Premier sale pushes Putnam to top spot at FSCB

Putnam moved to Columbia in 1980 to attend MU and in 1985 began his banking career with Jefferson City-based Central Bancompany, Boone County National Bank’s holding company. He returned to Columbia five years later to work as a loan officer for Boone County National Bank.
Putnam’s new job makes him the president of First State Community Bank’s largest market, where he continues to serve many of the same customers he did while the bank operated under the Premier name. But, as Putnam noted, his new employer has a different banking philosophy from his former one, and he thinks that will make it a new fixture in the local banking market.
First State Community Bank purchased Premier Bank’s three Columbia branches at the beginning of July. Since you began as the Columbia market president for FSCB, what has changed at those branches other than the signs?

Putnam: Considering Premier Bank’s situation, the acquisition of the three Columbia branches by First State Community Bank is probably the best outcome of all the possible “what if” scenarios. First State Community Bank is one of the strongest-performing financial institutions in the country with a mission to serve the local community. It operates from a decentralized approach, relies on local management and provides support when needed. Although it did pose challenges for employees and customers, the acquisition will provide long-term benefits for our employees, place us in a much better position to serve our customers and contribute to the success of our community.
Premier Bank expanded rapidly during its 15 years of existence, but its portfolio ran into trouble after many of its loans for speculative commercial projects and vacant land failed to perform after the real estate bust. First State Community Bank, by contrast, has more than a 50-year history in which it grew slowly by acquiring small banks in small Missouri communities. How would you describe the difference in philosophy between your former and current employers?
Putnam: First State Community Bank’s approach to banking is different. Premier Bank’s focus was on asset growth and therefore aggressively pursued financing large commercial projects. As a result, its loan portfolio became overly concentrated with collateral that was most affected by the weakened economy. FSCB management has taken a longer-term approach focused on maintaining strong asset quality, a more diversified loan portfolio and a solid capital position. This philosophy has carried over to our banking approach, with the emphasis on the relationship and not the transaction. As a result, our deposit and lending philosophy is based on what makes long-term sense for the customer and the bank.
How many customers who did business with Premier Bank have remained through the transition? How do you think the change in lending and business style will affect the customer base?
Putnam: The vast majority of customers we had just prior to the acquisition remained with us through the transition and have received First State Community Bank well. Our deposit totals have declined during the past couple of years, primarily due to customers’ concerns regarding the financial stability of Premier Bank. Our loan totals also declined significantly, but this was primarily due to loans First State Community Bank elected not to purchase from Premier Bank. Interestingly, though both our deposit and loan totals declined, the extent of the contraction was not mirrored in the number of customers. Depositors generally maintained deposit accounts with us, though at reduced balances, and the loans not acquired by FSCB were concentrated in a relatively small group of borrowers.
In the first two months immediately after conversion, there was some continued runoff in deposits, but totals have been increasing since then. On the lending side, our totals are down slightly since acquisition, but this is more a reflection of loans paying down through recurring principal and interest payments and not additional loss of business. We anticipate increases in these areas in the first quarter of 2011 as we wrap up loan conversion issues and begin reintroducing ourselves to customers and prospects.
FSCB’s approach to lending is to have a more diversified portfolio of loans with more emphasis on personal, home and traditional business loans than Premier Bank. This is mirrored on the deposit side, which relies more on checking, savings and money market accounts to fund loan growth. The financial strength provided by First State Community Bank combined with a greater emphasis on providing a variety of services will definitely be of benefit to our customers and help expand our customer base.
For First State Community Bank, the move into the Columbia market was a huge, almost uncharacteristic expansion. As the president of FSCB’s largest market, what are your immediate priorities here? Are there any plans for future expansion within the Columbia market?
Putnam: My priorities have evolved during the acquisition process. At the beginning of 2010, when we learned of the proposed transaction, my priority was to minimize the effect of the acquisition on the employees. We were fortunate that this was also a very high priority for both the First State Community Bank and Premier Bank management teams, and they worked hard to provide everyone with an opportunity. Our employees have been through a lot during the past couple of years, and they have maintained great attitudes and demonstrated a lot of character. I’m so proud of all of them, those who are still with us and those who had opportunities elsewhere.
During the actual conversion process, which started in earnest in April, our collective priority was to minimize the effect of the acquisition on our customers. This wasn’t always possible. Fortunately, the long-term customer relationships we have established combined with the extra effort made by employees carried us through. Everyone worked with us and had a great attitude about the acquisition. We owe a debt of gratitude to our customers for their cooperation; it was a learning experience for all of us.
As we work through the last of the conversion process, my priorities for First State Community Bank will be focused on serving our customers, becoming a good corporate citizen and providing our employees with a working environment that is rewarding and encourages their continued development, both professionally and personally. Although we do have expectations of growing our loan and deposit totals, we don’t currently have plans for adding banking facilities within the Columbia market.
First State Community Bank Chairman Greg Allen has indicated that he is not interested in moving into either of the state’s large metropolitan areas. But the move into Columbia is FSCB’s farthest move west from its roots in eastern Missouri. Can we expect FSCB, which only a little more than a year ago reached the milestone of $1 billion in assets, to expand further in mid-Missouri or perhaps turn its sights toward southwestern Missouri or another part of the state?
Putnam: Although the Columbia acquisition is the farthest market from its home base in Farmington, affectionately known internally as “World Headquarters,” FSCB has had this market on its radar for quite awhile. Due to its financial strength, FSCB is one of the few banks in an acquisition mode, but the executive management team is very selective in the markets it considers.
Although Columbia is a larger metropolitan area than most of FSCB’s markets, it possesses a lot of the attributes of the smaller communities where FSCB has been successful. Those attributes help provide a level of comfort along with the benefit of a strong economic base. We also aren’t very far from a couple of branches FSCB has in Warrenton and Wright City. The bank continues to look at opportunities in locations that make sense logistically and financially, which was a challenge when the financial industry issues surfaced during the past couple of years. FSCB believes that each branch must be managed by the people who live within the community it serves, so they also must have a very high comfort level with existing staff. This can be very difficult to evaluate in distressed situations.
Many people are waiting to see how the Dodd-Frank Wall Street Reform and Consumer Protection Act affects their local banks. What kind of impact will it have on community banks such as FSCB? Are there provisions in the law, such as increased capital requirements, that will make it more difficult for businesses and people to obtain credit?
Putnam: At this point, we are waiting to see how it will affect our bank, too. Although the act has been passed by Congress, the agencies responsible for implementation and enforcement have not completed issuing the regulations and guidance for banks to follow.
I don’t think there is any question that the law will initially have a significant negative impact on banks’ profits; it effectively reduces income while also increasing costs through the additional administrative burden of complying with the regulations. Over time, these lost profits will be replaced with higher fees, lower deposit rates and higher loan rates passed on to individuals and businesses. Individuals could notice new fees for services that were previously free.
What is more difficult to determine is how this reduced profitability will affect banks’ ability to attract capital now, a critical component for banks to provide loans that are the primary source of financing for consumers and small businesses. This is especially of concern for community banks and will likely result in continued consolidation of the banking industry due to the lack of alternative capital sources.
Although the law and reduced competition will increase the cost of credit and some services, I don’t think it will affect the ability of individuals or businesses to access credit to the extent it has already been affected by the current economic circumstances, a situation that was exacerbated by too much credit.