St. Paul bank puts community reinvestment before everything else

Northwestern Financial Review, Jan 1, 2002 by Dullum, Justin

University Bank of St. Paul recently became the first bank in Minnesota to receive federal designation making it eligible to participate in the Community Development Financial Institutions Fund. The $37 million bank is one of fewer than 50 banks in the country with such designation.

"The most difficult obstacle for banks trying to become CDFI certified is that you have to have a primary mission of community development," said David Reiling, president of the University Bank. "Instead of saying you're going to maximize shareholder value, you say you're going to improve an urban community."

The CDFI endorsement will open new avenues of growth potential. University will receive $750,000 from the CDFI fund in the form of a low interest loan that looks like equity on its balance sheet. In order to receive the loan, the amount must also be matched. Marshall & Ilsley Bank of Milwaukee, University Bank's correspondent bank, has agreed to match the amount with a similar loan.

"The CDFI mission is to build capacity in CDFI-endorsed organizations," said Reiling. "Our bank has been growing rapidly. We have the potential to continue that growth. But to do that, we need to maintain a certain level of capital. With the total after matching funds, we'll have $1.5 million in what is essentially capital. So now, with the way our balance sheet is structured, we can grow about another $20 million."

University Bank will leverage its CDFI status to lure the new deposits needed to meet the growth capacity in several ways. One will involve approaching faith-based organizations and convincing them that by banking with University Bank, their money will, at no cost, constantly remain in a form of community reinvestment.

"Our mission and philosophy lines up well with those of faith-based operations. We can offer them the double bottom line. We can offer a financial return as well as a social return," Reiling said.

When selling the idea, University Bank doesn't have to worry about proving it adheres to its mission statement. A bank must show that at least 60 percent of its lending activity occurs in distressed communities, which are deemed as such through census data. University Bank has 73 percent of its loans wrapped up in such areas.

Even though the faithbased program is just getting off of the ground, University Bank already has takers because of its proven record. Recently, two Twin Cities synagogues - Mt. Zion Temple and Temple Israel - became the first two organizations to participate in University Bank's faith-based campaign. "With this type of investment, we're able to put Jewish values into action," commented outgoing Mount Zion co-president Pam Margolis.

Reiling said some prospects want to know that their deposits are loaned to specific development projects. While he said his bank won't offer that level of specificity, it will earmark deposits to fuel loans in four general categories: affordable housing initiatives, distressed community development, non-profits and small business.

For instance, a depositor's money might be used to fund the bank's "Rehabber Program," in which a contractor/realtor team works with the bank to identify and revitalize homes in distressed neighborhoods. The ambitious program's goal is to renovate 1,000 homes in Minneapolis and St. Paul neighborhoods over the next five years.

A product of this program, the revitalized house at 930 Marion Street in St. Paul, once served as a pit bull breeding grounds and a narcotics lab. "We financed a group to acquire the house, rehab it and resell it," Reiling said. He added that the new relationship between Mt. Zion Temple and Temple Israel gets credit for making the funding available to rehab the house.

The same "double bottom line" pitch will be made toward individual customers in 2002. "If you are going to give $200 dollars to an urban program as a charitable gift, you could instead deposit your account with us, then your money will still go to these programs and you won't spend a thing," said Reiling. "Of course, we strongly encourage people to donate to charities. But this is another way for people to help grow urban communities. It makes a lot of sense for a lot of people."

By Justin Dullum