<PAGE>
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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.
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<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 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
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
1997 1996
--------- ---------
(In thousands, except per
share amounts)
<S> <C> <C>
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
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<PAGE>
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
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1997 1996 1996
----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
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
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<PAGE>
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
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
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
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<PAGE>
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
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
<S> <C> <C>
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 - -
</TABLE>
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<PAGE>
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.
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<PAGE>
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):
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1997 1996 1996
-------- ----------- --------
<S> <C> <C> <C>
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 <F1>. . . . 830 688 884
-------- --------- ---------
Total nonperforming assets. . . . . $ 2,752 $ 2,568 $ 3,185
======== ========= =========
<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>
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<PAGE>
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1997 1996
--------- ---------
<S> <C> <C>
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
======== ========
</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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1997 1996
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
-16-
<PAGE>
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:
<TABLE>
<CAPTION>
TIER 1 TOTAL
RISK-BASED RISK-BASED
LEVERAGE CAPITAL CAPITAL
-------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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-
<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: 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-
<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.
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>
THREE MONTHS ENDED
MARCH 31
----------------------------
1997 1996
--------- ---------
(In thousands, except
per share amounts)
<S> <C> <C>
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
======== =========
</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 MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 90,356
<INT-BEARING-DEPOSITS> 998
<FED-FUNDS-SOLD> 106,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 471,735
<INVESTMENTS-CARRYING> 203,923
<INVESTMENTS-MARKET> 204,102
<LOANS> 799,661
<ALLOWANCE> 16,865
<TOTAL-ASSETS> 1,705,212
<DEPOSITS> 1,437,049
<SHORT-TERM> 33,484
<LIABILITIES-OTHER> 17,200
<LONG-TERM> 9,000
<COMMON> 102,284
0
0
<OTHER-SE> 106,195
<TOTAL-LIABILITIES-AND-EQUITY> 1,705,212
<INTEREST-LOAN> 16,734
<INTEREST-INVEST> 10,187
<INTEREST-OTHER> 1,272
<INTEREST-TOTAL> 28,193
<INTEREST-DEPOSIT> 10,977
<INTEREST-EXPENSE> 11,457
<INTEREST-INCOME-NET> 16,736
<LOAN-LOSSES> 329
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,464
<INCOME-PRETAX> 8,235
<INCOME-PRE-EXTRAORDINARY> 8,235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,526
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 4.39
<LOANS-NON> 1,585
<LOANS-PAST> 337
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,922
<ALLOWANCE-OPEN> 16,607
<CHARGE-OFFS> 172
<RECOVERIES> 101
<ALLOWANCE-CLOSE> 16,865
<ALLOWANCE-DOMESTIC> 16,865
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
