The presentation below is from the City of Chicago’s annual subject matter hearing on municipal depositories. Woodstock President & CEO Horacio Mendez shares 2023 lending data to evaluate whether the City’s banks are making progress in closing historical racial and economic disparities in both mortgage and small business lending.
Passed in September 2021, the Lending Equity Ordinance increases transparency around how financial institutions the City banks with are serving Chicago’s communities in part as a response to findings that Chicago lenders had invested more in a single white neighborhood than all Black neighborhoods combined.
The ordinance requires banks to submit data on their lending practices, loan distribution across different neighborhoods, branch locations, and demographics of local employees in order to do business with the City. The law also mandates annual public hearings evaluating whether progress has been made in closing lending gaps.
Good morning and thank you for having us back again to discuss how banks are serving Chicago. I’m Horacio Mendez, the President and CEO of Woodstock Institute, a 52-year-old nonprofit that uses research and policy advocacy to support community development and consumer financial protection.
I don’t have a lot of time, so I’m going to dive right into the data we have for 2024 and the 16 banks that responded to the City’s Request for Proposals to serve as municipal depositories.
On the upside, 3 of those respondents are new compared to last year: American Metro Bank, Liberty Bank & Trust Co., and Old National Bank. Even better, 2 are Minority Depository Institutions (MDIs), meaning their ownership and/or communities they serve are predominantly people of color – American Metro and Liberty.
One of the respondent banks, First Eagle Bank, is also a Community Development Financial Institution (CDFI), which is a designation that both non-profit and for-profit financial institutions get from the Treasury Department to show that they’re mission-driven institutions that provide credit and financial services to underserved communities.
Publicly available information about each institution is somewhat limited, but we’re going to show you what we have that can serve as an indicator on how they’re serving communities of color and low- and moderate-income communities in mortgage lending and small business lending.
And just because we can, we also compared them to each other so that we could see if any of them stand out … for better or for worse.
As I go through these slides, you’ll notice that these charts exclude some of the banks from the list. In order to be fair, we didn’t want to pit banks that do a lot of loans in this market against banks where mortgage or small business lending isn’t a big part of their business model. Being excluded isn’t necessarily a bad sign – we just want to be honest about the “critical mass” of data we need for a good, fair analysis.
One last quirk to note in the charts – as a community bank, Wintrust Bank does things a quite differently – the bank does most of their mortgage lending through their affiliate Barrington Bank and small business lending through affiliate Village Bank & Trust. While we combined the loans under both of those names for this analysis, the small business data isn’t as comprehensive as we’d like because their lending is scattered among a large number of their affiliates, which makes it difficult to get a clear picture.
Let’s dive into the data.
Let’s start by looking at how well these banks do at attracting mortgage applications from borrowers of color. This chart shows how many of each bank’s mortgage applications came from minority borrowers. The overall peer average here is just under 50% – and I mention that because it’s a big improvement from last year’s number of 40%, which tends to indicate that these banks are doing a better job of being visible, present and marketing their products. US Bank came out on top with nearly 61% of their applications coming from minority borrowers, with BMO and Wells not too far behind. In this category, “Most Improved” would be Wells Fargo, who was below peer last year at 37% and jumped up to above peer at almost 54%.
This next chart shows how many of those applications actually turned into a mortgage loan. The highest performers here are Bank of America, Citi, and Wells. Although Bank of America was below peer on the previous slide, they’re the highest performer here – which suggests that the minority applicants that they did get were well-qualified and mortgage-ready. We saw US Bank at the top of this group for the number of applications from minorities they received. Well, they’re below peer in terms of turning those into actual mortgages. We don’t want to read too much into that because there shouldn’t be a penalty for marketing your products effectively to minority borrowers and getting a lot of applicants that may not be mortgage ready, but this does give us an opportunity to talk with them on how to improve these outcomes. And again, kudos to Wells Fargo for being most improved in this category as well.
Moving on to the same analysis, but for low- and moderate-income borrowers, the high performers on getting applications are PNC, Huntington, and US Bank. Most improved goes to US Bank, who was below peer last year and improved this number by about 20 percentage points.
In terms of turning these into actual mortgages, the next chart shows PNC and Huntington doing a good job of turning those high application numbers into mortgages, with Bank of America doing a good job of doing the same, but with significantly fewer applications.
Our last 2 mortgage charts shift the focus to communities rather than individual consumers. Chart 5 looks at how well these banks did at attracting applications from majority-minority census tracts. You’ll recall that US Bank and BMO were high performers on getting applications from minority borrowers, so it’s no surprise they’re top performers in getting applications from majority-minority census tracts. Our other high performer here is Huntington. Likewise, Bank of America and Citi were below peer on the minority borrowers application chart, and they’re below peer here as well.
Chart 6 looks at how many of each bank’s originations came from majority-minority census tracts. On this chart, I want to highlight that the spread between the lowest and highest numbers here is only 7 percentage points, so none of the banks were really dramatically higher or lower on this number.
Finally, Chart 7 shows us how many of each bank’s small business loans went to LMI census tracts. Small business data is pretty limited, and Republicans in Washington DC are going to make sure it stays that way, so we can’t do as detailed an analysis here as we can for mortgage. We also only have access to county-wide data for small business loans.
The high performers here are Bank of America, Citi, and US Bank, and their numbers here are on par with their data from prior years.
So – which banks stand out, for good or for bad? First, the bank that most consistently underperformed compared to peer was Old National Bank. They’re middle of the pack on the charts looking at majority-minority census tracts, but are below their peers on the charts looking at minority borrowers and LMI borrowers.
U.S. Bank was the highest performer on these charts. They were a bit below peer on the charts looking at originations to minority borrowers and LMI borrowers, but were the highest performer on the charts looking at applications from those groups and the chart looking at applications from majority minority census tracts. In general, we need more banks making a concerted effort to reach potential borrowers in groups that have been marginalized and have not had equitable access to the banking system. These charts show that U.S. Bank is doing their outreach work. We wanted to spotlight that and encourage other banks to up their game here.
