Independent Banker - August 2021 - 56

for community banks. As long
as a community bank does its
homework and understands the
unique characteristics of lending to
faith-based organizations, this kind
of lending can become a healthy
segment of its loan portfolio.
Churches make up about 30%
of M&F Bank's portfolio. " From a
historical standpoint, this segment
has performed as well or better than
How do denominational
and independent
borrowers differ?
any other segment, " Williams says.
" We have an excellent track record
with them. Even with everything we
went through in COVID, we didn't
have any serious financial issues with
faith-based organizations. It's really
mind-blowing if you think about it. "
Advantages of church lending
For $67 million-asset Carver State
Bank in Savannah, Ga., 14% of
its loan portfolio is to churches,
primarily for building acquisition
and renovation. According to
the community bank, there are
advantages to church lending beyond
the immediate loan revenue. For
example, most of the bank's religious
organization loans have been to Black
churches, says president Robert
E. James, and that has led to loyal
relationships with the institutions.
" When we meet with a church,
we'll talk to four or five officers of
the church, " he says. " In addition to
being leaders in the church, they are
leaders in the community. So, there
is always the possibility of creating
other banking relationships-and
goodwill-just from having a
good meeting. "
Wil Hobbs, senior vice president
and community impact director of
$762 million-asset Community Bank
of the Bay in Oakland, Calif., says
he has observed the relationshipbuilding
value of lending to churches
in his community. Places of worship
make up about 4% of the community
bank's portfolio.
" We've gotten from our lending
the general perception that we're
good guys, " Hobbs says. " I've been
56 Q ICBA Independent Banker Q August 2021
There are countless types of faith-based organizations.
But many lenders distinguish these groups by
putting them into two groups: independent or major
denomination with a regional office structure.
In general, churches that belong to a major
denomination with a regional office structure, such
as United Methodist, Presbyterian Church (USA) or
United Church of Christ, are preferable as borrowers
because of the support the denominations offer to their
member churches.
" A lot of times, the district office will guarantee loans, "
says Scott McComb, chairman, president and CEO
of Heartland Bank in Whitehall, Ohio. " New churches
getting started sometimes can rely on their district
office for capital. "
In addition to guaranteeing loans or providing capital,
regional offices often offer oversight and counseling to
member churches, which is useful if a member of that
denomination runs into financial trouble and can't repay
a loan.
" In the structured denominations, if a congregation is
having trouble repaying its loan, it's going to have other
problems. That means that the congregation is going
to be under evaluation by the episcopal leadership, "
says Robert E. James, president of Carver State Bank in
Savannah, Ga. " So, the episcopal leadership is going to
be working on that congregation to see if it can get its
problems worked out. "
The community bank will work with the congregation
and its leaders to work through issues, James adds.
Independent churches are often called
nondenominational-though many Baptist churches are
also independent-and are traditionally led by pastors
who exert greater control over the organization than
a pastor of a denominational church. This may mean
there's a greater risk of leadership disruption unless
there's a strong board and succession plan.
" You would normally conclude that it would require
more work to evaluate a religious organization that
is not part of a structured denomination, " James
says. " But [Carver State Bank] has 94 years of history
of lending to churches-and I would guess most
of our loans have been to Baptist churches-and I
don't think we've had any real losses on a loan to a
religious organization. "
Photo by Alan Geho
Independent Banker - August 2021

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