Riverview Community Bank: Case Study

Author:
Corporate social responsibility proposal for Riverview Community Bank

Disclaimer: I am neither an employee of RVSB nor affiliated in any way with them nor do I own any of their stock.

Corporate social responsibility (CSR) has been a buzz phrase since the 1970’s. The Harvard Kennedy School defines CSR as something that “…addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm.” (Corporate Social Responsibility Initiative, 2008) In an article on the website “As You Sow” early CSR attempts are described as primarily philanthropic and consisted of giving
back to the community. These days CSR has evolved as addressing “issues impacting virtually every area of operations: governance and ethics; worker hiring, opportunity and training; responsible purchasing and supply chain policies, and energy and environmental impact. “ (As You Sow, 2014)

The following document is a corporate social responsibility proposal (CSR) for Riverview Community Bank. I searched for a copy of RVSB’s CSR and could not find one, which is why I decided to create this proposal.

Riverview Community Bank (RVSB) is a savings association based in Vancouver, WA. Riverview Community Bank currently has 18 branches in Oregon and Washington State. RVSB was founded in 1923 and has 237 employees. Total deposits as off 2013 were $600 million. (Riverview Community Bank) In 1993, Riverview Community Bank became a publicly traded company on NASDAQ with the ticker symbol “RVSB”.

Environmental considerations and recommendations (planet)
Currently, RSVB offers personal clients checking and savings accounts, money market, CD’s, IRA’s and CDARS. Among the loans they offer are mortgages, home equity, consumer loans and credit cards. Their services include internet- banking and mobile banking, bill pay, e-statements, money pass, debit cards, overdraft protection, and safe deposit boxes. For business clients RSVB offers checking and savings accounts, money market CD’s and sweep accounts. Available loans types are commercial banking, operating lines of credit, real estate, small loans and equipment loans. Services include Internet banking, cash management, merchant bankcards and medical banking. (Riverview Community Bank, 2014)

According to RVSB’s Facebook page, the company has a recycle program and recycled 53 tons of paper in 2013. (https://www.facebook.com/RiverviewBank, 2013) RVSB’s Gresham branch received a “GREAT” certification from the City of Gresham’s Department of Environmental Services. The GREAT certification was awarded for RVSB’s participation in a ten months program to integrate sustainability into its daily operations. The program focused on such areas as “...recycling and solid waste, storm water pollution prevention, water and energy conservation, and wastewater management.” (Miller, 2013 )

One of my first environmental recommendations is the introduction of an environmental sustainability program for commercial clients. The EPA defines environmental sustainability programs as “…creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations.” (EPA, 2014) Currently, RVSB does not have an environmental sustainability program.

Lately, banks have realized that their lending practices have an impact on the environment. Banks like Wells Fargo and Bank of America have dedicated programs to lend money to companies that operate in a more environmental friendly way. Bank of America for examples has a program to deal with the “green house” carbon economy (Bank of America, 2014). In fact, Bank of America has dedicated more than $50 billion toward environmental business initiatives. (Bank of America, 2014). In addition, Bank of America created $500 million “Green Bond” program to finance renewable energy projects such as wind, solar power and geothermal energy. I am aware that RVSB might not be able to match a program at such a scale but could start a similar program on a smaller scale. In detail, this would mean that RVSB extends loans to commercial clients who engaged in environmentally responsible fashion. Possible areas could be supporting companies who operated renewable energy projects such as wind, solar and geothermal energies.

My second recommendation is an expansion of the GREAT program to all of RVSB’s branches. Currently, RVSB only has one branch that is GREAT certified. GREAT stands for Gresham Resource Efficiency Assistance To. (The City of Gresham Oregon, 2014) Gresham is a city near Portland, OR. The GREAT program creates custom tailored environmental strategies for businesses. The program encompasses things like recycling, waste reduction and composting, water conservation, energy conservation, pollution control, waste water services, alternative transportation, food donation, and waste-free events. (The City of Gresham Oregon, 2014) RVSB does not produce any products that cause environmental damages; their branches and their corporate headquarters solely use electricity, water and solid waste. Any cost saving in these categories will contribute to RVSB’s bottom line. The cost of the initial implementation should be negligible. A simple way to implement such as program would be to copy Gresham’s GREAT program and use the same requirements for other branches and RVSB’s headquarters.

My third recommendation is the creation of a green lending program to personal clients. Currently, RVSB offers home mortgages and home equity loans but gives no special incentive to make “green” improvements. Umpqua Bank, another regional bank offers a program called “GreenStreet Lending”. (Umpqua Bank, 2014) The green lending program would encourage personal clients to make their residence more energy efficient. Investment such as the installation of double pane windows, heating pumps, solar panels and added insulation in such areas as the attic will be rewarded by lower interest loans than regular mortgages. The acquisition of low energy appliances could also be rewarded to 90 day same as cash loans.

Ethical leadership considerations and recommendations (people)
My first recommendation concerning ethical leadership is to create a fair compensation program for all employees of RVSB. The program would limit executive compensation to a percentage of the lowest paid employee. Currently Patrick Sheaffer, the CEO receives a salary of $280,075 for year and options worth $820,404. (Reuters, 2014) There has been much discussion lately on an increase of the minimum wage to $15 an hour in the United States. Personally, I think it is a shame that the United States, which is supposedly the leader of the free world, does not offer a living wage to its poorest citizens. The current minimum wage is still $7.29 per hour. (Wikipedia, 2014) In a 2014 article on Daily Kos, it was reported that CEO’s now makes 331 times that of the average minimum wage employee. (Blades, 2014) Therefore, I am proposing that RVSB adopts a proposal that originated from the faculty and students at St. Mary’s College. They recommended, an increase of the lowest paid employee from $24,500 to $30,000 and then limit the CEO’s salary to 10 times the amount. (Miles, 2014)

My second recommendation would be the appointment of a vice president of social responsibility. A quick search on Linkedin.com of the staff of RVSB for phrases such as “ethics” or “social responsibility “ did not bring up any person responsible for those areas. Neither did a search for "Riverview Community Bank and social responsibility”. I am recommending a vice president role because I think it is important to have somebody on the executive level to be in charge of social responsibility. A search of Linkedin.com for “vice president of social responsibility” revealed that only 130 people in the USA have the title. Among local credit unions, only Columbia Credit union has a vice president of Outreach and social responsibility. (Linkedin.com, 2014)

My third recommendation is the creation of a program to support the involvement in social enterprises. The idea is that RVSB gives money back to the community by supporting local initiatives. Examples of community initiatives are reducing hunger and poverty, revitalizing neighborhoods, cultivating sustainable food systems. Currently, RVSB is organizing events such as the CDM Caregiving Services or raising money for the blinds (Clark County Live, 2014 ), but these are voluntary programs. I am recommending a mandatory amount of 10 percent of the net profits, which will be used to support community initiatives. Sometimes financial institutions that actively give back to the community are referred as community banks. (Ask.com, 2014) Examples of community banks in the Pacific Northwest are Pacific Coast Bank and Community Bank (Oregon) (Ask.com, 2014)

Organizational viability considerations and recommendations (profitability)
My first recommendation concerning organizational viability is the expansion of RVSB’s mortgage program.
Based on my research on www.linkedin.com RVSB currently has 16 employees working as mortgage loan officers. (Linkedin.com, 2014) I briefly compared these numbers with Columbia Credit Union another local bank that currently has 560 employees, with 10 percent of them being mortgage loan officers. (Linkedin.com, 2014) The mortgage market can be extremely lucrative and provide stability to the financial institution during times when consumers might not want to deposit their money in saving accounts or play the stock market to receive higher returns. My recommendation is to increase the number of loan officer to 10 percent of its total
employees.

My second recommendation concerning organizational viability for RVSB is the improvement of their credit risk program. According to a corporate investor relations report from October 29, 2013, RVSB still has a 3 percent or $16.2 million non-performing loans, real estate owned properties and net charge-offs. (Riverview Community Bank, 2013) According to the report, these numbers have improved from the prior year but only because one of RVSB commercial real estate loan was paid down by $4 million. Needless to say, there is room for improvement. The report further states that RVSB is trying to improve their lending infrastructure and their efficiency. This statement leads me to believe that a review of their work processes might be needed.

My third recommendation concerning organizational viability for RVSB is the outsourcing of RSVB’s back office operations. Until the mid-2000’s, every bank had their own back office operation. Nevertheless, in recent years bank have realized that their back office operations can be easily outsourced to a third party provider. RVSB currently staffs their back office operation. Departments that can easily be shared are information technology, compliance, human resources and marketing. In an article in the Financial Times Philip Stafford and Daniel Schaefer describe how global banks are joining forces to reduce their expenditures. (Stafford, 2013) The saving that can be achieved are pretty impressive. Global banks can save between $1.5 billion to $3 billion dollars annually. In RVSB’s case I am proposing that they look for similar institutions such as Columbia Credit Union and discuss the possibility to (NASDAQ, 2014) to jointly share the costs of their back office operations. In an article “Small Credit Union’s team on Back-Office Operations” Natasha Chilingerian talks about the collaboration between smaller credit unions to share their back office operations. (Chilingerian, 2012)

Legal and regulatory considerations and recommendations
Banks are under more regulatory compliance pressure than ever before. Mostly this is due to the global financial crisis from 2008. Lawmakers are trying to avoid a reoccurrence of having to bail out of small and large banks. Until recently RVSB was supervised by the Office of the Comptroller of the Currency (OCC) supervised RVSB itself. (Riverview Bank, 2014)

My first recommendation concerning legal and regulatory considerations for RVSB is to increase their capital level to (Riverview Bank, 2014) to 20%.
Currently, RVS’s capital level is at 16.7 percent. Capital levels in banks are defined as “…is the amount of capital a bank or other financial institution has to hold as required by its financial regulator.” (Wikipedia, 2014) One of the main reasons some banks went into default during the 2008 crisis were insufficient capital levels. By upping the capital level RVSB will increase its financial stability and allow it to weather future economic crises. (Jochen Schanz) Increasing capital level does not necessarily mean that RVSB would have to cut down on their lending activities. Instead retained earning could be used and RVSB could reduce the dividends that are paid out to shareholders. Currently RVSB annualized dividend is $0.18 cents. (NASDAQ,
2014)

My second recommendation concerning legal and regulatory considerations is creation of a voluntary overdraft protection act. Lately consumer advocates have complained that banks reap huge profits from overdraft fees. Overdraft fees allow bank customers to withdraw money from their bank account even though the account has no funds in it. (investopia, 2014) During a phone call to RVSB I was told that they charges $32 if they pay the overdraft amount and $30 if they return it.

H.R. 1261 was introduced into the House of Representatives on March 19th of 2013. The bill would require depository institutions “…from engaging in unfair or deceptive acts or practices in connection with overdraft coverage, or in acts designed to evade the provisions of this Act. (Congress.gov, 2013) Depository institution would be required to inform consumers in writing, electronic communication, or other consent that overdraft fees can be charged by using the ATM or POS transaction. Additionally, banks will be required to provide periodic statements for any transaction account which has overdraft protection, immediate notification of the account’s overdraft statement, and an equivalent APR amount that allows consumers to compare overdraft. The bill further limits overdraft fees. Depository institutions would also be prohibited to charge overdraft fees that are higher than the actual transaction amount. Consumers would receive the same terms regardless whether they have enrolled in a overdraft coverage program. Additionally depository institutions are not allowed to charge any overdraft fees for ATM or debit card transactions. Last, depository institutions would be prohibited from sharing the use of overdraft coverage with any credit reporting agencies. The final stipulations would be enabling the Consumer Financial Protection Program to investigate institutions for abusive practices.

My recommendation is that RVSB limit their overdraft fees to a maximum of $20 regardless whether the bank pays the overdraft amount or returns it. Second, regardless whether consumers use an ATM or a POS, they would receive an immediate notice that a possible overdraft fee will be charged for that particular transaction. Total amount of all overdraft fees will be limited at $200 per year. RVSB would not charge any overdraft fees for ATM or debit card transactions. Consumer will receive the same terms regardless whether they signed up for overdraft protection. No overdraft fee will be charged for ATM or debit transactions. Usage of overdraft protection will not be reported to any credit reporting agencies.

My third recommendation concerning legal and regulatory considerations is the implementation of the Third Basel Accord also called Basel III. Basel III is “…global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. (Wikipedia, 2014) In the United States, the implementation of Basel III will require the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to issues rules to implement Basel III. Currently, none of these institutions have issued any rules. (Bibliotecapleyades, 2012) Bank capital adequacy is defined as the amount of capital a financial institution has to hold to avoid insolvency. (Investopia, 2014) Basel III set this amount at eight percent. Stress test for financial institutions is defined as an annual procedure which tests how a financial institution would perform …under unfavorable economic scenarios which is designed to determine whether a bank has enough capital to withstand the impact of adverse developments.” (Investopia, 2014) Market liquidity risk is defined as asset illiquidity, which is the “…inability to easily exit a position.” (Harper, 2014)

As mentioned previously my recommendation to RVSB is to increase its capital adequacy to 20 percent. Further once a year RVSB performs a stress test to see how it would perform under adverse economic conditions. Last, RVSB would continuously monitor its market liquidity on a quarterly basis.

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