MIDLAND, Mich., July 28, 2008 (PRIME NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2008 second quarter net income of $9.6 million, or $0.40 per diluted share, versus net income of $9.5 million, or $0.39 per diluted share, in the second quarter of 2007.
Net income was $19.3 million, or $0.81 per diluted share, for the six months ended June 30, 2008, compared to net income of $18.6 million, or $0.75 per diluted share, for the six months ended June 30, 2007.
"We are pleased with our quarterly earnings performance especially in light of the challenges posed by the economy. An increase in net interest income resulting from a higher net interest margin was augmented by a one time gain in the amount of $1.7 million from the sale of MasterCard stock during the second quarter. These increases were partially offset by continued weaknesses in credit quality, which resulted in a substantial increase in the provision for loan losses and other credit related costs," said David B. Ramaker, Chairman, President and Chief Executive Officer of Chemical Financial Corporation. "We have not yet seen sustained evidence of a recovery in the Michigan economy, and in view of the struggling housing industry, the low level of consumer confidence and the U.S. automotive industry facing unprecedented challenges, it is difficult to foresee any economic turnaround in the short term. However, we are confident that our increased net interest income, strong balance sheet, healthy capital position and conservative credit culture will allow us to not only weather the storm, but capitalize on any opportunities," added Ramaker.
Net interest income was $35.6 million in the second quarter of 2008, an increase of $3.2 million, or 9.9 percent, from second quarter 2007 net interest income of $32.4 million and an increase of $1.2 million, or 3.6 percent, from first quarter 2008 net interest income of $34.4 million. The increases in net interest income were attributable primarily to the increases in net interest margin. The net interest margin (on a tax-equivalent basis) in the second quarter of 2008 was 4.11 percent, up substantially from 3.70 percent in the second quarter of 2007 and up from 3.94 percent in the first quarter of 2008. The increases in net interest margin were primarily attributable to decreases in rates paid on interest-bearing liabilities exceeding decreases in rates earned on interest-earning assets, as deposits repriced more rapidly than loans in the falling interest rate environment experienced in the past 12 months.
Total assets were $3.74 billion at June 30, 2008, down slightly from $3.75 billion at December 31, 2007 and down from $3.78 billion at June 30, 2007. At June 30, 2008, total loans were $2.85 billion, versus $2.80 billion at December 31, 2007 and June 30, 2007. Federal funds sold were $8 million at June 30, 2008, down from $58 million at December 31, 2007 and $86 million at June 30, 2007. During the first six months of 2008, the Company utilized excess liquidity to fund approximately $51 million in loan growth. Investment securities were $589 million at June 30, 2008, down from $595 million at December 31, 2007 and down from $621 million at June 30, 2007.
Total deposits were $2.89 billion at June 30, 2008, up slightly from $2.88 billion at December 31, 2007, although down from $2.94 billion at June 30, 2007. Long-term wholesale borrowings, comprised of Federal Home Loan Bank advances, totaled $130 million at June 30, 2008, down $20 million, or 13.3 percent, from $150 million at December 31, 2007 and down $5 million, or 3.7 percent, from $135 million at June 30, 2007.
The provision for loan losses was $6.5 million in the second quarter of 2008, compared to $2.7 million in the first quarter of 2008 and $2.5 million in the second quarter of 2007. Net loan charge-offs were $6.5 million in the second quarter of 2008, up substantially from $2.5 million in the first quarter of 2008 and $1.3 million in the second quarter of 2007. The increases in the provision for loan losses in the second quarter of 2008, as compared to the first quarter of 2008 and the previous year, were due primarily to increases in commercial, real estate commercial and real estate construction loan charge-offs.
At June 30, 2008, nonperforming assets totaled $87.8 million, up from $84.6 million at March 31, 2008 and up from $57.0 million at June 30, 2007. Nonperforming loans were $71.9 million at June 30, 2008 and March 31, 2008, with the increase in nonperforming assets in the second quarter of 2008 occurring in the other real estate component of nonperforming assets. At June 30, 2008, nonperforming loans as a percentage of total loans were 2.52 percent, down from 2.58 percent at March 31, 2008 and up from 1.71 percent at June 30, 2007.
The allowance for loan losses of $39.7 million at June 30, 2008 was 1.39 percent of total loans, down from 1.42 percent of total loans at March 31, 2008 and up from 1.30 percent of total loans at June 30, 2007. The allowance for loan losses as a percent of nonperforming loans was 55 percent at both June 30, 2008 and March 31, 2008, compared to 76 percent at June 30, 2007. The Company's nonperforming loans at June 30, 2008 included commercial, real estate commercial and residential development construction loans, totaling $28 million, 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.
Total noninterest income was $12.0 million in the second quarter of 2008, up $0.6 million, or 5.3 percent, from $11.4 million in the second quarter of 2007. The increase over the prior year was attributable to the realization of a $1.7 million gain on the sale of MasterCard stock. In comparison, in the second quarter of 2007, the Company recognized $0.9 million in gains on the sales of a previously consolidated branch office location and a parcel of excess land contiguous to an existing branch office.
Operating expenses in the second quarter of 2008 were $26.9 million, down $0.3 million, or 1.2 percent, from $27.2 million in the second quarter of 2007. Operating expenses in the second quarter of 2007 included $1.6 million of reorganization (compensation-related) expenses. Excluding these reorganization expenses, operating expenses in the second quarter of 2008 were up $1.3 million, or 5 percent, as compared to the second quarter of 2007. This increase in operating expenses was largely attributable to a customer merchant credit card loss of $0.6 million. The Company's efficiency ratio was 55.8 percent in the second quarter of 2008, down from 60.3 percent in the first quarter of 2008 and down from 61.4 percent in the second quarter of 2007. The decreases in the efficiency ratio were primarily attributable to the increase in net interest income.
The Company's return on average assets during the second quarter of 2008 was 1.03 percent, the same as in the first quarter of 2008 and up slightly from 1.00 percent in the second quarter of 2007. At June 30, 2008, the Company's book value stood at $21.58 per share versus $20.79 per share at June 30, 2007. The increase in return on assets resulted in a slight increase in return on average equity to 7.6 percent in the second quarter of 2008 from 7.5 percent in the second quarter of 2007.
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 June 30, 2008, the Company had total assets of $3.74 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.
Safe Harbor Statement
This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Chemical Financial Corporation itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "judgment," "plans," "predicts," "projects," "should," "will," variations of such words and similar expressions are intended to identify such forward-looking statements. Management's determination of the provision and allowance for loan losses involves judgments that are inherently forward-looking. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Chemical Financial Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Risk factors include, but are not limited to, the risk factors described in Item 1A in Chemical Financial Corporation's Annual Report on Form 10-K for the year ended December 31, 2007, the timing and level of asset growth; changes in banking laws and regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; opportunities for acquisitions and the effective completion of acquisitions and integration of acquired entities; the possibility that anticipated cost savings and revenue enhancements from acquisitions, restructurings, reorganizations and bank consolidations may not be realized fully or at all or within expected time frames; the local and global effects of the ongoing war on terrorism and other military actions, including actions in Iraq; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about credit availability and concerns about the Michigan economy in particular. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except June 30 Dec 31 June 30
per share data) 2008 2007 2007
---------------------------------------------------------------------
Assets:
Cash and cash equivalents:
Cash and cash due from banks $ 110,050 $ 125,285 $ 103,910
Federal funds sold 8,000 58,000 86,200
Interest-bearing deposits with
unaffiliated banks 4,827 6,228 5,487
---------- ---------- ----------
Total cash and cash equivalents 122,877 189,513 195,597
Investment securities:
Available for sale 477,910 503,271 513,954
Held to maturity 111,579 91,243 106,792
---------- ---------- ----------
Total investment securities 589,489 594,514 620,746
Other securities 22,142 22,135 22,135
Loans held for sale 7,571 7,883 6,560
Loans:
Commercial 539,086 515,319 522,535
Real estate commercial 776,505 760,399 735,510
Real estate construction 130,079 134,828 132,900
Real estate residential 824,588 838,545 845,432
Consumer 580,203 550,343 559,955
---------- ---------- ----------
Total Loans 2,850,461 2,799,434 2,796,332
Allowance for loan losses (39,664) (39,422) (36,254)
---------- ---------- ----------
Net Loans 2,810,797 2,760,012 2,760,078
Premises and equipment 49,164 49,930 48,313
Goodwill 69,908 69,908 69,908
Other intangible assets 5,963 6,876 7,757
Interest receivable and other
assets 59,943 53,542 53,820
---------- ---------- ----------
Total Assets $3,737,854 $3,754,313 $3,784,914
========== ========== ==========
Liabilities:
Deposits:
Noninterest-bearing $ 552,550 $ 535,705 $ 544,555
Interest-bearing 2,334,409 2,339,884 2,391,323
---------- ---------- ----------
Total Deposits 2,886,959 2,875,589 2,935,878
Interest payable and other
liabilities 21,207 22,848 22,156
Short-term borrowings 185,472 197,363 185,357
Federal Home Loan Bank advances -
long-term 130,025 150,049 135,049
---------- ---------- ----------
Total Liabilities 3,223,663 3,245,849 3,278,440
Shareholders' Equity:
Common stock, $1 par value per
share 23,823 23,815 24,365
Surplus 345,117 344,579 356,532
Retained earnings 147,092 141,867 135,054
Accumulated other comprehensive
loss (1,841) (1,797) (9,477)
---------- ---------- ----------
Total Shareholders' Equity 514,191 508,464 506,474
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $3,737,854 $3,754,313 $3,784,914
========== ========== ==========
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
Three Months Ended Six Months Ended
(In thousands, except June 30 June 30
per share data) 2008 2007 2008 2007
---------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 44,491 $ 48,138 $ 90,061 $ 95,504
Interest on investment
securities:
Taxable 5,473 6,233 11,312 12,368
Tax-exempt 687 666 1,382 1,330
Dividends on other securities 390 357 584 573
Interest on federal funds sold 412 1,617 1,430 3,062
Interest on deposits with
unaffiliated banks 55 75 176 174
-------- -------- -------- --------
Total Interest Income 51,508 57,086 104,945 113,011
Interest Expense:
Interest on deposits 13,734 20,917 30,061 41,253
Interest on short-term
borrowings 501 1,866 1,460 3,774
Interest on Federal Home
Loan Bank advances - long-term 1,637 1,883 3,402 3,790
-------- -------- -------- --------
Total Interest Expense 15,872 24,666 34,923 48,817
-------- -------- -------- --------
Net Interest Income 35,636 32,420 70,022 64,194
Provision for loan losses 6,500 2,500 9,200 4,125
-------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 29,136 29,920 60,822 60,069
Noninterest Income:
Service charges on deposit
accounts 5,007 5,236 9,781 10,204
Trust and investment services
revenue 2,090 2,087 4,117 4,187
Other charges and fees for
customer services 2,461 2,376 4,684 4,818
Mortgage banking revenue 524 628 1,060 1,070
Investment securities gains 1,716 -- 1,716 4
Other 161 1,029 181 1,116
-------- -------- -------- --------
Total Noninterest Income 11,959 11,356 21,539 21,399
Operating Expenses:
Salaries, wages and employee
benefits 14,810 15,773 29,289 30,512
Occupancy 2,360 2,771 5,130 5,360
Equipment 2,133 2,207 4,320 4,356
Other 7,582 6,470 14,990 13,751
-------- -------- -------- --------
Total Operating Expenses 26,885 27,221 53,729 53,979
-------- -------- -------- --------
Income Before Income Taxes 14,210 14,055 28,632 27,489
Provision for federal income
taxes 4,600 4,543 9,351 8,936
-------- -------- -------- --------
Net Income $ 9,610 $ 9,512 $ 19,281 $ 18,553
======== ======== ======== ========
Net income per share:
Basic $ 0.40 $ 0.39 $ 0.81 $ 0.75
Diluted 0.40 0.39 0.81 0.75
Cash dividends per share 0.295 0.285 0.590 0.570
Average shares outstanding:
Basic 23,823 24,644 23,823 24,738
Diluted 23,831 24,655 23,829 24,752
Financial Summary (Unaudited)
Chemical Financial Corporation
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in thousands) 2008 2007 2008 2007
---------------------------------------------------------------------
Average Balances
Total assets $3,757,238 $3,797,749 $3,774,361 $3,793,283
Total interest-earning
assets 3,530,750 3,566,517 3,546,177 3,560,228
Total loans 2,827,260 2,796,902 2,813,105 2,797,752
Total deposits 2,910,357 2,931,977 2,921,693 2,925,820
Total interest-bearing
liabilities 2,680,550 2,729,085 2,708,823 2,728,594
Total shareholders'
equity 511,926 510,902 510,079 511,108
Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
---------------------------------------------------------------------
Key Ratios (annualized where
applicable)
Net interest margin (taxable
equivalent basis) 4.11% 3.70% 4.02% 3.68%
Efficiency ratio 55.8% 61.4% 58.0% 62.3%
Return on average assets 1.03% 1.00% 1.03% 0.99%
Return on average shareholders'
equity 7.6% 7.5% 7.6% 7.3%
Average shareholders' equity as a
percent of average assets 13.6% 13.5% 13.5% 13.5%
Tangible shareholders' equity as
a percent of total assets 12.0% 11.6%
Total risk-based capital ratio 17.3% 17.5%
June 30 March 31 Dec 31 Sept 30 June 30
2008 2008 2007 2007 2007
---------------------------------------------------------------------
Credit Quality Statistics
Nonaccrual loans $61,635 $61,360 $55,596 $40,341 $36,119
Loans 90 or more days past
due and still accruing 10,288 10,570 7,764 13,282 11,704
Total nonperforming loans 71,923 71,930 63,360 53,623 47,823
Repossessed assets (RA) 15,897 12,664 11,132 9,164 9,177
Total nonperforming assets 87,820 84,594 74,492 62,787 57,000
Net loan charge-offs
(year-to-date) 8,958 2,460 6,176 2,737 1,969
Allowance for loan losses
as a percent of total
loans 1.39% 1.42% 1.41% 1.36% 1.30%
Allowance for loan losses
as a percent of
nonperforming loans 55% 55% 62% 72% 76%
Nonperforming loans as a
percent of total loans 2.52% 2.58% 2.26% 1.90% 1.71%
Nonperforming assets as a
percent of total loans
plus RA 3.06% 3.02% 2.65% 2.22% 2.03%
Nonperforming assets as a
percent of total assets 2.35% 2.23% 1.98% 1.64% 1.51%
Net loan charge-offs as a
percent of average loans
(year-to-date,
annualized) 0.64% 0.35% 0.22% 0.13% 0.14%
June 30 March 31 Dec 31 Sept 30 June 30
2008 2008 2007 2007 2007
---------------------------------------------------------------------
Additional Data -
Intangibles
Goodwill $69,908 $69,908 $69,908 $69,908 $69,908
Core deposit intangibles 3,609 4,062 4,593 5,024 5,455
Mortgage servicing rights
(MSR) 2,354 2,280 2,283 2,300 2,302
Amortization of core
deposit intangibles
(quarter only) 453 531 431 431 430
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
June 30 March 31 Dec 31 Sept 30 June 30
(Dollars in thousands) 2008 2008 2007 2007 2007
---------------------------------------------------------------------
Nonaccrual loans:
Commercial $10,918 $11,595 $10,961 $ 6,735 $ 5,810
Real estate commercial 17,915 19,235 19,672 19,664 19,163
Real estate construction 15,157 17,206 12,979 4,573 4,483
Real estate residential 11,955 9,267 8,516 7,244 4,967
Consumer 5,690 4,057 3,468 2,125 1,696
---------------------------------------------------------------------
Total nonaccrual loans 61,635 61,360 55,596 40,341 36,119
Accruing loans
contractually past due
90 days or more as to
interest or principal
payments:
Commercial 3,130 1,631 1,958 1,867 1,564
Real estate commercial 2,948 2,865 4,170 5,367 5,561
Real estate construction 676 392 -- 1,076 884
Real estate residential 2,746 4,742 1,470 3,918 2,352
Consumer 788 940 166 1,054 1,343
---------------------------------------------------------------------
Total accruing loans
contractually past due
90 days or more as to
interest or principal
payments 10,288 10,570 7,764 13,282 11,704
---------------------------------------------------------------------
Total nonperforming loans 71,923 71,930 63,360 53,623 47,823
Other real estate and
repossessed assets 15,897 12,664 11,132 9,164 9,177
---------------------------------------------------------------------
Total nonperforming
assets $87,820 $84,594 $74,492 $62,787 $57,000
=====================================================================
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
Three Months Ended
-----------------------------------------------------
(Dollars in June 30 March 31 Dec 31 Sept 30 June 30 March 31
thousands) 2008 2008 2007 2007 2007 2007
----------------------------------------------------------------------
Allowance for
loan losses at
beginning of
period $39,662 $39,422 $38,386 $36,254 $35,016 $34,098
Provision for
loan losses 6,500 2,700 4,475 2,900 2,500 1,625
Loans charged off:
Commercial (1,474) (591) (550) (208) (435) (429)
Real estate
commercial (3,373) (1,304) (1,415) -- (186) (74)
Real estate
construction (1,070) (16) (850) (134) (221) (67)
Real estate
residential (358) (245) (306) (64) (96) (18)
Consumer (612) (540) (596) (501) (488) (350)
----------------------------------------------------------------------
Total loan
charge-offs (6,887) (2,696) (3,717) (907) (1,426) (938)
Recoveries of
loans previously
charged off:
Commercial 228 77 90 18 42 99
Real estate
commercial 32 20 1 19 -- 1
Real estate
construction -- 29 30 -- -- --
Real estate
residential 5 22 12 4 1 1
Consumer 124 88 145 98 121 130
----------------------------------------------------------------------
Total loan
recoveries 389 236 278 139 164 231
----------------------------------------------------------------------
Net loan
charge-offs (6,498) (2,460) (3,439) (768) (1,262) (707)
---------------------------------------------------------------------
Allowance for
loan losses at
end of period $39,664 $39,662 $39,422 $38,386 $36,254 $35,016
======================================================================
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(In thousands, except 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
per share data) 2008 2008 2007 2007 2007
----------------------------------------------------------------------
Summary of Operations
Interest income $51,508 $53,437 $55,726 $57,157 $57,086
Interest expense 15,872 19,051 22,304 24,684 24,666
Net interest income 35,636 34,386 33,422 32,473 32,420
Provision for loan losses 6,500 2,700 4,475 2,900 2,500
Net interest income after
provision for loan
losses 29,136 31,686 28,947 29,573 29,920
Noninterest income 11,959 9,580 10,832 11,057 11,356
Operating expenses 26,885 26,844 25,522 25,170 27,221
Income taxes 4,600 4,751 4,411 4,850 4,543
Net income $9,610 $9,671 $9,846 $10,610 $9,512
----------------------------------------------------------------------
Per Common Share Data
Net income:
Basic $ 0.40 $ 0.41 $ 0.41 $ 0.44 $ 0.39
Diluted 0.40 0.41 0.41 0.44 0.39
Cash dividends 0.295 0.295 0.285 0.285 0.285
Book value - period-end 21.58 21.60 21.35 21.04 20.79
Market value - period-end 20.40 23.84 23.79 24.25 25.87