The 2013 Interagency Minority Depository Institution and CDFI Bank Conference
MDIs by the Numbers
|Richard A. Brown
|Chief Economist, Federal Deposit Insurance Corporation
OverviewThe FDIC is conducting a research-based study of Minority Depository Institutions (MDIs) to better understand the role they play in the financial system and the post-crisis challenges they face. The FDIC’s Chief Economist gave an overview of the preliminary research findings regarding MDI banks over the 2001-2012 timeframe. The study is a companion to the FDIC’s 2012 Community Banking Study and used much the same methodology, breaking institutions into groups of “Community Banks” and “Non-Community Banks.” 1 The study focused on structural changes in MDIs; their geography; the financial performance of MDIs over time; capital formation; and the social impact of these institutions. The FDIC will be publishing the final study in the fourth quarter of 2013.
At year-end 2012, some 181 FDIC-insured institutions were listed as MDIs. Of these, 159 can be considered community banks according to the FDIC’s research definition, while the remaining 22 are noncommunity banks. Also in 2012, some 83 FDIC-insured institutions were listed as CDFIs by the U.S. Department of Treasury, all but three of which were community banks. At the intersection of these groups were 40 institutions listed simultaneously as both MDIs and CDFIs.
Banks and thrifts listed as MDIs tend to be somewhat larger than CDFIs, averaging almost $1 billion in asset size, or about three times the average size of the CDFIs. Collectively, the 224 FDIC-insured institutions listed as either MDIs or CDFIs hold just under $200 billion in assets and operate a total of 2,182 banking offices. While these figures represent very small shares of banking industry totals, our study will show that these institutions have a disproportionate impact on the communities they are designed to serve.
MDIs tend to be younger than other institutions. The median age of an MDI charter in 2012 was 26 years, while almost three quarters of MDIs have been in operation for 40 years or less. By contrast, the median ages of non-MDI community and noncommunity banks were 89 and 33 years, respectively. Most MDIs are organized to serve the financial needs of a specific minority group. The largest group by number – with 93 banks holding $74.2 billion in assets -- serves the Asian or Pacific Islander community. The largest group by assets – with 37 institutions holding $96.4 billion in assets – serves the Hispanic communities of Puerto Rico and the continental U.S.
An informal review of MDI websites indicates that most MDIs offer a range of web and mobile services to their customers, with more than 90 percent advertising online banking and more than 80 percent offering online bill pay. About 80 percent of larger MDIs also offer business cash management services. Smaller MDIs (with assets less than $250 million) advertise fewer web and mobile services, although about 60 percent offer business cash management and 37 percent offer remote deposit capture for business.
Net loans and leases comprise 66 percent of MDI assets, compared to 61 percent at community banks and 50 percent at noncommunity banks that are not MDIs. The largest lending specialty category for MDIs is made up of Commercial Real Estate (CRE) specialists. Some 63 percent of MDIs in 2012 were CRE lending specialists, compared to 21 percent of non-MDI community banks. Importantly, however, relatively few of these MDI CRE specialists achieved that designation by holding more than 10 percent of their total assets in the relatively high-risk construction and development (C&D) segment of CRE loans.
As a share of all FDIC-insured institutions, MDIs grew from 1.7 percent in 2001 to 2.6 percent in 2008 before leveling off. MDIs made up an even smaller 1.2 percent share of industry assets in 2012, down from 1.5 percent at year-end 2006. And MDIs overall operate almost 1,800 banking offices; here, too, their share is just 1.9 percent of the industry total.
Growth in the number of MDI charters since 2001 has been driven mostly by re-designations to MDI status. Forty-four new MDIs were chartered during our study period, while 51 were acquired in voluntary mergers, and 31 failed. Between 2001 and 2012, 75 charters were re-designated as MDIs, while 18 lost MDI status, for a net gain of 57. Asian/Pacific Islander MDIs have increased by over one-third in number since 2001, and comprised half of all MDIs operating in 2012.
Importantly, most of the assets of merged and failed MDIs have been acquired by other MDIs. In all, almost two-thirds of the assets of merged MDIs and 87 percent of the assets of failed MDIs stayed with MDI acquirers, helping to ensure that those resources remain at the disposal of minority communities. These acquisitions of failed and merged MDIs by other MDIs helped to keep over $33 billion in total assets under the control of MDI institutions and at work in their local communities.
MDIs tend to congregate in metropolitan areas, and to cluster geographically according to minority status. Eighty-eight percent of MDIs are headquartered in metropolitan areas, including some of the nation’s largest cities, led by Los Angeles, New York, Miami, Chicago, Atlanta, and Houston. Hispanic MDIs tend to have the largest branch networks, operating over 15 offices on average and 24 including Puerto Rico. The extensive branch structures of Hispanic MDIs compare to an average of just over 7 offices for Asian/Pacific Islander MDIs and less than 5 for African-American MDIs.
Many MDIs underperform in terms of standard industry measures of financial performance such as pre-tax Return on Assets (ROA). MDIs perform much like community banks in certain respects, but many of them report higher expense ratios. Average overhead expenses vary widely across minority status groups. MDI efficiency ratios in many cases exceed industry averages. The smallest MDIs, in particular, stand out in terms of elevated efficiency ratios.
Although a small segment of the banking industry – and despite their earnings challenges – MDIs have significant impact in their communities. The study calculated the percent of population within a bank’s estimated service area that resides in a low- or moderate-income (LMI) census tract. The median MDI served more than three times the LMI population reached by the median non-MDI community bank, and more than one and a half times that of non-MDI non-community banks. MDIs originated a substantially greater share of their residential mortgages to minority borrowers in their respective communities. For example, in 2011, the median African-American MDI made 67 percent of its mortgage loans to African-American borrowers; median Hispanic MDIs made 65 percent to Hispanic borrowers; and median Asian-American MDIs made 57 percent of their mortgage loans to Asian-Americans. These figures stand in stark contrast to the median level of mortgage loans made to each of these groups by non-MDI lenders, which for each category were reported to be less than one percent.
1 The FDIC’s research definition of a community bank is outlined in the FDIC Community Banking Study at http://www.fdic.gov/regulations/resources/cbi/report/CBSI-1.pdf. Rather than relying on a size threshold, the new FDIC definition takes a closer look at the business and office structure of the institution and the extent to which it is focused on traditional lending and deposit gathering activities, as well as its geographic scope of operations.