After two years of dealing with fraud, enforcement orders, and substantial losses at three of its Kentucky banking subsidiaries, Premier Financial Bancorp’s chairman says the West Virginia company will “absolutely” be profitable by yearend.
“I feel very optimistic about putting things back together, and we are making some pretty good headway,” Marshall T. Reynolds said in an interview last week.
For instance, the $622 million-asset multibank holding company has charged off several loans, restated earnings, replaced top executives at the troubled banks, and announced it is selling one of its banks to raise capital.
But some have their doubts that Mr. Reynolds can get Premier back on track given that one of its properties, Farmers Deposit Bank in Eminence, Ky., is still under an FDIC cease-and-desist order and that Premier has about $10 million of nonperforming assets — 3.57% of total assets — on its books.
Farmers’ problems emerged about a year ago when Premier uncovered a number of fraudulent loans involving its former chief executive officer, Bill Covington, and a line of business making loans to professional athletes and their agents.
Premier, of Huntington, W.Va., fired Mr. Covington and replaced him with a CEO from outside the company, and in the next two quarters it charged off more than $15 million. Regulators issued the cease-and-desist in December and told the $106 million-asset Farmers to raise its capital levels.
Premier said in its annual report that it has curtailed its professional sports lending, established a capital plan, and nearly completed charging off Farmers’ bad loans. And Mr. Reynolds said it has more than enough reserves to cover the remaining nonperforming loans.
In April the company restated earnings for the last three years. It added $3.2 million to its 2003 earnings but still lost $9.6 million. Its 2002 earnings fell $2.1 million, to a loss of $3.3 million. It made money in 2001, but after the restatement its profits were down 54%, to $1.3 million.
Premier recently announced it had agreed to sell the $80 million-asset Citizens Bank in Georgetown, Ky., to Farmers Capital Bankcorp in Frankfort, Ky., for $14.5 million in cash. This sale, which is expected to close in June, would bring in badly needed capital and unload another underperforming bank.
In 2002, Citizens lost $1.1 million, and last year it lost $80,000, mainly because of troubles in its residential mortgage portfolio. Citizens Bank has been under an enforcement order for two years, and as of Dec. 31 its nonperforming were 4.28% of total assets.
Mr. Reynolds said that another of Premier’s Kentucky banks, Citizens Deposit Bank and Trust in Vanceburg, which is under an enforcement order issued in 2000, has new management and has cleaned up its loan portfolio by improving its risk management systems and tightening its lending standards. Mr. Reynolds, who joined the Citizens Deposit board to oversee the bank’s transformation, said its first-quarter performance was on par with its peers.
Citizens Deposit lost nearly $1 million 2002 and barely made money in 2001, because its former executives made a series of questionable loans that went bad.
Mr. Reynolds, who accepts some of the blame for the problems at the Kentucky banks, said that Premier’s board and each of the individual bank boards probably trusted the former executives too much.
“It’s been pretty humiliating and pretty embarrassing being involved in this,” he said, “particularly with the results Premier has hung up.”
But he said Premier has gotten rid of all the “scoundrels” and hired motivated people.
Observers have speculated that Premier might be looking to sell or liquidate its Kentucky banks so it can focus on its two banks West Virginia, the state Mr. Reynolds knows best.
But Mr. Reynolds said Premier has no intention of selling any more of its banks or of leaving Kentucky, which he said is more vibrant than West Virginia. He said Citizens plans to build another branch in the next year and that Premier aims to merge its other Kentucky bank, the $23 million-asset Bank of Germantown, into Citizens Deposit in the near future.
“Kentucky is great market,” Mr. Reynolds said. “We just had some good people running the West Virginia banks from the start and now we have the equally good people in Kentucky.”
Premier’s West Virginia banks – the $159 million-asset Boone County Bank in Madison and the $85 million-asset First Central Bank in Philippi — have performed well the past few years, each posting 2003 earnings of more than $1 million. The banks were formed in 1998 after Premier bought three branches from Bank One Corp.
Premier also operates the $76 million-asset Ohio River Bank in Ironton, Ohio, which reported 2003 earnings of nearly $1 million.
