Menu

Press Release

Chemical Financial Corporation Reports First Quarter 2010 Earnings

Company Release - 4/19/2010 8:00 AM ET

MIDLAND, Mich., April 19, 2010 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2010 first quarter net income of $2.3 million, or $0.10 per diluted share, versus net income of $2.7 million, or $0.11 per diluted share, in the first quarter of 2009.

"Reported earnings continue to be lower than desired as a result of ongoing credit quality issues as we recorded a $14.0 million quarterly provision for loan losses. Despite these challenges, we are pleased to again report a profitable quarter. In light of the ongoing struggles of the Michigan economy, we were encouraged to see decreases in consumer and residential real estate nonperforming loans, helping drive a second straight quarterly decline in nonperforming assets," said David B. Ramaker, Chairman, Chief Executive Officer and President.

"As we look to new avenues for growth, our previously announced merger with O.A.K. Financial Corporation (OAK) remains on schedule to close on April 30, 2010," said Ramaker. "We remain well-capitalized and well-positioned relative to many of our competitors to take advantage of other opportunities."

Net interest income was $36.4 million in the first quarter of 2010, down slightly from first quarter 2009 net interest income of $36.6 million. The slight decrease in net interest income was attributable to a decline in net interest margin more than offsetting increases attributable to growth in the balance sheet. The net interest margin (on a tax-equivalent basis) in the first quarter of 2010 was 3.72 percent, down from 3.77 percent in the fourth quarter of 2009 and from 4.06 percent in the first quarter of 2009. The decrease in net interest margin from the prior year's first quarter was primarily attributable to the Company's decision to enhance its liquidity position and to modestly adjust its liability sensitive position by increasing the amount of variable rate investment securities held in its investment securities portfolio.

Total assets were $4.29 billion at March 31, 2010, up from $4.25 billion at December 31, 2009 and $3.98 billion at March 31, 2009. At March 31, 2010, total loans were $2.99 billion, unchanged from December 31, 2009 and up from $2.95 billion at March 31, 2009. Investment securities were $691 million at March 31, 2010, down from $724 million at December 31, 2009 and up from $610 million at March 31, 2009.

Total deposits were $3.47 billion at March 31, 2010, up $56 million, or 1.6 percent, from $3.42 billion at December 31, 2009 and up $370 million, or 11.9 percent, from $3.10 billion at March 31, 2009. The Company experienced significant growth in core business and consumer deposits during the twelve months ended March 31, 2010. The Company maintained these new funds primarily in interest-bearing balances at the Federal Reserve Bank, thereby further enhancing the Company's liquidity position. Federal Home Loan Bank advances totaled $80 million at March 31, 2010, down from $90 million at December 31, 2009 and $125 million at March 31, 2009.

The provision for loan losses was $14.0 million in the first quarter of 2010, down from $15.6 million in the fourth quarter of 2009 and unchanged from the first quarter of 2009. Net loan charge-offs were $10.7 million in the first quarter of 2010, down from $12.3 million in the fourth quarter of 2009 and up from $8.5 million in the first quarter of 2009. The Company continues to deal with a challenging credit environment. The allowance for loan losses of $84.2 million at March 31, 2010 was 2.82 percent of total loans, up from 2.70 percent of total loans at December 31, 2009 and from 2.12 percent of total loans at March 31, 2009. At March 31, 2010, nonperforming loans as a percent of total loans were 4.35 percent, down from 4.54 percent at December 31, 2009, but up from 3.56 percent at March 31, 2009. The allowance for loan losses as a percent of nonperforming loans increased to 65 percent at March 31, 2010, compared to 60 percent at December 31, 2009 and March 31, 2009.

The Company saw a modest decline in nonperforming assets during the first quarter of 2010. At March 31, 2010, nonperforming assets totaled $148.9 million, down from $153.3 million at December 31, 2009 and up from $125.7 million at March 31, 2009. The decrease in nonperforming assets from the previous quarter's end was due primarily to declines in nonaccrual real estate residential and consumer loans. At March 31, 2010, the Company's nonperforming assets included nonaccrual loans of $100.9 million, accruing loans contractually past due 90 days or more as to interest or principal payments of $7.2 million, troubled debt restructurings of commercial and real estate residential loans of $22.0 million and other real estate and repossessed assets of $18.8 million.

Total noninterest income was $9.4 million in the first quarter of 2010, down from $9.9 million in the first quarter of 2009. Lower mortgage banking revenue was primarily responsible for the change.

Operating expenses of $29.2 million in the first quarter of 2010 were unchanged from the first quarter of 2009. Operating expenses in the first quarter of 2010 included $0.7 million of acquisition-related expenses applicable to the pending merger with OAK. Excluding these acquisition-related expenses, operating expenses were down $0.7 million, or 2.4 percent, from the first quarter of 2009. Salaries and employee benefit costs in the first quarter of 2010 were down $0.9 million, or 5.9 percent, compared to the first quarter of 2009 due primarily to lower commission-based compensation and lower health benefit costs. Credit-related operating expenses remained elevated at $1.7 million in the first quarter of 2010, although were $0.5 million lower than in the first quarter of 2009. These reductions were offset by a $0.3 million increase in FDIC insurance premiums, $0.7 million of acquisition-related expenses and $0.4 million of other increases in operating expenses. The Company's first quarter 2010 efficiency ratio of 62.4 percent was up from 59.8 percent in the fourth quarter of 2009 and up slightly from 62.0 percent in the first quarter of 2009.

The Company's return on average assets during the first quarter of 2010 was 0.22 percent, down from 0.24 percent in the fourth quarter of 2009 and 0.28 percent in the first quarter of 2009. At March 31, 2010, the Company's book value stood at $19.76 per share, versus $19.85 per share at December 31, 2009 and $20.40 per share at March 31, 2009. The decreases in book value were attributable to cash dividends paid to shareholders exceeding net income. The return on average equity declined modestly to 2.0 percent in the first quarter of 2010 from 2.3 percent in the first quarter of 2009.

Chemical Financial Corporation is the third-largest bank holding company headquartered in Michigan. The Company operates through a single subsidiary bank, Chemical Bank, with 130 banking offices spread over 32 counties in the lower peninsula of Michigan. At March 31, 2010, the Company had total assets of $4.3 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.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding Chemical Financial Corporation's (Chemical's) outlook or expectations with respect to the planned acquisition of O.A.K. Financial Corporation (OAK). Management's determination of the provision and allowance for loan losses, the carrying value of goodwill and mortgage servicing rights, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary) and management's assumptions concerning pension and other post retirement benefit plans involve judgments that are inherently forward-looking. The future effect of changes in the financial and credit markets and the national and regional economy on the banking industry, generally, and on Chemical, specifically, are also inherently uncertain. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," "plans," "projects," "predicts," variations of such words and similar expressions are intended to identify forward-looking statements. These statements reflect management's current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions ("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 undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this press release.

Risk factors include, but are not limited to, the risk factors described in Item 1A in Chemical's Annual Report on Form 10-K for the year ended December 31, 2009; the risk factors described in Item 1A in OAK 's Annual Report on Form 10-K for the year ended December 31, 2009; the timing and level of asset growth; changes in market interest rates; changes in banking laws and regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; the impact of possible future litigation; 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 current and future military actions, 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     December 31    March 31
   share data)                      2010          2009          2009
  ----------------------------  ------------  ------------  ------------
  Assets:
  Cash and cash equivalents:
   Cash and cash due from
    banks                           $ 80,791     $ 131,383      $ 83,976
   Interest-bearing deposits
    with unaffiliated banks
    and others                       366,580       229,326       142,184
     Total cash and cash
      equivalents                    447,371       360,709       226,160
                                ------------  ------------  ------------
  Investment securities:
   Available-for-sale                565,823       592,521       501,594
   Held-to-maturity                  124,893       131,297       108,600
     Total Investment
      Securities                     690,716       723,818       610,194
                                ------------  ------------  ------------
  Other securities                    22,128        22,128        22,128
  Loans held for sale                  4,943         8,362        28,336

  Loans:
   Commercial                        580,656       584,286       563,118
   Real estate commercial            790,009       785,675       784,475
   Real estate construction          124,853       121,305       112,102
   Real estate residential           738,911       739,380       809,262
   Consumer                          753,886       762,514       682,632

     Total Loans                   2,988,315     2,993,160     2,951,589
                                ------------  ------------  ------------
   Allowance for loan losses        (84,155)      (80,841)      (62,562)

     Net Loans                     2,904,160     2,912,319     2,889,027
                                ------------  ------------  ------------

  Premises and equipment              54,438        53,934        52,914
  Goodwill                            69,908        69,908        69,908
  Other intangible assets              5,242         5,408         5,224
  Interest receivable and
   other assets                       93,723        94,126        71,860
                                ------------  ------------  ------------

     Total Assets                $ 4,292,629   $ 4,250,712   $ 3,975,751
                                ============  ============  ============

  Liabilities:
  Deposits:
   Noninterest-bearing             $ 558,470     $ 573,159     $ 526,343
   Interest-bearing                2,915,869     2,844,966     2,578,193

     Total Deposits                3,474,339     3,418,125     3,104,536
                                ------------  ------------  ------------
  Interest payable and other
   liabilities                        28,264        27,708        37,573
  Short-term borrowings              237,712       240,568       221,247
  Federal Home Loan Bank
   advances                           80,000        90,000       125,025

     Total Liabilities             3,820,315     3,776,401     3,488,381
                                ------------  ------------  ------------

  Shareholders' Equity:
   Preferred stock, no par
    value per share                       --            --            --
   Common stock, $1 par value
    per share                         23,903        23,891        23,890
   Additional paid-in capital        348,136       347,676       347,264
   Retained earnings                 112,900       115,391       129,249
   Accumulated other
    comprehensive loss              (12,625)      (12,647)      (13,033)
                                ------------  ------------  ------------
     Total Shareholders'
      Equity                         472,314       474,311       487,370
                                ------------  ------------  ------------
     Total Liabilities and
      Shareholders' Equity       $ 4,292,629   $ 4,250,712   $ 3,975,751
                                ============  ============  ============

     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)                       2010       2009
  ------------------------------  ---------  ---------
  Interest Income:
  Interest and fees on loans       $ 41,718   $ 42,793
  Interest on investment
   securities:
   Taxable                            3,124      4,502
   Tax-exempt                           982        777
  Dividends on other securities          82        163
  Interest on deposits with
   unaffiliated banks and others        216         87

     Total Interest Income           46,122     48,322
                                  ---------  ---------

  Interest Expense:
  Interest on deposits                8,700     10,167
  Interest on short-term
   borrowings                           160        233
  Interest on Federal Home Loan
   Bank advances                        874      1,332
                                  ---------  ---------

     Total Interest Expense           9,734     11,732
                                  ---------  ---------
     Net Interest Income             36,388     36,590

  Provision for loan losses          14,000     14,000
                                  ---------  ---------
     Net Interest Income after
      Provision for Loan Losses      22,388     22,590

  Noninterest Income:
  Service charges on deposit
   accounts                           4,391      4,475
  Trust and investment services
   revenue                            2,292      2,375
  Other charges and fees for
   customer services                  2,008      1,801
  Mortgage banking revenue              718      1,150

  Other                                  31         56
                                  ---------  ---------
     Total Noninterest Income         9,440      9,857

  Operating Expenses:
  Salaries, wages and employee
   benefits                          14,507     15,417
  Occupancy                           2,837      2,707
  Equipment                           2,714      2,342

  Other                               9,131      8,739
                                  ---------  ---------

     Total Operating Expenses        29,189     29,205
                                  ---------  ---------
  Income Before Income Taxes          2,639      3,242

     Federal Income Tax Expense         350        524
                                  ---------  ---------

  Net Income                        $ 2,289    $ 2,718
                                  =========  =========

  Net income per common share:
   Basic                             $ 0.10     $ 0.11
   Diluted                             0.10       0.11

  Cash dividends paid per common
   share                               0.20      0.295

  Average common shares
   outstanding:
   Basic                             23,903     23,890
   Diluted                           23,921     23,900

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

  Financial Summary (Unaudited)
  Chemical Financial Corporation

                                                                              Three Months Ended
                                                                                   March 31

  (Dollars in thousands)                                                      2010          2009
  ----------------------------------                                      ------------  ------------
  Average Balances
  Total assets                                                             $ 4,280,304   $ 3,927,103
  Total interest-earning assets                                              4,051,440     3,698,726
  Total loans                                                                2,984,305     2,960,977
  Total deposits                                                             3,451,829     3,047,112
  Total interest-bearing liabilities                                         3,224,427     2,884,681
  Total shareholders' equity                                                   474,278       488,095

                                                                              Three Months Ended
                                                                                   March 31

                                                                              2010          2009
  ----------------------------------                                      ------------  ------------
  Key Ratios (annualized where
   applicable)
  Net interest margin (taxable
   equivalent basis)                                                             3.72%         4.06%
  Efficiency ratio                                                               62.4%         62.0%
  Return on average assets                                                       0.22%         0.28%
  Return on average shareholders'
   equity                                                                         2.0%          2.3%
  Average shareholders' equity as a
    percent of average assets                                                    11.1%         12.4%
  Tangible shareholders' equity as a

    percent of total assets                                                       9.5%         10.6%
  Total risk-based capital ratio                                                 15.5%         16.2%


                                       March 31     Dec 31     Sept 30       June 30      March 31
                                         2010        2009        2009         2009          2009
  ----------------------------------  ----------  ----------  ----------  ------------  ------------
  Credit Quality Statistics
  Nonaccrual loans                     $ 100,882   $ 106,589   $ 120,186     $ 109,944      $ 94,737
  Loans 90 or more days past due
    and still accruing                     7,204      11,733       8,699        10,502        10,240
  Troubled debt restructurings -
   commercial loans                        6,243          --          --            --            --
  Troubled debt restructurings -
   real estate
    residential loans                     15,799      17,433       9,567         3,981            --
  Total nonperforming loans              130,128     135,755     138,452       124,427       104,977
  Repossessed assets (RA)                 18,813      17,540      19,067        18,344        20,688
  Total nonperforming assets             148,941     153,295     157,519       142,771       125,665
  Net loan charge-offs
   (year-to-date)                         10,686      35,215      22,965        16,300         8,494

  Allowance for loan losses as a
    percent of total loans                 2.82%       2.70%       2.58%         2.35%         2.12%
  Allowance for loan losses as a
    percent of nonperforming loans           65%         60%         56%           56%           60%
  Nonperforming loans as a
    percent of total loans                 4.35%       4.54%       4.61%         4.18%         3.56%
  Nonperforming assets as a
    percent of total loans plus RA         4.95%       5.09%       5.21%         4.77%         4.23%
  Nonperforming assets as a
    percent of total assets                3.47%       3.61%       3.69%         3.57%         3.16%
  Net loan charge-offs as a percent
   of
    average loans (year-to-date,
   annualized)                             1.43%       1.18%       1.03%         1.10%         1.15%


                                       March 31     Dec 31     Sept 30       June 30      March 31
                                         2010        2009        2009         2009          2009
  ----------------------------------  ----------  ----------  ----------  ------------  ------------
  Additional Data - Intangibles
  Goodwill                              $ 69,908    $ 69,908    $ 69,908      $ 69,908      $ 69,908
  Core deposit intangibles                 2,183       2,331       2,480         2,629         2,847
  Mortgage servicing rights (MSR)          3,059       3,077       2,997         2,869         2,377
  Amortization of core deposit
   intangibles (quarter only)                148         149         149           217           203

           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)            2010        2009        2009        2009        2009
  -----------------------------  ----------  ----------  ----------  ----------  ----------
  Nonaccrual loans:
   Commercial                      $ 18,382    $ 19,309    $ 21,379    $ 20,371    $ 16,419
   Real estate commercial            51,865      49,419      58,930      50,067      41,826
   Real estate construction          15,870      15,184      18,196      17,935      18,504
   Real estate residential           10,913      15,508      15,739      15,905      12,803

   Consumer                           3,852       7,169       5,942       5,666       5,185
                                 ----------  ----------  ----------  ----------  ----------
   Total nonaccrual loans           100,882     106,589     120,186     109,944      94,737
  Accruing loans contractually
   past due 90 days or
    more as to interest or
   principal payments:
   Commercial                         2,576       1,371       1,073       1,201       2,581
   Real estate commercial             1,483       3,971       2,138       1,542       4,352
   Real estate construction             988       1,990         675         259         538
   Real estate residential            1,636       3,614       3,839       6,236       1,699

   Consumer                             521         787         974       1,264       1,070
                                 ----------  ----------  ----------  ----------  ----------
   Total accruing loans
    contractually past due 90
     days or more as to
    interest or principal
    payments                          7,204      11,733       8,699      10,502      10,240
  Troubled debt restructurings
   - commercial loans                 6,243          --          --          --          --
  Troubled debt restructurings
   - real estate residential
    loans                            15,799      17,433       9,567       3,981          --
                                 ----------  ----------  ----------  ----------  ----------
  Total nonperforming loans         130,128     135,755     138,452     124,427     104,977
  Other real estate and
   repossessed assets                18,813      17,540      19,067      18,344      20,688
                                 ----------  ----------  ----------  ----------  ----------

  Total nonperforming assets      $ 148,941   $ 153,295   $ 157,519   $ 142,771   $ 125,665
                                 ==========  ==========  ==========  ==========  ==========

        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)           2010       2009       2009       2009       2009
  ----------------------------  ---------  ---------  ---------  ---------  ---------
  Allowance for loan losses at
   beginning of period           $ 80,841   $ 77,491   $ 69,956   $ 62,562   $ 57,056
  Provision for loan losses        14,000     15,600     14,200     15,200     14,000

  Loans charged off:
   Commercial                     (1,365)    (3,636)    (1,786)    (3,289)    (3,290)
   Real estate commercial         (2,289)    (3,009)    (1,703)    (1,930)    (2,589)
   Real estate construction         (644)    (3,633)      (874)      (762)    (1,700)
   Real estate residential        (3,173)    (1,070)    (1,346)    (1,043)      (235)

   Consumer                       (4,427)    (1,998)    (1,996)    (1,544)    (1,253)
                                ---------  ---------  ---------  ---------  ---------
   Total loan charge-offs        (11,898)   (13,346)    (7,705)    (8,568)    (9,067)
  Recoveries of loans
   previously charged off:
   Commercial                         373        220        349        130        205
   Real estate commercial             170         91         91        226         87
   Real estate construction            --        261         46         --         --
   Real estate residential            185        174        231        127         82

   Consumer                           484        350        323        279        199
                                ---------  ---------  ---------  ---------  ---------

   Total loan recoveries            1,212      1,096      1,040        762        573
                                ---------  ---------  ---------  ---------  ---------

   Net loan charge-offs          (10,686)   (12,250)    (6,665)    (7,806)    (8,494)
                                ---------  ---------  ---------  ---------  ---------
  Allowance for loan losses at
   end of period                 $ 84,155   $ 80,841   $ 77,491   $ 69,956   $ 62,562
                                =========  =========  =========  =========  =========

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

  Selected Quarterly Information
   (Unaudited)
  Chemical Financial
   Corporation


  (In thousands, except per    1st Qtr.   4th Qtr.   3rd Qtr.   2nd Qtr.   1st Qtr.
   share data)                   2010       2009       2009       2009       2009
  --------------------------  ---------  ---------  ---------  ---------  ---------
  Summary of Operations
  Interest income              $ 46,122   $ 48,060   $ 48,066   $ 48,283   $ 48,322

  Interest expense                9,734     10,847     11,403     11,305     11,732
                              ---------  ---------  ---------  ---------  ---------
  Net interest income            36,388     37,213     36,663     36,978     36,590

  Provision for loan losses      14,000     15,600     14,200     15,200     14,000
                              ---------  ---------  ---------  ---------  ---------
  Net interest income after
   provision
    for loan losses              22,388     21,613     22,463     21,778     22,590
  Noninterest income              9,440     10,212     10,092     10,958      9,857

  Operating expenses             29,189     28,807     29,582     30,016     29,205
                              ---------  ---------  ---------  ---------  ---------
  Income before income taxes      2,639      3,018      2,973      2,720      3,242

  Federal income tax expense        350        500        500        426        524
                              ---------  ---------  ---------  ---------  ---------

  Net income                    $ 2,289    $ 2,518    $ 2,473    $ 2,294    $ 2,718
                              =========  =========  =========  =========  =========



  ---------------------------------------------------------------------------------
  Per Common Share Data
  Net income:
   Basic                         $ 0.10     $ 0.11     $ 0.10     $ 0.10     $ 0.11
   Diluted                         0.10       0.11       0.10       0.10       0.11
  Cash dividends                  0.200      0.295      0.295      0.295      0.295
  Book value - period-end         19.76      19.85      20.06      20.23      20.40
  Market value - period-end       23.62      23.58      21.79      19.91      20.81
CONTACT:  Chemical Financial Corporation
          David B. Ramaker, CEO
          Lori A. Gwizdala, CFO
          989-839-5350