-----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, DVviMXx+NARInt0HkVZIM8Hyvq14Eui0uwSBFqrL+G2qfOqQf6Cn/LRQHURBV0pH SJhkiMKFrqAAxy3DMmOiFA== 0000905729-97-000080.txt : 19970515 0000905729-97-000080.hdr.sgml : 19970515 ACCESSION NUMBER: 0000905729-97-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97605491 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 MARCH 31, 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 period 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 April 15, 1997, was 10,229,155 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 Months Ended March 31, 1997 and March 31, 1996 3 Consolidated Statement of Financial Position as of March 31, 1997, December 31, 1996 and March 31, 1996 4 Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1997 and March 31, 1996 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (Unaudited)
THREE MONTHS ENDED MARCH 31 ---------------------------- 1997 1996 --------- --------- (In thousands, except per share amounts) INTEREST INCOME Interest and fees on loans . . . . . . . . . . . . . . . . . $ 16,734 $ 16,370 Interest on investment securities: Taxable. . . . . . . . . . . . . . . . . . . . . . . . 9,646 9,623 Tax-exempt . . . . . . . . . . . . . . . . . . . . . . 541 587 ---------- ----------- TOTAL INTEREST ON SECURITIES 10,187 10,210 Interest on federal funds sold . . . . . . . . . . . . . . . 1,252 1,285 Interest on deposits with unaffiliated banks . . . . . . . . 20 50 ---------- ----------- TOTAL INTEREST INCOME 28,193 27,915 INTEREST EXPENSE Interest on deposits . . . . . . . . . . . . . . . . . . . . 10,977 11,301 Interest on short-term borrowings. . . . . . . . . . . . . . 332 328 Interest on long-term debt . . . . . . . . . . . . . . . . . 148 198 ---------- ----------- TOTAL INTEREST EXPENSE 11,457 11,827 ---------- ----------- NET INTEREST INCOME 16,736 16,088 Provision for possible loan losses . . . . . . . . . . . . . 329 268 ---------- ----------- NET INTEREST INCOME After Provision for Possible Loan Losses . . . . . . . . . . . . . . . . . 16,407 15,820 OTHER INCOME Trust department income. . . . . . . . . . . . . . . . . . . 728 661 Service charges on deposit accounts. . . . . . . . . . . . . 1,294 1,313 Other charges and fees for customer services . . . . . . . . 827 730 Gains on sales of residential mortgage loans . . . . . . . . 34 33 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 259 ---------- ----------- TOTAL OTHER INCOME 3,292 2,996 OPERATING EXPENSES Salaries, wages and employee benefits. . . . . . . . . . . . 6,845 6,749 Occupancy expense-premises . . . . . . . . . . . . . . . . . 1,237 1,209 -3- Equipment expense. . . . . . . . . . . . . . . . . . . . . . 748 778 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,634 2,647 ---------- ----------- TOTAL OPERATING EXPENSES 11,464 11,383 ---------- ----------- INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . 8,235 7,433 Federal income taxes . . . . . . . . . . . . . . . . . . . . 2,709 2,440 ---------- ----------- NET INCOME $ 5,526 $ 4,993 ========== =========== NET INCOME PER COMMON SHARE. . . . . . . . . . . . . . . . . $ .53 $ .48 ========== ===========
See accompanying notes to consolidated financial statements. -4- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Financial Position
MARCH 31 DECEMBER 31 MARCH 31 1997 1996 1996 ----------- ------------- ----------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS) ASSETS Cash and demand deposits due from banks . . . . . . . . . $ 90,356 $ 89,517 $ 94,402 Federal funds sold . . . . . . . . . . . . . . . . . . . . 106,700 114,200 88,350 Interest-bearing deposits with unaffiliated banks. . . . . 998 1,134 2,984 Investment securities: Held to maturity (market value $204,102 at 3/31/97, $215,494 at 12/31/96, $351,209 at 3/31/96) . . . . 203,923 213,752 348,897 Available for sale (at market value) . . . . . . . . 471,735 441,787 386,228 ----------- ----------- ----------- Total investment securities 675,658 655,539 735,125 Loans: Commercial and agricultural. . . . . . . . . . . . . 108,733 114,154 117,897 Real estate construction . . . . . . . . . . . . . . 24,856 24,791 17,550 Real estate mortgage . . . . . . . . . . . . . . . . 513,973 510,193 480,817 Installment. . . . . . . . . . . . . . . . . . . . . 152,099 158,515 157,737 ----------- ----------- ----------- Total loans 799,661 807,653 774,001 Less: Allowance for possible loan losses. . . . . . 16,865 16,607 16,155 ----------- ----------- ----------- Net loans 782,796 791,046 757,846 Premises and equipment . . . . . . . . . . . . . . . . . . 19,481 20,335 20,015 Accrued income . . . . . . . . . . . . . . . . . . . . . . 14,883 14,419 16,526 Other assets . . . . . . . . . . . . . . . . . . . . . . . 14,340 12,584 13,279 ----------- ----------- ----------- TOTAL ASSETS $ 1,705,212 $ 1,698,774 $ 1,728,527 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing. . . . . . . . . . . . . . . . . $ 213,856 $ 226,965 $ 214,382 Interest bearing . . . . . . . . . . . . . . . . . . 1,223,193 1,202,950 1,256,581 ----------- ----------- ----------- Total deposits 1,437,049 1,429,915 1,470,963 Short-term borrowings: Treasury tax and loan notes payable to the U.S. Treasury . . . . . . . . . . . . . . . . . . . . 11,378 9,458 8,005 Securities sold under agreements to repurchase . . . 22,106 27,875 24,236 ----------- ----------- ----------- 33,484 37,333 32,241 -5- Interest payable and other liabilities . . . . . . . . . . 17,200 14,257 17,025 Long-term debt . . . . . . . . . . . . . . . . . . . . . . 9,000 10,000 12,000 ----------- ----------- ----------- Total liabilities 1,496,733 1,491,505 1,532,229 Shareholders' equity: Common stock, $10 par value: Authorized - 15,000,000 shares Issued - 10,228,394 shares, 10,209,790 shares, and 9,716,569 shares, respectively . . . . . . . 102,284 102,098 97,166 Surplus. . . . . . . . . . . . . . . . . . . . . . . 69,702 69,616 57,013 Retained earnings. . . . . . . . . . . . . . . . . . 39,115 35,737 42,714 Unrealized net loss on securities available for sale . . . . . . . . . . . . . . . . . . . . . (2,622) (182) (595) ----------- ----------- ----------- Total shareholders' equity 208,479 207,269 196,298 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,705,212 $ 1,698,774 $1,728,527 =========== =========== ===========
See accompanying notes to consolidated financial statements. -6- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows (Unaudited)
THREE MONTHS ENDED MARCH 31 ---------------------------- 1997 1996 --------- --------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,526 $ 4,993 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 329 268 Origination of loans held for sale (4,379) (2,510) Proceeds from sales of loans 4,426 2,543 Gains on sales of loans (34) (33) Gain on sale of branch office building (256) Provision for depreciation and amortization 771 805 Net amortization of investment securities 532 859 Net increase in accrued income and other assets (903) (834) Net increase in interest payable and other liabilities 3,149 3,123 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,161 9,214 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in interest-bearing deposits with unaffiliated banks 136 (3) Proceeds from maturities of securities held to maturity 51,255 50,656 Purchases of securities held to maturity (41,590) (7,099) Proceeds from maturities of securities available for sale 47,042 25,063 Purchases of securities available for sale (81,111) (73,536) Net (increase) decrease in loans 7,763 (13,524) Proceeds from sale of branch office building 900 Purchases of premises and equipment (420) (232) ----------- ----------- NET CASH USED FOR INVESTING ACTIVITIES (16,025) (18,675) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits, NOW accounts and savings accounts 3,279 826 Net increase in certificates of deposit and other time deposits 3,855 20,336 -7- Net increase in repurchase agreements and other short-term borrowings (3,849) (2,982) Principal payments on long-term debt (1,000) (80) Cash dividends (2,148) (1,944) Proceeds from stock purchase plan 59 62 Proceeds from exercise of stock options 146 78 Repurchases of common stock (139) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 203 16,296 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,661) 6,835 Cash and cash equivalents at beginning of year 203,717 175,917 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 197,056 $ 182,752 =========== ===========
See accompanying notes to consolidated financial statements. - --------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Interest paid on deposits, short-term borrowings and long-term debt $ 11,342 $ 11,621 Federal income taxes paid - -
- -------------------------------------------------------------------------------- -8- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 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 months ended March 31, 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 for the three months ended March 31, 1997 and 1996 were 10,341,000 and 10,357,000, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard 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. The impact of Statement No. 128 is expected to result in an increase in primary earnings per share for the quarter ended March 31, 1997 and March 31, 1996 of $.01 per share in each quarter. Statement No. 128 is not expected to impact the calculation of fully diluted earnings per share for these quarters. -9- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 NOTE B: LOANS AND NONPERFORMING ASSETS The following summarizes loans and nonperforming assets at the dates indicated (in thousands of dollars):
MARCH 31 DECEMBER 31 MARCH 31 1997 1996 1996 -------- ----------- -------- LOANS: Commercial and agricultural . . . . $108,733 $ 114,154 $ 117,897 Real estate construction. . . . . . 24,856 24,791 17,550 Real estate mortgage. . . . . . . . 513,973 510,193 480,817 Installment . . . . . . . . . . . . 152,099 158,515 157,737 -------- --------- --------- Total Loans . . . . . . . . . . . . $799,661 $ 807,653 $ 774,001 ======== ========= ========= NONPERFORMING ASSETS: Nonaccrual loans. . . . . . . . . . $ 1,585 $ 1,341 $ 1,672 Loans 90 days or more past due and still accruing interest . . . . . 337 539 562 Restructured loans. . . . . . . . . 67 -------- --------- --------- Total nonperforming loans . . . . . 1,922 1,880 2,301 -------- --------- --------- Other real estate owned . . . . 830 688 884 -------- --------- --------- Total nonperforming assets. . . . . $ 2,752 $ 2,568 $ 3,185 ======== ========= ========= 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- CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 NOTE C: ALLOWANCE FOR POSSIBLE LOAN LOSSES The following summarizes the changes in the allowance for loan losses (in thousands of dollars):
THREE MONTHS ENDED MARCH 31 --------------------- 1997 1996 --------- --------- ALLOWANCE FOR POSSIBLE LOAN LOSSES Balance as of January 1. . . . . . . . . . . . . . . $ 16,607 $ 15,886 Provision for loan losses. . . . . . . . . . . . . . 329 268 Gross loans charged-off. . . . . . . . . . . . . . . (172) (60) Gross recoveries of loans previously charged-off . . 101 61 -------- -------- Net loans (charged-off) recovered. . . . . . . . . . (71) 1 -------- -------- Balance at March 31. . . . . . . . . . . . . . . . . $ 16,865 $ 16,155 ======== ========
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 $5,526,000 in the first quarter of 1997, as compared to net income of $4,993,000 during the first quarter of 1996. Earnings per share in the first quarter of 1997 was $.53, compared to earnings per share in the first quarter of 1996 of $.48. Return on average assets in the first quarter of 1997 was 1.33%, compared to a return on average assets of 1.19% during the first quarter of 1996. Return on average equity for the three months ended March 31, 1997 and March 31, 1996, was 10.6% and 10.3%, respectively. Total assets were $1.705 billion as of March 31, 1997, compared to $1.699 billion as of December 31, 1996, and $1.729 billion as of March 31, 1996. Total loans increased $25.7 million, or 3.3%, from March 31, 1996, to $799.7 million as of March 31, 1997. Total loans decreased $8.0 million, or 1.0%, from December 31, 1996, to March 31, 1997. The increase in total loans from March 31, 1996 to March 31, 1997 was attributable to increases in real estate construction and mortgage loans. Shareholders' equity increased $12.2 million, or 6.2%, from March 31, 1996, to $208.5 million as of March 31, 1997, or $20.38 per share, representing 12.2% of total assets. RESULTS OF OPERATIONS NET INTEREST INCOME The Corporation's net interest income for the first quarter of 1997 was $16.74 million, a $.65 million, or 4.0%, increase over the $16.09 million recorded in the first quarter of 1996. The increase in net interest income was due primarily to a growth in loans and an increase in the yield on investment securities. Average loans increased 4.4% in the first quarter of 1997, compared to the first quarter of 1996. Changes in the average interest rates earned and paid on the Corporation's earnings assets and interest-bearing liabilities accounted for approximately one-half of the increase in net interest income during the first quarter of 1997, with the majority of the increase attributable to the increase in the yield on the investment securities portfolio. For the first quarter of 1997, the net interest margin was 4.39%, compared to 4.17% in the first quarter of 1996. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) OTHER INCOME Other income increased $296,000, or 9.9%, in the first quarter of 1997 as compared to the first quarter of 1996. The Corporation's trust department income increased $67,000, or 10.1%, due to increased services provided. Other charges and fees for customer services increased $97,000, or 13.3%, in the first quarter of 1997, compared to the first quarter of 1996. The majority of this increase 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. This gain was recorded in the "Other" category of other income. The Corporation realized gains on the sale of residential mortgage loans in the secondary market of $34,000 and $33,000 during the first quarter of 1997 and 1996, 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 months ended March 31, 1997, the Corporation added $329,000 to the Allowance through the provision for possible loan losses, compared to $268,000 during the first three months of 1996. During the first three months of 1997, the Corporation experienced net loan charge offs of $71,000, compared to net loan recoveries during the first three months of 1996 of $1,000. OPERATING EXPENSES Total operating expenses increased $81,000, or .7%, in the first quarter of 1997, compared to the first quarter of 1996. -13- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Salaries, wages and employee benefits increased 1.4% in the first quarter of 1997 over the first quarter of 1996. The remaining categories of operating expenses; occupancy, equipment and other expenses, were basically unchanged in the first quarter of 1997 compared to the first quarter of 1996. These three categories totaled $4,619,000 in the first quarter of 1997, compared to $4,634,000 in the first quarter of 1996. INCOME TAX EXPENSE The Corporation's effective federal income tax rate was 32.9% and 32.8% during the three months ended March 31, 1997, and March 31, 1996, respectively. 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 $6.4 million, or .4%, from December 31, 1996, and decreased $23 million, or 1.3%, from March 31, 1996, to $1.705 billion as of March 31, 1997. Total deposits increased $7.1 million, or .5%, from December 31, 1996, and decreased $34 million, or 2.3%, from March 31, 1996 to $1.437 billion as of March 31, 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 March 31, 1997 were $799.7 million, as compared to $774 million as of March 31, 1996 and $807.7 million as of December 31, 1996. The increase in total loans from March 31, 1996 to March 31, 1997, of $25.7 million was attributable to an increase in real estate construction and mortgage loans. -14- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Real estate construction and mortgage loans increased $40.5 million, or 8.1%, from March 31, 1996, and $3.8 million, or .7%, from December 31, 1996, to $538.8 million as of March 31, 1997. Real estate construction and mortgage loans represented 67.4%, 66.3% and 64.4% of the Corporation's loan portfolio as of March 31, 1997, December 31, 1996 and March 31, 1996, respectively. Commercial and agricultural loans decreased $9.2 million, or 7.8%, from March 31, 1996, and $5.4 million, or 4.7%, from December 31, 1996, to $108.7 million as of March 31, 1997. The decreases resulted 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 13.6%, 14.1% and 15.2% of the Corporation's loan portfolio as of March 31, 1997, December 31, 1996, and March 31, 1996, respectively. Installment loans decreased $5.6 million, or 3.6%, from March 31, 1996, and $6.4 million, or 4.0%, from December 31, 1996, to $152.1 million as of March 31, 1997, and represented 19.0%, 19.6% and 20.4% of total loans as of March 31, 1997, December 31, 1996, and March 31, 1996, respectively. The Corporation's total loan to deposit ratio as of March 31, 1997, December 31, 1996 and March 31, 1996, was 55.6%, 56.5% and 52.6%, 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. For the three-month period ended March 31, 1997, the Corporation experienced net loan charge-offs of $71,000. The Corporation reported net loan recoveries of $1,000 during the three-month period ended March 31, 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 $1.9 million as of March 31, 1997, $1.9 million as of December 31, 1996, and $2.3 million as of March 31, 1996, and represented .24%, .23% and .30% of total loans as of these dates, respectively. The allowance for possible loan losses at March 31, 1997, was $16,865,000 and represented 2.11% of total loans. -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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 withdrawals. 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 March 31, 1997, the Corporation's investment securities portfolio had an average life of less than two years. In addition, at March 31, 1997, the Corporation held only $3.3 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 March 31, 1997, shareholders' equity was $208.5 million, compared to $207.3 million as of December 31, 1996, and $196.3 million as of March 31, 1996, resulting in an increase of $12.2 million, or 6.2% from March 31, 1996. Shareholders' equity as a percentage of total assets was 12.2% as of March 31, 1997 and December 31, 1996, and 11.4% as of March 31, 1996. Total equity included an after-tax unrealized net loss of $2.6 million as of March 31, 1997, $182,000 as of December 31, 1996 and $595,000 as of March 31, 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 three-month periods ended March 31, 1997, and March 31, 1996, follows:
THREE MONTHS ENDED MARCH 31 --------------------- 1997 1996 --------- --------- Total shareholders' equity as of January 1, $ 207,269 $ 194,902 Net income 5,526 4,993 Dividends (2,148) (1,944) Shares issued upon exercise of employee stock options 146 78 Shares issued from director stock purchase plan 265 239 Repurchases of common stock (139) Change in unrealized gains and losses on available for sale securities (2,440) (1,970) --------- --------- Total shareholders' equity as of end of period $ 208,479 $ 196,298 ========= =========
-16- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The following table represents the Corporation's regulatory capital ratios as of March 31, 1997:
TIER 1 TOTAL RISK-BASED RISK-BASED LEVERAGE CAPITAL CAPITAL -------- ---------- ---------- Chemical Financial Corporation - actual ratio 12.3% 30.3% 31.5% 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 March 31, 1997, are high due to the Corporation holding $625 million in investment securities and other assets which are assigned a 0% risk rating, $249 million in assets which are assigned a 20% risk rating and $435 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 March 31, 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. -17- PART II. OTHER INFORMATION 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. 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. 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. -18- 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: May 14, 1997 By /S/ALOYSIUS J. OLIVER Aloysius J. Oliver Chief Executive Officer and President (Principal Executive Officer) Date: May 14, 1997 By /S/LORI A. GWIZDALA Lori A. Gwizdala Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -19- 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. 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)
THREE MONTHS ENDED MARCH 31 ---------------------------- 1997 1996 --------- --------- (In thousands, except per share amounts) PRIMARY: Average shares outstanding . . . . . . . . . . . . . . . . 10,226 10,199 Net effect of the assumed exercise of stock options- based on the treasury stock method using average market price . . . . . . . . . . . . . . . . . . . . . 115 158 -------- --------- 10,341 10,357 ======== ========= Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 5,526 $ 4,993 ======== ========= Net income per common share. . . . . . . . . . . . . . . . $ 0.53 $ 0.48 ======== ========= FULLY DILUTED: Average shares outstanding . . . . . . . . . . . . . . . . 10,226 10,199 Net effect of the assumed exercise of stock options- based on the treasury stock method using end of period market price. . . . . . . . . . . . . . . . . . 113 162 -------- --------- 10,339 10,361 ======== ========= Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 5,526 $ 4,993 ======== ========= Net income per common share. . . . . . . . . . . . . . . . $ 0.53 $ 0.48 ======== =========
EX-27 3 ARTICLE 9 FDS FOR 1ST 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 MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 90,356 998 106,700 0 471,735 203,923 204,102 799,661 16,865 1,705,212 1,437,049 33,484 17,200 9,000 102,284 0 0 106,195 1,705,212 16,734 10,187 1,272 28,193 10,977 11,457 16,736 329 0 11,464 8,235 8,235 0 0 5,526 0.53 0.53 4.39 1,585 337 0 1,922 16,607 172 101 16,865 16,865 0 0
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