We and St. Louis Equal Housing and Community Reinvestment Alliance have completed a Community Benefits Agreement with First Mid – as SLEHCRA recently announced — that addresses our concerns. But the sale points to a major outstanding issue: if we want more loans in African American or other majority people of color communities, we must demand federal bank regulators raise the standards they use to grade lenders. 

When Mattoon (IL)-based First Mid Bank & Trust announced its plan to buy St. Louis’ Jefferson Bank & Trust last fall, we joined local advocates in protesting the purchase. Our joint analysis confirmed First Mid’s relative lack of home and small business loans in majority African American communities they serve.  

We and St. Louis Equal Housing and Community Reinvestment Alliance have completed a Community Benefits Agreement with First Mid – as SLEHCRA recently announced — that addresses our concerns. But the sale points to a major outstanding issue: if we want more loans in African American or other majority people of color communities, we must demand federal bank regulators raise the standards they use to grade lenders. 

This year we have several important opportunities to reform CRA on the table – national reforms planned by the federal bank regulators and the creation of an Illinois CRA stand out among them. If we raise standards for all lenders and get more high-performing loans out to more low- and moderate-income communities and predominantly Black, Latino and other communities of color, doing better can become the norm.

What we found

The analysis we conducted along with St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA) and National Community Reinvestment Coalition was based on analysis of Home Mortgage Disclosure Act (HMDA) data for 2018-2020. We uncovered clear indicators of fewer loans to communities of color than majority white parts of the First Mid service area, which includes the historic – and under-invested –East St. Louis area across the Mississippi from St. Louis.

Notably, we found that in St. Clair County, where East St. Louis is located, and 6 other counties with 33 majority Black census tracts, First Mid originated a grand total of 2 mortgages over a 3-year period. Over that same 2018-20 period, other lenders originated 1,382 mortgages in those same 33 census tracts. We found similarly low numbers of loan applications from prospective Black borrowers in other central Illinois counties where First Mid operates.

Victory! First Mid’s response and what happens next

To their credit, First Mid bank leaders have committed to a 36-point plan that includes substantial investment in loans as well as marketing to the community. Among other commitments,

• First Mid will add a new branch in St. Louis and another in Champaign County in areas that have been underserved. The bank also commits to maintain all its branches in similarly underserved communities for at least 3 years — at least 5 years in the city of St. Louis.
• First Mid will make a $10,000 grant to  St. Louis’ Griot Museum of Black History to help raise awareness of Jefferson Bank & Trust’s importance to the city’s Civil Rights history – it was the site of a notable protest in 1963 after local leaders accused the bank of refusing to hire Black workers for professional positions.
• First Mid has promoted a staff member who oversees community development banking to a Senior VP position and will invest more than $100,000 in marketing and financial education for Black and Latino/a communities including through grants to SLEHCRA and other area organizations

In addition to the above and a number of substantial commitments to improve their lending operations, the merged bank officials commit to meeting with SLEHCRA and Woodstock on an ongoing basis to monitor progress toward the measurable goals in the agreement.

Next step: regulators need to raise their standards

Woodstock’s initial analysis of First Mid’s lending activities showed a multi-year pattern of behavior that raised fair lending concerns. But despite the data, First Mid received a Satisfactory rating for its most recent performance examination by the Office of the Comptroller of the Currency, including an Outstanding for the lending test.

The relatively high ratings are perplexing compared to comments from the examinations themselves. For example with respect to the lending test, examiners stated, “[O]verall, the geographic distribution of loans is poor.” For mortgage lending, the report stated, “. . . the geographic distribution of the bank’s home mortgage originations and purchases is poor in the St. Louis MMSA.” It went on to say that the “. . . distribution of First Mid’s home mortgage loans in 2015 and 2016 in low and moderate (LMI) geographies was very poor.” That rating went up to poor for 2017.

In view of these relatively harsh comments and what the data showed, we can only conclude First Mid got the regulatory equivalent of “social promotion” on Fair Lending and CRA. Unfortunately, they are not alone.

It’s been increasingly clear that the grading system is ineffective, as we pointed out in Failure to Implement, our September 2021 analysis of Chicago lending over 30 years. We showed that from 1984 to 2019, banks did not increase lending in low- and moderate-income communities and communities of color. Yet over that time period 90 to 95% of banks received Satisfactory or Outstanding CRA ratings from the federal bank regulators.

The problem, it’s clear, is with low expectations of lenders’ ability to serve communities. This year with several important opportunities to reform CRA on the table – national reforms planned by the Comptroller and the creation of an Illinois CRA stand out among them.

Arguably, addressing these issues one bank merger at a time is an approach that will never allow us to get to scale in solving problems that are decades if not centuries old. Whereas if we raise standards for all lenders and get more high-performing loans out to more low- and moderate-income communities and predominantly Black, Latino and other communities of color, doing better can become the norm.

In the long run, it will cost less, not more, than merger fights one by one. We can do it — we just have to expect more of ourselves and our peers.