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Chemical Financial Corporation Announces Second Quarter 2005 Operating Results

Company Release - 7/25/2005 9:33 AM ET

MIDLAND, Mich., July 25 /PRNewswire-FirstCall/ -- Chemical Financial Corporation's Board of Directors today announced 2005 second quarter net income of $13.22 million, or $0.53 per diluted share, down $0.65 million, or $0.02 per diluted share, as compared with net income of $13.87 million, or $0.55 per diluted share, in the second quarter of 2004.

Net income was $26.72 million or $1.06 per share in the first six months of 2005, compared to net income of $27.99 million, or $1.11 per share in the first six months of 2004. This represented a decrease of 4.5% in both net income and earnings per share for the first six months of 2005, compared to the prior year. The returns on average assets and average equity during the first six months of 2005 were 1.42% and 11.0%, respectively, as compared to 1.45% and 12.1%, respectively, for the first six months of 2004.

Second Quarter Operating Results

Net income and earnings per share in the second quarter of 2005 decreased 4.7% and 3.6%, respectively, from the second quarter of 2004. The decreases in net income and earnings per share were attributable to lower net interest income, a modest increase in the provision for loan losses and slightly lower noninterest income. These decreases were partially offset by a slight decrease in operating expenses.

Net interest income of $35.70 million in the second quarter of 2005 was $0.71 million, or 2.0%, lower than the second quarter of 2004. The decrease in net interest income was attributable to a decrease in average interest- earning assets that was partially offset by a modest increase in the net interest margin.

Average interest-earning assets were $3.53 billion in the second quarter of 2005, down $106 million, or 2.9% from the second quarter of 2004. The decrease in average interest-earning assets between the second quarter of 2005 and the second quarter of 2004 was primarily the result of a decline in deposits, including brokered deposits. Average loans were $2.60 billion in the second quarter of 2005, up $45 million, or 1.8% from average loans in the second quarter of 2004.

The net interest margin was 4.10% in the second quarter of 2005, compared to 4.07% in the second quarter of 2004. The modest increase in net interest margin was primarily attributable to a positive change in the mix of interest- earning assets and liabilities in the second quarter of 2005, as compared to the prior year quarter. In the second quarter of 2005, the average yield on interest-earning assets was 5.62%, compared to the average cost of interest- bearing liabilities of 1.98%. The average yield on interest-earning assets increased 42 basis points in the second quarter of 2005, as compared to the prior year quarter, while the average cost of interest-bearing liabilities increased 54 basis points during the same period. 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 and home equity lines of credit tied to prime. The increase in the average cost of interest-bearing liabilities continued to result from rising deposit interest rates, which have been driven by the overall rise in short-term market interest rates and increased competition for deposits.

The provision for loan losses in the second quarter of 2005 was $0.73 million, the same as in the first quarter of 2005, although slightly higher than the $0.66 million recorded in the second quarter of 2004. Net loan charge-offs were $1.079 million in the second quarter of 2005, compared to $0.725 million in the first quarter of 2005 and $0.60 million in the second quarter of 2004.

Total noninterest income was $9.75 million in the second quarter of 2005, down $0.25 million or 2.5% from the second 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, and ATM and debit card revenue, although these increases were more than offset by a decrease in investment securities gains and a continued reduction in mortgage banking revenue. Mortgage banking revenue of $0.48 million in the second quarter of 2005 was approximately the same as the first quarter of 2005, although down $0.60 million, or 55%, from the second quarter of 2004.

Operating expenses were $24.76 million in the second quarter of 2005, down $0.16 million, or 0.6%, from the second quarter of 2004, and down $0.22 million, or 0.9%, from the first quarter of 2005.

The returns on average assets and average equity during the second quarter of 2005 were 1.41% and 10.8%, respectively, as compared to 1.44% and 11.9%, respectively, for the second quarter of 2004.

Balance Sheet and Capital Position

Total assets of the Corporation at June 30, 2005 were $3.722 billion, down $42 million or 1.1% from the $3.764 billion in total assets reported at December 31, 2004. Total deposits at June 30, 2005 were $2.824 billion, down $39 million, or 1.4% from the total deposits of $2.863 billion at December 31, 2004.

Total loans were $2.654 billion at June 30, 2005, up $68 million, or 2.6% from total loans of $2.586 billion at December 31, 2004. The Corporation achieved a $39.6 million or 3.4% increase in commercial and commercial real estate loans, an $8.2 million or 6.8% increase in real estate construction loans, a $5.6 million or 0.7% increase in real estate residential loans and a $15.0 million or 2.8% increase in consumer loans during the six months ended June 30, 2005.

As of June 30, 2005, the allowance for loan losses was $33.82 million or 1.27% of total loans, while nonperforming loans were $16.1 million or 0.61% of total loans. Net loan losses as a percentage of average total loans were 0.14% on an annualized basis during the six months ended June 30, 2005; slightly higher than the percentage for the twelve months ended December 31, 2004 of 0.11%. Nonperforming assets of $21.9 million at June 30, 2005, were up $5.06 million or 30% from December 31, 2004. The increase in nonperforming assets was largely attributable to two commercial real estate loans totaling $3.7 million. The Corporation does not expect any loss on these credits based on the collateral evaluation of these loans as of June 30, 2005. Nonperforming assets as a percentage of total assets were 0.59% as of June 30, 2005 compared to 0.45% as of December 31, 2004.

Shareholders' equity at June 30, 2005 was $495 million or $19.68 per share and represented 13.3% of total assets. The Corporation's total risk-based capital and tangible equity to asset ratios were 17.7% and 11.6%, respectively, as of June 30, 2005.

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

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


                                             June 30,  December 31,  June 30,
    (In thousands)                             2005        2004        2004
    Assets:
    Cash and demand deposits due from
     banks                                   $105,261    $106,565    $114,743
    Federal funds sold                          5,000      34,500      60,700
    Interest-bearing deposits with
     unaffiliated banks                         5,804       5,869       9,931
    Investment securities - available for
     sale                                     679,646     716,757     768,228
    Investment securities - held to
     maturity                                 139,934     176,517     156,362
        Total Investment Securities           819,580     893,274     924,590
    Commercial loans                          491,919     468,970     466,666
    Real estate construction loans            129,144     120,900     132,956
    Real estate commercial loans              714,393     697,779     655,053
    Real estate residential loans             766,447     760,834     781,062
    Consumer loans                            552,100     537,102     553,237
        Total Loans                         2,654,003   2,585,585   2,588,974
    Less: Allowance for loan losses            33,822      34,166      33,552
        Net Loans                           2,620,181   2,551,419   2,555,422
    Premises and equipment                     46,165      47,577      48,077
    Intangible assets                          73,031      74,421      75,683
    Other assets                               47,078      50,500      52,593
        Total Assets                       $3,722,100  $3,764,125  $3,841,739
    Liabilities and Shareholders' Equity:
    Noninterest-bearing deposits             $531,667    $555,287    $551,087
    Interest-bearing deposits               2,292,512   2,308,186   2,408,162
        Total Deposits                      2,824,179   2,863,473   2,959,249
    Other borrowings - short term             106,781     101,834      95,371
    Interest payable and other liabilities     27,526      28,986      33,569
    FHLB borrowings                           268,959     284,996     285,191
        Total Liabilities                   3,227,445   3,279,289   3,373,380
    Shareholders' Equity:
      Common stock, $1 par value               25,138      25,169      23,944
      Surplus                                 377,854     378,694     333,475
      Retained earnings                        93,650      80,266     110,054
      Accumulated other comprehensive
       income/(loss)                           (1,987)        707         886
        Total Shareholders' Equity            494,655     484,836     468,359
        Total Liabilities and
         Shareholders' Equity              $3,722,100  $3,764,125  $3,841,739



    Chemical Financial Corporation
 Announces Second Quarter Operating Results

    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)     2005     2004     2005     2004
    Interest Income:
    Interest and fees on loans             $40,221  $37,481  $79,032  $74,959
    Interest on investment securities:
      Taxable                                7,728    8,276   15,509   17,152
      Nontaxable                               522      526    1,012    1,091
        Total Interest on Investment
         Securities                          8,250    8,802   16,521   18,243
    Interest on federal funds sold             251      202      904      403
    Interest on deposits with unaffiliated
     banks                                     290       98      515      163
        Total Interest Income               49,012   46,583   96,972   93,768

    Interest Expense:
    Interest on deposits                    10,478    7,523   19,671   15,214
    Interest on other borrowings - short
     term                                      445      103      793      199
    Interest on FHLB borrowings              2,391    2,548    4,863    5,124
        Total Interest Expense              13,314   10,174   25,327   20,537
        Net Interest Income                 35,698   36,409   71,645   73,231
    Provision for loan losses                  730      661    1,460    1,407
        Net Interest Income after
              Provision for Loan Losses     34,968   35,748   70,185   71,824

    Noninterest Income:
    Service charges on deposit accounts      5,014    4,757    9,730    9,311
    Trust & investment management services
     revenue                                 2,055    1,871    4,072    3,780
    Other charges and fees for customer
     services                                1,908    1,806    3,596    3,354
    Mortgage banking revenue                   481    1,080      970    1,860
    Investment securities gains                 82      267    1,171    1,250
    Other                                      213      224      394      412
        Total Noninterest Income             9,753   10,005   19,933   19,967

    Operating Expenses:
    Salaries and employee benefits          14,658   14,693   29,238   29,494
    Occupancy and equipment                  4,517    4,440    9,273    9,284
    Other                                    5,588    5,787   11,235   11,302
        Total Operating Expenses            24,763   24,920   49,746   50,080
    Income Before Income Taxes              19,958   20,833   40,372   41,711
        Federal income taxes                 6,743    6,967   13,653   13,726
    Net Income                             $13,215  $13,866  $26,719  $27,985

    Net income per share:
      Basic                                  $0.53    $0.55    $1.06    $1.11
      Diluted                                 0.53     0.55     1.06     1.11

    Cash dividends per share                $0.265   $0.252   $0.530   $0.505

    Average shares outstanding:
      Basic                                 25,152   25,131   25,167   25,109
      Diluted                               25,200   25,209   25,224   25,198




    Chemical Financial Corporation
 Announces Second Quarter Operating Results

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

                                   Quarter Ended          Six Months Ended
                                      June 30,                June 30,
                                  2005        2004        2005        2004
    Average Balances
    Total assets               $3,760,798  $3,876,665  $3,791,253  $3,877,963
    Total interest-earning
     assets                     3,527,087   3,632,968   3,556,211   3,628,558
    Total loans                 2,604,615   2,559,608   2,590,054   2,538,344
    Total deposits              2,892,240   3,001,871   2,910,691   3,009,285
    Total shareholders' equity    490,813     469,366     489,194     466,317


                                      Quarter Ended          Six Months Ended
                                         June 30,                June 30,
                                     2005        2004        2005        2004
    Key Ratios (annualized
     where applicable)
    Net interest margin              4.10%       4.07%       4.11%       4.09%
    Efficiency ratio                 54.0%       53.3%       54.4%       53.6%
    Return on average assets         1.41%       1.44%       1.42%       1.45%
    Return on average
     shareholders' equity            10.8%       11.9%       11.0%       12.1%
    Average shareholders'
     equity as a percent of
      average assets                 13.1%       12.1%       12.9%       12.0%
    Tangible shareholders'
     equity as a
      percent of total assets                                11.6%       10.4%
    Total risk-based capital
     ratio                                                   17.7%       16.9%



                                                   December September
                                  June 30, March 31,   31,      30,   June 30,
                                    2005     2005     2004     2004     2004
    Credit Quality Statistics
    Nonaccrual loans               $8,639   $7,823   $8,397   $5,787   $5,413
    Loans 90 or more days past
     due and still accruing         7,426    2,914    1,653    5,914    5,488
    Total nonperforming loans      16,065   10,737   10,050   11,701   10,901
    Repossessed assets acquired
     (RAA)                          5,848    6,544    6,799    6,924    7,344
    Total nonperforming assets     21,913   17,281   16,849   18,625   18,245
    Net loan charge offs - year-
     to-date                        1,804      725    2,832    1,658    1,034

    Allowance for loan losses as
     a percent of total loans        1.27%    1.33%    1.32%    1.29%    1.30%
    Allowance for loan losses as
     a percent of nonperforming
      loans                           211%     318%     340%     288%     308%
    Nonperforming loans as a
      percent of total loans         0.61%    0.42%    0.39%    0.45%    0.42%
    Nonperforming assets as a
      percent of total loans plus
       RAA                           0.82%    0.67%    0.65%    0.71%    0.70%
    Net loan charge-offs as a
     percent of average loans -
      year-to-date (annualized)      0.14%    0.11%    0.11%    0.09%    0.08%

                                  June 30, March 31, December September
                                                        31,     30,   June 30,
                                     2005     2005     2004     2004     2004
    Additional Data
    Goodwill                      $63,293  $63,293  $63,293  $63,293  $63,293
    Core deposits and other
     intangibles                    6,797    7,324    7,931    8,572    9,138
    Mortgage servicing rights
     (MSR), net of MSR impairment
       reserve                      2,941    3,111    3,197    3,441    3,252
    MSR impairment reserve              -        -        -        -      443
    Amortization of intangibles       793      800      948      931    1,079



    Chemical Financial Corporation
 Announces Second Quarter Operating Results

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

                               2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
                                 2005     2005     2004     2004     2004
    Summary of Operations
    Interest income             $49,012  $47,960  $48,164  $47,318  $46,583
    Interest expense             13,314   12,013   10,914   10,165   10,174
    Net interest income          35,698   35,947   37,250   37,153   36,409
    Provision for loan losses       730      730    1,711      701      661
    Net interest income after
     provision for loan losses   34,968   35,217   35,539   36,452   35,748
    Noninterest income            9,753   10,180    9,739    9,623   10,005
    Noninterest expense          24,763   24,983   23,890   24,499   24,920
    Income taxes                  6,743    6,910    6,987    7,280    6,967
    Net income                   13,215   13,504   14,401   14,296   13,866

    Per Common Share Data
    Net income:
         Basic                    $0.53    $0.54    $0.57    $0.58    $0.55
         Diluted                   0.53     0.53     0.57     0.57     0.55
    Cash dividends                0.265    0.265    0.252    0.252    0.252
    Book value                    19.68    19.32    19.26    19.04    18.63

SOURCE  Chemical Financial Corporation

    -0-                             07/25/2005
    /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

TH
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7222 07/25/2005 09:33 EDT http://www.prnewswire.com