Dave Tomko joined Flagstar from PNC Bank as senior vice president of business banking. He leads a market that follows the I-94 corridor that stretches from Jackson to Kalamazoo and St. Joseph.
Edward Ryan, after four years with Macatawa Bank and 29 years with Fifth Third Bank/Old Kent Bank, took on the same position for the Grand Rapids area. He’s head of a market for Flagstar that runs along the I-96 corridor, from Lansing to Grand Rapids and the lakeshore with Holland and Grand Haven.
Flagstar aims to build a book of business in West Michigan by starting out as a lender and extending the connection to other areas of business banking, such as treasury and payroll management, and take on the role of an adviser for commercial clients.
“We want to be understood as the business bank and work with these clients who are growth-oriented and understand it’s a challenge to grow,” said Ryan, who views his new position at Flagstar as an opportunity build an organization within a market that he knows very well.
“I’m like a kid in a candy store,” Ryan said.
Primarily a large home mortgage lender, Flagstar Bank brought aboard Ryan and Tomko two years after putting in place a corporate strategy to diversify. The strategy began taking hold in Southeast Michigan in mid-2011, where the bank has since written $110 million in commercial loans. Flagstar is now rolling out the strategy in West Michigan.
Hiring two market veterans was critical for Flagstar in West Michigan, said Michael Tierney, the bank’s Michigan market president.
“I needed to have people I have confidence in,” Tierney said. “While we are new to commercial banking at Flagstar, none of our people are new to it.”
In working their respective markets, Ryan and Tomko are first using their established networks and contacts to get in the door, Tomko said. While both are well-known locally, they still need to build trust in the Flagstar brand, he said.
“It’s a people business and it’s a relationship business,” Tomko said. “It’s one on one with people that know you and are willing to sit down and explore.”
Like many banks, Flagstar was hit hard by the recession, which prompted the change in corporate strategy. The bank just returned to profitability in the second quarter, posting net income of $86.0 million, versus a net loss of $8.7 million a year earlier.
Where nearly 100 percent of its revenues once came from residential mortgages, Flagstar Bank now aims to diversify and eventually generate one-third of revenues from commercial loans, one-third from retail lending and the final third from home lending.
“The mortgage business, when it’s good, it’s very good. When it’s bad, it’s very bad,” Tierney said. “It’s cyclical, and we don’t want a cyclical business going forward for our shareholders.”
Flagstar targets prospective business borrowers that have up to $100 million in sales. Flagstar’s typical commercial client has about $5 million in sales.
The bank, which has a much larger footprint in Southeast Michigan, has high hopes for the West Michigan market.
“Western Michigan probably has the most growth potential for us,” Tierney said. “There’s a more diverse economy and a more stable economy than what you have in Southeast Michigan, so we really want to build out the brand here.”
Flagstar Bank, with $14.36 billion in assets, has 111 offices statewide and three more planned in the Detroit area, plus 30 mortgage offices in 13 states and commercial loan offices in Massachusetts, Connecticut and Rhode Island.
Flagstar has a long way to go to reach its diversification goal.
The push into commercial lending generated $197.0 million in commercial loan originations during the second quarter and $463.9 million for the first six months of 2012. By comparison, Flagstar originated $12.5 billion in consumer loans in the second quarter, mostly home mortgages, and $23.7 billion for the first half of the year.
Despite the ambitious corporate goal, building the commercial loan portfolio does not mean doing it by merely undercutting the competition on price, Tierney said.
“I’m not interested in growing fast as I am in growing in a quality way,” he said. “I’d rather grow slow and steady and do as good as a job as we can for our clients in good times and bad.”
In West Michigan, Flagstar has 32 offices across the two markets that Tomko and Ryan lead. The bank plans “to build out a lot more” in the future in West Michigan, Tierney said.
“It all depends on how well we do. If we do better, we’ll keep adding,” Tierney said.
Building the business, though, won’t come easy, given the tough competition Flagstar faces for commercial lending, said Jon Chism, a partner at Plante Moran PLLC in Grand Rapids who focuses on banking.
“It is very, very competitive, especially for credits. People are shopping and with the rates, they are getting really good deals,” Chism said. “The banks are doing a good job of taking care of the customers the want to keep.”
The Grand Rapids market is particularly attractive right now, Chism said. Two banks — the Kalamazoo-based First National Bank of Michigan and West Michigan Community Bank — opened downtown offices this year.
“What I’m hearing from bankers is that Grand Rapids is Michigan’s bright spot, so everybody wants to be here. That makes for a very competitive environment,” Chism said. “If a bank wants to grow, it needs to go out and knock on doors.”
While Flagstar isn’t a newcomer to the region, it isn’t a large player, either. In terms of deposits, Flagstar ranked ninth out of 21 banks in 2011 in the Kalamazoo-area market, with a 2.78 percent market share, according to the annual FDIC Summary of Deposits. The bank ranked 16th out of 28 banks in 2011 in the Grand Rapids area with a 1.43 percent market share.
Despite the low market share, the hiring of market veterans such as Tomko and Ryan “will definitely give them a leg up in competing,” Chism said.
In pursuing commercial loan business locally, Flagstar wants to open two new offices in the Grand Rapids area, including a replacement location for a branch now housed at the Meijer store on 28th Street. Another location is planned for East Beltline Avenue, near the Celebration! Cinema theater complex.
Flagstar also wants to open two more offices in the Kalamazoo area, doubling its market footprint.
At the same time, Flagstar plans to step up marketing efforts in West Michigan to generate greater market awareness.
“We have a pretty niche franchise. We just haven’t done a very good job getting the word out about Flagstar,” Tierney said.