PNBC, Inc. 4th quarter 2011

Anxiously awaiting. Hope it is better than some are projecting. Any guesses?

8 comments on “PNBC, Inc. 4th quarter 2011

  1. Probably not going to be pretty. It will depend on the amount written off for bad CRE loans. Also may have further accounting adjustments for losses on servicing of mortgage loans due to declining interest rates. At best the losses will be lower than 3rd quarter but it is safe to say that capitalization ratio/levels will diminish further….

  2. You are correct. Pretty much bad CRE loans have been the problem nationwide for banks. About 60% of residential loans were sold to Fannie Mae or Freddie Mac nationally so they are taking the hits on those unless they are poorly underwritten at which point the GSE’s can induce a forced buy back and the originating bank takes the losses. Commercial loans are typically portfolio products so that those are the loans that are blowing a hole in net income and a bank’s capitalization…

    • GSE government sponsored enterprise; like farm credit, or fannie mae and freddie mac. Knowing all of this, what measures could a prudent banker have in place to protect the bank in case the CRE loan heads South?

      • One thing that would have helped (past tense because they are at the brink and therefore unsalvageable) is to have good underwriters/credit analysts. The residential department didn’t even have an underwriter! The philosophy was they used automated underwriting with Fannie Mae and Freddie Mac but an AUS in no way can validate a capacity to pay on its own. It merely scans the information on an application. An underwriter can analyze the income and determine whether it comes from a source of stability and whether it will continue. Underwriters review asset statements, contracts, appraisals, insurance coverage, regulatory compliance, etc., etc. I have never heard of another institution running a mortgage department without an underwriter. Having an underwriter in the residential department would be a good start as well as hiring qualified credit analysts for the commercial department. They also should have been contributing more to their loan loss provisions over the years rather than starving their reserves to show more net income/assets to get bigger bonuses for middle and senior management. I am not sure if they are capable at finding well qualified people. Some of you may recall the debacle in the trust department years ago due to risky CMO’s pushed by the VP of the trust department they brought in. In the Cincinnati lawsuit to cover the millions in losses to investors the judge described him as a “pure heart but an empty head”.

  3. I don’t believe a prudent banker would have grown the business as quickly & aggressively as Citizens did in buying up so many banks and taking on those loans PLUS making some high risk CRE loans, including the big one up north. If I read correctly, the 2005 annual report said that Citizens increased their loan portfolio by 41.9% in that year alone. That’s an example of what I mean by “pretty aggressive.”

    This may be unrelated to Citizens’ case, but anyone who drove through the Chicago/Rockford area in ’05, ’06, & ’07, couldn’t help but notice many half completed commercial projects and abandoned housing developments. I guess I would have just been really hesitant to loan some developer big bucks at that time.

    Shouldn’t an adequate amount of reserves always be maintained to cover the risks taken? Guess I’m just not a high risk player when it comes to my money. Wish I had paid closer attention to what Citizens was doing over the past 10-15 years.

    • That is exactly what happened to Amcore. When the OCC investigated what was a large failure on their part as well, there were a few years leading up to Amcore’s demise where there was an explosion of CRE loans that were poorly underwritten and the institution did not keep up the loan loss reserves to cover the high increase in their loan portfolio. Couple that with about 30% market share in the Rockford area that had some of the high unemployment in Illinois and it is a recipe for disaster.

  4. What risk when you’re playing with somebody else’s money? I could do it all day. These clowns used our chips to make the bets. They still give themselves pats on the back with stock options for such a great job. It is tough to pay out such big dividends like they did and maintain enough in capital reserves. Weren’t they the heroes when everything was going good! Did anybody plan for if/when it all fell apart? Egotistical morons.

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