Clock Running Down On Nation’s Oldest Black Bank

A deadline set by banking regulators has the 100-year-old Consolidated Bank & Trust Co. fighting for its life. No. 19 on the BE BANKS list with $98.4 million in assets, the historic Richmond, Virginia-based establishment has until March 31 to raise over $3 million to cover bad loans in one of its portfolios. Consolidated had unprofitably extended credit to a broad range of borrowers, from home buyers to large and small businesses in various industries.

For three years, the bank’s ailing finances have had the attention of the Federal Reserve Bank of Richmond and the Virginia State Corporation Commission’s Bureau of Financial Institutions. But they have intensified their oversight in the past six months. “Generally, when capital reaches a low level and the bank ceases to make money, those are the kinds of things that will increase regulatory scrutiny,” says E. Joseph Face, Virginia’s state banking commissioner.

During the last two years, Consolidated earned no profits. By the end of October 2003, losses were just over $1 million dollars ($1,090,000). The bank lost $2.7 million in 2002.

Time is also expiring for Consolidated to implement operational reforms it promised regulators. The bank has already put a senior credit officer under contract to bring discipline to the lending process, hired an internal auditor, and engaged an external certified public accounting firm.

A crisis rocked the bank 10 days before its Nov. 1 centennial celebration. Consolidated’s board of directors ousted Leon L. Scott, president and CEO since January 2001, and Chief Operating Officer Randolph R. Shelton. Later that month, the bank announced Kim D. Saunders as the new president and CEO. Saunders, a 43-year-old graduate of the Wharton School of Business, comes to the bank having been executive vice president and chief lending officer of City First Bank of Washington, D.C. The COO position was eliminated.

A possibility is for other banks to come to the rescue by making investments in Consolidated — providing capital and getting equity, tax credits, and incentive awards in return. In August 2002, a group of private investors bought one of Consolidated’s loan portfolios for $7 million. That portfolio held about 250 loans and had a face value of $8.9 million.

Hurshell Associates, a black-owned Vienna, Virginia, consulting firm, has been contracted by Consolidated’s board to lead the capital-raising drive and assist with upgrading management. The bank used a 100th anniversary event to launch its “Independence Through Profitability” campaign. Consolidated will trade some equity to gain investors among corporations, foundations, venture capitalists, and organizations like fraternities and sororities. The plan is to maintain African American controlling ownership and to avoid a merge.

“The board at this time has looked at a couple [of] merger opportunities and has decided that [a] merger is not strategically the vehicle that we would want to use to improve the overall capital position of the bank,” says Gilbert Scott, president and CEO of Hurshell Associates. Five of 11 seats on Consolidated’s board of directors are unfilled. The goal is to strengthen the board by adding new members from diverse