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Chemical Financial Corp.

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Chemical Financial Corporation (CHFC - Free Report) announced impressive second quarter results in late July, which included an earnings surprise of 16.3%. This regional bank has now outperformed the Zacks Consensus Estimate in 11 of the last 14 quarters with an average beat of 24.9%.

This Zacks #1 Rank (Strong Buy) stock hit its 52-week high on September 14, and has experienced strong estimate revisions over the last 60 days. Moreover, it pays a regular quarterly dividend that yields a sturdy 3.50%.

Solid Q2 Results

On July 23, Chemical Financial reported second quarter 2012 earnings of 50 cents per share, outpacing the Zacks Consensus Estimate of 43 cents by 16.3% and beating last year’s 40 cents by 25.0%. The improvement was led by top line growth and a lower provision for loan losses, partially offset by higher operating expenses.

Net interest income climbed 2.5% year over year to $46.4 million. Non-interest income increased 22.0% to $13.3 million. Moreover, net interest margin expanded 2 basis points to 3.80%. However, non-interest expenses escalated 6.3% to $35.5 million over the same period on the back of higher compensation expenses.

Credit quality continued to improve at Chemical Financial. The provision for loan losses was $4.0 million, down 42.9% from the year-ago quarter, with net loan charge-offs also exhibiting a declining trend. Net loan charge-offs amounted to $5.1 million, down 26.1% from $6.9 million in the prior-year quarter.

Surge in Earnings Momentum

Over the last 60 days, the Zacks Consensus Estimate for 2012 increased 9.4% to $1.87 per share. For 2013, the Zacks Consensus Estimate improved 4.3% to $1.94 over the same time frame.

The estimates reflect year over year improvements of about 18.8% for 2012 and 4.2% for 2013.

Dividend Payment

Chemical Financial is one of the few banks that maintained regular dividend payments throughout the financial crisis. In August, the company announced a dividend hike of 5.0%. Currently, the company pays a quarterly dividend of 21 cents per share, affirming a yield of 3.50%.

Reasonable Valuation

Shares of Chemical Financial currently trade at 12.9x its 12-month forward earnings, a 7% premium to the peer group average of 12.1x. Its price to book ratio of 1.1 is at an 8% discount to the industry median of 1.2. The company has a trailing 12-month ROE of 8.5% compared with the peer group average of 9.6%.

Chart Shows Strength

The stock has remained mostly above the S&P 500 over the past year.

Chemical Financial is one of the few banks with rising estimates, a robust dividend yield and reasonable valuation. With a steady dividend payment and improving credit quality, it offers attractive upside potential.

Headquartered in Midland, Michigan, Chemical Financial is a diversified financial services company, which operates through a single subsidiary bank, Chemical Bank. The company has 142 banking offices spread over 32 counties in the lower peninsula of Michigan. With a market capitalization of $660.2 million, Chemical Financial competes with Citizens Republic Bancorp Inc. (CRBC) and 1st Source Corporation (SRCE), among others.

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