The Federal Deposit Insurance Corp. said Friday that it and state regulators ordered five more small California banks to clean up their acts in April, part of a campaign of intensified scrutiny amid the bad economy.
The cease-and-desist orders, requiring tighter lending policies, stronger management and in some cases new capital, illustrated the recession's outsized grip on California despite its highly diverse economy.
The state accounted for 21% of the 24 such orders issued nationally last month. The affected banks were remarkably diverse, including commercial real estate lenders in Orange and Ventura counties, one of the Korean American banks crowding Los Angeles' mid-Wilshire district and a San Francisco "green" lending specialist.
Officials at three of the five banks said they were well along in addressing the concerns of the California Department of Financial Services and the FDIC, which regulates state-chartered banks that are not members of the Federal Reserve System.
Ventura County's Affinity Bank, which also has branches in San Francisco, Los Angeles and Orange County, has been beset by problems with development and construction loans and emerging troubles with commercial mortgages.
Managers of the privately held bank realized four years ago that they were concentrated too heavily in commercial real estate, said David Stepp, senior vice president of marketing.
Affinity, which currently has $1.2 billion in assets, took a stab at residential mortgage lending, decided that business was overheated and recently switched its diversification efforts to financing healthcare companies.
"I just wish that the world hadn't collapsed as quickly as it has because then we'd be further along the path," Stepp said.
To raise capital, Affinity is considering turning to private investors and selling assets, including an Irvine branch.
Plaza Bank of Irvine, with $96 million in assets, was also on the list, with a demand from regulators that it strengthen management and raise $10 million in new capital.
Plaza, which has had problems with small-business loans, agreed in October to sell $15 million in stock to a group headed by Irvine investment banker Ed Carpenter. The restructuring included bringing in three new directors and two senior managers.
The plan received final approval this month from regulators, said Plaza Chairman Robert J. Feldhake, and the new capital investment, now raised to $18 million, is expected to be made next week.
"Once that is in the door, this bank will never have been as strong," Feldhake said.
By contrast, New Resource Bank of San Francisco, which says its goal is "helping grow green and sustainable businesses through knowledgeable solutions," had a solid capital base.
However, the FDIC ordered the bank, with $166 million in assets, to improve management, overhaul its lending policies, especially regarding construction, shed badly performing loans and tighten procedures for lending to bank insiders.
New Resource founder Peter Liu said the bank had named a new chief executive but faced challenges in working its way through problem construction loans made before the economy went south.
Those include funding for energy-efficient condominiums aimed at entry-level homeowners in the East San Francisco Bay area. The targeted consumers are not currently buying, Liu said, and the builders are renting out the condos.
Officials at the other banks could not be reached.
Regulators criticized Mirae Bank of Koreatown, which has $481 million in assets, for having too many poor loans and too little capital and reserves for losses. The bank was ordered to raise $30 million in new capital within 60 days and to reduce deposits brought in by brokers.
Independence Bank of Newport Beach, with $387 million in assets, was ordered to retain top managers to upgrade a battered loan portfolio and to raise an unspecified amount of new capital within 120 days.