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Chemical Financial Corporation Announces 2005 First Quarter Operating Results

Company Release - 4/18/2005 8:05 AM ET

MIDLAND, Mich., April 18 /PRNewswire-FirstCall/ -- The Board of Directors of Chemical Financial Corporation (Nasdaq: CHFC) today announced 2005 first quarter net income of $13.50 million or $0.53 per diluted share, as compared to net income of $14.12 million or $0.56 per diluted share in the first quarter of 2004.

First Quarter Operating Results

Net income and earnings per share in the first quarter of 2005 decreased 4.4% and 5.4%, respectively, from the first quarter of 2004. The decreases in net income and earnings per share were attributable to lower net interest income and a slightly higher effective federal income tax rate. These two items were partially offset by slightly higher noninterest income and a slight decrease in operating expenses.

Net interest income of $35.95 million in the first quarter of 2005 was down $0.88 million, or 2.4% from the first quarter of 2004. The decrease in net interest income was attributable to both a decrease in average interest- earning assets and a reduction in the net interest margin.

Average interest-earnings assets were $3.59 billion in the first quarter of 2005, down $48 million, or 1.3% from the first quarter of 2004, although approximately the same as in the fourth quarter of 2004. The decrease in average interest-earning assets between the first quarter of 2005 and the first quarter of 2004 was primarily the result of a decline in deposits. Average loans were $2.58 billion in the first quarter of 2005, up $58.3 million, or 2.3% from average loans in the first quarter of 2004, although down $22.8 million, or 0.9% from average loans in the fourth quarter of 2004.

The net interest margin was 4.11% in the first quarter of 2005, compared to 4.12% in the first quarter of 2004 and 4.18% in the fourth quarter of 2004. The decrease in net interest margin in the first quarter of 2005, compared to the first quarter of 2004, was attributable to the Corporation's increase in its average cost of interest-bearing liabilities exceeding the increase in its average yield on interest-earning assets. The average cost of interest- bearing liabilities was 1.77% in the first quarter of 2005, an increase of 32 basis points over the first quarter of 2004. The increase in the average cost of interest-bearing liabilities was primarily a result of the increase in the average cost of deposits, which has been driven by the overall rise in short- term market interest rates and increased competition for deposits. The Corporation's average yield on interest-earning assets was 5.47% in the first quarter of 2005, an increase of 20 basis points over the first quarter of 2004. The increase in the average yield on interest-earning assets was primarily driven by the increase in the interest yield on variable rate commercial loans tied to the prime rate.

The Corporation's provision for loan losses in the first quarter of 2005 was $0.73 million, compared to net loan charge-offs of $0.73 million during the same period. The provision for loan losses in the first quarter of 2004 was $0.75 million compared to net loan charge-offs during the period of $0.43 million.

Total noninterest income was $10.18 million in the first quarter of 2005, up $0.22 million or 2.2% over the first quarter of 2004. The Corporation experienced slight increases in a number of noninterest income categories, including trust and investment management services revenue, service charges on deposit accounts, ATM and debit card revenue, and investment securities gains. These increases were mostly offset by a continued reduction in mortgage banking revenue and related title insurance agency commissions. Investment securities gains of $1.09 million in the first quarter of 2005 included $0.85 million attributable to the sale of one common stock equity security owned by the parent company. Investment securities gains of $0.98 million in the first quarter of 2004 included $0.61 million of investment securities gains attributable to the sale of common stock equity securities owned by the parent company. The parent company did not hold any remaining common stock equity securities as of March 31, 2005.

Operating expenses were $24.98 million in the first quarter of 2005, down approximately $0.18 million, or 0.7% from the first quarter of 2004.

Balance Sheet and Capital Position

Total assets of the Corporation at March 31, 2005 were $3.80 billion, up $32.8 million or 0.9% over the $3.76 billion in total assets reported at December 31, 2004. Total deposits at March 31, 2005 were $2.93 billion, up $64.5 million, or 2.3% from total deposits of $2.86 billion at December 31, 2004.

Total loans were $2.577 billion at March 31, 2005, down $8.8 million, or 0.3% from total loans of $2.586 billion at December 31, 2004. The Corporation achieved an $11.6 million or 2.5% increase in commercial loans and a $2.1 million or 1.7% increase in real estate construction loans during the three months ended March 31, 2005. These increases were offset by slight decreases in the remaining three loan categories, with the largest decrease occurring in consumer loans. Consumer loans declined $16.3 million, or 3.0% during the first quarter of 2005.

As of March 31, 2005, the allowance for loan losses was $34.17 million or 1.33% of total loans, while nonperforming loans were $10.74 million or 0.42% of total loans. Nonperforming loans were up $0.7 million or 6.8% from December 31, 2004. Nonperforming assets as a percentage of loans plus repossessed assets were 0.67% as of March 31, 2005, compared to 0.65% as of December 31, 2004. Net loan losses as a percentage of average total loans were 0.11% on an annualized basis in the first quarter of 2005, the same percentage as during the twelve months ended December 31, 2004.

Shareholders' equity at March 31, 2005 was $487 million or $19.32 per share and represented 12.8% of total assets. The Corporation's total risk- based capital and tangible equity to asset ratios were 17.7% and 11.1%, respectively, as of March 31, 2005.

Chemical Financial Corporation is the fourth largest bank holding company headquartered in Michigan. The Company's three subsidiary banks operate "Chemical Bank" branch offices throughout 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 laws and 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 First Quarter Operating Results

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


                                             March 31,  December 31, March 31,
    (In thousands)                             2005         2004       2004
    Assets:
    Cash and demand deposits due from
     banks                                    $94,135    $106,565    $106,610
    Federal funds sold                         51,500      34,500      75,400
    Interest-bearing deposits with
     unaffiliated banks                        37,151       5,869      27,854
    Investment securities - available for
     sale                                     740,738     716,757     840,957
    Investment securities - held to
     maturity                                 159,467     176,517     169,742
        Total Investment Securities           900,205     893,274   1,010,699
    Commercial loans                          480,553     468,970     444,229
    Real estate construction loans            122,951     120,900     148,592
    Real estate commercial loans              696,018     697,779     640,292
    Real estate residential loans             756,468     760,834     773,195
    Consumer loans                            520,800     537,102     542,811
        Total Loans                         2,576,790   2,585,585   2,549,119
    Less: Allowance for loan losses            34,171      34,166      33,494
        Net Loans                           2,542,619   2,551,419   2,515,625
    Premises and equipment                     46,671      47,577      48,669
    Intangible assets                          73,728      74,421      76,141
    Other assets                               50,881      50,500      49,574
        Total Assets                       $3,796,890  $3,764,125  $3,910,572
    Liabilities and Shareholders' Equity:
    Noninterest-bearing deposits              525,272    $555,287    $502,147
    Interest-bearing deposits               2,402,675   2,308,186   2,515,476
        Total Deposits                      2,927,947   2,863,473   3,017,623
    Other borrowings - short term              94,445     101,834      92,002
    Interest payable and other liabilities     33,828      28,986      38,940
    FHLB borrowings                           253,979     284,996     292,210
        Total Liabilities                   3,310,199   3,279,289   3,440,775
    Shareholders' Equity:
      Common stock, $1 par value               25,185      25,169      23,931
      Surplus                                 379,149     378,694     333,065
      Retained earnings                        87,096      80,266     102,530
      Accumulated other comprehensive
       income/(loss)                           (4,739)        707      10,271
        Total Shareholders' Equity            486,691     484,836     469,797
        Total Liabilities and
         Shareholders' Equity              $3,796,890  $3,764,125  $3,910,572



   Chemical Financial Corporation
 Announces First Quarter Operating Results

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

                                                        Three Months Ended
                                                             March 31,
    (In thousands, except per share data)              2005              2004
    Interest Income:
    Interest and fees on loans                      $38,811           $37,478
    Interest on investment securities:
       Taxable                                        7,781             8,876
       Nontaxable                                       490               565
          Total Interest on Investment
           Securities                                 8,271             9,441
    Interest on federal funds sold                      653               201
    Interest on deposits with unaffiliated
     banks                                              225                65
          Total Interest Income                      47,960            47,185

    Interest Expense:
    Interest on deposits                              9,193             7,691
    Interest on other borrowings - short
     term                                               348                96
    Interest on FHLB borrowings                       2,472             2,576
          Total Interest Expense                     12,013            10,363
          Net Interest Income                        35,947            36,822
    Provision for loan losses                           730               746
          Net Interest Income after
                Provision for Loan Losses            35,217            36,076

    Noninterest Income:
    Service charges on deposit accounts               4,716             4,554
    Trust and investment management
     services revenue                                 2,017             1,909
    Other charges and fees for customer
     services                                         1,688             1,548
    Mortgage banking revenue                            489               780
    Investment securities gains                       1,089               983
    Other                                               181               188
          Total Noninterest Income                   10,180             9,962

    Operating Expenses:
    Salaries and employee benefits                   14,580            14,801
    Occupancy and equipment                           4,756             4,844
    Other                                             5,647             5,515
          Total Operating Expenses                   24,983            25,160
    Income Before Income Taxes                       20,414            20,878
          Federal income taxes                        6,910             6,759
    Net Income                                      $13,504           $14,119

    Net income per share:
       Basic                                          $0.54             $0.56
       Diluted                                         0.53              0.56

    Cash dividends per share                         $0.265            $0.252

    Average shares outstanding:
       Basic                                         25,183            25,086
       Diluted                                       25,247            25,185



   Chemical Financial Corporation
 Announces First Quarter Operating Results

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

                                                         Three Months Ended
                                                             March 31,
                                                          2005        2004
    Average Balances
    Total assets                                       $3,822,046  $3,888,849
    Total interest-earning
     assets                                             3,585,659   3,633,736
    Total loans                                         2,575,331   2,517,080
    Total deposits                                      2,929,347   3,020,391
    Total shareholders' equity                            487,557     463,268

                                                           Three Months Ended
                                                                March 31,
                                                             2005        2004
    Key Ratios (annualized where applicable)
    Net interest margin                                     4.11%       4.12%
    Efficiency ratio                                        54.7%       53.3%
    Return on average assets                                1.43%       1.46%
    Return on average shareholders' equity                  11.2%       12.3%
    Average shareholders' equity as a percent of
     average assets                                         12.8%       11.9%
    Tangible shareholders' equity as a percent of
     total assets                                           11.1%       10.3%
    Total risk-based capital ratio                          17.7%       16.5%

                       March 31, December 31, September 30, June 30, March 31,
                         2005        2004         2004        2004     2004
    Credit Quality
     Statistics
    Nonaccrual loans    $7,823      $8,397       $5,787      $5,413   $5,317
    Loans 90 or more
     days past due and
     still accruing      2,914       1,653        5,914       5,488    6,559
    Total nonperforming
     loans              10,737      10,050       11,701      10,901   11,876
    Repossessed assets
     acquired (RAA)      6,544       6,799        6,924       7,344    6,294
    Total nonperforming
     assets             17,281      16,849       18,625      18,245   18,170
    Net loan charge-
     offs -- year-to-
     date                  725       2,832        1,658       1,034      431

    Allowance for loan
     losses as a percent
     of total loans       1.33%       1.32%        1.29%       1.30%    1.31%
    Allowance for loan
     losses as a percent
     of nonperforming
     loans                 318%        340%         288%        308%     282%
    Nonperforming loans
     as a percent of
     total loans          0.42%       0.39%        0.45%       0.42%    0.47%
    Nonperforming assets
     as a percent of
     total loans plus
     RAA                  0.67%       0.65%        0.71%       0.70%    0.71%
    Net loan charge-offs
     as a percent of
     average loans --
     year-to-date
     (annualized)         0.11%       0.11%        0.09%       0.08%    0.07%

                       March 31, December 31, September 30, June 30, March 31,
                         2005       2004          2004        2004     2004
    Additional Data
    Goodwill           $63,293    $63,293       $63,293     $63,293  $63,293
    Core deposits and
     other
     intangibles         7,324      7,931         8,572       9,138    9,613
    Mortgage servicing
     rights (MSR),
     net of MSR
     impairment
     reserve             3,111      3,197         3,441       3,252    3,235
    MSR impairment
     reserve                 -          -             -         443      693
    Amortization of
     intangibles           800        948           931       1,079      851



    Chemical Financial Corporation
 Announces First Quarter Operating Results

    Selected Quarterly Information (Unaudited)
    Chemical Financial Corporation
 and Subsidiaries

                               1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
                                 2005     2004     2004     2004     2004
    (Dollars in thousands)
    Summary of Operations
    Interest income             $47,960  $48,164  $47,318  $46,583  $47,185
    Interest expense             12,013   10,914   10,165   10,174   10,363
    Net interest income          35,947   37,250   37,153   36,409   36,822
    Provision for loan losses       730    1,711      701      661      746
    Net interest income after
     provision for loan losses   35,217   35,539   36,452   35,748   36,076
    Noninterest income           10,180    9,739    9,623   10,005    9,962
    Noninterest expense          24,983   23,890   24,499   24,920   25,160
    Income taxes                  6,910    6,987    7,280    6,967    6,759
    Net income                   13,504   14,401   14,296   13,866   14,119

    Per Common Share Data
    Net income:
         Basic                    $0.54    $0.57    $0.58    $0.55    $0.56
         Diluted                   0.53     0.57     0.57     0.55     0.56
    Cash dividends                0.265    0.252    0.252    0.252    0.252
    Book value                    19.32    19.26    19.04    18.63    18.70


SOURCE  Chemical Financial Corporation

    -0-                             04/18/2005
    /CONTACT:  David B. Ramaker, +1-989-839-5269, or Lori A. Gwizdala,
+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

AM
-- DEM008 --
4848 04/18/2005 08:05 EDT http://www.prnewswire.com