United we stand: B.E. financials overview.

IT APPEARS THAT BLACK-OWNED FINANCIAL institutions learned some significant lessons in 1996. The conservative posture that had paralyzed black banks into zero growth in 1995, gave way to some very innovative and aggressive approaches to reaching new markets and boosting profits in 1996.

"Black banks are profitable, but the key is for them to continue to grow their earnings and to look at new revenue lines," says Baunita Greer, president of Cromwell, Miller and Greer, a New York City securities brokerage firm. "That includes expanding their products and services (i.e., telephone banking, credit cards, investment securities), granting more loans and acquiring more branches outside of their communities."

Greer's assessment is on target. While merger-mania, acquisitions and consolidation of the mega-banks continue to be one of the most effective cost-cutting measures used by the banking community, black-owned banks are taking a different approach. They have adopted a strategy that has worked well in the business arena--forming alliances and partnerships among themselves and with white-owned financial institutions and Fortune 500 corporations. Chicago-based Seaway National Bank (No. 3 on the BE FINANCIAL 25), which is leading a consortium of women- and minority-owned banks to extend lines of credit to some of the nation's leading corporations, is one success story.

Last year, some 417 financial institutions were trimmed, primarily the result of roll-up-the consolidation of several banks in different states that are owned by the same bank holding company. While this type of activity is trimming the overall number of outlets of the mega-banks, black-owned institutions continue to be on the lookout for opportunities to purchase these discarded branches, giving them entry to markets they don't currently have access to Liberty Bank and Trust Co. in Louisiana and Consolidated Bank and Trust Co. in Richmond, Virginia (Nos. 9 and 16, respectively, on the BE FINANCIAL 25), have used this tactic with great success. As white-owned banks continue to merge, the strategy of acquiring cast-away branches of larger banks bodes well for black-owned institutions.

Pushing ingenuity to new heights, black-owned institutions, Founders National Bank of Los Angeles(No.14 on the BE FINANCIAL 25) and Nashville-based Citizens Savings Bank & Trust, are also cutting the cost of building traditional brick and mortar branches. Instead, they are opening boutique-style branches in supermarkets, strip malls and office buildings. The banks are doing all of this in an effort to position themselves as real service providers for what they feel are growing groups of consumers who are alienated by the continuing bank mergers and the fees that are evolving from them.

Will these strategies work?

"Each bank will have to determine its own strategic efforts and identify its own niche," says Deborah ScottEnsley, CEO of Citizens Savings and chairman of the National Bankers Association, a Washington, D.C.-based trade group of minority- and women-owned banks. "Some minority banks may decide to focus on the church community and economic development. Others may concentrate on small business financing or mortgage lending. As long as it is a viable market that those minority institutions can properly serve, they will thrive."

ScottEnsley adds that for minority banks to compete in the next millennium, they must also continue to operate efficiently and be financially sound. Granted, but there will always be a place for small community banks, even in the face of mergers, says Joe Gladue, an equity analyst with the Chapman Co., a Baltimore investment bank (No. 13 on the BE INVESTMENT BANK list). Small banks have intimate knowledge of their markets and customers and should be able to thrive on that."

In fact, he says the banking industry could end up as a two-tier market, "where we have large national banks with $100 billion or more in assets, like Bank of America, Citibank and NationsBank, at one end and small banks that can continue to provide personalized services on the other end."

TWO STEPS FORWARD

The fact that black-owned financial institutions will survive the current wave of mergers does not mean there won't be casualties along the way. First Texas Bank of Dallas, the city's only black-owned bank (ranked No. 7 on the 1996 BE FINANCIAL 25), was recently sold to BOK Financial Corp. in Tulsa, Oklahoma. At the time, First Texas had $142 million in assets, a hefty chunk now missing from this year s BE FINANCIAL 25.

The loss of First Texas and the tumultuous climate black-owned banks find themselves in, helped contribute to total assets for black-owned banks in 1996 reaching $3.30 billion, up slightly from $3.28 billion in 1995. Total deposits for 1996 were $2.79 billion, down from $2.81 billion in 1995; and total loans for 1996 equaled $2.10 billion, up from $1.58 billion in 1995. Total capital remained constant at $271 million over the two-year span.

The overall picture for banking was not so mixed. Super regional banks experienced healthy growth across the board. Total assets of all 10,120 banks throughout the country amounted to $4.84 trillion in 1996, up from $4.57 trillion for 10,537 banks in 1995. Total loans were $2.98 trillion, up from $2.76 trillion; deposits were $3.40 trillion, up from $3.23 trillion, equity capital grew to $400.5 billion from $374.1 billion, and earnings for the entire industry were $54.8 billion compared with $51.2 billion the previous year. The industry's record profits are continuing, but this year, black-owned banks have a better handle on tapping into the lucrative opportunities.

COLLECTIVE LENDING AND STRATEGIC PARTNERING

Several years ago, small national banks talked in terms of their legal lending limitation-no more than 15% of their capital. Since lending is a chief money-making source, these limitations severely diminished the profitability of the black-owned banks. They were virtually shut out of lucrative opportunities with large corporations. The solution was banking consortiums. "If your capital base is $ 1 million, the most you could loan out to any one customer is $150,000," says Seaway National Bank President and CEO Walter Grady. "Being that we had a small capital base, we felt that if we pooled our resources, we could attract larger lines of credit and spread our risk the same as a majority bank does."

Grady notes that these alliances spur economic development by supporting the participating banks and providing other initiatives that boost their capital growth.

A little over a year ago, Seaway was appointed lead loan syndicator of a consortium of 75 minority- and women-owned financial institutions. Seaway's partner banks comprise the BE FINANCIAL 25.

The consortium, led by Seaway, marks the largest alliance of minority banks and the largest total loan commitment to date. The consortium has been tapped to provide a total of $245 million in lines of credit to seven major corporations: $65 million to General Electric, $30 million to Colgate-Palmolive, $25 million to McDonald's Corp., $25 million to Philip Morris Companies, $20 million to Sarah Lee Corp., $40 million to Sears, Roebuck and Co. and $40 million to E.I. DuPont. Seaway's senior vice president and director of marketing and business development, Emma Taylor, says the banks benefit from their newly established relationships with the major corporations. In turn, the corporations get to expand their minority vendor relationships.

Loan syndication is by no means a novel approach. In fact, Seaway has led consortiums for the past decade, but the biggest deal prior to the 1996 consortium involved around 40 institutions and $40 million. Last year, St. Louis-based Gateway National was the lead bank in a nine member consortium of minority banks, including Seaway, which established a $10 million line of credit to Union Electric Corp.

The strategy has helped Seaway's total assets rise to $247 million, up from $230 million in 1995. Total loans for the bank were $ 105 million, up from $86.97 million. But Seaway hasn't relied too much on just one strategy for growth. Last year, the bank acquired a branch of Bridgeview Bank and Trust Co. in University Park, Illinois, some 30 miles outside of Chicago. Seaway seeks to increase its income by acquiring other branches, growing its investment trust products, financing local vendor programs, working with local churches and sponsoring bank-at-school programs.

The idea of bank consortiums and syndication lending has caught on with black-owned banks in a big way. First Southern Bank in Lithonia, Georgia (No. 24 on the BE FINANCIAL 25), was among four minority-controlled banks to kick in a $700,000 loan as part of a refinancing deal coordinated by NationsBank for Pepsi-Cola of Washington, D.C., L.P. First Southern also participated in a loan syndication with NationsBank to loan $2.5 million to Omega Psi Phi fraternity. A number of the mega-banks are willing to participate in loan syndications with minority banks as a way to meet Community Reinvestment Act (CRA) requirements.

In addition, black-owned banks are partnering with each other to complete nontraditional loans that help communities and local businesses. Nashville-based Citizens Savings Bank & Trust partnered with the Jefferson St. Missionary Baptist Church, the Metropolitan Development Housing Authority and Tennessee State University to finance a 22-unit dormitory facility for TSU students.

And Founders National Bank of Los Angeles is working with the Urban League and Nissan Motor Corp. to finance minority dealerships. The bank is also working with majority partners to provide foreign currency exchange transaction services at the Los Angeles International Airport--an opportunity that will add a significant source of revenue for Founders over the next five years.

IN SEARCH OF THE COMPETITIVE EDGE

As super regional banks such as Fleet Bank and NationsBank continue to consolidate, they remain focused on economies of scale and technology. Big banks have produced cost savings and created efficiencies, thanks to downsizing and by adding more ATMs, banking by telephone and PC banking to their branch networks.

Black-owned financial institutions can't afford to cut back on staff. In fact, many are hoping to capitalize on displaced, experienced bank executives. And instead of reducing branches, black banks must find the resources to expand by acquiring branches.

Still, this hasn't stopped such black financial institutions as City National Bank of New Jersey (No. 8 on the BE FINANCIAL 25) and Industrial Bank in Newark, New Jersey, from developing their technology systems. "We realize the new generation is very computer-oriented. We are strategically looking at new methods to approach them," says Louis E. Prezeau, City National's CEO and president. The bank currently provides telephone banking. By year-end, it will offer PC/home banking and its Web site (www.cityNJ.com) will allow customers to fill out loan applications online.

Industrial Bank recently linked its local area networks to a wide area network to enhance the efficiency of its various divisions. It also has added banking-by-telephone services and PC banking for small businesses as a part of its cash-management product offering.

There is still some debate over how technology advanced black banks and thrifts can become and still serve their customers. Those black-owned banks that can afford ATMs, a home page on the Internet and telephony services are benefiting. But it will take longer for minority institutions to profit from PC/home banking, especially since major institutions haven't seen a big pay-off from these services yet.

AN UPSWING IN MINORITY LENDING

The biggest drawing point for black financial institutions is -personalized banking, which includes mortgage lending and financing small community businesses.

"We have done a number of non-SBA guaranteed loans that average in size around $100,000," says Carlton J. Jenkins, president and CEO of Founders National Bank in Los Angeles. "But we intend to aggressively pursue more fully-guaranteed SBA loans." Founders' commercial lending increased a good deal last year--from $ 19 million to $28 million--in small business loans.

In addition, Founders is establishing a new mortgage lending center. "We have a $60 million loan portfolio. About 60% of that is multifamily lending," says Jenkins. "Originating single family homes will be a new direction for us. Founders is in the process of obtaining approval by Fannie Mae as a seller/servicer of loans. Loans were up from $58.17 million in 1995 to $61.45 million last year; $46 million were in residential real estate loans.

With $372 million in assets, New York City-based Carver Bancorp Inc. (No. 1 on the BE FINANCIAL 25) has come a long way in its lending--with a $240 million loan portfolio, up from $59.36 million a year ago. About 30% of its assets are invested in direct loans compared with 13% in 1995. The bank is increasing efforts to take advantage of its certification to grant loans by the Federal Housing Administration and Fannie Mae.

City National maintains its lending strength, having become experts in the 203K program under the Department of Housing and Urban Development. The bank is working with local churches and a Muslim mosque, to help them take advantage of HUD programs.

In addition, City National recently partnered with the City of Newark to rehabilitate 20 houses that normally would be auctioned. "We are qualifying buyers based on their ability to pay the cost of the house, which ranges from $70,000-$80,00, then we will hold a lottery," says Prezeau. "This way, we will have people who can afford the mortgage and put the houses back on the tax rolls." City National has begun similar programs in Cleveland and the Bronx, New York.

When it comes to implementing new programs to expand products and services, there's a limit to what some blackowned banks and thrifts can do. Many are simply trying to manage their operations. "When you have less than $100 million in assets, it becomes increasingly difficult to compete with the various new bells and whistles that keep getting developed," says George Quick, CEO of Mutual Community Savings Bank in Durham, North Carolina (No.23 on the BE FINANCIAL 25). "We accept the fact we can't be all things to all people."

No doubt, personal service will be the key for most black-owned banks and thrifts. The one major advantage they have over the heavy resources of larger regional banks is their clear understanding of community banking. But in order to thrive and survive, they must use that advantage to create new opportunities to expand their institutions. Whether acquiring new branches, funding church economic development, providing low-to moderate-income housing or granting mortgage and small business loans, the challenge is on--and black-owned banks will have to prove up to it.

RELATED ARTICLE: 1997 TOP 25 FINANCIAL INSTITUTIONS SUMMARY

BLACK-OWNED                                           PERCENT
FINANCIAL INSTITUTIONS       1995           1996      CHANGE

Number of Employees         1,827          1,941        6.24%
Assets(*)              $3,275.252     $3,296.405        0.65%
Capital(*)               $271.651       $271.329       -0.12%
Deposits(*)            $2,811.518     $2,794.481       -0.61%
Loans(*)               $1,575.760     $2,103.249       33.48%

(*) In millions of dollars, to the nearest thousand.

Prepared by B.E. Research. Reviewed by Mitchell & Titus L.L.P.

RELATED ARTICLE: 1997 TOP 10 INSURANCE COMPANIES SUMMARY

BLACK-OWNED                                               PERCENT
INSURANCE COMPANIES             1995           1996         CHANGE

Number of Employees            2,195           2,217         1.00%
Assets(*)                   $687.457        $680.020        -1.08%
Statutory Reserves(*)       $494.189        $494.293         0.02%
Insurance in Force(*)    $18,415.929     $18,703.293         1.56%
Premium Income(*)           $161.122        $150.112        -6.83%
Net Investment Income(*)    $42.748          $41.656        -2.55%

(*) In millions of dollars, to the nearest thousand.

Prepared by B.E. Research. Reviewed by Mitchell & Titus L.L.P.