Michigan's ailing economy is testing banks there, but its wealthiest county is still attracting new institutions.
Three banks have set up shop in Oakland County this year, including Level One Bank of Farmington Hills, which opened in October with $15 million of capital. All but one of the nine banks that have opened in Michigan since the start of 2005 are in Oakland County.
Patrick Fehring, Level One's chairman, president, and chief executive, said Oakland has been less affected by the economic downturn than most other regions of the state and is a good market for start-ups because it is affluent and has thousands of small businesses, particularly professional services firms.
Comerica Inc.'s decision to move its headquarters from Detroit to Dallas and ABN Amro Holding NV's recent sale of LaSalle Bank Corp. to Bank of America Corp. make this a particularly good time to start a bank in Oakland County, Mr. Fehring said.
LaSalle, of Chicago, is No. 1 in deposits in the county, with a 37.4% share, according to Federal Deposit Insurance Corp. data. Comerica ranks second with 12.5%.
With LaSalle expected to shed about 1,500 jobs in Michigan, many established commercial lenders will become available to banks like Level One, which could capture deposit runoff as well.
"Those disruptions are going to cause some profound changes," said Mr. Fehring, a former central Ohio and eastern Michigan regional president for Fifth Third Bancorp.
Level One is starting out during a trying time for Michigan's banking industry. Many of its banks reported losses or substantially lower profits for the third quarter because of what economists are calling "one-state recession."
In September Michigan had the nation's highest unemployment rate, 7.5%, according to the Bureau of Labor Statistics. The national average was 4.7%.
Michigan's economic problems largely reflect those of the automobile industry. The transportation manufacturing sector has lost 73,000 jobs since 2003, said Bruce Weaver, an economic analyst with the Michigan Department of Labor and Economic Growth, and those losses have rippled through the state economy.
Michigan never experienced the rapid rise in supply and prices of new homes that other states did. Instead, incomes fell and the market was left with a glut of supply.
"There was never a bubble to burst in Michigan," said Dana Johnson, senior vice president and chief economist at Comerica. "Home prices weren't soaring away from incomes; incomes were falling away from house prices."
Mr. Johnson said he expects the number of new-home permits this year to be a third of what they were in 2004. And Mr. Weaver said that compared with last year's levels, the construction industry had 17,000 fewer jobs in September.
High levels of loan defaults are taking a toll on the state's banks.
Flagstar Bancorp Inc. of Troy, now the largest banking company headquartered in Michigan, with $16.6 billion of assets, lost $9.2 million through the first nine months. In the first nine months of 2006 it earned $68.3 million.
The $508 million-asset Oxford Bank Corp. in Oxford lost $1.7 million in the third quarter, after reporting an $829,000 profit a year earlier. Jeffrey M. Davidson, Oxford's chairman, president, and CEO, said in an earnings release last month, "The crisis in the residential real estate market, along with local job losses and subsequent declines in household income, has fueled a rising tide of delinquencies and foreclosures amongst homeowners and residential real estate developers."
Given the poor economy and lack of quality lending opportunities, "there is no incentive to grow the bank," Mr. Davidson said.
Oakland County, though, is better off than the rest of Michigan because it has a more educated work force and its economy is not tied to the manufacturing industry, said Dennis Toffolo, deputy county executive and head of economic development.
Within the county, 42% of those 25 or older have four-year degrees; the state average is 23%, Mr. Toffolo said. Also, the county has a wealth of high-paying jobs in research and development in several disciplines, from alternative energy to life sciences, and Chrysler, BMW, and General Motors Co. are working together in Oakland on hybrid cars that will be coming out in the next two years, Mr. Toffolo said.
Mr. Fehring said Oakland County has all the right demographics for a start-up. Its median household income of nearly $85,000 is 45% higher than the state median, according to Census Bureau data, and nearly one in three residents earns more than $100,000 a year.
In addition to the county's well-heeled consumers, Level One plans to target the professional services sector. There are 7,000 businesses within three miles of Level One's headquarters, Mr. Fehring said, and of those about 4,900 are professional service firms, including law, medical, and engineering firms.
Oakland County is easily Michigan's wealthiest deposit market and is among the top markets in the country. Between June 30, 2002, and June 30, 2006, its bank deposits increased 46%, to $38.6 billion. The deposits dipped slightly this year, to $37.9 billion, according to the FDIC.
But, Mr. Fehring said: "We aren't too concerned with individual-year movement. I've been in banking for 28 years. I have seen a lot highs and lows. Highs don't last forever, neither do the lows."
