FBMI Firstbank Corp. (MM)

Firstbank Corporation Announces Fourth Quarter and Full Year 2004 Results Highlights Include: * Earnings per share (diluted) of $0.45 for the fourth quarter of 2004, up 9.8% from year-ago, and earnings per share (diluted) of $1.79 for full year 2004 * Positive impacts on earnings per share and return on equity from capital management strategies * Continuing loan and deposit growth * Continuing strong asset quality and capital ratios ALMA, Mich., Jan. 20 /PRNewswire-FirstCall/ -- Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation (NASDAQ:FBMI) announced earnings per share of $0.45, up 9.8% from $0.41 for the fourth quarter of 2003. Net income of $2,455,000 for the quarter ended December 31, 2004, compared to $2,513,000 for the quarter ended December 31, 2003, a decrease of 2.3%. Earnings per share benefited from Firstbank's 600,000 share common stock self tender offer which was completed in August of 2004. While this type of capital management strategy improves earnings per share and return on equity, the impacts on net income and return on assets are negative. Returns on average assets and average equity for the fourth quarter of 2004 were 1.21% and 13.5%, respectively, compared with 1.30% and 11.7%, respectively, in the fourth quarter of 2003. Earnings in the fourth quarter of 2004 included the effect of several non-cash adjustments to the balance sheet as explained further below. The net effect of these adjustments was to increase net income by just $45,000 and increase earnings per share by less than $0.01. All per share amounts are fully diluted amounts and have been adjusted to reflect the 5% stock dividend paid in December 2004. For full year 2004, net income of $10,358,000 compared to $12,056,000 for 2003, a decrease of 14.1%. Earnings per share were $1.79, down a smaller 9.1% from $1.97 for 2003 due to the reduction in shares outstanding. Returns on average assets and average equity for 2004 were 1.32% and 13.0%, respectively, compared with 1.58% and 14.5%, respectively, in 2003. Earnings in 2003 were bolstered by unusually strong mortgage refinances. Growth in Firstbank's balance sheet continued as total assets exceeded the $800 million mark for the first time. Total portfolio loans grew 0.6% in the fourth quarter of 2004 and were 5.6% above the level at December 31, 2003. Commercial and commercial real estate loans increased 6.4% above the year-ago level, and residential mortgage loans increased 12.9%. Total deposits as of December 31, 2004, were 6.3% above the year-ago level, and non-interest bearing deposits increased 3.8% over this time period. Firstbank's net interest margin, at 4.52% in the fourth quarter of 2004, increased 0.08% from the 4.44% level achieved in the third quarter of 2004 and compared to 4.51% in the fourth quarter of 2003. Benefit from increases in the prime rate was partially offset by the interest cost of funds used to repurchase shares in the self tender offer and by increases in rates on other funding sources. Mr. Sullivan stated, "The most significant accomplishments of 2004 were the completion of our tender offer, the issuance of our trust preferred securities, and the re-focusing of our efforts on traditional lending and deposit services to customers in our markets. Following the end of the mortgage re-finance boom, we were able to achieve reasonably good loan growth in an environment that showed only modest economic growth. Also notable, our asset quality measures have remained very good. We had positive developments and pay downs associated with a small number of credits in the first and third quarters of the year. These developments required us to reduce reserves related to those specific loans and added to our net income. With our people re-focused on core products and services, we are poised to benefit from a continuing economic recovery. We have experienced some improvement in our net interest margin due to a rising prime rate, and we expect to see further increases in our net interest margin if the Federal Reserve moves interest rates still higher." The non-cash adjustments to the balance sheet referenced above consisted of adjustments to tax asset, tax liability, and goodwill accounts. The tax account adjustments resulted from a comprehensive review of estimated federal and state expected tax liabilities. The goodwill adjustments, totaling $415,000, were associated with two of Firstbank's real estate subsidiaries. All goodwill associated with Gladwin Land Company, Inc. was eliminated as the appraisal business declined significantly with the end of the mortgage refinance boom. Additional goodwill write-down occurred in the 55% owned C. A. Hanes brokerage business as volatility in that business has caused it to lag original expectations. The impact of these non-cash balance sheet adjustments on net income was to increase net income by $45,000, or less than $0.01 per share, in the fourth quarter of 2004. Although the adjustments affected federal income tax expense recorded for the fourth quarter of 2004, for 2005 the relationship of federal income tax to income before federal income taxes (the effective tax rate) should be in line with the first three quarters of 2004. Firstbank maintained its focus on managing costs in 2004. For the year, total non-interest expense of $28,361,000 included $780,000 due to the non- cash balance sheet goodwill and tax account adjustments in the fourth quarter. Other Non-interest Expense also included $205,000 to pay audit firms for additional internal and external audit work, including first-year implementation and ongoing procedures, needed to meet the requirements of the Sarbanes Oxley Act. This was a cost in 2004 that was not incurred in prior years, and Firstbank plans to seek ways to reduce this cost in future years. Excluding these amounts, total non-interest expense decreased 5.2% from 2003. Salaries and employee benefits were 3.0% less in 2004 compared to 2003 despite increasing costs of health care benefits. Occupancy and equipment expenses increased 3.8% primarily due to improvements and additions to certain retail facilities. While costs were being contained, revenues progressed. Net interest income of $32,383,000 in 2004 increased 2.4% from the level in 2003, overcoming the additional funding cost associated with the share repurchase and self-tender offer strategies. Although the nearly 70% decline in mortgage gains helped cause total non-interest income to decline 36.7%, non-interest income excluding security gains and real estate businesses increased 3.1%. Primarily as a result of the self tender offer, shareholders' equity decreased 15.1% during 2004. To further enhance its capital structure, during the fourth quarter of 2004, as previously announced, Firstbank raised $10 million through a private offering of trust preferred securities. The trust preferred securities were issued by a special purpose trust subsidiary as part of a pooled transaction. This capital is shown on the December 31, 2004, balance sheet as Subordinated Debt in accordance with generally accepted accounting principles. The ratio of average equity to average assets stood at 9.0% in the fourth quarter of 2004, compared to 11.1% in the fourth quarter of 2003. Firstbank's mortgage servicing portfolio grew to $473.1 million as of December 31, 2004, from $472.5 million at September 30, 2004, and increased 1.9% from $464.4 million at December 30, 2003. Firstbank's asset quality measures remained strong. The ratio of non- performing loans to loans was 0.28% as of December 31, 2004, compared to 0.37% at September 30, 2004, and 0.22% at December 31, 2003. Net charge-offs in 2004 were $620,000, or 0.09% as a percentage of average loans, compared to $459,000, or 0.08% as a percentage of average loans in 2003. These measures of asset quality remain at low levels and continue to be at levels considered in the industry to be favorable. During 2004, positive developments and pay downs related to a small number of credits, as disclosed previously, required Firstbank to reduce reserves related to these specific loans. These positive developments were the primary factors that resulted in provision for loan losses for 2004 to be a negative $425,000 compared to a positive $550,000 in 2003. Firstbank Corporation, headquartered in Alma, Michigan is currently a five bank financial services company with assets of $806 million and 35 banking offices located in central and northeast Michigan. Bank subsidiaries include: Firstbank - Alma; Firstbank (Mt. Pleasant); Firstbank - West Branch; Firstbank - Lakeview; and Firstbank - St. Johns. Other corporate affiliates include 1st Armored, Inc.; 1st Title; Gladwin Land Company, Inc.; and C. A. Hanes Realty, Inc. Investment services are available through affiliations with CB Wealth Management N.A., MML Investors Services, Inc., and Raymond James Financial Services Inc. This press release contains certain forward-looking statements that involve risks and uncertainties. When used in this press release the words "anticipate," "believe," "expect," "potential," "should," and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning future business growth, increases in interest rates and positioning of balance sheets to benefit net interest margins and earnings. 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 Twelve Months Three months Ended: Ended: Dec 31 Sep 30 Dec 31 Dec 31 Dec 31 2004 2004 2003 2004 2003 Interest income: Interest and fees on loans $10,734 $10,378 $10,047 $41,350 $40,989 Investment securities Taxable 442 449 399 1,654 1,818 Exempt from federal income tax 248 234 254 952 1,035 Short term investments 50 30 44 136 387 Total interest income 11,474 11,091 10,744 44,092 44,229 Interest expense: Deposits 1,951 1,878 1,812 7,430 8,533 Notes payable and other 1,157 1,097 1,000 4,279 4,065 Total interest expense 3,108 2,975 2,812 11,709 12,598 Net interest income 8,366 8,116 7,932 32,383 31,631 Provision for loan losses 80 (374) 105 (425) 550 Net interest income after provision for loan losses 8,286 8,490 7,827 32,808 31,081 Noninterest income: Gain on sale of mortgage loans 565 467 515 2,663 8,560 Service charges on deposit accounts 731 730 630 2,813 2,534 Gain on sale of securities 33 10 381 54 390 Mortgage servicing (13) 34 64 (55) (1,100) Other 1,125 1,182 1,083 4,575 5,494 Total noninterest income 2,441 2,423 2,673 10,050 15,878 Noninterest expense: Salaries and employee benefits 4,052 3,888 4,012 15,719 16,198 Occupancy and equipment 987 986 912 3,865 3,725 Amortization of intangibles 76 76 76 304 336 FDIC insurance premium 21 21 21 85 90 Other 2,772 2,008 1,740 8,388 8,546 Total noninterest expense 7,908 6,979 6,761 28,361 28,895 Income before federal income taxes 2,819 3,934 3,739 14,497 18,064 Federal income taxes 364 1,277 1,226 4,139 6,008 Net Income $2,455 $2,657 $2,513 $10,358 $12,056 Fully Tax Equivalent Net Interest Income $8,475 $8,249 $8,005 $32,865 $32,271 Per Share Data: Basic Earnings $0.46 $0.48 $0.42 $1.83 $2.03 Diluted Earnings $0.45 $0.47 $0.41 $1.79 $1.97 Dividends Paid $0.20 $0.20 $0.18 $0.79 $0.71 Performance Ratios: Return on Average Assets* 1.21% 1.33% 1.30% 1.32% 1.58% Return on Average Equity* 13.5% 13.8% 11.7% 13.0% 14.5% Net Interest Margin (FTE) * 4.52% 4.44% 4.51% 4.47% 4.50% Book Value Per Share+ $13.74 $13.43 $14.47 $13.74 $15.20 Average Equity/Average Assets 9.0% 9.6% 11.1% 10.1% 10.9% Net Charge-offs 293 64 112 620 459 Net Charge-offs as a % of Average Loans^* 0.18% 0.04% 0.07% 0.09% 0.08% * Annualized + Period End ^ Total loans less loans held for sale FIRSTBANK CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands) UNAUDITED Dec 31 Sep 30 Dec 31 2004 2004 2003 ASSETS Cash and cash equivalents: Cash and due from banks $23,715 $31,087 $27,442 Short term investments 2,057 4,136 5,703 Total cash and cash equivalents 25,772 35,223 33,145 Securities available for sale 72,471 63,327 70,731 Federal Home Loan Bank stock 5,359 5,303 4,929 Loans: Loans held for sale 1,969 434 4,160 Portfolio loans: Commercial 110,261 110,726 112,263 Commercial real estate 225,372 223,307 203,080 Residential mortgage 231,213 223,808 204,806 Real estate construction 47,920 50,682 55,160 Consumer 54,491 56,871 57,557 Credit card 1,830 1,832 2,587 Total portfolio loans 671,087 667,226 635,453 Less allowance for loan losses (10,581) (10,795) (11,627) Net portfolio loans 660,506 656,431 623,826 Premises and equipment, net 17,658 17,860 18,103 Goodwill 4,466 4,880 4,880 Other intangibles 2,395 2,471 2,698 Other assets 15,503 12,873 14,028 TOTAL ASSETS $806,099 $798,802 $776,500 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Noninterest bearing accounts 106,208 111,165 102,296 Interest bearing accounts: Demand 177,067 182,221 181,642 Savings 100,277 101,048 95,395 Time 219,715 207,514 188,221 Total deposits 603,267 601,948 567,554 Securities sold under agreements to repurchase and overnight borrowings 39,100 36,021 47,069 FHLB Advances and notes payable 71,430 81,462 67,255 Subordinated Debt 10,310 0 0 Accrued interest and other liabilities 9,163 8,305 8,878 Total liabilities 733,270 727,736 690,756 SHAREHOLDERS' EQUITY Preferred stock; no par value, 300,000 shares authorized, none issued Common stock; 10,000,000 shares authorized * 64,713 56,662 75,591 Retained earnings 7,816 13,740 9,187 Accumulated other comprehensive income 300 664 966 Total shareholders' equity 72,829 71,066 85,744 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $806,099 $798,802 $776,500 * Common stock shares issued and outstanding 5,299,708 5,289,895 5,924,419 Asset Quality Ratios: Non-Performing Loans / Loans^ 0.28% 0.37% 0.22% Non-Perf. Loans + OREO / Loans^ + OREO 0.42% 0.43% 0.26% Non-Performing Assets / Total Assets 0.35% 0.36% 0.21% Allowance for Loan Loss as a % of Loans^ 1.58% 1.62% 1.83% Allowance / Non-Performing Loans 568% 438% 822% Quarterly Average Balances: Total Portfolio Loans^ $663,475 $661,813 $615,474 Total Earning Assets $746,814 $741,979 $714,907 Total Shareholders' Equity $72,021 $76,450 $85,028 Total Assets 799,688 793,781 763,503 Diluted Shares Outstanding 5,420,497 5,665,732 6,105,735 ^ Total Loans less loans held for sale DATASOURCE: Firstbank Corporation CONTACT: Samuel G. Stone, Executive Vice President and Chief Financial Officer of Firstbank Corporation, +1-989-466-7325 Web site: http://www.firstbank-corp.com/

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