The Compassionate Lender Next Door

Twin Cities Bank Finances Development in Low-Income Communities

B The Change
B The Change

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Sunrise Banks and its CEO David Reiling serve their Twin Cities neighbors by financing development in low-income communities and giving immigrants new opportunities.

By Oscar Perry Abello

Photo by Oscar Perry Abello

On a chilly, overcast Monday morning last November, the first customer of the day walks into a Sunrise Banks branch. She wants to count and exchange a jar of pennies, which totals about $7.

We’re in Minneapolis’ Whittier neighborhood, which has seen wealthier days. Old mansions still occupy many lots, some converted into multifamily rentals, some turned into halfway houses. Next door, a stately building serves as a drug-rehabilitation center.

Not a minute goes by without at least one customer visiting the bank. Men and women, young and old, people of multiple races — a diverse bunch comes through the lobby, where the tellers are just as racially diverse as their clients. Several Spanish-speaking customers come in and are assisted by a Spanish-speaking teller.

In the background, cash-counting machines whir in the teller bullpen. They’re mainly counting deposits from small local businesses that serve
the neighborhood.

“In this community, it’s more cash-intensive, just because of the demographics,” says Jeanne Leibel, the branch manager. “Businesses come in and make regular daily deposits.”

The less a household earns, the more likely it is to rely on cash. The median household income for this branch’s ZIP code is $24,688, a little less than half the U.S. median household income, and 40.3 percent of the population is below the federal poverty rate, according to the latest U.S. Census Bureau estimates.

Whittier is also something of a hub for the Twin Cities’ Somali immigrant community. About a third of the 87,500 Somali immigrants in the U.S. live in the Twin Cities metropolitan area. The Suuqa Karmel, a Somali mall with 175 shops, is located about a mile from Sunrise’s Whittier branch.

More than 150 deposit-taking institutions operate in the Twin Cities metropolitan area, most with a different business model than Sunrise’s. The bank monitors its lending to ensure at least 60 percent of its lending goes to borrowers in low- to moderate-income neighborhoods, such as Whittier. Sunrise is a bank whose primary market consists of communities and families that have historically been ignored by the traditional banking system, often called the “unbanked” or “underbanked.”

David Reiling is CEO of Sunrise Banks, a chain of community banks in the Twin Cities that has $800 million in assets and a mission to provide services to families and small businesses in low-income communities. Photo by Bill Klotz, reprinted with permission from Finance & Commerce Inc.

“I believe everything we do empowers greater access to convenient, easy-to-use, transparent products and services at a fair price,” says Sunrise Banks CEO David Reiling.

Reiling says banks have responsibilities far beyond offering financial services. Every community or population, no matter how poor or how new to the country, has its own hopes, dreams, aspirations and obstacles. Banks should recognize their obligation to help people realize those goals.

Learning From the Community’s Needs

Reiling freely admits that his banking philosophy is unconventional. “I get asked the ‘why’ question from a personal standpoint,” Reiling says. “I wish I had a great, slick answer for you, but honestly, it is who I am.”

Starting in 1984, Reiling’s father bought and operated two Twin Cities community banks. In 1995, Reiling personally took over a third bank, University National Bank (UNB), in St. Paul’s Frogtown neighborhood. Each bank was acquired when it was struggling with financial and regulatory issues. The three banks eventually merged under a holding company to become Sunrise Banks in 2013.

“University National Bank was taking deposits in the community and making loans in the suburbs — classic redlining,” Reiling says, referring to the historical practice of banks discriminating against communities on the basis of race, immigration status and economics. The Community Reinvestment Act of 1977 outlawed such discriminatory practices, but its shadow still looms over the U.S. banking system today.

“For me, that was totally unacceptable,” says Reiling, who has roots in the Frogtown neighborhood. His maternal grandmother, an immigrant, once lived six blocks from UNB, while his paternal grandfather was a contractor who built homes for immigrants in the area. The Frogtown neighborhood is still one of St. Paul’s poorest, with a poverty rate of 34.3 percent and median household income of $29,043.

Reiling sought ways to involve the bank staff in the communities they serve, including requiring loan officers to serve on at least one local nonprofit’s board of directors.

Partnerships were key to the business’s strategy. In its first few years
under Reiling, UNB partnered with the city of St. Paul to create the Neighborhood Lending Partnership, in which the city guaranteed partial loans, reducing the down payment needed to purchase a home or commercial property. It partnered with five other area banks to create the Frogtown Large Loan Fund, which lent money to Frogtown businesses that didn’t meet traditional criteria for small-business loans.

Reiling’s determination to serve his banks’ communities led him to buy a storefront check-cashing business in Frogtown two years after he bought UNB. He wanted to know why his customers, even if they had a bank account and could deposit their paychecks, still used check-cashing services.

“I took a chair and sat down inside the storefront and started talking to everyone who came in, some of whom I knew had accounts at my bank,” Reiling says.

He vividly recalls one mother in particular, who explained that when she got paid on a Friday, she couldn’t deposit the check and wait until Monday for it to clear — she needed the money right away to buy food for her children.

Reiling moved the check-cashing operation into the lobby of UNB and cut the fees in half. “We started to figure out, from the underbanked standpoint, why check cashiers were so important to the community,” Reiling says.

Junita Flowers, left, a Sunrise Banks customer and owner of Favorable Treats, which makes frozen cookie dough, is pictured with her son Jonathan Cathey; Nichol Beckstrand, Sunrise Banks president; and Chris Albrecht, director of Small Business Administration lending at Sunrise. Photo Courtesy Sunrise Banks

Reiling says a bank account simply doesn’t fit the needs of some low-income households. Today, Sunrise Banks maintains a massive prepaid card service so the bank can ensure the fees are affordable, build a relationship with those customers, and be there should they need more traditional banking services in the future.

The same motivation led the bank to develop TrueConnect, an employee loan program that competes with payday lenders, who disproportionately target low- and moderate-income households, especially in emergencies.

Workers at participating TrueConnect employers across the country can quickly access small loans — $1,000 to $3,000, depending on income. No credit check is required, income verification comes from the workers’ employers, and loan payments are deducted directly from their paychecks. More than 6,500 employees have access to TrueConnect in Minnesota, California, Ohio and Virginia.

The bank also developed a Credit Builder program that helps customers with bad credit establish a good payment history.

“We talk about meeting the needs of people where they are,” Reiling says. “Banking products as we know them may not be the right thing for them where they are.”

A Different Market Approach

With about $800 million in assets, Sunrise is on the large end of the community-bank spectrum. Community banks, on average, have about $390 million in assets. Sunrise has set itself an annual goal of about 10 percent growth in assets.

“We feel that number reflects good, organic growth without getting too crazy,” says Nichol Beckstrand, president of the Sunrise Banks holding company.

To grow while serving low- to moderate-income families and small businesses, the bank takes two broad approaches — a people-based approach and a place-based approach.

On the people-based side, it designs products, such as the credit-builder program, to build and maintain strong relationships with families and individuals.

Sunrise Banks’ employees volunteer at a Playworks event at an elementary school in the Twin Cities. Photo courtesy Sunrise Banks.

“Our people-based strategy is really about the unbanked or underbanked, providing products or services … to individuals that we would consider on the starting end of the financial maturity spectrum,” Beckstrand says. Eventually, if these individuals decide they need a conventional bank account or a loan, Sunrise wants to have that pre-existing relationship with them.

On the place-based side, Beckstrand maintains a list of grass-roots organizations, public officials, small businesses and developers that live or work in its target markets: low- to moderate-income neighborhoods in the Twin Cities region. Each year, the staff re-evaluates its network and the resources invested in strengthening those relationships.

“Say they’re a nonprofit, how much are we going to contribute to their cause on an annual basis?” Beckstrand says. “Or how are we going to engage with them on social media? Maybe there are some organizations where we want to tell their story because they’re doing such amazing work, but we know they don’t have a budget to tell that story, so we want to tell it using our resources.”

Throughout the year, a smaller group meets monthly to check on community-partnership goals and flag opportunities to engage. One day last fall, for example, Sunrise invited some of its partners and customers to help build a Habitat for Humanity house in Frogtown. “It’s a conscious, supportive approach to staying involved,” Beckstrand says. She readily admits a bank is not always the most trusted institution in a community. Sunrise relies on its network of partners to help find opportunities to deploy capital in ways that meet genuine family, community or small-business needs.

One such partner, Neighborhood Development Center, is a local nonprofit that supports small businesses. They referred Ebisso Uka, an Ethiopian immigrant who started his own transportation company in 2005. With his loan from Sunrise, Uka says he grew his company from 20 to 40 drivers. (Learn more about Uka and his business below.)

The bank’s partners are also crucial to its work under the federal New Markets Tax Credits program. The U.S. Department of the Treasury allocates New Markets Tax Credits on a competitive basis to organizations, such as Sunrise, that show a track record of positive impact and accountability to low-income communities. Winning organizations have five years to “sell” allocated credits to investors supporting projects that enhance local economies.

Sunrise received a $38 million New Markets Tax Credit allocation in 2014. That allocation supported four projects in 2015, including an $8 million investment to renovate the former Minneapolis Public Schools headquarters building. When the school system moved its headquarters in 2012, residents feared the building would get torn down and replaced with a big-box retailer, according to the Journal in Minneapolis. With the investment, the building became a multitenant office and industrial space, creating an estimated 400 new permanent jobs.

Sunrise pegs its own growth to serving the needs of low- to moderate-income families and communities.

“Because of where we’re spending our time, it comes naturally,” Beckstrand says. “Our lenders [still] get opportunities to do deals far outside the metro on a regular basis, but we always just tell them that what’s better for that customer is for you to find them a bank that’s closer to that transaction.”

Maintain a Legacy

Reiling, having just turned 50, has contemplated the best ownership and operational structure to preserve Sunrise Banks’ mission beyond his time at the helm. Currently a family-owned bank, Reiling could establish a nonprofit organization as the primary shareholder in the for-profit bank. Oakland, California’s Beneficial State Bank and City First Bank in Washington, D.C., are two prominent examples of that model.

He’s thought about that option. How it affects growth is a key factor. He says, “We want to preserve the ability to seek investment to grow the bank for the foreseeable future.”

The bank is a Certified B Corporation, and it reincorporated in 2015 as a benefit corporation — a legal entity for socially minded, for-profit businesses that want their bylaws to reflect their value systems. With benefit-corporation status, if the bank’s managers ever lose track of the bank’s mission, investors could take Sunrise to court for failing to meet its values-based obligations to shareholders.

“To me, it’s not whether you’re a for-profit or a nonprofit. I think it’s the culture you have,” Beckstrand says. “We’re lucky at Sunrise. As a for-profit entity, we have a great culture that allows us to make good decisions that go beyond the shareholder’s pocketbook. The people that I pass the torch to down the line are just going to take it and make it even better than it is now. I firmly believe that.”

Financing Community Development

Sunrise Banks is one of more than 1,000 federally certified U.S. Community Development Financial Institutions, or CDFIs. Certified CDFIs include banks, credit unions and loan funds that specialize in providing financial services to low-to-moderate-income populations. The U.S. Treasury currently mandates that CDFIs make at least 60 percent of their loans in their self-defined CDFI-
investment areas, typically a set of low-to-moderate-income census tracts.

Shared Capital Cooperative, a Sunrise Banks client, provided financing to support Renaissance Community Co-op in Greensboro, North Carolina. The food co-op serves a neighborhood that had been without a grocery store for 18 years. Photo courtesy Shared Capital Cooperative.

CDFI certification provides access to the U.S. Department of the Treasury’s CDFI Fund, which was created by Congress in 1994 to support and invest in CDFIs, although many operated as community-minded banks, credit unions and nonprofit loan funds long before that. Banks often invest in CDFIs as part of their regulatory obligations under the Community Reinvestment Act. Foundations have also started providing program-related investments, alongside grants, to CDFIs.

In 2016, CDFIs originated more than $3.6 billion in loans and investments; financed 33,500 units of affordable housing; and made loans to more than 11,000 small businesses.

Christina Jennings is executive director of Shared Capital Cooperative, another CDFI based in Minneapolis. Shared Capital makes loans to cooperatively owned businesses and residential communities all over the country. It’s also a cooperative association, a special type of cooperatively owned for-profit enterprise permitted by Minnesota state law. To get a loan from Shared Capital, you have to become a member.

Shared Capital is currently an $11 million loan fund, with most of it deployed at any given time, but there could be millions sitting in its account in any given week or month. There are also large payments to handle, going in and out, on a regular basis. In 2011, Shared Capital was shopping for a new full-service financial institution to manage all of that. Sunrise was their choice.

“Being a CDFI ourselves, being able to bank with a CDFI was really important to know that we could support the same values and some of the same work,” Jennings says. “They already worked with some of the same cooperatives we work with.”

Funding Immigrant Entrepreneurs

Ebisso Uka emigrated from Ethiopia in 2001, and is the founder and CEO of Rift Valley Transportation, which received financing from Sunrise Banks. Uka’s vehicles and drivers serve those with nonemergency medical needs, special-education students, and people who require personal transportation for other purposes in the Twin Cities area.

Ebisso Uka went from being a driver to founding his own transportation company. “Why can’t I create jobs for others, not only myself?” Uka asks. Photo courtesy Neighborhood Development Center.

Uka drove as an independent contractor for a few years and learned the business. He struck out on his own in 2005 as a solo driver with one vehicle. Within two years, Rift Valley Transportation became a contractor providing services to the St. Paul public school system. Uka appreciates the line of business, as he says he was a teacher in Ethiopia.

About three years ago, Uka needed to buy a building for vehicle storage and maintenance. The Neighborhood Development Center, a local nonprofit that supports small businesses, referred Uka to Sunrise.

“I asked bigger banks first,” Uka says. “It was hard to go through underwriting, asking me many different questions even though I had a good reputation.”

His experience isn’t that uncommon: Small and midsized banks, such as Sunrise, provide 54 percent of small-business lending in the U.S.

Sunrise gave Uka a $200,000 loan to purchase a building for storage and maintenance of his vehicle fleet. About a year ago, he decided it was already time to buy an even bigger building. Sunrise was happy to oblige again, with a $600,000 loan.

“Why can’t I create jobs for others, not only myself?” he asks.

With the first loan, Uka says the added capacity let him grow the company from 20 to 40 drivers. Thanks to the second loan, which closed in August 2016, he anticipates he may double the company’s size yet again.

Looking for a Mission-Driven Bank?

The banks and financial-service providers listed below make money management a values-based activity.

Amalgamated Bank

New York City
Aims to be the preeminent bank of progressive people, organizations, businesses and labor.

BDCU Alliance Bank

Bowral, Australia
Member-owned bank focused on positive community progress.

Beneficial State Bank
Oakland, California
“Triple-bottom-line” community-development bank.

Beyond Bank Australia
Adelaide, Australia
Customer-owned bank reinvests its profits into local communities.

Business Development Bank of Canada
Montreal, Quebec
Bank devoted exclusively to entrepreneurs.

Charity Bank
Tonbridge, England
Owned by foundations and social-purpose organizations, the bank makes loans to charities.

Community Sector Banking
North Wollongong, Australia
Financial services for nonprofits and social enterprises.

Cultura Bank in Norway invests in sustainable companies and entrepreneurs, such as Isandi, which markets handcrafted products from southern Africa. Photo courtesy Cultura Bank.

Cultura Bank
Oslo, Norway
Savings bank that keeps its investments in sustainable companies and entrepreneurs.

Neema
Tel-Aviv, Israel
Digital-banking services for global migrant workers.

New Resource Bank
San Francisco
Serves values-driven businesses and nonprofits.

OMISTA Credit Union
Moncton, New Brunswick
Keeps investments in the local community.

Spring Bank
New York City
Serving unbanked and underbanked individuals in South Bronx and Harlem.

Triodos Bank
Zeist, Netherlands
Finances organizations working for environmental, social and cultural change.

Virginia Community Capital
Richmond, Virginia
Supports housing and community-development ventures through lending, savings and advisory services.

This article was originally published in the Spring 2017 issue of B Magazine.

B the Change gathers and shares the voices from within the movement of people using business as a force for good and the community of certified B Corporations. The opinions expressed do not necessarily reflect those of the nonprofit B Lab.

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