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

FOR IMMEDIATE RELEASE           NEWS RELEASE

Date Submitted:              October 27, 2009
NASDAQ Symbol:         FBMI Contact:  Samuel G. Stone
                 Executive Vice President and
                 Chief Financial Officer
                 (989) 466-7325

FIRSTBANK CORPORATION ANNOUNCESTHIRD QUARTER AND YEAR-TO-DATE 2009 RESULTS

Highlights Include:

• Net income of $1,217,000, and net income available to common shareholders of $804,000, in third quarter 2009 compared to $737,000 for both measures in third quarter 2008

• Earnings per share equaled $0.10 for the third quarter of 2009, the same as $0.10 in the third quarter of 2008

• Year to date net income of $2,792,000, and 2009 YTD net income available to common shareholders of$1,691,000, compared to $3,179,000 in 2008 for both measures

• Net interest margin improved to 3.95% in the third quarter of 2009, up from 3.77% in the second quarter of2009, and 3.82% in third quarter 2008

• Ratio of the allowance for loan losses to loans increased to 1.49% at September 30, 2009, compared to 1.26%at December 31, 2008, and 1.11% at September 30, 2008

• Balance sheet and loan growth remain muted by economic conditions and loan sales into the secondary market

• Equity ratio 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 $0.10 for the third quarter of 2009, the same as the $0.10 earned in the third quarter of 2008. Net income available to common shareholders was $804,000 compared to $737,000 in the year-ago third quarter, and net income increased to $1,217,000 compared to $737,000. Net income was $2,792,000 for the first nine months of 2009, compared to $3,179,000 for the first nine months of 2008. Returns on average assets and average equity for the third quarter of 2009 were 0.33% and 3.2%, respectively, increasing from 0.21% and 2.5% respectively in the year-ago third quarter. All per share amounts are fully diluted.

Earnings continued to be impacted by elevated provisions for loan loss, and expense for FDIC insurance, greatly exceeding year-ago levels. The provision expense in the third quarter of 2009 was $2,821,000, down from the $5,276,000 expensed in the second quarter of 2009, but more than double the $1,082,000 expensed in the third quarter of 2008. For the first nine months of 2009, provision expense was $9,685,000, up from the $5,309,000 provided in the first nine months of 2008, exceeding net charge-offs of $7,486,000. Firstbank’s experience with loan charge-offs continues to be favorable compared to results in Michigan and other areas of the country.

Expense for FDIC deposit insurance was $448,000 in the third quarter of 2009, 170% over the $166,000 amount in the third quarter of 2008. Year-to-date in 2009, FDIC deposit insurance expense was $1,974,000, over five times the year-ago level of $382,000. The FDIC assessed a special charge in the second quarter to all banks to help with the costs of resolving bank failures across the country. The total amount of the special assessment to Firstbank was $642,000. There is currently a proposal for the FDIC to require all banks to pre-pay three years of FDIC premiums on December 31, 2009. For Firstbank this prepayment amount would be nearly $7 million and would be expensed over the next three years.

Firstbank improved its net interest margin to 3.95% in the third quarter of 2009 from 3.77% in the second quarter of 2009, and the 3.82% in the third quarter of 2008. Strategies aimed at incorporating floors on variable rate loans and re-pricing deposits upon renewal at currently competitive rates, resulted in the improvement in margin. Firstbank’s banks have also been able to reduce their reliance on Federal Home Loan Bank advances and brokered deposits as core deposits have increased. This improvement in margin helped net interest income in the first nine months of 2009 increase 3.4% compared to the first nine months of 2008.

Gain on sale of mortgage loans was $1,104,000 in the third quarter of 2009, declining 65% from the $3,109,000 in the second quarter of 2009 but representing an increase of nearly 250% over the level in the third quarter of 2008.

Promotional costs associated with mortgage production tailed off in the third quarter consistent with the decline in volume. Year over year, promotional costs related to mortgage production are up $377,000. Notwithstanding the increased expense, the higher level of mortgage production has been beneficial to earnings as the gain on sale of mortgages has increased over $4.5 million year to date. Other non-interest expenses continue to be impacted by the difficult credit cycle. Costs related to the maintenance and disposal of other real estate owned amounted to over $1,264,000 during the first nine months of 2009, an increase of $770,000 from the first nine months of 2008. Legal fees largely resulting from increased collection efforts and management of troubled credit situations were $553,000 in the first nine months of 2009, an increase of over $270,000 from the first nine months of 2008.

Expense control efforts in the more manageable categories were successful. Comparing the first nine months of 2009 with the first nine months of 2008, salaries and employee benefits expense increased only 0.7% and occupancy and equipment expense declined 8.7%. The category of other noninterest expense showed an increase from $8,508,000 in the first nine months of 2008 to $10,117,000 in the first nine months of 2009, but over 88% of the increase was related to legal and other costs of managing problem loans and costs associated with the very profitable surge in the mortgage business, leaving the remaining costs in the category of other noninterest expense to increase 2.5%.

Total assets of Firstbank Corporation at September 30, 2009, were $1.430 billion, an increase of 1.6% over the year-ago period. Total portfolio loans of $1.125 billion were 2.6% below the year-ago level. Commercial and commercial real estate loans increased 6.2% over this twelve month period, but residential mortgage, real estate construction, and consumer loans decreased. Although mortgage refinance activity has been very strong in Firstbank’s markets, this type of lending activity results in loans being financed in the secondary market rather than on the balance sheet of the company. While Firstbank has ample capital and funding resources to increase loans on its balance sheet, demand for funding new ventures by quality borrowers remains weak due to uncertainty about the economy. Total deposits as of September 30, 2009, were $1.073 billion, compared to $1.028 billion at September 30, 2008, an increase of 4.4%.

Mr. Sullivan stated, “Our lenders continue to do an excellent job of working with borrowers who are financially stressed by the current economic conditions, to both protect the interests of the bank and our shareholders as well as structure credits in the best possible way to accommodate expected cash flows. While we have very little exposure to auto manufacturers and suppliers directly, we know that their problems will ripple through the economy. Considering all of the credit related costs, we were pleased to make a positive net income in the quarter amounting to a return on assets of 0.33%.

“Due to the low level of stock prices for the industry and the implications for the valuation of the assets of financial companies, and according to accounting guidance, we commissioned a third-party-expert valuation of goodwill on our balance sheet during the third quarter, to test for impairment. We were pleased to find that the proper application of accounting rules and principles indicates that the amount of goodwill on our books is not considered impaired and requires no charge to earnings. As a result, we continue to show a book value per share ($15.11 at September 30, 2009) which is substantially above tangible book value per share ($10.09).

“We are very disappointed in the low level of stock prices in the industry –substantially below book values – as are all of our shareholders; however, with the good people employed by our company doing the right things for both our customers and our shareholders and the continuing strong financial condition of our company and our banks, we believe we are well positioned to emerge from the recession in a strong competitive position and with excellent opportunity for earnings growth when the time arrives.”

At September 30, 2009, the ratio of the allowance for loan losses to loans increased to 1.49%, compared to 1.48% at June 30, 2009, 1.26% at December 31, 2008, and 1.11% at September 30, 2008. The ratio of allowance for loan loss to non-performing loans stood at 56% on September 30, 2009, compared to 59% at December 31, 2008.

Net charge-offs were $2,696,000 in the third quarter of 2009 after having risen to $2,736,000 in the second quarter and $2,054,000 in the first quarter. For the nine months of 2009, net charge-offs were $7,486,000, representing 0.88% of average loans on an annualized basis. This level of charge-offs continues to compare favorably in the industry. The ratio of non-performing loans (including loans past due over 90 days) to loans was 2.69% at September 30, 2009, compared to 2.14% as of December 31, 2008, and 1.81% at September 30, 2008.

Total equity increased 0.8% during the third quarter of 2009 and was 29.7% above the level at December 31, 2008, reflecting the improvement obtained by the issuance of $33 million preferred stock at the end of January. The ratio of average equity to average assets was 10.3% in the third quarter of 2009, approximately two full percentage points over the year-ago level. All of Firstbank Corporation’s affiliate banks met the regulatory well-capitalized requirements prior to the issuance of preferred stock in January and continue to meet these 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 51 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:									Nine Months Ended:
	Sep 30 2009			Jun 30 2009			Sep 30 2008			Sep 30 2009			Sep 30 2008
Interest income:
Interest and fees on loans	$	17,748		$	17,504		$	19,136		$	52,876		$	57,922
Investment securities
Taxable		651			648			918		$	2,045			2,902
Exempt from federal income tax		320			321			357		$	973			1,059
Short term investments		44			23			91			97			268
Total interest income		18,763			18,496			20,502			55,991			62,151
Interest expense:
Deposits		4,454			4,819			6,164			14,441			19,684
Notes payable and other borrowing		1,713			1,821			2,443			5,497			7,591
Total interest expense		6,167			6,640			8,607			19,938			27,275
Net interest income		12,596			11,856			11,895			36,053			34,876
Provision for loan losses		2,821			5,276			1,028			9,685			5,309
Net interest income after provision for loan losses		9,775			6,580			10,867			26,368			29,567
Noninterest income:
Gain on sale of mortgage loans		1,104			3,109			317			6,586			2,024
Service charges on deposit accounts		1,140			1,122			1,218			3,345			3,642
Gain (loss) on trading account securities		(57	)		16			(200	)		(170	)		(373	)
Gain (loss) on sale of AFS securities		(2	)		357			(1,674	)		298			(1,612	)
Mortgage servicing		25			(191	)		180			(518	)		188
Other		765			715			690			1,759			1,942
Total noninterest income		2,975			5,128			531			11,300			5,811
Noninterest expense:
Salaries and employee benefits		5,641			5,551			5,342			16,822			16,712
Occupancy and equipment		1,510			1,529			1,728			4,766			5,217
Amortization of intangibles		228			245			264			718			826
FDIC insurance premium		448			1,155			166			1,974			382
Other		3,403			3,460			3,116			10,117			8,508
Total noninterest expense		11,230			11,940			10,616			34,397			31,645
Income before federal income taxes		1,520			(232	)		782			3,271			3,733
Federal income taxes		303			(294	)		45			479			554
Net Income		1,217			62			737			2,792			3,179
Preferred Stock Dividends		413			413			0			1,101			0
Net Income available to Common Shareholders	$	804		$	(351	)	$	737		$	1,691		$	3,179
Fully Tax Equivalent Net Interest Income	$	12,814		$	12,071		$	12,160		$	36,714		$	35,702
Per Share Data:
Basic Earnings	$	0.10		$	(0.04	)	$	0.10		$	0.22		$	0.43
Diluted Earnings	$	0.10		$	(0.04	)	$	0.10		$	0.22		$	0.43
Dividends Paid	$	0.100		$	0.100		$	0.225		$	0.30		$	0.675
Performance Ratios:
Return on Average Assets (a)		0.33%			0.03%			0.21%			0.27%			0.32%
Return on Average Equity (a)		3.2%			0.3%			2.5%			2.7%			3.7%
Net Interest Margin (FTE) (a)		3.95%			3.77%			3.82%			3.79%			3.79%
Book Value Per Share (b)	$	15.11		$	15.02		$	15.61		$	15.11		$	15.61
Average Equity/Average Assets		10.3%			10.5%			8.4%			10.1%			8.5%
Net Charge-offs	$	2,696		$	2,736		$	590		$	7,486		$	4,020
Net Charge-offs as a % of Average Loans (c)(a)		0.96%			0.96%			0.20%			0.88%			0.47%
(a) Annualized
(b) Period End
(c) Total loans less loans held for sale

FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
UNAUDITED

	Sep 30 2009			Jun 30 2009			Dec 31 2008			Sep 30 2008
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	25,077		$	39,653		$	33,050		$	35,589
Short term investments		34,747			52,497			30,662			3,873
Total cash and cash equivalents		59,824			92,150			63,712			39,462
Securities available for sale		148,628			108,091			113,095			119,756
Federal Home Loan Bank stock		9,084			9,084			9,084			8,760
Loans:
Loans held for sale		2,627			2,676			1,408			757
Portfolio loans:
Commercial		188,306			183,287			184,455			206,274
Commercial real estate		393,555			395,227			391,572			341,550
Residential mortgage		385,530			390,318			403,695			398,963
Real estate construction		85,383			88,668			103,206			130,405
Consumer		71,943			72,482			75,296			77,018
Total portfolio loans		1,124,717			1,129,982			1,158,224			1,154,210
Less allowance for loan losses		(16,793	)		(16,668	)		(14,594	)		(12,767	)
Net portfolio loans		1,107,924			1,113,314			1,143,630			1,141,443
Premises and equipment, net		25,704			25,616			26,941			27,565
Goodwill		35,513			35,513			35,603			35,603
Other intangibles		3,157			3,384			3,881			4,126
Other assets		37,349			36,302			27,986			29,581
TOTAL ASSETS	$	1,429,810		$	1,426,130		$	1,425,340		$	1,407,053
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts	$	150,878		$	165,574		$	149,179		$	148,762
Demand		247,631			226,078			223,526			216,894
Savings		165,784			162,879			154,015			157,681
Time		481,360			480,954			489,081			463,193
Wholesale CD's		28,028			20,700			31,113			41,512
Total deposits		1,073,681			1,056,185			1,046,914			1,028,042
Securities sold under agreements to
repurchase and overnight borrowings		44,914			44,163			52,917			55,877
FHLB Advances and notes payable		112,303			127,814			162,274			153,865
Subordinated Debt		36,084			36,084			36,084			36,084
Accrued interest and other liabilities		13,672			13,953			12,168			15,669
Total liabilities		1,280,654			1,278,199			1,310,357			1,289,537
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000
shares authorized, 33,000 outstanding		32,707			32,707			0			0
Common stock; 20,000,000 shares authorized		114,525			114,253			113,411			112,970
Retained earnings		87			50			686			4,842
Accumulated other comprehensive income/(loss)		1,837			921			886			(296	)
Total shareholders' equity		149,156			147,931			114,983			117,516
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,429,810		$	1,426,130		$	1,425,340		$	1,407,053
Common stock shares issued and outstanding		7,704,796			7,669,227			7,580,620			7,530,235
Principal Balance of Loans Serviced for Others ($mil)	$	589.3		$	575.1		$	513.1		$	514.5
Asset Quality Ratios:
Non-Performing Loans / Loans (a)		2.69%			2.34%			2.14%			1.81%
Non-Perf. Loans + OREO / Loans (a) + OREO		3.59%			3.14%			2.60%			2.24%
Non-Performing Assets / Total Assets		2.85%			2.51%			2.12%			1.84%
Allowance for Loan Loss as a % of Loans (a)		1.49%			1.48%			1.26%			1.11%
Allowance / Non-Performing Loans		56%			63%			59%			61%
Quarterly Average Balances:
Total Portfolio Loans (a)	$	1,123,737		$	1,137,106		$	1,153,716		$	1,156,041
Total Earning Assets		1,294,116			1,283,676			1,278,675			1,273,716
Total Shareholders' Equity		147,468			148,247			118,064			118,437
Total Assets		1,429,150			1,417,842			1,409,644			1,408,393
Diluted Shares Outstanding		7,677,619			7,643,929			7,540,644			7,498,223
(a) Total Loans less loans held for sale