Columbia to become First State's largest market

The announcement that Premier Bank is selling its three Columbia branches to First State Community Bank marked the beginning of the end for the city’s most troubled lender and a huge expansion for the Farmington-based bank.
The boards of both banks have approved the transaction announced March 5. First State expects to close the deal in July after regulatory approval, Vice Chairman and CEO Greg Allen said.
First State is acquiring all of Premier’s Columbia deposits and physical assets, and “the majority of Premier employees will stay with us,” Allen said. But the bank is purchasing only a portion of Premier’s Columbia loans, between $55 and $60 million worth, he said.
First State just finished acquiring two branches of Truman Bank in Jefferson County, and the Premier purchase will make Columbia the bank’s largest market, Allen said.
“We’ve always looked at the Columbia market as being attractive,” he said.
The purchase continues a legacy of expansion throughout Eastern Missouri since First State opened in 1954. Since 1980, First State has been buying bank branches in small communities, and with the Premier purchase First State will have 32 locations in 24 communities. It has operations in Hillsboro, Sikeston, Warrenton, Owensville and Cape Girardeau, among others. It also runs insurance companies in addition to its banking operations.
“We’ve kind of pecked away at it,” Allen said about the bank’s growth. “We never were an organization that tried to grow 20 to 30 percent a year. We just try to take advantage of the opportunities we get.”
Allen said Premier’s strong customer base and employees in Columbia will be an asset to the organization. He said the Columbia operations would grow depending on how First State grows with the market. When asked whether First State was interested in any of Premier’s other branches, in St. Louis for example, Allen said there had not been any discussions about that yet. First State has always focused on smaller communities, he said, and it’s not really interested in moving into the St. Louis metro area. Moving into the Columbia market is already a pretty big step for the bank.
“We’re very excited about it, and I think it will become a very important part of our organization,” he said.
Premier’s fast rise during the Columbia real estate boom led to a hard fall after the bubble burst. The Jefferson City-based bank opened in 1995 and expanded into Columbia in 1998 and the St. Louis metro area in 2003. By 2006, it had $1 billion in total assets. But as real estate values began plummeting and speculative borrowers could no longer flip their land or find tenants for their commercial projects, Premier’s Columbia portfolio quickly soured.
Last March, the Federal Reserve put the bank’s holding company under supervision. In September, Columbia Market President Steve Smith resigned. Premier lost $31 million in 2008 and $58 million in 2009.
“Premier sustained heavy losses in 2008 and 2009 due to our problem real estate portfolio,” Premier CEO Bruce Wiley said in a statement. “FSCB is an excellent bank to assume our quality assets and substantial deposit relationships while providing excellent jobs and benefits to the Columbia employees that have been so important to Premier’s growth.”
John Howe, a finance professor and the Missouri Bankers Chair at the University of Missouri’s Trulaske College of Business, said it appeared that Premier “needed some cash” because of capital requirements set by federal regulators and other reasons.
“To raise cash they had to sell quality assets,” Howe said. “It’s hard to sell the bad assets in this environment.” (Quality assets include loans in which payments are being made on time and banking operations in a market with strong growth potential, and bad assets primarily are non-performing loans.)
Howe pointed out that he does not know the specifics of Premier’s financial situation, but said that selling the Columbia operations “is probably the best option in a set of bad options for Premier.”
Because of the anemic state of the economy, “their options were really limited. They are giving up some quality assets, but that’s really the only stuff that’s sellable in this environment.”
When a bank fails outright, the shareholders lose their investments, the federal government takes over and sells the assets and covers the deposits – which now are insured now to $250,000 for each account holder. Premier sold only a part of the company and will continue its other banking operations.
Howe said the ownership change “may actually increase the competitive environment for banking in Columbia.” FSCB has a relatively low percentage of non-performing loans and has been making money, and Howe said the bank demonstrated its strength by expanding in a weak economy.
“In some sense, these assets are moving from weak hands to strong hands,” Howe said, “or from a weakened competitor to a strong competitor.”