U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______________ TO ________________
COMMISSION FILE NUMBER 0-22435
FIRSTBANK CORP.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1389562
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
920 MAIN STREET, LEWISTON, ID 83501
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
(208) 746-9610
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Common Stock 1,885,356 shares outstanding on December 31, 1998
Transitional Small Business Disclosure Format (check one):
[ ] Yes [X] No
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FIRSTBANK CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Financial Condition
As of December 31, 1998 and March 31, 1998 1
Consolidated Statements of Income
For the three months and nine months
ended December 31, 1998 and 1997 2
Consolidated Statements of Cash Flows
For the nine months ended December 31, 1998 and 1997 3
Consolidated Statements of Comprehensive Income
For the three months and nine months ended
December 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
FirstBank Corp. and Subsidiaries
Consolidated Statements of Financial Condition
At December 31, At March 31,
1998 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest bearing deposits $ 7,832,870 $ 5,443,129
Interest bearing deposits 2,460,263 1,139,185
Federal funds sold 2,018,008 1,834,506
------------- -------------
Total cash and cash equivalents $ 12,311,141 $ 8,416,820
Investment securities:
Held-to-maturity 1,200,000 2,449,375
Available-for-sale 5,945,568 2,654,233
Mortgage-backed securities:
Held-to-maturity 2,849,716 3,420,153
Available-for-sale 8,286,182 7,969,533
Certificates of deposit -- 991,000
Loans receivable, net 161,139,721 145,696,660
Accrued interest receivable 1,625,862 1,374,239
Real estate owned 298,713 883,441
Stock in FHLB, at cost 2,455,175 2,110,075
Premises and equipment, net 4,790,045 4,705,829
Income taxes receivable 81,291 468,807
Cash surrender value of life insurance policies 1,567,182 1,400,055
Mortgage servicing assets 802,291 406,666
Other assets 261,746 616,284
------------- -------------
TOTAL ASSETS $ 203,614,633 $ 183,563,170
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 128,736,106 $ 114,495,090
Advances from borrowers for taxes and insurance 788,333 1,329,080
Advances from FHLB 43,802,106 35,655,579
Deferred federal and state income taxes 376,678 245,000
Accrued expenses and other liabilities 1,819,690 1,830,423
------------- -------------
Total Liabilities $ 175,522,913 $ 153,555,172
------------- -------------
Stockholders' Equity (Note 4)
Preferred stock, $.01 par value, 500,000 shares authorized; 0 shares issued
and outstanding -- --
Common stock, $.01 par value, 5,000,000 shares authorized; 1,983,750
shares issued; 1,746,985 and 1,983,750 shares outstanding, 19,838 19,838
Additional paid-in-capital 18,720,476 18,989,977
Retained earnings, substantially restricted 13,541,467 12,493,990
Unearned ESOP shares (Note 3) (1,384,070) (1,493,430)
Deferred compensation (1,170,889) --
Treasury stock, at cost; 98,394 and 0 shares (1,637,470) --
Accumulated comprehensive gain (loss):
Unrealized gains (losses) on securities available-for-sale, net of tax 2,368 (2,377)
------------- -------------
Total Stockholders' Equity 28,091,720 30,007,998
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 203,614,633 $ 183,563,170
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
1
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<TABLE>
<CAPTION>
FirstBank Corp. and Subsidiaries
Consolidated Statements of Income
Three months ended Nine months ended
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 3,319,508 $ 3,017,681 $ 9,975,949 $ 8,604,823
Mortgage-backed securities 143,422 203,917 473,360 423,704
Investment securities 77,144 128,443 216,054 311,943
Other interest earning assets 229,148 129,097 607,257 504,740
----------- ----------- ----------- -----------
Total interest income 3,769,222 3,479,138 11,272,620 9,845,210
Interest expense:
Deposits 1,242,906 1,186,531 3,698,448 3,490,163
Advances from FHLB 609,078 508,219 1,771,494 1,363,756
----------- ----------- ----------- -----------
Total interest expense 1,851,984 1,694,750 5,469,942 4,853,919
Net interest income 1,917,238 1,784,388 5,802,678 4,991,291
Provision for loan losses 64,645 75,137 265,413 143,137
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 1,852,593 1,709,251 5,537,265 4,848,154
Non-interest income:
Gain on sale of loans 490,273 305,923 1,328,719 708,791
Service fees and charges 340,298 296,361 924,851 828,182
Commissions and other 62,930 30,751 123,119 98,215
----------- ----------- ----------- -----------
Total non-interest income 893,501 633,035 2,376,689 1,635,188
Non-interest expense:
Compensation and related benefits 1,101,528 910,565 3,084,348 2,643,436
Occupancy 208,923 197,836 641,873 576,546
Other 607,009 524,074 1,873,751 1,418,587
----------- ----------- ----------- -----------
Total non-interest expense 1,917,460 1,632,475 5,599,972 4,638,569
----------- ----------- ----------- -----------
Income before income tax expense 828,634 709,811 2,313,982 1,844,773
Income tax expense 284,847 251,620 824,426 679,804
----------- ----------- ----------- -----------
NET INCOME $ 543,787 $ 458,191 $ 1,489,556 $ 1,164,969
=========== =========== =========== ===========
Earnings per share (Note 2):
Net income per share -basic $ 0.32 $ 0.25 $ 0.84 $ 0.64
Net income per share -diluted $ 0.30 $ 0.25 $ 0.82 $ 0.64
Weighted average shares outstanding -basic 1,712,730 1,831,659 1,777,171 1,826,988
Weighted average shares outstanding -diluted 1,795,194 1,831,659 1,812,500 1,826,988
</TABLE>
See accompanying notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
FirstBank Corp. and Subsidiaries,
Consolidated Statements of Cash Flows
Nine months ended December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,489,556 $ 1,164,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 426,430 423,021
Provision for loan losses 265,413 143,137
Gain on sale of fixed assets 56,838 --
FHLB stock dividends (130,000) (99,100)
ESOP compensation expense 205,166 161,722
Gain on sale of loans (1,328,719) (708,791)
Other (gains) losses, net (5,445) 10,498
Provision for real estate owned 57,533 47,706
Deferred compensation expense 107,005 125,352
Deferred income taxes 106,185 182,288
Changes in assets and liabilities:
Accrued interest receivable and other assets (639,260) (532,230)
Accrued expenses and other liabilities (34,086) (884,313)
Income taxes receivable (payable) 387,516 --
------------- -------------
Net cash provided by operating activities 964,132 34,259
Cash flows from investing activities:
Purchase of mortgage-backed securities; available-for-sale (3,707,447) (6,827,419)
Proceeds from maturities of mortgage-backed securities 3,841,234 1,049,829
Decrease in loans receivable from loans sold 80,159,796 27,502,334
Other net change in loans receivable (94,895,452) (57,938,538)
Purchase of FHLB stock (215,100) (1,014,700)
Purchases of premises and equipment (444,637) (409,631)
Proceeds from sale of fixed assets 279,519 --
Net increase in cash surrender value of life insurance policies (167,127) (31,389)
Proceeds from sale of real estate owned 898,734 149,113
Purchase of investment securities; available for sale (3,207,122) (3,491,000)
Proceeds from maturities of investment securities; held-to-maturity 1,249,375 5,250,000
Proceeds from maturities of certificates of deposit 991,000 --
Purchase of mortgage-backed securities; held-to-maturity -- (1,500,000)
Proceeds from sale of investment securities; available-for-sale -- (2,359,343)
------------- -------------
Net cash used in investing activities (15,217,227) (39,620,744)
Cash flows from financing activities:
Proceeds from issuance of common stock -- 17,354,663
Cash paid for dividends (442,079) (127,756)
Net increase in deposits 14,241,016 3,821,105
Bank overdrafts -- (1,023,505)
Advances from borrowers for taxes and insurance (540,747) (259,916)
Advances from FHLB 70,308,334 238,122,916
Payments on advances from FHLB (62,161,807) (213,142,920)
Purchase of treasury stock (3,257,301) --
------------- -------------
Net cash provided by financing activities 18,147,416 44,744,587
------------- -------------
Net increase in cash and cash equivalents 3,894,321 5,158,102
Cash and cash equivalents, beginning of period 8,416,820 5,302,736
------------- -------------
Cash and cash equivalents, end of period $ 12,311,141 $ 10,460,838
============= =============
Supplemental disclosures of cash flow information: Cash paid during the period for:
Interest $ 5,501,438 $ 4,845,678
Income taxes $ 539,861 $ 835,938
Noncash investing and financing activities:
Unrealized (gains) losses on securities; available-for-sale, net of tax $ 4,745 $ 87,487
Loans receivable charged to the allowance for loan losses $ 29,576 $ 52,256
Transfer from loans converted to real estate acquired through foreclosure $ 355,901 $ 548,062
Issuance of common stock out of treasury under Management Recognition and
Development Plan $ 1,254,525 $ --
</TABLE>
See accompanying notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
FirstBank Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
Three months ended Dec. 31, Nine months ended Dec. 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net income $ 543,787 $ 458,191 $1,489,556 $1,164,969
Other comprehensive income (loss), net of tax:
Change in unrealized gains (losses) on securities;
available-for-sale, net of tax (27,576) 5,309 4,745 87,487
---------- ---------- ---------- ----------
Net other comprehensive income (loss) (27,576) 5,309 4,745 87,487
---------- ---------- ---------- ----------
Comprehensive income $ 516,211 $ 463,500 $1,494,301 $1,252,456
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
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FIRSTBANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Generally Accepted Accounting Principles (GAAP) for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. These statements
should be read in conjunction with the consolidated financial statements and
related notes included in the Company's Form 10-KSB for the year ended March 31,
1998. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation have been included. The
results of operations and other data for the three and nine months ended
December 31, 1998 are not necessarily indicative of results that may be expected
for the entire fiscal year ending March 31, 1999.
The unaudited consolidated financial statements of FirstBank Corp. (the
"Company") include the accounts of its wholly-owned subsidiary, FirstBank
Northwest (the "Savings Bank") and its wholly-owned subsidiary, TriStar
Financial Corporation for the three months and nine months ended December 31,
1998. The financial statements for the periods prior to July 1, 1997 include
only the accounts of the Savings Bank and its subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
In September 1998, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged assets
or liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after September 15, 1999. Historically, the Company has not entered
into derivative contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption of the new standard
on April 1, 2000 to affect its financial statements.
(2) EARNINGS PER SHARE
Basic earnings per share is computed by dividing the Company's net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. ESOP shares, which are unallocated and not yet committed to
be released, are excluded from the weighted average shares outstanding
calculation
(3) EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
During 1997 the Company established a tax-qualified internally leveraged ESOP.
The ESOP covers substantially all employees who have attained the age of 21 and
completed one year of service. In connection with the conversion to a stock
company, the ESOP purchased 158,700 shares of the Company's common stock at a
price of $10.00 per share using funds loaned by the Company. All ESOP shares are
held in a suspense account and are allocated among the participants on a pro
rata basis as the loan is repaid. Currently this receivable from the ESOP is
scheduled to be repaid with level principal and interest payments over 15 years
with no penalty for prepayment. Shares released from the suspense account are
allocated among the participants based upon their pro rata annual compensation.
The sale of the shares to the ESOP was recorded by the Company as unearned ESOP
shares, a contra equity account. As ESOP shares are committed to be released to
compensate employees, the contra equity account is reduced and a corresponding
charge to compensation expense equal to the fair market value of the shares
committed to be released is recorded. Upon committing these shares to be
released, they become outstanding for purposes of earnings-per-share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction in ESOP debt. Compensation expense related to the ESOP was $205,000
for the nine months ended December 31, 1998. As of December 31, 1998, the
Company has allocated or committed to release to the ESOP 20,329 earned shares
and has 138,371 unearned, restricted shares remaining to be release. The market
value of unearned, restricted shares held by the ESOP trust was approximately
$2.0 million at December 31, 1998.
5
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(4) DIVIDEND
On October 19, 1998 the Board of Directors declared a cash dividend of $.09 per
common share to shareholders of record as of November 11, 1998. The dividend was
paid November 25, 1998.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects", "estimates" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated herein. These factors include, but are
not limited to, those set forth in Item 7 entitled Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's Form
10-KSB for the year ended March 31, 1998.
GENERAL
On July 1, 1997, FirstBank Northwest converted from mutual to stock form and
became a wholly owned subsidiary of a newly formed Delaware holding company,
FirstBank Corp. The Company sold 1,983,750 shares of common stock at $10.00 per
share in conjunction with a subscription offering to the Savings Bank's Employee
Stock Ownership Plan (ESOP) and eligible account holders. The net proceeds were
approximately $18,921,825. The Company used approximately $9,470,000 of the net
proceeds to purchase all the capital stock of the Savings Bank. In addition,
$1,587,000 was loaned to the ESOP for the purchase of 158,700 shares in the
offering.
The Company's principal business is the business of the Savings Bank. Therefore,
the discussion in the Management's Discussion and Analysis of Financial
Conditions and Results of Operation relates to the Savings Bank and its
operations. In August 1997, the Savings Bank opened up a retail branch in
Clarkston, Washington. The Bank now has offices in Idaho and Washington. In
January 1998 the Bank changed its charter to a Washington state savings bank.
During the second quarter of fiscal 1999, the shareholders approved the
Company's Management Recognition and Development Plan and 1998 Stock Option
Plan. The Board of Directors awarded 79,350 shares of restricted stock and
options to acquire 171,350 shares.
In August 1998, the Company completed the repurchase of 5%, or 99,187, of its
common shares. In September 1998, 79,350 of these shares were reissued out of
treasury under the Management Recognition and Development Plan. In November and
December 1998, the Company completed the repurchase of an additional 4%, or
78,557 of its shares on the open market.
On September 21st, 1998, the Company received FDIC approval to begin
construction of a new branch office in Liberty Lake, Washington. Liberty Lake is
a fast-growing bedroom community midway between Spokane, Washington and Coeur d'
Alene, Idaho. This will be the seventh retail branch for the Company, the second
in Washington State, and will have six employees, including one loan officer. It
is expected the branch will open during the summer of 1999. The contractor for
the new branch is Bank Design and Construction Corp. out of Dallas, Texas. The
annual lease expense for the land is $30,000, and the expected capitalized cost
of construction is $750,000.
On January 7, 1999, the Company announced and received FDIC approval to open its
first branch office inside a supermarket. The new branch will be located in the
Tidyman's Market in Post Falls, Idaho - a fast growing small city between
Spokane, Washington and Coeur d' Alene, Idaho. The branch is expected to open in
March, and will be FirstBank's eighth branch and will employ a staff of
approximately four people. International Banking Technologies is consulting with
startup, staffing, training and monitoring issues. The annual lease expense is
$27,000 and expected capitalized costs are $100,000.
During the third quarter of fiscal 1999, management announced plans to terminate
service held with the Company's external service provider and begin an in-house
conversion during the first quarter of fiscal 2000.
FINANCIAL CONDITION AT DECEMBER 31, 1998 AND MARCH 31, 1998
Assets increased from $183.6 million at March 31, 1998 to $203.6 million at
December 31, 1998. Cash and cash equivalents increased from $8.4 million at
March 31, 1998 to $12.3 million at December 31, 1998 as a result of an increase
in deposits. Loans receivable increased from $145.7 million at March 31, 1998 to
$161.1 million at December 31, 1998 as a result of a large increase in
agricultural and commercial lending. Accrued interest receivable increased $1.4
million at March 31, 1998 to $1.6 million at
6
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December 31, 1998 due to a higher average asset base in securities and loans.
Deposits increased from $114.5 million at March 31, 1998 to $128.7 million at
December 31, 1998, the greatest increase being an additional $8.0 million in
checking accounts. Activity within deposit balances increased primarily due to
the Savings Bank benefiting from funds deposited by the customers of other local
institutions, following larger bank mergers, and from deposits of new commercial
loan customers. Federal Home Loan Bank of Seattle (FHLB) advances increased from
$35.7 million at March 31, 1998 to $43.8 million at December 31, 1998. The
increase in FHLB borrowing was used to fund loan growth. Accrued expenses and
other liabilities remained constant at $1.8 million at March 31, 1998 and at
December 31, 1998. It is the policy of the Savings Bank to cease accruing
interest on loans 90 days or more past due. Nonaccrual loans decreased from
$454,000 at March 31, 1998 to $364,000 at December 31, 1998.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
Net income increased from $458,000 for the three months ended December 31, 1997
to $544,000 for the three months ended December 31, 1998.
Net interest income increased from $1.8 million for the three months ended
December 31, 1997 to $1.9 million for the three months ended December 31, 1998.
Total interest income increased from $3.5 million for the three months ended
December 31, 1997 to $3.8 million for three months ended December 31, 1998. The
increase in interest income stemmed from an increase in average interest earning
assets offset by a decrease in the weighted average yield on the loan portfolio,
which was 8.70% for the three months ended December 31, 1997 compared to the
weighted average yield for the three months ended December 31, 1998 of 8.53%.
The average balance of loans receivable was $138.8 million for the three months
ended December 31, 1997 compared to the average balance of $156.9 million for
the three months ended December 31, 1998. Interest income from investment
securities decreased from $128,000 for the three months ended December 31, 1997
to $77,000 for the three months ended December 31, 1998. The decrease is due to
a decrease in the average balance and yield. Interest income from
mortgage-backed securities decreased from $204,000 for the three months ended
December 31, 1997 to $143,000 for the three months ended December 31, 1998. The
decrease is due primarily to a higher average balance. Interest expense
increased from $1.7 million for the three months ended December 31, 1997 to $1.9
million for the same period in 1998. The increase in interest expense is due
primarily to higher average deposit balances, an increase in average FHLB
advances offset by a decrease in weighted average rates. The weighted average
rate on deposits for the three months ended December 31, 1998 was 3.92%, whereas
the weighted average rate on deposits as of December 31, 1997 was 4.22%. The
weighted average rate on FHLB advances for the three months ended December 31,
1998 was 5.73%, whereas the weighted average rate on FHLB advances as of
December 31, 1997 was 5.91%.
Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the risks inherent in
the Savings Bank's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in the Savings
Bank's provision for loan losses. As a result of this evaluation, the Savings
Bank's provision for loan losses decreased from $75,000 the three months ended
December 31, 1997 to $65,000 for the three months ended December 31, 1998.
Non-interest income increased from $633,000 for the three months ended December
31, 1997 to $894,000 for the three months ended December 31, 1998. The primary
reason for the increase is the gain on sale of loans, which increased $184,000.
Non-interest expense increased from $1.6 million for the three months ended
December 31, 1997 to $1.9 million for the three months ended December 31, 1998.
The increase in compensation and other related expenses of $191,000 is caused by
increasing payroll expenses in the expanding commercial and agriculture
departments, and compensation related to the Management Recognition and
Development Plan. Other expenses that were up are data processing and
write-downs of real estate owned.
Income taxes increased from an expense of $252,000 for the three months ended
December 31, 1997 to expense of $285,000 for the same time period in 1998.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
Net income increased from $1.2 million for the nine months ended December 31,
1997 to $1.5 million for the nine months ended December 31, 1998.
Net interest income increased from $5.0 million for the nine months ended
December 31, 1997 to $5.8 million for the nine months ended December 31, 1998.
Total interest income increased from $9.8 million for the nine months ended
December 31, 1997 to $11.3 million for nine months ended December 31, 1998. The
increase in interest income stemmed from an increase in average interest
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earning assets offset by a decrease in the weighted average yield on the loan
portfolio, which was 8.86% for the nine months ended December 31, 1997 compared
to the weighted average yield for the nine months ended December 31, 1998 of
8.73%. The average balance for loans receivable was $129.6 million in during the
nine months ended December 31, 1997 compared to an average balance of $153.9
million during the nine months ended December 31, 1998. Interest income from
investment securities decreased from $312,000 for the nine months ended December
31, 1997 to $216,000 for the nine months ended December 31, 1998. The decrease
is due to a lower average balance and a decrease in average yield from 6.82% at
December 31, 1997 to 6.09% at December 31, 1998. Interest income from
mortgage-backed securities increased from $424,000 for the nine months ended
December 31, 1997 to $473,000 for the nine months ended December 31, 1998. The
increase is due primarily to a higher average balance. Interest expense
increased from $4.9 million for the nine months ended December 31, 1997 to $5.5
million for the same time period in 1998. The increase in interest expense is
due primarily to higher average deposit balances, an increase in average FHLB
advances offset by a decrease in weighted average rates. The weighted average
rate on deposits for the nine months ended December 31, 1998 was 4.09%, whereas
the weighted average rate on deposits for the nine months ended December 31,
1997 was 4.26%. The weighted average rate on FHLB advances for the nine months
ended December 31, 1998 was 5.74%, whereas the weighted average rate on FHLB
advances for the nine months ended December 31, 1997 was 6.33%.
Provision for loan losses is based upon management's consideration of economic
conditions which may affect the ability of borrowers to repay the loans.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the risks inherent in
the Savings Bank's portfolio and the estimated fair value of the underlying
collateral. This evaluation is ongoing and results in variations in the Savings
Bank's provision for loan losses. As a result of this evaluation, the Savings
Bank's provision for loan losses increased from $143,000 for the nine months
ended December 31, 1997 to $265,000 for the nine months ended December 31, 1998.
Non-interest income increased from $1.6 million for the nine months ended
December 31, 1997 to $2.4 million for the nine months ended December 31, 1998.
The primary reason for the increase is the gain on sale of loans increased
$620,000.
Non-interest expense increased from $4.6 million for the nine months ended
December 31, 1997 to $5.6 million for the nine months ended December 31, 1998.
The increase in compensation and other related expenses of $441,000 is caused by
the payroll increase in the expanding commercial and agriculture departments,
and compensation related to the management recognition and development plan.
Other expenses that were up are data processing, write-downs of real estate
owned and a loss on the sale of a fixed asset.
Income taxes increased from an expense of $680,000 for the nine months ended
December 31, 1997 to expense of $824,000 for the same time period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary recurring sources of funds are customer deposits, proceeds
from principal and interest payments on loans, proceeds from sales of loans,
maturing securities and FHLB advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Company generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At December 31, 1998, cash and
cash equivalents totaled $12.3 million, or 6.05% of total assets. In addition,
the Company maintains a credit facility with the FHLB-Seattle, which provides
for immediately available advances. Advances under this credit facility totaled
$43.8 million at December 31, 1998.
The primary investing activity of the Company is the origination of loans.
During the nine months ended December 31, 1997 and 1998, the Company originated
loans in the amounts of $103.7 million and $136.8 million respectively. At
December 31, 1998, the Company had loan commitments totaling $26.9 million,
undisbursed lines of credit totaling $12.4 million, and undisbursed loans in
process totaling $12.1 million. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificates of deposit that are scheduled to mature in less than one year from
December 31, 1998 totaled $51.0 million. Historically, the Company has been able
to retain a significant amount of its deposits as they mature. In addition,
management of the Company believes that it can adjust the offering rates of
savings certificates to retain deposits in changing interest rate environments.
The Savings Bank is required to maintain specific amounts of capital pursuant to
the FDIC and the State of Washington requirements. As of December 31, 1998, the
Savings Bank was in compliance with all regulatory capital requirements which
were effective as of such date with Tier 1 Capital to average assets, Tier 1
Capital to risk-weighted assets and Total capital to risk-weighted assets of
11.00%, 14.77% and 15.7%, respectively.
8
<PAGE>
YEAR 2000 ISSUES
The Year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process financial and operational information incorrectly. In order to alleviate
the potential for systems failure or erroneous information, the Company has
created a Year 2000 compliance plan that focuses on identifying, testing and
implementing solutions for Year 2000 processing. A preliminary estimate of the
total cost to complete the Year 2000 compliance plan is approximately $100,000,
$64,000 of which has been spent on the project year to date. Maintenance or
modification costs will be expensed as incurred, while the costs of new software
will be capitalized and amortized over the software's useful life. The costs for
accomplishing the Company's plans to complete the year 2000 modifications and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumption of future events, including the continued
availability of various resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ from those plans. In the event that
the Company's service bureau is unable to fulfill its contractual obligations to
the Company, it could have a significant adverse impact on the financial
condition and results of operations of the Company.
At June 30, 1998, the Company had completed the awareness training and
assessment phases of its Year 2000 compliance plan and was well into the testing
phase. The awareness phase included gaining understanding and support with the
help of an independent consulting firm experienced in Year 2000 management,
committing resources to the plan, established a project team consisting of
senior managers and department heads, and developing a strategy to address all
internal and external systems. The project team reports monthly to the Board of
Directors as to the status of timeline for completing the project.
The assessment phase involved attempting to identify all critical business
processes and determining the impact of Year 2000 on all computer systems
throughout the organization. Vendors were contacted and asked to submit
certification letters stating that they are in compliance with Year 2000
conversion issues.
The conversion to the in-house computer system includes Year 2000 testing and
preparation. All hardware and computer systems and all of the embedded systems
contained in the building, equipment and other infrastructure have been
assessed. The Company has successfully tested the loan platforms systems for
loan documentation. It is estimated that testing programming changes (including
converting, replacing or eliminating all software and databases as necessary)
will be largely completed by March 31, 1999.
Contingency plans are being developed in the event modifications cannot be
completed in time, or in the event unforeseen problems develop in spite of the
Company's efforts to ensure compliance with Year 2000 standards.
Financial institutions also must consider the possibility of some level of
reduction in deposits during the month of December 1999. The Company has made
arrangements with the Federal Reserve for funds from the discount window if
needed.
In conjunction with its review of Year 2000 issues, the Company also is
assessing the impact of the Year 2000 problem on significant borrowers and their
ability to repay loans. As of December 31, 1998, a credit risk mitigation
assessment on loans was completed, resulting in the evaluation of an
insignificant number of loans with a high or medium risk factor.
9
<PAGE>
FIRSTBANK CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material legal proceedings to which the Company or the Savings Bank
is a party or of which any of their property is subject. From time to time, the
Savings Bank is a party to various legal proceedings incident to its business.
Item 2 - Changes in Securities and Use of Proceeds
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
10.1 Employment Agreement between FirstBank Northwest , FirstBank
Corp. and Clyde E. Conklin*
10.2 Salary Continuation Agreement between First Federal Bank of
Idaho, F.S.B. and Clyde E. Conklin*
10.3 Salary Continuation Agreement between First Federal Bank of
Idaho, F.S.B. and Larry K. Moxley*
10.4 FirstBank Northwest Employee Stock Ownership Plan***
10.5 FirstBank Northwest 1998 Stock Option Plan****
10.6 FirstBank Northwest Management Recognition and Development
Plan****
27 Financial Data Schedule
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (File No. 333-23395)
*** Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the Year Ended March 31, 1997 (File No. 0-22435)
**** Incorporated by reference to the Registrants Quarterly Report on Form
10-QSB for the Quarter Ended September 30, 1998.
(b) Reports on Form 8-K; No reports on Form 8-K have been filed during
the quarter for which this report is filed.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRSTBANK CORP.
DATED: February 4, 1999 BY: /s/ CLYDE E. CONKLIN
-------------------------------------------
Clyde E. Conklin
President and Chief Executive Officer
BY: /s/ LARRY K. MOXLEY
-------------------------------------------
Larry K. Moxley
Secretary and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of FirstBank Corp. for the nine months ended December 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001035513
<NAME> FirstBank Corp.
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
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