SPECIAL REPORT >> AFFORDABLE HOUSING HALL OF FAME

THE BANKER:
Banking on the Inner City

BY DONNA KIMURA

AFFORDABLE HOUSING FINANCE • OCTOBER 2007

When it comes to company tag lines, ShoreBank Corp. has one of the most ambitious around with its bold statement of “Let’s Change the World.”

That would be sheer hyperbole coming from most businesses, but it seems to suit ShoreBank and Ron Grzywinski, one of the bank’s four founders.

“The whole idea from the beginning has been the democratization of credit,” said Grzywinski.

ShoreBank made capital available for housing and economic development in Chicago’s inner-city neighborhoods at a time when other banks were fleeing the same areas.

Now operating in five states, the bank fostered the redevelopment of its service area and still generated a profit, inspiring other community development banks and lending programs around the world.

On the streets, the bank’s work over the years has included financing 52,000 affordable housing units. It’s one of ShoreBank’s most significant contributions to its communities.

ShoreBank was founded in 1973 by four friends and co-workers—Grzywinski, Mary Houghton, Milton Davis, and James Fletcher. Grzywinski, 71, remains corporate chairman, and Houghton is corporate president. Davis and Fletcher have died.

The four had worked together, running the first minority small-business loan program in Illinois. With $800,000 in capital and a $2.4 million loan, they purchased the failing South Shore National Bank on Chicago’s South Side, a neighborhood that was becoming increasingly black and low income.

This was a bold move, especially considering the climate in the country then. It was a time when redlining, the practice of denying loans to minority neighborhoods, was occurring in many cities, and there was a general feeling that nothing could be done to improve struggling neighborhoods.

The new biracial and mixedgender management team believed it could do what others didn’t dare.

“We wanted to demonstrate the strength of the market,” said Grzywinski, a Chicago native. “Nobody believed you could make loans in inner-city neighborhoods.”

From their small-business lending experience, he and the others knew that wasn’t true.

Emphasizing his belief that banks could and should do more, Grzywinski was the only commercial banker to testify in support of the Community Reinvestment Act (CRA), which Congress passed in 1977 to ban redlining and to encourage banks to meet the credit needs of all segments of their communities.

While critics were predicting the demise of ShoreBank, Grzywinski and his partners were building business. In the first winter, they organized nearly 80 parlor meetings in people’s homes and churches to talk to the community about the bank. Sometimes, as few as three people would attend. The footwork paid off with loyal customers and strong knowledge about their needs. Within two years, profitable operations were restored.

“We were totally stubborn,” said Houghton. “We had to try a hundred things.”

One of the qualities that made ShoreBank successful was that it was willing to experiment and be adventurous, said Richard Taub, a professor of sociology at the University of Chicago and author of Community Capitalism: The South Shore Bank’s Strategy for Neighborhood Revitalization.

He cites a development deposit program that sought deposits from outside the area, with the money going to help finance loans in the neighborhood. The depositors were rewarded with a small amount of interest and a feeling they were making a difference.

Taub cites the influence of the early work that Grzywinski and his partners did in making loans to blacks, including those who were starting fast-food franchises. “He saw a market niche there and also that he and his colleagues were helping to make a new class of wealthy African-Americans,” Taub said. “This was exciting to them, as they had a chance to right historic injustice. Orientations and experiences such as these helped to make him think about the possibilities of a development-oriented bank in a minority neighborhood. He was able to see the possibilities.”

Community-minded investing

“Ron, in particular, and the bank, in general, have demonstrated there are markets in the inner city, and there are ways to unlock those markets,” said Nicolas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies and a member of ShoreBank’s board of directors.

ShoreBank’s community-minded approach has included an ambitious program of lending to small multifamily properties, he said.

The financing of affordable rental housing has been the corporation’s most successful contribution to the neighborhoods, said Houghton. Although the bank also makes affordable home mortgages, providing loans for people to buy a small multifamily property, rehabilitate it, and rent it has been key to rejuvenating neighborhoods.

Described as the nation’s first community development and environmental bank, ShoreBank has about $2.1 billion in assets. ShoreBank Corp., the bank’s holding company, has expanded outside of Chicago and has banks and nonprofit affiliates in Cleveland, Detroit, the Upper Peninsula of Michigan, and the Pacific Northwest.

Between 1979 and 2003, affiliate ShoreBank Development Corp. (SDC) developed more than 3,000 units of affordable housing. In 2002, the SDC board decided that it no longer enjoyed any strategic advantage compared to other developers of affordable housing and decided that it could best support affordable housing development by lending to locally owned small developers, thus it got out of this businesses at that time, according to a representative.

In 2006, 74 percent of the loans made by ShoreBank qualified as mission loans, which includes community development loans, conservation loans, and investment in real estate it owns.

About three months ago, the corporation named Joseph E. Hasten as CEO of ShoreBank, the company’s Midwest banking unit.

Pushing the edge

As the CRA turns 30 years old this year, Grzywinski remains a defender of its mission.

“I believed then and now that if you do the job the right way and focus on the fundamentals of business, that loans in innercity neighborhoods could be as good as loans in other neighborhoods,” he said.

The CRA, he said, has changed the way banks view those neighborhoods.

Grzywinski, who is married with three children, was recognized in 2005 with the John W. Gardner Leadership Award from the Independent Sector, a network of charitable and philanthropic organizations.

The for-profit corporation has seven nonprofit affiliates, including the Center for Financial Services Innovation, which facilitates industry efforts to serve “underbanked” consumers. In addition, the corporation’s work has extended overseas with for-profit ShoreBank International providing consulting and training services to financial institutions in Africa, Asia, Eastern Europe, and South America.

ShoreBank officials also like to say their causes have gone from redlining to greenlining, meaning that environmental issues have become a big focus. They are providing information to real estate borrowers on ways to improve buildings’ energy efficiency, financing the decontamination and redevelopment of abandoned manufacturing sites, and financing improvements in business processes to reduce waste or use of toxic materials.

“We try to keep pushing the edge in what banks can do,” Grzywinski said. And, along the way, maybe change the world.