Minority banks improving financial performance ‘significantly,’ study finds

Financial performance at minority depository institutions (MDIs) over the past five years has significantly improved, both in revenue generation and loan performance, a new study from the federal insurer of bank deposits has found.

In its 2019 Minority Depository Institutions:Structure, Performance, and Social Impact, the Federal Deposit Insurance Corp. (FDIC) cited the improvement in financial performance at minority depository institutions (MDI). The study was released Tuesday in conjunction with the FDIC’s Interagency Minority Depository Institution and CDFI Bank Conference, also taking place Tuesday in Arlington, Va.

However, the study also found, the FDIC said, that the number of MDIs declined 31% from 2008-18, particularly among African American MDIs. The study found that, from 2001-18, the number of African American MDIs declined by more than half and represented 15% of all MDIs at year-end 2018. Meanwhile, the number of Asian American, Hispanic American and Native American MDIs increased during that period.

The study also found that MDIs consolidated as the number of institutions declined. More than 75% of the assets of merged MDIs, and 86% of the assets of failed MDIs, remained with surviving MDIs, the FDIC study found.

Further, the decline in MDIs was slightly less than that of community banks, the study found, which declined by 33% in the 10-year period beginning in 2008. However, over the 17 years of the study, it reported, the number of MDIs declined by only 9.1%, while the number of community banks declined by 42.2.%.

Other findings of the study included:

  • MDIs tend to be younger institutions. At year end 2018, the median age of MDIs was 34 years, compared with 98 years for community banks.
  • The characteristics of MDI balance sheets generally resemble those of community banks that rely on core deposits to fund loans mostly related to residential and commercial real estate (CRE).
  • MDIs also have more loans secured by CRE than non-MDI community or noncommunity banks. Since 2001, MDIs have migrated to the CRE specialty group from other lending groups. In 2001, 32% of MDIs had no lending specialty; by 2018, this number had declined to 14%. The share of MDI CRE specialists reached 60% at year-end 2018, compared to 25% at community banks.

FDIC 2019 Minority Depository Institutions: Structure, Performance, and Social Impact