Small Banks Flex Muscle

January 10, 2003
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(Editor’s note: One of 10 stories profiling the finalists for Thursday’s Business Journal Newsmaker of the Year Award.)

WEST MICHIGAN — West Michigan’s new breed of community banks are proving that bigger is not always better.

More importantly, they’re proving that the personal touch can equal the Midas touch in the right market.

These community banks are run by more experienced bankers than were their predecessors, said John Donnelly, managing director of Detroit-based Donnelly Penman French and Haggarty & Co. banking investment firm.

These banks have distinguished themselves with both sophisticated and personalized service, he said.

Edmond Olejniczak, a financial adviser with McQueen Financial Advisors of Royal Oak, said the smaller banks are gaining ground because they’re running customer-focused, community organizations and using the technology and the outsourcing of services to compete directly with the large players.

It’s their level of service that makes the difference, he said.

Two of West Michigan’s brightest examples are Wyoming-based Mercantile Bank of West Michigan and Zeeland-based Macatawa Bank, which opened their doors in December 1997 and November 1997, respectively.

Mercantile ended 2002 with $922 million assets. As of Sept. 30, 2002, Macatawa had $1.1 billion in assets, which includes the assets of recently acquired Grand Bank.

“It’s unheard of to be a $1 billion bank after five years. It’s unprecedented,” Donnelly noted.

Like other community banks, they grew out of a fertile market created in the 1990s as the result of massive bank consolidation. The most notable catalyst for new bank formation in Michigan was Huntington Bancshare’s 1997 acquisition of First Michigan Bank Corp. (FMB).

Former FMB employees established four new banks on the heels of that deal, Mercantile and Macatawa included.

The people who left FMB to form new banks shared some common characteristics, said Gregg Dimkoff, professor of finance and director at Grand Valley State University’s Seidman School of Business.

“First, they were highly entrepreneurial. Secondly, they were really good people; they were so good their customers followed them. That’s certainly how Mercantile and Macatawa grew so rapidly.”

The smaller banks can offer individuals anything they need and are as competitive as the larger banks, perhaps more so in terms of personal service and lower fees because that’s their niche, Dimkoff said.

Lansing-based Capitol Bancorp Ltd., a bank holding company that operates as a bank development company, shares some responsibility for the growth of community banks. Instead of creating new branches of itself, Capitol creates new banks, often filling in voids where big bank consolidation has eliminated some competition.

Since the holding company was formed in 1987, it has established 29 community banks in eight states, 11 of them in Michigan.

“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,” said Michael Moran, Capitol’s chief of capital markets.

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

For the new crop of community banks, Fifth Third Bancorp’s acquisition of Holland-based Ottawa Financial Corp. in September 2000 and its acquisition of Old Kent Bank in April 2001 enriched the soil further.

It was like “a gift from the heavens,” for smaller banks in the region, Dimkoff recalled.

Olejniczak said competition among West Michigan banks is increasing, and the competition is coming from the community-based banks.

“There’s a tremendous talent pool in the Grand Rapids market and in West Michigan,” he commented. “A lot of the former managers that got their training at the large banks are now running the community banks.”

The bottom line is, they know their competition.           

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