Merger Puts Macatawa On Investors Radar Screens

May 16, 2002
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HOLLAND — The acquisition of Grand Bank would give Macatawa Bank Corp. a stronger foothold with which to accelerate an expansion into the Grand Rapids market and continue the aggressive growth strategy that has been in place since its 1997 formation.

The partnership with Grand Bank, as it’s being called, stems from Macatawa’s need to find new territory to venture into if it’s going to continue the growth rate of the past four years. In pursuing options to meet that goal, Macatawa directors sought out a deal with Grand Bank because it is well established in Grand Rapids, has a strong reputation and has a similar corporate culture, Macatawa Chairman Ben Smith said.

Macatawa and Grand Bank also were well acquainted. Executives have known each other for years and both banks have occasionally helped the other arrange loans for commercial clients.

Further helping the marriage was a desire among Grand Bank Financial Corp. directors to pursue their own growth strategy and establish a broader network around the Grand Rapids area, rather than continue with the lone banking office downtown.

“The opportunity and the fit seemed so good, it seemed to me that it made a lot of sense,” said Smith, who initiated the $40 million stock transaction last spring with a telephone call to Grand Bank founder and Chairman Charles Stoddard.

The deal with Grand Bank will enable Macatawa, because of the economies of scale it’s expected to generate, to expand into the Grand Rapids market “a little faster” than if it had to undertake the move on its own, Smith said.

“We were going to go there. It was just a matter of when and how,” Smith said. “We thought, why fight each other?”

Under terms of the deal, Grand Bank Financial Corp. will merge into the Macatawa Bank Corp. holding company as a wholly owned subsidiary. Grand Bank will retain its name, and local decision-making and a board of directors. The merger is expected to close by March.

Joe Stieven, a brokerage analyst with St. Louis-based Stifel, Nicolaus & Co., likes the deal because it accelerates Macatawa’s move into the Grand Rapids market, which will help Macatawa maintain a projected 20-plus-percent annual growth rate in revenues and earnings over the next three years.

“They start out in a very nice way” in Grand Rapids, Stieven said. “This gets them right into the thick of things.”

From an investment perspective, the merger brings Macatawa closer to the $1 billion in assets marker that will begin drawing the bank greater interest from investors.

“It truly gets them on the radar screens in the investment community,” Stieven said.

As the deal goes through regulatory and shareholder reviews, Macatawa will work to develop a strategy for expanding into the Grand Rapids area in concert with Grand Bank’s own planned expansion. Macatawa now has two branch offices in southwestern Kent County, in Grandville and Wyoming, and will push to open many more in the future, Smith said.

“We’re really just starting into that market,” he said. “The opportunities are much larger.”

The marriage also will allow both banks to generate operating efficiencies by blending some back-office administrative functions, their trust departments and forming a joint brokerage arm, Smith said.

Macatawa’s plans coincide with Grand Bank’s desire to establish its own banking network in the area. The plan now for the corporate holding company is to have both banks stake out their separate territories without becoming direct competitors, Smith said.

Holland-based Macatawa Bank was formed four years ago out of the merger between FMB Corp. and Huntington Bancorp. The bank has grown rapidly to 14 offices in southern Ottawa, southwest Kent and northwest Allegan counties. As of Sept. 30, Macatawa had assets of $633 million, deposits of $502 million, and $507 million in loans.

With a strong presence built up in the Holland-Zeeland area, and wanting to maintain the growth rate of the past, Macatawa sees a large part of its future based on furthering its position in a substantially larger Grand Rapids market.

The Grand Rapids banking market totals $8.5 billion, compared to $2.6 billion for the Holland-Zeeland market, Smith said.

Pushing Macatawa’s drive to go after a share of the Grand Rapids market is the very thing that led to the corporation’s formation — a bank merger, in this case this year’s deal between the former Old Kent Financial Corp. and Fifth Third Bancorp.

After growing largely on the backs of customers who left larger banks, most notably Huntington, Smith believes Macatawa can dislodge its share of Fifth Third customers who prefer to bank with a smaller organization.

“It seemed to us that if there was a way to step up and capitalize on that merger, we ought to do that,” Smith said. “Old Kent was a great bank. When they sold, we feel it left a much larger void in the Grand Rapids market than many people realize.”

While the deal would make Macatawa Bank Corp. the largest West Michigan-based bank holding company, with assets of $886 million, Smith rejects notions that Macatawa may someday become too big and begin running into some of the pitfalls its larger competitors have seen in recent years.

Macatawa, he said, will remain primarily a bank that caters to small businesses and retail customers.

Even as Macatawa closes in on $1 billion, it remains a comparatively small bank, he said. In this case, attitude and performance also matter much more than size.

“You always have to be concerned about your attitude and maintain a little bit of humility,” he said. “What that means is that you have to perform and you have to be good.”

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