-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IMkx8t4rkLplMLaxX7eAZTMNfMZx3IOqp0C4mSw5221P7vaR7zBwvsZkVXf1B9Lt VKE1vnGFeO6VwY3wWiZ8Fw== 0000905729-98-000168.txt : 19980814 0000905729-98-000168.hdr.sgml : 19980814 ACCESSION NUMBER: 0000905729-98-000168 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTBANK CORP CENTRAL INDEX KEY: 0000778972 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382633910 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14209 FILM NUMBER: 98684866 BUSINESS ADDRESS: STREET 1: 311 WOODWORTH AVE STREET 2: PO BOX 1029 CITY: ALMA STATE: MI ZIP: 48801 BUSINESS PHONE: 2087469610 MAIL ADDRESS: STREET 1: 311 WOODWORTH AVE CITY: ALMA STATE: MI ZIP: 48801 10-Q 1 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. 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 FIRSTBANK CORPORATION CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
June 30, December 31, 1998 1997 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 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
See notes to consolidated financial statements. Page 3 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME JUNE 30, 1998 and 1997 (UNAUDITED)
Three months ended June 30, 1998 1997 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
See notes to the consolidated financial statements. Page 4 CONDENSED STATEMENT OF COMPREHENSIVE INCOME
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
See notes to the consolidated financial statements. Page 5 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME JUNE 30, 1997 AND 1998 (UNAUDITED)
Six months ended June 30, 1998 1997 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
See notes to the consolidated financial statements. Page 6 CONDENSED STATEMENT OF COMPREHENSIVE INCOME
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
See notes to the consolidated financial statements. Page 7 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NET UNREALIZED APPRECIATION (DEPRECIATION) ON (IN THOUSANDS) COMMON RETAINED AVAILABLE FOR SALE STOCK EARNINGS SECURITIES TOTAL 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
See notes to consolidated financial statements. Page 8 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
Six months ended June 30, 1998 1997 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 Supplemental Disclosure Interest Paid $ 9,552,208 $ 7,413,872 Income Taxes Paid $ 1,850,000 $ 800,000
See notes to consolidated financial statements. Page 10 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 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:
June 30, December 31, (DOLLARS IN THOUSANDS) 1998 1997 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%
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.
Six Twelve Six months months months ended ended ended June 30, December 31, June 30, (DOLLARS IN THOUSANDS) 1998 1997 1997 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 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%
Page 13 NOTE E - RECLASSIFICATION Certain 1997 amounts have been reclassified to conform to the 1998 presentation. Page 14 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 $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:
TIER 1 RISK-BASED (DOLLARS IN THOUSANDS) LEVERAGE CAPITAL CAPITAL 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%
Page 16 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 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 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 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 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 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 EX-27 2 ART. 9 FDS FOR 1998 2ND QUARTER 10-Q
9 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) 1,000 6-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 27,457 453 7,413 0 82,562 0 0 411,961 8,555 558,484 465,611 16,221 19,262 0 46,817 0 0 10,573 558,484 18,996 2,535 230 21,760 8,829 9,552 12,208 575 1 9,437 5,104 5,104 0 0 3,578 0.83 0.80 5.16 1,157 766 222 2,145 8,114 343 209 8,555 6,150 0 2,405
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