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Chemical Financial Corporation Reports 2016 Second Quarter Operating Results

Company Release - 7/26/2016 4:01 PM ET

MIDLAND, Mich., July 26, 2016 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2016 second quarter net income of $25.7 million, or $0.67 per diluted share, compared to 2016 first quarter net income of $23.3 million, or $0.60 per diluted share and 2015 second quarter net income of $19.0 million, or $0.54 per diluted share. Net income was $49.0 million, or $1.27 per diluted share, for the six months ended June 30, 2016, compared to $36.9 million, or $1.08 per diluted share, for the six months ended June 30, 2015.

Merger and acquisition-related transaction expenses ("transaction expenses") attributable to the pending merger with Talmer Bancorp, Inc. ("Talmer"), which was announced on January 26, 2016, were $3.1 million in the second quarter of 2016, $2.6 million in the first quarter of 2016 and $5.6 million for the six months ended June 30, 2016, while transaction expenses attributable to the April 1, 2015 acquisition of Monarch Community Bancorp, Inc. ("Monarch") and the May 31, 2015 acquisition of Lake Michigan Financial Corporation ("Lake Michigan") were $3.5 million and $4.8 million for the three- and six- month periods ended June 30, 2015, respectively. Excluding transaction expenses, net income in the second quarter of 2016 was $27.7 million, or $0.72 per diluted share, compared to $24.9 million, or $0.65 per diluted share, in the first quarter of 2016 and $21.7 million, or $0.61 per diluted share, in the second quarter of 2015. Net income, excluding transaction expenses, was $52.6 million, or $1.37 per diluted share, for the six months ended June 30, 2016, compared to $40.4 million, or $1.18 per diluted share, for the six months ended June 30, 2015.

"We are pleased to report another quarter of solid financial results, with second quarter per share net income growing by double-digit annual rates, excluding transaction expenses, over last year’s second quarter. This sustained growth is not only reflective of the efforts of the extended Chemical team, but also of the reception of our products and community banking philosophy among the communities and customers we serve," noted David B. Ramaker, Chairman, Chief Executive Officer and President of Chemical Financial Corporation.

"Interest income in the quarter was aided by the loan interest accretion attributable to the higher than anticipated credit quality of the Byron Bank and Northwestern Bank acquired portfolios," added Ramaker. "Our ability to continue to execute at a high level while a significant portion of our senior management team concentrates on past and pending mergers and acquisitions is a testament to our core banking team’s focus on serving our customers."

The Corporation's return on average assets was 1.11% during the second quarter of 2016, compared to 1.01% in the first quarter of 2016 and 0.94% in the second quarter of 2015. The Corporation's return on average shareholders' equity was 10.0% in the second quarter of 2016, compared to 9.2% in the first quarter of 2016 and 8.6% in the second quarter of 2015. Excluding transaction expenses, the Corporation's return on average assets was 1.19% during the second quarter of 2016, compared to 1.09% in the first quarter of 2016 and 1.07% in the second quarter of 2015 and the Corporation's return on average shareholders' equity was 10.8% in the second quarter of 2016, compared to 9.9% in the first quarter of 2016 and 9.8% in the second quarter of 2015.

Net interest income was $77.5 million in the second quarter of 2016, $3.2 million, or 4.3%, higher than the first quarter of 2016 and $11.8 million, or 18%, higher than the second quarter of 2015. The increase in net interest income in the second quarter of 2016, compared to the first quarter of 2016, was primarily attributable to loan growth in the second quarter of 2016 and an increase in the amount of interest accretion recognized on acquired loans resulting from improvements in expected cash flows from certain pools of acquired loans. During the second quarter of 2016, the Corporation transferred $10 million of nonaccretable discount to accretable yield due to lower expected losses on loans acquired in both the 2010 acquisition of OAK Financial Corporation and the 2014 acquisition of Northwestern Bancorp, Inc. The Corporation's net interest income included $2.5 million of interest accretion on acquired loans in the second quarter of 2016, compared to $0.7 million in the first quarter of 2016 and $0.8 million in the second quarter of 2015. The increase in net interest income in the second quarter of 2016 over the second quarter of 2015 was primarily attributable to the positive impact of organic loan growth and the impact of the Corporation's acquisition of Lake Michigan.

The net interest margin (on a tax-equivalent basis) was 3.70% in the second quarter of 2016, compared to 3.60% in the first quarter of 2016 and 3.59% in the second quarter of 2015. The average yield on the loan portfolio was 4.19% in the second quarter of 2016, compared to 4.13% in the first quarter of 2016 and 4.17% in the second quarter of 2015. Interest accretion on acquired loans contributed 11 basis points to the Corporation's net interest margin in the second quarter of 2016, compared to 3 basis points in the first quarter of 2016 and 4 basis points in the second quarter of 2015. Interest accretion on acquired loans comprised 13 basis points of the yield on the Corporation's loan portfolio in the second quarter of 2016, compared to 4 basis points in the first quarter of 2016 and 5 basis points in the second quarter of 2015. The average yield of the investment securities portfolio was 2.34% in the second quarter of 2016, compared to 2.29% in the first quarter of 2016 and 2.03% in the second quarter of 2015. The Corporation's average cost of funds was 0.27% in the second quarter of 2016, compared to 0.25% in the first quarter of 2016 and 0.22% in the second quarter of 2015.

The provision for loan losses was $3.0 million in the second quarter of 2016, compared to $1.5 million in both the first quarter of 2016 and the second quarter of 2015. The increase in the provision for loan losses was due to loan growth, with loans in the Corporation's originated loan portfolio up $377 million during the second quarter of 2016. Net loan charge-offs were $1.8 million, or 0.10% of average loans, in the second quarter of 2016, compared to $4.5 million, or 0.25% of average loans, in the first quarter of 2016 and $1.8 million, or 0.12% of average loans, in the second quarter of 2015. Net loan charge-offs in the second quarter of 2016 and in the first quarter of 2016 included $1.0 million and $2.9 million, respectively, of losses from one commercial loan relationship.

The Corporation's nonperforming loans, consisting of nonaccrual loans, accruing loans past due 90 days or more as to principal or interest payments and nonperforming troubled debt restructurings, totaled $62.0 million at June 30, 2016, compared to $73.3 million at March 31, 2016 and $70.9 million at June 30, 2015. The $11.3 million, or 15%, decrease in nonperforming loans during the second quarter of 2016 was attributable to a combination of $6.4 million of principal paydowns, $3.9 million of nonaccrual loans being upgraded to accruing status during the quarter, and net loan charge-offs. Nonperforming loans comprised 0.81% of total loans at June 30, 2016, compared to 0.99% at March 31, 2016 and 1.01% at June 30, 2015.

At June 30, 2016, the allowance for loan losses of the originated loan portfolio was $71.5 million, or 1.12% of originated loans, compared to $70.3 million, or 1.17% of originated loans, at March 31, 2016 and $74.9 million, or 1.40% of originated loans, at June 30, 2015. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 115% at June 30, 2016, compared to 96% at March 31, 2016 and 106% at June 30, 2015.

Noninterest income was $20.9 million in the second quarter of 2016, compared to $19.4 million in the first quarter of 2016 and $20.7 million in the second quarter of 2015. Noninterest income in the second quarter of 2016 was higher than the first quarter of 2016, due primarily to higher seasonal trust fees from the preparation of trust tax returns and higher seasonal overdraft fees. Mortgage banking revenue was $0.2 million higher in the second quarter of 2016, compared to the first quarter of 2016, due to an increase in gains from the sales of residential mortgages, which was partially offset by a $0.4 million impairment of the Corporation's mortgage servicing asset resulting from the recent decline in market interest rates.

Operating expenses were $59.1 million in the second quarter of 2016, compared to $58.9 million in the first quarter of 2016 and $56.8 million in the second quarter of 2015. Operating expenses included transaction expenses of $3.1 million in the second quarter of 2016, $2.6 million in the first quarter of 2016 and $3.5 million in the second quarter of 2015. Excluding these transaction expenses, operating expenses were $56.0 million in the second quarter of 2016, $0.3 million lower than the first quarter of 2016 and $2.7 million, or 5%, higher than the second quarter of 2015. The decrease in operating expenses in the second quarter of 2016, compared to the first quarter of 2016, was primarily attributable to a $0.7 million reduction in payroll tax expenses (these are highest in the first quarter of the year) and a $1.4 million reduction in credit related expenses. The reduction in credit related expenses was driven by higher gains from the sale of other real estate properties and a $0.7 million gain resulting from the receipt of life insurance proceeds on a policy the Corporation had previously obtained as collateral on a loan. These decreases were partially offset by $1.1 million of higher outside services expense and a $1.0 million write-down included in occupancy expenses associated with the closure of several branch locations during the quarter. A portion of the increase in outside services during the quarter was attributable to the seasonal trust fees described above and increases in various project costs, many of which have been accelerated to complete them in advance of the pending Talmer merger.

The Corporation's efficiency ratio was 55.1% in the second quarter of 2016, 58.8% in the first quarter of 2016 and 60.5% in the second quarter of 2015.

Total assets were $9.51 billion at June 30, 2016, compared to $9.30 billion at March 31, 2016 and $9.02 billion at June 30, 2015. The increase in total assets during the three months ended June 30, 2016 was attributable to loan growth that was largely funded by an increase in Federal Home Loan Bank (FHLB) advances. The increase in total assets during the twelve months ended June 30, 2016 was also attributable to loan growth that was funded by a combination of organic growth in customer deposits, an increase in FHLB advances and proceeds from maturing investment securities. Investment securities were $1.01 billion at June 30, 2016, compared to $1.03 billion at March 31, 2016 and $1.16 billion at June 30, 2015.

Total loans were $7.65 billion at June 30, 2016, up $280 million, or 3.8%, from total loans of $7.37 billion at March 31, 2016 and up $613 million, or 8.7%, from total loans of $7.03 billion at June 30, 2015. During the second quarter of 2016, consumer installment loans grew $151 million, commercial real estate and real estate construction loans grew $58 million, residential mortgage loans grew $33 million, commercial loans grew $31 million and home equity loans grew $7 million.

Total deposits were $7.46 billion at June 30, 2016, compared to $7.65 billion at March 31, 2016 and $7.29 billion at June 30, 2015. The decrease in deposits during the second quarter of 2016 was primarily attributable to a $183 million decline in seasonal municipal deposit accounts. The increase in total deposits during the twelve months ended June 30, 2016 was attributable to organic growth in customer deposits of $268 million, or 3.8%, which was partially offset by a decrease of $96 million related to maturing brokered deposits that were acquired in the Lake Michigan transaction.

Securities sold under agreements to repurchase with customers were $256 million at June 30, 2016, compared to $283 million at March 31, 2016 and $305 million at June 30, 2015. Short-term borrowings were $300 million at June 30, 2016 and $227 million at June 30, 2015 (there were none at March 31, 2016) and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs. Long-term borrowings were $372 million at June 30, 2016, compared to $274 million at March 31, 2016 and $148 million at June 30, 2015. The increase in short-term and long-term borrowings during the second quarter of 2016 was attributable to the Corporation's liquidity needs to replace the seasonal decrease in municipal deposit accounts and to partially fund loan growth. During the second quarter of 2016, the Corporation borrowed $100 million of long-term FHLB advances that mature in three years at a fixed rate of 1.00%.

At June 30, 2016, the Corporation's tangible equity to tangible assets ratio and total risk-based capital ratio were 8.2% and 11.4%, respectively, compared to 8.2% and 11.5%, respectively, at March 31, 2016 and 7.8% and 11.6%, respectively, at June 30, 2015. At June 30, 2016, the Corporation's book value was $27.45 per share, compared to $26.99 per share at March 31, 2016 and $25.74 per share at June 30, 2015. At June 30, 2016, the Corporation's tangible book value was $19.68 per share, compared to $19.20 per share at March 31, 2016 and $17.89 per share at June 30, 2015.

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include the Corporation's tangible equity to tangible assets ratio, tangible book value per share, presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and information presented excluding transaction expenses, including net income, diluted earnings per share, return on average assets, return on average shareholders' equity and operating expenses. These non-GAAP financial measures have been included as the Corporation believes they are helpful for investors to analyze and evaluate the Corporation's financial condition. Reconciliations of non-GAAP financial measures may be found in the financial tables included with this press release.

Chemical Financial Corporation will host a conference call to discuss its second quarter 2016 operating results on Wednesday, July 27, 2016, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-800-930-7709 and entering 485377 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbankmi.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

Chemical Financial Corporation is the second largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 175 banking offices spread over 47 counties in Michigan. At June 30, 2016, the Corporation had total assets of $9.5 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issues comprising The NASDAQ Global Select Market. More information about the Corporation is available by visiting the investor relations section of its website at www.chemicalbankmi.com.

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and the Corporation. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "plans," "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, statements related to future levels of loan charge-offs, future levels of provisions for loan losses, real estate valuation, future levels of nonperforming assets, the rate of asset dispositions, future capital levels, future dividends, future growth and funding sources, future liquidity levels, future profitability levels, future deposit insurance premiums, future asset levels, the effects on earnings of future changes in interest rates, the future level of other revenue sources, future economic trends and conditions, future initiatives to expand the Corporation’s market share, expected performance and cash flows from acquired loans, future effects of new or changed accounting standards, future opportunities for acquisitions, opportunities to increase top line revenues, the Corporation’s ability to grow its core franchise, future cost savings and the Corporation’s ability to maintain adequate liquidity and capital based on the requirements adopted by the Basel Committee on Banking Supervision and U.S. regulators. All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on the Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

This press release also contains forward-looking statements regarding Chemical's outlook or expectations with respect to its planned merger with Talmer Bancorp, Inc. ("Talmer"), the expected costs to be incurred in connection with the transaction, the expected impact of the transaction on Chemical's future financial performance and consequences of the integration of Talmer into Chemical.

Risk factors relating both to the transaction and the integration of Talmer into Chemical after closing include, without limitation:

  • Completion of the transaction is dependent on, among other things, receipt of regulatory approvals, the timing of which cannot be predicted with precision at this point and which may not be received at all.
  • The impact of the completion of the transaction on Chemical's financial statements will be affected by the timing of the transaction.
  • The transaction may be more expensive to complete and the anticipated benefits, including anticipated cost savings and strategic gains, may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events.
  • The integration of Talmer’s business and operations into Chemical, which will include conversion of Talmer’s operating systems and procedures, may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Chemical's or Talmer’s existing businesses.
  • Chemical’s ability to achieve anticipated results from the transaction is dependent on the state of the economic and financial markets going forward. Specifically, Chemical may incur more credit losses than expected and customer and employee attrition may be greater than expected.
  • The outcome of pending or threatened litigation, whether currently existing or commencing in the future, including litigation related to the transaction.
  • The effect of divestitures that may be required by regulatory authorities in certain markets in which Chemical and Talmer compete.
  • The challenges of integrating, retaining and hiring key personnel.
  • Failure to attract new customers and retain existing customers in the manner anticipated.

In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of Chemical's Annual Report on Form 10-K for the year ended December 31, 2015. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

 
Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
         
  June 30,
 2016
 March 31,
 2016
 December 31,
 2015
 June 30,
 2015
                 
Assets        
Cash and cash equivalents:        
Cash and cash due from banks $179,310  $168,739  $194,136  $167,054 
Interest-bearing deposits with the Federal Reserve Bank (FRB) and other banks 53,650  122,635  44,653  47,980 
Total cash and cash equivalents 232,960  291,374  238,789  215,034 
Investment securities:        
Available-for-sale 458,552  514,015  553,731  685,706 
Held-to-maturity 552,828  518,300  509,971  469,837 
Total investment securities 1,011,380  1,032,315  1,063,702  1,155,543 
Loans held-for-sale 13,990  9,667  10,327  7,798 
Loans:        
Total loans 7,647,269  7,366,885  7,271,147  7,034,743 
Allowance for loan losses (71,506) (70,318) (73,328) (74,941)
Net loans 7,575,763  7,296,567  7,197,819  6,959,802 
Premises and equipment 102,709  105,868  106,317  111,968 
Goodwill 286,867  286,867  287,393  285,512 
Other intangible assets 34,270  36,266  38,104  41,201 
Interest receivable and other assets 256,233  244,708  246,346  243,867 
Total Assets $9,514,172  $9,303,632  $9,188,797  $9,020,725 
Liabilities        
Deposits:        
Noninterest-bearing $2,007,629  $1,951,193  $1,934,583  $1,860,863 
Interest-bearing 5,457,017  5,698,923  5,522,184  5,432,116 
Total deposits 7,464,646  7,650,116  7,456,767  7,292,979 
Interest payable and other liabilities 71,417  64,120  76,466  66,174 
Securities sold under agreements to repurchase with customers 256,213  283,383  297,199  305,291 
Short-term borrowings 300,000    100,000  227,000 
Long-term borrowings 371,597  273,722  242,391  148,490 
Total liabilities 8,463,873  8,271,341  8,172,823  8,039,934 
Shareholders' Equity        
Preferred stock, no par value per share        
Common stock, $1 par value per share 38,267  38,248  38,168  38,110 
Additional paid-in capital 727,145  725,874  725,280  722,329 
Retained earnings 310,585  294,859  281,558  251,456 
Accumulated other comprehensive loss (25,698) (26,690) (29,032) (31,104)
Total shareholders' equity 1,050,299  1,032,291  1,015,974  980,791 
Total Liabilities and Shareholders' Equity $9,514,172  $9,303,632  $9,188,797  $9,020,725 
                 


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
     
  Three Months Ended Six Months Ended
  June 30,
2016
 March 31,
2016
 June 30,
2015
 June 30,
2016
 June 30,
2015
           
Interest Income          
Interest and fees on loans $77,578  $74,401  $64,613  $151,979  $122,710 
Interest on investment securities:          
Taxable 1,798  1,929  2,202  3,727  4,509 
Tax-exempt 2,640  2,665  2,185  5,305  4,091 
Dividends on nonmarketable equity securities 777  256  551  1,033  749 
Interest on deposits with the FRB and other banks 144  213  128  357  250 
Total interest income 82,937  79,464  69,679  162,401  132,309 
Interest Expense          
Interest on deposits 4,260  4,059  3,630  8,319  6,982 
Interest on short-term borrowings 226  100  101  326  199 
Interest on long-term borrowings 956  975  213  1,931  213 
Total interest expense 5,442  5,134  3,944  10,576  7,394 
Net Interest Income 77,495  74,330  65,735  151,825  124,915 
Provision for loan losses 3,000  1,500  1,500  4,500  3,000 
Net interest income after provision for loan losses 74,495  72,830  64,235  147,325  121,915 
Noninterest Income          
Service charges and fees on deposit accounts 6,337  5,720  6,445  12,057  12,361 
Wealth management revenue 5,782  5,201  5,605  10,983  10,676 
Other charges and fees for customer services 6,463  6,392  6,516  12,855  12,506 
Mortgage banking revenue 1,595  1,405  1,688  3,000  3,091 
Gain on sale of investment securities 18  19  28  37  607 
Other 702  682  392  1,384  708 
Total noninterest income 20,897  19,419  20,674  40,316  39,949 
Operating Expenses          
Salaries, wages and employee benefits 33,127  33,890  31,711  67,017  60,964 
Occupancy 5,514  4,905  4,386  10,419  8,812 
Equipment and software 4,875  4,404  4,480  9,279  8,878 
Merger and acquisition-related transaction expenses (transaction expenses) 3,054  2,594  3,457  5,648  4,819 
Other 12,515  13,094  12,751  25,609  24,332 
Total operating expenses 59,085  58,887  56,785  117,972  107,805 
Income before income taxes 36,307  33,362  28,124  69,669  54,059 
Federal income tax expense 10,600  10,100  9,100  20,700  17,200 
Net Income $25,707  $23,262  $19,024  $48,969  $36,859 
Earnings Per Common Share:          
Weighted average common shares outstanding for basic earnings per share 38,258  38,198  35,162  38,228  33,992 
Weighted average common shares outstanding for diluted earnings per share, including common stock equivalents 38,600  38,521  35,397  38,560  34,227 
Basic earnings per share $0.67  $0.61  $0.54  $1.28  $1.08 
Diluted earnings per share 0.67  0.60  0.54  1.27  1.08 
           
Cash Dividends Declared Per Common Share 0.26  0.26  0.24  0.52  0.48 
           
Key Ratios (annualized where applicable):          
Return on average assets 1.11% 1.01% 0.94% 1.06% 0.96%
Return on average shareholders' equity 10.0% 9.2% 8.6% 9.6% 8.8%
Net interest margin 3.70% 3.60% 3.59% 3.65% 3.57%
Efficiency ratio 55.1% 58.8% 60.5% 56.9% 61.4%
                


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
             
  2nd
Quarter
2016
 1st
Quarter
2016
 4th
Quarter
2015
 3rd
Quarter
2015
 2nd
Quarter
2015
 1st
Quarter
2015
                           
Summary of Operations            
Interest income $82,937  $79,464  $80,629  $78,851  $69,679  $62,630 
Interest expense 5,442  5,134  5,153  5,234  3,944  3,450 
Net interest income 77,495  74,330  75,476  73,617  65,735  59,180 
Provision for loan losses 3,000  1,500  2,000  1,500  1,500  1,500 
Net interest income after provision for loan losses 74,495  72,830  73,476  72,117  64,235  57,680 
Noninterest income 20,897  19,419  20,052  20,215  20,674  19,275 
Operating expenses, excluding transaction expenses (non-GAAP) 56,031  56,293  55,739  57,365  53,328  49,658 
Transaction expenses 3,054  2,594  2,085  900  3,457  1,362 
Income before income taxes 36,307  33,362  35,704  34,067  28,124  25,935 
Federal income tax expense 10,600  10,100  10,200  9,600  9,100  8,100 
Net income $25,707  $23,262  $25,504  $24,467  $19,024  $17,835 
Net income, excluding transaction expenses $27,692  $24,948  $26,859  $25,052  $21,683  $18,720 
             
Per Common Share Data            
Net income:            
Basic $0.67  $0.61  $0.67  $0.64  $0.54  $0.54 
Diluted 0.67  0.60  0.66  0.64  0.54  0.54 
Diluted, excluding transaction expenses 0.72  0.65  0.70  0.65  0.61  0.57 
Cash dividends declared 0.26  0.26  0.26  0.26  0.24  0.24 
Book value - period-end 27.45  26.99  26.62  26.18  25.74  24.68 
Tangible book value - period-end 19.68  19.20  18.78  18.32  17.89  18.95 
Market value - period-end 37.29  35.69  34.27  32.35  33.06  31.36 
             
Key Ratios (annualized where applicable)            
Net interest margin (taxable equivalent basis) 3.70% 3.60%  3.64% 3.55% 3.59% 3.55%
Efficiency ratio 55.1% 58.8%  57.1% 59.9% 60.5% 62.4%
Return on average assets 1.11% 1.01%  1.10% 1.05% 0.94% 0.98%
Return on average shareholders' equity 10.0% 9.2%  10.1% 9.8% 8.6% 9.0%
Average shareholders' equity as a percent of average assets 11.1% 11.0% 10.9% 10.7% 10.9% 10.8%
Capital ratios (period end):                          
Tangible shareholders' equity as a percent of tangible assets 8.2% 8.2% 8.1% 7.8% 7.8% 8.5%
Total risk-based capital ratio 11.4% 11.5% 11.8% 11.6% 11.6% 13.0%
             


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates* (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
   
  Three Months Ended
  June 30, 2016 March 31, 2016 June 30, 2015
  Average
Balance
 Interest (FTE) Effective
Yield/ Rate*
 Average
Balance
 Interest (FTE) Effective
Yield/ Rate*
 Average
Balance
 Interest (FTE) Effective
Yield/ Rate*
                   
Assets                  
Interest-earning assets:                  
Loans:**                  
Commercial $1,940,197  $20,711  4.29% $1,901,879  $19,774  4.18% $1,516,520  $16,176  4.28%
Commercial real estate and real estate construction 2,419,187  30,035  4.99  2,361,105  28,254  4.81  1,979,578  24,034  4.87 
Residential mortgage 1,485,267  13,805  3.72  1,453,420  13,588  3.74  1,220,291  11,872  3.89 
Consumer installment and home equity 1,666,541  13,744  3.32  1,583,067  13,483  3.43  1,556,425  13,145  3.39 
Total loans 7,511,192  78,295  4.19  7,299,471  75,099  4.13  6,272,814  65,227  4.17 
Taxable investment securities 515,303  1,798  1.40  554,524  1,929  1.39  698,521  2,202  1.26 
Tax-exempt investment securities 484,271  4,061  3.35  496,304  4,100  3.30  396,295  3,361  3.39 
Other interest-earning assets 43,615  777  7.16  39,493  256  2.61  34,269  551  6.45 
Interest-bearing deposits with the FRB and other banks 82,246  144  0.70  136,919  213  0.63  132,834  128  0.39 
Total interest-earning assets 8,636,627  85,075  3.96  8,526,711  81,597  3.84  7,534,733  71,469  3.80 
Less: allowance for loan losses 71,790      73,547      75,079     
Other assets:                  
Cash and cash due from banks 148,034      158,277      148,950     
Premises and equipment 104,488      105,959      103,907     
Interest receivable and other assets 515,039      523,634      404,627     
Total assets $9,332,398      $9,241,034      $8,117,138     
Liabilities and Shareholders' Equity                
Interest-bearing liabilities:                  
Interest-bearing demand deposits $1,892,512  $582  0.12% $1,953,626  $468  0.10% $1,539,348  $291  0.08%
Savings deposits 2,073,412  476  0.09  2,048,867  389  0.08  1,951,477  360  0.07 
Time deposits 1,582,467  3,202  0.81  1,625,573  3,202  0.79  1,490,753  2,979  0.80 
Short-term borrowings 418,232  226  0.22  349,699  100  0.12  398,197  101  0.10 
Long-term borrowings 281,327  956  1.37  266,022  975  1.47  62,901  213  1.36 
Total interest-bearing liabilities 6,247,950  5,442  0.35  6,243,787  5,134  0.33  5,442,676  3,944  0.29 
Noninterest-bearing deposits 1,979,423      1,906,896      1,727,850     
Total deposits and borrowed funds 8,227,373  5,442  0.27  8,150,683  5,134  0.25  7,170,526  3,944  0.22 
Interest payable and other liabilities 72,011      72,422      61,749     
Shareholders' equity 1,033,014      1,017,929      884,863     
Total liabilities and shareholders' equity $9,332,398      $9,241,034      $8,117,138     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)     3.61%     3.51%     3.51%
Net Interest Income (FTE)   $79,633       $76,463       $67,525    
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.70%     3.60%     3.59%
                      


*Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry. The adjustments to determine tax equivalent net interest income were $2.1 million, $2.1 million and $1.8 million for the three months ended June 30, 2016, March 31, 2016 and June 30, 2015, respectively.
**Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.
  


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates* (Unaudited)
Chemical Financial Corporation
   
  Six Months Ended
  June 30, 2016 June 30, 2015
  Average
Balance
 Interest
(FTE)
 Effective
Yield/
Rate*
 Average
Balance
 Interest
(FTE)
 Effective
Yield/
Rate*
Assets (Dollars in thousands)
Interest-earning assets:            
Loans:**            
Commercial $1,921,038  $40,485  4.24% $1,435,204  $30,332  4.26%
Commercial real estate and real estate construction 2,390,146  58,289  4.90  1,855,943  44,887  4.88 
Residential mortgage 1,469,344  27,393  3.73  1,172,014  22,853  3.90 
Consumer installment and home equity 1,624,804  27,227  3.37  1,527,838  25,815  3.41 
Total loans 7,405,332  153,394  4.16  5,990,999  123,887  4.16 
Taxable investment securities 534,914  3,727  1.39  716,606  4,509  1.26 
Tax-exempt investment securities 490,287  8,161  3.33  364,264  6,293  3.46 
Other interest-earning assets 41,554  1,033  5.00  31,867  749  4.74 
Interest-bearing deposits with the FRB and other banks 109,582  357  0.66  125,694  250  0.40 
Total interest-earning assets 8,581,669  166,672  3.90  7,229,430  135,688  3.78 
Less: allowance for loan losses 72,669      75,477     
Other assets:            
Cash and cash due from banks 153,156      143,658     
Premises and equipment 105,223      100,525     
Interest receivable and other assets 519,337      363,040     
Total assets $9,286,716      $7,761,176     
Liabilities and Shareholders' Equity            
Interest-bearing liabilities:            
Interest-bearing demand deposits $1,923,068  $1,050  0.11% $1,523,240  $615  0.08%
Savings deposits 2,061,141  865  0.08  1,864,891  730  0.08 
Time deposits 1,604,020  6,404  0.80  1,412,162  5,637  0.80 
Short-term borrowings 383,966  326  0.17  370,317  199  0.11 
Long-term borrowings 273,675  1,931  1.42  31,624  213  1.36 
Total interest-bearing liabilities 6,245,870  10,576  0.34  5,202,234  7,394  0.29 
Noninterest-bearing deposits 1,943,159      1,657,864     
Total deposits and borrowed funds 8,189,029  10,576  0.26  6,860,098  7,394  0.22 
Interest payable and other liabilities 72,216      57,697     
Shareholders' equity 1,025,471      843,381     
Total liabilities and shareholders' equity $9,286,716      $7,761,176     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)     3.56%     3.49%
Net Interest Income (FTE)   $156,096       $128,294    
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.65%     3.57%
               


*Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry. The adjustments to determine tax equivalent net interest income were $4.3 million and $3.4 million for the six months ended June 30, 2016 and June 30, 2015, respectively.
**Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(In thousands)
             
  2nd
Quarter
2016
 1st
Quarter
2016
 4th
Quarter
2015
 3rd
Quarter
2015
 2nd
Quarter
2015
 1st
Quarter
2015
                         
Noninterest income            
Service charges and fees on deposit accounts $6,337  $5,720  $6,398  $6,722  $6,445  $5,916 
Wealth management revenue 5,782  5,201  5,151  4,725  5,605  5,071 
Electronic banking fees 4,786  4,918  4,712  5,059  4,775  4,572 
Mortgage banking revenue 1,595  1,405  1,606  1,436  1,688  1,403 
Other fees for customer services 1,677  1,474  1,839  1,759  1,741  1,418 
Other 720  701  346  514  420  895 
Total noninterest income $20,897  $19,419  $20,052  $20,215  $20,674  $19,275 
                         


  2nd
Quarter
2016
 1st
Quarter
2016
 4th
Quarter
2015
 3rd
Quarter
2015
 2nd
Quarter
2015
 1st
Quarter
2015
                         
Operating expenses            
Salaries and wages $26,887  $26,743  $27,341  $27,872  $25,535  $23,741 
Employee benefits 6,240  7,147  5,630  6,113  6,176  5,512 
Occupancy 5,514  4,905  4,620  4,781  4,386  4,426 
Equipment and software 4,875  4,404  5,102  4,589  4,480  4,398 
Outside processing and service fees 4,833  3,711  3,576  4,146  3,926  3,558 
FDIC insurance premiums 1,338  1,407  1,482  1,441  1,337  1,225 
Professional fees 1,020  1,036  1,112  1,235  1,258  1,237 
Intangible asset amortization 1,195  1,194  1,341  1,270  987  791 
Credit-related expenses (1,331) 30  600  90  (192) 133 
Transaction expenses 3,054  2,594  2,085  900  3,457  1,362 
Other 5,460  5,716  4,935  5,828  5,435  4,637 
Total operating expenses $59,085  $58,887  $57,824  $58,265  $56,785  $51,020 
                         


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
               
  June 30,
2016
 March 31,
2016
 June 30,
2016 vs
March 31,
2016 
(% Change)
 Dec 31,
2015
 Sept 30,
2015
 June 30,
2015
 June 30,
2016 vs
June 30,
2015 
(% Change)
               
Composition of Loans              
Commercial loan portfolio:              
Commercial $1,953,301  $1,922,259  1.6% $1,905,879  $1,829,870  $1,754,873  11.3%
Commercial real estate 2,157,733  2,143,051  0.7  2,112,162  2,227,364  2,243,513  (3.8)
Real estate construction 285,848  242,899  17.7  232,076  145,581  112,312  154.5 
Subtotal - commercial loans 4,396,882  4,308,209  2.1  4,250,117  4,202,815  4,110,698  7.0 
Consumer loan portfolio:              
Residential mortgage 1,494,192  1,461,120  2.3  1,429,636  1,394,427  1,310,167  14.0 
Consumer installment 1,048,622  897,078  16.9  877,457  899,751  887,907  18.1 
Home equity 707,573  700,478  1.0  713,937  719,202  725,971  (2.5)
Subtotal - consumer loans 3,250,387  3,058,676  6.3  3,021,030  3,013,380  2,924,045  11.2 
Total loans $7,647,269  $7,366,885  3.8% $7,271,147  $7,216,195  $7,034,743  8.7%
                           


  June 30,
2016
 March 31,
2016
 June 30,
2016 vs
March 31,
2016 
(% Change)
 Dec 31,
2015
 Sept 30,
2015
 June 30,
2015
 June 30,
2016 vs
June 30,
2015 
(% Change)
               
Composition of Deposits              
Noninterest-bearing demand $2,007,629  $1,951,193  2.9% $1,934,583  $1,875,636  $1,860,863  7.9%
Savings 1,107,558  1,080,940  2.5  1,026,269  1,004,987  1,015,036  9.1 
Interest-bearing demand 1,819,865  2,005,053  (9.2) 1,870,197  2,029,556  1,630,211  11.6 
Money market accounts 969,566  1,006,271  (3.6) 978,306  1,013,924  1,041,654  (6.9)
Brokered deposits 173,092  186,143  (7.0) 207,785  229,650  269,248  (35.7)
Other time deposits 1,386,936  1,420,516  (2.4) 1,439,627  1,461,458  1,475,967  (6.0)
Total deposits $7,464,646  $7,650,116  (2.4)% $7,456,767  $7,615,211  $7,292,979  2.4%
                           


  June 30,
2016
 March 31,
2016
 Dec 31,
2015
 Sept 30,
2015
 June 30,
2015
 March 31,
2015
             
Additional Data - Intangibles            
Goodwill $286,867  $286,867  $287,393  $286,454  $285,512  $180,128 
Core deposit intangibles (CDI) 24,429  25,542  26,654  27,890  28,353  20,072 
Mortgage servicing rights (MSR) 9,677  10,478  11,122  11,540  12,307  11,583 
Noncompete agreements 164  246  328  434  541   
                   


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(In thousands)
             
  June 30,
2016
 March 31,
2016
 December 31,
2015
 Sept 30,
2015
 June 30,
2015
 March 31,
2015
                         
Nonperforming Assets            
Nonperforming Loans:            
Nonaccrual loans:            
Commercial $14,577  $19,264  $28,554  $26,463  $17,260  $18,904 
Commercial real estate 21,325  25,859  25,163  24,969  25,287  24,766 
Real estate construction 496  546  521  544  502  953 
Residential mortgage 5,343  5,062  5,557  6,248  6,004  6,514 
Consumer installment 285  360  451  536  393  433 
Home equity 1,971  2,328  1,979  1,876  1,769  1,870 
Total nonaccrual loans 43,997  53,419  62,225  60,636  51,215  53,440 
Accruing loans contractually past due 90 days or more as to interest or principal payments:            
Commercial 3  370  364  122  711  52 
Commercial real estate 3    254  216  56  148 
Real estate construction            
Residential mortgage 407  423  402  572  424  172 
Consumer installment            
Home equity 1,071  679  1,267  558  588  429 
Total accruing loans contractually past due 90 days or more as to interest or principal payments 1,484  1,472  2,287  1,468  1,779  801 
Nonperforming troubled debt restructurings:            
Commercial loan portfolio 14,240  15,351  16,297  15,559  14,547  15,810 
Consumer loan portfolio 2,233  3,013  3,071  3,554  3,365  2,690 
Total nonperforming troubled debt restructurings 16,473  18,364  19,368  19,113  17,912  18,500 
Total nonperforming loans 61,954  73,255  83,880  81,217  70,906  72,741 
Other real estate and repossessed assets 8,440  9,248  9,935  11,207  14,197  14,744 
Total nonperforming assets $70,394  $82,503  $93,815  $92,424  $85,103  $87,485 
             
Nonperforming loans as a percent of total loans 0.81% 0.99% 1.15% 1.13% 1.01% 1.28%
Nonperforming assets as a percent of:                        
Total loans plus other real estate and repossessed assets 0.92% 1.12% 1.29% 1.28% 1.21% 1.53%
Total assets 0.74% 0.89% 1.02% 1.00% 0.94% 1.16%
             
Performing troubled debt restructurings $49,378  $49,886  $47,810  $44,803  $45,808  $45,981 
                         


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
                                       
  2nd  1st  4th 3rd 2nd  1st  Six Months Ended
  Quarter
2016

 Quarter
2016

  Quarter
2015

  Quarter
2015

 Quarter
2015

 Quarter
2015

 June 30,
2016
 June 30,
2015
                                         
Allowance for loan losses - originated loan portfolio      
Allowance for loan losses - beginning of period $70,318  $73,328  $75,626  $74,941  $75,256  $75,183  $73,328  $75,183 
Provision for loan losses 3,000  1,500  2,000  1,500  1,500  2,000  4,500  3,500 
Net loan (charge-offs) recoveries:                
Commercial (1,153) (3,115) (2,207) 86  (36) (424) (4,268) (460)
Commercial real estate (187) (440) (624) 145  (581) (415) (627) (996)
Real estate construction   (11)   (1) (49) (91) (11) (140)
Residential mortgage 8  (172) (545) (214) (661) (492) (164) (1,153)
Consumer installment (486) (602) (770) (782) (590) (649) (1,088) (1,239)
Home equity 6  (170) (152) (49) 102  144  (164) 246 
Net loan charge-offs (1,812) (4,510) (4,298) (815) (1,815) (1,927) (6,322) (3,742)
Allowance for loan losses - end of period 71,506  70,318  73,328  75,626  74,941  75,256  71,506  74,941 
Allowance for loan losses - acquired loan portfolio            
Allowance for loan losses - beginning of period           500    500 
Provision for loan losses           (500)   (500)
Allowance for loan losses - end of period                
Total allowance for loan losses $71,506  $70,318  $73,328  $75,626  $74,941  $75,256  $71,506  $74,941 
                 
Summary of net loan charge-offs:                
Loan charge-offs $3,620  $5,458  $5,439  $2,195  $2,724  $3,143  $9,078  $5,867 
Loan recoveries (1,808) (948) (1,141) (1,380) (909) (1,216) (2,756) (2,125)
Net loan charge-offs (quarter only) $1,812  $4,510  $4,298  $815  $1,815  $1,927  $6,322  $3,742 
Net loan charge-offs (year-to-date) $6,322  $4,510  $8,855  $4,557  $3,742  $1,927     
                 
Net loan charge-offs as a percent of average loans:          
Quarter only (annualized)  0.10%  0.25%  0.24%  0.05%  0.12%  0.14%    
Year-to-date (annualized)  0.17%  0.25%  0.13%  0.10%  0.13%  0.14%    
                             


  June 30,
2016
 March 31,
2016
 December 31,
2015
 Sept 30,
2015
 June 30,
2015
 March 31,
2015
             
Originated loans $6,378,934  $6,001,714  $5,807,934  $5,667,159  $5,351,010  $5,048,662 
Acquired loans 1,268,335  1,365,171  1,463,213  1,549,036  1,683,733  654,212 
Total loans $7,647,269  $7,366,885  $7,271,147  $7,216,195  $7,034,743  $5,702,874 
             
Allowance for loan losses as a percent of:            
Total originated loans  1.12%  1.17%  1.26%  1.33%  1.40%  1.49%
Nonperforming loans  115%  96%  87%  93%  106%  103%
Nonaccretable discount (credit mark) as a percent of acquired loans  4.1%  4.5%  4.4%  4.2%  3.9%  5.7%
                         


Chemical Financial Corporation Announces 2016 Second Quarter Operating Results
 
 
Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands, except per share data)
               
  2nd 1st 4th  3rd  2nd 1st Six Months Ended
  Quarter
2016

 Quarter
2016

 Quarter
2015

 Quarter
2015