If you’re looking to start a bank or other financial institution in Orange County, odds are the signs will be in Spanish and you’ll look in Santa Ana.
Hispanics, who make up a third of OC’s 3 million people and more than 75% of Santa Ana’s 350,000 residents, already are a big source of banking business.
Many call on Bank of America and other mainstream banks. Others opt for Puerto Rico’s Banco Popular. Others, mostly recent arrivals, bypass banks altogether.
Enter the startups. Santa Ana Business Bank and Comunidad Latina Federal Credit Union recently formed to go after Hispanic banking business.
Until now, there hasn’t been a single independent Hispanic bank startup in the state since 1980, said Edward Carpenter, a bank consultant and principal of Carpenter & Co. in Irvine.
Banks geared toward Hispanics are attractive because the area’s growing population means a steady source of customers.
And second- and third-generation Hispanic business owners are growing their wealth faster than any other group, according to banking watchers.
Last month, federal regulators gave the green light to directors of Santa Ana Business Bank to sell shares to investors.
It’s set to have its headquarters at 1666 N. Main St. this summer after raising an anticipated $12 million.
The bank plans to offer loans to businesses, real estate developers, consumers and small businesses.
So far, the bank’s backers have raised about $11 million, said Alfredo Amezcua, Santa Ana Business Bank chairman and principal at the Law Office of Alfredo Amezcua & Associates in Santa Ana.
“We have a very good beginning and we are on track,” Amezcua said.
Other directors include Santa Ana Councilman Carlos Bustamante and accountant Manuel Ramirez, who’s also vice chairman of Hispanic 100, which encourages Hispanic political candidates.
“We think we are going to have a heads up,” Amezcua said. “The organizers and the members of the board are long-term business individuals in the industry. They have a tremendous amount of credibility in the city.”
Santa Ana Business Bank faces competition.
Comunidad Latina is set to be the first credit union geared toward Hispanics. It stands to compete with Santa Ana Business Bank and others for deposits and loans.
The county’s largest credit union and biggest financial institution based here by assets,Santa Ana’s Orange County Teachers Federal Credit Union,is helping launch Comunidad Latina.
OCTFCU already has a sizable Hispanic membership that Comunidad Latina can draw upon.
Chief Executive Luis Valerio, who headed Citibank’s Hispanic banking efforts in OC, was hired by OCTFCU to run Comunidad Latina.
Membership in Comunidad Latina, which plans to have a branch at 1317 W. Warner Ave., will be open to Santa Ana residents and those working there.
Credit unions require far less money to start than banks, which usually have to raise $10 million or more to get rolling. Comunidad Latina expects to raise about $1.2 million, according to organizers.
Other recent startups are geared toward Asians.
U.S. Metro Bank, aimed at Korean-Americans, opened in September in Garden Grove.
Its organizers raised about $20 million, according to the Federal Deposit Insurance Corp.
U.S. Metro plans to serve store owners and other small businesses generating yearly sales of $300,000 to $1 million.
The bank also plans to open a loan office in Koreatown in Los Angeles and add branches in Irvine and Newport Beach within a few years.
OC has about 60,000 Korean-Americans, according to the Census Bureau.
U.S. Metro is entering a crowded landscape.
Buena Park-based Uniti Bank was the first bank to form in OC to serve Korean-Americans. Other Korean banks in the area include branches of Hanmi Bank, part of Los Angeles-based Hanmi Financial Corp.; Los Angeles-based Center Bank, a unit of Center Financial Corp.; and Los Angeles-based Wilshire State Bank, a unit of Wilshire Bancorp Inc.
The county’s Vietnamese-American population has been a favorite of ethnic banks.
In 2005, First Vietnamese American Bank and Saigon National Bank opened in the heart of little Saigon.
Little Saigon is home to some 200,000 Vietnamese,the largest community outside Vietnam.
Organizers of ethnic banks know they are heading into a crowded market.
Overall, banks are competing for depositors, who often chase the most attractive rates.
Ethnic banks have small advertising budgets and rely heavily on word-of-mouth to gain customers.
“We know that this probably isn’t one of the best times to start a bank. But we think that the market is right and the community is ready,” Santa Ana Business Bank’s Amezcua said.
And the big banks still grab the lion’s share of the market for ethnic groups.
“A lot of ethnic segments will first out-choose and prefer large institutions like Bank of America,” said Kim Burdick, executive for Bank of America’s Southern California division.
Bank of America commands a 30% market share for both Hispanics and Asians in Orange County, according to Burdick.
“Nobody banks more ethnic groups by segment than us,” Burdick said. “We win the business from the first generation.”
BofA is going after the county’s Hispanic community and may prove to be stiff competition for the smaller startups. Last year, it opened a branch on Fourth Street in Santa Ana,the city’s Hispanic center. It’s set to open another this year, Burdick said.
Likewise, Pasadena-based East West Bancorp, which runs East West Bank with branches in Asian hubs in Irvine and elsewhere, attracts a range of Asian customers.
Among East West’s commercial banking clients, about 40% are Asian. On the retail side, that number jumps to 65%, said Wellington Chen, executive vice president and director of corporate banking for the region.
“We are competing against smaller community banks,” Chen said. “There are now more players in our arena.”
In the startup arena, all ethnic banks aren’t created equal.
The viability of ethnic startups depends on the growth potential of the population it’s going after, Carpenter said.
The first level of immigrant banking is with an ethnic bank that speaks a common language and understands the cultural differences in borrowing habits, he said.
The second generation tends to be more assimilated and often breaks with their parents’ bank and chooses mainstream institutions, Carpenter said.
This may signal an eventual slowdown at Vietnamese banks because the bulk of their target population immigrated decades ago, he said.
The same may be true for banks catering to Japanese and Pacific Islanders, Carpenter said.
On the flip side, banks targeting Korean-Americans and Chinese-Americans have better long-term growth potential.
“In L.A. and Orange counties, the Chinese and the Korean banks are growing dramatically,” Carpenter said. “Many of these are small business owners who plan for their children to inherit or continue the business,and they do continue the relationship with the bank of their parents.”
Hispanics arguably are the biggest growth opportunity, with a growing population and a steady stream of newcomers.
In order to stay afloat, ethnic banks with stagnant populations will have to broaden their scope.
“Ultimately, all of these banks will serve a broader community of interest,” Carpenter said. “They will serve everybody who would make a good customer,” he said.
