Return on investment

When Legacy Bank opened for business in 1999, its co-founders hoped to grow to $50 million in assets in five years as the bank began serving an
inner city market that had been abandoned by other financial institutions
in Milwaukee. That goal will be met. Twofold. Legacy Bank, located at
2102 W. Fond du Lac Ave., expects to have $100 million in assets by the end of November.
That’s quite an accomplishment, considering the bank began with only $5 million in startup capital.
Margaret Henningsen, Legacy’s vice president and one of its founders, said reaching the $100 million level validates her faith that the bank would fill a void created by the branch closures of other banks in the 1990s.
"It tells me I was right," she said. "I said all along that if we opened in the heart of the city, it would be successful, and I was right. It also says a lot of people have confidence in our ability to reach our needs. And our customers are wonderful. We couldn’t have gotten there without our customers."
Legacy Bank is the only bank in the nation founded by African-American women and is the only bank in Wisconsin certified as a community development financial institution (CDFI), a designation granted by the U.S. Department of the Treasury.
As a CDFI, Legacy Bank works to bring capital and financial expertise to Milwaukee’s underserved markets. Bringing capital to those underserved markets, especially Milwaukee’s central city, was part of the mission from day one.
Legacy Bank was founded by Henningsen, Shirley Lanier and Deloris Sims. Henningsen and Sims had both been working in the bank industry for many years, Henningsen in the mortgage business and Sims in commercial banking. Lanier, who has since left Legacy Bank to pursue other interests, had an extensive background in business.
From the beginning, Legacy’s co-founders decided the bank should be a commercial lender, so it could give small businesses loans and offer commercial accounts, in addition to offering central city residents a full array of banking services.
"There were a lot of different directions we could have gone," Henningsen said. "But I wanted to be a state chartered commercial bank – which could allow us to do all of the things that banks could do. And the fastest way to grow is commercial lending."
In the same breath, she said there were other, more important motivations in focusing on the commercial side.
"There is a direct relation between commercial and small-business lending and wanting to foster economic development within our community," Henningsen said.
Focusing on business has been a mission since the bank’s inception, Sims said, because the central city needs to help existing businesses flourish while attracting new companies to the area.
"Lots of businesses have moved out of the area," she said. "We’re trying to get them to move back. We want to grow our businesses. We think all neighborhoods need a good business base to thrive."
If the bank’s numbers are any indication, things may be starting to turn around for Milwaukee’s central city.
In its 2003 annual report, the bank lists deposits of more than $72 million, up from $49 million in 2002. The bank also lists about $56 million in loans for 2003, compared with about $39 million in 2002. The bank’s income increased to $750,000 in 2003, up from $400,000 in 2002.
Sims, who started working as chief lending officer when the bank opened in 1999, said she was swamped from the beginning.
"My role was to build the lending side," Sims said. "I was coming in early every day, and working late hours. It was seven days a week. We had shareholders transferring their business here. And people wanted to open accounts to support us. They thought (opening the bank) was a gutsy thing to do."
Vicky Hudson, the bank’s comptroller, said Sims and Heather Nelson, the bank’s chief lending officer today, both have extensive backgrounds in commercial business banking in the central city, and they brought almost their entire customer base with them to Legacy.
Because the inner city’s banking options had diminished, other commercial traffic has just "walked in the door," Hudson said.
"A lot of banks (closed)," Hudson said. "There’s a huge gap we filled in."
However, Legacy’s focus has not been limited to commercial lending. Over the past two years, the bank has attracted more than 800 personal bank accounts through a program called Financial Liberty First Accounts, sponsored by the U.S. Treasury.
Legacy is one of 15 entities in the nation taking part in the program, which is aimed at low- to moderate-income people who do not have bank accounts. Through the program, participants are eligible for checking and savings accounts with free direct deposit and unlimited check writing.
The First Accounts program gives participants a chance to take part in financial advice programs, aimed toward helping them rebuild their credit. The program also directs participants toward ways they can start building their credit so they can eventually become homeowners.
"The whole premise is to get people without bank accounts to become our customers," Henningsen said. "We developed this product as part of our overall outreach and mission, and they are banking people who turned out to be our best customers."
Sims said the First Accounts program is helping the bank teach its customers how to build wealth, something that will not only help them individually, but also will help the community as a whole.
"There is such a need in this community," Sims said. "The thing we really need to change is to beautify (this neighborhood) and make it safe for our customers. They need a better quality of life."
In November, Legacy will begin dispersing $100 million in federal tax credits through the New Market Tax Credits program operated by the U.S. Treasury Department’s Community Development Financial Institutions Fund.
The program gives businesses tax credits for funding community development agencies, which then invest in businesses in low-income Census tracts. Sims said 65 percent of the $100 million in New Market Tax Credits will stay in Milwaukee.
While the New Market Tax Credits and First Accounts programs have been positive for the community and the bank, they have presented their own set of challenges for Legacy Bank. Because the bank’s growth has come so quickly, its leadership team has had to work hard to manage that growth.
"It can be very challenging to manage a large customer base," Sims said. "And we need more capital to support that growth because we need more employees to service our customers."
Legacy started with 10 employees and has grown to 30 today. Hudson said the bank has three open positions now and is adding staff on a regular basis.
Legacy also has been profitable for the past three years, Hudson said, which is unusual, because most small businesses don’t turn a profit for five years.
"It’s been (because of) the response from the community, but we’ve also been aggressive," Hudson said.
The trio of founders started raising the capital to open their bank by asking members of the African-American business community to invest in their vision. Many of those investors have become Legacy customers. The initial shares in the bank sold for $25,000 each. The sales within the central city business community netted about $1.5 million in startup capital.
Fred Jones, chairman of the board at Legacy Bank and one of its first investors, said he was attracted to the opportunity because he shares in the vision of the founders. He had also known Sims from her years as a banker with Firstar.
"I don’t think there’s a greater group that have the initiative and fortitude, the concern of the community, that is doing something that the state of Wisconsin needs," Jones said. "Their vision paralleled my vision of how we get to the next level."
The founding partners also were each required to put $160,000 of their own money into Legacy Bank, to make sure they "had some skin in the game," Sims said.
"We do not have that much money to play around with," she said. "We had to protect ourselves and our shareholder investors. We’re talking about our own investments also."
Other financial institutions also invested in Legacy, including both Firstar and U.S. Bank before their merger, M&I Bank, Associated Bank, Park Bank and more.
Today, Legacy Bank is close to delivering a return on those investments, Henningsen said.
A recent $2.4 million remodeling project has given Legacy Bank more space for its existing employees, a dedicated space for its computer servers, two separate meeting areas and a more defined sense as the main lending bank in the central city.
Sims, who began her career as a teller inside the same building when it was operated by First Wisconsin and later as Firstar, said she never thought she would end up being a part owner of the building, but couldn’t pass up the opportunity.
"Shirley approached me, and we both agreed if we were going to continue our mission in the central city, we needed to do something on the larger scale," Sims said. "If we have our own bank, we can do some things different. We can build a legacy in our community that is strong, that is solid and endures."
Building that legacy was so attractive that Sims didn’t have to think long about what to do with the opportunity. Not that she had much time.
"They talked to me on a Thursday, and I had to decide by Monday," she said. "I started my career as a teller downstairs. It’s like dZjˆ vu. But did I ever think I would come back and buy the bank? Heck no."
For Sims, the bank’s mission took on Biblical connotations.
"They say fools rush in, but I thought this was a good opportunity for our community," she said. "I’ve been committed to this community all my life."
Legacy Bank’s location at the intersection of North Avenue, Fond du Lac Avenue and North 21st Street remains key to that commitment.
"We’re right in the heart of the city," Henningsen said. "If the heart beats, everything else works. If it doesn’t, it all fails. We are the heartbeat of the city."
Accounting for Legacy Customers, banking compatriots and community leaders say Legacy Bank has succeeded by delivering on a promise to provide service to Milwaukee’s central city.
"There was a need in the community, and that is what Legacy brings to the community. When you have good people and experienced people, and there is a need, I am not surprised by the growth. We are an investor, although small. I wish them the best, and I think they will continue to be very successful."
– P. Michael Mahoney, chairman of the board and president,
Park Bank
"I think you can take their word for what they say. You know when they tell you something that they won’t steer you wrong. They have surrounded themselves with good people. If they keep doing what they are doing, I would not hesitate to back them."
– Frederick Jones, chairman of the board at Legacy Bank, and both a personal and business customer.
"They were very receptive to investing and supporting a small-business restaurant when a lot of banks won’t. And I know the principals of the bank. I believe in their philosophy. They support and reinvest in the community. We share the same philosophy."
– Jim Thompson, owner of J.T. Bones Barbecue Restaurant, a customer for 10 months.
"I think that their success shows that a financial institution can thrive and grow in the central city if it has the right leadership. Legacy Bank has a group of savvy and intelligent women running that bank."
– Ralph Hollman, president and chief executive officer of the
Urban League
"I think it is a tribute to the management and the business model that it succeeded in a short time in what is a very competitive marketplace. I think the people of Milwaukee are well-served by that group getting together and the commitment they have. I think that’s what banking is all about, and they exemplify that."
Ñ Kurt Bauer, CEO and president of the Wisconsin Banker’s Association
Legacy Bank restores its home
By Eric Decker, of SBT
Legacy Bank recently completed a $2.4 million redevelopment of its building at 2101 W. Fond du Lac Ave.
When the bank opened in 1999, its second floor was entirely closed off. Its previous owners, Firstar Bank, had used the area to house a heating, ventilation and cooling system, and plywood covered the exterior windows.
Offices, two meeting areas, computer rooms, skylights and a host of new features have been added to the Legacy Bank building, enabling workers who had to move from cramped spaces to their own office areas.
One of the most striking features of the remodeling project was installing interior windows on the second floor, allowing sunlight to filter from outside windows into the first-floor area of the bank, generating ample natural light.
"We had no room for our employees. We were out of space," said Victoria Hudson, the bank’s comptroller. Hudson said her four-employee department had been housed in a 10-foot by 20-foot room, which other employees had to walk through to get to the bathroom or lunch area.
"We either needed to look at buying another building or look at what we have," Hudson said.
Margaret Henningsen, one of the bank’s founders and its vice president, said moving was not an option.
"From the beginning, when we started thinking about this bank, we wanted to be on this intersection," she said. "This is the heart of the city."
The building’s existing features, such as the tall ceiling height, elaborate woodwork, marble floors and other touches, give it an old-fashioned regality consistent with a large bank, Henningsen said.
Because CG Schmidt Inc. had previously constructed a drive-through teller window at the bank, the Milwaukee construction company was an easy choice to handle the remodeling work, Hudson said.
The project centered on gutting the 6,000 square feet of space on the bank’s second floor, replacing the existing roof, placing a new HVAC system on the new roof and building new office space inside the bank – all while it remained open for business.
Hudson said CG Schmidt’s construction team began work at 5 a.m. most days, so it would be out of the bank by 1 p.m., allowing the bank to complete its business day.
"They would do the loud stuff before the bank opened,"
Hudson said.
Bobby Bond, owner of the bank’s maintenance provider, Bond & Sons Maintenance, also started his days at 5 a.m. to oversee the construction crews so bank officials didn’t have to, Hudson said.
The result, Henningsen said, is customers have even more pride than they already had in the bank that was reinvesting in the central city.
"Our customers often stop to talk, and I can’t tell you how many say, ‘I love the way my bank looks,’" Henningsen said. "Everywhere I go, people tell me about how ‘bank’ it looks."
Hudson said the renovation was not so much a remodeling, as a restoration, bringing the bank to a condition similar to what it looked like when it opened in it was constructed in 1928 as Badger State Bank.
The bank has applied to the U.S. Department of the Interior for status as a historical landmark, Hudson said.
"We felt that if we put money into our bank, other people would see that we wanted to show we weren’t afraid to put money into our own community," Hudson said. "We’re very proud. We wanted to do this for the community. This is one of the nicest buildings in Milwaukee now."
Location: 2102 W. Fond du Lac Ave., Milwaukee
assets: Nearly $100 million
co-founders: Margaret Henningsen, Shirley Lanier and Deloris Sims
web site: www.legacybancorp.com
October 29, 2004, Small Business Times, Milwaukee, WI