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As filed with the Securities and Exchange Commission on June 20, 1997
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)
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Michigan 6712
(State or other jurisdiction (Primary Standard Industrial 38- 2633910
of incorporation or organization) Classification Code Number) (I.R.S. Employer Identification No.)
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311 Woodworth Avenue
Alma, Michigan 48801
(517) 463-3131
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
John McCormack
311 Woodworth Avenue
Alma, Michigan 48801
(517) 463-3131
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Donald L. Johnson
Varnum, Riddering, Schmidt & Howlett LLP
333 Bridge Street, P.O. Box 352
Grand Rapids, Michigan 49501
(616) 336-6000
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
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Calculation of Registration Fee
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered/(1)/ Per Unit/(2)/ Price/(2)/ Registration Fee
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Common Stock, no par value 440,000 $19.34 $8,507,455 $2,579
==============================================================================================================
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(1) Represents bona fide estimate of maximum amount of Common Stock of
Registrant to be offered, based on: (i) the amount and form of
consideration to be issued pursuant to the proposed transaction; (ii) the
number of outstanding shares of the common stock of Lakeview Financial
Corporation ("Lakeview") and the number of options to purchase shares of
common stock of Lakeview at March 31, 1997; and (iii) an estimated
conversion ratio of 0.5788 shares of Common Stock of Registrant per share
of common stock of Lakeview together with a conversion ratio of 0.2622
shares of Common Stock of Registrant per share of Lakeview common stock
covered by outstanding options.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee on the basis of the book value of the common stock of
Lakeview at March 31, 1997.
---------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
(LAKEVIEW LETTERHEAD)
___________, 1997
Dear Fellow Shareholders:
We are pleased to invite you to a special meeting of the shareholders of
Lakeview Financial Corporation ("Lakeview") to be held at ___________ a.m. on
September ______, 1997, at 506 Lincoln Avenue, Lakeview, Michigan 48850. In
connection with the meeting, holders of Lakeview Common Stock are being asked to
consider and to vote upon a proposal to approve an Agreement and Plan of Merger
(the "Plan of Merger") with Firstbank Corporation ("Firstbank"). The Plan of
Merger provides for the merger of Lakeview with and into Firstbank (the
"Merger"), as a result of which the Bank of Lakeview (the "Bank") would become a
wholly-owned subsidiary of Firstbank.
The Merger offers Lakeview shareholders the opportunity to become
shareholders of Firstbank, a publicly traded company, offering additional
liquidity to Lakeview shareholders. In addition, the Board of Directors of
Lakeview believes that the Merger offers the shareholders of Lakeview the
opportunity to have an interest in a larger and more diversified financial
organization.
In the Merger, each outstanding share of Lakeview Common Stock will be
converted into shares of Firstbank Common Stock according to a formula specified
in the Plan of Merger, or, at the election of the shareholder, the right to
receive an equivalent amount in cash, subject to certain limitations and
adjustments. The cash equivalent is subject to an aggregate maximum of 35% of
the total consideration paid to holders of Lakeview Common Stock and Lakeview
Stock Options in the Merger. The Plan of Merger provides for adjustments to the
consideration to be received based upon the average of the last-reported sale
price per share of Firstbank Common Stock for the 20 consecutive trading days
ending on the sixth business day prior to the closing of the Merger (the
"Firstbank Market Price"). Based upon the $41.50 last-reported sale price per
share of Firstbank Common Stock on June 12, 1997, each share of Lakeview Common
Stock would have been converted into the right to receive 0.5788 shares of
Firstbank Common Stock resulting in an equivalent value per share of Lakeview
Common Stock of $24.02. The actual value of the Firstbank Common Stock to be
received in exchange for each share of Lakeview Common Stock will depend on the
Firstbank Market Price at the time the Merger is consummated and could vary from
a minimum of $21.30 (if the Firstbank Market Price is less than $32.00) to a
maximum of $25.07 (if the Firstbank Market Price is $44.00 or more) per share of
Lakeview Common Stock. It is expected that the Merger will generally be tax free
to Lakeview shareholders for federal income tax purposes, to the extent they
receive stock rather than cash consideration.
The enclosed Prospectus and Proxy Statement describes the transaction in
detail and contains information to assist you in deciding how to vote. You are
encouraged to read the Prospectus and Proxy Statement carefully before voting.
Shareholder approval of the Plan of Merger requires the affirmative vote of
a majority of the outstanding shares of Lakeview's common stock. Whether or not
you expect to attend the special shareholders' meeting in person, please sign
the accompanying proxy form and return it promptly in the enclosed envelope. The
prompt return of each shareholder's signed proxy will help assure a quorum and
aid Lakeview in reducing the expense of additional proxy solicitation. If you
attend the meeting, you may still elect to vote in person.
Your Board of Directors voted unanimously to approve and adopt the Plan of
Merger and believes that the Merger is fair to, and in the best interests of,
Lakeview's shareholders. Accordingly, the Board unanimously recommends that you
vote "FOR" approval of the Plan of Merger.
Sincerely,
Richard J. Schurtz
Chief Executive Officer
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PROSPECTUS AND PROXY STATEMENT
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Firstbank Corporation Lakeview Financial Corporation
Prospectus Proxy Statement
In Connection With an Offering of up to for the Special Meeting of Shareholders
440,000 Shares of Firstbank Common Stock to be held September , 1997
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The Board of Directors of Lakeview Financial Corporation ("Lakeview") is
furnishing this Prospectus and Proxy Statement and the accompanying form of
proxy on or about August _____, 1997, as a proxy statement to the shareholders
of Lakeview to solicit proxies to vote at the special meeting of Lakeview's
shareholders to be held on September ____, 1997, and at any adjournment thereof
("Special Meeting"). At the Special Meeting, Lakeview's shareholders will be
asked to consider and approve an Agreement and Plan of Merger, dated April 17,
1997, as amended ("Plan of Merger"), between Lakeview and Firstbank Corporation
("Firstbank"), pursuant to which Bank of Lakeview (the "Bank") will become a
wholly-owned subsidiary of Firstbank (the "Merger").
This Prospectus and Proxy Statement, when delivered to shareholders of
Lakeview, is a prospectus of Firstbank relating to an offering of Firstbank
Corporation Common Stock, no par value ("Firstbank Common Stock") issuable in
connection with the Merger. This offering is made only to the holders of
Lakeview common stock ("Lakeview Common Stock") and the holders of options to
purchase Lakeview Common Stock ("Lakeview Stock Options"). Firstbank Common
Stock is traded on the National Association of Securities Dealers Over the
Counter Bulletin Board market under the symbol FBMI.
If the Merger is consummated, each share of Lakeview Common Stock which is
outstanding immediately prior to the effective time of the Merger will be
automatically converted into the right to receive shares of Firstbank Common
Stock according to a formula specified in the Plan of Merger, or, at the
election of the shareholder, an equivalent amount in cash, subject to certain
limitations and adjustments. The cash equivalent is subject to an aggregate
maximum of 35% of the total consideration paid to holders of Lakeview Common
Stock and Lakeview Stock Options in the Merger, in each case subject to certain
adjustments. The Plan of Merger provides for adjustments to the consideration to
be received based upon the average of the last-reported sale price per share of
Firstbank Common Stock for the 20 consecutive trading days ending on the sixth
business day prior to the closing of the Merger (the "Firstbank Market Price").
Assuming a Firstbank Market Price of $41.50 (the last-reported sale price per
share of Firstbank Common Stock on June 12, 1997), each share of Lakeview Common
Stock would have been converted into the right to receive 0.5788 shares of
Firstbank Common Stock resulting in an equivalent value per share of Lakeview
Common Stock of $24.02. The actual value of the Firstbank Common Stock to be
received in exchange for each share of Lakeview Common Stock will depend on the
Firstbank Market Price at the time the Merger is consummated and could vary from
a minimum of $21.30 (if the Firstbank Market Price is less than $32.00) to a
maximum of $25.07 (if the Firstbank Market Price is $44.00 or more) per share of
Lakeview Common Stock. In addition, holders of Lakeview Stock Options will be
able to convert such options into shares of Firstbank Common Stock or, as to
certain options held by Lakeview employees, options to purchase Firstbank Common
Stock, as provided for in the Plan of Merger. For a more complete description of
the terms of the Merger, see "The Merger" in the Proxy Statement of Lakeview,
which is included as a part of this Prospectus.
Lakeview shareholders should see "Risk Factors" on page 12 for a discussion
of factors that they should consider with respect to the Firstbank Common Stock
offered by this Prospectus and Proxy Statement. Consummation of the Merger is
subject to approval of the Plan of Merger by the shareholders of Lakeview,
regulatory approval and certain other conditions. (See "The Merger--Conditions
to the Merger and Abandonment.")
Your vote is important. Approval of the proposed Merger requires the
affirmative vote of a majority of the outstanding shares of Lakeview Common
Stock. Whether or not you expect to attend the special meeting in person, please
sign and date the enclosed Proxy and mail it promptly in the enclosed envelope.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus and Proxy Statement is dated __________, 1997.
<PAGE>
THE SHARES OF FIRSTBANK COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, THE BANK INSURANCE
FUND, OR ANY OTHER GOVERNMENTAL AGENCY.
AVAILABLE INFORMATION
Firstbank is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements, and other information filed
by Firstbank with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W., Room
1024, Washington, D.C. 20549, and at its regional offices in New York (7 World
Trade Center, Suite 1300, New York, New York 10048), and in Chicago (Citicorp
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of
such material can be obtained by mail from the Public Reference Section of the
Commission, at 450 Fifth Street N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers who file electronically with the Commission. The address of that site is
http://www.sec.gov.
Firstbank has filed a Registration Statement on Form S-4 ("Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission covering the shares of Firstbank Common Stock to be issued
in connection with the Merger. As permitted by the rules and regulations of the
Commission, this Prospectus and Proxy Statement omits certain information,
exhibits, and undertakings contained in the Registration Statement. For further
information pertaining to the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part hereof.
Copies of the Registration Statement and the exhibits can be inspected, without
charge, at the offices of the Commission, or obtained from the Public Reference
Section of the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON WRITTEN OR ORAL REQUEST OF ANY PERSON TO WHOM THIS PROSPECTUS AND
PROXY STATEMENT IS DELIVERED WITHOUT CHARGE FROM MARY D. DECI, SECRETARY,
FIRSTBANK CORPORATION, 311 WOODWORTH AVENUE, ALMA, MICHIGAN 48801-6029 TELEPHONE
NUMBER (517) 463-3131. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY ___________, 1997.
The following information previously filed with the Securities and Exchange
Commission by Firstbank is incorporated herein by reference: (a) the Annual
Report of Firstbank on Form 10-K for the year ended December 31, 1996; (b) the
Quarterly Report of Firstbank on Form 10-Q for the quarter ended March 31, 1997;
and (c) the information under the captions "Board of Directors," "Section 16(a)
Beneficial Ownership Reporting Compliance," "Compensation of Directors and
Executive Officers," "Compensation Committee Interlocks and Insider
Participation," and "Voting Securities" in Firstbank's definitive proxy
statement for its annual meeting of shareholders held April 28, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and Proxy Statement to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus and Proxy Statement.
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THIS PROSPECTUS AND PROXY STATEMENT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
FIRSTBANK FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO THE COST SAVINGS (SEE "THE MERGER-REASONS OF FIRSTBANK FOR THE
MERGER," AND "MANAGEMENT AND OPERATIONS AFTER THE MERGER"). FORWARD-LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-
LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1)
EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT
ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN
EXPECTED; (3) COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES
SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF FIRSTBANK AND LAKEVIEW ARE GREATER THAN EXPECTED; (5) CHANGES IN
THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; (6) GENERAL ECONOMIC CONDITIONS,
EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN,
AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY; (7) CHANGES IN THE
REGULATORY ENVIRONMENT; (8) CHANGES IN BUSINESS CONDITIONS AND INFLATION; AND
(9) CHANGES IN THE SECURITIES MARKETS. THE FORWARD-LOOKING EARNINGS ESTIMATES
INCLUDED IN THIS PROSPECTUS AND PROXY STATEMENT HAVE NOT BEEN EXAMINED OR
COMPILED BY THE INDEPENDENT PUBLIC ACCOUNTANTS OF FIRSTBANK OR LAKEVIEW NOR HAVE
SUCH ACCOUNTANTS APPLIED ANY PROCEDURES THERETO. ACCORDINGLY, SUCH ACCOUNTANTS
DO NOT EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE ON THEM. FURTHER
INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF
FIRSTBANK AFTER THE MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY
REFERENCE HEREIN.
[This Space Intentionally Left Blank]
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PROSPECTUS AND PROXY STATEMENT
TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION....................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. i
TABLE OF CONTENTS........................................................... iii
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS................................... vi
PROSPECTUS AND PROXY STATEMENT.............................................. 1
INTRODUCTION AND SUMMARY.................................................... 1
Introduction........................................................... 1
Firstbank Corporation.................................................. 2
Lakeview Financial Corporation......................................... 2
Summary of Certain Aspects of the Merger............................... 3
Market Value of Shares................................................. 8
Selected Unaudited Financial Data...................................... 9
Comparative Per Share Data............................................. 11
RISK FACTORS................................................................ 12
Estimated Conversion Ratio Subject to Change Due to Future Events...... 12
Performance of Firstbank and the Bank of Lakeview After the Merger..... 12
GENERAL PROXY INFORMATION................................................... 13
Voting by Proxy........................................................ 13
Proxy Solicitation..................................................... 13
Expenses............................................................... 13
THE MERGER.................................................................. 14
Background of the Merger............................................... 14
Reasons of Lakeview for the Merger..................................... 14
Reasons of Firstbank for the Merger.................................... 15
Summary of the Terms of the Merger..................................... 15
Opinion of Lakeview's Financial Advisor................................ 17
The Cash Election...................................................... 19
Exchange of Certificates............................................... 21
Management After the Merger............................................ 22
Effective Time of the Merger........................................... 22
Business of Lakeview Pending the Merger................................ 22
Conditions to the Merger and Abandonment............................... 23
Termination Fee........................................................ 25
Description of Firstbank Capital Stock................................. 25
Provisions Affecting Control of Firstbank.............................. 26
Comparison of Rights of Lakeview Shareholders to the Rights of
Firstbank Shareholders............................................... 27
Resales by Affiliates.................................................. 28
Accounting Treatment................................................... 28
Federal Income Tax Consequences........................................ 28
Interests of Certain Persons in the Merger............................. 30
Lakeview Stock Options................................................. 30
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Pro Forma Condensed Combined Financial Statements..................... 31
THE BUSINESS OF BANKING..................................................... 37
Competition............................................................ 37
Supervision and Regulation............................................. 37
Environmental Regulations.............................................. 38
FIRSTBANK CORPORATION....................................................... 39
Business............................................................... 39
Properties............................................................. 39
Legal Proceedings...................................................... 40
Market for Common Stock and Dividends.................................. 40
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 41
Audited Consolidated Financial Statements.............................. 51
Unaudited Condensed Consolidated Financial Statements.................. 73
Statistical Information................................................ 80
LAKEVIEW FINANCIAL CORPORATION.............................................. 88
Business............................................................... 88
Properties............................................................. 88
Legal Proceedings...................................................... 88
Market for Common Stock and Dividends.................................. 88
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 90
Audited Consolidated Financial Statements.............................. 97
Unaudited Condensed Consolidated Financial Statements.................. 118
Statistical Information................................................ 125
RIGHTS OF DISSENTING SHAREHOLDERS........................................... 134
VOTING AND MANAGEMENT INFORMATION........................................... 136
Voting Securities and Principal Shareholders of Lakeview............... 136
Interests of Certain Persons........................................... 138
Vote Required for Approval............................................. 139
GENERAL INFORMATION......................................................... 139
Experts................................................................ 139
Sources of Information................................................. 139
REPORTS TO SHAREHOLDERS..................................................... 139
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Opinion of Austin Associates, Inc.
APPENDIX C - Sections 761 to 774 of the Michigan Business Corporation Act
Regarding Dissenters' Rights
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No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Prospectus and Proxy Statement, and if given or made, such
information or representation must not be relied upon. This Prospectus and Proxy
Statement does not constitute an offer to sell or a solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it would be
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus and Proxy Statement nor any distribution of Firstbank Common Stock
made pursuant hereto shall, under any circumstances, create an implication that
the information herein is correct as of any time subsequent to the dates as of
which such information is given herein.
[This Space Intentionally Left Blank]
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LAKEVIEW FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be Held September ___, 1997
To the Shareholders of Lakeview Financial Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Lakeview
Financial Corporation ("Lakeview") will be held on September ______, 1997, at
______ a.m., local time, at 506 Lincoln, Lakeview, Michigan 48850, for the
following purposes:
1. To consider and vote upon the approval of the Agreement and Plan of
Merger, dated April 17, 1997, as amended by Amendment No. 1 to the
Agreement and Plan of Merger, dated June 18, 1997 (as amended, the
"Plan of Merger"), which provides for the merger of Lakeview with and
into Firstbank Corporation ("Firstbank"). As a result of the merger,
the Bank of Lakeview will become a wholly-owned subsidiary of
Firstbank.
2. To transact any and all other business that may properly come before
the meeting, or any adjournments thereof.
The Board of Directors has established the close of business on August
_____, 1997, as the record date for the determination of shareholders entitled
to notice of and to vote at the meeting or any adjournments thereof.
Shareholders of Lakeview are entitled to assert dissenters' rights under the
Michigan Business Corporation Act ("MBCA") with respect to the Merger as
provided in and in compliance with the provisions of the MBCA.
By Order of the Board of Directors,
Richard J. Schurtz, Chief Executive Officer
Dated: August ___, 1997
Lakeview, Michigan
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY.
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PROSPECTUS AND PROXY STATEMENT
Special Meeting of Shareholders of
LAKEVIEW FINANCIAL CORPORATION
506 Lincoln Avenue
Lakeview, Michigan 48850
(517) 352-7271
To vote to approve
an Agreement and Plan of Merger
involving an Offering of Common Stock,
no par value, of
FIRSTBANK CORPORATION
311 Woodworth Avenue
Alma, Michigan 48801
(517) 463-3131
INTRODUCTION AND SUMMARY
Introduction
Lakeview Financial Corporation ("Lakeview") and Firstbank Corporation
("Firstbank") are furnishing this Prospectus and Proxy Statement and the
accompanying form of proxy on or about August _____, 1997, to record holders of
Lakeview common stock, $3.34 par value per share ("Lakeview Common Stock") on
August _____, 1997. The board of directors of Lakeview is soliciting proxies
from Lakeview shareholders to vote at a special meeting of Lakeview shareholders
to be held on September _____, 1997, and at any adjournments thereof. The
special meeting will be held at 506 Lincoln Avenue, Lakeview, Michigan 48850, at
_________ a.m., local time.
The purpose of the special meeting of Lakeview shareholders is to consider
and vote on approval of the Agreement and Plan of Merger, as amended (the "Plan
of Merger") attached as Appendix A to this Prospectus and Proxy Statement. The
Plan of Merger provides for the merger of Lakeview with and into Firstbank (the
"Merger"). Under the Plan of Merger, each outstanding share of Lakeview Common
Stock will be converted into the right to receive shares of Firstbank Common
Stock, or, at the election of the shareholder, an equivalent amount in cash,
subject to an aggregate maximum of 35% of the total consideration paid to
holders of Lakeview Common Stock in the Merger. Lakeview and Firstbank estimate
that the aggregate amount of cash to be paid to satisfy the cash elections will
be approximately 10% of the aggregate consideration paid for shares of Lakeview
Common Stock and Lakeview Stock Options in the Merger. The number of shares of
Firstbank Common Stock to be received in exchange for Lakeview Common Stock and
Lakeview Stock Options is subject to certain adjustments based upon the average
of the last-reported sale price per Share of Firstbank Common Stock for the 20
consecutive trading days ending on the sixth business day prior to the closing
of the Merger. Approval of the Plan of Merger requires the affirmative vote of
the holders of a majority of the outstanding shares of Lakeview Common Stock.
(See "The Merger.") It is not anticipated that any other matter will come before
the special meeting. A majority of the issued and outstanding shares of
Lakeview, represented in person or by proxy is required to constitute a quorum
for the transaction of business at the special meeting of Lakeview shareholders.
As of May 31, 1997, directors and executive officers of Lakeview and their
affiliates beneficially owned (excluding shares subject to options) 4.2% of the
issued and outstanding shares of Lakeview Common Stock.
Lakeview's Board of Directors unanimously voted to approve and adopt the
Plan of Merger and determined that the consummation of the proposed Merger would
be in the best interests of Lakeview and its shareholders.
THE BOARD OF DIRECTORS OF LAKEVIEW UNANIMOUSLY RECOMMENDS
A VOTE FOR APPROVAL OF THE PLAN OF MERGER.
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Firstbank Corporation
Firstbank is a Michigan corporation with its headquarters in Alma,
Michigan. Firstbank is the parent company of Bank of Alma, Firstbank (Mount
Pleasant), and 1st Bank (West Branch). At March 31, 1997, Firstbank had
consolidated total assets of $416.5 million, its subsidiaries had aggregate
deposits of $364.2 million and Firstbank had consolidated shareholders' equity
of $33.7 million.
Firstbank and its subsidiary banks are engaged in the business of
commercial banking and other related activities. Each of Firstbank's subsidiary
banks is a full service bank offering customary commercial banking services
including commercial and retail loans, mortgage banking, business and personal
checking accounts, savings and individual retirement accounts, time deposit
instruments, automated transaction machine services, money transfer services and
safe deposit facilities. Firstbank's principal markets for financial services
are the Michigan communities in which its offices are located and the areas
surrounding those communities. Bank of Alma primarily operates in Gratiot,
Midland, Montcalm, and Saginaw Counties; Firstbank primarily operates in
Isabella and Clare Counties; and 1st Bank primarily operates in Iosco, Oscoda,
Ogemaw, and Roscommon Counties.
Firstbank has authorized capital stock consisting of 10,000,000 shares of
Firstbank Common Stock, of which 1,633,234 shares were issued and outstanding on
March 31, 1997, and 300,000 shares of preferred stock, of which there are no
issued and outstanding shares. As of March 31, 1997, there were approximately
960 record holders of Firstbank Common Stock. Firstbank Common Stock is traded
on the National Association of Securities Dealers Over the Counter Bulletin
Board market under the symbol FBMI. Firstbank is a reporting company under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The deposits
of Bank of Alma, Firstbank (Mount Pleasant) and 1st Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC"), subject to applicable
limitations. Bank of Alma, Firstbank (Mount Pleasant), and 1st Bank are
chartered under state law and are supervised, examined and regulated by the
Federal Deposit Insurance Corporation and the Financial Institutions Bureau of
the Michigan Department of Consumer and Industry Services, Corporation,
Securities and Land Development Bureau. None of Firstbank's subsidiary banks are
members of the Federal Reserve System.
Upon consummation of the Merger, approximately 2,002,519 shares of
Firstbank Common Stock will be issued and outstanding. The estimated number of
shares of Firstbank Common Stock to be outstanding after the Merger was
determined for the purpose of illustration by reference to the 1,633,234 shares
of Firstbank Common Stock issued and outstanding as of March 31, 1997, an
estimated conversion ratio for Lakeview Common Stock (0.5788), as applied to the
657,484 shares of Lakeview Common Stock outstanding, and an estimated conversion
ratio for Lakeview Stock Options (0.2622) as applied to 113,518 shares issuable
upon exercise of options to purchase Lakeview Common Stock as of March 31, 1997,
and assuming that Lakeview shareholders will in the aggregate elect to receive
cash equal to 10% of the aggregate consideration to be paid by Firstbank
pursuant to the Merger. The actual number of shares outstanding will vary.
Lakeview Financial Corporation
Lakeview is a Michigan corporation with its headquarters in Lakeview,
Michigan. Lakeview is the parent company of the Bank of Lakeview, which is
Lakeview's only subsidiary. At March 31, 1997, Lakeview had consolidated total
assets of $84.2 million, the Bank of Lakeview had total deposits of $72.5
million and its assets represent 99.9% of Lakeview's consolidated assets. At
March 31, 1997, Lakeview, on a consolidated basis, had shareholders' equity of
$8.5 million.
The Bank of Lakeview is engaged in the business of commercial banking and
other related activities. The Bank of Lakeview is a full service bank offering
customary commercial banking services including commercial and retail loans,
mortgage banking, business and personal checking accounts, savings and
individual retirement accounts, time deposit instruments, automated transaction
machine services, money transfer services and safe deposit facilities.
Lakeview's principal market for financial services is Lakeview, Michigan and the
areas surrounding Lakeview.
-2-
<PAGE>
Lakeview has authorized capital stock consisting of 1,500,000 shares of
Lakeview Common Stock, of which 657,484 shares were issued and outstanding on
June 12, 1997. As of May 31, 1997, there were approximately 290 record holders
of Lakeview Common Stock. There is no public market for Lakeview Common Stock,
and Lakeview is not a reporting company under the Exchange Act. The deposits of
the Bank of Lakeview are insured by the FDIC, subject to applicable limitations.
The Bank of Lakeview is a member of the Federal Reserve System.
Summary of Certain Aspects of the Merger
Lakeview shareholders should consider the following summary in connection
with the more detailed information appearing elsewhere in this Prospectus and
Proxy Statement. See "The Merger."
Background of the Merger. In August 1996, John McCormack, President and
Chief Executive Officer of Firstbank, contacted Richard Schurtz, President and
Chief Executive Officer of Lakeview, to inquire as to Lakeview's interest in a
business combination. After discussing the inquiry at several meetings of the
Board of Directors of Lakeview, it was determined that in order to maximize
shareholder value Lakeview should actively pursue a potential business
combination with Firstbank as well as other financial institutions. Lakeview
engaged Austin Associates, Inc., a consulting and investment banking firm to
financial institutions, to advise and assist Lakeview in identifying and
contacting potential acquirors. Austin Associates prepared a Confidential
Information package containing financial and other information concerning
Lakeview and provided that information to several potential acquirors, including
Firstbank. Firstbank then submitted a proposal to Lakeview describing the terms
and conditions of a proposed merger of Lakeview with and into Firstbank. The
Board of Directors of Lakeview determined that the Firstbank proposal was in the
best interests of the shareholders. On February 18, 1997, after an exchange of
information and negotiation between the parties, Firstbank and Lakeview entered
into a letter of intent with respect to the Merger, which letter of intent was
approved by the respective boards of directors of Lakeview and Firstbank.
Firstbank and Lakeview then negotiated and entered into the Plan of Merger dated
April 17, 1997, following approval of the Plan of Merger by their respective
boards of directors. On June 18, 1997, Firstbank and Lakeview amended the Plan
of Merger. Firstbank's board of directors and Lakeview's board of directors, and
their respective representatives, negotiated the consideration and other terms
of the Plan of Merger on an arm's-length basis.
Consideration to be Received in the Merger. The surviving corporation will
be Firstbank. As the surviving corporation, Firstbank will own the Bank of
Lakeview and all of the other assets of Lakeview as well as all of the
subsidiaries and assets of Firstbank.
Under the Plan of Merger, each outstanding share of Lakeview Common Stock
will be converted into the right to receive shares of Firstbank Common Stock,
or, at the election of the shareholder, an equivalent amount in cash, subject to
an aggregate maximum of 35% of the total consideration paid to holders of
Lakeview Common Stock and Lakeview Stock Options in the Merger, in each case
subject to certain adjustments. Lakeview and Firstbank estimate that the
aggregate amount of cash to be paid to satisfy the cash elections will be
approximately 10% or less of the aggregate consideration paid for shares of
Lakeview Common Stock and Lakeview Stock Options in the Merger. However, the
cash consideration could be less than 10% or more than 10% up to the 35%
maximum. The Plan of Merger provides for adjustments to the consideration to be
received based upon the average of the last-reported sale price per share of
Firstbank Common Stock for the 20 consecutive trading days ending on the sixth
business day prior to the closing of the Merger (the "Firstbank Market Price").
The amount of Firstbank Common Stock to be received in exchange for
Lakeview Common Stock will be determined by a formula specified by the Plan of
Merger and will vary according to the Firstbank Market Price at the time the
Merger is consummated. Each Lakeview shareholder may elect to receive an
equivalent amount in cash, subject to an aggregate maximum of 35% of the total
consideration paid to holders of Lakeview Common Stock and Lakeview Stock
Options. The Plan of Merger provides that each share of Lakeview Common Stock
will be converted into an amount of Firstbank Common Stock equal to the "Stock
Exchange Ratio." The Stock Exchange Ratio is equal to the quotient (rounded to
the fourth decimal) of the "Merger Value Per Share" divided by the Firstbank
Market Price. The "Merger Value Per Share" equals the quotient (rounded to the
fourth decimal) of (a) the sum of the Merger Value plus the sum of the exercise
prices of all outstanding options to purchase Lakeview Common Stock (estimated
to be $1,491,920), divided by (b) the number of outstanding shares of Lakeview
Common Stock (657,484) plus the number
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<PAGE>
of shares covered by outstanding options to purchase Lakeview Common Stock
(113,518). The Plan of Merger provides that the "Merger Value" will be:
(a) $14,928,640 if the Firstbank Market Price is less than $32.00;
(b) The product of the Firstbank Market Price multiplied by 466,520
if the Firstbank Market Price is not less than $32.00 but not
greater than $36.50;
(c) $17,028,014 if the Firstbank Market Price is greater than $36.50
but not greater than $42.00;
(d) The product of the Firstbank Market Price multiplied by 405,428
if the Firstbank Market Price is greater than $42.00 but less
than $4 4.00; or
(e) $17,838,832 if the Firstbank Market Price is $44.00 or more.
Based upon the $41.50 last-reported sale price per share of Firstbank Common
Stock on June 12, 1997, the Merger Value would be $17,028,014 and each share of
Lakeview Common Stock would have been converted in to the right to receive
0.5788 shares of Firstbank Common Stock having a market price of $24.02 at such
time. The actual value of the Firstbank Common Stock to be received in exchange
for each share of Lakeview Common Stock will depend on the Firstbank Market
Price at the time the Merger is consummated and could vary from a minimum of
$21.30 (if the Firstbank Market Price is less than $32.00) to a maximum of
$25.07 (if the Firstbank Market Price is $44.00 or more) per share of Lakeview
Common Stock. For a more complete description of the terms of the Merger, see
"The Merger."
With respect to the cash election, if the cash to be paid to satisfy such
cash elections, as well as cash expected to be paid with respect to fractional
shares and dissenting shares, would exceed 35% of the aggregate consideration to
be paid with respect to Firstbank Common Stock and Lakeview Stock Options in the
Merger, then certain Lakeview shareholders electing to receive cash will be
selected by selecting those shareholders who, had they not made a cash election,
would receive, on a per holder basis, the least number of shares of Firstbank
Common Stock pursuant to the Merger.
As of the date of this Prospectus and Proxy Statement, there are
outstanding Lakeview Stock Options to purchase a total of 113,518 shares of
Lakeview Common Stock, of which 73,822 shares are subject to nonstatutory stock
options granted to directors of Lakeview. Each Lakeview Stock Option which is
both outstanding and unexercised immediately prior to the Effective Time of the
Merger and is a nonstatutory stock option held by a director of Lakeview will be
converted into that number of shares of Firstbank Common Stock equal to the
Option Exchange Ratio multiplied by the number of shares of Lakeview Common
Stock purchasable upon exercise of the Lakeview Stock Option, subject to the
right of such director to make a cash election. Each Lakeview Stock Option which
is outstanding immediately prior to the Effective Time of the Merger and is an
incentive stock option held by an employee of Lakeview or the Bank of Lakeview
shall, at the election of the holder, either (i) become and be converted into
the right to receive that number of shares of Firstbank Common Stock equal to
the product of the Option Exchange Ratio multiplied by the number of shares of
Lakeview Common Stock purchasable upon exercise of the Lakeview Stock Option, or
(ii) be converted into nonqualified options to purchase shares of Firstbank
Common Stock subject to the terms of Firstbank's stock option plan, in each case
subject to the right of such employee to make a cash election. For an
explanation of how the Option Exchange Ratio is determined and for additional
information concerning the Lakeview Stock Options, see "The Merger--Lakeview
Stock Options."
Pursuant to the Plan of Merger, the Merger Value is subject to certain
downward adjustments (i) if the transaction expenses incurred by Lakeview in
connection with the Merger exceed $275,000 (pre-tax), or (ii) if certain
accruals of Lakeview necessary to fully fund the cost of all outstanding
executive supplemental income agreements between the Bank of Lakeview and its
officers exceeds the lesser of $250,000 (pre-tax) or the actuarially reduced
amounts of the aggregate retirement benefits under such executive supplemental
income agreements. Any reduction in the Merger Value would reduce both the Stock
Exchange Ratio and the Option Exchange Ratio (as defined in "The Merger --
-4-
<PAGE>
Lakeview Stock Options") which would reduce the consideration to be received by
holders of Lakeview Common Stock pursuant to the Merger. (See "The Merger--
Summary of the Terms of the Merger.")
The Stock Exchange Ratio and the Option Exchange Ratio and adjustments to
the Stock Exchange Ratio and the Option Exchange Ratio were negotiated by
Firstbank's board of directors and Lakeview's board of directors, and their
respective representatives.
Pursuant to the Plan of Merger, Lakeview may declare and pay cash dividends
on shares of Lakeview Common Stock quarterly in an aggregate amount not to
exceed 30% of the net after-tax profits of Lakeview for such quarter (determined
in accordance with generally accepted accounting principles consistently
applied) in a manner, on dates, and with respect to record dates consistent with
its past practice; provided, that Lakeview must adjust the record date for its
regularly scheduled dividend with respect to the period in which the Merger
becomes effective if necessary to assure that Lakeview shareholders receive only
one dividend payable in or with respect to the quarter in which the Merger
becomes effective with respect to shares of Lakeview Common Stock or Firstbank
Common Stock received in the Merger. The board of directors of Lakeview is under
no obligation to pay dividends on Lakeview Common Stock.
Firstbank will not issue fractional shares of Firstbank Common Stock in the
Merger. A Lakeview shareholder who would otherwise be entitled to receive a
fraction of a share of Firstbank Common Stock in the Merger will receive instead
an amount of cash determined by multiplying that fraction by the Firstbank
Market Price.
Fairness Opinion. The board of directors of Lakeview has engaged Austin
Associates, Inc. ("AAI") to render its opinion on the consideration to be
received in the Merger. AAI has rendered an opinion to the effect that the
consideration to be received in the Merger is fair from a financial point of
view to the shareholders of Lakeview. The opinion of AAI is attached as Appendix
B to this Prospectus and Proxy Statement. For a more detailed description of
this opinion, see "The Merger--Fairness Opinion."
Interests of Certain Persons. The members of Lakeview's Board of Directors
have certain interests in the Merger that are in addition to their interests as
shareholders of Lakeview generally. In 1995 each director of Lakeview was
granted options to purchase shares of Lakeview Common Stock. These options gave
the directors as a group the right to purchase a total of 89,299 shares of
Lakeview Common Stock at an exercise price of $13.17 per share. The shares of
Lakeview Common Stock covered by these options equaled 13.6% of the outstanding
shares of Lakeview Common Stock. Pursuant to the Merger, each Lakeview Stock
Option held by a director of Lakeview will be converted into the right to
receive shares of Firstbank Common stock as determined by the terms of the Plan
of Merger (See "The Merger--Lakeview Stock Options"). Since the options were
granted, two directors exercised options and there are currently 73,822 shares
of Lakeview Common Stock subject to these options. Under the terms of the Plan
of Merger, the total value of the consideration to be paid by Firstbank
increases as the Firstbank Market Price increases beyond certain price
parameters. The value of the merger has been structured so that the common
stockholders and option holders receive equivalent consideration, on a per share
basis. Depending upon the Firstbank Market Price, the percentage of the total
value of the consideration paid by Firstbank allocated to option holders
increases and decreases as the Firstbank Market Price increases and decreases,
respectively, because the strike price of the options is fixed.
Consummation of the Merger. Consummation of the Merger is subject to
certain conditions, including among others that the shareholders of Lakeview
approve the Plan of Merger, that necessary regulatory approvals be obtained,
that no proceeding seeking to prevent the Merger be pending or threatened, that
Firstbank and Lakeview obtain various ancillary certificates, opinions and
agreements, and that holders of not more than 10% of the outstanding shares of
Lakeview Common Stock shall have asserted dissenters' rights with respect to
their shares under Section 762 of the Michigan Business Corporation Act (the
"MBCA"). At any time prior to the effective time of the Merger, the boards of
directors of Firstbank and Lakeview may by mutual consent abandon the Merger. In
addition, for certain specified reasons the board of directors of either
Firstbank or Lakeview may abandon the Merger. (See "The Merger--Conditions to
the Merger and Abandonment.")
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<PAGE>
It is expected that the closing of the Merger will occur, and the Merger
will become effective, on or before September 30, 1997.
Vote Required. Pursuant to the MBCA, the affirmative vote of the holders of
a majority of the outstanding shares of Lakeview Common Stock is required to
approve the Plan of Merger. The board of directors of Lakeview has fixed August
_____, 1997, as the record date (the "Record Date") for purposes of determining
those shareholders who will be entitled to vote at the Special Meeting of
Lakeview shareholders to be held on September _____, 1997. Each share of
Lakeview Common Stock will entitle the holder of record on the Record Date to
one vote on each matter submitted for shareholder action at the shareholders'
meeting. As of March 31, 1997, Lakeview's directors and executive officers and
their affiliates held 4.2% of the issued and outstanding shares of Lakeview
Common Stock. (See "Voting and Management Information--Interests of Certain
Persons.") Therefore, if all directors and executive officers of Lakeview and
their affiliates vote the shares beneficially owned by them in favor of approval
of the Plan of Merger, the affirmative vote of only an additional 45.8% of the
outstanding shares of Lakeview Common Stock would be required to approve the
Plan of Merger.
As of the Record Date for the special meeting of Lakeview shareholders,
there were 657,484 shares of Lakeview Common Stock outstanding held by
approximately 290 shareholders of record.
Regulatory Approvals. Consummation of the Merger is subject to the approval
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Federal Reserve Board approved the Merger on _______, 1997. The
Merger cannot be consummated for a period of 15 days after the date of the
Federal Reserve Board's final approval. During this 15-day period, the United
States Department of Justice may review the competitive effects of the Merger to
determine whether it will take action to block the Merger.
Termination Fee. The Plan of Merger provides that Lakeview must pay a fee
to Firstbank under certain circumstances involving a proposal by a third party
involving a tender offer, merger, acquisition or other business combination
involving Lakeview. If the Board of Directors of Lakeview fails to recommend to
the shareholders of Lakeview that the shareholders approve the transactions
contemplated by the Plan of Merger, and if such failure is due in whole or in
part to the existence of a proposed business combination between Lakeview and a
party other than Firstbank, then Lakeview must pay Firstbank a fee of $500,000
plus an amount equal to the out-of-pocket costs, expenses and fees incurred by
Firstbank in connection with the transactions contemplated by the Plan of
Merger. In the event that the proposal to engage in the business combination was
directly or indirectly solicited by any officer, director, shareholder, agent or
other representative of Lakeview, then the $500,000 fee will be increased to
$800,000 and Lakeview will remain responsible for Firstbank's out-of-pocket
costs, expenses and fees incurred in connection with the transactions
contemplated by the Plan of Merger. If Lakeview's Board of Directors recommends
in good faith that the shareholders of Lakeview approve the Plan of Merger, and
the shareholders nonetheless fail to approve the Plan of Merger, then Lakeview
shall not be obligated to pay the fee or any amounts for Firstbank's out-of-
pocket costs, expenses and fees.
In the Plan of Merger, Lakeview has agreed that it will not solicit or
encourage any offer, proposal or expression of interest concerning any tender
offer, merger, consolidation, or other business combination including Lakeview,
other than the Merger. Lakeview has also agreed that it will promptly notify
Firstbank in the event it receives any inquiry or proposal relating to any such
transaction.
Dissenters' Rights. If the Plan of Merger is approved by the shareholders
of Lakeview and the proposed Merger is consummated, any Lakeview shareholder may
dissent from the proposed Merger and be paid the "fair value" of his or her
shares by complying with the procedures set forth in Sections 761 through 774 of
the MBCA. To be entitled to payment of the fair value of shares of Lakeview
Common Stock, a shareholder of Lakeview must not vote for approval of the Plan
of Merger at the Special Meeting of shareholders and must deliver written notice
of dissent to Lakeview at or before the special meeting. A shareholder may not
dissent as to less than all of the shares of Lakeview Common Stock beneficially
owned by him or her. A dissenting shareholder must also submit a written demand
for payment, accompanied by certain representations and his or her stock
certificates, to Lakeview within 30 days (or such longer period up to 60 days as
may be permitted by Lakeview) after notice is given to the shareholder of
approval of the Plan
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<PAGE>
of Merger. See "Rights of Dissenting Shareholders." If dissenters' rights are
asserted with respect to more than 10% of the outstanding shares of Lakeview's
common stock, Firstbank may terminate the Plan of Merger and abandon the Merger.
Shareholders of Lakeview who do not want to vote in favor of approval of the
Plan of Merger, but who also do not wish to perfect dissenters' rights pursuant
to the MBCA, would continue to have the ability to sell their shares to a third
party until the Merger becomes effective if approved, although there is
presently no public trading market for Lakeview Common Stock.
Shareholders of Lakeview who would like to assert dissenters' rights may
send a written notice of dissent to Lakeview Financial Corporation, Attention:
Richard J. Schurtz, 506 Lincoln, Lakeview, Michigan 48850.
Federal Income Tax Consequences. As a condition precedent to consummation
of the Merger, Firstbank and Lakeview must each receive an opinion from
Firstbank's legal counsel regarding the federal income tax consequences of the
Merger. Such opinion of Firstbank's counsel must be substantially to the effect,
among other matters, that Lakeview shareholders will not recognize taxable
income by reason of receiving shares of Firstbank Common Stock to the extent
that they receive Firstbank Common Stock solely in exchange for their shares of
Lakeview Common Stock. With respect to Lakeview Common Stock exchanged for cash
(whether pursuant to a cash election, the exchange of fractional shares or as a
result of the exercise of dissenters' rights), the merger will be treated as a
sale, and normal recognition and gain and loss treatment will apply. For a more
complete description of the federal income tax consequences, see "The Merger--
Federal Income Tax Consequences."
Accounting Treatment. Firstbank expects to account for the Merger under the
purchase method of accounting under generally accepted accounting principles.
(See "The Merger--Accounting Treatment.")
[This Space Intentionally Left Blank]
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<PAGE>
Market Value of Shares
Firstbank Common Stock is traded on the National Association of Securities
Dealers Over the Counter Bulletin Board under the symbol FBMI. There is no
public market for the Lakeview Common Stock and only limited trading of Lakeview
Common Stock has taken place. See "Lakeview Financial Corporation--Market for
Common Stock and Dividends." The following table presents a comparison of the
per share historical prices of Firstbank Common Stock and the "equivalent" per
share market value of Lakeview Common Stock based upon the conversion ratio,
subject to certain adjustments.
<TABLE>
<CAPTION>
Firstbank Equivalent Lakeview
Common Stock Per Share Price
------------ ---------------
<S> <C> <C>
February 18, 1997 $35.00 (1) $20.26 (2)
June 12, 1997 $41.50 (3) $24.02 (4)
</TABLE>
(1) Closing sale price per share as reported by the NASD at the close of
business on the last trading day preceding the public announcement of the
proposed Merger (February 19, 1997).
(2) The Equivalent Lakeview Per Share Price is the estimated market value of
Firstbank Common Stock to be received in the Merger by Lakeview
shareholders for each share of Lakeview Common Stock. This value is
estimated assuming a market value of $35.00 per share for Firstbank Common
Stock and a Stock Exchange Ratio of 0.5788 shares of Firstbank Common Stock
for each share of Lakeview Common Stock. The actual conversion ratio is
subject to adjustment based on the Firstbank Market Price (see "The
Merger--Summary of Terms of the Merger").
(3) Closing sale price per share as reported by the NASD at the close of
business on June 12, 1997.
(4) The Equivalent Lakeview Per Share Price is the estimated market value of
Firstbank Common Stock to be received in the merger by Lakeview
shareholders for each share of Lakeview Common Stock. This value is
estimated assuming a market value of $41.50 per share for Firstbank Common
Stock and a conversion ratio of 0.5788 shares of Firstbank Common Stock for
each share of Lakeview Common Stock. The actual conversion ratio is subject
to adjustment based on the Firstbank Market Price (see "The Merger--Summary
of Terms of the Merger").
-8-
<PAGE>
Selected Unaudited Financial Data
The following unaudited table presents selected historical financial
information and selected pro forma combined financial information for Firstbank
and Lakeview. This information should be read in conjunction with the historical
and pro forma financial statements and notes thereto included elsewhere in this
Prospectus and Proxy Statement. The pro forma combined financial information
gives effect to the Merger as if the Merger occurred on January 1 of the year
presented. The pro forma combined financial information may not be indicative of
the results that actually would have occurred if the Merger had been in effect
on that date or which may be attained in the future. The pro forma combined
financial information has been prepared on the assumption that the Merger will
be accounted for under the purchase method of accounting. (See "The Merger--Pro
Forma Condensed Combined Financial Statements.")
FIRSTBANK CORPORATION AND LAKEVIEW FINANCIAL CORPORATION
SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<TABLE>
<CAPTION>
3 Months Ended March 31 Year Ended December 31,
----------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ----- ----- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Firstbank Corporation (Historical) (1)
Net interest income $ 4,591 $ 4,105 $ 17,735 $ 15,593 $ 12,941 $ 11,476 $ 9,917
Net income 1,227 1,054 4,643 3,865 3,221 2,841 2,003
Total assets (period end) 416,315 404,571 404,571 352,943 309,722 257,339 242,105
Shareholders' Equity(3) 33,722 33,088 33,088 29,853 25,596 23,497 15,542
Net income per share $ 0.75 $ 0.65 $ 2.86 $ 2.40 $ 2.02 $ 2.17 $ 1.68
Dividends declared per share $ 0.22 $ 0.17 $ 0.80 $ 0.63 $ 0.51 $ 0.49 $ 0.47
Lakeview (Historical) (1)
Net interest income $ 973 $ 989 $ 4,132 $ 3,712 $ 3,335 $ 3,822 $ 3,183
Net income 202 208 884 775 545 581 656
Total assets (period end) 84,056 79,316 86,496 81,321 72,776 72,690 69,157
Shareholders' Equity(3) 8,507 8,504 8,474 8,480 7,291 7,152 6,773
Net income per share $ 0.29 $ 0.32 $ 1.28 $ 1.19 $ 0.85 $ 0.91 $ 1.03
Dividends declared per share $ 0.09 $ -- $ 1.35 $ 0.00 $ 0.32 $ 0.32 $ 0.32
Three Month Period Year Ended
------------------ ----------
Ended March 31, 1997 December 31, 1996
-------------------- -----------------
(Dollars in thousands, except per share data)
Pro Forma Firstbank and Lakeview Combined
Assuming a 0.5788 Stock Exchange Ratio and a
0.2622 Option Exchange Ratio (2)
Net interest income $ 5,538 $ 21,765
Net income 1,308 5,053
Total assets (period end) 508,990
Shareholders' Equity(3) 49,047
Net income per share $ 0.65 $ 2.54
Dividends declared per share:
Firstbank Corporation $ 0.22 $ 0.80
- -------------------
</TABLE>
(footnotes are on the following page)
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<PAGE>
(1) Net income per share is calculated by dividing net income for the period by
the average number of common and common equivalent shares outstanding (see
"Introduction and Summary--Comparative Per Share Data") for the period.
(2) The pro forma Firstbank and Lakeview combined data reflects the combined
results of Firstbank and Lakeview after giving effect to the Merger using
the purchase method of accounting. For illustrative purposes, the combined
results assume the Merger was consummated on January 1 of the period
presented.
The per share data was calculated assuming the issuance of 369,285 shares
of Firstbank Common Stock in the Merger, which is based on (i) an estimated
Stock Exchange Ratio of 0.5788 shares of Firstbank Common Stock for each
outstanding share of Lakeview Common Stock, (ii) total payments of
approximately $1,703,000 pursuant to cash elections (10% of the estimated
consideration to be paid by Firstbank to Lakeview shareholders), and (iii)
an estimated Option Exchange Ratio of 0.2622 and the conversion of 113,518
options to purchase shares of Lakeview Common Stock held by officers and
directors of Lakeview into shares of Firstbank Common Stock. These numbers
have been rounded for convenience of presentation. The Stock Exchange Ratio
and the Option Exchange Ratio is based on the $41.50 closing price of
Firstbank Common Stock on June 12, 1997.
The number of shares to be issued upon consummation of the Merger is
dependent upon factors specified in the Plan of Merger to be determined in
the future which cannot be determined before that date. The pro forma
financial results included in this table are for illustrative purposes
only.
(3) Firstbank Corporation and the Bank of Lakeview have maintained capital
positions in excess of minimum capital requirements. Risk-based ratios as
of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Firstbank Bank of Pro Forma
Corporation Lakeview Combined
----------- -------- ---------
<S> <C> <C> <C>
Risk-based ratios
Tier 1 (minimum - 4.0%) 9.94 9.54 9.43
Total (minimum - 8.0%) 11.20 10.41 10.69
Tier 1 leverage (minimum - 4.0%) 8.08 9.86 7.19
</TABLE>
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<PAGE>
Comparative Per Share Data
The following unaudited table sets forth certain historical and pro forma
combined per share information for Firstbank, and certain historical and
equivalent pro forma combined per share information for Lakeview. The data is
derived from the financial statements of Firstbank and Lakeview included
elsewhere in this Prospectus and Proxy Statement. The pro forma combined per
share information and the equivalent pro forma combined per share information
for Lakeview are stated as if the Merger had occurred on January 1 of the year
presented, giving effect to the proposed transaction under the purchase method
of accounting.
<TABLE>
<CAPTION>
3 Months Ended March 31, Year Ended December 31,
------------------------ ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Firstbank Corporation (Historical) (1)
Net income per share $ 0.75 $ 0.65 $ 2.86 $ 2.40 $ 2.02 $ 2.17 $ 1.68
Dividends declared per share $ 0.22 $ 0.17 $ 0.80 $ 0.63 $ 0.51 $ 0.49 $ 0.47
Book value per share (period end) $20.65 $18.71 $20.33 $18.44 $15.96 $14.73 $12.85
Average shares outstanding (in 000's) 1,629 1,619 1,624 1,611 1,595 1,309 1,192
Shares outstanding (in 000's at period end) 1,633 1,620 1,628 1,620 1,619 1,619 1,249
Lakeview Financial Corporation (Historical) (1)
Net income per share $ 0.29 $ 0.32 $ 1.28 $ 1.19 $ 0.85 $ 0.91 $ 1.03
Dividends declared per share $ 0.09 $ 0.00 $ 1.35 $ 0.00 $ 0.32 $ 0.32 $ 0.32
Book value per share (period end) $12.94 $13.36 $12.89 $13.32 $11.43 $11.21 $10.62
Average shares outstanding (in 000's) 709 656 693 653 638 638 638
Shares outstanding (in 000's at period end) 657 637 657 637 638 638 638
Three Month Period Year Ended
Ended March 31, 1997 December 31, 1996
-------------------- -----------------
(Dollars in thousands, except per share data)
Pro Forma Firstbank and Lakeview Combined
Assuming a 0.5788 Stock Exchange Ratio and a
0.2622 Option Exchange Ratio (2)
Net income per share $ 0.65 $ 2.54
Dividends declared per share:
Firstbank Corporation $ .022 $ 0.80
Book value per share (period end) $ 24.49
Average shares outstanding 1,998,579
Shares outstanding (period end) 2,002,519
Pro Forma Lakeview Share Equivalent Assuming a
0.5788 Stock Exchange Ratio and a 0.2622 Option
Exchange Ratio
Net income per share $ 0.38 $ 1.47
Dividends declared per share $ 0.13 $ 0.46
Book value per share (period end) $ 14.17
</TABLE>
--------------------------
(1) Net income per share is calculated by dividing net income for the period
(see "Introduction and Summary--Selected Unaudited Financial Data") by the
average number of common and common equivalent shares outstanding for the
period. Book value per share is calculated by dividing total shareholders'
equity at the end of the period (see "Introduction and Summary--Data") by
the number of shares outstanding at the end of the period.
(2) The Firstbank equivalent pro forma combined per share information is
calculated by multiplying the pro forma income per share, pro forma book
value per share, and the pro forma dividends per share of Firstbank by an
estimated conversion ratio so that the per share amounts are equated to the
respective values for one share of Lakeview. This information assumes an
estimated Stock Exchange Ratio of 0.5788 and an estimated Option Exchange
Ratio of 0.2622. This number has been rounded for convenience of
presentation. See the introduction to the pro forma condensed combined
financial statements on page 31 for the assumptions upon which this
estimated Stock Exchange Ratio and Option Exchange Ratio are based.
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The number of shares to be issued upon consummation of the Merger is dependent
upon factors specified in the Plan of Merger to be determined in the future
which cannot be determined before that date. The pro forma financial results
included in this table are for illustrative purposes only.
RISK FACTORS
Estimated Conversion Ratio Subject to Change Due to Future Events
The number of shares of Firstbank Common Stock to be received in the Merger
by Lakeview's shareholders and by holders of Lakeview Stock Options will be
determined by a Stock Exchange Ratio. The Stock Exchange Ratio and the Option
Exchange Ratio will be determined with reference to the average of the last
reported sale price per share of Firstbank Common Stock for the 20 consecutive
trading days ending on the sixth business day prior to the closing of the
Merger. Because the Stock Exchange Ratio and the Option Exchange Ratio will be
determined as of later dates, it is not possible to precisely determine the
Stock Exchange Ratio and the Option Exchange Ratio as of the date of this
Prospectus and Proxy Statement. The Stock Exchange Ratio and the actual number
of shares of Firstbank Common Stock to be received by Lakeview's shareholders
and by holders of Lakeview Stock Options in the merger may be greater or less
than reflected in this Prospectus and Proxy Statement. See "The Merger--Summary
of Certain Terms of the Merger."
Performance of Firstbank and the Bank of Lakeview After the Merger
There can be no assurance that Firstbank and Lakeview will fully realize
expected cost savings as a result of the Merger, that Firstbank will be
successful in integrating the Bank of Lakeview into Firstbank, or that the Bank
of Lakeview will not experience deposit attrition, customer loss or revenue loss
as a result of the Merger. The occurrence of one or more of the foregoing
eventualities could have an adverse effect on the financial condition and
results of operations of Firstbank.
[This Space Intentionally Left Blank]
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GENERAL PROXY INFORMATION
Voting by Proxy
If a holder of shares of Lakeview Common Stock as of the Record Date
properly executes and returns a proxy in the enclosed form, the shares
represented by that proxy will be voted at the special meeting of Lakeview
shareholders and at any adjournments of that meeting. If a shareholder specifies
a choice, the proxy will be voted in accordance with the shareholder's
specification. If no specification is made, the shares represented by the proxy
will be voted for approval of the Plan of Merger. Proxies that indicate a vote
against approval of the Plan of Merger, if any, will not be used by management
of Lakeview to vote for any proposed adjournment of the applicable shareholders'
meeting.
Lakeview's management is not currently aware of any other matter to be
presented at the special meeting. If other matters are presented, the shares for
which proxies have been received will be voted in accordance with the judgment
of the persons named as proxies.
A shareholder may revoke a proxy at any time prior to its exercise by
written notice delivered to the President of Lakeview or by attending and voting
in person at the special meeting.
Proxy Solicitation
The board of directors and management of Lakeview will initially solicit
proxies by mail. If they deem it advisable, directors, officers, and employees
of Lakeview may also solicit proxies in person, by telephone or by facsimile
without additional compensation. In addition, nominees and other fiduciaries may
solicit proxies. Such persons may at the request of Lakeview's management mail
material to or otherwise communicate with the beneficial owners of shares held
by them.
Expenses
Lakeview will pay all expenses incurred in connection with the solicitation
of proxies of Lakeview shareholders. Firstbank will pay all printing expenses
and filing fees pertaining to the Registration Statement. Firstbank and Lakeview
will each pay its own fees and expenses incident to preparing for, entering
into, and carrying out the Plan of Merger and procuring any necessary approvals,
including fees and expenses of its own legal counsel and accountants and postage
expenses. Under certain circumstances involving the failure of the Board of
Directors of Lakeview to recommend the Plan of Merger to the shareholders of
Lakeview and a proposed business combination of Lakeview with any other entity,
Firstbank would be entitled to a substantial termination fee from Lakeview and
reimbursement of Firstbank's costs and expenses incurred in connection with the
transactions contemplated by the Plan of Merger. See "The Merger--Termination
Fee."
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THE MERGER
The respective boards of directors of Firstbank and Lakeview have adopted
an Agreement and Plan of Merger dated as of April 17, 1997, as amended on June
18, 1997 (as amended, the "Plan of Merger").
The following discussion summarizes the material provisions of the Plan of
Merger and aspects of the Merger. This summary discussion does not purport to be
a complete description of the Merger and is qualified in its entirety by
reference to the Plan of Merger, as amended, which is attached as Appendix A to
this Prospectus and Proxy Statement and incorporated by reference into this
Prospectus and Proxy Statement.
Background of the Merger
In August 1996, John McCormack, President and Chief Executive Officer of
Firstbank, contacted Richard Schurtz, President and Chief Executive Officer of
Lakeview, to inquire as to Lakeview's interest in a business combination. After
discussing the inquiry at several meetings of the Board of Directors of
Lakeview, it was determined that in order to maximize shareholder value Lakeview
should actively pursue a potential business combination with Firstbank as well
as other financial institutions. Lakeview engaged Austin Associates, Inc., a
consulting and investment banking firm to financial institutions, to advise and
assist Lakeview in identifying and contacting potential acquirors. Austin
Associates prepared a Confidential Information package containing financial and
other information concerning Lakeview and provided that information to several
potential acquirors, including Firstbank. Firstbank then submitted a proposal to
Lakeview describing the terms and conditions of a proposed merger of Lakeview
with and into Firstbank. The Board of Directors of Lakeview determined that the
Firstbank proposal was in the best interests of the shareholders. On February
18, 1997, after an exchange of information and negotiation between the parties,
Firstbank and Lakeview entered into a letter of intent with respect to the
Merger, which letter of intent was approved by the respective boards of
directors of Lakeview and Firstbank. Firstbank and Lakeview then negotiated and
entered into the Plan of Merger dated April 17, 1997, following approval of the
Plan of Merger by their respective boards of directors. Firstbank's board of
directors and Lakeview's board of directors, and their respective
representatives, negotiated the consideration and other terms of the Plan of
Merger on an arm's length basis.
Reasons of Lakeview for the Merger
The board of directors of Lakeview has unanimously determined that the
proposed Merger is desirable and in the best interests of Lakeview and its
shareholders. In negotiating the terms of the Plan of Merger and in considering
its adoption, Lakeview's board of directors reviewed the financial results and
conditions of Lakeview and Firstbank, the perceived prospects for each in the
future, and the business philosophies of Lakeview and Firstbank. All material
factors discussed by the board of directors are discussed in this section.
The board of directors of Lakeview believes that the Merger provides the
shareholders of Lakeview an opportunity to have an interest in a larger and more
diversified financial organization. In addition, there is no public market for
Lakeview Common Stock, and the Merger offers Lakeview shareholders the
opportunity to receive common stock of a public company whose shares are traded
on the NASD Over the Counter Bulletin Board.
The board of directors of Lakeview believes that the Merger will enable the
subsidiaries of Firstbank and Lakeview to become more effective competitors in
their respective markets through access to greater financial and managerial
resources. Lakeview's directors consider this access to be important in light of
increased competition from a broader range of financial institutions than has
generally been encountered in the banking industry. The board of directors of
Lakeview also believes that the Merger will permit the achievement of certain
economies of scale in the areas of administration, regulatory compliance,
management and capital formation. The Lakeview board of directors also
considered the potential social and economic impact of the offer and its
consummation on Lakeview and its employees, depositors, and other customers and
on the communities in which Lakeview operates. The Lakeview board of directors
also considered the business and financial condition and earnings prospects of
Firstbank. The board of directors did not assign any particular weight to any
one of the foregoing factors.
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Reasons of Firstbank for the Merger
The board of directors of Firstbank has unanimously determined that the
proposed Merger is desirable and in the best interests of Firstbank and its
shareholders. In negotiating the terms of the Plan of Merger and in considering
its adoption, Firstbank's board of directors reviewed the financial results and
conditions of Lakeview and Firstbank, the perceived prospects for each in the
future, and the business philosophies of Lakeview and Firstbank. All material
factors discussed by the board of directors are discussed in this section.
The board of directors of Firstbank believes that the Merger provides the
shareholders of Firstbank an opportunity to have an interest in a larger and
more diversified financial organization and to expand the geographic market
served by Firstbank.
The board of directors of Firstbank believes that the Merger will enable
the subsidiaries of Firstbank and Lakeview to become more effective competitors
in their respective markets through access to greater financial and managerial
resources. Firstbank's directors consider this access to be important in light
of increased competition from a broader range of financial institutions than has
generally been encountered in the banking industry. The board of directors of
Firstbank also believes that the Merger will permit the achievement of certain
economies of scale in the areas of administration, regulatory compliance,
management and capital formation. The board of directors did not assign any
particular weight to any one of the foregoing factors.
Summary of the Terms of the Merger
Pursuant to the Plan of Merger, Lakeview is soliciting proxies from its
shareholders for the purpose of approving the Plan of Merger. The affirmative
vote of the holders of a majority of the outstanding shares of Lakeview Common
Stock is required to approve the Plan of Merger.
At the time the Merger becomes effective, Lakeview will be merged with and
into Firstbank. The surviving corporation will be Firstbank and it will own the
Bank of Lakeview and all of the other assets of Lakeview. The Articles of
Incorporation and Bylaws of Firstbank, the surviving corporation, will be the
Articles of Incorporation and Bylaws of Firstbank as in effect immediately prior
to the effective time of the Merger.
Under the Plan of Merger, each outstanding share of Lakeview Common Stock
will be converted into shares of Firstbank Common Stock, or, at the election of
the shareholder, an equivalent amount in cash, subject to an aggregate maximum
of 35% of the total consideration paid to holders of Lakeview Common Stock and
Lakeview Stock Options in the Merger, in each case subject to certain
adjustments. Management of Lakeview and Firstbank estimate that the aggregate
amount of cash to be paid to satisfy the cash elections will be approximately
10% of the aggregate consideration paid for shares of Lakeview Common Stock in
the Merger. However, the cash consideration could be less than 10% or more than
10% up to the 35% maximum. The Plan of Merger provides for adjustments to the
consideration to be received based upon the average of the last-reported sale
price per share of Firstbank Common Stock for the 20 consecutive trading days
ending on the sixth business day prior to the closing of the Merger (the
"Firstbank Market Price").
The amount of Firstbank Common Stock to be received in exchange for
Lakeview Common Stock will be determined by a formula specified by the Plan of
Merger and will vary according to the Firstbank Market Price at the time the
Merger is consummated. Each Lakeview shareholder may elect to receive an
equivalent amount in cash, subject to an aggregate maximum of 35% of the total
consideration paid to holders of Lakeview Common Stock and Lakeview Stock
Options. The Plan of Merger provides that each share of Lakeview Common Stock
will be converted into the right to receive an amount of Firstbank Common Stock
equal to the "Stock Exchange Ratio." The Stock Exchange Ratio is equal to the
quotient (rounded to the fourth decimal) of the "Merger Value Per Share" divided
by the Firstbank Market Price. The "Merger Value Per Share" equals the quotient
(rounded to the fourth decimal) of (a) the sum of the Merger Value plus the sum
of the exercise prices of all outstanding options to purchase Lakeview Common
Stock (estimated to be $1,491,920), divided by (b) the number of outstanding
shares of Lakeview Common Stock (657,484) plus the
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number of shares covered by outstanding options to purchase Lakeview Common
Stock (113,518). The "Merger Value" will be:
(a) $14,928,640 if the Firstbank Market Price is less than $32.00;
(b) The product of the Firstbank Market Price multiplied by 466,520 if
the Firstbank Market Price is not less than $32.00 but not greater
than $36.50;
(c) $17,028,014 if the Firstbank Market Price is greater than $36.50
but not greater than $42.00;
(d) The product of the Firstbank Market Price multiplied by 405,428 if
the Firstbank Market Price is greater than $42.00 but less than $4
4.00; or
(e) $17,838,832 if the Firstbank Market Price is $44.00 or more.
Based upon the $41.50 last-reported sale price per share of Firstbank Common
Stock on June 12, 1997, the Merger Value would be $17,028,014 and each share of
Lakeview Common Stock would have been converted into the right to receive 0.5788
shares of Firstbank Common Stock having a market price of $24.02 at such time.
The actual value of the Firstbank Common Stock to be received in exchange for
each share of Lakeview Common Stock will depend on the Firstbank Market Price at
the time the Merger is consummated and could vary from a minimum of $21.30 (if
the Firstbank Market Price is less than $32.00) to a maximum of $25.07 (if the
Firstbank Market Price is $44.00 or more) per share of Lakeview Common Stock.
For a more complete description of the terms of the Merger, see "The Merger."
With respect to the cash election, if the cash to be paid to satisfy such
cash elections, as well as cash expected to be paid with respect to fractional
shares and dissenting shares, would exceed 35% of the aggregate consideration to
be paid with respect to the Firstbank Common Stock and Firstbank Stock Options
in the Merger, then certain Lakeview shareholders electing to receive cash will
be selected by selecting those shareholders who, had they not made a cash
election, would receive, on a per holder basis, the least number of shares of
Firstbank Common Stock pursuant to the Merger.
As of the date of this Prospectus and Proxy Statement, there are
outstanding Lakeview Stock Options to purchase a total of 113,518 shares of
Lakeview Common Stock, of which 73,822 shares are subject to nonstatutory stock
options granted to directors of Lakeview. Each Lakeview Stock Option which is
both outstanding and unexercised immediately prior to the Effective Time of the
Merger and is a nonstatutory option held by a director of Lakeview will be
converted into the right to receive that number of shares of Firstbank Common
Stock equal to the Option Exchange Ratio multiplied by the number of shares of
Lakeview Common Stock purchasable upon exercise of the Lakeview Stock Option,
subject to the right of such director to make a cash election. Each Lakeview
Stock Option which is outstanding immediately prior to the Effective Time of the
Merger and is an incentive stock option held by an employee of Lakeview or the
Bank of Lakeview shall, at the election of the holder, either (i) become and be
converted into the right to receive that number of shares of Firstbank Common
Stock equal to the product of the Option Exchange Ratio multiplied by the number
of shares of Lakeview Common Stock purchasable upon exercise of the Lakeview
Stock Option, or (ii) be converted into nonqualified options to purchase shares
of Firstbank Common Stock subject to the terms of Firstbank's stock option plan,
in each case subject to the right of such employee to make a cash election. The
Option Exchange Ratio is determined pursuant to the Plan of Merger. Based upon
the $41.50 last reported sale price per share of Firstbank Common Stock on June
12, 1997, the Option Exchange Ratio would be 0.2622. The actual Option Exchange
Ratio will depend on the Firstbank Market Price at the time the Merger is
consummated. See "The Merger -- Lakeview Stock Options."
Pursuant to the Plan of Merger, the Merger Value is subject to certain
downward adjustments under certain specified circumstances. If the aggregate
transaction expenses to be accrued and charged against Lakeview's earnings as
required by the Plan of Merger to account for all transaction expenses which
Lakeview has incurred or will incur as a result of the transactions contemplated
by the Plan of Merger (including, without limitation, Lakeview's legal,
accounting, actuarial, tax services and investment banker's fees) exceed
$275,000 (pre-tax), then the Merger Value shall
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be reduced by twice the "Tax-Adjusted" difference between the aggregate amount
so accrued and charged as required by the Plan of Merger and $275,000 (pre-tax).
The Plan of Merger provides that "Tax-Adjusted" means reduced by the dollar
amount of the decrease in the aggregate federal, state and local taxes owed by
Lakeview as a result of such charges against Lakeview's earnings, calculated
using Lakeview's effective tax rate in accordance with generally accepted
accounting principles. In addition, if the aggregate charge against Lakeview's
earnings to fully fund the cost of all outstanding executive supplemental income
agreements between the Bank of Lakeview and its officers exceeds the lesser of
$250,000 or the actuarially reduced amounts of the aggregate retirement benefits
under such executive supplemental income agreements, then the Merger Value will
be reduced by twice the Tax-Adjusted difference between the amount so charged
against earnings and the lesser of either $250,000 (pre-tax) or the amount of
the actuarially reduced amounts of the aggregate retirement benefits under such
executive supplemental income agreements of Lakeview.
The Stock Exchange Ratio and the Option Exchange Ratio and adjustments to
the Stock Exchange Ratio and the Option Exchange Ratio were negotiated by
Firstbank's board of directors and Lakeview's board of directors.
Pursuant to the Plan of Merger, Lakeview may declare and pay cash dividends
on shares of Lakeview Common Stock quarterly in an aggregate amount not to
exceed 30% of the net after-tax profits of Lakeview for such quarter (determined
in accordance with generally accepted accounting principles consistently
applied) in a manner, on dates, and with respect to record dates consistent with
its past practice; provided, that Lakeview must adjust the record date for its
regularly scheduled dividend with respect to the period in which the Merger
becomes effective if necessary to assure that Lakeview shareholders receive only
one dividend payable in or with respect to the quarter in which the Merger
becomes effective with respect to shares of Lakeview Common Stock or Firstbank
Common Stock received in the Merger. The board of directors of Lakeview is under
no obligation to pay dividends on Lakeview Common Stock.
Firstbank will not issue fractional shares of Firstbank Common Stock in the
Merger. A Lakeview shareholder who would otherwise be entitled to receive a
fraction of a share of Firstbank Common Stock in the Merger will receive instead
an amount of cash determined by multiplying that fraction by the Firstbank
Market Price.
Opinion of Lakeview's Financial Advisor
Lakeview retained Austin Associates, Inc. ("AAI") to act as financial
advisor in connection with the Merger and to render an opinion as to the
fairness, from a financial point of view, of the Merger Value to Lakeview
shareholders. AAI is a recognized investment banking firm regularly engaged in
the evaluation of financial institutions and their securities in connection with
mergers and acquisitions and other purposes. Lakeview selected AAI to act as
financial advisor in connection with the Merger on the basis of its reputation
and qualifications in evaluating financial institutions.
AAI has rendered a separate written opinion to the board of directors of
Lakeview to the effect that the terms of the Merger are fair, from a financial
point of view, to the shareholders of Lakeview as of the date of the opinion.
AAI based its opinion upon, among other things: (i) the audited financial
statements of Lakeview and Firstbank for the period 1991 through 1996; (ii) the
unaudited financial statements of Lakeview and Firstbank for the three-month
period ending March 31, 1997; (iii) the reported prices and stock trading
activity of Firstbank; (iv) publicly available information regarding the
performance of certain other companies whose business activities were believed
to be generally comparable to those of Lakeview and Firstbank; (v) the financial
terms, to the extent publicly available, of certain comparable bank merger
transactions; (vi) the strategic objectives of the Merger and the synergies and
other benefits of the Merger for the combined company as described by senior
management of Lakeview and Firstbank; and (vii) such other analyses and
information as AAI deemed relevant. No limitations were imposed on the scope of
AAI's investigation.
The terms of the Plan of Merger, including the Merger Value, were
negotiated by the boards of directors of Lakeview and Firstbank, and their
representatives, on an arm's-length basis. AAI participated in the negotiation
of the terms of the Plan of Merger and other related agreements associated with
the Merger. A copy of the fairness opinion is attached as Appendix B to this
Prospectus and Proxy Statement and should be read in its entirety.
In connection with rendering its opinion, AAI performed a variety of
financial analyses, which are summarized below. AAI believes its analyses must
be considered as a whole and that selecting portions of such analyses and the
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factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the process underlying AAI's
opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analyses or
summary description. In its analyses, AAI made numerous assumptions with respect
to industry performance, business and economic conditions, and other matters,
many of which are beyond Lakeview's or Firstbank's control. Any estimates
contained in AAI's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than the estimates.
Transaction Summary. The amount of Firstbank Common Stock to be received in
exchange for Lakeview Common Stock will be determined by a formula specified in
the Plan of Merger and will vary according to the Firstbank "Market Price" at
the time the Merger is consummated. The Plan of Merger provides that each share
of Lakeview Common Stock will be converted into the right to receive an amount
of Firstbank Common Stock based on a number of considerations which are outlined
in the section entitled "Consideration to be Received in the Merger." Based on
Firstbank's closing stock price as of June 12, 1997, the aggregate value of the
transaction is $17.0 million or $24.02 per share. The Stock Exchange Ratio
equals 0.5788 and the Option Exchange Ratio equals 0.2622. Each Lakeview
shareholder may elect to receive an equivalent amount in cash, subject to an
aggregate maximum of 35 percent of the total consideration paid to holders of
Lakeview Common Stock and Lakeview Stock Options.
Firstbank Stock Value. During the last 30 days immediately prior to the
date of this Proxy Statement and Prospectus, Firstbank's Common Stock has traded
between $39.75 and $41.50 per share with a last reported sale price of $41.50 as
of June 12, 1997. Firstbank reported earnings per share of $.75 in the first
quarter of 1997, and $2.96 for the last 12 months ending March 31, 1997. At
$41.50 per share, the Firstbank stock value represents 14.0 times last 12-months
EPS and 226 percent of March 31, 1997, tangible book value. AAI compared
Firstbank's stock trading multiples to 11 Michigan banking organizations with
assets ranging from $178 million to $913 million (the "Peer Group"). As of June
12, 1997, the median price-to-tangible book multiple for the Peer Group was 191
compared to Firstbank's multiple of 226. The median price-to-earnings multiple
for the Peer Group was 14.5 compared to Firstbank's multiple of 14.0. The median
dividend yield for the Peer Group was 2.6 compared to Firstbank's dividend yield
of 2.0. The median return on average assets (ROA) of the Peer Group for the last
12 months was 1.25 percent compared to Firstbank's ROA of 1.25 percent. The
median return on average equity (ROE) of the Peer Group for the last 12 months
was 13.96 percent compared to Firstbank's ROE of 15.26 percent.
Comparative Transactions. AAI reviewed comparative prices in sale of
control transactions in Michigan for banks having assets of up to $500 million.
AAI looked specifically at nine transactions announced since January 1, 1994.
The median multiples for these transactions were 190 percent of tangible book
value and 16.2 times earnings. AAI also reviewed 381 sale transactions in the
nation since January 1, 1996, for banks having assets of up to $500 million. The
median multiples for these transactions were 190 percent of tangible book value
and 16.5 times earnings. The market value of the consideration to be received by
Lakeview shareholders in the Merger approximates 199 percent of Lakeview's book
value at March 31, 1997, and 19.8 times Lakeview's consolidated earnings per
share for the 12 months ended March 31, 1997.
Contribution Analysis. AAI compared the pro forma ownership interest in
Firstbank that Lakeview shareholders would receive, in the aggregate, to the
contribution by Lakeview of the total assets, equity, and net income to the
combined organization. Based on March 31, 1997, information and assuming a 100
percent stock exchange, Lakeview shareholders would own approximately 20.1
percent of Firstbank's Common Stock on a pro forma basis. Lakeview's
contribution of total assets equaled 16.8 percent, the contribution of total
tangible equity equaled 22.0 percent, and the contribution of trailing 12-month
net income equaled 15.4 percent.
Summary Pro Forma Analysis. AAI also reviewed the pro forma effect of the
Merger to Lakeview and Firstbank. Lakeview's earnings per share in the last 12
months was $1.24, and Lakeview's tangible book value was $13.14 per share as of
March 31, 1997. The pro forma analysis was prepared assuming 10 percent of
Lakeview's shares receive cash. Giving effect to the Merger for the 12 months
ending March 31, 1997, the equivalent Lakeview earnings per share would have
equaled $1.51, an increase of 21.8 percent over actual results. Tangible book
value per share would have been $11.05 per share, a decrease of 13.6 percent
over actual results. Giving effect to the Merger,
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Firstbank's tangible book value per share would be $19.09, an increase of 4.0
percent while earnings per share for the trailing 12 months would have been
$2.61, a decrease of 11.9 percent.
Discounted Cash Flow Analysis. AAI performed a discounted cash flow ("DCF")
analysis of the value of the stock of Lakeview and Firstbank as of March 31,
1997. The discounted cash flow results were based on projections considered
reasonable by AAI for the five-year period beginning March 31, 1997, to March
31, 2002. The DCF value of Lakeview was determined to be in the range of $9.0 to
$12.0 million compared to the value of the Merger at $17.4 million. The DCF
value of Firstbank, without consideration of the Merger, was determined to be in
the range of $34.00 to $44.00 per share compared to Firstbank's stock price of
$41.50.
Dividends. AAI reviewed the cash dividends to be received by Lakeview
shareholders, as a result of the Merger. Based on an exchange ratio of 0.5788
Firstbank shares for each common share of Lakeview, equivalent dividends to
Lakeview shareholders would be $.49 an increase of 37 percent over Lakeview's
annualized dividend of $.36.
The summary set forth above does not purport to be a complete description
of the analyses performed by AAI. Further, AAI did not conduct a physical
inspection of any of the properties or assets of Lakeview or Firstbank. AAI has
assumed and relied upon the accuracy and completeness of the financial and other
information provided to it or publicly available, has relied upon the
representations and warranties of Lakeview and Firstbank made pursuant to the
Merger Agreement, and has not independently attempted to verify any of such
information. AAI has also assumed that the conditions to the Merger as set forth
in the Plan of Merger would be satisfied and that the Merger would be
consummated on a timely basis in the manner contemplated by the Plan of Merger.
No limitations were imposed by Lakeview or Firstbank upon AAI on the scope of
its investigation nor were any specific instructions given to AAI in connection
with its fairness opinion.
For AAI's services as financial advisor, Lakeview will pay the firm a fee
of $22,500, plus a contingent amount equal to 1.0 percent of the transaction
value when the Merger is consummated. Lakeview estimates that total fees paid to
AAI will be approximately $193,000. In addition, Lakeview has agreed to
reimburse AAI for reasonable our-of-pocket expenses and indemnity AAI against
certain liabilities, including liabilities under the securities laws. AAI has no
other material relationship with any of the parties to the merger or their
affiliates.
The Cash Election
Holders of Lakeview Common Stock or Lakeview Stock Options may elect to
receive cash consideration in the Merger in accordance with the election
procedures set forth in the Agreement. Holders who make a cash election will
receive an amount in cash (the "Per Share Cash Consideration") in respect of
each share of Lakeview Common Stock, or each share of Lakeview Common Stock
subject to a Lakeview Stock Option, that is so converted equal to the Stock
Exchange Ratio times the Firstbank Market Price. The aggregate amount of cash
that will be paid in the Merger to satisfy such elections (including cash to be
paid with respect to Dissenting Shares) will not exceed 35% of the aggregate
consideration paid in exchange for shares of Lakeview Common Stock and Lakeview
Stock Options in the Merger (the "Maximum Cash Amount"). Management of Lakeview
and Firstbank estimate that the aggregate amount of cash to be paid to satisfy
the cash elections will be approximately 10% of the aggregate consideration paid
for shares of Lakeview Common Stock and Lakeview Stock Options in the Merger.
An election form and other appropriate and customary transmittal materials
(which will specify that delivery will be effected, and risk of loss and title
to the certificates representing (or, if after the Effective Time, formerly
representing) shares of Lakeview's Common Stock (the "Lakeview Certificates")
will pass, only upon proper delivery of such Lakeview Certificates to Firstbank
Corporation (the "Exchange Agent")), in such form as Firstbank and Lakeview will
mutually agree (an "Election Form"), will be mailed 25 days prior to the
anticipated Effective Time of the Merger or on such other date as Lakeview and
Firstbank may mutually agree (the "Mailing Date") to each holder of record of
Lakeview Common Stock or Lakeview Stock Options as of five business days prior
to the Mailing Date (the "Election Form Record Date").
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Each Election Form will permit a holder (or the beneficial owner through
appropriate and customary documentation and instructions) of Lakeview Common
Stock or Lakeview Stock Options to elect to receive cash with respect to all or
a portion of such holder's Lakeview Common Stock or the shares issuable upon
exercise of such holder's Lakeview Stock Options (shares as to which the cash
election is made being "Cash Election shares").
Any shares of Lakeview Common Stock with respect to which the holder (or
the beneficial owner, as the case may be) has not submitted to the Exchange
Agent an effective, properly completed Election Form on or before 5 p.m. on the
20th day following the Mailing Date (or such other time and date as Firstbank
and Lakeview may mutually agree) (the "Election Deadline") will be converted
into Firstbank Common Stock at the Stock Exchange Ratio (such shares being "No
Election Shares").
Firstbank will make available one or more Election Forms as may be
reasonably requested by all persons who become holders (or beneficial owners) of
Lakeview Common Stock between the Election Form Record Date and the close of
business on the business day prior to the Election Deadline.
Any such election will have been properly made only if the Exchange Agent
has actually received a properly completed Election Form by the Election
Deadline. An Election Form will be deemed properly completed only if accompanied
by one or more Lakeview Certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of Lakeview
Common Stock covered by such Election Form (or the document granting the
Lakeview Stock Option in the case of Lakeview Stock Options), together with duly
executed transmittal materials included in the Election Form. Subject to the
terms of the Plan of Merger and of the Election Form, the Exchange Agent will
have reasonable discretion to determine whether any election, revocation or
change has been properly or timely made and to disregard immaterial defects in
the Election Forms, and any good faith decisions of the Exchange Agent regarding
such matters will be binding and conclusive. Neither Firstbank nor the Exchange
Agent will be under any obligation to notify any person of any defect in an
Election Form. Dissenting Shares will be treated as Cash Election Shares for the
purposes of the determinations set forth in the next paragraph (but will not be
converted into the right to receive the Per Share Cash Consideration and will
instead be treated as set forth in the section captioned "Rights of Dissenting
Shareholders").
Within five business days after the Election Deadline, unless the Effective
Time of the Merger has not yet occurred, in which case as soon thereafter as
practicable, Firstbank will cause the Exchange Agent to effect the allocation
among the holders of Lakeview Common Stock in accordance with the Election Forms
as follows: (1) if the amount of cash that would be issued upon conversion in
the Merger of the Cash Election Shares is less than or equal to the Maximum Cash
Amount, then: (a) all Cash Election Shares will be converted into the right to
receive the Per Share Cash Consideration, and (b) the No Election Shares will be
converted into the right to receive that number of shares of Firstbank Common
Stock equal to the Stock Exchange Ratio (the "Per Share Stock Consideration");
and (2) if the amount of cash that would be issued upon the conversion of the
Cash Election Shares is greater than the Maximum Cash Amount, then: (a) all No
Election Shares will be converted into the right to receive the Per Share Stock
Consideration, (b) the Exchange Agent will select from among the holders of Cash
Election Shares (other than Dissenting Shares), by a process described below, a
sufficient number of such holders (the "Stock Designees") such that the amount
of cash that will be issued in the Merger equals as closely as practicable the
Maximum Cash Amount, and all shares held by the Stock Designees will be
converted into the right to receive the Per Share Stock Consideration, and (c)
the Cash Election Shares not held by Stock Designees will be converted into the
right to receive the Per Share Cash Consideration. For purposes of determining
whether the 35% threshold has been met, each share of Lakeview Common Stock that
is a Dissenting Share will be valued at the Per Share Cash Consideration.
In the event the Exchange Agent must select Stock Designees, then the
selection process to be used by the Exchange Agent in determining those holders
who are to receive cash if Cash Elections exceed the Maximum Cash Amount shall
consist of selecting those holders who, had they not made a Cash Election, would
receive, on a per holder basis, the least number of shares of Firstbank Common
Stock pursuant to the Merger according to a process as shall be mutually
determined by Firstbank and Lakeview.
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Exchange of Certificates
At or prior to the Effective Time of the Merger, Firstbank will deposit, or
will cause to be deposited, with the Exchange Agent, certificates representing
the shares of Firstbank Common Stock ("Firstbank Certificates") and an estimated
amount of cash (such cash and Firstbank Certificates, together with any
dividends or distributions with respect thereto (without any interest thereon),
being hereinafter referred to as the "Exchange Fund") to be paid in exchange for
outstanding shares of Lakeview Common Stock and Lakeview Stock Options in the
Merger (excluding Lakeview Stock Options with respect to which a holder has
elected to convert into options to purchase Firstbank Common Stock).
As promptly as practicable after the Effective Time of the Merger,
Firstbank will send or cause to be sent to each former holder of record of
shares of Lakeview Common Stock and to the holders of Lakeview Stock Options
transmittal materials for use in exchanging such holder's Lakeview Certificates
and/or Lakeview Stock Options for the consideration due in respect thereof.
Firstbank will cause the Firstbank Certificates into which shares of a
shareholder's Lakeview Common Stock or Lakeview Stock Options are converted on
the Effective Time of the Merger and/or any check in respect of the Per Share
Cash Consideration and any fractional share interests or dividends or
distributions which such person will be entitled to receive to be delivered to
such holder upon delivery to the Exchange Agent of Lakeview Certificates (or
indemnity reasonably satisfactory to Firstbank and the Exchange Agent, if any of
such certificates are lost, stolen or destroyed) or Lakeview Stock Options owned
by such holder. No interest will be paid on any such cash to be paid upon such
delivery.
LAKEVIEW SHAREHOLDERS SHOULD NOT SEND IN THEIR LAKEVIEW CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE AGENT.
No fractional shares of Firstbank Common Stock and no certificates or scrip
therefor, or evidence of ownership thereof, will be issued in the Merger;
instead, Firstbank will pay to each holder of Lakeview Common Stock or Lakeview
Stock Option who would otherwise be entitled to a fractional share of Firstbank
Common Stock (after taking into account all Lakeview Certificates and Lakeview
Stock Options delivered by such holder) an amount in cash (without interest)
determined by multiplying such fraction by the Firstbank Market Price.
Notwithstanding the foregoing, neither the Exchange Agent nor any party to
the Agreement will be liable to any holder (or, if after the Effective Time of
the Merger, former holder) of Lakeview Common Stock or Lakeview Stock Options
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
Firstbank will have reasonable discretion to determine the rules and
procedures relating to the issuance and delivery of certificates of Firstbank
Common Stock into which shares of Lakeview Common Stock or Lakeview Stock
Options are converted in the Merger and governing the payment for fractional
shares.
The declaration of any dividends on Firstbank Common Stock payable to
shareholders of record of Firstbank as of a record date on or after the
effective time of the Merger will include dividends on all shares issuable under
the Plan of Merger. However, no former holder of Lakeview Common Stock or a
Lakeview Stock Option will be entitled to receive a distribution of such
dividends until physical exchange of that holder's Lakeview Certificates or
Lakeview Stock Option has been effected. Upon physical exchange of that holder's
Lakeview Certificates or Lakeview Stock Option, he or she will be entitled to
receive from Firstbank an amount equal to all such dividends (without interest
and less the amount of taxes, if any, which may have been imposed or paid)
declared and paid with respect to those shares.
After the effective time of the Merger, Firstbank and Lakeview will not
transfer on the stock transfer books of Lakeview any shares of Lakeview Common
Stock which were issued and outstanding immediately prior to the Effective Time
of the Merger. If, after the effective time of the Merger, a shareholder
properly presents Lakeview Certificates to Firstbank, Firstbank will cancel and
exchange the Lakeview Certificates for stock certificates representing shares of
Firstbank Common Stock as provided in the Plan of Merger. After the Effective
Time of the Merger, ownership of shares represented by Lakeview Certificates may
be transferred only on the stock transfer records of Firstbank.
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Each share of Firstbank Common Stock outstanding immediately prior to the
effective time of the Merger will continue to be outstanding without any change.
Each shareholder of Firstbank whose shares were outstanding immediately prior to
the effective time of the Merger will hold the same number of shares, with
identical designations, preferences, limitations and relative rights,
immediately after the Effective Time of the Merger.
Management After the Merger
Upon the consummation of the Merger, the officers and directors of
Firstbank will be the officers and directors of Firstbank immediately prior to
the Effective Time of the Merger.
Effective Time of the Merger
The Merger will be consummated on the date and time specified in a
certificate of merger filed in accordance with the MBCA. If the shareholders of
Lakeview approve the Plan of Merger at the special meeting of Lakeview
shareholders, and the other conditions to the Merger set forth in the Plan of
Merger and summarized under "The Merger--Conditions to the Merger and
Abandonment" in this Prospectus and Proxy Statement are satisfied, the effective
time of the Merger is anticipated to be during the third quarter of 1997,
provided that the Plan of Merger has not been terminated prior to such time. The
Merger may not be consummated until receipt of approval from the Federal Reserve
Board or its delegate and expiration of the required 15-day waiting period
following such approval. The Merger was approved by the Federal Reserve Board on
_________________________________, 1997.
Business of Lakeview Pending the Merger
The Plan of Merger also contains covenants to which Firstbank and Lakeview
have agreed. The covenants remain in effect until the effective time of the
Merger or until the Plan of Merger has been terminated and include an agreement
that Lakeview and its subsidiary, the Bank of Lakeview, will: (i) conduct its
business and manage its property only in the usual, regular and ordinary course;
(ii) not, except as contemplated by the Plan of Merger, enter into any
employment agreement that is not terminable, without cost or penalty, on 30
days' or less notice; (iii) not issue any capital stock or any security
convertible into capital stock, or grant any warrant or option to acquire
capital stock, or otherwise alter its capital structure; (iv) not make any
material changes in any policies or procedures applicable to the conduct of its
business; (v) not sell, mortgage, pledge, encumber or otherwise dispose of any
property or assets, except in the ordinary course of business; (vi) except to
reelect persons who are then incumbent directors and officers at annual
meetings, not increase the number of directors or fill any vacancy on the board
of directors or elect or appoint any person to an executive office; (vii) not
increase the salary or compensation payable to or agree to pay any bonus to any
director or officer, or any class or group of employees as a class or group, and
not introduce or change any employee benefit plan or program of any kind for the
benefit of its employees unless required by law or the Plan of Merger; (viii)
not borrow money except in the ordinary course of business; (ix) make no change
in its articles of incorporation, charter or bylaws except as effected by the
Plan of Merger and the Merger; and (x) take or not take other comparatively
immaterial actions.
Nothing contained in the Plan of Merger will preclude Lakeview from
declaring and paying cash dividends on Lakeview Common Stock quarterly in an
aggregate amount not to exceed 30% of the net after-tax profits of Lakeview for
such quarter (determined in accordance with generally accepted accounting
principles consistently applied) in a manner, on dates, and with respect to
record dates consistent with its past practice; provided, that Lakeview must
adjust the record date for its regularly scheduled dividend with respect to the
period in which the Merger becomes effective if necessary to assure that
Lakeview shareholders receive only one dividend payable in or with respect to
the quarter in which the Merger becomes effective with respect to shares of
Lakeview Common Stock or Firstbank Common Stock received in the Merger. The
board of directors of Lakeview is under no obligation to pay dividends on
Lakeview Common Stock. Nothing contained in the Plan of Merger will preclude
Firstbank from declaring and paying cash dividends on Firstbank Common Stock.
The board of directors of Firstbank is under no obligation to pay dividends on
Firstbank Common Stock.
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Conditions to the Merger and Abandonment
The obligation of Firstbank to consummate the Merger is subject to the
fulfillment of certain conditions, including the following:
(i) An affirmative vote of the holders of a majority of the
outstanding shares of Lakeview Common Stock is required to approve the Plan
of Merger.
(ii) The Federal Reserve Board must approve the Merger and the
statutory waiting period must have expired.
(iii) Lakeview must comply with its covenants, and its
representations and warranties must be true in all material respects, each
as set forth in the Plan of Merger. (See "The Merger--Business of Lakeview
Pending the Merger.")
(iv) Firstbank must receive certain opinions of counsel.
(v) Lakeview must obtain waivers of all material rights and
waivers of the loss of all material rights that could be triggered by the
change in control of Lakeview resulting from the Merger.
(vi) Neither Firstbank nor Lakeview must be subject to any order,
decree or injunction of a court or agency enjoining or prohibiting the
Merger.
(vii) There must not be any suit or proceeding pending or threatened
that could result in any liability that could have a material adverse
effect on either corporation and their respective subsidiary(ies) on a
consolidated basis or that challenges the Merger.
(viii) The Registration Statement shall have been declared effective
by the Securities and Exchange Commission and shall not be subject to a
stop order or any threatened stop order.
(ix) Demands for payment for their shares under Section 762 of the
MBCA shall have been made, perfected and not withdrawn by the holders of
not more than 10% of the then outstanding shares of Lakeview Common Stock.
(x) Mr. Richard J. Schurtz shall have entered into an employment
agreement with Bank of Lakeview on terms acceptable to both Firstbank and
Lakeview.
(xi) There shall not have been any issuances or exercises of
Lakeview Stock Options since April 17, 1997, the date of Plan of Merger.
(xii) Lakeview shall have caused the written amendment of each
Lakeview stock option in a manner acceptable to Firstbank to permit the
conversion of such Lakeview Stock Option as contemplated by the Plan of
Merger.
(xiii) Firstbank shall have received the resignation of each member
of the board of directors of Lakeview and the Bank of Lakeview effective as
of the Effective Time of the Merger.
(xiv) Other comparatively immaterial conditions.
The obligation of Lakeview to consummate the Merger is subject to the
fulfillment of certain conditions, including the following:
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(i) An affirmative vote of the holders of a majority of the
outstanding shares of Lakeview Common Stock is required to approve the Plan
of Merger.
(ii) The Federal Reserve Board must approve the Merger and the
statutory waiting period must have expired.
(iii) Firstbank must comply with its covenants, and its
representations and warranties must be true in all material respects, each
as set forth in the Plan of Merger. (See "The Merger--Business of Lakeview
Pending the Merger.")
(iv) Lakeview must receive certain opinions of counsel.
(v) Neither Firstbank nor Lakeview must be subject to any order,
decree or injunction of a court or agency enjoining or prohibiting the
Merger.
(vi) There must not be any suit or proceeding pending or threatened
that could result in any liability that could have a material adverse
effect on either corporation and their respective subsidiary(ies) on a
consolidated basis or that challenges the Merger.
(vii) Mr. Richard J. Schurtz shall have entered into an employment
agreement with Bank of Lakeview on terms acceptable to both Firstbank and
Lakeview.
(viii) The Registration Statement shall have been declared effective
by the Securities and Exchange Commission and shall not be subject to a
stop order or any threatened stop order.
(ix) Other comparatively immaterial conditions.
Either Firstbank or Lakeview, whichever is entitled to the benefit of the
foregoing conditions, may waive one or more of those conditions except where
satisfaction of the condition is required by law. The Plan of Merger contains
various other conditions to the respective obligations of Firstbank and Lakeview
that have been satisfied.
The boards of directors, or duly authorized committees thereof, of
Firstbank and Lakeview may by mutual consent terminate the Plan of Merger and
abandon the Merger at any time before the effective time of the Merger. Either
Firstbank or Lakeview may terminate the Plan of Merger and abandon the Merger on
its own action upon the occurrence of certain events specified in the Plan of
Merger, including the following:
(i) Firstbank or Lakeview discovers that one or more of the other
party's representations and warranties is or has become untrue, and the
cumulative effect of all such untrue representations and warranties is
material to the other party's business, income or financial condition on a
consolidated basis.
(ii) Firstbank or Lakeview commits one or more breaches of any
provision of the Plan of Merger which would in the aggregate be material
and such breach or breaches are not cured after notice.
(iii) There occurs a materially adverse change from that which
existed on December 31, 1996, in the financial condition of Firstbank or
Lakeview and their respective subsidiaries on a consolidated basis.
(iv) Despite all reasonable efforts by the abandoning party to
cause the Merger to become effective, the Merger has not become effective
on or before November 30, 1997, or, in any event, the Merger has not yet
become effective on or before January 31, 1998.
(v) A court of competent jurisdiction issues a final unappealable
injunction or other judgment restraining or prohibiting consummation of the
Merger.
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(vi) The Federal Reserve Board refuses to approve the Merger (the
Federal Reserve Board approved the Merger on ___________________________,
1997).
(vii) An environmental assessment indicates any environmental
conditions which are contrary to Firstbank's or Lakeview's representations
and warranties, and the parties are unable to agree on a course of action
for further investigation of the environmental condition and/or a mutually
acceptable modification to the Plan of Merger, and the environmental
condition is not one for which it can be determined to a reasonable degree
of certainty that the risk and expense to which Firstbank and its
subsidiaries (after the Merger) would be subject as the owner or operator
of the property can be quantified or limited to an immaterial amount;
provided, that the abandoning party gives the other party 5 days' written
notice of its intent to terminate the Plan of Merger.
(viii) Prior to the Effective Time of the Merger, there occurs a
change of control of Firstbank or if Firstbank enters into an agreement the
consummation of which would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended; provided, however, that if Firstbank
exercises its right of termination pursuant to this provision, Firstbank
shall be required to pay Lakeview a termination fee of $800,000.
(ix) Upon the occurrence or nonoccurrence of other comparatively
immaterial events.
Termination Fee
The Plan of Merger provides that Lakeview must pay a fee to Firstbank under
certain circumstances involving a proposal, offer, or expression of interest
concerning any tender offer, exchange offer, merger, consolidation, sale of
shares, sale of assets or other business combination involving Lakeview or the
Bank of Lakeview, other than the Merger (a "Business Combination"). If the
Lakeview board of directors fails to recommend the Merger to the shareholders of
Lakeview because of the existence of a proposed Business Combination
inconsistent with the transaction contemplated by the Plan of Merger, then
Lakeview shall promptly pay Firstbank a fee of $500,000 plus an amount equal to
Firstbank's out-of-pocket costs, expenses and fees incurred in connection with
the Merger. In addition, if the proposed Business Combination was directly or
indirectly solicited by any officer, director, shareholder, agent or other
representative of Lakeview, then the $500,000 fee shall be increased to $800,000
plus an amount equal to Firstbank's out-of-pocket costs, expenses and fees
incurred in connection with the Merger.
Description of Firstbank Capital Stock
If the Plan of Merger is approved by Lakeview's shareholders and the Merger
is consummated, Firstbank's authorized capital stock will consist of 10,000,000
shares of common stock, no par value ("Firstbank Common Stock") and 300,000
shares of preferred stock. As of March 31, 1997, Firstbank had outstanding
1,633,234 shares of Firstbank Common Stock and no shares of preferred stock.
Firstbank expects to issue approximately 369,285 shares of Firstbank Common
Stock in the Merger assuming an estimated Stock Exchange Ratio of 0.5788 and an
estimated Option Exchange Ratio of 0.2622 at March 31, 1997, and assuming
aggregate cash elections equal to 10% of the total consideration paid to holders
of Lakeview Common Stock in the Merger. These numbers have been rounded for
convenience of presentation.
Preferred Stock
The Board of Directors of Firstbank is authorized to issue Preferred Stock
in one or more series, from time to time, and to fix the particular designations
and terms thereof, including dividend rates, conversion prices, voting rights,
redemption prices and other matters without further approval of Firstbank's
shareholders. The board of directors has not authorized the issuance of any
series of Preferred Stock nor is any such issuance presently contemplated. The
issuance of Preferred Stock could materially affect the voting rights, dividend
participation rights, and other rights of holders of shares of Firstbank Common
Stock.
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Common Stock
Holders of Firstbank Common Stock are entitled to dividends out of funds
legally available for that purpose when, as, and if declared by the board of
directors. Each holder of Firstbank Common Stock is entitled to one vote for
each share held on each matter submitted for shareholder action. Firstbank
Common Stock has no preemptive rights, cumulative voting rights, conversion
rights or redemption provisions.
In the case of any liquidation, dissolution or winding up of the affairs of
Firstbank, holders of Firstbank Common Stock will be entitled to receive, pro
rata, any assets distributable to common shareholders in proportion to the
number of shares held by them.
All outstanding shares of Firstbank Common Stock are, and shares to be
issued pursuant to the Merger will be, when issued, fully paid and
nonassessable.
A number of important provisions of the Articles of Incorporation and
Bylaws of Firstbank and the MBCA that could affect the rights of holders of
shares of Firstbank Common Stock are described below. See "The Merger--
Provisions Affecting Control of Firstbank, --Comparison of Rights of Lakeview
Shareholders to the rights of Firstbank Shareholders."
Provisions Affecting Control of Firstbank
At the effective time of the Merger, the Articles of Incorporation and
Bylaws of Firstbank will remain unchanged. Some provisions of the MBCA and
Firstbank's Articles of Incorporation may have an anti-takeover impact and may
make tender offers, proxy contests and certain mergers more difficult to
consummate. Both Firstbank and Lakeview are currently subject to the provisions
of the MBCA, and Firstbank will be subject to these provisions after the Merger.
Anti-Takeover Legislation. The MBCA contains provisions intended to protect
shareholders and prohibit or discourage certain types of hostile takeover
activities. These provisions regulate the acquisition of "control shares" of
large public Michigan corporations (the "Control Share Act").
The Control Share Act establishes procedures governing "control share
acquisitions." A control share acquisition is defined as an acquisition of
shares by an acquiror which, when combined with other shares held by that person
or entity, would give the acquiror voting power at or above any of the following
thresholds: 20%, 33 1/3% or 50%. Under the Control Share Act, an acquiror may
not vote "control shares" unless the corporation's disinterested shareholders
vote to confer voting rights on the control shares. The acquiring person,
officers of the target corporation, and directors of the target corporation who
are also employees of the corporation are precluded from voting on the issue of
whether the control shares shall be accorded voting rights. The Control Share
Act does not affect the voting rights of shares owned by an acquiring person
prior to the control share acquisition.
The Control Share Act entitles corporations to redeem control shares from
the acquiring person under certain circumstances. In other cases, the Control
Share Act confers dissenters' rights upon all of a corporation's shareholders
except the acquiring person. The Control Share Act applies only to an "issuing
public corporation." Firstbank falls within the statutory definition of an
"issuing public corporation" and would continue to do so after the Merger. The
Control Share Act automatically applies to any "issuing public corporation"
unless the corporation "opts out" of the statute by so providing in its articles
of incorporation or bylaws. Firstbank has not "opted out" of the Control Share
Act and does not expect to do so after the Merger.
Fair Price Act. Certain provisions of the MBCA (the "Fair Price Act")
establish a statutory scheme similar to the supermajority and fair price
provisions found in many corporate charters. The Fair Price Act provides that a
supermajority vote of 90% of the shareholders and no less than two-thirds of the
votes of non-interested shareholders must approve a "business combination." The
Fair Price Act defines a "business combination" to encompass any merger,
consolidation, share exchange, sale of assets, stock issue, liquidation, or
reclassification of securities involving an
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"interested shareholder" or certain "affiliates." An "interested shareholder" is
generally any person who owns 10% or more of the outstanding voting shares of
the corporation. An "affiliate" is a person who directly or indirectly controls,
is controlled by, or is under common control with a specified person.
The supermajority vote required by the Fair Price Act does not apply to
business combinations that satisfy certain conditions. These conditions include,
among others, that: (i) the purchase price to be paid for the shares of the
corporation is at least equal to the highest of either (a) the market value of
the shares or (b) the highest per share price paid by the interested shareholder
within the preceding two-year period or in the transaction in which the
shareholder became an interested shareholder, whichever is higher; and (ii) once
a person has become an interested shareholder, the person must not become the
beneficial owner of any additional shares of the corporation except as part of
the transaction which resulted in the interested shareholder becoming an
interested shareholder or by virtue of proportionate stock splits or stock
dividends.
The requirements of the Fair Price Act do not apply to business
combinations with an interested shareholder that the board of directors has
approved or exempted from the requirements of the Fair Price Act by resolution
at any time prior to the time that the interested shareholder first became an
interested shareholder.
Classified Board. The current boards of directors of both Firstbank and
Lakeview are classified into three classes, with each class serving a staggered,
three-year term. Classification of the board could have the effect of extending
the time during which the existing board of directors could control the
operating policies of Firstbank even though opposed by the holders of a majority
of the outstanding shares of Firstbank Common Stock. (See "The Merger--
Comparison of Rights of Lakeview Shareholders to the Rights of Firstbank
Shareholders.")
Comparison of Rights of Lakeview Shareholders to the Rights of Firstbank
Shareholders
If the Merger is consummated, a person holding a given percentage of the
outstanding shares of Firstbank Common Stock or Lakeview Common Stock will hold
a lesser percentage of the outstanding shares of common stock in Firstbank after
the Merger. In addition, because Firstbank after the Merger will be a larger
entity than either Firstbank or Lakeview, the universe of financial institutions
and other companies that have the resources to acquire Firstbank or Lakeview
will be smaller than before the Merger, particularly with respect to Lakeview.
The rights of the shareholders of Lakeview, as well as the rights of the
shareholders of Firstbank, are governed by the laws of the State of Michigan and
the Michigan Business Corporation Act ("MBCA"). Consequently, the shareholders
of Lakeview and Firstbank have the same rights as such under Michigan law. There
are, however, certain differences between Lakeview and Firstbank with respect to
shareholder rights as those matters are governed by, among other things, the
respective Articles of Incorporation and Bylaws of Lakeview and Firstbank.
Evaluation of Certain Offers. The Articles of Incorporation of Lakeview
contain provisions that require the Lakeview Board of Directors, when evaluating
certain offers to purchase equity securities of Lakeview, to consider certain
factors in addition to the consideration offered in the acquisition proposal in
relation to the market price of Firstbank's securities or assets. The factors
include, among others, (i) the potential social and economic impact of the offer
and its consummation on Lakeview and its employees, depositors, and other
customers and on the communities in which Lakeview operates, (ii) the business
and financial condition and earnings prospects of the proposed acquiror or
acquirors, and (iii) the competence, experience and integrity of the proposed
acquiror or acquirors and its or their management. The Articles of Incorporation
of Firstbank do not contain comparable provisions.
Preferred Stock. The Articles of Incorporation of Firstbank permit the
Board of Directors to authorize and issue preferred stock without the consent or
approval of the shareholders of Firstbank. Such preferred stock, if issued,
could materially affect the voting rights, dividend participation rights, and
other rights of holders of Firstbank Common Stock. The Articles of Incorporation
of Lakeview do not authorize the issuance of preferred stock.
Applicability of Securities Act of 1933. Although the Firstbank Common
Stock to be issued upon consummation of the proposed Merger is to be registered
pursuant to the Securities Act of 1933, as amended (the "Act"), the resale of
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such shares of Firstbank Common Stock by the present directors, executive
officers and principal shareholders of Lakeview who are deemed to be
"affiliates," as that term is defined under the Act, will be governed by rules
promulgated by the Securities and Exchange Commission under the Act. All such
persons have agreed not to resell such shares except in compliance with these
rules, as set forth under the terms and conditions of the separate Affiliate
Agreements with each of those persons.
Securities Exchange Act of 1934. Firstbank is subject to the reporting and
other requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and regularly files reports with the Securities and Exchange
Commission required by the Exchange Act. Therefore, there is publicly available
financial and other information with respect to Firstbank. Lakeview is not
presently subject to the Exchange Act reporting requirements. Lakeview
shareholders are therefore expected to benefit from Firstbank's obligation to
file periodic reports under the Exchange Act by virtue of the availability of
more current and detailed information regarding Firstbank than presently exists
with respect to Lakeview.
Resales by Affiliates
The issuance of shares of Firstbank Common Stock to holders of Lakeview
Common Stock and Lakeview Stock Options pursuant to the Merger has been
registered under the Securities Act. That registration, however, does not cover
resales by shareholders or option holders of Lakeview who may be deemed to
control or be controlled by, or be under common control with, Lakeview at the
effective time of the Merger.
In order to induce Firstbank to proceed with the Merger, Lakeview has
agreed to use all reasonable efforts to cause each person identified by Lakeview
who is deemed to control or be controlled by, or under common control with,
Lakeview ("Affiliates") to agree in writing not to sell, transfer or otherwise
dispose of shares of Firstbank Common Stock beneficially owned or received in
the Merger by such person in a manner which would result in violation of the
Securities Act or the regulations thereunder.
Accounting Treatment
Upon consummation of the Merger, the transaction will be accounted for as a
purchase, and all of the assets and liabilities of Lakeview will be recorded in
Firstbank's consolidated financial statements at their estimated fair value at
the Effective Time of the Merger. The amount by which the purchase price paid by
Firstbank exceeds the fair value of the net assets acquired by Firstbank through
the Merger will be recorded as goodwill or other intangibles. Firstbank
currently expects that based on preliminary purchase accounting estimates, the
Merger would result in identifiable intangibles and goodwill approximating $4.3
million and yearly amortization of intangibles and goodwill of approximately
$418,000. (Identifiable tangibles will be amortized over 15 years and goodwill
will be amortized on a straight-line basis over 15 years.) Firstbank's
consolidated financial statements will include the operations of Lakeview after
the Effective Time of the Merger. See "--Pro Forma Condensed Combined Financial
Statements."
Federal Income Tax Consequences
The following is a summary of certain material United Stated federal income
tax consequences of the Merger, including certain consequences to holders of
Lakeview Common Stock who are citizens of the United States and who hold their
shares as capital assets. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), and is for general information only. The tax
treatment of a particular shareholder will depend upon such shareholder's
particular situation. Special tax considerations not discussed herein may be
applicable to particular classes of taxpayers, such as broker-dealers, certain
retirement plans, financial institutions, or insurance companies, or to any
shareholder who acquired Lakeview Common Stock through the exercise of an
employee stock option or otherwise as compensation. All shareholders should
consult with their own tax advisors as to particular tax consequences of the
Merger to them, including the applicability and effect of state, local, and
foreign tax laws and possible changes in the tax law.
Firstbank has received an opinion of Varnum, Riddering, Schmidt & Howlett
LLP, Firstbank's legal counsel, that (subject to the assumptions set forth in
such opinion and representations of fact made by management being true,
-28-
<PAGE>
which representations will not be independently investigated or verified by
Varnum, Riddering, Schmidt & Howlett LLP) for federal income tax purposes:
(i) The Merger of Lakeview with and into Firstbank will constitute
a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Firstbank and Lakeview
will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(ii) No gain or loss will be recognized to Firstbank upon receipt
of the assets of Lakeview in exchange for the Firstbank Common Stock and
the assumption by Firstbank of the liabilities of Lakeview;
(iii) The basis of the assets of Lakeview in the hands of Firstbank
will be the same as the basis of those assets in the hands of Lakeview
immediately prior to the Merger;
(iv) The holding period of the assets of Lakeview to be received by
Firstbank will include the holding period during which such assets were
held by Lakeview;
(v) No gain or loss will be recognized by the shareholders of
Lakeview who receive shares of Firstbank Common Stock in exchange for all
of their shares of Lakeview Common Stock, except to the extent of any cash
received in lieu of the fractional shares of Firstbank Common Stock;
(vi) The basis of the Firstbank Common Stock to be received by
shareholders of Lakeview will be the same as the basis of the shares of
Lakeview Common Stock surrendered in exchange therefor; and
(vii) The holding period of the Firstbank Common Stock received by
shareholders of Lakeview will, in each instance, include the holding period
of the shares of Lakeview Common Stock surrendered in exchange therefor was
held, provided that the Lakeview Common Stock was, in each instance, held
as capital assets in the hands of the shareholder of Lakeview at the
Effective Time of the Merger.
With respect to Cash Election Shares and Dissenting Shares exchanged for
cash, the Merger will be treated as a sale, and normal recognition and gain
treatment will apply. The Merger will not have any direct tax consequences to
Firstbank.
With respect to the holders of Lakeview Stock Options, those holders of
Lakeview Stock Options who elect to convert their Lakeview Stock Options into
nonqualified options to purchase shares of Firstbank Common Stock will not
recognize any gain or loss upon such conversion. However, holders of Lakeview
Stock Options who convert their options into options to purchase shares of
Firstbank Common Stock will recognize ordinary taxable income upon the exercise
of such Firstbank stock options to the extent the fair market value of the
Firstbank Common Stock received upon exercise of the such options exceeds the
exercise price for such options. Holders of nonqualified Lakeview Stock Options
who elect to receive shares of Firstbank Common Stock or who elect to receive
cash in lieu of Firstbank Common Stock will recognize ordinary taxable income in
an amount equal to the fair market value of the shares of Firstbank Common Stock
and cash received.
The foregoing discussion is based on currently existing provisions of the
Code, existing and proposed treasury regulations thereunder, and current
administrative rulings and court decisions. The opinion of counsel described
above is not binding on the Internal Revenue Service and no rulings of the
Internal Revenue Service will be sought or obtained in relation to the Merger.
There can be no assurance that the Internal Revenue Service will agree with the
tax consequences of the Merger described above. All of the foregoing discussion
is subject to change and any such change could affect the continuing validity of
such discussion.
EACH SHAREHOLDER OF LAKEVIEW SHOULD CONSULT A PROFESSIONAL TAX ADVISER ON
THE TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. THE TAX AND OTHER
MATTERS DESCRIBED IN THIS PROSPECTUS AND PROXY STATEMENT DO NOT CONSTITUTE LEGAL
OR TAX ADVICE.
-29-
<PAGE>
Interests of Certain Persons in the Merger
The members of Lakeview's Board of Directors have certain interests in the
Merger that are in addition to their interests as shareholders of Lakeview
generally. In 1995 each director of Lakeview was granted options to purchase
shares of Lakeview Common Stock. These options gave the directors as a group the
right to purchase a total of 89,299 shares of Lakeview Common Stock at an
exercise price of $13.17 per share. The shares of Lakeview Common Stock covered
by these options equaled 13.6% of the outstanding shares of Lakeview Common
Stock. Pursuant to the Merger, each Lakeview Stock Option held by a director of
Lakeview will be converted into the right to receive shares of Firstbank Common
stock as determined by the terms of the Plan of Merger (See "The Merger--
Lakeview Stock Options"). Since the options were granted, two directors
exercised options and there are currently 73,822 shares of Lakeview Common Stock
subject to these options. Under the terms of the Plan of Merger, the total value
of the consideration to be paid by Firstbank increases as the Firstbank Market
Price increases beyond certain price parameters. The value of the merger has
been structured so that the common stockholders and option holders receive
equivalent consideration, on a per share basis. Depending upon the Firstbank
Market Price, the percentage of the total value of the consideration paid by
Firstbank allocated to option holders increases and decreases as the Firstbank
Market Price increases and decreases, respectively, because the strike price of
the options is fixed.
Pursuant to the Plan of Merger, the Bank of Lakeview will offer Mr. Schurtz
an employment agreement that would be assumed by Firstbank if the Merger is
consummated.
Lakeview Stock Options.
As of the date of this Prospectus and Proxy Statement, there are options
outstanding to purchase 113,518 shares of Lakeview Common Stock ("Lakeview Stock
Options"), of which 73,822 shares are subject to nonstatutory stock options
granted to directors of Lakeview.
Each Lakeview Stock Option which is both outstanding and unexercised
immediately prior to the Effective Time of the Merger and is held by a director
of Lakeview will be converted into the right to receive that number of shares of
Firstbank Common Stock equal to the Option Exchange Ratio multiplied by the
number of shares of Lakeview Common Stock purchasable upon exercise of the
Lakeview Stock Option, subject to the right of such director to make a cash
election (See "The Merger -- The Cash Election.") Pursuant to the Plan of
Merger, the "Option Exchange Ratio" is equal to the quotient of the Merger Value
Per Share minus the exercise price per share for the particular Lakeview Stock
Option divided by the Firstbank Market Price. Based upon the $41.50 last
reported sale price per share of Firstbank Common Stock on June 12, 1997, the
Option Exchange Ratio would be 0.2622. The actual Option Exchange Ratio will
depend on the Firstbank Market Price at the time the Merger is consummated.
Each Lakeview Stock Option which is outstanding immediately prior to the
Effective Time of the Merger and is held by an employee of Lakeview or the Bank
of Lakeview shall, at the election of the holder, either (i) become and be
converted into the right to receive that number of shares of Firstbank Common
Stock equal to the product of the Option Exchange Ratio multiplied by the number
of shares of Lakeview Common Stock purchasable upon exercise of the Lakeview
Stock Option, or (ii) be converted into nonqualified options to purchase shares
of Firstbank Common Stock subject to the terms of Firstbank's stock option plan,
in each case subject to the right of such employee to make a cash election (See
"The Merger -- The Cash Election."). Those Lakeview Stock Options that are
converted into options to purchase shares of Firstbank Common Stock shall be
converted as follows: (i) the number of shares of Firstbank Common Stock
purchasable upon exercise of such option to purchase Firstbank Common Stock
shall be equal to the number of shares of Lakeview Common Stock that were
purchasable under such Lakeview Stock Option multiplied by the Stock Exchange
Ratio, and (ii) the per share exercise price under each such Lakeview Stock
Option shall be adjusted by dividing such exercise price prior to the Effective
Time of the Merger by the Stock Exchange Ratio.
-30-
<PAGE>
Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed balance sheet as of March 31,
1997 and the unaudited pro forma condensed consolidated statements of income for
the three months ended March 31, 1997 and for the year ended December 31, 1996,
give effect to the acquisition of Lakeview Financial Corporation based on the
historical consolidated financial statements of Firstbank Corporation and
Lakeview Financial Corporation and their subsidiaries under the assumptions and
adjustments set forth below and in the accompanying notes to the pro forma
financial statements.
The acquisition of Lakeview Financial Corporation will be accounted for as
a purchase transaction and, therefore, is included in the pro forma condensed
balance sheet as of March 31, 1997, as if the transaction had become effective
on such date. The acquisition of Lakeview Financial Corporation is also
reflected in the pro forma consolidated statements of income for the three
months ended March 31, 1997, and for the year ended December 31, 1996, as if the
transaction had become effective at the beginning of the periods presented,
giving effect to the pro forma adjustments described therein. The purchase
accounting adjustments reflected in the pro forma financial statements are based
on management estimates of the fair value of Lakeview Financial Corporation
assets and liabilities. Final purchase adjustments may vary due to changes in
estimated value resulting from changes in market interest rates, independent
appraisals and other factors impacting Lakeview Financial Corporation's net
assets prior to consummation of the acquisition.
The pro forma financial statements have been prepared by the management of
Firstbank Corporation and Lakeview Financial Corporation based upon their
respective consolidated financial statements. These pro forma financial
statements may not be indicative of the results that actually would have
occurred if the acquisition of Lakeview Financial Corporation had been in effect
on the dates indicated or which may be obtained in the future.
The pro forma financial statements were prepared using an estimated Stock
Exchange Ratio of 0.5788 shares of Firstbank Common Stock for each share of
Lakeview Common Stock and an estimated Option Exchange Ratio of 0.2622. The
estimated Stock Exchange Ratio and Option Exchange Ratio are subject to change
before the Effective Time of the Merger. All pro forma share and per share
information was calculated assuming the issuance of 369,285 shares of Firstbank
Common Stock in the Merger based on an estimated Stock Exchange Ratio of 0.5788
and an estimated Option Exchange Ratio of 0.2622. These numbers have been
rounded for convenience of presentation.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-31-
<PAGE>
FIRSTBANK CORPORATION
PRO FORMA BALANCE SHEET
MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Lakeview
Firstbank Financial Pro Forma Pro Forma
Corporation Corporation Adjustments Combined
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 18,048,821 $ 3,055,717 $ (1,703,000)/(1)/ $ 19,401,538
Short term investments 3,578,372 3,578,372
------------ ----------- ------------ ------------
Total cash and cash equivalents 21,627,193 3,055,717 (1,703,000) 22,979,910
Securities available for sale 63,888,831 13,545,884 77,434,715
Loans, net 312,143,574 63,409,592 375,553,166
Premises and equipment 8,106,820 2,014,189 4,000,000/(2)/ 14,121,009
Investment in subsidiary 17,028,000/(1)/ 0
(17,028,000)/(2)/
Goodwill 2,523,725 2,281,649/(2)/ 6,845,374
2,040,000/(3)/
Core deposit intangibles 1,079,594 2,000,000/(2)/ 3,079,594
Other assets 6,944,970 2,030,938 8,975,908
------------ ----------- ------------ ------------
TOTAL ASSETS $416,314,707 $84,056,320 $ 8,618,649 $508,989,676
============ =========== ============ ============
LIABILITIES
Deposits $364,231,961 $72,495,851 $436,727,812
Securities sold under agreements to repurchase
and overnight borrowings 11,490,411 1,500,000 12,990,411
Notes payable 2,226,465 2,226,465
Accrued interest other liabilities 4,643,504 1,314,118 2,040,000/(3)/ 7,997,622
------------ ----------- ------------ ------------
Total liabilities 382,592,341 75,309,969 2,040,000 459,942,310
ESOP securities net of ESOP loan 238,896 (238,896)/(4)/ 0
SHAREHOLDERS' EQUITY
Preferred stock
Common stock 24,403,638 2,162,751 15,325,000/(1)/ 39,728,638
(2,195,997)/(2)/
33,246/(4)/
Additional paid in capital 974,946 (1,180,596)/(2)/ 0
205,650/(4)/
Retained earnings 9,165,228 5,273,192 (5,273,192)/(2)/ 9,165,228
Unrealized gain (loss) on available for sale
securities 153,500 96,566 (96,566)/(2)/ 153,500
------------ ----------- ------------ ------------
Total shareholders' equity 33,722,366 8,507,455 6,817,545 49,047,366
------------ ----------- ------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
$416,314,707 $84,056,320 $ 8,618,649 $508,989,676
============ =========== ============ ============
</TABLE>
-32-
<PAGE>
FIRSTBANK CORPORATION
PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Lakeview
Firstbank Financial Acquisition Pro Forma
Corporation Corporation Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,274,784 $1,505,965 $8,780,749
Investment securities 869,734 238,033 1,107,767
Short term investments 68,774 2,364 (26,000)/(5)/ 45,138
---------- ---------- --------- ----------
Total interest income 8,213,292 1,746,362 (26,000) 9,933,654
INTEREST EXPENSE
Deposits 3,482,290 761,211 4,243,501
Notes payable and other 140,426 11,830 152,256
---------- ---------- --------- ----------
Total interest income 3,622,716 773,041 4,395,757
Net interest income 4,590,576 973,321 (26,000) 5,537,897
Provision for loan losses 251,000 60,000 311,000
---------- ---------- --------- ----------
Net interest income after provision
for loan losses 4,339,576 913,321 (26,000) 5,226,897
Noninterest income 747,926 134,910 882,836
Noninterest expense 3,385,490 795,180 13,000/(6)/ 4,300,670
35,000/(7)/
72,000/(8)/
---------- ---------- --------- ----------
121,000
Income before federal income taxes 1,702,012 253,051 (146,000) 1,809,063
(8,840)/(9)/
Federal income taxes 475,000 50,674 (16,000)/(10)/ 500,834
---------- ---------- --------- ----------
NET INCOME $1,227,012 $ 202,377 $(121,160) $1,308,229
========== ========== ========= ==========
Per Share:
NET INCOME $ 0.75 $ 0.29 $ 0.65
========== ========== ==========
Average shares outstanding 1,629,294 708,899 1,998,579
</TABLE>
-33-
<PAGE>
FIRSTBANK CORPORATION
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Lakeview
Firstbank Financial Acquisition Pro Forma
Corporation Corporation Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $27,446,750 $6,033,608 $33,480,358
Investment securities 3,393,995 1,139,365 4,533,360
Short term investments 175,064 (102,000)/(5)/ 73,064
----------- ---------- --------- -----------
Total interest income 31,015,809 7,172,973 (102,000) 38,086,782
INTEREST EXPENSE
Deposits 12,581,008 2,970,068 15,551,076
Notes payable and other 699,718 71,107 770,825
----------- ---------- --------- -----------
Total interest expense 13,280,726 3,041,175 16,321,901
Net interest income 17,735,083 4,131,798 (102,000) 21,764,881
Provision for loan losses 1,838,000 180,000 2,018,000
----------- ---------- --------- -----------
Net interest income after provision
for loan losses 15,897,083 3,951,798 (102,000) 19,746,881
Noninterest income 3,297,356 583,535 3,880,891
Noninterest expense 12,790,051 3,333,463 50,000/(6)/ 16,591,514
130,000/(7)/
288,000/(8)/
----------- ---------- --------- -----------
468,000
Income before federal income taxes 6,404,388 1,201,870 (570,000) 7,036,258
(34,680)/(9)/
Federal income taxes 1,761,000 317,897 (61,000)/(10)/ 1,983,217
----------- ---------- --------- -----------
NET INCOME $ 4,643,388 $ 883,973 $(474,320) $ 5,053,041
=========== ========== ========= ===========
Per Share:
NET INCOME $2.86 $1.28 $2.54
=========== ========== ===========
Average shares outstanding 1,621,652 693,178 1,990,937
</TABLE>
-34-
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma financial statements reflect the merger of
Lakeview Financial Corporation into Firstbank Corporation, using the purchase
method of accounting. The purchase price is based on a fixed exchange ratio to
be established at the time of closing, using actual sale prices of Firstbank
Corporation transactions prior to closing. The foregoing statements are prepared
using the most likely range of Firstbank Corporation sale prices of $36.50 to
$42.00. Using these assumptions, the value of the merger is estimated to be
approximately $17,028,000. Shareholders of Lakeview Financial Corporation may
elect to exchange their shares for shares of Firstbank Corporation stock or
cash, as long as the total cash consideration does not exceed 35% of the merger
value. Management of both Firstbank and Lakeview estimate that 10% of the total
consideration will be in cash, with the remaining 90% in stock. Management of
both Firstbank and Lakeview do not believe there will be a significant
difference in the percentage of shareholders and the percentage of option
holders who will select the cash option.
<TABLE>
<CAPTION>
<S> <C> <C>
STOCK EXCHANGE
Lakeview shares outstanding 657,484
Conversion ratio .5788
-----------
Firstbank stock equivalent 380,552
Assumed market price 41.50
Total value $15,793,000
90% Stock $14,214,000
10% Cash 1,579,000
OPTION EXCHANGE*
Lakeview options outstanding 113,518
Conversion ratio .2622
-----------
Firstbank stock equivalent 29,764
Assumed market price 41.50
Total value $ 1,235,000
90% Stock 1,111,000
10% Cash 124,000
-----------
Total estimated purchase price $17,028,000
===========
Estimated ending Firstbank Common Stock: 1,633,234
Shares prior to merger at March 31, 1997 369,285
-----------
Shares issued pursuant to merger 2,002,519
===========
</TABLE>
*Assumes that employee incentive stock options are exchanged for stock and/or
cash rather than converted into nonqualified options to purchase Shares of
Firstbank Common Stock. Should the employees choose to convert options into
Firstbank Options, the impact on the pro forma financial statements would not be
material.
Of the total excess of cost over shareholders' equity of approximately
$8,282,000, fixed assets will be adjusted $4,000,000. Land and building values
will each be increased $2,000,000 with the building depreciation recognized over
40 years. As the difference between estimated fair value and book value of
Lakeview Financial Corporation's loans and deposits at March 31, 1997 is
insignificant, no purchase accounting adjustments are made for these assets and
liabilities. An additional $2,000,000 will be recognized as core deposit
intangibles with the remainder of the excess classified as goodwill. Goodwill
and core deposit intangibles will be amoritzed over 15 years.
(1) To record the purchase of Lakeview Financial Corporation assuming that 90%
of the shares of Lakeview Common Stock and the Lakeview Stock Options are
exchanged for Firstbank Common Stock and that cash elections will represent
10% of the aggregate consideration.
-35-
<PAGE>
(2) To eliminate the investment in Lakeview Financial Corporation, Lakeview
Financial Corporation shareholders' equity, record the revaluation of
buildings and land, and record intangibles.
(3) To record deferred tax on revaluation of fixed assets and core deposit
intangibles.
(4) To eliminate ESOP securities net of ESOP loans.
(5) Reduction of short term investment income from cash paid in acquisition.
$1,703,000 at 6%
$102,000 lost income for the year
$26,000 lost income for the quarter
(6) Depreciation on market value adjustment of buildings.
$2,000,000 divided by 40 = $50,000 annual expense
$13,000 quarterly expense
(7) Core deposit amortization
$2,000,000 divided by 15 = $130,000 per year
$35,000 per quarter
(8) Goodwill amortization
$4,322,000 divided by 15 = $288,000 per year
$72,000 per quarter
(9) Federal income tax benefit at 34% for reduction in short term investment
income.
34% of $102,000 = $34,680 per year
34% of $26,000 = $8,840 per quarter
(10) Deferred tax debit for items excludable from federal income tax
calculation:
<TABLE>
<CAPTION>
Year Quarter
<S> <C> <C>
Core deposit amortization $130,000 $35,000
Depreciation on market value adjustment 50,000 13,000
-------- -------
Total $180,000 $48,000
Tax rate 34%--deferred tax $ 61,000 $16,000
</TABLE>
The preceding pro forma information estimates that 10% of the total
consideration will be in cash, with the remaining 90% in stock. The actual
amount of cash elected will be between zero and 35% of the value of the merger.
If this assumption were changed up to 35% cash elected, the reduction in cash
and due from banks would be $5,960,000, rather than the 10%, or $1,703,000, as
shown in the pro forma balance sheet. Equity of $11,068,000 would be issued, or
$4,257,000 less than if 10% cash is assumed. If no cash were elected, equity
would be issued for the full value of the merger, or $17,028,000. Note 5 to the
pro forma financial statements describes the reduction of short term investment
income resulting from cash paid in the acquisition. If no cash were elected,
this adjustment would not be required and net income would increase by $67,000
($.03 per share) for the year or $17,000 ($.01 per share) for the quarter. If
35% cash were elected, the reduction of short term investment income would be
$358,000 for the year and $89,000 for the quarter. The effect on net income
would be $236,000 ($.12 per share) for the year or $59,000 ($.03 per share) for
the quarter.
-36-
<PAGE>
FIRSTBANK CORPORATION AND LAKEVIEW CORPORATION
THE BUSINESS OF BANKING
Competition
Firstbank and Lakeview are bank holding companies which, through their
subsidiaries, are engaged in the business of commercial banking. The business of
banking is highly competitive. In addition to competition from other commercial
banks, banks face significant competition from saving and loan associations,
credit unions, finance companies, insurance companies and investment and
brokerage firms. The principal methods of competition for financial services are
price (interest rates paid on deposits, interest rates charged on borrowings and
fees charged for services) and service (convenience and quality of services
rendered to customers).
Supervision and Regulation
Banks and bank holding companies are extensively regulated. Firstbank and
Lakeview are each chartered under state law and are supervised, examined and
regulated by both the Financial Institutions Bureau of the Michigan Department
of Consumer and Industry Services, Corporation Securities and Land Development
Bureau, and the Federal Reserve Board. Deposits of the bank subsidiaries of
Firstbank and Lakeview are insured by the FDIC to the extent provided by law.
Federal and state laws which govern banks significantly limit their
business activities in a number of respects. Prior approval of the Federal
Reserve Board, and in some cases various other government agencies, is required
for Firstbank or Lakeview to acquire control of any additional banks or other
operating subsidiaries. The business activities of Firstbank and Lakeview and
their bank subsidiaries, are limited to banking and other activities which are
determined by the Federal Reserve Board to be closely related to banking.
Firstbank and Lakeview are legal entities separate and distinct from their
respective bank subsidiaries, respectively. There are legal limitations on the
extent to which the bank subsidiaries can lend or otherwise supply funds to
Firstbank and Lakeview, respectively. In addition, payment of dividends to
Firstbank and Lakeview by the bank subsidiaries, respectively, is subject to
various state and federal regulatory limitations.
Under Federal Reserve Board policy, Firstbank and Lakeview are expected to
act as a source of financial strength to the bank subsidiaries, respectively,
and to commit resources to support them. Under federal law, the FDIC also has
authority to impose special assessments on insured depository institutions to
repay FDIC borrowings from the United States Treasury or other sources and to
establish semiannual assessment rates on Bank Insurance Fund ("BIF") member
banks to maintain the BIF at the designated reserve ratio required by law.
Banks are subject to a number of federal and state laws and regulations
which have a material impact on their business. These include, among others,
state usury laws, state laws relating to fiduciaries, the Truth in Lending Act,
the Truth in Savings Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment
Act, electronic funds transfer laws, redlining laws, antitrust laws,
environmental laws and privacy laws. The instruments of monetary policy of
authorities such as the Federal Reserve Board may influence the growth and
distribution of bank loans, investments and deposits, and may also affect
interest rates on loans and deposits. These policies may have a significant
effect on the operating results of banks.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("IBBEA"), adequately capitalized and managed bank holding companies are
permitted to acquire existing out-of-state banks, whether or not the host state
permits such acquisitions. In addition, adequately capitalized and managed bank
holding companies are permitted to combine into a single bank their subsidiary
banks located in more than one state thereby creating an interstate branch
system, except in states which, prior to June 1, 1997, elected to "opt out" of
interstate branching authority. Further, IBBEA provides that states may act
affirmatively to permit de novo branching by banking institutions across state
lines.
-37-
<PAGE>
Michigan did not opt out of IBBEA, and now permits both U.S. and non-U.S.
banks to establish branch offices in Michigan. The Michigan Banking code
permits, in appropriate circumstances and with the approval of the commissioner,
(i) acquisition of Michigan banks by FDIC-insured banks, savings banks, or
savings and loan associations located in other states, (ii) sale by a Michigan
bank of branches to an FDIC-insured bank, savings bank, or savings and loan
association located in a state in which a Michigan bank could purchase branches
of the purchasing entity, (iii) consolidation of Michigan banks and FDIC-insured
banks, savings banks, or savings and loan associations located in other states
having laws permitting such consolidation, (iv) establishment of branches in
Michigan by FDIC-insured banks located in other states, the District of
Columbia, or U.S. territories or protectorates having laws permitting a Michigan
bank to establish a branch in such jurisdiction, and (v) establishment by
foreign banks of branches located in Michigan.
Risk-based capital and leverage standards apply to all banks under federal
regulations. The risk-based capital ratio standards establish a systematic
analytical framework that is intended to make regulatory capital requirements
sensitive to differences in risk profiles among banking organizations, take off-
balance sheet liability exposures into explicit account in assessing capital
adequacy, and minimize disincentives to hold liquid, low-risk assets. Risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet commitments into risk -weighting categories. Higher levels of capital are
required for categories perceived as representing greater risk.
Failure to meet minimum capital ratio standards could subject a bank to a
variety of enforcement remedies available to the federal regulatory authorities,
including restrictions on certain kinds of activities, restrictions on asset
growth, limitations on the ability to pay dividends, the issuance of a directive
to increase capital, and the termination of deposit insurance by the FDIC.
Maintaining capital at "well capitalized" levels is one condition to the
assessment of federal deposit insurance premiums at the lowest available rate.
Environmental Regulations
The nature of the business of Firstbank's and Lakeview's subsidiaries is
such that they hold title, on a temporary or permanent basis, to a number of
parcels of real property. These include properties owned for branch offices and
other business purposes as well as properties taken in or in lieu of foreclosure
to satisfy loans in default. Under current state and federal laws, present and
past owners of real property are exposed to liability for the cost of cleanup of
contamination on or originating from those properties, even if they are wholly
innocent of the actions that caused the contamination. These liabilities can be
material and can exceed the value of the contaminated property.
-38-
<PAGE>
FIRSTBANK CORPORATION
Business
Firstbank is a Michigan corporation with its headquarters in Alma,
Michigan. Firstbank is the parent company of Bank of Alma, Firstbank (Mount
Pleasant), and 1st Bank (West Branch). At March 31, 1997, Firstbank had
consolidated total assets of $416.5 million, its subsidiaries had aggregate
deposits of $364.2 million and Firstbank had consolidated shareholders' equity
of $33.7 million.
Firstbank and its subsidiary banks are engaged in the business of
commercial banking and other related activities. Each of Firstbank's subsidiary
banks is a full service bank offering customary commercial banking services
including commercial and retail loans, mortgage banking, business and personal
checking accounts, savings and individual retirement accounts, time deposit
instruments, automated transaction machine services, money transfer services and
safe deposit facilities. Firstbank's principal markets for financial services
are the Michigan communities in which its offices are located and the areas
surrounding those communities. Bank of Alma primarily operates in Gratiot,
Midland, Montcalm, and Saginaw Counties; Firstbank primarily operates in
Isabella and Clare Counties; and 1st Bank primarily operates in Iosco, Oscoda,
Ogemaw, and Roscommon Counties.
Firstbank has authorized capital stock consisting of 10,000,000 shares of
Firstbank Common Stock, of which 1,633,234 shares were issued and outstanding on
March 31, 1997, and 300,000 shares of preferred stock, of which there are no
issued and outstanding shares. As of March 31, 1997, there were approximately
960 record holders of Firstbank Common Stock. Firstbank Common Stock is traded
on the National Association of Securities Dealers Over the Counter Bulletin
Board market under the symbol FBMI. Firstbank is a reporting company under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The deposits
of Bank of Alma, Firstbank (Mount Pleasant) and 1st Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC"), subject to applicable
limitations. Bank of Alma, Firstbank, and 1st Bank are chartered under state law
and are supervised, examined and regulated by the Federal Deposit Insurance
Corporation and the Financial Institutions Bureau of the Department of Consumer
and Industry Services, Corporation, Securities and Land Development Bureau. None
of Firstbank's subsidiary banks are members of the Federal Reserve System.
Upon consummation of the Merger, approximately 2,002,519 shares of
Firstbank Common Stock will be issued and outstanding. The estimated number of
shares of Firstbank Common Stock to be outstanding after the Merger was
determined for the purpose of illustration by reference to an estimated Stock
Exchange Ratio for Lakeview Common Stock (0.5788), as applied to the 657,484
shares of Lakeview Common Stock outstanding, and an estimated Option Exchange
Ratio for Lakeview Stock Options (0.2622) as applied to 113,518 shares issuable
upon exercise of options to purchase Lakeview Common Stock as of March 31, 1997,
and assuming that Lakeview shareholders will in the aggregate elect to receive
cash equal to 10% of the aggregate consideration to be paid by Firstbank
pursuant to the Merger. The actual number of shares outstanding will vary.
Properties
The offices of Firstbank and the main office of the Bank of Alma are
located at 311 Woodworth Avenue, Alma, Michigan 48801. Bank of Alma occupies
approximately 24,000 square feet of this brick building. The remaining 900
square feet are rented as office space to an unrelated business. Bank of Alma
owns this property, as well as a parcel of real estate adjacent to the main
office which is presently being used as a parking lot. Bank of Alma also
operates eight full-service branches, seven of which are located in facilities
owned by the Bank of Alma. Firstbank (Mt. Pleasant) has a main office in Mt.
Pleasant, Michigan, and operates five full-service branches in facilities owned
by Firstbank (Mt. Pleasant). 1st Bank's main office is located in West Branch,
Michigan, and 1st Bank operates seven full-service branches, six of which are
located in facilities owned by 1st Bank. Management of Firstbank considers the
properties and equipment of Firstbank and its subsidiaries to be well
maintained, in good operating condition, and adequate for their operations.
-39-
<PAGE>
Legal Proceedings
Firstbank and its subsidiaries are parties, as plaintiff or as defendant,
to routine litigation arising in the normal course of their business. In the
opinion of management of Firstbank, the liabilities arising from these
proceedings, if any, will not be material to Firstbank's financial condition.
Market for Common Stock and Dividends.
Firstbank Common Stock was held by approximately 960 shareholders of record
as of March 31, 1997. Total shareholders number approximately 1,200, including
those whose shares are held in street name. Firstbank's shares are traded on the
NASD Over the Counter Bulletin Board under the symbol FBMI and are traded by
several brokers. The table below sets forth the range of bid prices for shares
of Firstbank Common Stock for the periods indicated. The prices set forth in the
table are obtained on a weekly basis from the NASD System. The over the counter
market quotations reflect interdealer prices without retail mark up, mark down,
or commission, and may not necessarily represent actual transactions. Share
prices and cash dividends per share have been adjusted to reflect stock
dividends.
<TABLE>
<CAPTION>
Dividends
High Low Per Share
------ ------ ---------
<S> <C> <C> <C>
Year Ended December 31, 1995
First Quarter.......................... $19.52 $18.59 .1361
Second Quarter......................... 22.00 19.72 .1632
Third Quarter.......................... 22.45 22.00 .1632
Fourth Quarter......................... 23.81 22.68 .1632
Year Ended December 31, 1996
First quarter.......................... $26.19 $23.81 .1714
Second quarter......................... 28.33 26.19 .2095
Third quarter.......................... 30.24 28.33 .2095
Fourth quarter......................... 33.75 30.24 .2095
Year Ending December 31, 1997
First quarter.......................... $36.75 $33.75 .2200
Second quarter (through June 12, 1997). $40.00 $36.75 .2600
</TABLE>
Holders of Firstbank Common Stock are entitled to receive dividends when,
as and if declared by Firstbank's Board of Directors out of funds legally
available for that purpose. The earnings of Firstbank, through dividends paid by
its subsidiary banks, are the principal source of funds to pay cash dividends.
Consequently, cash dividends are dependent upon the earnings, capital needs,
regulatory constraints and other factors affecting Firstbank's subsidiary banks.
Federal and state banking laws and regulations place certain restrictions on the
amount of dividends and loans that a bank can pay to its parent company. These
restrictions are not expected to prohibit Firstbank from continuing its dividend
policy consistent with historical practice.
-40-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for the Three Months Ended March 31, 1997
Financial Condition
Total assets of Firstbank grew $12 million or 2.9% from December 31, 1996,
to March 31, 1997. Two-thirds of this growth, over $7 million, has occurred in
investment securities as Firstbank has invested excess cash. An increase in
loans of $5 million represents the rest of this change.
The $6 million growth in investment securities represents a 11% increase
during the first three months of 1997. A branch acquisition in December 1996
resulted in Firstbank's receipt of unrestricted cash to cover assumed deposit
liabilities. Two million dollars of this cash was invested in short term 60-90
day instruments to be available for projected loan demand. The remainder was
placed in longer maturity instruments. In addition, Firstbank was the successful
bidder for certain municipal deposits that were invested in some short term
investments. All securities are classified as available for sale.
Fixed rate loans have experienced the majority of the growth with
commercial fixed rates loans showing the largest increase of over $3 million.
Firstbank is presently experiencing comparatively low demand for variable rate
loan products.
The allowance for loan losses has increased $182,000 or 2.9% from December
31, 1996, to March 31, 1997. The allowance is 2.02% of outstanding loans at
March 31, 1997, compared to 1.99% at December 31, 1996. 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.
At March 31, 1997, accrued interest receivables exceeded December 31, 1996,
levels by $500,000 or 22%. The majority of this increase is due to the growth in
securities funded by the investment of excess cash resulting from the
acquisition of branches.
Average deposits have grown $33 million or over 10% during the first
quarter of 1997. The average balances for December only included 15 days of
deposits acquired through a Branch purchase. March averages include those
deposits for the entire period. The interest accrual at this time includes a
full cycle of interest on the acquired deposits. In addition, deposit costs have
posted an 8 basis point increase during that same period. Deposits grew $5.6
million in the first quarter of 1997. Time deposits increased $10.5 million,
with a portion of the funds generated from demand accounts in response to a
certificate of deposit promotion. Firstbank has also been successful in bidding
for municipal deposits.
Securities sold under agreements to repurchase have increased over $4
million during the first three months of 1997. Several new repurchase accounts
were established during the first quarter of 1997, with the majority of the
funds transferred from deposit accounts.
Total shareholders' equity reflects an increase of $634,000 or 1.8% during
the first quarter of 1997. Increases in shareholders' equity as a result of net
income of $1,227,000 and stock transactions of $175,000 were offset in part by
dividends of $358,000 and a change in net unrealized loss on available for sale
securities of $410,000. Book value per share at December 31, 1996, was $20.33
compared to $20.65 at March 31, 1997.
-41-
<PAGE>
The following table discloses compliance with current regulatory capital
requirements on a consolidated basis:
<TABLE>
<CAPTION>
Tier 1 Risk-based
Leverage Capital Capital
-------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Capital balances at March 31, 1997 $29,930 $29,930 $33,810
Required Regulatory Capital 16,154 12,315 24,630
Capital in excess of regulatory minimums 13,776 17,615 9,180
Capital ratios at March 31, 1997 7.41% 9.72% 10.98%
Regulatory capital ratios -- "well capitalized"
definition 5.00% 6.00% 10.00%
Regulatory capital ratios -- minimum requirement 4.00% 4.00% 8.00%
</TABLE>
Results of Operations
Net income for the first quarter of 1997 was $1,227,000, a 16.4% increase
over the $1,054,000 earned during the first three months of 1996. Net interest
income of $4.6 million was up 11.8% from the same time period of 1996. A 13.9%,
or $52 million, increase in average earning assets contributed to the strength
of net interest income. Net income per share increased $.10 or 15.4% from $.65
for the first quarter of 1996 to $.75 for the first three months of 1997. The
1996 per share results are restated to reflect the 1996 5% stock dividend.
The provision for loan losses was $251,000 for the first quarter of 1997.
The three month provision is $46,000 or 15.5% less than the $297,000 provision
for the first quarter of 1996. Upon analysis of the loan portfolio, management
believes that the provision maintains the allowance for the loan losses at an
appropriate level.
Noninterest income posted a slight decrease of $28,000 or 3.6% in the first
quarter of 1997 when compared to the same period in 1996. The primary cause of
this reduction is a $36,000, or 23.4%, decrease in gain on sale of mortgage
loans. Proceeds from the sales of loans held for sale decreased $1 million, or
9.4%, when comparing the first quarters of 1997 and 1996, while loans originated
for sale decreased 44.9% or nearly $7 million for the same period.
Total noninterest expense increased $232,000 or 7.4% during the first
quarter of 1997 when compared to the same period in 1996. A significant portion
of the increase is in the salary and employee benefit category. The annual
salary increment, which was effective with the first pay period in January, is
included in the 1997 numbers. In addition, salary expenses for the employees
operating the two branches which were acquired in December 1996 are incorporated
into the 1997 totals. Similarly, other noninterest expense for the first three
months of 1997 exceeded that of the same period of 1996 by $137,000, or 14.5%,
due to the extra costs associated with operating two additional facilities.
The FDIC insurance component of noninterest expense declined $30,000 during
the first quarter of 1997, resulting in a credit to expense of $8,000, when
compared to the first quarter expense of $22,000 for 1996. Firstbank has a
combination of Bank Insurance Fund (BIF) and Savings Association Insurance Fund
(SAIF) deposits. Firstbank received refunds from the fourth quarter 1996 SAIF
assessment of $23,000 as well as a refund from the elimination of the fourth
quarter minimum assessment of $500. Both of these refunds were the result of the
Deposit Insurance Funds Act of 1996. In addition, the annual rates for both BIF
and SAIF deposit premiums have been revised resulting in a reduction of
quarterly premiums of approximately $7,000.
-42-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for the Years ended December 31, 1996, 1995 and 1994
Results of Operations
Net income for 1996 of $4,643,000 surpassed 1995's performance of
$3,865,000 by 20%. Net interest income of $17.7 million was $2.1 million higher
than the 1995 results due to a $42 million increase in average earning assets.
As in 1995, Firstbank's strong results reflected the effect of continued
strength in core banking activities as opposed to the effect of nonrecurring
factors.
Management of Firstbank believes that standard performance indicators help
evaluate Firstbank's performance. Firstbank posted a return on average assets of
1.25%, 1.17%, and 1.20% in 1996, 1995, and 1994, respectively. Total average
assets increased $43 million in 1996, $62 million in 1995, and $21 million in
1994. Firstbank's Bank of Alma subsidiary acquired two branches with deposits
of $19 million in mid December 1996. Due to the time of the purchase, the
acquisition had a minimal effect on the increase in average assets. Return on
average equity was 15.15%, 14.02%, and 12.99% for 1996, 1995, and 1994. Net
income per share was $2.86, $2.40, and $2.02 for the same periods.
Net Interest Income
The core business of Firstbank is earning interest on loans and paying
interest on deposits. In successfully managing this business, Firstbank has
increased its net interest income by $2.1 million for 1996 for a 14% gain when
compared to 1995. Net interest margin was 5.26% in 1996, 5.29% in 1995, and
5.47% in 1994. These wide margins are maintained through strong lending
activity. Firstbank's loan to deposit ratio, using average balances, was 88% in
1996, as compared to 83% and 80% in 1995 and 1994. Loans grew $50 million
during 1996 with all of the growth generated from the markets in which Firstbank
operates.
Interest rates on earning assets and interest bearing liabilities are both
subject to market forces. However, Firstbank can generally exercise more
control over deposit costs than earning rates on assets. Loan products carry
either fixed rates of interest or rates tied to market indices determined
independently. Firstbank sets its own rates on deposits, providing management
with some flexibility in determining the timing and proportion of rate changes
for the cost of its deposits.
-43-
<PAGE>
Summary of Consolidated Net Interest Income
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Interest earning assets:
Securities available for
sale
Taxable Securities $ 30,687 $ 1,922 6.27% $ 30,702 $ 1,983 6.47% $ 26,532 $ 1,360 5.10%
Tax-exempt securities (1) 26,570 2,136 8.04 28,026 2,255 8.04 28,476 2,316 8.13
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total Securities 57,257 4,058 7.09 58,728 4,238 7.22 55,008 3,676 6.69
Loans (1)(2) 290,006 27,472 9.47 243,806 23,517 9.64 191,385 17,368 9.06
Federal funds sold 3,032 161 5.31 6,028 359 5.93 4,449 226 5.06
Interest-bearing deposits 205 14 6.86 235 16 6.72 31 3 8.37
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total earning assets 350,500 31,705 9.04% 308,797 28,130 9.11% 250,873 21,273 8.48%
Non-accrual loans 141 100 186
Less allowance for loan loss (5,436) (4,458) (3,657)
Cash and due from banks 13,744 12,706 10,926
Other non-earning assets 13,880 12,934 9,882
-------- -------- --------
Total assets $372,829 $330,079 $268,210
======== ======== ========
Average Liabilities:
Interest-bearing deposits:
Demand $ 71,710 2,476 3.45% $ 61,201 2,047 3.35 $ 55,152 1,494 2.71
Savings 58,282 1,643 2.82 54,879 1,533 2.80 50,447 1,407 2.79
Time 151,622 8,463 5.58 135,926 7,672 5.64 96,549 4,415 4.57
Federal funds purchased
and repurchase agreements 13,279 650 4.90 10,401 550 5.29 5,828 239 4.11
Notes payable 866 49 5.70
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities 295,759 13,281 4.47% 262,407 11,802 4.50% 207,976 7,555 3.63%
Demand deposits 42,521 36,686 32,398
------- -------- --------
Total funds 338,280 299,093 240,374
Other liabilities 3,909 3,417 3,049
-------- -------- --------
Total liabilities 342,189 302,510 243,423
Average Shareholders'
Equity 30,640 27,569 24,787
-------- -------- --------
Total liabilities and
shareholders' equity $372,829 $330,079 $268,210
======== ======== ========
Net interest income (1) $18,414 $16,328 $13,718
======= ======= =======
Rate spread (1) 4.57% 4.61% 4.85%
==== ==== ====
Net interest margin
(percent of average
earning assets) (1) 5.26% 5.29% 5.47%
==== ==== ====
</TABLE>
(1) Presented on a fully taxable equivalent basis using a federal income tax
rate of 34%.
(2) Including loan fees of $1,327,000, $1,060,300, and $897,700, respectively.
Interest on Non-accrual loans is not included.
-44-
<PAGE>
The preceding table presents a comparison of average balances, average
rates, rate spread and net interest margin on average assets for 1996, 1995, and
1994. The average earning rate on total earning assets was 9.04% in 1996, 9.11%
in 1995, and 8.48% in 1994. The prime rate increased 175 basis points in 1994.
It began and ended 1995 at the same point after rising early in the year and
then receding later in the year to the beginning level. There was a modest drop
in the prime rate early in 1996, but no changes since that time. Firstbank's
earning assets are primarily term instruments which do not reprice until
maturity or refinancing occurs. The decrease in the 1996 average earning rate is
primarily the result of prime rate decreases from 1995 to 1996. As assets
repriced in 1996, they repriced at rates lower than their prior rates due to the
prime rate decrease. The average rate paid on interest bearing liabilities was
4.47% in 1996, 4.50% in 1995, and 3.63% in 1994. There was also a slight
decrease in deposit rates paid. Management does not expect the opportunity to
reduce deposit costs significantly in the near future. Competition for deposit
dollars has strengthened in the recent past, but Firstbank has managed a growth
in average deposits of $34 million when compared to the end of 1995.
The 1996 rate spread of 4.57% remained relatively flat with a decrease of 4
basis points from the 1995 level. In 1995, the rate spread of 4.61% was a 24
basis point drop from the 1994 level of 4.85%. Tax equivalent net interest
income increased $2 million from 1995 to 1996 as total average earning assets
rose $42 million from 1995. Net interest margins posted a small decline to 5.26%
in 1996 from 5.29% in 1995. The decrease in both the rate spread and net
interest margin is the result of average earning rates on assets decreasing more
than the average cost of interest bearing liabilities. Total average earning
assets were 94% of total average assets in 1996 as compared to 93% in 1995.
Provision for Loan Losses
The provision for loan losses was $1.8 million in 1996 compared to $1.1
million in 1995 and $1.0 million in 1994. The growth in the provision increased
the allowance for loan losses as a percent of total loans to 1.99% at December
31, 1996, compared to 1.84% at both December 31, 1995 and 1994. At September 30,
1996, the most recent quarter end for which this data is available, the ratio of
loan loss reserves to total loans was 1.96% for commercial banks. Firstbank's
net charge offs were $467,000 in 1996 as compared to $309,000 and $154,000 for
1995 and 1994. As a percentage of average loans, net charge offs were .16%,
.13%, and .08% in 1996, 1995, and 1994. Nonperforming assets were .34% of total
loans at December 31, 1996, compared to .23% and .31% at December 31, 1995 and
1994. As a percentage of total assets, nonperforming assets were .25% at
December 31, 1996, compared to .80% as an average of all FDIC insured commercial
banks for the period ended September 30, 1996. Management actively monitors the
adequacy of the allowance for loan losses and maintains the allowance at a level
intended to provide for losses inherent in the portfolio.
Noninterest Income
Noninterest income rose $826,000, or 33%, in 1996 after declining $76,000,
or 3%, from 1994 to 1995. With the exception of a $12,000 decrease in gain on
sale of securities, all other categories of noninterest income increased in 1996
when compared to 1995.
The gain on sale of mortgages more than doubled in 1996, for an increase of
$319,000 when compared to 1995 which had declined by $95,000 from the 1994
results. In early 1996, mortgage interest rates declined to a point which was
lower than many outstanding mortgages at that time. With such a rate
environment, refinancing activity increased and activity in the housing market
was stimulated. Management believes that, while another interest rate reduction
would prompt additional activity, rates are unlikely to fall in the near future
to a level that would produce the refinancing volume experienced in early 1996.
Mortgage banking activity has become an increasingly more significant
portion of Firstbank's business. The mortgage loans serviced for others grew to
$147 million by the end of 1996 for a $19 million or 14.8% increase. In 1995,
this same portfolio experienced growth of $18 million for a 16.2% gain.
Beginning in January 1996, Firstbank implemented Financial Accounting Standards
Board Statement SFAS 122, Accounting for Mortgage Servicing Rights. The effect
of implementing SFAS 122 was not considered material. A more complete discussion
of SFAS 122 may be found in Note D of the Firstbank consolidated financial
statements.
-45-
<PAGE>
Other noninterest income increased $388,000 or 60.1% in 1996 after
increasing $233,000 or 56.7% in 1995. Sales of collateral from previously
charged off loans of approximately $100,000 augmented the improvement, along
with an increase in the nonbank subsidiaries' operating income of $60,000, and
an enhancement of check printing fees of $47,000. The net gains on disposition
of fixed assets in 1996 were $67,000 greater than the net losses in 1995.
Noninterest Expense
Noninterest expense grew $978,000 or 8.3% in 1996 compared to a $1,484,000
or 14.4% increase in 1995. Salary and benefit expenses account for the majority
of the net increase in noninterest expense. The results from 1996 include the
operation of one additional branch for an entire year as compared to six months
in 1995, and the additional expenses incurred by adding two branches late in
1996. Total full time equivalent employees at December 31, 1996, were 227 as
compared to 202 at December 31, 1995. The personnel costs for the growth in full
time equivalent employees and normal increments explain the increase in this
area.
Occupancy costs increased $376,000 or 24.9% in 1996 compared to a decline
of $85,000 in 1995. Firstbank upgraded its data processing system in late 1995,
and therefore recognized only two months of mainframe hardware and software
depreciation in 1995. An entire year's depreciation is included in 1996 as well
as costs associated with the expansion of several local area networks and the
implementation of a wide area network.
Legislation in 1996 has had an impact on deposit insurance costs. Firstbank
has a combination of Bank Insurance Fund (BIF) and Savings Association Insurance
Fund (SAIF) deposits. At December 31, 1996, approximately 10% of the total
deposits were SAIF insured. While BIF continues to be well capitalized, the
deposit insurance paid into that fund in 1996 is negligible. Essentially all of
the deposit insurance costs in 1996 were paid into SAIF. For 1996, the insurance
rates paid on SAIF deposits were $.230 per $100 of insured deposit. In addition,
a one-time charge of $.657 for each $100 of adjusted SAIF deposits was levied in
1996. The total expense attributable to the levy was $136,000. Published
insurance rates for 1997 lead management to expect that the total deposit
insurance costs for 1997 should be decreased by approximately $25,000.
Other noninterest expense decreased 3.6% or $139,000 from 1995 to 1996
after increasing $1,051,000 in 1995. The majority of this decrease, $121,000,
was the result of a reduction in the lower of cost or market adjustment on loans
held for sale. The reduction in the Michigan intangibles tax accounted for an
additional $27,000 decrease in this item. Management closely monitors these
expenses as part of the ongoing cost control effort.
Federal Income Tax Expense
Firstbank's effective tax rate was 27%, 25%, and 23% for 1996, 1995, and
1994. The principal difference between those percentages and the corporate tax
rate of 34% is Firstbank's investment in securities and loans which provide
income exempt from federal income tax.
-46-
<PAGE>
Financial Condition
Total assets of Firstbank set a new high at December 31, 1996, of $405
million surpassing December 31, 1995, results by $52 million, or 15%. Loan
growth during the same period was $50 million to reach $315 million, an increase
of 19%. In addition, mortgage loans serviced for others increased $19 million,
or 15%, to $147 million at December 31, 1996.
The following table discloses the change in loan balances during 1996:
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 Change % Change
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Commercial $122,933 $115,779 $ 7,154 6.2%
Real Estate Mortgage 122,606 90,753 31,853 35.1%
Consumer 69,081 58,315 10,766 18.5%
-------- -------- ------- ----
Total $314,620 $264,847 $49,773 18.8%
Mortgages Serviced $147,362 $128,418 $18,944 14.8%
</TABLE>
Although loan demand is expected to be strong during the next twelve months, the
rate of growth is expected to diminish from 1996 results. Strategic branch
acquisitions have contributed to the loan growth. The loan growth has been
funded by an increase in deposits and a decrease in investment securities.
Pursuant to the FASB Special Report, A Guide to Implementation of Statement
No. 115 on Accounting for Certain Investments in Debt and Equity Securities, the
entire portfolio of held to maturity securities was transferred to the available
for sale classification on December 12, 1995. Firstbank believes that the
reclassification of all securities as available for sale will provide management
with greater flexibility in managing its assets and liabilities. Firstbank has
used the proceeds from the maturities of investment securities to fund loan
growth. During 1996, Firstbank did not sell securities prior to maturity to fund
loan growth.
Premises and equipment increased $1,213,000 after depreciation expense of
$750,000. Firstbank acquired two branch facilities during 1996 in addition to
upgrading several local area networks and installing a wide area network.
Deposit growth of $52 million was primarily used to fund the increased loan
demand. Included in this growth are $19 million in deposits which were part of
the branch acquisitions.
Securities sold under agreements to repurchase and overnight borrowings
have decreased $5 million from December 31, 1995. Approximately half of this
decrease is from a reduction in overnight borrowings, with the remainder from a
drop in securities sold under agreements to repurchase. The average 1996 balance
in securities sold under agreements to repurchase is $1.6 million higher than
the 1995 average balance.
Notes payable have increased by $2 million. Firstbank borrowed funds from
the Federal Home Loan Bank primarily to fund loan demand. For a more complete
discussion, see Note 1 to the Firstbank consolidated financial statements.
Asset Quality
Management of Firstbank continues to follow a conservative course in the
recognition of problem loans. In most cases, when a loan reaches 90 days past
due, all income earned but not collected is deducted from current income. Loans
are carried at an amount which management believes will be collected. A balance
considered not collectible is charged against (reduction to) the allowance for
loan losses. In 1996, net charge offs were $467,000 compared to $309,000 in
1995. Net charged off loans as a percentage of average loans were .16% and .13%
in 1996 and 1995. For comparative purposes, at December 31, 1995, the most
recent year for which data has been compiled, the net charged off loans as a
percentage of loans were .20% for other institutions of Firstbank's size.
-47-
<PAGE>
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more
past due, and any loans where the terms have been renegotiated. Total
nonperforming loans were $1,057,000 and $615,000 at December 31, 1996 and 1995.
The average investment in impaired loans was $368,000 at December 31, 1996,
compared to $304,000 at the same time in 1995. See Note E to the Firstbank
consolidated financial statements for more information on impaired loans. Total
nonaccrual loans were $218,000 at December 31, 1996, compared to $47,000 at the
end of 1995.
The allowance for loan losses increased $1,371,000 or 28% during 1996. The
allowance for loan losses represented 1.99% of outstanding loans at the end of
1996 as compared to 1.84% at December 31, 1995. The average of allowance for
loan losses to outstanding loans for FDIC insured institutions was 1.96% at
September 30, 1996, the most recent date for which this information is
available. Management maintains the allowance at a level which they believe
adequately provides for losses inherent in the loan portfolio. Such losses are
estimated by a variety of factors, including specific examination of certain
borrowing relationships and consideration of historical losses incurred on
certain types of credits. Management focuses on early identification of problem
credits through ongoing review by management, loan personnel and an outside loan
review contractor.
Liquidity and Interest Rate Sensitivity
Asset liability management aids Firstbank in achieving reasonable and
predictable earnings and liquidity while maintaining a balance between interest
earning assets and interest bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of Firstbank's customers. These
customers may be either borrowers needing to meet their credit needs or
depositors wanting to withdraw funds. Management of interest rate sensitivity
attempts to avoid widely varying net interest margins and to achieve consistent
net interest income through periods of changing interest rates. The net interest
margin was 5.26% in 1996 compared to 5.29% in 1995. Loan yields were 9.47% in
1996 and 9.64% in 1995 as deposit costs remained nearly steady at 3.88% and
3.89%. As loan yields have deceased 17 basis points while deposit costs have
only decreased 1 basis point, the challenge of effective asset liability
management becomes evident. An increase in deposit rates affects most rates paid
immediately, and therefore, has an immediate negative impact on net interest
margin. With the exception of variable rate loans, an increase in loan rates
does not affect the yield until a new loan is made. The prime rate was stable
for the majority of 1996 after decreasing early in the year, which puts downward
pressure on loan yields without an equivalent opportunity to reduce rates paid
on interest bearing liabilities.
The principal sources of liquidity for Firstbank are maturing securities,
federal funds sold, loan payments by borrowers, investment securities, loans
held for sale and deposit or deposit equivalent growth. Securities maturing
within one year at December 31, 1996, are $11 million compared to $15 million at
December 31, 1995.
-48-
<PAGE>
The following table shows the interest sensitivity gaps for five different
intervals as of December 31, 1996:
<TABLE>
<CAPTION>
Maturity or repricing frequency
-------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
2 days 4 mos. 14 mos.
through through through
1 day 3 mos. 12 mos. 5 years 5+ yrs.
------ ------- -------- ------- -------
Interest earning assets:
Loans $ 78.8 $ 25.5 $ 45.5 $139.3 $25.5
Investment securities 1.2 4.1 5.7 34.1 11.5
Other earning assets 1.7 0.1 0.0 0.0 0.0
------ ------ ------- ------ -----
Total 81.7 29.7 51.2 173.4 37.0
Interest bearing liabilities:
Deposits 147.3 43.0 80.1 40.3 0.2
Other interest-bearing liabilities 0.9 7.8 0.1 0.1 0.2
------ ------ ------- ------ -----
Total 148.2 50.8 80.2 40.4 0.4
------ ------ ------- ------ -----
Interest sensitivity gap $(66.5) $(21.1) $ (29.0) $133.0 $36.6
====== ====== ======= ====== =====
Cumulative gap $(66.5) $(87.6) $(116.6) $ 16.4 $53.0
====== ====== ======= ====== =====
</TABLE>
For the one day interval, maturities of interest bearing liabilities exceed
those of interest earning assets by $66.5 million. Included in the one day
maturity classification are $146 million of savings and checking accounts which
are contractually available to Firstbank's customers immediately, but in fact
function as a core deposit with a considerably longer maturity. The pattern of
interest sensitive liability maturities exceeding interest sensitive assets
continues through the one year time frame resulting in a cumulative excess of
$117 million through 12 months. For the time period of over one year to five
years and over five years, the trend reverses so that for the period over five
years, interest sensitive assets exceed interest sensitive liabilities by $53
million.
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. Overnight investments, on which rates
change daily, and loans tied to the prime rate, differ considerably from long
term investment securities and fixed rate loans. Time deposits over $100,000
and money market accounts are more interest sensitive than regular saving
accounts. Comparison of the repricing intervals of interest earning assets to
interest bearing liabilities is a measure of the interest sensitivity gap.
Balancing this gap is a continual challenge in a changing rate environment.
Firstbank uses a sophisticated computer program to perform analysis of interest
rate risk, assist with its asset liability management, and model and measure
interest rate sensitivity.
Capital Resources
Firstbank obtains funds for its operating expenses and dividends to
shareholders through dividends from its subsidiary banks. In general, the
subsidiary banks pay only those amounts required to meet holding company cash
requirements. No excess liquidity is accumulated at the holding company, rather
capital is maintained at the subsidiary banks to support growth.
Bank regulators have established risk based capital guidelines for banks
and bank holding companies. Minimum capital levels are established under these
guidelines. Each asset category is assigned a perceived risk weighting. Off
balance sheet items such as loan commitments and standby letters of credit also
require capital allocations.
As of December 31, 1996, Firstbank's total capital to risk weighted assets
of 10.79% exceeded the minimum requirement for capital adequacy purposes of 8%
by 2.79% or $8.4 million. Tier 1 capital to risk weighted assets of 9.53%
exceeded the minimum of 4% by 5.53% or $16.6 million, and Tier 1 capital to
average assets of 7.79% exceeded
-49-
<PAGE>
the minimum 4% by 3.79% or $13.9 million. For a more complete discussion of
capital requirements, refer to Note P to the Firstbank consolidated financial
statements.
The Federal Deposit Insurance Corporation insures specified customer
deposits and assesses premium rates based on defined criteria. Insurance
assessment rates may vary from bank to bank based on the factors that measure
the perceived risk of a financial institution. One condition for maintaining the
lowest risk assessment and therefore the lowest insurance rate is the
maintenance of capital at the "well capitalized" level. The capital levels of
each of Firstbank's affiliate banks exceed the regulatory criteria for a "well
capitalized" financial institution, and therefore is paying the lowest
assessment rate assigned by FDIC.
A certain level of capital growth is desirable to maintain a good ratio of
equity to total assets. The compound annual growth rate for total average assets
for the past five years was 11.8%. The compound annual growth rate for average
equity over the same period was 16.5%. The compound annual growth rate for
equity includes the proceeds of a $5.5 million common stock offering in 1993.
Management has determined one way of maintaining capital adequacy is to
maintain a reasonable rate of internal capital growth. The percentage return on
average equity times the percentage of earnings retained after dividends equals
the internal growth percentage. The following table illustrates this
relationship:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Return on Equity 15.15% 14.0% 13.0%
multiplied by
Percentage of Earnings Retained 72.06% 73.8% 73.9%
equals
Internal Capital Growth 10.9% 10.3% 9.6%
</TABLE>
The increases in the rate of internal capital growth in 1996 and 1995 are
indications of effective deployment of capital additions from the 1993 stock
offering. As return on equity has increased through the last three years, the
internal capital growth rate has also risen. To maintain sufficient capital,
management has determined that the rate of internal capital growth should
average at least 5%. To achieve the goal of acceptable internal capital growth,
management will continue its efforts to increase Firstbank's return on average
equity while maintaining a reasonable cash dividend.
As an additional enhancement to capital growth, Firstbank offers a dividend
reinvestment program. The Firstbank Corporation Dividend Reinvestment Plan was
first offered in 1988. At December 31, 1988,123 owners of 90,641 shares
participated in the plan. By the end of 1996, 527 owners holding 368,464 shares
were participating in the Plan.
Firstbank is not aware of any recommendations by regulatory authorities at
December 31, 1996, which are likely to have a material effect on Firstbank
Corporation's liquidity, capital resources or operations.
[This Space Intentionally Left Blank]
-50-
<PAGE>
Audited Consolidated Financial Statements
FIRSTBANK CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-51-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Firstbank Corporation
Alma, Michigan
We have audited the consolidated balance sheets of Firstbank Corporation as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Firstbank
Corporation at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 24, 1997
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<PAGE>
<TABLE>
<CAPTION>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS December 31
-----------
1996 1995
---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 19,430,993 $ 15,526,265
Short term investments 1,797,479 1,222,475
------------ ------------
Total cash and cash equivalents 21,228,472 16,748,740
Securities available for sale 56,572,495 61,820,558
Loans:
Loans held for sale 6,755,863 2,606,213
Portfolio loans
Commercial 122,933,722 115,779,085
Real estate mortgage 115,849,643 88,146,830
Consumer 69,080,989 58,315,109
------------ ------------
Total loans 314,620,217 264,847,237
Less allowance for loan losses (6,247,000) (4,876,000)
------------ ------------
Net loans 308,373,217 259,971,237
Premises and equipment, net 8,218,954 7,006,008
Acquisition intangibles 3,847,832 2,361,675
Accrued interest receivable 2,236,870 2,259,443
Other assets 4,093,102 2,775,164
------------ ------------
TOTAL ASSETS $404,570,942 $352,942,825
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand accounts $ 47,752,360 $ 39,030,563
Interest bearing accounts:
Demand 86,768,530 64,288,096
Savings 59,391,775 54,343,238
Time 164,756,724 149,344,719
------------ -------------
Total deposits 358,669,389 307,006,616
Securities sold under agreements to
repurchase and overnight borrowings 6,832,592 11,842,279
Notes payable 2,239,039
Accrued interest and other liabilities 3,741,861 4,241,277
------------ -------------
Total liabilities 371,482,881 323,090,172
SHAREHOLDERS' EQUITY
Preferred stock; no par value,
300,000 shares authorized, none issued
Common stock;
2,500,000 shares authorized; 1,627,843 and 1,619,410
shares issued and outstanding in 1996 and 1995 respectively 24,228,132 21,355,293
Retained earnings 8,296,590 7,583,783
Net unrealized appreciation on securities available for sale,
net of income tax of $290,000 in 1996, and $471,000 in 1995 563,339 913,577
------------ -------------
Total shareholders' equity 33,088,061 29,852,653
------------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $404,570,942 $352,942,825
============ =============
</TABLE>
See notes to consolidated financial statements.
-53-
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 27,446,750 $ 23,482,159 $ 17,330,498
Securities:
Available for sale - Taxable 1,922,393 1,539,531 752,896
Available for sale - Exempt from federal income tax 1,471,602 175,924 52,140
Held to maturity - Taxable 443,346 606,992
Held to maturity - Exempt from federal income tax 1,378,401 1,524,905
Short term investments 175,064 375,083 228,510
------------ ------------ ------------
Total interest income 31,015,809 27,394,444 20,495,941
Interest expense:
Deposits 12,581,008 11,252,294 7,315,617
Notes payable and other 699,718 549,629 239,786
------------ ------------ ------------
Total interest expense 13,280,726 11,801,923 7,555,403
------------ ------------ ------------
Net interest income 17,735,083 15,592,521 12,940,538
Provision for loan losses 1,838,000 1,085,000 1,000,060
------------ ------------ ------------
Net interest income after
provision for loan losses 15,897,083 14,507,521 11,940,478
Noninterest income:
Service charges on deposit accounts 1,009,895 946,172 783,207
Gain on sale of mortgage loans 620,990 302,382 397,079
Mortgage servicing 386,494 329,188 292,311
Trust fees 234,951 224,207 182,608
Gain on sale of securities 11,773 24,072 38,817
Gain on termination of pension plan 441,450
Other 1,033,253 645,469 411,985
------------ ------------ ------------
Total noninterest income 3,297,356 2,471,490 2,547,457
Noninterest expense:
Salaries and employee benefits 6,613,365 5,834,699 5,202,642
Occupancy 1,883,193 1,507,268 1,592,267
FDIC Insurance premium 226,554 327,704 466,550
Michigan Single Business tax 355,800 293,200 268,300
Other 3,711,139 3,849,661 2,798,280
------------ ------------ ------------
Total noninterest expense 12,790,051 11,812,532 10,328,039
------------ ------------ ------------
Income before federal income taxes 6,404,388 5,166,479 4,159,896
Federal income taxes 1,761,000 1,301,000 939,000
------------ ------------ ------------
NET INCOME $ 4,643,388 $ 3,865,479 $ 3,220,896
============ ============ ============
Earnings per common and common equivalent share $2.86 $2.40 $2.02
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
-54-
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
on Securities Unallocated
Common Retained Available ESOP
Stock Earnings For Sale Shares Total
----- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $18,089,191 $ 5,638,811 $ 78,194 $(308,817) $23,497,379
Net income for 1994 3,220,896 3,220,896
Cash dividends--$.51 per share (840,233) (840,233)
5% stock dividend--76,760
shares 1,462,104 (1,469,310) (7,206)
Issuance of 30 shares of
common stock through
exercise of stock options 518 518
Allocation of 15,285 shares
to ESOP participant accounts 150,000 150,000
Forfeiture of restricted stock (10,875) (10,875)
Net change in unrealized appreciation
(depreciation) on securities
available for sale, net of
tax of $215,336 (414,466) (414,466)
----------- ----------- ---------- --------- -----------
BALANCES AT
DECEMBER 31, 1994 19,540,938 6,550,164 (336,272) (158,817) 25,596,013
Net income for 1995 3,865,479 3,865,479
Cash dividends--$.63 per share (1,013,748) (1,013,748)
5% stock dividend--76,769
shares 1,809,547 (1,818,112) (8,565)
Issuance of 66 shares of
common stock through
exercise of stock options 1,289 1,289
Issuance of 152 shares of common
stock 3,519 3,519
Allocation of 16,185 shares
to ESOP participant accounts 158,817 158,817
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of ($643,863) 1,249,849 1,249,849
----------- ----------- ---------- --------- -----------
BALANCES AT
DECEMBER 31, 1995 21,355,293 7,583,783 913,577 0 29,852,653
Net income for 1996 4,643,388 4,643,388
Cash dividends--$.80 per share (1,297,400) (1,297,400)
5% stock dividend--77,060 shares 2,620,039 (2,633,181) (13,142)
Issuance of 2,128 shares of
common stock through
exercise of stock options 46,947 46,947
Issuance of 4,870 shares of common
stock through the dividend
reinvestment plan 144,063 144,063
Issuance of 1,831 shares of common
stock from supplemental shareholder
investments 61,790 61,790
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of $180,426 (350,238) (350,238)
----------- ----------- ---------- --------- -----------
BALANCES AT
DECEMBER 31, 1996 $24,228,132 $ 8,296,590 $ 563,339 $ 0 $33,088,061
=========== =========== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
-55-
<PAGE>
FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,643,388 $ 3,865,479 $ 3,220,896
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,838,000 1,085,000 1,000,060
Depreciation of premises and equipment 749,790 436,564 710,927
Provision for recovery on certain other real estate (1,896)
Net amortization of security premiums/discounts 343,131 287,659 606,215
Gain on sale of securities (11,773) (24,072) (38,817)
Allocation of common stock to ESOP participants 158,817 150,000
Amortization of acquisition intangibles 271,449 232,348 188,135
Gain on sale of mortgage loans (620,990) (302,382) (397,079)
Proceeds from sales of mortgage loans 46,388,544 34,262,839 35,151,078
Loans originated for sale (49,917,204) (33,574,477) (38,648,315)
Unrealized loss on loans held for sale 160,000
Deferred federal income tax benefit (661,000) (399,000) (265,000)
Increase in accrued interest receivable and other assets (453,940) (1,444,046) (279,344)
Increase (decrease) in accrued interest payable and other liabilities (499,416) 1,335,588 245,927
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,069,979 5,920,317 1,802,787
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale 3,534,165 6,188,687 4,262,296
Proceeds from maturities of securities available for sale 20,286,206 4,280,804 6,896,076
Proceeds from maturities of securities held to maturity 9,102,877 13,648,132
Purchases of securities available for sale (19,434,329) (13,636,714) (19,233,012)
Purchases of securities held to maturity (2,338,617) (8,095,352)
Net increase in portfolio loans (46,090,330) (42,151,529) (36,650,324)
Loans from branch acquisitions (4,766,260)
Net purchases of premises and equipment (1,962,736) (2,590,960) (1,030,928)
Net increase in intangibles from branch acquisitions (1,757,606) (496,076) (1,566,772)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (45,424,630) (41,641,528) (46,536,144)
FINANCING ACTIVITIES
Deposits from branch acquisitions 19,347,853 10,901,185 25,556,817
Net increase in deposits 32,314,920 29,028,601 21,180,032
Net increase (decrease) in securities sold under
agreements to repurchase and overnight borrowings (5,009,687) (2,301,191) 3,301,188
Proceeds from notes payable 2,239,039
Cash dividends and cash paid in lieu of
fractional shares on stock dividend (1,310,542) (1,022,313) (847,439)
Net proceeds from issuance/cancellation of common stock 252,800 4,808 (10,357)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 47,834,383 36,611,090 49,180,241
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,479,732 889,879 4,446,884
Cash and cash equivalents at beginning of year 16,748,740 15,858,861 11,411,977
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 21,228,472 $ 16,748,740 $ 15,858,861
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 13,150,177 $ 11,489,482 $ 7,461,327
Income taxes paid 2,610,000 1,710,000 990,000
Supplemental disclosure of non-cash investing activities--See Note A
</TABLE>
See notes to consolidated financial statements.
-56-
<PAGE>
FIRSTBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Firstbank Corporation ("Firstbank") is a bank
holding company. Each subsidiary bank of Firstbank is a full service community
bank. The subsidiary banks offer all customary banking services, including the
acceptance of checking, savings and time deposits, and the making of commercial,
agricultural, real estate, personal, home improvement, automobile and other
installment and consumer loans. Trust services are provided throughout
Firstbank's service area by one of its subsidiary banks. The consolidated
assets of Firstbank of $404,571,000 as of December 31, 1996, primarily represent
commercial and retail banking activity. Mortgage loans serviced for others of
$147,362,000 and trust assets of $62,000,000 as of December 31, 1996, are not
included in Firstbank's consolidated balance sheet.
Principles of Consolidation: The consolidated financial statements include
the accounts of Firstbank and its wholly owned subsidiaries: Bank of Alma,
Firstbank, and 1st Bank (the "Banks"), Niles Agency, Incorporated, and 1st
Armored, Incorporated, after elimination of intercompany accounts and
transactions.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Certain Significant Estimates: The primary estimates incorporated into
Firstbank's financial statements which are susceptible to change in the near
term include the allowance for loan losses and the determination and carrying
value of certain financial instruments.
Current Vulnerability Due to Certain Concentrations: Firstbank's business
is concentrated in the mid-central section of the lower peninsula of Michigan.
Management is of the opinion that no concentrations exist that make Firstbank
vulnerable to the risk of a near term severe impact. While the loan portfolio
is diversified, the customers' ability to honor their debts is partially
dependent on the local economies. Firstbank's service area is primarily
dependent on the manufacturing (automotive and other), agricultural and
recreational industries. Most commercial and agricultural loans are secured by
business assets, including commercial and agricultural real estate and federal
farm agency guarantees. Generally, consumer loans are secured by various items
of personal property and mortgage loans are secured by residential real estate.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
amounts due from banks, interest bearing deposits with banks, federal funds sold
and overnight money market fund investments. Generally, federal funds and
overnight money market funds are purchased for a one day period. Firstbank
reports customer loan transactions, deposit transactions, and repurchase
agreements and overnight borrowings on a net cash flow basis.
Securities: Securities available for sale consist of bonds and notes which
might be sold prior to maturity due to changes in interest rates, prepayment
risks, yield and availability of alternative investments, liquidity needs or
other factors. Securities classified as available for sale are reported at
their fair value and the related unrealized holding gain or loss (the difference
between the fair value and amortized cost of the securities so classified) is
reported, net of related income tax effects, as a separate component of
shareholders' equity until realized.
Gains and losses on sales are determined using the specific identification
method. Premium and discount amortization is recognized in interest income
using the level yield method over the period to call or maturity, whichever is
earlier.
Mortgage Banking Activities: Mortgage loans originated and intended for
sale in the secondary market are accounted for at the lower of aggregate cost or
market value. Net unrealized losses are recognized through a valuation
-57-
<PAGE>
allowance by charges to income. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 122, Accounting for
Mortgage Servicing Rights (SFAS 122), which has changed the accounting for
mortgage servicing rights retained by the loan originator. Firstbank adopted
SFAS 122 on January 1, 1996, as required. Under this standard, if the
originator sells or securitizes 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 prior 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 carrying value of the mortgage servicing rights is
periodically evaluated for impairment.
Portfolio Loans: Loans receivable, for which management has the intent and
ability to hold for the foreseeable future or payoff, are reported at their
outstanding unpaid principal balances reduced by charge offs and net of any
deferred fees or costs on originated loans, or unamortized premiums or
discounts. Loan origination fees and certain origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level believed by management to be adequate to absorb inherent losses in the
loan portfolio. Management's determination of the adequacy of the al lowance is
based on an evaluation of the portfolio, past loan loss experience, current
economic conditions, volume, growth and composition of the loan portfolio and
other relevant factors. The allowance is increased by provisions for loan
losses charged to expense and reduced by charge offs, net of recoveries.
The valuation of loans is reviewed on an ongoing basis for impairment. A
loan is impaired when it is probable that Firstbank will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
Impaired loans are measured based on the present value of expected cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or at the fair value of collateral if the
loan is collateral dependent. Loans considered to be impaired are reduced to
the present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to require
increase, such increase is reported as bad debt expense.
Smaller balance homogeneous loans such as residential first mortgage loans
secured by one to four family residences, residential construction loans,
automobile, home equity and second mortgage loans are collectively evaluated for
impairment. Commercial loans and first mortgage loans secured by other
properties are evaluated individually for impairment. When credit analysis of
the borrower's operating results and financial condition indicates the
underlying ability of the borrower's business activity is not sufficient to
generate adequate cash flow to service the business' cash needs, including
Firstbank's loans to the borrower, the loan is evaluated for impairment. Often
this is associated with a delay or shortfall in payments of 90 days or less.
Commercial loans are rated on a scale of 1 to 8, with grades 1 to 4 being pass
grades, 5 being special attention or watch, 6 substandard, 7 doubtful and 8
loss. Loans graded 6, 7 and 8 are considered for impairment. Loans are
generally moved to nonaccrual status when 90 days or more past due. These loans
are often considered impaired. Impaired loans, or portions thereof, are charged
off when deemed uncollectible. The nature of disclosures for impaired loans is
considered generally comparable to prior nonaccrual and renegotiated loans and
nonperforming and past-due asset disclosures.
Premises and Equipment: Premises and equipment are stated on the basis of
cost, less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the assets, primarily by accelerated methods for
income tax purposes, and by the straight line method for financial reporting
purposes.
Other Real Estate: Other real estate (included as a component of other
assets) includes properties acquired through either a foreclosure proceeding or
acceptance of a deed in lieu of foreclosure and is initially recorded at fair
value at the date of foreclosure, establishing a new cost basis. These
properties are evaluated periodically and are carried at the lower of cost or
estimated fair value less estimated costs to sell.
Acquisition Intangibles: The acquisition of purchased subsidiaries and
branches has included amounts related to the value of customer deposit
relationships ("core deposit intangibles") and excess of cost over estimated
fair value
-58-
<PAGE>
of net assets acquired ("goodwill"). The core deposit intangibles are amortized
over the expected life of the value of the acquired relationship. The goodwill
is amortized over 15 years using the straight line method.
Interest Income: Interest on loans is accrued over the term of the loans
based upon the principal outstanding. The carrying value of impaired loans is
periodically adjusted to reflect cash payments, revised estimates of future cash
flows and increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as
such and other cash payments are reported as reductions in carrying value.
Increases or decreases in carrying value due to changes in estimates of future
payments or the passage of time are reported as reductions or increases in bad
debt expense.
Income Taxes: Firstbank records income tax expense based on the amount of
taxes due on its tax return plus the change in deferred taxes computed based on
the future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates.
Firstbank and its subsidiaries file a consolidated federal income tax return on
a calendar year basis.
Earnings Per Common and Common Equivalent: Earnings per common and common
equivalent share amounts are based on the weighted average net shares
outstanding (which excludes unallocated ESOP shares) for each period (1,621,652
shares in 1996; 1,611,094 shares in 1995; and 1,595,907 shares in 1994). Stock
options are excluded from the calculation because their effect is immaterial.
All share and per share amounts have been adjusted to reflect the 5% stock
dividends paid in 1996, 1995, and 1994.
Supplemental Disclosure of Non-Cash Investing Activities: During 1996 and
1994, Firstbank transferred $713,992 and $7,242,029 from loans held for sale to
portfolio loans. During 1995, Firstbank transferred securities with a cost of
$31,121,988 and fair value of $32,194,948 from held to maturity to available for
sale.
Reclassification: Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 presentation.
Issued But Not Yet Adopted Accounting Standards: In August 1996, the FASB
issued Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
The Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities for some transactions in 1997 and others in 1998,
and is to be applied prospectively. Example transactions covered by SFAS No. 125
include asset securitizations, repurchase agreements, wash sales, loan
participations, transfers of loans with recourse and servicing of loans. The
standard is based on a consistent application of a financial-components approach
that focuses on control. Under this Statement, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. The Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 125
supersedes SFAS No. 122, Accounting for Mortgage Servicing Rights, and
supersedes SFAS No. 76, Extinguishment of Debt and SFAS No. 77, Reporting by
Transferors for Transfers of Receivables with Recourse. Retroactive application
is not permitted.
NOTE B--RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
Firstbank's subsidiary banks are required to maintain average reserve
balances in the form of cash and noninterest bearing balances due from the
Federal Reserve Bank. The average reserve balances required to be maintained at
December 31, 1996 and 1995, were $1,569,000 and $1,316,000 respectively. These
reserves do not earn interest.
-59-
<PAGE>
NOTE C--SECURITIES
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The carrying amounts of securities and
their fair values were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale:
December 31, 1996:
U.S. Treasury $ 7,492,293 $ 19,228 $ (2,192) $ 7,509,329
U.S. governmental agency 13,529,582 79,196 (44,158) 13,564,620
States and political subdivisions 26,833,250 814,168 (33,914) 27,613,504
Collateralized mortgage obligations 868,982 5,269 (2,087) 872,164
Corporate 5,859,015 26,256 (8,222) 5,877,049
Equity 1,135,829 1,135,829
----------- ---------- ---------- -----------
$55,718,951 $ 944,117 $ (90,573) $56,572,495
=========== ========== =========== ===========
December 31, 1995:
U.S. Treasury $ 6,053,375 $ 66,195 $ (11,630) $ 6,107,940
U.S. governmental agency 17,527,486 208,474 (22,898) 17,713,062
States and political subdivisions 28,442,075 1,090,150 (20,477) 29,511,748
Collateralized mortgage obligations 1,194,161 16,440 (4,942) 1,205,659
Corporate 6,665,160 62,897 6,728,057
Equity 554,092 554,092
----------- ---------- ----------- -----------
$60,436,349 $1,444,156 $ (59,947) $61,820,558
=========== ========== =========== ===========
</TABLE>
Gross realized gains (losses) on sales and calls of securities were:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Gross realized gains $ 22,511 $27,680 $40,296
Gross realized losses (10,738) (3,608) (1,479)
-------- ------- -------
Net realized gains $ 11,773 $24,072 $38,817
======== ======= =======
</TABLE>
Pursuant to the FASB Special Report, A Guide to Implementation of Statement No.
115 on Accounting for Certain Investments in Debt and Equity Securities, the
entire portfolio of held to maturity securities, with a carrying value of
$31,121,988, fair value of $32,194,948, unrealized gain of $1,103,138 and
unrealized loss of $30,178, was transferred to the available for sale
classification on December 12, 1995. The transfer increased shareholders'
equity by $708,154, net of related deferred tax of $364,807. Management
believes the classification of all securities as available for sale will provide
Firstbank with greater flexibility in managing its assets and liabilities.
-60-
<PAGE>
The amortized cost and fair value of debt securities at December 31, 1996, by
stated maturity are shown below. Actual maturities may differ from stated
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available for Sale
-----------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 9,908,516 $ 9,955,718
Due after one year through five years 33,337,322 34,074,878
Due after five years through ten years 8,797,348 8,846,427
Due after ten years 2,539,936 2,559,643
----------- -----------
$54,583,122 $55,436,666
=========== ===========
</TABLE>
At December 31, 1996, securities with a carrying value approximating $22,115,000
were pledged to secure public and trust deposits, securities sold under
agreements to repurchase, and for such other purposes as required or permitted
by law.
NOTE D--SECONDARY MORTGAGE MARKET OPERATIONS
The following summarizes Firstbank's secondary mortgage market activities:
<TABLE>
<CAPTION>
During the period: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loans originated for sale $ 49,917,204 $ 33,574,477 $ 38,648,315
Proceeds from sale of mortgage loans 46,388,544 34,262,839 35,151,078
Transfer from loans held for sale to portfolio loans 713,992 7,242,029
Gain on sale of mortgage loans 620,990 302,382 397,079
Unrealized loss on loans held for sale 160,000
Servicing fees earned on mortgage loans 386,494 329,188 292,311
At end of period:
Mortgage loans serviced for others $147,361,938 $128,417,926 $110,472,000
Loans held for sale 6,755,863 2,606,213 2,992,194
Escrow balances maintained for loans serviced 173,742 220,093 517,819
</TABLE>
Based on the 1996 volume of mortgage banking activity, SFAS 122 did not have a
significant impact on the consolidated financial condition and operations for
1996. The impact in subsequent years is difficult to predict. SFAS 122 will
initially result in the recognition of larger gains on sales of mortgage loans
because of the initial capitalization of the originated mortgage servicing right
asset. However, the larger gains on sales of loans will be offset by the future
amortization of the mortgage servicing right asset. In addition, the valuation
allowance on impaired mortgage servicing rights may fluctuate significantly in
the future because the impairment evaluation is based on assumed loan prepayment
and default rates, interest rates and other factors.
-61-
<PAGE>
NOTE E--NONACCRUAL LOANS AND ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $4,876,000 $4,100,000 $3,254,000
Provision charged to expense 1,838,000 1,085,000 1,000,000
Recoveries credited to allowance 313,000 429,000 345,000
Loans charged off (780,000) (738,000) (499,000)
---------- ---------- ----------
BALANCE AT DECEMBER 31 $6,247,000 $4,876,000 $4,100,000
========== ========== ==========
</TABLE>
Loans approximating $218,000, $47,000 and $120,000 were in nonaccrual status at
December 31, 1996, 1995, and 1994. If these loans had performed in accordance
with their original terms, additional interest income of $10,000, $4,000 and
$33,000 would have been recognized during 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Information regarding impaired loans is as follows: 1996 1995
-------- --------
<S> <C> <C>
Average investment in impaired loans $368,000 $304,000
Interest income recognized on impaired loans
including interest income recognized on cash basis 26,000 37,000
Interest income recognized on impaired loans on
cash basis 0 0
Information regarding impaired loans at year end is as follows:
Total impaired loans $327,000 $361,000
Less loans for which no allowance for
loan losses is allocated 235,000 0
Impaired loan balance for which an allowance
for loan losses is allocated 92,000 361,000
Portion of allowance allocated to impaired loans 69,000 119,000
</TABLE>
-62-
<PAGE>
NOTE F--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 1,690,033 $ 1,293,912
Buildings and improvements 6,316,592 5,274,306
Furniture and equipment 5,285,276 4,864,717
----------- -----------
13,291,901 11,432,935
Less accumulated depreciation (5,072,947) (4,426,927)
----------- -----------
Total premises and equipment, net $ 8,218,954 $ 7,006,008
=========== ===========
</TABLE>
NOTE G--FEDERAL INCOME TAXES
Federal income taxes consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current expense $2,422,000 $1,700,000 $1,204,000
Deferred benefit (661,000) (399,000) (265,000)
---------- ---------- ----------
total $1,761,000 $1,301,000 $ 939,000
========== ========== ==========
</TABLE>
A reconciliation of the difference between federal income tax expense and the
amount computed by applying the federal statutory tax rate of 34% is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Tax at statutory rate $2,177,000 $1,757,000 $1,414,000
Effect of tax-exempt interest (509,000) (468,000) (557,000)
Other 93,000 12,000 82,000
---------- ---------- ----------
Federal tax rate $1,761,000 $1,301,000 $ 939,000
========== ========== ==========
Effective tax rate 27% 25% 23%
</TABLE>
The components of deferred tax assets and liabilities consist of the following
at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,598,000 $1,132,000
Deferred compensation 142,000 117,000
Other 483,000 291,000
---------- ----------
Total deferred tax assets 2,223,000 1,540,000
---------- ----------
Deferred tax liabilities:
Fixed assets (435,000) (444,000)
Unrealized gain on securities available for sale (290,000) (471,000)
Other (19,000) (25,000)
---------- ----------
Total deferred tax liabilities (744,000) (940,000)
---------- ----------
Net deferred tax asset $1,479,000 $ 600,000
========== ==========
</TABLE>
-63-
<PAGE>
Under SFAS 109, a valuation allowance related to deferred tax assets is required
when it is considered more likely than not that all or part of the benefits
related to such assets will not be realized. Management has determined that no
such allowance is required at December 31, 1996 or 1995.
Deferred tax assets at December 31, 1996 and 1995, are included in other assets
in the accompanying consolidated balance sheets.
NOTE H--DEPOSITS
Time deposits at December 31, 1996, have the following maturity distribution:
Dollars in thousands
--------------------
Year Amount
---- ------
1997 $120,602
1998 24,899
1999 9,161
2000 7,038
2001 and over 3,057
--------
Total $164,757
========
Included in total time deposits are time deposit liabilities issued in
denominations of $100,000 or more. At December 31, 1996 and 1995, these
deposits amounted to $26,276,000 and $21,468,000. Interest expense on time
deposits issued in denominations of $100,000 or more for 1996, 1995, and 1994
amounted to $1,439,000, $1,103,000 and $684,000.
NOTE I--BORROWINGS
Information relating to securities sold under agreements to repurchase follows:
At December 31: 1996 1995 1994
---- ---- ----
Outstanding balance $ 5,933,000 $ 8,442,000 $10,144,000
Average interest rate 4.40% 4.98% 3.97%
Daily average for the year:
Outstanding balance $10,527,000 $ 8,905,000 $ 3,883,000
Average interest rate 4.73% 5.16% 3.95%
Maximum outstanding at any month end $14,290,000 $10,714,000 $10,144,000
Securities sold under agreements to repurchase (repurchase agreements) generally
have original maturities of less than one year. Repurchase agreements are
treated as financings and the obligations to repurchase securities sold are
reflected as liabilities. Securities involved with the agreements are recorded
as assets of the banks and are primarily held in safekeeping by correspondent
banks. Repurchase agreements are offered principally to certain large customers
as deposit equivalent investments.
At December 31, 1996, the Federal Home Loan Bank has advanced $2,000,000 to
Firstbank which is due on July 30, 1997. The interest on the advance is payable
monthly, adjusts quarterly, and is based on the three month LIBOR. The rate at
year end is 5.50%. The advance is collateralized by a blanket lien on
residential mortgage loans.
-64-
<PAGE>
NOTE J--EMPLOYEE BENEFIT PLANS
Firstbank established an Employee Stock Ownership Plan (ESOP) effective January
1, 1988, covering substantially all employees. The ESOP is a qualified stock
bonus plan, a qualified 401(k) salary deferral plan and a qualified employee
stock ownership plan. Both employee and employer contributions may be made to
the ESOP. Firstbank's 1996, 1995, and 1994 matching 401(k) contributions
charged to expense were $158,934, $133,211 and $131,664 respectively. The
percent of Firstbank's matching contributions to the 401(k) is determined
annually by the Board of Directors.
Effective June 30, 1988, Firstbank terminated its then existing defined benefit
pension plan. After satisfaction of all plan benefit obligations, remaining
plan assets of approximately $1,381,000 were transferred to the ESOP. Upon
transfer of the excess assets of the former pension plan to the ESOP, the ESOP
purchased approximately 141,000 shares of previously unissued common stock of
Firstbank at an estimated fair value of $9.79 per share. These shares were
allocated to ESOP participants' accounts over an eight year period. Unallocated
ESOP shares were reflected as a reduction of shareholders' equity. Upon
allocation to participant accounts, unallocated shares were reduced and a
corresponding amount was recognized as compensation expense. In 1994, 15,285
shares with value of $150,000 were allocated to participants' accounts with an
equal amount recognized as expense. In 1995, the remaining 16,185 unallocated
shares with a value of $158,817, were allocated to participants' accounts.
Effective July 1, 1988, Firstbank established a new defined benefit pension
plan. In April 1993, the Board of Directors authorized curtailment and
termination of this plan. As a result, all participant benefits became vested
and the net assets of the plan were allocated among the participants and
beneficiaries in the order provided by ERISA. By September 30, 1994, the plan
settled all benefit obligations arising from the termination of the plan at
interest rates higher than those existing at the curtailment date.
Approximately 89% of the total settlement payments of $1,253,000 were made to
other qualified plans on behalf of participants, with the remainder paid
directly to participants as lump sum distributions. A final contribution of
approximately $375,000 was made by Firstbank to the plan in connection with the
termination. Termination of the plan resulted in a 1994 pre tax gain of
approximately $441,000.
NOTE K--STOCK OPTIONS
The Firstbank Corporation Stock Option and Restricted Stock Plan of 1993 (Plan),
provides for the grant of 121,551 shares of stock, in either restricted form or
under option. Options may be either incentive stock options or nonqualified
stock options. The Plan will terminate on April 26, 2003, unless terminated
earlier by the Board.
Each option granted under the Plan may be exercised in whole or in part during
such period as is specified in the option agreement governing that option.
Options are issued with exercise prices equal to the stock's market value at
date of issuance. A nonqualified stock option may not be exercised after
fifteen years from the grant date. Incentive stock options must be exercised
within ten years of the grant date.
-65-
<PAGE>
The following is a summary of transactions which occurred during 1994, 1995, and
1996:
<TABLE>
<CAPTION>
Number Exercise Weighted
of Shares Average
---------- -----------------
<S> <C> <C>
Outstanding -- December 31, 1993 25,890 $17.89
Granted 26,510 18.79
Exercised (30) 17.89
Canceled (2,169) 17.89
Forfeited (608) 17.89
------
Outstanding -- December 31, 1994 49,593 18.37
Granted 25,302 23.13
Exercised (66) 17.89
Canceled (2,087) 18.71
------
Outstanding -- December 31, 1995 72,742 20.01
Granted 27,720 33.81
Exercised (2,128) 18.65
Canceled (3,354) 20.38
------
Outstanding -- December 31, 1996 94,980 24.05
======
Available for exercise -- December 31, 1996 36,461 $19.14
======
Available for grant -- December 31, 1996 24,347
======
</TABLE>
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation
(SFAS 123), which became effective for 1996, establishes a fair value based
method of accounting for employee stock options. Although the Statement
encourages all companies to adopt a fair value based method of accounting,
companies may elect to continue their former method of accounting and make pro
forma disclosures of net income and earnings per share as if the fair value
method had been adopted. Accordingly, the following pro forma information
presents net income and earnings per share information as if SFAS 123 had been
adopted. No compensation cost was actually recognized for stock options in 1996
or 1995.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income as reported $4,643,388 $3,865,479
Pro forma net income $4,621,188 $3,858,537
Earnings per share as reported $2.86 $2.40
Pro forma earnings per share $2.85 $2.40
</TABLE>
In future years, the pro forma effect of this standard is expected to increase
as additional options are granted.
The fair value of options granted during 1996 and 1995 is estimated using the
following weighted average information: risk free interest rate of 6.42% and
5.57%, expected life of 7 years, expected volatility of stock price of 8.4% and
8.8% and expected dividends of 3% per year. The fair value of the options
granted in 1996 and 1995 were $107,000 and $7,000, at December 31, 1996, the
options granted in 1996 had a remaining option life of 6 years and the options
granted in 1995 had a remaining option life of 5 years.
NOTE L--RELATED PARTY TRANSACTIONS
Certain directors and executive officers of Firstbank and its subsidiary banks,
including their immediate families and companies in which they are principal
owners, are loan and deposit customers of the Banks. Total loans to these
persons approximate $14,127,000 and $18,666,000 at December 31, 1996 and 1995,
respectively. Included in these balances are loans totaling $956,000 and
$645,000 at December 31, 1996 and 1995, respectively, which were made to
companies controlled by directors of a subsidiary bank and for which management
has some concerns as to the ability of such borrowers to comply with the present
loan repayment terms. During 1996, $29,671,000 of related party loans were made
and $34,210,000 of repayments were made on those loans. Total deposits to these
persons approximate $5,870,000 at December 31, 1996.
-66-
<PAGE>
NOTE M--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Firstbank is a party to financial instruments with off balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to make loans, credit card
arrangements, unused lines of credit and standby letters of credit. Firstbank's
exposure to credit loss is the contractual amount of these instruments, assuming
the amounts are fully advanced and collateral or other security is of no value.
The following is a summary of commitments as of December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commitments to make loans $ 4,278,786 $ 4,202,268
Credit card arrangements 2,851,447 2,800,591
Unused lines of credit 35,065,707 34,089,532
Standby letters of credit 1,829,850 2,410,950
</TABLE>
Commitments are generally made for periods not to exceed 90 days. Approximately
23% of commitments as of December 31, 1996, and 18% of the commitments as of
December 31, 1995, were made at fixed rates. Rate ranges for these fixed rate
commitments were 5.75% to 18.00% at December 31, 1996, and 6.95% to 18.00% at
December 31, 1995.
NOTE N--CONTINGENCIES
From time to time certain claims are made against Firstbank and its banking
subsidiaries in the normal course of business. There were no outstanding claims
considered by management to be material at December 31, 1996.
NOTE O--DIVIDEND LIMITATION OF SUBSIDIARIES
The subsidiary banks are restricted in their ability to pay dividends to
Firstbank by regulatory requirements. For 1997, approximately $8,209,000 of the
subsidiaries' retained earnings (in addition to their 1997 net income) is
available for transfer in the form of dividends without prior regulatory
approval.
NOTE P--CAPITAL ADEQUACY
The subsidiary banks of Firstbank are subject to regulatory capital requirements
administered by federal regulatory agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-weighted assets Tier 1 capital
Total Tier 1 to adjusted total assets
----- ------ -------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
-67-
<PAGE>
At December 31, actual capital levels and minimum required levels were:
<TABLE>
<CAPTION>
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
1996 Capital Ratio Capital Ratio Ratio
---- ------------- ------------- -----
<S> <C> <C> <C>
Adequately capitalized regulatory level 8% 4% 4%
Well capitalized regulatory level 10% 6% 5%
Firstbank Corporation -- Consolidated 10.79% 9.53% 7.79%
Bank of Alma 10.86% 9.60% 7.51%
Firstbank 10.75% 9.50% 8.34%
1st Bank 10.51% 9.25% 7.56%
</TABLE>
The following table shows the dollar amounts, in thousands, by which Firstbank's
capital exceeds current regulatory requirements:
<TABLE>
<CAPTION>
Total Tier 1
Risk-Based Risk-Based Tier 1
Capital Capital Leverage
---------- ---------- --------
<S> <C> <C> <C>
Capital balances at 12/31/96
Firstbank Corporation -- Consolidated $32,432 $28,646 $28,646
Bank of Alma 14,715 13,004 13,004
Firstbank 7,914 6,990 6,990
1st Bank 9,433 8,302 8,302
Adequate regulatory capital level
Firstbank Corporation -- Consolidated $24,035 $12,018 $14,702
Bank of Alma 10,836 5,418 6,922
Firstbank 5,888 2,944 3,353
1st Bank 7,180 3,590 4,390
Excess
Firstbank Corporation -- Consolidated $ 8,397 $16,628 $13,944
Bank of Alma 3,879 7,586 6,082
Firstbank 2,026 4,046 3,637
1st Bank 2,253 4,712 3,912
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
1995 Capital Ratio Capital Ratio Ratio
---- ------------- ------------- -----
Adequately capitalized regulatory level 8% 4% 4%
Well capitalized regulatory level 10% 6% 5%
Firstbank Corporation -- Consolidated 11.20% 9.94% 8.08%
Bank of Alma 12.02% 10.78% 8.37%
Firstbank 10.72% 9.46% 8.14%
1st Bank 10.42% 9.16% 7.42%
</TABLE>
-68-
<PAGE>
The following table shows the dollar amounts, in thousands, by which Firstbank's
capital exceeds current regulatory requirements:
<TABLE>
<CAPTION>
Total Tier 1
Risk-Based Risk-Based Tier 1
Capital Capital Leverage
---------- ---------- --------
<S> <C> <C> <C>
Capital balances at 12/31/95
Firstbank Corporation -- Consolidated $29,938 $26,578 $26,578
Bank of Alma 15,301 13,702 13,702
Firstbank 6,639 5,862 5,862
1st Bank 7,752 6,816 6,816
Adequate regulatory capital level
Firstbank Corporation -- Consolidated $21,383 $10,691 $13,144
Bank of Alma 10,164 5,082 6,573
Firstbank 4,954 2,477 2,913
1st Bank 5,950 2,975 3,695
Excess
Firstbank Corporation -- Consolidated $ 8,555 $15,887 $13,434
Bank of Alma 5,137 8,620 7,129
Firstbank 1,685 3,385 2,949
1st Bank 1,802 3,841 3,121
Firstbank and each subsidiary bank were considered well capitalized at both December 31, 1996 and
1995.
</TABLE>
NOTE Q--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the fair value of financial instruments is made
in accordance with the requirements of Financial Accounting Standards No. 107,
Disclosure About Fair Value of Financial Instruments (SFAS 107). Where quoted
market prices are not available, as is the case for a significant portion of
Firstbank's financial instruments, the fair values are based on estimates using
present value of expected cash flows or other valuation techniques. These
techniques are significantly affected by the assumptions used, including the
discount rate and the timing of estimated cash payments and receipts.
Accordingly, certain of the fair value estimates presented herein cannot be
substantiated by comparison to independent markets and are not necessarily
indicative of the amounts Firstbank could realize in a current market exchange.
In addition, the fair value estimates are limited to existing on and off
balance sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities that
are not considered financial assets or liabilities include the Banks' mortgage
servicing operation, premises and equipment and acquisition intangibles. In
addition, tax ramifications related to the realization of unrealized gains and
losses such as those within the investment securities portfolio can also have a
significant effect on fair values and have not been considered in the estimates.
Accordingly, the aggregate fair value amounts do not represent the underlying
value of Firstbank.
The carrying amounts of the following financial instruments are a
reasonable approximation of their fair values:
. Cash and cash equivalents
. Accrued interest receivable
. Securities sold under agreements to repurchase and overnight borrowings
. Notes payable
. Accrued interest payable
-69-
<PAGE>
The various methods and assumptions used by the Banks in estimating fair
value for their other financial instruments are as follows:
Securities
- ----------
Fair values for securities are based on published market prices or, if no
quotes are available, on credit information about the issuer, and are disclosed
in detail in Note C.
Net Loans
- ---------
For variable rate loans that reprice frequently with no significant change
in credit risk, fair values are based on carrying values. For loans held for
sale, fair value is based on prices offered in the secondary market. The fair
values for all other loans are estimated using discounted cash flow analysis at
interest rates currently offered for loans with similar terms to borrowers of
similar credit quality.
Deposits
- --------
The fair values disclosed for deposit accounts with no defined maturities
are, by definition, equal to the amount payable on demand at the reporting date.
Fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
The carrying amounts and fair values of Firstbank's financial instruments
were as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31, 1996 December 31, 1995
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 21,228 $ 21,228 $ 16,749 $ 16,749
Securities 56,572 56,572 61,821 61,821
Net Loans 308,373 307,853 259,971 261,866
Accrued interest receivable 2,237 2,237 2,259 2,259
Financial liabilities:
Deposits (358,669) (358,300) (307,007) (307,407)
Securities sold under agreements to
repurchase and overnight borrowings (6,833) (6,833) (11,842) (11,842)
Notes payable (2,239) (2,239)
Accrued interest payable (1,056) (1,056) (925) (925)
</TABLE>
The Banks' loan commitments, standby letters of credit and undisbursed loans
have been estimated to have no material fair value as such commitments are
generally fulfilled at current market rates.
-70-
<PAGE>
NOTE R--FIRSTBANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Assets:
Cash $ 422,215 $ 480,022
Investment in subsidiaries 32,470,492 29,348,421
Other assets 1,192,678 822,948
----------- -----------
TOTAL ASSETS $34,085,385 $30,651,391
=========== ===========
Liabilities and Shareholders' Equity:
Accounts payable and other liabilities $ 997,324 $ 798,738
Shareholders' equity 33,088,061 29,852,653
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $34,085,385 $30,651,391
=========== ===========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 1,335,656 $ 1,655,074 $ 1,410,000
Other 29,847 14,904 46,614
----------- ----------- -----------
TOTAL INCOME 1,365,503 1,669,978 1,456,614
Expense:
ESOP expense 158,817 150,000
Other 259,428 316,633 489,700
----------- ----------- -----------
TOTAL EXPENSE 259,428 475,450 639,700
----------- ----------- -----------
Income before federal income tax
benefit and equity in undistributed
net income of subsidiaries 1,106,075 1,194,528 816,914
Federal income taxes (benefit) (65,000) (152,000) (186,000)
----------- ----------- -----------
Income before equity in undistributed
net income of subsidiaries 1,171,075 1,346,528 1,002,914
Equity in undistributed net income of subsidiaries 3,472,313 2,518,951 2,217,982
----------- ----------- -----------
NET INCOME $ 4,643,388 $ 3,865,479 $ 3,220,896
=========== =========== ===========
</TABLE>
-71-
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,643,388 $ 3,865,479 $ 3,220,896
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed earnings of subsidiaries (3,472,313) (2,518,951) (2,217,982)
Provision for loss (recovery) on certain other real estate (1,896)
Allocation of common stock to ESOP participants 158,817 150,000
Amortization of goodwill and other 39,276 41,626 44,916
Decrease (increase) in other assets (408,120) 235,902 33,249
Increase (decrease) in accounts payable and other liabilities 205,842 186,448 (553,675)
----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,008,073 1,969,321 675,508
INVESTING ACTIVITIES
Proceeds from maturity of security 1,027,458
Purchase of security (8,137)
Cash invested in subsidiaries (1,000,000) (1,000,000)
----------- ---------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (8,137) (1,000,000) 27,458
FINANCING ACTIVITIES
Cash dividends and cash paid in lieu of fractional shares on stock (1,310,543) (1,022,313) (847,439)
Net proceeds from issuance/cancellation of common stock 252,800 4,808 (10,357)
----------- ---------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,057,743) (1,017,505) (857,796)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (57,807) (48,184) (154,830)
Cash and cash equivalents at beginning of year 480,022 528,206 683,036
----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 422,215 $ 480,022 $ 528,206
=========== =========== ===========
</TABLE>
-72-
<PAGE>
Unaudited Condensed Consolidated Financial Statements
FIRSTBANK CORPORATION
FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND 1996
-73-
<PAGE>
Unaudited Condensed Consolidated Financial Statements
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997, AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 18,048,821 $ 19,430,993
Short term investments 3,578,372 1,797,479
------------ ------------
Total cash and cash equivalents 21,627,193 21,228,472
Securities available for sale 63,888,831 57,561,141
Loans
Loans held for sale 6,357,329 6,755,863
Portfolio Loans
Commercial 125,815,874 121,945,076
Real estate mortgage, portfolio 117,139,889 115,849,643
Consumer 69,259,482 69,080,989
------------ ------------
Total loans 318,572,574 313,631,571
Less allowance for loan losses (6,429,000) (6,247,000)
------------ ------------
Net loans 312,143,574 307,384,571
Premises and equipment, net 8,106,820 8,218,954
Acquisition intangibles 3,603,319 3,847,832
Accrued interest receivable 2,722,702 2,236,870
Other assets 4,222,268 4,093,102
------------ ------------
TOTAL ASSETS $416,314,707 $404,570,942
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing accounts $ 45,314,836 $ 47,752,360
Interest bearing accounts:
Demand 83,519,810 86,768,530
Savings 60,131,646 59,391,775
Time 175,265,669 164,756,724
------------ ------------
Total deposits 364,231,961 358,669,389
Securities sold under agreements to
repurchase and overnight borrowings 11,490,411 6,832,592
Notes payable 2,226,465 2,239,039
Accrued interest and other liabilities 4,643,504 3,741,861
------------ ------------
Total liabilities 382,592,341 371,482,881
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000
shares authorized, none issued
Common stock; 2,500,000 shares authorized,
1,633,234 shares issued and outstanding at March 31, 24,403,638 24,228,132
1977 and 1,627,843 at December 31, 1996
Retained earnings 9,165,228 8,296,590
Unrealized gain (loss) on available for sale securities 153,500 563,339
------------ ------------
Total shareholders' equity 33,722,366 33,088,061
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $416,314,707 $404,570,942
============ ============
</TABLE>
See notes to consolidated financial statements
-74-
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $7,274,784 $6,407,519
Securities
Taxable 503,211 512,346
Exempt from Federal Income Tax 366,523 385,718
Short term investments 68,774 52,157
---------- ----------
Total interest income 8,213,292 7,357,740
Interest expense:
Deposits 3,482,290 3,103,316
Notes payable and other 140,426 149,174
---------- ----------
Total interest expense 3,622,716 3,252,490
Net interest income 4,590,576 4,105,250
Provision for loan losses 251,000 297,000
---------- ----------
Net interest income after
provision for loan losses 4,339,576 3,808,250
Noninterest income:
Gain on sale of mortgage loans 118,239 154,491
Service charges on deposit accounts 254,584 235,685
Trust fees 56,844 52,129
Gain on sale of securities 0 888
Other 318,259 332,336
---------- ----------
Total noninterest income 747,926 775,529
Noninterest expense:
Salaries and employee benefits 1,742,702 1,611,847
Occupancy 474,180 494,263
FDIC Insurance premium (8,338) 21,814
Michigan Single Business Tax 95,500 81,200
Other 1,081,446 944,108
---------- ----------
Total noninterest expense 3,385,490 3,153,232
Income before federal income taxes 1,702,012 1,430,547
Federal income taxes 475,000 377,000
---------- ----------
NET INCOME $1,227,012 $1,053,547
========== ==========
Per Share:
NET INCOME $ 0.75 $ 0.65
========== ==========
DIVIDENDS $ 0.22 $ 0.17
========== ==========
</TABLE>
See notes to the consolidated financial statements.
-75-
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1996 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Net unrealized
appreciation
(depreciation) on
Common Retained available for sale
(in thousands) Stock Earnings securities TOTAL
------------ ------------ ------------------- -----------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 $ 21,355,293 $ 7,583,783 $913,577 $29,852,653
Cash dividends - $.80 per share (1,297,400) (1,297,400)
5% stock dividend - 77,060 shares 2,620,039 (2,633,181) (13,142)
Issuance of 2,128 shares of common stock
through exercise of stock options 46,947 46,947
Issuance of 4,870 shares of common stock
through dividend reinvestment plan 144,063 144,063
Issuance of 1,831 shares of common stock
through supplemental purchase under
dividend reinvestment plan 61,790 61,790
Net change in unrealized appreciation
(depreciation) on available for
sale securities (350,238) (350,238)
Net income for 1996 4,643,388 4,643,388
------------ ------------ -------- -----------
BALANCES AT DECEMBER 31, 1996 24,228,132 8,296,590 563,339 33,088,061
Cash dividends - $.22 per share (358,374) (358,374)
Issuance of 1,262 shares of common stock
through exercise of stock options 30,708 30,708
Issuance of 2,514 shares of common stock
through dividend reinvestment plan 86,889 86,889
Issuance of 1,615 shares of common stock
through supplemental purchase under
dividend reinvestment plan 57,909 57,909
Net change in unrealized appreciation
(depreciation) on available for
sale securities (409,839) (409,839)
Net income year to date 1,227,012 1,227,012
------------ ------------ -------- -----------
BALANCES AT MARCH 31, 1997 $ 24,403,638 $ 9,165,228 $153,500 $33,722,366
============ ============ ======== ===========
</TABLE>
See notes to consolidated financial statements.
-76-
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,227,012 $ 1,053,547
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 251,000 297,000
Depreciation of premises and equipment 208,473 185,739
Net amortization of security premiums/discounts 51,167 88,608
Gain on sale of securities (888)
Amortization of goodwill and other intangibles 244,513 55,736
Gain on sale of mortgage loans (118,239) (154,491)
Proceeds from sales of mortgage loans 8,694,453 9,596,749
Unrealized loss on loans held for sale 118,800 124,799
Loans originated for sale (8,177,680) (14,844,508)
Decrease (increase) in accrued interest receivable
and other assets (403,870) 118,647
Increase in accrued interest payable and other liabilities 901,643 457,902
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,997,272 (3,021,160)
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 47,898
Proceeds from maturities of securities available for sale 5,444,116 2,605,293
Purchases of securities available for sale (13,480,484) (4,830,430)
Net increase in portfolio loans (4,538,691) (5,626,641)
Net purchases of premises and equipment (96,339) (172,724)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (12,623,500) (8,024,502)
FINANCING ACTIVITIES
Net increase in deposits 5,562,572 7,887,382
Increase in securities sold under agreements
to repurchase and other short term borrowings 4,657,819 2,909,507
Reduction of note payable (12,574)
Cash proceeds from issuance of common stock 175,506 12,762
Cash dividends (358,374) (277,713)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,024,949 10,531,938
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 398,721 (513,724)
Cash and cash equivalents at beginning of period 21,228,472 16,748,740
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,627,193 $16,235,016
=========== ===========
Supplemental Disclosure
Interest Paid $ 3,466,411 $ 3,181,744
Income Taxes Paid $ 0 $ 75,000
</TABLE>
See notes to consolidated financial statements.
-77-
<PAGE>
FIRSTBANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 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, 1997, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. The balance sheet at December 31, 1996, has been derived
from the audited financial statements at that date. For further information,
refer to the consolidated financial statements and footnotes thereto included
elsewhere herein for the year ended December 31, 1996. Net income per share is
based on the weighted average shares outstanding for each period, 1,633,234 in
1997 and 1,619,986 in 1996.
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.
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 Banks' normal credit policies and
collateral requirements. Loan commitments, which are predominately at variable
rates, were approximately $46,726,000 and $44,026,000 at March 31, 1997, and
December 31, 1996, 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:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
(Dollars in Thousands)
<S> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 199 $ 218
Loans 90 days or more past due 302 689
Renegotiated loans 141 150
----- -----
Total nonperforming loans $ 642 $1057
===== =====
Property from defaulted loans $ 85 $ 130
===== =====
Nonperforming loans as a percent of:
Total loans .20% .34%
===== =====
Allowance for loan losses 9.99% 16.9%
===== =====
</TABLE>
-78-
<PAGE>
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.
<TABLE>
<CAPTION>
Three Three Twelve
months months months
ended ended ended
March 31, March 31, December 31,
(Dollars in thousands) 1997 1996 1996
- ---------------------- --------- --------- ------------
<S> <C> <C> <C>
Balance at beginning of period $ 6,247 $ 4,876 $ 4,876
Charge-offs (174) (113) (780)
Recoveries 105 66 313
-------- -------- --------
Net charge-offs (67) (47) (467)
Additions to allowance for
loan losses 251 297 1,838
-------- -------- --------
Balance at end of period $ 6,429 $ 5,126 $ 6,247
======== ======== ========
Average loans outstanding
during the period $315,539 $268,216 $290,181
======== ======== ========
Loans outstanding at end of period $318,573 $275,704 $314,620
======== ======== ========
Allowance as a percent of:
Total loans at end of period 2.02% 1.86% 1.99%
======== ======== ========
Nonperforming loans at end of period 1,000% 951% 591%
======== ======== ========
Net charge-offs as a percent of:
Average loans outstanding .02% .07% .16%
======== ======== ========
Average Allowance for loan losses 1.06% 3.80% 8.59%
======== ======== ========
</TABLE>
NOTE E - RECLASSIFICATION
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
NOTE F - ACCOUNTING STANDARDS
In August 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities for some
transactions in 1997 and others in 1998, and is to be applied prospectively.
Example transactions covered by SFAS No. 125 include asset securitizations,
repurchase agreements, wash sales, loan participations, transfers of loans with
recourse and servicing of loans. The standard is based on a consistent
application of a financial-components approach that focuses on control. Under
this Statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 supersedes SFAS No. 122,
Accounting for Mortgage Servicing Rights, and supersedes SFAS No. 76,
Extinguishment of Debt and SFAS No. 77, Reporting by Transferors for Transfers
of Receivables with Recourse. Retroactive application is not permitted. The
Corporation has adopted SFAS 125 according to the statement's effective dates,
and its adoption has had no material impact on the Corporation's financial
position or results of operations.
In March 1997, the FASB issued SFAS No. 128, Earnings Per Share, which is
effective for financial statements beginning with year end 1997. It is not
effective for interim periods ending in 1997. This Statement simplifies the
-79-
<PAGE>
accounting requirements of calculating earnings per share by replacing primary
earnings per share (EPS) with basic EPS. It also requires dual presentation of
basic EPS and diluted EPS for entities with complex capital structures. Basic
earnings per share for 1997 and later will be calculated solely on average
common shares outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. All prior
calculations should be restated to be comparable to the new methods.
-80-
<PAGE>
Statistical Information
STATISTICAL INFORMATION
REGARDING FIRSTBANK CORPORATION
-81-
<PAGE>
Volume/Rate Analysis*
<TABLE>
<CAPTION>
1996/1995 1995/1994
--------- ---------
Change in Interest Due to: Change in Interest Due to:
-------------------------- --------------------------
Average Average Net Average Average Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Securities available for sale
Taxable securities $ (48) $ (13) $ (61) $ 264 $ 359 $ 623
Tax-exempt Securities (1) (93) (26) (119) (35) (26) (61)
------ ----- ------ ------ ------ ------
Total securities (141) (39) (180) 229 333 562
Loans (1) 3,714 (26) 3,688 4,622 1,363 5,985
Federal funds sold (159) (39) (198) 94 39 133
Interest-bearing deposit (2) (2) 13 13
Loan fees 267 267 163 163
------ ----- ------ ------ ------ ------
Total interest-earning assets 3,679 (104) 3,575 5,121 1,735 6,856
Interest expense:
Interest-paying demand 429 429 203 350 553
Savings deposits 109 109 18 108 126
Time deposits 880 (89) 791 2,216 1,041 3,257
------ ----- ------ ------ ------ ------
Total interest-paying deposits 1,418 (89) 1,329 2,437 1,499 3,936
Federal funds purchased and securities
sold under agreements to repurchase 146 (45) 101 233 77 310
Notes payable 49 49
------ ----- ------ ------ ------ ------
Total interest-bearing liabilities 1,613 (134) 1,479 2,670 1,576 4,246
------ ----- ------ ------ ------ ------
Net interest income $2,066 $ 30 $2,096 $2,451 $ 159 $2,610
====== ===== ====== ====== ====== ======
</TABLE>
*Changes in volume/rate have been allocated between the volume and rate
variances on the basis of the ratio that the volume and rate variances bear to
each other.
(1) Interest is presented on a fully taxable equivalent basis using a federal
income tax rate of 34%.
-82-
<PAGE>
Investment Portfolio
The carrying values of investment securities as of the dates indicated are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C>
Taxable
U.S. Treasury $ 7,509 $ 6,108 $ 6,855
U.S. Government agencies 13,565 17,713 16,066
States and political subdivisions 662 200 300
Mortgage Backed Securities 872 1,205 1,560
Corporate and other 7,013 7,283 9,887
------- ------- -------
29,621 32,509 34,668
Tax-exempt
States and political subdivisions 26,951 29,312 28,565
------- ------- -------
Total $56,572 $61,821 $63,233
======= ======= =======
</TABLE>
Analysis of Investment Securities Portfolio
The following table shows, by class of maturity at December 31, 1996, the
amounts and weighted average yields of such investment securities (1):
<TABLE>
<CAPTION>
Carrying Average
Value Yield(2)
----- --------
(In Thousands of Dollars)
<S> <C> <C>
U.S. Treasury
One year or less $ 3,003 6.60%
Over one through five years 4,506 5.96
Over five through ten years 0 0.00
Over ten years 0 0.00
------- ----
Total 7,509 6.22
U.S. Agencies
One year or less 2,572 7.21%
Over one through five years 7,739 6.65
Over five through ten years 2,676 8.35
Over ten years 578 7.65
------- ----
Total 13,565 7.13
States and Political Subdivisions
One year or less 2,363 9.66%
Over one through five years 18,146 9.75
Over five through ten years 5,122 8.56
Over ten years 1,982 9.58
------- ----
Total 29,621 9.51
</TABLE>
-83-
<PAGE>
Analysis of Investment Securities Portfolio (con't)
<TABLE>
<S> <C> <C>
Corporate and Other
One year or less 2,019 8.08%
Over one through five years 3,683 8.52
Over five through ten years 176 5.90
Over ten years 0 0.00
------- ----
Total 5,878 8.29
Collateralized Mortgage Obligations
One year or less 0 0.00%
Over one through five years 0 0.00
Over five through ten years 872 6.36
Over ten years 0 0.00
------- ----
Total 872 6.36
------- ----
Total $55,437 8.31
======= ====
</TABLE>
NOTES:
(1) Calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security.
(2) Weighted average yield has been computed on a fully taxable equivalent
basis. The rates shown on securities issued by states and political
subdivisions have been presented, assuming a 34% tax rate. The amount of
the adjustment, due to the fully tax equivalent basis of presentation, is
as follows:
<TABLE>
<CAPTION>
Rate on
Taxable
Tax-exempt Equivalent
Rate Adjustment Basis
---------- ---------- ----------
<S> <C> <C> <C>
One year or less 6.38% 3.28% 9.66%
Over 1 through 5 years 6.44 3.31 9.75
Over 5 through 10 years 5.65 2.91 8.56
Over 10 years 6.32 3.26 9.58
---- ---- ----
Total 6.28% 3.23% 9.51%
==== ==== ====
</TABLE>
(3) The aggregate book value of the securities of no single issuer except the
U.S. Government or agencies exceeded 10% of Firstbank's consolidated
shareholders' equity as of December 31, 1996.
-84-
<PAGE>
Loan Portfolio
The following table presents the loans outstanding at the indicated dates
according to the type of loan:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Loan categories:
Commercial and agricultural $122,934 $115,779 $ 99,307 $ 81,085 $ 63,859
Real estate mortgages 122,605 90,753 73,760 56,770 44,574
Consumer 69,081 58,315 50,324 40,538 34,998
-------- -------- -------- -------- --------
Total $314,620 $264,847 $223,391 $178,393 $143,431
======== ======== ======== ======== ========
</TABLE>
Nonperforming Loans and Assets
The following table summarizes non-accrual, troubled debt restructuring and
past-due loans at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ---- ---- ---- ------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Non-accrual loans:
Commercial and agricultural $ 127 $ 47 $110 $258 $ 467
Real estate mortgages 79 0 10 71 50
Consumer 12 0 0 12 87
------ ---- ---- ---- ------
Total 218 47 120 341 604
Accruing Loans 90 days or more
past due:
Commercial and agricultural 178 0 49 0 137
Real estate mortgages 475 319 123 35 34
Consumer 36 67 92 12 43
------ ---- ---- ---- ------
Total 689 386 264 47 214
Renegotiated loans:
Commercial and agricultural 150 182 0 0 218
Real estate mortgages 0 0 213 182 0
------ ---- ---- ---- ------
Total 150 182 213 182 218
Total Non-performing loans 1,057 615 597 570 1,036
Property from defaulted loans 130 0 86 92 262
------ ---- ---- ---- ------
Total Non-performing assets $1,187 $615 $683 $662 $1,298
====== ==== ==== ==== ======
</TABLE>
(1) Nonperforming assets are defined as Non-accrual loans, loans 90 days or
more past due, property from defaulted loans, and renegotiated loans.
-85-
<PAGE>
The gross interest income that would have been recorded for the year ended
December 31, 1996, if the Non-accrual and renegotiated loans had performed in
accordance with their original terms and had been outstanding throughout the
period, or since origination if held for part of the period, was $43,000. The
amount of interest income on those loans that was included in the net income for
the period was $14,000.
Loan performance is reviewed regularly by external loan review specialists,
loan officers, and senior management. When reasonable doubt exists concerning
collectability of interest or principal, the loan is placed in Non-accrual
status. Any interest previously accrued but not collected at that time is
reversed and charged against current earnings.
At December 31, 1996, Firstbank had $8,283,000 in commercial and mortgage
loans for which payments are presently current although the borrowers are
experiencing financial difficulties. Those loans are subject to continual
attention and their status is reviewed on a monthly basis.
As of December 31, 1996, there were no concentrations of loans exceeding
10% of total loans which are not otherwise disclosed as a category of loans in
the consolidated balance sheets of Firstbank for the year ended December 31,
1996.
Analysis of Allowance for Loan Losses
The following table summarizes changes in the allowance for loan losses
arising from loans charged off and recoveries on loans previously charged off by
loan category and additions to the allowance which were charged to expense.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $4,876 $4,100 $3,254 $2,394 $1,746
Charge-offs:
Commercial and agricultural 110 164 113 299 337
Real estate mortgages 45 81 0 44 8
Consumer 625 493 386 262 295
------ ------ ------ ------ ------
Total charge-offs 780 738 499 605 640
Recoveries:
Commercial and agricultural 83 97 143 129 96
Real estate mortgages 28 63 30 39 48
Consumer 201 269 172 158 164
------ ------ ------ ------ ------
Total 313 429 345 326 308
Net charge-offs 467 309 154 279 332
------ ------ ------ ------ ------
Additions to allowance for
loan losses 1,838 1,085 1,000 1,139 980
------ ------ ------ ------ ------
Balance at end of period $6,247 $4,876 $4,100 $3,254 $2,394
====== ====== ====== ====== ======
Net charge-offs as a percent of
average loans 0.16% 0.13% 0.08% 0.18% 0.24%
</TABLE>
The allowance for loan losses is based on management's evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth, and composition of the loan portfolio, and other relevant factors. The
allowance is increased by provisions for loan losses that have been charged to
expense and reduced by net charge-offs.
-86-
<PAGE>
Allocation of the Allowance for Loan Losses
The allowance for loan losses was allocated to provide for possible losses
within the following loan categories at the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- -------------------- -------------------- -------------------- ---------------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
for loans to for loans to for loans to for loans to for loans to
loan total loan total loan total loan total loan total
losses loans losses loans losses loans losses loans losses loans
------------------- -------------------- -------------------- -------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
& agricul-
tural $2,763 39% $2,232 44% $2,069 44% $1,782 45% $1,460 45%
Real estate
mortgages 364 39 880 34 492 33 276 32 177 31
Consumer 1,576 22 1,050 22 927 23 594 23 493 24
Unallocated 1,544 714 612 602 264
------ --- ------ --- ------ --- ------ --- ------ ---
Total $6,247 100% $4,876 100% $4,100 100% $3,254 100% $2,394 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
Average Deposits
The daily average deposits and rates paid on such deposits for the periods
indicated were:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Balance:
Non-interest-bearing demand deposits $ 42,521 $ 36,686 $ 32,398
Interest-bearing demand deposits 71,710 3.45% 61,201 3.35% 55,152 2.71%
Savings deposits 58,282 2.82 54,879 2.80 50,447 2.79
Time deposits 151,622 5.58 135,926 5.64 96,549 4.57
-------- ---- -------- ---- -------- ----
Total average deposits $324,135 3.88% $288,692 3.89% $234,546 3.12%
======== ==== ======== ==== ======== ====
</TABLE>
The time remaining until maturity of time certificates of deposit and other time
deposits of $100,000 or more at December 31, 1996, was as follows:
<TABLE>
<S> <C>
Three months or less $ 8,724
</TABLE>
-87-
<PAGE>
<TABLE>
<S> <C>
Over three through six months 7,583
Over six through twelve months 5,477
Over twelve months 4,492
-------
Total $26,276
=======
</TABLE>
Return on Equity and Assets
The following table sets forth certain financial ratios for the years ended:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Financial ratios:
Return on average total assets 1.25% 1.17% 1.20%
Return on average equity 15.15 14.02 12.99
Average equity to average assets 8.22 8.35 9.24
Dividend payout ratio 27.94 26.23 26.09
</TABLE>
Short-Term Borrowed Funds
Included in short-term borrowed funds are repurchase agreements, as described in
Note I to the Firstbank consolidated financial statements, which consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Amounts outstanding at the $ 5,933 $ 8,442 $ 10,144
end of the year
Weighted average interest rate 4.40% 4.98% 3.97%
at the end of the year
Longest maturity 05/22/97 10/29/96 10/21/96
Maximum amount outstanding at $ 14,290 $ 10,714 $ 10,144
any month-end during year
Approximate average amounts 10,527 8,905 3,883
outstanding during the year
Approximate weighted average 4.73% 5.16% 3.95%
interest rate for the year
</TABLE>
(1) The weighted average interest rates are derived by dividing the interest
expense for the period by the daily average balance during the period.
-88-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
Business
Lakeview is a Michigan corporation with its headquarters in Lakeview,
Michigan. Lakeview is the parent company of the Bank of Lakeview, which is
Lakeview's only subsidiary. At March 31, 1997, Lakeview had consolidated total
assets of $84.1 million, the Bank of Lakeview had total deposits of $72.5
million and its assets represents 99.9% of Lakeview's consolidated assets. At
March 31, 1997, Lakeview, on a consolidated basis, had shareholders' equity of
$8.5 million.
The Bank of Lakeview is engaged in the business of commercial banking and
other related activities. The Bank of Lakeview is a full service bank offering
customary commercial banking services including commercial and retail loans,
mortgage banking, business and personal checking accounts, savings and
individual retirement accounts, time deposit instruments, automated transaction
machine services, money transfer services and safe deposit facilities.
Lakeview's principal market for financial services is Lakeview, Michigan and the
areas surrounding Lakeview.
Lakeview has authorized capital stock consisting of 1,500,000 shares of
Lakeview Common Stock, of which 657,484 shares were issued and outstanding on
June 12, 1997. As of June 12, 1997, there were approximately 290 record holders
of Lakeview Common Stock. There is no public market for Lakeview Common Stock,
and Lakeview is not a reporting company under the Exchange Act. The deposits of
the Bank of Lakeview are insured by the FDIC, subject to applicable limitations.
The Bank of Lakeview is a member of the Federal Reserve System.
Properties
The offices of Lakeview and the Bank of Lakeview are located at 506
Lincoln, Lakeview, Michigan 48850, which is a 8,640 square foot facility owned
by Lakeview. Lakeview also owns branch facilities in Remus and Howard City,
Michigan, as well as a drive-up office located in Lakeview. Management
considers the properties and equipment of Lakeview and the Bank of Lakeview to
be well maintained, in good operating condition, and adequate for their
operations.
Legal Proceedings
Lakeview and the Bank of Lakeview are parties, as plaintiff or as
defendant, to routine litigation arising in the normal course of their business.
In the opinion of management of Lakeview, the liabilities arising from these
proceedings, if any, will not be material to Lakeview's financial condition.
Market for Common Stock and Dividends
Market Information and Holders. There is no established public trading
market for Lakeview Common Stock. Transactions in Lakeview Common Stock are
occasionally effected by individuals on an informal basis. The prices at which
such transactions are effected are only occasionally reported to Lakeview. At
the date of this Prospectus and Proxy Statement, there were outstanding Lakeview
Stock Options to purchase an aggregate of 113,518 shares of Lakeview Common
Stock. As of March 31, 1997, there were approximately 290 record holders of
shares of Lakeview Common Stock.
-89-
<PAGE>
Dividends. The following table summarizes the quarterly cash dividends per
share paid to holders of Lakeview Common Stock during the last two full years:
<TABLE>
<CAPTION>
Dividends
Per Share
---------
<S> <C>
Year Ended December 31, 1995
First Quarter.................................... $ --
Second Quarter................................... --
Third Quarter.................................... --
Fourth Quarter................................... --
Year Ended December 31, 1996
First Quarter.................................... --
Second Quarter................................... $1.00
Third Quarter.................................... --
Fourth Quarter................................... $0.35
Year Ending December 31, 1997
First Quarter.................................... $0.09
Second Quarter (through June 12, 1997)........... --
</TABLE>
Holders of Lakeview Common Stock are entitled to receive dividends when, as
and if declared by Lakeview's Board of Directors out of funds legally available
for that purpose. The earnings of Lakeview, through dividends paid by the Bank
of Lakeview, are the principal source of funds to pay cash dividends.
Consequently, cash dividends are dependent upon the earnings, capital needs,
regulatory constraints and other factors affecting the Bank of Lakeview. Federal
and state banking laws and regulations place certain restrictions on the amount
of dividends and loans that a bank can pay to its parent company. These
restrictions are not expected to prohibit Lakeview from continuing its dividend
policy consistent with historical practice. Pursuant to the Plan of Merger,
Lakeview has agreed to certain restrictions on the payment of dividends. See
"The Merger--Business of Lakeview Pending the Merger."
-90-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for the Three Months Ended March 31, 1997 and 1996
This discussion provides information about the consolidated financial
condition and results of operations of Lakeview Financial Corporation
("Lakeview") and its subsidiary Bank of Lakeview, and should be read in
conjunction with the Lakeview Financial Corporation Consolidated Financial
Statements.
Financial Condition
A comparison of the balance sheets from December 31, 1996, to March 31,
1997, illustrates only two changes of significance:
The unrealized gain associated with securities available for sale, net of
tax, declined from approximately $205,000 to $97,000 a change of 53%. The
decline is attributable to a short term fluctuation in market conditions and is
not significant compared to the total size of the portfolio. No individual
securities are considered impaired.
Total deposits decreased from $74.1 million to $72.5 million. This
represents a change of $1.6 million or an annualized rate of almost 9%. Deposit
shrinkage primarily occurred in the Bank of Lakeview's noninterest bearing
demand deposit portfolio and to a lesser extent the remaining deposit
portfolios. The reduction in deposits resulted from seasonal factors
attributable to the Bank of Lakeview's agricultural community. The reduction of
deposits was funded through cash, due from bank accounts and securities
available for sale.
There have been no significant changes to Lakeview's asset/liability
profiles, liquidity or capital levels since December 31, 1996.
Results of Operations
Summary
Net income and earnings per share for the quarter ended March 31, 1997 were
both slightly lower than the amounts reported for the same quarter in 1996.
Increases in interest expense and the provision for loan losses more than offset
the increase in interest revenue and the decreases in other expenses and the
effective tax rate.
Interest income in the first quarter of 1997 increased by $23,000 from the
corresponding period in 1996 primarily due to an increase in the average yield
on earning assets. This increase in yield has resulted in a change in the mix of
earning assets, with a higher percentage in loans in 1997 versus 1996. However,
this increase was more than offset by a $38,000 increase in interest expense.
This has occurred because of continuing migration of deposits from noninterest-
bearing accounts to interest-bearing accounts. The provision for loan losses
results from management's continual evaluation of the allowance for loan losses
and its policy of maintaining an allowance which is adequate to cover losses
inherent in the portfolio. The nature of the Bank of Lakeview's agricultural and
commercial loan portfolio is such that the provision necessary to maintain an
adequate allowance may vary from period to period. Management does not believe
that the change between the first quarters of 1997 and 1996 represents a
deterioration in overall credit quality or indicates a trend, however,
management cannot predict the amount of provision for loan losses that will be
required in future quarters to maintain the allowance at adequate levels.
Other expenses decreased $36,000 from period to period, as a result of a
decrease of $47,000 in salaries and benefits, offset by modest increases in
other expense categories. The decrease in salaries and benefits is due to a
reduction in the number of employees as personnel have left due to normal
attrition.
-91-
<PAGE>
New Accounting Standards
In August 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities for some
transactions in 1997 and others in 1998, and is to be applied prospectively.
Example transactions covered by SFAS No. 125 include asset securitizations,
repurchase agreements, wash sales, loan participations, transfers of loans with
recourse and servicing of loans. The standard is based on a consistent
application of a financial-components approach that focuses on control. Under
this Statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 supersedes SFAS No. 122,
Accounting for Mortgage Servicing Rights, and supersedes SFAS No. 76,
Extinguishment of Debt and SFAS No. 77, Reporting by Transferors for Transfers
of Receivables with Recourse. Retroactive application is not permitted. Adoption
of the standard is not expected to have a material impact on Lakeview's
financial position or results of operations.
In March 1997, the FASB issued SFAS No. 128, Earnings Per Share, which is
effective for financial statements beginning with year end 1997. It is not
effective for interim periods ending in 1997. This Statement simplifies the
accounting requirements of calculating earnings per share by replacing primary
earnings per share (EPS) with basic EPS. It also requires dual presentation of
basic EPS and diluted EPS for entities with complex capital structures. Basic
earnings per share for 1997 and later will be calculated solely on average
common shares outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. All prior
calculations should be restated to be comparable to the new methods.
-92-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS for the Years ended December 31, 1996, 1995 and 1994
This discussion provides information about the consolidated financial
condition and results of operations of Lakeview Financial Corporation
("Lakeview") and its subsidiary, Bank of Lakeview, and should be read in
conjunction with the Lakeview Consolidated Financial Statements
Earnings Summary
Consolidated net income of Lakeview for the year ended December 31, 1996
was $884,000. This represented an increase of 14% over the prior year's net
income of $775,000. A comparison to 1994 net income of $554,000 further
illustrates the significance of 1995's and 1996's net income growth. The
earnings per share of $1.28 for the year ended 1996 was an improvement of 8%
over the 1995 earnings per share of $1.19. The percentage increase in earnings
per share was lower than the percentage increase in net income due to the
increased dilutive effect of stock options resulting from the increased value of
Lakeview's stock arising from the proposed Merger. The year 1995 was a
significant increase from 1994's earnings per share of $.85, a change of 40%.
Two often cited ratios for analysis of financial institutions are return on
average assets (ROA) and return on average equity (ROE). ROA was 1.05%, 1.01%
and .75% for the years ended December 31, 1996, 1995 and 1994 respectively. ROE
for 1996 was 10.43%, 1995 was 9.80% and 1994 was 7.80%.
Results of Operations
1996 compared to 1995
Total interest income in 1996, $7,173,000, was 11% higher than the calendar
year 1995 amount of $6,461,000. The mix of interest income shifted as more
dollars came from loans in 1996 (84%) versus 1995 (82%). This change was
primarily the result of increased principal balances of loans despite a
reduction of 14 basis points (bp) for the average rate on loans.
Interest income from securities remained relatively unchanged from the 1995
amount of $1,160,000 to $1,139,000 for 1996, a decrease of 2%. Management has
pursued a strategy of exchanging lower interest rate securities in the portfolio
for similar securities with a higher yield. This has produced a higher overall
return of 51 basis points, net of amortization.
The ratio of interest-earning assets to total assets was 91% at December
31, 1996 compared to 90% at December 31, 1995.
Interest expense on deposits was up 9%, from $2,736,000 in 1995 to
$2,970,000 in 1996. Rates to depositors fluctuated little between the years. The
increase was primarily attributable to an increase in average interest-bearing
deposits of 10%. Growth of total deposits was a more modest 4% from the 1995
year end to December 31, 1996. Thus, there was a small shift of depositors
moving from noninterest-bearing demand to interest-bearing demand deposits and
from shorter-term products to time certificates.
The provision for loan losses represents the charge to income needed to
maintain the adequacy of the allowance for loan losses, after charge-offs and
recoveries. The allowance for loan losses is regularly evaluated by management
and is maintained at a level management considers adequate to absorb losses in
the portfolio. Management continually evaluates the adequacy of the allowance
and makes periodic provisions as needed. The amount of the provision for loan
losses necessary to maintain an adequate allowance is based upon management's
assessment of current economic conditions, delinquency trends and ratios,
changes in the mix and levels of various categories of loans, historical charge-
offs, recoveries, and management's knowledge regarding the specific economic
performance of borrowers.
-93-
<PAGE>
At December 31, 1996, the Bank of Lakeview had approximately $17,000,000 of
agricultural loans. Such loans have been the source of a significant portion of
the Bank of Lakeview's total loan losses. Management constantly evaluates
specific agricultural loans identified by the Bank of Lakeview's credit
monitoring system as containing greater than normal risk characteristics to
ensure that the allowance properly considers losses inherent on those specific
loans and that impaired loans are promptly recognized. Management also compares
actual loan losses to previous loss estimates to ensure that trends are properly
identified and considered in establishing the allowance. The allowance for loan
losses has decreased in each of the last two years, as the level of impaired
loans has decreased.
Other income decreased from $687,000 in 1995 to $584,000 in 1996. The
largest component of other income, service charges on deposit accounts, was
virtually unchanged, as both the number of accounts subject to fees and the fee
schedules remained constant. The change in total other income consisted of a
decrease in gain on sale of mortgage loans of $160,000, and a change in net
gain/loss on sale of securities from a loss of $8,000 in 1995 to a gain of
$63,000 in 1996.
During 1995, due to the availability of experienced personnel, Lakeview
established an office in Lansing, Michigan to originate mortgage loans for sale
in the secondary market. Management intended for the office to originate loans
in the Lansing area, and provide origination services for secondary market loan
products through the Bank of Lakeview's branches. Origination volume did not hit
expected levels and management could not foresee achieving adequate volume to
cover operating expenses. Thus, the operation was discontinued. All costs
associated with closing the office, which were immaterial, have been reflected
in the accompanying financial statements.
The gains and losses on sale of securities are the result of the Bank of
Lakeview's asset/liability management activities. Sales in 1995 were generally
made to restructure the portfolio and increase portfolio yield, which was
reflected in the 1996 investment results. Security sales in 1996 occurred
primarily to fund loan growth.
Other expenses were reduced from 1996 to 1995 primarily by two factors.
First, the phase out of mortgage banking operations had two offsetting effects
on other expenses. The reduction in personnel needs caused a corresponding
change in salaries and employee benefits. Occupancy expenses were up because of
disposal charges recognized in 1996 to cease mortgage banking operations.
During 1995, the Federal Deposit Insurance Corporation (FDIC) changed the
rates it uses for calculating insurance premiums on customer deposits. The Bank
of Lakeview qualified for the lowest assessments of insurance premium, effective
mid-1995.
Federal income tax expense increased for the year ended 1996 in conjunction
with the increase in income before income taxes. Also, the effective tax rate
increased slightly, to 27% in 1996 from 25% in 1995, due to a reduction in tax-
exempt income. Other components of federal income tax expense were generally
unchanged.
-94-
<PAGE>
Results of Operations
1995 compared to 1994
Total interest income increased from 1994's total of $5,461,000 to
$6,461,000 in 1995. This increase was driven by both volume and yield. Average
earning assets were up over $5 million, and the yield on average earning assets
increased to 9.47% in 1995, compared to 8.63% in 1994. A significant portion of
this interest income growth occurred through the securities portfolio.
Specifically, the change in interest income from securities was allocated evenly
between an increase in volume and an increase in rates.
The average rates for loan and security portfolios were at higher yields
(after tax adjustment) for the year 1995 versus 1994. The loan yields went from
9.57% in 1994 to 10.36% in 1995. Taxable securities yields increased from 5.10%
in 1994 to 6.44% in 1995. Tax-exempt securities yields also increased from 1994
to 1995.
Interest expense increased 29% from 1994 to 1995. This large increase was a
result of increases in volume, increases in rate, and a change in the deposit
mix. Total average interest-bearing deposits increased by $4.2 million. The
average rate paid on all deposit categories increased, with an overall rate
increase of 76 basis points. And, while total interest-bearing deposits
increased over $4 million, average time deposits increased $6.9 million,
representing migration from low cost interest-bearing demand accounts to higher
cost certificates of deposit.
The various changes in the interest income and interest expense components
resulted in an increase in the net interest margin from 4.87% in 1994 to 4.94%
in 1995. The increase in yield on earning assets of 84 basis points exceeded the
increase on interest-bearing liabilities of 76 basis points, and the ratio of
earning assets to total assets increased from 88% in 1994 to 90% in 1995.
Provision for loan losses - see discussion under 1996 compared to 1995.
Other income was affected by the start up of a mortgage banking office in
Lansing, Michigan. Mortgage banking operations began during 1995 and did not
return net positive income during the remainder of the calendar year.
Security transactions increased moderately from 1994 to 1995. This was due
to stabilization of interest rates in the market place. The Bank of Lakeview
increased its turnover of securities in an effort to position the portfolio to
yield higher interest rates.
Other expenses increased by 21% from 1994 to 1995. The primary factor for
this was the personnel and occupancy costs associated with the office in Lansing
for six months of 1995. The Bank of Lakeview also reallocated some personnel
through closure of its Stanwood branch and opening of its new facility at
Canadian Lakes during 1995. The number of full-time equivalents and officers
increases slightly from 1994 to 1995. FDIC insurance expenses were down
considerably after premiums for deposit insurance were adjusted for all banks
during 1995.
Liquidity
Lakeview manages its liquidity position through the Bank of Lakeview. The
purpose of liquidity management is to fund loan demand, meet the withdrawal
needs of customers and provide for operating expenses. Sources of liquidity are
cash and funds due from financial institutions, federal funds sold, sale and/or
maturity of securities classified as available for sale, maturities of
securities held to maturity and principal repayments on loans. Management
believes its current liquidity level is sufficient to meet anticipated growth.
The consolidated statements of cash flows indicate the concerted level of
emphasis management has placed upon maximizing interest income from earning
assets. While cash and cash equivalents have fluctuated during the prior three
years from a high of $7,167,000 at the beginning of 1996 to a low of $4,687,000
at year end 1996, management has been structuring its balance sheet to increase
the overall yield of interest earning assets by allocating a larger percentage
of interest earning assets to longer term (loan) assets.
-95-
<PAGE>
Core deposits are defined as customer account balances that are loyal to a
particular financial institution. Core deposits exclude public funds and
brokered deposits or "hot money."
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Liquid Assets (in thousands) $18,957 $24,060
======= =======
Core Deposits (in thousands) $69,639 $66,743
% change from prior year +4.3% +10.6%
</TABLE>
Interest Rate Sensitivity
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity gap. An asset or
liability is said to be interest rate sensitive within a specific time period,
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. During a period of rising
interest rates, a negative gap would tend to adversely affect net interest
income while a positive gap would tend to result in an increase in net interest
income. During a period of falling interest rates, a negative gap would tend to
result in an increase in net interest income while a positive gap would tend to
adversely affect net interest income.
The Bank of Lakeview uses several analyses to determine the optimal mix of
maturities for interest-earning assets relative to interest-bearing liabilities.
The predominate tool management utilizes is a Gap analysis. This Gap analysis
is prepared routinely to illustrate the interest rate sensitivity of assets
maturing and/or re-pricing within specified time frames versus liabilities due
within the same time period.
The following table illustrates the asset and liability funding gaps for
selected time periods as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1 1-3 3-6 6-12 1-3 3-5 5+
Month Months Months Months Years Years Years
--------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments $ -- $ -- $ -- $ 1,569 $ 2,855 $ 2,195 $ 7,651
Loans
Real estate mortgage 470 1,480 983 1,194 8,331 12,254 2,680
Consumer 1,070 210 247 347 2,299 3,219 158
Commercial and agricultural 1,253 1,215 3,954 1,826 8,216 8,420 4,376
-------- -------- -------- -------- -------- ------- -------
2,793 2,905 5,184 4,936 21,701 26,088 14,865
LIABILITIES
NOW and MMDA 17,461
Savings 11,902
CD's 1,442 6,644 7,957 7,630 10,340 3,572 11
Other borrowings 2,000 13
-------- -------- -------- -------- -------- ------- -------
32,805 6,644 7,970 7,630 10,340 3,572 11
-------- -------- -------- -------- -------- ------- -------
Period GAP $(30,012) $ (3,739) $ (2,786) $ (2,694) $ 11,361 $22,516 $14,854
======== ======== ======== ======== ======== ======= =======
Cumulative GAP $(30,012) $(33,751) $(36,537) $(39,231) $(27,870) $(5,354) $ 9,500
Period GAP (%) (34.70)% (4.32)% (3.22)% (3.11)% 13.13% 26.03% 17.17%
Cumulative GAP (%) (34.70)% (39.02)% (42.24)% (45.35)% (32.22)% (6.19)% 10.98%
</TABLE>
-96-
<PAGE>
Capital Management
Total shareholders' equity was approximately $8.47 million at December 31,
1996. This balance reflected a minor decrease from the December 31, 1995, total
shareholders' equity of $8.48 million. Net income of $884,000 for the 1996 year
was offset by cash dividends of $882,000 and a decrease of the unrealized gain
on securities of $170,000 and the additional capital invested through the
exercise of stock options. During 1995 Lakeview Financial Corporation chose not
to distribute any earnings in cash. Instead a 3-for-1 stock split and a 5%
stock dividend were declared.
Restrictions exist due to regulatory guidelines imposed upon all financial
institutions regarding the Bank of Lakeview's ability to transfer funds to
Lakeview in the form of cash dividends, loans or advances. These restrictions
have no significant impact on Lakeview's dividend policy or operations and are
not anticipated to have any major the impact in the future.
Lakeview's subsidiary, Bank of Lakeview, remains above the minimum capital
levels required by regulatory agencies to meet the definition of a well
capitalized bank. The banking regulators may alter minimum capital requirements
as a result of revising their internal policies and their rating of Lakeview's
subsidiary bank. As of December 31, 1996, management is not aware of any current
recommendations by banking authorities which, if they were to be implemented,
would have, or are reasonably likely to have a material adverse effect on
Lakeview's liquidity, capital resources or operations.
The December 31, 1996 Lakeview Financial Corporation Consolidated Financial
Statements include, under the heading of Note No. 15 Regulatory Matters, the
Bank of Lakeview's capital ratios in a table format.
New Accounting Standards
In August 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. The Statement is effective for transfers and
servicing of financial assets and extinguishment of liabilities for some
transactions in 1997 and others in 1998, and is to be applied prospectively.
Example transactions covered by SFAS No. 125 include asset securitizations,
repurchase agreements, wash sales, loan participations, transfers of loans with
recourse and servicing of loans. The standard is based on a consistent
application of a financial-components approach that focuses on control. Under
this Statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 supersedes SFAS No. 122,
Accounting for Mortgage Servicing Rights, and supersedes SFAS No. 76,
Extinguishment of Debt and SFAS No. 77, Reporting by Transferors for Transfers
of Receivables with Recourse. Retroactive application is not permitted. Adoption
of this standard is not expected to have a material impact on Lakeview's
financial position or results of operations.
In March 1997, the FASB issued SFAS No. 128, Earnings Per Share, which is
effective for financial statements beginning with year end 1997. It is not
effective for interim periods ending in 1997. This Statement simplifies the
accounting requirements of calculating earnings per share by replacing primary
earnings per share (EPS) with basic EPS. It also requires dual presentation of
basic EPS and diluted EPS for entities with complex capital structures. Basic
earnings per share for 1997 and later will be calculated solely on average
common shares outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. All prior
calculations should be restated to be comparable to the new methods.
The Impact of Inflation and Changing Prices
For a financial institution, the effects of price changes and inflation can
vary substantially. Inflation affects the growth of total assets, but it is
difficult to assess its impact since neither the timing nor the magnitude of the
changes in the consumer price index (CPI) coincides with changes in interest
rates. The price of one or more of the important components of the CPI may
fluctuate considerably and thereby influence the overall CPI without having a
corresponding affect on interest rates or upon the cost of those goods and
services normally purchased by Lakeview. In years of high inflation and high
interest rates, intermediate and long-term fixed interest rates tend to
increase, thereby adversely impacting the market values of investment
securities, mortgage loans and other long-term fixed rate loans. In addition,
higher short-term interest rates caused by inflation tend to increase the cost
of funds. In other years, the reverse situation may occur.
Audited Consolidated Financial Statements
Lakeview Financial Corporation and Subsidiary Financial Statements
December 31, 1996, 1995 and 1994
-97-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Lakeview Financial Corporation, Inc.
Lakeview, Michigan
We have audited the accompanying consolidated balance sheets of Lakeview
Financial Corporation, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lakeview Financial
Corporation, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its methods of accounting for impaired loans in 1995 and securities in
1994 to conform to new accounting guidance.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 20, 1997
-98-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 4,687,608 $ 4,366,891
Federal funds sold 2,800,000
----------- -----------
Cash and cash equivalents 4,687,608 7,166,891
Securities available for sale 14,269,874 16,449,354
Loans
Commercial and agricultural 29,260,087 25,216,836
Consumer 7,550,329 5,641,654
Residential real estate 27,391,703 23,779,128
----------- -----------
64,202,119 54,637,618
Less allowance for loan losses (749,934) (880,644)
----------- -----------
63,452,185 53,756,974
Premises and equipment, net 2,072,894 2,211,387
Accrued interest receivable 910,227 959,536
Other assets 1,103,054 777,187
----------- -----------
86,495,842 81,321,329
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing: $ 7,124,602 $ 7,431,899
Interest-bearing
Demand accounts 17,460,956 15,815,905
Savings 11,902,219 11,686,697
Time 37,596,400 35,997,804
----------- -----------
Total deposits 74,084,177 70,932,305
Other borrowings 2,012,952 562,807
Accrued interest and other liabilities 1,699,147 1,314,038
----------- -----------
77,796,276 72,809,150
Employee Stock Ownership Plan (ESOP) securities,
net of ESOP loan (Note 10) 225,944 31,842
Commitments and contingencies (Notes 12 and 14)
Stockholders' equity
Common stock, $3.34 par value; authorized 1,500,000
shares; 657,464 and 636,770 shares issued and outstanding
at December 31, 1996 and 1995, respectively 2,162,684 2,093,714
Additional paid-in capital 974,753 882,384
Retained earnings 5,131,529 5,129,808
Net unrealized gain on securities available for sale,
net of tax of ($105,430) and ($192,888) as of December 31,
1996 and 1995, respectively 204,656 374,431
----------- -----------
8,473,622 8,480,337
----------- -----------
86,495,842 81,321,329
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-99-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income
Loans, including fees $6,033,608 $5,301,380 $4,673,598
Securities available for sale
Taxable 910,338 975,120 634,127
Tax-exempt 229,027 184,582 153,197
---------- ---------- ----------
7,172,973 6,461,082 5,460,922
Interest expense
Deposits 2,970,068 2,736,223 2,110,268
Other borrowings 71,107 12,879 16,061
---------- ---------- ----------
3,041,175 2,749,102 2,126,329
---------- ---------- ----------
Net interest income 4,131,798 3,711,980 3,334,593
Provision for loan losses 180,000 25,000 245,000
---------- ---------- ----------
Net interest income after provision
for loan losses 3,951,798 3,686,980 3,089,593
Other income
Service charges on deposit accounts 310,620 309,278 300,445
Gain (loss) on sale of securities 63,329 (7,954) (21,282)
Gain on sale of mortgage loans 160,215
Other 209,586 225,732 161,284
---------- ---------- ----------
583,535 687,271 440,447
Other expense
Salaries and employee benefits 1,572,539 1,623,101 1,193,631
Occupancy 620,641 524,057 457,920
FDIC insurance premium 2,000 73,146 140,834
Loan and collection 112,397 114,196 165,510
Insurance 86,770 82,175 80,572
Other 939,116 924,486 729,804
---------- ---------- ----------
3,333,463 3,341,161 2,768,271
---------- ---------- ----------
Income before federal income taxes 1,201,870 1,033,090 761,769
Federal income tax expense 317,897 257,875 217,012
---------- ---------- ----------
Net income $ 883,973 $ 775,215 $ 544,757
========== ========== ==========
Earnings per common and common
equivalent share $ 1.28 $ 1.19 $ .85
========== ========== ==========
Common and common equivalent
Shares outstanding 693,178 652,952 637,935
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-100-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Additional Securities
Common Paid-In Retained Available
Shares Stock Capital Earnings For Sale Total
-------- ------------ ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 637,846 $2,024,910 $ 676,602 $4,450,805 $7,152,317
Unrealized gain upon
adoption of SFAS No. 115
on January 1, 1994 $ 20,163 20,163
Net income 544,757 544,757
Cash dividends ($.32 per
share) (202,536) (202,536)
Change in net unrealized
gain (loss) on securities
available for sale (224,897) (224,897)
Stock options exercised 148 470 1,300 1,770
Repurchase of stock (6) (20) (64) (84)
------- ---------- --------- ---------- --------- ----------
Balances, December 31,
1994 637,988 2,025,360 677,838 4,793,026 (204,734) 7,291,490
Net income 775,215 775,215
Stock repurchases for the (133,872)
adoption of ESOP (133,872)
Shares committed to be 23,869
released under ESOP 23,869
Reclassification of ESOP
shares subject to put option (33,246) 1,404 (31,842)
Change in net unrealized
gain (loss) on securities
available for sale 579,165 579,165
Stock options exercised 1,155 3,850 7,105 10,955
Cash paid for fractional
shares on stock dividend (44) (1,454) (1,454)
Stock dividend of 5% 105,529 331,450 (436,979)
Repurchase of stock (2,329) (7,779) (25,410) (33,189)
------- ---------- --------- ---------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-101-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Additional Securities
Common Paid-In Retained Available
Shares Stock Capital Earnings For Sale Total
-------- ------------- ----------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995 636,770 2,093,714 882,384 5,129,808 $ 374,431 8,480,337
Net income 883,973 883,973
Shares committed to be
released under ESOP 97,051 97,051
Reclassification of ESOP
shares subject to put option (194,102) (194,102)
Cash dividends at $1.35 per
share (882,252) (882,252)
Change in net unrealized
gain (loss) on securities
available for sale (169,775) (169,775)
Stock options exercised 22,259 72,945 202,403 275,348
Repurchase of stock (1,565) (3,975) (12,983) (16,958)
------- ---------- --------- ---------- --------- ----------
Balances, December 31,
1996 657,464 $2,162,684 $ 974,753 $5,131,529 $ 204,656 $8,473,622
======= ========== ========= ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-102-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 883,973 $ 775,215 $ 544,757
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 264,497 241,288 317,970
Provision for loan losses 180,000 25,000 245,000
ESOP expense 97,051 23,869
Net amortization/accretion on securities (121,375) (97,972)
(Gain) loss on sale of securities available for sale (63,329) 7,954 21,282
Gain on sale of loans (160,215)
Net (gain) loss on sale of equipment 527 (64,955) (5,500)
Net (gain) loss on sale of other real estate owned 35,217 4,347 (7,934)
Change in accrued interest receivable
and other assets (852,701) (299,897) (233,321)
Change in accrued interest payable
and other liabilities 385,109 133,664 (159,367)
------------ ----------- -----------
Net cash from operating activities 808,969 588,298 722,887
Cash flows from investing activities
Purchases of securities available for sale (24,805,447) (6,526,845) (8,438,103)
Proceeds from sales of securities available for sale 2,603,307 3,844,509 2,992,578
Proceeds from maturities and calls of securities
available for sale 22,582,057 2,125,437 375,581
Purchases of securities held to maturity (1,599,949) (2,116,463)
Proceeds from maturities of securities held to maturity 640,000 5,395,685
Principal paydowns on securities available for sale 1,727,032 1,207,923
Net change in loans (9,469,525) (5,331,633) (707,472)
Surrender of cash value life insurance products 1,078,954
Capital expenditures (121,487) (430,593) (322,831)
Proceeds from sale of equipment 956 135,965 10,500
Proceeds from sale of other real estate owned 216,700 82,865 166,103
------------ ----------- -----------
Net cash from investing activities (7,266,407) (5,852,321) (1,565,468)
Cash flows from financing activities
Net increase in deposits 3,151,872 6,494,664 167,358
Change in other borrowings 1,450,145 562,807 (60,000)
Dividends paid (882,252) (1,454) (202,536)
Common stock repurchased (16,958) (33,189) (84)
Purchases of stock for ESOP (133,872)
Stock options exercised 275,348 10,955 1,770
------------ ----------- -----------
Net cash from financing activities 3,978,155 6,899,911 (93,492)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents (2,479,283) 1,635,888 (936,073)
Cash and cash equivalents at beginning of year 7,166,891 5,531,003 6,467,076
------------ ----------- -----------
Cash and cash equivalents at end of year $ 4,687,608 $ 7,166,891 $ 5,531,003
============ =========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest $ 3,036,590 $ 2,690,800 $ 2,118,262
Federal income taxes 191,998 215,072 270,000
</TABLE>
See accompanying notes to consolidated financial statements.
-103-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Lakeview Financial Corporation ("Lakeview") is a
holding company for a rural, community-based financial institution offering
commercial and consumer loan and deposit products to its customers. Lakeview
loan and deposit accounts are primarily with customers located in the western
central region of Michigan, in Montcalm and Mecosta counties.
Principles of Consolidation: The consolidated financial statements include
the accounts of Lakeview Financial Corporation, Inc. and its wholly-owned
subsidiary, Bank of Lakeview (the Bank). All significant intercompany
transactions and balances have been eliminated in consolidation.
Use of Estimates in Preparing Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Certain Significant Estimates: The primary estimates incorporated into
Lakeview's financial statements which are susceptible to possible material
change in the near term include the allowance for loan losses and fair value of
certain securities.
Statement of Cash Flows: Cash and cash equivalents include cash on hand,
amounts due from banks and federal funds sold. Lakeview reports loan
transactions, deposit transactions and other borrowings on a net basis.
Securities: Securities available for sale consist of those securities that
might be sold prior to maturity due to changes in interest rates, prepayment
risks, yield and availability of alternative investments, liquidity needs or
other factors. Securities classified as available for sale are reported at their
fair value and the related unrealized holding gain or loss is reported, net of
tax, as a separate component of stockholders' equity until realized.
Premiums and discounts on securities are recognized in interest income
using the level yield method over the estimated life of the security. Gains and
losses on the sale of securities available for sale are determined using the
specific identification method.
Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal amounts adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans. Interest income
is reported on the interest method and includes amortization of deferred loan
origination fees and certain direct origination costs over the term of the loan.
Management reviews loans delinquent 90 days or more to determine if
interest accrual should be discontinued based on the estimated fair market value
of the collateral. Under SFAS No. 114 as amended by SFAS No. 118, the carrying
values of impaired loans are periodically adjusted to reflect cash payments,
revised estimates of future cash flows, and increases in the present value of
expected cash flows due to the passage of time. Cash payments representing
interest income are reported as such. Other cash payments are reported as
reductions in carrying value, while increases or decreases due to changes in
estimates of future payments and due to the passage of time are reported as a
component of the provision for loan losses.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained by management at a level considered
adequate to absorb inherent losses in the loan portfolio. Management's estimate
is based on past loss experience, general economic conditions, information about
specific borrower situations including their financial position and collateral
value, and other factors and estimates which are subject to change over
-104-
<PAGE>
time. The allowance is increased by provisions for loan losses charged to
expense and reduced by charge-offs, net of recoveries. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off against the allowance by management as a loss when
deemed uncollectible, although collection efforts may continue and future
recoveries may occur.
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan (SFAS No. 114), later amended by SFAS No. 118. These standards, which
became effective for the Company beginning January 1, 1995, require that
impaired loans be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of collateral if the
loan is collateral dependent. A loan is impaired when it is probable that
Lakeview will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Loans are adjusted to fair value by allocating a
portion of the allowance for loan losses to such loans. Adoption of these
standards had no material impact on Lakeview's financial condition or results of
operations for 1995.
Impairment is evaluated in total for smaller-balance loans of similar
nature, such as residential first mortgage loans secured by one-to-four family
residences and consumer loans, and on an individual loan basis for commercial
loans, agricultural loans and first mortgage loans secured by other properties.
Loans are evaluated for impairment when payments are delayed, typically 90 days
or more, or when the internal grading system indicates a doubtful or loss
classification. Loans are generally moved to nonaccrual status when 90 days or
more past due. Impaired loans, or portions thereof, are charged off when deemed
uncollectible.
Foreclosed Real Estate: Real estate acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at the lower of cost, as
defined, or fair value less costs to sell. After foreclosure, valuations are
periodically performed by management, and an allowance for losses is established
by a charge to other expense if the carrying value of a property exceeds its
estimated fair value less costs to sell. Revenue and expenses from operations of
foreclosed real estate are included within other income or expense. Changes in
the valuation allowance are included in gain or loss on foreclosed real estate.
Stock Compensation: Expense for employee compensation under stock option
plans is based on APB Opinion 25, with expense reported only if options are
granted below market price at grant date. Pro forma disclosures of net income
and earnings per share are provided as if the fair value method of Financial
Accounting Standard No. 123 were used for stock-based compensation.
Federal Income Taxes: Income tax expense is based on the amount of taxes
due on Lakeview's tax return plus or minus the change in net deferred tax assets
or liabilities. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Premises and Equipment: Land is carried at cost. Building, furniture,
fixtures and equipment are carried at cost, less accumulated depreciation and
amortization. Buildings and furniture, fixtures and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets.
These assets are reviewed for impairment when events indicate the carrying
amount may not be recoverable.
Stock Split and Stock Dividend: During 1995, the Company split its stock on
a three-for-one basis and adjusted the par value from $10.00 to $3.34 per share.
Subsequently, the Company issued a 5% stock dividend. The stock split had no
impact on the Company's equity accounts. The stock dividend was recorded at fair
value through a transfer from retained earnings to common stock and additional
paid-in capital.
-105-
<PAGE>
Fair Values of Financial Instruments: Fair values of financial instruments
are estimated using relevant market information and other assumptions. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.
The fair value estimates of existing on- and off-balance-sheet financial
instruments does not include the value of anticipated future business or the
values of assets and liabilities not considered financial instruments.
Earnings Per Share: Earnings per share are based upon the weighted average
common and common equivalent shares outstanding (excluding unallocated ESOP
shares) during the period. The weighted average common and common equivalent
shares outstanding were 693,178 and 652,952 for 1996 and 1995, respectively. For
purposes of calculating the dilutive effect of stock options, fair value of
Lakeview's common stock for 1994 and 1995 was assumed to be equal to the values
obtained in appraisals performed in conjunction with Lakeview's Employee Stock
Ownership Plan. For 1996, the fair value was assumed to be equal to the value of
the consideration which would be received under the terms of a letter of intent
for the affiliation of Lakeview with Firstbank Corporation dated February 18,
1997 (Note 2). All 1996, 1995 and 1994 share and per share information has been
adjusted for stock splits and stock dividends.
Supplemental Disclosure of Noncash Investing Activities: Upon the adoption
of SFAS No. 115 at January 1, 1994, the Corporation transferred $5,066,325 from
investment securities to securities available for sale and transferred
$8,877,579 from investment securities to investment securities held to maturity.
Reclassification of in-substance foreclosed real estate to loans totaled
$349,668 in 1995, upon adoption of SFAS No. 114. Loans transferred to other real
estate equaled $405,686, $349,668 and $197,189 in 1996, 1995 and 1994,
respectively.
On November 30, 1995, the Corporation transferred securities with a
carrying value of $6,357,620 and a fair value of $6,606,630 from the
classification of securities held to maturity to securities available for sale.
This transfer was permitted under guidance issued by the Financial Accounting
Standards Board.
Reclassifications: Certain amounts in the 1995 and 1994 consolidated
financial statements have been reclassified to conform with the 1996
presentation.
Issued But Not Yet Adopted Accounting Standards: In August 1996, the FASB
issued Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
The Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities for some transaction in 1997 and others in 1998,
and is to be applied prospectively. Example transactions covered by SFAS No. 125
include asset securitizations, repurchase agreements, wash sales, loan
participations, transfers of loans with recourse and servicing of loans. The
standard is based on a consistent application of a financial-components approach
that focuses on control. Under this Statement, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. The Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 125
supersedes SFAS No. 122, Accounting for Mortgage Servicing Rights, and
supersedes SFAS No. 76, Extinguishment of Debt and SFAS No. 77, Reporting by
Transferors for Transfers of Receivables with Recourse. Retroactive application
is not permitted. Management has not fully evaluated the impact of the statement
on the Company's financial position or results of operations.
NOTE 2 - PROPOSED AFFILIATION
On February 18, 1997, the Board of Directors of Lakeview accepted an offer
of affiliation from Firstbank Corporation of Alma, Michigan. Under the terms of
the Letter of Intent, Firstbank Corporation would acquire all of the outstanding
shares of Lakeview's stock in exchange for shares of stock of Firstbank
Corporation and cash. Each share of Lakeview stock would have an approximate
sale value ranging from $21.30 to $25.07, depending on the market price of
Firstbank Corporation's stock during the month prior to the closing of the
transaction. The sale is subject to the completion of a Definitive Agreement and
Plan of Merger and will require the approval of Lakeview's shareholders.
-106-
<PAGE>
NOTE 3 - SECURITIES
Securities have been classified in the Consolidated Balance Sheets
according to management intent. The amortized cost and estimated fair values of
securities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ------------ ----------
1996
- ----
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,998,032 $ 9,157 $ 2,007,189
Obligations of other U.S.
Government agencies 1,912,921 57,141 1,970,062
Asset-backed securities other
than mortgages 6,178,743 122,709 $(27,413) 6,274,039
Obligations of state and political
subdivisions 3,870,092 157,587 (9,095) 4,018,584
----------- -------- -------- -----------
$13,959,788 $346,594 $(36,508) $14,269,874
=========== ======== ======== ===========
1995
- ----
U.S. Treasury securities $1,997,468 $ 34,095 $2,031,563
Obligations of other U.S.
Government agencies 1,866,005 114,501 1,980,506
Mortgage-backed securities
Pass-through certificates 2,535,327 16,371 2,551,698
Collateralized mortgage
obligations 5,856,465 229,519 6,085,984
Asset-backed securities other
than mortgages 506,972 1,728 508,700
Obligations of state and political
subdivisions 3,119,798 172,478 (1,373) 3,290,903
----------- -------- -------- -----------
$15,882,035 $568,692 $ (1,373) $16,449,354
=========== ======== ======== ===========
</TABLE>
-107-
<PAGE>
The amortized cost and estimated fair value of securities at December 31,
1996 and 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. Mortgage and
asset-backed securities are not reported by a specific maturity grouping because
of their variable payment structures.
<TABLE>
<CAPTION>
...................Available for Sale...................
1 9 9 6 1 9 9 5
------- -------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 1,549,966 $ 1,554,119 $ 248,372 $ 250,031
Due after one year
through five years 2,985,987 3,088,131 4,503,727 4,845,302
Due after five years
through ten years 1,048,831 1,116,478 1,083,266 1,565,493
Due after ten years 2,196,261 2,237,107 1,147,906 642,146
----------- ----------- ----------- -----------
7,781,045 7,995,835 6,983,271 7,302,972
Mortgage and asset-backed
securities 6,178,743 6,274,039 8,898,764 9,146,382
----------- ----------- ----------- -----------
$13,959,788 $14,269,874 $15,882,035 $16,449,354
=========== =========== =========== ===========
</TABLE>
Proceeds from the sale of securities available for sale during 1996, 1995
and 1994 were $2,603,307, $3,844,509 and $2,992,578, respectively. Gross losses
of $2,066, $7,954 and $21,282, respectively, were realized in connection with
these sales. Gross gains of $65,395 were realized in 1996. There were no gains
recognized in 1995 or 1994. There were no sales or transfers from securities
held to maturity during 1994.
Securities with an amortized cost of approximately $2,150,000 and
$2,000,000 at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits and for other purposes as required or permitted by law.
NOTE 4 - LOANS
As of December 31, 1996 and 1995, the Bank of Lakeview's receivables from
borrowers in the agricultural industry were approximately $17 million and $16
million, respectively. Agricultural loans are generally secured by property,
equipment and crop income. Repayment is expected from cash flow from the harvest
and sale of crops. Due to the increased inherent risk involved, credit losses
arising from the Bank of Lakeview's lending experience in the agricultural
industry compare somewhat less favorably than with the Bank of Lakeview's loss
experience on its loan portfolio as a whole. Credit evaluation of agricultural
lending is based on an evaluation of cash flow coverage of principal and
interest payments, including adequacy of collateral received.
Certain directors and executive officers of Lakeview and the Bank of
Lakeview, including their immediate families and companies in which they are
principal owners, were loan customers of the Bank of Lakeview during 1996, 1995
and 1994. Such loans amounted to approximately $556,644, $630,103 and $855,247
at December 31, 1996, 1995 and 1994. During 1996, $105,500 of related party
loans were originated and $178,959 of repayments were made on those loans.
-108-
<PAGE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Following is a summary of the activity in the allowance for loan losses for
the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 880,644 $ 996,141 $ 931,823
Provision charged to operations 180,000 25,000 245,000
Loans charged off (345,734) (187,758) (272,168)
Recoveries of loans previously charged off 35,024 47,261 91,486
--------- --------- ---------
Balance at end of year $ 749,934 $ 880,644 $ 996,141
========= ========= =========
Information regarding impaired loans is as follows for the year ended December 31:
1996 1995
---- ----
Average investment in impaired loans $399,658 $703,671
Interest income recognized on impaired loans
including interest income recognized on cash basis 9,700 33,761
Interest income recognized on impaired loans on cash basis 8,343 33,413
Information regarding impaired loans at year-end is as follows:
Balance of impaired loans $365,604 $591,033
Less portion for which no allowance
for loan losses is allocated 129,611
-------- --------
Portion of impaired loans balance for which
an allowance for credit losses is allocated $235,993 $591,033
======== ========
Portion of allowance for loan losses allocated
to the impaired loan balance $ 25,594 $186,000
</TABLE>
Impaired loan information was first required in 1995. At December 31, 1994,
approximately $1,737,000 of loans were on nonaccrual status. If nonaccrual loans
had been maintained current in accordance with their original terms, additional
interest income of approximately $99,000 would have been recorded in 1994.
NOTE 6 - BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment, and related accumulated
depreciation and amortization, at December 31, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and land improvements $ 164,735 $ 164,735
Building and building improvements 1,713,916 1,597,902
Furniture and equipment 2,086,218 2,077,188
Construction in progress 21,863
-----------
3,964,869 3,861,688
Less accumulated depreciation (1,891,975) (1,650,301)
----------- -----------
$ 2,072,894 $ 2,211,387
=========== ===========
</TABLE>
-109-
<PAGE>
NOTE 7 - DEPOSITS
The aggregate amount of time deposits with a minimum denomination of
$100,000, was approximately $3,971,000 and $4,231,000 at December 31, 1996 and
1995, respectively. Maturities of all certificates at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $23,673,779
1998 6,595,245
1999 3,743,938
2000 1,938,868
2001 1,633,570
Thereafter 11,000
-----------
$37,596,400
===========
</TABLE>
Deposits accepted from related parties were $272,840 and $220,532 at December
31, 1996 and 1995, respectively.
NOTE 8 - FEDERAL INCOME TAXES
The components of federal income tax expense for the years ended December
31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current expense $198,471 $234,207 $215,948
Deferred expense 119,426 23,668 1,064
-------- -------- --------
$317,897 $257,875 $217,012
======== ======== ========
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax income from continuing operations as a
result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Expense computed at statutory rate $408,635 $351,251 $259,001
Effect of tax-exempt interest (89,501) (92,026) (59,763)
Other, net (1,237) (1,350) 17,774
-------- -------- --------
$317,897 $257,875 $217,012
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995, are presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 147,624 $ 198,528
Defined benefit plan and deferred compensation 240,431 268,204
Other 4,496 44,038
--------- ---------
392,551 510,770
Deferred tax liabilities
Premises and equipment (56,383) (57,150)
Other (2,917) (943)
Unrealized gain on securities available for sale (105,429) (192,888)
--------- ---------
(164,729) (250,981)
--------- ---------
Net deferred tax asset $ 227,822 $ 259,789
========= =========
</TABLE>
No valuation allowance was established for deferred tax assets as of December
31, 1996 and 1995.
-110-
<PAGE>
NOTE 9 - OTHER BORROWINGS
The Bank of Lakeview has borrowing resources available with the Federal
Home Loan Bank (FHLB) and correspondent banks. The Bank of Lakeview has access
to credit of $32,700,000 from FHLB, limited by the type and amount of collateral
pledged. At December 31, 1996 and 1995, there were no borrowings from the FHLB.
Correspondent bank borrowing capacity is $2,000,000 at NBD and $1,000,000 at
LaSalle National Bank and are at variable rates. Other borrowings in the
accompanying balance sheets consist primarily of federal funds purchased in 1996
and bank borrowings in 1995.
At December 31, 1995, the Bank of Lakeview borrowed from a line of credit
for $452,804 and had an ESOP loan for $110,003.
NOTE 10 - BENEFIT PLANS
Lakeview's subsidiary bank maintains a Directors Deferred Compensation Plan
(DDCP) which permits participants to elect to defer a portion of their
compensation in order to receive retirement benefits. Under the Plan, directors
can elect to defer the receipt of their board fees and earn interest over the
period of deferral. Upon retirement or death, whichever comes first, the
participants or their beneficiary receive accumulated benefits in monthly
payments over a 15-year period. At December 31, 1996 and 1995, the liability for
deferred compensation included in other liabilities was $475,378 and $447,377,
respectively. Deferred compensation expense for the years ended December 31,
1996 and 1995 was $32,322 and $32,331, respectively.
Lakeview maintains an Executive Supplemental Income (ESI) Plan for key
employees and officers. Included in other liabilities was $49,812 and $22,212
at December 31, 1996 and 1995, respectively. The plan contains a provision
whereby in the event of a change in control or ownership, the liability would
have accelerated to $240,000 at December 31, 1996.
Lakeview adopted an Employee Stock Ownership Plan (ESOP) with Internal
Revenue Code (IRC) Section 401(k) provisions effective January 1, 1995. The
ESOP is intended to be a qualified plan under the IRC and a favorable
determination letter has been received. The ESOP has a minimum age requirement
of 21 years and a minimum requirement for 1,000 hours of service per year.
Participants may direct their contributions among several investment options,
including company stock. Under the ESOP, Lakeview may fund discretionary
matching contributions up to 100% of participant contributions, limited to a 6%
maximum of participants annual compensation. Lakeview Basic and Lakeview
Optional contributions are also discretionary. Participant, Company Match and
Company Basic contributions vest 100% immediately upon receipt. Lakeview
Optional contributions vest according to the length of a participant's service;
full vesting occurs at 7 years of service. Forfeitures of unvested Lakeview
Optional contributions are reallocated among remaining participants.
In 1995, the ESOP borrowed $121,803 from a correspondent bank at the
prime rate and used those funds to acquire 8,805 shares of the Company's stock
at $13.83 per share. The loan balance was $12,952 and $110,003 at December 31,
1996 and 1995, and its scheduled maturity is April 7, 1997. Lakeview guarantees
the ESOP debt. The ESOP also acquired 1,149 shares through cash contributions
during 1995.
Shares held by the ESOP are allocated to ESOP participants annually at
each plan year end based on principal payments made on the loan. Shares are
allocated at the average fair value price per share throughout the year.
Allocations of non-matching company contributions are based upon a formula that
multiplies a portion of the current year's net income or loss to each
participant account. As shares are released from collateral, Lakeview reports
compensation expense equal to the current market price of the shares. Dividends
on allocated ESOP shares are recorded as a reduction of retained earnings and
are added to participant accounts. Dividends on unallocated ESOP shares are
recorded as a reduction of debt and accrued interest. ESOP compensation expense
was approximately $97,000 and $24,000 for 1996 and 1995, respectively.
Upon withdrawal from the plan, participants are entitled to require
Lakeview to repurchase the stock (referred to as a put option). Withdrawn
participants are entitled to exercise the put option for a period of not more
than 60 days following the date of distribution of the stock. At December 31,
1996 and 1995, the fair value of ESOP shares subject
-111-
<PAGE>
to repurchase was $238,896 and $141,845. These amounts are reflected outside of
shareholders' equity in the consolidated balance sheets, net of the ESOP loan
amounts on the respective balance sheet dates.
Shares held by the ESOP at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Shares committed to be released 1,605 1,675
Shares allocated to participants 7,366 1,604
Unearned shares 983 6,675
-------- -------
Total ESOP shares 9,954 9,954
======== =======
Fair value information:
Fair value per share $ 24.00 $ 14.25
Shares committed to be released 38,520 23,900
Shares allocated to participants 176,784 22,900
Unearned shares 23,592 95,100
</TABLE>
NOTE 11 - STOCK OPTION PLANS
Lakeview maintains three stock options plans. The exercise prices of the
options for these plans equal the fair value of Lakeview's stock at the date of
grant. The Employee Stock Option Plan is for employees and officers and 31,500
shares were authorized for grant. At December 31, 1996, 25,160 common shares are
available for grant. The options have a ten year term and become exercisable
three years after the date of grant. Options that expire unexercised are
available for future grant.
The Incentive Stock Option Plan (ISO) is for officers of the Bank of
Lakeview and the Nonstatutory Stock Option (NSO) Plan is for directors of the
Company. Together the authorization under these plans is for 133,907 common
shares. ISO's may not be exercised prior to the date of one year, or after ten
years from the date of the grant. NSO's are immediately exercisable and may not
be exercised after ten years from the date of the grant. The fair value per
option of options granted in 1995 was approximately $1.
<TABLE>
<CAPTION>
Employee Stock Incentive Stock Nonstatutory Stock
Option Plan Option Plan Option Plan
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Options Price of Options Price of Options Price
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1994 10,269 $ 9.84
Exercised (148) 11.96
Forfeited (3,229) 10.28
------
Balances, December 31,
1994 6,892 9.64
Granted 44,601 $13.17 89,299 $13.17
Exercised (1,172) 8.91
Forfeited (472) 9.58
------
Balances, December 31,
1995 5,248 9.81 44,601 13.17 89,299 13.17
Exercised (3,727) 10.04 (3,055) 13.17 (15,477) 13.17
Forfeited (14) 11.29 (3,337) 13.17
------
Balances, December 31,
1996, all exercisable 1,507 $10.93 38,209 $13.17 73,822 $13.17
====== ====== ======
</TABLE>
-112-
<PAGE>
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS No. 123), which became effective for 1996, establishes
a fair value-based method of accounting for employee stock options. Although the
Statement encourages all companies to adopt a fair value-based method of
accounting, companies may elect to continue their former method of accounting
and make pro forma disclosures of net income and earnings per share as if the
fair-value method had been adopted. Accordingly, the following pro forma
information presents net income and earnings per share information as if SFAS
No. 123 had been adopted for 1995 option grants. No compensation cost was
recognized for stock options for 1996, 1995 or 1994.
In future years, the pro forma effect of this standard could increase if
additional options are granted.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income as reported $883,973 $775,215
Pro forma net income 879,362 696,767
Earnings per share as reported 1.28 1.19
Pro forma earnings per share 1.27 1.07
</TABLE>
The fair value of options granted during 1995 has been estimated using
the following weighted average information: risk-free interest rate of 6.5%,
expected life of 7 years and expected dividends of 5% per year.
NOTE 12 - FINANCIAL INSTRUMENTS
Lakeview is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and letters of
credit. Lakeview's exposure to credit loss in the event of the nonperformance
by the other party to the financial instruments for commitments to extend credit
and letters of credit is represented by the contractual amounts of these
instruments. Lakeview uses the same credit policies in making such commitments
as it does for loans recorded in the financial statements.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Financial instruments for which the contract amounts represents credit
risk at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Commitments to extend credit
At fixed rates $ 1,622,500 $1,636,294
Interest rates 9.25-10.25% 9.79%
Weighted-average days of commitment less than less than
or equal to 30 or equal to 70
At variable rates $ 936,000 $ 331,000
Unused lines of credit $ 1,028,897 $ 908,242
</TABLE>
The following disclosure of the fair value of financial instruments is made
in accordance with the requirements of Financial Accounting Standards No. 107,
Disclosure About Fair Value of Financial Instruments (SFAS No. 107). Where
quoted market prices are not available, as is the case for a significant portion
of the Company's financial instruments, the fair values are based on estimates
using present value of expected cash flows or other valuation techniques.
-113-
<PAGE>
The carrying amounts of the following financial instruments are a
reasonable approximation of their fair values:
Cash and cash equivalents
Accrued interest receivable
Securities sold under agreements to repurchase and overnight borrowings
Accrued interest payable
The various methods and assumptions used by the Company in estimating fair
value for their other financial instruments are as follows:
Securities
- ----------
Fair values for securities are based on published market prices and are
disclosed in detail in Note 3.
Net loans
- ---------
For variable rate loans that reprice frequently with no significant change
in credit risk, fair values and based on carrying values. For loans held for
sale, fair value is based on prices offered in the secondary market. The fair
values for all other loans are estimated using discounted cash flow analysis at
interest rates currently offered for loans with similar terms to borrowers of
similar credit quality.
Deposits
- --------
The fair values disclosed for deposit accounts with no defined maturities
are, by definition, equal to the amount payable on demand at the reporting date.
Fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
The carrying amounts and fair values of Lakeview's financial instruments
(in thousands) were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 4,688 $ 4,688 $ 7,167 $ 7,167
Securities 14,270 14,270 16,549 16,549
Net loans 63,452 63,398 53,766 53,935
Accrued interest receivable 910 910 946 946
Financial liabilities
Deposits 74,084 73,985 70,932 71,008
Accrued interest payable 252 252 248 248
</TABLE>
The Banks' loan commitments, letters of credit and undisbursed loans have
been estimated to have no material fair value as such commitments are generally
fulfilled at current market rates.
NOTE 13 - RESTRICTIONS ON RETAINED EARNINGS
Regulatory authorities have imposed certain restrictions on the amount of
dividends a bank can pay. At December 31, 1996, the Bank of Lakeview could pay
aggregate dividends to the Company of approximately $2.1 million without prior
regulatory approval.
NOTE 14 - CONTINGENT LIABILITIES
In the ordinary course of business, the Company has various outstanding
commitments and contingencies that are not reflected in the accompanying
financial statements. In addition, the Company is a defendant in certain claims
and
-114-
<PAGE>
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated financial position of the Company.
NOTE 15 - REGULATORY MATTERS
The Bank of Lakeview is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank of Lakeview's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank of Lakeview must meet specific capital guidelines that involve
quantitative measures of the Bank of Lakeview's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank of Lakeview's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank of Lakeview to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the table.
<TABLE>
<CAPTION>
Minimum Required
to be Well
Minimum Required Capitalized Under
for Capital Prompt Corrective
Adequacy Purposes Action Regulations
Actual ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1996
- ----
Total capital (to risk-weighted assets) $8,981 10.41% $6,902 8% $8,628 10%
Tier 1 capital (to risk-weighted assets) 8,231 9.54 3,451 4 5,177 6
Tier 1 capital (to average assets) 8,231 9.86 3,346 4 4,182 5
1995
- ----
Total capital (to risk-weighted assets) $7,993 11.11% $5,754 8% $7,194 10%
Tier 1 capital (to risk-weighted assets) 8,844 12.30 2,877 4 4,314 6
Tier 1 capital (to average assets) 8,844 11.76 3,008 4 2,256 5
</TABLE>
The subsidiary bank is required by law to maintain cash or
noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory
reserve requirements. At December 31, 1996, the reserve requirement was
$485,000.
NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information for Lakeview Financial Corporation, Inc. is
summarized below:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash $ 20,119 $ 42,085
Investment in subsidiary 8,447,200 8,257,764
Other assets 462,359 621,809
---------- ----------
$8,929,678 $8,921,658
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 230,112 $ 409,479
ESOP securities, net of ESOP loan 225,944 31,842
Stockholders' equity 8,473,622 8,480,337
---------- ----------
$8,929,678 $8,921,658
========== ==========
</TABLE>
-115-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income
Interest $172,890 $ 89,368
Dividends from subsidiary 765,000 300,000 $245,000
Other income 160,215
-------- -------- --------
937,890 549,583 245,000
Expenses
Salaries and wages 142,334 191,129
Interest 1,091
Other 246,474 232,246 35,767
-------- -------- --------
388,808 423,375 36,858
-------- -------- --------
Income before federal income taxes and equity
in undistributed net income of subsidiary 549,082 126,208 208,142
Income tax benefit 72,731 59,088 12,532
-------- -------- --------
Income before equity in undistributed
net income of subsidiary 621,813 185,296 220,674
Equity in undistributed net income
of subsidiary 262,160 589,919 334,083
-------- -------- --------
Net income $883,973 $775,215 $554,757
======== ======== ========
</TABLE>
-116-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 883,973 $ 775,215 $ 544,757
Adjustments to reconcile net income to
net cash from operating activities
Equity in income of subsidiary (1,027,160) (889,919) (579,083)
Change in other assets 159,450 (475,415) 52,149
Change in other liabilities (179,367) 343,629 (60,000)
---------- --------- ---------
Net cash from operating activities (163,104) (246,490) (42,177)
Cash flows from investing activities
Cash dividends received from subsidiary 765,000 300,000 245,000
---------- --------- ---------
Net cash from investing activities 765,000 300,000 245,000
Cash flows from financing activities
Proceeds from issuance of stock options 275,348 10,955 1,770
Common stock repurchased (16,958) (34,643) (84)
Dividends paid (882,252) (202,536)
---------- --------- ---------
Net cash from financing activities (623,862) (23,688) (200,850)
---------- --------- ---------
Change in cash (21,966) 29,822 1,973
Cash at beginning of year 42,085 12,263 10,290
---------- ---------
Cash at end of year $ 20,119 $ 42,085 $ 12,263
========== ========= =========
</TABLE>
-117-
<PAGE>
Unaudited Condensed Consolidated Financial Statements
LAKEVIEW FINANCIAL CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND 1996
-118-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 3,055,717 $ 4,687,608
Securities available for sale 13,545,884 14,269,874
Loans
Commercial and agricultural 28,638,301 29,260,087
Consumer 7,737,992 7,550,329
Residential real estate 27,773,628 27,391,703
----------- -----------
64,149,921 64,202,119
Less allowance for loan losses (740,328) (749,934)
----------- -----------
63,409,593 63,452,185
Premises and equipment, net 2,014,189 2,072,894
Accrued interest receivable 815,792 910,227
Other assets 1,215,145 1,103,054
----------- -----------
$84,056,320 $86,495,842
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 6,309,311 $ 7,124,602
Interest-bearing:
Demand accounts 17,165,574 17,460,956
Savings 11,771,883 11,902,219
Time 37,249,083 37,596,400
----------- -----------
Total deposits 72,495,851 74,084,177
Other borrowings 1,500,000 2,012,952
Accrued interest and other liabilities 1,314,118 1,699,147
----------- -----------
75,309,969 77,796,276
Employee stock ownership plan (ESOP) securities,
net of ESOP loan 238,896 225,944
Stockholders' equity
Common stock, $3.34 par value; authorized 1,500,000
shares; 657,484 and 657,464 shares issued and outstanding
at 1997 and 1996, respectively 2,162,751 2,162,684
Additional paid-in capital 974,946 974,753
Retained earnings 5,273,192 5,131,529
Net unrealized gain on securities available for sale,
net of tax of $49,746 and $105,430 as of 1997 and
1996, respectively 96,566 204,656
----------- -----------
8,507,455 8,473,622
----------- -----------
$84,056,320 $86,495,842
=========== ===========
</TABLE>
-119-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest income
Loans, including fees $1,505,965 $1,438,363
Securities
Taxable 181,378 218,811
Tax-exempt 56,655 51,255
Federal funds sold 2,364 15,461
---------- ----------
1,746,362 1,723,890
Interest expense
Deposits 761,211 732,497
Other borrowings 11,830 2,481
---------- ----------
773,041 734,978
---------- ----------
Net interest income 973,321 988,912
Provision for loan losses 60,000 15,000
---------- ----------
Net interest income after provision
for loan losses 913,321 973,912
Other income
Service charges on deposit accounts 86,768 77,794
Gain on sale of securities 2,410 26,316
Other 45,732 43,183
---------- ----------
134,910 147,293
Other expense
Salaries and employee benefits 394,970 442,408
Occupancy 142,662 139,646
Loan and collection 15,207 22,873
FDIC insurance premium 23,627 20,320
Supplies 20,464 22,002
Advertising 20,098 17,777
Other 178,152 166,640
---------- ----------
795,180 831,666
---------- ----------
Income before federal income taxes 253,051 289,539
Federal income tax expense 50,674 81,294
---------- ----------
Net income $ 202,377 $ 208,245
========== ==========
Earnings per common and common
equivalent share $ 0.29 $ 0.32
========== ==========
Common and common equivalent
shares outstanding 708,899 656,025
========== ==========
</TABLE>
-120-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1997
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Additional Securities
Common Paid-In Retained Available
Shares Stock Capital Earnings for Sale Total
------ ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 657,464 $2,162,684 $974,753 $5,131,529 $204,656 $8,473,622
Net income 202,377 202,377
Cash dividend at $0.09 per share (60,714) (60,714)
Change in net unrealized gain (loss)
on securities available for sale (108,090) (108,090)
Exercised stock options 20 67 193 260
------- ---------- -------- ---------- ------- ----------
Balances, March 31, 1997 657,484 $2,162,751 $974,946 $5,273,192 $96,566 $8,507,455
======= ========== ======== ========== ======= ==========
</TABLE>
-121-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 202,377 $ 208,245
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 65,699 59,496
Provision for loan losses 60,000 15,000
ESOP expense 12,952 34,551
Net amortization/accretion on securities (28,776) (15,541)
(Gain) loss on sale/call of securities available for sale (2,410) (26,316)
Change in accrued interest income and other assets (192,086) (340,013)
Change in accrued interest and other liabilities (154,917) (130,881)
----------- -----------
Net cash from operating activities (37,161) (195,459)
Cash flows from investing activities
Purchases of securities available for sale (500,938) (1,784,343)
Proceeds from sales of securities available for sale 501,445
Proceeds from maturities and calls of securities
available for sale 58,397 499,481
Principal paydowns on securities available for sale 532,499 346,908
Net change in loans (17,407) (744,573)
Net capital expenditures (6,994) (49,095)
----------- -----------
Net cash from investing activities 567,002 (1,731,622)
Cash flows from financing activities
Net decrease in deposits (1,588,326) (1,897,920)
Change in other borrowings (512,952) (30,901)
Dividends paid (60,714) --
Common stock repurchased (18,211)
Stock options exercised, net of repurchase 260 3,955
----------- -----------
Net cash from financing activities (2,161,732) (1,943,077)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,631,891) (3,870,158)
Cash and cash equivalents at beginning of period 4,687,608 7,166,891
----------- -----------
Cash and cash equivalents at end of period $ 3,055,717 $ 3,296,733
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 802,682 $ 761,962
Federal income taxes 118,673 62,815
</TABLE>
-122-
<PAGE>
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and Article 10-01 of Regulation S-X.
Accordingly, footnote disclosures, which would substantially duplicate the
disclosures contained in the most recent audited financial statement, have been
omitted. In the opinion of the management of the Company, all adjustments
necessary for a fair presentation of such financial information have been
included. All such adjustments are of a normal recurring nature. The results of
operations and cash flows for the three months ended March 31, 1997 may not be
indicative of the results for the entire year. The accompanying unaudited
consolidated financial statements should be read in conjunction with the notes
to consolidated financial statements contained in the December 31, 1996
consolidated financial statements.
NOTE 2 - EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding adjusted for the effect of dilutive stock options.
Earnings per common share are based on 708,899 and 656,025 shares for the three
months ended March 31, 1997 and 1996, respectively.
NOTE 3 - AFFILIATION
On April 17, 1997, the Company entered into an Agreement and Plan of
Merger with Firstbank Corporation of Alma, Michigan. The terms of the Agreement
conformed to the terms of the Letter of Intent previously accepted by the Board
of Directors on February 18, 1997 (see Note 2 to the consolidated financial
statements as of December 31, 1996). Under the terms of the Agreement, Firstbank
Corporation will acquire all of the outstanding shares of the Company's stock in
exchange for shares of stock of Firstbank Corporation and cash. Each share of
Lakeview stock will have a sale value ranging from $21.30 to $25.07, depending
on the market price of Firstbank Corporation's stock during the month prior to
the closing of the transaction. The Agreement is contingent upon shareholder
and regulatory approval.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Following is a summary of the activity in the allowance for loan losses for
the periods ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Balance at beginning of period $749,934 $ 880,644
Provision charged to operations 60,000 15,000
Loans charged off (71,686) (189,444)
Recoveries of loans previously charged off 2,080 11,219
-------- ---------
$740,328 $ 717,419
======== =========
</TABLE>
NOTE 5 - NEW ACCOUNTING STANDARDS
In August 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. The Statement is effective for transfers
and servicing of financial assets and extinguishments of liabilities for some
transactions in 1997 and others in 1998, and is to be applied prospectively.
Example transactions covered by SFAS No. 125 include asset securitizations,
repurchase agreements, wash sales, loan participations, transfers of loans with
recourse and servicing of loans. The Standard is based on a consistent
application of a financial-components approach that focuses on control. Under
this Statement, after a transfer of financial assets, and entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 supersedes SFAS No. 122,
Accounting for Mortgage Servicing Rights, and supersedes SFAS No. 76,
Extinguishment of Debt and SFAS No. 77, Reporting by Transferors for Transfers
of Receivables with Recourse. Retroactive application is not permitted.
Adoption of this standard is not expected to have a material impact on the
Company's financial position or results of operations.
-123-
<PAGE>
In March, 1997, the FASB issued SFAS No. 128, Earnings Per Share,
which is effective for financial statements beginning with year end 1997. It is
not effective for interim periods during 1997. This Statement simplifies the
accounting requirements of calculating earnings per share by replacing primary
earnings per share (EPS) with basic EPS. It also requires dual presentation of
basic EPS and diluted EPS for entities with complex capital structures. Basic
earnings per share for 1997 and later will be calculated solely on average
common shares outstanding. Diluted earnings per share will reflect the
potential dilution of stock options and other common stock equivalents. All
prior calculations should be restated to be comparable to the new methods.
-124-
<PAGE>
Statistical Information
STATISTICAL INFORMATION
REGARDING LAKEVIEW FINANCIAL CORPORATION
-125-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------------- ------------------------- --------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- ------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Interest earning assets:
Securities available
for sale:
Taxable Securities 12,699 882 6.95% 14,465 932 6.44% 11,115 567 5.10%
Tax-exempt securities(1) 3,915 347 8.86% 2,871 280 9.74% 2,667 232 8.70%
------ ----- ----- ------ ----- ----- ------ ----- ----
Total Securities 16,614 1,229 7.40% 17,336 1,212 6.99% 13,782 799 5.80%
Loans (1)(2) 59,054 6,034 10.22% 51,148 5,301 10.36% 48,841 7,674 9.57%
Federal funds sold 549 28 5.14% 756 43 5.73% 1,501 64 4.25%
Total earning
assets 76,217 7,291 9.57% 69,240 6,556 9.47% 64,124 5,537 8.63%
Non-accrual loans
Less allowance for loan loss (759) (948) (990)
Other non-earning assets 7,994 7,205 7,326
------ ------ ------
Total assets 83,452 75,497 70,460
Average Liabilities:
Interest-bearing deposits:
Demand 17,293 402 2.32% 14,516 354 2.44% 16,776 373 2.22%
Savings 12,100 476 3.93% 12,027 457 3.80% 12,495 463 3.71%
Time 36,502 2,092 5.73% 33,916 1,925 5.68% 27,001 1,274 4.72%
Federal funds purchased
and repurchase
agreements
Notes payable
Other liabilities 1,080 72 6.67% 201 13 6.47% 260 16 6.15%
------ ----- ----- ------ ----- ----- ------ ----- ----
Total
interest-bearing
liabilities 66,975 3,041 4.54% 60,660 2,749 4.53% 56,532 2,126 3.76%
Demand deposits 6,122 5,789 5,530
Total funds
Other liabilities 1,749 1,092 997
Total liabilities 74,846 67,541 63,039
ESOP liability 129 16
Average Shareholders'
Equity 8,477 7,940 7,421
Total liabilities and
shareholders' equity 83,452 75,497 70,460
Net interest income (1) 4,250 3,807 3,411
Rate spread (1) 5.03% 4.94% 4.87%
Net interest margin
(percent of average
earning assets) (1) 5.09% 5.04% 4.84%
</TABLE>
(1) Presented on a fully taxable equivalent basis using a federal income tax
rate of 34%.
(2) Including loan fees of $1,327,000, $1,060,300, and $897,700, respectively.
Interest on Non-accrual loans is not included.
-126-
<PAGE>
Volume/Rate Analysis*
<TABLE>
<CAPTION>
1996/1995 1995/1994
--------- ---------
Change in Interest Due to: Change in Interest Due to:
-------------------------- --------------------------
Average Average Net Average Average Net
Volume Rate Change Volume Rate Change
------- ------- ------ ------- ------- ------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Securities available for sale
Taxable securities (119) 69 (50) 195 170 365
Tax-exempt Securities (1) 94 (27) 67 19 29 48
---- ---- ---- ---- ---- ------
Total securities (25) 42 17 214 199 413
Loans (1) 809 (76) 733 227 400 627
Federal funds sold (11) (4) (15) (38) 17 (21)
Interest-bearing deposit
Loan fees
---- ---- ---- ---- ---- ------
Total interest-earning assets 773 (38) 735 403 616 1,019
Interest expense:
Interest-paying demand 65 (17) 48 (53) 34 (19)
Savings deposits 3 16 19 (18) 12 (6)
Time deposits 148 18 166 363 288 651
---- ---- ---- ---- ---- ------
Total interest-paying deposits 216 17 233 292 334 626
Federal funds purchased and securities
sold under agreements to repurchase
Notes payable
Other liabilities 59 59 (4) 1 (3)
Total interest-bearing liabilities 275 17 292 288 335 623
Net interest income 498 (55) 443 115 281 396
</TABLE>
*Changes in volume/rate have been allocated between the volume and rate
variances on the basis of the ratio that the volume and rate variances bear to
each other.
(1) Interest is presented on a fully taxable equivalent basis using a federal
income tax rate of 34%.
-127-
<PAGE>
Investment Portfolio
The following table sets forth the carrying amount of investment securities at
December 31, 1996 and 1995. Investment securities classified as available-for-
sale are recorded at fair value.
<TABLE>
<CAPTION>
December 31,
1996 1995
---- -------
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury and government agencies $ 3,977 $ 4,012
Obligations of states and political subdivisions 4,019 3,291
Corporate securities 1,161 509
Securities backed by mortgages and other assets 5,113 8,637
------- -------
$14,270 $16,449
======= =======
</TABLE>
Analysis of Investment Securities Portfolio
The following table presents the contractual maturities or terms to
repricing of investment debt securities and the weighted average yield at
December 31, 1996.
<TABLE>
<CAPTION>
Due 0-1 Due 1-5 Due 5-10 Due 10
years after years after years after years after
December 31, December 31, December 31, December 31,
1996 1996 1996 1996 Total
---- ---- ---- ---- -----
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Available-for-sale:
U.S. treasury and
government agencies $1,503 5.84% $2,474 7.49% $ 3,977 6.87%
Obligations of states and political
subdivisions/(1)/ 51 9.69% 614 10.20% $1,117 8.84% $2,237 7.73% 4,019 8.44%
Asset-backed securities 15 6.81% 647 7.42% 499 6.32% 1,161 6.94%
Mortgage-backed securities 1,315 6.84% 1,563 7.59% 2,235 7.30% 5,113 7.27%
------ ------ ------ ------ -------
$1,569 5.97% $5,050 7.64% $3,179 7.83% $4,472 7.51% $14,270 7.46%
====== ====== ====== ====== =======
</TABLE>
(1) Yields on tax-exempt investments have been computed on a tax equivalent
basis using a marginal federal income tax rate of 34.0%.
At December 31, 1996, there were no holdings of securities of any one issuer,
other than the U.S. Government, its agencies or corporations, of an amount
greater than 10% of shareholders' equity.
-128-
<PAGE>
Loan Portfolio
Loan Portfolio Composition: Lakeview Financial Corporation's lending
area is the Midwestern portion of Michigan's lower peninsula. Primary emphasis
is within the Michigan counties of Montcalm and Mecosta.
The following table presents certain information in respect of the
composition of Lakeview Financial Corporation's loan portfolio at the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Commercial and agricultural $29,260 $25,217
Real estate-mortgage 27,392 23,779
Consumer 7,550 5,642
------- -------
Total loans 64,202 54,638
Allowance for loan losses (750) (881)
------- -------
$63,452 $53,757
======= =======
</TABLE>
At December 31, 1996, Lakeview Financial Corporation did not have any
concentrations of loans exceeding 10.0% of total loans not otherwise disclosed
in the loan categories in the table above.
Loan Maturity Schedule. The following table sets forth certain
information at December 31, 1996, regarding loans, excluding real estate
mortgage, installment and other, maturing or repricing in Lakeview Financial
Corporation's portfolio, based on the earlier of contractual terms to maturity
or the next scheduled repricing date for variable rate loans:
<TABLE>
<CAPTION>
Due 0-1 Due 1-5 Due 5-10 Due 10
years after years after years after years after
December 31, December 31, December 31, December 31,
1996 1996 1996 1996 Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Commercial and agricultural $8,671 $16,226 $2,439 $1,924 $29,260
====== ======= ====== ====== =======
</TABLE>
The following table sets forth the dollar amount of all loans due one
year after December 31, 1996 that have predetermined interest rates and have
floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
Rates Adjustable Rates
----- ----------------
(Dollars in thousands)
<S> <C> <C>
Commercial and agricultural $13,041 $7,548
======= ======
</TABLE>
-129-
<PAGE>
Delinquent Loans and Nonperforming Assets: All loans are reviewed on a
regular basis and are placed on nonaccrual status when, in the opinion of
management, the collection of interest is doubtful. Loans are classified as
restructured when management, to protect its investment, grants concessions that
would not otherwise be considered to a debtor. Foreclosed real estate ("REO")
represents real estate acquired by Lakeview Financial Corporation as a result of
loan defaults by customers. The following table summarizes Lakeview Financial
Corporation's nonaccrual loans, restructured loans, REO and past due loans at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
At December 31,
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans $610 $ 841
Foreclosed real estate 5 202
---- ------
Total nonperforming assets $615 $1,043
==== ======
Accruing loans past due 90 days or more $270 $ 312
==== ======
</TABLE>
Interest income which would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
At December 31,
1996 1995
----------------------
(Dollars in thousands)
<S> <C> <C>
Interest income which would have been recorded $97 $95
Interest income recognized 55 47
--- ---
Interest income foregone $42 $48
=== ===
</TABLE>
At December 31, 1996, Lakeview Financial Corporation did not have any
loans not currently classified as nonaccrual or 90 days past due and accruing
where known information about possible credit problems of borrowers causes
management to have serious doubts as to the ability of such borrowers to comply
with the present loan repayment terms and which may result in future disclosure
of such loans.
-130-
<PAGE>
The following table sets forth an analysis of Lakeview Financial
Corporation's allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $881 $996 $932
Charge-offs:
Commercial and agricultural 286 121 88
Real estate-mortgage 1 2 51
Consumer 59 64 133
---- ---- ----
Total charge-offs 346 187 272
Recoveries:
Commercial and agricultural 12 15 56
Real estate-mortgage 1 12 2
Consumer 22 20 33
---- ---- ----
Total recoveries 35 47 91
---- ---- ----
Net charge-offs 311 140 181
Provision for loan losses 180 25 245
---- ---- ----
Balance at end of period $750 $881 $996
==== ==== ====
Ratio of net charge-offs (recoveries during the
period less charge-offs) to average loans out-
standing during the period .53% .27% .37%
==== ==== ====
</TABLE>
The following table provides an allocation of Lakeview Financial
Corporation's allowance for loan losses by category for the periods indicated.
The allowance can be allocated by category only on an approximate basis. The
allocation of allowance to each category is not necessarily indicative of future
losses and does not restrict the use of the allowance to absorb losses in any
other category.
<TABLE>
<CAPTION>
Percentage of Loans
Allowance for Loan Losses to Total Loans
At December 31, At December 31,
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $209 $413 45.57% 46.15%
Real estate-mortgage 18 42 42.67% 43.52%
Consumer 7 6 11.76% 10.33%
Unallocated 516 420
---- ---- ------ ------
$750 $881 100.00% 100.00%
==== ==== ====== ======
</TABLE>
-131-
<PAGE>
The following table presents the average balance of and the average
rate paid on various deposit categories for the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
---- ----
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 6,122 $ 5,789
Interest bearing demand deposits 17,293 2.32% 14,516 2.44%
Savings deposits 12,100 3.93% 12,027 3.80%
Time deposits 36,502 5.73% 33,916 5.68%
------- -------
Total $72,017 4.12% $66,248 4.13%
======= =======
</TABLE>
The following table presents the amount of Lakeview Financial
Corporation's time deposits of $100,000 or more by the time remaining until
maturity as of December 31, 1996 (dollars in thousands):
<TABLE>
<S> <C>
Three months or less $2,100
Over three through six months 310
Over six through twelve months 1,057
Over twelve months 504
------
Total $3,971
======
</TABLE>
The following table illustrates the asset and liability funding gaps for
selected time periods as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1 1-3 3-6 6-12 1-3 3-5 5+
Month Months Months Months Years Years Years
----- ------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments $ $ $ $ 1,569 $ 2,855 $ 2,195 $ 7,651
Loans
Real estate mortgage 470 1,480 983 1,194 8,331 12,254 2,680
Consumer 1,070 210 247 347 2,299 3,219 158
Commercial and agricultural 1,253 1,215 3,954 1,826 8,216 8,420 4,376
-------- -------- -------- -------- -------- ------- -------
2,793 2,905 5,184 4,936 21,701 26,088 14,865
LIABILITIES
NOW and MMDA 17,461
Savings 11,902
CD's 1,442 6,644 7,957 7,630 10,340 3,572 11
Other borrowings 2,000 13
-------- -------- -------- -------- -------- ------- -------
32,805 6,644 7,970 7,630 10,340 3,572 11
Period GAP $(30,012) $ (3,739) $ (2,786) $ (2,694) $ 11,361 $22,516 $14,854
======== ======== ======== ======== ======== ======= =======
Cumulative GAP $(30,012) $(33,751) $(36,537) $(39,231) $(27,870) $(5,354) $ 9,500
Period GAP (%) (34.70)% (4.32)% (3.22)% (3.11)% 13.13% 26.03% 17.17%
Cumulative GAP (%) (34.70)% (39.02)% (42.24)% (45.35)% (32.22)% (6.19)% 10.98%
</TABLE>
-132-
<PAGE>
LAKEVIEW FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
3 Months Ended March 31, Year Ended December 31,
------------------------ -----------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Financial condition and other data:
Total amount of:
Assets $84,286,432 $79,315,698 $86,495,842 $81,321,329
Securities:
Held-to-maturity
Available-for-sale 13,545,884 17,164,819 14,269,874 16,449,354
Loans, net of unearned income, deferred
loan fees and allowance for loan losses 63,409,592 54,486,547 63,452,185 53,756,974
Deposits 72,495,851 69,034,385 74,084,177 70,932,305
Stockholders' equity 8,507,455 8,504,344 8,473,622 8,480,337
Earnings and other data:
Interest income $ 1,746,362 $ 1,723,890 $ 7,172,973 $ 6,461,082
Interest expense 773,041 734,978 3,041,175 2,749,102
----------- ----------- ----------- -----------
Net interest income 973,321 988,912 4,131,798 3,711,980
Provision for loan losses 60,000 15,000 180,000 25,000
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 913,321 973,912 3,951,798 3,686,980
Other income 134,910 147,293 583,535 687,271
Other expenses 795,180 831,666 3,333,463 3,341,161
----------- ----------- ----------- -----------
Income before federal income taxes 253,051 289,539 1,201,870 1,033,090
Federal income tax expense 50,674 81,294 317,897 257,875
----------- ----------- ----------- -----------
Net income $ 202,377 $ 208,245 $ 883,973 $ 775,215
=========== =========== =========== ===========
Earnings per share (2) $ 0.29 $ 0.32 $ 1.28 $ 1.19
----------- =========== =========== ===========
Dividends per share $ 0.09 $ 0.00 $ 1.35 $ 0.00
Return on equity (net earnings divided by
average equity) 9.53% 9.81%/(1)/ 10.43% 9.83%
Return on assets (net earnings divided by
average total assets) 0.95% 1.04% 1.05% 1.01%
Dividend payout ratio (dividends declared per
share divided by net earnings per share) 31.03% 0.00% 99.81% 0.00%
Book value per common share $ 12.94 $ 13.36 $ 12.89 $ 13.32
Average shareholders' equity to average
total assets 9.56% 10.57% 10.10% 10.23%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1993 1992
---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Financial condition and other data:
Total amount of:
Assets $72,775,757 $72,689,657 $69,157,212
Securities:
Held-to-maturity 5,397,671 13,843,904 13,096,085
Available-for-sale 9,775,219
Loans, net of unearned income, deferred
loan fees and allowance for loan losses 47,961,224 47,498,752 43,955,397
Deposits 64,437,641 64,270,283 61,291,492
Stockholders' equity 7,291,490 7,152,317 6,773,374
Earnings and other data:
Interest income $ 5,460,922 $ 5,754,302 $ 6,060,729
Interest expense 2,126,329 2,432,308 2,877,788
----------- ----------- -----------
Net interest income 3,334,593 3,321,994 3,182,941
Provision for loan losses 245,000 300,000 300,000
----------- ----------- -----------
Net interest income after provision for
loan losses 3,089,593 3,021,994 2,882,941
Other income 440,447 452,029 482,472
Other expenses 2,768,271 2,688,606 2,490,418
----------- ----------- -----------
Income before federal income taxes 761,769 785,417 874,995
Federal income tax expense 217,012 204,000 219,000
----------- ----------- -----------
Net income $ 544,757 $ 581,417 $ 655,995
=========== =========== ===========
Earnings per share (2) $ .85 $ .91 $ 1.03
=========== =========== ===========
Dividends per share $ .32 $ .32 $ 0.32
Return on equity (net earnings divided by
average equity) 7.80% 8.35% 10.02%
Return on assets (net earnings divided by
average total assets) .77% .82% .95%
Dividend payout ratio (dividends declared per
share divided by net earnings per share) 37.18% 34.91% 31.07%
Book value per common share $ 11.43 $ 11.21 $ 10.62
Average shareholders' equity to average
total assets 9.93% 9.82% 9.53%
</TABLE>
-133-
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Under the provisions of Section 762 of the MBCA, any Lakeview
shareholder may dissent from the proposed Merger and be paid the "fair value" of
his or her shares by complying with the procedures set forth in Sections 761
through 774 of the MBCA. Any shareholder who does not vote for approval of the
Plan of Merger at the special meeting of Lakeview, and who delivers written
notice of dissent to Lakeview at or before the special meeting, has the right to
receive from Lakeview the fair value of his or her shares if the Plan of Merger
is approved by the shareholders and the proposed Merger is consummated. A
shareholder may not dissent as to less than all of the shares beneficially owned
by him or her.
A shareholder who wishes to dissent must follow certain required
procedures. To claim dissenters' rights, a shareholder must:
(i) not vote for or consent in writing to approval of the Plan of
Merger (there is no requirement that a shareholder vote against approval of
the Plan of Merger); and
(ii) deliver to Lakeview, before the vote is taken on the Plan of
Merger, a separate written notice of dissent (voting against approval of
the Plan of Merger will not satisfy this requirement). The notice must
state that the shareholder intends to demand payment for his or her shares
if the Plan of Merger is approved by the shareholders and the transactions
contemplated by the Plan of Merger are taken.
Within 10 days after the date on which the shareholders approve the
Plan of Merger, Lakeview must give notice to each shareholder who properly
demanded the right to receive the fair value of his or her shares. Within 30
days (or such longer period not to exceed 60 days as may be permitted by
Lakeview) of the date the notice is delivered, the shareholder must file with
Lakeview a written demand for payment, certify that he or she acquired
beneficial ownership of the shares before the date of the first announcement of
the terms of the Plan of Merger to the news media or the Lakeview shareholders,
and deposit his or her certificates in accordance with the terms of the notice.
A shareholder who properly demands payment and deposits his or her share
certificates retains all other rights of a shareholder until those rights are
canceled or modified by the taking of the actions contemplated by the Plan of
Merger. A shareholder who does not demand payment or deposit his or her share
certificates as required in the notice loses his or her dissenters' rights.
A notice of election to dissent may be withdrawn only with the consent
of Lakeview. If the notice is withdrawn, the transactions contemplated by the
Plan of Merger do not occur, a court determines that the shareholder is not
entitled to payment, or the shareholder otherwise loses his or her dissenters'
rights, the shareholder will not be entitled to receive the payment demanded for
his or her shares, and he or she will be reinstated to his or her rights as a
shareholder as of the date the notice was filed.
Within seven days after consummation of the transactions contemplated
by the Plan of Merger or receipt by Lakeview of the demand for payment,
whichever occurs later, Firstbank must send to the dissenting shareholder the
amount that Firstbank estimates to be the fair value of his or her shares plus
accrued interest. Firstbank must send the payment with a balance sheet as of
the end of a fiscal year ended not more than 16 months before the date of
payment, an income statement for that year, a statement of changes in
shareholders' equity for that year, and if available the most recent interim
financial statements of Firstbank. In addition, Firstbank must send the payment
with a statement of Firstbank's estimate of the fair value of the shareholder's
shares, an explanation of how the interest was calculated, and a statement of
the dissenter's right to demand payment based on the dissenting shareholder's
estimate of the fair value of his or her shares.
Within 30 days after Firstbank has made or offered payment for the
shares, the shareholder may notify Firstbank in writing of his or her own
estimate of the fair value of his or her shares and the amount of interest due,
and demand payment of that estimate, less any payment already forwarded by
Firstbank. The shareholder's right to pursue further a differing amount for his
or her shares terminates if he or she fails to act within that 30-day period.
If the shareholder demands an amount for his or her shares different
than that paid or offered by Firstbank, then, within 60 days after receiving the
shareholder's demand for payment of a different amount, Firstbank may file an
action asking the court to determine the fair value of the shareholder's shares
and accrued interest. If Firstbank does not file the action within the 60-day
period, Firstbank will be required to pay the dissenting shareholder the amount
he or she has demanded.
-134-
<PAGE>
In the action, the court may, pursuant to the agreement of the parties,
submit the matter to a referee selected by the parties and approved by the
court. The referee will conduct proceedings in the matter and prepare a report
containing proposed findings of fact and conclusions of law and the referee's
recommended judgment. The referee is given full power to conduct and regulate
the proceeding. After the referee files the report with the court, each party
has 45 days after the party is served with notice of the filing to serve written
objections to the report on the other party. The court may extend the period for
serving the objections. Either party may, by motion, ask the court to take
action on the report or object to it. After a hearing, the court may adopt the
report, receive further evidence, modify the report, or instruct the referee to
take further action on it. The adoption of the report is treated as a final
judgment and is subject to the same review as any other judgment of the court.
The parties and the referee, subject to the court's approval, determine the
amount and manner of payment of the referee's compensation.
A copy of Sections 761 through 774 of the MBCA is attached as Appendix C to
this Prospectus and Proxy Statement.
Firstbank and Lakeview are not obligated to consummate the Merger if
dissenters' rights are exercised by Lakeview shareholders with respect to a
number of shares of Lakeview Common Stock which, in the aggregate, exceed 10% of
the total number of outstanding shares of Lakeview Common Stock. (See "The
Merger--Conditions to the Merger and Abandonment.") Firstbank and Lakeview will
require strict compliance with Sections 761 through 774 of the MBCA by any
shareholder seeking to assert dissenters' rights.
Shareholders of Lakeview who do not want to vote in favor of approval of
the Plan of Merger, but who also do not wish to perfect dissenters' rights
pursuant to the MBCA, would continue to have the ability to sell their shares in
the open market until the Merger becomes effective if approved.
Shareholders of Firstbank who desire to assert dissenters' rights may send
a written notice of dissent to Mr. Richard J. Schurtz, Lakeview Financial
Corporation, 506 Lincoln, Lakeview, Michigan 48850.
THE DISCUSSION OF RIGHTS OF DISSENTING SHAREHOLDERS ABOVE DOES NOT
CONSTITUTE LEGAL ADVICE. SHAREHOLDERS SEEKING TO EXERCISE AND PERFECT
DISSENTERS' RIGHTS SHOULD SEEK LEGAL COUNSEL.
-135-
<PAGE>
VOTING AND MANAGEMENT INFORMATION
Voting Securities and Principal Shareholders of Lakeview
Holders of record of shares of Lakeview Common Stock at the close of
business on August _____, 1997, will be entitled to vote at the special meeting
of shareholders on September _____, 1997, and any adjournment of that meeting.
As of March 31, 1997, there were 657,484 shares of Lakeview Common Stock issued
and outstanding, held by approximately 290 shareholders of record. Each share
of Lakeview Common Stock is entitled to one vote on each matter presented for
shareholder action.
The following table sets forth information concerning the number of shares
of Lakeview Common Stock held as of March 31, 1997, by each shareholder who is
known to Lakeview management to have been the beneficial owner of more than 5%
of the outstanding shares of Lakeview Common Stock as of that date:
<TABLE>
<CAPTION>
Firstbank Common
stock to be received
Amount and Nature of Beneficial Ownership(1) in the Merger
---------------------------------------------- ------------------------
Sole Shared
Voting and Voting or Total Total
Name and Address of Investment Investment Beneficial Percent Following Percent
Beneficial Owner Power Power(2) Ownership of Class Merger(3) of Class(4)
------------------- ---------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lynn P. Carr 72,516 24,069 96,585 14.7% 55,903 2.73%
1760 44th Street
Wyoming, Michigan 49509
</TABLE>
(footnotes begin on the following page)
[This Space Intentionally Left Blank]
-136-
<PAGE>
The following table shows certain information concerning the number of
shares of Lakeview Common Stock held as of May 31, 1997, by each of Lakeview's
directors, each of the named executive officers, and all of Lakeview's directors
and executive officers as a group:
<TABLE>
<CAPTION>
Firstbank Common
Stock to be Received
Amount and Nature of Beneficial Ownership(1) in the Merger
---------------------------------------------- ------------------------
Sole Shared
Voting and Voting or Total Total
Name of Investment Investment Beneficial Percent Following Percent
Beneficial Owner Power Power(2) Ownership of Class Merger(3) of Class(4)
- -------------------- ---------- ----------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Joe Allen........... 3,228 0 3,228 * 870 *
William Benear...... 12,757 0 12,757 1.90% 3,344 *
Linda Bogardus...... 12,757 226 12,983 1.94% 3,474 *
Duane A. Carr....... 8,000 2,000 10,000 1.52% 5,788 *
John Crawford....... 17,338 1,260 18,598 2.77% 6,724 *
Dean Floria......... 12,757 2,098 14,855 2.22% 4,558 *
David Germain....... 12,757 2,892 15,649 2.33% 5,017 *
William Hocking..... 16,537 0 16,537 2.48% 6,393 *
David Miller........ 3,181 0 3,181 * 834 *
Gerald Nielsen...... 12,757 2,362 15,119 2.26% 4,711 *
Richard Schurtz..... 19,120 0 19,120 2.83% 5,013 *
Directors and
Executive Officers
as a Group (10
Persons)............ 131,189 10,838 142,027 18.74% 46,726 2.29%
</TABLE>
- ----------------
*Less than 1.0%
(1) The numbers of shares stated are based on information furnished by each
person listed and include shares personally owned of record by that person
and shares which under applicable regulations are deemed to be otherwise
beneficially owned by that person. Under these regulations, a beneficial
owner of a security includes any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or
otherwise, has or shares voting power or investment power with respect to
the security. Voting power includes the power to vote or to direct the
voting of the security. Investment power includes the power to dispose or
to direct the disposition of the security. A person will also be
considered the beneficial owner of a security if the person has a right to
acquire beneficial ownership of the security within 60 days.
(2) Includes shares as to which the indicated person is legally entitled to
share voting or investment power by reason of joint ownership, trust, or
other contract or property right, and shares held by spouses and children
over whom the indicated person may have substantial influence by reason of
the relationship.
(3) This column reflects the number of shares of Firstbank Common Stock to be
issued to the specified person in exchange for the number of shares of
Lakeview Common Stock and number of Lakeview Stock Options shown
-137-
<PAGE>
in the "Total Beneficial Ownership" column for such person, based upon an
estimated Stock Exchange Ratio of 0.5788 for all outstanding shares of
Lakeview Common Stock and an estimated Option Exchange Ratio of 0.2622.
The share numbers and percentages appearing in this table are based as the
assumption that no holders of Lakeview Common Stock or Lakeview Stock
Options will elect to receive cash instead of shares of Firstbank Common
Stock. See the introduction to the pro forma condensed combined financial
statements on page 29 for the assumptions upon which the estimated Stock
Exchange Ratio and Option Exchange Ratio are based.
(4) This column reflects the percentage of the outstanding shares of Firstbank
Common Stock which the specified person will hold following consummation of
the Merger. These percentages were computed with reference to a total of
2,043,550 shares of Firstbank Common Stock outstanding, representing the
sum of 1,633,234 shares outstanding as of March 31, 1997, and 410,316
shares to be issued in the Merger based on the estimated Stock Exchange
Ratio (0.5788) and the estimated Option Exchange Ratio (0.2622) the number
of shares of Lakeview Common Stock outstanding at March 31, 1997 (657,484)
shares and the number of shares subject to outstanding Lakeview Stock
Options (113,518). This computation does not take fractional shares into
account. The share numbers and percentages appearing in this table are
based as the assumption that no holders of Lakeview Common Stock or
Lakeview Stock Options will elect to receive cash instead of shares of
Firstbank Common Stock.
Interests of Certain Persons
As of May 31, 1997, executive officers and directors of Lakeview are
or may be deemed to be the beneficial owners (excluding shares subject to
options) of a total of 27,557 shares or 4.2% of the issued and outstanding
shares of Lakeview Common Stock. (See "Voting and Management Information--
Voting Securities and Principal Shareholders of Lakeview.") Therefore, if all
directors and executive officers of Lakeview and their affiliates vote the
shares beneficially owned by them in favor of approval of the Plan of Merger,
the affirmative vote of only an additional 45.8% of the outstanding shares of
Lakeview Common Stock would be required to approve the Plan of Merger. The
officers and directors of Firstbank do not beneficially own any of the issued
and outstanding shares of Lakeview Common Stock.
As of August _____, 1997, the Record Date for the special meeting of
Lakeview shareholders, there were 657,484 shares of Lakeview Common Stock
outstanding held by approximately 290 shareholders of record.
The members of Lakeview's Board of Directors have certain interests in
the Merger that are in addition to their interests as shareholders of Lakeview
generally. In 1995 each director of Lakeview was granted options to purchase
shares of Lakeview Common Stock. These options gave the directors as a group
the right to purchase a total of 89,299 shares of Lakeview Common Stock at an
exercise price of $13.17 per share. The shares of Lakeview Common Stock covered
by these options equaled 13.6% of the outstanding shares of Lakeview Common
Stock. Pursuant to the Merger, each Lakeview Stock Option held by a director of
Lakeview will be converted into the right to receive shares of Firstbank Common
stock as determined by the terms of the Plan of Merger (See "The Merger--
Lakeview Stock Options"). Since the options were granted, two directors
exercised options and there are currently 73,822 shares of Lakeview Common Stock
subject to these options. Under the terms of the Plan of Merger, the total value
of the consideration to be paid by Firstbank increases as the Firstbank Market
Price increases beyond certain price parameters. Depending upon the Firstbank
Market Price, the percentage of the total value of the consideration paid by
Firstbank allocated to option holders increases and decreases as the Firstbank
Market Price increases and decreases, respectively, because the strike price of
the options is fixed.
Under the Plan of Merger, the Bank of Lakeview will offer Mr. Schurtz
an employment agreement that would be assumed by Firstbank if the Merger is
consummated.
In addition, each of the directors and certain other persons who may
be deemed to be Affiliates of Lakeview have executed letter agreements with
Firstbank whereby each such person has agreed to use his or her best efforts to
cause the Plan of Merger to be adopted by Lakeview's shareholders and to cause
the Merger to be consummated, including without limitation, to vote all shares
of Lakeview Common Stock owned or controlled by such person in favor of adoption
of the Plan of Merger.
-138-
<PAGE>
Vote Required for Approval
An affirmative vote of the shareholders holding a majority of the
outstanding shares of Lakeview Common Stock is required to approve the Plan of
Merger. For purposes of counting votes on approval of the Plan of Merger,
abstentions and other shares not voted will be counted as voted against the Plan
of Merger.
GENERAL INFORMATION
Legal Matters
Certain matters with respect to the legality of the issuance of the
Firstbank Common Stock will be passed upon for Firstbank by Varnum, Riddering,
Schmidt & Howlett LLP, Grand Rapids, Michigan.
Experts
The consolidated financial statements of Lakeview at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Proxy Statement have been audited by Crowe,
Chizek and Company LLP, independent accountants, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Firstbank at December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Proxy Statement, have been audited by
Crowe, Chizek and Company LLP, independent accountants, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
In connection with its role as financial advisor to Lakeview, Austin
Associates, Inc. has rendered a fairness opinion and will receive professional
fees in connection with its services of approximately $196,000, plus
reimbursement for all reasonable expenses. Lakeview has agreed to indemnify
Austin Associates, Inc. against certain liabilities, including certain
liabilities which may arise under the securities laws.
Sources of Information
The information concerning Lakeview contained in this Prospectus and
Proxy Statement has been supplied by management of Lakeview. Information
concerning Firstbank contained in this Prospectus and Proxy Statement and
incorporated herein has been supplied by management of Firstbank. Neither
Lakeview nor Firstbank has any reason to believe that the information so
furnished contains any material misstatements or omits to state a material fact
required to be stated herein or necessary to make the statements herein not
misleading.
REPORTS TO SHAREHOLDERS
Firstbank is subject to the Exchange Act and is required to deliver an
annual report to shareholders pursuant to Section 14 of the Exchange Act.
-139-
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
Between
LAKEVIEW FINANCIAL CORPORATION
and
FIRSTBANK CORPORATION
Dated as of April 17, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
ARTICLE I
<C> <S> <C>
THE TRANSACTION...........................................................................A-1
1.1 Approval of Plan of Merger...........................................................A-1
1.2 The Closing..........................................................................A-2
1.3 Effective Time of the Merger.........................................................A-2
1.4 Merger of Lakeview with and into Firstbank...........................................A-2
1.5 Effect of the Merger.................................................................A-2
1.6 Additional Actions...................................................................A-2
1.7 Surviving Corporation................................................................A-2
1.7.1 Name..........................................................................A-2
1.7.2 Articles of Incorporation.....................................................A-3
1.7.3 Bylaws........................................................................A-3
1.7.4 Directors.....................................................................A-3
1.7.5 Officers......................................................................A-3
ARTICLE II
MERGER CONSIDERATION; EXCHANGE PROCEDURE..................................................A-3
2.1 Conversion of Outstanding Lakeview Common Stock......................................A-3
2.1.1 Definition of Stock Exchange Ratio............................................A-3
2.1.2 Definition of Market Price....................................................A-3
2.1.3 Definition of Merger Value....................................................A-3
2.1.4 Adjustment to Merger Value....................................................A-4
2.1.5 Definition of Merger Value Plus Option Consideration..........................A-4
2.1.6 Definition of Lakeview Stock Options..........................................A-4
2.1.7 Definition of Merger Value Per Share..........................................A-4
2.2 Conversion of Lakeview Stock Options.................................................A-4
2.2.1 Definition of Option Exchange Ratio...........................................A-4
2.2.2 Outstanding Nonqualified Lakeview Stock Options held by Directors.............A-4
2.2.3 Conversion of Outstanding Lakeview Incentive Stock Options held
by Lakeview Employees.........................................................A-5
2.3 Optional Cash Election...............................................................A-5
2.3.1 Cash Elections Less Than or Equal to the Maximum Cash Amount..................A-6
2.3.2 Cash Elections More Than the Maximum Cash Amount..............................A-6
2.4 No Fractional Securities.............................................................A-7
2.5 Exchange Procedures..................................................................A-7
2.5.1 New Certificates and Exchange Fund............................................A-7
2.5.2 Transmittal Materials.........................................................A-7
2.5.3 Delivery to Public Officials..................................................A-8
2.5.4 Dividends and Distributions...................................................A-8
2.5.5 Unclaimed Funds...............................................................A-8
2.5.6 Lakeview Stock Options........................................................A-8
2.6 Firstbank Common Stock...............................................................A-8
2.7 Dissenting Shares....................................................................A-8
2.8 Anti-Dilution Adjustments............................................................A-9
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
2.9 Lakeview Common Stock No Longer Outstanding.........................................A-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRSTBANK...............................................A-9
3.1 Authorization, No Conflicts, Etc....................................................A-9
3.1.1 Authorization of Agreement..................................................A-9
3.1.2 No Conflict, Breach, Violation, Etc.........................................A-9
3.1.3 No Contractual Breach, Default, Liability, Etc.............................A-10
3.1.4 Required Approvals.........................................................A-10
3.2 Organization and Good Standing.....................................................A-10
3.3 Subsidiaries.......................................................................A-10
3.4 Capital Stock......................................................................A-11
3.4.1 Classes and Shares.........................................................A-11
3.4.2 No Other Capital Stock.....................................................A-11
3.4.3 Voting Rights..............................................................A-11
3.4.3 Firstbank Common Stock.....................................................A-11
3.5 Registration Statement, etc........................................................A-11
3.5.1 "Document."................................................................A-11
3.5.2 Accurate Information.......................................................A-11
3.5.3 Compliance of Filings......................................................A-12
3.6 Financial Statements...............................................................A-12
3.7 Absence of Undisclosed Liabilities.................................................A-12
3.8 Absence of Material Adverse Change.................................................A-12
3.9 Absence of Litigation..............................................................A-12
3.10 Conduct of Business................................................................A-12
3.11 Absence of Defaults Under Contracts................................................A-12
3.12 Regulatory Filings.................................................................A-13
3.12.1 Filings....................................................................A-13
3.12.2 Complete and Accurate......................................................A-13
3.12.3 Compliance with Regulations................................................A-13
3.13 Licenses, Permits, Etc.............................................................A-13
3.13.1 All Licenses, Permits, Etc.................................................A-13
3.13.2 Regulatory Action..........................................................A-13
3.14 Environmental Matters..............................................................A-13
3.15 Anticipated Changes................................................................A-13
3.16 Reserve for Loan Losses............................................................A-13
3.17 True and Complete Information......................................................A-13
3.18 Truth and Completeness of Representations and Warranties...........................A-14
3.18.1 True at the Closing........................................................A-14
3.18.2 Untrue Representations and Warranties......................................A-14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LAKEVIEW...............................................A-14
4.1 Authorization, No Conflicts, Etc...................................................A-14
4.1.1 Authorization of Agreement.................................................A-14
4.1.2 No Conflict, Breach, Violation, Etc........................................A-14
4.1.3 No Contractual Breach, Default, Liability, Etc.............................A-15
4.1.4 Required Approvals.........................................................A-15
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
4.2 Organization and Good Standing...................................A-15
4.3 Subsidiaries.....................................................A-15
4.3.1 Ownership of Subsidiaries.................................A-15
4.3.2 Rights to Capital Stock...................................A-15
4.3.3 Qualification and Power...................................A-16
4.3.4 FDIC; Insurance Assessments...............................A-16
4.3.5 Regulatory Fees and Charges...............................A-16
4.4 Capital Stock and Stock Options..................................A-16
4.4.1 Classes and Shares........................................A-16
4.4.2 No Other Capital Stock....................................A-16
4.4.3 Voting Rights.............................................A-16
4.4.4 Stock Options.............................................A-16
4.5 Financial Statements.............................................A-17
4.5.1 Financial Statements......................................A-17
4.5.2 Call Reports..............................................A-17
4.6 Absence of Undisclosed Liabilities...............................A-17
4.7 Absence of Material Adverse Change...............................A-17
4.8 Absence of Litigation............................................A-17
4.9 Conduct of Business..............................................A-17
4.10 Absence of Defaults Under Contracts..............................A-18
4.11 Regulatory Filings...............................................A-18
4.11.1 Filings..................................................A-18
4.11.2 Complete and Accurate....................................A-18
4.11.3 Compliance with Regulations..............................A-18
4.12 Registration Statement, Etc......................................A-18
4.12.1 Accurate Information.....................................A-18
4.12.2 Compliance of Filings....................................A-18
4.13 Tax Matters......................................................A-18
4.13.1 Tax Returns..............................................A-18
4.13.2 Tax Assessments and Payments.............................A-19
4.13.3 Tax Audits...............................................A-19
4.14 Title to Properties..............................................A-19
4.14.1 Reflected on Balance Sheet...............................A-19
4.14.2 Normal to Business.......................................A-19
4.14.3 Immaterial Imperfections.................................A-19
4.15 Condition of Property............................................A-19
4.16 Leases...........................................................A-20
4.17 Licenses, Permits, Etc...........................................A-20
4.17.1 All Licenses, Permits, Etc...............................A-20
4.17.2 Regulatory Action........................................A-20
4.18 Certain Employment Matters.......................................A-20
4.18.1 Employment Policies, Programs, and Procedures............A-20
4.18.2 Record of Payments.......................................A-20
4.18.3 "Employment-Related Payments."...........................A-20
4.18.4 Employment Claims........................................A-21
4.18.5 Disclosure of Agreements.................................A-21
4.19 Employee Benefit Plans...........................................A-21
4.19.1 ERISA Compliance.........................................A-21
4.19.2 Internal Revenue Code Compliance.........................A-21
4.19.3 Prohibited Transactions..................................A-21
</TABLE>
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<TABLE>
<S> <C>
4.19.4 Plan Termination......................................A-21
4.19.5 Multiemployer Plan....................................A-22
4.19.6 Defined Benefit Plan..................................A-22
4.19.7 Reportable Events.....................................A-22
4.19.8 No Premiums...........................................A-22
4.19.9 No Further Payments...................................A-22
4.19.10 No Amendment..........................................A-22
4.19.11 Payment of Contributions..............................A-22
4.19.12 Payment of Benefits...................................A-22
4.19.13 Accumulated Funding Deficiency........................A-22
4.19.14 Filing of Reports.....................................A-23
4.20 Environmental Matters.........................................A-23
4.20.1 Owned or Operated Property............................A-23
4.20.2 Loan Portfolio........................................A-23
4.20.3 Definitions...........................................A-24
4.21 Duties as Fiduciary...........................................A-24
4.22 Investment Bankers and Brokers................................A-24
4.23 Change in Business Relationships..............................A-24
4.24 Insurance.....................................................A-24
4.25 Books and Records.............................................A-25
4.26 Events Since December 31, 1996................................A-25
4.26.1 Business in Ordinary Course...........................A-25
4.26.2 Strikes or Labor Trouble..............................A-25
4.26.3 Mortgage of Assets....................................A-25
4.26.4 Contract Amendment or Termination.....................A-25
4.27 Anticipated Changes...........................................A-25
4.28 Reserve for Loan Losses.......................................A-25
4.29 Continuity of Interest........................................A-25
4.30 True and Complete Information.................................A-26
4.31 Truth and Completeness of Representations and Warranties......A-26
4.31.1 True at the Closing...................................A-26
4.31.2 Untrue Representations and Warranties.................A-26
ARTICLE V
CERTAIN COVENANTS...................................................A-26
5.1 Disclosure Statement..........................................A-26
5.1.1 Employment Agreements.................................A-26
5.1.2 Employment Policies...................................A-26
5.1.3 Judgments, Orders or Settlement Agreements............A-27
5.1.4 Loan Delinquencies....................................A-27
5.1.5 Letters of Credit and Loan Contingencies..............A-27
5.1.6 Related Person Contracts..............................A-27
5.1.7 Related Person Loans..................................A-27
5.1.8 Control of Material Assets............................A-27
5.1.9 Retired Employee Expenses.............................A-27
5.1.10 Deeds and Titles......................................A-27
5.1.11 Lease Agreements......................................A-27
5.1.12 Other Agreements......................................A-28
5.1.13 Insurance Policies....................................A-28
</TABLE>
A-iv
<PAGE>
<TABLE>
<S> <C>
5.1.14 Charter Documents and Bylaws.............................A-28
5.1.15 Shareholder List.........................................A-28
5.1.16 Stock Option Information.................................A-28
5.1.17 Employee Benefit Plans...................................A-28
5.1.18 Management Letters.......................................A-28
5.1.19 Long-Term Debt...........................................A-28
5.1.20 Regulatory Orders........................................A-29
5.1.21 Board and Environmental Investigation Policies...........A-29
5.1.22 Litigation...............................................A-29
5.1.23 MESC Form 1027...........................................A-29
5.2 Conduct of Business Pending the Effective Time of the Merger.....A-29
5.2.1 Ordinary Course..........................................A-29
5.2.2 No Inconsistent Actions..................................A-29
5.2.3 Compliance...............................................A-29
5.2.4 No Amendments............................................A-29
5.2.5 Books and Records........................................A-29
5.2.6 No Change in Stock.......................................A-29
5.2.7 Maintenance..............................................A-30
5.2.8 Preservation of Goodwill.................................A-30
5.2.9 Insurance Policies.......................................A-30
5.2.10 Charge-Offs..............................................A-30
5.2.11 Policies and Procedures..................................A-30
5.2.12 New Directors or Officers................................A-30
5.2.13 Compensation and Benefits................................A-30
5.2.14 New Employment Agreements................................A-30
5.2.15 Dividends................................................A-31
5.2.16 Borrowing................................................A-31
5.2.17 Mortgaging Assets........................................A-31
5.2.18 Notice of Actions........................................A-31
5.2.19 New Service Arrangements.................................A-31
5.2.20 Capital Improvements.....................................A-31
5.3 Accrual of Transaction Expenses..................................A-31
5.4 Accrual of Employee Benefits.....................................A-31
5.5 Regular Dividends................................................A-31
5.6 Affiliates.......................................................A-32
5.7. Competing Proposals..............................................A-32
5.7.1 No Solicitation..........................................A-32
5.7.2 Communication of Other Proposals.........................A-32
5.7.3 Furnishing Information...................................A-32
5.7.4 Payment after Certain Events.............................A-32
ARTICLE VI
ADDITIONAL AGREEMENTS.................................................A-33
6.1 Registration Statement...........................................A-33
6.2 Other Filings....................................................A-33
6.3 Press Releases...................................................A-33
6.4 Miscellaneous Agreements and Consents............................A-33
6.5 Lakeview Financial Information...................................A-34
6.6 Investigation....................................................A-34
</TABLE>
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<TABLE>
<CAPTION>
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6.6.1 Access to Information by Firstbank............................A-34
6.6.2 Access to Information by Lakeview.............................A-34
6.6.3 Consent to Disclose...........................................A-34
6.6.4 Confidentiality...............................................A-34
6.6.5 Return of Materials...........................................A-35
6.6.6 Other Information.............................................A-35
6.6.7 Insider Trading...............................................A-35
6.7 Environmental Investigation...........................................A-35
6.7.1 Mutual Agreement..............................................A-36
6.7.2 Right to Abandon..............................................A-36
6.8 Appointment and Election of Directors.................................A-36
6.9 Bank Directors Policies and Procedures................................A-36
ARTICLE VII
CONDITIONS PRECEDENT TO FIRSTBANK'S OBLIGATIONS.............................A-36
7.1 Renewal of Representations and Warranties, Etc........................A-36
7.1.1 Representations and Warranties................................A-36
7.1.2 Compliance with Agreements....................................A-37
7.1.3 Certificates..................................................A-37
7.2 Opinion of Legal Counsel..............................................A-37
7.2.1 Due Authorization.............................................A-37
7.2.2 Organization..................................................A-37
7.2.3 Capital Stock and Lakeview Stock Options......................A-37
7.2.4 Issuance of Shares............................................A-37
7.2.5 Organization of the Bank......................................A-37
7.2.6 Ownership of the Bank.........................................A-37
7.2.7 Valid and Binding.............................................A-38
7.2.8 All Approvals Received........................................A-38
7.2.9 All Actions Taken.............................................A-38
7.2.10 No Conflict, Breach, or Violation.............................A-38
7.2.11 No Litigation.................................................A-38
7.3 Required Approvals....................................................A-38
7.3.1 Regulatory....................................................A-38
7.3.2 Shareholder...................................................A-39
7.4 Order, Decree, Etc....................................................A-39
7.5 Proceedings...........................................................A-39
7.6 Tax Matters...........................................................A-39
7.7 Registration Statement................................................A-39
7.8 Certificate as to Outstanding Shares..................................A-40
7.9 Change of Control Waivers.............................................A-40
7.10 Dissenters' Rights....................................................A-40
7.11 Employment Agreement..................................................A-40
7.12 Lakeview Stock Options................................................A-40
7.13 Amendment of Lakeview Stock Options...................................A-40
7.14 Directors.............................................................A-40
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE VIII
<C> <S> <C>
CONDITIONS PRECEDENT TO LAKEVIEW'S OBLIGATIONS.............................. A-40
8.1 Renewal of Representations and Warranties, Etc........................ A-40
8.1.1 Representations and Warranties................................. A-40
8.1.2 Compliance with Agreements..................................... A-40
8.1.3 Certificates................................................... A-41
8.2 Opinions of Legal Counsel............................................. A-41
8.2.1 Due Authorization.............................................. A-41
8.2.2 Organization................................................... A-41
8.2.3 Capital Stock.................................................. A-41
8.2.4 Valid and Binding.............................................. A-41
8.2.5 All Approvals Received......................................... A-41
8.2.6 All Actions Taken.............................................. A-41
8.2.7 No Conflict, Breach, or Violation.............................. A-41
8.2.8 No Litigation.................................................. A-42
8.2.9 Issuance of Shares Authorized.................................. A-42
8.3 Required Approvals.................................................... A-42
8.3.1 Regulatory..................................................... A-42
8.3.2 Shareholder.................................................... A-42
8.4 Order, Decree, Etc.................................................... A-42
8.5 Proceedings........................................................... A-42
8.6 Tax Matters........................................................... A-42
8.7 Registration Statement................................................ A-42
8.8. Certificate as to Outstanding Shares.................................. A-43
8.9 Employment Agreement.................................................. A-43
ARTICLE IX
ABANDONMENT OF MERGER....................................................... A-43
9.1 Mutual Abandonment Prior to Effective Time of the Merger.............. A-43
9.2 Rights to Terminate................................................... A-43
9.2.1 Breach of Warranty............................................. A-43
9.2.2 Breach of Covenant............................................. A-43
9.2.3 Upset Date..................................................... A-43
9.2.4 Injunction..................................................... A-43
9.2.5 No Regulatory Approval......................................... A-43
9.2.6 Adverse Change................................................. A-44
9.2.7 Change of Control of Firstbank................................. A-44
9.2.8 Environmental Conditions....................................... A-44
ARTICLE X
AMENDMENT AND WAIVER........................................................ A-44
10.1 Amendment............................................................. A-44
10.2 Waiver................................................................ A-44
10.3 Specific Enforcement.................................................. A-44
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE X
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MISCELLANEOUS.............................................................. A-45
11.1 Liability after Termination......................................... A-45
11.1.1 Continuing Obligations...................................... A-45
11.1.2 Liability................................................... A-45
11.1.3 Damages for Breach.......................................... A-45
11.2 Termination of Representations and Warranties....................... A-45
11.3 Expenses............................................................ A-45
11.4 Notices............................................................. A-45
11.5 Governing Law....................................................... A-46
11.6 Method of Consent or Waiver......................................... A-46
11.7 Entire Agreement.................................................... A-46
11.8 No Assignment....................................................... A-46
11.9 Counterparts........................................................ A-46
11.10 Further Assurances; Privileges...................................... A-46
11.11 Headings, Etc....................................................... A-46
11.12 Severability........................................................ A-46
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger (the "Plan of Merger") is made as of
April ________, 1997, between LAKEVIEW FINANCIAL CORPORATION, a Michigan
corporation ("Lakeview"), and FIRSTBANK CORPORATION, a Michigan corporation
("Firstbank").
Firstbank and Lakeview (sometimes individually referred to as a
"Corporation" or collectively as the "Corporations") have agreed to merge
Lakeview with and into Firstbank in accordance with this Plan of Merger and in
accordance with the Business Corporation Act of the State of Michigan, as
amended (the "Michigan Act"). The transactions contemplated by and described in
this Plan of Merger are referred to as the "Merger."
Firstbank is a bank holding company registered as such with the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board") under
the Bank Holding Company Act of 1956, as amended (the "Federal Bank Holding
Company Act"). Firstbank has authorized capital stock consisting of 2,500,000
shares of common stock, no par value ("Firstbank Common Stock"). As of the date
of this Plan of Merger, there were 1,633,953 shares of Firstbank Common Stock
issued and outstanding.
Lakeview is a bank holding company registered as such with the Federal
Reserve Board under the Federal Bank Holding Company Act. Lakeview has
authorized capital stock consisting of 1,500,000 shares of common stock, $3.34
par value ("Lakeview Common Stock"). Each share of Lakeview Common Stock is
entitled to one vote on all matters submitted for a vote of the shareholders. As
of the date of this Plan of Merger, there were 657,484 shares of Lakeview Common
Stock issued and outstanding, and Lakeview had options outstanding to purchase
an additional 113,518 shares of Lakeview Common Stock ("Lakeview Stock
Options"), of which 73,826 shares are subject to nonstatutory stock options
granted to directors of Lakeview ("Nonqualified Stock Options"). Lakeview owns
all of the issued and outstanding shares of capital stock of the Bank of
Lakeview, a Michigan corporation (the "Bank").
The respective Boards of Directors of Lakeview and Firstbank each
deems the Merger advisable and in the best interests of its respective
Corporation and shareholders. Lakeview and Firstbank have each adopted this Plan
of Merger by resolutions duly adopted by their respective Boards of Directors.
The Board of Directors of Lakeview has directed that this Plan of Merger be
submitted to Lakeview's shareholders for approval.
In consideration of the premises and the representations, warranties,
and covenants contained in this Plan of Merger, the parties agree:
ARTICLE I
THE TRANSACTION
Subject to the terms and conditions of this Plan of Merger, the Merger
of Lakeview with and into Firstbank shall be carried out in the following
manner:
1.1 Approval of Plan of Merger. As soon as practicable after this
Plan of Merger has been executed and delivered and the Registration Statement
(as described in Section 3.5.1 (Document)) has become effective, Lakeview shall
submit this Plan of Merger to its shareholders for approval at a meeting
properly called, noticed, and held for that purpose. At such meeting, and in any
proxy materials used in connection with such meeting, Lakeview's Board of
Directors shall recommend that Lakeview's shareholders vote for approval of this
Plan of Merger.
<PAGE>
1.2 The Closing. The Merger shall be consummated as promptly as possible
after a closing (the "Closing"). The Closing shall be held at the offices of
Varnum, Riddering, Schmidt & Howlett LLP, Bridgewater Place, 333 Bridge Street,
N.W., Grand Rapids, Michigan 49504 on such date and at such time as may be
mutually agreed by the parties, or in the absence of such agreement, on a date
specified by either party upon 10 business days' written notice after the last
to occur of the following events: (i) the receipt of all consents and approvals
of government regulatory authorities as legally required to consummate the
Merger and the expiration of all statutory waiting periods; and (ii) the
requisite approval of this Plan of Merger by the shareholders of Lakeview.
Scheduling or commencing the Closing shall not, however, constitute a waiver of
the conditions precedent as set forth in this Plan of Merger. Upon completion of
the Closing, Lakeview and Firstbank shall execute and deliver an appropriate
certificate of merger in the form and as required by the Michigan Act (the
"Certificate of Merger.")
1.3 Effective Time of the Merger. Subject to the terms and conditions of
this Plan of Merger, the Merger shall be consummated as promptly as possible
following the Closing by filing the Certificate of Merger in the manner required
by law. The "Effective Time of the Merger" shall be a date and time to be
specified in the Certificate of Merger, which shall be as soon as practicable,
but not later than 3 business days, after the Closing.
1.4 Merger of Lakeview with and into Firstbank. Lakeview shall be
merged with and into Firstbank (each sometimes being referred to as a
"Constituent Corporation" prior to the Merger) upon the filing of the
Certificate of Merger with the Michigan Department of Consumer and Industry
Services Corporation, Securities and Land Development Bureau as provided by the
Michigan Act. At the Effective Time of the Merger, the Constituent Corporations
shall become a single corporation, which shall be Firstbank (the "Surviving
Corporation"). The Surviving Corporation shall have all of the rights,
privileges, immunities, and powers, and shall be subject to all of the duties
and liabilities, of a corporation organized under the Michigan Act.
1.5 Effect of the Merger. From and after the Effective Time of the
Merger, the effect of the Merger upon each of the Constituent Corporations and
the Surviving Corporation shall be as provided in Chapter Seven of the Michigan
Act with respect to the merger of two domestic corporations where the surviving
corporation will be subject to the laws of the State of Michigan.
1.6 Additional Actions. If, at any time after the Effective Time of
the Merger, the Surviving Corporation shall determine that any further
assignments or assurances or any other acts are necessary or desirable to vest,
perfect, or confirm, of record or otherwise, in the Surviving Corporation its
right, title, or interest in, to, or under any of the rights, properties, or
assets of Lakeview acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger, or to otherwise carry out the
purposes of this Plan of Merger, then Lakeview and its directors and officers
shall be deemed to have granted to the Surviving Corporation an irrevocable
power of attorney to execute and deliver all such proper deeds, assignments, and
assurances in law and to do all acts necessary or proper to vest, perfect, or
confirm title to and possession of such rights, properties, or assets in the
Surviving Corporation and to otherwise carry out the purposes of this Plan of
Merger. The directors and officers of the Surviving Corporation are fully
authorized in the name of Lakeview to take any and all such action as may be
contemplated by this Article.
1.7 Surviving Corporation. Immediately after the Effective Time of
the Merger, the Surviving Corporation shall have the following attributes until
they are subsequently changed in the manner provided by law:
1.7.1 Name. The name of the Surviving Corporation shall be "Firstbank
Corporation."
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<PAGE>
1.7.2 Articles of Incorporation. The Articles of Incorporation of
the Surviving Corporation shall be the Articles of Incorporation of
Firstbank as in effect immediately prior to the Effective Time of the
Merger.
1.7.3 Bylaws. The Bylaws of the Surviving Corporation shall be the
Bylaws of Firstbank as in effect immediately prior to the Effective Time of
the Merger.
1.7.4 Directors. The directors of the Surviving Corporation shall be
the persons who are the directors of Firstbank immediately prior to the
Effective Time of the Merger.
1.7.5 Officers. The officers of the Surviving Corporation shall be
the persons who were officers of Firstbank immediately prior to the
Effective Time of the Merger.
ARTICLE II
MERGER CONSIDERATION; EXCHANGE PROCEDURE
2.1 Conversion of Outstanding Lakeview Common Stock. Subject to the
provisions of this Plan of Merger, each share of Lakeview Common Stock
outstanding immediately prior to the Effective Time of the Merger shall
become and be converted into the right to receive that number of shares of
Firstbank Common Stock equal to the Stock Exchange Ratio (as defined in
Section 2.1.1) (the "Per Share Stock Consideration"), subject to the
election rights set forth in Section 2.3 and provided that no fractional
shares of Firstbank Common Stock will be issued.
2.1.1 Definition of Stock Exchange Ratio. Subject to adjustment as
provided in this Plan of Merger, for purposes of this Plan of Merger, the
"Stock Exchange Ratio" shall be equal to the quotient (rounded to the
fourth decimal place) of (a) the Merger Value Per Share (as defined in
Section 2.1.7) divided by (b) the Market Price (as defined in Section
2.1.2).
2.1.2 Definition of Market Price. For purposes of this Plan of Merger,
the "Market Price" shall be the average of the last-reported sale price per
share of Firstbank Common Stock for the 20 consecutive trading days ending on
the sixth business day prior to Closing, as reported on the NASD's OTC Bulletin
Board.
2.1.3 Definition of Merger Value. For purposes of this Plan of
Merger and subject to any adjustment required by Section 2.1.4 or Section
2.8 of this Plan of Merger, the "Merger Value" shall be one of the
following:
(a) $15,226,752 if the Market Price is less than $32.00;
(b) The product of the Market Price multiplied by 475,836 if
the Market Price is not less than $32.00 but not greater
than $3 6.50;
(c) $17,368,014 if the Market Price is greater than $36.50 but
not greater than $42.00;
(d) The product of the Market Price multiplied by 413,524 if
the Market Price is greater than $42.00 but less than
$44.00; or
(e) $18,195,056 if the Market Price is $44.00 or more.
A-3
<PAGE>
2.1.4 Adjustment to Merger Value. Notwithstanding anything in this
Plan of Merger to the contrary, the Merger Value as calculated pursuant to
Section 2.1.3 shall be subject to one or more of the following adjustments
(the following adjustments are not mutually exclusive):
(a) If the aggregate transaction expenses to be accrued and
charged against Lakeview's earnings pursuant to Section 5.3 of this
Plan of Merger to account for all transaction expenses which Lakeview
has incurred or will incur as a result of the transactions
contemplated by this Plan of Merger (including, without limitation,
its legal, accounting, actuarial, tax services, and investment
banker's fees) exceed $275,000 (pretax), then the Merger Value shall
be reduced by twice the Tax-Adjusted difference between the aggregate
amount so accrued and charged pursuant to Section 5.3 and $275,000
(pretax).
(b) If the aggregate charge against Lakeview's earnings
pursuant to Section 5.4 of this Plan of Merger exceeds the lesser of
$250,000 (pretax) or the Actuarially Reduced amounts of the aggregate
Retirement Benefits (as defined in Section 5.4), then the Merger Value
shall be reduced by twice the Tax-Adjusted difference between the
amount charged against earnings pursuant to Section 5.4 and the lesser
of either $250,000 (pretax) or the amount of the Actuarially Reduced
Retirement Benefits.
For purposes of this Section 2.1.4, "Tax-Adjusted" shall mean
reduced by the dollar amount of the decrease in the aggregate federal,
state and local taxes owed by Lakeview as a result of such charge(s)
against earnings, calculated using Lakeview's effective tax rate in
accordance with generally accepted accounting principles.
2.1.5 Definition of Merger Value Plus Option Consideration. For
purposes of this Plan of Merger, the "Merger Value Plus Option
Consideration" shall be the sum of the Merger Value plus the sum of the
exercise prices of all outstanding Lakeview Stock Options.
2.1.6 Definition of Lakeview Stock Options. For purposes of this
Plan of Merger, "Lakeview Stock Options" shall mean all outstanding options
to purchase shares of Lakeview Common Stock which were granted pursuant to
a duly adopted stock option plan of Lakeview.
2.1.7 Definition of Merger Value Per Share. For purposes of this
Plan of Merger, the "Merger Value Per Share" shall be the quotient (rounded
to the fourth decimal place) of the Merger Value Plus Option Consideration
divided by the sum of the number of outstanding shares of Lakeview Common
Stock and the number of shares covered by outstanding Lakeview Stock
Options.
2.2 Conversion of Lakeview Stock Options. Subject to the provisions of
this Plan of Merger:
2.2.1 Definition of Option Exchange Ratio. Subject to adjustment as
provided in this Plan of Merger, the "Option Exchange Ratio" shall be equal
to the quotient (rounded to the fourth decimal place) of (a) the Merger
Value Per Share minus the exercise price per share for the particular
Lakeview Stock Option, divided by (b) the Market Price.
2.2.2 Outstanding Nonqualified Lakeview Stock Options held by
Directors. Each nonqualified Lakeview Stock Option which is both
outstanding immediately prior to the Effective Time of the Merger and is
held by a director of Lakeview shall become and be converted into the right
to receive that number of shares of Firstbank Common Stock equal to the
Option Exchange Ratio multiplied by the number of shares of Lakeview Common
Stock purchasable upon exercise of the Lakeview Stock Option, subject to
the election rights set forth in Section 2.3.
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<PAGE>
2.2.3 Conversion of Outstanding Lakeview Incentive Stock Options
held by Lakeview Employees. Subject to the provisions of this Plan of
Merger, including the election rights set forth in Section 2.3, each
Lakeview Stock Option which is outstanding immediately prior to the
Effective Time of the Merger and is held by an employee of Lakeview or the
Bank shall, at the election of the holder, either:
(a) become and be converted into the right to receive that
number of Firstbank Common Shares equal to the product of the
Option Exchange Ratio multiplied by the number of Lakeview Common
Shares purchasable upon exercise of the Lakeview Stock Option, or
(b) be converted into nonqualified options to purchase
Firstbank Common Shares subject to the terms of Firstbank's stock
option plan; provided, however, that from and after the Effective
Time of the Merger, (i) the number of shares of Firstbank Common
Stock purchasable upon exercise of such option to purchase
Firstbank Common Stock shall be equal to the number of shares of
Lakeview Common Stock that were purchasable under such Lakeview
Stock Option multiplied by the Stock Exchange Ratio, and (ii) the
per share exercise price under each such Lakeview Stock Option
shall be adjusted by dividing such exercise price prior to the
Effective Time of the Merger by the Stock Exchange Ratio.
Lakeview employees who are the holders of outstanding Lakeview Stock
Options subject to this Section 2.2.3 shall indicate their election between
either subparagraph (a) or subparagraph (b) of this Section 2.2.3 on the
Election Form (as defined in Section 2.3).
2.3 Optional Cash Election. Holders of Lakeview Common Stock, and holders
of Lakeview Stock Options, shall be provided with an opportunity to elect to
receive cash consideration in lieu of receiving Firstbank Common Stock in the
Merger, in accordance with the election procedures set forth below in this
Section 2.3. Holders who are to receive cash in lieu of exchanging their shares
of Lakeview Common Stock, or their Lakeview Stock Options, for Firstbank Common
Stock as specified below shall receive an amount in cash (the "Per Share Cash
Consideration") in respect of each share of Lakeview Common Stock, or each share
of Lakeview Common Stock subject to a Lakeview Stock Option, that is so
converted equal to the Stock Exchange Ratio times the Market Price (in the case
of holders of Lakeview Common Stock) or equal to the Option Exchange Ratio times
the Market Price (in the case of holders of Lakeview Stock Options). The
aggregate amount of cash that shall be issued in the Merger to satisfy such
elections and Lakeview Shareholders, if any, who have made, perfected and not
withdrawn demands for payment for their shares under Section 762 of the Michigan
Act, shall not exceed 35% of the Merger Value (the "Maximum Cash Amount").
An election form and other appropriate and customary transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates theretofore representing Lakeview Common Stock ("Old
Certificates") shall pass, only upon proper delivery of such Old Certificates to
an exchange agent designated by Firstbank (the "Exchange Agent")) in such form
as Firstbank and Lakeview shall mutually agree ("Election Form") shall be mailed
25 days prior to the anticipated Effective Time of the Merger or on such other
date as Lakeview and Firstbank shall mutually agree ("Mailing Date") to each
holder of record of Lakeview Common Stock or Lakeview Stock Options as of five
business days prior to the Mailing Date ("Election Form Record Date").
Each Election Form shall permit a holder (or the beneficial owner through
appropriate and customary documentation and instructions) of Lakeview Common
Stock or Lakeview Stock Options to elect to receive cash with respect to all or
a portion of such holder's Lakeview Common Stock or the shares issuable upon
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exercise of such holder's Lakeview Stock Options (shares as to which the
election is made being "Cash Election Shares").
Any shares of Lakeview Common Stock with respect to which the holder (or
the beneficial owner, as the case may be) shall not have submitted to the
Exchange Agent an effective, properly completed Election Form on or before 5:00
p.m. on the 20th day following the Mailing Date (or such other time and date as
Firstbank and Lakeview may mutually agree) (the "Election Deadline") shall be
converted into Firstbank Common Stock at the Stock Exchange Ratio (such shares
being "No Election Shares").
Firstbank shall make available one or more Election Forms as may be
reasonably requested by all persons who become holders (or beneficial owners) of
Lakeview Common Stock between the Election Form Record Date and the close of
business on the business day prior to the Election Deadline, and Lakeview shall
provide to the Exchange Agent all information reasonably necessary for it to
perform as specified herein.
Any such election shall have been properly made only if the Exchange Agent
shall have actually received a properly completed Election Form by the Election
Deadline. An Election Form shall be deemed properly completed only if
accompanied by one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of the
Lakeview Common Stock covered by such Election Form (or the document granting
the Lakeview Stock Option in the case of Lakeview Stock Options) together with
duly executed transmittal materials included in the Election Form. Subject to
the terms of this Agreement and of the Election Form, the Exchange Agent shall
have reasonable discretion to determine whether any election has been properly
or timely made and to disregard immaterial defects in the Election Forms, and
any good faith decisions of the Exchange Agent regarding such matters shall be
binding and conclusive. Neither Firstbank nor the Exchange Agent shall be under
any obligation to notify any person of any defect in an Election Form. Any
Dissenting Shares (as defined below) shall be treated as Cash Election Shares
for the purposes of the determinations set forth below (but shall not be
converted into the right to receive the Per Share Cash Consideration and shall
instead be treated as set forth in Section 2.7).
Within five business days after the Election Deadline, unless the Effective
Time of the Merger has not yet occurred, in which case as soon thereafter as
practicable, Firstbank shall cause the Exchange Agent to effect the allocation
among the holders of Lakeview Common Stock in accordance with the Election Forms
as follows:
2.3.1 Cash Elections Less Than or Equal to the Maximum Cash Amount.
If the amount of cash that would be issued upon conversion in the Merger of
the Cash Election Shares is less than or equal to the Maximum Cash Amount,
then:
(a) All Cash Election Shares shall be converted into the right
to receive the Per Share Cash Consideration, and
(b) The No Election Shares shall be converted into the right
to receive the Per Share Stock Consideration.
2.3.2 Cash Elections More Than the Maximum Cash Amount. If the amount
of cash that would be issued upon the conversion of the Cash Election
Shares is greater than the Maximum Cash Amount, then:
(a) All No Election Shares shall be converted into the right
to receive the Per Share Stock Consideration, and
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(b) The Exchange Agent shall select from among the holders of Cash
Election Shares (other than Dissenting Shares), by the selection process
described below, a sufficient number of such holders ("Stock Designees")
such that the amount of cash that will be issued in the Merger equals as
closely as practicable the Maximum Cash Amount, and all shares held by the
Stock Designees shall be converted into the right to receive shares of
Firstbank Common Stock based upon the Per Share Stock Consideration, and
(c) The Cash Election Shares not held by Stock Designees shall be
converted into the right to receive the Per Share Cash Consideration.
The selection process to be used by the Exchange Agent in determining those
holders who are to receive cash if Cash Elections exceed the Maximum Cash Amount
shall consist of selecting those holders who, had they not made a Cash Election,
would receive, on a per holder basis, the least number of shares of Firstbank
Common Stock pursuant to the Merger according to a process as shall be mutually
determined by Firstbank and Lakeview.
2.4 No Fractional Securities. Notwithstanding any other provision hereof,
no fractional shares of Firstbank Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Firstbank shall pay to each holder of Lakeview Common Stock or Lakeview
Stock Options who would otherwise be entitled to a fractional share of Firstbank
Common Stock (after taking into account all Old Certificates delivered by such
holder) an amount in cash (without interest) determined by multiplying such
fraction by the Market Price.
2.5 Exchange Procedures.
2.5.1 New Certificates and Exchange Fund. At or prior to the
Effective Time of the Merger, Firstbank shall deposit, or shall cause to be
deposited, with the Exchange Agent, for the benefit of the holders of Old
Certificates (which for purposes of this Section 2.5 shall include
certificates formerly representing shares of Lakeview Common Stock) and
holders of Lakeview Stock Options (excluding those Lakeview employee
holders who elect to convert their Lakeview Stock Options into options to
purchase Firstbank Common Stock) for exchange in accordance with this
Article II, certificates representing the shares of Firstbank Common Stock
("New Certificates") and an estimated amount of cash (such cash and New
Certificates, together with any dividends or distributions with respect
thereto (without any interest thereon), being hereinafter referred to as
the "Exchange Fund") to be paid pursuant to this Article II in exchange for
outstanding shares of Lakeview Common Stock and Lakeview Stock Options
(excluding Lakeview Stock Options with respect to which a Lakeview employee
holder has elected to convert into options to purchase Firstbank Common
Stock).
2.5.2 Transmittal Materials. As promptly as practicable after the
Effective Time of the Merger, Firstbank shall send or cause to be sent to
each former holder of record of shares (other than Cash Election Shares,
treasury shares or dissenting shares) of Lakeview Common Stock or Lakeview
Stock Options immediately prior to the Effective Time transmittal materials
for use in exchanging such holder's Old Certificates and/or Lakeview Stock
Options for the consideration set forth in this Article II. Firstbank shall
cause the New Certificates into which shares of a stockholder's Lakeview
Common Stock or Lakeview Stock Options are converted on the Effective Time
of the Merger and/or any check in respect of the Per Share Cash
Consideration and any fractional share interests or dividends or
distributions which such person shall be entitled to receive to be
delivered to such holder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Lakeview Common Stock (or
indemnity reasonably satisfactory to Firstbank and the Exchange Agent, if
any
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of such certificates are lost, stolen or destroyed) owned by such holder or
delivery of Lakeview Stock Option grant documents with respect to Lakeview
Stock Options to be converted into Firstbank Common Stock. No interest will
be paid on any such cash to be paid pursuant to this Article II upon such
delivery.
2.5.3 Delivery to Public Officials. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to any
former holder of Lakeview Common Stock or Lakeview Stock Options for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
2.5.4 Dividends and Distributions. No dividends or other
distributions with respect to Firstbank Common Stock with a record date
occurring after the Effective Time shall be paid to the holder of any
unsurrendered Old Certificate representing shares of Lakeview Common Stock
or any unsurrendered Lakeview Stock Option converted in the Merger into
shares of such Firstbank Common Stock until the holder thereof shall
surrender such Old Certificate or Lakeview Stock Option grant
documentation, as the case may be, in accordance with this Article II.
After the surrender of an Old Certificate or Lakeview Stock Option grant
documentation, as the case may be, in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had
become payable with respect to shares of Firstbank Common Stock represented
by such Old Certificate or Lakeview Stock Option grant documentation, as
the case may be.
2.5.5 Unclaimed Funds. Any portion of the Exchange Fund that remains
unclaimed by the stockholders of Lakeview for twelve months after the
Effective Time shall be paid to Firstbank. Any stockholders of Lakeview who
have not theretofore complied with this Article II shall thereafter look
only to Firstbank Common Stock for payment of the shares of Firstbank, cash
in lieu of any fractional shares and unpaid dividends and distributions on
the shares of Firstbank Common Stock deliverable in respect of each share
of Lakeview Common Stock such stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon.
2.5.6 Lakeview Stock Options. In addition to the foregoing, Firstbank
may require any procedures deemed reasonably necessary to effectuate the
conversion of Lakeview Stock Options as contemplated by Section 2.2.
2.6 Firstbank Common Stock. Each share of Firstbank Common Stock
outstanding immediately prior to the Effective Time of the Merger shall continue
to be outstanding without any change. Each shareholder of Firstbank whose shares
were outstanding immediately before the Effective Time of the Merger will hold
the same number of shares, with identical designations, preferences, limitations
and relative rights, immediately after the Effective Time of the Merger, subject
to the rights, if any, of a dissenting shareholder under the Michigan Act.
2.7 Dissenting Shares. Each outstanding share of Lakeview Common Stock as
to which a legally sufficient notice of intent to demand dissenters' rights has
been given in accordance with the Michigan Act and which was not voted in favor
of the Merger shall after the Effective Time of the Merger represent only the
rights of a dissenting shareholder under the Michigan Act and shall not be
converted into or represent a right to receive Firstbank Common Stock as
provided in Section 2.1 (Conversion of Outstanding Lakeview Common Stock) of
this Plan of Merger. If, however, the holder of such a dissenting share of
Lakeview Common Stock shall have failed to perfect, shall have effectively
withdrawn, shall have waived or lost, or shall otherwise be ineligible to
exercise dissenting shareholders' rights, then at that time that share shall be
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converted into Firstbank Common Stock as provided in Section 2.1 (Conversion of
Outstanding Lakeview Common Stock) of this Plan of Merger.
2.8 Anti-Dilution Adjustments. This Plan of Merger shall not limit or
restrict in any manner Firstbank's right to effect a consolidation or merger of
Firstbank with or into another corporation or to effect a stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding Firstbank Common Stock. In the event that Firstbank changes (or
establishes a record date for changing) the number of shares of Firstbank Common
Stock issued and outstanding prior to the Effective Time of the Merger as a
result of a stock split, stock dividend, recapitalization or similar transaction
with respect to the outstanding Firstbank Common Stock and the record date
therefore shall be prior to the Effective Time of the Merger, the Stock Exchange
Ratio, the Option Exchange Ratio and the following figures set forth in Section
2.1.3: $32.00, $36.50, $42.00, $44.00, 475,836 and 413,524, shall be
proportionately adjusted. In the event of a reclassification of outstanding
shares of Firstbank Common Stock or a consolidation or merger of Firstbank with
or into another corporation, other than a merger in which Firstbank is the
surviving corporation and which does not result in any classification of
Firstbank Common Stock, holders of Lakeview would receive, in lieu of each share
of Firstbank Common Stock to be issued in exchange for Lakeview Common Stock,
the kind and amount of shares of Firstbank stock, other securities, money, and
property receivable upon such reclassification, consolidation, or merger by
holders of Firstbank Common Stock with respect to shares of Firstbank Common
Stock outstanding immediately prior to such reclassification, consolidation or
merger.
2.9 Lakeview Common Stock No Longer Outstanding. Each share of Lakeview
Common Stock outstanding immediately prior to the Effective Time of the Merger
shall be considered to be no longer outstanding and to represent solely the
right to receive shares of Firstbank Common Stock as provided in Section 2.1
(Conversion of Outstanding Lakeview Common Stock), together with any other
distributions payable as provided in Section 2.8 (Anti-Dilution Adjustments),
but subject to the payment of cash in lieu of fractional shares as provided in
Section 2.4 (No Fractional Securities), or the rights of a dissenting
shareholder under the Michigan Act as provided in Section 2.7 (Dissenting
Shares).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRSTBANK
Except as otherwise set forth in the Firstbank disclosure statement
("Firstbank Disclosure Statement") previously delivered to Lakeview, Firstbank
represents and warrants to Lakeview that:
3.1 Authorization, No Conflicts, Etc.
3.1.1 Authorization of Agreement. The execution, delivery, and
performance of this Plan of Merger by Firstbank have been duly authorized
and approved by all necessary corporate action. When executed and
delivered, this Plan of Merger will be legally binding on and enforceable
against Firstbank in accordance with its terms.
3.1.2 No Conflict, Breach, Violation, Etc. The execution, delivery,
and performance of this Plan of Merger by Firstbank, and the consummation
of the Merger, do not and will not violate, conflict with, or result in a
breach of:
(a) Certificate or Bylaws. Any provision of Firstbank's
Articles of Incorporation or Bylaws; or
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(b) Statutes, Judgments, Etc. Any statute, code, ordinance,
rule, regulation, judgment, order, writ, arbitration award, decree, or
injunction applicable to Firstbank Corporation or its subsidiary,
assuming the timely receipt of each of the approvals referred to in
Section 3.1.4 (Required Approvals).
3.1.3 No Contractual Breach, Default, Liability, Etc. The execution,
delivery, and performance of this Plan of Merger by Firstbank, and the
consummation of the Merger, do not and will not:
(a) Agreements, Etc. Violate, conflict with, result in a breach
of, constitute a default under, require any consent, approval, waiver,
extension, amendment, authorization, notice or filing under, or
extinguish any material contract right of Firstbank or any of its
subsidiaries under any agreement, mortgage, lease, commitment,
indenture, other instrument, or obligation to which Firstbank or any
of its subsidiaries is a party or by which they are bound or affected:
(1) Which is material to the business, income, or financial
condition of Firstbank on a consolidated basis; or
(2) The violation or breach of which could prevent
Firstbank from consummating the Merger;
(b) Regulatory Restrictions. Violate, conflict with, result in a
breach of, constitute a default under, require any consent, approval,
waiver, extension, amendment, authorization, notice, or filing under
any memorandum of understanding or similar regulatory consent
agreement to which Firstbank or any of its subsidiaries is a party or
subject, or by which it is bound or affected; or
(c) Tortious Interference. Subject Lakeview or the Bank or their
respective directors or officers to liability for tortious
interference with contractual rights.
3.1.4 Required Approvals. No notice to, filing with, authorization
of, exemption by, or consent or approval of, any public body or authority
is necessary for the consummation of the Merger by Firstbank other than in
connection or compliance with the provisions of the Michigan Act,
compliance with federal and state securities laws, and the consents,
authorizations, approvals, or exemptions required under the Federal Bank
Holding Company Act.
3.2 Organization and Good Standing. Firstbank is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Michigan. Firstbank possesses all requisite corporate power and authority to
own, operate, and lease its properties and to carry on its business as it is now
being conducted in all material respects. Firstbank is a bank holding company
duly registered and in good standing with the Federal Reserve Board under the
Federal Bank Holding Company Act. Firstbank is not required to be qualified or
admitted to conduct business as a foreign corporation in any other state.
3.3 Subsidiaries. Firstbank owns all of the issued and outstanding shares
of capital stock of Firstbank, Bank of Alma, and 1st Bank, in each case free and
clear of all claims, security interests, pledges, or liens of any kind, however,
all of these shares may be pledged to secure borrowings under a $10,000,000 bank
line of credit. Each of Firstbank's subsidiaries has full corporate power and
authority to carry on its business substantially as and where now being
conducted.
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3.4 Capital Stock.
3.4.1 Classes and Shares. The authorized capital stock of Firstbank
consists of 300,000 shares of preferred stock, no par value, none of which
have been issued, and 2,500,000 shares of common stock, no par value, of
which, as of the date and time of the execution of this Plan of Merger,
1,633,953 shares were issued and outstanding.
3.4.2 No Other Capital Stock. There is no security or class of
securities authorized or issued which represents or is convertible into
capital stock of Firstbank except as described in this Section 3.4 (Capital
Stock). As of the execution of this Plan of Merger, there are no
outstanding subscriptions, options, warrants, or rights to acquire any
capital stock of Firstbank, or agreements to which Firstbank is a party or
by which it is bound to issue capital stock, except as disclosed in
Firstbank's Annual Report to shareholders for the year ended December 31,
1996 (the "Firstbank Annual Report").
3.4.3 Voting Rights. Neither Firstbank nor its subsidiaries have
outstanding any security:
(a) The holder or holders of which have the right to vote on
the approval of the Merger or this Plan of Merger; or
(b) Which entitles the holder or holders to consent to, or
withhold consent on, the Merger or this Plan of Merger.
3.4.3 Firstbank Common Stock. The shares of Firstbank Common Stock to
be issued in the Merger in accordance with this Plan of Merger will be duly
authorized and, when issued as contemplated by this Plan of Merger, will be
validly issued, fully paid, and nonassessable shares.
3.5 Registration Statement, etc.
3.5.1 "Document." The term "Document," when capitalized in this Plan
of Merger, shall collectively mean: (i) the registration statement to be
filed by Firstbank with the Securities and Exchange Commission (the "SEC")
in connection with the Firstbank Common Stock to be issued in the Merger
(the "Registration Statement"); (ii) the prospectus and proxy statement
(the "Prospectus and Proxy Statement") to be mailed to Lakeview
shareholders in connection with its shareholders' meeting with respect to
this Plan or Merger; and (iii) any other documents to be filed with the
SEC, the Federal Reserve Board, the State of Michigan, or any other
regulatory agency in connection with the transactions contemplated by this
Plan of Merger.
3.5.2 Accurate Information. None of the information to be supplied
by Firstbank for inclusion, or included, in any Document will:
(a) Be false or misleading with respect to any material fact,
or omit to state any material fact necessary to make the statements
therein not misleading (i) at the respective times such Documents are
filed; (ii) with respect to the Registration Statement, when it
becomes effective; and (iii) with respect to the Prospectus and Proxy
Statement, when it is mailed.
(b) With respect to the Registration Statement and the
Prospectus and Proxy Statement, as either may be amended or
supplemented, at the time of Lakeview's shareholders' meeting with
respect to this Plan of Merger, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to
correct any statement in
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any earlier communication with respect to the solicitation of any
proxy for Lakeview's shareholders' meeting.
3.5.3 Compliance of Filings. All Documents that Firstbank is
responsible for filing with any regulatory agency in connection with the
Merger will comply as to form in all material respects with the provisions
of applicable law.
3.6 Financial Statements. The consolidated financial statements of
Firstbank and its subsidiaries as of and for each of the years ended December
31, 1992, 1993, 1994, 1995, and 1996, as reported on or to be reported on by
Firstbank's independent accountants, previously delivered or to be delivered to
Lakeview, and the consolidated financial statements of Firstbank and its
subsidiaries as of and for each quarter ending prior to the Effective Time of
the Merger, are and will be correct and complete in all material respects.
These statements do and will present fairly Firstbank's and the subsidiaries'
financial position and results of operations on a consolidated basis on the
dates and for the periods indicated, and have been and will be prepared in
conformity with generally accepted accounting principles applied consistently
throughout the periods indicated (except as otherwise noted in such financial
statements or the notes thereto).
3.7 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated balance sheet of Firstbank and
its subsidiaries as of December 31, 1996, and the notes thereto, neither
Firstbank nor any subsidiary had, as of such date, liabilities or obligations,
secured or unsecured (whether accrued, absolute, or contingent) which are, or as
to which there is a reasonable probability that they could be, materially
adverse to the income or financial condition of Firstbank and its subsidiaries
on a consolidated basis.
3.8 Absence of Material Adverse Change. Since December 31, 1996, there
has been no material adverse change in the business, income, or financial
condition of Firstbank and its subsidiaries on a consolidated basis. No facts or
circumstances have been discovered from which it reasonably appears that there
is a significant risk and reasonable probability that there will occur a
material adverse change in the business, income, or financial condition of
Firstbank and its subsidiaries on a consolidated basis.
3.9 Absence of Litigation. There is no action, suit, proceeding, claim,
arbitration, or investigation pending or threatened by any person, including
without limitation any governmental or regulatory agency, against Firstbank, any
of its subsidiaries, or the assets or business of Firstbank or any of its
subsidiaries, any of which has or may have a material adverse effect on the
business, income, or financial condition of Firstbank and its subsidiaries on a
consolidated basis. There is no factual basis known to Firstbank which presents
a reasonable potential for any such action, suit, proceeding, claim,
arbitration, or investigation.
3.10 Conduct of Business. Firstbank and its subsidiaries have conducted
their respective businesses and used their respective properties substantially
in compliance with all federal, state, and local laws, civil or common,
ordinances and regulations, including without limitation applicable federal and
state laws and regulations concerning banking, securities, truth-in-lending,
truth-in-savings, mortgage origination and servicing, usury, fair credit
reporting, consumer protection, occupational safety, civil rights, employee
protection, fair employment practices, fair labor standards, and insurance; and
Environmental Laws (as defined in Section 4.20.3(b) (Environmental Laws)).
3.11 Absence of Defaults Under Contracts. There is no existing default by
Firstbank or any of its subsidiaries, or any other party, under any contract,
mortgage, lease, indenture or agreement to which Firstbank or a subsidiary is a
party, or by which any of them is bound, which could subject Firstbank or a
subsidiary to a risk that would have a material adverse effect on Firstbank and
its subsidiaries on a consolidated basis.
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3.12 Regulatory Filings. In the last five years:
3.12.1 Filings. Firstbank and its subsidiaries have filed in a
timely manner all material filings with regulatory bodies for which filings
are required;
3.12.2 Complete and Accurate. All such filings, as amended, were
complete and accurate in all material respects as of the dates of such
filings, and there were no misstatements or omissions therein which, as of
the making of this representation and warranty, would be material to the
business, income, or financial condition of Firstbank and its subsidiaries
on a consolidated basis; and
3.12.3 Compliance with Regulations. All such filings complied in
all material respects with all regulations, forms, and guidelines
applicable to such filings.
3.13 Licenses, Permits, Etc.
3.13.1 All Licenses, Permits, Etc. Firstbank and its subsidiaries
hold all licenses, certificates, permits, franchises, and rights from all
appropriate federal, state, and other public authorities necessary for the
conduct of their businesses as presently conducted, the lack of which would
have a material adverse effect on the business, income, or financial
condition of Firstbank and its subsidiaries on a consolidated basis.
3.13.2 Regulatory Action. Neither Firstbank nor any of its
subsidiaries:
(a) Has been charged with, or to the best of Firstbank's
knowledge is under governmental investigation with respect to, any
actual or alleged violation of any statute, ordinance, rule,
regulation, guideline, or standard; or
(b) Is the subject of any pending or, to Firstbank's
knowledge, threatened proceeding by any regulatory authority having
jurisdiction over its business or properties.
3.14 Environmental Matters. There are no actions, suits, investigations,
liabilities, inquiries or other proceedings, rules, orders or citations
involving Firstbank or its subsidiaries pending, or to the knowledge of
Firstbank, threatened as a result of any failure of Firstbank or any of its
subsidiaries, to comply with any requirement of Environmental Laws (as defined
in Section 4.20.3(b) (Environmental Laws)) that is material to the operations or
assets of Firstbank and its subsidiaries on a consolidated basis.
3.15 Anticipated Changes. No facts or circumstances have been discovered
from which it appears that there is a risk that there will occur a materially
adverse change in the financial condition, net income, business, properties,
operations, or prospects of Firstbank and its subsidiaries on a consolidated
basis.
3.16 Reserve for Loan Losses. The reserve for loan losses reflected in
Firstbank's audited consolidated financial statements for the period ended
December 31, 1995 and 1996, and its unaudited consolidated quarterly reports for
the quarters ended or ending March 31, 1997, and June 30, 1997, was or will be
(as applicable) adequate to meet all reasonably anticipated loan losses, net of
recoveries related to loans previously charged off.
3.17 True and Complete Information. No schedule, statement, list,
certificate, or other information furnished or to be furnished by Firstbank in
connection with this Plan of Merger, including Firstbank's Disclosure Statement,
contains or will contain any untrue statement of a material fact, or omits or
will omit
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to state a material fact necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading.
3.18 Truth and Completeness of Representations and Warranties.
3.18.1 True at the Closing. Firstbank warrants that its
representations and warranties in this Plan of Merger will be true in all
material respects at the Closing. All of such representations and
warranties made with respect to specified dates or events shall still be
true at the Closing in all material respects with respect to such dates or
events.
3.18.2 Untrue Representations and Warranties. During the term of
this Plan of Merger, if Firstbank becomes aware of any facts or of the
occurrence or impending occurrence of any event which would cause one or
more of Firstbank's representations and warranties contained in this Plan
of Merger to become untrue, or would have caused one or more of such
representations and warranties (except in the case of representations and
warranties expressly made only as of the execution of this Plan of Merger)
to be untrue had such facts been known or had such event occurred before
the execution of this Plan of Merger, then:
(a) Notice. Firstbank shall immediately give detailed written
notice thereof to Lakeview; and
(b) Remedy Unless Waived. Firstbank shall use all reasonable
efforts to change such facts or events to make such representations
and warranties true, unless the same shall have been waived in writing
by Lakeview.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LAKEVIEW
Except as otherwise set forth in the Lakeview disclosure statement
("Lakeview Disclosure Statement") previously delivered to Firstbank, Lakeview
represents and warrants to Firstbank that:
4.1 Authorization, No Conflicts, Etc.
4.1.1 Authorization of Agreement. The execution, delivery, and
performance of this Plan of Merger by Lakeview have been duly authorized
and approved by all necessary corporate action except that the consummation
of the Merger is subject to the approval of Lakeview's shareholders as
described in Section 1.1 (Approval of Plan of Merger) and, except for such
shareholder approval, when executed and delivered, this Plan of Merger will
be legally binding on and enforceable against Lakeview in accordance with
its terms.
4.1.2 No Conflict, Breach, Violation, Etc. The execution, delivery,
and performance of this Plan of Merger by Lakeview, and the consummation of
the Merger, do not and will not violate, conflict with, or result in a
breach of:
(a) Certificate or Bylaws. Any provision of Lakeview's
Articles of Incorporation or Bylaws; or
(b) Statutes, Judgments, Etc. Any statute, code, ordinance,
rule, regulation, judgment, order, writ, arbitral award, decree, or
injunction applicable to Lakeview or its
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subsidiary, assuming the timely receipt of each of the approvals
referred to in Section 4.1.4 (Required Approvals).
4.1.3 No Contractual Breach, Default, Liability, Etc. The execution,
delivery, and performance of this Plan of Merger by Lakeview, and the
consummation of the Merger, do not and will not:
(a) Agreements, Etc. Violate, conflict with, result in a breach
of, constitute a default under, require any consent, approval, waiver,
extension, amendment, authorization, notice or filing under, or
extinguish any material contract right of Lakeview or its subsidiary
under any agreement, mortgage, lease, commitment, indenture, other
instrument, or obligation to which Lakeview or its subsidiary is a
party or by which they are bound or affected: (1) which is material to
the business, income, or financial condition of Lakeview or the Bank;
or (2) the violation or breach of which could prevent Lakeview from
consummating the Merger;
(b) Regulatory Restrictions. Violate, conflict with, result in a
breach of, constitute a default under, require any consent, approval,
waiver, extension, amendment, authorization, notice, or filing under
any memorandum of understanding or similar regulatory consent
agreement to which Lakeview or the Bank is a party or subject, or by
which it is bound or affected; or
(c) Tortious Interference. Subject Firstbank or any of its
subsidiaries or their respective directors or officers to liability
for tortious interference with contractual rights.
4.1.4 Required Approvals. No notice to, filing with, authorization
of, exemption by, or consent or approval of, any public body or authority
is necessary for the consummation of the Merger by Lakeview other than in
connection or compliance with the provisions of the Michigan Act,
compliance with federal and state securities laws, and the consents,
authorizations, approvals, or exemptions required under the Federal Bank
Holding Company Act.
4.2 Organization and Good Standing. Lakeview is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Michigan. Lakeview possesses all requisite corporate power and authority to own,
operate, and lease its properties and to carry on its business as it is now
being conducted in all material respects. Lakeview is a bank holding company
duly registered and in good standing with the Federal Reserve Board under the
Federal Bank Holding Company Act. Lakeview is not required to be qualified or
admitted to conduct business as a foreign corporation in any other state.
4.3 Subsidiaries.
4.3.1 Ownership of Subsidiaries. Lakeview owns all of the issued and
outstanding shares of capital stock of the Bank, free and clear of all
claims, security interests, pledges, or liens of any kind. Lakeview does
not have "Control" (as defined in Section 2(a)(2) of the Federal Bank
Holding Company Act, using 5 percent rather than 25 percent), either
directly or indirectly, of any corporation engaged in an active trade or
business or which holds any significant assets other than as stated in this
Section 4.3 (Subsidiaries).
4.3.2 Rights to Capital Stock. There are no outstanding
subscriptions, options, warrants, rights to acquire, or any other similar
agreements pertaining to the capital stock of the Bank.
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4.3.3 Qualification and Power. The Bank:
(a) Foreign Qualification. Is not, and is not required to be,
qualified or admitted to conduct business in any other state; and
(b) Corporate Power. Has full corporate power and authority to
carry on its business substantially as and where now being conducted.
4.3.4 FDIC; Insurance Assessments. The Bank maintains in full force
and effect deposit insurance through the Bank Insurance Fund of the Federal
Deposit Insurance Corporation ("FDIC"). The Bank has fully paid to the FDIC
as and when due all assessments with respect to its deposits as are
required to maintain such deposit insurance in full force and effect.
4.3.5 Regulatory Fees and Charges. The Bank has paid as and when due
all material fees, charges, assessments, and the like to each and every
governmental or regulatory agency having jurisdiction as required by law,
regulation, or rule.
4.4 Capital Stock and Stock Options.
4.4.1 Classes and Shares. The authorized capital stock of Lakeview
consists of 1,500,000 shares of common stock, par value $3.34 per share, of
which, as of the date and time of the execution of this Plan of Merger,
657,484 shares were issued and outstanding and each of such outstanding
shares are legally and validly issued, fully paid and nonassessable.
4.4.2 No Other Capital Stock. There is no security or class of
securities authorized or issued which represents or is convertible into
capital stock of Lakeview except as described in this Section 4.4 (Capital
Stock and Stock Options). As of the execution of this Plan of Merger, there
are no outstanding subscriptions, options, warrants, or rights to acquire
any capital stock of Lakeview, or agreements to which Lakeview is a party
or by which it is bound to issue capital stock.
4.4.3 Voting Rights. Other than the shares of Lakeview's common stock
described in this Section 4.4 (Capital Stock and Stock Options), neither
Lakeview nor the Bank has outstanding any security:
(a) The holder or holders of which have the right to vote on
the approval of the Merger or this Plan of Merger; or
(b) Which entitles the holder or holders to consent to, or
withhold consent on, the Merger or this Plan of Merger.
4.4.4 Stock Options. The Lakeview Disclosure Schedule contains a
true, accurate and complete list of all stock option plans and outstanding
options and other rights to purchase shares of Lakeview Common Stock or any
other securities of Lakeview. Each such stock option plan was duly
authorized and approved by the shareholders and Board of Directors of
Lakeview and complies with the provisions of any and all applicable laws.
Each stock option grant for each outstanding Lakeview Stock Option was duly
authorized and approved by the Board of Directors of Lakeview and was
issued in full compliance with the terms of the applicable stock option
plan and applicable laws.
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4.5 Financial Statements.
4.5.1 Financial Statements. The consolidated financial statements of
Lakeview and the Bank as of and for each of the years ended December 31,
1992, 1993, 1994, 1995, and 1996, as reported on or to be reported on by
Lakeview's independent accountants, previously delivered or to be delivered
to Firstbank, and the consolidated financial statements of Lakeview and the
Bank as of and for each quarter ending prior to the Effective Time of the
Merger, are and will be correct and complete in all material respects.
These statements do and will present fairly Lakeview's and the Bank's
financial position and results of operations on a consolidated basis on the
dates and for the periods indicated, and have been and will be prepared in
conformity with generally accepted accounting principles applied
consistently throughout the periods indicated (except as otherwise noted in
such financial statements or the notes thereto).
4.5.2 Call Reports. The reports of condition and income of the Bank
as of and for each of the years ended December 31, 1992, 1993, 1994, 1995,
and 1996, and the reports of condition and income of the Bank to be filed
with the FDIC prior to the Effective Time of the Merger, including all
schedules and notes relating to such reports (collectively, the "Call
Reports"), are and will be correct and complete in all material respects.
The Call Reports which have been filed were prepared, and the Call Reports
to be filed will be prepared, in conformity with applicable regulatory
accounting principles applied consistently throughout the periods indicated
(except as otherwise noted in such reports).
4.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated balance sheet of Lakeview and
the Bank as of December 31, 1996, and the notes thereto, neither Lakeview nor
the Bank had, as of such date, liabilities or obligations, secured or unsecured
(whether accrued, absolute, or contingent) which are, or as to which there is a
reasonable probability that they could be, materially adverse to the income or
financial condition of Lakeview or the Bank.
4.7 Absence of Material Adverse Change. Since December 31, 1996, there has
been no material adverse change in the business, income, or financial condition
of Lakeview or the Bank. No facts or circumstances have been discovered from
which it reasonably appears that there is a significant risk and reasonable
probability that there will occur a material adverse change in the business,
income, or financial condition of Lakeview or the Bank.
4.8 Absence of Litigation. There is no action, suit, proceeding, claim,
arbitration, or investigation pending or threatened by any person, including
without limitation any governmental or regulatory agency, against Lakeview, the
Bank, or the assets or business of Lakeview or the Bank, any of which has or may
have a material adverse effect on the business, income, or financial condition
of Lakeview or the Bank. There is no factual basis known to Lakeview or the Bank
which presents a reasonable potential for any such action, suit, proceeding,
claim, arbitration, or investigation.
4.9 Conduct of Business. Lakeview and the Bank have conducted their
respective businesses and used their respective properties substantially in
compliance with all federal, state, and local laws, civil or common, ordinances
and regulations, including without limitation applicable federal and state laws
and regulations concerning banking, securities, truth-in-lending, truth-in-
savings, mortgage origination and servicing, usury, fair credit reporting,
consumer protection, occupational safety, civil rights, employee protection,
fair employment practices, fair labor standards, and insurance; and
Environmental Laws (as defined in Section 4.20.3.b (Environmental Laws)).
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4.10 Absence of Defaults Under Contracts. There is no existing default by
Lakeview or the Bank, or any other party, under any contract, mortgage, lease,
indenture or agreement to which Lakeview or the Bank is a party, or by which
either of them is bound, which could subject Lakeview or the Bank to a risk of
material liability.
4.11 Regulatory Filings. In the last five years:
4.11.1 Filings. Lakeview and the Bank have filed in a timely manner
all filings with regulatory bodies for which filings are required;
4.11.2 Complete and Accurate. All such filings, as amended, were
complete and accurate in all material respects as of the dates of such
filings, and there were no misstatements or omissions therein which, as of
the making of this representation and warranty, would be material to the
business, income, or financial condition of Lakeview and the Bank on a
consolidated basis; and
4.11.3 Compliance with Regulations. All such filings complied in all
material respects with all regulations, forms, and guidelines applicable to
such filings.
4.12 Registration Statement, Etc.
4.12.1 Accurate Information. None of the information to be supplied
by Lakeview for inclusion, or included, in any Document will:
(a) Be false or misleading with respect to any material fact,
or omit to state any material fact necessary to make the statements
therein not misleading (i) at the respective times such Documents are
filed; (ii) with respect to the Registration Statement, when it
becomes effective; and (iii) with respect to the Prospectus and Proxy
Statement, when it is mailed.
(b) With respect to the Registration Statement and the
Prospectus and Proxy Statement, as either may be amended or
supplemented, at the time of Lakeview's shareholders' meeting with
respect to this Plan of Merger, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for Lakeview's shareholders' meeting.
4.12.2 Compliance of Filings. All Documents that Lakeview is
responsible for filing with any regulatory agency in connection with the
Merger will comply as to form in all material respects with the provisions
of applicable law.
4.13 Tax Matters.
4.13.1 Tax Returns. Lakeview and the Bank and any and all prior
subsidiaries of either of them have duly and timely filed all tax returns
that they have by law been required to file, including without limitation
those with respect to income, withholding, social security, unemployment,
franchise, real property, personal property, intangibles, and single
business taxes. Each such tax return, report, and statement, as amended, is
correct and complies in all material respects with all applicable laws and
regulations.
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4.13.2 Tax Assessments and Payments. All taxes and assessments,
including any penalties, interest, and deficiencies relating to those taxes
and assessments, due and payable by Lakeview and the Bank and any prior
subsidiaries (while owned by Lakeview or the Bank) have been paid in full
as and when due. The provisions made for taxes on the consolidated balance
sheet of Lakeview and the Bank as of December 31, 1996, are sufficient for
the payment of all federal, state, county, and local taxes of Lakeview and
the Bank accrued but unpaid as of the date indicated, whether or not
disputed, with respect to all periods through December 31, 1996.
4.13.3 Tax Audits The federal consolidated income tax returns of
Lakeview and the Bank and any prior subsidiary, have not been audited by
the Internal Revenue Service ("IRS") within the last 10 years. There is no
tax audit or legal or administrative proceeding for assessment or
collection of taxes pending or, to Lakeview's knowledge, threatened with
respect to Lakeview or the Bank or any prior subsidiary. No claim for
assessment or collection of taxes has been asserted with respect to
Lakeview or the Bank or any prior subsidiary. No waiver of any limitations
statute or extension of any assessment or collection period has been
executed by or on behalf of Lakeview or the Bank or any prior subsidiary.
4.14 Title to Properties. Lakeview and the Bank have good, sufficient, and
marketable title to all of their properties and assets, whether real, personal,
or a combination thereof, reflected in their books and records as being owned
(including those reflected in the consolidated balance sheet of Lakeview and the
Bank as of December 31, 1996, except as since disposed of in the ordinary course
of business), free and clear of all liens and encumbrances, except:
4.14.1 Reflected on Balance Sheet. As reflected on the consolidated
balance sheet of Lakeview and the Bank as of December 31, 1996, and the
notes thereto;
4.14.2 Normal to Business. Liens for current taxes not yet
delinquent, and liens or encumbrances which are normal to the business of
Lakeview and the Bank and which are not material in relation to the
business, income, or financial condition of Lakeview or the Bank; and
4.14.3 Immaterial Imperfections. Such imperfections of title,
easements, and encumbrances, if any, as are not material in character,
amount, or extent, and do not materially detract from the value, or
materially interfere with the present use, of the properties subject
thereto or affected thereby, or which would not otherwise be material to
the business, income, or financial condition of Lakeview or the Bank.
4.15 Condition of Property. The nonfinancial assets owned or leased by
Lakeview and the Bank constitute all of the assets held for use or used in
connection with the business of Lakeview and the Bank and are adequate to carry
on their respective businesses as presently conducted. No building or
improvement on any real property owned, leased, or used by Lakeview or the Bank
encroaches on any material easement or property owned by another, and no
building or property owned by another encroaches on any real property owned,
leased, or used by Lakeview or the Bank or on any material easement the benefit
of which runs to real property owned, leased, or used by Lakeview or the Bank.
None of the boundaries of any parcel of real property owned, leased, or used by
Lakeview or the Bank deviates substantially from those shown on the survey of
such parcel, provided in Lakeview's Disclosure Statement or from what they
appear to be through visual inspection. Neither Lakeview nor the Bank is in
material violation of any zoning regulation, building restriction, restrictive
covenant, ordinance, or other law, order, regulation, or requirement relating to
any real property that Lakeview or the Bank owns, leases, or uses. All of the
nonfinancial assets and properties that Lakeview or the Bank owns, leases, or
uses are in good operating condition (normal wear and tear excepted), are
structurally sound, are in a good state of maintenance and repair, are
reasonably fit for their intended
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purposes, are adequately serviced by all utilities reasonably necessary for the
effective operation of Lakeview's and the Bank's business as presently
conducted, and are in the possession of Lakeview or the Bank. None of the real
property owned, leased, or used by Lakeview or the Bank is the subject of any
condemnation action and there is, to the best of Lakeview's knowledge, no
proposal under consideration by any public or governmental authority or entity
to use any of the real property owned, leased, or used by Lakeview or the Bank
for some other purpose.
4.16 Leases. All leases pursuant to which Lakeview or the Bank, as lessee,
lease real or personal property which is material to the business of Lakeview or
the Bank are valid, effective, and enforceable against the lessor in accordance
with their respective terms. There is no existing default under any such lease,
or any event which with notice or lapse of time, or both, would constitute a
default with respect to Lakeview or the Bank or, to the best knowledge of
Lakeview, any other party. No such lease contains a prohibition against
assignment by Lakeview or the Bank, by operation of law or otherwise, or any
other provision which would preclude Lakeview or the Bank from possessing and
using the leased premises for the same purposes and upon the same rental and
other terms upon consummation of the Merger as are applicable to the possession
and use by Lakeview or the Bank as of the date of this Plan of Merger.
4.17 Licenses, Permits, Etc.
4.17.1 All Licenses, Permits, Etc. Lakeview and the Bank hold all
licenses, certificates, permits, franchises, and rights from all
appropriate federal, state, and other public authorities necessary for the
conduct of their businesses as presently conducted, the lack of which would
have a material adverse effect on the business, income, or financial
condition of Lakeview or the Bank.
4.17.2 Regulatory Action. Neither Lakeview nor the Bank:
(a) Has been charged with, or to the best of Lakeview's
knowledge is under governmental investigation with respect to, any
actual or alleged violation of any statute, ordinance, rule,
regulation, guideline, or standard; or
(b) Is the subject of any pending or, to Lakeview's
knowledge, threatened proceeding by any regulatory authority having
jurisdiction over its business or properties.
4.18 Certain Employment Matters.
4.18.1 Employment Policies, Programs, and Procedures. The policies,
programs and practices of Lakeview and the Bank relating to wages, hours of
work, and other terms and conditions of employment are in compliance in all
material respects with applicable laws, orders, regulations, public
policies and ordinances governing employment and terms and conditions of
employment.
4.18.2 Record of Payments. There are no material obligations of
Lakeview or the Bank, whether arising by operation of law, civil or common,
by contract, or by past custom, for Employment-Related Payments (as defined
in Section 4.18.3 (Employment-Related Payments) to trusts or other funds or
to any governmental agency or to any present or former director, officer,
employee, or agent (or his or her heirs, survivors, legatees, or legal
representatives) which have not been duly recorded on the books and records
of Lakeview or the Bank and paid when due or duly accrued as a liability.
4.18.3 "Employment-Related Payments." For purposes of this Plan of
Merger, "Employment-Related Payments" include any payment to be made with
respect to any contract
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for employment, unemployment compensation benefits, profit sharing, pension
or retirement benefits or social security benefits, or for fringe benefits,
including vacation or holiday pay, bonuses and other forms of compensation,
or for medical insurance or medical expenses, which are payable to present
or former directors, officers, employees, or agents of Lakeview or the
Bank, or their respective survivors, heirs, legatees, or legal
representatives.
4.18.4 Employment Claims. There are no disputes, claims, or charges,
pending or threatened alleging breach of any express or implied employment
contract or commitment, or breach of any applicable law, order, regulation,
public policy or ordinance relating to employment or terms and conditions
of employment, and there is no basis for any valid claim or charge with
regard to such matters.
4.18.5 Disclosure of Agreements. There is no written or oral, express
or implied:
(a) Employment contract or agreement, or guarantee of job
security, made with or to any past or present employee of Lakeview
or the Bank which is not terminable by Lakeview or the Bank upon 30
days' or less notice without penalty or obligation;
(b) Plan, contract, arrangement, understanding, or practice
providing for bonuses, pensions, options, stock purchases, deferred
compensation, retirement payments, retirement benefits of the type
described in Statement of Financial Accounting Standard No. 106, or
profit sharing; or
(c) Plan, agreement, arrangement, or understanding with
respect to payment of medical expenses, insurance (except insurance
continuation limited to that required under provisions of the
Consolidated Omnibus Budget Reconciliation Act), or other benefits
for any former employee of Lakeview or the Bank or any spouse,
child, member of the same household, estate, or survivor of any
employee.
4.19 Employee Benefit Plans. With respect to any "employee welfare benefit
plan," any "employee pension benefit plan", or any employee benefit plan within
the respective meanings of Sections 3(1), 3(2), and 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (each referred to
as an "Employee Benefit Plan"), maintained by or for the benefit of Lakeview or
the Bank or to which Lakeview or the Bank has made payments or contributions on
behalf of its employees:
4.19.1 ERISA Compliance. Lakeview and the Bank, each Employee
Benefit Plan, and all trusts created thereunder are in substantial
compliance with ERISA and all other applicable laws and regulations
applicable to such plans and trusts.
4.19.2 Internal Revenue Code Compliance. Lakeview and the Bank, each
Employee Benefit Plan which is intended to be a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and all trusts created thereunder are in
compliance with the applicable provisions of the Internal Revenue Code.
4.19.3 Prohibited Transactions. No Employee Benefit Plan and no
trust created thereunder has been involved in any nonexempt "prohibited
transaction" as defined in Section 4975 of the Internal Revenue Code and in
Sections 406, 407, and 408 of ERISA.
4.19.4 Plan Termination. No Employee Benefit Plan which is a
qualified plan under Section 401(a) of the Internal Revenue Code and no trust
created thereunder has been terminated,
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partially terminated, curtailed, discontinued, or merged into another plan or
trust after June 30, 1974, except in compliance with notice and disclosure to
the IRS and the Pension Benefit Guaranty Corporation (the "PBGC"), where
applicable, as required by the Internal Revenue Code and ERISA. With respect to
each such termination, all termination procedures have been completed and there
are no pending or potential liabilities to PBGC, to the plans, or to
participants under such terminated plans. Each such termination, partial
termination, curtailment, discontinuance, or consolidation has been accompanied
by the issuance of a current favorable determination letter by the IRS and,
where applicable, has been accompanied by plan termination proceedings with and
through the PBGC.
4.19.5 Multiemployer Plan. No Employee Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37)(A) of ERISA.
4.19.6 Defined Benefit Plan. No Employee Benefit Plan in effect as
of December 31, 1996, is a "defined benefit plan" within the meaning of Section
3(35)of ERISA.
4.19.7 Reportable Events. There has been no "reportable event" as
defined in Section 4043 of ERISA, after September 1, 1974, with respect to any
Employee Benefit Plan or any trust created thereunder.
4.19.8 No Premiums. Lakeview does not owe premiums to the PBGC which
are due but unpaid and has not been determined by the PBGC to be liable for a
funding deficiency with respect to a plan termination under Title IV of ERISA.
4.19.9 No Further Payments. If any Employee Benefit Plan (and the
related trusts) which is subject to Title IV of ERISA were terminated on the
date of the latest actuarial valuation, Lakeview would not have any liability
for further contributions or other payments with respect thereto (whether direct
liability to the plan, the trusts, the participants and beneficiaries of the
plan, or liability to the PBGC) and there has been no amendment of any such plan
or other occurrence after the date of the latest actuarial valuation which would
result in any such liability.
4.19.10 No Amendment. With respect to any Employee Benefit Plan
which is a defined benefit plan qualified under Section 401(a) of the Internal
Revenue Code, there has been no amendment of such plan or other occurrence after
the date of the latest actuarial reports prepared with respect to the plan which
has materially changed the financial and funding condition of the plan.
4.19.11 Payment of Contributions. Lakeview and the Bank have made
when due all contributions required under any Employee Benefit Plan and under
applicable laws and regulations.
4.19.12 Payment of Benefits. There are no payments which have become
due from any Employee Benefit Plan, the trusts created thereunder, or from
Lakeview or the Bank that have not been paid through normal administrative
procedures to the plan participants or beneficiaries entitled thereto, except
for claims for benefits for which administrative claims procedures under such
plan have not been exhausted.
4.19.13 Accumulated Funding Deficiency. No Employee Benefit Plan
which is intended to be a qualified plan under Section 401(a) of the Internal
Revenue Code and no trust created thereunder has incurred, after June 30, 1974,
an "accumulated funding deficiency" as defined in Section 412(a) of the Internal
Revenue Code and Section 302 of ERISA (whether or not waived).
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4.19.14 Filing of Reports. Lakeview has filed or caused to be
filed, and will continue to file or cause to be filed, in a timely manner
all filings pertaining to each Employee Benefit Plan with the IRS, the
United States Department of Labor, and the PBGC as prescribed by the
Internal Revenue Code or ERISA, or regulations issued thereunder. All such
filings, as amended, were complete and accurate in all material respects
as of the dates of such filings, and there were no misstatements or
omissions in any such filing which, as the making of this representation
and warranty, would be material to the financial condition, net income,
business, properties, operations, or prospects of Lakeview or the Bank.
4.20 Environmental Matters.
4.20.1 Owned or Operated Property. With respect to: (i) the real
estate owned or leased by Lakeview or the Bank or used in the conduct of
their businesses; (ii) other real estate owned by the Bank; (iii) any real
estate held and administered in trust by the Bank; and (iv) to Lakeview's
knowledge, any real estate formerly owned or leased by Lakeview or the
Bank (for purposes of this section, properties described in any of (i)
through (iv) are collectively referred to as "Premises"):
(a) Construction and Content. None of the Premises is
constructed of, or contains as a component part, any material which
(either in its present form or as it may reasonably be expected to
change through aging or normal use) releases or may release any
substance that is a Hazardous Substance or is known to be (either by
single exposure or by repeated or prolonged exposure) injurious or
hazardous to the health of persons occupying the Premises.
(b) Uses of Premises. No part of the Premises has been used for
the generation, manufacture, handling, storage, disposal, or
management of Hazardous Substances.
(c) Underground Storage Tanks. The Premises do not contain, and
have never contained, any underground storage tanks. With respect to
any underground storage tank listed in Lakeview's Disclosure
Statement as an exception to the foregoing, each such underground
storage tank presently or previously located on Premises is or has
been maintained or removed, as applicable, in compliance with all
applicable Environmental Laws, and has not been the source of any
release of a Hazardous Substance to the environment.
(d) Absence of Contamination. The Premises do not contain and
are not contaminated by any quantity of a Hazardous Substance from
any source.
(e) Environmental Suits and Proceedings. There is no action,
suit, investigation, liability, inquiry, or other proceeding,
ruling, order, notice of potential liability, or citation involving
Lakeview or the Bank pending, threatened, or previously asserted
under, or as a result of any or alleged failure to comply with any
requirement of, any Environmental Law. There is no factual basis for
any of the foregoing.
4.20.2 Loan Portfolio. With respect to any real estate securing
any outstanding loan or related security interest and any owned real estate
acquired in full or partial satisfaction of a debt previously contracted:
(a) Investigation. Lakeview and the Bank have complied in all
material respects with their policies (as such policies may have
been in effect from time to time and as
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disclosed in Lakeview's Disclosure Statement), and all applicable laws
and regulations, concerning the investigation of each such property to
determine whether or not there exists or is reasonably likely to exist
any Hazardous Substance on, in, or under such property and whether or
not a release of a Hazardous Substance has occurred at or from such
property.
(b) No Known Contamination. No such property is known to
contain or be contaminated by any quantity of any Hazardous Substance
from any source.
4.20.3 Definitions.
(a) Hazardous Substances. For purposes of this Plan of Merger,
"Hazardous Substance"has the meaning set forth in Section 9601 of the
Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended, 42 U.S.C.A. (S) 9601 et seq.("CERCLA"), and also
includes any substance now or in the future regulated by or subject to
any Environmental Law (as defined below) and any other pollutant,
contaminant, or waste, including, without limitation, petroleum,
asbestos, fiberglass, radon, and polychlorinated biphenyls.
(b) Environmental Laws. For purposes of this Plan of Merger,
"Environmental Laws" means all laws (civil or common), ordinances,
rules, regulations, guidelines, and orders that: (i) regulate air,
water, soil, or solid waste management, including the generation,
release, containment, storage, handling, transportation, disposal, or
management of Hazardous Substances; (ii) regulate or prescribe
requirements for air, water, or soil quality; (iii) are intended to
protect public health or the environment; or (iv) establish liability
for the investigation, removal, or cleanup of, or damage caused by,
any Hazardous Substance.
4.21 Duties as Fiduciary. The Bank has performed all of its duties in any
capacity as trustee, executor, administrator, registrar, guardian, custodian,
escrow agent, receiver, or other fiduciary in a fashion that complies in all
material respects with all applicable laws, regulations, orders, agreement,
wills, instruments, and common law standards, the violation of which would be
material to its business, income, or financial condition.
4.22 Investment Bankers and Brokers. Lakeview has not employed any
broker, finder, or investment banker in connection with the Merger, except for
the engagement of Austin Associates. Except with respect to Austin Associates,
Lakeview has no express or implied agreement with any person or company relative
to any commission or finder's fee payable with respect to the Merger. Lakeview
shall be solely responsible for the fees of Austin Associates.
4.23 Change in Business Relationships. Neither Lakeview nor the Bank has
notice, whether on account of the Merger or otherwise, that (i) any customer,
agent, representative, or supplier of Lakeview or the Bank intends to
discontinue, diminish, or change its relationship with Lakeview or the Bank, the
effect of which would be material to the business of Lakeview or the Bank; or
(ii) any executive officer of Lakeview or the Bank intends to terminate his or
her employment.
4.24 Insurance. Lakeview and the Bank maintain in full force and effect
insurance on their assets, properties, premises, operations, and personnel in
such amounts and against such risks and losses as are customary and adequate for
comparable entities engaged in the same business and industry. During the last
five years, no insurance company has canceled or refused to renew a policy of
insurance covering Lakeview's or any of the Bank's assets, properties, premises,
operations, or personnel.
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4.25 Books and Records. The minutes contained in corporate minute books
and files of Lakeview and the Bank properly and accurately record in all
material respects all actions actually taken by its shareholders, directors, and
committees of directors. The books, accounts, and records of Lakeview and the
Bank reflect only actual transactions and have been maintained in all material
respects in the usual and regular manner, in accordance with generally accepted
accounting principles consistently applied, and in compliance with all
applicable laws and regulations.
4.26 Events Since December 31, 1996. Neither Lakeview nor its subsidiary
has, since December 31, 1996:
4.26.1 Business in Ordinary Course. Conducted its business other
than in the ordinary course, or incurred or become subject to any material
liability or obligation, except liabilities incurred in the ordinary course
of business.
4.26.2 Strikes or Labor Trouble. Experienced or, to the best
knowledge of Lakeview, been threatened by any strike, work stoppage,
organizational effort, or other labor trouble, or any other event or
condition of any similar character which has been or could reasonably be
expected to be materially adverse to the business, income, or financial
condition of Lakeview or the Bank.
4.26.3 Mortgage of Assets. Mortgaged, pledged, or subjected to lien,
charge, or other encumbrance any of its assets, or sold or transferred any
such assets, except in the ordinary course of business, except for such
mortgages, pledges, liens, charges, and encumbrances for indebtedness that
do not in the aggregate exceed $10,000.
4.26.4 Contract Amendment or Termination. Made or permitted any
amendment or termination of any contract to which it is a party and which
is material to the business, income, or financial condition of Lakeview or
the Bank, except as expressly provided in this Plan of Merger.
4.27 Anticipated Changes. No facts or circumstances have been discovered
from which it appears that there is a risk that there will occur a materially
adverse change in the financial condition, net income, business, properties,
operations, or prospects of Lakeview or the Bank.
4.28 Reserve for Loan Losses. The reserve for loan losses reflected in
Lakeview's and the Bank subsidiary's audited consolidated financial statements
for the period ended December 31, 1995 and 1996, and Call Reports for the
quarters ended or ending March 31, 1997, and June 30, 1997, was or will be (as
applicable) adequate to meet all reasonably anticipated loan losses, net of
recoveries related to loans previously charged off.
4.29 Continuity of Interest. There is no plan or intention by any
shareholder of Lakeview who owns beneficially or of record 5 percent or more of
the issued and outstanding shares of Lakeview's common stock, and, to the best
knowledge of Lakeview, there is no plan or intention on the part of the
remaining shareholders of Lakeview who own shares of Lakeview's common stock to
sell, exchange, or otherwise dispose of a number of shares of Firstbank Common
Stock beneficially owned by them or received in the Merger that would reduce
Lakeview's shareholders' ownership of Firstbank Common Stock to a number of
shares having a value, as of the Effective Time of the Merger, of less than 50
percent of the value of all of the formerly outstanding shares of Lakeview's
Common Stock as of the same time. For purposes of this representation, shares of
Lakeview Common Stock exchanged for cash in lieu of fractional shares or
surrendered by dissenters will be treated as outstanding Lakeview Common Stock
at the Effective Time of the Merger. Shares of Lakeview's Common Stock and
shares of Firstbank's Common Stock held by
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Lakeview's shareholders and otherwise sold, redeemed, or disposed of before or
after the transaction will be considered in making this representation.
4.30 True and Complete Information. No schedule, statement, list,
certificate, or other information furnished or to be furnished by Lakeview in
connection with this Plan of Merger, including Lakeview's Disclosure Statement,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they are made, not misleading.
4.31 Truth and Completeness of Representations and Warranties.
4.31.1 True at the Closing. Lakeview warrants that its
representations and warranties in this Plan of Merger will be true in all
material respects at the Closing. All of such representations and
warranties made with respect to specified dates or events shall still be
true at the Closing in all material respects with respect to such dates or
events.
4.31.2 Untrue Representations and Warranties. During the term of
this Plan of Merger, if Lakeview becomes aware of any facts or of the
occurrence or impending occurrence of any event which would cause one or
more of Lakeview's representations and warranties contained in this Plan of
Merger to become untrue, or would have caused one or more of such
representations and warranties (except in the case of representations and
warranties expressly made only as of the execution of this Plan of Merger)
to be untrue had such facts been known or had such event occurred before
the execution of this Plan of Merger, then:
(a) Notice. Lakeview shall immediately give detailed written
notice thereof to Firstbank; and
(b) Remedy Unless Waived. Lakeview shall use all reasonable
efforts to change such facts or events to make such representations
and warranties true, unless the same shall have been waived in writing
by Firstbank.
ARTICLE V
CERTAIN COVENANTS
5.1 Disclosure Statement. Lakeview has prepared and delivered to
Firstbank the Lakeview Disclosure Statement. In addition to any exceptions to
Lakeview's representations set forth in Article IV, the Disclosure Statement
shall contain true and correct copies of each and every document specified
below. Not less than 5 days prior to the Closing, Lakeview shall deliver to
Firstbank an update to the Lakeview Disclosure Statement describing any material
changes and containing any new or amended documents, as specified below, which
are not contained in the Lakeview Disclosure Statement as initially delivered.
The Lakeview Disclosure Statement and the update shall contain:
5.1.1 Employment Agreements. All employment agreements not
terminable by Lakeview or the Bank upon 30 days' or less notice without
penalty or obligation.
5.1.2 Employment Policies. All employee handbooks, policy manuals,
rules and standards of employment implemented by Lakeview or the Bank with
regard to their employees and presently in effect.
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5.1.3 Judgments, Orders or Settlement Agreements. Any judgments, orders,
injunctions, court decrees or settlement agreements arising out of or relating
to the labor and employment practices or decisions of Lakeview or the Bank
which, by their terms, continue to bind or affect Lakeview or the Bank.
5.1.4 Loan Delinquencies. A list of loans or extensions of credit on the
books of the Bank with a principal balance of $2,500 or more and which are more
than 60 days contractually delinquent.
5.1.5 Letters of Credit and Loan Contingencies. A listing of all letters
of credit and obligations to make loans or extend credit which the Bank cannot
reject or terminate without advance notice or penalty in its sole discretion,
and upon which the Bank may be or may become liable without action or omission
of the Bank after the Closing.
5.1.6 Related Person Contracts. All agreements, contracts, mortgages,
deeds of trust, leases, commitments, indentures, notes, or other instruments,
which are, to the best of Lakeview's knowledge, with any Lakeview Related Person
(defined below), excepting any ordinary and customary banking relationship. For
purposes of this Plan of Merger, the term "Lakeview Related Person" shall mean
any director or executive officer of Lakeview or its subsidiary, their spouses
and children, any person who is a member of the same household as such persons,
and any corporation, partnership, proprietorship, trust, or other entity of
which any such persons, alone or together, have Control.
5.1.7 Related Person Loans. A list of all outstanding loans or loan
commitments from, and all irrevocable letters of credit issued by, Lakeview or
the Bank in a principal amount of $5,000 or more to or on behalf of any Lakeview
Related Person.
5.1.8 Control of Material Assets. A list of any material assets or
properties which are used in the business of Lakeview or its subsidiary which
are owned or controlled by a Lakeview Related Person, other than in a capacity
as a shareholder, director or officer of Lakeview or the Bank.
5.1.9 Retired Employee Expenses. All plans, agreements, arrangements, or
understandings concerning payment of medical expenses, insurance, or other
benefits with respect to any former employee, or any spouse or child, member of
the same household, estate, or survivor of a former employee.
5.1.10 Deeds and Titles. All deeds, titles, or other evidences of
title to real estate, as well as copies of all surveys, abstracts, and
environmental assessments thereof and title insurance policies relating thereto,
and complete and correct lists of all items of personal property which had a
book value in excess of $10,000 as of December 31, 1996, reflected in the books
and records of Lakeview or the Bank as being owned (including those reflected in
the consolidated balance sheet of Lakeview and the Bank as of December 31,
1996), except as since disposed of in the ordinary course of business.
5.1.11 Lease Agreements. All leases or other agreements pursuant to
which Lakeview or its subsidiary, as lessee or lessor, leases real or personal
property, excepting any lease as to personal property under which the aggregate
lease payments with respect to that lease do not exceed $10,000.
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5.1.12 Other Agreements.
(a) All contracts or agreements to which Lakeview or its subsidiary is
a party or subject which call for aggregate payments in excess of $5,000
with respect to individual items or individual agreements, excepting any
ordinary and customary banking relationship.
(b) All data processing agreements, service agreements, consulting
agreements, or any similar arrangements not terminable by Lakeview or its
subsidiary upon 30 days' or less notice without penalty, excepting any
agreement which does not require aggregate payments in excess of $5,000.
(c) All interest rate swap agreements and other agreements relating to
hedging interest rate risks.
5.1.13 Insurance Policies. All policies of insurance maintained by
Lakeview or the Bank with respect to assets, properties, premises, operations,
and personnel, and copies of the most recent insurance audit, review, or report
(if any).
5.1.14 Charter Documents and Bylaws. The articles of incorporation
and bylaws of Lakeview and the Bank, including all amendments to date.
5.1.15 Shareholder List. A shareholder list as of the most recent
date available identifying each shareholder of Lakeview, indicating the number
of shares held, and providing the shareholder's record address.
5.1.16 Stock Option Information. Copies of all stock option grant
documents for all issued and outstanding options to purchase Lakeview Common
Stock together with a list as of the most recent date available of each holder
of an option to purchase shares of Lakeview Common Stock or any other security
of Lakeview, together with the grant date, exercise price, vesting schedule and
number of shares issuable upon exercise of the option.
5.1.17 Employee Benefit Plans. All plans, policies or contracts
providing for bonuses, pensions, all sales commission schedules, options, stock
purchases, deferred compensation, severance or termination pay, retirement
payments, profit sharing, or retirement savings, including amendments, any
summary plan description relating thereto, and, to the extent applicable, the
last two annual reports on Form 5500 for each such plan or contract, the latest
determination letter issued by the IRS with respect to each Employee Benefit
Plan which is a qualified plan under Section 401(a) of the Internal Revenue Code
and any determination letter issued with respect to each amendment to each such
Employee Benefit Plan, and all administrative forms for each Employee Benefit
Plan.
5.1.18 Management Letters. Copies of any letters or memoranda to
management or special reports received during each of the last three years by
Lakeview or the Bank from Lakeview's independent public accountants which set
forth criticisms of, or advice, suggestions, or recommendations for improvements
in, any aspect of the accounting for or operation of Lakeview or the Bank.
5.1.19 Long-Term Debt. Copies of any loan agreements, notes,
indentures, security agreements, mortgages, pledge receipts, guaranties, and
related documents with respect to all long-term indebtedness of Lakeview or the
Bank.
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5.1.20 Regulatory Orders. Copies of any order, decree, memorandum,
agreement, or understanding with regulatory agencies binding upon or
affecting the operations of Lakeview or the Bank or their respective
directors or officers in their capacities as such.
5.1.21 Board and Environmental Investigation Policies. Copies of all
policies formally adopted by the Board of Directors of Lakeview and the
Bank as currently in effect and, with respect to environmental matters,
copies of all policies that have been in effect during the last 10 years
regarding the performance of environmental investigations of properties
accepted as collateral for loans or accepted in trust, including the
effective dates of all such policies.
5.1.22 Litigation. A list of all suits, actions, and proceedings
(legal, administrative, arbitral, or otherwise), and all claims,
investigations, and inquiries (by an administrative agency, governmental
body, or otherwise) to which Lakeview or the Bank, or any of their
respective businesses or properties, is a party as plaintiff or defendant
or is subject, together with copies of the complaint, answer, and all
material motions and orders filed or entered in connection therewith.
5.1.23 MESC Form 1027. A completed and executed copy of MESC Form
1027, Business Transferor's Notice of Unemployment Tax Liability and Rate.
5.2 Conduct of Business Pending the Effective Time of the Merger. From the
execution of this Plan of Merger until the Effective Time of the Merger,
Lakeview agrees that, except as consented to in writing by Firstbank or as
otherwise provided in this Plan of Merger, it shall, and it shall cause the Bank
to:
5.2.1 Ordinary Course. Conduct its business and manage its property
only in the usual, regular, and ordinary course and not otherwise, in
substantially the same manner as prior to the execution of this Plan of
Merger, and not make any substantial change to its methods of management or
operation in respect of such business or property.
5.2.2 No Inconsistent Actions. Take no action which would be
inconsistent with or contrary to the representations, warranties, and
covenants made by Lakeview in this Agreement, and take no action which
would cause Lakeview's representations and warranties to become untrue
except as and to the extent required by applicable laws and regulations or
regulatory agencies having jurisdiction.
5.2.3 Compliance. Comply in all material respects with all laws,
regulations, agreements, court orders, and administrative orders applicable
to the conduct of its business unless the application of such laws,
regulations, or orders is being contested in good faith and the other party
has been notified of such contest.
5.2.4 No Amendments. Make no change in its articles of incorporation
or charter, as the case may be, or its bylaws, except as effected by this
Plan of Merger and the Merger.
5.2.5 Books and Records. Maintain its books, accounts, and records
in the usual and regular manner, and in material compliance with all
applicable laws and accounting standards.
5.2.6 No Change in Stock. Make no change in the number of shares of
its capital stock issued and outstanding; grant no warrant, option, or
commitment relating to its capital stock; enter into no agreement relating
to its capital stock; and issue no securities convertible into its capital
stock.
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5.2.7 Maintenance. Use all reasonable efforts to maintain its property
and assets in their present state of repair, order and condition, reasonable
wear and tear and damage by fire or other casualty excepted.
5.2.8 Preservation of Goodwill. Use all reasonable efforts to preserve
its business organization intact, to keep available the services of its present
officers and employees, and to preserve the goodwill of its customers and others
having business relations with it.
5.2.9 Insurance Policies. Use all reasonable efforts to maintain and keep
in full force and effect insurance coverage, so long as such insurance is
reasonably available, on its assets, properties, premises, operations, and
personnel in such amounts, against such risks and losses, and with such self-
insurance requirements as are presently in force.
5.2.10 Charge-Offs. Charge off loans and maintain its reserve for loan
losses, in each case in a manner in conformity with the prior practices of
Lakeview and the Bank and applicable industry, regulator, and accounting
standards; provided, however, that in addition to the prior practices of
Lakeview and the Bank, immediately prior to the Effective Time of the Merger,
the Bank will charge against its earnings an addition to its loan loss reserve
in an amount necessary to bring the Bank's loan loss reserve up to a level
comparable with the loan loss reserve level maintained by Firstbank at its
subsidiary banks.
5.2.11 Policies and Procedures. Make no material change in any
policies and procedures applicable to the conduct of its business, including
without limitation any loan and underwriting policies, loan loss and charge-off
policies, investment policies, and employment policies, except as and to the
extent required by law or regulatory agencies having jurisdiction.
5.2.12 New Directors or Officers. Except to reelect persons who are then
incumbent directors and officers at annual meetings, not:
(a) Increase the number of directors or fill any vacancy on the board
of directors; or
(b) Elect or appoint any person to an executive office without first
consulting Firstbank.
5.2.13 Compensation and Benefits.
(a) Not increase, or agree to increase, the salary or other
compensation payable to, or fringe benefits of, or pay or agree to pay any
bonus to, any director or officer, or any other class or group of employees
as a class or group, except for increases, agreements or payments which are
reasonable in amount and consistent with the prior year; and
(b) Not introduce, change, or agree to introduce or change, any
pension, profit sharing, or employee benefit plan, fringe benefit program,
or other plan or program of any kind for the benefit of its employees
unless required by law or this Plan of Merger, or necessary or advisable,
in the opinion of counsel, to maintain any tax qualified status.
5.2.14 New Employment Agreements. Not enter into any employment agreement
which is not terminable by the Corporation or its subsidiary without cost or
penalty upon 30 days' or less notice, except any such agreement which may be
approved by Firstbank in writing.
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5.2.15 Dividends. Not declare or pay any dividends, nor make any
other distribution, in respect of any shares of its capital stock except as
permitted by Section 5.5 (Regular Dividends and Compensation Adjustments).
5.2.16 Borrowing. Not borrow money except in the ordinary course of
business.
5.2.17 Mortgaging Assets. Not sell, mortgage, pledge, encumber, or
otherwise dispose of, or agree to sell, mortgage, pledge, encumber, or
otherwise dispose of, any of its property or assets, except in the ordinary
course of business.
5.2.18 Notice of Actions. Notify the other party of the threat or
commencement of any action, suit, proceeding, claim, arbitration, or
investigation against or relating to: (i) Lakeview or the Bank; (ii)
Lakeview or the Bank's directors, officers, or employees in their
capacities as such; (iii) Lakeview's or the Bank's assets, liabilities,
businesses, or operations; or (iv) the Merger or this Plan of Merger.
5.2.19 New Service Arrangements. Not enter into, or commit to enter
into, any agreement for trust, consulting, professional, data processing,
or other services to Lakeview or the Bank which is not terminable by
Lakeview or the Bank without penalty upon 30 days' or less notice.
5.2.20 Capital Improvements. Not open, enlarge, or materially
remodel any bank or other facility, and not lease, purchase, or otherwise
acquire any real property for use as a branch bank, or apply for regulatory
approval of any new branch bank, excepting pursuant to prior commitments
made by Lakeview or the Bank that are disclosed in the Lakeview Disclosure
Statement.
5.3 Accrual of Transaction Expenses. Lakeview and the Bank covenant and
agree that immediately prior to the Effective Time of the Merger Lakeview will
accrue and charge against its earnings all transaction expenses which Lakeview
has incurred or will incur as a result of the transactions contemplated by this
Plan of Merger (including, without limitation, its legal, accounting, actuarial,
tax services, and investment banker's fees).
5.4 Accrual of Employee Benefits. Lakeview and the Bank covenant and
agree that all officers of Lakeview and the Bank will be treated as fully vested
and the Bank will accrue immediately prior to the Merger Date and charge against
the Bank's earnings, all amounts necessary to fully fund the cost of the
"Actuarially Reduced" amount of the "Retirement Benefit" under all outstanding
executive supplemental income ("ESI") agreements between the Bank and any of its
officers. Lakeview and the Bank covenant and agree that prior to the Effective
Time of the Merger, all such ESI agreements shall have been terminated with
Actuarially Reduced Retirement Benefits ("Accrued Benefits") paid out to the
affected officers, or such agreements shall have been amended to provide that
neither the Bank, nor Lakeview, nor Firstbank shall have any further cost,
expense or charges with respect to such agreements. However, the Accrued
Benefits of Messrs. Schurtz and Benear will not be paid out to them. Firstbank
covenants and agrees that Messrs. Schurtz and Benear will be entitled to
participate in the Firstbank officers deferred compensation plan and their
respective Accrued Benefits will be credited to accounts established for them
under that plan, with the Accrued Benefits invested in accordance with their
election of investment options available under the Firstbank plan.
5.5 Regular Dividends. Since December 31, 1996, Lakeview has not declared
and paid (except for a dividend paid in January 1997 which was declared and
deducted from stockholder's equity prior to December 31, 1996) any dividends to
its shareholders, and will not declare or pay any dividends or make other
distributions of assets to its shareholders, except for cash dividends not in
excess of 30% of the net
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after-tax profits of Lakeview (determined in accordance with generally accepted
accounting principles consistently applied) earned after December 31, 1996, and
prior to the closing, with any such cash dividends to be declared, if at all,
each calendar quarter with respect to the net after-tax profit earned for each
such quarter and paid during or within thirty (30) days after the end of such
quarter. However, Lakeview shareholders shall be entitled to receive one and
only one dividend payable with respect to the quarter in which the Effective
Time of the Merger occurs, whether as a result of their ownership of Lakeview
Common Stock or Firstbank Common Stock received in the Merger.
5.6 Affiliates. The Lakeview Disclosure Statement and the update to the
Lakeview Disclosure Statement shall identify every person who may, to Lakeview's
reasonable knowledge, be deemed to be an "affiliate" of Lakeview for purposes of
Rule 145 under the Securities Act of 1933, as amended (the "Securities Act").
Lakeview shall cause its counsel to deliver to each person who is identified as
an affiliate, on or prior to the Effective Time of the Merger, advice with
respect to such person's obligations under the Securities Act and the
regulations issued thereunder with respect to disposition of securities of
Firstbank. Further, Lakeview shall use all reasonable efforts to cause each
person who is identified as an affiliate to deliver to Firstbank on or prior to
the Effective Time of the Merger a written agreement, satisfactory to Firstbank,
that such person shall not offer to sell or otherwise dispose of any shares of
Firstbank Common Stock beneficially owned by or issued to such person pursuant
to the Merger in violation of the Securities Act or the regulations thereunder.
5.7. Competing Proposals. Neither Lakeview nor the Bank, nor any of their
respective directors, officers, employees, investment bankers, representatives,
or agents, shall take any action inconsistent with the intent to consummate the
Merger upon the terms and conditions of this Plan of Merger. Without limiting
the foregoing:
5.7.1 No Solicitation. Neither Lakeview nor the Bank, nor any of
their respective directors, officers, employees, investment bankers,
representatives, or agents, shall solicit, encourage, negotiate, accept or
approve, any proposals, offers, or expressions of interest concerning any
tender offer, exchange offer, merger, consolidation, sale of shares, sale
of assets, or assumption of liabilities not in the ordinary course, or
other business combination involving Lakeview or the Bank, or any of their
respective assets or properties, other than the Merger (a "Business
Combination").
5.7.2 Communication of Other Proposals. Lakeview shall cause written
notice to be delivered to Firstbank promptly upon receipt of any
solicitation, offer, proposal, or expression of interest (a "Proposal")
concerning a Business Combination. Such notice shall contain the material
terms and conditions of the Proposal to which such notice relates or shall
contain a copy of Lakeview's unequivocal rejection of the Proposal in the
form actually delivered to the person from whom the Proposal was received.
Thereafter, Lakeview shall promptly notify Firstbank of any material
changes in the terms, conditions, and status of any Proposal.
5.7.3 Furnishing Information. Neither Lakeview nor the Bank, nor any
of their respective directors, officers, employees, investment bankers,
representatives, or agents, shall furnish any nonpublic information
concerning Lakeview or the Bank to any person who is not affiliated or
under contract with Lakeview or Firstbank, except as required by applicable
law or regulations.
5.7.4 Payment after Certain Events. In the event that the Board of
Directors of Lakeview fails to recommend to the shareholders of Lakeview
that the shareholders approve the transactions contemplated by this Plan of
Merger, and if such failure is due in whole or in part to the existence of
a Proposal, which Proposal competes or is otherwise inconsistent with the
transactions contemplated by this Plan of Merger, then Lakeview shall
promptly pay to Firstbank a fee equal to
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$500,000 and an amount equal to all out-of-pocket costs, expenses and fees
(including, without limitation, fees incurred or to be incurred in
connection with any registration and proxy statement that may be required
to be filed with the Securities and Exchange Commission), incurred or to be
incurred by Firstbank (or its subsidiaries or other affiliates) in
connection with the Merger and all other transactions contemplated thereby
or incidental thereto. However, in the event that the competing or
inconsistent Proposal referred to in the preceding sentence has been
directly or indirectly solicited by any officer, director, shareholder,
agent or other representative of Lakeview, then the $500,000 fee shall be
increased to $800,000, and the amounts for out-of-pocket costs, expenses,
and fees described above shall also be payable by Lakeview to Firstbank. In
the event that Lakeview's Board of Directors recommends in good faith that
Lakeview's shareholders approve this Plan of Merger, and the shareholders
nonetheless fail to approve this Plan of Merger, then Lakeview shall not be
obligated to pay the fee or any amounts for out-of-pocket costs, expenses
and fees referred to in this Section 5.7.4.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Registration Statement. As soon as is reasonably practical, Firstbank
agrees to prepare and file with the SEC under the Securities Act the
Registration Statement and the related Prospectus and Proxy Statement included
as a part thereof covering the issuance by Firstbank of the shares of Firstbank
Common Stock as contemplated by this Plan of Merger, together with such
amendments as may reasonably be required for the Registration Statement to
become effective. Firstbank agrees to provide Lakeview with the opportunity to
review and comment upon the Registration Statement, each amendment to the
Registration Statement, and each form of the Prospectus and Proxy Statement
before filing. Firstbank agrees to provide Lakeview with copies of all
correspondence received from the SEC with respect to the Registration Statement
and its amendments and with all responsive correspondence to the SEC. Firstbank
agrees to notify Lakeview of any stop orders or threatened stop orders with
respect to the Registration Statement. Lakeview agrees to provide all necessary
information pertaining to Lakeview and the Bank promptly upon request, and to
use its best efforts to obtain the cooperation of Lakeview's independent
accountants and attorneys, in connection with the preparation of the
Registration Statement.
6.2 Other Filings. Firstbank agrees to prepare and file, as soon as is
reasonably practical, with the Federal Reserve Board, the State of Michigan, and
other regulatory agencies all documents in connection with the transactions
contemplated by this Plan of Merger. Firstbank agrees to provide Lakeview with
the opportunity to review and comment upon such documents before refiling and to
provide Lakeview with copies of all correspondence received from these agencies
and all responsive correspondence sent to these agencies.
6.3 Press Releases. Lakeview and Firstbank shall consult with each other
with respect to the form and substance of any press release or other public
disclosure of matters related to this Plan of Merger.
6.4 Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Plan of Merger, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Plan of Merger. Firstbank and Lakeview will use reasonable
efforts to obtain consents of all third parties and governmental bodies
necessary or desirable for the consummation of the Merger.
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6.5 Lakeview Financial Information. Subject to Section 6.6
(Investigation), after the execution of this Plan of Merger until the Effective
Time of the Merger, Lakeview shall promptly deliver to Firstbank copies of:
(a) each monthly internal financial report (if any) prepared
with respect to Lakeview and the Bank on a consolidated or
unconsolidated basis; and
(b) Each financial report or statement submitted to regulatory
authorities for Lakeview and/or the Bank.
6.6 Investigation.
6.6.1 Access to Information by Firstbank. For the purpose of
permitting an examination of Lakeview by such of Firstbank's officers,
attorneys, accountants, and representatives for the purposes of Firstbank's
evaluation of the Merger, Lakeview shall:
(a) Permit, and shall cause the Bank to permit, full access to
their respective properties, books, and records at reasonable times;
(b) Use reasonable efforts to cause its and the Bank's
directors, officers, employees, accountants, and attorneys to
cooperate fully, for the purpose of permitting a complete and detailed
examination of such matters by Firstbank's officers, attorneys,
accountants, and representatives;
(c) Furnish to Firstbank, upon request, any information
reasonably requested respecting Lakeview's and the Bank's properties,
assets, business, and affairs; and
(d) Permit representatives of Firstbank to attend meetings of
the board of directors and committees of the boards of directors of
Lakeview and the Bank; provided, however, that representatives of
Firstbank will excuse themselves during discussion of this Plan of
Merger and the transactions contemplated hereby.
6.6.2 Access to Information by Lakeview. For the purposes of
permitting an examination of Firstbank by such of Lakeview's officers,
attorneys, accountants, and representatives for the purposes of Lakeview's
evaluation of the Merger, Firstbank shall permit access to such of
Firstbank's and its subsidiaries books and records and at such times as
mutually agreed between the President of each of Firstbank and Lakeview.
6.6.3 Consent to Disclose. Firstbank acknowledges that certain
information may not be disclosed by Lakeview or the Bank without the prior
written consent of persons not affiliated with Lakeview or the Bank. If
such information is requested by Firstbank, then Lakeview shall use, or
cause the Bank to use, reasonable efforts to obtain such prior consent and
shall not be required to disclose such information unless and until such
prior consent has been obtained.
6.6.4 Confidentiality. Except as provided in Section 6.6.6 (Other
Information), while this Plan of Merger is in effect and at all times
thereafter, Firstbank and Lakeview each agree to treat as strictly
confidential and agree not to divulge to any other person, natural or
corporate (other than employees of, and attorneys, accountants, and
financial advisers for, such party who are reasonably believed to have a
need for such information in connection with the Merger), and not to make
any business use not related to the Merger of, any financial statements,
schedules, contracts, agreements,
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instruments, papers, documents, or other information relating to the other
party and the other party's subsidiary(ies) which it may come to know as a
direct result of a disclosure by the other party or the other party's
subsidiary(ies), or which may come into its possession directly as a result
of and during the course of such investigation. Firstbank and Lakeview
recognize and understand the close proximity of their respective markets
and agree that the fact that a party to this Plan of Merger is or begins
doing business with a customer of the other party will not be presumed to
be a breach of the provisions of this Section 6.6.4 (Confidentiality).
6.6.5 Return of Materials. Upon the termination of this Plan of
Merger, Firstbank and Lakeview each agree to promptly return to the other
party or to destroy all written materials furnished to it by the other
party and the other party's subsidiary(ies), and all notes and summaries of
such written materials, in connection with such investigation, including
any and all copies of any of the foregoing. Firstbank and Lakeview each
agree to preserve intact all such materials which are returned to them and
to make such materials reasonably available upon request or subpoena for a
period of not less than five years from the termination of this Plan of
Merger or such longer or shorter period of time as they may mutually agree.
6.6.6 Other Information. The provisions of this Section 6.6
(Investigation) shall not preclude Firstbank or Lakeview, or their
respective subsidiaries, from using or disclosing information which is: (i)
readily ascertainable from public information or trade sources; (ii) known
by it before the commencement of discussions between the parties or
subsequently developed by it or its subsidiaries independent of any
investigation under this Plan of Merger or received from a third party not
under any obligation to Lakeview or Firstbank, or their respective
subsidiaries, to keep such information confidential; or (iii) reasonably
required to be included in any filing or application required by any
governmental or regulatory agency, including without limitation Firstbank's
application or applications to the Federal Reserve Board, and Firstbank's
or Lakeview's annual report and proxy statement. Firstbank shall permit
Lakeview to review Firstbank's application or applications to the Federal
Reserve Board prior to filing and Lakeview may reasonably request that
sensitive or competitive information be separately filed as confidential in
accordance with instructions, rules, and regulations issued by such agency.
6.6.7 Insider Trading. Lakeview shall take responsible steps to
assure that any person who receives nonpublic information concerning
Firstbank pursuant to this Plan of Merger will not buy or sell, or advise
other persons to buy or sell, Firstbank Common Stock until such information
is disclosed by the other party to the public.
6.7 Environmental Investigation. Firstbank may, at its own option and
expense, engage environmental consultants to conduct a preliminary ("Phase I")
environmental assessment of any parcel of real estate used in the operation of
Lakeview's or the Bank's businesses and any other real estate owned. Lakeview
and the Bank shall provide reasonable assistance, including site access, to such
a consultant for purposes of conducting the Phase I assessments. The fees and
expenses of a consultant with respect to the Phase I assessments shall be paid
by Firstbank, subject to the provisions of Section 11.3 (Expenses) and 5.7.4
(Payment After Certain Events). If any environmental conditions are found,
suspected, or would tend to be indicated by the report of the consultant which
may be contrary to the representations and warranties set forth in Section 4.20
(Environmental Matters), without regard to any exceptions that may be contained
in the Lakeview Disclosure Statement, then Firstbank shall obtain from one or
more mutually acceptable consultants or contractors, as appropriate, an estimate
of the cost of any further environmental investigation, sampling, analysis,
remediation, or other follow-up work that may be necessary to address those
conditions in accordance with applicable Environmental Laws. Firstbank shall
forward copies of any such estimates to Lakeview upon receipt.
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6.7.1 Mutual Agreement. Upon receipt of the estimate of the costs of
all follow-up work to the Phase I assessments or any subsequent
investigation phases that may be conducted, the parties shall attempt to
agree upon a course of action for further investigation and remediation of
any environmental condition suspected, found to exist, or that would tend
to be indicated by the report of the consultant. All work plans for any
post-Phase I assessment activities, or any removal or remediation actions
that may be performed, shall be mutually satisfactory to Firstbank and
Lakeview. If the work plans or removal or remediation actions would entail
a material cost to complete, Firstbank and Lakeview shall discuss a
mutually acceptable modification to this Plan of Merger. Firstbank and
Lakeview shall cooperate in the review, approval, and implementation of all
work plans.
6.7.2 Right to Abandon. If the parties are unable to agree upon a
course of action for further investigation and remediation of an
environmental condition or issue raised by an environmental assessment
and/or a mutually acceptable modification to this Plan of Merger, and the
condition or issue is not one for which it can be determined to a
reasonable degree of certainty that the risk and expense to which Firstbank
and its subsidiaries (after the Merger) would be subject as owner or
operator of the property involved can be quantified and limited to an
immaterial amount, then Firstbank may abandon this Plan of Merger pursuant
to Section 9.2.8 (Environmental Conditions).
6.8 Appointment and Election of Directors. Firstbank agrees that within
nine months after the Effective Time of the Merger Firstbank will appoint to
Firstbank's Board of Directors a person who has served as a director of the Bank
and who is a resident of the community served by the Bank. Firstbank will hold
an election for directors of the Bank immediately after the Effective Time of
the Merger. Each director who is so elected by Firstbank will be required to
commit to the Firstbank Director Policies.
6.9 Bank Directors Policies and Procedures. Not later than immediately
prior to the Closing, Lakeview shall cause the Bank to adopt the Code of Ethics
and Director Responsibilities Policies of Firstbank's subsidiary banks and the
Firstbank Director Compensation Policy (the "Firstbank Director Policies").
ARTICLE VII
CONDITIONS PRECEDENT TO FIRSTBANK'S OBLIGATIONS
All obligations of Firstbank under this Plan of Merger are subject to the
fulfillment (or waiver in writing by a duly authorized officer of Firstbank),
prior to or at the Closing, of each of the following conditions:
7.1 Renewal of Representations and Warranties, Etc.
7.1.1 Representations and Warranties. Lakeview's representations and
warranties shall then be true in all material respects or, if one or more
representations or warranties shall then be untrue, the cumulative effect
of all untrue representations and warranties shall not then be material
relative to the business, income, financial condition or prospects of
Lakeview and the Bank on a consolidated basis. For purposes of this Section
7.1.1 (Representations and Warranties), representations and warranties made
with respect to specified dates or events need only to have been true in
all material respects as of such dates or events. Any representation or
warranty which becomes untrue because of any change intended by this Plan
of Merger shall not be considered to be a breach of this Plan of Merger
because of such change.
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7.1.2 Compliance with Agreements. Lakeview and the Bank shall have
performed and complied with all agreements, conditions, and covenants
required by this Plan of Merger to be performed or complied with by
Lakeview or the Bank prior to or at the Closing in all material respects.
7.1.3 Certificates. Compliance with Sections 7.1.1 (Representations
and Warranties) and 7.1.2 (Compliance with Agreements) shall be evidenced
by one or more certificates signed by appropriate officers of Lakeview and,
with respect to agreements, conditions, and covenants pertaining to the
Bank, by appropriate officers of the Bank, dated as of the date of the
Closing, certifying the foregoing in such detail as Firstbank may
reasonably request, and describing any exceptions to such compliance in
such certificates.
7.2 Opinion of Legal Counsel. Lakeview shall have delivered to Firstbank an
opinion of its counsel, dated as of the date of the Closing and reasonably
satisfactory to counsel for Firstbank, to the effect that:
7.2.1 Due Authorization. This Plan of Merger, the execution,
delivery, and performance of this Plan of Merger, and the consummation of
the Merger as provided in this Plan of Merger by Lakeview have been duly
authorized, approved, and adopted by all requisite action of Lakeview's
Board of Directors and its shareholders.
7.2.2 Organization. Lakeview is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Michigan. Lakeview has the corporate power to carry on its business
substantially as and where it is now being conducted.
7.2.3 Capital Stock and Lakeview Stock Options. The authorized
capital stock of Lakeview as of the close of business on the day preceding
the Closing consists of 1,500,000 shares of common stock, without par
value, of which the number of shares specified in the opinion are then
legally issued and outstanding, fully paid and nonassessable and the
Lakeview Stock Options were legally authorized and granted.
7.2.4 Issuance of Shares. Expect as disclosed in such opinion, to
counsel's knowledge:
(a) Since the date and time of the execution of this Plan of
Merger, no additional shares of capital stock have been authorized for
issuance or issued by Lakeview.
(b) There are no other outstanding subscriptions, options,
warrants, rights to acquire any capital stock of the Corporation, or
agreements to which the Corporation is a party or by which it is bound
to issue capital stock, except as set forth in, or as contemplated by,
this Plan of Merger, the Lakeview Disclosure Statement or in such
opinion.
7.2.5 Organization of the Bank. The Bank is a Michigan banking
corporation duly authorized to transact business in the State of Michigan
under its charter pursuant to the provisions of applicable statutes of the
State of Michigan. The Bank possesses all requisite authority to conduct
and carry on its business, substantially where and as it conducts it, under
all applicable federal and state laws.
7.2.6 Ownership of the Bank. Lakeview owns all of the issued and
outstanding shares of capital stock of the Bank, free and clear of all
claims, security interests, pledges, or liens of any kind. To the best of
counsel's knowledge, there are no outstanding subscriptions, options,
warrants, or
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rights to acquire any capital stock of the Bank, or agreements to which
Lakeview or the Bank is a party or by which it is bound to issue capital
stock of the Bank.
7.2.7 Valid and Binding. This Plan of Merger constitutes the valid
and binding obligation of Lakeview, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors'
rights, and by the exercise of judicial discretion in accordance with
general principles applicable to equitable and similar remedies, and
subject to the rights of the FDIC as conservator or receiver.
7.2.8 All Approvals Received. All approvals, consents,
authorizations, or modifications as may be required to permit the
performance by Lakeview of its obligations under this Plan of Merger and
consummation of the Merger have been obtained, except as disclosed in such
opinion.
7.2.9 All Actions Taken. All other actions and proceedings required
by law or, to the best of counsel's knowledge, this Plan of Merger to be
taken by Lakeview and the Bank at or prior to the Closing in connection
with this Plan of Merger have been duly and validly taken.
7.2.10 No Conflict, Breach, or Violation. The execution, delivery,
and performance of this Plan of Merger by Lakeview, and the consummation by
Lakeview of the transactions contemplated by this Plan of Merger, did not,
do not and will not, except as disclosed in such opinion, conflict with or
result in any breach or violation of, or default under: (i) any provision
of the Articles of Incorporation or Bylaws of Lakeview; (ii) any statute,
code, ordinance, rule, or regulation; (iii) any regulatory agreement,
memorandum of understanding, judgment, order, writ, arbitral award, decree,
or injunction known to such counsel and applicable to Lakeview or the Bank;
or (iv) any mortgage, agreement, lease, commitment, indenture, or other
instrument known to such counsel and applicable to Lakeview or the Bank.
All consents and approvals of the transactions contemplated by this Plan of
Merger which, to the best of counsel's knowledge, are required from any
person pursuant to any contract or agreement to which Lakeview or the Bank
is a party or subject, or by which Lakeview or the Bank is bound, have been
obtained, except as disclosed in the Lakeview Disclosure Statement or in
such opinion.
7.2.11 No Litigation. Except as disclosed in the Lakeview Disclosure
Statement or in such opinion, counsel does not know of any action, suit,
proceeding, claim, counterclaim, arbitration, or investigation pending or
threatened against or relating to (i) the directors or officers of Lakeview
or the Bank in their capacities as such; or (ii) Lakeview or the Bank, or
their respective properties or businesses, which challenges the Merger, or
which may result in any liability to Lakeview or the Bank which would have
a material adverse effect on the business, income, or financial condition
of Lakeview or the Bank.
Such opinion shall also cover such other matters incident to the
transactions contemplated in this Plan of Merger as the other party and its
counsel may reasonably request. In rendering its opinion, counsel for Lakeview
may rely on certificates of governmental officials and officers of Lakeview or
the Bank.
7.3 Required Approvals. Firstbank shall have received:
7.3.1 Regulatory. All such approvals, consents, authorizations, and
licenses of all regulatory and other governmental authorities having
jurisdiction as may be required to permit the performance by Lakeview and
Firstbank of their respective obligations under this Plan of Merger and the
consummation of the Merger.
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7.3.2 Shareholder. Evidence reasonably satisfactory to Firstbank of
the requisite approval of Lakeview's shareholders of this Plan of Merger
and the Merger.
7.4 Order, Decree, Etc. Neither Firstbank nor Lakeview shall be subject to
any order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Merger.
7.5 Proceedings. There shall not be any action, suit, proceeding, claim,
arbitration, or investigation pending or threatened: (i) against or relating to
either Firstbank or Lakeview or their respective subsidiaries or their
respective properties or businesses which may result in any liability to either
of them or its subsidiaries which could have a material adverse effect on the
financial condition, net income, business, properties, operations, or prospects
of either of them and its subsidiaries on a consolidated basis; or (ii) which
challenges the Merger or this Plan of Merger.
7.6 Tax Matters. Firstbank shall have received an opinion of Varnum,
Riddering, Schmidt & Howlett LLP, reasonably satisfactory in form and substance,
substantially to the effect that:
7.6.1 The Merger of Lakeview with and into Firstbank will constitute
a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code, and Firstbank and Lakeview will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Internal
Revenue Code.
7.6.2 The basis of the Lakeview assets in the hands of Firstbank will
be the same as the basis of those assets in the hands of Lakeview
immediately prior to the Merger.
7.6.3 No gain or loss will re recognized to Firstbank on the receipt
by Firstbank of the assets of Lakeview in exchange for Firstbank Common
Stock and the assumption by Firstbank of the liabilities of Lakeview.
7.6.4 The holding period of the assets of Lakeview in the hands of
Firstbank will include the holding period during which such assets were
held by Lakeview.
7.6.5 No gain or loss will be recognized by the shareholders of
Lakeview who receive shares of Firstbank Common Stock in exchange for all
of their shares of Lakeview Common Stock, except to the extent of any cash
received in lieu of a fractional share of Firstbank Common Stock.
7.6.6 The basis of the Firstbank Common Stock to be received by
shareholders of Lakeview will, in each instance, be the same as the basis
of the respective shares of Lakeview Common Stock surrendered in exchange
therefor.
7.6.7 The holding period of the Firstbank Common Stock received by
shareholders of Lakeview will, in each instance, include the period during
which the Lakeview Common Stock surrendered in exchange therefor was held,
provided that the Lakeview Common Stock was, in each instance, held as a
capital asset in the hands of the shareholder of Lakeview at the Effective
Time of the Merger.
7.7 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and shall not be subject to a stop order or any
threatened stop order.
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7.8. Certificate as to Outstanding Shares. Firstbank shall have received
one or more certificates signed by the secretary of Lakeview on behalf of
Lakeview, certifying the total number of shares of capital stock of Lakeview
issued and outstanding as of the close of business on the day immediately
preceding the Closing, all in such form as Firstbank may reasonably request.
7.9 Change of Control Waivers. Firstbank shall have received evidence of
the waiver of any material rights and the waiver of the loss of any material
rights which may be triggered by the change of control of Lakeview upon
consummation of the Merger under any agreements, contracts, mortgages, deeds of
trust, leases, commitments, indentures, notes, or other instruments, all in form
and substance reasonably satisfactory to Firstbank.
7.10 Dissenters' Rights. Holders of not more than 10 percent of the then
outstanding shares of Lakeview Common Stock shall have made, perfected, and not
withdrawn demands for payment for their shares under Section 762 of the Michigan
Act.
7.11 Employment Agreement. Mr. Richard J. Schurtz shall have entered into
an employment agreement with Bank of Lakeview on terms acceptable to both
Firstbank and Lakeview.
7.12 Lakeview Stock Options. There shall not have been any issuances or
exercises of Lakeview Stock Options since the date of this Plan of Merger.
7.13 Amendment of Lakeview Stock Options. Lakeview shall have caused
the written amendment of each outstanding Lakeview Stock Option grant prior to
the Closing in a manner acceptable to Firstbank so as to permit the conversion
of such Lakeview Stock Options as contemplated by Section 2.2 (Conversion of
Lakeview Stock Options).
7.14 Directors. Firstbank shall have received the resignation of each
member of the Board of Directors of the Bank which shall be effective as of the
Effective Time of the Merger.
ARTICLE VIII
CONDITIONS PRECEDENT TO LAKEVIEW'S OBLIGATIONS
All obligations of Lakeview under this Plan of Merger are subject to the
fulfillment (or waiver in writing by a duly authorized officer), prior to or at
the Closing, of each of the following conditions:
8.1 Renewal of Representations and Warranties, Etc.
8.1.1 Representations and Warranties. Firstbank's representations
and warranties shall then be true in all material respects or, if one or
more representations or warranties shall then be untrue, the cumulative
effect of all untrue representations and warranties shall not then be
material relative to the business, income, or financial condition of
Firstbank and its subsidiaries on a consolidated basis. For purposes of
this Section 8.1.1 (Representations and Warranties), representations and
warranties made with respect to specified dates or events need only to have
been true in all material respects as of such dates or events. Any
representation or warranty which becomes untrue because of any change
intended by this Plan of Merger shall not be considered to be a breach of
this Plan of Merger because of such change.
8.1.2 Compliance with Agreements. Firstbank and its subsidiaries
shall have performed and complied with all agreements, conditions, and
covenants required by this Plan of Merger to be
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performed or complied with by Firstbank and its subsidiaries prior to or at
the Closing in all material respects.
8.1.3 Certificates. Compliance with Sections 8.1.1 (Representations
and Warranties) and 8.1.2 (Compliance with Agreements) shall be evidenced
by one or more certificates signed by appropriate officers of Firstbank
and, with respect to agreements, conditions, and covenants pertaining to
its subsidiaries, by appropriate officers of its subsidiaries, dated as of
the date of the Closing, certifying the foregoing in such detail as the
other party may reasonably request, and describing any exceptions to such
compliance in such certificates.
8.2 Opinions of Legal Counsel. Firstbank shall have delivered to Lakeview
an opinion of its counsel, dated as of the date of the Closing and reasonably
satisfactory to counsel for Lakeview, to the effect that:
8.2.1 Due Authorization. This Plan of Merger, the execution,
delivery, and performance of this Plan of Merger, and the consummation of
the Merger as provided in this Plan of Merger (including with respect to
Firstbank the issuance of shares of Firstbank Common Stock pursuant to this
Plan of Merger) by the Corporation have been duly authorized, approved, and
adopted by all requisite action of the Firstbank's Board of Directors and
its shareholders.
8.2.2 Organization. Firstbank is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Michigan. Firstbank has the corporate power to carry on its business
substantially as and where it is now being conducted.
8.2.3 Capital Stock. The authorized capital stock of Firstbank as of
the close of business on the day preceding the Closing consists of not less
than 2,500,000 shares of common stock, no par value, of which the number of
shares specified in the opinion are then legally issued and outstanding,
fully paid and nonassessable.
8.2.4 Valid and Binding. This Plan of Merger constitutes the valid
and binding obligation of Firstbank, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors'
rights, and by the exercise of judicial discretion in accordance with
general principles applicable to equitable and similar remedies, and
subject to the rights of the FDIC as conservator or receiver.
8.2.5 All Approvals Received. All approvals, consents,
authorizations, or modifications as may be required to permit the
performance by Firstbank of its obligations under this Plan of Merger and
consummation of the Merger have been obtained, except as disclosed in such
opinion.
8.2.6 All Actions Taken. All other actions and proceedings required
by law or, to the best of counsel's knowledge, this Plan of Merger to be
taken by Firstbank and its subsidiaries at or prior to the Closing in
connection with this Plan of Merger have been duly and validly taken.
8.2.7 No Conflict, Breach, or Violation. The execution, delivery,
and performance of this Plan of Merger by Firstbank, and the consummation
by Firstbank of the transactions contemplated by this Plan of Merger, did
not, do not and will not, except as disclosed in such opinion, conflict
with or result in any breach or violation of, or default under (i) any
provision of the Articles of Incorporation or Bylaws of Firstbank; (ii) any
statute, code, ordinance, rule, or regulation; (iii) any regulatory
agreement, memorandum of understanding, judgment, order, writ, arbitral
award, decree, or injunction known to such counsel and applicable to
Firstbank or its subsidiaries; or (iv) any
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mortgage, agreement, lease, commitment, indenture, or other instrument
known to such counsel and applicable to Firstbank or its subsidiaries. All
consents and approvals of the transactions contemplated by this Plan of
Merger which, to the best of counsel's knowledge, are required from any
person pursuant to any contract or agreement to which Firstbank or its
subsidiaries is a party or subject, or by which Firstbank or any of its
subsidiaries is bound, have been obtained, except as disclosed in
Firstbank's Disclosure Statement or is such opinion.
8.2.8 No Litigation. Except as disclosed in the Firstbank Disclosure
Statement or in such opinion, counsel does not know of any action, suit,
proceeding, claim, counterclaim, arbitration, or investigation pending or
threatened against or relating to Firstbank or its subsidiaries, or their
respective properties or businesses, which challenges the Merger.
8.2.9 Issuance of Shares Authorized. The shares of Firstbank Common
Stock to be issued by Firstbank as contemplated by this Plan of Merger, and
to be delivered to the shareholders of Lakeview, are duly authorized, and,
when issued, will be legally issued, fully paid, and nonassessable.
Such opinion shall also cover such other matters incident to the
transactions contemplated in this Plan of Merger as the other party and its
counsel may reasonably request. In rendering its opinion, counsel for Firstbank
may rely on certificates of governmental officials and officers of Firstbank or
its subsidiaries.
8.3 Required Approvals. Lakeview shall have received:
8.3.1 Regulatory. All such approvals, consents, authorizations, and
licenses of all regulatory and other governmental authorities having
jurisdiction as may be required to permit the performance by Lakeview and
Firstbank of their respective obligations under this Plan of Merger and the
consummation of the Merger.
8.3.2 Shareholder. The requisite approval of the Lakeview
shareholders of this Plan of Merger and the Merger.
8.4 Order, Decree, Etc. Neither Firstbank nor Lakeview shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Merger.
8.5 Proceedings. There shall not be any action, suit, proceeding, claim,
arbitration, or investigation pending or threatened: (i) against or relating to
either Lakeview or Firstbank or their respective subsidiaries or their
respective properties or businesses which may result in any liability to either
of them or its subsidiaries which could have a material adverse effect on the
financial condition, net income, business, properties, operations, or prospects
of either of them and its subsidiary on a consolidated basis; or (ii) which
challenges the Merger or this Plan of Merger.
8.6 Tax Matters. Lakeview shall have received an opinion of Varnum,
Riddering, Schmidt & Howlett LLP, reasonably satisfactory in form and substance,
opining as to those matters addressed by the legal opinion required pursuant to
Section 7.6 (Tax Matters) of this Plan of Merger.
8.7 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and shall not be subject to a stop order or any
threatened stop order.
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8.8. Certificate as to Outstanding Shares. Lakeview shall have received
one or more certificates signed by the secretary of Firstbank on behalf of
Firstbank, certifying the total number of shares of capital stock of Firstbank
issued and outstanding as of the close of business on the day immediately
preceding the Closing, all in such form as Lakeview may reasonably request.
8.9 Employment Agreement. The Bank shall have offered an employment
agreement to Mr. Richard J. Schurtz on terms acceptable to both Firstbank and
Lakeview.
ARTICLE IX
ABANDONMENT OF MERGER
This Plan of Merger may be terminated and the Merger abandoned at any time
prior to the Effective Time of the Merger (notwithstanding that approval of this
Plan of Merger by the shareholders of Lakeview may have previously been
obtained) as follows:
9.1 Mutual Abandonment Prior to Effective Time of the Merger. This Plan
of Merger may be terminated and the Merger abandoned by mutual consent of the
Boards of Directors, or duly authorized committees thereof, of Firstbank and
Lakeview.
9.2 Rights to Terminate. This Plan of Merger may be terminated and the
Merger abandoned by the Board of Directors, or a duly authorized committee
thereof, of either Lakeview or Firstbank under any of the following
circumstances:
9.2.1 Breach of Warranty. One or more of the representations and
warranties made by the other party in this Plan of Merger shall have been
discovered to be or to have become untrue and the cumulative effect of all
such untrue representations and warranties is material relative to the
business, income, financial condition or prospects of such other party and
its subsidiary on a consolidated basis.
9.2.2 Breach of Covenant. The other party shall have committed one
or more breaches of any provision of this Plan of Merger which would in the
aggregate be material; provided, that, if such breach or breaches can be
cured, the abandoning party shall have given the other party specific
notice of the breach or breaches in writing and the other party shall have
not cured such breach or breaches to the reasonable satisfaction the
abandoning party with 30 days of receipt of such notice.
9.2.3 Upset Date. Despite all reasonable efforts by the abandoning
party to cause the Merger to become effective, the Merger has not yet
become effective on or before November 30, 1997, or, in any event, the
Merger has not yet become effective on or before January 31, 1998.
9.2.4 Injunction. A final unappealable injunction or other judgment
shall have been issued by a court of competent jurisdiction restraining or
prohibiting consummation of the Merger.
9.2.5 No Regulatory Approval. The Federal Reserve Board or its
delegate shall have refused to approve the Merger; provided, that Firstbank
shall have first had the opportunity to initiate and fully pursue its
rights to appeal from, or seek judicial review of, any such refusal. In the
event of such appeal or review, and if such appeal or review results in a
substantial affirmance of such refusal, then for purposes of this Section
9.2.5 such refusal shall be deemed not to have been made until the
termination of such appeal or review.
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9.2.6 Adverse Change. There has occurred any change from that which
existed on December 31, 1996, in the financial condition of the other party
or its subsidiaries which is materially adverse to the assets portfolio,
business, income, financial condition, fixed or contingent liabilities, or
business prospects of the other party and its subsidiaries on a
consolidated basis.
9.2.7 Change of Control of Firstbank. If prior to the Effective Time
of the Merger, there occurs a change of control of Firstbank or if
Firstbank enters into an agreement the consummation of which would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended. However, if Firstbank exercises its right of termination pursuant
to this Section 9.2.7, Firstbank shall be required to pay Lakeview a
termination fee of $800,000.
9.2.8 Environmental Conditions. If any environmental conditions are
found or indicated by the environmental assessments (if any) obtained
pursuant to the investigation under Section 6.7 (Environmental
Investigation) which are contrary to Lakeview's representations and
warranties set forth in Section 4.20 (Environmental Matters), without
regard to exceptions contained in the Lakeview Disclosure Statement, and
the parties are unable to agree upon a course of action for further
investigation and remediation of an environmental condition or issue raised
by an environmental assessment and/or a mutually acceptable modification to
this Plan of Merger, and the condition or issue is not one for which it can
be determined to a reasonable degree of certainty that the risk and expense
to which the Surviving Corporation and its subsidiaries (after the Merger)
would be subject as owner of the property involved can be quantified and
limited to an immaterial amount; provided, that the abandoning party gives
the other party 5 days' written notice of its intent to terminate this Plan
of Merger pursuant to this Section 9.2.8 (Environmental Conditions).
ARTICLE X
AMENDMENT AND WAIVER
10.1 Amendment. Subject to applicable law, this Plan of Merger may be
amended, modified, or supplemented by, and only by, written agreement of
Firstbank and Lakeview, signed by their respective duly authorized officers, at
any time prior to the Effective Time of the Merger.
10.2 Waiver. Any term or condition of this Plan of Merger may be waived
at any time by whichever of the parties is, or the shareholders of which are,
entitled to the benefit of such term or condition, by action taken by the board
of directors of such party, or a duly authorized committee thereof. The failure
of any party at any time or times to require performance of any provision of
this Plan of Merger shall in no manner affect such party's right at a later time
to enforce that provision. No waiver by any party of any condition, or of the
breach of any term, covenant, representation, or warranty contained in this Plan
of Merger, whether by conduct or otherwise, in any one or more instances shall
be considered or construed as a further or continuing waiver of that condition
or breach, or as a waiver of any other condition or of the breach of any other
term, covenant, representation, or warranty.
10.3 Specific Enforcement. The parties each agree that, consistent with
the terms and conditions of this Plan of Merger, in the event of a breach by a
party to this Plan of Merger, money damages will be inadequate and not
susceptible of computation because of the unique nature of the parties, their
respective subsidiaries, and the Merger. Therefore, the parties each agree that
a federal or state court of competent jurisdiction shall have authority, subject
to the rules of law and equity, to specifically enforce the provisions of this
Plan of Merger by injunctive order or such other equitable means as may be
determined in the court's discretion.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Liability after Termination. In the event the Merger is not
consummated and this Plan of Merger is terminated and the Merger is abandoned
pursuant to Article IX:
11.1.1 Continuing Obligations. The obligations of Firstbank and
Lakeview under Sections 6.6.4 (Confidentiality), and 6.6.5 (Return of
Materials), 11.3 (Expenses), 5.7.4 (Payment after Certain Events) and 9.2.7
(Change of Control of Firstbank) shall continue.
11.1.2 Liability. Neither Firstbank nor Lakeview shall incur any
liability whatsoever under, or pursuant to, this Plan of Merger, except for
damages for breach of Sections 5.7 (Competing Proposals), 6.6.4
(Confidentiality) or 6.6.5 (Return of Materials), and except for
reimbursement of costs and expenses, if any, provided under Sections 11.3
(Expenses) and 5.7.4 (Payment after Certain Events) and except, if
applicable, the termination fee required pursuant to Section 9.2.7 (Change
of Control of Firstbank).
11.1.3 Damages for Breach. Neither Firstbank nor Lakeview shall have
any liability for damages or otherwise for breach of a representation and
warranty unless such breach was knowing or intentional.
11.2 Termination of Representations and Warranties. All representations
and warranties contained in this Plan of Merger shall expire with, and be
terminated and extinguished by, the consummation of the Merger at the Effective
Time of the Merger.
11.3 Expenses. Except as otherwise provided in this Plan of Merger,
Lakeview and Firstbank shall each pay its own expenses incident to preparing
for, entering into, and carrying out this Plan of Merger, and incident to the
consummation of the Merger. The costs of printing and all filing fees pertaining
to the Registration Statement shall be paid by Firstbank. The costs of printing
and mailing the Prospectus and Proxy Statement shall be paid by Lakeview.
11.4 Notices. Except as otherwise provided in this Plan of Merger, all
notices, requests, demands, and other communications under this Plan of Merger
shall be in writing and shall be deemed to have been duly given if delivered or
sent and received by facsimile transmission or overnight delivery service (all
fees prepaid) as follows:
If to Lakeview: With a copy to:
Lakeview Financial Corporation Werner & Blank Co. LPA
Attention: Richard J. Schurtz, CEO Attention: Martin Werner
506 Lincoln 7205 West Central Avenue
Lakeview, Michigan 48850 Toledo, Ohio 43617
(Fax: (419) 841-8380)
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If to Firstbank: With a copy to:
Firstbank Corporation Varnum, Riddering, Schmidt &
Attention: John McCormack, President Howlett LLP
311 Woodworth Avenue Attention: Donald L. Johnson
P.O. Box 1029 Bridgewater Place
Alma, Michigan 48801-6029 P.O. Box 352
333 Bridge Street, N.W.
Grand Rapids, Michigan 49501-0352
(49504 for deliveries)
(Fax: (616) 336-7000)
11.5 Governing Law. This Plan of Merger shall be governed, construed, and
enforced in accordance with the laws of the State of Michigan.
11.6 Method of Consent or Waiver. Any consent under this Plan of Merger
or any waiver of conditions or covenants as may be provided for in this Plan of
Merger, subject to all of the other requirements contained in this Plan of
Merger, shall be evidenced in writing, properly executed by the Chairman, the
President, or one of the Vice Presidents of the consenting or waiving party.
11.7 Entire Agreement. Except as otherwise expressly provided in this
Plan of Merger, this Plan of Merger and the related agreements referred to in
this Plan of Merger (including without limitation each Corporation's Disclosure
Statement) contain the entire agreement between the parties with respect to the
transactions contemplated under this Plan of Merger, and such agreements
supersede all prior arrangements or understandings with respect thereto, written
or oral. Neither party has relied upon any statements or representations
pertaining to the other party, whether oral or written, other than as provided
for in this Plan of Merger, the Lakeview Disclosure Statement, or the Firstbank
Disclosure Statement. The terms and conditions of this Plan of Merger and the
related agreements referred to in this Plan of Merger shall inure to the benefit
of and be binding upon the parties hereto and their respective successors.
Nothing in this Plan of Merger, express or implied, is intended to confer upon
any person other than the parties to this Plan of Merger any rights, remedies,
obligations, or liabilities under or by reason of this Plan of Merger.
11.8 No Assignment. Neither party may assign any of its rights or
obligations under this Plan of Merger to any other person.
11.9 Counterparts. This Plan of Merger may be executed in one or more
counterparts, each of which together shall constitute one and the same
instrument.
11.10 Further Assurances; Privileges. Either party to this Plan of Merger
shall, at the request of the other party, execute and deliver such additional
documents and instruments and take such other actions as may be reasonably
requested to carry out the terms and provisions of this Plan of Merger. Each
party shall use reasonable efforts to preserve for itself and the other party
each available legal privilege with respect to confidentiality of their
negotiations and related communications, including the attorney-client
privilege.
11.11 Headings, Etc. The article headings and section headings contained
in this Plan of Merger are inserted for convenience only and shall not affect in
any way the meaning or interpretation of this Plan of Merger.
11.12 Severability. If any term, provision, covenant, or restriction
contained in this Plan of Merger is held by a final and unappealable order of a
court of competent jurisdiction to be invalid, void, or unenforceable, then the
remainder of the terms, provisions, covenants, and restrictions contained in
this Plan
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of Merger shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated unless the effect would be to cause this Plan
of Merger to not achieve its essential purposes.
The undersigned have duly executed and acknowledged this Plan of Merger as
of the date first written above.
LAKEVIEW FINANCIAL CORPORATION
By: /s/ Richard Schurtz
---------------------------
Its President and CEO
-----------------------
FIRSTBANK CORPORATION
By: /s/ John McCormack
---------------------------
Its President and CEO
-----------------------
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AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER
----------------------------
This Amendment No. 1 to the Agreement and Plan of Merger (this "Amendment
No. 1") is made as of June 18, 1997, between LAKEVIEW FINANCIAL CORPORATION, a
Michigan corporation ("Lakeview"), and FIRSTBANK CORPORATION, a Michigan
corporation ("Firstbank").
WHEREAS, Lakeview and Firstbank executed and delivered an Agreement and
Plan of Merger dated April 17, 1997 (the "Plan of Merger"), providing for the
merger of Lakeview with and into Firstbank;
WHEREAS, Lakeview and Firstbank have determined that an adjustment to the
Merger Value as defined in the Plan of Merger is necessary and appropriate;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree:
1. Amendment. Section 2.1.3 (Definition of Merger Value) of the Plan of
Merger shall be hereby amended to provide as follows:
"2.1.3 Definition of Merger Value. For purposes of this Plan of
Merger and subject to any adjustment required by Section 2.1.4 or Section
2.8 of this Plan of Merger, the "Merger Value" shall be one of the
following:
(a) $14,928,640 if the Market Price is less than $32.00;
(b) The product of the Market Price multiplied by 466,520 if the
Market Price is not less than $32.00 but not greater than
$36.50;
(c) $17,028,014 if the Market Price is greater than $36.50 but
not greater than $42.00;
(d) The product of the Market Price multiplied by 405,428 if the
Market Price is greater than $42.00 but less than $44.00; or
(e) $17,838,832 if the Market Price is $44.00 or more."
2. Governing Law. This Amendment No. 1 shall be governed, construed, and
enforced in accordance with the laws of the State of Michigan.
3. Counterparts. This Amendment No. 1 may be executed in one or more
counterparts, each of which together shall constitute one and the same
instrument.
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The undersigned have duly executed and acknowledged this Plan of Merger as
of the date first written above.
LAKEVIEW FINANCIAL CORPORATION
By: /s/ Richard J. Schurtz
-------------------------------------------
Richard J. Schurtz
Its President and Chief Executive
FIRSTBANK CORPORATION
By: /s/ John McCormack
--------------------------------------------
John McCormack
Its President and Chief Executive Officer
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APPENDIX B
FAIRNESS OPINION OF AUSTIN ASSOCIATES, INC.
June 19, 1997
PERSONAL AND CONFIDENTIAL
- -------------------------
Board of Directors
Lakeview Financial Corporation
506 Lincoln Avenue
Lakeview, MI 48850
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Lakeview Financial Corporation ("Lakeview") and its shareholders of the
terms of the Agreement and Plan of Merger dated April 17, 1997 by and between
Firstbank Corporation ("Firstbank") and Lakeview and Amendment No. 1 to the
Agreement and Plan of Merger dated June 18, 1997 (collectively referred to as
"Plan of Merger"). The Plan of Merger provides for the merger of Lakeview with
and into Firstbank (the "Merger").
The amount of Firstbank Common Stock to be received in exchange for Lakeview
Common Stock will be determined by a formula specified in the Plan of Merger and
will vary according to the Firstbank "Market Price" at the time the Merger is
consummated. Market Price is based on the average closing stock price of
Firstbank as defined in the Plan of Merger. Each Lakeview shareholder may elect
to receive an equivalent amount in cash, subject to an aggregate maximum of 35
percent of the total consideration. The Plan of Merger provides that each share
of Lakeview Common Stock will be converted into the right to receive an amount
of Firstbank Common Stock equal to the "Stock Exchange Ratio." The Stock
Exchange Ratio is equal to the quotient of the "Merger Value Per Share" divided
by the Firstbank Market Price. The Merger Value Per Share equals the quotient
of (a) the sum of the Merger Value plus the sum of the exercise prices of all
outstanding options to purchase Lakeview Common Stock, divided by (b) the number
of outstanding shares of Lakeview Common Stock plus the number of shares covered
by outstanding options to purchase Lakeview Common Stock. The Merger Value will
be: (a) $14,928,640 if the Firstbank Market Price is less than $32.00; (b) the
product of the Firstbank Market Price multiplied by 466,520 if the Firstbank
market price is not less than $32.00, but not greater than $36.50; (c)
$17,028,014 if the Market Price is greater than $36.50, but not greater than
$42.00; (d) the product of the Firstbank Market Price multiplied by 405,428 if
the Firstbank Market Price is greater than $42.00, but less than $44.00; or (e)
$17,838,832 if the Firstbank Market Price is $44.00 or more. Based on the Plan
of Merger, the minimum and maximum aggregate value to Lakeview Common Stock and
Option Holders will be $14.9 to $17.8 million, or approximately $21.30 to $25.07
per share.
In carrying out our engagement, we have reviewed and analyzed material bearing
upon the financial and operating condition of Lakeview and Firstbank, including,
but not limited to, the following: (i) the audited financial statements of
Lakeview and Firstbank for the period 1991 through 1996; (ii) unaudited
financial statements of Lakeview and Firstbank for the three-month period ending
March 31, 1997; (iii) the reported prices and stock trading activity of
Firstbank; (iv) publicly available information regarding the performance of
certain other companies whose business activities were believed to be generally
comparable to those of Lakeview and Firstbank; (v) the financial terms, to the
extent publicly available, of certain comparable bank merger transactions; (vi)
the strategic objectives of the Merger and the synergies and other benefits of
the Merger for the combined company as described by senior management of
Lakeview and Firstbank; and (vii) such other analysis and information as we
deemed relevant.
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the assets or properties of Lakeview or
Firstbank; and have instead relied upon representations and information of
Lakeview and Firstbank, in the aggregate. In rendering our opinion, we have
assumed that Lakeview shareholders will not recognize taxable income by reason
of receiving shares of Firstbank to the extent that they receive Firstbank
Common Stock solely in exchange for their shares of Lakeview Common Stock. The
transaction will be structured under the purchase method of accounting. We have
assumed in the course of obtaining
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the necessary regulatory approvals for the transaction, no condition will be
imposed that will have a material adverse effect on the contemplated benefits of
the transaction to Lakeview and its shareholders.
Austin Associates participated in discussions and negotiations with
representatives of Lakeview and Firstbank and their financial and legal
advisors. For our services, including the rendering of this opinion, Lakeview
will pay us a fee and indemnify us against certain liabilities, including
liabilities under the securities laws.
We consent to the use of this opinion in the Joint Proxy Statement/Prospectus
which is a part of Firstbank's Registration Statement on Form S-4.
Based upon our analysis and subject to the qualifications described herein, we
believe that, as of the date of this letter, the terms of the Merger are fair,
from a financial point of view, to Lakeview and its shareholders.
/s/ Austin Associates, Inc.
Austin Associates, Inc.
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APPENDIX C
MICHIGAN BUSINESS CORPORATION ACT
SECTIONS 761-774, AS AMENDED
450.1761 Definitions.
Sec. 761. As used in sections 762 to 774:
(a) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving corporation by merger of that
issuer.
(c) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 762 and who exercises that right when and in the
manner required by sections 764 through 772.
(d) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(e) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(f) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(g) "Shareholder" means the record or beneficial shareholder.
450.1762 Right of Shareholder to Dissent and Obtain Payment for Shares.
Sec. 762. (1) A shareholder is entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if shareholder approval is required for the merger by section 703a or the
articles of incorporation and the shareholder is entitled to vote on the merger,
or the corporation is a subsidiary that is merged with its parent under section
711.
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan.
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution but not including a sale pursuant to court
order.
(d) An amendment of the articles giving rise to a right to dissent
pursuant to section 621.
(e) A transaction giving rise to a right to dissent pursuant to section
754.
(f) Any corporate action taken pursuant to a shareholder vote to the
extent the articles, bylaws, or a resolution of the board provides that voting
or nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(g) The approval of a control share acquisition giving rise to a right to
dissent pursuant to section 799.
(2) Unless otherwise provided in the articles, bylaws, or a resolution
of the board, a shareholder may not dissent from any of the following:
(a) Any corporate action set forth in subsection (1)(a) to (e) as to
shares which are listed on a national securities exchange or held of record by
not less than 2,000 persons on the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders at which the corporate action is to be acted upon.
(b) A transaction described in subsection (1)(a) in which shareholders
receive cash or shares that satisfy the requirements of subdivision (a) or any
combination thereof.
(c) A transaction described in subsection (1)(b) in which shareholders
receive cash or shares that satisfy the requirements of subdivision (a) or any
combination thereof.
(d) A transaction described in subsection (1)(c) which is conducted
pursuant to a plan of dissolution providing for distribution of substantially
all of the corporation's net assets to shareholders in accordance with their
respective interests within 1 year after the date of the transaction, where the
transaction is for cash or shares that satisfy the requirements of subdivision
(a) or any combination thereof.
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(3) A shareholder entitled to dissent and obtain payment for his or
her shares pursuant to subsection (1)(a) to (e) may not challenge the corporate
action creating his or her entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(4) A shareholder who exercises his or her right to dissent and seek
payment for his or her shares pursuant to subsection (1)(f) may not challenge
the corporate action creating his or her entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
450.1763 Rights of Partial Dissenter; Assertion of Dissenters' Rights by
Beneficial Shareholder.
Sec. 763. (1) A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his or her name only if he or she
dissents with respect to all shares beneficially owned by any 1 person and
notifies the corporation in writing of the name and address of each person on
whose behalf he or she asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which he
or she dissents and his or her other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if all of the following apply:
(a) He or she submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights.
(b) He or she does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the vote.
450.1764 Corporate Action Creating Dissenters' Rights; Vote of Shareholders;
Notice.
Sec. 764. (1) If proposed corporate action creating dissenters' rights
under section 762 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this act and shall be accompanied by a copy of sections
761 to 774.
(2) If corporate action creating dissenters' rights under section 762
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 766. A shareholder
who consents to the corporate action is not entitled to assert dissenters'
rights.
450.1765 Notice of Intent to Demand Payment for Shares.
Sec. 765. (1) If proposed corporate action creating dissenters' rights
under section 762 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must deliver to the
corporation before the vote is taken written notice of his or her intent to
demand payment for his or her shares if the proposed action is effectuated and
must not vote his or her shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) is not entitled to payment for his or her shares under this act.
450.1766 Dissenters' Notice; Delivery to Shareholders; Contents.
Sec. 766. (1) If proposed corporate action creating dissenters' rights
under section 762 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 765.
(2) The dissenters' notice must be sent no later than 10 days after
the corporate action was taken, and must provide all of the following:
(a) State where the payment demand must be sent and where and when
certificates for shares represented by certificates must be deposited.
(b) Inform holders of shares without certificates to what extent
transfer of the shares will be restricted after the payment demand is received.
(c) Supply a form for the payment demand that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether he or she acquired beneficial ownership of the shares before the
date.
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the date
the subsection (1) notice is delivered.
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450.1767 Duties of Shareholder Sent Dissenter's Notice; Retention of Rights;
Failure to Demand Payment or Deposit Share Certificates.
Sec. 767. (1) A shareholder sent a dissenter's notice described in
section 766 must demand payment, certify whether he or she acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to section 766(2)(c), and deposit his or her
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her share
certificates under subsection (1) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this act.
450.1768 Restriction on Transfer of Shares Without Certificates; Retention of
Rights.
Sec. 768. (1) The corporation may restrict the transfer of shares
without certificates from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
section 770.
(2) The person for whom dissenters' rights are asserted as to shares
without certificates retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
450.1769 Payment by Corporation to Dissenter; Accompanying Documents.
Sec. 769. (1) Except as provided in section 771, within 7 days after
the proposed corporate action is taken or a payment demand is received,
whichever occurs later, the corporation shall pay each dissenter who complied
with section 767 the amount the corporation estimates to be the fair value of
his or her shares, plus accrued interest.
(2) The payment must be accompanied by all of the following:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year, and
if available the latest interim financial statements.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under section
772.
450.1770 Return of Deposited Certificates and Release of Transfer Restrictions;
Effect of Corporation Taking Proposed Action.
Sec. 770. (1) If the corporation does not take the proposed action
within 60 days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on shares without certificates.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 766 and repeat the payment demand procedure.
450.1771 Election to Withhold Payment From Dissenter; Offer to Pay Estimated
Fair Value of Shares, Plus Accrued Interest; Statements; Explanation.
Sec. 771. (1) A corporation may elect to withhold payment required by
section 769 from a dissenter unless he or she was the beneficial owner of the
shares before the date set forth in the dissenters' notice pursuant to section
766(2)(c).
(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall offer to pay this
amount to each dissenter who shall agree to accept it in full satisfaction of
his or her demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
section 772.
450.1772 Demand for Payment of Dissenter's Estimate or Rejection of
Corporation's Offer and Demand for Payment of Fair Value and Interest Due;
Waiver.
Sec. 772. (1) A dissenter may notify the corporation in writing of his
or her own estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment under
section
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769, or reject the corporation's offer under section 771 and demand payment of
the fair value of his or her shares and interest due, if any 1 of the following
applies:
(a) The dissenter believes that the amount paid under section 769 or
offered under section 771 is less than the fair value of his or her shares or
that the interest due is incorrectly calculated.
(b) The corporation
fails to make payment under section 769 within 60 days after the date set for
demanding payment.
(c) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on shares without certificates within 60 days after the date set for
demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (1) within 30 days after the corporation made or
offered payment for his or her shares.
450.1773 Petitioning Court to Determine Fair Value of Shares and Accrued
Interest; Failure of Corporation to Commence Proceeding; Venue; Parties;
Service; Jurisdiction, Appraisers; Discovery Rights; Judgment.
Sec. 773. (1) If a demand for payment under section 772 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court
of the county in which the corporation's principal place of business or
registered office is located. If the corporation is a foreign corporation
without a registered office or principal place of business in this state, it
shall commence the proceeding in the county in this state where the principal
place of business or registered office of the domestic corporation whose shares
are to be valued was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) is plenary and exclusive. The court may appoint 1 or more
persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his or her
shares, plus interest, exceeds the amount paid by the corporation or for the
fair value, plus accrued interest, of his or her after-acquired shares for which
the corporation elected to withhold payment under section 771.
450.1773A Referee; Appointment; Powers; Compensation; Duties; Objections to
Report; Application to Court for Action; Adoption, Modification, or Recommitment
of Report; Further Evidence, Judgment, Review.
Sec. 773a. (1) In a proceeding brought pursuant to section 773, the
court may, pursuant to the agreement of the parties, appoint a referee selected
by the parties and subject to the approval of the court. The referee may
conduct proceedings within the state, or outside the state by stipulation of the
parties with the referee's consent, and pursuant to the Michigan court rules.
The referee shall have powers that include, but are not limited to, the
following:
(a) To hear all pretrial motions and submit proposed orders to the
court. In ruling on the pretrial motion and proposed orders, the court shall
consider only those documents, pleadings, and arguments that were presented to
the referee.
(b) To require the production of evidence, including the production of
all books, papers, documents, and writings applicable to the proceeding, and to
permit entry upon designated land or other property in the possession or control
of the corporation.
(c) To rule upon the admissibility of evidence pursuant to the Michigan
rules of evidence.
(d) To place witnesses under oath and to examine witnesses.
(e) To provide for the taking of testimony by deposition.
(f) To regulate the course of the proceeding.
(g) To issue subpoenas, when a written request is made by any of the
parties, requiring the attendance and testimony of any witness and the
production of evidence including books, records, correspondence, and documents
in the possession of the witness or under his or her control, at a hearing
before the referee or at a deposition convened pursuant to subdivision (e). In
case of a refusal to comply with a subpoena, the party on whose behalf the
subpoena was issued may file a petition in the court for an order requiring
compliance.
C-4
<PAGE>
(2) The amount and manner of payment of the referee's compensation shall
be determined by agreement between the referee and the parties, subject to the
court's allocation of compensation between the parties at the end of the
proceeding pursuant to equitable principles, notwithstanding section 774.
(3) The referee shall do all of the following:
(a) Make a record and reporter's transcript of the proceeding.
(b) Prepare a report, including proposed findings of fact and conclusions
of law, and a recommended judgment.
(c) File the report with the court, together with all original
exhibits and the reporter's transcript of the proceeding.
(4) Unless the court provides for a longer period, not more than 45
days after being served with notice of the filing of the report described in
subsection (3), any party may serve written objections to the report upon the
other party. Application to the court for action upon the report and objections
to the report shall be made by motion upon notice.
The court, after hearing, may adopt the report, may receive further
evidence, may modify the report, or may recommit the report to the referee with
instructions. Upon adoption of the report, judgment shall be entered in the
same manner as if the action had been tried by the court and shall be subject to
review in the same manner as any other judgment of the court.
450.1774 Costs of Appraisal Proceeding.
Sec. 774. (1) The court in an appraisal proceeding commenced under
section 773 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 772.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable in the
following manner:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 764 through 772.
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this act.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to those counsel reasonable fees paid out of the amounts awarded
the dissenters who were benefited.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
-----------------------------------------
The Registrant's Articles of Incorporation provide that the Registrant
shall indemnify its present and past directors, officers, employees, and agents,
and such other persons as it shall have the power to indemnify, to the full
extent permitted under, and subject to the limitations of, the MBCA.
The Registrant's Bylaws contain indemnification provisions concerning third
party actions as well as actions in the right of the Registrant. the Bylaws
provide that the Registrant shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Registrant) by reason of the
fact that he is or was a director, officer, employee or agent of the Registrant
or is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Registrant or its shareholders, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
With respect to derivative actions, the Bylaws provide that the Registrant
shall indemnify any person who was or is a party to or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Registrant to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the Registrant, or
is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
judgment or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Registrant or its
shareholders and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Registrant unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
The Registrant's Articles of Incorporation provide that a director of the
Registrant shall not be personally liable to the Registrant or its shareholders
for monetary damages for breach of the director's fiduciary duty. However, it
does not eliminate or limit the liability of a director for any breach of a
duty, act or omission for which the elimination or limitation of liability is
not permitted by the MBCA, currently including, without limitation, the
following: (1) breach of the director's duty of loyalty to the Registrant or its
shareholders; (2) acts or omissions not in good faith or that involved
intentional misconduct or a knowing violation of law; (3) illegal loans,
distributions of dividends or assets, or stock purchases as described in the
MBCA; and (4) transactions from which the director derived an improper personal
benefit.
The Registrant has entered into indemnity agreements with directors and
certain executive officers. The agreements provide that the Registrant will
indemnify the director or executive officer, subject to certain limitations, for
costs, including the satisfaction of a judgment, fine or penalty incurred in, or
in any amount paid in settlement of, any proceeding, including a proceeding
brought by or in the name of the Registrant (such as a shareholder derivative
suit), if such expenses and costs may be indemnified under the MBCA. In
accordance with the Registrant's Articles of Incorporation and Bylaws, the
agreements are designed to provide the maximum protection allowed under Michigan
law.
The Registrant has purchased directors' and officers' liability insurance.
Subject to conditions and limitations in the policy, the insurance covers
amounts required to be paid for a claim or claims made against directors and
officers (excluding fines, penalties, and punitive or exemplary damages) for
neglect or breach of duty by the officers and directors in the discharge of
their duties solely in their capacity as officers or directors of the
Registrant. The coverage includes all amounts as to which the Registrant may be
required or permitted by law to indemnify the directors and officers.
S-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
------------------------------------------
(a) Reference is made to the Exhibit Index which appears as the last page
of this Registration Statement.
(b) Financial Statement Schedules have been omitted because they are not
applicable.
(c) The opinion of Austin Associates, Inc. appears as Appendix B to the
Prospectus and Proxy Statement.
Item 22. Undertakings.
------------
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
Prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the Prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represents a fundamental
change in the information set forth in the Registration Statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Alma, State of Michigan,
on the 18th day of June, 1997.
FIRSTBANK CORPORATION
By /s/ John A. McCormack
--------------------------------------
John A. McCormack, President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John A. McCormack and Mary D. Deci, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to execute in the name of each such person
who is then an officer or director of the Registrant any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do so
and perform each and every act and thing required and necessary to be done in
and about the premises, as fully as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the dates indicated.
/s/ John A. McCormack
- ---------------------------------------------------------- Dated: June 18, 1997
John A. McCormack, President and Chief Executive Officer
/s/ March D. Deci
- ---------------------------------------------------------- Dated: June 18, 1997
Mary D. Deci, Principal Financial and Accounting Officer
/s/ William E. Goggin
- ---------------------------------------------------------- Dated: June 18, 1997
William E. Goggin, Director
/s/ Edward B. Grant
- ---------------------------------------------------------- Dated: June 18, 1997
Edward B. Grant, Director
/s/ Charles W. Jennings
- ---------------------------------------------------------- Dated: June 18, 1997
Charles W. Jennings, Director
/s/ Phillip G. Peasley
- ---------------------------------------------------------- Dated: June 18, 1997
Phillip G. Peasley, Director
/s/ David D. Roslund
- ---------------------------------------------------------- Dated: June 18, 1997
David D. Roslund, Director
S-3
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as a part of the Registration Statement:
Item 2 Agreement and Plan of Merger between Firstbank Corporation and
Lakeview Financial Corporation, dated April 17, 1997, as amended
by Amendment No. 1 to the Agreement and Plan of Merger, dated
June 18, 1997, as set forth in full on Appendix A to the
Prospectus and Proxy Statement which is a part of this
Registration Statement.
Item 3(a) The Articles of Incorporation of the Registrant were previously
filed as an exhibit to the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, and is incorporated
herein by reference.
Item 3(b) The Bylaws of the Registrant were filed as an exhibit to the
registrant's Registration Statement on Form S-2 (Registration No.
33-68432), filed on September 3, 1993, and is incorporated herein
by reference.
Item 4(a) Excerpts from Articles of Incorporation (included as Exhibit
3(a)).
Item 4(b) Excerpts from Bylaws (included as Exhibit 3(b)).
Item 5 Opinion of Varnum, Riddering, Schmidt & Howlett LLP, regarding
the legality of the securities being registered.
Item 8 Opinion of Varnum, Riddering, Schmidt & Howlett LLP regarding tax
matters applicable to the Merger.
Item 10(a) Form of Indemnity Agreement with Directors and Officers,
previously filed as an exhibit to the registrant's Registration
Statement on Form S-2 (Registration No. 33-68432) filed on
September 3, 1993, and is herein incorporated by reference.
Item 10(b) Main Office Lease, previously filed as an exhibit to the
registrant's Registration Statement on Form S-2 (Registration No.
33-68432), filed on September 3, 1993, and is herein incorporated
by reference.
Item 10(c) Deferred Compensation Plan, previously filed as an exhibit to the
registrant's Form 10-K for the year ended December 31, 1995, and
is herein incorporated by reference.
Item 10(d) Trust under Deferred Compensation Plan, previously filed as an
exhibit to the registrant's Form 10-K for the year ended December
31, 1995, and is herein incorporated by reference.
Item 10(e) Stock Option and Restricted Stock Plan of 1993, previously filed
as an appendix to the registrant's Definitive Proxy Statement for
its Annual Meeting of Shareholders, held April 26, 1993, and is
herein incorporated by reference.
Item 10(f) Stock Option and Restricted Stock Plan of 1997, previously filed
as an appendix to the registrant's Definitive Proxy Statement for
its Annual Meeting of Shareholders, to be held April 28, 1997,
and is herein incorporated by reference.
Item 21 Subsidiaries of the Registrant was previously filed as an exhibit
to the registrant's Form 10-K for the year ended December 31,
1996, and is incorporated herein by reference.
Item 23(a) Consent of Crowe, Chizek and Company LLP.
Item 23(b) Consent of Crowe, Chizek and Company LLP.
Item 23(c) Consent of Varnum, Riddering, Schmidt & Howlett LLP (included in
Exhibit 5)
Item 23(d) Consent of Austin Associates, Inc.
S-4
<PAGE>
Item 24 Powers of Attorney--included as a part of the signature page.
Item 99 Form of Proxy for Lakeview Financial Corporation.
S-5
<PAGE>
EXHIBIT 5
June 19, 1997
Firstbank Corporation
311 Woodworth Avenue
Alma, Michigan 48801
Ladies and Gentlemen:
With respect to the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by Firstbank Corporation, a Michigan corporation (the
"Company") with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, 440,000 shares of
common stock, no par value, to be issued in exchange for shares of the common
stock, par value $3.34 per share, of Lakeview Financial Corporation, a Michigan
corporation ("Lakeview") under the terms and conditions and upon the
consummation of the transactions contemplated by the Agreement and Plan of
Merger, as amended (the "Merger"), and as described in the Prospectus and Proxy
Statement included in the Registration Statement, we have examined such
documents and questions of law as we consider necessary or appropriate for the
purpose of giving this opinion.
On the basis of such examination, we advise you that, in our opinion, the
shares of common stock of the Company, in an amount up to 440,000 shares,
covered by the Registration Statement, to be delivered to the shareholders of
Lakeview at the time the Merger is consummated will be, when delivered to such
shareholders pursuant to the Agreement and Plan of Merger, as amended (Appendix
A to the Prospectus and Proxy Statement), duly and legally authorized, issued
and outstanding, and will be fully paid and nonassessable, subject, in certain
cases, to limitations on the right to transfer such shares as provided in the
undertakings referenced in Section 5.6 of the Agreement and Plan of Merger.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and the reference to our firm under the caption "General
Information-Legal Matters" in the Prospectus and Proxy Statement forming a part
of the Registration Statement. In giving this consent, we do not thereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission relating thereto.
Very truly yours,
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
/s/ Varnum, Riddering, Schmidt & Howlett LLP
<PAGE>
EXHIBIT 8
June 8, 1997
Board of Directors
Lakeview Financial Corporation
506 Lincoln Avenue
Lakeview, MI 48850
Board of Directors
Firstbank Corporation
311 Woodworth Avenue
Alma, MI 48881
Re: Tax Opinion Concerning Reorganization/I.R.C. (S) 368(a)(1)(A)
-------------------------------------------------------------
Gentlemen:
This letter sets forth our opinion as to certain federal income tax
consequences of a statutory merger, described below, wherein Lakeview Financial
Corporation ("Lakeview") would be merged with and into Firstbank Corporation
("Firstbank"). Our opinion as to the tax consequences is based on the facts,
representations, assumptions and conditions stated below.
Background
- ----------
A. Firstbank
---------
Firstbank is a Michigan corporation, having authorized capital consisting
of 10,000,000 shares of common stock, of which 1,633,234 shares were issued and
outstanding as of May 31, 1997, and 300,000 shares of preferred stock, of which
there are no issued and outstanding shares. (All subsequent references to
Firstbank's shares or stock refer only to its common stock, as no preferred
shares have been issued). Firstbank has approximately 960 shareholders of
record, and its stock is traded in the national over-the-counter market.
Firstbank owns all or substantially all of the outstanding stock of Bank of
Alma, Firstbank (Mt. Pleasant), and 1st Bank (West Branch). Firstbank does not
currently own, directly or indirectly, nor has it directly or indirectly owned
in the preceding five years, any of the stock of Lakeview.
B. Lakeview
--------
Lakeview is a Michigan Corporation, having authorized capital consisting of
1,500,000 shares of common stock, of which 657,484 shares were issued and
outstanding as of May 27, 1997. No other class of Lakeview stock is authorized
or outstanding. Lakeview's common stock is held of record by approximately 290
shareholders. Lakeview does not own, directly or indirectly, nor has it so owned
in the preceding five years, any of the stock of Firstbank. Lakeview owns all
the issued and outstanding shares of Bank of Lakeview ("Bank").
Transactions and Assumptions
- ----------------------------
1. Lakeview and Firstbank have entered into an Agreement and Plan of
Merger, dated April 17, 1997, as amended by Amendment No. 1 dated June 18, 1997
(the "Definitive Agreement"), providing for the merger of Lakeview with and into
Firstbank.
2. Firstbank, the surviving corporation in the merger, will acquire all
of the assets and assume all of the liabilities of Lakeview. After the merger,
all of the issued and outstanding stock of the Bank will be owned by Firstbank.
3. On the effective date of the merger, each share of the capital stock
of Lakeview shall, ipso facto and without any action on the part of the holder
thereof, become and be converted into the right to receive shares of Firstbank
common stock or, at the election of the Lakeview shareholder, an equivalent
amount of cash, subject to an aggregate maximum of 35% of the total
consideration paid to holders of Lakeview common stock, all as provided in the
Definitive Agreement.
4. In connection with the conversion of Lakeview common stock into
Firstbank common stock, no certificate evidencing fractional shares of Firstbank
common stock will be issued, and no right to vote or receive any dividends or
other rights of a shareholder will attach to any fraction of a share of
Firstbank common stock resulting from the conversion. In lieu thereof, Lakeview
shareholders who otherwise are entitled to receive a fraction of a share of
<PAGE>
Firstbank common stock will be paid cash, rounded to the nearest penny, based
upon the per share conversion value specified in the Definitive Agreement.
5. No dissenters' rights will be exercised with respect to the
transaction.
Representations
- ---------------
In addition to the above, the following representations have been made:
(a) The fair market value of Firstbank stock to be received by each
Lakeview shareholder in the transaction will, in each instance, be
approximately equal to the fair market value of Lakeview stock surrendered
in exchange therefor.
(b) There is no plan or intention by the shareholders of Lakeview who
own more than one percent of Lakeview's stock, and the management of
Firstbank and Lakeview know of no plan or intention on the part of the
remaining Lakeview shareholders, to sell, exchange or otherwise dispose of
Firstbank stock to be received in the transaction that will reduce the
holdings of Lakeview's shareholders of Firstbank stock to a number of
shares having, in the aggregate, a value at the time of the transaction of
less than 50 percent of the total value of the formerly outstanding stock
of Lakeview as of the same date. For purposes of this representation,
shares of Lakeview stock exchanged for cash in lieu of fractional shares of
Firstbank stock will be treated as outstanding Lakeview stock on the date
of the transaction. Moreover, shares of Lakeview stock and shares of
Firstbank stock held by Lakeview shareholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the transaction were considered in
making this representation.
(c) Firstbank has no plan or intention to redeem or otherwise
reacquire any of its stock issued in the transaction.
(d) Firstbank has no plan or intention to liquidate the Bank, to sell
or otherwise dispose of the stock of the Bank, to merge the Bank with and
into another corporation, or to cause the Bank to sell or otherwise dispose
of any of the assets of Lakeview acquired in the transaction, except for
dispositions made in the ordinary course of its business.
(e) The liabilities, if any, of Lakeview assumed by Firstbank and the
liabilities to which the transferred assets of Lakeview are subject were
incurred by Lakeview in the ordinary course of its business and are
associated with the assets to be transferred.
(f) Following the transaction, Firstbank will continue the historic
business of Lakeview and use a significant portion of Lakeview's business
assets in a business.
(g) Firstbank and Lakeview and shareholders of Lakeview will pay
their respective expenses, if any, incurred in connection with the
transaction.
(h) There is and will be no intercorporate indebtedness between
Firstbank and Lakeview that was or will be issued, acquired or settled at a
discount.
(i) No two parties to the transaction are, or at the time of the
transaction will be, investment companies as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
(j) Lakeview is not under the jurisdiction of a court in a Title 11,
or similar, case within the meaning of section 368(a)(3)(A) of the Code.
(k) The fair market value of the assets of Lakeview to be transferred
to Firstbank exceeds, and on the day of the proposed transaction will
exceed, the sum of all Lakeview liabilities to be assumed by Firstbank,
plus the amount of liabilities, if any, to which the assets to be
transferred are subject.
<PAGE>
(l) None of the compensation received by any shareholder-employees of
Lakeview will be separate consideration for, or allocable to, any of their
shares of Lakeview stock, and the compensation paid to them will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arms-length for similar services. None of
Firstbank's shares received by any shareholder-employee of Lakeview will be
separate consideration for, or allocable to, any employment agreement
compensation owed to such shareholder-employee.
(m) Firstbank does not own, directly or indirectly, nor has it owned,
directly or indirectly, in the past five years, any Lakeview stock.
(n) The merger of Lakeview with and into Firstbank, and the exchange
of Firstbank stock for Lakeview stock are to be effected for the purposes
stated below.
(o) The payment of cash in lieu of fractional shares of Firstbank
stock is solely for the purpose of avoiding the expense and inconvenience
to Firstbank of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
in the transaction to Lakeview shareholders instead of issuing fractional
shares of Firstbank stock will not exceed one-tenth of one percent of the
total consideration that will be issued in the transaction to Lakeview
shareholders in exchange for their shares of Lakeview stock. The fractional
share interests of each Lakeview shareholder will be aggregated, and no
Lakeview shareholder will receive cash in an amount equal to or greater
than the value of one full share of Firstbank stock.
Business Purpose
- ----------------
It has been represented that the boards of directors of Lakeview and
Firstbank believe that the merger will strengthen Lakeview, Firstbank, and the
Bank in enabling them to expand and meet the competition of other banks. The
proposed transaction is expected to improve the marketing and branching
activities of Firstbank and its subsidiaries and affiliates, and to provide the
Bank access to a broader range of capital sources and greater possibilities for
growth in both banking and nonbanking activities.
Opinion
- -------
Based on our understanding of the facts, and on the representations and
assumptions stated herein, it is our opinion that the following tax consequences
will arise with respect to the transaction:
1. The merger of Lakeview with and into Firstbank will qualify as a
reorganization within the meaning of section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended, and Firstbank and Lakeview will each be a
"party to a reorganization" within the meaning of section 368(b).
2. The basis of the assets of Lakeview acquired by Firstbank will
be, in each case, the same as the basis of such assets in the hands of
Lakeview immediately before the consummation of the merger. I.R.C. (S)
362(b).
3. No gain or loss will be recognized by Firstbank upon the receipt
by Firstbank of substantially all of the assets of Lakeview in exchange for
Firstbank shares. I.R.C. (S) 1032.
<PAGE>
4. The holding period of Lakeview's assets in the hands of Firstbank
will, in each case, include the holding period during which such assets
were held by Lakeview immediately before the consummation of the merger.
I.R.C. (S) 1223(2).
5. No gain or loss will be recognized by the Lakeview shareholders
who receive shares of Firstbank common stock in exchange for all of their
shares of Lakeview common stock, except to the extent of any cash received
in exchange for Lakeview common stock or in lieu of fractional shares of
Firstbank common stock. I.R.C. (S)(S) 354(a)(1) 356(a)(1). Gain, if any,
will be realized by Lakeview shareholders who receive both Firstbank common
stock and cash in exchange for their Lakeview common stock, but not in
excess of the amount of cash received. If the exchange has the effect of a
distribution of a dividend as provided in section 356(a)(2), then the
amount of gain recognized that is not in excess of each such shareholder's
ratable share of Lakeview's undistributed earnings and profits will be
treated as a dividend. The determination of whether the exchange has the
effect of a distribution of a dividend will be made on a shareholder-by-
shareholder basis with the application of section 318(a), in accordance
with the principles set forth in Clark v. Commissioner, 489 U.S. 279 (1989)
and Revenue Ruling 93-61. The remainder, if any, of the gain will be
treated as gain from the sale or exchange of property. No loss will be
recognized on an exchange pursuant to section 356(c).
6. The basis of Firstbank common stock to be received by Lakeview
shareholders will, in each instance, be the same as the basis of the
respective shares of Lakeview common stock surrendered in exchange
therefor. I.R.C. (S) 358(a)(1).
7. The holding period of Firstbank shares received by Lakeview
shareholders will, in each instance, include the holding period for
Lakeview shares surrendered in exchange therefor, provided that Lakeview
shares surrendered were, in each instance, held as capital assets in the
hands of Lakeview shareholders on the date of the consummation of the
merger. I.R.C. (S) 1223(1).
Our opinion is based upon the facts as they have been represented to us or
determined by us as of this date. If any of the facts, representations, or
assumptions on which this opinion is based is determined to be untrue or
incorrect from the inception, our opinion may be adversely affected. While we
have no reason to believe that the facts, representations and assumptions stated
herein are untrue or inaccurate, we express no opinion as to the accuracy of the
facts, representations, and assumptions stated herein.
Our opinion is based upon existing law and currently applicable Treasury
regulations and also on administrative and judicial interpretations of the law
and regulations. Administrative positions of the Internal Revenue Service
contained in revenue rulings and revenue procedures and judicial decisions are
subject to change either prospectively or retroactively.
Our opinion is limited to the specific issues addressed above and is not
intended to address any other issues. We consent to the filing of this opinion
as an exhibit to the Registration Statement on Form S-4 filed by Firstbank
Corporation with the Securities and Exchange Commission for the purpose of
registering securities under the Securities Act of 1933, as amended.
Respectfully submitted,
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
/s/ Varnum, Riddering,
Schmidt & Howlett LLP
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use of our report dated January 24, 1997 on the
consolidated financial statements of Firstbank Corporation for the years ended
December 31, 1996, 1995 and 1994 to be included within this Registration
Statement on Form S-4 and Prospectus of Firstbank Corporation. We also consent
to the use of our name as "Experts" in the Prospectus.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
June 19, 1997
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use of our report dated February 20, 1997 on the
consolidated financial statements of Lakeview Financial Corporation for the
years ended December 31, 1996, 1995, and 1994 to be included within this
Registration Statement on Form S-4 and Prospectus of Firstbank Corporation. We
also consent to the use of our name as "Experts" in the Prospectus.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
June 19, 1997
<PAGE>
CONSENT
We hereby consent to the discussion relative to our opinion delivered to the
Board of Directors of Lakeview Financial Corporation in connection with its
proposed merger with Firstbank Corporation in the Joint Proxy Statement/
Prospectus included in Firstbank's Registration Statement on Form S-4 under the
heading "Opinion of Lakeview's Financial Advisor," to the references to our firm
in such Joint Proxy Statement/Prospectus and to the inclusion of such opinion as
an Appendix to the Joint Proxy Statement/Prospectus.
Austin Associates, Inc.
By: Richard F. Maroney, Jr.
-----------------------
Richard F. Maroney, Jr.
Executive Vice President and Principal
June 19, 1997
<PAGE>
EXHIBIT 99
PROXY
LAKEVIEW FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
___________________, 1997
The undersigned acknowledges receipt of notice of a Special Meeting of
Shareholders of Lakeview Financial Corporation to be held on _____________,
1997, and a Prospectus and Proxy Statement dated ____________, 1997, and hereby
appoints _______________ and ________________, or either of them, attorneys and
proxies of the undersigned, each with full power of substitution, to vote all
shares of the undersigned in Lakeview Financial Corporation at the Special
Meeting of its Shareholders to be held on _____________, 1997, and at any
adjournment thereof.
1. FOR AGAINST ABSTAIN
[_] [_] [_]
Approval of the Agreement and Plan of Merger dated April 17, 1997, between
Lakeview Financial Corporation and Firstbank Corporation contained and described
in the Prospectus and Proxy Statement dated ___________, 1997. (Your Board of
Directors recommends a vote "FOR" this proposal.)
2. As said proxies in their discretion may determine upon all other matters that
properly may be presented at the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE AGREEMENT
AND PLAN OF MERGER. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE JUDGMENT OF
THE PROXIES WITH RESPECT TO ANY OTHER MATTERS WHICH MAY COME BEFORE THE MEETING.
Please execute and return this Proxy to Lakeview Financial Corporation at
506 Lincoln Avenue, P.O. Box 409, Lakeview, Michigan 48850, not later than
_____________, 1997. Please sign exactly as your name(s) appear(s) below. Joint
owners should each sign this Proxy personally. Executors, administrators,
trustees and persons signing for corporations or partnerships should so
indicate.
Dated:_____________________________________, 1997
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THIS PROXY IS SOLICITED BY THE BOARD
OF DIRECTORS OF LAKEVIEW FINANCIAL CORPORATION
