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Chemical Financial Corporation Reports First Quarter 2009 Earnings

Company Release - 4/20/2009 7:45 AM ET

MIDLAND, Mich., April 20, 2009 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2009 first quarter net income of $2.7 million, or $0.11 per diluted share, versus net income of $9.7 million, or $0.41 per diluted share, in the first quarter of 2008.

"The decline in first quarter earnings was due in large part to credit quality issues and an increased provision for loan losses. Michigan's economy continued to have an adverse effect on our loan portfolio, resulting in charge-offs of $8.5 million and an increase in our allowance for loan losses of an additional $5.5 million, bringing the total provision for loan losses in the first quarter to $14.0 million," said David B. Ramaker, Chairman, President and Chief Executive Officer.

"In addition, loan collection expenses and costs related to our nonperforming assets were $2.2 million, up $0.7 million compared to the first quarter of 2008. Also, FDIC insurance premiums were $1.2 million for the quarter, an increase of $1.1 million, compared to last year's first quarter. These increases negatively impacted our efforts to control overall operating expense growth," said Ramaker. "Notwithstanding these factors, we did report a profit for the quarter."

"We experienced solid loan and deposit growth over the past twelve months, despite the depressed economic conditions nationally and locally. We believe that our business model, embodied by our community banking strategy, coupled with our financial strength have left Chemical Financial relatively well positioned to take advantage of opportunities that may arise in the markets we serve," added Ramaker.

Net interest income was $36.6 million in the first quarter of 2009, an increase of $2.2 million, or 6.4 percent, from first quarter 2008 net interest income of $34.4 million. The increase in net interest income was attributable to both an increase in net interest margin and growth in the balance sheet. The net interest margin (on a tax-equivalent basis) in the first quarter of 2009 was 4.06 percent, down from 4.38 percent in the fourth quarter of 2008, but up from 3.94 percent in the first quarter of 2008. The increase in net interest margin from the prior year's first quarter was primarily attributable to decreases in rates paid on interest-bearing liabilities exceeding decreases in rates earned on interest-earning assets. The decrease in net interest margin from the fourth quarter of 2008 was primarily attributable to the average yield on loans and investments decreasing more than the average cost of interest-bearing deposits.

Total assets were $3.98 billion at March 31, 2009, up from $3.87 billion at December 31, 2008 and $3.80 billion at March 31, 2008. At March 31, 2009, total loans were $2.95 billion, compared to $2.98 billion at December 31, 2008 and $2.78 billion at March 31, 2008. Investment securities were $610 million at March 31, 2009, up from $547 million at December 31, 2008 and $580 million at March 31, 2008.

Total deposits were $3.10 billion at March 31, 2009, up $126 million, or 4.2%, from $2.98 billion at December 31, 2008 and up $152 million, or 5.2%, from $2.95 billion at March 31, 2008. The Company experienced growth in core business and consumer deposits during the twelve months ended March 31, 2009. The Company maintained these new funds largely in interest-bearing balances at the Federal Reserve Bank, thereby further enhancing the Company's liquidity position. Federal Home Loan Bank advances totaled $125 million at March 31, 2009, compared to $135 million at December 31, 2008 and $130 million at March 31, 2008.

The provision for loan losses was $14.0 million in the first quarter of 2009, compared to $18.0 million in the fourth quarter of 2008 and $2.7 million in the first quarter of 2008. Net loan charge-offs were $8.5 million in the first quarter of 2009, up from $7.4 million in the fourth quarter of 2008 and up substantially from $2.5 million in the first quarter of 2008. The increase in the provision for loan losses in the first quarter of 2009, as compared to the first quarter of 2008, was primarily reflective of increased loan charge-offs coupled with continued deterioration in credit quality. The allowance for loan losses of $62.6 million at March 31, 2009 was 2.12 percent of total loans, up from 1.91 percent of total loans at December 31, 2008 and up significantly from 1.42 percent of total loans at March 31, 2008. At March 31, 2009, nonperforming loans as a percentage of total loans were 3.56 percent, up from 3.13 percent at December 31, 2008 and from 2.58 percent at March 31, 2008.

At March 31, 2009, nonperforming assets totaled $125.7 million, up from $113.3 million at December 31, 2008 and up from $84.6 million at March 31, 2008. The increase in nonperforming assets from the previous quarter's end was due primarily to increases in nonaccrual real estate commercial loans and real estate construction loans. At March 31, 2009, the Company's nonperforming assets included $94.7 million in nonaccrual loans, $10.3 million in accruing loans contractually past due 90 days or more as to interest or principal payments and $20.7 million of other real estate and repossessed assets.

Total noninterest income was $9.9 million in the first quarter of 2009, up slightly from $9.6 million in the first quarter of 2008. Increases in mortgage banking revenue and other charges and fees for customer services were partially offset by a decrease in service charges on deposit accounts and trust and investment services revenue.

Operating expenses of $29.2 million in the first quarter of 2009 were up $2.4 million, or 8.8 percent, from the first quarter of 2008, with the increases in credit-related operating expenses and FDIC insurance premiums primarily responsible for the increase. The Company's first quarter 2009 efficiency ratio of 62.0 percent was up from 58.7 percent in the fourth quarter of 2008 and 60.3 percent in the first quarter of 2008.

The Company's return on average assets during the first quarter of 2009 was 0.28 percent, up modestly from 0.17 percent in the fourth quarter of 2008 and down from 1.03 percent in the first quarter of 2008. At March 31, 2009, the Company's book value stood at $20.40 per share, versus $20.58 per share at December 31, 2008 and $21.60 per share at March 31, 2008. The decrease in net income resulted in a decrease in return on average equity to 2.3 percent in the first quarter of 2009 from 7.7 percent in the first quarter of 2008.

This morning, April 20, 2009, the Board announced the declaration of the second quarter 2009 cash dividend of $0.295 per share, the same as the prior quarter's dividend level.

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, 2009, the Company had total assets of $3.98 billion. Chemical Financial Corporation's common stock trades on The Nasdaq Stock Market under the symbol CHFC and is one of the issues comprising the Nasdaq Global Select Market.

SAFE HARBOR STATEMENT

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. Management's determination of the provision and allowance for loan losses involves judgments that are inherently forward-looking. 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, 2008; 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.



               Chemical Financial Corporation Announces
                    First Quarter Operating Results


 Consolidated Statements of Financial Position (Unaudited)
 Chemical Financial Corporation


 (In thousands, except per          March 31      Dec. 31    March 31
  share data)                         2009         2008        2008
                                   ----------   ----------  ----------
 Assets:
 Cash and cash equivalents:
   Cash and cash due from banks    $   83,976   $  168,650  $   93,063
   Federal funds sold                      --           --     135,000
   Interest-bearing deposits
     with unaffiliated banks
     and others                       142,184        4,572      34,066
                                   ----------   ----------  ----------
     Total Cash and Cash
      Equivalents                     226,160      173,222     262,129
 Investment securities:
   Available-for-sale                 501,594      449,947     490,950
   Held-to-maturity                   108,600       97,511      88,659
                                   ----------   ----------  ----------
     Total Investment Securities      610,194      547,458     579,609

 Other securities                      22,128       22,128      22,142

 Loans held for sale                   28,336        8,463      10,792

 Loans:
   Commercial                         563,118      587,554     527,514
   Real estate commercial             784,475      786,404     764,768
   Real estate construction           112,102      119,001     128,878
   Real estate residential            809,262      839,555     817,348
   Consumer                           682,632      649,163     546,486
                                   ----------   ----------  ----------
     Total Loans                    2,951,589    2,981,677   2,784,994
   Allowance for loan losses         (62,562)     (57,056)    (39,662)
                                   ----------   ----------  ----------
     Net Loans                      2,889,027    2,924,621   2,745,332


 Premises and equipment                52,914       53,036      49,339

 Goodwill                              69,908       69,908      69,908

 Other intangible assets                5,224        5,241       6,342

 Interest receivable and other
   assets                              71,860       70,236      53,705
                                   ----------   ----------  ----------
     Total Assets                  $3,975,751   $3,874,313  $3,799,298
                                   ==========   ==========  ==========

 Liabilities:
 Deposits:
   Noninterest-bearing             $  526,343   $  524,464  $  519,405
   Interest-bearing                 2,578,193    2,454,328   2,432,994
                                   ----------   ----------  ----------
     Total Deposits                 3,104,536    2,978,792   2,952,399

 Interest payable and other
   liabilities                         37,573       35,214      24,274

 Short-term borrowings                221,247      233,738     178,000

 Federal Home Loan Bank
   advances - long-term               125,025      135,025     130,049
                                   ----------   ----------  ----------
     Total Liabilities              3,488,381    3,382,769   3,284,722

 Shareholders' Equity:
   Common stock, $1 par value
     per share                         23,890       23,881      23,823
   Surplus                            347,264      346,916     344,935
   Retained earnings                  129,249      133,578     144,510
   Accumulated other
     comprehensive income (loss)     (13,033)     (12,831)       1,308
                                   ----------   ----------  ----------
     Total Shareholders' Equity       487,370      491,544     514,576
                                   ----------   ----------  ----------
     Total Liabilities and
      Shareholders' Equity         $3,975,751   $3,874,313  $3,799,298
                                   ==========   ==========  ==========


                Chemical Financial Corporation Announces
                    First Quarter Operating Results


 Consolidated Statements of Income (Unaudited)
 Chemical Financial Corporation

                                                  Three Months Ended
                                                        March 31
                                                 ---------------------
 (In thousands, except per share data)             2009         2008
                                                 --------     --------
 Interest Income:
 Interest and fees on loans                      $ 42,793     $ 45,570
 Interest on investment securities:
   Taxable                                          4,502        5,839
   Tax-exempt                                         777          695
 Dividends on other securities                        163          194
 Interest on federal funds sold                        --        1,018
 Interest on deposits with unaffiliated
  banks and others                                     87          121
                                                 --------     --------
   Total Interest Income                           48,322       53,437

 Interest Expense:
 Interest on deposits                              10,167       16,327
 Interest on short-term borrowings                    233          959
 Interest on Federal Home Loan Bank
  advances - long-term                              1,332        1,765
                                                 --------     --------
   Total Interest Expense                          11,732       19,051
                                                 --------     --------
   Net Interest Income                             36,590       34,386
 Provision for loan losses                         14,000        2,700
                                                 --------     --------
   Net Interest Income after
     Provision for Loan Losses                     22,590       31,686

 Noninterest Income:
 Service charges on deposit accounts                4,475        4,774
 Trust and investment services revenue              2,375        2,654
 Other charges and fees for customer
  services                                          1,801        1,596
 Mortgage banking revenue                           1,150          536
 Other                                                 56           20
                                                 --------     --------
   Total Noninterest Income                         9,857        9,580

 Operating Expenses:
 Salaries, wages and employee benefits             15,417       14,479
 Occupancy                                          2,707        2,770
 Equipment                                          2,342        2,187
 Other                                              8,739        7,408
                                                 --------     --------
   Total Operating Expenses                        29,205       26,844
                                                 --------     --------
 Income Before Income Taxes                         3,242       14,422
   Federal Income Tax Expense                         524        4,751
                                                 --------     --------
 Net Income                                      $  2,718     $  9,671
                                                 ========     ========

 Net income per share:
   Basic                                         $   0.11     $   0.41
   Diluted                                           0.11         0.41


 Cash dividends per share                           0.295        0.295

 Average shares outstanding:
   Basic                                           23,890       23,823
   Diluted                                         23,900       23,827


                 Chemical Financial Corporation Announces
                     First Quarter Operating Results


 Financial Summary (Unaudited)
 Chemical Financial Corporation

                                                Three Months Ended
                                                     March 31
                                              ------------------------
  (Dollars in thousands)                          2009        2008
                                              -----------  -----------
 Average Balances

 Total assets                                 $ 3,927,103  $ 3,790,841
 Total interest-earning assets                  3,698,726    3,561,603
 Total loans                                    2,960,977    2,788,223
 Total deposits                                 3,047,112    2,933,028
 Total interest-bearing liabilities             2,884,681    2,737,096
 Total shareholders' equity                       488,095      508,231


                                                   Three Months Ended
                                                        March 31
                                              ------------------------
                                                   2009         2008
                                              -----------  -----------
 Key Ratios (annualized where applicable)

 Net interest margin (taxable equivalent
  basis)                                            4.06%        3.94%
 Efficiency ratio                                   62.0%        60.3%
 Return on average assets                           0.28%        1.03%
 Return on average shareholders' equity              2.3%         7.7%
 Average shareholders' equity as a
  percent of average assets                         12.4%        13.4%
 Tangible shareholders' equity as a
  percent of total assets                           10.6%        11.8%
 Total risk-based capital ratio                     16.2%        17.4%


                          March 31  Dec 31  Sept 30  June 30  March 31
                            2009     2008    2008      2008     2008
                          -------- -------- -------- -------- --------
 Credit Quality
  Statistics

 Nonaccrual loans         $ 94,737 $ 76,466 $ 69,719 $ 61,635 $ 61,360
 Loans 90 or more days
  past due and still
  accruing                  10,240   16,862   13,012   10,288   10,570
 Total nonperforming
  loans                    104,977   93,328   82,731   71,923   71,930
 Repossessed
  assets (RA)               20,688   19,923   15,699   15,897   12,664
 Total nonperforming
  assets                   125,665  113,251   98,430   87,820   84,594
 Net loan charge-offs
  (year-to-date)             8,494   31,566   24,210    8,958    2,460

 Allowance for loan
  losses as a percent
  of total loans             2.12%    1.91%    1.58%    1.39%    1.42%
 Allowance for loan losses
  as a percent of
  nonperforming loans          60%      61%      56%      55%      55%
 Nonperforming loans as a
  percent of total loans     3.56%    3.13%    2.83%    2.52%    2.58%
 Nonperforming assets as a
  percent of total loans
  plus RA                    4.23%    3.77%    3.34%    3.06%    3.02%
 Nonperforming assets as a
  percent of total assets    3.16%    2.92%    2.60%    2.35%    2.23%
 Net loan charge-offs as a
  percent of average loans
  (year-to-date,
  annualized)                1.15%    1.10%    1.14%    0.64%    0.35%


                           March 31  Dec 31  Sept 30  June 30 March 31
                            2009      2008     2008    2008     2008
                          -------- -------- -------- -------- --------
 Additional Data -
 Intangibles

 Goodwill                 $ 69,908 $ 69,908 $ 69,908 $ 69,908 $ 69,908
 Core deposit intangibles    2,847    3,050    3,266    3,609    4,062
 Mortgage servicing
  rights (MSR)               2,377    2,191    2,328    2,354    2,280
 Amortization of core
  deposit intangibles
  (quarter only)               203      216      343      453      531


               Chemical Financial Corporation Announces
                   First Quarter Operating Results


 Nonperforming Assets (Unaudited)
 Chemical Financial Corporation

                          March 31  Dec 31  Sept 30  June 30  March 31
 (Dollars in thousands)     2009     2008     2008     2008     2008
                          -------- -------- -------- -------- --------
 Nonaccrual loans:
  Commercial              $ 16,419 $ 16,324  $13,320  $10,918  $11,595
  Real estate commercial    41,826   27,344   24,230   17,915   19,235
  Real estate
   construction             18,504   15,310   14,513   15,157   17,206
  Real estate residential   12,803   12,175   12,869   11,955    9,267
  Consumer                   5,185    5,313    4,787    5,690    4,057
                          -------- -------- -------- -------- --------
  Total nonaccrual loans    94,737   76,466   69,719   61,635   61,360
 Accruing loans
  contractually past due
  90 days or more as to
  interest or principal
  payments:
   Commercial                2,581    1,652    1,735    3,130    1,631
   Real estate commercial    4,352    9,995    6,586    2,948    2,865
   Real estate
    construction               538      759    1,096      676      392
   Real estate
    residential              1,699    3,369    2,910    2,746    4,742
   Consumer                  1,070    1,087      685      788      940
                          -------- -------- -------- -------- --------
   Total accruing loans
    contractually past
    due 90 days or more
    as to interest or
    principal payments      10,240   16,862   13,012   10,288   10,570
                          -------- -------- -------- -------- --------
 Total nonperforming
  loans                    104,977   93,328   82,731   71,923   71,930
 Other real estate and
  repossessed assets        20,688   19,923   15,699   15,897   12,664
                          -------- -------- -------- -------- --------
 Total nonperforming
  assets                  $125,665 $113,251  $98,430  $87,820  $84,594
                          ======== ======== ======== ======== ========


               Chemical Financial Corporation Announces
                   First Quarter Operating Results


 Summary of Loan Loss Experience (Unaudited)
 Chemical Financial Corporation

                                       Three Months Ended
                          --------------------------------------------
                          March 31  Dec 31  Sept 30  June 30  March 31
 (Dollars in thousands)     2009     2008     2008     2008     2008
                          -------- -------- -------- -------- --------
 Allowance for loan
  losses at beginning
  of period               $ 57,056 $ 46,412 $ 39,664 $ 39,662 $ 39,422
 Provision for loan
  losses                    14,000   18,000   22,000    6,500    2,700

 Loans charged off:
   Commercial              (3,290)  (3,254) (11,468)  (1,474)    (591)
   Real estate
    commercial             (2,589)  (1,645)    (673)  (3,373)  (1,304)
   Real estate
    construction           (1,700)    (954)    (923)  (1,070)     (16)
   Real estate
     residential             (235)  (1,106)    (749)    (358)    (245)
   Consumer                (1,253)  (1,811)  (1,776)    (612)    (540)
                          -------- -------- -------- -------- --------
   Total loan
    charge-offs            (9,067)  (8,770) (15,589)  (6,887)  (2,696)
 Recoveries of loans
  previously charged
  off:
   Commercial                  205    1,094       74      228       77
   Real estate
    commercial                  87       11       68       32       20
   Real estate
    construction                --       --       --       --       29
   Real estate
    residential                 82       83       50        5       22
   Consumer                    199      226      145      124       88
                          -------- -------- -------- -------- --------
   Total loan recoveries       573    1,414      337      389      236
                          -------- -------- -------- -------- --------
   Net loan charge-offs    (8,494)  (7,356) (15,252)  (6,498)  (2,460)
                          -------- -------- -------- -------- --------
 Allowance for loan
  losses at end of
  period                  $ 62,562 $ 57,056 $ 46,412 $ 39,664 $ 39,662
                          -------- -------- -------- -------- --------


               Chemical Financial Corporation Announces
                   First Quarter Operating Results


 Selected Quarterly Information (Unaudited)
 Chemical Financial Corporation

                            1st      4th      3rd       2nd     1st
 (In thousands, except      Qtr.     Qtr.     Qtr.      Qtr.    Qtr.
  per share data)           2009     2008     2008      2008    2008
                         -------- --------  -------- -------- --------
 Summary of Operations

 Interest income         $ 48,322 $ 51,703  $ 51,688 $ 51,508 $ 53,437
 Interest expense          11,732   13,192    14,968   15,872   19,051
                         -------- --------  -------- -------- --------
 Net interest income       36,590   38,511    36,720   35,636   34,386
 Provision for loan
  losses                   14,000   18,000    22,000    6,500    2,700
                         -------- --------  -------- -------- --------
 Net interest income
  after provision for
  loan losses              22,590   20,511    14,720   29,136   31,686
 Noninterest income         9,857    9,604    10,054   11,959    9,580
 Operating expenses        29,205   28,629    26,750   26,885   26,844
                         -------- --------  -------- -------- --------
 Income (loss) before
  income taxes              3,242    1,486   (1,976)   14,210   14,422
 Federal income tax
  expense (benefit)           524    (100)     (951)    4,600    4,751
                         -------- --------  -------- -------- --------
 Net income (loss)       $  2,718 $  1,586  $(1,025) $  9,610 $  9,671
                         ======== ========  ======== ======== ========

 Per Common Share Data

 Net income (loss):
   Basic                 $   0.11 $   0.06  $ (0.04) $   0.40 $   0.41
   Diluted                   0.11     0.06    (0.04)     0.40     0.41
 Cash dividends             0.295    0.295     0.295    0.295    0.295
 Book value
  - period-end              20.40    20.58     21.19    21.58    21.60
 Market value
  - period-end              20.81    27.88     31.14    20.40    23.84
CONTACT:  Chemical Financial Corporation
          David B. Ramaker, CEO
          Lori A. Gwizdala, CFO
          989-839-5350