Bank acquisition helps spark Chemical recovery

February 6, 2011
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Chemical Financial Co., holding company for Chemical Bank, had 2,703,009 shares of outstanding common stock. In April 2010, 71 percent of those shares voted on an acquisition of O.A.K. Financial Corp., the holding company for Byron Bank, in an all-stock transaction. When the votes came in, 96 percent had voted in favor of the acquisition.

It’s a deal that paid immediate dividends.

In January, Chemical Financial Corp. (Nasdaq: CHFC) announced 2010 fourth quarter net income of $7.5 million, or 27 cents per diluted share, compared to net income of $8.9 million, or 32 cents per diluted share, in the third quarter of 2010 and $2.5 million, or $0.11 per diluted share, in the fourth quarter of 2009. Net income was $23.1 million, or 88 cents per diluted share, for the 12 months ended Dec. 31, compared to $10 million, or 42 cents per diluted share, for the 12 months ended Dec. 31, 2009.

"Our earnings recovery in 2010 was primarily driven by two factors,” said David B. Ramaker, chairman, CEO and president. “First, stabilization in credit quality resulted in a $13.4 million lower provision for loan losses for the year. Second, our acquisition of O.A.K. Financial Corp., which closed on April 30, 2010, has been accretive to earnings starting in the third quarter of 2010. Although the fourth quarter of 2010 saw modestly lower profitability than the year's third quarter due to a $1.7 million higher provision for loan losses, we believe that the credit quality of the loan portfolio continues to stabilize, as evidenced by a $9.9 million reduction in nonaccrual loans during the quarter on the originated portfolio."

"We expect 2011 will be characterized by the ongoing pursuit of strategies to profitably grow our core community banking franchise, including opportunistic acquisitions where appropriate,” said Ramaker.

The acquisition of O.A.K. Financial and its subsidiary, Byron Bank, resulted in increases in the company's total assets of $820 million, total loans of $627 million, total deposits of $693 million (core deposits of $495 million) and goodwill of $44 million as of the acquisition date.

“From our perspective, we believe that the opportunity to add the strength of our team and the reputation of our company to the capital position and capacity of a first-class institution like Chemical will allow us to take advantage of what we think are very significant opportunities in this market,” Pat Gill, CEO of Byron Bank, said at the time the sale was approved by stockholders.

“We think it’s strategically a good fit, but we also think, from a timing standpoint and a general opportunity standpoint, it’s a transaction that is very advisable for all parties.”

The fixed-exchange transaction was worth about $83.9 million and closed April 30. The acquisition added 14 West Michigan branches to Chemical Bank. The addition moved Chemical Bank from the 16th largest institution in the Grand Rapids area to sixth.

On July 24, Byron Bank, previously a subsidiary of Chemical Financial Co., officially slid under the Chemical Bank name.

The major benefits for consumers is the expanded locations, but the amount of lenders were also to double. Combined, the new Chemical Bank will staff 24 lenders.

“We’re going to be able to expand our lending capabilities,” said Lynn Kerber, president of the West Region. “We really have a lot of lending power in the market.”

Kerber stressed that the biggest outcome of the merger will be additional customer service.

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