nothin With Fed OK, START Seeks “Double Bottom Line” | New Haven Independent

With Fed OK, START Seeks Double Bottom Line”

Paul Bass Photo

Branch Manager Lawrence Jeune and START Board Chair Corey Stone at Monday’s announcement.

How many jobs will its loans create? How many new homes? How many people will stop using usurious payday lenders and check-cashing storefronts? When New Haven’s new community development bank opens its doors next month, it plans to start counting.

Creators of the bank — called START — Monday celebrated the news that the Federal Deposit Insurance Corporation (FDIC) has given them the last approval they needed to begin taking deposits and making loans.

The bank, seven years in the making, plans to open to the public the first week of January. Before that it plans a soft opening” for employees and their families. It will have branches at the corner of Whalley and Sherman Avenues and on Grand Avenue in Fair Haven.

With $16.75 million in start-up capital, START will be a small player in a region of megabanks. But it hopes to serve a different and critical mission in recession-plagued New Haven: focusing purely on city-dwellers and looking to build up the city’s wealth, not to position itself to sell out to an out-of-town bank.

President Placke, pictured at right before Monday’s press conference.

We’re not a bunch of financial investors looking for a final payday,” Bank President William Placke said at a press event Monday at the Whalley branch, once the site of the old Connecticut Bank & Trust (and, briefly, the headquarters of the 1989 John Daniels for Mayor campaign).

START bank is a for-profit subsidiary of a not-for-profit called First City Development Corporation (FCDC). It is modeled on community-oriented lenders like Chicago’s ShoreBank (the granddaddy of community banks, which has since run into financial trouble and been acquired by another institution), City First in D.C., and North Milwaukee State Bank.

START emerges from the ashes of New Haven Savings Bank, the beloved former mutual savings bank that was taken public and became NewAlliance in 2004. As part of its approval to go public, NewAlliance had to set aside $25 million to create FCDC; the $16.75 million to start START comes out of that fund.

The concept is to fill in the local lending gaps left behind when local banks — like NewAlliance, now in the process of being taken over by Buffalo-based First Niagara — become regional banks.

Placke said that the bank, like other community-development lenders, will pursue a double bottom line.” One bottom line: the traditional dollars you earn in profit, to expand services. The second bottom line: positive impacts on New Haven.”

Those impacts” are threefold. Placke said that in judging its success the bank will keep track of the number of jobs created by its loans to small business; the number of housing units its residential loans create; and the number of people it can lure from relying on costly check-cashing and payday lending outfits. To the latter end, the bank plans to do a lot of financial literacy” training with people in poor neighborhoods and with school children; it has already been running a program with Hillhouse students.

The bank has not drawn up specific numerical goals for each of those target categories, Placke said.

The bank will have an unpaid board of directors to monitor its progress. The board includes Placke, Mayor John DeStefano, John Devlin of a firm called UHY, LLC; local developer Michael Schaffer, Yale law professor Bob Solomon, Corey Stone (the board chairman, who is a fellow at the Center for Financial Service Innovation), Connecticut Housing Finance Authority CAO Susan Whetstone (who also worked with John DeStefano in New Haven City Hall back in the 1980s), and local attorney Rolan Joni Young.

The bank will employ 22 people at its branches, two or three of them part-time. (Some of them are pictured above at Monday’s event.)

Placke, a former president of Waterbury-based Centerbank, offered a rough estimate of how much the bank will lend in 2011: around $6 million in business loans; $6 million in commercial mortgages; $3 million in residential mortgages; another $3.5 million in categories like home equity lines of credit and personal loans.

Under the 2004 agreement with NewAlliance, START and FCDC have another $6.5 to $7 million coming. That money was supposed to come in batches over the next few years. Placke said Monday he hopes regulators will require NewAlliance to hand over all the money in a lump sum as part of the approval of its pending merger with First Niagara.

In seeking to grow enough to make a bigger impact on the local economy, Placke faces three big challenges coming out of the gate.

One: Convincing people to switch deposits to his bank. The pitch to major institutional depositors (like one beginning with Y”) and other community organizations will be to support a local institution committed to local lending, not a NewAlliance Bank looking to pull up stakes and send profits out of state. John Vuoso of the Whalley Special Services District is pictured at left handing Placke a $5,000 check Monday to open an account for the group.

Challenge two: The recession. As Placke acknowledged, people are hesitant to take risks right now, like starting new businesses or buying homes. In fact, START is one of only three banks nationwide to receive approval to open from federal regulators this year; the number usually tops 100. Placke argued that START can overcome those challenges in part thanks to the pending takeover of Buffalo-based First Niagara’s takeover of NewAlliance. People will be looking for local decision-makers to bring their business to, he predicted. I’m really pleased that the merger is expected to occur while we’re in the process of launching.”

Challenge three: Figuring out how to do right what other community-development banks have done wrong, especially ShoreBank, once a national model, now an historical footnote. Placke said ShoreBank violated some principles of lending” by underwriting too many shaky loans. And it expanded too far from its original geographic mission of serving Chicago’s South Side.

Richard P. Taub, a University of Chicago professor who has written two books about community development banks, noted that all sorts of lenders are facing challenges now, not just lenders like ShoreBank.

The point for these banks is to know their community and to know their borrowers. Looks as if this is the case here,” Taub said of the New Haven experiment. The difficulty is to prove to depositors that they can get good service and they get a strengthening of their community as well. If it feels like a second class outfit, they are headed for trouble.”

Their tagline was: Let’s Change the world.’ How about changing the south side of Chicago?” Placke said of ShoreBank. He said START would keep its focus on the city of New Haven (tagline: On your block. In your corner”) and on keeping a strict, conservative eye on lending standards.

The late Charles Terrell was known for that kind of strictness. He was the CEO who built up New Haven Savings Bank from a sleepy mutual bank to a top local corporate and philanthropic citizen. Mayor John DeStefano (pictured above) invoked Terrell’s memory during remarks at Monday’s event.

He noted that Terrell worked for New Haven Savings his whole life. And he refused to sell the depositor-owned mutual bank to investors or to merge with bigger banks. The bank focused on local home mortgages, small business loans, and teaching kids how to open bank accounts,” just as START Bank now promises to.

DeStefano also noted that after Terrell died in 2000, it took only two years for his bank’s directors to start negotiating to go public and create the regional NewAlliance Bank. DeStefano at the time led the fight against the deal and ended up negotiating the deal with state regulators to provide the money for START.

They [NewAlliance’s directors] dramatically enriched themselves. They’re now trying to sell the bank [again] because they didn’t make enough money the first time,” he said.

He said he hopes this bank [START] can demonstrate the character of a guy like Charlie … Charlie never made $30 million a year. But he was a rich guy.”

I can make this promise,” Placke said later. Our team will make every effort to fill those shoes.”

Evelyn Streater Frizzle of the Beaver Hill Management Team took a turn at Monday’s event welcoming the new neighborhood bank.

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