updated 10/27/2010 8:46:06 AM ET 2010-10-27T12:46:06

  • Net income available to common shareholders of $911,000 in the third quarter of 2010 increased 13.4% compared to $804,000 in the third quarter of 2009, as net income increased to $1,324,000 from $1,217,000
  • Earnings per share equaled $0.12 for the third quarter of 2010, up from $0.07 per share in the second quarter of 2010 and $0.10 in the third quarter of 2009
  • Provision expense of $3.1 million and net charge-offs of $2.9 million in the third quarter of 2010 increased from $2.8 million and $2.7 million respectively in the third quarter of 2009
  • Ratio of the allowance for loan losses to loans strengthened to 1.97% at September 30, 2010, compared to 1.70% at December 31, 2009, and 1.49% at September 30, 2009
  • Gain on sale of mortgages surged in the third quarter to $2,054,000, 86% above the year-ago level
  • Loan portfolio continued to shrink due to economic conditions and lack of demand
  • Equity ratios remained strong and all affiliate banks continue to exceed all regulatory well-capitalized requirements

ALMA, Mich., Oct. 27, 2010 (GLOBE NEWSWIRE) -- Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation (Nasdaq: FBMI ), announced net income of $1,324,000 for the third quarter of 2010, compared to $1,217,000 for the third quarter of 2009, with net income available to common shareholders of $911,000 in the third quarter of 2010 increasing 13.4% compared to $804,000 in the third quarter of 2009. Earnings per share were $0.12 in the third quarter of 2010 compared to $0.10 in the third quarter of 2009. Returns on average assets and average equity for the third quarter of 2010 were 0.34% and 3.4%, respectively, compared to 0.33% and 3.2% respectively in the third quarter of 2009.

Earnings per share were $0.22 in both the first nine months of 2010 and the first nine months of 2009. For the nine months of 2010, net income of $2,920,000 was 4.6% higher than in the first nine months of 2009, although net income available to common was virtually flat at $1,682,000 in the first nine months of 2010 versus $1,691,000 for the same period in 2009. Provision expense of $8,623,000 in the first nine months of 2010 exceeded net charge-offs of $7,011,000, and the provision expense was 11% lower than in the first nine months of 2009.

Gain on sale of mortgages surged in the third quarter of 2010 as low interest rates on mortgages rekindled refinance activity. Mortgage gains had been strong in 2009, but both refinance and purchase money mortgage business were very slow in the first quarter of 2010, when gain on sale of mortgage loans totaled only $370,000. However, the second quarter of 2010 saw some improvement to $726,000 and in the third quarter of 2010 mortgage gains rose to $2,054,000, 86% above the year-ago third quarter level. In spite of this improvement in the second and third quarters of 2010, for the first nine months of 2010, mortgage gains were 52% lower than in the first nine months of 2009.

The category of other non-interest income in the third quarter of 2010 showed decreases from both the second quarter of 2010 and from the third quarter of 2009. The $250,000 decline in the third quarter of 2010 compared to the second quarter of 2010 is almost entirely explained by the level of gain on sale of other real estate owned, which went from a positive $46,000 in the second quarter to a negative (loss) of $196,000 in the third quarter. Comparisons of other non-interest income in the third quarter of 2010 to the year-ago third quarter were also impacted by the absence of 1st Armored and 1st Title in the consolidated results and other factors all having negligible impact on earnings.

Ongoing FDIC insurance expense, provision expense, and other credit and collection expense continue at elevated levels. Provision expense in the third quarter of 2010 was $3,066,000, identical to the amount in the second quarter of 2010 and 8.7% higher than in the third quarter of 2009. The provision expense of $3,066,000 in the third quarter of 2010 exceeded net charge-offs in the quarter of $2,928,000 as management continued to build the level of reserves for loan losses. Also, third quarter 2010 federal income tax expense was increased by $425,000 due to the write-off of a deferred tax asset associated with an investment loss reported in prior periods.

Expense control efforts continued. Comparing the third quarter of 2010 with the third quarter of 2009, salaries and employee benefits expense decreased 8.1% and occupancy and equipment expense declined 9.9%. The category of other non-interest expense increased approximately 8% when compared to either the prior quarter or the year-ago quarter, with the increases primarily attributable to costs of managing and writing down other real estate, legal and other expenses associated with managing the loan portfolio, and expenses associated with the increased mortgage volume. The sale of 1st Armored in the first quarter of 2010, while having little impact on net income, also helped to reduce expenses compared to prior periods.

Firstbank's net interest margin was 3.89% in the third quarter of 2010 compared to 3.82% in the second quarter of 2010 and 3.95% in the third quarter of 2009. Firstbank's affiliate banks are paying off higher rate Federal Home Loan Bank advances upon their maturities, helping to reduce funding costs. FHLB advances and notes payable declined by $13 million in the third quarter of 2010 and were $40 million lower than the year-ago balance. Core deposits have increased, providing a lower cost source of funding. Core deposits increased 1.3% in the third quarter of 2010 and were 11.0% above the year-ago level. Also, strategies employed during 2009 and throughout 2010 aimed at incorporating floors on variable rate loans and re-pricing deposits upon renewal at currently competitive rates, have resulted in the improvement in margin. The improvement in margin helped net interest income in the third quarter of 2010 increase 3.4% compared to the second quarter of 2010 and increase 4.0% from the third quarter of 2009.

Mr. Sullivan stated, "We were pleased to see the reassuring positive signs in the third quarter of increasing net interest margin, continued momentum in our branches toward building core deposit funding, strong mortgage origination and refinance activity, and effective control of expenses across the board other than those expenses driven by credit management and collection issues. The continuing high level of net charge-offs, while not as problematic in our earnings as at many other banks in Michigan and around the country, is something we look forward to getting behind us, hopefully in the near future. In spite of the level of net charge-offs, we continued to build reserves, getting close to the two percent of loans level, by setting aside provision expense in excess of net charge-offs. Our detailed analysis of the loan portfolio indicates that the level of reserves is both adequate and appropriate.

"Longer term, we are confident that the costs of managing difficult credits will come down, and we know that we will have some additional roll-off of higher cost funding, both factors helping to improve earnings. However, running counter to these favorable trends is the difficult environment for generating income from earning assets. The current situation of weak loan demand from high quality borrowers and very low rates of return on high quality investment securities will continue to be a challenge for our company and our industry until economic conditions and confidence improve in Michigan and nationally.

"During the third quarter we commissioned an annual update of the third-party-expert valuation of goodwill on our balance sheet, to test for impairment. That valuation, which assures the proper application of accounting rules and principles, indicates that the amount of goodwill on our books is not considered impaired and requires no charge to earnings. As a result, we continue to show a book value per share of $15.01 at September 30, 2010, which is substantially above tangible book value per share of $10.20.

"Our people continue to perform extraordinarily well and continue to bolster our reputation with our customers and in our communities. We continue to invest selectively in opportunities for growth and market position, as evidenced by a new replacement branch facility opened in DeWitt in the third quarter, a new replacement branch facility under construction in Mt. Pleasant, and a new branch location and facility approved to be constructed in Cadillac. Our three-year old branch in Paw Paw continues to be an outstanding performer."

Total assets of Firstbank Corporation at September 30, 2010, were $1.478 billion, an increase of 3.4% over the year-ago period. Total portfolio loans of $1.052 billion were 6.5% below the year-ago level. Commercial and commercial real estate loans decreased 6.4% over this twelve month period, and real estate construction loans decreased 10.7%. Residential mortgage and consumer loans also decreased. The strong mortgage refinance activity in 2009 and the second and third quarters of 2010 resulted in loans being financed in the secondary market rather than on the balance sheet of the company. While Firstbank has ample capital and funding resources to increase loans on its balance sheet, demand for funds for new ventures by quality borrowers remains weak due to uncertainty about the economy. Total deposits as of September 30, 2010, were $1.172 billion, compared to $1.074 billion at September 30, 2009, an increase of 9.2%. Core deposits increased $77 million or 11.0% over the year-ago level.

At September 30, 2010, the ratio of the allowance for loan losses to loans increased to 1.97%, compared to 1.70% at December 31, 2009, and 1.49% at September 30, 2009. The ratio of allowance for loan loss to non-performing loans stood at 59% on September 30, 2010, compared to 47% at December 31, 2009, and 56% at September 30, 2009.

Net charge-offs were $2,928,000 in the third quarter of 2010, compared to $2,599,000 in the second quarter of 2010 and $2,696,000 in the third quarter of 2009. In the third quarter of 2010, net charge-offs annualized represented 1.10% of average loans. For the first nine months of 2010, net charge-offs annualized represented 0.88% of average loans, the same level as in the first nine months of 2009. The ratio of non-performing loans (including loans past due over 90 days) to loans stood at 3.36% on September 30, 2010, improved from 3.44% on June 30, 2010 and 3.66% as of December 31, 2009.

Total shareholders equity was slightly higher at September 30, 2010, compared to both the levels at December 31, 2009, and September 30, 2009. The ratio of average equity to average assets was 9.8% in both the second and third quarters of 2010, compared to 10.3% in the third quarter of 2009. All of Firstbank Corporation's affiliate banks continue to meet regulatory well-capitalized requirements.

Firstbank Corporation, headquartered in Alma, Michigan, is a bank holding company using a multi-bank-charter format with assets of $1.5 billion and 51 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, loan charge-off rates, demand for new loans, the performance of restructured loans, 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.

 

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