Returns Better, Growth Still Strong at Minority Banks

Returns Better, Growth Still Strong at Minority Banks

Summary of an article from From: The American Banker. Wednesday, September 21, 2005. By John Reosti

Banks mostly owned by Asians, African-Americans, Hispanics, and Native Americans grew faster than mainstream banks last year, and the trend is expected to continue as the minority population grows.

Assets at such banks increased 13.88%, compared with 11.34% industrywide, Creative Investment Research Inc. of Minneapolis found in its annual survey, released Thursday. It was the sixth consecutive year that minority-owned banks were ahead.

"It's all demographics," said William Michael Cunningham, the research firm's president and chief executive officer. "As long as the minority sector, particularly the Hispanic sector, continues to grow," minority banks are going to add assets at a more rapid clip.

Of course, minority banks still hold only a tiny fraction of the industry's assets. At yearend they had $161 billion, 89% more than three years earlier, but the assets of all U.S. banks and thrifts topped $10 trillion.

Like past studies of minority banks, Creative's found a significant profitability gap between minority banks and the overall banking industry.

Minority banks returned 0.84% on assets last year, compared with 1.29% for the industry as a whole.

But the gap is narrowing. Return on assets declined last year in the U.S. banking industry, but it increased 19 basis points at minority-controlled institutions, to its highest level since the early 1990s, Mr. Cunningham said.

The number of minority banks has not been growing, though. There were 194 this June 30, down from 196 on Dec. 31. The total has hovered between 180 and 200 for the past decade.

Mr. Cunningham said he expects more minority banks - particularly African-American and Hispanic - to be formed in the next few years.

"With Hispanic banks, population growth alone is going to move the number upward," he said. The spur for African-Americans will be renewed interest in economic development, he said.

James Ballentine, the director of community development for the American Bankers Association, said the growing number of middle- and high-income African-Americans has prompted a number of African-American entrepreneurs to consider opening banks. And like Mr. Cunningham, he expects an increase in the number of Hispanic-owned banks too.

Evelyn F. Smalls is the president and CEO of the $72.3 million-asset United Bank of Philadelphia, which is owned by African-Americans. She said interest in economic development has increased in the neighborhoods it serves.

"We've had people we never heard from in the past express interest in working with us and in bringing business to the bank," she said Tuesday. United expects to increase its assets to about $100 million over the next few years, she said.

Creative Investment Research rates minority banks on bottom-line performance and what it terms their "social responsiveness," which it measures using Home Mortgage Disclosure Act and Community Reinvestment Act data.

The highest rating in the new survey went to the Hispanic-owned Bank of Los Angeles, which has $282 million of assets. Ms. Smalls' bank ranked fifth.

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William Michael Cunningham

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  • B.A. (Economics) , MBA (Finance), A.M. (Industrial Organization)

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