Premier Bank, Jefferson City, MO, Closed By Regulators

October 15, 2010 -Premier Bank, Jefferson, Missouri, was shut down by the Missouri Division of Finance, which appointed the FDIC as receiver.  The Missouri Division of Finance was particularly blunt in its assessment of Premier Bank’s failure.

“There will be no interruption of services for customers of the former Premier Bank,” said Richard J. Weaver, Commissioner of the Division of Finance.  “The demise of this bank is the result of aggressive lending decisions made by management.  Many of the loans were in commercial real estate and development projects which proved unsuccessful. These loans became uncollectible.”

“Losses are more than the bank can support and management acknowledges that failure of the bank is inevitable. The bank has operated under close regulatory scrutiny since December of 2007,” Weaver said.

Attempts by management to sell the bank or obtain additional capital were not successful, and as a result the bank’s board of directors voted to turn the bank over to the Missouri Division of Finance, as allowed by state law, Weaver said.

The FDIC arranged for failed Premier Bank to be taken over by Providence Bank, Columbia, Missouri.  Providence Bank will assume all of Premier’s deposits (except certain brokered deposits) and purchase approximately 56% of Premier’s assets.  Providence did not pay the FDIC a premium for Premier’s deposits.

All nine branches of Premier Bank will reopen on Saturday as branches of Providence Bank and all Premier depositors will automatically become depositors of Providence with no interruption in FDIC insurance coverage.

Providence Bank opened for business in 2008 and rapidly grew its assets to approximately $170 million dollars.   Linco Bancshares, Inc is the holding company that owns Providence.  Start up capital for Linco was provided by the Laurie family of Columbia.   One prominent member of  Linco’s board is Nancy Walton Laurie, niece and heiress of Sam Walton, founder of Walmart.

Linco Bancshares started its operations by acquiring a small bank and re-chartered under the Providence name in 2008.  Brett Burri, CEO, said that Providence is aggressively seeking acquisition opportunities.   With the acquisition of Premier Bank’s assets, Providence will be increasing its assets by almost 400% to approximately $800 million.

At June 30, 2010,  Premier Bank had total assets of $1.18 billion and total deposits of $1.03 billion.  Providence Bank agreed to purchase only $657.9 million (56%) of the failed bank’s assets, leaving the FDIC stuck with the remaining $522 million of assets that could not be sold.   The FDIC is now sitting on a $40 billion dollar mountain of bad assets from failed banks that need to be disposed of.

The FDIC entered into a loss-share transaction with Providence Bank on $408.7 million of the asset pool purchased from Premier Bank.  The FDIC will reimburse Providence for 80% of losses on covered assets up to a stated threshold.  The FDIC loss guarantee for single family mortgages covers losses on short sales, loan modifications, foreclosures, charge-offs of second liens and losses on loan sales.  Without providing loss protection to an acquiring bank, it would be impossible for the FDIC to sell many failed banks.

There has been speculation in the press that the worst of the banking crisis is over and that banking failures would be dramatically reduced going forward.  The failure of Premier Bank would seem to indicate that many weak banks are being allowed to remain open for an unwarranted length of time with the hope that capital can be raised or that asset values will recover.

The Missouri Division of Finance admits that Premier Bank was under close scrutiny since late 2007.   The FDIC is taking a $406.9 million loss on the closing of Premier, which represent a huge 35% of Premier’s assets.   The FDIC estimates losses on a banking failure, in part, by taking into account expected losses on the assets of the failed bank.

Premier was hopelessly insolvent with almost a third of its loan portfolio worthless, as indicated by the FDIC’s loss calculation.  The huge losses on Premier Bank’s loan portfolio would have been obvious by early 2009 as residential and commercial real estate values crashed, yet Premier, though obviously insolvent, was allowed to remain open until today.

As regulators come to the conclusion that many small and midsized banks cannot raise additional capital nor depend on rising assets values to offset defaulting loans, the pace of small and mid sized banking failures is likely to increase.

Premier Bank was the 132nd banking failure this year and the sixth in Missouri.

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