View from Main Street: Interview with Dennis Angner, CEO of Isabella Bank Corp, Michigan

With 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:

How his bank has been impacted by the global economic crisis;
The state of customer confidence in his institution - and how it can be strengthened;
Immediate business priorities, including the rollout of new services in an attempt to gain marketshare.

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 are talking with Dennis Angner, CEO of 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, 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, which recently -- just as a part of the past four months of freshening the logo and freshening the name -- we just dropped the "and Trust," and we think it is just easier to market people without having such a long name.

FIELD: Sure.

ANGNER: We want to re-brand the entire brand this year. It has been an interesting exercise.

FIELD: Now give us a sense of sort of the size and scope of Isabella Bank.

ANGNER: Yeah, we are about $1.1 billion dollars. 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, and we have about 30% of the market share. So, we are truly a community bank.

FIELD: Great. 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 market, the drop in real estate values as a result of a meltdown has certainly had an impact on our markets. With the additional caveat that we are 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 has made for an interesting operating environment for many Michigan banks.

We've been fairly fortunate in that while we sustained losses, they were not nearly as heavy as many of the banks in the 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 are the losses that we sustain on those have increased dramatically, probably on average about 30% of the outstanding loan balance. We are a typical underwriter in that 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.

I mean, that's the first piece is that we 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 the strain there, and we have been working with a lot of customers to keep them in their homes. We don't needs government's encouragement to do the right thing there. If you want to work with us, we will work with you, and that is pretty much our Golden Rule and always has been.

The other part is what has been going on industry-wide ,and like many banks we were really concerned back in, it really started back in early September, we cut back our exposure to our correspondent banks. We are maybe part of the problem that the Federal Reserve was talking about -- that 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. We are still taking a cautious approach there, but we are doing a little bit, mostly with our main correspondent for cash level clearings.

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 it change. For one thing, you look back, and you never talked about the safety of the institution. Everybody just knew it was safe and 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 our staff to explain to our staff that we are safe, we are sound, and while we have difficulties we have always had difficulties or that they are not really not that much different than what we have always faced. So, first we had to make sure that everyone from the powers right on down understood where we were at and that we were very comfortable with that and because most customers, their primary point of contact in the bank is a teller, probably by far the vast majority, so we had to make sure that we got to those levels.

And then, additionally, we went to some independent rating services and we published the independent rating 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 taken the tack that we have securitized their excess at the top through repo's just because they were scared and understandably so. But on the other hand, we have also benefited from customers moving accounts here because we are in a good position relative to a lot of the other financial institutions around the country.

FIELD: So what are the questions you are getting from customers now, and what specifically are you saying to them when they ask those?

ANGNER: Well you know the most common one is "am I going to loose my money," and it is really remarkable how little people really understand FDIC insurance. That is the basic question, "is my money safe." And the easiest way is if you don't have more than, well now it is $250,000 in the bank, you are safe. And there are lot's of way you can insure more than $250,000, and so we refer a lot of customers to the FDIC website. We've put on a financial forum that was really well attended in the beginning of October that we had about 200 plus people that attended that forum, and we covered FDIC insurance with the public, we had different sessions, investing, FDIC, those types of things and that was real successful. We had non-customers actually attend that.

You know, it is just about having a consistent message and don't run and hide form it. Just have a consistent message: We are safe, we are sound, your money is safe and sound with this institution, and if you have more concerns or you need more information, then we have a lot of people that are willing to sit down and look at your particular situation and provide you unbiased advice.

FIELD: Well that's well said. Now given the economic conditions and specifically in Michigan where you have 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 are pretty fortunate in that we are mainly farm--basically we are farm communities. We have about half of our market is really fertile ground, and the other half is great for growing potatoes, so we don't have the region centers, but we do have a large university here in Mount Pleasant, where we are located -- Central Michigan University -- so there are always concerns, and we are fairly high-tech. We constantly remind our customers to not provide anybody information. We did have an incident two, two and half months ago that actually made the news here locally, that somebody had phished and had successfully gotten a customer's information. But you know, that is another area that you have just got to constantly remind people that 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 are just more trusting by nature.

And so it is important that we continually reach out and you educate your tellers because often the scams require somebody on the inside to make a mistake. And so it is 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 loan losses is the number one. Being realistic, recognizing problem loans up front and realistically valuing them and not trying to sweep anything under 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, and 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 strength to gain market share.

FIELD: Where do you see your opportunities to gain market share, in new services or in picking up new deposits?

ANGNER: Here we are rolling out some new technical products, remote capture, and merchant capture. Additionally, we have come up with a really good cash management program that we think is very attractive for a lot of businesses, and it is 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. They are 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--but the credit crisis is real. We started seeing it up here in July. We know some of our competitors have certainly, have basically taken really hard lines with a lot of their customers. One bank is pretty much renewing all commercial credits at 8.5% and that's it -- that is their standard rate, and so they are driving customers from their organizations. Frankly, they are trying to reduce the size of their organization.

We see that with several of the institutions, so it has 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 that yeah, this is someone we would like to have long-term relationship with because it is not always about rate all the time.

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 the losses, so we have a good story to tell. I don't know ... if you are having difficulties, I think the message is a little different, but ours is just -- our earnings per share were up this year, net income is up, we are growing, we are well capitalized, you know, so those are the messages that we deliver, and it is an easy message because it can all be verified and so on. So it is just a message of strength to customers. I think it is a little more difficult for some of the institutions to be able to do that. They may have to take a little different path, but for us it has been fairly easy.

FIELD: That's good. Now 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, so we are extremely liquid, which is a nice place to be. We are well capitalized, so one of the things we did is we have $100 million dollars that we could lend out tomorrow. So that is something that we've put in the paper and we've talked about.

The capital purchase program is an interesting concept. I think everybody's focus right now from the banking community --I don't know if you knew I was Past-Chair of the Michigan Bankers Association, so I visited the whole state last year, and you could already see the strains of a lot of the bankers coming with capital and that is 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 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 am leery about allowing the government to stick its proverbial nose -- the Camel sticking its proverbial nose into our accounts -- because you don't know where it is going to end. These are what they are saying are the rules right now, but if they made the rules, they can change the rules and what about the next President; what is their approach going to be? What is the next Congress' approach going to be? So I am very leery, but if it is a matter of survival, then you do it and you just worry about the consequences later. For us it is the question of whether we need it to take advantage of our opportunities.

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.

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