View from Main Street: Interview with Dennis Angner, CEO of Isabella Bank Corp, MichiganWith double-digit unemployment, central Michigan saw today's financial crisis long before much of the rest of the nation. And Dennis Angner has been front and center to see it.
Past chair of the Michigan Bankers Association, Angner is CEO if Isabella Bank Corp., a $1.5 billion community banking institution. In this exclusive interview, Angner discusses:
TOM FIELD: Hi. This is Tom Field, Editorial Director with Information Security Media Group. The topic today, as it has been for so long, is banking confidence, and we're talking with Dennis Angner, CEO at Isabella Bank Corp. Dennis, thanks so much for joining me today.
DENNIS ANGNER: Thanks, Tom. I appreciate the opportunity.
FIELD: Now, first of all, I understand that your company has recently undergone a name change, so why don't you tell us a little bit about the company and your holdings.
ANGNER: Yes, the Isabella Bank started out as the Isabella County State Bank in 1903, and operated under that name until 1972, when it was changed to Isabella Bank and Trust. Recently, just as a part of freshening the logo and freshening the name, we dropped the "and Trust," and so we think it is just easier to market to people without having such a long name.
FIELD: Now, give us a sense of sort of the size and the scope of Isabella Bank.
ANGNER: Yeah, we're about $1.1 billion. We operate in the mid-Michigan area, covering basically five counties, with a population in the neighborhood of about 200,000. In those counties, we are by far the largest institution operating in those counties. We have about 30% of the market share. So, we are truly a community bank. From our main office, we have no offices further than 45 miles ...
FIELD: So, Dennis, give us a sense of how your institution has been impacted by the recent global economic issues that we are all hearing about every day.
ANGNER: Yeah. You know, certainly, it falls in a couple of areas. While we, like most community banks, did not participate in all the craziness that was going on in the mortgage markets, the drop in real estate values as a result of the meltdown has certainly had an impact on our markets, with the additional caveat of, you know, we're in Michigan, and Michigan has been in a recession for six years. So, when you add the decrease in market value with unemployment well above national averages, it makes for an interesting operating environment for many Michigan banks.
We've been fairly fortunate, in that while we've sustained losses, not nearly as heavy as many of the banks in this state. This year, I think, probably, all told, out of about 6,000 mortgages, I think we have initiated about 50 foreclosures. But what we do see is the losses that we sustain on those have increased dramatically; probably, on average, about 30% of the outstanding loan balance. We were a typical underwriter, in that, you know, you had to have 20% down. So, in some cases, that would indicate anywhere up to a 50% decline in real estate values. That has made us all somewhat nervous. So, I mean, that's the first piece, that you certainly see the strain in our local economy. We have unemployment in this market, a little over 10% right now, in the entire region. So, we see that strain there. We've been working with a lot of customers to keep them in their homes.
We don't need the government's encouragement to do the right thing there. If you want to work with us, we will work with you. That's pretty much our golden rule, and always has been. The other part is, what has been going on industry-wide, and also, like many banks, we were really concerned back, it really started back in early September, we cut back our exposure to our correspondent banks. We were maybe part of the problem that the Federal Reserve was talking about, about banks not being willing to lend to other banks, because we were unwilling to lend to other banks, unsecured, also. It just didn't seem like a very wise thing to do at the time.
FIELD: So, Dennis, how do you gauge the level of customer confidence in your institution, and how have you seen that change in the past year, if at all?
ANGNER: Oh, yeah. Certainly we have seen a change. For one thing, you look back, and you never talked about the safety of the institution. Everybody just knew it was safe, never had a question. We are now marketing to those people.
First, with our staff, we had a huge outreach, starting, really, probably back in July, to explain to our staff that we are safe, we are sound. You know, while we have difficulties, we have always had difficulties. They're not really that much different than what we have always faced. So we -- first we had to make sure that everyone from the tellers right on up understood where we're at, and that we are very comfortable with that. Because most customers, their primary point of contact in the bank is the teller, probably, by far, the vast majority.
So, we had to make sure we get to those. And then, additionally, you know, we went to some independent rating services, and we published independent ratings that we were able to obtain, just to reassure the public. And then, certainly, all of us have fielded questions from time to time. Some of our very large corporate customers have required additional hand-holding. And, certainly, some of them have taken the tack that we have secured ties with their excess deposits, through repo's, just because they were scared, and understandably so. But on the other hand, we have also benefitted from customers moving accounts here, because we are in a good position, relative to a lot of the other financial institutions in this country.
FIELD: So, what are the questions you're getting from customers now, and what, specifically, are you saying to them when they ask those?
ANGNER: The most common one is "Am I going to lose my money?" And it's really remarkable how little people really understand FDIC insurance. That the basic question, "Is my money safe?" And, you know, the easiest way is "Well, if you don't have more than ... well now it's $250,000 in the bank, you're safe." And, there are lots of ways you can insure more than $250,000. So, we refer a lot of customers to the FDIC website.
We put on a financial forum that was really well attended in the beginning of October. We had about 200-plus people that attended that forum, and we covered FDIC insurance with the public. And, you know, that was a real success, and we had noncustomers actually attend that. It's just, it's about having a consistent message. Don't run and hide from it, just have a consistent message: "We're safe. We're sound. Your money is safe and sound with this institution." And "If you have more concerns, or you need, you know, more information, then we have a lot of people that would be willing to sit down and look at your particular situation, and provide you unbiased advice." So ....
FIELD: Boy, that's well said. Now, given the economic conditions, and specifically in Michigan, where you've been in a recession and you've got such unemployment, do you find that your institution and customers are at any greater risk of phishing and social engineering and some of those opportunistic crimes?
ANGNER: We're pretty fortunate in that, you know, we're mainly a farm community. Half of our market is really fertile ground, and the other half is great for growing potatoes. We are fairly high tech. We constantly remind our customers "Don't provide information." We did have an incident two, two and a half months ago that actually made the news here locally, that somebody had phished and had successfully got a customer's information.
But, you know, that's another area you've just got to constantly remind people, "We have your information, and you don't ever need to provide it." So, we communicate that as often as possible, but you know elderly people tend to be particularly vulnerable to that, for whatever reason. I think they're just more trusting by nature. And so it's important that we continually reach out, and you educate your tellers, because often these scams require somebody on the inside to make a mistake. So, it's also about training your people to recognize when somebody might be being phished.
FIELD: Now, again, given the economic conditions and what you have been through, what would you say are your top two or three business objectives, as you head into 2009?
ANGNER: By far, controlling our losses is the number one. Being realistic, recognizing problem loans up front and realistically valuing them. Don't try to sweep anything underneath the rug. Two, we think it's a time to gain market share. And, three, we think education is now probably more important than ever. Those are kind of our internal priorities. You know, concentrating on loan quality, and making sure that we educate our people. There is no better time than right now to do that. And, then, of course, to continue to market our strengths, to gain market share.
FIELD: Where do you see your opportunities to gain market share? In new services, or in, in picking up new deposits?
ANGNER: Yeah. We're rolling out some new technical products, remote capture, um, merchant capture. Additionally, we've come up with a really good cash management program that we think is very, very attractive for a lot of businesses, and it's priced very right. And we think people will be more receptive now to listening to ideas from other institutions than maybe they would have been in the past, or they're certainly more aware of the importance of having a good bank. So, I think that those are the kinds of things that we are going to concentrate on. Also, to be really quite frank, and I don't want to ... the credit crisis is real.
We've seen it, we started seeing it up here in July. We know some of our competitors have certainly taken real hard lines with a lot of their customers. One bank is pretty much renewing all commercial credit at 8.5% -- that's it, that's their standard rate. So, we're getting, they're driving customers from their organization. Frankly, they are trying to reduce the size of their organization. We see that with several of the institutions. So, it's also given us a good opportunity to talk with these people, to take a look at their business, and quite frankly, to make the decision, not from a rate perspective, but from an underwriting standard. "Yeah, this is someone we would like to have a long-term relationship with, because it's not all about rate all the time. So ....
FIELD: You talked earlier about staying on message in terms of responding to customers. What do you find going forward are going to be some of your best ways to enhance and maintain this customer confidence that we spoke about?
ANGNER: You know, for us, that job has been fairly easy because we haven't sustained losses, so we have a good story to tell. I don't know. If you're having difficulties, I think the message is a little different. Ours is just, you know, our, our earnings are up, earnings per share are up this year, our net income is up, we're growing, we're well capitalized. You know, so those are the messages that we deliver, and it's an easy message, because it can all be verified, and so, it's a message of strength to customers. I think it's a little more difficult for some of the institutions to be able to do that. I think you have to take a little different tact, but for us it's been fairly easy.
FIELD: That's good. Yeah, we saw a bunch of major banks, and some smaller ones, even, receive billions from the government over the past couple of weeks. What do institutions like yours need, if anything, to improve your liquidity?
ANGNER: For one thing, we are very liquid. We have about, out of our $1.1 billion in assets, about $300 million in investment securities. We are extremely liquid, which is a nice place to be. We're well-capitalized. So, you know, one of the things we did is we, we have $100 million we could lend out tomorrow, you know, so that's, that's something that we put in the paper, we talked about .... You know, the capital purchase program is an interesting concept.
I think everybody's focus is, right now, from the banking community - I don't know if you knew I was past chair of the Michigan Banker's Association. I visited the whole state last year, and you could already see the strain with a lot of the bankers coming with capital. That's going to be a real valuable tool for a lot of the banks, to be able to raise capital, because you simply cannot do it from private sources right now. The private sources are all gone, for raising capital. For an institution like ours, I look at it, and I just, it's like, you know, if we have an acquisition potential, it might be nice to have that in our back pocket, but on the other hand, I worry about allowing the government to stick it's nose - the camel sticking their proverbial nose into our economy, because you don't know where it's going to end. You know, these are what they're saying, "These are the rules right now," but if they made the rules, they can change the rules. What is the next President, what their approach is going to be? What's the next Congress approach going to be? So, I am very leery, but if it's a matter of survival, then you do it, and you just worry about the consequences later. For us, it's a question of whether we need it to take advantage of the opportunity.
FIELD: That's well said. Dennis, I appreciate your time and your insight today.
ANGNER: Hey, no problem, Tom. It was my pleasure.
FIELD: We've been talking with Dennis Angner, CEO of Isabella Bank Corp. For Information Security Media Group, I'm Tom Field. Thank you very much.