CHFC 2017 Annual Report

stock at the time of the repurchase. Since the January 2008 authorization, no shares have been repurchased. At December 31, 2017, there were 500,000 remaining shares available for repurchase under our stock repurchase program. Shelf Registration On May 10, 2017, we filed an updated automatic shelf registration statement on Form S-3ASR with the Securities and ExchangeCommission (SEC) for an indeterminate amount of securities, which became immediately effective. The shelf registration statement provides us with the ability to raise capital, subject to SEC rules and limitations, if the board of directors decides to do so. 66 Results of Operations Overview Net income in 2017 was $149.5 million, or $2.08, per diluted share, compared to net income in 2016 of $108.0 million, or $2.17 per diluted share, and net income in 2015 of $86.8 million, or $2.39 per diluted share. Net income, excluding significant items, a non-GAAP financial measure, which for 2017 excludes the fourth quarter of 2017 charge to income tax expense of $46.7 million resulting from the revaluation of our net deferred tax assets completed following the signing of the Tax Cuts and Jobs Act in December 2017, merger and restructuring expenses of $28.4 million and fourth quarter of 2017 losses of $7.6 million on sales of investment securities as part of our treasury and tax management objectives, was $219.6 million, or $3.06 per diluted share, in 2017. Net income in 2016, excluding significant items, a non-GAAP financial measure which for 2016 excludes merger expenses of $61.1 million and a $7.4 million net gain on the sales of branches, was $143.7 million, or $2.88 per diluted share and net income in 2015, excluding significant items, a non-GAAP financial measure which for 2015 excludes merger expenses of $7.8 million, was $92.3 million, or $2.54 per diluted share. The increase in net income in 2017, excluding significant items, compared to 2016, was primarily attributable to an increase in net interest income, resulting from an increase in average loans and securities and the impact of our merger with Talmer, while the increase in net income in 2016, excluding significant items, compared to 2015, was primarily attributable to incremental earnings resulting from our merger with Talmer. Our return on average assets was 0.81% in 2017, 0.90% in 2016, and 1.02% in 2015 and our return on average shareholders' equity was 5.7% in 2017, 7.0% in 2016 and 9.4% in 2015. Our return on average assets, excluding the significant items described above for each period, a non-GAAP financial measure, was 1.19% in both 2017 and 2016, and 1.09% in 2015 and our return on average shareholders' equity was 8.4% in 2017, 9.3% in 2016 and 10.0% in 2015. Please refer to the section entitled "Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measures. Net Interest Income Net interest income is the difference between interest income on earning assets, such as loans, investment and non- marketable equity securities and interest-bearing deposits with the Federal Reserve Bank (FRB) and other banks, and interest expense on liabilities, such as deposits and borrowings. Net interest income is our largest source of net revenue (net interest income plus noninterest income), representing 79.5%, 75.7% and 77.4% of net revenue in 2017, 2016 and 2015, respectively. Net interest income, on a fully taxable equivalent (FTE) basis, is the difference between interest income and interest expense adjusted for the tax benefit received on tax-exempt commercial loans and investment securities. Net interest margin (FTE) is calculated by dividing net interest income (FTE) by average interest-earning assets, annualized as applicable. Net interest spread is the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Because noninterest-bearing sources of funds, or free funds (principally demand deposits and shareholders' equity), also support earning assets, the net interest margin exceeds the net interest spread. Average Balances, Fully Tax Equivalent (FTE) Interest and Effective Yields and Rates The following table presents the average daily balances of our major categories of assets and liabilities, interest income and expense on a fully tax equivalent (FTE) basis, average interest rates earned and paid on the assets and liabilities, net interest income (FTE), net interest spread and net interest margin for 2017, 2016 and 2015. The presentation of net interest income on a FTEbasis is not in accordancewithGAAP, but is customary in the banking industry. This non-GAAPmeasure ensures comparability of net interest income arising from both taxable and tax-exempt loans and investment securities. Please refer to the section entitled "Non-GAAP Financial Measures."