Beyond Advances

By Charlotte Birch

While most community banks are well aware of the value of membership in their regional Federal Home Loan Bank, odds are they perceive that value in terms of cost-effective advances and liquidity management. But there are lesser-known programs that provide significant community and economic development resources for a member bank while also enhancing the institution’s Community Reinvestment Act rating and community standing.

“Any time you can get another institution to help you for reduced or no costs, take it,” says Brian Argrett, president and CEO of City First Bank in Washington, D.C., which is a member of the Federal Home Loan Bank of Atlanta.

As a $300 million, single-branch commercial bank that focuses on affordable housing, small business and nonprofits, City First has made use of a variety of the Atlanta bank’s services. These include products under the Affordable Housing Program, which is funded with 10 percent of the FHLBs’ net income each year and administered regionally by each FHLB.

The FHLBs’ Affordable Housing Program
The AHP allows for funds to be used in combination with other programs and to support projects serving a wide range of community affordable housing needs. Many projects are designed for seniors, the disabled, homeless families, first-time homeowners and others with limited resources or special needs. In each funding round, grant applications are scored on a variety of factors intended to ensure that priority will be given to projects that will utilize the funding to create the greatest benefit. Each FHLB designs its own competitive program, guided by federal regulatory parameters and input from its local advisory council.
The AHP offers both “set aside” products like down payment and rehab assistance, and competitive grants that connect local developers and community organizations seeking to build and renovate housing for low- to moderate-income households with FHLB shareholder members, through whom all grants must flow.

Credit for trying

Grants are competitive, with decisions based on projects that will create the greatest benefit. But even the submission of an application may earn a bank CRA consideration (providing assistance to organizations applying for grants under the AHP qualifies as a “community development service”), and the process can also produce new business relationships. So even if a bank’s application isn’t funded (as one in three is nationally, according to the Council of Federal Home Loan Banks), it may be worth the effort to apply.

“It’s very much about how you make a difference in your community,” says Argrett, whose bank has received $1.7 million in competitive awards that he says has translated into $31 million in housing and other benefits to his community. “But it’s also about how we’re building our balance sheet and making us stronger in our own business pursuits. . . . Even the idea of a discussion [about an AHP grant]has gotten us in front of a customer who now wants to do a redevelopment and a bridge loan.”

ABA Vice Chairman Jim Edwards, CEO of United Bank in Griffin, Ga., has had similar experiences with the Atlanta FHLB’s AHP program. His bank has used the program to help dramatically redevelop parts of historic mill towns that had declined significantly following factory closures and recessions, leaving few good housing options.

“We’ve had almost $2 million flow through our bank over the past couple decades that has helped get deals done,” says Edwards, adding the money has helped support $40 million in total projects that would not have moved forward without the initial investment. “With that we’ve seen dramatic redevelopment, as well as a lot of very good PR and CRA credit. It’s helped us put a great face on the bank, and we’ve gotten a lot of ancillary business as well.”

Giving a widow her pots back

United Bank also has used its FHLB’s set-aside programs, which include first-time homebuyer, disaster rebuilding and veterans rehabilitation products, which help cover the costs of basic repairs and improvements. Edwards notes that none of these are large-dollar projects, but they are life-changing for the recipients. What’s more, the funds are effectively free.

One recipient of such assistance—a widow of a veteran who needed a new roof—thanked her Alabama bank for “giving me my pots back,” recalls Robert Dozier, EVP and chief business officer at the Atlanta FHLB. She explained that her new roof meant she no longer had to spread her kitchen pots around the house when it rained, as she had for 15 years. The comment didn’t just warm the hearts of the bank’s staff, it also reached the ears of a member of Congress who was visiting the bank that day as part of a take-your-lawmaker-to-work event.

Keep it interactive

“The key to benefiting from the FHLB is to be interactive,” City First’s Argrett says. He did just that when he took advantage of the bank’s “CRA consultations.” That’s where an FHLB advisor meets with the bank’s team, analyzes its strategic plan and CRA performance, notes gaps and recommends opportunities.

“It was a very interactive, consultative conversation about our business model and how CRA could intersect with that,” Argrett said. The result was a glossy 15-page report with a dozen recommendations—something the bank can provide its regulator to demonstrate its CRA strategy.

One recommendation that City First is already implementing relates to low income housing tax credit transactions. The bank had long been interested in pursuing LIHTCs but had lacked expertise. To address that, it worked with its FHLB advisers to create a LIHTC Boot Camp, which is aimed at educating staff on the unique underwriting needs for such financing and putting staff in direct contact with LIHTC players in their market.

Edwards says his bank similarly benefited from an assessment of its mortgage operations.

“Don’t just think of the home loan bank as the place you call when you need quick funding,” he says. “It’s all these other services. . . . And because they are a member coop, I know they’re trying to help my operation be more efficient and more successful.”