Back in Black

Back in Black

Traverse City State Bank's ship was floundering, until two determined women took the helm.

TRAVERSE CITY – Ann Bollinger remembers her early days as Traverse City State Bank's chief financial officer like it was yesterday – but she's sure glad it isn't.

"My first job was to record the loss," the Detroit-are transplant recalled, after walking through the doors for her first day of work in 2009. "The joke was 'Great, as soon as you hired her, we lost money.' But a year later, it was only half as bad."

The financial crisis that peaked in 2008 hit every bank across the country, and locally owned TCSB was no exception. The bank's main problems were bad loans and investments, which tallied nearly $3.5 million in losses in 2008 and $1.8 million in 2009.

To stay afloat, the board had to face some brutal facts, said Bollinger. So she, CEO Connie Deneweth – who had joined the bank five months before Bollinger – and board leadership drafted the bank's emergency plan.

The first step: ripping off the proverbial Band-Aid and telling staff, shareholders, customers and vendors "like it was," Bollinger said.

"The plan moving forward was to stick to what we know – basic community banking -and get better at it," she said.

First thing to address was getting badly needed capital, $7.5 million of which was raised by local shareholders from 2009 to 2011.

"None of it was private equity money," said Deneweth. "At a time when almost no Michigan entity could raise capital, we were able to raise $7.5 million … in the worst of times."

But ultimately what those shareholders were investing in was not just a bank, but also a belief in the bank's board and leadership, Bollinger said.

"They all believed we could do it," she said. "And we needed everybody to believe."

With capital in hand, things were moving in the right direction, but the financial wounds were far from healed. Staff had to be cut and tough federal requirements had to be met.

Although its net losses had improved to $157,000, the bank came under federal scrutiny in 2010. It was placed a under a consent order from the Federal Deposit Insurance Corporation and the State of Michigan to address several deficiencies in its operations, primarily those relating to asset quality and capital. Once these deficiencies were addressed, TCSB began focusing on revamping its lending structure.

Bad Loans and Bad Investments

TCSB's spiral into financial distress was not uncommon in the banking world in the mid-2000s. While residential loans were struggling, the "real losses were in the commercial loan portfolio," said Deneweth. All told, $10 million in losses were recorded, though a small percentage has been recovered since.

To stop the hemorrhaging, Deneweth devised a more conservative lending and underwriting practice. She also tapped into the state's Small Business Administration (SBA) loan program, giving more small businesses access to capital to fund machinery and equipment, use for working capital, or purchase real estate.

Less than two years after closing its first SBA loan in late 2009, the bank was a top 10 lender in the state in SBA loans. Mitchell Blue, TCSB's vice-president of commercial lending, has been named SBA Lender of the Year twice since then.

Bad investments also hurt the bottom line, triggering a $2 million hit to the bank's portfolio, said Bollinger. The investments on the books "would have looked solid," she said, "even conservative," but one of those investments was in Lehman Brothers, a financial services firm that infamously billed itself "too big to fail."

When the East Coast giant fell, it took a $900,000 bond with it, Bollinger said. This, along with a few other bad investments, are now off the books.

Today's portfolio is considered to have almost no risk, said Bollinger.

"As a community commercial bank, our investment portfolio is just to protect money," she said. "It should be conservative."

The same is true for lending, something big banks had to scale back on, but TCSB did not, Deneweth said.

"The big banks had lending bans on certain industries, such as manufacturing," said Deneweth. "We didn't. We got a lot of new relationships from that."

Victories were celebrated at TCSB, like when it was upgraded to "adequate" in 2011 up from "troubled" in 2009 by BauerFinancial, an independent bank rating company.

The federal consent order was lifted in 2012, although it had already met or exceeded all agreed upon goals several months ahead of schedule, Deneweth said.

Into the Black

As external regulations were lifted, internal change meant new faces at the helm. The bank has a nearly new board of directors, senior management (Bollinger was named president this past May) and now employs 83, up from about 60 in 2008.

Deneweth says her worst days weren't at the bank, per se; they were the three times the bank made the front page of the daily newspaper.

"One story talked about four deposits we had lost," she said. "I've gotten three back and am still working on the fourth. That was my goal, to get those back."

In addition to its former customers, TCSB has recovered its reputation. This spring, it was tied for second in mortgage production year-to-date with $27.6 million lent county-wide. Core deposits are up 28 percent from 2009.

Beyond its internal belt-tightening, Deneweth credits the bank's turnaround to an aggressive marketing campaign and the appointments of several staff and board members to key positions in area organizations.

"We stayed connected," said Deneweth. "We write smaller checks, but we really dig in."

For Bollinger, the hardest days were "that first year. After that, I never doubted. It was really clear what we had to do."

It took four years, but by 2011 the bank was again profitable, recording $383,000 in profits. Last year the bank was $1.5 million in the black.

Today, the 13-year-old bank is marching forward strategically, with taking care of their shareholders as the foremost goal.

"Our personal goal is to get the shareholders who lost money back to where they started," Deneweth said. "We're clearly in this for the long haul."