Evergreen International Bank’s website is long gone, its vault is empty and its lone branch on a quiet stretch of Long Beach Boulevard lies vacant, save for some office furniture. The only evidence that this was once a financial institution is the bank’s old sign, still lit up at night.
Banks occasionally go out of business, sure, but they don’t usually go like this. Unlike the 18 Los Angeles County banks that have closed since 2008, Evergreen wasn’t seized by regulators or purchased by another bank.
Instead, Evergreen sold most of its loans and transferred its deposits to First Choice Bank in Cerritos. Then, in January, it took the rare step of surrendering its charter to the state – a bank’s equivalent of handing in its keys and walking away. Evergreen is just the second California bank since 1999 to surrender its charter and self-liquidate.
“It’s a very odd thing,” said Wade Francis, president of Long Beach bank consulting firm Unicon Financial Services Inc. “I’ve had only one liquidation and that was over 20 years ago.”
It’s odd because a bank charter, essentially a business license for a bank, typically has some value even if the bank it belongs to doesn’t. That would seem to be especially true today, as state and federal bank regulators haven’t approved a single new bank charter since 2010.
But Robert Sweeney, who took over as Evergreen’s chief executive in late 2011, said the bank’s business model had failed, investors wanted out and giving up the charter was the best option.
“It was too steep a hole to climb out of,” he said. “The investors were burned out. We decided we were going to get as much capital back to shareholders as possible, in whatever way possible.”
The bank looked for a buyer, one who would take the charter and other assets, but Sweeney said there were no takers. Evergreen didn’t have much to offer an existing bank and few if any investors are looking to get into the banking business amid new stricter regulations and low interest rates.
Indeed, regulators haven’t approved any new banks in the past two years because no one has applied to start one, according to the California Department of Financial Institutions.
In addition, Sweeney argued that acquiring Evergreen’s charter – which would have come with liabilities including an expensive lease and years of regulatory problems – would have been less attractive than applying for a new one.
“It’s like a (new) bank, but you’re starting 100 yards behind the starting line,” he said.
Missing customers
Evergreen’s short and troubled history goes back to 2007, when investors opened Golden Coast Bank, then the only Cambodian ethnic bank in the United States. Investors, including leaders in Long Beach’s Cambodia Town, hoped to focus on lending to businesses in the community.
But the bank had trouble finding customers from the start. People familiar with Golden Coast said many Cambodians don’t trust banks with their money and ones that do were already working with bigger banks.
“We thought as soon as we opened the bank our community would rush in,” said Richer San, one of Golden Coast’s original board members. “But we were one bank with one branch competing with Farmers & Merchants and Bank of America.”
So the bank looked for other ways to bolster its balance sheet. That included buying loans or parts of loans – called participations – from other banks and advertising certificates of deposits online, drawing in depositors who had no connection to the bank and were simply looking for the highest interest rates.
By the end of 2008, the bank’s first full year in business, 93 percent of its deposits were in the form of CDs. By comparison, CDs represented about 47 percent of all deposits at the average small California bank that year, according to data from the Federal Deposit Insurance Corp.
The trouble with CDs, especially those sold online, is that they carry higher interest rates than more typical deposits, such as checking or savings accounts. Evergreen’s returns suffered as a result.
While small banks on average saw net interest margins – the difference between interest rates paid to depositors and collected from borrowers – above 4 percentage points in 2008, Evergreen’s net margin was a meager 2.5 percent. The bank lost $3.3 million that year.
Regulators took notice, and in early 2009 issued a cease-and-desist order demanding that the bank stop accepting expensive brokered deposits. They also told it to do more thorough analysis of purchased loan participations.
By the end of 2009, though, Golden Coast’s numbers hadn’t meaningfully changed. CDs still represented more than 90 percent of deposits, net margins were low and the bank was further in the red.
New investors led by Jenq Horng Chen, president of West L.A. nursing home management company Eva Care Group LLC, took over Golden Coast in 2010. They poured $10 million in new capital into the bank and changed the name to Evergreen International. People familiar with the bank said Chen changed the name in an attempt to capitalize on a family connection to Taiwan’s Evergreen Marine Corp., a major ocean shipping line. Chen did not return calls for comment.
Chen wanted to reposition the bank to target small Asian-American companies doing business internationally. But by the end of 2011, a year and a half after the new investors took over, the bank’s deposits were still mostly in the form of CDs.
Evergreen hired Sweeney, formerly an executive at downtown L.A.’s Far East National Bank, in late 2011; he said his advice was to sell or liquidate. In February 2012, regulators issued another order, this time telling Evergreen it needed to raise $2 million in capital and reduce its percentage of deposits from online CDs and other noncore sources.
At that point, Sweeney said Chen and other investors weren’t interested in putting more capital into the bank because it was still losing money and hadn’t attracted enough local customers.
“You could put another $2 million or $3 million, then basically start from scratch,” Sweeney said. “Do we want to start this bank over in 2012? No.”
No value
John Ross, a deputy commissioner of the California Department of Financial Institutions, said bank charters typically have value because it’s easier to build off a chartered bank than to start a new one.
“The main advantage is that you already have an operating platform set up as opposed to starting from scratch,” he said. “You’d be buying an existing facility, you’d already have a branch that’s been established.”
But in the case of Evergreen, the bank charter wouldn’t have come with much of a platform. Edward Carpenter, chief executive of Irvine bank consulting and holding firm Carpenter & Co., said a bank isn’t worth much without a substantial local customer base.
“Banks are valued on core banking business. For community banks, that’s lending to businesses and high-net-worth individuals,” said Carpenter, whose company has purchased several community banks over the past four years. “That’s what you’re looking for.”
What’s more, he said regulators would scrutinize the buyer of a bank charter just as much as an applicant for a new one. A full sale or merger might have taken longer than Evergreen’s liquidation, and bank investors would have continued to lose money in the meantime. The bank lost an average of $188,000 a month in 2012.
“A liquidation could be more cost-effective and the return could be higher, rather than going through a long and cumbersome process that might not result in an actual charter sale,” Carpenter said.
Any buyer of Evergreen’s charter likely would have inherited the bank’s regulatory orders, which included limitations on opening branches or bring in executives, and other liabilities such as a bad loan the bank still hasn’t been able to sell off.
Since surrendering its charter in January, Evergreen has returned most of its remaining capital to shareholders. The bank reported to regulators that it had $7.9 million in capital at the end of 2012, although there are some remaining claims on that money.
Sweeney said he couldn’t say how much ultimately would be left, but he maintains investors will get more than they would have gotten in a more standard sale or merger.
“If you tried to sell the bank for cash, you wouldn’t have gotten more than 20 or 30 cents on the remaining capital dollar,” Sweeney said. “In my opinion, we got more than double what we would have gotten in a cash sale.”
