Published in M&A Award Profiles
Dan Terpsma of Chemical Financial Corp. Dan Terpsma of Chemical Financial Corp. Photo: Katy Batdorff

With deal for Talmer Bancorp, Chemical Financial finds ‘the perfect fit’

BY Sunday, October 15, 2017 08:00pm

MiBiz 2017 M+A Deals & Dealmakers Awards Winner: Deal more than $150 million

Nearing $10 billion in assets after a series of smaller community bank acquisitions, Chemical Financial Corp. last year needed to pursue a deal larger than any it had contemplated before.

For the Midland-based Chemical Financial, hitting that threshold would mean higher regulatory burdens that carried compliance costs of $10 million annually.

As Chemical Financial sought a deal that would push it well beyond $10 billion, Troy-based Talmer Bancorp Inc. was seeking a suitor as well.

The two soon connected and on Aug. 31, 2016, they closed on a $1.61 billion cash-and-stock deal that created the largest bank headquartered in Michigan with $17.2 billion in combined assets.

Chemical Financial Corp.

  • Top executive: David Provost, CEO

  • Workforce: 505 full-time employees in West Michigan

  • Brief business description: Full-service bank

  • Best practices for effective dealmaking: “Make sure you get the right people (and) the right talent, and make sure you figure out the cultures and you can merge the cultures. That’s number one,” said Dan Terpsma, executive vice president for regional and commercial banking. “Number two is make sure you can leverage your capability as the acquirer with the merged company, and also go into it with an open mind. If the company you are acquiring does something better than you, try to adapt it. Too many companies go into it with the idea that everything has to be done their way. The key is to go into it saying, ‘We just want to do it the best way regardless of who owns it.’”

  • Advisers: For Chemical Financial, Sandler O’Neill & Partners LP (financial) Warner Norcross & Judd LLP (legal); For Talmer Bancorp, Keefe, Bruyette & Woods Inc. (financial) Nelson, Mullins, Riley & Scarborough LLP (legal)

Through the acquisition, Chemical Financial entered the metro Detroit market for the first time, gained a position in Cleveland, Ohio, and succeeded in pushing well past the $10 billion in assets that was needed to better absorb the high cost of complying with federal regulations under the Dodd Frank Wall Street Reform and Consumer Protection Act.

“When you look at that cost of crossing over $10 billion, you’re really faced with you don’t want to end up at $10.1 billion. You’d rather end up with a higher number to spread that cost over more assets,” said Dan Terpsma, an executive vice president of regional and commercial banking at Chemical Financial in Grand Rapids. “It really turned out to be the perfect fit.”

The Chemical Financial-Talmer Bancorp deal won the 2017 MiBiz M&A Deal of the Year Award in the category of transactions valued at more than $150 million.

In the recently released annual FDIC Summary of the Deposits, Chemical Bank ranked seventh in deposit market share out of 126 banks operating in Michigan. The bank had deposits of $15.19 billion in Michigan as of June 30 for a 5.59 percent share of a $210.6 billion market. 

As a commercial lender, a larger Chemical doubled its in-house commercial lending limit to $50 million and now targets middle-market business borrowers.

In the wake of the acquisition and with an extended market reach, executives began to tout Chemical, now with offices in Michigan and neighboring states of Ohio and Indiana, as becoming the “premier community bank” in the Midwest.

“We believe that our combination of market focus, balance sheet strength, talent and convenience provides a compelling choice to customers and businesses alike,” CEO David Provost said during a July conference call with analysts to discuss quarterly results.

‘MODEST SHIFT’ TO BUSINESS LENDING

Provost became CEO this summer following the abrupt retirement of David Ramaker, who led Chemical Financial through a series of acquisitions in recent years. Thomas Shafer succeeded Ramaker as president and CEO of Chemical Bank and vice president of the parent corporation, while Provost became president and CEO of the corporation. Both had led Talmer prior to the acquisition.

In late summer and under Provost’s control, Chemical Financial launched an initiative to consolidate 25 bank branches by the end of the year and trim its workforce by 7 percent. The consolidations cut Chemical’s branch network from 249 offices to 211 locations.

The initiative was expected to generate $20 million in annualized savings, a good portion of which will get offset by hiring “a pretty substantial number” of commercial lenders 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 last month. “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.”

A FOCUS ON INTEGRATION

After the deal closed, the Chemical Financial board of directors consisted of representatives from both banks, with seven members from Chemical’s board and five from Talmer. The executive management team was also made up of executives from each bank.

Integrating the two banks followed the same model, Terpsma said.

“We really strived for a culture of placing the best person in the best spot, and not have it based on which bank they had been associated with,” said Terpsma, the former CEO of Northwestern Bancorp in Traverse City prior to its 2014 acquisition that gave Chemical a foothold in the northwestern Lower Peninsula.

In the Detroit area, Chemical and Talmer had “very limited” overlap in their operations, “so it was really a very easy fit of merging their talent with ours,” Terpsma said.

As with any merger or acquisition, integrating the two banks operationally was a key challenge, especially given the size of both Chemical and Talmer, which had about $6 billion in assets at the time of the deal. All of Chemical Financial’s past acquisitions were for much smaller banks.

“Any time you acquire an organization that’s 75, 80 percent of your size, it’s a larger merger operationally,” Terpsma said. “We went through that with great preparation and it was largely successful.”

Among the decisions during the integration process was selecting which systems and products to keep. After the deal closed, teams went to work analyzing and rating every business system used by either bank and recommended which was the best, Terpsma said.

In addition to positioning it to better absorb the higher compliance costs and to offer the higher lending limit, Chemical’s acquisition gave it a greater ability to invest in technology upgrades, Terpsma said. He notes the bank now has a “very sophisticated” electronic business banking platform.

“That costs money. It’s easier to do that when you’re $17 billion (in assets) than when you’re $9 billon,” he said. “There’s a lot of advantages in terms of technology and spend.”

MORE DEALS AHEAD? 

As Chemical Financial looks ahead, the corporation will eventually get back into acquisition mode, probably as early as 2018, Terpsma said.

For now, the corporation is focused on tweaking the integration and driving growth, particularly in its two new markets of Detroit and Cleveland, as it builds a broader presence in the Midwest.

“I see 2017 as a year that we are digesting and fine-tuning the integration and really getting ourselves well-positioned. I would think sometime in ’18, maybe the second half, that we would be interested in building out those markets that we now have a presence,” Terpsma said. “It doesn’t mean we would buy any place, but certainly Southeast Michigan, Ohio, and potentially Indiana would be great opportunities for a merger.”

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