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Chemical Financial Corporation Reports First Quarter 2008 Earnings

Company Release - 4/21/2008 7:48 AM ET

MIDLAND, Mich., April 21, 2008 (PRIME NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2008 first quarter net income of $9.7 million, or $0.41 per diluted share, versus net income of $9.0 million, or $0.36 per diluted share, in the first quarter of 2007, resulting in an increase in net income and earnings per share of 7.0 percent and 13.9 percent, respectively.

"An increase in net interest income of $2.6 million, or 8.2 percent, more than offset an increase in the provision for loan losses, which resulted in improved net income for the first quarter of 2008. Operating expenses were also held in check, due primarily to the effects of the reorganization implemented during 2007. Although we are reasonably confident that net interest margin will further increase in 2008, as the Federal Reserve's recent rate cuts are reflected across our liability-sensitive balance sheet, the monitoring of credit quality remains a top priority," said David B. Ramaker, Chairman, Chief Executive Officer and President of Chemical Financial Corporation.

"Our balance sheet remains strong, and despite the depressed economic conditions in the United States in general and Michigan, in particular, Chemical Bank is relatively well positioned from a strategic, operating and capital perspective to take advantage of opportunities as they appear in the markets we serve," said Ramaker.

Total assets were $3.80 billion at March 31, 2008, up slightly from $3.75 billion at December 31, 2007 and down slightly from $3.82 billion at March 31, 2007. At March 31, 2008, total loans were $2.78 billion, compared to $2.80 billion at December 31, 2007 and March 31, 2007. Investment securities were $580 million at March 31, 2008, down from $595 million at December 31, 2007 and $613 million at March 31, 2007. The Company has continued to utilize excess liquidity from maturing investment securities to reduce Federal Home Loan Bank advances.

Total deposits were $2.95 billion at March 31, 2008, up slightly from $2.88 billion at December 31, 2007 and unchanged from $2.95 billion at March 31, 2007. Federal Home Loan Bank advances, both short-term and long-term, totaled $130 million at March 31, 2008, compared to $150 million at December 31, 2007 and $165 million at March 31, 2007.

Net interest income was $34.4 million in the first quarter of 2008, an increase of $2.6 million, or 8.2 percent, from first quarter 2007 net interest income of $31.8 million. The increase in net interest income was attributable primarily to an increase in net interest margin. The net interest margin (on a tax-equivalent basis) in the first quarter of 2008 was 3.94 percent, up from 3.86 percent in the fourth quarter of 2007 and 3.62 percent in the first quarter of 2007. The increase in net interest margin was primarily attributable to decreases in rates paid on interest-bearing liabilities exceeding decreases in rates earned on interest-earning assets. The Company benefited from declines in short-term interest rates in 2007 and will benefit further from the Federal Reserve's 2008 rate cuts.

The provision for loan losses was $2.7 million in the first quarter of 2008, compared to $4.5 million in the fourth quarter of 2007 and $1.6 million in the first quarter of 2007. Net loan charge-offs were $2.5 million in the first quarter of 2008, down from $3.4 million in the fourth quarter of 2007 but up substantially from $0.7 million in the first quarter of 2007. The increase in the provision for loan losses in the first quarter of 2008, as compared to the first quarter of 2007, was primarily reflective of increased loan charge-offs coupled with a general deterioration in credit quality, attributable, in part, to the continuing recessionary Michigan economy. The allowance for loan losses of $39.7 million at March 31, 2008 was 1.42 percent of total loans, up from 1.41 percent of total loans at December 31, 2007 and up significantly from 1.25 percent of total loans at March 31, 2007. At March 31, 2008, nonperforming loans as a percentage of total loans were 2.58 percent, up from 2.26 percent at December 31, 2007 and from 1.26 percent at March 31, 2007.

At March 31, 2008, nonperforming assets totaled $84.6 million, up from $74.5 million at December 31, 2007 and up from $44.4 million at March 31, 2007. The $10.1 million increase in nonperforming assets from the previous quarter's end was due primarily to increases in nonaccrual real estate construction loans and accruing real estate residential loans past due 90 days or more as to interest or principal payments. At March 31, 2008, the Company's nonperforming assets included $61.3 million in nonaccrual loans, $10.6 million in accruing loans contractually past due 90 days or more as to interest or principal payments and $12.7 million of other real estate and repossessed assets.

Total noninterest income was $9.6 million in the first quarter of 2008, down from $10.0 million in the first quarter of 2007. The Corporation experienced a slight decrease in a number of categories of noninterest income that was partially offset by a modest increase in mortgage banking revenue.

Operating expenses of $26.8 million in the first quarter of 2008 were up only $0.1 million, or 0.4 percent, from the first quarter of 2007, due primarily to increases in occupancy, equipment and other expense being almost entirely offset by a decline in salaries, wages and employee benefits expense. The Corporation's loan and collection costs, including other real estate writedowns (included in "other" operating expenses), were $1.0 million higher in the first quarter of 2008, as compared to the first quarter of 2007. These higher expenses were offset by decreases in professional fees, consulting fees, state taxes and advertising expenditures. The Company's first quarter 2008 efficiency ratio of 60.3 percent was up from 56.9 percent in the fourth quarter of 2007 and down from 63.1 percent in the first quarter of 2007.

The Company's return on average assets during the first quarter of 2008 was 1.03 percent, down slightly from 1.04 percent in the fourth quarter of 2007 and up from 0.97 percent in the first quarter of 2007. At March 31, 2008, the Company's book value stood at $21.60 per share, versus $21.35 per share at December 31, 2007 and $20.86 per share at March 31, 2007. The increase in net income resulted in an increase in return on average equity to 7.7 percent in the first quarter of 2008 from 7.2 percent in the first quarter of 2007.

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 March 31, 2008, the Company had total assets of $3.80 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 report 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 Chemical Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 2007, 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 fully or at all or within expected time frames; the local and global effects of the ongoing war on terrorism and other military actions, including actions in Iraq; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about credit availability and concerns about the Michigan economy in particular. 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)

                                      March 31  December 31   March 31
                                        2008        2007        2007
 ---------------------------------------------------------------------
 Assets:
 Cash and cash equivalents:
  Cash and cash due from banks      $   93,063  $  125,285  $   88,116
  Federal funds sold                   135,000      58,000     138,000
  Interest-bearing deposits with
   unaffiliated banks                   34,066       6,228       5,210
                                    ----------  ----------  ----------
    Total cash and cash equivalents    262,129     189,513     231,326
 Investment securities:
  Available for sale                   491,452     503,271     520,892
  Held to maturity                      88,157      91,243      92,198
                                    ----------  ----------  ----------
    Total investment securities        579,609     594,514     613,090
 Other securities                       22,142      22,135      22,131
 Loans held for sale                    10,792       7,883       7,005

 Loans:
  Commercial                           537,127     525,894     558,190
  Real estate commercial               743,394     747,400     727,650
  Real estate construction             140,639     137,252     137,605
  Real estate residential              817,348     838,545     833,580
  Consumer                             546,486     550,343     541,774
                                    ----------  ----------  ----------
    Total Loans                      2,784,994   2,799,434   2,798,799
 Allowance for loan losses             (39,662)    (39,422)    (35,016)
                                    ----------  ----------  ----------
    Net Loans                        2,745,332   2,760,012   2,763,783

 Premises and equipment                 49,339      49,930      49,442
 Goodwill                               69,908      69,908      69,908
 Other intangible assets                 6,342       6,876       8,185
 Interest receivable and
  other assets                          53,705      53,542      52,623
                                    ----------  ----------  ----------
    Total Assets                    $3,799,298  $3,754,313  $3,817,493
                                    ==========  ==========  ==========

 Liabilities:
 Deposits:
  Noninterest-bearing               $  519,405  $  535,705  $  519,984
  Interest-bearing                   2,432,994   2,339,884   2,432,051
                                    ----------  ----------  ----------
    Total Deposits                   2,952,399   2,875,589   2,952,035
 Interest payable and other
  liabilities                           24,274      22,848      24,672
 Short-term borrowings                 178,000     197,363     178,067
 Federal Home Loan Bank
  advances - long-term                 130,049     150,049     145,072
                                    ----------  ----------  ----------
    Total Liabilities                3,284,722   3,245,849   3,299,846

 Shareholders' Equity:
  Common stock, $1 par value
   per share                            23,823      23,815      24,814
  Surplus                              344,935     344,579     368,198
  Retained earnings                    144,510     141,867     132,532
  Accumulated other comprehensive
   gain/(loss)                           1,308      (1,797)     (7,897)
                                    ----------  ----------  ----------
    Total Shareholders' Equity         514,576     508,464     517,647
                                    ----------  ----------  ----------
    Total Liabilities and
     Shareholders' Equity           $3,799,298  $3,754,313  $3,817,493
                                    ==========  ==========  ==========

 Consolidated Statements of Income (Unaudited)
 Chemical Financial Corporation

                                                   Three Months Ended
                                                        March 31
 (In thousands, except per share data)               2008      2007
 ---------------------------------------------------------------------
 Interest Income:
 Interest and fees on loans                        $45,570   $47,366
 Interest on investment securities:
     Taxable                                         5,839     6,135
     Tax-exempt                                        695       664
 Dividends on other securities                         194       216
 Interest on federal funds sold                      1,018     1,445
 Interest on deposits with unaffiliated banks          121        99
                                                   -------   -------
       Total Interest Income                        53,437    55,925

 Interest Expense:
 Interest on deposits                               16,327    20,336
 Interest on short-term borrowings                     959     1,908
 Interest on Federal Home Loan Bank
  advances - long-term                               1,765     1,907
                                                   -------   -------
       Total Interest Expense                       19,051    24,151
                                                   -------   -------
       Net Interest Income                          34,386    31,774
 Provision for loan losses                           2,700     1,625
                                                   -------   -------
       Net Interest Income after
             Provision for Loan Losses              31,686    30,149

 Noninterest Income:
 Service charges on deposit accounts                 4,774     4,968
 Trust and investment services revenue               2,027     2,100
 Other charges and fees for customer services        2,223     2,442
 Mortgage banking revenue                              536       442
 Investment securities gains                            --         4
 Other                                                  20        55
                                                   -------   -------
       Total Noninterest Income                      9,580    10,011

 Operating Expenses:
 Salaries, wages and employee benefits              14,479    14,739
 Occupancy                                           2,770     2,589
 Equipment                                           2,187     2,149
 Other                                               7,408     7,249
                                                   -------   -------
       Total Operating Expenses                     26,844    26,726
                                                   -------   -------
 Income Before Income Taxes                         14,422    13,434
       Provision for federal income taxes            4,751     4,393
                                                   -------   -------
 Net Income                                        $ 9,671   $ 9,041
                                                   =======   =======

 Net income per share:
     Basic                                         $  0.41   $  0.36
     Diluted                                          0.41      0.36

 Cash dividends per share                          $ 0.295   $ 0.285

 Average shares outstanding:
     Basic                                          23,823    24,833
     Diluted                                        23,827    24,849



 Financial Summary (Unaudited)
 Chemical Financial Corporation

                                                  Three Months Ended
                                                        March 31
 (Dollars in thousands)                            2008         2007
 ---------------------------------------------------------------------
 Average Balances
 Total assets                                 $ 3,790,841  $ 3,788,768
 Total interest-earning assets                  3,561,603    3,553,874
 Total loans                                    2,798,949    2,798,614
 Total deposits                                 2,933,028    2,919,599
 Total interest-bearing liabilities             2,737,096    2,728,103
 Total shareholders' equity                       508,231      511,317

 Key Ratios (annualized where applicable)
 Net interest margin (taxable equivalent basis)      3.94%        3.62%
 Efficiency ratio                                    60.3%        63.1%
 Return on average assets                            1.03%        0.97%
 Return on average shareholders' equity               7.7%         7.2%
 Average shareholders' equity as a
  percent of average assets                          13.4%        13.5%
 Tangible shareholders' equity as a
  percent of total assets                            11.8%        11.8%
 Total risk-based capital ratio                      17.4%        17.8%

                       March 31  Dec. 31  Sept. 30   June 30   March 31
                         2008      2007      2007      2007      2007
 ---------------------------------------------------------------------
 Credit Quality
  Statistics

 Nonaccrual loans      $61,360   $55,596   $40,341   $36,119   $28,748
 Loans 90 or more days
  past due and still
  accruing              10,570     7,764    13,282    11,704     6,441
 Total nonperforming
  loans                 71,930    63,360    53,623    47,823    35,189
 Repossessed assets
  (RA)                  12,664    11,132     9,164     9,177     9,250
 Total nonperforming
  assets                84,594    74,492    62,787    57,000    44,439
 Net loan charge-offs
  (year-to-date)         2,460     6,176     2,737     1,969       707

 Allowance for loan
  losses as a percent
  of total loans          1.42%     1.41%     1.36%     1.30%     1.25%
 Allowance for loan
  losses as a percent
  of nonperforming loans    55%       62%       72%       76%      100%
 Nonperforming loans as
  a percent of total
  loans                   2.58%     2.26%     1.90%     1.71%     1.26%
 Nonperforming assets as
  a percent of total
  loans plus RA           3.02%     2.65%     2.22%     2.03%     1.58%
 Nonperforming assets as
  a percent of total
  assets                  2.23%     1.98%     1.64%     1.51%     1.16%
 Net loan charge-offs as
  a percent of average
  loans (year-to-date,
  annualized)             0.35%     0.22%     0.13%     0.14%     0.10%

 Additional Data
  - Intangibles

 Goodwill              $69,908   $69,908   $69,908   $69,908   $69,908
 Core deposit
  intangibles            4,062     4,593     5,024     5,455     5,886
 Mortgage servicing
  rights (MSR)           2,280     2,283     2,300     2,302     2,299
 Amortization of core
  deposit intangibles
 (quarter only)            531       431       431       430       494


 Nonperforming Assets (Unaudited)
 Chemical Financial Corporation

 (Dollars in thousands)

                     March 31  Dec. 31   Sept. 30   June 30   March 31
                       2008      2007      2007       2007      2007
 ---------------------------------------------------------------------
 Nonaccrual loans:
  Commercial          $11,595   $10,961   $ 6,735   $ 5,810   $ 4,891
  Real estate
   commercial          19,235    19,672    19,664    19,163    14,621
  Real estate
   construction        17,206    12,979     4,573     4,483     3,283
  Real estate
   residential          9,267     8,516     7,244     4,967     4,660
  Consumer              4,057     3,468     2,125     1,696     1,293
 ---------------------------------------------------------------------
   Total nonaccrual
    loans              61,360    55,596    40,341    36,119    28,748

 Accruing loans
  contractually past
  due 90 days or more
  as to interest or
  principal payments:
   Commercial           1,631     1,958     1,867     1,564     2,030
   Real estate
    commercial          2,865     4,170     5,367     5,561     2,342
   Real estate
    construction          392        --     1,076       884        --
   Real estate
    residential         4,742     1,470     3,918     2,352     1,350
   Consumer               940       166     1,054     1,343       719
 ---------------------------------------------------------------------
    Total accruing
     loans contractually
     past due 90 days or
     more as to interest
     or principal
     payments          10,570     7,764    13,282    11,704     6,441
 ---------------------------------------------------------------------
 Total nonper-
  forming loans        71,930    63,360    53,623    47,823    35,189
 Other real
  estate and
  repossessed assets   12,664    11,132     9,164     9,177     9,250
 ---------------------------------------------------------------------
 Total nonperforming
  assets              $84,594   $74,492   $62,787   $57,000   $44,439
 ---------------------------------------------------------------------


 Summary of Loan Loss Experience (Unaudited)
 Chemical Financial Corporation

 (Dollars in thousands)

                                   Three Months Ended
                    --------------------------------------------------
                     March 31   Dec. 31  Sept. 30   June 30   March 31
                       2008       2007     2007       2007      2007
 ---------------------------------------------------------------------
 Allowance for loan
  losses at beginning
  of period           $39,422   $38,386   $36,254   $35,016   $34,098
 Provision for loan
  losses                2,700     4,475     2,900     2,500     1,625

 Loans charged off:
  Commercial             (591)     (550)     (208)     (435)     (429)
  Real estate
   commercial          (1,304)   (1,415)       --      (186)      (74)
  Real estate
   construction           (16)     (850)     (134)     (221)      (67)
  Real estate
   residential           (245)     (306)      (64)      (96)      (18)
  Consumer               (540)     (596)     (501)     (488)     (350)
 ---------------------------------------------------------------------
   Total loan
    charge-offs        (2,696)   (3,717)     (907)   (1,426)     (938)

 Recoveries of loans
  previously charged
  off:
   Commercial              77        90        18        42        99
   Real estate
    commercial             20         1        19        --         1
   Real estate
    construction           29        30        --        --        --
   Real estate
    residential            22        12         4         1         1
   Consumer                88       145        98       121       130
 ---------------------------------------------------------------------
    Total loan
     recoveries           236       278       139       164       231
 ---------------------------------------------------------------------
    Net loan
     charge-offs       (2,460)   (3,439)     (768)   (1,262)     (707)
 ---------------------------------------------------------------------
 Allowance for loan
  losses at end of
  period              $39,662   $39,422   $38,386   $36,254   $35,016
 ---------------------------------------------------------------------


 Selected Quarterly Information (Unaudited)
 Chemical Financial Corporation

 (In thousands, except per share data)

                       1st Qtr.  4th Qtr.  3rd Qtr.  2nd Qtr.  1st Qtr.
                         2008      2007      2007      2007      2007
 ---------------------------------------------------------------------
 Summary of Operations
 Interest income       $53,437   $55,726   $57,157   $57,086   $55,925
 Interest expense       19,051    22,304    24,684    24,666    24,151
 Net interest income    34,386    33,422    32,473    32,420    31,774
 Provision for loan
  losses                 2,700     4,475     2,900     2,500     1,625
 Net interest income
  after provision
  for loan losses       31,686    28,947    29,573    29,920    30,149
 Noninterest income      9,580    10,723    11,057    11,337    10,011
 Operating expenses     26,844    25,413    25,170    27,202    26,726
 Income taxes            4,751     4,411     4,850     4,543     4,393
 Net income            $ 9,671   $ 9,846   $10,610   $ 9,512   $ 9,041

 ---------------------------------------------------------------------
 Per Common Share Data
 Net income:
   Basic               $  0.41   $  0.41   $  0.44   $  0.39   $  0.36
   Diluted                0.41      0.41      0.44      0.39      0.36
 Cash dividends          0.295     0.285     0.285     0.285     0.285
 Book value              21.60     21.35     21.04     20.79     20.86
CONTACT: Chemical Financial Corporation
         Lori A. Gwizdala, CFO
         989 839 5358