Banking on Traverse City: Sixteen banks now compete here

TRAVERSE CITY – An increasingly crowded Traverse City banking scene has some crowning us the Financial Capital of The North, while others wonder if the region is officially 'overbanked.'

The arrival of Bank of Northern Michigan, First Community Bank, and US Bank in Traverse City this fall brings the total number of banking institutions operating here to 16, further solidifying Traverse City as the largest financial center north of Saginaw.

Harbor Springs-based First Community Bank opened its first Traverse City office last month on Front Street downtown. US Bank, like others operating here, has begun with a mortgage banking office. Bank of Northern Michigan opened a downtown Traverse City office earlier this fall.

"From a banking perspective, Traverse City is 'the place to be' in northern Michigan," said First Community Executive Vice President Ed Arbut.

Market share statistics assembled by the Federal Deposit Insurance Corporation (FDIC) show that, despite arrivals of new competitors, the market is still dominated by a few leading institutions. The market leader-with more than double the deposits of its nearest competitor-is Fifth Third Bank, which as of June 30 had 32 percent of deposits. They were followed by Huntington (15.6 percent), Northwestern (15.2 percent), Chase (12.3 percent), and Traverse City State Bank (9.6 percent).

But while some see nothing but opportunity, others wonder how many banks are too many for an entire region with fewer than 82,000 people. Kent County, for example, with almost 10 times the population of Grand Traverse County, has less than twice as many institutions, with 26.

Of 430 area business decisionmakers surveyed by Avero Research for the Traverse City Business News, 55 percent said they strongly or somewhat agree that the Traverse City area is overpopulated with banks.

At least one area bank executive agrees. Scrub Calcutt, president and CEO of Northwestern Bank, said, "Looking around Traverse City, it's obvious that there are more banks than ever before-certainly more than this market can support. Besides traditional banks, there are also more non-traditional financial services providers-brokers, insurance companies, Internet banks, credit unions, and so on. And, there are more ways to deliver banking services such as ATMs, online banking, and telephone banking. So, there's not only the challenge of increasing competition, there's the challenge of supporting multiple banking channels."

Other bankers say the market is "well served," and believe that the bank population will only continue to increase (see "The Bankers" on page 24). One national banking expert says the number of banks here is about on-par for its size. John Venable, Director of the Community Banking School at Samford University in Alabama, says a rule of thumb is $50 million in deposits to support one branch. Based on that model, "one could say Grand Traverse is adequately banked. Sixteen banks are not too many at all for an area with an 82,000 population, provided it is the right 82,000."

When asked how many banks are "too many," Venable responds, "You'll know it when some start closing their doors."

According to the survey, area decisionmakers also prefer banking with a locally-based institution, with 63 percent saying they prefer local banks over national providers.

The survey also asked which banks have the best reputations. The two highest-ranking banks are both locally-based-Northwestern and Traverse City State Bank.

To others, the reach of a large bank has its perks.

Jim Wheaton, former owner of Fitzpatrick Electric, is now retired, spending half the year here and half in Florida. He banks with Fifth Third, and likes the convenience of having the same bank in Florida as he uses here in Michigan.

"I started with the original TC State Bank, which then became Old Kent, then Pacesetter, and now Fifth Third. Each time the bank was bought it kind of increased their services, like having a trust department, or adding electronic banking. Bank consolidation has provided great benefits to me."

Although the market is gaining new competitors, it is also experiencing consolidation. Citizens Bank is completing a purchase of Republic Bank. Pending shareholder approval, the companies will combine and operate branches under the name "Citizens Republic."