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Chemical Financial Corporation Reports 2017 Third Quarter Operating Results

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

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

"We are pleased with our core underlying trends this quarter, including increased net interest income, improved operating efficiency and a stable net interest margin," noted David T. Provost, Chief Executive Officer of Chemical Financial Corporation and Thomas C. Shafer, Vice Chairman of the Corporation and Chief Executive Officer of Chemical Bank. "With the enhancements we have made in the third quarter of 2017 in association with our restructuring efforts, we believe we are on target to achieve the long-term growth prospects established as part of our most recent merger performance targets."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Corporation's shareholders' equity to total assets ratio was 13.8% at September 30, 2017, compared to 14.1% at June 30, 2017 and 14.7% at September 30, 2016. The Corporation's tangible equity to tangible assets ratio and total risk-based capital ratio were 8.3% and 11.2% (estimated), respectively, at September 30, 2017 compared to 8.4% and 11.1%, respectively, at June 30, 2017 and 8.7% and 11.1%, respectively, at September 30, 2016. (6) The Corporation's book value was $37.57 per share at September 30, 2017, compared to $37.11 per share at June 30, 2017 and $36.37 per share at September 30, 2016. The Corporation's tangible book value was $21.36 per share at September 30, 2017, compared to $20.89 per share at June 30, 2017 and $19.99 per share at September 30, 2016.(7)

(1) Net income, excluding significant items, and diluted earnings per share, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures. For the fourth quarter of 2016, "significant items" also includes gain on sales of branch offices.

(2) Return on average assets, excluding significant items, return on average shareholders' equity, excluding significant items, and return on average tangible shareholders' equity, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures.

(3) Net interest margin, on a tax equivalent basis, is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates" for a reconciliation of net interest income used to compute net interest margin on a tax equivalent basis to the most directly comparable GAAP financial measure.

(4) Core operating expenses, excluding merger and restructuring expenses and impairment of federal housing tax credits is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures.

(5) Adjusted efficiency ratio is a non-GAAP financial measure, which excludes significant items, amortization of intangibles, impairment of income tax credits, net interest income FTE adjustment, gains from sale of investment securities and closed branch locations. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.

(6) Tangible equity to tangible assets ratio is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.

(7) Tangible book value per share is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss its third quarter 2017 operating results on Wednesday, October 25, 2017, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-844-616-0064 and entering 658387 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

About Chemical Financial Corporation

Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 236 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At September 30, 2017, the Corporation had total assets of $19.35 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about the Corporation is available by visiting the investor relations section of its website at www.chemicalbank.com

Non-GAAP Financial Measures

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include the Corporation's tangible equity to tangible assets ratio, tangible book value per share, presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, operating expenses-core (which excludes merger and restructuring expenses and impairment of income tax credits), operating expenses-efficiency ratio (which excludes merger and restructuring expenses, impairment of income tax credits and amortization of intangibles), the adjusted efficiency ratio (which excludes significant items, impairment of income tax credits, amortization of intangibles, net interest income FTE adjustments, gains from sale of investment securities and closed branch locations) and other information presented excluding significant items, including net income, diluted earnings per share, return on average assets and return on average shareholders' equity.

These non-GAAP financial measures have been included as the Corporation believes they are helpful for investors to analyze and evaluate the Corporation's financial condition. However, these non-GAAP financial measures have inherent limitations and should not be considered in isolation or as a substitute for GAAP measures. In addition, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP historical measures in this press release with other companies non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure may be found in the financial tables included with this press release.

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and the Corporation. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "plans," "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. These statements include, among others, statements related to our belief that we are on target to achieve the long-term growth prospects established as part of our most recent merger performance targets and our expectations regarding operating expenses related to our restructuring efforts. . All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on the Corporation, specifically, are also inherently uncertain.

Forward-looking statements are based upon current beliefs and expectations and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Risk factors include, without limitation, a downturn in the economy, particularly in our markets, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate value, regulatory changes, excessive loan losses, the Corporation's inability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry, the Corporation's inability to grow its deposits while reducing the number of physical branches that is operates, and negative reactions to the restructuring efforts by Chemical Bank's customers, employees and other counterparties.

In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2016. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
  September 30,
 2017
  June 30,
 2017
  December 31,
 2016
  September 30,
 2016
               
Assets              
Cash and cash equivalents:              
Cash and cash due from banks $ 223,498     $ 230,219     $ 237,758     $ 286,351  
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold      485,713     389,022     236,644     270,216  
Total cash and cash equivalents 709,211     619,241     474,402     556,567  
Investment securities:              
Available-for-sale 2,029,672     1,767,478     1,234,964     1,303,381  
Held-to-maturity 657,176     645,605     623,427     563,721  
Total investment securities 2,686,848     2,413,083     1,858,391     1,867,102  
Loans held-for-sale 87,198     65,371     81,830     276,061  
Loans:              
Total loans 13,833,368     13,667,372     12,990,779     12,715,789  
Allowance for loan losses (85,760 )   (83,797 )   (78,268 )   (73,775 )
Net loans 13,747,608     13,583,575     12,912,511     12,642,014  
Premises and equipment 141,550     146,460     145,012     144,165  
Loan servicing rights 62,195     64,522     58,315     51,393  
Goodwill 1,134,568     1,133,534     1,133,534     1,137,166  
Other intangible assets 35,797     37,322     40,211     35,700  
Interest receivable and other assets 749,333     718,297     650,973     673,469  
Total Assets $ 19,354,308     $ 18,781,405     $ 17,355,179     $ 17,383,637  
Liabilities              
Deposits:              
Noninterest-bearing $ 3,688,848     $ 3,626,592     $ 3,341,520     $ 3,264,934  
Interest-bearing 10,116,397     9,577,775     9,531,602     10,007,928  
Total deposits 13,805,245     13,204,367     12,873,122     13,272,862  
Interest payable and other liabilities 163,532     141,702     134,637     143,708  
Securities sold under agreements to repurchase with customers 414,597     310,042     343,047     326,789  
Short-term borrowings 1,900,000     2,050,000     825,000     400,000  
Long-term borrowings 397,845     435,852     597,847     676,612  
Total liabilities 16,681,219     16,141,963     14,773,653     14,819,971  
Shareholders' Equity              
Preferred stock, no par value per share              
Common stock, $1 par value per share 71,152     71,131     70,599     70,497  
Additional paid-in capital 2,201,334     2,197,501     2,210,762     2,206,182  
Retained earnings 425,433     404,939     340,201     312,129  
Accumulated other comprehensive loss (24,830 )   (34,129 )   (40,036 )   (25,142 )
Total shareholders' equity 2,673,089     2,639,442     2,581,526     2,563,666  
Total Liabilities and Shareholders' Equity $ 19,354,308     $ 18,781,405     $ 17,355,179     $ 17,383,637  


 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
  Three Months Ended   Nine Months Ended
  September 30,
 2017
  June 30,
 2017
  September 30,
 2016
  September 30,
 2017
  September 30,
 2016
Interest Income                  
Interest and fees on loans $ 148,771     $ 141,314     $ 97,103     $ 422,570     $ 249,082  
Interest on investment securities:                  
Taxable 9,326     7,125     2,575     21,207     6,302  
Tax-exempt 4,577     4,426     3,072     13,238     8,377  
Dividends on nonmarketable equity securities 1,039     1,246     358     2,906     1,391  
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold      1,231     1,022     454     3,052     811  
Total interest income 164,944     155,133     103,562     462,973     265,963  
Interest Expense                  
Interest on deposits 12,926     10,582     5,836     32,424     14,155  
Interest on short-term borrowings 6,591     4,659     459     12,908     785  
Interest on long-term borrowings 1,799     1,944     458     5,968     2,389  
Total interest expense 21,316     17,185     6,753     51,300     17,329  
Net Interest Income 143,628     137,948     96,809     411,673     248,634  
Provision for loan losses 5,499     6,229     4,103     15,778     8,603  
Net interest income after provision for loan losses 138,129     131,719     92,706     395,895     240,031  
Noninterest Income                  
Service charges and fees on deposit accounts 9,147     8,777     7,665     25,928     19,722  
Wealth management revenue 6,188     6,958     5,584     18,973     16,567  
Other charges and fees for customer services 6,624     9,734     7,410     25,249     20,265  
Net gain on sale of loans and other mortgage banking revenue 5,241     9,879     4,439     24,280     7,439  
Gain on sale of investment securities 1     77     16     168     53  
Other 4,921     6,143     2,656     17,102     4,040  
Total noninterest income 32,122     41,568     27,770     111,700     68,086  
Operating Expenses                  
Salaries, wages and employee benefits 52,621     52,601     40,565     165,470     107,582  
Occupancy 6,871     8,745     5,462     23,008     15,881  
Equipment and software 7,582     8,149     6,420     24,248     15,699  
Outside processing and service fees 9,626     8,924     5,365     26,061     13,909  
Merger expenses 2,379     465     37,470     7,011     43,118  
Restructuring expenses 18,824             18,824      
Other 21,636     19,353     10,862     57,350     27,927  
Total operating expenses 119,539     98,237     106,144     321,972     224,116  
Income before income taxes 50,712     75,050     14,332     185,623     84,001  
Income tax expense 10,253     23,036     2,848     45,546     23,137  
Net Income $ 40,459     $ 52,014     $ 11,484     $ 140,077     $ 60,864  
Earnings Per Common Share:                  
Weighted average common shares outstanding-basic 70,911     70,819     49,107     70,787     41,881  
Weighted average common shares outstanding-diluted 71,505     71,443     49,631     71,454     42,321  
Basic earnings per share $ 0.57     $ 0.73     $ 0.23     $ 1.98     $ 1.45  
Diluted earnings per share 0.56     0.73     0.23     1.95     1.42  
Cash Dividends Declared Per Common Share 0.28     0.27     0.27     0.82     0.79  
Key Ratios (annualized where applicable):                  
Return on average assets 0.86 %   1.14 %   0.37 %   1.03 %   0.79 %
Return on average shareholders' equity 6.1 %   8.0 %   2.9 %   7.2 %   6.7 %
Net interest margin (tax-equivalent basis) (non-GAAP) 3.48 %   3.48 %   3.58 %   3.48 %   3.62 %
Efficiency ratio - GAAP 68.0 %   54.7 %   85.2 %   61.5 %   70.8 %
Efficiency ratio - adjusted (non-GAAP) 51.2 %   52.2 %   52.7 %   53.5 %   54.7 %


 
 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
  3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016
       
Summary of Operations                          
Interest income $ 164,944     $ 155,133     $ 142,896     $ 144,416     $ 103,562     $ 82,937     $ 79,464  
Interest expense 21,316     17,185     12,799     11,969     6,753     5,442     5,134  
Net interest income 143,628     137,948     130,097     132,447     96,809     77,495     74,330  
Provision for loan losses 5,499     6,229     4,050     6,272     4,103     3,000     1,500  
Net interest income after provision for loan losses 138,129     131,719     126,047     126,175     92,706     74,495     72,830  
Noninterest income 32,122     41,568     38,010     54,264     27,770     20,897     19,419  
Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP) 95,241     97,772     100,029     94,443     68,674     56,031     56,293  
Merger and restructuring expenses 21,203     465     4,167     18,016     37,470     3,054     2,594  
Impairment of income tax credits 3,095                          
Income before income taxes 50,712     75,050     59,861     67,980     14,332     36,307     33,362  
Income tax expense 10,253     23,036     12,257     18,969     2,848     10,532     9,757  
Net income $ 40,459     $ 52,014     $ 47,604     $ 49,011     $ 11,484     $ 25,775     $ 23,605  
Significant items, net of tax 16,409     1,474     3,046     2,781     25,921     1,985     1,686  
Net income, excluding significant items $ 56,868     $ 53,488     $ 50,650     $ 51,792     $ 37,405     $ 27,760     $ 25,291  
                           
Per Common Share Data                          
Net income:                          
Basic $ 0.57     $ 0.73     $ 0.67     $ 0.67     $ 0.23     $ 0.67     $ 0.61  
Diluted 0.56     0.73     0.67     0.66     0.23     0.67     0.60  
Diluted, excluding significant items (non-GAAP) 0.79     0.75     0.71     0.70     0.75     0.72     0.65  
Cash dividends declared 0.28     0.27     0.27     0.27     0.27     0.26     0.26  
Book value - period-end 37.57     37.11     36.56     36.57     36.37     27.45     26.99  
Tangible book value - period-end 21.36     20.89     20.32     20.20     19.99     19.68     19.20  
Market value - period-end 52.26     48.41     51.15     54.17     44.13     37.29     35.69  
                           
Key Ratios (annualized where applicable)                        
Net interest margin (taxable equivalent basis) (non-GAAP) 3.48 %   3.48 %   3.49 %   3.56 %   3.58 %   3.70 %   3.60 %
Efficiency ratio - adjusted (non-GAAP) 51.2 %   52.2 %   57.4 %   53.7 %   52.7 %   54.6 %   57.6 %
Return on average assets 0.86 %   1.14 %   1.09 %   1.09 %   0.37 %   1.10 %   1.02 %
Return on average shareholders' equity 6.1 %   8.0 %   7.4 %   7.4 %   2.9 %   10.0 %   9.3 %
Average shareholders' equity as a percent of average assets 14.0 %   14.3 %   14.8 %   14.9 %   12.7 %   11.1 %   11.0 %
Capital ratios (period end):                          
Tangible shareholders' equity as a percent of tangible assets 8.3 %   8.4 %   8.8 %   8.8 %   8.7 %   8.2 %   8.2 %
Total risk-based capital ratio (1) 11.2 %   11.1 %   11.4 %   11.5 %   11.1 %   11.4 %   11.5 %
                                         

(1) Estimated at September 30, 2017.

 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates(1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  Three Months Ended
  September 30, 2017   June 30, 2017   September 30, 2016
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
Assets                                  
Interest-earning assets:                                  
Loans (1)(2) $ 13,795,750     $ 149,595     4.31 %   $ 13,513,927     $ 142,128     4.22 %   $ 9,470,650     $ 97,880     4.12 %
Taxable investment securities 1,629,344     9,326     2.29     1,364,358     7,125     2.09     687,259     2,575     1.50  
Tax-exempt investment  securities(1) 896,854     7,013     3.13     882,445     6,781     3.07     592,747     4,721     3.19  
Other interest-earning assets 180,188     1,039     2.29     166,244     1,246     3.01     57,756     358     2.47  
Interest-bearing deposits with the FRB and other banks and federal funds sold 313,104     1,231     1.56     302,022     1,022     1.36     249,731     454     0.72  
Total interest-earning assets 16,815,240     168,204     3.98     16,228,996     158,302     3.91     11,058,143     105,988     3.82  
Less: allowance for loan losses (84,640 )           (80,690 )           (72,242 )        
Other assets:                                  
Cash and cash due from banks 250,743             222,954             194,171          
Premises and equipment 146,266             145,320             116,944          
Interest receivable and other assets 1,730,539             1,748,119             953,714          
Total assets $ 18,858,148             $ 18,264,699             $ 12,250,730          
Liabilities and shareholders' equity                                
Interest-bearing liabilities:                                  
Interest-bearing demand deposits $ 2,725,807     $ 1,321     0.19 %   $ 2,682,652     $ 1,289     0.19 %   $ 2,327,762     $ 961     0.16 %
Savings deposits 4,012,299     3,985     0.39     3,881,260     3,047     0.31     2,512,620     749     0.12  
Time deposits 3,007,109     7,620     1.01     2,958,436     6,246     0.85     2,186,781     4,126     0.75  
Short-term borrowings 2,279,998     6,591     1.15     2,027,505     4,659     0.92     593,903     459     0.31  
Long-term borrowings 426,155     1,799     1.67     474,086     1,944     1.65     494,810     458     0.37  
Total interest-bearing liabilities 12,451,368     21,316     0.68     12,023,939     17,185     0.57     8,115,876     6,753     0.33  
Noninterest-bearing deposits 3,643,765             3,499,686             2,456,469          
Total deposits and borrowed funds 16,095,133     21,316     0.53     15,523,625     17,185     0.44     10,572,345     6,753     0.25  
Interest payable and other liabilities 119,782             134,557             118,717          
Shareholders' equity 2,643,233             2,606,517             1,559,668          
Total liabilities and shareholders' equity $ 18,858,148             $ 18,264,699             $ 12,250,730          
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)     3.30 %           3.34 %           3.49 %
Net Interest Income (FTE)     $ 146,888             $ 141,117             $ 99,235      
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.48 %           3.48 %           3.58 %
                                   
Reconciliation to Reported Net Interest Income                                
Net interest income, fully taxable equivalent (non-GAAP)   $ 146,888             $ 141,117             $ 99,235      
Adjustments for taxable equivalent interest (1):                                
Loans     (824 )           (814 )           (777 )    
Tax-exempt investment securities     (2,436 )           (2,355 )           (1,649 )    
Total taxable equivalent interest adjustments   (3,260 )           (3,169 )           (2,426 )    
Net interest income (GAAP)     $ 143,628             $ 137,948             $ 96,809      
Net interest margin (GAAP)     3.40 %           3.41 %           3.49 %    
 

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

 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates (1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
    Nine Months Ended
    September 30, 2017   September 30, 2016
    Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
Assets    
Interest-earning assets:                        
Loans (1)(2)   $ 13,490,851     $ 425,016     4.21 %   $ 8,098,796     $ 251,274     4.14 %
Taxable investment securities   1,335,349     21,207     2.12     586,066     6,302     1.43  
Tax-exempt investment securities (1)   880,398     20,290     3.07     524,690     12,882     3.27  
Other interest-earning assets   150,203     2,906     2.59     46,994     1,391     3.95  
Interest-bearing deposits with the FRB and other banks and federal funds sold   294,967     3,052     1.38     156,640     811     0.69  
Total interest-earning assets   16,151,768     472,471     3.91     9,413,186     272,660     3.87  
Less: allowance for loan losses   (81,337 )           (72,525 )        
Other assets:                        
Cash and cash due from banks   234,379             166,927          
Premises and equipment   145,877             109,159          
Interest receivable and other assets   1,753,337             665,185          
Total assets   $ 18,204,024             $ 10,281,932          
Liabilities and Shareholders' Equity                        
Interest-bearing liabilities:                        
Interest-bearing demand deposits   $ 2,768,209     $ 3,628     0.18 %   $ 2,058,951     $ 2,011     0.13 %
Savings deposits   3,912,672     8,753     0.30     2,212,732     1,614     0.10  
Time deposits   2,973,070     20,043     0.90     1,799,691     10,530     0.78  
Short-term borrowings   1,848,325     12,908     0.93     454,456     785     0.23  
Long-term borrowings   479,344     5,968     1.66     347,925     2,389     0.92  
Total interest-bearing liabilities   11,981,620     51,300     0.57     6,873,755     17,329     0.34  
Noninterest-bearing deposits   3,484,125             2,115,511          
Total deposits and borrowed funds   15,465,745     51,300     0.44     8,989,266     17,329     0.26  
Interest payable and other liabilities   126,649             87,829          
Shareholders' equity   2,611,630             1,204,837          
Total liabilities and shareholders' equity   $ 18,204,024             $ 10,281,932          
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)           3.34 %           3.53 %
Net Interest Income (FTE)       $ 421,171             $ 255,331      
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)           3.48 %           3.62 %
                         
Reconciliation to Reported Net Interest Income                        
Net interest income, fully taxable equivalent (non-GAAP)       $ 421,171             $ 255,331      
Adjustments for taxable equivalent interest (1):                        
Loans       (2,446 )           (2,192 )    
Tax-exempt investment securities       (7,052 )           (4,505 )    
Total taxable equivalent interest adjustments       (9,498 )           (6,697 )    
Net interest income (GAAP)       $ 411,673             $ 248,634      
Net interest margin (GAAP)       3.40 %           3.53 %    
 

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

 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
  4th
Quarter
2016
  3rd
Quarter
2016
  2nd
Quarter
2016
  1st
Quarter
2016
       
Noninterest income                          
Service charges and fees on deposit accounts $ 9,147     $ 8,777     $ 8,004     $ 8,414     $ 7,665     $ 6,337     $ 5,720  
Wealth management revenue 6,188     6,958     5,827     6,034     5,584     5,782     5,201  
Electronic banking fees 4,370     7,482     6,817     8,196     5,533     4,786     4,918  
Net gain on sale of loans and other mortgage banking revenue      5,241     9,879     9,160     14,420     4,439     1,595     1,405  
Other fees for customer services 2,254     2,252     2,074     1,785     1,877     1,677     1,474  
Gain on sale of investment securities 1     77     90     76     16     18     19  
Gain on sale of branch offices             7,391              
Other 4,921     6,143     6,038     7,948     2,656     702     682  
Total noninterest income $ 32,122     $ 41,568     $ 38,010     $ 54,264     $ 27,770     $ 20,897     $ 19,419  


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


 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
                                                   
          Organic
Growth -
              Organic
Growth -
  Sep 30,
 2017
  June 30,
2017
  Three
Months
Ended
September
30, 2017
  March 31,
 2017
  Dec 31,
 2016
  Sep 30,
 2016
  Twelve
Months
Ended
September
30, 2017
                           
Composition of Loans                          
Commercial loan portfolio:                          
Commercial $ 3,319,965     $ 3,360,161     (1.2 )%   $ 3,253,608     $ 3,217,300     $ 3,199,576     3.8 %
Commercial real estate 4,315,978     4,324,323     (0.2 )   4,097,771     3,973,140     3,733,377     15.6  
Real estate construction 501,413     446,678     12.3     453,811     403,772     500,494     0.2  
Subtotal - commercial loans 8,137,356     8,131,162     0.1     7,805,190     7,594,212     7,433,447     9.5  
Consumer loan portfolio:                          
Residential mortgage 3,221,307     3,125,397     3.1     3,133,465     3,086,474     3,046,959     5.7  
Consumer installment 1,615,983     1,553,967     4.0     1,481,057     1,433,884     1,335,707     21.0  
Home equity 858,722     856,846     0.2     853,680     876,209     899,676     (4.6 )
Subtotal - consumer loans 5,696,012     5,536,210     2.9     5,468,202     5,396,567     5,282,342     7.8  
Total loans $ 13,833,368     $ 13,667,372     1.2 %   $ 13,273,392     $ 12,990,779     $ 12,715,789     8.8 %


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


                                       
  September 30,
 2017
  June 30,
 2017
  March 31,
 2017
  December 31,
 2016
  September 30,
 2016
                   
Additional Data - Intangibles                  
Goodwill $ 1,134,568     $ 1,133,534     $ 1,133,534     $ 1,133,534     $ 1,137,166  
Loan servicing rights 62,195     64,522     64,604     58,315     51,393  
Core deposit intangibles (CDI) 35,747     37,235     38,723     40,211     35,618  
Noncompete agreements 50     87     125         82  


 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  Sep 30,
 2017
  June 30,
2017
  March 31,
 2017
  Dec 31,
 2016
  Sep 30,
 2016
  June 30,
 2016
  March 31,
 2016
Nonperforming Assets                          
Nonperforming Loans (1):                          
Nonaccrual loans:                          
Commercial $ 15,648     $ 18,773     $ 16,717     $ 13,178     $ 13,742     $ 14,577     $ 19,264  
Commercial real estate 25,150     19,723     20,828     19,877     19,914     21,325     25,859  
Real estate construction 78     56     79     80     80     496     546  
Residential mortgage 8,646     7,714     6,749     6,969     5,119     5,343     5,062  
Consumer installment 875     757     755     879     378     285     360  
Home equity 3,908     3,871     2,713     3,351     2,064     1,971     2,328  
Total nonaccrual loans(1) 54,305     50,894     47,841     44,334     41,297     43,997     53,419  
Other real estate and repossessed assets 10,605     14,582     16,395     17,187     20,730     8,440     9,248  
Total nonperforming assets $ 64,910     $ 65,476     $ 64,236     $ 61,521     $ 62,027     $ 52,437     $ 62,667  
Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30:    
Commercial $ 3,521     $ 58     $ 1,823     $ 11     $ 221     $ 3     $ 370  
Commercial real estate 144     262     700     277     739     3      
Real estate construction                 1,439          
Residential mortgage                 375     407     423  
Home equity 2,367     2,026     1,169     995     628     1,071     679  
Total accruing loans contractually past due 90 days or more as to interest or principal payments $ 6,032     2,346     $ 3,692     $ 1,283     $ 3,402     $ 1,484     $ 1,472  
 

(1) Acquired loans, accounted for under Accounting Standards Codification 310-30, that are not performing in accordance with contractual terms are not reported as nonperforming loans because these loans are recorded in pools at their net realizable value based on the principal and interest the Corporation expects to collect on these loans.

 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
  4th
Quarter
2016
  3rd
Quarter
2016
  2nd
Quarter
2016
  1st
Quarter
2016
  Nine Months Ended
                Sep 30,
 2017
  Sep 30,
 2016
Allowance for loan losses - originated loan portfolio                
 Allowance for loan losses - beginning of period $ 83,797     $ 78,774     $ 78,268     $ 73,775     $ 71,506     $ 70,318     $ 73,328     $ 78,268     $ 73,328  
Provision for loan losses 4,921     6,229     4,050     6,272     4,103     3,000     1,500     15,200     8,603  
Net loan (charge-offs) recoveries:                                
Commercial (2,348 )   (239 )   (1,999 )   (336 )   (150 )   (1,153 )   (3,115 )   (4,586 )   (4,418 )
Commercial real estate (174 )   (205 )   730     (280 )   (154 )   (187 )   (440 )   351     (781 )
Real estate construction         (9 )   36     (31 )       (11 )   (9 )   (42 )
Residential mortgage (44 )   19     (567 )   (236 )   (304 )   8     (172 )   (592 )   (468 )
Consumer installment (858 )   (747 )   (1,310 )   (823 )   (1,137 )   (486 )   (602 )   (2,915 )   (2,225 )
Home equity (113 )   (34 )   (389 )   (140 )   (58 )   6     (170 )   (536 )   (222 )
Net loan charge-offs (3,537 )   (1,206 )   (3,544 )   (1,779 )   (1,834 )   (1,812 )   (4,510 )   (8,287 )   (8,156 )
Allowance for loan losses - end of period 85,181     83,797     78,774     78,268     73,775     71,506     70,318     85,181     73,775  
                             
Allowance for loan losses - acquired loan portfolio                            
Allowance for loan losses - beginning of period                                  
Provision for loan losses 579                             579      
Allowance for loan losses - end of period 579                             579      
Total allowance for loan losses $ 85,760     $ 83,797     $ 78,774     $ 78,268     $ 73,775     $ 71,506     $ 70,318     $ 85,760     $ 73,775  
Net loan charge-offs as a percent of average loans (annualized)      0.10 %   0.04 %   0.11 %   0.06 %   0.08 %   0.10 %   0.25 %   0.08 %   0.13 %
 


  Sep 30,
 2017
  June 30,
 2017
  March 31,
 2017
  Dec 31,
 2016
  Sep 30,
 2016
Originated loans $ 9,156,096     $ 8,659,622     $ 7,959,769     $ 7,458,401     $ 6,755,931  
Acquired loans 4,677,272     5,007,750     5,313,623     5,532,378     5,959,858  
Total loans $ 13,833,368     $ 13,667,372     $ 13,273,392     $ 12,990,779     $ 12,715,789  
                   
Allowance for loan losses (originated loan portfolio) as a percent of:
Total originated loans 0.93 %   0.97 %   0.99 %   1.05 %   1.09 %
Nonperforming loans 156.9 %   164.7 %   177.7 %   176.5 %   178.6 %
Credit mark as a percent of unpaid principal balance on acquired loans      2.7 %   2.6 %   2.8 %   3.1 %   3.0 %


 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands)
 
  3rd
Quarter 2017
  2nd
Quarter
2017
  1st
Quarter 2017
  4th
Quarter 2016
  3rd
Quarter 2016
  2nd
Quarter 2016
  1st
Quarter 2016
  Nine Months Ended
                Sep 30,
 2017
  Sep 30,
 2016
Non-GAAP Operating Results                        
Net Income                                  
Net income, as reported $ 40,459     $ 52,014     $ 47,604     $ 47,168     $ 11,484     $ 25,775     $ 23,605     $ 140,077     $ 60,864  
Merger and restructuring expenses   21,203       465       4,167       18,016       37,470       3,054       2,594       25,835       43,118  
Gain on sales of branch offices                     (7,391 )                              
Loan servicing rights change in fair valuation   4,041       1,802       519       (6,348 )     1,236                   6,362       1,236  
Significant items   25,244       2,267       4,686       4,277       38,706       3,054       2,594       32,197       44,354  
Income tax benefit (1)   (8,835 )     (793 )     (1,640 )     (1,496 )     (12,785 )     (1,069 )     (908 )     (11,268 )     (14,762 )
Significant items, net of tax   16,409       1,474       3,046       2,781       25,921       1,985       1,686       20,929       29,592  
Net income, excluding significant items $ 56,868     $ 53,488     $ 50,650     $ 49,949     $ 37,405     $ 27,760     $ 25,291     $ 161,006     $ 90,456  
Diluted Earnings Per Share                                
Diluted earnings per share, as reported $ 0.56     $ 0.73     $ 0.67     $ 0.66     $ 0.23     $ 0.67     $ 0.60     $ 1.95     $ 1.42  
Effect of significant items, net of tax   0.23       0.02       0.04       0.04       0.52       0.05       0.05       0.29       0.69  
Diluted earnings per share, excluding significant items $ 0.79     $ 0.75     $ 0.71     $ 0.70     $ 0.75     $ 0.72     $ 0.65     $ 2.24     $ 2.11  
Return on Average Assets                                  
Return on average assets, as reported   0.86 %     1.14 %     1.09 %     1.09 %     0.37 %     1.10 %     1.02 %     1.03 %     0.79 %
Effect of significant items, net of tax   0.35       0.03       0.07       0.07       0.85       0.09       0.07       0.15       0.38  
Return on average assets, excluding significant items   1.21 %     1.17 %     1.16 %     1.16 %     1.22 %     1.19 %     1.09 %     1.18 %     1.17 %
Return on Average Shareholders' Equity                            
Return on average shareholders' equity, as reported   6.1 %     8.0 %     7.4 %     7.4 %     2.9 %     10.0 %     9.3 %     7.2 %     6.7 %
Effect of significant items, net of tax   2.5       0.2       0.4       0.4       6.7       0.7       0.6       1.0       3.3  
Return on average shareholders' equity, excluding significant items   8.6 %     8.2 %     7.8 %     7.8 %     9.6 %     10.7 %     9.9 %     8.2 %     10.0 %
Return on Average Tangible Shareholders' Equity                                  
Average shareholders' equity $ 2,643,233
    $ 2,606,517     $ 2,584,501     $ 2,564,943     $ 1,559,668     $ 1,033,014     $ 1,017,929     $ 2,611,630     $ 1,204,837  
Average goodwill, CDI and noncompete agreements, net of tax   1,153,394
      1,154,229       1,155,177       1,153,598       585,393       295,882       299,685       1,154,243       393,023  
Average tangible shareholders' equity $ 1,489,839
    $ 1,452,288     $ 1,429,324     $ 1,411,345     $ 974,275     $ 737,132     $ 718,244     $ 1,457,387     $ 811,814  
Return on average tangible shareholders' equity   10.9 %     14.3 %     13.3 %     13.4 %     4.7 %     14.0 %     13.1 %     12.8 %     10.0 %
Effect of significant items, net of tax   4.4       0.4       0.9       0.8       10.7       1.1       1.0       1.9       4.9  
Return on average tangible shareholders' equity, excluding significant items   15.3 %     14.7 %     14.2 %     14.2 %     15.4 %     15.1 %     14.1 %     14.7 %     14.9 %
 

(1) Assumes merger and restructuring expenses and other significant items are deductible at an income tax rate of 35%, except for the impact of estimated nondeductible expenses incurred in periods when the Corporation completed the merger transaction.

 
 
Chemical Financial Corporation Announces 2017 Third Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands, except per share data)
 
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
  4th
Quarter
2016
  3rd
Quarter
2016
  2nd
Quarter
2016
  1st
Quarter
2016
  Nine Months Ended
                Sep 30,
 2017
  Sep 30,
 2016
Efficiency Ratio                                
Net interest income $ 143,628     $ 137,948     $ 130,097     $ 132,447     $ 96,809     $ 77,495     $ 74,330     $ 411,673     $ 248,634  
Noninterest income 32,122     41,568     38,010     54,264     27,770     20,897     19,419     111,700     68,086  
Total revenue - GAAP 175,750     179,516     168,107     186,711     124,579     98,392     93,749     523,373     316,720  
Net interest income FTE adjustment 3,260     3,169     3,068     2,945     2,426     2,138     2,133     9,498     6,697  
Loan servicing rights change in fair value (gains)losses 4,041     1,802     519     (6,348 )   1,236             6,362     1,236  
Gain on sales of branch offices             (7,391 )                    
Gains from sale of investment securities and closed branch locations      (1 )   (77 )   (90 )   (76 )   (301 )   (123 )   (169 )   (168 )   (593 )
Total revenue - Non-GAAP $ 183,050     $ 184,410     $ 171,604     $ 175,841     $ 127,940     $ 100,407     $ 95,713     $ 539,065     $ 324,060  
Operating expenses - GAAP $ 119,539     $ 98,237     $ 104,196     $ 114,302     $ 106,144     $ 59,085     $ 58,887     $ 321,972     $ 224,116  
Merger and restructuring expenses (21,203 )   (465 )   (4,167 )   (18,016 )   (37,470 )   (3,054 )   (2,594 )   (25,835 )   (43,118 )
Impairment of income tax credits (3,095 )                           (3,095 )    
Operating expense, core - Non-GAAP 95,241     97,772     100,029     96,286     68,674     56,031     56,293     293,042     180,998  
Amortization of intangibles (1,526 )   (1,525 )   (1,513 )   (1,843 )   (1,292 )   (1,195 )   (1,194 )   (4,564 )   (3,681 )
Operating expenses, efficiency ratio - Non-GAAP $ 93,715     $ 96,247     $ 98,516     $ 94,443     $ 67,382     $ 54,836     $ 55,099     $ 288,478     $ 177,317  
Efficiency ratio - GAAP 68.0 %   54.7 %   62.0 %   61.2 %   85.2 %   60.1 %   62.8 %   61.5 %   70.8 %
Efficiency ratio - adjusted Non-GAAP 51.2 %   52.2 %   57.4 %   53.7 %   52.7 %   54.6 %   57.6 %   53.5 %   54.7 %
 


  Sep 30,
 2017
  June 30,
 2017
  March 31,
 2017
  Dec 31,
 2016
  Sep 30,
 2016
  June 30,
 2016
  March 31,
 2016
Tangible Book Value                          
Shareholders' equity, as reported $ 2,673,089     $ 2,639,442     $ 2,600,051     $ 2,581,526     $ 2,563,666     $ 1,050,299     $ 1,032,291  
Goodwill, CDI and noncompete agreements, net of tax (1,153,576 )   (1,153,595 )   (1,154,915 )   (1,155,617 )   (1,154,121 )   (297,044 )   (297,821 )
Tangible shareholders' equity $ 1,519,513     $ 1,485,847     $ 1,445,136     $ 1,425,909     $ 1,409,545     $ 753,255     $ 734,470  
Common shares outstanding 71,152     71,131     71,118     70,599     70,497     38,267     38,248  
Book value per share (shareholders' equity, as reported, divided by common shares outstanding) $ 37.57     $ 37.11     $ 36.56     $ 36.57     $ 36.37     $ 27.45     $ 26.99  
Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)                                                                                                                        $ 21.36     $ 20.89     $ 20.32     $ 20.20     $ 19.99     $ 19.68     $ 19.20  
                           
Tangible Shareholders' Equity to Tangible Assets                    
Total assets, as reported $ 19,354,308     $ 18,781,405     $ 17,636,973     $ 17,355,179     $ 17,383,637     $ 9,514,172     $ 9,303,632  
Goodwill, CDI and noncompete agreements, net of tax (1,153,576 )   (1,153,595 )   (1,154,915 )   (1,155,617 )   (1,154,121 )   (297,044 )   (297,821 )
Tangible assets $ 18,200,732     $ 17,627,810     $ 16,482,058     $ 16,199,562     $ 16,229,516     $ 9,217,128     $ 9,005,811  
Shareholders' equity to total assets 13.8 %   14.1 %   14.7 %   14.9 %   14.7 %   11.0 %   11.1 %
Tangible shareholders' equity to tangible assets 8.3 %   8.4 %   8.8 %   8.8 %   8.7 %   8.2 %   8.2 %
 

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

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