Chemical Financial Corporation, holding company to Chemical Bank which has multiple branches throughout Michigan’s Great Southwest, missed Wall Street expectations on both earnings and revenues Tuesday, but is “well positioned” according to top management going forward.
Chemical announced 2018 third quarter net income of $70.4 million, or $0.98 per diluted share, compared to 2018 second quarter net income of $69.0 million, or $0.96 per diluted share and 2017 third quarter net income of $40.5 million, or $0.56 per diluted share. Wall Street analysts had been expecting $0.99 per diluted share, missing the mark by a penny.
Net income in the third quarter of 2017 excluding merger and restructuring expenses, a non-GAAP financial measure, was $54.2 million, or $0.76 per diluted share. In addition, on October 23, 2018, the Board of Directors declared a fourth quarter of 2018 dividend on common stock of $0.34 per share. The fourth quarter of 2018 dividend will be payable on December 21, 2018, to shareholders of record on December 7, 2018.
Chief Executive Officer of Chemical Financial, David Provost, and Thomas Shafer, Vice Chair of the Board and CEO of Chemical Bank said, “Our results for the quarter reflect our ability to drive growth in loans and substantial growth in customer deposits in a competitive market all while working diligently to finalize substantial upgrades to our core operating systems.” Both men added, “We believe we are well positioned to finish the year strong with increasing revenue and continuing our focus on driving strong organic growth while efficiently managing our operating expenses as we continue to build upon our solid foundation.”
Third Quarter revenues of $197.4-million, representing a 12.3-percent increase year-over-year, missed analyst expectations by $4.78-million.
Chemical’s return on average assets was 1.37-percent during the third quarter of 2018, compared to 1.39-percent during the second quarter of 2018 and 0.86-percent in the third quarter of 2017. The return on average tangible shareholders’ equity was 17.5-percent in the third quarter of 2018, compared to 17.8-percent during the second quarter of 2018 and 10.9-percent in the third quarter of 2017. During the third quarter of 2017, return on average assets and return on average tangible shareholder’s equity, excluding significant items, both non-GAAP financial measures, was 1.15-percent and 14.6-percent, respectively.
The bank’s net interest income was $159.5 million in the third quarter of 2018, $1.9 million, or 1.2-percent, higher than the second quarter of 2018 and $15.9 million, or 11.0-percent, higher than the third quarter of 2017. The increase in net interest income in the third quarter of 2018, compared to both the second quarter of 2018 and the third quarter of 2017, was primarily attributable to increases in average balances and yields earned on loans and investment securities, partially offset by increases in average deposit balances and cost of funds.
Net interest margin was 3.42-percent in the third quarter of 2018, compared to 3.54-percent in the second quarter of 2018 and 3.40-percent in the third quarter of 2017. Net interest margin (fully taxable equivalent (FTE)), a non-GAAP financial measure, was 3.48-percent in the third quarter of 2018, compared to 3.59-percent in the second quarter of 2018 and 3.48-percent in the third quarter of 2017. The decrease in net interest margin (FTE), in the third quarter of 2018, compared to the second quarter of 2018, was primarily due to an increase in average deposit balances and cost of funds.
The bank’s non-interest income was $37.9 million in the third quarter of 2018, compared to $38.0 million in the second quarter of 2018 and $32.1 million in the third quarter of 2017. Non-interest income in the third quarter of 2018 decreased, compared to the second quarter of 2018, primarily due to a decrease in wealth management revenue of $1.1 million, partially offset by the change in the impact to earnings from the change in fair valuation in loan servicing rights, included within net gain on sale of loans and other mortgage banking revenue, of $1.0 million.
Chemical’s operating expenses were $109.7 million in the third quarter of 2018, compared to $104.6 million in the second quarter of 2018 and $119.5 million in the third quarter of 2017. They had no merger and restructuring expenses during the third or second quarters of 2018, compared to $21.2 million in the third quarter of 2017.
Total assets were $20.91 billion at September 30, 2018, compared to $20.28 billion at June 30, 2018 and $19.35 billion at September 30, 2017. The increase in total assets during both the third quarter of 2018 and the twelve months ended September 30, 2018 was primarily attributable to net loan growth and additions to the bank’s investment securities portfolio.
Total deposits increased to $15.44 billion at September 30, 2018, compared to $14.55 billion at June 30, 2018 and $13.81 billion at September 30, 2017. The increase in deposits during the three months ended September 30, 2018 was primarily due to an increase in customer deposits of $1.07 billion, partially offset by a decrease in brokered deposits of $172.6 million. Collateralized customer deposits were $377.5 million at September 30, 2018, compared to $378.9 million at June 30, 2018 and $414.6 million at September 30, 2017. Loans as a percentage of deposits plus collateralized customer deposits were 93.5-percent at September 30, 2018, compared to 97.7-percent at June 30, 2018 and 97.3% at September 30, 2017.
