Integra Bank Corp. may get a second shot at taking over Peoples Community Bancorp Inc.
The $3.4 billion-asset Integra said Monday that it had reclassified as nonperforming a $17.5 million loan to Peoples Community in West Chester, Ohio. Integra, an Evansville, Ind., banking company, had called off a deal to buy the Ohio company in January 2008, and a subsequent attempt by Peoples to sell itself also fell through.
"They are current on their loan, but that can't go on forever," Michael Vea, Integra's chairman, president, and CEO, said on Monday. "They will eventually run out of cash to pay the interest. We are having detailed discussions with the company, and various parties are discussing various outcomes" for repayment of the loan.
Though Integra reported a fourth-quarter loss Monday, Vea said he thinks it is healthy enough for regulators to look to it should Peoples fail — especially since his company received $83.6 million from the Treasury's Troubled Asset Relief Program on Friday. He also said he still sees value in Peoples.
"They have done a nice job keeping their deposits; the commercial portfolio has shrunk; and it has an attractive branch network in an attractive market that is going through a lot of disruption," Vea said.
Peoples Community did not return calls.
Since the loan is secured by stock in the borrower's main operating unit, the $732 million-asset Peoples Community Bank, Integra theoretically could seize the thrift. Vea would not discuss that possibility.
Analysts said Integra has so many problems of its own right now that, without government assistance, swallowing another institution would be tough.
Integra said Monday that it swung to a loss of $81.6 million, or $3.97 a share, last quarter from a profit of $5.8 million, or 28 cents per share, a year earlier. Though the loss was primarily driven by a goodwill impairment charge, credit quality worsened dramatically. Most of the bad loans on its books were made to residential developers. Nonperformers' share of total loans surged 568 basis points, to 6.79%.
Peoples has been trying to find a buyer at least since September 2007 when it struck a deal to sell itself to Integra for $85.6 million. By last September, Peoples had made a second deal, this time with CenterBank of Milford, Ohio, and the Community Bank Strategic Equity Fund LLC, a private-equity fund. This deal collapsed in January.
At that point, the private-equity fund extended its contract with Peoples to Jan. 31, so long as it could find a buyer. On Monday, Chip Dickson, managing director for the fund, declined to comment on the status of its agreement with Peoples.
In its third-quarter report, the Peoples holding company warned that, short of a sale, its ability to continue as a going concern was jeopardized by an Office of Thrift Supervision enforcement order barring its bank from paying it dividends, its only source of revenue to repay the Integra loan.
Jeff Davis, an analyst at Howe Barnes Hoefer & Arnett, said he doubted Integra would exercise its right to foreclose on Peoples Community.
"Conceivably, it could happen, but Integra has incurred its own problems over the last year," he said. "Taking all of the problems at Peoples to Integra would just increase the balance sheet at a time when most banks are trying to shrink theirs. The timing and the math are not good."
Steve Brown, the president and CEO of Pacific Coast Bankers' Bank, said that, in the past, the Federal Deposit Insurance Corp. has turned to banks that already had vested interests in failed institutions to take them over. "The FDIC will call you up to see if you have any interest," he said; "for them it is a pretty quick transaction that way."
Davis said a bank with "fewer issues" presumably would be the FDIC's first choice to take over Peoples. However, given the Tarp infusion, "maybe" Integra could fill the bill.
Analysts said Integra might be more interested in an assisted deal, one with loss protection or one involving all the deposits and select assets, rather than taking the bank outright.