The $1.6 billion-asset ShoreBank in Chicago is widely considered a model community development financial institution, but its 11-year-old Cleveland unit never made the grade.
The parent ShoreBank Corp. hopes to do better there now that the Chicago bank has absorbed the $65 million ShoreBank Cleveland.
All operations are to be integrated by yearend, said Anne Arvia, the Chicago bank's president and chief executive. It will then be able to offer business checking, cash management services, online banking, and other products in Cleveland that it already offers in Chicago and Detroit, she said.
Most important, ShoreBank can now make bigger loans in Cleveland. Ms. Arvia said its legal limit in Cleveland used to be $1 million; now it is more than $20 million.
"This helps us better compete with the larger institutions that are making mortgages in these communities," Ms. Arvia said. "We also see an opportunity to do more commercial lending to small businesses."
ShoreBank Corp. founded the Cleveland bank in 1994 at the request of a group of business leaders there, who were impressed with how well it had rejuvenated neighborhoods in Chicago. But the company has learned that it cannot easily replicate that success in other cities, Ms. Arvia said.
In the early years of serving distressed neighborhoods in Chicago, ShoreBank had virtually no competition from other banks, she said. Now, however, competition is fierce in distressed neighborhoods everywhere, in part because larger banks have recognized that lending in them can be profitable, Ms. Arvia said.
In Chicago, ShoreBank has survived in retail banking because it had already had a foothold there, she said.
The Cleveland bank is not the first that ShoreBank Corp. has closed. In 2001, the Chicago bank absorbed a Detroit bank its parent had established in 1998.
Neither the Cleveland nor the Detroit start-up offered retail checking accounts; instead they gathered deposits by offering certificates of deposit to nonprofits and other supporters of its mission. But growing tiny banks in distressed neighborhoods under this model proved too daunting.
Ms. Arvia said that centralizing operations in Chicago will free the Cleveland bank's president, Stephanie McHenry, and her team "to pursue more loans, instead of having to constantly worry about the operations side of the bank."
Amanda Marko, a spokeswoman for the nonprofit Greater Cleveland Partnership, said ShoreBank's higher lending limits will help her group. Though it works with other banks, ShoreBank and certified community development financial institutions like it can be more flexible, offering both traditional and nontraditional financing products to small-business owners, she said.
Also, ShoreBank shares "many of the same values as we do, and we know that they are always looking at projects that would better the community," Ms. Marko said.
Members of the now-dissolved ShoreBank Cleveland board will form an advisory board to help ShoreBank develop strategy and bring in Cleveland business.
Ms. Arvia said the bank is considering opening another branch in Cleveland. (It opened a retail branch in Detroit after reabsorbing its bank there.) It will probably not offer retail deposits in Cleveland soon, she said.
ShoreBank may one day enter other cities, but it would probably do so by opening branches instead of banks, Ms. Arvia said.
"It would be really hard to convince the board to ever do a de novo again," she said.
