Serving LMI Communities: The Importance of Faith Based

Partnership for the Chicagoland

Region

February 25, 2014

Presented by: Thurman Smith

The many financial issues are complex, varied and

interrelated. Solving them, however, is less about

possibility than willingness and capacity – a resolve that

must be shared by all stakeholders in this community.

In the context of an uneven but recovering economy, we

have inherited the acute issues of the unbanked and

underbanked, foreclosures and displacement. How we

choose to deal with it will be our legacy.

PART I:

Capsulizing the Environment:

2

Underbanked: By the Numbers

SOURCE:

1) Findings of FDIC 2011 National Survey of Unbanked or Underbanked.

2) 2009 FDIC National Survey of Unbanked and Underbanked Households URL:

http://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf

The FDIC Survey (2012) found that 8.2% of all households in the

U.S., totaling an approximate 17 million adults, are unbanked; this

is a 7% increase from 2009.

In addition, 20% of all households, 51 million adults, are

underbanked; this is a 16% increase from 2009.

Unbanked in Chicago MSA totals 245,000

Underbanked totaled 470,000

Combined = 715,000 or 21.3%

National Stats for Un/Underbanked:

African American – 22.5%

Hispanic (non-Black) – 16.2%

24,100,000

3

ENVIRONMENT: THE WORLD IS CHANGING

Global Market Change with Local Impact

Banks are now grappling with the same

forces that have throttled video stores,

newspaper publishers, music and book

stores - changes that reflect consumer

preferences for doing more business

electronically.

Brett King

Credit Union Times

Consumer Preferences

Consumer Preferences

Economic Implications for Banks

Fewer clients are interacting with their

banks in person.

Average In-Person

Transactions per Month

Actual 2000 11,400

Actual 2010 8,100

Estimated 2013 5,400

Source,: King, 2013 Source,: King, 2013

4

BECAUSE THE WORLD IS CHANGING:

Global Market Change with Local Impact

Branches will continue to Shrink after

period of rapid Expansion!

Consumer Preferences

Consumer Preferences

Economic Implications for Banks

Trend Towards Electronic Banking Will

continue!

Closing the Internet and Smartphone Gap

is happening without artificial stimuli as

market forces drive costs downward.

Banks will face increasing economic

incentives to make electronic banking

accessible to everyone.

5

Underbanked Issues Contextualized

Findings of Federal Reserve 2011 Survey of 2,600 Unbanked or Underbanked Residents.

How Does This Inform What Banks Should Do?

6

Underbanked Issues Contextualized

THERE ARE OPPORTUNITIES FOR BANKS TO CLOSE THE GAP !

7

Environment: The Small/Microbusiness Case

8

Contextualized: How Microbusiness is Financed

9

Contextualized: MFI Capital Issues

MFI’s severely lack the capital required to keep address demand

Demand

$ Capital

$92 million $570 million to

$1.4 billion

SOURCES:

1) See Microfinance Lending: The Issue of Credit by Smith & Flannigan Vazquez

Survey based on AEO Microbusiness Estimate at SBA estimated average loan need for 2012 at a 1% and 2% market penetration

2) Girardo & Edgcomb for Aspen Institute, 2013

1 2

Local MFI’s: Accion, WBDC, CNI/CBA, UPB, LISC/Justine PETERSEN

10

Financing Gap for Growing Small Companies

Small Business growth critical to job growth = critical to unemployment in LMI communities.

11

Continued: Underbanked Small Business

Over half of all Microfinance loans finance start-ups.

Nationally, some 200,000 to 300,000 new businesses start annually – but

difficult to gauge local metrics

Plus 60% of all small businesses don’t apply or are discouraged from

debt.

Economic recovery is most often accompanied by increased debt need.

Accion estimates local demand at $25,000,000 a year.

SOURCES:

1) Stein, Goland & Schiff for IFC & McKinsey, 2010

2) Girardo & Edgcomb for Aspen Institute, 2013

3) Williams for SBA, 2012

4) Hoy, Romero & Zeuli for Federal Reserv4e Bank of Richmond, 2012)

1

2

3

4

12

Environment: Unemployment Impacts Everything

Census (2010)

Woodlawn: As proxy for Low Income Communities

13

Environment: Foreclosures Still an Issue

Woodlawn: As a proxy for Low Income Communities

The issue is not unique to Woodlawn!

Metropolitan Planning Council, 2009

14

Environment: Opportunistic Buying

Savvy Investors are buying the better located and better condition properties with cash and

frequently before the bank forecloses to mitigate competition or government sponsored intervention.

Source: DePaul Institute for Housing Studies, 2012

Public Policy Controls are being implemented to offset this

but market forces often prevail.

15

Environment: Why Cash Buying Persists

Single Family

1-4 Unit

Owner-Occupied

Single Family

1-4 Unit

Investor Owned

Single Family

1-4 Unit Rehab

Owner-Occupied

Single Family

1-4 Unit Rehab

Investor Owned

Multifamily

5+ Unit No Rehab

Investor Owned

Multifamily

5+ Unit Rehab

Investor Owned

Traditional Banks

CIC

NHS

CCLF

TIF NSP ($75K)

CIC/CCLF/NHS - Chase

Cluster

Mercy NSP (PNC/CCLF)

Limited Limited

Limited

Limited

The Residential Missing Middle

Source: Gerlach, Community Investment Corporation, 2013

Su

sta

inab

le / O

ng

oin

g

Lim

ite

d /P

rog

ram

ma

tic

Limited

16

Environment: Displacement is an Issue

Reducing Low Income Density & Deconstruction of Public Housing (Policy led Displacement)

and Market Driven Displacement Are Overlapping in Many Neighborhoods.

Displacement can be exacerbated by foreclosures!

17

Environment: Rationalizing Growth & Slowing

SOURCE:

1) Hannan and Hamweck (2007),

2) Yerak, B., (2012), Chicago Tribune

Rapid Population Growth and deregulation

led to unprecedented growth in Branches.

• Between 1994 and 2006 (Onset of Mortgage Crisis)

Bank branches grew by 27% nationally and by 66%

in Illinois.

• U.S. banks and thrifts closed 767 branches in 2012

as a recuperating financial industry continues to cut

costs and as consumers increasingly rely on ATMs,

and online and mobile banking to make deposits and

get cash.

1

2

Behaviors & Retailing Fundamentals

Stable Neighborhood Household Growth Retail Expansion Potential

Bank

Grocer

Big Box or Center

Behaviors & Retailing Fundamentals

Chicago Illinois USA

1994-2006 Branch Growth TBD 66% 27%

2000 -2010 Population Growth TBD -6.9%

Population Growth 1994-2006 TBD 21%

Projected Growth 2012 .7% .3% 1.7%

Source:

1) U.S. Census

2) Frey, 2012, Brookings Institute

3) Hannan & Hamweck, Federal Reserve Board, 2002

1

2

3

Slow Growth Outlook

Except in Middle Income Loop Neighborhoods

SO WHAT DOES THIS ALL MEAN?

What Issues are we

trying to fix?

Consumer Behaviors

Bank Behaviors

Societal Behaviors Governmental

Behaviors

What tools are

available?

What strategies are

being deployed locally or

elsewhere?

How do we prioritize?

Who pays for it?

Criteria for Strategy Proposals

Sustainable over needed

duration?

Consumer Behaviors

Bank Behaviors

Societal Behaviors Governmental

Behaviors

Doable within

recommended context?

A lead person or

organization can be

identified?

The argument can be

validated with facts?

22

Solutions: Financial Education is Key

Financial

Education

Financial Education Wheel

Community Partnering

Financial Institution Engagement

Government Collaboration

• Training & Funding

• Backs training with low cost products

• Facilitates migration to full banking access

Faith Based Partnering

• Connects Community with Solutions

• Informs Content, Delivery, Pricing and Structure

• Monitors for accountability on all sides

• Primary Unit of Connectivity to LMI Community

• Controls Policy

• Financial Resources

Collaborative Community Based Solutions:

PNC Solutions: Community Collaboration

PNC Solutions: Online Education Center

https://www.pncsites.com/achievement-sessions/

PNC Neighborhood Resource Center

PNC Fairfax Connection -

Cleveland

A PNC operated resource center open to all

members of the community to serve their

needs and interests while celebrating the

community’s proud history and legacy of

hope.

• A space that offers programs and online

resources for residents and business

owners including tools to help them achieve

their goals.

• Cultural resource hub

• Financial Education Center.

•Community Space

PNC: Education Commitment

Sept. 2010

The PNC Foundation announced $3 million in grants to four of

Chicago's premier institutions to enhance science education for

PNC Bank in Chicago pledged $500,000 over five years and wanted

to direct the money toward early-childhood education, an issue the

bank long has supported.

PNC Bank in Chicago pledged $223,000 to support financial

literacy for school aged children. The partnership with the

Chicago Public Library will serve more

than 5,000 pre-school children.

underserved students in preschool

programs operated by Chicago Public

Schools and the Big Shoulders Fund.

28

Bibliography:

AEO (2013). Bigger than you think: The economic impact of microbusiness in the United States. Association for EnterpriseOpportunity, Retrieved from http://www.aeoworks.org/pdf/Bigger Than You Think - The Economic

Impact of Microbusiness in the United States.pdf

Board of Governors of the Federal Reserve, (2013), Consumers and mobile financial services 2013, Retrieved

from http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201303.pdf

FDIC, (2010). 2009 FDIC national survey of unbanked and underbanked households, Retrieved from

http://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf

Federal Reserve Bank of New York, (2013). Small business credit survey, May 2013 - key findings. Retrieved

from website: http://www.newyorkfed.org/smallbusiness/2013/pdf/full-report.pdf

Frey, W. (March, 2012). Population growth in metro America since 1980; Putting the volatile 200;s in perspective,

Metropolitan Policy Program at Brookings, Retrieved from http://www.brookings.edu/research/papers/2012/03/20-

population-frey

Girardo, W., & Edgcomb, E. (2011). Key data on the scale of microlending in the U.S., Field at the Aspen Institute, Retrieved from http://www.aspeninstitute.org/sites/default/files/content/docs/pubs/Microfinancing.pdf

Hannan, T. & Hamweck , G.A., (2007), Recent trends in the number and size of bank branches: An examination

of likely determinants, Retrieved from http://www.federalreserve.gov/pubs/feds/2008/200802/200802pap.pdf

Institute of Housing Studies at DePaul University. (2013). The state of rental housing in Cook County. Institute for Housing Studies at DePaul University, Retrieved from

http://www.housingstudies.org/media/filer_public/2013/04/22/ihs_2013_cookcounty_state_of_rental_housing.pdf

29

Bibliography:

Gerlach, A. (2013), Interview with Thurman Smith on January 24, 2013 at Community Investment Corporation.

Hoy, T., Romero, J., & Zeuli, K. Federal Reserve Bank of Richmond, (2012). Microenterprise and the small-dollar loan market (EB12-05). Retrieved from website:

http://www.richmondfed.org/publications/research/economic_brief/2012/pdf/eb_12-05.pdf

Khwaja, A.I. (2010). Finance and Diversification in Resource Rich Countries, Center for International

Development at Harvard University, Retrieved from

http://www.imf.org/external/np/seminars/eng/2010/afrfin/pdf/Khwaja1.pdf

King, B. (April 24, 2013), Brett King and the death of the branch: Part 1 - Consumer behavior is the killer app,

Credit Union Times, Retrieved from http://www.cutimes.com/2013/04/24/brett-king-and-the-death-of-the-branch-

part-1 http://www.cutimes.com/2013/04/24/brett-king-and-the-death-of-the-branch-part-1

Metropolitan Planning Council, (2009). Olympic Woodlawn housing plan. Retrieved from

http://www.metroplanning.org/uploads/cms/documents/olympicswoodlawnhousing.pdf

PWC, (2011), Getting to know you: Building a customer-centric business model for retail banks, Retrieved from

http://www.pwc.com/en_US/us/financial-services/publications/viewpoints/assets/viewpoint-retail-bank-customer-

centric-business-model.pdf

Smith, T. & Flannigan-Vasquez, S. (2013). Microfinance: The Issues of Credit, Retrieved from Federal Reserve

Bank of Chicago.

30

Bibliography:

Stein, P., Goland, T., & Schiff, R. (2010). Two trillion and counting: Assessing the credit gap for micro, small, and

medium-size enterprises in the developing world. Published by McKinsey & Company and International Finance

Corporation, Retrieved from http://mckinseyonsociety.com/downloads/reports/Economic-

Development/Two_trillion_and_counting.pdf

U.S. Department of Commerce – U.S. Census Bureau. (2013). State and county quick facts (Last Revised:

Thursday, 06-Jun-2013 11:43:23 EDT ). Retrieved from website:

http://quickfacts.census.gov/qfd/states/17/1714000.html

Williams, V. Office of Advocacy, U.S. Small Business Administration. (2012). Small business lending in the United States 2010-2011. Retrieved from http://www.sba.gov/sites/default/files/files/sbl_12study.pdf

Yerak, B. (July, 25 2012), Illinois sees more bank closing than opening in last year, Chicago Tribune, Retrieved

from http://articles.chicagotribune.com/2012-07-25/business/chi-illinois-see-more-bank-closing-than-openings-in-

last-year-20120725_1_branch-count-branch-network-bmo-harris-bank