SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition 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 . . . 4,490,854 shares outstanding as of October 31, 1999.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements (UNAUDITED) page 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. page 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk. page 16
PART II. OTHER INFORMATION
- -------- -----------------
Item 2. Changes in Securities and Use of Proceeds 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 2
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
<TABLE>
September 30, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $18,518,702 22,203,430
Short term investments 612,373 13,288,206
-------------- -------------
Total cash and cash equivalents 19,131,075 35,491,636
Securities available for sale 91,601,986 101,711,023
Loans
Loans held for sale 612,818 5,454,928
Portfolio loans
Commercial 211,094,846 192,212,168
Real estate mortgage 194,523,438 171,554,004
Consumer 74,932,934 71,806,822
-------------- -------------
Total loans 481,164,036 441,027,922
Less allowance for loan losses (9,300,000) (9,048,000)
-------------- -------------
Net loans 471,864,036 431,979,922
Premises and equipment, net 14,601,156 14,057,619
Acquisition intangibles 9,009,179 9,534,210
Accrued interest receivable 3,672,352 3,463,572
Other assets 8,509,322 6,775,852
-------------- -------------
TOTAL ASSETS $618,389,106 $603,013,834
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts 74,189,913 68,887,968
Interest bearing accounts:
Demand 135,748,243 146,741,509
Savings 73,613,322 69,514,970
Time 205,925,161 208,908,518
-------------- -------------
Total deposits 489,476,639 494,052,965
Securities sold under agreements to repurchase and overnight borrowings 43,654,283 26,577,527
Notes payable 16,668,360 14,316,550
Accrued interest and other liabilities 7,967,182 8,291,848
-------------- -------------
Total liabilities 557,766,464 543,238,890
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000
shares authorized, none issued
Common stock; 10,000,000 shares authorized,
4,493,673 shares issued and outstanding
(4,527,256 in December 1998) 51,251,757 52,796,743
Retained earnings 9,644,350 5,874,601
Unrealized gain (loss) on available for sale securities (273,465) 1,103,600
-------------- -------------
Total shareholders' equity 60,622,642 59,774,944
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $618,389,106 $603,013,834
============== =============
See notes to consolidated financial statements.
</TABLE>
Page 3
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 1999 and 1998
(Unaudited)
<TABLE>
Three months
ended September 30,
1999 1998
------------- -------------
<S> <C> <C>
Interest income:
Interest and fees on loans $10,274,323 9,679,376
Investment securities
Taxable 917,831 850,663
Exempt from Federal Income Tax 414,314 445,508
Short term investments 46,313 245,466
------------- -------------
Total interest income 11,652,781 11,221,013
Interest expense:
Deposits 4,188,659 4,520,987
Notes payable and other 605,991 341,967
------------- -------------
Total interest expense 4,794,650 4,862,954
------------- -------------
Net interest income 6,858,131 6,358,059
Provision for loan losses 126,000 240,000
------------- -------------
Net interest income after provision for loan losses 6,732,131 6,118,059
Noninterest income:
Gain on sale of mortgage loans 229,294 368,119
Service charges on deposit accounts 405,758 370,990
Trust fees 91,903 102,497
Gain on sale of securities (5,871) 2,538
Mortgage servicing 63,030 43,831
Other 435,876 479,134
------------- -------------
Total noninterest income 1,219,990 1,367,109
Noninterest expense:
Salaries and employee benefits 2,681,875 2,393,925
Occupancy 755,762 867,612
Amortization of Intangibles 181,704 181,706
FDIC Insurance premium 18,614 18,055
Michigan Single Business Tax 217,000 101,600
Other 1,203,409 1,277,441
------------- -------------
Total noninterest expense 5,058,364 4,840,339
------------- -------------
Income before federal income taxes 2,893,757 2,644,829
Federal income taxes 883,000 792,000
------------- -------------
NET INCOME $2,010,757 $1,852,829
============= =============
Other comprehensive income:
Change in unrealized gain(loss) on securities,
net of tax and reclassification effects (99,055) 616,774
------------- -------------
COMPREHENSIVE NET INCOME $1,911,702 $2,469,603
============= =============
Basic earnings per share $0.45 $0.41
============= =============
Diluted earnings per share $0.44 $0.39
============= =============
Dividends per share $0.16 $0.15
============= =============
</TABLE>
Page 4
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 1999 and 1998
(Unaudited)
<TABLE>
Nine months
ended September 30,
1999 1998
----------------- --------------
<S> <C> <C>
Interest income:
Interest and fees on loans $29,696,967 $28,674,877
Investment securities
Taxable 2,742,016 2,497,686
Exempt from Federal Income Tax 1,300,015 1,333,309
Short term investments 235,882 475,466
----------------- --------------
Total interest income 33,974,880 32,981,338
Interest expense:
Deposits 12,727,407 13,349,761
Notes payable and other 1,508,444 1,065,524
----------------- --------------
Total interest expense 14,235,851 14,415,285
----------------- --------------
Net interest income 19,739,029 18,566,053
Provision for loan losses 378,000 815,000
----------------- --------------
Net interest income after provision for loan losses 19,361,029 17,751,053
Noninterest income:
Gain on sale of mortgage loans 767,775 1,360,545
Service charges on deposit accounts 1,168,125 1,112,788
Trust fees 275,404 249,713
Gain on sale of securities 15,150 2,616
Mortgage servicing 130,693 73,079
Other 1,590,570 1,476,482
----------------- --------------
Total noninterest income 3,947,717 4,275,223
Noninterest expense:
Salaries and employee benefits 7,775,313 7,238,232
Occupancy 2,281,796 2,229,161
Amortization of Intangibles 524,532 545,118
FDIC Insurance premium 57,168 54,343
Michigan Single Business Tax 428,400 297,800
Other 3,736,439 3,912,903
----------------- --------------
Total noninterest expense 14,803,648 14,277,557
----------------- --------------
Income before federal income taxes 8,505,098 7,748,719
Federal income taxes 2,578,000 2,318,000
----------------- --------------
NET INCOME $5,927,098 $5,430,719
================= ==============
Other comprehensive income:
Change in unrealized gain (loss) on securities, net of tax
and reclassification effects (1,377,065) 552,516
----------------- --------------
COMPREHENSIVE NET INCOME $4,550,033 $5,983,235
================= ==============
Basic earnings per share $1.32 $1.20
===== =====
Diluted earnings per share $1.28 $1.15
===== =====
Dividends per share $0.48 $0.42
===== =====
</TABLE>
Page 5
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
Net unrealized
appreciation
(depreciation)
(in thousands) Common Retained on available
Stock Earnings for securities TOTAL
============= ============ ============== ========
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1997 $46,223,949 $7,420,886 $887,059 $54,531,894
Cash dividends - $.55 per share (2,494,909) (2,494,909)
Issuance of 14,395 shares of common stock
through exercise of stock options 251,492 251,492
Issuance of 21,997 shares of common stock
through dividend reinvestment plan 635,966 635,966
Issuance of 16,747 shares of common stock through
supplemental purchase under div. reinvestment plan 482,354 482,354
5% stock dividend - 215,388 shares 6,353,282 (6,353,946) (664)
Net change in unrealized appreciation (depreciation)
on available for sale securities 216,541 216,541
Purchase of 34,990 shares of stock (1,213,670) (1,213,670)
Issuance of 1,509 shares of stock 63,370 63,370
Net income for 1998 7,302,570 7,302,570
-------------- ------------- ----------- -----------
BALANCES AT DECEMBER 31, 1998 $52,796,743 $5,874,601 $1,103,600 $59,774,944
============== ============= =========== ===========
Cash dividends - $.48 per share (2,157,349) (2,157,349)
Issuance of 44,197 shares of common stock
through exercise of stock options 669,957 669,957
Issuance of 31,352 shares of common stock
through dividend reinvestment plan 819,437 819,437
Issuance of 14,492 shares of common stock through
supplemental purchase under div. reinvestment plan 418,653 418,653
Net change in unrealized appreciation (depreciation)
on available for sale securities (1,377,065) (1,377,065)
Purchase of 130,819 shares of stock (3,700,830) (3,700,830)
Issuance of 6,745 shares of stock 247,797 247,797
Net income year to date 5,927,098 5,927,098
-------------- ------------ ---------- -----------
BALANCES AT SEPTEMBER 30, 1999 $51,251,757 $9,644,350 ($273,465) $60,622,642
============== ============ ========== ===========
</TABLE>
Page 6
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
Nine months ending September 30,
1999 1998
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $5,927,098 $5,430,719
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 378,000 815,000
Depreciation of premises and equipment 990,575 1,152,180
Net amortization of security premiums/discounts 246,739 67,046
Loss (gain) on sale of securities (15,150) (2,616)
Amortization of goodwill and other intangibles 524,532 545,118
Gain on sale of mortgage loans (767,775) (1,360,545)
Proceeds from sales of mortgage loans 47,802,640 102,234,854
Loans originated for sale (42,192,755) (102,355,400)
Increase in accrued interest receivable and other assets (1,232,341) (1,251,806)
Increase (decrease) in accrued interest payable
and other liabilities (324,666) 1,492,482
------------ --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,336,897 6,767,032
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 7,017,959 612,031
Proceeds from maturities of securities available for sale 24,213,666 22,281,621
Purchases of securities available for sale (23,440,652) (28,561,097)
Net increase in portfolio loans (45,104,224) (14,559,827)
Net purchases of premises and equipment (1,534,112) (1,479,915)
------------ --------------
NET CASH USED IN INVESTING ACTIVITIES (38,847,363) (21,707,187)
FINANCING ACTIVITIES
Net increase (decrease) in deposits (4,576,326) 48,431,669
Increase (decrease) in securities sold under agreements
to repurchase and other short term borrowings 17,076,756 (3,212,032)
Increase in note payable 2,351,810 6,731,485
Repurchase of common stock (3,700,830) (1,170,423)
Cash proceeds from issuance of common stock 2,155,844 702,817
Cash dividends (2,157,349) (1,870,831)
------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,149,905 49,612,685
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,360,561) 34,672,530
Cash and cash equivalents at beginning of period 35,491,636 24,115,503
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $19,131,075 $58,788,033
============ =============
Supplemental Disclosure
Interest Paid $14,383,535 $14,265,962
Income Taxes Paid $2,900,000 $2,575,000
</TABLE>
Page 7
<PAGE>
FIRSTBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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,
1999, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. The balance sheet at December 31, 1998, 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, 1998.
Under a new accounting standard, comprehensive income is now reported for all
periods. Comprehensive income includes both net income and other comprehensive
income. Other comprehensive income includes the change in unrealized gains and
losses on securities available for sale.
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. 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 $65,709,250 and $64,674,655 at September 30, 1999, and December
31, 1998, respectively.
Page 8
<PAGE>
NOTE D - NONPERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
Nonperforming Loans and Assets
The following table summarizes nonaccrual and past due loans at the dates indicated:
September 30 December 31,
(Dollars in thousands) 1999 1998
--------------------------------------------- ------------ -------------
<S> <C> <C>
Nonperforming loans:
Nonaccrual loans $2,037 $ 790
Loans 90 days or more past due 729 621
Renegotiated loans 66 86
----- -----
Total nonperforming loans $2,832 $1,497
===== =====
Property from defaulted loans $ 550 $ 527
===== =====
Nonperforming loans as a percent of:
Total loans .59% .34%
===== =====
Allowance for loan losses 30.45% 16.55%
===== =====
</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>
Nine Twelve Nine
months months months
ended ended ended
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
- ----------------------------------------------------- ---------------- --------------- -----------------
<S> <C> <C> <C>
Balance at beginning of period $ 9,048 $ 8,114 $ 8,114
Charge-offs (588) (712) (522)
Recoveries 462 469 327
----- ------- -----
Net charge-offs (126) (243) (195)
Additions to allowance for
loan losses 378 1,177 815
----- ------- -----
Balance at end of period $9,300 $ 9,048 $8,734
===== ====== =====
Average loans outstanding
during the period $455,721 $414,322 $409,291
======= ======= =======
Loans outstanding at end of period $481,164 $441,028 $420,654
======= ======= =======
Allowance as a percent of:
Total loans at end of period 1.93% 2.05% 2.08%
==== ==== ====
Nonperforming loans at end of period 328% 604% 729%
=== === ===
Net charge-offs as a percent of:
Average loans outstanding .03% .06% .05%
=== === ===
Average Allowance for loan losses 1.37% 1.67% 2.31%
==== ==== ====
</TABLE>
Page 9
<PAGE>
NOTE E - RECLASSIFICATION
Certain 1998 amounts have been reclassified to conform to the 1999 presentation.
Page 10
<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 $15 million, or 2.55%, during the
first nine months of 1999. Cash and cash equivalents decreased $16 million or
46.10% and securities available for sale declined $10 million, or 9.94%, both
helping to fund loan growth of $40 million or 9.10% during the nine month period
of December 31, 1998, to September 30, 1999.
Loans experienced growth of over $40 million during the first nine months of
1999. Loans held for sale have decreased as mortgage volumes have declined since
the end of 1998. The allowance for loan losses grew 2.79%, or $252,000, from
December 31, 1998, to September 30, 1999. At September 30, 1999, the allowance
for loan losses as a percent of total loans was 1.93% compared to 2.05% at
December 31, 1998. The allowance for loan losses as a percent of nonperforming
loans was 328% at September 30, 1999, compared to 604% at the end of 1998. Most
of this decline is due to one loan which was placed on nonaccrual status at the
end of the third quarter of 1999. While resolution of this loan is not expected
until 2000, management believes that no additional losses will be recognized on
this credit. During the first nine months of 1999, the allowance for loan losses
was reduced by net charge offs of $126,000 and increased by a provision of
$378,000. Management continues to maintain the allowance for loan losses at a
level considered appropriate to absorb losses in the portfolio. The allowance
for loan losses 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.
Total deposits decreased slightly more than $4.5 million for a .93% reduction
during the first nine months of 1999. Noninterest bearing deposits and savings
accounts both increased during the first nine months of 1999 while interest
bearing demand deposit accounts decreased $11 million, or 7.49%, and time
deposits declined $3.0 million, or 1.43%, during the same time period.
Overnight borrowing increased $15 million from December 31, 1998, to September
30, 1999, while securities sold under agreements to repurchase increased $2
million and notes payable grew $2.3 million. These sources of funding have
collectively been deployed to fund loan demand. Notes payable also increased an
additional $6 million in October, replacing funding from overnight borrowing.
Total shareholders' equity increased $848,000, or 1.42%, during the first nine
months of 1999. An increase from net income of $5,927,000 was offset by stock
reduction of $1,545,000, dividends of $2,157,000, and net unrealized losses on
securities available for sale of $1,377,000. In January 1999, the Board of
Directors continued the Corporation's stock repurchase program by authorizing
the repurchase of up to 200,000 shares of Firstbank Corporation stock. As of
September 30, 1999, 130,141 shares had been acquired pursuant to the repurchase
program.
Page 11
<PAGE>
The change in the unrealized gain or loss on securities available for sale is
the result of changes in the bond market rates, and the maturities and sales of
over $31 million of securities yielding above market rates being replaced with
securities yielding current market rates. At September 30, 1999, the book value
of the Corporation's common stock was $13.49 per share, compared to $13.20 per
share at December 31, 1998.
During the third quarter of 1999, the Board of Directors announced their
intention to open a new affiliate bank in St. Johns, Michigan. Management is
currently in the process of filing applications to the FDIC and Financial
Institutions Bureau of the State of Michigan. Pending approval, the new bank
will open in the second quarter of 2000.
The following table discloses compliance with current regulatory requirements on
a consolidated basis:
<TABLE>
Tier 1 Risk-based
(Dollars in thousands) Leverage Capital Capital
------------------------------ -------- ------- ----------
<S> <C> <C> <C>
Capital balances at September 30, 1999 $51,761 $51,761 $57,548
Required Regulatory Capital 24,339 18,373 36,746
------- ------- -------
Capital in excess of regulatory minimums $27,422 $33,388 $20,802
Capital ratios at September 30, 1999 8.51% 11.27% 12.53%
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
- ---------------------
Net income was $2,011,000 for the third quarter and $5,927,000 for the first
nine months of 1999 compared to $1,853,000 and $5,431,000 for the corresponding
periods of 1998. Basic earnings per share were $0.45 and $0.41 for the three
months and $1.32 and $1.20 for the nine months of 1999 and 1998 respectively.
Average earning assets increased $11 million from September 30, 1998, to
September 30, 1999. During this twelve month period, yield on earning assets
decreased 61 basis points from 8.62% at September 30, 1998, to 8.01% at
September 30, 1999, while costs on interest related liabilities showed only a 36
basis point decline from 3.64% to 3.28%. Net interest margin for the nine months
ended September 30, 1999, was 4.87%, a 25 basis point reduction from the
September 30, 1998, results of 5.12%.
The provision for loan losses was $126,000 for the third quarter and $378,000
for the first three quarters of 1999 compared to $240,000 and $815,000 for the
same periods in 1999. The allowance as a percent of nonperforming loans was 328%
and 729% at September 30, 1999 and 1998.
Page 12
<PAGE>
Total noninterest income declined $328,000 in the nine months ending September
30, 1999, compared to the same period in 1998. All categories of noninterest
income showed modest gains with the exception of the gain on sale of mortgage
loans. The gain on sale of mortgage loans declined $593,000 or 43.57% for the
nine month period ended September 30, 1999, compared to the corresponding period
of 1998. Mortgage rates continue at or near their two year maximum while the
banks' mortgage refinancing demand has all but ceased. All other categories of
noninterest income showed modest increases.
Total noninterest expense increased $526,000, or 3.68%, when comparing the nine
month results of September 30, 1999, to September 30, 1998. The increase in
salaries and benefits reflects annual salary increments and modest additions to
staff.
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's business is also dependent upon
the error free operation of computer systems of its telecommunications
providers, operators of electronic payment systems, and vendors who provide a
variety of products and services needed by the Corporation and its subsidiaries
to conduct their businesses. Data processing system failures, errors or
miscalculations could affect the ability of some borrowers to make timely
payment of amounts due, and could affect the long term financial viability of
some borrowers.
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, 1999, it is estimated that the requirements of
this plan are approximately 99.9% accomplished. The Corporation's subsidiaries
have also initiated a program of informing relevant customers of the Year 2000
issue and encouraging them to address it in their own businesses.
The Corporation will continue to assess the impact of the Year 2000 issue. The
Corporation's systems and applications are believed to be compliant with the
century change, allowing the rest of 1999 to be used for full validation and
testing.
Page 13
<PAGE>
The Corporation estimates it will spend approximately $330,000 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. Costs to date associated with
Year 2000 issues total $303,000 which include expenditures of $43,000 and
estimated salary costs of $260,000. 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. The Corporation has
identified its critical systems that are dependent on outside providers. For
each critical system, extensive testing has been completed. All tested systems
have been able to accommodate dates subsequent to January 1, 2000. The
Corporation has contracted with an offsite location to provide a backup site for
its core application processing in the event the Corporation's hardware of
software should not function. Based on testing of the Corporation's core
processing hardware and software, management believes that both are Year 2000
compliant.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have a materially
adverse impact on the Corporation's financial condition, results of operations,
or liquidity. Nevertheless, the inability of the Corporation to successfully
address Year 2000 issues could result in interruptions of the Corporation's
business and could have a materially adverse effect on the Corporation's results
of operations.
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.
Page 14
<PAGE>
FORWARD LOOKING STATEMENTS
This report contains 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 "anticipate," "believe," "determine," "estimate," "expect,"
"forecast," "intend," "is likely," "plan," "project," "opinion," variations of
such terms, and similar expressions are intended to identify such
forward-looking statements. The Year 2000 Readiness Disclosure, the
presentations and discussions of the provision and allowance for loan losses,
and determinations as to the need for other allowances presented in this report
are inherently forward-looking statements in that they involve judgements and
statements of belief as to the outcome of future events. These statements are
not guarantees of future performance and involve certain risks, uncertainties,
and assumptions 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. Internal and external factors that may cause such a
difference 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 laws and 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; the ability of other companies on which the Corporation relies
to be Year 2000 compliant; the ability of the Corporation to locate and correct
all data sensitive computer code; and the vicissitudes of the national economy.
The Corporation undertakes no obligation to update, amend or clarify
forward-looking statements, whether as a result of new information, future
events, or otherwise.
Page 15
<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 11 in the Corporation's annual report to shareholders for the
year ended December 31, 1998, is here incorporated by reference. Firstbank's
annual report is filed as Exhibit 13 to its Form 10-K annual report for its
fiscal year ended December 31, 1998.
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 third quarter of 1999, 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 Firstbank'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" on page 15 of this Form 10-Q quarterly
report for a discussion of the limitations on Firstbank's responsibility for
such statements.
Page 16
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 2. Changes in Securities and Use of Proceeds.
- -------
At various times in the third quarter of 1999, the Corporation issued
unregistered shares of its common stock totaling 450 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: The following documents are filed as exhibits to this
report on Form 10-Q:
Exhibit 27 -- Financial Data Schedule
Page 17
<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 11, 1999
----------------- \s\ John McCormack
---------------
John McCormack
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: November 11, 1999 \s\ Mary D. Deci
------------------- ------------
Mary D. Deci
Vice President and Chief
Financial Officer
(Principal Accounting Officer)
Page 18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from Firstbank
Corporation's financial statements and is qualified in its entirety by reference
to such financial statements as of September 30, 1999. (Dollars in thousands)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,519
<INT-BEARING-DEPOSITS> 524
<FED-FUNDS-SOLD> 88
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,602
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 481,164
<ALLOWANCE> (9,300)
<TOTAL-ASSETS> 618,389
<DEPOSITS> 489,477
<SHORT-TERM> 22,950
<LIABILITIES-OTHER> 28,671
<LONG-TERM> 16,668
0
0
<COMMON> 51,252
<OTHER-SE> 9,371
<TOTAL-LIABILITIES-AND-EQUITY> 618,389
<INTEREST-LOAN> 29,697
<INTEREST-INVEST> 4,278
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 33,975
<INTEREST-DEPOSIT> 12,727
<INTEREST-EXPENSE> 14,236
<INTEREST-INCOME-NET> 19,739
<LOAN-LOSSES> 378
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 14,804
<INCOME-PRETAX> 8,505
<INCOME-PRE-EXTRAORDINARY> 8,505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,927
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 4.87
<LOANS-NON> 2,037
<LOANS-PAST> 729
<LOANS-TROUBLED> 66
<LOANS-PROBLEM> 685
<ALLOWANCE-OPEN> 9,048
<CHARGE-OFFS> 588
<RECOVERIES> 462
<ALLOWANCE-CLOSE> 9,300
<ALLOWANCE-DOMESTIC> 7,936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,364
</TABLE>
