Chemical Financial Corporation beat Wall Street expectations today for third-quarter earnings, but fell short of analyst expectations on revenues.
The bank holding company, which has many branch banks throughout Michigan’s Great Southwest and beyond, today announced 2017 third quarter net income of $40.5 million, or $0.56 per diluted share, compared to 2017 second quarter net income of $52.0 million, or $0.73 per diluted share and 2016 third quarter net income of $11.5 million, or $0.23 per diluted share.
The street had expected earnings per share of $0.78, so they exceeded by a penny. However, Wall Street had been looking for revenues in the range of $182.2-million, while Chemical turned in adjusted revenue of $175.8-million.
Excluding merger and restructuring expenses and the change in fair value in loan servicing rights, net income in the third quarter of 2017 was $56.9 million, or $0.79 per diluted share, compared to $53.5 million, or $0.75 per diluted share, in the second quarter of 2017 and $37.4 million, or $0.75 per diluted share, in the third quarter of 2016.
During the third quarter of 2017, significant items included restructuring expenses of $18.8 million, merger expenses of $2.4 million and a $4.0 million detriment to earnings due to the change in fair value in loan servicing rights, compared to merger expenses of $0.5 million and a $1.8 million detriment to earnings due to the change in fair value in loan servicing rights in the second quarter of 2017. The restructuring expenses incurred during the third quarter of 2017 were a result of the corporation’s previously announced restructuring efforts, consisting primarily of severance and retirement related expenses. The third quarter of 2016 included $37.5 million of merger expenses and a $1.2 million detriment to earnings due to the change in fair value in loan servicing rights.
David Provost is CEO at Chemical Financial and Thomas Shafer is Vice Chair of the corporation and CEO of Chemical Bank. They jointly said, “We are pleased with our core underlying trends this quarter, including increased net interest income, improved operating efficiency and a stable net interest margin.” They added, “With the enhancements we have made in the third quarter of 2017 in association with our restructuring efforts, we believe we are on target to achieve the long-term growth prospects established as part of our most recent merger performance targets.”
The corporation’s return on average assets was 0.86% during the third quarter of 2017, compared to 1.14% during the second quarter of 2017 and 0.37% in the third quarter of 2016. Their return on average shareholders’ equity was 6.1% in the third quarter of 2017, compared to 8.0% during the second quarter of 2017 and 2.9% in the third quarter of 2016. Excluding significant items, the return on average assets was 1.21% during the third quarter of 2017, compared to 1.17% during the second quarter of 2017 and 1.22% in the third quarter of 2016 and, excluding significant items, the return on average shareholders’ equity was 8.6% in the third quarter of 2017, compared to 8.2% during the second quarter of 2017 and 9.6% in the third quarter of 2016.
Net interest income was $143.6 million in the third quarter of 2017, $5.7 million, or 4.1%, higher than the second quarter of 2017 and $46.8 million, or 48.4%, higher than the third quarter of 2016. The higher net interest income in the third quarter of 2017 compared to the second quarter of 2017 was driven by the positive impact of organic loan growth, an increase in the investment securities portfolio, improvement in yields on loans, and one additional day in the quarter. These benefits to net interest income were partially offset by the interest expense impact of increases in average deposits and short-term borrowings. The increase in net interest income in the third quarter of 2017 over the third quarter of 2016 was primarily attributable to organic loan growth and loans acquired in the merger with Talmer Bancorp, Inc. Chemical experienced net organic loan growth of $166.0 million during the third quarter of 2017 and $1.12 billion during the twelve months ended September 30, 2017. The merger with Talmer added $4.88 billion of loans on August 31, 2016.
Operating expenses were $119.5 million in the third quarter of 2017, compared to $98.2 million in the second quarter of 2017 and $106.1 million in the third quarter of 2016. Operating expenses included merger and restructuring expenses of $21.2 million in the third quarter of 2017, $0.5 million in the second quarter of 2017 and $37.5 million in the third quarter of 2016. The increase in merger and restructuring expenses in the third quarter of 2017, compared to the second quarter of 2017, was primarily due to the corporation’s previously announced restructuring efforts. Third quarter of 2017 other operating expenses included $3.1 million of impairment related to a federal housing tax credit placed into service in the third quarter of 2017. Excluding merger and restructuring expenses and the impairment of federal housing tax credit, core operating expenses were $95.2 million in the third quarter of 2017, a decrease of $2.5 million compared to the second quarter of 2017. The bank expects a decline in operating expenses from the previously announced restructuring efforts to be evident in the fourth quarter of 2017.
Total assets were $19.35 billion at September 30, 2017, compared to $18.78 billion at June 30, 2017 and $17.38 billion at September 30, 2016. The increase in total assets during the three months ended September 30, 2017 was primarily attributable to an increase in investment securities and loan growth that was funded primarily by an increase in deposits. During the quarter, the investment securities portfolio grew by $273.8 million to $2.69 billion at September 30, 2017. The increase in total assets during the twelve months ended September 30, 2017 was primarily attributable to organic loan growth and an increase in investment securities.
