The largest bank headquartered in Waupaca County faces federal scrutiny.
The U.S. Office of the Comptroller of the Currency (OCC) has ordered First National Bank (FNB) of Waupaca’s Board of Directors to “take the necessary steps to implement corporate governance and decision making processes to correct the Bank’s deficiencies in management, leadership, and Board oversight.”
The Consent Order, issued in December 2014 and released in January, requires FNB to comply with 40 pages of guidelines regarding oversight of management, board governance, books and records, compensation, internal audits and controls and insider transactions.
The OCC ordered the bank to develop a strategic plan, a capital plan and improve its credit risk identification process.
“We have voluntarily entered into a Consent Order with the OCC,” said Steve Johnson, director of compliance at FNB.
Johnson said the Consent Order allows FNB to work closely with the Comptroller of the Currency to develop new policies and procedures.
He attributed the OCC’s greater scrutiny of FNB to two things.
“First National Bank has grown over the last eight years and we have now become a large community bank,” Johnson said. “As such, there is more scrutiny to the bank’s regulatory review.”
Johnson also noted that there is “an evolving regulatory environment with the implementation of the Dodd-Frank Act.”
The U.S. government enacted Dodd-Frank in 2010 in response to the banking crisis of 2008. It placed tighter restrictions on banks in order to protect consumers.
FNB’s problem loans
A significant focus of the OCC’s order deals with how FNB approves loans and monitors them.
FNB’s Board of Directors was ordered to conduct an assessment of the staff responsible for handling problem loans “to ensure that resources are sufficient to address the increasing volume of problem assets.”
At the end of 2014, the FDIC reported that First National Bank had $37.69 million in problem assets, which includes nonaccrual loans, restructured loans and loans that were more than 90 days past due. Another $5.1 million in loans were between 30 and 90 days past due.
FNB has seen its troubled-asset ratio more than triple in the past three years.
In December 2012, the troubled asset ratio was 17 percent. The ratio grew to 47 percent in December 2013 and to 55 percent in December 2014, according to the FDIC’s Uniform Bank Performance Report.
In comparison, the average troubled asset ratio in FNB’s peer group dropped from 23 percent to 13 percent in the same time period.
FNB must also restructure its troubled debt and loans that are not accruing the expected interest rates due to nonpayment.
“By January 30, 2015, the Board shall reverse or charge off that portion of the remaining accrued interest on such loans that, when combined with principal, is not protected by sound collateral values,” the order says.
In 2013, FNB charged off more than $7.2 million in loans. In 2014, the bank charged off $9.35 million in loans, according to the FDIC.
Bauer Financial, a private firm that compiles data on banks, dropped FNB from a 3.5-star “good” rating as recently as June 2014 to a 2-star “problematic” rating in September 2014.
Bauer Financial also noted that FNB remained well-capitalized. FNB’s total risk-based capital ratio in September 2014, according to Bauer, was 14 percent. The federal minimum requirement is 8 percent.
“We remain well capitalized with capital ratios that exceed our peer group and regulatory requirements,” Johnson said. “There is no financial impact to our clients with our voluntarily entering into this agreement with the OCC.”
Johnson said First National Bank’s depositors are FDIC insured.
FDIC insures deposits in checking, savings, money market accounts and CDs up to $250,000 per depositor per bank.
More details regarding First National Bank and the Consent Order will be in the March 5 Waupaca County Post.