June 08--Jackie Paterek of Clifton switched her checking and savings accounts a few years ago from PNC Bank to Wawel Bank. Wawel's tellers speak Polish, Paterek's native language, though that's not the reason she switched. The main reason, she said, was convenience, and peer pressure played a part.
"It's near my house, and I have some friends who work there," said Paterek, who works at Dahlia Flowers in Garfield across the street from the community bank's office.
Paterek, who moved to the United States 16 years ago from Poland, said she likes the service at Wawel, but she was unaware that the bank has been losing money and is operating under government orders to clean up bad loans. No need for her to worry: Her accounts are insured by the Federal Deposit Insurance Corp.
But managers of Wawel, which over the past 94 years has helped generations of Polish immigrants realize the American dream of homeownership, have reasons to fret. Wawel is one of several ethnic and minority niche banks based in North Jersey that, while keeping up appearances of business as usual, is struggling behind the scenes to shed bad loans and recoup losses by selling off foreclosed real estate.
"We still have substantial loans that are slow payers, but we are actively pursuing them and getting somewhere with it," said Walter Wargacki, the bank's chairman. "We have taken some properties and sold them," he said.
Community banks in New Jersey that specialize in ethnic and minority niche markets, including some that for decades have been financial pillars of their communities, were hit particularly hard by the last recession, which was the country's worst downturn since the Great Depression.
Ethnic niche lenders tend to focus on the higher-risk areas of community banking, such as business start-up loans, or loans backed by inner-city real estate, and they often cater to newcomers who have a tenuous foothold in the economy. In addition, as immigrant groups become more assimilated, it becomes more of a challenge for the community banks that identify with those groups to remain relevant. These banks also face competition from national players such as Bank of America and Wells Fargo, which devote considerable resources to luring non-English-speaking depositors and borrowers, especially in Hispanic and Asian neighborhoods.
Fort Lee Federal Savings Bank focused on serving the Greek community until the lender went bust under the weight of bad loans in 2012. Similarly, Elizabeth-based First BankAmericano which had positioned itself to lend in Hispanic-speaking neighborhoods, was shut down in 2009, mainly because of soured commercial real estate loans.
The latest financial reports filed with the FDIC show that niche players Wawel Bank, BNB Hana Bank in Fort Lee, which caters to Korean-Americans, and Newark-based City National Bank of New Jersey, which has a branch in Paterson and primarily serves urban black communities, continued to lose money in the first quarter, and uncollectible residential and commercial loans remain a problem for those lenders.
All three have been operating for several years under increased scrutiny from their main federal regulator, the Office of the Comptroller of the Currency, which has demanded changes in management, lending policies and procedures.
At two-branch Wawel, residential mortgages to Polish immigrant construction workers who fell on hard times were particularly problematic. At City National, unpaid commercial real estate loans in lower-income neighborhoods were the biggest issue, along with loans to churches and other non-profits that suffered declines in donations. At BNB, the biggest problem was small-business loans, especially those made to owners of restaurants that failed.
It hasn't helped that local real estate values fell by about a third and only recently started to rebound, or that the economic recovery in New Jersey -- which has the highest foreclosure rate in the country -- lags behind that of the nation as a whole, bankers say.
It's been a difficult start for Wawel Bank, which lost $1.6 million last year, and reported a $267,000 net loss in the first quarter. The bank has made management changes in recent years. At the end of last year, George E. Niemczyk, former chief financial officer at Pascack Community Bank, replaced Robert Ranzinger Sr. as chief executive officer, who retired, and the company recently hired Diana Hoppin, also formerly of Pascack, as compliance officer, a new position. Two years ago, Wargacki, a longtime board member, took over Ranzinger's role as chairman. The administration offices were recently moved from Wallington to the newer office on River Drive in Garfield.
Wawel has been operating under increased oversight from the OCC since 2011, and, without admitting or denying wrongdoing, Ranzinger paid a $7,500 fine in 2012 to settle charges he inappropriately used overdrafts in violation of restrictions on insider lending. One of the directives in the 2011 OCC consent order was to devise a plan to provide oversight of insider lending.
The bank's recovery plan includes expanding its market reach beyond its Polish-American niche, but the lender has no intentions of abandoning that customer base, or of giving up its independence at a time when bank mergers and acquisitions are on the rise.
"We are not for sale," said Wargacki, who is also Wallington's mayor. "We are going to take this bank back and make it a very viable institution," he said Thursday in a phone interview. "We started in the basement of a church to help immigrants buy homes, and that's still our purpose."
Minority-owned and managed City National Bank, which has three Newark branches in addition to branches in Paterson, Harlem, Brooklyn and on Long Island, also has seen a decline in loans and deposits. Losses totaled more than $15 million in the past couple of years. Problem assets, which include non-performing loans and repossessed properties, have fallen in the past two years from $40 million to a still elevated $30.6 million. The 43-year-old bank has been operating under a consent order from the OCC since 2009.
"The order is far-reaching and expansive, and we are well on our way to addressing all the issues," said Preston D. Pinkett III, City National's chief executive officer. "But the regulator decides when to let me out of the penalty box," said Pinkett, who was brought in about three years ago to turn the company around.
Pinkett, who is determined to stay independent, said he is planning a private offering to raise more capital for the bank before the end of the year. The mission will remain the same -- to provide financial services and economic development support to underserved communities, he said.
"We do see light at the end of the tunnel, and it's not another train,'' he said. "We've made progress on all fronts. We reduced problem assets considerably. We've also been working diligently to upgrade technology."
Losses at 28-year-old BNB Hana Bank in Fort Lee widened to $5.4 million last year from $1.4 million in 2012. In the first three months of this year, it lost an additional $405,000. Loans and deposits have declined, and problem assets, including those 90 or more days past due or no longer accruing interest, as well as foreclosed properties, have been hovering at around $20 million.
Prior to the recession, the bank was one of the area's top Small Business Administration lenders, helping Korean-American entrepreneurs open shops, restaurants and professional offices in eastern Bergen County.
When a majority stake in BNB was acquired by South Korea'sHana Financial Group last year, the name was changed from BNB Bank to BNB Hana Bank, and the bank received an injection of about $10 million in new capital. BNB has been operating under a consent order with the OCC since 2009. The lender did not respond to requests to comment for this article.
To be sure, not all ethnic banks in the tri-state area are struggling.
Fast-growing Alma Bank, which was founded in 2007 in Astoria, N.Y., to cater to the Greek-American business community, has shown that an ethnic niche lender can succeed, even thrive. Alma took over Fort Lee Federal in a deal with the FDIC and now has four New Jersey branches, two in Fort Lee, one in Tenafly and one in Clifton. In New York, it has nine.
Alma has had comparatively few problems with soured loans and has been consistently profitable in recent years, making $1.8 million in profit in the first quarter after earning about $7 million in each of the previous two years.
Iselin-based Indus American Bank, which opened in 2006 to serve people from India and other South Asian countries, seemed to stumble a few years ago, losing about $2.5 million in 2010 and 2011, but has turned its fortunes around.
It reported a $298,000 profit for the first quarter of 2014 and was profitable in each of the previous two years. It now has branches in Parsippany, Jersey City, and Hicks ville, N.Y., and plans to open a Plainsboro branch in July.
"We have encountered our share of rough patches. However, I believe because of the market we cater to, we have been able to weather the storm," said Jasbir Chopra, the CEO of Indus American.
"The Indian immigrant community tends to have above-average incomes and they tend to be good savers," Chopra said.
One of the bank's long-term dilemmas will be attracting deposits and loan applications from their sons and daughters, for whom having tellers who speak their mother tongue is not necessarily an attraction.
Besides, younger people, including those of Indian descent, are relying on their computers and smartphones for most of their banking, Chopra said.
"This is a challenge that we at the board level discuss regularly," Chopra said. "We can't cater only to customers who walk into the branch," he said. "That will be a slow death."
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