This excerpt taken from the FBMI 8-K filed Oct 24, 2006.
|||Earnings per share (diluted) of $0.43 for the third quarter of 2006, compared to $0.45 in the third quarter of 2005, and $1.27 for the first nine months of 2006 compared to $1.26 in the first nine months of 2005|
|||Net income for the third quarter and first nine months of 2006 up 4.6% and 11.0% respectively from 2005, with the help of earnings from Keystone Community Bank|
|||Sale of appraisal business and formation of captive insurance company|
|||Persistence of weak mortgage volumes and net interest margin pressures, constraining earnings growth and profitability improvements|
|||Significant progress toward resolution of certain problem credits|
|||Capital remains strong, and share repurchase continues|
Alma, Michigan (FBMI) Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation, announced earnings per share of $0.43 for the third quarter of 2006, a decrease of 4.4% compared to $0.45 for the third quarter of 2005. Net income, aided by the inclusion of Keystone Community Bank earnings, was $2,717,000 for the quarter ended September 30, 2006, up 4.6% from the $2,597,000 for the quarter ended September 30, 2005. Returns on average assets and average equity for the third quarter of 2006 were 0.99% and 11.2%, respectively, compared with 1.22% and 13.5%, respectively, in the third quarter of 2005. The most significant constraint on earnings growth and profitability improvement compared to year-ago results came from pressure on the net interest margin. All per share amounts are fully diluted and have been adjusted to reflect the 5% stock dividend paid in December of 2005.
For the first nine months of 2006 compared to the first nine months of 2005, earnings per share of $1.27 in 2006 increased 0.8% from the $1.26 in 2005. Net income was $8,040,000 for the first nine months of 2006, up 11.0% from the $7,242,000 for the first nine months of 2005, reflecting the benefits of adding Keystone Community Bank. Returns on average assets and average equity for the first nine months of 2006 were 1.02% and 11.4%, respectively, compared with 1.18% and 13.1%, respectively, in the first nine months of 2005. As required by SFAS 123R, Firstbank Corporation began expensing stock options in 2006 as a reduction of net income rather than as a footnote item as disclosed in prior periods. This accounting change reduced earnings per share in each of the first, second, and third quarters of 2006 by $0.006, or nearly $0.02 per share for the year-to-date period.
During the third quarter, Firstbank made significant progress toward resolving a $3.1 million problem credit. The impact of this credit on Firstbanks non-performing loan measures and the existence of specific allowance for loan losses related to this problem credit prior to the beginning of 2006 have been reported previously. Firstbank has taken title to collateral real estate and the loan balances have been charged down against the allowance for loan losses in the approximate amount of the specific reserve previously established. The remaining balance has been classified as other real estate owned. Firstbank has obtained a purchase agreement secured by a significant cash deposit for the sale of this real estate to a third party at a price that should result in no material gain or loss for Firstbank. It is expected that the sale will be completed in the fourth quarter of 2006 or the first quarter of 2007.
Total assets at September 30, 2006, were $1.08 billion. Total portfolio loans of $912 million were even with the level at June 30, 2006, and reflect the re-classification of the $3.1 million non-performing loan referenced above to other real estate owned. The growth rate in the third quarter slowed from the first half, but on a year-to-date basis, total portfolio loans are up 3.8% or approximately 5% annual rate. The addition of Keystone Community Bank through the acquisition of Keystone Financial Corporation, completed on October 1, 2005, affects comparisons to the year-ago period. Total portfolio loans increased 27.2%, and total assets increased 25.5% over the year-ago period. Total deposits as of September 30, 2006, were $820 million, compared to $810 million at June 30, 2006, and compared to $645 million at September 30, 2005.
Firstbanks net interest margin, at 4.15% in the third quarter of 2006, declined by six basis points from the 4.21% level achieved in the second quarter of 2006. The major factors maintaining pressure on the net interest margin include competitive forces to increase rates on core deposits and shifting preference among borrowers for more fixed rate loans where spreads are narrow due to competition and the flat yield curve.
Mr. Sullivan stated, While earnings progress in 2006 has been less than we had hoped for, we were very pleased to have had the opportunity to present our companys story to investors at the Howe Barnes Hoefer & Arnett Community Bank Conference in August. While most of the country has seen and heard negative news about Michigans economy, we were able to discuss the cross currents and positives that we are also experiencing in our markets and our strategies of: maintaining asset quality; maintaining and strengthening customer relationships and community leadership; trimming non-productive expenses; continuing to invest in technology; continuing to invest in service and sales training; continuing to develop strong community bank management; and continuing to evaluate expansion opportunities for growth, efficiency, and shareholder value.
Sullivan continued, Our lenders have done an exemplary job of managing credit quality during challenging circumstances in 2006, avoiding negative impact on earnings and protecting value for our shareholders. These efforts include workout on the $3.1 million problem credit discussed in some detail in this news release. In another situation, our lenders are helping to facilitate the sale of a business in which we are involved in a lending relationship of similar size. Although the loan continues to be current on its payments and is classified as a performing loan, we had previously established a specific reserve due to doubtful prospects for the business. Due in a large part to the efforts of our lenders in 2006 it now appears possible, although not certain, that the situation may be resolved favorably. As a result of potentially smaller than anticipated loss on this loan and the newly issued SEC Staff Accounting Bulletin 108, we are currently reviewing the accounting treatment. The accounting treatment may include the possibility of a negative provision expense and/or reduction of prior period allowance amounts on the balance sheet. However, we do not intend to make adjustments unless or until the hoped for transaction is completed. If the loan does become a loss, we believe existing reserves will be adequate to cover our exposure. While we are grateful for the skill and hard work of our lenders on problem situations, we most of all are looking forward to progress in the Michigan economy and to days when the efforts and talents of our lenders can return to a focus on quality growth.
In the third quarter of 2006, Firstbank sold the business of its Gladwin Land, Inc. real estate appraisal company, recognizing a small gain that did not significantly impact net income or earnings per share. In October of 2006, Firstbank received approval to establish a captive insurance company known as FBMI Risk Management, Inc. This new unit will provide risk management and insurance services to Firstbank Corporation affiliates and is expected to provide improved management of risks not otherwise covered by externally provided insurance, in a cost effective way. There is no related reduction in externally provided insurance coverage, although greater reliance on self-insurance may be considered in the future. To facilitate the formation of the captive insurance company, Firstbank has elected Financial Holding Company status.
Non-interest income declined in the third quarter due to several reasons. The most important factor contributing to the decline although not the greatest dollar impact was continued weakness in the residential mortgage business. Gain on sale of mortgage loans decreased 4.4% from the level in the second quarter of 2006, and was 21% below the year earlier level. The low level of real estate activity in Firstbanks markets also affected revenues at C. A. Hanes (real estate brokerage). Firstbanks restructuring of its title insurance business with the sale of a 45% interest as disclosed previously and the exit from the real estate appraisal business also reduced non-interest income. The greatest dollar decline in non-interest income for the third quarter of 2006 compared to the second quarter of 2006 was due to the recognition in the second quarter of 2006 of the $274,000 gain on sale of partial interest in the title insurance business.
Shareholders equity increased 0.5% in the third quarter of 2006, and was 24.6% above the level at September 30, 2005, primarily due to the acquisition of Keystone. Firstbank Corporation repurchased 75,000 shares in the third quarter of 2006, and board authorization remains in place for the additional repurchase of up to approximately $1.8 million in market value of shares. The ratio of average equity to average assets stood at 8.9% in the third quarter of 2006 a level consistent over the past two years indicating that strong equity capital has been maintained subsequent to the addition of Keystone. Firstbanks issuance of $10 million trust preferred securities in January of 2006 increased regulatory capital ratios and helps sustain the ability to seek good investment opportunities and continue share repurchase.
Provision for loan loss expense was $213,000 in the third quarter of 2006 and $598,000 for the first nine months of 2006, compared to $73,000 and $154,000 respectively in 2005. Net charge-offs of $1,144,000 in the third quarter of 2006 included over $800,000 related to the $3.1 million loan referenced above. Provision expense in the third quarter of 2006 was approximately equal to net charge-offs excluding the amount specifically related to this $3.1 million credit provided for in previous periods. Annualized as a percentage of average loans, net charge-offs were 0.51% in the third quarter of 2006 and 0.22% in the first nine months of 2006. The ratio of non-performing loans (including loans past due over 90 days) to loans was 0.43% at September 30, 2006, decreasing from 0.81% at June 30, 2006. The improvement in this ratio was largely due to the charge-off and reclassification to other real estate owned of the $3.1 million credit.
Firstbank Corporation, headquartered in Alma, Michigan, is a six bank financial services company with assets of $1.1 billion and 41 banking offices serving Michigans Lower Peninsula. Bank subsidiaries include: Firstbank Alma; Firstbank (Mt. Pleasant); Firstbank West Branch; Firstbank Lakeview; Firstbank St. Johns; and Keystone Community Bank.
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 Companys 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.