The significant cost of merging with Talmer Bancorp has markedly impacted Chemical Financial Corporation's third quarter financial results reported Tuesday, but still surpassed Wall Street expectations when transaction related costs are factored back out. The company's stock price has risen 27-percent in the past twelve months.
Chemical Financial Corporation announced 2016 third quarter net income of $10.7 million, or $0.21 per diluted share, compared to 2016 second quarter net income of $25.7 million, or $0.67 per diluted share and 2015 third quarter net income of $24.5 million, or $0.64 per diluted share. Net income was $59.7 million, or $1.40 per diluted share, for the nine months ended September 30, 2016, compared to $61.3 million, or $1.72 per diluted share, for the nine months ended September 30, 2015. The decrease in net income in the third quarter of 2016, compared to both the second quarter of 2016 and the third quarter of 2015, was driven by significant merger-related expenses incurred during the third quarter of 2016 resulting from completion of the corporation's merger with Talmer Bancorp, Inc.
As previously reported, Chemical completed its merger with Talmer on August 31, 2016. Accordingly, the results of Talmer's operations are included in the corporation's operations since the merger date. Talmer Bank and Trust will be operated as a separate subsidiary until its planned consolidation with and into Chemical Bank in the fourth quarter of 2016. Chemical's total assets increased $7.9 billion in the third quarter of 2016 to $17.4 billion as of September 30, 2016 primarily due to the addition of $7.7 billion in assets added as a result of the merger with Talmer.
Excluding merger and transaction-related expenses, net income in the third quarter of 2016 was $35.9 million, or $0.72 per diluted share, compared to $27.7 million, or $0.72 per diluted share, in the second quarter of 2016 and $25.1 million, or $0.65 per diluted share, in the third quarter of 2015. The average street estimate had been for earnings around 67-cents per share, so the company clearly exceeded those expectations.
Transaction expenses were $37.5 million in the third quarter of 2016, compared to $3.1 million in the second quarter of 2016 and $0.9 million in the third quarter of 2015. Net income, excluding transaction expenses, was $88.5 million, or $2.09 per diluted share, for the nine months ended September 30, 2016, compared to $65.5 million, or $1.84 per diluted share, for the nine months ended September 30, 2015. Transaction expenses were $43.1 million for the nine months ended September 30, 2016, compared to $5.7 million for the nine months ended September 30, 2015.
Chemical Financial's President & CEO David Ramaker says, "Our third quarter 2016 financial results reflect not only the exceptional potential of Chemical Financial Corporation, but also of the underlying strength of the predecessor institutions. Our key core performance metrics for the quarter were solid, despite reflecting only a single month of the combined entities’ operations and prior to realizing the majority of our anticipated costs savings associated with the planned consolidation of Talmer Bank and Trust into Chemical Bank." He adds, "Our core banking businesses continue to perform well, with strong organic growth in both loans and customer deposits during the third quarter. Credit quality remains high and expense growth is muted."
Ramaker says, "On August 31, 2016, we were pleased to welcome the Talmer Bancorp team to the Chemical Financial Corporation family, bringing the combined team to approximately 3,500 bankers committed to meeting the financial service needs of our customers and communities. While we are cognizant of the challenges presented by large scale systems integrations, we are reassured by the fact that both institutions bring extensive experience to the merger integration process. When the institutions are consolidated as planned in the fourth quarter of 2016, our combined Chemical Bank footprint will blanket Michigan and extend into Ohio and Indiana, with 255 banking offices serving nearly 550,000 households and businesses."
Ramaker says, "With total assets exceeding $17 billion, we believe we have the scale to address the ever increasing regulatory burden that financial service providers face, and that our community-driven, Midwest-focused institution will provide a compelling option for the residents and businesses in the markets we serve. We remain committed and confident in both completing the integration of Talmer Bank and Trust into Chemical Bank and in our ability to achieve market share gains as we move forward."
The increase in net income, excluding transaction expenses, in the third quarter of 2016, compared to both the second quarter of 2016 and the third quarter of 2015, was primarily attributable to incremental earnings resulting from the Talmer merger. The increase in net income for the first nine months of 2016, excluding transaction expenses, compared to the same period for 2015, was largely attributable to incremental earnings resulting from the merger with Talmer and Chemical's acquisitions completed during 2015, in addition to an increase in net interest income resulting from organic loan growth.
Net interest income was $96.8 million in the third quarter of 2016, $19.3 million, or 25-percent, higher than the second quarter of 2016 and $23.2 million, or 32-percent, higher than the third quarter of 2015. The increase in net interest income in the third quarter of 2016, compared to both the second quarter of 2016 and the third quarter of 2015, was primarily attributable to loans acquired in the merger with Talmer, although also partially attributable to organic loan growth. The corporation experienced organic loan growth of $186 million during the third quarter of 2016 and $617 million during the twelve months ended September 30, 2016.
