ABA Banking Journal - June 2008 - (Page 40)
TOPCOMMUNITYBANKS Mackinac Financial Corp. Non-S bank over $100 million Profits from a “rehabbed” bank N orth Country Bank was in trouble, and that wasn’t because it received controversial publicity for its riflesin-lieu-of-interest CD program. The CD program was featured in filmmaker Michael Moore’s anti-gun “Bowling for Columbine” in 2002. But “reputation risk” of another kind proved far more worrisome. This bank, under a new name, came in fourth in the rankings for non-Subchapter S banks over $100 million in assets in this year’s ranking, with an ROAE of 31.08%. But earlier in this decade, you would have questioned its future in the ranks of the living. doesn’t tend to see huge swings in real estate prices. Further the U.P. economy is driven much more by what’s going on in Wisconsin and Chicago, than by downstate Michigan. Bank on the rocks The trouble was financial, and, hence, regulatory. By late March 2003, with its loan portfolio hurting badly, the FDIC hit the Manistique, Mich., bank with a long, detailed, cease-and-desist order. The publicly held bank, owned by North Country Financial Corp., was ordered to replace management with a more qualified group. A turnaround team was engaged and spent much of 2004 on the beginning of the rescue effort. A massive amount of troubled loans went through collection, sale, or writeoff, shrinking the bank’s total loans by 32%. A new group of investors organized by Mackinac Partners, a turnaround consultancy, bought $30 million in new stock of the holding company. The holding company was renamed Mackinac Financial Corp., and Paul D. Tobias, founder of the consultancy, stepped in as chairman and CEO. “It was very sick, close to insolvency at the holding company level,” admits Tobias, an experienced banker. Loan cleanup continued even through 2007, when the bank decided to let some credits run off at renewal, finding them unprofitable to carry at the pricing the borrowers had grown accustomed to. Today, loan quality is a growing strength. Even among banks not facing the immediate shoals that North Country faced, Michigan has not been a prosperous place to be in recent years. “It was clearly a value play,” says Tobias, explaining his interest in the bank. “This was an opportunity to take an institution that could be saved, and brought back to an even keel faster than creating a de novo bank.” One attraction of this bank, in particular, was its markets. At the time of the recapitalization, the bank’s major focus was in Michigan’s Upper Peninsula. The “U.P.” as natives refer to it, has far less banking competition than other parts of the state, according to Tobias, a native Michigander. In addition, the U.P. 40 JUNE 2008/ABA BANKING JOURNAL Hard road to improvement The basic strategy for the recapitalized bank was to continue to maintain a community banking strategy, with a strong business lending focus, in the U.P., with a “boutique” business lending focus in selected downstate markets. An early challenge was rebranding the bank itself, which now does business as mBank. “We were really a brand-new bank,” says Tobias, “with a whole new management team.” Recapturing much of the business, especially deposits, that drifted away in the bad days meant showing the markets a new face, “a thorough makeover.” New signage and new materials began to do the trick—and also cost a great deal more than expected. Similarly, the new management began to realize that the bank’s technology was considerably outdated, more than was appreciated during due diligence. Though it meant delaying a return to better results, management went ahead and executed a complete computer conversion that had not been in its original plan. Estimates of fee income fell short as deposits initially dwindled. Acknowledging this hole led management to redesign the bank’s deposit options, with an emphasis on low- or no-fee accounts. Overall, this helped boost core deposit levels. Remote deposit capture has been “tailor made for a bank our size,” says Tobias. This service has helped the bank expand into treasury management services, which has contributed to improvement in core deposits. As the exorcism of troubled loans was completed, overall loan quality improved and good loan growth resulted. Along the way, the bank also began making Small Business Administration loans, which has helped bring in fee income. Looking beyond recovery While things have improved, Tobias sees that as a beginning. He says the intention is not to sell the bank—increasingly the longterm strategy for modern de novos—but to pursue healthy growth and continue to run the company profitably. Value creation will be realized in the stock price, over time, Tobias hopes, rather than by selling to a larger bank. Indeed, the $408.3 million-assets organization would entertain an acquisition, to pick up a major chunk of core deposits at the right price. —Steve Cocheo, executive editor www.ababj.com/subscribe.html
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