Attached files
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| EX-99.1 - EXHIBIT 99.1 EARNINGS RELEASE Q4 2016 - TCF FINANCIAL CORP | exhibit9912016-q4.htm |
| 8-K - 8-K 2016 Q4 EARNINGS RELEASE - TCF FINANCIAL CORP | chfc8-k2016q4.htm |
2016 Fourth Quarter
Earnings Release
David B. Ramaker
Chief Executive Officer
Dennis L. Klaeser
Chief Financial Officer
January 26, 2017
This presentation and the accompanying presentation by management may contain forward-looking statements that are based on
management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the
economy and Chemical Financial Corporation ("Chemical"). 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," "potential," "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 that 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
Chemical’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, Chemical’s ability to grow its core
franchise, future cost savings and Chemical’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 Chemical, 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. Chemical undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events or otherwise.
Forward-Looking Statements & Other
Information
2
This presentation and the accompanying presentation by management also contain forward-looking statements regarding
Chemical's outlook or expectations with respect to its merger with Talmer Bancorp, Inc. ("Talmer"), including the benefits of the
transaction, the expected costs to be incurred and cost savings to be realized in connection with the transaction, the expected
impact of the merger on Chemical's future financial performance and consequences of the integration of Talmer into Chemical.
Risk factors relating both to the merger and the integration of Talmer into Chemical after closing include, without limitation:
The anticipated benefits, including anticipated cost savings and strategic gains, may be significantly harder or take longer to
achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events.
The integration of Talmer’s business and operations into Chemical may take longer than anticipated or be more costly than
anticipated or have unanticipated adverse results relating to Chemical's or Talmer’s existing businesses.
Chemical’s ability to achieve anticipated results from the merger is dependent on the state of the economic and financial
markets going forward. Specifically, Chemical may incur more credit losses than expected and customer and employee attrition
may be greater than expected.
The outcome of pending or threatened litigation, whether currently existing or commencing in the future, including litigation
related to the merger.
The challenges of integrating, retaining and hiring key personnel.
Failure to attract new customers and retain existing customers in the manner anticipated.
In addition, risk factors include, but are not limited to, the risk factors described in Item 1A of Chemical’s Annual Report on Form
10-K for the year ended December 31, 2015. 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.
Forward-Looking Statements & Other
Information (continued)
3
Non-GAAP Financial Measures
This presentation and the accompanying presentation by management contain certain non-GAAP financial disclosures that are not
in accordance with U.S. generally accepted accounting principles ("GAAP"). Such non-GAAP financial measures include
Chemical’s tangible equity to tangible assets ratio, tangible book value per share, presentation of net interest income and net
interest margin on a fully taxable equivalent basis, and information presented excluding significant items, including net income,
diluted earnings per share, return on average assets, return on average shareholders’ equity, operating expenses and efficiency
ratio. Chemical uses non-GAAP financial measures to provide meaningful, supplemental information regarding its operational
results and to enhance investors’ overall understanding of Chemical’s financial performance. The limitations associated with non-
GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these
measures and that different companies might calculate these measures differently. These disclosures should not be considered an
alternative to Chemical’s GAAP results. See the Appendix hereto for a reconciliation of the non-GAAP financial measures to the
most directly comparable GAAP financial measures.
Forward-Looking Statements & Other
Information (continued)
4
Q4 2016 Highlights
Diluted earnings per share of $0.66, compared to $0.23 in the 3rd qtr. 2016 and $0.66 in the 4th qtr.
2015
Diluted earnings per share, excluding significant items(1) of $0.70; down 7% from 3rd qtr. 2016, the
same as 4th qtr. 2015(2)
Return on average assets and return on average equity of 1.09% and 7.4%, respectively, in 4th qtr.
2016 (1.16% and 7.8%, respectively, excluding significant items(2))
Loan Growth
$275 million in 4th qtr. 2016 (3% commercial, 55% commercial real estate, 15% residential
mortgage and 27% consumer loans)
Asset quality ratios
Nonperforming loans/total loans of 0.34% at 12/31/2016; up slightly from 0.32% at 9/30/2016, and
down from 0.86% at 12/31/15
Net loan charge-offs/average loans of 0.06%
(1)Significant items include merger and transaction-related expenses, net gain on the sale of branches
and the change in fair value in loan servicing rights.
(2)Non-GAAP. Refer to the Appendix for a reconciliation of non-GAAP financial measures.
5
(in thousands except
per share data)
2016
4th Qtr.
2016
3rd Qtr.
2015
4th Qtr.
Net interest income $132,447 $96,809 $75,476
Provision for loan losses 6,272 4,103 2,000
Noninterest income 54,264 27,770 20,052
Operating expenses(1) 96,286 68,674 55,739
Transaction expenses 18,016 37,470 2,085
Net income 47,168 11,484 25,504
Net Income, excl. significant items(2) 49,945 37,476 26,859
Diluted EPS 0.66 0.23 0.66
Diluted EPS, excl. significant items(2) 0.70 0.75 0.70
Return on Avg. Assets 1.09% 0.37% 1.11%
Return on Avg. Shareholders’ Equity 7.4% 2.9% 10.2%
Efficiency Ratio 61.2% 85.2% 60.5%
Efficiency Ratio - Adjusted(2) 53.7% 52.6% 55.8%
Equity/Total Assets 14.9% 14.7% 11.1%
Tangible Equity/Total Assets(2) 8.8% 8.7% 8.1%
Book Value/Share $36.57 $36.37 $26.62
Tangible Book Value/Share(2) $20.25 $19.99 $18.78
6
Prior Quarter Comparison
Impact of merger
Higher net interest income due to
Talmer merger and organic loan
growth
Higher noninterest income due to
branch sales and MSR fair value
adjustments
Operating expenses reflect full
quarter impact of Talmer merger
Increase in provision for loan losses
due to loan growth
Prior-Year Quarter Comparison
Impact of merger
Significant increase in net interest
income, attributable to Talmer merger
and $837 million, or 11.5%, organic
growth in total loans during the twelve
months ended December 31, 2016
(1)Excludes merger and transaction-related expenses (“transaction expenses”).
(2)Denotes a non-GAAP financial measure. Refer to the Appendix for a reconciliation of non-GAAP financial measures.
Income Statement Highlights
Financial Highlights
$13.8 $16.2 $16.8 $15.3
$17.8
$19.0 $24.5
$25.5
$23.6 $25.8
$11.5
$47.1
$26.0
$2.8
$0.47
$0.70
$0.00
$0.50
$1.00
$0.0
$20.0
$40.0
$60.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
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Significant items (after-tax)
Net Income
EPS, Excluding significant items (non-GAAP)(3)
2014 2015 2016
7
(1)Net Income
(2)Net Income, excluding significant items (Non-GAAP). Please refer to the Appendix for a reconciliation of
non-GAAP financial measures.
(3)Denotes a non-GAAP financial measure. Please refer to the Appendix for a reconciliation of non-GAAP
financial measures.
2015 Total: $86.8(1); $92.3(2)2014 Total: $62.1(1); $66.7(2) 2016 Total: $108.0(1); $140.5(2)
$26.9(2)
$49.9(2)
Net Income
Net Income Trending Upward ($ Millions, except EPS data)
$37.5(2)
$3,444
$4,150
$3,087
$2,310
$1,538
$1,806
$1,657
$719
$1,906
$2,344
$1,430
$1,591
Commercial CRE/C&D Residential Consumer
Loan Portfolio Composition ($ Millions)
8
$85
$279
$125
$348
Commercial
CRE/C&D
Residential
Consumer
$1,454
$1,526
$1,532
$371
Talmer Merger
Aug. 31, 2016
$837 $4,883
$5,720
Total Loan Growth,
Excluding Talmer Merger,
Twelve Months Ended
Dec. 31, 2016
Growth – Twelve months ended Dec. 31, 2016
Dec. 31, 2015, $7,271 Total Loan Growth twelve months ended Dec. 31, 2016 Dec. 31, 2016, $12,991
$85
$279
$125
$348
$9
$151
$40
$75
Commercial
CRE/C&D
Residential
Consumer
$0
$100
$200
$300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
9
2014 - $565 2015 - $476 2016 - $837
$106
$145 $142
$15
$172
$224
$181
$280
$56
$275$837
$96
$186
Loan Growth* ($ Millions)
Quarterly Loan Growth Trends
Loan Growth – 2016 Total* Loan Growth – 2016 Q4
$275
*Excludes the impact of the $4.88 billion of loans acquired in the Talmer merger.
4Q 2016 2016 Total
Originated Loan Portfolio
Commercial $ 177 $ 380
CRE/C&D 307 594
Residential 104 258
Consumer 114 418
Total Originated Loan Portfolio Growth $ 702 $1,650
Acquired Loan Portfolio
Commercial $(168) $(295)
CRE/C&D (155) (315)
Residential (65) (133)
Consumer (39) (70)
Total Acquired Loan Portfolio Run-off $(427) $(813)
Total Loan Portfolio
Commercial $ 9 $ 85
CRE/C&D 151 279
Residential 40 125
Consumer 75 348
Total Loan Portfolio Growth $ 275 $ 837
10
Loan Growth* – Originated v. Acquired
Loan Growth (Run-off) ($ Millions)
*Excludes the impact of the $4.88 billion of loans acquired in the Talmer merger.
$3.4
$2.8 $3.7
$2.8
$0.2
Noninterest-bearing Demand Deposits Interest-bearing Demand Deposits Savings Deposits Time Deposits Brokered Deposits
$1.9
$1.9 $2.0
$1.5
$0.2
11
(1)Comprised of $463 million of growth in customer deposits offset by a $385 million decrease in brokered deposits.
(2)Cost of deposits based on period averages.
2015 2016
Total Deposits – Dec. 31, 2015
$7.5
Total Deposits – Dec. 31, 2016
$12.9
Organic
$0.1, 1.07%(1)
$1.3
$0.9
$1.2
$1.5
$0.4
Talmer Merger
$5.3
$0.2
$0.5
($0.2) ($0.4)
Deposit Composition
Total Deposits ($ Billions)
Average Deposits ($ Millions) & Cost of Deposits (%)
$6,204 $6,709 $7,453 $7,449 $7,535 $7,528 $9,484
$13,003
0.22% 0.22% 0.23% 0.22% 0.22% 0.23% 0.24%
0.27%
0.00%
0.25%
0.50%
$4,000
$9,000
$14,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
I
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s
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Deposits Cost of Deposits(2)
$9.9
$2.8
$0.3
$1.6
Deposits:
Time Deposits
Customer Repurchase
Agreements
Wholesale borrowings (at
Dec. 31, 2016: brokered
deposits - $0.2, FHLB
advances - $1.3, other - $0.1)
12
Average Cost of Funds Q4 2016 – 0.33%Average Cost of Funds Q3 2016 – 0.25%(1)
$14.7 Billion $14.6 Billion
$9.9
$2.9
$0.3 $1.6
Interest and
noninterest-bearing,
demand, savings,
money market
Average cost of wholesale
borrowings – 1.11%
Average cost of wholesale
borrowings – 0.56%
Funding Breakdown ($ Billions)
(1)Reduced by 4 basis points for acceleration of accretion
of fair value adjustments on FHLB borrowings
September 30, 2016 December 31, 2016
$1.6 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5 $2.0 $1.5
$3.0
$4.1
$6.3
$2.2 $2.2 $2.3
$2.8
$1.9 $1.8 $0.8
$4.3 $4.5
$1.8 $1.8 $1.8
$0.0
$3.5
$7.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Provision for Loan Losses Net Loan Losses
$103 $78 $71 $62 $51 $62 $53 $44 $41 $44
$0
$60
$120
YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 YE 2015 2016 Q1 2016 Q2 2016 Q3 2016 Q4
13
ALL
NPLs
2014 2015 2016
Originated Loans ($ billions) $3.1 $3.3 $3.8 $4.3 $5.0 $5.8 $6.0 $6.4 $6.7 $7.5
Acquired Loans ($ billions) 0.6 0.5 0.4 0.3 0.7 1.5 1.4 1.2 6.0 5.5
Total Loans ($ billions) $3.7 $3.8 $4.2 $4.6 $5.7 $7.3 $7.4 $7.6 $12.7 $13.0
ALL $90 $88 $84 $79 $76 $73 $70 $72 $74 $78
ALL/ Originated Loans 2.86% 2.60% 2.22% 1.81% 1.51% 1.26% 1.17% 1.12% 1.09% 1.05%
NPLs/ Total Loans 2.80% 2.05% 1.71% 1.33% 0.89% 0.86% 0.73% 0.58% 0.32% 0.34%
Credit Mark as a % of
Unpaid Principal on
Acquired Loans
6.5% 6.6% 6.0% 7.8% 5.4% 4.4% 4.5% 4.1% 3.0% 3.1%
Credit Quality ($ Millions, unless otherwise noted)
Provision for Loan Losses vs. Net Loan Losses
Nonperforming Loans (NPLs) and Allowance for Loan Losses (ALL)
$59.2
$65.7
$73.6 $75.5 $74.3
$77.5
$96.8
$132.4
$40
$60
$80
$100
$120
$140
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
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Net Interest Income
14
3.55% 3.59% 3.55%
3.64% 3.60%
3.70% 3.58% 3.56%
0.04% 0.04% 0.04% 0.04% 0.03%
0.11% 0.11% 0.14%
4.16% 4.17% 4.15% 4.16% 4.13% 4.19% 4.12% 4.18%
0.00%
2.50%
5.00%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Net Interest Margin(1) and Loan Yields(1)
Net Interest Margin(1)
Purchase Accounting Accretion on Loans
Loan Yields
2015 2016
2015 2016
Net Interest Income
Net Interest Income, Net Interest Margin
and Loan Yields
(Quarterly Trend)
(1)Computed on a fully taxable equivalent basis (non-GAAP) using a federal income tax rate of 35%. Please refer to the Appendix for a reconciliation
of non-GAAP financial measures.
$6.3 $6.9 $7.4 $6.9 $7.1 $7.2 $10.1
$25.4
$5.1 $5.6 $4.7 $5.2 $5.2 $5.8
$5.6
$6.0
$5.9 $6.5 $6.7 $6.4 $5.7 $6.3
$7.7
$8.4
$1.4 $1.7 $1.4 $1.6 $1.4
$1.6
$4.4
$14.4
$0.6
$0.1
$0.0
$30.0
$60.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Other Wealth Management Service Charges Mortgage Banking Revenue Investment Securities Gain
2015 2016
(
$
M
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)
15
$20.7$19.3 $19.4$20.2 $20.1
$27.8*
$54.3*
Non-Interest Income
Quarterly
$20.9
*Significant items: $13.7 million in 2016 Q4 and $(1.3) million in 2016 Q3
$13.0 $13.1 $12.5 $16.1
$22.3
$33.0 $33.9 $33.1
$40.6
$57.7$4.6 $4.9 $5.5
$5.5
$7.6
$5.1 $4.4 $4.9
$6.4
$8.7
$2.1 $2.6 $3.1
$37.5
$18.0
$0.0
$60.0
$120.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Other Compensation Occupancy Equipment Transaction Expenses
$114.3
2015 2016
16
(
$
M
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)
$56.8
$51.0
$58.3
$56.0
$57.8 $59.1
$56.3
$58.9
$55.7
$68.6
$106.1
Operating Expenses
Quarterly
$96.3
Peer Average
9/30/16(1)
CHFC
9/30/2016
CHFC
12/31/2016
Tangible Book Value / Share(2) NA $19.99 $20.20
Tangible Common Equity / Total Assets(2) 8.3% 8.7% 8.8%
Tier 1 Capital(3) 10.8% 10.6% 10.7%
Total Risk-Based Capital(3) 12.6% 11.1% 11.5%
$20.20
$1.06 $0.49
$18.78
$2.81 $0.16
$0
$5
$10
$15
$20
$25
TBV @ 12/31/2015 Net Income
(Excl. Transaction
Expenses)
Dividends Talmer AOCI Adj.
& Other
TBV @ 12/31/2016
17
Capital
Tangible Book Value and Capital Ratios
Tangible Book Value(2) (TBV) Roll Forward
(1)Source SNL Financial – ASB, WTFC, CBSH, TCB, UMBF, MBFI, PVTB, ONB, FMBI and FFBC (ordered by asset size).
(2)Denotes a non-GAAP financial measure. Refer to the Appendix for a reconciliation of non-GAAP financial measures.
(3)Estimated at December 31, 2016
Evolving macroeconomic environment suggests combination of headwinds
and tailwinds; too early to predict outcome
Emphasize our strategy of being the Preeminent Midwest Community Bank
Focus on what we can control
• Organic revenue growth and cost discipline
• Concentrate on achieving cost savings and exploiting business synergy
opportunities
• Continue to build out and enhance risk management practices
18
Closing Comments
4Q 2016 3Q 2016 4Q 2015
Shareholders’ equity $ 2,581,526 $ 2,563,666 $ 1,015,974
Goodwill, CDI and non-compete agreements, net of tax (1,155,617) (1,154,121) (299,123)
Tangible shareholders’ equity $ 1,425,909 $ 1,409,545 $ 716,851
Common shares outstanding 70,599 70,497 38,168
Tangible book value per share $20.20 $19.99 $18.78
Total assets $17,355,179 $17,383,637 $9,188,797
Goodwill, CDI and non-compete agreements, net of tax (1,155,617) (1,154,121) (299,123)
Tangible assets $16,199,562 $16,229,516 $8,889,674
Tangible shareholders’ equity to tangible assets 8.8% 8.7% 8.1%
Net income $47,168 11,484 $25,504
Significant items, net of tax 2,777 25,992 1,355
Net income, excluding significant items $49,945 $37,476 $26,859
Diluted earnings per share $0.66 $0.23 $0.66
Effect of significant items, net of tax 0.04 0.52 0.04
Diluted earnings per share, excluding significant items $0.70 $0.75 $0.70
Average assets $17,264,688 $12,250,730 $9,175,224
Return on average assets 1.09% 0.37% 1.11%
Effect of significant items, net of tax 0.07% 0.85% 0.06%
Return on average assets, excluding significant items 1.16% 1.22% 1.17%
Average shareholders’ equity $ 2,564,943 $1,559,668 $1,000,347
Return on average shareholders’ equity 7.4% 2.9% 10.2%
Effect of significant items, net of tax 0.4% 6.7% 0.5%
Return on average shareholders’ equity, excluding significant items 7.8% 9.6% 10.7%
19
Appendix: Non-GAAP Reconciliation
(Dollars in thousands, except per share data)
4Q 2016 3Q 2016 4Q 2015
Efficiency Ratio:
Total revenue – GAAP $ 186,711 $ 124,579 $ 95,528
Net interest income FTE adjustment 2,945 2,426 2,042
Significant items (13,819) 1,043 (42)
Total revenue – Non-GAAP $175,837 $ 128,048 $ 97,528
Operating expenses – GAAP $114,302 $ 106,144 $ 57,824
Transaction expenses (18,016) (37,470) (2,085)
Amortization of intangibles (1,843) (1,292) (1,341)
Operating expenses – Non-GAAP $ 94,443 $ 67,382 $ 54,398
Efficiency ratio – GAAP 61.2% 85.2% 60.5%
Efficiency ratio – adjusted 53.7% 52.6% 55.8%
Net Interest Margin:
Net interest income – GAAP $132,447 $96,809 $75,476
Adjustments for tax equivalent interest:
Loans 838 777 652
Investment securities 2,107 1,649 1,390
Total taxable equivalent adjustments 2,945 2,426 2,042
Net interest income (on a tax equivalent basis) $ 135,392 $99,235 $77,518
Average interest-earning assets $15,156,107 $11,058,143 $8,457,464
Net interest margin – GAAP 3.48% 3.49% 3.55%
Net interest margin (on a tax-equivalent basis) 3.56% 3.58% 3.64%
20
Appendix: Non-GAAP Reconciliation
(Dollars in thousands, except per share data)
