Hispanic consumers and business owners are not saving and borrowing as much as bankers had hoped.
In recent months, at least three start-up banks that had set out mainly to serve the fast-growing Hispanic population — particularly the unbanked — have concluded that the strategy is too narrow and are now targeting a broader base of customers.
Though these banks say they remain committed to the Hispanic market, they point out that they cannot be effective unless they are profitable.
"Any bank needs to be successful first, and we are going to be able to serve the Hispanic population better as a successful bank than one that isn't growing as fast," said Carl Dodson, a founder of the two-year-old Security One Bank in Falls Church, Va.
Security One is not making money yet — it has lost more than $3 million since opening for business in April 2006 — but its assets have more than doubled, to $49 million, since it hired some local commercial lenders last summer.
Its evolution from a Hispanic-themed to a mainstream bank is continuing. Last month it added another team of local bankers, led by John Maxwell, the former chief executive of James Monroe Bancorp in Arlington, Va., and the bank's ownership is counting on these hires to bring in more commercial loans and deposits.
Mr. Maxwell was named Security One's CEO, succeeding Mr. Dodson, who is now the president and chief operating officer.
Other Hispanic-themed start-ups that have recently broadened their focus are the two-year-old Libertad Bank in Austin and the nine-month-old Oasis Bank in Houston.
Libertad has lost about $1.9 million since it opened its doors. Though some mainstream banks in Texas that opened in 2006 are not yet making money either, Libertad chief executive officer Erik Beguin said it would be difficult for the bank to ever become profitable primarily serving a Hispanic clientele.
Like Security One, the $30 million-asset Libertad is targeting mainstream commercial customers in its market, and it recently opened a mortgage loan production office in Dallas and a commercial loan production office in Houston.
"If all you did was a Hispanic-focused retail bank, it wouldn't be successful," Mr. Beguin said. "The reason why is, you couldn't generate the quantity of core deposits needed to meet lending demand in the community."
Indeed, perhaps the banks' biggest challenge has been gathering deposits.
Organizers say they opted to target primarily Hispanics because they saw an opportunity, through financial education, to capture the deposits of immigrants who were largely distrustful of banks.
Mr. Dodson said ever more Hispanic immigrants are opening bank accounts, but he pointed out that their balances are generally low because many either have low-paying jobs or send much of what they earn to their families back home.
"We were trying to get people into mainstream banking that had originally used check cashers … , and it has worked well," he said. The bank is now targeting commercial customers as well "in order to get the average [deposit] size up and expand growth," he said.
And John Sexton, the chairman and chief executive of Oasis Bank, said, "When you are dealing with lower-income, unbanked people, the deposits come slower."
Another challenge for Hispanic-themed banks is competition from mainstream banks. Some larger banks have made a conscious effort to court Hispanics — particularly those who own small businesses — by creating Spanish-language Web sites and hiring bilingual tellers and lenders.
"Hispanic businessmen are looking for the same thing any other businessman is looking for — good service and good pricing," Mr. Dodson said. "There is a lot of good community bank competition out there."
The struggles of banks like Libertad and Security could even be spooking others that are considering opening Hispanic-themed banks.
For example, the organizers of a San Antonio start-up that had planned to cater to wealthy Mexican immigrants in Texas withdrew their charter application this month. Matt Murphy, one of the organizers, declined to comment.
Dan Hudson, the president and chief executive officer of the start-up consulting firm NuBank Group in Dallas, has worked with several minority-focused banks. He said he advises organizers not to build "one-legged-stool" banks.
"You need at least three niches to stand," he said. "When people come to us to form a bank and they say, 'I want to be a Hispanic bank or Asian bank,' we tell them, 'You want to be the best bank you can be.' "
Jorge Forment, the president and CEO of the $232 million-asset United Americas Bank in Atlanta, agreed.
United Americas was formed in 1999 to focus on the Hispanic market, and for six years it stuck pretty close to this mission. It started to diversify about three years ago as immigration laws in Georgia became stricter and the Hispanic population in the bank's market area began to decline.
The bank now has a division that targets non-Hispanic commercial customers, with a special focus on Asian-American business owners.
"The money is one color, and if it makes sense we are going to try to do it," Mr. Forment said.
"From my experience here, we couldn't have just served the Hispanic market and grown to the level we have without venturing into other areas," he said. "You can't be that little niche bank. You have to have other customers."
This does not mean a bank cannot serve the Hispanic market well, Mr. Hudson and bankers said.
Oasis, for example, has not been gathering deposits from Hispanics as quickly as it had hoped, but it is hitting its fee-income targets by offering products and services, such as automobile and home insurance, remittance services and money orders that meet the demands of Hispanic consumers.
"The key to being a successful bank is having the right products and right people for the markets you are serving," Mr. Sexton said.
Libertad, too, has developed a niche mortgage product that is performing exceptionally well, Mr. Beguin said. Many Hispanic immigrants lack credit histories and therefore cannot get mortgages, so Libertad is offering a loan for which it considers a borrower's history of rent or utility payments to determine creditworthiness.
Though the mortgage product's interest rate is above market rate — currently 9%, fixed — Mr. Beguin said borrowers make their payments on time and none of the loans has defaulted.
He said the bank is hoping to make a secondary market for the loans, which would boost fee income.
