A Profitable Niche : Santa Ana-based bank’s slide has been turned around by new owners. The key was a focus on offering financing to small importers and exporters.
The founders of Grand National Bank wanted to serve the Chinese community in Orange County when they opened for business 11 years ago.
Trouble was, no cohesive Chinese community existed in Orange County. Instead, some 50,000 potential Chinese American customers were scattered from Fullerton to San Clemente, and the bank found it difficult to meet their needs. It had lackluster profits during much of the 1980s, then began losing money and shrinking as it slid slowly toward oblivion.
But a group of investors assembled by former Security Pacific Corp. executive Cary Ching stepped in to buy the bank in July, 1990. Ching took over as president a year later, and the new owners never looked back.
Grand National has since become a community banking dynamo by providing international trade financing to small companies that big banks ignore or can’t serve. It’s a field that the bank has almost entirely to itself, and the business so far has helped it triple its loans and other assets in the past four years and earn nearly as much last year--$1.3 million--as many banks twice its size.
“This is a very good bank--and very atypical of most community banks,” said banking consultant Edward J. Carpenter in Irvine. “In the last few years, it has consistently outperformed every bank in Orange County and in most of the rest of Southern California.”
With its revival assured, Grand National is testing its mettle against a host of competitors as it launches its second three-year plan: an effort to build its customer base among small Orange County companies.
Small business is the backbone of Orange County, and numerous banks fight to serve doctors, lawyers and other professionals as well as small manufacturing companies and mom-and-pop businesses.
“The second stage will be more challenging,” Ching said. “We’re certainly looking at more competition. But we feel obligated to do it because we operate here and now have the ability to give back to the community.”
Thus far, Grand National’s revived operation has been anything but conventional for a small community bank, but it has worked. Bank rating agencies give it top grades for banks its size.
Last year, Grand National had no bad loans and held no real estate seized through foreclosure.
It had nearly twice as much capital--investor funds--than it needed, and stashed so much money in reserve for possible future losses that regulators demanded an explanation.
When Ching’s investor group took over, the bank was losing $50,000 a month and its loans, securities and other assets had slid to $27 million. By the end of last year, though, its assets had climbed to $97.9 million--an average growth of more than 50% a year.
“We had a simple strategy at the beginning,” Ching said. “We had a niche product and a niche market.”
The product is foreign letters of credit--the financing small companies need to import and export goods. That’s typically the realm of large banks, but Ching is an expert at trade finance. He had headed the Southern California operations of Security Pacific Asian Bank, the foreign trade finance arm of Security Pacific National Bank. Security Pacific was sold to BankAmerica Corp. in 1992.
Big banks shy away from helping the small entrepreneur engage in foreign trade because they can make more money on bigger deals, said Kenneth Slezak, a marketing consultant at Vista Marketing Services in Irvine. Small banks typically don’t have the expertise or the contacts with foreign banks to arrange trade financing.
So a small bank like Grand National “could carve out a pretty sweet niche for itself,” he said.
The market is mainly Asians and Asian Americans who operate companies with annual sales up to $10 million and need letters of credit for selling or buying overseas. That market is more concentrated in Alhambra, where the bank long has had a branch and where Ching focused his attention.
With a Swiss American investor on the board, Grand National also has provided some trade finance for deals with companies in Europe and the Middle East.
The original target market--Chinese Americans--was simply too limiting, he said. The investors, including a second group of three who added $5.4 million to the bank’s capital base in 1991, mostly come from Hong Kong, Indonesia, Taiwan, Japan and Korea.
“It was natural with most of the directors being Asian to be closer to that market and support that market,” Ching said. “But we’ll pursue all business related to export-import and anything to do with the Pacific Rim.”
Ching said the bank now will try to expand beyond the Asian community as it targets business in Orange County and in the City of Industry, where it is seeking regulatory approval to open its third branch. A successful product and a good marketing plan, however, aren’t the only factors in Grand National’s resurgence, consultant Carpenter said.
While most banks make business loans backed by real estate, Grand National looks mainly to a company’s inventory and other corporate assets--not to the top executive’s home--for collateral. The loans are typically repaid within 90 days, a much shorter maturity than most banks enjoy. It helps Grand National avoid damage from interest rate changes.
“Where they’ve really made hay is in lowering their costs and operating more efficiently,” Carpenter said. In 1991, the bank’s expenses and overhead amounted to 122% of its revenue, which he called “terrible” compared to the 65% to 75% ratio that well-run banks try to achieve.
But the bank improved dramatically, lowering its costs to 61% of its revenue last year.
When the investors bought Grand National, they paid $4.7 million, or almost twice the amount of capital left in the bank at the time. But for a group with a solid plan and the expertise to carry it out, Carpenter said, “It was worth it.”
Grand National Bank
* Location: Based in Santa Ana; branch in Alhambra; third branch planned for City of Industry.
* Owner: A group of 13 investors.
* Business: Principally involved in foreign trade financing for small companies.
* Management: Cary Ching, president and chief executive, was once the top executive at Security Pacific Asian Bank, the foreign trade finance arm of former Security Pacific National Bank.
* Founded: Doors opened in February, 1983. New investors bought it in mid-1990, changed management in mid-1991.
Source: The company; Researched by JAMES S. GRANELLI / Los Angeles Times
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Grand Progress
After lackluster results in the 1980s, Santa Ana-based Grand National Bank has improved both profits and asset values under new ownership. Using end-of-year figures, here’s a decade-long look at both measures of economic well-being.
Net income (in thousands)
1994: $1,270
Assets (in millions)
1994: $97.9
Sources: Sheshunoff Information Services Inc., and Grand National Bank; Researched by VALERIE WILLIAMS-SANCHEZ / Los Angeles Times
