Banks Appealing to Depositors' Social Conscience

Santa Fe, N.M., has developed a reputation as one of the nation's most socially conscious cities. Now one local bank is looking to tap into the city's altruistic nature-and its growing deposit base-by creating a "socially responsible" loan fund.

First National Bank of Santa Fe's new fund is among a small but growing number of social investment programs offered by community banks looking to fatten deposits. Modeled after Vermont National Bank's acclaimed Socially Responsible Banking Fund, the program uses deposits to lend money to affordable-housing projects or struggling minority-owned businesses.

"Depositors feel good knowing that their money is going toward programs like affordable housing," said Michael J. Hodgett, the $260 million-asset bank's chief financial officer.

Investment programs specializing in small-business development, environmental conservation, and community redevelopment grew from $80 billion in 1984 to some $700 billion in 1996, according to Progressive Investment Management in Portland, Ore., a money management firm that focuses on socially responsible investing.

Although bank deposits represent a small fraction of that amount, bank executives are recognizing that there's money to be made by appealing to depositors' social conscience.

"This goes a step beyond what banks are expected to do," said Dave Hansen, executive vice president at Bank of Newport (Ore.), which launched its socially responsible lending program in 1993.

Mr. Hodgett and Mr. Hansen say their banks have always issued loans for small businesses and community redevelopment. The difference is that now people know that if they put deposit into socially responsible checking accounts, savings accounts, or certificates of deposit, their money-fully insured by the Federal Deposit Insurance Corp.-will help improve their communities.

Early returns have been promising. Just four months old, First Bank of Santa Fe's "Community Connection Banking" fund has already pulled in some $500,000 of deposits. More than half of that sum, Mr. Hodgett said, is in new deposits.

Wainwright Bank and Trust Co. in Boston is so pleased with its Community CD program that it plans to expand its range of socially responsible product lines to checking and savings accounts in the coming months.

The acknowledged leaders in socially responsible lending are Shorebank of Chicago and Vermont National in Brattleboro, Vt.

Shorebank, founded in 1972 specifically to revitalize struggling Chicago neighborhoods, recently opened a branch in Ilwaco, Wash., to help revitalize once thriving but now depressed logging communities.

Vermont National, which started its Socially Responsible Banking Fund in 1989, was the first bank to add such a fund to its traditional line of banking products. Since then, the fund's deposits have grown to $150 million, reaching more than 1,200 borrowers.

Its loan recipients have included an organic farmer who needed a loan to build a greenhouse and Vermont Land Trust, which acquires land to protect it from future development.

"Depositors really like what we do," said W. Bruce Fenn, executive vice president at Vermont National. "Even if they open an account and then leave the state, we're finding that they're keeping at least one account with us."

Still, social investment programs aren't quite catching on fast throughout the banking industry.

"A lot of banks aren't aware that there's a market for it," said Carsten Henningsen, chairman of Progressive Investment Management.

Steven F. Young, senior vice president of Boston's Wainwright, said it's also a lot of work. Mr. Young said Wainwright has increased its staff to oversee the fund, which has made loans to organizations ranging from the Pine Street Inn homeless shelter in Boston to an institute that's researching the high incidence of breast cancer on Cape Cod. "You have to be willing to spend a lot of late nights with community groups," he noted.

It's worth it, said Vermont National's Mr. Penn. Despite the perceived riskiness of many socially responsible loans, Vermont National has charged off only one loan in eight years, he said.

"They realize that we're going the extra yard, so they feel extra committed," Mr. Fenn said. "They don't want to let us down."

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