Headline: FDIC releases Oakland bank from cease-and-desist order

Publication: East Bay Business Times

Dateline: Friday, October 29th, 2004

Oakland's once-troubled Community Bank of the Bay has been released from a 2-year-old federal and state cease-and-desist order that had hampered the reorganized, one-branch bank from aggressively competing.

"This just opens up a lot of opportunity for us," said CEO Brian Garrett. "It has been a long time and I have to compliment everyone in the bank because we were in a really bad shape before."

The bank, which opened in 1996, was the first California bank chartered under a federal program to promote banking in underserved communities, mostly low-and-moderate-income. But years of mismanagement and poor lending practices almost emptied the bank's coffers before the Federal Deposit Insurance Corp. and the state's Department of Financial Institutions intervened in early 2002. Regulators mandated changes in the bank's lending and collections policies and ordered the board to bring in new management.

The cease-and-desist order cited a laundry list of unsafe banking practices and violations of laws or banking regulations that had to be fixed, including hazardous lending practices, inadequate capital, too many risky loans, inadequate loan reserves and inadequate liquidity provisions.

Garrett, a veteran community banker that has been involved in two other successful troubled bank turnaround, was brought in as the new CEO in September 2002. Upon coming in, he instituted new lending policies, revamped the board and hired new management. In the last two years, Community Bank of the Bay's new management collected almost $1.2 million in loans that had been deemed unrecoverable. A successful $5.5 million recapitalization campaign in July also brought the bank on track, said Chief Financial Officer Gary Burns.

"We are no longer the reject bank or what you would designate as 'troubled institution'," Burns said. "We have greatly reduced our loan risks and recapitalized, and we have brought in investors that truly care about the bank's future and the community."

Previous management and board members owned only 1 percent of the bank, Burns said. But now at least 25 percent of the bank is owned by board members, management and employees.

Though the bank will still operate under a memorandum of understanding, the lifting of the cease-and desist order, effective Oct. 19, means it can now participate in the state's profitable small business loan program or open a new branch. It will also relieve the bank of crushing regulatory expense. Insurance premiums for deposits, for example, will go down dramatically, according to Burns.

"What we have to do right now is focus on growth and profitability," Burns said. "We need to grow our deposits so that we can extend loans to the community."

The bank's first deposit campaign, Oakland First Initiative, was launched this summer and has so far garnered $3 million of deposits from local businesses and residents. The program guarantees that any deposits designated under the initiative will be reinvested to the community in the form of small business loans and low-income housing loans.

The biggest challenge for the bank, according to Burns, is shedding its 'troubled' image and making itself more known to the community.

"The bank has been here since 1996 and yet we still run into people who are not aware that we are in downtown Oakland, by the 19th Street BART station, with free parking," Burns said. "We need to get the word out that we are here and we'd like to be part of the community."

Board Chairman Richard Kahler, a veteran East Bay banker as well, said the bank is committed in its role in the community.

"This was a long hard journey and we're very enthused about the future," said Kahler. "Now we can really start to run a real bank and serve the community."

Reach Kobylarz at xkobylarz@bizjournals.com or 925-598-1414.