<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 JUNE 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 . . . 4,317,807 shares outstanding as of July 31, 1998.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (UNAUDITED)
Consolidated balance sheets . . . . June 30, 1998 and
December 31, 1997. page 3
Consolidated statements of income . . . . three months ended
June 30, 1998, and June 30, 1997. page 4
Consolidated statements of income . . . . six months ended
June 30, 1998, and June 30, 1997. page 5
Consolidated statements of changes in shareholders' equity page 6
Consolidated statements of cash flows . . . . six months
ended June 30, 1998, and June 30, 1997. page 7
Notes to consolidated financial statements . . . . June 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 16
PART II. OTHER INFORMATION
Item 2. Changes in Securities page 17
Item 6. Exhibits and Reports on Form 8-K page 17
SIGNATURES page 18
EXHIBITS
Exhibit 27 -- Financial Data Schedule page 19
Page 1
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,456,728 $ 23,279,923
Short term investments 7,865,873 835,580
Total cash and cash equivalents 35,322,601 24,115,503
Securities available for sale 85,562,481 82,577,999
Loans
Loans held for sale 4,759,145 3,916,791
Portfolio loans
Commercial 167,779,150 158,218,889
Real estate mortgage, portfolio 165,387,901 167,930,825
Consumer 74,035,130 74,741,496
Total loans 411,961,326 404,808,001
Less allowance for loan losses (8,555,000) (8,114,000)
Net loans 403,406,326 396,694,001
Premises and equipment, net 13,377,107 13,417,065
Acquisition intangibles 9,897,620 10,290,640
Accrued interest receivable 3,432,536 3,458,655
Other assets 7,485,617 5,769,444
TOTAL ASSETS $ 558,484,288 $ 536,323,307
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts 69,829,709 $57,952,555
Interest bearing accounts:
Demand 120,040,010 110,363,898
Savings 66,928,345 63,853,842
Time 208,813,420 213,495,526
Total deposits 465,611,484 445,665,821
Securities sold under agreements to
repurchase and overnight borrowings 16,220,782 21,232,881
Notes payable 11,321,950 7,590,465
Accrued interest and other liabilities 7,940,339 7,301,246
Total liabilities 501,094,555 481,790,413
Page 2
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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) 46,816,985 46,223,949
Retained earnings 9,749,947 7,420,886
Unrealized gain (loss) on available for
sale securities 822,801 887,059
Total shareholders' equity 57,389,733 54,531,894
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $558,484,288 $ 536,322,307
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
JUNE 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended June 30,
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans $ 9,503,869 7,664,846
Investment securities
Taxable 837,822 576,759
Exempt from Federal Income Tax 443,935 377,253
Short term investments 110,316 30,575
Total interest income 10,895,942 8,649,433
Interest expense:
Deposits 4,417,836 3,598,796
Notes payable and other 382,939 196,142
Total interest expense 4,800,775 3,794,938
Net interest income 6,095,167 4,854,495
Provision for loan losses 205,000 462,000
Net interest income after provision for
loan losses 5,890,167 4,392,495
Noninterest income:
Gain on sale of mortgage loans 430,963 158,116
Service charges on deposit accounts 395,441 274,410
Trust fees 79,589 90,657
Gain on sale of securities (742) (440)
Other 718,271 296,728
Total noninterest income 1,623,522 819,471
Noninterest expense:
Salaries and employee benefits 2,483,092 1,861,822
Occupancy 687,958 462,294
Amortization of Intangibles 178,696 215,221
Michigan Single Business Tax 96,700 95,900
Other 1,453,140 886,603
Total noninterest expense 4,899,586 3,521,840
Income before federal income taxes 2,614,103 1,690,126
Federal income taxes 784,000 468,000
NET INCOME $ 1,830,103 $ 1,222,126
Per Share:
BASIC EARNINGS $ 0.42 $ 0.36
DILUTED EARNINGS $ 0.41 $ 0.35
DIVIDENDS $ 0.15 $ 0.12
</TABLE>
See notes to the consolidated financial statements.
Page 4
<PAGE>
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
Net Income $ 1,830,103 $ 1,222,126
Change in unrealized gains on securities 38,205 255,835
Comprehensive net income $ 1,868,308 $ 1,477,961
</TABLE>
See notes to the consolidated financial statements.
Page 5
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
JUNE 30, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six months
ended June 30,
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans 18,995,501 $ 14,939,630
Investment securities
Taxable 1,647,023 1,079,970
Exempt from Federal Income Tax 887,801 743,776
Short term investments 230,000 99,349
Total interest income 21,760,325 16,862,725
Interest expense:
Deposits 8,828,774 7,081,086
Notes payable and other 723,557 336,568
Total interest expense 9,552,331 7,417,654
Net interest income 12,207,994 9,445,071
Provision for loan losses 575,000 713,000
Net interest income after provision for
loan losses 11,632,994 8,732,071
Noninterest income:
Gain on sale of mortgage loans 992,426 276,355
Service charges on deposit accounts 741,798 528,994
Trust fees 147,216 147,501
Gain on sale of securities 78 (440)
Other 1,026,596 614,987
Total noninterest income 2,908,114 1,567,397
Noninterest expense:
Salaries and employee benefits 4,844,307 3,604,524
Occupancy 1,361,549 936,474
Amortization of Intangibles 363,412 459,734
Michigan Single Business Tax 196,200 191,400
Other 2,671,750 1,715,198
Total noninterest expense 9,437,218 6,907,330
Income before federal income taxes 5,103,890 3,392,138
Federal income taxes 1,526,000 943,000
NET INCOME $ 3,577,890 $ 2,449,138
Per Share:
BASIC EARNINGS $ 0.83 $ 0.72
DILUTED EARNINGS $ 0.80 $ 0.70
DIVIDENDS $ 0.29 $ 0.23
</TABLE>
See notes to the consolidated financial statements.
Page 6
<PAGE>
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
Net Income $ 3,577,890 $ 2,449,138
Change in unrealized gains on securities (64,258) (154,004)
Comprehensive net income $ 3,513,632 $ 2,295,134
</TABLE>
See notes to the consolidated financial statements.
Page 7
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<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 - $.29 per share (1,248,829) (1,248,829)
Issuance of 7,569 shares of common stock
through exercise of stock options 151,132 151,132
Issuance of 6,764 shares of common stock
through dividend reinvestment plan 176,482 176,482
Issuance of 9,394 shares of common stock through
supplemental purchase under dividend
reinvestment plan 265,422 265,422
Net change in unrealized appreciation
(depreciation) on available for sale
securities (64,258) (64,258)
Net income year to date 3,577,890 3,577,890
BALANCES AT JUNE 30, 1998 $ 46,816,985 $ 9,749,947 $ 822,801 $ 57,389,733
</TABLE>
See notes to consolidated financial statements.
Page 8
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,577,890 $ 2,449,139
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 575,000 713,000
Depreciation of premises and equipment 630,400 431,373
Net amortization of security premiums/discounts 28,496 65,065
Loss(gain) on sale of securities 742 440
Amortization of goodwill and other intangibles 363,412 459,734
Gain on sale of mortgage loans (992,426) (276,355)
Proceeds from sales of mortgage loans 77,631,109 18,718,268
Unrealized loss on loans held for sale 148,998
Loans originated for sale (77,481,037) (18,301,518)
Increase in accrued interest receivable
and other assets (1,628,344) (344,699)
Increase in accrued interest payable and other
liabilities 639,093 731,820
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,344,335 4,795,265
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 609,415 560,467
Proceeds from maturities of securities available for sale 16,583,618 14,373,669
Purchases of securities available for sale (20,304,113) (21,544,612)
Net increase in portfolio loans (6,444,971) (15,837,455)
Net purchases of premises and equipment (590,442) (318,510)
NET CASH USED IN INVESTING ACTIVITIES (10,146,493) (22,766,441)
FINANCING ACTIVITIES
Net increase in deposits 19,945,663 6,131,335
Increase in securities sold under agreements
to repurchase and other short term borrowings (5,012,099) 13,816,569
Increase in note payable 3,731,485 801,426
Cash proceeds from issuance of common stock 593,036 458,228
Cash dividends (1,248,829) (784,050)
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,009,256 20,423,508
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,207,098 2,452,332
Cash and cash equivalents at beginning of period 24,115,503 21,228,472
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,322,601 $ 23,680,804
Page 9
<PAGE>
Supplemental Disclosure
Interest Paid $ 9,552,208 $ 7,413,872
Income Taxes Paid $ 1,850,000 $ 800,000
</TABLE>
See notes to consolidated financial statements.
Page 10
<PAGE>
FIRSTBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six month period ended June
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, 4,307,156 in 1998 and
3,421,616 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 $52,475,000 and $50,596,000 at June 30, 1998, and
December 31, 1997, respectively.
Page 11
<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>
June 30, December 31,
(DOLLARS IN THOUSANDS) 1998 1997
<S> <C> <C>
Nonperforming loans:
Nonaccrual loans $1,157 $1,274
Loans 90 days or more past due 766 1,215
Renegotiated loans 222 121
Total nonperforming loans $2,145 $2,610
Property from defaulted loans $836 $ 663
Nonperforming loans as a percent of:
Total loans .52% .64%
Allowance for loan losses 25.11% 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.
<TABLE>
<CAPTION>
Six Twelve Six
months months months
ended ended ended
June 30, December 31, June 30,
(DOLLARS IN THOUSANDS) 1998 1997 1997
<S> <C> <C> <C>
Balance at beginning of period $ 8,114 $ 6,247 $ 6,247
Charge-offs (343) (1,270) (484)
Recoveries 209 413 176
Net charge-offs (134) (857) (308)
Additions to allowance for
loan losses 575 2,724 713
Balance at end of period $8,555 $ 8,114 $6,652
Average loans outstanding
during the period $406,401 $353,061 $320,238
Loans outstanding at end of period $411,961 $404,808 $328,872
Page 12
<PAGE>
Allowance as a percent of:
Total loans at end of period 2.08% 2.00% 2.02%
Nonperforming loans at end of period 399% 311% 815%
Net charge-offs as a percent of:
Average loans outstanding .03% .24% .09%
Average Allowance for loan losses 1.61% 12.00% 4.83%
</TABLE>
Page 13
<PAGE>
NOTE E - RECLASSIFICATION
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
Page 14
<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
Total assets of the Corporation increased $22 million, or 4.13%,
during the first six months of 1998. The growth is the result of cash
and cash equivalents increasing $11 million, investment securities $3
million, and loans $7 million.
Cash and cash equivalents increased $11 million, or 46.47% during the
first half of 1998. During the same period, investment securities
grew $3 million, or 3.61%. Both of these additions are the result of
deposit growth exceeding loan growth.
While total loans have increased $7 million from December 31, 1997, to
June 30, 1998, commercial loans have increased $10 million during this
period. At the same time, portfolio mortgage loans have decreased $3
million, loans held for sale have increased $1 million and consumer
loans have decreased $1 million. The low interest rate environment
has created a high demand for mortgage products. Sales of mortgages
during the first six months of 1998 have exceeded sales of mortgages
for all of 1997. At December 31, 1997, serviced mortgages totaled
$167 million compared to $192 million at June 30, 1998.
The allowance for loan losses increased $441,000, or 5.4%, during the
six month period ending June 30, 1998. At June 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 change offs of
$134,000 and increased by a provision of $575,000. 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.
Other assets have increased $1.7 million during the first six months
of 1998. The majority of this increase is explained by changes at the
holding company level. The Corporation offers a non-qualified
deferred compensation plan to selected officers and all directors of
the Corporation and the Banks. Additions to the plan from
contributions and market gains increased the balance in the plan by
Page 15
<PAGE>
$520,000. At June 30, 1998, the Corporation experienced a temporary
increase of $840,000 in other assets to be used for general corporate
purposes.
Deposits have grown $20 million or 4.48% during the six months ending
June 30, 1998. Interest bearing demand deposits and noninterest
bearing deposits have grown nearly $22 million while savings accounts
have increased a more modest $3 million, or 4.81%. During the same
six month period, time deposits have decreased $5 million.
Securities sold under agreements to repurchase and overnight
borrowings have continued to decline. Balances are down $5 million,
or 23.61%, from December 31, 1997. All of this decrease is the result
of a reduction in overnight borrowings. The strong deposit growth has
reduced the need for overnight borrowings.
Net note payables have increased $3.7 million, or 49.16%, during the
first half of 1998. Bank of Lakeview, which does not participate in
secondary market mortgage sales, is using Federal Home Loan Bank
borrowings to fund mortgage growth.
Total shareholders' equity increased $2.9 million, or 5.24%, during
the six month period ending June 30, 1998. Net income of $3,558,000
and stock transactions of $593,000 increased shareholders' equity
while dividends of $1,249,000 and the net change in unrealized
depreciation on available for sale securities or $64,000 reduced
shareholders' equity. Bank value per share was $12.71 on December 31,
1997, compared to $13.29 on June 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 June 30, 1998 $46,676 $46,676 $51,724
Required Regulatory Capital 21,644 16,012 32,025
Capital in excess of regulatory minimums $25,032 $30,664 $19,699
Capital ratios at June 30, 1998 8.63% 11.66% 12.92%
Regulatory capital ratios -- "well
capitalized" definition 5.00% 6.00% 10.00%
Regulatory capital ratios -- minimum
requirement 4.00% 4.00% 8.00%
</TABLE>
Page 16
<PAGE>
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 six month results, the
acquisition effects are included in the 1998 results but not in the
1997 presentations.
Net income was $1,830,000 and $3,578,000 for the second quarter and
first six months of 1998 compared to $1,222,000 and $2,449,000 for the
same periods in 1997. Basic earnings per share were $.83 and $.72 for
the six months ending June 30, 1998 and 1997. Diluted earnings per
share were $.80 and $.70 for the corresponding periods. For the three
months ending June 30, 1998 and 1997, basic and diluted earnings per
share were $.42, $.41, and $.36, $.35 respectively.
Average earning assets have increased $114 million or 29.56% when
comparing June 30, 1998, to June 30, 1997. During this same time
period, the average yield on earning assets has increased 4 basis
points from 8.98% to 9.02%. A comparison of average cost of rate
related liabilities shows no change with the rate remaining at 4.00%.
The provision for loan losses was $205,000 for the second quarter and
$575,000 for the first half of 1998 compared to $462,000 and $713,000
for the corresponding periods in 1997. At June 30, 1998, the
allowance for loan losses to total loans is 2.08% compared to 2.02% at
June 30, 1997.
Noninterest income increased $1,341,000 or 85.54% for the first six
months of 1998 compared to the same period in 1997, and $804,000, or
98%, for the second quarter 1998 compared to 1997. The majority of
both the quarter and the first half increases are from the increase in
gain on sales of mortgage loans and the inclusion of the additional
affiliate bank.
Total noninterest expense increased $2,530,000, or 36.63%, for the
first half and $1,378,000, or 39.12%, for the second quarter of 1998
compared to the same periods in 1997. Over 60% of the increase in
each line item is the result of the additional affiliate.
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
Page 17
<PAGE>
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 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.
Page 18
<PAGE>
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.
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," "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; 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.
Page 19
<PAGE>
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 first quarter 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.
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 20
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities
At various times in the second quarter of 1998, the Corporation issued
unregistered shares of its common stock totaling 3556 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
Page 21
<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: AUGUST 13, 1998 \s\ JOHN MCCORMACK
John McCormack
President, Chief Executive Officer
and Director (Principal Executive
Officer)
Date: AUGUST 13, 1998 \s\ MARY D. DECI
Mary D. Deci
Vice President and Chief Financial
Officer (Principal Accounting Officer)
Page 22
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FIRSTBANK CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AS OF JUNE 30, 1998. (DOLLARS IN THOUSANDS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,457
<INT-BEARING-DEPOSITS> 453
<FED-FUNDS-SOLD> 7,413
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,562
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 411,961
<ALLOWANCE> 8,555
<TOTAL-ASSETS> 558,484
<DEPOSITS> 465,611
<SHORT-TERM> 16,221
<LIABILITIES-OTHER> 19,262
<LONG-TERM> 0
<COMMON> 46,817
0
0
<OTHER-SE> 10,573
<TOTAL-LIABILITIES-AND-EQUITY> 558,484
<INTEREST-LOAN> 18,996
<INTEREST-INVEST> 2,535
<INTEREST-OTHER> 230
<INTEREST-TOTAL> 21,760
<INTEREST-DEPOSIT> 8,829
<INTEREST-EXPENSE> 9,552
<INTEREST-INCOME-NET> 12,208
<LOAN-LOSSES> 575
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 9,437
<INCOME-PRETAX> 5,104
<INCOME-PRE-EXTRAORDINARY> 5,104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,578
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.80
<YIELD-ACTUAL> 5.16
<LOANS-NON> 1,157
<LOANS-PAST> 766
<LOANS-TROUBLED> 222
<LOANS-PROBLEM> 2,145
<ALLOWANCE-OPEN> 8,114
<CHARGE-OFFS> 343
<RECOVERIES> 209
<ALLOWANCE-CLOSE> 8,555
<ALLOWANCE-DOMESTIC> 6,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,405
</TABLE>
