Byron Bank Sees Earnings Growth

April 27, 2007
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BYRONCENTER — While some Michigan banks are reporting decreased or flat first-quarter income, OAK Financial Corp., the holding company for Byron Bank, posted an 11 percent increase in both first-quarter net income and earnings per share. Net income for the quarter was $1.74 million, up from $1.56 million in the first quarter of 2006. Basic and diluted earnings per share were 71 cents, up from 64 cents in the year-ago quarter.

According to the company, the growth in net income is a result of modest growth in net interest income resulting from an increase in earning assets and strong growth in non-interest income.

“While pleased with our first-quarter performance, we’re taking nothing for granted,” said Patrick Gill, president and CEO. “Unprecedented competition, margin pressure and a lackluster state economy continue to present challenges to our industry and to our company. Based, however, upon the strength of our team, the depth of our plan and our track record of executing successfully, we’re well positioned to deliver solid full-year results.”

Byron Bank’s net interest income continues to be essentially flat. The increase in net interest income associated with the growth of earning assets is largely being offset by net interest margin compression, according to the bank. Though average earning assets are up about 14 percent from a year ago, the bank’s net interest income is up only 2 percent for the first quarter of 2006. The company pointed out that the decline in the net interest margin is a long-term trend in the financial services industry and is compounded by intense local competition for loans and deposits and an inverted yield curve.

Net interest income during the first quarter was $115,000 above the first quarter of 2006 and $81,000 below the fourth quarter of 2006. The company noted that the significant increase in service charges on deposit accounts and a 36 percent increase in mortgage banking revenue contributed to the growth of non-interest income in the quarter.

Total operating expenses in the first quarter were up 11 percent over the prior year’s first quarter. Salary and benefits increased 9 percent over 2006’s first quarter. Year-over-year equipment costs increased 24 percent, due to an investment in new equipment and technology over the past nine months. Other significant expense increases included: advertising, up 77 percent; telephone, up 37 percent; postage, up 17 percent; and professional fees, up 33 percent.

During the first quarter, total assets increased $19 million as a result of continued strong loan growth. Compared to March 31, 2006, total assets increased $70 million, or 11 percent; total loans increased $67 million, or 14 percent; and total deposits increased $40 million, or 8 percent. Non-performing assets to total loans increased from 22 percent at Dec. 31, 2006, to 37 percent at March 31 this year.    

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