United Stays Local On Purpose

June 13, 2003
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GRAND RAPIDS — The tidal waves of consolidation swept away many familiar names like Old Kent Bank and Lumberman's Bank, but left several other West Michigan financial firms untouched.

And how did that happen?

Well, Art Johnson says that as far as United Bank of Michigan is concerned, it's completely by design — on his part as president and the second generation of managers in the largely family concern.

He said the opportunity certainly was there for United to become a cell within a much larger financial entity.

But he also said it just wouldn't have been United's style — or his personally.

"It's a little different view of the world here," Johnson said.

"We are very much interested in creating a valuable franchise. But once you've created something of value, that doesn't mean you have to sell it to realize the value."

He said United discouraged would-be buyers before their approaches ever reached the money-discussion stage.

"The nature of these transactions usually is that you either get cash or stock in the company you've sold to," Johnson said.

"So if it's stock, now you've just got stock in a company you've got a lot less control over and a lot less knowledge of what it does — and a lot less ability to control the nature of your investment.

"Or if you get cash, you've got to pay a lot of taxes and then you have to do something with the cash — go out and invest in something else."

He said he believes United's customers found it refreshing that the bank remained independent.

"And that feeling creates a distinct business opportunity," he told the Business Journal. "Local ownership and management is an advantage to customers and to the bank, and the best deal happens when it's a good deal for everybody."

Johnson contended that by remaining local, United is able to take advantage of three built-in advantages over banks that are controlled from other states and cities:

  • That because United is smaller, control of its operation is simpler.

"From our perspective," he said, " we believe that tomorrow, and the next day and the day after that we can run our business better than somebody from Cleveland can, and so we believe can create more value tomorrow than they can.

"This is not because we're better," he stressed, "but because we're here and we can apply all our abilities to our little company, and they have to spread their abilities among a much larger number of banks.

"We can pay more attention to smaller details."

  • That United implicitly knows the market better than can any manager in a different city or state.

"Now let's suppose your bank is acquired by a bank from out of state," Johnson said. "The guys that are in charge are not here any more. So let's say they don't know the auto industry that well or office furniture at all, and they decide they really wouldn't like to have a 15 percent exposure of loans in those industries, that they want a 10 percent exposure instead.

"Well, all of a sudden," he said, "a third of that particular piece of business gets shoved out the door.

"It's easy for me to poke fun at this," Johnson added, "but I'd do the same if I were this guy. And I'm making my living by counting on him doing that."

  • That United's particular "franchise" focus requires maintaining long-term customer relationships, which, in turn, require the bank to encourage longevity among its employees.

"Because we take a long-term view of creating franchise value, we don't see ourselves as creating value by making money on transactions," Johnson said. "Instead, we want to make money on relationships over a long period of time.

"In other words, we don't want to have one relationship with a customer, but a lot of them time after time."

He explained that it's very expensive to acquire customers. "So once we do it," he said, "we want to create a long-term relationship where we can make a little bit from them every day for a long, long time instead of making a quick buck."

The only way for that to happen, he said, is for the bank to treat that relationship as a valuable one.

From that, he said, it follows that the bank's management must create the same value in its relationship with employees.

"In most areas of our company," Johnson said, "we have phenomenal retention. People have been with us for a long, long time. It's not unusual for a commercial loan customer who has been with us for 15 years to have exactly the same loan officer.

"That's just unheard of in large companies," he said. "That's not a criticism, that's just the way it is."

This means that it's his personal challenge to create an environment at the bank: "where people who are every bit as talented and professional as someone in the same position at a large bank — how do I create value for them so that they want to stay here?

"So far, so good," he said.

He stressed that the idea of a bank with a large component of family ownership often seems puzzling to most people. "Very experienced businessmen and businesswomen are very accepting of the idea that the corner hardware store be a family operation — or a feed mill in an agricultural town, or a tool and die shop, or fairly large local manufacturing operation.

"But banks, they all assume, have to be big publicly traded companies.

"But we don't," he said. "We can be a little family-owned business just like any other enterprise. We think we're a good example of how that can work — and work pretty well."

Thanks to the lowering cost of technology, Johnson added, United is able to offer most of the same conveniences that take the hassle out of banking

"Convenience and responsiveness is important for the customer who puts value on their time," Johnson said.

"As much as we like to think we're friendly, that's not what you need when you've got to drop in to get $50 in cash or come in to pay a bill.

"When you do have a problem and need us to sit down and talk with you, we can do so."

"But when you're as busy as people are nowadays, one of the most important questions is, 'Can I do my banking at home at midnight?' We have to have the same electronic banking that's offered by large banks, and we do just that.

"That's an important part of our particular brand of high-touch customer service."         

A Brief History

What now is United Bank of Michigan traces its roots to an exchange bank founded in 1887 by two merchants in Wayland.

"In those days," explains Johnson, "there was no organized way to clear checks and bank drafts, which people were starting to use.

"What these two guys would do would simply be to buy up at a discount the bank drafts from all the other merchants in town, and then make one trip to the city to get the drafts collected or at least cashed at the bank on which they were drawn."

Wayland State Bank officially received its charter and became a bank in the traditional sense 100 years ago. The bank moved to Grand Rapids two decades ago and built its offices on East Paris six years ago.

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