Market Still Seems Good For New Banks

June 5, 2002
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The formation of new banks in Michigan kept pace last year with that of the past several years, although a decline in available capital may temporarily slow the trend, says the legal counsel for a banking trade group.

While two large bank mergers — including last year’s Old Kent-Fifth Third deal — continue to make the market ripe for the entries of new, smaller players, Michael Kus, of the Michigan Association of Community Bankers, said banking entrepreneurs may find it harder these days to find financial backing.

“There’s a point where there were enough (banks) setting up, people are probably waiting to see how the next group progressed,” Kus said.

“The economics is important here. They’re going to have to go out and find the funding and I don’t think the cash is as readily available as it was. It’s going to be a little tougher right now.”

The Michigan Association of Community Bankers represents 136 member banks in Michigan with assets ranging from $5 million to $1 billion.

Smaller, community banks have flourished in Michigan and nationwide since the mid-1990s, when industry consolidation created a new market niche. Many of the new banks formed since then were started by executives who once worked at considerably larger banks that had merged with other large banks. They saw the opportunity to grab an emerging market.

The community banks, with their high emphasis on customer service and community involvement, have found success in appealing to retail customers and small businesses that felt left behind by the merger wave of the 1990s.

“I’d rather go against a big bank than another small bank. Big banks are easy picking,” Jose Infante, chairman, president and chief executive officer of Muskegon-based Community Shores Bank, said in a Business Journal interview last April.

Infante, a former Huntington Bank executive in Muskegon, formed Community Shores in late 1999 with several former co-workers. Community Shores now has three banking offices in the Muskegon area, with assets of $138.1 million.

Ironically, one of the bank offices Community Shores now uses is a property Infante developed and opened during his tenure as a Huntington executive.

Michigan saw the formation of nine new banks last year, up from seven that were founded in 1999 and five in 1998. State banking regulators have accepted or approved the formation of seven new banking companies so far in 2001 across Michigan, according to the state’s Office of Financial and Insurance Services.

Up until 1995, the state generally saw one or two new banks formed a year.

Julie Smith, communications coordinator for the Office of Financial and Insurance Services, expects the trend to continue for years to come.

“We’re not seeing any real difference in the pace,” Smith said. “The market’s right.”

The continued high level of bank filings annually, combined with the growth that community banks have been recording, tells Kus that the opportunity still exists for entrepreneurs who want to start their own bank, if they can secure the financial backing.

Driving that opportunity is the deal between the former Old Kent Financial Corp. in Grand Rapids and Cincinnati-based Fifth Third, which grew to $70 billion in assets under the acquisition, as well as the merger between Michigan National Bank and Standard Federal.

“There may be opportunities present,” Kus said. “I wouldn’t be similarly surprised if we were to see activity in the Grand Rapids market.”

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