Chemical Financial in Midland has spent years trumpeting its Michigan identity.
All of the $9.2 billion-asset company's 185 branches are in the Wolverine State, so its slogan — "Michigan banks here" — carries with it a ring of authenticity.
Still, Chemical, which has been around for nearly a century, is open to change now that it has agreed to buy Talmer Bancorp. Talmer, while based in Troy, Mich., has significant scale around Detroit, and it has numerous branches in Ohio, which means that Chemical will finally have an interstate operation.
Chemical knew it would have to expand outside its home state eventually because of the revenue and regulatory pressures it faced as it approached $10 billion in assets, David Ramaker, the company's chairman, president and chief executive, said in an interview Wednesday.
Before it came across Talmer, Chemical was looking to buy a bank with at least $1.5 billion to $2 billion in assets to overcome caps on interchange fees and higher compliance costs associated with stress testing and other regulatory requirements.
"The impact from the Dodd Frank Act is significant," Ramaker said. "We didn't have any small deals in our sights."
Talmer was a surprise on multiple counts. At $6.6 billion in assets, the company represents a much a bigger deal that those that Chemical had been evaluating. It also changed the direction of the company's expansion plan.
Ramaker and his team had been interested in expanding into Indiana but "considering the market presence we’ll have in the southeast corner [of Michigan], Ohio is just as good as Indiana," the CEO said.
Talmer does provide a small foray into Indiana, where it has two branches in Elkhart County, about 60 miles south of Kalamazoo. In comparison, the company has 26 branches in Ohio, including operations in Cleveland and Youngstown.
As is often the case, discussions between Chemical and Talmer began rather innocuously. Ramaker and David Provost, Talmer's president and CEO, often crossed paths at various events.
"We just started talking and looking at our geographies," Ramaker said. "Our lack of overlap is extremely compelling. That vision of a deal is what got us started."
The companies are calling their $1.1 billion combination a merger of equals even though Chemical is considerably larger, is 90 years older than Talmer's predecessor and will own 55% of the surviving entity.
Chemical has been an active acquirer during its march to $10 billion in assets. It has bought four banks since 2010, including its May purchase of the $1.2 billion-asset Lake Michigan Financial. While the Lake Michigan integration is "far along" and going smoothly, Ramaker said he realizes that doing the same with Talmer will require more effort. Both companies consider M&A a core competency, though.
"Just the sheer size involved means it's going to take time and a great deal of focus," Ramaker said. "It may be 18 months to two years before things are operating the way we like it."
Chemical, which will keep its name and brand, will grow to $16 billion in assets, $12 billion in loans and $12.5 billion in deposits by adding Talmer, becoming the biggest bank based in Michigan. Management expects the deal to be 8% accretive to earnings in its first full year.
Earnings per share could reach $3.05 next year, compared with $2.39 in 2015, Andrew Liesch, an analyst at Sandler O'Neill, wrote in a note to clients after the deal was announced. Chemical should find "good organic growth opportunities" after buying Talmer, he added.
Some of Chemical's new business could come from bigger clients that neither bank is well positioned to call on right now, particularly middle-market firms with annual sales of $50 million to $150 million, Ramaker said.
"This opens up a whole different set of customers," Ramaker said.