A new day for black financial institutions?

Executives at the nation's 77 black-owned financial service companies could look back on 1992 as a high-stakes round of poker. The bankers were dealt the best hand--finishing on a profitable, straight-royal-flush. The savings and loans CEOs breathed a collective sigh of relief, leaving the table--for the first time in years--with a few chips left in their pockets. As for the insurance company heads? Laggards in the game, they stood by as competitors snatched kings and queens from their hands and swapped them for jokers.

Despite increased banking profits, combined totals from assets, deposits and loans of the BE FINANCIALS LIST remained flat in 1992. Assets at the nation's 25 largest black commercial banks and S&Ls stayed intact at $2.8 billion; deposits also stayed the same at $2.4 billion; loans held firm at $1.5 billion.

Once again, the top three firms on the list defended their placement: With assets of $320.9 million, New York City-based Carver Federal Savings Bank heads the list, followed by Washington, D.C.'s Independence Federal Savings Bank ($239 million). Chicago-based Seaway National Bank ($202 million), the largest black-owned commercial bank, takes third place. On the move was Founders National Bank of Los Angeles (see Financial Company of the Year, this issue), which inched from 19th place on last year's list to 18th this year, with total assets growing from $61 million to $74 million.

From 1973 to 1990, BLACK ENTERPRISE ranked all black banks, S&Ls and insurance companies on individual lists. Since 1991 BE has combined onto the BE FINANCIALS LIST the 25 largest banks and thrifts. The 15 largest insurance firms are ranked on the BE INSURANCE LIST. [TABULAR DATA OMITTED]

A Great Year For Banks

1992 was a wonderful year to be a banker. Favorable interest rates and stronger loan portfolios helped create record profits for both black and white banks. Minority Bank Monitor, a newsletter prepared by Creative Investment Research, a Washington, D.C.-based investment research firm, reported that by Sept. 30, 1992 (the most recent data available) profits at black banks had nearly doubled from a year earlier: They rose from $7.4 million in 1991 to $14.7 million in 1992.

How do black banks fit into the larger, mainstream commercial bank picture? In 1992, the 36 black-owned commercial banks held assets of $2 billion and deposits totalling $1.9 billion. In addition, they had $903 million in loans on the books. The 11,461 banks tracked by the Federal Deposit Insurance Corp. (FDIC) held $3.5 trillion in total assets and $2.7 trillion in total deposits in 1992.

Last year, the number of black-owned commercial banks dropped from 38 to 36. Two states lost their sole black banks. Florida's People's National Bank of Commerce in Miami sold a majority interest to white investors. And Omaha's Community Bank of Nebraska merged with a white-owned bank. However, one city gained a new African-American controlled commercial bank, its first since 1956. Philadelphia hadn't seen a black bank open in almost 40 years, when last March Emma C. Chappell became chairman and CEO of United Bank of Philadelphia.

While the number of black banks may be shrinking, the banks' mission is expanding. Last year, Seaway National Bank of Chicago (No. 3 on the 1992 BE FINANCIAL LIST) bought two-branch Highland Community Bank, boosting its assets to $202 million for 1993. Highland had ranked No. 14 with $75.8 million on the 1992 BE FINANCIALS LIST.

New Money, New Leadership

Other key changes took place last year and in the early months of 1993. They included the introduction of new bank regulations, creative joint venturing, mergers and the ascension of new leadership at two banks on the BE FINANCIAL LIST.

In Chicago, one alliance produced a win-win situation as a group of minority banks received new deposits and the world's largest pension fund burnished its reputation as a good corporate neighbor. Last July, Chicago-based Drexel National Bank (No. 8 on the BE FINANCIALS LIST) and the New York-based Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) united to create a program for urban economic development.

The pension fund deposited $125 million into a Drexel account that distributed the funds to several minority banks. Ten percent of the deposit's earnings go toward the National Bankers Association Scholarship Fund. Additionally, TIAA/CREF purchased $100,000 worth of certificates of deposit from 14 minority banks.

A changing of the guard took place at two of the top banks. Last December, I. Owen Funderburg, 68, who transformed Atlanta's once troubled Citizens Trust Bank (CTB) into a profitable institution, retired as bank president and CEO. Under his direction, CTB (No. 7 on the BE FINANCIALS LIST) helped revitalize city neighborhoods. Funderburg was succeeded by William L. Gibbs, 48, who was a senior vice president at Atlanta-based Bank South N.A. prior to joining Citizens Trust. Gibbs says, "My challenge is to eliminate the title 'black bank' and become a dynamic mainstream organization that just happens to be minority owned. We [CTB] have to leapfrog in technology and delivery of products in order to be competitive." [TABULAR DATA OMITTED]

With the death of B. Doyle Mitchell, 78, last March, Industrial Bank of Washington (No. 4 on the BE FINANCIALS LIST) lost its chairman and president (see "In the News," this issue). His son B. Doyle Mitchell Jr., 31, became chairman of the bank, which was last year's BE Financial Company of the Year.

Holding Pattern For S&Ls

In 1992, the S&L industry continued its climb back from insolvency. The Washington, D.C.-based Office of Thrift Supervision reported that the net income of the nation's 1,855 thrifts--excluding the 87 under RTC conservatorship--ballooned from nearly $2 billion in 1991 to $5.14 billion in 1992. Similar to commercial banks, thrifts benefited from the gap between deposit and loan interest rates, as well as a decline in loan-loss provisions.

As a group however, the 18 black S&Ls did not do as well as their white counterparts last year. Creative Investment Research reports that the black thrifts net income was slightly lower than in 1991, declining from $4.2 million to $4.1 million by the end of September 1992.

A key factor in the slide was that, while bad loans shrank, few stronger loans replaced them. Consequently, assets at the black thrift barely budged in 1992, hovering around $1.2 billion. Total loans for the same period grew minimally, from $921 million to $945 million.

As a group, the S&Ls on the BE FINANCIALS LIST have remained stagnant from year to year. Total deposits barely grew from $1.01 billion in 1991 to $1.03 billion in 1992.

No thrift had as tough a year as Broadway Federal Savings and Loan Association. Its Los Angeles-based banking headquarters was burned to the ground during last May's riots. Yet almost immediately, CEO Paul C. Hudson built temporary offices across the street from the original site. Despite the fire, Hudson is committed to the community. Last year he offered up to $15 million in loans so that riot-affected businesses could make their payrolls. New headquarters for the $18 million asset thrift will open this year.

More Of The Same For Insurance Companies

In 1992, two of the weakest black-owned insurance companies collapsed and two others reorganized as companies doing a different type of business. The remaining 23 black-owned insurance companies posted total assets of $720 million and $23.2 billion worth of insurance held in force. This group, which is composed of three firms with more than $100 million in assets and 20 with less than $70 million (see chart), faced obstacles last year: stiffer competition, a demand for attractive new products and escalating operating costs.

By October these barriers, among others, proved too much for Harlem-based United Mutual Life Insurance Co., which was No. 9 on the BE INSURANCE LIST. It merged with the $103.2 billion Metropolitan Life Insurance Co. (MetLife), ending 60 years of service in the Northeast. Unable to find a buyer, United Mutual agreed to the merger to protect its 30,000 policyholders.

On Dec. 31, 1992, a black-on-black takeover occurred. Atlanta Life Insurance Co. (No. 2 on the BE INSURANCE LIST) absorbed Mammoth Life and Accident Insurance Co., which was No. 7 on the 1992 BE INSURANCE LIST. Mammoth was operating as an affiliate of Atlanta Life. [TABULAR DATA OMITTED]

Another company left the insurance business altogether. Last year, Chicago-based Supreme life Insurance Company of America--No. 10 on the 1992 BE INSURANCE LIST--sold off its remaining $12 million in assets. A new company with a focus on real estate will reemerge in 1993.

Farther west, Denver-based American Woodman's Life Insurance (No. 15 on the 1991 BE INSURANCE LIST) began reorganizing. Its executives will not release 1992 numbers to BLACK ENTERPRISE nor divulge what sort of company will emerge in 1993.

There was good news. Last year, Durham-based North Carolina Mutual Life Insurance Company maintained its hold on the top spot on the BE INSURANCE LIST as its assets increased 2.8% to $220 million. However, Josephine King, chairman of the National Insurance Association, which represents black insurance companies, says the problems her members faced in 1992 linger today. Chief among them: increased competition from white companies; the expense of technological change; bad press following high-profile insolvencies; and a 13% unemployment rate among blacks, which spurs policy cancellations.

"Seldom in our long history have we faced so many complex challenges," King says. "We have to continually reassess our market and introduce new products."

At least one black insurance company CEO heard the call for innovation. In June 1992, Golden State Mutual Life Insurance Co. and majority-owned Maxicare Health Plans Inc. formed a strategic marketing alliance. Their goal was to increase the availability of affordable health care. Now the two Los Angeles-based companies sell each other's products.

Golden State, ranked No. 3 on the BE INSURANCE LIST, now offers a number of health care products to its individual life insurance policyholders and small business owners. Maxicare offers life insurance and annuity products to its primary clients, employee groups that now use its HMO plans, and gained access to Golden State's black client base.

Prior to the agreement, Golden State's only health care offering was a supplemental plan for other major medical insurance policies. Now, it can offer Maxicare's comprehensive small group medical care plans for employee groups, such as "Max-65," a Medicare supplement plan for senior citizens. The marketing alliance covers California, Illinois, North Carolina and Louisiana, where both companies do business.

Larkin Teasley, president and CEO of Golden State, says, "[Now] we can provide our market with the comprehensive medical coverage it needs."

This refusal to be constrained by outside forces has been a hallmark of the African-American financial services industries. Those with bold ideas and resiliency have prevailed. As in previous years, companies with the nerve--and finances--to change will continue to rise in 1993.