Chemical Bank’s holding company, Chemical Financial Corporation released first quarter earnings results this week, beating Wall Street forecasts on earnings per share, but falling short of the street’s expectations on revenues. Chemical has multiple branch offices throughout Michigan’s Great Southwest.
Chemical Financial has announced 2019 first quarter net income of $62.9 million, or $0.87 per diluted share, compared to 2018 fourth quarter net income of $73.0 million, or $1.01 per diluted share, and 2018 first quarter net income of $71.6 million, or $0.99 per diluted share. Net income, excluding the change in fair of value in loan servicing rights and merger expenses, a non-GAAP financial measure, was $73.3 million, or $1.02 per diluted share, in the first quarter of 2019, compared to $75.3 million, or $1.04 per diluted share, in the fourth quarter of 2018 and $68.6 million, or $0.95 per diluted share, in the first quarter of 2018.
David Provost, CEO at Chemical Financial and Thomas Shafer, Vice Chair of Chemical Financial and CEO at Chemical Bank said this week, “Results for the quarter continue the path of our sound operating performance reflecting strong deposit growth, low loan charge-off rates and disciplined expense management.” Both men added, in a joint statement, “As we look forward to the remainder of the year, we believe we have a solid loan pipeline to improve loan growth and continue to grow our net interest income. As we combine this loan growth with the focused control of our core operating expenses while maintaining other solid fundamentals, we believe we are in a solid position for a successful 2019.”
The earnings results exceeded Wall Street’s anticipated 99-cents per share, beating forecasts by 3-cents. However, analysts had expected revenue of $202.4-million versus the $187.7-million reported when taken net of interest expenses.
In an earnings conference call yesterday, Provost said, “While a significant amount of focus is being place on moving forward with our merger with TCF. I’m also pleased with our core banking team’s focus on continuing customer service. This level of customer focus, the finalization of our core operating systems upgrade, investments we’ve made in our team over the past year, joined with the strength that we’ve previously built and provide us with a continued optimistic outlook and believe that we’re well positioned for growth in our high growth potential markets of Detroit, Cleveland and Grand Rapids as we focus on services and products that provide the greatest opportunity to create value.”
Provost reassured analysts on the call, saying, “Know that while, we continue to make strategic market investments and make plans in regards to our pending merger. We will continue to balance our disciplined expense management philosophy with a strong focus on driving revenue growth as we continue to make progress toward our goal of being the Midwest premier bank providing best in class service to all of our customers.”
Return on average assets was 1.17-percent for the first quarter of 2019, compared to 1.39-percent for the fourth quarter of 2018 and 1.47-percent for the first quarter of 2018. Return on average assets, excluding significant items, a non-GAAP financial measure, was 1.36-percent for the first quarter of 2019, compared to 1.44-percent for the fourth quarter of 2018 and 1.41-percent for the first quarter of 2018.
Return on average tangible shareholders’ equity was 14.8-percent for the first quarter of 2019, compared to 17.8-percent for the fourth quarter of 2018 and 19.0-percent for the first quarter of 2018. Return on average tangible shareholders’ equity, excluding significant items, a non-GAAP financial measure, was 17.2-percent for the first quarter of 2019, compared to 18.3-percent for the fourth quarter of 2018 and 18.2-percent for the first quarter of 2018.
Net interest income was $162.8 million for the first quarter of 2019, $0.6 million, or 0.4-percnet, lower than the fourth quarter of 2018 and $11.0 million, or 7.2-percent, higher than the first quarter of 2018. The decrease in net interest income in the first quarter of 2019, compared to the fourth quarter of 2018, was primarily attributable to an increase in average deposit balances and cost of funds, partially offset by the benefit from an increase in average balances and yields earned on loans and investment securities. The increase in net interest income in the first quarter of 2019, compared to the first quarter of 2018, was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by increases in average interest-bearing deposit balances and cost of funds. First quarter of 2019 net loan growth was $54.3 million, or an annualized growth rate of 1.4-percent, and net loan growth over the past twelve months was $1.11 billion, or 7.8-percent. The investment securities portfolio grew by $277.6 million, compared to the fourth quarter of 2018, and $949.6 million, compared to the first quarter of 2018.
Noninterest income was $24.9 million in the first quarter of 2019, compared to $32.0 million in the fourth quarter of 2018 and $40.6 million in the first quarter of 2018. Noninterest income in the first quarter of 2019 decreased, compared to the fourth quarter of 2018, primarily related to the change in fair value in loan servicing rights, included within net gain on sale of loans and other mortgage banking revenue, and a decrease of $1.6 million in electronic banking fees, included within other charges and fees for customer services. Noninterest income in the first quarter of 2019 decreased, compared to the first quarter of 2018, primarily due to the change in fair value in loan servicing rights, included within net gain on sale of loans and other mortgage banking revenue. Net gain on sale of loans and other mortgage banking revenue included a $7.6 million detriment to earnings due to a change in fair value in loan servicing rights in the first quarter of 2019, compared to a $2.8 million detriment in the fourth quarter of 2018 and a $3.8 million benefit in the first quarter of 2018.
Operating expenses were $109.0 million in the first quarter of 2019, compared to $108.4 million in the fourth quarter of 2018 and $101.6 million in the first quarter of 2018. Operating expenses, core, a non-GAAP financial measure that excludes the impact of merger expenses and federal historic tax credits, were $103.6 million for the first quarter of 2019, compared to $102.6 million for the fourth quarter of 2018 and $100.0 million for the first quarter of 2018. The $1.0 million increase in operating expenses, core, in the first quarter of 2019, compared to the fourth quarter of 2018, was primarily due to an increase in salaries, wages and employee benefits impacted by a decrease in the deferral of loan origination costs due to lower loan production and an increase in payroll taxes due to the beginning of a new tax year. The $3.6 million increase in operating expenses, core, in the first quarter of 2019, compared to the first quarter of 2018, was primarily due to an increase in salaries, wages and employee benefits impacted by increases in staff to support the strategic focus on commercial lending growth and an increase in outside processing and service fees due to the substantial enhancements to our core operating systems. First quarter of 2019 included $5.4 million of merger related expenses, resulting in a detriment of $0.06 to diluted earnings per share. Impairment related to federal historic tax credits, included within other operating expense in the Consolidated Statements of Income, totaled $5.8 million in the fourth quarter of 2018 and $1.6 million in the first quarter of 2018.
Total assets were $21.80 billion at March 31, 2019, compared to $21.50 billion at December 31, 2018 and $19.76 billion at March 31, 2018. The increase in total assets during the first quarter of 2019 and the twelve months ended March 31, 2019 was primarily attributable to net loan growth and additions to the investment securities portfolio.
Total deposits increased to $16.06 billion at March 31, 2019, compared to $15.59 billion at December 31, 2018 and $13.97 billion at March 31, 2018. The increase in deposits during the first quarter of 2019 was primarily due to an increase in customer deposits of $419.3 million, with increases across all categories, and an increase in brokered deposits of $49.4 million.
