Highlights Include:
-------------------
* Second quarter net income of $292,000 and earnings per share of
$0.04 remain positive in spite of previously announced increased
expense
* Economic conditions in Michigan and nationally continue to
create credit and valuation issues impacting earnings
* Pressure on net interest margin easing
* Capital remains strong and all affiliate banks continue to meet
regulatory well-capitalized requirements
ALMA, Mich., July 24, 2008 (PRIME NEWSWIRE) -- Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation (Nasdaq:FBMI), announced earnings per share of $0.04 for the second quarter of 2008 compared to $0.27 in the second quarter of 2007. Net income was $292,000 for the quarter ended June 30, 2008, compared to $1,747,000 for the quarter ended June 30, 2007. Net income and earnings per share remained positive in the second quarter in spite of the previously announced increased provision expense. Returns on average assets and average equity for the second quarter of 2008 were 0.10% and 1.2%, respectively, compared with 0.65% and 7.2%, respectively, in the second quarter of 2007. All per share amounts are fully diluted.
Earnings per share of $0.33 for the first half of 2008 compared to $0.68 in the first half of 2007. Net income was $2,442,000 for the six months ended June 30, 2008, compared to $4,405,000 for the six months ended June 30, 2007. Returns on average assets and average equity for the first half of 2008 were 0.37% and 4.3%, respectively, compared with 0.83% and 9.3%, respectively, in the first half of 2007.
Firstbank's loan loss provision in the second quarter of 2008 was $3,465,000, in line with the amount previously announced in the news release issued June 13, 2008. In the second quarter of 2007, provision expense was $739,000, and averaged $504,000 per quarter for the four quarters of 2007. The increase in provision expense reflects a variety of factors including the ongoing economic stresses impacting the Michigan and national economies, the continued deterioration in real estate values, and Firstbank's practice of immediately reserving for problem loans when they are identified. The bulk of the increased provision was taken at the newest affiliate bank, Firstbank - West Michigan, which was acquired with ICNB Financial Corporation on July 1, 2007. In times of less credit stress and at the time of acquisition, most of the bank's problem credits could, and were able to, perform according to their terms, but under current economic conditions the additional provision for loan losses became appropriate.
Balance sheet comparisons to periods prior to July 1, 2007, are affected by the acquisition of ICNB Financial Corporation and the inclusion in the consolidated totals of its bank, Firstbank - West Michigan, which had assets of $227 million at June 30, 2008. Total assets of Firstbank Corporation at June 30, 2008, were $1.389 billion, an increase of 26.4% over the year-ago period. Total portfolio loans of $1.153 billion were 25.4% above the level at June 30, 2007, with 18.5% of the increase due to the addition of $170 million loans of Firstbank - West Michigan. Total deposits as of June 30, 2008, were $1.014 billion, including $155 million deposits of Firstbank - West Michigan, compared to $826 million at June 30, 2007.
Gain on sale of mortgage loans increased in each quarter of 2007, and more than doubled in the first quarter of 2008 compared to the fourth quarter of 2007. This source of revenue then declined by 51% in the second quarter of 2008 compared to the first quarter of 2008, but was still above the level in the fourth quarter of 2007. Declines in interest rates in the latter part of 2007 and sharper declines in the first months of 2008 helped to expand mortgage activity and refinances, but interest rates have moved back up in the second quarter, slowing activity once again.
Most items of revenue and expense were affected by the inclusion of Firstbank - West Michigan when comparing the second quarter of 2008 to the second quarter of 2007. Service charges on deposit accounts increased 26.4% in the second quarter of 2008 compared to the second quarter of 2007. More importantly, service charges on deposit accounts increased 7.5% in the second quarter of 2008 compared to the first quarter of 2008, as deposit account activity charges and interchange fees related to debit card usage showed good growth. Salaries and employee benefits expense, although well contained in the second quarter of 2008 compared to the first quarter of 2008, was 14.4% above the level in the second quarter of 2007, and total non-interest expense increased 15.3% over the level in the second quarter of 2007, with the increases driven largely by the inclusion of the new bank.
Mr. Sullivan stated, "We are witnessing turmoil in the financial services industry unprecedented in many years, evidenced by the federal government's multi-billion dollar commitments to support various institutions. We continue to be pleased with the relatively good asset quality at our banks, in spite of the elevated charge-offs and provision expense coming from our newest acquisition. The extraordinary stress in the economy and credit markets has caused losses at Firstbank - West Michigan beyond the level we had expected. As we install the Firstbank credit culture in this bank, we have every intention of improving its asset quality in line with levels more customary at our other banks. Our capital strength enables us to ensure that all of our banks, including our newest bank, remain at well capitalized levels as defined by the banking regulators. While it is impossible to know how long this period of economic stress will last, we believe that we have identified the greatest portion of the loan problems at Firstbank - West Michigan. It appears that we may continue to see provision expense in the remainder of 2008 greater than we had originally hoped, but at levels significantly below the amount we recorded in the second quarter of 2008 and more in line with the quarterly average for 2007. We continue to believe in the return to a more positive economic environment in the future, and we continue to invest in the future, as exemplified by the opening in the first quarter of 2008 of our seventh office of Keystone Community Bank in the Kalamazoo market area."
Firstbank's net interest margin, at 3.77% in the second quarter of 2008, declined 2 basis points from 3.79% in the first quarter of 2008, and was 14 basis points below the 3.91% of the second quarter of 2007. Beginning on September 18th of 2007, the markets have been characterized by declines in the prime rate and other short-term rates, which have been driven by the Federal Reserve's efforts to stimulate economic activity and ease stress on liquidity in the credit markets. Reductions in the prime rate have an immediately negative impact on Firstbank's net interest margin, but as the company has worked to reduce deposit and other funding costs as quickly as possible, the downward pressure on the net interest margin has eased. While Firstbank's average earning assets increased 24.1% from the second quarter of 2007 to the second quarter of 2008, net interest income increased a smaller 19.0% due to the squeeze on net interest margin. Both growth measures are significantly affected by the addition of Firstbank - West Michigan.
During the second quarter of 2008, Firstbank Corporation closed the mortgage origination operations of Austin Mortgage Company and eliminated all of its staff positions. Austin Mortgage Company was a small subsidiary acquired as part of ICNB Financial Corporation. The subsidiary focused on origination of mortgages not otherwise acceptable to the bank, and it sold virtually its entire origination production to investors not related to ICNB Financial or Firstbank Corporation. The balance sheet of the entity retains a small portfolio of loans with a value of less than $635,000. Pre-tax costs associated with shutting down the operation in the amount of $106,000 are included in consolidated non-interest expense in the second quarter of 2008.
At June 30, 2008, the ratio of the allowance for loan losses to loans increased to 1.07% from 1.02% at March 31, 2008, and increased from 1.03% at June 30, 2007. The ratio of allowance for loan loss to non-performing loans stood at 69% at June 30, 2008.
Net charge-offs of $2,687,000 in the second quarter of 2008 (over 80% of which occurred at Firstbank - West Michigan) were 0.94% of average loans on an annualized basis, and net charge-offs of $3,430,000 for the first half of 2008 were 0.60% of average loans on an annualized basis. The ratio of non-performing loans (including loans past due over 90 days) to loans was 1.56% at June 30, 2008, compared to 1.27% as of March 31, 2008, and 0.97% at June 30, 2007.
Shareholders' equity decreased 1.4% in the second quarter of 2008, and was 19.4% above the level at June 30, 2007. The ratio of average equity to average assets remained at 8.6% in the second quarter of 2008 - the same as in the first quarter of 2008 and at a level consistent over past years. Firstbank did not repurchase its common stock in the first or second quarters of 2008. All of Firstbank Corporation's affiliate banks continue to meet the regulatory well-capitalized requirements.
Firstbank Corporation, headquartered in Alma, Michigan, is a financial services company using a multi-bank-charter format with assets of $1.4 billion and 53 banking offices serving Michigan's Lower Peninsula. Bank subsidiaries include: Firstbank - Alma; Firstbank (Mt. Pleasant); Firstbank - West Branch; Firstbank - St. Johns; Keystone Community Bank; and Firstbank - West Michigan.
This press release contains certain forward-looking statements that involve risks and uncertainties. When used in this press release the words "anticipate," "believe," "expect," "hopeful," "potential," "should," and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning future business growth, changes in interest rates, and the resolution of problem loans. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
UNAUDITED
Three Months Ended: Six Months Ended:
------------------------- ----------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
2008 2008 2007 2008 2007
------------------------- ----------------
Interest income:
Interest and fees
on loans $19,031 $19,755 $17,042 $38,786 $33,840
Investment securities
Taxable 945 1,039 687 1,984 1,313
Exempt from federal
income tax 349 353 267 702 537
Short term investments 86 91 269 177 580
------------------------- ----------------
Total interest income 20,411 21,238 18,265 41,649 36,270
Interest expense:
Deposits 6,431 7,089 6,589 13,520 13,096
Notes payable and
other borrowing 2,463 2,685 2,001 5,148 3,978
------------------------- ----------------
Total interest expense 8,894 9,774 8,590 18,668 17,074
Net interest income 11,517 11,464 9,675 22,981 19,196
Provision for
loan losses 3,465 816 739 4,281 18
------------------------- ----------------
Net interest income
after provision for
loan losses 8,052 10,648 8,936 18,700 19,178
Noninterest income:
Gain on sale of
mortgage loans 565 1,142 375 1,707 699
Service charges on
deposit accounts 1,256 1,168 994 2,424 1,938
Gain (loss) on
trading account
securities (160) (13) 0 (173) 0
Gain (loss) on sale
of AFS securities (67) 129 0 62 (130)
Mortgage servicing 131 (123) 130 8 275
Other 647 628 896 1,275 1,891
------------------------- ----------------
Total noninterest
income 2,372 2,931 2,395 5,303 4,673
Noninterest expense:
Salaries and
employee benefits 5,523 5,847 4,826 11,370 9,556
Occupancy and
equipment 1,740 1,749 1,326 3,489 2,677
Amortization of
intangibles 281 281 436 562 597
FDIC insurance
premium 103 113 25 216 49
Other 2,697 2,718 2,357 5,415 4,837
------------------------- ----------------
Total noninterest
expense 10,344 10,708 8,970 21,052 17,716
Income before
federal income
taxes 80 2,871 2,361 2,951 6,135
Federal income
taxes (212) 721 614 509 1,730
------------------------- ----------------
Net Income $ 292 $ 2,150 $ 1,747 $ 2,442 $ 4,405
========================= ================
Fully Tax Equi-
valent Net
Interest Income $11,791 $11,751 $ 9,855 23,542 19,553
Per Share Data:
Basic Earnings $ 0.04 $ 0.29 $ 0.27 $ 0.33 $ 0.68
Diluted Earnings $ 0.04 $ 0.29 $ 0.27 $ 0.33 $ 0.68
Dividends Paid $ 0.225 $ 0.225 $ 0.225 $ 0.450 $ 0.450
Performance Ratios:
Return on Average
Assets (a) 0.10% 0.64% 0.65% 0.37% 0.83%
Return on Average
Equity (a) 1.2% 7.5% 7.2% 4.3% 9.3%
Net Interest Margin
(FTE) (a) 3.77% 3.79% 3.91% 3.78% 3.90%
Book Value Per
Share (b) $ 15.78 $ 16.09 $ 15.24 $ 15.78 $ 15.24
Average Equity/
Average Assets 8.6% 8.6% 9.0% 8.6% 8.9%
Net Charge-offs $ 2,687 $ 743 $ 319 $ 3,430 $ 483
Net Charge-offs as
a % of Average
Loans (c)(a) 0.94% 0.26% 0.14% 0.60% 0.11%
(a) Annualized
(b) Period End
(c) Total loans less loans held for sale
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
UNAUDITED
Jun 30 Mar 31 Dec 31 Jun 30
2008 2008 2007 2007
-------------------------------------------------
ASSETS
Cash and cash
equivalents:
Cash and due
from banks $ 40,283 $ 40,057 $ 42,198 $ 31,305
Short term
investments 6,281 12,553 3,331 16,192
-------------------------------------------------
Total cash and
cash equivalents 46,564 52,610 45,529 47,497
Securities available
for sale 96,991 107,866 105,130 73,407
Federal Home Loan
Bank stock 8,666 8,481 8,007 6,061
Loans:
Loans held for sale 191 238 1,725 628
Portfolio loans:
Commercial 214,185 216,458 219,080 198,637
Commercial real
estate 334,903 312,012 311,494 267,474
Residential mortgage 393,293 391,568 387,222 299,456
Real estate
construction 132,896 130,942 126,027 89,173
Consumer 77,559 77,827 78,106 64,840
-------------------------------------------------
Total portfolio
loans 1,152,836 1,128,807 1,121,929 919,580
Less allowance
for loan losses (12,328) (11,550) (11,477) (9,501)
-------------------------------------------------
Net portfolio
loans 1,140,508 1,117,257 1,110,452 910,079
Premises and
equipment, net 27,959 28,027 27,554 20,179
Goodwill 35,553 35,345 34,421 19,819
Other intangibles 4,390 4,670 5,832 2,723
Other assets 28,336 27,993 27,089 19,055
-------------------------------------------------
TOTAL ASSETS $1,389,158 $1,382,487 $1,365,739 $1,099,448
=================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing
accounts $ 148,385 $ 143,246 $ 152,126 $ 128,651
Interest bearing
accounts:
Demand 219,161 224,998 222,371 155,085
Savings 160,862 155,628 147,654 137,263
Time 449,517 454,797 453,864 363,673
Wholesale CDs 35,783 33,018 35,377 41,074
-------------------------------------------------
Total deposits 1,013,708 1,011,687 1,011,392 825,746
Securities sold
under agreements to
repurchase and
overnight borrowings 48,718 49,280 42,791 42,897
FHLB Advances and
notes payable 156,923 147,572 139,035 97,370
Subordinated Debt 36,084 36,084 36,084 20,620
Accrued interest
and other
liabilities 15,605 18,097 17,826 13,894
-------------------------------------------------
Total liabilities 1,271,038 1,262,720 1,247,128 1,000,527
SHAREHOLDERS' EQUITY
Preferred stock; no
par value, 300,000
shares authorized,
none issued
Common stock;
20,000,000 shares
authorized 112,491 111,914 111,436 93,119
Retained earnings 5,790 7,174 6,692 6,026
Accumulated other
comprehensive
income/(loss) (161) 679 483 (224)
-------------------------------------------------
Total shareholders'
equity 118,120 119,767 118,611 98,921
-------------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $1,389,158 $1,382,487 $1,365,739 $1,099,448
=================================================
Common stock shares
issued and
outstanding 7,484,368 7,441,342 7,407,198 6,555,767
Principal Balance
of Loans Serviced
for Others ($mil) $ 517.3 $ 516.8 $ 515.1 $ 471.2
Asset Quality Ratios:
Non-Performing Loans
/ Loans (a) 1.56% 1.27% 1.26% 0.97%
Non-Perf. Loans + OREO
/ Loans (a) + OREO 1.89% 1.51% 1.54% 1.17%
Non-Performing Assets
/ Total Assets 1.58% 1.23% 1.27% 0.98%
Allowance for Loan Loss
as a % of Loans (a) 1.07% 1.02% 1.02% 1.03%
Allowance / Non-Per-
forming Loans 69% 81% 81% 106%
Quarterly Average
Balances:
Total Portfolio
Loans (a) $1,142,047 $1,129,710 $1,118,551 $ 916,775
Total Earning
Assets 1,257,478 1,247,604 1,228,740 1,012,900
Total Sharehol-
ders' Equity 118,846 118,609 117,960 98,398
Total Assets 1,389,391 1,377,329 1,356,106 1,097,337
Diluted Shares
Outstanding 7,451,664 7,417,187 7,378,262 6,545,229
(a) Total Loans less loans held for sale