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Chemical Financial Corporation Reports Fourth Quarter and Full Year 2016 Results

MIDLAND, Mich., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2016 fourth quarter net income of $47.2 million, or $0.66 per diluted share, compared to 2016 third quarter net income of $11.5 million, or $0.23 per diluted share, and 2015 fourth quarter net income of $25.5 million, or $0.66 per diluted share. For the year ended December 31, 2016, net income was $108.0 million, or $2.17 per diluted share, compared to net income for the year ended December 31, 2015 of $86.8 million, or $2.39 per diluted share. The increase in net income in the fourth quarter, compared to both the third quarter of 2016 and the fourth quarter of 2015, was driven significantly by the reduction in merger and transaction-related expenses ("transaction expenses") from the completion of the Corporation's merger with Talmer Bancorp, Inc. ("Talmer") and the inclusion of Talmer operations for the full quarter compared to one month's inclusion of operations in the third quarter of 2016 and no inclusion during the fourth quarter of 2015.

Excluding transaction expenses, net gain on the sale of branches and the change in fair value in loan servicing rights ("significant items"), net income for the fourth quarter of 2016 was $49.9 million, or $0.70 per diluted share, compared to $37.5 million, or $0.75 per diluted share, and $26.9 million, or $0.70 per diluted share in the third quarter of 2016 and the fourth quarter of 2015, respectively.(1) Net income for the full year 2016, excluding significant items was $140.5 million, or $2.81 per diluted share, compared to $92.3 million, or $2.54 per diluted share for the full year 2015.(1)

During the fourth quarter of 2016, transaction expenses of $18.0 million were partially offset by $7.4 million of net gain on the sale of branches and a $6.4 million gain due to the change in fair value in loan servicing rights. The third quarter of 2016 included the impact of $37.5 million of transaction expenses and a $1.3 million detriment to earnings due to the change in fair value in loan servicing rights, while the fourth quarter of 2015 included $2.1 million of transaction expenses.

"Our fourth quarter financial results reflect both a solid finish to a milestone year and a strong base from which Chemical Financial Corporation will move forward. During the quarter, we completed the integration of Talmer Bank and Chemical Bank, our fourth successful integration over the past two years. Continued stable economic conditions in our core markets facilitated significant organic loan growth during the quarter, and we believe we have an attractive pipeline as we look forward to 2017," noted David B. Ramaker, Chief Executive Officer and President of the Corporation. “Since year-end 2014, we have more than doubled our asset base and expanded our delivery network beyond Michigan into northeast Ohio and northern Indiana. We have paired a targeted acquisition strategy with attractive organic growth across the Chemical franchise to achieve these results, never losing sight of our primary goal of meeting the financial service needs of the communities we serve and delivering strong results for our shareholders.”

The Corporation's return on average assets was 1.09% during the fourth quarter of 2016, compared to 0.37% in the third quarter of 2016 and 1.11% in the fourth quarter of 2015. The Corporation's return on average shareholders' equity was 7.4% in the fourth quarter of 2016, compared to 2.9% in the third quarter of 2016 and 10.2% in the fourth quarter of 2015. Excluding significant items, the Corporation's return on average assets was 1.16% during the fourth quarter of 2016, compared to 1.22% in the third quarter of 2016 and 1.17% in the fourth quarter of 2015 and the Corporation's return on average shareholders' equity was 7.8% in the fourth quarter of 2016, compared to 9.6% in the third quarter of 2016 and 10.7% in the fourth quarter of 2015.(2)

Net interest income was $132.4 million in the fourth quarter of 2016, $35.6 million, or 36.8%, higher than the third quarter of 2016 and $57.0 million, or 75.5%, higher than the fourth quarter of 2015. The increase in net interest income in the fourth quarter of 2016 over the third quarter of 2016 was primarily attributable to loans acquired in the merger with Talmer, although also partially attributable to organic loan growth. The increase in net interest income in the fourth quarter of 2016 over the fourth quarter of 2015 was attributable to the positive impact of 2016 organic loan growth and the impact of the merger with Talmer. The Corporation experienced net organic loan growth of $275.0 million during the fourth quarter of 2016 and $837.2 million during the year ended December 31, 2016. The merger with Talmer added $4.88 billion of loans on August 31, 2016.

The net interest margin was 3.48% in the fourth quarter of 2016, compared to 3.49% in the third quarter of 2016 and 3.55% in the fourth quarter of 2015. The net interest margin (on a tax-equivalent basis) was 3.56% in the fourth quarter of 2016, compared to 3.58% in the third quarter of 2016 and 3.64% in the fourth quarter of 2015.(3) The decrease in the net interest margin (on a tax-equivalent basis) in the fourth quarter of 2016, compared to the third quarter of 2016, was due primarily to an increase in FHLB borrowing costs, while the decrease in the fourth quarter of 2016, compared to the fourth quarter of 2015, was largely due to an increase in cost of funds significantly due to debt obtained related to transactions. The average yield on the loan portfolio was 4.18% in the fourth quarter of 2016, compared to 4.12% in the third quarter of 2016 and 4.16% in the fourth quarter of 2015. Interest accretion from purchase accounting discounts on acquired loans contributed 14 basis points to the Corporation's net interest margin (on a tax-equivalent basis) in the fourth quarter of 2016, compared to 11 basis points in the third quarter of 2016 and four basis points in the fourth quarter of 2015. Interest accretion on acquired loans comprised 16 basis points of the yield on the Corporation's loan portfolio in the fourth quarter of 2016, compared to 13 basis points in the third quarter of 2016 and five basis points in the fourth quarter of 2015. The Corporation's average cost of funds was 0.33% in the fourth quarter of 2016, compared to 0.25% in both the third quarter of 2016 and the fourth quarter of 2015.

Net interest income was $381.1 million for the year ended December 31, 2016, $107.1 million, or 39.1%, higher than 2015, with the increase attributable to a combination of organic loan growth and the impact of the merger with Talmer. The average balance of loans outstanding during the year ended December 31, 2016 were up $2.71 billion compared to the prior year, with the increase driven by the $4.88 billion of loans added on August 31, 2016 from the merger with Talmer and the $837.2 million of organic loan growth during 2016. The net interest margin was 3.51% in 2016 and 3.49% in 2015. The net interest margin (on a tax equivalent basis) was 3.60% in 2016 and 3.58% in 2015.(3)

The provision for loan losses was $6.3 million in the fourth quarter of 2016, compared to $4.1 million in the third quarter of 2016 and $2.0 million in the fourth quarter of 2015. The increase in the provision for loan losses in the fourth quarter of 2016, compared to both the third quarter of 2016 and the fourth quarter of 2015, was primarily due to organic growth in the loan portfolio. The provision for loan losses was $14.9 million for the year ended December 31, 2016, compared to $6.5 million in 2015, with the increase primarily due to organic growth in the loan portfolio.

Net loan charge-offs were $1.8 million, or 0.06% of average loans, in the fourth quarter of 2016, compared to $1.8 million, or 0.08% of average loans, in the third quarter of 2016 and $4.3 million, or 0.24% of average loans, in the fourth quarter of 2015. The decrease in net loan charge-offs in the fourth quarter of 2016, compared to the fourth quarter of 2015, was partially attributable to a $1.6 million net loan charge-off from one commercial loan relationship occurring in the fourth quarter of 2015. Net loan charge-offs totaled $9.9 million, or 0.11% of average loans, during the year ended December 31, 2016, compared to $8.9 million, or 0.13% of average loans, in 2015.

The Corporation's nonperforming loans totaled $44.3 million at December 31, 2016, compared to $41.3 million at September 30, 2016 and $62.2 million at December 31, 2015. Nonperforming loans comprised 0.34% of total loans at December 31, 2016, compared to 0.32% at September 30, 2016 and 0.86% at December 31, 2015. The reduction in nonperforming loans as a percentage of total loans at December 31, 2016, compared to December 31, 2015, was due to the combined impact of overall improvements in credit quality within the Corporation's loan portfolios and the addition of $4.88 billion of loans acquired in the Talmer merger that are all classified as performing as these acquired loans are recorded in pools at their net realizable value.

At December 31, 2016, the allowance for loan losses of the originated loan portfolio was $78.3 million, or 1.05% of originated loans, compared to $73.8 million, or 1.09% of originated loans, at September 30, 2016 and $73.3 million, or 1.26% of originated loans, at December 31, 2015. The decrease in the allowance coverage as a percentage of originated loans at December 31, 2016, compared to December 31, 2015, was primarily due to an overall improvement in credit quality and a decline in net credit charge-offs. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 176.5% at December 31, 2016, compared to 178.6% at September 30, 2016 and 117.8% at December 31, 2015.

Noninterest income was $54.3 million in the fourth quarter of 2016, compared to $27.8 million in the third quarter of 2016 and $20.1 million in the fourth quarter of 2015. Noninterest income in the fourth quarter of 2016 was higher than the third quarter of 2016 and the fourth quarter of 2015 primarily due to incremental revenue resulting from the merger with Talmer, in addition to a net gain on the sales of the Chicago, Illinois and Las Vegas, Nevada branches totaling $7.4 million and a $6.4 million benefit to earnings due to a change in fair value in loan servicing rights included within "mortgage banking revenue".

Noninterest income was $122.4 million for the year ended December 31, 2016, compared to $80.2 million in 2015. The increase was primarily due to incremental revenue resulting from the merger with Talmer in August 2016 and the acquisitions of Lake Michigan Financial Corporation in May 2015 and Monarch Community Bancorp in April 2015.

Operating expenses were $114.3 million in the fourth quarter of 2016, compared to $106.1 million in the third quarter of 2016 and $57.8 million in the fourth quarter of 2015. Operating expenses included transaction expenses of $18.0 million in the fourth quarter of 2016, $37.5 million in the third quarter of 2016 and $2.1 million in the fourth quarter of 2015. Excluding transaction expenses, operating expenses were $96.3 million in the fourth quarter of 2016, $27.6 million, or 40.2%, higher than the third quarter of 2016 and $40.5 million, or 72.7%, higher than the fourth quarter of 2015. The increase in operating expenses, excluding transaction expenses, in the fourth quarter of 2016, compared to both the third quarter of 2016 and the fourth quarter of 2015, was due to the incremental expenses resulting from the merger with Talmer.

Operating expenses were $338.4 million for the year ended December 31, 2016, compared to $223.9 million in 2015. Operating expenses included transaction expenses of $61.1 million in 2016 and $7.8 million in 2015. Excluding these transaction expenses, operating expenses were $277.3 million in 2016, an increase of $61.2 million, or 28.3%, over 2015, with the increase due primarily to incremental operating costs associated with the merger with Talmer.

The efficiency ratio is a measure of operating expenses as a percentage of net interest income and noninterest income. The Corporation's efficiency ratio was 61.2% in the fourth quarter of 2016, 85.2% in the third quarter of 2016 and 60.5% in the fourth quarter of 2015. The Corporation's efficiency ratio was 67.2% for the year ended December 31, 2016 and 63.2% for 2015. The Corporation's adjusted efficiency ratio, which excludes transaction expenses, changes in fair value of the legacy Talmer loan servicing portfolio, amortization of intangibles and net gains on sales of branches, closed branch locations and investment securities, was 53.7% in the fourth quarter of 2016, 52.6% in the third quarter of 2016 and 55.8% in the fourth quarter of 2015. The Corporation's adjusted efficiency ratio was 54.4% for the year ended December 31, 2016 and 58.7% for 2015.(4)

Total assets were $17.36 billion at December 31, 2016, compared to $17.38 billion at September 30, 2016 and $9.18 billion at December 31, 2015. The increase in total assets during the twelve months ended December 31, 2016 was primarily attributable to the merger with Talmer. As of the merger date, Talmer added total assets of $7.71 billion, including total loans of $4.88 billion and goodwill of $846.7 million.

Total loans were $12.99 billion at December 31, 2016, up $275.0 million, or 2.2%, from total loans of $12.72 billion at September 30, 2016 and up $5.72 billion, or 78.7%, from total loans of $7.27 billion at December 31, 2015. As of the merger date, the Corporation added $4.88 billion of loans as part of the merger with Talmer. Loan growth of $275.0 million during the fourth quarter of 2016 resulted from the impact of $702.5 million growth in the originated loan portfolio, partially offset by a $427.5 million decrease in the acquired loan portfolios. Loan growth, excluding the impact of the Talmer acquisition, of $837.2 million during the year ended December 31, 2016 resulted from the impact of $1.65 billion growth in the originated loan portfolio, partially offset by an $813.2 million decrease in the acquired loan portfolios.

Total deposits were $12.87 billion at December 31, 2016, compared to $13.27 billion at September 30, 2016 and $7.46 billion at December 31, 2015. As of the merger date, the Corporation added $5.29 billion of deposits as part of the merger with Talmer, including $403.2 million of brokered deposits. During the fourth quarter of 2016, the Corporation reduced the balance of brokered deposits by $248.5 million. The Corporation experienced net run-off in customer deposits of $402.4 million during the fourth quarter of 2016; however, the Corporation also experienced net organic growth in customer deposits of $317.3 million for the year ended December 31, 2016.

Securities sold under agreements to repurchase with customers were $343.0 million at December 31, 2016, compared to $326.8 million at September 30, 2016 and $297.2 million at December 31, 2015. Short-term borrowings were $825.0 million at December 31, 2016, compared to $400.0 million at September 30, 2016 and $100.0 million at December 31, 2015 and consisted of short-term FHLB advances utilized by the Corporation to fund short-term liquidity needs. Long-term borrowings were $597.8 million at December 31, 2016, compared to $676.6 million at September 30, 2016 and $242.4 million at December 31, 2015. The increase in borrowings during the twelve months ended December 31, 2016 was primarily attributable to the merger with Talmer and the Corporation borrowing $125.0 million under a three-year credit facility to partially fund the cash portion of the merger consideration.

The Corporation's shareholders' equity to total assets ratio was 14.9% at December 31, 2016, compared to 14.7% at September 30, 2016 and 11.1% at December 31, 2015. The Corporation's tangible shareholders' equity to assets ratio and total risk-based capital ratio were 8.8% and 11.5% (estimated), respectively, at December 31, 2016, compared to 8.7% and 11.1%, respectively, at September 30, 2016 and 8.1% and 11.8%, respectively, at December 31, 2015.(5) The Corporation's book value was $36.57 per share at December 31, 2016, compared to $36.37 per share at September 30, 2016 and $26.62 per share at December 31, 2015. The Corporation's tangible book value was $20.20 per share at December 31, 2016, compared to $19.99 per share at September 30, 2016 and $18.78 per share at December 31, 2015.(6)

(1) Net income, excluding significant items, and diluted earnings per share, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measures.

(2) Return on average assets, excluding significant items, and return on average shareholders’ equity, excluding significant items, are non-GAAP financial measures. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measures.

(3) Net interest margin, on a tax equivalent basis, is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates” for a reconciliation of net interest income used to compute net interest margin on a tax equivalent basis to the most directly comparable GAAP financial measure.

(4) Adjusted efficiency ratio is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measure.

(5) Tangible equity to tangible assets ratio is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measure.

(6) Tangible book value per share is a non-GAAP financial measure. Please refer to the section entitled “Non-GAAP Financial Measures” in this press release and to the financial tables entitled “Reconciliation of Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP financial measure.

Conference Call Details

Chemical Financial Corporation will host a conference call to discuss its fourth quarter and full year 2016 operating results on Thursday, January 26, 2017 at 10:00 am ET. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-797-3007 and entering 879991 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbank.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

About Chemical Financial Corporation

Chemical Financial Corporation is the largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 249 banking offices located in Michigan, northeast Ohio and northern Indiana. At December 31, 2016, the Corporation had total assets of $17.36 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising The NASDAQ Global Select Market and the S&P MidCap 400 Index. More information about the Corporation is available by visiting the "Investor Info" section of its website at www.chemicalbank.com.

Non-GAAP Financial Measures

This press release contains references to financial measures which are not defined in generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include the Corporation's tangible equity to tangible assets ratio, tangible book value per share, presentation of net interest income and net interest margin on a fully taxable equivalent (FTE) basis, and information presented excluding significant items, including net income, diluted earnings per share, return on average assets, return on average shareholders' equity, operating expenses and the efficiency ratio. These non-GAAP financial measures have been included as the Corporation believes they are helpful for investors to analyze and evaluate the Corporation's financial condition. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure may be found in the financial tables included with this press release.

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and the Corporation. Words and phrases such as "anticipates," "believes," "continue," "estimates," "expects," "forecasts," "future," "intends," "is likely," "judgment," "look ahead," "look forward," "on schedule," "opinion," "opportunity," "plans," "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. These statements include, among others, statements related to future levels of loan charge-offs, future levels of provisions for loan losses, real estate valuation, future levels of nonperforming assets, the rate of asset dispositions, future capital levels, future dividends, future growth and funding sources, future liquidity levels, future profitability levels, future deposit insurance premiums, future asset levels, the effects on earnings of future changes in interest rates, the future level of other revenue sources, future economic trends and conditions, future initiatives to expand the Corporation’s market share, expected performance and cash flows from acquired loans, future effects of new or changed accounting standards, future opportunities for acquisitions, opportunities to increase top line revenues, the Corporation’s ability to grow its core franchise, future cost savings and the Corporation’s ability to maintain adequate liquidity and capital based on the requirements adopted by the Basel Committee on Banking Supervision and U.S. regulators. All statements referencing future time periods are forward-looking.

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

Risk factors include, but are not limited to, the risk factors described in Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015. 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.

Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
December 31,
2016
September 30,
2016
December 31,
2015
Assets
Cash and cash equivalents:
Cash and cash due from banks $272,048 $286,351 $194,136
Interest-bearing deposits with the Federal Reserve Bank and other banks and federal funds sold 202,354 270,216 44,653
Total cash and cash equivalents 474,402 556,567 238,789
Investment securities:
Available-for-sale 1,234,964 1,303,381 553,731
Held-to-maturity 623,427 563,721 509,971
Total investment securities 1,858,391 1,867,102 1,063,702
Loans held-for-sale 81,830 276,061 10,327
Loans:
Total loans 12,990,779 12,715,789 7,271,147
Allowance for loan losses (78,268) (73,775) (73,328)
Net loans 12,912,511 12,642,014 7,197,819
Premises and equipment 145,012 144,165 106,317
Loan servicing rights 58,315 51,393 11,122
Goodwill 1,133,534 1,137,166 287,393
Other intangible assets 40,211 35,700 26,982
Interest receivable and other assets 650,973 673,469 246,346
Total Assets $17,355,179 $17,383,637 $9,188,797
Liabilities
Deposits:
Noninterest-bearing $3,341,520 $3,264,934 $1,934,583
Interest-bearing 9,531,602 10,007,928 5,522,184
Total deposits 12,873,122 13,272,862 7,456,767
Interest payable and other liabilities 134,637 143,708 76,466
Securities sold under agreements to repurchase with customers 343,047 326,789 297,199
Short-term borrowings 825,000 400,000 100,000
Long-term borrowings 597,847 676,612 242,391
Total liabilities 14,773,653 14,819,971 8,172,823
Shareholders' Equity
Preferred stock, no par value per share
Common stock, $1 par value per share 70,599 70,497 38,168
Additional paid-in capital 2,210,762 2,207,345 725,280
Retained earnings 340,201 310,966 281,558
Accumulated other comprehensive loss (40,036) (25,142) (29,032)
Total shareholders' equity 2,581,526 2,563,666 1,015,974
Total Liabilities and Shareholders' Equity $17,355,179 $17,383,637 $9,188,797


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
December
31, 2016
September
30, 2016(1)
December
31, 2015
December
31, 2016
December
31, 2015
Interest Income
Interest and fees on loans$134,463 $97,103 $75,253 $383,545 $271,772
Interest on investment securities:
Taxable4,687 2,575 2,044 10,989 8,786
Tax-exempt3,940 3,072 2,583 12,317 9,073
Dividends on nonmarketable equity securities582 358 633 1,973 1,648
Interest on deposits with the Federal Reserve Bank and other banks and federal funds sold744 454 116 1,555 510
Total interest income144,416 103,562 80,629 410,379 291,789
Interest Expense
Interest on deposits8,866 5,836 4,120 23,021 15,406
Interest on short-term borrowings875 459 110 1,660 453
Interest on long-term borrowings2,228 458 923 4,617 1,922
Total interest expense11,969 6,753 5,153 29,298 17,781
Net Interest Income132,447 96,809 75,476 381,081 274,008
Provision for loan losses6,272 4,103 2,000 14,875 6,500
Net interest income after provision for loan losses126,175 92,706 73,476 366,206 267,508
Noninterest Income
Service charges and fees on deposit accounts8,414 7,665 6,398 28,136 25,481
Wealth management revenue6,034 5,584 5,151 22,601 20,552
Other charges and fees for customer services9,981 7,410 6,189 30,246 25,513
Mortgage banking revenue14,420 4,439 1,606 21,859 6,133
Gain on sale of branches7,391 7,391
Gain on sale of investment securities76 16 18 129 630
Other7,948 2,656 690 11,988 1,907
Total noninterest income54,264 27,770 20,052 122,350 80,216
Operating Expenses
Salaries, wages and employee benefits57,631 40,565 32,971 165,213 127,920
Occupancy7,644 5,462 4,620 23,525 18,213
Equipment and software8,709 6,420 5,102 24,408 18,569
Merger and acquisition-related transaction expenses (transaction expenses)18,016 37,470 2,085 61,134 7,804
Other22,302 16,227 13,046 64,138 51,388
Total operating expenses114,302 106,144 57,824 338,418 223,894
Income before income taxes66,137 14,332 35,704 150,138 123,830
Income tax expense18,969 2,848 10,200 42,106 37,000
Net Income$47,168 $11,484 $25,504 $108,032 $86,830
Earnings Per Common Share:
Weighted average common shares outstanding-basic70,171 49,107 38,150 49,091 36,081
Weighted average common shares outstanding-diluted71,304 49,631 38,498 49,603 36,353
Basic earnings per common share$0.67 $0.23 $0.67 $2.21 $2.41
Diluted earnings per common share$0.66 $0.23 $0.66 $2.17 $2.39
Cash Dividends Declared Per Common Share$0.27 $0.27 $0.26 $1.06 $1.00
Key Ratios (annualized where applicable):
Return on average assets1.09% 0.37% 1.11% 0.90% 1.02%
Return on average shareholders' equity7.4% 2.9% 10.2% 7.0% 9.4%
Net interest margin (tax-equivalent basis) (non-GAAP)3.56% 3.58% 3.64% 3.60% 3.58%
Efficiency ratio - GAAP61.2% 85.2% 60.5% 67.2% 63.2%
Efficiency ratio - adjusted (non-GAAP)53.7% 52.6% 55.8% 54.4% 58.7%
(1) Third quarter 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." The early adoption resulted in $752 thousand of excess tax benefits recognized within "Income tax expense" during the three months ended September 30, 2016 rather than previously recognized directly into equity within "Additional paid-in-capital."


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
4th
Quarter
2016
3rd
Quarter
2016(1)
2nd
Quarter
2016(1)
1st
Quarter
2016(1)
4th
Quarter
2015
3rd
Quarter
2015
2nd
Quarter
2015
1st
Quarter
2015
Summary of Operations
Interest income$144,416 $103,562 $82,937 $79,464 $80,629 $78,851 $69,679 $62,630
Interest expense11,969 6,753 5,442 5,134 5,153 5,234 3,944 3,450
Net interest income132,447 96,809 77,495 74,330 75,476 73,617 65,735 59,180
Provision for loan losses6,272 4,103 3,000 1,500 2,000 1,500 1,500 1,500
Net interest income after provision for loan losses126,175 92,706 74,495 72,830 73,476 72,117 64,235 57,680
Noninterest income54,264 27,770 20,897 19,419 20,052 20,215 20,674 19,275
Operating expenses, excluding transaction expenses (non-GAAP)96,286 68,674 56,031 56,293 55,739 57,365 53,328 49,658
Transaction expenses18,016 37,470 3,054 2,594 2,085 900 3,457 1,362
Income before income taxes66,137 14,332 36,307 33,362 35,704 34,067 28,124 25,935
Income tax expense18,969 2,848 10,532 9,757 10,200 9,600 9,100 8,100
Net income$47,168 $11,484 $25,775 $23,605 $25,504 $24,467 $19,024 $17,835
Significant items, net of tax2,777 25,992 1,985 1,686 1,355 585 2,659 885
Net income, excluding significant items$49,945 $37,476 $27,760 $25,291 $26,859 $25,052 $21,683 $18,720
Per Common Share Data
Net income:
Basic$0.67 $0.23 $0.67 $0.61 $0.67 $0.64 $0.54 $0.54
Diluted0.66 0.23 0.67 0.60 0.66 0.64 0.54 0.54
Diluted, excluding significant items (non-GAAP)0.70 0.75 0.72 0.65 0.70 0.65 0.61 0.57
Cash dividends declared0.27 0.27 0.26 0.26 0.26 0.26 0.24 0.24
Book value - period-end36.57 36.37 27.45 26.99 26.62 26.18 25.74 24.68
Tangible book value - period-end20.20 19.99 19.68 19.20 18.78 18.32 17.89 18.95
Market value - period-end54.17 44.13 37.29 35.69 34.27 32.35 33.06 31.36
Net interest margin (taxable equivalent basis) (non-GAAP)3.56% 3.58% 3.70% 3.60% 3.64% 3.55% 3.59% 3.55%
Efficiency ratio - adjusted (non-GAAP)53.7% 53.2% 54.6% 57.6% 55.8% 58.6% 59.4% 61.5%
Return on average assets1.09% 0.37% 1.10% 1.02% 1.11% 1.05% 0.94% 0.98%
Return on average shareholders' equity7.4% 2.9% 10.0% 9.3% 10.2% 9.8% 8.6% 9.0%
Average shareholders' equity as a percent of average assets14.9% 12.7% 11.1% 11.0% 10.9% 10.7% 10.9% 10.8%
Capital ratios (period end):
Tangible shareholders' equity as a percent of tangible assets8.8% 8.7% 8.2% 8.2% 8.1% 7.8% 7.8% 8.5%
Total risk-based capital ratio (2)11.5% 11.1% 11.4% 11.5% 11.8% 11.6% 11.6% 13.0%
(1) The third quarter, second quarter and first quarter of 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." The early adoption resulted in $752 thousand, $68 thousand and $343 thousand of excess tax benefits recognized within "Income tax expense" during the three months ended September 30, June 30 and March 31, 2016, respectively, rather than previously recognized directly into equity within "Additional paid-in-capital."
(2) Estimated at December 31, 2016.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
Three Months Ended
December 31, 2016 September 30, 2016 December 31, 2015
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)$12,895,557 $135,301 4.18% $9,470,650 $97,880 4.12% $7,241,339 $75,905 4.16%
Taxable investment securities1,065,453 4,687 1.76 687,259 2,575 1.50 609,406 2,044 1.34
Tax-exempt investment securities(1)807,093 6,047 3.00 592,747 4,721 3.19 481,968 3,973 3.30
Other interest-earning assets80,202 582 2.89 57,756 358 2.47 36,799 633 6.82
Interest-bearing deposits with the FRB and other banks and federal funds sold307,802 744 0.96 249,731 454 0.72 87,952 116 0.52
Total interest-earning assets15,156,107 147,361 3.87 11,058,143 105,988 3.82 8,457,464 82,671 3.89
Less: allowance for loan losses(74,822) (72,242) (75,225)
Other assets:
Cash and cash due from banks245,613 194,171 157,939
Premises and equipment144,652 116,944 110,141
Interest receivable and other assets1,793,118 953,714 524,905
Total assets$17,264,668 $12,250,730 $9,175,224
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits$2,680,241 $1,266 0.19% $2,327,762 $961 0.16% $1,816,694 $414 0.09%
Savings deposits3,490,972 1,263 0.14 2,512,620 749 0.12 2,024,543 393 0.08
Time deposits3,209,695 6,337 0.79 2,186,781 4,126 0.75 1,671,913 3,313 0.79
Short-term borrowings949,292 875 0.38 593,903 459 3.10 405,713 110 0.11
Long-term borrowings600,066 2,228 1.41 494,810 458 0.37 243,170 923 1.51
Total interest-bearing liabilities10,930,266 11,969 0.44 8,115,876 6,753 0.33 6,162,033 5,153 0.33
Noninterest-bearing deposits3,622,365 2,456,469 1,936,328
Total deposits and borrowed funds14,552,631 11,969 0.33 10,572,345 6,753 0.25 8,098,361 5,153 0.25
Interest payable and other liabilities147,094 118,717 76,516
Shareholders' equity2,564,943 1,559,668 1,000,347
Total liabilities and shareholders' equity$17,264,668 $12,250,730 $9,175,224
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.43% 3.49% 3.56%
Net Interest Income (FTE) $135,392 $99,235 $77,518
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.56% 3.58% 3.64%
Reconciliation to Reported Net Interest Income
Net interest income, fully taxable equivalent (non-GAAP) $135,392 $99,235 $77,518
Adjustments for taxable equivalent interest(1):
Loans (838) (777) (652)
Tax-exempt investment securities (2,107) (1,649) (1,390)
Total taxable equivalent interest adjustments (2,945) (2,426) (2,042)
Net interest income (GAAP) $132,447 $96.809 $75,476
Net interest margin (GAAP) 3.48% 3.49% 3.55%
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Average Balances, Tax Equivalent Interest and Effective Yields and Rates (Unaudited)(1)
Chemical Financial Corporation
(Dollars in thousands)
Twelve Months Ended December 31, 2016 Twelve Months Ended December 31, 2015
Average
Balance
Interest
(FTE)
Effective
Yield/Rate(1)
Average
Balance
Interest
(FTE)
Effective
Yield/Rate(1)
Assets
Interest-earning assets:
Loans(1)(2) $9,304,573 $386,575 4.15% $6,594,507 $274,341 4.16%
Taxable investment securities 706,567 10,989 1.56 683,612 8,786 1.29
Tax-exempt investment securities(1) 595,677 18,929 3.18 415,092 13,956 3.36
Other interest-earning assets 55,341 1,973 3.57 34,188 1,648 4.82
Interest-bearing deposits with the FRB and other banks and federal funds sold 194,637 1,555 0.80 123,735 510 0.41
Total interest-earning assets 10,856,795 420,021 3.87 7,851,134 299,241 3.81
Less: allowance for loan losses (73,136) (75,378)
Other assets:
Cash and cash due from banks 186,706 155,109
Premises and equipment 118,080 105,904
Interest receivable and other assets 948,710 444,459
Total assets $12,037,155 $8,481,228
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits $2,143,064 $3,277 0.15% $1,661,592 $1,465 0.09%
Savings deposits 2,534,038 2,877 0.11 1,947,659 1,512 0.08
Time deposits 2,154,118 16,867 0.78 1,557,425 12,429 0.80
Short-term borrowings 571,510 1,660 0.29 420,529 453 0.11
Other borrowings 418,636 4,617 1.10 117,000 1,922 1.64
Total interest-bearing liabilities 7,821,366 29,298 0.37 5,704,205 17,781 0.31
Noninterest-bearing deposits 2,566,342 1,791,991
Total deposits and borrowed funds 10,387,708 29,298 0.28 7,496,196 17,781 0.24
Interest payable and other liabilities 102,726 65,704
Shareholders' equity 1,546,721 919,328
Total liabilities and shareholders' equity $12,037,155 $8,481,228
Net Interest Spread (Average yield earned on interest-earning assets minus average rate paid on interest-bearing liabilities) 3.50% 3.50%
Net Interest Income (FTE) $390,723 $281,460
Net Interest Margin (Net Interest Income (FTE) divided by total average interest-earning assets) 3.60% 3.58%
Reconciliation to Reported Net Interest Income
Net interest income, fully taxable equivalent (non-GAAP) $390,723 $281,460
Adjustments for taxable equivalent interest(1):
Loans (3,030) (2,569)
Tax-exempt investment securities (6,612) (4,883)
Total taxable equivalent interest adjustments (9,642) (7,452)
Net interest income (GAAP) $381,081 $274,008
Net interest margin (GAAP) 3.51% 3.49%
(1) Fully taxable equivalent (FTE) basis using a federal income tax rate of 35%. The presentation of net interest income on a FTE basis is not in accordance with GAAP, but is customary in the banking industry.
(2) Nonaccrual loans and loans held-for-sale are included in average balances reported and are included in the calculation of yields. Also, tax equivalent interest includes net loan fees.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Noninterest Income and Operating Expenses Information (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
4th
Quarter
2016
3rd
Quarter
2016
2nd
Quarter
2016
1st
Quarter
2016
4th
Quarter
2015
3rd
Quarter
2015
2nd
Quarter
2015
1st
Quarter
2015
Noninterest income
Service charges and fees on deposit accounts$8,414 $7,665 $6,337 $5,720 $6,398 $6,722 $6,445 $5,916
Wealth management revenue6,034 5,584 5,782 5,201 5,151 4,725 5,605 5,071
Electronic banking fees8,196 5,533 4,786 4,918 4,712 5,059 4,775 4,572
Mortgage banking revenue14,420 4,439 1,595 1,405 1,606 1,436 1,688 1,403
Other fees for customer services1,785 1,877 1,677 1,474 1,839 1,759 1,741 1,418
Gain on sale of investment securities76 16 18 19 18 5 28 579
Gain on sale of branch offices7,391
Other7,948 2,656 702 682 328 509 392 316
Total noninterest income$54,264 $27,770 $20,897 $19,419 $20,052 $20,215 $20,674 $19,275
4th
Quarter
2016
3rd
Quarter
2016
2nd
Quarter
2016
1st
Quarter
2016
4th
Quarter
2015
3rd
Quarter
2015
2nd
Quarter
2015
1st
Quarter
2015
Operating expenses
Salaries and wages$47,936 $33,841 $26,887 $26,743 $27,341 $27,872 $25,535 $23,741
Employee benefits9,695 6,724 6,240 7,147 5,630 6,113 6,176 5,512
Occupancy7,644 5,462 5,514 4,905 4,620 4,781 4,386 4,426
Equipment and software8,709 6,420 4,875 4,404 5,102 4,589 4,480 4,398
Outside processing and service fees7,290 5,365 4,833 3,711 3,576 4,146 3,926 3,558
FDIC insurance premiums2,813 1,849 1,338 1,407 1,482 1,441 1,337 1,225
Professional fees2,304 1,472 1,020 1,036 1,112 1,235 1,258 1,237
Intangible asset amortization1,843 1,292 1,195 1,194 1,341 1,270 987 791
Credit-related expenses(1,029) (371) (1,331) 30 600 90 (192) 133
Transaction expenses18,016 37,470 3,054 2,594 2,085 900 3,457 1,362
Other9,081 6,620 5,460 5,716 4,935 5,828 5,435 4,637
Total operating expenses$114,302 $106,144 $59,085 $58,887 $57,824 $58,265 $56,785 $51,020


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Composition of Loans and Deposits and Additional Information on Intangible Assets (Unaudited)
Chemical Financial Corporation
(Dollars in Thousands)
Dec 31,
2016
Sept 30,
2016
Organic
Growth -
Three
Months
Ended Dec
31, 2016
Talmer
Merger
Aug 31,
2016
June 30,
2016
March 31,
2016
Dec 31,
2015
Organic
Growth -
Twelve
Months
Ended Dec
31, 2016
Composition of Loans
Commercial loan portfolio:
Commercial$3,444,376 $3,435,283 0.3% $1,453,628 $1,953,301 $1,922,259 $1,905,879 4.5%
Commercial real estate3,746,064 3,497,670 7.1 1,359,451 2,157,733 2,143,051 2,112,162 13.0
Real estate construction403,772 500,494 (19.3) 166,364 285,848 242,899 232,076 2.3
Subtotal - commercial loans7,594,212 7,433,447 2.2 2,979,443 4,396,882 4,308,209 4,250,117 8.6
Consumer loan portfolio:
Residential mortgage3,086,474 3,046,959 1.3 1,531,641 1,494,192 1,461,120 1,429,636 8.8
Consumer installment1,433,884 1,335,707 7.4 158,835 1,048,622 897,078 877,457 45.3
Home equity876,209 899,676 (2.6) 212,483 707,573 700,478 713,937 (7.0)
Subtotal - consumer loans5,396,567 5,282,342 2.2 1,902,959 3,250,387 3,058,676 3,021,030 15.6
Total loans$12,990,779 $12,715,789 2.2% $4,882,402 $7,647,269 $7,366,885 $7,271,147 11.5%
Dec 31,
2016
Sept 30,
2016
Organic
Growth -
Three
Months
Ended Dec
31, 2016
Talmer
Merger
Aug 31,
2016
June 30,
2016
March 31,
2016
Dec 31,
2015
Organic
Growth -
Twelve
Months
Ended Dec
31, 2016
Composition of Deposits
Noninterest-bearing demand$3,341,520 $3,264,934 2.3% $1,236,902 $2,007,629 $1,951,193 $1,934,583 8.8%
Savings1,662,115 1,650,276 0.7 549,428 1,107,558 1,080,940 1,026,269 8.4
Interest-bearing demand2,825,801 3,316,635 (14.8) 894,748 1,819,865 2,005,053 1,870,197 3.3
Money market accounts2,033,319 1,692,656 20.1 699,739 969,566 1,006,271 978,306 36.3
Brokered deposits226,429 474,902 (52.3) 403,210 173,092 186,143 207,785 (185.1)
Other time deposits2,783,938 2,873,459 (3.1) 1,510,591 1,386,936 1,420,516 1,439,627 (11.6)
Total deposits$12,873,122 $13,272,862 (3.0)% $5,294,618 $7,464,646 $7,650,116 $7,456,767 1.6%


December
31, 2016
Sept 30,
2016
June 30,
2016
March 31,
2016
Dec 31,
2015
Sept 30,
2015
June 30,
2015
March 31,
2015
Additional Data - Intangibles
Goodwill$1,133,534 $1,137,166 $286,867 $286,867 $287,393 $286,454 $285,512 $180,128
Loan servicing rights58,315 51,393 9,677 10,478 11,122 11,540 12,307 11,583
Core deposit intangibles (CDI)40,211 35,618 24,429 25,542 26,654 27,890 28,353 20,072
Noncompete agreements 82 164 246 328 434 541


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Dec 31, 2016 Sept 30, 2016 June 30, 2016 Mar 31, 2016 Dec 31, 2015 Sept 30, 2015 June 30, 2015 Mar 31, 2015
Nonperforming Assets
Nonperforming Loans(1):
Nonaccrual loans:
Commercial $13,178 $13,742 $14,577 $19,264 $28,554 $26,463 $17,260 $18,904
Commercial real estate 19,877 19,914 21,325 25,859 25,163 24,969 25,287 24,766
Real estate construction 80 80 496 546 521 544 502 953
Residential mortgage 6,969 5,119 5,343 5,062 5,557 6,248 6,004 6,514
Consumer installment 879 378 285 360 451 536 393 433
Home equity 3,351 2,064 1,971 2,328 1,979 1,876 1,769 1,870
Total nonaccrual loans(1) 44,334 41,297 43,997 53,419 62,225 60,636 51,215 53,440
Other real estate and repossessed assets 17,187 20,730 8,440 9,248 9,935 11,207 14,197 14,744
Total nonperforming assets $61,521 $62,027 $52,437 $62,667 $72,160 $71,843 $65,412 $68,184
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 11 221 3 370 364 122 711 52
Commercial real estate 277 739 3 254 216 56 148
Real estate construction 1,439
Residential mortgage 375 407 423 402 572 424 172
Consumer installment
Home equity 995 628 1,071 679 1,267 558 588 429
Total accruing loans contractually past due 90 days or more as to interest or principal payments $1,283 $3,402 $1,484 $1,472 $2,287 $1,468 $1,779 $801
(1) Acquired loans, accounted for under Accounting Standards Codification 310-30, that are not performing in accordance with contractual terms are not reported as nonperforming loans because these loans are recorded in pools at their net realizable value based on the principal and interest the Corporation expects to collect on these loans.


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Three Months Ended Three Months Ended Twelve months ended
Dec 31,
2016
Sept 30,
2016
June 30,
2016
Mar 31,
2016
Dec 31,
2015
Sept 30,
2015
June 30,
2015
Mar 31,
2015
Dec 31,
2016
Dec 31,
2015
Allowance for loan losses - originated portfolio
Allowance for loan losses - beginning of period$73,775 $71,506 $70,318 $73,328 $75,626 $74,941 $75,256 $75,183 $73,328 $75,183
Provision for loan losses6,272 4,103 3,000 1,500 2,000 1,500 1,500 2,000 14,875 7,000
Net loan charge-offs:
Commercial(336) (150) (1,153) (3,115) (2,207) 86 (36) (424) (4,754) (2,581)
Commercial real estate(280) (154) (187) (440) (624) 145 (581) (415) (1,061) (1,475)
Real estate construction36 (31) (11) (1) (49) (91) (6) (141)
Residential mortgage(236) (304) 8 (172) (545) (214) (661) (492) (704) (1,912)
Consumer installment(823) (1,137) (486) (602) (770) (782) (590) (649) (3,048) (2,791)
Home equity(140) (58) 6 (170) (152) (49) 102 144 (362) 45
Net loan charge-offs(1,779) (1,834) (1,812) (4,510) (4,298) (815) (1,815) (1,927) (9,935) (8,855)
Allowance for loan losses - end of period$78,268 $73,775 $71,506 $70,318 $73,328 $75,626 $74,941 $75,256 $78,268 $73,328
Allowance for loan losses - acquired loan portfolio
Allowance for loan losses - beginning of period 500 500
Provision for loan losses (500) (500)
Allowance for loan losses - end of period
Total allowance for loan losses$78,268 $73,775 $71,506 $70,318 $73,328 $75,626 $74,941 $75,256 $78,268 $73,328
Net loan charge-offs as a percent of average loans (quarterly amounts annualized)0.06% 0.08% 0.10% 0.25% 0.24% 0.05% 0.12% 0.14% 0.11% 0.13%


December
31, 2016
Sept 30,
2016
June 30,
2016
March 31,
2016
December
31, 2015
Sept 30,
2015
June 30,
2015
March 31,
2015
Originated loans$7,458,401 $6,755,931 $6,378,934 $6,001,714 $5,807,934 $5,667,159 $5,351,010 $5,048,662
Acquired loans5,532,378 5,959,858 1,268,335 1,365,171 1,463,213 1,549,036 1,683,733 654,212
Total loans$12,990,779 $12,715,789 $7,647,269 $7,366,885 $7,271,147 $7,216,195 $7,034,743 $5,702,874
Allowance for loan losses as a percent of:
Total originated loans1.05% 1.09% 1.12% 1.17% 1.26% 1.33% 1.40% 1.49%
Nonperforming loans176.5% 178.6% 162.5% 131.6% 117.8% 124.7% 146.3% 140.8%
Credit mark as a percent of unpaid principal balance on acquired loans3.1% 3.0% 4.1% 4.5% 4.4% 4.2% 3.9% 5.7%


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Twelve months ended
4th
Quarter
2016

3rd
Quarter
2016(2)

2nd
Quarter
2016(2)

1st
Quarter
2016(2)

4th
Quarter
2015

3rd
Quarter
2015

2nd
Quarter
2015

1st
Quarter
2015

Dec 31,
2016
Dec 31,
2015
Non-GAAP Operating Results
Net Income
Net income, as reported$47,168 $11,484 $25,775 $23,605 $25,504 $24,467 $19,024 $17,835 $108,032 $86,830
Transaction expenses18,016 37,470 3,054 2,594 2,085 900 3,457 1,362 61,134 7,804
Gain on sales of branch offices(7,391) (7,391)
Loan servicing rights change in fair valuation(6,352) 1,344 (5,008)
Significant items4,273 38,814 3,054 2,594 2,085 900 3,457 1,362 48,735 7,804
Income tax benefit (1)(1,496) (12,822) (1,069) (908) (730) (315) (798) (477) (16,295) (2,320)
Significant items, net of tax2,777 25,992 1,985 1,686 1,355 585 2,659 885 32,440 5,484
Net income, excluding significant items$49,945 $37,476 $27,760 $25,291 $26,859 $25,052 $21,683 $18,720 $140,472 $92,314
Diluted Earnings Per Share
Diluted earnings per share, as reported$0.66 $ 0.23 $ 0.67 $ 0.60 $ 0.66 $ 0.64 $ 0.54 $ 0.54 $ 2.17 $ 2.39
Effect of significant items, net of tax0.04 0.52 0.05 0.05 0.04 0.01 0.07 0.03 0.64 0.15
Diluted earnings per share, excluding significant items$0.70 $ 0.75 $ 0.72 $ 0.65 $ 0.70 $ 0.65 $ 0.61 $ 0.57 $ 2.81 $ 2.54
Return on Average Assets
Return on average assets, as reported1.09% 0.37
% 1.10
% 1.02
% 1.11
% 1.05
% 0.94
% 0.98
% 0.90
% 1.02
%
Effect of significant items, net of tax0.07 0.85 0.09 0.07 0.06 0.03 0.13 0.05 0.27 0.07
Return on average assets, excluding significant items1.16% 1.22
% 1.19
% 1.09
% 1.17
% 1.08
% 1.07
% 1.03
% 1.17
% 1.09
%
Return on Average Shareholders' Equity
Return on average shareholders' equity, as reported7.4% 2.9
% 10.0
% 9.3
% 10.2
% 9.8
% 8.6
% 9.0
% 7.0
% 9.4
%
Effect of significant items, net of tax0.4 6.7 0.7 0.6 0.5 0.3 1.2 0.5 2.1
0.6
Return on average shareholders' equity, excluding significant items7.8% 9.6
% 10.7
% 9.9
% 10.7
% 10.1
% 9.8
% 9.5
% 9.1
% 10.0
%
(1) Assumes transaction expenses and other significant items are deductible at an income tax rate of 35%, except for the impact of estimated nondeductible expenses incurred in periods when the Corporation completes merger and acquisition transactions.
(2) The third quarter, second quarter and first quarter of 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." The early adoption resulted in $752 thousand, $68 thousand and $343 thousand of excess tax benefits recognized within "Income tax expense" during the three months ended September 30, June 30 and March 31, 2016, respectively, rather than previously recognized directly into equity within "Additional paid-in-capital."


Chemical Financial Corporation Announces Fourth Quarter and Full Year 2016 Operating Results
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Chemical Financial Corporation
(Dollars in thousands, except per share data)
Twelve months ended
4th
Quarter
2016

3rd
Quarter
2016

2nd
Quarter
2016

1st
Quarter
2016

4th
Quarter
2015

3rd
Quarter
2015

2nd
Quarter
2015

1st
Quarter
2015

Dec 31,
2016

Dec 31,
2015
Efficiency Ratio
Net interest income$132,447 $96,809 $77,495 $74,330 $75,476 $73,617 $65,735 $59,180 $381,081 $274,008
Noninterest income54,264 27,770 20,897 19,419 20,052 20,215 20,674 19,275 122,350 80,216
Total revenue - GAAP186,711 124,579 98,392 93,749 95,528 93,832 86,409 78,455 503,431 354,224
Net interest income FTE adjustment2,945 2,426 2,138 2,133 2,042 2,031 1,790 1,589 9,642 7,452
Loan servicing rights change in fair valuation(6,352) 1,344 (5,008)
Gains on sale of branches(7,391) (7,391)
Gains from sale of investment securities and closed branch locations(76) (301) (123) (169) (42) (111) (47) (579) (669) (779)
Total revenue - Non-GAAP$175,837 $128,048 $100,407 $95,713 $97,528 $95,752 $88,152 $79,465 $500,005 $360,897
Operating expenses - GAAP$114,302 $106,144 $59,085 $58,887 $57,824 $58,265 $56,785 $51,020 $338,418 $223,894
Transaction expenses(18,016) (37,470) (3,054) (2,594) (2,085) (900) (3,457) (1,362) (61,134) (7,804)
Amortization of intangibles(1,843) (1,292) (1,195) (1,194) (1,341) (1,270) (987) (791) (5,524) (4,389)
Operating expenses - Non-GAAP$94,443 $67,382 $54,836 $55,099 $54,398 $56,095 $52,341 $48,867 $271,760 $211,701
Efficiency ratio - GAAP61.2% 85.2% 60.1% 62.8% 60.5% 62.1% 65.7% 65.0% 67.2% 63.2%
Efficiency ratio - adjusted53.7% 52.6% 54.6% 57.6% 55.8% 58.6% 59.4% 61.5% 54.4% 58.7%


December
31, 2016
September
30, 2016
June 30,
2016
March 31,
2016
December
31, 2015
September
30, 2015
June 30,
2015
March 31,
2015
Tangible Book Value
Shareholders' equity, as reported$2,581,526 $2,563,666 $1,050,299 $1,032,291 $1,015,974 $998,363 $980,791 $810,501
Goodwill, CDI and noncompete agreements, net of tax(1,155,617) (1,154,121) (297,044) (297,821) (299,123) (299,681) (299,109) (187,991)
Tangible shareholders' equity$1,425,909 $1,409,545 $753,255 $734,470 $716,851 $698,682 $681,682 $622,510
Common shares outstanding70,599 70,497 38,267 38,248 38,168 38,131 38,110 32,847
Book value per share (shareholders' equity, as reported, divided by common shares outstanding)$36.57 $36.37 $27.45 $26.99 $26.62 $26.18 $25.74 $24.68
Tangible book value per share (tangible shareholders' equity divided by common shares outstanding)$20.20 $19.99 $19.68 $19.20 $18.78 $18.32 $17.89 $18.95
Tangible Shareholders' Equity to Tangible Assets
Total assets, as reported$17,355,179 $17,383,637 $9,514,172 $9,303,632 $9,188,797 $9,264,554 $9,020,725 $7,551,635
Goodwill, CDI and noncompete agreements, net of tax(1,155,617) (1,154,121) (297,044) (297,821) (299,123) (299,681) (299,109) (187,991)
Tangible assets$16,199,562 $16,229,516 $9,217,128 $9,005,811 $8,889,674 $8,964,873 $8,721,616 $7,363,644
Shareholders' equity to total assets14.9% 14.7% 11.0% 11.1% 11.1% 10.8% 10.9% 10.7%
Tangible shareholders' equity to tangible assets8.8% 8.7% 8.2% 8.2% 8.1% 7.8% 7.8% 8.5%

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

Source:Chemical Financial Corporation