<PAGE>
=============================================================================
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, 1997
[ ] 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 2, 1998: $120,301,148
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 2, 1998: 2,149,604 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the year ended
December 31, 1997, are incorporated by reference in Part II.
Portions of the definitive proxy statement for the registrant's annual
shareholders' meeting to be held April 27, 1998, are incorporated by reference
in Part III.
=============================================================================
<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), 1st Bank (West Branch), and Bank of Lakeview.
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.
Bank of Alma owns Niles Agency, Incorporated, which offers
general insurance agency services. 1st Bank owns 1st Armored, Incorporated, an
armored car service provider. Each of the three subsidiary banks also offers
securities brokerage services at their main offices through arrangements with
third party brokerage firms.
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
1997, 80 percent of total revenues in 1996, and 79 percent in 1995. In
addition, interest income from investment securities accounted for approximately
11 percent of total revenues on a consolidated basis in 1997, 10 percent of
total revenues on a consolidated basis in 1996, and 12 percent in 1995. 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.
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, Michigan.
<PAGE>
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.
Bank of Lakeview is a Michigan state-chartered bank which was
established in 1904. Its main office and one branch are located in Lakeview,
and it has branches in Howard City, Morley, Remus, and Stanwood. The
Corporation acquired Bank of Lakeview and its holding company parent in August
of 1997. Bank of Lakeview operates as an independent community bank. The
acquisition was accounted for as a purchase transaction (the details of which
are more fully described in the 8-K dated August 8, 1997). Accordingly, the
results of operations of Bank of Lakeview are included with those of the Company
for periods subsequent to the date of merger. Although the markets served by
Bank of Lakeview are contiguous with those of the Corporation, the markets do
not overlap and the Corporation's subsidiary banks have not divested any
branches.
The following table shows comparative information concerning the
Corporation's subsidiary banks:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------
BANK OF ALMA FIRSTBANK 1ST BANK BANK OF LAKEVIEW
------------ --------- -------- ----------------
(In thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Assets $ 199,590 $ 95,229 $ 137,338 $ 97,623
Deposits 169,224 81,133 121,232 75,067
Loans 133,718 80,875 117,435 72,780
</TABLE>
As of December 31, 1997, the Corporation and its subsidiaries
employed 295 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).
-2-
<PAGE>
The Corporation's subsidiary banks compete directly with other
banks, thrift institutions, credit unions and other nondepository financial
institutions in four 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; 1st Bank primarily
in Iosco, Oscoda, Ogemaw, and Roscommon Counties; and Bank of Lakeview primarily
in Mecosta and Montcalm 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, 1st Bank, and Bank of Lakeview are chartered
under state law and are supervised, examined, and regulated by the Federal
Deposit Insurance Corporation and the Financial Institutions Bureau of the
Michigan Department of Consumer and Industry Services. As of December 31, 1997,
Bank of Lakeview was a member of the Federal Reserve System. In 1998, Bank of
Lakeview discontinued its membership in the Federal Reserve System. None of the
other subsidiary 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.
-3-
<PAGE>
Under applicable laws, regulations, and policies, the
Corporation is expected to act as a source of financial strength to each
subsidiary 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. 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.
Michigan permits both U.S. and non-U.S. banks to establish
branch offices in Michigan. The Michigan Banking Code permits, in appropriate
circumstances and with the approval of the Commissioner, (i) acquisition of
Michigan banks by FDIC-insured banks, savings banks, or savings and loan
associations located in other states, (ii) sale by a Michigan bank of branches
to an FDIC-insured bank, savings bank, or savings and loan association located
in a state in which a Michigan bank could purchase branches of the purchasing
entity, (iii) consolidation of Michigan banks and FDIC-insured banks, savings
banks, or savings and loan associations located in other states having laws
permitting such consolidation, (iv) establishment of branches in Michigan by
FDIC-insured banks located in other states, the District of Columbia, or U.S.
territories or protectorates having laws permitting a Michigan bank to establish
a branch in such jurisdiction, and (v) establishment by foreign banks of
branches located in Michigan.
-4-
<PAGE>
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, 1997.
<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 8.24% 11.11% 12.37%
Bank of Alma 7.48% 10.49% 11.75%
Firstbank 9.03% 10.98% 12.24%
1st Bank 7.41% 10.03% 11.29%
Bank of Lakeview 10.31% 13.43% 14.69%
</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, 1997 $ 43,304 $ 43,304 $ 48,217
Required regulatory
capital 21,023 15,595 31,190
--------- -------- --------
Capital in excess
of regulatory
minimums $ 22,281 $ 27,709 $ 17,027
========= ======== ========
</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," "projects," "opinion," 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.
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;
-6-
<PAGE>
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.
-7-
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------- ---------------------------
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 $ 40,255 $ 2,546 5.90% $ 30,687 $ 1,922 6.27% $ 30,702 $ 1,983 6.46%
Tax-exempt securities<F1> 29,123 2,352 8.07 26,570 2,136 8.04 28,026 2,255 8.04
-------- -------- ---- --------- --------- ---- --------- -------- ----
Total Securities 69,378 4,898 7.05 57,257 4,058 7.09 58,728 4,238 7.22
Loans <F1><F2> 352,539 33,412 9.46 290,006 27,472 9.47 243,806 23,517 9.64
Federal funds sold 5,414 289 5.37 3,032 161 5.31 6,028 359 5.93
Interest-bearing deposits 309 22 7.17 205 14 6.86 235 16 6.72
-------- -------- ---- --------- --------- ---- --------- -------- ----
Total earning assets 427,640 38,621 9.02 350,500 31,705 9.04% 308,797 28,130 9.11%
Nonaccrual loans 519 141 100
Less allowance for loan loss (7,142) (5,436) (4,458)
Cash and due from banks 16,413 13,744 12,706
Other
nonearning assets 23,009 13,880 12,934
-------- --------- ---------
Total assets $460,439 $ 372,829 $ 330,079
======== ========= =========
AVERAGE LIABILITIES:
Interest-bearing deposits:
Demand $ 95,572 $ 3,393 3.55% $ 71,710 $ 2,476 3.45% $ 61,201 $ 2,047 3.35%
Savings 61,286 1,664 2.71 58,282 1,643 2.82 54,879 1,533 2.80
Time 188,378 10,571 5.61 151,622 8,463 5.58 135,926 7,672 5.64
Federal funds purchased and
repurchase agreements 13,468 624 4.62 13,279 650 4.90 10,401 550 5.29
Notes payable 4,480 278 6.08 866 49 5.70
-------- -------- ---- --------- --------- ---- --------- -------- ----
Total interest-
bearing liabilities 363,184 16,530 4.49 295,759 13,281 4.47% 262,407 11,802 4.50%
Demand deposits 50,647 42,521 36,686
-------- --------- ---------
Total funds 413,831 338,280 299,093
-8-
<PAGE>
Other liabilities 5,368 3,909 3,417
-------- --------- ---------
Total liabilities 419,199 342,189 302,510
Average Shareholders'
Equity 41,240 30,640 27,569
-------- --------- ---------
Total liabilities and
shareholders' equity $460,439 $ 372,829 $ 330,079
======== ========= =========
NET INTEREST INCOME <F1> $ 22,091 $ 18,424 $ 16,328
======== ========= ========
RATE SPREAD <F1> 4.53% 4.57% 4.61%
==== ==== ====
NET INTEREST MARGIN (PERCENT
OF AVERAGE EARNING ASSETS)<F1> 5.16% 5.26% 5.29%
==== ==== ====
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income tax
rate of 34%.
<F2> Including loan fees of $1,387,000, $1,327,000, and $1,060,000,
respectively. Interest on nonaccrual loans is not included.
</FN>
</TABLE>
-9-
<PAGE>
<TABLE>
VOLUME/RATE ANALYSIS<F*>
<CAPTION>
1997/1996 1996/1995
--------- ---------
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 $ 605 $ 19 $ 624 $ (48) $ (13) $ (61)
Tax-exempt Securities <F1> 206 10 216 (93) (26) (119)
------ ------ ------- ------- ------ ------
Total securities 811 29 840 (141) (39) (180)
Loans <F1> 5,866 12 5,878 3,714 (26) 3,688
Federal funds sold 127 1 128 (159) (39) (198)
Interest-bearing deposit 7 1 8 (2) (2)
Loan fees 60 0 60 267 267
------ ------ ------- ------- ------ ------
Total interest-
earning assets 6,871 43 6,914 3,679 (104) 3,575
INTEREST EXPENSE:
Interest-paying demand 847 70 917 429 429
Savings deposits 81 (60) 21 109 109
Time deposits 2,061 47 2,108 880 (89) 791
------ ------ ------- ------- ------ ------
Total interest-
paying deposits 2,989 57 3,046 1,418 (89) 1,329
Federal funds
purchased and
securities sold
under agreements
to repurchase 9 (35) (26) 146 (45) 101
Notes payable 224 5 229 49 49
------ ------ ------- ------- ------ ------
Total interest-
bearing liabilities 3,222 27 3,249 1,613 (134) 1,479
------ ------ ------- ------- ------ ------
NET INTEREST INCOME $3,649 $ 16 $ 3,665 $ 2,066 $ 30 $2,096
====== ====== ======= ======== ======= ======
<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>
-10-
<PAGE>
INVESTMENT PORTFOLIO
The carrying values of investment securities as of the dates indicated are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
TAXABLE
U.S. Treasury $11,083 $ 7,509 $ 6,108
U.S. Government agencies 15,388 13,565 17,713
States and political subdivisions 2,196 662 200
Mortgage Backed Securities 4,550 872 1,205
Corporate and other 16,237 7,013 7,283
------- --------- --------
49,454 29,621 32,509
Tax-exempt
States and political
subdivisions 33,124 26,951 29,312
------- --------- --------
Total $82,578 $ 56,572 $ 61,821
======= ========= ========
</TABLE>
-11-
<PAGE>
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
The following table shows, by class of maturities at December 31, 1997, 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 $ 3,999 5.70%
Over one through five years 7,084 6.27
Over five through ten years
Over ten years
--------- ----
Total 11,083 6.06
U.S. Agencies
One year or less $ 4,694 6.04%
Over one through five years 8,353 6.33
Over five through ten years 494 5.50
Over ten year s 1,847 6.77
--------- ----
Total 15,388 6.27
States and Political
subdivisions:
One year or less $ 4,460 9.42%
Over one through five years 17,924 8.85
Over five through ten years 8,562 8.50
Over ten years 4,374 8.91
--------- ----
Total 35,320 8.85
Corporate and Other:
One year or less $ 6,889 4.99%
Over one through five years 9,348 7.43
Over five through ten years
Over ten years
--------- ----
Total 16,237 6.39
Collateralized Mortgage Obligations
One year or less
Over one through five years $ 277 6.37%
Over five through ten years 1,677 6.02
Over ten years 2,596 6.25
--------- ----
-12-
<PAGE>
Total 4,550 6.17
--------- ----
Total $ 82,578 7.36%
========= =====
<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:
</FN>
</TABLE>
-13-
<PAGE>
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO (CON'T)
<TABLE>
<CAPTION>
RATE ON
TAXABLE
TAX-EXEMPT EQUIVALENT
RATE ADJUSTMENT BASIS
---- ---------- ----------
<S> <C> <C> <C> <C>
One year or less 6.22% 3.20% 9.42%
Over 1 through 5 years 5.84 3.01 8.85
Over 5 through 10 years 5.61 2.89 8.50
Over 10 years 5.88 3.04 8.92
Total 5.84% 3.01% 8.85%
</TABLE>
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, 1997.
-14-
<PAGE>
LOAN PORTFOLIO
The following table presents the loans outstanding at the indicated dates
according to the type of loan:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Loan categories:
Commercial and
agricultural $ 158,219 $ 122,934 $ 115,779 $ 99,307 $ 81,085
Real estate mortgages 171,848 122,605 90,753 73,760 56,770
Consumer 74,741 69,081 58,315 50,324 40,538
--------- --------- ---------- ---------- ----------
Total $ 404,808 $ 314,620 $ 264,847 $ 223,391 $ 178,393
========= ========= ========== ========== ==========
</TABLE>
The following table shows the maturity of commercial, agricultural and real
estate construction loans outstanding at December 31, 1997. Also provided are
the amounts due after one year classified according to their sensitivity to
changes in interest rates.
<TABLE>
<CAPTION>
ONE YEAR ONE YEAR TO AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- -----
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Commercial, Agricultural $ 44,738 $ 90,519 $ 22,962 $158,219
Real Estate Construction 11,385 3,939 0 15,324
-------- ------- -------- --------
Total $ 56,123 $ 94,458 $ 22,962 $173,543
======== ======== ======== ========
Loans due after one year:
With pre-determined rate $ 93,198 $ 22,962 $116,160
With adjustable rates 1,260 0 1,260
--------- -------- --------
Total $ 94,458 $ 22,962 $117,420
========= ======== ========
</TABLE>
-15-
<PAGE>
NONPERFORMING LOANS AND ASSETS
The following table summarizes nonaccrual, troubled debt restructurings, and
past-due loans at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans:
Commercial and agricultural $ 447 $ 127 $ 47 $ 110 $ 258
Real estate mortgages 800 79 0 10 71
Consumer 27 12 0 0 12
------- ------ ----- ----- -----
Total 1,274 218 47 120 341
Accruing Loans 90 days or more past due:
Commercial and agricultural 752 178 0 49 0
Real estate mortgages 426 475 319 123 35
Consumer 37 36 67 92 12
------- ------ ----- ----- -----
Total 1,215 689 386 264 47
Renegotiated loans:
Commercial and agricultural 121 150 182 0 0
Real estate mortgages 0 0 0 213 182
------- ------ ----- ----- -----
Total 121 150 182 213 182
Total nonperforming loans 2,610 1,057 615 597 570
Property from defaulted loans 663 130 0 86 92
------- ------ ----- ----- -----
Total nonperforming assets $ 3,273 $1,187 $ 615 $ 683 $ 662
======= ====== ===== ===== =====
<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>
The gross interest income that would have been recorded for the year ended
December 31, 1997, 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 $196,000.
The amount of interest income on those loans that was included in net income
for the period was $128,000.
-16-
<PAGE>
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, 1997, the Corporation had $15,556,000 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, 1997, 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, 1997.
-17-
<PAGE>
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,
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 6,247 $ 4,876 $ 4,100 $ 3,254 $ 2,394
Charge-offs:
Commercial and agricultural 211 110 164 113 299
Real estate mortgages 79 45 81 0 44
Consumer 980 625 493 386 262
------- -------- ------- -------- -------
Total charge-offs 1,270 780 738 499 605
Recoveries:
Commercial and agricultural 97 83 97 143 129
Real estate mortgages 7 28 63 30 39
Consumer 309 202 269 172 158
------- -------- ------- -------- -------
Total recoveries 413 313 429 345 326
Net charge-offs 857 467 309 154 279
------- -------- ------- -------- -------
Additions to allowance for
loan losses 2,724<F1> 1,838 1,085 1,000 1,139
------- -------- ------- -------- -------
Balance at end of period $ 8,114 $ 6,247 $ 4,876 $ 4,100 $ 3,254
======= ======== ======= ======== =======
Net charge-offs as a percent
of average loans 0.24% 0.16% 0.13% 0.08% 0.18%
</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.
[FN]
<F1> Includes the allowance of Bank of Lakeview at date of acquisition of
$1,326.
</FN>
-18-
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was allocated to provide for possible losses
within the following loan categories at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------ ----------------- --------------------
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 $ 3,806 39% $ 2,763 39% $ 2,232 44% $ 2,069 44% $ 1,782 45%
Real estate
mortgages 516 42 364 39 880 34 492 33 276 32
Consumer 1,621 19 1,576 22 1,050 22 927 23 594 23
Unallocated 2,171 1,544 714 612 602
------- --- -------- --- -------- --- ------- --- ------- ---
Total $ 8,114 100% $ 6,247 100% $ 4,876 100% $ 4,100 100% $ 3,254 100%
======= === ======== === ======== === ======= === ======= ===
</TABLE>
-19-
<PAGE>
AVERAGE DEPOSITS
The daily average deposits and rates paid on such deposits for the periods
indicated were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995
---- ---- ----
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Balance:
Noninterest-bearing demand deposits $ 50,647 $ 42,521 $ 36,686
Interest-bearing demand deposits 95,572 3.55% 71,710 3.45% 61,201 3.35%
Other savings deposits 61,286 2.71% 58,282 2.82 54,879 2.80
Other time deposits 188,378 5.61% 151,622 5.58 135,926 5.64
--------- ---- --------- ---- ---------- ----
Total average deposits $ 395,883 3.95% $ 324,135 3.88% $ 288,692 3.89%
========= ==== ========= ==== ========== ====
</TABLE>
The time remaining until maturity of time certificates of deposit and other
time deposits of $100,000 or more at December 31, 1997, was as follows (Dollars
in Thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Three months or less $ 13,161
Over three through six months 9,993
Over six through twelve months 6,926
Over twelve months 5,590
--------
Total $ 35,670
========
</TABLE>
-20-
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table sets forth certain financial ratios for the years ended:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Financial ratios:
Return on average total assets 1.21% 1.25% 1.17%
Return on average equity 13.48 15.15 14.02
Average equity to average total assets 8.96 8.22 8.35
Dividend payout ratio 33.51 27.94 26.23
</TABLE>
-21-
<PAGE>
SHORT-TERM BORROWED FUNDS
Included in short-term borrowed funds are repurchase agreements as described in
Note J to the consolidated financial statements in the Corporation's annual
report to shareholders for the year ended December 31, 1997, which consist of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Amounts outstanding at the
end of the year $ 12,932 $ 5,933 $ 8,442
Weighted average interest rate
at the end of the year 4.23% 4.40% 4.98%
Longest maturity 2-20-98 05-22-97 10-29-96
Maximum amount outstanding at
any month-end during year $ 13,911 $ 14,290 $ 10,714
Approximate average amounts
outstanding during the year $ 10,894 $ 10,527 $ 8,905
Approximate weighted average
interest rate for the year 4.36% 4.73% 5.16%
<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>
-22-
<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.
This facility is approximately 900 square feet consisting of wood frame
construction. The Bank of Alma has negotiated the purchase of this building
and is leasing the facility on a month-to-month basis until closing of the
purchase.
Bank of Alma owns and 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.
On February 27, 1998, Bank of Alma purchased a 16,000 square
foot parcel adjacent to its main office from an unrelated party. The Bank
intends to demolish the buildings existing on the land, and to construct an
operations center on the premises. Construction is expected to begin in the
second quarter of 1998.
The main office of Firstbank is located at 102 South Main,
Mt. Pleasant, Michigan. The 5,600 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 the approximately 5,800 square foot brick building. Approximately
half the building is used for bank purposes and the other half is leased to
-23-
<PAGE>
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.
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 two-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.
Firstbank has purchased a vacant lot in Union Township near Mt.
Pleasant. The property is located at 1900 Remus Road, Mt. Pleasant, Michigan.
Firstbank intends to construct a full service branch on this property in 1998.
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 a 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.
-24-
<PAGE>
1st Bank also owns and operates branches located in St. Helen
and West Branch, Michigan. Each branch occupies a wood frame building having
approximately 900 square feet.
1st Bank operates a branch located in Hale, Michigan. The
leased 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. In
addition, 1st Bank leases approximately 1,600 square feet in a brick and steel
building as an additional site for its armored car service. The lease expires
in July of 2002. 1st Bank has the option to extend the lease for an additional
five-year term.
1st Bank has entered into purchase agreement to acquire a 2,000
square foot brick building which will be used as a full service branch. The
property is located at 2375 M-30. The purchase is expected to close during the
second quarter of 1998.
The main office of the Bank of Lakeview is located at 506 S.
Lincoln Avenue, Lakeview, Michigan. The bank occupies a brick and block frame
building of approximately 16,000 square feet and owns a vacant parcel of land
directly across South Lincoln Avenue which is used for parking.
Bank of Lakeview owns and operates one 3 lane drive-up branch in
Lakeview, Michigan. The 700 square foot building which also offers ATM service
is of brick construction.
Bank of Lakeview owns and operates three full service branches
located in Howard City, Remus and Morley, Michigan containing from 1,200 to
2,300 square feet. Each of these branches occupies a brick building.
Bank of Lakeview leases property for the Canadian Lakes branch
located in Stanwood, Michigan. The facility is approximately 2,000 square feet
of wood construction. The lease expires August 31, 2000. Bank of Lakeview has
the option to extend the lease for two additional five year periods.
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 consolidated
financial condition.
-25-
<PAGE>
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 51) 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.
RICHARD L. JARVIS (age 60) 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 55) 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.
RICHARD J. SCHURTZ (age 61) has been Vice President of the
Corporation since the acquisition of Bank of Lakeview in August of 1997. Mr.
Schurtz has been President and Chief Executive Officer of Bank of Lakeview since
1994. He has served as a director of Bank of Lakeview since 1994.
THOMAS R. SULLIVAN (age 47) has been Executive Vice President of the
Corporation since November, 1996, and has been President, Chief Executive
Officer, and a director of Firstbank since December, 1991. Mr. Sullivan served
as Vice President of the Corporation from 1991 to 1996.
JAMES E. WHEELER, II (age 38), has been Vice President of the
Corporation and Senior Vice President and Chief Loan Officer of Bank of Alma
since 1989.
-26-
<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 13
in the registrant's annual report to shareholders for the year ended December
31, 1997, is here incorporated by reference.
At various times in 1997, the Corporation issued unregistered
shares of its common stock totaling 2,898 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 heading "Selected Financial Data" on
page 3 in the registrant's annual report to shareholders for the year ended
December 31, 1997, 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 4 through 12
in the registrant's annual report to shareholders for the year ended December
31, 1997, is here incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information under the headings "Liquidity and Interest Rate
Sensitivity" on pages 8 and 9 and "Quantitative and Qualitative Disclosure
About Market Risk" on pages 9 through 10 in the registrant's annual report to
shareholders for the year ended December 31, 1997, is here incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and the consolidated
financial statements on pages 14 through 32 and the quarterly results of
operations on page 13 in the registrant's annual report to shareholders for the
year ended December 31, 1997, are here incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-27-
<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 27, 1998, 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 April 27, 1998, 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 27, 1998, 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 27, 1998, is
here incorporated by reference.
-28-
<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, 1997, in Item 8:
PAGE NUMBER IN
STATEMENT OR REPORT ANNUAL REPORT
Report of Independent Auditors 14
Consolidated Balance Sheets as of December 31, 1997,
and 1996 15
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995 16
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1997, 1996,
and 1995 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 18
Notes to Consolidated Financial Statements 19-32
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, 1997.
(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.
-29-
<PAGE>
NUMBER EXHIBIT
10(a)<F*> 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)<F*> 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)<F*> 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)<F*> STOCK OPTION AND RESTRICTED STOCK PLAN OF 1993. Previously filed
as an appendix to the registrant's definitive proxy statement
for its annual 26, 1993. Here incorporated by reference.
10(f)<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 on April 28, 1997. Here
incorporated by reference.
10(g) AGREEMENT AND PLAN OF MERGER. Previously filed as Appendix A to
the registrant's Registration Statement on Form S-4 filed on June
20, 1997. Here incorporated by reference.
13 1997 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.
23 CONSENT OF CROWE, CHIZEK AND COMPANY LLP.
24 POWERS OF ATTORNEY.
27(a) FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 1997.
27(b) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED SEPTEMBER 30,
1997.
-30-
<PAGE>
27(c) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED JUNE 30, 1997.
27(d) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED MARCH 31,
1997.
27(e) AMENDED FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31,
1996.
27(f) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED SEPTEMBER 30,
1996.
27(g) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED JUNE 30, 1996.
27(h) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED MARCH 31,
1996.
27(i) AMENDED FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31,
1995.
99 FIRSTBANK CORPORATION 401(K) PLAN PERFORMANCE TABLE.
<F*>Management contract or compensatory plan.
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.
-31-
<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, 1998 FIRSTBANK CORPORATION
By /S/MARY D. DECI
Mary D. Deci
Vice President, Secretary,
Treasurer and
Chief Financial Officer
-32-
<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, 1998 /S/ JOHN MCCORMACK <F*>
John McCormack
President, Chief Executive
Officer, and Director
(Principal executive officer)
March 23, 1998 /S/ MARY D. DECI
Mary D. Deci
Vice President, Secretary, and Treasurer
(Principal financial and accounting
officer)
March 23, 1998 /S/ WILLIAM E. GOGGIN <F*>
William E. Goggin
Director
March 23, 1998 /S/ EDWARD B. GRANT <F*>
Edward B. Grant
Director
March 23, 1998 /S/ CHARLES W. JENNINGS <F*>
Charles W. Jennings
Director
March 23, 1998 /S/ PHILLIP G. PEASLEY <F*>
Phillip G. Peasley
Director
March 23, 1998 /S/ DAVID D. ROSLUND <F*>
David D. Roslund
Director
*By /S/ MARY D. DECI
Mary D. Deci
(Attorney in Fact)
-33-
<PAGE>
INDEX TO EXHIBITS
NUMBER EXHIBIT PAGE
3(a) ARTICLES OF INCORPORATION. Previously filed as an exhibit to <F**>
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 <F**>
Registration Statement on Form S-2 (Registration No. 33-68432)
filed on September 3, 1993. Here incorporated by reference.
10(a)<F*>FORM OF INDEMNITY AGREEMENT WITH DIRECTORS AND OFFICERS. <F**>
Previously iled 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 <F**>
registrant's Registration Statement on Form S-2 (Registration No.
33-68432) filed on September 3, 1993. Here incorporated by
reference.
10(c)<F*> DEFERRED COMPENSATION PLAN. Previously filed as an exhibit to <F**>
the registrant's Form 10-K for the year ended December 31, 1995.
Here incorporated by reference.
10(d)<F*>TRUST UNDER DEFERRED COMPENSATION PLAN. Previously filed as an <F**>
exhibit to the registrant's Form 10-K for the year ended December
31, 1995. Here incorporated by reference.
10(e)<F*>STOCK OPTION AND RESTRICTED STOCK PLAN OF 1993. Previously <F**>
filed as an appendix to the registrant's definitive proxy statement
for its annual 26, 1993. Here incorporated by reference.
10(f)<F*>STOCK OPTION AND RESTRICTED STOCK PLAN OF 1997. Previously <F**>
filed as an appendix to the registrant's definitive proxy
statement for its annual meeting of shareholders on April 28, 1997.
Here incorporated by reference.
10(g) AGREEMENT AND PLAN OF MERGER. Previously filed as Appendix A to <F**>
the registrant's Registration Statement on Form S-4 filed on June
20, 1997. Here incorporated by reference.
13 1997 ANNUAL REPORT TO SHAREHOLDERS. (This report, except for 30
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.)
-34-
<PAGE>
21 SUBSIDIARIES OF REGISTRANT. 69
23 CONSENT OF CROWE, CHIZEK AND COMPANY LLP. 70
24 POWERS OF ATTORNEY. 71
27(a) FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 1997. 78
27(b) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED SEPTEMBER 30, 79
1997.
27(c) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED JUNE 30, 1997. 80
27(d) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED MARCH 31, 81
1997.
27(e) AMENDED FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 82
1996.
27(f) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED SEPTEMBER 30, 83
1996.
27(g) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED JUNE 30, 1996. 84
27(h) AMENDED FINANCIAL DATA SCHEDULE FOR QUARTER ENDED MARCH 31, 85
1996.
27(i) AMENDED FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 86
1995.
99 FIRSTBANK CORPORATION 401(K) PLAN PERFORMANCE TABLE. 87
[FN]
<F*>Management contract or compensatory plan.
<F**>This Exhibit is filed by incorporation by reference to a prior filing.
</FN>
-35-
<PAGE>
EXHIBIT 13
1997 ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
=============================================================================
PRESIDENT'S MESSAGE
TO OUR SHAREHOLDERS:
Firstbank corporation results for 1997 were highlighted by another record
year of net income, excellent increase in the price of Firstbank Corporation
stock, and the successful acquisition of Bank of Lakeview. The adjacent
graph highlights the exceptional growth in net income over the past five
years, which shows an average growth in net income of 23% per year. And 1997
was also an exceptionally good year with net income increasing 20% from 1996
to $5,558,000, the highest ever achieved by Firstbank Corporation. The
increase in net income was accelerated in part by the acquisition of Bank of
Lakeview on August 8, 1997. Consistent growth in net income in 1997 was a
result of a strong net interest margin of 5.16%, and $114 million increase in
earning assets and a quality loan portfolio.
[NET INCOME GRAPH]
Basic earnings per share in 1997 were $2.95 compared to $2.72 for 1996, which
is an 8.5% increase. The smaller percentage in per share earnings (compared
to net income growth) is the result of the increase in average shares out-
standing for 1997 from the Bank of Lakeview acquisition. Lakeview
shareholders had a choice of cash or Firstbank Corporation stock and 98% of
the shareholders chose Firstbank Corporation stock.
Diluted earnings per share were $2.87 in 1997 compared to $2.68 in 1996. The
per share data has been adjusted for a 5% stock dividend issued in December
1997. The stock dividend in December was the seventh consecutive year--the
eighth in nine years--directors have approved a 5% stock dividend. In
addition, a two for one stock split was issued in September 1993.
We believe the continued strong financial performance was a key factor in a
46% increase in the market price of Firstbank Corporation shares. The
percentage increase includes the value of the shares received from the 5%
stock dividend issued in December 1997. The bid price increased to $47.00
at year end 1997 from $32.14 at the end of the year in 1996. We also
believe the stock performance is reflective of a steady increase in earning
assets, superb loan quality, and another increase in cash dividends.
Cash dividends per share increased 25% in 1997; 27% and 22% in 1996 and 1995
respectively. The growth in net income has enabled directors to distribute
to shareholders increased cash dividends and stock dividends over the past
several years.
Earnings assets increased 31% in 1997, while total assets increased to $536
million compared to $405 million in 1996, primarily as a result of the Bank
of Lakeview acquisition which added $98 million to total assets.
=============================================================================
<PAGE>
=============================================================================
Firstbank Corporation acquired Bank of Lakeview on August 8, 1997, and has
successfully integrated their operation into the systems of Firstbank
Corporation during the past few months. Expected savings from the combined
operation will primarily occur in 1998. Bank of Lakeview has its main
office and five branch offices operating in the Northwestern part of
Montcalm County and Southwest Mecosta County. The markets include Howard
City which is experiencing growth from the expansion of the Grand Rapids
market and from being selected by the State of Michigan for a Renaissance
Zone. Bank of Lakeview also has a new office in the growing Canadian Lakes
area and the branch is mirroring the growth of Canadian Lakes. The
acquisition of Lakeview solidified the market share of Firstbank
Corporation in the Central Michigan market, which we believe enhances
franchise value and, therefore, shareholder value.
Loan quality remains very good. Total loans increased 29% to $405 million
compared to $315 million in 1996. The $90 million dollar increase includes
$73 million from the Lakeview affiliation. Commercial loans increased to
$158 million from $123 million in 1996, consumer loans to $75 million from
$69 million and real estate mortgage, including loans held for sale,
experienced the largest increase to $172 million from $123 million.
The allowance for loan losses increased 30% to $8,114,000 which represents
2.00% of total loans at the end of 1997. The increase was primarily a
result of adding Lakeview's allowance for loan losses. Loan quality
remains very good with negligible losses in all loan categories except
consumer loans. Net charge off loans to average loans were .24% which is a
small increase from the previous year, but still about two-thirds of the
average net charge offs of banks of similar size in the country. Consumer
loan charge offs have been negatively impacted by an increasing number of
bankruptcies. In 1997, 1.3 million bankruptcies were filed in the United
States. Our banks have also experienced an increase in bankruptcies.
Bankruptcy reform legislation (HR 2500) is currently being debated in
Congress and we hope this reform legislation will be approved in 1998. The
proposed legislation limits the amount of debt that can be discharged
through bankruptcy by individuals who have sufficient income to repay a
portion of the debt. We strongly support the legislation and encourage
shareholders to call your Congressman and ask them to support bankruptcy
reform.
Firstbank Corporation has been very successful. Our formula for success
focuses on the needs of our customers. The community bank philosophy in
which we believe, leads to the growth and success of our four banks. We
have Boards of Directors, CEOs, and local lenders and customer service
representatives in each bank, while many larger financial service companies
consolidate decision making processes. Decisions that impact our customers
are made locally by staff, officers, or directors. It is a winning
strategy that combines the best attributes of hometown banking.
<PAGE>
Our accomplishments have been possible because of quality employees at all
levels in each subsidiary. We truly believe that our employees are our
most important assets. In a highly competitive business, employees
collectively and individually make the difference between an average
company or a highly successful company like Firstbank Corporation. Our
directors have also recognized the importance of employees. Nearly all
full time employees are shareholders through a stock purchase plan and
stock option plan. We believe this has resulted in each employee working
toward a common goal, to make THEIR company the best and most successful it
can be. Too often in the course of business, we underestimate our
employees' critical contribution to our success--we thank each of them for
their high standards and dedication to excellence.
As always we appreciate the support of our shareholders and we welcome your
comments and suggestions at any time.
Respectfully submitted,
/s/ John McCormack
John McCormack
President & Chief Executive Officer
2 =========================================================================
<PAGE>
=============================================================================
[DIVIDEND PER SHARE QUARTERLY AVERAGE GRAPH]
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
FOR THE YEAR: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $37,864 $31,016 $27,394 $20,496 $18,931
Net interest income 21,334 17,735 15,593 12,941 11,476
Provision for loan losses 1,398 1,838 1,085 1,000 1,139
Noninterest income 3,697 3,297 2,471 2,547 2,726
Noninterest expense 15,825 12,790 11,813 10,328 9,522
Net income 5,558 4,643 3,865 3,221 2,841
AT YEAR END:
Total assets 536,322 404,571 352,943 309,722 257,339
Total earning assets 486,949 372,777 327,232 286,956 243,443
Loans 404,808 314,620 264,847 223,391 178,394
Deposits 445,666 358,669 307,007 266,894 220,157
Shareholders' equity<F1> 54,532 33,088 29,853 25,596 23,497
AVERAGE BALANCES:
Total assets 460,439 372,829 330,079 268,399 247,659
Total earning assets 427,640 350,500 308,797 250,984 231,881
Loans 353,061 290,181 243,806 191,682 158,908
Deposits 395,883 324,135 288,692 234,546 217,621
Shareholders' equity<F1> 41,240 30,640 27,569 24,787 18,271
PER SHARE:<F2>
Basic earnings 2.95 2.72 2.29 1.92 2.07
Diluted earnings 2.87 2.68 2.27 1.92 2.06
Cash dividends 0.95 0.76 0.60 0.49 0.47
Shareholders' equity 25.41 19.36 17.56 15.20 14.03
FINANCIAL RATIOS:
Return on average assets 1.21% 1.25% 1.17% 1.20% 1.15%
Return on average equity 13.48% 15.15% 14.02% 12.99% 15.55%
Average equity to average assets 8.96% 8.22% 8.35% 9.24% 7.38%
Dividend payout ratio 33.51% 27.94% 26.23% 26.09% 22.77%
<FN>
<F1>Results reflect 1993 stock offering of 387,000 shares
<F2>All per share amounts adjusted for stock dividends and stock split
</FN>
</TABLE>
Bank of Lakeview results are included from August 8, 1997, the date of
acquisition.
<PAGE>
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
The Company posted its sixth consecutive year of record net income.
Earnings for 1997 of $5,558,000 exceeded 1996 results of $4,643,000 by 20%.
Net income has increased an average of 23% annually for the past five
years. The Company's strong results reflect continued strength of core
banking activities as opposed to the effect of nonrecurring or unusual
factors. Contributing to the 1997 record results was the addition of a new
affiliate in August of 1997.
Bank of Lakeview joined the Firstbank family of community banks as of the
close of business August 8, 1997. At that time, Lakeview's total assets
were $88 million, with investment securities $14 million, loans $69 million
and deposits $73 million.
The banking industry uses standard performance indicators to help evaluate
the Company's performance. Return on average assets is one of these
indicators. For 1997, 1996, and 1995 respectively, the Company posted a
return on average assets of 1.21%, 1.25%, and 1.17%. Total average assets
increased $88 million in 1997, $43 million in 1996, and $62 million in
1995. Return on average equity was 13.48% in 1997, 15.15% in 1996, and
14.02% for 1995. Average equity increased $11 million during 1997,
primarily from the Bank of Lakeview acquisition. This additional equity
will allow the Company to continue its growth strategy without the need to
raise additional capital in the near term. Basic earnings per share were
$2.95, $2.72, and $2.29 for 1997, 1996, and 1995 respectively. Diluted
earnings per share were $2.87, $2.68, and $2.27 for the same periods.
[BASIC EARNINGS PER SHARE GRAPH]
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
<PAGE>
has increased its net interest income by $3.6 million for 1997 for a 20%
gain when compared to 1996. Net interest margin was 5.16% in 1997, 5.26%
in 1996, and 5.29% in 1995. These wide margins are maintained through
strong lending activity. The Company's loan to deposit ratio, using
average balances, was 87% in 1997, as compared to 88% and 83% in 1996 and
1995. Loans grew $90 million during 1997 with $73 million of this growth
the result of the Bank of Lakeview acquisition and the remaining $17
million 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>
<CAPTION>
Summary of Consolidated Net Interest Income
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
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 $ 40,255 $ 2,546 5.90% $ 30,687 $ 1,922 6.27% $ 30,702 $ 1,983 6.47%
Tax exempt securities <F1> 29,123 2,352 8.07 26,570 2,136 8.04 28,026 2,255 8.04
-------- ------- ---- -------- -------- ---- -------- ------- ----
Total securities 69,378 4,898 7.05 57,257 4,058 7.09 58,728 4,238 7.22
Loans <F1> <F2> 352,539 33,412 9.46 290,006 27,472 9.47 243,806 23,517 9.64
Federal funds sold 5,414 289 5.37 3,032 161 5.31 6,028 359 5.93
Interest bearing deposits 309 22 7.17 205 14 6.86 235 16 6.72
-------- ------- ---- -------- -------- ---- -------- ------- ----
Total earning assets 427,640 38,621 9.02 350,500 31,705 9.04 308,797 28,130 9.11
Nonaccrual loans 519 141 100
Less allowance for loan loss (7,142) (5,436) (4,458)
Cash and due from banks 16,413 13,744 12,706
Other non earning assets 23,009 13,880 12,934
-------- -------- --------
Total assets $460,439 $372,829 $330,079
======== ======== ========
Average Liabilities
Interest bearing liabilities:
Demand $ 95,572 $ 3,393 3.55% $ 71,710 $ 2,476 3.45% $ 61,201 $ 2,047 3.35%
Savings 61,286 1,664 2.71 58,282 1,643 2.82 54,879 1,533 2.80
Time 188,378 10,571 5.61 151,622 8,463 5.58 135,926 7,672 5.64
Federal funds purchased and
repurchase agreements 13,468 624 4.62 13,279 650 4.90 10,401 550 5.29
Notes payable 4,480 278 6.08 866 49 5.70
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing liabilities 363,184 16,530 4.49 295,759 13,281 4.47 262,407 11,802 4.50
Demand deposits 50,647 42,521 36,686
-------- -------- --------
Total funds 413,831 338,280 299,093
Other non interest bearing liabilities 5,368 3,909 3,417
-------- -------- --------
Total liabilities 419,199 342,189 302,510
<PAGE>
Average shareholders' equity 41,240 30,640 27,569
-------- -------- --------
Total liabilities and
shareholders' equity $ 460,439 $372,829 $330,079
========= ======== ========
Net interest income <F1> $ 22,091 $18,424 $16,328
======== ======= =======
Rate spread <F1> 4.53% 4.57% 4.61%
==== ==== ====
Net interest margin (percent of
average earning assets) <F1> 5.16% 5.26% 5.29%
==== ==== ====
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income
tax rate of 34%.
<F2> Interest income includes loan fees of $1,387,000, $1,327,000, and
$1,060,000, 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 1997,
1996, and 1995. The average earning rate on total earning assets was 9.02%
in 1997, 9.04% in 1996, and 9.11% in 1995. The prime rate experienced a
small increase in early 1997 and has remained stable at 8.50% since that
time. Early in 1996, the prime rate experienced a modest decrease, and in
1995, the prime rate ended the year at the same rate it opened 1995, but
did fluctuate during the year. The company's earning assets are primarily
term instruments which do not reprice until maturity or refinancing occurs.
The slight decrease in the 1997 average earning rate is indicative of the
stable rate environment of the past year. The average rate paid on
interest bearing liabilities was 4.49% in 1997, 4.47% in 1996, and 4.50% in
1995. Competition for deposit dollars has increased in 1997, which is
largely responsible for the 1997 increase in the rates paid on these
instruments. In the past twelve months, average deposits have grown $72
million, $30 million of which is the result of the acquisition.
The 1997 rate spread of 4.53% declined four basis points from the 1996
level of 4.57%, which was a four basis point drop from the 1995 results of
4.61%. Tax equivalent net interest income increased $4 million in 1997
when compared to 1996 as total average earning assets grew $77 million.
Net interest margin declined 10 basis points to 5.16% in 1997 when compared
to 5.26% results of 1996. The decreases in both the rate spread and net
interest margin are the result of average earning rates on assets
decreasing while the average cost of interest bearing liabilities has
increased. Total average earning assets were 93% of total average assets
in 1997 compared to 94% in 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1.4 million in 1997 compared to $1.8
million in 1996 and $1.1 million in 1995. The allowance for loan losses as
a percent of total loans was 2.00% at December 31, 1997, compared to 1.99%
at December 31, 1996, and 1.84% at December 31, 1995. The Company's net
charged off loans were $857,000 in 1997 compared to $467,000 and $309,000
for 1996 and 1995. As a percentage of average loans, net charged off loans
were .24%, .16%, and .13% in 1997, 1996, and 1995. Nonperforming assets
were .81% of total loans at December 31, 1997, compared to .34% and .23%
for the 1996 and 1995 year end periods. 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 grew $400,000, or 12%, in 1997 after increasing
$826,000, or 33%, from 1995 to 1996. Although the 1997 results posted
declines from the mortgage servicing income of $139,000 and the sale of
securities of $42,000 when compared to 1996, all other classifications of
<PAGE>
noninterest income increased. The 1997 income generated from service
charges on deposit accounts grew $218,000, or 22%, when compared to 1996.
This increase is primarily the result of increasing average deposits $72
million, or 22%, during 1997 when compared to 1996. The deposit increase
is due to three factors. In December of 1996, an affiliate bank acquired
two new branches with deposits of $19 million. Those deposits were in the
average totals of 1996 for only about 15 days, but included in the 1997
totals for the entire year. In August of 1997, $73 million of deposits
were added with the acquisition of an affiliate bank. The timing of this
acquisition would add approximately $30 million to the average deposit
totals for 1997. The remaining $23 million average deposit growth was
generated by existing banks from their service markets. As the Company
experiences deposit growth, the noninterest income from service charges on
deposit products is expected to experience similar movement.
In 1997, gain on sale of mortgage loans increased $138,000, or 22% compared
to an increase of $319,000 in 1996. Mortgage activity has steadily
increased throughout 1997 as interest rates on mortgages have been
favorable to the consumer. In the late third and fourth quarters of 1997,
and early 1998, rates have moved down, stimulating increased refinancing
activity. If rates remain at their favorable level, or continue to move
lower, management expects continued, heightened activity in mortgage
lending.
With the increase in mortgage activity, the Company has experienced a
decrease of $139,000 in mortgage servicing income in 1997 compared to an
increase of $57,000 in 1996. The implementation of SFAS 122 in January
1996 altered the manner in which gains and servicing income were recognized
on sold mortgages. In periods of active refinancing, servicing income will
actually be reduced, while gains on sales of mortgage loans will increase.
The net effect of these shifts is not material.
Trust fees increased $38,000, or 16%, in 1997 after posting an $11,000, or
5%, gain in 1996. Trust assets under management grew 15% in 1997 to $71
million compared to $62 million in 1996.
Other noninterest income increased $186,000, or 18%, in 1997 after
increasing $388,000, or 60%, in 1996. The 1997 increases are from the
addition of two new branches purchased late in 1996 and an affiliate
acquired in August 1997, which were not included in the 1996 results.
6 ==========================================================================
<PAGE>
=============================================================================
NONINTEREST EXPENSE
Noninterest expense grew $3 million, or 24%, in 1997 when compared to a
$978,000, or 8%, increase in 1996. With the exception of FDIC insurance
premiums, all categories of noninterest expense rose over their 1996
levels.
Salaries and employee benefits account for approximately half of the total
additions to noninterest expense. Full time equivalent employees were 295
at December 31, 1997, compared to 227 at December 31, 1996. The salary and
benefit costs of operating two additional branches for the full year, a new
affiliate bank for five months, and new positions required by the Company's
growth, as well as normal increments, explain the increase in this line
item.
Occupancy costs increased $245,000, or 13%, in 1997 after increasing
$376,000, or 25%, in 1996. The increase can be traced to the new affiliate
and additional branches which were not included in the 1996 results.
Other noninterest expense increased $1,500,000, or 42%, in 1997 after
declining $139,000, or 4% in 1996. More than one third of the addition is
attributable to the operation of new locations. Additionally, another
$555,000 represents an increase in amortization of intangibles. The start
up expenses associated with establishing a brokerage services office in
April of 1997, are included in the 1997 totals. Management closely
monitors these expenses as part of the ongoing cost control effort.
FEDERAL INCOME TAX
The Company's effective tax rates were 29%, 27%, and 25% for 1997, 1996,
and 1995. The principal difference between the effective tax rates and the
statutory 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 at December 31, 1997, were $536 million surpassing the
December 31, 1996, total of $405 million by $131 million or 32%. Total
assets of the acquired affiliate bank represent $98 million of this
increase, with the additional $33 million generated from the markets
existing at December 1996. Loan growth during the same period was $90
million, increasing total loans to $405 million. The new affiliate
contributed $73 million of this growth. Mortgage loans serviced for others
increased $20 million, or 14%, to $167 million at December 31, 1997. This
total is comparable to the 1996 results because the purchased affiliate
does not retain servicing rights on mortgages it sells.
<PAGE>
The following table discloses the changes in loan balances during 1997:
<TABLE>
<CAPTION> (Dollars in Thousands)
1997 1996 CHANGE % CHANGE
---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
Commercial $158,219 $122,933 $ 35,286 28.70%
Real Estate Mortgages 171,848 122,606 49,242 40.16%
Consumer 74,741 69,081 5,660 8.19%
-------- -------- -------- -----
Total $404,808 $314,620 $ 90,188 28.67%
Mortgages serviced for others $167,295 $147,362 $ 19,933 13.53%
</TABLE>
Premises and equipment increased $5,198,000 after depreciation expense of
$1,034,000. The fixed assets from the affiliate acquisition represent
nearly the entire increase.
Deposits grew $87 million in 1997, $75 million of which is the result of
acquiring an affiliate bank. The net growth of $12 million was used to
support loan and security growth. Securities sold under agreements to
repurchase and overnight borrowings increased $14 million since December
31, 1996. Approximately $5 million of this growth is attributable to the
new affiliate. The net change of more than $9 million was deployed to
support growth in the loan and investment portfolio.
Notes payable have increased by $5 million during the past year. The
majority of this growth is attributable to $4 million in loans from the
Federal Home Loan Bank to the affiliate acquired during 1997. For a more
complete discussion, please refer to Note J to the consolidated financial
statements.
========================================================================== 7
<PAGE>
=============================================================================
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 1997, net charged off loans were $857,000
compared to $467,000 in 1996. Of this total, the new affiliate recognized
net charged off loans of $203,000. Net charged off loans as a percentage
of average loans were .24% and .16% in 1997 and 1996.
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 $2,610,000 ($1,154,000 from the new affiliate) and
$1,057,000 at December 31, 1997 and 1996. The average investment in
impaired loans was $972,000 at December 31, 1997, compared to $368,000 at
the same time in 1996. Please refer to Note F to the consolidated
financial statements for more information on impaired loans. Total
nonaccrual loans were $1,274,000 ($986,000 for the new affiliate) at
December 31, 1997, compared to $218,000 at the end of 1996.
The allowance for loan losses increased $1,867,000 or 30% during 1997. The
allowance for loan losses represents 2.00% of outstanding loans at the end
of 1997 as compared to 1.99% at December 31, 1996. 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 specialist.
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 5.16% in
1997 compared to 5.26% in 1996. Loan yields were 9.46% in 1997 compared to
9.47% in 1996. Deposit costs increased 7 basis points from 3.88% in 1996
to 3.95% in 1997. The challenge of effective asset liability management
<PAGE>
becomes immediately apparent when loan yields decrease 1 basis point at the
same time deposit rates increase 7 basis points.
An increase in deposit rates affects most rates currently paid 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 1997 after increasing early in the year. Competition for
both loans and deposits have caused margins to shrink in 1997.
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, 1997, are $18 million compared to
$11 million at December 31, 1996.
8 ==========================================================================
<PAGE>
=============================================================================
The following table shows the interest sensitivity gaps for five different
intervals as of December 31, 1997:
<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>
Interest earning assets:
Loans $ 96.2 $ 31.0 $ 60.9 $193.5 $23.1
Investment securities 0.2 5.4 12.6 47.5 16.9
Other earning assets 0.1 0.3 0.0 0.0 0.0
------ ------- ------- ------ -----
Total 96.5 36.7 73.5 241.0 40.0
Interest bearing liabilities:
Deposits 174.3 48.7 112.0 52.6 0.2
Other bearing liabilities 7.7 2.7 7.6 4.4 6.5
------ ------- ------- ------ -----
Total 182.0 51.4 119.6 57.0 6.7
------ ------- ------- ------ -----
Interest sensitivity gap $(85.5) $ (14.8) $ (46.1) $184.0 $33.3
====== ======= ======= ====== =====
Cumulative gap $(85.5) $(100.3) $(146.4) $ 37.7 $70.0
====== ======= ======= ====== =====
</TABLE>
For the one day interval, maturities of interest bearing liabilities exceed
those of interest earning assets by $86 million. Included in the one day
maturity classification are $169 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 $146 million through one year. For the time periods
more than one year, the trend reverses so that for the period one to five
years, interest sensitive assets exceed interest sensitive liabilities by
$38 million. Interest sensitive assets exceed interest sensitive
liabilities by $71 million for the time period exceeding five years.
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
<PAGE>
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In addition to liquidity sensitivity, the Company is subject to interest
rate risk. Business is transacted only in U.S. dollars with no foreign
exchange rate risk. The Company is not exposed to commodity price risk and
has no financial instruments obtained for trading purposes.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December
31, 1997. The expected maturity date values for loans and investment
securities were calculated without adjusting the instruments' contractual
maturity dates for expected prepayments. Maturity date values for interest
bearing core deposits were not based on estimates of the period over which
the deposits would be outstanding, but rather the opportunity for
repricing. The Company believes that repricing dates, as opposed to
expected maturity dates may be more relevant in analyzing the value of such
instruments and are reported as such in the following table.
========================================================================== 9
<PAGE>
=============================================================================
<TABLE>
<CAPTION>
FAIR VALUE
1998 1999 2000 2001 2002 THEREAFTER TOTAL 12/31/97
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest rate loans $ 76,988 $59,871 $61,688 $42,877 $41,793 $26,763 $309,980 $311,930
Average interest rate 8.93% 8.98% 9.02% 8.90% 8.89% 9.44%
Variable interest rate loans $ 37,446 $10,745 $10,451 $15,138 $12,331 $ 8,717 $ 94,828 $ 95,459
Average interest rate 9.50% 9.21% 9.72% 94.20% 9.66% 9.59%
Fixed interest rate securities $ 18,515 $12,367 $15,441 $ 9,204 $ 6,223 $20,265 $ 82,015 $ 82,015
Average interest rate 5.76% 6.12% 6.14% 6.14% 6.26% 5.81%
Variable interest rate securities $ 563 $ 563 $ 563
Average interest rate 7.63%
Other interest bearing assets $ 836 $ 836 $ 836
Average interest rate 5.25%
Rate sensitive liabilities:
Savings & interest bearing checking $174,218 $174,218 $174,218
Average interest rate 3.19%
Time deposits $153,395 $35,352 $11,958 $ 7,134 $ 4,356 $ 1,300 $213,495 $213,083
Average interest rate 5.49% 5.80% 6.06% 5.97% 6.07% 6.22%
Fixed interest rate borrowings $ 8,300 $ 1,590 $ 9,890 $ 9,890
Average interest rate 6.63% 6.86%
Variable interest rate borrowings $ 6,000 $ 6,000 $ 6,000
Average interest rate 5.80%
Repurchase Agreements $ 12,933 $ 12,933 $ 12,933
Average interest rate 4.23%
</TABLE>
CAPITAL RESOURCES
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, 1997, the Company's total capital to risk weighted
assets exceeded the minimum requirement for capital adequacy purposes of 8%
by 4.37% or $17.0 million, Tier 1 capital to risk weighted assets exceeded
the minimum of 4% by 7.11% or $27.7 million, and Tier 1 capital to average
<PAGE>
assets exceeded the minimum of 4% by 4.24% or $22.3 million. For a more
complete discussion of capital requirements, please refer to Note Q to the
consolidated financial statements.
[BOOK VALUE PER SHARE GRAPH]
10 ==========================================================================
<PAGE>
=============================================================================
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 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 19.2%. The compound annual growth rate
for average equity over the same period was 29.7%. The compound annual
growth rate for equity includes the $5.5 million stock issuance in 1993,
and $16 million for shares issued for the acquisition of 1997.
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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Return on Equity 13.48% 15.15% 14.02%
MULTIPLIED BY
Percentage of Earnings Retained 66.49% 72.06% 73.77%
EQUALS
Internal Capital Growth 8.96% 10.92% 10.34%
</TABLE>
The increases in the rate of internal capital growth in 1995 and 1996
demonstrate the effective deployment of the addition to capital from the
1993 stock offering. The decrease in internal capital growth in 1997 is
the consequence of two factors. The first is the increase in capital
emerging from the 1997 acquisition. In addition, the Company paid out a
larger proportion of its earnings in 1997 than in the previous two years.
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
<PAGE>
owners holding 95,173 shares participated in the Plan. By the end of
1997, 756 owners holding 594,721 shares were participating in the Plan.
The Company is not aware of any recommendations by regulatory authorities
at December 31, 1997, which are likely to have a material effect on
Firstbank Corporation's liquidity, capital resources or operations.
YEAR 2000
The Corporation is currently in the process of addressing a potential
problem that is facing all users of automated information systems. The
problem is that many computer systems that process transactions based on
two digits representing the year of transaction may recognize a date using
"00" as the year 1900 rather than the year 2000. The problem could affect
a wide variety of automated information systems, such as mainframe
applications, personal computers, and communication systems, in the form of
software failure, errors, or miscalculations. By nature, the banking and
financial services industries are highly dependent upon computer systems
because of significant transaction volumes and a date dependency for
interest measurements on financial instruments such as loans and deposits.
The Corporation developed a plan to prepare for the year 2000 in 1997.
This plan began with the performance of an inventory of software
applications, communicating with third party vendors and suppliers, and
obtaining certification of compliance with third party providers. The
Corporation has a comprehensive, written plan, which is regularly updated
and monitored by technical personnel. Plan status is regularly reviewed by
management of the Corporation. As of December 31, 1997, it is estimated
that this plan is approximately 30% complete.
The Corporation will continue to assess the impact of the Year 2000 issue
on the remainder of its computer based systems and applications throughout
1998. The Corporation's goal is to perform tests of its systems and
applications during 1998, and to have all systems and applications
compliant with the century change by early 1999, allowing the rest of 1999
to be used for full validation and testing.
========================================================================== 11
<PAGE>
=============================================================================
At December 31, 1997, the Corporation estimated it may spend approximately
$160,000 over the next two years to remediate its Year 2000 issues. These
costs will primarily consist of personnel expense for staff dedicated to
the effort and professional fees paid to third party providers of remedial
services. It is the Corporation's policy to expense such costs as
incurred. The Corporation may also invest in new or upgraded technology
which has definable value lasting beyond 2000. In these instances, where
Year 2000 compliance is merely ancillary, the Corporation may capitalize
and depreciate such an asset over its estimated useful life.
In addition to reviewing its own computer operating systems and
applications, the Corporation has initiated formal communications with its
significant suppliers and large customers to determine the extent to which
the Corporation's interface systems are vulnerable to those third parties'
failure to resolve their own Year 2000 issues. There is no assurance that
the systems of other companies on which the Corporation's systems rely will
be timely converted. If such modifications and conversions are not made,
or are not completed timely, the Year 2000 issue could have an adverse
impact on the operations of the Corporation.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have an
adverse impact on the Corporation's financial conditions, results of
operations, or liquidity.
The costs of the project and the date on which the Corporation believes it
will complete the Year 2000 modifications are based on management's best
estimates. There can be no guarantee that these estimates will be achieved
and actual results could differ from those anticipated. Specific factors
that might cause differences include, but are not limited to, the ability
of other companies on which the Corporation's systems rely to modify or
convert their systems to be Year 2000 compliant, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
FORWARD LOOKING STATEMENTS
This discussion and analysis of financial condition and results of
operations, and other sections of the Annual Report, 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," "projects," variations of such words 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")
which are difficult to predict with regard to timing, extent, likelihood
<PAGE>
and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed or forecast in such forward
looking statements. The Corporation undertakes no obligation to update,
amend or clarify forward looking statements as a result of new information,
future events, or otherwise.
Future Factors that could cause a difference between an ultimate actual
outcome and a preceding forward looking statement include, but are not
limited to, changes in interest rates and interest rate relationships;
demands for products and services; the degree of competition by traditional
and non-traditional competitors; changes in banking laws or regulations;
changes in tax laws; changes in prices; the impact of technological
advances; government and regulatory policy changes; the outcome of pending
and future litigation and contingencies; trends in customers' behaviors as
well as their ability to repay loans; and the local economy.
12 ==========================================================================
<PAGE>
=============================================================================
FIRSTBANK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
1997
----
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Interest income $8,213 $8,649 $10,002 $11,000 $37,864
Net interest income 4,591 4,854 5,644 6,245 21,334
Provision for loan losses 251 462 365 320 1,398
Income before federal income taxes 1,702 1,690 2,112 2,305 7,809
Net income 1,227 1,222 1,500 1,609 5,558
Basic earnings per share .72 .71 .76 .76 2.95
Diluted earnings per share .70 .69 .74 .74 2.87
</TABLE>
<TABLE>
<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
Basic earnings per share .62 .66 .69 .75 2.72
Diluted earnings per share .61 .65 .68 .73 2.68
</TABLE>
All per share amounts have been adjusted for stock dividends
Bank of Lakeview results are included from August 8, 1997, the date of
acquisition.
- -----------------------------------------------------------------------------
COMMON STOCK DATA
Firstbank Corporation shares were held by 1,220 shareholders of record as
of December 31, 1997. Total shareholders number approximately 1,600
including those whose shares are held in nominee name through a brokerage
firm. The Company's shares are listed on the Over the Counter Bulletin
<PAGE>
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
1997 1996
---- ----
<S> <C> <C>
First Quarter $32.14 - $35.00 $22.68 - $24.94
Second Quarter $35.00 - $38.10 $24.94 - $26.98
Third Quarter $38.10 - $39.52 $26.98 - $28.80
Fourth Quarter $39.52 - $47.00 $28.80 - $32.14
</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 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
First Quarter $.2095 $.1632
Second Quarter .2477 .1995
Third Quarter .2477 .1995
Fourth Quarter .2477 .1995
------ ------
$.9526 $.7617
====== ======
</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 P). As of January 1, 1998, approximately $10,258,000 of
the subsidiaries' retained earnings is available for transfer in the form
of dividends to the Company without prior regulatory approval. In
addition, to the extent of the subsidiaries' 1998 earnings, such earnings
will be available for distributions as dividends to the Company.
========================================================================== 13
<PAGE>
=============================================================================
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Firstbank Corporation
Alma, Michigan
We have audited the consolidated balance sheets of Firstbank Corporation as
of December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 23, 1998
<PAGE>
=============================================================================
<TABLE>
<CAPTION>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,279,923 $ 19,430,993
Short term investments 835,580 1,797,479
------------ ------------
Total cash and cash equivalents 24,115,503 21,228,472
Securities available for sale 82,577,999 56,572,495
Loans:
Loans held for sale 3,916,791 6,755,863
Portfolio loans
Commercial 158,218,889 122,933,722
Real estate mortgage 167,930,825 115,849,643
Consumer 74,741,496 69,080,989
------------ ------------
Total loans 404,808,001 314,620,217
Less allowance for loan losses (8,114,000) (6,247,000)
------------ ------------
Net loans 396,694,001 308,373,217
Premises and equipment, net 13,417,065 8,218,954
Acquisition intangibles 10,290,640 3,847,832
Accrued interest receivable 3,458,655 2,236,870
Other assets 5,768,444 4,093,102
------------ ------------
TOTAL ASSETS $536,322,307 $404,570,942
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand accounts $ 57,952,555 $ 47,752,360
Interest bearing accounts:
Demand 110,363,898 86,768,530
Savings 63,853,842 59,391,775
Time 213,495,526 164,756,724
------------ ------------
Total deposits 445,665,821 358,669,389
Securities sold under agreements to
repurchase and overnight borrowings 21,232,881 6,832,592
Notes payable 7,590,465 2,239,039
Accrued interest and other liabilities 7,301,246 3,741,861
------------ ------------
Total liabilities 481,790,413 371,482,881
<PAGE>
SHAREHOLDERS' EQUITY
Preferred stock; no par value,
300,000 shares authorized, none issued
Common stock; 10,000,000 shares authorized; 2,146,105 and 1,709,235
shares issued and outstanding in 1997 and 1996 respectively 46,223,949 24,228,132
Retained earnings 7,420,886 8,296,590
Net unrealized appreciation on securities available for sale,
net of income tax of $456,970 in 1997, and $290,000 in 1996 887,059 563,339
------------ ------------
Total shareholders' equity 54,531,894 33,088,061
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $536,322,307 $404,570,942
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
========================================================================== 15
<PAGE>
=============================================================================
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 33,385,960 $ 27,446,750 $ 23,482,159
Securities:
Available for sale - Taxable 2,546,186 1,922,393 1,539,531
Available for sale - Exempt from federal income tax 1,620,493 1,471,602 175,924
Held to maturity - Taxable 443,346
Held to maturity - Exempt from federal income tax 1,378,401
Short term investments 311,464 175,064 375,083
------------ ------------- --------------
Total interest income 37,864,103 31,015,809 27,394,444
Interest expense:
Deposits 15,628,237 12,581,008 11,252,294
Notes payable and other 901,502 699,718 549,629
------------ ------------- --------------
Total interest expense 16,529,739 13,280,726 11,801,923
------------ ------------- --------------
Net interest income 21,334,364 17,735,083 15,592,521
Provision for loan losses 1,398,000 1,838,000 1,085,000
------------ ------------- --------------
Net interest income after
provision for loan losses 19,936,364 15,897,083 14,507,521
Noninterest income:
Service charges on deposit accounts 1,227,700 1,009,895 946,172
Gain on sale of mortgage loans 759,378 620,990 302,382
Mortgage servicing, net of amortization 247,529 386,494 329,188
Trust fees 273,222 234,951 224,207
Gain (loss) on sale of securities (29,732) 11,773 24,072
Other 1,219,254 1,033,253 645,469
------------ ------------- --------------
Total noninterest income 3,697,351 3,297,356 2,471,490
Noninterest expense:
Salaries and employee benefits 8,032,608 6,613,365 5,834,699
Occupancy 2,128,511 1,883,193 1,507,268
Amortization of acquisition intangibles 826,924 271,449 232,348
FDIC Insurance premium 43,864 226,554 327,704
Michigan Single Business tax 359,567 355,800 293,200
Other 4,433,510 3,439,690 3,617,313
------------ ------------- --------------
Total noninterest expense 15,824,984 12,790,051 11,812,532
------------ ------------- --------------
<PAGE>
Income before federal income taxes 7,808,731 6,404,388 5,166,479
Federal income taxes 2,251,000 1,761,000 1,301,000
------------ ------------- --------------
NET INCOME $ 5,557,731 $ 4,643,388 $ 3,865,479
============ ============= ==============
Basic earnings per share $2.95 $2.72 $2.29
===== ===== =====
Diluted earnings per share $2.87 $2.68 $2.27
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
16 ==========================================================================
<PAGE>
=============================================================================
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
APPRECIATION
(DEPRECIATION)
ON SECURITIES
COMMON RETAINED AVAILABLE ESOP
STOCK EARNINGS FOR SALE SHARES TOTAL
------ -------- -------------- ------ -----
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $ 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--$.60 per share (1,013,748) (1,013,748)
5% stock dividend--80,607 shares 1,809,547 (1,818,112) (8,565)
Issuance of 69 shares of common
stock through exercise of stock options 1,289 1,289
Issuance of 160 shares of common stock 3,519 3,519
Allocation of 16,994 shares
to ESOP participant accounts 158,817 158,817
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of ($643,863) 1,249,849 1,249,849
------------- ------------ ---------- ---------- ------------
BALANCES AT
DECEMBER 31, 1995 21,355,293 7,583,783 913,577 0 29,852,653
Net income for 1996 4,643,388 4,643,388
Cash dividends--$.76 per share (1,297,400) (1,297,400)
5% stock dividend--80,913 shares 2,620,039 (2,633,181) (13,142)
Issuance of 2,234 shares of common
stock through exercise of stock options 46,947 46,947
Issuance of 5,114 shares of common stock
through the dividend reinvestment plan 144,063 144,063
Issuance of 1,923 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 $180,426 (350,238) (350,238)
------------- ------------ ---------- ---------- ------------
BALANCES AT
DECEMBER 31, 1996 24,228,132 8,296,590 563,339 0 33,088,061
Net income for 1997 5,557,731 5,557,731
Cash dividends--$.95 per share (1,862,378) (1,862,378)
5% stock dividend--101,917 shares 4,560,786 (4,571,057) (10,271)
<PAGE>
Issuance of 6,878 shares of common
stock through exercise of stock options 163,566 163,566
Issuance of 12,795 shares of common stock
through the dividend reinvestment plan 479,436 479,436
Issuance of 10,367 shares of common
stock from supplemental shareholder
investments 402,894 402,894
Issuance of 407,633 shares of common
stock pursuant to the acquisition 16,389,135 16,389,135
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of ($166,765) 323,720 323,720
------------- ------------ ---------- ---------- ------------
BALANCES AT
DECEMBER 31, 1997 $ 46,223,949 $ 7,420,886 $ 887,059 $ 0 $ 54,531,894
============= ============ ========== ========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
========================================================================== 17
<PAGE>
=============================================================================
FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,557,731 $ 4,643,388 $ 3,865,479
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 1,398,000 1,838,000 1,085,000
Depreciation of premises and equipment 1,033,620 749,790 436,564
Net amortization of security premiums/discounts 131,273 343,131 287,659
Loss (gain) on sale of securities 29,732 (11,773) (24,072)
Allocation of common stock to ESOP participants 158,817
Amortization of acquisition intangibles 826,924 271,449 232,348
Gain on sale of mortgage loans (759,378) (620,990) (302,382)
Proceeds from sales of mortgage loans 50,910,223 46,388,544 34,262,839
Loans originated for sale (47,311,773) (49,917,204) (33,574,477)
Deferred federal income tax benefit (481,000) (661,000) (399,000)
Decrease in accrued interest receivable and other assets (4,049,673) (453,940) (1,444,046)
Increase (decrease) in accrued interest payable and other liabilities 3,392,620 (499,416) 1,335,588
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,678,299 2,069,979 5,920,317
INVESTING ACTIVITIES
Cash acquired from Lakeview Financial Corporation 1,724,418
Proceeds from sale of securities available for sale 1,560,907 3,534,165 6,188,687
Proceeds from maturities of securities available for sale 28,153,606 20,286,206 4,280,804
Proceeds from maturities of securities held to maturity 9,102,877
Purchases of securities available for sale (42,239,442) (19,434,329) (13,636,714)
Purchases of securities held to maturity (2,338,617)
Net increase in portfolio loans (23,427,147) (46,090,330) (42,151,529)
Net purchases of premises and equipment (2,074,625) (1,962,736) (2,590,960)
Net increase in intangibles from acquisitions (1,757,606) (496,076)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (36,302,283) (45,424,630) (41,641,528)
FINANCING ACTIVITIES
Deposits from branch acquisitions 19,347,853 10,901,185
Net increase in deposits 13,586,053 32,314,920 29,028,601
Net increase (decrease) in securities sold under
agreements to repurchase and overnight borrowings 12,400,289 (5,009,687) (2,301,191)
Proceeds from notes payable 3,351,426 2,239,039
Cash dividends and cash paid in lieu of fractional shares on stock
dividend (1,872,649) (1,310,542) (1,022,313)
Net proceeds from issuance of common stock 1,045,896 252,800 4,808
------------ ------------ ------------
<PAGE>
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,511,015 47,834,383 36,611,090
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,887,031 4,479,732 889,879
Cash and cash equivalents at beginning of year 21,228,472 16,748,740 15,858,861
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 24,115,503 $ 21,228,472 $ 16,748,740
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest paid $ 14,944,446 $ 13,150,177 $ 11,489,482
Income taxes paid 2,135,000 2,610,000 1,710,000
Non-cash investing and financing activities:
Acquisition of Lakeview Financial Corporation
Common stock issued $ 16,006,389
Fair value of stock options 382,776
Fair value of assets acquired 88,513,535
Fair value of liabilities assumed 77,410,379
Supplemental disclosure of non-cash investing
activities--See Note A
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18 ==========================================================================
<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 $536,000,000
as of December 31, 1997, primarily represent commercial and retail banking
activity. Mortgage loans serviced for others of $167,000,000 and trust
assets of $71,000,000 as of December 31, 1997, 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, 1st Bank, and Bank of Lakeview (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.
<PAGE>
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.
Impairment is evaluated based on the fair value of the rights, using
groupings of the underlying loans as to interest rates and then,
secondarily, as to geographic and prepayment characteristics. Any
impairment of a grouping is recorded as a valuation allowance.
========================================================================== 19
<PAGE>
=============================================================================
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. Loans held for sale are reported at the lower of cost or market, on
an aggregate basis.
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 an
increase in the allowance for loan losses, 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.
<PAGE>
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 using the straight
line method for periods of not less than 15 years or more than 20 years.
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 SHARE: Basic earnings per share is based on weighted average
common shares outstanding. Diluted earnings per share further assumes
issue of any dilutive potential common shares. The accounting standard for
computing earnings per share was revised for 1997, and all earnings per
share previously reported are restated to follow the new standard. Per
share amounts are restated for all subsequent stock dividends and splits.
20 ==========================================================================
<PAGE>
=============================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: During 1997 and
1996, the Company transferred $2,886,318 and $713,992 from loans held for
sale to portfolio loans.
RECLASSIFICATION: Certain 1996 and 1995 amounts have been reclassified to
conform to the 1997 presentation.
FUTURE ACCOUNTING CHANGES: New accounting standards have been issued which
will require future reporting of comprehensive income (net income plus
changes in holding gains and losses on available for sale securities).
NOTE B--ACQUISITIONS
On August 8, 1997, the Company completed its acquisition of Lakeview
Financial Corporation. The purchase price of the transaction was $17
million based on the Company's trading prices for a 20 day period ending
six days prior to the merger. Lakeview Financial Corporation shareholders
could elect cash (up to 35% of the total purchase price) or stock based
upon an exchange rate of .5839 shares of the Company's stock for each
outstanding share of Lakeview Financial Corporation stock. Over 98% of the
common stock shareholders of Lakeview Financial Corporation elected to
receive the Company's stock, resulting in the issuance of 407,633 shares.
Options held by officers of Lakeview Financial Corporation could be
exchanged for options in the Company, cash, or stock. Options held by
non-officer Directors of Lakeview Financial Corporation were converted to
cash. Cash of $681,000 and options for 10,700 shares with exercise prices of
$14.53 to $21.49 completed the merger.
The acquisition was accounted for as a purchase transaction. Accordingly,
the results of operations of Lakeview Financial Corporation are included
with those of the Company for periods subsequent to the date of merger.
Lakeview Financial Corporation will operate as Bank of Lakeview and the
surviving entity is Firstbank Corporation.
Bank of Lakeview will continue to operate as an independent community bank
in the five communities (six locations) of their branches. Management
believes that synergies exist in support functions, and that overall
overhead costs will be reduced from this merger.
This acquisition did not create an overlap of the Company's markets and as
such the Company has not divested itself of any branches. The markets
served by the acquired bank are contiguous to markets already served by the
Company's banks.
The unaudited pro forma amounts in the table below are presented for
informational purposes and are not necessarily indicative of the results of
operations of the combined Company for the periods presented. These
<PAGE>
amounts are also not necessarily indicative of the future results of
operations of the combined Company.
The following unaudited pro forma combined summary of income gives effect
to the combination as if the acquisition was consummated on January 1,
1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
---- ----
<S><C> <C> <C>
SUMMARY OF INCOME
Net interest income $ 23,854,000 $ 21,827,000
Provision for loan losses 1,538,000 2,018,000
Noninterest income 4,008,000 3,881,000
Noninterest expense 17,189,000 16,506,000
Net income 5,684,000 5,177,000
Basic earnings per share $2.80 $2.56
</TABLE>
Goodwill is amortized using the straight line method over 20 years.
The Company's Bank of Alma subsidiary acquired branches in Merrill and
Auburn during 1996. 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 these branches are
included in the consolidated financial statements for periods after
December 13, 1996.
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.
NOTE C--RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
========================================================================== 21
<PAGE>
=============================================================================
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, 1997 and 1996, were $2,302,000 and $1,569,000
respectively. These reserves do not earn interest.
NOTE D--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, 1997:
U.S. Treasury $ 10,996,073 $ 87,137 $ (594) $ 11,082,616
U.S. governmental agency 15,270,745 129,358 (11,547) 15,388,556
States and political subdivisions 34,287,320 1,036,076 (3,727) 35,319,669
Collateralized mortgage obligations 4,479,036 75,603 (4,462) 4,550,177
Corporate 14,420,854 39,084 (2,898) 14,457,040
Equity 1,779,941 1,779,941
------------ ----------- --------- -------------
$ 81,233,969 $ 1,367,258 $ (23,228) $ 82,577,999
============ =========== ========= =============
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
============ =========== ========= =============
</TABLE>
Gross realized gains (losses) on sales and calls of securities were:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Gross realized gains $ 1,050 $ 22,511 $ 27,680
Gross realized losses (30,782) (10,738) (3,608)
---------- ----------- ---------
Net realized gains $ (29,732) $ 11,773 $ 24,072
========== =========== =========
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1997,
by stated maturity are shown below. Actual maturities may differ from
stated maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
AMORTIZED FAIR
COST VALUE
--------- -----
<S> <C> <C>
Due in one year or less $ 18,123,558 $ 18,109,990
Due after one year through five years 42,762,143 43,632,238
Due after five years through ten years 7,879,461 8,091,734
Due after ten years 10,688,867 10,964,096
------------ ------------
$ 79,454,029 $ 80,798,058
============ ============
</TABLE>
At December 31, 1997, securities with a carrying value approximating
$43,105,000 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.
22 ==========================================================================
<PAGE>
=============================================================================
NOTE E--SECONDARY MORTGAGE MARKET OPERATIONS
The following summarizes the Company's secondary mortgage market
activities:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
During the period:
Loans originated for sale $ 47,311,773 $ 49,917,204 $ 33,574,477
Proceeds from sale of mortgage loans 50,910,223 46,388,544 34,262,839
Transfer from loans held for sale to portfolio loans 2,886,318 713,992
Gain on sale of mortgage loans 759,378 620,990 302,382
Servicing fees earned on mortgage loans, net 247,529 386,494 329,188
At end of period:
Mortgage loans serviced for others $ 167,294,788 $ 147,361,938 $128,417,926
Loans held for sale 3,916,791 6,755,863 2,606,213
Escrow balances maintained for loans serviced 208,267 173,742 220,093
</TABLE>
NOTE F--NONACCRUAL LOANS AND ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 6,247,000 $ 4,876,000 $ 4,100,000
Lakeview allowance at acquisition 1,326,000
Provision charged to expense 1,398,000 1,838,000 1,085,000
Recoveries credited to allowance 413,000 313,000 429,000
Loans charged off (1,270,000) (780,000) (738,000)
------------- ------------ -----------
BALANCE AT DECEMBER 31 $ 8,114,000 $ 6,247,000 $ 4,876,000
============= ============ ===========
</TABLE>
Loans approximating $1,274,000, $218,000, and $47,000 were in nonaccrual
status at December 31, 1997, 1996, and 1995. If these loans had performed
in accordance with their original terms, additional interest income of
$68,000, $10,000, and $4,000 would have been recognized during 1997, 1996,
and 1995.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Information regarding impaired loans is as follows:
Average investment in impaired loans $ 972,000 $ 368,000
Interest income recognized on impaired loans 87,000 26,000
Interest income recognized on impaired loans on cash basis 0 0
Information regarding impaired loans at year end is as follows:
Total impaired loans $ 933,000 $ 327,000
Less loans for which no allowance for loan losses is allocated 868,000 235,000
----------- -----------
Impaired loan balance for which an allowance for loan losses is
allocated $ 65,000 $ 92,000
=========== ===========
Portion of allowance allocated to impaired loans $ 48,000 $ 69,000
</TABLE>
NOTE G--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 2,982,783 $ 1,690,033
Buildings and improvements 10,358,212 6,316,592
Furniture and equipment 7,596,195 5,285,276
------------- ------------
20,937,190 13,291,901
Less accumulated depreciation (7,520,125) (5,072,947)
------------- ------------
Total premises and equipment, net $ 13,417,065 $ 8,218,954
============= ============
</TABLE>
========================================================================== 23
<PAGE>
=============================================================================
NOTE H--FEDERAL INCOME TAXES
Federal income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S><C> <C> <C> <C>
Current expense $ 2,732,000 $ 2,422,000 $ 1,700,000
Deferred benefit (481,000) (661,000) (399,000)
------------- ------------ -------------
Total $ 2,251,000 $ 1,761,000 $ 1,301,000
============= ============ =============
</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>
1997 1996 1995
---- ---- ----
<S><C> <C> <C> <C>
Tax at statutory rate $ 2,655,000 $ 2,177,000 $ 1,757,000
Effect of tax-exempt interest (619,000) (509,000) (468,000)
Other 215,000 93,000 12,000
------------- ------------ -------------
Federal income taxes $ 2,251,000 $ 1,761,000 $ 1,301,000
============= ============ =============
Effective tax rate 29% 27% 25%
</TABLE>
The components of deferred tax assets and liabilities consist of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 2,191,000 $ 1,598,000
Deferred compensation 448,000 142,000
Other 531,000 483,000
------------ ------------
Total deferred tax assets 3,170,000 2,223,000
------------ ------------
<PAGE>
Deferred tax liabilities:
Fixed assets (508,000) (435,000)
Unrealized gain on securities available
for sale (457,000) (290,000)
Other (31,000) (19,000)
------------ ------------
Total deferred tax liabilities (996,000) (744,000)
------------ ------------
Net deferred tax asset $ 2,174,000 $ 1,479,000
============ ============
</TABLE>
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, 1997 or 1996.
Deferred tax assets at December 31, 1997 and 1996, are included in other
assets in the accompanying consolidated balance sheets.
NOTE I--DEPOSITS
Time deposits at December 31, 1997, have the following maturity
distribution:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS
--------------------
YEAR AMOUNT
---- ------
<S> <C> <C>
1998 $ 156,886
1999 29,345
2000 15,055
2001 6,762
2002 and over 5,447
----------
Total $ 213,495
==========
</TABLE>
Included in total time deposits are time deposit liabilities issued in
denominations of $100,000 or more. At December 31, 1997 and 1996, these
deposits amounted to $35,670,000 and $26,276,000. Interest expense on time
deposits issued in denominations of $100,000 or more for 1997, 1996, and
1995 amounted to $1,832,000, $1,439,000, and $1,103,000.
24 ==========================================================================
<PAGE>
=============================================================================
NOTE J--BORROWINGS
Information relating to securities sold under agreements to repurchase
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
At December 31:
Outstanding balance $12,932,000 $ 5,933,000 $ 8,442,000
Average interest rate 4.23% 4.40% 4.98%
Daily average for the year:
Outstanding balance $10,894,000 $10,527,000 $ 8,905,000
Average interest rate 4.36% 4.73% 5.16%
Maximum outstanding at any month end $13,911,000 $14,290,000 $10,714,000
</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 deposit customers as deposit equivalent
investments.
The Company has borrowed from the Federal Home Loan Bank. At December 31,
1997 and 1996, the outstanding advances totaled $7,364,000 and $2,000,000
respectively. These loans may be for a one year period, or may be matched
with loans to the Company's customers, and therefore match the maturity of
those customers' obligations. The majority of these loans, $6,000,000, are
variable rate instruments. The interest is payable monthly, adjusts
quarterly, and is based on the three month LIBOR rate. These variable
rates at December 31, 1997, ranged from 5.76% to 5.85%. The advances are
collateralized by a blanket lien on residential mortgage loans.
At December 31, advances were as follows:
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY INTEREST RATE
--------- -------- -------------
<S> <C> <C> <C>
$ 500,000 January 26, 1998 5.76%
500,000 March 25, 1998 5.77%
1,000,000 May 28, 1998 5.84%
2,000,000 July 2, 1998 5.76%
2,000,000 August 14, 1998 5.85%
814,000 April 17, 2017 7.30%
550,000 October 16, 2017 6.56%
-------------
$ 7,364,000
=============
</TABLE>
NOTE K--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 1997, 1996, and 1995
matching 401(k) contributions charged to expense were $204,165, $158,934,
and $133,211 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 148,000 shares of previously
unissued common stock of the Company at an estimated fair value of $9.34
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 1995, 16,994 unallocated shares
with a value of $158,817, were allocated to participants' accounts.
========================================================================== 25
<PAGE>
=============================================================================
NOTE L--STOCK OPTIONS
The Firstbank Corporation Stock Option Plans of 1993 and 1997 ("Plans")
provide for the grant of 127,628 and 105,000 shares of stock, respectively,
in either restricted form or under option. Options may be either incentive
stock options or nonqualified stock options. The Plan of 1993 will
terminate April 26, 2003. The 1997 Plan will terminate April 28, 2007.
The Board, at its discretion, may terminate either or both Plans prior to
the Plans' termination dates.
Each option granted under the Plans 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
may not be exercised after ten years from the grant date.
The following is a summary of option transactions which occurred during
1995, 1996, and 1997:
<TABLE>
<CAPTION>
NUMBER EXERCISE WEIGHTED
OF SHARES AVERAGE
--------- -----------------
<S> <C> <C>
Outstanding -- December 31, 1994 52,073 $ 17.50
Granted 26,567 22.03
Exercised (69) 17.04
Canceled (2,191) 17.99
-------
Outstanding -- December 31, 1995 76,380 19.06
Granted 29,106 32.20
Exercised (2,234) 17.75
Canceled (3,522) 19.41
-------
Outstanding -- December 31, 1996 99,730 22.90
Granted 41,921 43.57
Granted pursuant to acquisition 21,452 21.43
Exercised (5,826) 18.61
Canceled (2,253) 28.01
-------
Outstanding -- December 31, 1997 155,024 28.49
Available for exercise -- December 31, 1997 68,522 21.27
Available for grant -- December 31, 1997 69,443
</TABLE>
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION (SFAS 123), which became effective for 1996, establishes a
<PAGE>
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 1997, 1996, or 1995 because the
options were granted with an exercise price equal to the fair value of the
Company's stock at the grant date.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S><C> <C> <C> <C>
Net income as reported $5,557,731 $4,643,388 $3,865,479
Pro forma net income $5,507,459 $4,625,685 $3,860,068
Basic earnings per share as reported $2.95 $2.72 $2.29
Pro forma basic earnings per share $2.92 $2.71 $2.28
Diluted earnings per share as reported $2.87 $2.68 $2.27
Pro forma diluted earnings per share $2.84 $2.67 $2.26
</TABLE>
In future years, the pro forma effect under this standard is expected to
increase as additional options are granted.
The fair value of options granted during 1997, 1996, and 1995 is estimated
using the Black-Scholes model and the following weighted average
information: risk free interest rate of 5.86%, 6.42%, and 5.57% expected
life of 7 years, expected volatility of stock price of 7.9%, 8.4%, and
8.1% and expected dividends of 3% per year. The fair value of the options
granted in 1997, 1996, and 1995 were $227,000, $86,000, and $38,000
respectively. At December 31, 1997, the options granted in 1997 had a
remaining option life of 6 years, the options granted in 1996 had a
remaining option life of 5 years, and the options granted in 1995 had a
remaining option life of 4 years.
26 ==========================================================================
<PAGE>
=============================================================================
NOTE M--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 $14,174,000 and $14,127,000 at December 31,
1997 and 1996, respectively. Included in these balances are loans totaling
$520,000 and $956,000 at December 31, 1997 and 1996, 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 1997, $19,365,000 of
related party loans were made and $19,319,000 of repayments were made on
those loans. Total deposits to these parties approximate $6,902,000 at
December 31, 1997.
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company issues financial instruments with off balance sheet risk 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>
1997 1996
---- ----
<S><C> <C> <C>
Commitments to make loans $ 6,917,124 $ 4,278,786
Credit card arrangements 3,222,579 2,851,447
Unused lines of credit 38,860,693 35,065,707
Standby letters of credit 1,595,480 1,829,850
</TABLE>
Commitments are generally made for periods not to exceed 90 days.
Approximately 18% of commitments at both December 31, 1997 and 1996, were
made at fixed rates. Rate ranges for these fixed rate commitments were
5.75% to 18.00% at December 31, 1997 and December 31, 1996.
NOTE O--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,
1997.
<PAGE>
NOTE P--DIVIDEND LIMITATION OF SUBSIDIARIES
The subsidiary banks are restricted in their ability to pay dividends to
the Company by regulatory requirements. For 1998, approximately
$10,258,000 of the subsidiaries' retained earnings (in addition to their
1998 net income) is available for transfer in the form of dividends without
prior regulatory approval.
========================================================================== 27
<PAGE>
=============================================================================
NOTE Q--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. 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
CAPITAL RATIO CAPITAL RATIO RATIO
------------- ------------- ---------
<S> <C> <C> <C>
Firstbank Corporation -- Consolidated 12.37% 11.11% 8.24%
Bank of Alma 11.75% 10.49% 7.48%
Firstbank 12.24% 10.98% 9.03%
1st Bank 11.29% 10.03% 7.41%
Lakeview 14.69% 13.43% 10.31%
</TABLE>
The following table shows the dollar amounts, in thousands, by which the
Company's capital exceeds current regulatory requirements:
<PAGE>
<TABLE>
<CAPTION>
TOTAL TIER 1
RISK-BASED RISK-BASED TIER 1
CAPITAL CAPITAL LEVERAGE
----------- ----------- --------
<S> <C> <C> <C>
Capital balances at 12/31/97
Firstbank Corporation -- Consolidated $ 48,217 $ 43,304 $ 43,304
Bank of Alma 16,897 15,082 15,082
Firstbank 9,378 8,416 8,416
1st Bank 11,353 10,082 10,082
Lakeview 10,310 9,428 9,428
Adequate regulatory capital level
Firstbank Corporation -- Consolidated $ 31,190 $ 15,595 $ 21,023
Bank of Alma 11,504 5,752 8,070
Firstbank 6,132 3,066 3,726
1st Bank 8,045 4,023 5,443
Lakeview 5,616 2,808 3,657
Excess
Firstbank Corporation -- Consolidated $ 17,027 $ 27,709 $ 22,281
Bank of Alma 5,393 9,330 7,012
Firstbank 3,246 5,350 4,690
1st Bank 3,309 6,059 4,639
Lakeview 4,694 6,620 5,771
</TABLE>
28 ==========================================================================
<PAGE>
=============================================================================
NOTE R--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.
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 D. All securities are carried at market value.
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
<PAGE>
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, 1997 DECEMBER 31, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 24,116 $ 24,116 $ 21,228 $ 21,228
Securities 82,578 82,578 56,572 56,572
Net loans 396,694 399,275 308,373 307,853
Accrued interest receivable 3,459 3,459 2,237 2,237
Financial liabilities:
Deposits (445,666) (445,723) (358,669) (358,300)
Securities sold under agreements to
repurchase and overnight borrowings (21,233) (21,233) (6,833) (6,833)
Notes payable (7,590) (7,590) (2,239) (2,239)
Accrued interest payable (1,308) (1,308) (1,056) (1,056)
</TABLE>
========================================================================== 29
<PAGE>
=============================================================================
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.
NOTE S BASIC AND DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Earnings per share
Net income $ 5,557,731 $ 4,643,388 $ 3,865,479
Net income available to common shareholders $ 5,557,731 $ 4,643,388 $ 3,865,479
============ ============ ===========
Weighted average common shares outstanding 1,884,682 1,705,045 1,691,649
============ ============ ===========
Earnings per share $2.95 $2.72 $2.29
===== ===== =====
Earnings per share assuming dilution
Net income available to common shareholders $ 5,557,731 $ 4,643,388 $ 3,865,479
============ ============ ===========
Weighted average common shares outstanding 1,884,682 1,705,045 1,691,649
Add dilutive effects of assumed exercises of
options 52,128 24,385 10,133
------ ------ ------
Weighted average common and dilutive
potential common shares outstanding 1,936,810 1,729,430 1,701,782
============ ============ ===========
Earnings per share
Assuming dilution $2.87 $2.68 $2.27
===== ===== =====
</TABLE>
Nonstatutory stock option grants of 43,921 shares in 1997, 29,106 shares
in 1996, and 26,567 shares in 1995 were not considered in computing diluted
earnings per share in each respective year because they were anti dilutive
in the year of grant.
30 ==========================================================================
<PAGE>
=============================================================================
NOTE T--FIRSTBANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31
-----------
1997 1996
---- ----
<S> <C> <C>
Assets:
Cash $ 599,225 $ 422,215
Investment in subsidiaries 48,742,296 32,470,492
Other assets 6,932,750 1,192,678
------------ ------------
TOTAL ASSETS $ 56,274,271 $ 34,085,385
============ ============
Liabilities and Shareholders' Equity:
Accounts payable and other liabilities $ 1,742,377 $ 997,324
Shareholders' equity 54,531,894 33,088,061
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 56,274,271 $ 34,085,385
============ ============
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
BALANCE SHEETS
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 1,638,000 $1,335,656 $ 1,655,074
Other 67,223 29,847 14,904
----------- ---------- -----------
TOTAL INCOME 1,705,223 1,365,503 1,669,978
Expense:
ESOP expense 158,817
Other 497,248 259,428 316,633
----------- ---------- -----------
TOTAL EXPENSE 497,248 259,428 475,450
----------- ---------- -----------
<PAGE>
Income before federal income tax benefit and
equity in undistributed net income of subsidiaries 1,207,975 1,106,075 1,194,528
Federal income tax benefit (83,612) (65,000) (152,000)
----------- ---------- -----------
Income before equity in undistributed
net income of subsidiaries 1,291,587 1,171,075 1,346,528
Equity in undistributed net income of subsidiaries 4,266,144 3,472,313 2,518,951
----------- ---------- -----------
NET INCOME $ 5,557,731 $4,643,388 $ 3,865,479
=========== ========== ===========
</TABLE>
========================================================================== 31
<PAGE>
=============================================================================
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,557,731 $ 4,643,388 $ 3,865,479
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed earnings of subsidiaries (4,266,144) (3,472,313) (2,518,951)
Allocation of common stock to ESOP participants 158,817
Amortization of goodwill and other intangibles 189,685 39,276 41,626
Decrease (increase) in other assets (865,508) (408,120) 235,902
Increase in accounts payable and other liabilities 1,068,773 205,842 186,448
------------- ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,684,537 1,008,073 1,969,321
INVESTING ACTIVITIES
Purchase of available for sale securities (8,137)
Cash invested in subsidiaries (1,000,000)
------------- ------------- ------------
NET CASH USED BY INVESTING ACTIVITIES (8,137) (1,000,000)
FINANCING ACTIVITIES
Cash used for acquisition (680,774)
Cash dividends and cash paid in lieu of fractional shares
on stock dividend (1,872,649) (1,310,543) (1,022,313)
Net proceeds from issuance of common stock 1,045,896 252,800 4,808
------------- ------------- ------------
NET CASH USED BY FINANCING ACTIVITIES (1,507,527) (1,057,743) (1,017,505)
------------- ------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 177,010 (57,807) (48,184)
Cash and cash equivalents at beginning of year 422,215 480,022 528,206
------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 599,225 $ 422,215 $ 480,022
============= ============= ============
</TABLE>
NOTE U SUBSEQUENT EVENT
On February 20, 1998, the Company's Board of Directors approved a two for
one common stock split to be effected by the distribution of one additional
share for each share outstanding. The distribution will be made on April
8, 1998, to shareholders of record on March 30, 1998. Financial
<PAGE>
information contained elsewhere in this annual report has not been adjusted
to reflect the impact of the declared stock split.
Earnings per share amounts, after giving retroactive effect to the two for
one stock split, are presented below for all of the per share amounts
disclosed in the financial statements and the notes to the financial
statements.
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average common shares outstanding
Basic $3,769,364 $3,410,090 $3,383,298
Assuming Dilution $3,873,620 $3,458,860 $3,403,564
Net income per common share
Basic $1.47 $1.36 $1.15
Diluted $1.43 $1.34 $1.13
Proforma (giving effect for SFAS 123)
Basic $1.46 $1.36 $1.14
Diluted $1.42 $1.34 $1.13
</TABLE>
32 ==========================================================================
<PAGE>
=============================================================================
FIRSTBANK CORPORATION
BOARD OF DIRECTORS OFFICERS
William E. Goggin, Chairman John McCormack
CHAIRMAN, BANK OF ALMA PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATTORNEY, GOGGIN & BAKER
Thomas R. Sullivan
Edward B. Grant EXECUTIVE VICE PRESIDENT
CHAIRMAN, FIRSTBANK
CHAIRMAN, SCHOOL OF ACCOUNTING, CENTRAL Mary D. Deci
MICHIGAN UNIVERSITY VICE PRESIDENT, SECRETARY,
PRESIDENT, LEARNET, INC. (VIDEO TREASURER AND CHIEF FINANCIAL OFFICER
PRODUCTION SERVICE)
Charles W. Jennings Richard L. Jarvis
ATTORNEY, JENNINGS & ELLIAS, PC VICE PRESIDENT
John McCormack Dale A. Peters
PRESIDENT AND CHIEF EXECUTIVE OFFICER, VICE PRESIDENT
FIRSTBANK CORPORATION
PRESIDENT, CHIEF EXECUTIVE OFFICER AND Richard J. Schurtz
TRUST OFFICER, BANK OF ALMA VICE PRESIDENT
Phillip G. Peasley
PRESIDENT, PEASLEY'S HARDWARE & James E. Wheeler, II
FURNITURE, INC. (RETAIL) VICE PRESIDENT
David D. Roslund, CPA
ADMINISTRATOR, WILCOX HEALTH CARE CENTER
(LONG-TERM CARE FACILITY) SMALL BUSINESS
INVESTOR AND MANAGER
- -----------------------------------------------------------------------------
FIRSTBANK CORPORATION
311 Woodworth Avenue
P. O. Box 1029
Alma, Michigan 48801-6029
(517) 463-3131
========================================================================== 33
<PAGE>
=============================================================================
BANK OF ALMA HONORARY DIRECTOR
Robert D. Hoxie
BOARD OF DIRECTORS
OFFICERS
William E. Goggin, Chairman John McCormack
Chairman, Firstbank Corporation President, Chief Executive Officer
Attorney, Goggin & Baker and Trust Officer
Bob M. Baker Mary D. Deci
President and CEO, Gratiot Community Senior Vice President, Controller,
Hospital Cashier and Chief Financial Officer
Peggy Bever James E. Wheeler, II
Business Manager Senior Vice President and Chief Loan
Officer
Donald Crumbaugh
Agriculture Timothy P. Clark
Vice President and Senior Trust
Joe Groteluschen Officer
Vice President of Finance, Alma College
Steve Canole
L. Douglas Lippert Vice President
President, Lippert Components, Inc.
Gregory Daniels
John McCormack Vice President
President and Chief Executive Officer,
Firstbank Corporation President, Chief Marita Harkness
Executive Officer and Trust Officer, Vice President
Bank of Alma
Gerald Kench
John P. Morgan Vice President
Partner, Morgan-Meijer Communications
Timothy M. Lowe
Phillip G. Peasley Vice President
President, Peasley's Hardware & Furniture,
Inc. Victoria Pavlik
Vice President
David D. Roslund, CPA
Administrator, Wilcox Health Care Center Shannon Vasicek
Small Business Investor and Manager Vice President
Victor V. Rozas, M.D. SUBSIDIARY
Physician Niles Agency, Incorporated
315 Woodworth Ave.
Alan J. Stone Alma, MI 48801
President, Alma College (517) 463-1725
<PAGE>
- -----------------------------------------------------------------------------
OFFICE LOCATIONS
ALMA ASHLEY MERRILL ST. LOUIS
7455 N. Alger Rd. 114 S. Sterling St. 125 W. Saginaw St. 135 W. Washington
Ave.
(517) 463-3134 (517) 847-2394 (517) 643-7253 (517) 681-5758
230 Woodworth Ave. AUBURN RIVERDALE VESTABURG
(517) 463-3137 4710 S. Garfield Rd. 6716 N. Lumberjack 8846 Third St.
Rd. (517) 268-5445
(517) 662-4459 (517) 833-7331
311 Woodworth Ave. ITHACA ST. CHARLES
(517) 463-3131 219 E. Center. St. 102 Pine St.
(517) 875-4107 (517) 865-9918
34 ==========================================================================
<PAGE>
=============================================================================
FIRSTBANK
BOARD OF DIRECTORS HONORARY DIRECTORS
Elton L. Philo
Edward B. Grant, Chairman C.A. Koester
Chairman, School of Accounting, Central
Michigan University
President, LEARNet, Inc. OFFICERS
Thomas R. Sullivan
Ralph E. Baumbarth President and Chief Executive Officer
Dentist
Richard L. Jarvis
Ralph M. Berry Executive Vice President
Owner, Berry Funeral Home
James M. Taylor
Kenneth C. Bovee, CPM Senior Vice President
Partner, W.S. Smith Company
Robert L. Wheeler
Glen D. Blystone Vice President
Certified Public Accountant
Blystone & Bailey, CPAs PC
Sibyl Ellis
President, Someplace Special, Inc.
Keith A. Gaede
Pharmacist, Punches Pharmacy
Douglas N. LaBelle
Partner, Labelle Management
William M. McClinic, P.C.
Attorney, W.M. McClinic, P.C.
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.
<PAGE>
- -----------------------------------------------------------------------------
OFFICE LOCATIONS
MT. PLEASANT CLARE WINN
102 S. Main St. 806 N. McEwan Ave. 2783 Blanchard Ave.
(517) 773-2600 (517) 386-7313 (517) 866-2210
4699 E. Pickard St. SHEPHERD
(517) 773-2335 258 W. Wright Ave.
(517) 828-6625
2013 S. Mission St.
(517) 773-3959
========================================================================== 35
<PAGE>
=============================================================================
1ST BANK
BOARD OF DIRECTORS OFFICERS
Dale A. Peters, Chairman Dale A. Peters
PRESIDENT AND CHIEF EXECUTIVE OFFICER, 1ST PRESIDENT AND CHIEF EXECUTIVE
BANK VICE PRESIDENT, FIRSTBANK CORPORATION OFFICER
Daniel Grenier
Bryon Bernard SENIOR VICE PRESIDENT
CEO, BERNARD BUILDING CENTER
Larry Schneider
Joe Clark VICE PRESIDENT
OWNER, MORSE CLARK FURNITURE
Danny Gallagher
Timothy Eyth VICE PRESIDENT
OWNER, WEST BRANCH VETERINARY SERVICES
Richard Pfahl
David Fultz VICE PRESIDENT
OWNER, FULTZ INSURANCE AGENCY
Michael Ehinger
Robert Griffin VICE PRESIDENT
OWNER AND PRESIDENT, GRIFFIN BEVERAGE
COMPANY, NORTHERN BEVERAGE CO., AND WEST
BRANCH TANK & TRAILER Marie A. Wilkins
VICE PRESIDENT
Charles W. Jennings
ATTORNEY, JENNINGS & ELLIAS, PC Rosalind A. Heideman
VICE PRESIDENT
John McCormack
PRESIDENT & CEO, FIRSTBANK CORPORATION Eileen McGregor
PRESIDENT & CEO, BANK OF ALMA VICE PRESIDENT
Norman Miller John Powell
OWNER, MILLER FARMS, AND MILLER DAIRY VICE PRESIDENT
EQUIPMENT AND FEED
Jeff Schubert
DENTIST
Milford Scott SUBSIDIARY
OWNER, SCOTT'S TRUE VALUE HARDWARE 1st Armored, Incorporated
P.O. Box 9
Robert Smith West Branch, MI 48661
OWNER, INDEPENDENT INSURANCE AGENT, (517) 345-5820
CRECINE INSURANCE AGENCY
<PAGE>
- -----------------------------------------------------------------------------
OFFICE LOCATIONS
WEST BRANCH FAIRVIEW HALE ST. HELEN
502 W. Houghton 1979 Miller 3281 M-65 2040 N. St. Helen
(517) 345-7900 (517) 848-2243 (517) 728-7566 (517) 389-1311
601 W. Houghton HIGGINS LAKE ROSE CITY
(517) 345-7900 4522 W. Higgins Lake 505 S. Bennett
Roscommon, MI (517) 685-3909
2087 S. M-76 (517) 821-9231
(517) 345-5050
36 ==========================================================================
<PAGE>
=============================================================================
BANK OF LAKEVIEW
BOARD OF DIRECTORS OFFICERS
Duane A. Carr, Chairman Richard Schurtz
ATTORNEY, CARR & MULLENDORE PRESIDENT AND CHIEF
EXECUTIVE OFFICER
John Crawford William L. Benear
AGRICULTURE, CRAWFORD FARMS EXECUTIVE VICE PRESIDENT
Dean Floria David Miller
OWNER, FLORIA FARM & HOME CENTER VICE PRESIDENT
Gale Hixson Paul Slagter
OWNER, COUNTRY CORNER SUPERMARKET VICE PRESIDENT
OWNER, A FLAIR FOR HAIR
OWNER, HARRY CHALMERS, INC.
John McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
FIRSTBANK CORPORATION PRESIDENT, CHIEF
EXECUTIVE OFFICER, & TRUST OFFICER, BANK
OF ALMA
Gerald Nielsen
OWNER, NIELSEN'S TV & APPLIANCES
Richard Schurtz
PRESIDENT AND CHIEF EXECUTIVE OFFICER, BANK
OF LAKEVIEW VICE PRESIDENT, FIRSTBANK CORPORATION
- -----------------------------------------------------------------------------
OFFICE LOCATIONS
LAKEVIEW CANADIAN LAKES HOWARD CITY MORLEY
506 Lincoln Avenue 10049 Buchanan Road 20020 Howard 101 E 4th Street
(517) 352-7271 Stanwood, MI City/Edmore Road (616) 856-7652
(616) 972-4200 (616) 937-4383
9531 N Greenville Road REMUS
(517) 352-8180 201 W Wheatland Avenue
(517) 967-3602
========================================================================== 37
<PAGE>
=============================================================================
BUSINESS OF THE COMPANY
Firstbank Corporation (the "Company") is a bank holding company. As of
December 31, 1997, the Company's wholly owned subsidiaries are Bank of
Alma, Firstbank, 1st Bank, Bank of Lakeview, Niles Agency,
Incorporated, and 1st Armored, Incorporated.
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, Mecosta, 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 areas:
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 areas: 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 areas: Fairview, Hale, Higgins Lake, Rose City, St. Helen,
and West Branch Township (near West Branch), Michigan. Bank of Lakeview has
its main office and one branch in Lakeview, Michigan, and one branch located
in each of the following areas: Canadian Lakes, Howard City, Morley, and
Remus. 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
1997, 80% in 1996, and 79% in 1995. Interest on investment securities
accounted for approximately 11% of total revenues in 1997, 10% in 1996,
and 12% in 1995. 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, 1997, the Company and its subsidiaries employed 295
people on a full-time equivalent basis.
CORPORATE INFORMATION
ANNUAL MEETING STOCK INFORMATION
The annual meeting of shareholders will Firstbank Corporation shares
be held on Monday, April 27, 1998, are listed Over the
5:00 p.m., at the Counter Bulletin Board under
Comfort Inn, Alma, Michigan. the symbol FBMI.
<PAGE>
Dean Witter Reynolds, Inc.
INDEPENDENT AUDITORS Ted Vogt
Crowe Chizek and Company LLP 1-800-788-9640
Grand Rapids, Michigan
First of Michigan
GENERAL COUNSEL Mike Young
Warner Norcross & Judd LLP 1-800-521-1197
Grand Rapids, Michigan
McDonald & Company
TRANSFER AGENT Jack Korff or Chris Turner
Bank of Alma Shareholder Services 1-800-548-6011
Department
(517) 463-3131 extension 236
Robert W. Baird & Company
Bill L. Ockerlund
1-888-202-5048
Roney & Company
Nikki Gregg
1-800-572-0786
Stifel, Nicolaus & Company, Inc.
Pete VanDer Schaaf
1-800-676-0477
38 ==========================================================================
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
NAME OF SUBSIDIARY STATE OF FORMATION
Bank of Alma Michigan
Firstbank Michigan
1st Bank Michigan
Bank of Lakeview Michigan
<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 23, 1998 on the 1997 consolidated financial statements of
Firstbank Corporation, which report is included in the 1997 Annual Report on
Form 10-K of Firstbank Corporation.
/S/ CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
March 25, 1998
<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 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, 1997, 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, 1998 /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 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, 1997, 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, 1998 /S/ JOHN MCCORMACK
John 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 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, 1997, 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, 1998 /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 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, 1997, 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, 1998 /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 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, 1997, 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, 1998 /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 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, 1997, 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, 1998 /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 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, 1997, 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, 1998 /S/ EDWARD B. GRANT
Edward B. Grant
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE 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,
1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,280
<INT-BEARING-DEPOSITS> 279
<FED-FUNDS-SOLD> 556
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,578
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 404,808
<ALLOWANCE> 8,114
<TOTAL-ASSETS> 536,322
<DEPOSITS> 445,666
<SHORT-TERM> 21,233
<LIABILITIES-OTHER> 7,301
<LONG-TERM> 7,590
<COMMON> 46,224
0
0
<OTHER-SE> 8,308
<TOTAL-LIABILITIES-AND-EQUITY> 54,532
<INTEREST-LOAN> 33,386
<INTEREST-INVEST> 4,167
<INTEREST-OTHER> 311
<INTEREST-TOTAL> 37,864
<INTEREST-DEPOSIT> 15,628
<INTEREST-EXPENSE> 16,530
<INTEREST-INCOME-NET> 21,334
<LOAN-LOSSES> 1,398
<SECURITIES-GAINS> (30)
<EXPENSE-OTHER> 15,825
<INCOME-PRETAX> 7,809
<INCOME-PRE-EXTRAORDINARY> 7,809
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,558
<EPS-PRIMARY> 2.72
<EPS-DILUTED> 2.68
<YIELD-ACTUAL> 5.16
<LOANS-NON> 1,274
<LOANS-PAST> 1,215
<LOANS-TROUBLED> 121
<LOANS-PROBLEM> 1,578
<ALLOWANCE-OPEN> 6,247
<CHARGE-OFFS> 1,270
<RECOVERIES> 413
<ALLOWANCE-CLOSE> 8,114
<ALLOWANCE-DOMESTIC> 5,943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,171
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,884
<INT-BEARING-DEPOSITS> 971
<FED-FUNDS-SOLD> 2,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,476
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 401,876
<ALLOWANCE> 8,284
<TOTAL-ASSETS> 532,047
<DEPOSITS> 446,800
<SHORT-TERM> 24,140
<LIABILITIES-OTHER> 7,941
<LONG-TERM> 0
<COMMON> 41,419
0
0
<OTHER-SE> 11,747
<TOTAL-LIABILITIES-AND-EQUITY> 532,047
<INTEREST-LOAN> 23,776
<INTEREST-INVEST> 2,916
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 26,864
<INTEREST-DEPOSIT> 11,169
<INTEREST-EXPENSE> 11,775
<INTEREST-INCOME-NET> 15,089
<LOAN-LOSSES> 1,078
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 10,947
<INCOME-PRETAX> 5,504
<INCOME-PRE-EXTRAORDINARY> 5,504
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,949
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 2.13
<YIELD-ACTUAL> 5.14
<LOANS-NON> 820
<LOANS-PAST> 618
<LOANS-TROUBLED> 126
<LOANS-PROBLEM> 202
<ALLOWANCE-OPEN> 7,573
<CHARGE-OFFS> 688
<RECOVERIES> 321
<ALLOWANCE-CLOSE> 8,284
<ALLOWANCE-DOMESTIC> 6,099
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,185
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,148
<INT-BEARING-DEPOSITS> 183
<FED-FUNDS-SOLD> 2,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,873
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 328,872
<ALLOWANCE> 6,652
<TOTAL-ASSETS> 428,021
<DEPOSITS> 364,801
<SHORT-TERM> 23,689
<LIABILITIES-OTHER> 4,474
<LONG-TERM> 0
<COMMON> 24,686
0
0
<OTHER-SE> 10,371
<TOTAL-LIABILITIES-AND-EQUITY> 428,021
<INTEREST-LOAN> 14,940
<INTEREST-INVEST> 1,824
<INTEREST-OTHER> 99
<INTEREST-TOTAL> 16,863
<INTEREST-DEPOSIT> 7,081
<INTEREST-EXPENSE> 7,418
<INTEREST-INCOME-NET> 9,445
<LOAN-LOSSES> 713
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,907
<INCOME-PRETAX> 3,392
<INCOME-PRE-EXTRAORDINARY> 3,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,449
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 5.10
<LOANS-NON> 199
<LOANS-PAST> 482
<LOANS-TROUBLED> 135
<LOANS-PROBLEM> 122
<ALLOWANCE-OPEN> 6,247
<CHARGE-OFFS> 484
<RECOVERIES> 176
<ALLOWANCE-CLOSE> 6,652
<ALLOWANCE-DOMESTIC> 5,182
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,470
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,049
<INT-BEARING-DEPOSITS> 228
<FED-FUNDS-SOLD> 3,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,888
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 318,573
<ALLOWANCE> 6,429
<TOTAL-ASSETS> 416,315
<DEPOSITS> 364,232
<SHORT-TERM> 11,490
<LIABILITIES-OTHER> 6,870
<LONG-TERM> 0
<COMMON> 0
0
24,404
<OTHER-SE> 154
<TOTAL-LIABILITIES-AND-EQUITY> 416,315
<INTEREST-LOAN> 7,275
<INTEREST-INVEST> 939
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,213
<INTEREST-DEPOSIT> 3,482
<INTEREST-EXPENSE> 3,623
<INTEREST-INCOME-NET> 4,591
<LOAN-LOSSES> 251
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,385
<INCOME-PRETAX> 1,702
<INCOME-PRE-EXTRAORDINARY> 1,702
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,227
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 5.04
<LOANS-NON> 199
<LOANS-PAST> 302
<LOANS-TROUBLED> 141
<LOANS-PROBLEM> 82
<ALLOWANCE-OPEN> 6,247
<CHARGE-OFFS> 174
<RECOVERIES> 105
<ALLOWANCE-CLOSE> 6,429
<ALLOWANCE-DOMESTIC> 5,185
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,269
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE 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> 2.72
<EPS-DILUTED> 2.68
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,432
<INT-BEARING-DEPOSITS> 133
<FED-FUNDS-SOLD> 2,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,120
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 300,384
<ALLOWANCE> 6,076
<TOTAL-ASSETS> 384,948
<DEPOSITS> 334,481
<SHORT-TERM> 11,649
<LIABILITIES-OTHER> 4,641
<LONG-TERM> 2,239
<COMMON> 21,471
0
0
<OTHER-SE> 10,468
<TOTAL-LIABILITIES-AND-EQUITY> 384,948
<INTEREST-LOAN> 20,213
<INTEREST-INVEST> 2,568
<INTEREST-OTHER> 133
<INTEREST-TOTAL> 22,914
<INTEREST-DEPOSIT> 9,321
<INTEREST-EXPENSE> 9,852
<INTEREST-INCOME-NET> 13,062
<LOAN-LOSSES> 1,541
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,177
<INCOME-PRETAX> 4,621
<INCOME-PRE-EXTRAORDINARY> 4,621
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,346
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 5.24
<LOANS-NON> 135
<LOANS-PAST> 446
<LOANS-TROUBLED> 157
<LOANS-PROBLEM> 279
<ALLOWANCE-OPEN> 4,876
<CHARGE-OFFS> 548
<RECOVERIES> 207
<ALLOWANCE-CLOSE> 6,076
<ALLOWANCE-DOMESTIC> 4,891
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,185
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,693
<INT-BEARING-DEPOSITS> 197
<FED-FUNDS-SOLD> 1,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,577
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 293,754
<ALLOWANCE> 5,468
<TOTAL-ASSETS> 375,991
<DEPOSITS> 326,019
<SHORT-TERM> 14,790
<LIABILITIES-OTHER> 4,277
<LONG-TERM> 0
<COMMON> 21,396
0
0
<OTHER-SE> 9,508
<TOTAL-LIABILITIES-AND-EQUITY> 375,991
<INTEREST-LOAN> 13,167
<INTEREST-INVEST> 1,753
<INTEREST-OTHER> 79
<INTEREST-TOTAL> 14,999
<INTEREST-DEPOSIT> 6,162
<INTEREST-EXPENSE> 6,507
<INTEREST-INCOME-NET> 8,492
<LOAN-LOSSES> 832
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,201
<INCOME-PRETAX> 2,970
<INCOME-PRE-EXTRAORDINARY> 2,970
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,173
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 5.21
<LOANS-NON> 73
<LOANS-PAST> 402
<LOANS-TROUBLED> 167
<LOANS-PROBLEM> 654
<ALLOWANCE-OPEN> 4,876
<CHARGE-OFFS> 360
<RECOVERIES> 120
<ALLOWANCE-CLOSE> 5,468
<ALLOWANCE-DOMESTIC> 4,169
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,299
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FIRSTBANK CORPORATION CONTAINED IN ITS
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,817
<INT-BEARING-DEPOSITS> 168
<FED-FUNDS-SOLD> 2,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,916
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 275,704
<ALLOWANCE> 5,126
<TOTAL-ASSETS> 364,664
<DEPOSITS> 314,711
<SHORT-TERM> 14,752
<LIABILITIES-OTHER> 4,882
<LONG-TERM> 0
<COMMON> 21,368
0
0
<OTHER-SE> 8,951
<TOTAL-LIABILITIES-AND-EQUITY> 364,664
<INTEREST-LOAN> 6,411
<INTEREST-INVEST> 891
<INTEREST-OTHER> 52
<INTEREST-TOTAL> 7,354
<INTEREST-DEPOSIT> 3,103
<INTEREST-EXPENSE> 3,252
<INTEREST-INCOME-NET> 4,101
<LOAN-LOSSES> 297
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 3,153
<INCOME-PRETAX> 1,431
<INCOME-PRE-EXTRAORDINARY> 1,431
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,054
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 5.16
<LOANS-NON> 132
<LOANS-PAST> 235
<LOANS-TROUBLED> 172
<LOANS-PROBLEM> 8,510
<ALLOWANCE-OPEN> 4,876
<CHARGE-OFFS> 113
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 5,126
<ALLOWANCE-DOMESTIC> 3,916
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,210
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE 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,
1995, 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 15,526
<INT-BEARING-DEPOSITS> 272
<FED-FUNDS-SOLD> 950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,266
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 264,847
<ALLOWANCE> 4,876
<TOTAL-ASSETS> 352,943
<DEPOSITS> 306,823
<SHORT-TERM> 11,842
<LIABILITIES-OTHER> 4,425
<LONG-TERM> 0
<COMMON> 21,355
0
0
<OTHER-SE> 8,498
<TOTAL-LIABILITIES-AND-EQUITY> 352,943
<INTEREST-LOAN> 23,482
<INTEREST-INVEST> 3,499
<INTEREST-OTHER> 375
<INTEREST-TOTAL> 27,356
<INTEREST-DEPOSIT> 11,252
<INTEREST-EXPENSE> 11,802
<INTEREST-INCOME-NET> 15,554
<LOAN-LOSSES> 1,085
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 11,813
<INCOME-PRETAX> 5,166
<INCOME-PRE-EXTRAORDINARY> 3,865
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,865
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.27
<YIELD-ACTUAL> 5.29
<LOANS-NON> 47
<LOANS-PAST> 386
<LOANS-TROUBLED> 182
<LOANS-PROBLEM> 8,550
<ALLOWANCE-OPEN> 4,100
<CHARGE-OFFS> 738
<RECOVERIES> 429
<ALLOWANCE-CLOSE> 4,876
<ALLOWANCE-DOMESTIC> 4,162
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 714
</TABLE>
<PAGE>
EXHIBIT 99
Firstbank Corporation 401(k) Plan
Performance Table
<TABLE>
<CAPTION>
INITIAL
INVESTMENT VALUE VALUE VALUE VALUE
FUND ON 12/31/93 ON 12/31/94 ON 12/31/95 ON 12/31/96 ON 12/31/97
<S> <C> <C> <C> <C> <C>
Firstbank Corporation 5.517% 28.629% 32.123% 49.1852%
Common Stock $ 1,000.00 $ 1,055.17 $ 1,357.25 $ 1,793.25 $ 2,675.26
Federated Money 3.82% 5.63% 5.06% 5.22%
Market for U.S. $ 1,000.00 $ 1,038.20 $ 1,096.65 $ 1,152.14 $ 1,212.28
Treasury Obligation
Federated Capital 5.47% 5.92% 5.70% 5.86%
Preservation Fund $ 1,000.00 $ 1,054.70 $ 1,117.14 $ 1,180.82 $ 1,250.01
Vanguard Fixed Income (2.66%) 18.18% 3.58% 9.44%
Total Bond Fund $ 1,000.00 $ 973.40 $ 1,150.36 $ 1,191.55 $ 1,304.03
Vanguard Fixed Income (5.30%) 26.40% 1.20% 13.79%
Long-Term Corporate $ 1,000.00 $ 947.00 $ 1,197.01 $ 1,211.37 $ 1,378.42
Bond Fund
(.45%) 35.63% 21.17% 34.42%
Federated Stock $ 1,000.00 $ 995.50 $ 1,350.20 $ 1,636.03 $ 2,199.16
Vanguard Index 1.18% 37.45% 22.86% 33.21%
500 Fund $ 1,000.00 $ 1,011.80 $ 1,390.72 $ 1,708.64 $ 2,276.08
American Century (3.62%) 37.68% 13.85% 23.13%
20th Century Ultra $ 1,000.00 $ 963.80 $ 1,326.96 $ 1,510.74 $ 1,860.18
Warburg-Pincus (1.43%) 46.22% 9.87% 21.27%
Emerging Growth $ 1,000.00 $ 985.70 $ 1,441.29 $ 1,583.55 $ 1,920.37
Fund
T. Rowe Price (.76%) 11.39% 15.99% 2.70%
International $ 1,000.00 $ 992.40 $ 1,105.43 $ 1,282.19 $ 1,316.81
Stock Fund
Vanguard .76% 14.89% 14.65% 4.12%
International $ 1,000.00 $ 1,007.60 $ 1,157.63 $ 1,327.22 $ 1,381.90
Growth Fund
Fidelity Overseas 1.27% 9.06% 13.10% 10.92%
Fund $ 1,000.00 $ 1,012.70 $ 1,104.45 $ 1,249.13 $ 1,385.54
<PAGE>
American Century - 20th N/A 9.89% 31.18% 17.48%
Century International $ 1,000.00 FUND $ 1,089.90 $ 1,441.54 $ 1,693.52
Discovery Fund INCEPTION
4-94
</TABLE>
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.
