First Michigan Bank is fast becoming a study in adaptation.
In less than a year it has transformed itself from a tiny, $75 million-asset bank in Troy that focused on private banking to an almost $2 billion-asset regional player with branches in two states and its sights set on further expansion.
"We've been looking all around the Midwest," said David Provost, president and chief executive of the bank and its holding company, First Michigan Bancorp. "We want to be a predominant player in that market."
This month it became clear that the bank had outgrown its name when it jumped across Lake Michigan to strike a deal with the Federal Deposit Insurance Corp. for the failed First Banking Center in Burlington, Wis.
"We are searching for a new name. A localized name is not going to work," Provost said. "First Michigan will not play too well in Madison."
By picking up the Wisconsin bank, which had assets of $750 million, First Michigan has launched itself into the stratum of several other community banks that are in fierce competition for spots in the next class of regionals.
"They are definitely situating themselves to be among the next wave of regional banks," said Eliot Stark, managing director of the financial institutions group at Headwaters MB, an investment bank in Denver.
"With all of the consolidation we are expected to see, there is a new group of regional bank holding companies emerging and the competition is increasing," Stark said.
First Michigan's backers are giving it a head start on the competition. In April the company received a $200 million capital infusion led by W.L. Ross & Co., the private-equity fund of the billionaire Wilbur J. Ross. Investors have pledged an additional $200 million to First Michigan to use when the company is ready.
That initial infusion allowed First Michigan to make its largest asset leap by acquiring the $900 million-asset CF Bancorp in Port Huron, Mich., from the FDIC on April 30.
Stark said that regulators clearly trust Provost and his management team. Provost (who is also chairman of the bank unit) joined the flailing de novo in mid-2008 with the ambition of re-establishing a private bank similar to the one he sold to PrivateBancorp Inc. in 2005 for three times book value.
Late last year regulators approved a proposal to let Provost expand the bank to $225 million of assets, or 2.5 times its size at then, by 2011. The Ross investment clearly changed those plans, as the company's assets are now closing in on $2 billion.
"You have confidence in management by regulators and a significant amount of capital," Stark said. "That is phenomenal combination in today's market."
Although Provost is still eager for growth, he acknowledged a need to stay in regulators' good graces so the expansion can continue. He describes the growth method as "measured and conservative."
"We would love to look at additional opportunities," Provost said. "But we have to be mindful of our regulators. We don't want to get too far out in front of them."
Provost said the nearly seven months that lapsed between the CF and the First Banking acquisitions show the company's measured approach. The management team wants to digest before taking its next bite, he said.
The CF integration is complete. Given that it was a bigger bank than First Michigan's, Provost said the company converted to CF's systems and then upgraded the new company's operating system.
In the meantime, First Michigan was keeping tabs on emerging opportunities such as First Banking.
"We had identified this bank," Provost said. "But you never know when they are going to come up."
Even though its last two acquisitions were of failed banks, Provost said First Michigan is also interested in traditional bank deals with open banks that are either struggling or looking for a way out.
"We are finding that the failed-bank deals are getting a little more competitive. The bids are a little more aggressive," Provost said.
Stark added that First Michigan might be looking beyond its home state because there have been few failures there, with only one bank failing in Michigan since CF.
"There is just not a lot going on here," he said.
First Michigan aims eventually to fill in the space between Michigan and Wisconsin, which would likely mean entering the competitive Chicago market, as well as Ohio and Indiana.
"There is obviously a lot of scale in doing that," Provost said.
Again showing restraint, the company said that any growth would be hinged on its ability to recruit qualified management teams to oversee local operations.
"We want to continue to capitalize in markets where we have competent experience in place to manage the day-to-day operations," said J. Brennan Ryan, a partner in Nelson Mullins Riley & Scarborough LLP, who represents First Michigan.