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Chemical Financial Corporation Announces Third Quarter Operating Results

Company Release - 10/21/2003 8:05 AM ET

MIDLAND, Mich., Oct. 21 /PRNewswire-FirstCall/ -- Aloysius J. Oliver, Chairman of Chemical Financial Corporation (Nasdaq: CHFC), today announced third quarter net income of $14.47 million or $.61 per diluted share, up $.45 million as compared with net income of $14.02 million, or $.59 per diluted share for the third quarter of 2002. This represented an increase of 3.4% in earnings per share and a 3.2% increase in net income for the third quarter 2003. The returns on average assets and average equity during the third quarter of 2003 were 1.60% and 12.92%, respectively, as compared with 1.58% and 13.51%, respectively, for the third quarter of 2002.

Net interest income decreased $1.64 million, or 4.5%, to $34.76 million in the third quarter of 2003, as compared to the third quarter of 2002. The decrease, in part, was due to the low interest rate environment and the decrease in the yield on the earning assets which has outpaced the decrease in the cost of funds. The Corporation's earnings were positively affected by an increase in noninterest income of $1.69 million, or 19.6%. This increase was primarily due to higher mortgage banking revenue of $.98 million. Operating expenses decreased by $.43 million, or 1.9%.

For the nine months ended September 30, 2003, the Corporation earned net income of $42.15 million or $1.78 per share, as compared to net income of $41.26 million, or $1.74 per share for the first nine months of 2002. This represented a 2.3% increase in earnings per share.

Total assets of the Corporation at September 30, 2003 were $3.59 billion, down .2% from the $3.60 billion in total assets reported at September 30, 2002. Total deposits at September 30, 2003 were $2.87 billion, up .3% over total deposits of $2.86 billion at September 30, 2002. Total loans increased 10.4% during the latest twelve months, from $2.06 billion at September 30, 2002, to $2.28 billion in outstanding loans at September 30, 2003.

The Corporation's provision for loan losses for the quarter ended September 30, 2003 was $.54 million, compared to net loan losses of $.61 million. For the nine months ended September 30, 2003 the provision for loan losses was $2.11 million compared to net loan losses of $2.36 million. As of September 30, 2003, the allowance for loan losses was $30.41 million and represented 1.34% of total loans. Nonperforming loans were $9.04 million, or .40% of total loans at the current quarter-end.

Shareholders' equity at September 30, 2003 was $449 million, or $18.94 per share, which represented 12.5% of total assets. The tangible equity to asset ratio was 11.5% as of September 30, 2003.

On September 25, 2003 the Corporation announced that it had entered into a definitive agreement to acquire Caledonia Financial Corporation ("Caledonia"). Caledonia is a bank holding company headquartered in Caledonia, Michigan, with total assets of approximately $210 million, total deposits of $181 million and total shareholders' equity of $21.3 million, all as of June 30, 2003. Caledonia is the parent company of the State Bank of Caledonia that provides banking services through four offices located in Kent, Kalamazoo and Barry counties in Michigan. The transaction is expected to be completed during the fourth quarter of this year.

Chemical Financial Corporation is the fourth largest bank holding company headquartered in Michigan. The Company's three subsidiary banks operate 129 "Chemical Bank" offices and 2 loan production offices spread over 32 counties in the lower peninsula of Michigan.

Chemical Financial Corporation common stock trades on The Nasdaq Stock Market under the symbol CHFC and is one of the issues comprising the Nasdaq Financial 100 index.

Forward Looking Statements

This press release contains forward-looking statements. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," variations of such words and similar expressions are intended to identify forward-looking statements. These statements reflect management's current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions 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. Factors that could cause a difference include, among others: changes in the national and local economies or market conditions; changes in interests rates and banking regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings and revenue enhancements from mergers and acquisitions and bank consolidations may not be fully realized at all or within the expected time frames. These and other factors that may emerge could cause decisions and actual results to differ materially from current expectations. Chemical undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.


    Chemical Financial Corporation
 Announces Third Quarter Operating Results

    Consolidated Statements of Financial Position (Unaudited)
    Chemical Financial Corporation
 and Subsidiaries



                                   September 30,  December 31,  September  30,
    (In thousands)                     2003           2002          2002
    Assets:
    Cash and demand deposits due
     from banks                     $146,428       $148,112      $129,874
    Federal funds sold                44,700         69,900       144,210
    Interest-bearing deposits with
     unaffiliated banks               19,905         53,135        51,725

    Investment securities taxable    957,741      1,076,292     1,068,463
    Investment securities
     nontaxable                       46,732         51,690        53,591
        Total Investment
         Securities                1,004,473      1,127,982     1,122,054

    Commercial loans                 333,822        327,438       314,271
    Real estate construction loans    93,282        108,589       110,212
    Real estate commercial loans     562,937        481,084       470,547
    Real estate residential loans    765,539        648,286       643,368
    Consumer loans                   521,310        509,789       524,312
        Total Loans                2,276,890      2,075,186     2,062,710
    Less: Allowance for
     loan losses                      30,414         30,672        31,000
        Net Loans                  2,246,476      2,044,514     2,031,710

    Premises and equipment            47,044         42,767        43,159
    Intangible assets                 39,017         40,489        41,512
    Other assets                      42,983         41,994        34,679
        Total Assets              $3,591,026     $3,568,893    $3,598,923

    Liabilities and Shareholders' Equity:
    Noninterest-bearing deposits    $500,463       $475,933      $457,330
    Interest-bearing deposits      2,369,351      2,371,339     2,402,491
        Total Deposits             2,869,814      2,847,272     2,859,821
    FHLB borrowings                  148,573        157,393       157,528
    Other borrowings - short term     93,447        104,212       131,183
    Interest payable and
     other liabilities                30,548         29,677        29,173
        Total Liabilities          3,142,382      3,138,554     3,177,705

    Shareholders' Equity:
      Common stock, $1 par value      23,685         23,684        22,558
      Surplus                        324,413        325,149       291,003
      Retained earnings               87,106         62,721        89,822
      Accumulated other comprehensive
       income                         13,440         18,785        17,835
        Total Shareholders' Equity   448,644        430,339       421,218
        Total Liabilities and
         Shareholders' Equity     $3,591,026     $3,568,893    $3,598,923


    Chemical Financial Corporation
 Announces Third Quarter Operating Results

    Consolidated Statements of Income (Unaudited)
    Chemical Financial Corporation
 and Subsidiaries

                                      Three Months Ended     Nine Months Ended
                                         September 30,         September 30,
    (In thousands, except per share
     data)                               2003     2002         2003      2002
    Interest Income:
    Interest and fees on loans        $36,220  $38,537     $108,789  $118,058
    Interest on investment securities:
      Taxable                           8,213   12,550       28,671    37,509
      Nontaxable                          612      701        1,928     2,233
        Total Interest on Investment
         Securities                     8,825   13,251       30,599    39,742
    Interest on federal funds sold        169      542          612     1,615
    Interest on deposits with
     unaffiliated banks                    23      145          180       593
        Total Interest Income          45,237   52,475      140,180   160,008

    Interest Expense:
    Interest on deposits                8,262   13,618       28,555    43,273
    Interest on FHLB borrowings         2,083    2,201        6,273     6,648
    Interest on other borrowings -
     short term                           128      257          435       758
        Total Interest Expense         10,473   16,076       35,263    50,679
        Net Interest Income            34,764   36,399      104,917   109,329
    Provision for loan losses             540      747        2,107     2,752
        Net Interest Income after
              Provision for Loan
               Losses                  34,224   35,652      102,810   106,577

    Noninterest Income:
    Service charges on deposit
     accounts                           4,181    3,966       12,334     9,602
    Other charges and fees for
     customer services                  1,623    1,864        5,372     5,418
    Mortgage banking revenue            2,308    1,327        5,716     5,506
    Trust services revenue              1,605    1,476        5,123     4,772
    Investment securities gains
     (losses)                             417      (99)         909      (184)
    Other                                 140       54          220       145
        Total Noninterest Income       10,274    8,588       29,674    25,259

    Operating Expenses:
    Salaries and employee benefits     13,287   13,606       40,570    40,855
    Occupancy                           1,981    1,890        5,882     5,664
    Equipment                           2,077    2,037        6,205     6,163
    Other                               5,356    5,601       16,252    17,152
        Total Operating Expenses       22,701   23,134       68,909    69,834
    Income Before Income Taxes         21,797   21,106       63,575    62,002
        Federal income taxes            7,328    7,088       21,422    20,739
    Net Income                        $14,469  $14,018      $42,153   $41,263

    Net income per share:
      Basic                             $0.61    $0.59        $1.78     $1.74
      Diluted                            0.61     0.59         1.78      1.74

    Cash dividends per share             0.25     0.23         0.75      0.69

    Average shares outstanding:
      Basic                            23,674   23,687       23,685    23,674
      Diluted                          23,735   23,759       23,737    23,741


    Chemical Financial Corporation
 Announces Third Quarter Operating Results

    Financial Summary (Unaudited)
    Chemical Financial Corporation
 and Subsidiaries
    (Dollars in thousands)

                                                      Three Months Ended
                                                         September 30,
                                                    2003               2002
    Average Balances
    Total assets                                $3,591,135         $3,528,471
    Total interest-earning assets                3,384,140          3,322,202
    Total loans                                  2,260,656          2,077,134
    Total deposits                               2,870,826          2,814,426
    Total shareholders' equity                     444,421            411,634

                                                       Nine Months Ended
                                                         September 30,
                                                    2003               2002
    Average Balances
    Total assets                                $3,576,236         $3,531,343
    Total interest-earning assets                3,383,906          3,312,936
    Total loans                                  2,179,041          2,095,395
    Total deposits                               2,863,047          2,820,434
    Total shareholders' equity                     439,961            400,811



                                       Three Months Ended    Nine Months Ended
                                          September 30,         September 30,
                                         2003        2002        2003   2002
    Key Ratios (annualized where
     applicable)
    Net interest margin                  4.12%       4.40%       4.20%  4.47%
    Efficiency ratio                    49.95%      50.90%      50.72% 51.33%
    Return on average assets             1.60%       1.58%       1.58%  1.56%
    Return on average shareholders'
     equity                             12.92%      13.51%      12.81% 13.76%
    Average shareholders' equity as
     a percent of average assets         12.4%       11.7%       12.3%  11.4%
    Tangible shareholders' equity
     as a percent of total assets                                11.5%  10.7%
    Total risk-based capital ratio                               18.8%  18.4%


                                                         September 30,
                                                    2003               2002
    Credit Quality Statistics
    Nonaccrual loans                               $5,268             $8,269
    Loans 90 or more days past due
      and still accruing interest                   3,776              5,677
    Total nonperforming loans                       9,044             13,946
    Repossessed assets acquired (RAA)               5,798              1,559
    Total nonperforming assets                     14,842             15,505
    Net loan charge-offs                            2,365              2,746

    Allowance for loan losses as a
      percent of total loans                        1.34%              1.50%
    Allowance for loan losses as a
      percent of nonperforming loans                 336%               222%
    Nonperforming loans as a
      percent of total loans                        0.40%              0.68%
    Nonperforming assets as a
      percent of total loans plus RAA               0.65%              0.75%
    Net loan charge-offs as a
      percent of average loans                      0.15%              0.18%

                                                           September 30,
                                                     2003               2002
    Additional Data
    Goodwill                                       $27,940            $27,940
    Core deposit and other intangibles               8,668             10,511
    Mortgage servicing rights                        2,409              3,061
    Amortization of intangibles                      3,185              2,942


   Chemical Financial Corporation
 Announces Third Quarter Operating Results

    Selected Quarterly Information (Unaudited)
    Chemical Financial Corporation
 and Subsidiaries
    (Dollars in thousands)

                                         3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr.
                                           2003     2003     2003     2002
    Summary of Operations
    Interest income                      $45,237  $46,697  $48,246  $51,036
    Interest expense                      10,473   11,668   13,122   14,673
    Net interest income                   34,764   35,029   35,124   36,363
    Provision for loan losses                540    1,272      295    1,013
    Net interest income after provision
     for loan losses                      34,224   33,757   34,829   35,350
    Noninterest income                    10,274   10,086    9,314    9,275
    Noninterest expense                   22,701   23,182   23,026   23,692
    Income taxes                           7,328    6,991    7,103    7,251
    Net income                            14,469   13,670   14,014   13,682

    Per Common Share Data
    Net income:
         Basic                             $0.61    $0.58    $0.59    $0.58
         Diluted                            0.61     0.58     0.59     0.57
    Cash dividends                          0.25     0.25     0.25     0.23
    Book value                             18.94    18.73    18.45    18.17


                                            3rd Qtr.    2nd Qtr.    1st Qtr.
                                              2002        2002        2002
    Summary of Operations
    Interest income                         $52,475     $53,292     $54,241
    Interest expense                         16,076      16,585      18,018
    Net interest income                      36,399      36,707      36,223
    Provision for loan losses                   747       1,352         653
    Net interest income after provision
     for loan losses                         35,652      35,355      35,570
    Noninterest income                        8,588       8,000       8,671
    Noninterest expense                      23,134      23,021      23,679
    Income taxes                              7,088       6,799       6,852
    Net income                               14,018      13,535      13,710

    Per Common Share Data
    Net income:
         Basic                                $0.59       $0.57       $0.58
         Diluted                               0.59        0.57        0.58
    Cash dividends                             0.23        0.23        0.23
    Book value                                17.78       17.19       16.57

SOURCE  Chemical Financial Corporation

    -0-                             10/21/2003
    /CONTACT:  David B. Ramaker, President & CEO, +1-989-839-5269, or Lori A.
Gwizdala, Executive Vice President & Chief Financial Officer, +1-989-839-5358,
both of Chemical Financial Corporation
/
    /Company News On-Call:  http://www.prnewswire.com/comp/157448.html/
    /Web site:  http://chemicalbankmi.com /
    (CHFC)

CO:  Chemical Financial Corporation

ST:  Michigan
IN:  FIN
SU:  ERN


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