Firstbank Earnings
7-24-2008 NASDAQ SYMBOL: FBMI
Contact: Samuel G. Stone
Executive Vice President and
Chief Financial Officer
(989) 466-7325
FIRSTBANK CORPORATION
ANNOUNCES
SECOND QUARTER AND YEAR-TO-DATE 2008 RESULTS
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here to View 2nd Quarter Income Statement
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here to View 2nd Quarter Balance Sheet
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here to View 2nd Quarter - News Release as PDF
| Highlights Include: |
| Second
quarter net income of $292,000 and earnings per share of $0.04
remain positive in spite of previously announced increased
provision 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, Michigan (FBMI) ----
Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation,
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.
