MIDLAND, Mich., Oct. 27, 2008 (GLOBE NEWSWIRE) -- Chemical Financial Corporation (Nasdaq:CHFC) today announced a third quarter 2008 net loss of $1.0 million, or $0.04 per diluted share, versus net income of $10.6 million, or $0.44 per diluted share, in the third quarter of 2007.
Net income was $18.3 million, or $0.77 per diluted share, for the nine months ended September 30, 2008, compared to net income of $29.2 million, or $1.19 per diluted share, for the nine months ended September 30, 2007.
"Although third quarter net interest income was up significantly due primarily to our net interest margin increasing 52 basis points from the prior year's quarter, the increase was insufficient to overcome the previously disclosed $22 million loan loss provision we incurred during the quarter. The significantly higher provision resulted from the combination of deteriorating credit quality and a $10.1 million loss attributable to a single borrower engaged in a fraudulent loan transaction. The fraud loss, by itself, had a negative impact of $0.29 per share, after-tax, on our reported earnings," said David B. Ramaker, Chairman, Chief Executive Officer and President of Chemical Financial Corporation.
"The rapid deterioration in the national economy over the past quarter has had a significant impact on Michigan's struggling economy, which has translated into increases in loan losses, loan delinquencies and nonperforming assets. As a result, we increased our loan loss reserves. We felt that this action was necessary in the current environment, but are not satisfied with our reported earnings this quarter," noted Ramaker.
"At the same time, our strong balance sheet, healthy capital position and sufficient liquidity have left Chemical Financial well positioned even in this difficult economic environment. Earlier this month, the Board declared a quarterly dividend of $0.295 per share for the fourth quarter of 2008, a reflection of the Company's belief that our earnings potential is high and our capital position strong. In fact, at quarter's end, our Leverage and Tier One Risk-Based capital ratios remained more than double the regulatory benchmarks for well-capitalized institutions. Despite the struggles faced by the national and Michigan economies, we are poised to not only weather the current economic crisis, but to capitalize on opportunities which present themselves," added Ramaker.
Net interest income was $36.72 million in the third quarter of 2008, an increase of $4.25 million, or 13.1 percent, from third quarter 2007 net interest income of $32.47 million and an increase of $1.08 million, or 3.0 percent, from second quarter 2008 net interest income of $35.64 million. The increases in net interest income were attributable primarily to the increases in net interest margin. The net interest margin (on a tax-equivalent basis) in the third quarter of 2008 was 4.20 percent, up substantially from 3.68 percent in the third quarter of 2007 and up from 4.11 percent in the second quarter of 2008. The increases in net interest margin were primarily attributable to decreases in rates paid on interest-bearing liabilities exceeding decreases in rates earned on interest-earning assets, as deposits repriced more rapidly than loans in the falling interest rate environment experienced in the past 12 months.
Total assets were $3.79 billion at September 30, 2008, up slightly from $3.75 billion at December 31, 2007 and down from $3.82 billion at September 30, 2007. At September 30, 2008, total loans were $2.93 billion, versus $2.80 billion at December 31, 2007 and $2.81 billion at September 30, 2007. Federal funds sold were $2 million at September 30, 2008, down from $58 million at December 31, 2007 and $88 million at September 30, 2007. Investment securities were $566 million at September 30, 2008, down from $595 million at December 31, 2007 and down from $632 million at September 30, 2007. During the first nine months of 2008, the Company utilized excess liquidity to fund approximately $129 million in loan growth and reduce wholesale borrowings.
Total deposits were $2.94 billion at September 30, 2008, up slightly from $2.88 billion at December 31, 2007, although down from $2.97 billion at September 30, 2007. Long-term wholesale borrowings, comprised of Federal Home Loan Bank advances, totaled $90 million at September 30, 2008, down $60 million, or 40 percent, from $150 million at December 31, 2007 and down $35 million, or 28 percent, from $125 million at September 30, 2007.
The provision for loan losses was $22.0 million in the third quarter of 2008, compared to $6.5 million in the second quarter of 2008 and $2.9 million in the third quarter of 2007. Included in the provision for the third quarter of 2008 was $10.1 million attributable to the previously disclosed fraudulent loan transaction. Absent this event, the provision for the third quarter of 2008 would have been $11.9 million. Net loan charge-offs were $15.3 million in the third quarter of 2008, up substantially from $6.5 million in the second quarter of 2008 and $0.8 million in the third quarter of 2007. The increase in charge-offs in the third quarter of 2008, as compared to the second quarter of 2008, was due primarily to the fraudulent loan transaction. Absent this transaction, net charge-offs in the third quarter of 2008 would have been $5.2 million.
At September 30, 2008, nonperforming assets totaled $98.4 million, up from $87.8 million at June 30, 2008 and up from $62.8 million at September 30, 2007. Nonperforming loans were $82.7 million at September 30, 2008, compared to $71.9 million at June 30, 2008 and $53.6 million at September 30, 2007. At September 30, 2008, nonperforming loans as a percentage of total loans were 2.83 percent, up from 2.52 percent at June 30, 2008 and up from 1.90 percent at September 30, 2007.
The allowance for loan losses of $46.4 million at September 30, 2008 was up 16.9 percent from $39.7 million at June 30, 2008. The allowance at September 30, 2008 was 1.58 percent of total loans, up from 1.39 percent of total loans at June 30, 2008 and up from 1.36 percent of total loans at September 30, 2007. The allowance for loan losses as a percent of nonperforming loans was 56 percent at September 30, 2008, up from 55 percent at June 30, 2008, but down from 72 percent at September 30, 2007. As part of Chemical Financial Corporation's ongoing credit portfolio monitoring program, the Company makes periodic assessments of the quality of each nonperforming credit, the financial condition of the borrower and the value of any underlying collateral to identify potential loss exposure on nonperforming loans. The Company's nonperforming loans at September 30, 2008 included commercial, real estate commercial and residential development construction loans totaling $27.3 million, which have been analyzed and deemed to have sufficient collateral values so as not to require a specific impairment reserve on these loans at September 30, 2008.
Total noninterest income was $10.1 million in the third quarter of 2008, down $1.0 million, or 9.0 percent, from $11.1 million in the third quarter of 2007. The decrease from the prior year's quarter was attributable to the recognition of a $0.4 million other-than-temporary impairment loss on the value of a single issue debt security in the Company's available-for-sale securities portfolio and noninterest income in the third quarter of 2007 including $1.0 million of nonrecurring income from the recognition of insurance proceeds from fire damage to a branch building.
Operating expenses in the third quarter of 2008 were $26.8 million, up $1.6 million, or 6.3 percent, from $25.2 million in the third quarter of 2007. The increase was attributable to higher operating costs incurred across the Company's expense base, particularly in the areas of compensation expense, loan collection costs, other real estate write-downs and operating costs and marketing expenses related to our "Save Michigan" advertising campaign. The Company's efficiency ratio was 56.5 percent in the third quarter of 2008, up from 55.8 percent in the second quarter of 2008 and down from 57.1 percent in the third quarter of 2007. The decrease in the efficiency ratio from the prior year's quarter was primarily attributable to the increase in net interest income.
The Company's effective federal income tax rate was 48.1% in the third quarter of 2008, compared to 31.4% in the third quarter of 2007. For the nine months ended September 30, 2008 and 2007, the Company's effective federal income tax rates were 31.5% and 32.1%, respectively. The differences between the federal statutory income tax rates and the Company's effective federal income tax rates are primarily a function of the proportion of the Company'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 third quarter of 2008 was (0.11) percent, down from 1.03 percent in the second quarter of 2008 and 1.10 percent in the third quarter of 2007. At September 30, 2008, the Company's book value stood at $21.19 per share versus $21.04 per share at September 30, 2007.
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 September 30, 2008, the Company had total assets of $3.79 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.
Safe Harbor Statement
This report 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. Management's determination of the provision and allowance for loan losses involves judgments that are inherently forward-looking. 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, 2007, 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 (In thousands, except September 30 December 31 September 30 per share data) 2008 2007 2007 ------------------------------------------------------------------- Assets: Cash and cash equivalents: Cash and cash due from banks $ 107,311 $ 125,285 $ 99,465 Federal funds sold 2,000 58,000 88,300 Interest-bearing deposits with unaffiliated banks 4,579 6,228 15,226 ---------- ---------- ---------- Total Cash and Cash Equivalents 113,890 189,513 202,991 Investment securities: Available for sale 455,158 503,271 533,611 Held to maturity 111,261 91,243 98,342 ---------- ---------- ---------- Total Investment Securities 566,419 594,514 631,953 Other securities 22,142 22,135 22,135 Loans held for sale 10,861 7,883 7,708 Loans: Commercial 574,006 515,319 534,503 Real estate commercial 776,617 760,399 736,443 Real estate construction 133,615 134,828 138,199 Real estate residential 831,700 838,545 840,694 Consumer 612,433 550,343 565,140 ---------- ---------- ---------- Total Loans 2,928,371 2,799,434 2,814,979 Allowance for loan losses (46,412) (39,422) (38,386) ---------- ---------- ---------- Net Loans 2,881,959 2,760,012 2,776,593 Premises and equipment 51,471 49,930 48,293 Goodwill 69,908 69,908 69,908 Other intangible assets 5,594 6,876 7,324 Interest receivable and other assets 65,842 53,542 55,857 ---------- ---------- ---------- Total Assets $3,788,086 $3,754,313 $3,822,762 ========== ========== ========== Liabilities: Deposits: Noninterest-bearing $ 531,355 $ 535,705 $ 524,522 Interest-bearing 2,412,521 2,339,884 2,442,692 ---------- ---------- ---------- Total Deposits 2,943,876 2,875,589 2,967,214 Interest payable and other liabilities 23,606 22,848 23,285 Short-term borrowings 224,684 197,363 203,322 Federal Home Loan Bank advances - long-term 90,025 150,049 125,049 ---------- ---------- ---------- Total Liabilities 3,282,191 3,245,849 3,318,870 Shareholders' Equity: Common stock, $1 par value per share 23,877 23,815 23,952 Surplus 346,652 344,579 347,569 Retained earnings 139,037 141,867 138,817 Accumulated other comprehensive loss (3,671) (1,797) (6,446) ---------- ---------- ---------- Total Shareholders' Equity 505,895 508,464 503,892 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $3,788,086 $3,754,313 $3,822,762 ========== ========== ========== Consolidated Statements of Income (Unaudited) Chemical Financial Corporation Three Months Ended Nine Months Ended (In thousands, September 30 September 30 except per share data) 2008 2007 2008 2007 --------------------------------------------------------------------- Interest Income: Interest and fees on loans $ 45,211 $ 48,346 $135,272 $143,850 Interest on investment securities: Taxable 5,333 6,299 16,645 18,667 Tax-exempt 738 688 2,120 2,018 Dividends on other securities 211 182 795 755 Interest on federal funds sold 180 1,433 1,610 4,495 Interest on deposits with unaffiliated banks 15 209 191 383 -------- -------- -------- -------- Total Interest Income 51,688 57,157 156,633 170,168 Interest Expense: Interest on deposits 12,986 21,037 43,047 62,290 Interest on short-term borrowings 482 1,957 1,942 5,731 Interest on Federal Home Loan Bank advances - long-term 1,500 1,690 4,902 5,480 -------- -------- -------- -------- Total Interest Expense 14,968 24,684 49,891 73,501 -------- -------- -------- -------- Net Interest Income 36,720 32,473 106,742 96,667 Provision for loan losses 22,000 2,900 31,200 7,025 -------- -------- -------- -------- Net Interest Income after Provision for Loan Losses 14,720 29,573 75,542 89,642 Noninterest Income: Service charges on deposit accounts 5,316 5,039 15,097 15,243 Trust and investment services revenue 1,925 2,034 6,042 6,221 Other charges and fees for customer services 2,618 2,393 7,302 7,211 Mortgage banking revenue 348 577 1,408 1,647 Investment securities (losses) gains (438) -- 1,278 4 Other 285 1,014 466 2,130 -------- -------- -------- -------- Total Noninterest Income 10,054 11,057 31,593 32,456 Operating Expenses: Salaries, wages and employee benefits 15,075 14,463 44,364 44,975 Occupancy 2,472 2,361 7,602 7,721 Equipment 2,346 2,065 6,666 6,421 Other 6,857 6,281 21,847 20,032 -------- -------- -------- -------- Total Operating Expenses 26,750 25,170 80,479 79,149 -------- -------- -------- -------- Income (Loss) Before Income Taxes (1,976) 15,460 26,656 42,949 Federal Income Tax Expense (Benefit) (951) 4,850 8,400 13,786 -------- -------- -------- -------- Net Income (Loss) $ (1,025) $ 10,610 $ 18,256 $ 29,163 ======== ======== ======== ======== Net income (loss) per share: Basic $ (0.04) $ 0.44 $ 0.77 $ 1.19 Diluted (0.04) 0.44 0.77 1.19 Cash dividends per share 0.295 0.285 0.885 0.855 Average shares outstanding: Basic 23,836 24,091 23,827 24,520 Diluted 23,858 24,098 23,839 24,532 Financial Summary (Unaudited) Chemical Financial Corporation Three Months Ended Nine Months Ended September 30 September 30 (Dollars in thousands) 2008 2007 2008 2007 -------------------------------------------------------------------- Average Balances Total assets $3,782,391 $3,812,654 $3,777,057 $3,799,670 Total interest-earning assets 3,542,031 3,576,667 3,544,785 3,565,767 Total loans 2,898,784 2,813,746 2,841,873 2,803,141 Total deposits 2,923,912 2,957,407 2,922,438 2,936,466 Total interest-bearing liabilities 2,689,248 2,740,812 2,702,251 2,732,713 Total shareholders' equity 512,504 499,353 510,893 507,146 Three Months Ended Nine Months Ended September 30 September 30 2008 2007 2008 2007 ------------------------------------------------------------------- Key Ratios (annualized where applicable) Net interest margin (taxable equivalent basis) 4.20% 3.68% 4.08% 3.68% Efficiency ratio 56.5% 57.1% 57.5% 60.5% Return on average assets (0.11)% 1.10% 0.65% 1.03% Return on average shareholders' equity (0.8)% 8.4% 4.8% 7.7% Average shareholders' equity as a percent of average assets 13.5% 13.1% 13.5% 13.3% Tangible shareholders' equity as a percent of total assets 11.6% 11.4% Total risk-based capital ratio 16.7% 17.1% Sept 30 June 30 March 31 Dec 31 Sept 30 2008 2008 2008 2007 2007 ------------------------------------------------------------------- Credit Quality Statistics Nonaccrual loans $69,719 $61,635 $61,360 $55,596 $40,341 Loans 90 or more days past due and still accruing 13,012 10,288 10,570 7,764 13,282 Total nonperforming loans 82,731 71,923 71,930 63,360 53,623 Repossessed assets (RA) 15,699 15,897 12,664 11,132 9,164 Total nonperforming assets 98,430 87,820 84,594 74,492 62,787 Net loan charge-offs (year-to-date) 24,210 8,958 2,460 6,176 2,737 Allowance for loan losses as a percent of total loans 1.58% 1.39% 1.42% 1.41% 1.36% Allowance for loan losses as a percent of nonperforming loans 56% 55% 55% 62% 72% Nonperforming loans as a percent of total loans 2.83% 2.52% 2.58% 2.26% 1.90% Nonperforming assets as a percent of total loans plus RA 3.34% 3.06% 3.02% 2.65% 2.22% Nonperforming assets as a percent of total assets 2.60% 2.35% 2.23% 1.98% 1.64% Net loan charge-offs as a percent of average loans (year-to-date, annualized) 1.14% 0.64% 0.35% 0.22% 0.13% Sept 30 June 30 March 31 Dec 31 Sept 30 2008 2008 2008 2007 2007 ------------------------------------------------------------------- Additional Data - Intangibles Goodwill $69,908 $69,908 $69,908 $69,908 $69,908 Core deposit intangibles 3,266 3,609 4,062 4,593 5,024 Mortgage servicing rights (MSR) 2,328 2,354 2,280 2,283 2,300 Amortization of core deposit intangibles (quarter only) 343 453 531 431 431 Nonperforming Assets (Unaudited) Chemical Financial Corporation Sept 30 June 30 March 31 Dec 31 Sept 30 (Dollars in thousands) 2008 2008 2008 2007 2007 -------------------------------------------------------------------- Nonaccrual loans: Commercial $13,320 $10,918 $11,595 $10,961 $ 6,735 Real estate commercial 24,230 17,915 19,235 19,672 19,664 Real estate construction 14,513 15,157 17,206 12,979 4,573 Real estate residential 12,869 11,955 9,267 8,516 7,244 Consumer 4,787 5,690 4,057 3,468 2,125 -------------------------------------------------------------------- Total nonaccrual loans 69,719 61,635 61,360 55,596 40,341 Accruing loans contractually past due 90 days or more as to interest or principal payments: Commercial 1,735 3,130 1,631 1,958 1,867 Real estate commercial 6,586 2,948 2,865 4,170 5,367 Real estate construction 1,096 676 392 -- 1,076 Real estate residential 2,910 2,746 4,742 1,470 3,918 Consumer 685 788 940 166 1,054 -------------------------------------------------------------------- Total accruing loans contractually past due 90 days or more as to interest or principal payments 13,012 10,288 10,570 7,764 13,282 -------------------------------------------------------------------- Total nonperforming loans 82,731 71,923 71,930 63,360 53,623 Other real estate and repossessed assets 15,699 15,897 12,664 11,132 9,164 -------------------------------------------------------------------- Total nonperforming assets $98,430 $87,820 $84,594 $74,492 $62,787 ==================================================================== Summary of Loan Loss Experience (Unaudited) Chemical Financial Corporation Three Months Ended ------------------------------------------------- (Dollars in Sept 30 June 30 March 31 Dec 31 Sept 30 thousands) 2008 2008 2008 2007 2007 -------------------------------------------------------------------- Allowance for loan losses at beginning of period $ 39,664 $ 39,662 $ 39,422 $ 38,386 $ 36,254 Provision for loan losses 22,000 6,500 2,700 4,475 2,900 Loans charged off: Commercial (11,468) (1,474) (591) (550) (208) Real estate commercial (673) (3,373) (1,304) (1,415) -- Real estate construction (923) (1,070) (16) (850) (134) Real estate residential (749) (358) (245) (306) (64) Consumer (1,776) (612) (540) (596) (501) -------------------------------------------------------------------- Total loan charge-offs (15,589) (6,887) (2,696) (3,717) (907) Recoveries of loans previously charged off: Commercial 74 228 77 90 18 Real estate commercial 68 32 20 1 19 Real estate construction -- -- 29 30 -- Real estate residential 50 5 22 12 4 Consumer 145 124 88 145 98 -------------------------------------------------------------------- Total loan recoveries 337 389 236 278 139 -------------------------------------------------------------------- Net loan charge-offs (15,252) (6,498) (2,460) (3,439) (768) -------------------------------------------------------------------- Allowance for loan losses at end of period $ 46,412 $ 39,664 $ 39,662 $ 39,422 $ 38,386 ==================================================================== Selected Quarterly Information (Unaudited) Chemical Financial Corporation (In thousands, except per 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. share data) 2008 2008 2008 2007 2007 -------------------------------------------------------------------- Summary of Operations Interest income $ 51,688 $ 51,508 $ 53,437 $ 55,726 $ 57,157 Interest expense 14,968 15,872 19,051 22,304 24,684 ---------------------------------------------------- Net interest income 36,720 35,636 34,386 33,422 32,473 Provision for loan losses 22,000 6,500 2,700 4,475 2,900 Net interest income after provision for loan losses 14,720 29,136 31,686 28,947 29,573 Noninterest income 10,054 11,959 9,580 10,832 11,057 Operating expenses 26,750 26,885 26,844 25,522 25,170 ---------------------------------------------------- Income (Loss) Before Income Taxes (1,976) 14,210 14,422 14,257 15,460 Federal Income Tax Expense (Benefit) (951) 4,600 4,751 4,411 4,850 ---------------------------------------------------- Net Income (Loss) $ (1,025) $ 9,610 $ 9,671 $ 9,846 $ 10,610 -------------------------------------------------------------------- Per Common Share Data Net income (loss): Basic $ (0.04) $ 0.40 $ 0.41 $ 0.41 $ 0.44 Diluted (0.04) 0.40 0.41 0.41 0.44 Cash dividends 0.295 0.295 0.295 0.285 0.285 Book value - period-end 21.19 21.58 21.60 21.35 21.04 Market value - period-end 31.14 20.40 23.84 23.79 24.25