Chemical Financial Corporation is a financial holding company headquartered in Midland, Michigan, with a focus on a single operating segment: commercial banking. It offers banking products and services such as checking accounts, retirement accounts, financing, and wealth management. The corporation's main market is Michigan, having served 90 communities through 142 banking offices located in 32 counties across Michigan’s lower peninsula, as of December 31, 2010.
The company's main source of revenue is loan interest and fees, amounting to 76% of total revenue in 2010. During 2010, net income was $23.1 million, a 131% increase year over year. This increase was due to a decrease in the provision for loan losses, as well as the acquisition of OAK.
With its activity in loaning, the company has high exposure to credit risk, and relies on accurately predicting how well its customers will repay their loans. The corporation must maintain proactive credit risk management and constantly weigh ongoing economic factors--should they overestimate its customers' ability to repay loans, the bank's overall performance will suffer.
Changes in interest rates inversely affect a bank's net interest margin — the difference between the yield the bank earns on assets and the interest rate it pays for deposits and other sources of funding. Interest rate fluctuations, such as in the Federal Funds Rate (the rate at which financial institutions lend federal funds to other depository institutions) and Prime Rate (rate at which banks lend to their highest-credited consumers) affect bank products such as loans, deposits, securities, and short-term lending. As interest rates rise, banks are forced to pay higher rates on deposits and other interest bearing accounts. Meanwhile consumer demand for mortgages and other loan products diminishes as borrowing becomes more expensive. The combination of these two effects reduces both the volume of loans and the profitability of each loan. Rising interest rates also have the potential to increase a bank's defaults as holders of adjustable rate mortgages find themselves unable to meet their obligations.
Chemical Financial Corporation competes with other banks, as well as credit unions, operating in Michigan. Other prominent banks also headquartered in Michigan include: