Menu

Press Release

Chemical Financial Corporation Reports 2017 Second Quarter Operating Results

Company Release - 7/25/2017 4:15 PM ET

MIDLAND, Mich., July 25, 2017 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2017 second quarter net income of $52.0 million, or $0.73 per diluted share, compared to 2017 first quarter net income of $47.6 million, or $0.67 per diluted share and 2016 second quarter net income of $25.8 million, or $0.67 per diluted share. Excluding transaction expenses and the change in fair value in loan servicing rights ("significant items"), net income in the second quarter of 2017 was $53.5 million, or $0.75 per diluted share, compared to $50.7 million, or $0.71 per diluted share, in the first quarter of 2017 and $27.8 million, or $0.72 per diluted share, in the second quarter of 2016.(1)

During the second quarter of 2017, significant items included transaction expenses of $0.5 million and a $1.8 million detriment to earnings due to the change in fair value in loan servicing rights, compared to transaction expenses of $4.2 million and a $0.5 million detriment to earnings due to the change in fair value in loan servicing rights in the first quarter of 2017. Transaction expenses for the second quarter of 2016 were $3.1 million.

"We are encouraged by the underlying trends this quarter including improved operating expense trends, fee income and quality loan growth," noted David T. Provost, Chief Executive Officer of Chemical Financial Corporation and Thomas C. Shafer, Vice Chairman of the Corporation and Chief Executive Officer of Chemical Bank. "Going forward, we will seek to further improve our fundamentals by carefully assessing how we allocate capital and focusing on strategies to enhance revenue growth while continuing to improve our operating efficiency."

The Corporation's return on average assets was 1.14% during the second quarter of 2017, compared to 1.09% during the first quarter of 2017 and 1.10% in the second quarter of 2016. The Corporation's return on average shareholders' equity was 8.0% in the second quarter of 2017, compared to 7.4% during the first quarter of 2017 and 10.0% in the second quarter of 2016. Excluding significant items, the Corporation's return on average assets was 1.17% during the second quarter of 2017, compared to 1.16% during the first quarter of 2017 and 1.19% in the second quarter of 2016 and the Corporation's return on average shareholders' equity was 8.2% in the second quarter of 2017, compared to 7.8% during the first quarter of 2017 and 10.7% in the second quarter of 2016. The Corporation's return on average tangible shareholders' equity was 14.3% in the second quarter of 2017, compared to 13.3% during the first quarter of 2017 and 14.3% in the second quarter of 2016. Excluding significant items, the Corporation's return on average tangible equity was 14.7% in the second quarter of 2017, compared to 14.2% during the first quarter of 2017 and 15.4% in the second quarter of 2016.(2)

Net interest income was $137.9 million in the second quarter of 2017, $7.9 million, or 6.0%, higher than the first quarter of 2017 and $60.5 million, or 78.0%, higher than the second quarter of 2016. The higher net interest income in the second quarter of 2017 compared to the first quarter of 2017 was driven by the positive impact of organic loan growth, an increase in the investment securities portfolio, an increase in interest accretion from purchase accounting discounts on acquired loans, and one additional day in the quarter. These benefits to net interest income were partially offset by the interest expense impact of increases in short-term borrowings and deposits. The increase in net interest income in the second quarter of 2017 over the second quarter of 2016 was primarily attributable to loans acquired in the merger with Talmer Bancorp, Inc. ("Talmer") and organic loan growth. The Corporation experienced net organic loan growth of $394.0 million during the second quarter of 2017 and $1.14 billion during the twelve months ended June 30, 2017. The merger with Talmer added $4.88 billion of loans on August 31, 2016.

The net interest margin was 3.41% in both the second quarter of 2017 and the first quarter of 2017, compared to 3.60% in the second quarter of 2016. The net interest margin (on a tax-equivalent basis) was 3.48% in the second quarter of 2017, compared to 3.49% in the first quarter of 2017 and 3.70% in the second quarter of 2016.(3) The net interest margin (on a tax-equivalent basis) in the second quarter of 2017, compared to the first quarter of 2017, was compressed due to an increase in the investment securities portfolio funded by an increase in short-term borrowings. This compression was offset by an increase of 11 basis points in yield on total loans in the second quarter of 2017 to 4.22%, compared to the first quarter of 2017, primarily due to an increase of interest accretion from purchase accounting discounts on acquired loans and an increase in the average coupon rates on loans. 

The provision for loan losses was $6.2 million in the second quarter of 2017, compared to $4.1 million in the first quarter of 2017 and $3.0 million in the second quarter of 2016. The increase in the provision for loan losses in the second quarter of 2017, compared to both the first quarter of 2017 and the second quarter of 2016, was primarily the result of an increase in organic growth in the loan portfolio. Originated loan growth was $699.9 million in the second quarter of 2017, compared to $501.4 million in the first quarter of 2017. The growth in the originated loan portfolio was partially offset by run-off in the acquired loan portfolio of $305.9 million in the second quarter of 2017, compared to $218.8 million in the first quarter of 2017. It is important to note that the acquired loan portfolio was adjusted to the fair value of loans at each respective acquisition date and, as of June 30, 2017, no allowance has been recorded for this population of loans. Therefore, the run-off of acquired loans does not result in the reduction of allowance.

Net loan charge-offs were $1.2 million, or 0.04% of average loans, in the second quarter of 2017, compared to $3.5 million, or 0.11% of average loans, in the first quarter of 2017 and $1.8 million, or 0.10% of average loans, in the second quarter of 2016. Net loan charge-offs in the first quarter of 2017 included $1.5 million of losses from one commercial loan relationship.

The Corporation's nonperforming loans totaled $50.9 million at June 30, 2017, compared to $47.8 million at March 31, 2017 and $44.0 million at June 30, 2016. Nonperforming loans comprised 0.37% of total loans at June 30, 2017, compared to 0.36% at March 31, 2017 and 0.58% at June 30, 2016. The decrease in the percentage of nonperforming loans to total loans at June 30, 2017, compared to June 30, 2016, was primarily due to $4.88 billion of total loans added as a result of the merger with Talmer, as none of these loans are classified as nonperforming after the merger date since they are recorded in loan pools at their estimated net realizable value in accordance with generally accepted accounting principles.

At June 30, 2017, the allowance for loan losses of the originated loan portfolio was $83.8 million, or 0.97% of originated loans, compared to $78.8 million, or 0.99% of originated loans, at March 31, 2017 and $71.5 million, or 1.12% of originated loans, at June 30, 2016. The reduction in allowance for loan losses as a percentage of originated loans primarily reflects overall credit improvement. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 164.7% at both June 30, 2017 and March 31, 2017, compared to 162.5% at June 30, 2016.

Noninterest income was $41.6 million in the second quarter of 2017, compared to $38.0 million in the first quarter of 2017 and $20.9 million in the second quarter of 2016. Noninterest income in the second quarter of 2017 increased compared to the first quarter of 2017, primarily due to a $1.1 million increase in wealth management revenue. Net gain on sale of loans and other mortgage banking revenue also increased $0.7 million and included a $1.8 million detriment to earnings due to a change in fair value in loan servicing rights in the second quarter of 2017, compared to a $0.5 million detriment in the first quarter of 2017. Noninterest income in the second quarter of 2017 was higher than the second quarter of 2016 due primarily to incremental revenue resulting from the merger with Talmer.

Operating expenses were $98.2 million in the second quarter of 2017, compared to $104.2 million in the first quarter of 2017 and $59.1 million in the second quarter of 2016. Operating expenses included transaction expenses of $0.5 million in the second quarter of 2017, $4.2 million in the first quarter of 2017 and $3.1 million in the second quarter of 2016. Excluding these transaction expenses, operating expenses were $97.8 million in the second quarter of 2017, compared to $100.0 million in the first quarter of 2017 and $56.0 million in the second quarter of 2016.(4) The decrease in operating expenses, excluding transaction expenses, in the second quarter of 2017, compared to the first quarter of 2017 was primarily due to a decrease of $7.6 million in salaries, wages and employee benefits expenses, aided by a decrease in payroll taxes mostly attributable to stock option exercises during the first quarter of 2017 and an increase in the deferral of loan origination costs due to increased loan production and revised loan origination costs based on an updated loan origination cost study. The increase in operating expenses, excluding transaction expenses, in the second quarter of 2017, compared to the second quarter of 2016, was primarily attributable to incremental expenses resulting from the merger with Talmer.

The effective tax rate was 30.7% in the second quarter of 2017, compared to 20.5% in the first quarter of 2017 and 29.0% in the second quarter of 2016. The tax rate for the first quarter of 2017 benefited from stock option exercises that occurred in the first quarter of 2017.

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 54.7% in the second quarter of 2017, compared to 62.0% in the first quarter of 2017 and 60.1% in the second quarter of 2016. The Corporation's adjusted efficiency ratio, which excludes significant items, amortization of intangibles and net gains on sales of branches, closed branch locations and investment securities, was 52.2% in the second quarter of 2017, compared to 57.4% in the first quarter of 2017 and 54.6% in the second quarter of 2016.(5)

Total assets were $18.78 billion at June 30, 2017, compared to $17.64 billion at March 31, 2017 and $9.51 billion at June 30, 2016. The increase in total assets during the three months ended June 30, 2017 was primarily attributable to an increase in investment securities available-for-sale and loan growth that was funded by an increase in short-term FHLB advances. During the quarter, the investment securities portfolio grew by $490.0 million to $2.41 billion at June 30, 2017.  The increase in total assets during the twelve months ended June 30, 2017 was primarily attributable to the merger with Talmer, organic loan growth and an increase in investment securities available-for-sale.

Total loans were $13.67 billion at June 30, 2017, an increase of $394.0 million, or 3.0%, from total loans of $13.27 billion at March 31, 2017 and an increase of $6.02 billion, or 78.7%, from total loans of $7.65 billion at June 30, 2016. The Corporation experienced organic loan growth of $394.0 million during the second quarter of 2017 and $1.14 billion during the twelve months ended June 30, 2017. The Corporation added $4.88 billion of loans as part of the merger with Talmer on August 31, 2016.

Total deposits were $13.20 billion at June 30, 2017, compared to $13.13 billion at March 31, 2017 and $7.46 billion at June 30, 2016. The Corporation experienced organic growth in customer deposits of $72.0 million during the second quarter of 2017. The Corporation added $5.29 billion of deposits as part of the merger with Talmer that was completed on August 31, 2016, including $403.2 million of brokered deposits. The Corporation reduced the balance of brokered deposits by $351.2 million during the period of September 30, 2016 to June 30, 2017.

Securities sold under agreements to repurchase with customers were $310.0 million at June 30, 2017, compared to $398.9 million at March 31, 2017 and $256.2 million at June 30, 2016. Short-term borrowings were $2.05 billion at June 30, 2017, compared to $900.0 million at March 31, 2017 and $300.0 million at June 30, 2016 and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs. The increase in short-term FHLB advances in the second quarter 2017 was primarily utilized to fund an increase in the investment securities portfolio and loan growth. Long-term borrowings were $435.9 million at June 30, 2017, compared to $490.9 million at March 31, 2017 and $371.6 million at June 30, 2016.

The Corporation's shareholders' equity to total assets ratio was 14.1% at June 30, 2017, compared to 14.7% at March 31, 2017 and 11.0% at June 30, 2016. The Corporation's tangible equity to tangible assets ratio and total risk-based capital ratio were 8.4% and 11.1% (estimated), respectively, at June 30, 2017 compared to 8.8% and 11.4%, respectively, at March 31, 2017 and 8.2% and 11.4%, respectively, at June 30, 2016.(6) The Corporation's book value was $37.11 per share at June 30, 2017, compared to $36.56 per share at March 31, 2017 and $27.45 per share at June 30, 2016. The Corporation's tangible book value was $20.89 per share at June 30, 2017, compared to $20.32 per share at March 31, 2017 and $19.68 per share at June 30, 2016.(7)

(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, return on average shareholders’ equity, excluding significant items,  return on average tangible shareholders' equity, and return on average tangible 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) Operating expenses excluding transaction expenses is a non-GAAP financial measure.

(5) 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.

(6) 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.

(7) 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 second quarter 2017 operating results on Wednesday, July 26, 2017, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-490-2760 and entering 481059 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 primarily in Michigan, northeast Ohio and northern Indiana. At June 30, 2017, the Corporation had total assets of $18.78 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 relations 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 transaction expenses or 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," "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 improvement of core operating efficiency, 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 Chemical's Annual Report on Form 10-K for the year ended December 31, 2016. 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 2017 Second Quarter Operating Results
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
 June 30,
 2017
 March 31,
 2017
 December 31,
 2016
 June 30,
 2016
        
Assets       
Cash and cash equivalents:       
Cash and cash due from banks$230,219  $191,940  $237,758  $179,310 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold389,022  249,840  236,644  53,650 
Total cash and cash equivalents619,241  441,780  474,402  232,960 
Investment securities:       
Available-for-sale1,767,478  1,275,846  1,234,964  458,552 
Held-to-maturity645,605  647,192  623,427  552,828 
Total investment securities2,413,083  1,923,038  1,858,391  1,011,380 
Loans held-for-sale65,371  39,123  81,830  13,990 
Loans:       
Total loans13,667,372  13,273,392  12,990,779  7,647,269 
Allowance for loan losses(83,797) (78,774) (78,268) (71,506)
Net loans13,583,575  13,194,618  12,912,511  7,575,763 
Premises and equipment146,460  142,763  145,012  102,709 
Loan servicing rights64,522  64,604  58,315  9,677 
Goodwill1,133,534  1,133,534  1,133,534  286,867 
Other intangible assets37,322  38,848  40,211  24,593 
Interest receivable and other assets718,297  658,665  650,973  256,233 
Total Assets$18,781,405  $17,636,973  $17,355,179  $9,514,172 
Liabilities       
Deposits:       
Noninterest-bearing$3,626,592  $3,399,287  $3,341,520  $2,007,629 
Interest-bearing9,577,775  9,733,060  9,531,602  5,457,017 
Total deposits13,204,367  13,132,347  12,873,122  7,464,646 
Interest payable and other liabilities141,702  114,789  134,637  71,417 
Securities sold under agreements to repurchase with customers310,042  398,910  343,047  256,213 
Short-term borrowings2,050,000  900,000  825,000  300,000 
Long-term borrowings435,852  490,876  597,847  371,597 
Total liabilities16,141,963  15,036,922  14,773,653  8,463,873 
Shareholders' Equity       
Preferred stock, no par value per share       
Common stock, $1 par value per share71,131  71,118  70,599  38,267 
Additional paid-in capital2,197,501  2,194,705  2,210,762  726,734 
Retained earnings404,939  372,193  340,201  310,996 
Accumulated other comprehensive loss(34,129) (37,965) (40,036) (25,698)
Total shareholders' equity2,639,442  2,600,051  2,581,526  1,050,299 
Total Liabilities and Shareholders' Equity$18,781,405  $17,636,973  $17,355,179  $9,514,172 


 
Chemical Financial Corporation Announces 2017 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,
 2017
 March 31,
 2017
 June 30,
 2016
 June 30,
 2017
 June 30,
 2016
Interest Income         
Interest and fees on loans$141,314  $132,485  $77,578  $273,799  $151,979 
Interest on investment securities:         
Taxable7,125  4,756  1,798  11,881  3,727 
Tax-exempt4,426  4,235  2,640  8,661  5,305 
Dividends on nonmarketable equity securities1,246  621  777  1,867  1,033 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold1,022  799  144  1,821  357 
Total interest income155,133  142,896  82,937  298,029  162,401 
Interest Expense         
Interest on deposits10,582  8,916  4,260  19,498  8,319 
Interest on short-term borrowings4,659  1,658  226  6,317  326 
Interest on long-term borrowings1,944  2,225  956  4,169  1,931 
Total interest expense17,185  12,799  5,442  29,984  10,576 
Net Interest Income137,948  130,097  77,495  268,045  151,825 
Provision for loan losses6,229  4,050  3,000  10,279  4,500 
Net interest income after provision for loan losses131,719  126,047  74,495  257,766  147,325 
Noninterest Income         
Service charges and fees on deposit accounts8,777  8,004  6,337  16,781  12,057 
Wealth management revenue6,958  5,827  5,782  12,785  10,983 
Other charges and fees for customer services9,734  8,891  6,463  18,625  12,855 
Net gain on sale of loans and other mortgage banking revenue9,879  9,160  1,595  19,039  3,000 
Gain on sale of investment securities77  90  18  167  37 
Other6,143  6,038  702  12,181  1,384 
Total noninterest income41,568  38,010  20,897  79,578  40,316 
Operating Expenses         
Salaries, wages and employee benefits52,601  60,248  33,127  112,849  67,017 
Occupancy8,745  7,392  5,514  16,137  10,419 
Equipment and software8,149  8,517  4,875  16,666  9,279 
Merger and acquisition-related transaction expenses (transaction expenses)465  4,167  3,054  4,632  5,648 
Other28,277  23,872  12,515  52,149  25,609 
Total operating expenses98,237  104,196  59,085  202,433  117,972 
Income before income taxes75,050  59,861  36,307  134,911  69,669 
Income tax expense23,036  12,257  10,532  35,293  20,289 
Net Income$52,014  $47,604  $25,775  $99,618  $49,380 
Earnings Per Common Share:         
Weighted average common shares outstanding-basic70,819  70,628  38,258  70,725  38,228 
Weighted average common shares outstanding-diluted71,443  71,415  38,600  71,429  38,560 
Basic earnings per share$0.73  $0.67  $0.67  $1.41  $1.29 
Diluted earnings per share0.73  0.67  0.67  1.39  1.28 
Cash Dividends Declared Per Common Share0.27  0.27  0.26  0.54  0.52 
Key Ratios (annualized where applicable):         
Return on average assets1.14% 1.09% 1.10% 1.11% 1.06%
Return on average shareholders' equity8.0% 7.4% 10.0% 7.7% 9.6%
Net interest margin (tax-equivalent basis) (non-GAAP)3.48% 3.49% 3.70% 3.49% 3.65%
Efficiency ratio - GAAP54.7% 62.0% 60.1% 58.2% 61.4%
Efficiency ratio - adjusted (non-GAAP)52.2% 57.4% 54.6% 54.7% 56.1%


 
Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 2nd
Quarter
2017
 1st
Quarter
2017
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
                        
Summary of Operations           
Interest income$155,133  $142,896  $144,416  $103,562  $82,937  $79,464 
Interest expense17,185  12,799  11,969  6,753  5,442  5,134 
Net interest income137,948  130,097  132,447  96,809  77,495  74,330 
Provision for loan losses6,229  4,050  6,272  4,103  3,000  1,500 
Net interest income after provision for loan losses131,719  126,047  126,175  92,706  74,495  72,830 
Noninterest income41,568  38,010  54,264  27,770  20,897  19,419 
Operating expenses, excluding transaction expenses (non-GAAP)97,772  100,029  96,286  68,674  56,031  56,293 
Transaction expenses465  4,167  18,016  37,470  3,054  2,594 
Income before income taxes75,050  59,861  66,137  14,332  36,307  33,362 
Income tax expense23,036  12,257  18,969  2,848  10,532  9,757 
Net income$52,014  $47,604  $47,168  $11,484  $25,775  $23,605 
Significant items, net of tax1,474  3,046  2,781  25,921  1,985  1,686 
Net income, excluding significant items$53,488  $50,650  $49,949  $37,405  $27,760  $25,291 
            
Per Common Share Data           
Net income:           
Basic$0.73  $0.67  $0.67  $0.23  $0.67  $0.61 
Diluted0.73  0.67  0.66  0.23  0.67  0.60 
Diluted, excluding significant items (non-GAAP)0.75  0.71  0.70  0.75  0.72  0.65 
Cash dividends declared0.27  0.27  0.27  0.27  0.26  0.26 
Book value - period-end37.11  36.56  36.57  36.37  27.45  26.99 
Tangible book value - period-end20.89  20.32  20.20  19.99  19.68  19.20 
Market value - period-end48.41  51.15  54.17  44.13  37.29  35.69 
            
Key Ratios (annualized where applicable)          
Net interest margin (taxable equivalent basis) (non-GAAP)3.48% 3.49% 3.56% 3.58% 3.70% 3.60%
Efficiency ratio - adjusted (non-GAAP)52.2% 57.4% 53.7% 52.7% 54.6% 57.6%
Return on average assets1.14% 1.09% 1.09% 0.37% 1.10% 1.02%
Return on average shareholders' equity8.0% 7.4% 7.4% 2.9% 10.0% 9.3%
Average shareholders' equity as a percent of average assets14.3% 14.8% 14.9% 12.7% 11.1% 11.0%
Capital ratios (period end):           
Tangible shareholders' equity as a percent of tangible assets8.4% 8.8% 8.8% 8.7% 8.2% 8.2%
Total risk-based capital ratio (1)11.1% 11.4% 11.5% 11.1% 11.4% 11.5%

(1) Estimated at June 30, 2017.


 
Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates(1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 Three Months Ended
 June 30, 2017 March 31, 2017 June 30, 2016
 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)$13,513,927  $142,128  4.22% $13,155,846  $133,293  4.11% $7,511,192  $78,295  4.19%
Taxable investment securities1,364,358  7,125  2.09  1,005,489  4,756  1.89  515,303  1,798  1.40 
Tax-exempt investment  securities(1)882,445  6,781  3.07  861,508  6,495  3.02  484,271  4,061  3.35 
Other interest-earning assets166,244  1,246  3.01  103,334  621  2.44  43,615  777  7.16 
Interest-bearing deposits with the FRB and other banks and federal funds sold302,022  1,022  1.36  269,288  799  1.20  82,246  144  0.70 
Total interest-earning assets16,228,996  158,302  3.91  15,395,465  145,964  3.83  8,636,627  85,075  3.96 
Less: allowance for loan losses(80,690)     (78,616)     (71,790)    
Other assets:                 
Cash and cash due from banks222,954      229,203      148,034     
Premises and equipment145,320      146,044      104,488     
Interest receivable and other assets1,748,119      1,781,923      515,039     
Total assets$18,264,699      $17,474,019      $9,332,398     
Liabilities and shareholders' equity                
Interest-bearing liabilities:                 
Interest-bearing demand deposits$2,682,652  $1,289  0.19% $2,898,061  $1,018  0.14% $1,892,512  $582  0.12%
Savings deposits3,881,260  3,047  0.31  3,842,594  1,721  0.18  2,073,412  476  0.09 
Time deposits2,958,436  6,246  0.85  2,953,069  6,177  0.85  1,582,467  3,202  0.81 
Short-term borrowings2,027,505  4,659  0.92  1,225,888  1,658  0.55  418,232  226  0.22 
Long-term borrowings474,086  1,944  1.65  539,032  2,225  1.67  281,327  956  1.37 
Total interest-bearing liabilities12,023,939  17,185  0.57  11,458,644  12,799  0.45  6,247,950  5,442  0.35 
Noninterest-bearing deposits3,499,686      3,305,201      1,979,423     
Total deposits and borrowed funds15,523,625  17,185  0.44  14,763,845  12,799  0.35  8,227,373  5,442  0.27 
Interest payable and other liabilities134,557      125,673      72,011     
Shareholders' equity2,606,517      2,584,501      1,033,014     
Total liabilities and shareholders' equity$18,264,699      $17,474,019      $9,332,398     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)  3.34%     3.38%     3.61%
Net Interest Income (FTE)  $141,117      $133,165      $79,633   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)  3.48%     3.49%     3.70%
                  
Reconciliation to Reported Net Interest Income                
Net interest income, fully taxable equivalent (non-GAAP) $141,117      $133,165      $79,633   
Adjustments for taxable equivalent interest (1):                
Loans  (814)     (808)     (717)  
Tax-exempt investment securities  (2,355)     (2,260)     (1,421)  
Total taxable equivalent interest adjustments (3,169)     (3,068)     (2,138)  
Net interest income (GAAP)  $137,948      $130,097      $77,495   
Net interest margin (GAAP)  3.41%     3.41%     3.60%  

(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 2017 Second Quarter Operating Results
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates (1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
  Six Months Ended
  June 30, 2017 June 30, 2016
  Average
Balance
 Interest
(FTE)
 Effective
Yield/Rate(1)
 Average
Balance
 Interest
(FTE)
 Effective
Yield/Rate(1)
Assets  
Interest-earning assets:            
Loans (1)(2) $13,335,876  $275,421  4.16% $7,405,332  $153,394  4.16%
Taxable investment securities 1,185,915  11,881  2.00  534,914  3,727  1.39 
Tax-exempt investment securities (1) 872,034  13,276  3.04  490,287  8,161  3.33 
Other interest-earning assets 134,962  1,867  2.79  41,554  1,033  5.00 
Interest-bearing deposits with the FRB and other banks and federal funds sold 285,746  1,821  1.28  109,582  357  0.66 
Total interest-earning assets 15,814,533  304,266  3.87  8,581,669  166,672  3.90 
Less: allowance for loan losses (79,658)     (72,669)    
Other assets:            
Cash and cash due from banks 226,061      153,156     
Premises and equipment 145,680      105,223     
Interest receivable and other assets 1,764,925      519,337     
Total assets $17,871,541      $9,286,716     
Liabilities and Shareholders' Equity            
Interest-bearing liabilities:            
Interest-bearing demand deposits $2,789,762  $2,307  0.17% $1,923,068  $1,050  0.11%
Savings deposits 3,862,033  4,768  0.25  2,061,141  865  0.08 
Time deposits 2,955,768  12,423  0.85  1,604,020  6,404  0.80 
Short-term borrowings 1,628,911  6,317  0.78  383,966  326  0.17 
Long-term borrowings 506,379  4,169  1.66  273,675  1,931  1.42 
Total interest-bearing liabilities 11,742,853  29,984  0.51  6,245,870  10,576  0.34 
Noninterest-bearing deposits 3,402,981      1,943,159     
Total deposits and borrowed funds 15,145,834  29,984  0.40  8,189,029  10,576  0.26 
Interest payable and other liabilities 130,140      72,216     
Shareholders' equity 2,595,567      1,025,471     
Total liabilities and shareholders' equity $17,871,541      $9,286,716     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)     3.36%     3.56%
Net Interest Income (FTE)   $274,282      $156,096   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.49%     3.65%
             
Reconciliation to Reported Net Interest Income            
Net interest income, fully taxable equivalent (non-GAAP)   $274,282      $156,096   
Adjustments for taxable equivalent interest (1):            
Loans   (1,622)     (1,415)  
Tax-exempt investment securities   (4,615)     (2,856)  
Total taxable equivalent interest adjustments   (6,237)     (4,271)  
Net interest income (GAAP)   $268,045      $151,825   
Net interest margin (GAAP)   3.41%     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 2017 Second Quarter Operating Results
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 2nd
Quarter
2017
 1st
Quarter
2017
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
                        
Noninterest income           
Service charges and fees on deposit accounts$8,777  $8,004  $8,414  $7,665  $6,337  $5,720 
Wealth management revenue6,958  5,827  6,034  5,584  5,782  5,201 
Electronic banking fees7,482  6,817  8,196  5,533  4,786  4,918 
Net gain on sale of loans and other mortgage banking revenue9,879  9,160  14,420  4,439  1,595  1,405 
Other fees for customer services2,252  2,074  1,785  1,877  1,677  1,474 
Gain on sale of investment securities77  90  76  16  18  19 
Gain on sale of branch offices    7,391       
Other6,143  6,038  7,948  2,656  702  682 
Total noninterest income$41,568  $38,010  $54,264  $27,770  $20,897  $19,419 


 2nd
Quarter
2017
 1st
Quarter
2017
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
                        
Operating expenses           
Salaries and wages$44,959  $48,526  $47,936  $33,841  $26,887  $26,743 
Employee benefits7,642  11,722  9,695  6,724  6,240  7,147 
Occupancy8,745  7,392  7,644  5,462  5,514  4,905 
Equipment and software8,149  8,517  8,709  6,420  4,875  4,404 
Outside processing and service fees8,924  7,511  7,290  5,365  4,833  3,711 
FDIC insurance premiums2,460  1,406  2,813  1,849  1,338  1,407 
Professional fees2,567  1,968  2,304  1,472  1,020  1,036 
Intangible asset amortization1,525  1,513  1,843  1,292  1,195  1,194 
Credit-related expenses1,895  1,200  (1,029) (371) (1,331) 30 
Transaction expenses465  4,167  18,016  37,470  3,054  2,594 
Other10,906  10,274  9,081  6,620  5,460  5,716 
Total operating expenses$98,237  $104,196  $114,302  $106,144  $59,085  $58,887 


 
Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
 
     Organic
Growth -
         Organic
Growth -
 June 30,
2017
 March 31, 2017 Three
Months
Ended
June 30,
2017
 Dec 31,
 2016
 Sep 30,
 2016
 Talmer
Merger
Aug 31,
2016
 June 30,
2016
 Twelve
Months
Ended
June 30,
2017
                
Composition of Loans               
Commercial loan portfolio:               
Commercial$3,360,161  $3,253,608  3.3% $3,217,300  $3,199,576  $1,223,179  $1,953,301  9.4%
Commercial real estate4,324,323  4,097,771  5.5  3,973,140  3,733,377  1,589,900  2,157,733  26.7 
Real estate construction446,678  453,811  (1.6) 403,772  500,494  166,364  285,848  (1.9)
Subtotal - commercial loans8,131,162  7,805,190  4.2  7,594,212  7,433,447  2,979,443  4,396,882  17.2 
Consumer loan portfolio:               
Residential mortgage3,125,397  3,133,465  (0.3) 3,086,474  3,046,959  1,531,641  1,494,192  6.7 
Consumer installment1,553,967  1,481,057  4.9  1,433,884  1,335,707  158,835  1,048,622  33.0 
Home equity856,846  853,680  0.4  876,209  899,676  212,483  707,573  (8.9)
Subtotal - consumer loans5,536,210  5,468,202  1.2  5,396,567  5,282,342  1,902,959  3,250,387  11.8 
Total loans$13,667,372  $13,273,392  3.0% $12,990,779  $12,715,789  $4,882,402  $7,647,269  14.9%


     Organic
Growth -
         Organic
Growth -
 June 30,
 2017
 March 31,
 2017
 Three
Months
Ended
June 30,
2017
 Dec 31,
 2016
 Sep 30,
 2016
 Talmer
Merger

Aug 31,
2016
 June 30,
 2016
 Twelve
Months
Ended
June 30,
2017
Composition of Deposits               
Noninterest-bearing demand$3,626,592  $3,399,287  6.7% $3,341,520  $3,264,934  $1,236,902  $2,007,629  19.0%
Savings1,749,199  1,752,040  (0.2) 1,662,115  1,650,276  549,428  1,107,558  8.3 
Interest-bearing demand2,606,032  2,900,546  (10.2) 2,825,801  3,316,635  894,748  1,819,865  (6.0)
Money market accounts2,235,412  2,161,645  3.4  2,033,319  1,692,656  699,739  969,566  58.4 
Brokered deposits123,728  156,367  (20.9) 226,429  474,902  403,210  173,092  (261.5)
Other time deposits2,863,404  2,762,462  3.7  2,783,938  2,873,459  1,510,591  1,386,936  (2.5)
Total deposits$13,204,367  $13,132,347  0.5% $12,873,122  $13,272,862  $5,294,618  $7,464,646  6.0%


  June 30,
 2017
 March 31,
 2017
 Dec 31,
 2016
 Sep 30,
 2016
 June 30,
 2016
           
Additional Data - Intangibles          
Goodwill $1,133,534  $1,133,534  $1,133,534  $1,137,166  $286,867 
Loan servicing rights 64,522  64,604  58,315  51,393  9,677 
Core deposit intangibles (CDI) 37,235  38,723  40,211  35,618  24,429 
Noncompete agreements 87  125    82  164 
                


 
Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  June 30,
2017
 March 31,
2017
 Dec 31,
 2016
 Sep 30,
 2016
 June 30,
 2016
 March 31,
 2016
Nonperforming Assets            
Nonperforming Loans (1):            
Nonaccrual loans:            
Commercial $18,773  $16,717  $13,178  $13,742  $14,577  $19,264 
Commercial real estate 19,723  20,828  19,877  19,914  21,325  25,859 
Real estate construction 56  79  80  80  496  546 
Residential mortgage 7,714  6,749  6,969  5,119  5,343  5,062 
Consumer installment 757  755  879  378  285  360 
Home equity 3,871  2,713  3,351  2,064  1,971  2,328 
Total nonaccrual loans(1) 50,894  47,841  44,334  41,297  43,997  53,419 
Other real estate and repossessed assets 14,582  16,395  17,187  20,730  8,440  9,248 
Total nonperforming assets $65,476  $64,236  $61,521  $62,027  $52,437  $62,667 
Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30:
Commercial 58  1,823  11  221  3  370 
Commercial real estate 262  700  277  739  3   
Real estate construction       1,439     
Residential mortgage       375  407  423 
Home equity 2,026  1,169  995  628  1,071  679 
Total accruing loans contractually past due 90 days or more as to interest or principal payments $2,346  3,692  $1,283  $3,402  $1,484  $1,472 

(1) Acquired loans, accounted for under Accounting Standards Codification 310-30, that are not performing in accordance with contractual terms are not reported as nonperforming loans because these loans are recorded in pools at their net realizable value based on the principal and interest the Corporation expects to collect on these loans.


 
Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 2nd
Quarter
2017
 1st Quarter 2017 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
 Six Months Ended
       June 30,
2017
 June 30,
2016
Allowance for loan losses - originated loan portfolio                         
 Allowance for loan losses - beginning of period$78,774  $78,268  $73,775  $71,506  $70,318  $73,328  $78,268  $73,328 
Provision for loan losses6,229  4,050  6,272  4,103  3,000  1,500  10,279  4,500 
Net loan (charge-offs) recoveries:              
Commercial(239) (1,999) (336) (150) (1,153) (3,115) (2,238) (4,268)
Commercial real estate(205) 730  (280) (154) (187) (440) 525  (627)
Real estate construction  (9) 36  (31)   (11) (9) (11)
Residential mortgage19  (567) (236) (304) 8  (172) (548) (164)
Consumer installment(747) (1,310) (823) (1,137) (486) (602) (2,057) (1,088)
Home equity(34) (389) (140) (58) 6  (170) (423) (164)
Net loan charge-offs(1,206) (3,544) (1,779) (1,834) (1,812) (4,510) (4,750) (6,322)
Allowance for loan losses - end of period83,797  78,774  78,268  73,775  71,506  70,318  83,797  71,506 
Allowance for loan losses - acquired loan portfolio            
Allowance for loan losses - beginning of period               
Provision for loan losses               
Allowance for loan losses - end of period               
Total allowance for loan losses$83,797  $78,774  $78,268  $73,775  $71,506  $70,318  $83,797  $71,506 
Net loan charge-offs as a percent of average loans (annualized)0.04% 0.11% 0.06% 0.08% 0.10% 0.25% 0.07% 0.17%


 June 30,
2017
 March 31,
2017
 Dec 31,
 2016
 Sep 30,
 2016
 June 30,
2016
Originated loans$8,659,622  $7,959,769  $7,458,401  $6,755,931  $6,378,934 
Acquired loans5,007,750  5,313,623  5,532,378  5,959,858  1,268,335 
Total loans$13,667,372  $13,273,392  $12,990,779  $12,715,789  $7,647,269 
          
Allowance for loan losses as a percent of:        
Total originated loans0.97% 0.99% 1.05% 1.09% 1.12%
Nonperforming loans164.7% 164.7% 176.5% 178.6% 162.5%
Credit mark as a percent of unpaid principal balance on acquired loans1.3% 2.8% 3.1% 3.0% 4.1%


 
Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands)
 2nd
Quarter
2017
 1st
Quarter
2017
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
 Six Months Ended
       June 30,
2017
 June 30,
2016
Non-GAAP Operating Results                         
Net Income               
Net income, as reported$52,014  $47,604  $47,168  $11,484  $25,775  $23,605  $99,618  $49,380 
Transaction expenses 465   4,167   18,016   37,470   3,054   2,594   4,632   5,648 
Gain on sales of branch offices       (7,391)               
Loan servicing rights change in fair valuation 1,802   519   (6,348)  1,236         2,321    
Significant items 2,267   4,686   4,277   38,706   3,054   2,594   6,953   5,648 
Income tax benefit (1) (793)  (1,640)  (1,496)  (12,785)  (1,069)  (908)  (2,433)  (1,977)
Significant items, net of tax 1,474   3,046   2,781   25,921   1,985   1,686   4,520   3,671 
Net income, excluding significant items$53,488  $50,650  $49,949  $37,405  $27,760  $25,291  $104,138  $53,051 
Diluted Earnings Per Share              
Diluted earnings per share, as reported$0.73  $0.67  $0.66  $0.23  $0.67  $0.60  $1.39  $1.28 
Effect of significant items, net of tax 0.02   0.04   0.04   0.52