Two recent deals with much larger financial institutions have Kenneth Kelly feeling that First Independence Bank is poised to move to a stronger position in the marketplace.
Kelly, the chairman and CEO of the Detroit-based First Independence — Michigan's largest Black-owned bank — said that despite recent headlines of new partnerships with Bank of America and Comerica Inc., conversations had been ongoing between the institutions for approaching a year.
In the short term, the deals with Bank of America and Comerica position First Independence to be in a stronger lending position regardless of broader economic challenges.
Longer term, Kelly said the deals send a message to the rest of the banking industry that these types of deals are needed to address gaps.
"And so my vision would be five years from now, it wouldn't be just two major institutions, it may be three or four or five of them," he told Crain's in an interview.
The 50-year-old First Independence Bank, born out of the 1967 riot in Detroit, stands as the 55th largest bank in the state with deposits of $206 million, according to Crain's most recent list of largest banks.
Kelly's kind of bank, known as a minority depository institution, is fairly rare in the world of commercial banking in the U.S.
As of the end of 2019 there just 144 federally insured MDIs. Those institutions have combined assets of nearly $249 billion, according to a report from the Federal Deposit Insurance Corp.
The banks that First Independence has now aligned itself with — Comerica and Bank of America — stand as the second and third largest banks in the state, respectively, each with in-state deposits of over $20 billion. First Independence is a fraction of their size.
But the deals have the potential to be a game changer for First Independence and propel the bank into new markets, said Michael Tierney, president and CEO of the East Lansing trade group Community Bankers of Michigan.
"I think they're really poised to really make a big move. They need exactly that kind of help," said Tierney, adding that such deals could help the bank broaden its reach in areas like financing from the Small Business Administration. "They need some of the banks to just help them get going in a few of these businesses that they traditionally did not engage in.""
Bank of America's new equity stake of about 5 percent in First Independence — as well as a handful of other minority depository institutions — speaks to what Kelly said he sees as indicative of the start of systemic change when it comes to racial wealth inequalities.
"And so that is something that has been talked about really across this country for a long period of time," Kelly said of the need for minority-owned banks to have increased access to capital. "And so to see a bank like Bank of America really step up and make that type of a bold statement, that sends a signal to the rest of the market that these banks ... like ours are needed in the communities that they serve and that they are viable investments."
The bank executive declined to put a dollar figure on the 5 percent equity investment.
Bank of America's stake in First Independence is part of a broader $1 billion initiative over four years to advance racial equity.
"This is more than just corporate philanthropy," Matt Elliott, the bank's Michigan market president told Crain's in an interview last month. "What we're really trying to do is make investments, hopefully along (with) like-minded institutions like businesses, philanthropic entities ... that will help us create some self-sustaining business systems that really get at these systemic issues over a long period of time."
Meanwhile, a $2.5 million deposit into First Independence from Comerica is part of a broader $10 million lending effort to MDIs by the Dallas-based bank.
That deposit by Comerica will actually have some early costs, but over the long run, will help the bank serve more clients, according to Kelly.
"In the long run, it gives us the liquidity to be able to make loans and make money on those at a point in time in the future," said Kelly. "So while it is not the highest priority for our bank, it is a contribution that allows our bank to continue to grow."
Comerica has said that deposits into MDIs like First Independence come with myriad benefits for larger banks.
"MDIs have a unique ability to reach diverse populations, and Comerica wants to support access to capital in diverse communities, particularly those adversely impacted by the COVID-19 pandemic," Larry Reed, Comerica's senior vice president for external affairs and community development, told Crain's last month. "The added benefit of establishing a relationship with MDIs is that banks can share best practices which further enhances the delivery of banking services to the customers of both organizations."
The late-May killing by police of George Floyd, an unarmed Black man in Minneapolis, stood as a reckoning for much of the corporate business world when it came to addressing the vast racial inequities long present in the country.
Kelly, however, says discussions with both institutions were underway long before Memorial Day.
Rather, he said that many of those talks began at conferences last October and November, and Kelly said he expects there to be further such deals down the road.
"To kind of consummate these (deals), people see the headlines, but really there's a lot of work that goes into the conversations," he said. "There's a building of trust that has to take place," Kelly said. "So now to see the fruit of that labor and share my perspective is somewhat rewarding because it's not just with one or two banks, but it really is across a whole sector that we're seeing the outcome that's going to impact those institutions."
Banks have been asked to play a large part of the economic recovery effort as the COVID-19-induced recession drags on.
Unemployment at the state and national level remains high despite federal relief programs such as the Paycheck Protection Program.
Kelly said commercial clients of his bank have had a "mixed reaction" to the economic upheaval, and he remains generally uncertain of the economy will fare heading into 2021.
"You're hopeful that some form of retrenchment would take place with this virus," said Kelly. "But the concern is still very wide that this virus may have a negative impact on the economy going into the winter season."
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Big banks' investment position Black-owned First Independence for growth - Crain's Detroit Business
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