Strategic Restructuring Initiatives on Schedule
MIDLAND, Mich., Jan. 23 /PRNewswire-FirstCall/ -- Chemical Financial
Corporation's (Nasdaq: CHFC) Board of Directors today reported earnings of
$0.50 per diluted share for the fourth quarter of 2005 compared to fourth
quarter 2004 earnings per diluted share of $0.57, a decrease of 12.3 percent.
Net income for the fourth quarter of 2005 was $12.6 million compared to fourth
quarter 2004 net income of $14.4 million. For the twelve months ended
December 31, 2005, net income was $52.9 million, or $2.10 per diluted share,
compared to net income of $56.7 million, or $2.25 per diluted share, for the
twelve months ended December 31, 2004, a 6.7 percent decrease in diluted
earnings per share between periods.
"The financial results for 2005 were less than satisfactory. Decreasing
net interest income resulting from higher interest rates paid on deposits and
short-term borrowings had a significant negative impact on fourth quarter and
full year financial performance in 2005. The impact of rising rates was also
evidenced in our mortgage banking operations, where net revenue decreased by
50 percent from 2004. While we anticipate we will continue to see unfavorable
short-term financial effects from further interest rate increases, we expect
that the magnitude and number of rate increases will be less severe going
forward," said David B. Ramaker, President and CEO of Chemical Financial
Corporation.
"We have taken significant steps during the year to stimulate future
revenue growth while controlling costs, which we anticipate will over time
translate into improved financial performance. While 2006 will continue to be
a challenge for the Michigan economy, as well as our Company, we are
optimistic that the initiatives we have employed will ultimately benefit our
shareholders. Furthermore, our strong capital base positions us well for
growth. We remain mindful of the potential effects of excess capital on
shareholder returns, and will continue to examine our alternatives to
efficiently utilize the Company's capital," Ramaker said.
During the fourth quarter of 2005, the Company announced it would
undertake a strategic restructuring designed to reposition the bank holding
company to better capitalize on growth opportunities in high potential markets
and enhance operating efficiencies. The restructuring initiative, which
resulted from an intensive examination of the Company's core retail banking
franchise, encompassed consolidation of its three subsidiary state bank
charters into a single state chartered institution, realigned the existing
branch network, announced the closure of eight underperforming branches across
the state to be completed in the first quarter of 2006, and reorganized senior
management to place a greater emphasis on internal growth initiatives.
Management estimated that total costs for the restructuring would not exceed
$1 million, and would be incurred primarily during the first half of 2006.
During the fourth quarter of 2005, restructuring costs of $0.2 million
relating to employee severance were incurred. At year-end 2005, the
implementation of the restructuring plan was on schedule, with the back-room
component of the consolidation of the three subsidiary banks scheduled to be
completed in the second quarter of 2006.
The Company also announced during the fourth quarter of 2005 an increase
in its dividend rate, from $0.265 per share paid in the fourth quarter of 2005
to $0.275 per share payable in the first quarter of 2006, an increase of 3.8
percent.
Fourth quarter 2005 net interest income was $35.1 million compared to
fourth quarter 2004 net interest income of $37.3 million. The decrease was
primarily due to increases in the rates paid on customer deposits and the
unfavorable impact of lower average deposits outstanding. These items were
partially offset by the positive impact on net interest income of higher
average loans outstanding and higher yields earned on loans. Net interest
margin (on a tax equivalent basis) was 3.99 percent in the fourth quarter of
2005, down from 4.18 percent in the prior year fourth quarter and up slightly
from 3.96 percent in the third quarter of 2005. The Company's interest rate
spread, on a fully taxable equivalent basis, decreased from 3.80 percent in
the fourth quarter of 2004 to 3.39 percent in the fourth quarter of 2005, as
increases in average interest yields earned on interest-earning assets failed
to keep pace with increases in average interest rates paid on interest-bearing
liabilities.
Total assets were $3.75 billion at December 31, 2005, down slightly from
$3.76 billion at December 31, 2004, and down from $3.84 billion at September
30, 2005. At December 31, 2005, total loans were $2.71 billion, versus $2.59
billion at December 31, 2004 and $2.70 billion at September 30, 2005. Total
loans increased by $125 million, or 4.8 percent, from December 31, 2004 to
December 31, 2005, led by strong growth in business loans and real estate
construction loans. Investment securities were $743 million at December 31,
2005, down from $893 million at December 31, 2004 and $787 million at
September 30, 2005, as investment securities maturities were utilized to fund
loan growth.
Total deposits were $2.82 billion at December 31, 2005, down slightly from
$2.86 billion at December 31, 2004 and from $2.91 billion at September 30,
2005. In 2005, the markets in which the Company operates saw intense
competition for retail deposits translate into increases in deposit pricing
and a slight erosion in core deposits. Other liabilities, which include
Federal Home Loan Bank advances, totaled $428 million at December 31, 2005, up
from $416 million at December 31, 2004, and down from $436 million at
September 30, 2005.
The provision for loan losses was $1.3 million in the fourth quarter of
2005, compared to $1.7 million in the prior year fourth quarter and $1.5
million in the third quarter of 2005. Net loan losses were $1.8 million in
the fourth quarter of 2005, compared to $1.2 million in the fourth quarter of
2004. The allowance for loan losses as a percentage of total loans was 1.26
percent as of December 31, 2005, down from 1.28 percent at September 30, 2005
and 1.32 percent at December 31, 2004. At December 31, 2005, nonperforming
loans as a percentage of total loans were 0.73 percent, down slightly from
0.75 percent at September 30, 2005 and up from 0.39 percent at December 31,
2004. As the Michigan economy has slowed down, the Company's credit quality
ratios have moderated somewhat from the very strong levels experienced over
the past few years.
Noninterest income decreased 7 percent to $9.0 million in the fourth
quarter of 2005 from $9.7 million in the fourth quarter of 2004. The decline
in noninterest income during the 2005 fourth quarter, as compared to the prior
year quarter, was driven primarily by a loss on the sale of investment
securities and declining mortgage banking revenue, offset by increases in a
number of noninterest income categories, including trust and investment
management services and service charges on deposit accounts. Mortgage banking
revenue decreased 27 percent to $371,000 for the fourth quarter of 2005
compared to $508,000 for the fourth quarter of 2004, but up 15 percent
compared to $322,000 during the third quarter of 2005. The Corporation was
servicing $544 million of residential mortgage loans that were sold in the
secondary market as of December 31, 2005, compared to $596 million as of
December 31, 2004.
For the fourth quarter of 2005, the Company incurred losses on the sale of
investment securities totaling $633,000, as compared to gains of $108,000 in
the fourth quarter of 2004 and gains of $3,000 in the third quarter of 2005.
The fourth quarter 2005 losses were incurred in conjunction with a realignment
of the Company's investment securities portfolio. During the quarter, the
Company sold $37 million in low-yielding US government agency securities
scheduled to mature in 2006 and 2007 and invested the proceeds in higher
yielding mortgage-backed securities with longer maturities.
Operating expenses were $23.9 million in the fourth quarter of 2005,
unchanged from $23.9 million in the fourth quarter of 2004 and down from $24.8
million in the third quarter of 2005. Operating expenses remained stable as
increases in occupancy, equipment and other expenses were offset by a decrease
in salary and employee benefits expense. The Company's efficiency ratio rose
to 54.2 percent in 2005, from 52.6 percent in 2004, as a result of the
decrease in net interest income.
The Company's return on average assets during 2005 was 1.40 percent, down
slightly from 1.47 percent in 2004. Shareholders' equity increased from $485
million at December 31, 2004 to $501 million at December 31, 2005. During the
year, the Company repurchased 126,900 shares of its common stock at an average
price of $30.32 per share. At year-end 2005, the Company's book value stood
at $19.98 per share, versus $19.26 at year-end 2004. The decline in return on
assets combined with the increase in shareholders' equity resulted in a
decline in return on average equity to 10.7 percent in 2005 from 12.0 percent
in 2004.
Chemical Financial Corporation is the fourth largest bank holding company
headquartered in Michigan. Effective December 31, 2005, the Company's banking
operations began operating as a single subsidiary bank, Chemical Bank, with
132 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.
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 enhancements from acquisitions,
restructurings 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.
Chemical Financial Corporation Announces Fourth Quarter Operating Results
Consolidated Statements of Financial Position (Unaudited)
Chemical Financial Corporation and Subsidiaries
December 31, December 31,
(In thousands) 2005 2004
Assets:
Cash and demand deposits due from
banks $145,575 $106,565
Federal funds sold 6,600 34,500
Interest-bearing deposits with
unaffiliated banks 5,321 5,869
Investment securities - available
for sale 615,542 716,757
Investment securities - held to
maturity 127,806 176,517
Total Investment Securities 743,348 893,274
Commercial loans 517,852 468,970
Real estate commercial loans 704,684 697,779
Real estate construction loans 158,376 120,900
Real estate residential loans 788,679 760,834
Consumer loans 540,623 537,102
Total Loans 2,710,214 2,585,585
Less: Allowance for loan losses 34,148 34,166
Net Loans 2,676,066 2,551,419
Premises and equipment 45,058 47,577
Intangible assets 71,496 74,421
Other assets 55,852 50,500
Total Assets $3,749,316 $3,764,125
Liabilities:
Noninterest-bearing deposits $542,014 $555,287
Interest-bearing deposits 2,277,866 2,308,186
Total Deposits 2,819,880 2,863,473
Securities sold under agreements to
repurchase 125,598 101,834
Interest payable and other
liabilities 28,008 28,986
FHLB/other borrowings 274,765 284,996
Total Liabilities 3,248,251 3,279,289
Shareholders' Equity:
Common stock, $1 par value 25,079 25,169
Surplus 376,046 378,694
Retained earnings 106,507 80,266
Accumulated other comprehensive
income/(loss) (6,567) 707
Total Shareholders' Equity 501,065 484,836
Total Liabilities and
Shareholders' Equity $3,749,316 $3,764,125
Chemical Financial Corporation Announces Fourth Quarter Operating Results
Consolidated Statements of Income (Unaudited)
Chemical Financial Corporation and Subsidiaries
Quarter Ended Twelve Months Ended
December 31, December 31,
(In thousands, except per share
data) 2005 2004 2005 2004
Interest Income:
Interest and fees on loans $43,775 $39,228 $164,830 $152,534
Interest on investment securities:
Taxable 6,757 7,906 29,216 33,124
Nontaxable 602 502 2,153 2,104
Total Interest on Investment
Securities 7,359 8,408 31,369 35,228
Interest on federal funds sold 535 409 2,121 1,077
Interest on deposits with
unaffiliated banks 243 119 984 411
Total Interest Income 51,912 48,164 199,304 189,250
Interest Expense:
Interest on deposits 13,110 8,090 44,632 30,741
Interest on securities sold under
agreements to repurchase 759 225 2,162 582
Interest on FHLB/other borrowings 2,983 2,599 10,659 10,293
Total Interest Expense 16,852 10,914 57,453 41,616
Net Interest Income 35,060 37,250 141,851 147,634
Provision for loan losses 1,325 1,711 4,285 3,819
Net Interest Income after
Provision for Loan Losses 33,735 35,539 137,566 143,815
Noninterest Income:
Service charges on deposit accounts 5,235 5,020 20,371 19,301
Trust and investment management
services revenue 1,946 1,855 7,909 7,396
Other charges and fees for customer
services 1,899 1,535 7,883 6,595
Mortgage banking revenue 371 508 1,663 3,328
Investment securities gains/(losses) (633) 108 541 1,367
Other 220 713 853 1,342
Total Noninterest Income 9,038 9,739 39,220 39,329
Operating Expenses:
Salaries and employee benefits 13,225 13,698 56,766 57,497
Occupancy and equipment 4,535 4,223 18,288 18,120
Other 6,118 5,969 23,409 22,852
Total Operating Expenses 23,878 23,890 98,463 98,469
Income Before Income Taxes 18,895 21,388 78,323 84,675
Federal income taxes 6,341 6,987 25,445 27,993
Net Income $12,554 $14,401 $52,878 $56,682
Net income per share:
Basic $0.50 $0.57 $2.10 $2.26
Diluted 0.50 0.57 2.10 2.25
Cash dividends per share $0.265 $0.252 $1.060 $1.010
Average shares outstanding:
Basic 25,085 25,159 25,138 25,130
Diluted 25,137 25,253 25,193 25,218
Chemical Financial Corporation Announces Fourth Quarter Operating Results
Financial Summary (Unaudited)
Chemical Financial Corporation and Subsidiaries
Quarter Ended Twelve Months Ended
December 31, December 31,
(Dollars in thousands) 2005 2004 2005 2004
Average Balances
Total assets $3,770,911 $3,825,625 $3,788,469 $3,856,036
Total interest-earning
assets 3,534,262 3,584,096 3,550,695 3,608,157
Total loans 2,706,300 2,598,138 2,641,465 2,567,956
Total deposits 2,847,645 2,932,435 2,886,209 2,976,150
Total shareholders' equity 498,745 482,525 493,419 472,226
Quarter Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
Key Ratios (annualized where
applicable)
Net interest margin 3.99% 4.18% 4.04% 4.13%
Efficiency ratio 53.6% 51.0% 54.2% 52.6%
Return on average assets 1.32% 1.50% 1.40% 1.47%
Return on average shareholders'
equity 10.0% 11.9% 10.7% 12.0%
Average shareholders' equity as a
percent of average assets 13.2% 12.6% 13.0% 12.2%
Tangible shareholders' equity as a
percent of total assets 11.7% 11.1%
Total risk-based capital ratio 17.8% 17.5%
December September June March December
31, 30, 30, 31, 31,
2005 2005 2005 2005 2004
Credit Quality Statistics
Nonaccrual loans $14,561 $9,913 $8,639 $7,823 $8,397
Loans 90 or more days past due
and still accruing 5,136 10,364 7,426 2,914 1,653
Total nonperforming loans 19,697 20,277 16,065 10,737 10,050
Repossessed assets acquired
(RAA) 6,801 6,511 5,848 6,544 6,799
Total nonperforming assets 26,498 26,788 21,913 17,281 16,849
Net loan charge-offs (year-to-
date) 4,304 2,523 1,804 725 2,832
Allowance for loan losses as a
percent of total loans 1.26% 1.28% 1.27% 1.33% 1.32%
Allowance for loan losses as a
percent of nonperforming loans 173% 171% 211% 318% 340%
Nonperforming loans as a
percent of total loans 0.73% 0.75% 0.61% 0.42% 0.39%
Nonperforming assets as a
percent of total loans plus
RAA 0.98% 0.99% 0.82% 0.67% 0.65%
Net loan charge-offs as a percent
of
average loans (year-to-date,
annualized) 0.16% 0.13% 0.14% 0.11% 0.11%
December September June March December
31, 30, 30, 31, 31,
2005 2005 2005 2005 2004
Additional Data
Goodwill $63,293 $63,293 $63,293 $63,293 $63,293
Core deposits and other
intangibles 5,780 6,306 6,797 7,324 7,931
Mortgage servicing
rights (MSR) 2,423 2,595 2,941 3,111 3,197
Amortization of
intangibles (quarter-
to-date) 776 903 793 800 948
Chemical Financial Corporation Announces Fourth Quarter Operating
Results
Selected Quarterly Information (Unaudited)
Chemical Financial Corporation and Subsidiaries
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr.
(In thousands, except per
share data) 2005 2005 2005 2005 2004
Summary of Operations
Interest income $51,912 $50,420 $49,012 $47,960 $48,164
Interest expense 16,852 15,274 13,314 12,013 10,914
Net interest income 35,060 35,146 35,698 35,947 37,250
Provision for loan losses 1,325 1,500 730 730 1,711
Net interest income after
provision
for loan losses 33,735 33,646 34,968 35,217 35,539
Noninterest income 9,038 10,249 9,753 10,180 9,739
Noninterest expense 23,878 24,839 24,763 24,983 23,890
Income taxes 6,341 5,451 6,743 6,910 6,987
Net income 12,554 13,605 13,215 13,504 14,401
Per Common Share Data
Net income:
Basic $0.50 $0.54 $0.53 $0.54 $0.57
Diluted 0.50 0.54 0.53 0.53 0.57
Cash dividends 0.265 0.265 0.265 0.265 0.252
Book value 19.98 19.82 19.68 19.32 19.26
SOURCE Chemical Financial Corporation
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Related links:
http://chemicalbankmi.com
Company News On-Call:
http://www.prnewswire.com/comp/157448.html
CONTACT:
Lori A. Gwizdala, CFO of Chemical Financial
Corporation, +1-989-839-5358
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