Park Financial Group’s high-touch approach, access to capital and investor logic fuels growth — and performance
Even in a robust economy, there are credit-worthy borrowers who cannot get a loan for their business or a mortgage to buy a home. David Saber, chair and CEO of Park Financial Group, sees these credit anomalies as opportunities, and with a supportive owner in former hedge fund manager Andy Redleaf, he’s building a nimble banking organization capable of doing all of the solid typical deals but also structuring deals that other banks either cannot make, or won’t make, given the time involved in formulating the appropriate structure.
The organization is also deploying acquisition and investment capital. The results are striking. Park Financial, which was founded as a shell in late 2014 and didn’t begin banking operations until it acquired the $34 million bank Park State Bank in October 2015, closed 2018 with more than $800 million in consolidated assets.
For Saber and Redleaf, the approach is entrepreneurial, logical and exhilarating.
“It’s also a lot of hard work,” Saber said.
Springing from ‘the platform’
Saber called the initial Park State Bank purchase in 2015 a platform entry to the banking industry. Formerly family-owned, Park State was founded more than a century ago.
“Like many small banks in the post-crisis era, its challenges — shareholder liquidity, limited long-term market share growth and access to capital for lending and investments in technology and talent — were shared by much of the industry,” Saber said. “With offices in two of the top five Minnesota MSAs (Minneapolis and Duluth), Park State Bank was an ideal acquisition candidate.”
With the help of long-time banker Tom Palmer, Saber led a turn-around that refocused the team on targeting niche opportunities, embraced a high-touch banking focus and positioned the company to execute on its goals of strategic growth. One year later, the company hired Leann Stessman to focus on the culture piece.
In three years, the Park State team doubled the bank’s size to approximately $58 million in assets, while upping the ante on performance. Its efficiency ratio dropped to the mid-50s, impressive given the size of the institution. The team had put the bank on solid footings.
The family-owned Pioneer National Bank, also based in Duluth, was at this time looking for an acquisition partner that would ensure customers and employees were cared for while also meeting its shareholder’s liquidity expectations. The bank was owned by the Peyton family; its founder, John N. Peyton, was chair of the Federal Reserve Bank of Minneapolis during the Great Depression; Peyton helped the industry stabilize in an era of rampant bank failures. The deal “provided an in-market acquisition that made long-term strategic sense,” Saber said.
The two institutions were culturally aligned, said Stessman, chief operating officer of Park State Bank. “It was similar to ours, only larger.”
“Based on the consolidated financials, the first full year of combined performance was greater than the sum of the parts,” said Saber, who credited the team of both organizations for being “extremely focused on understanding the needs of the customers and the market, focusing on loan growth and efficiencies, and building for the long-term.”
Schooled in capital plays
Saber seems predestined to succeed in enterprise banking. He said he’s always loved business; after earning a degree in finance and economics, Saber headed to Manhattan to chase his Wall Street dreams. He was a financial markets analyst at the Federal Reserve Bank of New York. His time coincided in part with former Treasury Secretary Timothy Geithner’s years as bank president. Saber said he even played basketball and softball in intra-Fed leagues with Geithner.
“I should have paid for the experience,” he said of the exposure he received at the Fed and the experiences and global financial market insight he gained while working with the Fed’s Markets Group.
Though he expected his next job to carry him to London or Singapore (or anywhere that wasn’t the Midwest), Saber ultimately scratched his entrepreneurial itch by returning to Minnesota to join Saber & Associates, the strategic advisory firm founded by his mother, Terry.
The firm was acquired by top-20 accounting and consulting firm Wipfli, and Saber became the youngest member of Wipfli’s Financial Services Practice senior management team; he ultimately led the Strategic Advisory Practice.
Those post-crisis years “spent in boardrooms and with executive management teams were instructive for the tremendous opportunity to gain insight into hundreds of banks at various asset sizes,” Saber explained.
He learned of Redleaf’s interest in banking through a mutual acquaintance and said he “could not pass up the unique opportunity to partner with him.”
When Saber told his colleagues and others he was leaving to start Park Financial and acquire a small bank, he received little encouragement. Most cautioned him against making what they deemed “the biggest mistake of his life.”
“What is the quote? If someone gives you an amazing and potentially once-in-a-lifetime opportunity, you jump in and take it!” Saber said.
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 Saber is doing requires a strategic X-factor. And capital. Park Financial 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, being supportive 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.”
“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.
He 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 in August 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.
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.”