Independence Savings Bank, a $2.3 billion-asset mutual thrift, is preparing to open a new main office on a Brooklyn, N.Y., block that's packed with heavyweights.
Citicorp, Chemical, Chase, Marine Midland, National Westminster, and European American are just a few of the big New York City players already on Montague Street in trendy Brooklyn Heights.
Independence's base is a salad bowl of ethnic neighborhoods that stuck by it during difficult times in the early 1980s. However, it is the thrift's adaptation to modern urban banking, and not just neighborhood loyalty, that has enabled it to thrive in the 1990s.
|Spreads Had Dried Up'
In 1986, when director Charles J. Hamm, a career adman, was named president and chief executive, Independence had eight branches in New York City and on Long Island, held $1.1 billion in assets, and earned $18.7 million - not a bad return.
But "spreads had dried up, and we were below capital adequacy," says Mr. Hamm. "We were at 4%, and the FDIC asked us to develop a plan that would put us up to 5% or 6%."
Thus, former thief executive and current chairman William A. Levin spent his last years as CEO "defending the bank by shrinking it."
As worrisome as the capital ratio was the loss due to death or out-of-area retirement of up to 1,000 depositors annually at each mature branch.
But the bank last year added nearly $800 million in deposits by buying eight former branches of Long Island City Savings Bank and the State Savings Bank in Queens.
It earned $51 million in 1992, and its capital ratio stood at a healthy 13.1%.
"We had to grow the bank to position ourselves for the 21st century," says Mr. Hamm. But that's not easy "when you have to speak eight languages and your markets are growing at 0%."
Hired for his expertise in marketing and strategic planning, Mr. Hamm earmarked $5 million for capital outlays aimed at increasing productivity.
But growth was the goal, and aware that "inward growth in a mature, overbanked urban environment meant a long, long road," Mr. Hamm in 1987 priced up certificate and money market rates.
The result was 2% growth at a few branches - and a $5 million pretax loss. "At that time, there weren't any studies showing that the pricing strategy would fail," Mr. Hamm says.
Plenty of Competition
What was certain, however, was that Independence "had to expand its avenues of profitability, and that meant expanding our expertise in a wide range of services," Mr. Hamm said.
"We were in competition with finance companies, mortgage and insurance brokers, and commercial and savings banks - you name it.
"We had to be sensitive to what people need most of the time," he added. "We went into credit cards, doubled our ATMs, and started a commercial lending operation.
"Our niche is new or |middle' Americans. They want banks to help them participate more fully in the pursuit of happiness."
This pursuit often means starting and running a small business. Mutuals traditionally are not small-business lenders, but Mr. Hamm persuaded his board to pursue the opportunity.
|Strong Profitability'
"If handled properly, small-business lending with variable rates offers strong profitability, and I felt it would significantly expand our lending expertise."
One way Independence pursues sole proprietors and other small businesses is by developing relationships with business brokers. The Russian community, for example, "tends to go through business brokers to find loans when they want to break into unfamiliar markets."
But there are many other immigrant groups in Brooklyn.
To bank this "mosaic," as Mayor David Dinkins describes New York's diverse population, Mr. Hamm developed merchant associations patterned after immigrant lending societies.
"We set up a $100,000 fund for lending to the associations, which are made up of businessmen in each community, like the Arab groups right here," he said, referring to the current Court Street headquarters, "and we rely on these associations to screen their borrowers for us."
Of course, Independence also screens borrowers, but Mr. Hamm admits that loans to immigrant merchants are slightly less-well backed than a typical business loan. However, "The borrower has a lot of peer group pressure on him, and that's a greater moral instrument than the note itself."
Such lending and strong support for the New York Mortgage Coalition and Community Preservation Corp. have led to an "outstanding" Community Reinvestment Act rating.
Lending Where Branches Are
Joseph Margano, executive vice president and mortgage officer, says Independence has been a CRA lender all along.
In Newkirk Plaza - a "mom and pop mall" - the Independence branch has been a significant lender to the Caribbean community. "You have to lend where your branches are, or the areas go down," Mr. Margano said. "That's why we're lending here, and that's why we're spending infinite hours persuading the merchants to keep their storefronts neat."
Mr. Margano, like Mr. Hamm, is a Brooklyn native. He attended New Utrecht ("Welcome Back Kotter") High School, and rode the New Utrecht ("French Connection") Avenue elevated to his ushering job at the Loew's Oriental Theater on 86th Street.
Independence has two branches on 86th - the heart of Bensonhurst - where the elevated runs above bustling sidewalks and hundreds of storefronts. Which one of those paint stores employed that kid with "Saturday Night Fever"?
The Changing Scene
Mr. Margano shrugs as he points out a franchised audio outlet.
"There used to be a shop there that sold the best egg cream in Brooklyn," he says. "Best in the world, really. Sandy Koufax would stop in all the time. I think he'd be mad if he saw what happened to it."
In Bensonhurst, especially along prospect parkway, Independence holds millions in multifamily mortgages. In fact, Mr. Margano says, the thrift last year "was one of the top five multifamily lenders of any consequence in New York City."
|Hands-on Appraising'
Among its multifamily assets, none are nonperforming. Of its $1.4 billion in mortgages - 55% of them multifamily - just 42 notes totalling $5 million are in foreclosure, with OREO valued at $1.2 million.
Warren Heller, president of Veribanc, a Wakefield, Mass., analysis firm, says this level of nonperformance is negligible. Mr. Morgano says hands-on appraising is the key."
"I don't just drive by a property," says Mr. Margano. "I take the elevator to the top, walk around the roof, and head back down, one floor at a time, knocking on doors. There's no substitute for old-fashioned appraisal methods."
|Infinite Patience'
Customers at Independence are sometimes old-fashioned themselves. At one Bensonhurst branch, for example, the teller lines "could easily, easily hold 200, 250 people.
"But they stand there with infinite patience when the Social Security checks come in. It's a happening. And the same thing happens with paychecks. We've tried telling working people that they have direct deposit available to them, but they just aren't interested."
Needless to say, there are plenty of Italian-speaking platform People, a fact noted on the door. At the other branches, instead of "Si parla Italiano," the promises of fluency are in Spanish, Greek, Yiddish, French, Korean, Japanese, Lebanese, and Croatian.
Playing to a Strength
Mr. Hamm, who developed the Mean Joe Greene ad for Coca-cola, says he intends to keep playing up neighborhood ties. Not surprisingly, his marketing role at the bank is hands-on - and profits have been growing during his tenure.
At yearend 1991, Independence was returning 10.7% on capital; one year later, 17.82%. Its return on assets, 0.90% at yearend 1991, was 1.24% at yearend 1992 - and up to 1.28% at the end of the first quarter.
Though pleased with those numbers, Mr. Hamm singles out a couple of others to make a point. "In 1985, we paid $3.4 million in taxes. In 1992, we paid $23.8 million. That's a lot of money. We want people to know about our commitment to community banking. But people tend to forget the power of community banks in terms of the taxes they pay."
For a community bank that opened for business in 1850, that's a lot of commitments and a lot of taxes.
