With $8 billion In Assets, What Does The Future Hold For Black-led Banks In The U.S?

Forbes

John Lewis, CEO of The Harbor Bank of Maryland joins Forbes senior writer Jabari Young at the Nasdaq MarketSite to discuss the state of banking and small businesses during National Black Business Month.  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00$352 billion. That is the amount of combined assets for federal-backed minority deposit

00:08institutions, better known as MDIs. And in a minute, we'll be talking to one of the CEOs

00:12of those financial institutions, talking health of small businesses, the economy,

00:16the future of banks in the U.S., kicking off Black Business Month right here at the Nasdaq.

00:22Hello, everyone. This is Jabari Young here at the Nasdaq market site, and I am joined by

00:29Mr. John Lewis. He is the CEO of Harbor Bank of Maryland, right? And this is a bank, a financial

00:35institution that serves predominantly the Baltimore residents, right, down in that area,

00:39and has more than 350 million assets on its books. John, thank you so much. Welcome to the Nasdaq.

00:45It's my pleasure to be here.

00:46Yeah, absolutely. Well, listen, we're here at the Stock Exchange. You got to give me a stock,

00:49right? What is something that you're looking at, something that may have done well for you

00:52in the past, that young investor, what would you recommend?

00:55Yeah, so I think Coinbase is interesting at the moment. There's much to be figured out with

01:04respect to digital currency, but I like the fact particularly that they've thought about

01:09governance and infrastructure for something that in the future will certainly be relevant to the

01:14economy.

01:15Yeah. Wow. You like the way where Bitcoin is? You love this digital currency?

01:18Yeah. I mean, I won't be specific to Bitcoin or Ethereum or any of the other things out there,

01:24but I do think there is a relevance to it. I mean, money changes over time, right? At one point,

01:29we were talking about cowrie shells, and even in our lifetimes, we had pockets full of coins,

01:35right? And we had dollar bills. At this point, everything's digital.

01:38Yeah. I still do pick up a penny when I see it on the ground, especially on heads.

01:43But hey, listen, at Black Business Month here in August and at Forrest B. O. K.,

01:48we call our journalism series Road to Economic Empowerment, right? Because when you talk about

01:53Black Business Month, so many issues that is going on within the business community,

01:58interest rates, inflation, capital, environment, things of that nature.

02:02So again, glad that you can join us here. And when we talk about Black Business Month,

02:07do you have a figure in the black community that has stood out to you from a business lens? And

02:11if so, who is that person? It doesn't have to be a celebrity.

02:14Yeah. So as a bank headquartered in Baltimore that serves Virginia,

02:19D.C., and Maryland, I would have to tell you Reginald Lewis.

02:23Reginald Lewis.

02:24I started my career on Wall Street in part from the inspiration of his ability

02:30to be really engaged and leverage finance. And he's an inspiration, not only to me,

02:34but to many people that got into banking.

02:37Yeah. Nice. I have to go get a Reginald Lewis poster on my wall. I've got to get that, right?

02:41I got one of Frank Sinatra and a couple of others, Miles Davis. Now you got to talk me

02:45into getting a Reginald Lewis poster. But let's dive into business first, man. You know,

02:49Harbor Bank of Maryland, this is a holding company, right? Harbor Bank Shares Corporation

02:54is the holding company of this bank. Total assets, about $365 million as of first quarter.

02:58Any update there on your assets?

03:00We fluctuate around that number. I would tell you at our size,

03:04if somebody comes in and makes a $5 million deposit, we're talking about $370.

03:07Yeah. Okay. Well, that's good to know.

03:10And of that, I definitely want to get into the commercial real estate on the books and looking

03:14at that environment there. But 2024, how's things looking at Harbor?

03:18Very strong. So I will tell you, 2023, we had a record year in terms of

03:24profits. When we looked at profit from return on tangible common equity,

03:28our return on tangible common equity was 58.9%. So in context, that's almost twice

03:36that return as compared to Google or Tesla. So very, very strong year. Fundamentally,

03:43we are able to continue to find good loans. We've been able to continue to find well-priced

03:47deposits and run a clean bank.

03:50Yeah. If I was to move to Baltimore, right, let's say tomorrow or something like that,

03:54and I wanted to start a small business, how could Harbor help me if I walked in with no

03:59capital, just a great idea? What is that process?

04:02So I would tell you Harbor, over its 42 years of existence, has created an innovative model

04:08with respect to financing small businesses and entrepreneurs, particularly in low-income

04:13communities and from diverse and disadvantaged populations. We really have become the community

04:19bank of Baltimore. Up until last year, we were literally the only community bank headquartered

04:26in the city of Baltimore proper. But when we talk about who Harbor is in our ecosystem,

04:31we have a number of subsidiaries and affiliates that attack that specific problem. We are

04:37in many ways our own ecosystem. So as you mentioned, I'm the president and CEO of our

04:42holding company, Harbor Bank Shares Corporation, but also our bank, the Harbor Bank of Maryland,

04:47which is a community development financial institution, is designated by the U.S. Treasury,

04:52but also a minority depository institution is designated by the FDIC. But in addition to that,

04:58we have Harbor Bank Shares Capital Corporation, which, again, I go back to Reginald Lewis,

05:04is a specialized small business investment company, which is able to make private equity

05:09and private capital investments into small businesses, to businesses and entrepreneurs.

05:14And then in addition to that, we have Harbor, the Harbor Bank of Maryland Community Development

05:18Corporation, which is our nonprofit affiliate, but does everything from advising to lending to

05:25making pre-seed venture capital investments in companies, right? So what we know is if you were

05:31to come as an entrepreneur, what you always might not need is a loan, right? But if you go to a bank,

05:37what a bank is going to give you is a loan. We always say when you have a hammer, everything

05:43looks like a nail, but that's not necessarily the case. So if you are coming and you are starting a

05:48business, your entry might be in the Harbor Bank of Maryland Community Development Corporation,

05:54we have a 6,000 square foot incubation facility in our headquarters where you might take up

06:00residence, right? We might give you money through our Entrepreneurs of Color Fund, which is a loan

06:06fund, but it's more patient capital. We might make a pre-seed equity investment into you to

06:11help you figure out your business and your business plan, as well as lock down your intellectual

06:17properties or wherever you are in the beginning of that. And that continuum of capital follows

06:22all the way from you as a startup business to you as a mature business in need of loan financing.

06:29And that's how we built our institution to be able to support small businesses and entrepreneurs,

06:33but intentionally support small businesses and entrepreneurs. What else does a small business

06:38owner need to know right now, right? Again, we are in very uncertain times. You talk from the

06:42U.S. presidential election and what's going on there. Again, high interest rates, inflation and

06:47things of that nature. Hopefully interest rates are coming down. But if you're a small business,

06:51and maybe you're not paying attention to the macroeconomics of things,

06:56what would you tell them right now as a banker? Yeah, I would say pay attention to the consumer.

07:02Pay attention to the consumer. Pay attention to the consumer. As we went through the pandemic,

07:07we had a lot of stimulus that was put into the economy. And there was a moment where

07:11people were getting checks literally for being alive from the government. I didn't get one.

07:16I didn't get one. But they were out there, right? We certainly had the Paycheck Protection

07:20Program and a number of other programs that just put massive amounts of capital into the economy,

07:26right? As we've seen that capital move out of people's bank accounts, right? As we've seen

07:32inflation and the prices at the grocery store and the prices at the pump escalate, it has stressed

07:38in some way the consumer and the capacity. And then, of course, as you saw, things move from

07:44money moving out of a bank account to credit card balances expanding. There is a point when

07:49the consumer can no longer sustain the amount of consumption that was there in the economy over the

07:54past couple of years. And certainly for small business owners, how they continue to connect

07:58to customers and what that viable market looks like for their products has to be a great import.

08:05What is Harbor Bank telling you? What are your clients, your consumers telling you?

08:10I'm looking at different reports all the time. It's hard to tell where the economy is.

08:13It's different for different groups, right? You pay attention to the department stores.

08:17They say they haven't seen any default credit cards yet. So maybe the consumer is strong.

08:21Maybe it's not because, again, prices at the grocery store are very, very high. So wherever

08:25you kind of fall, it depends what the economy is doing for you wherever you fall in that class.

08:30But what are your customers telling you? Yeah, so similar, right? So every business

08:36is different, right? And I would tell you the fundamentals of a business is know your market,

08:40know your customer base, have a solid business opportunity, and have deep relationships with

08:46the customers that you have. In the market that we serve, we benefit in some ways from being

08:52insulated, if you will, because we are close to Washington, D.C. So you see a lot of government

08:56contractors. The government is one of the biggest purchasers, if not the biggest purchasers of

09:02products out there, right? So that helps us. Baltimore, contrary to some opinions that are

09:09out there, is actually a very healthy city. And we saw its importance to the country with the

09:14collapse of the bridge. That's right. And it reminded us all how much commercial activity

09:19happens in Baltimore and happens in the surrounding regions. But mostly what we're

09:24hearing from our customers is just an appreciation over time of having a relationship with us, right?

09:30And I tell everyone the importance of having a real bank, right? A bank that you can call,

09:36a bank that is going to be engaged with you and stay with you when the economy is a little bit

09:42rockier and less rosier, when the interest rate environment is a little shakier than it's been in

09:46the past. That stability is really important, having a real partner in your bank. Yeah. Well,

09:51listen, you were a CEO for a year now, right? You took over as CEO of Harvard in May 2023.

09:57Is it an enjoyable job? What do you like about being the CEO of a bank? Yeah, so it's an enjoyable

10:03job. I would tell you, as a young child, I thought I wanted to be a CEO. I didn't know exactly what

10:09it meant, but I thought that I wanted to be a CEO. And certainly, you know, my earliest entrance

10:15into the working world was really working in the banking industry as an intern. The CEO job is

10:20different every day, right? My best mentors and the best guidance I've ever had, they've told me

10:27my job is to do what other folks in the company can't do, either because they can't do it or not

10:32empowered by the board to do it. So every day is literally different, and I enjoy that greatly.

10:40You know, sitting in the seat, the vision that I provide to the company is directly tied to how

10:46far we will go. How much I'm able to inspire employees in the firm and communicate things,

10:53again, ties directly into how far our institution will go. So, you know, I always say to people who

10:58aspire to be CEOs or leaders of companies, it's an incumbent upon you to continue to make yourself

11:05better because you are the limiter, in many ways, to the company that you are running and leading.

11:13Yeah, biggest positive surprise of being CEO? Positive surprise.

11:17Yeah, I mean, the positive surprise, if we want to call it a surprise, well, I went through a very

11:22orderly transition. So I was president and chief operating officer of the company

11:27for three years. My previous CEO that I served under was now our chairman, Joseph Haskins Jr.,

11:35was at the time the longest serving CEO of any bank in the state of Maryland, one of the longest

11:39serving in the country. And, you know, he made great investment to make sure that I was ready,

11:45right? So you have a lot of banks, particularly right now, and just businesses in general,

11:51where that succession planning and that orderly transition is going to be a challenge or is a

11:56challenge. The pleasant surprise, although it's somewhat of a surprise, was just, you know, one,

12:03the preparation that the organization, the board, and our former CEO made in preparing me to be

12:09ready for it. But also, change is hard. It's hard on organizations. It's hard on people. And the

12:15speed with which the company all got in line and continued to move in the same direction,

12:22and were able to go from an organization, again, that was very much founder-led, right, to one that

12:27I believe has turned into an enduring institution with a spread of talent and a future that's not

12:35dependent upon any one individual, has been a great surprise and a delight. Yeah, with positives,

12:41there are negatives, though. What's the one negative, the negative surprise that you didn't know about being

12:45a CEO? The one that you'll call, Joseph, and say, man, you didn't tell me about this part. Yeah,

12:49so our industry is a couple of things, right? So one, you can have, so we've got over 4,500 banks

12:57in the industry. And what happens to two, three, or four banks affects everyone. And it affects

13:04everyone because it pushes up to the policy directives, right? And then it becomes regulatory

13:10guidance, and it becomes things that regulators are focused on. So I would tell you, you know,

13:16while our industry benefits from being regulated, we have a financial system that is the envy of

13:22the world. And a small part of that is because of regulation and good governance and an orderly

13:28structure. Is it too much regulation, though? Like, I mean, if you look at both sides, you'll

13:32argue one side of political analysis is too much regulation, we need to deregulate. And then the

13:36other side says, no, there's not enough regulation. Like, where are we? Yeah, I think your question

13:42gets at where we are, right? Regulation has to be correctly applied. Regulation is not one-size

13:49fits all. You can't regulate harbor a $400 million institution the same way you regulate

13:55a $4 trillion institution. But at the same time, you know, there are general principles that carry

14:00across the industry. But I would tell you, we go into cycles of too little regulation and not

14:07maybe looking at things as intently and deeply as we had. And I think that's how you get Silicon

14:12Valley Bank and Signature Bank to a period of overreach and doing a little bit too much where

14:17you get, you know, capital rules being different. And it's just part of the business, right? If

14:24that weren't part of the business, none of us would have jobs and responsibilities. So

14:28it's something that you do best to understand and be ready for. But it is very much a part of what

14:33we do. It's what banking is. Yeah, yeah. Take me back, man. You grew up in Buffalo, right? You're

14:38a Bills fan, right? I'm sorry what happened. I'm a Cowboys fan. I'm sorry that with all the stuff

14:42that we did to y'all in the past. But what was that like growing up in Buffalo? What were your

14:46parents? What did they do? Yeah, so my parents were both social workers. So they, you know,

14:52very much instilled in me just values. The importance of working with people, being engaged

14:59in the community, and imparted to me the value of education, right? And just being a good citizen

15:06and part of the community. You know, Buffalo is a post-industrial town. Not all that different than

15:13Baltimore, right? I tell people all the time, you know, we have a commonality when I talk about my

15:18grandfather working for Bethlehem Steel. You know, in Baltimore, people said my grandfather worked

15:22for Bethlehem Steel too. And, you know, it's a city that for some time had to figure out what it

15:29would be after, you know, the factories closed and competition came from overseas. But it's very

15:36much figuring that out. In a city with great natural resources and great salt of the earth

15:42people, you know, we might not have gotten the Cowboys, but we did get to the Super Bowl four

15:47times, right? There's a lot of Hall of Famers out of those teams, right? So I had a great childhood

15:55and loved growing up there. What did you want to be, man? Like on a Saturday morning, you're

15:59watching cartoons, like what do you want to be at a young age growing up in Buffalo? Yeah, so,

16:03so, you know, you want to be what you see, right? So for me growing up, you know, I saw doctors and

16:09lawyers and engineers and those were the images of what success was. So I wanted to be a doctor.

16:17Very much because that is what I'd seen. I actually got my first internship in a bank and I

16:23had been working at a buffet the weekend before. I just wanted to get somewhere that had air

16:28conditioning. And, you know, once I got into banking, I said, this is what I want to do

16:35for a profession. I always, you know, when I'm out talking to young people, I'm telling them, hey,

16:40you can do this. And it might be the small things. For me, I was a kid who liked baseball cards

16:44because I liked that there was a price and it went up and down. But now, you know, I was talking

16:49to somebody who was telling me about how they collect sneakers. Right. And they're basically

16:52trading sneakers. Right. And there is there is an opportunity. And I would love to see

16:59particularly more African-Americans and minorities enter into the banking space

17:04because it's something that that many of us have an interest in. We just don't realize that we

17:08have an interest in. And there's a profession that allows you to do these things that you naturally

17:12enjoy doing. And you found out, again, you took an internship at Cornell your junior year. Right.

17:17You're finding out that banking is my thing. And you go on from Cornell, get an MBA at Harvard,

17:23leaving Harvard. Where are you at in your career? What are you trying to do?

17:26Right. So so leaving Harvard, Harvard puts a lot of entrepreneurial as a menu.

17:33You know, you're going to leave here and change the world. So I was very much

17:36thinking I was coming out and wanted to do something big and entrepreneurial.

17:40But also, you know, there I discovered that I really wanted to manage as opposed to be a banker.

17:46So when I left Harvard, I joined M&T Bank as an executive associate, which is their management

17:54training program. And I spent half of my time being a banker and the other half doing strategic

17:59projects for them. I actually had the strategic project of chartering a bank in New Jersey for

18:05them, which integrated into their footprint. But it let me more exercise the management and

18:12development aspects of what I wanted to do as a career. Yeah. Minority deposit institutions,

18:17again, was about 150 total in the US. Right. And here you are now to CEO of one. And, you know,

18:23as you look at a deeper dive, I mean, we're talking about this off camera a little bit.

18:27It's I don't know where we are, but I'll read off the numbers and you let me know what you think.

18:32Right. I mean, you know, you look at breaking the minority deposit institutions down by groups,

18:38Hispanic, you know, community, 30 financial institutions, about one hundred and forty

18:42three billion in total assets, Asian community, seventy one banks, one hundred eighty seven

18:47billion in total assets, black banks. There are twenty three total in the US,

18:53eight billion in total assets. My stomach dropped, my heart dropped when I saw those numbers.

18:59You talk about black banks, about 40 plus in twenty two thousand and one. And here we are in

19:04twenty twenty four is only twenty three. Right. When you hear those numbers, what is the future

19:09of the black bank in the US? Right. Let me let me give you two things. Right. So one, let me just

19:13talk from a macro perspective. So at this point, there are about forty five hundred banks roughly

19:19in the United States of America. That number used to be nine thousand. So as a sector, we're seeing

19:24a great reduction in the number of banks. And I would tell you banks have like any business have

19:30to find their purpose. What is their basis of competition? Where do they add value? Why are

19:35they relevant to customers? The banks that are just making loans and taking deposits and competing

19:42based on having the lowest rates, that is not a business model that works anymore. When you have

19:48three banks that have over two trillion dollars in assets, everyone else is small. As an illustration,

19:54if the eighth largest bank were to combine with the ninth, 10th and 11th largest bank,

19:59it would still be smaller than the fourth largest bank. Right. So when we talk about what's happening

20:05in the sector for small banks and community banks, they are going away unless they find a reason to

20:12be relevant, a market that they resonate with, people who want to bank with them and are raving

20:18fans and raving customers. So that is actually a benefit for minority depository institutions.

20:24Our customers love us. They want to bank with us. They understand our mission and our purpose.

20:29They see our dedication to the community. And those are reasons that you would want to bank

20:35with an institution that you might not find at another institution that benefits us from

20:40an economic standpoint, because we may not have to pay the highest rates for deposits. Right.

20:45We may not have to have the largest distribution system to be able to reach our customers. They

20:50find us. Right. And then when you compare us to to other minority groups in terms of the sectors,

20:57I would tell you, particularly when you look at the Asian banks, there are Asian banks,

21:01a couple of them that actually have branches in China. Right. So having that deposit base

21:07and investor base has allowed them to grow to a certain size. Similarly, with with some Latino

21:12banks, with with operations in places like Puerto Rico, the MDI sector, the African-American bank

21:19sector does not have that. What we have is African-America at large. Right. And we're

21:25dependent upon the continued support of African-Americans for our institution,

21:29but also the communities that we we work in. Right. I tell people all the time

21:34we are Baltimore's community bank. Baltimore just happens to be 63 percent African-American

21:40in a state that's 32 percent African-American. But we serve all of Baltimore. We understand

21:45all of Baltimore and we're able to superserve communities in a way that that we feel gives

21:51us competitive advantage because we know the place. But I do think when we talk about the

21:57number of particularly African-American depository institutions, you know, all hope is not lost.

22:03There was another African-American MDI that was formed in Ohio a year and a half ago. It isn't

22:09that we have to continue to have a diminution in the number. What we need are entrepreneurs

22:13and communities that say we need a bank that serves us in this way and we will support that

22:18bank. And you could easily be back up to 40 in a decade with a concerted effort and capital.

22:25And I always say, where does that capital come in? Because I'm even navigating some websites of

22:29African-American black owned banks. And you can just tell the tech infrastructure may not be as

22:34superior than as bigger banks. You know, there's higher interest rates that, you know, you must

22:39sometimes you have to pay when you're going through that because the capital isn't there.

22:43Where do you find that capital that, you know, to help support, you know, black banks for

22:47sustainability also, again, to survive? And if you want a new one that's going to come online,

22:52where does that capital go? So we have a great capitalist, right? I've mentioned before,

22:57you know, our return on tangible common equity last year, which is an amazing return. It's

23:03amazingly investable when you look at those numbers. But when Harbor was started in 1982,

23:10Harbor had $2.6 million in equity capital. When I joined Harbor almost 10 years ago,

23:16that $2.6 million had only grown to about $8.9 million, right? And to be in the banking industry

23:22and not have equity capital means you can only attract a certain amount of deposit capital.

23:28And there's a ceiling on how much lending and investing you can actually do. And what I would

23:33tell you is over the last two years or so, that number has gone from $8.9 million in equity

23:40capital to almost $115 million equity capital. Some of that is us doing what we do and earning,

23:46but a big piece of that was a program called Emergency Capital Investment Program that came

23:52about during the pandemic, where the federal government put $9 billion of capital into

23:58community development financial institutions. That is a transformational amount of capital.

24:02You figure for every dollar of equity capital in the bank, that capital can be leveraged 10 times,

24:08right? We're talking about $9 billion, which leverages 10 times, almost $100 billion of

24:14capital in the industry, right? Which minority depository institutions benefited from being some

24:20of those. The other thing that we saw is that as people thought about the condition of the country,

24:28right? You had commitments from large financial institutions. One was Wells Fargo that led and

24:33made a $50 million commitment to African Americans. Bank of America is another one.

24:37$2 billion, I believe they made.

24:38J.P. Morgan. There were a number of banks that made capital available to banks.

24:44There are a number of MDIs, Harbor Bank Shares Corporation included, that now have enough capital

24:51to grow, to serve our markets adequately, to expand our operations, and that's powerful.

24:57As now as we're empowered to be real economic actors in the markets that we serve, we can do

25:03the things that banks are supposed to do. With a balance sheet of a certain size, your profitability

25:09drives your growth, right? And your profitability drives whether you're able to attract capital from

25:13market investors. But let me take a step back because people have looked at minority depository

25:22institutions in some ways as less than or different than other participants in the economy and

25:28certainly in the banking sector. And I would posit to you that we are actually special. We are

25:34actually different, right? When someone puts a deposit into the Harbor Bank of Maryland, we can

25:42show you how that helped to transform the community that you live in, right? That is a reason to...

25:47How many dollars are going?

25:48Where they're going. That is a reason to invest in us in a different way than when you put your

25:54dollars into a place and your dollars may end up in another locality and not grow the market you're

26:00in. And if you look at it and you understand that, then what it means is you're one, getting a

26:07competitive product and a competitive offering, but also you're making your community better, right?

26:14And the ability of me to sit and compete with someone else and to be able to talk to someone

26:19who really cares about the community that they're in, we win. And that's a competitive basis that a

26:26lot of institutions don't have. And I think as MDIs continue to walk towards being competitive,

26:33they walk towards really valuing what makes them different and important to the places that they

26:37serve and able to connect with the communities that they serve, that being able to compete

26:44effectively will differentiate us. And ultimately, I think the market will look at that and value us

26:50in a way that we are special institutions and institutions that aren't going away, that

26:54institutions that have a reason to be here. And let me give you one last point on that, which I

26:58think became in stark relief during COVID, right? If we all remember the Paycheck Protection

27:04Program, and the program had three rounds, right? And in the first round, many larger banks

27:12weren't participating at all. And then when they did participate, they were participating

27:17with folks that had accounts with them that they knew very well. And what you saw was just a gap

27:24that you've, we've always had challenges to access to capital and financial services, particularly

27:29in low income and minority communities. But you saw that in stark relief. So you have a program

27:34that was nearly $700 billion of capital to go small to small businesses to maintain employment.

27:41And you didn't have the infrastructure to be able to reach businesses in certain communities,

27:46absent community development, financial institutions, and minority depository institutions,

27:51right? So what it showed is that there's a value to MDIs, there's a value to CDFIs, because we are

27:57actually critical infrastructure to move capital, right? And that was a special situation, where

28:05again, the real need was there. But that need doesn't go away. These communities still need

28:09capital, they still need infrastructure to be able to provide capital. And we are a key to

28:15making sure that that happens. Another stat, you know, and thank you for that insight, another stat

28:20that stood out to me, again, when you're looking at, you know, black banks and just banking sector

28:25overall is the 75 billion annual disparity in savings, you know, in the black community, right?

28:31And so this stat comes from McKenzie and their Economic State of Black America report, and it

28:36said households who build wealth incrementally also, you know, by saving a portion of their

28:41income, but smaller paychecks and debt pay down, pay down, make it harder for black Americans to

28:46put aside money, and that contributes to that 75 billion annual disparity in savings. How can we

28:51trim that number down? Yeah, so take another step. So one of the joys of this role, right,

28:57is I get to talk to policymakers and lawmakers and think tanks, and people who write these white

29:05papers, and it's interesting, right? But I also get to be the person who literally strokes a check

29:10to put money into somebody's hands or offers people depository accounts. And one of the things

29:16that I always say, right, there is this idea that financial literacy is what will save

29:21African Americans and create wealth in communities. But what I know is that the person who doesn't

29:28have a lot knows how to manage what they have, right? And the issue of the lack of savings in

29:35African American communities is directly tied to the issue of not having comparable amounts of

29:41wealth in African American communities, right? If you don't have it, life eats it up. It doesn't end

29:48up in your savings account. What ends up in your savings account is the residual and what's left

29:52over, right? So, you know, wealth creation, one, is intentional. There are some policy things that

29:58need to happen rather than talking about people, you know, trying to save more in what's in

30:04savings accounts. But it also happens with earnings and better opportunities and better

30:08economic development and activities in the communities if we're really trying to affect

30:13the wealth disparity in those communities. Yeah, bring them home more so you can pay what you need

30:17to pay and then, you know, save some leftover. Thank you so much, John. Get you out of here. A few

30:22things, you know, because you're CEO of a bank. I'm sure people want your attention right now so

30:26you can stroke some more checks. I'll take as many of them you want to give me. Low interest, of

30:30course. But banking industry as a whole, what do you see? I mean, more M&A, you know, again, KPMG came

30:35out with their 2024 Banking Outlook Survey and it predicted that M&A would pick up towards the end of

30:412024. 38 percent of larger banks said that they would acquire another bank. And again, you know,

30:46that M&A activity, what are we going to see? Are you expecting that to happen? Yeah, so I'll go back

30:51to the point I raised before. I think our industry is a very interesting industry, right?

30:59And I truly believe you have four or five banks at most that are large and they are the winners

31:05of the scale game. Everyone else playing the scale game is getting larger but potentially having

31:12smaller returns on equity capital to their investors. They are getting big for the sake of

31:17getting big. And when you get above what is a natural market opportunity for you, to me, that's

31:23what gets you into the territory of the Silicon Valley banks and the signature banks. When you

31:29don't have a real relationship with the customers of your bank and the depositors of the bank,

31:34then you're beholden to whatever market interest rates are. And when you're not the highest rate

31:40or the most competitive rate, that money moves. And that money moving destabilizes

31:45your institution. So I do think you will see consolidation, but sometimes that consolidation

31:52is because there's a want for real strategy and value proposition for the institution.

31:57I think there are some institutions that are on the larger side of the larger sides

32:02in their market and growth helps them to be more effective there. But I do really think the winners

32:09as we look down the road in the industry will be these largest players in the industry.

32:14A lot of the value in the industry in order to them. And then it will be specialized players

32:19who add value to a specific customer base like African-American MDIs and other banks that super

32:26serve either the communities they're in geographically or certain demographics and

32:31markets where there's a market opportunity for super returns and excess margins. Are you guys

32:37at Harbor looking to consolidate? You looking to acquire? So I'm a believer that Harbor has

32:42to be around forever. That means expanding. It does. It does. I mean, when we talk about having

32:4815 MDIs, our voice at the table is very important, right? You know, again, we go back to regulation

32:56and having internal auditors and external auditors, all these things that give you credibility.

33:01It means something when Harbor is at the table talking about what we see in a local economy.

33:06Were we not there without that voice, I believe you would have policies in some places that are

33:11disconnected and certainly you wouldn't have a community that relies on us to be there. Even if

33:17they're not banking with us, there's a psychological value of knowing I can walk into that institution

33:22and I'm not going to be discriminated against. I may not get the loan, but it's not going to be

33:26because I was discriminated against, right? So, you know, we will always be forward-looking and

33:32opportunistic, but one of the things I'm quite excited about is what's happening in technology,

33:39right? When we talk about artificial intelligence, it lets you super serve a customer in a way that

33:45you could never do before at a scale that you could never do before, right? So having the fixed

33:51infrastructure of a bank that's our size with where technology is going allows us to be a

33:57forward-looking and different institution that may be in the conception of a lot of folks that are

34:02out there, but I know that every day we can do more than we could ever do in a way that's

34:07efficient for us. Yeah, well I was going to say generative AI, right? When you think of that and you hear

34:11that, is it going to hurt, you know, banking? Is it going to help banking? And, you know, I guess it all

34:15depends on where you fall in that belief because you can draw, you know, you can push out products

34:19and you can get a lot of rich data and metrics coming back from what that is. Generative AI,

34:24you're a believer in it? So I'm a believer in it, but I also am very clear that there will always be a

34:31person that needs to look at the outputs of degenerative AI, right? It will never be something

34:37that's happening ungoverned. One, because again you have a regulatory structure that would never

34:42let that happen, but two, because it has to be the case. And if we think about the way that banks and

34:48institutions work, we have people that do all these things, that do analysis, look at rates, and all

34:53these things, right? AI makes them better. It makes them more efficient. It helps them to scale the

34:59work that they're doing, but they still need to be there to look at the outputs of it. So again,

35:05I think that on balance is a benefit to an institution like ours. I don't have 300,000

35:11people that work in my technology division. I don't have hundreds of billions of dollars in

35:16built infrastructure, so the ability to look at these technologies as they come online and be

35:21able to plug them in and grow with them as they grow is really being an institution that's at

35:27the right size, at the right time in history, because AI is transformational without a doubt.

35:34And it will be the folks that understand it best and find the right safe but useful implementations

35:41of it that create institutions of great value. Yeah, commercial real estate. Tricky sector here,

35:48you know, it's up and down. Work From Home definitely has put its mark on commercial

35:52real estate, and as I look at the books of Harvard, more than $130 million in commercial

35:58real estate loans. What are you looking at in this sector? Where do opportunities exist? If you're a

36:03small business, should you be looking at some commercial real estate if you need brick and

36:07mortar opportunity? Yeah, so I would take it a couple ways, right? So one, all commercial real

36:11estate is not the same. So when you look at a lot of the MDIs in our commercial real estate books,

36:18you know, many of us, our original investors were churches. So you'll have churches and faith-based

36:24institutions, particularly strong ones that are part of our capital base, but also part of our

36:28commercial real estate portfolios. And then we like to finance entrepreneurs. So if an entrepreneur

36:34comes in, I'm trying to capture as much of their wallet share as I can. So it may be financing

36:39their business, it may be financing their home, but also if their business has real estate attached

36:47to it, then I would finance the owner-occupied real estate. And that is of a different character,

36:52certainly, than speculative commercial real estate and office property. So let's make that

36:59distinction, right? We don't have spec office property. That stuff sits in different places.

37:05But what I would tell you in terms of opportunities is always be looking, right?

37:11You know, you'll, and who knows where valuations are of anything, but certainly property at this

37:16point. But when you look at assets that are trading at 20, 25 percent of what they traded

37:22at four or five years ago, that is a much more desirable asset at this point than it was when

37:28it was priced. And I think for savvy investors that really understand the markets they're in,

37:33there may be some opportunities, certainly if they have the patient capital, to be able to wait

37:37for different economic cycles to happen. Absolutely. I mean, data centers are one

37:40of those things. If you commercial real estate, I mean, I could see a lot of data centers being

37:44built off of that. First million dollars, how did you make it? How did you spend it?

37:47Anything you would do different? Yeah, that's a good question.

37:53You know, it is through work, right? I didn't inherit it. You know, I have worked and had the

38:01pleasure of working for a company that believed in employee ownership, right? So as we made Harbor

38:06better, as Harbor created more value, it created more value and a benefit for me personally. You

38:12know, I very much believe that employees and folks that work at an institution should share,

38:20and we continue to have that, and it attracts great employees to us and continues to do that.

38:25Haven't spent it. Haven't spent it.

38:27Haven't spent it. Still see?

38:28Haven't spent it. You know, I think when you look at these things, that wealth is an accumulation,

38:35right? And, you know, I try to have a balanced and diversified portfolio, but I am Long Harbor.

38:42All right, nice. So if I need a million dollar loan, I know where I can come to, right?

38:46Best management book, you know, as far as leadership, your leadership style, Harbor,

38:50anything that you would recommend an aspiring CEO of a bank that they read book-wise?

38:55Yeah, so I don't have a particular book per se, but, you know, if you come into my office,

39:02I've got a number of biographies and autobiographies of bankers, right? So if you

39:08think about, and this goes back to MDIs and particularly African American MDIs, you know,

39:14at some point, these folks that have their names on these large firms were people, right? And they

39:19were people that, you know, were resolved to create financial institutions that added value

39:24to the markets, again, that they were in, but they were people that made a difference.

39:28And we look up in 30 years on, excuse me, centuries on, you have the institutions that

39:37they created. So I find great inspiration in the stories of each of those individual banking

39:41entrepreneurs. But I always joke, I'm probably the one person who has a collection of banker

39:47autobiographies. Yeah, banker autobiographies. I need to get one of those. Get me some banker

39:51autobiographies. If I know I'm going to be a CEO, I do one day. And I'll get you out of here

39:56on this, man. Jim Collins, we speak in the books, he wrote a good one, Good to Great. I love that

40:01book. What's the difference in 2024 between a good book, a good bank, excuse me, a good bank

40:07and a great one? Yeah. So, so again, I think a great bank has deep relationships with their

40:14customers, right? That's the bedrock of everything. If you're, if you are not providing what your

40:20customer and your market need, right? If their attachment to you is as simple as the fact that

40:26you had the cheapest term sheet, or you gave them the highest rate on deposits, you're not great.

40:32If they look at you and they tell people, I love this bank, and you should bank with this bank that

40:37I banked with because of X, Y, Z, you are a great bank. And you will figure out how to make every

40:43other aspect of your business work. If your customer base is with you in deep relationship

40:49with you, and really banks with you for more than you just being cheap or being the provider of

40:57the highest rates of interest. John, I could do this all day, unfortunately out of time, but

41:02you know, love to have you back, continue to talk macro, and so much stuff to get through when it

41:06comes to business, how it impacts black community and all of that. So definitely love to have you

41:11back to talk more. And you're only a car ride away, right down in Baltimore. There you go.

41:14Appreciate all the time and happy Black Business Month. Same to you, my pleasure. Thank you.

41:18John Lewis, Harbor Bank, Jabari Young here at the Nasdaq Market Site. Thank you for watching.

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