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

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

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

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

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

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

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

The provision for loan losses was $7.5 million in the fourth quarter of 2017, compared to $5.5 million in the third quarter of 2017 and $6.3 million in the fourth quarter of 2016. The increase in the provision for loan losses in the fourth quarter of 2017, compared to the third quarter of 2017 and the fourth quarter of 2016, was primarily the result of an increase in originated loan growth. The provision for loan losses was $23.3 million for the year ended December 31, 2017, compared to $14.9 million for the year ended December 31, 2016, with the increase primarily due to an increase in originated loan growth. All acquired loans were recorded at their estimated fair value at each respective acquisition date without a carryover of the related allowance and, as of December 31, 2017, no allowance was determined to be needed for this population of loans.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures.

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss its fourth quarter and full year 2017 operating results on Wednesday, January 24, 2018 at 10:30 am ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-523-1194 and entering 462654 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

About Chemical Financial Corporation

Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 212 banking offices located in Michigan, northeast Ohio and northern Indiana. At December 31, 2017, the Corporation had total assets of $19.28 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about the Corporation is available by visiting the "Investor Info" section of its website at www.chemicalbank.com.

Non-GAAP Financial Measures

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

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

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and the Corporation. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "plans," "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. These statements include, among others, statements related to our belief that the efforts that we have undergone will put the Corporation in a solid position for a successful 2018, statements about growth in the Corporation's markets to be achieved through investments and expanding commercial lending and banking teams, and our expectations regarding operating expenses related to our restructuring efforts. All statements referencing future time periods are forward-looking.

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

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

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


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


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
  Three Months Ended   Year Ended
  December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Interest Income                  
Interest and fees on loans $ 150,558     $ 148,771     $ 134,463     $ 573,128     $ 383,545  
Interest on investment securities:                  
Taxable 10,289     9,326     4,687     31,496     10,989  
Tax-exempt 5,105     4,577     3,940     18,343     12,317  
Dividends on nonmarketable equity securities 2,018     1,039     582     4,924     1,973  
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold 1,192     1,231     744     4,244     1,555  
Total interest income 169,162     164,944     144,416     632,135     410,379  
Interest Expense                  
Interest on deposits 14,303     12,926     8,866     46,727     23,021  
Interest on short-term borrowings 7,413     6,591     875     20,321     1,660  
Interest on long-term borrowings 1,541     1,799     2,228     7,509     4,617  
Total interest expense 23,257     21,316     11,969     74,557     29,298  
Net Interest Income 145,905     143,628     132,447     557,578     381,081  
Provision for loan losses 7,522     5,499     6,272     23,300     14,875  
Net interest income after provision for loan losses 138,383     138,129     126,175     534,278     366,206  
Noninterest Income                  
Service charges and fees on deposit accounts 9,073     9,147     8,414     35,001     28,136  
Wealth management revenue 6,539     6,188     6,034     25,512     22,601  
Other charges and fees for customer services 7,522     6,624     9,981     32,771     30,246  
Net gain on sale of loans and other mortgage banking revenue 7,925     5,241     14,420     32,205     21,859  
(Loss) gain on sale of investment securities (7,556 )   1     76     (7,388 )   129  
Gain on sale of branches         7,391         7,391  
Other 8,816     4,921     7,948     25,918     11,988  
Total noninterest income 32,319     32,122     54,264     144,019     122,350  
Operating Expenses                  
Salaries, wages and employee benefits 48,358     52,621     57,631     213,828     165,213  
Occupancy 7,546     6,871     7,644     30,554     23,525  
Equipment and software 8,000     7,582     8,709     32,248     24,408  
Outside processing and service fees 9,081     9,626     7,290     35,142     21,199  
Merger expenses 1,511     2,379     18,016     8,522     61,134  
Restructuring expenses 1,056     18,824         19,880      
Other 24,470     21,636     15,012     81,820     42,939  
Total operating expenses 100,022     119,539     114,302     421,994     338,418  
Income before income taxes 70,680     50,712     66,137     256,303     150,138  
Income tax expense 61,234     10,253     18,969     106,780     42,106  
Net Income $ 9,446     $ 40,459     $ 47,168     $ 149,523     $ 108,032  
Earnings Per Common Share:                  
Weighted average common shares outstanding-basic 71,095     70,911     70,171     70,865     49,091  
Weighted average common shares outstanding-diluted 71,682     71,505     71,304     71,513     49,603  
Basic earnings per common share $ 0.13     $ 0.57     $ 0.67     $ 2.11     $ 2.21  
Diluted earnings per common share $ 0.13     $ 0.56     $ 0.66     $ 2.08     $ 2.17  
Diluted, excluding significant items (non-GAAP) $ 0.87     $ 0.76     $ 0.75     $ 3.06     $ 2.88  
Cash Dividends Declared Per Common Share $ 0.28     $ 0.28     $ 0.27     $ 1.10     $ 1.06  
Key Ratios (annualized where applicable):                  
Return on average assets 0.20 %   0.86 %   1.09 %   0.81 %   0.90 %
Return on average shareholders' equity 1.4 %   6.1 %   7.4 %   5.7 %   7.0 %
Return on average tangible shareholders' equity, excluding significant items (non-GAAP) 16.5 %   14.6 %   15.3 %   14.9 %   14.9 %
Net interest margin (tax-equivalent basis) (non-GAAP) 3.47 %   3.48 %   3.56 %   3.48 %   3.60 %
Efficiency ratio - GAAP 56.1 %   68.0 %   61.2 %   60.1 %   67.2 %
Efficiency ratio - adjusted (non-GAAP) 47.4 %   51.2 %   53.7 %   51.9 %   54.4 %


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
  4th Quarter 2017   3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016
                               
Summary of Operations                              
Interest income $ 169,162     $ 164,944     $ 155,133     $ 142,896     $ 144,416     $ 103,562     $ 82,937     $ 79,464  
Interest expense 23,257     21,316     17,185     12,799     11,969     6,753     5,442     5,134  
Net interest income 145,905     143,628     137,948     130,097     132,447     96,809     77,495     74,330  
Provision for loan losses 7,522     5,499     6,229     4,050     6,272     4,103     3,000     1,500  
Net interest income after provision for loan losses 138,383     138,129     131,719     126,047     126,175     92,706     74,495     72,830  
Noninterest income 32,319     32,122     41,568     38,010     54,264     27,770     20,897     19,419  
Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP) 91,298     95,241     97,772     100,029     96,286     68,674     56,031     56,293  
Merger and restructuring expenses 2,567     21,203     465     4,167     18,016     37,470     3,054     2,594  
Impairment of income tax credits 6,157     3,095                          
Income before income taxes 70,680     50,712     75,050     59,861     66,137     14,332     36,307     33,362  
Income tax expense 61,234     10,253     23,036     12,257     18,969     2,848     10,532     9,757  
Net income $ 9,446     $ 40,459     $ 52,014     $ 47,604     $ 47,168     $ 11,484     $ 25,775     $ 23,605  
Significant items, net of tax 53,240     13,782     302     2,709     6,906     25,118     1,985     1,686  
Net income, excluding significant items $ 62,686     $ 54,241     $ 52,316     $ 50,313     $ 54,074     $ 36,602     $ 27,760     $ 25,291  
                               
Per Common Share Data                              
Net income:                              
Basic $ 0.13     $ 0.57     $ 0.73     $ 0.67     $ 0.67     $ 0.23     $ 0.67     $ 0.61  
Diluted 0.13     0.56     0.73     0.67     0.66     0.23     0.67     0.60  
Diluted, excluding significant items (non-GAAP) 0.87     0.76     0.73     0.70     0.75     0.73     0.72     0.65  
Cash dividends declared 0.28     0.28     0.27     0.27     0.27     0.27     0.26     0.26  
Book value - period-end 37.48     37.57     37.11     36.56     36.57     36.37     27.45     26.99  
Tangible book value - period-end 21.21     21.36     20.89     20.32     20.20     19.99     19.68     19.20  
Market value - period-end 53.47     52.26     48.41     51.15     54.17     44.13     37.29     35.69  
                               
Net interest margin (taxable equivalent basis) (non-GAAP) 3.47 %   3.48 %   3.48 %   3.49 %   3.56 %   3.58 %   3.70 %   3.60 %
Efficiency ratio - adjusted (non-GAAP) 47.4 %   51.2 %   52.2 %   57.4 %   53.7 %   52.7 %   54.6 %   57.6 %
Return on average assets 0.20 %   0.86 %   1.14 %   1.09 %   1.09 %   0.37 %   1.10 %   1.02 %
Return on average shareholders' equity 1.4 %   6.1 %   8.0 %   7.4 %   7.4 %   2.9 %   10.0 %   9.3 %
Average shareholders' equity as a percent of average assets 13.9 %   14.0 %   14.3 %   14.8 %   14.9 %   12.7 %   11.1 %   11.0 %
Capital ratios (period end):                              
Tangible shareholders' equity as a percent of tangible assets 8.3 %   8.3 %   8.4 %   8.8 %   8.8 %   8.7 %   8.2 %   8.2 %
Total risk-based capital ratio (1) 10.9 %   11.2 %   11.1 %   11.4 %   11.5 %   11.1 %   11.4 %   11.5 %
(1) Estimated at December 31, 2017.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
  Three Months Ended
  December 31, 2017   September 30, 2017   December 31, 2016
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate(1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate(1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate(1)
Assets  
Interest-earning assets:                                  
Loans(1)(2) $ 13,954,366     $ 151,413
    4.31 %   $ 13,795,750     $ 149,595
    4.31 %   $ 12,895,557     $ 135,301
    4.18 %
Taxable investment securities   1,715,494       10,289     2.40       1,629,344       9,326     2.29       1,065,453       4,687     1.76  
Tax-exempt investment securities(1)   981,299       7,830     3.19       896,854       7,013     3.13       807,093       6,047     3.00  
Other interest-earning assets   180,098       2,018     4.45       180,188       1,039     2.29       80,202       582     2.89  
Interest-bearing deposits with the FRB and other banks and federal funds sold   307,028       1,192     1.54       313,104       1,231     1.56       307,802       744     0.96  
Total interest-earning assets   17,138,285       172,742     4.01       16,815,240       168,204     3.98       15,156,107       147,361     3.87  
Less: allowance for loan losses   (86,521 )             (84,640 )             (74,822 )        
Other assets:                                  
Cash and cash due from banks   239,307               250,743               245,613          
Premises and equipment   138,880               146,266               144,652          
Interest receivable and other assets   1,777,479               1,730,539               1,793,118          
Total assets $ 19,207,430
            $ 18,858,148           $ 17,264,668
         
Liabilities and shareholders' equity                                  
Interest-bearing liabilities:                                  
Interest-bearing demand deposits $ 2,709,033     $ 1,242     0.18 %   $ 2,725,807     $ 1,321     0.19 %   $ 2,680,241     $ 1,266     0.19 %
Savings deposits   4,023,075       4,296     0.42       4,012,299       3,985     0.39       3,490,972       1,263     0.14  
Time deposits   3,136,655       8,765     1.11       3,007,109       7,620     1.01       3,209,695       6,337     0.79  
Short-term borrowings   2,366,571       7,413     1.24       2,279,998       6,591     1.15       949,292       875     0.38  
Long-term borrowings   383,739       1,541     1.67       426,155       1,799     1.67       600,066       2,228     1.41  
Total interest-bearing liabilities   12,619,073       23,257     0.73       12,451,368       21,316     0.68       10,930,266       11,969     0.44  
Noninterest-bearing deposits   3,734,650                 3,643,765                   3,622,365            
Total deposits and borrowed funds   16,353,723       23,257     0.56       16,095,133       21,316     0.53       14,552,631       11,969     0.33  
Interest payable and other liabilities   177,678               119,782               147,094          
Shareholders' equity   2,676,029               2,643,233               2,564,943          
Total liabilities and shareholders' equity $ 19,207,430             $ 18,858,148             $ 17,264,668          
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)   3.28 %           3.30 %           3.43 %
Net Interest Income (FTE)     $ 149,485             $ 146,888             $ 135,392      
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)   3.47 %           3.48 %           3.56 %
                                   
Reconciliation to Reported Net Interest Income                                
Net interest income, fully taxable equivalent (non-GAAP)   $ 149,485
            $ 146,888
            $ 135,392
     
Adjustments for taxable equivalent interest(1):                                
Loans       (855 )             (824 )             (838 )    
Tax-exempt investment securities       (2,725 )             (2,436 )             (2,107 )    
Total taxable equivalent interest adjustments     (3,580 )             (3,260 )             (2,945 )    
Net interest income (GAAP)     $ 145,905
            $ 143,628
            $ 132,447
     
Net interest margin (GAAP)       3.39 %             3.40 %             3.48 %    

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

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


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  4th Quarter 2017   3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016
       
Noninterest income                              
Service charges and fees on deposit accounts $ 9,073     $ 9,147     $ 8,777     $ 8,004     $ 8,414     $ 7,665     $ 6,337     $ 5,720  
Wealth management revenue 6,539     6,188     6,958     5,827     6,034     5,584     5,782     5,201  
Electronic banking fees 5,578     4,370     7,482     6,817     8,196     5,533     4,786     4,918  
Net gain on sale of loans and other mortgage banking revenue 7,938     9,282     11,681     9,679     8,072     5,675     1,595     1,405  
Change in fair value in loan servicing rights(1) (13 )   (4,041 )   (1,802 )   (519 )   6,348     (1,236 )        
Other fees for customer services 1,944     2,254     2,252     2,074     1,785     1,877     1,677     1,474  
(Loss) gain on sale of investment securities (7,556 )   1     77     90     76     16     18     19  
Bank-owned life insurance 1,377     1,124     1,106     1,211     957     446     237     196  
Gain on sale of branch offices                 7,391              
Other 7,439     3,797     5,037     4,827     6,991     2,210     465     486  
Total noninterest income $ 32,319     $ 32,122     $ 41,568     $ 38,010     $ 54,264     $ 27,770     $ 20,897     $ 19,419  
(1) Included within the line item "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.


  4th Quarter 2017   3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016
       
Operating expenses                              
Salaries and wages $ 41,866     $ 44,641     $ 44,959     $ 48,526     $ 47,936     $ 33,841     $ 26,887     $ 26,743  
Employee benefits 6,492     7,980     7,642     11,722     9,695     6,724     6,240     7,147  
Occupancy 7,546     6,871     8,745     7,392     7,644     5,462     5,514     4,905  
Equipment and software 8,000     7,582     8,149     8,517     8,709     6,420     4,875     4,404  
Outside processing and service fees 9,081     9,626     8,924     7,511     7,290     5,365     4,833     3,711  
FDIC insurance premiums 4,556     2,768     2,460     1,406     2,813     1,849     1,338     1,407  
Professional fees 3,483     3,489     2,567     1,968     2,304     1,472     1,020     1,036  
Intangible asset amortization 1,525     1,526     1,525     1,513     1,843     1,292     1,195     1,194  
Credit-related expenses 803     1,874     1,895     1,200     (1,029 )   (371 )   (1,331 )   30  
Merger expenses 1,511     2,379     465     4,167     18,016     37,470     3,054     2,594  
Restructuring expenses 1,056     18,824                          
Impairment of income tax credit 6,157     3,095                          
Other 7,946     8,884     10,906     10,274     9,081     6,620     5,460     5,716  
Total operating expenses $ 100,022     $ 119,539     $ 98,237     $ 104,196     $ 114,302     $ 106,144     $ 59,085     $ 58,887  


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
                           
  Dec 31,
 2017
  Sep 30,
 2017
  Organic
Growth -
Three
Months
Ended
Dec 31,
2017
  Jun 30,
 2017
  Mar 31,
 2017
  Dec 31,
 2016
  Organic
Growth -
Twelve
Months
Ended
Dec 31,
2017
                           
Composition of Loans                          
Commercial loan portfolio:                          
Commercial $ 3,385,642     $ 3,319,965     2.0 %   $ 3,360,161     $ 3,253,608     $ 3,217,300     5.2 %
Commercial real estate 4,500,670     4,315,978     4.3     4,324,323     4,097,771     3,973,140     13.3  
Real estate construction 574,215     501,413     14.5     446,678     453,811     403,772     42.2  
Subtotal - commercial loans 8,460,527     8,137,356     4.0     8,131,162     7,805,190     7,594,212     11.4  
Consumer loan portfolio:                          
Residential mortgage 3,252,487     3,221,307     1.0     3,125,397     3,133,465     3,086,474     5.4  
Consumer installment 1,613,008     1,615,983     (0.2 )   1,553,967     1,481,057     1,433,884     12.5  
Home equity 829,245     858,722     (3.4 )   856,846     853,680     876,209     (5.4 )
Subtotal - consumer loans 5,694,740     5,696,012         5,536,210     5,468,202     5,396,567     5.5  
Total loans $ 14,155,267     $ 13,833,368     2.3 %   $ 13,667,372     $ 13,273,392     $ 12,990,779     9.0 %


  Dec 31,
 2017
  Sep 30,
 2017
  Organic
Growth -
Three
Months
Ended
Dec 31,
2017
  Jun 30,
 2017
  Mar 31,
 2017
  Dec 31,
 2016
  Organic
Growth -
Twelve
Months
Ended
Dec 31,
2017
                           
Composition of Deposits                          
Noninterest-bearing demand $ 3,725,779     $ 3,688,848     1.0 %   $ 3,399,287     $ 3,341,520     $ 3,341,520     11.5 %
Savings 1,697,762     1,736,360     (2.2 )   1,752,040     1,662,115     1,662,115     2.1  
Interest-bearing demand 2,725,336     2,976,212     (8.4 )   2,900,546     2,825,801     2,825,801     (3.6 )
Money market accounts 2,276,719     2,289,852     (0.6 )   2,161,645     2,033,319     2,033,319     12.0  
Brokered deposits 133,496     132,806     0.5     156,367     226,429     226,429     (41.0 )
Other time deposits 3,083,711     2,981,167     3.4     2,762,462     2,783,938     2,783,938     10.8  
Total deposits $ 13,642,803     $ 13,805,245     (1.2 )%   $ 13,132,347     $ 12,873,122     $ 12,873,122     6.0 %


  Dec 31,
 2017
  Sep 30,
 2017
  Jun 30,
 2017
  Mar 31,
 2017
  Dec 31,
 2016
                   
Additional Data - Intangibles                  
Goodwill $ 1,134,568     $ 1,134,568     $ 1,133,534     $ 1,133,534     $ 1,133,534  
Loan servicing rights 63,841     62,195     64,522     64,604     58,315  
Core deposit intangibles (CDI) 34,259     35,747     37,235     38,723     40,211  
Noncompete agreements 13     50     87     125      


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
                                 
    Dec 31, 2017   Sep 30, 2017   Jun 30, 2017   Mar 31, 2017   Dec 31, 2016   Sep 30, 2016   Jun 30, 2016   Mar 31, 2016
Nonperforming Assets                                
Nonperforming Loans(1):                                
Nonaccrual loans:                                
Commercial   $ 19,691     $ 15,648     $ 18,773     $ 16,717     $ 13,178     $ 13,742     $ 14,577     $ 19,264  
Commercial real estate   29,545     25,150     19,723     20,828     19,877     19,914     21,325     25,859  
Real estate construction   77     78     56     79     80     80     496     546  
Residential mortgage   8,635     8,646     7,714     6,749     6,969     5,119     5,343     5,062  
Consumer installment   842     875     757     755     879     378     285     360  
Home equity   4,305     3,908     3,871     2,713     3,351     2,064     1,971     2,328  
Total nonaccrual loans(1)   63,095     54,305     50,894     47,841     44,334     41,297     43,997     53,419  
Other real estate and repossessed assets   8,807     10,605     14,582     16,395     17,187     20,730     8,440     9,248  
Total nonperforming assets   $ 71,902     $ 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   13     144     262     700     277     739     3      
Real estate construction                       1,439          
Residential mortgage                       375     407     423  
Home equity   1,364     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   $ 1,377     $ 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 Fourth Quarter and Full Year 2017 Operating Results
 
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
                                   
                                  Year Ended
  4th Quarter 2017   3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016   Dec 31,
 2017
  Dec 31,
 2016
Allowance for loan losses - originated portfolio        
 Allowance for loan losses - beginning of period $ 85,181     $ 83,797     $ 78,774     $ 78,268     $ 73,775     $ 71,506     $ 70,318     $ 73,328     $ 78,268     $ 73,328  
Provision for loan losses 8,101     4,920     6,229     4,050     6,272     4,103     3,000     1,500     23,300     14,875  
Net loan charge-offs:                                      
Commercial (613 )   (2,348 )   (239 )   (1,999 )   (336 )   (150 )   (1,153 )   (3,115 )   (5,199 )   (4,754 )
Commercial real estate 783     (174 )   (205 )   730     (280 )   (154 )   (187 )   (440 )   1,134     (1,061 )
Real estate construction (1 )           (9 )   36     (31 )       (11 )   (10 )   (6 )
Residential mortgage (142 )   (44 )   19     (567 )   (236 )   (304 )   8     (172 )   (734 )   (704 )
Consumer installment (1,318 )   (857 )   (747 )   (1,310 )   (823 )   (1,137 )   (486 )   (602 )   (4,232 )   (3,048 )
Home equity (104 )   (113 )   (34 )   (389 )   (140 )   (58 )   6     (170 )   (640 )   (362 )
Net loan charge-offs (1,395 )   (3,536 )   (1,206 )   (3,544 )   (1,779 )   (1,834 )   (1,812 )   (4,510 )   (9,681 )   (9,935 )
Allowance for loan losses - end of period $ 91,887     $ 85,181     $ 83,797     $ 78,774     $ 78,268     $ 73,775     $ 71,506     $ 70,318     $ 91,887     $ 78,268  
Allowance for loan losses - acquired loan portfolio                                
Allowance for loan losses - beginning of period 579                                      
Provision for loan losses (579 )   579                                  
Allowance for loan losses - end of period     579                                  
Total allowance for loan losses $ 91,887     $ 85,760     $ 83,797     $ 78,774     $ 78,268     $ 73,775     $ 71,506     $ 70,318     $ 91,887     $ 78,268  
Net loan charge-offs as a percent of average loans (quarterly amounts annualized) 0.04 %   0.10 %   0.04 %   0.11 %   0.06 %   0.08 %   0.10 %   0.25 %   0.07 %   0.11 %


  Dec 31,
 2017
  Sep 30,
 2017
  Jun 30,
 2017
  Mar 31,
 2017
  Dec 31,
 2016
                   
Originated loans $ 9,747,429     $ 9,156,096     $ 8,659,622     $ 7,959,769     $ 7,458,401  
Acquired loans 4,407,838     4,677,272     5,007,750     5,313,623     5,532,378  
Total loans $ 14,155,267     $ 13,833,368     $ 13,667,372     $ 13,273,392     $ 12,990,779  
                   
Allowance for loan losses as a percent of:        
Total originated loans 0.94 %   0.93 %   0.97 %   0.99 %   1.05 %
Nonperforming loans 145.6 %   156.9 %   164.7 %   177.7 %   176.5 %
Credit mark as a percent of unpaid principal balance on acquired loans 2.4 %   2.7 %   2.6 %   2.8 %   3.1 %


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
  4th Quarter 2017   3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016   Year Ended
                  Dec 31, 2017   Dec 31, 2016
Non-GAAP Operating Results                    
Net Income                                
Net income, as reported $ 9,446     $ 40,459
    $ 52,014
    $ 47,604
    $ 47,168
    $ 11,484
    $ 25,775
    $ 23,605
    $ 149,523
    $ 108,032
 
Merger and restructuring expenses   2,567       21,203       465       4,167       18,016       37,470       3,054       2,594       28,402       61,134  
Gain on sales of branch offices                           (7,391 )                             (7,391 )
Losses on sales of investment securities(1)   7,556                                                 7,556        
Significant items   10,123       21,203       465       4,167       10,625       37,470       3,054       2,594       35,958       53,743  
Income tax benefit (2)   (3,543 )     (7,421 )     (163 )     (1,458 )     (3,719 )     (12,352 )     (1,069 )     (908 )     (12,585 )     (18,048 )
Revaluation of net deferred tax assets   46,660                                                 46,660        
Significant items, net of tax   53,240       13,782       302       2,709       6,906       25,118       1,985       1,686       70,033       35,695  
Net income, excluding significant items $ 62,686     $ 54,241     $ 52,316     $ 50,313     $ 54,074     $ 36,602     $ 27,760     $ 25,291     $ 219,556     $ 143,727  
Diluted Earnings Per Share                                    
Diluted earnings per share, as reported $ 0.13     $ 0.56     $ 0.73     $ 0.67     $ 0.66     $ 0.23     $ 0.67     $ 0.60     $ 2.08     $ 2.17  
Effect of significant items, net of tax   0.74       0.20             0.03       0.09       0.50       0.05       0.05       0.98       0.71  
Diluted earnings per share, excluding significant items $ 0.87     $ 0.76     $ 0.73     $ 0.70     $ 0.75     $ 0.73     $ 0.72     $ 0.65     $ 3.06     $ 2.88  
Return on Average Assets                                      
Return on average assets, as reported   0.20 %     0.86 %     1.14 %     1.09 %     1.09 %     0.37 %     1.10 %     1.02 %     0.81 %     0.90 %
Effect of significant items, net of tax   1.11       0.29       0.01       0.06       0.16       0.83       0.09       0.07       0.38       0.29  
Return on average assets, excluding significant items   1.31 %     1.15 %     1.15 %     1.15 %     1.25 %     1.20 %     1.19 %     1.09 %     1.19 %     1.19 %
Return on Average Shareholders' Equity                                
Return on average shareholders' equity, as reported   1.4 %     6.1 %     8.0 %     7.4 %     7.4 %     2.9 %     10.0 %     9.3 %     5.7 %     7.0 %
Effect of significant items, net of tax   8.0       2.1             0.4       1.0       6.5       0.7       0.6       2.7       2.3  
Return on average shareholders' equity, excluding significant items   9.4 %     8.2 %     8.0 %     7.8 %     8.4 %     9.4 %     10.7 %     9.9 %     8.4 %     9.3 %
Return on Average Tangible Shareholders' Equity                                
Average shareholders' equity, as reported $ 2,676,029
    $ 2,643,233
    $ 2,606,517
    $ 2,584,501
    $ 2,564,943
    $ 1,559,668
    $ 1,033,014
    $ 1,017,929
    $ 2,627,862
    $ 1,546,721
 
Average goodwill, CDI and noncompete agreements, net of tax   1,156,122
      1,153,394
      1,154,229
      1,155,177
      1,153,598
      585,393
      295,882
      299,685
      1,155,734
      582,536
 
Average tangible shareholders' equity   1,519,907
      1,489,839
      1,452,288
      1,429,324
      1,411,345
      974,275
      737,132
      718,244
      1,472,128
      964,185
 
Return on average tangible shareholders' equity   2.5 %     10.9 %     14.3 %     13.3 %     13.4 %     4.7 %     14.0 %     13.1 %     10.2 %     11.2 %
Effect of significant items, net of tax   14.0       3.7       0.1       0.8       1.9       10.3       1.1       1.0       4.7       3.7  
Return on average tangible shareholders' equity, excluding significant items   16.5 %     14.6 %     14.4 %     14.1 %     15.3 %     15.0 %     15.1 %     14.1 %     14.9 %     14.9 %
(1) Represents losses on sales of investment securities in the fourth quarter of 2017 as part of the Corporation's treasury and tax management objectives.

(2) Assumes transaction 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 completes merger and acquisition transactions.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
  4th Quarter 2017   3rd Quarter 2017   2nd Quarter 2017   1st Quarter 2017   4th Quarter 2016   3rd Quarter 2016   2nd Quarter 2016   1st Quarter 2016   Year Ended
                  Dec 31, 2017   Dec 31, 2016
Efficiency Ratio                                
Net interest income $ 145,905     $ 143,628     $ 137,948     $ 130,097     $ 132,447     $ 96,809     $ 77,495     $ 74,330     $ 557,578     $ 381,081  
Noninterest income 32,319     32,122     41,568     38,010     54,264     27,770     20,897     19,419     144,019     122,350  
Total revenue - GAAP 178,224     175,750     179,516     168,107     186,711     124,579     98,392     93,749     701,597     503,431  
Net interest income FTE adjustment 3,580     3,260     3,169     3,068     2,945     2,426     2,138     2,133     13,077     9,642  
Loan servicing rights change in fair value (gains)losses 13     4,041     1,802     519     (6,348 )   1,236             6,375     (5,112 )
Gains on sales of branches                 (7,391 )                   (7,391 )
Losses (gains) from sale of investment securities and closed branch locations 7,556     (1 )   (77 )   (90 )   (76 )   (301 )   (123 )   (169 )   7,388     (669 )
Total revenue - Non-GAAP $ 189,373     $ 183,050     $ 184,410     $ 171,604     $ 175,841     $ 127,940     $ 100,407     $ 95,713     $ 728,437     $ 499,901  
Operating expenses - GAAP $ 100,022     $ 119,539     $ 98,237     $ 104,196     $ 114,302     $ 106,144     $ 59,085     $ 58,887     $ 421,994     $ 338,418  
Merger and restructuring expenses (2,567 )   (21,203 )   (465 )   (4,167 )   (18,016 )   (37,470 )   (3,054 )   (2,594 )   (28,402 )   (61,134 )
Impairment of income tax credits (6,157 )   (3,095 )                           (9,252 )    
Operating expense, core - Non-GAAP 91,298     95,241     97,772     100,029     96,286     68,674     56,031     56,293     384,340     277,284  
Amortization of intangibles (1,525 )   (1,526 )   (1,525 )   (1,513 )   (1,843 )   (1,292 )   (1,195 )   (1,194 )   (6,089 )   (5,524 )
Operating expenses, efficiency ratio - Non-GAAP $ 89,773     $ 93,715     $ 96,247     $ 98,516     $ 94,443     $ 67,382     $ 54,836     $ 55,099     $ 378,251     $ 271,760  
Efficiency ratio - GAAP 56.1 %   68.0 %   54.7 %   62.0 %   61.2 %   85.2 %   60.1 %   62.8 %   60.1 %   67.2 %
Efficiency ratio - adjusted Non-GAAP 47.4 %   51.2 %   52.2 %   57.4 %   53.7 %   52.7 %   54.6 %   57.6 %   51.9 %   54.4 %


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2017 Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
  Dec 31,
 2017
  Sep 30,
 2017
  Jun 30,
 2017
  Mar 31,
 2017
  Dec 31,
 2016
  Sep 30,
 2016
  Jun 30,
 2016
  Mar 31,
 2016
Tangible Book Value                              
Shareholders' equity, as reported $ 2,668,749     $ 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   (1,158,738 )     (1,153,576 )     (1,153,595 )     (1,154,915 )     (1,155,528 )     (1,154,121 )     (297,044 )     (297,821 )
Tangible shareholders' equity $ 1,510,011     $ 1,519,513     $ 1,485,847     $ 1,445,136     $ 1,425,998     $ 1,409,545     $ 753,255     $ 734,470  
Common shares outstanding   71,207       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) $ 37.48     $ 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) $ 21.21     $ 21.36     $ 20.89     $ 20.32     $ 20.20     $ 19.99     $ 19.68     $ 19.20  
Tangible Shareholders' Equity to Tangible Assets                        
Total assets, as reported $ 19,280,873
    $ 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   (1,158,738 )     (1,153,576 )     (1,153,595 )     (1,154,915 )     (1,155,528 )     (1,154,121 )     (297,044 )     (297,821 )
Tangible assets $ 18,122,135
    $ 18,200,732
    $ 17,627,810
    $ 16,482,058
    $ 16,199,651
    $ 16,229,516
    $ 9,217,128
    $ 9,005,811
 
Shareholders' equity to total assets   13.8 %     13.8 %     14.1 %     14.7 %     14.9 %     14.7 %     11.0 %     11.1 %
Tangible shareholders' equity to tangible assets   8.3 %     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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