Originally Posted on St. Louis Business Journal
Enterprise Bank & Trust and a coalition of St. Louis area community groups announced an agreement in 2017 that they hailed as “groundbreaking.”
Thanks to a community benefits agreement they negotiated, Enterprise Bank would direct $30 million annually for mortgages in lower-income areas and $15 million per year for minority borrowers in the St. Louis area. Overall, the coalition, called the St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA), pegged the value of the agreement at $1.8 billion, to be spread across investments in both St. Louis and Kansas City.
Three years later, the pact ended with Clayton-based Enterprise Bank exceeding the parts of the agreement that dealt with business lending, its specialty, but fell far short in residential lending targets in St. Louis.
“Ultimately, we were disappointed that they didn’t make their lending goals. We heard what they were doing to do that, and felt like that was a good effort," said Elisabeth Risch, co-chair of SLEHCRA.
Though it didn't meet the residential lending goals, Enterprise Bank said it still complied with the agreement because it committed to make "best efforts" to do so, language included at its request because it said the goals were "arbitrary."
As for the $1.8 billion figure, not only is it unclear if the bank came close to hitting that target, but an executive with Enterprise Bank said the figure never was codified in the agreement. SLEHCRA acknowledged that it did not track how close the bank came to that mark, nor does it have a means of enforcing the terms of the deal.
While the agreement yielded some noticeable results, including two new service centers in low-income St. Louis neighborhoods and new down payment assistance and small business lending programs, the bank's failure to meet some of its key benchmarks and SLEHCRA's inability to track or enforce the pact raises questions about whether these agreements are the most effective way of holding banks accountable for putting more resources into lower-income and Black neighborhoods that have suffered for decades from underinvestment and practices like redlining.
SLEHCRA and other advocates say such community benefits agreements result in important intangibles, such as closer relationships between banks and minority communities. They also fill a gap that exists because federal regulators have failed to ensure that banks reinvest in minority and poorer neighborhoods, said Will Jordan, who negotiated several pacts with SLEHCRA as executive director of the Metropolitan St. Louis Equal Housing and Opportunity Council (EHOC).
But the system's lack of transparency makes it difficult to get a complete picture as to whether the agreements are having the intended impact.
Of the nine community benefits agreements SLEHCRA has entered into since 2011 and made public, it would only release reports from the Enterprise Bank deal because a provision within it required the documents be made "publicly available at branch locations and by request." Other agreements did not include that provision, and banks told the Business Journal they would not release reports, with at least two suggesting they included proprietary data. Five of the agreements did not require written reports on compliance.
Instead, banks had to meet regularly with SLEHCRA to discuss the topic (Montgomery Bank, which had three of those agreements, said it submitted a spreadsheet to the coalition on compliance after the agreement ended.) SLEHCRA also declined to release any other monitoring reports it received.
Those agreements also frequently involve payments flowing back to SLEHCRA through EHOC, the nonprofit group that serves as SLEHCRA’s fiscal agent. St. Louis-area banks since 2011 have paid at least $270,000 in grants or charitable contributions to the organizations as a result of the deals. While that's a fraction of EHOC's annual revenue, which in 2020 totaled about $1 million, the funds help pay the salaries of two EHOC employees, including Risch, and are passed to other nonprofit community groups within the coalition.
Leaders of SLEHCRA defended the system, saying that if the community benefits agreements didn't exist, some banks would not make the additional investments in minority and low- and moderate-income neighborhoods.
"Having a community benefits agreement is a tool for us to know exactly how the banks are going to meet the needs of the community and to have some commitment to it," said Jackie
Hutchinson, SLEHCRA co-chair and executive director of the Consumers Council of Missouri, a SLEHCRA member.
THE LEVERAGE POINT
The roots of community benefits agreements can be found in the Community Reinvestment Act. The 1977 federal law requires banking regulators to give banks a rating based on how they are
meeting the credit needs of low- and moderate-income neighborhoods in communities they serve. Those ratings are used when banks apply for approval of a merger.
As a result, the genesis of community benefits agreements is often when a bank is seeking regulatory approval, such as for a bank merger. Community groups can file objections with regulators, creating a potential roadblock for banks at a time when they’re eager to avoid costly delays in the regulatory process. Supporters of the benefits agreements say community groups’ power to potentially intervene gives them the leverage necessary to procure a seat at the table with CEOs and other high-ranking executives and strike deals to help minority communities.
In some cases, the resulting agreements also call for banks to make payments to the community groups. Enterprise Bank, for example, paid SLEHCRA $40,000 per year over the three years of its agreement.
In 1998, U.S. Sen. Phil Gramm, a Texas Republican and former chairman of the Senate Banking Committee, referred to payments that banks made to community groups related to merger applications as “extortion.” He included a provision in his bill deregulating the financial industry to require public disclosure of bank agreements related to the Community Reinvestment Act.
A year after the bill became law in 1999, Gramm complained that federal officials had gutted the measure through regulations requiring the public to file “cumbersome” Freedom of Information Act requests to get the agreements.
“The sunshine provisions approved by Congress were based on a simple premise: If a law promotes the giving of money for a public benefit, there must be accountability. The regulations issued today will keep citizens in the dark about the benefits purportedly bestowed in their behalf,” Gramm said in a written statement at the time.
The National Community Reinvestment Coalition, a nonprofit group based in Washington, D.C., has developed a model community benefits agreement that community groups can use.
The organization said it wasn’t aware of any clearinghouse that tracks the number of agreements that local groups reach with banks. But experts anecdotally say their use nationwide has increased over the past decade with the growing number of bank consolidations. U.S. banks last year struck 208 merger deals valued at nearly $77.6 billion, the highest point since 2006, according to data from S&P Global.
Horacio Mendez has extensive insight on the use of community benefits agreements. He’s a former executive at two banks, worked at the Federal Reserve Bank of San Francisco, and now is president and CEO of the Woodstock Institute, a research and policy nonprofit based in Chicago.
The institute last month signed SLEHCRA’s most recent community benefits agreement, this time with First Mid Bank & Trust, whose parent company is acquiring St. Louis-based Jefferson Bank and Trust.
Mendez said many banks over the years have groused that they have to pay “blood money” in order to get a merger approved. He said he sees “more good than bad” in community benefits agreements, but the down side is they unintentionally paper over lax oversight of banks that violate fair lending laws and other Regulations.
“Unfortunately, what the community benefits agreement does is it allows certain institutions to buy their way out of jail,” Mendez said, adding that it's cost-prohibitive for groups like SLEHCRA to use lawsuits to hold regulators and banks accountable for "egregious Behavior."
Among the reasons banks enter into the agreements is to avoid the potential multimillion-dollar cost if groups seeking community benefits agreements can delay the approval of mergers by opposing them, said Christopher Olsen, managing partner of Olsen Palmer, a Washington, D.C., firm which advises banks on mergers and acquisitions.
If a bank merger application reviewed by federal regulators “gets into purgatory for six or 12 months, that can be almost disastrous for both the buyer and the seller,” Olsen said. Risch, SLEHCRA’s co-chair, said a public comment opposing a merger can take it off the fast-track for approval and cause delays. “That is why in some of these cases there’s additional leverage and
additional time pressure to get an agreement,” she said. But in at least one instance, SLEHCRA didn't need to intervene. The bank came to them.
INSIDE THE DEAL
In 2009, EHOC and other groups founded SLEHCRA as a coalition of member community organizations in the metro area. Risch is the assistant director of EHOC, which is a nonprofit that accepts money on SLEHCRA’s behalf. EHOC, headed by Will Jordan, works hand in glove with SLEHCRA, which has 28 member organizations, according to its website.
In addition to crafting community benefits agreements, SLEHCRA has filed complaints that have led to six federal consent orders and other agreements requiring St. Louis and Kansas City banks to increase lending and services in communities of color.
Those include a 2010 fair housing complaint filed with the federal government by EHOC on SLEHCRA's behalf against Enterprise Bank. In that case, it reached a settlement agreement in which the bank committed to spending an additional $3.1 million over three years on banking services and discounted mortgage loans in lowincome and minority communities in St. Louis and Kansas City.
Then in 2016, as Enterprise Bank was preparing to acquire Eagle Bank and Trust Company of Missouri, it reached out to SLEHCRA proactively to ask them to support the merger, Risch said.
“They wanted to talk about what they could do," she said. "We said we really wanted a community benefits agreement that will specify how you will better serve the community."
In 2017, SLEHCRA and Enterprise Bank announced they had signed a community benefits agreement in late 2016. SLEHCRA supported the merger and federal regulators approved it.
Three years later, a picture would emerge as to whether the pact would truly be as “groundbreaking” as Enterprise Bank and SLEHCRA described it.
According to terms of the agreement, Enterprise pledged to originate at least $90 million for home loans to low- and moderateincome borrowers or communities in the St. Louis area over three years. The bank's progress reports, provided by SLEHCRA, show it originated only $33 million in loans during that period. The bank said its lending volume, however, improved over time, rising 42% in the St. Louis area between 2018 and 2019.
The bank also committed to originate a minimum of $45 million over three years for home loans to minority borrowers in the St. Louis area. The reports to SLEHCRA said the bank did $12 million.
Enterprise Bank said it met several other provisions in the agreement, including hiring loan officers who have experience working in minority and low- and moderate-income communities.
But for the residential loan totals, the bank said it requested that the agreement include language indicating it would commit its "best efforts" toward hitting those targets, which were arbitrary and chosen by SLEHCRA, said Robyn Heidger, Enterprise Bank’s senior vice president for strategic alliances and inclusion.
Referring to negotiations with SLEHCRA over $30 million per year over three years for home loans, Heidger said: "We looked at our historic numbers and said, `guys, that’s a huge number, that’s not anything we typically do in a given year.' They just really liked that number and we said, `all right, as long as you can give us this leeway of we are going to make our best efforts' and we’ll see what we can do.
“Would I have wanted to be so far from the lending goals? Absolutely not," she added. "Trust me, that was not a fun thing to have to report back to our board."
There were several factors why Enterprise Bank fell so short, including the departure of loan officers who took jobs with traditional mortgage companies, Heidger said. Residential lending
also isn't what the bank is known for. “Historically, we have been much more of a business bank than a consumer bank,” she said.
In that category, Enterprise exceeded the goals outlined in the agreement. The pact with SLEHCRA called for Enterprise Bank to commit to at least $180 million in small business lending in lowand moderate-income communities over three years in the St. Louis and Kansas City metro areas. The reports said Enterprise did $213.4 million.
Risch said SLEHCRA was disappointed that Enterprise Bank didn’t meet the residential lending goals. She referred to those goals in the agreement as “educated guesses,” saying the coalition chose them based on what the bank had done in the past and then added the track record of Eagle Bank, which was being acquired by Enterprise Bank's parent company.
As for the $1.8 billion touted when the community benefits agreement was announced, Heidger said SLEHCRA arrived at the number, which was not included in the agreement.
“It was in no way, shape or form meant to mean this was going to be $1.8 billion in new money that we were going to be doing somewhere. It was a combination of existing programs and new
stuff,” she said. Heidger said Enterprise Bank's community development lending from 2017 through 2019 totaled $1.4 billion, a figure that includes community development loans in other markets it serves, including Phoenix and New Mexico.
The agreement with SLEHCRA required Enterprise Bank to maintain a minimum ratio of 10% in community development loans to total assets. The $1.4 billion figure fulfilled that requirement and is part of what Enterprise Bank submitted to federal regulators to comply with the federal Community Reinvestment Act. Community development loans benefit low- to-moderate income people and/or communities through affordable housing, economic development, community services, or revitalization/stabilization, the bank said.
Enterprise Bank said it did not try to quantify whether it reached the $1.8 billion figure in the 2017 joint press release with SLEHCRA.
The biggest accomplishments of the agreement included Enterprise Bank opening two service locations, Risch said. They are at the Urban League of Metropolitan St. Louis office on Jennings
Station Road and the Mission: St. Louis office on North Grand Boulevard. Enterprise Bank’s “Welcome Home St. Louis" program — which has provided up to 3% in down payment assistance in majority Black census tracts in the city of St. Louis and St. Louis County — also was a highlight, Risch said.
Both SLEHCRA and Enterprise Bank said the community benefits agreement also resulted in a closer relationship between the two parties.
Heidger said she has a lot of respect for SLEHCRA.
“They have led over the years quite a few of us local banks to be more intentional and to take our work in this space more seriously,” she said.
When SLEHCRA asked Enterprise Bank to negotiate a new community benefits agreements as the first one expired in 2020, the bank declined, saying there wasn’t a need because it planned to continue many of the programs, Risch said. Enterprise Bank said recently it has done so.
A TRANSPARENCY ISSUE
Since 2011, SLEHCRA has entered into nine community benefits agreements that were made public with seven banks either based in the St. Louis area or with a presence here.
Last week, the coalition acknowledged it reached an agreement with a St. Louis-area bank in 2016, but it was not made public, said Risch, the co-chair.
"The bank wanted it to be confidential. This was around the time when we started to do more community benefits agreements and there was still this perception that this was a slap on the wrist, so to speak. They didn't want that perception and they didn't necessarily want the attention on it," she said.
Jordan, the executive director of EHOC, said the agreements have helped banks improve the grades they receive from federal banking regulators.
Among them are Midwest BankCentre, which saw its Community Reinvestment Act score go from "high satisfactory" to "outstanding" two years after its agreement with SLEHCRA. Another is Reliance Bank, which was acquired in 2019 by Simmons First National Corp., based in Pine Bluff, Arkansas, and the parent company of Simmons Bank. Reliance Bank entered into a community benefits agreement with SLEHCRA in 2011. Its rating improved from satisfactory to outstanding in 2017.
Allan Ivie IV helped negotiate the 2011 agreement, as CEO of Reliance Bank's parent company. He also has been involved in Simmons Bank's 2019 community benefits agreement with SLEHCRA as president of community affairs for Missouri.
Ivie praised the collaboration with the coalition and said the accomplishments of Simmons Bank's agreement include a plan, released in December, to open a full-service branch at the new Urban League headquarters in north St. Louis at 1408 N. Kingshighway Blvd.
Simmons Bank complied with the agreement, but Ivie said the bank would not release copies of the reports submitted to SLEHCRA about its performance. He said the reports contain information that competitors could find valuable to know.
“We’re certainly comfortable in talking about our performance, which has been exceptional, but as far as sharing those written reports, we’re not going to be able to do that,” he said.
EVOLVING OBJECTIVES
The most recent community benefits agreement resulted from last year's announcement that Illinois-based First Mid Bancshares Inc. would buy the parent company of St. Louis-based Jefferson Bank and Trust Co., pending approval from federal regulators.
SLEHCRA in October filed an opposition to the merger in a letter to regulators and asked them to deny it.
“Our analysis of the bank’s home lending and branch locations show significant redlining concerns and a failure to adequately serve Black individuals and Black communities,” the coalition wrote.
Less than three months after urging federal agencies to investigate
First Mid for allegedly violating fair lending laws, SLEHCRA reached an agreement with the bank on a community benefits agreement.
The coalition withdrew its opposition to the merger and the Federal Reserve Bank of Chicago approved it last month.
SLEHCRA said it learned some lessons from the 2017 agreement with Enterprise Bank. The community benefits agreements with First Mid does not attach dollar figures to the lending goals. It also does not include “best efforts” language that enabled Enterprise Bank to say it complied with residential lending goals even though it didn’t hit the targets.
Instead, First Mid commits to “meet or exceed” loan origination to minority borrowers and those living in low- and moderate-income areas, compared with the percentages of lending by similar banks in the St. Louis area. Those commitments will be monitored through data compiled under the federal Home Mortgage Disclosure Act.
It's unclear how much of the reports that First Mid will submit to SLEHCRA about its compliance will be made public. The pact states that "a public portion will be made available upon request."
Jordan Read, First Mid's chief risk officer, said the bank will work with SLEHCRA on what will be public.
"We cannot disclose relationships we have with third parties, trade secrets, etc., but will do our best to convey our progress towards the goals set," he said in an email.
Risch, SLEHCRA's co-chair, said the coalition learned from its experience with the 2017 agreement with Enterprise Bank. Unlike the press release which said the value of the Enterprise Bank agreement was $1.8 billion, SLEHCRA's release announcing the First Mid deal last month did not offer a number.
The First Mid agreement also doesn't include precise dollar amounts for lending goals, like the ones from prior agreements that SLEHCRA said were derived from "educated guesses." By
offering targets based upon the percentage of loan applications received compared with similar banks, Risch said First Mid has a more realistic target to reach.
"It really would have been a shot in the dark to come up with those loan target numbers," Risch said.