MIDLAND, Mich., Jan. 26, 2011 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced 2010 fourth quarter net income of $7.5 million, or $0.27 per diluted share, compared to net income of $8.9 million, or $0.32 per diluted share, in the third quarter of 2010 and $2.5 million, or $0.11 per diluted share, in the fourth quarter of 2009. Net income was $23.1 million, or $0.88 per diluted share, for the twelve months ended December 31, 2010, compared to $10.0 million, or $0.42 per diluted share, for the twelve months ended December 31, 2009.
"Our earnings recovery in 2010 was primarily driven by two factors. First, stabilization in credit quality resulted in a $13.4 million lower provision for loan losses for the year. Second, our acquisition of O.A.K. Financial Corporation (OAK), which closed on April 30, 2010, has been accretive to earnings starting in the third quarter of 2010," said David B. Ramaker, Chairman, Chief Executive Officer, and President. "Although the fourth quarter of 2010 saw modestly lower profitability than the year's third quarter due to a $1.7 million higher provision for loan losses, we believe that the credit quality of the loan portfolio continues to stabilize, as evidenced by a $9.9 million reduction in nonaccrual loans during the quarter on the originated portfolio."
"We believe we are seeing small, positive signs of recovery and growth in certain areas of the Michigan economy, but uncertainty remains over whether and when this will translate into sustained, widespread growth. As a result, credit quality concerns remain top of mind," said Ramaker.
"We expect 2011 will be characterized by the ongoing pursuit of strategies to profitably grow our core community banking franchise, including opportunistic acquisitions where appropriate. With strong capital ratios, positive earnings and a growing franchise focused exclusively on Michigan, we remain well positioned to capitalize on investment opportunities in the markets we serve," added Ramaker.
The Company's return on average assets during the fourth quarter of 2010 was 0.57 percent, down from 0.67 percent in the third quarter of 2010, but up from 0.24 percent in the fourth quarter of 2009. The return on average equity was 5.3 percent in the fourth quarter of 2010, down from 6.3 percent in the third quarter of 2010, but up from 2.1 percent in the fourth quarter of 2009.
Included in the fourth quarter and year-end 2010 results were $0.2 million and $4.3 million, respectively, of merger-related costs related to the acquisition of OAK. The net impact of these costs reduced 2010 diluted earnings by $0.12 per share. 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, with selected financial amounts and ratios reported separately for the "acquired loan" portfolio. The consolidation and systems conversion of Byron Bank into Chemical Bank was completed in the third quarter of 2010.
Lower net income in the fourth quarter of 2010, compared to the third quarter of 2010, was attributable primarily to a higher provision for loan losses, higher compensation costs and higher credit-related expenses that were partially offset by lower merger-related acquisition costs.
Net interest income was $45.9 million in the fourth quarter of 2010, unchanged from the third quarter of 2010 and up from $37.2 million in the fourth quarter of 2009. The net interest margin (on a tax-equivalent basis) in the fourth quarter of 2010 was 3.79 percent, compared to 3.80 percent in the third quarter of 2010 and 3.77 percent in the fourth quarter of 2009. The increase in net interest income during the fourth quarter of 2010 compared to the same quarter in 2009 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 Company recorded a $10.3 million provision for loan losses in the fourth quarter of 2010, compared to $8.6 million in the third quarter of 2010 and $15.6 million in the fourth quarter of 2009. Fourth quarter 2010 net loan charge-offs were $10.3 million, compared to $8.6 million in the third quarter of 2010 and $12.3 million in the fourth quarter of 2009.
Total noninterest income was $10.9 million in the fourth quarter of 2010, compared to $11.1 million in the third quarter of 2010 and $10.2 million in the fourth quarter of 2009. The decrease in the fourth quarter of 2010, as compared to the third 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 fourth quarter of 2010, as compared to the third quarter of 2010, due to a full quarter's impact of changes in regulatory requirements regarding the processing of certain electronic ATM and debit card transactions. Service charges on deposits accounts were $4.4 million for the fourth quarter of 2010; 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 $36.7 million in the fourth quarter of 2010, up slightly from $36.2 million in the third quarter of 2010 and up from $28.8 million in the fourth quarter of 2009. The increase in operating expenses in the fourth quarter of 2010, as compared to the third quarter of 2010, was primarily attributable to higher salary, wages and employee benefits expense and credit-related operating expenses that were partially offset by reductions in various expense categories, including the reversal of $0.6 million in state tax reserves. Acquisition-related costs of $0.2 million were incurred in the fourth quarter of 2010. Credit-related operating expenses remained elevated at $2.8 million in the fourth quarter of 2010, up from $1.8 million incurred in the third quarter of 2010 and unchanged from $2.8 million incurred in the fourth quarter of 2009. The Company's fourth quarter 2010 efficiency ratio was 63.3 percent, compared to 62.3 percent in the third quarter of 2010 and 59.8 percent in the fourth quarter of 2009.
Total assets were $5.25 billion at December 31, 2010, down from $5.40 billion at September 30, 2010, but up from $4.25 billion at December 31, 2009. The decline in assets during the fourth quarter of 2010, as compared to the third quarter of 2010, was attributable to a seasonal decline in municipal customer deposits. At December 31, 2010, total loans were $3.68 billion, compared to $3.64 billion at September 30, 2010 and $2.99 billion at December 31, 2009. The increase in total loans during the fourth quarter of 2010, as compared to the third quarter of 2010, was primarily attributable to the origination of $48 million of fifteen-year fixed-rate residential mortgages that the Corporation elected to keep in its portfolio rather than sell in the secondary market, as is generally its practice. Investment securities were $744 million at December 31, 2010, compared to $766 million at September 30, 2010 and $724 million at December 31, 2009. The increases in assets, loans and investment securities during the twelve months ended December 31, 2010 were primarily attributable to the acquisition of OAK.
Total deposits were $4.33 billion at December 31, 2010, compared to $4.47 billion at September 30, 2010 and $3.42 billion at December 31, 2009. The Company experienced a decrease of $136 million, or 3.0 percent, in total deposits during the quarter ended December 31, 2010, with the majority attributable to a seasonal decrease in municipal customer deposits. These types of deposits declined $228 million in the fourth quarter of 2010. 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 $440 million in balances held at the FRB at December 31, 2010. The Company has used a portion of its liquidity to pay off maturing Federal Home Loan Bank (FHLB) advances and brokered deposits acquired in the OAK transaction in 2010 and intends to continue to pay off these wholesale funding sources as they mature. FHLB advances totaled $74.1 million at December 31, 2010, down from $85.4 million at September 30, 2010 and $90.0 million at December 31, 2009. Brokered deposits acquired in the OAK transaction totaled $163 million at December 31, 2010, compared to $182 million at September 30, 2010, and $199 million at June 30, 2010.
At December 31, 2010, the Company's tangible equity to assets ratio and total risk-based capital ratio were 8.6 percent and 12.9 percent, respectively, compared to 8.4 percent and 13.7 percent, respectively, at September 30, 2010. At December 31, 2010, the Company's book value was $20.41 per share, compared to $20.44 per share at September 30, 2010.
We believe the credit quality of the Company's loan portfolio is showing signs of stabilization. At December 31, 2010, 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 $110.4 million, compared to $119.4 million at September 30, 2010 and $118.3 million at December 31, 2009. The Company's nonperforming loans at December 31, 2010 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, compared to $28.5 million at September 30, 2010 and $17.4 million at December 31, 2009. The carrying value (net of a fair value discount that was recognized at acquisition) of nonperforming loans in the acquired portfolio totaled $21.4 million at December 31, 2010, compared to $12.5 million at September 30, 2010.
Other real estate and repossessed assets totaled $27.5 million at December 31, 2010, compared to $22.7 million at September 30, 2010 and $17.5 million at December 31, 2009. The increase in the fourth quarter of 2010 was primarily attributable to the addition of one piece of property with a net investment of $4.3 million. This property is vacant land intended for commercial development. It was a loan acquired in the OAK transaction.
At December 31, 2010, the allowance for loan losses was $89.5 million, or 2.86 percent of originated loans, down slightly from 2.94 percent at September 30, 2010, although up from 2.70 percent at December 31, 2009. The allowance for loan losses as a percentage of nonperforming loans of the originated portfolio was 61 percent at December 31, 2010, unchanged from 61 percent at September 30, 2010, although up nominally from 60 percent at December 31, 2009. At December 31, 2010, nonperforming loans of the originated portfolio as a percentage of originated loans were 4.72 percent, down from 4.86 percent at September 30, 2010, but up from 4.54 percent at December 31, 2009.
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 December 31, 2010, the Company had total assets of $5.25 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," "expect," "intend," "will," "continue," "ongoing," "strategy" 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 market disruptions and investment opportunities, 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 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 the amount of any impairment) and 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. 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, 2009 and in Part II, Item 1A of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 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.
CONTACT: David B. Ramaker, CEO Lori A. Gwizdala, CFO 989-839-5350