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 MARCH 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from ______ to _______.
Commission file number: 0-14209
FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2633910
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
311 WOODWORTH AVENUE, ALMA, MICHIGAN 48801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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 . . . 1,543,205 shares outstanding as of April 30, 1996.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (UNAUDITED)
Consolidated balance sheets . . . . March 31, 1996
and December 31, 1995. page 3
Consolidated statements of income . . . . three
months ended March 31, 1996, and March 31, 1995. page 4
Consolidated statements of changes in shareholders'
equity page 5
Consolidated statements of cash flows . . . . three
months ended March 31, 1996, and March 31, 1995. page 6
Notes to consolidated financial statements . . . .
March 31, 1996. page 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. page 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders page 13
Item 6. Exhibits and Reports on Form 8-K page 13
SIGNATURES page 14
EXHIBITS
Exhibit 27 -- Financial Data Schedule page 15
Page 2 of 18
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996, AND DECEMBER 31, 1995
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
ASSETS
Cash and due from banks $ 13,817,410 $ 15,526,265
Interest bearing deposits with banks 167,606 272,475
Overnight investments 2,250,000 950,000
Total cash and cash equivalents 16,235,016 16,748,740
Securities available for sale 62,915,729 61,266,466
Loans
Loans held for sale 8,008,463 2,606,213
Portfolio Loans
Commercial 118,499,564 115,779,085
Real estate mortgage 88,398,717 88,146,830
Consumer 60,797,585 58,315,109
Total loans 275,704,329 264,847,237
Less allowance for loan losses (5,126,000) (4,876,000)
Net loans 270,578,329 259,971,237
Premises and equipment, net 6,992,993 7,006,008
Accrued interest receivable 2,509,839 2,259,443
Other assets 5,432,126 5,690,931
TOTAL ASSETS $364,664,032 $352,942,825
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts $ 37,210,040 $ 38,847,288
Interest bearing accounts:
Demand 68,033,158 64,288,096
Savings 58,269,167 54,343,238
Time 151,198,358 149,344,719
Total deposits 314,710,723 306,823,341
Securities sold under agreements to
repurchase and overnight borrowings 14,751,786 11,842,279
Accrued interest and other liabilities 4,882,454 4,424,552
Total liabilities 334,344,963 323,090,172
Page 3 of 18
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000
shares authorized, none issued
Common stock; 2,500,000 shares authorized,
1,542,844 shares issued and outstanding
(1,542,295 in December 1995) 21,368,054 21,355,293
Retained earnings 8,359,618 7,583,783
Unrealized gain on available for sale securities 591,397 913,577
Total shareholders' equity 30,319,069 29,852,653
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $364,664,032 $352,942,825
See notes to consolidated financial statements
Page 4 of 18
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
1996 1995
Interest income:
Interest and fees on loans $6,410,977 $5,315,471
Investment securities
Available for sale - Taxable 504,912 359,311
Available for sale - Exempt from Federal Income Tax 385,718 22,189
Held to maturity - Taxable 153,525
Held to maturity - Exempt from Federal Income Tax 369,906
Interest bearing deposits with banks 4,871 639
Overnight investments 47,286 14,252
Total interest income 7,353,764 6,235,293
Interest expense:
Deposits 3,103,316 2,501,505
Notes payable and other 149,174 3,812
Total interest expense 3,252,490 2,506,317
Net interest income 4,101,274 3,729,976
Provision for loan losses 297,000 340,000
Net interest income after
provision for loan losses 3,804,274 3,389,976
Noninterest income:
Service charges on deposit accounts 240,671 224,471
Gain on sale of mortgage loans 154,491 62,527
Trust fees 52,129 49,684
Gain on sale of securities 888 8,478
Other 331,326 224,929
Total noninterest income 779,505 570,089
Noninterest expense:
Salaries and employee benefits 1,611,847 1,363,451
Occupancy 494,263 338,301
FDIC Insurance premium 21,814 141,751
Michigan Single Business Tax 81,200 73,000
Other 944,108 765,588
Total noninterest expense 3,153,232 2,682,091
Income before federal income taxes 1,430,547 1,277,974
Federal income taxes 377,000 324,000
NET INCOME $1,053,547 $ 953,974
Page 5 of 18
Per Share:
NET INCOME $ 0.68 $ 0.63
DIVIDENDS $ 0.18 $ 0.14
See notes to the consolidated financial statements
Page 6 of 18
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
ON AVAILABLE UNALLOCATED
COMMON RETAINED FOR SALE ESOP
STOCK EARNINGS SECURITIES SHARES TOTAL
BALANCES AT DECEMBER 31, 1994 $19,540,938 $6,550,164 $ (336,272) $(158,817) $25,596,013
Cash dividends - $.66 per share (1,013,748) (1,013,748)
5% stock dividend - 73,113 shares 1,809,547 (1,818,112) (8,565)
Issuance of 63 shares of common stock
through exercise of stock options 1,289 1,289
Issuance of 145 shares of common stock 3,519 3,519
Allocation of 15,414 ESOP shares 158,817 158,817
Net change in unrealized appreciation
(depreciation) on available for
sale securities 1,249,849 1,249,849
Net income for 1995 3,865,479 3,865,479
BALANCES AT DECEMBER 31, 1995 21,355,293 7,583,783 913,577 0 29,852,653
Cash dividends - $.18 per share (277,713) (277,713)
Issuance of 550 shares of common stock
through exercise of stock options 12,762 12,762
Net change in unrealized appreciation
(depreciation) on available for
sale securities (322,180) (322,180)
Net income year to date 1,053,547 1,053,547
BALANCES AT MARCH 31, 1996 $21,368,055 $8,359,617 $ 591,397 $ 0 $30,319,069
See notes to consolidated financial statements.
Page 7 of 18
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1996 1995
OPERATING ACTIVITIES
Net income $ 1,053,547 $ 953,974
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 297,000 340,000
Depreciation of premises and equipment 185,739 129,853
Net amortization of security premiums/discounts 88,608 60,665
Gain on sale of securities (888) (8,478)
Allocation of common stock to ESOP participants 39,705
Amortization of goodwill and other intangibles 55,736 64,186
Gain on sale of mortgage loans (154,491) (62,527)
Proceeds from sales of mortgage loans 9,596,749 6,460,587
Unrealized loss on loans held for sale 124,799
Loans originated for sale (14,844,508) (3,985,066)
Decrease (increase) in accrued interest receivable
and other assets 118,647 (1,091,991)
Increase in accrued interest payable and other liabilities 457,902 277,977
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,021,160) 3,178,885
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 4,070,876
Proceeds from maturities of securities available for sale 2,605,293 358,959
Proceeds from maturities of securities held to maturity 2,737,870
Purchases of securities available for sale (4,830,430) (1,016,719)
Purchases of securities held to maturity (744,606)
Net increase in portfolio loans (5,626,641) (9,798,794)
Net purchases of premises and equipment (172,724) (274,812)
NET CASH USED IN INVESTING ACTIVITIES (8,024,502) (4,667,226)
FINANCING ACTIVITIES
Net increase in deposits 7,887,382 7,870,997
Increase (decrease) in securities sold under agreements
to repurchase and other short term borrowings 2,909,507 (5,708,714)
Cash proceeds from issuance of common stock 12,762
Cash dividends (277,713) (220,346)
NET CASH USED IN FINANCING ACTIVITIES 10,531,938 1,941,937
Page 8 of 18
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (513,724) 453,596
Cash and cash equivalents at beginning of period 16,748,740 15,858,861
CASH AND CASH EQUIVALENTS AT END OF PERIOD $16,235,016 $16,312,457
Supplemental Disclosure
Interest Paid $ 3,181,744 $ 2,351,287
Income Taxes Paid $ 75,000 NONE
See notes to consolidated financial statements.
Page 9 of 18
FIRSTBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
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 three month period ended
March 31, 1996, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996. The balance sheet
at December 31, 1995, 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, 1995. Net income per share is based on the weighted
average shares outstanding (which excludes unallocated ESOP shares for
1995) for each period, 1,542,844 in 1996 and 1,534,375 in 1995.
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. As required by SFAS 115, 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.
During the first quarter of 1995, the Corporation sold no securities.
Small gains were realized on securities called prior to maturity.
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
Page 10 of 18
Banks' normal credit policies and collateral requirements. Loan
commitments, which are predominately at variable rates, were
approximately $42,281,010 and $43,503,341 at March 31, 1996, and
December 31, 1995, respectively.
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:
MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995
Nonperforming loans:
Nonaccrual loans $ 132 $ 47
Loans 90 days or more past due 235 386
Renegotiated loans 172 182
Total nonperforming loans $ 539 $ 615
Property from defaulted loans $ 0 $ 0
Nonperforming loans as a percent of:
Total loans .20% .23%
Allowance for loan losses 10.52% 12.61%
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.
THREE THREE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995 1994
Balance at beginning of period $ 4,876 $ 4,100 $ 4,100
Charge-offs (113) (97) (738)
Recoveries 66 98 429
Net charge-offs (47) 1 (309)
Additions to allowance for
loan losses 297 340 1,085
Balance at end of period $ 5,126 $ 4,441 $ 4,876
Page 11 of 18
Average loans outstanding
during the period $268,216 $226,985 $243,962
Loans outstanding at end of period $275,704 $230,777 $264,847
Allowance as a percent of:
Total loans at end of period 1.86% 1.92% 1.84%
Nonperforming loans at end of period 951% 941% 793%
Net charge-offs as a percent of:
Average loans outstanding .07% .00% .13%
Average Allowance for loan losses 3.80% (.02)% 6.93%
NOTE E - RECLASSIFICATION
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
NOTE F - ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 122 "ACCOUNTING FOR
MORTGAGE SERVICING RIGHTS" (SFAS No. 122). This statement changes the
accounting for mortgage servicing rights retained by the loan
originator. Under this standard, if the originator sells or secures
mortgage loans and retains the related servicing rights, the total
cost of the mortgage loan is allocated between the loan (without the
servicing rights) and the servicing rights, based on their relative
fair values. Under previous practice, all such costs were assigned to
the loan. The costs allocated to mortgage servicing rights are
recorded as a separate asset and are amortized in proportion to, and
over the life of, the net servicing income. The Corporation adopted
SFAS #122 as of January 1, 1996, and its adoption has had no material
impact on the company's financial position or results of operations.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION (SFAS 123). The Statement establishes a fair value based
method of accounting for employee stock options and similar equity
instruments, such as warrants, and encourages all companies to adopt
that method of accounting for all of their employee stock compensation
plans. However, the Statement allows companies to continue measuring
compensation cost for such plans using accounting guidance in place
prior to SFAS 123. Companies that elect to continue with the former
method of accounting must make pro-forma disclosures of net income and
earnings per share as if the fair value method provided for in SFAS
123 had been adopted. Disclosure requirements are effective for
financial statements issued after December 15, 1995. Companies which
elect to continue measuring compensation costs under current guidance
Page 12 of 18
must present pro-forma disclosures for awards granted in the first
fiscal year beginning after December 15, 1994, however that disclosure
need not be made until financial statements for that fiscal year are
presented for comparative purposes with financial statements for a
later fiscal year. Management has concluded that the Company will not
adopt the fair value accounting provisions of SFAS 123 and will
continue to apply its current method of accounting. Accordingly,
adoption of the SFAS 123 will have no impact on the Company's
consolidated financial position or results of operations.
Page 13 of 18
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), and 1st Bank (West Branch)
(collectively, the "Banks").
FINANCIAL CONDITION
Assets of the corporation increased $12 million, or 3.3%, from
December 31, 1995, to March 31, 1996. The majority of the asset
growth, $11 million, has occurred in loans. Although all
classifications of loans have seen increases, commercial loans have
increased $3 million and loans held for sale have increased $5 million
in this three month period. Loans held for sale are residential
mortgage loans.
The allowance for loan losses has increased $250,000 or 5.1% in the
first quarter of 1996. The allowance is 1.86% of outstanding loans at
March 31, 1996, compared to 1.84% at December 31, 1995. Management
continues to maintain the allowance for loan losses at a level
considered appropriate to absorb losses in the portfolio. The
allowance balance is established after considering past loan loss
experience, current economic conditions, volume, growth and
composition of the loan portfolio, delinquencies, and other relevant
factors.
During the first quarter of 1996, securities have increased 2.7%, or
$1.6 million. All securities are classified as available for sale.
Securities totaling $2.6 million have matured during the first three
months of 1996. During the same period, the Corporation has purchased
securities totaling $4.8 million. Some securities have been purchased
to mitigate the rate risk of longer term repurchase agreements.
Premises and equipment have shown a very slight decline during the
first quarter as depreciation has exceeded acquisition of fixed
assets.
Cash and cash equivalents have also declined slightly in the first
three months of 1996. The $514,000, or 3.1%, decrease represents a
redeployment of cash to fund loan growth.
Total deposits have shown an $8 million increase from December 31,
1995, to March 31, 1996. This entire growth was generated from our
current service areas, and does not include any branch acquisition or
brokered deposits. Both demand deposit accounts and savings accounts
increased about $4 million. Noninterest bearing accounts decreased
$1.6 million while time deposits increased $1.9 million. The
Page 14 of 18
affiliate banks have offered selective promotions to increase core
deposits. In addition, the Banks have been successful in bidding for
municipal monies. Securities sold under agreements to repurchase have
increased 24.6%, or $2.9 million, since the end of 1995. Much of this
growth has been the result of a cash management account offered by the
Banks to commercial customers. This product was developed as a
defensive strategy to offer businesses an interest bearing alternative
to nonbank interest bearing products.
Total shareholders' equity reflects a $466,000, or 1.56%, increase in
the first three months of 1996. Net income of $1,054,000 and stock
transactions of $13,000 increased shareholders' equity while dividends
of $278,000 and a change in net unrealized gain on available for sale
securities of $322,000 reduced shareholders' equity. Book value per
share at December 31, 1995, was $19.36 compared to $19.65 at March 31,
1996.
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 March 31, 1996 $27,366 $27,366 $30,845
Required Regulatory Capital 14,110 11,066 22,131
Capital in excess of regulatory minimums $13,256 $16,300 $ 8,714
Capital ratios at March 31, 1996 7.76% 9.89% 11.15%
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 for the first quarter of 1996 was $1,054,000, a 10%
increase over the $954,000 earned in the first quarter of 1995. Net
interest income of $4.1 million was up 10% also from the same period
of 1995. Earning assets for the first quarter of 1996 are $47 million
higher at $341 million than at March 31, 1995, when they were $294
million. The increase in earning assets should continue to strengthen
net interest income. Net income per share has increased 7.9% from
$.63 to $.68, or $.05 per share, for the first quarter ending March
31, 1996, when compared to the first quarter of 1995. The 1995 per
share results have been restated to reflect the 1995 5% stock
dividend.
The provision for loan losses, at $297,000 for the first quarter of
1996 is $43,000, or 12.7% less than the same period last year. The
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quarter's provision maintains the allowance in the range management
feels appropriate upon analyzing the loan portfolio.
Noninterest income increased $209,000, or 36.7%, during the first
quarter of 1996 when compared to the first quarter of 1995. Two major
items explain the majority of this difference. Gain on sale of
mortgages increased $92,000 from 1995. Mortgage sales increased over
$3 million, or 49%, in the first quarter of 1996 over the same period
in 1995, resulting in this increase. Other noninterest income was
enhanced by a one time recovery from a charged off loan of $61,000
which explains the majority of the increase in this line item.
Total noninterest expense increased 17.6%, or $471,000, during the
first three months of 1996 when compared to the same period in 1995.
Salaries and employee benefits increased by $248,000, or 53% of the
overall increase. The Corporation operated one additional branch in
1996 that was not included in the first quarter 1995 results.
The overall growth of the Corporation has necessitated increasing
employees from 185 FTE at March 31, 1995, to 207 at March 31, 1996.
Included in the 22 FTE increase are 5 additional employees employed at
the branch which was acquired in June of 1995.
Occupancy expense increased $156,000 during the first three months of
1996 when compared to the corresponding period in 1995. The majority
of the increase is due to technology upgrades. The Corporation
installed a new mainframe computer in the fourth quarter of 1995. The
previous mainframe had been fully depreciated by the end of 1994.
Therefore, there was no mainframe depreciation in the first quarter
1995 results. The Corporation has also installed wide area networks
at two of the Banks. The depreciation costs for those installations
along with increased communication costs have contributed to the
increase in occupancy expense.
The first quarter 1996 FDIC insurance premium charges were $120,000,
or 85% less than the first quarter of 1995. Two Banks are paying for
insurance on purchased SAIF deposits, while the third Bank is assessed
the minimum $500/quarter FDIC fee. Each Bank maintains risk based
capital at a level to qualify them for the lowest FDIC insurance
assessment rate.
Other noninterest expense increased $179,000 in the three month period
ending March 31, 1996, when compared to the same period in 1995. The
majority of this change, $125,000 or 70%, was due to the unrealized
loss on mortgage loans available for sale. As previously discussed,
the available for sale portfolio grew $5 million during the first
quarter of 1996. The high volume of mortgage loans combined with a
rapidly changing rate environment led to the market value of several
mortgages declining below the book value. Management continues to
monitor the classification of available for sale mortgage loans.
Page 16 of 18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant's annual meeting of shareholders was held on
April 22, 1996. At that meeting, the only matters acted upon
were the election of directors and procedural matters.
VOTES CAST
FOR WITHHELD
ELECTION OF DIRECTORS
All nominees for director were elected:
Edward B. Grant 1,353,575.6942 1,926.3922
Phillip G. Peasley 1,353,575.6942 1,926.3922
The terms of office of the following directors continued after
the meeting:
William E. Goggin
Charles W. Jennings
John McCormack
David D. Roslund
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
NONE
Page 17 of 18
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: MAY 10, 1996 \s\ JOHN MCCORMACK
John McCormack
President, Chief Executive Officer
and Director (Principal Executive
Officer)
Date: MAY 10, 1996 \s\ MARY D. DECI
Mary D. Deci
Vice President and Chief Financial
Officer (Principal Financial
Officer and Chief Accounting
Officer)
Page 18 of 18