Originally Published: August 4, 2019 in Crain's Detroit Business By Chad Livengood

'Minnow swallowing a whale': How the smallest bank in America grew into the biggest in Michigan

When David Provost's noncompete clause in the 2006 sale of his Bank of Bloomfield Hills to Chicago-based Private Bancorp expired, he started getting the itch to buy a small bank in 2007 — just as Michigan's economy was tanking.

"We should buy a bank in Michigan, because nobody's buying banks in Michigan," longtime Detroit real estate developer Gary Torgow recalls Provost telling him.

Torgow, who served on Provost's board at the Bank of Bloomfield Hills, bought into the idea and the pair identified the brand-new, teeny-tiny First Michigan Bank in Troy, which at the time had $700,000 in assets and was the smallest bank in America based on deposits.

They viewed it as a long-term play in community-based lending and deposits.

"We figured it would be years," Torgow said. "We'll grow it like he grew Bank of Bloomfield Hills and in 20 years, we'll have something.

"And then the world changed dramatically."

Twelve years later, Torgow and Provost have their hands on the wheel of TCF Bank, now the nation's 27th-largest bank with $47 billion in assets and $35 billion in deposits following last week's merger with Chemical Bank, a century-old financial institution they gained control of during their rapid succession of mergers and acquisitions.

The arc of how these two businessmen amassed one bigger bank after another through more than a dozen deals follows the economic casualties of the 2008-09 banking crisis, the changing face of retail banking and involves what one industry observer calls a combination of risk-taking, serendipity and nerve.

"They caught lightning in a jar when we hit the downturn," said John Donnelly, managing partner of Donnelly Penman & Partners, a Grosse Pointe-based investment banking firm.

The world-changing moment for Provost and Torgow came in 2010 when the Federal Deposit Insurance Corp. put up for auction a series of failing community banks in Ohio, Wisconsin and Michigan.

First Michigan Bank was a one-branch bank at the time with 30 employees and $75 million in assets.

The failed banks First Michigan bought up included Peoples State Bank in Madison Heights, Community Central Bank in Mount Clemens and the 22-branch Citizens First Bank in Port Huron.

"The strategy was there was a need in Michigan that no one was willing or able to fill," Provost said. "Not Comerica. Not the Huntingtons. Not the Chases. No one would really invest money in Michigan in those days."

But billionaire New York financier Wilbur Ross did.

Ross, now the U.S. secretary of commerce, put up $50 million of the $200 million in capital from institutional investors in April 2010 through his firm, W.L. Ross & Co. LLC, and took a seat on First Michigan's board.

"We didn't think Michigan was going to zero, which was the prevailing wisdom at the time. And we believed in Dave (Provost) and Gary (Torgow)," Ross said at a February 2016 Crain's M&A event. "Banking is the most management-intensive business in the world, and we believed in their management."

First Michigan Bank's capital fundraising closed on the same Friday in April that regulators swooped in and closed the troubled Port Huron bank.

First Michigan was the only bank that bid on Citizens First.

With Ross' money at their back, Provost, Torgow and their team engineered a feat that was unthinkable in the shell-shocked banking world at the time: A 3-year-old bank with $100 million in assets acquiring a long-established bank with $1.1 billion in assets.

"The turning point was the Citizens Port Huron transaction," Donnelly said. "You literally have a minnow swallowing a whale."

Torgow attributes their ability to buy failing banks to the fact that their bank was the "only really clean platform that was able to bid" because they were not encumbered with bad loans like other financial institutions.

"And we went to the marketplace and raised a lot of money, and we had the firepower to buy those banks. And that's what really what got us to the opportunity."

Donnelly, who has done past banking deals with Provost, said Torgow, Provost and their management team that includes COO Tom Shafer and CFO Dennis Klaeser went through a "boot camp" on buying failed banks.

"Once they learned that hand-to-hand combat about how to do one of these FDIC transactions, they had a very proprietary skill set that very few banks in the country had," Donnelly said.

Provost spent 13 years at the former Manufacturers National Bank in Detroit (which later was acquired by Comerica Bank) before he founded the Bank of Bloomfield Hills in 1989.

After he engineered the acquisition of Citizens First, Provost telegraphed their strategy in an interview with Crain's — nine years before he became the new executive vice chair of the 500-branch TCF Bank.

"We'd love to have a Michigan-based Midwest bank," Provost said in 2010.

By the spring of 2011, First Michigan's acquisition of community banks outside of Michigan necessitated a name change, an arduous process in the highly regulated banking industry.

The two business partners came up with the name Talmer — a combination of the first three letters of the last names of Provost's grandfather (John Talmage) and Torgow's grandfather (M. Manuel Merzon).

In the years following the Citizens First acquisition and other purchases of bankrupt or failed banks, the newly renamed Talmer Bank and Trust's leaders worked on building a brand, said JoAnne Huls, who was the bank's chief of staff 2011-17.

"They went about it by thinking about the communities that they served," said Huls, who is now Gov. Gretchen Whitmer's chief of staff. "Because of that, their success came right along with the community's success. And people trust them."

In February 2014, Talmer went public on the Nasdaq stock exchange with a $250 million public offering. In August of that year, Talmer acquired First of Huron Corp. of Bad Axe and its wholly owned subsidiary, Signature Bank, adding to Talmer's branch network scattered across the Thumb.

That same year, Midland-based Chemical Bank was in the midst of its own rapid expansion, buying Coldwater-based Monarch Community Bancorp Inc. and Traverse City-based Northwestern Bancorp.

In January 2015, Chemical Bank bought Holland-based Lake Michigan Financial Corp. and its $1.2 billion in assets.

That set the stage for the Talmer-Chemical merger in August 2016 as Chemical — with $9.2 billion in assets — was nearing the $10 billion asset trigger for additional federal regulatory scrutiny. The merger helped both banks offset additional compliance costs, while also avoiding being swallowed by a national bank.

By then, Talmer's branch network was largely concentrated in Southeast Michigan and the Thumb, while Chemical was spread across the rest of the Lower Peninsula.

"It was a perfect merger for us of two companies that also didn't overlap," Torgow said.

The Talmer-Chemical merger was touted as a "merger of equals," an approach Provost took as he sought out the next bank tie-up: Wayzata, Minn.-based TCF Bank.

Leaders of both banks emphasized that their merger will help scale growth and accelerate strategic planning. They have said both banks had little overlap at the retail level, while TCF folds in a commercial and industrial leasing and financing business that Chemical Bank lacked.

"It doesn't mean shedding any of those businesses that we had," said TCF Bank CEO Craig Dahl, who now reports to Provost and Torgow in the post-merger management structure. "Everything we had going in we're going to have, it's just going to be much more diversified."

The merger may have been of equally valued banks. But the banks followed very different paths to their merger.

TCF, which was chartered as a national bank in 1986, grew organically over the years, a contrast to Chemical's merger-fueled hyper-growth.

"Dave continues to tell me we've got to be acquisition-ready," Dahl said.

The new TCF Bank has "a lot of runway ahead of them" for future mergers or acquisitions, Donnelly said.

"They're a predator now," Donnelly said. "It's no longer a Cinderella story. It's time-tested now."

Given the evolution of their bank, Provost has a good reason to be ready.

"You never know when the next acquisition is going to come," he said. "You never know."

— Tom Henderson contributed to this report.