Investor logic and capital plays

Park State Bank’s Minneapolis team, from left: Danga Tshefu, client experience associate; Betsy Dorow project manager and client experience lead; David Saber, president; Leann Stessman, chief operating officer, and Judy Vistad, client experience associate.

Editor’s note: This is part two of a two-part profile of Park Financial Group. Read part one here.

 

A customer-centric culture and having capital to serve a market are tried-and-true ways to achieve steady organic growth. To drive exponential growth like 40-year-old President and CEO David Saber is doing requires a strategic X-factor. And capital. Park Financial Group has both in Andy Redleaf, its primary shareholder.

Redleaf is a Yale-educated mathematician and St. Paul native who founded the highly-successful Minneapolis-based hedge fund Whitebox Advisors. Saber called Redleaf “brilliant, and a very supportive owner.”

To Redleaf, support manifests in simple ways. “I answer the phone when he calls,” he laughed, “but I don’t dial out much.” 

More critically, Saber said Redleaf and the board challenge the team to think strategically and differently about how to get deals done, and as well as to invest, grow and deploy capital. They also preach patience and waiting for the right opportunity, which could mean a range of investments or partnerships that make long-term strategic sense, he added.

Consider Park Financial’s recent deal with Mesaba Bancshares, a two-bank holding company based in northern Minnesota: “There was a need for a liquidity event for the founder,” Saber explained. There were shareholders who wanted out and there were shareholders who wanted to stay. “We were thankful to be selected as the organization with whom they wanted to partner.”

When Park Financial bought an interest in Mesaba, it gained two seats on the Mesaba Bancshares board, and two seats each on the boards of its two Minnesota-based subsidiary banks — the $465 million American Bank of the North of Nashwauk, and the $122 million The Lake Bank of Two Harbors. Park Financial is not involved in the management of either of these banks.  

The deal gave Park Financial a significant yet minority stake in Mesaba — 48.4646 percent to be exact — and the rights to buy the rest of the bank at a future date. “I’m sure not many organizations could have put this deal together,” Saber said.

Mesaba, which had been under a regulatory enforcement action, recently had that order lifted. More importantly, perhaps, the deal has catapulted the consolidated assets of Park Financial Group to more than $800 million.

Outsider approach to lending

When pressed on the various ways in which a bank can add value to its local economy, Saber said Park is similar to its competitors in how it seeks solid loans. He believes, however, that there are ways to serve worthwhile borrowers who at times may be unable to access necessary growth capital while “also satisfying bank regulators and ensuring the appropriate risk-management mechanisms are firmly in place.”

Andy Redleaf

“A bank has to act like a bank; it can’t be more aggressive than any other bank,” said Redleaf on an episode of the Credit Allocation podcast, where he explained his business plan, which allows customers to access credit through the bank, through Park Financial Group, and through him personally. 

“With a high-touch, nimble approach coupled with access to capital, the Park team can move more quickly on lending decisions and be a source of growth capital for businesses that are cycling into profitability,” Saber said. These include deals typically done for private client services, private equity firms or investment funds. “For the right opportunity, Park Financial has provided financing or overlines to get the deal done,” Saber said.

Saber offered an example of a successful Twin Cities business with upwards of $12 million in annual sales in the throes of an ownership transition and buyout. Prior to the financial crisis, the operation would have had no trouble getting a loan from a big bank, Saber said. “That’s not the case in today’s environment.”

Park structured a deal by working with the new owner and the long-time owner, with a non-bank entity financing the rest. “It was a deal worth doing,” said Redleaf, who recently announced plans to leave his position at Whitebox after 20 years in order to focus on growing Park Financial. 

There are a lot of deals like this one waiting for bankers who are willing to challenge themselves to move beyond conventional metrics that dictate how to assess a business’s profitability, Redleaf explained. Bankers should look beyond the standard metrics, the two-year track record. “Proof of performance was different before the crisis,” Redleaf said. “A business with two months’ of profitability might be primed for capital.”

They also believe aspects of traditional mortgage lending are ripe for reinvention. Banks that only rely on Fannie and Freddie will look past many potential credit-worthy borrowers, Redleaf said. 

“With the right credit and financial history, we can figure out a way to appropriately make the loan,” Saber said.

Capital plays

From his tiny office wedged into a downtown Minneapolis building situated on the Nicollet Mall, Saber explained how Park Financial is well-positioned to help shareholders who are looking to exit an increasingly difficult regulatory environment. In addition to its track record with partners and its positive relationships with regulators, Park’s ability to access capital in a capital-intensive business positions it well for profitable and sustainable growth. 

Recent merger and market dynamics in both Duluth and Minneapolis may favor future partnerships, Saber said. “We are always on the lookout for talent and given our increasing lending limit and competitive technology platform, hope to have many conversations in the coming months with talented people or teams looking for a long-term place to grow and have some fun.”

When Redleaf started Whitebox in 1999, he strived for 20 percent growth for 20 years. Redleaf was not willing to apply that same formula to Park Financial, but said he is confident Saber will lead a company currently lapping at the shores of $1 billion in assets, to achieve sustainable and profitable growth in the years to come. 

Redleaf said the approach is not revolutionary. “It’s about combining things that, at times, haven’t been done under one roof before,” he said. “We can think like a business development corporation, but touch and assist more, deposits, payments. What an opportunity this environment presents.”

“We will continue to focus on doing things that are attractive and add value from our customers’ point of view,” Saber said.

Park Financial has the capital for additional growth, the willingness to explore niche opportunities, to invest in technology and mobile delivery, and wants to attract talent “given we are here for the long-term,” Saber said. “We work well with others.”