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 http://www.bankmbank.com/mfc/Pages/home.aspx http://www.mackinacpartners.com http://www.bankmbank.com/mfc/Pages/home.aspx http://www.ababj.com/subscribe.html

Table of Contents for the Digital Edition of ABA Banking Journal - June 2008

ABA Banking Journal - June 2008
Contents
Editor’s Column
Do Fee-based Services Have an Edge?
Snapshot: Net Interest Margins Vary Sharply with Size
100th Anniversary: Then & Now
Letters
ABA Resources
ABA Chairman’s Position
"What? No Annual Surprise Bonus?"
Pass the Aspirin
Cover Story: Top Community Banks: How They Did...
...And How They Did It
Charter Bank
First East Side Savings Bank
Mackinac Financial Corp.
The Peoples Bank
Managing the E-mail Monster
In Brief
Handling PEPs in the Age of "L'affaire Spitzer"
Mailbox
Banker’s Mart
To Advertise/Index of Advertisers
The Economy

ABA Banking Journal - June 2008

http://www.nxtbook.com/naylor/BAKS/BAKS0515
http://www.nxtbook.com/naylor/BAKS/BAKS0415
http://www.nxtbook.com/naylor/BAKS/BAKS0315
http://www.nxtbook.com/naylor/BAKS2/BAKS1014
http://www.nxtbook.com/naylor/BAKS2/BAKS0914
http://www.nxtbook.com/naylor/BAKS2/BAKS0814
http://www.nxtbook.com/naylor/BAKS2/BAKS0714
http://www.nxtbook.com/naylor/BAKS2/BAKS0614
http://www.nxtbook.com/naylor/BAKS2/BAKS0514
http://www.nxtbook.com/naylor/BAKS2/BAKS0414
http://www.nxtbook.com/naylor/BAKS2/BAKS0314
http://www.nxtbook.com/naylor/BAKS2/BAKS0214
http://www.nxtbook.com/naylor/BAKS2/BAKS0114
http://www.nxtbook.com/naylor/BAKS2/BAKS1213
http://www.nxtbook.com/naylor/BAKS2/BAKS1113
http://www.nxtbook.com/naylor/BAKS2/BAKS1013
http://www.nxtbook.com/naylor/BAKS2/BAKS0913
http://www.nxtbook.com/naylor/BAKS2/BAKS0813
http://www.nxtbook.com/naylor/BAKS2/BAKS0713
http://www.nxtbook.com/naylor/BAKS2/BAKS0613
http://www.nxtbook.com/naylor/BAKS2/BAKS0513
http://www.nxtbook.com/naylor/BAKS2/BAKS0413
http://www.nxtbook.com/naylor/BAKS2/BAKS0313
http://www.nxtbook.com/naylor/BAKS2/BAKS0213
http://www.nxtbook.com/naylor/BAKS2/BAKS0113
http://www.nxtbook.com/naylor/BAKS2/BAKS1212
http://www.nxtbook.com/naylor/BAKS2/BAKS1112
http://www.nxtbook.com/naylor/BAKS2/BAKS1012
http://www.nxtbook.com/naylor/BAKS2/BAKS0912
http://www.nxtbook.com/naylor/BAKS2/BAKS0812
http://www.nxtbook.com/naylor/BAKS2/BAKS0712
http://www.nxtbook.com/naylor/BAKS2/BAKS0612
http://www.nxtbook.com/naylor/BAKS2/BAKS0512
http://www.nxtbook.com/naylor/BAKS2/BAKS0412
http://www.nxtbook.com/naylor/BAKS2/BAKS0312
http://www.nxtbook.com/naylor/BAKS2/BAKS0212
http://www.nxtbook.com/naylor/BAKS2/BAKS0112
http://www.nxtbook.com/naylor/BAKS2/BAKS1211
http://www.nxtbook.com/naylor/BAKS2/BAKS1111
http://www.nxtbook.com/naylor/BAKS2/BAKS1011
http://www.nxtbook.com/naylor/BAKS2/BAKS0911
http://www.nxtbook.com/naylor/BAKS2/BAKS0811
http://www.nxtbook.com/naylor/BAKS2/BAKS0711
http://www.nxtbook.com/naylor/BAKS2/BAKS0611
http://www.nxtbook.com/naylor/BAKS2/BAKS0511
http://www.nxtbook.com/naylor/BAKS2/BAKS0411
http://www.nxtbook.com/naylor/BAKS2/BAKS0311
http://www.nxtbook.com/naylor/BAKS2/BAKS0211
http://www.nxtbook.com/naylor/BAKS2/BAKS0111
http://www.nxtbook.com/naylor/BAKS2/BAKS1210
http://www.nxtbook.com/naylor/BAKS2/BAKS1110
http://www.nxtbook.com/naylor/BAKS2/BAKS1010
http://www.nxtbook.com/naylor/BAKS2/BAKS0910
http://www.nxtbook.com/naylor/BAKS2/BAKS0810
http://www.nxtbook.com/nxtbooks/sb/ababj0710
http://www.nxtbook.com/nxtbooks/sb/ababj0610
http://www.nxtbook.com/nxtbooks/sb/ababj0510
http://www.nxtbook.com/nxtbooks/sb/ababj0410
http://www.nxtbook.com/nxtbooks/sb/ababj0310
http://www.nxtbook.com/nxtbooks/sb/ababj0210
http://www.nxtbook.com/nxtbooks/sb/ababj0110
http://www.nxtbook.com/nxtbooks/sb/ababj1209
http://www.nxtbook.com/nxtbooks/sb/ababj1109
http://www.nxtbook.com/nxtbooks/sb/ababj1009
http://www.nxtbook.com/nxtbooks/sb/ababj0909
http://www.nxtbook.com/nxtbooks/sb/ababj0809
http://www.nxtbook.com/nxtbooks/sb/ababj0709
http://www.nxtbook.com/nxtbooks/sb/ababj0609
http://www.nxtbook.com/nxtbooks/sb/ababj0509
http://www.nxtbook.com/nxtbooks/sb/ababj0409
http://www.nxtbook.com/nxtbooks/sb/ababj0309
http://www.nxtbook.com/nxtbooks/sb/ababj0209
http://www.nxtbook.com/nxtbooks/sb/ababj0109
http://www.nxtbook.com/nxtbooks/sb/ababj1208
http://www.nxtbook.com/nxtbooks/sb/ababj1108
http://www.nxtbook.com/nxtbooks/sb/ababj1008
http://www.nxtbook.com/nxtbooks/sb/ababj0908
http://www.nxtbook.com/nxtbooks/sb/ababj0808
http://www.nxtbook.com/nxtbooks/sb/ababj0708
http://www.nxtbook.com/nxtbooks/sb/ababj0608
http://www.nxtbook.com/nxtbooks/sb/ababj0508
http://www.nxtbook.com/nxtbooks/sb/ababj0408
http://www.nxtbook.com/nxtbooks/sb/ababj0308
http://www.nxtbook.com/nxtbooks/sb/ababj0208
http://www.nxtbook.com/nxtbooks/sb/ababj-compsurv08
http://www.nxtbook.com/nxtbooks/sb/ababj0108
http://www.nxtbook.com/nxtbooks/sb/ababj1207
http://www.nxtbook.com/nxtbooks/sb/ababj1107
http://www.nxtbook.com/nxtbooks/sb/ababj1007
http://www.nxtbook.com/nxtbooks/sb/ababj0907
http://www.nxtbook.com/nxtbooks/sb/ababj0807
http://www.nxtbook.com/nxtbooks/sb/ababj0707
http://www.nxtbook.com/nxtbooks/sb/ababj0607
http://www.nxtbook.com/nxtbooks/sb/ababj-jackhenry
http://www.nxtbook.com/nxtbooks/sb/ababj0507
http://www.nxtbook.com/nxtbooks/sb/ababj0407
http://www.nxtbook.com/nxtbooks/sb/ababj0307
http://www.nxtbook.com/nxtbooks/sb/ababj-compsurv07
http://www.nxtbook.com/nxtbooks/sb/ababj0207
http://www.nxtbook.com/nxtbooks/sb/ababj0107
http://www.nxtbook.com/nxtbooks/sb/ababj1206
http://www.nxtbook.com/nxtbooks/sb/ababjcompsurv2006
http://www.nxtbookMEDIA.com