How TC State Bank’s merger with Independent came to be and what happens next

An informal meeting last year prompted a $63.2 million merger between a downstate banking behemoth and Traverse City State Bank (TCSB).

The deal was one of many in the Midwest last year, which leads the nation in the number of bank mergers.

Lending limit restrictions in a growing market for loans, escalating costs of regulatory compliance, increased cybersecurity risks and “the insatiable technology demands” of customers were factors in the TCSB board’s decision to sell the bank.

“It’s hard for a little community bank to provide services that help clients stay as efficient as possible,” said Connie Deneweth, former CEO of TCSB.

Those concerns are fueling bank mergers, particularly those involving smaller community banks, across the country.

TCSB’s merger happened after Independent Bank Corp. CEO Brad Kessel and CFO Rob Shuster dropped by to meet with Deneweth and President Ann Bollinger last May.

Grand Rapids-based Independent Bank was looking to grow. Kessel and Shuster wanted to know more about the Traverse City market and Traverse City State Bank’s operations. The two Independent Bank executives also shared information about their bank’s business.

“We said, ‘If you decide to do something, we’d be interested in partnering,’” Kessel said, unaware that the Traverse City bank’s board of directors was already discussing putting the bank up for sale.

Seven months later, Independent Bank announced a $63.2 million deal to acquire TCSB Bancorp, the parent of TCSB. The transaction closed on April 1.

Independent Bank, with assets of $2.8 billion and 63 offices at the time of the merger, dwarfed Traverse City State Bank, which had assets of about $350 million and five offices.

The deal marks the end of a bank founded 18 years ago by local bankers and investors using the TCSB name that had been a community hallmark from the 1860s the until 1980, when the original Traverse City State Bank was acquired by Pacesetter Bank. The bank is now owned by Fifth Third Bank.


Deneweth is now Independent Bank’s regional president for the Traverse City market; Bollinger is vice president of wealth management.

Rapid economic growth in the Grand Traverse region and increasing competition from larger banks that can offer more services and bigger loans to business customers made the sale of TCSB inevitable, Deneweth said.

“We were constantly participating with other community banks” to provide customer loans that were above TCSB’s lending limit, she said. “The economics were pushing us to consider this.”

Last year, the Midwest region led the nation in the number of bank mergers with 83, valued at $4.1 billion, according to data from Keefe, Bruyette & Woods and S&P Global Market Intelligence as reported in American Banker.

As it began discussing its options, TCSB’s board believed the bank’s strong financial performance and a recent cut in federal business taxes might make it an ideal time to sell.

Making The Deal
The journey toward the eventual sale of the bank officially started about two months before the executives of Independent Bank and TCSB even met.

TCSB’s board of directors held a strategic planning meeting in March 2017 to discuss a possible sale of the bank, according to a stock prospectus on the deal filed by Independent Bank with the Securities and Exchange Commission.

TCSB hired Montana-based investment banking firm D.A. Davidson & Co. in June to advise the board on a possible sale. The Grand Rapids law firm Warner Norcross represented the bank.

Davidson identified 21 possible merger partners in Michigan, Indiana and Wisconsin. Of those, five banks, including Independent Bank, issued written letters of interest in acquiring TCSB.

After considering proposals from Independent Bank and one other unnamed bank, which offered to buy TCSB with a mix of stock and cash, TCSB’s board determined that Independent Bank’s all-stock proposal “represented the distinctly higher economic value” and was in the best interest of TCSB’s shareholders, according to the prospectus.

Deneweth said no major issues threatened to derail the deal during an intensive due diligence process.
“It went seamlessly,” she said.

That was in part because she and Shuster of Independent Bank worked together years ago in the Arthur Andersen accounting firm and knew each other well.

“We had a common bond of trust,” she said. “That was very important.”

Independent Bank shares Traverse City State Bank’s commitment to investing in the community, said former TCSB Director Terry Beia, who is now a member of Independent Bank’s board.

“Independent is a large community-minded bank with a long history dating back to 1864, but they don’t feel or operate like a big bank,” Beia said in an email.

Business customers of the bank will have access to larger loans to fund growth in a booming local economy.

“Traverse City is changing,” Beia said. “Loan demand and deal sizes are increasing.”

“Our lending limit multiplied by 10 times, from $6 million to $60 million,” Deneweth said.

Kessel said Independent Bank offers a variety of banking services, including trust accounts and lending programs that hadn’t been available to Traverse City State Bank’s customers. One example is an interest rate swap program that allows a business to lock in a loan interest rate for a longer period of time than a conventional loan.

Independent Bank also offers free checking, which wasn’t offered by Traverse City State Bank.

“That’s been a staple for us going back to the mid- to late-1990s,” Kessel said. “The checking account can be the heart of the banking relationship because that’s where the customer’s money is moving in and out.”

Independent Bank also will take over loan servicing of Traverse City State Bank’s mortgage portfolio, which had been outsourced to another institution.

The deal will result in the layoffs of 18 of Traverse City State Bank’s 90 employees by the end of June as Independent trims noninterest expenses in Traverse City by 31 percent. Most of those are senior employees and will receive as much as six months’ severance pay, Deneweth said.

Independent plans to maintain the former TCSB’s five offices, Kessel said.

“I like the branch structure they have today,” he said. “We plan to run with the current footprint.”

Deneweth and Kessel said their vision is to grow the bank’s business in the face of competition from larger banks serving the area.

“What’s really important is that we need to continue to grow,” Kessel said. Traverse City has “a vibrant economy. It has strong tourism and agricultural sectors, and, quite frankly, an entrepreneurial spirit.

“Lots of small businesses up there are doing very well,” he said. “That type of client provides a very good fit for Independent Bank.”