In the interest of history about Independence bank

I found this article about how the black-owned Independence Bank was acquired by ShoreBank in the mid-1990s. Earlier this week I posted a painted advertisement here. From Entrepreneur.com...

WHEN WILLIAM T. JOHNSON ventured forth to create the largest black-owned bank holding company in the nation, he sincerely believed that two law degrees and a nearly completed master's degree in banking would provide him with a solid educational foundation. But for Johnson, chairman of OmniBanc Corp., a small bank holding company in suburban Detroit, a new level of education was about to begin.

In his quest to purchase Indecorp Inc.--the black-owned Chicago-based holding company that owns two BE FINANCIAL 25 banks, Independence Bank and Drexel National Bank--Johnson would learn that there's a lot more to buying a bank than coming up with the money. He also had to win over community activists and government officials whose opposition could convince federal bank regulators to block the deal.

Some of Johnson's critics wanted guarantees that a new owner would improve Indecorp's poor record of making loans in the black community. Others were still outraged by an earlier effort to sell Indecorp, which earned $3.6 million in 1993, to a white-owned bank. All were skeptical of the newcomer's intentions.

"It's very important to have African-American ownership of financial institutions in the state of Illinois," says the state's treasurer's, Par Quinn. "At the same time, all banks have a duty to be good lenders in their service area.

Johnson's first step was to woo and win over Indecorp's top brass, Chairman George Johnson (founder of Johnson Products Co. Inc.) and President and CEO Alvin J. Boutte, who were shopping the banks around. They were impressed with Johnson's determination to build a black-owned interstate bank, committed to injecting capital into low-income communities even as it expands into the most sophisticated realms of corporate and international banking. "I always had a vision that someday black interstate banking would come to the country," says Boutte, who saw OmniBanc's offer as an entree for black: banks to this arena.

Then, aware of his outsider status, William Johnson launched a public relations campaign worthy of a Chicago alderman,and he won over his critics with written pledges to invest millions in the low-income neighborhoods of Chicago's South Side.

"Anybody coming in from the outside, certainly from Detroit, tends to be viewed with suspicion," says Johnson, whose River Rouge, Mich., OmniBanc (the holding company is OmniBanc) is too small to be on the BE FINANCIAL 25. He adds: People were asking: "Who are are you? We never heard of you before.' It took a lot of work [to win their confidence]. I had to actually become a part of the community." (See sidebar "Black Banking's New Giant.")

William Johnson now looks set to become part of the community, as well as a pioneer (for black-owned banks) in the emerging world of interstate banking. Although even Johnson's toughest critics are now urging the Federal Reserve Board to approve the acquisition of Indecorp, as of press time the ruling wasn't expected much before June.

Despite the appearance that everything's a go, the deal won't be consummated unless the financing arrangements are sound. According to sources close to the deal Johnson and Indecorp have committed to a $35 million purchase price. That is approximately 1.7 times Indecorp's book value as of the summer of 1993. However, all the veteran Chicago business leaders and Indecorp officials George Johnson and Alvin Boutte are confident that all the details have been worked out.

There's more to the story and I don't intend to post the whole story so, I think I will try to get to the point. If you want to read the whole story that's why I have a link to Entrepreneur.com...

But Johnson soon found that Boutte and George Johnson weren't the only people with whom he'd have to strike a bargain. Mark Allen and the community activists he'd mobilized in opposition to the Shorebank deal weren't about to go away. They wanted a commitment that Indecorp's new owners would lend millions to residents of the South Side communities served by Independence and Drexel.

They had a strong ally in the activist state treasurer, Pat Quinn, who felt that Independence and Drexel had failed in this duty. Quinn had a major problem with the fact that the banks simply didn't make many loans to low-income people--or anybody else.

The average bank lends out about 60% of the money it gets in deposits. According to Quinn, Independence Bank was lending out just 35% of deposits, while Drexel National was lending just 31%.

Viewed another way, Indecorp invested $185.2 million of its assets in government bonds and other interest-bearing assets last year, but just $72.1 million in loans to local businesses and households. "We don't want banks admiring money in the vault," gripes Quinn. "We want them to lend money to people in their communities for mortgages, to start businesses and to send their kids to college."

Federal regulators were also disappointed in the performance of the Indecorp banks. Under the Community Reinvestment Act (CRA), banks are graded on how well they serve minority borrowers. While Drexel and OmniBank were given "satisfactory" CRA ratings, Independence was given a "needs to improve" grade, the second worst rating possible.

Quinn saw the sale of Indecorp as the chance to change this. He sent representatives to meet with Johnson and lay down the law: If he wanted Quinn's support--and millions of dollars in deposits from the state of Illinois--he would have to promise a significant increase in community lending.

Johnson says that, at first, the meetings with Quinn's people were pretty confrontational. "They didn't know me," he explains. "As a consequence, initially, we had some difficult discussions."

The meetings with Allen and other community activists were not as tense, but despite Johnson's promises to invest in the community, there was still a chill of skepticism in the air.

Johnson realized that Quinn and the community activists would have to be won over. So Johnson began spending more time in Chicago than in River Rouge, walking the streets of the South Side, attending community meetings and filling five Rolodexes with newfound contacts. He met with businesspeople, congressional people and just plain people, pledging to put more money into the neighborhood.

"I learned an awful lot about Chicago and about the need for community banking services," says Johnson. In many cases, these people provided me with a view of the community that most bankers never see."

But Allen and Quinn demanded more than nice speeches and personal appearances. They wanted a commitment in writing that under Johnson, Independence and Drexel would increase their lending to the black community. Allen asked Johnson for a commitment to lend an additional $75 million over five years. He was delighted when Johnson replied, "Wait, we can do more than that."

This story still isn't over apparently, but it's pretty interesting. We see a cameo appearance by future Illinois Lt. Gov. Pat Quinn. Obviously, he didn't get Independence bank, that's the bottom line here I can fill in the blanks but without having to know much about the backstory. It's still an interesting history lesson.