Published in Finance

Chemical Bank merger closes, ChoiceOne deal awaits shareholder votes

BY Sunday, August 04, 2019 05:37pm

Chemical Financial Corp. closed Aug. 1 on the $3.6 billion merger with Wayzata, Minn.-based TCF Financial Corp. after receiving shareholder and federal regulatory approvals. After the closing, Chemical Financial was renamed TCF Financial and the corporation now trades on the Nasdaq stock exchange under the ticker symbol “TCF.”

Chemical Bank and TCF offices initially will operate under their existing names, with the Chemical offices eventually taking on the TCF brand. 

David Provost, president and CEO, Chemical Financial Corp. COURTESY PHOTO

The deal closed two months earlier than initially expected. Conversion of the banks’ I.T. systems should occur by mid 2020.

The deal creates a bank with more than $46 billion in assets and 500 offices in nine states across the Midwest, as well as “significant strategic and financial value for our shareholders,” said Chemical Financial President and CEO David Provost.

“We believe that we are well positioned for growth not only in our high-growth potential markets of Detroit, Cleveland and Grand Rapids, but also as we expand our market footprint as a result of our proposed merger with TCF, we focus on services and products that provide the greatest opportunity to create value,” Provost told brokerage analysts in a recent conference call to discuss earnings results from the second quarter.

The Chemical Financial-TCF Financial merger should create $75 million to $180 million in cost savings in the first four quarters, and $180 million annually afterward, according to executives.

Prior to the merger, Chemical Bank had 212 offices, mostly in Michigan, plus northeast Ohio and northern Indiana, with $22.4 billion in total assets. 

Chemical Bank — now headquartered in Detroit after relocating last year from Midland — has a solid presence in West Michigan, where in 2018 it was the leader in deposit market share in Allegan, Berrien and Calhoun counties.

The bank ranked sixth in Kent County in last year’s FDIC Summary of Deposits, with 11 offices and $1.01 billion in deposits, and fourth in neighboring Ottawa County with 10 offices and $630.7 million in deposits.

Just prior to the merger closing late last month, Chemical Financial reported $69.5 million in net income for the second quarter, or 96 cents per diluted share, which compares to $68.9 million, or 96 cents per diluted share, for the same period a year earlier. The quarter included $3 million in merger-related expenses.

Shareholders weigh in

While Chemical Financial and TCF Financial begin to come together, a proposed $89 million merger is moving ahead for Sparta-based ChoiceOne Financial Services Inc. (OTC: COFS) and Lapeer-based County Bank Corp. (OTC: CBNC), the parent corporation for Lakestone Bank & Trust.

The deal recently received federal regulatory approval and shareholder votes are now scheduled for Sept. 18 at meetings in Sparta and Lapeer at each corporation. ChoiceOne shareholders also will decide on raising the number of common shares from 7 million to 12 million to accommodate the deal, according to a joint proxy statement and prospectus filed with federal securities regulators.

Under the terms of the stock transaction, each share of County Bank common stock would convert into the right to receive 2.0632 shares of ChoiceOne common stock. ChoiceOne would declare and pay a special dividend of 60 cents per share to its shareholders.

Billed as a “merger of equals” when it was announced in March, the deal would create a combined bank based in Sparta that has 28 offices in West and Southeastern Michigan with about $1.3 billion in assets. The deal should close in the second half of 2019.

Executives expect the merger to generate 14 percent accretion in earnings per share in the first full year based on cost savings of 10 percent.

Directors at both corporations urge shareholders to vote in favor of the merger, which would extend ChoiceOne into the Southeastern Michigan market. The merger would provide the combined bank with the “additional resources necessary to compete more effectively in Michigan,” according to the joint proxy statement and prospectus.

Merger costs mount

The merged bank’s board will consist of 14 directors split evenly from each bank. ChoiceOne Chairman Paul Johnson will continue in the same role with the combined bank. Kelly Potes, president and CEO of ChoiceOne, becomes CEO. County Bank Chairman and CEO Bruce Cady will serve as vice chairman and Lakestone Bank & Trust President Mike Burke will serve as the president of the bank.

County Bank has 14 Lakestone Bank & Trust offices in Lapeer, Macomb and St. Clair counties with $616.1 million in assets. The bank recorded $6.9 million in net income for 2018, and $1.7 million in the first quarter of this year.

ChoiceOne presently has 14 offices in Kent, Muskegon, Newaygo and Ottawa counties with $658.4 million in assets as of June 30.

In late July, ChoiceOne reported $1.4 million in net income, or 41 cents per diluted share, for the second quarter. That compares to $1.8 million, or 50 cents per diluted share, in the same period a year earlier.

The quarter included $350,000 in merger-related costs from the proposed merger with County Bank Corp. Minus the merger costs, ChoiceOne Financial recorded flat quarterly net income of $1.8 million, or 50 cents per diluted share.

More deals ahead?

The Chemical-TCF and ChoiceOne-County Bank acquisitions are the latest deals involving West Michigan banks.

Grand Rapids-based Independent Bank Corp. (Nasdaq: IBCP) is open to a deal if a possibility arises, although CEO Brad Kessel reiterated to analysts when asked about M&A in a recent conference call that organic growth remains the priority.

Independent Bank in April 2018 acquired Traverse City-based TCSB Bancorp Inc. in a $61.8 million deal.

“We have said we’ll continue to run the Independent plan focused on organic growth, and supplement it with acquired growth where it makes sense,” Kessel said. “I am pleased with the opportunity to be included where appropriate. But our game plan continues to be focused on organic growth.”

Bank M&A activity in Michigan in the last year to 18 months also has led to some executive moves. Independent Bank has added “a number of new talented lenders from the market disruption that’s been taking place, and that has really been a nice source of our organic growth,” Kessel said.

At Mercantile Bank Corp., which extended its footprint across the Lower Peninsula with the $151.5 million deal in 2014 for the former Firstbank Corp. of Alma, executives “don’t have a strong interest in doing M&A,” CFO Chuck Christmas said in a recent conference call to discuss quarterly results. 

EDITOR’S NOTE: This story has been updated to correct the date for the ChoiceOne shareholder vote, which is scheduled for Sept. 18. 

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