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Feds monitor FNB's $4 million loan loss
By Darian Dudrick
This document was published online on Thursday, November 20, 2008
First National Bank & Trust of Powell is complying with a federal government consent order after becoming involved in a failed real estate loan program that cost the bank about $4 million.
FNB was one of about 800 banks that participated in a commercial real estate loan program headed by BankFirst, a large Minneapolis bank, extending from late 2005 through 2006.
When the bottom fell out of the national real estate market, FNB's investments depreciated greatly in value. During that time, the value of the property securing the loans dropped below the loan amount.
“Cease and desist proceedings” were taken against FNB after an audit of the bank by the Office of the Comptroller of the Currency (OCC).
The OCC charters, regulates and supervises all national banks, and also supervises the federal branches and agencies of foreign banks, according to its Web site.
“Regulators encouraged us to look at loan diversification, so that's one of the reasons we pursued this (loan program),” FNB President Dick Nelson said. “The program looked good.”
FNB - which is more than 90 percent owned by the Nelson family and has branches in Cody and Lovell - participated in nine loans through the program and suffered financial losses in the last quarter of 2007 and first quarter of '08, Nelson said.
“For years, they (the loans) did great, until the real estate bubble (burst),” he added.
The other banks in the program - many of which are community banks like FNB - also faced OCC enforcement actions, Nelson said.
“Unfortunately, we diversified out of this area and paid the price,” Nelson said, declining to identify where the real estate loans were made.
He emphasized that this is the “only problem” the bank has had and reassured customers their accounts and loans through FNB are “safe.”
“There are no issues locally whatsoever,” Nelson said. “We are taking care of our customers. If they need loans, we're right here to help them.”
When banks are found to have committed “unsafe and unsound banking practices,” the OCC can issue an informal or, more serious, formal action such as a consent order.
According to the OCC Web site, FNB is the 13th Wyoming bank since 1991 to face OCC enforcement action. In August, First National Bank of Buffalo was subject to OCC stipulations.
The consent order forces FNB to appoint a compliance committee that sends progress reports to the OCC. The bank was told to adopt written programs that address problem assets and other credit risks.
In addition, the bank was mandated to create a three-year capital and strategic plan that includes “discontinuing purchases of out-of-area loan participations in land development and construction projects.”
A contingency funding plan also was prepared.
FNB Vice President Dave Reetz said the bank was quick to respond to the OCC.
“We've exceeded their schedule,” he said. “We've had no negative feedback from the OCC. We've addressed the issues with all the articles (of the consent order) and expect no difficulties in meeting the requirements.”
Nelson said FNB will be monitored into the future by the OCC as it deems necessary.
“They'll monitor what we're submitting, and when they're satisfied, they'll release us,” Nelson said.
FNB was ordered by the OCC to have a capital asset ratio of 8.5 percent by Sept. 30, Reetz said. The bank met that, and now the ratio is 8.75 percent. At the end of October, Reetz said the bank's total capital was $23.5 million.
“The bank is in good shape,” said Nelson, who declined to say how much capital the Nelson family put into the bank since the consent order was issued.
He also declined to say how much money the bank earned from the Minneapolis program before the loans failed.
“We have strong capital and are moving ahead proactively,” Nelson said.
“We're going to entirely deal with local people and make no investments out of our market area.”
FNB directors are Brad Bonner, Gary Mills, Dick Nelson, Ty Nelson, Andy Nelson, Doug Nissen, David Reetz, Joel Revill, Victor Riley, Colin Simpson, Julie Sullivan and Jack Turnell.
(Darian Dudrick can be reached at darian@codyenterprise.com.)
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