CHFC 2017 Annual Report

Operating Expenses The following table presents the major categories of operating expenses: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Operating expense Salaries and wages $ 179,992 $ 135,407 $ 104,490 Employee benefits 33,836 29,806 23,430 Occupancy 30,554 23,525 18,213 Equipment and software 32,248 24,408 18,569 Outside processing and service fees 35,142 21,199 15,207 FDIC insurance premiums 11,190 7,407 5,485 Professional fees 11,507 5,832 4,842 Intangible asset amortization 6,089 5,524 4,389 Advertising and marketing 5,907 3,740 3,288 Postage and express mail 5,309 3,777 3,313 Training, travel and other employee expenses 6,572 4,025 3,224 Telephone 3,704 2,964 2,608 Supplies 2,614 2,318 2,216 Donations 1,775 1,951 1,375 Credit-related expenses 5,772 (2,701) 632 Merger expenses 8,522 61,134 7,804 Restructuring expenses 19,880 — — Impairment of federal historic income tax credits 9,252 — — Other 12,129 8,102 4,809 Total operating expenses $ 421,994 $ 338,418 $ 223,894 Operating expenses, core(non-GAAP) (1)(2) $ 384,340 $ 277,284 $ 216,090 Full-time equivalent staff (at December 31) 3,010 3,261 2,116 Average assets $18,465,156 $12,037,155 $8,481,228 Efficiency ratio - GAAP 60.1% 67.2% 63.2% Efficiency ratio - adjusted non-GAAP (2) 51.9% 54.4% 58.7% Total operating expenses as a percentage of total average assets 2.29% 2.81% 2.64% Total operating expenses as a percentage of total average assets - adjusted non- GAAP (2) 2.08% 2.30% 2.55% (1) Excludes certain "significant items" defined as merger expenses, restructuring expense and impairment of income tax credits for 2017 and merger expenses for 2016 and 2015. (2) Please refer to the section entitled "Non-GAAP Financial Measures" for a reconciliation to the most directly comparable GAAP financial measure. Total operating expenses were $422.0 million in 2017, $338.4 million in 2016 and $223.9 million in 2015. Operating expenses included $28.4 million of aggregate merger and restructuring expenses and $9.3 million of impairment taken on historic federal income tax credits placed into service in 2017, explained further below, each noted as significant items for 2017, and $61.1 million of merger expenses in 2016 and $7.8 million of merger expenses in 2015 each noted as significant items for 2016 and 2015. Operating expenses, core, a non-GAAP financial measure that excludes these significant items for each applicable period, was $384.3 million in 2017, an increase of $107.1 million, or 38.6%, over operating expenses, core, of $277.3 million in 2016, due largely to incremental operating costs associated with our merger with Talmer. Operating expenses, core, increased $61.2 million, or 28.3%, in 2016, compared to 2015, due largely to a combination of incremental operating costs associated with our merger with Talmer and our acquisitions of Lake Michigan and Monarch. 72