10-Q 1 firstbank10q.txt 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, 2001 or [ ] TRANSACTION 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: (989) 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 . . . . 4,855,695 shares outstanding as of October 31, 2001. 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 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk. page 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K page 16 SIGNATURES page 17 ----------
Page 2 Item 1. Financial Statements (UNAUDITED) FIRSTBANK CORPORATION CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 (Unaudited) AND DECEMBER 31, 2000 (Dollars in thousands) September 30, December 31, 2001 2000 ---- ---- ASSETS Cash and due from banks $23,696 $25,716 Short term investments 13,999 2,380 ----------- ----------- Total cash and cash equivalents 37,695 28,096 Securities available for sale 76,956 76,175 Loans Loans held for sale 1,169 1,018 Portfolio loans Commercial 291,855 279,060 Real estate mortgage 232,050 238,899 Consumer 76,226 81,790 ----------- ----------- Total loans 601,300 600,767 Less allowance for loan losses (10,481) (9,857) ----------- ----------- Net loans 590,819 590,910 Premises and equipment, net 16,953 15,682 Acquisition intangibles 4,986 5,052 Other intangible assets 3,652 3,922 Accrued interest receivable 4,179 4,623 Other assets 9,561 8,807 ----------- ----------- TOTAL ASSETS $744,801 $733,267 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Noninterest bearing accounts 83,690 80,295 Interest bearing accounts: Demand 155,861 135,467 Savings 73,137 68,641 Time 243,096 252,821 ----------- ----------- Total deposits 555,784 537,224 Securities sold under agreements to repurchase and overnight borrowings 31,333 38,307 Notes payable 75,843 83,952 Accrued interest and other liabilities 11,106 9,580 ----------- ----------- Total liabilities 674,066 669,063 SHAREHOLDERS' EQUITY Preferred stock; no par value, 300,000 shares authorized, none issued Common stock; 10,000,000 shares authorized, 4,852,663 shares issued and outstanding (4,767,877 in December 2000) 57,957 56,550 Retained earnings 11,274 7,286 Accumulated other comprehensive income 1,504 368 ----------- ----------- Total shareholders' equity 70,735 64,204 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $744,801 $733,267 =========== ===========
Page 3 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME SEPTEMBER 30, 2001 AND 2000 (Unaudited) (Dollars in Thousands) Three months ended September 30, 2001 2000 ---- ---- Interest income: Interest and fees on loans $12,762 $12,788 Investment securities Taxable 671 832 Exempt from Federal Income Tax 315 363 Short term investments 128 77 ----------- ---------- Total interest income 13,876 14,060 Interest expense: Deposits 4,608 4,982 Notes payable and other 1,333 1,786 ----------- ---------- Total interest expense 5,941 6,768 ----------- ---------- Net interest income 7,935 7,292 Provision for loan losses 370 174 ----------- ---------- Net interest income after provision for loan losses 7,565 7,118 Noninterest income: Gain on sale of mortgage loans 527 149 Service charges on deposit accounts 515 438 Trust fees 79 93 Gain on sale of securities 0 (3) Mortgage servicing 16 81 Other 1,183 630 ----------- ---------- Total noninterest income 2,320 1,388 Noninterest expense: Salaries and employee benefits 3,260 2,943 Occupancy 954 817 Amortization of goodwill 106 101 Amortization of other intangibles 90 94 FDIC Insurance premium 25 25 Michigan Single Business Tax 35 162 Other 1,722 1,255 ----------- ---------- Total noninterest expense 6,192 5,397 ----------- ---------- Income before federal income taxes 3,693 3,109 Federal income taxes 1,190 967 ----------- ---------- NET INCOME $2,503 $2,142 =========== ========== Comprehensive Income $3,172 $2,487 =========== ========== Basic earnings per share $0.52 $0.44 =========== ========== Diluted earnings per share $0.51 $0.43 =========== ========== Dividends per share $0.18 $0.16 =========== ==========
Page 4 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME SEPTEMBER 30, 2001 AND 2000 (Unaudited) (Dollars in Thousands) Nine months ended September 30, 2001 2000 ----------- --------- Interest income: Interest and fees on loans $39,215 $35,939 Investment securities Taxable 2,058 2,595 Exempt from Federal Income Tax 975 1,135 Short term investments 271 177 ----------- --------- Total interest income 42,519 39,846 Interest expense: Deposits 14,997 13,851 Notes payable and other 4,550 4,604 ----------- --------- Total interest expense 19,547 18,455 ----------- --------- Net interest income 22,972 21,391 Provision for loan losses 801 562 ----------- --------- Net interest income after provision for loan losses 22,171 20,829 Noninterest income: Gain on sale of mortgage loans 1,484 320 Service charges on deposit accounts 1,433 1,268 Trust fees 251 288 Gain on sale of securities 25 1 Mortgage servicing 18 229 Other 3,167 1,940 ----------- --------- Total noninterest income 6,378 4,046 Noninterest expense: Salaries and employee benefits 9,834 8,329 Occupancy 2,611 2,368 Amortization of goodwill 319 298 Amortization of other intangibles 271 249 FDIC Insurance premium 77 75 Michigan single business tax 291 477 Other 5,572 3,778 ----------- --------- Total noninterest expense 18,975 15,574 ----------- --------- Income before federal income taxes 9,574 9,301 Federal income taxes 3,041 2,909 ----------- --------- NET INCOME $6,533 $6,392 =========== ========= Comprehensive Income $7,669 $6,708 =========== ========= Basic earnings per share $1.36 $1.30 =========== ========= Diluted earnings per share $1.34 $1.29 =========== ========= Dividends per share $0.53 $0.49 =========== =========
Page 5 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 (Unaudited) (Dollars in Thousands) Nine months ended September 30, 2001 2000 ---- ---- OPERATING ACTIVITIES Net income $6,533 $6,392 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 801 562 Depreciation of premises and equipment 1,057 1,128 Net amortization of security premiums/discounts 150 131 Gain on sale of securities (25) (1) Amortization of goodwill and other intangibles 590 547 Gain on sale of mortgage loans (1,484) (320) Proceeds from sales of mortgage loans 102,353 28,871 Loans originated for sale (101,020) (27,811) Increase in accrued interest receivable and other assets (1,149) (1,802) Increase in accrued interest payable and other liabilities 1,526 1,675 ------------ ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,332 9,372 INVESTING ACTIVITIES Proceeds from sale of securities available for sale 2,163 3,345 Proceeds from maturities of securities available for sale 47,315 21,251 Purchases of securities available for sale (48,663) (11,276) Net increase in portfolio loans (559) (71,344) Net purchases of premises and equipment (2,328) (1,722) ------------ ----------- NET CASH USED IN INVESTING ACTIVITIES (2,072) (59,746) FINANCING ACTIVITIES Net increase in deposits 18,560 38,560 Increase (decrease) in securities sold under agreements to repurchase and other short term borrowings (6,974) (15,165) Retirement of notes payable (29,759) (45,912) Proceeds from Federal Home Loan Bank borrowing 21,650 80,064 Cash proceeds from issuance of common stock 1,457 1,509 Purchase of common stock (50) (3,522) Cash dividends (2,545) (2,367) ------------ ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,339 53,167 INCREASE IN CASH AND CASH EQUIVALENTS 9,599 2,793 Cash and cash equivalents at beginning of period 28,096 25,197 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $37,695 $27,990 ============ =========== Supplemental Disclosure Interest Paid $19,183 $18,546 Income Taxes Paid $2,640 $3,622
See notes to consolidated financial statements. Page 6 FIRSTBANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (UNAUDITED) NOTE A - FINANCIAL STATEMENTS The accompanying unaudited 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, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The balance sheet at December 31, 2000, 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, 2000. NOTE B - SECURITIES Individual securities held in the securities 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 $126,296,000 and $88,264,000 at September 30, 2001, and December 31, 2000, respectively. Page 7 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: September 30, December 31, (Dollars in thousands) 2001 2000 -------------------------------------------------- ------------------ ---------------- Nonperforming loans: Nonaccrual loans $ 459 $1,715 Loans 90 days or more past due 1,436 366 Renegotiated loans 53 53 ----- ----- Total nonperforming loans $1,948 $2,134 ===== ===== Property from defaulted loans $1,048 $ 512 ===== ===== Nonperforming loans as a percent of: Total loans 0.32% 0.35% ===== ===== Allowance for loan losses 18.59% 21.65% ====== ======
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. September 30, December 31 2001 2000 ------------------ ---------------- Loans outstanding at end of period $601,300 $600,767 ======= ======= Allowance at end of period $10,481 $9,857 ====== ===== Allowance as a percent of: Total loans at end of period 1.74% 1.64% ==== ==== Nonperforming loans at end of period 538% 462% === ===
Nine Months Ended September 30, September 30, (Dollars in thousands) 2001 2000 -------------------------------------------- ------------------ ---------------- Balance at beginning of period $9,857 $9,317 Charge-offs 469 462 Recoveries 292 526 Net (charge-offs) recoveries (177) 64 Additions to allowance for loan losses 801 562 Balance at end of period $10,481 $9,943 Average loans outstanding during the period $603,531 $541,541 Net charge-offs (recoveries) as a percent of: Average loans outstanding 0.03% (0.01%) Average Allowance for loan losses 1.75% (0.66%)
Page 8 NOTE E - RECLASSIFICATION Certain 2000 amounts have been reclassified to conform to the 2001 presentation. NOTE F - BASIC AND DILUTED EARNINGS PER SHARE (All numbers listed in thousands except for per share data) Three months ended Nine months ended September 30, September 30, ------------------------- ----------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Earnings per share Net Income $2,503 $2,142 $6,533 $6,392 Weighted average common shares outstanding 4,831 4,847 4,801 4,884 Basic earnings per share $0.52 $0.44 $1.36 $1.30 Earnings per share assuming dilution Net Income $2,503 $2,142 $6,533 $6,392 Weighted average common shares outstanding 4,831 4,847 4,800 4,884 Add dilutive effect of assumed exercises of options 95 78 72 56 Weighted average common and dilutive potential common shares outstanding 4,926 4,925 4,872 4,940 Diluted earnings per share $0.51 $0.43 $1.34 $1.29
Stock options for 247,473 and 89,930 shares of common stock were not considered in computing diluted earnings per share for the nine month periods of 2001 and 2000 because they were antidilutive. Page 9 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, Firstbank - Alma, Firstbank (Mt. Pleasant), Firstbank - West Branch (including its majority holding in C.A. Hanes Realty, Inc.), Firstbank - Lakeview, Firstbank - St. Johns (collectively the "Banks") and Gladwin Land Company. Financial condition Total assets increased $11 million, or 1.57% during the first nine months of 2001. Cash and cash equivalents increased $9.6 million, or 34.2%, during the first nine months of 2001. Securities available for sale showed little change, increasing $781,000, or only 1%, during the nine months ended September 30, 2001. Total loans grew by $0.5 million, or 0.1%, during the first nine months of 2001. The commercial portfolio grew $12.8 million and loans held for sale increased $150,000, but this growth was offset by decreases in both mortgage and consumer loans of $6.9 and $5.6 million, respectively. The allowance for loan losses increased $624,000, or 6.3%, during the first nine months of 2001. At September 30, 2001, the allowance as a percent of outstanding loans was 1.74% compared to 1.64% at December 31, 2000. The allowance as a percent of nonperforming loans was 538% at the end of the third quarter of 2001 and 462% at year end 2000. During the first nine months of 2001, the allowance was increased by a provision of $801,000 and decreased by net charge offs of $177,000. 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. Total deposits increased $18.6 million, or 3.45%, from December 31, 2000, to September 30, 2001. Increases in non-interest bearing account balances of $3.4 million, or 4.2%, in interest bearing demand deposits of $20.4 million, or 15.1%, in savings deposits of $4.5 million, or 6.6%, were partially offset by a decrease of $9.7 million, or 3.8%, in time deposits. For the nine-month period ended September 30, 2001, securities sold under agreements to repurchase and overnight borrowings decreased by $7 million, or 18.2%. Notes payable also decreased $8.1 million, or 9.7% from the end of December 2000, to the end of September 2001, as it was not necessary to renew all maturing notes. Total shareholders' equity increased $6.5 million, or 10.2%, during the first nine months of 2001. Net income of $6,533,000, stock issuances of $1,457,000, and net unrealized appreciation on securities available for sale of $1,136,000 increased shareholders' equity, while stock repurchases of $50,000 and dividends of $2,547,000 decreased shareholders' equity. Book value was $14.58 per share at September 30, 2001, and $13.47 at December 31, 2000. Page 10 The following table discloses compliance with current regulatory capital requirements on a consolidated basis: Total Tier 1 Risk-based (Dollars in thousands) Leverage Capital Capital ----------------------------------- -------- ------- ------- Capital balances at September 30, 2001 $60,830 $60,830 $67,926 Required Regulatory Capital $30,090 $22,571 $45,142 Capital in excess of regulatory minimums $30,740 $38,259 $22,784 Capital ratios at September 30, 2001 8.09% 10.78% 12.04% Regulatory capital ratios -- "well capitalized" 5.00% 6.00% 10.00% definition Regulatory capital ratios -- minimum requirement 4.00% 4.00% 8.00%
Results of Operations For the third quarter of 2001, net income was $2,503,000, basic earnings per share were $0.52, and diluted earnings per share were $0.51, compared to $2,142,000, $0.44, and $0.43 for the third quarter of 2000. Net income for the first nine months of 2001 was $6,533,000 with basic earnings per share of $1.36 and diluted earnings per share of $1.34, compared to $6,392,000, $1.30, and $1.29 for the first nine months of 2000. Net income for 2001 was reduced by a $446,000 one-time charge (net of tax of $230,000) taken in the first quarter and discussed in previous disclosures, with basic earnings per share and diluted earnings per share also reduced by $0.10 and $0.09 respectively by the one-time charge. Average earning assets increased $57 million, or 9.0%, from the end of the third quarter of 2000 to the end of the same period of 2001. The yield on earning assets decreased 18 basis points to 8.41% at September 30, 2001, compared to 8.59% at September 30, 2000. The cost of funding related liabilities decreased 8 basis points when comparing the nine month periods ended September 30, from 4.06% in 2000 to 3.98% in 2001. Since the decrease in yields on earning assets was more than the decrease in cost of funds, the net interest margin declined 6 basis points from 4.66% for the first three quarters of 2000, to 4.60% for the nine months ended September 30, 2001. Net interest income increased $1.6 million, or 7.4% in the first nine months of 2001 compared to the same period in 2000. The provision for loan losses increased $239,000 to $801,000 for the first nine months of 2001 when compared to the same period in 2000. This increase reflects the recognition of strong commercial loan growth over the year-ago level and maintains the appropriate allowance balance as described above. Page 11 Total non-interest income increased $2,332,000, or 57.6%, during the nine month period ended September 30, 2001 when compared to the same period in 2000. Most of the increase in total non-interest income and in other non-interest income was attributable to subsidiaries which were not in operation for all or part of the first nine months of 2000 (1st Title, C.A. Hanes, Gladwin Land, and Firstbank - St Johns). Excluding the new subsidiaries from the 2001 and 2000 periods, non-interest income increased $1,064,000, or 28.4%. Service charges on deposit accounts increased $165,000, or 13.1%. Excluding the new subsidiaries, these fees increased $132,000, or 10.5%. Gain on sale of mortgages loans increased $1,164,000, or 364.1%, due to increased mortgage origination and mortgage re-finance activity. Certain other categories of non-interest income declined, most notably mortgage servicing income which declined from $229,000 in the first nine months of 2000 to $18,000 in the first nine months of 2001. The decline was due to the impact of refinances and other pre-payments. Excluding these impacts, mortgage servicing income grew 14.0% to $520,000 in the first nine months of 2001 compared to $356,000 in the first nine months of 2000. Refinances and other pre-payments also were the primary cause of the decline in real estate mortgage portfolio loans, as many re-financed loans were sold in the secondary market. Non-interest expense increased $3,401,000, or 21.8%, when comparing the nine month periods ended September 30, 2001 and 2000. Most of the increase in non-interest expense and its components was attributable to subsidiaries which were not in operation for all or part of the first nine months of 2000, the one-tine charges of $676,000 taken in the first quarter of 2001 and discussed in previous disclosures, and employee benefits expense - primarily costs of providing medical benefits. Excluding the new subsidiaries, the one-time charges, and employee benefits expense, non-interest expenses increased $719,000, or 5.3%. Of this figure, salary expense increased $435,000, or 6.6%, which represents additions to staff in the existing companies, additional personnel hours required by the increased mortgage loan re-finance volume, and normal salary increments. Occupancy and equipment costs increased $148,000, or 6.4%, which is a result of additions and repairs to physical facilities and upgrades of personal computers and communication networks throughout the corporation. Other miscellaneous expenses increased $324,000, or 7.9%, during the first nine months of 2001 when compared to the same period in 2000. Over half of this increase was due to the amortization of origination costs which were deferred as portfolio loans were funded in past periods. Because there has been a decline in the origination of portfolio loans with maturity dates longer than one year, current costs are deferred at a slower rate. Eliminating the deferred cost effect, other miscellaneous expense increased $161,000, or 3.9%. Total miscellaneous expenses were somewhat offset by a reduction of $188,000, or 39.6%, in Michigan single business tax which resulted from the reorganization of the mortgage business of each of the five banks into the more efficient and competitive structure of a mortgage company subsidiary. Analysis of the third quarter of 2001 compared to the third quarter of 2000 provides similar observations as comparisons of the year to date periods. Page 12 Total non-interest income increased $933,000, or 67.3%, during the third quarter of 2001 when compared to the same period in 2000. Much of the increase in total non-interest income and in other non-interest income was attributable to subsidiaries which were either not in operation for the third quarter of 2000 or were in early start-up phase (1st Title, C.A. Hanes, Gladwin Land, and Firstbank- St Johns). Excluding these new subsidiaries from the 2001 and 2000 periods, non-interest income increased $482,000, or 40.7%. Service charges on deposit accounts increased $78,000, or 17.9%. Excluding the new subsidiaries, service charges on deposit accounts increased $65,000, or 14.9%. Gain on sale of mortgages increased $377,000, or 253.6%, due to increased mortgage origination and mortgage refinance activity. Certain other categories of non-interest income declined, most notably mortgage servicing income which declined from $81,000 in the third quarter of 2001 to $16,000 in the third quarter of 2001. The decline was due to the impact of refinances and other pre-payments. Non-interest expense increased $795,000, or 14.7%, when comparing the three month periods ended September 30, 2001 and 2000. Much of the increase in non-interest expense and its components was attributable to subsidiaries which were either not in operation for the third quarter of 2000 or were in early start-up phase. Excluding non-interest expenses of the new subsidiaries, non-interest expenses increased $396,000, or 7.9%. Salary expenses increased $181,000, or 8.1%, which represents changes in corporate executive positions, the costs of additional staff which were required to handle the increased mortgage activity, and normal yearly salary increments for all personnel. Occupancy and equipment expense increased $131,000, or 17.0%, when comparing the third quarter of 2001 to the third quarter of 2000. An adjustment to accruals for property tax expense accounted for $30,000 of the increase. Most of the remaining increase was due to the purchase of new personal computers and communication network upgrades throughout the corporation which were required by new operating technologies. Other miscellaneous expense increased $199,000, or 15.2%. The greatest influences on this increase in a variety of expenses were the increased level of mortgage origination and re-finance, which drove up costs of special promotions and fees paid, and occurring at the same time, a slowdown in the origination of commercial and other loans, which resulted in an increase in loan deferral costs. Third quarter increases in non-interest expenses were somewhat offset by a reduction of $130,000, or 81.2%, in Michigan single business taxes which resulted from the reorganization of the mortgage business of each of the five banks into the more efficient and competitive structure of a mortgage company subsidiary. Page 13 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 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 regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior and customer ability to repay loans; software failure, errors or miscalculations; and the vicissitudes of the national economy. 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 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk ------- Information under the headings, "Liquidity and Interest Rate Sensitivity" on page 8 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, 2000, 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, 2000. 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. 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 14 of this Form 10-Q quarterly report for a discussion of the limitations on Firstbank's responsibility for such statements. Page 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ------- (a) Exhibits: None (b) Reports on Form 8-K None Page 16 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 14, 2001 \s\ Thomas R. Sullivan --------------------- --------------------------------------- Thomas R. Sullivan President, Chief Executive Officer (Principal Executive Officer) Date: November 14, 2001 \s\ Samuel G. Stone --------------------- --------------------------------------- Samuel G. Stone Vice President, Chief Financial Officer (Principal Accounting Officer) Page 17