Banking on Founders : B of A Will Invest $1 Million in the Black-Owned Bank

Bank of America will invest $1 million in Founders National Bank, California’s only black-owned bank, and will sell it two branches in South-Central Los Angeles that had been slated for closure, the two banks announced Thursday.

In addition, Bank of America disclosed that it recently loaned Founders $1.9 million to replace a loan made two years ago by the Resolution Trust Corp. when a group of black investors bought Founders.

The RTC, created by Congress to liquidate the assets of failing savings and loans, took over Founders in 1989. Founders was then one of the nation’s largest black-owned thrifts, but it has since been reorganized as a commercial bank.

The new money from B of A will boost Founders’ total capital, allowing it to buy the branch offices and make more loans to small businesses in the capital-starved minority communities of Los Angeles, Founders Managing Director Carlton Jenkins said.

“It will allow us to continue to provide quality financial services to a community that historically has been underserved,” Jenkins said. The transaction will push Founders’ deposits past $100 million.

For its part, Bank of America is getting rid of branches it doesn’t want while fulfilling a promise made last year to maintain banking services in the inner city, said Donald A. Mullane, B of A executive vice president in charge of corporate community development.

Community activists have been concerned that the inner city would suffer because of branch closures after Bank of America bought Security Pacific last year. This sale of the two branches, at Baldwin Hills Crenshaw Plaza and at 43rd and Western--both of which still bear the Security Pacific name--will help prevent that, Mullane said at a news conference at the 2-year-old Baldwin Hills branch.

After the branch consolidation is completed, B of A will operate 15 branches in South-Central Los Angeles--far more than all of the other major banks combined, Mullane said. In addition to the two branches going to Founders, B of A is closing three other branches in South-Central.

City Councilman Mark Ridley-Thomas said the agreement “adds momentum to our efforts to ensure that residents of South-Central and Crenshaw receive the financial and banking service they deserve.”

B of A’s investment will take the form of non-voting preferred stock and capital notes, resulting in an ownership stake of less than 5% for Bank of America, Mullane said. B of A will not be represented on the Founders board, he said.

Founders, which now has three branches, will be getting 8,000 new customers, $32 million in deposits and $3 million in loans and other assets when it buys the Baldwin Hills branch. The 43rd and Western branch involves only the building, not the assets and deposits.

The transaction must be approved by regulatory authorities, but the Federal Reserve Board has already “given its blessing,” Mullane said. The sale is expected to be completed in April.

Founders, already in good financial shape, also recently received a $1-million capital investment from Arco. In making the equity investment last month, the Los Angeles oil company said it would match similar capital infusions up to $1 million.

According to Jenkins, the Bank of America investment does not qualify for the Arco matching funds because it had been in the planning stages long before Arco’s challenge was issued.