Economists are predicting that fallout from last year’s collapse of the financial market will worsen in 2009. Among those hit hard, are banks. WUWM’s LaToya Dennis decided to find out how the few minority-owned banks in town are faring. There are only 215 nationwide, and three of them are in Milwaukee. Minority owned banks tend to cater to underserved communities and therefore have very few well-to-do clients.
Take a drive along Fond du Lac Avenue on the north side of town and amongst the dilapidated buildings, liquor stores and churches, you might notice the only minority-owned banks in Milwaukee: Columbia Savings and Loan, Legacy Bank, and North Milwaukee State Bank. Columbia was established in 1924 to provide mortgages to blacks; a group of African American women started Legacy Bank in 1999. North Milwaukee State Bank came about in 1971. President Erbert Johnson says it lends mainly to small businesses and many of them have taken a hit.
“So for instance, we have a couple of trucking company clients, and whereas people that chose to move in the past would hire movers and move in a rational way, now, if you’re being foreclosed on the last thing you’re going to do is spend your last dollars on a mover. So our moving company business, they’re seeing their revenues turn down,” Johnson says.
Johnson says the slowdown is forcing his bank to be more flexible with its loan agreements.
“We have to then work with our clients on a much closer basis, because where they may have been able to make their payment at the first of the month, maybe they need to now make it on the 15 of the month or maybe they need to miss a month,” Johnson says.
Johnson says that’s why North Milwaukee State Bank has been able to weather the financial storm so far. He says not only has it kept plenty of cash on hand, but minority-owned banks are used to working with clients to make sure they don’t default on loans.
“That’s what we do. Our mission has always been around working with lending to the businesses that have traditionally had trouble to get access to capital. Now it requires a special skill set and an art. When you lend to someone that’s operating with lower cash flows and lower margins, then you have to really have to help them understand their business so that when they have their traditional tough challenges, which they will when you’re a small business, that you can make it through that,” Johnson says.
Johnson says he believes a lot of larger lending institutions got into trouble because they did not understand the special needs of their clients, including people who really could not afford the home loans they got. Robert Tillman agrees it all boils down to knowing how and being willing to work with clients. Tillman heads Partnership for Progress. It’s a federal program aimed at promoting and preserving minority owned banks.
“When you look at the loan portfolio that exists at many of the minority banks many of the minority banks have followed very prudent underwriting practices, and therefore, in many cases, they haven’t seen the severe losses in the loan portfolio that many of the larger institutions have faced,” Tillman says.
Tillman says even though times are hard for everyone, there may be opportunities for minority-owned banks to grow amidst the uncertainty.
“Even in this environment some of the minority banks are seeing an increase in loan demand. As these larger banks tighten their credit and turn away customers some of the customers may migrate toward the minority banks,” Tillman says.
That’s exactly what North Milwaukee State Bank President Erbert Johnson is hoping for: new customers who might never before have looked at a minority-owned institution.
“Our diversity of earnings, the sources that it comes from is increasing. Our 09 forecast projects double digit growth relative to return on assets. We are sound, strong, we’re always ready for the rainy day,” Johnson says.
North Milwaukee State Bank is among a long list of lending institutions that have applied for a piece of the federal government’s financial rescue plan. The bank has not yet received a response.
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