Firstbank (FBMI) 10-Q 2007 Q3 Quarterly report

U.S. 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 September 30, 2007

[_]    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: 000-14209

FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)

Michigan
(State of Incorporation) 38-2633910
(I.R.S. Employer Identification No.)

311 Woodworth Avenue
Alma, Michigan
(Address of principal executive offices) 48801
(Zip Code)

Registrant’s telephone number, including area code: (989) 463-3131

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ___   No   X  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [_] No [X] interceptions or interference.

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the 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 such filing requirements for the past 90 days.    Yes   X    No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12-b-2).
Large accelerated filer ___    Accelerated filer  X      Non-accelerated filer ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___   No   X  

Common stock outstanding at October 31, 2007: 7,378,098 shares.

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 11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	Page 16
Item 4.	Controls and Procedures	Page 17
PART II.	OTHER INFORMATION
Item 5.	Other Information	Page 18
Item 6.	Exhibits	Page 18
SIGNATURES		Page 19
EXHIBIT INDEX		Page 20

2

Item 1:      Financial Statements (UNAUDITED)

FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
(Dollars in thousands)
UNAUDITED

	September 30, 2007		December 31, 2006
ASSETS
Cash and due from banks	$	33,713	$	32,084
Short term investments		20,695		24,853
Total Cash and Cash Equivalents		54,408		56,937
Securities available for sale		97,832		69,125
Federal Home Loan Bank stock		7,684		5,924
Loans held for sale		311		1,120
Loans, net of allowance for loan losses of $11,821 at September 30, 2007
and $9,966 at December 31, 2006		1,104,695		899,554
Premises and equipment, net		27,412		20,232
Acquisition goodwill		35,155		20,094
Other intangibles		6,039		3,045
Accrued interest receivable and other assets		28,458		19,061
TOTAL ASSETS	$	1,361,994	$	1,095,092
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts	$	148,682	$	131,942
Interest bearing accounts:
Demand		217,678		161,228
Savings		153,214		127,301
Time		484,913		414,955
Total Deposits		1,004,487		835,426
Securities sold under agreements to repurchase and overnight borrowings		53,155		35,179
Federal Home Loan Bank advances		130,931		94,104
Notes Payable		51		73
Subordinated Debentures		36,084		20,620
Accrued interest and other liabilities		19,449		13,617
Total Liabilities		1,244,157		999,019
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000 shares authorized, none issued
Common Stock; 20,000,000 shares authorized, 7,374,060 shares issued
and outstanding (6,484,202 at December 31, 2006)		110,862		91,652
Retained earnings		6,764		4,552
Accumulated other comprehensive income/(loss)		211		(131	)
Total Shareholders' Equity		117,837		96,073
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,361,994	$	1,095,092

See notes to consolidated financial statements.

3

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 2007 AND 2006
(Dollars in thousands except per share data)
UNAUDITED

	Three Months Ended September 30,
	2007		2006
Interest Income:
Interest and fees on loans	$	20,817	$	17,366
Securities
Taxable		921		552
Exempt from Federal Income Tax		363		245
Short term investments		334		110
Total Interest Income		22,435		18,273
Interest Expense:
Deposits		7,892		6,066
FHLB advances and other		2,286		1,663
Subordinated Debt		522		337
Total Interest Expense		10,700		8,066
Net Interest Income		11,735		10,207
Provision for loan losses		223		213
Net Interest Income after provision for loan losses		11,512		9,994
Noninterest Income:
Gain on sale of mortgage loans		428		346
Service charges on deposit accounts		1,290		955
Gain/(loss) on sale of securities		0		0
Mortgage servicing, net of amortization		141		128
Other		1,119		1,055
Total Noninterest Income		2,978		2,484
Noninterest Expense:
Salaries and employee benefits		5,744		4,589
Occupancy and equipment		1,597		1,290
Amortization and impairment of intangibles		332		168
FDIC insurance premium		61		24
Other		3,408		2,496
Total Noninterest Expense		11,142		8,567
Income before federal income taxes		3,348		3,911
Federal income taxes		933		1,194
NET INCOME	$	2,415	$	2,717
Comprehensive Income	$	2,850	$	3,048
Basic Earnings Per Share	$	0.33	$	0.41
Diluted Earnings Per Share	$	0.33	$	0.41
Dividends Per Share	$	0.225	$	0.214

See notes to consolidated financial statements.

4

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 2007 AND 2006
(Dollars in thousands except per share data)
UNAUDITED

	Nine Months Ended September 30,
	2007			2006
Interest Income:
Interest and fees on loans	$	54,657		$	49,897
Securities
Taxable		2,233			1,605
Exempt from Federal Income Tax		900			734
Short term investments		914			297
Total Interest Income		58,704			52,533
Interest Expense:
Deposits		20,988			16,473
FHLB advances and other		5,577			4,803
Subordinated Debt		1,209			983
Total Interest Expense		27,774			22,259
Net Interest Income		30,930			30,274
Provision for loan losses		241			598
Net Interest Income after provision for loan losses		30,689			29,676
Noninterest Income:
Gain on sale of mortgage loans		1,127			956
Service charges on deposit accounts		3,228			2,893
Gain/(loss) on sale of securities		(130	)		7
Mortgage servicing, net of amortization		416			332
Other		2,963			3,577
Total Noninterest Income		7,604			7,765
Noninterest Expense:
Salaries and employee benefits		15,301			13,774
Occupancy and equipment		4,274			3,793
Amortization and impairment of intangibles		929			504
FDIC insurance premium		110			77
Other		8,191			7,655
Total Noninterest Expense		28,805			25,803
Income before federal income taxes		9,488			11,638
Federal income taxes		2,668			3,598
NET INCOME	$	6,820		$	8,040
Comprehensive Income	$	7,162		$	8,155
Basic Earnings Per Share	$	1.00		$	1.22
Diluted Earnings Per Share	$	1.00		$	1.22
Dividends Per Share	$	0.675		$	0.638

See notes to consolidated financial statements.

5

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2007 AND 2006
(Dollars in thousands)
UNAUDITED

	Nine months ended September 30,
	2007			2006
OPERATING ACTIVITIES
Net income	$	6,820		$	8,040
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses		241			598
Depreciation of premises and equipment		2,141			1,860
Net amortization of security premiums/discounts		(268	)		8
Loss/(Gain) on sale of securities		130			(7	)
Amortization and impairment of intangibles		929			504
Stock option and stock grant compensation expense		210			180
Gain on sale of mortgage loans		(1,127	)		(956	)
Proceeds from sales of mortgage loans		43,042			41,279
Loans originated for sale		(41,106	)		(41,266	)
Increase in accrued interest receivable and other assets		4,245			(1,228	)
Increase in accrued interest payable and other liabilities		(879	)		2,179
NET CASH PROVIDED BY OPERATING ACTIVITIES		14,378			11,191
INVESTING ACTIVITIES
Bank acquisition, net of cash assumed		(15,170	)		0
Proceeds from sale of securities available for sale		18,111			0
Proceeds from maturities and calls of securities available for sale		30,705			26,577
Purchases of securities available for sale		(50,079	)		(24,492	)
Purchases of FHLB stock		(296	)		(263	)
Sale of FHLB stock		50			435
Proceeds from sale of fixed assets		574			52
Net increase in portfolio loans		(28,611	)		(38,012	)
Net purchases of premises and equipment		(2,612	)		(2,351	)
NET CASH USED IN INVESTING ACTIVITIES		(47,328	)		(38,054	)
FINANCING ACTIVITIES
Net increase/(decrease) in deposits		(2,938	)		8,793
Increase/(decrease) in securities sold under agreements to
repurchase and other short term borrowings		13,666			(6,961	)
Repayment of notes payable and other borrowings		(19,750	)		(7,517	)
Proceeds from issuance of other borrowings		19,600
Repayment of Federal Home Loan Bank borrowings		(12,793	)		(5,134	)
Proceeds from Federal Home Loan Bank borrowings		21,500			15,720
Proceeds from subordinated debentures		15,464			10,310
Issuance of common stock, net		2,081			2,000
Purchase of common stock		(1,801	)		(3,706	)
Cash dividends		(4,608	)		(4,191	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		30,421			9,314
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		(2,529	)		(17,549	)
Cash and cash equivalents at beginning of period		56,937			53,332
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	54,408		$	35,783

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Nine months ended September 30,
Supplemental Disclosure
Interest Paid	$	27,325	$	21,279
Income Taxes Paid	$	2,425	$	3,566
Non cash transfers of loans to Other Real Estate Owned	$	1,685	$	2,804

See notes to consolidated financial statements.

Ionia County National Bank acquisition:
(In Thousands of Dollars)

Securities acquired (including FHLB stock)	28,252
Loans acquired, net of allowance for loan losses	178,456
Bank premises and equipment acquired	7,283
Acquisition intangibles recorded	18,983
Other assets acquired	12,152
Deposits assumed	(171,999	)
Borrowings assumed	(32,558	)
Other liabilities assumed	(6,679	)

7

FIRSTBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
UNAUDITED

NOTE 1 - FINANCIAL STATEMENTS

The accompanying unaudited financial information presented is for Firstbank Corporation (“Corporation”) and its wholly owned subsidiaries: Firstbank — Alma, Firstbank (Mt. Pleasant), Firstbank — West Branch (including its wholly owned subsidiaries; 1^st Armored, Inc., 1^st Title, Inc., and its majority holding in 1^st Investors Title, LLC and C.A. Hanes Realty, Inc.), Firstbank — Lakeview, Firstbank — St. Johns, Keystone Community Bank, Firstbank – West Michigan and its wholly owned subsidiary Accord Financial Services, Inc., collectively the “Banks”), FBMI Risk Management Services, Inc., and Austin Mortgage Company. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The balance sheet at December 31, 2006, 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, 2006.

Effect of Newly Issued Accounting Standards

none

Effect of Newly Issued but not yet Effective Accounting Standards

none

NOTE 2 - ACQUISITIONS AND DIVESTITURES

On July 1, 2007 we acquired ICNB Financial Corporation (ICNB). ICNB was the holding company for The Ionia County National Bank of Ionia, based in Ionia, Michigan. Ionia County National Bank subsequently changed its name to Firstbank – West Michigan. The purpose of the acquisition was to increase market share in the Michigan banking market. As of June 30, 2007, ICNB had total assets of $231 million, total deposits of $171 million, and total loans, net of allowance, of $180 million. The merger was accounted for using the purchase accounting method of accounting, and accordingly the purchase price was allocated to assets acquired and the liabilities assumed based upon the estimated fair value as of the merger date.

Firstbank Corporation paid an aggregate value of $38.4 million to acquire the shares of ICNB common stock outstanding. The purchase price was determined using the Firstbank’s market price on February 1, 2007, the date of the merger agreement. We issued 874,740 shares of Firstbank common stock, and paid $19,584,000 in cash for the acquisition. The acquisition resulted in the creation of $19.0 million of intangible assets, of which $15.3 million was designated as goodwill and $3.7 million as core deposit intangible.

ICNB’s financial information is incorporated into the financial statements contained within this report from July 1, 2007 forward, the date of the merger.

On September 30, 2007, we sold our 55% ownership in C.A. Hanes Realty, Inc. at a loss after taxes of $104,000. Historical earnings from C.A. Hanes Realty, Inc. are included in the financial statements presented in this report. Balance sheet results of September 30, 2007 exclude C.A. Hanes, Realty, Inc. as the sale transaction was completed on that date.

8

The following proforma disclosure of combined entity results of Firstbank Corporation and ICNB presents the results of operations as if the two entities had combined as of January 1, 2006.

	Three months ended September 30,				Nine months ended September 30,
(In Thousands of Dollars, except Earnings per Share)	2007		2006		2007		2006
Net Interest Income	$	11,735	$	12,299	$	34,742	$	36,500
Provision for loan losses		223		277		319		803
Net Interest Income after provision for loan losses		11,512		12,022		34,423		35,697
Noninterest Income		2,978		3,218		8,846		9,834
Noninterest Expense		11,142		10,717		33,436		32,131
Income before federal income taxes		3,348		4,523		9,833		13,400
Federal income taxes		933		1,348		2,683		4,036
Net income	$	2,415	$	3,175	$	7,150	$	9,364
Basic Earnings per Share	$	0.33	$	0.43	$	0.97	$	1.26
Diluted Earnings per Share	$	0.33	$	0.43	$	0.97	$	1.25

Included in the results above are certain non recurring expenses incurred at ICNB. The nine months ended Septermber 30, 2006 includes approximately $135,000 (pre-tax) in non recurring legal fees associated with two law suits at ICNB. The nine months ended September 30, 2007 includes approximately $640,000 (pre-tax) in non recurring events relating to the disposition of a long term OREO property, deferred compensation plans, and conforming accounting adjustments due to the pending merger, that related to the late fee accruals.

NOTE 3 - GOODWILL

Changes in the carrying amount of goodwill are as follows:

	(In Thousands of Dollars)
	2007		2006
Balance at January 1	$	20,094	$	19,888
Impairment write down		275		0
Goodwill from acquisitions		15,336		206
Balance at September 30	$	35,155	$	20,094

The $275,000 impairment write down above relates to goodwill at our C.A. Hanes Realty, Inc. subsidiary, while the $15,374,000 represents goodwill created in the acquisition of ICNB Financial Corporation and the $206,000 in 2006 was an adjustment relating to our Keystone acquisition.

NOTE 4 - BORROWINGS

We established a line of credit agreement with Comerica Bank, on June 30, 2007 at a variable interest rate chosen by us of either Comerica Bank’s prime commercial borrowing rate less 1.25%, or 1.00% over Comerica Bank’s Eurodollar-based Rate. This agreement allows for a revolving line of credit up to an aggregate principal amount of $30,000,000. Maturity of Eurodollar-based borrowings are established at the time of the borrowing and can range in duration from one to six months. Prime-based borrowings may be repaid at any time. The terms of the agreement require the Company to pay interest monthly on outstanding Prime-based borrowing, and at maturity on any Eurodollar-based borrowing, and prohibit us from pledging the stock of our subsidiary banks. We borrowed $19.6 million on this line of credit to temporarily fund the ICNB acquisition, and subsequently repaid that borrowing at the end of July. There was no outstanding balance on the line at the end of the third quarter.

On July 30, 2007, two trusts, formed by us, issued $15,464,000 of trust preferred securities as part of a pooled offering of such securities. One of the trusts issued $7,732,000 of variable rate securities at 90 day LIBOR plus 1.35% (6.71% on the date of issuance). The other trust issued $7,732,000 of fixed rate securities that carry an interest rate of 6.566 % for five years, and then convert to a variable rate of 90 day LIBOR plus 1.35% for the remainder of their term. Firstbank then issued subordinated debentures to the trust in exchange for the proceeds of the offering; the debentures represent the sole assets of each of the trusts. We may redeem the subordinated debentures, in whole or in part, any time on or after July 30, 2012 at 100% of the principal amount of the securities. The debentures are required to be paid in full on July 30, 2037. The proceeds of this offering were used to provide funding for the acquisition of ICNB.

9

NOTE 5 - NONPERFORMING LOANS AND ASSETS

Nonperforming Loans and Assets

The following table summarizes nonaccrual and past due loans at the dates indicated:

(Dollars in thousands)	September 30, 2007			December 31, 2006
Nonperforming loans:
Nonaccrual loans	$	8,323		$	1,768
Loans 90 days or more past due and still accruing		2,605			2,485
Renegotiated loans		263			0
Total nonperforming loans	$	11,181		$	4,253
Property from defaulted loans	$	3,242		$	1,700
Nonperforming loans as a percent of total loans*		1.00	%		0.47	%
Nonperforming loans plus Other Real Estate as a percent of total		1.30	%		0.65	%
loans* plus Other Real Estate
Nonperforming assets as a percent of total assets		1.07	%		0.54	%

Analysis of the Allowance for Loan Losses

(Dollars in Thousands)

	Three months ended September 30,						Nine months ended September 30,
	2007			2006			2007			2006
Balance at beginning of period	$	9,501		$	11,621		$	9,966		$	11,559
Allowance acquired through acquisitions		2,346			0			2,346			0
Charge-offs		(440	)		(1,240	)		(1,122	)		(1,754	)
Recoveries		191			95			390			287
Net charge-offs		(249	)		(1,145	)		(732	)		(1,467	)
Provision for loan losses		223			213			241			597
Balance at end of period	$	11,821		$	10,689		$	11,821		$	10,689
Average total loans* outstanding during the period	$	1,102,696		$	914,979		$	974,426		$	903,997
Allowance for loan loss as a percent of total loans*		1.06	%		1.17	%		1.06	%		1.17	%
Allowance for loan loss as a percent
of nonperforming loans		106	%		271	%		106	%		271	%
Net Charge-offs^ as a percent of average loans*		0.09	%		0.50	%		0.10	%		0.22	%

*All loan ratios exclude loans held for sale
^Annualized

10

NOTE 6 - BASIC AND DILUTED EARNINGS PER SHARE

(Dollars in Thousands Except per Share Data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Earnings per share
Net income	$	2,415	$	2,717	$	6,820	$	8,040
Weighted average common shares outstanding		7,389		6,554		6,809		6,574
Basic Earnings per Share	$	0.33	$	0.41	$	1.00	$	1.22
Earnings per share assuming dilution
Net income	$	2,415	$	2,717	$	6,820	$	8,040
Weighted average common shares outstanding		7,389		6,554		6,809		6,574
Add dilutive effect of assumed exercises of options		3		40		13		44
Weighted average common and dilutive potential common		7,392		6,594		6,822		6,618
shares outstanding
Diluted Earnings per Share	$	0.33	$	0.41	$	1.00	$	1.21

Stock options for 177,483 shares for the three month and 177,441 shares for the nine month periods of 2006, and 324,794 shares for the three month, and 280,332 shares for the nine month periods of 2007, were not considered in computing diluted earnings per share because they were anti-dilutive.

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 wholly owned subsidiaries: 1^st Armored, Inc., 1^st Title, Inc. and its majority holding in 1^ST Investors Title, LLC, and C.A. Hanes Realty, Inc.), Firstbank — Lakeview, Firstbank — St. Johns, Keystone Community Bank, Firstbank – West Michigan (collectively the “Banks”), FBMI Risk Management Services, Inc., and Austin Mortgage Company. See note 2 of the notes to consolidated financial statements for additional disclosures on Firstbank – West Michigan and C.A. Hanes Realty, Inc.

Events Occurring in the Third Quarter 2007

On July 1, 2007 we completed our acquisition of ICNB Financial Corporation (ICNB). ICNB was the holding company for The Ionia County National Bank of Ionia, based in Ionia, Michigan. Ionia County National Bank subsequently changed its name to Firstbank – West Michigan. The purpose of the acquisition was to increase market share in the Michigan banking market. As of June 30, 2007, ICNB had total assets of $231 million, total deposits of $171 million, and total loans, net of allowance, of $180 million. The merger was accounted for using the purchase accounting method of accounting, and accordingly the purchase price was allocated to assets acquired and the liabilities assumed based upon the estimated fair value as of the merger date.

We paid an aggregate value of $38.4 million to acquire the shares of ICNB common stock outstanding. The purchase price was determined using the Firstbank’s market price on February 1, 2007, the date of the merger agreement. We issued 874,740 shares of Firstbank common stock, and paid $19,584,000 in cash for the acquisition. The acquisition resulted in the creation of $19.0 million of intangible assets, of which $15.3 million was designated as goodwill and $3.7 million as core deposit intangible.

ICNB’s financial information is incorporated into the financial statements contained within this report from July 1, 2007 forward, the date of the merger. As such, comparison of this quarter’s results to prior periods are affected by the inclusion of ICNB’s results.

On September 30, 2007, we sold our 55% ownership in C.A. Hanes Realty, Inc. at a loss after taxes of $104,000. Historical earnings from C.A. Hanes Realty, Inc. are included in the financial statements presented in this report. Balance sheet results of September 30, 2007 exclude C.A. Hanes, Realty, Inc. as the sale transaction was completed on that date.

11

On July 23, 2007, the board of director’s approved a plan to re-establish authorization to repurchase shares for an aggregate amount of up to $5 million, from that point forward, of Firstbank Corporation stock.

Financial Condition

Total assets increased $266.9 million, or 24.4%, during the first nine months of 2007. Cash and cash equivalents decreased $2.5 million, or 4.4%. Securities available for sale were higher, increasing $28.7 million, or 41.5%, from December 31, 2006. Total portfolio loans increased $207.0 million, or 22.8%, during the first nine months of 2007. Average total loans were 20.5% higher in the third quarter of 2007 when compared with the fourth quarter of 2006. Much of this growth resulted from the ICNB acquisition, which added $28.3 million of securities held for sale, $178.4 million of portfolio loans, and $249.7 million of total assets on July 1, 2007.

Residential mortgages grew $107.7 million, or 37.9% from year end 2006, mainly due to $85.6 million of residential loans from the ICNB acquisition, and new loans which were retained for the loan portfolio because of their specific rate and collateral characteristics. Real estate construction loans increased $12.1 million, or 14.8%. Commercial and commercial real estate loans were $70.8 million higher, or 14.7%, from December 31, 2006. Absent the $78.9 million of loans added in the acquisition, commercial and commercial real estate loans would have been $8.1 million or 1.7% lower.

Net charge-offs of loans were $732,000 in the first nine months of 2007 compared to $1,467,000 in the first nine months of 2006. The ratio of net charge-offs of loans (annualized) to average loans was 0.10% in 2007 compared to 0.22% in the same period of 2006. At the end of the first quarter of 2007, events relating to the sale of a business, and pending payoff of its associated loans, caused us to conclude that specific reserves of $971,000 on that relationship were no longer needed. Those excess reserves were reversed against provision expense in the first quarter. In the second quarter a single $4.7 million loan on an apartment complex in southeast Michigan was placed on non-accrual status and reserves of $500,000 were allocated to the loan, resulting in an increase in our provision expense for the second quarter. We provided $712,000 of normal reserves to cover charged off loans and other changes in our loan portfolio in the first nine months, resulting in an overall provision expense for the year-to-date period of $241,000, reflecting the effects of the negative provision in the first quarter.

At September 30, 2007, the allowance as a percentage of average outstanding loans was 1.06% compared with 1.17% at the same point a year earlier. Non-performing loans as a percent of total loans was 1.07% at September 30, 2007, compared with 0.54% at year end 2006. Nonperforming loans increased $6.9 million from year end and $7.2 million from the year ago period primarily due to the loan which was placed into nonaccrual status in the second quarter of 2007 as mentioned above and the addition of $1.6 million of nonperforming loans acquired in the ICNB acquisition. Our overall asset quality remains one of the strengths of our banking franchise and has allowed us to maintain strong asset quality measures relative to our competitor banks in Michigan. We continue to be diligent in review of our loan portfolios for problem loans and believe that early detection of troubled credits is critical to our ability to maintain our allowance for loan losses at its current level. We maintain the allowance for loan losses at a level considered adequate to cover losses within the loan portfolio. The allowance balance is established after considering past loan loss experience, current economic conditions, composition of the loan portfolio, delinquencies, and other relevant factors.

Total deposits increased $169.1 million, or 20.2%, during the first nine months of 2007 when compared with year end 2006. Noninterest bearing demand account balances increased $16.7 million or 12.7%, interest bearing demand account balances increased $56.5 million, or 35.0%, savings balances increased $25.9 million, or 20.4%, and time balances increased $70.0 million, or 16.9%. Within time balances, wholesale CDs were $27.0 million lower than year end, while core market CDs increased $97.0 million. The acquisition of ICNB contributed $22.1 million of non interest bearing deposits, $55.3 million of interest bearing demand balances, $18.8 million of savings balances, and $74.3 million in time balances of the growth noted above.

For the nine month period ended September 30, 2007, securities sold under agreements to repurchase and overnight borrowings increased $18.0 million, or 51.1%, due to normal fluctuations in customer cash flows and $5.4 million of balances from the acquisition. Federal Home Loan Bank advances and notes payable were up $36.8 million, or 39.1% higher than year end. The ICNB acquisition added $27.4 million of the higher Federal Home Loan Bank balances. The additional increase was caused by a shift in funding from wholesale CDs to Federal Home Loan Bank balances as a lower cost of funding.

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Total shareholders’ equity increased $21.8 million, or 22.7%, during the first nine months of 2007. Net income of $6.8 million and stock issuances of $20.8 million increased shareholders’ equity, while dividends of $4.6 million and share repurchases of $1.8 million decreased shareholders’ equity. Stock issuance was primarily related to the $18.7 million issued in the ICNB acquisition, dividend reinvestment and exercise of stock options. The per share book value of shareholders’ equity was $15.98 at September 30, 2007, increasing from $14.82 at December 31, 2006.

The following table discloses compliance with current regulatory capital requirements on a consolidated basis:

(Dollars in Thousands)

	Leverage			Tier 1 Capital			Totak Risk- Based Capital
Capital Balances at September 30, 2007	$	112,382		$	112,382		$	123,631
Required Regulatory Capital	$	52,714		$	42,619		$	85,238
Capital in Excess of Regulatory Minimums	$	59,668		$	69,763		$	38,393
Capital Ratios at September 30, 2007		8.53	%		10.55	%		11.60	%
Regulatory Capital Ratios - Minimum Requirement		4.00	%		4.00	%		8.00	%

Results of Operations

Three Months Ended September 30, 2007

For the third quarter of 2007, net income was $2,415,000, basic earnings and diluted earnings per share were $0.33, compared to $2,717,000, and $0.41 basic and diluted per share for the third quarter of 2006, and $1,747,000, $0.27, for the second quarter of 2007. The second quarter of 2007 included a charge of $500,000 to establish reserves on a large commercial loan, which became impaired in the period, and the write off of $275,000 of goodwill ($150,000 net of minority interest) on the company’s real estate subsidiary. These two charges resulted in a reduction of per share earnings of $0.07. Third quarter 2007 net income was negatively impacted by $104,000 from the sale of our CA Hanes Realty, Inc. subsidiary on September 30.

Average earning assets increased $231.8 million, or 23.3%, from the third quarter of 2006 to the same period of 2007. The yield on earning assets decreased 1 basis point, to 7.35%, for the quarter ended September 30, 2007, compared to 7.36% for the quarter ended September 30, 2006. The cost of funding related liabilities increased, rising 25 basis points when comparing the three month periods ended September 30, from 3.20% in 2006, to 3.45% in 2007. The decrease in yield on earning assets coupled with the increase in the cost of funds relative to earning assets caused the net interest margin to decrease by 26 basis points, from 4.15% in 2006 to 3.89% in 2007. Net interest income increased $1.5 million to $11.7 million in the third quarter of 2007 compared with the same period of 2006. The current rate environment continues to present a challenge in managing our net interest income. Competition for deposits has resulted in a shift of balances from lower cost transactional accounts into higher priced time deposits. At the same time, competition for quality loans in the state is restricting our ability to obtain higher rates on loans. The Federal Reserve lowered its target federal funds rate by 50 basis points on September 17, and by another 25 basis points on October 31. The prime rate, which is used in pricing our variable rate loan portfolios followed suit and decreased by the same amount, putting further pressure on our net interest margin late in the third quarter and into the fourth quarter.

The provision for loan losses decreased $10,000, when the third quarter of 2007 is compared to the same quarter of 2006. In the first quarter of 2007, we reversed $971,000 of our allowance for loan loss reserve as a result of the expected pay off of a loan relationship for which specific reserves had been previously designated, resulting in a negative provision expense for the quarter of $721,000. That loan relationship paid off early in the second quarter. Absent this event, provision for loan losses would have been $250,000 in the first quarter of 2007. In the second quarter of this year a $4.7 million loan relationship was identified as having cash flow problems and was placed on non accrual status. We determined that allocated allowance was necessary for the loan and as a result increased our loan loss provision for the quarter accordingly. Net charge-offs for the third quarter of 2007 were $249,000, or 0.09% annualized, compared with $319,000, or 0.14% in the second quarter of 2007 and $1,145,000, or 0.50% in the third quarter of 2006. We have developed a quantitative and qualitative methodology for analyzing factors which impact the allowance for loan losses consistently across our six banking subsidiaries. The process applies risk factors for historical charge-offs and delinquency experience, portfolio segment growth rates, and industry and regional factors and trends as they affect the banks’ portfolios. The consideration of exposures to industries most affected by current risks in the economic and political environment and the review of risks in certain credits that are not considered part of the non-performing loan category contributed to the establishment of the allowance levels at each bank.

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Total non-interest income was $3.0 million in the third quarter, compared with $2.5 million in the third quarter of 2006 and $2.4 million in the second quarter of 2007. As previously mentioned, the second quarter of 2006 included a one time gain on the sale of a minority interest in our title insurance company of $275,000. The most significant increases in non interest income from quarter to quarter are in deposit service charges and gains on the sale of mortgage loans, which increased $335,000 and $82,000 respectively, over last years third quarter and $296,000 and $53,000 respectively, over second quarter 2007.

Total non-interest expense increased $2,575,000, or 30.1%, when comparing the three month periods ended September 30, 2007 and 2006. Salary and employee benefits were $1,155,000 higher than the 2006 third quarter, and include staffing for our new affiliate and three additional branches compared with the prior year. Occupancy and equipment costs were $307,000 higher, mainly due to the new offices and the addition of ICNB. Intangibles cost is $164,000 higher than the year ago quarter, as a result of the addition core deposit amortization from the ICNB acquisition. Other expenses were $912,000 higher than the same quarter in 2006, and include costs related to the ICNB acquisition.

Federal Income tax expense was $261,000 lower than last year’s third quarter, mainly due to lower net income and the benefits of our insurance captive formed in October of 2006.

Nine Months Ended September 30, 2007

For the first nine months of 2007, net income was $6,820,000, basic and diluted earnings per share were $1.00, compared with net income of $8,040,000, basic and diluted earnings per share of $1.22 for the first nine months of 2006. The first nine months of 2007 produced net interest income which was $1.0 million, or 4.3%, higher than the same period of 2006. Non interest income was basically unchanged from the year ago period at $7.6 million compared with $7.8 million in 2006. Non interest expense was higher at $28.8 million in 2007 compared with $25.8 million in 2006. These comparisons include the results of ICNB from July 1, 2007, but do not include their results for prior periods. The results of CA Hanes Realty, Inc. are fully included in both periods presented.

Average earning assets increased $98.8 million, or 10.1%, from the first three quarters of 2006 to the same period of 2007. The yield on earning assets increased 13 basis points, to 7.33%, for the nine months ended September 30, 2007, compared to 7.20% for the nine months ended September 30, 2006. The cost of funding related liabilities also increased, rising 41 basis points when comparing the nine month periods ended September 30, from 3.02% in 2006, to 3.43% in 2007. The increase in yield on earning assets was less than the increase in the cost of funds relative to earning assets, causing the net interest margin to decrease by 29 basis points, from 4.19% in 2006 to 3.90% in 2007. Net interest income increased $1.0 million to $30.9 million in the first three quarters of 2007 compared with the same period of 2006. The current rate environment continues to present a challenge in managing our net interest income. Competition for deposits has resulted in a shift of balances from lower cost transactional accounts into higher priced time deposits. At the same time, competition for quality loans in the state is limiting our ability to obtain higher rates on loans.

The provision for loan losses decreased $357,000, when the first nine months of 2007 is compared to the same period of 2006. In the first quarter of 2007, we reversed $971,000 of our allowance for loan loss reserve as a result of the expected pay off of a loan relationship for which specific reserves had been previously designated, while the second quarter required the addition of $500,000 to our provision expense relating to one large commercial loan. Our third quarter was absent any unusual events, producing provision expense of $223,000, resulting in a year to date provision expense of $241,000. Prior year provision expense was $598,000. Net charge-offs for the first nine months of 2007 decreased from $1,467,000 in 2006 to $732,000 in 2007. Year to date, net charge offs as a percent of loans were 0.10% compared with 0.22% in 2006. We have developed a quantitative and qualitative methodology for analyzing factors which impact the allowance for loan losses consistently across our seven banking subsidiaries. The process applies risk factors for historical charge-offs and delinquency experience, portfolio segment growth rates, and industry and regional factors and trends as they affect the banks’ portfolios. The consideration of exposures to industries most affected by current risks in the economic and political environment and the review of risks in certain credits that are not considered part of the non-performing loan category contributed to the establishment of the allowance levels at each bank.

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Total non-interest income decreased $161,000, or 2.1%, when the first nine months of 2007 is compared to the same period in 2006. Higher mortgage banking revenue and service charges on deposit accounts partially offset decrease on security gains and losses of $137,000. Losses on the sale of securities were $130,000 in 2007, compared with a gain on the sale of securities of $7 in 2006. In March of the this year we reviewed our balance sheet for ways to improve the company’s net interest margin. As a result of that review, we determined that several securities with below market yields should be sold at a loss of $130,000, and replaced with similar securities that offered higher long term interest rates. Other non interest income was $614,000 lower in 2007 mainly due to the gain on sale of a minority interest in our title insurance subsidiary in 2006 and lower levels of income from our non banking subsidiaries during 2007. The non bank subsidiary income was $804,000 lower than the same nine months of 2006 due primarily the slow real estate market and the sale of Gladwin Land in 2006.

Total non-interest expense increased $3,002,000, or 11.6%, when comparing the nine month periods ended September 30, 2007 and 2006. The most significant portion of this increase was in salaries and employee benefits which were $1,527,000 higher than the 2006 level, occupancy and equipment expense which increased $481,000, and intangibles amortization, which was $425,000 higher. The increase in all of these areas were driven by the acquisition of ICNB and three new branches which added costs in 2007 relative to 2006. The increase in intangibles amortization was a result of the decision to write off the goodwill associated with our real estate sales subsidiary in the second quarter of 2007 and additional expense from the ICNB acquisition.

Federal Income tax expense was $930,000 lower than the prior year due to lower earnings and the tax benefits resulting from our captive insurance subsidiary formed in the fourth quarter of 2006.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

The Corporation has various financial obligations, including contractual obligations and commitments that may require future cash payments. Management believes that there have been no material changes in the Corporation’s overall level of these financial obligations since December 31, 2006 and that any changes in the Corporation’s obligations which have occurred are routine for the industry. Further discussion of the nature of each type of obligation is included in Managements Discussion and Analysis on page 13 of the Corporation’s Form 10K Annual Report, and is incorporated herein by reference.

Critical Accounting Policies

Certain of the Corporation’s accounting policies are important to the portrayal of the Corporation’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, without limitation, changes in interest rates, in local and national economic conditions, or the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses, determining the fair value of securities and other financial instruments, the valuation of mortgage servicing rights, determination of purchase accounting adjustments, and estimating state and federal contingent tax liabilities. The Corporation’s significant accounting policies are discussed in detail in Managements Discussion and Analysis on pages 13 through 16 in the Corporation’s annual report to shareholders for the year ended December 31, 2006.

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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 judgments 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.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Information under the headings, “Liquidity and Interest Rate Sensitivity” on pages 11 through 13 and “Quantitative and Qualitative Disclosure About Market Risk” on pages 16 and 17 in the registrant’s annual report to shareholders for the year ended December 31, 2006, 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, 2006.

We face 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. We do not believe that there has been a material change in the nature of our primary market risk exposures, including the categories of market risk to which we are 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, we do not know of nor expect there to be any material change in the general nature of our primary market risk exposure in the near term.

The methods by which we manage our primary market risk exposures, as described in the sections of our 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, we do not expect to change those methods in the near term. However, we may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

Our market risk exposure is mainly comprised of our vulnerability to interest rate risk. Prevailing interest rates and interest rate relationships in the future will be primarily determined by market, economic, and geopolitical factors which are outside of our control. All information provided in response to this item consists of forward looking statements. Reference is made to the section captioned “Forward Looking Statements” of this Form 10-Q quarterly report for a discussion of the limitations on our responsibility for such statements.

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Item 4.    Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

On November 6, 2007, the Corporation’s Chief Executive Officer and Chief Financial Officer reported on the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) to the Audit Committee. The portion of that report which constitutes their conclusions about the effectiveness of the disclosure controls and procedures based on their evaluation as of June 30, 2007 is as follows: “Based on our knowledge and the most recent evaluation, we believe the disclosure controls and procedures to be reasonably effective and commercially practical in providing information for management of the Corporation and for fair reporting to the investing public.”

b) Changes in Internal Controls

During the period covered by this report, there have been no changes in the Corporation’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Corporation’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

During 2006, the Corporation repurchased 222,500 shares of its common stock in open market transactions under the November 2003 repurchase plan. The shares were purchased at an average price of $23.61 per share. As of June 30, the Corporation had remaining authority to repurchase up to $278,813 of market value of its common stock under the November 2003 repurchase plan.

On July 23,2007, the board of director’s approved a plan to re-establish the authorization to repurchase shares for an aggregate amount of up to $5 million, from this point forward, of Firstbank Corporation stock. During the third quarter, we repurchased 103,100 shares of our stock at an average price of $17.47.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May yet Be Purchased Under the Approved Plan
July		0		-		0	$	5,000,000
August		100,100	$	17.47		100,100	$	3,251,112
September		3,000	$	17.24		3,000	$	3,199,242
Total		103,100	$	17.47		103,100	$	3,199,242

Item 5.    Other Information

The audit committee of the Board of Directors approved the categories of all non-audit services performed by the registrant’s independent accountants during the period covered by this report.

Item 6.    Exhibits

Exhibit Description

31.1 Certificate of the President and Chief Executive Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certificate of the Executive Vice President and Chief Financial Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certificate of the Chief Executive Officer and the Chief Financial Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.

Date: November 6, 2007 FIRSTBANK CORPORATION
(Registrant)


/s/ Thomas R. Sullivan
——————————————
Thomas R. Sullivan
President, Chief Executive Officer
(Principal Executive Officer)

Date: November 6, 2007



/s/ Samuel G. Stone
——————————————
Samuel G. Stone
Executive Vice President, Chief Financial Officer
(Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit Description

31.1 Certificate of the Chief Executive Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certificate of the Chief Financial Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certificate of the Chief Executive Officer and the Chief Financial Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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