updated 4/18/2011 8:46:13 AM ET 2011-04-18T12:46:13

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.

Chemical Financial Corporation Announces First Quarter Operating Results
       
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation 
       
(In thousands, except per share data) March 31

2011
December 31

2010
March 31

2010
Assets:      
Cash and cash equivalents:      
Cash and cash due from banks  $ 116,445  $ 91,403  $ 80,791
Interest-bearing deposits with unaffiliated banks and others  525,174  444,762  366,580
Total cash and cash equivalents  641,619  536,165  447,371
Investment securities:      
Available-for-sale  585,992  578,610  565,823
Held-to-maturity  163,890  165,400  124,893
Total Investment Securities  749,882  744,010  690,716
Other securities  27,133  27,133  22,128
Loans held-for-sale  4,033  20,479  4,943
       
Loans:      
Commercial   821,115  818,997  580,656
Real estate commercial   1,074,842  1,076,971  790,009
Real estate construction and land development   139,439  142,620  124,853
Real estate residential   809,085  798,046  738,911
Consumer installment and home equity  838,035  845,028  753,886
Total Loans  3,682,516  3,681,662  2,988,315
Allowance for loan losses  (89,674)  (89,530)  (84,155)
Net Loans  3,592,842  3,592,132  2,904,160
       
Premises and equipment  65,135  65,961  54,438
Goodwill  113,414  113,414  69,908
Other intangible assets  13,060  13,521  5,242
Interest receivable and other assets  127,977  133,394  93,723
Total Assets  $ 5,335,095  $ 5,246,209  $ 4,292,629
       
Liabilities:      
Deposits:      
Noninterest-bearing   $ 766,876  $ 753,553  $ 558,470
Interest-bearing   3,615,395  3,578,212  2,915,869
Total Deposits  4,382,271  4,331,765  3,474,339
Interest payable and other liabilities  30,038  37,533  28,264
Short-term borrowings  286,193  242,703  237,712
Federal Home Loan Bank advances   72,854  74,130  80,000
Total Liabilities  4,771,356  4,686,131  3,820,315
       
Shareholders' Equity:      
Preferred stock, no par value per share  --  --  --
Common stock, $1 par value per share  27,451  27,440  23,903
Additional paid-in capital  429,990  429,511  348,136
Retained earnings  120,935  117,238  112,900
Accumulated other comprehensive loss  (14,637)  (14,111)  (12,625)
Total Shareholders' Equity  563,739  560,078  472,314
Total Liabilities and Shareholders' Equity  $ 5,335,095  $ 5,246,209  $ 4,292,629
 
 
Chemical Financial Corporation Announces First Quarter Operating Results
     
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation 
     
  Three Months Ended

March 31
(In thousands, except per share data) 2011 2010
Interest Income:    
Interest and fees on loans  $ 49,440  $ 41,718
Interest on investment securities:    
Taxable  2,324  3,124
Tax-exempt  1,479  982
Dividends on other securities  123  82
Interest on deposits with unaffiliated banks and others  309  216
Total Interest Income  53,675  46,122
     
Interest Expense:    
Interest on deposits  7,878  8,700
Interest on short-term borrowings  150  160
Interest on Federal Home Loan Bank advances   442  874
Total Interest Expense  8,470  9,734
Net Interest Income   45,205  36,388
Provision for loan losses  7,500  14,000
Net Interest Income after Provision for Loan Losses  37,705  22,388
     
Noninterest Income:    
Service charges on deposit accounts  4,096  4,391
Wealth management revenue  2,766  2,292
Other charges and fees for customer services  2,658  2,008
Mortgage banking revenue  1,064  718
Other   188  31
Total Noninterest Income  10,772  9,440
     
Operating Expenses:    
Salaries, wages and employee benefits  18,325  14,507
Occupancy   3,338  2,837
Equipment and software  2,722  2,714
Other  11,004  9,131
Total Operating Expenses  35,389  29,189
Income Before Income Taxes  13,088  2,639
Federal Income Tax Expense   3,900  350
Net Income   $ 9,188  $ 2,289
     
Net income per common share:    
Basic  $ 0.33  $ 0.10
Diluted  0.33  0.10
     
Cash dividends declared per common share  0.20  0.20
     
Average common shares outstanding:    
Basic  27,451  23,903
Diluted  27,482  23,921
     
     
Chemical Financial Corporation Announces First Quarter Operating Results
           
Financial Summary (Unaudited)
Chemical Financial Corporation 
        Three Months Ended

March 31
(Dollars in thousands)       2011 2010
Average Balances           
Total assets        $ 5,302,558  $ 4,280,304
Total interest-earning assets        4,963,384  4,051,440
Total loans        3,672,301  2,984,305
Total deposits        4,362,774  3,451,829
Total interest-bearing liabilities        3,942,406  3,224,427
Total shareholders' equity        560,661  474,278
           
        Three Months Ended

March 31
        2011 2010
Key Ratios (annualized where applicable)          
Net interest margin (taxable equivalent basis)       3.78% 3.72%
Efficiency ratio        61.8% 62.4%
Return on average assets       0.70% 0.22%
Return on average shareholders' equity       6.6% 2.0%
Average shareholders' equity as a

percent of average assets
      10.6% 11.1%
Tangible shareholders' equity as a

percent of total assets
      8.5% 9.5%
Total risk-based capital ratio       13.0% 15.5%
           
  March 31

2011
Dec 31 

2010
Sept 30

2010
June 30 

2010
March 31

2010
Credit Quality Statistics          
Originated Loans  $ 3,143,489  $ 3,129,399  $ 3,045,872  $ 3,034,515  $ 2,988,315
Acquired Loans  539,027  552,263  594,999  613,446  --
Nonperforming Loans:          
Nonaccrual loans  106,296  102,962  112,832  107,981  100,882
Accruing loans contractually past due 90 days or more

as to interest or principal payments
2,196 7,408 6,526 8,301 7,204
Troubled debt restructurings - commercial and real estate commercial 15,201 15,057 9,834  7,791  6,243
Troubled debt restructurings - real estate residential  22,166 22,302  18,712  18,856  15,799
Total nonperforming loans   145,859  147,729  147,904  142,929  130,128
Other real estate and repossessed assets (ORE) 26,355 27,510 22,704 21,724 18,813
Total nonperforming assets  172,214  175,239  170,608  164,653  148,941
Net loan charge-offs (year-to-date) 7,356 36,911 26,620 18,039 10,686
           
Allowance for loan losses as a

percent of total originated loans
2.85% 2.86% 2.94% 2.95% 2.82%
Allowance for loan losses as a

percent of nonperforming loans
61% 61% 61% 63% 65%
Nonperforming loans as a

percent of total loans
3.96% 4.01% 4.06% 3.92% 4.35%
Nonperforming assets as a

percent of total loans plus ORE
4.64% 4.72% 4.66% 4.49% 4.95%
Nonperforming assets as a

percent of total assets
3.23% 3.34% 3.16% 3.22% 3.47%
Net loan charge-offs as a percent of

average loans (year-to-date, annualized)
0.80% 1.07% 1.06% 1.12% 1.43%
           
           
  March 31

2011
Dec 31 

2010
Sept 30

2010
June 30 

2010
March 31

2010
Additional Data - Intangibles          
Goodwill  $ 113,414  $ 113,414  $ 110,266  $ 109,149  $ 69,908
Core deposit intangibles  9,024  9,406  10,352  10,791  2,183
Mortgage servicing rights (MSR)  3,832  3,782  3,718  3,641  3,059
Other intangible assets  204  333  462  591  --
Amortization of core deposit intangibles (quarter only)  382  436  439  337  148
           
           
Chemical Financial Corporation Announces First Quarter Operating Results
           
Nonperforming Assets (Unaudited)
Chemical Financial Corporation 
           
(Dollars in thousands) March 31

2011
Dec 31

2010
Sept 30

2010
June 30

2010
March 31

2010
Nonperforming Loans:          
Nonaccrual loans:          
Commercial  $ 15,672  $ 16,668  $ 19,440  $ 21,643  $ 18,382
Real estate commercial 59,931  60,558  59,353 57,085 51,865
Real estate construction and land development 9,414  8,967  16,085 13,397 15,870
Real estate residential 15,505  12,083  13,485 12,499 10,913
Consumer installment and home equity 5,774  4,686  4,469 3,357 3,852
Total nonaccrual loans 106,296  102,962  112,832 107,981 100,882
Accruing loans contractually past due 90 days or more as to

interest or principal payments:
         
Commercial 455  530  909 2,108 2,576
Real estate commercial 459  1,350  2,265 2,030 1,483
Real estate construction and land development  --  1,220  -- 436 988
Real estate residential 191  3,253  2,316 2,842 1,636
Consumer installment and home equity 1,091  1,055  1,036 885 521
Total accruing loans contractually past due 90 days or more

as to interest or principal payments
2,196  7,408  6,526 8,301 7,204
Loans modified under troubled debt restructurings:          
Commercial and real estate commercial 15,201  15,057  9,834 7,791 6,243
Real estate residential loans 22,166  22,302  18,712 18,856 15,799
Total loans modified under troubled debt restructurings 37,367  37,359  28,546 26,647 22,042
Total nonperforming loans 145,859  147,729  147,904 142,929 130,128
Other real estate and repossessed assets 26,355  27,510  22,704 21,724 18,813
Total nonperforming assets  $ 172,214  $ 175,239  $ 170,608  $ 164,653  $ 148,941
 
 
Chemical Financial Corporation Announces First Quarter Operating Results
           
Summary of Loan Loss Experience (Unaudited)
Chemical Financial Corporation 
           
  Three Months Ended
(Dollars in thousands) March 31

2011
Dec 31

2010
Sept 30

2010
June 30

2010
March 31

2010
Allowance for loan losses at beginning of period  $ 89,530  $ 89,521  $ 89,502  $ 84,155  $ 80,841
Provision for loan losses  7,500  10,300  8,600 12,700 14,000
Loans charged off:          
Commercial  (1,976)  (2,797)  (2,830)  (1,438)  (1,365)
Real estate commercial  (3,875)  (3,828)  (2,586)  (2,108)  (2,289)
Real estate construction and land development  (63)  (1,111)  (146)  (638)  (644)
Real estate residential  (944)  (1,349)  (1,767)  (1,752)  (3,173)
Consumer installment and home equity  (1,784)  (1,961)  (1,916)  (2,361)  (4,427)
Total loan charge-offs  (8,642)  (11,046)  (9,245)  (8,297)  (11,898)
Recoveries of loans previously charged off:          
Commercial  215  165  212  171  373
Real estate commercial  87  189  38  29  170
Real estate construction and land development  --  --  19  1  --
Real estate residential  456  74  109  175  185
Consumer installment and home equity  528  327  286  568  484
Total loan recoveries  1,286  755  664  944  1,212
Net loan charge-offs  (7,356)  (10,291)  (8,581)  (7,353)  (10,686)
Allowance for loan losses at end of period  $ 89,674  $ 89,530  $ 89,521  $ 89,502  $ 84,155
 
 
Chemical Financial Corporation Announces First Quarter Operating Results
           
Selected Quarterly Information (Unaudited)          
Chemical Financial Corporation           
           
(Dollars in thousands, except per share data) 1st Qtr.

2011
4th Qtr.

2010
3rd Qtr.

2010
2nd Qtr.

2010
1st Qtr.

2010
Summary of Operations          
Interest income  $ 53,675  $ 55,348  $ 55,998  $ 52,962  $ 46,122
Interest expense 8,470  9,400  10,105  10,071  9,734
Net interest income 45,205  45,948  45,893 42,891 36,388
Provision for loan losses 7,500  10,300  8,600  12,700  14,000
Net interest income after provision

for loan losses
37,705  35,648  37,293  30,191  22,388
Noninterest income 10,772  10,913  11,119  11,000  9,440
Operating expenses  35,389  36,747  36,216  34,650  29,189
Income before income taxes 13,088  9,814  12,196  6,541  2,639
Federal income tax expense 3,900  2,275  3,325  2,150  350
Net income   $ 9,188  $ 7,539  $ 8,871  $ 4,391  $ 2,289
           
Net interest margin 3.78% 3.79% 3.80% 3.88% 3.72%
           
Per Common Share Data          
Net income:          
 Basic  $ 0.33  $ 0.27  $ 0.32  $ 0.17  $ 0.10
 Diluted  0.33  0.27  0.32  0.17  0.10
Cash dividends  0.20  0.20  0.20  0.20  0.20
Book value - period-end  20.54  20.41  20.44  20.27  19.76
Market value - period-end  19.93  22.15  20.64  21.78  23.62
CONTACT:  David B. Ramaker, CEO
          Lori A. Gwizdala, CFO
          989-839-5350

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