Talk About Doing Well By Doing Good

In the spring of 1989, just months after he took over as chairman and chief executive officer of American Savings Bank, Mario J. Antoci took some heat from noisy picketers outside the Irvine (Calif.) thrift's Oakland branch. The protesters, led by low-income-housing advocate Robert Gnaizda, were charging American with redlining--making too few loans in low-income and minority communities.

Antoci refused to meet with Gnaizda. But he did boost his company's low-income lending. Now, Gnaizda himself hails American Savings' lending record, praising its policies in November presentations to Federal Reserve Chairman Alan Greenspan and Comptroller of the Currency Eugene A. Ludwig.

REACHING OUT. Antoci's policy is less a matter of altruism than the bottom line, for inner-city lending has turned out to be surprisingly lucrative. American's loans in low-income neighborhoods, which in 1992 accounted for nearly 20% of its mortgage originations, are among the best-performing it is making these days. Because American can keep smaller loan-loss reserves against loans with low delinquency rates, low-income loans are quite profitable--even though American's low-income borrowers don't get charged premium rates. Profits on these loans have softened the blow to American's earnings from losses in ritzier communities such as Santa Monica and Woodland Hills, where borrowers' property values have plummeted. In Los Angeles, delinquencies on loans in low-income neighborhoods are less than 35% of those on loans in affluent areas. "It's a great niche," Antoci says.

Antoci wants to do more. He is opening a branch in Watts, a mostly black section, as part of the first office development there since the 1965 riots. And he is looking for ways to increase business among California's Asians by setting up branches in places such as San Francisco's Chinatown and offering seminars on home buying taught in Chinese.

American's mission in the inner city is a far cry from the one that Antoci, who once worked as a certified public accountant, inherited at the end of 1988, when he was hired away from H.F. Ahmanson & Co., the nation's largest thrift. At the time, American Savings was emerging from a protracted restructuring. Its healthy loans had been bundled into a "good bank" and sold to a group led by Texas billionaire Robert M. Bass.

American was not a familiar name in urban neighborhoods. But Antoci, a veteran of a thrift with a strong low-income-lending record, knew this business could be profitable and set about wooing low-income borrowers (chart). He put together a community-outreach department that has sponsored everything from neighborhood "paintathons" to a fashion show at a child-care center. In 1990, American opened two branches in East and South Central Los Angeles. Under the old management, American had covered South Central from a loan office seven miles away in Hollywood.

CREATIVE CREDIT. To staff the new branches, Antoci lured loan agents from such competitors as Ahmanson and Great Western Financial Corp. Those agents--many of whom live in the communities they serve--are given the freedom to bend the rules a bit when making loans. Some borrowers are permitted to have a relatively large portion of their income go toward housing. Often, the agent will accept utility receipts in lieu of a credit-card record as proof of a good credit history. "A typical credit person might have a problem with that," says Antoci. "But we are proving it doesn't have to be that way."

American's customers have proved highly reliable. With their houses often their only asset, inner-city borrowers may fight harder to keep their property, says Tom Ramirez, who works in American's East L.A. office and has become the thrift's top loan producer. Sometimes, a borrower will meet mortgage payments by renting out rooms to a friend or relative.

American isn't the only lender catering to the inner city, and future gains may be harder to come by. Competition is already spirited--from banks under pressure to do more low-income lending. Even mortgage bankers are interested. Thrift consultant Bert Ely says competition from outsiders will almost certainly erode margins. But Antoci says he isn't concerned: "I'll start to worry when, instead of closing branches in the inner city, the banks start opening them." Until then, he will keep mining one of banking's most unlikely niches.

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