Black Banks Are Feeling the Pinch

Recession pushes profits to nine-year lows

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.

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