- change ups
New bank nearing its capital goal
The organizers of Grand River Bank have raised 85 percent of the capital needed to open their bank in Grandville, and one of the things that will set their bank apart when it opens is a clean balance sheet.
Grand River Bank currently has 424 subscribers who have purchased subscriptions for $10 each. The subscriptions will be converted to common stock after the bank raises the remaining capital required and after the Federal Deposit Insurance Corp. performs an audit and agrees to provide deposit insurance, said bank Chairman Robert Bilotti.
The company’s initial public offering became effective May 9, 2008. All 23 members of the bank’s organizing group, the bank’s management team and all subscribers hold the same class of stock, so there’s no preferred group of shareholders. Bilotti said it was a deliberate strategy intended to put everybody on equal footing to create balance within the organization.
The bank’s organizers come from all walks of life, with backgrounds in law, medicine, accounting, insurance, manufacturing, IT, regulatory compliance, dairy farming and cattle ranching, Bilotti pointed out.
“In order for a community bank to have the greatest likelihood of success and to maximize that likelihood, it’s best to have a diversity of businesses supporting us,” he said. “The idea behind it was to have as diverse an organizing group as possible. The organizers have all committed to support the bank with their businesses, so that gives our management team a very strong leg up in building the business of the bank.”
The organizers have been working on the venture for a little over two years.
Grand River Bank will be a commercially oriented bank. In its business plan and in its application with the FDIC, the organizers project that 69 percent of its business will be commercially oriented, with the balance tied to consumer and retail products.
“We think that’s where the greatest opportunity is locally,” Bilotti said.
Why open a new bank under current economic conditions? Bilotti said when he began the process on behalf of the organizers two years ago, he commissioned a market assessment to determine whether there was a need for a new bank and, if so, where it should be located. A feasibility study followed that.
“The original market assessment indicated very clearly that there was room for growth and for a new bank,” Bilotti recalled. “The feasibility study work drove home that point. There was absolute clarity that there was an opportunity for another bank to enter the market, gain market share and be successful.”
Bank consolidation over the years is what has created the opportunity, Bilotti said. A lot of local banks have been absorbed by larger regional banks, and decision-making power shifted to the regional headquarters in Chicago, Cleveland, Cincinnati or elsewhere.
“There are local businesses that rely on relationship-oriented banking — working with their banker over an extended period of time. We understood very clearly that there was a need for relationship banking again,” Bilotti commented. “All of those factors pointed to a need for a new bank with fresh capital that could do community lending.
David Blossey, formerly of Chemical Bank, will serve as CEO. He has experience with both big banks and community banks, as does CFO Liz Bracken and Chief Lending Officer Mark Martis. Neither Blossey, Bracken nor Martis needed a job. They just wanted to be community bankers, they said.
“The direction a lot of the larger banks are heading into is centralized underwriting. But all business owners have unique needs; one size does not fit all,” Martis said. “Often what’s happening right now is that the lenders that have been out there in the marketplace are no longer involved in the decision-making process, and that’s a very frustrating part of working in a large institution.”
Bracken said what was compelling was the fact that the organizing group was so committed to the belief that there was a need for a new bank.
“It wasn’t just a couple of people saying they wanted to start a bank: It was 23 people who owned businesses saying they were not being served,” she noted.
Bilotti said the management team is poised to take advantage of a lot of the opportunities that the market is currently presenting. He said the organizing group learned anecdotally throughout the capital-raising process that banks, due to the poor performance of their loan portfolios, are being forced to take particular aspects of their business, such as commercial real estate, and reduce their assets in that category. Some banks simply don’t have money to lend because they have to increase their loan loss reserves, and typically the way they go about doing that is by calling notes or reducing or eliminating credit lines, Bilotti explained. In many respects, he said, they’re forcing out some of their best customers — the ones that can repay the loans and pay down the notes.
“Essentially, you have some of the best lending candidates in the marketplace searching for new credit opportunities and a new lender,” Bilotti said. “We believe there’s a strong pipeline of business out there that represents some of the best credit candidates in the market that we think we’re going to have an opportunity to lend to. These are opportunities that we never expected two years ago when we began the process, but they are improving the opportunity for us to succeed.”
Blossey said small business customers are being underserved by the larger financial institutions in the local market and are crying out for credit.
“We’re going to be doing that ‘old-time boring banking’ that’s so successful in today’s world,” Blossey said. “We know the market needs our services right now, and we want to get out and start filling that need in the community.”