Transcription:
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Penny Crosman (00:03):
Welcome to the American Banker Podcast. I'm Penny Crosman. Climate First Bank, a de novo with a sustainability mission, opened its doors three years ago in St. Petersburg, Florida. It recently exited de novo status and plans to expand outside of the state. Lex Ford, president of the bank, is with us today to share some of those plans. Welcome, Lex.
Lex Ford (00:25):
Thank you, Penny. Happy to be here.
Penny Crosman (00:27):
Great. Well, you worked at First Green Bank before this. When did you first become interested in climate issues?
Lex Ford (00:34):
I'm a convert. I grow up in Florida where I still live. Family's been here over a hundred years and I got into banking by accident in the middle of the '08 crisis. And five years into that employment, I was just looking for a new job and First Green Bank was willing to pay me, I think, $7,000 more than I was making at my first employer and I almost didn't take it. Our HR person from First Green at the time asked me, you don't drive a big truck, do you? And that was the first question she asked me, and I took exception to it because that was the first question she asked me, didn't get to know me first, and I said, oh, I'm not going to go work for these guys if that's the first question they're going to ask me. But I ended up taking a meeting with the president at the time, and they needed me, I needed them, and I moved over, not based off of anything related to the mission and maybe in spite of it off of that first interaction.
Penny Crosman (01:45):
But then you said you're a convert. What made you change your feelings about it?
Lex Ford (01:50):
I'm pretty pragmatic and an underwriter by trade. So that was April of 2013. By December of 2013, I was the first owner of an electric vehicle in the bank because it just made sense. I was paying $60 a week in gas to get to the branch. It was a 50 minute drive each way. There was a tax credit available for the vehicle, and the bank would also pay me to wrap my vehicle with the bank's logo. So the first sort of introduction was, wow, I'm spending a lot of money on gas. And I tell a story a lot of how probably six months before I joined First Green, my credit administrator at my former bank was looking at trading in his very nice black Cadillac Escalade truck for a Chevy Volt. I said, what are you doing? You're 40, you're single. You've got this nice truck, you're going to trade it in for this little rinky dinky car, and why would you do that? And he gave me all the financial reasons, et cetera, et cetera, and I just brushed him off. And that was me buying a Chevy Volt almost a year later for the same reason. So I think very early taught me that every person we interact with is a prospect of joining or aligning with the mission of the bank and sins of the past don't have to be sins of the future, but we have to be patient and caring enough to want to influence and inform.
Penny Crosman (03:59):
So what does sustainability mean to a bank like yours, and what are some of the things you're doing to help curb carbon emissions, if that's the right way to put it?
Lex Ford (04:10):
I think our biggest impact comes from our solar lending. We've put solar on somewhere around 2,000 homes in the state of Florida, over a hundred million dollars in solar lending. We've also done probably another $35 million in commercial solar lending. And that's a very direct offset of power consumption and therefore carbon production. But I think the biggest challenge that we have as a mission-based business and why it's inherently better to run a mission-based business, is it forces us to measure everything we do. So from the very beginning of the operations of the bank, we produce an impact report. We produce an impact report at our first year where most companies wait to get a few years in before doing that. We are constantly having discussions on the impact of our lending activities and sales activities and email volume and its impact on the planet.
(05:31):
So directly it's through solar lending, but it kind of just flows through every bit of the bank and into even our employee benefits. What's the planet worth and what's the worth of a healthy planet if there's not people on the planet, if the people aren't enjoying their time on the planet? So we've got pretty aggressive benefits for our staff that include low-rate residential mortgages in this crazy rate environment that include 0% financing on high mileage or electric vehicles and 0% financing on solar and good 6% match on 401k. So I don't think you can decouple the environment from the people and still have that same yearning to do better.
Penny Crosman (06:28):
Did you say you have to measure the energy consumption of your emails?
Lex Ford (06:33):
No, we debate the... everybody hates getting emails, right? The email flow is horrendous as is with I'm sure most, but you just get down to the thought process of, okay, every time you send an email, it's sitting on a server somewhere and those server farms are energy hogs. So before you send that email, is there a better way to communicate it that won't even take up that little ounce of energy production needed? So that's I guess, how deep the thought process can go.
Penny Crosman (07:11):
That's really interesting. Someone told me the other day that every time you type a question into ChatGPT you're consuming a water bottle's worth of water in the cooling of the chips used to provide that answer.
Lex Ford (07:29):
That's interesting. Some of our marketing folks use ChatGPT to help drive creative thought. So I'm going to have to let them know about that stat. If you have the article, I'd love to have it.
Penny Crosman (07:44):
And how do the solar loans work, just to paint a picture of what this product is.
Lex Ford (07:51):
I hope you don't mind that I'm going to get on a soapbox for a second and talk about the solar industry. We've all heard positives and negatives about it. The inherent work that solar panels do is positive. There's no if, ands or buts about it, you controlling the production of your own power and offsetting the cost that you pay the utility when they control the cost through the price through state initiatives every year, that's inherently positive. You can't argue with fixing that bill. But the industry itself is fraught with issues that were, I think, on the ground floor of fighting. And that's starts at the industry-wide financing model that we don't do. The industry-wide financing model is for a financial technology company to sign up installers as dealers of their debt, their private equity or venture capital funded debt, and to access that capital, that debt they are charged.
(09:04):
The installer is charged a dealer fee around 30%. So $45,000 system has a dealer fee charge of $15,000 at a minimum. And okay, why would any installer do that? How could they afford to take a $15,000 hit on a $45,000 system? Well, they do it by increasing the cost to the customer. So the customer pays $60,000 for that system versus the 45,000 it should cost, and they hide it under a dealer fee that's not disclosed. The fintech prohibits the solar installer from disclosing to the consumer. It's not an origination fee, it's not any of these normal loan fees people are used to paying and know about, and they disguise it by offering below market interest rates at the depth of the interest rate environment, they were 0.99% or 1.99%. So it's really a teaser rate because you're paying 30 points upfront on top of that.
(10:17):
So that model didn't exist, I don't think, prior to first Green Bank selling and neither did the process by which loans are originated, which is today the installer comes to your home, they want you to sign on the dotted line during that meeting that night, and therefore the financing company needs to be able to deliver an automated solution or approval at that same time. So when the bank began to form in 2020 and then formed in 2021, I wasn't here. I was just hearing about it. I was still working at the bank that acquired First Green bank and the installers told us of this dealer fee scheme and the automated solution, and you're not going to be able to compete unless you can compete in that automated solution.
(11:12):
It really turned the industry on its head, and it took us about 10 months to get an automated solution up and running that actually worked to be competitive. But then it was another year, I'd say, of informing the installer, explaining, convincing them that our no-dealer-fee product at a much higher interest rate was better for the consumer and better for the installer than this fintech-driven model where they charge a 30% dealer fee. You weren't keeping a secret from the customer. The customer had a lower payment and a payment that wasn't dependent upon a tax credit being converted. And the dirty secret for solar financing is that this average solar loan only lasts five and a half to six years. So the dealer fee product could be better for the consumer if they stayed in that same house for 25 years. But they don't. People trade their homes pretty often and therefore our product's always better and it doesn't take advantage of the consumer. So that's a long answer to, but that's a bit of a soapbox issue for us at the bank, this dealer fee model that takes advantage of the consumer. And recently the attorney general in Minnesota's gotten involved and is targeting those companies and their financing activities. So I would look into that if you haven't already read it.
Penny Crosman (12:56):
Yeah, that's super interesting because it's always felt a little bit sketchy. People come to your door wanting you to get solar panels, but you just have to sign this 25 year contract with this company you never heard of and it always felt a little off. So that's interesting. I wonder if any other states are looking at this too. And so basically, is this area kind of unregulated? I mean, there's no supervisory regulator that focuses on this.
Lex Ford (13:34):
So they're not financial institutions and the installers are all certified contractors. They all go through a vetting process with whoever is doing the financing. The CFPB, I would bet, has complaints in the thousands about the dealer fee financing. And as I understand it, are combing through and looking at what action they'll take. There are attorney generals throughout the nation maybe following suit or looking to follow suit with the AG in Minnesota with their reaction. We actually just had a meeting with our regulator for the state of Florida and Commissioner Weigel, to his credit, very much attached to this issue and asked us to follow up with some verifiable data that we provided. So we do hope that the state of Florida, we'll be looking at this as well. It's a consumer protection issue in my opinion.
Penny Crosman (14:45):
So the cost should be lower to the consumer if they use one of your loans versus this financing mechanism through the
Lex Ford (14:55):
Absolutely. And that's before there's leasing models and stuff that have other issues with consumer abuse. But for purposes of this, keep it simple. Talk about financing. So it is more cost effective. It's not paying some outrageous usurious dealer fee to access financing under the guise of a low interest rate. But I think everybody but the fintech would be happy for these products. And the reason why the fintech does is they take this pool of $20 billion in originations per year, and they sell them at say, a 15% discount to a financial institution or a fund. So $100 million gets sold for $85 million, and that drives the yield up significantly. So the end buyer of the debt is still getting the same return. We are just getting it on a note rate and just the controls we put in to protect the consumer. We have a maximum price per watt of $3.75, and you can regularly see dealer fee financing of solar in the $6 or $5 a watt. So if it trips that cap, no exception, sorry, solar contractor and customer, you have to revise your contract to get below our maximum. And our maximum actually is probably a little high because it's meant to offset the amount of work it would take to analyze the different types of roof attachments and roofs that we would be attaching to. So just rather than looking at each individual loan and saying, well, this is a tile roof, it should cost this. We just set one cap that felt good.
Penny Crosman (17:00):
When you talked about an automated solution before, is that a system that makes the decision whether to lend to this customer right away or is it doing something else?
Lex Ford (17:15):
We are using legacy banking technology to recommend an approval or a declination, and then we are verifying that data with real people. And that process was enabled through the hiring of our CTO. We have a very, very, very high-end CTO, and he is actually the CEO of our fintech, Marcio de Oliveira. And he built the middleware that allowed our systems to talk and recommend these decisions to our staff who then either approve or decline or counter.
Penny Crosman (18:03):
So this may not be for everybody. There's not like software you can just buy off the shelf somewhere, it sounds like.
Lex Ford (18:11):
Well, with Marcio leading this technology company, this became a very big focus of the technology company early, delivering a consumer lending platform that not only had the decisioning technology, the ability to onboard and manage and install our network, but also deliver demand to the eventual owner of the debt, meaning the financial institution. We are offering to partner with other banks, credit unions, financial institutions, on originating of consumer debt. And that's part of our national play. So we have a good relationship with Optus Bank and South Carolina, a CDFI/MDI, and have partnered with them on some solar lending stuff where essentially we deliver finished paper on a stated credit profile that works for their balance sheet, and they get the originations, they get the repayments and the good interest rate, and then we get a little premium and some servicing fee. So it's become something that Marcio and I started dreaming about in I guess October of 2021, building a platform that could not only generate solar lending nationwide, but offload it to other financial institutions so that we had the ability to maintain proper liquidity and capital and not just grow endlessly. So I think that's the path for doing that is finding partners in the industry.
Penny Crosman (20:09):
Well, I also wanted to ask you about your expansion plans because it sounds like you guys are setting up some new branches, and I wondered where might you put these new branches at least initially, and how are you making the decision of where to put them?
Lex Ford (20:26):
So brick and mortar, short term, medium term will still be Florida. We're looking at in the next year, Orlando, we're in Winter Park, but Orlando is like, you might as well be across the ocean when it comes to bringing in customers. Jacksonville, which we already have a banker in Jacksonville, Corey Jones on our team, establishing that market. And then Tampa, Tampa and St. Pete are much like Winter Park and Orlando, maybe even further, maybe two oceans away. You have to be in the city to bank the person who's in the city. So that's our near term expansion plans.
(21:12):
But what Covid has taught us is you don't have to have brick and mortar to make an impact in a market. Today we have customers in 49 different states, just missing Alaska. So if you know anybody in Alaska that needs a good bank, we'd love to bank 'em. And through solar, through SBA, through residential, we would welcome expansion to multiple other states for those type of originations without a sort of brick and mortar location. If we were to target markets, to me the first key is people. It wouldn't make sense for us to go into maybe Nashville or Austin or Boston or Atlanta if I didn't have a banker in that market that knew the market, that had customers that had a portfolio that would move over. But those type of markets are the type we would target. And it's heavily dependent upon finding the right banker in that market as to when and if we would move into them.
Penny Crosman (22:28):
I've noticed there's been kind of an anti-woke, anti-ESG movement, and several states have anti-ESG bills that they're trying to pass. I think there are 61 such bills around the country. How do banks like yours that have a maybe moral or ethical interest in being climate friendly navigate these kind of political waters, so to speak, where there's all this pushback on ESG of all kinds, but I think including environmental mandates?
Lex Ford (23:15):
We're a bank, and we will always comply with every law and not run afoul even if we don't like the law or understand the purpose of it. And so when the bill was passed here in Florida, we reached out to our regulator immediately and said, Hey, I know you're probably worried what our reaction is going to be, but don't be. We will comply and we will do what we've always done. And that is make good loans and bring on good deposits to the community in and around our branches and our footprint. So internally, what it's done, in my opinion, is challenged us. We used to rely on an exclusionary list as why we wouldn't do business with certain industries or real estate classes. And it's easy to put something up and say, oh, I'm not lending that because I'm scared of it, or I don't think it's good for this reason or not.
(24:23):
But what's really, really, really hard, and I think beneficial to go through, is the challenging discussion of we live in a world now where we can't have that list. What does it mean to lend to industry A, B, C and that we previously maybe didn't or wouldn't, and how do we bring them into our church and convince them, influence them of the mission? So I very much like to bring in customers, like I was brought in, I was at best agnostic to the mission of the bank. A bit turned off based off of the HR experience, and nobody hit me over the head with it. It was listening, understanding what the benefit could be to me personally, applying that thought process to, well, I'm going to need a new car anyway, and then norming to what does that next step look like?
(25:33):
The first loan that I referred to this bank was a gas station. And like it or not, the vast, vast majority of our country, of the world uses gas powered vehicles and will for a long time. So the idea that we shouldn't allow for just transition for legacy fossil fuel companies or something like that into a world that might be EV or it might be something else driven is ridiculous. So I referred the bank I was working at before joining here, passed on this loan. Two guys around my age, I'm 39. So at the time we were both all probably 35. They employed, I think 2,000 people. They owned 12 different franchises and they wanted to come into Florida and purchase a second, I think it was their second gas station. And they were referred to me by one of our closest friends, investors, customers.
(26:45):
And my previous bank said, no, it's startup risk. We're not into it. So I called Ken, our CEO at Climate First and said, would you be interested in this deal? By the way, I think we can convince them that it's good for their business to put solar on their roof and a charging station in their parking lot. And he said, yeah, I'd be interested in getting to know them and looking at the deal. And so I had made the introduction and that was the first deal that I referred to this bank that closed. And to me that is impact. If I bank only people who agree with my mission, I might further their business, but that's my only hope of making an impact is furthering their business. And if they fail, I fail totally, right? But if I take a gas station or a hotel or any energy hog of a building, say a server farm and I put solar on it, even if it's one panel to offset one little drip of their energy, I'm making an impact that for the next 20 or 30 years, that grid will be powered by a renewable energy versus some sort of legacy energy.
(28:05):
And that's cool and interesting to me. Not only helping folks that agree with this on every issue, which is impossible to find. We don't even agree on every issue, but creating the business purpose for the company or the consumer that brings them along the path that I went down.
Penny Crosman (28:31):
So a little bit of adaptability and open-mindedness can help you come up with a sort of compromise or a way of dealing with customers you might not at first blush, be interested in.
Lex Ford (28:43):
Yeah, a compromise, because again, if I only lend to organic farm ABC, that all their power is already generated from wind or solar, and I give them an operating line of credit to bridge the cash flow between harvests, if they fail, I've made no impact at all. I've allowed them to maybe operate a little bit longer, but I'm not being additive to their mission alignment, really. But if I take somebody who hasn't even conceived or thought about our mission or how to look at energy consumption or carbon production, and I convinced them that it's good for to do it, that's huge in my opinion.
Penny Crosman (29:46):
That makes sense. Well, Lex Ford, thank you so much for joining us today, and to all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Adnan Khan. Special thanks this week to Lex Forward at Climate First Bank. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman and thanks for listening.