-----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, Fx7HC12oVtm8OxwUpPjx4tHGBpWEz+zDfe3S9Jq8/vGt/aVKg2eireKCX7LZVADe kJLEn0s7+xJ5Pc5FjyQCMQ== 0000926044-99-000120.txt : 19991115 0000926044-99-000120.hdr.sgml : 19991115 ACCESSION NUMBER: 0000926044-99-000120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99747067 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 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. 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 FIRSTBANK CORPORATION CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (Unaudited) September 30, December 31, 1999 1998 -------------- ------------- 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.
Page 3 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME SEPTEMBER 30, 1999 and 1998 (Unaudited) Three months ended September 30, 1999 1998 ------------- ------------- 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 ============= =============
Page 4 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME SEPTEMBER 30, 1999 and 1998 (Unaudited) Nine months ended September 30, 1999 1998 ----------------- -------------- 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 ===== =====
Page 5 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Net unrealized appreciation (depreciation) (in thousands) Common Retained on available Stock Earnings for securities TOTAL ============= ============ ============== ======== 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 ============== ============ ========== ===========
Page 6 FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) Nine months ending September 30, 1999 1998 -------------- --------------- 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
Page 7 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 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) 1999 1998 --------------------------------------------- ------------ ------------- 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% ===== =====
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. Nine Twelve Nine months months months ended ended ended September 30, December 31, September 30, (Dollars in thousands) 1999 1998 1998 - ----------------------------------------------------- ---------------- --------------- ----------------- 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% ==== ==== ====
Page 9 NOTE E - RECLASSIFICATION Certain 1998 amounts have been reclassified to conform to the 1999 presentation. Page 10 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 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: Tier 1 Risk-based (Dollars in thousands) Leverage Capital Capital ------------------------------ -------- ------- ---------- 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%
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 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 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 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 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 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 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 EX-27 2
9 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) 1,000 9-MOS DEC-31-1998 JAN-01-1999 SEP-30-1999 18,519 524 88 0 91,602 0 0 481,164 (9,300) 618,389 489,477 22,950 28,671 16,668 0 0 51,252 9,371 618,389 29,697 4,278 0 33,975 12,727 14,236 19,739 378 15 14,804 8,505 8,505 0 0 5,927 1.32 1.28 4.87 2,037 729 66 685 9,048 588 462 9,300 7,936 0 1,364
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