EX-99.1 2 exhibit9912017q2.htm EXHIBIT 99.1 CHFC Q2 2017 EARNINGS RELEASE Exhibit

Exhibit 99.1

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

Chemical Financial Corporation Reports 2017 Second Quarter Operating Results
MIDLAND, MI, July 25, 2017 -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2017 second quarter net income of $52.0 million, or $0.73 per diluted share, compared to 2017 first quarter net income of $47.6 million, or $0.67 per diluted share and 2016 second quarter net income of $25.8 million, or $0.67 per diluted share. Excluding transaction expenses and the change in fair value in loan servicing rights ("significant items"), net income in the second quarter of 2017 was $53.5 million, or $0.75 per diluted share, compared to $50.7 million, or $0.71 per diluted share, in the first quarter of 2017 and $27.8 million, or $0.72 per diluted share, in the second quarter of 2016.(1)
During the second quarter of 2017, significant items included transaction expenses of $0.5 million and a $1.8 million detriment to earnings due to the change in fair value in loan servicing rights, compared to transaction expenses of $4.2 million and a $0.5 million detriment to earnings due to the change in fair value in loan servicing rights in the first quarter of 2017. Transaction expenses for the second quarter of 2016 were $3.1 million.
"We are encouraged by the underlying trends this quarter including improved operating expense trends, fee income and quality loan growth," noted David T. Provost, Chief Executive Officer of Chemical Financial Corporation and Thomas C. Shafer, Vice Chairman of the Corporation and Chief Executive Officer of Chemical Bank. "Going forward, we will seek to further improve our fundamentals by carefully assessing how we allocate capital and focusing on strategies to enhance revenue growth while continuing to improve our operating efficiency."
The Corporation's return on average assets was 1.14% during the second quarter of 2017, compared to 1.09% during the first quarter of 2017 and 1.10% in the second quarter of 2016. The Corporation's return on average shareholders' equity was 8.0% in the second quarter of 2017, compared to 7.4% during the first quarter of 2017 and 10.0% in the second quarter of 2016. Excluding significant items, the Corporation's return on average assets was 1.17% during the second quarter of 2017, compared to 1.16% during the first quarter of 2017 and 1.19% in the second quarter of 2016 and the Corporation's return on average shareholders' equity was 8.2% in the second quarter of 2017, compared to 7.8% during the first quarter of 2017 and 10.7% in the second quarter of 2016. The Corporation's return on average tangible shareholders' equity was 14.3% in the second quarter of 2017, compared to 13.3% during the first quarter of 2017 and 14.3% in the second quarter of 2016. Excluding significant items, the Corporation's return on average tangible equity was 14.7% in the second quarter of 2017, compared to 14.2% during the first quarter of 2017 and 15.4% in the second quarter of 2016. (2) 
Net interest income was $137.9 million in the second quarter of 2017, $7.9 million, or 6.0%, higher than the first quarter of 2017 and $60.5 million, or 78.0%, higher than the second quarter of 2016. The higher net interest income in the second quarter of 2017 compared to the first quarter of 2017 was driven by the positive impact of organic loan growth, an increase in the investment securities portfolio, an increase in interest accretion from purchase accounting discounts on acquired loans, and one additional day in the quarter. These benefits to net interest income were partially offset by the interest expense impact of increases in short-term borrowings and deposits. The increase in net interest income in the second quarter of 2017 over the second quarter of 2016 was primarily attributable to loans acquired in the merger with Talmer Bancorp, Inc. ("Talmer") and organic loan growth. The Corporation experienced net organic loan growth of $394.0 million during the second quarter of 2017 and $1.14 billion during the twelve months ended June 30, 2017. The merger with Talmer added $4.88 billion of loans on August 31, 2016.
The net interest margin was 3.41% in both the second quarter of 2017 and the first quarter of 2017, compared to 3.60% in the second quarter of 2016. The net interest margin (on a tax-equivalent basis) was 3.48% in the second quarter of 2017, compared to 3.49% in the first quarter of 2017 and 3.70% in the second quarter of 2016.(3) The net interest margin (on a tax-equivalent basis) in the second quarter of 2017, compared to the first quarter of 2017, was compressed due to an increase in the investment securities portfolio funded by an increase in short-term borrowings. This compression was offset by an increase of 11 basis points in yield on total loans in the second quarter of 2017 to

1

4.22%, compared to the first quarter of 2017, primarily due to an increase of interest accretion from purchase accounting discounts on acquired loans and an increase in the average coupon rates on loans.
The provision for loan losses was $6.2 million in the second quarter of 2017, compared to $4.1 million in the first quarter of 2017 and $3.0 million in the second quarter of 2016. The increase in the provision for loan losses in the second quarter of 2017, compared to both the first quarter of 2017 and the second quarter of 2016, was primarily the result of an increase in organic growth in the loan portfolio. Originated loan growth was $699.9 million in the second quarter of 2017, compared to $501.4 million in the first quarter of 2017. The growth in the originated loan portfolio was partially offset by run-off in the acquired loan portfolio of $305.9 million in the second quarter of 2017, compared to $218.8 million in the first quarter of 2017. It is important to note that the acquired loan portfolio was adjusted to the fair value of loans at each respective acquisition date and, as of June 30, 2017, no allowance has been recorded for this population of loans. Therefore, the run-off of acquired loans does not result in the reduction of allowance.
Net loan charge-offs were $1.2 million, or 0.04% of average loans, in the second quarter of 2017, compared to $3.5 million, or 0.11% of average loans, in the first quarter of 2017 and $1.8 million, or 0.10% of average loans, in the second quarter of 2016. Net loan charge-offs in the first quarter of 2017 included $1.5 million of losses from one commercial loan relationship.
The Corporation's nonperforming loans totaled $50.9 million at June 30, 2017, compared to $47.8 million at March 31, 2017 and $44.0 million at June 30, 2016. Nonperforming loans comprised 0.37% of total loans at June 30, 2017, compared to 0.36% at March 31, 2017 and 0.58% at June 30, 2016. The decrease in the percentage of nonperforming loans to total loans at June 30, 2017, compared to June 30, 2016, was primarily due to $4.88 billion of total loans added as a result of the merger with Talmer, as none of these loans are classified as nonperforming after the merger date since they are recorded in loan pools at their estimated net realizable value in accordance with generally accepted accounting principles.
At June 30, 2017, the allowance for loan losses of the originated loan portfolio was $83.8 million, or 0.97% of originated loans, compared to $78.8 million, or 0.99% of originated loans, at March 31, 2017 and $71.5 million, or 1.12% of originated loans, at June 30, 2016. The reduction in allowance for loan losses as a percentage of originated loans primarily reflects overall credit improvement. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 164.7% at both June 30, 2017 and March 31, 2017, compared to 162.5% at June 30, 2016.
Noninterest income was $41.6 million in the second quarter of 2017, compared to $38.0 million in the first quarter of 2017 and $20.9 million in the second quarter of 2016. Noninterest income in the second quarter of 2017 increased compared to the first quarter of 2017, primarily due to a $1.1 million increase in wealth management revenue. Net gain on sale of loans and other mortgage banking revenue also increased $0.7 million and included a $1.8 million detriment to earnings due to a change in fair value in loan servicing rights in the second quarter of 2017, compared to a $0.5 million detriment in the first quarter of 2017. Noninterest income in the second quarter of 2017 was higher than the second quarter of 2016 due primarily to incremental revenue resulting from the merger with Talmer.
Operating expenses were $98.2 million in the second quarter of 2017, compared to $104.2 million in the first quarter of 2017 and $59.1 million in the second quarter of 2016. Operating expenses included transaction expenses of $0.5 million in the second quarter of 2017, $4.2 million in the first quarter of 2017 and $3.1 million in the second quarter of 2016. Excluding these transaction expenses, operating expenses were $97.8 million in the second quarter of 2017, compared to $100.0 million in the first quarter of 2017 and $56.0 million in the second quarter of 2016.(4) The decrease in operating expenses, excluding transaction expenses, in the second quarter of 2017, compared to the first quarter of 2017 was primarily due to a decrease of $7.6 million in salaries, wages and employee benefits expenses, aided by a decrease in payroll taxes mostly attributable to stock option exercises during the first quarter of 2017 and an increase in the deferral of loan origination costs due to increased loan production and revised loan origination costs based on an updated loan origination cost study. The increase in operating expenses, excluding transaction expenses, in the second quarter of 2017, compared to the second quarter of 2016, was primarily attributable to incremental expenses resulting from the merger with Talmer.

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The effective tax rate was 30.7% in the second quarter of 2017, compared to 20.5% in the first quarter of 2017 and 29.0% in the second quarter of 2016. The tax rate for the first quarter of 2017 benefited from stock option exercises that occurred in the first quarter of 2017.
The efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. The Corporation's efficiency ratio was 54.7% in the second quarter of 2017, compared to 62.0% in the first quarter of 2017 and 60.1% in the second quarter of 2016. The Corporation's adjusted efficiency ratio, which excludes significant items, amortization of intangibles and net gains on sales of branches, closed branch locations and investment securities, was 52.2% in the second quarter of 2017, compared to 57.4% in the first quarter of 2017 and 54.6% in the second quarter of 2016.(5)  
Total assets were $18.78 billion at June 30, 2017, compared to $17.64 billion at March 31, 2017 and $9.51 billion at June 30, 2016. The increase in total assets during the three months ended June 30, 2017 was primarily attributable to an increase in investment securities available-for-sale and loan growth that was funded by an increase in short-term FHLB advances. During the quarter, the investment securities portfolio grew by $490.0 million to $2.41 billion at June 30, 2017. The increase in total assets during the twelve months ended June 30, 2017 was primarily attributable to the merger with Talmer, organic loan growth and an increase in investment securities available-for-sale.
Total loans were $13.67 billion at June 30, 2017, an increase of $394.0 million, or 3.0%, from total loans of $13.27 billion at March 31, 2017 and an increase of $6.02 billion, or 78.7%, from total loans of $7.65 billion at June 30, 2016. The Corporation experienced organic loan growth of $394.0 million during the second quarter of 2017 and $1.14 billion during the twelve months ended June 30, 2017. The Corporation added $4.88 billion of loans as part of the merger with Talmer on August 31, 2016.
Total deposits were $13.20 billion at June 30, 2017, compared to $13.13 billion at March 31, 2017 and $7.46 billion at June 30, 2016. The Corporation experienced organic growth in customer deposits of $72.0 million during the second quarter of 2017. The Corporation added $5.29 billion of deposits as part of the merger with Talmer that was completed on August 31, 2016, including $403.2 million of brokered deposits. The Corporation reduced the balance of brokered deposits by $351.2 million during the period of September 30, 2016 to June 30, 2017.
Securities sold under agreements to repurchase with customers were $310.0 million at June 30, 2017, compared to $398.9 million at March 31, 2017 and $256.2 million at June 30, 2016. Short-term borrowings were $2.05 billion at June 30, 2017, compared to $900.0 million at March 31, 2017 and $300.0 million at June 30, 2016 and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs. The increase in short-term FHLB advances in the second quarter 2017 was primarily utilized to fund an increase in the investment securities portfolio and loan growth. Long-term borrowings were $435.9 million at June 30, 2017, compared to $490.9 million at March 31, 2017 and $371.6 million at June 30, 2016.
The Corporation's shareholders' equity to total assets ratio was 14.1% at June 30, 2017, compared to 14.7% at March 31, 2017 and 11.0% at June 30, 2016. The Corporation's tangible equity to tangible assets ratio and total risk-based capital ratio were 8.4% and 11.1% (estimated), respectively, at June 30, 2017 compared to 8.8% and 11.4%, respectively, at March 31, 2017 and 8.2% and 11.4%, respectively, at June 30, 2016. (6) The Corporation's book value was $37.11 per share at June 30, 2017, compared to $36.56 per share at March 31, 2017 and $27.45 per share at June 30, 2016. The Corporation's tangible book value was $20.89 per share at June 30, 2017, compared to $20.32 per share at March 31, 2017 and $19.68 per share at June 30, 2016.(7) 
(1) Net income, excluding significant items, and diluted earnings per share, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures.
(2) Return on average assets, excluding significant items, return on average shareholders’ equity, excluding significant items, return on average tangible shareholders' equity, and return on average tangible shareholders' equity, excluding significant items are non-GAAP financial measures. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures.

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(3) Net interest margin, on a tax equivalent basis, is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates" for a reconciliation of net interest income used to compute net interest margin on a tax equivalent basis to the most directly comparable GAAP financial measure.
(4) Operating expenses excluding transaction expenses is a non-GAAP financial measure.
(5) Adjusted efficiency ratio is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.
(6) Tangible equity to tangible assets ratio is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.
(7) Tangible book value per share is a non-GAAP financial measure. Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure.
Conference Call Details
Chemical Financial Corporation will host a conference call to discuss its second quarter 2017 operating results on Wednesday, July 26, 2017, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-490-2760 and entering 481059 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.
About Chemical Financial Corporation
Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 249 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At June 30, 2017, the Corporation had total assets of $18.78 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about the Corporation is available by visiting the investor relations section of its website at www.chemicalbank.com.
Non-GAAP Financial Measures
This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include the Corporation's tangible equity to tangible assets ratio, tangible book value per share, presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and information presented excluding transaction expenses or significant items, including net income, diluted earnings per share, return on average assets, return on average shareholders' equity, operating expenses and the efficiency ratio. These non-GAAP financial measures have been included as the Corporation believes they are helpful for investors to analyze and evaluate the Corporation's financial condition. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure may be found in the financial tables included with this press release.
Forward-Looking Statements
This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and the Corporation. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "plans," "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ

4

materially from those expressed or implied by such forward-looking statements. These statements include, among others, statements related to future improvement of core operating efficiency, future levels of loan charge-offs, future levels of provisions for loan losses, real estate valuation, future levels of nonperforming assets, the rate of asset dispositions, future capital levels, future dividends, future growth and funding sources, future liquidity levels, future profitability levels, future deposit insurance premiums, future asset levels, the effects on earnings of future changes in interest rates, the future level of other revenue sources, future economic trends and conditions, future initiatives to expand the Corporation’s market share, expected performance and cash flows from acquired loans, future effects of new or changed accounting standards, future opportunities for acquisitions, opportunities to increase top line revenues, the Corporation’s ability to grow its core franchise, future cost savings and the Corporation’s ability to maintain adequate liquidity and capital based on the requirements adopted by the Basel Committee on Banking Supervision and U.S. regulators. All statements referencing future time periods are forward-looking.
Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on the Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Risk factors include, 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, 2016. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

5

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
June 30,
2017
 
March 31,
2017
 
December 31,
2016
 
June 30,
2016
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Cash and cash due from banks
$
230,219

 
$
191,940

 
$
237,758

 
$
179,310

Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold
389,022

 
249,840

 
236,644

 
53,650

Total cash and cash equivalents
619,241

 
441,780

 
474,402

 
232,960

Investment securities:
 
 
 
 
 
 
 
Available-for-sale
1,767,478

 
1,275,846

 
1,234,964

 
458,552

Held-to-maturity
645,605

 
647,192

 
623,427

 
552,828

Total investment securities
2,413,083

 
1,923,038

 
1,858,391

 
1,011,380

Loans held-for-sale
65,371

 
39,123

 
81,830

 
13,990

Loans:
 
 
 
 
 
 
 
Total loans
13,667,372

 
13,273,392

 
12,990,779

 
7,647,269

Allowance for loan losses
(83,797
)
 
(78,774
)
 
(78,268
)
 
(71,506
)
Net loans
13,583,575

 
13,194,618

 
12,912,511

 
7,575,763

Premises and equipment
146,460

 
142,763

 
145,012

 
102,709

Loan servicing rights
64,522

 
64,604

 
58,315

 
9,677

Goodwill
1,133,534

 
1,133,534

 
1,133,534

 
286,867

Other intangible assets
37,322

 
38,848

 
40,211

 
24,593

Interest receivable and other assets
718,297

 
658,665

 
650,973

 
256,233

Total Assets
$
18,781,405

 
$
17,636,973

 
$
17,355,179

 
$
9,514,172

Liabilities
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
$
3,626,592

 
$
3,399,287

 
$
3,341,520

 
$
2,007,629

Interest-bearing
9,577,775

 
9,733,060

 
9,531,602

 
5,457,017

Total deposits
13,204,367

 
13,132,347

 
12,873,122

 
7,464,646

Interest payable and other liabilities
141,702

 
114,789

 
134,637

 
71,417

Securities sold under agreements to repurchase with customers
310,042

 
398,910

 
343,047

 
256,213

Short-term borrowings
2,050,000

 
900,000

 
825,000

 
300,000

Long-term borrowings
435,852

 
490,876

 
597,847

 
371,597

Total liabilities
16,141,963

 
15,036,922

 
14,773,653

 
8,463,873

Shareholders' Equity
 
 
 
 
 
 
 
Preferred stock, no par value per share
—

 
—

 
—

 
—

Common stock, $1 par value per share
71,131

 
71,118

 
70,599

 
38,267

Additional paid-in capital
2,197,501

 
2,194,705

 
2,210,762

 
726,734

Retained earnings
404,939

 
372,193

 
340,201

 
310,996

Accumulated other comprehensive loss
(34,129
)
 
(37,965
)
 
(40,036
)
 
(25,698
)
Total shareholders' equity
2,639,442

 
2,600,051

 
2,581,526

 
1,050,299

Total Liabilities and Shareholders' Equity
$
18,781,405

 
$
17,636,973

 
$
17,355,179

 
$
9,514,172


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Chemical Financial Corporation Announces 2017 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,
2017
 
March 31,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
Interest Income
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
141,314

 
$
132,485

 
$
77,578

 
$
273,799

 
$
151,979

Interest on investment securities:
 
 
 
 
 
 
 
 
 
Taxable
7,125

 
4,756

 
1,798

 
11,881

 
3,727

Tax-exempt
4,426

 
4,235

 
2,640

 
8,661

 
5,305

Dividends on nonmarketable equity securities
1,246

 
621

 
777

 
1,867

 
1,033

Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold
1,022

 
799

 
144

 
1,821

 
357

Total interest income
155,133

 
142,896

 
82,937

 
298,029

 
162,401

Interest Expense
 
 
 
 
 
 
 
 
 
Interest on deposits
10,582

 
8,916

 
4,260

 
19,498

 
8,319

Interest on short-term borrowings
4,659

 
1,658

 
226

 
6,317

 
326

Interest on long-term borrowings
1,944

 
2,225

 
956

 
4,169

 
1,931

Total interest expense
17,185

 
12,799

 
5,442

 
29,984

 
10,576

Net Interest Income
137,948

 
130,097

 
77,495

 
268,045

 
151,825

Provision for loan losses
6,229

 
4,050

 
3,000

 
10,279

 
4,500

Net interest income after provision for loan losses
131,719

 
126,047

 
74,495

 
257,766

 
147,325

Noninterest Income
 
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
8,777

 
8,004

 
6,337

 
16,781

 
12,057

Wealth management revenue
6,958

 
5,827

 
5,782

 
12,785

 
10,983

Other charges and fees for customer services
9,734

 
8,891

 
6,463

 
18,625

 
12,855

Net gain on sale of loans and other mortgage banking revenue
9,879

 
9,160

 
1,595

 
19,039

 
3,000

Gain on sale of investment securities
77

 
90

 
18

 
167

 
37

Other
6,143

 
6,038

 
702

 
12,181

 
1,384

Total noninterest income
41,568

 
38,010

 
20,897

 
79,578

 
40,316

Operating Expenses
 
 
 
 
 
 
 
 
 
Salaries, wages and employee benefits
52,601

 
60,248

 
33,127

 
112,849

 
67,017

Occupancy
8,745

 
7,392

 
5,514

 
16,137

 
10,419

Equipment and software
8,149

 
8,517

 
4,875

 
16,666

 
9,279

Merger and acquisition-related transaction expenses (transaction expenses)
465

 
4,167

 
3,054

 
4,632

 
5,648

Other
28,277

 
23,872

 
12,515

 
52,149

 
25,609

Total operating expenses
98,237

 
104,196

 
59,085

 
202,433

 
117,972

Income before income taxes
75,050

 
59,861

 
36,307

 
134,911

 
69,669

Income tax expense
23,036

 
12,257

 
10,532

 
35,293

 
20,289

Net Income
$
52,014

 
$
47,604

 
$
25,775

 
$
99,618

 
$
49,380

Earnings Per Common Share:
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
70,819

 
70,628

 
38,258

 
70,725

 
38,228

Weighted average common shares outstanding-diluted
71,443

 
71,415

 
38,600

 
71,429

 
38,560

Basic earnings per share
$
0.73

 
$
0.67

 
$
0.67

 
$
1.41

 
$
1.29

Diluted earnings per share
0.73

 
0.67

 
0.67

 
1.39

 
1.28

Cash Dividends Declared Per Common Share
0.27

 
0.27

 
0.26

 
0.54

 
0.52

Key Ratios (annualized where applicable):
 

 
 
 
 

 
 
 
 
Return on average assets
1.14
%
 
1.09
%
 
1.10
%
 
1.11
%
 
1.06
%
Return on average shareholders' equity
8.0
%
 
7.4
%
 
10.0
%
 
7.7
%
 
9.6
%
Net interest margin (tax-equivalent basis) (non-GAAP)
3.48
%
 
3.49
%
 
3.70
%
 
3.49
%
 
3.65
%
Efficiency ratio - GAAP
54.7
%
 
62.0
%
 
60.1
%
 
58.2
%
 
61.4
%
Efficiency ratio - adjusted (non-GAAP)
52.2
%
 
57.4
%
 
54.6
%
 
54.7
%
 
56.1
%


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Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
2nd Quarter 2017
 
1st Quarter 2017
 
4th Quarter 2016
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
 
Summary of Operations
 
 
 
 
 
 
 
 
 
 
 

Interest income
$
155,133

 
$
142,896

 
$
144,416

 
$
103,562

 
$
82,937

 
$
79,464

Interest expense
17,185

 
12,799

 
11,969

 
6,753

 
5,442

 
5,134

Net interest income
137,948

 
130,097

 
132,447

 
96,809

 
77,495

 
74,330

Provision for loan losses
6,229

 
4,050

 
6,272

 
4,103

 
3,000

 
1,500

Net interest income after provision for loan losses
131,719

 
126,047

 
126,175

 
92,706

 
74,495

 
72,830

Noninterest income
41,568

 
38,010

 
54,264

 
27,770

 
20,897

 
19,419

Operating expenses, excluding transaction expenses (non-GAAP)
97,772

 
100,029

 
96,286

 
68,674

 
56,031

 
56,293

Transaction expenses
465

 
4,167

 
18,016

 
37,470

 
3,054

 
2,594

Income before income taxes
75,050

 
59,861

 
66,137

 
14,332

 
36,307

 
33,362

Income tax expense
23,036

 
12,257

 
18,969

 
2,848

 
10,532

 
9,757

Net income
$
52,014

 
$
47,604

 
$
47,168

 
$
11,484

 
$
25,775

 
$
23,605

Significant items, net of tax
1,474

 
3,046

 
2,781

 
25,921

 
1,985

 
1,686

Net income, excluding significant items
$
53,488

 
$
50,650

 
$
49,949

 
$
37,405

 
$
27,760

 
$
25,291

 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share Data
 
 
 
 
 
 
 
 
 
 
 

Net income:
 
 
 
 
 
 
 
 
 
 
 

Basic
$
0.73

 
$
0.67

 
$
0.67

 
$
0.23

 
$
0.67

 
$
0.61

Diluted
0.73

 
0.67

 
0.66

 
0.23

 
0.67

 
0.60

Diluted, excluding significant items (non-GAAP)
0.75

 
0.71

 
0.70

 
0.75

 
0.72

 
0.65

Cash dividends declared
0.27

 
0.27

 
0.27

 
0.27

 
0.26

 
0.26

Book value - period-end
37.11

 
36.56

 
36.57

 
36.37

 
27.45

 
26.99

Tangible book value - period-end
20.89

 
20.32

 
20.20

 
19.99

 
19.68

 
19.20

Market value - period-end
48.41

 
51.15

 
54.17

 
44.13

 
37.29

 
35.69

 
 
 
 
 
 
 
 
 
 
 
 
Key Ratios (annualized where applicable)
 
 
 
 
 
 
 
 
 
 

Net interest margin (taxable equivalent basis) (non-GAAP)
3.48
%
 
3.49
%
 
3.56
%
 
3.58
%
 
3.70
%
 
3.60
%
Efficiency ratio - adjusted (non-GAAP)
52.2
%
 
57.4
%
 
53.7
%
 
52.7
%
 
54.6
%
 
57.6
%
Return on average assets
1.14
%
 
1.09
%
 
1.09
%
 
0.37
%
 
1.10
%
 
1.02
%
Return on average shareholders' equity
8.0
%
 
7.4
%
 
7.4
%
 
2.9
%
 
10.0
%
 
9.3
%
Average shareholders' equity as a percent of average assets
14.3
%
 
14.8
%
 
14.9
%
 
12.7
%
 
11.1
%
 
11.0
%
Capital ratios (period end):
 
 
 
 
 
 
 
 
 
 
 
Tangible shareholders' equity as a percent of tangible assets
8.4
%
 
8.8
%
 
8.8
%
 
8.7
%
 
8.2
%
 
8.2
%
Total risk-based capital ratio (1)
11.1
%
 
11.4
%
 
11.5
%
 
11.1
%
 
11.4
%
 
11.5
%
(1) Estimated at June 30, 2017.

8

Chemical Financial Corporation Announces 2017 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, 2017
 
March 31, 2017
 
June 30, 2016
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)
$
13,513,927

 
$
142,128

 
4.22
%
 
$
13,155,846

 
$
133,293

 
4.11
%
 
$
7,511,192

 
$
78,295

 
4.19
%
Taxable investment securities
1,364,358

 
7,125

 
2.09

 
1,005,489

 
4,756

 
1.89

 
515,303

 
1,798

 
1.40

Tax-exempt investment securities(1)
882,445

 
6,781

 
3.07

 
861,508

 
6,495

 
3.02

 
484,271

 
4,061

 
3.35

Other interest-earning assets
166,244

 
1,246

 
3.01

 
103,334

 
621

 
2.44

 
43,615

 
777

 
7.16

Interest-bearing deposits with the FRB and other banks and federal funds sold
302,022

 
1,022

 
1.36

 
269,288

 
799

 
1.20

 
82,246

 
144

 
0.70

Total interest-earning assets
16,228,996

 
158,302

 
3.91

 
15,395,465

 
145,964

 
3.83

 
8,636,627

 
85,075

 
3.96

Less: allowance for loan losses
(80,690
)
 
 
 
 
 
(78,616
)
 
 
 
 
 
(71,790
)
 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash due from banks
222,954

 
 
 
 
 
229,203

 
 
 
 
 
148,034

 
 
 
 
Premises and equipment
145,320

 
 
 
 
 
146,044

 
 
 
 
 
104,488

 
 
 
 
Interest receivable and other assets
1,748,119

 
 
 
 
 
1,781,923

 
 
 
 
 
515,039

 
 
 
 
Total assets
$
18,264,699

 
 
 
 
 
$
17,474,019

 
 
 
 
 
$
9,332,398

 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
$
2,682,652

 
$
1,289

 
0.19
%
 
$
2,898,061

 
$
1,018

 
0.14
%
 
$
1,892,512

 
$
582

 
0.12
%
Savings deposits
3,881,260

 
3,047

 
0.31

 
3,842,594

 
1,721

 
0.18

 
2,073,412

 
476

 
0.09

Time deposits
2,958,436

 
6,246

 
0.85

 
2,953,069

 
6,177

 
0.85

 
1,582,467

 
3,202

 
0.81

Short-term borrowings
2,027,505

 
4,659

 
0.92

 
1,225,888

 
1,658

 
0.55

 
418,232

 
226

 
0.22

Long-term borrowings
474,086

 
1,944

 
1.65

 
539,032

 
2,225

 
1.67

 
281,327

 
956

 
1.37

Total interest-bearing liabilities
12,023,939

 
17,185

 
0.57

 
11,458,644

 
12,799

 
0.45

 
6,247,950

 
5,442

 
0.35

Noninterest-bearing deposits
3,499,686

 
—

 
—

 
3,305,201

 
—

 
—

 
1,979,423

 
—

 
—

Total deposits and borrowed funds
15,523,625

 
17,185

 
0.44

 
14,763,845

 
12,799

 
0.35

 
8,227,373

 
5,442

 
0.27

Interest payable and other liabilities
134,557

 
 
 
 
 
125,673

 
 
 
 
 
72,011

 
 
 
 
Shareholders' equity
2,606,517

 
 
 
 
 
2,584,501

 
 
 
 
 
1,033,014

 
 
 
 
Total liabilities and shareholders' equity
$
18,264,699

 
 
 
 
 
$
17,474,019

 
 
 
 
 
$
9,332,398

 
 
 
 
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)
 
 
3.34
%
 
 
 
 
 
3.38
%
 
 
 
 
 
3.61
%
Net Interest Income (FTE)
 
 
$
141,117

 
 
 
 
 
$
133,165

 
 
 
 
 
$
79,633

 
 
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)
 
 
3.48
%
 
 
 
 
 
3.49
%
 
 
 
 
 
3.70
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, fully taxable equivalent (non-GAAP)
 
$
141,117

 
 
 
 
 
$
133,165

 
 
 
 
 
$
79,633

 
 
Adjustments for taxable equivalent interest (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
(814
)
 
 
 
 
 
(808
)
 
 
 
 
 
(717
)
 
 
Tax-exempt investment securities
 
 
(2,355
)
 
 
 
 
 
(2,260
)
 
 
 
 
 
(1,421
)
 
 
Total taxable equivalent interest adjustments
 
(3,169
)
 
 
 
 
 
(3,068
)
 
 
 
 
 
(2,138
)
 
 
Net interest income (GAAP)
 
 
$
137,948

 
 
 
 
 
$
130,097

 
 
 
 
 
$
77,495

 
 
Net interest margin (GAAP)
 
 
3.41%
 
 
 
 
 
3.41
%
 
 
 
 
 
3.60
%
 
 
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.

9

Chemical Financial Corporation Announces 2017 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, 2017
 
June 30, 2016
 
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
Assets
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)
 
$
13,335,876

 
$
275,421

 
4.16
%
 
$
7,405,332

 
$
153,394

 
4.16
%
Taxable investment securities
 
1,185,915

 
11,881

 
2.00

 
534,914

 
3,727

 
1.39

Tax-exempt investment securities (1)
 
872,034

 
13,276

 
3.04

 
490,287

 
8,161

 
3.33

Other interest-earning assets
 
134,962

 
1,867

 
2.79

 
41,554

 
1,033

 
5.00

Interest-bearing deposits with the FRB and other banks and federal funds sold
 
285,746

 
1,821

 
1.28

 
109,582

 
357

 
0.66

Total interest-earning assets
 
15,814,533

 
304,266

 
3.87

 
8,581,669

 
166,672

 
3.90

Less: allowance for loan losses
 
(79,658
)
 
 
 
 
 
(72,669
)
 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash due from banks
 
226,061

 
 
 
 
 
153,156

 
 
 
 
Premises and equipment
 
145,680

 
 
 
 
 
105,223

 
 
 
 
Interest receivable and other assets
 
1,764,925

 
 
 
 
 
519,337

 
 
 
 
Total assets
 
$
17,871,541

 
 
 
 
 
$
9,286,716

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
 
$
2,789,762

 
$
2,307

 
0.17
%
 
$
1,923,068

 
$
1,050

 
0.11
%
Savings deposits
 
3,862,033

 
4,768

 
0.25

 
2,061,141

 
865

 
0.08

Time deposits
 
2,955,768

 
12,423

 
0.85

 
1,604,020

 
6,404

 
0.80

Short-term borrowings
 
1,628,911

 
6,317

 
0.78

 
383,966

 
326

 
0.17

Long-term borrowings
 
506,379

 
4,169

 
1.66

 
273,675

 
1,931

 
1.42

Total interest-bearing liabilities
 
11,742,853

 
29,984

 
0.51

 
6,245,870

 
10,576

 
0.34

Noninterest-bearing deposits
 
3,402,981

 
—

 
—

 
1,943,159

 
—

 
—

Total deposits and borrowed funds
 
15,145,834

 
29,984

 
0.40

 
8,189,029

 
10,576

 
0.26

Interest payable and other liabilities
 
130,140

 
 
 
 
 
72,216

 
 
 
 
Shareholders' equity
 
2,595,567

 
 
 
 
 
1,025,471

 
 
 
 
Total liabilities and shareholders' equity
 
$
17,871,541

 
 
 
 
 
$
9,286,716

 
 
 
 
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)
 
 
 
 
 
3.36
%
 
 
 
 
 
3.56
%
Net Interest Income (FTE)
 
 
 
$
274,282

 
 
 
 
 
$
156,096

 
 
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)
 
 
 
 
 
3.49
%
 
 
 
 
 
3.65
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, fully taxable equivalent (non-GAAP)
 
 
 
$
274,282

 
 
 
 
 
$
156,096

 
 
Adjustments for taxable equivalent interest (1):
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
(1,622
)
 
 
 
 
 
(1,415
)
 
 
Tax-exempt investment securities
 
 
 
(4,615
)
 
 
 
 
 
(2,856
)
 
 
Total taxable equivalent interest adjustments
 
 
 
(6,237
)
 
 
 
 
 
(4,271
)
 
 
Net interest income (GAAP)
 
 
 
$
268,045

 
 
 
 
 
$
151,825

 
 
Net interest margin (GAAP)
 
 
 
3.41
%
 
 
 
 
 
3.55
%
 
 
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.

10

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
2nd Quarter 2017
 
1st Quarter 2017
 
4th Quarter 2016
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
 
Noninterest income
 
 
 
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
$
8,777

 
$
8,004

 
$
8,414

 
$
7,665

 
$
6,337

 
$
5,720

Wealth management revenue
6,958

 
5,827

 
6,034

 
5,584

 
5,782

 
5,201

Electronic banking fees
7,482

 
6,817

 
8,196

 
5,533

 
4,786

 
4,918

Net gain on sale of loans and other mortgage banking revenue
9,879

 
9,160

 
14,420

 
4,439

 
1,595

 
1,405

Other fees for customer services
2,252

 
2,074

 
1,785

 
1,877

 
1,677

 
1,474

Gain on sale of investment securities
77

 
90

 
76

 
16

 
18

 
19

Gain on sale of branch offices
—

 
—

 
7,391

 
—

 
—

 
—

Other
6,143

 
6,038

 
7,948

 
2,656

 
702

 
682

Total noninterest income
$
41,568

 
$
38,010

 
$
54,264

 
$
27,770

 
$
20,897

 
$
19,419


 
2nd Quarter 2017
 
1st Quarter 2017
 
4th Quarter 2016
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Salaries and wages
$
44,959

 
$
48,526

 
$
47,936

 
$
33,841

 
$
26,887

 
$
26,743

Employee benefits
7,642

 
11,722

 
9,695

 
6,724

 
6,240

 
7,147

Occupancy
8,745

 
7,392

 
7,644

 
5,462

 
5,514

 
4,905

Equipment and software
8,149

 
8,517

 
8,709

 
6,420

 
4,875

 
4,404

Outside processing and service fees
8,924

 
7,511

 
7,290

 
5,365

 
4,833

 
3,711

FDIC insurance premiums
2,460

 
1,406

 
2,813

 
1,849

 
1,338

 
1,407

Professional fees
2,567

 
1,968

 
2,304

 
1,472

 
1,020

 
1,036

Intangible asset amortization
1,525

 
1,513

 
1,843

 
1,292

 
1,195

 
1,194

Credit-related expenses
1,895

 
1,200

 
(1,029
)
 
(371
)
 
(1,331
)
 
30

Transaction expenses
465

 
4,167

 
18,016

 
37,470

 
3,054

 
2,594

Other
10,906

 
10,274

 
9,081

 
6,620

 
5,460

 
5,716

Total operating expenses
$
98,237

 
$
104,196

 
$
114,302

 
$
106,144

 
$
59,085

 
$
58,887




11

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
 
 
 
 
 
Organic Growth -
 
 
 
 
 
 
 
 
 
Organic Growth -
 
June 30, 2017
 
March 31, 2017
 
Three Months Ended June 30, 2017
 
Dec 31,
2016
 
Sep 30,
2016
 
Talmer Merger Aug 31, 2016
 
June 30, 2016
 
Twelve Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
3,360,161

 
$
3,253,608

 
3.3
 %
 
$
3,217,300

 
$
3,199,576

 
$
1,223,179

 
$
1,953,301

 
9.4
 %
Commercial real estate
4,324,323

 
4,097,771

 
5.5

 
3,973,140

 
3,733,377

 
1,589,900

 
2,157,733

 
26.7

Real estate construction
446,678

 
453,811

 
(1.6
)
 
403,772

 
500,494

 
166,364

 
285,848

 
(1.9
)
Subtotal - commercial loans
8,131,162

 
7,805,190

 
4.2

 
7,594,212

 
7,433,447

 
2,979,443

 
4,396,882

 
17.2

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
3,125,397

 
3,133,465

 
(0.3
)
 
3,086,474

 
3,046,959

 
1,531,641

 
1,494,192

 
6.7

Consumer installment
1,553,967

 
1,481,057

 
4.9

 
1,433,884

 
1,335,707

 
158,835

 
1,048,622

 
33.0

Home equity
856,846

 
853,680

 
0.4

 
876,209

 
899,676

 
212,483

 
707,573

 
(8.9
)
Subtotal - consumer loans
5,536,210

 
5,468,202

 
1.2

 
5,396,567

 
5,282,342

 
1,902,959

 
3,250,387

 
11.8

Total loans
$
13,667,372

 
$
13,273,392

 
3.0
 %
 
$
12,990,779

 
$
12,715,789

 
$
4,882,402

 
$
7,647,269

 
14.9
 %

 
 
 
 
 
Organic Growth -
 
 
 
 
 
 
 
 
 
Organic Growth -
 
June 30,
2017
 
March 31,
2017
 
Three Months Ended June 30, 2017
 
Dec 31,
2016
 
Sep 30,
2016
 
Talmer Merger
Aug 31, 2016
 
June 30,
2016
 
Twelve Months Ended June 30, 2017
Composition of Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand
$
3,626,592

 
$
3,399,287

 
6.7
 %
 
$
3,341,520

 
$
3,264,934

 
$
1,236,902

 
$
2,007,629

 
19.0
 %
Savings
1,749,199

 
1,752,040

 
(0.2
)
 
1,662,115

 
1,650,276

 
549,428

 
1,107,558

 
8.3

Interest-bearing demand
2,606,032

 
2,900,546

 
(10.2
)
 
2,825,801

 
3,316,635

 
894,748

 
1,819,865

 
(6.0
)
Money market accounts
2,235,412

 
2,161,645

 
3.4

 
2,033,319

 
1,692,656

 
699,739

 
969,566

 
58.4

Brokered deposits
123,728

 
156,367

 
(20.9
)
 
226,429

 
474,902

 
403,210

 
173,092

 
(261.5
)
Other time deposits
2,863,404

 
2,762,462

 
3.7

 
2,783,938

 
2,873,459

 
1,510,591

 
1,386,936

 
(2.5
)
Total deposits
$
13,204,367

 
$
13,132,347

 
0.5
 %
 
$
12,873,122

 
$
13,272,862

 
$
5,294,618

 
$
7,464,646

 
6.0
 %


 
 
June 30,
2017
 
March 31,
2017
 
Dec 31,
2016
 
Sep 30,
2016
 
June 30,
2016
 
 
 
 
 
 
 
 
 
 
 
Additional Data - Intangibles
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
1,133,534

 
$
1,133,534

 
$
1,133,534

 
$
1,137,166

 
$
286,867

Loan servicing rights
 
64,522

 
64,604

 
58,315

 
51,393

 
9,677

Core deposit intangibles (CDI)
 
37,235

 
38,723

 
40,211

 
35,618

 
24,429

Noncompete agreements
 
87

 
125

 
—

 
82

 
164



12

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 
June 30, 2017
 
March 31, 2017
 
Dec 31,
2016
 
Sep 30,
2016
 
June 30,
2016
 
March 31,
2016
Nonperforming Assets
 
 
 
 
 
 
 
 
 
 
 
 
Nonperforming Loans (1):
 
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
18,773

 
$
16,717

 
$
13,178

 
$
13,742

 
$
14,577

 
$
19,264

Commercial real estate
 
19,723

 
20,828

 
19,877

 
19,914

 
21,325

 
25,859

Real estate construction
 
56

 
79

 
80

 
80

 
496

 
546

Residential mortgage
 
7,714

 
6,749

 
6,969

 
5,119

 
5,343

 
5,062

Consumer installment
 
757

 
755

 
879

 
378

 
285

 
360

Home equity
 
3,871

 
2,713

 
3,351

 
2,064

 
1,971

 
2,328

Total nonaccrual loans(1)
 
50,894

 
47,841

 
44,334

 
41,297

 
43,997

 
53,419

Other real estate and repossessed assets
 
14,582

 
16,395

 
17,187

 
20,730

 
8,440

 
9,248

Total nonperforming assets
 
$
65,476

 
$
64,236

 
$
61,521

 
$
62,027

 
$
52,437

 
$
62,667

Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30:
Commercial
 
58

 
1,823

 
11

 
221

 
3

 
370

Commercial real estate
 
262

 
700

 
277

 
739

 
3

 
—

Real estate construction
 
—

 
—

 
—

 
1,439

 
—

 
—

Residential mortgage
 
—

 
—

 
—

 
375

 
407

 
423

Home equity
 
2,026

 
1,169

 
995

 
628

 
1,071

 
679

Total accruing loans contractually past due 90 days or more as to interest or principal payments
 
$
2,346

 
3,692

 
$
1,283

 
$
3,402

 
$
1,484

 
$
1,472

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

13

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
2nd Quarter 2017
 
1st Quarter 2017
 
4th Quarter 2016
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
Six Months Ended
 
 
 
 
 
 
 
June 30, 2017
 
June 30, 2016
Allowance for loan losses - originated loan portfolio
 
 
 
 
 
 
  Allowance for loan losses - beginning of period
$
78,774

 
$
78,268

 
$
73,775

 
$
71,506

 
$
70,318

 
$
73,328

 
$
78,268

 
$
73,328

Provision for loan losses
6,229

 
4,050

 
6,272

 
4,103

 
3,000

 
1,500

 
10,279

 
4,500

Net loan (charge-offs) recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
(239
)
 
(1,999
)
 
(336
)
 
(150
)
 
(1,153
)
 
(3,115
)
 
(2,238
)
 
(4,268
)
Commercial real estate
(205
)
 
730

 
(280
)
 
(154
)
 
(187
)
 
(440
)
 
525

 
(627
)
Real estate construction
—

 
(9
)
 
36

 
(31
)
 
—

 
(11
)
 
(9
)
 
(11
)
Residential mortgage
19

 
(567
)
 
(236
)
 
(304
)
 
8

 
(172
)
 
(548
)
 
(164
)
Consumer installment
(747
)
 
(1,310
)
 
(823
)
 
(1,137
)
 
(486
)
 
(602
)
 
(2,057
)
 
(1,088
)
Home equity
(34
)
 
(389
)
 
(140
)
 
(58
)
 
6

 
(170
)
 
(423
)
 
(164
)
Net loan charge-offs
(1,206
)
 
(3,544
)
 
(1,779
)
 
(1,834
)
 
(1,812
)
 
(4,510
)
 
(4,750
)
 
(6,322
)
Allowance for loan losses - end of period
83,797

 
78,774

 
78,268

 
73,775

 
71,506

 
70,318

 
83,797

 
71,506

Allowance for loan losses - acquired loan portfolio
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses - beginning of period
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Provision for loan losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Allowance for loan losses - end of period
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total allowance for loan losses
$
83,797

 
$
78,774

 
$
78,268

 
$
73,775

 
$
71,506

 
$
70,318

 
$
83,797

 
$
71,506

Net loan charge-offs as a percent of average loans (annualized)
0.04
%
 
0.11
%
 
0.06
%
 
0.08
%
 
0.10
%
 
0.25
%
 
0.07
%
 
0.17
%

 
June 30, 2017
 
March 31, 2017
 
Dec 31,
2016
 
Sep 30,
2016
 
June 30, 2016
Originated loans
$
8,659,622

 
$
7,959,769

 
$
7,458,401

 
$
6,755,931

 
$
6,378,934

Acquired loans
5,007,750

 
5,313,623

 
5,532,378

 
5,959,858

 
1,268,335

Total loans
$
13,667,372

 
$
13,273,392

 
$
12,990,779

 
$
12,715,789

 
$
7,647,269

 
 
 
 
 
 
 
 
 
 
Allowance for loan losses as a percent of:
 
 
 
 
 
 
 
 
Total originated loans
0.97%
 
0.99%
 
1.05%
 
1.09%
 
1.12%
Nonperforming loans
164.7%
 
164.7%
 
176.5%
 
178.6%
 
162.5%
Credit mark as a percent of unpaid principal balance on acquired loans
1.3%
 
2.8%
 
3.1%
 
3.0%
 
4.1%

14

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands)
 
2nd Quarter 2017
 
1st Quarter 2017
 
4th Quarter 2016
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
Six Months Ended
 
 
 
 
 
 
 
June 30, 2017
 
June 30, 2016
Non-GAAP Operating Results
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, as reported
$
52,014

 
$
47,604

 
$
47,168

 
$
11,484

 
$
25,775

 
$
23,605

 
$
99,618

 
$
49,380

Transaction expenses
465

 
4,167

 
18,016

 
37,470

 
3,054

 
2,594

 
4,632

 
5,648

Gain on sales of branch offices
—

 
—

 
(7,391
)
 
—

 
—

 
—

 
—

 
—

Loan servicing rights change in fair valuation
1,802

 
519

 
(6,348
)
 
1,236

 
—

 
—

 
2,321

 
—

Significant items
2,267

 
4,686

 
4,277

 
38,706

 
3,054

 
2,594

 
6,953

 
5,648

Income tax benefit (1)
(793
)
 
(1,640
)
 
(1,496
)
 
(12,785
)
 
(1,069
)
 
(908
)
 
(2,433
)
 
(1,977
)
Significant items, net of tax
1,474

 
3,046

 
2,781

 
25,921

 
1,985

 
1,686

 
4,520

 
3,671

Net income, excluding significant items
$
53,488

 
$
50,650

 
$
49,949

 
$
37,405

 
$
27,760

 
$
25,291

 
$
104,138

 
$
53,051

Diluted Earnings Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share, as reported
$
0.73

 
$
0.67

 
$
0.66

 
$
0.23

 
$
0.67

 
$
0.60

 
$
1.39

 
$
1.28

Effect of significant items, net of tax
0.02

 
0.04

 
0.04

 
0.52

 
0.05

 
0.05

 
0.06

 
0.10

Diluted earnings per share, excluding significant items
$
0.75

 
$
0.71

 
$
0.70

 
$
0.75

 
$
0.72

 
$
0.65

 
$
1.45

 
$
1.38

Return on Average Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets, as reported
1.14
%
 
1.09%
 
1.09
%
 
0.37
%
 
1.10
%
 
1.02
%
 
1.11
%
 
1.06
%
Effect of significant items, net of tax
0.03

 
0.07
 
0.07

 
0.85

 
0.09

 
0.07

 
0.06

 
0.08

Return on average assets, excluding significant items
1.17
%
 
1.16%
 
1.16
%
 
1.22
%
 
1.19
%
 
1.09
%
 
1.17
%
 
1.14
%
Return on Average Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity, as reported
8.0
%
 
7.4
%
 
7.4
%
 
2.9
%
 
10.0
%
 
9.3
%
 
7.7
%
 
9.6
%
Effect of significant items, net of tax
0.2

 
0.4

 
0.4

 
6.7

 
0.7

 
0.6

 
0.3

 
0.7

Return on average shareholders' equity, excluding significant items
8.2
%
 
7.8
%
 
7.8
%
 
9.6
%
 
10.7
%
 
9.9
%
 
8.0
%
 
10.3
%
Return on Average Tangible Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$2,606,517
 
$2,584,501
 
$2,564,943
 
$1,559,668
 
$1,033,014
 
$1,017,929
 
$2,595,567
 
$1,025,471
Average goodwill, CDI and noncompete agreements, net of tax
1,171,593

 
1,173,019
 
1,172,079
 
601,544

 
312,033

 
313,753

 
1,172,302
 
312,893

Average tangible shareholders' equity
$1,434,924
 
$1,411,482
 
$1,392,864
 
$958,124
 
$720,981
 
$704,176
 
$1,423,265
 
$712,578
Return on average tangible shareholders' equity
14.3
%
 
13.3%
 
13.4
%
 
4.8
%
 
14.3
%
 
13.4
%
 
14.0
%
 
13.9
%
Effect of significant items, net of tax
0.4

 
0.9

 
0.8

 
10.8

 
1.1

 
1.0

 
0.6

 
1.0

Return on average tangible shareholders' equity, excluding significant items
14.7
%
 
14.2
%
 
14.2
%
 
15.6
%
 
15.4
%
 
14.4
%
 
14.6
%
 
14.9
%
(1) Assumes transaction expenses and other significant items are deductible at an income tax rate of 35%, except for the impact of estimated nondeductible expenses incurred in periods when the Corporation completes merger and acquisition transactions.


15

Chemical Financial Corporation Announces 2017 Second Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands, except per share data)

 
2nd Quarter 2017
 
1st Quarter 2017
 
4th Quarter 2016
 
3rd Quarter 2016
 
2nd Quarter 2016
 
1st Quarter 2016
 
Six Months Ended
 
 
 
 
 
 
 
June 30, 2017
 
June 30, 2016
Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
137,948

 
$
130,097

 
$
132,447

 
$
96,809

 
$
77,495

 
$
74,330

 
$
268,045

 
$
151,825

Noninterest income
41,568

 
38,010

 
54,264

 
27,770

 
20,897

 
19,419

 
79,578

 
40,316

Total revenue - GAAP
179,516

 
168,107

 
186,711

 
124,579

 
98,392

 
93,749

 
347,623

 
192,141

Net interest income FTE adjustment
3,169

 
3,068

 
2,945

 
2,426

 
2,138

 
2,133

 
6,237

 
4,271

Loan servicing rights change in fair value (gains)losses
1,802

 
519

 
(6,348
)
 
1,236

 
—

 
—

 
2,321

 
—

Gain on sales of branch offices
—

 
—

 
(7,391
)
 
—

 
—

 
—

 
—

 
—

Gains from sale of investment securities gains and closed branch locations
(77
)
 
(90
)
 
(76
)
 
(301
)
 
(123
)
 
(169
)
 
(167
)
 
(292
)
Total revenue - Non-GAAP
$
184,410

 
$
171,604

 
$
175,841

 
$
127,940

 
$
100,407

 
$
95,713

 
$
356,014

 
$
196,120

Operating expenses - GAAP
$
98,237

 
$
104,196

 
$
114,302

 
$
106,144

 
$
59,085

 
$
58,887

 
$
202,433

 
$
117,972

Transaction expenses
(465
)
 
(4,167
)
 
(18,016
)
 
(37,470
)
 
(3,054
)
 
(2,594
)
 
(4,632
)
 
(5,648
)
Amortization of intangibles
(1,525
)
 
(1,513
)
 
(1,843
)
 
(1,292
)
 
(1,195
)
 
(1,194
)
 
(3,038
)
 
(2,389
)
Operating expenses - Non-GAAP
$
96,247

 
$
98,516

 
$
94,443

 
$
67,382

 
$
54,836

 
$
55,099

 
$
194,763

 
$
109,935

Efficiency ratio - GAAP
54.7
%
 
62.0
%
 
61.2
%
 
85.2
%
 
60.1
%
 
62.8
%
 
58.2
%
 
61.4
%
Efficiency ratio - adjusted Non-GAAP
52.2
%
 
57.4
%
 
53.7
%
 
52.7
%
 
54.6
%
 
57.6
%
 
54.7
%
 
56.1
%

 
June 30,
2017
 
March 31,
2017
 
Dec 31,
2016
 
Sep 30,
2016
 
June 30,
2016
 
March 31,
2016
Tangible Book Value
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity, as reported
$
2,639,442

 
$
2,600,051

 
$
2,581,526

 
$
2,563,666

 
$
1,050,299

 
$
1,032,291

Goodwill, CDI and noncompete agreements, net of tax
(1,153,595
)
 
(1,154,915
)
 
(1,155,617
)
 
(1,154,121
)
 
(297,044
)
 
(297,821
)
Tangible shareholders' equity
$
1,485,847

 
$
1,445,136

 
$
1,425,909

 
$
1,409,545

 
$
753,255

 
$
734,470

Common shares outstanding
71,131

 
71,118

 
70,599

 
70,497

 
38,267

 
38,248

Book value per share (shareholders' equity, as reported, divided by common shares outstanding)
$
37.11

 
$
36.56

 
$
36.57

 
$
36.37

 
$
27.45

 
$
26.99

Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)
$
20.89

 
$
20.32

 
$
20.20

 
$
19.99

 
$
19.68

 
$
19.20

 
 
 
 
 
 
 
 
 
 
 
 
Tangible Shareholders' Equity to Tangible Assets
 
 
 
 
 
 
 
 
Total assets, as reported
$
18,781,405

 
$
17,636,973

 
$
17,355,179

 
$
17,383,637

 
$
9,514,172

 
$
9,303,632

Goodwill, CDI and noncompete agreements, net of tax
(1,153,595
)
 
(1,154,915
)
 
(1,155,617
)
 
(1,154,121
)
 
(297,044
)
 
(297,821
)
Tangible assets
$
17,627,810

 
$
16,482,058

 
$
16,199,562

 
$
16,229,516

 
$
9,217,128

 
$
9,005,811

Shareholders' equity to total assets
14.1
%
 
14.7
%
 
14.9
%
 
14.7
%
 
11.0
%
 
11.1
%
Tangible shareholders' equity to tangible assets
8.4
%
 
8.8
%
 
8.8
%
 
8.7
%
 
8.2
%
 
8.2
%

16