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Industrial-strength banking.

Bankers love opening new branches. Why? Because new branches mean new business. Last winter, the management of Industrial Bank of Washington (IBW), a 58-year-old Washington, D.C.-based commercial bank, had reason to smile. In February, Industrial opened its newest branch on the campus of American University (AU). The branch provides access to 11,200 potential student customers and introduces IBW to an upper-middle class Washington, D.C., neighborhood. This new access is important says the bank's 78-year old Chairman and President, B. Doyle Mitchell Sr. "We are a very strong bank, and we hope that our exposure to a new clientele will help us to stay that way," he says.

Mitchell is correct about IBW's strength, its total assets of $165 million place it fourth on the BE FINANCIALS LIST. And the rest of the bank's financial results are equally impressive. For nearly 60 years, black Washingtonians have linked the words Industrial Bank to real estate loans. Now IBW, as part of a careful asset management and growth strategy, is reaching out to new customers. One way has been by opening two branches in as many years.

The fact tht a small bank chose to expand while larger ones contracted may suggest its leaders are contrarians. Not hardly. The team Mitchell leads prefers to characterize itself with another C word: conservative. In fact, Mitchell says its prudent lending philosophy is the key to steady growth. "Being conservative has served us well. It's in our blood," the Howard University alumnus says.

However, other words also typify IBW's history, such as customer satisfaction, consistency and profits. And those terms support BE's choice of Industrial Bank of Washington as Financial Company of the Year.

How It All Began

In 1934, few businessmen were opening banks. With good reason; the United States was mired in the Depression and thousands of banks failed. Luckily for many African-American Washingtonians not everyone was pessimistic. In fact, the late Jesse H. Mitchell, then a 43-year-old Realtor living in the District, was optimistic. The father of the current chairman saw a need and a niche in Washington. At the time, white banks would not make real estate loans to blacks. But Mitchell was sure local blacks had the will and, more importantly, the income to start their own bank to make such loans.

The Prairie View (Texas) college graduate was right. On Aug. 20, 1934, he and a group of friends founded IBW--one of D.C.'s first African-American financial institutions with $250,000 in assets and paid-in capital of $50,000. Previously, several other black-owned financial institutions had risen, but then collapsed.

Now fast forward 58 years. Much has changed. The U.S. economy is stumbling out of a recession. Bank credit is tight and mortgage and deposit interest rates are down. There is also active competition for African-American real estate business from many banks hungry for interest income. But IBW's commitment to increasing black homeownership remains constant.

The bank's corporate statement charges management with "recognizing that a well-funded, competitively priced source of real estate funds is one of the most important components in assuring the continued development and revitalization of our neighborhoods."

Outstanding Asset Quality

Of course, as many larger banks know all too well making loans is easy, ensuring repayment is not. Fortunately, the steel spine of Industrial Bank is the asset quality of its loan portfolio. The numbers show consistency, strength, foresight and community commitment. During the three-year period beginning January 1989 through December 1991, IBW's total loans grew 14%, from $61.5 million to $70.4 million.

The growth was driven by different sectors. One of which is IBW's real estate loans for homeowners that are collateralized by residential property. They grew 6%, from $25 million to $27.5 million. Nonresidential property loans grew 49%, from $15.3 million to $22.8 million. A large part of tht money went to black churches, whose loans are collateralized by real estate. The loans for those community anchors grew 43.1%, from $5.6 million to $8 million.

Commercial loans took a route that may have shown the recession's impact on business. Although they went up slightly from $14.7 million to $15.8 million between 1989 through 1990, they dipped to $14 million by the end of 1991. During the same period, installment loans, which are usually used to buy cars or make home improvements, shrank 25% from $5 million in 1989 to $3.8 million in 1991 as consumers cut personal spending.

Industrial Bank was more than prepared for any financial problem. From 1989 through 1991, the bank's loan-loss provision, which is money put aside to cover loans gone sour, grew 33% from $1.5 million to $2 million. During the same three years, actual annual loan losses fell from $883,000 in 1989 to $275,000 in 1990 and $355,000 in 1991.

Industrial Bank's performance stands out among the nation's 27,000 banks. Veribanc Inc., a Wakefield, Mass.-based bank research firm, which rates financial condition, gives it a "Green, Three-Star" rating. That means IBW's capitl ratio of 6.5% meets Verbanc's high capital-standard designation, exceeds U.S. capital requiements and has no problem-loan threat.

Massie S. Fleming, IBW's CEO and executive vice president, credits Voydee Smith Jr., the bank's senior vice president and loan adminstrator, for maintaining the bank's solid asset quality. Prior to joining IBW in 1985, Smith was a commissioned bank examiner with the Office of the Comptroller of the Currency. As a result, while high high standards allow few bad loans, they keep him from becoming the District's most popular man. "But he does what is best for the bank and its customers, and our first obligation is to stay in business," she says. "We've always maintained a conservative lending policy. We used to get criticized for not being progressive."

That may be, depending on who is defining "progressive." Through much of the 1980s, many bankers defined it as having the capacity and will to make speculative commercial real estate loans. By the early 1990s, many of those same loans had become heavy collars for bankers. Borrowers who once appeared to be flush with cash, were now unable to either pay the principal or the interest. Fleming says IBW didn't stay out of that business due to fiscal conservatism. "We never got into speculative [real estate] lending because we weren't big enough," she declares.

As far as William Michael Cunningham is concerned, Fleming should be very happy that IBW did not make those loans. The Washington, D.C.-based registered investment adviser whose firm, Creative Investment Research, monitors minority financial institutions, says IBW's "strategy has made it a survivor. A lot of black banks got into trouble making loans in the commercial and industrial sector."

Industrial not only survived but thrived by making residential real estate loans in the black community. Not many banks can make that claim. Recent Home Mortgage Disclosure Act data reveal that although African-Americans submitted only 4% of conventional single-family home mortgage applications to all thrifts and banks, 34% of them were rejected.

Minority-owned banks did no better. Of the conventional single-family home mortgage applications they received, 30% came from blacks, and 41% were rejected. Of that group, 35% of the loan requests came from low- or moderate-income individuals. Of course, raw data do not include geographical location or other factors. Minority thrifts are predominantly rural, while minority banks tend to be in cities.

Industrial's numbers tell a different story. Creative Investment Research says that when IBW is compared with other city banks, it has made the second-highest percentage of mortgage loans to low- and moderate-income people in the District. "This proves that Industrial is doing what it should be doing: helping black homeowners," Cunningham says.

Good numbers in the loan portfolio can become great numbers on the income statement. Cunningham says Industrial's earnings are above average, when compared with other banks with assets between $50 million and $300 million. During the past three years, IBW's net income, despite a 26% increase in noninterest expenses, grew 73%. In 1989, it was $637,000. In 1990, it grew to $1.2 million. In 1991, it shrank 7% to $1.1 million. The decline was related to higher expenses associated with opening new branches.

In recent years, Industrial has worked hard to diversify its income stream. Since 1985, commercial lending has expanded to 25% of total. Another steady revenue source is payroll management. At present, IBW processes a good portion of the District's payroll, and in May 1992, it took over American University's $80 million annual payroll.

Branching Out

Industrial's growth policy has always been shrewd. But serendipity played a role when it got the downtown Washington branch and the one on AU's campus. At each, IBW took over branches owned by other banks. This kept renovation costs low and provided a clientele familiar with the branch's location if not its new owner.

In February 1991, Industrial signed a lease for the three-teller F Street branch formerly occupied by Sovran Bank. Sovran said the space was too small. By contrast, IBW is proving that small size and profitability are not mutually exclusive. F Street branch Manager J.B. Holston says his largely white-collar professional customers now have a convenient venue for their banking. And he says in one year they deposited more than $8 million, easily passing a goal he set for 1994.

Pat Keshian, special assistant to the AU vice president of finance, admits IBW was not her first choice. In 1991, she says Signet Bank took over the failed Madison National Bank and decided not to reopen the AU campus branch. At that point, Keshian says, AU asked five banks and credit unions, but not IBW, if they wanted to come on campus. "We went to the bigger banks first because we thought they had the financial ability," she says. "We were wrong. Industrial Bank has done what the others haven't been able to do--smart investing." In short, the big banks had too many loans and could not afford to expand. At IBW, bad loans are not an issue.

There is a touch of crossover irony in IBW's opening an AU branch. The historically black bank now serves a predominantly white school. By contrast, a few miles away, a white bank owns the Howard University campus bank. Even as IBW's assets and income grow, plans are being made for an inevitable tarnsition in leadership at the bank. The current chairman joined the bank 58 years ago. At the time, he served both as bookkeeper and as bank director. The quality of his posts leads his colleague Fleming to quip: "B. Doyle Mitchell Sr. is the only person I know who started at both the bottom and top at the same time."

B. Doyle Mitchell Jr., the chairman's son, also started his IBW career early, working there during summer vacations. Now, 30, the Rutgers University graduate is a commercial loan officer. His sister Patricia, 32, a Drexel University graduate, currently works for George Washington University, but says she will return to IBW someday.

With that continuity in its past, Industrial Bank can look into the future with confidence.
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Title Annotation:B.E. Financial Company of the Year; Industrial Bank of Washington
Author:Williams, Terry
Publication:Black Enterprise
Article Type:Cover Story
Date:Jun 1, 1992
Previous Article:Overview: holding on for future growth.
Next Article:The freshman class of 1992.

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