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Chemical Financial Corporation Reports 2017 Third Quarter Operating Results

Company Release - 10/24/2017 4:19 PM ET

MIDLAND, Mich., Oct. 24, 2017 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2017 third quarter net income of $40.5 million, or $0.56 per diluted share, compared to 2017 second quarter net income of $52.0 million, or $0.73 per diluted share and 2016 third quarter net income of $11.5 million, or $0.23 per diluted share. Excluding merger and restructuring expenses and the change in fair value in loan servicing rights ("significant items"), net income in the third quarter of 2017 was $56.9 million, or $0.79 per diluted share, compared to $53.5 million, or $0.75 per diluted share, in the second quarter of 2017 and $37.4 million, or $0.75 per diluted share, in the third quarter of 2016.(1)

During the third quarter of 2017, significant items included restructuring expenses of $18.8 million, merger expenses of $2.4 million and a $4.0 million detriment to earnings due to the change in fair value in loan servicing rights, compared to merger expenses of $0.5 million and a $1.8 million detriment to earnings due to the change in fair value in loan servicing rights in the second quarter of 2017. The restructuring expenses incurred during the third quarter of 2017 were a result of the Corporation's previously announced restructuring efforts, consisting primarily of severance and retirement related expenses. The third quarter of 2016 included $37.5 million of merger expenses and a $1.2 million detriment to earnings due to the change in fair value in loan servicing rights.

"We are pleased with our core underlying trends this quarter, including increased net interest income, improved operating efficiency and a stable net interest margin," 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. "With the enhancements we have made in the third quarter of 2017 in association with our restructuring efforts, we believe we are on target to achieve the long-term growth prospects established as part of our most recent merger performance targets."

The Corporation's return on average assets was 0.86% during the third quarter of 2017, compared to 1.14% during the second quarter of 2017 and 0.37% in the third quarter of 2016. The Corporation's return on average shareholders' equity was 6.1% in the third quarter of 2017, compared to 8.0% during the second quarter of 2017 and 2.9% in the third quarter of 2016. Excluding significant items, the Corporation's return on average assets was 1.21% during the third quarter of 2017, compared to 1.17% during the second quarter of 2017 and 1.22% in the third quarter of 2016 and, excluding significant items, the Corporation's return on average shareholders' equity was 8.6% in the third quarter of 2017, compared to 8.2% during the second quarter of 2017 and 9.6% in the third quarter of 2016. The Corporation's return on average tangible shareholders' equity was 10.9% in the third quarter of 2017, compared to 14.3% during the second quarter of 2017 and 4.7% in the third quarter of 2016. Excluding significant items, the Corporation's return on average tangible equity was 15.3% in the third quarter of 2017, compared to 14.7% during the second quarter of 2017 and 15.4% in the third quarter of 2016.(2)

Net interest income was $143.6 million in the third quarter of 2017, $5.7 million, or 4.1%, higher than the second quarter of 2017 and $46.8 million, or 48.4%, higher than the third quarter of 2016. The higher net interest income in the third quarter of 2017 compared to the second quarter of 2017 was driven by the positive impact of organic loan growth, an increase in the investment securities portfolio, improvement in yields on 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 average deposits and short-term borrowings. The increase in net interest income in the third quarter of 2017 over the third quarter of 2016 was primarily attributable to organic loan growth and loans acquired in the merger with Talmer Bancorp, Inc. ("Talmer"). The Corporation experienced net organic loan growth of $166.0 million during the third quarter of 2017 and $1.12 billion during the twelve months ended September 30, 2017. The merger with Talmer added $4.88 billion of loans on August 31, 2016.   

The net interest margin was 3.40% in the third quarter of 2017, compared to 3.41% in the second quarter of 2017 and 3.49% in the third quarter of 2016. The net interest margin (on a tax-equivalent basis) was 3.48% in both the third quarter of 2017 and second quarter of 2017, compared to 3.58% in the third quarter of 2016.(3) The net interest margin (on a tax-equivalent basis) in the third quarter of 2017, compared to the second quarter of 2017, was compressed due to an increase in the investment securities portfolio funded by an increase in average borrowings and time deposits. This compression was offset by an increase of 9 basis points in yield on total loans in the third quarter of 2017 to 4.31%, compared to the second quarter of 2017, primarily due to higher yields on originated loans and the benefit from interest rate adjustments on variable rate loans during the third quarter of 2017.

The provision for loan losses was $5.5 million in the third quarter of 2017, compared to $6.2 million in the second quarter of 2017 and $4.1 million in the third quarter of 2016. The decrease in the provision for loan losses in the third quarter of 2017, compared to the second quarter of 2017, was primarily the result of a lower amount of net organic loan growth in addition to improvements in collateral position of loans that are individually evaluated for impairment, partially offset by $0.6 million of impairment recorded during the third quarter of 2017 as a result of the quarterly re-estimation of cash flows of the acquired loan portfolio. The increase in provision for loan losses in the third quarter of 2017, compared to the third quarter of 2016, was primarily the result of an increase in originated loan growth. Originated loan growth was $496.5 million in the third quarter of 2017, compared to $699.9 million in the second quarter of 2017 and $377.0 million in the third quarter of 2016. The growth in the originated loan portfolio was partially offset by run-off in the acquired loan portfolio of $330.5 million in the third quarter of 2017, compared to $305.9 million in the second quarter of 2017 and $190.9 million in the third quarter of 2016. All acquired loans were recorded at their estimated fair value at each respective acquisition date without a carryover of the related allowance and, as of September 30, 2017, the allowance recorded for this population of loans was $0.6 million, reflecting impairment recorded during the third quarter of 2017.

Net loan charge-offs were $3.5 million, or 0.10% of average loans, in the third quarter of 2017, compared to $1.2 million, or 0.04% of average loans, in the second quarter of 2017 and $1.8 million, or 0.08% of average loans, in the third quarter of 2016. The increase in charge-offs in the third quarter of 2017 was primarily due to one commercial loan relationship.

The Corporation's nonperforming loans totaled $54.3 million at September 30, 2017, compared to $50.9 million at June 30, 2017 and $41.3 million at September 30, 2016. Nonperforming loans comprised 0.39% of total loans at September 30, 2017, compared to 0.37% at June 30, 2017 and 0.32% at September 30, 2016. The increase in the percentage of nonperforming loans to total loans at September 30, 2017, compared to June 30, 2017, was primarily due to an increase in commercial real estate nonaccrual loans.

At September 30, 2017, the allowance for loan losses was $85.8 million, including $85.2 million for the originated loan portfolio and $0.6 million for the acquired loan portfolio. The allowance for loan losses for the originated loan portfolio was $85.2 million, or 0.93% of originated loans at September 30, 2017, compared to $83.8 million, or 0.97% of originated loans, at June 30, 2017 and $73.8 million, or 1.09% of originated loans, at September 30, 2016. The reduction in the allowance for loan losses as a percentage of originated loans primarily reflects improvement in collateral position of loans individually evaluated for impairment. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 156.9% at September 30, 2017, compared to 164.7% at June 30, 2017 and 178.6% at September 30, 2016.  The allowance for loan losses for the acquired loan portfolio of $0.6 million was established during the third quarter of 2017 due to impairment identified in the quarterly re-estimation of cash flows.

Noninterest income was $32.1 million in the third quarter of 2017, compared to $41.6 million in the second quarter of 2017 and $27.8 million in the third quarter of 2016. Noninterest income in the third quarter of 2017 decreased compared to the second quarter of 2017, primarily due to decreases in net gain on sale of loans and other mortgage banking revenue of $4.6 million and other charges and fees for customer services of $3.1 million. The decrease in net gain on sale of loans and other mortgage banking revenue, included a $4.0 million detriment to earnings due to a change in fair value in loan servicing rights in the third quarter of 2017, compared to a $1.8 million detriment in the second quarter of 2017. The decrease in other charges and fees for customers services in the third quarter of 2017, compared to the second quarter of 2017, was primarily due to a reduction in interchange fees resulting from limitations set by the Durbin amendment, which became effective for the Corporation July 1, 2017.

Operating expenses were $119.5 million in the third quarter of 2017, compared to $98.2 million in the second quarter of 2017 and $106.1 million in the third quarter of 2016. Operating expenses included merger and restructuring expenses of $21.2 million in the third quarter of 2017, $0.5 million in the second quarter of 2017 and $37.5 million in the third quarter of 2016. The increase in merger and restructuring expenses in the third quarter of 2017, compared to the second quarter of 2017, was primarily due to the Corporation's previously announced restructuring efforts.  Third quarter of 2017 other operating expenses included $3.1 million of impairment related to a federal housing tax credit placed into service in the third quarter of 2017. Excluding merger and restructuring expenses and the impairment of federal housing tax credit, core operating expenses were $95.2 million in the third quarter of 2017, a decrease of $2.5 million compared to the second quarter of 2017.(4) We expect a decline in operating expenses from the previously announced restructuring efforts to be evident in the fourth quarter of 2017.

The Corporation's effective tax rate was 20.2% in the third quarter of 2017, compared to 30.7% in the second quarter of 2017 and 19.9% in the third quarter of 2016. The tax rate for the third quarter of 2017 benefited from a federal housing tax credit placed into service during the quarter. The income tax benefit from the tax credit placed into service was partially offset by the impairment recorded on the same tax credit included within other operating expenses. The tax rate for the third quarter of 2016 benefited from stock option exercises that occurred in the third quarter of 2016.

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 68.0% in the third quarter of 2017, compared to 54.7% in the second quarter of 2017 and 85.2% in the third quarter of 2016. The Corporation's adjusted efficiency ratio, which excludes significant items, amortization of intangibles, impairment of income tax credits, the net interest income FTE adjustment and gains from sale of investment securities and closed branch locations, was 51.2% in the third quarter of 2017, compared to 52.2% in the second quarter of 2017 and 52.7% in the third quarter of 2016.(5)

Total assets were $19.35 billion at September 30, 2017, compared to $18.78 billion at June 30, 2017 and $17.38 billion at September 30, 2016. The increase in total assets during the three months ended September 30, 2017 was primarily attributable to an increase in investment securities and loan growth that was funded primarily by an increase in deposits. During the quarter, the investment securities portfolio grew by $273.8 million to $2.69 billion at September 30, 2017. The increase in total assets during the twelve months ended September 30, 2017 was primarily attributable to organic loan growth and an increase in investment securities.

Total loans were $13.83 billion at September 30, 2017, an increase of $166.0 million, or 1.2%, from total loans of $13.67 billion at June 30, 2017 and an increase of $1.12 billion, or 8.8%, from total loans of $12.72 billion at September 30, 2016. The Corporation experienced organic loan growth of $166.0 million during the third quarter of 2017 and $1.12 billion during the twelve months ended September 30, 2017.

Total deposits were $13.81 billion at September 30, 2017, compared to $13.20 billion at June 30, 2017 and $13.27 billion at September 30, 2016. The increase in deposits during the three months ended September 30, 2017 was primarily due to an increase in interest-bearing demand accounts and other time deposits. The Corporation experienced organic growth in customer deposits of $591.8 million during the third quarter of 2017.

Securities sold under agreements to repurchase with customers were $414.6 million at September 30, 2017, compared to $310.0 million at June 30, 2017 and $326.8 million at September 30, 2016. Short-term borrowings were $1.90 billion at September 30, 2017, compared to $2.05 billion at June 30, 2017 and $400.0 million at September 30, 2016 and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs. Long-term borrowings were $397.8 million at September 30, 2017, compared to $435.9 million at June 30, 2017 and $676.6 million at September 30, 2016.

The Corporation's shareholders' equity to total assets ratio was 13.8% at September 30, 2017, compared to 14.1% at June 30, 2017 and 14.7% at September 30, 2016. The Corporation's tangible equity to tangible assets ratio and total risk-based capital ratio were 8.3% and 11.2% (estimated), respectively, at September 30, 2017 compared to 8.4% and 11.1%, respectively, at June 30, 2017 and 8.7% and 11.1%, respectively, at September 30, 2016. (6) The Corporation's book value was $37.57 per share at September 30, 2017, compared to $37.11 per share at June 30, 2017 and $36.37 per share at September 30, 2016. The Corporation's tangible book value was $21.36 per share at September 30, 2017, compared to $20.89 per share at June 30, 2017 and $19.99 per share at September 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. For the fourth quarter of 2016, "significant items" also includes gain on sales of branch offices.

(2) Return on average assets, excluding significant items, return on average shareholders’ equity, excluding significant items, 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) Core operating expenses, excluding merger and restructuring expenses and impairment of federal housing tax credits 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 measures.

(5) Adjusted efficiency ratio is a non-GAAP financial measure, which excludes significant items, amortization of intangibles, impairment of income tax credits, net interest income FTE adjustment, gains from sale of investment securities and closed branch locations. 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 third quarter 2017 operating results on Wednesday, October 25, 2017, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-844-616-0064 and entering 658387 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 236 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At September 30, 2017, the Corporation had total assets of $19.35 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, operating expenses-core (which excludes merger and restructuring expenses and impairment of income tax credits), operating expenses-efficiency ratio (which excludes merger and restructuring expenses, impairment of income tax credits and amortization of intangibles), the adjusted efficiency ratio (which excludes significant items, impairment of income tax credits, amortization of intangibles, net interest income FTE adjustments, gains from sale of investment securities and closed branch locations) and other information presented excluding significant items, including net income, diluted earnings per share, return on average assets and return on average shareholders' equity.

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. However, these non-GAAP financial measures have inherent limitations and should not be considered in isolation or as a substitute for GAAP measures. In addition, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP historical measures in this press release with other companies non-GAAP financial measures. 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. These statements include, among others, statements related to our belief that we are on target to achieve the long-term growth prospects established as part of our most recent merger performance targets and our expectations regarding operating expenses related to our restructuring efforts. . 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.

Forward-looking statements are based upon current beliefs and expectations and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, such 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, without limitation, a downturn in the economy, particularly in our markets, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate value, regulatory changes, excessive loan losses, the Corporation's inability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry, the Corporation's inability to grow its deposits while reducing the number of physical branches that is operates, and negative reactions to the restructuring efforts by Chemical Bank's customers, employees and other counterparties.

In addition, 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, 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 Third Quarter Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
 September 30,
 2017
 June 30,
 2017
 December 31,
 2016
 September 30,
 2016
        
Assets       
Cash and cash equivalents:       
Cash and cash due from banks$223,498  $230,219  $237,758  $286,351 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold     485,713  389,022  236,644  270,216 
Total cash and cash equivalents709,211  619,241  474,402  556,567 
Investment securities:       
Available-for-sale2,029,672  1,767,478  1,234,964  1,303,381 
Held-to-maturity657,176  645,605  623,427  563,721 
Total investment securities2,686,848  2,413,083  1,858,391  1,867,102 
Loans held-for-sale87,198  65,371  81,830  276,061 
Loans:       
Total loans13,833,368  13,667,372  12,990,779  12,715,789 
Allowance for loan losses(85,760) (83,797) (78,268) (73,775)
Net loans13,747,608  13,583,575  12,912,511  12,642,014 
Premises and equipment141,550  146,460  145,012  144,165 
Loan servicing rights62,195  64,522  58,315  51,393 
Goodwill1,134,568  1,133,534  1,133,534  1,137,166 
Other intangible assets35,797  37,322  40,211  35,700 
Interest receivable and other assets749,333  718,297  650,973  673,469 
Total Assets$19,354,308  $18,781,405  $17,355,179  $17,383,637 
Liabilities       
Deposits:       
Noninterest-bearing$3,688,848  $3,626,592  $3,341,520  $3,264,934 
Interest-bearing10,116,397  9,577,775  9,531,602  10,007,928 
Total deposits13,805,245  13,204,367  12,873,122  13,272,862 
Interest payable and other liabilities163,532  141,702  134,637  143,708 
Securities sold under agreements to repurchase with customers414,597  310,042  343,047  326,789 
Short-term borrowings1,900,000  2,050,000  825,000  400,000 
Long-term borrowings397,845  435,852  597,847  676,612 
Total liabilities16,681,219  16,141,963  14,773,653  14,819,971 
Shareholders' Equity       
Preferred stock, no par value per share       
Common stock, $1 par value per share71,152  71,131  70,599  70,497 
Additional paid-in capital2,201,334  2,197,501  2,210,762  2,206,182 
Retained earnings425,433  404,939  340,201  312,129 
Accumulated other comprehensive loss(24,830) (34,129) (40,036) (25,142)
Total shareholders' equity2,673,089  2,639,442  2,581,526  2,563,666 
Total Liabilities and Shareholders' Equity$19,354,308  $18,781,405  $17,355,179  $17,383,637 


 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
 Three Months Ended Nine Months Ended
 September 30,
 2017
 June 30,
 2017
 September 30,
 2016
 September 30,
 2017
 September 30,
 2016
Interest Income         
Interest and fees on loans$148,771  $141,314  $97,103  $422,570  $249,082 
Interest on investment securities:         
Taxable9,326  7,125  2,575  21,207  6,302 
Tax-exempt4,577  4,426  3,072  13,238  8,377 
Dividends on nonmarketable equity securities1,039  1,246  358  2,906  1,391 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold     1,231  1,022  454  3,052  811 
Total interest income164,944  155,133  103,562  462,973  265,963 
Interest Expense         
Interest on deposits12,926  10,582  5,836  32,424  14,155 
Interest on short-term borrowings6,591  4,659  459  12,908  785 
Interest on long-term borrowings1,799  1,944  458  5,968  2,389 
Total interest expense21,316  17,185  6,753  51,300  17,329 
Net Interest Income143,628  137,948  96,809  411,673  248,634 
Provision for loan losses5,499  6,229  4,103  15,778  8,603 
Net interest income after provision for loan losses138,129  131,719  92,706  395,895  240,031 
Noninterest Income         
Service charges and fees on deposit accounts9,147  8,777  7,665  25,928  19,722 
Wealth management revenue6,188  6,958  5,584  18,973  16,567 
Other charges and fees for customer services6,624  9,734  7,410  25,249  20,265 
Net gain on sale of loans and other mortgage banking revenue5,241  9,879  4,439  24,280  7,439 
Gain on sale of investment securities1  77  16  168  53 
Other4,921  6,143  2,656  17,102  4,040 
Total noninterest income32,122  41,568  27,770  111,700  68,086 
Operating Expenses         
Salaries, wages and employee benefits52,621  52,601  40,565  165,470  107,582 
Occupancy6,871  8,745  5,462  23,008  15,881 
Equipment and software7,582  8,149  6,420  24,248  15,699 
Outside processing and service fees9,626  8,924  5,365  26,061  13,909 
Merger expenses2,379  465  37,470  7,011  43,118 
Restructuring expenses18,824      18,824   
Other21,636  19,353  10,862  57,350  27,927 
Total operating expenses119,539  98,237  106,144  321,972  224,116 
Income before income taxes50,712  75,050  14,332  185,623  84,001 
Income tax expense10,253  23,036  2,848  45,546  23,137 
Net Income$40,459  $52,014  $11,484  $140,077  $60,864 
Earnings Per Common Share:         
Weighted average common shares outstanding-basic70,911  70,819  49,107  70,787  41,881 
Weighted average common shares outstanding-diluted71,505  71,443  49,631  71,454  42,321 
Basic earnings per share$0.57  $0.73  $0.23  $1.98  $1.45 
Diluted earnings per share0.56  0.73  0.23  1.95  1.42 
Cash Dividends Declared Per Common Share0.28  0.27  0.27  0.82  0.79 
Key Ratios (annualized where applicable):         
Return on average assets0.86% 1.14% 0.37% 1.03% 0.79%
Return on average shareholders' equity6.1% 8.0% 2.9% 7.2% 6.7%
Net interest margin (tax-equivalent basis) (non-GAAP)3.48% 3.48% 3.58% 3.48% 3.62%
Efficiency ratio - GAAP68.0% 54.7% 85.2% 61.5% 70.8%
Efficiency ratio - adjusted (non-GAAP)51.2% 52.2% 52.7% 53.5% 54.7%


 
 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
 3rd Quarter 2017 2nd Quarter 2017 1st Quarter 2017 4th Quarter 2016 3rd Quarter 2016 2nd Quarter 2016 1st Quarter 2016
    
Summary of Operations             
Interest income$164,944  $155,133  $142,896  $144,416  $103,562  $82,937  $79,464 
Interest expense21,316  17,185  12,799  11,969  6,753  5,442  5,134 
Net interest income143,628  137,948  130,097  132,447  96,809  77,495  74,330 
Provision for loan losses5,499  6,229  4,050  6,272  4,103  3,000  1,500 
Net interest income after provision for loan losses138,129  131,719  126,047  126,175  92,706  74,495  72,830 
Noninterest income32,122  41,568  38,010  54,264  27,770  20,897  19,419 
Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP)95,241  97,772  100,029  94,443  68,674  56,031  56,293 
Merger and restructuring expenses21,203  465  4,167  18,016  37,470  3,054  2,594 
Impairment of income tax credits3,095             
Income before income taxes50,712  75,050  59,861  67,980  14,332  36,307  33,362 
Income tax expense10,253  23,036  12,257  18,969  2,848  10,532  9,757 
Net income$40,459  $52,014  $47,604  $49,011  $11,484  $25,775  $23,605 
Significant items, net of tax16,409  1,474  3,046  2,781  25,921  1,985  1,686 
Net income, excluding significant items$56,868  $53,488  $50,650  $51,792  $37,405  $27,760  $25,291 
              
Per Common Share Data             
Net income:             
Basic$0.57  $0.73  $0.67  $0.67  $0.23  $0.67  $0.61 
Diluted0.56  0.73  0.67  0.66  0.23  0.67  0.60 
Diluted, excluding significant items (non-GAAP)0.79  0.75  0.71  0.70  0.75  0.72  0.65 
Cash dividends declared0.28  0.27  0.27  0.27  0.27  0.26  0.26 
Book value - period-end37.57  37.11  36.56  36.57  36.37  27.45  26.99 
Tangible book value - period-end21.36  20.89  20.32  20.20  19.99  19.68  19.20 
Market value - period-end52.26  48.41  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% 3.48% 3.49% 3.56% 3.58% 3.70% 3.60%
Efficiency ratio - adjusted (non-GAAP)51.2% 52.2% 57.4% 53.7% 52.7% 54.6% 57.6%
Return on average assets0.86% 1.14% 1.09% 1.09% 0.37% 1.10% 1.02%
Return on average shareholders' equity6.1% 8.0% 7.4% 7.4% 2.9% 10.0% 9.3%
Average shareholders' equity as a percent of average assets14.0% 14.3% 14.8% 14.9% 12.7% 11.1% 11.0%
Capital ratios (period end):             
Tangible shareholders' equity as a percent of tangible assets8.3% 8.4% 8.8% 8.8% 8.7% 8.2% 8.2%
Total risk-based capital ratio (1)11.2% 11.1% 11.4% 11.5% 11.1% 11.4% 11.5%
                     

(1) Estimated at September 30, 2017.

 
 
Chemical Financial Corporation Announces 2017 Third 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
 September 30, 2017 June 30, 2017 September 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)$13,795,750  $149,595  4.31% $13,513,927  $142,128  4.22% $9,470,650  $97,880  4.12%
Taxable investment securities1,629,344  9,326  2.29  1,364,358  7,125  2.09  687,259  2,575  1.50 
Tax-exempt investment  securities(1)896,854  7,013  3.13  882,445  6,781  3.07  592,747  4,721  3.19 
Other interest-earning assets180,188  1,039  2.29  166,244  1,246  3.01  57,756  358  2.47 
Interest-bearing deposits with the FRB and other banks and federal funds sold313,104  1,231  1.56  302,022  1,022  1.36  249,731  454  0.72 
Total interest-earning assets16,815,240  168,204  3.98  16,228,996  158,302  3.91  11,058,143  105,988  3.82 
Less: allowance for loan losses(84,640)     (80,690)     (72,242)    
Other assets:                 
Cash and cash due from banks250,743      222,954      194,171     
Premises and equipment146,266      145,320      116,944     
Interest receivable and other assets1,730,539      1,748,119      953,714     
Total assets$18,858,148      $18,264,699      $12,250,730     
Liabilities and shareholders' equity                
Interest-bearing liabilities:                 
Interest-bearing demand deposits$2,725,807  $1,321  0.19% $2,682,652  $1,289  0.19% $2,327,762  $961  0.16%
Savings deposits4,012,299  3,985  0.39  3,881,260  3,047  0.31  2,512,620  749  0.12 
Time deposits3,007,109  7,620  1.01  2,958,436  6,246  0.85  2,186,781  4,126  0.75 
Short-term borrowings2,279,998  6,591  1.15  2,027,505  4,659  0.92  593,903  459  0.31 
Long-term borrowings426,155  1,799  1.67  474,086  1,944  1.65  494,810  458  0.37 
Total interest-bearing liabilities12,451,368  21,316  0.68  12,023,939  17,185  0.57  8,115,876  6,753  0.33 
Noninterest-bearing deposits3,643,765      3,499,686      2,456,469     
Total deposits and borrowed funds16,095,133  21,316  0.53  15,523,625  17,185  0.44  10,572,345  6,753  0.25 
Interest payable and other liabilities119,782      134,557      118,717     
Shareholders' equity2,643,233      2,606,517      1,559,668     
Total liabilities and shareholders' equity$18,858,148      $18,264,699      $12,250,730     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)  3.30%     3.34%     3.49%
Net Interest Income (FTE)  $146,888      $141,117      $99,235   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)  3.48%     3.48%     3.58%
                  
Reconciliation to Reported Net Interest Income                
Net interest income, fully taxable equivalent (non-GAAP) $146,888      $141,117      $99,235   
Adjustments for taxable equivalent interest (1):                
Loans  (824)     (814)     (777)  
Tax-exempt investment securities  (2,436)     (2,355)     (1,649)  
Total taxable equivalent interest adjustments (3,260)     (3,169)     (2,426)  
Net interest income (GAAP)  $143,628      $137,948      $96,809   
Net interest margin (GAAP)  3.40%     3.41%     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 2017 Third Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates (1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  Nine Months Ended
  September 30, 2017 September 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) $13,490,851  $425,016  4.21% $8,098,796  $251,274  4.14%
Taxable investment securities 1,335,349  21,207  2.12  586,066  6,302  1.43 
Tax-exempt investment securities (1) 880,398  20,290  3.07  524,690  12,882  3.27 
Other interest-earning assets 150,203  2,906  2.59  46,994  1,391  3.95 
Interest-bearing deposits with the FRB and other banks and federal funds sold 294,967  3,052  1.38  156,640  811  0.69 
Total interest-earning assets 16,151,768  472,471  3.91  9,413,186  272,660  3.87 
Less: allowance for loan losses (81,337)     (72,525)    
Other assets:            
Cash and cash due from banks 234,379      166,927     
Premises and equipment 145,877      109,159     
Interest receivable and other assets 1,753,337      665,185     
Total assets $18,204,024      $10,281,932     
Liabilities and Shareholders' Equity            
Interest-bearing liabilities:            
Interest-bearing demand deposits $2,768,209  $3,628  0.18% $2,058,951  $2,011  0.13%
Savings deposits 3,912,672  8,753  0.30  2,212,732  1,614  0.10 
Time deposits 2,973,070  20,043  0.90  1,799,691  10,530  0.78 
Short-term borrowings 1,848,325  12,908  0.93  454,456  785  0.23 
Long-term borrowings 479,344  5,968  1.66  347,925  2,389  0.92 
Total interest-bearing liabilities 11,981,620  51,300  0.57  6,873,755  17,329  0.34 
Noninterest-bearing deposits 3,484,125      2,115,511     
Total deposits and borrowed funds 15,465,745  51,300  0.44  8,989,266  17,329  0.26 
Interest payable and other liabilities 126,649      87,829     
Shareholders' equity 2,611,630      1,204,837     
Total liabilities and shareholders' equity $18,204,024      $10,281,932     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)     3.34%     3.53%
Net Interest Income (FTE)   $421,171      $255,331   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.48%     3.62%
             
Reconciliation to Reported Net Interest Income            
Net interest income, fully taxable equivalent (non-GAAP)   $421,171      $255,331   
Adjustments for taxable equivalent interest (1):            
Loans   (2,446)     (2,192)  
Tax-exempt investment securities   (7,052)     (4,505)  
Total taxable equivalent interest adjustments   (9,498)     (6,697)  
Net interest income (GAAP)   $411,673      $248,634   
Net interest margin (GAAP)   3.40%     3.53%  
 

(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 Third Quarter Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 3rd
Quarter
2017
 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$9,147  $8,777  $8,004  $8,414  $7,665  $6,337  $5,720 
Wealth management revenue6,188  6,958  5,827  6,034  5,584  5,782  5,201 
Electronic banking fees4,370  7,482  6,817  8,196  5,533  4,786  4,918 
Net gain on sale of loans and other mortgage banking revenue     5,241  9,879  9,160  14,420  4,439  1,595  1,405 
Other fees for customer services2,254  2,252  2,074  1,785  1,877  1,677  1,474 
Gain on sale of investment securities1  77  90  76  16  18  19 
Gain on sale of branch offices      7,391       
Other4,921  6,143  6,038  7,948  2,656  702  682 
Total noninterest income$32,122  $41,568  $38,010  $54,264  $27,770  $20,897  $19,419 


 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
    
Operating expenses             
Salaries and wages$44,641  $44,959  $48,526  $47,936  $33,841  $26,887  $26,743 
Employee benefits7,980  7,642  11,722  9,695  6,724  6,240  7,147 
Occupancy6,871  8,745  7,392  7,644  5,462  5,514  4,905 
Equipment and software7,582  8,149  8,517  8,709  6,420  4,875  4,404 
Outside processing and service fees     9,626  8,924  7,511  7,290  5,365  4,833  3,711 
FDIC insurance premiums2,768  2,460  1,406  2,813  1,849  1,338  1,407 
Professional fees3,489  2,567  1,968  2,304  1,472  1,020  1,036 
Intangible asset amortization1,526  1,525  1,513  1,843  1,292  1,195  1,194 
Credit-related expenses1,874  1,895  1,200  (1,029) (371) (1,331) 30 
Merger expenses2,379  465  4,167  18,016  37,470  3,054  2,594 
Restructuring expenses18,824             
Impairment of income tax credit3,095             
Other8,884  10,906  10,274  9,081  6,620  5,460  5,716 
Total operating expenses$119,539  $98,237  $104,196  $114,302  $106,144  $59,085  $58,887 


 
 
Chemical Financial Corporation Announces 2017 Third 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 -
 Sep 30,
 2017
 June 30,
2017
 Three
Months
Ended
September
30, 2017
 March 31,
 2017
 Dec 31,
 2016
 Sep 30,
 2016
 Twelve
Months
Ended
September
30, 2017
              
Composition of Loans             
Commercial loan portfolio:             
Commercial$3,319,965  $3,360,161  (1.2)% $3,253,608  $3,217,300  $3,199,576  3.8%
Commercial real estate4,315,978  4,324,323  (0.2) 4,097,771  3,973,140  3,733,377  15.6 
Real estate construction501,413  446,678  12.3  453,811  403,772  500,494  0.2 
Subtotal - commercial loans8,137,356  8,131,162  0.1  7,805,190  7,594,212  7,433,447  9.5 
Consumer loan portfolio:             
Residential mortgage3,221,307  3,125,397  3.1  3,133,465  3,086,474  3,046,959  5.7 
Consumer installment1,615,983  1,553,967  4.0  1,481,057  1,433,884  1,335,707  21.0 
Home equity858,722  856,846  0.2  853,680  876,209  899,676  (4.6)
Subtotal - consumer loans5,696,012  5,536,210  2.9  5,468,202  5,396,567  5,282,342  7.8 
Total loans$13,833,368  $13,667,372  1.2% $13,273,392  $12,990,779  $12,715,789  8.8%


                          
     Organic
Growth -
       Organic
Growth -
 Sep 30,
 2017
 June 30,
 2017
 Three
Months
Ended
September
30, 2017
 March 31,
 2017
 Dec 31,
 2016
 Sep 30,
 2016
 Twelve
Months
Ended
September
30, 2017
Composition of Deposits             
Noninterest-bearing demand     $3,688,848  $3,626,592  1.7% $3,399,287  $3,341,520  $3,264,934  13.0%
Savings1,736,360  1,749,199  (0.7) 1,752,040  1,662,115  1,650,276  5.2 
Interest-bearing demand2,976,212  2,606,032  14.2  2,900,546  2,825,801  3,316,635  (10.3)
Money market accounts2,289,852  2,235,412  2.4  2,161,645  2,033,319  1,692,656  35.3 
Brokered deposits132,806  123,728  7.3  156,367  226,429  474,902  (72.0)
Other time deposits2,981,167  2,863,404  4.1  2,762,462  2,783,938  2,873,459  3.7 
Total deposits$13,805,245  $13,204,367  4.6% $13,132,347  $12,873,122  $13,272,862  4.0%


                    
 September 30,
 2017
 June 30,
 2017
 March 31,
 2017
 December 31,
 2016
 September 30,
 2016
          
Additional Data - Intangibles         
Goodwill$1,134,568  $1,133,534  $1,133,534  $1,133,534  $1,137,166 
Loan servicing rights62,195  64,522  64,604  58,315  51,393 
Core deposit intangibles (CDI)35,747  37,235  38,723  40,211  35,618 
Noncompete agreements50  87  125    82 


 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 Sep 30,
 2017
 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$15,648  $18,773  $16,717  $13,178  $13,742  $14,577  $19,264 
Commercial real estate25,150  19,723  20,828  19,877  19,914  21,325  25,859 
Real estate construction78  56  79  80  80  496  546 
Residential mortgage8,646  7,714  6,749  6,969  5,119  5,343  5,062 
Consumer installment875  757  755  879  378  285  360 
Home equity3,908  3,871  2,713  3,351  2,064  1,971  2,328 
Total nonaccrual loans(1)54,305  50,894  47,841  44,334  41,297  43,997  53,419 
Other real estate and repossessed assets10,605  14,582  16,395  17,187  20,730  8,440  9,248 
Total nonperforming assets$64,910  $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$3,521  $58  $1,823  $11  $221  $3  $370 
Commercial real estate144  262  700  277  739  3   
Real estate construction        1,439     
Residential mortgage        375  407  423 
Home equity2,367  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$6,032  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 Third Quarter Operating Results
 
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
 4th
Quarter
2016
 3rd
Quarter
2016
 2nd
Quarter
2016
 1st
Quarter
2016
 Nine Months Ended
        Sep 30,
 2017
 Sep 30,
 2016
Allowance for loan losses - originated loan portfolio        
 Allowance for loan losses - beginning of period$83,797  $78,774  $78,268  $73,775  $71,506  $70,318  $73,328  $78,268  $73,328 
Provision for loan losses4,921  6,229  4,050  6,272  4,103  3,000  1,500  15,200  8,603 
Net loan (charge-offs) recoveries:                
Commercial(2,348) (239) (1,999) (336) (150) (1,153) (3,115) (4,586) (4,418)
Commercial real estate(174) (205) 730  (280) (154) (187) (440) 351  (781)
Real estate construction    (9) 36  (31)   (11) (9) (42)
Residential mortgage(44) 19  (567) (236) (304) 8  (172) (592