Chemical Financial Corporation Reports Fourth Quarter and Full Year 2015 Results


For further information
David T. Provost, CEO
Dennis Klaeser, CFO
989-839-5350
Company Release - 01/25/2016 16:01

MIDLAND, Mich., Jan. 25, 2016 (GLOBE NEWSWIRE) -- Chemical Financial Corporation ("Corporation" or "Chemical") (NASDAQ:CHFC) today announced 2015 fourth quarter net income of $25.5 million, or $0.66 per diluted share, compared to 2014 fourth quarter net income of $15.3 million, or $0.46 per diluted share, and 2015 third quarter net income of $24.5 million, or $0.64 per diluted share. For the twelve months ended December 31, 2015, net income was $86.8 million, or $2.39 per diluted share, compared to net income for the twelve months ended December 31, 2014 of $62.1 million, or $1.97 per diluted share.

Excluding nonrecurring acquisition-related expenses, net income in the fourth quarter of 2015 was $26.9 million, or $0.70 per diluted share, compared to $18.4 million, or $0.56 per diluted share, in the fourth quarter of 2014 and $25.1 million, or $0.65 per diluted share, in the third quarter of 2015. Excluding nonrecurring acquisition-related expenses, net income in 2015 was $92.3 million, or $2.54 per diluted share, compared to $66.7 million, or $2.11 per diluted share, in 2014.

"2015 was a year of significant accomplishments for Chemical Financial Corporation, with strong acquisitive and organic growth leading to double digit percentage gains in earnings per share, excluding nonrecurring acquisition-related expenses. In the fourth quarter of 2015, we completed the integration into Chemical Bank of The Bank of Holland and The Bank of Northern Michigan, which were acquired in the Lake Michigan Financial Corporation transaction, the third major acquisition we’ve closed and integrated in the past fifteen months. In doing so, we have brought a number of new commercial and retail customers into the Chemical Bank fold, while ensuring that we continued to meet the needs of our existing customers and communities," noted David B. Ramaker, Chairman, Chief Executive Officer and President of the Corporation.

"I’m extremely proud of the work done by Chemical’s 2,100 employees as we have extended our community-focused approach to banking across Michigan, while successfully executing our core banking strategies. Looking ahead to the future, we see opportunities to extend our franchise even further. As we continue our recent pattern of growth to the $10-billion asset level and beyond, we are mindful of the increased regulatory burden we will face, and of the need to forge through, as opposed to merely cross over, that threshold," added Ramaker.

The double digit percentage increases in earnings per share, excluding nonrecurring acquisition-related expenses, for the three- and twelve-month periods ended December 31, 2015, compared to the same periods for the prior year, were primarily driven by higher net interest income due to organic loan growth over the last twelve months of $476 million, or 8%, and incremental earnings from the acquisitions of Northwestern Bancorp, Inc. ("Northwestern"), Monarch Community Bancorp, Inc. ("Monarch") and Lake Michigan Financial Corporation ("Lake Michigan") that closed on October 31, 2014, April 1, 2015 and May 31, 2015, respectively. The increase in earnings per share in the fourth quarter of 2015, compared to the third quarter of 2015, was attributable to higher net interest income and lower operating expenses.

The Corporation's return on average assets, excluding nonrecurring acquisition-related expenses, was 1.16% during the fourth quarter of 2015, compared to 1.04% in the fourth quarter of 2014 and 1.08% in the third quarter of 2015. The Corporation's return on average shareholders' equity, excluding nonrecurring acquisition-related expenses, was  10.7% in the fourth quarter of 2015, compared to 9.1% in the fourth quarter of 2014 and 10.1% in the third quarter of 2015.

Net interest income was $75.5 million in the fourth quarter of 2015, $17.2 million, or 30%, higher than the fourth quarter of 2014 and $1.9 million, or 2.5%, higher than the third quarter of 2015. The increase in net interest income in the fourth quarter of 2015 over the fourth quarter of 2014 was largely attributable to the positive impact of 2015 organic loan growth and the impact of the three aforementioned acquisitions. The increase in net interest income in the fourth quarter of 2015 over the third quarter of 2015 was largely attributable to additional interest income resulting from third and fourth quarter 2015 organic loan growth.

The net interest margin (on a tax-equivalent basis) was 3.64% in the fourth quarter of 2015, compared to 3.62% in the fourth quarter of 2014 and 3.55% in the third quarter of 2015. The increase in the net interest margin in the fourth quarter of 2015, compared to the third quarter of 2015, was primarily attributable to an increase in the average yield on the Corporation's investment securities portfolio and receipt in the fourth quarter of 2015 of a semi-annual dividend of $0.4 million on the Corporation's Federal Reserve Bank stock. The average yield on the loan portfolio was 4.16% in the fourth quarter of 2015, compared to 4.22% in the fourth quarter of 2014 and 4.15% in the third quarter of 2015. The average yield of the investment securities portfolio was 2.21% in the fourth quarter of 2015, compared to 2.02% in the fourth quarter of 2014 and 2.08% in the third quarter of 2015. The Corporation's average cost of funds was 0.25% in both the fourth quarter of 2015 and the third quarter of 2015, compared to 0.23% in the fourth quarter of 2014.

Net interest income was $274.0 million in 2015, $61.5 million, or 29%, higher than 2014, with the increase primarily attributable to a combination of organic loan growth and the impact of the three aforementioned acquisitions that occurred in 2014 and 2015. The average balance of loans outstanding during 2015 was up $1.61 billion over 2014, with the increase driven by $1.11 billion of loans acquired in the Lake Michigan and Monarch acquisitions and $476 million of organic loan growth during 2015. The net interest margin (on a tax equivalent basis) was 3.58% in 2015 and 3.59% in 2014.

The provision for loan losses was $2.0 million in the fourth quarter of 2015, compared to $1.5 million in the fourth quarter of 2014 and the third quarter of 2015. The increase in the provision for loan losses in the fourth quarter of 2015, compared to both the fourth quarter of 2014 and the third quarter of 2015, was primarily due to growth in the loan portfolio. The provision for loan losses was $6.5 million in 2015, compared to $6.1 million in 2014. The Corporation's provision for loan losses remained relatively consistent during 2015, compared to 2014, despite significant organic growth in its loan portfolio, due primarily to an overall modest reduction in net loan charge-offs and strong credit quality.

Net loan charge-offs were $4.3 million, or 0.24% of average loans, in the fourth quarter of 2015, compared to $2.8 million, or 0.21% of average loans, in the fourth quarter of 2014 and $0.8 million, or 0.05% of average loans, in the third quarter of 2015. The increase in net loan charge-offs in the fourth quarter of 2015, compared to the fourth quarter of 2014 and the third quarter of 2015, was partially attributable to a $1.6 million net loan charge-off from one commercial loan relationship. Net loan charge-offs totaled $8.9 million, or 0.13% of average loans, in 2015, compared to $9.5 million, or 0.19% of average loans, in 2014.

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 $83.9 million at December 31, 2015, compared to $81.2 million at September 30, 2015 and $71.2 million at December 31, 2014. Nonperforming loans comprised 1.15% of total loans at December 31, 2015, compared to 1.13% at September 30, 2015 and 1.25% at December 31, 2014. The reduction in nonperforming loans as a percentage of total loans at December 31, 2015, compared to December 31, 2014, was partially due to the addition of $1.11 billion of loans acquired in the Lake Michigan and Monarch transactions, with no corresponding increase in nonperforming loans as these acquired loans are not classified as nonperforming loans after the acquisition date since they are recorded in pools at their net realizable value.

At December 31, 2015, the allowance for loan losses of the originated loan portfolio was $73.3 million, or 1.26% of originated loans, compared to $75.6 million, or 1.33% of originated loans, at September 30, 2015 and $75.2 million, or 1.51% of originated loans, at December 31, 2014. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 87% at December 31, 2015, compared to 93% at September 30, 2015 and 106% at December 31, 2014.

Noninterest income was $20.1 million in the fourth quarter of 2015, compared to $18.2 million in the fourth quarter of 2014 and $20.2 million in the third quarter of 2015. Noninterest income in the fourth quarter of 2015 was higher than the fourth quarter of 2014 due primarily to higher wealth management revenue and an increase in customer service fees resulting from the three aforementioned acquisitions. Noninterest income in the fourth quarter of 2015 was slightly lower than the third quarter of 2015, with higher wealth management revenue being offset by lower overdraft and electronic banking fees. The increase in wealth management revenue in the fourth quarter of 2015, compared to both the fourth quarter of 2014 and third quarter of 2015, was primarily due to an increase in fees resulting from new assets under management.

Noninterest income was $80.2 million in 2015, compared to $63.1 million in 2014, with the increase largely attributable to increases in all major categories of noninterest income that was largely driven by the three aforementioned acquisitions. Wealth management revenue was $20.6 million in 2015, compared to $16.0 million in 2014, with the increase primarily due to increased assets under management resulting from the Northwestern acquisition, which added approximately $1.0 billion of assets under management to the Corporation's Wealth Management department as of the acquisition date.

Operating expenses were $57.8 million in the fourth quarter of 2015, compared to $52.6 million in the fourth quarter of 2014 and $58.3 million in the third quarter of 2015. Operating expenses included nonrecurring acquisition-related expenses of $2.1 million in the fourth quarter of 2015, $4.1 million in the fourth quarter of 2014 and $0.9 million in the third quarter of 2015. Excluding these nonrecurring acquisition-related expenses, operating expenses were $55.7 million in the fourth quarter of 2015, $7.3 million, or 15%, higher than the fourth quarter of 2014 and $1.6 million, or 2.8%, lower than the third quarter of 2015. The increase in operating expenses in the fourth quarter of 2015, compared to the fourth quarter of 2014, was primarily attributable to incremental operating costs associated with the three aforementioned acquisitions. The decrease in operating expenses in the fourth quarter of 2015, compared to the  third quarter of 2015, was largely attributable to reductions in expenses for incentive compensation, employee benefits, outside services and advertising, which were partially offset by higher equipment expenses and lower gains from the sale of other real estate properties.

Operating expenses were $223.9 million in 2015, compared to $179.9 million in 2014. Operating expenses included nonrecurring acquisition-related expenses of $7.8 million in 2015 and $6.4 million in 2014. Excluding these nonrecurring acquisition-related expenses, operating expenses were $216.1 million in 2015, an increase of $42.6 million, or 25%, over 2014, with the increase due primarily to incremental operating costs associated with the three aforementioned acquisitions.

The Corporation's efficiency ratio was 57.1% in the fourth quarter of 2015, 62.2% in the fourth quarter of 2014 and 59.9% in the third quarter of 2015. The Corporation's efficiency ratio was 59.8% for 2015 and 61.6% for 2014.

Total assets were $9.19 billion at December 31, 2015, compared to $9.26 billion at September 30, 2015 and $7.32 billion at December 31, 2014. The increase in total assets during the twelve months ended December 31, 2015 was primarily attributable to the Lake Michigan and Monarch acquisitions, and also due to an organic increase in customer deposits, that was used to partially fund loan growth. Interest-bearing balances with the Federal Reserve Bank (FRB) totaled $15 million at December 31, 2015, compared to $109 million at September 30, 2015 and $8 million at December 31, 2014. Investment securities were $1.06 billion at December 31, 2015, compared to $1.14 billion at September 30, 2015 and $1.07 billion at December 31, 2014.

Total loans were $7.27 billion at December 31, 2015, up $56 million, from total loans of $7.22 billion at September 30, 2015 and up $1.58 billion, or 28%, from total loans of $5.69 billion at December 31, 2014. The increase in loans during the twelve months ended December 31, 2015 was attributable to $1.11 billion of loans acquired in the Lake Michigan and Monarch acquisitions and $476 million of organic loan growth.

Total deposits were $7.46 billion at December 31, 2015, compared to $7.62 billion at September 30, 2015 and $6.08 billion at December 31, 2014. The decrease in total deposits during the fourth quarter of 2015 was attributable to a decline in seasonal municipal deposit accounts. The increase in total deposits during the twelve months ended December 31, 2015 was attributable to the Corporation acquiring $1.07 billion in deposits, including $278 million of brokered deposits, in the acquisitions of Lake Michigan and Monarch and organic growth in customer deposits of $382 million, or 6.3%. The Corporation does not intend to renew the brokered deposits, which totaled $208 million at December 31, 2015, as they mature.

Short-term borrowings were $397 million at December 31, 2015, compared to $330 million at September 30, 2015 and $389 million at December 31, 2014. The increase in short-term borrowings during the fourth quarter of 2015 was due to the Corporation borrowing $100 million of short-term Federal Home Loan Bank (FHLB) advances, which were partially used to fund loan growth during the quarter. Other borrowings were $242 million at December 31, 2015 and $248 million at September 30, 2015. The Corporation had no other borrowings at December 31, 2014. The increase in other borrowings during the twelve months ended December 31, 2015 was primarily attributable to the acquisition of Lake Michigan and the Corporation borrowing $100 million of long-term FHLB advances during the third quarter of 2015 in anticipation of increases in market interest rates.

At December 31, 2015, the Corporation's tangible equity to assets ratio and total risk-based capital ratio were 8.1% and 11.8%, respectively, compared to 7.8% and 11.5%, respectively, at September 30, 2015 and 8.4% and 12.4%, respectively, at December 31, 2014. The decrease in the Corporation's capital ratios at December 31, 2015, compared to December 31, 2014, was attributable to the Lake Michigan and Monarch acquisitions. At December 31, 2015, the Corporation's book value was $26.62 per share, compared to $26.18 per share at September 30, 2015 and $24.32 per share at December 31, 2014. At December 31, 2015, the Corporation's tangible book value was $18.78 per share, compared to $18.32 per share at September 30, 2015 and $18.57 per share at December 31, 2014.

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 acquisition-related expenses, including net income, diluted earnings per share, return on average assets, return on average shareholders' equity and operating expenses. 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. A reconciliation of non-GAAP financial measures may be found in the financial tables included with this press release.

Chemical Financial Corporation is the second largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through its subsidiary bank, Chemical Bank, with 185 banking offices spread over 47 counties in Michigan. At December 31, 2015, the Corporation had total assets of $9.2 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 atwww.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," "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, 2014. 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.