Bank Director | ICBA Archives

What happens when a small community bank becomes the focus of a grassroots movement? How does the bank sustain and develop the welcome—but unexpected—growth?

In an early July radio interview, Michael Render—better known as Killer Mike, a hip-hop artist who has spoken frequently in support of moving dollars to local black banks—was asked how communities could respond amid frustration that charges were dropped against officers in the Baltimore Police Department. They had been accused in the April 2015 death of Freddie Gray. “You can go to your bank tomorrow and you can say ‘Until you as a corporation start to speak on our behalf, I want all my money. And I’m taking all my money to Citizens Trust,'” said Render. Based in Atlanta, $404 million asset Citizens Trust Bank gained 8,000 new accounts in a five-day period following Render’s plea.

“The community reached a point of frustration,” says Michael Grant, president at the National Bankers Association, a trade association for minority and women-owned banks in Washington, D.C. “It’s time for the African American community to pull together, to look inward and say ‘wait a second. What can we do to strengthen ourselves economically? What can we do to lift ourselves up?’”

The Bank Black movement dates back decades, with roots in the civil rights movement, but recent support is tied to concerns raised by Black Lives Matter. It encourages African Americans to move money into black-owned banks, which in turn support urban communities. There are 24 black-owned depository institutions, according to the Federal Deposit Insurance Corp.

Moving money to black-owned banks, and supporting black businesses, is seen as a positive way to empower local communities. “If we can support these institutions en masse, then these institutions will have a greater capital base, and these institutions will then be able to provide more financing to businesses, to people who need mortgages, to help build wealth,” says Blondel Pinnock, chief lending officer at Carver Federal Savings Bank, a $743 million asset black-managed, publicly traded bank which gained $3.9 million in deposits in July.

OneUnited Bank, which has five branches in low and moderate-income communities in Boston, Miami and Los Angeles, has stepped up its promotional efforts in response to the recent attention to the Bank Black movement. Online visitors are encouraged to take the #BankBlack Challenge by opening a $100 savings account and challenging friends to do the same. The bank has also hosted events in Miami and Los Angeles. OneUnited drives both its online and in-person efforts through the bank’s Facebook, Twitter and Instagram channels.

“A lot of banks are, to some degree, questioning the value of [social media], but it actually can drive traffic into your branch, as well as online traffic, so we’re seeing that it’s worth the investment,” says Teri Williams, president of the Boston-headquartered bank, which has $622 million assets.

In early August, OneUnited reported via social media that the bank had gained $10 million in deposits in July. This windfall in accounts taxed bank staff. “We’re opening up 1,000 accounts a day. We used to open 10 or 20 accounts a day,” says Williams. Tablets within the branch allowed customers to sign up for an account online, with staff available for assistance. But despite increasing staff, customers still experienced long lines in branches.

Williams says OneUnited will continue to use social media and hold events to sustain growth driven by the Bank Black movement. The bank is also adding a call center in Miami, in addition to a current call center in Los Angeles, to handle the increased volume.

Can banks like OneUnited continue this level of growth? There’s always the risk that customers won’t like the technology that small banks provide, especially if they are coming from a large bank. “The proof is in what you do next, and how you sustain it,” says Chris Lorence, executive vice president and chief marketing officer at the Independent Community Bankers of America (ICBA). A well-planned marketing campaign is critical to gaining and retaining customers in the long run, even when tied to a social movement. Banks will also want to create a deeper, stickier relationship with new customers through other products and services. “Were you prepared organizationally to take the next step?”

Early last year, we examined many of the factors that caused the public markets to no longer support community banks. Since that time, President Obama signed into law the JOBS Act, which enables community banks to remain private longer or more easily delist from the public stock markets. While this legislation is an important step in the right direction, community banks still confront significant liquidity needs.

Liquidity Runs Dry

In 2012, we spoke with dozens of community bankers around the country, and also conducted a survey alongside the Independent Community Bankers of America (ICBA) to better understand the capital and liquidity needs of private community banks. After all, more than 75 percent of the nearly 7,000 community banks and thrifts in the United States are privately held. The ICBA’s findings indicated that many community banks do not have a platform to provide liquidity for their shareholders. This means that thousands of community bank shareholders do not have access to liquidity on a regular basis. Our conversations with management teams across the country made it clear that a new, stronger market needed to emerge for community banks across the country.

So why do banks want a secondary market for their shares in the first place? We posed the question to a number of private banks, who shared their top reasons. A secondary market:

Makes it easier to raise capital by providing new investors with a viable future exit option
Makes it easier to find new investors
Provides shareholders with liquidity while remaining private

The SecondMarket Approach

In February 2012, we launched a pilot program in select U.S. states to create customized, private liquidity programs for community banks. The SecondMarket pilot program allowed banks to control all aspects of their secondary market, including who can buy and sell stock, and the frequency with which shares were sold. This model emulates the successful approach we pioneered for private technology companies during the past several years.

One year later, we reflect on the pilot by sharing some of the characteristics of the bank-approved buyers and sellers who worked with us, as well as the features of the banks themselves.

Characteristics of SecondMarket Banks

We often are asked about the makeup of SecondMarket community banks. We initially decided to focus on banks in three different states, but did not restrict the types of banks that could participate in the pilot programs.

We conducted seven trading windows in three different states: Texas, Pennsylvania and New Jersey. The pilot program included Team Capital Bank of Lehigh Valley, Pennsylvania.
The asset size of the banks ranged significantly, from $300 million to $1 billion.
The size and diversity of the shareholder bases also fluctuated, as participating banks ranged from 125 to more than 500 shareholders.
Banks were founded as far back as 1917 to as recent as 2005.
The banks’ shareholdings were both physical certificates as well as street name shares.

Characteristics of Buyers and Sellers of SecondMarket Bank Shares

Another frequent inquiry from bank executives across the country is the types of buyers that participated in the pilot program. Interestingly, the majority of bank-approved buyers consisted of individuals (70 percent) and trusts (21 percent). Institutional investors comprised the remaining 9 percent of buyers. Likewise, the sellers approved by the banks primarily comprised of individuals (79 percent) and trusts. The composition of buyers and sellers did not vary between region and/or state, as most banks preferred individual investors.

Conclusion

Limited access to capital is making it more difficult for private community banks to grow and remain independent. The success of SecondMarket’s pilot program supported our initial theory that institutions facing difficulty providing secondary liquidity to their shareholders can benefit from liquidity programs facilitated by SecondMarket. Thus, we will be expanding the program this year beyond the initial pilot states to help community banks more effectively respond to shareholder liquidity needs.

While we have only just begun to understand the nature of community bank liquidity needs, the early feedback from our clients has been positive. An executive from a community bank in Texas stated, “A service like the one from SecondMarket could ease pressure while still providing a vehicle for raising capital. For small banks, this could be revolutionary.” We couldn’t have said it better ourselves.