Irvine’s Nano Banc is facing more growing pains.
The bank, which began in 2018, quickly shot up to $1.3 billion in assets as of June 30, ranking it No. 8 on the Business Journal’s annual list of banks with headquarters in Orange County.
Last month, the bank placed two executives on administrative paid leave, named a new chief executive and chairman and replaced six directors with five new ones, according to the California Department of Financial Protection.
The agency didn’t like the move and issued a “cease-and-desist order” regarding the changes, saying the bank allegedly violated a February 2021 order requiring it to provide 30 days advance notice before appointing any new directors or executives.
The state agency rarely issues such orders.
“While cease-and-desist orders pertaining to changes in board governance are rare, they are well within the authority of the Department,” Maria Luisa Cesar, the agency’s Deputy Commissioner of Communications, told the Business Journal in an email.
“The California Department of Financial Protection and Innovation has no additional comment on the order,” Cesar said.
The names of those new executives and directors weren’t revealed by either the state agency or the bank, whose website doesn’t mention the cease-and-desist order.
The bank is still operating, according to a spokesperson.
“Nano Banc is working cooperatively and constructively with its stockholders, regulators and other stakeholders, including rebuilding an enhanced board of directors of experienced bank executives whose immediate priority is to restore Nano Banc’s regulatory standing,” the bank said in a statement. “We also have reached agreement with our regulators on some additional remedial actions to address areas of regulatory concern.”
Nano Banc was founded by Mark Rebal, who became chief executive; Mark Troncale, who became president; and Anthony Gressak, who became chief credit officer. The three had worked together 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.
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.”
Nano Banc, which built its own software and hardware platform, said it’s has had patents pending with plans to license the technology to other community banks.
Troncale last year said his goal was to become one of the largest banks in Southern California in the next five years.
In late 2020, 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 had planned to expand its employee count there from 70 to several hundred.
Early last year, the state agency, as well as the Federal Reserve, told the startup to slow down and make sure all the proper checks and balances were in place. The agencies questioned whether the bank was adequately staffed and if its board of directors was receiving the appropriate information.
Nano Banc agreed to improve its corporate governance, liquidity, earnings, credit risk management and allowances for loan losses. The bank also acceded to hiring an independent third-party inspector, an unusual request in the banking world.
The Fed, in early 2021, cited Nano Banc’s commercial real estate lending activities as an area of concern.
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.
The specific types of CRE lending that prompted the Fed’s 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.
“Nano Banc continues with a strong capital position, liquidity and a performing loan portfolio with 2022 being a year of rebuilding Nano Banc’s management and governance infrastructure with prospects of positive performance,” the bank said last week.
The state’s “cease-and-desist” order in December said the bank should “cease operating without a chief executive officer and chief risk officer who have received the non-objection of the commissioner.”
The bank’s chairman has previously been Randy Rector, owner of Irvine’s Realty One Group West and HomeSmart Evergreen Realty, which offers real estate escrow services through its in-house company Escrow Options Group Inc.
“Integrity is spelled RANDY RECTOR,” according to a LinkedIn recommendation from “Mark T., founder of Nano Banc.”
“I’ve have known Randy for 8 plus years, and he’s a trustworthy business owner that you can depend on to get things done. Randy is a visionary and a hard worker, and it’s hard to find both traits in one person.”
Voicemails left for Rector weren’t returned by press time.