More and more banks like $2.3 billion-asset First Michigan Bank Corp. are offering mutual funds and brokerage services.

Unlike other banks its size, however, the Holland, Mich., bank holding company formed its own brokerage firm and includess four proprietary funds among its offerings.

"These guys have been very progressive," said Joseph Stieven, an analyst with Stifel Nicolaus in St. Louis. "The grass doesn't grow under their feet." The company's mission has evolved from "bank" to "financial services industry" in recent years, said David M. Ondersma, First Michigan's chairman, president and chief executive.

First Michigan, aware banks were starting to sell these kinds of financial services, weighed the merits of joining in and, in 1990 and 1991, planned and implemented its brokerage service and fund efforts. The first full year of operation was 1992.

"It couldn't have happened at a better time," Mr. Ondersma said. "With interest rates coming down, our customers were looking for alternatives."

Michael Durante, analyst with McDonald & Company Securities, Cleveland, said performance has been a top priority at First Michigan, which has 12 subsidiary banks. "What I find compelling about the company is its track record," he said.

Over the past five years, the company's average return on equity has been 14.4% and its average return on assets has been 1.10%, according to McDonald & Co., which initiated coverage of First Michigan this fall.

The company's stock has performed well, up 20% in the year to date, compared with the average 7.5% increase in bank stocks, said Mr. Stieven, quoting a Stifel Nicolaus index of 40 midwestered banks.

Western Michigan's strong economic base has prompted strong loan growth, said Mr. Durante, the McDonald analyst. But that friendly economy also could usher in increased competition in a part of the state that's fairly over-banked, he added.

Mr. Stieven says that long-range planning, which is responsible for First Michigan's strong performance over the past several years, will help the company compete effectively.

For example, First Michigan has a dedicated sales force for its assorted services.

"In today's world, bank products are really all alike," Mr. Ondersma said. "You have to be able to go and sell your services to the customer, and that means going to them."

The cost of producing these services in-house versus using a third party wouldn't differ that much, Mr. Ondersma said.

And First Michigan isn't done yet. Mr. Ondersma anticipates possible changes in the Michigan law that currently prohibits banks from selling insurance products themelves. He'd like the bank to offer annuities, too. "It would be a nice fit."

To research its foray into brokerage services, First Michigan relied on in-house resources but also studied published information and met with consultants with expertise on various aspects of the investment industry.

Held Focus Groups to Measure Customer Interest

The bank then held focus groups with customers to see if they wanted these products and whether they would buy them from the bank.

After executing the legal and accounting paperwork necessary for legal approval, the bank hired registered reps to market the mutual funds and a third-party brokerage to execute the transactions.

First Michigan now has 12 full-service brokers in various offices and four more in a discount brokerage.

Out-of-pocket costs for legal, accounting, filing, and consulting fees were about $250,000, Mr. Ondersma said. This does not include related internal operating costs, which he said he could not break out and estimate.

Although Mr. Ondersma calls the whole experience "absolutely necessary" for First Michigaan, he cautions that it is time consuming and that smaller banks might want to consider using a third-party to offer these services.First Michigan BankAt a GlanceHeadquarters Holland, Mich.Established 1973Chairman, David M.president, and CEO OndersmaAssets $2.3 billionROA 1.24%ROE 15.18%Loan-to-depositratio 72.6%Efficiency ratio 66.32%

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