This study develops an ensemble Kalman filter (EnKF)-based regional ocean data assimilation system in which the local ensemble transform Kalman filter (LETKF) is implemented with version 1.0 of the Stony Brook Parallel Ocean Model (sbPOM) to assimilate satellite and in situ observations at a daily frequency. A series of sensitivity experiments are performed with various settings of the incremental analysis update (IAU) and covariance inflation methods, for which the relaxation-to-prior perturbations and spread (RTPP and RTPS, respectively) and multiplicative inflation (MULT) are considered. We evaluate the geostrophic balance and the analysis accuracy compared with the control experiment in which the IAU and covariance inflation are not applied. The results show that the IAU improves the geostrophic balance, degrades the accuracy, and reduces the ensemble spread, and that the RTPP and RTPS have the opposite effect. The experiment using a combination of the IAU and RTPP results in a significant improvement for both balance and analysis accuracy when the RTPP parameter is 0.8–0.9. The combination of the IAU and RTPS improves the balance when the RTPS parameter is ≤0.8 and increases the analysis accuracy for parameter values between 1.0 and 1.1, but the balance and analysis accuracy are not improved significantly at the same time. The experiments with MULT inflating the forecast ensemble spread by 5 % do not demonstrate sufficient skill in maintaining the balance and reproducing the surface flow field regardless of whether the IAU is applied or not. The 11 d ensemble forecast experiments show consistent results. Therefore, the combination of the IAU and RTPP with a parameter value of 0.8–0.9 is found to be the best setting for the EnKF-based ocean data assimilation system.