TCF combines with Chemical Financial; will take TCF name, Detroit HQ

TCF Financial Corp., which rose out of a troubled Minneapolis thrift 30 years ago to become the state's third-largest bank, on Monday said it would merge with the largest Michigan-based bank, Chemical Financial Corp., for more heft as both face the digital future.

The combined firm will take TCF's name, but its power base will shift to Detroit, where Chemical Financial is building a new 20-story headquarters across from the Detroit Tigers' home, Comerica Park.

TCF customers will see few immediate changes. Its name will remain atop the University of Minnesota's football stadium, and its branches will continue to stretch from Grand Rapids to Winona.

But jobs may eventually be cut at its main corporate office in Wayzata and large operations center in Plymouth. Executives told investors they expect to be able to trim about 13 percent of the two firms' combined operating costs. They will also be able to spread costs for new products and services across a larger customer base.

"By coming together, we are able to accelerate the growth of our business in a way neither company could have done alone in the near term," said Craig Dahl, who has led TCF for three years and will become chief executive of the combined firm.

The deal comes after TCF and Chemical took major steps that improved performance. Both firms separately on Monday reported results for the last three months of 2018 that beat analysts' expectations. Finding a merger partner was the next logical step to make themselves more valuable to investors. Shares in both companies rose more than 5 percent Monday, a day when broad market indexes fell about 1 percent.

"Business destruction is not part of the story," Dahl said. "One plus one can be more than two. Scale becomes more important every day."

The combined firm will be the ninth-largest bank in the Midwest with assets of about $45 billion and about 500 branches in nine states. TCF stretches from Denver to Detroit, with large concentrations of banks in the Twin Cities and Chicago. In Minnesota, it is the No. 3 bank after U.S. Bank and Wells Fargo.

Chemical Financial, which got its start in Midland, Mich., operates throughout Michigan and portions of Ohio.

Though billed as a merger of equals, Chemical Financial will buy out TCF shareholders in a stock swap based on TCF's $3.6 billion value on Friday, the last trading day before the deal was announced. The combined firm will have a board of 16 directors, eight from each company, including Vance Opperman, the lead independent director of TCF.

Senior executive duties will be similarly split. Chemical Financial's chief executive, David Provost, will become chairman of the combined firm.

In an interview, Dahl, who is 64, said he agreed to a three-year contract with the ongoing firm and will split time between the Twin Cities and Detroit. He took over day-to-day leadership of TCF in January 2016 from Bill Cooper, who was hired as an accountant at Twin City Federal Savings and Loan in 1985 and helped rescue it from near death.

Cooper took the company public in 1986 and led it for the next three decades as TCF built profits around basic banking services. Over time, the company sprung out from the Twin Cities metro area and into six other states.

When Dahl took over, TCF was wrestling with another difficulty in its loan portfolio. The company in 2011 bought a national auto-loan origination business that, by 2016, turned into a drag on its broader performance. Over the past three years, the bank sold those loans, reducing its risk and smoothing out its profits. In 2017, TCF's stock price broke above $20 per share for the first time since the 2008 recession.

Chemical Financial, meanwhile, in 2016 purchased another sizable Michigan bank, Talmer Bancorp, and moved from Midland to Detroit.

Both firms, along with other longtime banks, are adapting to shifting habits of consumers and business customers who are growing more comfortable with financial transactions on smartphones and other digital devices. That change in behavior is also giving rise to new competitors, including other consumer brands that offer app-based financial services.

The merger "substantially enhances our competitive position," Chemical Financial's Provost told investors.

The two firms' loan portfolios hold little overlap. TCF is more focused on consumer real estate and some specialized financing lines, such as inventory finance, while Chemical Financial has a proportionately larger reach into commercial and business loans.

"The complementary nature of these two franchises and Chemical Financial management's solid execution track record should limit integration risk," Nathan Race, an analyst at Minneapolis-based Piper Jaffray, wrote in a note to investors.

TCF said there is no change in its long-term naming-rights contract on the University of Minnesota football stadium.

A spokeswoman said the company's community support also will be unaffected.

In 2018, TCF Foundation granted nearly $2.5 million to 650 nonprofits throughout its seven-state territory, plus $500,000 through employee philanthropic collaborations.

TCF also said it provided financial-literacy programs last year to more than 200,000 high school students and that it has over 14 years provided $1.4 million in scholarships to students at the U through its naming-rights agreement and more than $20 million in student-service programs.

Patrick Kennedy • 612-673-7926 Neal St. Anthony • 612-673-7144