Chemical Financial Reorganizes

April 20, 2007
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MIDLAND — Chemical Financial Corp. is reorganizing in response to a combination of negative factors.

Chairman, President and CEO David B. Ramaker said decreasing net interest income coupled with an increase in the bank's provision for loan losses and operating expenses, has led to an "unacceptable" decline in net income.

First quarter net income was $9 million, or 36 cents per diluted share, compared with net income of $11.9 million, or 47 cents per share, in the first quarter of 2006. At March 31, non-performing assets totaled $44.44 million, up from $35.76 million at Dec. 31, 2006, and up from $27.58 million at March 31, 2006. The $8.68 million increase in non-performing assets was due primarily to increases in commercial real estate loans and residential real estate loans, according to the company.

"In response, we are instituting measures to improve our financial performance while maintaining our investment in longer-term growth initiatives," Ramaker said.

He said the company is reorganizing its retail banking operations and consolidating its support operations, and about 50 positions across the company will be eliminated through a combination of early retirements, attrition and staff reductions.

Chemical Financial will reorganize its retail banking operations from the current 15 community bank divisions into a four-region structure, with each region led by a senior executive who will be responsible for that region's results. At the same time, the bank will centralize six operations departments that perform functions that are spread across the organization. The company's three commercial underwriting departments will be consolidated to one location in the state, and its three mortgage processing departments will be consolidated within another location in the state, Ramaker said.

Chemical Financial Corp. has more than $3 billion in assets and is the third largest bank holding company in Michigan. The company operates 129 Chemical Bank offices throughout Michigan's Lower Peninsula.

Chemical Financial estimates it will incur a one-time, second quarter pre-tax charge to earnings of $1.5 million for early retirement and severance costs. The reorganization is expected to yield the company annual pre-tax compensation expense savings of approximately $2 million.

After Chemical Financial acquired Shoreline Bank in 1999 and Bank West in 2001, it went through a restructuring process and formed three state-chartered regional affiliate banks — Chemical Bank & Trust, Chemical Bank Shoreline and Chemical Bank West.

Last year, the holding company went to one state-chartered institution: Chemical Bank. Underneath that charter, Chemical operated 15 divisions, and each division was headed up by a community bank president and had a community bank board, Ramaker explained. He said in the current reorganization, the company is taking those 15 divisions and consolidating them down to four, but it will maintain the 15 community bank advisory boards.

"What we did in 2006 is that we collapsed the three state charters that we had into one charter, so Chemical Bank West, Chemical Bank Shoreline and Chemical Bank & Trust no longer existed," Ramaker said. "There were a lot of efficiencies gained in doing that." 

Before going to one state charter, for instance, the company was holding about 19 audit meetings between the three banks. After making the change, that number was reduced to five. Ramaker said a lot of administrative things were streamlined in the process. However, as far as delivery to the customer, Chemical Financial continued in 2006 to deliver the product through the 15 divisions that it had under the three regional affiliate programs that it started in 2001, he noted.

The present reorganization will continue to streamline Chemical Financial from an administrative perspective, and it will strategically place senior bankers into its various markets. They, in turn, are going to concentrate primarily on developing business and developing and maintaining relationships with customers, Ramaker remarked.

At the retail level, the organization's short-term objectives are to increase market share by increasing the number of households that hold multiple products with Chemical Bank and to improve customer retention by enhancing service delivery levels, he said.     

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