“Audit Results – Cause of Failure and Material Loss – 1st Centennial failed primarily due to bank managements pursuit of asset growth concentrated in high-risk CRE/ADC loans without adequate loan underwriting and credit administration practices. In addition to a concentration in CRE/ADC loans, the bank also concentrated its loan portfolio in one geographic area that experienced a severe economic downturn, further increasing the risk to the bank. The bank did not ensure that underwriting adequately considered the borrowers ability to repay and the adequacy of the underlying collateral. Credit administration practices did not sufficiently ensure that CRE/ADC loans were adequately managed and monitored. Examiners determined that 1st Centennials asset quality was seriously deficient at the FDICs April 2008 examination, primarily due to deterioration in the banks CRE/ADC loan portfolio. Also, examiners found that the bank became increasingly dependent on wholesale funding, including brokered deposits. The examiners concluded that bank management failed to implement adequate risk management controls to effectively mitigate loan portfolio risk and ensure that the allowance for loan and lease losses (ALLL) was properly funded. Significant provisions to the ALLL reduced earnings, eroded capital, and tightened the banks liquidity position. Ultimately, the bank became critically undercapitalized and failed.”
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