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Chemical Financial Corporation Reports Fourth Quarter and Full Year 2014 Results

MIDLAND, Mich., Jan. 27, 2015 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2014 fourth quarter net income of $15.3 million, or $0.46 per diluted share, compared to 2013 fourth quarter net income of $14.4 million, or $0.48 per diluted share, and 2014 third quarter net income of $16.8 million, or $0.51 per diluted share. For the twelve months ended December 31, 2014, net income was $62.1 million, or $1.97 per diluted share, compared to net income for the twelve months ended December 31, 2013 of $56.8 million, or $2.00 per diluted share. The declines in diluted per share earnings for the three and twelve months ended December 31, 2014 were attributable to the higher number of outstanding shares resulting from the Corporation's September 2013 and June 2014 common equity offerings and nonrecurring transaction-related expenses incurred during 2014.

Nonrecurring transaction-related expenses for the three and twelve months ended December 31, 2014 were $4.1 million and $6.4 million, respectively, with $3.5 million and $5.8 million, respectively, attributable to the acquisition of Northwestern Bancorp, Inc. ("Northwestern") and $0.6 million for both the three and twelve months ended December 31, 2014, respectively, attributable to the pending acquisitions of Monarch Community Bancorp, Inc. ("Monarch") and Lake Michigan Financial Corporation ("Lake Michigan"). As previously reported, the Corporation completed its acquisition of Northwestern on October 31, 2014. Accordingly, the results of Northwestern's operations are included since the acquisition date. The acquisition of Northwestern resulted in increases in the Corporation's total assets of $815 million, total loans of $475 million, total deposits of $794 million, and goodwill of $60 million.

Excluding nonrecurring transaction-related expenses, net income in the fourth quarter of 2014 was $18.4 million, or $0.56 per diluted share, up 28% over net income of $14.4 million in the fourth quarter of 2013. Excluding nonrecurring transaction-related expenses, net income in 2014 was $66.7 million, or $2.11 per diluted share, up 17% over net income of $56.8 million in 2013.

"Driven by strong loan growth and two months of results from the Northwestern transaction, Chemical Financial Corporation posted fourth quarter 2014 net income, excluding nonrecurring transaction-related expenses, that was 28% higher than the prior year's fourth quarter. This capped off a year which saw net income growth, excluding nonrecurring transaction-related expenses, of 17% over the prior year. While the addition of Northwestern played an important role in overall earning-asset growth, organic loan growth of $565 million was the primary driver of our portfolio growth during the year," noted David B. Ramaker, Chairman, Chief Executive Officer and President. "Notably, the organic loan growth was not only broadly distributed geographically across our four regions and by loan type, but was also persistent throughout the course of the year. We attribute the portfolio growth to Michigan's improving economy, coupled with competitive share gains across our market footprint. Earnings also benefited from stable net interest margins, improved credit quality and increased wealth management revenue."

"In addition to executing on our core community banking strategy during 2014, we had a very successful year in executing our acquisition growth strategy. Over the course of the year, we identified and reached agreements with three like-minded, community-oriented institutions with whom we agreed to partner going forward. We are already seeing benefits from the addition of Northwestern to the Chemical family, and we look forward to adding Monarch and Lake Michigan to our family as we expect those transactions to close during the course of 2015," added Ramaker.

Net income, excluding nonrecurring transaction-related expenses, in the fourth quarter of 2014 was 28% higher than the fourth quarter of 2013 due to higher net interest income, higher noninterest income, a lower provision for loan losses and the impact of the acquisition of Northwestern, which were partially offset by higher operating expenses. Net income, excluding nonrecurring transaction-related expenses, in the fourth quarter of 2014 was 5% higher than the third quarter of 2014, with the increase primarily attributable to the impact of the Northwestern acquisition and higher net interest income from legacy operations of Chemical Bank, both of which were offset by higher legacy operating expenses.

The Corporation's return on average assets was 0.87% during the fourth quarter of 2014, compared to 0.93% in the fourth quarter of 2013 and 1.04% in the third quarter of 2014. The Corporation's return on average shareholders' equity was 7.5% in the fourth quarter of 2014, compared to 8.4% in both the fourth quarter of 2013 and the third quarter of 2014. Nonrecurring transaction-related expenses in the fourth quarter of 2014 reduced the Corporation's return on average assets by 18 basis points and return on average shareholders' equity by 153 basis points.

Net interest income was $58.2 million in the fourth quarter of 2014, $6.9 million, or 13.5%, higher than the fourth quarter of 2013 and $5.2 million, or 9.8%, higher than the third quarter of 2014. The increases in net interest income in the fourth quarter of 2014 over both the fourth quarter of 2013 and the third quarter of 2014 were attributable to a combination of the acquisition of Northwestern and organic loan growth. Excluding the $475 million of loans acquired in the acquisition of Northwestern, total loans grew $172 million, or 3.4%, in the fourth quarter of 2014 and $565 million, or 12.2%, over the twelve months ended December 31, 2014.

The net interest margin (on a tax-equivalent basis) was 3.62% in the fourth quarter of 2014, compared to 3.63% in the fourth quarter of 2013 and 3.59% in the third quarter of 2014. The positive impact on the net interest margin attributable to loan growth during the three and twelve months ended December 31, 2014 was offset by a reduction in the average yield on the loan portfolio. The average yield on the loan portfolio was 4.22% in the fourth quarter of 2014, compared to 4.42% in the fourth quarter of 2013 and 4.23% in the third quarter of 2014. The average yield of the investment securities portfolio was 2.02% in the fourth quarter of 2014, compared to 2.07% in the fourth quarter of 2013 and 2.19% in the third quarter of 2014. The reduction in the average yield of the investment securities portfolio in the fourth quarter of 2014 was attributable to the acquisition of Northwestern, in which the Corporation acquired $230 million in investment securities at an average yield of 0.98%. Modest changes in the mix of customer deposits and the repricing of matured customer certificates of deposit resulted in the Corporation's average cost of funds declining to 0.23% in the fourth quarter of 2014 from 0.30% in the fourth quarter of 2013 and 0.25% in the third quarter of 2014.

Net interest income was $212.6 million in 2014, $15.9 million, or 8.1%, higher than 2013, with the increase primarily attributable to loan growth in 2014. The acquisition of Northwestern and the favorable impact of interest-bearing deposits repricing lower during 2014 also contributed to increases in net interest income. These increases were partially offset by the unfavorable impact of interest-earning assets repricing during the year. The net interest margin (on a tax equivalent basis) was 3.59% in both 2014 and 2013.

The provision for loan losses was $1.5 million in the fourth quarter of 2014, compared to $2.0 million in the fourth quarter of 2013 and $1.5 million in the third quarter of 2014. The decrease in the provision for loan losses in the fourth quarter of 2014 compared to the fourth quarter of 2013 was due to continued improvement in the overall credit quality of the loan portfolio. The provision for loan losses was $6.1 million in 2014, compared to $11.0 million in 2013.

Net loan charge-offs were $2.8 million, or 0.21% of average loans, in the fourth quarter of 2014, compared to $4.5 million, or 0.39% of average loans, in the fourth quarter of 2013 and $2.3 million, or 0.18% of average loans, in the third quarter of 2014. The reduction in net loan charge-offs in the fourth quarter of 2014, compared to the fourth quarter of 2013, was due to the continued improvement in the overall credit quality of the loan portfolio and characteristics of an improving economy in the State of Michigan. The increase in net loan charge-offs in the fourth quarter of 2014, compared to the third quarter of 2014, was primarily attributable to the third quarter of 2014 including $0.4 million in higher loan loss recoveries. Net loan charge-offs totaled $9.5 million, or 0.19% of average loans, in 2014, compared to $16.4 million, or 0.38% of average loans, in 2013.

The Corporation's nonperforming loans, consisting of nonaccrual loans, accruing loans past due 90 days or more as to principal or interest payments and nonperforming troubled debt restructurings, totaled $71.2 million at December 31, 2014, compared to $70.7 million at September 30, 2014 and $82.0 million at December 31, 2013. Nonperforming loans comprised 1.25% of total loans at December 31, 2014, compared to 1.40% at September 30, 2014 and 1.76% at December 31, 2013. The reduction in nonperforming loans during the twelve months ended December 31, 2014 was attributable to a combination of improving economic conditions, the migration of loans to other real estate owned and loan charge-offs. The reduction in nonperforming loans as a percentage of total loans during the fourth quarter of 2014 was due to none of the $475 million of loans acquired in the acquisition of Northwestern being considered nonperforming loans based on the Corporation's accounting treatment under generally accepted accounting principles (GAAP).

At December 31, 2014, the allowance for loan losses of the originated loan portfolio was $75.2 million, or 1.51% of originated loans, compared to $76.5 million, or 1.60% of originated loans, at September 30, 2014 and $78.6 million, or 1.81% of originated loans, at December 31, 2013. The decreases in the coverage of the Corporation's allowance for loan losses of the originated portfolio during the three and twelve months ended December 31, 2014 was due to growth in loans in the originated loan portfolio. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 106% at December 31, 2014, compared to 108% at September 30, 2014 and 96% at December 31, 2013.

Noninterest income was $18.2 million in the fourth quarter of 2014, compared to $13.6 million in the fourth quarter of 2013 and $15.4 million in the third quarter of 2014. Noninterest income in the fourth quarter of 2014 was $4.6 million higher than the fourth quarter of 2013, with the increase attributable to both additional revenue and fees for services resulting from the incremental operations associated with the acquisition of Northwestern and higher wealth management revenue and service charges and fees for customer services related to legacy operations. Mortgage banking revenue in the fourth quarter of 2013 included $0.5 million of expense related to an increase in the Corporation's reserve for losses on sold loans. Noninterest income in the the fourth quarter of 2014 was $2.9 million higher than the third quarter of 2014, with the increase primarily attributable to the acquisition of Northwestern.

Noninterest income was $63.1 million in 2014, compared to $60.4 million in 2013. Excluding nonrecurring income in 2013 of $1.6 million, noninterest income was $4.3 million, or 7.3%, higher in 2014 than 2013, with the increase attributable to increases in all major categories of noninterest income, except for mortgage banking revenue, that was partially driven by the acquisition of Northwestern. Wealth management revenue was $16.0 million in 2014, compared to $14.0 million in 2013, with the increase largely due to an increase in equity market performance that led to increased assets under management and the acquisition of Northwestern, which added approximately $1.0 billion of assets under management to the Corporation's Wealth Management department as of the acquisition date. Mortgage banking revenue was $5.0 million in 2014, compared to $5.3 million in 2013, with the decrease due primarily to declines in the volume of loans sold in the secondary market. The Corporation sold $149 million of residential mortgage loans in the secondary market in 2014, compared to $211 million in 2013.

Operating expenses were $52.6 million in the fourth quarter of 2014, compared to $42.4 million in the fourth quarter of 2013 and $42.7 million in the third quarter of 2014. Operating expenses included nonrecurring transaction-related expenses of $4.1 million in the fourth quarter of 2014 and $1.3 million in the third quarter of 2014. Excluding these nonrecurring transaction-related expenses, operating expenses in the fourth quarter of 2014 were $6.1 million, or 14%, higher than the fourth quarter of 2013 and $7.1 million, or 17%, higher than the third quarter of 2014. The increase in operating expenses in the fourth quarter of 2014, compared to the fourth quarter of 2013, was primarily attributable to incremental operating costs associated with the acquisition of Northwestern. The increase was also attributable to increased employee compensation costs resulting from merit increases and market-based salary adjustments that took effect at the beginning of 2014 and higher group health care costs which were partially offset by lower donations expense. The increase in operating expenses in the fourth quarter of 2014, compared to the third quarter of 2014, was largely attributable to incremental operating costs associated with the acquisition of Northwestern in addition to higher group health care costs.

Operating expenses were $179.9 million in 2014, compared to $164.9 million in 2013. Operating expenses included nonrecurring transaction-related expenses of $6.4 million in 2014. Excluding these nonrecurring transaction-related expenses, operating expenses in 2014 were $8.6 million, or 5.2%, higher than 2013, due largely to a combination of incremental operating costs associated with the acquisition of Northwestern and increased employee compensation costs resulting from merit increases and market-based salary adjustments and higher group health care costs, in addition to higher expenses associated with occupancy, equipment and net other real estate costs related to legacy operations. These increases were partially offset by lower pension and donations expense.

The Corporation's efficiency ratio was 62.2% in the fourth quarter of 2014, 59.2% in the third quarter of 2014 and 63.7% in the fourth quarter of 2013. The Corporation's efficiency ratio was 61.6% for 2014 and 63.1% for 2013.

Total assets were $7.32 billion at December 31, 2014, compared to $6.60 billion at September 30, 2014 and $6.18 billion at December 31, 2013. The increase in total assets during the three months ended December 31, 2014 was attributable to the acquisition of Northwestern, which added $815 million of assets as of the acquisition date, while the increase in total assets during the twelve months ended December 31, 2014 was primarily attributable to the acquisition of Northwestern, in addition to an increase in deposits that was used to partially fund loan growth. Interest-bearing balances with the Federal Reserve Bank (FRB) totaled $8 million at December 31, 2014, compared to $248 million at September 30, 2014 and $180 million at December 31, 2013. The decrease in interest-bearing balances with the FRB during the three months ended December 31, 2014 was due to a decline in seasonal municipal deposit accounts and funding the $121 million all cash purchase price of Northwestern. The decrease in interest-bearing balances at the FRB during the twelve months ended December 31, 2014 was also attributable to the Corporation utilizing some of the liquidity from its excess funds held at the FRB and maturing investment securities to also fund loan growth. Investment securities were $1.07 billion at December 31, 2014, compared to $895 million at September 30, 2014 and $958 million at December 31, 2013. The increase in investment securities during the fourth quarter of 2014 was due to investment securities acquired in the acquisition of Northwestern.

Total loans were $5.69 billion at December 31, 2014, up from $5.04 billion at September 30, 2014 and $4.65 billion at December 31, 2013. Excluding the $475 million of loans acquired in the acquisition of Northwestern, loans increased $172 million, or 3.4%, and $565 million, or 12.2%, during the three and twelve months ended December 31, 2014, respectively. The increases in loans during the three and twelve months ended December 31, 2014 occurred across all loan categories and were largely attributable to a combination of improving economic conditions and increased market share. The increase in loans of $565 million during 2014 was attributable to increases in commercial loans of $133 million, or 11%, commercial real estate loans of $103 million, or 8%, real estate construction and land development loans of $47 million, or 43%, residential real estate loans of $43 million, or 5%, and consumer installment and home equity loans of $239 million, or 20%. As of the acquisition date, Northwestern added commercial loans of $46 million, commercial real estate loans of $223 million, real estate construction and land development loans of $14 million, residential real estate loans of $106 million and consumer installment and home equity loans of $86 million.

Total deposits were $6.08 billion at December 31, 2014, compared to $5.43 billion at September 30, 2014 and $5.12 billion at December 31, 2013. Excluding the $794 million of deposits acquired in the acquisition of Northwestern, the Corporation experienced growth in total deposits of $162 million, or 3.2%, during the twelve months ended December 31, 2014. Short-term borrowings were $389.5 million at December 31, 2014, compared to $323.1 million at September 30, 2014 and $327.4 million at December 31, 2013, with the increases during the three and twelve months ended December 31, 2014 attributable to $85 million of short-term borrowings in the form of federal funds sold and FHLB advances utilized by the Corporation to fund short-term liquidity needs.

At December 31, 2014, the Corporation's tangible equity to assets ratio and total risk-based capital ratio were 8.4% and 12.4%, respectively, compared to 10.5% and 15.0%, respectively, at September 30, 2014 and 9.4% and 14.0%, respectively, at December 31, 2013. The decreases in the Corporation's capital ratios at December 31, 2014, compared to both September 30, 2014 and December 31, 2013, were attributable to the Corporation's all cash acquisition of Northwestern, which resulted in the addition of $73 million of intangible assets, including $60 million of goodwill, as of the date of acquisition. At December 31, 2014, the Corporation's book value was $24.32 per share, compared to $24.47 per share at September 30, 2014 and $23.38 per share at December 31, 2013. At December 31, 2014, the Corporation's tangible book value was $18.35 per share, compared to $20.68 per share at September 30, 2014 and $19.17 per share at December 31, 2013.

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include the Corporation's tangible equity to assets ratio, presentation of net interest income and net interest margin on a fully taxable equivalent basis (FTE), information presented excluding nonrecurring transaction-related expenses, including net income, diluted earnings per share, return on average assets, return on average shareholders' equity and operating expenses, and information presented on a pro-forma basis. These non-GAAP financial measures have been included as the Corporation believes they are helpful for investors to analyze and evaluate the Corporation's financial condition.

Chemical Financial Corporation will host a conference call to discuss its fourth quarter and full year 2014 results on Wednesday, January 28, 2015 at 11 a.m. EDT. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-364-3108 and entering 5170765 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical's website at www.chemicalbankmi.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical's website for at least 14 days.

Chemical Financial Corporation is the second largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through a single subsidiary bank, Chemical Bank, with 178 banking offices spread over 46 counties in Michigan. At December 31, 2014, the Corporation had total assets of $7.3 billion, and on a pro-forma basis including the Corporation's recently announced pending acquisitions of Monarch and Lake Michigan, the Corporation would have total assets of approximately $8.7 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issues comprising The NASDAQ Global Select Market. More information about the Corporation is available by visiting the investor relations section of its website at www.chemicalbankmi.com.

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and the Corporation. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "intends," "is likely," "judgment," "look forward," "opinion," "plans," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on the Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

This press release may contain forward-looking statements regarding the Corporation's outlook or expectations with respect to the planned acquisitions of Monarch and Lake Michigan, the expected costs to be incurred in connection with the acquisitions, Monarch's and Lake Michigan's future performance and consequences of their integration into the Corporation and the impact of the transactions on the Corporation's future performance.

Risk factors relating to both of these transactions and the integration of Monarch and Lake Michigan into the Corporation after closing include, without limitation:

Completion of the transactions is dependent on, among other things, receipt of regulatory approvals and shareholder approvals from Monarch and Lake Michigan shareholders, the timing of which cannot be predicted with precision at this point and which may not be received at all.

The impact of the completion of the transactions on the Corporation's financial statements will be affected by the timing of the transactions.

The transactions may be more expensive to complete and the anticipated benefits, including anticipated cost savings and strategic gains, may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events.

The integration of Monarch's and Lake Michigan's business and operations into the Corporation, which will include conversion of operating systems and procedures, may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Monarch's, Lake Michigan's or the Corporation's existing businesses.

The Corporation's ability to achieve anticipated results from the transactions is dependent on the state of the economic and financial markets going forward. Specifically, the Corporation may incur more credit losses from Monarch's and Lake Michigan's loan portfolios than expected and deposit attrition may be greater than expected.

In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2013. 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.

No Offer or Solicitation

This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to any merger agreement associated with the Monarch or Lake Michigan transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Additional Information about the Transactions

Chemical filed a registration statement on Form S-4 with the Securities and Exchange Commission (SEC) to register the securities that the Monarch shareholders will receive if the Monarch transaction is consummated. Chemical will file a registration statement on Form S-4 with the SEC to register securities that the Lake Michigan shareholders will receive if the Lake Michigan transaction is consummated. The registration statements contain or will contain a prospectus, a proxy statement for the meeting at which the Monarch or Lake Michigan shareholders will consider approval of the transaction, as applicable, and other relevant documents concerning the transactions. Investors are urged to read the applicable registration statement, the prospectus and proxy statement, and any other relevant documents when they become available because they will contain important information about Chemical, Monarch, Lake Michigan, and the transactions. Investors will be able to obtain the documents free of charge at the SEC's website, www.sec.gov, by contacting Chemical Financial Corporation, 235 East Main Street, P.O. Box 569, Midland, MI 48640-0569, Attention: Ms. Lori A. Gwizdala, Investor Relations, telephone 800-867-9757 or by contacting, as applicable, Monarch Community Bancorp. Inc., 375 N. Willowbrook Road, Coldwater, Michigan 49036, Attention: Ms. Rebecca S. Crabill, Investor Relations, telephone 517-279-3956, or Lake Michigan Financial Corporation, 150 Central Avenue, Holland, Michigan 49423, Attention: Mr. James Luyk, Investor Relations, telephone 616-546-4078. INVESTORS SHOULD READ THE APPLICABLE PROSPECTUS AND PROXY STATEMENT AND OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY BEFORE MAKING A DECISION CONCERNING THE TRANSACTIONS.

Monarch and Lake Michigan, and their respective directors, executive officers, and certain other members of management and employees, may be soliciting proxies from Monarch or Lake Michigan shareholders, as applicable, in favor of the transactions. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of Monarch or Lake Michigan shareholders in connection with the proposed transactions will be set forth in the applicable prospectus and proxy statement when it is filed with the SEC. Free copies of this document may be obtained as described above.

Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
December 31,
2014
September 30,
2014
December 31,
2013
(In thousands, except per share data)
Assets
Cash and cash equivalents:
Cash and cash due from banks $ 144,892 $ 134,116 $ 130,811
Interest-bearing deposits with the Federal Reserve Bank and other banks 38,128 248,022 179,977
Total cash and cash equivalents 183,020 382,138 310,788
Investment securities:
Available-for-sale 748,864 576,211 684,570
Held-to-maturity 316,413 318,562 273,905
Total investment securities 1,065,277 894,773 958,475
Loans held-for-sale 9,128 9,347 5,219
Loans:
Commercial 1,354,881 1,239,946 1,176,307
Commercial real estate 1,557,648 1,322,646 1,232,658
Real estate construction and land development 171,495 136,216 109,861
Residential mortgage 1,110,390 984,049 960,423
Consumer installment and home equity 1,493,816 1,358,063 1,168,372
Total loans 5,688,230 5,040,920 4,647,621
Allowance for loan losses (75,683) (77,006) (79,072)
Net loans 5,612,547 4,963,914 4,568,549
Premises and equipment 97,496 80,127 75,308
Goodwill 180,128 120,164 120,164
Other intangible assets 33,080 11,958 13,424
Interest receivable and other assets 141,467 134,564 132,781
Total Assets $ 7,322,143 $ 6,596,985 $ 6,184,708
Liabilities
Deposits:
Noninterest-bearing $ 1,591,661 $ 1,344,716 $ 1,227,768
Interest-bearing 4,487,310 4,087,211 3,894,617
Total deposits 6,078,971 5,431,927 5,122,385
Interest payable and other liabilities 56,572 40,366 38,395
Short-term borrowings 389,467 323,086 327,428
Total liabilities 6,525,010 5,795,379 5,488,208
Shareholders' Equity
Preferred stock, no par value per share
Common stock, $1 par value per share 32,774 32,763 29,790
Additional paid-in capital 565,166 564,127 488,177
Retained earnings 231,646 224,222 199,053
Accumulated other comprehensive loss (32,453) (19,506) (20,520)
Total shareholders' equity 797,133 801,606 696,500
Total Liabilities and Shareholders' Equity $ 7,322,143 $ 6,596,985 $ 6,184,708
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
Three Months Ended Twelve Months Ended
December 31, December 31,
2014 2013 2014 2013
(In thousands, except per share data)
Interest Income
Interest and fees on loans $ 57,140 $ 50,639 $ 209,429 $ 195,590
Interest on investment securities:
Taxable 2,322 2,497 9,147 10,234
Tax-exempt 1,841 1,656 7,054 6,394
Dividends on nonmarketable equity securities 415 404 1,224 1,105
Interest on deposits with the Federal Reserve Bank and other banks 89 127 407 738
Total interest income 61,807 55,323 227,261 214,061
Interest Expense
Interest on deposits 3,414 3,893 14,254 16,883
Interest on short-term borrowings 107 125 414 484
Interest on long-term FHLB advances and subordinated debt 42 42 47
Total interest expense 3,563 4,018 14,710 17,414
Net Interest Income 58,244 51,305 212,551 196,647
Provision for loan losses 1,500 2,000 6,100 11,000
Net interest income after provision for loan losses 56,744 49,305 206,451 185,647
Noninterest Income
Service charges and fees on deposit accounts 6,386 5,519 22,414 21,939
Wealth management revenue 4,696 3,296 16,015 13,989
Other charges and fees for customer services 5,366 3,925 18,928 17,151
Mortgage banking revenue 1,590 637 5,041 5,336
Gain on sale of investment securities 29 1,133
Other 189 172 697 861
Total noninterest income 18,227 13,578 63,095 60,409
Operating Expenses
Salaries, wages and employee benefits 30,189 24,357 104,118 96,419
Occupancy 4,201 3,485 15,842 13,934
Equipment and software 4,272 3,483 15,297 13,734
Other 13,954 11,080 44,668 40,861
Total operating expenses 52,616 42,405 179,925 164,948
Income before income taxes 22,355 20,478 89,621 81,108
Federal income tax expense 7,050 6,100 27,500 24,300
Net Income $ 15,305 $ 14,378 $ 62,121 $ 56,808
Earnings Per Common Share:
Weighted average common shares outstanding for basic earnings per share 32,767 29,786 31,367 28,183
Weighted average common shares outstanding for diluted earnings per share, including common stock equivalents 33,033 30,032 31,588 28,352
Basic earnings per common share $ 0.47 $ 0.48 $ 1.98 $ 2.02
Diluted earnings per common share $ 0.46 $ 0.48 $ 1.97 $ 2.00
Cash Dividends Declared Per Common Share $ 0.24 $ 0.23 $ 0.94 $ 0.87
Key Ratios (annualized where applicable):
Return on average assets 0.87% 0.93% 0.96% 0.95%
Return on average shareholders' equity 7.5% 8.4% 8.2% 9.1%
Net interest margin 3.62% 3.63% 3.59% 3.59%
Efficiency ratio 62.2% 63.7% 61.6% 63.1%
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Financial Summary (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
4th Quarter
2014
3rd Quarter
2014
2nd Quarter
2014
1st Quarter
2014
4th Quarter
2013
3rd Quarter
2013
2nd Quarter
2013
1st Quarter
2013
Average Balances
Total assets $7,007,879 $ 6,412,460 $ 6,253,574 $ 6,210,569 $ 6,117,217 $ 5,966,988 $ 5,859,822 $ 5,924,820
Total interest-earning assets 6,558,147 6,046,991 5,907,549 5,860,429 5,782,141 5,621,542 5,530,262 5,579,789
Total loans 5,418,743 4,962,948 4,824,299 4,692,430 4,588,448 4,424,332 4,249,708 4,152,570
Total deposits 5,808,187 5,249,317 5,151,581 5,142,276 5,065,671 4,960,270 4,878,214 4,950,956
Total interest-bearing liabilities 4,632,769 4,237,626 4,250,158 4,276,677 4,211,647 4,167,915 4,126,751 4,221,638
Total shareholders' equity 804,328 794,711 714,355 701,878 678,487 620,911 606,607 599,406
Key Ratios (annualized where applicable)
Net interest margin (taxable equiv basis) 3.62% 3.59% 3.59% 3.53% 3.63% 3.58% 3.60% 3.54%
Efficiency ratio 62.2% 59.2% 60.9% 64.5% 63.7% 61.0% 63.3% 64.4%
Return on average assets 0.87% 1.04% 1.04% 0.90% 0.93% 1.00% 0.97% 0.91%
Return on average shareholders' equity 7.5% 8.4% 9.1% 8.0% 8.4% 9.6% 9.4% 9.0%
Average shareholders' equity as a percent of average assets 11.5% 12.4% 11.4% 11.3% 11.1% 10.4% 10.4% 10.1%
Capital ratios (period end):
Tangible shareholders' equity as a percent of total assets 8.4% 10.5% 11.0% 9.3% 9.4% 8.9% 8.5% 8.1%
Total risk-based capital ratio 12.4% 15.0% 15.3% 13.8% 14.0% 14.2% 13.1% 13.3%
4th Quarter
2014
3rd Quarter
2014
2nd Quarter
2014
1st Quarter
2014
4th Quarter
2013
3rd Quarter
2013
2nd Quarter
2013
1st Quarter
2013
Credit Quality Statistics
Originated Loans $4,990,067 $ 4,777,614 $ 4,624,409 $ 4,464,465 $ 4,352,924 $ 4,213,728 $ 3,990,633 $ 3,810,989
Acquired Loans 698,163 263,306 274,395 288,824 294,697 308,943 345,238 374,272
Nonperforming Assets:
Nonperforming loans (NPLs) 71,184 70,742 73,735 76,544 81,984 75,818 79,342 86,417
Other real estate / repossessed assets (ORE) 14,205 10,354 10,392 10,056 9,776 12,033 13,659 18,194
Total nonperforming assets 85,389 81,096 84,127 86,600 91,760 87,851 93,001 104,611
Performing troubled debt restructurings 45,664 44,588 44,133 41,823 39,571 34,071 32,657 30,723
Allowance for loan losses - originated as a percent of:
Total originated loans 1.51% 1.60% 1.67% 1.75% 1.81% 1.92% 2.05% 2.16%
Nonperforming loans 106% 108% 105% 102% 96% 107% 103% 95%
NPLs as a percent of total loans 1.25% 1.40% 1.51% 1.61% 1.76% 1.68% 1.83% 2.06%
Nonperforming assets as a percent of:
Total loans plus ORE 1.50% 1.61% 1.71% 1.82% 1.97% 1.94% 2.14% 2.49%
Total assets 1.17% 1.23% 1.35% 1.37% 1.48% 1.40% 1.60% 1.75%
Net loan charge-offs (year-to-date):
Originated $ 9,489 $ 6,666 $ 4,379 $ 2,199 $ 16,419 $ 11,959 $ 8,307 $ 4,657
Acquired
Total loan charge-offs (year-to-date) 9,489 6,666 4,379 2,199 16,419 11,959 8,307 4,657
Net loan charge-offs as a percent of average loans (year-to-date, annualized) 0.19% 0.18% 0.18% 0.19% 0.38% 0.37% 0.40% 0.45%
Dec 31,
2014
Sept 30,
2014
June 30,
2014
Mar 31,
2014
Dec 31,
2013
Sept 30,
2013
June 30,
2013
Mar 31,
2013
Additional Data - Intangibles
Goodwill $ 180,128 $ 120,164 $ 120,164 $ 120,164 $ 120,164 $ 120,164 $ 120,164 $ 120,164
Core deposit intangibles (CDI) 20,863 8,665 9,110 9,556 10,001 10,466 10,933 11,417
Mortgage servicing rights (MSR) 12,217 3,293 3,344 3,316 3,423 3,399 3,421 3,485
Amortization of CDI (quarter only) 693 445 446 445 465 467 484 493
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)*
Chemical Financial Corporation
Three Months Ended December 31, 2014 Three Months Ended December 31, 2013

Average
Balance
Tax
Equivalent
Interest

Effective
Yield/Rate

Average
Balance
Tax
Equivalent
Interest

Effective
Yield/Rate
Assets (Dollars in thousands)
Interest-earning assets:
Loans** $ 5,426,664 $ 57,680 4.22% $ 4,595,248 $ 51,167 4.42%
Taxable investment securities 712,516 2,322 1.30 725,658 2,497 1.38
Tax-exempt investment securities 306,446 2,832 3.70 247,256 2,542 4.11
Other interest-earning assets 27,139 415 6.07 25,572 404 6.27
Interest-bearing deposits with the Federal Reserve Bank and other banks 85,382 89 0.41 188,407 127 0.27
Total interest-earning assets 6,558,147 63,338 3.84 5,782,141 56,737 3.90
Less: allowance for loan losses (77,053) (81,558)
Other assets:
Cash and cash due from banks 134,309 122,589
Premises and equipment 93,111 74,258
Interest receivable and other assets 299,365 219,787
Total assets $ 7,007,879 $ 6,117,217
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 1,368,314 $ 329 0.10% $ 1,145,924 $ 266 0.09%
Savings deposits 1,613,338 367 0.09 1,382,324 309 0.09
Time deposits 1,306,712 2,718 0.83 1,347,393 3,318 0.98
Short-term borrowings 337,681 107 0.13 336,006 125 0.15
Long-term FHLB advances and subordinated debt obligations 6,724 42 2.48
Total interest-bearing liabilities 4,632,769 3,563 0.31 4,211,647 4,018 0.38
Noninterest-bearing deposits 1,519,823 1,190,030
Total deposits and borrowed funds 6,152,592 3,563 0.23 5,401,677 4,018 0.30
Interest payable and other liabilities 50,959 37,053
Shareholders' equity 804,328 678,487
Total liabilities and shareholders' equity $ 7,007,879 $ 6,117,217
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.53% 3.52%
Net Interest Income (FTE) $ 59,775 $ 52,719
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.62% 3.63%
* Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%.
** Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)*
Chemical Financial Corporation
Twelve Months Ended December 31, 2014 Twelve Months Ended December 31, 2013

Average
Balance
Tax
Equivalent
Interest

Effective
Yield/Rate

Average
Balance
Tax
Equivalent
Interest

Effective
Yield/Rate
Assets (Dollars in thousands)
Interest-earning assets:
Loans** $ 4,982,986 $ 211,608 4.25% $ 4,366,209 $ 197,563 4.52%
Taxable investment securities 667,978 9,147 1.37 721,932 10,234 1.42
Tax-exempt investment securities 279,709 10,850 3.88 233,965 9,776 4.18
Other interest-earning assets 25,967 1,224 4.71 25,572 1,105 4.32
Interest-bearing deposits with the Federal Reserve Bank and other banks 138,424 407 0.29 281,291 738 0.26
Total interest-earning assets 6,095,064 233,236 3.83 5,628,969 219,416 3.90
Less: allowance for loan losses (78,126) (83,264)
Other assets:
Cash and cash due from banks 126,142 121,488
Premises and equipment 79,278 74,134
Interest receivable and other assets 250,786 223,265
Total assets $ 6,473,144 $ 5,964,592
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 1,234,347 $ 1,197 0.10% $ 1,093,975 $ 1,011 0.09%
Savings deposits 1,472,092 1,325 0.09 1,357,317 1,210 0.09
Time deposits 1,307,058 11,732 0.90 1,391,045 14,662 1.05
Short-term borrowings 334,785 414 0.12 337,649 484 0.14
Long-term FHLB advances and subordinated debt obligations 1,695 42 2.48 1,935 47 2.43
Total interest-bearing liabilities 4,349,977 14,710 0.34 4,181,921 17,414 0.42
Noninterest-bearing deposits 1,325,925 1,121,745
Total deposits and borrowed funds 5,675,902 14,710 0.26 5,303,666 17,414 0.33
Interest payable and other liabilities 43,031 34,371
Shareholders' equity 754,211 626,555
Total liabilities and shareholders' equity $ 6,473,144 $ 5,964,592
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.49% 3.48%
Net Interest Income (FTE) $ 218,526 $ 202,002
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.59% 3.59%
* Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%.
** Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
Dec 31,
2014
Sept 30,
2014
June 30,
2014
Mar 31,
2014
Dec 31,
2013
Sept 30,
2013
June 30,
2013
Mar 31,
2013
(In thousands)
Nonperforming Loans:
Nonaccrual loans:
Commercial $ 16,418 $ 18,213 $ 18,773 $ 18,251 $ 18,374 $ 11,809 $ 11,052 $ 12,186
Commercial real estate 24,966 23,858 25,361 27,568 28,598 28,623 28,498 35,849
Real estate construction 162 162 160 160 371 183 183 168
Land development 225 1,467 2,184 2,267 2,309 2,954 3,434 4,105
Residential mortgage 6,706 6,693 6,325 6,589 8,921 8,029 9,241 10,407
Consumer installment 500 527 536 806 676 665 552 699
Home equity 1,667 2,116 2,296 2,046 2,648 3,023 3,064 2,837
Total nonaccrual loans 50,644 53,036 55,635 57,687 61,897 55,286 56,024 66,251
Accruing loans contractually past due 90 days or more as to interest or principal payments:
Commercial 170 16 15 43 536 281 1 4
Commercial real estate 87 69 730 190 78 177
Real estate construction
Land development
Residential mortgage 557 380 376 537 692 164 196
Consumer installment
Home equity 1,346 1,779 1,075 622 734 686 689 874
Total accruing loans contractually past due 90 days or more as to interest or principal payments 2,073 2,262 1,535 1,395 1,997 1,659 932 1,251
Nonperforming troubled debt restructurings:
Commercial loan portfolio 15,271 11,797 11,049 11,218 13,414 15,744 19,140 14,587
Consumer loan portfolio 3,196 3,647 5,516 6,244 4,676 3,129 3,246 4,328
Total nonperforming troubled debt restructurings 18,467 15,444 16,565 17,462 18,090 18,873 22,386 18,915
Total nonperforming loans 71,184 70,742 73,735 76,544 81,984 75,818 79,342 86,417
Other real estate and repossessed assets 14,205 10,354 10,392 10,056 9,776 12,033 13,659 18,194
Total nonperforming assets $ 85,389 $ 81,096 $ 84,127 $ 86,600 $ 91,760 $ 87,851 $ 93,001 $ 104,611
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
Twelve
Months
Ended


Three Months Ended
Twelve
Months
Ended


Three Months Ended
Dec 31,
2014
Dec 31,
2014
Sept 30,
2014
June 30,
2014
Mar 31,
2014
Dec 31,
2013
Dec 31,
2013
Sept 30,
2013
June 30,
2013
Mar 31,
2013
(In thousands)
Allowance for loan losses - originated loan portfolio
Allowance for loan losses - beginning of period $ 78,572 $ 76,506 $ 77,293 $ 77,973 $ 78,572 $ 83,991 $ 81,032 $ 81,684 $ 82,334 $ 83,991
Provision for loan losses 6,100 1,500 1,500 1,500 1,600 11,000 2,000 3,000 3,000 3,000
Net loan charge-offs:
Commercial (2,269) (932) (535) (569) (233) (2,321) (448) (615) (59) (1,199)
Commercial real estate (2,056) (620) (412) (783) (241) (6,277) (1,233) (1,248) (1,786) (2,010)
Real estate construction (113) (13) (100) (37) (37)
Land development 648 363 16 127 142 (753) (207) (400) (50) (96)
Residential mortgage (1,626) (277) (304) (341) (704) (2,532) (527) (409) (1,023) (573)
Consumer installment (2,915) (813) (689) (612) (801) (2,643) (836) (786) (574) (447)
Home equity (1,158) (544) (350) (2) (262) (1,856) (1,172) (194) (158) (332)
Net loan charge-offs (9,489) (2,823) (2,287) (2,180) (2,199) (16,419) (4,460) (3,652) (3,650) (4,657)
Allowance for loan losses - end of period 75,183 75,183 76,506 77,293 77,973 78,572 78,572 81,032 81,684 82,334
Allowance for loan losses - acquired loan portfolio
Allowance for loan losses - beginning of period 500 500 500 500 500 500 500 500 500 500
Provision for loan losses
Net loan charge-offs - (commercial)
Allowance for loan losses - end of period 500 500 500 500 500 500 500 500 500 500
Total allowance for loan losses $ 75,683 $ 75,683 $ 77,006 $ 77,793 $ 78,473 $ 79,072 $ 79,072 $ 81,532 $ 82,184 $ 82,834
Net loan charge-offs as a percent of average loans (quarterly amounts annualized) 0.19% 0.21% 0.18% 0.18% 0.19% 0.38% 0.39% 0.33% 0.34% 0.45%
Chemical Financial Corporation Announces Fourth Quarter and Full Year 2014 Operating Results
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
4th
Quarter
2014
3rd
Quarter
2014
2nd
Quarter
2014
1st
Quarter
2014
4th
Quarter
2013
3rd
Quarter
2013
2nd
Quarter
2013
1st
Quarter
2013
(Dollars in thousands, except per share data)
Summary of Operations
Interest income $ 61,807 $ 56,629 $ 55,180 $ 53,645 $ 55,323 $ 53,578 $ 52,781 $ 52,379
Interest expense 3,563 3,561 3,720 3,866 4,018 4,284 4,385 4,727
Net interest income 58,244 53,068 51,460 49,779 51,305 49,294 48,396 47,652
Provision for loan losses 1,500 1,500 1,500 1,600 2,000 3,000 3,000 3,000
Net interest income after provision for loan losses 56,744 51,568 49,960 48,179 49,305 46,294 45,396 44,652
Noninterest income 18,227 15,351 15,801 13,716 13,578 14,644 15,948 16,239
Operating expenses 52,616 42,702 42,425 42,182 42,405 39,545 41,041 41,957
Income before income taxes 22,355 24,217 23,336 19,713 20,478 21,393 20,303 18,934
Federal income tax expense 7,050 7,450 7,100 5,900 6,100 6,400 6,100 5,700
Net income $ 15,305 $ 16,767 $ 16,236 $ 13,813 $ 14,378 $ 14,993 $ 14,203 $ 13,234
Net interest margin 3.62% 3.59% 3.59% 3.53% 3.63% 3.58% 3.60% 3.54%
Per Common Share Data
Net income:
Basic $ 0.47 $ 0.51 $ 0.54 $ 0.46 $ 0.48 $ 0.54 $ 0.52 $ 0.48
Diluted 0.46 0.51 0.54 0.46 0.48 0.53 0.51 0.48
Cash dividends declared 0.24 0.24 0.23 0.23 0.23 0.22 0.21 0.21
Book value - period-end 24.32 24.47 24.22 23.63 23.38 22.61 22.14 21.97
Tangible book value - period-end 18.35 20.68 20.42 19.44 19.17 18.36 17.53 17.34
Market value - period-end 30.64 26.89 28.08 32.45 31.67 27.92 25.99 26.38

CONTACT: For further information: David B. Ramaker, CEO Lori A. Gwizdala, CFO 989-839-5350Source:Chemical Financial Corporation