In values-banking landscape, profitability not the only objective by Kelsey Bartlett and David Hayes

Community banks with “values”-based business models appear to be growing assets faster than many peers but lagging in profitability.

S&P Global Market Intelligence analyzed the performance of U.S. banks in the Global Alliance for Banking on Values, or GABV. The alliance, founded in 2009, is a network of financial institutions advocating for social, economic and environmental sustainability in banking. There are 46 member institutions across the world, including seven banks and three credit unions in the U.S.

During 2017, six of the seven U.S. GABV member banks posted a return on average assets lower than the median of the 5,000-plus banks and thrifts with less than $5 billion in assets. In 2016, all seven came up short of the median ROAA, but many of these GABV members posted higher net interest margins than the industry.

With the exception of New York-based Amalgamated Bank, these companies’ assets grew at a faster rate than banks of similar size. Four GABV banks engaged in significant M&A activity over the last two years. In December 2017, Amalgamated announced plans to acquire fellow GABV member San Francisco-based New Resource Bank.

The deal will push Amalgamated Bank’s assets closer to $5 billion. Amalgamated President and CEO Keith Mestrich said the acquisition will deepen the bank’s focus on environmental causes, since New Resource strives to invest the majority of its loan portfolio in organizations that are advancing sustainability.

‘We’re not charitable institutions’

GABV senior adviser David Korslund said the organization was founded at a time when it was clear there was “something fundamentally wrong” with many large-bank business models. Its founders included banks that, at the core of their banking business models, had “a focus on delivering value for society” rather than on “how to raise money for shareholders.”

To join the GABV, Korslund said banks must prove they are profitable. “We’re not charitable institutions,” he said. “But we’re focused on starting with the premise that you need to create value for society.”

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Courtesy of S&P Global Market Intelligence – Community Corner