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NexTier's finances improve as it waits for economy to do as well

| Monday, Dec. 10, 2012, 11:56 p.m.
Tribune-Review
Margaret Irvine, president of NexTier Bank, poses for a portrait in the Wexford bank branch on Friday, December 7, 2012. Stephanie Strasburg | Tribune-Review

NexTier Bank President Margaret Irvine was sitting in the CEO's office of Northwest Bancshares in Warren, in November 2010 when the bank's compliance officer interrupted and urgently pulled the CEO aside.

The two banks were one month away from completing a $20.3 million merger that would recapitalize NexTier, which was in serious financial trouble at the time.

Irvine would soon find out that Northwest had just encountered a regulatory issue that would kill the merger.

“We had already started working as one bank and deciding which branches and employees to keep,” Irvine said in an interview. “I had even taken another bank job” because the merged bank would not need another president.

Specifics of the issue that killed the deal with Northwest were not disclosed. But in July 2011, Northwest agreed to a regulatory order that it pay up to $700,000 in fines and restitution to depositors to whom the bank allegedly underpaid interest. The FDIC also ordered Northwest to formalize and improve regulatory compliance programs.

Two years after that merger/rescue plan fell through, NexTier has turned itself around.

The Butler-based bank has cut in half the level of problem loans on its books — which is what nearly had toppled the bank. It also has reduced overhead and sharpened its focus.

Nonperforming loans dropped to about $10 million as of Sept. 30, or 3.5 percent of total loans. That's down from $23 million, or 6.8 percent of total loans at the start of 2010. Non-performing loans are 90 days or more past due.

In addition, NexTier this year closed an armored-car business that had not panned out. The bank also partnered its wealth-management division with an independent firm, which cut NexTier's costs while enhancing capabilities for clients.

When the Northwest deal fell through, NexTier's future looked bleak.

It was the only bank in Western Pennsylvania tagged with a “troubled” rating in early 2010 from Bauer Financial Inc., an independent firm that ranks the financial soundness of banks, using a five-star scale.

NexTier since then has improved from a one-star, “troubled” rating to a three-star, “adequate” rating as of Sept. 30.

“They had a lot of ground to cover and to change course, that takes time,” said Mark Snyder, a representative of the Snyder Group, a Kittanning-based business group that acquired a controlling, 51 percent stake in NexTier in February 2011. Snyder's stake has increased to 81 percent. How much Snyder paid has not been disclosed.

“The loan portfolio quality and performance has improved greatly, and they've achieved profitability again,” said Snyder, whose group also owns a controlling stake in Farmers and Merchants Bank in Kittanning, along with ownership or control of about 12 companies in Western Pennsylvania.

Daniel Conn, CEO of Kesco Inc., a specialty explosives and blasting company in Zelienople, was “troubled” that its “conservative community bank” of 20-plus years could get into such trouble in 2009, he said.

“But we didn't change banks because I had a long relationship with the bank and its owners. And in difficult times, I've always appreciated our clients for sticking with us,” said Conn, whose company has a credit line, term loans and business checking at NexTier.

Irvine says, “Our challenge now is the same as the rest of the industry — as opposed to our internal issues — and that's where is our growth going to come from?

“When are companies going to start investing in their growth, which, in turn, is what enhances our growth?” said Irvine, whose great-grandfather co-founded the bank in 1878 as Citizens National Bank of Evans City.

The aborted deal with Northwest was the second crisis NexTier faced in less than a decade.

In July 2001, Irvine heard on her car radio that Mellon Financial Corp. was selling its retail bank franchise to Citizens Financial Group — suddenly spelling serious name confusion in Western Pennsylvania.

The new market entrant, Citizens Bank, even sued Citizens National Bank to force it to give up the name it had used for 123 years. The federal court battle dragged on for about four years before the two Citizens settled the dispute out of court.

Irvine can not discuss the terms, but the key detail was that her family's bank would give up the Citizens name and pick a new one.

“There was a lot of pride in the Citizens name, so that was hard,” said Irvine of the name change to NexTier in late 2005.

But the loan portfolio was soon to come under stress. NexTier had made commercial loans through an office in Arizona since the late 1990s. When real estate values started plunging there in 2007 as the mortgage and credit crisis loomed, NexTier's borrowers either demanded easier loan terms, or they walked away from their mortages. Either way, problem loans on NexTier's balance sheet increased.

By late 2009, NexTier took steep write-downs on loans. When that wasn't enough, it hired an investment bank in spring 2010 to find a buyer.

Out of five bidders, Northwest offered the best deal — while it lasted.

Days after the merger collapsed two years ago, Mark Snyder called Irvine and said his group would like to invest in NexTier.

“I knew they liked banking, and we needed the capital,” said Irvine, whose only regret was ceding control of the family-held bank.

“The good part was the bank would stay on the map, in the community and locally owned,” she said.

Thomas Olson is a staff writer for Trib Total Media. He can be reached a 412-320-7854 or at tolson@tribweb.com.

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