Chemical Financial Corp. plans to close and consolidate 25 more branches by the end of the year and trim its workforce 7 percent in a cost-cutting initiative that will generate $20 million in annualized savings.
The initiative follows a shift in the baking industry to reduce branch networks as customers increasingly embrace online and mobile banking.
At the same time, the Midland-based Chemical Financial is unfolding a broader strategy to put more emphasis on commercial lending. Chemical Financial, which doubled its in-house lending cap to $50 million in the merger last year with Talmer Bancorp, plan to hire “a pretty substantial number” commercial lenders over time to support lending to middle-market businesses.
“It positions the company for continued growth and is a modest shift in focus for lending to businesses,” CFO Dennis Klaeser told MiBiz. “As the company has grown, and particularly through the merger, we are now in a much better position to be more competitive in the middle market commercial lending area and lending to larger businesses. We see a need and an opportunity to expand in that area.”
Chemical Financial (Nasdaq: CHFC) disclosed the strategy, the first under new CEO David Provost, in a filing this week with federal securities regulators. The filing attributed the branch closings to “the evolving banking environment and physical branch overlap resulting from Chemical’s merger and acquisition transactions,” including the $1.61 billion deal with Talmer Bancorp a little more than year ago.
“These actions further provide Chemical the ability to reallocate resources to best serve our communities and growing customer base,” the company said in a filing with the U.S. Securities and Exchange Commission. “These actions were guided by a focus on enhancing operating efficiency and achieving the long-term growth prospects that were established as part of Chemical’s most recent merger performance target.”
The planned branch closings that will occur in the fourth quarter are in addition to the 13 office consolidations that Chemical Financial is making in the third quarter. The move will reduce the bank’s footprint from 249 offices to 211 locations in Michigan, northeast Ohio, and northern Indiana.
Chemical Financial has decided what offices will consolidate into nearby locations but is not ready to identify them publicly, Klaeser said.
In what Klaser calls a “a big issue across the entire industry,” many banks have been reducing the size of their branch networks over the last few years and investing more in technology to accommodate customers who prefer to bank online via a mobile app.
“Chemical has and will continue to adapt to changes in how customers transact their banking business and interact with our team of Chemical bankers,” according to the SEC filing. “To that end, Chemical Bank recently made significant upgrades to its electronic banking technology by implementing additional online products and services, enhanced security and other convenience additions for both retail and business customers.”
The corporation does not anticipate any further branch closings, Klaeser said.
“At this point, we feel pretty comfortable with where we’re at,” he said.
The workforce reductions “are expected to be largely complete” by Sept. 30, Chemical Financial told regulators. The reductions will affect about 230 of the corporation’s 3,500 employees. The branch closings and staff reductions will generate a pre-tax charge of $18 million in the third and fourth quarters, $15 million of which will go for severance and retirement expenses.
A majority of the $20 million in annualized cost savings “are expected to be evident” in the fourth quarter and will get offset somewhat in 2018 by the hiring of additional commercial bankers in key markets, as well as additional operations staff to support customer service.
Beyond the branch closings, staff cuts and greater emphasis on middle market commercial lending, Chemical Financial plans to discontinue its breakeven title insurance business and to reduce “the resources devoted to indirect auto lending, which has recently produced lower returns on allocated equity than other loan types.”
The 2016 acquisition of Talmer Bancorp, the latest in a series of deals the last few years, made Chemical Financial the largest bank based in Michigan. The bank as of June 30 had total assets of $18.78 billion and $13.20 billion in total deposits.
Chemical Financial in July reported net income of $52 million for the second quarter and $99.6 million in net income for the first six months of 2017.
Most recently, former President and CEO David Ramaker abruptly retired in June. He departed after engineering a series of acquisitions over the years by Chemical Financial.
Thomas Shafer succeeded Ramaker as president and CEO of Chemical Bank and vice president of the corporation. Provost was named president and CEO of the corporation. Both Shafer and Provost joined Chemical with the Talmer Bancorp acquisition in August 2016.