MIDLAND, Mich., Oct. 22, 2007 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2007 third quarter net income of $10.6 million, or $0.44 per diluted share, versus net income of $11.5 million, or $0.46 per diluted share, in the third quarter of 2006.
Net income was $29.2 million, or $1.19 per diluted share, for the nine months ended September 30, 2007, compared to net income of $35.6 million, or $1.42 per diluted share, for the nine months ended September 30, 2006.
"We continue to be negatively impacted by Michigan's stagnant economy, with real estate related credit quality a growing concern given depressed real estate values in key Michigan markets. While net interest income was only slightly below that of the prior year's quarter, and approximately the same as the second quarter of 2007, a deterioration in credit quality resulted in an increase in our provision for loan losses," said David B. Ramaker, Chairman, President and Chief Executive Officer.
"We will continue to be aggressive in addressing nonperforming assets and remain committed to improving credit quality. While we anticipate little improvement in the state's economy in the short term, we are cautiously optimistic about Michigan's longer term prospects. Over the past few years, to adapt to the no-growth environment in which we are operating, we have worked to control operating costs and limit the rate of projected operating expense growth. At the same time, we continue to pursue specific growth strategies aimed at enhancing long-term shareholder value. We are encouraged by the continued progress of our retail banking reorganization and our efforts to drive revenue growth by doing more business with existing customer households," said Ramaker.
The Company's previously announced retail banking reorganization, which involves realigning its 15 community bank structure into four regions while consolidating numerous back office and support functions, is nearing completion. During the third quarter of 2007, the Company did not incur any reorganization costs, although the Company anticipates that it will incur approximately $0.5 million in expenses related to the reorganization in the fourth quarter of 2007, which would result in a total of $2.1 million of reorganization expenses in 2007. The Company projects that annual expense savings from the reorganization upon its completion will total $2.0 million.
Total assets were $3.82 billion at September 30, 2007, up slightly from $3.79 billion at December 31, 2006, and down slightly from $3.84 billion at September 30, 2006. At September 30, 2007, total loans were $2.81 billion, up slightly from December 31, 2006 and down slightly from $2.82 billion at September 30, 2006. Over the past twelve months, increases in real estate commercial and real estate residential loans have offset declines in commercial, real estate construction and consumer loans. Investment securities were $632 million at September 30, 2007, up slightly from $615 million at December 31, 2006, but down from $638 million at September 30, 2006.
Total deposits were $2.97 billion at September 30, 2007, up from $2.90 billion at December 31, 2006 and up from $2.96 billion at September 30, 2006. Wholesale borrowings, solely Federal Home Loan Bank advances, totaled $125.0 million at September 30, 2007, down $50.1 million or 28.6%, from $175.1 million at December 31, 2006 and down $55.1 million or 30.6%, from $180.1 million at September 30, 2006. The Company utilized the liquidity provided through the increase in deposits to pay off its short-term Federal Home Loan Bank advances during the past twelve months.
Net interest income was $32.47 million in the third quarter of 2007, a slight decrease from third quarter 2006 net interest income of $32.74 million, although approximately the same as net interest income of $32.42 million in the second quarter of 2007. 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 third quarter of 2007 was 3.68%, down from 3.74% in the third quarter of 2006, and down from 3.70% in the second quarter of 2007. The decline in net interest margin from the prior year was primarily attributable to increases in rates paid on interest-bearing liabilities exceeding increases in rates earned on interest-earning assets, as deposits repriced more than loans in the past twelve months. The decline in net interest margin from the second quarter of 2007 was primarily due to a higher level of nonperforming loans in the current quarter.
The provision for loan losses was $2.9 million in the third quarter of 2007, compared to $2.5 million in the second quarter of 2007 and $1.8 million in the third quarter of 2006. Net loan charge-offs were $0.8 million in the third quarter of 2007, down from $1.3 million in the second quarter of 2007, although up from $0.4 million in the third quarter of 2006. The increase in the provision for loan losses in the third quarter of 2007, as compared to the previous year's quarter and the second quarter of 2007, was reflective of the overall deterioration in credit quality. The increase in the provision for loan losses was primarily driven by increased specific impairment reserves of $1.3 million during the quarter and an increase in nonaccrual loans. The allowance for loan losses at September 30, 2007 was $38.4 million or 1.36% of total loans, up from 1.30% of total loans at June 30, 2007 and 1.25% at September 30, 2006.
At September 30, 2007, nonperforming assets totaled $62.8 million, up from $57.0 million at June 30, 2007, and $42.7 million at September 30, 2006. During the third quarter of 2007, the Company saw a significant increase in the level of nonperforming real estate residential loans which accounted for approximately two-thirds of the increase in nonperforming assets from June 30, 2007. At September 30, 2007, nonperforming loans were $53.6 million and represented 1.90% of total loans, up from $47.8 million or 1.71% of total loans at June 30, 2007 and $32.6 million or 1.16% of total loans at September 30, 2006. Nonperforming loans at September 30, 2007, when compared to September 30, 2006, were higher in all loan segments.
The allowance for loan losses as a percent of nonperforming loans has decreased slightly from 76% at June 30, 2007 to 72% at September 30, 2007. A portion of the Company's nonperforming loans involve specific real estate commercial loans which have been analyzed and deemed to have sufficient collateral values so as not to require allocation of the allowance for loan losses to these loans.
Noninterest income in the third quarter of 2007 was $11.1 million, up $1.2 million or 12%, from $9.9 million in the third quarter of 2006 and a decrease of $0.3 million or 2.6% from the second quarter of 2007. The increase in noninterest income over the prior year was primarily due to an increase in other income attributable to $1 million in insurance proceeds recognized in the third quarter of 2007 from fire damage of a branch building. The insurance proceeds will be utilized for capital expenditures in 2008 to remediate the fire damage.
Operating expenses in the third quarter of 2007 were $25.2 million, up from $24.2 million in the third quarter of 2006, although down from $27.2 million in the second quarter of 2007. The increase in the third quarter of this year over the prior year quarter was due primarily to a $0.4 million increase in salaries expense and a $0.4 million increase in information technology costs associated with the Company's migration from its current core processing mainframe technology to a system that has both greater capacity and flexibility. The reduction in operating expenses in the third quarter of 2007, compared to the second quarter of 2007, was attributable to $1.6 million in reorganization expenses incurred in the second quarter. The Company's efficiency ratio was 57.1% in the third quarter of 2007, down from 61.4% in the second quarter of 2007 and up slightly from 56.1% in the third quarter of 2006. Excluding reorganization expenses of $1.6 million incurred to date in 2007, operating expenses were $3.1 million, or 4.2%, higher during the first nine months of 2007 compared to the prior year.
The Company's return on average assets during the third quarter of 2007 was 1.10%, up from 1.00% in the second quarter of 2007 but down from 1.20% in the third quarter of 2006. At September 30, 2007, the Company's book value stood at $21.04 per share versus $20.70 per share at September 30, 2006. The decline in return on assets resulted in a slight decline in return on average equity to 8.4% in the third quarter of 2007 from 9.0% in the third quarter of 2006.
During the third quarter of 2007, the Company repurchased 412,500 shares of its common stock at an average price of $23.04 per share; bringing total share repurchases for the year 2007 to 885,300 shares. The Company can purchase up to 137,700 additional shares prior to seeking additional authorizations for repurchases from its Board of Directors.
Chemical Financial Corporation is the second-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 September 30, 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 amounts projected, 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
Third Quarter Operating Results
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Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per September 30 December 31 September 30
share data) 2007 2006 2006
---------------------------------------------------------------------
Assets:
Cash and cash due from banks $ 99,465 $ 135,544 $ 87,430
Federal funds sold 88,300 49,500 86,500
Interest-bearing deposits with
unaffiliated banks 15,226 5,712 5,230
Investment securities -
available for sale 533,611 520,867 537,449
Investment securities - held to
maturity 98,342 94,564 100,980
Other securities 22,135 22,131 23,368
Loans held for sale 7,708 5,667 29,578
Loans:
Commercial loans 534,503 545,591 539,349
Real estate commercial loans 736,443 726,554 725,988
Real estate construction loans 138,199 145,933 162,762
Real estate residential loans 840,694 835,263 820,798
Consumer loans 565,140 554,319 568,935
---------- ---------- ----------
Total Loans 2,814,979 2,807,660 2,817,832
Less: Allowance for loan losses 38,386 34,098 35,348
---------- ---------- ----------
Net Loans 2,776,593 2,773,562 2,782,484
Premises and equipment 48,293 49,475 47,559
Goodwill 69,908 70,129 71,369
Other intangible assets 7,324 8,777 9,193
Interest receivable and other
assets 55,857 53,319 58,901
---------- ---------- ----------
Total Assets $3,822,762 $3,789,247 $3,840,041
========== ========== ==========
Liabilities:
Noninterest-bearing deposits $ 524,522 $ 551,177 $ 524,373
Interest-bearing deposits 2,442,692 2,346,908 2,432,561
---------- ---------- ----------
Total Deposits 2,967,214 2,898,085 2,956,934
Interest payable and other
liabilities 23,285 29,235 23,288
Short-term borrowings 203,322 208,969 196,451
Federal Home Loan Bank advances
- long-term 125,049 145,072 150,072
---------- ---------- ----------
Total Liabilities 3,318,870 3,281,361 3,326,745
Shareholders' Equity:
Common stock, $1 par value per
share 23,952 24,828 24,799
Surplus 347,569 368,554 367,991
Retained earnings 138,817 123,454 126,128
Accumulated other comprehensive
loss (6,446) (8,950) (5,622)
---------- ---------- ----------
Total Shareholders' Equity 503,892 507,886 513,296
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,822,762 $3,789,247 $3,840,041
========== ========== ==========
Chemical Financial Corporation Announces
Third Quarter Operating Results
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Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
Three Months Ended Nine Months Ended
(In thousands, except per September 30 September 30
share data) 2007 2006 2007 2006
---------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 48,346 $ 47,843 $143,850 $137,027
Interest on investment
securities:
Taxable 6,299 6,006 18,667 18,524
Tax-exempt 688 661 2,018 1,892
Dividends on other
securities 182 178 755 867
Interest on federal funds
sold 1,433 785 4,495 2,357
Interest on deposits with
unaffiliated banks 209 83 383 557
-------- -------- -------- --------
Total Interest Income 57,157 55,556 170,168 161,224
Interest Expense:
Interest on deposits 21,037 18,016 62,290 49,586
Interest on short-term
borrowings 1,957 2,947 5,731 6,384
Interest on Federal Home
Loan Bank advances -
long-term 1,690 1,854 5,480 5,707
-------- -------- -------- --------
Total Interest Expense 24,684 22,817 73,501 61,677
-------- -------- -------- --------
Net Interest Income 32,473 32,739 96,667 99,547
Provision for loan losses 2,900 1,750 7,025 2,610
-------- -------- -------- --------
Net Interest Income
after Provision for
Loan Losses 29,573 30,989 89,642 96,937
Noninterest Income:
Service charges on deposit
accounts 5,039 5,308 15,243 15,761
Trust and investment
services revenue 2,034 1,745 6,221 5,844
Other charges and fees for
customer services 2,393 2,308 7,211 6,695
Mortgage banking revenue 577 476 1,647 1,389
Investment securities
gains -- -- 4 --
Other 1,014 59 2,130 557
-------- -------- -------- --------
Total Noninterest
Income 11,057 9,896 32,456 30,246
Operating Expenses:
Salaries, wages and
employee benefits 14,463 13,984 44,975 42,586
Occupancy 2,361 2,270 7,721 7,289
Equipment 2,228 2,169 6,913 6,702
Other 6,118 5,773 19,540 17,816
-------- -------- -------- --------
Total Operating Expenses 25,170 24,196 79,149 74,393
-------- -------- -------- --------
Income Before Income Taxes 15,460 16,689 42,949 52,790
Provision for federal
income taxes 4,850 5,199 13,786 17,174
-------- -------- -------- --------
Net Income $ 10,610 $ 11,490 $ 29,163 $ 35,616
======== ======== ======== ========
Net income per share:
Basic $ 0.44 $ 0.46 $ 1.19 $ 1.42
Diluted 0.44 0.46 1.19 1.42
Cash dividends per share $ 0.285 $ 0.275 $ 0.855 $ 0.825
Average shares outstanding:
Basic 24,091 24,800 24,520 24,957
Diluted 24,098 24,829 24,532 24,992
Chemical Financial Corporation Announces
Third Quarter Operating Results
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Financial Summary (Unaudited)
Chemical Financial Corporation
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars in thousands) 2007 2006 2007 2006
---------------------------------------------------------------------
Average Balances
Total assets $3,812,654 $3,785,971 $3,799,670 $3,757,921
Total interest-
earning assets 3,576,667 3,537,591 3,565,767 3,518,028
Total loans 2,813,746 2,807,848 2,803,141 2,745,405
Total deposits 2,957,407 2,846,603 2,936,466 2,853,044
Total interest-
bearing liabilities 2,740,812 2,717,902 2,732,713 2,690,711
Total shareholders'
equity 499,353 508,068 507,146 508,173
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
------------------------------------------------------------------
Key Ratios (annualized where
applicable)
Net interest margin (taxable
equivalent basis) 3.68% 3.74% 3.68% 3.81%
Efficiency ratio 57.1% 56.1% 60.5% 56.7%
Return on average assets 1.10% 1.20% 1.03% 1.27%
Return on average
shareholders' equity 8.4% 9.0% 7.7% 9.4%
Average shareholders' equity
as a percent of average
assets 13.1% 13.4% 13.3% 13.5%
Tangible shareholders'
equity as a percent of
total assets 11.4% 11.5%
Total risk-based capital
ratio 17.1% 17.3%
September 30 June 30 March 31 December 31 September 30
2007 2007 2007 2006 2006
---------------------------------------------------------------------
Credit
Quality
Statistics
Nonaccrual
loans $ 40,341 $ 36,119 $ 28,748 $ 20,239 $ 23,113
Loans 90 or
more days
past due and
still
accruing 13,282 11,704 6,441 6,671 9,505
Total
nonperforming
loans 53,623 47,823 35,189 26,910 32,618
Repossessed
assets (RA) 9,164 9,177 9,250 8,852 10,062
Total
nonperforming
assets 62,787 57,000 44,439 35,762 42,680
Net loan
charge-offs
(year-to-date) 2,737 1,969 707 5,650 1,810
Allowance for
loan losses
as a percent
of total
loans 1.36% 1.30% 1.25% 1.21% 1.25%
Allowance for
loan losses
as a percent
of nonperforming
loans 72% 76% 100% 127% 108%
Nonperforming
loans as a
percent of
total loans 1.90% 1.71% 1.26% 0.96% 1.16%
Nonperforming
assets as a
percent of
total loans
plus RA 2.22% 2.03% 1.58% 1.27% 1.51%
Nonperforming
assets as a
percent of
total assets 1.64% 1.51% 1.16% 0.94% 1.11%
Net loan
charge-offs
as a percent
of average
loans (year-
to-date,
annualized) 0.13% 0.14% 0.10% 0.20% 0.09%
September 30 June 30 March 31 December 31 September 30
2007 2007 2007 2006 2006
---------------------------------------------------------------------
Additional
Data -
Intangibles
Goodwill $ 69,908 $ 69,908 $ 69,908 $ 70,129 $ 71,369
Core deposits
and other
intangibles 5,024 5,455 5,886 6,379 6,660
Mortgage
servicing
rights (MSR) 2,300 2,302 2,299 2,398 2,533
Amortization
of
intangibles
(quarter
only) 651 665 734 857 618
Chemical Financial Corporation Announces
Third Quarter Operating Results
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Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars September 30 June 30 March 31 December 31 September 30
in thousands) 2007 2007 2007 2006 2006
---------------------------------------------------------------------
Nonaccrual
loans:
Commercial $ 6,735 $ 5,810 $ 4,891 $ 4,203 $ 4,124
Real estate
commercial 19,664 19,163 14,621 9,612 11,329
Real estate
construction-
commercial 4,573 4,483 3,283 2,552 2,017
Real estate
residential 7,244 4,967 4,660 2,887 4,455
Consumer 2,125 1,696 1,293 985 1,188
---------------------------------------------------------------------
Total
nonaccrual
loans 40,341 36,119 28,748 20,239 23,113
Accruing loans
contractually
past due 90
days or more as
to interest or
principal
payments:
Commercial 1,867 1,564 2,030 1,693 3,151
Real estate
commercial 5,367 5,561 2,342 2,232 3,081
Real estate
construction-
commercial 1,076 884 -- 174 --
Real estate
residential 3,918 2,352 1,350 1,158 1,857
Consumer 1,054 1,343 719 1,414 1,416
---------------------------------------------------------------------
Total accruing
loans
contractually
past due 90
days or more
as to interest
or principal
payments 13,282 11,704 6,441 6,671 9,505
---------------------------------------------------------------------
Total
nonperforming
loans 53,623 47,823 35,189 26,910 32,618
Other real
estate and
repossessed
assets 9,164 9,177 9,250 8,852 10,062
---------------------------------------------------------------------
Total
non-
performing
assets $ 62,787 $ 57,000 $ 44,439 $ 35,762 $ 42,680
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Chemical Financial Corporation Announces
Third Quarter Operating Results
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Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
Three Months Ended
----------------------------------------------------------
(Dollars September 30 June 30 March 31 December 31 September 30
in thousands) 2007 2007 2007 2006 2006
---------------------------------------------------------------------
Allowance
for loan
losses at
beginning
of period $ 36,254 $ 35,016 $ 34,098 $ 35,348 $ 33,638
Loans charged
off:
Commercial (208) (435) (429) (1,056) (52)
Real estate
commercial -- (186) (74) (964) --
Real estate
construction (134) (221) (67) (1,201) --
Real estate
residential (64) (96) (18) (108) (101)
Consumer (501) (488) (350) (677) (475)
---------------------------------------------------------------------
Total loan
charge-offs (907) (1,426) (938) (4,006) (628)
Recoveries of
loans
previously
charged off:
Commercial 18 42 99 52 58
Real estate
commercial 19 -- 1 1 2
Real estate
residential 4 1 1 -- 1
Consumer 98 121 130 113 127
---------------------------------------------------------------------
Total loan
recoveries 139 164 231 166 188
---------------------------------------------------------------------
Net loan
charge-offs (768) (1,262) (707) (3,840) (440)
Provision for
loan losses 2,900 2,500 1,625 2,590 1,750
Allowance of
branches
acquired -- -- -- -- 400
---------------------------------------------------------------------
Allowance for
loan losses
at end of
period $ 38,386 $ 36,254 $ 35,016 $ 34,098 $ 35,348
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Chemical Financial Corporation Announces
Third Quarter Operating Results
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Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(In thousands, except 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
per share data) 2007 2007 2007 2006 2006
-------------------------------------------------------------------
Summary of Operations
Interest income $57,157 $57,086 $55,925 $56,199 $55,556
Interest expense 24,684 24,666 24,151 23,510 22,817
Net interest income 32,473 32,420 31,774 32,689 32,739
Provision for loan
losses 2,900 2,500 1,625 2,590 1,750
Net interest income
after provision
for loan losses 29,573 29,920 30,149 30,099 30,989
Noninterest income 11,057 11,356 10,043 9,901 9,896
Noninterest expense 25,170 27,221 26,758 23,481 24,196
Income taxes 4,850 4,543 4,393 5,291 5,199
Net income $10,610 $ 9,512 $ 9,041 $11,228 $11,490
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Per Common Share Data
Net income:
Basic $ 0.44 $ 0.39 $ 0.36 $ 0.45 $ 0.46
Diluted 0.44 0.39 0.36 0.45 0.46
Cash dividends 0.285 0.285 0.285 0.275 0.275
Book value 21.04 20.79 20.86 20.46 20.70