Certus Chief's 2015 Challenges: Break Even, Build Capital

When John Poelker agreed to lead CertusBank in April, he joined a bank that was hemorrhaging money and had just fired its three founding executives amid a flurry of media attention over questionable financial transactions.

Poelker managed to put an end to the chaos by the end of the year, but the Greensville, S.C., company's challenges — especially persistent losses of around $10 million a quarter — remain grave. Even if Poelker is able to clear away the problems he inherited, Certus faces tough economic and regulatory headwinds and lacks a clear path to profitability.

The former bank consultant has a reputation for leading troubled banks, but never, perhaps, has he attempted a turnaround under so many watchful eyes. Certus is facing intense scrutiny from investors and regulators, and has been under an unusual amount of media attention due to the allegations surrounding its founders' dismissal.

Poelker's efforts to pull Certus together after its much-scrutinized meltdown makes him one of American Banker's five community bankers to watch in the new year. He joins Dan Rollins of BancorpSouth and three other bankers who will be profiled in coming days.

Poelker and Certus declined to comment for this article, but in an August, when the bank revamped its board, he said investors understood that a turnaround would take considerable time.

"They know that there is no easy fix, and they seem to be satisfied that we are pursuing all the available options relative to trying to restore or protect their investment," he said. "It's a very understandable and a normal sort of relationship between investors in a struggling company and a management [team] that is struggling to get it fixed."

The Office of the Comptroller of the Currency added an extra hurdle last month, slapping Certus with a cease-and-desist order that requires the bank to form a compliance committee, vet any major hires through the OCC and establish plans to improve internal controls and avoid conflicts of interest. The order also requires the bank to hold Tier 1 capital of 10%, compared to its 6.37% as of Sept. 30.

Poelker was picked to lead Certus in part for his strong reputation with Georgia bankers as well as regulators. He is the former chief financial officer of Atlanta's State Bank Financial, which has successfully executed the failed-bank rollup strategy that Certus was formed to pursue.

He's also a longtime consultant, known for stepping in at the last moment to lead troubled lenders Georgian Bancorp in Atlanta and Beach First National Bank in Myrtle Beach, S.C. Though those banks failed, their directors and regulators appreciated Poelker's eleventh-hour stewardship, says lawyer Walt Moeling of Bryan Cave.

Moeling, who has known Poelker for years and recommended him to Certus' board, said leading Certus has been "incredibly challenging" for Poelker.

"He was selected because he's the kind of guy who can rise to the challenge, and not only intellectually," Moeling said. "He has a fairly unusual temperament that keeps him steady and focused on what needs to be done amid all the name-calling and distractions."

These distractions have been considerable. Poelker joined Certus right after it fired three of its founders in the wake of an American Banker report detailing their spending on private-jet flights, fine art and executive apartments, even as the bank posted combined losses of $96 million in 2012 and 2013. The article also focused on Certus' questionable related-party transactions, including payments of millions in fees to a consultancy owned by the bank's founders.

Weeks after being ousted, the executives — Milton Jones, Angela Webb and Walter Davis — filed a lawsuit against CertusBank, along with investor Benjamin Weinger of 3-Sigma Value Financial Opportunities, claiming they were defamed and then fired as part of a racist conspiracy. (A fourth founder, Charles Williams, resigned from the bank and did not join the lawsuit.) The lawsuit also claimed that the spending and related-party transactions were approved by the board and regulators.

The lawsuit was dismissed by the U.S. District Court for South Carolina in late October, but Jones, Webb and Davis appealed it the next month.

The litigation and the press coverage it has spawned are no doubt a distraction for Poelker, and an expense for the bank. But Certus has more fundamental issues to confront. Poelker identified three main challenges in August.

The first involves winding down the bank's infrastructure, much of which was created by the previous regime with the expectation of growing to be a superregional bank with roughly $10 billion in assets. The $1.5 billion-asset Certus has closed just two branches since Poelker took over, but has shrunk its staff by nearly 20%, to 515, according to data from the Federal Deposit Insurance Corp.

The second priority has been returning to a basic community-banking model by selling or exiting ancillary businesses, like its broker-dealer, wealth management and mortgage arms.

The third step is protecting Certus' credit quality as loss-sharing agreements with the FDIC expire. About a quarter of the bank's $937 million loan book is covered by loss-share agreements, and managing that portfolio has been a challenge, exacerbated by the loss of employees with expertise in liquidating loans, Poelker said.

"To be completely honest, I and our executive management team still do not have a really high level of confidence at being able to predict what the credit costs will be over the next six to eight quarters," he said in August.

Once Poelker is able to stop Certus' bleeding, he will still have to find a path to profitability. His experience at State Bank could provide a template, but Certus is not the only bank built on FDIC deals that has found consistent profits elusive.

Selling the bank is also possible, even if the market right now is unlikely to be encouraging. It's also unclear if Poelker, who is 71, plans to stay at the bank for the long term and help craft a long-term strategy.

Poelker "has typically not stayed in a place much more than a year, sometimes less," said Chip MacDonald of Jones Day, who has known Poelker for decades. "It depends on the job. He won't give up until he's gotten what he can do done."

It's a thicket of challenges, many of which Poelker surely foresaw when he agreed to join the crisis-riddled bank, and some of which may have been unexpected, Moeling said.

"I've been convinced there were problems there he did not foresee, but I'm also convinced he knew there would be," he said.