EX-99.1 2 exhibit9912018q2.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

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

Chemical Financial Corporation reports 2018 second quarter net income of $69.0 million, representing $0.96 of earnings per diluted average share
Chemical Financial Corporation declares cash dividend on common stock of $0.34 per share, an increase of $0.06 per share
MIDLAND, MI, July 24, 2018 -- Chemical Financial Corporation ("Chemical," "we," "us" or "our") (NASDAQ:CHFC) today announced 2018 second quarter net income of $69.0 million, or $0.96 per diluted share, compared to 2018 first quarter net income of $71.6 million, or $0.99 per diluted share and 2017 second quarter net income of $52.0 million, or $0.73 per diluted share. In addition, on July 24, 2018, our Board of Directors declared a third quarter of 2018 dividend on our common stock of $0.34 per share. The third quarter of 2018 dividend will be payable on September 21, 2018, to shareholders of record on September 7, 2018. The third quarter of 2018 dividend represents a $0.06, or 21.4%, increase over the second quarter of 2018 dividend of $0.28.
"Our results for the quarter reflect our continued strong growth which included 10% annualized loan growth and an increase in net interest income of $5.7 million compared to the prior quarter. We are pleased with the improvement in our net interest margin and our ability to maintain our efficiency ratio in a period in which we were working diligently on completing substantial upgrades to our core operating systems," noted David T. Provost, Chief Executive Officer of Chemical and Thomas C. Shafer, Vice Chairman of Chemical and Chief Executive Office of Chemical Bank. "This past weekend we crossed a significant milestone with the successful completion of these upgrades. With the system transformation complete, we believe we are well positioned to continue our strong revenue growth through the optimal best-in-class service experience we are creating for our customers."

Our return on average assets was 1.39% during the second quarter of 2018, compared to 1.47% during the first quarter of 2018 and 1.14% in the second quarter of 2017. Our return on average tangible shareholders' equity was 17.8% in the second quarter of 2018, compared to 19.0% during the first quarter of 2018 and 14.3% in the second quarter of 2017.
Our net interest income was $157.5 million in the second quarter of 2018, $5.7 million, or 3.7%, higher than the first quarter of 2018 and $19.6 million, or 14.2%, higher than the second quarter of 2017. The increase in our net interest income in the second quarter of 2018, compared to both the first quarter of 2018 and the second quarter of 2017, was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in our cost of funds. For the second quarter of 2018, we experienced loan growth of $360.9 million, compared to the first quarter of 2018 and $912.3 million compared to June 30, 2017. Approximately 40% of loan growth in the second quarter of 2018 was within our commercial loan portfolio. Our investment securities portfolio grew by $158.6 million, compared to the first quarter of 2018, and $719.5 million, compared to June 30, 2017.
Our net interest margin was 3.54% in the second quarter of 2018, compared to 3.51% in the first quarter of 2018 and 3.41% in the second quarter of 2017. Our net interest margin (fully taxable equivalent (FTE)), a non-GAAP financial measure, was 3.59% in the second quarter of 2018, compared to 3.56% in the first quarter of 2018 and 3.48% in the second quarter of 2017.(1) The increase in our net interest margin (FTE), in the second quarter of 2018, compared to both the first quarter of 2018 and the second quarter of 2017, was primarily due to increases in average balances and yields earned on loans and investment securities, partially offset by an increase in our cost of funds. The average yield on our loan portfolio increased to 4.63% in the second quarter of 2018, compared to 4.48% in the first quarter of 2018 and 4.22% in the second quarter of 2017. Interest accretion from purchase accounting discounts on acquired loans contributed 26 basis points to our net interest margin (FTE), in the second quarter of 2018, compared to 29 basis points in the first quarter of 2018 and 21 basis points in the second quarter of 2017. Our average cost of funds was

1

0.76% in the second quarter of 2018, compared to 0.64% in the first quarter of 2018 and 0.44% in the second quarter of 2017.
Our provision for loan losses was $9.6 million in the second quarter of 2018, compared to $6.3 million in the first quarter of 2018 and $6.2 million in the second quarter of 2017. The increase in the provision for loan losses in the second quarter of 2018, compared to the first quarter of 2018, was primarily the result of an increase in originated loan growth. The provision for loan losses in the second quarter of 2017 received the benefit of an improvement in credit quality indicators. We recorded all acquired loans at their estimated fair value at each respective acquisition date without a carryover of the related allowance and, as of both June 30, 2018 and March 31, 2018, we determined no allowance was needed for this population of loans.
Net loan charge-offs were $4.3 million, or 0.12% of average loans, in the second quarter of 2018, compared to $3.4 million, or 0.10% of average loans, in the first quarter of 2018 and $1.2 million, or 0.04% of average loans, in the second quarter of 2017. The increase in charge-offs in the second quarter of 2018, compared to both the first quarter of 2018 and the second quarter of 2017, was primarily due to charge-offs taken on loans individually evaluated for impairment with previously established specific reserves.
Our nonperforming loans totaled $66.7 million at June 30, 2018, compared to $61.8 million at March 31, 2018 and $50.9 million at June 30, 2017. Nonperforming loans comprised 0.46% of total loans at June 30, 2018, compared to 0.43% at March 31, 2018 and 0.37% at June 30, 2017. The increase in nonperforming loans in the second quarter of 2018, compared to the first quarter of 2018, was primarily due to a real estate construction loan relationship being downgraded to nonaccrual status. The increase in nonperforming loans at June 30, 2018, compared to June 30, 2017, was primarily due to an increase in commercial real estate nonaccrual loans and the real estate construction loan relationship downgraded to nonaccrual status in the second quarter of 2018.
Our allowance for loan losses for our originated loan portfolio was $100.0 million, or 0.94% of originated loans, at June 30, 2018, compared to $94.8 million, or 0.95% of originated loans, at March 31, 2018 and $83.8 million, or 0.97% of originated loans, at June 30, 2017. Our allowance for loan losses of our originated loan portfolio as a percentage of nonperforming loans was 149.9% at June 30, 2018, compared to 153.3% at March 31, 2018 and 164.7% at June 30, 2017. The results of our quarterly re-estimation of cash flows on our acquired loan portfolios resulted in no allowance for our acquired loan portfolios as of June 30, 2018, March 31, 2018 or June 30, 2017.
Our noninterest income was $38.0 million in the second quarter of 2018, compared to $40.6 million in the first quarter of 2018 and $41.6 million in the second quarter of 2017. Noninterest income in the second quarter of 2018 decreased compared to the first quarter of 2018, primarily due to a $3.7 million decrease in net gain on sale of loans and other mortgage banking revenue, partially offset by a $0.9 million increase in wealth management revenue. Noninterest income in the second quarter of 2018 decreased compared to the second quarter of 2017, primarily due to a $3.9 million decrease in other charges and fees for customer services and a $1.0 million decrease in net gain on sale of loans and other mortgage banking revenue, partially offset by a $1.4 million increase in other noninterest income. Net gain on sale of loans and other mortgage banking revenue, included a $30 thousand detriment to earnings due to a change in fair value in loan servicing rights in the second quarter of 2018, compared to a $3.8 million benefit in the first quarter of 2018 and a $1.8 million detriment in the second quarter of 2017. The change in fair value in loan servicing rights provided no impact to diluted earnings per share in the second quarter of 2018, compared to a $0.04 benefit in the first quarter of 2018 and a $0.02 detriment in the second quarter of 2017. The Durbin amendment became effective for us on July 1, 2017, which resulted in a reduction in interchange fees included within other charges and fees for customer services in the second quarter of 2018 compared to the second quarter of 2017.
Our operating expenses were $104.6 million in the second quarter of 2018, compared to $101.6 million in the first quarter of 2018 and $98.2 million in the second quarter of 2017. We had no merger and restructuring expenses during the first or second quarters of 2018 and $0.5 million in the second quarter of 2017. Second quarter of 2018 included $1.7 million of impairment related to a federal historic tax credit placed into service during the quarter, included within other operating expense in our Consolidated Statements of Income, compared to $1.6 million of impairment related to a federal historic tax credit in the first quarter of 2018. Our core operating expenses, a non-GAAP financial measure, which excludes merger and restructuring expenses for the second quarter of 2017 and the impairment of federal historic tax credits for each period, were $102.8 million in the second quarter of 2018, an increase of $2.8 million, compared to $100.0 million for the first quarter of 2018, and an increase of $5.0 million compared to

2

$97.8 million for the second quarter of 2017. Noninterest expense increased in the second quarter of 2018, compared to the first quarter of 2018, primarily due to increases in other operating expenses of $1.8 million, equipment and software of $0.6 million and salaries, wages and employee benefits of $0.6 million. Noninterest expense increased in the second quarter of 2018, compared to the second quarter of 2017, primarily due to increases in salaries, wages and employee benefits of $3.9 million, other operating expenses of $2.1 million and outside processing and service fees of $1.7 million, partially offset by a decrease in occupancy expense of $1.1 million. Costs related to our efforts to implement upgrades to our core operating systems were $5.6 million in the second quarter of 2018, made up of $3.2 million of expense and $2.4 million in costs that were capitalized. The first quarter of 2018 included costs related to our core operating system upgrades of $2.8 million, made up of $1.0 million of expense and $1.8 million in capitalized costs. Expense incurred related to our core operating system upgrades included $1.7 million of other expense, $1.0 million of outside processing and service fees, and $0.5 million of salaries, wages and employee benefits in the second quarter of 2018 and $0.8 million in outside processing and service fees and $0.2 million of other expense in the first quarter of 2018.
Our efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. Our efficiency ratio was 53.5% in the second quarter of 2018, compared to 52.8% in the first quarter of 2018 and 54.7% in the second quarter of 2017. Our adjusted efficiency ratio, a non-GAAP financial measure, which excludes, as applicable, amortization of intangibles, merger expenses, impairment of income tax credits, the net interest income FTE adjustment, the change in fair value on loan servicing rights, and losses/gains from sale of investment securities, was 51.2% in the second quarter of 2018, compared to 51.6% in the first quarter of 2018 and 52.2% in the second quarter of 2017.(1)  
Our effective tax rate was 15.3% in both the second quarter of 2018 and the first quarter of 2018, compared to 30.7% in the second quarter of 2017. Our tax rates for 2018 benefited from the enactment of the Tax Cuts and Jobs Act which reduced the federal corporate tax rate to 21% effective January 1, 2018. In addition, the second and first quarters of 2018 received a $1.9 million benefit and $1.5 million benefit, respectively, from federal historic tax credits placed into service during the quarter.
Our total assets were $20.28 billion at June 30, 2018, compared to $19.76 billion at March 31, 2018 and $18.78 billion at June 30, 2017. The increase in our total assets during both the second quarter of 2018 and the twelve months ended June 30, 2018 was primarily attributable to net loan growth and additions to our investment securities portfolio.
Our total loans were $14.58 billion at June 30, 2018, an increase of $360.9 million, from total loans of $14.22 billion at March 31, 2018 and an increase of $912.3 million, from total loans of $13.67 billion at June 30, 2017. We experienced originated loan growth of $684.0 million during the second quarter of 2018, compared to $265.1 million in the first quarter of 2018 and $699.9 million in the second quarter of 2017. Growth in our originated loan portfolio was partially offset by run-off in our acquired loan portfolio of $323.1 million in the second quarter of 2018, compared to $201.6 million in the first quarter of 2018 and $305.9 million in the second quarter of 2017.
Our investment securities portfolio totaled $3.13 billion at June 30, 2018, an increase of $158.6 million, compared to $2.97 billion at March 31, 2018, and an increase of $719.5 million, compared to $2.41 billion at June 30, 2017. The increase in the investment securities portfolio in both the second quarter of 2018 and the twelve months ended June 30, 2018 reflects our long-term plan to increase our investment securities portfolio as a percentage of total assets.
Our total deposits were $14.55 billion at June 30, 2018, compared to $13.97 billion at March 31, 2018 and $13.20 billion at June 30, 2017. The increase in deposits during the three months ended June 30, 2018 was due to increases in brokered deposits of $436.1 million and customer deposits of $147.6 million. Collateralized customer deposits were $378.9 million at June 30, 2018, compared to $490.1 million at March 31, 2018 and $310.0 million at June 30, 2017. Loans as a percentage of deposits plus collateralized customer deposits were 97.7% at June 30, 2018, compared to 98.3% at March 31, 2018 and 101.1% at June 30, 2017.
Our short-term borrowings were $2.10 billion at June 30, 2018, compared to $2.05 billion at both March 31, 2018 at June 30, 2017. At June 30, 2018 our short-term borrowings included $2.08 billion of short-term FHLB advances that we used to fund our short-term liquidity needs. Our long-term borrowings were $331.0 million at June 30, 2018, compared to $372.9 million at March 31, 2018 and $435.9 million at June 30, 2017.

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Our shareholders' equity to total assets ratio was 13.6% at June 30, 2018, compared to 13.7% at March 31, 2018 and 14.1% at June 30, 2017. Our tangible shareholders' equity to tangible assets ratio, a non-GAAP financial measure, and total risk-based capital ratio were 8.3% and 11.3% (estimated), respectively, at June 30, 2018 compared to 8.3% and 11.2%, respectively, at March 31, 2018 and 8.4% and 11.1%, respectively, at June 30, 2017. (1) Our book value was $38.52 per share at June 30, 2018, compared to $37.91 per share at March 31, 2018 and $37.11 per share at June 30, 2017. Our tangible book value, a non-GAAP financial measure, was $22.33 per share at June 30, 2018, compared to $21.68 per share at March 31, 2018 and $20.89 per share at June 30, 2017.(1) 
(1)
Please refer to the section entitled "Non-GAAP Financial Measures" in this press release and to the financial tables entitled "Reconciliation of Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures.
Conference Call Details
Chemical Financial Corporation will host a conference call to discuss our second quarter 2018 operating results on Wednesday, July 25, 2018, at 10:30 a.m. ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 855-719-5008 and entering 735645 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Information" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.
About Chemical Financial Corporation
Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. We operate through our subsidiary bank, Chemical Bank, with 212 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At June 30, 2018, we had total assets of $20.28 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about Chemical Financial Corporation is available by visiting the "Investor Information" section of our website at www.chemicalbank.com.
Non-GAAP Financial Measures
This press release contains references to financial measures that are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include net income (excluding significant items), diluted earnings per share (excluding significant items), return on average assets, return on average shareholders’ equity and return on average tangible shareholders’ equity (each excluding significant items), tangible book value per share, the presentation of net interest income and net interest margin on a FTE basis, core operating expenses, operating expenses-efficiency ratio, and the adjusted efficiency ratio.
These non-GAAP financial measures have been included because we believe they are helpful for investors to analyze and evaluate our financial condition. However, these non-GAAP financial measures have inherent limitations and should not be considered in isolation or as a substitute for GAAP measures. In addition, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP historical measures in this press release with other companies' non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure may be found in the financial tables included with this press release.
Forward-Looking Statements
This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and Chemical. Words and phrases such as "anticipates," "believes," "plans," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "potential," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. These statements include, among others, our belief that we are well positioned to continue our strong revenue growth. All statements referencing future time periods are forward-looking.

4

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on Chemical, specifically, are also inherently uncertain.
Forward-looking statements are based upon current beliefs and expectations and involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Risk factors include, without limitation, a downturn in the economy, particularly in our markets, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate values, operational and regulatory challenges associated with our information technology systems and policies and procedures in light of our rapid growth , regulatory changes, excessive loan losses, our inability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry, our inability to execute on our strategy to expand investments and commercial lending, and our inability to grow our deposits.
In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of Chemical's Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Reports on Form 10-Q. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

5

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
June 30,
2017
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Cash and cash due from banks
$
222,748

 
$
174,173

 
$
226,003

 
$
230,219

Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold
302,532

 
379,320

 
229,988

 
389,022

Total cash and cash equivalents
525,280

 
553,493

 
455,991

 
619,241

Investment securities:
 
 
 
 
 
 
 
Available-for-sale
2,529,910

 
2,297,123

 
1,963,546

 
1,767,478

Held-to-maturity
602,687

 
676,847

 
677,093

 
645,605

Total investment securities
3,132,597

 
2,973,970

 
2,640,639

 
2,413,083

Loans held-for-sale
46,849

 
31,636

 
52,133

 
65,371

Loans:
 
 
 
 
 
 
 
Total loans
14,579,693

 
14,218,747

 
14,155,267

 
13,667,372

Allowance for loan losses
(100,015
)
 
(94,762
)
 
(91,887
)
 
(83,797
)
Net loans
14,479,678

 
14,123,985

 
14,063,380

 
13,583,575

Premises and equipment
125,970

 
126,251

 
126,896

 
146,460

Loan servicing rights
70,364

 
68,837

 
63,841

 
64,522

Goodwill
1,134,568

 
1,134,568

 
1,134,568

 
1,133,534

Other intangible assets
31,407

 
32,833

 
34,271

 
37,322

Interest receivable and other assets
735,890

 
711,937

 
709,154

 
718,297

Total Assets
$
20,282,603

 
$
19,757,510

 
$
19,280,873

 
$
18,781,405

Liabilities
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
$
3,894,259

 
$
3,801,125

 
$
3,725,779

 
$
3,626,592

Interest-bearing
10,657,277

 
10,166,692

 
9,917,024

 
9,577,775

Total deposits
14,551,536

 
13,967,817

 
13,642,803

 
13,204,367

Collateralized customer deposits
378,938

 
490,107

 
415,236

 
310,042

Short-term borrowings
2,095,000

 
2,050,000

 
2,000,000

 
2,050,000

Long-term borrowings
330,956

 
372,908

 
372,882

 
435,852

Interest payable and other liabilities
175,174

 
171,975

 
181,203

 
141,702

Total liabilities
17,531,604

 
17,052,807

 
16,612,124

 
16,141,963

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

 
—

 
—

 
—

Common stock, $1 par value per share
71,418

 
71,350

 
71,207

 
71,131

Additional paid-in capital
2,205,402

 
2,201,803

 
2,203,637

 
2,197,501

Retained earnings
521,530

 
472,604

 
419,403

 
404,939

Accumulated other comprehensive loss
(47,351
)
 
(41,054
)
 
(25,498
)
 
(34,129
)
Total shareholders' equity
2,750,999

 
2,704,703

 
2,668,749

 
2,639,442

Total Liabilities and Shareholders' Equity
$
20,282,603

 
$
19,757,510

 
$
19,280,873

 
$
18,781,405



6

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
March 31, 2018(1)
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Interest Income
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
165,388

 
$
156,818

 
$
141,314

 
$
322,206

 
$
273,799

Interest on investment securities:
 
 
 
 
 
 
 
 
 
Taxable
14,706

 
12,419

 
7,125

 
27,125

 
11,881

Tax-exempt
5,998

 
5,556

 
4,426

 
11,554

 
8,661

Dividends on nonmarketable equity securities
2,189

 
1,901

 
1,246

 
4,090

 
1,867

Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold
1,301

 
1,240

 
1,022

 
2,541

 
1,821

Total interest income
189,582

 
177,934

 
155,133

 
367,516

 
298,029

Interest Expense
 
 
 
 
 
 
 
 
 
Interest on deposits
19,707

 
15,917

 
10,582

 
35,624

 
19,498

Interest on collateralized customer deposits
641

 
524

 
196

 
1,165

 
346

Interest on short-term borrowings
10,408

 
8,166

 
4,463

 
18,574

 
5,971

Interest on long-term borrowings
1,289

 
1,464

 
1,944

 
2,753

 
4,169

Total interest expense
32,045

 
26,071

 
17,185

 
58,116

 
29,984

Net Interest Income
157,537

 
151,863

 
137,948

 
309,400

 
268,045

Provision for loan losses
9,572

 
6,256

 
6,229

 
15,828

 
10,279

Net interest income after provision for loan losses
147,965

 
145,607

 
131,719

 
293,572

 
257,766

Noninterest Income
 
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
8,615

 
8,463

 
8,777

 
17,078

 
16,781

Wealth management revenue
7,188

 
6,311

 
6,958

 
13,499

 
12,785

Other charges and fees for customer services
5,874

 
5,754

 
9,734

 
11,628

 
18,625

Net gain on sale of loans and other mortgage banking revenue
8,844

 
12,535

 
9,879

 
21,379

 
19,039

Gain on sale of investment securities
3

 
—

 
77

 
3

 
167

Other
7,494

 
7,491

 
6,143

 
14,985

 
12,181

Total noninterest income
38,018

 
40,554

 
41,568

 
78,572

 
79,578

Operating Expenses
 
 
 
 
 
 
 
 
 
Salaries, wages and employee benefits
56,148

 
55,557

 
52,247

 
111,705

 
112,141

Occupancy
7,679

 
8,011

 
8,745

 
15,690

 
16,137

Equipment and software
8,276

 
7,659

 
8,149

 
15,935

 
16,666

Outside processing and service fees
10,673

 
10,356

 
8,924

 
21,029

 
16,435

Merger expenses
—

 
—

 
465

 
—

 
4,632

Other
21,785

 
20,027

 
19,707

 
41,812

 
36,422

Total operating expenses
104,561

 
101,610

 
98,237

 
206,171

 
202,433

Income before income taxes
81,422

 
84,551

 
75,050

 
165,973

 
134,911

Income tax expense
12,434

 
12,955

 
23,036

 
25,389

 
35,293

Net Income
$
68,988

 
$
71,596

 
$
52,014

 
$
140,584

 
$
99,618

Earnings Per Common Share:
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
71,329

 
71,231

 
70,819

 
71,280

 
70,725

Weighted average common shares outstanding-diluted
72,026

 
71,906

 
71,443

 
71,966

 
71,429

Basic earnings per share
$
0.97

 
$
1.01

 
$
0.73

 
$
1.97

 
$
1.41

Diluted earnings per share
0.96

 
0.99

 
0.73

 
1.95

 
1.39

Diluted earnings per share, excluding significant items (non-GAAP)
0.96

 
0.99

 
0.73

 
1.95

 
1.43

Cash Dividends Declared Per Common Share
0.28

 
0.28

 
0.27

 
0.56

 
0.54

Key Ratios (annualized where applicable):
 

 
 
 
 

 
 
 
 
Return on average assets
1.39
%
 
1.47
%
 
1.14
%
 
1.43
%
 
1.11
%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)
17.8
%
 
19.0
%
 
14.4
%
 
18.4
%
 
14.2
%
Net interest margin (tax-equivalent basis) (non-GAAP)
3.59
%
 
3.56
%
 
3.48
%
 
3.58
%
 
3.49
%
Efficiency ratio - GAAP
53.5
%
 
52.8
%
 
54.7
%
 
53.1
%
 
58.2
%
Efficiency ratio - adjusted (non-GAAP)
51.2
%
 
51.6
%
 
52.2
%
 
51.4
%
 
54.7
%
(1)
First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.

7

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
2nd Quarter 2018
 
1st Quarter 2018(1)
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
1st Quarter 2017
Summary of Operations
 
 
 
 
 
 
 
 
 
 
 

Interest income
$189,582
 
$
177,934

 
$
169,162

 
$
164,944

 
$
155,133

 
$
142,896

Interest expense
32,045

 
26,071

 
23,257

 
21,316

 
17,185

 
12,799

Net interest income
157,537

 
151,863

 
145,905

 
143,628

 
137,948

 
130,097

Provision for loan losses
9,572

 
6,256

 
7,522

 
5,499

 
6,229

 
4,050

Net interest income after provision for loan losses
147,965

 
145,607

 
138,383

 
138,129

 
131,719

 
126,047

Noninterest income
38,018

 
40,554

 
32,319

 
32,122

 
41,568

 
38,010

Operating expenses, excluding merger and restructuring expenses and impairment of income tax credits (non-GAAP)
102,845

 
99,976

 
91,298

 
95,241

 
97,772

 
100,029

Merger and restructuring expenses
—

 
—

 
2,567

 
21,203

 
465

 
4,167

Impairment of income tax credits
1,716

 
1,634

 
6,157

 
3,095

 
—

 
—

Income before income taxes
81,422

 
84,551

 
70,680

 
50,712

 
75,050

 
59,861

Income tax expense
12,434

 
12,955

 
61,234

 
10,253

 
23,036

 
12,257

Net income
$
68,988

 
$
71,596

 
$
9,446

 
$
40,459

 
$
52,014

 
$
47,604

Significant items, net of tax
—

 
—

 
53,240

 
13,782

 
302

 
2,709

Net income, excluding significant items
$
68,988

 
$
71,596

 
$
62,686

 
$
54,241

 
$
52,316

 
$
50,313

 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share Data
 
 
 
 
 
 
 
 
 
 
 

Net income:
 
 
 
 
 
 
 
 
 
 
 

Basic
$
0.97

 
$
1.01

 
$
0.13

 
$
0.57

 
$
0.73

 
$
0.67

Diluted
0.96

 
0.99

 
0.13

 
0.56

 
0.73

 
0.67

Diluted, excluding significant items (non-GAAP)
0.96

 
0.99

 
0.87

 
0.76

 
0.73

 
0.70

Cash dividends declared
0.28

 
0.28

 
0.28

 
0.28

 
0.27

 
0.27

Book value - period-end
38.52

 
37.91

 
37.48

 
37.57

 
37.11

 
36.56

Tangible book value - period-end (non-GAAP)
22.33

 
21.68

 
21.21

 
21.36

 
20.89

 
20.32

Market value - period-end
55.67

 
54.68

 
53.47

 
52.26

 
48.41

 
51.15

 
 
 
 
 
 
 
 
 
 
 
 
Key Ratios (annualized where applicable)
 
 
 
 
 
 
 
 
 
 

Net interest margin (taxable equivalent basis) (non-GAAP)
3.59
%
 
3.56
%
 
3.47
%
 
3.48
%
 
3.48
%
 
3.49
%
Efficiency ratio - adjusted (non-GAAP)
51.2
%
 
51.6
%
 
47.4
%
 
51.2
%
 
52.2
%
 
57.4
%
Return on average assets
1.39
%
 
1.47
%
 
0.20
%
 
0.86
%
 
1.14
%
 
1.09
%
Return on average shareholders' equity
10.2
%
 
10.7
%
 
1.4
%
 
6.1
%
 
8.0
%
 
7.4
%
Return on average tangible shareholders' equity (non-GAAP)
17.8
%
 
19.0
%
 
2.5
%
 
10.9
%
 
14.3
%
 
13.3
%
Average shareholders' equity as a percent of average assets
13.6
%
 
13.7
%
 
13.9
%
 
14.0
%
 
14.3
%
 
14.8
%
Capital ratios (period end):
 
 
 
 
 
 
 
 
 
 
 
Tangible shareholders' equity as a percent of tangible assets
8.3
%
 
8.3
%
 
8.3
%
 
8.3
%
 
8.4
%
 
8.8
%
Total risk-based capital ratio (2)
11.3
%
 
11.2
%
 
11.0
%
 
11.2
%
 
11.1
%
 
11.4
%
(1)
First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.
(2)
Estimated at June 30, 2018.

8

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates(1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
Three Months Ended
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)
$
14,389,574

 
$
166,125

 
4.63
%
 
$
14,224,926

 
$157,568
 
4.48
%
 
$
13,513,927

 
$142,128
 
4.22
%
Taxable investment securities
2,019,003

 
14,706

 
2.91

 
1,781,995

 
12,419

 
2.79

 
1,364,358

 
7,125

 
2.09

Tax-exempt investment securities(1)
1,020,567

 
7,592

 
2.98

 
1,010,092

 
7,033

 
2.79

 
882,445

 
6,781

 
3.07

Other interest-earning assets
189,654

 
2,189

 
4.63

 
180,084

 
1,901

 
4.28

 
166,244

 
1,246

 
3.01

Interest-bearing deposits with the FRB and other banks and federal funds sold
228,464

 
1,301

 
2.28

 
262,910

 
1,240

 
1.91

 
302,022

 
1,022

 
1.36

Total interest-earning assets
17,847,262

 
191,913

 
4.31

 
17,460,007

 
180,161

 
4.17

 
16,228,996

 
158,302

 
3.91

Less: allowance for loan losses
(96,332
)
 
 
 
 
 
(92,648
)
 
 
 
 
 
(80,690
)
 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash due from banks
219,751

 
 
 
 
 
226,660

 
 
 
 
 
222,954

 
 
 
 
Premises and equipment
126,570

 
 
 
 
 
126,742

 
 
 
 
 
145,320

 
 
 
 
Interest receivable and other assets
1,753,742

 
 
 
 
 
1,737,116

 
 
 
 
 
1,748,119

 
 
 
 
Total assets
$
19,850,993

 
 
 
 
 
$
19,457,877

 
 
 
 
 
$
18,264,699

 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking deposits
$
2,597,610

 
$
1,393

 
0.22
%
 
$
2,767,267

 
$
1,225

 
0.18
%
 
$
2,682,652

 
$
1,289

 
0.19
%
Savings deposits
4,116,683

 
6,074

 
0.59

 
4,047,004

 
4,937

 
0.49

 
3,881,260

 
3,047

 
0.31

Time deposits
3,468,395

 
12,240

 
1.42

 
3,262,568

 
9,755

 
1.21

 
2,958,436

 
6,246

 
0.85

Collateralized customer deposits
399,911

 
641

 
0.64

 
409,077

 
524

 
0.52

 
337,670

 
196

 
0.23

Short-term borrowings
2,249,655

 
10,408

 
1.86

 
2,055,556

 
8,166

 
1.61

 
1,689,835

 
4,463

 
1.06

Long-term borrowings
336,985

 
1,289

 
1.53

 
372,886

 
1,464

 
1.59

 
474,086

 
1,944

 
1.65

Total interest-bearing liabilities
13,169,239

 
32,045

 
0.98

 
12,914,358

 
26,071

 
0.82

 
12,023,939

 
17,185

 
0.57

Noninterest-bearing deposits
3,792,803

 
—

 
—

 
3,688,581

 
—

 
—

 
3,499,686

 
—

 
—

Total deposits and borrowed funds
16,962,042

 
32,045

 
0.76

 
16,602,939

 
26,071

 
0.64

 
15,523,625

 
17,185

 
0.44

Interest payable and other liabilities
181,605

 
 
 
 
 
186,613

 
 
 
 
 
134,557

 
 
 
 
Shareholders' equity
2,707,346

 
 
 
 
 
2,668,325

 
 
 
 
 
2,606,517

 
 
 
 
Total liabilities and shareholders' equity
$
19,850,993

 
 
 
 
 
$
19,457,877

 
 
 
 
 
$
18,264,699

 
 
 
 
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)
 
3.33
%
 
 
 
 
 
3.35
%
 
 
 
 
 
3.34
%
Net Interest Income (FTE)
 
 
$
159,868

 
 
 
 
 
$154,090
 
 
 
 
 
$141,117
 
 
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)
 
 
3.59
%
 
 
 
 
 
3.56
%
 
 
 
 
 
3.48
%
Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, fully taxable equivalent (non-GAAP)
 
$
159,868

 
 
 
 
 
$154,090
 
 
 
 
 
$141,117
 
 
Adjustments for taxable equivalent interest (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
(737
)
 
 
 
 
 
(750
)
 
 
 
 
 
(814
)
 
 
Tax-exempt investment securities
 
 
(1,594
)
 
 
 
 
 
(1,477
)
 
 
 
 
 
(2,355
)
 
 
Total taxable equivalent interest adjustments
 
(2,331
)
 
 
 
 
 
(2,227
)
 
 
 
 
 
(3,169
)
 
 
Net interest income (GAAP)
 
 
$
157,537

 
 
 
 
 
$151,863
 
 
 
 
 
$137,948
 
 
Net interest margin (GAAP)
 
 
3.54%
 
 
 
 
 
3.51
%
 
 
 
 
 
3.41
%
 
 
(1)
Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the three months ended June 30, 2018 and March 31, 2018 and 35% for the three months ended June 30, 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2)
Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

9

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates (1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 
Six Months Ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
Assets
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)
 
$
14,307,705

 
$
323,693

 
4.55
%
 
$
13,335,876

 
$
275,421

 
4.16
%
Taxable investment securities
 
1,901,154

 
27,125

 
2.85

 
1,185,915

 
11,881

 
2.00

Tax-exempt investment securities (1)
 
1,015,358

 
14,625

 
2.88

 
872,034

 
13,276

 
3.04

Other interest-earning assets
 
184,895

 
4,090

 
4.46

 
134,962

 
1,867

 
2.79

Interest-bearing deposits with the FRB and other banks and federal funds sold
 
245,592

 
2,541

 
2.09

 
285,746

 
1,821

 
1.28

Total interest-earning assets
 
17,654,704

 
372,074

 
4.24

 
15,814,533

 
304,266

 
3.87

Less: allowance for loan losses
 
(94,500
)
 
 
 
 
 
(79,658
)
 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash due from banks
 
223,186

 
 
 
 
 
226,061

 
 
 
 
Premises and equipment
 
126,656

 
 
 
 
 
145,680

 
 
 
 
Interest receivable and other assets
 
1,745,475

 
 
 
 
 
1,764,925

 
 
 
 
Total assets
 
$
19,655,521

 
 
 
 
 
$
17,871,541

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
 
$
2,681,970

 
$
2,618

 
0.20
%
 
$
2,789,762

 
$
2,307

 
0.17
%
Savings deposits
 
4,082,036

 
11,011

 
0.54

 
3,862,033

 
4,768

 
0.25

Time deposits
 
3,366,051

 
21,995

 
1.32

 
2,955,768

 
12,423

 
0.85

Collateralized customer deposits
 
404,468

 
1,165

 
0.58

 
335,679

 
346

 
0.21

Short-term borrowings
 
2,153,069

 
18,574

 
1.74

 
1,293,232

 
5,971

 
0.93

Long-term borrowings
 
354,909

 
2,753

 
1.56

 
506,379

 
4,169

 
1.66

Total interest-bearing liabilities
 
13,042,503

 
58,116

 
0.90

 
11,742,853

 
29,984

 
0.51

Noninterest-bearing deposits
 
3,740,979

 
—

 
—

 
3,402,981

 
—

 
—

Total deposits and borrowed funds
 
16,783,482

 
58,116

 
0.70

 
15,145,834

 
29,984

 
0.40

Interest payable and other liabilities
 
184,096

 
 
 
 
 
130,140

 
 
 
 
Shareholders' equity
 
2,687,943

 
 
 
 
 
2,595,567

 
 
 
 
Total liabilities and shareholders' equity
 
$
19,655,521

 
 
 
 
 
$
17,871,541

 
 
 
 
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)
 
 
 
 
 
3.34
%
 
 
 
 
 
3.36
%
Net Interest Income (FTE)
 
 
 
$
313,958

 
 
 
 
 
$
274,282

 
 
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)
 
 
 
 
 
3.58
%
 
 
 
 
 
3.49
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, fully taxable equivalent (non-GAAP)
 
 
 
$
313,958

 
 
 
 
 
$
274,282

 
 
Adjustments for taxable equivalent interest (1):
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
(1,487
)
 
 
 
 
 
(1,622
)
 
 
Tax-exempt investment securities
 
 
 
(3,071
)
 
 
 
 
 
(4,615
)
 
 
Total taxable equivalent interest adjustments
 
 
 
(4,558
)
 
 
 
 
 
(6,237
)
 
 
Net interest income (GAAP)
 
 
 
$
309,400

 
 
 
 
 
$
268,045

 
 
Net interest margin (GAAP)
 
 
 
3.53
%
 
 
 
 
 
3.41
%
 
 
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 21% for the six months ended June 30, 2018 and 35% for the six months ended June 30, 2017. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

10

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
2nd Quarter 2018
 
1st Quarter 2018
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
1st Quarter 2017
 
 
Noninterest income
 
 
 
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
$
8,615

 
$
8,463

 
$
9,073

 
$
9,147

 
$
8,777

 
$
8,004

Wealth management revenue(1)
7,188

 
6,311

 
6,539

 
6,188

 
6,958

 
5,827

Other fees for customer services
1,624

 
1,697

 
1,944

 
2,254

 
2,252

 
2,074

Electronic banking fees
4,250

 
4,057

 
5,578

 
4,370

 
7,482

 
6,817

Net gain on sale of loans and other mortgage banking revenue
8,874

 
8,783

 
7,938

 
9,282

 
11,681

 
9,679

Change in fair value in loan servicing rights(1)
(30
)
 
3,752

 
(13
)
 
(4,041
)
 
(1,802
)
 
(519
)
Gain (loss) on sale of investment securities
3

 
—

 
(7,556
)
 
1

 
77

 
90

Bank-owned life insurance
1,669

 
891

 
1,377

 
1,124

 
1,106

 
1,211

Other
5,825

 
6,600

 
7,439

 
3,797

 
5,037

 
4,827

Total noninterest income
$
38,018

 
$
40,554

 
$
32,319

 
$
32,122

 
$
41,568

 
$
38,010

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

 
2nd Quarter 2018
 
1st Quarter 2018(1)
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
1st Quarter 2017
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Salaries and wages
$
47,810

 
$
45,644

 
$
41,866

 
$
44,641

 
$
44,959

 
$
48,526

Employee benefits
8,338

 
9,913

 
5,497

 
7,949

 
7,288

 
11,368

Occupancy
7,679

 
8,011

 
7,546

 
6,871

 
8,745

 
7,392

Equipment and software
8,276

 
7,659

 
8,000

 
7,582

 
8,149

 
8,517

Outside processing and service fees
10,673

 
10,356

 
9,081

 
9,626

 
8,924

 
7,511

FDIC insurance premiums
4,473

 
5,629

 
4,556

 
2,768

 
2,460

 
1,406

Professional fees
3,004

 
2,458

 
3,483

 
3,489

 
2,567

 
1,968

Intangible asset amortization
1,426

 
1,439

 
1,525

 
1,526

 
1,525

 
1,513

Credit-related expenses
1,467

 
1,306

 
803

 
1,874

 
1,895

 
1,200

Merger expenses
—

 
—

 
1,511

 
2,379

 
465

 
4,167

Restructuring expenses
—

 
—

 
1,056

 
18,824

 
—

 
—

Impairment of income tax credit
1,716

 
1,634

 
6,157

 
3,095

 
—

 
—

Other
9,699

 
7,561

 
8,941

 
8,915

 
11,260

 
10,628

Total operating expenses
$
104,561

 
$
101,610

 
$
100,022

 
$
119,539

 
$
98,237

 
$
104,196

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


11

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
 
 
 
 
 
Loan Growth
 
 
 
 
 
 
 
Loan Growth
 
Jun 30,
2018
 
Mar 31,
2018
 
Three Months Ended June 30, 2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Twelve Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
3,576,438

 
$
3,427,285

 
4.4
 %
 
$
3,385,642

 
$
3,319,965

 
$
3,360,161

 
6.4
 %
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
1,863,563

 
1,832,824

 
1.7

 
1,813,562

 
1,718,404

 
1,695,947

 
9.9

Non-owner occupied
2,728,103

 
2,680,801

 
1.8

 
2,606,761

 
2,514,538

 
2,550,396

 
7.0

Vacant land
79,606

 
74,751

 
6.5

 
80,347

 
83,036

 
77,980

 
2.1

Total commercial real estate
4,671,272

 
4,588,376

 
1.8

 
4,500,670

 
4,315,978

 
4,324,323

 
8.0

Real estate construction
618,985

 
559,780

 
10.6

 
574,215

 
501,413

 
446,678

 
38.6

Subtotal - commercial loans
8,866,695

 
8,575,441

 
3.4

 
8,460,527

 
8,137,356

 
8,131,162

 
9.0

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
3,325,277

 
3,264,620

 
1.9

 
3,252,487

 
3,221,307

 
3,125,397

 
6.4

Consumer installment
1,587,327

 
1,572,240

 
1.0

 
1,613,008

 
1,615,983

 
1,553,967

 
2.1

Home equity
800,394

 
806,446

 
(0.8
)
 
829,245

 
858,722

 
856,846

 
(6.6
)
Subtotal - consumer loans
5,712,998

 
5,643,306

 
1.2

 
5,694,740

 
5,696,012

 
5,536,210

 
3.2

Total loans
$
14,579,693

 
$
14,218,747

 
2.5
 %
 
$
14,155,267

 
$
13,833,368

 
$
13,667,372

 
6.7
 %

 
 
 
 
 
Deposit Growth
 
 
 
 
 
 
 
Deposit Growth
 
Jun 30,
2018
 
Mar 31,
2018
 
Three Months Ended June 30, 2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Twelve Months Ended June 30, 2018
Composition of Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand
$
3,894,259

 
$
3,801,125

 
2.5
 %
 
$
3,725,779

 
$
3,688,848

 
$
3,626,592

 
7.4
 %
Savings and money market accounts
3,841,540

 
3,774,975

 
1.8

 
3,655,671

 
3,743,826

 
3,702,524

 
3.8

Interest-bearing checking
2,514,232

 
2,701,055

 
(6.9
)
 
2,724,415

 
2,974,478

 
2,605,673

 
(3.5
)
Brokered deposits
1,087,959

 
651,846

 
66.9

 
453,227

 
416,926

 
406,174

 
167.9

Other time deposits
3,213,546

 
3,038,816

 
5.7

 
3,083,711

 
2,981,167

 
2,863,404

 
12.2

Total deposits
$
14,551,536

 
$
13,967,817

 
4.2
 %
 
$
13,642,803

 
$
13,805,245

 
$
13,204,367

 
10.2
 %

 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
 
 
 
 
 
 
 
 
 
 
Additional Data - Intangibles
 
 
 
 
 
 
 
 
 
Goodwill
$
1,134,568

 
$
1,134,568

 
$
1,134,568

 
$
1,134,568

 
$
1,133,534

Loan servicing rights
70,364

 
68,837

 
63,841

 
62,195

 
64,522

Core deposit intangibles (CDI)
31,407

 
32,833

 
34,259

 
35,747

 
37,235

Noncompete agreements
—

 
—

 
13

 
50

 
87



12

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
Jun 30,
2018
 
Mar 31,
2018
 
Dec 31,
2017
 
Sep 30,
2017
 
Jun 30,
2017
 
Mar 31,
2017
Nonperforming Assets
 
 
 
 
 
 
 
 
 
 
 
Nonperforming Loans (1):
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
20,741

 
$
20,000

 
$
19,691

 
$
15,648

 
$
18,773

 
$
16,717

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
16,103

 
19,855

 
19,070

 
16,295

 
11,683

 
12,575

Non-owner occupied
9,168

 
5,489

 
5,270

 
4,361

 
3,600

 
3,793

Vacant land
3,135

 
4,829

 
5,205

 
4,494

 
4,440

 
4,460

Total commercial real estate
28,406

 
30,173

 
29,545

 
25,150

 
19,723

 
20,828

Real estate construction
5,704

 
77

 
77

 
78

 
56

 
79

Residential mortgage
7,974

 
7,621

 
8,635

 
8,646

 
7,714

 
6,749

Consumer installment
945

 
922

 
842

 
875

 
757

 
755

Home equity
2,972

 
3,039

 
4,305

 
3,908

 
3,871

 
2,713

Total nonaccrual loans(1)
66,742

 
61,832

 
63,095

 
54,305

 
50,894

 
47,841

Other real estate and repossessed assets
5,828

 
7,719

 
8,807

 
10,605

 
14,582

 
16,395

Total nonperforming assets
$
72,570

 
$
69,551

 
$
71,902

 
$
64,910

 
$
65,476

 
$
64,236

Accruing loans contractually past due 90 days or more as to interest or principal payments, excluding acquired loans accounted for under ASC 310-30:
Commercial
$
472

 
$
322

 
$
—

 
$
3,521

 
$
58

 
$
1,823

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
461

 
—

 
—

 
144

 
—

 
700

Non-owner occupied
—

 
—

 
13

 
—

 
—

 
—

Vacant land
16

 
—

 
—

 
—

 
262

 
—

Total commercial real estate
477

 
—

 
13

 
144

 
262

 
700

Home equity
713

 
913

 
1,364

 
2,367

 
2,026

 
1,169

Total accruing loans contractually past due 90 days or more as to interest or principal payments
$
1,662

 
$
1,235

 
$
1,377

 
$
6,032

 
$
2,346

 
$
3,692

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

13

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
2nd Quarter 2018
 
1st Quarter 2018
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
1st Quarter 2017
 
Six Months Ended
 
 
 
 
 
 
 
June 30, 2018
 
June 30, 2017
Allowance for loan losses - originated loan portfolio
 
 
 
 
 
 
  Allowance for loan losses - beginning of period
$
94,762

 
$
91,887

 
$
85,181

 
$
83,797

 
$
78,774

 
$
78,268

 
$
91,887

 
$
78,268

Provision for loan losses
9,572

 
6,256

 
8,101

 
4,920

 
6,229

 
4,050

 
15,828

 
10,279

Net loan (charge-offs) recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
(517
)
 
(1,252
)
 
(613
)
 
(2,348
)
 
(239
)
 
(1,999
)
 
(1,769
)
 
(2,238
)
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
(1,656
)
 
341

 
(232
)
 
(170
)
 
(173
)
 
725

 
(1,315
)
 
552

Non-owner occupied
92

 
(456
)
 
748

 
(7
)
 
(35
)
 
21

 
(364
)
 
(14
)
Vacant land
(921
)
 
(448
)
 
267

 
3

 
3

 
(16
)
 
(1,369
)
 
(13
)
Total commercial real estate
(2,485
)
 
(563
)
 
783

 
(174
)
 
(205
)
 
730

 
(3,048
)
 
525

Real estate construction
—

 
26

 
(1
)
 
—

 
—

 
(9
)
 
26

 
(9
)
Residential mortgage
(88
)
 
(53
)
 
(142
)
 
(44
)
 
19

 
(567
)
 
(141
)
 
(548
)
Consumer installment
(994
)
 
(997
)
 
(1,318
)
 
(857
)
 
(747
)
 
(1,310
)
 
(1,991
)
 
(2,057
)
Home equity
(235
)
 
(542
)
 
(104
)
 
(113
)
 
(34
)
 
(389
)
 
(777
)
 
(423
)
Net loan charge-offs
(4,319
)
 
(3,381
)
 
(1,395
)
 
(3,536
)
 
(1,206
)
 
(3,544
)
 
(7,700
)
 
(4,750
)
Allowance for loan losses - end of period
100,015

 
94,762

 
91,887

 
85,181

 
83,797

 
78,774

 
100,015

 
83,797

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

 
—

 
579

 
—

 
—

 
—

 
—

 
—

Provision for loan losses
—

 
—

 
(579
)
 
579

 
—

 
—

 
—

 
—

Allowance for loan losses - end of period
—

 
—

 
—

 
579

 
—

 
—

 
—

 
—

Total allowance for loan losses
$100,015
 
$
94,762

 
$
91,887

 
$
85,760

 
$
83,797

 
$
78,774

 
$
100,015

 
$
83,797

Net loan charge-offs as a percent of average loans (annualized)
0.12
%
 
0.10
%
 
0.04
%
 
0.10
%
 
0.04
%
 
0.11
%
 
0.11
%
 
0.07
%

 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
Originated loans
$
10,696,533

 
$
10,012,516

 
$
9,747,429

 
$
9,156,096

 
$
8,659,622

Acquired loans
3,883,160

 
4,206,231

 
4,407,838

 
4,677,272

 
5,007,750

Total loans
$
14,579,693

 
$
14,218,747

 
$
14,155,267

 
$
13,833,368

 
$
13,667,372

 
 
 
 
 
 
 
 
 
 
Allowance for loan losses (originated loan portfolio) as a percent of:
Total originated loans
0.94
%
 
0.95
%
 
0.94
%
 
0.93
%
 
0.97
%
Nonperforming loans
149.9
%
 
153.3
%
 
145.6
%
 
156.9
%
 
164.7
%
Credit mark as a percent of unpaid principal balance on acquired loans
1.8
%
 
1.8
%
 
2.4
%
 
2.7
%
 
2.6
%

14

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands)
 
2nd Quarter 2018
 
1st Quarter 2018(1)
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
1st Quarter 2017
 
Six Months Ended
 
 
 
 
 
 
 
Jun 30,
2018
 
Jun 30,
2017
Non-GAAP Operating Results
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, as reported
$
68,988

 
$
71,596

 
$
9,446

 
$
40,459

 
$
52,014

 
$
47,604

 
$
140,584

 
$
99,618

Merger and restructuring expenses
—

 
—

 
2,567

 
21,203

 
465

 
4,167

 
—

 
4,632

Loss on sale of investment securities (2)
—

 
—

 
7,556

 
—

 
—

 
—

 
—

 
—

Significant items
—

 
—

 
10,123

 
21,203

 
465

 
4,167

 
—

 
4,632

Income tax benefit (3)
—

 
—

 
(3,543
)
 
(7,421
)
 
(163
)
 
(1,458
)
 
—

 
(1,621
)
Revaluation of net deferred tax assets
—

 
—

 
46,660

 
—

 
—

 
—

 
—

 
—

Significant items, net of tax
—

 
—

 
53,240

 
13,782

 
302

 
2,709

 
—

 
3,011

Net income, excluding significant items
$
68,988

 
$
71,596

 
$
62,686

 
$
54,241

 
$
52,316

 
$
50,313

 
$
140,584

 
$
102,629

Diluted Earnings Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share, as reported
$
0.96

 
$
0.99

 
$
0.13

 
$
0.56

 
$
0.73

 
$
0.67

 
$
1.95

 
$
1.39

Effect of significant items, net of tax
—

 
—

 
0.74

 
0.20

 
—

 
0.03

 
—

 
0.04

Diluted earnings per share, excluding significant items
$
0.96

 
$
0.99

 
$
0.87

 
$
0.76

 
$
0.73

 
$
0.70

 
$
1.95

 
$
1.43

Return on Average Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets, as reported
1.39
%
 
1.47%
 
0.20
%
 
0.86
%
 
1.14
%
 
1.09
%
 
1.43
%
 
1.11
%
Effect of significant items, net of tax
—

 
—
 
1.11

 
0.29

 
0.01

 
0.06

 
—

 
0.04

Return on average assets, excluding significant items
1.39
%
 
1.47%
 
1.31
%
 
1.15
%
 
1.15
%
 
1.15
%
 
1.43
%
 
1.15
%
Return on Average Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity, as reported
10.2
%
 
10.7
%
 
1.4
%
 
6.1
%
 
8.0
%
 
7.4
%
 
10.5
%
 
7.7
%
Effect of significant items, net of tax
—

 
—

 
8.0

 
2.1

 
—

 
0.4

 
—

 
0.2

Return on average shareholders' equity, excluding significant items
10.2
%
 
10.7
%
 
9.4
%
 
8.2
%
 
8.0
%
 
7.8
%
 
10.5
%
 
7.9
%
Return on Average Tangible Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$2,707,346
 
$2,668,325
 
$2,676,029
 
$2,643,233
 
$2,606,517
 
$2,584,501
 
$2,687,943
 
$2,595,567
Average goodwill, CDI and noncompete agreements, net of tax
1,156,865
 
1,158,084
 
1,156,122
 
1,153,394
 
1,154,229
 
1,155,177
 
1,157,474
 
1,154,406
Average tangible shareholders' equity
$1,550,481
 
$1,510,241
 
$1,519,907
 
$1,489,839
 
$1,452,288
 
$1,429,324
 
$1,530,469
 
$1,441,161
Return on average tangible shareholders' equity
17.8
%
 
19.0%
 
2.5
%
 
10.9
%
 
14.3
%
 
13.3
%
 
18.4
%
 
13.8
%
Effect of significant items, net of tax
—

 
—

 
14.0

 
3.7

 
0.1

 
0.8

 
—

 
0.4

Return on average tangible shareholders' equity, excluding significant items
17.8
%
 
19.0
%
 
16.5
%
 
14.6
%
 
14.4
%
 
14.1
%
 
18.4
%
 
14.2
%
(1)
First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.
(2)
Represents losses on sales of investment securities in the fourth quarter of 2017 as part of our treasury and tax management objectives.
(3)
Assumes merger and restructuring expenses and other significant items are deductible at an income tax rate of 35% for each quarter during 2017.

15

Chemical Financial Corporation Announces 2018 Second Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands, except per share data)
 
2nd Quarter 2018
 
1st Quarter 2018(1)
 
4th Quarter 2017
 
3rd Quarter 2017
 
2nd Quarter 2017
 
1st Quarter 2017
 
Six Months Ended
 
 
 
 
 
 
 
June 30, 2018
 
June 30, 2017
Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
157,537

 
$
151,863

 
$
145,905

 
$
143,628

 
$
137,948

 
$
130,097

 
$
309,400

 
$
268,045

Noninterest income
38,018

 
40,554

 
32,319

 
32,122

 
41,568

 
38,010

 
78,572

 
79,578

Total revenue - GAAP
195,555

 
192,417

 
178,224

 
175,750

 
179,516

 
168,107

 
387,972

 
347,623

Net interest income FTE adjustment
2,331

 
2,227

 
3,580

 
3,260

 
3,169

 
3,068

 
4,558

 
6,237

Loan servicing rights change in fair value (gains) losses
30

 
(3,752
)
 
13

 
4,041

 
1,802

 
519

 
(3,722
)
 
2,321

Losses (gains) from sale of investment securities
(3
)
 
—

 
7,556

 
(1
)
 
(77
)
 
(90
)
 
(3
)
 
(167
)
Total revenue - Non-GAAP
$
197,913

 
$
190,892

 
$
189,373

 
$
183,050

 
$
184,410

 
$
171,604

 
$
388,805

 
$
356,014

Operating expenses - GAAP
$
104,561

 
$
101,610

 
$
100,022

 
$
119,539

 
$
98,237

 
$
104,196

 
$
206,171

 
$
202,433

Merger and restructuring expenses
—

 
—

 
(2,567
)
 
(21,203
)
 
(465
)
 
(4,167
)
 
—

 
(4,632
)
Impairment of income tax credits
(1,716
)
 
(1,634
)
 
(6,157
)
 
(3,095
)
 
—

 
—

 
(3,350
)
 
—

Operating expense, core - Non-GAAP
102,845

 
99,976

 
91,298

 
95,241

 
97,772

 
100,029

 
202,821

 
197,801

Amortization of intangibles
(1,426
)
 
(1,439
)
 
(1,525
)
 
(1,526
)
 
(1,525
)
 
(1,513
)
 
(2,865
)
 
(3,038
)
Operating expenses, efficiency ratio - Non-GAAP
$
101,419

 
$
98,537

 
$
89,773

 
$
93,715

 
$
96,247

 
$
98,516

 
$
199,956

 
$
194,763

Efficiency ratio - GAAP
53.5
%
 
52.8
%
 
56.1
%
 
68.0
%
 
54.7
%
 
62.0
%
 
53.1
%
 
58.2
%
Efficiency ratio - adjusted Non-GAAP
51.2
%
 
51.6
%
 
47.4
%
 
51.2
%
 
52.2
%
 
57.4
%
 
51.4
%
 
54.7
%
(1)
First quarter 2018 information is revised to reflect the impact of the capitalization of certain costs associated with our core system transformation. The capitalization resulted in an increase in net income of $1.4 million, including a reduction in total operating expenses of $1.7 million, partially offset by an increase to income tax expense of $322 thousand for the first quarter of 2018.

 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
 
June 30,
2017
 
March 31,
2017
Tangible Book Value
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity, as reported
$
2,750,999

 
$
2,704,703

 
$
2,668,749

 
$
2,673,089

 
$
2,639,442

 
$
2,600,051

Goodwill, CDI and noncompete agreements, net of tax
(1,156,283
)
 
(1,157,505
)
 
(1,158,738
)
 
(1,153,576
)
 
(1,153,595
)
 
(1,154,915
)
Tangible shareholders' equity
$
1,594,716

 
$
1,547,198

 
$
1,510,011

 
$
1,519,513

 
$
1,485,847

 
$
1,445,136

Common shares outstanding
71,418

 
71,350

 
71,207

 
71,152

 
71,131

 
71,118

Book value per share (shareholders' equity, as reported, divided by common shares outstanding)
$
38.52

 
$
37.91

 
$
37.48

 
$
37.57

 
$
37.11

 
$
36.56

Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)
$
22.33

 
$
21.68

 
$
21.21

 
$
21.36

 
$
20.89

 
$
20.32

Tangible Shareholders' Equity to Tangible Assets
 
 
 
 
 
 
 
 
Total assets, as reported
$
20,282,603

 
$
19,757,510

 
$
19,280,873

 
$
19,354,308

 
$
18,781,405

 
$
17,636,973

Goodwill, CDI and noncompete agreements, net of tax
(1,156,283
)
 
(1,157,505
)
 
(1,158,738
)
 
(1,153,576
)
 
(1,153,595
)
 
(1,154,915
)
Tangible assets
$
19,126,320

 
$
18,600,005

 
$
18,122,135

 
$
18,200,732

 
$
17,627,810

 
$
16,482,058

Shareholders' equity to total assets
13.6
%
 
13.7
%
 
13.8
%
 
13.8
%
 
14.1
%
 
14.7
%
Tangible shareholders' equity to tangible assets
8.3
%
 
8.3
%
 
8.3
%
 
8.3
%
 
8.4
%
 
8.8
%

16