Banking & Finance, Real Estate, and Retail

‘Merger of equals’ makes Chemical a regional bank

Union with TCF Financial expands bank’s balance sheet, product set and physical footprint.

February 1, 2019
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No substantial changes for Chemical Banks in West Michigan currently are planned after a merger with TCF Financial. Courtesy TCF Financial Corporation

Though it’s too soon to answer all questions about the local impact of Chemical Bank’s merger with TCF Financial, Chemical’s regional president said she sees it as a welcome move to ensure the institution’s future growth.

Krista Flynn, West Michigan regional president for Detroit-based Chemical Bank, said the all-stock “merger of equals” announced Jan. 28 with her employer and Wayzata, Minnesota-based TCF Financial Corporation was presented to employees as a move that will have little impact on Chemical’s West Michigan footprint.

She said this is due to the fact that TCF Financial has no branches in this region, so there is no need to consolidate branch locations or employees unless there are “operational efficiencies that they find down the road” that necessitate cuts.

But on the whole, no substantial changes are planned in West Michigan at this time, and the bank will provide continuity of services and staff throughout the merger, Flynn said.

This includes honoring contracts signed pre-merger, such as the agreement to become the city of Detroit’s relationship banking partner last summer, for starters.

The two entities post-merger will be headquartered in Detroit.

The Business Journal previously reported the transaction is expected to close in the late third quarter or early fourth quarter of 2019, subject to customary regulatory and shareholder approvals.

Craig Dahl, chair, president and CEO of TCF Financial Corporation, said in a statement the merger will give the banks “stronger and more sustainable growth” and “greater value creation” than the two could achieve separately.

“The new TCF will have attractive positions in both its product suite and market footprint, as well as a more diversified loan portfolio and increased lending capabilities across asset classes, geographies and industry verticals,” Dahl said.

Post-merger, Chemical will adopt the name and branding of TCF Bank, TCF Financial’s subsidiary. Flynn said although it may take some getting used to for Chemical’s Michigan customers, the move makes sense to her.

“TCF’s brand is more nationally recognized, particularly outside of Michigan,” Flynn said. “It made sense as we continue to be a broader bank that we have the more nationally recognized name, and as they had more facilities outside of Michigan in the larger cities … it’s more economical to continue on with the brand that had a broader presence.”

Chemical Bank’s name and brand have existed for more than 100 years, and the bank bills itself as the largest Michigan-headquartered bank, with 212 branches in Michigan, northeast Ohio and northern Indiana and assets of $21.5 billion as of Dec. 31.

TCF had $23.7 billion in total assets as of Dec. 31 and 314 bank branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona and South Dakota.

Along with personal, retail and commercial banking services, TCF, through its subsidiaries, also conducts commercial leasing and equipment financing in all 50 states and commercial inventory financing in all 50 states and Canada.

Because of TCF’s broader footprint and product set, Flynn described the merger as transforming Chemical into “a regional bank” with a “community bank feel.”

In a joint presentation about the merger at premiermidwestbank.com, TCF and Chemical highlighted a “doughnut chart,” the composition of the new bank’s revenue streams by product type.

Of $34 billion in pro forma total loans and leases, 28 percent is consumer real estate, 22 percent commercial real estate, 14 percent commercial and industrial, 14 percent leasing and equipment finance, 9 percent inventory finance, 6 percent automotive, 4 percent other consumer and 3 percent construction.

The graph shows the merger balances both banks’ exposure and risk levels by diversifying the revenue pie and increases each bank’s “upside growth potential.”

“The combination of TCF and Chemical creates the largest midcap bank in the Midwest, poised to deliver double-digit EPS accretion for each set of shareholders, significant cost synergies, top-tier return metrics, a more diversified balance sheet and a lower risk profile,” Chemical Financial Corporation chair Gary Torgow said in a joint press release.

Flynn said the revenue diversification with both entities’ “complementary products and services” was exactly what Chemical needed.

“It’s quite a stark difference,” she said. “If one area is up or down … it doesn’t have such a volatile (effect).

“We will continue to grow in our areas, and they’ll continue to grow in theirs, and we can cross-pollinate those products and services with each other.”

Flynn said it’s too soon to answer questions about logistical matters, both internal and external, such as what operating system Chemical will work on after just adopting a new one in the past year, and what online banking platform customers will use post-merger.

But she said she plans to continue the local workplace cultural changes she has been implementing since becoming regional president last July, including mentoring and “grassroots” affinity programs such as the Chemical Bank Network of Women — though the name may change.

“We expect those to continue to grow and expand, and TCF is just as committed to their communities as we are to ours, which is nice from a cultural standpoint,” Flynn said.

Flynn has been through about five bank mergers or acquisitions in her 25-plus-year career as a banker. When it comes to advice for Chemical’s customers as they look ahead to the transition, Flynn said it’s likely to be a “nonevent” as far as actual changes, but it’s best to wait and see.

“Listen to your bankers and take cues from them because you will get a sense of the banker, whether they’re excited and genuine about their opportunities to grow with the bank versus if they’re anxious and not feeling great about where the direction is. I’ve been through a few (M&A transitions) that weren’t great, and I’ve been through a couple that were wonderful and fine,” she said.

“I would just say that this is really an exciting time, and it’s something we needed to do to diversify our revenue stream to continue to grow, to control our own destiny versus being eaten by somebody else.

“This is a great combination of entities that is, I keep saying the word ‘complementary,’ but there’s just such little overlap that it’s going to be really a plus for our clients going forward. We’re in nine states now with (526) branches, and new, nontraditional banking products will be available. I think it’s very forward thinking.”

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