First Tennessee’s $4B push into poorer neighborhoods
First Tennessee’s recent agreement to commit — mainly lend — $4 billion in poorer neighborhoods over the next five years is average for U.S. banks, but a significant step among the more conservative Southern banks.
That’s according to Jesse Van Tol, a national advocate for economic justice who negotiated the deal with First Tennessee and who happens to have deep Memphis roots.
“I think their agreement is no better or no worse than many of our agreements,” said Van Tol, chief executive of the Washingtonbased National Community Reinvestment Coalition. This was the seventh agreement with banks he has negotiated in two years.
“(But) the context is important,” Van Tol said. “This is Memphis. I grew up in Memphis. My father had a long career in Memphis; a lot of what he did was this kind of work ...” he said, referring to Hubert Van Tol, head of the Mid-South Peace and Justice Center in 19851996.
“Many banks in the South are a little more conservative, a little less willing to innovate and take risks and a little less willing to lend to people of color,” Jesse Van Tol said.
“I do think it’s significant that First Tennessee is stepping up this way,” he said. “It’s probably indicative of a larger transformation within the bank.”
First Tennessee triggered the negotiations when it announced intentions a year ago to acquire the mid-Atlantic bank, Capital Bank. Invoking the federal Community Reinvestment Act, Van Tol’s National Community Reinvestment Coalition and its members filed comments with regulators expressing concerns about the effects of the acquisition on poorer communities in the banks’ footprints.
For example, a 12-page letter submitted July 14 by Reinvestment Partners of Durham, North Carolina, states, “Neither First Tennessee Bank nor Capital Bank have (sic)
demonstrated a commitment to serving the needs of low-income and minority communities or borrowers. As a result, we believe that low-income and minority communities will be worse off if the merger is approved, particularly in North Carolina.”
The 41-year-old law fights redlining — not lending in impoverished areas deemed a higher risk — and encourages banks to help meet the credit needs of all the communities they serve.
First Tennessee announced last month it and its newly acquired Capital Bank committed to a $3.95 billion community benefit plan over the next five years for Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas and Virginia.
Much of the money will be home and business loans made in low- and moderate-income communities.
A 25% to 30% increase
Compared to the previous five years, First Tennessee will increase its lending in those areas at least 5 percent a year compounded, or 25-30 percent over the next five years, Van Tol said.
The increase is even more meaningful considering there’s a prevailing assumption that interest rates will rise, making loans harder to make, he said.
How to increase lending
The home and business loans under the community benefit plan will not necessarily offer consumers lower interest rates.
“What we did is have them set goals,” Van Tol said. “When you have a goal, it’s going to motivate the bank to do a variety of things to make those loans.”
First Tennessee may do things like: Be more aggressive in its outreach to lower-income neighborhoods; increase its downpayment assistance; lower its downpayment requirements; or pay the mortgage insurance for the borrower.
“There’s nothing in this agreement that says they must do any one of those things,” Van Tol said. “But they have to hit somewhat aggressive goals. Which means almost by definition they need to change what they are doing.”
Van Tol negotiated with First Tennessee executives over six months, meeting three times, in Memphis; Miami, Florida; and Raleigh, North Carolina.
The new plan
Here’s how First Tennessee described the new community benefit plan for low- and moderate-income communities as well as for “people of color”:
❚ Increasing home ownership: Fund $515 million in home purchase and rehabilitation mortgage lending.
❚ Building small business: Fund $1.9 billion in small business lending in affected areas and to businesses with less than $1 million in gross annual revenue.
❚ Fostering community development: Fund $1.5 billion in community development and multi-family lending and investments.
❚ Strengthening communities: Fund $40 million in grants and philanthropy.
❚ Supporting supplier diversity: Devote 3 to 6 percent of the bank’s supplier spending to minority-owned businesses.
❚ Partnering with minority-owned marketing firms: Earmark a portion of the bank’s marketing budget to minority-owned firms.
“Our company is dedicated to supporting the success of underserved individuals and strengthening communities across our footprint,” Bryan Jordan, chairman and chief executive of First Horizon National Corp., said in a prepared statement. “We believe our new $4 billion investment will take our longstanding community commitment to the next level by spurring growth and sustainable economic development.”
Jesse Van Tol
The stick
Federal banking regulators subject banks to a Community Reinvestment Act exam, and make public the results. The grades are: outstanding, satisfactory, needs to improve or substantial noncompliance.
First Tennessee scored some “outstandings” years ago, but since 1997 has been graded as “satisfactory.”
If a bank’s poor grade does not block a merger or acquisition, it can at least delay the deal. “Very few have been outright blocked,” Van Tol said. “But even a delay can be costly. They don’t like that.”
And First Tennessee is a growing bank, he said. “I think they do intend to buy other banks. I think that they want to have a stronger track record. They have publicly said they are now aiming on an ‘outstanding’ CRA exam where before they were content with ‘satisfactory,”’ Van Tol said.
CEO: ‘Right thing to do’
“It’s the right thing to do,” Jordan, the bank’s chief executive, said Friday of the new community benefit plan.
“The banking organization and banking system in any community is just a circulatory system,” Jordan said. “If the economy is not healthy and growing it doesn’t provide for a good working environment for residents in the community and it doesn’t make a good environment for being a banker.”
The $3.95 billion package is not some remedial action from First Tennessee, he said, adding, “that would be a misrepresentation of what it is we’re trying to do with this.
“We’re trying to take what we think