MIDLAND, Mich., Jan. 26, 2007 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2006 fourth quarter net income of $11.2 million, or $0.45 per diluted share, versus net income of $12.6 million, or $0.50 per diluted share, in the fourth quarter of 2005.
Net income was $46.8 million, or $1.88 per diluted share, for the twelve months ended December 31, 2006, compared to net income of $52.9 million, or $2.10 per diluted share, for the twelve months ended December 31, 2005.
"The quarter's financial performance continued to be impacted by a flat yield curve, a struggling state economy and fierce deposit pricing competition. Increases in noninterest income and reductions in operating expenses were more than offset by a decrease in net interest income and a higher provision for loan losses, resulting in lower net income," said David B. Ramaker, Chairman, President and Chief Executive Officer of Chemical Financial Corporation. "During the fourth quarter, we took steps to better position the Company for 2007 by repositioning our investment securities portfolio and reducing nonperforming assets."
"We are confident that our completed internal consolidation initiatives, the continued branch expansion and facilities improvements in key markets and the positive early results from our system-wide sales and service training program, will contribute to building franchise value going forward," added Ramaker.
Net interest income was $32.7 million in the fourth quarter of 2006, a decrease of 6.8 percent from fourth quarter 2005 net interest income of $35.1 million. The decrease in net interest income was attributable primarily to the decrease in net interest margin. The net interest margin (on a tax-equivalent basis) in the fourth quarter of 2006 was 3.73 percent, down from 3.99 percent in the fourth quarter of 2005 and 3.74 percent in the third quarter of 2006. The decline in net interest margin was primarily attributable to increases in rates paid on interest-bearing liabilities exceeding increases in rates earned on interest-earning assets, as deposits re-priced more rapidly than loans in the rising interest rate environment experienced in the past 12 months. The Company continues to experience strong competition for deposits in the markets it serves, which when combined with the increased interest rate environment during 2006, limits the Company's ability to utilize deposit pricing as a means through which to control interest expense.
Total assets were $3.79 billion at December 31, 2006, down from $3.84 billion at September 30, 2006 and up slightly from $3.75 billion at December 31, 2005. At December 31, 2006, total loans were $2.81 billion, versus $2.82 billion at September 30, 2006 and $2.71 billion at December 31, 2005. With the exception of a modest decline in real estate construction loans, the Company has seen moderate growth across all loan types during the past year, which was partially attributable to the branch acquisitions completed in August 2006. Investment securities were $615 million at December 31, 2006, down from $638 million at September 30, 2006 and $722 million at December 31, 2005. The decrease in investment securities was primarily attributable to the Company using excess liquidity from maturing investment securities to fund higher yielding loan growth and the sale of investment securities in the fourth quarter.
Total deposits were $2.90 billion at December 31, 2006, down slightly from $2.96 billion at September 30, 2006 and up from $2.82 billion at December 31, 2005. Wholesale borrowings, primarily Federal Home Loan Bank advances, totaled $175 million at December 31, 2006, down $90 million, or 34%, from $265 million at December 31, 2005.
The provision for loan losses was $2.590 million in the fourth quarter of 2006, compared to $1.750 million in the third quarter of 2006 and $1.325 million in the fourth quarter of 2005. Net loan charge-offs were $3.84 million in the fourth quarter of 2006, compared to $0.44 million in the third quarter of 2006 and $1.78 million in the fourth quarter of 2005. The increase in the provision for loan losses in the fourth quarter of 2006, as compared to the previous quarter, was primarily reflective of increased net loan charge-offs in the fourth quarter of 2006. The two largest loan charge-offs recognized in the fourth quarter of 2006 were a $1.1 million write-down of a commercial real estate loan secured by a restaurant and a $0.4 million write-down of a commercial real estate loan secured by a residential condominium project. The Company's total specific allowance on impaired loans decreased $1.43 million during the fourth quarter of 2006 to $0.90 million at December 31, 2006 from $2.33 million at September 30, 2006. The allowance for loan losses of $34.1 million at December 31, 2006 was 1.21 percent of total loans, down from 1.25 percent of total loans at September 30, 2006 and 1.26 percent of total loans at December 31, 2005. At December 31, 2006, nonperforming loans as a percentage of total loans were 0.96 percent, down from 1.16 percent at September 30, 2006 and up from 0.73 percent at December 31, 2005.
At December 31, 2006, nonperforming assets totaled $35.8 million, down from $42.7 million at September 30, 2006, although up from $26.5 million at December 31, 2005. The $6.9 million decrease in nonperforming assets from the previous quarter's end was due partially to the charge-off of a portion of the nonperforming loan portfolio and a $1.2 million reduction in repossessed assets.
Total noninterest income was $9.9 million in the fourth quarter of 2006, up $0.9 million, or 10 percent, from $9.0 million in the fourth quarter of 2005. An increase in other charges and fees for customer services and a gain on the sale of loans more than offset an increase in the losses on the sale of investment securities. During the fourth quarter of 2006, the Company recognized a $1.1 million gain attributable to the sale of $15 million in long-term fixed interest rate mortgage loans that were acquired in the third quarter 2006 branch acquisition transaction. In addition, during the fourth quarter of 2006, the Company incurred losses on the sale of investment securities totaling $1.33 million. In comparison, investment securities losses were $0.633 million in the fourth quarter of 2005, while there were no investment securities gains or losses in the third quarter of 2006. The fourth quarter 2006 investment securities losses were incurred in conjunction with a realignment of the Company's investment securities portfolio, as part of its interest rate risk management program. During the fourth quarter of 2006, the Company sold $68 million in U.S. Treasury and Agency securities at an average yield of 3.12 percent and invested the proceeds in the same type securities with a slightly longer duration at an average yield of 4.81 percent.
As a result of the Company's focus on expense controls, along with savings generated through the internal consolidation and branch realignment initiatives undertaken in 2006, operating expenses were slightly lower in 2006 than in 2005. Operating expenses were $23.5 million in the fourth quarter of 2006, down $0.4 million, or 1.7 percent, from the fourth quarter of 2005, and down $0.7 million, or 3.0 percent, from $24.2 million in the third quarter of 2006. The Company's efficiency ratio was 54.4 percent in the fourth quarter of 2006, up from 53.6 percent in the fourth quarter of 2005, although down from 56.1 percent in the third quarter of 2006. The increase in the efficiency ratio from the prior year was primarily attributable to the decrease in net interest income. Operating expenses were $97.9 million in 2006, down $0.6 million, or 0.6 percent, from total operating expenses of $98.5 million in 2005. The reduction in operating expenses in 2006 was primarily driven by a reduction in compensation costs. Total salaries, wages and employee benefits of $56.0 million in 2006 were $0.8 million, or 1.3 percent, lower than in 2005.
The Company's effective federal income tax rate was 32.0 percent in the fourth quarter of 2006, compared to 33.6 percent in the fourth quarter of 2005. The Company's effective tax rate in the fourth quarter of 2006 declined by 1.1 percent due to the recognition of a tax credit related to its participation/contribution to a community reinvestment project. The Company incurs operating expenses on this project.
The Company's return on average assets during the fourth quarter of 2006 was 1.18 percent, down from 1.32 percent in the fourth quarter of 2005 and down slightly from 1.20 percent in the third quarter of 2006. At December 31, 2006, the Company's book value stood at $20.74 per share versus $19.98 per share at December 31, 2005. The decline in return on assets combined with the increase in shareholders' equity resulted in a decline in return on average equity to 8.7 percent in the fourth quarter of 2006 from 10.0 percent in the fourth quarter of 2005.
During the fourth quarter of 2006, the Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements" (SAB 108). In accordance with SAB 108, the Company recorded a $4.6 million cumulative increase, net of tax of $2.5 million, to retained earnings as of January 1, 2006. The adoption of SAB 108 increased book value per share $0.18 as of this date.
The prior year misstatements related to certain loan origination costs which were expensed rather than capitalized and amortized, expenses which had been accrued that were no longer required, trust fees that had been recorded on a cash basis, and property taxes that were prepaid that had been expensed. Amortization of the aforementioned loan origination costs for 2006 amounted to $0.7 million and was recorded in interest income in the fourth quarter. In addition, during the fourth quarter of 2006, the Company adopted Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" (SFAS 158). SFAS 158 requires the net amount by which defined benefit and postretirement benefit obligations are over- or underfunded to be reported on the balance sheet, with the offset to accumulated other comprehensive income. The adoption of SFAS 158 changed the accounting for the Company's defined benefit pension, supplemental pension and postretirement benefit plans. In accordance with SFAS 158, the Company recorded a $5.0 million decrease to accumulated other comprehensive income, net of a deferred tax asset of $2.7 million, as of December 31, 2006. The adoption of SFAS 158 decreased book value per share $0.20 as of this date.
Chemical Financial Corporation is the third largest bank holding company headquartered in Michigan. The Company operates through a single subsidiary bank, Chemical Bank, with 127 banking offices spread over 31 counties in the lower peninsula of Michigan. At December 31, 2006, the Company had total assets of $3.79 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. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," 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 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. Factors that could cause a difference include, among others: changes in the national and local economies or market conditions; changes in interest rates and banking laws and regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings and revenue enhancements from acquisitions, restructurings and bank consolidations may not be fully realized at all or within the expected time frames. These and other factors that may emerge could cause decisions and actual results to differ materially from current expectations. Chemical undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
December 31, December 31,
(In thousands, except per share data) 2006 2005
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Assets:
Cash and due from banks $ 135,544 $ 145,575
Federal funds sold 49,500 6,600
Interest-bearing deposits with
unaffiliated banks 5,712 5,321
Investment securities - available for
sale 520,867 594,491
Investment securities - held to maturity 94,564 127,806
----------- -----------
Total Investment Securities 615,431 722,297
Other securities 22,131 21,051
Loans held for sale 5,667 3,519
Loans:
Commercial loans 545,591 517,852
Real estate commercial loans 726,554 704,684
Real estate construction loans 145,933 158,376
Real estate residential loans 835,263 785,160
Consumer loans 554,319 540,623
----------- -----------
Total Loans 2,807,660 2,706,695
Less: Allowance for loan losses 34,098 34,148
----------- -----------
Net Loans 2,773,562 2,672,547
Premises and equipment 49,475 45,058
Intangible assets 78,906 71,496
Interest receivable and other assets 53,319 55,852
----------- -----------
Total Assets $ 3,789,247 $ 3,749,316
=========== ===========
Liabilities:
Noninterest-bearing deposits $ 551,177 $ 542,014
Interest-bearing deposits 2,346,908 2,277,866
----------- -----------
Total Deposits 2,898,085 2,819,880
Interest payable and other liabilities 22,159 28,008
Securities sold under agreements to
repurchase 178,969 125,598
Reverse repurchase agreements -- 10,000
Federal Home Loan Bank advances -
short-term 30,000 68,000
Federal Home Loan Bank advances -
long-term 145,072 196,765
----------- -----------
Total Liabilities 3,274,285 3,248,251
Shareholders' Equity:
Common stock, $1 par value 24,828 25,079
Surplus 368,554 376,046
Retained earnings 130,530 106,507
Accumulated other comprehensive loss (8,950) (6,567)
----------- -----------
Total Shareholders' Equity 514,962 501,065
----------- -----------
Total Liabilities and Shareholders'
Equity $ 3,789,247 $ 3,749,316
=========== ===========
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
Three Months Ended Twelve Months Ended
(In thousands, except per December 31 December 31
share data) 2006 2005 2006 2005
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Interest Income:
Interest and fees on loans $ 48,571 $ 43,775 $185,598 $164,830
Interest on investment
securities:
Taxable 5,867 6,535 24,391 28,289
Nontaxable 665 602 2,557 2,153
-------- -------- -------- --------
Total Interest on
Investment Securities 6,532 7,137 26,948 30,442
Dividends on other
securities 401 222 1,268 927
Interest on federal funds
sold 618 535 2,975 2,121
Interest on deposits with
unaffiliated banks 77 243 634 984
-------- -------- -------- --------
Total Interest Income 56,199 51,912 217,423 199,304
Interest Expense:
Interest on deposits 19,509 13,110 69,095 44,632
Interest on securities sold
under agreements to
repurchase 1,632 759 5,561 2,162
Interest on reverse
repurchase agreements -- 93 154 216
Interest on Federal Home
Loan Bank advances -
short-term 406 374 2,707 643
Interest on Federal Home
Loan Bank advances -
long-term 1,963 2,516 7,670 9,800
-------- -------- -------- --------
Total Interest Expense 23,510 16,852 85,187 57,453
-------- -------- -------- --------
Net Interest Income 32,689 35,060 132,236 141,851
Provision for loan losses 2,590 1,325 5,200 4,285
-------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 30,099 33,735 127,036 137,566
Noninterest Income:
Service charges on deposit
accounts 5,232 5,235 20,993 20,371
Trust and investment
services revenue 2,062 1,946 7,906 7,909
Other charges and fees for
customer services 2,330 1,899 9,025 7,883
Mortgage banking revenue 353 371 1,742 1,663
Gain on the sale of loans 1,053 -- 1,053 --
Net gains/(losses) on sales
of investment securities (1,330) (633) (1,330) 541
Other 201 220 758 853
-------- -------- -------- --------
Total Noninterest Income 9,901 9,038 40,147 39,220
Operating Expenses:
Salaries, wages and employee
benefits 13,426 13,225 56,012 56,766
Occupancy and equipment 4,711 4,535 18,702 18,288
Other 5,344 6,118 23,160 23,409
-------- -------- -------- --------
Total Operating Expenses 23,481 23,878 97,874 98,463
-------- -------- -------- --------
Income Before Income Taxes 16,519 18,895 69,309 78,323
Provision for federal
income taxes 5,291 6,341 22,465 25,445
-------- -------- -------- --------
Net Income $ 11,228 $ 12,554 $ 46,844 $ 52,878
======== ======== ======== ========
Net income per share:
Basic $ 0.45 $ 0.50 $ 1.88 $ 2.10
Diluted 0.45 0.50 1.88 2.10
Cash dividends per share $ 0.275 $ 0.265 $ 1.100 $ 1.060
Average shares outstanding:
Basic 24,814 25,085 24,921 25,138
Diluted 24,845 25,137 24,955 25,193
Financial Summary (Unaudited)
Chemical Financial Corporation
Three Months Ended Twelve Months Ended
(Dollars in December 31 December 31
thousands) 2006 2005 2006 2005
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Average Balances
Total assets $3,780,518 $3,770,911 $3,763,067 $3,788,469
Total interest-
earning assets 3,531,762 3,534,262 3,521,489 3,550,695
Total loans 2,831,536 2,706,300 2,767,114 2,641,465
Total deposits 2,888,243 2,847,645 2,861,916 2,886,209
Total interest-
bearing liabilities 2,697,451 2,692,834 2,692,410 2,718,267
Total shareholders'
equity 511,891 498,745 505,683 493,419
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
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Key Ratios (annualized
where applicable)
Net interest margin
(taxable equivalent
basis) 3.73% 3.99% 3.82% 4.04%
Efficiency ratio 54.4% 53.6% 56.1% 54.2%
Return on average assets 1.18% 1.32% 1.24% 1.40%
Return on average
shareholders' equity 8.7% 10.0% 9.3% 10.7%
Average shareholders'
equity as a percent of
average assets 13.5% 13.2% 13.4% 13.0%
Tangible shareholders'
equity as a percent of
total assets 11.8% 11.7%
Total risk-based capital
ratio 17.6% 17.8%
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
2006 2006 2006 2006 2005
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Credit Quality
Statistics
Nonaccrual loans $20,239 $23,113 $17,636 $13,902 $14,561
Loans 90 or more
days past due
and still
accruing 6,671 9,505 9,618 5,773 5,136
Total
nonperforming
loans 26,910 32,618 27,254 19,675 19,697
Repossessed
assets (RA) 8,852 10,062 9,615 7,905 6,801
Total
nonperforming
assets 35,762 42,680 36,869 27,580 26,498
Net loan charge-
offs (year-to-
date) 5,650 1,810 1,370 454 4,303
Allowance for
loan losses as
a percent of
total loans 1.21% 1.25% 1.22% 1.27% 1.26%
Allowance for
loan losses as a
percent of
nonperforming
loans 127% 108% 123% 174% 173%
Nonperforming
loans as a
percent of
total loans 0.96% 1.16% 0.99% 0.73% 0.73%
Nonperforming
assets as a
percent of
total loans
plus RA 1.27% 1.51% 1.33% 1.02% 0.98%
Nonperforming
assets as a
percent of total
assets 0.94% 1.11% 0.99% 0.74% 0.71%
Net loan
charge-offs as
a percent of
average loans
(year-to-date,
annualized) 0.20% 0.09% 0.10% 0.07% 0.16%
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
2006 2006 2006 2006 2005
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Additional Data
- Intangibles
Goodwill $70,129 $70,999 $63,293 $63,293 $63,293
Core deposits and
other intangibles 6,379 7,030 4,743 5,246 5,780
Mortgage servicing
rights (MSR) 2,398 2,533 2,193 2,283 2,423
Amortization of
intangibles
(quarter-to-date) 857 618 683 718 776
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr.
2006 2006 2006 2006 2005
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Summary of Operations
(In thousands)
Interest income $56,199 $55,556 $53,391 $52,277 $51,912
Interest expense 23,510 22,817 20,174 18,686 16,852
Net interest income 32,689 32,739 33,217 33,591 35,060
Provision for loan
losses 2,590 1,750 400 460 1,325
Net interest income
after provision
for loan losses 30,099 30,989 32,817 33,131 33,735
Noninterest income 9,901 9,896 10,518 9,832 9,038
Noninterest expense 23,481 24,196 25,076 25,121 23,878
Income taxes 5,291 5,199 6,030 5,945 6,341
Net income 11,228 11,490 12,229 11,897 12,554
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Per Common Share Data
Net income:
Basic $ 0.45 $ 0.46 $ 0.49 $ 0.47 $ 0.50
Diluted 0.45 0.46 0.49 0.47 0.50
Cash dividends 0.275 0.275 0.275 0.275 0.265
Book value 20.74 20.51 20.14 20.10 19.98