A League Of Their Own

June 13, 2002
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DETROIT — Two West Michigan community banks have been recognized as standouts among their peers.

According to a recent study highlighting the performance of 10 selected Midwest de novo banks formed between 1994 and 1999, Grand Rapids-based Mercantile Bank Corp. and Zeeland-based Macatawa Bank Corp. ranked highest in performance.

Both banks have seen dynamic growth during their short lives in an industry accustomed to moderate growth, said Edmond Olejniczak III, the author of the report and an associate in the investment banking firm of Donnelly, Penman, French, Haggarty & Co. of Detroit.

Today, Mercantile Bank Corp. has more than $560 million in assets and serves primarily Kent and Ottawa counties with one branch in Grand Rapids and another in Comstock Park. Macatawa has more than $500 million in assets and 13 branches in Ottawa, northern Allegan and southwestern Kent counties.

Mercantile and Macatawa were both organized in 1997 and commenced operations within about a month of each other. But the two banks have a lot more in common than just a birth year.

As Olejniczak put it, Mercantile and Macatawa are emerging as star pupils that “appear to be in a league of their own.”

The two banks comprised roughly 44 percent of the combined assets of the 10 banks in the study and produced 50 percent of the net income.

Since their inception, they’ve done extremely well against their peer group, Olejniczak said. Mercantile and Macatawa have been about neck-and-neck in the race over the years, with Mercantile just slightly ahead.

Compared to other Midwest de novo banks, during their first three years of operation both Mercantile and Macatawa were the top-ranked institutions, with total assets, total deposits and net interest income consistently more than two times that of the other banks in the group. Both rank at the top in efficiency ratios as well.

Mercantile, in fact, has an “enviable” efficiency ratio in the mid 50 percent range, Olejniczak pointed out.

With Fifth Third Bancorp’s recent acquisition of Old Kent Financial Corp., Mercantile and Macatawa are “clearly in a position to succeed in their marketplace,” he said, noting that the two have a first-class competitor in Fifth Third.

Mercantile and Macatawa share a little bit of history, too.

Mercantile chairman and CEO Gerald R. Johnson Jr. had been president and CEO of the former First Michigan Bank (FMB)-Grand Rapids since 1986 and had served as bank chairman as well from 1988 to 1991. He resigned to form Mercantile when Huntington Bancshares announced its then pending acquisition of FMB.

Macatawa chairman and CEO Benjamin A. Smith III had joined FMB in 1971 as head of the trust department and rose to second in command at FMB-Zeeland. As the FMB- Huntington deal threatened to leave the Holland-Zeeland area without a locally chartered bank, Smith established Macatawa to fill the void.

Coincidentally, both Smith and Johnson were finalists for this year’s Ernst & Young Michigan Entrepreneur of the Year award.

“A community bank, unlike a branch of a large corporation, generally knows its customers well. In a lot of cases, the bank’s stockholders are residents and business people in the community,” Olejniczak observed.

“The people starting these banks are very entrepreneurial and management is very involved in the community — not because they’re business men and women but because they want to be involved.”

But can community banks really give the big national banks a run for their money?

Michael Moran, executive vice president of Capital Bancorp, a bank holding company headquartered in Lansing, thinks they certainly can be competitive in today’s market given the technological advances that have occurred in the industry.

“A lot of the community banks that have come into being in recent years are as technologically advanced, if not more sophisticated than, most of the larger banks because they are able to tap into extremely sophisticated platforms coming out of the gate,” he said.

For some smaller players, one of the issues may become the ability to keep up to date with technological advances. There may come a point where that becomes extremely cost prohibitive.

The Comericas and Fifth Thirds can allocate a lot of resources, money and time on the technology front. But for a community bank, that becomes the fine line between being on the cutting edge and being on the bleeding edge, Moran said.

“That said, I firmly believe that the traditional community bank that is extremely focused and executes on its business plan will always find a home in both the market and the investor community and will continue to be well received,” Moran remarked.

“Critical components are the people running the shop and their ability to execute on their game plan.”

The five other Michigan banks in the Donnelly, Penman, French, Haggarty & Co. study were: Community Shores Bank Corp.; Clarkston Financial Corp.; Central Bank Corp., Dearborn Bancorp Inc.; and Michigan Heritage Bancorp Inc. Three Indiana-based banks also included in the study were: Heartland Bancshares Inc.; St. Joseph Capital Corp.; and Tower Financial Corp.

Over the past eight years, those 10 banks have:

  • Raised gross proceeds of $120.2 million in IPO capital
  • Collected a combined asset base of $2.3 billion
  • Accumulated a combined equity base of $200 million
  • Generated $12 million of net income for fiscal 2000
  • Reached breakeven on average in six quarters of operation or slightly less than two years.

In a moderate growth industry, the fact that the group collectively created more than $2.3 billion in assets alone is “incredible,” Olejniczak said.    

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