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David T. Provost, CEO
Dennis Klaeser, CFO
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MIDLAND, MI, July 23, 2014 -- Chemical Financial Corporation (NASDAQ:CHFC) today announced 2014 second quarter net income of $16.2 million, or $0.54 per diluted share, compared to 2013 second quarter net income of $14.2 million, or $0.51 per diluted share, and 2014 first quarter net income of $13.8 million, or $0.46 per diluted share. For the six months ended June 30, 2014, net income was $30.0 million, or $1.00 per diluted share, compared to net income for the six months ended June 30, 2013 of $27.4 million, or $0.99 per diluted share.

As previously announced, on June 24, 2014, the Corporation completed an underwritten public offering of 2,500,000 shares of its common stock, and on June 30, 2014 completed the sale of an additional 375,000 shares of its common stock pursuant to the underwriters' exercise of the over-allotment option, at a price of $28.00 per share to the public. After the underwriting discount and other offering related expenses, the Corporation netted proceeds of approximately $76 million from the offering. David B. Ramaker, Chairman, Chief Executive Officer and President of Chemical Financial Corporation noted that "the Company took advantage of favorable market conditions to complete the equity raise, the proceeds from which we plan to rapidly deploy into organic and acquisitive growth opportunities."

Commenting on the quarter, Ramaker said “a strengthening Michigan economy and market share gains fueled continued growth for Chemical Financial Corporation in the second quarter of 2014, driving another solid quarter of earnings. Robust, multi-sector organic loan growth, led by gains in consumer and home equity lending, was reflected in total loan growth of 5.4% year-to-date and 13.0% over the past year. The resultant 6.3% increase in net interest income over the prior year’s second quarter, coupled with a lower loan loss provision reflective of improved credit quality, and continued expense controls, led to an over 14% increase in net income over the prior year's second quarter,” noted Ramaker.

“During the second quarter of 2014, shareholders of Northwestern Bancorp, Inc. ("Northwestern"), the holding company for Northwestern Bank, formally approved the Agreement and Plan of Merger pursuant to which Chemical will acquire all of the outstanding shares of Northwestern's common stock. We look forward to consummating, upon receipt of regulatory approval anticipated in the third quarter of 2014, our strategic partnership with Northwestern and its 25 locations across 11 northwestern Michigan counties, which will provide a compelling choice for the state's residents and businesses,” added Ramaker.

Net income of $16.2 million in the second quarter of 2014 was $2.0 million, or 14.3%, higher than the second quarter of 2013, with the increase primarily attributable to a combination of higher net interest income and a lower provision for loan losses. Net income in the second quarter of 2014 was $2.4 million, or 17.5%, higher than the first quarter of 2014, with the increase primarily attributable to higher net interest income and noninterest income.

The Corporation's return on average assets was 1.04% during the second quarter of 2014, compared to 0.97% in the second quarter of 2013 and 0.90% in the first quarter of 2014. The Corporation's return on average shareholders' equity was 9.1% in the second quarter of 2014, compared to 9.4% in the second quarter of 2013 and 8.0% in the first quarter of 2014. The decrease in return on average shareholders' equity in the second quarter of 2014, compared to the second quarter of 2013, was primarily attributable to an increase in shareholders' equity resulting from the Corporation's September 2013 common equity offering.

Net interest income was $51.5 million in the second quarter of 2014, $3.1 million higher than the second quarter of 2013 and $1.7 million higher than the first quarter of 2014. The increase in net interest income in the second quarter of 2014 over the second quarter of 2013 was largely attributable to the positive impact of loan growth of $563 million, or 13.0%, during the twelve months ended June 30, 2014. The increase in net interest income in the second quarter of 2014 over the first quarter of 2014 was also largely attributable to the positive impact of loan growth, with average loans up $132 million, or 2.8%, in the second quarter of 2014 over the first quarter of 2014.

 

The net interest margin (on a tax-equivalent basis) was 3.59% in the second quarter of 2014, compared to 3.60% in the second quarter of 2013 and 3.53% in the first quarter of 2014. The slight decrease in the net interest margin in the second quarter of 2014, compared to the second quarter of 2013, was primarily attributable to the significant positive impact attributable to growth in loans during the twelve months ended June 30, 2014, that was largely offset by loans repricing downward. The increase in the net interest margin in the second quarter of 2014, compared to the first quarter of 2014, was primarily attributable to growth in loans. The average yield on the loan portfolio was 4.26% in the second quarter of 2014, compared to 4.56% in the second quarter of 2013 and 4.28% in the first quarter of 2014. The average yield of the investment securities portfolio was 2.13% in the second quarter of 2014, compared to 2.08% in the second quarter of 2013 and 2.11% in the first quarter of 2014. Modest changes in the mix of customer deposits and the repricing of matured customer certificates of deposit resulted in the Corporation's average cost of funds declining to 0.27% in the second quarter of 2014 from 0.34% in the second quarter of 2013 and 0.29% in the first quarter of 2014.

 

The provision for loan losses was $1.5 million in the second quarter of 2014, compared to $3.0 million in the second quarter of 2013 and $1.6 million in the first quarter of 2014. The decrease in the provision for loan losses in the second quarter of 2014, compared to the second quarter of 2013, was attributable to the continued improvement in the overall credit quality of the loan portfolio.

 

The Corporation's nonperforming loans, consisting of nonaccrual loans, accruing loans past due 90 days or more as to principal or interest payments and nonperforming troubled debt restructurings, totaled $73.7 million at June 30, 2014, compared to $76.5 million at March 31, 2014 and $79.3 million at June 30, 2013. Nonperforming loans comprised 1.51% of total loans at June 30, 2014, compared to 1.61% at March 31, 2014 and 1.83% at June 30, 2013. The reduction in nonperforming loans during the three and twelve months ended June 30, 2014 was attributable to a combination of improving economic conditions and loan charge-offs.

 

Net loan charge-offs were $2.2 million, or 0.18% of average loans, in the second quarter of 2014, compared to $3.7 million, or 0.34% of average loans, in the second quarter of 2013 and $2.2 million, or 0.19% of average loans, in the first quarter of 2014.

 

At June 30, 2014, the allowance for loan losses of the originated loan portfolio was $77.3 million, or 1.67% of originated loans, compared to $78.0 million, or 1.75% of originated loans, at March 31, 2014 and $81.7 million, or 2.05% of originated loans, at June 30, 2013. The allowance for loan losses of the originated loan portfolio as a percentage of nonperforming loans was 105% at June 30, 2014, compared to 102% at March 31, 2014 and 103% at June 30, 2013.

 

Noninterest income was $15.8 million in the second quarter of 2014, compared to $15.9 million in the second quarter of 2013 and $13.7 million in the first quarter of 2014. Noninterest income in the second quarter of 2014 was only $0.1 million lower than the second quarter of 2013 as modest increases in electronic banking fees and wealth management revenue, as well as a $0.4 million reduction in the Corporation's secondary mortgage market indemnification reserve, offset reduced secondary mortgage market net loan sale gains. The reduction in net loan sale gains was primarily attributable to a decrease in the volume of loans sold. The Corporation had no investment securities gains in the second quarter of 2014, compared to $0.3 million in the same quarter of the prior year. Noninterest income in the second quarter of 2014 was $2.1 million higher than the first quarter of 2014, with the increase primarily attributable to increases in mortgage banking revenue and title insurance revenue of $0.5 million, an increase in service charges and fees on deposit accounts of $0.6 million, an increase in wealth management revenue of $0.3 million and the $0.4 million reduction in the indemnification reserve discussed above.

 

Operating expenses were $42.4 million in the second quarter of 2014, compared to $41.0 million in the second quarter of 2013 and $42.2 million in the first quarter of 2014. Operating expenses included nonrecurring transaction-related costs attributable to the pending acquisition of Northwestern of $0.7 million in the second quarter of 2014 and $0.3 million in the first quarter of 2014. Excluding these nonrecurring costs, operating expenses in the second quarter of 2014 were just $0.7 million, or 1.8%, higher than the second quarter of 2013 and $0.1 million lower than the first quarter of 2014.

The Corporation's efficiency ratio was 60.9% in the second quarter of 2014, 64.5% in the first quarter of 2014 and 63.3% in the second quarter of 2013.

Total assets were $6.23 billion at June 30, 2014, compared to $6.34 billion at March 31, 2014 and $5.81 billion at June 30, 2013. The increase in total assets during the twelve months ended June 30, 2014 was largely attributable to an increase in deposits that was used to partially fund loan growth. The increase was also partially attributable to $130 million of net proceeds received by the Corporation as part of its June 2014 and September 2013 common equity offerings. Interest-bearing balances at the Federal Reserve Bank (FRB) were $1.3 million at June 30, 2014, compared to $260.1 million at March 31, 2014 and $69.4 million at June 30, 2013. Investment securities were $924.1 million at June 30, 2014, compared to $935.9 million at March 31, 2014 and $1.01 billion at June 30, 2013. The decreases in interest-bearing balances at the FRB and investment securities during the twelve months ended June 30, 2014 were attributable to the Corporation utilizing some of the liquidity from its excess funds held at the FRB and maturing investment securities to also fund loan growth. The decrease in interest-bearing balances at the FRB during the second quarter of 2014 was largely attributable to a seasonal decrease in municipal customer deposits and a $100 million reduction in temporary funds from one customer.

Total loans were $4.90 billion at June 30, 2014, up from $4.75 billion at March 31, 2014 and $4.34 billion at June 30, 2013. During the three and twelve months ended June 30, 2014, total loans increased $145.5 million, or 3.1%, and $562.9 million, or 13.0%, respectively. The increases in loans during the three and twelve months ended June 30, 2014 generally occurred across all major loan categories, although most notably in the Corporation's consumer loan portfolio, and were largely attributable to a combination of continued improving economic conditions and increased market share. The increase in loans of $145.5 million during the second quarter of 2014 was primarily attributable to increases in consumer installment and home equity loans of $100.9 million, or 8.4%, commercial real estate loans of $19.2 million, or 1.5%, and real estate construction loans of $16.1 million, or 18.9%.

Total deposits were $5.09 billion at June 30, 2014, compared to $5.23 billion at March 31, 2014 and $4.81 billion at June 30, 2013. The decrease in total deposits during the second quarter of 2014 was largely attributable to a seasonal decrease in municipal customer deposits and a $50 million reduction in temporary interest-bearing deposits from one customer. The Corporation experienced an increase in total deposits of $279 million, or 5.8%, during the twelve months ended June 30, 2014. The increase in deposits during the twelve months ended June 30, 2014 was partially attributable to the Corporation converting approximately $40 million of securities sold under agreements to repurchase with business customers, which are classified as short-term borrowings, into interest-bearing checking deposit accounts. Securities sold under agreements to repurchase, which the Corporation considers to be a stable source of liquidity much like its core deposit base, totaled $293.4 million at June 30, 2014, a decrease of $53.6 million, or 15.4%, during the twelve months ended June 30, 2014.

At June 30, 2014, the Corporation's tangible equity to assets ratio and total risk-based capital ratio were 11.0% and 15.3%, respectively, compared to 9.3% and 13.8%, respectively, at March 31, 2014 and 8.5% and 13.1%, respectively, at June 30, 2013. The increases in the Corporation's capital ratios at June 30, 2014, compared to both March 31, 2014 and June 30, 2013 were largely attributable to the Corporation’s June 2014 and September 2013 public offerings of common stock. At June 30, 2014, the Corporation's book value was $24.22 per share, compared to $23.63 per share at March 31, 2014 and $22.14 per share at June 30, 2013. At June 30, 2014, the Corporation's tangible book value was $20.42 per share, compared to $19.44 per share at March 31, 2014 and $17.53 per share at June 30, 2013.

Chemical Financial Corporation will host a conference call to discuss its second quarter 2014 results on Wednesday, July 23, 2014 at 11:00 a.m. EDT. Anyone interested may access the conference call on a live basis by dialing toll-free at 1-888-389-5997 and entering 5007788 for the conference ID. The call will also be broadcast live over the Internet hosted at Chemical Financial Corporation's website at www.chemicalbankmi.com under the "Investor Info" section. A copy of the slide-show presentation and an audio replay of the call will remain available on Chemical Financial Corporation's website for at least 14 days.

 Source: Chemical Financial Corporation

About Chemical Financial Corporation

Chemical Financial Corporation is the second largest banking company headquartered and operating branch offices in Michigan. The Corporation operates through a single subsidiary bank, Chemical Bank, with 157 banking offices spread over 38 counties across Michigan. At June 30, 2014, the Corporation had total assets of $6.2 billion. Chemical Financial Corporation's common stock trades on The NASDAQ Stock Market under the symbol CHFC and is one of the issues comprising The NASDAQ Global Select Market. More information about the Corporation is available by visiting the investor relations section of its website at www.chemicalbankmi.com.


Forward-Looking Statements:

This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and Chemical Financial Corporation (Corporation). Words and phrases such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "judgment," "look forward," "opinion," "plans," "predicts," "probable," "projects," "should," "strategic," "trend," "will," and variations of such words and phrases or similar expressions are intended to identify such forward-looking statements. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, statements related to future levels of loan charge-offs, future levels of provisions for loan losses, real estate valuation, future levels of nonperforming assets, the rate of asset dispositions, future capital levels, future dividends, future growth and funding sources, future liquidity levels, future profitability levels, future deposit insurance premiums, the effects on earnings of future changes in interest rates, the future level of other revenue sources, future economic trends and conditions, future initiatives to expand the Corporation's market share, expected performance and cash flows from acquired loans, future effects of new or changed accounting standards, future opportunities for acquisitions, opportunities to increase top line revenues, the Corporation's ability to grow its core franchise, future cost savings and the Corporation's ability to maintain adequate liquidity and capital based on the requirements adopted by the Basel Committee on Banking Supervision and U.S. regulators. All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for loan losses; the carrying value of acquired loans, goodwill and mortgage servicing rights; the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment); and management's assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the financial and credit markets and the national and regional economies on the banking industry, generally, and on the Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk 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. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

This report also contains forward-looking statements regarding the Corporation's outlook or expectations with respect to the planned merger with Northwestern Bancorp, Inc. (Northwestern), the expected costs to be incurred in connection with the merger, Northwestern’s future performance and consequences of its integration into the Corporation and the impact of the transaction on the Corporation’s future performance.

Risk factors relating to both the transaction and the integration of Northwestern into the Corporation after closing include, without limitation:

Completion of the transaction is dependent on, among other things, receipt of regulatory approvals, the timing of which cannot be predicted with precision at this point and which may not be received at all.

The impact of the completion of the transaction on the Corporation's financial statements will be affected by the timing of the transaction, including in particular the ability to complete the acquisition in the third quarter of 2014.

The transaction may be more expensive to complete and the anticipated benefits, including anticipated cost savings and strategic gains, may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events.

The integration of Northwestern's business and operations into the Corporation, which will include conversion of Northwestern's operating systems and procedures, may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Northwestern's or the Corporation's existing businesses.

The Corporation's ability to achieve anticipated results from the transaction is dependent on the state of the economic and financial markets going forward. Specifically, the Corporation may incur more credit losses from Northwestern’s loan portfolio than expected and deposit attrition may be greater than expected.

Risk factors also include, but are not limited to, the risk factors described under "Risk Factors" (including the risk factors under the heading "Risk Factors - Risks Related to the Pending Merger with Northwestern") in the Corporation's Prospectus Supplement, dated June 19, 2014, and in Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.