Challenges of Running an Ethnic Bank in a Slow Economy

NJBIZ: How well are your customers doing in this slow economy?

Oseguera: The effects of this challenged economy are magnified among our customer base. As a mission-driven bank, we open branches in low-income areas, which may not have much money in good times and have even less money now.

NJBIZ: Has the bank been hurt by any subprime investments?

Oseguera: We had some old investments that went bad. One was a $1 million investment in a Texas bank that was later bought by Washington Mutual, and another was $500,000 we had invested, years ago, in Lehman Brothers securities. Both are basically worthless now. Excluding those two items, we’re on track for a good year.

NJBIZ: In the time you’ve been a banker, have you seen a similar recession?

Oseguera: I joined City National 18 years ago, right after I earned my MBA. At that time there was a real estate crunch, but it was not as bad as this.

NJBIZ: What is going on with your customer base?

Oseguera: We’re very active with churches and not-for-profits in New Jersey and New York, and both kinds of organizations are seeing a slowdown in tithing and donations. Part of it is simply the economy — people have less money to live on, so they have less money to give. But I also wonder if we’re not seeing a new generation that does not have the kind of ties to their church or other groups that previous generations had.

NJBIZ: What kind of collateral do you have on loans to these organizations?

Oseguera: Primarily real estate.

NJBIZ: It must be difficult to try to foreclose on a faith-based or similar kind of group.

Oseguera: We don’t see that as the first answer. Instead, we’re making a big effort to work with our customers. We’ve pulled back on new lending, although if a deal was in the pipeline we’ll still move forward if it’s appropriate to do so. But right now our loan officers are spending most of their time trying to work out solutions for existing borrowers, instead of trying to chase down new deals.

NJBIZ: How are you structuring the workouts?

Oseguera: In some cases we’re reconfiguring variable-rate loans [with high interest rates] to lower-cost fixed-rate loans. I’m worried, though, about what that may do to the bank if rates start to climb as the economy recovers and we’re left with a lot of low-interest loans. We’re also working closely with borrowers who are past due on their payments.

NJBIZ: Besides that, have you changed your strategy to try to deal with this anemic economy?

Oseguera: We want to try to stay as liquid as possible. Doing that may involve a shift in our focus. Historically, churches and not-for-profits have been our biggest borrowers, followed by owners of multifamily units. We may have to try to increase our multifamily lending activity, since that segment is continuing to do well.