By Donald V. Watkins
©Copyrighted and Published on April 26, 2018
On May 26, 1999, I filed my application for a bank charter with the Alabama Banking Department and the Federal Deposit Insurance Corporation. As the contemplated holder of 60% of the stock, I would become the majority shareholder in Alamerica Bank and the first African-American to be issued a charter for a full service bank by the State Banking Department.
I had worked and saved for many years to secure my $3 million portion of the mandatory $5 million capital required for a Birmingham area community bank. I was excited when my four Alamerica Bank co-founders and I met with state and federal bank regulators to review our completed application.
I was stunned when the State Banking Department informed us that the minimum capitalization requirement for a Birmingham community bank had just doubled to $10 million. I asked whether the new $10 million requirement applied to our group only, or whether it applied to every group seeking to acquire or start a Birmingham area community bank. I was assured that the $10 million minimum capitalization requirement would apply across-the-board to every group coming behind Alamerica Bank and that we just happened to be at the front end of this new requirement.
We knew we were being screwed, and we knew why. I did not want to make waves about this matter because my shareholding group consisted of two African-Americans (including myself) and three friends of mine who are white. We were on the verge of becoming the most diversified bank ownership group and directors in Alabama banking history.
I did not have $6 million saved for this start-up banking venture. I was only prepared for a $3 million investment of capital. Furthermore, our shareholding group had already spent $600,000 in organizational costs and legal expenses to prepare our application for a bank charter and FDIC insurance. Additionally, I had obligated myself to purchase a Class A office building on Highland Avenue to house Alamerica Bank. Finally, I had spent $600,000 in 1998 to buy a fledging waste-to-energy company in New York State.
I scrambled to find the additional $3 million needed for my portion of the new capitalization requirement. I tried to borrow this money from Birmingham area banks, but that effort turned out to be an exercise in futility.
Fortunately, Delos H. Yancey, Jr., a close personal friend and business mentor, found a commercial bank in Atlanta that was willing to make the $3 million loan to me. Yancey and his family also became the second largest shareholders in Alamerica Bank and held that equity position until they sold their shares in 2007.
Yesterday, I read in the Birmingham Business Journal (“BBJ”) where a group of bank executives and investors has created a new company to acquire Covenant Bank in Leeds, Alabama. This community bank plans to expand into the Birmingham market. According to the BBJ, Millennial Bank raised at least $7.8 million in an offering, with the proceeds used to acquire Covenant Bank from its bank holding company. The remaining proceeds will be used to recapitalize Covenant Bank on a go-forward basis.
Covenant Bank’s call report for December 31, 2017, showed total assets of $56 million, with $3.5 million of capital. Covenant’s Tier 1 Leverage Ratio was 5.7%; its Tier 1 Capital Ratio was 9.7%; and its Total Capital Ratio was 11%. This bank needs a substantial capital injection.
In contrast, Alamerica Bank’s call report for December 31, 2017, showed total assets of $35 million, with $6.3 million in capital. Alamerica’s Tier 1 Leverage Ratio was 16.7%; its Tier 1 Capital Ratio was 18.8%; and its Total Capital Ratio was 21.1%. Alamerica’s regulatory capital ratios exceed the 13.3% national average and are among the best in the banking industry.
It does not take a banking expert to know that a $7.8 million acquisition deal for Covenant Bank is insufficient to (a) buyout the bank’s existing shareholder (i.e., Covenant Bancgroup, Inc., its parent company) and (b) recapitalize Covenant at the $10 million minimum capital level that bank regulators said would be applied to all bank capitalization deals after ours.
Of course, the composition of the group buying Covenant Bank mirrors the look of Alabama’s “old school” banking industry of the 1970s, 80s and 90s.
If the state and federal bank regulators, who routinely subject Alamerica Bank to a level of heightened regulatory scrutiny that has never been applied to other banks in Alabama, give the Covenant Bank buyers a “pass” on the $10 million minimum capitalization requirement that was imposed upon Alamerica Bank in 1999, I am going to raise holy hell in Congress about the FDIC’s role in this “in-your-face” double standard in the banking industry.
Alamerica Bank has never asked the State Banking Department or FDIC for any favors. We did not seek or take the “bailout” money that hundreds of banks around the nation gleefully accepted during the Great Recession of 2008. We survived the Recession by managing our bank in a prudent fashion. We have never been required to “recapitalize” Alamerica Bank. We have never participated in the symbolic “window dressing” programs that the FDIC claims it offers to minority-owned financial institutions.
We compete for business in the Birmingham market on the merits of our banking services. We also have a very diverse and loyal customer base. Finally, we are well capitalized.
Yet, Alamerica Bank catches more hell from state and federal regulators than any bank in Alabama. We all know why this is the case.
I can deal with regulatory abuse, but I will not tolerate a dual standard on bank capitalization requirements.
PHOTO: The Alabama Banking Department regulates state-chartered banks in Alabama. The Federal Deposit Insurance Corporation issues insurance on customer deposits in these banks. The two agencies work together to determine and enforce bank capitalization requirements.