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Sunday, 04 January 2015 21:00

Monarch Bank sought suitors after successful recap, emergence from regulator oversight

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Before directors at Coldwater-based Monarch Community Bancorp Inc. explored the possibility of a sale or acquiring other banks itself, the organization needed to complete a successful recapitalization strategy and to emerge from under increased regulatory scrutiny.

That’s according to a recent filing with the U.S. Securities Commission that outlines the $26 million stock transaction in which Midland-based Chemical Financial Corp. will acquire Monarch Community.

The deal came together when directors at the Coldwater-based Monarch Community decided last summer to seek a buyer amid a period of heightened bank M&A activity in 2014.

That decision followed a $16.5 million equity capital raise in 2013 and the subsequent termination of a 2010 consent order with the Federal Deposit Insurance Corp. and the Michigan Department of Insurance and Financial Services to improve operations.

With those issues resolved, Monarch Community directors in July initiated a strategic review that included “possibly acquiring additional strategically or financially desirable financial institutions, or the possible sale of Monarch,” according to an SEC filing.

“With the consent order terminated and the recapitalization in place, the Monarch board of directors re-evaluated and reviewed its strategic goals and alternatives. This review included consideration of potential transactions and business combinations, as well as Monarch’s standalone business plans and prospects,” states the proxy.

Monarch Community’s board of directors hired investment bank Donnelly Penman & Partners Inc., which assembled a list of potential buyers. The firm in August began to contact potential buyers, including Chemical Financial. Nineteen companies expressed interest and agreed to sign letters of confidentiality, according to the proxy statement.

In September, three of the potential suitors — Chemical Financial among then — submitted non-binding letters of intent that outlined “key merger considerations” for a deal. Chemical Financial on Sept. 17 submitted a final non-binding letter of intent increasing the valuation range of its offer. It included a provision “that Monarch and Chemical would enter into a period of exclusive dealing during which Chemical would be allowed to perform further due diligence and the two parties would negotiate and execute a mutually acceptable definitive merger agreement,” the proxy states.

The two sides reached a draft agreement on Oct. 25 and finalized the deal that week. Directors at both Chemical Financial and Monarch Community approved the merger on Oct. 31, a Friday, and the deal was publicly announced on Nov. 3, the following Monday.

In the proxy, Monarch Community cites a number of reasons for the merger, including “by becoming part of a larger organization with greater resources, Monarch will be able to better serve its customers and communities and provide a broader array of products and services that will be competitive with other financial service providers in its geographic market.”

Monarch Community Bank has five offices in Coldwater, Marshall, Hillsdale and Union City with total assets of $176.8 million and total deposits of $144.3 million as of Sept. 30, 2014. Monarch Community Bank also has loan offices in Adrian, Battle Creek, Brighton, East Lansing, Grand Haven and Jackson, and just across the border in Angola, Ind.

The deal, which received Federal Reserve approval on Dec. 31, remains subject to approval by Monarch Community shareholders and is targeted to close toward the end of the first quarter of this year. Under terms of the deal, Monarch Community shareholders would each receive 0.0982 shares of Chemical Financial common stock for each share of their stock.

The proposed acquisition is part of a trend of increasing M&A activity within the banking industry nationally and in Michigan involving community banks. It came the same day last fall that Chemical Financial closed on the $121 million acquisition of Northwestern Bancorp Inc. in Traverse City, which had 25 offices in 11 locations in northwestern Michigan.

Through the acquisition of Northwestern Bancorp, Chemical Financial now has 182 Chemical Bank locations in 46 counties in southwestern, central and northern Michigan with $7.4 billion in assets, $5.5 billion in loans, and deposits of $6.2 billion.

In a December interview with MiBiz, Chemical Financial Chairman, President and CEO David Ramaker said the Monarch deal will help to fill in the bank’s branch network along the U.S. 12 corridor through the southern portion of the state.

Ramaker expects the M&A activity among banks to continue this year, and he said Chemical Financial plans to remain active in the market.

The deal flow this year in Michigan is “as much activity as we’ve seen in the state here in a long time, at least in one particular year,” Ramaker said. “I don’t necessarily see that slowing down. The reasons for consolidation haven’t changed.”

Across the Midwest, bank M&A in 2014 was up 50 percent over 2013, according to a recent analysis by Sterne Agee, a Birmingham, Ala. financial services firm. Bank deals increased from 70 deals in 2013 to 105 in 2014 in the Midwest, the report stated.

The price that buyers were willing to pay was up as well. The price-to-earnings multiple for Midwest deals increased 23 percent from the prior year from 15.9 times to 19.6 times, Sterne Agee reported.

In Michigan, the number of state-chartered banks declined from 97 to 92 from January to November 2014, according to a monthly report from the Michigan Department of Insurance and Financial Services that lists three additional transactions as awaiting regulatory approval.

Read 3494 times Last modified on Sunday, 04 January 2015 21:34

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