**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

 

**ý****                                ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the quarterly period ended         June 30, 2005**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the transition period from                                to                      **

 

**Commission File Number:   000-51147**

 

**FirstBankFinancial Services, Inc.**

(Exact name of smallbusiness issuer as specified in its charter)

 
| **Georgia**                     | ** ** | **20-2198785**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (IRS Employer       |
| incorporation or organization)  |       | Identification No.) |

 

**120Keys Ferry Street McDonough, Georgia 30253**

(Addressof principal executive offices)

 

**(678) 583-2265**

(Issuer’s telephonenumber)

 

**N/A**

(Former name, formeraddress and former fiscal year, if changed since last report)

 

Check whether the issuer (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days.      Yes **ý     **No  o

 

State the number ofshares outstanding of each of the issuer’s classes of common equity, as of August 10,2005:    2,145,250 shares, $5.00 parvalue per share.

 

Transitional SmallBusiness Disclosure Format              Yes  o               No  ý

 

** **

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**FIRSTBANK FINANCIAL SERVICES,INC.**

 

**TABLE OF CONTENTS**

 
| PART I.  |   | FINANCIAL INFORMATION                                                                                                                                                                     |   |
|---------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |   |                                                                                                                                                                                      |   |
| Item 1.       |   | Consolidated Financial Statements                                                                                                                                                         |   |
|          |   |
|          |   | Consolidated Balance Sheets (unaudited) as of June 30, 2005 and  December 31, 2004                                                                                              |   |
|          |   |                                                                                                                                                                                      |   |
|          |   | Consolidated  Statements of Income and Comprehensive Income (Loss) (unaudited) for the  three months ended June 30, 2005  and 2004 and six months ended  June 30, 2005 and 2004 |   |
|          |   |                                                                                                                                                                                      |   |
|          |   | Consolidated Statements of Cash Flows (unaudited)  for the six months ended June 30, 2005 and 2004                                                                                   |   |
|          |   |                                                                                                                                                                                      |   |
|          |   | Notes to Consolidated  Financial Statements                                                                                                                                               |   |
|          |   |
| Item 2.       |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                                               |   |
|          |   |                                                                                                                                                                                      |   |
| Item 3.       |   | Controls and Procedures                                                                                                                                                                   |   |
|          |   |
| PART II. |   | OTHER INFORMATION                                                                                                                                                                         |   |
|          |   |                                                                                                                                                                                      |   |
|          |   | SIGNATURES                                                                                                                                                                                |   |
|          |   |                                                                                                                                                                                      |   |
|          |   | CERTIFICATION                                                                                                                                                                             |   |
|          |   |                                                                                                                                                                                      |   |
|          |   | SECTION 906  CERTIFICATION                                                                                                                                                           |   |

#####  

----

 

**PART I. FINANCIAL INFORMATION**

** **

**Item 1. Financial Statements**

 

**FIRSTBANK FINANCIAL SERVICES, INC.**

**Consolidated Balance Sheets**

**(unaudited)**

**June 30, 2005 and December 31,2004**

 
| ** **                                                                                                       | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                       | ** ** | **2005**          | ** **  | **2004**              | ** ** |
| ASSETS                                                                                                           |       |              |        |                  |       |
|                                                                                                             |       |              |        |                  |       |
| Cash and due  from banks                                                                                         |       | $                 | 3,521,255   |                  | $          | 1,136,424 |   |
| Interest-bearing  deposits in banks                                                                              |       | 1,585,498         |        | 1,961,793             |       |
| Federal funds  sold                                                                                              |       | 11,691,000        |        | 9,558,000             |       |
| Securities  available-for-sale (at fair value)                                                                   |       | 29,720,879        |        | 26,086,812            |       |
| Restricted  equity securities, at cost                                                                           |       | 1,903,756         |        | 1,405,556             |       |
| Loans, less  allowance for loan losses of $1,811,305 and $1,471,333, respectively                                |       | 158,960,462       |        | 132,309,442           |       |
| Accrued interest  receivable                                                                                     |       | 1,135,997         |        | 820,885               |       |
| Premises and  equipment, net                                                                                     |       | 3,300,493         |        | 2,736,587             |       |
| Other assets                                                                                                     |       | 1,182,028         |        | 807,366               |       |
| Total assets                                                                                                     |       | $                 | 213,001,368 |                  | $          | 176,822,865 |   |
|                                                                                                             |       |              |        |                  |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                       |       |              |        |                  |       |
|                                                                                                             |       |              |        |                  |       |
| Deposits:                                                                                                        |       |              |        |                  |       |
| Noninterest-bearing                                                                                              |       | $                 | 11,452,100  |                  | $          | 8,546,778 |   |
| Interest-bearing                                                                                                 |       | 148,595,684       |        | 122,816,562           |       |
| Total deposits                                                                                                   |       | 160,047,784       |        | 131,363,340           |       |
| Accrued interest  payable                                                                                        |       | 775,903           |        | 634,402               |       |
| Federal Home  Loan Bank borrowings                                                                               |       | 28,000,000        |        | 22,000,000            |       |
| Other  liabilities                                                                                               |       | 381,955           |        | 116,617               |       |
| Total  liabilities                                                                                               |       | 189,205,642       |        | 154,114,359           |       |
|                                                                                                             |       |              |        |                  |       |
| Stockholders’  equity:                                                                                      |       |              |        |                  |       |
| Preferred stock,  no par value per share, 2,000,000 shares  authorized; -0- shares issued and outstanding        |       | —            |        | —                |       |
| Common stock,  par value $5.00 per share, 10,000,000 shares  authorized; 2,145,250 shares issued and outstanding |       | 10,726,250        |        | 10,726,250            |       |
| Capital surplus                                                                                                  |       | 11,235,374        |        | 11,235,374            |       |
| Retained  earnings                                                                                               |       | 1,901,429         |        | 754,241               |       |
| Accumulated  other comprehensive loss                                                                            |       | (67,327           | )           | (7,359                | )          |
| Total  stockholders’ equity                                                                                 |       | 23,795,726        |        | 22,708,506            |       |
| Total  liabilities and stockholders’ equity                                                                 |       | $                 | 213,001,368 |                  | $          | 176,822,865 |   |

 

See notes to consolidated financial statements.

 

1

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**FIRSTBANKFINANCIAL SERVICES, INC.**

** **

**Consolidated Statements of Income and Comprehensive Income (Loss)**

**(unaudited)**

**For theThree Months Ended June 30, 2005 and 2004**

**and SixMonths Ended June 30, 2005 and 2004**

 
| ** **                                                                                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Interest and  dividend income:                                                                 |       |                             |       |                           |       |   |   |   |   |
| Loans, including  fees                                                                         |       | $                                | 2,832,165  |                           | $          | 1,529,519 |   | $ | 5,236,246 |   | $ | 2,801,548 |   |
| Taxable  securities                                                                            |       | 281,646                          |       | 244,236                        |       | 540,720 |   | 391,691 |   |
| Tax-free  securities                                                                           |       | 26,093                           |       | 360                            |       | 48,888 |   | 360 |   |
| Federal funds  sold                                                                            |       | 71,290                           |       | 20,674                         |       | 121,508 |   | 44,118 |   |
| Deposits in  banks                                                                             |       | 11,240                           |       | 6,710                          |       | 25,822 |   | 16,508 |   |
| Total interest  and dividend income                                                            |       | 3,222,434                        |       | 1,801,499                      |       | 5,973,184 |   | 3,254,225 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Interest  expense:                                                                             |       |                             |       |                           |       |   |   |   |   |
| Deposits                                                                                       |       | 1,087,216                        |       | 500,912                        |       | 1,956,167 |   | 934,562 |   |
| Federal funds  purchased                                                                       |       | 18                               |       | —                         |       | 18 |   | — |   |
| Federal Home  Loan Bank borrowings                                                             |       | 196,725                          |       | 96,806                         |       | 353,421 |   | 132,679 |   |
| Total interest  expense                                                                        |       | 1,283,959                        |       | 597,718                        |       | 2,309,606 |   | 1,067,241 |   |
| Net interest  income                                                                           |       | 1,938,475                        |       | 1,203,781                      |       | 3,663,578 |   | 2,186,984 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Provision for  loan losses                                                                     |       | 185,000                          |       | 210,000                        |       | 344,615 |   | 450,000 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Net interest  income after provision for loan losses                                           |       | 1,753,475                        |       | 993,781                        |       | 3,318,963 |   | 1,736,984 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Noninterest  income:                                                                           |       |                             |       |                           |       |   |   |   |   |
| Service charges  on deposit accounts                                                           |       | 52,182                           |       | 51,002                         |       | 97,983 |   | 87,244 |   |
| Gain on sale of  securities available-for-sale                                                 |       | —                           |       | —                         |       | — |   | 13,054 |   |
| Gain on sale of  assets                                                                        |       | 1,769                            |       | —                         |       | 2,519 |   | — |   |
| Other                                                                                          |       | 16,084                           |       | 39,849                         |       | 35,897 |   | 49,824 |   |
| Total  noninterest income                                                                      |       | 70,035                           |       | 90,851                         |       | 136,399 |   | 150,122 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Noninterest  expense:                                                                          |       |                             |       |                           |       |   |   |   |   |
| Salaries and  employee benefits                                                                |       | 505,414                          |       | 328,987                        |       | 960,839 |   | 598,562 |   |
| Equipment and  occupancy                                                                       |       | 78,284                           |       | 57,792                         |       | 137,831 |   | 108,392 |   |
| Other operating                                                                                |       | 297,218                          |       | 227,520                        |       | 561,711 |   | 374,191 |   |
| Total  noninterest expense                                                                     |       | 880,916                          |       | 614,299                        |       | 1,660,381 |   | 1,081,145 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Income before  provision for income taxes                                                      |       | 942,594                          |       | 470,333                        |       | 1,794,981 |   | 805,961 |   |
| Provision for  income taxes (benefits)                                                         |       | 336,459                          |       | (100,000                       | )          | 647,793 |   | (100,000 | ) |
| Net income                                                                                     |       | 606,135                          |       | 570,333                        |       | 1,147,188 |   | 905,961 |   |
| Other  comprehensive income:                                                                   |       |                             |       |                           |       |   |   |   |   |
| Unrealized  (losses) gains on securities available-for-sale arising during period, net of  tax |       | 307,507                          |       | (734,754                       | )          | (59,968 | ) | (596,463 | ) |
| Comprehensive  income (loss)                                                                   |       | $                                | 913,642    |                           | $          | (164,421 | ) | $ | 1,087,220 |   | $ | 309,498 |   |
|                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Income per  share:                                                                             |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                                          |       | $                                | 0.28       |                           | $          | 0.27 |   | $ | 0.53 |   | $ | 0.45 |   |
| Diluted                                                                                        |       | $                                | 0.28       |                           | $          | 0.26 |   | $ | 0.53 |   | $ | 0.45 |   |
| Cash dividends  per share                                                                      |       | $                                | —     |                           | $          | — |   | $ | — |   | $ | — |   |

 

See notes to consolidatedfinancial statements.

 

2

----

 

**FIRSTBANKFINANCIAL SERVICES, INC.**

** **

**Consolidated Statements of CashFlows**

**(unaudited)**

**For theSix Months Ended June 30, 2005 and 2004**

 
| ** **                                                                                                             | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Cash flow from  operating activities:                                                                                  |       |        |       |        |       |
| Net income                                                                                                             |       | $           | 1,147,188  |        | $          | 905,961 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:                                     |       |        |       |        |       |
| Depreciation and  amortization                                                                                         |       | 79,340      |       | 68,234      |       |
| Provision for  loan losses                                                                                             |       | 344,615     |       | 450,000     |       |
| Gain on sales of  securities available-for-sale                                                                        |       | —      |       | (13,054     | )          |
| Gain on sale of  other real estate owned                                                                               |       | —      |       | (27,425     | )          |
| Gain on sale of  assets                                                                                                |       | (2,519      | )          | —      |       |
| Increase in  accrued interest receivable                                                                               |       | (315,112    | )          | (273,664    | )          |
| Increase in  accrued interest payable                                                                                  |       | 141,501     |       | 112,407     |       |
| Net other  operating activities                                                                                        |       | (62,324     | )          | (450,821    | )          |
|                                                                                                                   |       |        |       |        |       |
| Net cash flow  provided by operating activities                                                                        |       | 1,332,689   |       | 771,638     |       |
|                                                                                                                   |       |        |       |        |       |
| Cash flow from  investing activities:                                                                                  |       |        |       |        |       |
| Net increase in  loans                                                                                                 |       | (26,995,635 | )          | (41,525,387 | )          |
| Net decrease  (increase) in interest bearing deposits in banks                                                         |       | 376,295     |       | (917,547    | )          |
| Net increase in  federal funds sold                                                                                    |       | (2,133,000  | )          | (1,106,000  | )          |
| Purchases of  restricted equity securities                                                                             |       | (498,200    | )          | (900,000    | )          |
| Purchases of  investment securities available-for-sale                                                                 |       | (6,900,600  | )          | (19,400,013 | )          |
| Proceeds from  maturities of securities available-for-sale                                                             |       | 3,176,423   |       | 3,176,243   |       |
| Proceeds from  sales of securities available-for-sale                                                                  |       | —      |       | 1,031,500   |       |
| Proceeds from  sale of assets                                                                                          |       | 14,019      |       | —      |       |
| Proceeds from  sale of other real estate owned                                                                         |       | —      |       | 742,175     |       |
| Purchases of  premises, equipment and software                                                                         |       | (671,604    | )          | (1,119,911  | )          |
|                                                                                                                   |       |        |       |        |       |
| Net cash flow  used by investing activities                                                                            |       | (33,632,302 | )          | (60,018,940 | )          |
|                                                                                                                   |       |        |       |        |       |
| Cash flow from  financing activities:                                                                                  |       |        |       |        |       |
| Net increase in  deposits                                                                                              |       | 28,684,444  |       | 30,169,398  |       |
| Net proceeds  from sale of common stock                                                                                |       | —      |       | 12,161,625  |       |
| Repayments of  Federal Home Loan Bank borrowings                                                                       |       | (3,100,000  | )          | —      |       |
| Borrowings from  Federal Home Loan Bank                                                                                |       | 9,100,000   |       | 18,000,000  |       |
|                                                                                                                   |       |        |       |        |       |
| Net cash flow  provided by financing activities                                                                        |       | 34,684,444  |       | 60,331,023  |       |
|                                                                                                                   |       |        |       |        |       |
| Net increase in  cash and due from banks                                                                               |       | 2,384,831   |       | 1,083,721   |       |
| Cash and due  from banks at beginning of period                                                                        |       | 1,136,424   |       | 619,622     |       |
| Cash and due  from banks at end of period                                                                              |       | $           | 3,521,255  |        | $          | 1,703,343 |   |
|                                                                                                                   |       |        |       |        |       |
| Supplemental  schedule of noncash investing and financing activities - Change in  accumulated other comprehensive loss |       | $           | (59,968    | )           | $          | (596,463 | ) |
|                                                                                                                   |       |        |       |        |       |
| Supplemental  disclosures of cash flow information - Cash paid for:                                                    |       |        |       |        |       |
| Interest                                                                                                               |       | $           | 2,168,105  |        | $          | 954,834 |   |
| Income taxes                                                                                                           |       | $           | 744,123    |        | $          | 300,000 |   |

 

See consolidatednotes to financial statements.

 

3

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**FIRSTBANK FINANCIAL SERVICES,INC.**

** **

**Notes to Consolidated FinancialStatements**

**(unaudited)**

 

**1.****                   ****Basis of Presentation**

 

FirstBankFinancial Services, Inc. (the “Company”) is a bank holding company whoseprincipal activity is the ownership and management of its wholly-ownedsubsidiary, First Bank of Henry County (the “Bank”).  On February 1, 2005, pursuant to anAgreement and Plan of Shares Exchange approved by the Bank’s shareholders, theCompany acquired each share of the Bank’s common stock in exchange for oneshare of the Company’s stock. The Bank is a commercial bank located in McDonough,Henry County, Georgia.

 

Theaccompanying consolidated financial statements are unaudited. Certaininformation and footnote disclosures normally included in consolidatedfinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations.  These consolidatedfinancial statements should be read in conjunction with the audited consolidatedfinancial statements and notes thereto included in the Bank’s annual report on Form 10-KSBfor the year ended December 31, 2004, which was filed with the FederalDeposit Insurance Corporation.

 

Thefinancial information included herein reflects all adjustments (consisting ofnormal recurring adjustments), which are, in the opinion of management,necessary to a fair presentation of the Bank’s financial position and resultsfor the interim period ended June 30,2005.

 

Thepreparation of consolidated financial statements requires management to makeestimates and assumptions that affect the reported amounts of assets,liabilities and income and expense amounts. Actual results could differ from those estimates.  The results of operations for the six monthsended June 30, 2005 are not necessarily indicative of the results to beexpected for the full year.

 

**2.****                    StockCompensation Plans**

 

AtJune 30, 2005, the Company had two stock-based employee compensationplans.  The Company accounts for theseplans under the recognition and measurement principles of APB Opinion No. 25,*Accounting for Stock Issued to Employees*,and related Interpretations.  Nostock-based employee compensation cost is reflected in net income, as alloptions granted under those plans had an exercise price that approximates themarket value of the underlying stock on the date of grant.  The following table illustrates the effect onnet income and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS Statement No. 123, *Accountingfor Stock-Based Compensation*, to stock-based employee compensation.

 

4

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** **
| ** **                                                                                                        | ** ** | **Three Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Net income, as  reported                                                                                          |       | $                                    | 606,135    |   | $ | 570,333 |   |
| Deduct: Total stock-based  employee compensation expense determined under fair value based method for  all awards |       | —                               |       | — |   |
| Pro forma net  income                                                                                             |       | $                                    | 606,135    |   | $ | 570,333 |   |
| Earnings per  share:                                                                                              |       |                                 |       |   |   |
| Basic - as  reported                                                                                              |       | $                                    | 0.28       |   | $ | 0.27 |   |
| Basic - pro  forma                                                                                                |       | $                                    | 0.28       |   | $ | 0.27 |   |
| Diluted - as  reported                                                                                            |       | $                                    | 0.28       |   | $ | 0.26 |   |
| Diluted - pro  forma                                                                                              |       | $                                    | 0.28       |   | $ | 0.26 |   |

 
| ** **                                                                                                        | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| Net income, as  reported                                                                                          |       | $                                  | 1,147,188  |   | $ | 905,961 |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based method  for all awards |       | (288,625                           | )          | (259,084 | ) |
| Pro forma net  income                                                                                             |       | $                                  | 858,563    |   | $ | 646,877 |   |
| Earnings per  share:                                                                                              |       |                               |       |   |   |
| Basic - as  reported                                                                                              |       | $                                  | 0.53       |   | $ | 0.45 |   |
| Basic - pro  forma                                                                                                |       | $                                  | 0.40       |   | $ | 0.32 |   |
| Diluted - as  reported                                                                                            |       | $                                  | 0.53       |   | $ | 0.45 |   |
| Diluted - pro  forma                                                                                              |       | $                                  | 0.40       |   | $ | 0.32 |   |

 

**3.****                    EarningsPer Common Share**

 

The Company is required to report earnings per commonshare with and without the dilutive effects of potential common stock issuancesfrom instruments such as options, convertible securities and warrants on theface of the statements of income. Earnings per common share are based on the weighted average number ofcommon shares outstanding during the period while the effects of potentialcommon shares outstanding during the period are included in diluted earningsper share.  Additionally, the Companymust reconcile the amounts used in the computation of both “basic earnings pershare” and “diluted earnings per share”. Presented below is a summary of the components used to calculate basicand diluted earnings per common share.

 

5

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| ** **                                                                                                                        | ** ** | **Three Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                        | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Basic earnings  per share:                                                                                                        |       |                                 |       |   |   |
| Weighted average  common shares outstanding                                                                                       |       | 2,145,250                            |       | 2,145,250 |   |
|                                                                                                                              |       |                                 |       |   |   |
| Net income                                                                                                                        |       | $                                    | 606,135    |   | $ | 570,333 |   |
|                                                                                                                              |       |                                 |       |   |   |
| Basic earnings  per share                                                                                                         |       | $                                    | 0.28       |   | $ | 0.27 |   |
|                                                                                                                              |       |                                 |       |   |   |
| Diluted earnings  per share:                                                                                                      |       |                                 |       |   |   |
| Weighted average  common shares outstanding                                                                                       |       | 2,145,250                            |       | 2,145,250 |   |
| Net effect of  the assumed exercise of stock options based on the treasury stock method using  average market prices for the year |       | 23,755                               |       | 19,885 |   |
| Total weighted  average common shares and common stock equivalents outstanding                                                    |       | 2,169,005                            |       | 2,165,135 |   |
|                                                                                                                              |       |                                 |       |   |   |
| Net income                                                                                                                        |       | $                                    | 606,135    |   | $ | 570,333 |   |
|                                                                                                                              |       |                                 |       |   |   |
| Diluted earnings  per share                                                                                                       |       | $                                    | 0.28       |   | $ | 0.26 |   |

 
| ** **                                                                                                                        | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                        | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| Basic earnings  per share:                                                                                                        |       |                               |       |   |   |
| Weighted average  common shares outstanding                                                                                       |       | 2,145,250                          |       | 1,993,454 |   |
|                                                                                                                              |       |                               |       |   |   |
| Net income                                                                                                                        |       | $                                  | 1,147,188  |   | $ | 905,961 |   |
|                                                                                                                              |       |                               |       |   |   |
| Basic earnings  per share                                                                                                         |       | $                                  | 0.53       |   | $ | 0.45 |   |
|                                                                                                                              |       |                               |       |   |   |
| Diluted earnings  per share:                                                                                                      |       |                               |       |   |   |
| Weighted average  common shares outstanding                                                                                       |       | 2,145,250                          |       | 1,993,454 |   |
| Net effect of  the assumed exercise of stock options based on the treasury stock method using  average market prices for the year |       | 23,755                             |       | 17,180 |   |
| Total weighted  average common shares and common stock equivalents outstanding                                                    |       | 2,169,005                          |       | 2,010,634 |   |
|                                                                                                                              |       |                               |       |   |   |
| Net income                                                                                                                        |       | $                                  | 1,147,188  |   | $ | 905,961 |   |
|                                                                                                                              |       |                               |       |   |   |
| Diluted earnings  per share                                                                                                       |       | $                                  | 0.53       |   | $ | 0.45 |   |

 

6

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**4.****                   ****Recent AccountingPronouncements**

 

In December 2004, the Financial AccountingStandards Board (FASB) issued FASB Statement No. 123 (revised 2004) (FAS123(R)), *Share-Based Payment*.  FAS 123(R) establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods or services.  It also addressestransactions in which an entity incurs liabilities in exchange for goods orservices that are based on the fair value of the entity’s equity instruments orthat may be settled by the issuance of those equity instruments.  FAS 123(R) focuses primarily on accountingfor transactions in which an entity obtains employee services in share-basedpayment transactions such as the issuance of stock options in exchange foremployee services.  FAS 123(R) does notchange the accounting guidance for share-based payment transactions withparties other than employees provided in FAS 123 as originally issued and EITFIssue No. 96-18, “Accounting for Equity Instruments That Are Issued toOther Than Employees for Acquiring, or in Conjunction with Selling, Goods orServices.”  FAS 123(R) does not addressthe accounting for employee share ownership plans, which are subject to AICPASOP 93-6, *Employers’ Accounting for EmployeeStock Ownership Plans*.  Publicentities that file as small business issuers will be required to apply FAS123(R) in the first interim or annual reporting period that begins after December 15,2005.

 

In March 2005, the Securities and ExchangeCommission’s (SEC or Commission) Office of the Chief Accountant and itsDivision of Corporation Finance announced the release of Staff AccountingBulletin No. 107 (SAB 107), “Share Based Payment”, in response tofrequently asked questions and to provide the SEC staff’s views regarding theapplication of FAS 123(R).  SAB 107provides interpretive guidance related to the interaction between FAS 123(R)and certain SEC rules and regulations; addresses the staff’s views on thesubject of valuation of share-based payment transactions for public companies;and reiterates the importance of disclosures related to share-based paymenttransactions in the consolidated financial statements filed with the SEC.

 

7

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

The following is our discussionand analysis of certain significant factors which have affected the financialposition and operating results of FirstBank Financial Services, Inc. (the “Company”)during the periods included in the accompanying consolidated financialstatements.

 

**Forward Looking Statements**

 

Certain of thestatements made herein under the caption “Management’s Discussion and Analysisof Financial Condition and Results of Operations” (“MD&A”) areforward-looking statements for purposes of the Securities Act of 1933 (the “SecuritiesAct”) and the Securities Exchange Act of 1934 (the “Exchange Act”), and as suchmay involve known and unknown risks, uncertainties and other factors which maycause our actual results, performance or achievements to be materiallydifferent from future results, performance or achievements expressed or impliedby such forward-looking statements.  Suchforward looking statements include statements using the words such as “will,” “anticipate,”“should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “may”or “intend,” or other similar words and expressions of the future.  Our actual results may differ significantlyfrom the results we discuss in these forward-looking statements.

 

These forward-lookingstatements involve risks and uncertainties and may not be realized due to avariety of factors, including, without limitation:

 

•                  the effects of future economicconditions;

•                  governmental monetary and fiscalpolicies, as well as legislative and regulatory changes;

•                  the risks of changes in interest rates onthe level and composition of deposits, loan demand, and the values of loancollateral, securities, and other interest-sensitive assets and liabilities;

•                  changes in the interest rate environmentwhich could reduce anticipated or actual margins;

•                  the effects of competition from othercommercial banks, thrifts, mortgage banking firms, consumer finance companies,credit unions, securities brokerage firms, insurance companies, money marketand other mutual funds and other financial institutions operating in our marketarea and elsewhere, including institutions operating regionally, nationally,and internationally, together with such competitors offering banking productsand services by mail, telephone, computer, and the Internet;

•                  changes occurring in business conditionsand inflation;

•                  changes in monetary and tax policies;

•                  changes in technology;

•                  the level of allowance for loan loss;

•                  the rate of delinquencies and amounts ofcharge-offs;

•                  the rates of loan growth;

•                  adverse changes in asset quality andresulting credit risk-related losses and expenses;

•                  changes in the securities market; and

•                  other risks and uncertainties detailedfrom time to time in our filings with the Securities and Exchange Commission.

 

8

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**Introduction**

 

On February 1, 2005,pursuant to an Agreement and Plan of Shares Exchange approved by theshareholders of First Bank of Henry County (the “Bank”), the Company acquiredeach share of the Bank’s common stock in exchange for one share of the Company’sstock. The Company now serves as a holding company for the Bank.

 

The Company performs banking services customary forfull service banks of similar size and character.  The Company offers personal and businesschecking accounts, interest-bearing checking accounts, savings accounts andvarious types of certificates of deposit. The Company also offers commercial loans, installment and other consumerloans, home equity loans, home equity lines of credit, construction loans andmortgage loans.  In addition, the Companyprovides such services as official bank checks, traveler’s checks, directdeposit and United States Savings Bonds. The Company provides other customary banking services including ATMservices, safe deposit facilities, money transfers, and individual retirementaccounts.

 

**Overview**

 

Management monitors thefinancial condition of the Company in order to protect depositors, increaseundivided profits and protect current and future earnings.  Further discussion of significant itemsaffecting the Company’s financial condition are discussed in detail below.

 

**Critical Accounting Policies**

 

We have adoptedvarious accounting policies which govern the application of accountingprinciples generally accepted in the United States of America in thepreparation of our consolidated financial statements.  Our significant accounting policies aredescribed in the footnotes to the financial statements for First Bank of HenryCounty at December 31, 2004 as filed in our annual report on Form 10-KSB,which was filed with the Federal Deposit Insurance Corporation.

 

Certain accountingpolicies involve significant judgments and assumptions by us which have amaterial impact on the carrying value of certain assets and liabilities.  We consider these accounting policies to becritical accounting policies.  Thejudgments and assumptions we use are based on historical experience and otherfactors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgments andassumptions we make, actual results could differ from these judgments andestimates which could have a material impact on our carrying values of assetsand liabilities and our results of operations.

 

We believe theallowance for loan losses is a critical accounting policy that requires themost significant judgments and estimates used in preparation of our consolidatedfinancial statements.  Refer to theportion of this discussion that addresses asset quality for a description ofour processes and methodology for determining our allowance for loan losses.

 

9

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**Asset Quality**

 

A major key to long-termearnings growth is the maintenance of a high-quality loan portfolio. The Company’sdirective in this regard is carried out through its policies and procedures forextending credit to the Company’s customers. The goal and result of these policies and procedures is to provide asound basis for new credit extensions and an early recognition of problemassets to allow the most flexibility in their timely disposition.  Additions to the allowance for loan losseswill be made periodically to maintain the allowance at an appropriate levelbased upon management’s analysis of potential risk in the loan portfolio.  The amount of the loan loss provision isdetermined by an evaluation of the level of loans outstanding, the level ofnon-performing loans, historical loan loss experience, delinquency trends, theamount of actual losses charged to the allowance in a given period, andassessment of present and anticipated economic conditions.

 

A provision for loanlosses was made during the second quarter and first six months of 2005,respectively of $185,000 and $344,615 as compared to the same period in 2004 of$210,000 and $450,000, respectively.  Theamounts provided are due primarily to our assessment of inherent risk in theloan portfolio. The allowance for loan losses as a percentage of total loanswas 1.13% at June 30, 2005as compared to 1.10% at December 31, 2004. Based upon our evaluation of the loan portfolio, we believe theallowance for loan losses to be adequate to absorb losses on existing loans thatmay become uncollectible.

 

Subsequent to June 30,2005, a loan customer declared bankruptcy with loan balances of approximately$345,000.  Management will continue toevaluate the necessity of recording additional reserves as more informationconcerning the bankruptcy proceedings become available.  In addition, $100,000, included in thenonaccrual loans reported below, is in the process of foreclosure.

 

The allowance for loanlosses is established through a provision for loan losses charged toexpense.  Loan losses are charged againstthe allowance when management believes the collectibility of the principal isunlikely.  Subsequent recoveries, if any,are credited to the allowance.

 

The allowance is anamount that management believes will be adequate to absorb estimated lossesrelating to specifically identified loans as well as probable credit lossesinherent in the balance of the loan portfolio, based on an evaluation of thecollectibility of existing loans and prior loss experience.  This evaluation also takes into considerationsuch factors as changes in the nature and volume of the loan portfolio, overallportfolio quality, review of specific problem loans, concentrations and currenteconomic conditions that may affect the borrower’s ability to pay.  This evaluation does not include the effectsof expected losses on specific loans or groups of loans that are related tofuture events or expected changes in economic conditions.  While management uses the best informationavailable to make its evaluation, future adjustments to the allowance may benecessary if there are significant changes in economic conditions.  In addition, regulatory agencies, as anintegral part of their examination process, periodically review the Company’sallowance for loan losses, and may require the Company to make additions to theallowance based on their judgment about information available to them at thetime of their examinations.

 

10

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The allowance consistsof specific, general and unallocated components.  The specific component relates to loans thatare classified as either doubtful, substandard or special mention.  For such loans that are also classified asimpaired, an allowance is established when the discounted cash flows (orcollateral value or observable market price) of the impaired loan is lower thatthe carrying value of that loan.  Thegeneral component covers non-classified loans and is based on historical lossexperience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that couldaffect management’s estimate of probable losses.  The unallocated component of the allowancereflects the margin of imprecision inherent in the underlying assumptions usedin the methodologies for estimating specific and general losses in theportfolio.

 

Information withrespect to nonaccrual, past due and restructured loans is as follows:

 
| ** **                                                                                                 | ** ** | **June 30,**          | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                                 | ** ** | **2005**                   | ** ** | **2004** | ** ** |
| ** **                                                                                                 | ** ** | **(Dollars in Thousands)** | ** ** |
| Nonaccrual loans                                                                                           |       | $                          | 109        |   | $ | — |   |
| Loans  contractually past due ninety days or more as to interest or principal  payments and still accruing |       | 72                         |       | 11 |   |
| Restructured  loans                                                                                        |       | —                     |       | — |   |
| Potential  problem loans                                                                                   |       | —                     |       | — |   |
| Interest income  that would have been recorded on non-accrual and restructured loans under  original terms |       | —                     |       | — |   |
| Interest income  that was recorded on nonaccrual and restructured loans                                    |       | —                     |       | — |   |
|                                                                                                            |            |                            |            |  |  |  |  |

 

Potential problemloans are defined as loans about which we have serious doubts as to the abilityof the borrower to comply with the present loan repayment terms and which maycause the loan to be placed on nonaccrual status, to become past due more thanninety days, or to be restructured.

 

It is our policy todiscontinue the accrual of interest income when, in the opinion of management,collection of interest becomes doubtful. We will generally discontinue theaccrual of interest when (1) there is a significant deterioration in thefinancial condition of the borrower and full repayment of principal andinterest is not expected and (2) the principal or interest is more thanninety days past due, unless the loan is both well-secured and in the processof collection.

 

Loans classified forregulatory purposes as loss, doubtful, substandard, or special mention thathave not been included in the table above do not represent or result fromtrends or uncertainties which management reasonably expects will materiallyimpact future operating results, liquidity or capital resources. Theseclassified loans do not represent material credits about which management isaware of any information which causes management to have serious doubts as tothe ability of such borrowers to comply with the loan repayment terms.

 

11

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Information regardingcertain loans and allowance for loan loss data is as follows:

 
| ** **                                                                     | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| ** **                                                                     | ** ** | **(Dollars in Thousands)**          | ** ** |
|                                                                           |       |                                |       |   |   |
| Average amount  of loans outstanding                                           |       | $                                   | 148,811    |   | $ | 84,902 |   |
| Balance of  allowance for loan losses at beginning of period                   |       | $                                   | 1,471      |   | $ | 712 |   |
| Loans charged  off:                                                            |       |                                |       |   |   |
| Commercial and  financial                                                      |       | —                              |       | — |   |
| Real estate  mortgage                                                          |       | —                              |       | — |   |
| Installment                                                                    |       | (5                                  | )          | — |   |
|                                                                           |       | (5                                  | )          | — |   |
| Loans recovered:                                                               |       |                                |       |   |   |
| Commercial and  financial                                                      |       | —                              |       | — |   |
| Real estate  mortgage                                                          |       | —                              |       | — |   |
| Installment                                                                    |       | —                              |       | 7 |   |
|                                                                           |       | —                              |       | 7 |   |
| Net charge-offs                                                                |       | (5                                  | )          | 7 |   |
| Additions to  allowance charged to operating expense during period             |       | 345                                 |       | 450 |   |
| Balance of  allowance for loan losses at end of period                         |       | $                                   | 1,811      |   | $ | 1,169 |   |
| Ratio of net  loans charged off during the period to average loans outstanding |       | 0.00                                | %          | 0.00 | % |

 

**Liquidity and Capital Resources**

 

Liquidity managementinvolves the matching of the cash flow requirements of customers, who may beeither depositors desiring to withdraw funds or borrowers needing assurancethat sufficient funds will be available to meet their credit needs, and theability of the Company to meet those needs. The Company strives to maintain an adequate liquidity position bymanaging the balances and maturities of interest-earning assets andinterest-bearing liabilities so that the balance it has in short-terminvestments at any given time will adequately cover any reasonably anticipatedimmediate need for funds.  Additionally,the Company maintains relationships with correspondent banks, which couldprovide funds on short notice, if needed. At June 30, 2005 theCompany had no federal funds purchased.

 

The liquidity and capitalresources of the Company are monitored daily by management, and monthly by theCompany’s Board-authorized Asset and Liability Management Committee, and on aperiodic basis by state and federal regulatory authorities.  As determined under guidelines established bythese regulatory authorities, the Company’s liquidity ratios at June 30, 2005 were consideredsatisfactory.  At that date, the Company’sshort-term investments and available federal funding were adequate to cover anyreasonably anticipated immediate need for funds.  At June 30,2005, the Company had unused available federal fund lines of $11,200,000and unused Federal Home Loan Bank borrowing capacity of approximately $10,510,000.  The Company is aware of no events or trendslikely to result in a material change in liquidity.

 

12

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The consolidatedfinancial statements, as of June 30,2005, evidenced an increased liquidity position.  Cash and due from banks, interest-bearingdeposits in banks and federal funds sold totaled $16,797,753 as of June 30, 2005 as compared to$12,656,217 as of December 31, 2004.  Total cash and due from banks amounted to $3,521,255representing 1.65% of total assets.

 

As our loan demand has continued to increase, wehave increased the use of brokered deposits as a funding source.  Total brokered deposits amounted to $78.2million as of June 30, 2005.  These deposits are readily obtainable atrates not significantly different from rates that we pay on deposits in ourlocal market.  The Company’s ability tomaintain and expand its deposit base and borrowing capabilities is a source ofliquidity.  For the six-month period endedJune 30, 2005, totaldeposits increased from $131.4 million at December 31, 2004 to $160.0million at June 30, 2005.  Management is committed to maintainingcapital at a level sufficient to protect depositors, provide for reasonablegrowth, and fully comply with all regulatory requirements.  The table below illustrates the Company’sregulatory capital ratios at June 30,2005.  

 
| ** **                  | ** ** | **Company** | ** ** | **Minimum  Regulatory  Requirement** | ** ** |
|-----------------------------|------------|-------------|------------|--------------------------------------|------------|
|                        |       |        |       |                                 |       |
| Leverage capital  ratios    |       | 11.66       | %          | 4.00                                 | %          |
| Risk-based  capital ratios: |       |        |       |                                 |       |
| Tier I capital              |       | 13.42       | %          | 4.00                                 | %          |
| Total capital               |       | 14.43       | %          | 8.00                                 | %          |

 

**Off-Balance Sheet Risk**

 

We are a party tofinancial instruments with off-balance sheet risk in the normal course ofbusiness to meet the financing needs of our customers.  These financial instruments includecommitments to extend credit and standby letters of credit.  Such commitments involve, to varying degrees,elements of credit risk and interest rate risk in excess of the amountrecognized in the balance sheets.

 

Our exposure to creditloss in the event of nonperformance by the other party to the financialinstrument for commitments to extend credit and standby letters of credit is representedby the contractual amount of those instruments. We use the same credit policies in making commitments and conditionalobligations as we do for on-balance sheet instruments.  A summary of our commitments is as follows:

 
| ** **                    | ** ** | **June 30,  2005** | ** ** |
|-------------------------------|------------|-------------------------|------------|
|                          |       |                    |       |
| Commitments to  extend credit |       | $                       | 36,160,000 |   |
| Letters of  credit            |       | 902,000                 |       |
|                          |       | $                       | 37,062,000 |   |

 

13

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Commitments to extendcredit are agreements to lend to a customer as long as there is no violation ofany condition established in the contract. Since many of the commitments are expected to expire without being drawnupon, the total commitment amounts do not necessarily represent future cashrequirements.  The amount of collateralobtained, if deemed necessary by us upon extension of credit, is based on ourcredit evaluation of the customer.

 

Standby letters ofcredit are conditional commitments issued by us to guarantee the performance ofa customer to a third party.  Thoseletters of credit are primarily issued to support public and private borrowingarrangements.  The credit risk involvedin issuing letters of credit is essentially the same as that involved inextending loans to customers.  Collateralis required in instances which we deem necessary.

 

**Financial Condition**

 

Our total assets grewby 20% for the first six months of 2005. Deposit growth of approximately $28.7 million and additional FHLBborrowings of $6.0 million were used to fund net loan growth of approximately $26.7million with the remainder being primarily invested in securities or maintainedin cash and due from banks.  Loan demandcontinues to be strong in our primary market area of Henry County, Georgia andsurrounding counties.  Our loan to availablefunds ratio has remained steady since December 31, 2004, holding in the 85-87%range.  Stockholders’ equity hasincreased by $1,087,220 due to net income of $1,147,188 less unrealized losseson securities available-for-sale, net of tax, of $59,968.

 

The company iscurrently branching into two locations in Henry county.  The company has contractual obligations forapproximately $1.8 million of additional construction costs in these projects.

 

14

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**Results of Operations****For The Three Months EndedJune 30, 2005 and 2004 and for the Six Months Ended June 30, 2005 and2004**

 

Following is a summaryof our operations for the periods indicated.

 
| ** **                     | ** ** | **Three Months Ended  June 30,** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                     | ** ** | **(Dollars in Thousands)**            | ** ** |
|                           |       |                                  |       |   |   |
| Interest income                |       | $                                     | 3,222      |   | $ | 1,801 |   |
| Interest expense               |       | (1,284                                | )          | (598 | ) |
| Net interest  income           |       | 1,938                                 |       | 1,203 |   |
| Provision for  loan losses     |       | (185                                  | )          | (210 | ) |
| Other income                   |       | 70                                    |       | 91 |   |
| Other expense                  |       | (881                                  | )          | (614 | ) |
| Pretax income                  |       | 942                                   |       | 470 |   |
| Income tax  (expense) benefits |       | (336                                  | )          | 100 |   |
| Net income                     |       | $                                     | 606        |   | $ | 570 |   |

 
| ** **                     | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------|------------|-------------------------------------|------------|
| ** **                     | ** ** | **2005**                            | ** ** | **2004** | ** ** |
| ** **                     | ** ** | **(Dollars in Thousands)**          | ** ** |
|                           |       |                                |       |   |   |
| Interest income                |       | $                                   | 5,973      |   | $ | 3,254 |   |
| Interest expense               |       | (2,309                              | )          | (1,067 | ) |
| Net interest  income           |       | 3,664                               |       | 2,187 |   |
| Provision for  loan losses     |       | (345                                | )          | (450 | ) |
| Other income                   |       | 136                                 |       | 150 |   |
| Other expense                  |       | (1,660                              | )          | (1,081 | ) |
| Pretax income                  |       | 1,795                               |       | 806 |   |
| Income tax (expense)  benefits |       | (648                                | )          | 100 |   |
| Net income                     |       | $                                   | 1,147      |   | $ | 906 |   |

 

15

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Net Interest Income

 

Our net interestincome increased approximately $735,000 and $1,476,000 for the three and sixmonth periods ended June 30, 2005, respectively, compared to the sameperiods in 2004.  Our net interest marginincreased to 3.88% during the first six months of 2005 as compared to 3.78% forthe first six months of 2004. The increase in net interest income is dueprimarily to the increased volume of average loans outstanding.   Our cost of funds increased to 2.90% for thefirst six months of 2005 as compared to 2.31% for the first six months of 2004.

 

Other Income

 

Other income decreasedapproximately $21,000 and $14,000 for the three and six month periods ended June 30,2005, respectively, compared to the same periods in 2004.  Year-to-date service charges on depositaccounts associated with deposit growth have increased by $11,000.  Other fee income has increased approximately$14,000 when compared to the six months ended June 30, 2004 due toincrease in the volume of transactions resulting from our growth.  Gains from sales of assets, other real estateand securities available-for-sale have decreased approximately $38,000 ascompared to the six months ended June 30, 2004.

 

Other Expenses

 

Other expensesincreased approximately $267,000 and $579,000 for the three and six monthperiods ended June 30, 2005, respectively, compared to the same periods in2004.  The increases in 2005 consist ofincreases of $177,000 and $362,000 in salaries and employee benefits, $20,000and $29,000 in equipment and occupancy and $70,000 and $188,000 in otheroperating for the three and six months ended June 30, 2005, respectivelyas compared to the same periods in 2004.  The increase in salaries andemployee benefits represents normal increases in salaries and an increase inthe number of full time equivalent employees. Equipment and occupancy expenses have increased due to the need foradditional equipment for employees and the expense to renovate the board roominto offices.  The increases in otheroperating expenses are due primarily to our overall growth.  The company has signed an operating leaseagreement for approximately $70,000 a year in lease expense to provide spacefor an Operations Center.

 

Income Taxes

 

We have recorded aprovision for income taxes of $336,459 and $647,793 for the three and sixmonths ended June 30, 2005, respectively, which represents 35.7% and 36.1%of income before provision for income taxes, respectively.  The income tax benefit recorded for the sixmonths ended June 30, 2004 consisted of current tax expense of $298,000offset by the recognition of deferred tax assets of $398,000.

 

16

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Regulatory Matters

 

From time to time, various bills are introduced in the United StatesCongress with respect to the regulation of financial institutions.  Certain of these proposals, if adopted, couldsignificantly change the regulation of banks and the financial servicesindustry.  We cannot predict whether anyof these proposals will be adopted or, if adopted, how these proposals wouldaffect us.

 

We are not aware of any current recommendationby our regulatory authorities which, if implemented, would have a materialeffect on our liquidity, capital resources, or results of operations.

 

**ITEM 3.  Controlsand Procedures**

 

As of the end of theperiod covered by this report, we carried out an evaluation, under thesupervision and with the participation of our Chief Executive Officer and theChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures.  Disclosurecontrols and procedures, as defined in Rule 13(a) – 15(e) of theSecurities Exchange Act of 1934 (the “Exchange Act”) are procedures that aredesigned with the objective of ensuring that information required to bedisclosed in our reporting filed under the Exchange Act is recorded, processedand reported in an accurate and timely manner. Based on this evaluation, our Chief Executive and Chief FinancialOfficer concluded that our disclosure controls and procedures are effective forgathering, analyzing and disclosing the information that we are required todisclose in the reports we file under the Exchange Act, within the time periodsspecified in the SEC’s rules and forms. Our Chief Executive Officer and Chief Financial Officer also concludedthat our disclosure controls and procedures are effective in timely alertingthem to material information relating to our Company required to be included inour periodic SEC filings.  In connectionwith the new rules, we are in the process of further reviewing and documentingour disclosure controls and procedures, including our internal controls andprocedures for financial reporting, and may from time to time make changesdesigned to enhance their effectiveness and to ensure that our systems evolvewith our business.

 

There have been nochanges in the Company’s internal control over financial reporting during the sixmonths ended June 30, 2005, or, to the Company’s knowledge, other factorsthat could significantly affect those internal controls subsequent to the datethe Company carried out its evaluation, that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting, and there have been no corrective actions with respect tosignificant deficiencies or material weaknesses.

 

Thedesign of any system of controls and procedures is based in part upon certainassumptions about the likelihood of future events.  There can be no assurance that any designwill succeed in achieving its stated goals under all potential futureconditions.

 

17

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**PART II - OTHER INFORMATION**

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

(a) Theannual meeting of the stockholders of the Company was held on May 19,2005.

(b) Thefollowing Class III directors were elected at the meeting to serve termsfor three years:

Milton Stanley Goggins

Richard Allen Grimes

Larry Max Phillips

 

Set forth below is thenumber of votes cast for, against, or withheld, with respect to each nomineefor office:

 

| **Milton Stanley Goggins** | ** ** | **# of Shares** | ** ** |
|----------------------------|------------|-----------------|------------|
|                       |       |            |       |
| For                        |       | 1,655,670       |       |
| Against                    |       | —          |       |
| Withheld                   |       | 26,700          |       |

 

| **Richard Allen Grimes** | ** ** | **# of Shares** | ** ** |
|--------------------------|------------|-----------------|------------|
|                     |       |            |       |
| For                      |       | 1,628,970       |       |
| Against                  |       | —          |       |
| Withheld                 |       | 37,938          |       |

 

| **Larry Max Phillips** | ** ** | **# of Shares** | ** ** |
|------------------------|------------|-----------------|------------|
|                   |       |            |       |
| For                    |       | 1,655,670       |       |
| Against                |       | —          |       |
| Withheld               |       | 26,700          |       |

 

18

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**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

**(Continued)**

 

(c)                                                     The amendment to the 2000 Stock IncentivePlan to increase the number of shares reserved under the Plan from 100,000 to250,000 and to provide that shares issued pursuant to awards under the Planwould be shares of FirstBank Financial Services, Inc. was approved by theshareholders.  Set forth below is thenumber of votes cast for or against the proposal as well as the number ofabstentions and broker non-votes.

 

| ** **

** ** | ** ** | **# of Shares** | ** ** |
|------------------------|------------|-----------------|------------|
|                   |       |            |       |
| For                    |       | 1,150,986       |       |
| Against                |       | 147,750         |       |
| Abstained              |       | 1,745           |       |
| Broker non-votes       |       | 366,427         |       |

 

**ITEM 6.  EXHIBITS**

 

31.1                           Certification of the Chief ExecutiveOfficer, Pursuant to Rule 13a-14(a) under the Securities Exchange Actof 1934, as amended.

 

31.2                           Certification of the Chief FinancialOfficer, Pursuant to Rule 13a-14(a) under the Securities Exchange Actof 1934, as amended.

 

32                                    Certification of the Chief ExecutiveOfficer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

19

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**SIGNATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 
|                 | FIRSTBANK FINANCIAL SERVICES, INC.            |                                               |
|----------------------|-----------------------------------------------|----------------------------------------------------|
|                 | (Registrant)                                  |                                               |
|                 |                                          |                                               |
|                 |                                          |                                               |
| August 10, 2005 |                                          | /s/ Thaddeus M. Williams                           |   |
| Date                 |                                          | Thaddeus M. Williams, Acting President  and C.E.O. |   |
|                 | (Principal Executive Officer)                 |                                               |
|                 |                                          |                                               |
|                 |                                          |                                               |
| August 10, 2005 |                                          | /s/ Lisa J. Maxwell                                |   |
| Date                 |                                          | Lisa J. Maxwell, C.F.O.                            |   |
|                 | (Principal Financial and Accounting  Officer) |                                               |

 

20

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