EX-99.1 2 exhibit9912019q2.htm EXHIBIT 99.1 CHFC Q2 2019 EARNINGS RELEASE Exhibit

Exhibit 99.1

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

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

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

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

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

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

Net interest margin was 3.31% in the second quarter of 2019, compared to 3.38% in the first quarter of 2019 and 3.54% in the second quarter of 2018. Net interest margin (fully taxable equivalent (FTE)), a non-GAAP financial measure, was 3.36% in the second quarter of 2019, compared to 3.42% in the first quarter of 2019 and 3.59% in the second quarter of 2018.(1) The decrease in net interest margin (FTE), in the second quarter of 2019, compared to the

1

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

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

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

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

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

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

Operating expenses were $111.0 million in the second quarter of 2019, compared to $109.0 million in the first quarter of 2019 and $104.6 million in the second quarter of 2018. Operating expenses, core, a non-GAAP financial measure that excludes the impact of merger expenses and federal historic tax credits, were $107.7 million for the

2

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

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

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

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

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

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

3

as a percentage of deposits plus collateralized customer deposits, were 98.1% at June 30, 2019, compared to 93.0% at March 31, 2019 and 97.7% at June 30, 2018.

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

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

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

Conference Call Details

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

About Chemical Financial Corporation

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

Non-GAAP Financial Measures

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

Management used non-GAAP financial measures as follows; in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. We believe these

4

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

Forward-Looking Statements

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

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

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

•
our inability to attract and retain new commercial lenders and other bankers as well as key operations staff in light of competition for experienced employees in the banking industry;
•
operational and regulatory challenges associated with our information technology systems and policies and procedures in light of our rapid growth and systems conversion in 2018;
•
our inability to grow deposits;
•
our ability to execute on our strategy to expand investments and commercial lending;
•
our inability to efficiently manage our operating expenses;
•
the possibility that our previously announced merger with TCF does not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all;
•
the occurrence of any event, change or other circumstance that could give rise to the right of Chemical, TCF or both to terminate the merger agreement;
•
the outcome of pending or threatened litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to our proposed merger with TCF;
•
potential difficulty in maintaining relationships with clients, employees or business partners as a result of our proposed merger with TCF;
•
the possibility that the anticipated benefits of our proposed merger with TCF, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where Chemical and TCF do business, or as a result of other unexpected factors or events;
•
the impact of purchase accounting with respect to the proposed merger with TCF, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
•
diversion of management's attention from ongoing business operations and opportunities as a result of the proposed merger with TCF;

5

•
potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed merger with TCF;
•
economic conditions (both generally and in our markets) may be less favorable than expected, which could result in, among other things, a deterioration in credit quality, a reduction in demand for credit and a decline in real estate values;
•
a general decline in the real estate and lending markets, particularly in our market areas, could negatively affect our financial results;
•
increased cybersecurity risk, including potential network breaches, business disruptions, or financial losses;
•
increases in competitive pressure in the banking and financial services industry;
•
increased capital requirements, other regulatory requirements or enhanced regulatory supervision;
•
our inability to sustain revenue and earnings growth;
•
the timing of when historic tax credits are placed into service could impact operating expenses;
•
our inability to efficiently manage operating expenses;
•
our inability to increase our investment securities portfolio as a percentage of total assets;
•
current or future restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals;
•
legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect us;
•
changes in the interest rate environment may reduce margins or the volumes or values of the loans we make or have acquired; and
•
economic, governmental, or other factors may prevent the projected population, residential, and commercial growth in the markets in which we operate.

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

6

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
June 30,
2018
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Cash and cash due from banks
$
200,034

 
$
206,372

 
$
228,527

 
$
222,748

Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold
392,724

 
311,204

 
267,312

 
302,532

Total cash and cash equivalents
592,758

 
517,576

 
495,839

 
525,280

Investment securities:
 
 
 
 
 
 
 
Carried at fair value
3,369,872

 
3,301,054

 
3,021,832

 
2,529,910

Held-to-maturity
566,046

 
622,519

 
624,099

 
602,687

Total investment securities
3,935,918

 
3,923,573

 
3,645,931

 
3,132,597

Loans held-for-sale
33,019

 
23,535

 
85,030

 
46,849

Loans
15,861,903

 
15,324,048

 
15,269,779

 
14,579,693

Allowance for loan losses
(115,967
)
 
(110,284
)
 
(109,984
)
 
(100,015
)
Net loans
15,745,936

 
15,213,764

 
15,159,795

 
14,479,678

Premises and equipment
123,708

 
122,452

 
123,442

 
125,970

Loan servicing rights
60,658

 
64,701

 
71,013

 
70,364

Goodwill
1,134,568

 
1,134,568

 
1,134,568

 
1,134,568

Core deposit intangibles
25,835

 
27,195

 
28,556

 
31,407

Interest receivable and other assets
839,365

 
772,949

 
754,167

 
735,890

Total Assets
$
22,491,765

 
$
21,800,313

 
$
21,498,341

 
$
20,282,603

Liabilities
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
Noninterest-bearing
$
3,925,777

 
$
3,835,427

 
$
3,809,252

 
$
3,894,259

Interest-bearing
11,953,659

 
12,226,572

 
11,784,030

 
10,657,277

Total deposits
15,879,436

 
16,061,999

 
15,593,282

 
14,551,536

Collateralized customer deposits
291,671

 
413,199

 
382,687

 
378,938

Short-term borrowings
2,615,000

 
1,740,000

 
2,035,000

 
2,095,000

Long-term borrowings
426,069

 
426,035

 
426,002

 
330,956

Interest payable and other liabilities
326,054

 
261,571

 
225,110

 
175,174

Total liabilities
19,538,230

 
18,902,804

 
18,662,081

 
17,531,604

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

 
—

 
—

 
—

Common stock, $1 par value per share
71,559

 
71,551

 
71,460

 
71,418

Additional paid-in capital
2,212,665

 
2,209,860

 
2,209,761

 
2,205,402

Retained earnings
699,712

 
654,605

 
616,149

 
521,530

Accumulated other comprehensive loss
(30,401
)
 
(38,507
)
 
(61,110
)
 
(47,351
)
Total shareholders' equity
2,953,535

 
2,897,509

 
2,836,260

 
2,750,999

Total Liabilities and Shareholders' Equity
$
22,491,765

 
$
21,800,313

 
$
21,498,341

 
$
20,282,603



7

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2019
 
March 31,
2019
 
June 30,
2018
 
June 30,
2019
 
June 30,
2018
Interest income
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
188,875

 
$
183,292

 
$
165,388

 
$
372,167

 
$
322,206

Interest on investment securities:
 
 
 
 
 
 
 
 
 
Taxable
21,214

 
20,501

 
14,706

 
41,715

 
27,125

Tax-exempt
7,297

 
7,170

 
5,998

 
14,467

 
11,554

Dividends on nonmarketable equity securities
2,401

 
1,738

 
2,189

 
4,139

 
4,090

Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold
1,641

 
1,280

 
1,301

 
2,921

 
2,541

Total interest income
221,428

 
213,981

 
189,582

 
435,409

 
367,516

Interest expense
 
 
 
 
 
 
 
 
 
Interest on deposits
42,011

 
38,998

 
19,707

 
81,009

 
35,624

Interest on collateralized customer deposits
537

 
627

 
641

 
1,164

 
1,165

Interest on short-term borrowings
11,345

 
9,178

 
10,408

 
20,523

 
18,574

Interest on long-term borrowings
2,374

 
2,354

 
1,289

 
4,728

 
2,753

Total interest expense
56,267

 
51,157

 
32,045

 
107,424

 
58,116

Net interest income
165,161

 
162,824

 
157,537

 
327,985

 
309,400

Provision for loan losses
7,502

 
2,059

 
9,572

 
9,561

 
15,828

Net interest income after provision for loan losses
157,659

 
160,765

 
147,965

 
318,424

 
293,572

Noninterest income
 
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
8,247

 
7,967

 
9,690

 
16,214

 
19,124

Wealth management revenue
6,966

 
5,872

 
7,188

 
12,838

 
13,499

Other charges and fees for customer services
5,755

 
4,824

 
4,799

 
10,579

 
9,582

Net gain on sale of loans and other mortgage banking revenue
4,532

 
894

 
8,844

 
5,426

 
21,379

Net gain on sale of investment securities
4,160

 
87

 
3

 
4,247

 
3

Other
8,504

 
5,213

 
7,494

 
13,717

 
14,985

Total noninterest income
38,164

 
24,857

 
38,018

 
63,021

 
78,572

Operating expenses
 
 
 
 
 
 
 
 
 
Salaries, wages and employee benefits
62,129

 
60,017

 
56,148

 
122,146

 
111,705

Occupancy
7,786

 
8,277

 
7,679

 
16,063

 
15,690

Equipment and software
7,076

 
6,979

 
8,276

 
14,055

 
15,935

Outside processing and service fees
12,206

 
11,726

 
10,673

 
23,932

 
21,029

Merger expenses
3,042

 
5,424

 
—

 
8,466

 
—

Other
18,764

 
16,592

 
21,785

 
35,356

 
41,812

Total operating expenses
111,003

 
109,015

 
104,561

 
220,018

 
206,171

Income before income taxes
84,820

 
76,607

 
81,422

 
161,427

 
165,973

Income tax expense
15,226

 
13,665

 
12,434

 
28,891

 
25,389

Net income
$
69,594

 
$
62,942

 
$
68,988

 
$
132,536

 
$
140,584

Earnings per common share:
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding-basic
71,554

 
71,474

 
71,329

 
71,514

 
71,280

Weighted average common shares outstanding-diluted
72,272

 
72,141

 
72,026

 
72,207

 
71,966

Basic earnings per share
$
0.97

 
$
0.88

 
$
0.97

 
$
1.85

 
$
1.97

Diluted earnings per share
0.96

 
0.87

 
0.96

 
1.84

 
1.95

Diluted earnings per share, excluding significant items (non-GAAP)
1.06

 
1.02

 
0.96

 
2.07

 
1.91

Cash dividends declared per common share
0.34

 
0.34

 
0.28

 
0.68

 
0.56

Key ratios (annualized where applicable):
 

 
 
 
 

 
 
 
 
Return on average assets
1.27
%
 
1.17
%
 
1.39
%
 
1.22
%
 
1.43
%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)
17.3
%
 
17.2
%
 
17.8
%
 
17.2
%
 
18.0
%
Net interest margin (tax-equivalent basis) (non-GAAP)
3.36
%
 
3.42
%
 
3.59
%
 
3.39
%
 
3.58
%
Efficiency ratio - GAAP
54.6
%
 
58.1
%
 
53.5
%
 
56.3
%
 
53.1
%
Efficiency ratio - adjusted (non-GAAP)
51.3
%
 
51.7
%
 
51.2
%
 
51.5
%
 
51.4
%


8

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
 
2nd Quarter 2019
 
1st Quarter 2019
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
Summary of Operations
 
 
 
 
 
 
 
 
 
 
 

Interest income
$
221,428

 
$
213,981

 
$
210,103

 
$
198,377

 
$
189,582

 
$
177,934

Interest expense
56,267

 
51,157

 
46,651

 
38,896

 
32,045

 
26,071

Net interest income
165,161

 
162,824

 
163,452

 
159,481

 
157,537

 
151,863

Provision for loan losses
7,502

 
2,059

 
8,894

 
6,028

 
9,572

 
6,256

Net interest income after provision for loan losses
157,659

 
160,765

 
154,558

 
153,453

 
147,965

 
145,607

Noninterest income
38,164

 
24,857

 
32,047

 
37,917

 
38,018

 
40,554

Operating expenses, excluding merger expenses and impairment of income tax credits (non-GAAP)
107,690

 
103,591

 
102,594

 
106,499

 
102,845

 
99,976

Merger expenses
3,042

 
5,424

 
—

 
—

 
—

 
—

Impairment of income tax credits
271

 
—

 
5,772

 
3,162

 
1,716

 
1,634

Income before income taxes
84,820

 
76,607

 
78,239

 
81,709

 
81,422

 
84,551

Income tax expense
15,226

 
13,665

 
5,200

 
11,312

 
12,434

 
12,955

Net income
$
69,594

 
$
62,942

 
$
73,039

 
$
70,397

 
$
68,988

 
$
71,596

Significant items, net of tax
6,714

 
10,326

 
2,233

 
(735
)
 
23

 
(2,964
)
Net income, excluding significant items
$
76,308

 
$
73,268

 
$
75,272

 
$
69,662

 
$
69,011

 
$
68,632

 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share Data
 
 
 
 
 
 
 
 
 
 
 

Net income:
 
 
 
 
 
 
 
 
 
 
 

Basic
$
0.97

 
$
0.88

 
$
1.02

 
$
0.99

 
$
0.97

 
$
1.01

Diluted
0.96

 
0.87

 
1.01

 
0.98

 
0.96

 
0.99

Diluted, excluding significant items (non-GAAP)
1.06

 
1.02

 
1.04

 
0.97

 
0.96

 
0.95

Cash dividends declared
0.34

 
0.34

 
0.34

 
0.34

 
0.28

 
0.28

Book value - period-end
41.27

 
40.50

 
39.69

 
39.04

 
38.52

 
37.91

Tangible book value - period-end (non-GAAP)
25.18

 
24.39

 
23.54

 
22.87

 
22.33

 
21.68

Market value - period-end
41.11

 
41.16

 
36.61

 
53.40

 
55.67

 
54.68

 
 
 
 
 
 
 
 
 
 
 
 
Key Ratios (annualized where applicable)
 
 
 
 
 
 
 
 
 
 

Net interest margin (taxable equivalent basis) (non-GAAP)
3.36
%
 
3.42
%
 
3.49
%
 
3.48
%
 
3.59
%
 
3.56
%
Efficiency ratio - adjusted (non-GAAP)
51.3
%
 
51.7
%
 
50.4
%
 
52.8
%
 
51.2
%
 
51.6
%
Return on average assets
1.27
%
 
1.17
%
 
1.39
%
 
1.37
%
 
1.39
%
 
1.47
%
Return on average assets, excluding significant items (non-GAAP)
1.39
%
 
1.36
%
 
1.44
%
 
1.36
%
 
1.39
%
 
1.41
%
Return on average shareholders' equity
9.5
%
 
8.8
%
 
10.4
%
 
10.2
%
 
10.2
%
 
10.7
%
Return on average tangible shareholders' equity (non-GAAP)
15.7
%
 
14.8
%
 
17.8
%
 
17.5
%
 
17.8
%
 
19.0
%
Return on average tangible shareholders' equity, excluding significant items (non-GAAP)
17.3
%
 
17.2
%
 
18.3
%
 
17.3
%
 
17.8
%
 
18.2
%
Average shareholders' equity as a percent of average assets
13.3
%
 
13.3
%
 
13.4
%
 
13.5
%
 
13.6
%
 
13.7
%
Capital ratios (period end):
 
 
 
 
 
 
 
 
 
 
 
Tangible shareholders' equity as a percent of tangible assets (non-GAAP)
8.4
%
 
8.5
%
 
8.3
%
 
8.3
%
 
8.3
%
 
8.3
%
Total risk-based capital ratio (1)
11.5
%
 
11.7
%
 
11.5
%
 
11.7
%
 
11.4
%
 
11.2
%
(1) 
Estimated at June 30, 2019.

9

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates(1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
Three Months Ended
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)
$
15,514,181

 
$
189,612

 
4.90
%
 
$
15,323,704

 
$184,058
 
4.86
%
 
$
14,389,574

 
$166,125
 
4.63
%
Taxable investment securities
2,889,273

 
21,214

 
2.94

 
2,631,161

 
20,501

 
3.12

 
2,019,003

 
14,706

 
2.91

Tax-exempt investment
securities(1)
1,137,426

 
9,231

 
3.25

 
1,154,348

 
9,066

 
3.14

 
1,020,567

 
7,592

 
2.98

Other interest-earning assets
194,798

 
2,401

 
4.94

 
193,326

 
1,738

 
3.65

 
189,654

 
2,189

 
4.63

Interest-bearing deposits with the FRB, other banks and federal funds sold
280,507

 
1,641

 
2.35

 
221,116

 
1,280

 
2.35

 
228,464

 
1,301

 
2.28

Total interest-earning assets
20,016,185

 
224,099

 
4.49

 
19,523,655

 
216,643

 
4.48

 
17,847,262

 
191,913

 
4.31

Less: allowance for loan losses
(111,759
)
 
 
 
 
 
(110,852
)
 
 
 
 
 
(96,332
)
 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash due from banks
165,880

 
 
 
 
 
186,849

 
 
 
 
 
219,751

 
 
 
 
Premises and equipment
122,969

 
 
 
 
 
123,470

 
 
 
 
 
126,570

 
 
 
 
Interest receivable and other assets
1,812,220

 
 
 
 
 
1,791,876

 
 
 
 
 
1,753,742

 
 
 
 
Total assets
$
22,005,495

 
 
 
 
 
$
21,514,998

 
 
 
 
 
$
19,850,993

 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing checking deposits
$
3,258,584

 
$
6,802

 
0.84
%
 
$
3,375,841

 
$
6,721

 
0.81
%
 
$
2,597,610

 
$
1,393

 
0.22
%
Savings deposits
4,548,195

 
11,945

 
1.05

 
4,532,107

 
11,257

 
1.01

 
4,116,683

 
6,074

 
0.59

Time deposits
4,430,521

 
23,264

 
2.11

 
4,287,346

 
21,020

 
1.99

 
3,468,395

 
12,240

 
1.42

Collateralized customer deposits
305,019

 
537

 
0.71

 
359,230

 
627

 
0.71

 
399,911

 
641

 
0.64

Short-term borrowings
1,974,945

 
11,345

 
2.30

 
1,653,222

 
9,178

 
2.25

 
2,249,655

 
10,408

 
1.86

Long-term borrowings
426,046

 
2,374

 
2.23

 
426,011

 
2,354

 
2.24

 
336,985

 
1,289

 
1.53

Total interest-bearing liabilities
14,943,310

 
56,267

 
1.51

 
14,633,757

 
51,157

 
1.42

 
13,169,239

 
32,045

 
0.98

Noninterest-bearing deposits
3,840,835

 
—

 
—

 
3,753,929

 
—

 
—

 
3,792,803

 
—

 
—

Total deposits and borrowed funds
18,784,145

 
56,267

 
1.20

 
18,387,686

 
51,157

 
1.13

 
16,962,042

 
32,045

 
0.76

Interest payable and other liabilities
301,139

 
 
 
 
 
271,597

 
 
 
 
 
181,605

 
 
 
 
Shareholders' equity
2,920,211

 
 
 
 
 
2,855,715

 
 
 
 
 
2,707,346

 
 
 
 
Total liabilities and shareholders' equity
$
22,005,495

 
 
 
 
 
$
21,514,998

 
 
 
 
 
$
19,850,993

 
 
 
 
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)
 
2.98
%
 
 
 
 
 
3.06
%
 
 
 
 
 
3.33
%
Net Interest Income (FTE)
 
 
$
167,832

 
 
 
 
 
$165,486
 
 
 
 
 
$159,868
 
 
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)
 
3.36
%
 
 
 
 
 
3.42
%
 
 
 
 
 
3.59
%
Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, fully taxable equivalent (non-GAAP)
 
$
167,832

 
 
 
 
 
$165,486
 
 
 
 
 
$159,868
 
 
Adjustments for taxable equivalent interest (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
(737
)
 
 
 
 
 
(766
)
 
 
 
 
 
(737
)
 
 
Tax-exempt investment securities
 
 
(1,934
)
 
 
 
 
 
(1,896
)
 
 
 
 
 
(1,594
)
 
 
Total taxable equivalent interest adjustments
 
(2,671
)
 
 
 
 
 
(2,662
)
 
 
 
 
 
(2,331
)
 
 
Net interest income (GAAP)
 
 
$
165,161

 
 
 
 
 
$162,824
 
 
 
 
 
$157,537
 
 
Net interest margin (GAAP)
 
 
3.31%
 
 
 
 
 
3.38
%
 
 
 
 
 
3.54
%
 
 
(1)
Fully taxable equivalent (FTE) basis using a federal income tax rate of 21%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2)
Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

10

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates (1) (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
 
Six Months Ended
 
 
June 30, 2019
 
June 30, 2018
 
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
 
Average
Balance
 
Interest (FTE)
 
Effective
Yield/Rate (1)
Assets
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)
 
$
15,419,468

 
$
373,670

 
4.88
%
 
$
14,307,705

 
$
323,693

 
4.55
%
Taxable investment securities
 
2,760,930

 
41,715

 
3.02

 
1,901,154

 
27,125

 
2.85

Tax-exempt investment securities (1)
 
1,145,841

 
18,296

 
3.19

 
1,015,358

 
14,625

 
2.88

Other interest-earning assets
 
194,066

 
4,139

 
4.30

 
184,895

 
4,090

 
4.46

Interest-bearing deposits with the FRB, other banks and federal funds sold
 
250,976

 
2,921

 
2.35

 
245,592

 
2,541

 
2.09

Total interest-earning assets
 
19,771,281

 
440,741

 
4.48

 
17,654,704

 
372,074

 
4.24

Less: allowance for loan losses
 
(111,308
)
 
 
 
 
 
(94,500
)
 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash due from banks
 
176,307

 
 
 
 
 
223,186

 
 
 
 
Premises and equipment
 
123,218

 
 
 
 
 
126,656

 
 
 
 
Interest receivable and other assets
 
1,802,104

 
 
 
 
 
1,745,475

 
 
 
 
Total assets
 
$
21,761,602

 
 
 
 
 
$
19,655,521

 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
 
$
3,316,889

 
$
13,523

 
0.82
%
 
$
2,681,970

 
$
2,618

 
0.20
%
Savings deposits
 
4,540,195

 
23,202

 
1.03

 
4,082,036

 
11,011

 
0.54

Time deposits
 
4,359,329

 
44,284

 
2.05

 
3,366,051

 
21,995

 
1.32

Collateralized customer deposits
 
331,975

 
1,164

 
0.71

 
404,468

 
1,165

 
0.58

Short-term borrowings
 
1,814,972

 
20,523

 
2.28

 
2,153,069

 
18,574

 
1.74

Long-term borrowings
 
426,029

 
4,728

 
2.24

 
354,909

 
2,753

 
1.56

Total interest-bearing liabilities
 
14,789,389

 
107,424

 
1.46

 
13,042,503

 
58,116

 
0.90

Noninterest-bearing deposits
 
3,797,622

 
—

 
—

 
3,740,979

 
—

 
—

Total deposits and borrowed funds
 
18,587,011

 
107,424

 
1.17

 
16,783,482

 
58,116

 
0.70

Interest payable and other liabilities
 
286,449

 
 
 
 
 
184,096

 
 
 
 
Shareholders' equity
 
2,888,142

 
 
 
 
 
2,687,943

 
 
 
 
Total liabilities and shareholders' equity
 
$
21,761,602

 
 
 
 
 
$
19,655,521

 
 
 
 
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities)
 
 
 
 
 
3.02
%
 
 
 
 
 
3.34
%
Net Interest Income (FTE)
 
 
 
$
333,317

 
 
 
 
 
$
313,958

 
 
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets)
 
 
 
 
 
3.39
%
 
 
 
 
 
3.58
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Reported Net Interest Income
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, fully taxable equivalent (non-GAAP)
 
 
 
$
333,317

 
 
 
 
 
$
313,958

 
 
Adjustments for taxable equivalent interest (1):
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
 
 
(1,503
)
 
 
 
 
 
(1,487
)
 
 
Tax-exempt investment securities
 
 
 
(3,829
)
 
 
 
 
 
(3,071
)
 
 
Total taxable equivalent interest adjustments
 
 
 
(5,332
)
 
 
 
 
 
(4,558
)
 
 
Net interest income (GAAP)
 
 
 
$
327,985

 
 
 
 
 
$
309,400

 
 
Net interest margin (GAAP)
 
 
 
3.35
%
 
 
 
 
 
3.53
%
 
 
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 21%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Tax equivalent interest also includes net loan fees.

11

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
2nd Quarter 2019
 
1st Quarter 2019
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
 
 
Noninterest income
 
 
 
 
 
 
 
 
 
 
 
Service charges and fees on deposit accounts
$
8,247

 
$
7,967

 
$
8,654

 
$
9,319

 
$
9,690

 
$
9,434

Wealth management revenue
6,966

 
5,872

 
6,457

 
6,040

 
7,188

 
6,311

Other fees for customer services(1)
1,338

 
1,372

 
1,379

 
1,067

 
1,050

 
1,164

Electronic banking fees(1)
4,417

 
3,452

 
5,127

 
4,282

 
3,749

 
3,619

Net gain on sale of loans and other mortgage banking revenue(2)
9,989

 
8,540

 
6,804

 
8,905

 
8,874

 
8,783

Change in fair value in loan servicing rights(2)
(5,457
)
 
(7,646
)
 
(2,827
)
 
932

 
(30
)
 
3,752

Gain (loss) on sale of investment securities
4,160

 
87

 
221

 
—

 
3

 
—

Bank-owned life insurance(3)
2,195

 
1,709

 
273

 
1,167

 
1,669

 
891

Other(3)
6,309

 
3,504

 
5,959

 
6,205

 
5,825

 
6,600

Total noninterest income
$
38,164

 
$
24,857

 
$
32,047

 
$
37,917

 
$
38,018

 
$
40,554

(1)
Included within the line item "Other charges and fees for customer services" in the Consolidated Statements of Income.
(2)
Included within the line item "Net gain on sale of loans and other mortgage banking revenue" in the Consolidated Statements of Income.
(3)
Included within the line item "Other" noninterest income in the Consolidated Statements of Income.

 
2nd Quarter 2019
 
1st Quarter 2019
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Salaries and wages(1)
$
53,157

 
$
50,131

 
$
48,486

 
$
49,182

 
$
47,810

 
$
45,644

Employee benefits(1)
8,972

 
9,886

 
8,342

 
7,712

 
8,338

 
9,913

Occupancy
7,786

 
8,277

 
7,360

 
8,620

 
7,679

 
8,011

Equipment and software
7,076

 
6,979

 
7,641

 
8,185

 
8,276

 
7,659

Outside processing and service fees
12,206

 
11,726

 
11,698

 
12,660

 
10,673

 
10,356

FDIC insurance premiums(2)
3,100

 
3,323

 
3,583

 
4,823

 
4,473

 
5,629

Professional fees(2)
3,684

 
2,743

 
3,758

 
3,399

 
3,004

 
2,458

Intangible asset amortization(2)
1,360

 
1,361

 
1,426

 
1,426

 
1,425

 
1,439

Credit-related expenses(2)
744

 
660

 
829

 
1,239

 
1,467

 
1,306

Merger expenses
3,042

 
5,424

 
—

 
—

 
—

 
—

Impairment of income tax credit(2)
271

 
—

 
5,772

 
3,162

 
1,716

 
1,634

Other(2)
9,605

 
8,505

 
9,471

 
9,253

 
9,700

 
7,561

Total operating expenses
$
111,003

 
$
109,015

 
$
108,366

 
$
109,661

 
$
104,561

 
$
101,610

(1)
Included within the line item "Salaries, wages and employee benefits" in the Consolidated Statements of Income.
(2)
Included within the line item "Other" operating expenses in the Consolidated Statements of Income.



12

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
 
 
 
 
 
Loan Growth(1)
 
 
 
 
 
 
 
Loan Growth
 
June 30,
2019
 
March 31,
2019
 
Three Months Ended June 30, 2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
Twelve Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
4,347,885

 
$
4,054,072

 
29.0
 %
 
$
4,002,568

 
$
3,719,922

 
$
3,576,438

 
21.6
 %
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
2,024,561

 
2,050,430

 
(5.0
)
 
2,059,557

 
1,897,934

 
1,863,563

 
8.6

Non-owner occupied
2,772,677

 
2,736,320

 
5.3

 
2,785,020

 
2,739,700

 
2,728,103

 
1.6

Vacant land
49,962

 
48,419

 
12.7

 
67,510

 
73,987

 
79,606

 
(37.2
)
Total commercial real estate
4,847,200

 
4,835,169

 
1.0

 
4,912,087

 
4,711,621

 
4,671,272

 
3.8

Real estate construction
700,770

 
622,590

 
50.2

 
597,212

 
622,147

 
618,985

 
13.2

Subtotal - commercial loans
9,895,855

 
9,511,831

 
16.1

 
9,511,867

 
9,053,690

 
8,866,695

 
11.6

Consumer loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
3,666,613

 
3,549,617

 
13.2

 
3,458,666

 
3,391,987

 
3,325,277

 
10.3

Consumer installment
1,552,835

 
1,504,441

 
12.9

 
1,521,074

 
1,560,265

 
1,587,327

 
(2.2
)
Home equity
746,600

 
758,159

 
(6.1
)
 
778,172

 
790,310

 
800,394

 
(6.7
)
Subtotal - consumer loans
5,966,048

 
5,812,217

 
10.6

 
5,757,912

 
5,742,562

 
5,712,998

 
4.4

Total loans
$
15,861,903

 
$
15,324,048

 
14.0
 %
 
$
15,269,779

 
$
14,796,252

 
$
14,579,693

 
8.8
 %
(1) Annualized
 
 
 
 
 
Deposit Growth(1)
 
 
 
 
 
 
 
Deposit Growth
 
June 30,
2019
 
March 31,
2019
 
Three Months Ended June 30, 2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
Twelve Months Ended June 30, 2019
Composition of Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand
$
3,925,777

 
$
3,835,427

 
9.4
 %
 
$
3,809,252

 
$
4,015,323

 
$
3,894,259

 
0.8
%
Savings and money market accounts
4,216,087

 
4,197,044

 
1.8

 
4,092,082

 
4,220,658

 
3,841,540

 
9.7

Interest-bearing checking
3,187,997

 
3,418,864

 
(27.0
)
 
3,316,278

 
3,037,289

 
2,514,232

 
26.8

Brokered deposits
1,107,613

 
1,034,929

 
28.1

 
985,522

 
915,348

 
1,087,959

 
1.8

Other time deposits
3,441,962

 
3,575,735

 
(15.0
)
 
3,390,148

 
3,256,234

 
3,213,546

 
7.1

Total deposits
$
15,879,436

 
$
16,061,999

 
(4.5
)%
 
$
15,593,282

 
$
15,444,852

 
$
14,551,536

 
9.1
%
(1) Annualized
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
 
 
 
 
 
 
 
 
 
 
 
Additional Data - Intangibles
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
1,134,568

 
$
1,134,568

 
$
1,134,568

 
$
1,134,568

 
$
1,134,568

 
$
1,134,568

Loan servicing rights
60,658

 
64,701

 
71,013

 
72,707

 
70,364

 
68,837

Core deposit intangibles (CDI)
25,835

 
27,195

 
28,556

 
29,981

 
31,407

 
32,833



13

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
Nonperforming Assets
 
 
 
 
 
 
 
 
 
 
 
Nonperforming Loans (1):
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
37,762

 
$
33,715

 
$
30,139

 
$
25,328

 
$
20,741

 
$
20,000

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
20,814

 
18,234

 
16,056

 
14,936

 
16,103

 
19,855

Non-owner occupied
21,639

 
19,430

 
23,021

 
8,991

 
9,168

 
5,489

Vacant land
1,446

 
2,153

 
3,337

 
4,711

 
3,135

 
4,829

Total commercial real estate
43,899

 
39,817

 
42,414

 
28,638

 
28,406

 
30,173

Real estate construction
3,501

 
3,663

 
12

 
28,477

 
5,704

 
77

Residential mortgage
7,636

 
7,665

 
7,988

 
9,611

 
7,974

 
7,621

Consumer installment
1,411

 
1,191

 
1,276

 
1,350

 
945

 
922

Home equity
3,487

 
3,273

 
3,604

 
3,269

 
2,972

 
3,039

Total nonaccrual loans(1)
97,696

 
89,324

 
85,433

 
96,673

 
66,742

 
61,832

Other real estate and repossessed assets
8,267

 
9,106

 
6,256

 
6,584

 
5,828

 
7,719

Total nonperforming assets
$
105,963

 
$
98,430

 
$
91,689

 
$
103,257

 
$
72,570

 
$
69,551

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
$
146

 
$
544

 
$
—

 
$
632

 
$
472

 
$
322

Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
—

 
—

 
52

 
47

 
461

 
—

Non-owner occupied
—

 
—

 
887

 
—

 
—

 
—

Vacant land
—

 
—

 
—

 
—

 
16

 
—

Total commercial real estate
—

 
—

 
939

 
47

 
477

 
—

Real estate construction
—

 
—

 
—

 
38

 
—

 
—

Home equity
—

 
—

 
488

 
475

 
713

 
913

Total accruing loans contractually past due 90 days or more as to interest or principal payments
$
146

 
$
544

 
$
1,427

 
$
1,192

 
$
1,662

 
$
1,235

(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.

14

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Summary of Allowance and Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
 
2nd Quarter 2019
 
1st Quarter 2019
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
 
Six Months Ended
 
 
 
 
 
 
 
June 30,
2019
 
June 30,
2018
Allowance for loan losses - originated loan portfolio
 
 
 
 
 
 
  Allowance for loan losses - beginning of period
$110,284
 
$109,564
 
$103,071
 
$100,015
 
$94,762
 
$91,887
 
$109,564
 
$91,887
Provision for loan losses
7,502

 
2,479

 
9,444

 
5,058

 
9,572

 
6,256

 
9,981

 
15,828

Net loan (charge-offs) recoveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
(1,080
)
 
(287
)
 
(627
)
 
(564
)
 
(517
)
 
(1,252
)
 
(1,367
)
 
(1,769
)
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
116

 
(532
)
 
(153
)
 
255

 
(1,656
)
 
341

 
(416
)
 
(1,315
)
Non-owner occupied
11

 
219

 
(544
)
 
392

 
92

 
(456
)
 
230

 
(364
)
Vacant land
(5
)
 
(13
)
 
—

 
2

 
(921
)
 
(448
)
 
(18
)
 
(1,369
)
Total commercial real estate
122

 
(326
)
 
(697
)
 
649

 
(2,485
)
 
(563
)
 
(204
)
 
(3,048
)
Real estate construction
—

 
—

 
—

 
—

 
—

 
26

 
—

 
26

Residential mortgage
170

 
(76
)
 
(243
)
 
(773
)
 
(88
)
 
(53
)
 
94

 
(141
)
Consumer installment
(1,060
)
 
(1,133
)
 
(1,293
)
 
(1,410
)
 
(994
)
 
(997
)
 
(2,193
)
 
(1,991
)
Home equity
29

 
63

 
(91
)
 
96

 
(235
)
 
(542
)
 
92

 
(777
)
Net loan charge-offs
(1,819
)
 
(1,759
)
 
(2,951
)
 
(2,002
)
 
(4,319
)
 
(3,381
)
 
(3,578
)
 
(7,700
)
Allowance for loan losses - end of period
115,967

 
110,284
 
109,564

 
103,071

 
100,015

 
94,762

 
115,967

 
100,015

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

 
420

 
970

 
—

 
—

 
—

 
420

 
—

Provision for loan losses
—

 
(420
)
 
(550
)
 
970

 
—

 
—

 
(420
)
 
—

Allowance for loan losses - end of period
—

 
—

 
420

 
970

 
—

 
—

 
—

 
—

Total allowance for loan losses
$115,967
 
$110,284
 
$109,984
 
$104,041
 
$100,015
 
$94,762
 
$115,967
 
$100,015
Net loan charge-offs as a percent of average loans (annualized)
0.05
%
 
0.05
%
 
0.08
%
 
0.05
%
 
0.12
%
 
0.10
%
 
0.05
%
 
0.11
%

 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31, 2018
Originated loans
$
12,871,110

 
$
12,142,274

 
$
11,844,756

 
$
11,145,442

 
$
10,696,533

 
$
10,012,516

Acquired loans
2,990,793

 
3,181,774

 
3,425,023

 
3,650,810

 
3,883,160

 
4,206,231

Total loans
$
15,861,903

 
$
15,324,048

 
$
15,269,779

 
$
14,796,252

 
$
14,579,693

 
$
14,218,747

 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses (originated loan portfolio) as a percent of:
 
 
Total originated loans
0.90
%
 
0.91
%
 
0.93
%
 
0.93
%
 
0.94
%
 
0.95%
Nonperforming loans
118.7
%
 
123.5
%
 
128.2
%
 
106.6
%
 
149.9
%
 
153.3%
Credit mark as a percent of unpaid principal balance on acquired loans
1.4
%
 
1.5
%
 
1.7
%
 
1.7
%
 
1.8
%
 
1.8%

15

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands)
 
2nd Quarter 2019
 
1st Quarter 2019
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
 
Six Months Ended
 
 
 
 
 
 
 
June 30,
2019
 
June 30,
2018
Non-GAAP Operating Results
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, as reported
$
69,594

 
$
62,942

 
$
73,039

 
$
70,397

 
$
68,988

 
$
71,596

 
$132,536
 
$140,584
Merger expenses
3,042

 
5,424

 
—

 
—

 
—

 
—

 
8,466

 
—

Loan servicing rights change in fair value (gains) losses
5,457

 
7,646

 
2,827

 
(932
)
 
30

 
(3,752
)
 
13,103

 
(3,722
)
Significant items
8,499

 
13,070

 
2,827

 
(932
)
 
30

 
(3,752
)
 
21,569

 
(3,722
)
Income tax benefit(1)
(1,785
)
 
(2,744
)
 
(594
)

197

 
(7
)
 
788

 
(4,529
)
 
781

Significant items, net of tax
6,714

 
10,326

 
2,233

 
(735
)
 
23

 
(2,964
)
 
17,040

 
(2,941
)
Net income, excluding significant items
$
76,308

 
$
73,268

 
$
75,272

 
$
69,662

 
$
69,011

 
$
68,632

 
$149,576
 
$137,643
Diluted Earnings Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share, as reported
$
0.96

 
$
0.87

 
$
1.01

 
$
0.98

 
$
0.96

 
$
0.99

 
$
1.84

 
$
1.95

Effect of significant items, net of tax
0.10

 
0.15

 
0.03

 
(0.01
)
 
—

 
(0.04
)
 
0.23

 
(0.04
)
Diluted earnings per share, excluding significant items
$
1.06

 
$
1.02

 
$
1.04

 
$
0.97

 
$
0.96

 
$
0.95

 
$
2.07

 
$
1.91

Return on Average Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets, as reported
1.27
%
 
1.17%
 
1.39
%
 
1.37
 %
 
1.39
%
 
1.47
 %
 
1.22
%
 
1.43
 %
Effect of significant items, net of tax
0.12

 
0.19
 
0.05

 
(0.01
)
 
—

 
(0.06
)
 
0.15

 
(0.03
)
Return on average assets, excluding significant items
1.39
%
 
1.36%
 
1.44
%
 
1.36
 %
 
1.39
%
 
1.41
 %
 
1.37
%
 
1.40
 %
Return on Average Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Return on average shareholders' equity, as reported
9.5
%
 
8.8
%
 
10.4
%
 
10.2
 %
 
10.2
%
 
10.7
 %
 
9.2
%
 
10.5
 %
Effect of significant items, net of tax
1.0

 
1.5

 
0.4

 
(0.1
)
 
—

 
(0.4
)
 
1.2

 
(0.3
)
Return on average shareholders' equity, excluding significant items
10.5
%
 
10.3
%
 
10.8
%
 
10.1
 %
 
10.2
%
 
10.3
 %
 
10.4
%
 
10.2
 %
Return on Average Tangible Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity
$2,920,211
 
$2,855,715
 
$2,798,498
 
$2,769,101
 
$2,707,346
 
$2,668,325
 
$2,888,142
 
$2,687,943
Average goodwill and core deposit intangibles, net of tax
1,152,110
 
1,153,275
 
1,154,469
 
1,155,679
 
1,156,877
 
1,158,084
 
1,152,689
 
1,157,482
Average tangible shareholders' equity
$1,768,101
 
$1,702,440
 
$1,644,029
 
$1,613,422
 
$1,550,469
 
$1,510,241
 
$1,735,453
 
$1,530,461
Return on average tangible shareholders' equity
15.7
%
 
14.8
%
 
17.8
%
 
17.5
 %
 
17.8
%
 
19.0
 %
 
15.3
%
 
18.4
 %
Effect of significant items, net of tax
1.6

 
2.4

 
0.5

 
(0.2
)
 
—

 
(0.8
)
 
1.9

 
(0.4
)
Return on average tangible shareholders' equity, excluding significant items
17.3
%
 
17.2
%
 
18.3
%
 
17.3
 %
 
17.8
%
 
18.2
 %
 
17.2
%
 
18.0
 %
(1)
Assumes significant items are deductible at an income tax rate of 21%.

16

Chemical Financial Corporation Announces 2019 Second Quarter Operating Results
 
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Amounts in thousands, except per share data)
 
2nd Quarter 2019
 
1st Quarter 2019
 
4th Quarter 2018
 
3rd Quarter 2018
 
2nd Quarter 2018
 
1st Quarter 2018
 
Six Months Ended
 
 
 
 
 
 
 
June 30,
2019
 
June 30,
2018
Efficiency Ratio and Operating Expense, Core
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
$
165,161

 
$
162,824

 
$
163,452

 
$
159,481

 
$
157,537

 
$151,863
 
$327,985
 
$309,400
Noninterest income
38,164

 
24,857

 
32,047

 
37,917

 
38,018

 
40,554

 
63,021

 
78,572

Total revenue - GAAP
203,325

 
187,681

 
195,499

 
197,398

 
195,555

 
192,417

 
391,006

 
387,972

Net interest income FTE adjustment
2,671
 
2,662

 
2,514

 
2,386

 
2,331

 
2,227

 
5,332

 
4,558

Loan servicing rights change in fair value (gains) losses
5,457

 
7,646

 
2,827

 
(932
)
 
30

 
(3,752
)
 
13,103

 
(3,722
)
Gains from sale of investment securities
(4,160
)
 
(87
)
 
(221
)
 
—

 
(3
)
 
—

 
(4,247
)
 
(3
)
Total revenue - Non-GAAP
$207,293
 
$
197,902

 
$
200,619

 
$
198,852

 
$
197,913

 
$190,892
 
$405,194
 
$388,805
Operating expenses - GAAP
$
111,003

 
$
109,015

 
$
108,366

 
$
109,661

 
$
104,561

 
$101,610
 
$220,018
 
$206,171
Merger expenses
(3,042
)
 
(5,424
)
 
—

 
—

 
—

 
—

 
(8,466
)
 
—

Impairment of income tax credits
(271
)
 
—

 
(5,772
)
 
(3,162
)
 
(1,716
)
 
(1,634
)
 
(271
)
 
(3,350
)
Operating expense, core - Non-GAAP
107,690

 
103,591

 
102,594

 
106,499

 
102,845

 
99,976

 
211,281

 
202,821

Amortization of intangibles
(1,360
)
 
(1,361
)
 
(1,426
)
 
(1,426
)
 
(1,425
)
 
(1,439
)
 
(2,721
)
 
(2,864
)
Operating expenses, efficiency ratio - Non-GAAP
$
106,330

 
$
102,230

 
$
101,168

 
$
105,073

 
$
101,420

 
$98,537
 
$208,560
 
$199,957
Efficiency ratio - GAAP
54.6
%
 
58.1
%
 
55.4
%
 
55.6
%
 
53.5
%
 
52.8
%
 
56.3
%
 
53.1
%
Efficiency ratio - adjusted Non-GAAP
51.3
%
 
51.7
%
 
50.4
%
 
52.8
%
 
51.2
%
 
51.6
%
 
51.5
%
 
51.4
%

 
June 30,
2019
 
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
Tangible Book Value
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity, as reported
$
2,953,535

 
$
2,897,509

 
$
2,836,260

 
$
2,788,924

 
$
2,750,999

 
$
2,704,703

Goodwill and core deposit intangibles, net of tax
(1,151,532
)
 
(1,152,705
)
 
(1,153,877
)
 
(1,155,083
)
 
(1,156,307
)
 
(1,157,505
)
Tangible shareholders' equity
$
1,802,003

 
$
1,744,804

 
$
1,682,383

 
$
1,633,841

 
$
1,594,692

 
$
1,547,198

Common shares outstanding
71,559

 
71,551

 
71,460

 
71,438

 
71,418

 
71,350

Book value per share (shareholders' equity, as reported, divided by common shares outstanding)
$
41.27

 
$
40.50

 
$
39.69

 
$
39.04

 
$
38.52

 
$
37.91

Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)
$
25.18

 
$
24.39

 
$
23.54

 
$
22.87

 
$
22.33

 
$
21.68

Tangible Shareholders' Equity to Tangible Assets
 
 
 
 
 
 
 
 
Total assets, as reported
$
22,491,765

 
$
21,800,313

 
$
21,498,341

 
$
20,905,489

 
$
20,282,603

 
$
19,757,510

Goodwill and core deposit intangibles, net of tax
(1,151,532
)
 
(1,152,705
)
 
(1,153,877
)
 
(1,155,083
)
 
(1,156,307
)
 
(1,157,505
)
Tangible assets
$
21,340,233

 
$
20,647,608

 
$
20,344,464

 
$
19,750,406

 
$
19,126,296

 
$
18,600,005

Shareholders' equity to total assets
13.1
%
 
13.3
%
 
13.2
%
 
13.3
%
 
13.6
%
 
13.7
%
Tangible shareholders' equity to tangible assets
8.4
%
 
8.5
%
 
8.3
%
 
8.3
%
 
8.3
%
 
8.3
%

17