The family that recently invested $9 million into one of the last black-owned banks in Illinois plans to overhaul the Bronzeville lender, trying to put the bank’s close call with failure behind it.
Illinois Service Federal Savings & Loan Association, founded in 1934, remains one of two black-owned banks based in Illinois, with the investment by Ghana’s Nduom family. As recently as five years ago, there were four black-owned banks in the state. The others have since failed, and Illinois Service’s remaining peer — Seaway Bank and Trust — is under pressure from regulators, looking for a new chief executive and trying to raise capital.
Illinois Service, too, had been ordered by bank regulators to boost its capital levels. Troubled banks unable to turn themselves around risk seizure by the government, which typically then hands the reins off to another bank.
The Nduom family has a 5,000-employee conglomerate, Groupe Nduom, that spans mostly West Africa and the United Kingdom and includes media, hospitality and banking interests. The investment in Illinois Service marks its entry into the U.S. financial services industry.
The family’s patriarch, Papa Kwesi Nduom, was born in Ghana and became a partner at Deloitte & Touche in Milwaukee. He and his family eventually moved to Washington, D.C., and then back to Ghana in the early 1990s.
Now that Illinois Service is better capitalized, it’s time to focus on its technology, loan portfolio and products, and to reconnect with the neighborhood, sons Chiefy Nduom, 33, and Kweku Nduom, 37, said while in town last week. Their father is chairman but the pair oversee the family’s stake in the Chicago bank, which goes by the name ISF Bank. The Ghanaian-American family’s investment deal closed in late April.
“Right now we’re focused on delivering existing services in a more efficient manner using technology and also perhaps having a better location spread,” Kweku Nduom said. Among the plans: “A new look and feel of the physical premises, a new look and feel of the website, and a faster delivery of products, such as online account openings, and you’ll probably see one or two more ATMs in a few areas.”
Since desegregation, the number of black-owned banks has been on the decline, as some black consumers decided to take their business to “majority-owned banks,” and the recession also hurt, said Michael Grant, president of the National Bankers Association, which represents minority- and women-owned banks.
“The communities they served were hard-hit, and the recovery has been uneven,” he said. “Some of these banks were struggling because people in the communities they serve are still struggling.”
Grant also noted that it’s not just minority-owned banks that have long been under pressure, but also hospitals, grocery stores and funeral homes. “Until the black community starts valuing businesses owned by black Americans, these banks will struggle.”
Illinois Service has 31 employees, down from 38 in early 2015. As of the first quarter, the bank had $101 million in assets, of which $42.3 million was loans. Nearly two-thirds of the loans were for one- to four-family homes.
Illinois Service, which for now remains under close regulatory scrutiny, still must confront the challenge of dealing with a portfolio in which 13.4 percent of its loans are seriously delinquent. That’s down from the year before, but Illinois banks overall have just 1.1 percent of their loans that are 90 days or more past due or not generating any interest income.
Chiefy Nduom cited a recent study by real estate website Zillow that placed Chicago homeowners in the worst position in the nation, with a larger portion of homes underwater than in Las Vegas. That means their homes are worth less than what they owe their lender.
“There are a number of complex issues, including unemployment rates, violence, which has a negative impact on housing values, and just general cash flow in the community,” Chiefy Nduom said. “What we’ve found, though, is that our portfolio has seen its worst days.”
About 90 percent of Illinois banks are profitable, but Illinois Service lost $615,000 in the first quarter.
“We’re confident that our return to profitability could be extremely quick,” Chiefy Nduom said. And, “based on the amount of capital that has been injected, the bank is in great shape from a capital standpoint and could weather a storm for a significant period.”
The Nduom family had been aiming to get a new U.S. bank charter or to invest in an existing U.S. bank. They said a mutual friend brought Illinois Service’s former CEO, Norman Williams, who was seeking to raise money for the bank, to Washington, D.C., to meet with their father.
Williams has retired. The Nduom family brought in Robert Klamp, former International Bank of Chicago president, as Illinois Service’s new CEO.
The Federal Deposit Insurance Corp. insures deposits at 6,122 banks and thrifts. The number that were black-owned as of the end of 2015: about 20.
“Our goal is to ensure that ISF Bank remains in this community in perpetuity,” Chiefy Nduom said.
Credit: Chicago Tribune