MIDLAND, Mich., April 16, 2007 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2007 first quarter net income of $9.0 million, or $0.36 per diluted share, versus net income of $11.9 million, or $0.47 per diluted share, in the first quarter of 2006.
"Decreasing net interest income coupled with an increase in our provision for loan losses and operating expenses led to an unacceptable decline in net income in comparison to the first quarter of 2006. In response, we are instituting measures to improve our financial performance while maintaining our investment in longer-term growth initiatives," said David B. Ramaker, Chairman, President and Chief Executive Officer of Chemical Financial Corporation. "Specifically, we are announcing the reorganization of our retail banking operations and consolidating support operations while eliminating approximately 50 positions bankwide."
"The reorganization of our retail banking operations will align the operations into four distinct regions, each to be led by a senior executive with accountability for that executive's region's results," added Ramaker. "We continue to invest in improving sales and service in our retail delivery channel. Our short-term objectives in this area are to increase our market share by increasing the number of households who hold multiple products with Chemical Bank while improving customer retention by enhancing service delivery levels. In combination, these factors can drive incremental revenue growth despite a stagnant Michigan economy."
Chemical Financial Corporation will reorganize its retail banking operations from its current 15 community bank structure into a four-region structure. As a result of the reorganization, a number of management and support positions will be eliminated through a combination of early retirements, attrition and staff reductions. In addition, the Company will centralize six operations departments whose functions are currently spread throughout the organization, consolidating positions in the process. Importantly, these eliminations will not affect front-line service, as they will be concentrated among back office and management positions. In conjunction with the reorganization, Chemical Financial Corporation estimates it will incur a one-time, second quarter pre-tax charge to earnings of $1.5 million for early retirement and severance costs. Subsequent to the year of implementation, it is expected that the reorganization will yield annual pre-tax compensation expense savings of approximately $2 million.
Net interest income was $31.8 million in the first quarter of 2007, a decrease of 5.4 percent from first quarter 2006 net interest income of $33.6 million. The decrease in net interest income was attributable primarily to a decrease in net interest margin. The net interest margin (on a tax-equivalent basis) in the first quarter of 2007 was 3.62 percent, down from 3.73 percent in the fourth quarter of 2006 and 3.90 percent in the first 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 continue to re-price more rapidly than loans, and the impact of funds migrating within the deposit portfolio from lower cost transaction and savings accounts to higher cost savings and time deposits. Management anticipates that the decline in net interest income will moderate as the pace of interest rate increases has slowed.
The provision for loan losses was $1.625 million in the first quarter of 2007, compared to $2.59 million in the fourth quarter of 2006 and $0.46 million in the first quarter of 2006. Net loan charge-offs were $0.7 million in the first quarter of 2007, down significantly from $3.8 million in the fourth quarter of 2006, but up from $0.5 million in the first quarter of 2006. The increase in the provision for loan losses in the first quarter of 2007, as compared to the first quarter of 2006, was primarily reflective of an increase in nonaccrual real estate commercial and real estate residential loans due to a general deterioration in credit quality attributable, in part, to the continuing recessionary Michigan economy. The allowance for loan losses of $35.0 million at March 31, 2007 was 1.25 percent of total loans, up from 1.21 percent of total loans at December 31, 2006 but down slightly from 1.27 percent of total loans at March 31, 2006. At March 31, 2007, nonperforming loans as a percentage of total loans were 1.26 percent, up from 0.96 percent at December 31, 2006 and from 0.73 percent at March 31, 2006.
At March 31, 2007, nonperforming assets totaled $44.44 million, up substantially from $35.76 million at December 31, 2006, and up from $27.58 million at March 31, 2006. The $8.68 million increase in nonperforming assets from the previous quarter's end was due primarily to increases in nonaccrual real estate commercial and real estate residential loans.
Total noninterest income was $10.0 million in the first quarter of 2007, up slightly from $9.8 million in the first quarter of 2006. Modest increases in other charges and fees for customer services and trust and investment services revenue more than offset slight declines in service charges on deposit accounts and other income.
Operating expenses of $26.8 million in the first quarter of 2007 were up $1.6 million, or 6.5 percent, from the first quarter of 2006, due primarily to an increase in "other" expense attributable to higher professional and consulting fees of $1 million. In addition, approximately $0.5 million of the increase in operating expenses between the first quarter of 2006 and the first quarter of 2007 was attributable to additional operating expenses associated with the two branches acquired in August 2006 and the opening of four new branches later in 2006 and 2007. The Company's first quarter 2007 efficiency ratio of 63.2 percent was up from 54.4 percent in the fourth quarter of 2006, and from 57.3 percent in the first quarter of 2006. The increase in the efficiency ratio from the prior year was attributable to the decrease in net interest income combined with the aforementioned increase in operating expenses.
Total assets were $3.82 billion at March 31, 2007, up slightly from $3.79 billion at December 31, 2006 and from $3.74 billion at March 31, 2006. At March 31, 2007, total loans were $2.80 billion, compared to $2.81 billion at December 31, 2006 and $2.69 billion at March 31, 2006. Investment securities were $613 million at March 31, 2007, down from $615 million at December 31, 2006 and $673 million at March 31, 2006. The decrease in investment securities from the prior year first quarter was primarily attributable to the Company using excess liquidity from maturing investment securities to fund higher yielding loan growth.
Total deposits were $2.95 billion at March 31, 2007, up slightly from $2.90 billion at December 31, 2006 and from $2.87 billion at March 31, 2006. Federal Home Loan Bank advances totaled $165 million at March 31, 2007, compared to $175 million at December 31, 2006 and $193 million at March 31, 2006.
The Company's return on average assets during the first quarter of 2007 was 0.97 percent, down from 1.18 percent in the fourth quarter of 2006 and from 1.28 percent in the first quarter of 2006. At March 31, 2007, the Company's book value stood at $20.86 per share, versus $20.46 per share at December 31, 2006 and $20.10 per share at March 31, 2006. The decline in return on assets combined with the increase in shareholders' equity resulted in a decline in return on average equity to 7.2 percent in the first quarter of 2007 from 9.6 percent in the first quarter of 2006.
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, 2007, the Company had total assets of $3.82 billion. Chemical Financial Corporation common stock trades on The Nasdaq Stock Market under the symbol CHFC and is one of the issues comprising the Nasdaq Global Select Market.
Forward-Looking Statements
This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Chemical Financial Corporation itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "judgment," "plans," "predicts," "projects," "should," "will," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Chemical Financial Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Risk factors include, but are not limited to, the risk factors described in Item 1A in the Company's Annual Report on Form 10-K for the year ended December 31, 2006; the timing and level of asset growth; changes in banking laws and regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; opportunities for acquisitions and the effective completion of acquisitions and integration of acquired entities; the possibility that anticipated cost savings and revenue enhancements from acquisitions, restructurings, reorganizations and bank consolidations may not be realized at all or within expected time frames; and the local and global effects of the ongoing war on terrorism and other military actions, including actions in Iraq. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.
Chemical Financial Corporation Announces
First Quarter Operating Results
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Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
March 31 December 31 March 31
2007 2006 2006
----------- ----------- -----------
Assets:
Cash and cash due
from banks $ 88,116 $ 135,544 $ 92,404
Federal funds sold 138,000 49,500 85,600
Interest-bearing
deposits with
unaffiliated banks 5,210 5,712 22,448
Investment securities
- available for sale 520,892 520,867 571,262
Investment securities
- held to maturity 92,198 94,564 102,222
Other securities 22,131 22,131 25,683
Loans held for sale 8,739 5,667 5,748
Loans:
Commercial loans 558,190 545,591 521,792
Real estate
commercial loans 727,650 726,554 704,547
Real estate
construction loans 137,605 145,933 157,087
Real estate
residential loans 831,846 835,263 786,121
Consumer loans 541,774 554,319 522,558
----------- ----------- -----------
Total Loans 2,797,065 2,807,660 2,692,105
Less: Allowance
for loan losses 35,016 34,098 34,154
----------- ----------- -----------
Net Loans 2,762,049 2,773,562 2,657,951
Premises and
equipment 49,442 49,475 44,699
Goodwill 69,908 70,129 63,293
Other intangible
assets 8,185 8,777 7,529
Interest receivable
and other assets 52,623 53,319 59,240
----------- ----------- -----------
Total Assets $ 3,817,493 $ 3,789,247 $ 3,738,079
=========== =========== ===========
Liabilities:
Noninterest-bearing
deposits $ 519,984 $ 551,177 $ 522,790
Interest-bearing
deposits 2,432,051 2,346,908 2,343,349
----------- ----------- -----------
Total Deposits 2,952,035 2,898,085 2,866,139
Interest payable
and other liabilities 24,672 29,235 34,934
Short-term borrowings 178,067 208,969 174,392
Federal Home Loan
Bank advances
- long-term 145,072 145,072 158,093
----------- ----------- -----------
Total Liabilities 3,299,846 3,281,361 3,233,558
Shareholders' Equity:
Common stock,
$1 par value 24,814 24,828 25,101
Surplus 368,198 368,554 376,501
Retained earnings 132,532 123,454 111,501
Accumulated other
comprehensive loss (7,897) (8,950) (8,582)
----------- ----------- -----------
Total
Shareholders'
Equity 517,647 507,886 504,521
----------- ----------- -----------
Total Liabilities
and Shareholders'
Equity $ 3,817,493 $ 3,789,247 $ 3,738,079
=========== =========== ===========
Chemical Financial Corporation Announces
First Quarter Operating Results
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Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
Three Months Ended
March 31
(In thousands, except per share data) 2007 2006
--------------------------------------------------------------------
Interest Income:
Interest and fees on loans $47,366 $43,710
Interest on investment
securities:
Taxable 6,135 6,342
Tax-exempt 664 620
Dividends on other
securities 216 341
Interest on federal
funds sold 1,445 951
Interest on deposits with
unaffiliated banks 99 313
------- -------
Total Interest Income 55,925 52,277
Interest Expense:
Interest on deposits 20,336 15,074
Interest on short-term
borrowings 1,908 1,568
Interest on Federal Home
Loan Bank advances -
long-term 1,907 2,044
------- -------
Total Interest Expense 24,151 18,686
------- -------
Net Interest Income 31,774 33,591
Provision for loan losses 1,625 460
------- -------
Net Interest Income
after Provision
for Loan Losses 30,149 33,131
Noninterest Income:
Service charges on
deposit accounts 4,968 5,097
Trust and investment
services revenue 2,100 2,005
Other charges and fees for
customer services 2,442 2,132
Mortgage banking revenue 442 423
Net gains on sales of
investment securities 4 --
Other 87 175
------- -------
Total Noninterest Income 10,043 9,832
Operating Expenses:
Salaries, wages and
employee benefits 14,739 14,590
Occupancy 2,589 2,598
Equipment 2,304 2,188
Other 7,126 5,745
------- -------
Total Operating Expenses 26,758 25,121
------- -------
Income Before Income Taxes 13,434 17,842
Provision for federal
income taxes 4,393 5,945
------- -------
Net Income $ 9,041 $11,897
======= =======
Net income per share:
Basic $ 0.36 $ 0.47
Diluted 0.36 0.47
Cash dividends per share $ 0.285 $ 0.275
Average shares outstanding:
Basic 24,833 25,097
Diluted 24,849 25,141
Chemical Financial Corporation Announces
First Quarter Operating Results
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Financial Summary (Unaudited)
Chemical Financial Corporation
Three Months Ended
March 31
(Dollars in thousands) 2007 2006
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Average Balances
Total assets $3,788,768 $3,770,833
Total interest-earning assets 3,553,874 3,535,728
Total loans 2,798,614 2,695,742
Total deposits 2,919,599 2,872,473
Total interest-bearing liabilities 2,728,103 2,708,628
Total shareholders' equity 511,317 503,990
Three Months Ended
March 31
2007 2006
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Key Ratios (annualized where applicable)
Net interest margin (taxable
equivalent basis) 3.62% 3.90%
Efficiency ratio 63.2% 57.3%
Return on average assets 0.97% 1.28%
Return on average shareholders'equity 7.2% 9.6%
Average shareholders' equity as a
percent of average assets 13.5% 13.4%
Tangible shareholders' equity as
a percent of total assets 11.8% 11.8%
Total risk-based capital ratio 17.8% 18.1
Chemical Financial Corporation Announces
First Quarter Operating Results
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Financial Summary (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
March December September June March
31 31 30 30 31
2007 2006 2006 2006 2006
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Credit Quality
Statistics
Nonaccrual loans $28,748 $20,239 $23,113 $17,636 $13,902
Loans 90 or more
days past due
and still accruing 6,441 6,671 9,505 9,618 5,773
Total nonperforming
loans 35,189 26,910 32,618 27,254 19,675
Repossessed
assets (RA) 9,250 8,852 10,062 9,615 7,905
Total nonperforming
assets 44,439 35,762 42,680 36,869 27,580
Net loan
charge-offs
(year-to-date) 707 5,650 1,810 1,370 454
Allowance for
loan losses as
a percent of
total loans 1.25% 1.21% 1.25% 1.22% 1.27%
Allowance for
loan losses as
a percent of
nonperforming loans 100% 127% 108% 123% 174%
Nonperforming
loans as a
percent of
total loans 1.26% 0.96% 1.16% 0.99% 0.73%
Nonperforming
assets as a
percent of total
loans plus RA 1.58% 1.27% 1.51% 1.33% 1.02%
Nonperforming
assets as a
percent of total
assets 1.16% 0.94% 1.11% 0.99% 0.74%
Net loan
charge-offs as a
percent of
average loans
(year-to-date,
annualized) 0.10% 0.20% 0.09% 0.10% 0.07%
March December September June March
31 31 30 30 31
2007 2006 2006 2006 2006
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Additional Data -
Intangibles
Goodwill $69,908 $70,129 $70,999 $63,293 $63,293
Core deposits
and other
intangibles 5,886 6,379 7,030 4,743 5,246
Mortgage servicing
rights (MSR) 2,299 2,398 2,533 2,193 2,283
Amortization of
intangibles
(quarter only) 734 857 618 683 718
Chemical Financial Corporation Announces
First Quarter Operating Results
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Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
March December September June March
31 31 30 30 31
2007 2006 2006 2006 2006
-------------------------------------------------------------------
Nonaccrual loans:
Commercial $6,537 $5,867 $6,713 $6,335 $3,014
Real estate
commercial 12,975 7,948 8,740 4,788 3,798
Real estate
construction-
commercial 3,283 2,552 2,017 1,735 3,943
Real estate
residential 4,660 2,887 4,455 3,892 2,499
Consumer 1,293 985 1,188 886 648
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Total nonaccrual
loans 28,748 20,239 23,113 17,636 13,902
Accruing loans
contractually past
due 90 days or more
as to interest or
principal payments:
Commercial 2,030 1,693 3,151 1,903 2,238
Real estate
commercial 2,342 2,232 3,081 5,569 1,558
Real estate
construction-
commercial -- 174 -- 179 490
Real estate
residential 1,350 1,158 1,857 1,618 1,057
Consumer 719 1,414 1,416 349 430
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Total accruing
loans contractually
past due 90 days
or more as to
interest or
principal payments 6,441 6,671 9,505 9,618 5,773
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Total
nonperforming
loans 35,189 26,910 32,618 27,254 19,675
Other real
estate and
repossessed
assets 9,250 8,852 10,062 9,615 7,905
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Total
nonperforming
assets $44,439 $35,762 $42,680 $36,869 $27,580
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Chemical Financial Corporation Announces
First Quarter Operating Results
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Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Three Months Ended
--------------------------------------------------------------------
March December September June March
31 31 30 30 31
2007 2006 2006 2006 2006
--------------------------------------------------------------------
Allowance for loan
losses at beginning
of period $ 34,098 $ 35,348 $ 33,638 $ 34,154 $ 34,148
Loans charged off:
Commercial (429) (1,056) (52) (244) (37)
Real estate
commercial (74) (964) -- (600) --
Real estate
construction (67) (1,201) -- -- --
Real estate
residential (18) (108) (101) (109) (197)
Consumer (350) (677) (475) (344) (480)
------------------------------- ------------------------------------
Total loan charge-
offs (938) (4,006) (628) (1,297) (714)
Recoveries of loans
previously charged
off:
Commercial 99 52 58 138 122
Real estate
commercial 1 1 2 1 2
Real estate
residential 1 -- 1 97 --
Consumer 130 113 127 145 136
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Total loan
recoveries 231 166 188 381 260
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Net loan
charge-offs (707) (3,840) (440) (916) (454)
Provision for
loan losses 1,625 2,590 1,750 400 460
Allowance of
branches acquired -- -- 400 -- --
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Allowance for
loan losses at
end of period $35,016 $34,098 $35,348 $33,638 $34,154
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Chemical Financial Corporation
Announces First Quarter Operating Results
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Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
2007 2006 2006 2006 2006
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Summary of Operations
Interest income $55,925 $56,199 $55,556 $53,391 $52,277
Interest expense 24,151 23,510 22,817 20,174 18,686
Net interest income 31,774 32,689 32,739 33,217 33,591
Provision for loan
losses 1,625 2,590 1,750 400 460
Net interest income
after provision
for loan losses 30,149 30,099 30,989 32,817 33,131
Noninterest income 10,043 9,901 9,896 10,518 9,832
Noninterest expense 26,758 23,481 24,196 25,076 25,121
Income taxes 4,393 5,291 5,199 6,030 5,945
Net income $ 9,041 $11,228 $11,490 $12,229 $11,897
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Per Common
Share Data
Net income:
Basic $ 0.36 $ 0.45 $ 0.46 $ 0.49 $ 0.47
Diluted 0.36 0.45 0.46 0.49 0.47
Cash dividends 0.285 0.275 0.275 0.275 0.275
Book value 20.86 20.46 20.51 20.14 20.10