Boston Bank of Commerce isn't the biggest bank owned and operated by African-Americans. Finishing 1999 with less than $150 million in assets, it doesn't even crack the nation's top 10. But the privately held, 17-year-old, state-chartered bank is easily the most ambitious.
Operating in a niche characterized by tiny, local institutions often run by people with little banking experience, chief executive Kevin Cohee wants to build the first national black-owned financial holding company. That means not just acquiring a string of African-American banks and thrifts in major metropolitan markets, but swiftly taking advantage of the recently passed financial modernization act to buy black-owned investment and insurance firms. When he can prove the concept works, perhaps after two years of making accretive acquisitions, he'll take the company public.

"This a classic roll-up strategy-to go around to African-American banks in major marketplaces, and give them the scale and resources necessary to be effective in the market. Now, these banks are too small. They don't have the capital, the products and services, and the management to succeed," Cohee says. "We're trying to create the minority financial institution that will not only survive into the 21st century, but will thrive."

With BBOC's recent purchase of a failed bank in Miami and its protracted battle for control of New York thrift Carver Bancorp, the nation's largest black-owned depository institution, Cohee has just started on the road to that goal. He expects to announce a deal in another major market by mid-February, and hopes to maintain a pace of two acquisitions a year, although he deems one a year more realistic.

He's likely to find plenty of new expansion opportunities soon. Of about 40 African-American-owned and operated banks and thrifts in the country, a handful are in shaky financial ground and may be looking for capital infusions and new management. A few others are in the kinds of major metropolitan markets BBOC would like to expand to, such as Los Angeles, Chicago and Detroit. (See the table on page 34.) And in the wake of the Gramm-Leach Bliley Act, any number of small investment and insurance companies are likely to be seeking bank partners as an avenue for new growth.

But assembling a profitable holding company from a ragtag assortment of small banks and financial services firms won't be easy.

"I think the strategy could work, but given what you're starting with, I'm not sure it's the best idea, especially if you're buying shaky institutions," says Joe Gladue, an equities analyst at Chapman Co., a Baltimore-based investment firm that specializes in minority-owned businesses. "If you bought up all the black-owned banks in the country, you'd be stretching it to get to $2 billion in assets."

That view misses the point, Cohee counters. "It's not what's there now that matters. That's not why I'm buying these things," he says. "I'm buying the market. Then, with name-brand recognition, and with banking, investment banking and insurance products and services, I've got a real platform for growth."

Cohee insists that he's merely riding the banking industry's consolidation wave, which until now has skipped African-American institutions. "Banks consolidate because it works from a financial perspective," he says. "You reduce operating costs and get better distribution. We're just taking a time-proven strategy and bringing it to a niche where it hasn't been done before. There's no magic to it."

Although the CEO concedes that his biggest challenge will be execution, as it is for any bank on an acquisition streak, he's confident that BBOC has the managerial expertise to make his vision a reality. "We've been able to devise a business model that works for this sector, and we have the managerial capability to build a bank that grows and produces substantial profits."

A Harvard-educated lawyer and former investment banker at Salomon Brothers, Cohee, 41, owns a majority stake in BBOC with his wife, Teri Williams. She's also a Harvard graduate (with an MBA from its business school) and a former American Express executive who serves as the bank's senior vice president of marketing. In 1995, with a $1 million investment, the two rescued what was then a foundering bank, taking over its management in 1996.

The couple quickly built a name for the bank with innovative products, including the Unity VISA Card, which pays a percentage of each charge to a cause chosen by cardholders from an array of African-American nonprofits, including the NAACP Legal Defense Fund and the United Negro College Fund. They brought in a raft of experienced bankers and other managers, many of them fellow Ivy Leaguers, to help create a competitive package of banking products and services. And they forged strong ties with key Boston politicians, corporate leaders and community development professionals.A Higher Profile
All of that has paid off in both business and influence. BBOC's assets have been growing swiftly, rising from $55 million in 1996 to $74 million in 1997, $100 million in 1998 and more than $140 million now. The bank's most recent call report, for third-quarter 1999, was not available at press time, but Cohee said in early December that return on assets was running at about 1.25%. (Its June 30 call report listed year-to-date ROA as 0.78% and return on equity as 10.15%.)

And BBOC boasts accounts, credit line participations and other banking relationships with a host of public- and private-sector entities. Among them: Boston's subway and airport authorities, the state turnpike authority, Gillette Co., Raytheon Co., General Motors Corp. and American Express Co. "Our customer base is incredible," Cohee says. Dismissing the notion of African-American banks as solely focused on low- and moderate-income retail customers, he says, "These institutions have the ability to attract major customers. The real key is, do you have the products and services to offer them profitably?"

To be sure, BBOC doesn't expect to be the sole bank for organizations that size, but it does expect to win a seat at the table. It pays better rates than much larger banks, and, Cohee says, "We offer neat products." Like many community banks, it proffers a higher level of service, where business customers can actually get the CEO on the phone and can have services tailored to their needs. On top of that, Cohee believes he has a real advantage in his staff: "Our people are much more sophisticated and better educated" than most of the bankers who deal with business clients at big banks.

The Boston bank also knows how to play hard-ball. Last year, Cohee made what many observers considered a brash offer to the directors of Carver Bancorp, which had recently jettisoned its CEO after several years of poor returns and a failed foray into consumer lending. (With more than $400 million in assets, the publicly traded Harlem-based thrift is the largest financial institution run by and primarily owned by African-Americans; BBOC owns more than 7% of the stock.) Cohee's offer: buy out BBOC and install him as CEO of the merged institution.

Carver's directors didn't bite. Instead, they hired Deborah C. Wright, a Harvard Law classmate of Cohee's who had been running the Upper Manhattan Empowerment Zone Corp. But BBOC continued to fight. The bank sued Carver to force it to hold its long-delayed annual shareholders meeting for 1999-it's now scheduled for next month-and hopes to win two board seats. "We're in favor of having the voice of shareholders heard," says Robert Patrick Cooper, the bank's senior counsel, another Harvard Law classmate and a close friend of Cohee.

As with Carver, not all of BBOC's efforts to expand have met with success. Witness its attempt to buy a slew of Boston-area branches put up for sale in the merger that created FleetBoston Financial Corp. last year. The bank originally wanted to buy as many as 18 branches with some $800 million in deposits. Unable to come to an agreement with FleetBoston officials, even for fewer branches, BBOC emerged as an issue at public hearings on the merger held by the Federal Reserve Board last summer. Massachusetts State Sen. Diane Wilkerson, political activist Rev. Al Sharpton, Abdul Jabbar Muhammad, representing the Nation of Islam, and others urged the Fed to make its approval of the merger contingent in part on BBOC obtaining branches. That maneuver failed, and in November, FleetBoston rejected its most recent bid.

As the speakers at the Fed hearing made clear, however, the bank plays a crucial role in community development in Boston. Serving a market niche long considered too unprofitable or risky for most banks (until they were compelled by the Community Reinvestment Act), BBOC is committed to inner-city, low-income neighborhoods. "We're 100 percent focused on community development in our service area," Cooper says.

BBOC, certified as a Community Development Financial Institution by the U.S. Treasury Department in a program created in 1994, is one of just 19 banks with that designation. Under the program, CDFIs get special funding from the government, although they're required to match those funds with money from other sources.

Many of the other bank CDFIs are subsidiaries of major commercial banks, and have their resources-and deep pockets-to draw on. Yet BBOC does not necessarily see them as competitors. For one thing, most CRA-related bank efforts go into retail banking, housing development and mortgages, while the Boston bank lends to the small businesses, nonprofit organizations and houses of worship that still have a hard time getting bank financing. One of its clients is a nonprofit health-care center that serves 40,000 people. "We lend with the notion of gaining the most economic impact on the communities we serve," Cooper says.

It also does more than just lend. Its staff, including Cooper, provides a substantial amount of expertise to community development groups, small business owners and others who need assistance in managing their businesses, solving financial problems and planning for the future.

For example, Cooper points to the Boston area of Grove Hall, on which BBOC focused "brick by brick." It brought together a neighborhood development organization, financed a mosque and lent to local restaurants. "We helped provide stability to that area," Cooper says. "Our bank even assembled land there and carried it on our books, so we could bring in public-sector and other private funds. Now they're building a mall in the neighborhood." Work like that has earned BBOC an "Outstanding" CRA rating from both state and federal regulators every year since 1996.

It's just this combination of business acumen, political savvy and dedication to community development that brought BBOC into Miami. In September, the Office of the Comptroller of the Currency shut down People's National Bank of Commerce, an African-American-owned bank based in Miami's Liberty City neighborhood, appointing the FDIC as receiver. The FDIC immediately sold all of its $36.1 million in deposits (in 5,000 accounts) and $34 million of its $37.6 million in assets to BBOC. The Boston bank paid just $1.8 million.

Observers of the Miami banking scene applauded the takeover. People's had a long history of bad loans and little board and management supervision. It had been bailed out by Dade County back in 1983, and had a lousy track record on CRA, despite being one of the only banks in an impoverished neighborhood. (It also has a branch in the Fort Lauderdale neighborhood of Lauderdale Lakes, which has a large Caribbean population.)

"They could have pulled the plug on People's a year ago," says Kenneth H. Thomas, an independent bank analyst and CRA expert who lives in Miami. "The good news was that they were able to keep African-American ownership-it's the only African-American-owned bank in Florida."

Thomas was impressed with how quickly BBOC brought in nearly a dozen bankers to remake the institution, now branches of the Boston bank but doing business under the name Peoples Bank of Commerce. The branches will eventually be run by local staff who know the complex South Florida market.

According to Cooper, after its first full month of operating under BBOC, the Miami bank had already turned a profit. "It's a clean bank now, with tighter controls. It was being drained left, right and center," he says. "We'd like to think good management has something to do with it. A lot of that was our ability to mold it in our image."

He and Cohee, along with other members of their team, have been spending a lot of time in Miami, not just working on the bank, but meeting with local corporations, government agencies and the political powers that be, from the mayor and members of the county government to senators and members of Congress.

But the challenges there are great, and very different from what BBOC has faced in Boston. Peoples' main office is in the heart of a neighborhood that's wracked by night-time crime, Cooper says. "The community needs a lot more than just on bank-it needs large infusions of capital."

For BBOC to win business from corporations and government agencies in Miami, it will probably have to buy or establish branches in other neighborhoods. After all, community development may be a big part of the bank's mission, but as Cohee notes with a chuckle, "We aren't a philanthropic organization."

He believes, however, that thriving as a business is essential to the work that it does. "We're absolutely dedicated to serving our community, but I truly believe that in order to do that, we have to be strong, profitable and act as a role model for successful businesses," he says. "We want to be more profitable than the typical bank, growing at a faster rate, offering better products and services-while at the same time having a sensitivity to the needs of our community."

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