When Premier Community Bank of the Emerald Coast opened in late 2006
, executives told regulators they would take a conservative approach to banking.
That didn't happen.
State regulators say Premier Community kept sloppy records, lent more than was allowed to insiders, and made some of its riskiest deals by lending money to developers who already faced deep debts from other banks.
At first, chief executive Sean Davis told regulators he was "more comfortable with slower loan growth and pursuing local loan prospects."
But during their first examination, state regulators saw
how quickly the bank had grown. It booked $41 million in loans its first year and added $46 million in its second year, relying on "hot money" deposits to fuel its expansion.
These funds come from depositors around the country, who are attracted by higher-than-average interest rates. These are generally seen by regulators as a red flag because "hot money" deposits allow a bank to grow faster than it would by collecting deposits locally.
Meanwhile, Premier Community was helping developers pay off debts to other banks. In January 2007, for example, Premier Community lent $1.34 million to a developer who used the cash for various purposes. More than $383,000 was used to pay off an existing loan, $138,000 went to future interest payments — and the rest to cover development costs.
Examiners also found that nearly half of the loans they reviewed in September 2008
lacked enough information about borrowers. Many loan files contained stale and dated financial statements or tax returns; others showed that the bank had never obtained appraisals as required by law.
Even documents about Premier Community's own executives and directors were lacking. Insider loans peaked at $8 million by the end of 2008. Examiners said Premier Community broke the law by not having a majority of board members approve some of these transactions.
Davis could not be reached for comment.