Profits at the nation’s black owned banks last year plunged to a nine-year low, newly released data shows.
The annual statistics, compiled last month by William Michael Cunningham, senior investment adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking, illustrated a major decline as some black owned banks suffered big losses tied to securities-related investments.
Buddy Howard, president and banking analyst at Equity Research Services Inc. in Raleigh, North Carolina, said black owned banks, much like the majority of banks, were under intense profit pressures in 2008, and these pressures have extended into 2009. “It was one of the most challenging years the entire industry has had in many years, with earnings pressured by tighter margins, severe asset quality problems and anemic loan demand, which has negatively impacted earning asset growth,†Howard said.
Profits at 44 black-owned banks fell to a collective net loss of $27 million last year, down from a profit of nearly $24 million in 2007 and the lowest level since 2000, according to Cunningham’s analysis. He said the data was based on call reports the banks’ flagship banks — not their parent companies — filed with the Federal Deposit Insurance Corp. for the year ending Dec. 31. He said 22 of the banks had a net loss.
Kevin Cohee, CEO of OneUnited Bank (No. 2 on the BE Banks list with $636 million in assets) acknowledged that the investment losses in the two mortgage giants hurt the bank’s earnings last year. But he said the bank continues to be well capitalized and has returned to profitability in 2009. “It’s a testimony to the strength of OneUnited that it was able to lose over $50 million tied to investments in Freddie Mac and Fannie Mae and narrow that lost to $29 million by year end shows the company’s earnings capacity,†Cohee said. “The fact that the bank is now well capitalized shows the financial wherewithal of the bank’s shareholders.â€
However, the news was not all bad. The number of black owned institutions that survived last year was at a substantially higher rate than U.S. banks overall and their growth in assets rose at nearly the same level as their mainstream peers. According to Cunningham, there were 44 black owned banks or banks controlled by a black board in 2008, three fewer than in 2007. Those institutions had assets of $7.6 billion in last year, up 5.5% from in 2007. In contrast, the number of FDIC-insured banks and thrifts totaled 8,305 of last year, down from 8,534 two years ago, according to the FDIC. Their net income totaled $10.2 billion in 2008, down from $100 billion in 2007. Those institutions’ assets reached $13.8 trillion, up 6.1 percent from 2007.
At Newark, N.J.-based City National Bank of New Jersey (No. 3 on the BE Banks list with $495 million in assets), CFO Ed Wright said the bank last year earned $1.1 million, down
from $1.9 million the prior year. He said profits plunged as the bank had $2.7 million in write-downs from investment in its securities portfolio that lost their value. The bank also set aside $1.6 million last year to cover problem loans, double the amount it set aside the prior year. “Black-owned banks (in general) were largely hurt by customers losing their jobs and businesses, reducing their ability to repay loans, make deposits and maintain their savings,†Wright said.Wright said the reduced profitability and deterioration in credit quality has prompted federal regulators to put more pressure on already well capitalize minority banks to boost their capital ratio given the weak economy. He said his bank continues to get such pressure even though it was recently granted $9 million in capital from the U.S. Treasury Department’s Troubled Asset Relief Program (TARP).
According to James E. Young, CEO of Citizens Bancshares Corp. (No. 8 on the BE Banks list with $348.1 million in assets), the bank earned $1.2 million last year, down from $3.3 million in 2007. The decline, he says was mainly because it set aside $2.5 million to cover potential loan losses, compared with making no provision for loan losses in 2007. “The bottom line is the weak economy hurt our individual and business customers’ ability to repay loans,†He says, adding that many banks were confronted with the worst recession in more than 40 years, resulting in a big decline in loan demand and increased loan loss provisions for those institutions.
CEO Paul C. Hudson of Broadway Federal Bank (No. 4 on the BE Banks list with $407.9 million in assets) said his bank boosted profits by increasing its volume of loan originations and expanding net interest margin by driving down liability costs at a faster rate than the decrease in loan yields. He said it also managed credit risk in its loan portfolio through active loan service management and sound loan underwriting.