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

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

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

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

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

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

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

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

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

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

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

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

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

The effective tax rate was 18.0% in the second quarter of 2019, compared to 17.8% in the first quarter of 2019 and 15.3% in the second quarter of 2018. The tax rate for the second quarter of 2019 and second quarter of 2018 benefited from federal historic tax credits of $260 thousand and $1.9 million, respectively. The income tax benefit from the tax credits placed into service was partially offset by the impairment recorded on the same tax credits included within other operating expenses.
           
Total assets were $22.49 billion at June 30, 2019, compared to $21.80 billion at March 31, 2019 and $20.28 billion at June 30, 2018. The increase in total assets during the second quarter of 2019 was primarily attributable to net loan growth while the increase in the twelve months ended June 30, 2019 was additionally attributable to additions to the investment securities portfolio.

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

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

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

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

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

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

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss second quarter of 2019 operating results on Thursday, July 25, 2019, at 11:00 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 888-378-4398 and entering 339057 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Information" section. A copy of the slide-show presentation can be accessed on Chemical Financial Corporation's website and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

About Chemical Financial Corporation

Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. We operate through our subsidiary bank, Chemical Bank, with 212 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At June 30, 2019, we had total consolidated assets of $22.49 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about Chemical Financial Corporation is available by visiting the "Investor Information" section of our website at www.chemicalbank.com.

Non-GAAP Financial Measures

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

Management used non-GAAP financial measures as follows; in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. We believe these non-GAAP financial measures are helpful for investors to analyze and evaluate our financial condition. However, these non-GAAP financial measures have inherent limitations and should not be considered in isolation or as a substitute for GAAP measures. In addition, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP historical measures in this press release with other companies' non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure may be found in the financial tables included with this press release.

Forward-Looking Statements

Statements included in this press release which are not historical in nature are intended to be, and hereby are identified as, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to, statements regarding Chemical Financial loan pipeline, future loan growth, increases in net interest income, and the belief that we are in a solid position for a successful 2019. Words and phrases such as "anticipate," "believe,"  "plan," "continue," "estimate," "expect," "forecast," "future," "intend," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and loan servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on Chemical, specifically, are also inherently uncertain.

Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results. Such risks, uncertainties and assumptions, include, among others, the following:

  • our inability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry;
  • operational and regulatory challenges associated with our information technology systems and policies and procedures in light of our rapid growth and systems conversion in 2018;
  • our inability to grow deposits;
  • our ability to execute on our strategy to expand investments and commercial lending;
  • our inability to efficiently manage our operating expenses;
  • the possibility that our previously announced merger with TCF does not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all;
  • the occurrence of any event, change or other circumstance that could give rise to the right of Chemical, TCF or both to terminate the merger agreement;
  • the outcome of pending or threatened litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to our proposed merger with TCF;
  • potential difficulty in maintaining relationships with clients, employees or business partners as a result of our proposed merger with TCF;
  • the possibility that the anticipated benefits of our proposed merger with TCF, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where Chemical and TCF do business, or as a result of other unexpected factors or events;
  • the impact of purchase accounting with respect to the proposed merger with TCF, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
  • diversion of management's attention from ongoing business operations and opportunities as a result of the proposed merger with TCF;
  • potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed merger with TCF;
  • economic conditions (both generally and in our markets) may be less favorable than expected, which could result in, among other things, a deterioration in credit quality, a reduction in demand for credit and a decline in real estate values;
  • a general decline in the real estate and lending markets, particularly in our market areas, could negatively affect our financial results;
  • increased cybersecurity risk, including potential network breaches, business disruptions, or financial losses;
  • increases in competitive pressure in the banking and financial services industry;
  • increased capital requirements, other regulatory requirements or enhanced regulatory supervision;
  • our inability to sustain revenue and earnings growth;
  • the timing of when historic tax credits are placed into service could impact operating expenses;
  • our inability to efficiently manage operating expenses;
  • our inability to increase our investment securities portfolio as a percentage of total assets;
  • current or future restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals;
  • legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect us;
  • changes in the interest rate environment may reduce margins or the volumes or values of the loans we make or have acquired; and
  • economic, governmental, or other factors may prevent the projected population, residential, and commercial growth in the markets in which we operate.

Additional factors that could cause results to differ materially from those described above can be found in the risk factors described in Item 1A of Chemical’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018, in the Joint Proxy Statement/Prospectus regarding the proposed merger that was filed with the SEC on May 3, 2019 pursuant to Rule 424(b)(3) by Chemical and in Quarterly Reports on Form 10-Q. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. Chemical disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by law.

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


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

  June 30,
 2019
  March 31,
 2019
  December 31,
 2018
  June 30,
 2018
               
Assets              
Cash and cash equivalents:              
Cash and cash due from banks $ 200,034     $ 206,372     $ 228,527     $ 222,748  
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold 392,724     311,204     267,312     302,532  
Total cash and cash equivalents 592,758     517,576     495,839     525,280  
Investment securities:              
Carried at fair value 3,369,872     3,301,054     3,021,832     2,529,910  
Held-to-maturity 566,046     622,519     624,099     602,687  
Total investment securities 3,935,918     3,923,573     3,645,931     3,132,597  
Loans held-for-sale 33,019     23,535     85,030     46,849  
Loans 15,861,903     15,324,048     15,269,779     14,579,693  
Allowance for loan losses (115,967 )   (110,284 )   (109,984 )   (100,015 )
Net loans 15,745,936     15,213,764     15,159,795     14,479,678  
Premises and equipment 123,708     122,452     123,442     125,970  
Loan servicing rights 60,658     64,701     71,013     70,364  
Goodwill 1,134,568     1,134,568     1,134,568     1,134,568  
Core deposit intangibles 25,835     27,195     28,556     31,407  
Interest receivable and other assets 839,365     772,949     754,167     735,890  
Total Assets $ 22,491,765     $ 21,800,313     $ 21,498,341     $ 20,282,603  
Liabilities              
Deposits:              
Noninterest-bearing $ 3,925,777     $ 3,835,427     $ 3,809,252     $ 3,894,259  
Interest-bearing 11,953,659     12,226,572     11,784,030     10,657,277  
Total deposits 15,879,436     16,061,999     15,593,282     14,551,536  
Collateralized customer deposits 291,671     413,199     382,687     378,938  
Short-term borrowings 2,615,000     1,740,000     2,035,000     2,095,000  
Long-term borrowings 426,069     426,035     426,002     330,956  
Interest payable and other liabilities 326,054     261,571     225,110     175,174  
Total liabilities 19,538,230     18,902,804     18,662,081     17,531,604  
Shareholders' Equity              
Preferred stock, no par value per share              
Common stock, $1 par value per share 71,559     71,551     71,460     71,418  
Additional paid-in capital 2,212,665     2,209,860     2,209,761     2,205,402  
Retained earnings 699,712     654,605     616,149     521,530  
Accumulated other comprehensive loss (30,401 )   (38,507 )   (61,110 )   (47,351 )
Total shareholders' equity 2,953,535     2,897,509     2,836,260     2,750,999  
Total Liabilities and Shareholders' Equity $ 22,491,765     $ 21,800,313     $ 21,498,341     $ 20,282,603  


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

  Three Months Ended   Six Months Ended
  June 30,
 2019
  March 31,
 2019
  June 30,
 2018
  June 30,
 2019
  June 30,
 2018
Interest income                  
Interest and fees on loans $ 188,875     $ 183,292     $ 165,388     $ 372,167     $ 322,206  
Interest on investment securities:                  
Taxable 21,214     20,501     14,706     41,715     27,125  
Tax-exempt 7,297     7,170     5,998     14,467     11,554  
Dividends on nonmarketable equity securities 2,401     1,738     2,189     4,139     4,090  
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold 1,641     1,280     1,301     2,921     2,541  
Total interest income 221,428     213,981     189,582     435,409     367,516  
Interest expense                  
Interest on deposits 42,011     38,998     19,707     81,009     35,624  
Interest on collateralized customer deposits 537     627     641     1,164     1,165  
Interest on short-term borrowings 11,345     9,178     10,408     20,523     18,574  
Interest on long-term borrowings 2,374     2,354     1,289     4,728     2,753  
Total interest expense 56,267     51,157     32,045     107,424     58,116  
Net interest income 165,161     162,824     157,537     327,985     309,400  
Provision for loan losses 7,502     2,059     9,572     9,561     15,828  
Net interest income after provision for loan losses 157,659     160,765     147,965     318,424     293,572  
Noninterest income                  
Service charges and fees on deposit accounts 8,247     7,967     9,690     16,214     19,124  
Wealth management revenue 6,966     5,872     7,188     12,838     13,499  
Other charges and fees for customer services 5,755     4,824     4,799     10,579     9,582  
Net gain on sale of loans and other mortgage banking revenue 4,532     894     8,844     5,426     21,379  
Net gain on sale of investment securities 4,160     87     3     4,247     3  
Other 8,504     5,213     7,494     13,717     14,985  
Total noninterest income 38,164     24,857     38,018     63,021     78,572  
Operating expenses                  
Salaries, wages and employee benefits 62,129     60,017     56,148     122,146     111,705  
Occupancy 7,786     8,277     7,679     16,063     15,690  
Equipment and software 7,076     6,979     8,276     14,055     15,935  
Outside processing and service fees 12,206     11,726     10,673     23,932     21,029  
Merger expenses 3,042     5,424         8,466      
Other 18,764     16,592     21,785     35,356     41,812  
Total operating expenses 111,003     109,015     104,561     220,018     206,171  
Income before income taxes 84,820     76,607     81,422     161,427     165,973  
Income tax expense 15,226     13,665     12,434     28,891     25,389  
Net income $ 69,594     $ 62,942     $ 68,988     $ 132,536     $ 140,584  
Earnings per common share:                  
Weighted average common shares outstanding-basic 71,554     71,474     71,329     71,514     71,280  
Weighted average common shares outstanding-diluted 72,272     72,141     72,026     72,207     71,966  
Basic earnings per share $ 0.97     $ 0.88     $ 0.97     $ 1.85     $ 1.97  
Diluted earnings per share 0.96     0.87     0.96     1.84     1.95  
Diluted earnings per share, excluding significant items (non-GAAP) 1.06     1.02     0.96     2.07     1.91  
Cash dividends declared per common share 0.34     0.34     0.28     0.68     0.56  
Key ratios (annualized where applicable):                  
Return on average assets 1.27 %   1.17 %   1.39 %   1.22 %   1.43 %
Return on average tangible shareholders' equity, excluding significant items (non-GAAP) 17.3 %   17.2 %   17.8 %   17.2 %   18.0 %
Net interest margin (tax-equivalent basis) (non-GAAP) 3.36 %   3.42 %   3.59 %   3.39 %   3.58 %
Efficiency ratio - GAAP 54.6 %   58.1 %   53.5 %   56.3 %   53.1 %
Efficiency ratio - adjusted (non-GAAP) 51.3 %   51.7 %   51.2 %   51.5 %   51.4 %



Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

  2nd Quarter 2019   1st Quarter 2019   4th Quarter 2018   3rd Quarter 2018   2nd Quarter 2018   1st Quarter 2018
Summary of Operations                      
Interest income $ 221,428     $ 213,981     $ 210,103     $ 198,377     $ 189,582     $ 177,934  
Interest expense 56,267     51,157     46,651     38,896     32,045     26,071  
Net interest income 165,161     162,824     163,452     159,481     157,537     151,863  
Provision for loan losses 7,502     2,059     8,894     6,028     9,572     6,256  
Net interest income after provision for loan losses 157,659     160,765     154,558     153,453     147,965     145,607  
Noninterest income 38,164     24,857     32,047     37,917     38,018     40,554  
Operating expenses, excluding merger expenses and impairment of income tax credits (non-GAAP) 107,690     103,591     102,594     106,499     102,845     99,976  
Merger expenses 3,042     5,424                  
Impairment of income tax credits 271         5,772     3,162     1,716     1,634  
Income before income taxes 84,820     76,607     78,239     81,709     81,422     84,551  
Income tax expense 15,226     13,665     5,200     11,312     12,434     12,955  
Net income $ 69,594     $ 62,942     $ 73,039     $ 70,397     $ 68,988     $ 71,596  
Significant items, net of tax 6,714     10,326     2,233     (735 )   23     (2,964 )
Net income, excluding significant items $ 76,308     $ 73,268     $ 75,272     $ 69,662     $ 69,011     $ 68,632  
                       
Per Common Share Data                      
Net income:                      
Basic $ 0.97     $ 0.88     $ 1.02     $ 0.99     $ 0.97     $ 1.01  
Diluted 0.96     0.87     1.01     0.98     0.96     0.99  
Diluted, excluding significant items (non-GAAP) 1.06     1.02     1.04     0.97     0.96     0.95  
Cash dividends declared 0.34     0.34     0.34     0.34     0.28     0.28  
Book value - period-end 41.27     40.50     39.69     39.04     38.52     37.91  
Tangible book value - period-end (non-GAAP) 25.18     24.39     23.54     22.87     22.33     21.68  
Market value - period-end 41.11     41.16     36.61     53.40     55.67     54.68  
                       
Key Ratios (annualized where applicable)                    
Net interest margin (taxable equivalent basis) (non-GAAP) 3.36 %   3.42 %   3.49 %   3.48 %   3.59 %   3.56 %
Efficiency ratio - adjusted (non-GAAP) 51.3 %   51.7 %   50.4 %   52.8 %   51.2 %   51.6 %
Return on average assets 1.27 %   1.17 %   1.39 %   1.37 %   1.39 %   1.47 %
Return on average assets, excluding significant items (non-GAAP) 1.39 %   1.36 %   1.44 %   1.36 %   1.39 %   1.41 %
Return on average shareholders' equity 9.5 %   8.8 %   10.4 %   10.2 %   10.2 %   10.7 %
Return on average tangible shareholders' equity (non-GAAP) 15.7 %   14.8 %   17.8 %   17.5 %   17.8 %   19.0 %
Return on average tangible shareholders' equity, excluding significant items (non-GAAP) 17.3 %   17.2 %   18.3 %   17.3 %   17.8 %   18.2 %
Average shareholders' equity as a percent of average assets 13.3 %   13.3 %   13.4 %   13.5 %   13.6 %   13.7 %
Capital ratios (period end):                      
Tangible shareholders' equity as a percent of tangible assets (non-GAAP) 8.4 %   8.5 %   8.3 %   8.3 %   8.3 %   8.3 %
Total risk-based capital ratio (1) 11.5 %   11.7 %   11.5 %   11.7 %   11.4 %   11.2 %

(1)       Estimated at June 30, 2019.


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

  Three Months Ended
  June 30, 2019   March 31, 2019   June 30, 2018
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
  Average
Balance
  Interest (FTE)   Effective
Yield/Rate (1)
Assets                                  
Interest-earning assets:                                  
Loans (1)(2) $ 15,514,181     $ 189,612     4.90 %   $ 15,323,704     $ 184,058   4.86 %   $ 14,389,574     $ 166,125   4.63 %
Taxable investment securities 2,889,273     21,214     2.94     2,631,161       20,501     3.12     2,019,003       14,706     2.91  
Tax-exempt investment
securities(1)
1,137,426     9,231     3.25     1,154,348       9,066     3.14     1,020,567       7,592     2.98  
Other interest-earning assets 194,798     2,401     4.94     193,326       1,738     3.65     189,654       2,189     4.63  
Interest-bearing deposits with the FRB, other banks and federal funds sold 280,507     1,641     2.35     221,116       1,280     2.35     228,464       1,301     2.28  
Total interest-earning assets 20,016,185     224,099     4.49     19,523,655       216,643     4.48     17,847,262       191,913     4.31  
Less: allowance for loan losses (111,759 )           (110,852 )           (96,332 )        
Other assets:                                  
Cash and cash due from banks 165,880             186,849             219,751          
Premises and equipment 122,969             123,470             126,570          
Interest receivable and other assets 1,812,220             1,791,876             1,753,742          
Total assets $ 22,005,495             $ 21,514,998             $ 19,850,993          
Liabilities and shareholders' equity                                
Interest-bearing liabilities:                                  
Interest-bearing checking deposits $ 3,258,584     $ 6,802     0.84 %   $ 3,375,841     $ 6,721     0.81 %   $ 2,597,610     $ 1,393     0.22 %
Savings deposits 4,548,195     11,945     1.05     4,532,107       11,257     1.01     4,116,683       6,074     0.59  
Time deposits 4,430,521     23,264     2.11     4,287,346       21,020     1.99     3,468,395       12,240     1.42  
Collateralized customer deposits 305,019     537     0.71     359,230       627     0.71     399,911       641     0.64  
Short-term borrowings 1,974,945     11,345     2.30     1,653,222       9,178     2.25     2,249,655       10,408     1.86  
Long-term borrowings 426,046     2,374     2.23     426,011       2,354     2.24     336,985       1,289     1.53  
Total interest-bearing liabilities 14,943,310     56,267     1.51     14,633,757       51,157     1.42     13,169,239       32,045     0.98  
Noninterest-bearing deposits 3,840,835             3,753,929               3,792,803            
Total deposits and borrowed funds 18,784,145     56,267     1.20     18,387,686       51,157     1.13     16,962,042       32,045     0.76  
Interest payable and other liabilities 301,139             271,597             181,605          
Shareholders' equity 2,920,211             2,855,715             2,707,346          
Total liabilities and shareholders' equity $ 22,005,495             $ 21,514,998             $ 19,850,993          
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)   2.98 %           3.06 %           3.33 %
Net Interest Income (FTE)     $ 167,832             $ 165,486           $ 159,868    
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)   3.36 %           3.42 %           3.59 %
Reconciliation to Reported Net Interest Income                                
Net interest income, fully taxable equivalent (non-GAAP)   $ 167,832             $ 165,486           $ 159,868    
Adjustments for taxable equivalent interest (1):                                
Loans     (737 )             (766 )             (737 )    
Tax-exempt investment securities     (1,934 )             (1,896 )             (1,594 )    
Total taxable equivalent interest adjustments   (2,671 )             (2,662 )             (2,331 )    
Net interest income (GAAP)     $ 165,161             $ 162,824           $ 157,537    
Net interest margin (GAAP)     3.31 %             3.38 %             3.54 %    
  1. Fully taxable equivalent (FTE) basis using a federal income tax rate of 21%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
  2. Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

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

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


Chemical Financial Corporation Announces 2019 Second Quarter Operating Results

 

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

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