Community Development Start-Up Too Short of Capital to Open Doors

A community development bank in Washington, D.C., has had to delay its opening, as it continues to search for major investors.

Community First Bank, designed to serve low- and moderate-income neighborhoods in the district, originally hoped to open by the end of last month with about $7 million in start-up capital.

With a commitment for only $1 million so far, the bank's opening has been delayed until spring, probably in April, its organizers said.

"We certainly have a ways to go," said John M. Hamilton, who would be chairman of Community First. "But we're expecting an intense capital- raising period starting very shortly. We're looking forward to that."

Despite the difficulties, Community First is but one of a growing group of community development banks that are sprouting up around the country. Similar banks have opened in Brooklyn, N.Y., Durham, N.C., Arkadelphia, Ark., and in California and Oregon.

The pioneer in the field is South Shore Bank in Chicago, which was founded in the early-1970s. Its president, David Schryock , has been assisting Community First in its efforts to get started.

"There's quite a network among these banks," Mr. Hamilton said. "There's a lot of cooperation and interaction between the folks of these enterprises."

Community First is also hoping to receive assistance from the federal government. It is applying for $1.4 million of equity from the $100 million of funding allocated in the Community Development Financial Institutions Act, which was passed by Congress last year to revitalize urban areas.

As for its private capital-raising efforts, Community First received a $1 million commitment from Georgetown University, located in the district, in December.

"This was consistent with our community service tradition," said Roger L. Williams, associate vice president of communications at Georgetown. "We were looking to expand the definition of community service, and this is a big step forward in that direction."

The organizers hope to line up several other major investors before it begins its private placement, expected to begin in a matter of weeks, Mr. Hamilton said. The bank must first complete more paperwork, namely a private offering memorandum, before the offering can begin.

"We're going through tough times right now," said Anthony Romero, D.C.'s superintendent of banking and financial institutions. "No one wants to throw a lot of money around right now, but I expect some money to come from some of the big banks. I think they will be fully capitalized before long."

The bank received preliminary regulatory approval from the Office of the Comptroller of the Currency last November and will receive its national charter once sufficient capital is raised, he said.

In its prospectus, the bank said it expects to obtain $30 million of deposits by the end of the first year and control up to $70 million by year five. It also hopes to have around $32 million of loans by that time, according to the prospectus.

The bank expects to invest heavily in investment securities at first - about 70% of its assets - but then halve that percentage after three years, it said. It intends to approach President Clinton and Speaker of the House Newt Gingrich to place their personal accounts with the bank, to back up their pledges to work to revitalize the city.

Ms. McDonald is a freelance writer in Washington.

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