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Chemical Financial Corporation Reports Fourth Quarter and Full Year 2016 Results

Company Release - 1/25/2017 4:15 PM ET

MIDLAND, Mich., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2016 fourth quarter net income of $47.2 million, or $0.66 per diluted share, compared to 2016 third quarter net income of $11.5 million, or $0.23 per diluted share, and 2015 fourth quarter net income of $25.5 million, or $0.66 per diluted share. For the year ended December 31, 2016, net income was $108.0 million, or $2.17 per diluted share, compared to net income for the year ended December 31, 2015 of $86.8 million, or $2.39 per diluted share.  The increase in net income in the fourth quarter, compared to both the third quarter of 2016 and the fourth quarter of 2015, was driven significantly by the reduction in merger and transaction-related expenses ("transaction expenses") from the completion of the Corporation's merger with Talmer Bancorp, Inc. ("Talmer") and the inclusion of Talmer operations for the full quarter compared to one month's inclusion of operations in the third quarter of 2016 and no inclusion during the fourth quarter of 2015.

Excluding transaction expenses, net gain on the sale of branches and the change in fair value in loan servicing rights ("significant items"), net income for the fourth quarter of 2016 was $49.9 million, or $0.70 per diluted share, compared to $37.5 million, or $0.75 per diluted share, and $26.9 million, or $0.70 per diluted share in the third quarter of 2016 and the fourth quarter of 2015, respectively.(1)  Net income for the full year 2016, excluding significant items was $140.5 million, or $2.81 per diluted share, compared to $92.3 million, or $2.54 per diluted share for the full year 2015.(1)

During the fourth quarter of 2016, transaction expenses of $18.0 million were partially offset by $7.4 million of net gain on the sale of branches and a $6.4 million gain due to the change in fair value in loan servicing rights.  The third quarter of 2016 included the impact of $37.5 million of transaction expenses and a $1.3 million detriment to earnings due to the change in fair value in loan servicing rights, while the fourth quarter of 2015 included $2.1 million of transaction expenses.

"Our fourth quarter financial results reflect both a solid finish to a milestone year and a strong base from which Chemical Financial Corporation will move forward.  During the quarter, we completed the integration of Talmer Bank and Chemical Bank, our fourth successful integration over the past two years.  Continued stable economic conditions in our core markets facilitated significant organic loan growth during the quarter, and we believe we have an attractive pipeline as we look forward to 2017," noted David B. Ramaker, Chief Executive Officer and President of the Corporation.  “Since year-end 2014, we have more than doubled our asset base and expanded our delivery network beyond Michigan into northeast Ohio and northern Indiana.  We have paired a targeted acquisition strategy with attractive organic growth across the Chemical franchise to achieve these results, never losing sight of our primary goal of meeting the financial service needs of the communities we serve and delivering strong results for our shareholders.”

The Corporation's return on average assets was 1.09% during the fourth quarter of 2016, compared to 0.37% in the third quarter of 2016 and 1.11% in the fourth quarter of 2015.  The Corporation's return on average shareholders' equity was 7.4% in the fourth quarter of 2016, compared to 2.9% in the third quarter of 2016 and 10.2% in the fourth quarter of 2015.  Excluding significant items, the Corporation's return on average assets was 1.16% during the fourth quarter of 2016, compared to 1.22% in the third quarter of 2016 and 1.17% in the fourth quarter of 2015 and the Corporation's return on average shareholders' equity was 7.8% in the fourth quarter of 2016, compared to 9.6% in the third quarter of 2016 and 10.7% in the fourth quarter of 2015.(2)

Net interest income was $132.4 million in the fourth quarter of 2016, $35.6 million, or 36.8%, higher than the third quarter of 2016 and $57.0 million, or 75.5%, higher than the fourth quarter of 2015.  The increase in net interest income in the fourth quarter of 2016 over the third quarter of 2016 was primarily attributable to loans acquired in the merger with Talmer, although also partially attributable to organic loan growth.  The increase in net interest income in the fourth quarter of 2016 over the fourth quarter of 2015 was attributable to the positive impact of 2016 organic loan growth and the impact of the merger with Talmer.  The Corporation experienced net organic loan growth of $275.0 million during the fourth quarter of 2016 and $837.2 million during the year ended December 31, 2016.  The merger with Talmer added $4.88 billion of loans on August 31, 2016.

The net interest margin was 3.48% in the fourth quarter of 2016, compared to 3.49% in the third quarter of 2016 and 3.55% in the fourth quarter of 2015.  The net interest margin (on a tax-equivalent basis) was 3.56% in the fourth quarter of 2016, compared to 3.58% in the third quarter of 2016 and 3.64% in the fourth quarter of 2015.(3)  The decrease in the net interest margin (on a tax-equivalent basis) in the fourth quarter of 2016, compared to the third quarter of 2016, was due primarily to an increase in FHLB borrowing costs, while the decrease in the fourth quarter of 2016, compared to the fourth quarter of 2015, was largely due to an increase in cost of funds significantly due to debt obtained related to transactions. The average yield on the loan portfolio was 4.18% in the fourth quarter of 2016, compared to 4.12% in the third quarter of 2016 and 4.16% in the fourth quarter of 2015.  Interest accretion from purchase accounting discounts on acquired loans contributed 14 basis points to the Corporation's net interest margin (on a tax-equivalent basis) in the fourth quarter of 2016, compared to 11 basis points in the third quarter of 2016 and four basis points in the fourth quarter of 2015.  Interest accretion on acquired loans comprised 16 basis points of the yield on the Corporation's loan portfolio in the fourth quarter of 2016, compared to 13 basis points in the third quarter of 2016 and five basis points in the fourth quarter of 2015.  The Corporation's average cost of funds was 0.33% in the fourth quarter of 2016, compared to 0.25% in both the third quarter of 2016 and the fourth quarter of 2015.

Net interest income was $381.1 million for the year ended December 31, 2016, $107.1 million, or 39.1%, higher than 2015, with the increase attributable to a combination of organic loan growth and the impact of the merger with Talmer.  The average balance of loans outstanding during the year ended December 31, 2016 were up $2.71 billion compared to the prior year, with the increase driven by the $4.88 billion of loans added on August 31, 2016 from the merger with Talmer and the $837.2 million of organic loan growth during 2016.  The net interest margin was 3.51% in 2016 and 3.49% in 2015.  The net interest margin (on a tax equivalent basis) was 3.60% in 2016 and 3.58% in 2015.(3)

The provision for loan losses was $6.3 million in the fourth quarter of 2016, compared to $4.1 million in the third quarter of 2016 and $2.0 million in the fourth quarter of 2015.  The increase in the provision for loan losses in the fourth quarter of 2016, compared to both the third quarter of 2016 and the fourth quarter of 2015, was primarily due to organic growth in the loan portfolio.  The provision for loan losses was $14.9 million for the year ended December 31, 2016, compared to $6.5 million in 2015, with the increase primarily due to organic growth in the loan portfolio.

Net loan charge-offs were $1.8 million, or 0.06% of average loans, in the fourth quarter of 2016, compared to $1.8 million, or 0.08% of average loans, in the third quarter of 2016 and $4.3 million, or 0.24% of average loans, in the fourth quarter of 2015. The decrease in net loan charge-offs in the fourth quarter of 2016, compared to the fourth quarter of 2015, was partially attributable to a $1.6 million net loan charge-off from one commercial loan relationship occurring in the fourth quarter of 2015.  Net loan charge-offs totaled $9.9 million, or 0.11% of average loans, during the year ended December 31, 2016, compared to $8.9 million, or 0.13% of average loans, in 2015.

The Corporation's nonperforming loans totaled $44.3 million at December 31, 2016, compared to $41.3 million at September 30, 2016 and $62.2 million at December 31, 2015.  Nonperforming loans comprised 0.34% of total loans at December 31, 2016, compared to 0.32% at September 30, 2016 and 0.86% at December 31, 2015. The reduction in nonperforming loans as a percentage of total loans at December 31, 2016, compared to December 31, 2015, was due to the combined impact of overall improvements in credit quality within the Corporation's loan portfolios and the addition of $4.88 billion of loans acquired in the Talmer merger that are all classified as performing as these acquired loans are recorded in pools at their net realizable value.

At December 31, 2016, the allowance for loan losses of the originated loan portfolio was $78.3 million, or 1.05% of originated loans, compared to $73.8 million, or 1.09% of originated loans, at September 30, 2016 and $73.3 million, or 1.26% of originated loans, at December 31, 2015.   The decrease in the allowance coverage as a percentage of originated loans at December 31, 2016, compared to December 31, 2015, was primarily due to an overall improvement in credit quality and a decline in net credit charge-offs.  The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 176.5% at December 31, 2016, compared to 178.6% at September 30, 2016 and 117.8% at December 31, 2015.

Noninterest income was $54.3 million in the fourth quarter of 2016, compared to $27.8 million in the third quarter of 2016 and $20.1 million in the fourth quarter of 2015.  Noninterest income in the fourth quarter of 2016 was higher than the third quarter of 2016 and the fourth quarter of 2015 primarily due to incremental revenue resulting from the merger with Talmer, in addition to a net gain on the sales of the Chicago, Illinois and Las Vegas, Nevada branches totaling $7.4 million and a $6.4 million benefit to earnings due to a change in fair value in loan servicing rights included within "mortgage banking revenue".

Noninterest income was $122.4 million for the year ended December 31, 2016, compared to $80.2 million in 2015.  The increase was primarily due to incremental revenue resulting from the merger with Talmer in August 2016 and the acquisitions of Lake Michigan Financial Corporation in May 2015 and Monarch Community Bancorp in April 2015.

Operating expenses were $114.3 million in the fourth quarter of 2016, compared to $106.1 million in the third quarter of 2016 and $57.8 million in the fourth quarter of 2015.  Operating expenses included transaction expenses of $18.0 million in the fourth quarter of 2016, $37.5 million in the third quarter of 2016 and $2.1 million in the fourth quarter of 2015.  Excluding transaction expenses, operating expenses were $96.3 million in the fourth quarter of 2016, $27.6 million, or 40.2%, higher than the third quarter of 2016 and $40.5 million, or 72.7%, higher than the fourth quarter of 2015. The increase in operating expenses, excluding transaction expenses, in the fourth quarter of 2016, compared to both the third quarter of 2016 and the fourth quarter of 2015, was due to the incremental expenses resulting from the merger with Talmer.

Operating expenses were $338.4 million for the year ended December 31, 2016, compared to $223.9 million in 2015.  Operating expenses included transaction expenses of $61.1 million in 2016 and $7.8 million in 2015. Excluding these transaction expenses, operating expenses were $277.3 million in 2016, an increase of $61.2 million, or 28.3%, over 2015, with the increase due primarily to incremental operating costs associated with the merger with Talmer.

The efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income.  The Corporation's efficiency ratio was 61.2% in the fourth quarter of 2016, 85.2% in the third quarter of 2016 and 60.5% in the fourth quarter of 2015. The Corporation's efficiency ratio was 67.2% for the year ended December 31, 2016 and 63.2% for 2015.  The Corporation's adjusted efficiency ratio, which excludes transaction expenses, changes in fair value of the legacy Talmer loan servicing portfolio, amortization of intangibles and net gains on sales of branches, closed branch locations and investment securities, was 53.7% in the fourth quarter of 2016, 52.6% in the third quarter of 2016 and 55.8% in the fourth quarter of 2015.  The Corporation's adjusted efficiency ratio was 54.4% for the year ended December 31, 2016 and 58.7% for 2015.(4)

Total assets were $17.36 billion at December 31, 2016, compared to $17.38 billion at September 30, 2016 and $9.18 billion at December 31, 2015.  The increase in total assets during the twelve months ended December 31, 2016 was primarily attributable to the merger with Talmer.  As of the merger date, Talmer added total assets of $7.71 billion, including total loans of $4.88 billion and goodwill of $846.7 million. 

Total loans were $12.99 billion at December 31, 2016, up $275.0 million, or 2.2%, from total loans of $12.72 billion at September 30, 2016 and up $5.72 billion, or 78.7%, from total loans of $7.27 billion at December 31, 2015.  As of the merger date, the Corporation added $4.88 billion of loans as part of the merger with Talmer.  Loan growth of $275.0 million during the fourth quarter of 2016 resulted from the impact of $702.5 million growth in the originated loan portfolio, partially offset by a $427.5 million decrease in the acquired loan portfolios.  Loan growth, excluding the impact of the Talmer acquisition, of $837.2 million during the year ended December 31, 2016 resulted from the impact of $1.65 billion growth in the originated loan portfolio, partially offset by an $813.2 million decrease in the acquired loan portfolios.

Total deposits were $12.87 billion at December 31, 2016, compared to $13.27 billion at September 30, 2016 and $7.46 billion at December 31, 2015. As of the merger date, the Corporation added $5.29 billion of deposits as part of the merger with Talmer, including $403.2 million of brokered deposits.  During the fourth quarter of 2016, the Corporation reduced the balance of brokered deposits by $248.5 million.  The Corporation experienced net run-off in customer deposits of $402.4 million during the fourth quarter of 2016; however, the Corporation also experienced net organic growth in customer deposits of $317.3 million for the year ended December 31, 2016.

Securities sold under agreements to repurchase with customers were $343.0 million at December 31, 2016, compared to $326.8 million at September 30, 2016 and $297.2 million at December 31, 2015.  Short-term borrowings were $825.0 million at December 31, 2016, compared to $400.0 million at September 30, 2016 and $100.0 million at December 31, 2015 and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs.  Long-term borrowings were $597.8 million at December 31, 2016, compared to $676.6 million at September 30, 2016 and $242.4 million at December 31, 2015.  The increase in borrowings during the twelve months ended December 31, 2016 was primarily attributable to the merger with Talmer and the Corporation borrowing $125.0 million under a three-year credit facility to partially fund the cash portion of the merger consideration.

The Corporation's shareholders' equity to total assets ratio was 14.9% at December 31, 2016, compared to 14.7% at September 30, 2016 and 11.1% at December 31, 2015.  The Corporation's tangible shareholders' equity to assets ratio and total risk-based capital ratio were 8.8% and 11.5% (estimated), respectively, at December 31, 2016, compared to 8.7% and 11.1%, respectively, at September 30, 2016 and 8.1% and 11.8%, respectively, at December 31, 2015.(5)  The Corporation's book value was $36.57 per share at December 31, 2016, compared to $36.37 per share at September 30, 2016 and $26.62 per share at December 31, 2015.  The Corporation's tangible book value was $20.20 per share at December 31, 2016, compared to $19.99 per share at September 30, 2016 and $18.78 per share at December 31, 2015.(6)

(1) Net income, excluding significant items, and diluted earnings per share, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measures.

(2) Return on average assets, excluding significant items, and return on average shareholders’ equity, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measures.

(3) Net interest margin, on a tax equivalent basis, is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates” for a reconciliation of net interest income used to compute net interest margin on a tax equivalent basis to the most directly comparable GAAP financial measure.

(4) Adjusted efficiency ratio is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measure.

(5) Tangible equity to tangible assets ratio is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measure.

(6) Tangible book value per share is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measure.

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss its fourth quarter and full year 2016 operating results on Thursday, January 26, 2017 at 10:00 am ET.  Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-797-3007 and entering 879991 for the conference ID.  The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.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.

About Chemical Financial Corporation

Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 249 banking offices located in Michigan, northeast Ohio and northern Indiana. At December 31, 2016, the Corporation had total assets of $17.36 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about the Corporation is available by visiting the "Investor Info" section of its website at www.chemicalbank.com.

Non-GAAP Financial Measures

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 significant items, including net income, diluted earnings per share, return on average assets, return on average shareholders' equity, operating expenses and the efficiency ratio. 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 to the most directly comparable GAAP financial measure may be found in the financial tables included with this press release.

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," "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.

Risk factors include, but are not limited to, the risk factors described in Item 1A of the Corporation’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 Fourth Quarter and Full Year 2016 Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
  December 31,
2016
 September 30,
2016
 December 31,
2015
Assets      
Cash and cash equivalents:      
Cash and cash due from banks $272,048  $286,351  $194,136 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold 202,354  270,216  44,653 
Total cash and cash equivalents 474,402  556,567  238,789 
Investment securities:      
Available-for-sale 1,234,964  1,303,381  553,731 
Held-to-maturity 623,427  563,721  509,971 
Total investment securities 1,858,391  1,867,102  1,063,702 
Loans held-for-sale 81,830  276,061  10,327 
Loans:      
Total loans 12,990,779  12,715,789  7,271,147 
Allowance for loan losses (78,268) (73,775) (73,328)
Net loans 12,912,511  12,642,014  7,197,819 
Premises and equipment 145,012  144,165  106,317 
Loan servicing rights 58,315  51,393  11,122 
Goodwill 1,133,534  1,137,166  287,393 
Other intangible assets 40,211  35,700  26,982 
Interest receivable and other assets 650,973  673,469  246,346 
Total Assets $17,355,179  $17,383,637  $9,188,797 
Liabilities      
Deposits:      
Noninterest-bearing $3,341,520  $3,264,934  $1,934,583 
Interest-bearing 9,531,602  10,007,928  5,522,184 
Total deposits 12,873,122  13,272,862  7,456,767 
Interest payable and other liabilities 134,637  143,708  76,466 
Securities sold under agreements to repurchase with customers 343,047  326,789  297,199 
Short-term borrowings 825,000  400,000  100,000 
Long-term borrowings 597,847  676,612  242,391 
Total liabilities 14,773,653  14,819,971  8,172,823 
Shareholders' Equity      
Preferred stock, no par value per share      
Common stock, $1 par value per share 70,599  70,497  38,168 
Additional paid-in capital 2,210,762  2,207,345  725,280 
Retained earnings 340,201  310,966  281,558 
Accumulated other comprehensive loss (40,036) (25,142) (29,032)
Total shareholders' equity 2,581,526  2,563,666  1,015,974 
Total Liabilities and Shareholders' Equity $17,355,179  $17,383,637  $9,188,797 
             


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
 Three Months Ended Twelve Months Ended
 December
31, 2016
 September
30, 2016(1)
 December
31, 2015
 December
31, 2016
 December
31, 2015
Interest Income         
Interest and fees on loans$134,463  $97,103  $75,253  $383,545  $271,772 
Interest on investment securities:         
Taxable4,687  2,575  2,044  10,989  8,786 
Tax-exempt3,940  3,072  2,583  12,317  9,073 
Dividends on nonmarketable equity securities582  358  633  1,973  1,648 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold744  454  116  1,555  510 
Total interest income144,416  103,562  80,629  410,379  291,789 
Interest Expense         
Interest on deposits8,866  5,836  4,120  23,021  15,406 
Interest on short-term borrowings875  459  110  1,660  453 
Interest on long-term borrowings2,228  458  923  4,617  1,922 
Total interest expense11,969  6,753  5,153  29,298  17,781 
Net Interest Income132,447  96,809  75,476  381,081  274,008 
Provision for loan losses6,272  4,103  2,000  14,875  6,500 
Net interest income after provision for loan losses126,175  92,706  73,476  366,206  267,508 
Noninterest Income         
Service charges and fees on deposit accounts8,414  7,665  6,398  28,136  25,481 
Wealth management revenue6,034  5,584  5,151  22,601  20,552 
Other charges and fees for customer services9,981  7,410  6,189  30,246  25,513 
Mortgage banking revenue14,420  4,439  1,606  21,859  6,133 
Gain on sale of branches7,391      7,391   
Gain on sale of investment securities76  16  18  129  630 
Other7,948  2,656  690  11,988  1,907 
Total noninterest income54,264  27,770  20,052  122,350  80,216 
Operating Expenses         
Salaries, wages and employee benefits57,631  40,565  32,971  165,213  127,920 
Occupancy7,644  5,462  4,620  23,525  18,213 
Equipment and software8,709  6,420  5,102  24,408  18,569 
Merger and acquisition-related transaction expenses (transaction expenses)18,016  37,470  2,085  61,134  7,804 
Other22,302  16,227  13,046  64,138  51,388 
Total operating expenses114,302  106,144  57,824  338,418  223,894 
Income before income taxes66,137  14,332  35,704  150,138  123,830 
Income tax expense18,969  2,848  10,200  42,106  37,000 
Net Income$47,168  $11,484  $25,504  $108,032  $86,830 
Earnings Per Common Share:         
Weighted average common shares outstanding-basic70,171  49,107  38,150  49,091  36,081 
Weighted average common shares outstanding-diluted71,304  49,631  38,498  49,603  36,353 
Basic earnings per common share$0.67  $0.23  $0.67  $2.21  $2.41 
Diluted earnings per common share$0.66  $0.23  $0.66  $2.17  $2.39 
Cash Dividends Declared Per Common Share$0.27  $0.27  $0.26  $1.06  $1.00 
Key Ratios (annualized where applicable):         
Return on average assets1.09% 0.37% 1.11% 0.90% 1.02%
Return on average shareholders' equity7.4% 2.9% 10.2% 7.0% 9.4%
Net interest margin (tax-equivalent basis) (non-GAAP)3.56% 3.58% 3.64% 3.60% 3.58%
Efficiency ratio - GAAP61.2% 85.2% 60.5% 67.2% 63.2%
Efficiency ratio - adjusted (non-GAAP)53.7% 52.6% 55.8% 54.4% 58.7%
 
(1) Third quarter 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." The early adoption resulted in $752 thousand of excess tax benefits recognized within "Income tax expense" during the three months ended September 30, 2016 rather than previously recognized directly into equity within "Additional paid-in-capital."


 
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
 4th
Quarter
2016
 3rd
Quarter
2016(1)
 2nd
Quarter
2016(1)
 1st
Quarter
2016(1)
 4th
Quarter
2015
 3rd
Quarter
2015
 2nd
Quarter
2015
 1st
Quarter
2015
                
Summary of Operations               
Interest income$144,416  $103,562  $82,937  $79,464  $80,629  $78,851  $69,679  $62,630 
Interest expense11,969  6,753  5,442  5,134  5,153  5,234  3,944  3,450 
Net interest income132,447  96,809  77,495  74,330  75,476  73,617  65,735  59,180 
Provision for loan losses6,272  4,103  3,000  1,500  2,000  1,500  1,500  1,500 
Net interest income after provision for loan losses126,175  92,706  74,495  72,830  73,476  72,117  64,235  57,680 
Noninterest income54,264  27,770  20,897  19,419  20,052  20,215  20,674  19,275 
Operating expenses, excluding transaction expenses (non-GAAP)96,286  68,674  56,031  56,293  55,739  57,365  53,328  49,658 
Transaction expenses18,016  37,470  3,054  2,594  2,085  900  3,457  1,362 
Income before income taxes66,137  14,332  36,307  33,362  35,704  34,067  28,124  25,935 
Income tax expense18,969  2,848  10,532  9,757  10,200  9,600  9,100  8,100 
Net income$47,168  $11,484  $25,775  $23,605  $25,504  $24,467  $19,024  $17,835 
Significant items, net of tax2,777  25,992  1,985  1,686  1,355  585  2,659  885 
Net income, excluding significant items$49,945  $37,476  $27,760  $25,291  $26,859  $25,052  $21,683  $18,720 
                
Per Common Share Data               
Net income:               
Basic$0.67  $0.23  $0.67  $0.61  $0.67  $0.64  $0.54  $0.54 
Diluted0.66  0.23  0.67  0.60  0.66  0.64  0.54  0.54 
Diluted, excluding significant items (non-GAAP)0.70  0.75  0.72  0.65  0.70  0.65  0.61  0.57 
Cash dividends declared0.27  0.27  0.26  0.26  0.26  0.26  0.24  0.24 
Book value - period-end36.57  36.37  27.45  26.99  26.62  26.18  25.74  24.68 
Tangible book value - period-end20.20  19.99  19.68  19.20  18.78  18.32  17.89  18.95 
Market value - period-end54.17  44.13  37.29  35.69  34.27  32.35  33.06  31.36 
                
Net interest margin (taxable equivalent basis) (non-GAAP)3.56% 3.58% 3.70% 3.60% 3.64% 3.55% 3.59% 3.55%
Efficiency ratio - adjusted (non-GAAP)53.7% 53.2% 54.6% 57.6% 55.8% 58.6% 59.4% 61.5%
Return on average assets1.09% 0.37% 1.10% 1.02% 1.11% 1.05% 0.94% 0.98%
Return on average shareholders' equity7.4% 2.9% 10.0% 9.3% 10.2% 9.8% 8.6% 9.0%
Average shareholders' equity as a percent of average assets14.9% 12.7% 11.1% 11.0% 10.9% 10.7% 10.9% 10.8%
Capital ratios (period end):                               
Tangible shareholders' equity as a percent of tangible assets8.8% 8.7% 8.2% 8.2% 8.1% 7.8% 7.8% 8.5%
Total risk-based capital ratio (2)11.5% 11.1% 11.4% 11.5% 11.8% 11.6% 11.6% 13.0%
 
(1) The third quarter, second quarter and first quarter of 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."  The early adoption resulted in $752 thousand, $68 thousand and $343 thousand of excess tax benefits recognized within "Income tax expense" during the three months ended September 30, June 30 and March 31, 2016, respectively, rather than previously recognized directly into equity within "Additional paid-in-capital."
(2) Estimated at December 31, 2016.


 
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
 
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
 
 Three Months Ended
 December 31, 2016 September 30, 2016 December 31, 2015
 Average
Balance
 Interest (FTE) Effective
Yield/Rate(1)
 Average
Balance
 Interest (FTE) Effective
Yield/Rate(1)
 Average
Balance
 Interest (FTE) Effective
Yield/Rate(1)
Assets                                
Interest-earning assets:                 
Loans(1)(2)$12,895,557  $135,301  4.18% $9,470,650  $97,880  4.12% $7,241,339  $75,905  4.16%
Taxable investment securities1,065,453  4,687  1.76  687,259  2,575  1.50  609,406  2,044  1.34 
Tax-exempt investment securities(1)807,093  6,047  3.00  592,747  4,721  3.19  481,968  3,973  3.30 
Other interest-earning assets80,202  582  2.89  57,756  358  2.47  36,799  633  6.82 
Interest-bearing deposits with the FRB and other banks and federal funds sold307,802  744  0.96  249,731  454  0.72  87,952  116  0.52 
Total interest-earning assets15,156,107  147,361  3.87  11,058,143  105,988  3.82  8,457,464  82,671  3.89 
Less: allowance for loan losses(74,822)     (72,242)     (75,225)    
Other assets:                 
Cash and cash due from banks245,613      194,171      157,939     
Premises and equipment144,652      116,944      110,141     
Interest receivable and other assets1,793,118      953,714      524,905     
Total assets$17,264,668      $12,250,730      $9,175,224     
Liabilities and shareholders' equity                 
Interest-bearing liabilities:                 
Interest-bearing demand deposits$2,680,241  $1,266  0.19% $2,327,762  $961  0.16% $1,816,694  $414  0.09%
Savings deposits3,490,972  1,263  0.14  2,512,620  749  0.12  2,024,543  393  0.08 
Time deposits3,209,695  6,337  0.79  2,186,781  4,126  0.75  1,671,913  3,313  0.79 
Short-term borrowings949,292  875  0.38  593,903  459  3.10  405,713  110  0.11 
Long-term borrowings600,066  2,228  1.41  494,810  458  0.37  243,170  923  1.51 
Total interest-bearing liabilities10,930,266  11,969  0.44  8,115,876  6,753  0.33  6,162,033  5,153  0.33 
Noninterest-bearing deposits3,622,365      2,456,469      1,936,328     
Total deposits and borrowed funds14,552,631  11,969  0.33  10,572,345  6,753  0.25  8,098,361  5,153  0.25 
Interest payable and other liabilities147,094      118,717      76,516     
Shareholders' equity2,564,943      1,559,668      1,000,347     
Total liabilities and shareholders' equity$17,264,668      $12,250,730      $9,175,224     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)        3.43%     3.49%     3.56%
Net Interest Income (FTE)  $135,392       $99,235       $77,518   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)        3.56%     3.58%     3.64%
                  
Reconciliation to Reported Net Interest Income                
Net interest income, fully taxable equivalent (non-GAAP) $135,392      $99,235      $77,518   
Adjustments for taxable equivalent interest(1):                
Loans  (838)     (777)     (652)  
Tax-exempt investment securities  (2,107)     (1,649)     (1,390)  
Total taxable equivalent interest adjustments (2,945)     (2,426)     (2,042)  
Net interest income (GAAP)  $132,447      $96.809      $75,476   
Net interest margin (GAAP)  3.48%     3.49%     3.55%  
                     
(1) 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.
(2) 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 Fourth Quarter and Full Year 2016 Operating Results
 
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
 
  Twelve Months Ended December 31, 2016 Twelve Months Ended December 31, 2015
  Average
Balance
 Interest
(FTE)
 Effective
Yield/Rate(1)
 Average
Balance
 Interest
(FTE)
 Effective
Yield/Rate(1)
Assets                      
Interest-earning assets:            
Loans(1)(2) $9,304,573  $386,575  4.15% $6,594,507  $274,341  4.16%
Taxable investment securities 706,567  10,989  1.56  683,612  8,786  1.29 
Tax-exempt investment securities(1) 595,677  18,929  3.18  415,092  13,956  3.36 
Other interest-earning assets 55,341  1,973  3.57  34,188  1,648  4.82 
Interest-bearing deposits with the FRB and other banks and federal funds sold 194,637  1,555  0.80  123,735  510  0.41 
Total interest-earning assets 10,856,795  420,021  3.87  7,851,134  299,241  3.81 
Less: allowance for loan losses (73,136)      (75,378)     
Other assets:              
Cash and cash due from banks 186,706       155,109      
Premises and equipment 118,080       105,904      
Interest receivable and other assets 948,710       444,459      
Total assets $12,037,155       $8,481,228      
Liabilities and shareholders' equity              
Interest-bearing liabilities:              
Interest-bearing demand deposits $2,143,064  $3,277  0.15% $1,661,592  $1,465  0.09%
Savings deposits 2,534,038  2,877  0.11  1,947,659  1,512  0.08 
Time deposits 2,154,118  16,867  0.78  1,557,425  12,429  0.80 
Short-term borrowings 571,510  1,660  0.29  420,529  453  0.11 
Other borrowings 418,636  4,617  1.10  117,000  1,922  1.64 
Total interest-bearing liabilities 7,821,366  29,298  0.37  5,704,205  17,781  0.31 
Noninterest-bearing deposits 2,566,342      1,791,991     
Total deposits and borrowed funds 10,387,708  29,298  0.28  7,496,196  17,781  0.24 
Interest payable and other liabilities 102,726       65,704      
Shareholders' equity 1,546,721       919,328      
Total liabilities and shareholders' equity $12,037,155       $8,481,228      
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)       3.50%     3.50%
Net Interest Income (FTE)   $390,723      $281,460   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)       3.60%     3.58%
             
Reconciliation to Reported Net Interest Income              
Net interest income, fully taxable equivalent (non-GAAP)     $390,723      $281,460   
Adjustments for taxable equivalent interest(1):            
Loans   (3,030)     (2,569)  
Tax-exempt investment securities   (6,612)     (4,883)  
Total taxable equivalent interest adjustments   (9,642)     (7,452)  
Net interest income (GAAP)   $381,081      $274,008   
Net interest margin (GAAP)   3.51%     3.49%  
               
(1) 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.
(2) 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 Fourth Quarter and Full Year 2016 Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
                
 4th
Quarter
2016
 3rd
Quarter
2016
 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$8,414  $7,665  $6,337  $5,720  $6,398  $6,722  $6,445  $5,916 
Wealth management revenue6,034  5,584  5,782  5,201  5,151  4,725  5,605  5,071 
Electronic banking fees8,196  5,533  4,786  4,918  4,712  5,059  4,775  4,572 
Mortgage banking revenue14,420  4,439  1,595  1,405  1,606  1,436  1,688  1,403 
Other fees for customer services1,785  1,877  1,677  1,474  1,839  1,759  1,741  1,418 
Gain on sale of investment securities76  16  18  19  18  5  28  579 
Gain on sale of branch offices7,391               
Other7,948  2,656  702  682  328  509  392  316 
Total noninterest income$54,264  $27,770  $20,897  $19,419  $20,052  $20,215  $20,674  $19,275 
                
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
 4th
Quarter
2015
 3rd
Quarter
2015
 2nd
Quarter
2015
 1st
Quarter
2015
                              
Operating expenses               
Salaries and wages$47,936  $33,841  $26,887  $26,743  $27,341  $27,872  $25,535  $23,741 
Employee benefits9,695  6,724  6,240  7,147  5,630  6,113  6,176  5,512 
Occupancy7,644  5,462  5,514  4,905  4,620  4,781  4,386  4,426 
Equipment and software8,709  6,420  4,875  4,404  5,102  4,589  4,480  4,398 
Outside processing and service fees7,290  5,365  4,833  3,711  3,576  4,146  3,926  3,558 
FDIC insurance premiums2,813  1,849  1,338  1,407  1,482  1,441  1,337  1,225 
Professional fees2,304  1,472  1,020  1,036  1,112  1,235  1,258  1,237 
Intangible asset amortization1,843  1,292  1,195  1,194  1,341  1,270  987  791 
Credit-related expenses(1,029) (371) (1,331) 30  600  90  (192) 133 
Transaction expenses18,016  37,470  3,054  2,594  2,085  900  3,457  1,362 
Other9,081  6,620  5,460  5,716  4,935  5,828  5,435  4,637 
Total operating expenses$114,302  $106,144  $59,085  $58,887  $57,824  $58,265  $56,785  $51,020 
                                


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
 
                
 Dec 31,
2016
 Sept 30,
2016
 Organic
Growth -
Three
Months
Ended Dec
31, 2016
 Talmer
Merger
Aug 31,
2016
 June 30,
2016
 March 31,
2016
 Dec 31,
2015
 Organic
Growth -
Twelve
Months
Ended Dec
31, 2016
                
Composition of Loans               
Commercial loan portfolio:               
Commercial$3,444,376  $3,435,283  0.3% $1,453,628  $1,953,301  $1,922,259  $1,905,879  4.5%
Commercial real estate3,746,064  3,497,670  7.1  1,359,451  2,157,733  2,143,051  2,112,162  13.0 
Real estate construction403,772  500,494  (19.3) 166,364  285,848  242,899  232,076  2.3 
Subtotal - commercial loans7,594,212  7,433,447  2.2  2,979,443  4,396,882  4,308,209  4,250,117  8.6 
Consumer loan portfolio:                 
Residential mortgage3,086,474  3,046,959  1.3  1,531,641  1,494,192