Small Dollar Loans and InSchool Branching as Entry

Small Dollar Loans and In-School Branching as Entry Points for Reaching Underserved Markets James P. Maloney Chairman, Mitchell Bank February 5, 2009 Advisory Committee Meeting on Economic Inclusion 1

Small Dollar Loan Pilot • Nature of FDIC Pilot • FDIC Guidelines issued June 19, 2007– everything you need to know. • www. fdic. gov/news/press/2007/pr 07 052 a. html; Bair, Low-Cost Payday Loans; www. aecf. org • Why encouraged by FDIC • Why banks would want to do it. February 5, 2009 Advisory Committee Meeting on Economic Inclusion 2

Common Features of SDLs • Fully Amortizing Term Loan- $300 to $1000 • Breaking the Cycle of Multiple Renewals and Rollovers • Not to be fee-based overdraft or bounce protection • Streamlined Underwriting, Processing and Decision Making • Traditional Credit Scoring vs. Payday Lender Data; No credit score/thin file • Savings Component and “suitability” February 5, 2009 Advisory Committee Meeting on Economic Inclusion 3

MITCHELL BANK: Payday Alternative Loan Product Element Details Comments Loan amount $300. 00 to $1, 000. 00 Limited to $500. 00 for non-customers Loan term 6 to 12 month Fully amortizing; no prepayment penalty Cost – interest rate, APR, fees (broken out in detail) $8. 00 application fee 15. 0% - credit score 621 and up 18. 5%- credit score 570 to 620 22. 0%- credit score 569 and below 18. 5% - thin file/no credit score available Interest rates the same regardless of term; No application fee and interest rate reduced to 15% if prior on time payment of PAL loan regardless of credit score; Noncustomers must have credit score of 580 or higher; 18. 5% rate for non customers Underwriting – process, standards Credit report; verified $1000. 00 per month income or benefit source; low doc standards; Customer tenure of 6 mo. / or loan amt reduced and higher credit score required Non-loan officer approval; loan officer approval and credit counseling required for credit score 569 or less Payment structure, frequency Monthly fully amortizing loan payments Option to prepay at any time. Guidelines on repeat usage No rollovers or refinancing of loan; no more than 2 payday alternative loans in 12 mo. period Waive application fee and credit report on new PAL loan and uniform 15% rate on second loan after on time payment of first loan Other features – saving, credit building, etc. 10% of the loan amount must be deposited in favored savings account Credit agency reporting of loan paymentsbuilding credit and improving score Governing regulations (state? Fed? Reg Z? TILA? Other? Wisconsin Consumer Protection Law Federal Truth in Lending Applicable terms and right to cure etc. governed by state consumer law Economics/profitability Still too early; have not had defaults so not possible to determine; profitable if no defaults Bank anticipated a 15% to 20% default rate; overestimated to date 4

Regulatory Issues and CRA • State Consumer Protection Laws/Reg Z and TILA • Subprime Interagency Guidance/FDIC • CRA consideration and promise February 5, 2009 Advisory Committee Meeting on Economic Inclusion 5

Cardinal Bank/ A Sustained Initiative • Introduced in 2000 and now 8 years old • Branch operated by 8 to 10 senior students— 8 separate classes • Overcoming trust issues and teaching financial literacy • Over 800 new accounts for unbanked families • Increase of community based accounts in Main Bank February 5, 2009 Advisory Committee Meeting on Economic Inclusion 6

February 5, 2009 Advisory Committee Meeting on Economic Inclusion 7

February 5, 2009 Advisory Committee Meeting on Economic Inclusion 8

CARDINAL BANK – Background of start up – Demonstrates importance of partnerships within community – Formal branch application to FDIC and State regulators. – Full service branch vs. “school” sub accounts – Students are our “Ambassadors” to community February 5, 2009 Advisory Committee Meeting on Economic Inclusion 9

CARDINAL BANK • Real accounts because we are targeting students and their parents • Bank presence--officers of bank, not just teachers • Separate Board of Directors/Officers of bank • Students market bank to peers/ Classroom presentations February 5, 2009 Advisory Committee Meeting on Economic Inclusion 10

Cardinal Bank • New Expansion to formal Finance Class within School curriculum • Students have become the family financial advisors • Student Bankers teaching at elementary schools • Employment of student bankers after graduation February 5, 2009 Advisory Committee Meeting on Economic Inclusion 11

February 5, 2009 Advisory Committee Meeting on Economic Inclusion 12

February 5, 2009 Advisory Committee Meeting on Economic Inclusion 13