MIDLAND, Mich., Jan. 28, 2008 (PRIME NEWSWIRE) -- Chemical Financial Corporation's (Nasdaq:CHFC) Board of Directors today announced 2007 fourth quarter net income of $9.8 million, or $0.41 per diluted share, versus net income of $11.2 million, or $0.45 per diluted share, in the fourth quarter of 2006.
Net income was $39.0 million, or $1.60 per diluted share, for the twelve months ended December 31, 2007, compared to net income of $46.8 million, or $1.88 per diluted share, for the twelve months ended December 31, 2006.
"Although net interest income increased slightly over last year's fourth quarter, a higher provision for loan losses and higher operating expenses more than offset gains in net interest income and noninterest income," said David B. Ramaker, Chairman, President and Chief Executive Officer of Chemical Financial Corporation. "Although we have no direct exposure to subprime loans, overall credit quality remains a primary concern, with nonperforming loans more than doubling during the year as Michigan's already struggling economy continued to deteriorate in tandem with the slowdown in the national economy. We continue to proactively identify and address problem credits Company-wide.
"We continue to expect that, based on initial results we are experiencing, the investments we are making in talent, training and development, which focus primarily on front line customer relationship sales and service enhancements, will generate revenue growth going forward," added Ramaker.
The Company's previously announced retail banking reorganization, which involved realigning its 15 community bank structure into four regions while consolidating numerous back office and support functions, has been completed. During the fourth quarter of 2007, the Company incurred only $40,000 in expenses related to the completion of the reorganization, resulting in a total of approximately $1.7 million of reorganization expenses incurred during 2007.
Total assets were $3.75 billion at December 31, 2007, down from $3.82 billion at September 30, 2007 and $3.79 billion at December 31, 2006. At December 31, 2007, total loans were $2.80 billion, down slightly from $2.81 billion at September 30, 2007 and $2.81 billion at December 31, 2006. Over the past twelve months, increases in real estate commercial and residential loans have offset declines in commercial, real estate construction and consumer loans. Investment securities were $595 million at December 31, 2007, down from $632 million at September 30, 2007 and $615 million at December 31, 2006.
Total deposits were $2.88 billion at December 31, 2007, down from $2.97 billion at September 30, 2007 and $2.90 billion at December 31, 2006. Wholesale borrowings, solely Federal Home Loan Bank advances, totaled $150 million at December 31, 2007, up 20 percent from $125 million at September 30, 2007, although down 14 percent from $175.1 million at December 31, 2006.
Net interest income was $33.4 million in the fourth quarter of 2007, an increase of 2.2 percent from fourth quarter 2006 net interest income of $32.7 million. The increase in net interest income was attributable primarily to an increase in net interest margin. The net interest margin (on a tax-equivalent basis) in the fourth quarter of 2007 was 3.86 percent, up from 3.73 percent in the fourth quarter of 2006, and 3.68 percent in the third quarter of 2007. The increase in net interest margin was primarily attributable to decreases in rates paid on interest-bearing liabilities exceeding decreases in rates earned on interest-earning assets, as the benefits from declines in short-term interest rates during the second half of 2007 were more fully reflected across asset and liability categories during the fourth quarter.
The provision for loan losses was $4.5 million in the fourth quarter of 2007, compared to $2.9 million in the third quarter of 2007 and $2.6 million in the fourth quarter of 2006. For 2007, the provision for loan losses was $11.5 million, more than double the $5.2 million provision for loan losses in 2006. Net loan charge-offs were $3.4 million in the fourth quarter of 2007, compared to $0.8 million in the third quarter of 2007 and $3.8 million in the fourth quarter of 2006. For 2007, net loan charge-offs were $6.2 million, compared to $5.7 million in 2006. The increase in the provision for loan losses in the fourth quarter of 2007, as compared to the previous quarter, was attributable to higher net loan losses, higher impairment reserves and higher nonperforming loans and was also reflective of continued declines in real estate values in the markets the Company serves. The allowance for loan losses of $39.4 million at December 31, 2007 was 1.41 percent of total loans, up from 1.36 percent of total loans at September 30, 2007 and 1.21 percent of total loans at December 31, 2006. The allowance for loan losses allocated to impaired loans was $4.6 million at December 31, 2007, compared to $3.2 million at September 30, 2007 and $0.9 million at December 31, 2006. At December 31, 2007, nonperforming loans as a percentage of total loans were 2.26 percent, up from 1.90 percent at September 30, 2007 and up substantially from 0.96 percent at December 31, 2006.
At December 31, 2007, nonperforming assets totaled $74.5 million, up from $62.8 million at September 30, 2007 and up significantly from $35.8 million at December 31, 2006. The increase in nonperforming assets from the previous quarter end was primarily attributable to two residential real estate development loans totaling $9.3 million transferred to nonaccrual status in the fourth quarter. One loan in the amount of $3.2 million is secured by a residential condominium project located in western Michigan. At December 31, 2007, the Company established a $1 million impairment reserve on this loan, as the fair value of the collateral of this loan was determined to be less than the principal balance of the loan. The second loan in the amount of $6.1 million is secured by a luxury condominium project and marina in southwest Michigan. At December 31, 2007, the Company established a $0.27 million impairment reserve on this loan, as the fair value of the collateral of this loan was determined to be slightly less than the principal balance of the loan.
The allowance for loan losses as a percent of nonperforming loans has decreased from 127 percent at December 31, 2006 to 62 percent at December 31, 2007. A significant portion of the Company's nonperforming loans at December 31, 2007 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.
Total noninterest income was $10.8 million in the fourth quarter of 2007, up $0.9 million, or 9.4 percent, from $9.9 million in the fourth quarter of 2006, but down from $11.1 million in the third quarter of 2007. The increase over the prior year's quarter was primarily attributable to slightly higher service charges on deposit accounts, fees for customer services and mortgage banking revenue. The decline in noninterest income in the fourth quarter of 2007, compared to the third quarter of 2007, was primarily attributable to a decrease in other income due to noninterest income in the third quarter of 2007 including a $1 million gain on an insurance settlement received for fire damage to a branch building.
Due in part to the expenses incurred with the Company's retail banking reorganization, as described above, operating expenses increased from $97.9 million in 2006 to $104.7 million in 2007. During the fourth quarter of 2007, operating expenses were $25.5 million, up $2.0 million, or 9 percent, from the fourth quarter of 2006, and up $0.3 million, or 1 percent, from $25.2 million in the third quarter of 2007. The Company's efficiency ratio was 56.9 percent in the fourth quarter of 2007, up from 54.4 percent in the fourth quarter of 2006, although down from 57.1 percent in the third quarter of 2007. The change in the efficiency ratio from the prior year is primarily attributable to the increase in operating expenses.
The Corporation's effective federal income tax rate was 30.9 percent in the fourth quarter of 2007, compared to 32.0 percent in the fourth quarter of 2006, and 31.8 percent compared to 32.4 percent for the years ended December 31, 2007 and December 31, 2006, respectively. The difference between the federal statutory income tax rate and the Corporation's effective federal income tax rate is primarily a function of the proportion of the Corporation's interest income exempt from federal taxation, nondeductible interest expense and other nondeductible expenses relative to pretax income and tax credits.
The Company's return on average assets during the fourth quarter of 2007 was 1.04 percent, down from 1.18 percent in the fourth quarter of 2006 and 1.10 percent in the third quarter of 2007. The decline in return on assets resulted in a decline in return on average equity to 7.8 percent in the fourth quarter of 2007 from 8.6 percent in the fourth quarter of 2006. At December 31, 2007, the Company's book value stood at $21.35 per share versus $20.46 per share at December 31, 2006.
During the fourth quarter of 2007, the Company repurchased 137,700 shares of its common stock at an average price of $23.37 per share; bringing total share repurchases for the year 2007 to 1,023,000 shares. On January 22, 2008, the Board of Directors authorized management, in its discretion, to purchase up to 500,000 shares of the Corporation's common stock.
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 December 31, 2007, the Company had total assets of $3.75 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 Chemical Financial Corporation'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 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
December 31,
2007 2006
---------------------------------------------------------------------
Assets:
Cash and cash due from banks $ 125,285 $ 135,544
Federal funds sold 58,000 49,500
Interest-bearing deposits with
unaffiliated banks 6,228 5,712
Investment securities - available for sale 503,271 520,867
Investment securities - held to maturity 91,243 94,564
Other securities 22,135 22,131
Loans held for sale 7,883 5,667
Loans:
Commercial loans 525,894 545,591
Real estate commercial loans 747,400 726,554
Real estate construction loans 137,252 145,933
Real estate residential loans 838,545 835,263
Consumer loans 550,343 554,319
---------- ----------
Total Loans 2,799,434 2,807,660
Less: Allowance for loan losses 39,422 34,098
---------- ----------
Net Loans 2,760,012 2,773,562
Premises and equipment 49,930 49,475
Goodwill 69,908 70,129
Other intangible assets 6,876 8,777
Interest receivable and other assets 53,542 53,319
---------- ----------
Total Assets $3,754,313 $3,789,247
========== ==========
Liabilities:
Noninterest-bearing deposits $ 535,705 $ 551,177
Interest-bearing deposits 2,339,884 2,346,908
---------- ----------
Total Deposits 2,875,589 2,898,085
Interest payable and other liabilities 22,848 29,235
Short-term borrowings 197,363 208,969
Federal Home Loan Bank advances - long-term 150,049 145,072
---------- ----------
Total Liabilities 3,245,849 3,281,361
Shareholders' Equity:
Common stock, $1 par value per share 23,815 24,828
Surplus 344,579 368,554
Retained earnings 141,867 123,454
Accumulated other comprehensive loss (1,797) (8,950)
---------- ----------
Total Shareholders' Equity 508,464 507,886
---------- ----------
Total Liabilities and
Shareholders' Equity $3,754,313 $3,789,247
========== ==========
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------------------------------------
Interest Income:
Interest and fees
on loans $ 47,630 $ 48,571 $191,480 $185,598
Interest on investment
securities:
Taxable 6,260 5,867 24,927 24,391
Tax-exempt 701 665 2,719 2,557
Dividends on other
securities 361 401 1,116 1,268
Interest on federal
funds sold 640 618 5,135 2,975
Interest on deposits
with unaffiliated banks 134 77 517 634
-------- -------- -------- --------
Total Interest Income 55,726 56,199 225,894 217,423
Interest Expense:
Interest on deposits 18,944 19,509 81,234 69,095
Interest on short-term
borrowings 1,596 2,038 7,327 8,422
Interest on Federal Home
Loan Bank advances
- long-term 1,764 1,963 7,244 7,670
-------- -------- -------- --------
Total Interest Expense 22,304 23,510 95,805 85,187
-------- -------- -------- --------
Net Interest Income 33,422 32,689 130,089 132,236
Provision for loan losses 4,475 2,590 11,500 5,200
-------- -------- -------- --------
Net Interest Income
after provision for
Loan Losses 28,947 30,099 118,589 127,036
Noninterest Income:
Service charges on
deposit accounts 5,306 5,232 20,549 20,993
Trust and investment
services revenue 2,126 2,062 8,347 7,906
Other charges and fees
for customer services 2,539 2,330 9,750 9,025
Mortgage banking revenue 470 353 2,117 1,742
Gains on the sale of
acquired loans -- 1,053 -- 1,053
Investment securities
gains (losses) -- (1,330) 4 (1,330)
Other 391 201 2,521 758
-------- -------- -------- --------
Total Noninterest
Income 10,832 9,901 43,288 40,147
Operating Expenses:
Salaries, wages and
employee benefits 14,033 13,426 59,008 56,012
Occupancy 2,451 2,245 10,172 9,534
Equipment 2,301 2,289 8,722 8,842
Other 6,737 5,521 26,769 23,486
-------- -------- -------- --------
Total Operating
Expenses 25,522 23,481 104,671 97,874
-------- -------- -------- --------
Income Before Income
Taxes 14,257 16,519 57,206 69,309
Provision for
federal income taxes 4,411 5,291 18,197 22,465
-------- -------- -------- --------
Net Income $ 9,846 $ 11,228 $ 39,009 $ 46,844
======== ======== ======== ========
Net income per share:
Basic $ 0.41 $ 0.45 $ 1.60 $ 1.88
Diluted 0.41 0.45 1.60 1.88
Cash dividends
per share $ 0.285 $ 0.275 $ 1.140 $ 1.100
Average shares
outstanding:
Basic 23,884 24,814 24,360 24,921
Diluted 23,893 24,845 24,371 24,955
Financial Summary (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------------------------------------
Average Balances
----------------
Total assets $3,741,603 $3,780,518 $3,785,034 $3,763,067
Total interest-earning
assets 3,510,614 3,531,762 3,551,867 3,521,489
Total loans 2,814,004 2,831,536 2,805,880 2,767,114
Total deposits 2,883,060 2,888,243 2,923,004 2,861,916
Total interest-bearing
liabilities 2,677,572 2,697,451 2,718,814 2,692,410
Total shareholders'
equity 502,260 516,434 505,915 510,255
Key Ratios (annualized
where applicable)
----------------------
Net interest margin (taxable
equivalent basis) 3.86% 3.73% 3.73% 3.82%
Efficiency ratio 56.9% 54.4% 59.6% 56.1%
Return on average assets 1.04% 1.18% 1.03% 1.24%
Return on average
shareholders' equity 7.8% 8.6% 7.7% 9.2%
Average shareholders'
equity as a percent of
average assets 13.4% 13.7% 13.4% 13.6%
Tangible shareholders'
equity as a percent of
total assets 11.7% 11.6%
Total risk-based capital ratio 17.3% 17.5%
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
2007 2007 2007 2007 2006
---------------------------------------------------------------------
Credit Quality Statistics
-------------------------
Nonaccrual loans $55,596 $40,341 $36,119 $28,748 $20,239
Loans 90 or more days
past due and still
accruing 7,764 13,282 11,704 6,441 6,671
Total nonperforming loans 63,360 53,623 47,823 35,189 26,910
Repossessed assets (RA) 11,132 9,164 9,177 9,250 8,852
Total nonperforming
assets 74,492 62,787 57,000 44,439 35,762
Net loan charge-offs
(year-to-date) 6,176 2,737 1,969 707 5,650
Allowance for loan losses
as a percent of total
loans 1.41% 1.36% 1.30% 1.25% 1.21%
Allowance for loan losses
as a percent of non-
performing loans 62% 72% 76% 100% 127%
Nonperforming loans as a
percent of total loans 2.26% 1.90% 1.71% 1.26% 0.96%
Nonperforming assets as a
percent of total loans
plus RA 2.65% 2.22% 2.03% 1.58% 1.27%
Nonperforming assets as a
percent of total assets 1.98% 1.64% 1.51% 1.16% 0.94%
Net loan charge-offs as a
percent of average loans
(year-to-date, annualized) 0.22% 0.13% 0.14% 0.10% 0.20%
Additional Data
- Intangibles
---------------
Goodwill $69,908 $69,908 $69,908 $69,908 $70,129
Core deposit intangibles 4,593 5,024 5,455 5,886 6,379
Mortgage servicing
rights (MSR) 2,283 2,300 2,302 2,299 2,398
Amortization of
intangibles (quarter only) 731 651 665 734 857
Nonperforming Assets (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
2007 2007 2007 2007 2006
---------------------------------------------------------------------
Nonaccrual loans:
Commercial $10,961 $ 6,735 $ 5,810 $ 4,891 $ 4,203
Real estate
commercial 19,672 19,664 19,163 14,621 9,612
Real estate
construction 12,979 4,573 4,483 3,283 2,552
Real estate
residential 8,516 7,244 4,967 4,660 2,887
Consumer 3,468 2,125 1,696 1,293 985
---------------------------------------------------------------------
Total nonaccrual
loans 55,596 40,341 36,119 28,748 20,239
Accruing loans con-
tractually past due
90 days or more as to
interest or principal
payments:
Commercial 1,958 1,867 1,564 2,030 1,693
Real estate
commercial 4,170 5,367 5,561 2,342 2,232
Real estate
construction -- 1,076 884 -- 174
Real estate
residential 1,470 3,918 2,352 1,350 1,158
Consumer 166 1,054 1,343 719 1,414
---------------------------------------------------------------------
Total accruing loans
contractually past
due 90 days or more
as to interest or
principal payments 7,764 13,282 11,704 6,441 6,671
---------------------------------------------------------------------
Total nonperforming
loans 63,360 53,623 47,823 35,189 26,910
Other real estate and
repossessed assets 11,132 9,164 9,177 9,250 8,852
---------------------------------------------------------------------
Total nonperforming
assets $74,492 $62,787 $57,000 $44,439 $35,762
=====================================================================
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation
(Dollars in thousands)
Three Months Ended
-----------------------------------------------
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
2007 2007 2007 2007 2006
---------------------------------------------------------------------
Allowance for loan
losses at beginning
of period $38,386 $36,254 $35,016 $34,098 $35,348
Loans charged off:
Commercial (550) (208) (435) (429) (1,056)
Real estate
commercial (1,415) -- (186) (74) (964)
Real estate
construction (850) (134) (221) (67) (1,201)
Real estate
residential (306) (64) (96) (18) (108)
Consumer (596) (501) (488) (350) (677)
---------------------------------------------------------------------
Total loan
charge-offs (3,717) (907) (1,426) (938) (4,006)
Recoveries of loans
previously charged
off:
Commercial 90 18 42 99 52
Real estate
commercial 1 19 -- 1 1
Real estate
construction 30 -- -- -- --
Real estate
residential 12 4 1 1 --
Consumer 145 98 121 130 113
---------------------------------------------------------------------
Total loan recoveries 278 139 164 231 166
---------------------------------------------------------------------
Net loan charge-offs (3,439) (768) (1,262) (707) (3,840)
Provision for loan
losses 4,475 2,900 2,500 1,625 2,590
---------------------------------------------------------------------
Allowance for loan
losses at end
of period $39,422 $38,386 $36,254 $35,016 $34,098
=====================================================================
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation
(In thousands, except per share data)
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr.
2007 2007 2007 2007 2006
---------------------------------------------------------------------
Summary of Operations
Interest income $55,726 $57,157 $57,086 $55,925 $56,199
Interest expense 22,304 24,684 24,666 24,151 23,510
Net interest income 33,422 32,473 32,420 31,774 32,689
Provision for loan
losses 4,475 2,900 2,500 1,625 2,590
Net interest income
after provision for
loan losses 28,947 29,573 29,920 30,149 30,099
Noninterest income 10,832 11,057 11,356 10,043 9,901
Noninterest expense 25,522 25,170 27,221 26,758 23,481
Income taxes 4,411 4,850 4,543 4,393 5,291
Net income $ 9,846 $10,610 $ 9,512 $ 9,041 $11,228
---------------------------------------------------------------------
Per Common Share Data
Net income:
Basic $ 0.41 $ 0.44 $ 0.39 $ 0.36 $ 0.45
Diluted 0.41 0.44 0.39 0.36 0.45
Cash dividends 0.285 0.285 0.285 0.285 0.275
Book value 21.35 21.04 20.79 20.86 20.46