<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the transition period from ____________________ to
____________________
Commission File Number: 0-14209
FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2633910
(State of Incorporation) (I.R.S. Employer Identification No.)
311 Woodworth Avenue
Alma, Michigan 48801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 463-3131
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE>
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing.
Aggregate Market Value as of March 3, 1997: $59,662,306
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common stock outstanding at March 3, 1997: 1,628,930 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the year
ended December 31, 1996, are incorporated by reference in Parts I and II.
Portions of the definitive proxy statement for the registrant's annual
shareholders' meeting to be held April 28, 1997, are incorporated by
reference in Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS.
Firstbank Corporation (the "Corporation") is a bank holding
company. The Corporation owns all of the outstanding stock of Bank of
Alma, Firstbank (Mount Pleasant), and 1st Bank (West Branch).
The Corporation's business is concentrated in a single industry
segment--commercial banking. Each subsidiary bank of the Corporation 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, mortgage (principally single
family), home improvement, automobile, and other consumer loans. Bank of
Alma also offers trust services.
The principal sources of revenues for the Corporation and its
subsidiaries are interest and fees on loans. On a consolidated basis,
interest and fees on loans accounted for approximately 80 percent of total
revenues in 1996, 79 percent in 1995, and 75 percent in 1994. In addition,
interest income from investment securities accounted for approximately 10
percent of total revenues on a consolidated basis in 1996, 12 percent in
1995, and 13 percent in 1994. No other single source of revenue accounted
for 15 percent or more of the Corporation's total revenues in any of the
last three years. The Corporation has no foreign assets and no income from
foreign sources. The business of the subsidiary banks of the Corporation
is not seasonal to any material extent.
Bank of Alma is a Michigan state-chartered bank. It and its
predecessors have operated continuously in Alma, Michigan, since 1880. Its
main office and one branch are located in Alma. Bank of Alma also has one
full service branch located in each of the following communities near Alma:
Ashley, Auburn, Ithaca, Merrill, Pine River Township, Riverdale, St.
Charles, St. Louis, and Vestaburg.
On December 13, 1996, Bank of Alma acquired offices located in
Auburn, Michigan, and Merrill, Michigan, from First of America Bank. Bank
of Alma assumed the deposits and other specified liabilities associated
with the offices and, in exchange, acquired the offices' fixed assets,
other assets, and cash. At the effective date, approximately $19 million
in deposit liabilities were assumed by Bank of Alma.
Firstbank is a Michigan state-chartered bank which was
incorporated in 1894. Its main office and one branch are located in
Mount Pleasant, Michigan. Firstbank also has one full service branch
located in each of the following communities near Mount Pleasant: Clare,
Shepherd, Union Township, and Winn.
1st Bank is a Michigan state-chartered bank which was
incorporated in 1980. Its main office is located in West Branch,
<PAGE>
Michigan. 1st Bank also has one full service branch located in each of the
following communities near West Branch: Fairview, Hale, Higgins Lake, Rose
City, St. Helen, and West Branch Township.
The following table shows comparative information concerning the
Corporation's subsidiary banks:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
BANK OF ALMA FIRSTBANK 1ST BANK
------------ --------- ---------
(In thousands of Dollars)
<S> <C> <C> <C> <C>
Assets $ 190,439 $ 91,804 $ 121,502
Deposits 169,177 80,052 110,230
Loans 137,014 74,382 103,224
</TABLE>
On February 18, 1997, the Corporation signed a letter of intent
to acquire Lakeview Financial Corporation ("Lakeview"), the parent holding
company of Bank of Lakeview. The proposed transaction is structured as a
merger of Lakeview into the Corporation, with the shareholders of Lakeview
receiving the Corporation's common stock in exchange for their Lakeview
stock or, if they so elect, up to 35% of the transaction value in cash and
the remainder in the Corporation's common stock. The transaction is
subject to completion of a definitive agreement, regulatory approval,
approval of the Lakeview shareholders, and other conditions.
As of December 31, 1996, the Corporation and its subsidiaries
employed 227 persons on a full-time equivalent basis.
Banking in the Corporation's market areas and in the State of
Michigan is highly competitive. In addition to competition from other
commercial banks, banks face significant competition from nonbank financial
institutions. Savings and loan associations are able to compete
aggressively with commercial banks for deposits and loans. Credit unions
and finance companies are also significant factors in the consumer loan
market. Insurance companies, investment firms, and retailers are
significant competitors for investment products. Banks compete for
deposits with a broad spectrum of other types of investments such as mutual
funds, debt securities of corporations, and debt securities of the federal
government, state governments, and their respective agencies. The
principal methods of competition for financial services are price (interest
rates paid on deposits, interest rates charged on loans, and fees charged
for services) and service (the convenience and quality of services rendered
to customers).
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<PAGE>
The Corporation's subsidiary banks compete directly with other
banks, thrift institutions, credit unions and other nondepository financial
institutions in three geographic banking markets where their offices are
located. Bank of Alma primarily competes in Gratiot, Midland, Montcalm,
and Saginaw Counties; Firstbank primarily in Isabella and Clare Counties;
and 1st Bank primarily in Iosco, Oscoda, Ogemaw, and Roscommon Counties.
Banks and bank holding companies are extensively regulated. The
Corporation is a bank holding company that is regulated by the Federal
Reserve System. 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
Michigan Department of Commerce. None of the banks are members of the
Federal Reserve System. All of the banks' deposits are insured by the
Federal Deposit Insurance Corporation to the maximum extent provided by law.
Laws that 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 governing agencies, is required for
the Corporation to acquire control of any additional banks or branches.
The business activities of the Corporation and its subsidiaries are limited
to banking and to other activities which are determined by the Federal
Reserve Board to be closely related to banking. Transactions among the
Corporation and the Corporation's subsidiary banks are significantly
restricted. In addition, bank regulations govern the ability of the
subsidiary banks to pay dividends or make other distributions to the
Corporation.
In addition to laws that affect businesses in general, 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, the Home Mortgage Disclosure Act, the Real Estate
Settlement Procedures Act, the Bank Secrecy Act, the Community Development
and Regulatory Improvement Act, the Financial Institutions Reform, Recovery
and Enforcement Act, the FDIC Improvement Act of 1991 (the "FDIC
Improvement Act"), electronic funds transfer laws, redlining laws,
antitrust laws, environmental laws, and privacy laws.
The instruments of government monetary policy, as determined by
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 have a significant effect on the
operating results of banks.
Under applicable laws, regulations, and policies, the Corporation
is expected to act as a source of financial strength to each subsidiary
-3-
<PAGE>
bank and to commit resources to support each subsidiary bank. Any insured
depository institution owned by the Corporation may be assessed for losses
incurred by the Federal Deposit Insurance Corporation (the "FDIC") in
connection with assistance provided to, or the failure of, any other
insured depository institution owned by the Corporation.
The FDIC 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 periodic assessment rates on
Bank Insurance Fund ("BIF") member banks so as to maintain the BIF at the
designated reserve ratio defined in the FDIC Improvement Act. Bank of Alma
and Firstbank also hold deposits that are insured by the Savings
Association Insurance Fund ("SAIF") administered by the FDIC. Deposit
insurance premiums on those deposits are paid to the SAIF at rates
applicable to that fund. The FDIC has implemented a system of risk-based
premiums for deposit insurance pursuant to which the premiums paid by a
depository institution will be based on the perceived probability that the
insurance funds will incur a loss in respect of that institution.
The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") substantially changed the geographic
constraints applicable to the banking industry. Effective September 29,
1995, the Riegle-Neal Act allows bank holding companies to acquire banks
located in any state in the United States without regard to geographic
restrictions or reciprocity requirements imposed by state law. Effective
June 1, 1997 (or earlier if expressly authorized by applicable state law),
the Riegle-Neal Act also allows banks to establish interstate branch
networks through acquisitions of other banks. The establishment of DE NOVO
interstate branches or the acquisition of individual branches of a bank in
another state (rather than the acquisition of an out-of-state bank in its
entirety) is allowed by the Riegle-Neal Act only if specifically authorized
by state law. The legislation allows individual states to "opt-out" of
certain provisions of the Riegle-Neal Act by enacting appropriate
legislation prior to June 1, 1997.
Michigan exercised its right to opt-in early to the Riegle-Neal
Act, and now permits both U.S. and non-U.S. banks to establish branch
offices in Michigan. Effective November 29, 1995, 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
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<PAGE>
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.
Each of the Corporation's subsidiary banks and the Corporation
itself, on a consolidated basis, maintains capital at levels which exceed
both the minimum and well capitalized levels under currently applicable
regulatory requirements. The following table summarizes compliance with
regulatory capital ratios by the Corporation and each of its subsidiary
banks at December 31, 1996.
<TABLE>
<CAPTION>
TIER 1
LEVERAGE TIER 1 TOTAL RISK-BASED
RATIO CAPITAL RATIO CAPITAL RATIO
----- ------------- -------------
<S> <C> <C> <C> <C>
Minimum regulatory requirement 4.00% 4.00% 8.00%
Well capitalized regulatory level 5.00% 6.00% 10.00%
Firstbank Corporation-Consolidated 7.79% 9.53% 10.79%
Bank of Alma 7.51% 9.60% 10.86%
Firstbank 8.34% 9.50% 10.75%
1st Bank 7.56% 9.25% 10.51%
</TABLE>
The following table shows the amounts by which the
Corporation's capital (on a consolidated basis) exceeds current regulatory
requirements on a dollar amount basis:
-5-
<PAGE>
<TABLE>
<CAPTION>
TOTAL
TIER 1 TIER 1 RISK-BASED
LEVERAGE CAPITAL CAPITAL
-------- ------- -------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Capital balances
at December 31, 1996 $ 28,646 $ 28,646 $ 32,432
Required regulatory
capital 14,702 12,018 24,035
-------- -------- --------
Capital in excess
of regulatory
minimums $ 13,944 $ 16,628 $ 8,397
======== ======== ========
</TABLE>
The nature of the business of the Corporation's subsidiaries is
such that they hold title, on a temporary or permanent basis, to a number
of parcels of real property. These include property owned for branch
offices and other business purposes as well as properties taken in or in
lieu of foreclosures to satisfy loans in default. Under current state and
federal laws, present and past owners of real property may be exposed to
liability for the cost of remediation of contamination on or originating
from such properties, even though they are wholly innocent of the actions
which caused the contamination. Such liabilities can be material and can
exceed the value of the contaminated property.
This Annual Report on Form 10-K including, without limitation,
management's discussion and analysis of financial condition and results of
operations and other sections of the Corporation's Annual Report to
Shareholders which are incorporated in this Annual Report on Form 10-K by
reference contain forward-looking statements that are based on management's
beliefs, assumptions, current expectations, estimates and projections about
the financial services industry, the economy, and about the Corporation
itself. Words such as "anticipates," "believes," "estimates," "expects,"
"forecasts," "intends," "is likely," "plans," "product," "projects,"
variations of such terms, and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties, and
assumptions ("Future Factors") that are difficult to predict with regard to
timing, extent, likelihood, and degree of occurrence. Therefore, actual
results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Furthermore, the
Corporation undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events,
or otherwise.
-6-
<PAGE>
Future Factors include changes in interest rates and interest
rate relationships; demand for products and services; the degree of
competition by traditional and non-traditional competitors; changes in
banking regulations; changes in tax laws; changes in prices, levies, and
assessments; the impact of technological advances; governmental and
regulatory policy changes; the outcomes of pending and future litigation
and contingencies; trends in customer behavior and customer ability to
repay loans; and the vicissitudes of the national economy. These are
representative of the Future Factors that could cause a difference between
an ultimate actual outcome and a preceding forward-looking statement.
The following tables provide information concerning the business
of the registrant.
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 $ 30,687 $ 1,922 6.27% $ 30,702 $ 1,983 6.47% $ 26,532 $ 1,360 5.10%
Tax exempt securities <F1> 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 <F1> <F2> 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
Nonaccrual 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 nonearning assets 13,880 12,934 9,882
-------- -------- --------
Total assets $372,829 $330,079 $268,210
======== ======== ========
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<PAGE>
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 <F1> $18,424 $16,328 $13,718
======= ======= =======
Rate spread <F1> 4.57% 4.61% 4.85%
==== ==== ====
Net interest margin
(percent of average
earning assets) <F1> 5.26% 5.29% 5.47%
==== ==== ====
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income
tax rate of 34%.
<F2> Including loan fees of $1,327,000, $1,060,300, and $897,700 respectively.
Interest on accrual loans is not included.
</FN>
</TABLE>
-8-
<PAGE>
<TABLE>
VOLUME/RATE ANALYSIS<F*>
<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 <F1> (93) (26) (119) (35) (26) (61)
------ ------ ------ ------ ----- ------
Total securities (141) (39) (180) 229 333 562
Loans <F1> 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
====== ====== ====== ====== ====== ======
<FN>
<F*> 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.
<F1> Interest is presented on a fully taxable equivalent basis using a federal income tax rate of 34%.
</FN>
</TABLE>
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<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> <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 maturities at December 31,
1996, the amounts and weighted average yields of such investment
securities <F1>:
<TABLE>
<CAPTION>
CARRYING AVERAGE
VALUE YIELD<F2>
------- ----
(Dollars in Thousands)
<S> <C> <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
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<PAGE>
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 27,613 9.51
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
======= ====
<FN>
NOTES:
<F1> Calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security.
<F2> 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:
-11-
<PAGE>
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO (CON'T)
TAX-EXEMPT EQUIVALENT
RATE ADJUSTMENT BASIS
---------- ---------- ----------
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%
==== ==== ====
<F3> The aggregate book value of the securities of no single issuer
except the U.S. Government or agencies exceeded ten percent of
the Corporation's consolidated shareholders' equity as of
December 31, 1996.
</FN>
</TABLE>
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>
The following table shows the maturity of commercial and construction
loans outstanding at December 31, 1996. Also provided are the amounts
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<PAGE>
due after one year classified according to their sensitivity to
changes in interest rates.
NONPERFORMING LOANS AND ASSETS
The following table summarizes nonaccrual, troubled debt restructurings,
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:
Nonaccrual 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 nonperforming loans 1,057 615 597 570 1,036
Property from defaulted loans 130 0 86 92 262
------ ----- ------ ----- ------
Total nonperforming assets $1,187 $ 615 $ 683 $ 662 $1,298
====== ===== ====== ===== ======
<FN>
<F1> Nonperforming assets are defined as nonaccrual loans, loans 90
days or more past due, property from defaulted loans, and
renegotiated loans.
</FN>
</TABLE>
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<PAGE>
The gross interest income that would have been recorded for the year
ended December 31, 1996, if the nonaccrual 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 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 collectibility of interest or principal, the
loan is placed in nonaccrual status. Any interest previously accrued
but not collected at that time is reversed and charged against current
earnings.
At December 31, 1996, the Corporation 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 constant 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 the
Corporation contained in the Corporation's annual report to
shareholders for the year ended December 31, 1996.
ANALYSIS OF THE 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
---- ---- ---- ---- ----
(Dollars in Thousands)
<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
-14-
<PAGE>
Recoveries:
Commercial and agricultural 83 97 143 129 96
Real estate mortgages 28 63 30 39 48
Consumer 201 269 172 158 164
--------- --------- -------- --------- --------
Total recoveries 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.
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 &
agricultural $ 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>
-15-
<PAGE>
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:
Noninterest-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%
Other savings deposits 58,282 2.82 54,879 2.80 50,447 2.79
Other 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>
<CAPTION>
<S> <C> <C>
Three months or less $ 8,724
Over three through six months 7,583
Over six through twelve months 5,477
Over twelve months 4,492
--------
Total $ 26,276
========
</TABLE>
-16-
<PAGE>
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 total 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 consolidated financial statements in the
Corporation's annual report to shareholders for the year ended
December 31, 1996, which consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Amounts outstanding at the
end of the year $ 5,933 $ 8,442 $ 10,144
Weighted average interest rate
at the end of the year 4.40% 4.98% 3.97%
Longest maturity 05-22-97 10-29-96 10-21-96
Maximum amount outstanding at
any month-end during year $ 14,290 $ 10,714 $ 10,144
Approximate average amounts
outstanding during the year 10,527 8,905 3,883
Approximate weighted average
interest rate for the year 4.73% 5.16% 3.95%
<FN>
<F1> The weighted average interest rates are derived by dividing the interest expense for the period by the daily average balance
during the period.
</FN>
</TABLE>
-17-
<PAGE>
ITEM 2. PROPERTIES.
The offices of the Corporation and the main office of Bank
of Alma are located at 311 Woodworth Avenue, Alma, Michigan. 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 owns a parcel of
vacant land at 218 East Center Street, Alma, Michigan, which is
currently available for sale.
Bank of Alma owns and operates one 3-lane drive-up branch in
Alma, Michigan. Also located on the Alma branch property is a garage
used to house the bank's vehicles and for general storage. A 960
square foot building owned by Bank of Alma in Pine River Township has
three inside tellers in addition to the three outside stations.
Bank of Alma leases the facility for the St. Louis branch.
The leased facility is approximately 900 square feet consisting of
wood frame construction. The lease expires May 31, 1997.
Bank of Alma operates a branch located in Merrill, Michigan.
The branch occupies approximately 2,000 square feet of a 4,000 square
foot wood and brick building. The remainder of the building is
available for community use. The bank operates a two-lane drive-up
facility which is attached to the building and covered by a canopy.
Bank of Alma also owns the property adjacent to the office which is
used for parking.
Bank of Alma also owns the facilities for six other
full-service branches. Each of the Ashley, Auburn, Ithaca, Riverdale,
St. Charles, and Vestaburg branches is owned by Bank of Alma and
housed in buildings having slightly less than 2,000 square feet.
The main office of Firstbank is located at 102 South Main,
Mt. Pleasant, Michigan. The 4,760 square foot facility is leased.
The lease will expire in 2001. Firstbank has an option to extend the
term for an additional five years.
Firstbank operates a branch located in Shepherd, Michigan.
The bank owns approximately 5,800 square feet of space in a brick
building. Approximately half the building is used for bank purposes
and the other half is leased to other tenants for office purposes.
The bank operates a two-lane drive-up facility that is attached to the
building and covered by a canopy. Firstbank also owns a parcel that
is adjacent to the office which is used as a parking lot.
-18-
<PAGE>
Firstbank operates a branch located in Clare, Michigan. The
branch is housed in a brick building containing approximately 4,800
square feet of space. The bank owns the building and adjacent real
estate used for parking. The bank also operates a two-lane drive-up
facility that is attached to the building and covered by a canopy.
Firstbank operates a branch located in Mt. Pleasant,
Michigan. The branch is housed in a brick building containing
approximately 1,600 square feet of space. The bank owns the building
and adjacent real estate used for parking and operates a single-lane
drive-up facility attached to the building.
Firstbank operates a branch located in Winn, Michigan. This
branch facility is housed in a wood frame structure having
approximately 1,000 square feet. Firstbank owns the building.
Firstbank also owns the parcel of real estate which is adjacent to the
Winn branch site.
Firstbank also operates a branch located in Union Township,
Michigan. The branch located in Union Township is housed in a 3,200
square foot building. The building is owned by Firstbank. The Union
Township property houses a three-lane drive-up service.
The main office of 1st Bank is located at 502 West Houghton
Avenue, West Branch, Michigan. The bank occupies approximately 3,565
square feet of office space. 1st Bank owns this property, as well as
one lot adjacent to the main office. The lot has a 1,800 square foot
single family residence and separate garage. The house is currently
rented but is available for future expansion of the bank and for
parking needs.
The executive office of 1st Bank and a full service branch
are located in a 10,000 square foot building at 601 W. Houghton
Avenue, West Branch, Michigan. 1st Bank occupies approximately 3,000
square feet of this building, with the remaining 7,000 square feet
leased to unrelated businesses. Also located on this property are
separate buildings of approximately 3,700 square feet which are leased
as retail space to unrelated businesses.
1st Bank owns and operates branches located in Fairview,
Higgins Lake, and Rose City containing approximately 1,500 to 2,300
square feet. 1st Bank owns each of those branches. Each of those
branches occupies a wood frame building.
1st Bank also owns and operates branches located in St.
Helen and West Branch, Michigan. 1st Bank owns those properties.
Each branch occupies a wood frame building having approximately 900
square feet.
-19-
<PAGE>
1st Bank operates a branch located in Hale, Michigan. 1st
Bank leases the property. The branch occupies a wood frame building
containing approximately 2,000 square feet and sublets approximately
800 square feet to an unrelated business.
1st Bank operates an armored car service from an 8,500
square foot brick and steel building. 1st Bank owns the building.
Approximately 2,000 square feet of the building are leased to
unrelated businesses.
Management considers the properties and equipment of the
Corporation and its subsidiaries to be well maintained, in good
operating condition, and adequate for their operations.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation 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, the
liabilities arising from these proceedings, if any, will not be
material to the Corporation's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information concerning executive officers of
the Corporation who are not directors has been omitted from the
registrant's proxy statement pursuant to Instruction 3 to
Regulation S-K, Item 401(b).
Officers of the Corporation are appointed annually by the
Board of Directors of the Corporation and serve at the pleasure of the
Board of Directors. Information concerning the executive officers of
the Corporation who are not also directors or nominees for election to
the Board of Directors of the Corporation is given below. Except as
otherwise indicated, all existing officers have had the same principal
employment for over 5 years.
MARY D. DECI (age 50) has been Chief Financial Officer,
Secretary, and Treasurer of the Corporation since 1994. Ms. Deci
has been Senior Vice President of Bank of Alma since 1994, and
Controller of Bank of Alma since 1988. Ms. Deci has been Vice
President of the Corporation and of Bank of Alma since 1989 and
has been an officer of Bank of Alma since 1988.
-20-
<PAGE>
RICHARD L. JARVIS (age 59) has been Executive Vice President
of Firstbank since December, 1991, and has been Vice President of
the Corporation since 1987. Mr. Jarvis served as President and
Chief Executive Officer of Firstbank from 1987 until December,
1991. Mr. Jarvis served as a director of Firstbank from 1987 to
1991.
DALE A. PETERS (age 54) has been Vice President of the
Corporation and President, Chief Executive Officer, and a
director of 1st Bank since 1987. He has been Chairman of the
Board of 1st Bank since 1988.
THOMAS R. SULLIVAN (age 46) has been Vice President of the
Corporation and President, Chief Executive Officer, and a
director of Firstbank since December, 1991. From 1988 to 1991,
he was President of the Battle Creek region of Old Kent Bank of
Kalamazoo.
JAMES E. WHEELER, II (age 37), has been Vice President of
the Corporation and Senior Vice President and Chief Loan Officer
of Bank of Alma since 1989.
-21-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
The information under the caption "Common Stock Data" on
page 12 in the registrant's annual report to shareholders for the year
ended December 31, 1996, is here incorporated by reference.
At various times in 1996, the Corporation issued
unregistered shares of its common stock totalling 1,379 shares to
members of the boards of directors of the Corporation and the
Corporation's subsidiary banks, Firstbank and 1st Bank. The shares
were issued as retainers and directors fees for the directors'
services on the boards. The Corporation claims an exemption from
registration for the issuances under Section 4(2) of the Securities
Act of 1933, as amended, which exempts transactions by an issuer not
involving any public offering. The shares were issued in accordance
with the Corporation's board compensation policy. The issuance did
not involve any general solicitation.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data"
on page 3 in the registrant's annual report to shareholders for the
year ended December 31, 1996, is here incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on
pages 5 through 12 in the registrant's annual report to shareholders
for the year ended December 31, 1996, is here incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and the consolidated
financial statements on pages 13 through 33 and the quarterly results
of operations on pages 11 through 12 in the registrant's annual report
to shareholders for the year ended December 31, 1996, are here
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
-22-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Board of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the
registrant's definitive proxy statement for its annual meeting of
shareholders to be held April 28, 1997, is here incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information contained under the captions "Compensation of
Directors and Executive Officers" and "Compensation Committee
Interlocks and Insider Participation" in the registrant's definitive
proxy statement for its annual meeting of shareholders to be held on
April 28, 1997, is here incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information under the caption "Voting Securities" in the
registrant's definitive proxy statement for its annual meeting of
shareholders to be held April 28, 1997, is here incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Compensation Committee
Interlocks and Insider Participation" in the registrant's definitive
proxy statement for its annual meeting of shareholders to be held
April 28, 1997, is here incorporated by reference.
-23-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS.
The following consolidated financial statements of the
Corporation and its subsidiaries and report of independent auditors
are incorporated by reference from the registrant's annual report to
shareholders for the year ended December 31, 1996, in Item 8:
<TABLE>
<CAPTION>
PAGE NUMBER IN
STATEMENT OR REPORT ANNUAL REPORT
------------------- --------------
<S><C> <C>
Report of Independent Auditors 13
Consolidated Balance Sheets as of December 31, 1996, and 1995 14
Consolidated Statements of Income for the years ended
December 31, 1996, 1995, and 1994 15
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1996, 1995, and 1994 16
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994 17
Notes to Consolidated Financial Statements 18-33
</TABLE>
The consolidated financial statements, notes to consolidated
financial statements, and report of independent auditors listed above
are incorporated by reference in Item 8 of this report from the
corresponding portions of the registrant's annual report to
shareholders for the year ended December 31, 1996.
(2) Schedules to the consolidated financial statements required
by Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(3) The following exhibits are filed as part of this report:
NUMBER EXHIBIT
3(a) ARTICLES OF INCORPORATION. Previously filed as an exhibit
to registrant's Registration Statement on Form S-2
(Registration No. 33-68432) filed on September 3, 1993.
Here incorporated by reference.
3(b) BYLAWS. Previously filed as an exhibit to the registrant's
Registration Statement on Form S-2 (Registration No. 33-68432)
filed on September 3, 1993. Here incorporated by reference.
-24-
<PAGE>
NUMBER EXHIBIT
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. Here incorporated by reference.
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. Here incorporated by
reference.
10(c)* DEFERRED COMPENSATION PLAN. Previously filed as an exhibit to the
registrant's Form 10-K for the year ended December 31, 1995. Here
incorporated by reference.
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. Here incorporated by reference.
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. Here incorporated
by reference.
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. Here
incorporated by reference.
13 1996 ANNUAL REPORT TO SHAREHOLDERS. (This report, except for those
portions which are expressly incorporated by reference in this filing,
is furnished for the information of the Securities and Exchange
Commission and is not deemed "filed" as part of this filing.)
21 SUBSIDIARIES OF REGISTRANT. Previously filed as an exhibit
to the registrant's Form 10-K for the year ended December
31, 1995. Here incorporated by reference.
23 CONSENT OF CROWE, CHIZEK AND COMPANY LLP.
24 POWERS OF ATTORNEY.
27 FINANCIAL DATA SCHEDULE.
99 FIRSTBANK CORPORATION 401(K) PLAN PERFORMANCE TABLE.
*Management contract or compensatory plan.
-25-
<PAGE>
The registrant will furnish a copy of any exhibit listed
above to any shareholder of the registrant without charge upon written
request to Mary D. Deci, Secretary, Firstbank Corporation,
311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan 48801.
(b) REPORTS ON FORM 8-K.
During the last quarter of the period covered by this
report, the registrant filed no Current Reports on Form 8-K.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 23, 1997 FIRSTBANK CORPORATION
By /S/MARY D. DECI
Mary D. Deci
Vice President, Secretary, Treasurer and
Chief Financial Officer
-27-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
March 23, 1997 /S/ JOHN A. MCCORMACK
John A. McCormack
President, Chief Executive
Officer, and Director
(Principal executive officer)
March 23, 1997 /S/ MARY D. DECI
Mary D. Deci
Vice President, Secretary, and Treasurer
(Principal financial and
accounting officer)
March 23, 1997 /S/ WILLIAM E. GOGGIN*
William E. Goggin
Director
March 23, 1997 /S/ EDWARD B. GRANT*
Edward B. Grant
Director
March 23, 1997 /S/ CHARLES W. JENNINGS*
Charles W. Jennings
Director
March 23, 1997 /S/ PHILLIP G. PEASLEY*
Phillip G. Peasley
Director
March 23, 1997 /S/ DAVID D. ROSLUND*
David D. Roslund
Director
*By /S/ MARY D. DECI
Mary D. Deci
(Attorney in Fact)
-28-
<PAGE>
INDEX TO EXHIBITS
NUMBER EXHIBIT PAGE
3(a) ARTICLES OF INCORPORATION. Previously filed as an **
exhibit to the registrant's Registration Statement
on Form S-2 (Registration No. 33-68432) filed on
September 3, 1993. Here incorporated by reference.
3(b) BYLAWS. Previously filed as an exhibit to the **
registrant's Registration Statement on Form S-2
(Registration No. 33-68432) filed on September 3,
1993. Here incorporated by reference.
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. Here incorporated by reference.
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. Here incorporated by reference.
10(c)* DEFERRED COMPENSATION PLAN. Previously filed as **
an exhibit to the registrant's Form 10-K for the
year ended December 31, 1995. Here incorporated by
reference.
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. Here
incorporated by reference.
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. Here incorporated
by reference.
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. Here
incorporated by reference.
-29-
<PAGE>
NUMBER EXHIBIT PAGE
13 1996 ANNUAL REPORT TO SHAREHOLDERS. (This report, 30
except for those portions which are expressly
incorporated by reference in this filing is
furnished for the information of the Securities and
Exchange Commission and is not deemed "filed" as part
of this filing.)
21 SUBSIDIARIES OF REGISTRANT. Previously filed as **
an exhibit to the registrant's Form 10-K for the
year ended December 31, 1995. Here incorporated by
reference.
23 CONSENT OF CROWE, CHIZEK AND COMPANY LLP. 70
24 POWERS OF ATTORNEY. 72
27 FINANCIAL DATA SCHEDULE. 79
99 FIRSTBANK CORPORATION 401(K) PLAN PERFORMANCE TABLE. 80
________________________
*Management contract or compensatory plan.
**This Exhibit is filed by incorporation by reference to a prior
filing.
-30-
<PAGE>
EXHIBIT 13
FIRSTBANK
CORPORATION
1996 ANNUAL REPORT
<PAGE>
===========================================================================
PRESIDENT'S MESSAGE
TO OUR SHAREHOLDERS:
The highlight of 1996 financial performance was a second consecutive year
of 20% increase in net income. Net income in 1996 was $4,643,000 compared
to $3,865,000 in 1995 and $3,221,000 in 1994. Net income for 1996 is the
highest ever achieved by Firstbank Corporation. In addition, the
Corporation set new records for total assets, loans, deposits, and
shareholders' equity.
[NET INCOME GRAPH]
Per share earnings were $2.86 in 1996, a 19% annual increase over $2.40 per
share for 1995, and $2.02 in 1994. Net income per share has been adjusted
for the 5% stock dividends issued in December, 1996 and 1995. Return on
average equity was 15.15% in 1996 compared to 14.02% in 1995, and 12.99% in
1994. Return on average assets was 1.25% in 1996, 1.17% in 1995, and 1.20%
in 1994.
The continued record performance in 1996 is primarily the result of a $46
million increase in earning assets and a strong net interest margin of
5.26%. Total assets exceeded $400 million for the first time in Firstbank
Corporation history, ending the year at $405 million. The 1996 results
represent a 15%, or $52 million increase compared to total assets of $353
million in 1995.
Total loans increased 19%, or nearly $50 million at December 31, 1996, to
$315 million compared to $265 million at December 31, 1995. Commercial
loans increased 6% to $123 million, consumer loans increased 19% to $69
million, and real estate mortgages increased 35% to $123 million. The loan
growth was funded by a $52 million increase in deposits, $19 million of
which is the result of acquiring two branch offices from a large regional
bank holding company.
Loan quality remains very good. The allowance for loan losses increased
$1,371,000 in 1996 to $6,247,000, which is 1.99% of total loans.
Nonperforming loans are $1,057,000 or .34% of total loans. The allowance
for loan losses is nearly six times nonperforming loans. We continuously
monitor the quality of the loan portfolio and utilize the services of an
outside loan review specialist. The loan review specialist reviews
approximately 60% of the commercial loan portfolio and a smaller sample of
consumer loans and real estate mortgage loans annually.
======================================================================== 1
<PAGE>
===========================================================================
Firstbank Corporation successfully operates as a community bank
organization. Each of the three subsidiary banks operates independently of
one another by making all decisions that impact customers. The trend for
many state wide holding companies is to consolidate all banks into a single
state wide bank. We believe decentralized management is critical to our
continued increase of market share and internal growth of earning assets.
Customer service is our single most important daily goal. The challenge of
meeting our customers' needs requires competent and empowered decision
makers in each community we serve.
We also continue to seek acquisitions of other banks or branches that will
increase shareholder value. We have been successful acquiring branches,
but to date the prices which would have been required for banks we have
considered acquiring would have been too dilutive to shareholders. It is
our practice to pursue strategic acquisition opportunities to increase
earning assets, but only if our shareholders would be expected to achieve
increased value.
We have been very pleased with the performance of Firstbank Corporation
stock over the past few years. The compound annual growth rate of
Firstbank Corporation stock has been 17.6% since the holding company was
formed in 1986. The bid price increased 32.5% in 1996, and 30.7% in 1995.
The directors have authorized 5% stock dividends in each of the past five
years and in seven of the last eight years. A two for one stock split
occurred in 1993.
Based on first quarter 1997 performance to date, the Board of Directors
anticipates approving an 18% increase for the 1997 second quarter cash
dividend from $.22 to $.26 per share. The annualized dividend yield would
be 3.04%, based on January 24, 1997, bid price. The cash dividend
increased 22% in the second quarter of 1996, and 20% in the second quarter
of 1995. The cash dividends are in addition to the 5% stock dividend
issued in each of the years.
Shareholders may benefit by an enhancement to the Dividend Reinvestment
Plan made in November, 1996. The Plan permits shareholders who are Plan
participants to make optional cash payments each quarter of not less than
$100 or more than $2,500 for investment in common stock. Shareholders
purchase the supplemental shares of Firstbank Corporation stock at the high
bid quotation as reported on the NASDAQ Bulletin Board. For more
information, please contact our Shareholder Services Representative at
(517) 463-3131, extension 236.
At the end of the year, all full time employees of Firstbank Corporation
subsidiaries were shareholders or had stock options in Firstbank
Corporation common stock. Their ownership in Firstbank Corporation has
intensified their commitment to our goals and each of them deserves credit
for the success achieved in the past few years. We appreciate the support
of all shareholders and employees whose commitment to Firstbank Corporation
is vital to our success. We believe 1997 will be another successful year
that will reward your confidence and investment in our company.
Respectfully submitted,
/S/ JOHN MCCORMACK
John McCormack
President & Chief Executive Officer
2 ========================================================================
<PAGE>
===========================================================================
[DIVIDEND PER SHARE QUARTERLY AVERAGE GRAPH]
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
FOR THE YEAR: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $31,016 $27,394 $20,496 $18,931 $18,284
Net interest income 17,735 15,593 12,941 11,476 9,917
Provision for loan losses 1,838 1,085 1,000 1,139 980
Noninterest income 3,297 2,471 2,547 2,726 2,347
Noninterest expense 12,790 11,813 10,328 9,522 8,701
Net income 4,643 3,865 3,221 2,841 2,003
AT YEAR END:
Total assets 404,571 352,943 309,722 257,339 242,105
Total earning assets 372,777 327,232 286,956 243,443 224,886
Loans 314,620 264,847 223,391 178,394 143,432
Deposits 358,669 307,007 266,894 220,157 213,846
Shareholders' equity<F1> 33,088 29,853 25,596 23,497 15,542
AVERAGE BALANCES:
Total assets 372,829 330,079 268,399 247,659 222,658
Total earning assets 350,501 308,294 250,984 231,881 206,624
Loans 290,181 243,962 191,682 158,908 139,130
Deposits 324,136 288,692 234,546 217,621 196,804
Shareholders' equity<F1> 30,640 27,569 24,787 18,271 14,840
PER SHARE:<F2>
Net income 2.86 2.40 2.02 2.17 1.68
Cash dividends 0.80 0.63 0.51 0.49 0.47
Shareholders' equity 20.33 18.44 15.96 14.73 12.85
FINANCIAL RATIOS:
Return on average assets 1.25% 1.17% 1.20% 1.15% 0.90%
Return on average equity 15.15% 14.02% 12.99% 15.55% 13.50%
Average equity to average assets 8.22% 8.35% 9.24% 7.38% 6.66%
Dividend payout ratio 27.94% 26.23% 26.09% 22.77% 28.01%
<FN>
<F1>The Company had a stock offering of 368,000 shares in 1993
<F2>All per share amounts adjusted for stock dividends and stock split
</FN>
</TABLE>
The Company's Firstbank subsidiary acquired a branch in Clare during 1992.
In that transaction the Bank assumed $16,000,000 of deposit liabilities.
The purchase method of accounting was used for the transaction.
Accordingly, the assets and operating results of this branch are included
in the consolidated financial statements for periods after October 16,
1992, the date of purchase.
The Company's Bank of Alma subsidiary acquired a branch in St. Charles
during 1994. In that transaction the Bank assumed $11,000,000 of deposit
liabilities and acquired $5,000,000 in earning assets. The assets,
liabilities and operating results of this branch are included in the
consolidated financial statements after November 11, 1994. The Company's
1st Bank subsidiary acquired branches in Fairview and Higgins Lake during
1994. In that transaction, the Bank assumed $15,000,000 of deposit
liabilities. The assets, liabilities and operating results of these
branches are included in the consolidated results after November 30, 1994.
The purchase method of accounting was used for these transactions.
The Company's Firstbank subsidiary acquired a branch in Mt. Pleasant during
1995. In that transaction, the Bank assumed $11,000,000 of deposit
liabilities. The purchase method of accounting was used for the
transaction. Accordingly, the assets and operating results of this branch
are included in the consolidated financial statements for periods after
June 16, 1995.
The Company's Bank of Alma subsidiary acquired branches in Merrill and
Auburn during 1996. In that transaction, the Bank assumed $19,000,000 of
deposit liabilities. The purchase method of accounting was used for this
transaction. Accordingly, the assets and operating results of this branch
are included in the consolidated financial statements for periods after
December 13, 1996.
THE COMPANY'S FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION WILL BE PROVIDED TO ANY SHAREHOLDER WITHOUT CHARGE UPON WRITTEN
REQUEST. REQUESTS SHOULD BE ADDRESSED TO MARY D. DECI, CHIEF FINANCIAL
OFFICER, FIRSTBANK CORPORATION, 311 WOODWORTH AVENUE, P. O. BOX 1029, ALMA,
MICHIGAN 48801-6029.
======================================================================== 3
<PAGE>
===========================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section of the annual report is to provide a narrative
discussion about Firstbank Corporation's financial condition and results of
operations. Please refer to the consolidated financial statements and the
selected financial data presented in this report in addition to the
following discussion and analysis.
RESULTS OF OPERATIONS
HIGHLIGHTS
[EARNINGS PER SHARE GRAPH]
A fifth consecutive year of record earnings headline the Company's 1996
performance. 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, the Company's strong results reflected
the effect of continued strength in core banking activities as opposed to
the effect of nonrecurring factors.
Management believes that standard performance indicators help evaluate the
Company's performance. The Company 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. The Company'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 the Company is earning interest on loans and paying
interest on deposits. In successfully managing this business, the Company
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. The Company'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 the Company operates.
Interest rates on earning assets and interest bearing liabilities are both
subject to market forces. However, the Company 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. The Company 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.
4 ========================================================================
<PAGE>
===========================================================================
<TABLE>
Summary of Consolidated Net Interest Income
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets
Interest earning assets:
Taxable securities $ 30,687 $ 1,922 6.27% $ 30,702 $ 1,983 6.47% $ 26,532 $ 1,360 5.10%
Tax exempt securities <F1> 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 <F1> <F2> 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
Nonaccrual 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 liabilities:
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 non interest bearing
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 <F1> $18,424 $16,328 $13,718
======= ======= =======
Rate spread <F1> 4.57% 4.61% 4.85%
==== ==== ====
Net interest margin
(percent of average
earning assets) <F1> 5.26% 5.29% 5.47%
==== ==== ====
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income
tax rate of 34%.
<F2> Interest income includes loan fees of $1,327,000, $1,060,300, and
$897,700 respectively.
Interest is not included in nonaccrual loans.
</FN>
</TABLE>
======================================================================== 5
<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. The Company'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 the Company 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. The Company'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 posted
increases 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 the Company'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, the Company 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 consolidated financial statements.
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.
6 ========================================================================
<PAGE>
===========================================================================
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. The Company 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. The
Company 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
The Company'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 the Company's investment in securities and loans which
provide income exempt from federal income tax.
FINANCIAL CONDITION
Total assets of the Company 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:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 CHANGE % CHANGE
---- ---- ------ --------
<S> <C> <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 for others $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.
The Company believes that the reclassification of all securities as
available for sale will provide management with greater flexibility in
managing its assets and liabilities. The Company has used the proceeds
from the maturities of investment securities to fund loan growth. During
1996, the Company did not sell securities prior to maturity to fund loan
growth.
======================================================================== 7
<PAGE>
===========================================================================
Premises and equipment increased $1,213,000 after depreciation expense of
$750,000. The Company 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 agreement 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. The Company borrowed funds
from the Federal Home Loan Bank primarily to fund loan demand. For a more
complete discussion, please see Note I to the consolidated financial
statements.
ASSET QUALITY
Management 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 our size.
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. Please refer to
Note E to the 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 represents 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 the Company 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 the
Company'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 decreased 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 the Company 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.
8 ========================================================================
<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)
2 DAYS 4 MOS. 13 MOS.
THROUGH THROUGH THROUGH
1 DAY 3 MOS. 12 MOS. 5 YRS. 5+ YRS.
----- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
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 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 the Company'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 savings 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. The Company 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
[BOOK VALUE PER SHARE GRAPH]
The Company 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, the Company's total capital to risk weighted
assets exceeded the minimum requirement for capital adequacy purposes of 8%
by 2.79% or $8.4 million, Tier 1 capital to risk weighted assets exceeded
the minimum of 4% by 5.53% or $16.6 million, and Tier 1 capital to average
assets exceeded the minimum 4% by 3.79% or $13.9 million. For a more
complete discussion of capital requirements, please refer to Note P to the
consolidated financial statements.
======================================================================== 9
<PAGE>
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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. Each
of the Company's affiliate banks has exceeded 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 $5.5 million stock issuance 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> <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 the Company's return on average equity while maintaining a
reasonable cash dividend.
As an additional enhancement to capital growth, the Company 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.
The Company 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.
10 ========================================================================
<PAGE>
===========================================================================
FIRSTBANK CORPORATION AND SUBSIDIARIES
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
1996
----
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Interest income $7,355 $7,643 $7,917 $8,101 $31,016
Net interest income 4,102 4,389 4,571 4,673 17,735
Provision for loan losses 297 535 709 297 1,838
Income before federal income taxes 1,430 1,539 1,651 1,784 6,404
Net income 1,053 1,119 1,173 1,298 4,643
Net income per share<F*> .65 .70 .72 .79 2.86
</TABLE>
<TABLE>
<CAPTION>
1995
----
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Interest income $6,238 $6,730 $7,141 $7,285 $27,394
Net interest income 3,728 3,842 3,975 4,048 15,593
Provision for loan losses 340 230 170 345 1,085
Income before federal income taxes 1,278 1,251 1,305 1,332 5,166
Net income 954 950 962 999 3,865
Net income per share<F*> .60 .59 .60 .61 2.40
<FN>
<F*>Adjusted for stock dividend
</FN>
</TABLE>
- ---------------------------------------------------------------------------
COMMON STOCK DATA
Firstbank Corporation shares were held by 957 shareholders of record as of
December 31, 1996. Total shareholders number approximately 1,200,
including those whose shares are held in street name. The Company's shares
are listed on the NASD Over the Counter Bulletin Board under the symbol
FBMI and are traded by several brokers. The range of bid prices for shares
of common stock for each quarterly period during the past two years is as
follows:
<TABLE>
<CAPTION>
LOW AND HIGH BID QUOTATIONS
---------------------------
1996 1995
---- ----
<S> <C> <C>
First Quarter $23.81 - $26.19 $18.59 - $19.52
Second Quarter $26.19 - $28.33 $19.72 - $22.00
Third Quarter $28.33 - $30.24 $22.00 - $22.45
Fourth Quarter $30.24 - $33.75 $22.68 - $23.81
</TABLE>
The prices quoted above 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. Prices have been adjusted to reflect stock
dividends.
The following table summarizes cash dividends paid per share (adjusted for
stock dividends) of common stock during 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
First Quarter $.1714 $.1361
Second Quarter $.2095 $.1632
Third Quarter $.2095 $.1632
Fourth Quarter $.2095 $.1632
------ ------
$.7999 $.6257
====== ======
</TABLE>
The Company's principal sources of funds to pay cash dividends are the
earnings of and dividends paid by the subsidiary banks. Under current
regulations, the subsidiary banks are restricted in their ability to
transfer funds in the form of cash dividends, loans and advances to the
Company (See Note O). As of January 1, 1997, approximately $8,209,000 of
the subsidiaries' retained earnings are available for transfer in the form
of dividends to the Company without prior regulatory approval. In
addition, to the extent of the subsidiaries' 1997 earnings, such earnings
will be available for distributions as dividends to the Company.
======================================================================== 11
<PAGE>
[CROWE CHIZEK LOGO]
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.
/S/ CROW, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 24, 1997
<PAGE>
===========================================================================
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31
-----------
1996 1995
---- ----
<S> <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.
======================================================================== 13
<PAGE>
===========================================================================
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995 1994
---- ---- ----
<S> <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.
14 ========================================================================
<PAGE>
===========================================================================
<TABLE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<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.
======================================================================== 15
<PAGE>
===========================================================================
<TABLE>
FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<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.
16 ========================================================================
<PAGE>
===========================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Firstbank Corporation (the "Company") is a bank
holding company. Each subsidiary bank of the Company 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 the Company's service area by one of its
subsidiary banks. The consolidated assets of the Company 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 the
Company's consolidated balance sheet.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company 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 the
Company'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: The Company'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 the Company 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. The Company'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. The
Company 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 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. The Company 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.
======================================================================== 17
<PAGE>
===========================================================================
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
allowance 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 the Company 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 the Company'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 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: The Company 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. The Company 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.
18 ========================================================================
<PAGE>
===========================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: During 1996 and
1994, the Company transferred $713,992 and $7,242,029 from loans held for
sale to portfolio loans. During 1995, the Company 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
The Company'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.
======================================================================== 19
<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> <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 the Company with greater flexibility in
managing its assets and liabilities.
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> <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.
20 ========================================================================
<PAGE>
===========================================================================
NOTE D--SECONDARY MORTGAGE MARKET OPERATIONS
The following summarizes the Company'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.
======================================================================== 21
<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> <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>
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>
22 ========================================================================
<PAGE>
===========================================================================
NOTE G--FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
Federal income taxes consist of the following: 1996 1995 1994
---- ---- ----
<S> <C> <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> <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 income taxes $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> <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>
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:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
--------------------
YEAR AMOUNT
---- ------
<S> <C> <C>
1997 $120,602
1998 24,899
1999 9,161
2000 7,038
2001 and over 3,057
--------
Total $164,757
========
</TABLE>
======================================================================== 23
<PAGE>
===========================================================================
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:
<TABLE>
<CAPTION>
At December 31: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
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
</TABLE>
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
the Company 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.
NOTE J--EMPLOYEE BENEFIT PLANS
The Company 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. The Company's 1996, 1995, and 1994
matching 401(k) contributions charged to expense were $158,934, $133,211
and $131,664 respectively. The percent of the Company's matching
contributions to the 401(k) is determined annually by the Board of
Directors.
Effective June 30, 1988, the Company 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 the Company 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, the Company 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 the Company to the plan
in connection with the termination. Termination of the plan resulted in a
1994 pre tax gain of approximately $441,000.
24 ========================================================================
<PAGE>
===========================================================================
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.
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> <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> <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.
======================================================================== 25
<PAGE>
===========================================================================
NOTE L--RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company 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.
NOTE M--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company 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. The Company'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> <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 the Company 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
the Company 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.
26 ========================================================================
<PAGE>
===========================================================================
NOTE P--CAPITAL ADEQUACY
The subsidiary banks of the Company 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> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
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 the
Company'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
</TABLE>
======================================================================== 27
<PAGE>
===========================================================================
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
RISK-BASED RISK-BASED LEVERAGE
1995 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 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>
The following table shows the dollar amounts, in thousands, by which the
Company'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
</TABLE>
The Company and each subsidiary bank were considered well capitalized at
both December 31, 1996 and 1995.
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 the Company'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 the
Company 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 the Company.
28 ========================================================================
<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
- Notes payable
- Accrued interest payable
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 the Company'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.
======================================================================== 29
<PAGE>
===========================================================================
<TABLE>
NOTE R--FIRSTBANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
<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>
<TABLE>
STATEMENTS OF INCOME
<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>
30 ========================================================================
<PAGE>
===========================================================================
<TABLE>
STATEMENTS OF CASH FLOWS
<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:
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 dividend (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>
======================================================================== 31
<PAGE>
===========================================================================
FIRSTBANK CORPORATION
BOARD OF DIRECTORS
William E. Goggin, Chairman
CHAIRMAN, BANK OF ALMA
ATTORNEY, GOGGIN & BAKER
Edward B. Grant
DIRECTOR, GRADUATE BUSINESS STUDIES, CENTRAL MICHIGAN UNIVERSITY
PRESIDENT, LEARNET, INC.
Charles W. Jennings
ATTORNEY, JENNINGS & ELLIAS, PC
John McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIRSTBANK CORPORATION
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUST OFFICER, BANK OF ALMA
Phillip G. Peasley
PRESIDENT, PEASLEY'S HARDWARE & FURNITURE, INC.
David D. Roslund, CPA
ADMINISTRATOR, WILCOX HEALTH CARE CENTER
SMALL BUSINESS INVESTOR AND MANAGER
OFFICERS
John McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thomas R. Sullivan
EXECUTIVE VICE PRESIDENT
Mary D. Deci
VICE PRESIDENT, SECRETARY, TREASURER
AND CHIEF FINANCIAL OFFICER
Richard L. Jarvis
VICE PRESIDENT
Dale A. Peters
VICE PRESIDENT
James E. Wheeler, II
VICE PRESIDENT
- ---------------------------------------------------------------------------
FIRSTBANK CORPORATION
311 Woodworth Avenue
P. O. Box 1029
Alma, Michigan 48801-6029
(517) 463-3131
32 ========================================================================
<PAGE>
========================================================================
BANK OF ALMA
BOARD OF DIRECTORS
William E. Goggin, Chairman
CHAIRMAN, FIRSTBANK CORPORATION
ATTORNEY, GOGGIN & BAKER
Bob M. Baker
PRESIDENT AND CEO, GRATIOT COMMUNITY HOSPITAL
Peggy Bever
BUSINESS MANAGER
Donald Crumbaugh
FARMER
Jon Groteluschen
VICE PRESIDENT OF FINANCE, ALMA COLLEGE
L. Douglas Lippert
PRESIDENT, LIPPERT COMPONENTS, INC.
John McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIRSTBANK CORPORATION
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUST OFFICER, BANK OF ALMA
John P. Morgan
PARTNER, MORGAN-MEIJER COMMUNICATIONS
Phillip G. Peasley
PRESIDENT, PEASLEY'S HARDWARE & FURNITURE, INC.
David D. Roslund, CPA
ADMINISTRATOR, WILCOX HEALTH CARE CENTER
SMALL BUSINESS INVESTOR AND MANAGER
Victor V. Rozas, M.D.
PHYSICIAN
Alan J. Stone
PRESIDENT, ALMA COLLEGE
HONORARY DIRECTOR
Robert D. Hoxie
OFFICERS
John McCormack
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUST OFFICER
Mary D. Deci
SENIOR VICE PRESIDENT, CONTROLLER, CASHIER AND
CHIEF FINANCIAL OFFICER
James E. Wheeler, II
SENIOR VICE PRESIDENT AND CHIEF LOAN OFFICER
Timothy P. Clark
VICE PRESIDENT AND SENIOR TRUST OFFICER
Gregory Daniels
VICE PRESIDENT
Marita Harkness
VICE PRESIDENT
Gerald Kench
VICE PRESIDENT
Victoria Pavlik
VICE PRESIDENT
Shannon Vasicek
VICE PRESIDENT
SUBSIDIARY
Niles Agency, Incorporated
315 Woodworth Ave.
Alma, MI 48801
(517) 463-1725
- ----------------------------------------------------------------------------
OFFICE LOCATIONS
ALMA
7455 N. Alger Rd.
(517) 463-3134
230 Woodworth Ave.
(517) 463-3137
311 Woodworth Ave.
(517) 463-3131
ASHLEY
114 S. Sterling St.
(517) 847-2394
AUBURN
4710 S. Garfield Rd.
(517) 662-4459
ITHACA
219 E. Center St.
(517) 875-4107
MERRILL
125 W. Saginaw St.
(517) 643-7253
RIVERDALE
6716 N. Lumberjack Rd.
(517) 833-7331
ST. CHARLES
102 Pine St.
(517) 865-9918
ST. LOUIS
135 W. Washington Ave.
(517) 681-5758
VESTABURG
8846 Third St.
(517) 268-5445
======================================================================== 33
<PAGE>
===========================================================================
FIRSTBANK
BOARD OF DIRECTORS
Edward B. Grant, Chairman
DIRECTOR, GRADUATE BUSINESS STUDIES, CENTRAL MICHIGAN UNIVERSITY
PRESIDENT, LEARNET, INC.
Ralph E. Baumgarth
DENTIST
Ralph M. Berry
OWNER, BERRY FUNERAL HOME
Glen D. Blystone
CERTIFIED PUBLIC ACCOUNTANT,
BLYSTONE & BAILEY, CPAS, PC
Sibyl Ellis
PRESIDENT, SOMEPLACE SPECIAL, INC.
Keith A. Gaede
PHARMACIST, PUNCHES PHARMACY
Edward H. Kalis
OWNER, KALIS TRUCKING AND KALIS FARMS
Douglas N. LaBelle
PARTNER, LABELLE MANAGEMENT
John McCormack
PRESIDENT & CEO, FIRSTBANK CORPORATION
PRESIDENT & CEO, BANK OF ALMA
Phillip R. Seybert
PRESIDENT, P.S. EQUITIES, INC.
Thomas R. Sullivan
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIRSTBANK
EXECUTIVE VICE PRESIDENT, FIRSTBANK CORPORATION
Arlene Yost
SECRETARY AND TREASURER, JAY'S SPORTING GOODS, INC.
HONORARY DIRECTORS
Elton L. Philo
C.A. KOESTER
OFFICERS
Thomas R. Sullivan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Richard L. Jarvis
EXECUTIVE VICE PRESIDENT
James M. Taylor
SENIOR VICE PRESIDENT
Robert L. Wheeler
VICE PRESIDENT
Firstbank maintains an association with
Mariner Financial Corporation. Their office
is located in the Firstbank Pickard Street branch.
- ---------------------------------------------------------------------------
OFFICE LOCATIONS
MT. PLEASANT
102 S. Main St.
(517) 773-2600
4699 E. Pickard St.
(517) 773-2335
2013 S. Mission St.
(517) 773-3959
CLARE
806 N. McEwan Ave.
(517) 386-7313
SHEPHERD
258 W. Wright Ave.
(517) 828-6625
WINN
2783 Blanchard Rd.
(517) 866-2210
34 ========================================================================
<PAGE>
===========================================================================
1ST BANK
BOARD OF DIRECTORS
Dale A. Peters, Chairman
PRESIDENT AND CHIEF EXECUTIVE OFFICER, 1ST BANK
VICE PRESIDENT, FIRSTBANK CORPORATION
Bryon Bernard
CEO, BERNARD BUILDING CENTER
Joe Clark
OWNER, MORSE CLARK FURNITURE
Timothy Eyth
OWNER, WEST BRANCH VETERINARY SERVICES
David Fultz
OWNER, FULTZ INSURANCE AGENCY
Robert Griffin
OWNER AND PRESIDENT, GRIFFIN BEVERAGE COMPANY,
NORTHERN BEVERAGE CO., AND WEST BRANCH TANK & TRAILER
Charles W. Jennings
ATTORNEY, JENNINGS & ELLIAS, PC
John McCormack
PRESIDENT & CEO, FIRSTBANK CORPORATION
PRESIDENT & CEO, BANK OF ALMA
Norman Miller
OWNER, MILLER FARMS, AND MILLER DAIRY EQUIPMENT AND FEED
Jeff Schubert
DENTIST
Milford Scott
OWNER, SCOTT'S TRUE VALUE HARDWARE
Robert Smith
OWNER, INDEPENDENT INSURANCE AGENT,
CRECINE INSURANCE AGENCY
OFFICERS
Dale A. Peters
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Daniel Grenier
SENIOR VICE PRESIDENT
Larry Schneider
VICE PRESIDENT
Danny Gallagher
VICE PRESIDENT
Richard Pfahl
VICE PRESIDENT
Michael Ehinger
VICE PRESIDENT
Marie A. Wilkins
VICE PRESIDENT
Rosalind A. Heideman
VICE PRESIDENT
Eileen McGregor
VICE PRESIDENT
1st Bank maintains an association with
Mariner Financial Corporation. Their office
is located in the Main Office of 1st Bank.
SUBSIDIARY
1st Armored, Incorporated
P.O. Box 9
West Branch, MI 48661
(517) 345-5820
- ---------------------------------------------------------------------------
OFFICE LOCATIONS
WEST BRANCH
502 W. Houghton
(517) 345-7900
601 W. Houghton
(517) 345-7900
2087 S. M-76
(517) 345-5050
FAIRVIEW
1979 Miller
(517) 848-2243
HALE
3281 M-65
(517) 728-7566
HIGGINS LAKE
4522 W. Higgins Lake
Roscommon, MI
(517) 821-9231
ST. HELEN
2040 N. St. Helen
(517) 389-1311
ROSE CITY
505 S. Bennett
(517) 685-3909
======================================================================== 35
<PAGE>
===========================================================================
BUSINESS OF THE COMPANY
Firstbank Corporation (the "Company") is a bank holding company. As of
December 31, 1996, the Company's wholly owned subsidiaries are Bank of Alma,
Firstbank, 1st Bank, Niles Agency, Incorporated, and 1st Armored,
Incorporated. The Company also maintains an association with Mariner
Financial Services.
The Company is in the business of banking. Each subsidiary bank of the
Company 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. Bank of Alma also offers trust services. Deposits of each of the
banks are insured by the Federal Deposit Insurance Corporation.
The banks obtain most of their deposits and loans from residents and
businesses in Bay, Clare, Gratiot, Iosco, Isabella, Midland, Montcalm,
Ogemaw, Oscoda, Roscommon, Saginaw and parts of Clinton County. Bank of Alma
has its main office and one branch in Alma, Michigan, and one branch located
in each of the following: Ashley, Auburn, Ithaca, Merrill, Pine River
Township (near Alma), Riverdale, St. Charles, St. Louis, and Vestaburg,
Michigan. Firstbank has its main office in Mt. Pleasant, Michigan, and one
branch located in each of the following: Clare, Mt. Pleasant, Shepherd,
Union Township (near Mt. Pleasant), and Winn, Michigan. 1st Bank has its
main office in West Branch, Michigan, and one branch located in each of the
following: Fairview, Hale, Higgins Lake, Rose City, St. Helen, and West
Branch Township (near West Branch), Michigan. The banks have no material
foreign assets or income.
The principal sources of revenues for the Company and its subsidiaries are
interest and fees on loans. On a consolidated basis, interest and fees on
loans accounted for approximately 80% of total revenues in 1996, 79% in 1995,
and 75% in 1994. Interest on investment securities accounted for
approximately 10% of total revenues in 1996, 12% in 1995, and 13% in 1994.
No other single source of revenue accounted for 10% of the Company's total
revenues in any of the last 3 years.
As of December 31, 1996, the Company and its subsidiaries employed 227 people
on a full-time equivalent basis.
CORPORATE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
ANNUAL MEETING STOCK INFORMATION
The annual meeting of shareholders will be held on Firstbank Corporation shares are listed on the
Monday, April 28, 1997, 5:00 p.m., at the NASD Over the Counter Bulletin Board under
Comfort Inn, Alma, Michigan. the symbol FBMI.
INDEPENDENT AUDITORS Dean Witter Reynolds, Inc.
Crowe, Chizek and Company LLP Ted Vogt
Grand Rapids, Michigan 1-800-788-9640
GENERAL COUNSEL First of Michigan
Warner, Norcross & Judd Mike Young
Grand Rapids, Michigan 1-800-521-1197
TRANSFER AGENT McDonald & Company
Bank of Alma Shareholder Services Department Jack Korff
(517) 463-3131 extension 236 1-800-548-6011
Robert W. Baird & Company
Chris Turner
1-800-888-6200
Roney & Company
Nikki Gregg
1-800-572-0786
Stifel, Nicolaus & Company, Inc.
Pete VanDer Schaaf
1-800-676-0477
</TABLE>
36 ========================================================================
<PAGE>
FIRSTBANK
CORPORATION
311 WOODWORTH AVENUE
P.O. BOX 1029
ALMA, MICHIGAN 48801-6029
TELEPHONE: (517) 463-3131
FAX: (517) 463-6438
NASD OTC SYMBOL: FBMI
<PAGE>
EXHIBIT 23
CONSENT OF CROWE, CHIZEK AND COMPANY LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Firstbank Corporation on Form S-8 (Registration No. 33-60190),
Form S-3 (Registration No. 333-15131),and Form S-8 (Registration
No. 333-20377) of our report dated January 24, 1997 on the 1996
consolidated financial statements of Firstbank Corporation, which report is
included in the 1996 Annual Report on Form 10-K of Firstbank Corporation.
/S/ CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
March 24, 1997
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
February 19, 1997 /S/ MARY D. DECI
Mary D. Deci
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
March 17, 1997 /S/ JOHN A. MCCORMACK
John A. McCormack
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
February 20, 1997 /S/ WILLIAM E. GOGGIN
William E. Goggin
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
February 20, 1997 /S/ CHARLES W. JENNINGS
Charles W. Jennings
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
February 28, 1997 /S/ DAVID D. ROSLUND
David D. Roslund
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
February 20, 1997 /S/ PHILLIP G. PEASLEY
Phillip G. Peasley
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
The undersigned, in his or her capacity as a director or officer,
or both, as the case may be, of Firstbank Corporation, does hereby appoint
MARY D. DECI and JOHN A. McCORMACK, or either of them, his or her attorneys
or attorney to execute in his or her name an Annual Report of Firstbank
Corporation on Form 10-K for its fiscal year ended December 31, 1996, and
any amendments to that report, and to file it with the Securities and
Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all
intents and purposes as the undersigned could do in person, and the
undersigned hereby ratifies and approves the acts of such attorneys.
DATE SIGNATURE
February 19, 1997 /S/ EDWARD B. GRANT
Edward B. Grant
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS FORM
10-K AND ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,431
<INT-BEARING-DEPOSITS> 147
<FED-FUNDS-SOLD> 1,650
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,572
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 314,620
<ALLOWANCE> 6,247
<TOTAL-ASSETS> 404,571
<DEPOSITS> 358,669
<SHORT-TERM> 9,072
<LIABILITIES-OTHER> 3,742
<LONG-TERM> 0
<COMMON> 24,228
0
0
<OTHER-SE> 563
<TOTAL-LIABILITIES-AND-EQUITY> 404,571
<INTEREST-LOAN> 27,447
<INTEREST-INVEST> 3,569
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 31,016
<INTEREST-DEPOSIT> 12,581
<INTEREST-EXPENSE> 13,281
<INTEREST-INCOME-NET> 17,735
<LOAN-LOSSES> 1,838
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 12,790
<INCOME-PRETAX> 6,404
<INCOME-PRE-EXTRAORDINARY> 6,404
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,643
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.86
<YIELD-ACTUAL> 5.26
<LOANS-NON> 218
<LOANS-PAST> 689
<LOANS-TROUBLED> 150
<LOANS-PROBLEM> 273
<ALLOWANCE-OPEN> 4,876
<CHARGE-OFFS> 780
<RECOVERIES> 313
<ALLOWANCE-CLOSE> 6,247
<ALLOWANCE-DOMESTIC> 4,703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,544
</TABLE>
<PAGE>
March 24, 1997
EXHIBIT 99
Firstbank Corporation 401(k) Plan
Performance Table
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<CAPTION>
INITIAL
INVESTMENT VALUE VALUE VALUE VALUE
Fund on 12/31/92 on 12/31/93 on 12/31/94 on 12/31/95 on 12/31/96
<S> <C> <C> <C> <C> <C>
Firstbank Corporation
Common Stock $1,000.00 $1,867.00 $1,970.00 $2,534.00 $3,348.00
Federated Money
Market for U.S. 2.80% 3.82% 5.63% 5.06%
Treasury Obligation $1,000.00 $1,028.00 $1,067.27 $1,127.36 $1,184.40
Federated Capital 5.20% 5.47% 5.92% 5.70%
Preservation Fund $1,000.00 $1,052.00 $1,109.54 $1,175.23 $1,242.22
Vanguard Fixed Income 9.70% -2.70% 18.20% 3.58%
Total Bond Fund $1,000.00 $1,097.00 $1,067.38 $1,261.64 $1,306.81
Vanguard Fixed Income
Long-Term Corporate 14.50% -5.30% 26.40% 1.20%
Bond Fund $1,000.00 $1,145.00 $1,084.32 $1,370.57 $1,387.02
12.49% -0.45% 35.63% 21.17%
Federated Stock $1,000.00 $1,124.90 $1,119.84 $1,518.84 $1,840.37
Vanguard Index 9.90% 1.18% 37.45% 22.88%
500 Fund $1,000.00 $1,099.00 $1,111.97 $1,528.40 $1,878.10
American Century 21.81% -3.62% 37.68% 13.77%
20th Century Ultra $1,000.00 $1,218.10 $1,174.00 $1,616.37 $1,838.94
Warburg-Pincus
Emerging Growth 18.11% -1.43% 46.22% 9.87%
Fund $1,000.00 $1,181.10 $1,164.21 $1,702.31 $1,870.33
T. Rowe Price
International 40.10% -0.80% 11.40% 15.99%
Stock Fund $1,000.00 $1,401.00 $1,389.79 $1,548.23 $1,795.79
Vanguard
International 44.70% 0.80% 14.90% 14.65%
Growth Fund $1,000.00 $1,447.00 $1,458.58 $1,675.90 $1,921.42
Fidelity Overseas 40.05% 1.27% 9.06% 13.10%
Fund $1,000.00 $1,400.50 $1,418.29 $1,546.78 $1,749.41
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American Century - 20th
Century International NA 7.60% 9.89% 30.98%
Discovery Fund $1,000.00 NA $1,076.00 $1,182.42 $1,548.73
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This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
