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Chemical Financial Corporation reports second quarter 2019 net income of $69.6 million, representing $0.96 of earnings per diluted share

Company Release - 7/24/2019 4:20 PM ET

DETROIT, July 24, 2019 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Chemical") (NASDAQ:CHFC) today announced 2019 second quarter net income of $69.6 million, or $0.96 per diluted share, compared to 2019 first quarter net income of $62.9 million, or $0.87 per diluted share, and 2018 second quarter net income of $69.0 million, or $0.96 per diluted share. Net income, excluding the change in fair of value in loan servicing rights and merger expenses (collectively, "significant items"), a non-GAAP financial measure, was $76.3 million, or $1.06 per diluted share, in the second quarter of 2019, compared to $73.3 million, or $1.02 per diluted share, in the first quarter of 2019 and $69.0 million, or $0.96 per diluted share, in the second quarter of 2018.(1) Net income for the second quarter of 2019 also included $4.2 million in net gain on sale of investment securities resulting from the repositioning of our securities portfolio as we plan for our future following the previously announced proposed merger of equals with TCF Financial Corporation ("TCF"), a benefit of $0.04 to diluted earnings per share.

"We are pleased with our core underlying trends for the quarter, including improvement in profitability ratios, increased net interest income driven by solid loan growth and a continued low operating efficiency ratio as a result of disciplined expense management," noted David T. Provost, Chief Executive Officer of Chemical and Thomas C. Shafer, Vice Chairman of Chemical and Chief Executive Officer of Chemical Bank. "As we look forward to the remainder of the year, we plan to complete our proposed merger of equals with TCF on August 1, 2019. We believe the shared strategic vision and complementary strengths of the two organizations, as we bring together the best of both banks, will position us to provide a more robust product set to a broader customer base, with limited overlap and disruption positioning us to thrive in today's evolving banking environment."

Return on average assets was 1.27% for the second quarter of 2019, compared to 1.17% for the first quarter of 2019 and 1.39% for the second quarter of 2018. Return on average assets, excluding significant items, a non-GAAP financial measure, was 1.39% for the second quarter of 2019, compared to 1.36% for the first quarter of 2019 and 1.39% for the second quarter of 2018.(1) Return on average tangible shareholders' equity was 15.7% for the second quarter of 2019, compared to 14.8% for the first quarter of 2019 and 17.8% for the second quarter of 2018. Return on average tangible shareholders' equity, excluding significant items, a non-GAAP financial measure, was 17.3% for the second quarter of 2019, compared to 17.2% for the first quarter of 2019 and 17.8% for the second quarter of 2018.(1)

Net interest income was $165.2 million for the second quarter of 2019, $2.3 million, or 1.4%, higher than the first quarter of 2019 and $7.6 million, or 4.8%, higher than the second quarter of 2018. The increase in net interest income in the second quarter of 2019, compared to the first quarter of 2019, was primarily attributable to the benefit from an increase in average balances and yields earned on loans, partially offset by an increase in average short-term borrowings and cost of funds. The increase in net interest income in the second quarter of 2019, compared to the second quarter of 2018, was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by increases in average interest-bearing deposit balances and cost of funds. Second quarter of 2019 loan growth was $537.9 million, or an annualized growth rate of 14.0%, compared to the first quarter of 2019, and loan growth over the past twelve months was $1.28 billion, or 8.8%. The investment securities portfolio grew by $803.3 million, net of approximately $135 million of sales completed in the second quarter of 2019 to reposition the portfolio, compared to the second quarter of 2018.

Net interest margin was 3.31% in the second quarter of 2019, compared to 3.38% in the first quarter of 2019 and 3.54% in the second quarter of 2018. Net interest margin (fully taxable equivalent (FTE)), a non-GAAP financial measure, was 3.36% in the second quarter of 2019, compared to 3.42% in the first quarter of 2019 and 3.59% in the second quarter of 2018.(1) The decrease in net interest margin (FTE), in the second quarter of 2019, compared to the first quarter of 2019, was primarily due to an increase in average interest-bearing liabilities and cost of funds, partially offset by increases in average balance and yield earned on loans. The decrease in net interest margin (FTE), in the second quarter of 2019, compared to the second quarter of 2018, was primarily due to an increase in average interest-bearing deposits and cost of funds, partially offset by increases in average balances and yields earned on loans and investment securities. Average cost of funds was 1.20% in the second quarter of 2019, compared to 1.13% in the first quarter of 2019 and 0.76% in the second quarter of 2018. The average yield on the loan portfolio increased to 4.90% in the second quarter of 2019, compared to 4.86% in the first quarter of 2019 and 4.63% in the second quarter of 2018. Interest accretion from purchase accounting discounts on acquired loans contributed 22 basis points to the net interest margin (FTE) in both the second and first quarters of 2019, compared to 26 basis points in the second quarter of 2018.

The provision for loan losses was $7.5 million in the second quarter of 2019, compared to $2.1 million in the first quarter of 2019 and $9.6 million in the second quarter of 2018. The increase in total provision for loan losses in the second quarter of 2019, compared to the first quarter of 2019, was primarily the result of an increase in originated loan growth. The decrease in the provision for loan losses in the second quarter of 2019, compared to the second quarter of 2018, was primarily the result of lower charge-offs.

Net loan charge-offs were $1.8 million, or 0.05% of average loans, in both the second and first quarters of 2019, compared to $4.3 million, or 0.12% of average loans, in the second quarter of 2018.

Nonperforming loans totaled $97.7 million at June 30, 2019, compared to $89.3 million at March 31, 2019 and $66.7 million at June 30, 2018. Nonperforming loans comprised 0.62% of total loans at June 30, 2019, compared to 0.58% at March 31, 2019 and 0.46% at June 30, 2018. The increase in nonperforming loans at June 30, 2019, compared to March 31, 2019 and June 30, 2018 was primarily due to commercial and commercial real estate loans downgraded to nonaccrual status. Each nonperforming loan is individually evaluated for impairment, and we have either established a specific reserve within the allowance for loan losses or charged the loan relationship down to the value of the underlying collateral.

The allowance for loan losses on the originated loan portfolio was $116.0 million, or 0.90% of originated loans, at June 30, 2019, compared to $110.3 million, or 0.91% of originated loans, at March 31, 2019 and $100.0 million, or 0.94% of originated loans, at June 30, 2018. The allowance for loan losses on the originated loan portfolio as a percentage of nonperforming loans decreased to 118.7% at June 30, 2019, compared to 123.5% at March 31, 2019 and 149.9% at June 30, 2018, primarily due to sustained low loan charge-off rates and improvement in historical loss factors for commercial loans. All acquired loans were recorded at their estimated fair value at each respective acquisition date without a carryover of the related allowance and, as of June 30, 2019, March 31, 2019 and June 30, 2018, we determined that no allowance was needed for the acquired loan portfolio.

Noninterest income was $38.2 million in the second quarter of 2019, compared to $24.9 million in the first quarter of 2019 and $38.0 million in the second quarter of 2018. Noninterest income in the second quarter of 2019 increased $13.3 million, compared to the first quarter of 2019, primarily related to increases in gain on sale of investment securities of $4.1 million, net gain on sale of loans and other mortgage banking revenue of $3.6 million and swap fee income of $2.1 million, included within other noninterest income. Noninterest income in the second quarter of 2019 increased $146 thousand, compared to the second quarter of 2018, primarily due to the benefit from sales of investment securities, partially offset by a decrease in net gain on sale of loans and other mortgage banking revenue. Net gain on sales of investment securities of $4.2 million provided a benefit of $0.04 to diluted earnings per share in the second quarter of 2019. Net gain on sale of loans and other mortgage banking revenue included a $5.5 million detriment to earnings due to a change in fair value in loan servicing rights in the second quarter of 2019, compared to a $7.6 million detriment in the first quarter of 2019 and a $30 thousand detriment in the second quarter of 2018. The change in fair value in loan servicing rights was a detriment of $0.06 to diluted earnings per share in the second quarter of 2019, compared to a detriment of $0.09 in the first quarter of 2019 and no impact in the second quarter of 2018.

Operating expenses were $111.0 million in the second quarter of 2019, compared to $109.0 million in the first quarter of 2019 and $104.6 million in the second quarter of 2018. Operating expenses, core, a non-GAAP financial measure that excludes the impact of merger expenses and federal historic tax credits, were $107.7 million for the second quarter of 2019, compared to $103.6 million for the first quarter of 2019 and $102.8 million for the second quarter of 2018.(1) The $4.1 million increase in operating expenses, core, in the second quarter of 2019, compared to the first quarter of 2019, was primarily due to an increase in salaries, wages and employee benefits. The increase to salaries, wages and employee benefits in the second quarter of 2019, compared to the first quarter of 2019 was impacted by an increase in mortgage loan commission expense of $1.8 million and annual merit increases effective in April, partially offset by an increase in the deferral of loan origination costs due to higher loan production. The $4.9 million increase in operating expenses, core, in the second quarter of 2019, compared to the second quarter of 2018, was primarily due to an increase in salaries, wages and employee benefits impacted by annual merit increases and 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. Second quarter of 2019 included $3.0 million of merger related expenses, or a detriment of $0.04 to diluted earnings per share, compared to $5.4 million of merger related expenses, or a detriment of $0.06 to diluted earnings per share in the first quarter of 2019. Impairment related to federal historic tax credits, included within other operating expense in our Consolidated Statements of Income, totaled $271 thousand in the second quarter of 2019 and $1.7 million in the second quarter of 2018.

The efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. The efficiency ratio was 54.6% in the second quarter of 2019, compared to 58.1% in the first quarter of 2019 and 53.5% in the second quarter of 2018. The adjusted efficiency ratio, a non-GAAP financial measure, which excludes, as applicable, the significant items defined above, amortization of intangibles, impairment of federal income tax credits, the net interest income FTE adjustment and gains from sale of investment securities, was 51.3% in the second quarter of 2019, compared to 51.7% in the first quarter of 2019 and 51.2% in the second quarter of 2018.(1)

The effective tax rate was 18.0% in the second quarter of 2019, compared to 17.8% in the first quarter of 2019 and 15.3% in the second quarter of 2018. The tax rate for the second quarter of 2019 and second quarter of 2018 benefited from federal historic tax credits of $260 thousand and $1.9 million, respectively. 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.
           
Total assets were $22.49 billion at June 30, 2019, compared to $21.80 billion at March 31, 2019 and $20.28 billion at June 30, 2018. The increase in total assets during the second quarter of 2019 was primarily attributable to net loan growth while the increase in the twelve months ended June 30, 2019 was additionally attributable to additions to the investment securities portfolio.

Total loans were $15.86 billion at June 30, 2019, an increase of $537.9 million, from total loans of $15.32 billion at March 31, 2019 and an increase of $1.28 billion, from total loans of $14.58 billion at June 30, 2018. Originated loan growth was $728.8 million during the second quarter of 2019, compared to $297.5 million in the first quarter of 2019 and $684.0 million in the second quarter of 2018. Growth in the originated loan portfolio was partially offset by run-off in the acquired loan portfolio of $190.9 million in the second quarter of 2019, compared to $243.2 million in the first quarter of 2019 and $323.1 million in the second quarter of 2018.

The investment securities portfolio totaled $3.94 billion at June 30, 2019, an increase of $12.3 million, compared to $3.92 billion at March 31, 2019, and an increase of $803.3 million, compared to $3.13 billion at June 30, 2018. The increase in the investment securities portfolio in both the second quarter of 2019 and the twelve months ended June 30, 2019 reflects our long-term plan to increase our investment securities portfolio as a percentage of total assets.

Total deposits were $15.88 billion at June 30, 2019, compared to $16.06 billion at March 31, 2019 and $14.55 billion at June 30, 2018. The decrease in deposits during the second quarter of 2019 was primarily due to a seasonal decrease in municipal interest-bearing checking deposits, partially offset by an increase in non-interest bearing checking deposits. The increase in deposits during the twelve months ended June 30, 2019 was primarily due to increases of $1.31 billion in customer deposits and $19.7 million in brokered deposits. Collateralized customer deposits were $291.7 million at June 30, 2019, compared to $413.2 million at March 31, 2019 and $378.9 million at June 30, 2018. Loans, as a percentage of deposits plus collateralized customer deposits, were 98.1% at June 30, 2019, compared to 93.0% at March 31, 2019 and 97.7% at June 30, 2018.

Short-term borrowings were $2.62 billion at June 30, 2019, compared to $1.74 billion at March 31, 2019 and $2.10 billion at June 30, 2018. Short-term borrowings include short-term FHLB advances that we used to fund our short-term liquidity needs, including to support loan growth. Long-term borrowings were $426.1 million at both June 30, 2019 and March 31, 2019, compared to $331.0 million at June 30, 2018.

Our shareholders' equity to total assets ratio was 13.1% at June 30, 2019, compared to 13.3% at March 31, 2019 and 13.6% at June 30, 2018. Tangible shareholders' equity to tangible assets ratio, a non-GAAP financial measure, and total risk-based capital ratio were 8.4% and 11.5% (estimated), respectively, at June 30, 2019, compared to 8.5% and 11.7%, respectively, at March 31, 2019 and 8.3% and 11.4%, respectively, at June 30, 2018.(1)  Book value was $41.27 per share at June 30, 2019, compared to $40.50 per share at March 31, 2019 and $38.52 per share at June 30, 2018. Tangible book value, a non-GAAP financial measure, was $25.18 per share at June 30, 2019, compared to $24.39 per share at March 31, 2019 and $22.33 per share at June 30, 2018.(1) If the proposed merger with TCF closes as anticipated on August 1, 2019, the combined company Board of Directors intends to declare the third quarter of 2019 common and preferred stock dividends on that date for the combined company. These dividends are expected to be payable in the third quarter of 2019.

  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 second quarter of 2019 operating results on Thursday, July 25, 2019, at 11:00 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 888-378-4398 and entering 339057 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 can be accessed on Chemical Financial Corporation's website 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 June 30, 2019, we had total consolidated assets of $22.49 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 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, tangible shareholders' equity to tangible assets, 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.

Management used non-GAAP financial measures as follows; in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. We believe these non-GAAP financial measures 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 Chemical Financial loan pipeline, future loan growth, increases in net interest income, and the belief that we are in a solid position for a successful 2019. Words and phrases such as "anticipate," "believe,"  "plan," "continue," "estimate," "expect," "forecast," "future," "intend," "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 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;
  • 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 inability to grow deposits;
  • our ability to execute on our strategy to expand investments and commercial lending;
  • our inability to efficiently manage our operating expenses;
  • the possibility that our previously announced merger with TCF does not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all;
  • the occurrence of any event, change or other circumstance that could give rise to the right of Chemical, TCF or both to terminate the merger agreement;
  • the outcome of pending or threatened litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to our proposed merger with TCF;
  • potential difficulty in maintaining relationships with clients, employees or business partners as a result of our proposed merger with TCF;
  • the possibility that the anticipated benefits of our proposed merger with TCF, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where Chemical and TCF do business, or as a result of other unexpected factors or events;
  • the impact of purchase accounting with respect to the proposed merger with TCF, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
  • diversion of management's attention from ongoing business operations and opportunities as a result of the proposed merger with TCF;
  • potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed merger with TCF;
  • 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;
  • increased capital requirements, other regulatory requirements or enhanced regulatory supervision;
  • our inability to sustain revenue and earnings growth;
  • the timing of when historic tax credits are placed into service could impact operating expenses;
  • our inability to efficiently manage operating expenses;
  • our inability to increase our investment securities portfolio as a percentage of total assets;
  • 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; and
  • economic, governmental, or other factors may prevent the projected population, residential, and commercial growth in the markets in which we operate.

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, 2018, in the Joint Proxy Statement/Prospectus regarding the proposed merger that was filed with the SEC on May 3, 2019 pursuant to Rule 424(b)(3) by Chemical and in Quarterly Reports on Form 10-Q. 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 2019 Second Quarter Operating Results

 

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

 June 30,
 2019
 March 31,
 2019
 December 31,
 2018
 June 30,
 2018
        
Assets       
Cash and cash equivalents:       
Cash and cash due from banks$200,034  $206,372  $228,527  $222,748 
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold392,724  311,204  267,312  302,532 
Total cash and cash equivalents592,758  517,576  495,839  525,280 
Investment securities:       
Carried at fair value3,369,872  3,301,054  3,021,832  2,529,910 
Held-to-maturity566,046  622,519  624,099  602,687 
Total investment securities3,935,918  3,923,573  3,645,931  3,132,597 
Loans held-for-sale33,019  23,535  85,030  46,849 
Loans15,861,903  15,324,048  15,269,779  14,579,693 
Allowance for loan losses(115,967) (110,284) (109,984) (100,015)
Net loans15,745,936  15,213,764  15,159,795  14,479,678 
Premises and equipment123,708  122,452  123,442  125,970 
Loan servicing rights60,658  64,701  71,013  70,364 
Goodwill1,134,568  1,134,568  1,134,568  1,134,568 
Core deposit intangibles25,835  27,195  28,556  31,407 
Interest receivable and other assets839,365  772,949  754,167  735,890 
Total Assets$22,491,765  $21,800,313  $21,498,341  $20,282,603 
Liabilities       
Deposits:       
Noninterest-bearing$3,925,777  $3,835,427  $3,809,252  $3,894,259 
Interest-bearing11,953,659  12,226,572  11,784,030  10,657,277 
Total deposits15,879,436  16,061,999  15,593,282  14,551,536 
Collateralized customer deposits291,671  413,199  382,687  378,938 
Short-term borrowings2,615,000  1,740,000  2,035,000  2,095,000 
Long-term borrowings426,069  426,035  426,002  330,956 
Interest payable and other liabilities326,054  261,571  225,110  175,174 
Total liabilities19,538,230  18,902,804  18,662,081  17,531,604 
Shareholders' Equity       
Preferred stock, no par value per share       
Common stock, $1 par value per share71,559  71,551  71,460  71,418 
Additional paid-in capital2,212,665  2,209,860  2,209,761  2,205,402 
Retained earnings699,712  654,605  616,149  521,530 
Accumulated other comprehensive loss(30,401) (38,507) (61,110) (47,351)
Total shareholders' equity2,953,535  2,897,509  2,836,260  2,750,999 
Total Liabilities and Shareholders' Equity$22,491,765  $21,800,313  $21,498,341  $20,282,603 


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

 Three Months Ended Six Months Ended
 June 30,
 2019
 March 31,
 2019
 June 30,
 2018
 June 30,
 2019
 June 30,
 2018
Interest income         
Interest and fees on loans$188,875  $183,292  $165,388  $372,167  $322,206 
Interest on investment securities:         
Taxable21,214  20,501  14,706  41,715  27,125 
Tax-exempt7,297  7,170  5,998  14,467  11,554 
Dividends on nonmarketable equity securities2,401  1,738  2,189  4,139  4,090 
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold1,641  1,280  1,301  2,921  2,541 
Total interest income221,428  213,981  189,582  435,409  367,516 
Interest expense         
Interest on deposits42,011  38,998  19,707  81,009  35,624 
Interest on collateralized customer deposits537  627  641  1,164  1,165 
Interest on short-term borrowings11,345  9,178  10,408  20,523  18,574 
Interest on long-term borrowings2,374  2,354  1,289  4,728  2,753 
Total interest expense56,267  51,157  32,045  107,424  58,116 
Net interest income165,161  162,824  157,537  327,985  309,400 
Provision for loan losses7,502  2,059  9,572  9,561  15,828 
Net interest income after provision for loan losses157,659  160,765  147,965  318,424  293,572 
Noninterest income         
Service charges and fees on deposit accounts8,247  7,967  9,690  16,214  19,124 
Wealth management revenue6,966  5,872  7,188  12,838  13,499 
Other charges and fees for customer services5,755  4,824  4,799  10,579  9,582 
Net gain on sale of loans and other mortgage banking revenue4,532  894  8,844  5,426  21,379 
Net gain on sale of investment securities4,160  87  3  4,247  3 
Other8,504  5,213  7,494  13,717  14,985 
Total noninterest income38,164  24,857  38,018  63,021  78,572 
Operating expenses         
Salaries, wages and employee benefits62,129  60,017  56,148  122,146  111,705 
Occupancy7,786  8,277  7,679  16,063  15,690 
Equipment and software7,076  6,979  8,276  14,055  15,935 
Outside processing and service fees12,206  11,726  10,673  23,932  21,029 
Merger expenses3,042  5,424    8,466   
Other18,764  16,592  21,785  35,356  41,812 
Total operating expenses111,003  109,015  104,561  220,018  206,171 
Income before income taxes84,820  76,607  81,422  161,427  165,973 
Income tax expense15,226  13,665  12,434  28,891  25,389 
Net income$69,594  $62,942  $68,988  $132,536  $140,584 
Earnings per common share:         
Weighted average common shares outstanding-basic71,554  71,474  71,329  71,514  71,280 
Weighted average common shares outstanding-diluted72,272  72,141  72,026  72,207  71,966 
Basic earnings per share$0.97  $0.88  $0.97  $1.85  $1.97 
Diluted earnings per share0.96  0.87  0.96  1.84  1.95 
Diluted earnings per share, excluding significant items (non-GAAP)1.06  1.02  0.96  2.07  1.91 
Cash dividends declared per common share0.34  0.34  0.28  0.68  0.56 
Key ratios (annualized where applicable):         
Return on average assets1.27% 1.17% 1.39% 1.22% 1.43%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)17.3% 17.2% 17.8% 17.2% 18.0%
Net interest margin (tax-equivalent basis) (non-GAAP)3.36% 3.42% 3.59% 3.39% 3.58%
Efficiency ratio - GAAP54.6% 58.1% 53.5% 56.3% 53.1%
Efficiency ratio - adjusted (non-GAAP)51.3% 51.7% 51.2% 51.5% 51.4%



Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

 2nd Quarter 2019 1st Quarter 2019 4th Quarter 2018 3rd Quarter 2018 2nd Quarter 2018 1st Quarter 2018
Summary of Operations           
Interest income$221,428  $213,981  $210,103  $198,377  $189,582  $177,934 
Interest expense56,267  51,157  46,651  38,896  32,045  26,071 
Net interest income165,161  162,824  163,452  159,481  157,537  151,863 
Provision for loan losses7,502  2,059  8,894  6,028  9,572  6,256 
Net interest income after provision for loan losses157,659  160,765  154,558  153,453  147,965  145,607 
Noninterest income38,164  24,857  32,047  37,917  38,018  40,554 
Operating expenses, excluding merger expenses and impairment of income tax credits (non-GAAP)107,690  103,591  102,594  106,499  102,845  99,976 
Merger expenses3,042  5,424         
Impairment of income tax credits271    5,772  3,162  1,716  1,634 
Income before income taxes84,820  76,607  78,239  81,709  81,422  84,551 
Income tax expense15,226  13,665  5,200  11,312  12,434  12,955 
Net income$69,594  $62,942  $73,039  $70,397  $68,988  $71,596 
Significant items, net of tax6,714  10,326  2,233  (735) 23  (2,964)
Net income, excluding significant items$76,308  $73,268  $75,272  $69,662  $69,011  $68,632 
            
Per Common Share Data           
Net income:           
Basic$0.97  $0.88  $1.02  $0.99  $0.97  $1.01 
Diluted0.96  0.87  1.01  0.98  0.96  0.99 
Diluted, excluding significant items (non-GAAP)1.06  1.02  1.04  0.97  0.96  0.95 
Cash dividends declared0.34  0.34  0.34  0.34  0.28  0.28 
Book value - period-end41.27  40.50  39.69  39.04  38.52  37.91 
Tangible book value - period-end (non-GAAP)25.18  24.39  23.54  22.87  22.33  21.68 
Market value - period-end41.11  41.16  36.61  53.40  55.67  54.68 
            
Key Ratios (annualized where applicable)          
Net interest margin (taxable equivalent basis) (non-GAAP)3.36% 3.42% 3.49% 3.48% 3.59% 3.56%
Efficiency ratio - adjusted (non-GAAP)51.3% 51.7% 50.4% 52.8% 51.2% 51.6%
Return on average assets1.27% 1.17% 1.39% 1.37% 1.39% 1.47%
Return on average assets, excluding significant items (non-GAAP)1.39% 1.36% 1.44% 1.36% 1.39% 1.41%
Return on average shareholders' equity9.5% 8.8% 10.4% 10.2% 10.2% 10.7%
Return on average tangible shareholders' equity (non-GAAP)15.7% 14.8% 17.8% 17.5% 17.8% 19.0%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)17.3% 17.2% 18.3% 17.3% 17.8% 18.2%
Average shareholders' equity as a percent of average assets13.3% 13.3% 13.4% 13.5% 13.6% 13.7%
Capital ratios (period end):           
Tangible shareholders' equity as a percent of tangible assets (non-GAAP)8.4% 8.5% 8.3% 8.3% 8.3% 8.3%
Total risk-based capital ratio (1)11.5% 11.7% 11.5% 11.7% 11.4% 11.2%

(1)       Estimated at June 30, 2019.


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

 Three Months Ended
 June 30, 2019 March 31, 2019 June 30, 2018
 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)$15,514,181  $189,612  4.90% $15,323,704  $184,058 4.86% $14,389,574  $166,125 4.63%
Taxable investment securities2,889,273  21,214  2.94  2,631,161   20,501  3.12  2,019,003   14,706  2.91 
Tax-exempt investment
securities(1)
1,137,426  9,231  3.25  1,154,348   9,066  3.14  1,020,567   7,592  2.98 
Other interest-earning assets194,798  2,401  4.94  193,326   1,738  3.65  189,654   2,189  4.63 
Interest-bearing deposits with the FRB, other banks and federal funds sold280,507  1,641  2.35  221,116   1,280  2.35  228,464   1,301  2.28 
Total interest-earning assets20,016,185  224,099  4.49  19,523,655   216,643  4.48  17,847,262   191,913  4.31 
Less: allowance for loan losses(111,759)     (110,852)     (96,332)    
Other assets:                 
Cash and cash due from banks165,880      186,849      219,751     
Premises and equipment122,969      123,470      126,570     
Interest receivable and other assets1,812,220      1,791,876      1,753,742     
Total assets$22,005,495      $21,514,998      $19,850,993     
Liabilities and shareholders' equity                
Interest-bearing liabilities:                 
Interest-bearing checking deposits$3,258,584  $6,802  0.84% $3,375,841  $6,721  0.81% $2,597,610  $1,393  0.22%
Savings deposits4,548,195  11,945  1.05  4,532,107   11,257  1.01  4,116,683   6,074  0.59 
Time deposits4,430,521  23,264  2.11  4,287,346   21,020  1.99  3,468,395   12,240  1.42 
Collateralized customer deposits305,019  537  0.71  359,230   627  0.71  399,911   641  0.64 
Short-term borrowings1,974,945  11,345  2.30  1,653,222   9,178  2.25  2,249,655   10,408  1.86 
Long-term borrowings426,046  2,374  2.23  426,011   2,354  2.24  336,985   1,289  1.53 
Total interest-bearing liabilities14,943,310  56,267  1.51  14,633,757   51,157  1.42  13,169,239   32,045  0.98 
Noninterest-bearing deposits3,840,835      3,753,929       3,792,803      
Total deposits and borrowed funds18,784,145  56,267  1.20  18,387,686   51,157  1.13  16,962,042   32,045  0.76 
Interest payable and other liabilities301,139      271,597      181,605     
Shareholders' equity2,920,211      2,855,715      2,707,346     
Total liabilities and shareholders' equity$22,005,495      $21,514,998      $19,850,993     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 2.98%     3.06%     3.33%
Net Interest Income (FTE)  $167,832      $165,486     $159,868  
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.36%     3.42%     3.59%
Reconciliation to Reported Net Interest Income                
Net interest income, fully taxable equivalent (non-GAAP) $167,832      $165,486     $159,868  
Adjustments for taxable equivalent interest (1):                
Loans  (737)      (766)      (737)  
Tax-exempt investment securities  (1,934)      (1,896)      (1,594)  
Total taxable equivalent interest adjustments (2,671)      (2,662)      (2,331)  
Net interest income (GAAP)  $165,161      $162,824     $157,537  
Net interest margin (GAAP)  3.31%      3.38%      3.54%  
  1. Fully taxable equivalent (FTE) basis using a federal income tax rate of 21%. 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. Tax equivalent interest also includes net loan fees.


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

  Six Months Ended
  June 30, 2019 June 30, 2018
  Average
Balance
 Interest (FTE) Effective
Yield/Rate (1)
 Average
Balance
 Interest (FTE) Effective
Yield/Rate (1)
Assets  
Interest-earning assets:            
Loans (1)(2) $15,419,468  $373,670  4.88% $14,307,705  $323,693  4.55%
Taxable investment securities 2,760,930  41,715  3.02  1,901,154  27,125  2.85 
Tax-exempt investment securities (1) 1,145,841  18,296  3.19  1,015,358  14,625  2.88 
Other interest-earning assets 194,066  4,139  4.30  184,895  4,090  4.46 
Interest-bearing deposits with the FRB, other banks and federal funds sold 250,976  2,921  2.35  245,592  2,541  2.09 
Total interest-earning assets 19,771,281  440,741  4.48  17,654,704  372,074  4.24 
Less: allowance for loan losses (111,308)     (94,500)    
Other assets:            
Cash and cash due from banks 176,307      223,186     
Premises and equipment 123,218      126,656     
Interest receivable and other assets 1,802,104      1,745,475     
Total assets $21,761,602      $19,655,521     
Liabilities and shareholders' equity            
Interest-bearing liabilities:            
Interest-bearing demand deposits $3,316,889  $13,523  0.82% $2,681,970  $2,618  0.20%
Savings deposits 4,540,195  23,202  1.03  4,082,036  11,011  0.54 
Time deposits 4,359,329  44,284  2.05  3,366,051  21,995  1.32 
Collateralized customer deposits 331,975  1,164  0.71  404,468  1,165  0.58 
Short-term borrowings 1,814,972  20,523  2.28  2,153,069  18,574  1.74 
Long-term borrowings 426,029  4,728  2.24  354,909  2,753  1.56 
Total interest-bearing liabilities 14,789,389  107,424  1.46  13,042,503  58,116  0.90 
Noninterest-bearing deposits 3,797,622      3,740,979     
Total deposits and borrowed funds 18,587,011  107,424  1.17  16,783,482  58,116  0.70 
Interest payable and other liabilities 286,449      184,096     
Shareholders' equity 2,888,142      2,687,943     
Total liabilities and shareholders' equity $21,761,602      $19,655,521     
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)     3.02%     3.34%
Net Interest Income (FTE)   $333,317      $313,958   
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.39%     3.58%
             
Reconciliation to Reported Net Interest Income            
Net interest income, fully taxable equivalent (non-GAAP)   $333,317      $313,958   
Adjustments for taxable equivalent interest (1):            
Loans   (1,503)     (1,487)  
Tax-exempt investment securities   (3,829)     (3,071)  
Total taxable equivalent interest adjustments   (5,332)     (4,558)  
Net interest income (GAAP)   $327,985      $309,400   
Net interest margin (GAAP)   3.35%     3.53%  

(1)  Fully taxable equivalent (FTE) basis using a federal income tax rate of 21%. 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. Tax equivalent interest also includes net loan fees.


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

 2nd Quarter 2019 1st Quarter 2019 4th Quarter 2018 3rd Quarter 2018 2nd Quarter 2018 1st Quarter 2018
  
Noninterest income           
Service charges and fees on deposit accounts$8,247  $7,967  $8,654  $9,319  $9,690  $9,434 
Wealth management revenue6,966  5,872  6,457  6,040  7,188  6,311 
Other fees for customer services(1)1,338  1,372  1,379  1,067  1,050  1,164 
Electronic banking fees(1)4,417  3,452  5,127  4,282  3,749  3,619 
Net gain on sale of loans and other mortgage banking revenue(2)9,989  8,540  6,804  8,905  8,874  8,783 
Change in fair value in loan servicing rights(2)(5,457) (7,646) (2,827) 932  (30) 3,752 
Gain (loss) on sale of investment securities4,160  87  221    3   
Bank-owned life insurance(3)2,195  1,709  273  1,167  1,669  891 
Other(3)6,309  3,504  5,959  6,205  5,825  6,600 
Total noninterest income$38,164  $24,857  $32,047  $37,917  $38,018  $40,554 
  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.
  3. Included within the line item "Other" noninterest income in the Consolidated Statements of Income.
 2nd Quarter 2019 1st Quarter 2019 4th Quarter 2018 3rd Quarter 2018 2nd Quarter 2018 1st Quarter 2018
  
Operating expenses           
Salaries and wages(1)$53,157  $50,131  $48,486  $49,182  $47,810  $45,644 
Employee benefits(1)8,972  9,886  8,342  7,712  8,338  9,913 
Occupancy7,786  8,277  7,360  8,620  7,679  8,011 
Equipment and software7,076  6,979  7,641  8,185  8,276  7,659 
Outside processing and service fees12,206  11,726  11,698  12,660  10,673  10,356 
FDIC insurance premiums(2)3,100  3,323  3,583  4,823  4,473  5,629 
Professional fees(2)3,684  2,743  3,758  3,399  3,004  2,458 
Intangible asset amortization(2)1,360  1,361  1,426  1,426  1,425  1,439 
Credit-related expenses(2)744  660  829  1,239  1,467  1,306 
Merger expenses3,042  5,424         
Impairment of income tax credit(2)271    5,772  3,162  1,716  1,634 
Other(2)9,605  8,505  9,471  9,253  9,700  7,561 
Total operating expenses$111,003  $109,015  $108,366  $109,661  $104,561  $101,610 
  1. Included within the line item "Salaries, wages and employee benefits" in the Consolidated Statements of Income.
  2. Included within the line item "Other" operating expenses in the Consolidated Statements of Income.


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)

     Loan Growth(1)       Loan Growth
 June 30,
 2019
 March 31,
 2019
 Three Months Ended June 30, 2019 December 31,
 2018
 September 30,
 2018
 June 30,
 2018
 Twelve Months Ended June 30, 2019
              
Composition of Loans             
Commercial loan portfolio:             
Commercial$4,347,885  $4,054,072  29.0% $4,002,568  $3,719,922  $3,576,438  21.6%
Commercial real estate:             
Owner-occupied2,024,561  2,050,430  (5.0) 2,059,557  1,897,934  1,863,563  8.6 
Non-owner occupied2,772,677  2,736,320  5.3  2,785,020  2,739,700  2,728,103  1.6 
Vacant land49,962  48,419  12.7  67,510  73,987  79,606  (37.2)
Total commercial real estate4,847,200  4,835,169  1.0  4,912,087  4,711,621  4,671,272  3.8 
Real estate construction700,770  622,590  50.2  597,212  622,147  618,985  13.2 
Subtotal - commercial loans9,895,855  9,511,831  16.1  9,511,867  9,053,690  8,866,695  11.6 
Consumer loan portfolio:             
Residential mortgage3,666,613  3,549,617  13.2  3,458,666  3,391,987  3,325,277  10.3 
Consumer installment1,552,835  1,504,441  12.9  1,521,074  1,560,265  1,587,327  (2.2)
Home equity746,600  758,159  (6.1) 778,172  790,310  800,394  (6.7)
Subtotal - consumer loans5,966,048  5,812,217  10.6  5,757,912  5,742,562  5,712,998  4.4 
Total loans$15,861,903  $15,324,048  14.0% $15,269,779  $14,796,252  $14,579,693  8.8%

(1) Annualized

     Deposit Growth(1)       Deposit Growth
 June 30,
 2019
 March 31,
 2019
 Three Months Ended June 30, 2019 December 31,
 2018
 September 30,
 2018
 June 30,
 2018
 Twelve Months Ended June 30, 2019
Composition of Deposits             
Noninterest-bearing demand$3,925,777  $3,835,427  9.4% $3,809,252  $4,015,323  $3,894,259  0.8%
Savings and money market accounts4,216,087  4,197,044  1.8  4,092,082  4,220,658  3,841,540  9.7 
Interest-bearing checking3,187,997  3,418,864  (27.0) 3,316,278  3,037,289  2,514,232  26.8 
Brokered deposits1,107,613  1,034,929  28.1  985,522  915,348  1,087,959  1.8 
Other time deposits3,441,962  3,575,735  (15.0) 3,390,148  3,256,234  3,213,546  7.1 
Total deposits$15,879,436  $16,061,999  (4.5)% $15,593,282  $15,444,852  $14,551,536  9.1%

(1) Annualized

 June 30,
 2019
 March 31,
 2019
 December 31,
 2018
 September 30,
 2018
 June 30,
 2018
 March 31,
 2018
            
Additional Data - Intangibles           
Goodwill$1,134,568  $1,134,568  $1,134,568  $1,134,568  $1,134,568  $1,134,568 
Loan servicing rights60,658  64,701  71,013  72,707  70,364  68,837 
Core deposit intangibles (CDI)25,835  27,195  28,556  29,981  31,407  32,833 


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

 June 30,
 2019
 March 31,
 2019
 December 31,
 2018
 September 30,
 2018
 June 30,
 2018
 March 31,
 2018
Nonperforming Assets           
Nonperforming Loans (1):           
Nonaccrual loans:           
Commercial$37,762  $33,715  $30,139  $25,328  $20,741  $20,000 
Commercial real estate:           
Owner-occupied20,814  18,234  16,056  14,936  16,103  19,855 
Non-owner occupied21,639  19,430  23,021  8,991  9,168  5,489 
Vacant land1,446  2,153  3,337  4,711  3,135  4,829 
Total commercial real estate43,899  39,817  42,414  28,638  28,406  30,173 
Real estate construction3,501  3,663  12  28,477  5,704  77 
Residential mortgage7,636  7,665  7,988  9,611  7,974  7,621 
Consumer installment1,411  1,191  1,276  1,350  945  922 
Home equity3,487  3,273  3,604  3,269  2,972  3,039 
Total nonaccrual loans(1)97,696  89,324  85,433  96,673  66,742  61,832 
Other real estate and repossessed assets8,267  9,106  6,256  6,584  5,828  7,719 
Total nonperforming assets$105,963  $98,430  $91,689  $103,257  $72,570  $69,551 
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$146  $544  $  $632  $472  $322 
Commercial real estate:           
Owner-occupied    52  47  461   
Non-owner occupied    887       
Vacant land        16   
Total commercial real estate    939  47  477   
Real estate construction      38     
Home equity    488  475  713  913 
Total accruing loans contractually past due 90 days or more as to interest or principal payments$146  $544  $1,427  $1,192  $1,662  $1,235 
  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 2019 Second Quarter Operating Results