if it was among his own depositors. There were “two separate departments handling things,” Gambrell said.

But Gambrell adjusted to the new rules and became the most successful 2003 deposit raiser, with 28 BEA-awarded deposits from small non-CDFI banks. The October awards ceremony was held in Louisville to mark the accomplishment. ••

Affordable Housing Finance • January 2004