Banks Branching Out With Purchase of Hope Centers
California National Bank and Hawthorne Savings Bank will buy two nonprofit inner-city financial counseling centers and convert them to full-service bank branches operating in some of the most underserved areas of Los Angeles.
The deals represent a graduation of sorts for Operation Hope’s “empowerment” centers, which were opened beginning in 1996 to offer counseling, check-cashing, utility bill payment and limited access to traditional banking services for inner-city residents.
A third Operation Hope center is not part of the deal.
With their purchase by federally insured institutions, the two centers will be able to offer a standard menu of bank services--including checking accounts, loans and certificates of deposit--in areas where many residents’ choices have been limited to costly check-cashing businesses.
Operation Hope will continue to offer counseling, mortgage down payment assistance and other non-banking services at all three locations.
Experts in community banking said the moves reflect a trend seen elsewhere in the country in which major banks partner with community groups, or expand non-full-service centers to attract inner-city customers who were largely abandoned by the financial community as bank consolidations reduced the number of branches in urban centers.
“I think this is a really effective way to reach underserved markets,” said Marva Williams, senior vice president of the Woodstock Institute, a Chicago-based nonprofit that works to increase access to capital in low-income and minority communities.
“One of the problems banks have in some communities is that some people really don’t trust banks,” Williams said. “By partnering, the banks will be able to attract more un-banked consumers because those people will already have a relationship with the nonprofit.”
Expanding Services
If federal regulators approve, the banks would pay more than $1 million in cash and long-term payments for the two centers, sources said. They would assume operating costs and gain an established client base, goodwill and infrastructure including automated teller machines.
Officials at Operation Hope, a nonprofit formed after the 1992 Los Angeles riots, estimate that the largest of the three centers--on La Brea Avenue near Rodeo Road--draws about 9,000 customers a month, mainly to cash checks and use the ATM.
Another center, at Slauson and Atlantic avenues, attracts about 3,000 customers.
Hawthorne, which this week will complete the acquisition of First Fidelity Bancorp Inc., has signed a letter of intent to purchase the La Brea center. Hawthorne spent about $1 million to help that center open in 1996.
California National, a subsidiary of Illinois-based First Bank of Oak Park, last month signed a definitive agreement for the Slauson Avenue site, said John Bryant, founder and chairman of Operation Hope.
The bank, which has sought to expand into central city communities in Los Angeles, would add a branch in Southeast Los Angeles’ heavily Latino community by acquiring the 4-year-old Slauson center.
Discussions are underway with at least two other banks to acquire the third Hope center in Watts, Bryant said.
In another example of a service center evolving into a bank branch, Bank One plans to open a full-service branch in Bronzeville, a largely African American neighborhood in Chicago, based on the success of a loan production/ATM center in that area, said Williams of the Woodstock Institute.
Return to Urban Areas
Strengthening of the Community Reinvestment Act by the Clinton administration encouraged more banks to return to urban districts, Williams said, and she has seen “marginal improvement” in the services offered to inner-city residents. But, she said, “there are still some low-income communities that are significantly underserved.”
Among those is the Maywood community in Southeast Los Angeles, home to the Slauson Avenue center. The Federal Deposit Insurance Corp. lists no FDIC-insured institutions in the area.
“This will give us the opportunity to move people from a cash culture to a banking culture,” said Greg Mitchell, president and chief executive of California National Bank, which has $3.4 billion in assets and 34 branches in Los Angeles, Orange and Ventura counties.
“We’re convinced that there are a number of families and businesses that have never been approached by a bank,” he said.
With the acquisition of the La Brea center, officials at El Segundo-based Hawthorne Financial Corp., the parent of Hawthorne Savings, said the bank gets not only “pretty strong demographics” but also a branch with a record of attracting customers.
“The fact that it had the trust built up already was very important for what we’re looking for, as far as taking the center to the next level,” said Simone Lagomarsino, president and chief executive of Hawthorne Savings, who also sits on the board of Operation Hope. “We don’t normally get that when we open a new branch.”
Bryant estimates that Operation Hope spent more than $3 million on the three centers, in addition to the nearly $4 million contributed by Hawthorne, Wells Fargo Bank and Home Savings of America (now Washington Mutual).
Bryant said he does not expect to earn a profit from the sales. “This deal is the best deal for the community, and [California National] and Hawthorne we believe are the best partners for us long term,” he said. “That trumps getting back every dollar we put in.
“We proved that this is a viable concept,” he said. “Now we can let the private sector come in and we can get out of the way.”
