
DATE: Sunday, April 20, 1997                TAG: 9704190828

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:  172 lines

PROXY BATTLE CAPS 10-YEAR CAREER WHEN MIKE IVES BEGAN WORKING FOR CENIT, REDUCING THE LEVEL OF ITS PROBLEM LOANS WAS HIS BIGGEST CHALLENGE. TODAY, IVES IS FENDING OFF EFFORTS BY DISSIDENT SHAREHOLDERS TO SELL CENIT AND ITS PARENT COMPANY.

It's a few minutes before noon, and Mike Ives runs through his agenda for a conference call later in the day.

The participants - a mix of lawyers, advisers and CENIT Bancorp Inc. officers - will review materials the company is distributing to shareholders. They'll also discuss preparations for CENIT's annual meeting, including the need for telephones and copying machines.

Since mid-March, conference calls have become routine events in the struggle that CENIT's management and board are waging against dissident shareholders.

``I've never spent so much time on the phone,'' jokes Ives, president and chief executive of CENIT Bancorp, parent of CENIT Bank and Princess Anne Bank.

The battle over CENIT, one of only five locally owned thrifts remaining in Hampton Roads, will play out Wednesday when the Norfolk-based company holds its annual meeting at the Chrysler Museum in Norfolk.

Mid-Atlantic Investors, a Columbia, S.C., partnership with a 9.7 percent stake in CENIT, is seeking shareholder support for a proposal advocating a sale of the company. In response, CENIT's management and board argue that forcing the company into a merger would reduce its value to shareholders.

Fending off Mid-Atlantic is the latest in a string of onerous tasks that its 44-year-old president has undertaken since arriving at CENIT a decade ago.

A Norfolk native who grew up in Virginia Beach, Ives was practicing law with a large Norfolk firm when he was tapped to be president of CENIT, then known as Mutual Federal Savings and Loan Association.

By then, he had become a specialist in banking matters and was helping CENIT extricate itself from a swamp of bad loans.

When he took over as president, Ives concentrated on reducing the institution's troubled assets, a portfolio that included raw land on the Outer Banks, a motel in Williamsburg and millions of dollars in sour mobile-home loans.

For decades, CENIT and other savings and loans had specialized in making home loans and financing residential construction. In the increasingly competitive environment of the 1980s, CENIT and many institutions sought higher yields by making loans for commercial real-estate projects, vacation homes and condominiums.

It didn't take long for the volume of troubled loans to overwhelm CENIT's resources and threaten its existence.

``To our great fortune, the business expansion was still under way in 1987, 1988 and 1989,'' Ives recalls. ``That allowed us to foreclose on assets and sell them at decent prices. If we had gotten started in 1989, instead of 1987, I don't think we could have survived.''

By 1989, it was clear to Ives that CENIT would have to do more than gather deposits and make home loans if it expected to prosper.

In a memo, he outlined a strategy for diversifying the institution's services, raising additional capital and operating more efficiently. But achieving those goals proved more difficult than defining them. It required cutting costs, shutting down less profitable operations and making wrenching personnel decisions.

Ives' efforts to put his plan in place weren't half-hearted. In fact, his focus on addressing CENIT's difficulties proved to be similar to the way he practiced law: aggressively.

``One of the ethical considerations of practicing law is that you will zealously represent your clients,'' he says in his large, modestly furnished office at CENIT's headquarters on Olney Road at Duke Street. ``I'm devoted to CENIT. I think I owe that degree of loyalty to the company.''

To raise additional capital, CENIT converted from a depositor-owned institution to company owned by investors.

CENIT's stock offering came at an awkward time. A nearby Norfolk thrift, Home Savings Bank, was crippled by troubled loans and seized by federal regulators during the offering of CENIT shares. A handful of other financial institutions in the region were struggling to stay alive.

``It was a difficult sell to convince people that we were different,'' Ives says.

Meanwhile, Ives was able to recruit several bankers with experience at larger commercial banks. These veterans, who came from such banks as NationsBank, First Union and Crestar, proved to be valuable at expanding CENIT's services. CENIT'S STRATEGY

Those who have worked with Ives speak highly of his analytical skills, planning and tenacity. They also describe someone who can be a demanding and aloof boss.

But reducing the company's troubled assets and redirecting its focus attracted the attention of his peers in the financial community. He also won their respect. ``Mike is exceedingly competent,'' says Edward E. Cunningham, chairman and chief executive at rival Life Savings Bank in Norfolk. ``He knows what he's doing and appears to have an excellent business plan.''

That plan calls for building CENIT into the dominant community banking organization in Hampton Roads. To that end, Ives expanded its residential lending activity in Portsmouth and Chesapeake by acquiring Homestead Savings Bank in 1994. A year later, he bolstered CENIT's commercial and consumer banking by acquiring Princess Anne Bank in Virginia Beach.

In his drive to improve earnings and post a better return on shareholders' investment, Ives added conventional bank branches, opened smaller branches in two Super Kmarts, and installed more automated teller machines.

The ingredients of his strategy appear to be falling into place. But will CENIT's shareholders be willing to wait for the plan to reach fruition?

Mid-Atlantic has argued that CENIT shareholders cannot fully realize their investment unless the company is sold.

``For hundreds of years the adage `a bird in the hand is worth two in the bush' has been true,'' Mid-Atlantic said in a mailing earlier this month. ``We have yet to see any evidence that CENIT will be worth more in several years to justify the risk of waiting.''

CENIT's net income reached a record $5.06 million, or $3 a share, in 1996 before taking into account a special assessment for strengthening the federal insurance fund that protects thrift deposits. Its return on shareholders' equity - a key measure of how well it used its capital - was slightly more than 10 percent. UNDISTINGUISHED RETURNS

That was an improvement from the lackluster returns on equity in past years, but it was still undistinguished. Better performing banking companies typically earn from 15 percent to 18 percent returns on their shareholders' equity.

``We're not there yet,'' says Ives, adding that CENIT's goal for return on shareholders' equity is 15 percent on a sustained basis.

To make his case, CENIT's chief executive is spending 11-hour days coordinating a legal and public relations battle against Mid-Atlantic, which specializes in investing in thrifts and community banks and pushing them into mergers. Key participants in CENIT's campaign include the Norfolk law firm Willcox & Savage and a proxy solicitation firm, Georgeson & Co.

New York-based Georgeson, the largest firm in proxy solicitation work, is advising CENIT on its communications with shareholders and the collection of proxies. These are the cards by which shareholders vote on nominees for the CENIT board and on the Mid-Atlantic proposal for having the company find a buyer.

The cost of waging battle against Mid-Atlantic could be hefty. CENIT has already disclosed that it will pay Georgeson $25,000, plus expenses, for its help. CENIT said it expects to spend an additional $95,000 on its proxy solicitation efforts. The full cost, however, will include CENIT's legal bills, which have not yet been disclosed.

Stacks of reports on Ives' desk and nearby tables are testimony to another cost: the diversion of management time from routine business, including efforts to bring in additional customers.

However, the proxy battle has had less impact on CENIT's day-to-day affairs than he expected, Ives says. A few depositors, he says, have asked whether the contest might have any effect on the insurance coverage of their deposits. The proxy battle has no impact on its deposit insurance, which remains in place.

While practicing law at Willcox & Savage, Ives was held in high regard because of his capacity for work and legal skills, says James S. McNider III, an attorney who worked with him in the 1980s.

``He was in there almost every weekend that I can remember,'' says McNider, who practices tax and corporate law in Hampton. ``He would burn whatever midnight oil was required to achieve results for his clients.''

Today the same tenacity and appetite for work are on display as CENIT's CEO clashes with Mid-Atlantic over the institution's future.

``I don't ever want it said that `he could have tried harder' or `he should have done more,' '' Ives says. ILLUSTRATION: Color photo

BILL TIERNAN/The Virginian-Pilot

The battle over CENIT's future will play out Wednesday when the

company holds its annual meeting at the Chrysler Museum in Norfolk,

seen in the background.

Graphics

MICHAEL S. IVES

Born: 1953, in Norfolk

Education: Law degree from University of North Carolina, 1977;

undergraduate degree in economics from Duke University, magna cum

laude, 1974.