| FOR IMMEDIATE RELEASE Date Submitted: January 31, 2008 NASDAQ Symbol: FBMI | NEWS RELEASE Contact: Samuel G. Stone Executive Vice President and Chief Financial Officer (989) 466-7325 |
FIRSTBANK CORPORATION ANNOUNCES
FOURTH QUARTER AND YEAR-TO-DATE 2007 RESULTS
Highlights Include:
| • | Fourth quarter 2007 net income of $1,566,000, and net income of $8,386,000 for full year 2007 |
| • | Earnings per share (diluted) of $0.21 for the fourth quarter and $1.21 for full-year 2007, compared to $0.33 and $1.55 respectively for 2006 |
| • | Solid loan and core deposit growth both including and excluding the effect of Firstbank - West Michigan |
| • | Economic conditions in Michigan and nationally continue to create credit and valuation issues impacting earnings |
| • | Net interest margin stable, gain on sale of mortgage loans increases |
Alma, Michigan (FBMI) —Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation, announced earnings per share of $0.21 for the fourth quarter of 2007 compared to $0.33 in the fourth quarter of 2006. Net income was $1,566,000 for the quarter ended December 31, 2007, compared to $2,168,000 for the quarter ended December 31, 2006. Returns on average assets and average equity for the fourth quarter of 2007 were 0.45% and 5.2%, respectively, compared with 0.79% and 8.9%, respectively, in the fourth quarter of 2006. All per share amounts are fully diluted and have been adjusted to reflect the 5% stock dividend paid in December of 2006.
Earnings per share of $1.21 for full year 2007 decreased 21.9% compared to 2006. Net income was $8,386,000 for 2007, down 17.9% from $10,208,000 for 2006. Returns on average assets and average equity for 2007 were 0.69% and 7.8%, respectively, compared with 0.95% and 10.7%, respectively, in 2006. The net interest margin in 2007, at 3.90%, was 23 basis points below the 4.13% level of 2006. Provision expense for loan losses in 2007 was $2,014,000, increasing considerably from $767,000 in 2006. The dual factors of margin pressure and stress in the credit markets were the major factors contributing to the declines in earnings and profitability measures for Firstbank. Both factors are related to the economic conditions in Michigan and nationally.
Balance sheet comparisons to prior-year periods are affected by the acquisition of ICNB Financial Corporation on July 1, 2007, and the inclusion in the consolidated totals of its bank, Firstbank – West Michigan, which had assets of $238.3 million at December 31, 2007. Total assets at December 31, 2007, were $1.366 billion, an increase of 24.8% over the prior year end. Total portfolio loans of $1.122 billion were 23.4% above the level at December 31, 2006, with 19.2% of the increase due to the addition of $175 million loans of Firstbank – West Michigan. Total deposits as of December 31, 2007, were $1.011 billion, including $166 million deposits of Firstbank – West Michigan, compared to $835 million at December 31, 2006.
Firstbank’s net interest margin, at 3.89% in the fourth quarter of 2007, maintained the same level as in the third quarter of 2007 and was remarkably stable for all four quarters of 2007. The net interest margin for full year 2007 was 3.90% compared to 4.13% in 2006. Most of 2007, prior to the prime rate decline on September 18th, was characterized by a flat yield curve. The latter portion of the year was affected by the declines in the prime rate, which were driven by the Federal Reserve’s efforts to stimulate economic activity and ease stress on credit quality. A flat yield curve creates a difficult environment for achieving strong net interest spreads. Reductions in the prime rate have an immediate negative impact on Firstbank’s net interest margin, but the company works to reduce deposit and other funding costs as quickly as possible. These two factors combined to hold Firstbank’s increase in net interest income to only 6.4% while average earning assets were increasing 13.3%. The addition of Firstbank – West Michigan contributed to the growth in earning assets.
Also affecting earnings in the fourth quarter and full year of 2007 was a decision by Firstbank to change the accounting classification for its ownership of bank stocks from “available for sale” to “trading”. Firstbank, from time to time, invests limited amounts in certain bank stocks that may prove to be of strategic value in the future. Due to the sharp declines in Michigan bank stock valuations that occurred in 2007, Firstbank determined that it would consider retaining or selling such positions on a regular basis and that trading account status therefore becomes more appropriate for accounting purposes. The change in classification resulted in recording a loss of $628,000 on trading account securities. At December 31, 2007, the total bank stock investment was carried at market value of $675,000.
Mr. Sullivan stated, “ The dual factors of margin pressure and stress in the credit markets made this is an extremely challenging time for all banks and financial services providers. While our earnings do not compare favorably with our past record of recent years, we are proud that our adherence to the principles of sound asset quality, conservative lending practices, and appropriately conservative application of accounting principles, including timely recognition of any problem assets, puts us in a strong leadership position within the state of Michigan. While our provision expense increased in 2007, it amounted to 0.20% of average portfolio loans, a quite favorable level compared to many of the banks in our state. By keeping ourselves relatively strong, we believe that the current environment may present us with a number of opportunities to add value for our shareholders in the years ahead.
“We also remain diligent regarding cost containment, and continually evaluate our markets and the opportunities within our company to improve efficiency. As a result, we have recently decided to combine two of our banks, Firstbank – Lakeview and Firstbank (Mt. Pleasant). Those two banks already share a number of personnel and services, and the advantages of the separate charters in this particular situation have become less significant. However, we continue to see value in the multi-bank-charter format, because in most situations it facilitates our ability to compete in our local markets and also to grow by acquisition. We know that this format works well in most of the communities we serve, and we have a good support structure to operate it efficiently. The multi-bank-charter format differentiates us from other companies, and we are re-affirming our commitment to it.
“I continue to be extremely grateful for the quality of our people and the efforts they are making during these difficult times to serve our customers and shareholders well.”
Most items of revenue and expense were affected by the inclusion for the second half of the year of Firstbank – West Michigan. Gain on sale of mortgage loans increased in each quarter of 2007, and for all of 2007 was 32.5% over the level in 2006. The declines in interest rates in the latter part of the year have helped to expand mortgage activity. Service charges on deposit accounts increased 16.9% in 2007. In spite of these increases total non-interest income declined 4.1% due in part to the loss booked to trading account securities mentioned above and a loss on sale of securities in the first quarter of 2007, which was incurred to help improve net interest margin for the rest of the year. Salary and employee benefits expense was 7.3% lower in the fourth quarter of 2007 than in the third quarter, as Firstbank worked to contain expense and reduced or eliminated certain bonus and health and welfare benefits expenses that had been accrued earlier in the year. For the full year, non-interest expense increased 12.2% over the level in 2006, with the increase driven largely by the inclusion of the new bank.
In the second quarter of 2007, Firstbank designated as non-accrual a $4.7 million loan on an apartment complex in southeast Michigan and established a $500,000 specific reserve related to this credit, as disclosed previously. During the fourth quarter, this situation progressed to the point it appears likely that Firstbank will take title to collateral in the near future. Therefore, Firstbank made the decision to write the loan down to the expected valuation that can be supported by the collateral in current market conditions. This required increased provision expense of $1.2 million in the fourth quarter and increased net charge-offs in the fourth quarter by $1.8 million.
Provision expense in the fourth quarter of $1,773,000 increased from $223,000 in the third quarter and included the $1.2 million related to the one credit discussed above. At December 31, 2007, the ratio of the allowance for loan losses to loans was 1.02%, compared to 1.06% at September 30, 2007, and compared to 1.10% at December 31, 2006. The ratio of allowance for loan loss to non-performing loans decreased from 106% at September 30, 2007, to 81% at December 31, 2007, but the impact of moving the credit discussed above from being classified as a non-performing loan to being classified as other real estate, would cause this ratio to rise above 100%. At this time, no further charge-off is anticipated upon either the change in classification, or the liquidation of the collateral, on this particular loan.
Net charge-offs of $2,116,000 in the fourth quarter of 2007 included the $1.8 million related to the specific credit, and were 0.76% of average loans on an annualized basis. For full year 2007, net charge-offs of $2,848,000 also included the $1.8 million related to this credit and were 0.28% of average loans, in line with the 0.26% of average loans for 2006. The ratio of non-performing loans (including loans past due over 90 days) to loans rose to 1.26% at December 31, 2007, compared to 1.00% as of September 30, 2007. Most of the increase was related to delinquencies in residential and commercial loans, with a resulting increase in non-accrual loans. The current non-performing loan classification of the specific credit, which is expected to become classified as other real estate, contributes 0.26% of the total non-performing loan ratio of 1.26% at December 31, 2007.
Shareholders’ equity increased 0.7% in the fourth quarter of 2007, and was 23.5% above the level at December 31, 2006. The ratio of average equity to average assets stood at 8.7% in the fourth quarter of 2007 – a level consistent over past years, indicating that strong equity capital has been maintained as the company has grown, which is especially important as many Michigan banks are experiencing more asset quality problems than Firstbank. Firstbank did not repurchase its common stock in the fourth quarter of 2007, and for the full year repurchased 103,100 shares, all in the third quarter of 2007.
Firstbank Corporation, headquartered in Alma, Michigan, is a financial services company using a multi-bank-charter format with assets of $1.4 billion and 52 banking offices serving Michigan’s Lower Peninsula. Bank subsidiaries include: Firstbank – Alma; Firstbank (Mt. Pleasant); Firstbank – West Branch; Firstbank – Lakeview; 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 BALANCE SHEETS
(Dollars in thousands)
UNAUDITED
| Dec 31 2007 | Sep 30 2007 | Dec 31 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||
| Cash and cash equivalents: | |||||||||||
| Cash and due from banks | $ | 42,198 | $ | 33,713 | $ | 32,084 | |||||
| Short term investments | 3,331 | 20,695 | 24,853 | ||||||||
| Total cash and cash equivalents | 45,529 | 54,408 | 56,937 | ||||||||
| Securities available for sale | 105,130 | 97,832 | 69,125 | ||||||||
| Federal Home Loan Bank stock | 8,007 | 7,684 | 5,924 | ||||||||
| Loans: | |||||||||||
| Loans held for sale | 1,725 | 311 | 1,120 | ||||||||
| Portfolio loans: | |||||||||||
| Commercial | 219,080 | 222,249 | 194,810 | ||||||||
| Commercial real estate | 311,494 | 329,638 | 286,249 | ||||||||
| Residential mortgage | 387,222 | 391,845 | 284,137 | ||||||||
| Real estate construction | 126,027 | 93,278 | 81,218 | ||||||||
| Consumer | 78,106 | 79,506 | 63,106 | ||||||||
| Total portfolio loans | 1,121,929 | 1,116,516 | 909,520 | ||||||||
| Less allowance for loan losses | (11,477 | ) | (11,821 | ) | (9,966 | ) | |||||
| Net portfolio loans | 1,110,452 | 1,104,695 | 899,554 | ||||||||
| Premises and equipment, net | 27,554 | 27,412 | 20,232 | ||||||||
| Goodwill | 35,181 | 35,193 | 20,094 | ||||||||
| Other intangibles | 5,734 | 5,988 | 3,045 | ||||||||
| Other assets | 27,088 | 28,471 | 19,061 | ||||||||
| TOTAL ASSETS | $ | 1,366,400 | $ | 1,361,994 | $ | 1,095,092 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| LIABILITIES | |||||||||||
| Deposits: | |||||||||||
| Noninterest bearing accounts | $ | 152,126 | $ | 148,682 | $ | 131,942 | |||||
| Interest bearing accounts: | |||||||||||
| Demand | 222,371 | 217,678 | 161,228 | ||||||||
| Savings | 147,654 | 153,214 | 127,301 | ||||||||
| Time | 453,864 | 447,690 | 350,710 | ||||||||
| Wholesale CD's | 35,377 | 37,223 | 64,245 | ||||||||
| Total deposits | 1,011,392 | 1,004,487 | 835,426 | ||||||||
| Securities sold under agreements to | |||||||||||
| repurchase and overnight borrowings | 42,791 | 53,155 | 35,179 | ||||||||
| FHLB Advances and notes payable | 139,035 | 130,982 | 94,177 | ||||||||
| Subordinated Debt | 36,084 | 36,084 | 20,620 | ||||||||
| Accrued interest and other liabilities | 18,487 | 19,449 | 13,617 | ||||||||
| Total liabilities | 1,247,789 | 1,244,157 | 999,019 | ||||||||
| SHAREHOLDERS' EQUITY | |||||||||||
| Preferred stock; no par value, 300,000 | |||||||||||
| shares authorized, none issued | |||||||||||
| Common stock; 20,000,000 shares authorized | 111,436 | 110,862 | 91,652 | ||||||||
| Retained earnings | 6,692 | 6,764 | 4,552 | ||||||||
| Accumulated other comprehensive income/(loss) | 483 | 211 | (131 | ) | |||||||
| Total shareholders' equity | 118,611 | 117,837 | 96,073 | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,366,400 | $ | 1,361,994 | $ | 1,095,092 | |||||
| Common stock shares issued and outstanding | 7,407,198 | 7,374,060 | 6,484,202 | ||||||||
| Principal Balance of Loans Serviced for Others ($mil) | $ | 515.1 | $ | 516.0 | $ | 472.0 | |||||
| Asset Quality Ratios: | |||||||||||
| Non-Performing Loans / Loans (a) | 1.26 | % | 1.00 | % | 0.47 | % | |||||
| Non-Perf. Loans + OREO / Loans (a) + OREO | 1.54 | % | 1.30 | % | 0.65 | % | |||||
| Non-Performing Assets / Total Assets | 1.26 | % | 1.07 | % | 0.54 | % | |||||
| Allowance for Loan Loss as a % of Loans (a) | 1.02 | % | 1.06 | % | 1.10 | % | |||||
| Allowance / Non-Performing Loans | 81 | % | 106 | % | 234 | % | |||||
| Quarterly Average Balances: | |||||||||||
| Total Portfolio Loans (a) | $ | 1,118,551 | $ | 1,102,696 | $ | 915,191 | |||||
| Total Earning Assets | 1,228,740 | 1,227,061 | 999,225 | ||||||||
| Total Shareholders' Equity | 117,960 | 117,158 | 95,761 | ||||||||
| Total Assets | 1,356,106 | 1,352,024 | 1,083,518 | ||||||||
| Diluted Shares Outstanding | 7,378,262 | 7,391,851 | 6,543,831 | ||||||||
(a) Total Loans less loans held for sale
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
UNAUDITED
| Three Months Ended: | Twelve Months Ended: | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31 2007 | Sep 30 2007 | Dec 31 2006 | Dec 31 2007 | Dec 31 2006 | |||||||||||||
| Interest income: | |||||||||||||||||
| Interest and fees on loans | $ | 20,702 | $ | 20,822 | $ | 17,303 | $ | 75,364 | $ | 67,200 | |||||||
| Investment securities | |||||||||||||||||
| Taxable | 856 | 921 | 534 | 3,090 | 2,139 | ||||||||||||
| Exempt from federal income tax | 426 | 363 | 266 | 1,326 | 1,000 | ||||||||||||
| Short term investments | 168 | 334 | 150 | 1,082 | 447 | ||||||||||||
| Total interest income | 22,152 | 22,440 | 18,253 | 80,862 | 70,786 | ||||||||||||
| Interest expense: | |||||||||||||||||
| Deposits | 7,661 | 7,892 | 6,469 | 28,649 | 22,942 | ||||||||||||
| Notes payable and other borrowing | 2,782 | 2,808 | 1,992 | 9,568 | 7,778 | ||||||||||||
| Total interest expense | 10,443 | 10,700 | 8,461 | 38,217 | 30,720 | ||||||||||||
| Net interest income | 11,709 | 11,740 | 9,792 | 42,645 | 40,066 | ||||||||||||
| Provision for loan losses | 1,773 | 223 | 169 | 2,014 | 767 | ||||||||||||
| Net interest income after provision for loan losses | 9,936 | 11,517 | 9,623 | 40,631 | 39,299 | ||||||||||||
| Noninterest income: | |||||||||||||||||
| Gain on sale of mortgage loans | 549 | 428 | 309 | 1,676 | 1,265 | ||||||||||||
| Service charges on deposit accounts | 1,237 | 1,300 | 935 | 4,475 | 3,828 | ||||||||||||
| Gain (loss) on trading account securities | (628 | ) | 0 | 0 | (628 | ) | 0 | ||||||||||
| Gain (loss) on sale of AFS securities | 7 | 0 | 0 | (123 | ) | 7 | |||||||||||
| Mortgage servicing | 162 | 118 | 194 | 555 | 526 | ||||||||||||
| Other | 753 | 1,121 | 930 | 3,765 | 4,507 | ||||||||||||
| Total noninterest income | 2,080 | 2,967 | 2,368 | 9,720 | 10,133 | ||||||||||||
| Noninterest expense: | |||||||||||||||||
| Salaries and employee benefits | 5,322 | 5,743 | 4,817 | 20,621 | 18,591 | ||||||||||||
| Occupancy and equipment | 1,656 | 1,629 | 1,339 | 5,962 | 5,132 | ||||||||||||
| Amortization of intangibles | 305 | 332 | 161 | 1,234 | 665 | ||||||||||||
| FDIC insurance premium | 61 | 61 | 25 | 171 | 102 | ||||||||||||
| ��Other | 2,880 | 3,369 | 2,677 | 11,086 | 10,332 | ||||||||||||
| Total noninterest expense | 10,224 | 11,134 | 9,019 | 39,074 | 34,822 | ||||||||||||
| Income before federal income taxes | 1,792 | 3,350 | 2,972 | 11,277 | 14,610 | ||||||||||||
| Federal income taxes | 226 | 935 | 804 | 2,891 | 4,402 | ||||||||||||
| Net Income | $ | 1,566 | $ | 2,415 | $ | 2,168 | $ | 8,386 | $ | 10,208 | |||||||
| Fully Tax Equivalent Net Interest Income | $ | 11,961 | $ | 11,969 | $ | 9,971 | $ | 43,483 | 40,699 | ||||||||
| Per Share Data: | |||||||||||||||||
| Basic Earnings | $ | 0.21 | $ | 0.33 | $ | 0.33 | $ | 1.21 | $ | 1.56 | |||||||
| Diluted Earnings | $ | 0.21 | $ | 0.33 | $ | 0.33 | $ | 1.21 | $ | 1.55 | |||||||
| Dividends Paid | $ | 0.225 | $ | 0.225 | $ | 0.214 | $ | 0.900 | $ | 0.852 | |||||||
| Performance Ratios: | |||||||||||||||||
| Return on Average Assets (a) | 0.45 | % | 0.71 | % | 0.79 | % | 0.69 | % | 0.95 | % | |||||||
| Return on Average Equity (a) | 5.2 | % | 8.2 | % | 8.9 | % | 7.8 | % | 10.7 | % | |||||||
| Net Interest Margin (FTE) (a) | 3.89 | % | 3.89 | % | 3.98 | % | 3.90 | % | 4.13 | % | |||||||
| Book Value Per Share (b) | $ | 16.01 | $ | 15.98 | $ | 14.82 | $ | 16.01 | $ | 14.82 | |||||||
| Average Equity/Average Assets | 8.7 | % | 8.7 | % | 8.8 | % | 8.8 | % | 8.9 | % | |||||||
| Net Charge-offs | $ | 2,116 | $ | 249 | $ | 892 | $ | 2,848 | $ | 2,359 | |||||||
| Net Charge-offs as a % of Average Loans (c)(a) | 0.76 | % | 0.09 | % | 0.39 | % | 0.28 | % | 0.26 | % | |||||||
(a) Annualized
(b) Period End
(c) Total loans less loans held for sale