Independent Banker - February 2023 - 57

As to be expected, rising interest
rates are spoiling the financing party
to some extent. Carlos P. Naudon,
Ponce Bank's president and CEO,
says, " We are accelerating [our
lending], but not as fast as we could
have had the rates not been as high. "
Nonetheless, Naudon expects the
long-term economic impact of the
ECIP money will be significant and
felt in the communities his MDI
and CDFI serves. Those include
communities that are made up largely
of immigrants and people of color in
Union City, N.J., as well as the Bronx,
Manhattan, Brooklyn and Queens.
Naudon is particularly bullish
about the multiplier effect the funds
could produce. " ECIP enables us to
provide real estate investment, longterm
capital to businesses to help
them grow and get to levels that make
them more sustainable, " he says.
" That improves the community and
the job resiliency of the community. "
Funding bank growth
Although ECIP largely focuses on
lending to underserved communities
that were adversely affected by
the pandemic, there aren't specific
requirements for how participants
must use the funds.
The three community banks
we spoke to are directing some of
their new capital toward internal
improvements and hiring new
employees. " The capital is an
investment that is being made in
institutions to help them grow and
provide more and faster services to
their communities, " Naudon says.
He says the funds from the
Treasury-in addition to the
$132 million Ponce Financial Group
raised through a public mutual-tostock
conversion in March 2022-will
enable Ponce Bank to further invest
in automation and digitalization. " A
bank like ours can only grow as we
adopt new technology and bring in
people who can help us with that, "
What are ECIP's lending incentives?
Institutions participating in the Emergency Capital Investment
Program (ECIP) issued either preferred stock or subordinated debt
to the Department of the Treasury.
Dividends and interest don't accrue and aren't payable to
the Treasury for the first two years. While the maximum annual
dividend or interest rate is 2%, it could fall to as low as 0.5% for
banks that make a certain amount of " qualified loans " and go even
further with " deep impact loans. " The latter earn banks double
credit toward their rate reduction.
For example, loans that are considered qualified include those
to low- and moderate-income (LMI) borrowers, small businesses
with annual revenues below $1 million and borrowers involved in
affordable housing.
Loans that are considered deep impact include those to
low-income borrowers, small businesses with revenues below
$100,000 and to borrowers involved in deeply affordable housing.
The Treasury noted in a press release that the additional credit
for deep impact lending " recognizes the fact that the kind of
lending that will be most impactful in achieving the statutory
purpose of the program often requires more time and resources
from the lender. "
It adds, " This approach is designed to help level the playing
field for borrowers that face the greatest barriers to accessing
capital and will provide greater transparency into the impact of
the program. "
Naudon says. " We're acquiring a lot of
talent and a lot of technology. "
M&F, meanwhile, is investing
in a cloud-based loan origination
system that Sills says will allow the
community bank to generate more
loan volume and improve efficiency.
And Asian Bank is rolling out
additional capabilities of its new
core system and has hired employees
from outside of the immediate
Asian community to help expand its
customer base.
" Historically, one of our employees
has been able to make a connection
with somebody in the community,
and from there it's word of mouth, "
Wang says. " It's always been the
best way for us to reach out and
gain the trust of new clients and
community members. "
The CDFI ecosystem
The government funds have led to
another development: The three
banks are strengthening their
relationships with other CDFIs.
Asian Bank, for instance, is offering
grants that affect the community.
The community bank is also
refinancing loans of CDFI clients,
lending to CDFIs directly and even
participating in some deals. " ECIP
incentivizes recipients to be creative
and encourages providing capital to
businesses in need, " Wang says. " One
way to do that is to help nonbank
CDFIs increase capacity by being a
56 // ICBA Independent Banker // February 2023
Independent Banker - February 2023

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