By Vanessa Mambrino, consultant & Nick Robin, business analyst, Capital Performance Group LLC, Washington, D.C., a firm providing advisory, planning, analytic, and project management support to the financial services industry. 

 

 

The Recovering Bank
Oxford Bank Corp. of Oxford, Mich., ranked #1 among non-subchapter-S corporations with between $100 million and $1 billion in total assets, is the tenth bank that the bank’s president, Jim Bess, has been tasked with turning around.  Oxford Bank has been operating in Oakland County, Mich., since 1884 and is the area’s oldest community bank.  Like many others, the bank entered fairly heavily into residential mortgage lending in the last decade and was unprepared for the events of 2008.  Bess arrived at the bank in 2009 after it had been under a C&D order for a year. 

Oxford Bank’s situation has gradually been improving ever since.  The bank has downsized its balance sheet, shrinking from total assets of $330.8 million in 2009 to $264.3 million in 2011.  Delinquencies and nonperforming loans have declined steadily since 2009 – though there is room for further improvement as, at 2.93%, Oxford Bank’s ratio of nonperforming loans to total loans remains higher than the average for top performing large non-S-corps of 1.65% (the average for all large non-S-corps was 3.11%).  The bank returned to profitability in November 2010 and has remained in the black ever since.  Lending has picked up at Oxford Bank, primarily in the form of SBA and USDA loans.

In 2011, Oxford Bank’s earnings were significantly impacted by a one-time benefit: the bank had aggressively set aside reserves for loan losses in the previous two years and was able to recoup some of those reserves when the loss experience was revealed to be less than originally estimated.  This dramatically decreased the bank’s provision expenses and helped to swing annual net income from -$1.2 million to $4.3 million.  Oxford Bank was one of many institutions in this year’s rankings that reaped the benefits of a successful turnaround and now looks to build up various lines of business to support a sustained recovery.

Oxford Bank expects to realize a profit again in 2012, based on performance in the first quarter of the year, but may not be back at the top of the list for a little while.  “We are not trying to go too fast or to build our balance sheet too quickly,” says Bess.  In the near-term, the bank is focused on maintaining its “excellent balance sheet fundamentals” and “aggressively” raising new capital.  Oxford Bank used a great deal of capital to help in its recovery, but Bess believes the bank can return to well-capitalized status within three years.  In addition, Oxford Bank is working to generate new loans by expanding its SBA lending team and focusing on the CRE market, with the goal of increasing its loans-to-deposits ratio from 71% to between 85% and 95%.

 

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[This article was posted on June 22, 2012, on the website of ABA Banking Journal, www.ababj.com.]     

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