Originally published February 20, 2011 in Crain’s Detroit Business by Tom Henderson
Ten months ago, First Michigan Bancorp Inc. of Troy was a one-branch bank with 30 employees and $75 million in assets. Following three acquisitions, it has 50 branches, 750 employees and $2.1 billion in assets.
The bank has even grander plans for the next year or so. Buttressed by a commitment of another $200 million from current investors to fund growth, including nearly $50 million from New York financier Wilbur Ross, First Michigan plans to buy banks in the Windy City and Milwaukee and grow its assets to about $5 billion.
And then it plans to have an initial public offering of at least $100 million. As most of Southeast Michigan’s community banks continue to struggle with troubled loan portfolios and quarterly losses, First Michigan wants to become a major regional bank, moving into Ohio and Indiana after taking on Chicago and southern Wisconsin.
John Donnelly, managing director of the Grosse Pointe investment banking firm of DPP & Partners, has a football metaphor in mind for First Michigan and David Provost, its chairman, president and CEO.
“I sent Dave an e-mail that said, “Dave, you’ve got the football, you’re in the open field, and I don’t see any tacklers in view,’ ” said Donnelly. He helped one of First Michigan’s local competitors, Farmington Hills-based Level One
Bank, raise $8 million last fall as part of a deal of its own, acquiring the $253 million in assets of Paramount Bank when it was shut down by regulators.
Provost told Crain’s that in the next 12 months or so, he also wants to buy a bank in Madison, Wis., and change the bank’s name, dropping the “Michigan” to something more suitable to doing business throughout the Midwest.
Last April, Ross invested nearly $50 million in the bank’s first $200 million round of capital raising, which funded acquisitions of about $2 billion in assets from three banks shut down by regulators: CF Bancorp Inc. of Port Huron, Wisconsin-based First Banking Center and Madison Heights-based Peoples State Bank when it was shut down on Feb. 11 on its 102nd birthday.
Provost said his bank has about $50 million left for acquisitions, and the additional $200 million will give him enough capital to buy about $2.5 billion in assets over the next year, at a rough rule of thumb of being able to leverage capital at about a 10-to-1 ratio.
Provost said he has had preliminary talks with bankers in Chicago.
“We hired five senior people from the Chicago market to help us in Wisconsin, and it would be a natural progression to have them help us with opportunities in Chicago,” said Provost, who bought First Banking Center in November.
He said he hopes to pick a new name during the second quarter.
“I would look for a nontraditional name to be chosen,” he said.
When his current capital of $250 million runs out in about a year, Provost wants to do an IPO of at least $100 million to fund additional acquisitions. The kind of FDIC-assisted sales he has been doing now requires cash, but as FDIC sales wind down, acquisitions with healthier sellers will be done with shares of stock.
“I’m surprised they’re going to wait a year for their IPO. I thought it would come sooner. But they’ll get a better valuation if they wait a year,” said Patrick Fehring, president and CEO of Level One Bank, which, like First Michigan, began operations in 2007.
Like First Michigan, and unlike other local banks, Level One doesn’t have many troubled loans in its portfolio and has been raising money, albeit much less, for acquisitions. It did a private fundraising of $13.5 million in 2009, when it bought $180 million in assets from Farmington Hills-based Michigan Heritage Bank when it was shut by regulators.
Fehring said he will continue to compete with First Michigan for acquisitions of local troubled banks, or of assets of banks closed by regulators, but wished Provost well on his regional expansion and with his IPO.
Fehring said his bank doesn’t have short-term plans to go public, “but I’m sure at some point the board will consider it. Our shareholders will be excited at some point to be able to trade their shares.”
Terry McEvoy, a senior equity analyst who covers regional banks for New York-based Oppenheimer & Co. Inc., said an IPO on Jan. 28 by another bank in the Ross portfolio, BankUnited Inc. of Miami Lakes, Fla., bodes well for First Michigan.
Shares were expected to go for $23-$25 but ended up selling for $29, and the IPO raised about $1 billion. About 90 percent of that went to repay investors such as Ross, with the bank itself keeping about $100 million. Provost said his IPO will be much smaller because none of the proceeds will go to investors, who pledged not to sell for three years after the Citizens First transaction last April.
“The investment community watched the BankUnited IPO very closely,” McEvoy said. “The success of that transaction has been very encouraging. It shows the demand for bank stock has grown. Assuming the improving economy translates into a demand for loans, you’ll see more privately held banks look to go public to fund growth.”
McEvoy is flying to Detroit Thursday to meet with First Michigan executives. “I want to kick the tires,” he said.
A likely key to a successful IPO by First Michigan will be having established a beachhead in the Chicago market.
“The Chicago market is definitely in our business plan. If the opportunity comes up, we hope to be there,” said Provost.