Historically black bank aims to keep, attract customers

David Ranii

RALEIGH, N.C. — The growing affluence of the African American community, ironically, is making life tougher for black-owned banks such as Durham, N.C.-based Mechanics & Farmers Bank and Mutual Community Savings Bank. The two rivals recently agreed to combine forces.

The union comes as African Americans’ increased buying power has attracted the attention of larger, non-minority banks, which in recent years have stepped up marketing efforts to reach them. The non-minority banks also actively recruit African American bankers.

All of which makes it harder for black-owned banks to stand out as they compete for customers.

“Black consumers will tell you it’s not enough to say, ‘We’re a black-owned bank’” anymore, said Tony Plath, a finance professor at the University of North Carolina-Charlotte. “They have to have a good product.”

The heightened competition has been especially tough on Mutual Community, which lost $846,729 in 2006, its “most challenging” year in a long and proud history. Adding to the bank’s woes was pressure from state and federal regulators, who objected to the way the bank was being run and pushed it to make major changes.

Mutual Community’s struggles raise the question of whether black-owned banks, which have their roots in the racism of the past, can be vital — and profitable — today.

“I think the market will tell us if there is still a need,” said Joe Smith, the state’s banking commissioner.

No one questions the important role M&F and Mutual Community played in Durham’s economy.

The banks started in the segregation era — M&F was formed 100 years ago and opened for business in March 1908, and Mutual Community began as a savings and loan in 1921.

During the decades when Jim Crow prevailed, black banks provided a financial lifeline to African Americans in Durham and played a pivotal role in helping create a black middle class.

They provided foundations, along with N.C. Mutual Insurance Co., for a “Black Wall Street” that, according to historians, produced more black millionaires than in any other part of the country.

Today, the African American market is sizable — accounting for one of every $7 dollars spent in the state last year, according to the N.C. Institute of Minority Economic Development. North Carolina has the nation’s eighth-largest African American market.

Nationwide, the average net worth of African American families rose 37.1 percent from 2001 to 2004, much faster than the 8.3 percent increase for white, non-Hispanic families, according to the latest data from the Federal Reserve. But not all African American families are sharing in that growing affluence, and median net worth among black families was virtually unchanged during that span.

Smith said of black-owned banks: “Obviously, a bank that caters to a particular segment of the market can limit itself, if that’s all it does. The question I have is, are they going to broaden their customer base?”

Smith added that he was impressed by Kim D. Saunders, the CEO of M&F: “I think she has a fighting chance.”

Black-owned banks can thrive, but they have to adapt to a fast-changing competitive landscape, said Plath, who has done consulting work for M&F.

“We’ve been profitable for 99 years, which is actually something very few companies in this country could claim,” said M&F’s Saunders. “I would hope that would clear up the whether-we-can-make-money question.”

M&F executives say the bank has non-minority customers and is eager to attract more. Lucera Blount Parker, the marketing director, said the bank is pondering ways to let consumers know that “our doors are open to everyone.”

“We don’t want to, and never have, excluded,” Parker said. “We have to do a better job of getting that message across.”

Black-owned banks continue to fill an important need, said Andrea Harris, president of the N.C. Institute of Minority Economic Development.

Some blacks don’t feel comfortable doing business with a non-minority bank, she said.

Moreover, count Harris among the critics who think that discrimination in loans still exists at non-minority banks — a charge those banks deny.

Black-owned banks historically have been relatively small, said Nicholas Lash, chairman of the finance department at Loyola University of Chicago. That has kept them from reaping the economies of scale enjoyed by their larger, non-minority rivals.

Boosting efficiency by being larger is one of the pluses Saunders sees in combining forces with Mutual Community. The union will forge a bank with combined assets of $337.6 million and 12 branches in Durham, Raleigh, Charlotte, Winston-Salem and Greensboro.

M&F’s latest quarterly results were sub-par: It posted a profit of $92,000, down from $375,000 a year ago. Still, unlike Mutual Community, which saw its market share in the Durham metropolitan area slide in two of the past three years, M&F’s market share has been steadily rising, according to the latest data compiled by the Federal Deposit Insurance Corporation.

“This year, for us, is a transition year,” Saunders said.

She noted that one of the factors that hurt the bank’s second quarter profit was its investment in new information technology. The new system will enhance online banking for business customers, as well as enable them to deposit checks into their accounts from their offices.

But it’s the personal touch that Saunders thinks differentiates M&F from its competitors and will enable it to thrive.

That means doing a lot of handholding with customers.

“I think we have a special kind of sensitivity and compassion to the banking process that the typical customer, whether they are black or white, appreciates,” Saunders said. “We understand … everyone doesn’t come in the same package or with the same details.”

(Associated Press)