HOLLAND — A decade ago, Benjamin A. Smith III founded Macatawa Bank with nothing and went up against a number of large competitors. By the close of its ninth year in business, Macatawa had achieved $2 billion in assets and established 24 full-service banking offices in Allegan, Kent and Ottawa counties. Now Smith is well on his way to building a statewide franchise of community banks in Florida.
Smith, chairman of Macatawa Bank and CEO of Macatawa Bank Corp., formed a holding company called Florida Shores Bancorp in Pompano Beach in 2005, opened Florida Shores Bank-Southeast there in early December 2006, and anticipates the opening of Florida Shores Bank-Southwest in Venice in September. He has three more banks planned under the Florida Shores Bancorp banner. Like Florida Shores Bank-Southeast, the others will be "high touch" commercial banks targeting businesses looking to borrow up to $10 million. And Smith is sticking with the community banking model that made Macatawa so successful.
"The smaller the business, the newer the business, the harder it is to get the attention of the larger banks," he said. "The bigger a financial institution gets, the more it focuses on the bigger business clients, and the smaller businesses get a complete line of personal, business and investment services. Second, the bigger a bank gets the more impersonal it gets."
As far as Smith is concerned, those are the reasons why community banks as a group tend to do very well competing with larger banks. There has been a lot of consolidation going on in Florida, and there are not a lot of community banks around, Smith noted.
"We're trying to build one so customers not only get good response and a banker who really knows them, but also get the advantage of decisions made locally and quickly so the borrower's needs can be accommodated."
He started FloridaShores with $54 million he raised from investors in Michigan, and his group is raising about $20 million among Florida investors, so when all is said and done, the bank will have equity investments of more than $70 million. The corporation capitalized the Pompano bank at $13.5 million, 40 percent of which was raised locally. He said the corporation will likely capitalize the Venice bank at $15 million, with nearly 40 percent of it raised locally.
How did Smith raise so much money among Michigan investors to start a community bank in Florida? Most likely, investors figured that if he did it once, he could probably do it again.
"Macatawa was a special situation; I knew the market extremely well, and most important, I knew the players that we needed to build it," Smith said. "That was the real key — it's always the people. That's what has driven Macatawa's success."
As an investment advisor and president of Smith & Associates, Smith has been keeping an eye on the Florida banking scene since the mid-1990s and has been a member of the Florida banker's group for the past five years. Before he started the process of raising money for the new bank, he stationed a recruiter in Florida for a year to check out the interest and availability of local bankers, and Smith then spent five months personally interviewing potential candidates.
As Smith explained, the markets in Florida are "better" than in Michigan, in the sense that in Florida there are fewer banks per $1 million of money available, so it's a less competitive market, as well as much more of a growth market.
"If you're going to try to do something again, you want to give yourself the best chance; the best chance is where the market is growing, and the market is growing in the south," Smith observed.
Florida Shores-Southeast presently has $40 million in assets. Smith said the bank took off a bit slower than he expected, but business seems to be accelerating. The bank is staffed with experienced local people, and he believes it's going to do extremely well because the Pompano Beach market is a "tremendous" market rife with business opportunities.
Because Florida Shores-Southeast is a chartered bank, it can branch. Florida Shores-Southwest in Venice will be established as a branch of the Pompano Beach bank while Smith seeks a charter for it.
"What that allows us to do is open for banking as FloridaShores before we actually have our charter. So as we're hiring people to get it up and running, they can go ahead and start generating a business base," Smith explained. "That's a really, really big benefit of having multiple banks. When you have one bank open and you can help another one get an earlier start, it reduces your start-up costs and helps you break even a little quicker."
Smith said the group of people who will lead the Venice branch is very much like the group that started Macatawa. The group worked together in a local bank that was acquired by a holding company, and now they're coming back together to lead Florida Shores-Southwest. Smith said he's fairly close to selecting a third location, which he hopes to announce before the end of the year.
Terry McEvoy, a bank analyst with Oppenheimer & Co., has covered Macatawa since 2001. McEvoy believes Smith has an advantage in that the Florida market is growing organically at a much faster clip than West Michigan. People and businesses are moving there daily. In simple terms, a bank can only grow as the regional economy is growing, he said.
On the upside, much stronger demographic increases should accelerate the growth of a bank in Florida versus one in West Michigan, McEvoy said. But he sees a potential downside in Florida's real estate market, which is experiencing problems. On top of that, the competitive landscape in Florida has intensified in recent years.
"Smith's group is not the only one forming banks; quite a few niche banks have been formed throughout the state," McEvoy remarked. "Commercial lending is predominantly commercial real estate lending, and a couple of banks have been really stung by higher losses related to the real estate lending business. The real estate market might cause some pressure for profitability."