Menu

Press Release

Chemical Financial Corporation reports fourth quarter 2018 net income of $73.0 million, representing $1.01 of earnings per diluted average share

Company Release - 1/28/2019 6:03 AM ET

DETROIT, Jan. 28, 2019 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2018 fourth quarter net income of $73.0 million, or $1.01 per diluted share, compared to 2018 third quarter net income of $70.4 million, or $0.98 per diluted share, and 2017 fourth quarter net income of $9.4 million, or $0.13 per diluted share. Net income in the fourth quarter of 2017, excluding merger and restructuring expenses, the revaluation of our net deferred tax assets following the signing of the Tax Cuts and Jobs Act in December 2017 and losses on sales of investment securities taken as part of our treasury and tax management objectives (which we collectively refer to herein as "significant items"), a non-GAAP financial measure, was $62.7 million, or $0.87 per diluted share.(1) Net income for the full year 2018 was $284.0 million, or $3.94 per diluted share, compared to $149.5 million, or $2.08 per diluted share for the full year 2017. Net income for the full year 2017, excluding significant items, a non-GAAP financial measure, was $219.6 million, or $3.06 per diluted share.(1)  As previously announced, on January 22, 2019, our Board of Directors declared a first quarter of 2019 dividend on our common stock of $0.34 per share. The first quarter of 2019 dividend will be payable on March 15, 2019, to shareholders of record on March 1, 2019.

"We are pleased with our results for the quarter which reflect loan growth fueling our continued trend of increasing net interest income, improvement in our operating efficiency and an increase in net interest margin," 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 fully recognize and have appreciation for the dedicated efforts of our employees who have strengthened our foundation and positioned us for continued growth and sound operating performance in the years to come."

Our return on average assets was 1.39% during the fourth quarter of 2018, compared to 1.37% in the third quarter of 2018, and 0.20% in the fourth quarter of 2017. Our return on average shareholders' equity was 10.4% in the fourth quarter of 2018, compared to 10.2% in the third quarter of 2018 and 1.4% in the fourth quarter of 2017. Our return on average tangible shareholders' equity, a non-GAP financial measure, was 17.8% in the fourth quarter of 2018, compared to 17.5% in the third quarter of 2018, and 2.5% in the fourth quarter of 2017. During the fourth quarter of  2017, our return on average assets and return on average tangible shareholders' equity, excluding significant items, both non-GAAP financial measures, was 1.31% and 16.5%, respectively.(1)

Our net interest income was $163.5 million for the fourth quarter of 2018, $4.0 million, or 2.5%, higher than the third quarter of 2018, and $17.5 million, or 12.0%, higher than the fourth quarter of 2017. The increase in net interest income for the fourth quarter of 2018, compared to both the third quarter of 2018 and the fourth quarter of 2017 was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in average deposit balances and cost of funds. Fourth quarter 2018 net loan growth was $473.5 million, or an annualized growth rate of 12.8%, and net loan growth over the past twelve months was $1.11 billion, or 7.9%. Our investment securities portfolio grew by $300.7 million in the fourth quarter of 2018, compared to the third quarter of 2018, and $1.01 billion, compared to the fourth quarter of 2017.

Our net interest margin was 3.42% for both the fourth quarter of 2018 and the third quarter of 2018, compared to 3.39% for the fourth quarter of 2017. The net interest margin (fully taxable equivalent (FTE)), a non-GAAP financial measure, increased to 3.49% for the fourth quarter of 2018, compared to 3.48% for the third quarter of 2018, and 3.47% for the fourth quarter of 2017.(1)  The increase in our net interest margin (FTE), for the fourth quarter of 2018, compared to both the third quarter of 2018 and the fourth quarter of 2017, was primarily due to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in average interest-bearing deposit balances and cost of funds. Our average cost of funds was 1.03% for the fourth quarter of 2018, compared to 0.88% for the third quarter of 2018, and 0.56% for the fourth quarter of 2017. The average yield on our loan portfolio increased to 4.80% in the fourth quarter of 2018, compared to 4.68% in the third quarter of 2018 and 4.31% in the fourth quarter of 2017. Interest accretion from purchase accounting discounts on acquired loans contributed 23 basis points to our net interest margin (FTE) in both the fourth quarter of 2018 and the third quarter of 2018, compared to 22 basis points in the fourth quarter of 2017.

Our net interest income was $632.3 million for the year ended December 31, 2018, $74.8 million, or 13.4%, higher than the year ended December 31, 2017. The increase in net interest income for the year ended December 31, 2018, compared to the year ended December 31, 2017, was primarily attributable to increases in average balances and yields earned on loans and investments securities, partially offset by increases in average interest-bearing deposit balances and cost of funds. Our average balance of loans outstanding during the year ended December 31, 2018 was up $998.3 million, compared to the prior year. Our net interest margin improved to 3.48% for the year ended 2018, compared to 3.40% for the year ended 2017. Our net interest margin (FTE), a non-GAAP financial measure, increased to 3.53% for the year ended 2018, compared to 3.48% for the year ended 2017.(1)

Our provision for loan losses was $8.9 million for the fourth quarter of 2018, compared to $6.0 million for the third quarter of 2018 and $7.5 million for the fourth quarter of 2017. The higher provision for loan losses for the fourth quarter of 2018, compared to both the third quarter of 2018 and the fourth quarter of 2017, was primarily the result of an increase in originated loan growth. Our provision for loan losses was $30.8 million for the year ended December 31, 2018, compared to $23.3 million for the year ended December 31, 2017, with the increase primarily due to an increase in originated loan growth.

Net loan charge-offs were $3.0 million, or 0.08% of average loans, for the fourth quarter of 2018, compared to $2.0 million, or 0.05% of average loans, for the third quarter of 2018 and $1.4 million, or 0.04% of average loans, for the fourth quarter of 2017. Net loan charge-offs totaled $12.7 million, or 0.09% of average loans, for the year ended December 31, 2018, compared to $9.7 million, or 0.07% of average loans, for the year ended December 31, 2017. 

Our nonperforming loans totaled $85.4 million at December 31, 2018, compared to $96.7 million at September 30, 2018 and $63.1 million at December 31, 2017. Nonperforming loans comprised 0.56% of total loans at December 31, 2018, compared to 0.65% at September 30, 2018, and 0.45% at December 31, 2017. The decrease in nonperforming loans as a percentage of total loans at December 31, 2018, compared to September 30, 2018, was primarily due to the fourth quarter of 2018 settlement of a real estate construction loan relationship. The increase in nonperforming loans as a percentage of total loans at December 31, 2018, compared to December 31, 2017, was primarily due to commercial and commercial real estate loan relationships that were downgraded to nonaccrual status during the year ended December 31, 2018. Each nonperforming loan is individually evaluated for impairment and we have either established a specific reserve within our allowance for loan losses or charged the loan relationship down to the value of the underlying collateral.

Our total allowance for loan losses was $110.0 million at December 31, 2018. Our allowance for loan losses on our originated loan portfolio was $109.6 million, or 0.93% of originated loans, at December 31, 2018, compared to $103.1 million, or 0.93% of originated loans, at September 30, 2018 and $91.9 million, or 0.94% of originated loans, at December 31, 2017. Our allowance for loan losses on our originated loan portfolio as a percentage of nonperforming loans was 128.7% at December 31, 2018, compared to 106.6% at September 30, 2018, and 145.6% at December 31, 2017. 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 December 31, 2018 and September 30, 2018, our allowance for loan losses on our acquired loan portfolio was $420 thousand and $970 thousand, respectively.  At December 31, 2017, we determined no allowance was needed for our acquired loan portfolio.
           
Our noninterest income was $32.0 million for the fourth quarter of 2018, compared to $37.9 million for the third quarter of 2018, and $32.3 million for the fourth quarter of 2017. Noninterest income for the fourth quarter of 2018 was lower than the third quarter of 2018, primarily due to a decrease in net gain on sale of loans and other mortgage banking revenue of $5.9 million due to a detriment to earnings caused by a change in fair value in loan servicing rights and lower production volume, and a decrease in bank-owned life insurance of $0.9 million, partially offset by an increase in electronic banking fees of $0.8 million. Noninterest income in the fourth quarter of 2018 was slightly lower than the fourth quarter of 2017, primarily due to decreases in net gain on sale of loans and other mortgage banking revenue of $3.9 million, service charges and fees on deposit accounts of $1.3 million and other noninterest income of $2.6 million, partially offset by the $7.6 million loss on sale of investment securities incurred in the fourth quarter of 2017, as part of our treasury and tax management objectives. Net gain on sale of loans and other mortgage banking revenue included a $2.8 million detriment to earnings due to a change in fair value in loan servicing rights for the fourth quarter of 2018, compared to a $0.9 million benefit for the third quarter of 2018, and a $13 thousand detriment for the fourth quarter of 2017. The change in fair value in loan servicing rights was a detriment of $0.03 to diluted earnings per share for the fourth quarter of 2018, compared to a benefit of $0.01 for the third quarter of 2018 and no impact for the fourth quarter of 2017.
                   
Our noninterest income was $148.5 million for the year ended December 31, 2018, compared to $144.0 million for the year ended 2017, which increased primarily due to the $7.6 million loss on sale of investment securities incurred in the fourth quarter of 2017 and an increase in net gain on sale of loans and other mortgage banking revenue of $3.0 million for the year ended December 31, 2018, partially offset by a decrease in electronic banking fees of $5.9 million for the year ended December 31, 2018. Net gain on sale of loans and other mortgage banking revenue included a $1.8 million benefit to earnings due to a change in fair value in loan servicing rights for the year ended December 31, 2018, compared to a $6.4 million detriment for the year ended December 31, 2017.

Our operating expenses were $108.4 million for the fourth quarter of 2018, compared to $109.7 million for the third quarter of 2018, and $100.0 million for the fourth quarter of 2017. We had no merger and restructuring expenses during the fourth or third quarters of 2018, compared to $2.6 million for the fourth quarter of 2017. Fourth quarter of 2018 included $5.8 million of impairment related to federal historic tax credits, compared to $3.2 million for the third quarter of 2018 and $6.2 million for the fourth quarter of 2017, included within other operating expense. The fourth quarter of 2018 also included expense related to our efforts to implement upgrades to our core operating systems of $1.6 million, compared to $2.7 million for the third quarter of 2018. Our operating expenses excluding the impact of federal historic tax credits, core operating system conversion expense and merger and restructuring expenses, were $101.0 million for the fourth quarter of 2018, compared to $103.8 million for the third quarter of 2018 and $91.3 million for the fourth quarter of 2017. The $2.8 million decrease for the fourth quarter of 2018 operating expenses excluding the previously noted items, compared to the third quarter of 2018, was primarily due to $0.9 million of early lease termination expense in the third quarter of 2018, which reduced occupancy expense in the fourth quarter of 2018, and decreases in credit-related and other expenses included within other operating expenses. The $9.7 million increase in operating expenses excluding the previously noted items, compared to the fourth quarter of 2017, was primarily due to an increase in salaries, wages and employee benefits impacted by increases in staff to support our strategic focus on commercial lending growth and an increase in outside processing and service fees due to the substantial enhancements to our core operating systems.

Our operating expenses were $424.2 million for the year ended December 31, 2018, compared to $422.0 million for the year ended 2017. We had no merger and restructuring expenses during the year ended December 31, 2018, compared to $28.4 million for 2017. The year ended December 31, 2018 included $12.3 million of impairment related to federal historic tax credits, compared to $9.3 million for 2017. The year ended December 31, 2018 also included expense related to our efforts to implement upgrades to our core operating systems of $8.5 million. Operating expenses, excluding the impact of federal historic tax credits, core operation system conversion expense and merger and restructuring expenses, were $403.4 million for the year ended December 31, 2018, an increase of $19.1 million compared to the year ended 2017, primarily due to an increase in salaries, wages and employee benefits impacted by increases in staff to support our strategic focus on commercial lending growth and an increase in outside processing and service fees due to the substantial enhancements to our core operating systems.

Our efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. Our efficiency ratio was 55.4% for the fourth quarter of 2018, compared to 55.6% for the third quarter of 2018 and 56.1% for the fourth quarter of 2017. Our efficiency ratio was 54.3% for the year ended December 31, 2018 and 60.1% for the year ended 2017. Our adjusted efficiency ratio, a non-GAAP financial measure, which excludes, as applicable, 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, was 50.4% for the fourth quarter of 2018, compared to 52.8% for the third quarter of 2018 and 47.4% for the fourth quarter of 2017.(1) Our adjusted efficiency ratio was 51.5% for the year ended December 31, 2018 and 51.9% for the year ended 2017.(1)

Our effective tax rate was 6.6% for the fourth quarter of 2018, compared to 13.8% for the third quarter of 2018 and 86.6% for the fourth quarter of 2017. Our tax rates for periods during 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. The tax rate for each period benefited from federal historic tax credits of $6.2 million for the fourth quarter of 2018, $3.2 million for the third quarter of 2018 and $6.2 million for the fourth quarter of 2017. The income tax benefit from the tax credits placed into service was partially offset by the impairment recorded on the same tax credits included within other operating expenses. The effective tax rate for the fourth quarter of 2018 also benefited from adjustments to our tax provisional amounts related to the one year measurement period provided by Staff Accounting Bulletin No. 118 in order to finalize items that were not available in the enactment period associated with the passing of the Tax Cuts and Jobs Act and by certain changes in estimates associated with the filing of our final 2017 tax return. The fourth quarter of 2017 was also impacted by the $46.7 million charge to income tax expense as a result of the revaluation of our net deferred tax assets. The effective tax rate for the year ended December 31, 2018 was 12.9%, compared to 41.7% for the year ended 2017. The tax rate for each period benefited from federal historic tax credits of $12.9 million in the year ended December 31, 2018 and $9.3 million for the year ended December 31, 2017.

Our total assets were $21.50 billion at December 31, 2018, compared to $20.91 billion at September 30, 2018, and $19.28 billion at December 31, 2017. The increase in our total assets during both the fourth quarter of 2018 and the year ended December 31, 2018 was primarily attributable to net loan growth and additions to our investment securities portfolio.

Our total loans were $15.27 billion at December 31, 2018, an increase of $473.5 million, or 3.2%, from total loans of $14.80 billion at September 30, 2018, and an increase of $1.11 billion, or 7.9%, from total loans of $14.16 billion at December 31, 2017. We experienced originated loan growth of $699.3 million in the fourth quarter of 2018, compared to $448.9 million in the third quarter of 2018, and $591.3 million in the fourth quarter of 2017. Growth in our originated loan portfolio was partially offset by run-off in our acquired loan portfolio of $225.8 million in the fourth quarter of 2018, compared to $232.4 million in the third quarter of 2018, and $269.4 million in the fourth quarter of 2017. We experienced originated loan growth of $2.10 billion for the year ended December 31, 2018, partially offset by run-off in our acquired loan portfolio of $982.8 million.

Our investment securities portfolio totaled $3.65 billion at December 31, 2018, an increase of $300.7 million, from $3.35 billion at September 30, 2018, and an increase of $1.01 billion, from $2.64 billion at December 31, 2017. The increase in both the fourth quarter of 2018 and the year ended December 31, 2018 reflects our long-term plan to increase our investment securities portfolio as a percentage of total assets.

Our total deposits were $15.59 billion at December 31, 2018, compared to $15.44 billion at September 30, 2018, and $13.64 billion at December 31, 2017. The increase in deposits during the fourth quarter of 2018 was due to an increase in customer deposits of $78.3 million driven by interest-bearing demand and other time deposit accounts and an increase in brokered deposits of $70.2 million. The increase in deposits during the year ended December 31, 2018 was primarily due to increases of $1.42 billion in customer deposits, with increases across all categories, and $532.3 million in brokered deposits. Collateralized customer deposits were $382.7 million at December 31, 2018, compared to $377.5 million at September 30, 2018, and $415.2 million at December 31, 2017. Loans as a percentage of deposits plus collateralized customer deposits were 95.6% at December 31, 2018, compared to 93.5% at September 30, 2018 and 100.7% at December 31, 2017.

Our short-term borrowings were $2.04 billion at December 31, 2018, compared to $1.67 billion at September 30, 2018, and $2.00 billion at December 31, 2017. Our short-term borrowings include short-term FHLB advances that we used to fund our short-term liquidity needs. Our long-term borrowings were $426.0 million at December 31, 2018, compared to $431.0 million at September 30, 2018, and $372.9 million at December 31, 2017.

Our shareholders' equity to total assets ratio was 13.2% at December 31, 2018, compared to 13.3% at September 30, 2018, and 13.8% at December 31, 2017. Our tangible shareholders' equity to assets ratio, a non-GAAP financial measure, and total risk-based capital ratio, were 8.3% and 11.5% (estimated), respectively, at December 31, 2018, compared to 8.3% and 11.7%, respectively, at September 30, 2018, and 8.3% and 11.0%, respectively, at December 31, 2017.(1) Our book value was $39.69 per share at December 31, 2018, compared to $39.04 per share at September 30, 2018 and $37.48 per share at December 31, 2017. Our tangible book value, a non-GAAP financial measure, was $23.54 per share at December 31, 2018, compared to $22.87 per share at September 30, 2018, and $21.21 per share at December 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.

Subsequent Event

As announced and further described in a separate press release issued by Chemical today, Chemical and TCF Financial Corporation have entered into a merger agreement under which the companies will combine in an all stock merger of equals transaction.

Conference Call Details

In light of today's announcement that Chemical has entered into a merger agreement with TCF Financial Corporation ("TCF"), Chemical has canceled its live conference webcast to review fourth quarter 2018 financial results that was scheduled for Tuesday, January 29, 2019 at 10:30 am ET. Instead, Chemical and TCF will jointly host a live conference call and webcast today at 10:00 am ET to discuss the merger and Chemical will also discuss its fourth quarter 2018 financial results. To listen to the live call, please dial 888-378-4398 and enter 575396 for the conference ID. The webcast of the conference call, along with related slides, will be accessible through Chemical's and TCF's websites as well as through the joint transaction website www.PremierMidwestBank.com. The conference call will also be available for replay through TCF's and Chemical's websites.

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, 2018, the Corporation had total consolidated assets of $21.50 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issues 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 our website at www.chemicalbank.com.

Non-GAAP Financial Measures

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include net income (excluding significant items), diluted earnings per share (excluding significant items), return on average assets, return on average shareholders' equity and return on average tangible shareholders' equity (each excluding significant items), tangible book value per share, the presentation of net interest income and net interest margin on a FTE basis, core operating expenses, operating expenses-efficiency ratio, and the adjusted efficiency ratio.

These non-GAAP financial measures have been included 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

Statements included in this press release which are not historical in nature are intended to be, and hereby are identified as, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Examples of forward-looking statements include, but are not limited to, statements regarding our belief that we are positioned for continued growth and strong operating performance. Words and phrases such as “anticipates,” “believes,” “plans,” “continue,” “estimates,” “expects,” “forecasts,” “future,” “intends,” “is likely,” “judgment,” “look ahead,” “look forward,” “on schedule,” “opinion,” “opportunity,” “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.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and loan 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. 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 subject to risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results. Such risks, uncertainties and assumptions, include, among others, the following:

  • our ability 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;
  • operational and regulatory challenges associated with our information technology systems and policies and procedures  in light of our rapid growth and systems conversion in 2018;
  • our ability to grow deposits; 
  • our inability to execute on our strategy to expand investments and commercial lending;
  • our inability to efficiently manage our operating expenses;
  • economic conditions (both generally and in our markets) may be less favorable than expected, which could result in, among other things, a deterioration in credit quality, a reduction in demand for credit and a decline in real estate values;
  • a general decline in the real estate and lending markets, particularly in our market areas, could negatively affect our financial results;
  • increased cybersecurity risk, including potential network breaches, business disruptions, or financial losses;
  • increases in competitive pressure in the banking and financial services industry;
  • the timing of when historic tax credits are placed into service could impact operating expenses;
  • current or future restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals;
  • legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect us;
  • changes in the interest rate environment may reduce margins or the volumes or values of the loans we make or have acquired; economic, governmental, or other factors may prevent the projected population, residential, and commercial growth in the markets in which we operate; and
  • the risks, uncertainties and assumptions set forth under the heading “Cautionary Note Regarding Forward-Looking Statements” in the joint press release issued by Chemical and TCF on the date hereof with respect to the proposed merger transaction between Chemical and TCF.

Additional factors that could cause results to differ materially from those described above can be found in the risk factors described in Item 1A of Chemical’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2017.  Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.  Chemical disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by law.

For further information:
David T. Provost, CEO
Dennis L. Klaeser, CFO
800-867-9757


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2018 Operating Results

 

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

  December 31, 2018 September 30, 2018 December 31, 2017
Assets      
Cash and cash equivalents:      
Cash and cash due from banks $228,527  $285,605  $226,003 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold 267,312  379,158  229,988 
Total cash and cash equivalents 495,839  664,763  455,991 
Investment securities:      
Carried at fair value 3,021,832  2,736,880  1,963,546 
Held-to-maturity 624,099  608,367  677,093 
Total investment securities 3,645,931  3,345,247  2,640,639 
Loans held-for-sale 85,030  93,736  52,133 
Loans:      
Total loans 15,269,779  14,796,252  14,155,267 
Allowance for loan losses (109,984) (104,041) (91,887)
Net loans 15,159,795  14,692,211  14,063,380 
Premises and equipment 123,442  123,305  126,896 
Loan servicing rights 71,013  72,707  63,841 
Goodwill 1,134,568  1,134,568  1,134,568 
Other intangible assets 28,556  29,981  34,271 
Interest receivable and other assets 754,167  748,971  709,154 
Total Assets $21,498,341  $20,905,489  $19,280,873 
Liabilities      
Deposits:      
Noninterest-bearing $3,809,252  $4,015,323  $3,725,779 
Interest-bearing 11,784,030  11,429,529  9,917,024 
Total deposits 15,593,282  15,444,852  13,642,803 
Collateralized customer deposits 382,687  377,471  415,236 
Short-term borrowings 2,035,000  1,670,000  2,000,000 
Long-term borrowings 426,002  430,971  372,882 
Interest payable and other liabilities 225,110  193,271  181,203 
Total liabilities 18,662,081  18,116,565  16,612,124 
Shareholders' Equity      
Preferred stock, no par value per share      
Common stock, $1 par value per share 71,460  71,438  71,207 
Additional paid-in capital 2,209,761  2,207,631  2,203,637 
Retained earnings 616,149  567,510  419,403 
Accumulated other comprehensive loss (61,110) (57,655) (25,498)
Total shareholders' equity 2,836,260  2,788,924  2,668,749 
Total Liabilities and Shareholders' Equity $21,498,341  $20,905,489  $19,280,873 


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2018 Operating Results

 

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

 Three Months Ended Year Ended
 December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
Interest Income         
Interest and fees on loans$180,983  $172,686  $150,558  $675,875  $573,128 
Interest on investment securities:         
Taxable18,746  16,360  10,289  62,231  31,496 
Tax-exempt6,554  6,178  5,105  24,286  18,343 
Dividends on nonmarketable equity securities2,419  1,368  2,018  7,877  4,924 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold1,401  1,785  1,192  5,727  4,244 
Total interest income210,103  198,377  169,162  775,996  632,135 
Interest Expense         
Interest on deposits34,106  27,250  14,303  96,980  46,727 
Interest on collateralized customer deposits721  721  461  2,607  1,269 
Interest on short-term borrowings9,426  9,510  6,952  37,510  19,052 
Interest on long-term borrowings2,398  1,415  1,541  6,566  7,509 
Total interest expense46,651  38,896  23,257  143,663  74,557 
Net Interest Income163,452  159,481  145,905  632,333  557,578 
Provision for loan losses8,894  6,028  7,522  30,750  23,300 
Net interest income after provision for loan losses154,558  153,453  138,383  601,583  534,278 
Noninterest Income         
Service charges and fees on deposit accounts8,654  9,319  9,994  37,097  38,367 
Wealth management revenue6,457  6,040  6,539  25,996  25,512 
Other charges and fees for customer services6,506  5,349  6,601  21,437  29,405 
Net gain on sale of loans and other mortgage banking revenue3,977  9,837  7,925  35,193  32,205 
Gain (loss) on sale of investment securities221    (7,556) 224  (7,388)
Other6,232  7,372  8,816  28,589  25,918 
Total noninterest income32,047  37,917  32,319  148,536  144,019 
Operating Expenses         
Salaries, wages and employee benefits56,828  56,894  47,363  225,427  212,094 
Occupancy7,360  8,620  7,546  31,670  30,554 
Equipment and software7,641  8,185  8,000  31,761  32,248 
Outside processing and service fees11,698  12,660  9,081  45,387  35,142 
Merger expenses    1,511    8,522 
Restructuring expenses    1,056    19,880 
Other24,839  23,302  25,465  89,953  83,554 
Total operating expenses108,366  109,661  100,022  424,198  421,994 
Income before income taxes78,239  81,709  70,680  325,921  256,303 
Income tax expense5,200  11,312  61,234  41,901  106,780 
Net Income$73,039  $70,397  $9,446  $284,020  $149,523 
Earnings Per Common Share:         
Weighted average common shares outstanding-basic71,445  71,385  71,095  71,385  70,865 
Weighted average common shares outstanding-diluted72,079  72,087  71,682  72,025  71,513 
Basic earnings per common share$1.02  $0.99  $0.13  $3.98  $2.11 
Diluted earnings per common share$1.01  $0.98  $0.13  $3.94  $2.08 
Diluted earnings per common share, excluding significant items (non-GAAP)$1.01  $0.98  $0.87  $3.94  $3.06 
Cash Dividends Declared Per Common Share$0.34  $0.34  $0.28  $1.24  $1.10 
Key Ratios (annualized where applicable):         
Return on average assets1.39% 1.37% 0.20% 1.41% 0.81%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)17.8% 17.5% 16.5% 17.9% 14.9%
Net interest margin (FTE) (non-GAAP)3.49% 3.48% 3.47% 3.53% 3.48%
Efficiency ratio - GAAP55.4% 55.6% 56.1% 54.3% 60.1%
Efficiency ratio - adjusted (non-GAAP)50.4% 52.8% 47.4% 51.5% 51.9%


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2018 Operating Results

 

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

 4th
Quarter
2018
 3rd
Quarter
2018
 2nd
Quarter
2018
 1st
Quarter
2018
 4th
Quarter
2017
 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
Summary of Operations               
Interest income$210,103
  $198,377  $189,582  $177,934  $169,162  $164,944  $155,133  $142,896 
Interest expense 46,651  38,896  32,045  26,071  23,257  21,316  17,185  12,799 
Net interest income 163,452  159,481  157,537  151,863  145,905  143,628  137,948  130,097 
Provision for loan losses 8,894  6,028  9,572  6,256  7,522  5,499  6,229  4,050 
Net interest income after provision for loan losses 154,558  153,453  147,965  145,607  138,383  138,129  131,719  126,047 
Noninterest income 32,047  37,917  38,018  40,554  32,319  32,122  41,568  38,010 
Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP) 102,594  106,499  102,845  99,976  91,298  95,241  97,772  100,029 
Merger and restructuring expenses         2,567  21,203  465  4,167 
Impairment of income tax credits 5,772  3,162  1,716  1,634  6,157  3,095     
Income before income taxes 78,239  81,709  81,422  84,551  70,680  50,712  75,050  59,861 
Income tax expense 5,200  11,312  12,434  12,955  61,234  10,253  23,036  12,257 
Net income$73,039  $70,397  $68,988  $71,596  $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$73,039  $70,397  $68,988  $71,596  $62,686  $54,241  $52,316  $50,313 
                
Per Common Share Data               
Net income:               
Basic$1.02  $0.99  $0.97  $1.01  $0.13  $0.57  $0.73  $0.67 
Diluted 1.01  0.98  0.96  0.99  0.13  0.56  0.73  0.67 
Diluted, excluding significant items (non-GAAP) 1.01  0.98  0.96  0.99  0.87  0.76  0.73  0.70 
Cash dividends declared 0.34  0.34  0.28  0.28  0.28  0.28  0.27  0.27 
Book value - period-end 39.69  39.04  38.52  37.91  37.48  37.57  37.11  36.56 
Tangible book value - period-end (non-GAAP) 23.54  22.87  22.33  21.68  21.21  21.36  20.89  20.32 
Market value - period-end 36.61  53.40  55.67  54.68  53.47  52.26  48.41  51.15 
                
Key Ratios (annualized where applicable)            
Net interest margin (FTE) (non-GAAP) 3.49% 3.48% 3.59% 3.56% 3.47% 3.48% 3.48% 3.49%
Efficiency ratio - adjusted (non-GAAP) 50.4% 52.8% 51.2% 51.6% 47.4% 51.2% 52.2% 57.4%
Return on average assets 1.39% 1.37% 1.39% 1.47% 0.20% 0.86% 1.14% 1.09%
Return on average assets, excluding significant items (non-GAAP) 1.39% 1.37% 1.39% 1.47% 1.31% 1.15% 1.15% 1.15%
Return on average shareholders' equity 10.4% 10.2% 10.2% 10.7% 1.4% 6.1% 8.0% 7.4%
Return on average tangible shareholders' equity (non-GAAP) 17.8% 17.5% 17.8% 19.0% 2.5% 10.9% 14.3% 13.3%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP) 17.8% 17.5% 17.8% 19.0% 16.5% 14.6% 14.4% 14.1%
Average shareholders' equity as a percent of average assets 13.4% 13.5% 13.6% 13.7% 13.9% 14.0% 14.3% 14.8%
Capital ratios (period end):               
Tangible shareholders' equity as a percent of tangible assets 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.4% 8.8%
Total risk-based capital ratio (1) 11.5% 11.7% 11.4% 11.2% 11.0% 11.2% 11.1% 11.4%


(1)Estimated at December 31, 2018.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2018 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, 2018 September 30, 2018 December 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)$15,058,271  $181,765
  4.80% $14,740,445  $173,453  4.68% $13,954,366  $151,413  4.31%
Taxable investment securities 2,399,177   18,746  3.13   2,187,644   16,360  2.99   1,715,494   10,289  2.40 
Tax-exempt investment
securities(1)
 1,075,377   8,286  3.08   1,038,301   7,797  3.00   981,299   7,830  3.19 
Other interest-earning assets 193,333   2,419  4.97   193,350   1,368  2.81   180,098   2,018  4.45 
Interest-bearing deposits with the FRB and other banks and federal funds sold 230,142   1,401  2.41   330,940   1,785  2.14   307,028   1,192  1.54 
Total interest-earning assets 18,956,300   212,617  4.46   18,490,680   200,763  4.32   17,138,285   172,742  4.01 
Less: allowance for loan losses (105,767)      (101,689)      (86,521)    
Other assets:                 
Cash and cash due from banks 191,985       223,038       239,307     
Premises and equipment 123,993       125,153       138,880     
Interest receivable and other assets 1,789,195       1,764,041       1,777,479     
Total assets$20,955,706     $20,501,223     $19,207,430    
Liabilities and shareholders' equity              
Interest-bearing liabilities:                 
Interest-bearing demand deposits$3,072,237  $4,791  0.62% $2,705,746  $2,836  0.42% $2,709,033  $1,242  0.18%
Savings deposits 4,436,212   10,209  0.91   4,378,620   8,417  0.76   4,023,075   4,296  0.42 
Time deposits 4,029,519   19,106  1.88   3,846,857   15,997  1.65   3,136,655   8,765  1.11 
Collateralized customer deposits 383,457   721  0.75   374,833   721  0.76   408,962   461  0.45 
Short-term borrowings 1,693,750   9,426  2.21   1,885,741   9,510  2.00   1,957,609   6,952  1.41 
Long-term borrowings 428,425   2,398  2.22   341,282   1,415  1.65   383,739   1,541  1.67 
Total interest-bearing liabilities 14,043,600   46,651  1.32   13,533,079   38,896  1.14   12,619,073   23,257  0.73 
Noninterest-bearing deposits 3,892,517        4,004,433        3,734,650      
Total deposits and borrowed funds 17,936,117   46,651  1.03   17,537,512   38,896  0.88   16,353,723   23,257  0.56 
Interest payable and other liabilities 221,091       194,610       177,678     
Shareholders' equity 2,798,498       2,769,101       2,676,029     
Total liabilities and shareholders' equity$20,955,706      $20,501,223      $19,207,430     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.14%     3.18%     3.28%
Net Interest Income (FTE)  $165,966     $161,867     $149,485  
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.49%     3.48%     3.47%
Reconciliation to Reported Net Interest Income            
Net interest income, fully taxable equivalent (non-GAAP) $165,966     $161,867     $149,485  
Adjustments for taxable equivalent interest(1):              
Loans   (782)      (767)      (855)  
Tax-exempt investment securities  (1,732)      (1,619)      (2,725)  
Total taxable equivalent interest adjustments  (2,514)      (2,386)      (3,580)  
Net interest income (GAAP)  $163,452     $159,481     $145,905  
Net interest margin (GAAP)   3.42%      3.42%      3.39%  


(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the three month periods ending in 2018 and 35% for the three months ended December 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 Fourth Quarter and Full Year 2018 Operating Results

 

Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)

  Year Ended
  December 31, 2018 December 31, 2017
  Average
Balance
 Interest
(FTE)
 Effective
Yield/Rate(1)
 Average
Balance
 Interest
(FTE)
 Effective
Yield/Rate(1)
Assets  
Interest-earning assets:            
Loans(1)(2) $14,605,963  $678,911  4.65% $13,607,683  $576,429  4.24%
Taxable investment securities 2,098,894  62,231  2.96  1,431,167  31,496  2.20 
Tax-exempt investment securities(1) 1,036,269  30,708  2.96  905,831  28,120  3.10 
Other interest-earning assets 189,153  7,877  4.16  157,738  4,924  3.12 
Interest-bearing deposits with the FRB and other banks and federal funds sold 263,210  5,727  2.18  298,006  4,244  1.42 
Total interest-earning assets 18,193,489  785,454  4.32  16,400,425  645,213  3.93 
Less: allowance for loan losses (99,152)     (82,644)    
Other assets:            
Cash and cash due from banks 215,284      235,621     
Premises and equipment 125,606      144,114     
Interest receivable and other assets 1,765,303      1,767,640     
Total assets $20,200,530      $18,465,156     
Liabilities and shareholders' equity            
Interest-bearing liabilities:            
Interest-bearing demand deposits $2,786,138  $10,029  0.36% $2,753,294  $4,870  0.18%
Savings deposits 4,246,063  29,636  0.70  3,940,499  13,049  0.33 
Time deposits 3,654,470  57,315  1.57  3,014,302  28,808  0.96 
Collateralized customer deposits 391,703  2,607  0.67  366,828  1,269  0.35 
Short-term borrowings 1,970,009  37,510  1.90  1,612,123  19,052  1.18 
Long-term borrowings 369,910  6,566  1.77  455,246  7,509  1.67 
Total interest-bearing liabilities 13,418,293  143,663  1.07  12,142,292  74,557  0.61 
Noninterest-bearing deposits 3,845,773      3,547,271     
Total deposits and borrowed funds 17,264,066  143,663  0.83  15,689,563  74,557  0.48 
Interest payable and other liabilities 196,065      147,731     
Shareholders' equity 2,740,399      2,627,862     
Total liabilities and shareholders' equity $20,200,530      $18,465,156     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)   3.25%     3.32%
Net Interest Income (FTE)   $641,791      $570,656   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)   3.53%     3.48%
             
Reconciliation to Reported Net Interest Income          
Net interest income, fully taxable equivalent (non-GAAP) $641,791      $570,656   
Adjustments for taxable equivalent interest(1):            
Loans   (3,036)     (3,301)  
Tax-exempt investment securities   (6,422)     (9,777)  
Total taxable equivalent interest adjustments   (9,458)     (13,078)  
Net interest income (GAAP)   $632,333      $557,578   
Net interest margin (GAAP)   3.48%     3.40%  


(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the year ended December 31, 2018 and 35% for the year ended December 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 Fourth Quarter and Full Year 2018 Operating Results

 

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

 4th

Quarter

2018
 3rd

Quarter

2018
 2nd

Quarter

2018
 1st

Quarter

2018
 4th

Quarter

2017
 3rd

Quarter

2017
 2nd

Quarter

2017
 1st

Quarter

2017
    
Noninterest income               
Service charges and fees on deposit accounts$8,654  $9,319  $9,690  $9,434  $9,994  $9,874  $9,667  $8,832 
Wealth management revenue6,457  6,040  7,188  6,311  6,539  6,188  6,958  5,827 
Other fees for customer
services(1)
1,379  1,067  1,050  1,164  1,535  1,841  1,793  1,590 
Electronic banking fees(1)5,127  4,282  3,749  3,619  5,066  4,056  7,051  6,473 
Net gain on sale of loans and other mortgage banking revenue(2)6,804  8,905  8,874  8,783  7,938  9,282  11,681  9,679 
Change in fair value in loan servicing rights(2)(2,827) 932  (30) 3,752  (13) (4,041) (1,802) (519)
Gain (loss) on sale of investment securities221    3    (7,556) 1  77  90 
Bank-owned life insurance(3)273  1,167  1,669  891  1,377  1,124  1,106  1,211 
Other(3)5,959  6,205  5,825  6,600  7,439  3,797  5,037  4,827 
Total noninterest income$32,047  $37,917  $38,018  $40,554  $32,319  $32,122  $41,568  $38,010 


(1)Included within the line item "Other charges and fees for customers 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.
(3)Included within the line item "Other" noninterest income in the Consolidated Statements of Income.


 4th
Quarter
2018
 3rd
Quarter
2018
 2nd
Quarter
2018
 1st
Quarter
2018
 4th
Quarter
2017
 3rd
Quarter
2017
 2nd
Quarter
2017
 1st
Quarter
2017
    
Operating expenses               
Salaries and wages(1)$48,486  $49,182  $47,810  $45,644  $41,866  $44,641