So far this year Peoples Community Bancorp Inc. in West Chester, Ohio, has had its deal to be sold to an Indiana bank collapse and been slapped with an enforcement order that restricts its writing of new loans.
Now comes more bad news: The company revealed in its annual report last week that it does not have the capital to pay off a $17.5 million credit line due June 30 and that its accountant is questioning whether it can survive as an independent company.
The $877 million-asset Peoples said in its 10-K that it was in negotiations with the unnamed lender to modify the loan terms. But if it fails to get the terms modified, observers say, its only options are to raise more capital, sell itself, or file for bankruptcy.
Peoples' problems stem from its sharp increase in bad loans over the last few years. Its chargeoffs for 2007 rose 39.5%, to $18.28 million, and its loan-loss provision rose 88%, to $32.8 million.
In September, Peoples announced an agreement to be sold to Integra Bank Corp. of Evansville, Ind., for $85.6 million, but Integra called off the deal in February, citing investor fears about Peoples' credit troubles. Since then Peoples' shares have fallen more than 85%, and its market capitalization is now less than $11 million.
On April 2 the Office of Thrift Supervision issued a cease-and-desist order against the company's bank subsidiary, Peoples Community Bank, that prohibits it from paying dividends and making commercial, residential construction, or land loans.
In the annual report, filed April 15, BKD LLP, an independent accounting firm, said Peoples' liquidity problems raise questions about its "ability to meet obligations coming due" and that the credit-quality issues and strict orders from the OTS "raise substantial doubt about its ability to continue as a going concern."
Executives at Peoples did not return call for comment. Bert Ely, an independent banking consultant in Alexandria, Va., said a new deal with Integra might be the best option, as the relationships are already there. Of course, the $3.4 billion-asset Integra would probably be able to get Peoples at a steep discount to the price the pair agreed to in September.
Jeff K. Davis, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said Integra wants to grow in the Cincinnati market and has made it "pretty clear that it might have an interest once the dust settles" with Peoples. Yet a deal right now to rescue Peoples might be unlikely.
"I think Integra might let them twist in the wind for a bit," said Mr. Davis, who covers Integra. "In a market like this you want to avoid buying other people's problems at all costs. All surprises are negative."
Instead, Integra could wait to see if Peoples ends up in receivership.
"It could be better to cut a deal with the OTS to assume the liabilities and the branches," Mr. Davis said.
As for Peoples' finding an infusion of capital, Mr. Davis said the company has likely been "desperately trying to raise capital" since the collapse of the Integra deal.
An Integra official said the company does not respond to rumors.
