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Chemical Financial Corporation reports fourth quarter 2017 net income of $9.4 million, representing $0.13 of earnings per diluted average share

Chemical Financial Corporation declares cash dividend on common stock of $0.28 per share

Company Release - 1/23/2018 4:10 PM ET

MIDLAND, Mich., Jan. 23, 2018 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2017 fourth quarter net income of $9.4 million, or $0.13 per diluted share, compared to 2017 third quarter net income of $40.5 million, or $0.56 per diluted share, and 2016 fourth quarter net income of $47.2 million, or $0.66 per diluted share. For the year ended December 31, 2017, net income was $149.5 million, or $2.08 per diluted share, compared to net income for the year ended December 31, 2016 of $108.0 million, or $2.17 per diluted share. Net income, excluding significant items, a non-GAAP financial measure, which excludes the fourth quarter of 2017 charge to income tax expense of $46.7 million resulting from the revaluation of Corporation's net deferred tax assets completed following the signing of the Tax Cuts and Jobs Act in December 2017, merger and restructuring expenses of $2.6 million and fourth quarter of 2017 losses of $7.6 million on sales of investment securities as part of the Corporation's treasury and tax management objectives (which we collectively refer to herein as "significant items"), was $62.7 million, or $0.87 per diluted share, in the fourth quarter of 2017.(1) Third quarter of 2017 net income, excluding significant items (merger and restructuring expenses of $21.2 million) was $54.2 million, or $0.76 per diluted share, and fourth quarter of 2016 net income, excluding significant items (merger expenses of $18.0 million and a $7.4 million net gain on the sale of branches) was $54.1 million, or $0.75 per diluted share.(1) Net income for the full year 2017, excluding significant items was $219.6 million, or $3.06 per diluted share, compared to $143.7 million, or $2.88 per diluted share for the full year 2016.(1) In addition, on January 23, 2018, the Board of Directors of the Corporation declared a first quarter of 2018 dividend on its common stock of $0.28 per share. The first quarter of 2018 dividend will be payable on March 16, 2018, to shareholders of record on March 2, 2018.

"We are pleased with our results for the quarter, including improved efficiency resulting from our restructuring efforts, high quality loan growth, maintaining a stable net interest margin and making headway on new commercial banker hires," noted David T. Provost, Chief Executive Officer of the Corporation and Thomas C. Shafer, Vice Chairman of the Corporation and Chief Executive Office of Chemical Bank. "We believe the efforts that we have undergone put us in a solid position for a successful 2018. We look forward to further growth in our markets to be achieved through investments in expanding our commercial lending and banking teams in high growth areas, key operation staff adds to support our customer service enhancements and enhancing our core systems."

The Corporation's return on average assets was 0.20% during the fourth quarter of 2017, compared to 0.86% in the third quarter of 2017, and 1.09% in the fourth quarter of 2016. The Corporation's return on average shareholders' equity was 1.4% in the fourth quarter of 2017, compared to 6.1% in the third quarter of 2017, and 7.4% in the fourth quarter of 2016. The Corporation's return on average assets, excluding significant items, a non-GAAP financial measure, was 1.31% in the fourth quarter of 2017, compared to 1.15% in the third quarter of 2017, and 1.25% in the fourth quarter of 2016.(1) The Corporation's return on average shareholders' equity, excluding significant items, a non-GAAP financial measure, was 9.4% in the fourth quarter of 2017, compared to 8.2% in the third quarter of 2017, and 8.4% in the fourth quarter of 2016.(1) The Corporation's return on average tangible shareholders' equity was 2.5% in the fourth quarter of 2017, compared to 10.9% in the third quarter of 2017, and 13.4% in the fourth quarter of 2016. The Corporation's return on average tangible equity, excluding significant items, a non-GAAP financial measure, was 16.5% in the fourth quarter of 2017, compared to 14.6% during the third quarter of 2017, and 15.3% in the fourth quarter of 2016.(1)

Net interest income was $145.9 million in the fourth quarter of 2017, $2.3 million, or 1.6%, higher than the third quarter of 2017, and $13.5 million, or 10.2%, higher than the fourth quarter of 2016. The higher net interest income in the fourth quarter of 2017, compared to both the third quarter of 2017 and the fourth quarter of 2016 was primarily attributable to increases in average loans and investment securities. The Corporation experienced net loan growth of $321.9 million during the fourth quarter of 2017 and $1.16 billion during the year ended December 31, 2017.

The net interest margin was 3.39% in the fourth quarter of 2017, compared to 3.40% in the third quarter of 2017 and 3.48% in the fourth quarter of 2016. The net interest margin, on a tax-equivalent basis, a non-GAAP financial measure, was 3.47% in the fourth quarter of 2017, compared to 3.48% in the third quarter of 2017, and 3.56% in the fourth quarter of 2016.(1)  The average yield on the loan portfolio was 4.31% in both the fourth and third quarters of 2017, compared to 4.18% in the fourth quarter of 2016. Interest accretion from purchase accounting discounts on acquired loans contributed 22 basis points to the Corporation's net interest margin, on a tax-equivalent basis, in the fourth quarter of 2017, compared to 23 basis points in the third quarter of 2017, and 14 basis points in the fourth quarter of 2016. The Corporation's average cost of funds was 0.56% in the fourth quarter of 2017, compared to 0.53% in the third quarter of 2017, and 0.33% in the fourth quarter of 2016.

Net interest income was $557.6 million for the year ended December 31, 2017,  $176.5 million, or 46.3%, higher than the year ended December 31, 2016. The average balance of loans outstanding during the year ended December 31, 2017 were up $4.30 billion compared to the prior year, with the increase driven by $4.88 billion of loans added on August 31, 2016 from the Corporation's merger with Talmer Bancorp Inc. ("Talmer"), and $1.16 billion of originated loan growth during 2017. The net interest margin was 3.40% in 2017 and 3.51% in 2016. The net interest margin, on a tax equivalent basis, a non-GAAP financial measure, was 3.48% in 2017, compared to 3.60% in 2016.(1)

The provision for loan losses was $7.5 million in the fourth quarter of 2017, compared to $5.5 million in the third quarter of 2017 and $6.3 million in the fourth quarter of 2016. The increase in the provision for loan losses in the fourth quarter of 2017, compared to the third quarter of 2017 and the fourth quarter of 2016, was primarily the result of an increase in originated loan growth. The provision for loan losses was $23.3 million for the year ended December 31, 2017, compared to $14.9 million for the year ended December 31, 2016, with the increase primarily due to an increase in originated loan growth. 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 December 31, 2017, no allowance was determined to be needed for this population of loans.

Net loan charge-offs were $1.4 million, or 0.04% of average loans, in the fourth quarter of 2017, compared to $3.5 million, or 0.10% of average loans, in the third quarter of 2017 and $1.8 million, or 0.06% of average loans, in the fourth quarter of 2016. The decrease in net loan charge-offs in the fourth quarter of 2017, compared to the third quarter of 2017, was primarily due to one commercial loan relationship charge-off in the third quarter of 2017 and an increase in recoveries on commercial real estate loans in the fourth quarter of 2017. The decrease in net loan charge-offs in the fourth quarter of 2017, compared to the fourth quarter of 2016, was primarily attributable to an increase in net recoveries on commercial real estate loans in the fourth quarter of 2017. Net loan charge-offs totaled $9.7 million, or 0.07% of average loans, during the year ended December 31, 2017, compared to $9.9 million, or 0.11% of average loans, during the year ended December 31, 2016.

The Corporation's nonperforming loans totaled $63.1 million at December 31, 2017, compared to $54.3 million at September 30, 2017 and $44.3 million at December 31, 2016. Nonperforming loans comprised 0.45% of total loans at December 31, 2017, compared to 0.39% at September 30, 2017, and 0.34% at December 31, 2016. The increase in nonperforming loans as a percentage of total loans at December 31, 2017, compared to December 31, 2016, was primarily due to previously accruing commercial troubled debt restructurings downgraded to nonaccrual status.

The allowance for loan losses for the originated loan portfolio was $91.9 million, or 0.94% of originated loans at December 31, 2017, compared to $85.2 million, or 0.93% of originated loans, at September 30, 2017 and $78.3 million, or 1.05% of originated loans, at December 31, 2016. The increase in the allowance for loan losses for the originated portfolio reflects organic growth in the loan portfolio and an increase in the allowance coverage needed for loans that are individually evaluated for impairment. The allowance for loan losses for the originated loan portfolio as a percentage of nonperforming loans was 145.6% at December 31, 2017, compared to 156.9% at September 30, 2017, and 176.5% at December 31, 2016. The third quarter of 2017 allowance for loan losses for the acquired loan portfolio of $0.6 million was reversed during the fourth quarter of 2017, due to improvement identified in the quarterly re-estimation of cash flows.

Noninterest income was $32.3 million in the fourth quarter of 2017, compared to $32.1 million in the third quarter of 2017, and $54.3 million in the fourth quarter of 2016. Noninterest income in the fourth quarter of 2017 was slightly higher than the third quarter of 2017, primarily due to increases in net gain on sale of loans and other mortgage banking revenue and interest rate swap fee income, included within other income, partially offset by $7.6 million of losses on sale of investment securities incurred in the fourth quarter of 2017, as part of the Corporation's treasury and tax management objectives. Noninterest income in the fourth quarter of 2017 was lower than the fourth quarter of 2016 primarily due to the losses on sales of investment securities recognized in the fourth quarter of 2017, a decrease in net gain on sale of loans and other mortgage banking revenue, and the fourth quarter of 2016 gain on sale of branches. Net gain on sale of loans and other mortgage banking revenue included a $13 thousand detriment to earnings due to a change in fair value in loan servicing rights in the fourth quarter of 2017, compared to a $4.0 million detriment in the third quarter of 2017, and a benefit of $6.3 million in the fourth quarter of 2016. Noninterest income was $144.0 million for the year ended December 31, 2017, compared to $122.4 million in 2016, which increased primarily due to incremental revenue resulting from the merger with Talmer. 

Operating expenses were $100.0 million in the fourth quarter of 2017, compared to $119.5 million in the third quarter of 2017, and $114.3 million in the fourth quarter of 2016. Operating expenses included merger and restructuring expenses of $2.6 million in the fourth quarter of 2017, $21.2 million in the third quarter of 2017, and $18.0 million in the fourth quarter of 2016. Fourth quarter of 2017 included $6.2 million of impairment related to federal historic tax credits placed into service during the quarter, included within other operating expense, compared to $3.1 million in the third quarter of 2017. Core operating expenses, a non-GAAP financial measure, which excludes merger and restructuring expenses and the impairment of federal historic tax credits, were $91.3 million in the fourth quarter of 2017, a decrease of $3.9 million, compared to $95.2 million in the third quarter of 2017, primarily due to the impact of the Corporation's restructuring efforts that began in the third quarter of 2017.(1)

Operating expenses were $422.0 million for the year ended December 31, 2017, compared to $338.4 million in 2016. Operating expenses included merger and restructuring expenses of $28.4 million in 2017 and $61.1 million in 2016. The year ended December 31, 2017 also included $9.3 million of impairment related to federal historic tax credits placed into service, included within other operating expenses. Core operating expenses, a non-GAAP financial measure, which excludes merger and restructuring expenses and the impairment of federal historic tax credits, were $384.3 million in 2017, compared to $277.3 million in 2016, with the increase due primarily to incremental expenses resulting from the merger with Talmer.(1)

The Corporation's effective tax rate was 86.6% in the fourth quarter of 2017, compared to 20.2% in the third quarter of 2017 and 28.7% in the fourth quarter of 2016. The tax rate for the fourth quarter of 2017 was impacted by the $46.7 million charge to income tax expense as a result of the revaluation of Corporation's net deferred tax assets and the benefit of federal historic tax credits placed into service during the quarter. The tax rate for the third quarter of 2017 benefited from a federal historic tax credit placed into service during the quarter. The income tax benefit from the tax credits placed into service were partially offset by the impairment recorded on the same tax credits included within other operating expenses. The effective tax rate for the year ended December 31, 2017 was 41.7%, compared to 28.0% for 2016. Excluding the impact of the revaluation of net deferred tax assets in the fourth quarter of 2017 and the benefit of federal historic tax credits placed into service, the effective tax rate for the year ended December 31, 2017 was 27.1%.

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 56.1% in the fourth quarter of 2017, 68.0% in the third quarter of 2017, and 61.2% in the fourth quarter of 2016. The Corporation's efficiency ratio was 60.1% for the year ended December 31, 2017 and 67.2% for 2016. The Corporation's adjusted efficiency ratio, a non-GAAP financial measure, which excludes significant items, amortization of intangibles, impairment of income tax credits, the net interest income FTE adjustment, the change in fair value on loan servicing rights, and losses/gains from sale of investment securities and closed branch locations, was 47.4% in the fourth quarter of 2017, 51.2% in the third quarter of 2017 and 53.7% in the fourth quarter of 2016. The Corporation's adjusted efficiency ratio was 51.9% for the year ended December 31, 2017 and 54.4% for 2016.(1)

Total assets were $19.28 billion at December 31, 2017, compared to $19.35 billion at September 30, 2017, and $17.36 billion at December 31, 2016. The decrease in total assets during the fourth quarter of 2017 was primarily attributable to a decrease in interest-bearing deposits with the Federal Reserve Bank and a reduction in net deferred tax assets, included within interest receivable and other assets, as a result of the revaluation of the net deferred tax assets, partially offset by loan growth.

Total loans were $14.16 billion at December 31, 2017, up $321.9 million, or 2.3%, from total loans of $13.83 billion at September 30, 2017, and up $1.16 billion, or 9.0%, from total loans of $12.99 billion at December 31, 2016. Originated loan growth was $591.3 million in the fourth quarter of 2017, compared to $496.5 million in the third quarter of 2017, and $702.5 million in the fourth quarter of 2016. The growth in the originated loan portfolio was partially offset by run-off in the acquired loan portfolio of $269.4 million in the fourth quarter of 2017, compared to $330.5 million in the third quarter of 2017, and $427.5 million in the fourth quarter of 2016.

Investment securities available-for-sale were $1.96 billion at December 31, 2017, a decrease of $66.1 million, from $2.03 billion at September 30, 2017. The decrease was primarily the result of the sale of approximately $400 million of securities in a loss position sold late in the fourth quarter of 2017 as part of treasury and tax management objectives set into place associated with the passing the Tax Cuts and Jobs Act in December of 2017, partially offset by reinvesting a portion of the proceeds in new securities prior to year end. The sale of these securities late in the fourth quarter of 2017 resulted in a loss on sale of investment securities of $7.6 million.

Total deposits were $13.64 billion at December 31, 2017, compared to $13.81 billion at September 30, 2017, and $12.87 billion at December 31, 2016. The decrease in deposits during the fourth quarter of 2017 was primarily due to a decline in interest-bearing demand deposits. The Corporation experienced net run-off in customer deposits of $163.1 million during the fourth quarter of 2017 primarily due to a seasonal decline in municipal deposits; however, the Corporation experienced net organic growth in customer deposits of $862.6 million for the year ended December 31, 2017.

Securities sold under agreements to repurchase with customers were $415.2 million at December 31, 2017, compared to $414.6 million at September 30, 2017, and $343.0 million at December 31, 2016. Short-term borrowings were $2.00 billion at December 31, 2017, compared to $1.90 billion at September 30, 2017, and $0.83 billion at December 31, 2016, and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs. Long-term borrowings were $372.9 million at December 31, 2017, compared to $397.8 million at September 30, 2017, and $597.8 million at December 31, 2016. The increase in short-term borrowings during the year ended December 31, 2017 was primarily utilized to fund loan growth and increase the investment securities portfolio.

The Corporation's shareholders' equity to total assets ratio was 13.8% at December 31, 2017, compared to 13.8% at September 30, 2017, and 14.9% at December 31, 2016. The Corporation's tangible shareholders' equity to assets ratio, a non-GAAP financial measure, and total risk-based capital ratio, were 8.3% and 10.9% (estimated), respectively, at December 31, 2017, compared to 8.3% and 11.2%, respectively, at September 30, 2017, and 8.8% and 11.5%, respectively, at December 31, 2016.(1) The Corporation's book value was $37.48 per share at December 31, 2017, compared to $37.57 per share at September 30, 2017 and $36.57 per share at December 31, 2016. The Corporation's tangible book value, a non-GAAP financial measure, was $21.21 per share at December 31, 2017, compared to $21.36 per share at September 30, 2017, and $20.20 per share at December 31, 2016.(1)

(1) 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.

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss its fourth quarter and full year 2017 operating results on Wednesday, January 24, 2018 at 10:30 am ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-523-1194 and entering 462654 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 212 banking offices located in Michigan, northeast Ohio and northern Indiana. At December 31, 2017, the Corporation had total assets of $19.28 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about the Corporation is available by visiting the "Investor Info" section of its website at www.chemicalbank.com.

Non-GAAP Financial Measures

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures including measures that exclude significant items, net income, diluted earnings per share, return on average assets and return on average shareholders' equity, 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, core operating expenses (which excludes merger and restructuring expenses and impairment of income tax credits), operating expenses-efficiency ratio (which excludes merger and restructuring expenses, impairment of federal historic tax credits and amortization of intangibles), and the adjusted efficiency ratio (which excludes significant items, impairment of federal historic tax credits, loan servicing rights change in fair value gains (losses), amortization of intangibles, net interest income FTE adjustments, (losses) gains from sale of investment securities and closed branch locations).

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 the efforts that we have undergone will put the Corporation in a solid position for a successful 2018, statements about growth in the Corporation's markets to be achieved through investments and expanding commercial lending and banking teams, 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 execute on its strategy to expand investments and commercial lending, 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 Fourth Quarter and Full Year 2017 Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
       
  December 31, 2017 September 30, 2017 December 31, 2016
Assets      
Cash and cash equivalents:      
Cash and cash due from banks $226,003  $223,498  $237,758 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold 229,988  485,713  236,644 
Total cash and cash equivalents 455,991  709,211  474,402 
Investment securities:      
Available-for-sale 1,963,546  2,029,672  1,234,964 
Held-to-maturity 677,093  657,176  623,427 
Total investment securities 2,640,639  2,686,848  1,858,391 
Loans held-for-sale 52,133  87,198  81,830 
Loans:      
Total loans 14,155,267  13,833,368  12,990,779 
Allowance for loan losses (91,887) (85,760) (78,268)
Net loans 14,063,380  13,747,608  12,912,511 
Premises and equipment 126,896  141,550  145,012 
Loan servicing rights 63,841  62,195  58,315 
Goodwill 1,134,568  1,134,568  1,133,534 
Other intangible assets 34,271  35,797  40,211 
Interest receivable and other assets 709,154  749,333  650,973 
Total Assets $19,280,873  $19,354,308  $17,355,179 
Liabilities      
Deposits:      
Noninterest-bearing $3,725,779  $3,688,848  $3,341,520 
Interest-bearing 9,917,024  10,116,397  9,531,602 
Total deposits 13,642,803  13,805,245  12,873,122 
Interest payable and other liabilities 181,203  163,532  134,637 
Securities sold under agreements to repurchase with customers 415,236  414,597  343,047 
Short-term borrowings 2,000,000  1,900,000  825,000 
Long-term borrowings 372,882  397,845  597,847 
Total liabilities 16,612,124  16,681,219  14,773,653 
Shareholders' Equity      
Preferred stock, no par value per share      
Common stock, $1 par value per share 71,207  71,152  70,599 
Additional paid-in capital 2,203,637  2,201,334  2,210,762 
Retained earnings 414,885  425,433  340,201 
Accumulated other comprehensive loss (20,980) (24,830) (40,036)
Total shareholders' equity 2,668,749  2,673,089  2,581,526 
Total Liabilities and Shareholders' Equity $19,280,873  $19,354,308  $17,355,179 


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 Three Months Ended Year Ended
 December 31,
 2017
 September 30,
 2017
 December 31,
 2016
 December 31,
 2017
 December 31,
 2016
Interest Income         
Interest and fees on loans$150,558  $148,771  $134,463  $573,128  $383,545 
Interest on investment securities:         
Taxable10,289  9,326  4,687  31,496  10,989 
Tax-exempt5,105  4,577  3,940  18,343  12,317 
Dividends on nonmarketable equity securities2,018  1,039  582  4,924  1,973 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold1,192  1,231  744  4,244  1,555 
Total interest income169,162  164,944  144,416  632,135  410,379 
Interest Expense         
Interest on deposits14,303  12,926  8,866  46,727  23,021 
Interest on short-term borrowings7,413  6,591  875  20,321  1,660 
Interest on long-term borrowings1,541  1,799  2,228  7,509  4,617 
Total interest expense23,257  21,316  11,969  74,557  29,298 
Net Interest Income145,905  143,628  132,447  557,578  381,081 
Provision for loan losses7,522  5,499  6,272  23,300  14,875 
Net interest income after provision for loan losses138,383  138,129  126,175  534,278  366,206 
Noninterest Income         
Service charges and fees on deposit accounts9,073  9,147  8,414  35,001  28,136 
Wealth management revenue6,539  6,188  6,034  25,512  22,601 
Other charges and fees for customer services7,522  6,624  9,981  32,771  30,246 
Net gain on sale of loans and other mortgage banking revenue7,925  5,241  14,420  32,205  21,859 
(Loss) gain on sale of investment securities(7,556) 1  76  (7,388) 129 
Gain on sale of branches    7,391    7,391 
Other8,816  4,921  7,948  25,918  11,988 
Total noninterest income32,319  32,122  54,264  144,019  122,350 
Operating Expenses         
Salaries, wages and employee benefits48,358  52,621  57,631  213,828  165,213 
Occupancy7,546  6,871  7,644  30,554  23,525 
Equipment and software8,000  7,582  8,709  32,248  24,408 
Outside processing and service fees9,081  9,626  7,290  35,142  21,199 
Merger expenses1,511  2,379  18,016  8,522  61,134 
Restructuring expenses1,056  18,824    19,880   
Other24,470  21,636  15,012  81,820  42,939 
Total operating expenses100,022  119,539  114,302  421,994  338,418 
Income before income taxes70,680  50,712  66,137  256,303  150,138 
Income tax expense61,234  10,253  18,969  106,780  42,106 
Net Income$9,446  $40,459  $47,168  $149,523  $108,032 
Earnings Per Common Share:         
Weighted average common shares outstanding-basic71,095  70,911  70,171  70,865  49,091 
Weighted average common shares outstanding-diluted71,682  71,505  71,304  71,513  49,603 
Basic earnings per common share$0.13  $0.57  $0.67  $2.11  $2.21 
Diluted earnings per common share$0.13  $0.56  $0.66  $2.08  $2.17 
Diluted, excluding significant items (non-GAAP)$0.87  $0.76  $0.75  $3.06  $2.88 
Cash Dividends Declared Per Common Share$0.28  $0.28  $0.27  $1.10  $1.06 
Key Ratios (annualized where applicable):         
Return on average assets0.20% 0.86% 1.09% 0.81% 0.90%
Return on average shareholders' equity1.4% 6.1% 7.4% 5.7% 7.0%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)16.5% 14.6% 15.3% 14.9% 14.9%
Net interest margin (tax-equivalent basis) (non-GAAP)3.47% 3.48% 3.56% 3.48% 3.60%
Efficiency ratio - GAAP56.1% 68.0% 61.2% 60.1% 67.2%
Efficiency ratio - adjusted (non-GAAP)47.4% 51.2% 53.7% 51.9% 54.4%


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 4th Quarter 2017 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$169,162  $164,944  $155,133  $142,896  $144,416  $103,562  $82,937  $79,464 
Interest expense23,257  21,316  17,185  12,799  11,969  6,753  5,442  5,134 
Net interest income145,905  143,628  137,948  130,097  132,447  96,809  77,495  74,330 
Provision for loan losses7,522  5,499  6,229  4,050  6,272  4,103  3,000  1,500 
Net interest income after provision for loan losses138,383  138,129  131,719  126,047  126,175  92,706  74,495  72,830 
Noninterest income32,319  32,122  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)91,298  95,241  97,772  100,029  96,286  68,674  56,031  56,293 
Merger and restructuring expenses2,567  21,203  465  4,167  18,016  37,470  3,054  2,594 
Impairment of income tax credits6,157  3,095             
Income before income taxes70,680  50,712  75,050  59,861  66,137  14,332  36,307  33,362 
Income tax expense61,234  10,253  23,036  12,257  18,969  2,848  10,532  9,757 
Net income$9,446  $40,459  $52,014  $47,604  $47,168  $11,484  $25,775  $23,605 
Significant items, net of tax53,240  13,782  302  2,709  6,906  25,118  1,985  1,686 
Net income, excluding significant items$62,686  $54,241  $52,316  $50,313  $54,074  $36,602  $27,760  $25,291 
                
Per Common Share Data               
Net income:               
Basic$0.13  $0.57  $0.73  $0.67  $0.67  $0.23  $0.67  $0.61 
Diluted0.13  0.56  0.73  0.67  0.66  0.23  0.67  0.60 
Diluted, excluding significant items (non-GAAP)0.87  0.76  0.73  0.70  0.75  0.73  0.72  0.65 
Cash dividends declared0.28  0.28  0.27  0.27  0.27  0.27  0.26  0.26 
Book value - period-end37.48  37.57  37.11  36.56  36.57  36.37  27.45  26.99 
Tangible book value - period-end21.21  21.36  20.89  20.32  20.20  19.99  19.68  19.20 
Market value - period-end53.47  52.26  48.41  51.15  54.17  44.13  37.29  35.69 
                
Net interest margin (taxable equivalent basis) (non-GAAP)3.47% 3.48% 3.48% 3.49% 3.56% 3.58% 3.70% 3.60%
Efficiency ratio - adjusted (non-GAAP)47.4% 51.2% 52.2% 57.4% 53.7% 52.7% 54.6% 57.6%
Return on average assets0.20% 0.86% 1.14% 1.09% 1.09% 0.37% 1.10% 1.02%
Return on average shareholders' equity1.4% 6.1% 8.0% 7.4% 7.4% 2.9% 10.0% 9.3%
Average shareholders' equity as a percent of average assets13.9% 14.0% 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% 8.3% 8.4% 8.8% 8.8% 8.7% 8.2% 8.2%
Total risk-based capital ratio (1)10.9% 11.2% 11.1% 11.4% 11.5% 11.1% 11.4% 11.5%
(1) Estimated at December 31, 2017.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
 Three Months Ended
 December 31, 2017 September 30, 2017 December 31, 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)$13,954,366  $151,413
  4.31% $13,795,750  $149,595
  4.31% $12,895,557  $135,301
  4.18%
Taxable investment securities 1,715,494   10,289  2.40   1,629,344   9,326  2.29   1,065,453   4,687  1.76 
Tax-exempt investment securities(1) 981,299   7,830  3.19   896,854   7,013  3.13   807,093   6,047  3.00 
Other interest-earning assets 180,098   2,018  4.45   180,188   1,039  2.29   80,202   582  2.89 
Interest-bearing deposits with the FRB and other banks and federal funds sold 307,028   1,192  1.54   313,104   1,231  1.56   307,802   744  0.96 
Total interest-earning assets 17,138,285   172,742  4.01   16,815,240   168,204  3.98   15,156,107   147,361  3.87 
Less: allowance for loan losses (86,521)      (84,640)      (74,822)    
Other assets:                 
Cash and cash due from banks 239,307       250,743       245,613     
Premises and equipment 138,880       146,266       144,652     
Interest receivable and other assets 1,777,479       1,730,539       1,793,118     
Total assets$19,207,430
      $18,858,148     $17,264,668
     
Liabilities and shareholders' equity                 
Interest-bearing liabilities:                 
Interest-bearing demand deposits$2,709,033  $1,242  0.18% $2,725,807  $1,321  0.19% $2,680,241  $1,266  0.19%
Savings deposits 4,023,075   4,296  0.42   4,012,299   3,985  0.39   3,490,972   1,263  0.14 
Time deposits 3,136,655   8,765  1.11   3,007,109   7,620  1.01   3,209,695   6,337  0.79 
Short-term borrowings 2,366,571   7,413  1.24   2,279,998   6,591  1.15   949,292   875  0.38 
Long-term borrowings 383,739   1,541  1.67   426,155   1,799  1.67   600,066   2,228  1.41 
Total interest-bearing liabilities 12,619,073   23,257  0.73   12,451,368   21,316  0.68   10,930,266   11,969  0.44 
Noninterest-bearing deposits 3,734,650        3,643,765         3,622,365      
Total deposits and borrowed funds 16,353,723   23,257  0.56   16,095,133   21,316  0.53   14,552,631   11,969  0.33 
Interest payable and other liabilities 177,678       119,782       147,094     
Shareholders' equity 2,676,029       2,643,233       2,564,943     
Total liabilities and shareholders' equity$19,207,430      $18,858,148      $17,264,668     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.28%     3.30%     3.43%
Net Interest Income (FTE)  $149,485      $146,888      $135,392   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.47%     3.48%     3.56%
                  
Reconciliation to Reported Net Interest Income                
Net interest income, fully taxable equivalent (non-GAAP) $149,485
      $146,888
      $135,392
   
Adjustments for taxable equivalent interest(1):                
Loans   (855)      (824)      (838)  
Tax-exempt investment securities   (2,725)      (2,436)      (2,107)  
Total taxable equivalent interest adjustments  (3,580)      (3,260)      (2,945)  
Net interest income (GAAP)  $145,905
      $143,628
      $132,447
   
Net interest margin (GAAP)   3.39%      3.40%      3.48%  

(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2)  Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.

Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
 
  Year Ended
  December 31, 2017 December 31, 2016
  Average
Balance
 Interest (FTE) Effective
Yield/Rate(1)
 Average
Balance
 Interest (FTE) Effective
Yield/Rate(1)
Assets  
Interest-earning assets:            
Loans(1)(2) $13,607,683  $576,429  4.24% $9,304,573  $386,575  4.15%
Taxable investment securities 1,431,167  31,496  2.20  706,567  10,989  1.56 
Tax-exempt investment securities(1) 905,831  28,120  3.10  595,677  18,929  3.18 
Other interest-earning assets 157,738  4,924  3.12  55,341  1,973  3.57 
Interest-bearing deposits with the FRB and other banks and federal funds sold 298,006  4,244  1.42  194,637  1,555  0.80 
Total interest-earning assets 16,400,425  645,213  3.93  10,856,795  420,021  3.87 
Less: allowance for loan losses (82,644)     (73,136)    
Other assets:            
Cash and cash due from banks 235,621      186,706     
Premises and equipment 144,114      118,080     
Interest receivable and other assets 1,767,640      948,710     
Total assets $18,465,156      $12,037,155     
Liabilities and shareholders' equity            
Interest-bearing liabilities:            
Interest-bearing demand deposits $2,753,294  $4,870  0.18% $2,143,064  $3,277  0.15%
Savings deposits 3,940,499  13,049  0.33  2,534,038  2,877  0.11 
Time deposits 3,014,302  28,808  0.96  2,154,118  16,867  0.78 
Short-term borrowings 1,978,951  20,321  1.03  571,510  1,660  0.29 
Long-term borrowings 455,246  7,509  1.67  418,636  4,617  1.10 
Total interest-bearing liabilities 12,142,292  74,557  0.61  7,821,366  29,298  0.37 
Noninterest-bearing deposits 3,547,271      2,566,342     
Total deposits and borrowed funds 15,689,563  74,557  0.48  10,387,708  29,298  0.28 
Interest payable and other liabilities 147,731      102,726     
Shareholders' equity 2,627,862      1,546,721     
Total liabilities and shareholders' equity $18,465,156      $12,037,155     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)   3.32%     3.50%
Net Interest Income (FTE)   $570,656      $390,723   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)   3.48%     3.60%
             
Reconciliation to Reported Net Interest Income          
Net interest income, fully taxable equivalent (non-GAAP) $570,656      $390,723   
Adjustments for taxable equivalent interest(1):            
Loans   (3,301)     (3,030)  
Tax-exempt investment securities   (9,777)     (6,612)  
Total taxable equivalent interest adjustments   (13,078)     (9,642)  
Net interest income (GAAP)   $557,578      $381,081   
Net interest margin (GAAP)   3.40%     3.51%  
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2)  Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 4th Quarter 2017 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$9,073  $9,147  $8,777  $8,004  $8,414  $7,665  $6,337  $5,720 
Wealth management revenue6,539  6,188  6,958  5,827  6,034  5,584  5,782  5,201 
Electronic banking fees5,578  4,370  7,482  6,817  8,196  5,533  4,786  4,918 
Net gain on sale of loans and other mortgage banking revenue7,938  9,282  11,681  9,679  8,072  5,675  1,595  1,405 
Change in fair value in loan servicing rights(1)(13) (4,041) (1,802) (519) 6,348  (1,236)    
Other fees for customer services1,944  2,254  2,252  2,074  1,785  1,877  1,677  1,474 
(Loss) gain on sale of investment securities(7,556) 1  77  90  76  16  18  19 
Bank-owned life insurance1,377  1,124  1,106  1,211  957  446  237  196 
Gain on sale of branch offices        7,391       
Other7,439  3,797  5,037  4,827  6,991  2,210  465  486 
Total noninterest income$32,319  $32,122  $41,568  $38,010  $54,264  $27,770  $20,897  $19,419 
(1) Included within the line item "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.


 4th Quarter 2017 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$41,866  $44,641  $44,959  $48,526  $47,936  $33,841  $26,887  $26,743 
Employee benefits6,492  7,980  7,642  11,722  9,695  6,724  6,240  7,147 
Occupancy7,546  6,871  8,745  7,392  7,644  5,462  5,514  4,905 
Equipment and software8,000  7,582  8,149  8,517  8,709  6,420  4,875  4,404 
Outside processing and service fees9,081  9,626  8,924  7,511  7,290  5,365  4,833  3,711 
FDIC insurance premiums4,556  2,768  2,460  1,406  2,813  1,849  1,338  1,407 
Professional fees3,483  3,489  2,567  1,968  2,304  1,472  1,020  1,036 
Intangible asset amortization1,525  1,526  1,525  1,513  1,843  1,292  1,195  1,194 
Credit-related expenses803  1,874  1,895  1,200  (1,029) (371) (1,331) 30 
Merger expenses1,511  2,379  465  4,167  18,016  37,470  3,054  2,594 
Restructuring expenses1,056  18,824             
Impairment of income tax credit6,157  3,095             
Other7,946  8,884  10,906  10,274  9,081  6,620  5,460  5,716 
Total operating expenses$100,022  $119,539  $98,237  $104,196  $114,302  $106,144  $59,085  $58,887 


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
              
 Dec 31,
 2017
 Sep 30,
 2017
 Organic
Growth -
Three
Months
Ended
Dec 31,
2017
 Jun 30,
 2017
 Mar 31,
 2017
 Dec 31,
 2016
 Organic
Growth -
Twelve
Months
Ended
Dec 31,
2017
              
Composition of Loans             
Commercial loan portfolio:             
Commercial$3,385,642  $3,319,965