Regulators lift order against Finance Factors
By Frank Cho
Advertiser Staff Writer
Federal banking regulators yesterday lifted a cease-and-desist order against Finance Factors Ltd., more than a year after citing the Honolulu company for unsound banking practices.
The Federal Deposit Insurance Corp. issued the order in February 2000 after an audit discovered mounting financial losses at the firm in 1998 and the early months of 1999. In the audit, the agency said Finance Factors operated without sufficient capital, had "lax" lending standards and operated with a large volume of poor-quality loans.
"We are very pleased with the termination of the order and are glad that the FDIC has acknowledged our successful efforts in taking corrective actions," said Steven Teruya, the company's president and chief operating officer.
Because of the order, insurance that Finance Factors had paid on deposits increased to 17 basis points from six before the order was issued, Teruya said. That inflated the company's premium to about $680,000 annually from $240,000.
The company also estimated it lost about $40 million in deposits pulled by nervous account holders.
The improving state economy and real estate market has helped to improve Finance Factors' financial performance, which was up 20 percent last year, Teruya said.
This "tells everyone that Finance Factors is safe. Hopefully, it will have an impact and people will deposit their money back into their accounts," Teruya said.
A number of Hawai'i financial institutions have faced asset-quality problems in recent years because of the state's sluggish economy. The FDIC last year seized the Bank of Honolulu and required Bank of Hawaii to enter into an "informal" agreement to restrict its activities because of asset-quality problems.
FDIC inspectors visited Finance Factors in June 1999 after the company lost more than $10 million in 1998 in pre-tax operating income. Regulators inspected the company's finances again in August, but did not lift the cease-and-desist order until yesterday.
Finance Factors employs 160 people at 14 branches statewide and three loan centers on Guam, Maui and the Big Island.
The company was started in 1952 by a small group of prominent islanders of Chinese ancestry with $200,000. They included Hiram Fong, Mun On Chun and Daniel Lau.
The company is family-owned and closely held. About 891,000 shares are distributed among the families of the founders. Affiliated companies include Finance Insurance Ltd. and Finance Realty Ltd. The holding company is Finance Enterprises Ltd. The FDIC order did not involve any of the affiliated companies.
Frank Cho can be reached by phone at 525-8088, or by e-mail at email@example.com.