Audited Bank of San Pedro Consents to FDIC Reforms : Business: Although not admitting illegal actions, officials agree to halt some risky practices and operate with a “qualified” management team.

The Bank of San Pedro has agreed to a host of banking reforms after an annual audit by the Federal Deposit Insurance Corp. uncovered a litany of allegedly “unsafe or unsound” financial practices by the institution.

Under a consent order signed last month with the FDIC, bank officials did not acknowledge any improper or illegal actions. But they pledged that the bank would not engage in a specific list of risky practices outlined by the agency.

Those practices include operating with inadequate equity capital and reserves, following unsatisfactory lending and collection practices, carrying a large volume of poor-quality loans, and making questionable real estate investments.

The cease-and-desist order also commits the bank to operating with a “qualified” management team that, among other things, has experience in improving a “low-quality” loan portfolio.

Although the FDIC’s cease-and-desist order does not reveal the agency’s specific findings, it does show that the agency has some serious concerns with the Bank of San Pedro’s financial practices--practices that have previously drawn criticism from state regulators challenging the bank’s loans to its directors.

“(The FDIC order) should be taken very seriously by the bank,” agency spokesman David Barr said.

Noting that the FDIC oversees about 7,500 banks nationwide, Barr said an average of one dozen banks each month are issued cease-and-desist orders because of banking practices of concern to the FDIC.

“That (dozen) is a small percentage of the number of banks,” Barr said. “But then again, the percentage of armed robberies is small compared to the number of banks . . . and (a bank robbery) is not something to be taken lightly.”

Without disputing the significance of the FDIC’s action, bank President Lance D. Oak said bank officials disagreed with many of the agency’s findings. But he said officials decided to sign a consent order so there would be no lingering disagreement.

“We are trying to do the right thing with regulators and feel it is important for us to comply with their wishes,” Oak said. “We can disagree with their evaluation. But in the long run, we feel it is in the best interest of everyone to comply. And we did.”

Oak said the bank has already made strides toward increasing its capital as a percentage of assets, one of many areas covered by the 18-page consent order.

Since the FDIC’s concerns became apparent earlier this year, Oak said, the bank has raised its so-called Tier 1 capital from $4.6 million to just over $7 million. Under the agreement with the FDIC, the capital must reach $9.65 million by the end of June.

Although the FDIC’s reference to “qualified management” suggests that the agency is concerned with the bank’s current stewardship, Oak said there were no demands for a change in its administration and no plans by the bank to bring in new managers or directors.

Founded in 1975, the bank has its headquarters on West 5th Street and six branch offices in Southern California.

Two years ago, the bank’s directors agreed to adopt tighter restrictions on loans to themselves and other bank officers after the resignation of one director whose loans drew attention from state bank examiners. The August, 1990, resignation of San Pedro real estate developer Bill Moller came seven months after his business associate, Steven G. Podesta, also retired from the bank’s board. Podesta’s departure came on the heels of public disclosures that regulators were critical of the bank for issuing him more than $1 million in loans.

Last year, the bank posted a $4.1 million loss due primarily, according to bank officials, to one-time actions taken to protect the institution’s reserves. Those action include setting up a $1.4 million reserve for an insurance claim arising over the sinking of the former cruise ship Princess Louise. The vessel, once owned by Podesta and Moller, had been repossessed by the bank from another owner when it sank in 1989.

Notwithstanding last year’s loss, Oak said, a more recent financial statement indicates that the bank posted a net income of $325,000 during the first nine months of this year. As of Oct. 31, the bank reported assets of about $170 million and deposits of nearly $159 million.