Although there are fewer than 200 minority-owned banks in the United States — accounting for about 2 percent of the banking industry’s total assets — their importance can’t be measured solely by such statistics.  

Take City National Bank (CNB) of New Jersey, for example. Founded in 1973 and headquartered in Newark, CNB is the only commercial bank in the state owned by African-Americans. With a mission to serve the underserved, CNB is well aware of the urgent need for inner-city neighborhoods to offer good child-care facilities, freeing parents to find and keep full-time jobs.

When Memorial Day Nursery of Paterson — the nation’s oldest child-care center, founded in 1887 — sought funding to expand by buying and renovating a 16,000-square-foot building, it had trouble finding conventional financing.  In response, CNB created a loan package that included tax-exempt bond financing through the New Jersey Economic Development Authority, which reduced Memorial’s annual debt obligation. As a result, Memorial opened its new facility in 2003, accommodating 285 children — and helping their parents.  “City National was highly professional,” according to Deborah Hoffman, the Treasurer of Memorial’s Board, “and sympathetic to our mission to provide exemplary educational services to Paterson families.”

This success story has many parallels elsewhere. In Mobile, Alabama, for example, African-American banker Sidney King recalls that, in 1969, when a group got together to talk about opening a minority-owned bank, “the highest position held by a black man in a Mobile bank was that of a janitor.”

It took seven years to get the new bank launched, but today the founders of Commonwealth National Bank are understandably proud that black men and women in Mobile, who want a career in banking, have a meaningful opportunity to do so in their home town.  Indeed, agile management and advance planning enabled Commonwealth to be the first bank in the area to reopen for business after Hurricane Katrina devastated the Gulf Coast. The bank’s depositors did not have to wait to get their hands on much-needed cash.

A similar commitment to its core communities is a key to the success of Omni Bank, which focuses on meeting the banking needs of Asian-Americans in the San Gabriel Valley area near Los Angeles. The bank’s multilingual staff of 62 includes people fluent in three different Chinese dialects, Vietnamese, Thai, Tagalog (a Filipino language), Spanish, and Japanese.

“We will speak whatever language is required to make the customer feel comfortable,” says Cary Ching, Omni’s president and CEO. That is just one of the ways the bank builds customer loyalty. For example, Omni also uses low-cost car loans to help previously unbanked customers build credit — recognizing that owning a car is essential to earning an income in an area where job opportunities are dispersed and public transportation is limited. 

Vital assets

As these examples illustrate, minority-owned institutions are a vital part of the fabric of American banking today. A recent report issued by the Government Accountability Office found that at the end of 2005 there were 195 minority-owned banks and thrifts in the United States, slightly down from the 196 in operation in 2004, but up from the 189 in 2003.  While the number of minority-owned institutions has not increased, there is still some good news.  An annual survey by Creative Investment Research, a Washington DC based firm that tracks minority-owned banks for investors, reported that minority-owned institutions' combined assets were $161 billion in 2005, 89 percent higher than the assets held by these financial institutions three years earlier.

Of the total 195 minority-owned institutions, 73 were owned by Asian-Americans, 46 by African-Americans, 38 by Hispanic-Americans, and 20 by Native Americans. Five were classified as multi-ethnic. Thirteen of the banks and thrifts were owned by women.

Minority-owned banks operate in a national marketplace that offers strong potential for growth. The minority population in the United States is increasing rapidly.  Hispanics accounted for more than half of the growth in the U.S. population in the past decade. Eight U.S. metropolitan areas now have immigrant populations of one million or more, and rural areas are also experiencing more racial and ethnic diversity. The buying power of minority populations is expected to reach $1.7 trillion by 2010, more than triple its 1990 level of $454 billion.

These trends bode well for minority-owned banks and thrifts. But these institutions are also operating in an increasingly competitive marketplace, in part because of the success of the Community Reinvestment Act (CRA) in encouraging major mainstream banks to increase their lending and services in historically underserved neighborhoods and areas. 

Minority-owned banks, with their relatively small asset base and their commitment to serve low- and moderate-income customers, sometimes struggle.  Minority financial institutions had an average return on assets (ROA) of 0.84 percent at the end of 2004, according to Creative Investment Research, and while this was up from 0.65 percent in 2003, it was far below the 1.29 percent average ROA for all insured commercial banks and savings institutions.

As they compete for market share, minority-owned banks face an array of challenges. Some may be constrained in their ability to take advantage of marketplace opportunities because their available capital and capital-raising capacity are inhibited.  Many are unable to offer top managers competitive salaries and benefits, and thus are at risk of suffering a talent drain as mainstream banks seek to diversify their own management hiring. And some struggle with the difficulty of increasing their core deposits.

For example, deposit growth is the biggest challenge faced by Atlanta-based,  minority-owned United Americas Bank.  According to Jorge Forment, president and CEO of the bank, which serves a largely Latino population, “UAB has many accounts with relatively low balances and a customer base that routinely sends half its paycheck to relatives living outside the United States.”

To cope with such challenges, minority-owned banks strive to be better than their competitors at the very things that motivated them in the first place: targeting the needs of customers who, because of color, ethnicity, or other socioeconomic factors, historically have not been well served by mainstream banking institutions. Yet, as more and more of those customers move into the mainstream themselves, and as their communities in many instances become more gentrified or otherwise upwardly mobile, minority-owned banks face new challenges of tailoring their services accordingly.

Supporting good banking

The Office of the Comptroller of the Currency is strongly committed to the vitality of minority-owned banks, and has issued a policy statement describing OCC policies and initiatives aimed at advancing this goal.

• To assist those interested in investing in or partnering with minority-owned banks, OCC identifies annually minority-owned national banks that participate in the Treasury Department’s Minority Bank Deposit Program, and posts this information on National BankNet, OCC’s Internet site for national banks, as well as on OCC’s public Web site. http://www.occ.gov/cdd/cdresourcedir.htm

• The Treasury Department’s Minority Bank Deposit Program (MBDP) helps promote the success of minority-owned banks by encouraging federal, state, and local governments, as well as pension funds and the private sector, to use MBDP participants as depositories and financial agents.  This dovetails with the OCC and other regulators in providing CRA consideration for banks making deposits in minority-owned banks.

• OCC offers advice and technical assistance to applicants interested in entering the national banking system. For instance, a minority-owned national bank whose mission focuses on serving low-income persons or communities may seek certification as a community development bank or community development financial institution (CDFI), which can enhance a bank’s ability to raise capital from third-party investors, such as other banks, foundations, and local governments. The District Community Affairs Officers, located in the OCC’s district office where the bank is headquartered, can provide information on seeking these certifications as well as a range of other support services.  [See Benefits of CDFI Certifications.]

• National banks contemplating investments in minority-owned financial institutions may qualify for positive Community Reinvestment Act consideration, and may make such an investment under the Part 24 community development investment authority under certain conditions. [See Compliance Corner: Encouraging Investments in Minority-Owned Banks.]

• OCC is also committed to work with minority bankers to identify challenges and opportunities as part of its supervisory process and through its quarterly reviews of bank performance. OCC experts can provide guidance on subjects, such as credit, asset management, consumer compliance, capital markets, bank information systems, legal issues, and economic conditions. OCC provides examination continuity for minority-owned banks by assigning a portfolio manager familiar with the bank and assigning examiners who assess the products and services offered by the bank and its performance in the context of its size and mission.

We recognize that we can do more.  In that spirit, we have launched an internal review process to develop strategies to enhance OCC’s minority bank supervision and support, track our progress, and assess the impact of our initiatives.  The OCC firmly believes that healthy minority-owned banks are essential to a healthy national banking system.

The articles in this issue reinforce that point. They will also introduce you to people you need to know — dedicated men and women who, in the cause of serving minority populations, are also strengthening community banking’s bedrock foundations.