MIDLAND, Mich., July 23, 2007 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2007 second quarter net income of $9.5 million, or $0.39 per diluted share, versus net income of $12.2 million, or $0.49 per diluted share, in the second quarter of 2006.
Net income was $18.6 million, or $0.75 per diluted share, for the six months ended June 30, 2007, compared to net income of $24.1 million, or $0.96 per diluted share, for the six months ended June 30, 2006.
"Michigan's struggling economy, the flattened interest yield curve environment and increased nonperforming loans continued to depress the quarter's and six month's operating results. Net interest income declined slightly and operating expenses increased due primarily to one-time charges associated with our previously announced retail banking reorganization. Additionally, credit quality, exacerbated by the state's economic condition, required a higher provision for loan losses." said David B. Ramaker, Chairman, President and Chief Executive Officer of Chemical Financial Corporation. "The Michigan economy continues to stagnate - it was the only state in the nation which did not grow in 2006. In fact, Michigan's GDP through year-end 2006 has contracted at a compound annual rate of 0.3 percent since 2004, versus the national GDP growth rate of 3.4 percent during that same period. While there are signs that the economy is bottoming out, there is little evidence of a return to growth anytime soon."
"On the other hand, we are seeing some encouraging signs. After declining for nine consecutive quarters, our net interest margin and net interest income in the second quarter of 2007 increased over the first quarter of 2007, although remain below prior year levels. Additionally, the retail banking reorganization is on schedule. We remain committed to our strategy of increasing earnings by driving revenue growth through increased products sold to existing customer households, while diligently controlling expenses," added Ramaker.
The Company's previously announced retail banking reorganization, which involves realigning its 15 community bank network structure into four regions and consolidating numerous back office and support functions, is progressing well. During the quarter, the Company recognized reorganization costs, including severance and early retirement costs, of $1.6 million. Furthermore, the Company now anticipates that it will incur additional charges related to the reorganization in the second half of 2007 of roughly $0.7 million, which will result in higher reorganization costs than the originally anticipated and previously announced $1.5 million. The Company also projects that total annual expense savings from the reorganization will total $2.3 million in 2008, slightly higher than the $2.0 million in annual savings originally anticipated.
Net interest income was $32.4 million in the second quarter of 2007, a decrease of 2.4 percent from second quarter 2006 net interest income of $33.2 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 second quarter of 2007 was 3.70 percent, down from 3.88 percent in the second quarter of 2006, but up slightly from 3.66 percent in the first quarter of 2007. The decline in net interest margin from the prior year was primarily attributable to increases in interest rates paid on interest-bearing liabilities exceeding increases in interest rates earned on interest-earning assets, as deposits repriced more rapidly than loans in the rising interest rate environment experienced in the past 12 months.
Total assets were $3.78 billion at June 30, 2007, approximately the same as December 31, 2006, and up from $3.73 billion at June 30, 2006. At June 30, 2007, total loans were $2.80 billion, versus $2.81 billion at December 31, 2006 and $2.76 billion at June 30, 2006. The increase in loans since June 30, 2006 was attributable to the branch acquisitions completed in August 2006. Over the past twelve months, increases in residential real estate, commercial real estate and consumer loans have offset modest declines in commercial and real estate construction loans. Investment securities were $621 million at June 30, 2007, up slightly from $615 million at December 31, 2006 but down from $646 million at June 30, 2006. The decrease in investment securities was primarily attributable to the Company using excess liquidity from maturing investment securities to fund higher yielding loan growth.
Total deposits were $2.94 billion at June 30, 2007, up from $2.90 billion at December 31, 2006 and from $2.79 billion at June 30, 2006. Wholesale borrowings, primarily Federal Home Loan Bank advances, totaled $135 million at June 30, 2007, down $40 million, or 23 percent, from $175 million at December 31, 2006 and down $125 million, or 48 percent, from $260 million at June 30, 2006.
The provision for loan losses was $2.50 million in the second quarter of 2007, compared to $1.63 million in the first quarter of 2007 and $0.40 million in the second quarter of 2006. Net loan charge-offs were $1.26 million in the second quarter of 2007, up from $0.71 million in the first quarter of 2007 and up from $0.92 million in the second quarter of 2006. The increases in the provision for loan losses in the second quarter of 2007, as compared to both the previous year's quarter and the first quarter of 2007, were reflective of the overall deterioration in credit quality during both periods. The allowance for loan losses of $36.25 million at June 30, 2007 was 1.30 percent of total loans, up from 1.25 percent of total loans at March 31, 2007 and 1.22 percent at June 30, 2006. At June 30, 2007, nonperforming loans as a percentage of total loans were 1.71 percent, up from 1.26 percent at March 31, 2007 and 0.99 percent at June 30, 2006.
At June 30, 2007, nonperforming assets (nonperforming loans and repossessed assets) totaled $57.0 million, up from $44.4 million at March 31, 2007, and from $36.9 million at June 30, 2006. Nonperforming loans were $47.8 million at June 30, 2007, up from $35.2 million at March 31, 2007 and $26.9 million at December 31, 2006. The increases in nonperforming loans from both December 31, 2006 and March 31, 2007 to June 30, 2007 occurred primarily in the real estate commercial and real estate construction-commercial loan categories. Nonperforming real estate commercial and real estate construction-commercial loans were $30.1 million at June 30, 2007, up from $20.2 million at March 31, 2007 and $14.6 million at December 31, 2006. The increase in nonperforming real estate commercial and real estate construction-commercial loans during the second quarter of 2007 was primarily attributable to the addition of seven customer relationships with borrowings between $0.5 million and $2.2 million and totaling $9.5 million.
The allowance for loan losses as a percent of nonperforming loans has fallen from 100 percent at March 31, 2007 to 76 percent at June 30, 2007. The Company's $47.8 million of nonperforming loans at June 30, 2007 included commercial and real estate commercial loans totaling $22 million which have been individually analyzed and at that time deemed to have sufficient collateral values so as not to require an allocation of the allowance for loan losses to these loans.
Total noninterest income was $11.36 million in the second quarter of 2007, up $0.84 million, or 8 percent, from $10.52 million in the second quarter of 2006. The increase was due to an increase in other noninterest income that was attributable to gains realized on the sale of a branch office building and the sale of a parcel of excess land contiguous to an existing branch office.
Operating expenses in the second quarter of 2007 were $27.2 million, up from $25.1 million in the second quarter of 2006; due primarily to the reorganization costs incurred as a result of the Company's retail banking reorganization. Excluding these charges, operating expenses for the quarter would have increased by $0.5 million, or 2.0 percent. The Company's efficiency ratio was 61.4 percent in the second quarter of 2007, down from 63.2 percent in the first quarter of 2007 and up from 56.8 percent in the second quarter of 2006. The increase in the efficiency ratio from the prior year's quarter was attributable to both the decrease in net interest income and the increase in operating expenses, due largely to the $1.6 million of reorganization expenses.
During the second quarter of 2007, the Company repurchased 449,800 shares of its common stock (on the open market) at an average price of $26.96 per share, bringing total share repurchases for the year 2007 to 472,800 shares. At June 30, 2007, the Company had 50,200 additional shares available for repurchases under the April 2007 authorization from its Board of Directors. On July 18, 2007, the Company announced that its Board of Directors authorized repurchases of up to 500,000 additional shares.
The Company's return on average assets during the second quarter of 2007 was 1.00 percent, up from 0.97 percent in the first quarter of 2007 but down from 1.32 percent in the second quarter of 2006. The decline in return on assets resulted in a decline in return on average equity to 7.5 percent in the second quarter of 2007 from 9.7 percent in the second quarter of 2006. At June 30, 2007, the Company's book value stood at $20.79 per share versus $20.32 per share at June 30, 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 June 30, 2007, the Company had total assets of $3.78 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.
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
June 30 December 31 June 30
2007 2006 2006
---------------------------------------------------------------------
Assets:
Cash and cash due from banks $ 103,910 $ 135,544 $ 110,457
Federal funds sold 86,200 49,500 36,500
Interest-bearing deposits with
unaffiliated banks 5,487 5,712 5,211
Investment securities -
available for sale 513,954 520,867 549,532
Investment securities -
held to maturity 106,792 94,564 96,518
Other securities 22,135 22,131 25,683
Loans held for sale 6,560 5,667 7,326
Loans:
Commercial loans 522,535 545,591 536,099
Real estate commercial loans 735,510 726,554 706,213
Real estate construction
loans 132,900 145,933 155,463
Real estate residential loans 845,432 835,263 805,081
Consumer loans 559,955 554,319 554,492
----------- ----------- -----------
Total Loans 2,796,332 2,807,660 2,757,348
Less: Allowance for loan losses 36,254 34,098 33,638
----------- ----------- -----------
Net Loans 2,760,078 2,773,562 2,723,710
Premises and equipment 48,313 49,475 44,736
Goodwill 69,908 70,129 63,293
Other intangible assets 7,757 8,777 6,936
Interest receivable and
other assets 53,820 53,319 61,475
----------- ----------- -----------
Total Assets $ 3,784,914 $ 3,789,247 $ 3,731,377
=========== =========== ===========
Liabilities:
Noninterest-bearing deposits $ 544,555 $ 551,177 $ 535,537
Interest-bearing deposits 2,391,323 2,346,908 2,255,816
----------- ----------- -----------
Total Deposits 2,935,878 2,898,085 2,791,353
Interest payable and other
liabilities 22,156 29,235 24,315
Short-term borrowings 185,357 208,969 276,267
Federal Home Loan Bank
advances - long-term 135,049 145,072 135,072
----------- ----------- -----------
Total Liabilities 3,278,440 3,281,361 3,227,007
Shareholders' Equity:
Common stock, $1 par value
per share 24,365 24,828 24,817
Surplus 356,532 368,554 368,562
Retained earnings 135,054 123,454 121,457
Accumulated other
comprehensive loss (9,477) (8,950) (10,466)
----------- ----------- -----------
Total Shareholders' Equity 506,474 507,886 504,370
----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $ 3,784,914 $ 3,789,247 $ 3,731,377
=========== =========== ===========
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2007 2006 2007 2006
---------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 48,138 $ 45,474 $ 95,504 $ 89,184
Interest on investment
securities:
Taxable 6,233 6,176 12,368 12,518
Tax-exempt 666 611 1,330 1,231
Dividends on other securities 357 348 573 689
Interest on federal funds sold 1,617 621 3,062 1,572
Interest on deposits with
unaffiliated banks 75 161 174 474
-------- -------- -------- --------
Total Interest Income 57,086 53,391 113,011 105,668
Interest Expense:
Interest on deposits 20,917 16,496 41,253 31,570
Interest on short-term
borrowings 1,866 1,869 3,774 3,437
Interest on Federal Home Loan
Bank advances - long-term 1,883 1,809 3,790 3,853
-------- -------- -------- --------
Total Interest Expense 24,666 20,174 48,817 38,860
-------- -------- -------- --------
Net Interest Income 32,420 33,217 64,194 66,808
Provision for loan losses 2,500 400 4,125 860
-------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 29,920 32,817 60,069 65,948
Noninterest Income:
Service charges on deposit
accounts 5,236 5,356 10,204 10,453
Trust and investment services
revenue 2,087 2,094 4,187 4,099
Other charges and fees for
customer services 2,376 2,255 4,818 4,387
Mortgage banking revenue 628 490 1,070 913
Investment securities gains -- -- 4 --
Other 1,029 323 1,116 498
-------- -------- -------- --------
Total Noninterest Income 11,356 10,518 21,399 20,350
Operating Expenses:
Salaries, wages and employee
benefits 15,773 14,012 30,512 28,602
Occupancy 2,771 2,421 5,360 5,019
Equipment 2,381 2,345 4,685 4,533
Other 6,296 6,298 13,422 12,043
-------- -------- -------- --------
Total Operating Expenses 27,221 25,076 53,979 50,197
-------- -------- -------- --------
Income Before Income Taxes 14,055 18,259 27,489 36,101
Provision for federal
income taxes 4,543 6,030 8,936 11,975
-------- -------- -------- --------
Net Income $ 9,512 $ 12,229 $ 18,553 $ 24,126
======== ======== ======== ========
Net income per share:
Basic $ 0.39 $ 0.49 $ 0.75 $ 0.96
Diluted 0.39 0.49 0.75 0.96
Cash dividends per share $ 0.285 $ 0.275 $ 0.570 $ 0.550
Average shares outstanding:
Basic 24,644 24,977 24,738 25,036
Diluted 24,655 25,010 24,752 25,075
Financial Summary (Unaudited)
Chemical Financial Corporation
Three Months Ended Six Months Ended
June 30 June 30
(Dollars in thousands) 2007 2006 2007 2006
---------------------------------------------------------------------
Average Balances
Total assets $3,797,749 $3,716,069 $3,793,283 $3,743,665
Total interest-earning
assets 3,566,517 3,480,772 3,560,228 3,508,098
Total loans 2,796,902 2,731,421 2,797,752 2,713,680
Total deposits 2,931,977 2,840,341 2,925,820 2,856,318
Total interest-bearing
liabilities 2,729,085 2,645,501 2,728,594 2,676,890
Total shareholders'
equity 510,902 507,888 511,108 508,228
Three Months Ended Six Months Ended
June 30 June 30
2007 2006 2007 2006
--------------------------------------------------------------------
Key Ratios (annualized
where applicable)
Net interest margin
(taxable equivalent
basis) 3.70% 3.88% 3.68% 3.89%
Efficiency ratio 61.4% 56.8% 62.3% 57.0%
Return on average assets 1.00% 1.32% 0.99% 1.30%
Return on average
shareholders' equity 7.5% 9.7% 7.3% 9.6%
Average shareholders'
equity as a percent of
average assets 13.5% 13.7% 13.5% 13.6%
Tangible shareholders'
equity as a percent of
total assets 11.6% 11.9%
Total risk-based capital
ratio 17.5% 17.9%
June March Dec. Sept. June
30 31 31 30 30
2007 2007 2006 2006 2006
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Credit Quality Statistics
Nonaccrual loans 36,119 $28,748 $20,239 $23,113 $17,636
Loans 90 or more days
past due and still
accruing 11,704 6,441 6,671 9,505 9,618
Total nonperforming loans 47,823 35,189 26,910 32,618 27,254
Repossessed assets (RA) 9,177 9,250 8,852 10,062 9,615
Total nonperforming assets 57,000 44,439 35,762 42,680 36,869
Net loan charge-offs
(year-to-date) 1,969 707 5,650 1,810 1,370
Allowance for loan losses
as a percent of total
loans 1.30% 1.25% 1.21% 1.25% 1.22%
Allowance for loan losses
as a percent of non
performing loans 76% 100% 127% 108% 123%
Nonperforming loans as a
percent of total loans 1.71% 1.26% 0.96% 1.16% 0.99%
Nonperforming assets as a
percent of total loans
plus RA 2.03% 1.58% 1.27% 1.51% 1.33%
Nonperforming assets as a
percent of total assets 1.51% 1.16% 0.94% 1.11% 0.99%
Net loan charge-offs as a
percent of average loans
(year-to-date,
annualized) 0.14% 0.10% 0.20% 0.09% 0.10%
June March Dec. Sept. June
30 31 31 30 30
2007 2007 2006 2006 2006
---------------------------------------------------------------------
Additional Data -
Intangibles
Goodwill $69,908 $69,908 $70,129 $70,999 $63,293
Core deposits and other
intangibles 5,455 5,886 6,379 7,030 4,743
Mortgage servicing rights
(MSR) 2,302 2,299 2,398 2,533 2,193
Amortization of
intangibles (quarter
only) 665 734 857 618 683
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in thousands) 2007 2007 2006 2006 2006
---------------------------------------------------------------------
Nonaccrual loans:
Commercial $ 5,810 $ 4,891 $ 4,203 $ 4,124 $ 3,738
Real estate commercial 19,163 14,621 9,612 11,329 7,385
Real estate
construction-commercial 4,483 3,283 2,552 2,017 1,735
Real estate residential 4,967 4,660 2,887 4,455 3,892
Consumer 1,696 1,293 985 1,188 886
---------------------------------------------------------------------
Total nonaccrual loans 36,119 28,748 20,239 23,113 17,636
Accruing loans contrac-
tually past due 90 days
or more as to interest or
principal payments:
Commercial 1,564 2,030 1,693 3,151 1,903
Real estate commercial 5,561 2,342 2,232 3,081 5,569
Real estate
construction-commercial 884 -- 174 -- 179
Real estate residential 2,352 1,350 1,158 1,857 1,618
Consumer 1,343 719 1,414 1,416 349
---------------------------------------------------------------------
Total accruing loans
contractually past due
90 days or more as to
interest or principal
payments 11,704 6,441 6,671 9,505 9,618
---------------------------------------------------------------------
Total nonperforming loans 47,823 35,189 26,910 32,618 27,254
Other real estate and
repossessed assets 9,177 9,250 8,852 10,062 9,615
---------------------------------------------------------------------
Total nonperforming
assets $57,000 $44,439 $35,762 $42,680 $36,869
---------------------------------------------------------------------
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
Three Months Ended
---------------------------------------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in thousands) 2007 2007 2006 2006 2006
---------------------------------------------------------------------
Allowance for loan
losses at beginning
of period $35,016 $34,098 $35,348 $33,638 $34,154
Loans charged off:
Commercial (435) (429) (1,056) (52) (244)
Real estate commercial (186) (74) (964) -- (600)
Real estate construction (221) (67) (1,201) -- --
Real estate residential (96) (18) (108) (101) (109)
Consumer (488) (350) (677) (475) (344)
---------------------------------------------------------------------
Total loan charge-offs (1,426) (938) (4,006) (628) (1,297)
Recoveries of loans
previously charged off:
Commercial 42 99 52 58 138
Real estate commercial -- 1 1 2 1
Real estate residential 1 1 -- 1 97
Consumer 121 130 113 127 145
---------------------------------------------------------------------
Total loan recoveries 164 231 166 188 381
---------------------------------------------------------------------
Net loan charge-offs (1,262) (707) (3,840) (440) (916)
Provision for loan
losses 2,500 1,625 2,590 1,750 400
Allowance of branches
acquired -- -- -- 400 --
---------------------------------------------------------------------
Allowance for loan
losses at end of
period $36,254 $35,016 $34,098 $35,348 $33,638
---------------------------------------------------------------------
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
2007 2007 2006 2006 2006
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Summary of Operations
Interest income $57,086 $55,925 $56,199 $55,556 $53,391
Interest expense 24,666 24,151 23,510 22,817 20,174
Net interest income 32,420 31,774 32,689 32,739 33,217
Provision for loan
losses 2,500 1,625 2,590 1,750 400
Net interest income
after provision for
loan losses 29,920 30,149 30,099 30,989 32,817
Noninterest income 11,356 10,043 9,901 9,896 10,518
Noninterest expense 27,221 26,758 23,481 24,196 25,076
Income taxes 4,543 4,393 5,291 5,199 6,030
Net income $ 9,512 $ 9,041 $11,228 $11,490 $12,229
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Per Common Share Data
Net income:
Basic $ 0.39 $ 0.36 $ 0.45 $ 0.46 $ 0.49
Diluted 0.39 0.36 0.45 0.46 0.49
Cash dividends 0.285 0.285 0.275 0.275 0.275
Book value 20.79 20.86 20.46 20.70 20.32