<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 JUNE 30, 1998, 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, $1.00
par value, as of July 31, 1998, was 10,791,298 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, 1997)
Consolidated Statement of Income for the Three and
Six Months Ended June 30, 1998 and June 30, 1997 3
Consolidated Statement of Financial Position as of
June 30, 1998, December 31, 1997 and June 30, 1997 4
Consolidated Statement of Cash Flows for the Six
Months Ended June 30, 1998 and June 30, 1997 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Unaudited)
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . $18,531 $17,259 $36,479 $33,993
Interest on investment securities:
Taxable. . . . . . . . . . . . . . . . . 10,365 10,058 20,684 19,704
Tax-exempt. . . . . . . . . . . . . . . . 523 541 1,075 1,082
------- ------- ------- -------
TOTAL INTEREST ON SECURITIES . . . . . . . 10,888 10,599 21,759 20,786
Interest on federal funds sold. . . . . . . . . . 1,041 1,225 2,046 2,477
Interest on deposits with unaffiliated banks . . . . . 13 33
------- ------- ------- -------
TOTAL INTEREST INCOME . . . . . . . . . 30,460 29,096 60,284 57,289
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . 11,980 11,404 23,807 22,381
Interest on short-term borrowings. . . . . . . . . 316 302 688 634
Interest on long-term debt . . . . . . . . . . . 151 144 300 292
------- ------- ------- -------
TOTAL INTEREST EXPENSE . . . . . . . . . 12,447 11,850 24,795 23,307
------- ------- ------- -------
NET INTEREST INCOME . . . . . . . . . . 18,013 17,246 35,489 33,982
Provision for possible loan losses . . . . . . . . 260 219 479 548
------- ------- ------- -------
NET INTEREST INCOME after provision for
possible loan losses. . . . . . . . . . . . . 17,753 17,027 35,010 33,434
OTHER INCOME
Trust department income . . . . . . . . . . . . 963 851 1,773 1,579
Service charges on deposit accounts . . . . . . . . 1,451 1,338 2,673 2,632
Other charges and fees for customer services . . . . . 977 871 2,030 1,698
Gains on sales of loans . . . . . . . . . . . . 322 45 506 79
Other . . . . . . . . . . . . . . . . . . 266 147 518 556
------- ------- ------- -------
TOTAL OTHER INCOME . . . . . . . . . . 3,979 3,252 7,500 6,544
3
<PAGE>
OPERATING EXPENSES
Salaries, wages and employee benefits . . . . . . . 7,328 6,962 14,648 13,807
Occupancy expense . . . . . . . . . . . . . . 1,162 1,182 2,350 2,419
Equipment expense . . . . . . . . . . . . . . 803 848 1,636 1,596
Other . . . . . . . . . . . . . . . . . . 3,231 2,958 6,104 5,592
------- ------- ------- -------
TOTAL OPERATING EXPENSES . . . . . . . . 12,524 11,950 24,738 23,414
------- ------- ------- -------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 9,208 8,329 17,772 16,564
Federal income taxes . . . . . . . . . . . . . 3,029 2,705 5,814 5,414
------- ------- ------- -------
NET INCOME . . . . . . . . . . . . . $ 6,179 $ 5,624 $11,958 $11,150
======= ======= ======= =======
NET INCOME PER SHARE
Basic . . . . . . . . . . . . . . . . . . $ .57 $ .53 $ 1.11 $ 1.04
======= ======= ======= =======
Diluted . . . . . . . . . . . . . . . . . $ .57 $ .52 $ 1.10 $ 1.03
======= ======= ======= =======
CASH DIVIDENDS PER SHARE. . . . . . . . . . . . $ .24 $ .20 $ .48 $ .40
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1998 1997 1997
---------- ------------ ----------
(Unaudited) (Unaudited)
(in thousands)
<S> <C> <C> <C>
ASSETS
Cash and demand deposits due from banks . . . . . . . . $ 90,963 $ 95,794 $ 107,287
Federal funds sold . . . . . . . . . . . . . . . 102,750 49,750 84,850
Investment securities:
Available for sale (at market value) . . . . . . . . 462,102 494,173 454,236
Held to maturity (market value $238,085 at 6/30/98,
$253,459 at 12/31/97, $275,557 at 6/30/97) . . . . . 235,526 251,020 274,230
---------- ---------- ----------
Total investment securities . . . . . . . . 697,628 745,193 728,466
Loans:
Commercial . . . . . . . . . . . . . . . . . 134,782 110,554 113,778
Real estate construction . . . . . . . . . . . . 31,166 31,143 25,097
Real estate mortgage. . . . . . . . . . . . . . 532,011 536,938 523,327
Consumer . . . . . . . . . . . . . . . . . 190,029 166,965 152,189
---------- ---------- ----------
Total loans . . . . . . . . . . . . . 887,988 845,600 814,391
Less: Allowance for possible loan losses. . . . . . . 17,776 17,359 17,081
---------- ---------- ----------
Net loans . . . . . . . . . . . . . . 870,212 828,241 797,310
Premises and equipment. . . . . . . . . . . . . . 19,704 20,416 19,269
Accrued income . . . . . . . . . . . . . . . . 14,381 14,573 14,672
Other assets . . . . . . . . . . . . . . . . . 10,494 11,133 13,002
---------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . $1,806,132 $1,765,100 $1,764,856
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . $ 248,585 $ 237,763 $ 227,665
Interest bearing . . . . . . . . . . . . . . . 1,257,131 1,238,078 1,260,547
---------- ---------- ----------
Total deposits . . . . . . . . . . . . 1,505,716 1,475,841 1,488,212
Short-term borrowings:
Treasury tax and loan notes payable to the U.S. Treasury. . 11,571 11,206 11,941
Securities sold under agreements to repurchase . . . . . 32,225 30,990 26,280
---------- ---------- ----------
43,796 42,196 38,221
5
<PAGE>
Interest payable and other liabilities . . . . . . . . 15,997 14,138 15,558
Long-term debt . . . . . . . . . . . . . . . . 9,000 9,000 9,000
---------- ---------- ----------
Total liabilities . . . . . . . . . . . 1,574,509 1,541,175 1,550,991
Shareholders' equity:
Common stock, $1 par value ($10 par value at 12/31/97
and 6/30/97):
Authorized - 18,000,000 shares (15,000,000
at 12/31/97 and 6/30/97)
Issued - 10,789,208 shares, 10,753,011 shares,
and 10,227,094 shares, respectively. . . . . . . 10,789 107,530 102,271
Surplus . . . . . . . . . . . . . . . . . 184,339 87,086 69,599
Retained earnings. . . . . . . . . . . . . . . 34,684 27,904 42,591
Unrealized net gain (loss) on securities available for sale. 1,811 1,405 (596)
---------- ---------- ----------
Total shareholders' equity . . . . . . . . 231,623 223,925 213,865
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY . . . . . . . . . . $1,806,132 $1,765,100 $1,764,856
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,958 $ 11,150
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 479 548
Origination of loans held for sale (51,163) (11,437)
Proceeds from sales of loans 51,510 11,516
Gains on sales of loans (506) (79)
Gain on sale of branch office building (256)
Provision for depreciation and amortization 1,678 1,563
Net amortization of investment securities 276 994
Net (increase) decrease in accrued income and other assets 716 (467)
Net increase in interest payable and other liabilities 1,945 1,439
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,893 14,971
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits with unaffiliated banks 1,134
Proceeds from maturities of securities held to maturity 78,254 81,929
Purchases of securities held to maturity (61,726) (142,699)
Proceeds from maturities of securities available for sale 93,794 81,659
Purchases of securities available for sale (62,408) (95,447)
Net increase in loans (42,641) (7,075)
Proceeds from sale of branch office building 900
Purchases of premises and equipment (684) (859)
-------- --------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 4,589 (80,458)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and
savings accounts 38,158 47,045
Net increase (decrease) in certificates of deposit and other time deposits (8,283) 11,252
Net increase in repurchase agreements and other short-term
borrowings 1,600 888
Principal payments on long-term debt (1,000)
7
<PAGE>
Cash dividends paid (5,177) (4,296)
Proceeds from stock purchase plan 142 127
Proceeds from exercise of stock options 247 163
Repurchases of common stock (272)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,687 53,907
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 48,169 (11,580)
Cash and cash equivalents at beginning of year 145,544 203,717
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $193,713 $192,137
======== ========
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid on deposits, short-term borrowings and long-term debt $ 24,508 $ 23,244
Federal income taxes paid 6,580 5,710
- -----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998. 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, 1997.
EARNINGS PER SHARE
The Corporation adopted Statement of Financial Accounting Standard No. 128,
Earnings Per Share ("SFAS 128"), on December 31, 1997. All earnings per
share amounts have been presented, and where appropriate restated, to
conform to the SFAS 128 requirements. SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effect
of stock options. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Basic earnings per
share for the Corporation is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per
share for the Corporation is computed by dividing net income by the sum of
the weighted average number of common shares outstanding and the dilutive
effect of outstanding employee stock options.
The following table summarizes the number of shares used in the denominator
of the basic and diluted earnings per share computations:
9
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Denominator for basic earnings per share 10,786 10,738 10,781 10,737
====== ====== ====== ======
Denominator for diluted earnings per share 10,909 10,858 10,908 10,859
====== ====== ====== ======
</TABLE>
COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS 130 had no
impact on the Corporation's net income or shareholders' equity. SFAS 130
requires unrealized gains or losses on the Corporation's investment
securities available for sale, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform
to the requirements of SFAS 130.
The components of comprehensive income, net of related tax, for the six-
month periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
1998 1997
------- -------
<S> <C> <C>
Net income $11,958 $11,150
Unrealized net gains/(losses) on securities available for sale 406 (414)
------- -------
Comprehensive income $12,364 $10,736
======= =======
</TABLE>
10
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
The components of accumulated other comprehensive income, net of related
tax, at June 30, 1998, December 31, 1997 and June 30, 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1998 1997 1997
-------- ------------ --------
<S> <C> <C> <C>
Unrealized net gains/(losses) on
securities available for sale $1,811 $1,405 $(596)
------ ------ -----
Accumulated other comprehensive
income/(loss) $1,811 $1,405 $(596)
====== ====== =====
</TABLE>
OTHER
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued in
June 1998. SFAS 133 is effective for all fiscal quarters beginning after
June 15, 1999. SFAS 133 standardizes the accounting for derivative
instruments embedded in other contracts by requiring the recognition of
those items as assets or liabilities in the statement of financial position
and measuring them at fair value. SFAS 133 generally provides for matching
the timing of gain or loss recognition on the hedging instrument with the
recognition of (a) changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (b) the earnings
effect of the hedged forecasted transaction. The adoption of SFAS 133 is
currently expected to have no effect on the financial position, liquidity
or results of operations of the Corporation. As of June 30, 1998, the
Corporation held no derivative financial instruments.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation.
11
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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,
1998 1997 1997
-------- ------------ --------
<S> <C> <C> <C>
LOANS:
Commercial. . . . . . . . . . . . . . $134,782 $110,554 $113,778
Real estate construction . . . . . . . . . 31,166 31,143 25,097
Real estate mortgage . . . . . . . . . . 532,011 536,938 523,327
Consumer . . . . . . . . . . . . . . 190,029 166,965 152,189
-------- -------- --------
Total Loans . . . . . . . . . . . . . $887,988 $845,600 $814,391
======== ======== ========
NONPERFORMING ASSETS:
Nonaccrual loans. . . . . . . . . . . . $ 1,737 $ 1,783 $ 1,689
Loans 90 days or more past due and
still accruing interest. . . . . . . . . 1,389 1,125 956
Restructured loans . . . . . . . . . . . 51 139
-------- -------- --------
Total nonperforming loans. . . . . . . . . 3,177 3,047 2,645
-------- -------- --------
Other real estate owned <F1>. . . . . . . . 478 798 774
-------- -------- --------
Total nonperforming assets . . . . . . . . $ 3,655 $ 3,845 $ 3,419
======== ======== ========
<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.
</FN>
</TABLE>
12
<PAGE>
CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE C: ALLOWANCE FOR POSSIBLE LOAN LOSSES The following summarizes the
changes in the allowance for possible loan losses (in thousands of
dollars):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
1998 1997
------- -------
<S> <C> <C>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Balance as of January 1 . . . . . . . . . . . . . . . $17,359 $16,607
Provision for possible loan losses . . . . . . . . . . . 479 548
Gross loans charged-off . . . . . . . . . . . . . . . (247) (272)
Gross recoveries of loans previously charged-off. . . . . . . 185 198
------- -------
Net loans charged-off. . . . . . . . . . . . . . . . (62) (74)
------- -------
Balance at June 30. . . . . . . . . . . . . . . . . $17,776 $17,081
======= =======
</TABLE>
13
<PAGE>
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 that have affected the Corporation's financial
condition and results of operations during the periods included in the
consolidated financial statements included in this filing.
FORWARD-LOOKING STATEMENTS
This discussion and analysis of financial condition and results of
operations, and other sections of this report, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the financial services
industry, the economy, and the Corporation itself. Words such as
"anticipates," "believes," "estimates," "expects," "forecasts," "intends,"
"is likely," "plans," "predicts," "projects," variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors")
that are difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed or forecasted in such forward-
looking statements. Future Factors include, but are not limited to,
changes in interest rates and interest rate relationships; demand for
products and services; the degree of competition by traditional and non-
traditional competitors; changes in banking regulations; changes in tax
laws; changes in prices, levies and assessments; the impact of
technological advances; governmental and regulatory policy changes; the
outcomes of pending and future litigation and contingencies; trends in
customer behavior as well as their abilities to repay loans; and changes in
the national economy. These are representative of the Future Factors that
could cause a difference between an ultimate actual outcome and a preceding
forward-looking statement. Furthermore, the Corporation undertakes no
obligation to update, amend or clarify forward-looking statements, whether
as a result of new information, future events or otherwise.
SUMMARY
The Corporation's net income was $6,179,000 in the second quarter of 1998,
as compared to net income of $5,624,000 during the second quarter of 1997.
Earnings per share in the second quarter of 1998 were $.57, compared to
earnings per share of $.52 in the second quarter of 1997.
Return on average assets in the second quarter of 1998 was 1.38%, as
compared to 1.32% during the second quarter of 1997. Return on average
equity for the three months ended June 30, 1998 and June 30, 1997 was 10.9%
and 10.6%, respectively.
14
<PAGE>
The Corporation's net income was $11,958,000 for the first six months of
1998, compared to net income of $11,150,00 during the first six months of
1997. Earnings per share for the six months ended June 30, 1998 were
$1.10, compared to earnings per share of $1.03 for the first six months of
1997.
Return on average assets for the first six months of 1998 was 1.35%,
compared to a return on average assets of 1.32% for the first six months of
1997. Return on average equity for the six- month periods ended June 30,
1998 and June 30, 1997 was 10.7% and 10.6%, respectively.
Total assets were $1.806 billion as of June 30, 1998, up $41 million, or
2.3%, from total assets of $1.765 billion as of both December 31, 1997 and
June 30, 1997.
Total loans increased $73.6 million, or 9.0%, from June 30, 1997, and $42.4
million, or 5.0%, from December 31, 1997 to $888 million as of June 30,
1998. The increase in total loans from both June 30, 1997 and December 31,
1997 to June 30, 1998 was primarily attributable to increases in commercial
and consumer loans.
Shareholders' equity increased $17.8 million, or 8.3%, from June 30, 1997,
to $231.6 million as of June 30, 1998, or $21.47 per share, representing
12.8% of total assets. The increase was primarily attributable to retained
net income.
RESULTS OF OPERATIONS
NET INTEREST INCOME
The Corporation's net interest income for the second quarter of 1998 was
$18.01 million, a $.77 million, or 4.4%, increase over the $17.25 million
recorded in the second quarter of 1997. The increase in net interest
income was due primarily to a growth in loans and noninterest bearing
deposits. Average noninterest bearing deposits increased $28.8 million, or
13.3%, in the second quarter of 1998 compared to the second quarter of
1997. Average loans increased $69.8 million, or 8.6%, in the second
quarter of 1998 compared to the second quarter of 1997. For the second
quarter of 1998, the net interest margin was 4.36%, compared to 4.39% in
the second quarter of 1997.
Net interest income was $35.49 million for the six months ended June 30,
1998, a $1.51 million, or 4.4%, increase over the $33.98 million recorded
for the same period in 1997. The net interest margin was 4.36% and 4.39%
during the six months ended June 30, 1998 and 1997, respectively.
15
<PAGE>
OTHER INCOME
Other income increased $727,000, or 22.4%, in the second quarter of 1998 as
compared to the second quarter of 1997 and $956,000 in the first six months
of 1998 as compared to the first six months of 1997. The Corporation's
trust department income increased $112,000, or 13.2%, in the second quarter
and $194,000, or 12.3%, in the first six months of 1998 compared to the
comparable periods in 1997 due to a combination of increased fees and new
business. Service charges on deposit accounts increased $113,000, or 8.4%,
in the second quarter of 1998 and $41,000, or 1.6%, in the first six months
of 1998 compared to the comparable periods in 1997. Other charges and fees
for customer services increased $106,000, or 12.2%, in the second quarter
of 1998 compared to the second quarter of 1997 and $332,000, or 19.6%,
during the first six months of 1998 compared to the first six months 1997.
The majority of the increases in other charges and fees during 1998 was
attributable to increased ATM fees.
The Corporation realized gains on the sale of residential mortgage loans in
the secondary market of $322,000 during the second quarter and $506,000
during the first six months of 1998, compared to $45,000 during the second
quarter and $79,000 during the first six months of 1997, respectively. The
continued reduction in residential mortgage loan rates since January 1,
1998 resulted in the Corporation experiencing an increase in long-term
residential mortgage loan volume from both new home purchases and mortgage
loan refinancing in the second quarter and first six months of 1998. The
Corporation sold fixed rate residential mortgage loans with terms of
fifteen years or greater in the secondary market totaling $19 million
during the second quarter and $52 million during the first six months of
1998, compared to $7 million during the second quarter and $11 million
during the first six months of 1997, 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, 1998, the
Corporation added $260,000 and $479,000, respectively, to the Allowance
through the provision for possible loan losses, compared to $219,000 and
$548,000, respectively, during the comparable periods in 1997. Net loan
charge-offs during the three and six months periods ended June 30, 1998 were
$32,000 and $62,000, respectively, compared to net loan charge-offs of $3,000
and $74,000, respectively, during the comparable periods in 1997.
16
<PAGE>
OPERATING EXPENSES
Total operating expenses increased $574,000, or 4.8%, in the second quarter
of 1998 compared to the second quarter of 1997 and $1,324,000, or 5.7%, in
the first six months of 1998 compared to the first six months of 1997.
Salaries, wages and employee benefits increased $366,000, or 5.3%, in the
second quarter of 1998 over the second quarter of 1997 and $841,000, or
6.1%, in the first six months of 1998 over the first six months of 1997.
Occupancy expense and equipment expense, combined, decreased $65,000, or
3.2%, and $29,000, or .7%, during the second quarter and first six months
of 1998 compared to the second quarter and first six months of 1997,
respectively. Other operating expenses increased $273,000, or 9.2%, in the
second quarter of 1998 compared to the second quarter of 1997 and $512,000, or
9.2%, during the first six months of 1998 compared to the first six months
of 1997. Other operating expenses have increased at a higher percentage than
the Corporation's other categories of operating expenses in 1998 due to
increased expenses incurred in conjunction with the Corporation's computer
software conversion and higher advertising expenses incurred in conjunction
with the consumer loan promotions.
INCOME TAX EXPENSE
The Corporation's effective federal income tax rate was 32.9% and 32.7%,
respectively, during the three and six months ended June 30, 1998, compared
to 32.5% and 32.7%, respectively, during these same periods in 1997. 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 $41 million, or 2.3%, from December 31, 1997 and
increased $41.3 million, or 2.3%, from June 30, 1997 to $1.806 billion as
of June 30, 1998. Total deposits increased $29.9 million, or 2.0%, from
December 31, 1997 and increased $17.5 million, or 1.2%, from June 30, 1997
to $1.506 billion as of June 30, 1998.
LOANS
The Corporation's subsidiary banks are generally located in rural
communities, where the demand for commercial loans that meet the
Corporation's credit standards historically has not been high, resulting in
the commercial loan portfolio representing the smallest segment of the
Corporation's total loan portfolio. 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
17
<PAGE>
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, 1998 were $888 million, as compared to $814.4
million as of June 30, 1997 and $845.6 million as of December 31, 1997.
The increase in total loans from June 30, 1997 and December 31, 1997 to
June 30, 1998 of $73.6 million, or 9%, and $42.4 million, or 5%,
respectively, was primarily attributable to increases in commercial and
consumer loans.
Commercial loans increased $21 million, or 18.5%, from June 30, 1997, and
$24.2 million, or 21.9%, from December 31, 1997 to $134.8 million as of
June 30, 1998. The growth in commercial loans was achieved through an
increased sales effort by the Corporation to increase commercial loans as a
percentage of total loans. Commercial loans represented 15.2%, 13.1% and
14.0% of the Corporation's loan portfolio as of June 30, 1998, December 31,
1997 and June 30, 1997, respectively.
Real estate construction and mortgage loans increased $14.8 million, or
2.7%, from June 30, 1997, and decreased $4.9 million, or .9%, from December
31, 1997 to $563.2 million as of June 30, 1998. The decrease in these loans
from December 31, 1997 was the result of an increase in the refinancing of
real estate mortgages and consumers converting balloon mortgage loans to
long-term fixed rate loans as a result of lower mortgage interest rates.
The Corporation keeps balloon mortgage loans in its own portfolio and
generally sells in the secondary market the long-term fixed rate
residential mortgage loans it originates. The Corporation sold $52 million of
fixed rate residential mortgage loans, with terms of fifteen years or greater,
in the secondary mortgage market in the first six months of 1998, compared to
$11 million of similar type loans sold during the first six months of 1997.
Real estate construction and mortgage loans represented 63.4%, 67.2% and
67.3% of the Corporation's loan portfolio as of June 30, 1998, December 31,
1997 and June 30, 1997, respectively.
Consumer loans increased $37.8 million, or 24.9%, from June 30, 1997, and
$23.1 million, or 13.8%, from December 31, 1997 to $190 million as of June
30, 1998. The increases from December 31, 1997 and June 30, 1997 were the
result of several consumer loan promotions that offered lower interest
rates on certain types of consumer loans during the twelve month period
ended June 30, 1998. These various consumer loan promotions offered loans
with annual percentage rates ranging from 7.40% to 7.99% and maximum terms
varying from 48 to 60 months. The Corporation has utilized special
promotions to increase consumer loans during the past eight years. Consumer
loans represented 21.4%, 19.7% and 18.7% of total loans as of June 30,
1998, December 31, 1997 and June 30, 1997, respectively.
The Corporation's total loan to deposit ratio as of June 30, 1998, December
31, 1997 and June 30, 1997 was 59.0%, 57.3% and 54.7%, respectively.
18
<PAGE>
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, 1998, the Corporation experienced net loan charge-
offs of $32,000 and $62,000, respectively. The Corporation had net loan
charge-offs of $3,000 and $74,000, respectively, during the comparable
periods in 1997.
Nonperforming loans consist of loans that are past due for principal or
interest payments by 90 days or more and still accruing interest, loans for
which the accrual of interest has been discontinued and other loans that
have been renegotiated to less than market terms due to a serious weakening
of the borrower's financial condition. Nonperforming loans were
$3.2 million as of June 30, 1998, $3.0 million as of December 31, 1997 and
$2.6 million as of June 30, 1997, and represented .36%, .36% and .32% of
total loans as of those dates, respectively.
The allowance for possible loan losses at June 30, 1998 was $17,776,000 and
represented 2.00% of total loans, compared to $17,359,000, or 2.05% of
total loans at December 31, 1997 and $17,081,000, or 2.07% of total loans
at June 30, 1997.
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 June 30, 1998, the Corporation's investment securities portfolio had
an average life of less than two years. In addition, at June 30, 1998, the
Corporation held only $2.4 million in mortgage-backed securities, which
represented less than one percent of the investment securities portfolio,
and had no derivative financial instruments.
CAPITAL RESOURCES
As of June 30, 1998, shareholders' equity was $231.6 million, compared to
$223.9 million as of December 31, 1997 and $213.9 million as of June 30,
1997, resulting in an increase of $7.7 million, or 3.4%, from December 31,
1997 and $17.8 million, or 8.3%, from June 30, 1997. Shareholders' equity
as a percentage of total assets was 12.8% as of June 30, 1998, 12.7% as of
December 31, 1997 and 12.1% as of June 30, 1997. Total equity included an
after-tax unrealized net gain of $1.8 million as of June 30, 1998, $1.4
million as of December 31, 1997 and an after-tax unrealized net loss of
$596,000 as of June 30, 1997, on investment securities available for sale
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
19
<PAGE>
A statement of changes in shareholders' equity covering the six-month
periods ended June 30, 1998 and June 30, 1997 follows (in thousands of
dollars):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Total shareholders' equity as of January 1, $223,925 $207,269
Net income 11,958 11,150
Dividends (5,177) (4,296)
Shares issued upon exercise of employee stock options 247 163
Shares issued under director stock purchase plan 264 265
Repurchases of common stock (272)
Change in unrealized gains and losses on securities
available for sale 406 (414)
-------- --------
Total shareholders' equity as of end of period $231,623 $213,865
======== ========
</TABLE>
The following table represents the Corporation's regulatory capital ratios
as of June 30, 1998:
<TABLE>
<CAPTION>
TIER 1 TOTAL
RISK-BASED RISK-BASED
LEVERAGE CAPITAL CAPITAL
-------- ---------- ----------
<S> <C> <C> <C>
Chemical Financial Corporation - actual ratio 12.6% 28.2% 29.4%
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, 1998 are high due to the Corporation holding
$566 million in investment securities and other assets that are assigned a
0% risk rating, $290 million in assets that are assigned a 20% risk rating
and $462 million in residential real estate mortgages and other assets that
are assigned a 50% risk rating. These three risk ratings (0%, 20% and 50%)
represent 71% of the Corporation's total risk-based assets (including off-
balance sheet items) as of June 30, 1998.
20
<PAGE>
OTHER
The Corporation paid a 5% stock dividend on December 30, 1997. 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.
YEAR 2000 COMPLIANCE
The Corporation has completed an analysis of its hardware and software
systems to determine whether those systems will properly recognize and
account for the year 2000. As described in greater detail in the
Corporation's 1997 Annual Report to Shareholders, the Corporation has now
completed the conversion of its core operating system to a new system that
has been certified by the vendor to be year 2000 compliant. The Corporation
also purchased a new mainframe computer in 1997, which was capitalized.
Management currently anticipates that the remaining costs of analysis,
conversion, hardware and software purchases, associated reprogramming and
other remedial actions will not exceed $750,000 for the remaining
eighteen-month period ending December 31, 1999, and that a majority of these
costs will relate to hardware purchases and will be capitalized. Management
believes that, as of June 30, 1998 (i) the conversion of the core operating
system software had been completed, but that additional testing will be
required; (ii) the core operating system represents approximately 85% of the
Corporation's "mission critical" systems; and (iii) all "mission critical"
systems and software are scheduled to be renovated by December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The information concerning quantitative and qualitative disclosures about
market risk contained under the caption "Liquidity and Interest
Sensitivity" on pages 37 through 41 (inclusive) of the Corporation's Annual
Report to Shareholders for the year ended December 31, 1997 is here
incorporated by reference. Such Annual Report was previously filed as
Exhibit 13 to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997.
The Corporation does not believe that there has been a material change in
the nature or categories of the Corporation's primary market risk
exposures, or the particular markets that present the primary risk of loss
to the Corporation. As of the date of this report, the Corporation does
not know of or expect there to be any material change in the general nature
of its primary market risk exposure in the near term. The methods by which
21
<PAGE>
the Corporation manages its primary market risk exposures, as described in
the sections of its Annual Report to Shareholders incorporated by reference
in response to this item, have not changed materially during the current
year. As of the date of this report, the Corporation does not expect to
make material changes in those methods in the near term. The Corporation
may change those methods in the future to adapt to changes in circumstances
or to implement new techniques.
The Corporation's market risk exposure is mainly comprised of its
vulnerability to interest rate risk. Prevailing interest rates and
interest rate relationships are primarily determined by market factors
which are beyond the Corporation's control. All information provided in
response to this item consists of forward-looking statements. Reference is
made to the section captioned "Forward-Looking Statements" in Item 2 of
this report for a discussion of the limitations on the Corporation's
responsibility for such statements. In this discussion, "near term" means
a period of one year following the date of the most recent statement of
financial position contained in this report.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 20, 1998, the Corporation's shareholders approved an amendment to
the Corporation's Restated Articles of Incorporation increasing the number
of authorized shares of common stock, $10.00 par value per share ("Common
Stock"), from 15 million to 18 million shares.
All of the additional shares resulting from the increase in the
Corporation's authorized Common Stock are of the same class, with the same
dividend, voting and liquidation rights, as the shares of Common Stock
previously outstanding.
The newly authorized shares are unreserved and available for issuance. No
further shareholder authorization is required prior to the issuance of such
shares by the Corporation. Shareholders have no preemptive rights to
acquire shares issued by the Corporation under its Restated Articles of
Incorporation, and shareholders did not acquire any such rights with
respect to such additional shares under the amendment to the Corporation's
Restated Articles of Incorporation. Under some circumstances, the issuance
of additional shares of Common Stock could dilute the voting rights, equity
and earnings per share of existing shareholders.
On April 20, 1998, the Corporation's shareholders also approved an
amendment to the Corporation's Restated Articles of Incorporation reducing
the par value of the Common Stock from $10.00 per share to $1.00 per share.
The concept of par value no longer has any legal significance under the
Michigan Business Corporation Act, as amended. The purpose of the amendment
was to enhance the comparability of the financial and other information
reported by the Corporation and its industry peers.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation's annual meeting of shareholders was held April 20, 1998.
At that meeting, in addition to the election of directors and procedural
matters, the shareholders considered and voted upon proposals to amend the
Corporation's Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock from 15 million to 18 million shares and
to reduce the par value of the Common Stock from $10.00 per share to $1.00
per share. All directors of the Corporation were standing for election at
the meeting. The directors were elected and the proposals were 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 8,971,552 43,697 0
Michael L. Dow 8,977,704 37,545 0
Terence F. Moore 8,978,629 36,620 0
Aloysius J. Oliver 8,979,735 35,514 0
Alan W. Ott 8,977,654 37,595 0
Frank P. Popoff 8,975,988 39,261 0
Lawrence A. Reed 8,965,506 49,743 0
William S. Stavropoulos 8,962,794 52,455 0
</TABLE>
<TABLE>
<CAPTION>
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES
- -------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Proposal to amend the Corporation's
Restated Articles of Incorporation to
increase the number of authorized
shares of Common Stock from 15
million to 18 million shares: 8,835,609 103,292 76,348 0
Proposal to amend the Corporation's
Restated Articles of Incorporation to
reduce the par value of the
Common Stock from $10.00 per
share to $1.00 per share: 8,779,424 137,574 98,251 0
</TABLE>
24
<PAGE>
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.
3.2 BYLAWS. Previously filed as Exhibit 4(b) to the
Registrant's Form S-8 Registration Statement No.
33-47356 filed with the Commission on April 28,
1992. Here incorporated by reference.
4.1 RESTATED ARTICLES OF INCORPORATION, as amended. See
Exhibit 3.1 above.
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.
25
<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 12, 1998 By /S/ALOYSIUS J. OLIVER
Aloysius J. Oliver
Chief Executive Officer and President
(Principal Executive Officer)
Date: August 12, 1998 By /S/LORI A. GWIZDALA
Lori A. Gwizdala
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
26
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
3.1 RESTATED ARTICLES OF INCORPORATION.
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.
4.1 RESTATED ARTICLES OF INCORPORATION, as amended. See Exhibit
3.1 above.
27 FINANCIAL DATA SCHEDULE.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
CHEMICAL FINANCIAL CORPORATION
(AS AMENDED THROUGH APRIL 20, 1998)
1. These Restated Articles of Incorporation are executed pursuant
to the provisions of Sections 641-657, Act 284, Public Acts of 1972.
2. The present name of the Corporation is Chemical Financial
Corporation; and the Corporation has had no other former name.
3. The date of filing the original Articles of Incorporation was
August 27, 1973.
4. The following Restated Articles of Incorporation supersede the
original Articles of Incorporation as amended, and shall be the Articles
of Incorporation of the Corporation:
ARTICLE I
The name of the Corporation is CHEMICAL FINANCIAL CORPORATION
ARTICLE II
The purpose or purposes for which the Corporation is organized is
to engage in any activity within the purposes for which corporations may be
organized under the Business Corporation Act of Michigan.
ARTICLE III
The total authorized capital stock is 18,000,000 common shares,
par value $1.00 per share.
ARTICLE IV
The address and mailing address of the current registered office
are 333 East Main Street, Midland, Michigan 48640. The name of the current
registered agent is Aloysius J. Oliver.
<PAGE>
ARTICLE V
All of the powers of this Corporation, insofar as the same may be
lawfully vested by these Articles of Incorporation, are hereby vested in
and conferred upon the Board of Directors of this Corporation. In
furtherance and not in limitation thereof, the Board of Directors is
expressly authorized:
(a) To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in
which it was created.
(b) To designate one or more committees, each committee to
consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
ARTICLE VI
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE VII
Any action required or permitted under the Michigan Business
Corporation Act to be taken at an annual or special meeting of shareholders
may be taken without a meeting, without prior notice and without a vote, if
consent in writing setting forth the action so taken is signed by the
holders of outstanding stock having not less than the minimum number of
votes necessary to authorize or take the action at a meeting at which all
shares entitled to vote were present and voted.
ARTICLE VIII
(a) A director of this Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for a
breach of a director's fiduciary duty, except for liability;
(i) for a breach of the director's duty of loyalty to the
Corporation or its shareholders; (ii) for acts or omissions
not in god faith or that involve intentional misconduct or a
knowing violation of law; (iii) a violation of Section
551(1) of the Michigan Business Corporation Act; or (iv) for
a transaction from which the director derived an improper
personal benefit. No Amendment to or repeal of this Article
VIII (a) shall apply to, or have any effect on, the
liability or alleged liability of any director of the
-2-
<PAGE>
Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
(b) The Corporation shall provide indemnification to persons who
serve or have served as directors, officers, employees or
agents of the Corporation, and to persons who serve or have
served at the request of the Corporation as directors,
officers, employees, partners or agents of another foreign
or domestic corporation, partnership, joint venture, trust,
or other enterprise, whether for profit or not, to the
fullest extent permitted by the Michigan Business
Corporation Act, as the same now exists or may hereafter be
amended.
-3-
<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 90,963
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 102,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 462,102
<INVESTMENTS-CARRYING> 235,526
<INVESTMENTS-MARKET> 238,085
<LOANS> 887,988
<ALLOWANCE> 17,776
<TOTAL-ASSETS> 1,806,132
<DEPOSITS> 1,505,716
<SHORT-TERM> 43,796
<LIABILITIES-OTHER> 15,997
<LONG-TERM> 9,000
<COMMON> 10,789
0
0
<OTHER-SE> 220,834
<TOTAL-LIABILITIES-AND-EQUITY> 1,806,132
<INTEREST-LOAN> 36,479
<INTEREST-INVEST> 21,759
<INTEREST-OTHER> 2,046
<INTEREST-TOTAL> 60,284
<INTEREST-DEPOSIT> 23,807
<INTEREST-EXPENSE> 24,795
<INTEREST-INCOME-NET> 35,489
<LOAN-LOSSES> 479
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 24,738
<INCOME-PRETAX> 17,772
<INCOME-PRE-EXTRAORDINARY> 17,772
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,958
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 4.36
<LOANS-NON> 1,737
<LOANS-PAST> 1,389
<LOANS-TROUBLED> 51
<LOANS-PROBLEM> 3,177
<ALLOWANCE-OPEN> 17,359
<CHARGE-OFFS> 247
<RECOVERIES> 185
<ALLOWANCE-CLOSE> 17,776
<ALLOWANCE-DOMESTIC> 17,776
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
