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One on one with Citizens

Editor's note: For the past several months, questions, comments, rumors and more have been circulating regarding Citizens First National Bank, which has its headquarters in Princeton. The Bureau County Republican sat down on Friday with Citizens First National Bank President/CEO Tom Ogaard in a one-on-one question and answer setting to learn about the state of the company's 21 banks in 17 communities. The bank employs approximately 300 people, with 165 of those staff members working in Bureau County. Ogaard came to Citizens in the fall of 2009 and became the president/CEO in February 2010.

BCR: How would you summarize how the bank has ended up in its current situation?

Ogaard: I would summarize that as a result of the economic conditions that we found ourselves in. There is a number of institutions, like ours, that have had their problems. It's primarily related to loans that were made for development purposes ... the values of those properties have deteriorated rather significantly. In my opinion, there needed to be some different structuring here at the bank, and we have gone ahead and done that. But I think with everything, (it) primarily relates back to the real estate market and what's happened subsequent to that. I don't think anybody ever thought the value levels would become what they currently are.

BCR: Historically, the bank's strength has been in its relationship (with) agriculture, and it would appear there was a departure in the acquisition and expansion of the bank and then trying to compete with other banks in the suburban market, basically the commercial market. Is that a departure from what the bank has historically done?

Ogaard: I don't know that it was a departure from agricultural lending because we continue to have a substantial amount of agricultural loans. For us today, agriculture remains a significant focus and part of our base. I think when your markets became more diverse, which I think was appropriate, you are going to get into different types of lending. For the lending groups that were involved at the time, perhaps the ability and the wherewithal to do the level of the size of loans that were being made, the expertise was more from an agricultural base, and consequently that played a role in it as well.

BCR: In regards to some of the actions that have been taken by the federal regulators, it appears there have been a number of steps taken. The first action on March 15, 2010, was an agreement entered with the OCC (U.S. Office of the Comptroller of the Currency). Then there was a consent order issued by the OCC on Sept. 20, 2011. And then there was a material definitive agreement with the Federal Reserve on the 27th of October of last year. Most recently, the OCC issued a prompt corrective action directive on Friday (March 30, 2012). Are those time frames right?

Ogaard: Those are the general time frames, yes.

BCR: In particular, did they, in fact, issue on Friday a prompt corrective action directive?

Ogaard: They issued a letter to the bank ... That was forwarded to me, and actually, it was received late in the afternoon on Thursday.

BCR: Did that have an influence in terms of pulling back the fourth quarter report. (Citizens released its fourth quarter results on March 30, but on April 2, Citizens asked the March 30 release be disregarded.)

Ogaard: It did not. No influence whatsoever.

BCR: Part of what regulators are requiring you to do is to put together a capital restoration plan. Is that correct?

Ogaard: We have a capital plan in place already.

BCR: How long has that been in place?

Ogaard: We've had capital plans and capital documents on a look-forward basis that we were developing in late 2009. In terms of formal capital plans and things that we've shared (with regulators), that's been in place since early 2011.

BCR: This latter directive by the OCC, what position does that put the bank in?

Ogaard: I think it simply is part of their protocol to understand and provide us with very specific direction of what they'd like to see from us. It is something we had already in place, but the underlying background related and the things that we're doing — the specificity is at a higher level, and we're certainly working toward that goal. I expect we will submit what they're looking for certainly in a timely manner, if not before.

BCR: Is there a dollar amount out there that you need to raise?

Ogaard: Well, the consent order is very specific in that they want us to get to an 8 percent Tier 1 capital ratio and a 12 percent total risk base capital ratio. Obviously, that will require a significant amount of capital to meet those ratios, and we have been actively been pursuing our capital plans for a number of months and years, in terms of looking at all of the options available to us. And those efforts continue.

BCR: How much do you have to raise?

Ogaard: I would tell you in order to comply with the consent order we have to get to 8/12. Now that depends on what our asset base is at the time. Currently, those numbers would be in the tens of millions of dollars.

BCR: Where would that money come from?

Ogaard: It can come from any number of things. It can come from asset sales of the bank. It can come from reaching out to our current shareholders. It can come from other private parties, and it could come from a public offering or institutional investments.

BCR: Has there been much movement on that?

Ogaard: I'm not going to get into any specifics as to what actual endeavors we are going through right now. It would be premature on my part, and certainly not something I care to disclose at this point.

BCR: The officers of the bank are fully charged with implementing the capital restoration plan you have in place?

Ogaard: We have a formal capital plan that we are executing as we speak. and we are executing it within the time lines we have indicated.

BCR: This last step by the OCC is very serious in nature. Is that correct?

Ogaard: It is another part of the protocol they go through in term of their notification to the bank. Certainly everything we have gone through from the formal agreement to the consent order and the latest step is very serious, and we take it very seriously. We come to work every day trying to correct the situation. A lot of internal things have occurred that are very positive in terms of our ability to provide oversight and to address these matters.

We take it seriously, and we'll continue to do so. It can't get any more serious than it had beginning March 15, 2010, and moving forward. Obviously, the capital cushion the bank has had has eroded because of the losses, and it certainly brings a keener focus and more of a sense of urgency. But nevertheless, it has been there since Day 1.

BCR: The last six days a little short of two million shares of stock have been traded. What is prompting the movement of the stocks?

Ogaard: It is a significant departure from our normal average daily trading volume. When the volume of trading started to escalate, in particular the last couple days of March ... we called NASDAQ and talked to parties there to find out what the flavor of the activity was. We were looking for any particular concentrations of purchases by entities or individuals or sales. They indicated there were none. It was all over the board. They didn't see anything unusual, only the volumes had increased substantially. The thought that was out there was that the stock had moved beyond its 100-day average trading level, in terms of its price — and that some program traders would get an alert, and some purchases began that was on a program basis because our stock price had not been very volatile ... That was certainly a surprise to us. We certainly did not do anything here to precipitate the increase in the stock price. That's not something we can do, nor would we ever take an approach to do that.

BCR: Do you have the ability to issue more stock?

Ogaard: There are outstanding shares already authorized we could use for sale purposes.

BCR: Has the board volunteered to be a source of capital?

Ogaard: Everything is on the table. I'm not going to give any indication about the board members specifically, but everything is being looked at.

BCR: Has there been any other banks looking at the bank itself?

Ogaard: There may be banks looking. I get calls on a frequent basis making inquiries, certainly offering their support and suggesting they certainly want us to work through our problems.

BCR: Typically, in serious at-risk situations, regulators will bring in other "suitors" as the bank continues to operate. Has that happened?

Ogaard: I have not had any conversations with the regulators about them bringing in anybody.

BCR: What do you want to communicate with the stockholders?

Ogaard: As it relates to the shareholders specifically ... they are very supportive. They recognize change was necessary. Obviously, they are concerned. They do have an investment in the bank. They are the ownership. We work for them every day. Yet at the same time, we are taking the approach that we are going to recognize the issues we have, address them as quickly as possible. and that's been that it has eroded shareholder value because the capital has deteriorated.

At the same time, the community, for the most part, has been supportive. We have had our detractors certainly. The focus of the staff and management every day is to make the situation better. While we are doing that, we continue to be active in the community ... and continue to want to make a difference in every office and location we have. It is a difficult environment. Our staff has questions, as do our shareholders. We address them regularly in communications to our staff, and they are feeling the effects of what this might do to them personally, and also what it might do them as a community. The resiliency of the staff is amazing, and we continue to focus on the things that are positive, which are many.

We are seeing positive signs, yet we know there are headwinds in front of us. We have indicated that to our staff, our shareholders, and appreciate the support, but we still have some headwinds and there are some difficult times in front of us.

BCR: Are you optimistic?

Ogaard: There's a certain amount of optimism. I have to be. There's no give up here. From my perspective there's always an opportunity that may have an impact on what we can do and where we can go ... We want to be as upfront as possible about where we're at and what we're doing, and at the same time, there are certain things we are working on we can't disclose until the appropriate time.

BCR: What about people who have their money at Citizens. Do they need to be concerned?

Ogaard: No, I think the vast majority of our depositors are insured up to a minimum of up to $250,000 ... Individuals certainly with less money than that have nothing to worry about, and those who have more than the insurance limits, we are working with them, month after month, year in and year out. It's the prudent thing to do. Any individual or business who has funds in a daily statement account or checking account or non-interest bearing checking account, those funds have unlimited insurance coverage, so it's not limited to $250,000 ...

BCR: What if people have questions?

Ogaard: We communicate to our staff, and one thing we always tell them is we don't expect them to have all the answers (with customers). We will find someone to answer their questions. Myself, senior management are very open to answer all their questions. We welcome them and will make ourselves available.

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