As the new president and chief executive officer of Independence Federal Savings Bank in Washington, John A. Hall is in for a challenge.
The $159 million-asset thrift, which focuses on African-American customers, is struggling to recover from years of turmoil caused by a racially charged battle for control of the company. Assets and deposits shrank, legal fees mounted, and earnings evaporated as its board, managers, and shareholders became ensnared.
The distracting feud ended in March when the Office of Thrift Supervision gave Morton A. Bender, a Washington developer and Independence Federal's largest shareholder, approval to acquire up to 51% of the stock. Mr. Bender, who is white, was intent on taking over because he believed the thrift was being mismanaged. His opponents argued that it should remain black-owned.
Able now to focus on a turnaround, Mr. Bender said he plans to maintain the thrift's minority heritage.
He has turned to Mr. Hall, a black executive, to steer Independence Federal back to profitability. Mr. Hall, whose experience includes work in banking, consulting, and private equity, said he intends to achieve this by the first quarter of next year.
"We have a solid base to build on," Mr. Hall, 61, said in an interview at the company's headquarters last week. "If I was starting from scratch, I'd have a lot more trepidation."
The base includes an experienced staff and promising new directors, he said. (The seven-member board is now filled with people Mr. Bender recommended, including three African-Americans.)
Mr. Hall's revival plan includes a recently begun marketing campaign to attract low-cost deposits and a recruiting effort that would nearly double the commercial lending staff. When the thrift starts making money again, he also intends to add what would be its sixth branch.
But some observers are skeptical about the thrift's chances for so quick a rebound.
"I'll believe it when I see it," said William Michael Cunningham, the president and CEO of Creative Investment Research, a Minneapolis consulting firm that specializes in minority banking. "I don't hear anything that is broadly innovative or would really cause me to look at the numbers and say, 'Oh boy, we can certainly expect — on the basis of their plan — for the numbers to turn around in 18 months.' "
Independence Federal has lost more than $8.4 million since 2001 — the last year for which it reported a profit.
During the past five years, its balance sheet has shriveled; assets have dropped 39%, and deposits have fallen 32%.
Besides trying to fend off Mr. Bender during this period, the thrift was caught up in a money-laundering scandal involving executives of the Washington Teachers Union, and this added to its multimillion-dollar legal bills.
It has been floundering so badly that the OTS told the thrift in a cease-and-desist issued in June 2006 to do a thorough review of its operations and to consider selling itself if it lacked the resources to turn itself around. This order remains in effect.
Mr. Hall, who worked for a private equity firm in Miami before joining Independence Federal in May, said his goal of reviving the African-American institution is partly personal. A close relationship with the thrift's founder, William Fitzgerald 3rd, whom he considered a second father, motivated his application for the CEO job, he said.
"The opportunity to sit in Bill Fitzgerald's chair is something I couldn't pass up," said Mr. Hall, who occupies the same office Mr. Fitzgerald once did.
Independence Federal lost some luster after Mr. Fitzgerald died in 1998 and its well-publicized troubles began, he said. "But I still think there is a halo over this bank."
Mr. Hall blamed the thrift's poor performance largely on the protracted legal battle, saying it distracted management and made customers skittish. Many African-Americans believed the thrift would become a more mainstream bank and withdrew their deposits, he said, but Mr. Bender's recent appointments to the board and management team have eased much of that concern.
Mr. Hall said the deposit hemorrhage has stopped — "a very positive sign."
Cost cuts are a part of his recovery plan. Mr. Hall said he is "reviewing every dollar being expended," in search of efficiency. For example, switching information technology support service providers is expected to save $300,000 a year.
But Mr. Hall said Independence Federal also intends to invest for growth. It wants to add three to five commercial lenders in the next three years, he said, so that it can make more loans and capitalize on the Washington area's economic boom.
"The shareholders and the board are not saying, 'I want you to make this bank profitable by just cutting costs,' " he said. "We're going to have to spend some money to make money."
The thrift also plans to apply to participate in the Treasury Department's Community Development Financial Institutions Fund, which grants money to banks, thrifts, and credit unions certified as community development financial institutions.
Mr. Bender, who has raised his stake in the company to about 28%, said he feels certain he has found the right leader for Independence Federal. He was impressed enough by Mr. Hall to make an immediate job offer when they met for an interview May 8.
"He and I related to each other very quickly," Mr. Bender said. "We knew where we wanted to go and how we were going to take this bank and turn it around."
David G. Danielson, the president of Danielson Capital LLC, a bank consulting firm in Vienna, Va., is less enthusiastic about the selection of Mr. Hall. "The ideal candidate would have been a local-based lender," Mr. Danielson said. "But there are not many of those to go around, so they picked someone from out of the area."
Mr. Hall said he lived in the Washington area for roughly 20 years before moving to Miami in 1985, so he is not a newcomer. "I know the people," he said. "I know this market."
The Oklahoma City native earned his undergraduate degree at Howard University in Washington. Then, after attending Harvard Business School, Mr. Hall returned to Washington, where he was the president and CEO of Mark Battle Associates Inc., a consulting firm specializing in federal, state, and local government agencies.
It was during that time that Mr. Hall got to know Mr. Fitzgerald, a former real estate broker who founded Independence Federal in 1968. The thrift was Mr. Fitzgerald's answer to discriminatory lending practices that kept many African-Americans from owning homes or starting businesses.
"He was a real hero to me," Mr. Hall said. "When he passed, someone sent me his obituary from The Washington Post, and I framed it."
After his move to Miami, Mr. Hall began developing minority venture capital funds for the Beacon Council, the official economic development agency of Miami-Dade County.
Several years later, he became a regional president at OneUnited Bank, a $649 million-asset African-American-owned Boston bank that also has offices in Los Angeles and Miami. At the time, OneUnited's Miami operation was bleeding deposits. But Mr. Hall said that leveraging his local contacts enabled him to double deposits within 18 months. He returned to private equity in 2003.
Kevin Cohee, OneUnited's chairman and CEO, described Mr. Hall as a strong executive and commended his work for the bank. But Mr. Hall has a challenging task at Independence Federal, he said.
"Independence's problems are pretty significant, and I don't know if there is any one person that can turn the situation around," Mr. Cohee said. "It's going to require a team to get it done, and I certainly wish him the best of luck trying to make it happen."
For his part, Mr. Hall exuded confidence. He said he hopes to use his existing lending team's market knowledge to beef up the commercial loan portfolio, partly by identifying opportunities that competitors overlook.
"Because so many of our employees have been here for some 20 years, there is a sense of closeness to this community, so we feel things and see things that big nationwide banks don't see and feel," Mr. Hall said. "We can go into rooms and businesses that they don't go into, and we hear conversations they don't hear."
Mr. Hall also said Mr. Bender, who was often perceived as a divisive figure in the battle for control of the thrift, is essential to its future.
"The reality is that Morton Bender is an unfortunate enemy to have for anyone involved in litigation, but he is a very, very beneficial friend to have," Mr. Hall said. "And when he made the commitment to keep this a minority financial institution, that meant we had a minority financial institution with a very good friend."
