Now the Federal Reserve has told the startup to slow down and make sure all the proper checks and balances are in place.
Nano Banc agreed to improve its corporate governance, liquidity, earnings, credit risk management and allowances for loan losses, according to a Feb. 24 agreement with the Federal Reserve Bank of San Francisco.
The bank also acceded to hiring an independent third-party inspector, an unusual request in the banking world.
Nano Banc President Mark Troncale said the exam was conducted more than nine months ago, and that the bank has already taken action on items the Fed flagged in the recently disclosed agreement.
“The company continues to execute on its business plan, including raising over $36.9 million of new capital, remains well-capitalized and has addressed the findings from the exam,” Troncale said in an emailed statement.
CRE Questions
The Fed’s actions appear related in large part to Nano Banc’s commercial real estate lending activities.
The agreement calls for “establishment of appropriate risk tolerance guidelines and risk limits including, but not limited to, the CRE lending strategy” at the Irvine institution.
Within two months of the agreement, the bank is also expected to create “a schedule that identifies the steps the Bank will take to reduce the level of CRE concentrations,” the Fed’s agreement stated.
The specific types of CRE lending that prompted the Fed to take action weren’t disclosed.
Nano Banc is prohibited from buying or selling any asset that would exceed 5% of the bank’s total assets without approval from the Reserve Bank.
“Within 30 days of this agreement, the board of directors of the bank shall submit a written plan acceptable to the Reserve Bank to strengthen board oversight of the management, and operations of the Bank,” the agreement said.
The two sides signed a “written agreement” where circumstances warrant a less severe of formal supervisory action such as cease-and-desist orders, according to Federal Reserve. The agreement didn’t mention “memoranda of understanding,” or MOU, which the Federal Reserve says is “used when a bank has multiple deficiencies that the Reserve Bank believes can be corrected by the present management.”
Fast Expansion
The Fed’s actions appear to be a rare setback for the fast-growing bank, which relied on the internet to attract deposits and make loans.
Just last October, the company moved into the entire third floor of the newly renovated office in the Irvine Spectrum area, tripling its local office presence.
The building at 7755 Irvine Center Drive runs some 22,000 square feet; the company planned to expand its employee count there from 70 to several hundred.
“We’ve seen such strong growth since we started,” Troncale told the Business Journal at that time.
“Even during the pandemic, we maintained our client base and did not see the impacts that other companies did.”
The Beginning
Nano Banc was founded in 2018 by Troncale, Chief Executive Mark Rebal and Anthony Gressak. The three co-founders worked at California Republic, which was founded in 2007 and acquired for $330 million by Mechanics Bank in 2016.
In 2017, the three co-founders raised $71.7 million in equity capital to acquire commercial banks in Southern California. In May 2018, they bought Commerce Bank of Temecula Valley for $23.3 million and renamed it Nano Banc.
At that time, the bank had $60 million in loans and deposits.
“We started the business in an office the size of a bedroom, with all three of us in the same room,” Troncale said.
The bank’s chairman is Randy Rector, owner of Realty One Group West and HomeSmart Evergreen Realty, which offers real estate escrow services through its in-house company Escrow Options Group Inc.
The bank said it doesn’t invest in “the more common brick and mortar approach” and said that its technology permits it to deliver products “without the steep price tag.”
Some of its technology efforts were cited by the Fed as areas to improve.
The Feb. 24 agreement requires “improvements to the Bank’s management information systems to ensure that the board of directors and senior management obtain timely and accurate information related to CRE concentrations.”
$1B+ Assets
Nano Banc grew its OC deposits 55% to $950 million as of June 30, ranking it the 25th largest bank doing business in Orange County, up from No. 29 in 2019.
Nano Banc’s assets also increased 56% to $1.1 billion.
Troncale last year said his goal was to become one of the largest banks in Southern California in the next five years.
“A billion-dollar company operates a lot differently than a $100 million company.”
Nano Banc is building its own software and hardware platform, and last year had patents pending with plans to license the technology to other community banks.
“Today, our safe is our technology and how we’re protecting our deposits. We have a high emphasis on security,” Troncale said. “Banks need to be leading that conversation and not following technology companies.”
