Fed orders Nano Banc in California to reduce CRE concentration

The holding companies of Nano Banc in Irvine, Calif., have agreed to take a series of steps to improve the bank’s finances and reduce its risk in commercial real estate lending, according to an enforcement action issued by the Federal Reserve Thursday.

Allegiant United Holdings and Nano Financial Holdings, which control the $1 billion-asset Nano Banc, must submit a plan within 30 days on how improvements will be made, along with new guidelines for risk tolerance and updates to its commercial real estate lending strategy, according to an agreement with the Fed.

The companies will also be required to reduce the bank’s existing concentration of commercial real estate loans. If more loan-loss reserves are needed, the bank will be required to set aside higher provisions.

As of Dec. 31, more than half the Nano Banc’s $886 million of loans were backed by commercial properties, according to Federal Deposit Insurance Corp. data.

The Fed is also placing a cap on new acquisitions by Nano Banc. Specifically, the company will not be allowed to purchase any loan or asset that exceeds 5% of its total assets without Fed approval during the term of the agreement. Nano Banc is also barred from paying out dividends or taking on more debt without a sign-off from the Fed.

An outside firm will also conduct an audit and report on board and management structure as well as any staffing needs, per the agreement. The qualifications of the company’s board and senior management will come under scrutiny.

The board will be required to submit a plan after the audit is completed addressing any shortcomings and whether new directors or managers will be hired. Going forward, the companies will be required to submit a budget for 2021 and update the Fed on the progress of its capital plans.

Nano Banc started out as a fintech that was focused on making wire transfers easier and to root out fraud in the space. In 2018, the company jumped into commercial banking by acquiring Commerce Bank of Temecula Valley in Murrieta, Calif.

The move by Nano Banc’s regulator comes amid mounting worries over commercial real estate while the COVID-19 pandemic drags on. More than 20% of loans on hotels and 10.8% of loans backed by retail properties were delinquent in February, the Mortgage Bankers Association said in a report Thursday, though those figures did decline slightly from the previous month.

Nano Banc declined to comment on the Fed enforcement action.

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