EXHIBIT 99.1
PRESS RELEASE
NASDAQ: | CHFC |
FOR RELEASE: | IMMEDIATE |
DATE: | October 21, 2005 |
| |
CONTACT: | David B. Ramaker
President & Chief Executive Officer
Chemical Financial Corporation
989/839-5269 |
| |
| Lori A. Gwizdala
Executive Vice President & Chief Financial Officer
Chemical Financial Corporation
989/839-5358 |
CHEMICAL FINANCIAL CORPORATION
ANNOUNCES
THIRD QUARTER 2005 OPERATING RESULTS
Midland, Michigan - Chemical Financial Corporation's Board of Directors today announced 2005 third quarter net income of $13.61 million, or $0.54 per diluted share, down $0.69 million, or $0.03 per diluted share, as compared with net income of $14.30 million, or $0.57 per diluted share, in the third quarter of 2004.
Net income was $40.32 million or $1.60 per share in the first nine months of 2005, compared to net income of $42.28 million, or $1.68 per share in the first nine months of 2004. This represented a decrease of 4.6% in net income and 4.8% in earnings per share for the first nine months of 2005, compared to the prior year. The returns on average assets and average equity during the first nine months of 2005 were 1.42% and 11.0%, respectively, as compared to 1.46% and 12.0%, respectively, for the first nine months of 2004.
Third Quarter Operating Results
Net income and earnings per share in the third quarter of 2005 decreased 4.8% and 5.3%, respectively, from the third quarter of 2004. The decreases in net income and earnings per share were attributable to lower net interest income, an increase in the provision for loan losses and
1
increased operating expenses. These items were partially offset by a modest increase in noninterest income and a lower effective federal income tax rate.
Net interest income of $35.1 million in the third quarter of 2005 was $2.0 million, or 5.4%, lower than in the third quarter of 2004. The decrease in net interest income was primarily attributable to a slight decrease in average interest-earning assets and the impact of the continued flattening of the interest yield curve. These factors were partially offset by a positive change in the mix of interest-earnings assets, with average loans up $81 million, or 3.1%, in the third quarter of 2005, as compared to the third quarter of 2004.
Average interest-earning assets were $3.56 billion in the third quarter of 2005, down $30 million, or 0.8% from the third quarter of 2004. The decrease in average interest-earning assets between the third quarter of 2005 and the third quarter of 2004 was primarily attributable to a decrease in investment securities that resulted primarily from a decline in customer deposits.
The net interest margin was 3.96% in the third quarter of 2005, compared to 4.16% in the third quarter of 2004. The decrease in net interest margin was primarily attributable to the increase in the average yield on interest-earning assets not keeping pace with the increase in the average cost of interest-bearing liabilities. The average yield on interest-earning assets increased 38 basis points in the third quarter of 2005, as compared to the third quarter of 2004, to 5.66%, while the average cost of interest-bearing liabilities increased 76 basis points, between the same periods, to 2.22%. The increase in the average yield on interest-earning assets was primarily driven by the increase in the interest yield on variable rate commercial loans and home equity lines of credit tied to prime. The increase in the average cost of interest-bearing liabilities continued to result from rising deposit interest rates, which have been driven by the overall rise in short-term market i nterest rates and increased competition for deposits.
The provision for loan losses ("provision") in the third quarter of 2005 was $1.5 million, an increase of $0.8 million over the $0.7 million provision recorded in the third quarter of 2004. The provision was also $0.7 million in both the first and second quarters of 2005. The increase in the provision in the third quarter of 2005 over the third quarter of 2004 was primarily driven by
2
an increase in the Corporation's nonperforming commercial and commercial real estate loans and other watch credits, and also the overall increase in total loans during the third quarter of 2005. Based on these increases, the Corporation's allowance for loan losses evaluation methodology identified the need to increase the provision for loan losses over the level recorded in the first two quarters of 2005. The allowance for loan losses calculation includes reserve percentages for adversely-graded commercial loans that are adjusted over time using actual loan loss experience. The Corporation experienced a $4.2 million increase in nonperforming loans during the third quarter of 2005. Based on the Corporation's internal evaluation process as of September 30, 2005, the Corporation does not expect a significant increase in net loan losses to result from the increase in nonperforming loans and other watch loan credits that occurred during the three months ended September 30, 2005. Net loan charge-offs were $0.72 mi llion in the third quarter of 2005, compared to $0.73 million and $1.08 million in the first and second quarters of 2005, respectively, and $0.62 million in the third quarter of 2004. Net loan losses as a percentage of average total loans were 0.13% on an annualized basis during the nine months ended September 30, 2005; slightly higher than the percentage for the twelve months ended December 31, 2004 of 0.11%.
Total noninterest income was $10.25 million in the third quarter of 2005, up $0.63 million or 6.5% from the third quarter of 2004. The Corporation experienced increases in a number of noninterest income categories, including trust and investment management services revenue, service charges on deposit accounts, ATM service fees, debit card revenue, and letter of credit fees, although these increases were partially offset by a decrease in mortgage banking revenue. Mortgage banking revenue of $0.32 million in the third quarter of 2005 was down $0.64 million, or 67%, from the third quarter of 2004. Mortgage banking revenue in the third quarter of 2004 was positively impacted by a $0.4 million reversal of previously recorded impairment on mortgage servicing rights. The Corporation was servicing $557 million of residential mortgage loans that were sold in the secondary market as of September 30, 2005, compared to $591 million as of September 30, 2004.
Operating expenses were $24.84 million in the third quarter of 2005, up $0.34 million, or 1.4%, from the third quarter of 2004. In comparison, operating expenses were $24.98 million and
3
$24.76 million in the first and second quarters of 2005, respectively. The increase in operating expenses between the third quarter of 2005 and 2004 was primarily attributable to increases in external audit fees, consulting fees, use taxes on computer software license agreements, and an increase in personnel costs. The increases in operating expenses were partially offset by a decrease in incentive compensation expense of $0.46 million between the third quarters of 2005 and 2004. Incentive compensation expense was $0.03 million during the third quarter of 2005, compared to $0.69 million in each of the first two quarters of 2005, and $0.49 million during the third quarter of 2004.
The Corporation's federal income tax provision in the third quarter of 2005 was reduced $0.94 million as a result of federal income tax statutes expiring on September 30, 2005. The $0.94 million reduction in the federal income tax provision reduced the Corporation's effective federal income tax rate to 28.6% in the third quarter of 2005. In comparison, the effective federal income tax rate was 33.7% in the third quarter of 2004, and 33.9% and 33.8% in the first and second quarters of 2005, respectively.
The returns on average assets and average equity during the third quarter of 2005 were 1.42% and 10.9%, respectively, as compared to 1.48% and 12.0%, respectively, for the third quarter of 2004.
Balance Sheet and Capital Position
Total assets of the Corporation at September 30, 2005 were $3.842 billion, up $78 million or 2.1% from the $3.764 billion in total assets reported at December 31, 2004. Total deposits at September 30, 2005 were $2.908 billion, up $45 million, or 1.6% from total deposits of $2.863 billion at December 31, 2004.
Total loans were $2.700 billion at September 30, 2005, up $114.8 million, or 4.4% from total loans of $2.586 billion at December 31, 2004. The Corporation experienced modest increases in all loan categories during the nine months ended September 30, 2005. The Corporation achieved a $20.2 million, or 3.8% increase in consumer loans during the nine
4
months ended September 30, 2005. The Corporation's success in increasing the consumer loan portfolio resulted largely from the combination of a special consumer loan program that offered lower interest rates on newer automobile and recreation vehicle loans and promotional pricing offered nationwide by some automobile manufacturers.
As of September 30, 2005, the allowance for loan losses was $34.6 million or 1.28% of total loans, while nonperforming loans were $20.3 million or 0.75% of total loans. In comparison, nonperforming loans as a percentage of total loans were 0.45% as of September 30, 2004 and 0.39% as of December 31, 2004. Nonperforming loans at September 30, 2005 increased $4.2 million or 26% from June 30, 2005 and were up $10.2 million or 102% from December 31, 2004. Nonperforming loans as of September 30, 2005 included two commercial real estate loan relationships with balances totaling approximately $5.0 million. The Corporation expects these two loans to no longer be in the nonperforming loan category at December 31, 2005, and therefore does not expect to record an additional provision for loan losses related to these two loans. In addition, nonperforming loans as of September 30, 2005 included $5.4 million of residential real estate loans that were either in nonaccrual status or past due greater than 90 days. These type of nonperforming loans have increased $1.3 million, or 31%, since December 31, 2004. Residential real estate loans by their nature are generally well secured, and based on the Corporation's previous loss experience on these loans, loan losses from these loans are expected to be immaterial.
Shareholders' equity at September 30, 2005 was $498 million or $19.82 per share and represented 13.0% of total assets. The Corporation's total risk-based capital and tangible equity to assets ratios were 17.5% and 11.3%, respectively, as of September 30, 2005.
Chemical Financial Corporation is the fourth largest bank holding company headquartered in Michigan. The Company's three subsidiary banks operate banking offices spread over 32 counties in the lower peninsula of Michigan.
Chemical Financial Corporation common stock trades on The Nasdaq Stock Market under the symbol CHFC and is one of the issues comprising the Nasdaq Financial 100 index.
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Forward Looking Statements This press release contains forward-looking statements. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "will," 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 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. Factors that could cause a difference include, among others: changes in the national and local economies or market conditions; changes in interest rates and banking laws and regulations; the impact of competition from traditional or new sources; and the possibility that anticipated cost savings and revenue enhanceme nts from mergers and acquisitions and bank consolidations may not be fully realized at all or within the expected time frames. These and other factors that may emerge could cause decisions and actual results to differ materially from current expectations. Chemical undertakes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release. |
# # #
6
Chemical Financial Corporation Announces Third Quarter Operating Results
|
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation and Subsidiaries
(In thousands)
| September 30,
2005
|
| December 31,
2004
|
| September 30,
2004
|
Assets: | | | | | | | | |
Cash and demand deposits due from banks | $ | 111,115 | | $ | 106,565 | | $ | 104,173 |
Federal funds sold | | 76,300 | | | 34,500 | | | 108,100 |
Interest-bearing deposits with unaffiliated banks | | 36,337 | | | 5,869 | | | 15,219 |
| | | | | | | | |
Investment securities - available for sale | | 654,445 | | | 716,757 | | | 743,343 |
Investment securities - held to maturity |
| 132,898
| |
| 176,517
| |
| 156,692
|
Total Investment Securities | | 787,343 | | | 893,274 | | | 900,035 |
| | | | | | | | |
Commercial loans | | 504,189 | | | 468,970 | | | 475,977 |
Real estate construction loans | | 146,973 | | | 120,900 | | | 141,547 |
Real estate commercial loans | | 708,152 | | | 697,779 | | | 669,880 |
Real estate residential loans | | 783,834 | | | 760,834 | | | 771,201 |
Consumer loans |
| 557,256
| |
| 537,102
| |
| 547,893
|
Total Loans | | 2,700,404 | | | 2,585,585 | | | 2,606,498 |
Less: Allowance for loan losses |
| 34,603
| |
| 34,166
| |
| 33,629
|
Net Loans | | 2,665,801 | | | 2,551,419 | | | 2,572,869 |
| | | | | | | | |
Premises and equipment | | 45,123 | | | 47,577 | | | 47,646 |
Intangible assets | | 72,194 | | | 74,421 | | | 75,306 |
Other assets |
| 47,948
| |
| 50,500
| |
| 49,602
|
Total Assets
| $
| 3,842,161
| | $
| 3,764,125
| | $
| 3,872,950
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Noninterest-bearing deposits | $ | 521,969 | | $ | 555,287 | | $ | 546,387 |
Interest-bearing deposits |
| 2,386,605
| |
| 2,308,186
| |
| 2,428,916
|
Total Deposits | | 2,908,574 | | | 2,863,473 | | | 2,975,303 |
Other borrowings - short term | | 137,613 | | | 101,834 | | | 100,439 |
Interest payable and other liabilities | | 29,118 | | | 28,986 | | | 33,189 |
FHLB borrowings |
| 268,959
| |
| 284,996
| |
| 285,191
|
Total Liabilities | | 3,344,264 | | | 3,279,289 | | | 3,394,122 |
| | | | | | | | |
Shareholders' Equity: | | | | | | | | |
Common stock, $1 par value | | 25,127 | | | 25,169 | | | 23,948 |
Surplus | | 377,469 | | | 378,694 | | | 333,569 |
Retained earnings | | 100,598 | | | 80,266 | | | 118,000 |
Accumulated other comprehensive income/(loss)
|
| (5,297
| )
|
| 707
| |
| 3,311
|
Total Shareholders' Equity |
| 497,897
| |
| 484,836
| |
| 478,828
|
Total Liabilities and Shareholders' Equity
| $
| 3,842,161
| | $
| 3,764,125
| | $
| 3,872,950
|
7
Chemical Financial Corporation Announces Third Quarter Operating Results
|
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation and Subsidiaries
| Quarter Ended
September 30, | | Nine Months Ended
September 30, | |
(In thousands, except per share data)
| 2005
|
| 2004
|
| 2005
|
| 2004
| |
Interest Income: | | | | | | | | | | | | |
Interest and fees on loans | $ | 42,023 | | $ | 38,347 | | $ | 121,055 | | $ | 113,306 | |
Interest on investment securities: | | | | | | | | | | | | |
Taxable | | 6,950 | | | 8,066 | | | 22,459 | | | 25,218 | |
Nontaxable |
| 539
| |
| 511
| |
| 1,551
| |
| 1,602
| |
Total Interest on Investment Securities | | 7,489 | | | 8,577 | | | 24,010 | | | 26,820 | |
Interest on federal funds sold | | 682 | | | 265 | | | 1,586 | | | 668 | |
Interest on deposits with unaffiliated banks |
| 226
| |
| 129
| |
| 741
| |
| 292
| |
Total Interest Income | | 50,420 | | | 47,318 | | | 147,392 | | | 141,086 | |
| | | | | | | | | | | | |
Interest Expense: | | | | | | | | | | | | |
Interest on deposits | | 11,851 | | | 7,437 | | | 31,522 | | | 22,651 | |
Interest on other borrowings - short term | | 733 | | | 158 | | | 1,526 | | | 357 | |
Interest on FHLB borrowings |
| 2,690
| |
| 2,570
| |
| 7,553
| |
| 7,694
| |
Total Interest Expense |
| 15,274
| |
| 10,165
| |
| 40,601
| |
| 30,702
| |
Net Interest Income | | 35,146 | | | 37,153 | | | 106,791 | | | 110,384 | |
Provision for loan losses |
| 1,500
| |
| 701
| |
| 2,960
| |
| 2,108
| |
Net Interest Income after | | | | | | | | | | | | |
Provision for Loan Losses | | 33,646 | | | 36,452 | | | 103,831 | | | 108,276 | |
| | | | | | | | | | | | |
Noninterest Income: | | | | | | | | | | | | |
Service charges on deposit accounts | | 5,406 | | | 4,970 | | | 15,136 | | | 14,281 | |
Trust & investment management services revenue | | 1,891 | | | 1,761 | | | 5,963 | | | 5,541 | |
Other charges and fees for customer services | | 2,388 | | | 1,706 | | | 5,984 | | | 5,060 | |
Mortgage banking revenue | | 322 | | | 960 | | | 1,292 | | | 2,820 | |
Investment securities gains | | 3 | | | 9 | | | 1,174 | | | 1,259 | |
Other |
| 239
| |
| 217
| |
| 633
| |
| 629
| |
Total Noninterest Income | | 10,249 | | | 9,623 | | | 30,182 | | | 29,590 | |
| | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | |
Salaries and employee benefits | | 14,404 | | | 14,385 | | | 43,642 | | | 43,879 | |
Occupancy and equipment | | 4,480 | | | 4,613 | | | 13,753 | | | 13,897 | |
Other |
| 5,955
| |
| 5,501
| |
| 17,190
| |
| 16,803
| |
Total Operating Expenses |
| 24,839
| |
| 24,499
| |
| 74,585
| |
| 74,579
| |
Income Before Income Taxes | | 19,056 | | | 21,576 | | | 59,428 | | | 63,287 | |
Federal income taxes |
| 5,451
| |
| 7,280
| |
| 19,104
| |
| 21,006
| |
Net Income
| $
| 13,605
| | $
| 14,296
| | $
| 40,324
| | $
| 42,281
| |
| | | | | | | | | | | | |
Net income per share: | | | | | | | | | | | | |
Basic | $ | 0.54 | | $ | 0.58 | | $ | 1.60 | | $ | 1.69 | |
Diluted | | 0.54 | | | 0.57 | | | 1.60 | | | 1.68 | |
| | | | | | | | | | | | |
Cash dividends per share | $ | 0.265 | | $ | 0.252 | | $ | 0.795 | | $ | 0.756 | |
| | | | | | | | | | | | |
Average shares outstanding: | | | | | | | | | | | | |
Basic | | 25,134 | | | 25,144 | | | 25,156 | | | 25,120 | |
Diluted | | 25,190 | | | 25,222 | | | 25,213 | | | 25,206 | |
8
Chemical Financial Corporation Announces Third Quarter Operating Results
|
Financial Summary (Unaudited)
Chemical Financial Corporation and Subsidiaries
| Quarter Ended
September 30, | | Nine Months Ended
September 30, |
(Dollars in thousands)
| 2005
|
| 2004
|
| 2005
|
| 2004
|
Average Balances | | | | | | | | | | | |
Total assets | $ | 3,800,550 | | $ | 3,843,070 | | $ | 3,794,386 | | $ | 3,865,987 |
Total interest-earning assets | | 3,561,959 | | | 3,591,860 | | | 3,558,148 | | | 3,615,976 |
Total loans | | 2,677,776 | | | 2,596,355 | | | 2,619,616 | | | 2,557,822 |
Total deposits | | 2,876,608 | | | 2,954,315 | | | 2,899,205 | | | 2,990,828 |
Total shareholders' equity | | 496,405 | | | 473,617 | | | 491,624 | | | 468,768 |
| Quarter Ended
September 30, | | Nine Months Ended
September 30, |
| 2005
|
| 2004
|
| 2005
|
| 2004
|
Key Ratios (annualized where applicable) | | | | | | | | | | | |
Net interest margin | | 3.96% | | | 4.16% | | | 4.06% | | | 4.12% |
Efficiency ratio | | 54.2% | | | 52.0% | | | 54.3% | | | 53.1% |
Return on average assets | | 1.42% | | | 1.48% | | | 1.42% | | | 1.46% |
Return on average shareholders' equity | | 10.9% | | | 12.0% | | | 11.0% | | | 12.0% |
Average shareholders' equity as a | | | | | | | | | | | |
percent of average assets | | 13.1% | | | 12.3% | | | 13.0% | | | 12.1% |
Tangible shareholders' equity as a | | | | | | | | | | | |
percent of total assets | | | | | | | | 11.3% | | | 10.6% |
Total risk-based capital ratio | | | | | | | | 17.5% | | | 17.1% |
| September 30,
2005
|
| June 30,
2005
|
| March 31,
2005
|
| December 31,
2004
|
| September 30,
2004
|
Credit Quality Statistics | | | | | | | | | | | | | | |
Nonaccrual loans | $ | 9,913 | | $ | 8,639 | | $ | 7,823 | | $ | 8,397 | | $ | 5,787 |
Loans 90 or more days past due | | | | | | | | | | | | | | |
and still accruing | | 10,364 | | | 7,426 | | | 2,914 | | | 1,653 | | | 5,914 |
Total nonperforming loans | | 20,277 | | | 16,065 | | | 10,737 | | | 10,050 | | | 11,701 |
Repossessed assets acquired (RAA) | | 6,511 | | | 5,848 | | | 6,544 | | | 6,799 | | | 6,924 |
Total nonperforming assets | | 26,788 | | | 21,913 | | | 17,281 | | | 16,849 | | | 18,625 |
Net loan charge offs - year-to-date | | 2,523 | | | 1,804 | | | 725 | | | 2,832 | | | 1,658 |
| | | | | | | | | | | | | | |
Allowance for loan losses as a | | | | | | | | | | | | | | |
percent of total loans | | 1.28% | | | 1.27% | | | 1.33% | | | 1.32% | | | 1.29% |
Allowance for loan losses as a | | | | | | | | | | | | | | |
percent of nonperforming loans | | 171% | | | 211% | | | 318% | | | 340% | | | 288% |
Nonperforming loans as a | | | | | | | | | | | | | | |
percent of total loans | | 0.75% | | | 0.61% | | | 0.42% | | | 0.39% | | | 0.45% |
Nonperforming assets as a | | | | | | | | | | | | | | |
percent of total loans plus RAA | | 0.99% | | | 0.82% | | | 0.67% | | | 0.65% | | | 0.71% |
Net loan charge-offs as a percent of | | | | | | | | | | | | | | |
average loans - year-to-date (annualized) | | 0.13% | | | 0.14% | | | 0.11% | | | 0.11% | | | 0.09% |
| September 30,
2005
|
| June 30,
2005
|
| March 31,
2005
|
| December 31,
2004
|
| September 30,
2004
|
Additional Data | | | | | | | | | | | | | | |
Goodwill | $ | 63,293 | | $ | 63,293 | | $ | 63,293 | | $ | 63,293 | | $ | 63,293 |
Core deposits and other intangibles | | 6,306 | | | 6,797 | | | 7,324 | | | 7,931 | | | 8,572 |
Mortgage servicing rights (MSR) | | 2,595 | | | 2,941 | | | 3,111 | | | 3,197 | | | 3,441 |
Amortization of intangibles - quarter-to-date | | 903 | | | 793 | | | 800 | | | 948 | | | 931 |
9
Chemical Financial Corporation Announces Third Quarter Operating Results
|
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation and Subsidiaries
(In thousands, except per share data)
| 3rd Qtr.
2005
|
| 2nd Qtr.
2005
|
| 1st Qtr.
2005
|
| 4th Qtr.
2004
|
| 3rd Qtr.
2004
|
Summary of Operations | | | | | | | | | |
Interest income | $50,420 | | $49,012 | | $47,960 | | $48,164 | | $47,318 |
Interest expense | 15,274 | | 13,314 | | 12,013 | | 10,914 | | 10,165 |
Net interest income | 35,146 | | 35,698 | | 35,947 | | 37,250 | | 37,153 |
Provision for loan losses | 1,500 | | 730 | | 730 | | 1,711 | | 701 |
Net interest income after provision | | | | | | | | | |
for loan losses | 33,646 | | 34,968 | | 35,217 | | 35,539 | | 36,452 |
Noninterest income | 10,249 | | 9,753 | | 10,180 | | 9,739 | | 9,623 |
Noninterest expense | 24,839 | | 24,763 | | 24,983 | | 23,890 | | 24,499 |
Income taxes | 5,451 | | 6,743 | | 6,910 | | 6,987 | | 7,280 |
Net income | 13,605 | | 13,215 | | 13,504 | | 14,401 | | 14,296 |
|
|
|
|
|
|
|
|
|
|
Per Common Share Data | | | | | | | | | |
Net income: | | | | | | | | | |
Basic | $0.54 | | $0.53 | | $0.54 | | $0.57 | | $0.58 |
Diluted | 0.54 | | 0.53 | | 0.53 | | 0.57 | | 0.57 |
Cash dividends | 0.265 | | 0.265 | | 0.265 | | 0.252 | | 0.252 |
Book value | 19.82 | | 19.68 | | 19.32 | | 19.26 | | 19.04 |
10
