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Cascade: No. 59, Fall 2005

Delaware Wholesale Bank Resourceful in Its Community Development Lending

A bank-lending consortium launched six years ago with volunteer assistance from its community-bank members is enjoying a surge in bank membership and steady lending growth, with no defaults or delinquencies.

The nonprofit consortium, Community Lenders Community Development Corporation (CLCDC), has closed 25 loans totaling $10.5 million for the development of 379 rental housing units and 11 nonprofit facilities in Bucks, Chester, Delaware, and Montgomery counties, Pennsylvania. It has made additional financing commitments totaling $3.7 million.

Seven of CLCDC’s 21 members* have joined in the past year. Another five banks are considering membership. The consortium is obtaining bank commitments for a $6.5 million third loan pool and will be seeking commitments for its fourth loan pool next year.

Joseph F. Murphy, executive director of CLCDC and previously regional community reinvestment officer for M&T Bank, said that the consortium was attracting new members because it is a successful, viable entity and banks can obtain CRA-related credit by providing loans and operating grants and participating on CLCDC’s board of directors and loan committee. CLCDC is attracting community banks from Chester and Delaware counties, which it began serving in 2003-04, as well as others from its original service area of Bucks and Montgomery counties, he added.

Murphy said that CLCDC’s excellent loan performance stems from its underwriting criteria. Following his own analysis, loan requests are reviewed by a loan committee of 14 to 16 experienced lenders. If the committee approves the request, the board of directors makes the final decision.

CLCDC primarily provides permanent long-term financing for rental-housing development, nonprofit facilities and offices, and mixed-use housing-office properties. Some examples of the consortium’s financing are:

  • Villas at Red Hill, Montgomery County — 68 one-story rental units for tenants aged 55 and older, a community building for resident activities and supportive services, and on-site administrative maintenance and offices.
  • Sharon Hill Commons, Delaware County — 40 new and renovated rental units for low-income families, offices, and conference, laundry, and community rooms.
  • Indian Creek Foundation, Souderton, Montgomery County — acquisition of a building to provide office space and services for a nonprofit that works with the developmentally disabled.

Murphy explained that all of CLCDC’s loans are designed to meet one or more of the four traditional criteria under the CRA-related definition of community development: affordable housing for low- and moderate-income (LMI) households; community services for LMI individuals; activities that promote economic development by financing qualified businesses or farms; and activities that revitalize or stabilize LMI geographies.

Member banks have the opportunity to provide construction loans, mortgages to home buyers, and other financing not provided by CLCDC. The member banks have generated many of the loans made by the consortium, which works with both nonprofit and for-profit developers.

Banks that join pay a membership fee of $15,000 payable over three years and agree to a lending commitment of between $250,000 and $500,000. Members participate in each loan funded by the consortium in an amount that reflects that institution’s percent of the total loan pool.

Working closely together, the member banks developed CLCDC’s loan-underwriting guidelines and oversee loan-committee functions. Doris Schnider, executive director of the Delaware Community Investment Corporation, consulted in the consortium’s formative stages.

Diane Koehler, chief risk officer of Univest Corporation and a founding member of CLCDC, reflected on the consortium’s experience and observed: “The original purpose of the CLCDC was to provide community banks with more community development opportunities, since the larger banks had an advantage over community banks in being able to acquire tax-credit projects that provided affordable housing. Our smaller joint venture enabled us to all learn together and we enjoyed seeing the projects come to fruition.

“On the other hand, we discovered that some of the community banks became larger banks anyway through mergers and acquisitions. Perhaps structuring the loan pool differently and pricing the membership in the CDC in the beginning according to asset size to accommodate larger banks would have provided us more equity to support a full-time staff. We also learned that our geographic territory was too limited; it has more than doubled from our original boundaries. However, the ultimate goal is what’s important and the CDC has certainly accomplished its mission.”

For information, contact Joseph F. Murphy at (215) 799-1340 or executive.director@clcdc.org; www.clcdc.org.

  • * The CLCDC’s members as of July 31, 2005, are: Abington Bank, Alliance Bank, Ambler Savings Bank, First Federal Savings and Loan Association of Bucks County, First Keystone Bank, First National Bank and Trust Company of Newtown, First Savings Bank of Perkasie, Harleysville Savings Bank, M&T Bank, National Penn Bank, NOVA Savings Bank, Penn Liberty Bank, Phoenixville Federal Bank and Trust, Premier Bank, Republic First Bank, The Bancorp Bank, The Harleysville National Bank and Trust Company, The Quakertown National Bank, Third Federal Savings Bank, Univest National Bank and Trust Co., and Willow Grove Bank.