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Finance Factors
told to fix
operations

It says it has made changes
to address FDIC concerns

By Russ Lynch
Star-Bulletin

Faced with an order from federal regulators to clean up its financial picture, Finance Factors Ltd. said today it has already taken most of the steps demanded by the Federal Deposit Insurance Corp.

The historic Hawaii thrift has been stung by the state's stagnant economy and lost money in 1998 and the losses continued into early 1999, causing the FDIC to order some changes.

Among other things, Honolulu-based Finance Factors was told to hire a chief financial officer and a senior lending officer, improve the ratio of its capital to its loans -- especially poor loans -- and reduce the volume of its poor-quality loans.

"Most of the problems cited in the order have already been corrected since the FDIC examined our company in June 1999," said Steven Teruya, Finance Factors president and chief operating officer since August 1998.

Deposits continue to be insured by the FDIC and the company does not expect the order to affect its business in any way, Teruya said. He said Finance Factors has taken these steps in response to the FDIC concerns:

It hired a new chief financial officer and a senior lending officer.
It increased its reserves and decreased the volume of poor-quality loans to bring equity capital and reserves ratios back in line with FDIC expectations. By aggressive collection efforts, Finance Factors was able to reduce the amount of poor-quality loans by 35 percent.
It also has increased its loan-loss reserves and beefed up its internal loan policies to clean up what the FDIC said was lax lending and credit administration practices, Teruya said.

"The worst of our large-loan problems are behind us and our aggressive steps to address the FDIC's concerns have already shown positive results," he said. "Loan delinquencies have been on a downward trend for the past six months," he said.

"Our goal is to get the FDIC to acknowledge our success in addressing these concerns and to have them terminate the order by August 2000," Teruya said.

Finance Factors had a profit of more than $1.5 million in 1999, he said. For 1998, the company had a loss of $2.7 million, most of which came from a fourth-quarter boost in the amount of money set aside as a reserve for potential loan losses, Finance Factor said.

Teruya said the FDIC's June 8 examination was based on March 31 financial figures.

As of Sept. 30, Finance Factors had $493.5 million in assets and 164 employees, according to a filing with the FDIC.

The institution, founded in 1952, said it has about 13,000 savings deposit accounts and some 15,000 certificate-of-deposit accounts.

The company said it plans no changes to staffing.

An FDIC spokesman in Washington, David Barr, said "cease and desist" orders such as the one that went to Finance Factors are a common enforcement tool. The order "does not mean that the bank is in any danger whatever of being closed," he said, and he confirmed that the deposits are still insured.

Barr said enforcement is a negotiating process and it is not uncommon for an institution to be on the way to correcting its problems by the time a formal order is issued. Finance Factors received the order earlier this week.