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Press Release

Chemical Financial Corporation Announces 2003 Fourth Quarter and Annual Operating Results

Company Release - 1/20/2004 12:00 AM ET
MIDLAND, Mich., Jan. 20 /PRNewswire-FirstCall/

Aloysius J. Oliver, Chairman of Chemical Financial Corporation, announced December 31, 2003 fourth quarter and year end net income of $13.56 million, or $.57 per diluted share and $55.72 million, or $2.35 per diluted share, respectively, compared to fourth quarter and year end 2002 net income of $13.68 million, or $.57 per diluted share and $54.95 million, or $2.31 per diluted share. Return on average assets in the fourth quarter and year end 2003 was 1.50% and 1.56%, respectively, compared to 1.52% and 1.55%, respectively, in the fourth quarter and year end 2002. Comparing net income in 2003 to net income in 2002, net income was up 1.4%.

The Corporation completed the acquisition of Caledonia Financial Corporation ("Caledonia"), a one-bank holding company headquartered in Caledonia, Michigan, on December 1, 2003. Shareholders of Caledonia received $39.00 cash for each share of Caledonia common stock in a taxable transaction. The total value of the transaction was approximately $55.3 million. The results of operations of State Bank of Caledonia are included in the Corporation's 2003 earnings from the date of acquisition.

Net income in the fourth quarter of 2003 was down $119,000, or .9% as compared to the fourth quarter of 2002. The decrease in fourth quarter earnings was attributed to lower net interest income and mortgage banking revenue. These decreases were partially offset by investment securities gains, a lower provision for loan losses and lower operating expenses.

Net income for 2003 was up $771,000, or 1.4% as compared to 2002. The increase was attributed to higher noninterest income, a lower provision for loan losses and lower operating expenses. These amounts were partially offset by lower net interest income.

Net interest income decreased $5.9 million, or 4.1% in 2003 as compared to 2002. The decrease was due to a lower net interest margin of 4.18% in 2003 compared to 4.44% in 2002. The lower net interest margin was due to a decrease in the yield on both loans and investment securities outpacing the decrease in the cost of funds.

Total noninterest income increased $4.6 million, or 13.2% in 2003 as compared to 2002. The increase was primarily due to an increase in service charges on deposit accounts of $2.9 million and an increase in investment securities gains of $2.1 million. Total operating expenses decreased $1.6 million, or 1.7% in 2003 compared to 2002. The decrease was primarily due to lower Michigan Single Business tax and various other operating expenses.

Total assets of the Corporation at December 31, 2003 were $3.71 billion, up 3.9% over the $3.57 billion in total assets reported at December 31, 2002. Total deposits at December 31, 2003 were $2.97 billion, up 4.2% over total deposits of $2.85 billion at December 31, 2002. Total loans were $2.48 billion at December 31, 2003, up $406 million, or 19.6%, from total loans at December 31, 2002 of $2.07 billion. The increase in loans was primarily attributable to an increase in residential and commercial real estate loans. The State Bank of Caledonia purchase on December 1, 2003 accounted for approximately $253 million of the increase in total assets, $185 million of the increase in loans and $176 million of the increase in deposits during 2003.

The Corporation's provision for loan losses for the three and twelve months ended December 31, 2003 was $.73 million and $2.83 million, respectively, as compared to net loan losses during the same periods in 2003 of $.99 million and $3.35 million, respectively.

Approximately $.26 million of the net loan losses in the fourth quarter were attributable to the State Bank of Caledonia. As of December 31, 2003, the allowance for loan losses was $33.18 million, or 1.34% of total loans, while nonperforming loans were $11.35 million, or .46% of total loans. Nonperforming loans are up $4.1 million, or 56% from December 31, 2002. The Caledonia acquisition added $1.9 million in nonperforming loans. As of December 31, 2003, the allowance for loan losses as a percentage of non-performing loans was 292%.

Shareholders' equity at December 31, 2003 was $458 million, or $19.25 per share, and represented 12.4% of total assets. The Corporation's tangible equity to asset ratio was 10.5% at the end of the year. The Corporation's return on average equity in the fourth quarter and year-end 2003 was 12.3% and 12.7%, respectively, compared to 12.8% and 13.5%, respectively, during the same periods in 2002.

Chemical Financial Corporation is the fourth largest bank holding company headquartered in Michigan. The Company's four subsidiary banks operate 133 branch offices and 2 loan production offices spread over 33 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 interest 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 axquisitions 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.