By fall, a major regional bank will no longer be headquartered in Traverse City. Northwestern Bank is expected to be sold in a $120 million dollar cash deal to Chemical Bank, of Midland.
The deal will bring staff cuts and branch closings, but bank leaders also expect the deal will bring a growth in profits for branches in the northwestern region. IPR asked them to explain some of the strategy for growth.
A simple glance at a map of the mitten offers a good clue into the initial attraction between Chemical and Northwestern. The Midland-based bank has almost 160 offices throughout the Lower Peninsula, but none near Traverse City.
Northwestern brings 25 branches from Ludington to Petoskey, with bank deposits of $758 million dollars.
Aggressive Lending
Chemical Bank CEO David Ramaker sees a potential for fast, double-digit growth in a key place where banks make their money – lending. He says Chemical Bank can quickly increase dividends in the northwestern market simply by applying the principles they use with their other banks.
“We are an extremely aggressive consumer lender. It is a large part of what we do,” he says.
Chemical’s employees not only market to customers at the bank, they hype loan products to car dealers and boat dealers.
And they also discount loans for a short time every year.
“For the last 25 years we have held a spring loan sale that our markets have gotten very used to,” Raymaker says this sale is a big boost to the bank’s loan sales every year. The 2014 sale, just announced, has auto loans at 2.29 percent APR and home equity at 2.31 percent.
Ramaker says things like car loans and boat loans are big business for banks in small towns. And he says Northwestern hasn’t been maximizing opportunity in this area, or in commercial loans.
Chemical, he says, is loaning out close to 90 percent of its bank deposits. Northwestern is at 65 percent. Ramaker says you just have to understand the basics of banking to see the significance.
“We take in customers’ deposits and we’re, in essence, renting that money,” he says. “In order to make money, we turn around and make investments.”
So, basically, the bank’s customers put money in, the bank loans it out and earns money interest. So the more they’re loaning, the more they're making.
Cuts Expected
But, along with double-digit loan growth, Chemical Bank also anticipates reducing costs by 28 percent as it combines assets and staff with Northwestern.
“Those cost saves are partly how we pay for the transaction,” he says.
Five branch offices could close, mostly in communities that already have Chemical Bank locations. There will be additional staff cutbacks as well. Ramaker says, with any acquisition like this, there’s a staff overlap that’s inefficient.
“Data entry is data entry, computer systems are computer systems. And, in large part, those functions can be done, quite frankly, anywhere. But they typically can be absorbed a little bit from one organization to another,” he says.
Details Fuzzy
Details are still fuzzy on how many workers are likely to lose their jobs in the transition.
But, for those who remain, Northwestern Bank CEO Dan Terpsma says Chemical Bank should be a pretty good employer.
“We think all of our employees will end up having the same culture when they come to work everyday,” he says. “And it’s going to be amplified by a better and broader array of products that Chemical brings.”
Terpsma predicts a lot of Northwestern’s customers will stay with Chemical Bank because, even though the name “Northwestern” goes away after the sale, Chemical has a similar ethic of community banking, he says.
A local advisory board won’t have power to make decisions, but they will be local ambassadors and make recommendations on investments for the local community.
One Northwestern board member will also join the Chemical board, assuming the sale goes through. Regulators still have to approve, as do Northwestern’s shareholders.