Flying Solo

In 2004, Tom Austerman traveled to Chicago for a conference that would come to shape the future of his banking career. There, the Evansville banker attended a presentation by Joseph D. Reid, chairman and CEO of bank development company Capitol Bancorp Ltd. Reid, a straight-talking former attorney, told the audience about his company’s concept of developing community banks through a method similar to franchising: providing seed money, support services, and back-office operations while recruiting local management. After several years, the multi-billion-dollar company, based in Lansing, Mich., and Phoenix, would buy the banks it had helped start, making them a wholly owned chartered subsidiary of Capitol Bancorp Ltd.

The idea captivated Austerman, the founding president and CEO of Bank of Evansville. Two years later, when Austerman founded Evansville Commerce Bank in Downtown Evansville’s Hulman Building, Capitol seemed an ideal partner. The company’s innovative model had “worked perfectly,” Austerman says, “a couple dozen times.”

Then came what now is dubbed the “Great Recession,” an economic downturn that pummeled Capitol’s home bases in Michigan and Arizona. As unemployment numbers soared to record highs, national bank giants failed, and the New York Stock Exchange threatened to delist Capitol’s stock, Evansville Commerce Bank’s management and directors felt there was an opportunity in the midst of chaos. This spring finds the bank, after receiving the required regulatory approvals, in the process of conducting a public stock offering that will restructure Evansville Commerce Bank as “the only Evansville bank that will be locally owned, locally managed, and 100 percent locally focused,” says Austerman. “Because we believe in Evansville and the people and businesses who live and work in the Evansville area, we want to bring the bank’s ownership home.”

Seven years ago, at the banking conference in Chicago, Austerman by chance was seated at Reid’s table during a luncheon. The two discussed Capitol’s unique strategies, and Reid, named 2005’s Innovator of the Year by the financial services industry publication American Banker, “was taking a different route than everyone else,” says Austerman. Rather than establish a prominent national identity, Capitol left the branding decisions and management to its community bank partners. The concept was unusual, but it worked: In 2003, Fortune magazine named Capitol to its list of the nation’s 100 fastest-growing small public companies. “To the more typical mindset that stresses accumulation — building up more territory under your direct control, planting more flags, sticking more under your umbrella — Reid’s strategy may appear utterly foreign,” wrote ABA Banking Journal executive editor Steve Cocheo in 2007. “Indeed, most of Capitol’s banks bear no obvious connection to the holding company in name, look, logo, or any of the other branding techniques that others place such importance on.”

While Austerman’s lunchtime conversation with Reid was enlightening, “I didn’t think anything or do anything because of it at the time,” Austerman says. Then, in mid-2005, after Austerman had retired from Bank of Evansville (now German American Bank), Reid called. The man known for building banks around great leaders — rather than specific markets — was impressed by Austerman’s track record, and he asked Austerman to consider starting a new community bank in Evansville with Capitol’s assistance. The bank development company would provide 51 percent of the startup funds, and Austerman would be responsible for raising the other 49 percent locally.

Austerman found the offer irresistible. On May 31, 2006, Evansville Commerce Bank opened as the 44th bank in Capitol’s nationwide network.

Soon, Capitol would become one of the nation’s biggest bank development companies, boasting 64 banks in 17 states. But the company also had an abundance of real estate loans in troubled markets plagued by foreclosures and plunging home values. In 2008, Capitol dipped into the red and began restructuring its operations, selling banks and reining in growth. The next year, the company landed near the bottom of Forbes’ annual Best and Worst Banks ratings, ranking No. 96 of 100.

Capitol’s original plan — to buy out Evansville Commerce Bank and turn it loose in 2009 — no longer was possible. Austerman says instead, Capitol suggested he shrink the bank’s assets as a way to maintain adequate capital ratios. After a period of steady growth, “we just were frozen,” Austerman recalls. The Evansville Commerce Bank board of directors considered selling the bank, but as they interviewed buyers, a common thread emerged: All of the potential purchasers championed Evansville as a prime place to do business. “Our board heard that enough that they said, ‘If everyone else sees this,’” Austerman says, “‘maybe we ought to keep it and go independent.’”

Today, Evansville Commerce Bank stands on the brink of autonomy. With the aid of Commerce Street Capital, a Dallas-based investment bank, the bank is making a public stock offering to buy back the 51 percent ownership from Capitol. The minimum investment, says John Broderick, Commerce Street’s senior vice president, bank development, is $10,125 with stock units costing $16.20 each. Austerman expects the offering to start to realizing results in April and conclude by July 31. The bank needs to raise $2.3 million to buy out Capitol, and Austerman predicts Evansville Commerce Bank could achieve independence as early as this summer. 

Going solo will affect the bank in numerous ways: Evansville Commerce Bank will focus less on commercial real estate loans and more on operating or working capital that will help small businesses grow and prosper. The bank will be able to re-enter a growth mode after two years of shrinking, and additionally, Austerman hopes to have several small, cost-effective banking offices on Evansville’s West, East, and North sides. “Most importantly, our policies, practices, and procedures will be suited to the realities of Evansville rather than other national or regional markets,” Austerman says. “The way that you think and go about things can make a big difference. We have Toyota; (Michigan has) Chrysler. Toyota is pushing out cars, and Chrysler’s trying to make payroll. It can’t help but affect how you view things.”

The transition to becoming a fully independent bank has made Austerman’s ambition — to create a locally owned, managed, funded, and 100 percent locally focused bank — a reality. “When you live it, when you feel it, you can make decisions based on what you know to be true rather than formulas or statistics,” he says. “We can bring the art and science back to banking.”

Evansville Commerce Bank
20 N.W. Fourth St.

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