Black-Owned Florida Bank's Collapse Takes with It a Community's Dreams: Century National Vanishes into Barnett amid a Cloud of Bad Loans
ST. PETERSBURG, Fla. -- Almost all evidence of Century National Bank's eight-year existence was erased in a single night.
It began on Sept. 20, the day the Comptroller of the Currency declared the tiny, minority-owned bank in northwest Jacksonville insolvent. Within hours, the Federal Deposit Insurance Corp. had dispatched an army of federal agents to seize the $13.7 million-asset bank and then announced that it had sold the bank to the Barnett Bank of Jacksonville for $86,000.
By the next morning, Barnett banners hung over the Century National insignias. Inside the bank, regulators and Barnett and former Century officials scurried through desks and file cabinets, perusing ledgers and loan agreements, and sorting through mounds of paperwork that told the story of Century National's collapse.
With the flurry, Century National became a footnote in history. Gone was its independence. Gone, too, was the dream that a black-owned bank could prosper in this poverty-ridden area.
"The black community suffered a major defeat," says the Rev. Charles B. Dailey, a member of Century National's board of directors. "The most unfortunate thing is that we in the community are going to decide that we're not competent in areas of high finance. It's not true, but this is what many in the community are going to think." Problems from the Start
The notion that a black-owned bank could carve a niche in northwest Jacksonville was launched by the bank's founder, Wendell Holmes Jr., a funeral director. In 1972, Mr. Holmes formed an investment corporation to raise money to start a black bank to serve the black community. It was not an easy task.
It took four years for the bank to obtain the necessary capitalization. At one point, Mr. Holmes and some of the other investors sold stock door-to-door. Eventually, they raised the $845,000 they needed, and the bank was opened Nov. 13, 1976.
Almost from its inception, however, Century National had problems. It lost nearly $475,000 during its first two years. Then it hired a new president, W. Mitchell Hines, a man the directors felt sure would reverse the red ink. Mr. Hines did just that. From 1979 to 1981, the bank earned $633,000, prompting Mr. Holmes to tell shareholders in the 1981 annual report that the bank was "one of the most successful black-owned businesses in the state."
It was not. Lurking beneath the rosy figures on the balance sheet were loan problems so serious they would eventually kill the bank.
while no member of Century National's board of directors except Mr. Dailey will talk about the bank, it is clear that Century National employed loan criteria that could at best be described as risky and at worst, foolhardy.
"It's pretty clear that we got overextended on loans that could not be properly justified," Mr. Dailey says. "The lending policies were too lenient." Consent Decree in 1983
In 1982, the seriousness of the bank's problems came to the forefront when Century National lost $739,000. On Jan. 26, 1983, the Comptroller of the Currency entered a consent decree against the bank that called for Century National to formulate a written management plan; to raise its capital to at least 5.5% by the end of March 1983, 6.5% by the end of June, and 7.5% by the end of 1983; to adopt a program to improve collection methods on delinquent loans; and to adopt several other procedures for strengthening the bank.
In May 1983, Mr. Hines resigned under pressure and was later replaced by ronald Johnson. But the problems continued to mount. By the end of 1983, Century National was positioned much like a man slipping off a tightrope into a sea of piranhas.
For the year, the bank lost $440,00; its capitalization fell to 2.3% at year-end -- a violation of the consent decree. Shareholders equity stood at a horrendous minus $65,000. Bad loans totaling $508,000 were written off and another $699,000 in loans were placed on nonaccrual status. (Bear in mind that the bank's total loan portfolio was only slightly more than $3 million.)
After the first quarter of 1984, the Federal Reserve Board cited the bank for having 24% bad loans, and Century National's chances for remaining an independent institution were fluttering away.
In the spring, members of the board approached Barnett about the possibility of acquiring the bank. After reviewing the books, Barnett elected to pass.
"It was too far gone," says Christina M. Tomczak, a vice president with the holding company.
Hugh Jones Jr., chairman of Barnett Bank of Jacksonville, echoes Ms. Tomczak's appraisal. "We never ever considered a merger," he says. "We did not want to acquire the problems of that bank."
In the meantime, the directors groped desperately for another source of capital infusion. They implored for help from the white business community in Jacksonville without success. Then they turned to black celebrities -- everyone from professional athletes to singer Michael Jackson, who happened to be appearing in Jacksonville during the summer. At one point, board members even anted up $100,000 of their own money to keep the bank alive.
Two plans by the board to sell a $1.5 million stock offering were discarded after they met with spirited market resistance. "Anyone who was fully aware of the fact would have been making an extraordinary gift of the heart to have bought that stock," Mr. Jones says.
By the summer, the regulators were moving in. The FDIC approached Barnett in May about the possibility of taking over the bank if it was declared insolvent. Barnett was receptive to the notion.
But after the board members put up $100,000, the Comptroller delayed taking action. At best, the board was buying time. Barnett Only Bidder
By September, it was obvious no significant capital infusion would be forthcoming. The FDIC notified Barnett and several other Florida banks that it could pick up a bid package.
Barnett was the only bidder for the two-office bank. It paid $86,000 for Century National's $13.7 million in deposits and its approximately 6,000 accounts, and it received the bank's installment loans, bond portfolio, and certain fixed assets, mostly real estate. The FDIC assumed responsibility for the bank's bad loans (Barnett has 30 days to reject any loan it does not want) and paid Barnett $2.5 million.
In addition, it will hold Century National assets valued at $2.6 million. "The problem loans will be ours. We would expect to keep eight to ten people here for the next eight months or so," says R.W. Sammons, senior liquidation specialist of the FDIC. "Frankly, it will be difficult to collect many of them, but Barnett should have no trouble making this thing profitable."
For their part, Barnett officials are confident they will prosper where
Century National floundered. Mr. Jones says the bank has long eyed the possibility of expanding to northwest Jacksonville. He sees this as a cheaper way to get into the area than going de novo.
"If we went out and started over, it would cost us about $750,000," he says. "We estimate that we'll tie up about $600,000 in this acquisition. We see this as an opportunity. The Atlantic [Bancorp.] bank around the corner is a $50 million bank. We think that within two years, we can turn this one into a $30 million bank." 'We Can't Afford to Lose One'
Barnett plans to offer jobs to most of Century National's 27 employees, none of whom were loan officers at the time most of the bad loans were made. However, it concedes the bank will no longer be wholly staffed by blacks. "We figure that maybe 10 or 11 people will work in the main office and three or four at the other office," Mr. Jones says. "We'll mix in one or two Barnetteers and transfer the rest of the Century National people to other Barnett offices."
As the state's largest bank, with $11.5 billion in assets, Barnett can offer more credit and provide more services than Century National ever could. But the questions of whether it can ever offer the kind of hope that Century National once represented in the minds of the community is unlikely to be answered for a long time.
"We don't have that many black businesses in Jacksonville. We can't afford to lose one," former City councilman Harold Gibson told the florida Times Union after the seizure.
Mr. Dailey questions whether Barnett will make many loans in the community. "It has been a historical fact that white businesses take money out of the black community rather than put it in," he says. "You regulate the progress of a community by controlling the money."
But even Mr. Dailey concedes that it was Century National's inept lending practices and its poor management that doomed it to failure -- just as it has doomed most of the other 59 banks that have failed this year. After all, black banks fail for the same reason white banks do.
One need not look any further than century National's board of directors to realize it was not exactly stocked with financial experts. In addition to Mr. Holmes, the funeral director who served as chairman, the board was comprised -- among others -- of two retired postal workers, a junior high school teacher, an official of the Longshoremen's Association, a pastor, and a retired personnel consultant.
"It's a pretty strange group," says one Jacksonville banker.
In fact, the regulators are known to be pondering civil action against prior Century National officials, as well as prior and current members of the board, a fact revealed in the 1983 annual report.
But regardless of the composition of their boards, it is a fact that only a handful of the approximately 50 black banks in the country are consistently profitable.
The reasons vary.
"I think you have to start with the fact that these banks serve poorer communities than most banks and their credit risks are greater," says one banker. "It is also enormously difficult for black loan officers to serve those communities. They get tremendous pressure from their peers. If they don't make the loans, they are considered to be selling out. We've had black loan officers who had a horrible time in black communities who did just fine after being transferred to integrated areas."
Other bankers say it is difficult to attract talented blacks to minority-owned banks, because larger, more affluent banks are more than eager to employ them -- usually at far better salaries than a small bank can afford.
Despite these problems, members of the black community argue that minority-owned banks are vital not only to the financial well-being of the area but also to the self-image of the community. For that reason, there is a certain resentment in northwest Jacksonville to Barnett's takeover of Century National. Something owned by the community is gone.
And the dreams that were nourished by its presence may go unfulfilled.
"Who can say how many viable businesses could have been helped out by the bank?" Mr. Dailey asks. "But now, all that potential is lost. You have torealize that no one cares about a community as much as the people who live there."
Mr. Jones concedes that there is probably some resentment toward his bank. "I think some of that resentment is natural," he says, "but the black community has to realize that we have done it a favor. If we had not taken over the bank, it would have been liquidated and 27 people would have lost their jobs.
"I wish they had succeeded as a minority bank. I feel sorry for the people who lost money on its stock. I just hope the community will give us a chance to show what we can do."…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Black-Owned Florida Bank's Collapse Takes with It a Community's Dreams: Century National Vanishes into Barnett amid a Cloud of Bad Loans. Contributors: Not available. Magazine title: American Banker. Volume: 149. Publication date: October 9, 1984. Page number: 24+. © 2009 SourceMedia, Inc. COPYRIGHT 1984 Gale Group.