THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, December 12, 1994 TAG: 9412090842
SECTION: BUSINESS WEEKLY PAGE: 10 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY TOM SHEAN, BUSINESS WEEKLY STAFF
LENGTH: Long : 259 lines
Almost two years after taking control of the old Home Savings Bank, the Resolution Trust Corp. put the Norfolk thrift's deposits on the auction block last spring.
By mid-July, the RTC, the federal agency responsible for disposing of failed savings and loan associations, passed over a half-dozen bidders, including some of Virginia's biggest banks. Instead, it chose a bid from a tiny upstart known as Century Capital Inc.
``We celebrated for about five minutes,'' said Norfolk lawyer Ronald M. Gates, who helped Century prepare for the transaction, ``then realized we had a lot of work ahead of us.''
Indeed, the organizers of a new Home Savings Bank face a daunting workload. How they reached this point is a lesson in seizing opportunity. How they will advance and make the new Home Savings prosper is to some an open question.
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The task ahead includes making a place for a startup thrift in a hotly contested banking market. Home Savings' organizers must find a niche for their institution amid rising interest rates, which have dampened demand for the bank's principal product, home loans.
Yet Home Savings' organizers have launched something unique in Hampton Roads: a minority-controlled financial institution based in Tidewater.
The last minority bank with a local headquarters - New Atlantic Bank in Norfolk - was closed by federal regulators in 1993 after heavy losses consumed its capital.
With its bid of $5.42 million for Home's deposits, Century won the RTC auction over a roster of much stronger contestants, including banking giants First Union National Bank and Crestar Bank.
What was crucial to Century's success was a package of inducements available to minority bidders.
Responding to concerns in Congress, the RTC had set up special incentives to rescue failed banks and thrifts that had been owned by minorities.
These included low-interest loans for capital and rent-free use of certain branch offices for as long as five years.
Another key ingredient was an RTC program that gave preference to minorities who bid on 10 failed thrifts located throughout the nation. Each of the thrifts selected for the program served neighborhoods with large minority populations.
Century, formed in December 1993, met the RTC's definition of a minority bidder because three of its five directors are African-American:
*Charles B. Whitehurst Sr., Century's chief operating officer and treasurer. Whitehurst, former treasurer of the city of Portsmouth, also serves as chairman of the new Home Savings.
*The Rev. I. Joseph Williams, pastor of Antioch Baptist Church in Norfolk.
*Melvin L. Bradley, a partner in a Washington public relations firm and a White House policy adviser during the Reagan administration. Bradley also serves as a director of Home Savings.
The other directors are Mark G. Davis, a former Norfolk stockbroker and president of Century, and Warren Rosen, owner of a Northern Virginia finance company.
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Having met the minority-ownership requirements, Century was able to borrow $4 million from the RTC for use as capital in Home. That investment provided Century with a 50.1 percent stake in Home Savings and its parent, Home Bancorp Inc.
To meet the RTC's bid deadline, Century had to raise additional capital for a new thrift relatively quickly, Gates said. To do that, it sought help from a Washington law firm experienced in thrift regulatory matters.
The firm, Elias Matz Tiernan & Herrick LLP, lined up 50 investors from Pennsylvania and a handful of other states. In exchange for a 49.9 percent stake in Home Savings' parent company, the out-of-state investors contributed $5.4 million of additional capital to Century's new institution.
The deal enabled Century's officers and directors to have controlling interest in a federally insured financial institution without putting any significant amount of their own funds at risk.
Gates and Home Savings President and Chief Executive Officer Roger E. Early said the minority preference mechanism was an essential tool for the thrift's organizers.
Without it, the new Home Savings probably could not have kept all six of Home's branches open and retained all of its 38 employees, Early said.
Had an established financial institution acquired Home's deposits, some or all of the branches probably would have been closed, and several employees would have lost their jobs, he said.
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Seated in a modest second-floor office at Home's headquarters on Brambleton Avenue at Boush Street, Early runs through the tasks on his agenda.
Home, he said, has an option to buy as much as $56.7 million of home loans from the RTC, and evaluating those loans has taken much of his time in recent months.
Still to come are the formulation of Home's lending policies and a marketing plan.
``We have a good asset base to start with, but we still have administrative functions that have to be put to bed,'' Early said. He had been an officer at First Virginia Bank of Tidewater and then at Bank of the Commonwealth before joining the old Home Savings in 1989 as a senior vice president.
The absence of a defined marketing plan has not slowed Whitehurst, the thrift chairman, from promoting Home's services. Whitehurst, a former loan officer with Central Fidelity Bank, estimated that he has handed out more than 500 business cards since the end of September and written more than 100 letters to community groups in Portsmouth.
Early and Whitehurst said they expect to capitalize on the customer loyalty that the previous Home Savings built up over its century-long history.
Before succumbing in 1992 to heavy losses on its real estate and construction lending, the earlier institution had concentrated on making residential loans with deposits gathered locally from individual savers.
Federal regulators arrived at Home's headquarters in in July 1992 and turned its operations over to the RTC. The thrift operated under federal supervision until Century stepped in.
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Many thrifts that survived the real estate disasters of the 1980s and early 1990s have posted respectable profits in recent years. But competitive forces have prompted both strong and weak thrifts to merge with larger institutions.
In Hampton Roads, Homestead Savings Bank in Portsmouth became part of CENIT Bank in April. TideMark Bank in Newport News agreed in September to merge with Crestar Bank, and First Union National Bank is scheduled to acquire Ameribanc Savings Bank, an Annandale, Va.-based thrift with branches in Hampton Roads.
Indeed, many bankers, analysts and consultants question whether institutions that concentrate on taking deposits and making home loans still have a role in the financial-services industry.
``I don't think that over the longer term there will be a separate thrift industry,'' said David West, a banking analyst with the Richmond-based securities firm Davenport & Co. of Virginia.
With commercial banks and mortgage-banking companies expanding the volume of their home lending, ``the niche that thrifts once had is largely gone,'' West said.
Arnold G. Danielson, a Rockville, Md., banking consultant familiar with the Hampton Roads market, predicted that building the new Home Savings into an institution with sustained profitability will be ``a tough go.''
At present, deposits in Home's branches average less than $10 million, and ``some people think you can't make money at less than $10 million per branch,'' Danielson said.
Rising interest rates, he said, will further complicate Home's lending and investment decisions. Faced with slackening demand for long-term, fixed-rate mortgages, Home and other thrifts have to put their funds to work in adjustable-rate mortgages or invest in mortgage-backed securities, Danielson predicted.
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Early sees a prosperous future. Home Savings, he said, has the financial resources to assure its long-term survival. ``There is capital available for growth without putting any strain on the institution,'' he said.
The combination of $4 million borrowed from the RTC and $5.4 million raised from private investors has provided Home with twice the amount of tangible capital it needs, Early said.
One advantage that Home has over other newly chartered banks and thrifts is the availability of $56 million of RTC loans that can generate an immediate stream of income for Home.
And if rising interest rates depresses demand for long-term home loans, there will be a corresponding increase in demand for home-improvement loans, which Home will provide, Early said.
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Attracting good loans and low-cost deposits is always a challenge for a newly formed financial institution.
Successful community banks in Hampton Roads generally have brought in experienced bank managers and attracted to their boards dynamic business owners and professionals who live in the community.
These individuals bring business accounts and customers into the bank. In turn, the banks solidify their local ties by selling most of any stock offering to local investors.
While several members of Home Savings' board have banking experience, there are no major business operators from Tidewater.
At least three of Home Savings' directors - Early, Whitehurst and Pittsburgh banker and investor Harry F. Radcliffe - bring banking experience to the thrift.
Whitehurst, in particular, provides a background of civic and business involvement in Hampton Roads.
Another member of the Home Savings board is William E. Ward, a history professor at Norfolk State University and mayor of Chesapeake since 1990. Ward brings additional community contacts to the board.
But two of Home's directors, Radcliffe and Bradley of Washington, are far removed from Tidewater.
One possible route for Home Savings is the one taken by investors in many other thrifts: selling the institution to a commercial bank seeking to expand its share of deposits in a particular market. Home's organizers raised that possibility in a filing with the RTC in September.
The Home Savings documents describe two scenarios for repaying the $4 million that Century Capital borrowed from the RTC. Under the first, Home continues to do business indefinitely as an independent institution. Under the second, it is sold after three years at 1.5 times its book value.
Discussing a sale at this point ``would be total conjecture,'' Gates said. ``We just got the bank off the ground. Our goal is to have a good, profitable first year, and we think we can do that.'' ILLUSTRATION: Color photo on cover
From left: Roger E. Early, Charles B. Whitehurst Sr. and Ronald M.
Gates, key players in Century Capital Inc.'s winning bid for Home
Savings Bank.
Color photo by Jim Walker, Staff
Home Savings Bank's headquarters at Brambleton Avenue and Boush
Street in Norfolk
Color graphic with photos and drawings
NEW HOME SAVINGS BANK CHRONOLOGY
December 1993: The RTC announces plans to sell Home Savings and
60 other failed thrifts throughout the country after Congress
provides the necessary funds.
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March 1994: The RTC announces incentives to encourage minority
investors to bid for 10 failed thrifts serving neighborhoods with
large minority populations. One of the designated thrifts is Home
Savings.
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March 1994: Century Capital Inc., a Norfolk holding company,
begins working on a plan to launch a new thrift in Norfolk from the
remaining deposits of Home Savings and its six branches. It
eventually receives a charter from federal regulators.
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July 1994: Century Capital bids for the Home Savings deposits and
beats out a half-dozen competitors, including First Union National
Bank and Crestar Bank.
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July 1994: Century receives a three-year, $4 million loan from
the RTC to provide part of the capital in its new thrift.
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September 1994: Century buys $57 million of Home Savings deposits
from the RTC and $5.1 million of assets with an option to buy $56.7
million of loans.
THE NEW HOME SAVINGS BANK
Headquarters: Norfolk
Opened: Sept. 30, 1994
Branch offices: six (Norfolk, Portsmouth, Suffolk, Hampton,
Newport News, Grafton)
Employees: 38
Assets: $5.1 million; has an option to buy $56.7 million of
performing loans from the Resolution Trust Corp.
Deposits: $57 million
Ronald M. Gates
principal in the Norfolk law firm Payne, Gates, Farthing & Radd,
P.C., and adviser to Century Capital on the bidding for Home Savings
Bank's deposits and branches
Roger E. Early
president and chief executive officer of Home Savings Bank;
former officer at First Virginia Bank of Tidewater and Bank of the
Commonwealth; senior vice president of old Home Savings Bank
Charles B. Whitehurst Sr.
chairman of Home Savings Bank; treasurer and director of Century
Capital; former city treasurer of Portsmouth for eight years; former
loan officer at Central Fidelity Bank
STRUCTURE OF OWNERSHIP AND CAPITAL:
Century Capital Inc. (borrows $4 million from the RTC for capital
in Home Savings and takes a 50.1 percent stake in Home Bancorp Inc.;
lines up 50 private investors who invest $5.4 million for a 49.9
percent stake in Home Bancorp)
Home Bancorp Inc. (holding company; chartered in Pennsylvania)
Home Savings Bank (federally chartered thrift based in Norfolk)
Charts
by CNB