Leaner, meaner and braced for change: black banks and thrifts are evaluating the impact of the Community Reinvestment Act, as insurance companies struggle to redefine their market.

SURE AND STEADY HANDS ARE THE HANDS that steer the course for America's black-owned financial services companies.

In 1933, black banks, savings and loan institutions and insurance companies navigated the whitewater rapids of mainstream business to generate a frothy $4.2 billion in total assets, compared to last year's $4.05 billion.

Executives at the African-American commercial banks and savings and loan institutions on this year's BLACK ENTERPRISE FINANCIAL 25 LIST posted higher deposits ($3.06 billion compared to $2.90 billion last year) and loans remained relatively flat at $1.8 billion. The general feeling of black financiers across the country is summed up by Walter E. Grady, president of Seaway National Bank of Chicago, No. 3 on the BE FINANCIAL 25: "We had a record-breaking year in earnings."

LOWER RATES OFFER A LEG UP

Both commercial banks and savings and loans institutions have been helped by historically low federal fund rates (the rates that bank charge one another for overnight loans.) Those rates were held under 3% until this year when they were raised 1/4 point February and March.

The fertile interest rate environment made it possible for black-owned institutions to do some of the refinancing and repricing of assets and liabilities that typically drain profits and earnings. These techniques were used to such an extent that total assets at the nations 25 largest black commercial banks and S&L's rose to $2.9 billion in 1993 from $2.8 billion in 1992.

In contrast, the low rates of interest that have boosted profits at the nation's banks and S&Ls have held down profit increases in the insurance industry.

BATTLING THE MAINSTREAM

Roiling the waters of prosperity for black-owned financial institutions is a maelstrom of pressure from the white mainstream, insider say.

Seaway's Grady agrees: "The major obstacles [to the growth of financial institutions] are the regulatory environment and competition from other institutions."

Sam Fogie, president of the National Bankers Association (NBA is the trade group for minority- and women-owned banks) points out in his 1994-1998 Strategic Plan: "Most major banks and businesses long ago fled inner cities only to return lately under federal mandate."

The mandate to which he refers was one of the planks in Bill Clinton's presidential campaign platform, which promised a hard whack at reorganizing the 1977 Community Reinvestment (CRA).

Created as an inducement for banks to provide credit, services, and investment opportunities to low- and moderate-income communities, the CRA's 12-point whirlpool of paperwork has been independently evaluated by one of the four different agencies (the Office of the Comptroller, Office of Thrift Supervision, Federal Deposit Insurance Corp. and the Federal Reserve Board). Since the CRA's inception, black bankers say, the regulatory bureaucracy has undermined their stability and inherited their growth.

Helen Coleman, president of Home Federal Savings Bank, believes that CRA examiners are myopic in their audits and more concerned with the processing forms than with how well the bank services its community.

"The examiners come in. You are doing what they are asking. And yet they still don't give you outstanding work evaluations (because there is so much paperwork and a few good mortgage loans to make)." says Coleman.

Within the next year the four federal regulatory agencies are expected to amend the CRA to reduce the 12 qualifying steps to only three. Streamlining the rules is expected to make it easier for black bankers to make home loans for mortgages in the black community.

"Home ownership is still a necessity," says Robert M. Levelle, president of Dwelling House Savings & Loan Association, in Pittsburg, which averages about 33 mortgage loans a year.

"We aren't market players, because we hold all our loans to maturity." We don't operate in the secondary market, he continues.

Levelle admits that Dwelling, with assets of $18 million, may be a horse-and-buggy outfit compared to some other institutions. Nevertheless his bank follows the basic banking philosophy of remaining accessible to the small saver. He resents the way non-black banks encroach on minority business and communities. "The major players in this city, Mellon and PNC, are aggressively seeking mortgages in our area," he says. "They are trying to get the best minority mortgages [loans made to stable and upwardly mobile applicants who have a lower rate of default]. We are in this black community by choice. We are the people who originated what the CRA is all about," Levelle maintains.

The 1993 scramble for new products, expanded territory and increased access to capital has brought about a wave of creative management and intensified political lobbying among black banks. It has also brought to light some disturbing inequities in the management of some government mandates.

In March a group of NBA lobbyists charged the Resolution Trust Corp. (RTC) with ignoring a congressional mandate to assist them in the purchase of failed savings banks located in non-white neighborhoods. The group noted that since 1989 minorities have bought only 16 of the 680 institutions sold by the RTC. The NBA contends that unfair competition from mainstream banks who have no commitment to non-white neighborhoods is at the root of the problem.

However, since the RTC is nearing the end of its mission to sell the assets of failed savings banks, a fair resolution is not likely.

COMMERCIAL BANKS ON THE MOVE

In 1993, the nation's 36 black-owned commercial banks held assets of $2.256 billion and deposits of $1.98 billion. Reporting institutions posted $985 million in loans on their ledgers.

By comparison, the Federal Deposit Insurance Corp. (FDIC) tracked 10,957 commercial banks and reported that those institutions held $3.7 trillion in total assets and 2.75 trillion in total deposits for 1993.

A quick translation of that comparison is that approximately 6% of the total commercial banking activity in the United States is conducted by black-owned institutions. Of further import, the U.S. Census Bureau reports that African-Americans made up 12.5% of U.S. population at the end of 1993 and had a total pretax income of $284 billion.

Those statistics make the case for black financiers who are eager to expand the investment products their banks offer and heighten the sophistication of minority bank consumers.

"Core deposits [savings and checking accounts] are the lifeblood of the institution," says Jarius DeWalt, vice-president at the investment banking firm of M.R. Beal Co. "But loans and investment opportunities are the cream of the banking business, and access to high-quality loans and investment opportunities are essential for a bank's success," he continues. One of the developing investment opportunities is the Federal National Mortgage Association (Fannie Mae) Conduit Program. Fannie Mae is one of several government agencies that buy mortgages and package them for resale in the secondary financial markets. Industry insiders have noted that Fannie Mae has earmarked $1 trillion for commitment to low- and moderate-income housing projects. The funds are to be allocated in varying increments through the year 2000.

Louis Prezeau, chairman-elect of the National Bankers Association and president and CEO of City National Bank of New Jersey in Newark (No. 19 on the BE FINANCIAL 25 LIST), says that servicing mortgage loans through Fannie Mae is an avenue of opportunity black banking institutions should explore. "Even though interest rates are rising, they are still lower than they have been for quite some time," Prezeau points out. "Now [once the conduit program goes into effect] we can give buyers a mortgage at a 30-year fixed rate and they can afford to qualify for mortgages and become homeowners."

Maneuvering through regulatory bureaucracy and widening the channel to capital access is a task only few institutions have managed to do well.

One of those banks on the ascent is Founders National Bank of Los Angeles, which jumped four spaces to rank 14th this year from No. 18 last year. Under the stewardship of CEO Carlton Jenkins, Founders captured $2 million in separate equity infusions last year. One million came from Bank of America, which also sold Founders two of its South Central branch offices. The other million came from Arco, the giant oil conglomerate.

Emma Chappell, chief executive officer of United Bank of Philadelphia, which was not ranked among the top 25 black financial institutions last year, has made several aggressive moves that landed the two-year-old bank in 18th position on this year's list. United, with $75.3 million in assets, $67.3 million in deposits and $48.9 million in loans, took successful advantage of the RTC bidding process and CRA opportunities as well.

In August, the RTC approved the sale of two Chase Federal Savings and Loan Association branches to United Bank. Chase Federal had total assets of $17.3 million and liabilities of $19.5 million.

One month later in September, United joined with PNC Bank Corp. and acquired two offices of the faded Home Unity Federal Savings and Loan from the RTC. Those two offices had combined deposits of $65 million. PNC is a majority-owned bank and investor in United under the CRA.

Industry observers say that United seems to be mirroring the firebrand approach adopted by City National's Prezeau. Just a few years ago, City, was in dire straits despite its then-current $65 million asset holding. Under a CRA initiative, First Fidelity Bancorp, a majority-owned institution, invested $367,000 in an equity infusion, which allowed City to grow from $61.9 million in assets in 1992 to its current asset base of $75 million in 1993. The fiscal condition of City was also helped by other financial and private investors for an additional $1.183 million in new money.

"Survival is a tough thing for a minority banker," said Prezeau. "But survive is what we have done in the past. We have done it through depressions and recessions. And we have done it by clearly demonstrating our knowledge of the industry and by acknowledging that we continually have to do more with less."

Prezeau mused that the black banking community has historically been very lobby oriented and an active participant in the push for federal regulators to establish and maintain so-called "fair credit" channels that create a favorable environment for black bankers to effectively and gainfully serve the black community.

"When I look at interstate banking today, we minority bankers should consider the benefits of mergers, both as a means to garner financial strength and tap into technological benefits", he said.

As if "putting his money where his mouth is, Prezeau announced in April that City National had established a $50 million line of credit with AT&T, the global communications and computer giant headquartered in New York. City will act as the leader of a syndicate of more than 50 minority banks located throughout the country.

Corporations like AT&T pay up-front fees to set up credit lines, similar to revolving lines of credit individuals have at local banks. Additional fees are paid when funds are withdrawn.

There is also news from lower in the ranks as Drexel National Bank inched up to No. 7 from No. 8 last year. The move pairs Drexel with No. 6 Independence Bank of Chicago. Both banks are part of the Indecorp sale under negotiation with OmniBanc Corp., a black-owned bank holding company that includes River Rouge, Mich.-based OmniBank. (See "Building a Financial Powerhouse" in this issue.)

SAVINGS AND LOANS HANGING TOUGH

The consistency of performance among the black-owned S&L's has wrought few changes in the hierarchical order of last year's best performing BE S&Ls.

Carver Federal Savings Bank, in Harlem, N.Y., defended its No. 1 spot on the BE FINANCIAL 25 with $301.7 million in assets, $247.4 million in deposits and $198.3 million in loans. Carver, New York's only black-owned savings bank, made a move on the other side of the CRA last year. Instead of receiving outside cash, the bank increased its CRA activity by luring a $1 million account from banking giants Chemical Bank and Citibank.

In yet another move toward capital expansion, Richard T. Greene, president and CEO of Carver, announced in March that the bank had initiated a conversion from mutual to stock form.

According to Greene, customers with existing accounts may subscribe to purchase common stock shares at a range between $10-$15 through the end of the subscription period. After the subscription period ends, Carver's stock will trade on NASDAQ.

On the opposite coast, Family Savings Bank in Los Angeles returned to the fifth position on the list, and its win-win scenario for Family keeps getting better. Family posted assets of $181 million, up from $140.1 million a year ago. Deposits increased to $169 million from $114.8 million, and loans rose to $136 million from $115.2 million.

A year ago, Family Savings (FSB) was in danger of being shut down for failing to meet the minimum capital requirements set by the Office of Thrift Supervision. Located deep in South Central L.A., FSB is 93% owned by OFC Inc., a Washington, D.C.-based firm controlled by Opportunity Funding Corp. OFC solicits private capital for minority and community businesses.

Shortly before the L.A. riots wrecked the region last year, Keystone Holdings funneled $1 million through its subsidiary American Savings Bank to FSB. At the time, American had $17 billion in assets and its investment in FSB was lauded throughout the industry as a model use of the CRA.

Keystone is owned and operated by the billionaire Bass brothers of Texas, who also structured the investment to qualify as the first use of the qualified stock issuance provision of the Financial Institution Reform, Recovery and Enforcement Act of 1989. The provision allows an S&L holding company to acquire up to 15% in equity interests in an undercapitalized thrift without usurping control of that thrift. The cash infusion booted Family's assets up to $140 million and allowed the bank to acquire Enterprise S&L Association from the RTC for about $20,000.

The FDIC reports that nationwide in 1993, 42 banks with $3.8 billion in total assets failed. Rather than a dour outlook, that statistic is actually an indicator of the stabilization of the banking industry and an upswing for the general economy. According to the FDIC: 168 banks failed in 1990 for a total of $16.3 billion; 124 in 1991 for $64.3 billion; and 120 in 1992 for $46.1 billion.

Unfortunately, some black-owned institutions found themselves to be too overburdened by a myriad of ills to remain afloat.

For example, Boston Bank of Commerce is bailing water after snagging a red light on a watch-list compiled by Veribanc Inc., a bank analysis database in Massachusetts. According to Veribanc's statistics, Boston had $68 million in assets at the end of 1993, with a 5.6 percentage ratio of equity to assets, and a net income of minus $873,000, which is a 22.96% loss as a percentage of equity. "If you know anything about the New England economy, you know that we've been hit hard" says Ron Homer, CEO of Boston Bank.

Two small black banks not ranked on the BE FINANCIAL 25 LIST closed last year. New Atlantic Bank closed on August 12 due to lack of capital. Formerly located in Norfolk, Va., the bank's $15.1 million worth of assets were acquired by majority-owned Bank of Hampton Roads in Chesapeake, Va.

Elsewhere, Emerald City Bank, formerly Liberty Bank of Seattle, with assets of $10.477 million was acquired by majority-owned Key Bank, based in Albany, N.Y.

INSURANCE COMPANIES SEEKING NEW DIRECTIONS

There were no major changes in the ranking of the top 15 black-owned insurance companies. However, the group is ready to reap the rewards of higher interest rates.

The BE INSURANCE companies posted a total of $698.407 million among them and more than $20.268 billion of insurance coverage in force.

North Carolina Mutual Life Insurance Co. defended its first-place position with $217.741 million in assets and $8.7 billion of insurance in force.

In second place, Atlanta Life Insurance Co. underwent an executive change with longtime head honcho Jessie Hill Jr. stepping aside as the company's chairman and CEO. Replacing Hill is Don M. Royster Sr., former president and COO. Royster, who had been a vice president of operations at Washington National Insurance Co. in Evanston, Ill., has been with Atlanta Life since 1992.

"We were profitable, more in '93 than '92 [but still] not as profitable as we had planned to be," said Larkin Teasley, president of No. 3 ranked Golden State Mutual Life Insurance Co. in Los Angeles. "Interest rates are low and that is not positive for the industry. The life insurance industry is not a borrower. Lenders such as insurance companies that lend their own money and not deposits, ended up with considerably less interest income [than] they had in previous [years when interest rates were higher]."

Despite the problems, North Carolina Mutual's Bert Collins, president and CEO, said: "The future is bright, but you have to have good employees and find your niche. They [most smaller black companies] don't have to work on trying to find their advantage. The opportunities are there."

All the BE FINANCIAL respondents agreed that "meeting community demand" is the linchpin for all secular or niche market business, but the pledge may have a deeper significance when applied to the black community.

"Think of all of the social ills in the community. Well, the [financial institutions] are the controlling institutions in the community," says M.R. Beal's DeWalt. "The kinds of loans the bank can make in the community decide what type of community that will be."