BY BILL O'BRIEN
bobrien@record-eagle.com
July 17, 2008 12:00 am

—
TRAVERSE CITY -- Mark Eckhoff's downtown Traverse City bank is a long way from southern California, but that hasn't stopped the telephones from ringing with questions from customers anxious about their savings.

The weekend failure of California-based IndyMac Bancorp., combined with a series of recent stock losses at major financial institutions and jittery financial markets, is prompting numerous inquiries to local banks about their financial health.

"Every time there's something in the news, we have people call in and ask about their money," said Eckhoff, president of Fifth Third Bank's Traverse City operations. "There's no good news out there about the economy right now, and people want to know things are OK."

"It's very much a bit of a mob mentality out there right now," he continued. "But that being said, there's a lot of challenges out there in the financial markets right now."
The number of "troubled" or "problematic" banks in the U.S. identified by the BauerFinancial Inc. research firm increased 61 percent in the first quarter of 2008.

Company president Karen Dorway said problems in the country's sub prime mortgage market served as the "catalyst" for bank and financial market troubles.
But housing market woes are working their way into other industries, she said, including the construction sector.

"As the housing market struggles, certainly the construction markets struggle, too," she said.

The plethora of banks in the Traverse City area seem to be weathering the financial storm so far. Of the dozen-plus banks operating in the city, all are rated as at least "adequate" or "good" by Bauer, a Florida-based company that has issued quarterly evaluations on thousands of financial institutions across the country since 1983. Those ratings are largely determined by a bank's capital ratio -- the percentage of a bank's capital to its risk-weighted assets.

Dorway said it's highly unlikely any local bank would be forced out of business anytime soon because of the economic downturn.

"It can happen ... but as a rule, no," she said. Even with the significant increase in problem banks reported over the last two quarters, they still total less than 5 percent of the 8,500-plus banks that operate nationally, Dorway said.

Matthew Shapiro, an economics professor at the University of Michigan, expects more trouble in the financial markets in the near future because of continuing problems in the housing and real estate sectors.

"In summary, I don't think we're at the bottom yet," said Shapiro, who added that Michigan may be further along than other parts of the country in pulling out of the extended housing slump.

Still, Shapiro said the assets of most bank depositors are adequately protected by the Federal Deposit Insurance Corp. that covers up to $100,000 in deposits per bank with federal guarantees. He's more concerned about the potential exposure to the general public that may have to cover billions in bad loans tied to the housing mess.

"The taxpayers have a lot to worry about," he said. "It looks like it's a bigger crisis than the Savings and Loan crisis of the 1980s."

Even the banks without ties to the mortgage morass are finding it necessary to reassure customers their money is safe. Northwestern Bank, a locally based bank founded in 1955 that boasts around $800 million in assets, is the only local bank that garners a 5-star rating from Bauer.

"We did not participate in sub-prime mortgages, or sub-prime lending in any capacity," said Doug Zernow, Northwestern's director of marketing.

Still, Zernow said the bank is receiving more calls from concerned customers, prompting a recent letter to clients assuring them the bank is fiscally sound.

"They want to be sure their deposits are covered," he said.

Local bank ratings
Bank, Headquarters, BauerFinancial rating (1-5 stars)*
Citizens Bank, Flint, MI, 3.5
Fifth Third Bank, Grand Rapids, MI, 3.5
First Community Bank, Harbor Springs, MI, 3
Irwin Union B&T, Columbus, IN, 3.5
JPMorgan Chase Bank NA, Columbus, Ohio, 3.5
mBank, Manistique, MI, 4
National City Bank, Cleveland, Ohio, 3
Northwestern Bank, Traverse City, MI, 5
Bank of Northern Michigan, Petoskey, MI, 3.5
Honor State Bank, Honor, MI, 3
Huntington National Bank, Columbus, Ohio, 3
Traverse City State Bank, Traverse City, MI,3
Wells Fargo Bank NASioux Falls, SD4
*5 = superior; 4 = excellent; 3.5 = good; 3 = adequate; 2 = problematic; 1 = troubled

Source: BauerFinancial Inc.
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