Innovative Bank in Oakland, Calif., says it is well on its way to complying with a regulatory order to strengthen its management, clean up its loan portfolio, and improve Bank Secrecy Act compliance.
Last week the Federal Deposit Insurance Corp. announced that it had put a cease-and-desist order on the $254 million-asset Innovative in April. The order said that management policies were jeopardizing deposits, the board was inadequately supervising managers, loan underwriting and collection procedures were unsatisfactory, and the Innovative Bancorp unit was not compliant with the BSA.
On Tuesday, Innovative said that it had replaced its chief financial officer and BSA compliance officer; named Robert Bentel, a veteran banker, as its chairman; added two directors to its board; and increased the number of board meetings. It also said it has strengthened its loan underwriting and collection procedures and is developing a three-year strategic plan to improve its balance sheet and operations pursuant to the order.
"We are taking the necessary measures to correct all of the regulatory concerns," Seong-Hoon Hong, the president and chief executive of the bank and its parent, said in an interview Wednesday.
Mr. Hong was part of an investor group that bought Innovative Bancorp in 2005. Under its former chairman, Tim Jochner, the company had become one of the country's top Small Business Administration lenders, making mostly what it calls "small office/home office" loans of $5,000 to $50,000.
Under new management, Mr. Hong said Innovative is making fewer SBA loans nationwide and more commercial loans in and around Oakland, particularly to Korean-American business owners.
Innovative reported a net chargeoff ratio of 0.78% of total loans at March 31, far above the nationwide average of 0.14% for commercial banks with $100 million to $300 million of assets, according to the FDIC.
Mr. Hong said that most of the loans it charged off were small office/home office SBA ones, made mainly to low- and moderate-income individuals.
Despite the chargeoffs, Innovative's first-quarter net income nearly quadrupled, to $1 million.
Though the order dealt with credit quality, Mr. Hong said that most of the regulatory concerns were BSA-related.
He was the CEO of Nara Bancorp in Los Angeles for three months in 2003, after the Korean-American banking company bought his former employer, Asiana Bank in Sunnyvale, Calif.
After Mr. Hong and his group bought Innovative, it changed its focus to serving more Korean-Americans.
