ShoreBank Stands By Its Mission in Harrowing Times
Other banks have been hit by regulatory ordersâ€”requiring them to raise more capital. One of those is ShoreBank, a bank that's made its mission to get money to low-income communities and borrowers. In good times, the strategy earned it money and pats on the back. But the current recession has slammed into those communities at the heart of ShoreBank's lending model.
As part of our series, Facing the Mortgage Crisis, WBEZ's Adriene Hill finds thatâ€”even nowâ€”the bank is undeterred in its mission.
Graph: Foreclosures in ShoreBank's biggest neighborhoods
Graph: Property value changes in ShoreBank's biggest neighborhoods
In 2005 Carl and Adrian Martin bought a bungalow in Chicago's Austin Neighborhood. It was their first home.
CARL: It's like you're a part of America now. You're a Mr. now instead of a who. You're a Mr. now or a Mrs. now. You're a person when you have your own home and your own things.
They even put up a white picket fence out back. Carl beams as he shows it to me through the kitchen window.
CARL: Always, I always wanted that.
They bought their home with an adjustable rate mortgage. Two years in, their payment spiked from $1,200 to $2,500 a month.
CARL: With that rate and it was due to increase again
ADRIAN: We couldn't afford that.
CARL: We couldn't afford it, plus we were falling behind in other bills trying to
ADRIAN: make sure we had the mortgage payment. We had to find someone that would help us. We didn't know what we were going to do, we were in a panic. We were like in a panic. And it was very stressful.
Adrian and Carl have good jobs with the city and the countyâ€”but they just couldn't keep up with the ballooning payment. So they went to a city workshop, looking for help. There, they got hooked up with ShoreBank. They met with a banker, and in the spring of 2008 were able to get into a 30-year fixed rate mortgage they could afford, about $1,600 a monthâ€”it was just soon enough.
ADRIAN: It was just a matter of time before we started to foreclose
CARL: We were close.
Since the refinance, Carl and Adrian say they've been able to catch up on their other bills. They even bought a second car. They're poster children for ShoreBank's Rescue Loan Program and the bank's mission:
POGGE: ShoreBank really invests in people.
That's Jean Pogge, Executive Vice President of Consumer and Community Development at the bank. The bank's made about 200 rescue loans to help refinance mortgages for homeowners like the Martins. It's also part of Making Home Affordableâ€” the federal loan modification program with a lot of hypeâ€”and so far, not a lot of broad participation. Pogge says the bank remains absolutely, resolutely, committed to its missionâ€”even as the recession has beat up on its loan portfolios.
POGGE: Well the neighborhoods we do business in have been really hard hit by this recession. Property values have fallen considerably, in some neighborhoods as much as 40 and 50 percent. Secondly, unemployment has risen dramatically, whatever the Chicago rate is today, you can usually double that at least in many of our neighborhoods.
Right now, feel-good banking isn't translating into profitable banking. According to a report the bank filed with the FDIC, ShoreBank reported $8.9 million in losses during the first 6 months of the year. A significant portion of the loss was related to $20 million the bank set aside to cover future loan losses.
By the end of June, more than 12 and a half percent of ShoreBank's real estate loans were more than 90 days past due or no longer accruing interestâ€”compared to an average of about 4 percent of loans at banks the FDIC considers ShoreBank's peers.
Last month the bank was hit with what's known as a “Cease and Desist” order by state and federal regulators. It's basically a legal agreement that forces the bank to make some changes to the way it does business. It requires the bank to come up with more money to provide a backstop if loans go bad. It also forces the bank to change its lending practices and to stop paying dividends.
But, says ShoreBank's Pogge, it's not as bad as it looks. She says just because borrowers get behind on their loans doesn't mean they'll walk away… often she says, people keep in touch with the bank and are able to get back on track.
POGGE: We certainly have stress on our loan portfolios. And we certainly would like to see our delinquencies and our non-performing loans come down significantly. But the bank is strong. . Do I wish that we were stronger right now, absolutely. But am I confident that we will be there? Yes.
ASHTON: I think that there's risk and then there's risk. One of the ways Shorebank has distinguished itself is not just by making loans to good people or good hearted people but by being really savvy and creative about how it managed the real risks of lending in the places that it does.
Phil Ashton is a professor at the University of Illinois at Chicago. He says ShoreBank, like other community banks, focused a big piece of its lending on multi-family, construction and commercial properties. Many of those loans are struggling right now especially as credit markets have dried up and people are cutting back on what they spend. I called Ashton yesterday after the newest bank performance report came out for his read on the health of the bank. He says there are a lot of things we can't know from the outside…a lot of moving parts on the balance sheet that aren't clear…but….
ASHTON: They've been posting operating losses for now for a couple of quarters and that's a significant issue. Those are tied directly with issues to their loan portfolio. So a lot of losses come because they've had to set aside more capital to accommodate loan losses. And so from the point of view of the regulators the potential for loan losses are significant enough they hypothetically could overwhelm their capital base.
According to a researcher at data company SNL Financial, in the second quarter of the year, ShoreBank had the 4th highest rate of nonperforming loans of the 51 commercial banks of its size in Illinois, Michigan, and Ohio.
Still, Jean Pogge, from ShoreBank insists her bank is still well capitalized and she's confident the bank will raise the additional money it's looking for.
That's more than just wishful thinking, according to Mark Pinsky, the CEO of the Opportunity Finance Network, which is an organization of Community Development Financial Institutions or CDFIs like ShoreBank.
PINSKY: We're used to being in adverse conditions. We're used to being in turbulent times in a bad storm. And we're not as affected by it.
He says the community banking industry is- by nature- resilient.
PINSKY: what we've seen generally across the industry, and what I think you'll see with ShoreBank, is that our friends and investors and partners will step up without hesitation.
He says the lending opportunities for community banks could change over the next couple of yearsâ€”there could be more need for small business banking or more mortgage lending. It's hard to know. But he's saysâ€”one thing won't change. Community lenders like ShoreBank will keep making the loans that other banks think are unreasonably risky.
PINSKY: That's what we do, that's our stock and trade. And we'll continue to do that.
For its part, ShoreBank has no plans to turn from its community lending mission in the face of the recession. On the contrary, Pogge says the focus these days is on the mission and getting the bank back on track so it's around and ready to help its neighborhoods when things start to recover.