California First National Bancorp in Irvine is facing regulatory scrutiny over its syndicated lending.
The $880 million-asset company said in a regulatory filing Wednesday that the Office of the Comptroller of the Currency, after an interim examination, found that “an unsafe and unsound banking practice” had occurred with its commercial loan book. The bank was told to stop originating syndicated commercial loans until the OCC can conclude that “an acceptable risk management framework is in place.”
The OCC wants California First to implement “prudent concentration limits” on leveraged loans. As a result, the bank has stopped participating in new syndicated loans, a move that could shrink its commercial loan book over the first half of this year and, by extension, have an “adverse effect” on net interest income.
California First, for its part, said it disagrees with the OCC’s assessment, noting that the regulator did not downgrade the risk ratings of any credit after the exam. The bank said all of its syndicated loans are priced at floating rates and are made to corporations with debt ratings that are at least BB or Ba.
The bank also noted that as of Dec. 31 a fifth of its syndicated loan portfolio was rated investment grade and that about 89% of its syndicated-loan portfolio involved publicly traded companies with an estimated average public market value of $8 billion.
Commercial loans made up about 71% of California First’s loans and leases at Dec. 31. About 70% of the bank’s syndicated loan book at Dec. 31 was characterized as leveraged loans under the guidance of federal regulators.
