Bank examiners might have helped avert the collapse of Premier Bank had they taken into account its risky loans and funding sources, which relied heavily on the stability of real estate and financial markets, a report from the Federal Deposit Insurance Corp.?s inspector general says.
The report, released yesterday, details the aggressive lending and capital-raising practices of Jefferson City-based Premier Bank, which was heavily involved in financing commercial real estate and construction in Columbia.
Regulators shut down the bank in October 2010, a few months after its three Columbia branches and some of its local assets were acquired by First State Community Bank. The FDIC?s actions to wind down Premier?s remaining operations ultimately gave the bank?s remaining nine branches and about $658 million of assets to Providence Bank. The FDIC will cover 80 percent of any losses Providence incurs on $408.7 million of those loans, and the agency estimated the bank closure will cost its Deposit Insurance Fund an additional $406.9 million.
Inspector general reports are required for bank failures expected to cost the FDIC more than $200 million.
The report suggests it would have been ?prudent? for the bank?s examiners from the FDIC and the Missouri Division of Finance to have evaluated the financial institution?s risk in 2006 using ?a more forward looking assessment.? Regulators then determined the bank had sufficient liquidity levels, even though more than 40 percent of its funding was dependent on sources highly susceptible to changes in financial markets and the bank?s own health.
?In hindsight, downgrades in the bank?s asset quality and management components may have been prudent,? the report says.
In 2003, Premier?s board and management began emphasizing loan growth, focusing on development financing, the report says. From 2004 to 2007, Premier?s loan portfolio grew from $391 million to $1.35 billion. In 2007, acquisitions, development and construction loans as well as other commercial loans made up nearly 80 percent of its outstanding loans.
Premier?s exposure to acquisition, construction and development loans as percentage of its capital was far above similarly-sized banks and current regulatory guidance. The amount of those loans as a percentage of Premier?s capital ranged from 295 percent to 454 percent between 2004 and 2007. Other banks near Premier?s size concentration in those types of loans as a percent of capital rose from 81 percent in 2004 to 147 percent in
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