Michigan bank finds profits and savings through acquisition

Northwestern Financial Review, Aug 1-Aug 14, 2003 by Yontz, Mark

Firstbank Corp of Alma, Mich., has found success providing banking services to smaller communities throughout much of the state via its five, independently-run banks. One bank in particular has led the way through progressive acquisitions and vertical integration of services.

Firstbank-West Branch, located in West Branch, Mich., has played a vital role in increasing Firstbank Corp.'s reach into the northern portion of the Lower Peninsula since being established in 1987. The bank serves a six-county area with eight branches in a predominantly rural area enhanced by more than 100 lakes within a 30-mile radius of West Branch, thus making it an attractive area for retirement and vacations. But the bank's role in adding other businesses to the "Firstbank family" is the real story.

Firstbank-West Branch has launched two successful subsidiaries: 1st Armored, Inc. and 1st Collections, Inc. After a short but successful run, 1st Collections was sold last year to another collections company, but 1st Armored continues to grow since being started in 1994.

"Most banks don't want to take the risk starting an armored car company," said Dale Peters, chief executive officer at Firstbank-West Branch. Peters explained the business was started because of the high costs associated with getting armored car service for his branches, all of which lie quite a distance from any of Michigan's metro areas. Today, 1st Armored serves more than 100 customers with more than 350 endpoints in half of Michigan's counties.

"At first, starting 1st Armored was a way to hold down our costs," said Peters. "But it has been profitable from the start and now our goal in the next five years is to grow the business statewide to the point where it's turning a $1 million net profit per year."

The successful acquisition model used with the armored car company is also evident in other ventures the bank has undertaken that fit its core business. For example, Firstbank-West Branch has purchased two real estate firms and moved aggressively into the selling of residential and commercial properties.

"To really access mortgage customers you need to be involved with selling real estate," said Peters. The real estate venture has worked well so far. In fact, he said the bank's mortgage business has grown and it is expanding as fast as it can add agents and offices.

Along the same lines, Firstbank-West Branch has also started a title company, 1st Title, Inc., as another wholly-owned subsidiary and has a vested interest in an appraisal company owned by the Firstbank Corp. Both of these businesses, in turn, benefit from the exclusive business of all the Firstbank affiliates.

"On all these ventures, it really came down to taking a look at who I was writing expense checks to each month," explained Peters, who said the bank is currently into about every business it can be, with the exception of insurance.

And the bank's not done. The bank is in the process of purchasing a local travel agency. Peters said the bank has started a travel club for its members and saw the need to integrate this expertise into its overall operations - yet another move toward vertical integration and cost savings.

The non-banking services have helped strengthen Firstbank-West Branch's bottom line. The $185 million bank services $75 million in commercial loans, $75 million in mortgage loans and $13 million in consumer loans. And so far this year it is enjoying a 2.2 percent return on assets and 24 percent return on equity.

"I don't know why more banks don't do it [purchasing other businesses], because I guarantee other bank executives are writing checks for all kinds of services," Peters commented.

Peters, who has been CEO for 15 years, said he believes the risks have been worth it, especially considering how the bank has positioned itself for the future. Furthermore, he said other benefits - for both the bank and consumers have come about through their efforts.

"A good result of our ventures is that it has created competition and brought lower prices," said Peters. "But all together it has added that 'extra kick' to make us a great bank."