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Press Release

Chemical Financial Corporation Reports Third Quarter 2007 Earnings

Company Release - 10/22/2007 8:14 AM ET

MIDLAND, Mich., Oct. 22, 2007 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2007 third quarter net income of $10.6 million, or $0.44 per diluted share, versus net income of $11.5 million, or $0.46 per diluted share, in the third quarter of 2006.

Net income was $29.2 million, or $1.19 per diluted share, for the nine months ended September 30, 2007, compared to net income of $35.6 million, or $1.42 per diluted share, for the nine months ended September 30, 2006.

"We continue to be negatively impacted by Michigan's stagnant economy, with real estate related credit quality a growing concern given depressed real estate values in key Michigan markets. While net interest income was only slightly below that of the prior year's quarter, and approximately the same as the second quarter of 2007, a deterioration in credit quality resulted in an increase in our provision for loan losses," said David B. Ramaker, Chairman, President and Chief Executive Officer.

"We will continue to be aggressive in addressing nonperforming assets and remain committed to improving credit quality. While we anticipate little improvement in the state's economy in the short term, we are cautiously optimistic about Michigan's longer term prospects. Over the past few years, to adapt to the no-growth environment in which we are operating, we have worked to control operating costs and limit the rate of projected operating expense growth. At the same time, we continue to pursue specific growth strategies aimed at enhancing long-term shareholder value. We are encouraged by the continued progress of our retail banking reorganization and our efforts to drive revenue growth by doing more business with existing customer households," said Ramaker.

The Company's previously announced retail banking reorganization, which involves realigning its 15 community bank structure into four regions while consolidating numerous back office and support functions, is nearing completion. During the third quarter of 2007, the Company did not incur any reorganization costs, although the Company anticipates that it will incur approximately $0.5 million in expenses related to the reorganization in the fourth quarter of 2007, which would result in a total of $2.1 million of reorganization expenses in 2007. The Company projects that annual expense savings from the reorganization upon its completion will total $2.0 million.

Total assets were $3.82 billion at September 30, 2007, up slightly from $3.79 billion at December 31, 2006, and down slightly from $3.84 billion at September 30, 2006. At September 30, 2007, total loans were $2.81 billion, up slightly from December 31, 2006 and down slightly from $2.82 billion at September 30, 2006. Over the past twelve months, increases in real estate commercial and real estate residential loans have offset declines in commercial, real estate construction and consumer loans. Investment securities were $632 million at September 30, 2007, up slightly from $615 million at December 31, 2006, but down from $638 million at September 30, 2006.

Total deposits were $2.97 billion at September 30, 2007, up from $2.90 billion at December 31, 2006 and up from $2.96 billion at September 30, 2006. Wholesale borrowings, solely Federal Home Loan Bank advances, totaled $125.0 million at September 30, 2007, down $50.1 million or 28.6%, from $175.1 million at December 31, 2006 and down $55.1 million or 30.6%, from $180.1 million at September 30, 2006. The Company utilized the liquidity provided through the increase in deposits to pay off its short-term Federal Home Loan Bank advances during the past twelve months.

Net interest income was $32.47 million in the third quarter of 2007, a slight decrease from third quarter 2006 net interest income of $32.74 million, although approximately the same as net interest income of $32.42 million in the second quarter of 2007. The decrease in net interest income was attributable primarily to a decrease in net interest margin. The net interest margin (on a tax-equivalent basis) in the third quarter of 2007 was 3.68%, down from 3.74% in the third quarter of 2006, and down from 3.70% in the second quarter of 2007. The decline in net interest margin from the prior year was primarily attributable to increases in rates paid on interest-bearing liabilities exceeding increases in rates earned on interest-earning assets, as deposits repriced more than loans in the past twelve months. The decline in net interest margin from the second quarter of 2007 was primarily due to a higher level of nonperforming loans in the current quarter.

The provision for loan losses was $2.9 million in the third quarter of 2007, compared to $2.5 million in the second quarter of 2007 and $1.8 million in the third quarter of 2006. Net loan charge-offs were $0.8 million in the third quarter of 2007, down from $1.3 million in the second quarter of 2007, although up from $0.4 million in the third quarter of 2006. The increase in the provision for loan losses in the third quarter of 2007, as compared to the previous year's quarter and the second quarter of 2007, was reflective of the overall deterioration in credit quality. The increase in the provision for loan losses was primarily driven by increased specific impairment reserves of $1.3 million during the quarter and an increase in nonaccrual loans. The allowance for loan losses at September 30, 2007 was $38.4 million or 1.36% of total loans, up from 1.30% of total loans at June 30, 2007 and 1.25% at September 30, 2006.

At September 30, 2007, nonperforming assets totaled $62.8 million, up from $57.0 million at June 30, 2007, and $42.7 million at September 30, 2006. During the third quarter of 2007, the Company saw a significant increase in the level of nonperforming real estate residential loans which accounted for approximately two-thirds of the increase in nonperforming assets from June 30, 2007. At September 30, 2007, nonperforming loans were $53.6 million and represented 1.90% of total loans, up from $47.8 million or 1.71% of total loans at June 30, 2007 and $32.6 million or 1.16% of total loans at September 30, 2006. Nonperforming loans at September 30, 2007, when compared to September 30, 2006, were higher in all loan segments.

The allowance for loan losses as a percent of nonperforming loans has decreased slightly from 76% at June 30, 2007 to 72% at September 30, 2007. A portion of the Company's nonperforming loans involve specific real estate commercial loans which have been analyzed and deemed to have sufficient collateral values so as not to require allocation of the allowance for loan losses to these loans.

Noninterest income in the third quarter of 2007 was $11.1 million, up $1.2 million or 12%, from $9.9 million in the third quarter of 2006 and a decrease of $0.3 million or 2.6% from the second quarter of 2007. The increase in noninterest income over the prior year was primarily due to an increase in other income attributable to $1 million in insurance proceeds recognized in the third quarter of 2007 from fire damage of a branch building. The insurance proceeds will be utilized for capital expenditures in 2008 to remediate the fire damage.

Operating expenses in the third quarter of 2007 were $25.2 million, up from $24.2 million in the third quarter of 2006, although down from $27.2 million in the second quarter of 2007. The increase in the third quarter of this year over the prior year quarter was due primarily to a $0.4 million increase in salaries expense and a $0.4 million increase in information technology costs associated with the Company's migration from its current core processing mainframe technology to a system that has both greater capacity and flexibility. The reduction in operating expenses in the third quarter of 2007, compared to the second quarter of 2007, was attributable to $1.6 million in reorganization expenses incurred in the second quarter. The Company's efficiency ratio was 57.1% in the third quarter of 2007, down from 61.4% in the second quarter of 2007 and up slightly from 56.1% in the third quarter of 2006. Excluding reorganization expenses of $1.6 million incurred to date in 2007, operating expenses were $3.1 million, or 4.2%, higher during the first nine months of 2007 compared to the prior year.

The Company's return on average assets during the third quarter of 2007 was 1.10%, up from 1.00% in the second quarter of 2007 but down from 1.20% in the third quarter of 2006. At September 30, 2007, the Company's book value stood at $21.04 per share versus $20.70 per share at September 30, 2006. The decline in return on assets resulted in a slight decline in return on average equity to 8.4% in the third quarter of 2007 from 9.0% in the third quarter of 2006.

During the third quarter of 2007, the Company repurchased 412,500 shares of its common stock at an average price of $23.04 per share; bringing total share repurchases for the year 2007 to 885,300 shares. The Company can purchase up to 137,700 additional shares prior to seeking additional authorizations for repurchases from its Board of Directors.

Chemical Financial Corporation is the second-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 September 30, 2007, the Company had total assets of $3.82 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 amounts projected, 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.


                Chemical Financial Corporation Announces
                     Third Quarter Operating Results
 ---------------------------------------------------------------------

 Consolidated Statements of Financial Position (Unaudited)
 Chemical Financial Corporation

 (In thousands, except per       September 30 December 31 September 30
  share data)                        2007        2006        2006
 ---------------------------------------------------------------------
 Assets:
 Cash and cash due from banks    $   99,465  $  135,544  $   87,430
 Federal funds sold                  88,300      49,500      86,500
 Interest-bearing deposits with
  unaffiliated banks                 15,226       5,712       5,230

 Investment securities -
  available for sale                533,611     520,867     537,449
 Investment securities - held to
  maturity                           98,342      94,564     100,980
 Other securities                    22,135      22,131      23,368

 Loans held for sale                  7,708       5,667      29,578

 Loans:
  Commercial loans                  534,503     545,591     539,349
  Real estate commercial loans      736,443     726,554     725,988
  Real estate construction loans    138,199     145,933     162,762
  Real estate residential loans     840,694     835,263     820,798
  Consumer loans                    565,140     554,319     568,935
                                 ----------  ----------  ----------
   Total Loans                    2,814,979   2,807,660   2,817,832
 Less: Allowance for loan losses     38,386      34,098      35,348
                                 ----------  ----------  ----------
   Net Loans                      2,776,593   2,773,562   2,782,484

 Premises and equipment              48,293      49,475      47,559
 Goodwill                            69,908      70,129      71,369
 Other intangible assets              7,324       8,777       9,193
 Interest receivable and other
  assets                             55,857      53,319      58,901
                                 ----------  ----------  ----------
   Total Assets                  $3,822,762  $3,789,247  $3,840,041
                                 ==========  ==========  ==========

 Liabilities:
 Noninterest-bearing deposits    $  524,522  $  551,177  $  524,373
 Interest-bearing deposits        2,442,692   2,346,908   2,432,561
                                 ----------  ----------  ----------
   Total Deposits                 2,967,214   2,898,085   2,956,934
 Interest payable and other
  liabilities                        23,285      29,235      23,288
 Short-term borrowings              203,322     208,969     196,451
 Federal Home Loan Bank advances
  - long-term                       125,049     145,072     150,072
                                 ----------  ----------  ----------
   Total Liabilities              3,318,870   3,281,361   3,326,745

 Shareholders' Equity:
  Common stock, $1 par value per
   share                             23,952      24,828      24,799
  Surplus                           347,569     368,554     367,991
  Retained earnings                 138,817     123,454     126,128
  Accumulated other comprehensive
   loss                              (6,446)     (8,950)     (5,622)
                                 ----------  ----------  ----------
   Total Shareholders' Equity       503,892     507,886     513,296
                                 ----------  ----------  ----------
   Total Liabilities and
    Shareholders' Equity         $3,822,762  $3,789,247  $3,840,041
                                 ==========  ==========  ==========


                Chemical Financial Corporation Announces
                     Third Quarter Operating Results
 ---------------------------------------------------------------------
 Consolidated Statements of Income (Unaudited)
 Chemical Financial Corporation


                              Three Months Ended     Nine Months Ended
 (In thousands, except per       September 30          September 30
  share data)                  2007       2006       2007       2006
 ---------------------------------------------------------------------
 Interest Income:
 Interest and fees on loans  $ 48,346   $ 47,843   $143,850   $137,027
 Interest on investment
  securities:
   Taxable                      6,299      6,006     18,667     18,524
   Tax-exempt                     688        661      2,018      1,892
 Dividends on other
  securities                      182        178        755        867
 Interest on federal funds
  sold                          1,433        785      4,495      2,357
 Interest on deposits with
  unaffiliated banks              209         83        383        557
                             --------   --------   --------   --------
    Total Interest Income      57,157     55,556    170,168    161,224

 Interest Expense:
 Interest on deposits          21,037     18,016     62,290     49,586
 Interest on short-term
  borrowings                    1,957      2,947      5,731      6,384
 Interest on Federal Home
  Loan Bank advances -
  long-term                     1,690      1,854      5,480      5,707
                             --------   --------   --------   --------
    Total Interest Expense     24,684     22,817     73,501     61,677
                             --------   --------   --------   --------
    Net Interest Income        32,473     32,739     96,667     99,547
 Provision for loan losses      2,900      1,750      7,025      2,610
                             --------   --------   --------   --------
    Net Interest Income
     after Provision for
     Loan Losses               29,573     30,989     89,642     96,937

 Noninterest Income:
 Service charges on deposit
  accounts                      5,039      5,308     15,243     15,761
 Trust and investment
  services revenue              2,034      1,745      6,221      5,844
 Other charges and fees for
  customer services             2,393      2,308      7,211      6,695
 Mortgage banking revenue         577        476      1,647      1,389
 Investment securities
  gains                            --         --          4         --
 Other                          1,014         59      2,130        557
                             --------   --------   --------   --------
    Total Noninterest
     Income                    11,057      9,896     32,456     30,246

 Operating Expenses:
 Salaries, wages and
  employee benefits            14,463     13,984     44,975     42,586
 Occupancy                      2,361      2,270      7,721      7,289
 Equipment                      2,228      2,169      6,913      6,702
 Other                          6,118      5,773     19,540     17,816
                             --------   --------   --------   --------
    Total Operating Expenses   25,170     24,196     79,149     74,393
                             --------   --------   --------   --------
 Income Before Income Taxes    15,460     16,689     42,949     52,790
    Provision for federal
     income taxes               4,850      5,199     13,786     17,174
                             --------   --------   --------   --------
 Net Income                  $ 10,610   $ 11,490   $ 29,163   $ 35,616
                             ========   ========   ========   ========

 Net income per share:
   Basic                     $   0.44   $   0.46   $   1.19   $   1.42
   Diluted                       0.44       0.46       1.19       1.42

 Cash dividends per share    $  0.285   $  0.275   $  0.855   $  0.825

 Average shares outstanding:
   Basic                       24,091     24,800     24,520     24,957
   Diluted                     24,098     24,829     24,532     24,992


                 Chemical Financial Corporation Announces
                     Third Quarter Operating Results
 ---------------------------------------------------------------------

 Financial Summary (Unaudited)
 Chemical Financial Corporation

                         Three Months Ended       Nine Months Ended
                            September 30            September 30
 (Dollars in thousands)   2007        2006        2007        2006
 ---------------------------------------------------------------------
 Average Balances
 Total assets          $3,812,654  $3,785,971  $3,799,670   $3,757,921
 Total interest-
  earning assets        3,576,667   3,537,591   3,565,767    3,518,028
 Total loans            2,813,746   2,807,848   2,803,141    2,745,405
 Total deposits         2,957,407   2,846,603   2,936,466    2,853,044
 Total interest-
  bearing liabilities   2,740,812   2,717,902   2,732,713    2,690,711
 Total shareholders'
  equity                  499,353     508,068     507,146      508,173


                              Three Months Ended   Nine Months Ended
                                 September 30        September 30
                                2007      2006      2007      2006
 ------------------------------------------------------------------
 Key Ratios (annualized where
  applicable)
 Net interest margin (taxable
  equivalent basis)             3.68%     3.74%     3.68%     3.81%
 Efficiency ratio               57.1%     56.1%     60.5%     56.7%
 Return on average assets       1.10%     1.20%     1.03%     1.27%
 Return on average
  shareholders' equity           8.4%      9.0%      7.7%      9.4%
 Average shareholders' equity
  as a percent of average
  assets                        13.1%     13.4%     13.3%     13.5%
 Tangible shareholders'
  equity as a percent of
  total assets                                      11.4%     11.5%
 Total risk-based capital
  ratio                                             17.1%     17.3%

            September 30  June 30   March 31  December 31 September 30
                2007       2007       2007       2006        2006
 ---------------------------------------------------------------------
 Credit
  Quality
  Statistics
 Nonaccrual
  loans        $  40,341  $  36,119 $  28,748  $  20,239   $  23,113
 Loans 90 or
  more days
  past due and
  still
  accruing        13,282     11,704     6,441      6,671       9,505
 Total
  nonperforming
  loans           53,623     47,823    35,189     26,910      32,618
 Repossessed
  assets (RA)      9,164      9,177     9,250      8,852      10,062
 Total
  nonperforming
  assets          62,787     57,000    44,439     35,762      42,680
 Net loan
  charge-offs
  (year-to-date)   2,737      1,969       707      5,650       1,810

 Allowance for
  loan losses
  as a percent
  of total
  loans             1.36%      1.30%     1.25%      1.21%       1.25%
 Allowance for
  loan losses
  as a percent
  of nonperforming
  loans               72%        76%      100%       127%        108%
 Nonperforming
  loans as a
  percent of
  total loans       1.90%      1.71%     1.26%      0.96%       1.16%
 Nonperforming
  assets as a
  percent of
  total loans
  plus RA           2.22%      2.03%     1.58%      1.27%       1.51%
 Nonperforming
  assets as a
  percent of
  total assets      1.64%      1.51%     1.16%      0.94%       1.11%
 Net loan
  charge-offs
  as a percent
  of average
  loans (year-
  to-date,
  annualized)       0.13%      0.14%     0.10%      0.20%       0.09%


              September 30  June 30  March 31 December 31 September 30
                  2007       2007      2007      2006         2006
 ---------------------------------------------------------------------
 Additional
  Data -
  Intangibles
 Goodwill      $  69,908  $  69,908  $  69,908  $  70,129  $  71,369
 Core deposits
  and other
  intangibles      5,024      5,455      5,886      6,379      6,660
 Mortgage
  servicing
  rights (MSR)     2,300      2,302      2,299      2,398      2,533
 Amortization
  of
  intangibles
  (quarter
  only)              651        665        734        857        618


                Chemical Financial Corporation Announces
                      Third Quarter Operating Results
 ---------------------------------------------------------------------
 Nonperforming Assets (Unaudited)
 Chemical Financial Corporation


 (Dollars   September 30  June 30   March 31  December 31 September 30
  in thousands) 2007        2007      2007       2006        2006
 ---------------------------------------------------------------------
 Nonaccrual
  loans:
  Commercial  $  6,735   $  5,810   $  4,891   $  4,203   $  4,124
  Real estate
   commercial   19,664     19,163     14,621      9,612     11,329
  Real estate
   construction-
   commercial    4,573      4,483      3,283      2,552      2,017
  Real estate
   residential   7,244      4,967      4,660      2,887      4,455
  Consumer       2,125      1,696      1,293        985      1,188
 ---------------------------------------------------------------------
  Total
   nonaccrual
   loans        40,341     36,119     28,748     20,239     23,113
 Accruing loans
  contractually
  past due 90
  days or more as
  to interest or
  principal
  payments:
  Commercial     1,867      1,564      2,030      1,693      3,151
  Real estate
   commercial    5,367      5,561      2,342      2,232      3,081
  Real estate
   construction-
   commercial    1,076        884         --        174         --
  Real estate
   residential   3,918      2,352      1,350      1,158      1,857
  Consumer       1,054      1,343        719      1,414      1,416
 ---------------------------------------------------------------------
  Total accruing
   loans
   contractually
   past due 90
   days or more
   as to interest
   or principal
   payments     13,282     11,704      6,441      6,671      9,505
 ---------------------------------------------------------------------
 Total
  nonperforming
  loans         53,623     47,823     35,189     26,910     32,618
 Other real
  estate and
  repossessed
  assets         9,164      9,177      9,250      8,852     10,062
 ---------------------------------------------------------------------
 Total
  non-
  performing
  assets      $ 62,787   $ 57,000   $ 44,439   $ 35,762   $ 42,680
 ---------------------------------------------------------------------


             Chemical Financial Corporation Announces
                   Third Quarter Operating Results
 ---------------------------------------------------------------------
 Summary of Loan Loss Experience (Unaudited)
 Chemical Financial Corporation

                                 Three Months Ended
            ----------------------------------------------------------
 (Dollars   September 30  June 30   March 31  December 31 September 30
  in thousands) 2007        2007      2007       2006        2006
 ---------------------------------------------------------------------
 Allowance
  for loan
  losses at
  beginning
  of period   $  36,254 $  35,016  $  34,098  $  35,348   $  33,638
 Loans charged
  off:
  Commercial       (208)     (435)      (429)    (1,056)        (52)
  Real estate
   commercial        --      (186)       (74)      (964)         --
  Real estate
   construction    (134)     (221)       (67)    (1,201)         --
  Real estate
   residential      (64)      (96)       (18)      (108)       (101)
  Consumer         (501)     (488)      (350)      (677)       (475)
 ---------------------------------------------------------------------
  Total loan
   charge-offs     (907)   (1,426)      (938)    (4,006)       (628)
 Recoveries of
  loans
  previously
  charged off:
  Commercial         18        42         99         52          58
  Real estate
   commercial        19        --          1          1           2
  Real estate
   residential        4         1          1         --           1
  Consumer           98       121        130        113         127
 ---------------------------------------------------------------------
  Total loan
   recoveries       139       164        231        166         188
 ---------------------------------------------------------------------
  Net loan
   charge-offs     (768)   (1,262)      (707)    (3,840)       (440)
 Provision for
  loan losses     2,900     2,500      1,625      2,590       1,750
 Allowance of
  branches
  acquired           --        --         --         --         400
 ---------------------------------------------------------------------
 Allowance for
  loan losses
  at end of
  period      $  38,386 $  36,254  $  35,016  $  34,098   $  35,348
 ---------------------------------------------------------------------


                 Chemical Financial Corporation Announces
                      Third Quarter Operating Results
 ---------------------------------------------------------------------

 Selected Quarterly Information (Unaudited)
 Chemical Financial Corporation


 (In thousands, except   3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
  per share data)          2007     2007     2007     2006     2006
 -------------------------------------------------------------------
 Summary of Operations
 Interest income         $57,157  $57,086  $55,925  $56,199  $55,556
 Interest expense         24,684   24,666   24,151   23,510   22,817
 Net interest income      32,473   32,420   31,774   32,689   32,739
 Provision for loan
  losses                   2,900    2,500    1,625    2,590    1,750
 Net interest income
  after provision
  for loan losses         29,573   29,920   30,149   30,099   30,989
 Noninterest income       11,057   11,356   10,043    9,901    9,896
 Noninterest expense      25,170   27,221   26,758   23,481   24,196
 Income taxes              4,850    4,543    4,393    5,291    5,199
 Net income              $10,610  $ 9,512  $ 9,041  $11,228  $11,490

 -------------------------------------------------------------------
 Per Common Share Data
 Net income:
  Basic                  $  0.44  $  0.39  $  0.36  $  0.45  $  0.46
  Diluted                   0.44     0.39     0.36     0.45     0.46
 Cash dividends            0.285    0.285    0.285    0.275    0.275
 Book value                21.04    20.79    20.86    20.46    20.70
CONTACT:  Chemical Financial Corporation
          Lori A. Gwizdala, CFO
          989-839-5358