When consultant John Pattison was assigned the task of helping Northstar Financial Group Inc. identify Michigan banks to buy, his first call was to Capitol Bancorp Ltd.
Mr. Pattison wondered whether the $4.9 billion-asset Capitol would be interested in selling Paragon Bank and Trust, a Holland, Mich., bank he co-founded in 1990 and sold to Capitol in 1994. Capitol, a multibank holding company with dozens of banks in 17 states, was game to sell not only Paragon but also its other three banks in western Michigan.
"The intent was to buy one; we bought four," Mr. Pattison said this week.
Northstar, based in Bad Axe, Mich., announced last week that it would buy Paragon, Grand Haven Bank, Kent Commerce Bank, and Muskegon Commerce Bank from Lansing, Mich.-based Capitol for $52 million in cash.
The banks, three of which lost money last year, have been a drag on Capitol's earnings in recent quarters. Selling them would reduce Capitol's exposure to its slow-growing home state as it expands into faster-growing areas across the country.
But for Northstar, the deal could be transforming. It would nearly double the company's assets, to roughly $920 million, and give it four banks in a region its top executives believe is poised to recover faster than the rest of the state.
"The state is in a tough economic time, but eventually it is going to recover," said John Booms, the president of Northstar Financial, a three-bank holding company. "We feel that the starting point of the recovery is going to be in Grand Rapids," the region's metropolis.
Dana Johnson, the chief economist at Comerica Bank, said that western Michigan has not been in as deep a hole as the Detroit area because its economy is less dependent on the automobile industry. Grand Rapids also has made strides in developing cultural amenities and its health-care sector, he said.
"Grand Rapids is likely to do better in a recovery mode," Mr. Johnson said. "It has done a lot of farsighted things to position itself to have a bright future. It is more upbeat than southeast Michigan."
Mr. Booms said that the four banks to be acquired would retain their names and management teams but that he wants them to broaden their offerings.
Like most of Capitol's banks, Paragon, Grand Haven, Kent Commerce, and Muskegon Commerce, are primarily commercial banks, but under Northstar they would be expected to expand into retail banking and agricultural lending, Mr. Booms said.
Northstar, which has two banks in Michigan and a third in Florida, intends to bring in workout specialists to tend to the acquired banks' credit problems and then leave it up to the existing managements to execute their strategies.
"Our thought is to leave the clean-up worries to other people," Mr. Booms said. "We want senior management to tell us how they are going to deliver the goods."
Northstar also plans to use the trust department at Paragon as a platform for bringing wealth management services to its other subsidiaries, Mr. Pattison said.
He is to coordinate the banks' conversions and said the deal includes guarantees from Capitol for some troubled loans to protect Northstar from losses. He declined to elaborate.
