The needs were out in the world — companies like Veritable Vegetable that needed capital to grow — and depositors were coming to the bank in response to its mission-oriented promise. But if most of the loans it made were just like the loans any other small community bank made, New Resource really fell short of that initial promise.
“There are companies that have high service, or unique products, but in banking, things are mostly a commodity,” says Siciliano. “If you’re going to go out in the world and have a mission, then you really better understand how it informs your lending and blend it with your lending practices. So that people will understand the mission.”
For the community bank veteran Siciliano, it was a new challenge, and one that he found more fulfilling than any of his previous turnarounds. Rather than a community based on geography, New Resource Bank had to be a community bank whose community was based on shared values. And while the bank had some sense of those values internally, it needed to spend more time getting to know its potential customers and their values.
“We did a lot of deep dives on: Who are these people? What do they need? Where do they hang out? Why would they want a bank? How would they find us and where could we find them?” says Siciliano.
To restore credibility and have genuine conversations with those potential customers, the bank also made a big decision — coming out of the cease and desist order, every loan the bank made would have to be mission-aligned. It was the first decision made at the bank under Siciliano’s tenure.
“[As a group we realized] you can’t be half-green as an institution,” says Siciliano. “You can’t say to the world, well, we believe in certain things but then only do it half the time and continue doing traditional lending that comes out of a community bank. … And that was the first big decision that, you know, in the rearview mirror may not seem so important, but at the time, it was pivotal, because it said to everyone on our board, to our employees, to our shareholders, and to the regulators, we were 100 percent committed to this mission.”
In some ways, it was a huge risk, because it would mean saying no to some loans that might earn profits for the bank, but just weren’t aligned with its values around people and planet.
“We came up with our questionnaire, a simple questionnaire that would allow companies to answer the questions about practices, and we would score it,” says Siciliano. “And we said ‘no,’ often, in the early stages. We’d say well, really we’re looking for businesses that are compatible with this philosophy. How do you feel about that? So that was usually where the ‘no’ came in.”
But in other ways, the bank had little left to lose. If it wasn’t possible to remain financially viable under that constraint, the bank was already in danger of being shut down anyway. As Siciliano explains, committing 100 percent to mission-driven lending felt like the only way to build, or in some cases rebuild, credibility among the bank’s chosen community.
It didn’t necessarily mean that every business it made a loan to was purely in clean technology or organic foods or some other line of business clearly related to environmental sustainability. But if they were going to make that loan to a coffee shop or restaurant or book store, it would have to be made for the purpose of something related to environmental sustainability, such as installing solar panels on the roof of the business or financing some other piece of equipment or renovations to reduce the business’ carbon footprint. Or, Siciliano says, it might not be for something like that initially, but there would clearly be the potential for that to happen down the line with that borrower.
“We didn’t mean people had to be what we called ‘dark green,’” says Siciliano. “But they had to be on a journey. All of us are on a journey around sustainability, or for that matter equity and racism. We just wanted people to be on the journey, and then we could as part of our relationship with the client help move them along.”
Still, it didn’t mean those conversations were always easy. Siciliano, who had just moved from San Diego to San Francisco, didn’t know who Veritable Vegetable was when he came to the bank. He found out later that they were the first depositor, and the bank had made an offer to extend them a loan, but it was right before the cease and desist order, which nixed the loan. But even after the cease and desist order was terminated in 2010, the loan wasn’t picked back up.
“[Veritable Vegetable] felt that they were unknown to us, and that we didn’t care about them and the service on the loan side was non-existent,” says Siciliano. “And whenever I heard that kind of a thing I made it my personal mission to meet them and follow up and say, hey, you know, I’d like to come over and meet you, and they would say you can come over but it’s not going to be the happiest meeting. But there I went, and the entire management team was in the room, it’s an all woman-led company so there’s about eight women in the room, and they, you know, kind of lowered the boom on me.”
Understanding Your Community of Borrowers and Depositors Means Assessing Risk Realistically
Getting to know an industry such as organic foods — who the players are, what the bottlenecks are and just how things work — did more than just build or rebuild credibility for New Resource Bank. It also helped refine the bank’s ability to understand the risks of lending to that sector.
Here’s a secret about banks. If they say a sector or a community is too risky for them to lend to, most of the time it’s not because there actually is too much risk. Most of the time it’s because they haven’t yet spent the time or don’t want to spend the time understanding the real risks of lending to that community or sector.
You might expect banks to be wherever there’s profit to be made, and to some extent that’s true. But from their perspective, why go out and learn about a new sector or community when there’s plenty of the same old fossil fuels or guns or prisons to profit from?
A bank needs a reason to go out and understand a new industry or new neighborhood. It might take time to reach that understanding. But if that lending can be done profitably, that understanding can become a competitive edge, at least for a while. For New Resource Bank, its mission became the reason it went out to understand industries and business models that other banks shunned.