More than one in four households, 28.3%, in the United States are unbanked or underbanked, according to a 2011 survey conducted by the FDIC and U.S. Census Bureau. More troubling, 29.3% of households surveyed didn’t hold a savings account while approximately 10% didn’t hold a checking account. The households surveyed represent a diverse population pool; however, the highest rates for un- and underbanked households are concentrated within certain demographics — namely, unemployed, low-income, minority, and young households — as well as within certain geographical areas — namely, the South.
In lieu of mainstream financial services, these households instead largely turn to alternative financial providers, such as payday lenders and check cashers, or opt to carry cash for financial transactions. Both options put these consumers’ financial health and physical safety at risk.
Statistics like this come as no surprise to William Bynum, CEO of Hope Credit Union ($169.3M, Jackson, MS). Hope FCU is a designated community development credit union that serves portions of Arkansas, Louisiana, Mississippi, and Tennessee, areas that have a high rate of subprime loans and high concentration of payday lenders. Despite the great need for responsible, mainstream financial services, Bynum says his market is losing ground to alternative financial providers, a fact that is compounded by banks fleeing the area.
“Our region has the highest level of poverty in the nation,” Bynum says. “More than 25% of persistently impoverished counties are here, those which have been impoverished for more than three straight decades. More than 1,800 bank branches have closed since 2008, 93% in low-income communities. That doesn’t mean people in these communities stopped needing financial services, it just means the banks stopped serving them.”
In 2011, Hope FCU opened a branch in the rural community of Utica, MS, which has a population of fewer than 1,000 people. Hope set up shop in Utica when the town’s sole banking option, BancorpSouth, announced it was closing 23 branches in areas that were not supporting sufficient sustained growth, including Utica. Two years later, Hope’s Utica branch is growing slowly but steadily, Bynum says. The branch has opened 700 to 800 accounts and added approximately 625 members. It has approximately $1.5 million in deposits and 92 loans totaling approximately $525,000.
“We’re getting small loans, which is important because residents were concerned about pay day lenders,” Bynum says. “They needed access to affordable, small dollar and small business loans. We’ve seen good progress on both those fronts.”
Hope initially focused on building relationships and increasing deposits. It made accounts available to anyone regardless of past history, whereas the previous institution did not. It offers financial counseling and uses flexible underwriting criteria to make credit available to members that need it. The credit union sets different goals based on the size of market and leans on local advisory committees to understand the needs of the market; however, performance expectations and underwriting standards are consistent across the institution. Hope’s board reviews the credit union’s finances every month and monitors its strategic plan. Bynum concedes that Hope’s 6.5% delinquency is higher than other banks and credit unions but insists its losses are as low or lower.
“We have less than .03% loss on our mortgage portfolio, even though our average borrower makes less than $40,000 a year,” Bynum says. “We have a similarly strong performance in our commercial portfolio. We put more time into managing our portfolios and working with borrowers, and it shows. We’re helping people that need it and deserve it. It's what we do and what others should do, too.
At midyear, Hope served nearly 28,000 members. It posted a 12-month member growth of 4.17%, 12-month share growth of 10.62%, and 12-month loan growth of 7.69%, besting its asset-based and state peers in all categories, according to Search & Analyze data on CreditUnions.com.
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The credit union, which already boasts a 15-branch network, shows no signs of slowing down and is looking to technology and innovative branching models to help fill gaps in the banking market. It launched a new mobile banking app at the beginning of 2012 and within seven months had nearly 2,000 users registered, a strong increase from the 800 with which it started.
“I understand the challenges in expanding brick-and-mortar and personnel into low-density communities, but fortunately technology has opened up opportunities to serve more people,” Bynum says. “We’ve invested in mobile apps and remote deposit capture. Members can transfer funds and check balances. We’re adding mobile bill pay before the year is over. We think technology is a solution to expand into the communities banks are running away from."
In addition to technology, Hope is making use of various branching models. For example, it is considering opening a cafe-style grocery store branches in two undisclosed communities and a student-run branch in Pine Bluff, AR, that will include an ATM kiosk and limited-hours staffing.
“Students are among the population that are significantly underbanked,” Bynum says. “We want to bring more students into the financial system. Plus, [student branches] help us establish a presence in the area.”
One branch at a time, the credit union is building its reputation and business. Far from conceding that it is growing too fast or without proper oversight — a criticism lobbed by the American Bankers Association — Bynum says his credit union is simply one of the many tools that should be working overtime to help the country rebound from the recession.
“To suggest that credit unions shouldn't provide services when people need them is hard to comprehend,” Bynum says. “Forty percent of our members were underbanked before joining Hope, so they weren’t being served by traditional banks.”