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Press Release

Chemical Financial Corporation Reports Second Quarter 2007 Earnings

Company Release - 7/23/2007 8:50 AM ET

MIDLAND, Mich., July 23, 2007 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2007 second quarter net income of $9.5 million, or $0.39 per diluted share, versus net income of $12.2 million, or $0.49 per diluted share, in the second quarter of 2006.

Net income was $18.6 million, or $0.75 per diluted share, for the six months ended June 30, 2007, compared to net income of $24.1 million, or $0.96 per diluted share, for the six months ended June 30, 2006.

"Michigan's struggling economy, the flattened interest yield curve environment and increased nonperforming loans continued to depress the quarter's and six month's operating results. Net interest income declined slightly and operating expenses increased due primarily to one-time charges associated with our previously announced retail banking reorganization. Additionally, credit quality, exacerbated by the state's economic condition, required a higher provision for loan losses." said David B. Ramaker, Chairman, President and Chief Executive Officer of Chemical Financial Corporation. "The Michigan economy continues to stagnate - it was the only state in the nation which did not grow in 2006. In fact, Michigan's GDP through year-end 2006 has contracted at a compound annual rate of 0.3 percent since 2004, versus the national GDP growth rate of 3.4 percent during that same period. While there are signs that the economy is bottoming out, there is little evidence of a return to growth anytime soon."

"On the other hand, we are seeing some encouraging signs. After declining for nine consecutive quarters, our net interest margin and net interest income in the second quarter of 2007 increased over the first quarter of 2007, although remain below prior year levels. Additionally, the retail banking reorganization is on schedule. We remain committed to our strategy of increasing earnings by driving revenue growth through increased products sold to existing customer households, while diligently controlling expenses," added Ramaker.

The Company's previously announced retail banking reorganization, which involves realigning its 15 community bank network structure into four regions and consolidating numerous back office and support functions, is progressing well. During the quarter, the Company recognized reorganization costs, including severance and early retirement costs, of $1.6 million. Furthermore, the Company now anticipates that it will incur additional charges related to the reorganization in the second half of 2007 of roughly $0.7 million, which will result in higher reorganization costs than the originally anticipated and previously announced $1.5 million. The Company also projects that total annual expense savings from the reorganization will total $2.3 million in 2008, slightly higher than the $2.0 million in annual savings originally anticipated.

Net interest income was $32.4 million in the second quarter of 2007, a decrease of 2.4 percent from second quarter 2006 net interest income of $33.2 million. The decrease in net interest income was attributable primarily to the decrease in net interest margin. The net interest margin (on a tax-equivalent basis) in the second quarter of 2007 was 3.70 percent, down from 3.88 percent in the second quarter of 2006, but up slightly from 3.66 percent in the first quarter of 2007. The decline in net interest margin from the prior year was primarily attributable to increases in interest rates paid on interest-bearing liabilities exceeding increases in interest rates earned on interest-earning assets, as deposits repriced more rapidly than loans in the rising interest rate environment experienced in the past 12 months.

Total assets were $3.78 billion at June 30, 2007, approximately the same as December 31, 2006, and up from $3.73 billion at June 30, 2006. At June 30, 2007, total loans were $2.80 billion, versus $2.81 billion at December 31, 2006 and $2.76 billion at June 30, 2006. The increase in loans since June 30, 2006 was attributable to the branch acquisitions completed in August 2006. Over the past twelve months, increases in residential real estate, commercial real estate and consumer loans have offset modest declines in commercial and real estate construction loans. Investment securities were $621 million at June 30, 2007, up slightly from $615 million at December 31, 2006 but down from $646 million at June 30, 2006. The decrease in investment securities was primarily attributable to the Company using excess liquidity from maturing investment securities to fund higher yielding loan growth.

Total deposits were $2.94 billion at June 30, 2007, up from $2.90 billion at December 31, 2006 and from $2.79 billion at June 30, 2006. Wholesale borrowings, primarily Federal Home Loan Bank advances, totaled $135 million at June 30, 2007, down $40 million, or 23 percent, from $175 million at December 31, 2006 and down $125 million, or 48 percent, from $260 million at June 30, 2006.

The provision for loan losses was $2.50 million in the second quarter of 2007, compared to $1.63 million in the first quarter of 2007 and $0.40 million in the second quarter of 2006. Net loan charge-offs were $1.26 million in the second quarter of 2007, up from $0.71 million in the first quarter of 2007 and up from $0.92 million in the second quarter of 2006. The increases in the provision for loan losses in the second quarter of 2007, as compared to both the previous year's quarter and the first quarter of 2007, were reflective of the overall deterioration in credit quality during both periods. The allowance for loan losses of $36.25 million at June 30, 2007 was 1.30 percent of total loans, up from 1.25 percent of total loans at March 31, 2007 and 1.22 percent at June 30, 2006. At June 30, 2007, nonperforming loans as a percentage of total loans were 1.71 percent, up from 1.26 percent at March 31, 2007 and 0.99 percent at June 30, 2006.

At June 30, 2007, nonperforming assets (nonperforming loans and repossessed assets) totaled $57.0 million, up from $44.4 million at March 31, 2007, and from $36.9 million at June 30, 2006. Nonperforming loans were $47.8 million at June 30, 2007, up from $35.2 million at March 31, 2007 and $26.9 million at December 31, 2006. The increases in nonperforming loans from both December 31, 2006 and March 31, 2007 to June 30, 2007 occurred primarily in the real estate commercial and real estate construction-commercial loan categories. Nonperforming real estate commercial and real estate construction-commercial loans were $30.1 million at June 30, 2007, up from $20.2 million at March 31, 2007 and $14.6 million at December 31, 2006. The increase in nonperforming real estate commercial and real estate construction-commercial loans during the second quarter of 2007 was primarily attributable to the addition of seven customer relationships with borrowings between $0.5 million and $2.2 million and totaling $9.5 million.

The allowance for loan losses as a percent of nonperforming loans has fallen from 100 percent at March 31, 2007 to 76 percent at June 30, 2007. The Company's $47.8 million of nonperforming loans at June 30, 2007 included commercial and real estate commercial loans totaling $22 million which have been individually analyzed and at that time deemed to have sufficient collateral values so as not to require an allocation of the allowance for loan losses to these loans.

Total noninterest income was $11.36 million in the second quarter of 2007, up $0.84 million, or 8 percent, from $10.52 million in the second quarter of 2006. The increase was due to an increase in other noninterest income that was attributable to gains realized on the sale of a branch office building and the sale of a parcel of excess land contiguous to an existing branch office.

Operating expenses in the second quarter of 2007 were $27.2 million, up from $25.1 million in the second quarter of 2006; due primarily to the reorganization costs incurred as a result of the Company's retail banking reorganization. Excluding these charges, operating expenses for the quarter would have increased by $0.5 million, or 2.0 percent. The Company's efficiency ratio was 61.4 percent in the second quarter of 2007, down from 63.2 percent in the first quarter of 2007 and up from 56.8 percent in the second quarter of 2006. The increase in the efficiency ratio from the prior year's quarter was attributable to both the decrease in net interest income and the increase in operating expenses, due largely to the $1.6 million of reorganization expenses.

During the second quarter of 2007, the Company repurchased 449,800 shares of its common stock (on the open market) at an average price of $26.96 per share, bringing total share repurchases for the year 2007 to 472,800 shares. At June 30, 2007, the Company had 50,200 additional shares available for repurchases under the April 2007 authorization from its Board of Directors. On July 18, 2007, the Company announced that its Board of Directors authorized repurchases of up to 500,000 additional shares.

The Company's return on average assets during the second quarter of 2007 was 1.00 percent, up from 0.97 percent in the first quarter of 2007 but down from 1.32 percent in the second quarter of 2006. The decline in return on assets resulted in a decline in return on average equity to 7.5 percent in the second quarter of 2007 from 9.7 percent in the second quarter of 2006. At June 30, 2007, the Company's book value stood at $20.79 per share versus $20.32 per share at June 30, 2006.

Chemical Financial Corporation is the third-largest bank holding company headquartered in Michigan. The Company operates through a single subsidiary bank, Chemical Bank, with 129 banking offices spread over 31 counties in the lower peninsula of Michigan. At June 30, 2007, the Company had total assets of $3.78 billion. Chemical Financial Corporation common stock trades on The Nasdaq Stock Market under the symbol CHFC and is one of the issues comprising the Nasdaq Global Select Market.

Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Chemical Financial Corporation itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "judgment," "plans," "predicts," "projects," "should," "will," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") 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. Chemical Financial Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

Risk factors include, but are not limited to, the risk factors described in Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2006; the timing and level of asset growth; changes in banking laws and regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; opportunities for acquisitions and the effective completion of acquisitions and integration of acquired entities; the possibility that anticipated cost savings and revenue enhancements from acquisitions, restructurings, reorganizations and bank consolidations may not be realized at all or within expected time frames; and the local and global effects of the ongoing war on terrorism and other military actions, including actions in Iraq. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.


 Consolidated Statements of Financial Position (Unaudited)
 Chemical Financial Corporation

 (In thousands, except per share data)
                                     June 30   December 31     June 30
                                      2007         2006         2006
 ---------------------------------------------------------------------
 Assets:
 Cash and cash due from banks    $   103,910  $   135,544  $   110,457
 Federal funds sold                   86,200       49,500       36,500
 Interest-bearing deposits with
  unaffiliated banks                   5,487        5,712        5,211

 Investment securities -
  available for sale                 513,954      520,867      549,532
 Investment securities -
  held to maturity                   106,792       94,564       96,518
 Other securities                     22,135       22,131       25,683

 Loans held for sale                   6,560        5,667        7,326

 Loans:
   Commercial loans                  522,535      545,591      536,099
   Real estate commercial loans      735,510      726,554      706,213
   Real estate construction
    loans                            132,900      145,933      155,463
   Real estate residential loans     845,432      835,263      805,081
   Consumer loans                    559,955      554,319      554,492
                                 -----------  -----------  -----------
     Total Loans                   2,796,332    2,807,660    2,757,348
 Less: Allowance for loan losses      36,254       34,098       33,638
                                 -----------  -----------  -----------
     Net Loans                     2,760,078    2,773,562    2,723,710

 Premises and equipment               48,313       49,475       44,736
 Goodwill                             69,908       70,129       63,293
 Other intangible assets               7,757        8,777        6,936
 Interest receivable and
  other assets                        53,820       53,319       61,475
                                 -----------  -----------  -----------
     Total Assets                $ 3,784,914  $ 3,789,247  $ 3,731,377
                                 ===========  ===========  ===========

 Liabilities:
 Noninterest-bearing deposits    $   544,555  $   551,177  $   535,537
 Interest-bearing deposits         2,391,323    2,346,908    2,255,816
                                 -----------  -----------  -----------
     Total Deposits                2,935,878    2,898,085    2,791,353
 Interest payable and other
   liabilities                        22,156       29,235       24,315
 Short-term borrowings               185,357      208,969      276,267
 Federal Home Loan Bank
  advances - long-term               135,049      145,072      135,072
                                 -----------  -----------  -----------
     Total Liabilities             3,278,440    3,281,361    3,227,007

 Shareholders' Equity:
   Common stock, $1 par value
    per share                         24,365       24,828       24,817
   Surplus                           356,532      368,554      368,562
   Retained earnings                 135,054      123,454      121,457
   Accumulated other
    comprehensive loss                (9,477)      (8,950)     (10,466)
                                 -----------  -----------  -----------
     Total Shareholders' Equity      506,474      507,886      504,370
                                 -----------  -----------  -----------
     Total Liabilities and
      Shareholders' Equity       $ 3,784,914  $ 3,789,247  $ 3,731,377
                                 ===========  ===========  ===========

 Consolidated Statements of Income (Unaudited)
 Chemical Financial Corporation

 (In thousands, except per share data)

                               Three Months Ended    Six Months Ended
                                     June 30             June 30
                                 2007      2006       2007     2006
 ---------------------------------------------------------------------
 Interest Income:
 Interest and fees on loans    $ 48,138  $ 45,474  $ 95,504  $ 89,184
 Interest on investment
  securities:
     Taxable                      6,233     6,176    12,368    12,518
     Tax-exempt                     666       611     1,330     1,231
 Dividends on other securities      357       348       573       689
 Interest on federal funds sold   1,617       621     3,062     1,572
 Interest on deposits with
  unaffiliated banks                 75       161       174       474
                               --------  --------  --------  --------
     Total Interest Income       57,086    53,391   113,011   105,668

 Interest Expense:
 Interest on deposits            20,917    16,496    41,253    31,570
 Interest on short-term
  borrowings                      1,866     1,869     3,774     3,437
 Interest on Federal Home Loan
  Bank advances - long-term       1,883     1,809     3,790     3,853
                               --------  --------  --------  --------
     Total Interest Expense      24,666    20,174    48,817    38,860
                               --------  --------  --------  --------
     Net Interest Income         32,420    33,217    64,194    66,808
 Provision for loan losses        2,500       400     4,125       860
                               --------  --------  --------  --------
     Net Interest Income after
      Provision for Loan Losses  29,920    32,817    60,069    65,948

 Noninterest Income:
 Service charges on deposit
  accounts                        5,236     5,356    10,204    10,453
 Trust and investment services
  revenue                         2,087     2,094     4,187     4,099
 Other charges and fees for
  customer services               2,376     2,255     4,818     4,387
 Mortgage banking revenue           628       490     1,070       913
 Investment securities gains         --        --         4        --
 Other                            1,029       323     1,116       498
                               --------  --------  --------  --------
     Total Noninterest Income    11,356    10,518    21,399    20,350

 Operating Expenses:
 Salaries, wages and employee
  benefits                       15,773    14,012    30,512    28,602
 Occupancy                        2,771     2,421     5,360     5,019
 Equipment                        2,381     2,345     4,685     4,533
 Other                            6,296     6,298    13,422    12,043
                               --------  --------  --------  --------
     Total Operating Expenses    27,221    25,076    53,979    50,197
                               --------  --------  --------  --------
 Income Before Income Taxes      14,055    18,259    27,489    36,101
     Provision for federal
      income taxes                4,543     6,030     8,936    11,975
                               --------  --------  --------  --------
 Net Income                    $  9,512  $ 12,229  $ 18,553  $ 24,126
                               ========  ========  ========  ========

 Net income per share:
   Basic                       $   0.39  $   0.49   $   0.75  $   0.96
   Diluted                         0.39      0.49       0.75      0.96

 Cash dividends per share      $  0.285  $  0.275   $  0.570  $  0.550

 Average shares outstanding:
   Basic                         24,644    24,977     24,738    25,036
   Diluted                       24,655    25,010     24,752    25,075



 Financial Summary (Unaudited)
 Chemical Financial Corporation

                             Three Months Ended     Six Months Ended
                                  June 30               June 30
 (Dollars in thousands)       2007       2006       2007       2006
 ---------------------------------------------------------------------
 Average Balances

 Total assets             $3,797,749 $3,716,069 $3,793,283 $3,743,665
 Total interest-earning
  assets                   3,566,517  3,480,772  3,560,228  3,508,098
 Total loans               2,796,902  2,731,421  2,797,752  2,713,680
 Total deposits            2,931,977  2,840,341  2,925,820  2,856,318
 Total interest-bearing
 liabilities               2,729,085  2,645,501  2,728,594  2,676,890
 Total shareholders'
  equity                     510,902    507,888    511,108    508,228


                            Three Months Ended     Six Months Ended
                                 June 30               June 30
                             2007        2006      2007       2006
 --------------------------------------------------------------------
 Key Ratios (annualized
  where applicable)

 Net interest margin
  (taxable equivalent
  basis)                        3.70%      3.88%      3.68%      3.89%
 Efficiency ratio               61.4%      56.8%      62.3%      57.0%
 Return on average assets       1.00%      1.32%      0.99%      1.30%
 Return on average
  shareholders' equity           7.5%       9.7%       7.3%       9.6%
 Average shareholders'
  equity as a percent of
   average assets               13.5%      13.7%      13.5%      13.6%
 Tangible shareholders'
  equity as a percent of
   total assets                                       11.6%      11.9%
 Total risk-based capital
  ratio                                               17.5%      17.9%


                                June   March   Dec.     Sept.   June
                                 30      31     31       30      30
                                2007    2007   2006     2006    2006
 ---------------------------------------------------------------------
 Credit Quality Statistics

 Nonaccrual loans              36,119 $28,748 $20,239 $23,113 $17,636
 Loans 90 or more days
  past due and still
  accruing                     11,704   6,441   6,671   9,505   9,618

 Total nonperforming loans     47,823  35,189  26,910  32,618  27,254
 Repossessed assets (RA)        9,177   9,250   8,852  10,062   9,615
 Total nonperforming assets    57,000  44,439  35,762  42,680  36,869
 Net loan charge-offs
  (year-to-date)                1,969     707   5,650   1,810   1,370

 Allowance for loan losses
  as a percent of total
   loans                         1.30%   1.25%   1.21%   1.25%   1.22%
 Allowance for loan losses
  as a percent of non
  performing loans                 76%    100%    127%    108%    123%
 Nonperforming loans as a
  percent of total loans         1.71%   1.26%   0.96%   1.16%   0.99%
 Nonperforming assets as a
  percent of total loans
  plus RA                        2.03%   1.58%   1.27%   1.51%   1.33%
 Nonperforming assets as a
  percent of total assets        1.51%   1.16%   0.94%   1.11%   0.99%
 Net loan charge-offs as a
  percent of average loans
  (year-to-date,
  annualized)                    0.14%   0.10%   0.20%   0.09%   0.10%

                                June   March    Dec.    Sept.   June
                                 30      31     31       30      30
                                2007    2007   2006     2006    2006
 ---------------------------------------------------------------------
 Additional Data -
  Intangibles

 Goodwill                     $69,908 $69,908 $70,129 $70,999 $63,293
 Core deposits and other
  intangibles                   5,455   5,886   6,379   7,030   4,743
 Mortgage servicing rights
  (MSR)                         2,302   2,299   2,398   2,533   2,193
 Amortization of
  intangibles (quarter
  only)                           665     734     857     618     683


 Nonperforming Assets (Unaudited)
 Chemical Financial Corporation


                          June 30  March 31  Dec. 31  Sept. 30  June 30
 (Dollars in thousands)     2007     2007      2006     2006     2006
 ---------------------------------------------------------------------
 Nonaccrual loans:
  Commercial               $ 5,810 $ 4,891  $ 4,203  $ 4,124  $ 3,738
  Real estate commercial    19,163   14,621    9,612   11,329    7,385
  Real estate
   construction-commercial   4,483    3,283    2,552    2,017    1,735
  Real estate residential    4,967    4,660    2,887    4,455    3,892
  Consumer                   1,696    1,293      985    1,188      886
 ---------------------------------------------------------------------
   Total nonaccrual loans   36,119   28,748   20,239   23,113   17,636
 Accruing loans contrac-
  tually past due 90 days
  or more as to interest or
  principal payments:
   Commercial                1,564    2,030    1,693    3,151    1,903
   Real estate commercial    5,561    2,342    2,232    3,081    5,569
   Real estate
    construction-commercial    884       --      174       --      179
   Real estate residential   2,352    1,350    1,158    1,857    1,618
   Consumer                  1,343     719    1,414    1,416      349
 ---------------------------------------------------------------------
    Total accruing loans
     contractually past due
     90 days or more as to
     interest or principal
     payments               11,704    6,441    6,671    9,505    9,618
 ---------------------------------------------------------------------
 Total nonperforming loans  47,823   35,189   26,910   32,618   27,254
 Other real estate and
  repossessed assets         9,177    9,250    8,852   10,062    9,615
 ---------------------------------------------------------------------
 Total nonperforming
  assets                   $57,000  $44,439  $35,762  $42,680  $36,869
 ---------------------------------------------------------------------

 Summary of Loan Loss Experience (Unaudited)
 Chemical Financial Corporation
                                          Three Months Ended
 ---------------------------------------------------------------------
                         June 30  March 31  Dec. 31  Sept. 30  June 30
 (Dollars in thousands)    2007     2007     2006      2006      2006
 ---------------------------------------------------------------------
 Allowance for loan
  losses at beginning
  of period              $35,016  $34,098   $35,348  $33,638   $34,154
 Loans charged off:
  Commercial                (435)    (429)   (1,056)     (52)     (244)
  Real estate commercial    (186)     (74)     (964)      --      (600)
  Real estate construction  (221)     (67)   (1,201)      --        --
  Real estate residential    (96)     (18)     (108)    (101)     (109)
  Consumer                  (488)    (350)     (677)    (475)     (344)
 ---------------------------------------------------------------------
  Total loan charge-offs  (1,426)    (938)   (4,006)    (628)   (1,297)
 Recoveries of loans
  previously charged off:
   Commercial                 42       99        52       58       138
   Real estate commercial     --        1         1        2         1
   Real estate residential     1        1        --        1        97
   Consumer                  121      130       113      127       145
 ---------------------------------------------------------------------
   Total loan recoveries     164      231       166      188       381
 ---------------------------------------------------------------------
   Net loan charge-offs   (1,262)    (707)   (3,840)    (440)     (916)
 Provision for loan
  losses                   2,500    1,625     2,590    1,750       400
 Allowance of branches
  acquired                    --       --        --      400        --
 ---------------------------------------------------------------------
 Allowance for loan
  losses at end of
  period                 $36,254  $35,016   $34,098  $35,348   $33,638
 ---------------------------------------------------------------------


 Selected Quarterly Information (Unaudited)
 Chemical Financial Corporation

 (In thousands, except per share data)

                       2nd Qtr.  1st Qtr.  4th Qtr.  3rd Qtr.  2nd Qtr.
                        2007       2007      2006      2006      2006
 ---------------------------------------------------------------------
 Summary of Operations
 Interest income       $57,086   $55,925   $56,199   $55,556   $53,391
 Interest expense       24,666    24,151    23,510    22,817    20,174
 Net interest income    32,420    31,774    32,689    32,739    33,217
 Provision for loan
  losses                 2,500     1,625     2,590     1,750       400
 Net interest income
  after provision for
  loan losses           29,920    30,149    30,099    30,989    32,817
 Noninterest income     11,356    10,043     9,901     9,896    10,518
 Noninterest expense    27,221    26,758    23,481    24,196    25,076
 Income taxes            4,543     4,393     5,291     5,199     6,030
 Net income            $ 9,512   $ 9,041   $11,228   $11,490   $12,229
 ---------------------------------------------------------------------
 Per Common Share Data
 Net income:
   Basic               $  0.39   $  0.36   $  0.45   $  0.46   $  0.49
   Diluted                0.39      0.36      0.45      0.46      0.49
 Cash dividends          0.285     0.285     0.275     0.275     0.275
 Book value              20.79     20.86     20.46     20.70     20.32
CONTACT: Chemical Financial Corporation
         Lori A. Gwizdala, CFO
         989-839-5358