Chemical Financial, which in 2016 became the biggest bank based in Michigan, will have to figure out how to leverage its newfound heft in the coming year.
The Midland company in August completed its $1.1 billion acquisition of Talmer Bancorp in Troy, the fifth-largest U.S. bank deal announced in 2016. The move catapulted Chemical to $17 billion of assets, well past the $10 billion regulatory threshold that triggers mandatory stress tests and caps on interchange fees.
All that means new opportunities and challenges – along with added scrutiny – for a company that, not too long ago, was a third of the size it is today.
Buying Talmer, a company with a successful turnaround story, helped boost Chemical's profile, said Terry McEvoy, an analyst at Stephens. That deal "opened the eyes of a lot of investors and analysts to learn more about Chemical."
For those reasons David Ramaker, who has been Chemical's president and CEO for nearly 15 years and its chairman since 2006, is one of American Banker's community bankers to watch in 2017.
Ramaker, for his part, is keenly aware that running a bigger company will draw more attention, but he also believes Chemical is better equipped to do more for people in Michigan and surrounding markets. Talmer notably strengthened the company's operations in Ohio and provided a toehold in Indiana.
"We want to be able to help affect quality of life," Ramaker said. "We believe we can play that role, and I think that we've been stepping up to that. [Talmer] allows us to step up to that even further."
There are several hurdles Chemical will need to overcome in 2017. While Talmer's data and systems were converted in mid-November, Chemical officials will be spending the next six months unifying policies, procedures and controls and bringing Talmer's employees into the fold, Ramaker said.
Chemical will also need to adjust to added regulation, including an expected $10 million in lost annual revenue from the caps on interchange fees, which are set to fully kick in during 2018, and $2 million in added annual expense tied to stress tests and other regulatory matters.
Yet Chemical's bigger size should help it go after larger customers, including companies with $50 million to $200 million in annual sales. "Quite frankly, legacy Chemical and legacy Talmer didn't have those resources," Ramaker said.
Increased commercial-and-industrial lending would help Chemical diversify beyond its roots in commercial real estate, where it has largely focused on owner-occupied properties. Chemical has also gotten more involved in auto lending; that portfolio grew by 44% in the third quarter compared with a year earlier to about $710 million, according to the corporate data firm Sageworks.
Talmer also adds a more developed mortgage-banking operation, said David Long, an analyst at Raymond James.
Chemical could expand more in Michigan, Ohio and Indiana, but it is unclear whether Ramaker – who noted that the company also has branches just 15 minutes away from Pennsylvania – will rely exclusively on organic growth or pursue another deal in 2017.
Organic growth seems like a sound bet, Long said, adding that Chemical – aided by increased visibility – could build market share by luring customers and veteran bankers from rivals.
"I think they've got a good base in place to grow this bank going forward," Long said. "They now have a very identifiable brand, which will be great for acquiring both clients and veteran bankers from competitors."
Ramaker, who built Chemical into a regional player by buying five banks since 2010, indicated that he will be scouting out targets, but it is unclear when the next deal might take place. A big factor could be the types of banks that become available, he said.
"There's no doubt we will need to … have the right structures and controls and processes" in place first, Ramaker said. "Acquisitions [are] in our DNA, and I'd daresay that there will be more on the horizon."