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Chemical Financial Corporation reports 2018 first quarter net income of $70.2 million, representing $0.97 of earnings per diluted average share

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

Company Release - 4/24/2018 4:10 PM ET

MIDLAND, Mich., April 24, 2018 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Chemical," "we," "us" or "our") (NASDAQ:CHFC) today announced 2018 first quarter net income of $70.2 million, or $0.97 per diluted share, compared to 2017 fourth quarter net income of $9.4 million, or $0.13 per diluted share and 2017 first quarter net income of $47.6 million, or $0.67 per diluted share. Fourth quarter of 2017 net income, excluding significant items, a non-GAAP financial measure, which for the fourth quarter of 2017 excluded the charge to income tax expense of $46.7 million resulting from the revaluation of our net deferred tax assets, $2.6 million of merger and restructuring expenses and $7.6 million of losses on sales of investment securities was $62.7 million, or $0.87 per diluted share, and first quarter of 2017 net income, excluding significant items, which for the first quarter of 2017 excluded $4.2 million of merger expenses was $50.3 million, or $0.70 per diluted share.(1) We had no significant items in the first quarter of 2018. In addition, on April 24, 2018, our Board of Directors declared a second quarter of 2018 dividend on our common stock of $0.28 per share. The second quarter of 2018 dividend will be payable on June 15, 2018, to shareholders of record on June 1, 2018.

"We are pleased with our earnings results for the quarter which benefited from an increase in net interest income driven by improvement in our net interest margin, a $3.8 million benefit to earnings due to a change in fair value in loan servicing rights and a lower effective tax rate," noted David T. Provost, Chief Executive Officer of Chemical and Thomas C. Shafer, Vice Chairman of Chemical and Chief Executive Office of Chemical Bank. "Over the last few months we have successfully recruited who we believe to be some of the top commercial lenders in our markets and made investments in banking teams in our high growth areas. Additionally, we have keenly focused on growing our core deposits and are pleased with the progress we are making with both retail and institutional customers. Furthermore, our teams are working diligently to implement substantial upgrades to our core operating systems and are on schedule to complete this project in the third quarter of this year. We look forward to the growth we believe these investments will bring to our loan and deposit portfolios in addition to the optimal best-in-class customer service experience we are creating for our customers."

Our return on average assets was 1.44% during the first quarter of 2018, compared to 0.20% during the fourth quarter of 2017 and 1.09% in the first quarter of 2017. Our return on average assets, excluding significant items, a non-GAAP financial measure, was 1.31% during the fourth quarter of 2017 and 1.15% in the first quarter of 2017.(1) Our return on average tangible shareholders' equity was 18.6% in the first quarter of 2018, compared to 2.5% during the fourth quarter of 2017 and 13.3% in the first quarter of 2017. Our return on average tangible equity, excluding significant items, a non-GAAP financial measure, was 16.5% during the fourth quarter of 2017 and 14.1% in the first quarter of 2017.(1)

Our net interest income was $151.9 million in the first quarter of 2018, $6.0 million, or 4.1%, higher than the fourth quarter of 2017 and $21.8 million, or 16.7%, higher than the first quarter of 2017. The increase in net interest income in the first quarter of 2018, compared to the fourth quarter of 2017, was primarily attributable to increases in yields earned and average balances on loans and investment securities, partially offset by two less days in the quarter. The increase in net interest income in the first quarter of 2018, over the first quarter of 2017, was primarily attributable to increases in average balances and yields earned on loans in addition to an increase in average investment securities. We experienced net loan growth of $63.5 million during the first quarter of 2018 and $945.4 million during the twelve months ended March 31, 2018, and increased our investment securities portfolio by $333.3 million during the first quarter of 2018 and $1.05 billion during the twelve months ended March 31, 2018.

Our net interest margin was 3.51% in the first quarter of 2018, compared to 3.39% in the fourth quarter of 2017 and 3.41% in the first quarter of 2017. Our net interest margin, on a tax-equivalent basis, a non-GAAP financial measure, was 3.56% in the first quarter of 2018, compared to 3.47% in the fourth quarter of 2017 and 3.49% in the first quarter of 2017.(1) Our net interest margin, on a tax-equivalent basis, in the first quarter of 2018, compared to the fourth quarter of 2017, improved primarily due to increases in yields earned and average balances in our loan and investment securities portfolios, partially offset by an increase in our cost of funds and the reduced benefit of the fully taxable equivalent adjustment resulting from the reduction in the federal corporate tax rate to 21%. The average yield on our loan portfolio increased to 4.48% in the first quarter of 2018, compared to 4.31% in the fourth quarter of 2017 and 4.11% in the first quarter of 2017. Interest accretion from purchase accounting discounts on acquired loans contributed 29 basis points to our net interest margin, on a tax-equivalent basis, in the first quarter of 2018, compared to 22 basis points in the fourth quarter of 2017 and 12 basis points in the first quarter of 2017. The increase in the size of our investment securities portfolio was primarily due to our reinvestment of the proceeds from our fourth quarter of 2017 sales of certain securities in a loss position as part of our treasury and tax management objectives and additional investment in our investment securities portfolio. Our average cost of funds was 0.64% in the first quarter of 2018, compared to 0.56% in the fourth quarter of 2017 and 0.35% in the first quarter of 2017.

Our provision for loan losses was $6.3 million in the first quarter of 2018, compared to $7.5 million in the fourth quarter of 2017 and $4.1 million in the first quarter of 2017. The decrease in the provision for loan losses in the first quarter of 2018, compared to the fourth quarter of 2017, was primarily the result of a reduction in originated loan growth. We recorded all acquired loans at their estimated fair value at each respective acquisition date without a carryover of the related allowance and, as of both March 31, 2018 and December 31, 2017, we determined no allowance was needed for this population of loans.

Net loan charge-offs were $3.4 million, or 0.10% of average loans, in the first quarter of 2018, compared to $1.4 million, or 0.04% of average loans, in the fourth quarter of 2017 and $3.5 million, or 0.11% of average loans, in the first quarter of 2017. The increase in charge-offs in the first quarter of 2018, compared to the fourth quarter of 2017, was primarily due to charge-offs taken on loans individually evaluated for impairment with previously established specific reserves.

Our nonperforming loans totaled $61.8 million at March 31, 2018, compared to $63.1 million at December 31, 2017 and $47.8 million at March 31, 2017. Nonperforming loans comprised 0.43% of total loans at March 31, 2018, compared to 0.45% at December 31, 2017 and 0.36% at March 31, 2017.

Our allowance for loan losses for our originated loan portfolio was $94.8 million, or 0.95% of originated loans, at March 31, 2018, compared to $91.9 million, or 0.94% of originated loans, at December 31, 2017 and $78.8 million, or 0.99% of originated loans, at March 31, 2017. Our allowance for loan losses of our originated loan portfolio as a percentage of nonperforming loans was 153.3% at March 31, 2018, compared to 145.6% at December 31, 2017 and 164.7% at March 31, 2017. The results of our quarterly re-estimation of cash flows on our acquired loan portfolios resulted in no need for an allowance for our acquired loan portfolios as of March 31, 2018, December 31, 2017 or March 31, 2017.

Our noninterest income was $40.6 million in the first quarter of 2018, compared to $32.3 million in the fourth quarter of 2017 and $38.0 million in the first quarter of 2017. Noninterest income in the first quarter of 2018 increased compared to the fourth quarter of 2017, primarily due to $7.6 million in losses in the fourth quarter of 2017 on the sale of investment securities taken as part of our treasury and tax management objectives and a $4.6 million increase in net gain on sale of loans and other mortgage banking revenue, partially offset by a $1.8 million decrease in other charges and fees for customer services. Noninterest income in the first quarter of 2018 increased compared to the first quarter of 2017, primarily due to a $3.4 million increase in net gain on sale of loans and other mortgage banking revenue and a $1.8 million increase in other noninterest income, partially offset by a $3.1 million decrease in other charges and fees for customer services. Net gain on sale of loans and other mortgage banking revenue, included a $3.8 million benefit to earnings due to a change in fair value in loan servicing rights in the first quarter of 2018, compared to a $13 thousand detriment in the fourth quarter of 2017 and a $519 thousand detriment in the first quarter of 2017. The change in fair value in loan servicing rights benefited diluted earnings per share by approximately $0.04 in the first quarter of 2018, compared to no impact in the fourth quarter of 2017 and a detriment of $0.01 in the first quarter of 2017.

Our operating expenses were $103.4 million in the first quarter of 2018, compared to $100.0 million in the fourth quarter of 2017 and $104.2 million in the first quarter of 2017. We had no merger and restructuring expenses in the first quarter of 2018, compared to $2.6 million in the fourth quarter of 2017 and $4.2 million in the first quarter of 2017. First quarter of 2018 included $1.6 million of impairment related to a federal historic tax credit placed into service during the quarter, included within other operating expense in our Consolidated Statements of Income, compared to $6.2 million of impairment related to federal historic tax credits in the fourth quarter of 2017. Core operating expenses, a non-GAAP financial measure, which excludes merger and restructuring expenses for 2017 and the impairment of federal historic tax credits, were $101.7 million in the first quarter of 2018, compared to $91.3 million for the fourth quarter of 2017, an increase of $10.4 million,  primarily due to an $8.7 million increase in salaries, wages and employee benefits and a $2.3 million increase in outside processing and service fees primarily due to costs incurred related to preparing for the conversion of our core operating system. The increase in salaries, wages and employee benefits was the result of annual merit increases, the hiring of additional lenders, key management and operations staff, an increase in payroll taxes due to the additional salary expense, the beginning of a new tax year and a decrease in the deferral of loan origination costs due to lower loan production. Costs specifically attributed to our efforts to implement upgrades to our core operating systems were $2.7 million in the first quarter of 2018. These costs are expected to increase for the second quarter of 2018 and then begin trending downward for the third and fourth quarters of 2018.

Our effective tax rate was 15.3% in the first quarter of 2018, compared to 86.6% in the fourth quarter of 2017 and 20.5% in the first quarter of 2017. Our tax rate for the first quarter of 2018 benefited from the enactment of the Tax Cuts and Jobs Act which reduced the federal corporate tax rate to 21% effective January 1, 2018 and a $1.6 million benefit from a federal housing tax credit placed into service during the quarter. Our 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 our net deferred tax assets and the $6.2 million benefit from federal historic tax credits placed into service during the quarter. Our tax rate for the first quarter of 2017 benefited primarily from stock option exercises that occurred during the quarter.

Our efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. Our efficiency ratio was 53.7% in the first quarter of 2018, compared to 56.1% in the fourth quarter of 2017 and 62.0% in the first quarter of 2017. Our adjusted efficiency ratio, a non-GAAP financial measure, which excludes, as applicable, amortization of intangibles, merger and restructuring expenses, 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, was 52.5% in the first quarter of 2018, compared to 47.4% in the fourth quarter of 2017 and 57.4% in the first quarter of 2017.(1)

Our total assets were $19.76 billion at March 31, 2018, compared to $19.28 billion at December 31, 2017 and $17.64 billion at March 31, 2017. The increase in our total assets during the first quarter of 2018 was primarily attributable to an increase in our investment securities portfolio. The increase in total assets during the twelve months ended March 31, 2018 was primarily attributable to an increase in our investment securities portfolio and net loan growth.

Our investment securities portfolio totaled $2.97 billion at March 31, 2018, an increase of $333.3 million, compared to $2.64 billion at December 31, 2017, and an increase of $1.05 billion, compared to $1.92 billion at March 31, 2017. The increase in the investment securities portfolio in both the first quarter of 2018 and the twelve months ended March 31, 2018 reflects our long-term plan to increase our investment securities portfolio as a percentage of total assets. The increase in our investment securities portfolio in the first quarter of 2018 also includes the remaining reinvestment of proceeds from our sales of certain securities in a loss position in the fourth quarter of 2017 as part of our treasury and tax management objectives.

Our total loans were $14.22 billion at March 31, 2018, an increase of $63.5 million, from total loans of $14.16 billion at December 31, 2017 and an increase of $945.4 million, from total loans of $13.27 billion at March 31, 2017. We experienced organic loan growth of $265.1 million during the first quarter of 2018, compared to $591.3 million in the fourth quarter of 2017 and $501.4 million in the first quarter of 2017. Growth in our originated loan portfolio was partially offset by run-off in our acquired loan portfolio of $201.6 million in the first quarter of 2018, compared to $269.4 million in the fourth quarter of 2017 and $218.8 million in the first quarter of 2017.

Our total deposits were $13.97 billion at March 31, 2018, compared to $13.64 billion at December 31, 2017 and $13.13 billion at March 31, 2017. The increase in deposits during the three months ended March 31, 2018 was primarily due to an increase in brokered deposits, noninterest-bearing demand accounts and money market accounts. Collateralized customer deposits were $490.1 million at March 31, 2018, compared to $415.2 million at December 31, 2017 and $398.9 million at March 31, 2017. Loans as a percentage of deposits plus collateralized customer deposits were 98.3% at March 31, 2018, compared to 100.7% at December 31, 2017 and 98.1% at March 31, 2017.

Our short-term borrowings were $2.05 billion at March 31, 2018, compared to $2.00 billion at December 31, 2017 and $900.0 million at March 31, 2017 and consisted of short-term FHLB advances that we used to fund our short-term liquidity needs. Our long-term borrowings were $372.9 million at both March 31, 2018 and December 31, 2017, compared to $490.9 million at March 31, 2017.

Our shareholders' equity to total assets ratio was 13.7% at March 31, 2018, compared to 13.8% at December 31, 2017 and 14.7% at March 31, 2017. Our tangible shareholders' equity to tangible assets ratio, a non-GAAP financial measure, and total risk-based capital ratio were 8.3% and 11.2% (estimated), respectively, at March 31, 2018 compared to 8.3% and 11.0%, respectively, at December 31, 2017 and 8.8% and 11.4%, respectively, at March 31, 2017. (1) Our book value was $37.89 per share at March 31, 2018, compared to $37.48 per share at December 31, 2017 and $36.56 per share at March 31, 2017. Our tangible book value, a non-GAAP financial measure, was $21.66 per share at March 31, 2018, compared to $21.21 per share at December 31, 2017 and $20.32 per share at March 31, 2017.(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 our first quarter 2018 operating results on Wednesday, April 25, 2018, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 800-581-5838 and entering 715637 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 Information" 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. We operate through our subsidiary bank, Chemical Bank, with 212 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At March 31, 2018, we had total assets of $19.76 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 Chemical Financial Corporation is available by visiting the "Investor Information" section of our website at www.chemicalbank.com.

Non-GAAP Financial Measures

This press release contains references to financial measures that 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, our 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 because we believe they are helpful for investors to analyze and evaluate our 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 Chemical. 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 regarding our recruitment of top commercial lenders, the impact of upgrades to our core operating systems, the timing of such upgrades and our expected costs attributable to such upgrades, including the timing and impact of such expenses. 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 Chemical, 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. We undertake 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, operational and regulatory challenges associated with our information technology systems and policies and procedures in light of our rapid growth and pending system conversion in 2018, regulatory changes, excessive loan losses, our 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, our inability to execute on its strategy to expand investments and commercial lending, our inability to grow our deposits after reducing the number of physical branches that we operate, and negative reactions to our restructuring efforts by our customers, employees and other counterparties.

In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of Chemical's Annual Report on Form 10-K for the year ended December 31, 2017. 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 2018 First Quarter Operating Results

 

Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)

 March 31,
 2018
 December 31,
 2017
 March 31,
 2017
      
Assets     
Cash and cash equivalents:     
Cash and cash due from banks$174,173  $226,003  $191,940 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold379,320  229,988  249,840 
Total cash and cash equivalents553,493  455,991  441,780 
Investment securities:     
Available-for-sale2,297,123  1,963,546  1,275,846 
Held-to-maturity676,847  677,093  647,192 
Total investment securities2,973,970  2,640,639  1,923,038 
Loans held-for-sale31,636  52,133  39,123 
Loans:     
Total loans14,218,747  14,155,267  13,273,392 
Allowance for loan losses(94,762) (91,887) (78,774)
Net loans14,123,985  14,063,380  13,194,618 
Premises and equipment126,251  126,896  142,763 
Loan servicing rights68,837  63,841  64,604 
Goodwill1,134,568  1,134,568  1,133,534 
Other intangible assets32,833  34,271  38,848 
Interest receivable and other assets710,511  709,154  658,665 
Total Assets$19,756,084  $19,280,873  $17,636,973 
Liabilities     
Deposits:     
Noninterest-bearing$3,801,125  $3,725,779  $3,399,287 
Interest-bearing10,166,692  9,917,024  9,733,060 
Total deposits13,967,817  13,642,803  13,132,347 
Collateralized customer deposits490,107  415,236  398,910 
Short-term borrowings2,050,000  2,000,000  900,000 
Long-term borrowings372,908  372,882  490,876 
Interest payable and other liabilities171,975  181,203  114,789 
Total liabilities17,052,807  16,612,124  15,036,922 
Shareholders' Equity     
Preferred stock, no par value per share     
Common stock, $1 par value per share71,350  71,207  71,118 
Additional paid-in capital2,201,803  2,203,637  2,194,705 
Retained earnings471,178  419,403  372,193 
Accumulated other comprehensive loss(41,054) (25,498) (37,965)
Total shareholders' equity2,703,277  2,668,749  2,600,051 
Total Liabilities and Shareholders' Equity$19,756,084  $19,280,873  $17,636,973 


Chemical Financial Corporation Announces 2018 First Quarter Operating Results

 

Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)

 Three Months Ended
 March 31,
 2018
 December 31,
 2017
 March 31,
 2017
Interest Income     
Interest and fees on loans$156,818  $150,558  $132,485 
Interest on investment securities:     
Taxable12,419  10,289  4,756 
Tax-exempt5,556  5,105  4,235 
Dividends on nonmarketable equity securities1,901  2,018  621 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold1,240  1,192  799 
Total interest income177,934  169,162  142,896 
Interest Expense     
Interest on deposits15,917  14,303  8,916 
Interest on collateralized customer deposits524  461  150 
Interest on short-term borrowings8,166  6,952  1,508 
Interest on long-term borrowings1,464  1,541  2,225 
Total interest expense26,071  23,257  12,799 
Net Interest Income151,863  145,905  130,097 
Provision for loan losses6,256  7,522  4,050 
Net interest income after provision for loan losses145,607  138,383  126,047 
Noninterest Income     
Service charges and fees on deposit accounts8,463  9,073  8,004 
Wealth management revenue6,311  6,539  5,827 
Other charges and fees for customer services5,754  7,522  8,891 
Net gain on sale of loans and other mortgage banking revenue12,535  7,925  9,160 
(Loss) gain on sale of investment securities  (7,556) 90 
Other7,491  8,816  6,038 
Total noninterest income40,554  32,319  38,010 
Operating Expenses     
Salaries, wages and employee benefits56,105  47,363  59,894 
Occupancy8,011  7,546  7,392 
Equipment and software7,659  8,000  8,517 
Outside processing and service fees11,332  9,081  7,511 
Merger expenses  1,511  4,167 
Restructuring expenses  1,056   
Other20,251  25,465  16,715 
Total operating expenses103,358  100,022  104,196 
Income before income taxes82,803  70,680  59,861 
Income tax expense12,633  61,234  12,257 
Net Income$70,170  $9,446  $47,604 
Earnings Per Common Share:     
Weighted average common shares outstanding-basic71,231  71,095  70,628 
Weighted average common shares outstanding-diluted71,906  71,682  71,415 
Basic earnings per share$0.99  $0.13  $0.67 
Diluted earnings per share0.97  0.13  0.67 
Diluted earnings per share, excluding significant items (non-GAAP)0.97  0.87  0.70 
Cash Dividends Declared Per Common Share0.28  0.28  0.27 
Key Ratios (annualized where applicable):     
Return on average assets1.44% 0.20% 1.09%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)18.6% 16.5% 14.1%
Net interest margin (tax-equivalent basis) (non-GAAP)3.56% 3.47% 3.49%
Efficiency ratio - GAAP53.7% 56.1% 62.0%
Efficiency ratio - adjusted (non-GAAP)52.5% 47.4% 57.4%


Chemical Financial Corporation Announces 2018 First Quarter Operating Results

 

Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)

 1st
Quarter 2018
 4th
Quarter 2017
 3rd
Quarter 2017
 2nd
Quarter 2017
 1st
Quarter 2017
  
Summary of Operations         
Interest income$177,934  $169,162  $164,944  $155,133  $142,896 
Interest expense26,071  23,257  21,316  17,185  12,799 
Net interest income151,863  145,905  143,628  137,948  130,097 
Provision for loan losses6,256  7,522  5,499  6,229  4,050 
Net interest income after provision for loan losses145,607  138,383  138,129  131,719  126,047 
Noninterest income40,554  32,319  32,122  41,568  38,010 
Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP)101,724  91,298  95,241  97,772  100,029 
Merger and restructuring expenses  2,567  21,203  465  4,167 
Impairment of income tax credits1,634  6,157  3,095     
Income before income taxes82,803  70,680  50,712  75,050  59,861 
Income tax expense12,633  61,234  10,253  23,036  12,257 
Net income$70,170  $9,446  $40,459  $52,014  $47,604 
Significant items, net of tax  53,240  13,782  302  2,709 
Net income, excluding significant items$70,170  $62,686  $54,241  $52,316  $50,313 
          
Per Common Share Data         
Net income:         
Basic$0.99  $0.13  $0.57  $0.73  $0.67 
Diluted0.97  0.13  0.56  0.73  0.67 
Diluted, excluding significant items (non-GAAP)0.97  0.87  0.76  0.73  0.70 
Cash dividends declared0.28  0.28  0.28  0.27  0.27 
Book value - period-end37.89  37.48  37.57  37.11  36.56 
Tangible book value - period-end21.66  21.21  21.36  20.89  20.32 
Market value - period-end54.68  53.47  52.26  48.41  51.15 
          
Key Ratios (annualized where applicable)        
Net interest margin (taxable equivalent basis) (non-GAAP)3.56% 3.47% 3.48% 3.48% 3.49%
Efficiency ratio - adjusted (non-GAAP)52.5% 47.4% 51.2% 52.2% 57.4%
Return on average assets1.44% 0.20% 0.86% 1.14% 1.09%
Return on average shareholders' equity10.5% 1.4% 6.1% 8.0% 7.4%
Return on average tangible shareholders' equity (non-GAAP)18.6% 16.5% 14.6% 14.4% 14.1%
Average shareholders' equity as a percent of average assets13.7% 13.9% 14.0% 14.3% 14.8%
Capital ratios (period end):         
Tangible shareholders' equity as a percent of tangible assets8.3% 8.3% 8.3% 8.4% 8.8%
Total risk-based capital ratio (1)11.2% 11.0% 11.2% 11.1% 11.4%

(1)  Estimated at March 31, 2018.


Chemical Financial Corporation Announces 2018 First 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
 March 31, 2018 December 31, 2017 March 31, 2017
 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)$14,224,926  $157,568  4.48% $13,954,366  $151,413  4.31% $13,155,846  $133,293  4.11%
Taxable investment securities1,781,995  12,419  2.79  1,715,494  10,289  2.40  1,005,489  4,756  1.89 
Tax-exempt investment securities(1)1,010,092  7,033  2.79  981,299  7,830  3.19  861,508  6,495  3.02 
Other interest-earning assets180,084  1,901  4.28  180,098  2,018  4.45  103,334  621  2.44 
Interest-bearing deposits with the FRB and other banks and federal funds sold262,910  1,240  1.91  307,028  1,192  1.54  269,288  799  1.20 
Total interest-earning assets17,460,007  180,161  4.17  17,138,285  172,742  4.01  15,395,465  145,964  3.83 
Less: allowance for loan losses(92,648)     (86,521)     (78,616)    
Other assets:                 
Cash and cash due from banks226,660      239,307      229,203     
Premises and equipment126,742      138,880      146,044     
Interest receivable and other assets1,737,116      1,777,479      1,781,923     
Total assets$19,457,877      $19,207,430      $17,474,019     
Liabilities and shareholders' equity                
Interest-bearing liabilities:                 
Interest-bearing checking deposits$2,767,267  $1,225  0.18% $2,709,033  $1,242  0.18% $2,898,061  $1,018  0.14%
Savings deposits4,047,004  4,937  0.49  4,023,075  4,296  0.42  3,842,594  1,721  0.18 
Time deposits3,262,568  9,755  1.21  3,136,655  8,765  1.11  2,953,069  6,177  0.85 
Collateralized customer deposits409,077  524  0.52  408,962  461  0.45  333,666  150  0.18 
Short-term borrowings2,055,556  8,166  1.61  1,957,609  6,952  1.41  892,222  1,508  0.69 
Long-term borrowings372,886  1,464  1.59  383,739  1,541  1.67  539,032  2,225  1.67 
Total interest-bearing liabilities12,914,358  26,071  0.82  12,619,073  23,257  0.73  11,458,644  12,799  0.45 
Noninterest-bearing deposits3,688,581      3,734,650      3,305,201     
Total deposits and borrowed funds16,602,939  26,071  0.64  16,353,723  23,257  0.56  14,763,845  12,799  0.35 
Interest payable and other liabilities186,613      177,678      125,673     
Shareholders' equity2,668,325      2,676,029      2,584,501     
Total liabilities and shareholders' equity$19,457,877      $19,207,430      $17,474,019     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.35%     3.28%     3.38%
Net Interest Income (FTE)  $154,090      $149,485      $133,165   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)  3.56%     3.47%     3.49%
                  
Reconciliation to Reported Net Interest Income                
Net interest income, fully taxable equivalent (non-GAAP) $154,090      $149,485      $133,165   
Adjustments for taxable equivalent interest (1):                
Loans  (750)     (855)     (808)  
Tax-exempt investment securities  (1,477)     (2,725)     (2,260)  
Total taxable equivalent interest adjustments (2,227)     (3,580)     (3,068)  
Net interest income (GAAP)  $151,863      $145,905      $130,097   
Net interest margin (GAAP)  3.51%     3.39%     3.41%  

(1)  Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the three months ended March 31, 2018 and 35% for the three months ended December 31, 2017 and March 31, 2017. 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 2018 First Quarter Operating Results

 

Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)

 1st
Quarter
2018
 4th
Quarter
2017
 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
  
Noninterest income         
Service charges and fees on deposit accounts$8,463  $9,073  $9,147  $8,777  $8,004 
Wealth management revenue(1)6,311  6,539  6,188  6,958  5,827 
Other fees for customer services1,697  1,944  2,254  2,252  2,074 
Electronic banking fees4,057  5,578  4,370  7,482  6,817 
Net gain on sale of loans and other mortgage banking revenue8,783  7,938  9,282  11,681  9,679 
Change in fair value in loan servicing rights(1)3,752  (13) (4,041) (1,802) (519)
Gain (loss) on sale of investment securities  (7,556) 1  77  90 
Bank-owned life insurance891  1,377  1,124  1,106  1,211 
Gain on sale of branch offices         
Other6,600  7,439  3,797  5,037  4,827 
Total noninterest income$40,554  $32,319  $32,122  $41,568  $38,010 

(1)  Included within the line item "Other charges and fees for customer services" in the Consolidated Statements of Income.
(2)  Included within the line item "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.

 1st
Quarter
2018
 4th
Quarter
2017
 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
  
Operating expenses         
Salaries and wages$46,192  $41,866  $44,641  $44,959  $48,526 
Employee benefits9,913  5,497  7,949  7,288  11,368 
Occupancy8,011  7,546  6,871  8,745  7,392 
Equipment and software7,659  8,000  7,582  8,149  8,517 
Outside processing and service fees11,332  9,081  9,626  8,924  7,511 
FDIC insurance premiums5,629  4,556  2,768  2,460  1,406 
Professional fees2,525  3,483  3,489  2,567  1,968 
Intangible asset amortization1,439  1,525  1,526  1,525  1,513 
Credit-related expenses1,306  803  1,874  1,895  1,200 
Merger expenses  1,511  2,379  465  4,167 
Restructuring expenses  1,056  18,824     
Impairment of income tax credit1,634  6,157  3,095     
Other7,718  8,941  8,915  11,260  10,628 
Total operating expenses$103,358  $100,022  $119,539  $98,237  $104,196 


Chemical Financial Corporation Announces 2018 First 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 -
 Mar 31,
 2018
 Dec 31,
 2017
 Three Months Ended
March 31, 2018
 Sep 30,
 2017
 Jun 30,
 2017
 Mar 31,
 2017
 Twelve Months Ended
March 31, 2018
              
Composition of Loans             
Commercial loan portfolio:             
Commercial$3,427,285  $3,385,642  1.2% $3,319,965  $3,360,161  $3,253,608  5.3%
Commercial real estate:             
Owner-occupied1,832,824  1,813,562  1.1  1,718,404  1,695,947  1,705,653  7.5 
Non-owner occupied2,680,801  2,606,761  2.8  2,514,538  2,550,396  2,316,846  15.7 
Vacant land74,751  80,347  (7.0) 83,036  77,980  75,272  (0.7)
Total commercial real estate4,588,376  4,500,670  1.9  4,315,978  4,324,323  4,097,771  12.0 
Real estate construction559,780  574,215  (2.5) 501,413  446,678  453,811  23.4 
Subtotal - commercial loans8,575,441  8,460,527  1.4  8,137,356  8,131,162  7,805,190  9.9 
Consumer loan portfolio:             
Residential mortgage3,264,620  3,252,487  0.4  3,221,307  3,125,397  3,133,465  4.2 
Consumer installment1,572,240  1,613,008  (2.5) 1,615,983  1,553,967  1,481,057  6.2 
Home equity806,446  829,245  (2.7) 858,722  856,846  853,680  (5.5)
Subtotal - consumer loans5,643,306  5,694,740  (0.9) 5,696,012  5,536,210  5,468,202  3.2 
Total loans$14,218,747  $14,155,267  0.4% $13,833,368  $13,667,372  $13,273,392  7.1%


     Organic Growth -       Organic Growth -
 Mar 31,
 2018
 Dec 31,
 2017
 Three Months Ended
March 31, 2018
 Sep 30,
 2017
 Jun 30,
 2017
 Mar 31,
 2017
 Twelve Months Ended
March 31, 2018
Composition of Deposits             
Noninterest-bearing demand$3,801,125  $3,725,779  2.0% $3,688,848  $3,626,592  $3,399,287  11.8%
Savings1,742,342  1,697,762  2.6  1,736,360  1,749,199  1,752,040  (0.6)
Interest-bearing checking2,701,055  2,724,415  (0.9) 2,974,478  2,605,673  2,884,567  (6.4)
Money market accounts2,032,633  1,957,909  3.8  2,007,466  1,953,325  1,893,764  7.3 
Brokered deposits651,846  453,227  43.8  416,926  406,174  440,227  48.1 
Other time deposits3,038,816  3,083,711  (1.5) 2,981,167  2,863,404  2,762,462  10.0 
Total deposits$13,967,817  $13,642,803  2.4% $13,805,245  $13,204,367  $13,132,347  6.4%


 March 31,
 2018
 December 31,
 2017
 September 30,
 2017
 June 30,
 2017
 March 31,
 2017
          
Additional Data - Intangibles         
Goodwill$1,134,568  $1,134,568  $1,134,568  $1,133,534  $1,133,534 
Loan servicing rights68,837  63,841  62,195  64,522  64,604 
Core deposit intangibles (CDI)32,833  34,259  35,747  37,235  38,723 
Noncompete agreements  13  50  87  125 


Chemical Financial Corporation Announces 2018 First Quarter Operating Results

 

Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)

 Mar 31,
 2018
 Dec 31,
 2017
 Sep 30,
 2017
 Jun 30,
 2017
 Mar 31,
 2017
Nonperforming Assets         
Nonperforming Loans (1):         
Nonaccrual loans:         
Commercial$20,000  $19,691  $15,648  $18,773  $16,717 
Commercial real estate:         
Owner-occupied19,855  19,070  16,295  11,683  12,575 
Non-owner occupied5,489  5,270  4,361  3,600  3,793 
Vacant land4,829  5,205  4,494  4,440  4,460 
Total commercial real estate30,173  29,545  25,150  19,723  20,828 
Real estate construction77  77  78  56  79 
Residential mortgage7,621  8,635  8,646  7,714  6,749 
Consumer installment922  842  875  757  755 
Home equity3,039  4,305  3,908  3,871  2,713 
Total nonaccrual loans(1)61,832  63,095  54,305  50,894  47,841 
Other real estate and repossessed assets7,719  8,807  10,605  14,582  16,395 
Total nonperforming assets$69,551  $71,902  $64,910  $65,476  $64,236 
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$322  $  $3,521  $58  $1,823 
Commercial real estate:         
Owner-occupied    144    700 
Non-owner occupied  13       
Vacant land      262   
Total commercial real estate  13  144  262  700 
Home equity913  1,364  2,367  2,026  1,169 
Total accruing loans contractually past due 90 days or more as to interest or principal payments$1,235  $1,377  $6,032  $2,346  $3,692 

(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 we expect to collect on these loans.


Chemical Financial Corporation Announces 2018 First Quarter Operating Results

 

Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)

 1st Quarter
2018
 4th Quarter
2017
 3rd Quarter
2017
 2nd Quarter
2017
 1st Quarter
2017
 
      
Allowance for loan losses - originated loan portfolio 
 Allowance for loan losses - beginning of period$91,887  $85,181  $83,797  $78,774  $78,268  
Provision for loan losses6,256  8,101  4,920  6,229  4,050  
Net loan (charge-offs) recoveries:         
Commercial(1,252) (613) (2,348) (239) (1,999) 
Commercial real estate:          
Owner-occupied341  (232) (170) (173) 725  
Non-owner occupied(456) 748  (7) (35) 21  
Vacant land(448) 267  3  3  (16) 
Total commercial real estate(563) 783  (174) (205) 730  
Real estate construction26  (1)     (9) 
Residential mortgage(53) (142) (44) 19  (567) 
Consumer installment(997) (1,318) (857) (747) (1,310) 
Home equity(542) (104) (113) (34) (389) 
Net loan charge-offs(3,381) (1,395) (3,536) (1,206) (3,544) 
Allowance for loan losses - end of period94,762  91,887  85,181  83,797  78,774  
Allowance for loan losses - acquired loan portfolio       
Allowance for loan losses - beginning of period  579        
Provision for loan losses  (579) 579      
Allowance for loan losses - end of period    579      
Total allowance for loan losses$94,762  $91,887  $85,760  $83,797  $78,774  
Net loan charge-offs as a percent of average loans (annualized)0.10% 0.04% 0.10% 0.04% 0.11% 


 March 31,
 2018
 December 31,
 2017
 September 30,
 2017
 June 30,
 2017
 March 31,
 2017
Originated loans$10,012,516  $9,747,429  $9,156,096  $8,659,622  $7,959,769 
Acquired loans4,206,231  4,407,838  4,677,272  5,007,750  5,313,623 
Total loans$14,218,747  $14,155,267  $13,833,368  $13,667,372  $13,273,392 
          
Allowance for loan losses (originated loan portfolio) as a percent of:
Total originated loans0.95% 0.94% 0.93% 0.97% 0.99%
Nonperforming loans153.3% 145.6% 156.9% 164.7% 164.7%
Credit mark as a percent of unpaid principal balance on acquired loans1.8% 2.4% 2.7% 2.6% 2.8%


Chemical Financial Corporation Announces 2018 First Quarter Operating Results

 

Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands)

 1st
Quarter
2018
 4th
Quarter
2017
 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
     
Non-GAAP Operating Results    
Net Income         
Net income, as reported$70,170  $9,446  $40,459  $52,014  $47,604 
Merger and restructuring expenses    2,567   21,203   465   4,167 
Loss on sale of investment securities (1)    7,556          
Significant items    10,123   21,203   465   4,167 
Income tax benefit (2)    (3,543)  (7,421)  (163)  (1,458)
Revaluation of net deferred tax assets    46,660          
Significant items, net of tax    53,240   13,782   302   2,709 
Net income, excluding significant items$70,170  $62,686  $54,241  $52,316  $50,313 
Diluted Earnings Per Share        
Diluted earnings per share, as reported$0.97  $0.13  $0.56  $0.73  $0.67 
Effect of significant items, net of tax    0.74   0.20      0.03 
Diluted earnings per share, excluding significant items$0.97  $0.87  $0.76  $0.73  $0.70 
Return on Average Assets         
Return on average assets, as reported 1.44%  0.20%  0.86%  1.14%  1.09%
Effect of significant items, net of tax    1.11   0.29   0.01   0.06 
Return on average assets, excluding significant items 1.44%  1.31%  1.15%  1.15%  1.15%
Return on Average Shareholders' Equity      
Return on average shareholders' equity, as reported 10.5%  1.4%  6.1%  8.0%  7.4%
Effect of significant items, net of tax    8.0   2.1      0.4 
Return on average shareholders' equity, excluding significant items 10.5%  9.4%  8.2%  8.0%  7.8%
Return on Average Tangible Shareholders' Equity      
Average shareholders' equity$2,668,325
  $2,676,029  $2,643,233  $2,606,517  $2,584,501 
Average goodwill, CDI and noncompete agreements, net of tax 1,158,084
   1,156,122   1,153,394   1,154,229   1,155,177 
Average tangible shareholders' equity$1,510,241
  $1,519,907  $1,489,839  $1,452,288  $1,429,324 
Return on average tangible shareholders' equity 18.6%  2.5%  10.9%  14.3%  13.3%
Effect of significant items, net of tax    14.0   3.7   0.1   0.8 
Return on average tangible shareholders' equity, excluding significant items 18.6%  16.5%  14.6%  14.4%  14.1%

(1)  Represents losses on sales of investment securities in the fourth quarter of 2017 as part of our treasury and tax management objectives.
(2)  Assumes merger and restructuring expenses and other significant items are deductible at an income tax rate of 35% for each quarter during 2017.

Chemical Financial Corporation Announces 2018 First Quarter Operating Results

 

Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands, except per share data)

 1st Quarter
2018
 4th Quarter
2017
 3rd Quarter
2017
 2nd Quarter
2017
 1st Quarter
2017
     
Efficiency Ratio        
Net interest income$151,863  $145,905  $143,628  $137,948  $130,097 
Noninterest income40,554  32,319  32,122  41,568  38,010 
Total revenue - GAAP192,417  178,224  175,750  179,516  168,107 
Net interest income FTE adjustment2,227  3,580  3,260  3,169  3,068 
Loan servicing rights change in fair value (gains) losses(3,752) 13  4,041  1,802  519 
Losses (gains) from sale of investment securities  7,556  (1) (77) (90)
Total revenue - Non-GAAP$190,892  $189,373  $183,050  $184,410  $171,604 
Operating expenses - GAAP$103,358  $100,022  $119,539  $98,237  $104,196 
Merger and restructuring expenses  (2,567) (21,203) (465) (4,167)
Impairment of income tax credits(1,634) (6,157) (3,095)    
Operating expense, core - Non-GAAP101,724  91,298  95,241  97,772  100,029 
Amortization of intangibles(1,439) (1,525) (1,526) (1,525) (1,513)
Operating expenses, efficiency ratio - Non-GAAP$100,285  $89,773  $93,715  $96,247  $98,516 
Efficiency ratio - GAAP53.7% 56.1% 68.0% 54.7% 62.0%
Efficiency ratio - adjusted Non-GAAP52.5% 47.4% 51.2% 52.2% 57.4%

 

 March 31,
 2018
 December 31,
 2017
 September 30,
 2017
 June 30,
 2017
 March 31,
 2017
Tangible Book Value         
Shareholders' equity, as reported$2,703,277  $2,668,749  $2,673,089  $2,639,442  $2,600,051 
Goodwill, CDI and noncompete agreements, net of tax(1,157,505) (1,158,738) (1,153,576) (1,153,595) (1,154,915)
Tangible shareholders' equity$1,545,772  $1,510,011  $1,519,513  $1,485,847  $1,445,136 
Common shares outstanding71,350  71,207  71,152  71,131  71,118 
Book value per share (shareholders' equity, as reported, divided by common shares outstanding)$37.89  $37.48  $37.57  $37.11  $36.56 
Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)$21.66  $21.21  $21.36  $20.89  $20.32 
Tangible Shareholders' Equity to Tangible Assets      
Total assets, as reported$19,756,084  $19,280,873  $19,354,308  $18,781,405  $17,636,973 
Goodwill, CDI and noncompete agreements, net of tax(1,157,505) (1,158,738) (1,153,576) (1,153,595) (1,154,915)
Tangible assets$18,598,579  $18,122,135  $18,200,732  $17,627,810  $16,482,058 
Shareholders' equity to total assets13.7% 13.8% 13.8% 14.1% 14.7%
Tangible shareholders' equity to tangible assets8.3% 8.3% 8.3% 8.4% 8.8%

For further information:
David T. Provost, CEO
Dennis L. Klaeser, CFO
989-839-5350

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Source: Chemical Financial Corporation