July 12 examination

Citizens First National Bank was scheduled to have an examination on July 12th, according to the occ.gov website. Will there be any information forthcoming after that? I am guessing that the results will be for OCC eyes only, but I don’t know.

Aren’t we due for a 2nd quarter report, too?

28 comments on “July 12 examination

  1. The second quarter call report has been filed. The Tier 1 capital percentage is now 2.12 percent. It was 2.38 percent at March 31. It appears the Bank lost 523,000.

  2. The Report of Examination is the property of the OCC and is shared with the bank’s board and senior management. The OCC handbook states ….the ROE is strictly confidential and that it’s component and composIite ratings are strictly confidential.

    You are likely to see the tangible results of the examination in the provision for loan loss. If the bank has done a good job of identifying problem assets and recognizing write downs timely, the loan loss provision should be unaffected by the exam. If the examiners make the bank charge off or write down loans you can expect to see a larger provision expense in the period after the examination.

  3. The second quarter was not good for the bank. The profit made in the first quarter was lost in the second quarter. And the first six months loss is after taking a gain of $5,652,000 on the sale of securities. The gain was used to fund a $5,925,000 addition to the loan loss reserve. In the first 6 months the bank has charged off $18,850,000 while recoveries were only $1,706,000 resulting in net charge offs of $17,144,000. This resulted in the loan loss reserve been reduced by about 1/3rd.

    Total bank capital is down $5,842,000 from 12/31/11, the reserve is down about $10,000,00. Pledged securities have increased from 81% at year end, to 87% at the end March to 90% at the end of June.

    The operating margin and it’s components continue there unfavorable trends as does the non interest expense.

    It’s hard to find good news in this report. The source used is the Uniform Bank Performance Report, known as UBPR report. These are bank numbers only and the source is the bank’s call report. I custimized the report to display the 6 months and the first quarter of 2012, the year 2011, the year 2010 and first 6 months 2011. This is a really nice way to see trends. Perhaps there is a way for us to share this report so everyone can look at this format.

    Jim (not Miller)

    • Great idea Jim. Skip the sending me a copy trick, I didn’t realize how large and interactive it was. I have posted a link to it in the UBPR post. One can find that basic report by clicking on the Federal Financial Institutions Examination Council (FFIEC) under the FYI in the right hand column on this site. Go to “View or download data for individual institutions”. Select the report type as UBPR and fill out the name of the institution, citizens first national bank, town and state. The customization by dates is available, too.

    • If they’re charging off more, wouldn’t that mean they need less in reserves? Surely loans aren’t going bad at the clip they were in 2009-2011 right?

  4. It would mean they need less in reserve only if they don’t have still more bad loans coming down the line that need more than they have in reserve. And who knows how many of those loans may be still out?

    • We know the current reserves for bad loans and the charge-offs for the last quarter. But, I haven’t found in the call report the dollar amounts for various classifications of loans – troubled, non-performing, etc. My hunch is that many of those could wind up going sour, too.

      Slightly off topic: are the senior executives that have recently, voluntarily left the bank more or less intelligent and clued-in than some of the others? They voted with their feet.

  5. I would respectfully disagree with your hunch that more loans could go sour too. They addressed this at the Annual Meeting; delinquencies were way down compared to two years ago, and that was the ‘leading indicator’ of future loans going bad. First they have to stop paying, etc. etc. etc. I doubt they’re able to do anything but aggressively write down loans that are questionable, they’ve been under some pretty intense scrutiny by the regulators for the past 2 years now. WB: That would be who would know how many more bad loans are still out. Regulators don’t want to be embarrassed any more than they already are about Citizens, they’re probably making them set aside more than they normally would just in case. The off topic implication about Sr. Executives voting with their feet; the credit and commercial guys are still there, they have to be the most knowledgeable people in the bank about the loan portfolio. The real hope is that all of the people that made the bad loans in the first place are gone.

    • Ogaard said they didn’t have to pay back tarp at that meeting too. I’ll give the nod to the real numbers over rhetoric. Their recent history of evaluating the risk involved in their outstandings on realestate leaves something to be desired. Remember when they retracted their filing or press release because they failed to value some property correctly. How long had it taken to catch that? How long had that gone on? Migration analysis. . . Maybe. They had more bad property than they thought then. You may be right, but with nothing more to go on than bankspeak, I wouldn’t bet the farm on it.

      • WB may be refering to the “material weakness” found in the original press release/filing of the Q1, 2012 report. The substance of that finding can be viewed here
        It appears the bank was off by some $11M then,if I read it right.

      • Regarding TARP, you aren’t understanding what he said. He meant that there’s no maturity requirement on the TARP. The payments that were skipped so the bank could keep the money eventually need to be repaid, but it isn’t like a car loan where if you miss some payments they come take your car. TARP was created this way to allow for maximum flexibility for the banks that took it, so that they could eventually navigate their way out of the predicament. There is a chance that after the election the Treasury will forgive the outstanding TARP because they’ve gotten their money back because it was largely successful and it would be less costly and more beneficial to the public than shuttering the remaining banks that have it out.

        • I understood perfectly what he said. I was there. He said that the tarp doesn’t have to be repaid. If you are telling me that he didn’t mean that then you’re telling me he miscommunicated the facts to the shareholders at the annual meeting. Is that your intent?

          • I heard that, too WB. I was there. That’s what he said and I was surprised when he said it. We discussed this topic after the meeting. It is clear to me what he said. Maybe he did misspeak.

      • The 1st quarter refiling was unfortunate timing, not a mistake. A couple appraisals came in the afternoon of the filing, which is why there was a press release, then a retraction once they realized they weren’t able to file. The regulators logic is that since the 4th quarter wasn’t closed, you could assume that some of the devaluation of the property came prior to the appraisal being done, so it belongs in the 4th quarter, even though it was the end of March. In the ensuing 2-3 week delay, more appraisals came in, more back-dating the valuations to 4th quarter, even thought it was April etc. Had the filing gone off before the appraisals came in, those devaluations would’ve been pushed to the 1st quarter. Either way it would’ve been recognized. The point is, there is no room for the bank to be intentionally deceptive regarding their numbers. Anything questionable goes against them. The rhetoric and the real numbers will be one in the same.

        • I don’t pretend to be a banker so maybe I am misunderstanding what I am reading when I read the following:

          “During the audit of the financial statements as of December 31, 2011, BKD, LLP, the Corporation’s external public accounting firm identified a control deficiency related to the documentation and process in support of the adequacy of the qualitative factors related to the allowance for loan loss calculation which was determined to be a material weakness.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Corporation’s annual or interim financial statements will not be prevented or detected on a timely basis. During the first quarter of 2012 management has taken significant action to address this internal control matter.  A detailed explanation of this material weakness and the steps which have been taken and are in process follows.
          The nature of the material weakness and how it was identified.  The material weakness was identified by our external auditors through their year-end audit procedures and as a result of the annual examination by the bank’s primary regulator, the OCC.  The material weakness determination was reached based on not having sufficient documentation to support the qualitative factors related to the allowance for loan loss calculation and inadequate controls related to the timely communication of in-process appraisals requiring additional specific reserve as of December 31, 2011.  The Corporation’s initial calculation which was filed with the December 31, 2011 regulatory call report was insufficient by $11,532,000.  This adjustment was due to the continued fourth quarter charge-off activities.”

          Can you explain it so even I can understand it? Especially the part about the, “unfortunate timing”. I didn’t see that phrase in the report. I will add that I don’t think I or anyone else believes there was any intent to decieve by the bank, regarding this unfortunate filing issue.

          • It relates to how frequently appraisals are done. They basically should have had appraisals done more frequently to keep up with how fast the property values (loan collateral) were falling. I’m pretty sure that what happened was some annual appraisals came in during the 1st quarter, after the call report from Dec 31. Since the quarter wasn’t closed out, they have to go back and put the write-down on the 4th quarter and since there was such a huge gap between the call report and the filing, ($11.532 million – the amount the appraised assets fell from 2011-2012) they got dinged. The auditors didn’t have a problem with how it was being done previously – they Monday-morning quaterbacked it, otherwise they might look bad. It’s kind of a chicken and egg problem. How do you know how far property values have fallen until you complete an appraisal? They are subjective as well because they’ve had $1.7 million in recoveries.

            • Pretty good explanation. Thanks. Who has the burden of determining how often the appraisals are done, and when they are to be completed, in order to present accurate information to the public?

              • At a minimum, appraisals on ORE and problem loans have to be one year old or less. If economic conditions change, the auditors (BKD) can ask for the Bank to update them. BKD has the final say because their name is on the audit opinion.

              • As a general rule, Ken Grams has done a pretty bad job of estimating losses and write downs. Apparently, Ogaard totally relies on him. He has frequently not had appraisals up to date. The whole defiency everyone is talking about on appraisals is Grams fault. And yet, from what I am told, he doesn’t own a single share of stock and is resposnsible for Townsend, Bates and Forristall leaving.

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