Bank’s troubles haunt new owner

As the owner of Richmond-based Consolidated Bank & Trust, Premier Financial Bancorp is in a strange situation.

The $1 billion Huntington, W.Va.-based bank holding company is profitable and well capitalized. All nine of its subsidiary banks, including Consolidated Bank & Trust, are profitable through the first half of the year.

That should be all the ingredients a bank holding company needs to pay a dividend to its shareholders. But not so fast, regulators told the company last week.

Even though it’s been recently profitable, Consolidated’s struggles have come back to haunt Premier. Headquartered downtown on First and Marshall Streets, Consolidated became the fourth local bank to agree on a plan with regulators aimed at putting damper on non-performing loans. (Read more about the agreement in an RBS story here.)

Now here’s the catch. Those written agreements contain a provision by which the named bank and its holding company must seek permission before declaring a dividend.

Nevertheless, given its firm financial footing, Premier, despite that rule, thought it was a good time to pay a dividend. Premier said in an SEC filing that it asked the Federal Reserve on Aug. 3 for approval to declare an 11-cent dividend.

No dice, the regulators said this month.

Premier’s President and CEO Robert W. Walker and CFO Brien Chase did not return calls Thursday.

It appears to be one of the first examples locally and perhaps statewide of a bank or bank holding company trying to declare a dividend while under agreement.

“I don’t remember any that tried while under agreement,” said Joe Face, commissioner of the Bureau of Financial Institutions, the state agency that is also involved in all written agreements for banks in Virginia.

In most cases, the banks under such agreements are battling rising levels of bad loans and capital is vital. Dividends, as much as shareholders love them, consume capital. And according to Consolidated’s latest reports filed with the FDIC, the $76 million bank had $8 million in non-performing loans and only about $7 million in capital.

“As a general rule, a bank should not pay dividends until it’s making money,” Face said.
Consolidated’s troubled loans consisted mostly of commercial real estate, land development and construction loans, with a few on the residential side. The $8 million total has risen from $6.4 million at the end of last year. But that was an improvement from $8.9 million at the end of the first quarter.

And Premier as a whole has a total of $74 million in non-performing assets, 70 percent of which is attributable to Consolidated and its former parent company, Abigail Adams National Bancorp, which Premier bought at the end of last year. Premier also received $22 million from the U.S. Treasury’s TARP Capital Purchase Program while it was in the process of that acquisition.

(Read more here about Consolidated’s past struggles and the deals that led it to eventually being owned by Premier.)

Walker did comment recently in Premier’s second quarter earnings report about Consolidated’s written agreement and how the company is handling the situation.

“The recently announced written agreement with the Federal Reserve and our Richmond subsidiary, Consolidated Bank and Trust, we believe, was primarily based on the bank’s loan portfolio near the time we purchased the bank,” Walker said in the report.

He said Premier tried to write down the value of Consolidated’s non-performing loans prior to acquiring the bank in October.

“But nevertheless, even at their discounted values, the level of problem loans and assets necessitated action on the part of the Federal Reserve,” Walker said.

“We believe our management team has developed the requisite skills and processes to restore the bank to be a vibrant member of the community and since acquiring the bank we have already made several changes to accomplish that goal.”

Face said that Premier does have the ability to try again next quarter for permission to pay a dividend.

Michael Schwartz covers banking for BizSense. Please send news tips to [email protected]

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9 years ago

Yet another example of what happens when you let the government into your business. Once they stick their slimy nose into your company, you’ll never get them out.

Scott G
Scott G
9 years ago

Be careful on the government bashing in this case. Consolidated has a long and proven track record of being poorly run. The bad loans could bring down Premier if things went sour quick. What would your response or the stockholders response be if Premier paid a dividend and within a year needed additional capital b/c of Consolidated’s issues? Probably something like “the government are a bunch of idiots letting them pay a dividend.”

Cliff P
Cliff P
9 years ago

Quite frankly it’s a wonder this bank is still around. Last year as you recall they were supposed to be rolled into the DC Bank, then the bottom dropped out of Adams National Bank, and they had to become Premier. If you follow all that, more power to ya. When you get right down to it they are a bank without a focus. No longer an African-American owned or operated bank, they’re sticking to the story even though controlled by the big white money men in West-by-god-Virginia. If you look at the actual FED agreement Consolidated’s CEO is some Dwayne… Read more »