‘One Small
Project At A Time’

Whether you get a loan to buy or fix up a home can depend on where you live in Chicago, an analysis by WBEZ and the nonprofit newsroom City Bureau shows — and where you live often depends on your race.

That reality might be good to remember with the coronavirus clouding the city’s economic future.  

The city’s biggest banks are lending eight times more money in white neighborhoods than they are in black or Latino neighborhoods — a gulf in investment that echoes earlier times in Chicago’s history.   

African Americans who came from the South in the early 1900s during the Great Migration were not served by majority banks, though families knew homeownership was a stepping stone to stable finances and generational wealth.  

So banks and savings and loans owned by African Americans were born.  At one period in the 1960s and ‘70s, Chicago had at least eight black-owned financial institutions. 

Illinois Federal Savings and Loan in Bronzeville was one of them. It was founded in 1934, and later became Illinois Service Federal. 

"A bank like Illinois Federal was the only way they [African Americans] were able to buy their first home," said Norman Williams, the banks former CEO. 

But like many community banks, Illinois Federal struggled during and after the housing crash of 2008, and the recession that followed. 

In 2016, it was acquired by Groupe Nduom, a Ghanian American business enterprise. It is Chicago’s last black-owned bank, though in 2018, the new owners renamed the institution GN Bank. 

Williams shared his thoughts on the importance of Illinois Service Federal and other black-owned banks to their Chicago neighborhoods.

On the founding of Illinois Service Federal

Williams: The bank was started by 13 African American men. Shortly after the Great Depression, in 1934, they were able to put together about $7,000 and start a savings and loan that was mutual in concept, meaning it was owned by the depositors. It wasn’t owned by wealthy individuals. They were chartered by the federal government and regulated by the Federal Home Loan Bank Board with the mission of providing bank access and lending credit to people to buy and own their own home.

On the importance of black-owned banks —  then and now

Williams: The neighborhoods where African Americans lived have been segregated from Reconstruction times, and it was pretty clear that African Americans did not have access and were not welcome in majority financial institutions. So if they were to have access to very basic banking services, then it was going to have to come from outside the majority community at that time. A bank like Illinois Federal was the only way [African Americans] were able to buy their first home. 

[While] 1934 was very different from today, there are still many communities that could use more access to simple banking services that are enjoyed by the majority community. Just as there are food deserts —  I will just coin the word — there are financial deserts.

On the power of a small loan

Williams: When I first became chairman of the board, one of the things I felt I needed to do was go to the minute book of the bank and to read back what was recorded in the minutes shortly after the bank was founded. 

In those minutes are the stories of board members asking people: ‘Do you need to fix your roof? Do you need new windows?’ They were encouraging people to borrow because they were able to lend for very small projects. It was not a big bank. It was not a national bank. It was a very local bank, and its size allowed them to really tailor and mission their banking activity to people whose needs were too small to be met by a large commercial bank. But those needs dealt with their very quality of life.

For a middle-class family in this country, black or white, their home or their small business is their greatest asset. That is the majority of their wealth. 

If they can protect it and improve upon it with a bank that’s willing to work with them and create terms by which they can borrow and save over time, at the end of that period of time, they are able to have saved money, borrowed and paid it back. And their wealth has been enhanced.

On Illinois Federal’s support of local businesses

Williams: I remember as a young man, my father would take me to a store on the first floor of the Rosenwald Building; it was a meat market, and it was run by a butcher. And you could actually, in that little place, get some of the finest cuts of meat that you could get anywhere in Chicago.

It was mostly family-owned, or maybe a community of families that owned and operated these businesses. They operated them with a sense of pride and purpose because they were invested. They lived in the community, they worked in the community, they made their investment in the community. They wanted a piece of commercial ownership in their community. So in these commercial corridors, alongside single-family residences, alongside multifamily residences, you are generating economic life and you’re circulating those dollars within the community — not just our bank, but all of the black banks were an integral part of that. 

[Illinois Service Federal] helped local businesses not as a commercial bank — it helped local businesses because of its existence. If people were trying to start a very small business, their equity was their home. And so if they could get access and borrow money using their home as collateral, that was more valuable than gold.

On how Illinois Service Federal suffered after the 2008 financial crisis

Williams: Around 2008, things happened really fast. We began to see a lot of our customers lose their jobs, start to fall behind on their mortgages and begin to use their savings to make ends meet. That trend was just continuous year after year and got worse with each successive year. We could see it on our balance sheet, with unemployment in our community, the African American community, much greater than what would be reported in the national numbers.

When unemployment was reported at 8%, we were seeing it at 25%. That can be devastating to a loan portfolio because you’re only making money if your customer base is able to pay you back. 

You buy a house. That house is appraised when you buy it at $120,000, you borrow $100,000. You lose your job. Your children lose their job, they move back home. You fall three months delinquent. We get the house appraised because we are required to. The appraisal comes in at $50,000. 

We have to immediately treat it as an expense, the difference between that $50,000 appraisal and the $80,000 balance of the loan, and write it off as an expense on our books. That costs us $10 million.

On what the bank’s struggles meant to the community 

Williams: Some of the effects of rapidly cleaning a bank’s books mean closing businesses, foreclosing on homes, emptying those homes out, those homes being abandoned, then the homes being razed and torn to the ground and the ground remaining vacant. 

Our customers felt it this way. There was a great deal of shame because our customers had a personal sense of obligation to pay their debts. They did not give up. Our way of trying to work with our customers was that it would be a better investment for the bank if a property could remain occupied and a relationship with a customer could be preserved, even if the loan was chronically delinquent. 

Bank regulators, state and federal, don’t share that view. It’s easier to measure a bank and measure its performance by trying to quickly clean the bank’s books and records of nonperforming assets or nonpaying loans.

On replacing the bank’s ownership 

Williams: I had to learn not to see it as the bank failing.

If a community bank is taking deposits and making loans using those deposits, and if it is dependent upon the people in the community having money to save or having money to use, ... if that money is dissipated, then [the bank doesn’t] have money to lend back out. When a bank leadership sees that as their future, they have a fiscal responsibility not to just allow the bank to fail, but to be proactive and to see if the bank or its structure or its assets can be put to a higher, better use at another institution [like Groupe Nduom].

I wanted the bank’s identity as a bank that was started by African Americans, run by African Americans and owned by African Americans to continue to outlive me.

This interview has been edited for brevity and clarity.

Ashish Valentine is a Chicago-based journalist and producer. You can follow him on Twitter @ashishval. Bill Healy is a Chicago-based journalist and photographer. You can follow him on Twitter at @chicagoan.