According to the U.S. Census Bureau, Asian Americans and Pacific Islanders constitute about 6% of the U.S. population. They also control half of the nation's minority owned banks. Most of these banks have strong ratings and histories, which is good as unemployment rates among Asian Americans have jumped 450% since March.
This unemployment was unforeseen and clearly beyond anyone's control, least of all the workers. But that doesn't change the fact that we have to make sure the banks have positioned themselves properly in the event of a steep slide in credit quality. Most are looking quite good. But, of course, for every rule there is an exception.
In this case the exception is 1-Star Noah Bank, Elkins Park, PA. Noah Bank has been posting big losses for several quarters. It also has new leadership, but that's just a tiny bit of the story. Noah Bank's previous CEO, Edward Shin, was arrested in May 2019 on charges of Small Business Administration (SBA) loan fraud and bribery.
Allegedly, Mr. Shin had hidden ownership interests in companies to which the bank, unknowingly, made SBA guaranteed loans. He was also accused of taking kickbacks of unearned broker fees. These loans were granted between the years 2009 and 2012. One such loan went into default and reportedly resulted in a $611,000 loss to the SBA. No one else at the bank has been implicated.
There are two other Asian American Banks currently rated 2-Stars, and therefore on Bauer's Troubled and Problematic Bank Report. They are the $98 million asset 2-Star California Business Bank, Irvine and 2-Star California International Bank, Westminster (with $61 million in assets). As you can see, both are very small, community banks. They also both have very strong loan quality, but both are struggling with profitability.
We have listed all Asian American banks as of June 30, 2020 in this issue, with the exception of three headquartered in Guam. The ten on page 2 serve minority communities and at least half of the board members are Asian American or Pacific Islander. The 58 on Page 7 are Asian American or Pacific Islander owned.
You may notice some (like 5-Star First IC Bank, Doraville, GA) were also on last week's list of banks with Commercial Real Estate (CRE) to watch. So far, so good. But we have to look at all of the angles and possibilities.
Bauer uses the same criteria to evaluate all banks and we do project negative trends forward to give us a jump on impending dangers. This has served us (and you) very well for nearly 4 decades. Between fires, storms, civil unrest, an election and a pandemic, 2020 certainly has our hands full. But, rest assured, we are on top of it. As for now, the majority of these minority banks are doing just fine.