Chemical Financial Corporation Reports First Quarter 2011 Results

MIDLAND, Mich., April 18, 2011 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2011 first quarter net income of $9.2 million, or $0.33 per diluted share, compared to 2010 fourth quarter net income of $7.5 million, or $0.27 per diluted share, and $2.3 million, or $0.10 per diluted share, in the first quarter of 2010.

"Reported first quarter 2011 earnings were more than triple the prior year's first quarter results and represent our highest quarterly per share net income level in almost three years. This financial performance is reflective of further credit quality stabilization, augmented by the earnings impact of our April 30, 2010 acquisition of O.A.K. Financial Corporation (OAK)," said David B. Ramaker, Chairman, Chief Executive Officer, and President. "While we are encouraged by the positive nature of these early trends, we remain cautious as a result of the challenges that our industry and the overall economy continue to face."

"Having said that, we believe we are well positioned to capitalize on opportunities to expand our market share and leadership role in Michigan's consolidating banking industry, which we believe will lead to enhanced profitability and growth in the future," added Ramaker.

Higher net income in the first quarter of 2011, compared to the fourth quarter of 2010, was attributable primarily to a lower provision for loan losses and lower operating expenses.

The Company's return on average assets during the first quarter of 2011 was 0.70 percent, up from 0.57 percent in the fourth quarter of 2010 and 0.22 percent in the first quarter of 2010. The return on average equity was 6.6 percent in the first quarter of 2011, up from 5.3 percent in the fourth quarter of 2010 and 2.0 percent in the first quarter of 2010.

The acquisition of OAK and its subsidiary, Byron Bank, resulted in increases in the Company's total assets of $820 million, total loans of $627 million, total deposits of $693 million (core deposits of $495 million) and goodwill of $44 million as of the acquisition date.  Assets and liabilities acquired in the OAK transaction were recorded at fair value. The consolidation and systems conversion of Byron Bank into Chemical Bank was completed in the third quarter of 2010.

Net interest income was $45.2 million in the first quarter of 2011, down from $45.9 million in the fourth quarter of 2010 and up from $36.4 million in the first quarter of 2010. The net interest margin (on a tax-equivalent basis) in the first quarter of 2011 was 3.78 percent, compared to 3.79 percent in the fourth quarter of 2010 and 3.72 percent in the first quarter of 2010. The decrease in net interest income in the first quarter of 2011 compared to the fourth quarter of 2010 was primarily attributable to a fewer number of days in the quarter over which net interest income was calculated. The increase in net interest income during the first quarter of 2011 compared to the same quarter in 2010 was primarily attributable to the acquisition of OAK and a decrease in the average cost of deposits related to maturing higher-cost customer certificates of deposit and maturing higher-cost wholesale funding.

The provision for loan losses was $7.5 million in the first quarter of 2011, compared to $10.3 million in the fourth quarter of 2010 and $14.0 million in the first quarter of 2010. First quarter 2011 net loan charge-offs were $7.4 million, compared to $10.3 million in the fourth quarter of 2010 and $10.7 million in the first quarter of 2010.

Total noninterest income was $10.8 million in the first quarter of 2011, compared to $10.9 million in the fourth quarter of 2010 and $9.4 million in the first quarter of 2010.  The decrease in the first quarter of 2011, as compared to the fourth quarter of 2010, was due primarily to lower service charges on deposit accounts. Service charges on deposit accounts were $0.3 million less in the first quarter of 2011, as compared to the fourth quarter of 2010, due primarily to the impact of changes in regulatory requirements regarding the processing of certain electronic ATM and debit card transactions. Service charges on deposits accounts were $4.1 million in the first quarter of 2011; by comparison, service charges on deposit accounts in the second quarter of 2010, prior to the change in regulatory requirements, were $5.1 million.

Operating expenses were $35.4 million in the first quarter of 2011, down from $36.7 million in the fourth quarter of 2010 and up from $29.2 million in the first quarter of 2010.  The decrease in operating expenses in the first quarter of 2011, as compared to the fourth quarter of 2010, was primarily attributable to a reduction in incentive based compensation and credit-related operating expenses. Credit-related operating expenses declined to $2.1 million in the first quarter of 2011, down from $2.8 million incurred in the fourth quarter of 2010 and up from $1.7 million incurred in the first quarter of 2010. The increase in operating expenses during the first quarter of 2011, compared to the first quarter of 2010, was primarily attributable to the acquisition of OAK. The Company's first quarter 2011 efficiency ratio was 61.8 percent, compared to 63.3 percent in the fourth quarter of 2010 and 62.4 percent in the first quarter of 2010.  

Total assets were $5.34 billion at March 31, 2011, up from $5.25 billion at December 31, 2010 and $4.29 billion at March 31, 2010. The increase in assets during the first quarter of 2011, as compared to the fourth quarter of 2010, was largely attributable to an increase in cash and cash equivalents from seasonal increases in deposits and repurchase agreements of municipal customers. Total loans were $3.68 billion at March 31, 2011 and December 31, 2010, compared to $2.99 billion at March 31, 2010. Investment securities were $750 million at March 31, 2011, compared to $744 million at December 31, 2010 and $691 million at March 31, 2010. The increases in assets, loans and investment securities during the twelve months ended March 31, 2011 were primarily attributable to the acquisition of OAK.

Total deposits were $4.38 billion at March 31, 2011, compared to $4.33 billion at December 31, 2010 and $3.47 billion at March 31, 2010. The Company experienced an increase of $51 million, or 1.2 percent, in total deposits during the quarter ended March 31, 2011, with the majority attributable to a seasonal increase in municipal customer deposits. The Company continues to maintain significant amounts of funds generated from deposit growth in interest-bearing balances at the Federal Reserve Bank (FRB), thereby further enhancing the Company's liquidity position, with $520 million in balances held at the FRB at March 31, 2011, compared to $440 million at December 31, 2010. The Company used a portion of its liquidity to pay off maturing Federal Home Loan Bank (FHLB) advances and brokered deposits acquired in the OAK transaction and intends to continue to pay off these wholesale funding sources as they mature. FHLB advances totaled $72.9 million at March 31, 2011, down from $74.1 million at December 31, 2010 and $80.0 million at March 31, 2010. Brokered deposits acquired in the OAK transaction totaled $151 million at March 31, 2011, compared to $163 million at December 31, 2010 and $182 million at September 30, 2010.

At March 31, 2011, the Company's tangible equity to assets ratio and total risk-based capital ratio were 8.5 percent and 13.0 percent, respectively, compared to 8.6 percent and 12.9 percent, respectively, at December 31, 2010. At March 31, 2011, the Company's book value was $20.54 per share, compared to $20.41 per share at December 31, 2010.

The credit quality of the Company's loan portfolio is showing signs of stabilization. At March 31, 2011, the Company's originated loan portfolio, representing all loans other than those acquired in the OAK transaction, had nonaccrual loans and loans past due 90 days or more totaling $108.5 million, compared to $110.4 million at December 31, 2010 and $108.1 million at March 31, 2010. The Company's nonperforming loans at March 31, 2011 also included commercial, real estate commercial and real estate residential loans that have been modified due to financial difficulties being experienced by customers of $37.4 million, unchanged from $37.4 million at December 31, 2010 and up from $22.0 million at March 31, 2010. In addition, the carrying value (net of a fair value discount that was recognized at acquisition) of acquired loans that were not performing in accordance with their contractual terms totaled $17.7 million at March 31, 2011, compared to $21.4 million at December 31, 2010.

Other real estate and repossessed assets totaled $26.4 million at March 31, 2011, compared to $27.5 million at December 31, 2010 and $18.8 million at March 31, 2010. The net decrease in the first quarter of 2011 was primarily attributable to the sales of numerous properties that were partially offset by additions of foreclosed properties during the quarter.

At March 31, 2011, the allowance for loan losses was $89.7 million, or 2.85 percent of originated loans, down slightly from 2.86 percent at December 31, 2010, although up from 2.82 percent at March 31, 2010. The allowance for loan losses as a percentage of nonperforming loans was 61 percent at March 31, 2011, unchanged from 61 percent at December 31, 2010, and down from 65 percent at March 31, 2010. At March 31, 2011, nonperforming loans as a percentage of total loans were 3.96 percent, down from 4.01 percent at December 31, 2010 and 4.35 percent at March 31, 2010.

Chemical Financial Corporation is the second-largest bank holding company headquartered in Michigan. The Company operates through a single subsidiary bank, Chemical Bank, with 142 banking offices spread over 32 counties in the lower peninsula of Michigan. At March 31, 2011, the Company had total assets of $5.3 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. More information about the Company is available by visiting the investor relations section of its website at www.chemicalbankmi.com.

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. Words such as "believe," "encouraged," "intend," "will," "continue," "trends," "cautious," "future," "enhanced," "signs" and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, statements related to the credit quality of our loan portfolio, future levels of nonperforming loans, future opportunities for acquisitions, future opportunities to expand our market share, future funding sources, future growth opportunities and future profitability levels. All statements referencing future time periods are forward-looking. Management's determination of the provision and allowance for loan losses, the carrying value of acquired loans, goodwill, mortgage servicing rights and other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) involve judgments that are inherently forward-looking. Management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated or that other real estate owned can be sold for its carrying value. The future effect of changes in the financial and credit markets and the national and regional economy on the banking industry, generally, and on the Company, specifically, are also inherently uncertain. 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. The Company 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 of the Company's Annual Report on Form 10-K for the year ended December 31, 2010. 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.