Dogged, defiant, and determined.

WHEW! IT'S BEEN QUITE A YEAR FOR BLACK-owned financial institutions. Confronted with the age-old problem of how to gain access to capital, they have been stunned by the Treasury Department's elimination of traditional interest-free overnight deposit revenues and squeezed by the competition from the large banks in their communities.

Even in a year that saw an annual increase of 12.5% in assets, from $2.8 billion to $3.2 billion, black banks and thrifts have found there ain't no hiding place from the onslaught of the new Republican Right on a roll.

The new playing field has proven so daunting that William Fitzgerald, CEO of Independence Federal Savings Bank, No. 2 on BLACK ENTERPRISE's FINANCIAL 25 list, couldn't find the words to describe his bank's past performance or future goals. "No comment," sighed Fitzgerald when contacted.

"Let's face facts," says Edrick Johnson, president and COO of Independence Bank of Chicago (No. 6 on the BE FINANCIAL 25). "This climate of conservatism may force all minority firms, both inside and outside the banking community, to refocus their energies."

1995 TOP 25 FINANCIAL INSTITUTIONS SUMMARY

BLACK-OWNED                                         Percent
FINANCIAL INSTITUTIONS      1993          1994      Change
Number of Employees           1,741         1,901    9.19%
Assets(*)                $2,881.685    $3,241.818   12.50%
Capital(*)               $  204.935    $  239.969   17.10%
Deposits(*)              $2,522.233    $2,840.803   12.63%
Loans(*)                 $1,469.769    $1,505.571    2.44%

(*)In millions of dollars, to the nearest thousand. Prepared by B.E. Research.

Reviewed by Mitchell/Titus & Co.

Despite these problems, the 25 firms on the BE list posted a total of $2.8 billion in deposits, a 12.6% increase over last year.

Different approaches are responsible for that growth say industry insiders. "I'm amazed how creative you can be," says Ron Wiley, CEO at Douglass Bank in Kansas City, Kan. "Growth for us [African-Americans] presents a special challenge."

Meeting those challenges with a creative flair, Carver Federal Savings Bank in Harlem, which secured the No. 1 ranking on our list, went public last year. It became the first African-American controlled bank to go public (see Moneywise, January). In Alabama, First Tuskegee Bank (No. 25) introduced a secured Visa credit card.

Innovations like these are imperative to the growth and maintenance of black financial institutions.

Louis Prezeau, chairman of the National Bankers Association and CEO of City National Bank of New Jersey, No. 12 on the BE FINANCIAL 25 list, told a 1994 convention audience that members of his trade group "survive, some even thrive, in market environments that can optimistically be characterized as in permanent recession mode." Looking at the industry bottom line, he noted, "Our banks continue to profit at marketing in a niche [black communities] most businesses abandoned long ago." The NBA is a lobbying vehicle for banks owned or controlled by Hispanics, Asians, women and African-Americans.

TREASURY DEPARTMENT SETBACK

Prezeau's sanguine view of survival is being put to the test once again as he and his colleagues face an expected reduction in liquidity. The fate of overnight funds, which are the lifeblood of all financial institutions, are testing their faith.

Last year, the Department of the Treasury told minority banks that they should expect to get along without interest-free overnight deposits from the government.

"They say the Treasury phase-out is going to make the department more streamlined and efficient," says Walter Grady, CEO of Seaway National Bank of Chicago (No. 4 on the BE list). "What it's really going to do is cut off a traditional and expected flow of capital to minority banks," Grady warns.

Under the new plan, announced late last year, only banks that service "corporations with tax liabilities that exceeded $78 million in 1993" will be eligible to make use of and earn income from overnight deposits. Few, if any minority banks meet this requirement.

It is difficult to quantify the actual losses expected by the industry, but Grady estimates that the average black bank could lose as much as $150,000 in earnings.

Those deposits and earnings will shift to large non-minority banks from blackowned ones. Instead of having companies physically deposit tax payments at minority banks, the Treasury is allowing corporations to wire the money directly to the department. The end result is that larger nonblack banks will gain additional revenue and capital from black banks now excluded from this cash stream.

Banking historians would do well to note that the last time the Treasury snatched similar deposits from a minority bank, it sounded the death knell for Freedom National Bank, in Harlem.

George Russell Jr., former president at Freedom, said at the time, "The loss of tax and loan revenue almost doubled our losses on a monthly basis, forcing us into insolvency on a faster basis." The Treasury's action didn't cause Freedom's problems, but it certainly didn't help.

"It's all part of the same retrenchment climate moving across business, politics and social agendas," says Edrick Johnson, of Chicago's Independence Bank.

"Today when I go to corporate America, the treasurers and CFOs that were there in the '70s are retired. Now it's a younger white female and her response is 'We're consolidating.' Consolidating!" Johnson declares. "The question becomes where do we fit in in that consolidation?"

"As we continue to strive for economic parity," says Lee Johnson, CFO Mechanics and Farmers Bank in Durham, N.C. (No. 11 on the BE FINANCIAL 25 list), "We keep having to stop along the way to figure out how do we replace this Fortune 500 relationship or that corporate sponsor."

Bill Stahnke, CEO at First Texas Bank (No. 9), believes his bank's philosophy may be the answer. As he puts it, "This is a solid institution that has grown by paying close attention to the needs of the community that we serve. Our customers are the working people of a good community, the kind of people that the larger banks ignore," he emphasizes. Stahnke, who is white, says that the bank is 21% employee owned and Charlie Pride, the legendary country singer, has held the controlling interest since 1977.

CRA MUDDLE

Pride's bank and Stahnke's philosophy mirror that of black bankers around the country, but it also unsheaths a double-edged sword called the Community Reinvestment Act.

The CRA was created in 1977 as an inducement for nonblack banks to provide credit, services and investment opportunities to low- and moderate-income communities. That sounds good, but African-American bankers have issued a steady stream of complaints about regulatory red tape and the reality of a bureaucracy that undermines their stability and inhibits their growth.

"We don't need the government to tell us to invest in the community," says Helen Coleman, CEO of Home Federal Savings Bank in Detroit.

"That's what we do," agrees Paul Hudson, CEO of Broadway Federal Savings and Loan Association (No. 16 on the list). "The idea behind the CRA is part of our mission, it is the purpose upon which we were founded," says Hudson.

"As one of the authors of the CRA, I can say that African-American's have never had to have a government mandate," says Thomas Clark, CEO of the largest (in terms of assets) African-American controlled bank, Carver Federal. He was a member of the Federal Reserve's Consumer Advisory Council, which drafted the CRA legislation in the mid-'80s.

"We do it because that's where we are and these are our people," Clark says. "If mainline money centers don't want to be responsible in our communities because they perceive our people and business to be unprofitable, well, look at the numbers. We've been here since 1948. We are headquartered in Harlem. We have eight branches and we are profitable."

Referring to bank analysts who say that black-owned banks can't be profitable, Clark feels that "the numbers and our existence refutes the 'unprofitable' argument."

Johnson of Independence Bank believes that commitment to neighborhoods is just as important. "I look around the South Side of Chicago and the truth is we have a lot of blight out here," says Johnson. "But as a financial institution we have part of the responsibility, along with certain politicians and community groups, to take a geographic area and control it."

LAST STOP ON THE RTC

Taking "control" means taking advantage of opportunities when they arise. An era of opportunity will end this year when the Resolution Trust Corp. auctions off its last properties from the late '70s savings and loan bailout.

Started in 1989 under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), the RTC was charged with liquidating the assets of the nation's failed savings and loans. The RTC's mission ends in December.

Under pressure from minority lobbyists, who had less capital and were concerned about nonblack institutions buying and closing bank facilities in black neighborhoods, the RTC came up with a minority preference bidding process.

Requesting anonymity, one banker said that there were two real reasons the RTC acquiesced to minority demands. First, it would have been more difficult to auction all of the failed S&L's within the allotted time frame, without minority preference bidding. Second, the RTC allowed smaller banks to bid so as not to be responsible for creating a monolithic banking system.

"The RTC presented unique opportunities, and now that those opportunities are ending. I really don't know where growth, like we've seen in the last few years, is going to come from," says Virgil Robinson, president and CEO of Dryades Savings Bank, the newest African-American-owned thrift in the country currently ranked No. 24 the BE FINANCIAL 25 list.

Robinson wouldn't be behind the bank's desk in New Orleans if not for the RTC's minority-preference bidding. The RTC seized Dryades in 1991 and auctioned its assets and deposits last year.

With $600 million and 14 investment partners (see Newspoints, May) Robinson entered the auction at $10,000. Not only did the RTC accept this bid, but this "quasi-government" agency loaned him an additional $3.2 million as well.

Likewise, Wiley at Douglass Bank more than doubled the bank's assets and deposits while increasing capital and reserves by a quarter by acquiring Franklin Savings Bank in Kansas City through an RTC auction.

In the auction Douglass booked $60 million in deposits from Franklin, after an initial ante of $161,000. "After we came up with our third of the purchase price," Wiley explains, "the RTC loaned us the rest.

B. Doyle Mitchell Jr., CEO of the Industrial Bank of Washington, had a similar bidding experience. But he says that his acquisitions are to be applied to a long-term strategic plan.

"We bought two branches from the RTC auction and the best thing about it was we were able to cross state lines," says Mitchell, whose Industrial Bank of Washington is listed as No. 3 on the BE FINANCIAL 25.

"One of the branches we bought was John Hanson Federal Savings in Maryland. When legislation goes through that allows interstate banking, we will be in position to do business rather than having to scramble around playing catch-up."

"To do that you have to understand failure. To fail isn't a bad thing. The bad thing is to fail once and then stop trying. In order to succeed, to grow, you have to fail, but with that failure you have to learn," concludes Clark of Carver Federal Savings.

INSURING A FUTURE

"As long as black people are getting buried, there will be black insurance companies," said one industry analyst.

The source who requested not to be named, says that insurance companies owned by African-Americans don't compete on any level with white-owned insurance companies. Instead, they issue life insurance policies, although not for investment purposes, but to cover the costs associated with internment.

Indeed, black-owned insurance companies number more than a baker's dozen, but as a group last year they generated little more than $160 million in premium income.

This year is expected to be better since higher interest rates are a boon to insurance companies.

1995 TOP 15 INSURANCE COMPANIES SUMMARY

BLACK-OWNED                                             Percent
INSURANCE COMPANIES            1993           1994       Change
Number of Employees              3,043          3,026    -.56%
Assets(*)                  $   698.407    $   700.314     .27%
Capital Reserves           $   499.118    $   507.199    1.62%
Insurance in Force(*)      $20,268.965    $19,289.906   -4.83%
Premium Income(*)          $   158.798    $   162.506    2.34%
Net Investment Income(*)   $    45.705    $    42.204   -7.66%

(*)In millions of dollars, to the nearest thousand. Prepared by B.E. Research.

Reviewed by Mitchell/Titus & Co.