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Why and How Northwestern Bank Was Sold
Why and How Northwestern Bank Was Sold

With yesterday’s announced sale of Northwestern Bank to Midland-based Chemical Bank, The Ticker examines why the deal happened and how the two Michigan community banks came together.

Why
Most bankers and analysts agree that it’s increasingly challenging for small players to compete amidst more federal oversight and regulation.

“What you’re seeing is the impact of federal legislation. The regulatory environment banks face is very difficult,” notes Doug Wolf, president of Chase Bank in TC. “Unless you have the resources to handle all those requirements, it just cuts into your profitability. Smaller institutions are now forming some consolidation to be able to handle those regulations across a bigger footprint. And you’ll see that trend continue.”

Chemical offers more resources, with $6.2 billion in assets compared to Northwestern’s $845 million.

Another potential factor in the $120 million cash sale was the FDIC-mandated consent order Northwestern had been operating under since 2012. The consent order required additional board oversight and tightened lending and collection controls at the bank. Though the consent order has now been replaced by a much less onerous FDIC “memorandum of understanding,” it precipitated changes at the bank -- including new leadership -- and created a heightened culture of oversight that might have limited the bank’s ability to compete and expand independently.

Former Northwestern Bank CEO Scrub Calcutt retired last June and was succeeded by Daniel Terpsma, a banking veteran with turnaround and transition experience.

Why Chemical
The fit between Northwestern and Chemical is a logical one, given that Chemical operates in 38 Michigan counties but overlaps very little with Northwestern’s 25 offices in 11 counties (the two banks overlap only in Gaylord, Cadillac, and Houghton Lake).

Chemical CEO David Ramaker tells The Ticker a Michigan map shows why this deal makes sense.

“If you look at our footprint outside of Detroit, the northern lower peninsula was a significant gap for us. We wanted to be here [in northern Michigan], and we’ve wanted to be here for a long time,” he says.

Largely sheltered from the deep Michigan recession of the past several years, this area had been viewed by many banks as an area ripe with opportunity.

How It Happened
Last year, the members of Northwestern Bank’s holding company board – Calcutt, Bill Paine, George Kausler, Dick Jackson, and John Pelizzari – began in earnest to listen to overtures about a possible sale. As talks continued with several potential buyers, sources tell The Ticker “cultural fit” emerged as a priority for the board; finding a buyer with a similar philosophy and one that would retain as many Northwestern employees as possible.

By early February, talks had apparently narrowed to dialogue between Northwestern and Chemical. That due diligence continued until late last week, when Northwestern voted to approve the sale. A conference call was held early yesterday morning for all Northwestern employees, and the deal became public.

The transaction is expected to close early in the third quarter of this year. Eventually, Northwestern Bank branches will become Chemical Bank branches. As a part of the deal, one member of Northwestern's board of directors will join Chemical's board.

What are other Traverse City banks saying?

Traverse City State Bank President Connie Deneweth disputes the notion that bigger is better, noting, “It’s more expensive to compete, but we can make a nice return for our shareholders through service. Many customers are very comfortable with relationships with people who won’t bail when an industry isn’t favored or ship a file to Midland.”

The irony of yesterday’s timing was not lost on Chase’s Wolf, who tells The Ticker it will go down as a big date in TC banking history.

“Thirty years ago [Tuesday], National Bank & Trust failed and NBD [which is now Chase] officially opened in Traverse City.”


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