Chemical Financial Corporation Reports First Quarter 2010 Earnings

MIDLAND, Mich., April 19, 2010 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2010 first quarter net income of $2.3 million, or $0.10 per diluted share, versus net income of $2.7 million, or $0.11 per diluted share, in the first quarter of 2009.

"Reported earnings continue to be lower than desired as a result of ongoing credit quality issues as we recorded a $14.0 million quarterly provision for loan losses. Despite these challenges, we are pleased to again report a profitable quarter. In light of the ongoing struggles of the Michigan economy, we were encouraged to see decreases in consumer and residential real estate nonperforming loans, helping drive a second straight quarterly decline in nonperforming assets," said David B. Ramaker, Chairman, Chief Executive Officer and President.

"As we look to new avenues for growth, our previously announced merger with O.A.K. Financial Corporation (OAK) remains on schedule to close on April 30, 2010," said Ramaker. "We remain well-capitalized and well-positioned relative to many of our competitors to take advantage of other opportunities."

Net interest income was $36.4 million in the first quarter of 2010, down slightly from first quarter 2009 net interest income of $36.6 million. The slight decrease in net interest income was attributable to a decline in net interest margin more than offsetting increases attributable to growth in the balance sheet. The net interest margin (on a tax-equivalent basis) in the first quarter of 2010 was 3.72 percent, down from 3.77 percent in the fourth quarter of 2009 and from 4.06 percent in the first quarter of 2009. The decrease in net interest margin from the prior year's first quarter was primarily attributable to the Company's decision to enhance its liquidity position and to modestly adjust its liability sensitive position by increasing the amount of variable rate investment securities held in its investment securities portfolio.

Total assets were $4.29 billion at March 31, 2010, up from $4.25 billion at December 31, 2009 and $3.98 billion at March 31, 2009.  At March 31, 2010, total loans were $2.99 billion, unchanged from December 31, 2009 and up from $2.95 billion at March 31, 2009. Investment securities were $691 million at March 31, 2010, down from $724 million at December 31, 2009 and up from $610 million at March 31, 2009.

Total deposits were $3.47 billion at March 31, 2010, up $56 million, or 1.6 percent, from $3.42 billion at December 31, 2009 and up $370 million, or 11.9 percent, from $3.10 billion at March 31, 2009. The Company experienced significant growth in core business and consumer deposits during the twelve months ended March 31, 2010. The Company maintained these new funds primarily in interest-bearing balances at the Federal Reserve Bank, thereby further enhancing the Company's liquidity position. Federal Home Loan Bank advances totaled $80 million at March 31, 2010, down from $90 million at December 31, 2009 and $125 million at March 31, 2009.

The provision for loan losses was $14.0 million in the first quarter of 2010, down from $15.6 million in the fourth quarter of 2009 and unchanged from the first quarter of 2009. Net loan charge-offs were $10.7 million in the first quarter of 2010, down from $12.3 million in the fourth quarter of 2009 and up from $8.5 million in the first quarter of 2009.  The Company continues to deal with a challenging credit environment. The allowance for loan losses of $84.2 million at March 31, 2010 was 2.82 percent of total loans, up from 2.70 percent of total loans at December 31, 2009 and from 2.12 percent of total loans at March 31, 2009. At March 31, 2010, nonperforming loans as a percent of total loans were 4.35 percent, down from 4.54 percent at December 31, 2009, but up from 3.56 percent at March 31, 2009. The allowance for loan losses as a percent of nonperforming loans increased to 65 percent at March 31, 2010, compared to 60 percent at December 31, 2009 and March 31, 2009.

The Company saw a modest decline in nonperforming assets during the first quarter of 2010. At March 31, 2010, nonperforming assets totaled $148.9 million, down from $153.3 million at December 31, 2009 and up from $125.7 million at March 31, 2009. The decrease in nonperforming assets from the previous quarter's end was due primarily to declines in nonaccrual real estate residential and consumer loans. At March 31, 2010, the Company's nonperforming assets included nonaccrual loans of $100.9 million, accruing loans contractually past due 90 days or more as to interest or principal payments of $7.2 million, troubled debt restructurings of commercial and real estate residential loans of $22.0 million and other real estate and repossessed assets of $18.8 million.

Total noninterest income was $9.4 million in the first quarter of 2010, down from $9.9 million in the first quarter of 2009. Lower mortgage banking revenue was primarily responsible for the change.

Operating expenses of $29.2 million in the first quarter of 2010 were unchanged from the first quarter of 2009. Operating expenses in the first quarter of 2010 included $0.7 million of acquisition-related expenses applicable to the pending merger with OAK. Excluding these acquisition-related expenses, operating expenses were down $0.7 million, or 2.4 percent, from the first quarter of 2009. Salaries and employee benefit costs in the first quarter of 2010 were down $0.9 million, or 5.9 percent, compared to the first quarter of 2009 due primarily to lower commission-based compensation and lower health benefit costs. Credit-related operating expenses remained elevated at $1.7 million in the first quarter of 2010, although were $0.5 million lower than in the first quarter of 2009. These reductions were offset by a $0.3 million increase in FDIC insurance premiums, $0.7 million of acquisition-related expenses and $0.4 million of other increases in operating expenses. The Company's first quarter 2010 efficiency ratio of 62.4 percent was up from 59.8 percent in the fourth quarter of 2009 and up slightly from 62.0 percent in the first quarter of 2009.

The Company's return on average assets during the first quarter of 2010 was 0.22 percent, down from 0.24 percent in the fourth quarter of 2009 and 0.28 percent in the first quarter of 2009. At March 31, 2010, the Company's book value stood at $19.76 per share, versus $19.85 per share at December 31, 2009 and $20.40 per share at March 31, 2009. The decreases in book value were attributable to cash dividends paid to shareholders exceeding net income. The return on average equity declined modestly to 2.0 percent in the first quarter of 2010 from 2.3 percent in the first quarter of 2009.

Chemical Financial Corporation is the third-largest bank holding company headquartered in Michigan. The Company operates through a single subsidiary bank, Chemical Bank, with 130 banking offices spread over 32 counties in the lower peninsula of Michigan. At March 31, 2010, the Company had total assets of $4.3 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.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding Chemical Financial Corporation's (Chemical's) outlook or expectations with respect to the planned acquisition of O.A.K. Financial Corporation (OAK). Management's determination of the provision and allowance for loan losses, the carrying value of goodwill and mortgage servicing rights, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary) and management's assumptions concerning pension and other post retirement benefit plans involve judgments that are inherently forward-looking. The future effect of changes in the financial and credit markets and the national and regional economy on the banking industry, generally, and on Chemical, specifically, are also inherently uncertain. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," "plans," "projects," "predicts," variations of such words and similar expressions are intended to identify forward-looking statements.  These statements reflect management's current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements 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 undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this press release.

Risk factors include, but are not limited to, the risk factors described in Item 1A in Chemical's Annual Report on Form 10-K for the year ended December 31, 2009; the risk factors described in Item 1A in OAK 's Annual Report on Form 10-K for the year ended December 31, 2009; the timing and level of asset growth; changes in market interest rates; changes in banking laws and regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; the impact of possible future litigation; 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 current and future military actions, 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.