Miners Bank: Life in the “FAS” Lane

Miners Bank: Life in the “FAS” Lane

Miners Bank - Pine Grove

The late millionaire Malcolm Forbes once said that a diamond was really nothing more than a piece of coal that never gave up. It is an apt metaphor for the Pine Grove Joint Treatment Authority (PGJT), which struggled for two years to find the right financing to meet its community’s goals. Where Wall Street failed, Main Street was able to provide.

With the assistance of PACB FAS, Miners Bank, headquartered in the anthracite coal region of Schuylkill County, was able to provide a long-sought-after refinancing package for the authority. Mark Lundquist of SGA Financial Advisory Services, Inc., a 30-year veteran of public finance and the chief architect of FAS opportunities, helped to extract the win-win deal between bank and authority.

“Mark understood both sides of the deal. He has a strong knowledge of municipal finance, which helped us create a better loan package,” said George Groves, the CEO and President of Miners Bank, founded in 1935 after the Great Depression.

“He worked nights, weekends, you name it,” to provide service to seal the deal, Groves said.

With an array of moving parts to weave together, Lundquist successfully fit all the knotty puzzle pieces into a cohesive whole. His ability to unite parts and parties created a synergy that produced a very real financial advantage for a community in one of Pennsylvania’s most economically distressed areas. In recent years, all 782 square miles of Schuylkill County have been struggling at the unforgiving hands of a declining coal industry, a shrinking tax base, and an anemic housing market.

Pine Grove can also add a history of devastating creek and river flooding to these mélange of obstacles. Thanks to PACB FAS and Miners Bank, the pressure on the Pine Grove budget and authority customers was released, and the future looked much sunnier after finding a reservoir of capital.

It is this type of community investment that PACB, its board, and its President and CEO Nick DiFrancesco hope to see more of via PACB’s forward-thinking FAS program.
“Community banks in Pennsylvania have the power to bring economic vitality back to Main Street. They are a catalyst for positive change. Through PACB FAS, we are supplying the technical assistance necessary for the catalyst to work,” said DiFrancesco.

Groves, who has amassed decades of gold-standard experience in banking, noted that Pennsylvania is comprised of more than 2,000 taxing authorities, all with their own local governments, skyrocketing pension costs and other steep obligations. Many have run out of viable options to find scarce revenue. More than two dozen municipalities have reached distressed municipality (Act 47) status. Without some substantial policy changes, a wave of wholesale municipal consolidations may be the only option.

Enter PACB to develop a cure.

Pine Grove emerged as one of the first FAS success stories. Pine Grove Authority in Schuylkill County had tried unsuccessfully to refinance a little more than $11 million in debt for several years, but could never make the numbers work.

A refinancing proposal for its $11.2 million Rural Utility Services loan, made to the authority board in the spring of 2012, was still on hold, board members–drawn from both Pine Grove Borough and Pine Grove Township–learned in mid-October 2013.

The refinancing was expected to save the authority more than $300,000, and possibly as much as $600,000.

DiFrancesco noted that Lundquist, undaunted by these years of past paralysis, was “incredibly creative when looking at the needs of the municipality and finding ways to make it work.”

“When I consider a deal, I look at the loan term, the borrower’s economic condition, the payment structure, everything. Each of these parts, if handled well, will result in a better loan product for the borrower and a more productive loan for the bank,” Lundquist said. “Our goal is to assist the parties directly involved, and also build a stronger, more stable community,” he added.

Pine Grove is a region that has witnessed a declining tax base and revenues in recent decades. In the past four years, the community of just over 2,100 people suffered severe flooding twice as the Swatara Creek, a tributary of the Susquehanna River, overflowed its banks and drowned out some pivotal manufacturing plants and, with it, washed away jobs.
The Pine Grove Joint Treatment Authority was founded in 1996. In 2001, it was given the ownership and operations of the wastewater treatment plant. A new wastewater treatment plant was completed in 2006.

The goal of the deal was to refinance more than $11 million in debt, to lower the demand on the payment of principal and interest, bank officials said. One of the key elements of the agreement restructured payments to a quarterly basis instead of semi-annually to minimize interest payments and match the Authority’s billing and cash collection cycle.

Pennsylvania law is supportive of this type of private financing in that the first dollar of generated tax or fee income is obligated to pay debt.

In the case of PGJA, several banks were interested in helping but ultimately sat on the sidelines or walked away. With the assistance of PACB FAS, it was Miners Bank that took the plunge–but not until it had done its due diligence and extracted the value in the deal for all parties.

Pine Grove Joint Authority’s Business Manager Diane Tobin said that when the authority first considered refinancing, they reached out to Pennsylvania Rural Water Association because she heard of their financial services. The Rural Water Association put them in touch with a financial adviser who put them in touch with Miners Bank.

They ultimately refinanced a total of $11,150,000.

“It all went rather quickly,” Tobin said.

When the town’s sewage treatment plant went to construction in 2005, they had secured USDA financing that was paid off through the Miners loan. They also used a PennVEST loan and were able to pay off that obligation with other funds.

Tobin said of the many parties involved, “They were cooperative and thorough.”

Despite the requisite piles of paperwork and people involved, “The whole process went quickly and smoothly.”

“There were a lot of players involved, but it worked out well for the authority, and we look forward to a good working relationship with Miners,” Tobin said.

As an independent company organized and staffed by principals of SGA Financial Advisory Services, Inc., PACB FAS plans to continue to provide top-notch advisory and consulting services to member banks as they examine relationships, investments and opportunities in the municipal finance market.

Among the program’s benefits are the ability for most banks to compete for larger deals through a network of participating institutions, the opportunity to diversify a bank’s municipal lending portfolio to alleviate any geographic concentration concerns, the potential for increased fee income and the addition of experienced professionals to assist an institution’s lending team.

“As an industry, we’ve got the capacity to do much larger deals, and still maintain a safe and sound operation,” DiFrancesco said. “The fee structure is justified by the value of the product,” he underscored.

Miners Bank officials, including Vice President/Commercial Relationship Officer Richard Kashnoski and Senior Executive Vice President/Chief Lending Officer David L. Snyder, insisted the Pine Grove deal was not easy. A great deal of due diligence was required. Groves emphasized that, “Ultimately, the borrower’s got to be able to pay us back.”

One of the greatest assets a community bank can offer is its flexibility.

Once a deal is identified and the due diligence is complete, a community bank generally has the flexibility to meet the borrower’s needs. Very few larger institutions enjoy the same flexibility.

One PACB FAS deal underway is based in western PA. The local authority had a long standing relationship with a significant regional bank. The authority’s desire was to offer the deal to their bank. Lundquist met with the regional bank’s team of commercial lenders who loved the deal, yet passed on the opportunity. The reason was simple. The deal required too many tweaks to standard operating guidelines, and the bank was unwilling to be flexible. Therein lies a golden opportunity for community banks.

A community bank can be flexible while still protecting its interests. This flexibility brings value to a deal and provides revenue potential to the bank.

“We didn’t assume everything would be ok just because it was a municipality we were working with,” said Groves. “The bank must do its due diligence.”

Once the due diligence was complete, the deal became a valuable commodity. There were more banks waiting to take a piece of the deal than there were seats at the table. DiFrancesco said, “I expect demand for PACB FAS services to grow. After all, this is a valuable benefit of PACB membership, one that should not be discounted or set aside.”

The vote to execute the Pine Grove deal was unanimous. The Pine Grove stakeholders all give credit where credit is due–to Lundquist, to PACB FAS, and to Miners Bank–for turning coal into diamonds through the sheer power of persistence and ingenuity.