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Chemical Financial Corporation reports 2018 second quarter net income of $69.0 million, representing $0.96 of earnings per diluted average share

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Chemical Financial Corporation declares cash dividend on common stock of $0.34 per share, an increase of $0.06 per share

MIDLAND, Mich., July 24, 2018 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Chemical," "we," "us" or "our") (NASDAQ:CHFC) today announced 2018 second quarter net income of $69.0 million, or $0.96 per diluted share, compared to 2018 first quarter net income of $71.6 million, or $0.99 per diluted share and 2017 second quarter net income of $52.0 million, or $0.73 per diluted share. In addition, on July 24, 2018, our Board of Directors declared a third quarter of 2018 dividend on our common stock of $0.34 per share. The third quarter of 2018 dividend will be payable on September 21, 2018, to shareholders of record on September 7, 2018. The third quarter of 2018 dividend represents a $0.06, or 21.4%, increase over the second quarter of 2018 dividend of $0.28.

"Our results for the quarter reflect our continued strong growth which included 10% annualized loan growth and an increase in net interest income of $5.7 million compared to the prior quarter. We are pleased with the improvement in our net interest margin and our ability to maintain our efficiency ratio in a period in which we were working diligently on completing substantial upgrades to our core operating systems," noted David T. Provost, Chief Executive Officer of Chemical and Thomas C. Shafer, Vice Chairman of Chemical and Chief Executive Office of Chemical Bank. "This past weekend we crossed a significant milestone with the successful completion of these upgrades. With the system transformation complete, we believe we are well positioned to continue our strong revenue growth through the optimal best-in-class service experience we are creating for our customers."

Our return on average assets was 1.39% during the second quarter of 2018, compared to 1.47% during the first quarter of 2018 and 1.14% in the second quarter of 2017. Our return on average tangible shareholders' equity was 17.8% in the second quarter of 2018, compared to 19.0% during the first quarter of 2018 and 14.3% in the second quarter of 2017.

Our net interest income was $157.5 million in the second quarter of 2018, $5.7 million, or 3.7%, higher than the first quarter of 2018 and $19.6 million, or 14.2%, higher than the second quarter of 2017. The increase in our net interest income in the second quarter of 2018, compared to both the first quarter of 2018 and the second quarter of 2017, was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in our cost of funds. For the second quarter of 2018, we experienced loan growth of $360.9 million, compared to the first quarter of 2018 and $912.3 million compared to June 30, 2017. Approximately 40% of loan growth in the second quarter of 2018 was within our commercial loan portfolio. Our investment securities portfolio grew by $158.6 million, compared to the first quarter of 2018, and $719.5 million, compared to June 30, 2017.

Our net interest margin was 3.54% in the second quarter of 2018, compared to 3.51% in the first quarter of 2018 and 3.41% in the second quarter of 2017. Our net interest margin (fully taxable equivalent (FTE)), a non-GAAP financial measure, was 3.59% in the second quarter of 2018, compared to 3.56% in the first quarter of 2018 and 3.48% in the second quarter of 2017.(1) The increase in our net interest margin (FTE),  in the second quarter of 2018, compared to both the first quarter of 2018 and the second quarter of 2017, was primarily due to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in our cost of funds. The average yield on our loan portfolio increased to 4.63% in the second quarter of 2018, compared to 4.48% in the first quarter of 2018 and 4.22% in the second quarter of 2017. Interest accretion from purchase accounting discounts on acquired loans contributed 26 basis points to our net interest margin (FTE), in the second quarter of 2018, compared to 29 basis points in the first quarter of 2018 and 21 basis points in the second quarter of 2017. Our average cost of funds was 0.76% in the second quarter of 2018, compared to 0.64% in the first quarter of 2018 and 0.44% in the second quarter of 2017.

Our provision for loan losses was $9.6 million in the second quarter of 2018, compared to $6.3 million in the first quarter of 2018 and $6.2 million in the second quarter of 2017. The increase in the provision for loan losses in the second quarter of 2018, compared to the first quarter of 2018, was primarily the result of an increase in originated loan growth. The provision for loan losses in the second quarter of 2017 received the benefit of an improvement in credit quality indicators. We recorded all acquired loans at their estimated fair value at each respective acquisition date without a carryover of the related allowance and, as of both June 30, 2018 and March 31, 2018, we determined no allowance was needed for this population of loans.

Net loan charge-offs were $4.3 million, or 0.12% of average loans, in the second quarter of 2018, compared to $3.4 million, or 0.10% of average loans, in the first quarter of 2018 and $1.2 million, or 0.04% of average loans, in the second quarter of 2017. The increase in charge-offs in the second quarter of 2018, compared to both the first quarter of 2018 and the second quarter of 2017, was primarily due to charge-offs taken on loans individually evaluated for impairment with previously established specific reserves.

Our nonperforming loans totaled $66.7 million at June 30, 2018, compared to $61.8 million at March 31, 2018 and $50.9 million at June 30, 2017. Nonperforming loans comprised 0.46% of total loans at June 30, 2018, compared to 0.43% at March 31, 2018 and 0.37% at June 30, 2017. The increase in nonperforming loans in the second quarter of 2018, compared to the first quarter of 2018, was primarily due to a real estate construction loan relationship being downgraded to nonaccrual status. The increase in nonperforming loans at June 30, 2018, compared to June 30, 2017, was primarily due to an increase in commercial real estate nonaccrual loans and the real estate construction loan relationship downgraded to nonaccrual status in the second quarter of 2018.

Our allowance for loan losses for our originated loan portfolio was $100.0 million, or 0.94% of originated loans, at June 30, 2018, compared to $94.8 million, or 0.95% of originated loans, at March 31, 2018 and $83.8 million, or 0.97% of originated loans, at June 30, 2017. Our allowance for loan losses of our originated loan portfolio as a percentage of nonperforming loans was 149.9% at June 30, 2018, compared to 153.3% at March 31, 2018 and 164.7% at June 30, 2017. The results of our quarterly re-estimation of cash flows on our acquired loan portfolios resulted in no allowance for our acquired loan portfolios as of June 30, 2018, March 31, 2018 or June 30, 2017.

Our noninterest income was $38.0 million in the second quarter of 2018, compared to $40.6 million in the first quarter of 2018 and $41.6 million in the second quarter of 2017. Noninterest income in the second quarter of 2018 decreased compared to the first quarter of 2018, primarily due to a $3.7 million decrease in net gain on sale of loans and other mortgage banking revenue, partially offset by a $0.9 million increase in wealth management revenue. Noninterest income in the second quarter of 2018 decreased compared to the second quarter of 2017, primarily due to a $3.9 million decrease in other charges and fees for customer services and a $1.0 million decrease in net gain on sale of loans and other mortgage banking revenue, partially offset by a $1.4 million increase in other noninterest income. Net gain on sale of loans and other mortgage banking revenue, included a $30 thousand detriment to earnings due to a change in fair value in loan servicing rights in the second quarter of 2018, compared to a $3.8 million benefit in the first quarter of 2018 and a $1.8 million detriment in the second quarter of 2017. The change in fair value in loan servicing rights provided no impact to diluted earnings per share in the second quarter of 2018, compared to a $0.04 benefit in the first quarter of 2018 and a $0.02 detriment in the second quarter of 2017. The Durbin amendment became effective for us on July 1, 2017, which resulted in a reduction in interchange fees included within other charges and fees for customer services in the second quarter of 2018 compared to the second quarter of 2017.

Our operating expenses were $104.6 million in the second quarter of 2018, compared to $101.6 million in the first quarter of 2018 and $98.2 million in the second quarter of 2017. We had no merger and restructuring expenses during the first or second quarters of 2018 and $0.5 million in the second quarter of 2017. Second quarter of 2018 included $1.7 million of impairment related to a federal historic tax credit placed into service during the quarter, included within other operating expense in our Consolidated Statements of Income, compared to $1.6 million of impairment related to a federal historic tax credit in the first quarter of 2018. Our core operating expenses, a non-GAAP financial measure, which excludes merger and restructuring expenses for the second quarter of 2017 and the impairment of federal historic tax credits for each period, were $102.8 million in the second quarter of 2018, an increase of $2.8 million, compared to $100.0 million for the first quarter of 2018, and an increase of $5.0 million compared to $97.8 million for the second quarter of 2017. Noninterest expense increased in the second quarter of 2018, compared to the first quarter of 2018, primarily due to increases in other operating expenses of $1.8 million, equipment and software of $0.6 million and salaries, wages and employee benefits of $0.6 million. Noninterest expense increased in the second quarter of 2018, compared to the second quarter of 2017, primarily due to increases in salaries, wages and employee benefits of $3.9 million, other operating expenses of $2.1 million and outside processing and service fees of $1.7 million, partially offset by a decrease in occupancy expense of $1.1 million. Costs related to our efforts to implement upgrades to our core operating systems were $5.6 million in the second quarter of 2018, made up of $3.2 million of expense and $2.4 million in costs that were capitalized. The first quarter of 2018 included costs related to our core operating system upgrades of $2.8 million, made up of $1.0 million of expense and $1.8 million in capitalized costs. Expense incurred related to our core operating system upgrades included $1.7 million of other expense, $1.0 million of outside processing and service fees, and $0.5 million of salaries, wages and employee benefits in the second quarter of 2018 and $0.8 million in outside processing and service fees and $0.2 million of other expense in the first quarter of 2018.

Our efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. Our efficiency ratio was 53.5% in the second quarter of 2018, compared to 52.8% in the first quarter of 2018 and 54.7% in the second quarter of 2017. Our adjusted efficiency ratio, a non-GAAP financial measure, which excludes, as applicable, amortization of intangibles, merger expenses, impairment of income tax credits, the net interest income FTE adjustment, the change in fair value on loan servicing rights, and losses/gains from sale of investment securities, was 51.2% in the second quarter of 2018, compared to 51.6% in the first quarter of 2018 and 52.2% in the second quarter of 2017.(1)

Our effective tax rate was 15.3% in both the second quarter of 2018 and the first quarter of 2018, compared to 30.7% in the second quarter of 2017. Our tax rates for 2018 benefited from the enactment of the Tax Cuts and Jobs Act which reduced the federal corporate tax rate to 21% effective January 1, 2018. In addition, the second and first quarters of 2018 received a $1.9 million benefit and $1.5 million benefit, respectively, from federal historic tax credits placed into service during the quarter.

Our total assets were $20.28 billion at June 30, 2018, compared to $19.76 billion at March 31, 2018 and $18.78 billion at June 30, 2017. The increase in our total assets during both the second quarter of 2018 and the twelve months ended June 30, 2018 was primarily attributable to net loan growth and additions to our investment securities portfolio.

Our total loans were $14.58 billion at June 30, 2018, an increase of $360.9 million, from total loans of $14.22 billion at March 31, 2018 and an increase of $912.3 million, from total loans of $13.67 billion at June 30, 2017. We experienced originated loan growth of $684.0 million during the second quarter of 2018, compared to $265.1 million in the first quarter of 2018 and $699.9 million in the second quarter of 2017. Growth in our originated loan portfolio was partially offset by run-off in our acquired loan portfolio of $323.1 million in the second quarter of 2018, compared to $201.6 million in the first quarter of 2018 and $305.9 million in the second quarter of 2017.

Our investment securities portfolio totaled $3.13 billion at June 30, 2018, an increase of $158.6 million, compared to $2.97 billion at March 31, 2018, and an increase of $719.5 million, compared to $2.41 billion at June 30, 2017. The increase in the investment securities portfolio in both the second quarter of 2018 and the twelve months ended June 30, 2018 reflects our long-term plan to increase our investment securities portfolio as a percentage of total assets.

Our total deposits were $14.55 billion at June 30, 2018, compared to $13.97 billion at March 31, 2018 and $13.20 billion at June 30, 2017. The increase in deposits during the three months ended June 30, 2018 was due to increases in brokered deposits of $436.1 million and customer deposits of $147.6 million. Collateralized customer deposits were $378.9 million at June 30, 2018, compared to $490.1 million at March 31, 2018 and $310.0 million at June 30, 2017. Loans as a percentage of deposits plus collateralized customer deposits were 97.7% at June 30, 2018, compared to 98.3% at March 31, 2018 and 101.1% at June 30, 2017.

Our short-term borrowings were $2.10 billion at June 30, 2018, compared to $2.05 billion at both March 31, 2018 at June 30, 2017. At June 30, 2018 our short-term borrowings included $2.08 billion of short-term FHLB advances that we used to fund our short-term liquidity needs. Our long-term borrowings were $331.0 million at June 30, 2018, compared to $372.9 million at March 31, 2018 and $435.9 million at June 30, 2017.

Our shareholders' equity to total assets ratio was 13.6% at June 30, 2018, compared to 13.7% at March 31, 2018 and 14.1% at June 30, 2017. Our tangible shareholders' equity to tangible assets ratio, a non-GAAP financial measure, and total risk-based capital ratio were 8.3% and 11.3% (estimated), respectively, at June 30, 2018 compared to 8.3% and 11.2%, respectively, at March 31, 2018 and 8.4% and 11.1%, respectively, at June 30, 2017. (1) Our book value was $38.52 per share at June 30, 2018, compared to $37.91 per share at March 31, 2018 and $37.11 per share at June 30, 2017. Our tangible book value, a non-GAAP financial measure, was $22.33 per share at June 30, 2018, compared to $21.68 per share at March 31, 2018 and $20.89 per share at June 30, 2017.(1)

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

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss our second quarter 2018 operating results on Wednesday, July 25, 2018, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 855-719-5008 and entering 735645 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Information" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

About Chemical Financial Corporation

Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. We operate through our subsidiary bank, Chemical Bank, with 212 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At June 30, 2018, we had total assets of $20.28 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 Chemical Financial Corporation is available by visiting the "Investor Information" section of our website at www.chemicalbank.com.

Non-GAAP Financial Measures

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

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

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and Chemical. Words and phrases such as "anticipates," "believes," "plans," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity,"  "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. These statements include, among others, our belief that we are well positioned to continue our strong revenue growth. All statements referencing future time periods are forward-looking.

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

Forward-looking statements are based upon current beliefs and expectations and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Risk factors include, without limitation, a downturn in the economy, particularly in our markets, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate values, operational and regulatory challenges associated with our information technology systems and policies and procedures in light of our rapid growth , regulatory changes, excessive loan losses, our inability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry, our inability to execute on our strategy to expand investments and commercial lending, and our inability to grow our deposits.

In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of Chemical's Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Reports on Form 10-Q. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  June 30,
 2018
  March 31,
 2018
  December 31,
 2017
  June 30,
 2017
               
Assets              
Cash and cash equivalents:              
Cash and cash due from banks $ 222,748     $ 174,173     $ 226,003     $ 230,219  
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold 302,532     379,320     229,988     389,022  
Total cash and cash equivalents 525,280     553,493     455,991     619,241  
Investment securities:              
Available-for-sale 2,529,910     2,297,123     1,963,546     1,767,478  
Held-to-maturity 602,687     676,847     677,093     645,605  
Total investment securities 3,132,597     2,973,970     2,640,639     2,413,083  
Loans held-for-sale 46,849     31,636     52,133     65,371  
Loans:              
Total loans 14,579,693     14,218,747     14,155,267     13,667,372  
Allowance for loan losses (100,015 )   (94,762 )   (91,887 )   (83,797 )
Net loans 14,479,678     14,123,985     14,063,380     13,583,575  
Premises and equipment 125,970     126,251     126,896     146,460  
Loan servicing rights 70,364     68,837     63,841     64,522  
Goodwill 1,134,568     1,134,568     1,134,568     1,133,534  
Other intangible assets 31,407     32,833     34,271     37,322  
Interest receivable and other assets 735,890     711,937     709,154     718,297  
Total Assets $ 20,282,603     $ 19,757,510     $ 19,280,873     $ 18,781,405  
Liabilities              
Deposits:              
Noninterest-bearing $ 3,894,259     $ 3,801,125     $ 3,725,779     $ 3,626,592  
Interest-bearing 10,657,277     10,166,692     9,917,024     9,577,775  
Total deposits 14,551,536     13,967,817     13,642,803     13,204,367  
Collateralized customer deposits 378,938     490,107     415,236     310,042  
Short-term borrowings 2,095,000     2,050,000     2,000,000     2,050,000  
Long-term borrowings 330,956     372,908     372,882     435,852  
Interest payable and other liabilities 175,174     171,975     181,203     141,702  
Total liabilities 17,531,604     17,052,807     16,612,124     16,141,963  
Shareholders' Equity              
Preferred stock, no par value per share              
Common stock, $1 par value per share 71,418     71,350     71,207     71,131  
Additional paid-in capital 2,205,402     2,201,803     2,203,637     2,197,501  
Retained earnings 521,530     472,604     419,403     404,939  
Accumulated other comprehensive loss (47,351 )   (41,054 )   (25,498 )   (34,129 )
Total shareholders' equity 2,750,999     2,704,703     2,668,749     2,639,442  
Total Liabilities and Shareholders' Equity $ 20,282,603     $ 19,757,510     $ 19,280,873     $ 18,781,405  

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  Three Months Ended   Six Months Ended
  June 30,
 2018
  March 31,
2018(1)
  June 30,
 2017
  June 30,
 2018
  June 30,
 2017
Interest Income                  
Interest and fees on loans $ 165,388     $ 156,818     $ 141,314     $ 322,206     $ 273,799  
Interest on investment securities:                  
Taxable 14,706     12,419     7,125     27,125     11,881  
Tax-exempt 5,998     5,556     4,426     11,554     8,661  
Dividends on nonmarketable equity securities 2,189     1,901     1,246     4,090     1,867  
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold 1,301     1,240     1,022     2,541     1,821  
Total interest income 189,582     177,934     155,133     367,516     298,029  
Interest Expense                  
Interest on deposits 19,707     15,917     10,582     35,624     19,498  
Interest on collateralized customer deposits 641     524     196     1,165     346  
Interest on short-term borrowings 10,408     8,166     4,463     18,574     5,971  
Interest on long-term borrowings 1,289     1,464     1,944     2,753     4,169  
Total interest expense 32,045     26,071     17,185     58,116     29,984  
Net Interest Income 157,537     151,863     137,948     309,400     268,045  
Provision for loan losses 9,572     6,256     6,229     15,828     10,279  
Net interest income after provision for loan losses 147,965     145,607     131,719     293,572     257,766  
Noninterest Income                  
Service charges and fees on deposit accounts 8,615     8,463     8,777     17,078     16,781  
Wealth management revenue 7,188     6,311     6,958     13,499     12,785  
Other charges and fees for customer services 5,874     5,754     9,734     11,628     18,625  
Net gain on sale of loans and other mortgage banking revenue 8,844     12,535     9,879     21,379     19,039  
Gain on sale of investment securities 3         77     3     167  
Other 7,494     7,491     6,143     14,985     12,181  
Total noninterest income 38,018     40,554     41,568     78,572     79,578  
Operating Expenses                  
Salaries, wages and employee benefits 56,148     55,557     52,247     111,705     112,141  
Occupancy 7,679     8,011     8,745     15,690     16,137  
Equipment and software 8,276     7,659     8,149     15,935     16,666  
Outside processing and service fees 10,673     10,356     8,924     21,029     16,435  
Merger expenses         465         4,632  
Other 21,785     20,027     19,707     41,812     36,422  
Total operating expenses 104,561     101,610     98,237     206,171     202,433  
Income before income taxes 81,422     84,551     75,050     165,973     134,911  
Income tax expense 12,434     12,955     23,036     25,389     35,293  
Net Income $ 68,988     $ 71,596     $ 52,014     $ 140,584     $ 99,618  
Earnings Per Common Share:                  
Weighted average common shares outstanding-basic 71,329     71,231     70,819     71,280     70,725  
Weighted average common shares outstanding-diluted 72,026     71,906     71,443     71,966     71,429  
Basic earnings per share $ 0.97     $ 1.01     $ 0.73     $ 1.97     $ 1.41  
Diluted earnings per share 0.96     0.99     0.73     1.95     1.39  
Diluted earnings per share, excluding significant items (non-GAAP) 0.96     0.99     0.73     1.95     1.43  
Cash Dividends Declared Per Common Share 0.28     0.28     0.27     0.56     0.54  
Key Ratios (annualized where applicable):                  
Return on average assets 1.39 %   1.47 %   1.14 %   1.43 %   1.11 %
Return on average tangible shareholders' equity, excluding significant items (non-GAAP) 17.8 %   19.0 %   14.4 %   18.4 %   14.2 %
Net interest margin (tax-equivalent basis) (non-GAAP) 3.59 %   3.56 %   3.48 %   3.58 %   3.49 %
Efficiency ratio - GAAP 53.5 %   52.8 %   54.7 %   53.1 %   58.2 %
Efficiency ratio - adjusted (non-GAAP) 51.2 %   51.6 %   52.2 %   51.4 %   54.7 %


(1)   First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  2nd
Quarter
2018
  1st
Quarter
2018(1)
  4th
Quarter
2017
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
Summary of Operations                      
Interest income $   189,582     $ 177,934     $ 169,162     $ 164,944     $ 155,133     $ 142,896  
Interest expense   32,045     26,071     23,257     21,316     17,185     12,799  
Net interest income   157,537     151,863     145,905     143,628     137,948     130,097  
Provision for loan losses   9,572     6,256     7,522     5,499     6,229     4,050  
Net interest income after provision for loan losses   147,965     145,607     138,383     138,129     131,719     126,047  
Noninterest income   38,018     40,554     32,319     32,122     41,568     38,010  
Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP)   102,845     99,976     91,298     95,241     97,772     100,029  
Merger and restructuring expenses           2,567     21,203     465     4,167  
Impairment of income tax credits   1,716     1,634     6,157     3,095          
Income before income taxes   81,422     84,551     70,680     50,712     75,050     59,861  
Income tax expense   12,434     12,955     61,234     10,253     23,036     12,257  
Net income $ 68,988     $ 71,596     $ 9,446     $ 40,459     $ 52,014     $ 47,604  
Significant items, net of tax           53,240     13,782     302     2,709  
Net income, excluding significant items $ 68,988     $ 71,596     $ 62,686     $ 54,241     $ 52,316     $ 50,313  
                       
Per Common Share Data                      
Net income:                      
Basic $ 0.97     $ 1.01     $ 0.13     $ 0.57     $ 0.73     $ 0.67  
Diluted   0.96     0.99     0.13     0.56     0.73     0.67  
Diluted, excluding significant items (non-GAAP)   0.96     0.99     0.87     0.76     0.73     0.70  
Cash dividends declared   0.28     0.28     0.28     0.28     0.27     0.27  
Book value - period-end   38.52     37.91     37.48     37.57     37.11     36.56  
Tangible book value - period-end (non-GAAP)   22.33     21.68     21.21     21.36     20.89     20.32  
Market value - period-end   55.67     54.68     53.47     52.26     48.41     51.15  
                       
Key Ratios (annualized where applicable)                    
Net interest margin (taxable equivalent basis) (non-GAAP)   3.59 %   3.56 %   3.47 %   3.48 %   3.48 %   3.49 %
Efficiency ratio - adjusted (non-GAAP)   51.2 %   51.6 %   47.4 %   51.2 %   52.2 %   57.4 %
Return on average assets   1.39 %   1.47 %   0.20 %   0.86 %   1.14 %   1.09 %
Return on average shareholders' equity   10.2 %   10.7 %   1.4 %   6.1 %   8.0 %   7.4 %
Return on average tangible shareholders' equity (non-GAAP)   17.8 %   19.0 %   2.5 %   10.9 %   14.3 %   13.3 %
Average shareholders' equity as a percent of average assets   13.6 %   13.7 %   13.9 %   14.0 %   14.3 %   14.8 %
Capital ratios (period end):                      
Tangible shareholders' equity as a percent of tangible assets   8.3 %   8.3 %   8.3 %   8.3 %   8.4 %   8.8 %
Total risk-based capital ratio (2)   11.3 %   11.2 %   11.0 %   11.2 %   11.1 %   11.4 %


(1)   First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.
(2)   Estimated at June 30, 2018.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  Three Months Ended
  June 30, 2018   March 31, 2018   June 30, 2017
  Average
Balance
  Interest
(FTE)
  Effective
Yield/
Rate (1)
  Average
Balance
  Interest
(FTE)
  Effective
Yield/
Rate (1)
  Average
Balance
  Interest
(FTE)
  Effective
Yield/
Rate (1)
Assets                                  
Interest-earning assets:                                  
Loans (1)(2) $ 14,389,574     $ 166,125     4.63 %   $ 14,224,926     $   157,568     4.48 %   $ 13,513,927     $   142,128     4.22 %
Taxable investment securities 2,019,003     14,706     2.91     1,781,995       12,419     2.79     1,364,358       7,125     2.09  
Tax-exempt investment securities(1) 1,020,567     7,592     2.98     1,010,092       7,033     2.79     882,445       6,781     3.07  
Other interest-earning assets 189,654     2,189     4.63     180,084       1,901     4.28     166,244       1,246     3.01  
Interest-bearing deposits with the FRB and other banks and federal funds sold 228,464     1,301     2.28     262,910       1,240     1.91     302,022       1,022     1.36  
Total interest-earning assets 17,847,262     191,913     4.31     17,460,007       180,161     4.17     16,228,996       158,302     3.91  
Less: allowance for loan losses (96,332 )           (92,648 )           (80,690 )        
Other assets:                                  
Cash and cash due from banks 219,751             226,660             222,954          
Premises and equipment 126,570             126,742             145,320          
Interest receivable and other assets 1,753,742             1,737,116             1,748,119          
Total assets $ 19,850,993             $ 19,457,877             $ 18,264,699          
Liabilities and shareholders' equity                            
Interest-bearing liabilities:                                  
Interest-bearing checking deposits $ 2,597,610     $ 1,393     0.22 %   $ 2,767,267     $ 1,225     0.18 %   $ 2,682,652     $ 1,289     0.19 %
Savings deposits 4,116,683     6,074     0.59     4,047,004       4,937     0.49     3,881,260       3,047     0.31  
Time deposits 3,468,395     12,240     1.42     3,262,568       9,755     1.21     2,958,436       6,246     0.85  
Collateralized customer deposits 399,911     641     0.64     409,077       524     0.52     337,670       196     0.23  
Short-term borrowings 2,249,655     10,408     1.86     2,055,556       8,166     1.61     1,689,835       4,463     1.06  
Long-term borrowings 336,985     1,289     1.53     372,886       1,464     1.59     474,086       1,944     1.65  
Total interest-bearing liabilities 13,169,239     32,045     0.98     12,914,358       26,071     0.82     12,023,939       17,185     0.57  
Noninterest-bearing deposits 3,792,803             3,688,581               3,499,686            
Total deposits and borrowed funds 16,962,042     32,045     0.76     16,602,939       26,071     0.64     15,523,625       17,185     0.44  
Interest payable and other liabilities 181,605             186,613             134,557          
Shareholders' equity 2,707,346             2,668,325             2,606,517          
Total liabilities and shareholders' equity $ 19,850,993             $ 19,457,877             $ 18,264,699          
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)   3.33 %           3.35 %           3.34 %
Net Interest Income (FTE)     $ 159,868             $   154,090             $   141,117      
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)     3.59 %           3.56 %           3.48 %
Reconciliation to Reported Net Interest Income                                
Net interest income, fully taxable equivalent (non-GAAP)   $ 159,868             $   154,090             $   141,117      
Adjustments for taxable equivalent interest (1):                                
Loans     (737 )             (750 )             (814 )    
Tax-exempt investment securities     (1,594 )             (1,477 )             (2,355 )    
Total taxable equivalent interest adjustments   (2,331 )             (2,227 )             (3,169 )    
Net interest income (GAAP)     $ 157,537             $   151,863             $   137,948      
Net interest margin (GAAP)     3.54 %             3.51 %             3.41 %    


(1)   Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the three months ended June 30, 2018 and March 31, 2018 and 35% for the three months ended June 30, 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2)   Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

    Six Months Ended
    June 30, 2018   June 30, 2017
    Average
Balance
  Interest
(FTE)
  Effective
Yield/
Rate (1)
  Average
Balance
  Interest (FTE)   Effective
Yield/
Rate (1)
Assets    
Interest-earning assets:                        
Loans (1)(2)   $ 14,307,705     $ 323,693     4.55 %   $ 13,335,876     $ 275,421     4.16 %
Taxable investment securities   1,901,154     27,125     2.85     1,185,915     11,881     2.00  
Tax-exempt investment securities (1)   1,015,358     14,625     2.88     872,034     13,276     3.04  
Other interest-earning assets   184,895     4,090     4.46     134,962     1,867     2.79  
Interest-bearing deposits with the FRB and other banks and federal funds sold   245,592     2,541     2.09     285,746     1,821     1.28  
Total interest-earning assets   17,654,704     372,074     4.24     15,814,533     304,266     3.87  
Less: allowance for loan losses   (94,500 )           (79,658 )        
Other assets:                        
Cash and cash due from banks   223,186             226,061          
Premises and equipment   126,656             145,680          
Interest receivable and other assets   1,745,475             1,764,925          
Total assets   $ 19,655,521             $ 17,871,541          
Liabilities and Shareholders' Equity                        
Interest-bearing liabilities:                        
Interest-bearing demand deposits   $ 2,681,970     $ 2,618     0.20 %   $ 2,789,762     $ 2,307     0.17 %
Savings deposits   4,082,036     11,011     0.54     3,862,033     4,768     0.25  
Time deposits   3,366,051     21,995     1.32     2,955,768     12,423     0.85  
Collateralized customer deposits   404,468     1,165     0.58     335,679     346     0.21  
Short-term borrowings   2,153,069     18,574     1.74     1,293,232     5,971     0.93  
Long-term borrowings   354,909     2,753     1.56     506,379     4,169     1.66  
Total interest-bearing liabilities   13,042,503     58,116     0.90     11,742,853     29,984     0.51  
Noninterest-bearing deposits   3,740,979             3,402,981          
Total deposits and borrowed funds   16,783,482     58,116     0.70     15,145,834     29,984     0.40  
Interest payable and other liabilities   184,096             130,140          
Shareholders' equity   2,687,943             2,595,567          
Total liabilities and shareholders' equity   $ 19,655,521             $ 17,871,541          
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)           3.34 %           3.36 %
Net Interest Income (FTE)       $ 313,958             $ 274,282      
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)           3.58 %           3.49 %
                         
Reconciliation to Reported Net Interest Income                        
Net interest income, fully taxable equivalent (non-GAAP)       $ 313,958             $ 274,282      
Adjustments for taxable equivalent interest (1):                        
Loans       (1,487 )           (1,622 )    
Tax-exempt investment securities       (3,071 )           (4,615 )    
Total taxable equivalent interest adjustments       (4,558 )           (6,237 )    
Net interest income (GAAP)       $ 309,400             $ 268,045      
Net interest margin (GAAP)       3.53 %           3.41 %    

 

(1)   Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the six months ended June 30, 2018 and 35% for the six months ended June 30, 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2)   Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  2nd
Quarter
2018
  1st
Quarter
2018
  4th
Quarter
2017
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
   
Noninterest income                      
Service charges and fees on deposit accounts $ 8,615     $ 8,463     $ 9,073     $ 9,147     $ 8,777     $ 8,004  
Wealth management revenue(1) 7,188     6,311     6,539     6,188     6,958     5,827  
Other fees for customer services 1,624     1,697     1,944     2,254     2,252     2,074  
Electronic banking fees 4,250     4,057     5,578     4,370     7,482     6,817  
Net gain on sale of loans and other mortgage banking revenue 8,874     8,783     7,938     9,282     11,681     9,679  
Change in fair value in loan servicing rights(1) (30 )   3,752     (13 )   (4,041 )   (1,802 )   (519 )
Gain (loss) on sale of investment securities 3         (7,556 )   1     77     90  
Bank-owned life insurance 1,669     891     1,377     1,124     1,106     1,211  
Other 5,825     6,600     7,439     3,797     5,037     4,827  
Total noninterest income $ 38,018     $ 40,554     $ 32,319     $ 32,122     $ 41,568     $ 38,010  


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


  2nd
Quarter
2018
  1st
Quarter
2018(1)
  4th
Quarter
2017
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
   
Operating expenses                      
Salaries and wages $ 47,810     $ 45,644     $ 41,866     $ 44,641     $ 44,959     $ 48,526  
Employee benefits 8,338     9,913     5,497     7,949     7,288     11,368  
Occupancy 7,679     8,011     7,546     6,871     8,745     7,392  
Equipment and software 8,276     7,659     8,000     7,582     8,149     8,517  
Outside processing and service fees 10,673     10,356     9,081     9,626     8,924     7,511  
FDIC insurance premiums 4,473     5,629     4,556     2,768     2,460     1,406  
Professional fees 3,004     2,458     3,483     3,489     2,567     1,968  
Intangible asset amortization 1,426     1,439     1,525     1,526     1,525     1,513  
Credit-related expenses 1,467     1,306     803     1,874     1,895     1,200  
Merger expenses         1,511     2,379     465     4,167  
Restructuring expenses         1,056     18,824          
Impairment of income tax credit 1,716     1,634     6,157     3,095          
Other 9,699     7,561     8,941     8,915     11,260     10,628  
Total operating expenses $ 104,561     $ 101,610     $ 100,022     $ 119,539     $ 98,237     $ 104,196  


(1)   First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in a reduction in total operating expenses of $1.7 million for the first quarter of 2018.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

          Loan
Growth
              Loan
Growth
  Jun 30,
 2018
  Mar 31,
 2018
  Three
Months
Ended
June 30,
2018
  Dec 31,
 2017
  Sep 30,
 2017
  Jun 30,
 2017
  Twelve
Months
Ended
June 30,
2018
                           
Composition of Loans                          
Commercial loan portfolio:                          
Commercial $ 3,576,438     $ 3,427,285     4.4 %   $ 3,385,642     $ 3,319,965     $ 3,360,161     6.4 %
Commercial real estate:                          
Owner-occupied 1,863,563     1,832,824     1.7     1,813,562     1,718,404     1,695,947     9.9  
Non-owner occupied 2,728,103     2,680,801     1.8     2,606,761     2,514,538     2,550,396     7.0  
Vacant land 79,606     74,751     6.5     80,347     83,036     77,980     2.1  
Total commercial real estate 4,671,272     4,588,376     1.8     4,500,670     4,315,978     4,324,323     8.0  
Real estate construction 618,985     559,780     10.6     574,215     501,413     446,678     38.6  
Subtotal - commercial loans 8,866,695     8,575,441     3.4     8,460,527     8,137,356     8,131,162     9.0  
Consumer loan portfolio:                          
Residential mortgage 3,325,277     3,264,620     1.9     3,252,487     3,221,307     3,125,397     6.4  
Consumer installment 1,587,327     1,572,240     1.0     1,613,008     1,615,983     1,553,967     2.1  
Home equity 800,394     806,446     (0.8 )   829,245     858,722     856,846     (6.6 )
Subtotal - consumer loans 5,712,998     5,643,306     1.2     5,694,740     5,696,012     5,536,210     3.2  
Total loans $ 14,579,693     $ 14,218,747     2.5 %   $ 14,155,267     $ 13,833,368     $ 13,667,372     6.7 %


          Deposit
Growth
              Deposit
Growth
  Jun 30,
 2018
  Mar 31,
 2018
  Three
Months
Ended
June 30,
2018
  Dec 31,
 2017
  Sep 30,
 2017
  Jun 30,
 2017
  Twelve
Months
Ended
June 30,
2018
Composition of Deposits                          
Noninterest-bearing demand $ 3,894,259     $ 3,801,125     2.5 %   $ 3,725,779     $ 3,688,848     $ 3,626,592     7.4 %
Savings and money market accounts 3,841,540     3,774,975     1.8     3,655,671     3,743,826     3,702,524     3.8  
Interest-bearing checking 2,514,232     2,701,055     (6.9 )   2,724,415     2,974,478     2,605,673     (3.5 )
Brokered deposits 1,087,959     651,846     66.9     453,227     416,926     406,174     167.9  
Other time deposits 3,213,546     3,038,816     5.7     3,083,711     2,981,167     2,863,404     12.2  
Total deposits $ 14,551,536     $ 13,967,817     4.2 %   $ 13,642,803     $ 13,805,245     $ 13,204,367     10.2 %


  June 30,
 2018
  March 31,
 2018
  December 31,
 2017
  September 30,
 2017
  June 30,
 2017
                   
Additional Data - Intangibles                  
Goodwill $ 1,134,568     $ 1,134,568     $ 1,134,568     $ 1,134,568     $ 1,133,534  
Loan servicing rights 70,364     68,837     63,841     62,195     64,522  
Core deposit intangibles (CDI) 31,407     32,833     34,259     35,747     37,235  
Noncompete agreements         13     50     87  

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  Jun 30,
 2018
  Mar 31,
 2018
  Dec 31,
 2017
  Sep 30,
 2017
  Jun 30,
 2017
  Mar 31,
 2017
Nonperforming Assets                      
Nonperforming Loans (1):                      
Nonaccrual loans:                      
Commercial $ 20,741     $ 20,000     $ 19,691     $ 15,648     $ 18,773     $ 16,717  
Commercial real estate:                      
Owner-occupied 16,103     19,855     19,070     16,295     11,683     12,575  
Non-owner occupied 9,168     5,489     5,270     4,361     3,600     3,793  
Vacant land 3,135     4,829     5,205     4,494     4,440     4,460  
Total commercial real estate 28,406     30,173     29,545     25,150     19,723     20,828  
Real estate construction 5,704     77     77     78     56     79  
Residential mortgage 7,974     7,621     8,635     8,646     7,714     6,749  
Consumer installment 945     922     842     875     757     755  
Home equity 2,972     3,039     4,305     3,908     3,871     2,713  
Total nonaccrual loans(1) 66,742     61,832     63,095     54,305     50,894     47,841  
Other real estate and repossessed assets 5,828     7,719     8,807     10,605     14,582     16,395  
Total nonperforming assets $ 72,570     $ 69,551     $ 71,902     $ 64,910     $ 65,476     $ 64,236  
Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30:
Commercial $ 472     $ 322     $     $ 3,521     $ 58     $ 1,823  
Commercial real estate:                      
Owner-occupied 461             144         700  
Non-owner occupied         13              
Vacant land 16                 262      
Total commercial real estate 477         13     144     262     700  
Home equity 713     913     1,364     2,367     2,026     1,169  
Total accruing loans contractually past due 90 days or more as to interest or principal payments $ 1,662     $ 1,235     $ 1,377     $ 6,032     $ 2,346     $ 3,692  


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

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  2nd
Quarter
2018
  1st
Quarter
2018
  4th
Quarter
2017
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
  Six Months Ended
              Jun 30,
 2018
  Jun 30,
 2017
Allowance for loan losses - originated loan portfolio            
Allowance for loan losses - beginning of period $ 94,762     $ 91,887     $ 85,181     $ 83,797     $ 78,774     $ 78,268     $ 91,887     $ 78,268  
Provision for loan losses   9,572     6,256     8,101     4,920     6,229     4,050     15,828     10,279  
Net loan (charge-offs) recoveries:                            
Commercial   (517 )   (1,252 )   (613 )   (2,348 )   (239 )   (1,999 )   (1,769 )   (2,238 )
Commercial real estate:                              
Owner-occupied   (1,656 )   341     (232 )   (170 )   (173 )   725     (1,315 )   552  
Non-owner occupied   92     (456 )   748     (7 )   (35 )   21     (364 )   (14 )
Vacant land   (921 )   (448 )   267     3     3     (16 )   (1,369 )   (13 )
Total commercial real estate   (2,485 )   (563 )   783     (174 )   (205 )   730     (3,048 )   525  
Real estate construction       26     (1 )           (9 )   26     (9 )
Residential mortgage   (88 )   (53 )   (142 )   (44 )   19     (567 )   (141 )   (548 )
Consumer installment   (994 )   (997 )   (1,318 )   (857 )   (747 )   (1,310 )   (1,991 )   (2,057 )
Home equity   (235 )   (542 )   (104 )   (113 )   (34 )   (389 )   (777 )   (423 )
Net loan charge-offs   (4,319 )   (3,381 )   (1,395 )   (3,536 )   (1,206 )   (3,544 )   (7,700 )   (4,750 )
Allowance for loan losses - end of period   100,015     94,762     91,887     85,181     83,797     78,774     100,015     83,797  
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 $   100,015     $ 94,762     $ 91,887     $ 85,760     $ 83,797     $ 78,774     $ 100,015     $ 83,797  
Net loan charge-offs as a percent of average loans (annualized)   0.12 %   0.10 %   0.04 %   0.10 %   0.04 %   0.11 %   0.11 %   0.07 %


  June 30,
 2018
  March 31,
 2018
  December 31,
 2017
  September 30,
 2017
  June 30,
 2017
Originated loans $ 10,696,533     $ 10,012,516     $ 9,747,429     $ 9,156,096     $ 8,659,622  
Acquired loans 3,883,160     4,206,231     4,407,838     4,677,272     5,007,750  
Total loans $ 14,579,693     $ 14,218,747     $ 14,155,267     $ 13,833,368     $ 13,667,372  
                   
Allowance for loan losses (originated loan portfolio) as a percent of:
Total originated loans 0.94 %   0.95 %   0.94 %   0.93 %   0.97 %
Nonperforming loans 149.9 %   153.3 %   145.6 %   156.9 %   164.7 %
Credit mark as a percent of unpaid principal balance on acquired loans 1.8 %   1.8 %   2.4 %   2.7 %   2.6 %

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  2nd
Quarter
2018
  1st
Quarter
2018(1)
  4th
Quarter
2017
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
  Six Months Ended
              June 30,
 2018
  June 30,
 2017
Non-GAAP Operating Results                    
Net Income                              
Net income, as reported $ 68,988     $ 71,596     $ 9,446     $ 40,459     $ 52,014     $ 47,604     $ 140,584     $ 99,618  
Merger and restructuring expenses               2,567       21,203       465       4,167             4,632  
Loss on sale of investment securities (2)               7,556                                
Significant items               10,123       21,203       465       4,167             4,632  
Income tax benefit (3)               (3,543 )     (7,421 )     (163 )     (1,458 )           (1,621 )
Revaluation of net deferred tax assets               46,660                                
Significant items, net of tax               53,240       13,782       302       2,709             3,011  
Net income, excluding significant items $ 68,988     $ 71,596     $ 62,686     $ 54,241     $ 52,316     $ 50,313     $ 140,584     $ 102,629  
Diluted Earnings Per Share                     
Diluted earnings per share, as reported $ 0.96     $ 0.99     $ 0.13     $ 0.56     $ 0.73     $ 0.67     $ 1.95     $ 1.39  
Effect of significant items, net of tax               0.74       0.20             0.03             0.04  
Diluted earnings per share, excluding significant items $ 0.96     $ 0.99     $ 0.87     $ 0.76     $ 0.73     $ 0.70     $ 1.95     $ 1.43  
Return on Average Assets                     
Return on average assets, as reported   1.39 %     1.47 %     0.20 %     0.86 %     1.14 %     1.09 %     1.43 %     1.11 %
Effect of significant items, net of tax               1.11       0.29       0.01       0.06             0.04  
Return on average assets, excluding significant items   1.39 %     1.47 %     1.31 %     1.15 %     1.15 %     1.15 %     1.43 %     1.15 %
Return on Average Shareholders' Equity                 
Return on average shareholders' equity, as reported   10.2 %     10.7 %     1.4 %     6.1 %     8.0 %     7.4 %     10.5 %     7.7 %
Effect of significant items, net of tax               8.0       2.1             0.4             0.2  
Return on average shareholders' equity, excluding significant items   10.2 %     10.7 %     9.4 %     8.2 %     8.0 %     7.8 %     10.5 %     7.9 %
Return on Average Tangible Shareholders' Equity                 
Average shareholders' equity $   2,707,346     $   2,668,325       $   2,676,029     $   2,643,233     $   2,606,517     $   2,584,501     $   2,687,943     $   2,595,567  
Average goodwill, CDI and noncompete agreements, net of tax     1,156,865         1,158,084           1,156,122         1,153,394         1,154,229         1,155,177         1,157,474         1,154,406  
Average tangible shareholders' equity $   1,550,481     $   1,510,241       $   1,519,907     $   1,489,839     $   1,452,288     $   1,429,324     $   1,530,469     $   1,441,161  
Return on average tangible shareholders' equity   17.8 %     19.0 %     2.5 %     10.9 %     14.3 %     13.3 %     18.4 %     13.8 %
Effect of significant items, net of tax               14.0       3.7       0.1       0.8             0.4  
Return on average tangible shareholders' equity, excluding significant items   17.8 %     19.0 %     16.5 %     14.6 %     14.4 %     14.1 %     18.4 %     14.2 %


(1)   First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.
(2)   Represents losses on sales of investment securities in the fourth quarter of 2017 as part of our treasury and tax management objectives.
(3)   Assumes merger and restructuring expenses and other significant items are deductible at an income tax rate of 35% for each quarter during 2017.

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results

 

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

  2nd
Quarter
2018
  1st
Quarter
2018(1)
  4th
Quarter
2017
  3rd
Quarter
2017
  2nd
Quarter
2017
  1st
Quarter
2017
  Six Months Ended
              June 30,
 2018
  June 30,
 2017
Efficiency Ratio                            
Net interest income $ 157,537     $ 151,863     $ 145,905     $ 143,628     $ 137,948     $ 130,097     $ 309,400     $ 268,045  
Noninterest income 38,018     40,554     32,319     32,122     41,568     38,010     78,572     79,578  
Total revenue - GAAP 195,555     192,417     178,224     175,750     179,516     168,107     387,972     347,623  
Net interest income FTE adjustment 2,331     2,227     3,580     3,260     3,169     3,068     4,558     6,237  
Loan servicing rights change in fair value (gains) losses 30     (3,752 )   13     4,041     1,802     519     (3,722 )   2,321  
Losses (gains) from sale of investment securities (3 )       7,556     (1 )   (77 )   (90 )   (3 )   (167 )
Total revenue - Non-GAAP $ 197,913     $ 190,892     $ 189,373     $ 183,050     $ 184,410     $ 171,604     $ 388,805     $ 356,014  
Operating expenses - GAAP $ 104,561     $ 101,610     $ 100,022     $ 119,539     $ 98,237     $ 104,196     $ 206,171     $ 202,433  
Merger and restructuring expenses         (2,567 )   (21,203 )   (465 )   (4,167 )       (4,632 )
Impairment of income tax credits (1,716 )   (1,634 )   (6,157 )   (3,095 )           (3,350 )    
Operating expense, core - Non-GAAP 102,845     99,976     91,298     95,241     97,772     100,029     202,821     197,801  
Amortization of intangibles (1,426 )   (1,439 )   (1,525 )   (1,526 )   (1,525 )   (1,513 )   (2,865 )   (3,038 )
Operating expenses, efficiency ratio - Non-GAAP $ 101,419     $ 98,537     $ 89,773     $ 93,715     $ 96,247     $ 98,516     $ 199,956     $ 194,763  
Efficiency ratio - GAAP 53.5 %   52.8 %   56.1 %   68.0 %   54.7 %   62.0 %   53.1 %   58.2 %
Efficiency ratio - adjusted Non-GAAP 51.2 %   51.6 %   47.4 %   51.2 %   52.2 %   57.4 %   51.4 %   54.7 %
 


(1)   First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.
     


  June 30,
 2018
  March 31,
 2018
  December 31,
 2017
  September 30,
 2017
  June 30,
 2017
  March 31,
 2017
Tangible Book Value                 
Shareholders' equity, as reported $ 2,750,999     $ 2,704,703     $ 2,668,749     $ 2,673,089     $ 2,639,442     $ 2,600,051  
Goodwill, CDI and noncompete agreements, net of tax (1,156,283 )   (1,157,505 )   (1,158,738 )   (1,153,576 )   (1,153,595 )   (1,154,915 )
Tangible shareholders' equity $ 1,594,716     $ 1,547,198     $ 1,510,011     $ 1,519,513     $ 1,485,847     $ 1,445,136  
Common shares outstanding 71,418     71,350     71,207     71,152     71,131     71,118  
Book value per share (shareholders' equity, as reported, divided by common shares outstanding) $ 38.52     $ 37.91     $ 37.48     $ 37.57     $ 37.11     $ 36.56  
Tangible book value per share (tangible shareholders' equity divided by common shares outstanding) $ 22.33     $ 21.68     $ 21.21     $ 21.36     $ 20.89     $ 20.32  
Tangible Shareholders' Equity to Tangible Assets                
Total assets, as reported $ 20,282,603     $ 19,757,510     $ 19,280,873     $ 19,354,308     $ 18,781,405     $ 17,636,973  
Goodwill, CDI and noncompete agreements, net of tax (1,156,283 )   (1,157,505 )   (1,158,738 )   (1,153,576 )   (1,153,595 )   (1,154,915 )
Tangible assets $ 19,126,320     $ 18,600,005     $ 18,122,135     $ 18,200,732     $ 17,627,810     $ 16,482,058  
Shareholders' equity to total assets 13.6 %   13.7 %   13.8 %   13.8 %   14.1 %   14.7 %
Tangible shareholders' equity to tangible assets 8.3 %   8.3 %   8.3 %   8.3 %   8.4 %   8.8 %
 

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

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