Billion Dollar Baby Macatawa

October 30, 2006
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HOLLAND — As Macatawa Bank nears the start of its 10th year in business, it continues to capitalize on its high-touch customer service approach.

The bank founded by Benjamin A. Smith III almost nine years ago surpassed $2 billion in assets on Aug. 24. The bank started with nothing and was up against a number of large competitors. Yet it has had nothing but successive periods of quarter-over-quarter growth, and it’s now the No. 1 bank in OttawaCounty in terms of deposit market share.

“For the last three or four years we’ve been the ‘bank of choice’ in the Holland Sentinel’s annual survey,” noted Smith, Macatawa Bank Corp. chairman and CEO. “I think that’s pretty important, too, because it indicates the comfort level that the community has with our employees, and I think that’s pretty important.”

Today Macatawa has more than 460 employees, 24 full-service branch locations serving western Michigan’s Allegan, Kent and Ottawa counties, and a complete line of personal, business and investment services.

Smith had joined First Michigan Bank in 1971 as head of the trust department, and rose to second in command at FMB-Zeeland. He left FMB in 1992 and started the investment firm of Smith & Associates.

In his years at FMB, Smith worked with a lot of small community banks. What he discovered was that when bank employees get involved on a personal basis with their customers, they tend to give better service.

“If you know me and I know you and you’ve got a problem, I take it more seriously; I try just a little bit harder,” Smith explained. “That kind of environment is very stimulating for employees, as well as customers.”

He attributes 100 percent of Macatawa Bank’s success to the quality of service its employees provide.

In the mid- to late-1990s, regional banks were rapidly absorbing small local banks. When Huntington announced in 1997 that it was purchasing FMB, the deal threatened to leave the Holland-Zeeland area without a locally chartered bank. So Smith established Macatawa to fill the void. He thought that a community bank of about $500 million in assets would be big enough to survive in that market, he recalled.

“I figured if we started and it took a little time we would be willing to wait that out because the benefits would be that good,” Smith said.

But Macatawa exceeded his expectations.

Oppenheimer & Co. analyst Terry J. McEvoy, CFA, has covered Macatawa since 2001. He said that everything that could go right for Macatawa did go right, in terms of the big bank consolidation that occurred in West Michigan. Disruption in the market enabled banks like Macatawa to focus on customer service, he said.

“They went after the convenience model where they pursued a strategy of opening new branches and selecting the right locations for their customer base,” McEvoy said. “But they really took a true community bank approach to it — where they knew the customers, the customers knew them, and the decisions were made locally. That strategy has been extremely successful in bringing them customers from the big banks.”

Macatawa Bank began operation in November 1997 with a branch in Zeeland. The bank’s primary focus was on the small- and mid-size businesses and consumers that were underserved by larger, out-of-state commercial banks. Everybody on Macatawa’s management team and all of its lenders had gained their industry experience at larger banks, said President and CEO Phil Koning, and a significant number of them came from banks that had been acquired by larger banks.

“Thankfully, at the very beginning we were able to get some talented, very top-notch people to join the bank and help build it,” said Koning. “They knew of other people they could bring with them, so it very quickly just kind of mushroomed. It was just one of those things where everybody was excited, everybody got together and pitched in, and everybody worked hard.

“Our organization today is a combination of what I would consider to be the best bankers in the area. Good bankers have the desire to help their customers. That’s what turns them on.”

A community bank is a relationship bank, Smith pointed out, and all of the people Macatawa was able to recruit had strong relationships with their customers that they really wanted to maintain.

“Once we put those people together, they created this culture that is the most valuable thing the bank had,” he reflected.

Macatawa bankers look at customer relationships from a long-term perspective, Koning added, and one of the company’s principles is to drive decision-making as close to the customer as possible, which means empowering employees on the front line to make decisions.

For the larger banks that operate branch networks in up to 20 states, it’s a little scary to have too much authority invested in an individual banker, so they tend to become more and more standardized and compartmentalized out of necessity, said Stifel Nicolaus analyst Ben Crabtree.

“What happens with the big banks as their geographic spread increases is that the range of authority at a given banker level narrows and, in effect, they become product salesmen rather than relationship managers,” Crabtree observed.

Both employees and customers of Macatawa, it would seem, were attracted to the community banking model.

In 1998 — its second year of operation — Macatawa Bank built seven new branches, and in 1999, added five additional branches and a trust department.

The bank reached $500 million in assets in 2001. That same year, Macatawa opened a branch in Grandville and also acquired Grand Bank Financial Corp., a one-office operation in Grand Rapids with nearly $228 million in assets and $600 million in trust assets under management. The company reached $1 billion in assets in 2002, added two new branches and began offering discount and full-service brokerage at most branches. Macatawa opened two more branches in 2004, one in 2005, and another this year.

“Every bank has a culture and strategy,” McEvoy said. “Some tend to be satisfied with just steady growth, content with the way things work. Then there’s a bank like Macatawa that has more of a growth characteristic — it starts at the top and follows right through to the teller.”

Macatawa is currently putting in a branch at

Burton Street
Breton Avenue
, and at
28th Street
Cascade Road
— and is eyeing Caledonia, Walker’s Standale business district and other areas in metro Grand Rapids for potential branch locations. Koning said the bank expects to begin expanding its market to MuskegonCounty, as well.

McEvoy said the fact that Macatawa surpassed $2 billion in assets in less than nine years really separates it from many of the other startup banks. He believes Macatawa’s history of strong growth is the result of its corporate culture and focused strategy.

In Smith’s opinion, all a person has to do is walk into a Macatawa branch “to feel the difference.”

“Everybody seems to enjoy what they’re doing, and they like interrelating with customers,” Smith said. “The customers feel that. I think my greatest satisfaction comes from the fact that we now have 460 or so employees and lot of them are raising their families in this area, or will. They have a very, very positive attitude toward customers and that has created a very, very positive image for the bank.”    

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