<PAGE>
=============================================================================
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.
=============================================================================
<PAGE>
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-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ --------------------
1997 1996 1997 1996
------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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-
<PAGE>
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
======== ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
----------- ------------ ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
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-
<PAGE>
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
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
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-
<PAGE>
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
- -------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
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-
<PAGE>
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):
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
1997 1996 1996
------ ----------- -------
<S> <C> <C> <C>
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 <F1>. . . . 774 688 1,027
---------- --------- ---------
Total nonperforming assets. . . . . $ 3,419 $ 2,568 $ 3,322
========== ========= =========
<FN>
<F1> 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.
</FN>
</TABLE>
-10-
<PAGE>
NOTE C: ALLOWANCE FOR POSSIBLE LOAN LOSSES The following
summarizes the changes in the allowance for loan losses (in thousands
of dollars):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
------------------
1997 1996
------ ------
<S> <C> <C>
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
========= =========
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------
1997 1996
------ ------
<S> <C> <C>
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
========= =========
</TABLE>
The following table represents the Corporation's regulatory capital
ratios as of June 30, 1997:
-17-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
TIER 1 TOTAL
RISK-BASED RISK-BASED
LEVERAGE CAPITAL CAPITAL
-------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS VOTES CAST
- --------------------- ---------------------- BROKER
ALL NOMINEES FOR DIRECTOR WERE ELECTED: FOR WITHHELD NON-VOTES
- -------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES
- -------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Proposal to authorize the Chemical
Financial Corporation Stock
Incentive Plan of 1997: 8,363,750 185,090 258,618 0
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
CHEMICAL FINANCIAL CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> 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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 107,287
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 84,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 454,236
<INVESTMENTS-CARRYING> 274,230
<INVESTMENTS-MARKET> 275,557
<LOANS> 814,391
<ALLOWANCE> 17,081
<TOTAL-ASSETS> 1,764,856
<DEPOSITS> 1,488,212
<SHORT-TERM> 38,221
<LIABILITIES-OTHER> 15,558
<LONG-TERM> 9,000
<COMMON> 102,271
0
0
<OTHER-SE> 111,594
<TOTAL-LIABILITIES-AND-EQUITY> 1,764,856
<INTEREST-LOAN> 33,993
<INTEREST-INVEST> 20,786
<INTEREST-OTHER> 2,510
<INTEREST-TOTAL> 57,289
<INTEREST-DEPOSIT> 22,381
<INTEREST-EXPENSE> 23,307
<INTEREST-INCOME-NET> 33,982
<LOAN-LOSSES> 548
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 23,414
<INCOME-PRETAX> 16,564
<INCOME-PRE-EXTRAORDINARY> 16,564
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,150
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 4.39
<LOANS-NON> 1,689
<LOANS-PAST> 956
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,645
<ALLOWANCE-OPEN> 16,607
<CHARGE-OFFS> 272
<RECOVERIES> 198
<ALLOWANCE-CLOSE> 17,081
<ALLOWANCE-DOMESTIC> 17,081
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
