First National Bank goes under federal watch

FORT COLLINS – A Fort Collins-based bank with six branches in the Boulder Valley has reached an agreement with federal regulators to shore up its banking practices.

First National Bank “engaged in unsafe and unsound banking practices relating to its credit underwriting and administration, commercial real estate risk management, credit risk ratings, and allowance for loans and lease losses,” the Office of the Comptroller of the Currency said in a June 22 document released to the public on Aug. 21.

The agreement between the OCC and First National requires that the bank establish a three-member compliance committee of directors – two of which cannot be employed by the bank – to monitor, coordinate and report to the bank’s board and federal regulators on First National’s progress toward compliance.

Those agreed compliance actions include:

• Extensive documentation and regulations on any loan made, refinanced or adjusted above $500,000.

• A written program designed to manage the risk in the bank’s commercial real estate loan portfolio.

• Establishing plans to deal with problem loans, proper credit risk and nonaccrual loan reporting and improving allowances for loan and lease losses.

In a statement released Aug. 21, the bank indicated it already has made progress on the items in the action, including writing down loans to reflect current market values, doubling the reserves for loan losses, reducing exposure to commercial real estate and assembling a team to deal with the current economic climate and the loan issues that come with it.

“The agreement principally deals with loan and credit issues that became clear to us beginning over a year ago and reflects the situation facing many banks as the ongoing recession increasingly impacts both individual and business customers,” First National President and Chief Executive Officer Mark Driscoll said in the statement. “To a large degree, this agreement simply comes as a result of the bank’s support of the lending needs of our communities during a period of robust development followed by a rapid economic decline, which adversely affected real estate values.”

As of June 30, First National reported assets of $2.4 billion with second-quarter net loss of $11.27 million. The bank held about $185 million in past due or nonaccrual loans – representing about 9.2 percent of its $2 billion loan portfolio. About half of those loan delinquencies held were in the commercial real estate construction and land development sector. The bank also reported $21 million in real estate collected as collateral – also known as other real estate owned.

First National has 25 branches along the Front Range, including two in Boulder, two in Broomfield, one in Longmont and one in Louisville. It previously had its First National Bank of Colorado charter based in Boulder, before merging operations and headquarters with its sister banks First National Bank of Fort Collins and Union Colony Bank of Greeley under the First National Bank named based in Fort Collins.

Northern Colorado Business Report staff writer Kristen Tatti contributed to this report.

on Facebook on LinkedIn