Hard Sell: Michigan Start-Up Gets OK for Rapid Growth

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Imagine trying to persuade regulators to let a Michigan de novo expand by eight times the goal of its initial business plan on the eve of the economic meltdown.

Though it seems an unlikely one, that was the proposition First Michigan Bank in Troy made in mid-2008 after the year-old institution recruited David T. Provost, a veteran Michigan banker.

Late last year, regulators compromised on First Michigan's request to grow to $600 million of assets, agreeing to let it expand to $225 million by 2011. With regulators now on board and $13.5 million in fresh capital, Provost said he sees 2010 as a potential blockbuster year. His clients are clamoring for credit, he said, after having been shut out by banks that have pulled back or left one of the country's most downtrodden state economies.

"I know the opportunities in Michigan are endless because it has been redlined by the rest of the country," said Provost, who is the bank's chairman and chief executive as well as president and CEO of the holding company, First Michigan Bancorp Inc. "There has been so much demand that we are triaging our loans in order to stay within our growth limits," he said.

The bank's assets totaled $90 million at the end of the fourth quarter, a 2,900% increase from last March, when Provost arrived, and $15 million more than the bank's business plan originally allowed.

Banking consultants said other de novos, banks defined as those started in the past three years, may find similar growth opportunities because many do not have to address legacy credit issues. Chances improve if the bank is headed by a team with a clear mission like the private banking business Provost is pursuing.

In part because of Provost and his connections, First Michigan has the capital capacity to support the growth. When Provost joined the company, he brought with him $10 million in capital commitments. This capital, later augmented to $13.5 million, finally made it to the bank in November. He said it should be enough to support the plan to expand assets to $225 million.

"I think there could be a lot of great possibilities out there for de novos," said Anita Gentle Newcomb, the president and managing director of A.G. Newcomb & Co., a bank consulting firm in Columbia, Md. "They can carve out a particular niche, especially if they have a strong management team that brings over a book of business."

Provost joined First Michigan from PrivateBancorp Inc., where he was the chairman and CEO of Michigan operations for its PrivateBank until 2008. In 2005, Provost had sold Bloomfield Hills Bancorp Inc. to PrivateBancorp for three times its book value. He opted to leave in late 2007 when PrivateBancorp shifted gears, setting its sights on becoming a leading middle-market lender by hiring former lenders from LaSalle Bank in Chicago after the latter's sale to Bank of America Corp.

Eliot R. Stark, a Michigan-based managing director for the investment bank Capital Insight Partners Inc., called Provost's previous company a well-run institution that was respected in Michigan and had minimal losses, even as the state's economy tanked.

"David has what it takes to be successful," Stark said. "Now the challenge will be if he can recreate the past. He has brought a lot of his former customers and hired many of his old bankers, but they may have lost some momentum with the regulatory process."

That is not to say that the scrutiny of First Michigan's application received was unwarranted, even Provost concedes. "They wanted to make sure the proper business plan was in place," he said. "We were asking to dramatically increase the bank at the exact same time when regulators were dealing with meltdown."

The Federal Deposit Insurance Corp. declined to comment. But de novos are getting closer scrutiny. In August, the FDIC issued guidance that more than doubled, to seven years, the amount of time de novos are subject to tighter supervision than other banks.

Provost said he still envisions exceeding $225 million in assets, through organic growth or possibly by acquiring failed institutions. To do either, First Michigan would once again need regulatory approval.

That is a smart approach, Newcomb said.

"Any kind of plan that calls for explosive growth is going to be highly scrutinized by the very risk-averse regulators," she said. "Show them that you can carefully grow to $225 million, then ask to become bigger."

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