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January 27, 2009 4:25 am

Powell bank signs regulatory agreement with Federal Reserve

Written by Tribune Staff

A Powell bank remains under the supervision of federal regulators, but the bank already has met terms of an order issued this month.

First National Bank and Trust signed a consent order in September 2008 placing it under the supervision of the Comptroller of the Currency of the U.S. Department of Treasury after some of its real-estate assets lost value due to the national decline of real estate.

Early this month, the bank signed essentially the same agreement with the Federal Reserve Bank of Kansas City.

According to Dick Nelson, president of First National, the September order applied to the bank, while the January order applied to First Co., the holding company that owns First National.

Asked about the time gap between the two orders, Ty Nelson, president of First Co., said he believed it was because “the Federal Reserve is so swamped” by the current economic crisis.

The bank already has met the conditions in the two consent orders, including discontinuing the purchase of out-of-area loan participations in commercial real estate, the practice that resulted in the bank's being placed under regulatory supervision.

First National, along with more than 800 other banks, had purchased several such real estate loan participations in 2005 and 2007 through a bank in Minneapolis, Minn. The national downturn in real estate value decreased the value of the properties involved to less than the value of the loans, forcing First National to declare the loss that brought on the federal regulation.

Ironically, First National bought the loan participations at the urging of the comptroller of the currency.

“They asked us to diversify,” Ty Nelson said. “It was to provide risk management.”

Nelson said the idea was to provide “geographic diversity” to protect the bank from a decline in the local economy.

“All the big banks do it,” he said. “In theory, it would have worked, but no one expected real estate to collapse.”

Dick Nelson said the push for such diversity came in the aftermath of Hurricane Katrina in 2005.

Now, though, all the bank's loans are being made in Northwest Wyoming, most of them in Park and Big Horn counties, Ty Nelson said.

One condition of the regulatory decree was that the bank increase its capitalization to 8.5 percent of its assets, higher than normally required, and the bank met that by Sept. 30, Dick Nelson said. As of Dec. 31, the bank's capitalization stood at 8.75 percent, due to the contribution of “family capital” that covered the bank's losses.

“Our capital is higher than it's ever been,” Ty Nelson said.

First National is also restricted from paying dividends to its shareholders without prior approval by the Federal Reserve.

However Dick Nelson said the company stopped paying dividends a year ago.

Ty Nelson said regulators are “making every bank in the country cut dividends” at present.

First National still is holding the investments that caused the problem. They have not increased in value, and Dick Nelson said they won't until the national economy improves. Even so, the bank is healthy and growing.

“Our deposits are up $9 million,” he said. “We are processing $165 million in real-estate loans right now. Loan demand is really strong, as much now as ever.”

Despite the bad economy nationally, Dick Nelson said the local economy appears to be holding up.

“Everybody is feeling cautiously optimistic,” he said.

As to how long First National will be under federal supervision, Dick Nelson said it is entirely in the hands of the regulators.