Firstbank (FBMI) 8-K Results of Operations and Financial Condition

FOR IMMEDIATE RELEASE NEWS RELEASE

Date Submitted:          July 24, 2008
NASDAQ Symbol:     FBMI Contact:   Samuel G. Stone
                  Executive Vice President and
                  Chief Financial Officer
                  (989) 466-7325

FIRSTBANK CORPORATION ANNOUNCES
SECOND QUARTER AND YEAR-TO-DATE 2008 RESULTS

Highlights Include:

• Second quarter net income of $292,000 and earnings per share of $0.04 remain positive in spite of previously announced increased provision expense

• Economic conditions in Michigan and nationally continue to create credit and valuation issues impacting earnings

• Pressure on net interest margin easing

• Capital remains strong and all affiliate banks continue to meet regulatory well-capitalized requirements

Alma, Michigan (FBMI) —Thomas R. Sullivan, President and Chief Executive Officer of Firstbank Corporation, announced earnings per share of $0.04 for the second quarter of 2008 compared to $0.27 in the second quarter of 2007. Net income was $292,000 for the quarter ended June 30, 2008, compared to $1,747,000 for the quarter ended June 30, 2007. Net income and earnings per share remained positive in the second quarter in spite of the previously announced increased provision expense. Returns on average assets and average equity for the second quarter of 2008 were 0.10% and 1.2%, respectively, compared with 0.65% and 7.2%, respectively, in the second quarter of 2007. All per share amounts are fully diluted.

Earnings per share of $0.33 for the first half of 2008 compared to $0.68 in the first half of 2007. Net income was $2,442,000 for the six months ended June 30, 2008, compared to $4,405,000 for the six months ended June 30, 2007. Returns on average assets and average equity for the first half of 2008 were 0.37% and 4.3%, respectively, compared with 0.83% and 9.3%, respectively, in the first half of 2007.

Firstbank’s loan loss provision in the second quarter of 2008 was $3,465,000, in line with the amount previously announced in the news release issued June 13, 2008. In the second quarter of 2007, provision expense was $739,000, and averaged $504,000 per quarter for the four quarters of 2007. The increase in provision expense reflects a variety of factors including the ongoing economic stresses impacting the Michigan and national economies, the continued deterioration in real estate values, and Firstbank’s practice of immediately reserving for problem loans when they are identified. The bulk of the increased provision was taken at the newest affiliate bank, Firstbank – West Michigan, which was acquired with ICNB Financial Corporation on July 1, 2007. In times of less credit stress and at the time of acquisition, most of the bank’s problem credits could, and were able to, perform according to their terms, but under current economic conditions the additional provision for loan losses became appropriate.

Balance sheet comparisons to periods prior to July 1, 2007, are affected by the acquisition of ICNB Financial Corporation and the inclusion in the consolidated totals of its bank, Firstbank – West Michigan, which had assets of $227 million at June 30, 2008. Total assets of Firstbank Corporation at June 30, 2008, were $1.389 billion, an increase of 26.4% over the year-ago period. Total portfolio loans of $1.153 billion were 25.4% above the level at June 30, 2007, with 18.5% of the increase due to the addition of $170 million loans of Firstbank – West Michigan. Total deposits as of June 30, 2008, were $1.014 billion, including $155 million deposits of Firstbank – West Michigan, compared to $826 million at June 30, 2007.

Gain on sale of mortgage loans increased in each quarter of 2007, and more than doubled in the first quarter of 2008 compared to the fourth quarter of 2007. This source of revenue then declined by 51% in the second quarter of 2008 compared to the first quarter of 2008, but was still above the level in the fourth quarter of 2007. Declines in interest rates in the latter part of 2007 and sharper declines in the first months of 2008 helped to expand mortgage activity and refinances, but interest rates have moved back up in the second quarter, slowing activity once again.

Most items of revenue and expense were affected by the inclusion of Firstbank – West Michigan when comparing the second quarter of 2008 to the second quarter of 2007. Service charges on deposit accounts increased 26.4% in the second quarter of 2008 compared to the second quarter of 2007. More importantly, service charges on deposit accounts increased 7.5% in the second quarter of 2008 compared to the first quarter of 2008, as deposit account activity charges and interchange fees related to debit card usage showed good growth. Salaries and employee benefits expense, although well contained in the second quarter of 2008 compared to the first quarter of 2008, was 14.4% above the level in the second quarter of 2007, and total non-interest expense increased 15.3% over the level in the second quarter of 2007, with the increases driven largely by the inclusion of the new bank.

Mr. Sullivan stated, “We are witnessing turmoil in the financial services industry unprecedented in many years, evidenced by the federal government’s multi-billion dollar commitments to support various institutions. We continue to be pleased with the relatively good asset quality at our banks, in spite of the elevated charge-offs and provision expense coming from our newest acquisition. The extraordinary stress in the economy and credit markets has caused losses at Firstbank – West Michigan beyond the level we had expected. As we install the Firstbank credit culture in this bank, we have every intention of improving its asset quality in line with levels more customary at our other banks. Our capital strength enables us to ensure that all of our banks, including our newest bank, remain at well capitalized levels as defined by the banking regulators. While it is impossible to know how long this period of economic stress will last, we believe that we have identified the greatest portion of the loan problems at Firstbank – West Michigan. It appears that we may continue to see provision expense in the remainder of 2008 greater than we had originally hoped, but at levels significantly below the amount we recorded in the second quarter of 2008 and more in line with the quarterly average for 2007. We continue to believe in the return to a more positive economic environment in the future, and we continue to invest in the future, as exemplified by the opening in the first quarter of 2008 of our seventh office of Keystone Community Bank in the Kalamazoo market area.”

Firstbank’s net interest margin, at 3.77% in the second quarter of 2008, declined 2 basis points from 3.79% in the first quarter of 2008, and was 14 basis points below the 3.91% of the second quarter of 2007. Beginning on September 18^th of 2007, the markets have been characterized by declines in the prime rate and other short-term rates, which have been driven by the Federal Reserve’s efforts to stimulate economic activity and ease stress on liquidity in the credit markets. Reductions in the prime rate have an immediately negative impact on Firstbank’s net interest margin, but as the company has worked to reduce deposit and other funding costs as quickly as possible, the downward pressure on the net interest margin has eased. While Firstbank’s average earning assets increased 24.1% from the second quarter of 2007 to the second quarter of 2008, net interest income increased a smaller 19.0% due to the squeeze on net interest margin. Both growth measures are significantly affected by the addition of Firstbank – West Michigan.

During the second quarter of 2008, Firstbank Corporation closed the mortgage origination operations of Austin Mortgage Company and eliminated all of its staff positions. Austin Mortgage Company was a small subsidiary acquired as part of ICNB Financial Corporation. The subsidiary focused on origination of mortgages not otherwise acceptable to the bank, and it sold virtually its entire origination production to investors not related to ICNB Financial or Firstbank Corporation. The balance sheet of the entity retains a small portfolio of loans with a value of less than $635,000. Pre-tax costs associated with shutting down the operation in the amount of $106,000 are included in consolidated non-interest expense in the second quarter of 2008.

At June 30, 2008, the ratio of the allowance for loan losses to loans increased to 1.07% from 1.02% at March 31, 2008, and increased from 1.03% at June 30, 2007. The ratio of allowance for loan loss to non-performing loans stood at 69% at June 30, 2008.

Net charge-offs of $2,687,000 in the second quarter of 2008 (over 80% of which occurred at Firstbank – West Michigan) were 0.94% of average loans on an annualized basis, and net charge-offs of $3,430,000 for the first half of 2008 were 0.60% of average loans on an annualized basis. The ratio of non-performing loans (including loans past due over 90 days) to loans was 1.56% at June 30, 2008, compared to 1.27% as of March 31, 2008, and 0.97% at June 30, 2007.

Shareholders’ equity decreased 1.4% in the second quarter of 2008, and was 19.4% above the level at June 30, 2007. The ratio of average equity to average assets remained at 8.6% in the second quarter of 2008 – the same as in the first quarter of 2008 and at a level consistent over past years. Firstbank did not repurchase its common stock in the first or second quarters of 2008. All of Firstbank Corporation’s affiliate banks continue to meet the regulatory well-capitalized requirements.

Firstbank Corporation, headquartered in Alma, Michigan, is a financial services company using a multi-bank-charter format with assets of $1.4 billion and 53 banking offices serving Michigan’s Lower Peninsula. Bank subsidiaries include: Firstbank – Alma; Firstbank (Mt. Pleasant); Firstbank – West Branch; Firstbank – St. Johns; Keystone Community Bank; and Firstbank – West Michigan.

This press release contains certain forward-looking statements that involve risks and uncertainties. When used in this press release the words “anticipate,” “believe,” “expect,” “hopeful,” “potential,” “should,” and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning future business growth, changes in interest rates, and the resolution of problem loans. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
UNAUDITED

	Three Months Ended:									Six Months Ended:
	Jun 30 2008			Mar 31 2008			Jun 30 2007			Jun 30 2008			Jun 30 2007
Interest income:
Interest and fees on loans	$	19,031		$	19,755		$	17,042		$	38,786		$	33,840
Investment securities
Taxable		945			1,039			687			1,984			1,313
Exempt from federal income tax		349			353			267			702			537
Short term investments		86			91			269			177			580
Total interest income		20,411			21,238			18,265			41,649			36,270
Interest expense:
Deposits		6,431			7,089			6,589			13,520			13,096
Notes payable and other borrowing		2,463			2,685			2,001			5,148			3,978
Total interest expense		8,894			9,774			8,590			18,668			17,074
Net interest income		11,517			11,464			9,675			22,981			19,196
Provision for loan losses		3,465			816			739			4,281			18
Net interest income after provision for loan losses		8,052			10,648			8,936			18,700			19,178
Noninterest income:
Gain on sale of mortgage loans		565			1,142			375			1,707			699
Service charges on deposit accounts		1,256			1,168			994			2,424			1,938
Gain (loss) on trading account securities		(160	)		(13	)		0			(173	)		0
Gain (loss) on sale of AFS securities		(67	)		129			0			62			(130	)
Mortgage servicing		131			(123	)		130			8			275
Other		647			628			896			1,275			1,891
Total noninterest income		2,372			2,931			2,395			5,303			4,673
Noninterest expense:
Salaries and employee benefits		5,523			5,847			4,826			11,370			9,556
Occupancy and equipment		1,740			1,749			1,326			3,489			2,677
Amortization of intangibles		281			281			436			562			597
FDIC insurance premium		103			113			25			216			49
Other		2,697			2,718			2,357			5,415			4,837
Total noninterest expense		10,344			10,708			8,970			21,052			17,716
Income before federal income taxes		80			2,871			2,361			2,951			6,135
Federal income taxes		(212	)		721			614			509			1,730
Net Income	$	292		$	2,150		$	1,747		$	2,442		$	4,405
Fully Tax Equivalent Net Interest Income	$	11,791		$	11,751		$	9,855			23,542			19,553
Per Share Data:
Basic Earnings	$	0.04		$	0.29		$	0.27		$	0.33		$	0.68
Diluted Earnings	$	0.04		$	0.29		$	0.27		$	0.33		$	0.68
Dividends Paid	$	0.225		$	0.225		$	0.225		$	0.450		$	0.450
Performance Ratios:
Return on Average Assets (a)		0.10	%		0.64	%		0.65	%		0.37	%		0.83	%
Return on Average Equity (a)		1.2	%		7.5	%		7.2	%		4.3	%		9.3	%
Net Interest Margin (FTE) (a)		3.77	%		3.79	%		3.91	%		3.78	%		3.90	%
Book Value Per Share (b)	$	15.78		$	16.09		$	15.24		$	15.78		$	15.24
Average Equity/Average Assets		8.6	%		8.6	%		9.0	%		8.6	%		8.9	%
Net Charge-offs	$	2,687		$	743		$	319		$	3,430		$	483
Net Charge-offs as a % of Average Loans (c)(a)		0.94	%		0.26	%		0.14	%		0.60	%		0.11	%

(a) Annualized
(b) Period End
(c) Total loans less loans held for sale

FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
UNAUDITED

	Jun 30 2008			Mar 31 2008			Dec 31 2007			Jun 30 2007
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	40,283		$	40,057		$	42,198		$	31,305
Short term investments		6,281			12,553			3,331			16,192
Total cash and cash equivalents		46,564			52,610			45,529			47,497
Securities available for sale		96,991			107,866			105,130			73,407
Federal Home Loan Bank stock		8,666			8,481			8,007			6,061
Loans:
Loans held for sale		191			238			1,725			628
Portfolio loans:
Commercial		214,185			216,458			219,080			198,637
Commercial real estate		334,903			312,012			311,494			267,474
Residential mortgage		393,293			391,568			387,222			299,456
Real estate construction		132,896			130,942			126,027			89,173
Consumer		77,559			77,827			78,106			64,840
Total portfolio loans		1,152,836			1,128,807			1,121,929			919,580
Less allowance for loan losses		(12,328	)		(11,550	)		(11,477	)		(9,501	)
Net portfolio loans		1,140,508			1,117,257			1,110,452			910,079
Premises and equipment, net		27,959			28,027			27,554			20,179
Goodwill		35,553			35,345			34,421			19,819
Other intangibles		4,390			4,670			5,832			2,723
Other assets		28,336			27,993			27,089			19,055
TOTAL ASSETS	$	1,389,158		$	1,382,487		$	1,365,739		$	1,099,448
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts	$	148,385		$	143,246		$	152,126		$	128,651
Interest bearing accounts:
Demand		219,161			224,998			222,371			155,085
Savings		160,862			155,628			147,654			137,263
Time		449,517			454,797			453,864			363,673
Wholesale CD's		35,783			33,018			35,377			41,074
Total deposits		1,013,708			1,011,687			1,011,392			825,746
Securities sold under agreements to
repurchase and overnight borrowings		48,718			49,280			42,791			42,897
FHLB Advances and notes payable		156,923			147,572			139,035			97,370
Subordinated Debt		36,084			36,084			36,084			20,620
Accrued interest and other liabilities		15,605			18,097			17,826			13,894
Total liabilities		1,271,038			1,262,720			1,247,128			1,000,527
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000
shares authorized, none issued
Common stock; 20,000,000 shares authorized		112,491			111,914			111,436			93,119
Retained earnings		5,790			7,174			6,692			6,026
Accumulated other comprehensive income/(loss)		(161	)		679			483			(224	)
Total shareholders' equity		118,120			119,767			118,611			98,921
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,389,158		$	1,382,487		$	1,365,739		$	1,099,448
Common stock shares issued and outstanding		7,484,368			7,441,342			7,407,198			6,555,767
Principal Balance of Loans Serviced for Others ($mil)	$	517.3		$	516.8		$	515.1		$	471.2
Asset Quality Ratios:
Non-Performing Loans / Loans (a)		1.56	%		1.27	%		1.26	%		0.97	%
Non-Perf. Loans + OREO / Loans (a) + OREO		1.89	%		1.51	%		1.54	%		1.17	%
Non-Performing Assets / Total Assets		1.58	%		1.23	%		1.27	%		0.98	%
Allowance for Loan Loss as a % of Loans (a)		1.07	%		1.02	%		1.02	%		1.03	%
Allowance / Non-Performing Loans		69	%		81	%		81	%		106	%
Quarterly Average Balances:
Total Portfolio Loans (a)	$	1,142,047		$	1,129,710		$	1,118,551		$	916,775
Total Earning Assets		1,257,478			1,247,604			1,228,740			1,012,900
Total Shareholders' Equity		118,846			118,609			117,960			98,398
Total Assets		1,389,391			1,377,329			1,356,106			1,097,337
Diluted Shares Outstanding		7,451,664			7,417,187			7,378,262			6,545,229

(a) Total Loans less loans held for sale