MIDLAND — For the third time in two years, Chemical Financial Corp. wants to have more shares on hand to as it pursues additional acquisitions.
A proposal going to shareholders next month, if approved, would increase the Midland-based Chemical Financial’s authorized shares of common stock from 100 million to 135 million.
After nearly tripling its assets base since 2013 through a series of acquisitions, Chemical Financial (Nasdaq: CHFC) could use the additional shares to fashion future deals as it maintains an M&A strategy to expand in Michigan and across the Midwest.
“The board of directors believes that it is advisable to have a sufficient amount of additional authorized shares of common stock available for future issuance for important corporate purposes and provide the ability to react quickly to strategic opportunities,” according to Chemical Financial’s preliminary 2017 proxy statement filed with the U.S. Securities and Exchange Commission.
“Acquisitions of other organizations continues [sic] to be a key strategy for the long-term growth of the corporation. Authorized but unissued shares of common stock, or funds raised in a public offering of shares, may be used for these purposes.”
The proxy noted that additional shares also could go toward future stock splits and dividends, equity incentive and equity compensation plans “to attract and retain talented employees,” and “other corporate purposes that might be considered.” The corporation said it presently had no plans or proposals to issue the additional shares.
As of Feb. 27, Chemical Financial had 71.06 million common shares issued and outstanding, plus 2.57 million set aside for share-based plans. That leaves 26.36 million common shares for future issuance.
Shareholders will vote on the proposal April 26 when they meet for the company’s annual meeting in Midland.
SIGNALING FUTURE DEALS?
Chemical Financial last increased its authorized common shares in July 2016 when shareholders approved going from 60 million to 100 million as part of the $1.61 billion cash-and-stock deal for Talmer Bancorp Inc. that closed Aug. 31, 2016. The corporation issued 32.1 million common shares for the transaction.
Shareholders at the time also authorized the creation of 2 million preferred shares, none of which were issued as of Feb. 27, according to the proxy statement.
The increase to 100 million common shares in 2015 preceded Chemical Financial’s acquisition of Holland-based Lake Michigan Financial Corp. for $187.4 million in a deal that involved issuing 4.3 million shares of common stock.
Chemical Financial also used common shares to finance the $27.2 million acquisition of Monarch Community Bancorp Inc., an all-stock transaction that closed April 1, 2015 and involved 860,575 shares. The Oct. 31, 2014 deal for Northwestern Bancorp Inc. in Traverse City for $121 million was an all-cash transaction.
The acquisitions grew Chemical Financial to 249 offices in Michigan, northern Indiana and northeast Ohio and pushed total assets to $17.3 billion as of Dec. 31, 2016, up from $6.1 billion just three years earlier.
As Chemical Financial last summer prepared to close the Talmer deal, by far its largest acquisition ever, Chairman, President and CEO David Ramaker told MiBiz that its acquisition strategy would continue, both in Michigan and in neighboring states.
“A pre-eminent Midwest community bank is what our charge is to become,” Ramaker said at the time.
The bank declined to comment on the proposal in the 2017 proxy statement.
Speaking in an investor presentation last week, Ramaker said the bank’s primary focus right now is strengthening its risk management operations after growing quickly through acquisitions. He expects the bank largely to complete that process by midyear.
Chemical Financial will seek to continue growth organically and through acquisitions, Ramaker said. He envisioned Chemical perhaps growing into a $25 billion or $30 billion bank.
“We believe the targets and those opportunities are available to us,” Ramaker said.
Chemical Financial reported significantly higher earnings of $47.1 million, or 66 cents per diluted share, for the final three months of 2016, driven by the Talmer acquisition. Net income for all of 2016 totaled $108 million, or $2.71 per diluted share.
Minus acquisition-related expenses and the sale of branches after the transaction, Chemical Financial had net income of $49.9 million for the fourth quarter, or 70 cents per diluted share, versus $37.5 million, or 75 cents per diluted share, a year earlier. Annual net income would have been $140.5 million, or $2.81 per diluted share, compared to $92.3 million, or $2.54 per diluted share, for all of 2015.
As the corporation pursues further acquisitions, it may find plenty of potential sellers willing to talk about a deal.
Grand Rapids investment bank Charter Capital Partners believes industry consolidation will continue, particularly for smaller community banks pressured by regulatory burdens and the need to keep up with changing consumer tastes for online and digital banking.
“Regulatory burdens are still very heavy for smaller banks, although there is some hope for relief. Large investments in technology advances are much easier to spread over a larger base of assets,” Jason Byrd, managing director of the financial institutions practice at Charter Capital Partners, wrote in an email to MiBiz. “We … continue to expect that acquisitions will continue at a quickening pace in the banking industry.”
Nationally, the annual M&A survey conducted by Bank Director magazine found solid, albeit reduced, optimism for deals in 2017 across the country. Forty-five percent of bank executives and directors surveyed late last summer viewed the environment as more favorable for deals. That’s down 17 percentage points from the prior year’s survey.
Among the respondents, 46 percent told Bank Director their bank was “likely” or “very likely” to acquire another bank by the end of 2017. A quarter of respondents said they were open to selling their bank, were considering a sale, or actively seeking a buyer.
The survey results show that M&A “remains a primary catalyst for the strategic plans of many banks,” stated Bank Director CEO Al Dominick.
The latest deals in Michigan involving community banks were the Bank of Birmingham’s $33.3 million merger into the Bank of Ann Arbor, and Alma-based Commercial Bank’s $14 million acquisition of Mason State Bank.