Black-Owned Georgia Banks in Rare Merger Deal

A proposed merger between two Georgia banks illustrates a new push among minority banks to work together for survival.

Atlanta-based Citizens Bancshares, which has $137 million of assets, agreed to pay about $4 million in stock for $59 million-asset First Southern Bancshares of nearby Lithonia. The resulting $197 million-asset company would be the third-largest black-owned bank company in the country.

A former chairman of the National Bankers Association, the trade group of minority banks, said the merger deal-rare among its members-is a sign of the times.

"All of our banks are aware that mergers and joint efforts are the way for us to meet the challenges of the 21st century," said Louis E. Prezeau, president and chief executive officer of City National Bank in Newark, N.J. "It just makes sense to create a partnership to provide a better product and strength in numbers."

The National Bankers Association has been calling for increased cooperation among its members. Despite a steady increase in assets, many of these small banks struggle to produce consistent returns.

The trade group, though stopping short of calling for mergers, says they can sometimes ensure that a minority-owned bank survives and flourishes.

Johnnie L. Clark, acting president and chief executive officer of Citizens Bancshares, said the combined companies will be able to provide loans to a larger area in the competitive Atlanta market.

"That gives us a critical mass," Ms. Clark said. "We can't compete with Wachovia and NationsBank, but as a community bank, that gives us a pretty good size."

The call for cooperation is a much-needed change for the trade group, said William M. Cunningham, president of Creative Investment Research, a Washington-based research firm that specializes in minority banks. He noted that it costs small banks more to provide high-quality service.

"They're very much in a struggle,"Mr. Cunningham said. "The NBA recognizes that."

Cooperation among minority banks isn't a new concept. They often participate in loans that exceed one bank's lending limit. That brings more lending resources to communities that need it, bankers said, and helps banks in struggling areas boost loan volume, addressing complaints that minority banks don't lend much.

For years the National Bankers Association has held informal talks for members to exchange strategies. But in the past two years the group has formalized them into hour-long discussions at its quarterly meetings.

Mergers of minority banks are generally complicated by their distance from one another. In the 70-year history of the National Bankers Association there have been fewer than half a dozen mergers, said Samuel L. Foggie, president of the trade group.

Distance was no issue in the Georgia deal. Lithonia is near Atlanta, though the banks' markets don't overlap.

"It just made economic sense for us to do this, given our locations and the opportunity to provide a wider array of services to our customers," Ms. Clark said.

The merged company would have 11 branches in two counties. It would retain the Citizens name but be headed by James E. Young, president and chief executive officer of First Southern. Citizens' president and CEO, William L. Gibbs, resigned in early July. The deal is expected to close by yearend.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER