GRAND RAPIDS — The pending acquisition of TCSB Bancorp Inc. gives Independent Bank Corp. a position in an attractive banking market in Northwestern Michigan.
The Grand Rapids-based Independent Bank (Nasdaq: IBCP) aims to close the $63.2 million deal April 1 following approval last week by shareholders at TCSB Bancorp, the parent company of Traverse City State Bank.
Securing a presence in Northwestern Michigan where Traverse City State Bank has five offices significantly opens the market for Independent Bank, which first ventured into the area in early 2017 with home mortgage and retail lending offices.
Independent Bank in particular has a much higher in-house commercial lending cap for prospective business borrowers that Traverse City State Bank previously had been unable to serve.
“That’s where the real opportunity is,” said Independent Bank President and CEO Brad Kessel. “It’s going to open up some opportunities that they haven’t been able to do before.”
Independent Bank’s in-house commercial lending cap is $15 million, although some top clients have higher credits, Kessel said.
On March 14, TCSB Bancorp shareholders overwhelmingly backed the deal. Shareholders who voted cast 99 percent of their shares in favor of the merger, said Ann Bollinger, the bank’s president and CFO.
“We’re very happy about it and we look forward to working with Independent,” Bollinger said. “It’ll be a good fit.”
Under the stock transaction, TCSB Bancorp shareholders will receive 1.1166 shares of Independent Bank stock for each of their shares.
TCSB Bancorp CEO Connie Deneweth will continue to lead the Northern Michigan market as senior vice president and president for Independent Bank once the deal closes. Joining her are Bollinger, who will serve Independent Bank as senior investment executive, and Daniel Stahl, who becomes vice president and senior credit officer.
Traverse City State Bank has four offices in the Traverse City area, plus a branch in Suttons Bay on the Leelanau Peninsula, with $336.8 million in total assets at the end of 2017 and $282 million in deposits. The bank recorded $3 million in net income last year, according to a quarterly financial report filed with the FDIC.
Independent Bank has 65 offices across the Lower Peninsula with $2.78 billion in total assets and $2.4 billion in deposits as of Dec. 31. The bank reported $20.4 million in net income for 2017.
The acquisition is the first for Independent Bank since it made two deals in 2004 in Gaylord, and bought 10 branches in 2006 from TCF Bank in Ann Arbor. The deal also follows Independent Bank’s sale six years ago of 22 offices that were in low-growth markets, mostly in the northeastern Lower Peninsula.
“From a psychological standpoint, this is good for our people to see us on the offense,” Kessel said.
‘A TERRIFIC FIT’
The opportunity for Independent Bank to make the acquisition came as directors at TCSB Bancorp decided about a year ago to explore selling the bank. Working with investment bank D.A. Davidson & Co. and Grand Rapids law firm Warner Norcross & Judd LLP, TCSB Bancorp initially attracted seven interested parties, five of whom submitted written indications of interest, according to a prospectus on the deal Independent Bank filed in February with federal securities regulators.
Directors decided in mid May to pursue talks with three of the five. One of the three later withdrew from consideration, leaving Independent Bank and one other unnamed potential suitor.
The TCSB Bancorp board ultimately decided that Independent Bank was “an acceptable merger partner,” and the two worked out a final agreement that they announced publicly on Dec. 4.
Independent Bank pursued the transaction because it viewed the Traverse City area as an attractive market that could contribute to earnings growth, Kessel said. TCSB Bancorp also has a strong executive team, he added.
“We like the market and we like the team, and we think it’s a terrific fit,” Kessel said. “It’s going to give us a boost in terms of additional growth to what we’ve already been doing.”
Kessel does not see a need for expanding the bank’s branch footprint in the Northwestern Michigan market. Traverse City State Bank’s offices are situated in a way that “enables us to be very effective in not only retaining the share that we have but actually capturing even more market share,” he said.
“I like the cluster that you have there today. I think it’s a good number,” Kessel said.
Traverse City State Bank as of June 2017 ranked fifth out of 10 banks in its home market of Grand Traverse County with a 10.47-percent share of a $2.37 billion deposit market, according to the FDIC’s annual Summary of Deposits.
ProBank Austin served as Independent Bank’s financial adviser in the transaction, and Varnum LLP in Grand Rapids acted as legal counsel.