FirstMerit expands from Akron base into Chicago, builds image on safe investment strategies, small-town feel
By Betty Lin-Fisher
Beacon Journal business writer
Published on Sunday, May 23, 2010
About 90 days ago, Akron-based FirstMerit Corp.'s banking network went as far west as Toledo.
But now there are 54 FirstMerit branches in the Chicago area. FirstMerit is the No. 14 player in the market there based on deposits of nearly $3.9 billion, with $3.8 billion in assets.
The bank now has 209 branches in Ohio, Pennsylvania and Illinois and 3,307 employees, including 2,650 in Ohio. It has about $15 billion in assets and $11.8 billion in deposits.
The growth — in the form of one acquisition and two successful bids for failed banks taken over by federal regulators — is part of an expansion strategy for FirstMerit. The Chicago area was targeted because of its size and potential, and the region's fit with FirstMerit executives' knowledge of the market.
Chief Executive, Chairman and President Paul G. Greig and Chief Credit Officer Bill Richgels have a combined 50 years of experience in the Chicago market.
The company has fared ''exceptionally well throughout the economic downturn and has consistently been profitable — quite unlike many of their peers and the industry,'' said banking analyst Terry J. McEvoy, managing director of Oppenheimer & Co. in Portland, Maine.
The bank's strength throughout the economic downturn has ''opened the door for the company to move into an offensive mode, whereas the industry
is still very much defensive,'' said McEvoy, who rates the company ''market perform,'' which is equivalent to a neutral rating.
McEvoy gives credit for the bank's strong balance sheet to Greig, who joined FirstMerit as chief executive four years ago.
Greig, 54, is a Chicago native who lives in the Cleveland suburb of Hunting Valley with his wife and two daughters. He has a grown son who is a certified public accountant in Chicago.
Greig ''came in and made some changes in terms of how the company operates and how they make loans, how they manage risk. Because of those early changes before the downturn, we in the investment community clearly saw it in their results. It's a night and day difference in the industry,'' McEvoy said.
Greig said the bank weathered the last four years — including the last two in a recession — by improving its credit process, lowering its overall risks, including not participating in subprime lending, and maintaining a solid customer base.
On the march West
FirstMerit started growing beyond its Ohio and western Pennsylvania territory with an announcement last November that it would acquire 24 Chicago-area branches from St. Louis-based First Bank for about $42 million.
It was the first acquisition for FirstMerit since it added Signal Corp. of Wooster in 1999.
Coincidentally, the same weekend the First Bank branches were scheduled to become FirstMerit branches in mid-February, FirstMerit won its first bid on a bank seized by federal regulators with the Federal Deposit Insurance Corp. (FDIC).
The bank agreed to take over the deposits and virtually all of the assets of four Chicago-area branches of George Washington Savings Bank.
But the biggest acquisition so far was earlier this month, when the bank won an FDIC bid to pay $90 million to buy Midwest Bank and Trust Co., with its $3 billion in assets, $2.3 billion in deposits and 26 branches in the Chicago area.
The bank also raised $315 million through a common stock offering to provide more capital for the purchase.
The deal doubled the bank's presence in Chicago, bumping it up from No. 28 in Chicago based on deposits.
''This was the big fish,'' Mc-Evoy said. ''This was the largest bank many felt would fail in Chicago. This gave them the scale that will enable them to achieve what they're looking to do in Chicago. It's a very positive thing that they were able to get this deal.''
The Midwest Bank acquisition was ''the best target in Chicago,'' Greig said. In fact, he added, FirstMerit officials had been talking to current and former management of Midwest Bank for several years.
''This has been on our radar screen long before it became part of the FDIC process,'' Greig said. ''It clearly is a strategic transaction. It's focused on taking market share in Chicago. We believe Chicago is a market for great opportunities for growth for FirstMerit.''
The bank was particularly attractive because 85 percent of its loans are ''performing,'' unlike many of the FDIC transactions, and FirstMerit will be picking up what it considers great locations and a lot of consumer and commercial customers, Greig said.
There was stiff competition to get Midwest Bank. Eighteen banks made a bid, said FDIC spokesman David Barr. Sometimes the FDIC gets a half dozen bids for a bank and sometimes just two, he said.
When told of the number of bids for Midwest, Greig said that was a very high number. ''This clearly was a coveted franchise,'' he said.
Barr said the FDIC does not comment on open, operating institutions, but when a bank is designated as failing, the FDIC solicits bids from potential purchasers. For a bank the size of Midwest, the FDIC contacted 123 potential bidders. Before the FDIC awards a winning bid, it checks with the bank's primary federal regulator, the Office of the Comptroller, to give it the opportunity to nix the deal after reviewing the terms and conditions.
Akron commitment
The purchase of Midwest will probably mean more jobs in Akron in information technology and operations support, Greig said.
''That should be a definite plus for Akron,'' he said. The company declined to provide the number of employees at its downtown Akron operation.
Greig has consistently said that while the company wants to grow in Chicago and elsewhere in the Midwest, it remains committed to its Akron headquarters and core market in Ohio.
''There's unwavering commitment to Akron,'' Greig said. ''It's our headquarters, it's our home market, it's where we earn the majority of our money, and there's no question as to the focus.''
Responding to a question about whether the bank would move its headquarters out of Akron as it grows elsewhere, Greig said, ''We've been very clear, we're a Northeast Ohio, Akron-headquartered bank.''
McEvoy said that to analysts, where a chief executive lives isn't as high a priority as it is to local business owners and politicians, but ''a significant part of the company, despite its expansion in Chicago, is in Northeast Ohio. In my conversations with management, they remain deeply committed and quite optimistic'' about the Ohio market.
While it has been eyeing expansion outside Ohio, the company has also benefited from changes in the Ohio banking landscape, particularly as former Cleveland-based National City Corp. was purchased by PNC Financial of Pittsburgh, McEvoy said.
FirstMerit is now the second largest Northeast Ohio-based bank by assets, behind KeyBank. As of last June, the bank was No. 8 in market share in the state and Cleveland, based on deposits, and ranked No. 1 in Akron.
Greig said the bank's strengths include bringing local decision makers into branches for commercial borrowers and giving borrowers the opportunity to appeal any decisions up the chain, including to Greig himself.
''No other bank in Northeast Ohio is like us. The larger banks plain and simple do not offer that type of intimate service,'' Greig said.
FirstMerit wants to be a large bank with small-bank services, he said of the bank's ''super-community'' model.
''You're delivering services like a smaller bank, yet with the credit capacity and product capabilities of a much larger institution,'' he said.
Greig said the bank is focused on integrating Midwest Bank into FirstMerit in the next 90 days. Then, when appropriate, it will look at other growth opportunities. Greig said there is no goal in mind to expand in Chicago or other areas, except to grow ''profitably and in a way that's beneficial to shareholders.''
''We certainly want to grow, but in a controlled and safe fashion,'' he said.
In a report following the Midwest Bank purchase, analyst Andrew Marquardt with Macquarie Equities Research in New York, said his firm expects FirstMerit will continue to consider mergers and acquisitions ''given its strong balance sheet, avoidance of key-concern credit quality issues, and relatively strong earnings power near- and longer term.'' He rates the company ''neutral.''
Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com.
