Minority Depository Institutions Program
Preservation and Promotion of Minority Depository Institutions
The Federal Deposit Insurance Corporation Report to Congress for 2014

Findings of the FDIC's 2014 MDI Research Study

The study starts with a description of MDIs and where they are located.  MDIs tend to be located in communities with a higher share of minority residents and low to moderate income areas that might be underserved absent an MDI.  The MDI population makes up 2.6 percent of insured institution charters, and has about 1.2 percent of total industry assets in the aggregate.  Most are relatively small in size, with a median asset size of just under $200 million.

Like other types of banks, the MDI banking segment has experienced significant structural change over time.  The number of MDI charters has fluctuated, due to a number of factors, including institutions being newly designated as MDIs, existing MDIs merging or being acquired by other institutions, failure, and the chartering of new MDIs.

Compared with the industry overall, and especially community banks, MDIs have experienced a greater degree of structural volatility, with relatively few MDIs operating continuously through the 2001-2013 study period.  The composition of the MDI segment has also changed over time, with the share of Asian American MDIs increasing, and the share of African American MDIs declining.  During the crisis, 32 MDIs failed, for a failure rate that was about three times the industry average, reflecting vulnerability to general economic conditions and unemployment of the populations that the MDIs served.  When MDIs consolidated through mergers, failures or acquisitions, just under half of the MDI charters were acquired by other MDIs, but 87 percent of assets of failed MDI institutions were sold to MDI acquirers.  This is consistent with our statutory goal to preserve minority character in mergers and acquisitions.

The study reviewed financial data that indicated that the characteristics of MDI balance sheets generally resemble those of community banks, with a reliance on core deposits to fund loans that are mostly related to residential and commercial real estate, although an increasing percentage of MDIs have specialized in commercial real estate lending over time.  The wide size variation among MDIs, in addition to the significant amount of structural change in this segment, makes long-term group comparisons of MDI performance difficult.  Nonetheless, during the 13-year period, some MDIs appear to underperform non-MDI institutions in terms of standard industry measures of financial performance such as pretax return on assets. 

Generally, MDIs were found to perform much like community banks with regard to net interest income and noninterest income, but some experienced higher expenses related to problem loans, as well as higher overhead expenses.  Smaller MDIs, especially, were found to have much higher noninterest expenses compared with larger MDIs and community banks.  In addition, smaller MDIs also were found to be less efficient than both midsize and larger MDIs, as well as non-MDI community and non-community banks.  Several factors may contribute to these differences in performance, including the concentration of MDIs in metropolitan areas and the relatively young age of MDIs.

The study also showed that MDIs are very successful in meeting their mission to promote economic viability of minority and underserved populations.  MDIs successfully reached low and moderate income (LMI) households: 46 percent of the service area populations served by MDIs were in LMI income census tracts compared to 17 percent for community banks and 27 percent for non-community banks.  In addition, MDIs provide mortgages in lower income neighborhoods: 25 percent of MDIs’ reportable mortgages (under the Home Mortgage Disclosure Act) were made to residents of LMI census tracts compared to 9 percent for all other types of institutions.  MDIs also successfully reach their target populations in a way that other institutions do not.  For example, the median African American MDI in 2011 made 67 percent of its mortgage loans to African Americans.  Similarly, the median Asian American MDI made 57 percent of its mortgages to Asian Americans and the median Hispanic American MDI made 65 percent of its mortgages to Hispanic American borrowers.  In contrast, non-MDI institutions’ lending percentages to those borrowers was 2 percent or less.