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 - Black Enterprise Top 25 Financial and Insurance Companies - Cover Story

Black Enterprise, June, 1994 by Gracian Mack

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.