-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DXkmdQwf0UBrW1wgo/VHtd2ZBz4CNYyJLmN3fEKP7M3yjTYBq8NKiHpsNolzXT5/ F0BD+3VosZPd7hx48B6GjA== 0000905729-97-000117.txt : 19970811 0000905729-97-000117.hdr.sgml : 19970811 ACCESSION NUMBER: 0000905729-97-000117 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEMICAL FINANCIAL CORP CENTRAL INDEX KEY: 0000019612 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382022454 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08185 FILM NUMBER: 97654157 BUSINESS ADDRESS: STREET 1: 333 E MAIN ST CITY: MIDLAND STATE: MI ZIP: 48640 BUSINESS PHONE: 5176313310 10-Q 1 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q - ----------------------------------------------------------------------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ Commission file number 0-8185 CHEMICAL FINANCIAL CORPORATION (Exact Name of Registrant as Specified in its Charter) MICHIGAN 38-2022454 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 333 EAST MAIN STREET MIDLAND, MICHIGAN 48640 (Address of Principal Executive Offices) (Zip Code) (517) 839-5350 (Registrant's Telephone Number, including Area Code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ The number of shares outstanding of the Registrant's Common Stock, $10 par value, as of July 15, 1997, was 10,228,991 shares. ============================================================================= INDEX CHEMICAL FINANCIAL CORPORATION FORM 10-Q PART I. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements (unaudited, except Consolidated Statement of Financial Position as of December 31, 1996) Consolidated Statement of Income for the Three and Six Months Ended June 30, 1997 and June 30, 1996 3 Consolidated Statement of Financial Position as of June 30, 1997, December 31, 1996 and June 30, 1996 4 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1997 and June 30, 1996 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-15 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 18 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (Unaudited)
QUARTER ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ -------------------- 1997 1996 1997 1996 ------ ------ ------ ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INTEREST INCOME Interest and fees on loans . . . . . . . . . $ 17,259 $ 16,743 $ 33,993 $ 33,113 Interest on investment securities: Taxable . . . . . . . . . . . . . . . . . 10,058 9,916 19,704 19,539 Tax-exempt. . . . . . . . . . . . . . . . 541 552 1,082 1,139 -------- --------- --------- ---------- TOTAL INTEREST ON SECURITIES 10,599 10,468 20,786 20,678 Interest on federal funds sold . . . . . . . 1,225 984 2,477 2,269 Interest on deposits with unaffiliated banks 13 46 33 96 -------- --------- --------- ---------- TOTAL INTEREST INCOME 29,096 28,241 57,289 56,156 INTEREST EXPENSE Interest on deposits . . . . . . . . . . . . 11,404 11,105 22,381 22,406 Interest on short-term borrowings. . . . . . 302 233 634 561 Interest on long-term debt . . . . . . . . . 144 186 292 384 -------- --------- --------- ---------- TOTAL INTEREST EXPENSE 11,850 11,524 23,307 23,351 -------- --------- --------- ---------- NET INTEREST INCOME 17,246 16,717 33,982 32,805 Provision for possible loan losses . . . . . 219 270 548 538 -------- --------- --------- ---------- NET INTEREST INCOME After Provision for Possible Loan Losses. . . . . . . . . . . 17,027 16,447 33,434 32,267 OTHER INCOME Trust department income. . . . . . . . . . . 851 813 1,579 1,474 Service charges on deposit accounts. . . . . 1,338 1,365 2,632 2,678 Other charges and fees for customer services 871 614 1,698 1,344 Gains on sales of loans. . . . . . . . . . . 45 29 79 62 Investment securities gains. . . . . . . . . 14 14 Other. . . . . . . . . . . . . . . . . . . . 147 413 556 672 -------- --------- --------- ---------- TOTAL OTHER INCOME 3,252 3,248 6,544 6,244 -3- OPERATING EXPENSES Salaries, wages and employee benefits 6,962 6,871 13,807 13,620 Occupancy expense. . . . . . . . . . . . . . 1,182 1,128 2,419 2,337 Equipment expense. . . . . . . . . . . . . . 848 786 1,596 1,564 Other. . . . . . . . . . . . . . . . . . . . 2,958 3,075 5,592 5,722 -------- --------- --------- ---------- TOTAL OPERATING EXPENSES 11,950 11,860 23,414 23,243 -------- --------- --------- ---------- INCOME BEFORE INCOME TAXES . . . . . . . . . 8,329 7,835 16,564 15,268 Federal income taxes . . . . . . . . . . . . 2,705 2,672 5,414 5,112 -------- --------- --------- ---------- NET INCOME $ 5,624 $ 5,163 $ 11,150 $ 10,156 ======== ========= ========= ========== NET INCOME PER COMMON SHARE. . . . . . . . . $ .55 $ .50 $ 1.08 $ .98 ======== ========= ========= ========== Cash dividends per common share. . . . . . . $ .21 $ .19 $ .42 $ .38 ======== ========= ========= ==========
See accompanying notes to consolidated financial statements. -4- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Financial Position
JUNE 30, DECEMBER 31, JUNE 30, 1997 1996 1996 ----------- ------------ ---------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS) ASSETS Cash and demand deposits due from banks $ 107,287 $ 89,517 $ 81,092 Federal funds sold . . . . . . . . . . . . . . 84,850 114,200 73,200 Interest-bearing deposits with unaffiliated banks. 1,134 988 Investment securities: Held to maturity (market value $275,557 at 6/30/97, $215,494 at 12/31/96, $278,720 at 6/30/96) 274,230 213,752 277,570 Available for sale (at market value) 454,236 441,787 431,206 ---------- ---------- ---------- Total investment securities 728,466 655,539 708,776 Loans: Commercial and agricultural. . . . . . . 104,975 114,154 111,543 Real estate construction . . . . . . . . 25,097 24,791 19,687 Real estate mortgage . . . . . . . . . . 523,327 510,193 502,952 Installment. . . . . . . . . . . . . . . 160,992 158,515 160,311 ---------- ---------- ---------- Total loans 814,391 807,653 794,493 Less: Allowance for possible loan losses 17,081 16,607 16,260 ---------- ---------- ---------- Net loans 797,310 791,046 778,233 Premises and equipment . . . . . . . . . . . . 19,269 20,335 19,722 Accrued income . . . . . . . . . . . . . . . . 14,672 14,419 15,436 Other assets . . . . . . . . . . . . . . . . . 13,002 12,584 13,853 ---------- ---------- ---------- TOTAL ASSETS $1,764,856 $1,698,774 $1,691,300 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing. . . . . . . . . . . $ 227,665 $ 226,965 $ 209,318 Interest bearing . . . . . . . . . . . . 1,260,547 1,202,950 1,223,667 ---------- ---------- ---------- Total deposits 1,488,212 1,429,915 1,432,985 Short-term borrowings: Treasury tax and loan notes payable to the U.S. Treasury 11,941 9,458 11,171 Securities sold under agreements to repurchase 26,280 27,875 23,378 ---------- ---------- ---------- 38,221 37,333 34,549 -5- Interest payable and other liabilities 15,558 14,257 15,187 Long-term debt . . . . . . . . . . . . . . . . 9,000 10,000 10,000 ---------- ---------- ---------- Total liabilities 1,550,991 1,491,505 1,492,721 Shareholders' equity: Common stock, $10 par value: Authorized - 15,000,000 shares Issued - 10,227,094 shares, 10,209,790 shares, and 9,722,574 shares, respectively 102,271 102,098 97,226 Surplus. . . . . . . . . . . . . . . . . 69,599 69,616 57,005 Retained earnings. . . . . . . . . . . . 42,591 35,737 45,934 Unrealized net loss on securities available for sale (596) (182) (1,586) ---------- ---------- ---------- Total shareholders' equity 213,865 207,269 198,579 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,764,856 $1,698,774 $1,691,300 ========== ========== ==========
See accompanying notes to consolidated financial statements. -6- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows (Unaudited)
SIX MONTHS ENDED JUNE 30, -------------------- 1997 1996 ------ ------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,150 $ 10,156 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 548 538 Origination of loans held for sale (11,437) (5,772) Proceeds from sales of loans 11,516 5,858 Gains on sales of loans (79) (62) Investment securities gains (14) Gain on sale of branch office building (256) Provision for depreciation and amortization 1,563 1,581 Net amortization of investment securities 994 1,595 Net (increase) decrease in accrued income and other assets (467) 362 Net increase in interest payable and other liabilities 1,439 1,221 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 14,971 15,463 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease in interest-bearing deposits with unaffiliated banks 1,134 1,993 Proceeds from maturities of securities held to maturity 81,929 100,057 Purchases of securities held to maturity (142,699) (7,803) Proceeds from maturities of securities available for sale 81,659 44,838 Proceeds from sales of securities available for sale 522 Purchases of securities available for sale (95,447) (118,427) Net increase in loans (7,075) (34,478) Proceeds from sale of branch office building 900 Purchases of premises and equipment (859) (589) ---------- ---------- NET CASH USED FOR INVESTING ACTIVITIES (80,458) (13,887) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand deposits, NOW accounts and savings accounts 47,045 (3,388) Net increase (decrease) in certificates of deposit and other time deposits 11,252 (13,428) -7- Net increase (decrease) in repurchase agreements and other short-term borrowings 888 (674) Principal payments on long-term debt (1,000) (2,080) Cash dividends (4,296) (3,887) Proceeds from stock purchase plan 127 126 Proceeds from exercise of stock options 163 130 Purchases of common stock (272) ---------- ---------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 53,907 (23,201) ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (11,580) (21,625) Cash and cash equivalents at beginning of year 203,717 175,917 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 192,137 $ 154,292 ========== ========== See accompanying notes to consolidated financial statements. - ------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Interest paid on deposits, short-term borrowings and long-term debt $ 23,244 $ 23,914 Federal income taxes paid 5,710 5,165 - -------------------------------------------------------------------------
-8- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997 NOTE A: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Chemical Financial Corporation ("the Corporation") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial condition and results of operations of the Corporation for the periods presented. Operating results for the three and six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Corporation's annual report on Form 10-K for the year ended December 31, 1996. PER SHARE AMOUNTS Primary net income per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares consist of net shares issuable under stock options outstanding. Fully diluted net income per share has not been presented on the basis that the difference between primary and fully diluted earnings per share is not material. The weighted average number of common shares used to compute earnings per share was 10,341,000 during the second quarter and 10,342,000 during the first six months of 1997, as compared to 10,360,000 during the second quarter and 10,358,000 during the first six months of 1996. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Corporation will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. Statement No. 128 is not expected to have a material effect on primary or fully diluted earnings per share for the periods presented. -9- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997 NOTE B: LOANS AND NONPERFORMING ASSETS The following summarizes loans and nonperforming assets at the dates indicated (in thousands of dollars):
JUNE 30 DECEMBER 31 JUNE 30 1997 1996 1996 ------ ----------- ------- LOANS: Commercial and agricultural . . . . $ 104,975 $ 114,154 $ 111,543 Real estate construction. . . . . . 25,097 24,791 19,687 Real estate mortgage. . . . . . . . 523,327 510,193 502,952 Installment . . . . . . . . . . . . 160,992 158,515 160,311 ---------- --------- --------- Total Loans . . . . . . . . . . . . $ 814,391 $ 807,653 $ 794,493 ========== ========= ========= NONPERFORMING ASSETS: Nonaccrual loans. . . . . . . . . . $ 1,689 $ 1,341 $ 1,340 Loans 90 days or more past due and still accruing interest . . . . . 956 539 955 ---------- --------- --------- Total nonperforming loans . . . . . 2,645 1,880 2,295 Other real estate owned . . . . 774 688 1,027 ---------- --------- --------- Total nonperforming assets. . . . . $ 3,419 $ 2,568 $ 3,322 ========== ========= ========= Other real estate owned includes properties acquired through foreclosure and by acceptance of a deed in lieu of foreclosure, and other property held for sale. The majority of the properties have been sold, with some financed at below market terms.
-10- NOTE C: ALLOWANCE FOR POSSIBLE LOAN LOSSES The following summarizes the changes in the allowance for loan losses (in thousands of dollars):
SIX MONTHS ENDED JUNE 30 ------------------ 1997 1996 ------ ------ ALLOWANCES FOR POSSIBLE LOAN LOSSES Balance as of January 1. . . . . . . . . . . . . . . $ 16,607 $ 15,886 Provision for loan losses. . . . . . . . . . . . . . 548 538 Gross loans charged-off. . . . . . . . . . . . . . . (272) (286) Gross recoveries of loans previously charged-off . . 198 122 --------- --------- Net loans charged-off. . . . . . . . . . . . . . . . (74) (164) --------- --------- Balance at June 30 . . . . . . . . . . . . . . . . . $ 17,081 $ 16,260 ========= =========
NOTE D: ACQUISITIONS Chemical completed its acquisition of State Savings Bancorp, Inc., in Caro, Michigan ("SSBI") on May 1, 1996. Chemical issued 525,000 shares of Chemical common stock in exchange for all of the outstanding shares of SSBI. The transaction was accounted for by the pooling of interests method of accounting as of May 1, 1996. As of May 1, 1996, SSBI had total assets of approximately $65 million. On December 31, 1996, the Corporation acquired Arbury & Stephenson, Inc., an insurance agency headquartered in Midland, Michigan. The merger was effected through an exchange of shares of the Corporation's common stock. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Corporation's financial condition and results of operations during the periods included in the consolidated financial statements included in this filing. -11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SUMMARY The Corporation's net income was $5,624,000 in the second quarter of 1997, as compared to net income of $5,163,000 during the second quarter of 1996. Earnings per share in the second quarter of 1997 were $.55, compared to earnings per share in the second quarter of 1996 of $.50. Return on average assets in the second quarter of 1997 was 1.32%, compared to a return on average assets of 1.23% during the second quarter of 1996. Return on average equity for the three months ended June 30, 1997 and June 30, 1996, was 10.6% and 10.3%, respectively. The Corporation's net income was $11,150,000 for the first six months of 1997, compared to net income of $10,156,000 during the first six months of 1996. Earnings per share for the six months ended June 30, 1997 were $1.08, compared to earnings per share for the first six months of 1996 of $.98. Return on average assets for the first six months of 1997 was 1.32%, compared to a return on average assets of 1.21% for the first six months of 1996. Return on average equity for the six month periods ended June 30, 1997 and June 30, 1996 was 10.6% and 10.3%, respectively. Total assets were $1.765 billion as of June 30, 1997, compared to $1.699 billion as of December 31, 1996, and $1.691 billion as of June 30, 1996. Total loans increased $19.9 million, or 2.5%, from June 30, 1996, to $814.4 million as of June 30, 1997. Total loans increased $6.7 million, or .8%, from December 31, 1996, to June 30, 1997. The increase in total loans from June 30, 1996 to June 30, 1997 was attributable to increases in real estate construction and mortgage loans. Shareholders' equity increased $15.3 million, or 7.7%, from June 30, 1996, to $213.9 million as of June 30, 1997, or $20.91 per share, representing 12.1% of total assets. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS NET INTEREST INCOME The Corporation's net interest income for the second quarter of 1997 was $17.25 million, a $.53 million, or 3.2%, increase over the $16.72 million recorded in the second quarter of 1996. The increase in net interest income was due primarily to growth in loans and an increase in the average yield of the investment securities portfolio. Average loans increased 3.0% in the second quarter of 1997, compared to the second quarter of 1996. For the second quarter of 1997, the net interest margin was 4.39%, compared to 4.32% in the second quarter of 1996. Net interest income increased $1,177,000, or 3.6%, during the first six months of 1997 as compared to the first six months of 1996. The net interest margin increased to 4.39% during the first six months of 1997 from 4.25% during the first six months of 1996. OTHER INCOME Other income increased $4,000, or .1%, in the second quarter of 1997 as compared to the second quarter of 1996 and $300,000, or 4.8%, in the first six months of 1997 as compared to the first six months of 1996. Other charges and fees for customer services increased $257,000, or 41.9%, in the second quarter of 1997, compared to the second quarter of 1996 and $354,000, or 26.3%, in the first six months of 1997, compared to the first six months of 1996. The increase in other charges and fees in the second quarter and first six months of 1997 was due to increased mutual fund sales, annuity sales and insurance commissions. The Corporation, through a subsidiary of its lead affiliate bank, expanded the array of mutual funds offered and began offering annuity investment products to customers during the second half of 1996. In addition, beginning in January 1997, the Corporation began selling title, property and casualty insurance products through subsidiaries of its lead affiliate bank. The Corporation also realized a gain of $256,000 from the sale of a branch office building during the first quarter of 1997. In the second quarter of 1996, the Corporation realized a gain of $150,000 as a termination fee when the credit card portfolio, which it sold in 1995, was sold by the original purchaser to another credit card provider. These gains were recorded in the "Other" category of other income. The Corporation realized gains on the sale of residential mortgage loans in the secondary market of $45,000 and $29,000 during the second quarter of 1997 and 1996, respectively. Total gains realized on the -13- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) sale of residential mortgage loans in the secondary market during the first six months of 1997 and 1996 were $79,000 and $62,000, respectively. PROVISION FOR POSSIBLE LOAN LOSSES The provision for possible loan losses reflects management's judgment of changing economic conditions, as well as increases and other changes in the subsidiary banks' loan portfolios. It is management's policy to control loan quality through a carefully structured review of loan requests. In assessing the adequacy of the allowance for possible loan losses (the "Allowance"), management believes that its historical experience confirms, in principle, its judgment in what is essentially a subjective decision. Based upon historical experience and a constant evaluation of present and potential risks in the loan portfolios, management believes that the Allowance is adequate. During the three and six months ended June 30, 1997, the Corporation added $219,000 and $548,000, respectively, to the Allowance through the provision for possible loan losses, as compared to $270,000 and $538,000, respectively, during these same periods in 1996. Net loan charge-offs during the three- and six-month periods ended June 30, 1997 were $3,000 and $74,000, respectively, compared to net charge-offs of $165,000 and $164,000, respectively, during these same periods in 1996. OPERATING EXPENSES Total operating expenses increased $90,000, or .8%, in the second quarter of 1997, compared to the second quarter of 1996. Salaries, wages and employee benefits increased $91,000, or 1.3%, in the second quarter of 1997 over the second quarter of 1996. The remaining categories of operating expenses, occupancy, equipment and other expenses, were basically unchanged in the second quarter of 1997 compared to the second quarter of 1996. These three categories totaled $4,988,000 in the second quarter of 1997, compared to $4,989,000 in the second quarter of 1996. Total operating expenses increased $171,000, or .7%, in the first six months of 1997, compared to the first six months of 1996. INCOME TAX EXPENSE The Corporation's effective federal income tax rate was 32.5% and 32.7%, respectively, during the three and six months ended June 30, 1997, compared to 34.1% and 33.5%, respectively, during these same -14- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) periods in 1996. The effective federal income tax rate is a function of the proportion of the Corporation's interest income exempt from federal taxation, nondeductible interest expense and other nondeductible expenses. BALANCE SHEET CHANGES ASSET AND DEPOSIT CHANGES Total assets increased $66.1 million, or 3.9%, from December 31, 1996, and increased $73.6 million, or 4.3%, from June 30, 1996, to $1.765 billion as of June 30, 1997. Total deposits increased $58.3 million, or 4.1%, from December 31, 1996, and increased $55.2 million, or 3.9%, from June 30, 1996, to $1.488 billion as of June 30, 1997. The increases in both assets and deposits were primarily attributable to a transfer of Trust Department assets out of a non-affiliated financial services organization into deposits in the Corporation's lead subsidiary bank in June 1997. LOANS The Corporation's subsidiary banks are generally located in rural communities, where the demand for commercial loans which meet the Corporation's credit standards historically has not been high. The Corporation's philosophy is such that it will neither compromise on loan quality nor make loans outside its banking markets to increase its loan portfolio. The Corporation does not generally purchase participation loans, which is a method utilized by many financial institutions to increase the size of their loan portfolios. Total loans as of June 30, 1997 were $814.4 million, as compared to $794.5 million as of June 30, 1996 and $807.7 million as of December 31, 1996. The increase in total loans of $19.9 million from June 30, 1996 to June 30, 1997, was attributable to an increase in real estate construction and mortgage loans. Real estate construction and mortgage loans increased $25.8 million, or 4.9%, from June 30, 1996, and $13.4 million, or 2.5%, from December 31, 1996, to $548.4 million as of June 30, 1997. Real estate construction and mortgage loans represented 67.3%, 66.2% and 65.8% of the Corporation's loan portfolio as of June 30, 1997, December 31, 1996 and June 30, 1996, respectively. Commercial and agricultural loans decreased $6.6 million, or 5.9%, from June 30, 1996, and $9.2 million, or 8.0%, from December 31, 1996, to $105 million as of June 30, 1997. The decreases resulted -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) from increased competition for these types of loans and the lack of an increased demand for these types of loans in the Corporation's market areas. Commercial and agricultural loans represented 12.9%, 14.1% and 14.0% of the Corporation's loan portfolio as of June 30, 1997, December 31, 1996, and June 30, 1996, respectively. Installment loans increased $681,000, or .4%, from June 30, 1996, and $2.5 million, or 1.6%, from December 31, 1996, to $161 million as of June 30, 1997, and represented 19.8%, 19.6% and 20.2% of total loans as of June 30, 1997, December 31, 1996, and June 30, 1996, respectively. The Corporation's total loan to deposit ratio as of June 30, 1997, December 31, 1996 and June 30, 1996, was 54.7%, 56.5% and 55.4%, respectively. The Corporation traditionally has had a conservative loan underwriting policy. This is evidenced by its historically low loan losses and low ratio of nonperforming loans to total loans. During the three and six months ended June 30, 1997, the Corporation experienced net loan charge-offs of $3,000 and $74,000, respectively. The Corporation had net loan charge-offs of $165,000 and $164,000, respectively, during these same periods in 1996. Nonperforming loans consist of loans which are past due for principal or interest payments by ninety days or more and still accruing interest, loans for which the accrual of interest has been discontinued and other loans which have been renegotiated to less than market terms due to a serious weakening of the borrower's financial condition. Nonperforming loans were $2.6 million as of June 30, 1997, $1.9 million as of December 31, 1996, and $2.3 million as of June 30, 1996, and represented .32%, .23% and .29% of total loans as of these dates, respectively. The allowance for possible loan losses at June 30, 1997, was $17,081,000 and represented 2.10% of total loans. LIQUIDITY The maintenance of an adequate level of liquidity is necessary to ensure that sufficient funds are available to meet customers' loan demands and deposit withdrawal needs. The banking subsidiaries' primary liquidity sources consist of investment securities, those maturing within one year and those classified as available for sale, maturing loans and federal funds sold. As of June 30, 1997, the Corporation's investment securities portfolio had an average life of -16- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) less than two years. In addition, at June 30, 1997, the Corporation held only $3.2 million in mortgage-backed securities, which represented less than one percent of the investment securities portfolio, and had no other derivatives or any investments in instruments considered "junk bonds." CAPITAL RESOURCES As of June 30, 1997, shareholders' equity was $213.9 million, compared to $207.3 million as of December 31, 1996, and $198.6 million as of June 30, 1996, resulting in an increase of $15.3 million, or 7.7% from June 30, 1996. Shareholders' equity as a percentage of total assets was 12.1% as of June 30, 1997, 12.2% as of December 31, 1996, and 11.7% as of June 30, 1996. Total equity included an after-tax unrealized net loss of $596,000 as of June 30, 1997, $182,000 as of December 31, 1996, and $1.6 million as of June 30, 1996, on available for sale investment securities, in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." A statement of changes in shareholders' equity covering the six-month periods ended June 30, 1997, and June 30, 1996, follows:
SIX MONTHS ENDED JUNE 30 ------------------- 1997 1996 ------ ------ Total shareholders' equity as of January 1, $ 207,269 $ 194,902 Net income 11,150 10,156 Dividends (4,296) (3,887) Shares issued upon exercise of employee stock options 163 130 Shares issued from director stock purchase plan 265 239 Repurchases of common stock (272) Change in unrealized gains and losses on available for sale securities (414) (2,961) --------- --------- Total shareholders' equity as of end of period $ 213,865 $ 198,579 ========= =========
The following table represents the Corporation's regulatory capital ratios as of June 30, 1997: -17- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TIER 1 TOTAL RISK-BASED RISK-BASED LEVERAGE CAPITAL CAPITAL -------- ---------- ---------- Chemical Financial Corporation - actual ratio 12.3% 30.2% 31.4% Regulatory Minimum Ratio 3.0 4.0 8.0 Ratio considered "well capitalized" by regulatory agencies 5.0 6.0 10.0
The Corporation's Tier 1 and Total capital ratios under the risk-based capital measure at June 30, 1997 are high due to the Corporation holding $683 million in investment securities and other assets which are assigned a 0% risk rating, $229 million in assets which are assigned a 20% risk rating and $443 million in residential real estate mortgages and other assets which are assigned a 50% risk rating. These three risk ratings (i.e., 0%, 20% and 50%) represent 75% of the Corporation's total risk-based assets (including off-balance sheet items) as of June 30, 1997. OTHER The Corporation paid a 5% stock dividend on December 30, 1996. All per share amounts have been adjusted for this stock dividend. There are currently no known trends, events or uncertainties that management believes may be reasonably expected to have a material effect on the Corporation's liquidity, capital resources or financial performance. -18- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Corporation's annual meeting of shareholders was held April 21, 1997. At that meeting, in addition to the election of directors and procedural matters, the shareholders considered and voted upon a proposal to authorize the Chemical Financial Corporation Stock Incentive Plan of 1997. All directors of the Corporation were standing for election at the meeting. The directors were elected and the proposal was approved by the following votes:
ELECTION OF DIRECTORS VOTES CAST - --------------------- ---------------------- BROKER ALL NOMINEES FOR DIRECTOR WERE ELECTED: FOR WITHHELD NON-VOTES - -------------------------------------- --------- ---------- --------- James A. Currie 8,767,331 40,127 0 Michael L. Dow 8,773,470 33,988 0 Aloysius J. Oliver 8,774,265 33,193 0 Alan W. Ott 8,774,598 32,860 0 Frank P. Popoff 8,763,171 44,287 0 Lawrence A. Reed 8,756,780 50,678 0 William S. Stavropoulos 8,746,814 60,644 0
BROKER PROPOSAL FOR AGAINST ABSTAIN NON-VOTES - -------- --- ------- ------- --------- Proposal to authorize the Chemical Financial Corporation Stock Incentive Plan of 1997: 8,363,750 185,090 258,618 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following documents are filed as exhibits to this report on Form 10-Q: EXHIBIT NUMBER DOCUMENT 3.1 RESTATED ARTICLES OF INCORPORATION. Previously filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. Here incorporated by reference. -19- 3.2 BYLAWS. Previously filed as Exhibit 4(b) to the Registrant's S-8 Registration Statement No. 33-47356 filed with the Commission on April 28, 1992. Here incorporated by reference. 10.1 STOCK INCENTIVE PLAN OF 1997. Previously filed as Appendix A to the Corporation's Definitive Proxy Statement with respect to its Annual Meeting of Shareholders held on April 21, 1997. Here incorporated by reference. 11 Statement Re Computation of Per Share Earnings 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter covered by this Form 10-Q. -20- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHEMICAL FINANCIAL CORPORATION Date: August 7, 1997 By /S/ALOYSIUS J. OLIVER Aloysius J. Oliver President and Chief Executive Officer (Principal Executive Officer) Date: August 7, 1997 By /S/LORI A. GWIZDALA Lori A. Gwizdala Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -21- EXHIBIT INDEX EXHIBIT NUMBER DOCUMENT 3.1 RESTATED ARTICLES OF INCORPORATION. Previously filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. Here incorporated by reference. 3.2 BYLAWS. Previously filed as Exhibit 4(b) to the Registrant's S-8 Registration Statement No. 33-47356 filed with the Commission on April 28, 1992. Here incorporated by reference. 10.1 STOCK INCENTIVE PLAN OF 1997. Previously filed as Appendix A to the Corporation's Definitive Proxy Statement with respect to its Annual Meeting of Shareholders held on April 21, 1997. Here incorporated by reference. 11 Statement Re Computation of Per Share Earnings 27 Financial Data Schedule EX-11 2 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS CHEMICAL FINANCIAL CORPORATION (Unaudited)
QUARTER ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------- ------------------ 1997 1996 1997 1996 ------ ------ ------ ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PRIMARY: Average shares outstanding . . . . . . . . 10,227 10,206 10,226 10,202 Net effect of the assumed exercise of stock options - based on the treasury stock method using average market price . . . . . . . . . . . . . . . . 114 154 116 156 ------- ------- ------- ------- 10,341 10,360 10,342 10,358 ======= ======= ======= ======= Net income . . . . . . . . . . . . . . . . $ 5,624 $ 5,163 $11,150 $10,156 ======= ======= ======= ======= Net income per common share. . . . . . . . $ 0.55 $ 0.50 $ 1.08 $ 0.98 ======= ======= ======= ======= FULLY DILUTED: Average shares outstanding . . . . . . . . 10,227 10,206 10,226 10,202 Net effect of the assumed exercise of stock options - based on the treasury stock method using end of period market price. . . . . . . . 116 150 115 156 ------- ------- ------- ------- 10,343 10,356 10,341 10,358 ======= ======= ======= ======= Net income . . . . . . . . . . . . . . . . $ 5,624 $ 5,163 $11,150 $10,156 ======= ======= ======= ======= Net income per common share. . . . . . . . $ 0.55 $ 0.50 $ 1.08 $ 0.98 ======= ======= ======= =======
EX-27 3 ART. 9 FDS FOR 2ND QUARTER 10-Q
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 107,287 0 84,850 0 454,236 274,230 275,557 814,391 17,081 1,764,856 1,488,212 38,221 15,558 9,000 102,271 0 0 111,594 1,764,856 33,993 20,786 2,510 57,289 22,381 23,307 33,982 548 0 23,414 16,564 16,564 0 0 11,150 1.08 1.08 4.39 1,689 956 0 2,645 16,607 272 198 17,081 17,081 0 0
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