<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from ______ to _______.
Commission file number: 0-14209
FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2633910
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
311 Woodworth Avenue, Alma, Michigan 48801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 463-3131
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock . . . 4,297,845 shares outstanding as of October 31,
1998.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (UNAUDITED)
Consolidated balance sheets . . . . September 30,
1998 and December 31, 1997. page 3
Consolidated statements of income . . . . three
months ended September 30, 1998, and
September 30, 1997. page 4
Consolidated statements of income . . . . nine
months ended September 30, 1998, and
September 30, 1997. page 5
Consolidated statements of changes in shareholders'
equity page 6
Consolidated statements of cash flows . . . . nine
months ended September 30, 1998, and
September 30, 1997. page 7
Notes to consolidated financial statements . . . .
September 30, 1998. page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. page 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. page 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities page 16
Item 6. Exhibits and Reports on Form 8-K page 16
SIGNATURES page 17
EXHIBITS
Exhibit 27 -- Financial Data Schedule page 18
Exhibit 99.1 -- Prior Year 2000 Readiness Disclosures page 19
Page 2
<PAGE>
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,860,290 $ 23,279,923
Short term investments 38,927,743 835,580
Total cash and cash equivalents 58,788,033 24,115,503
Securities available for sale 88,962,403 82,577,999
Loans
Loans held for sale 5,397,882 3,916,791
Portfolio loans
Commercial 174,784,120 158,218,889
Real estate mortgage, portfolio 167,611,194 167,930,825
Consumer 72,860,723 74,741,496
Total loans 420,653,919 404,808,001
Less allowance for loan losses (8,734,000) (8,114,000)
Net loans 411,919,919 396,694,001
Premises and equipment, net 13,744,800 13,417,065
Acquisition intangibles 9,828,944 10,290,640
Accrued interest receivable 3,605,041 3,458,655
Other assets 6,099,873 5,768,444
TOTAL ASSETS $592,949,013 $536,322,307
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts 79,165,556 $ 57,952,555
Interest bearing accounts:
Demand 134,118,931 110,363,898
Savings 69,505,157 63,853,842
Time 211,307,846 213,495,526
Total deposits 494,097,490 445,665,821
Securities sold under agreements to
repurchase and overnight borrowings 18,020,849 21,232,881
Notes payable 14,321,950 7,590,465
Accrued interest and other liabilities 8,332,032 7,301,246
Total liabilities 534,772,321 481,790,413
<PAGE>
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000
shares authorized, none issued
Common stock; 10,000,000 shares authorized, 4,316,856 shares
issued and outstanding (4,292,210 in December 1997) 45,756,343 46,223,949
Retained earnings 10,980,774 7,420,886
Unrealized gain (loss) on available for sale securities 1,439,575 887,059
Total shareholders' equity 58,176,692 54,531,894
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $592,949,013 $536,322,307
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 1998 and 1997
(UNAUDITED)
<CAPTION>
Three months
ended September 30,
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $9,679,376 $8,836,323
Investment securities
Taxable 850,663 674,602
Exempt from Federal Income Tax 445,508 418,136
Short term investments 245,466 72,162
Total interest income 11,221,013 10,001,223
Interest expense:
Deposits 4,520,987 4,088,239
Notes payable and other 341,967 268,889
Total interest expense 4,862,954 4,357,128
Net interest income 6,358,059 5,644,095
Provision for loan losses 240,000 364,839
Net interest income after provision for loan losses 6,118,059 5,279,256
Noninterest income:
Gain on sale of mortgage loans 368,119 204,216
Service charges on deposit accounts 370,990 335,158
Trust fees 102,497 59,604
Gain on sale of securities 2,538 1,050
Other 522,965 271,979
Total noninterest income 1,367,109 872,007
Noninterest expense:
Salaries and employee benefits 2,393,925 2,092,298
Occupancy 867,612 538,679
Amortization of Intangibles 181,706 145,348
FDIC Insurance premium 18,055 16,939
Michigan Single Business Tax 101,600 87,967
Other 1,277,441 1,158,281
Total noninterest expense 4,840,339 4,039,512
Income before federal income taxes 2,644,829 2,111,751
Federal income taxes 792,000 612,000
NET INCOME $1,852,829 $1,499,751
Per Share:
BASIC EARNINGS $0.43 $0.38
DILUTED EARNINGS $0.41 $0.37
DIVIDENDS $0.15 $0.12
See notes to the consolidated financial statements.
<PAGE>
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Net Income $1,852,829 $1,499,751
Change in unrealized gains on securities 616,774 405,028
Comprehensive net income $2,469,603 $1,904,779
</TABLE>
See notes to the consolidated financial statements.
Page 4
<PAGE>
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 1997 AND 1998
(UNAUDITED)
<CAPTION>
Nine months
ended September 30,
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $28,674,877 $23,775,953
Investment securities
Taxable 2,497,686 1,754,572
Exempt from Federal Income Tax 1,333,309 1,161,912
Short term investments 475,466 171,511
Total interest income 32,981,338 26,863,948
Interest expense:
Deposits 13,349,761 11,169,325
Notes payable and other 1,065,524 605,457
Total interest expense 14,415,285 11,774,782
Net interest income 18,566,053 15,089,166
Provision for loan losses 815,000 1,077,839
Net interest income after provision for loan losses 17,751,053 14,011,327
Noninterest income:
Gain on sale of mortgage loans 1,360,545 480,571
Service charges on deposit accounts 1,112,788 864,152
Trust fees 249,713 207,105
Gain on sale of securities 2,616 610
Other 1,549,561 886,966
Total noninterest income 4,275,223 2,439,404
Noninterest expense:
Salaries and employee benefits 7,238,232 5,696,822
Occupancy 2,229,161 1,475,153
Amortization of Intangibles 545,118 605,082
FDIC Insurance premium 54,343 24,654
Michigan Single Business Tax 297,800 279,367
Other 3,912,903 2,865,764
Total noninterest expense 14,277,557 10,946,842
Income before federal income taxes 7,748,719 5,503,889
Federal income taxes 2,318,000 1,555,000
NET INCOME $ 5,430,719 $ 3,948,889
Per Share:
BASIC EARNINGS $1.26 $1.10
DILUTED EARNINGS $1.21 $1.07
DIVIDENDS $0.44 $0.35
See notes to the consolidated financial statements.
<PAGE>
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Net Income $ 5,430,719 $ 3,948,889
Change in unrealized gains on securities 552,516 323,720
Comprehensive net income $ 5,983,235 $ 4,272,609
</TABLE>
See notes to the consolidated financial statements.
Page 5
<PAGE>
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Net unrealized
appreciation
(depreciation) on
(in thousands) Common Retained available for sale
Stock Earnings securities TOTAL
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 $24,228,132 $ 8,296,590 $ 563,339 $33,088,061
Cash dividends - $.48 per share (1,862,378) (1,862,378)
Issuance of 13,756 shares of common stock
through exercise of stock options 163,566 163,566
Issuance of 25,590 shares of common stock
through dividend reinvestment plan 479,436 479,436
Issuance of 20,734 shares of common stock
through supplemental purchase under
dividend reinvestment plan 402,894 402,894
5% stock dividend - 203,834 shares 4,560,786 (4,571,057) (10,271)
Issuance of 815,266 shares of common stock
pursuant to the acquisition 16,389,135 16,389,135
Net change in unrealized appreciation
on available for sale securities 323,720 323,720
Net income for 1997 5,557,731 5,557,731
BALANCES AT DECEMBER 31, 1997 $46,223,949 $ 7,420,886 $ 887,059 $54,531,894
Cash dividends - $.44 per share (1,870,831) (1,870,831)
Issuance of 11,197 shares of common stock
through exercise of stock options 202,467 202,467
Issuance of 6,764 shares of common stock
through dividend reinvestment plan 176,482 176,482
Issuance of 10,990 shares of common stock
through supplemental purchase under
dividend reinvestment plan 313,270 313,270
Repurchase of 33,607 shares of stock (1,170,423) (1,170,423)
Net change in unrealized appreciation
(depreciation) on available for sale securities 552,516 552,516
Issuance of 339 shares of common stock 10,598 10,598
Net income year to date 5,430,719 5,430,719
BALANCES AT SEPTEMBER 30, 1998 $45,756,343 $10,980,774 $1,439,575 $58,176,692
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE>
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<CAPTION>
Nine months ended September 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,430,719 $ 3,948,889
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 815,000 1,077,839
Depreciation of premises and equipment 1,152,180 737,208
Net amortization of security premiums/discounts 67,046 58,494
Loss (gain) on sale of securities (2,616) (610)
Amortization of goodwill and other intangibles 545,118 605,082
Gain on sale of mortgage loans (1,360,545) (480,571)
Proceeds from sales of mortgage loans 102,234,854 32,583,532
Increase in acquisition intangibles 461,696 (8,295,579)
Loans originated for sale (102,355,400) (28,848,160)
Increase in accrued interest receivable and other assets (1,251,806) (3,228,799)
Increase in accrued interest payable and other liabilities 1,030,786 4,199,396
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,767,032 2,356,721
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 612,031 560,907
Proceeds from maturities of securities available for sale 22,281,621 17,617,767
Available for sale securities from acquisition (13,515,500)
Purchases of securities available for sale (28,561,097) (28,619,789)
Net increase in portfolio loans (14,559,827) (90,540,354)
Net purchases of premises and equipment (1,479,915) (3,609,607)
NET CASH USED IN INVESTING ACTIVITIES (21,707,187) (118,106,576)
FINANCING ACTIVITIES
Net increase in deposits 48,431,669 88,130,243
Increase (decrease) in securities sold under agreements
to repurchase and other short term borrowings (3,212,032) 9,716,592
Increase in note payable 6,731,485 5,351,426
Issuance of common stock for acquisition 16,492,000
Repurchase of common stock (1,170,423)
Cash proceeds from issuance of common stock 702,817 698,453
Cash dividends (1,870,831) (1,312,402)
NET CASH PROVIDED BY FINANCING ACTIVITIES 49,612,685 119,076,312
<PAGE>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,672,530 3,326,457
Cash and cash equivalents at beginning of period 24,115,503 21,228,472
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,788,033 $ 24,554,929
Supplemental Disclosure
Interest Paid $ 14,265,962 $ 11,433,755
Income Taxes Paid $ 2,575,000 $ 1,460,000
</TABLE>
See notes to consolidated financial statements.
Page 7
<PAGE>
FIRSTBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE A - FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998. The balance sheet at December 31, 1997, has been
derived from the audited financial statements at that date. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Corporation's annual report on Form 10-K for the
year ended December 31, 1997. Net income per share is based on the
weighted average shares outstanding for each period, 4,303,845 in 1998 and
3,921,771 in 1997.
NOTE B - SECURITIES
Individual securities held in the security portfolio are classified as
securities available for sale. Securities might be sold prior to maturity
due to changes in interest rates, prepayment risks, yield, availability of
alternate investments, liquidity needs or other factors. As required by
SFAS 115, securities classified as available for sale are reported at their
fair value and the related unrealized holding gain or loss is reported, net
of related income tax effects, as a separate component of shareholders'
equity until realized.
NOTE C - LOAN COMMITMENTS
Loan commitments (including unused lines of credit and letters of credit)
are made to accommodate the financial needs of the Banks' customers. The
commitments have credit risk essentially the same as that involved in
extending loans to customers, and are subject to the Banks' normal credit
policies and collateral requirements. Loan commitments, which are
predominately at variable rates, were approximately $78,655,000 and
$50,596,000 at September 30, 1998, and December 31, 1997, respectively.
Page 8
<PAGE>
NOTE D - NONPERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
NONPERFORMING LOANS AND ASSETS
The following table summarizes nonaccrual and past due loans at the dates
indicated:
<TABLE>
<CAPTION>
September 30, December 31,
(DOLLARS IN THOUSANDS) 1998 1997
------------------------------------------- ------------- ------------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 306 $1,274
Loans 90 days or more past due 678 1,215
Renegotiated loans 214 121
------ ------
Total nonperforming loans $1,198 $2,610
====== ======
Property from defaulted loans $584 $ 663
====== ======
Nonperforming loans as a percent of:
Total loans .28% .64%
====== ======
Allowance for loan losses 13.7% 32.2%
====== ======
</TABLE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarizes changes in the allowance for loan losses
arising from loans charged off, recoveries on loans previously charged off,
and additions to the allowance which have been charged to expense.
<PAGE>
<TABLE>
<CAPTION>
Nine Twelve Nine
months months months
ended ended ended
September 30, December 31, September 30,
(DOLLARS IN THOUSANDS) 1998 1997 1997
- ---------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Balance at beginning of period $8,114 $6,247 $7,573
Charge-offs (522) (1,270) (688)
Recoveries 327 413 321
-------- -------- --------
Net charge-offs (195) (857) (367)
Additions to allowance for
loan losses 815 2,724 1,078
-------- -------- --------
Balance at end of period $8,734 $8,114 $8,284
======== ======== ========
Average loans outstanding
during the period $409,291 $353,061 $337,126
======== ======== ========
Loans outstanding at end of period $420,654 $404,808 $401,876
======== ======== ========
Allowance as a percent of:
Total loans at end of period 2.08% 2.00% 2.06%
======== ======== ========
Nonperforming loans at end of period 729% 311% 530%
======== ======== ========
Net charge-offs as a percent of:
Average loans outstanding .05% .24% .11%
======== ======== ========
Average Allowance for loan losses 2.31% 12.00% 5.44%
======== ======== ========
</TABLE>
Page 9
<PAGE>
NOTE E - RECLASSIFICATION
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
Page 10<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The consolidated financial information presented is for Firstbank
Corporation ("Corporation") and its wholly owned subsidiaries, Bank of
Alma, Firstbank (Mt. Pleasant), 1st Bank (West Branch), and Bank of
Lakeview (Lakeview), (collectively the "Banks").
FINANCIAL CONDITION
Corporate assets increased $57,000,000 or 10.56% in the nine month period
from December 31, 1997, to September 30, 1998. The growth is the result of
increases in cash and cash equivalent of $35 million, loans of $16 million
and investment securities of $6 million.
The ending balance of cash and cash equivalents grew $35 million. Although
cash has grown steadily through the first nine months of 1998, $9 million
of the September 30, 1998, balance was the result of a transfer of funds
which were used to satisfy bond obligations on October 1, 1998. The
average balance in cash and cash equivalents is $20 million.
Investment securities available for sale have increased $6 million or 7.73%
during the first three quarters of 1998. Nearly all the increase in this
category is from an increase in corporate securities. The Corporation has
deployed excess cash in relatively short term investments that provide a
more predictable yield than overnight vehicles.
Total loans have grown 3.84% or $15 million during the first nine months of
1998. The strong economy appears to have stimulated business development
as all of this growth is in the commercial prime portfolio. Mortgage
activity has been at a high level, with refinancing leading the movement.
Serviced mortgages are $202 million at September 30, 1998, compared to $167
million at December 31, 1997.
The allowance for loan losses increased $620,000 or 7.64% during the first
three quarters of 1998. At September 30, 1998, the allowance as a percent
of outstanding loans was 2.08% compared to 2.00% at December 31, 1997. The
allowance was decreased by net charge offs of $195,000 and increased by a
provision of $815,000. Management continues to maintain the allowance for
loan losses at a level considered appropriate to absorb losses in the
portfolio. The allowance balance is established after considering past loan
loss experience, current economic conditions, volume, growth and
composition of the loan portfolio, delinquencies, and other relevant
factors.
<PAGE>
Deposits increased $48 million or 10.87% during the nine months ending
September 30, 1998. Interest bearing demand deposits and noninterest
bearing demand deposits have increased a total of $45 million. Included in
this growth total is a $9 million deposit that was only on deposit for one
day. Savings deposits have also grown during this nine month period. For
the nine months ending September 30, 1998, savings deposits have increased
8.85% or $6 million. During this same period, time deposits have decreased
1.02% or $2 million.
Securities sold under agreements to repurchase have grown $5 million from
December 31, 1997, to September 30, 1998. This product continues to
provide the combination of features our commercial customers are seeking.
The Corporation has maintained average balances in this offering of over
$15 million during 1998. Overnight borrowings have decreased $8 million
during the first nine months of 1998. Strong deposit growth has eliminated
the need for overnight borrowings.
Page 11
<PAGE>
Net notes payable have increased $7 million or 88.68% in the nine month
period from December 31, 1997, to September 30, 1998. Bank of Lakeview,
which does not participate in secondary market mortgage sales, is using
Federal Home Loan Bank borrowings in part to fund over $8 million in
mortgage growth.
Total shareholders' equity increased $3.6 million or 6.68% during the first
three quarters of 1998. Net income of $5.4 million and net change in
unrealized appreciation on available for sale securities of $600,000
increased shareholders' equity while net stock transactions of $500,000 and
dividends of $1,900,000 reduced shareholders' equity. Book value per share
was $12.71 on December 31, 1997, compared to $13.54 at September 30, 1998.
The following table discloses compliance with current regulatory
requirements on a consolidated basis:
<TABLE>
<CAPTION>
TIER 1 RISK-BASED
(DOLLARS IN THOUSANDS) LEVERAGE CAPITAL CAPITAL
--------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Capital balances at September 30, 1998 $48,363 $48,363 $53,663
Required Regulatory Capital 22,210 16,824 33,648
------- ------- -------
Capital in excess of regulatory minimums $26,153 $31,539 $20,015
Capital ratios at September 30, 1998 8.71% 11.50% 12.76%
Regulatory capital ratios -- "well capitalized"
definition 5.00% 6.00% 10.00%
Regulatory capital ratios -- minimum requirement 4.00% 4.00% 8.00%
</TABLE>
RESULTS OF OPERATIONS
On August 8, 1997, the Corporation acquired Lakeview Financial Corporation.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations are included in the Corporation's
results subsequent to August 8, 1997. For discussion of comparative
quarterly and nine month results, the acquisition effects are included in
the 1998 results but only in 1997 presentations subsequent to August 8,
1997.
Net income of $1,853,000 and $5,431,000 for the third quarter and first
nine months of 1998 compares favorably to $1,500,000 and $3,949,000 for the
same periods in 1997. Basic earnings per share were $.43 for the third
quarter of 1998, and $1.26 for the first nine months of 1998, and $.38 and
$1.10 for the respective periods in 1997. Diluted earnings per share were
$.41 and $.37 for the third quarters of 1998 and 1997, and $1.21 and $1.07
for the first three quarters of 1998 and 1997.
<PAGE>
Average earning assets increased 25% or $99 million from September 30, 1997
to September 30, 1998. During the same time period, yield on earning
assets has decreased 8 basis points. Rate related liabilities have
increased 24% or $94 million when comparing September 30, 1998, to the
previous year. The cost of funding of rate related liabilities decreased 4
basis points from September 30, 1997, to September 30, 1998. The net
effect of these reductions was a decrease in net rate spread of 4 basis
points from 5.02% to 4.98% and a decrease in net interest margin of 1 basis
point from 5.13% to 5.12% when comparing September 30, 1997, to the same
period in 1998. Loan fees posted an increase of 35% in 1998 when compared
to 1997, mitigating the reduction in net rate spread.
Page 12
<PAGE>
The provision for loan losses was $240,000 for the third quarter of 1998
and $815,000 for the first nine months of 1998, compared to $365,000 and
$1,078,000 for the comparable periods in 1997. At September 30, 1998, the
allowance for loan losses to total loans is 2.08% compared to 2.06% at
September 30, 1997.
Total 1998 noninterest income increased $1,836,000 or 75.26% for the nine
months and $495,000 or 56.78% for the three months when compared to the
same periods in 1997. Two components explain the majority of the increase.
Noninterest income from the new affiliate contributed $498,000 more to the
nine month totals of 1998 than it did for the first nine months of 1997.
Gains on sales of mortgage loans are $880,000 higher for the first three
quarters of 1998 than in the same period in 1997.
Noninterest expense increased 30.43% or $3,331,000 for the first nine
months of 1998 as compared to the same period in 1997. The increase for
the third quarter of 1998 when compared to 1997 was $803,000 or 19.87%.
Over 60% of the rise is attributable to the incremental increase of the
additional affiliate.
YEAR 2000 READINESS DISCLOSURE
The Corporation is currently in the process of addressing a potential
problem that is facing all users of automated information systems. The
problem is that many computer systems that process transactions based on
two digits representing the year of transaction may recognize a date using
"00" as the year 1900 rather than the year 2000. The problem could affect
a wide variety of automated information systems, such as mainframe
applications, personal computers, and communication systems, in the form of
software failure, errors, or miscalculations. By nature, the banking and
financial services industries are highly dependent upon computer systems
because of significant transaction volumes and a date dependency for
interest measurements on financial instruments such as loans and deposits.
The Corporation developed a plan to prepare for the year 2000 in 1997.
This plan began with the performance of an inventory of software
applications, communicating with third party vendors and suppliers, and
obtaining certification of compliance with third party providers. The
Corporation has a comprehensive, written plan, which is regularly updated
and monitored by technical personnel. Plan status is regularly reviewed by
management of the Corporation. As of September 30, 1998, it is estimated
that this plan is approximately 60% complete.
The Corporation will continue to assess the impact of the Year 2000 issue
on the remainder of its computer based systems and applications throughout
1998. The Corporation's goal is to perform tests of its systems and
applications during 1998, and to have all systems and applications
compliant with the century change by early 1999, allowing the rest of 1999
to be used for full validation and testing.
Page 13
<PAGE>
The Corporation estimates it will spend approximately $160,000 during 1998
and 1999 to remediate its Year 2000 issues. These costs will primarily
consist of personnel expense for staff dedicated to the effort and
professional fees paid to third party providers of remedial services. It
is the Corporation's policy to expense such costs as incurred. The Corporation
may also invest in new or upgraded technology which has definable value lasting
beyond 2000. In these instances, where Year 2000 compliance is merely
ancillary, the Corporation may capitalize and depreciate such an asset over its
estimated useful life.
In addition to reviewing its own computer operating systems and applications,
the Corporation has initiated formal communications with its significant
suppliers and large customers to determine the extent to which the
Corporation's interface systems are vulnerable to those third parties'
failure to resolve their own Year 2000 issues. There is no assurance
that the systems of other companies on which the Corporation's systems rely
will be timely converted. If such modifications and conversions are not made,
or are not completed timely, the Year 2000 issue could have an adverse impact
on the operations of the Corporation.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have an
adverse impact on the Corporation's financial conditions, results of
operations, or liquidity.
The costs of the project and the date on which the Corporation believes it
will complete the Year 2000 modifications are based on management's best
estimates. There can be no guarantee that these estimates will be achieved
and actual results could differ from those anticipated. Specific factors
that might cause differences include, but are not limited to, the ability
of other companies on which the Corporation's systems rely to modify or
convert their systems to be Year 2000 compliant, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
This Year 2000 Readiness Disclosure is based upon and partially repeats
information provided by the Corporation's outside consultants, vendors and
others regarding the Year 2000 readiness of the Corporation and its
customers, vendors, and other parties. Although the Corporation believes
this information to be accurate, it has not in each case independently
verified such information.
The Year 2000 statements contained in this report and in other reports,
registration statements and materials filed with the Securities and Exchange
Commission by the Corporation are "Year 2000 Readiness Disclosures" under the
Year 2000 Information and Readiness Disclosure Act. The Year 2000 disclosures
contained in or incorporated by reference in each of the following previous
filings of the Corporation are filed as exhibits to this report and here
incorporated by reference: 1997 Annual Report; Form 10-K for the year ended
<PAGE>
December 31, 1997; Form 10-Q quarterly report for quarter ended June 30, 1998.
Each of those Year 2000 Readiness Disclosures is updated by the discussion in
this report.
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q including, without limitation,
management's discussion and analysis of financial condition and results of
operations and other sections of the Corporation's Annual Report to
Shareholders which are incorporated in this quarterly report on Form 10-Q
by reference contain forward-looking statements that are based on
management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and about
the Corporation itself. Words such as "anticipates," "believes,"
"estimates," "expects,"
Page 14
<PAGE>
"forecasts," "intends," "is likely," "plans," "projects," "opinion,"
variations of such terms, and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties, and
assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood, and degree of occurrence. Therefore, actual
results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Furthermore, the
Corporation undertakes no obligation to update, amend or clarify forward-
looking statements, whether as a result of new information, future events,
or otherwise. Future Factors include changes in interest rates and
interest rate relationships; demand for products and services; the degree
of competition by traditional and non-traditional competitors; changes in
banking regulations; changes in tax laws; changes in prices, levies, and
assessments; the impact of technological advances; governmental and
regulatory policy changes; the outcomes of pending and future litigation
and contingencies; trends in customer behavior and customer ability to
repay loans; software failure, errors or miscalculations; and the
vicissitudes of the national economy. These are representative of the
Future Factors that could cause a difference between an ultimate actual
outcome and a preceding forward-looking statement.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Information under the headings, "Liquidity and Interest Rate Sensitivity"
on pages 8 and 9 and "Quantitative and Qualitative Disclosure About Market
Risk" on pages 9 through 10 in the registrant's annual report to
shareholders for the year ended December 31, 1997, is here incorporated by
reference. The Corporation's annual report is filed as Exhibit 13 to its
Form 10-K annual report for its fiscal year ended December 31, 1997.
Firstbank faces market risk to the extent that both earnings and the fair
values of its financial instruments are affected by changes in interest
rates. The Corporation manages this risk with static GAP analysis and
simulation modeling. Throughout the three quarters of 1998, the results of
these measurement techniques were within the Corporation's policy
guidelines. The Corporation does not believe that there has been a
material change in the nature of the Corporation's primary market risk
exposures, including the categories of market risk to which the Corporation
is exposed and the particular markets that present the primary risk of loss
to the Corporation. As of the date of this Form 10-Q Quarterly Report, the
Corporation does not know of or expect there to be any material change in
the general nature of its primary market risk exposure in the near term.
<PAGE>
The methods by which the Corporation manages its primary market risk
exposures, as described in the sections of its Form 10-K Annual Report
incorporated by reference in response to this item, have not changed
materially during the current year. As of the date of this Form 10-Q
quarterly report, the Corporation does not expect to change those methods
in the near term. However, the Corporation may change those methods in the
future to adapt to changes in circumstances or to implement new techniques.
The Corporation's market risk exposure is mainly comprised of its
vulnerability to interest rate risk. Prevailing interest rates and
interest rate relationships in the future will be primarily determined by
market factors which are outside of the Corporation's control. All
information provided in response to this item consists of forward looking
statements. Reference is made to the section captioned "Forward Looking
Statements" in this Form 10-Q quarterly report for a discussion of the
limitations on the Corporation's responsibility for such statements.
Page 15
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities
At various times in the third quarter of 1998, the Corporation issued
unregistered shares of its common stock totaling 462 shares to members of
the board of directors of the Corporation and the Corporation's subsidiary
banks. The shares were issued as retainers and/or director fees for the
directors' services on the Boards. The Corporation claims an exemption
from registration for the issuances under Section 4(2) of the Securities
Act of 1933, as amended, which exempts transactions by an issuer not
involving any public offering. The issuance did not involve any general
solicitation.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 -- Financial Data Schedule
Exhibit 99.1 -- Prior Year 2000 Disclosures
Page 16
<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 CORPORATION
(Registrant)
Date: NOVEMBER 10, 1998 \s\ JOHN MCCORMACK
John McCormack
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: NOVEMBER 10, 1998 \s\ MARY D. DECI
Mary D. Deci
Vice President and Chief Financial
Officer (Principal Accounting Officer)
Page 17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION FOR THE
PERIOD ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,860
<INT-BEARING-DEPOSITS> 414
<FED-FUNDS-SOLD> 38,513
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,962
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 420,654
<ALLOWANCE> 8,734
<TOTAL-ASSETS> 592,949
<DEPOSITS> 494,097
<SHORT-TERM> 18,021
<LIABILITIES-OTHER> 22,654
<LONG-TERM> 0
<COMMON> 45,756
0
0
<OTHER-SE> 12,420
<TOTAL-LIABILITIES-AND-EQUITY> 592,949
<INTEREST-LOAN> 28,675
<INTEREST-INVEST> 3,831
<INTEREST-OTHER> 475
<INTEREST-TOTAL> 32,981
<INTEREST-DEPOSIT> 13,350
<INTEREST-EXPENSE> 14,415
<INTEREST-INCOME-NET> 18,566
<LOAN-LOSSES> 815
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 14,278
<INCOME-PRETAX> 7,749
<INCOME-PRE-EXTRAORDINARY> 7,749
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,431
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 5.12
<LOANS-NON> 306
<LOANS-PAST> 678
<LOANS-TROUBLED> 214
<LOANS-PROBLEM> 1,198
<ALLOWANCE-OPEN> 8,114
<CHARGE-OFFS> 522
<RECOVERIES> 327
<ALLOWANCE-CLOSE> 8,734
<ALLOWANCE-DOMESTIC> 6,488
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,246
</TABLE>
<PAGE>
Exhibit 99.1
PRIOR YEAR 2000 READINESS DISCLOSURES
Each of the following statements previously made by the Corporation is
being designated as "Year 2000 Readiness Disclosure" under the Year 2000
Information and Readiness Disclosure Act. These prior Year 2000 Readiness
Disclosures were based in part upon and repeated information provided by
the Corporation's customers, suppliers and other third parties without
independent verification by the Corporation. These prior Year 2000
Readiness Disclosures are superseded by the Year 2000 Readiness Disclosure
in the Quarterly Report on Form 10-Q for the period ended September 30,
1998.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998
The Corporation is currently in the process of addressing a potential
problem that is facing all users of automated information systems. The
problem is that many computer systems that process transactions based on
two digits representing the year of transaction may recognize a date using
"00" as the year 1900 rather than the year 2000. The problem could affect
a wide variety of automated information systems, such as mainframe
applications, personal computers, and communication systems, in the form of
software failure, errors, or miscalculations. By nature, the banking and
financial services industries are highly dependent upon computer systems
because of significant transaction volumes and a date dependency for
interest measurements on financial instruments such as loans and deposits.
The Corporation developed a plan to prepare for the year 2000 in 1997.
This plan began with the performance of an inventory of software
applications, communicating with third party vendors and suppliers, and
obtaining certification of compliance with third party providers. The
Corporation has a comprehensive, written plan, which is regularly updated
and monitored by technical personnel. Plan status is regularly reviewed by
management of the Corporation. As of June 30, 1998, it is estimated that
this plan is approximately 55% complete.
The Corporation will continue to assess the impact of the Year 2000 issue
on the remainder of its computer based systems and applications throughout
1998. The Corporation's goal is to perform tests of its systems and
applications during 1998, and to have all systems and applications
compliant with the century change by early 1999, allowing the rest of 1999
to be used for full validation and testing.
The Corporation estimates it will spend approximately $160,000 during 1998
and 1999 to remediate its Year 2000 issues. These costs will primarily
<PAGE>
consist of personnel expense and for staff dedicated to the effort and
professional fees paid to third party providers of remedial services. It
is the Corporation's policy to expense such costs as incurred. The
Corporation may also invest in new or upgraded technology which has
definable value lasting beyond 2000. In these instances, where Year 2000
compliance is merely ancillary, the Corporation may capitalize and
depreciate such an asset over its estimated useful life.
In addition to reviewing its own computer operating systems and
applications, the Corporation has initiated formal communications with its
significant suppliers and large customers to determine the extent to which
the Corporation's interface systems are vulnerable to those third parties'
failure to resolve their own Year 2000 issues. There is no assurance that
the systems of other companies on which the Corporation's systems rely will
be timely converted. If such modifications and conversions are not made,
or are not completed timely, the Year 2000 issue could have an adverse
impact on the operations of the Corporation.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have an
adverse impact on the Corporation's financial conditions, results of
operations, or liquidity.
The costs of the project and the date on which the Corporation believes it
will complete the Year 2000 modifications are based on management's best
estimates. There can be no guarantee that these estimates will be achieved
and actual results could differ from those anticipated. Specific factors
that might cause differences include, but are not limited to, the ability
of other companies on which the Corporation's systems rely to modify or
convert their systems to be Year 2000 compliant, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
1997 ANNUAL REPORT, INCORPORATED BY REFERENCE IN
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
YEAR 2000
The Corporation is currently in the process of addressing a potential
problem that is facing all users of automated information systems. The
problem is that many computer systems that process transactions based on
two digits representing the year of transaction may recognize a date using
"00" as the year 1900 rather than the year 2000. The problem could affect
a wide variety of automated information systems, such as mainframe
applications, personal computers, and communication systems, in the form of
software failure, errors, or miscalculations. By nature, the banking and
financial services industries are highly dependent upon computer systems,
because of significant transaction volumes and a date dependency for
interest measurements on financial instruments such as loans and deposits.
-2-
<PAGE>
The Corporation developed a plan to prepare for the year 2000 in 1997.
This plan began with the performance of an inventory of software
applications, communicating with third party vendors and suppliers, and
obtaining certification of compliance with third party providers. The
Corporation has a comprehensive, written plan, which is regularly updated
and monitored by technical personnel. Plan status is regularly reviewed by
management of the Corporation. As of December 31, 1997, it is estimated
that this plan is approximately 30% complete.
The Corporation will continue to assess the impact of the Year 2000 issue
on the remainder of its computer based systems and applications throughout
1998. The Corporation's goal is to perform tests of its systems and
applications during 1998, and to have all systems and applications
compliant with the century change by early 1999, allowing the rest of 1999
to be used for full validation and testing.
At December 31, 1997, the Corporation estimated it may spend approximately
$160,000 over the next two years to remediate its Year 2000 issues. These
costs will primarily consist of personnel expense for staff dedicated to
the effort and professional fees paid to third party providers of remedial
services. It is the Corporation's policy to expense such costs as
incurred. The Corporation may also invest in new or upgraded technology
which has definable value lasting beyond 2000. In these instances, where
Year 2000 compliance is merely ancillary, the Corporation may capitalize
and depreciate such an asset over its estimated useful life.
In addition to reviewing its own computer operating systems and
applications, the Corporation has initiated formal communications with its
significant suppliers and large customers to determine the extent to which
the Corporation's interface systems are vulnerable to those third parties'
failure to resolve their own Year 2000 issues. There is no assurance that
the systems of other companies on which the Corporation's systems rely will
be timely converted. If such modifications and conversions are not made,
or are not completed timely, the Year 2000 issue could have an adverse
impact on the operations of the Corporation.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have an
adverse impact on the Corporation's financial conditions, results of
operations, or liquidity.
The costs of the project and the date on which the Corporation believes it
will complete the Year 2000 modifications are based on management's best
estimates. There can be no guarantee that these estimates will be achieved
and actual results could differ from those anticipated. Specific factors
that might cause differences include, but are not limited to, the ability
of other companies on which the Corporation's systems rely to modify or
convert their systems to be Year 2000 compliant, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
-3-
