Community Banker of the Year: Citizens Republic CEO Cathleen Nash

If Cathleen Nash got rattled easily, she might have let that first investor conference get to her.

It came three days after her appointment in January 2009 as the CEO of Citizens Republic Bancorp, and four days after the company announced a $195.4 million quarterly loss that prompted widespread doubt about its ability to survive. "I'd never done an investor presentation," says Nash. "I had no clue what I was doing."

She picked all the wrong talking points, based on how her audience reacted. And the investors seemed to completely dismiss the one thing Nash considered paramount: the way she envisioned her relationship with employees.

"I realized that there were people invested in our stock who had a very different set of values than I did," she says.

"We did not believe in the same things. They couldn't care less about the employees feeling free to disagree with me. It wasn't even on their radar screen of important things. I would say to them, 'It is one of the most important things.' And we would debate."

Now that the $9.7 billion-asset Citizens is profitable again and being sold to FirstMerit of Akron, Ohio, for $912 million in stock, Nash still believes her relationship with employees is paramount. (She credits teamwork for the success.)

The sale price, at 1.26 times Citizens' tangible book value, would have been unthinkable before Nash executed on her recovery plan—and pulled it off in long troubled Michigan of all places. The sale is expected to close in the second quarter.

"She's done a great job strategically," from managing the company through the crisis to selling it, says Matthew

Schultheis, an analyst with Boenning & Scattergood.

Nash made several bold moves along the way.

She rolled $926 million of stressed assets off Citizens' balance sheet in a six-month period ending March 2011, dramatically improving its risk profile. The purge allowed the company, after 12 consecutive quarters of losses, to post a profit in the second quarter of last year, one quarter ahead of stated expectations.

She also led a risky, but ultimately successful, reverse stock split in July 2011, to improve Citizens' share price and avoid being delisted. The stock jumped 85 percent in 2011, while the KBW Bank Index dropped 25 percent that year.

At her first board meeting, Nash recalls, "I said, 'My job is to get this bank back to a place where it has options. Today we don't have any options.'"

She says she did not know then what the options might look like, but she came up with a recovery plan. It entailed recognizing the size of the problem, proactively communicating with regulators, and being reliable.

"If we said to our regulators we were going to do 'X,' we went and did 'X,'" she says. "We didn't miss our forecasts.
They were ugly forecasts. For 12 quarters, they were ugly. But we didn't miss them."

Nash says she has only two regrets about how she handled Citizens' recovery.

After exchanging trust preferred securities and subordinated debt for common shares in September 2009—a move that added $199 million of Tier I common equity—Citizens filed a shelf registration. Though Nash says she had no intention of raising capital, filing a shelf seemed like a practical thing to do, in case the need ever arose in the future.

"If you look, that was the low point of our stock," she says. "The market read it as, 'They're going to raise capital. They just got a whole bunch of capital and now they need more.'"

Citizens also added to its provision when it announced the plan to purge classified assets. The provision caused an uproar among investors.

"Oh, it was horrible," says Nash, who in hindsight wishes she had explained the decision better at the time. "I literally had shareholders screaming at me, how we were going to ruin the bank, [how] the regulators were going to shut us down."

She has no regrets about putting the cleanup on fast-forward, though.

"At that point we were looking at late '12, or even early '13, before we saw profitability again," Nash says. "I really felt that the folks who worked in our company, they needed to have that weight taken off them of being unprofitable."

Citizens, based in Flint, Mich., had managed to maintain its pretax, pre-provision profit from 2009 on, but Nash says the continuous quarterly losses at the bottom line kept employees from being able to fully appreciate that accomplishment. "It wears you out," she says. "You start to feel like a loser, not a winner."

She says Citizens initially expected to wait out the stress, since many borrowers continued to pay on their loans. But in the summer of 2010, two years into the financial crisis, she began to reconsider that approach.

In a meeting with regulators, Nash casually broached the idea of dumping a massive amount of classified assets in one swoop. She told the regulators she would not raise capital, because she felt the company had enough, and the regulators agreed.

Citizens worked out a plan to get its classified asset ratio below 40 percent, announcing it in the third quarter of 2010. "We said we were going to take essentially a year's worth of losses and run them forward. And we were going to do it in six months.

"I know, it was insane."

Of the $926 million of loans Citizens moved out, only $252 million went in a bulk sale. The rest involved negotiating with individual borrowers to cut the amount owed in exchange for getting another lender to take over the loan. "Our average loan size is less than $1 million," Nash says. "That is one by one by one, we negotiated with these customers.
Our special loans team did an amazing job."

Terry McEvoy, an analyst with Oppenheimer & Co., says Citizens' ability to maintain its pretax, pre-provision earnings, even while dealing with bad loans and the related expenses, is notable. He is impressed that customers continued to stick with Citizens despite legitimate concerns about its health, and he credits Nash for holding onto them.

"While there was a massive amount of disruption and questions over the survivability of the company because of the losses that were occurring, she, as the CEO, was able to keep things intact," McEvoy says.

And he cites Nash's "openness" with employees as a key factor.

"As a customer of a financial institution, you want consistency," McEvoy says. "She was able to keep the employees simply there, showing up for work every day and doing their job, allowing that consistency at the point of contact with the customer base."

Nash arrived at Citizens in July 2006 after stints at the former Bank of Boston and SunTrust. She had been the head of regional banking for Citizens for about two years, overseeing its commercial and consumer banking operations, before succeeding William Hartman as CEO.

Nash says she purposely set out to be accessible and approachable from the moment she was promoted to CEO.

"What I said to employees was, 'Just because I have those letters after my name, I'm still me. I didn't change who I am. I just got a bigger job. And I can't do that bigger job without you guys, so let's do this together.'"

She began blogging weekly, just for employees. The topics she blogs about run the gamut, from work to personal. Employees can comment on her posts publicly or privately. Either way, Nash personally responds to everyone.

Other than the phone directory, her blog gets the most hits on the company intranet. "We have 2,000 employees and it gets hit about 2,300 times a week," she says. "I don't know who's going there twice, but somebody is."

After the sale announcement, she asked in a post whether she should keep blogging. Of the 700 or so email replies, two said no. "One person said you don't need to do the blog because I don't read it. And I'm thinking, 'Well, you read that one,'" she says, smiling. "One person was pretty negative on the whole why'd-you-sell-the-company thing."

Both comments made her exceptionally proud. The authors "felt comfortable and confident enough to tell the CEO what they thought," Nash says. "That, to me, is the perfect environment."

There are no repercussions for dissent, she promises—just appreciation. "They're smart people. We should respect what they bring to the table."

Nash doesn't get ruffled by a lot of things that might bother other CEOs. In August, it was leaked to the press that Citizens was shopping for a buyer. Nash says the group was "freaking out" about the leak. But on one of the twice-daily conference calls she had been holding in that time with her lieutenants, Nash put it in perspective.

"I said, 'Let's go back over the last three and a half years. Is this the worst thing that's happened to us? This is nothing. This is a rounding error of nothingness. Don't worry about it.'"

Having pulled the company through far more daunting challenges, Nash has worked her way out of a job—she says she will leave following Citizens' sale to the $14.6 billion-asset FirstMerit.

Nash has no immediate plans beyond assisting in whatever way she is called upon during the integration. But she sounds content with waiting to see what happens next.

"I remember when I was, I don't know, 29 years old, 30 years old, I moved to Florida, and I remember interviewing for the job at SunTrust that I took. And the interviewer said, 'Where do you see yourself in five years?' I don't know where I see myself in five months. I just don't worry about that. It always seems to work out the way it's supposed to."