A Michigan community bank's well-known penchant for inventive advertising may be hurting its bottom line, according to some stock analysts who are calling for cutbacks.

Franklin Bank, a suburban Detroit institution with $509 million of assets, has gained notoriety over the years with playful ads that poke fun at its big bank rivals. For example, after National Australia Bank took over Michigan National Corp., Franklin ran radio spots using actors with heavy Australian accents.

But that attention has had its costs. According to Howe Barnes Investments Inc., the bank was projected to spend $1.2 million, or 27 cents per share, on advertising in 1996. Meanwhile, projected earnings per share for the year were only $1.05, flat from $1.04 in 1995.

"Advertising is an area where they can cut back," said David E. Mudd, an analyst for Chicago-based Howe, Barnes Investments Inc. In a Nov. 4 report, he criticized the bank's 1996 financial results as "disappointing" and maintained a "hold" rating on the bank's stock.

Franklin is facing a dilemma that other community bankers can expect as marketing becomes more important in the financial services industry: How to build a market identity without chipping away at profits and raising the ire of investors.

Chief executive Read P. Dunn said Franklin will pare back its ad budget somewhat, but added the bank needs to remain an aggressive marketer. The ad spending has been necessary to establish Franklin as a player in a market dominated by big banks, he explained.

"Good advertising is a lot like research and development; it is an up- front cost," Mr. Dunn said. "We think it's an investment in the future."

Until 1991, Franklin operated as a thrift. When it converted to a commercial bank charter, it identified small-business lending as the niche it would target. However, Franklin had "close to zero recognition in the business community," Mr. Dunn said.

Advertising was the way to build that recognition, and the bank hasn't wavered from its commitment. According to Howe Barnes, the bank spent $885,000 on promotions in the first nine months of 1996, more than in any of the past four years. Franklin spent only $663,000 in 1995 and $866,000 in 1994.

Since Franklin's conversion, its high-touch service approach has attracted a growing number of small-business customers. Business checking accounts increased from $40 million at the end of 1994 to $101 million as of September, according to Howe Barnes.

And Mr. Dunn credits much of the bank's success to its advertising campaigns. "It costs money up-front to acquire business," he said.

Kevin Tynan, president of Chicago-based Tynan Marketing, agreed, praising Franklin's sound strategic marketing approach.

"Advertising in this instance is an investment that will pay off," he said. "A bank needs to create an identity and needs to create a personality and attributes. Advertising is the way to do that."

But Mr. Tynan added that banks customarily back off on their spending once their identity has been established. "I would expect it to taper off as they become known for catering to small companies," he said.

And some investors and analysts would like to see that tapering off - and an accompanying improvement in earnings - sooner rather than later.

Michael Moran, an analyst for Roney & Co., Detroit, said investors "would like to see a little tighter control in the expense area." And he warned that investors may get impatient with Franklin if earnings don't improve.

But Mr. Dunn said the bank won't sacrifice its strategic plan for short- term gain. "In the short run a good way to save money is to cut things like R&D and advertising," he said. "That's not good business."

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