New capital needed to reach 4% minimum level Tier 1

This is from an anonymous contributor, received as a comment under “Updates”: There have been questions about the amount of additional, new capital needed to bring the Tier 1 ratio up to the minimum 4% level. You can refer to p. 26 of the annual report. Click here , and go to page 26.

As of the end of 2011, they needed an additional $42 million.

19 comments on “New capital needed to reach 4% minimum level Tier 1

  1. I speculate that the bank’s three-pronged “roadmap” to raise addtional capital, may be as follows:

    1. Sell assets, such as loans or branch locations. For example, if they could sell a handfull of branch locations for a total of $42 million more than the value they are being carried on the bank’s balance sheet, PNBC could advance to GO.

    2. Sell $42 million in new stock to directors, existing stockholders, or to the public. If the average cost basis for the existing or recent 3 million stockholders were, say, $22 per share, then they have already lost about $66 million in aggregate. Would they be ready and able to plunk down another $42 million?

    3. If another bank acquires PNBC for $42 million, who would they pay the $42 million to, if not to the current PNBC shareholders? Probably best for them to wait and see if the FDIC takes over PNBC and then acquire the remnants in foreclosure?

    • P.S. Another thought: if PNBC could turn things around to the point of earning a profit of $4.2 million per year, and by plowing all the earnings back into the bank, including the TARP, in 10 years they would have sufficient capital. Of course, during that hypothetical 10 years, there would be no dividends paid (except to the U.S. Treasury for the TARP).

      But, as president and CEO Tom Ogaard has said, “We can’t earn our way out of this situation.” I tend to believe him.

      • TARP interest goes to 9% when? Ogaard said at the annual meeting that the bank doesn’t have to pay back the TARP though, didn’t he? Either one would affect your hypothetical I think.

      • Here is a scenario: find 42 persons each willing to invest $1 million. They would receive preferred stock, right behind the TARP, that wipes out the common stockholders (who have already been wiped out). In exchange, all directors and executive officers tender their resignations and decline all claims for anything and whatever. (They are not indemnified for any civil suits.) The 42, or whatever the number, now control the bank.

        Are there 42, or whatever number is required, to do this? Probably Yes, but only if the slate is cleared.

        Another alternative is that the bank fails.

      • The same folks that cast all those votes FOR the current directors etc. per the annual meeting tally. Eek.

      • I think so – the TARP reflects negatively on the bank’s capital – so restoring the ratios would involve the TARP. But, as unpaid interest/dividends contniue to accrue on the TARP, it will reduce the bank’s capital.

        I’m not sure when the 9% kicks in for the TARP. But, OF COURSE the bank has to pay back the TARP – if it ever expects to pay a stock dividend or bonuses to executives (in other words, to survive). Ogaard, in my opinion, was a bit misleading – implying that the bank could stiff the feds indefinitely if it wished. If the bank stiffs the feds for too long, Ogaard himself will also be stiffed.

  2. Honestly, I believe that the Consent Order requires CFNB to obtain Tier 1 capital of 8%, not 4%. See excerpt of Consent order from 9/20/2011:

    ARTICLE III
    CAPITAL PLAN AND HIGHER MINIMUMS
    (1) The Bank shall achieve within ninety (90) days of the date of this Order and thereafter maintain the following capital levels (as defined in 12 C.F.R. Part 3):(a) Total risk-based capital at least equal to twelve percent (12%) of risk-weighted assets; and
    6 (b)Tier 1 capital at least equal to eight percent (8%) of adjusted total assets,.1(2)
    The requirement in this Order to meet and maintain a specific capital level means that the Bank may not be deemed to be “well capitalized” for purposes of 12 U.S.C. § 1831o and 12 C.F.R. Part 6 pursuant to 12 C.F.R. § 6.4(b)(1)(iv).

  3. The order does require the 8% Tier 1 ratio. At last month’s annual meeting, we were told that the bank stays in close touch with the OCC and has a “good working relationship” with them. One of more of the bank’s presenters claimed that, “the OCC understands that they we can’t raise the required capital within the specified time frame,” or somthing very close to that.

    My impression is that the bank believes (or hopes) that if they can get the Tier 1 ratio up to 4% within some reasonable timeframe, that will stave off the bank’s being seized.

    Raising the ratio to 4% requires $42 million in additional capital (as of the end of 2011). To achieve 8%, then $85 million would be required.

    • Looking around the attendees at the annual meeting, I might imagine 15, or more, people there that could, if they wanted to, readily plunk down $1 million, or more, for additional capital. There could be others unknown to me or absent from the meeting. But, raising $85 million to achieve an 8% Tier 1 ratio?

      The bigger question is how many people able to plunk down such money would actually choose to do so? $85 million seems somewhat out of reach.

      • If I went into the bank and asked for a loan of $42M or $80M, whichever number you choose, with which to buy the controllong interest in this bank, would they loan me the money? would it be a good loan? And how much collateral would I need? Wouldn’t that tell the story?

        • I don’t think it would take near that much money to buy controlling interest in the bank. Start with a stock offering of $1.50 per share, and work up from there.

          But once you buy it, your newly acquired bank is still undercapitalized, big time. Then what do you do?

        • The Stipulation Order given to CFNB on March 28th, does not allow them to enter into any lending agreements of this nature. Besides, you would be borrowing 40-80 milion dollars from a bank to buy that bank. The accounting entries to the balance sheet would offset each other and show no Tier 1 improvement.

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