Michigan (State or Other Jurisdiction of Incorporation) | 000-08185 (Commission File Number) | 38-2022454 (IRS Employer Identification No.) |
333 W. Fort Street, Suite 1800 Detroit, Michigan (Address of Principal Executive Offices) | 48226 (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | CHFC | The NASDAQ Stock Market |
Item 7.01 | Regulation FD Disclosure. |
• | the failure to obtain necessary regulatory approvals when expected or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction); |
• | the failure of either Chemical or TCF to satisfy any of the other closing conditions to the transaction on a timely basis or at all; |
• | the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement; |
• | the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where Chemical and TCF do business, or as a result of other unexpected factors or events; |
• | the impact of purchase accounting with respect to the transaction, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value; |
• | diversion of management’s attention from ongoing business operations and opportunities; |
• | potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; |
• | the ability of either company to effectuate share repurchases and the prices at which such repurchases may be effectuated; |
• | the outcome of any legal proceedings that may be instituted against Chemical or TCF; |
• | the integration of the businesses and operations of Chemical and TCF, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Chemical’s or TCF’s existing businesses; |
• | business disruptions following the merger; and |
• | other factors that may affect future results of Chemical and TCF including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms. |
Item 9.01 | Financial Statements and Exhibits. |
Exhibit No. | Exhibit | |
99.1 |
Dated: | June 25, 2019 | CHEMICAL FINANCIAL CORPORATION (Registrant) |
/s/ Dennis L. Klaeser | ||
Dennis L. Klaeser | ||
Executive Vice President and Chief Financial Officer |
Chemical Financial Corporation and TCF Financial Corporation | |||||||||||||||||||||||
Unaudited Pro Forma Combined Condensed Consolidated Statements of Financial Condition | |||||||||||||||||||||||
As of March 31, 2019 | |||||||||||||||||||||||
Chemical as Reported | TCF as Reported | Pro Forma Adjustments | Pro Forma Chemical and TCF | Capital Actions | Pro Forma Chemical and TCF | ||||||||||||||||||
(Amounts in thousands, except per share data) | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 517,576 | $ | 463,822 | $ | (45,415 | ) | (1) | $ | 935,983 | $ | 71,025 | (16)(17) | $ | 1,007,008 | ||||||||
Investment securities | 3,923,573 | 3,197,010 | 5,096 | (2) | 7,125,679 | — | 7,125,679 | ||||||||||||||||
Loans held-for-sale | 23,535 | 64,468 | — | 88,003 | — | 88,003 | |||||||||||||||||
Total loans and leases | 15,324,048 | 19,383,675 | (287,260 | ) | (3) | 34,420,463 | — | 34,420,463 | |||||||||||||||
Allowance for loan and lease losses | (110,284 | ) | (147,972 | ) | 110,284 | (4) | (147,972 | ) | — | (147,972 | ) | ||||||||||||
Net loans and leases | 15,213,764 | 19,235,703 | (176,976 | ) | 34,272,491 | — | 34,272,491 | ||||||||||||||||
Premises and equipment, net | 122,452 | 429,711 | (6,600 | ) | (5) | 545,563 | — | 545,563 | |||||||||||||||
Goodwill | 1,134,568 | 154,757 | (72,271 | ) | (6) | 1,217,054 | — | 1,217,054 | |||||||||||||||
Other intangible assets | 27,195 | 19,684 | 141,069 | (7) | 187,948 | — | 187,948 | ||||||||||||||||
Interest receivable and other assets | 837,650 | 853,560 | 3,558 | (8) | 1,694,768 | 975 | (17) | 1,695,743 | |||||||||||||||
Total Assets | $ | 21,800,313 | $ | 24,418,715 | $ | (151,539 | ) | $ | 46,067,489 | $ | 72,000 | $ | 46,139,489 | ||||||||||
Liabilities and Shareholders' Equity | |||||||||||||||||||||||
Deposits | $ | 16,061,999 | $ | 19,024,111 | $ | (19,351 | ) | (9) | $ | 35,066,759 | $ | — | $ | 35,066,759 | |||||||||
Collateralized customer deposits | 413,199 | — | — | 413,199 | — | 413,199 | |||||||||||||||||
Interest payable and other liabilities | 261,571 | 981,341 | — | 1,242,912 | — | 1,242,912 | |||||||||||||||||
Short-term borrowings | 1,740,000 | 355,992 | — | 2,095,992 | — | 2,095,992 | |||||||||||||||||
Other borrowings | 426,035 | 1,411,426 | (1,119 | ) | (10) | 1,836,342 | 150,000 | (17) | 1,986,342 | ||||||||||||||
Total liabilities | 18,902,804 | 21,772,870 | (20,470 | ) | 40,655,204 | 150,000 | 40,805,204 | ||||||||||||||||
Shareholders' equity: | |||||||||||||||||||||||
Preferred stock | — | 169,302 | — | (11) | 169,302 | — | 169,302 | ||||||||||||||||
Common stock | 71,551 | 1,733 | 81,571 | (12) | 154,855 | (1,889 | ) | (16) | 152,966 | ||||||||||||||
Additional paid-in capital | 2,209,860 | 875,797 | 202,252 | (13) | 3,287,909 | (76,111 | ) | (16) | 3,211,798 | ||||||||||||||
Retained earnings | 654,605 | 1,810,701 | (700,020 | ) | (14) | 1,765,286 | — | 1,765,286 | |||||||||||||||
Accumulated other comprehensive income (loss) | (38,507 | ) | 5,481 | 38,507 | (15) | 5,481 | — | 5,481 | |||||||||||||||
Treasury stock and other | — | (246,621 | ) | 246,621 | (13) | — | — | — | |||||||||||||||
Noncontrolling interests in subsidiaries | — | 29,452 | — | 29,452 | — | 29,452 | |||||||||||||||||
Total shareholders' equity | 2,897,509 | 2,645,845 | (131,069 | ) | 5,412,285 | (78,000 | ) | 5,334,285 | |||||||||||||||
Total Liabilities and Shareholders' Equity | $ | 21,800,313 | $ | 24,418,715 | $ | (151,539 | ) | $ | 46,067,489 | $ | 72,000 | $ | 46,139,489 | ||||||||||
Book value per common share | $ | 40.50 | $ | 14.93 | $ | 33.67 | $ | 33.57 | |||||||||||||||
Tangible book value per common share | $ | 24.39 | $ | 13.86 | $ | 24.59 | $ | 24.39 | |||||||||||||||
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements. | |||||||||||||||||||||||
Chemical Financial Corporation and TCF Financial Corporation | |||||||||||||||||||||||
Unaudited Pro Forma Combined Condensed Consolidated Statements of Income | |||||||||||||||||||||||
For the Quarter Ended March 31, 2019 | |||||||||||||||||||||||
Chemical as Reported | TCF as Reported | Pro Forma Adjustments | Pro Forma Chemical and TCF | Capital Actions | Pro Forma Chemical and TCF | ||||||||||||||||||
(Amounts in thousands, except per share data) | |||||||||||||||||||||||
Interest income | $ | 213,981 | $ | 303,245 | $ | 9,335 | (18) | $ | 526,561 | $ | — | $ | 526,561 | ||||||||||
Interest expense | 51,157 | 52,338 | 5,778 | (19) | 109,273 | 1,875 | (23) | 111,148 | |||||||||||||||
Net interest income | 162,824 | 250,907 | 3,557 | 417,288 | (1,875 | ) | 415,413 | ||||||||||||||||
Provision for credit losses | 2,059 | 10,122 | — | 12,181 | — | 12,181 | |||||||||||||||||
Noninterest income | 24,857 | 107,026 | — | 131,883 | — | 131,883 | |||||||||||||||||
Operating expenses | 109,015 | 253,075 | (8,499 | ) | (20) | 353,591 | 25 | (23) | 353,616 | ||||||||||||||
Net income before income tax expenses | 76,607 | 94,736 | 12,056 | 183,399 | (1,900 | ) | 181,499 | ||||||||||||||||
Income tax expense | 13,665 | 21,287 | 2,532 | (21) | 37,484 | (399 | ) | (21) | 37,085 | ||||||||||||||
Net income after income tax expense | 62,942 | 73,449 | 9,524 | 145,915 | (1,501 | ) | 144,414 | ||||||||||||||||
Income attributable to noncontrolling interest | — | 2,955 | — | 2,955 | — | 2,955 | |||||||||||||||||
Net income attributable to Chemical/TCF | 62,942 | 70,494 | 9,524 | 142,960 | (1,501 | ) | 141,459 | ||||||||||||||||
Preferred stock dividends | — | 2,493 | — | 2,493 | — | 2,493 | |||||||||||||||||
Net income attributable to common shareholders | $ | 62,942 | $ | 68,001 | $ | 9,524 | $ | 140,467 | $ | (1,501 | ) | $ | 138,966 | ||||||||||
Net income per common share | |||||||||||||||||||||||
Basic | $ | 0.88 | $ | 0.42 | $ | 0.91 | $ | 0.91 | |||||||||||||||
Diluted | $ | 0.87 | $ | 0.42 | $ | 0.90 | $ | 0.90 | |||||||||||||||
Dividends per share | $ | 0.34 | $ | 0.15 | $ | 0.34 | $ | 0.34 | |||||||||||||||
Average common shares outstanding: | |||||||||||||||||||||||
Basic | 71,474 | 161,865 | (78,561 | ) | (22) | 154,778 | (1,889 | ) | (24) | 152,889 | |||||||||||||
Diluted | 72,141 | 162,428 | (78,838 | ) | (22) | 155,731 | (1,889 | ) | (24) | 153,842 | |||||||||||||
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements. |
Chemical Financial Corporation and TCF Financial Corporation | |||||||||||||||||||||||
Unaudited Pro Forma Condensed Combined Statement of Income | |||||||||||||||||||||||
Year Ended December 31, 2018 | |||||||||||||||||||||||
Chemical Historical | TCF Historical | Pro Forma Adjustments | Pro Forma Chemical and TCF | Capital Actions | Pro Forma Chemical and TCF | ||||||||||||||||||
(Amounts in thousands, except per share data) | |||||||||||||||||||||||
Interest income | $ | 775,996 | $ | 1,142,264 | $ | 34,536 | (18) | $ | 1,952,796 | $ | — | $ | 1,952,796 | ||||||||||
Interest expense | 143,663 | 150,257 | 23,111 | (19) | 317,031 | 7,500 | (23) | 324,531 | |||||||||||||||
Net interest income | 632,333 | 992,007 | 11,425 | 1,635,765 | (7,500 | ) | 1,628,265 | ||||||||||||||||
Provision for credit losses | 30,750 | 46,768 | — | 77,518 | — | 77,518 | |||||||||||||||||
Noninterest income | 148,536 | 470,885 | — | 619,421 | — | 619,421 | |||||||||||||||||
Operating expenses | 424,198 | 1,014,400 | 25,267 | (20) | 1,463,865 | 98 | (23) | 1,463,963 | |||||||||||||||
Net income before income tax expenses | 325,921 | 401,724 | (13,842 | ) | 713,803 | (7,598 | ) | 706,205 | |||||||||||||||
Income tax expense | 41,901 | 86,096 | (2,907 | ) | (21) | 125,090 | (1,596 | ) | (21) | 123,494 | |||||||||||||
Net income after income tax expense | 284,020 | 315,628 | (10,935 | ) | 588,713 | (6,002 | ) | 582,711 | |||||||||||||||
Income attributable to noncontrolling interest | — | 11,270 | — | 11,270 | — | 11,270 | |||||||||||||||||
Net income attributable to Chemical/TCF | 284,020 | 304,358 | (10,935 | ) | 577,443 | (6,002 | ) | 571,441 | |||||||||||||||
Preferred stock dividends | — | 11,588 | — | 11,588 | — | 11,588 | |||||||||||||||||
Impact of preferred stock redemption | — | 3,481 | — | 3,481 | — | 3,481 | |||||||||||||||||
Net income attributable to common shareholders | $ | 284,020 | $ | 289,289 | $ | (10,935 | ) | $ | 562,374 | $ | (6,002 | ) | $ | 556,372 | |||||||||
Net income per common share | |||||||||||||||||||||||
Basic | $ | 3.98 | $ | 1.75 | $ | 3.64 | $ | 3.64 | |||||||||||||||
Diluted | $ | 3.94 | $ | 1.74 | $ | 3.61 | $ | 3.61 | |||||||||||||||
Dividends per share | $ | 1.24 | $ | 0.60 | $ | 1.24 | $ | 1.24 | |||||||||||||||
Average common shares outstanding: | |||||||||||||||||||||||
Basic | 71,338 | 165,585 | (82,296 | ) | (22) | 154,627 | (1,783 | ) | (24) | 152,844 | |||||||||||||
Diluted | 72,025 | 166,562 | (82,777 | ) | (22) | 155,810 | (1,783 | ) | (24) | 154,027 | |||||||||||||
See accompanying notes to unaudited pro forma combined condensed financial statements. |
Chemical Financial Corporation Ownership and Market Value Table (Pro Forma) | |||||||||
Number of Chemical Outstanding Shares (in thousands) | Percentage Ownership | Market Value at $39.59 Chemical Share Price (in thousands) | |||||||
Current Chemical shareholders | 71,551 | 46.2% | $ | 2,832,704 | |||||
Current TCF shareholders | 83,304 | 53.8% | 3,298,005 | ||||||
Total | 154,855 | 100.0% | $ | 6,130,709 |
Hypothetical TCF Ownership | |||||
Number of TCF Outstanding Shares (in thousands) | Percentage Ownership | ||||
Current Chemical shareholders | 140,847 | 46.2% | |||
Current TCF shareholders | 163,951 | 53.8% | |||
Total | 304,798 | 100.0% |
Number of hypothetical TCF shares issued to Chemical shareholders | 140,847 | ||
TCF market price per share as of June 17, 2019 | $ | 19.90 | |
Purchase price determination of hypothetical TCF shares issued to Chemical shareholders | 2,802,855 | ||
Value of Chemical stock options hypothetically converted to options to acquire shares of TCF common stock | 9,000 | ||
Purchase price consideration | $ | 2,811,855 |
Chemical as Reported | Adjustments to Reflect Chemical/TCF Merger | Chemical as Adjusted for Acquisition Accounting | |||||||||||
Fair value of assets acquired: | |||||||||||||
Cash and cash equivalents | $ | 517,576 | $ | — | $ | 517,576 | |||||||
Investment securities | 3,923,573 | 5,096 | (2) | 3,928,669 | |||||||||
Loans held-for-sale | 23,535 | — | 23,535 | ||||||||||
Net loans | 15,213,764 | (176,976 | ) | (3)(4) | 15,036,788 | ||||||||
Premises and equipment, net | 122,452 | (6,600 | ) | (5) | 115,852 | ||||||||
Other intangible assets | 27,195 | 141,069 | (7) | 168,264 | |||||||||
Interest receivable and other assets | 837,650 | 3,558 | (8) | 841,208 | |||||||||
Total assets acquired | 20,665,745 | (33,853 | ) | 20,631,892 | |||||||||
Fair value of liabilities assumed: | |||||||||||||
Deposits | 16,061,999 | (19,351 | ) | (9) | 16,042,648 | ||||||||
Collateralized customer deposits | 413,199 | — | 413,199 | ||||||||||
Interest payable and other liabilities | 261,571 | — | 261,571 | ||||||||||
Short-term borrowings | 1,740,000 | — | 1,740,000 | ||||||||||
Other borrowings | 426,035 | (1,119 | ) | (10) | 424,916 | ||||||||
Total liabilities assumed | 18,902,804 | (20,470 | ) | 18,882,334 | |||||||||
Net assets acquired | 1,762,941 | (13,383 | ) | 1,749,558 | |||||||||
Preliminary pro forma goodwill | $ | 1,062,297 |
(1) | Adjustments to reflect the estimated contractually obligated after-tax merger costs of $45.4 million. |
(2) | Adjustment to Chemical’s held-to-maturity investment securities to reflect the estimated fair value based on estimates of expected cash flows and current interest rates. |
(3) | Adjustment to Chemical’s total loans, net of unrecognized costs, to reflect the estimated fair value of the loan portfolio based on estimates of expected cash flows, which includes credit loss expectations and current interest rates. The net adjustment includes the elimination of net unrecognized loan costs of $22.7 million, establishment of an estimated credit mark of $189.2 million, which is partially offset by reversal of Chemical’s existing credit mark on acquired loans of $25.0 million, and recognition of an estimated interest discount of $100.4 million. |
(4) | Elimination of Chemical’s existing allowance for loan losses. Purchased loans in a business combination are recorded at estimated fair value on the purchase date, and the carryover of the related allowance for loan losses is prohibited. |
(5) | Adjustment to the statement of financial condition to reduce Chemical’s land and buildings to estimated fair value, with a corresponding adjustment to the income statement to reduce depreciation expense over estimated lives of 25-40 years. |
(6) | Adjustments to goodwill to eliminate Chemical’s goodwill of $1.13 billion associated with prior acquisitions and record estimated goodwill associated with the merger of $1.06 billion. |
(7) | Adjustments to other intangible assets to eliminate Chemical’s core deposit intangible assets of $27.2 million associated with prior acquisitions and record estimated core deposit intangible assets associated with the merger of $168.3 million, based on a value of 1.50% of Chemical’s non-time customer deposits. Core deposit intangible assets recorded as a result of the merger are expected to be amortized on an accelerated basis over a period of ten years. |
(8) | Adjustment to net deferred tax assets to reflect the effects of the acquisition accounting adjustments. |
(9) | Adjustment to reflect the estimated fair value of Chemical’s interest-bearing time deposits based on market interest rates for similar instruments. |
(10) | Adjustment of $4.0 million primarily related to reducing Chemical’s $410 million of long-term FHLB advances included in other borrowings to estimated fair value and adjustment of $2.8 million to increase Chemical’s $15.9 million of trust preferred securities included in other borrowings to estimated fair value. |
(11) | No adjustment needed as each share of TCF 5.70% Series C Non-Cumulative Perpetual Preferred Stock issued and outstanding immediately prior to the merger date will be converted into one share of a newly created series of preferred stock of Chemical. |
(12) | Adjustment to reflect the issuance of 83.3 million common shares of Chemical common stock with $1.00 par value per share in connection with the merger and eliminating 173.3 million issued common shares of TCF common stock with $0.01 par value per share. |
(13) | Adjustments to eliminate Chemical’s additional paid in capital of $2.21 billion, record the hypothetical issuance of TCF common stock in excess of par value of $2.73 billion, which represents the purchase price consideration of $2.81 billion less $83.3 million classified as $1.00 par value common stock, and reclassify TCF’s historical equity accounts (common stock and treasury stock) into surplus due to the elimination of TCF’s common stock. |
(14) | Adjustment to eliminate historical retained earnings of Chemical of $654.6 million and recognize contractually obligated after-tax merger costs of $45.4 million. |
(15) | Adjustment to eliminate historical accumulated other comprehensive income of Chemical. |
(16) | Adjustment to reflect TCF’s repurchases of $78.1 million of its common stock before the closing of the merger, representing the completion of its existing authorized share repurchase plan. Approximately 3.5 million shares are assumed to be repurchased by TCF at an average price of $22.23 per share, with the adjustment reflected in the pro forma based on the merger exchange ratio of 0.5081. |
(17) | Adjustment to reflect issuance of $150 million of subordinated notes, net of estimated fees of $1.0 million, which subordinated notes are anticipated to be offered by TCF National Bank in June 2019. Fees associated with the issuance of such subordinated notes are capitalized and amortized over the life of the notes of ten years. |
(18) | Net adjustment to interest income to recognize estimated discount loan accretion of $8.5 million for the three months ended March 31, 2019 and $31.6 million for the year ended December 31, 2018 attributable to recording the Chemical loans at fair value as of the transaction date. Adjustment also includes estimated interest accretion of $0.8 million for the three months ended March 31, 2019 and $2.9 million for the year ended December 31, 2018 associated with recording Chemical’s investment securities at fair value. The discount loan accretion and investment securities accretion are expected to accrete over a period of approximately seven years on an accelerated basis. |
(19) | Net adjustment to interest expense to record estimated net amortization of premiums on Chemical’s time deposits and |
(20) | Adjustment to eliminate Chemical’s amortization of core deposit intangible asset amortization of $1.4 million for the three months ended March 31, 2019 and $5.7 million for the year ended December 31, 2018 and recognize estimated core deposit intangible asset amortization of $7.8 million for the three months ended March 31, 2019 and $31.2 million for the year ended December 31, 2018. See pro forma adjustment (7) above for information regarding Chemical’s amortization of core deposit intangible assets. Chemical is still in the process of evaluating the fair value of the intangible assets. Any resulting change in the fair value would have a direct impact on amortization expense. Amortization expense of the core deposit intangible assets for the first five years following the completion of the merger is estimated as follows: Year 1-$31.2 million; Year 2-$27.9 million; Year 3-$24.6 million; Year 4-$21.3 million; and Year 5-$18.1 million. |
(21) | Adjustment to recognize the tax impact of pro forma transaction-related adjustments at 21%. |
(22) | Adjustment to eliminate TCF’s average common shares outstanding and recognize the issuance of 83.3 million shares of Chemical common stock based on TCF’s 163.95 million common shares outstanding at March 31, 2019 and 163.9 million common shares outstanding at December 31, 2018 and the merger exchange ratio of 0.5081. Average diluted shares outstanding also include the effect of dilutive nonparticipating restricted stock outstanding during the three months ended March 31, 2019 and dilutive nonparticipating restricted stock and stock options outstanding during the year ended December 31, 2018, adjusted for the merger exchange ratio of 0.5081. |
(23) | Adjustment to recognized interest expense associated with TCF National Bank’s issuance of $150 million of subordinated notes, which subordinated notes are anticipated to be offered by TCF National Bank in June 2019 at an assumed interest rate of 5.0%. Adjustment to operating expenses to recognize amortization of $1.0 million of expected financing costs associated with issuance over a period of ten years. A 0.125% increase or decrease in the assumed interest rate would result in a change in interest expense associated with these subordinated notes of $0.05 million for the three months ended March 31, 2019 and $0.2 million for the year ended December 31, 2018. |
(24) | Adjustment to reduce TCF’s common shares outstanding for repurchase of 3.5 million shares of its common stock before the closing of the merger, as discussed in pro forma adjustment (16) above, adjusted for the merger exchange ratio of 0.5081. |