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Chemical Financial Corporation Announces Second Quarter Operating Results

Company Release - 7/20/2004 9:10 AM ET

Midland, Mich., July 20 /PRNewswire-FirstCall/ -- Chemical Financial Corporation's (Nasdaq: CHFC) Board of Directors today announced second quarter net income of $13.9 million, or $.58 per diluted share, up $.2 million as compared with net income of $13.7 million, or $.58 per diluted share, for the second quarter of 2003. This represented an increase of 1.4% in net income for the second quarter 2004. The returns on average assets and average equity during the second quarter of 2004 were 1.44% and 11.9%, respectively, as compared to 1.54% and 12.4%, respectively, for the second quarter of 2003.

Net income was $28.0 million, or $1.17 per share in the first six months of 2004, compared to net income of $27.7 million, or $1.17 per share in the first six months of 2003. This represented an increase of 1.1% in net income for the first six months of 2004. The returns on average assets and average equity during the first six months of 2004 were 1.45% and 12.1%, respectively, as compared to 1.56% and 12.8%, respectively, for the first six months of 2003.

Net interest income increased $1.4 million, or 3.9%, to $36.4 million in the second quarter of 2004, as compared to the second quarter of 2003. The increase was attributable to the acquisition of Caledonia Financial Corporation ("Caledonia") on December 1, 2003. The Corporation's earnings were also positively affected by a decrease in the provision for loan losses of $611 thousand. The decrease in the provision for loan losses was impacted by lower net loan charge-offs in the second quarter of 2004, as compared to the second quarter of 2003. Total operating expenses increased $1.7 million, or 7.5%, in the second quarter of 2004, as compared to the second quarter of 2003. The additional operating expenses from the acquisition of Caledonia, of approximately $1.2 million, represented approximately two-thirds of the increase.

Total assets of the Corporation at June 30, 2004 were $3.84 billion, up 7.1% over the $3.59 billion in total assets reported at June 30, 2003. Total deposits at June 30, 2004 were $2.96 billion, up 2.8% over total deposits of $2.88 billion at June 30, 2003. Total loans increased $352 million, or 15.7%, during the twelve months ended June 30, 2004 to $2.59 billion. The acquisition of Caledonia added $211 million in assets, $184 million in loans and $171 million in deposits on December 1, 2003.

The Corporation's provision for loan losses for the quarter ended June 30, 2004 was $661 thousand, as compared to net loan charge-offs of $603 thousand. As of June 30, 2004, the allowance for loan losses was $33.6 million and represented 1.30% of total loans. Non-performing loans were $10.9 million, or .42% of total loans, at the current quarter-end.

Shareholders' equity at June 30, 2004 was $468 million, or $19.56 per share, and represented 12.2% of total assets and a tangible equity to asset ratio of 10.4% as of June 30, 2004.

Chemical Financial Corporation is the fourth largest bank holding company headquartered in Michigan. The Company's three subsidiary banks operate 133 banking 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 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.


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

                                             June 30,  December 31,  June 30,
    (In thousands)                             2004        2003        2003
    Assets:
    Cash and demand deposits due from
     banks                                   $114,743    $131,184    $122,712
    Federal funds sold                         60,700      25,900      41,200
    Interest-bearing deposits with
     unaffiliated banks                         9,931       5,107       6,096
    Investment securities taxable             883,033     876,806   1,040,945
    Investment securities nontaxable           41,557      45,056      47,877
        Total Investment Securities           924,590     921,862   1,088,822
    Commercial loans                          466,666     405,929     329,929
    Real estate construction loans            132,956     138,280     106,747
    Real estate commercial loans              655,053     628,815     527,400
    Real estate residential loans             781,062     767,199     753,014
    Consumer loans                            553,237     541,052     519,727
        Total Loans                         2,588,974   2,481,275   2,236,817
    Less: Allowance for loan losses            33,552      33,179      30,482
        Net Loans                           2,555,422   2,448,096   2,206,335
    Premises and equipment                     48,077      49,616      40,795
    Intangible assets                          75,683      76,846      39,472
    Other assets                               52,593      50,277      42,397
        Total Assets                       $3,841,739  $3,708,888  $3,587,829
    Liabilities and Shareholders' Equity:
    Noninterest-bearing deposits             $551,087    $532,752    $530,010
    Interest-bearing deposits               2,408,162   2,434,484   2,347,416
        Total Deposits                      2,959,249   2,967,236   2,877,426
    FHLB borrowings                           285,191     155,373     148,573
    Other borrowings - short term              95,371      91,524      88,949
    Interest payable and other liabilities     33,569      36,706      29,741
        Total Liabilities                   3,373,380   3,250,839   3,144,689
    Shareholders' Equity:
      Common stock, $1 par value               23,944      23,801      23,665
      Surplus                                 333,475     328,774     324,213
      Retained earnings                       110,054      94,746      78,558
      Accumulated other comprehensive
       income                                     886      10,728      16,704
        Total Shareholders' Equity            468,359     458,049     443,140
        Total Liabilities and
         Shareholders' Equity              $3,841,739  $3,708,888  $3,587,829



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

                                             Quarter Ended    Six Months Ended
                                                June 30,          June 30,
    (In thousands, except per share data)    2004     2003     2004     2003
    Interest Income:
    Interest and fees on loans             $37,481  $36,155  $74,959  $72,569
    Interest on investment securities:
      Taxable                                8,276    9,778   17,152   20,458
      Nontaxable                               526      639    1,091    1,316
        Total Interest on Securities         8,802   10,417   18,243   21,774
    Interest on federal funds sold             202      107      403      443
    Interest on deposits with unaffiliated
     banks                                      98       18      163      157
        Total Interest Income               46,583   46,697   93,768   94,943

    Interest Expense:
    Interest on deposits                     7,523    9,453   15,214   20,293
    Interest on FHLB borrowings              2,548    2,077    5,124    4,190
    Interest on other borrowings - short
     term                                      103      138      199      307
        Total Interest Expense              10,174   11,668   20,537   24,790
        Net Interest Income                 36,409   35,029   73,231   70,153
    Provision for loan losses                  661    1,272    1,407    1,567
        Net Interest Income after
         Provision for Loan Losses          35,748   33,757   71,824   68,586

    Noninterest Income:
    Service charges on deposit accounts      4,757    4,262    9,311    8,153
    Trust services revenue                   1,871    1,791    3,780    3,518
    Other charges and fees for customer
     services                                1,806    1,834    3,354    3,749
    Mortgage banking revenue                 1,080    1,861    1,860    3,408
    Investment securities gains                267      308    1,250      492
    Other                                      224       30      412       80
        Total Noninterest Income            10,005   10,086   19,967   19,400

    Operating Expenses:
    Salaries and employee benefits          14,693   13,594   29,494   27,283
    Occupancy and equipment                  4,440    4,016    9,284    8,029
    Other                                    5,787    5,572   11,302   10,896
        Total Operating Expenses            24,920   23,182   50,080   46,208
    Income Before Income Taxes              20,833   20,661   41,711   41,778
        Federal income taxes                 6,967    6,991   13,726   14,094
    Net Income                             $13,866  $13,670  $27,985  $27,684

    Net income per share:
      Basic                                  $0.58    $0.58    $1.17    $1.17
      Diluted                                 0.58     0.58     1.17     1.17

    Cash dividends per share                 0.265    0.250    0.530    0.500

    Average shares outstanding:
      Basic                                 23,934   23,684   23,913   23,690
      Diluted                               24,009   23,735   23,998   23,738



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

                                   Quarter Ended          Six Months Ended
                                      June 30,                June 30,
                                  2004        2003        2004        2003
    Average Balances
    Total assets               $3,876,665  $3,563,035  $3,877,963  $3,568,663
    Total interest-earning
     assets                     3,632,968   3,368,826   3,628,558   3,383,787
    Total loans                 2,559,608   2,173,962   2,538,344   2,137,557
    Total deposits              3,001,871   2,856,439   3,009,285   2,859,093
    Total shareholders' equity    469,366     441,358     466,317     437,694

                                      Quarter Ended          Six Months Ended
                                         June 30,                June 30,
                                     2004        2003        2004        2003
    Key Ratios (annualized
     where applicable)
    Net interest margin              4.07%       4.22%       4.09%       4.24%
    Efficiency ratio                 53.3%       50.9%       53.6%       51.1%
    Return on average assets         1.44%       1.54%       1.45%       1.56%
    Return on average
     shareholders' equity            11.9%       12.4%       12.1%       12.8%
    Average shareholders'
     equity as a percent of average
     assets                          12.1%       12.4%       12.0%       12.3%
    Tangible shareholders'
     equity as a percent of total
     assets                                                  10.4%       11.4%
    Total risk-based capital ratio                           16.9%       18.7%

                                                                 June 30,
                                                            2004        2003
    Credit Quality Statistics
    Nonaccrual loans                                       $5,413      $5,139
    Loans 90 or more days past due
     and still accruing                                     5,488       5,066
    Total nonperforming loans                              10,901      10,205
    Repossessed assets
     acquired (RAA)                                         7,344       5,659
    Total nonperforming assets                             18,245      15,864
    Net loan charge-offs                                    1,034       1,757

    Allowance for loan losses
     as a percent of total loans                             1.30%       1.36%
    Allowance for loan losses
     as a percent of nonperforming
     loans                                                    308%        299%
    Nonperforming loans as a
     percent of total loans                                  0.42%       0.46%
    Nonperforming assets as a
     percent of total loans
     plus RAA                                                0.70%       0.71%
    Net loan charge-offs as a
     percent of average loans                                0.08%       0.17%

                                                                June 30,
                                                            2004        2003
    Additional Data
    Goodwill                                              $63,293     $27,940
    Core deposits and other
     intangibles                                            9,138       9,130
    Mortgage servicing rights                               3,252       2,402
    Amortization of intangibles                             1,580       1,989



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

                               2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
                                 2004     2004     2003     2003     2003
    Summary of Operations
    Interest income             $46,583  $47,185  $44,857  $45,237  $46,697
    Interest expense             10,174   10,363   10,002   10,473   11,668
    Net interest income          36,409   36,822   34,855   34,764   35,029
    Provision for loan losses       661      746      727      540    1,272
    Net interest income after
     provision for loan losses   35,748   36,076   34,128   34,224   33,757
    Noninterest income           10,005    9,962    9,420   10,274   10,086
    Noninterest expense          24,920   25,160   23,014   22,701   23,182
    Income taxes                  6,967    6,759    6,971    7,328    6,991
    Net income                   13,866   14,119   13,563   14,469   13,670

    Per Common Share Data
    Net income:
         Basic                    $0.58    $0.59    $0.57    $0.61    $0.58
         Diluted                   0.58     0.59     0.57     0.61     0.58
    Cash dividends                0.265    0.265     0.25     0.25     0.25
    Book value                    19.56    19.63    19.25    18.94    18.73


SOURCE  Chemical Financial Corporation

    -0-                             07/20/2004
    /CONTACT:  David B. Ramaker, President & Chief Executive Officer,
+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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