The latest check on Saigon National Bank indicates little progress at the struggling community bank in Westminster and much room for questions about its future.
It focuses primarily on serving the Vietnamese-American community in Orange County and has been losing assets over the past several years, recently logging its 32nd straight quarterly loss since its 2005 opening. The bank has never had a profitable quarter.
The downward slope is about to get steeper as the bank faces an imminent increase in the cost of holding onto funds borrowed from the U.S. Treasury through the agency’s Troubled Asset Relief Program.
Saigon National, one of 24 OC-based banks on this week’s Business Journal list (see Special Report, page 15; list, 22) got $1.55 million in late 2008 via the Capital Purchase Program—one of several financial-support initiatives under the TARP umbrella.
The Treasury, through CPP, injected about $205 billion into 707 qualifying financial institutions in 2008 and 2009 by buying preferred shares that paid 5% annual dividends for the first five years and 9% thereafter.
The dividend rate will increase for Saigon National next month.
The bank has yet to pay dividends to the Treasury after 19 missed payments totaling $391,898.
Saigon National is actually not allowed to pay any form of dividends until it improves its capital levels and meets other compliance measures directed by the Office of the Comptroller of the Currency. The restriction is part of a 2010 agreement between the bank and its supervisor to respond to what the OCC called “unsafe and unsound banking practices,” including inadequate credit- and liquidity-risk management. The bank also is not allowed to increase its loans above $51 million, the total recorded at the end of 2009, until it corrects “deficiencies” and “returns the bank to a satisfactory condition.”
About 60 other U.S. banks with outstanding CPP principal investments will face the rate hike between now and early next year, according to the Office of the Special Inspector General for the Troubled Asset Relief Program, a law-enforcement agency set up by Congress in 2008 to prevent fraud, waste, and abuse linked to TARP.
They include US Metro Bank in Garden Grove, which received $2.86 million via CPP in February 2009. It so far has paid back $432,678 and missed seven quarterly payments. It mainly serves Korean-American customers and has $77 million in assets. It’s also under a consent order by the Federal Deposit Insurance Corp. and the California Department of Financial Institutions that addresses the bank’s capital ratios and loan quality.
About a third of U.S. banks that received CPP funds have paid them back in full, while about 15% have outstanding investments. The rest were auctioned, merged, failed or refinanced into other government-supported programs.
The Treasury has asked Saigon National executives if it could observe the bank more closely by placing its own officials there—a move the department can make for any bank once it’s missed five dividend payments. Saigon National has “declined Treasury’s request to have a Treasury observer attend board of directors meetings,” according to a report published last month by the Treasury’s Office of Financial Stability.
Executives at Saigon National didn’t return phone calls or reply to email requests for comment.
The OCC declined to provide comment.
Capital and risk management have long challenged Saigon National, whose nonperforming assets account for a significant portion of its $51 million in total assets.
Its loans past due and otherwise in jeopardy of default, plus other nonearning real estate assets, were about 9% of the bank’s total assets as of June 30. That compares with the 2% average of the some 6,900 financial institutions in the U.S., according to a Business Journal analysis based on data from the FDIC.
Eight-year-old Saigon National is the second U.S. bank created to cater to the Vietnamese-American population, following First Vietnamese American Bank, which opened in Westminster several months before, in mid-2005 during the last economic boom.
That’s roughly a generation after the early wave of Vietnamese immigrants to the U.S. in the 1970s. Immigration continued for years after the fall of Saigon in 1975. Many settled in Orange County, forming an ethnic enclave that over the years has grown to be the largest Vietnamese community outside of Vietnam. An estimated 189,000 Vietnamese-Americans live in OC, about 6% of the county’s population. The group’s businesses and cultural centers are concentrated in a 3-square-mile area designated as “Little Saigon,” which covers parts of Westminster, Garden Grove and other cities.
Large banks, such as Wells Fargo, have had a presence in and near Little Saigon for some time, serving the community through Vietnamese employees.
First Vietnamese American Bank operated until 2010, when it failed and was acquired by Grandpoint Bank in Los Angeles.
Saigon National’s current chief executive, William Lu, previously was head of Golden Coast Bank in Long Beach, which operated as Evergreen International Bank until voluntarily liquidating and closing in late 2012. First Choice Bank in Cerritos acquired its deposits.
Banking industry sources say it’s generally “very difficult” for ethnically driven banks to attract a large enough base of customers to significantly grow and profit. Exceptions may be found in ethnic Chinese and ethnic Korean banks, they said.
The largest Chinese-American banks include Pasadena-based East West Bank, which has about $24.5 billion in assets. It was founded in 1973 as a savings and loan company for Chinese immigrants in Southern California.
Los Angeles-based Cathay General Bancorp recently posted $10.8 billion in assets. It was the first Chinese-American bank in Southern California when it opened in 1962 in L.A.’s Chinatown.
The ranks of Korean-American banks include Wilshire Bancorp Inc., which was founded in 1980 in Los Angeles and now has nearly $3 billion in assets. Two banks in L.A.’s Koreatown combined in late 2011 to create BBCN Bancorp Inc., which recently reported about $6.3 billion in assets.
Other ethnic financial institutions, including Latino- and African-American-oriented banks, generally were met with “lack of success,” according to a source.
The well being of an ethnically focused bank hinges largely on the ability to raise capital from the population served, and competition for the same constituency typically plays a part, the source said.
