<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
For the fiscal year ended December 31, 1998
[ ] 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,
<PAGE>
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]
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 8, 1999: $133,050,200
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 8, 1999: 4,500,641 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the year
ended December 31, 1998, are incorporated by reference in Part II.
Portions of the definitive proxy statement for the registrant's annual
shareholders' meeting to be held April 26, 1999, are incorporated by
reference in Part III.
===============================================================================
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<PAGE>
FORWARD LOOKING STATEMENTS
This annual report on Form 10-K including, without
limitation, management's discussion and analysis of financial
conditions and results of operations and other sections of the
Corporation's Annual Report to Shareholders which are incorporated by
reference in this 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
"anticipate," "believe," "determine," "estimate," "expect,"
"forecast," "intend," "is likely," "plan," "project," "opinion,"
variations of such terms, and similar expressions are intended to
identify such forward-looking statements. The Year 2000 Readiness
Disclosure, the presentations and discussions of the provision and
allowance for loan losses, and determinations as to the need for other
allowances presented or incorporated by reference in this report are
inherently forward-looking statements in that they involve judgments
and statements of belief as to the outcome of future events. These
statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions 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. Internal and external factors that may cause such
a difference include changes in interest rates and interest rate
relationships; demand for products and services; the degree of
competition by traditional and non-traditional competitors; changes in
banking regulations; changes in tax laws; changes in prices, levies,
and assessments; the impact of technological advances; governmental
and regulatory policy changes; the outcomes of pending and future
litigation and contingencies; trends in customer behavior and customer
ability to repay loans; software failure; errors or miscalculations;
the ability of other companies on which the Corporation relies to be
Year 2000 compliant; the ability of the Corporation to locate and
correct all date sensitive computer codes; and the vicissitudes of the
national economy. The Corporation undertakes no obligation to update,
amend or clarify forward-looking statements, whether as a result of
new information, future events, or otherwise.
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.
<PAGE>
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 and 1st Collections,
Incorporated, a collection service. 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 76
percent of total revenues in 1998, 80 percent of total revenues in
1997 and 1996. In addition, interest income from investment
securities accounted for approximately 12 percent of total revenues on
a consolidated basis in 1998, 11 percent of total revenues on a
consolidated basis in 1997, and 10 percent in 1996. 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 and one branch are located in
West Branch, Michigan. 1st Bank also has one full service branch
located in each of the following communities near West Branch:
Fairview, Hale, Higgins Lake, Rose City, St. Helen, and West Branch
Township.
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<PAGE>
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
Canadian Lakes (Morton Township).
The following table shows comparative information concerning
the Corporation's subsidiary banks:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------
BANK OF ALMA FIRSTBANK 1ST BANK BANK OF LAKEVIEW
------------ ---------- --------- ----------------
(In thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Assets $223,076 $ 111,740 $156,785 $104,939
Deposits 181,005 94,238 141,022 80,026
Loans 146,735 92,701 118,640 82,952
</TABLE>
As of December 31, 1998, the Corporation and its
subsidiaries employed 294 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).
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.
-3-
<PAGE>
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.
Laws that govern banks significantly limit their business
activities in a number of respects. Prior approval of the Federal
Reserve Board, and in some cases various other governing agencies, is
required for the Corporation to acquire control of any additional
banks or branches. The business activities of the Corporation and its
subsidiaries are limited to banking and to other activities which are
determined by the Federal Reserve Board to be closely related to
banking. Transactions among the Corporation and the Corporation's
subsidiary banks are significantly restricted. In addition, bank
regulations govern the ability of the subsidiary banks to pay
dividends or make other distributions to the Corporation.
In addition to laws that affect businesses in general, banks
are subject to a number of federal and state laws and regulations
which have a material impact on their business. These include, among
others, state usury laws, state laws relating to fiduciaries, the
Truth In Lending Act, the Truth in Savings Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds
Availability Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act, the Real Estate Settlement Procedures Act, the Bank
Secrecy Act, the Community Development and Regulatory Improvement Act,
the Financial Institutions Reform, Recovery and Enforcement Act, the
FDIC Improvement Act of 1991 (the "FDIC Improvement Act"), electronic
funds transfer laws, redlining laws, antitrust laws, environmental
laws, and privacy laws.
The instruments of government monetary policy, as determined
by the Federal Reserve Board, may influence the growth and
distribution of bank loans, investments, and deposits, and may also
affect interest rates on loans and deposits. These policies have a
significant effect on the operating results of banks.
Under applicable laws, regulations, and policies, the
Corporation is expected to act as a source of financial strength to
each subsidiary 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.
-4-
<PAGE>
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.
Federal law 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 and to
establish interstate branch networks through acquisitions of other
banks. Michigan and federal law permits both U.S. and non-U.S. banks
to establish branch offices in Michigan. The Michigan Banking Code
permits, in appropriate circumstances and with the approval of the
Commissioner, (i) acquisition of Michigan banks by FDIC-insured banks,
savings banks, or savings and loan associations located in other
states, (ii) sale by a Michigan bank of branches to an FDIC-insured
bank, savings bank, or savings and loan association located in a state
in which a Michigan bank could purchase branches of the purchasing
entity, (iii) consolidation of Michigan banks and FDIC-insured banks,
savings banks, or savings and loan associations located in other
states having laws permitting such consolidation, (iv) establishment
of branches in Michigan by FDIC-insured banks located in other states,
the District of Columbia, or U.S. territories or protectorates having
laws permitting a Michigan bank to establish a branch in such
jurisdiction, and (v) establishment by foreign banks of branches
located in Michigan.
Risk-based capital and leverage standards apply to all banks
under federal regulations. The risk-based capital ratio standards
establish a systematic analytical framework that is intended to make
regulatory capital requirements sensitive to differences in risk
profiles among banking organizations, take off-balance sheet liability
exposures into explicit account in assessing capital adequacy, and
minimize disincentives to hold liquid, low-risk assets. Risk-based
capital ratios are determined by allocating assets and specified off-
balance sheet commitments into risk-weighting categories. Higher
levels of capital are required for categories perceived as
representing greater risk.
-5-
<PAGE>
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, 1998.
<TABLE>
<CAPTION>
TIER 1
LEVERAGE TIER 1 TOTAL RISK-BASED
RATIO CAPITAL RATIO CAPITAL RATIO
----- ------------- -------------
<S> <C> <C> <C> <C>
Minimum regulatory requirement 4% 4% 8%
Well capitalized regulatory level 5% 6% 10%
Firstbank Corporation-Consolidated 8.33% 11.21% 12.47%
Bank of Alma 7.94% 10.09% 11.35%
Firstbank 8.75% 10.66% 11.91%
1st Bank 7.31% 10.69% 11.96%
Bank of Lakeview 10.01% 13.83% 15.09%
</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:
-6-
<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, 1998 $49,025 $ 49,025 $54,534
Required regulatory
capital 23,534 17,487 34,975
-------- ------- -------
Capital in excess
of regulatory
minimums $ 25,491 $ 31,538 $ 19,559
======== ======= =======
</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.
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, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ---- ------- -------- ----
AVERAGE ASSETS: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Securities available for
sale
Taxable Securities $ 55,861 $ 3,431 6.15 $ 40,255 $ 2,546 5.90 $ 30,687 $ 1,922 6.27%
Tax-exempt securities<F1> 33,455 2,589 7.74 29,123 2,352 8.07 26,570 2,136 8.04
--------- --------- ---- --------- -------- ---- -------- ------- ----
Total Securities 89,316 6,020 6.74 69,378 4,898 7.05 57,257 4,058 7.09
Loans <F1><F2> 412,884 38,768 9.39 352,539 33,412 9.04 290,006 27,472 9.47
Federal funds sold 13,446 728 5.41 5,414 289 5.37 3,032 161 5.31
Interest-bearing deposits 809 42 5.20 309 22 7.17 205 14 6.86
--------- --------- ---- --------- -------- ---- -------- ------- ----
Total earning assets 516,455 45,558 8.82 427,640 38,621 9.02 350,500 31,705 9.04
Nonaccrual loans 1,432 519 141
Less allowance for loan loss (8,543) (7,142) (5,436)
Cash and due from banks 19,173 16,413 13,744
Other nonearning assets 32,421 23,009 13,880
--------- --------- -------
Total assets $ 560,938 $ 460,439 $372,829
========= ========= ========
AVERAGE LIABILITIES:
Interest-bearing deposits:
Demand 126,030 4,440 3.52 $ 95,572 $ 3,393 3.55% $ 71,710 $ 2,476 3.45%
Savings 67,085 1,734 2.58 61,286 1,664 2.71 58,282 1,643 2.82
Time 211,243 11,718 5.55 188,378 10,571 5.61 151,622 8,463 5.58
Federal funds purchased and
repurchase agreements 17,601 757 4.30 13,468 624 4.62 13,279 650 4.90
Notes payable 11,464 704 6.14 4,480 278 6.08 866 49 5.70
--------- --------- ---- --------- -------- ---- -------- ------- ----
Total interest-
bearing liabilities 433,423 19,353 4.47 363,184 16,530 4.49 295,759 13,281 4.47%
-8-
<PAGE>
Demand deposits 63,257 50,647 42,521
--------- --------- -------
Total funds 496,680 413,831 338,280
Other liabilities 8,000 5,368 3,909
--------- --------- -------
Total liabilities 504,680 419,199 342,189
Average Shareholders'
Equity 56,258 41,240 30,640
--------- --------- -------
Total liabilities and
shareholders' equity $ 560,938 $ 460,439 $372,829
========= ========= ========
NET INTEREST INCOME <F1> $ 26,205 $ 22,091 $ 18,424
========= ======== ========
RATE SPREAD <F1> 4.35% 4.53% 4.57%
==== ==== ====
NET INTEREST MARGIN (PERCENT
OF AVERAGE EARNING ASSETS) <F1> 5.06% 5.16% 5.26%
==== ==== ====
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.
<F2> Including loan fees of $1,726,000, $1,387,000, and $1,327,000, respectively. Interest on nonaccrual loans
is not included.
</FN>
</TABLE>
-9-
<PAGE>
<TABLE>
VOLUME/RATE ANALYSIS<F*>
<CAPTION>
1998/1997 1997/1996
--------- ---------
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 $ 974 $ (48) $ 926 $ 605 $ 19 $ 624
Tax-exempt Securities <F1> 458 (96) 362 206 10 216
-------- ------- ------- ------- ------- --------
Total securities 1,432 (144) 1,288 811 29 840
Loans <F1> 5,468 (247) 5,221 5,866 12 5,878
Federal funds sold 435 4 439 127 1 128
Interest-bearing deposit 17 5 22 7 1 8
Loan fees 339 0 339 60 0 60
-------- ------- ------- ------- ------- --------
Total interest-
earning assets 7,691 (382) 7,309 6,871 43 6,914
INTEREST EXPENSE:
Interest-paying demand 1,073 (26) 1,047 847 70 917
Savings deposits 150 (80) 70 81 (60) 21
Time deposits 1,235 (87) 1,148 2,061 47 2,108
-------- ------- ------- ------- ------- --------
Total interest-
paying deposits 2,458 (193) 2,265 2,989 57 3,046
Federal funds
purchased and
securities sold
under agreements
to repurchase 163 (29) 134 9 (35) (26)
Notes payable 424 2 426 224 5 229
-------- ------- ------- ------- ------- --------
Total interest-
bearing liabilities 3,045 (220) 2,825 3,222 27 3,249
-------- ------- ------- ------- ------- --------
NET INTEREST INCOME $ 4,646 $ (162) $ 4,484 $ 3,649 $ 16 $ 3,665
======== ======= ======= ======= ======= =======
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<PAGE>
<FN>
<F*> Changes in volume/rate have been allocated between the volume and rate variances on the basis of the ratio
that the volume and rate variances bear to each other.
<F1> Interest is presented on a fully taxable equivalent basis using a federal income tax rate of 34%.
</FN>
</TABLE>
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<PAGE>
INVESTMENT PORTFOLIO
The carrying values of investment securities as of the dates indicated
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1997 1996
---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
TAXABLE
-------
U.S. Treasury $ 9,250 $ 11,083 $ 7,509
U.S. Government agencies 22,932 15,388 13,565
States and political subdivisions 4,839 2,196 662
Mortgage Backed Securities 3,614 4,550 872
Corporate and other 24,819 16,237 7,013
--------- --------- --------
Total taxable 65,454 49,454 29,621
TAX-EXEMPT
----------
States and political
subdivisions 36,257 33,124 26,951
--------- --------- --------
Total $ 101,711 $ 82,578 $ 56,572
========= ========= ========
</TABLE>
-12-
<PAGE>
<TABLE>
ANALYSIS OF INVESTMENT SECURITIES PORTFOLIO
The following table shows, by class of maturities at December 31,
1998, the amounts and weighted average yields of such investment securities<F1>:
<CAPTION>
CARRYING AVERAGE
VALUE YIELD<F2>
----- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
U.S. Treasury
One year or less $ 501,718 5.8750%
Over one through five years 8,748,075 6.3599
--------------
Total $ 9,249,793 6.336%
U.S. Agencies
One year or less $ 2,068,891 5.0858%
Over one through five years 7,206,980 6.2289
Over five through ten years 3,515,005 7.0506
Over ten years 10,141,156 6.9156
-------------- ------
Total $ 22,932,032 6.5554%
States and Political
subdivisions:
One year or less $ 6,796,578 9.1193%
Over one through five years 14,592,144 9.3931
Over five through ten years 16,945,221 8.1206
Over ten years 2,762,227 8.6491
-------------- ------
Total $ 41,096,170 8.7731%
Corporate and Other:
One year or less $ 12,190,605 6.4512%
Over one through five years 12,628,623 6.5622
-------------- ------
Total $ 24,819,228 6.5077%
-13-
<PAGE>
Collateralized Mortgage Obligations
Over one through five years
Over five through ten years $ 1,922,065 5.7613
Over ten years 1,691,735 6.2012
-------------- ------
Total $ 3,613,800 5.9672%
-------------- ------
Total $ 101,711,023 7.3987%
============== ======
<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>
-14-
<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 5.89% 3.03% 8.92%
Over 1 through 5 years 6.19 3.19 9.38
Over 5 through 10 years 5.34 2.75 8.09
Over 10 years 6.30 3.24 9.54
Total 5.79% 2.98% 8.77%
</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,
1998.
-15-
<PAGE>
LOAN PORTFOLIO
The following table presents the loans outstanding at the indicated
dates according to the type of loan:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Loan categories:
Commercial and
agricultural $ 192,212 $ 158,219 $ 122,934 $ 115,779 $ 99,307
Real estate mortgages 177,009 171,848 122,605 90,753 73,760
Consumer 71,807 74,741 69,081 58,315 50,324
---------- --------- ----------- ---------- -----------
Total $ 441,028 $ 404,808 $ 314,620 $ 264,847 $ 223,391
========== ========= =========== ========== ===========
</TABLE>
The following table shows the maturity of commercial and agricultural
and real estate construction loans outstanding at December 31, 1998.
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 and agricultural $ 95,805 $ 83,035 $ 13,372 $ 192,212
Real Estate Construction 15,675 2,300 626 18,601
--------- ----------- --------- ----------
Total $ 111,480 $ 85,335 $ 13,998 $ 210,813
========= =========== ========= ==========
Loans due after one year:
With pre-determined rate $ 84,987 $ 13,998 $ 98,985
With adjustable rates 348 348
----------- --------- ----------
Total $ 85,335 $ 13,998 $ 99,333
=========== ========= ==========
</TABLE>
-16-
<PAGE>
NONPERFORMING LOANS AND ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans:
Commercial and agricultural $ 584 $ 447 $ 127 $ 47 $ 110
Real estate mortgages 186 800 79 0 10
Consumer 20 27 12 0 0
------- ------- ------- ------- -------
Total 790 1,274 218 47 120
Accruing Loans 90 days or more past due:
Commercial and agricultural 359 752 178 0 49
Real estate mortgages 241 426 475 319 123
Consumer 21 37 36 67 92
------- ------- ------- ------- -------
Total 621 1,215 689 386 264
Renegotiated loans:
Commercial and agricultural 86 121 150 182 0
Real estate mortgages 0 0 0 0 213
------- ------- ------- ------- -------
Total 86 121 150 182 213
Total nonperforming loans 1,497 2,610 1,057 615 597
Property from defaulted loans 527 663 130 0 86
------- ------- ------- ------- -------
Total nonperforming assets $ 2,024 $ 3,273 $ 1,187 $ 615 $ 683
<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>
-17-
<PAGE>
The gross interest income that would have been recorded for the year
ended December 31, 1998, 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 $37,000. The amount of interest income on those
loans that was included in net income for the period was $157,000.
Loan performance is reviewed regularly by external loan review
specialists, loan officers, and senior management. When reasonable
doubt exists concerning collectibility of interest or principal, the
loan is placed in nonaccrual status. Any interest previously accrued
but not collected at that time is reversed and charged against current
earnings.
At December 31, 1998, the Corporation had $19,339,000 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, 1998, 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, 1998.
-18-
<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,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 8,114 $ 6,247 $ 4,876 $ 4,100 $ 3,254
Charge-offs:
Commercial and agricultural 71 211 110 164 113
Real estate mortgages 60 79 45 81 0
Consumer 581 980 625 493 386
-------- -------- -------- -------- --------
Total charge-offs 712 1,270 780 738 499
Recoveries:
Commercial and agricultural 97 97 83 97 143
Real estate mortgages 47 7 28 63 30
Consumer 325 309 202 269 172
-------- -------- -------- -------- --------
Total recoveries 469 413 313 429 345
Net charge-offs 243 857 467 309 154
-------- -------- -------- -------- --------
Additions to allowance for
loan losses 1,177 2,724<F1> 1,838 1,085 1,000
-------- -------- -------- -------- --------
Balance at end of period $ 9,048 $ 8,114 $ 6,247 $ 4,876 $ 4,100
======== ======== ======== ======== ========
Net charge-offs as a percent
of average loans .06% 0.24% 0.16% 0.13% 0.08%
<FN>
<F1> Includes the allowance of Bank of Lakeview at date of acquisition of $1,326.
</FN>
</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.
-19-
<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,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------ ----------------- ----------------- ------------------
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 $ 4,758 44% $ 3,806 39% $ 2,763 39% $ 2,232 44% $ 2,069 44%
Real estate
mortgages 476 40 516 42 364 39 880 34 492 33
Consumer 1,690 16 1,621 19 1,576 22 1,050 22 927 23
Unallocated 2,124 2,171 1,544 714 612
-------- --- ------- --- ------- --- ------- --- -------- ---
Total $ 9,048 100% $ 8,114 100% $ 6,247 100% $ 4,876 100% $ 4,100 100%
======== === ======= === ======= === ======= === ======== ===
</TABLE>
-20-
<PAGE>
AVERAGE DEPOSITS
The daily average deposits and rates paid on such deposits for the
periods indicated were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996
----- ---- ----
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Balance:
Noninterest-bearing demand deposits $ 63,257 $ 50,647 $ 42,521
Interest-bearing demand deposits 126,030 3.52% 95,572 3.55% 71,710 3.45%
Other savings deposits 67,085 2.58% 61,286 2.71% 58,282 2.82%
Other time deposits 211,243 5.55% 188,378 5.61% 151,622 5.58%
---------- ----- --------- ---- --------- -----
Total average deposits $ 467,615 3.83% $ 395,883 3.95% $ 324,135 3.88%
========== ===== ========= ==== ========= =====
</TABLE>
The time remaining until maturity of time certificates of deposit and
other time deposits of $100,000 or more at December 31, 1998, was as follows
(Dollars in Thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Three months or less $ 16,067
Over three through six months 7,216
Over six through twelve months 9,292
Over twelve months 7,223
--------
Total $ 39,798
========
</TABLE>
-21-
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table sets forth certain financial ratios for the years
ended:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Financial ratios:
Return on average total assets 1.30 % 1.21 % 1.25 %
Return on average equity 12.98 13.48 15.15
Average equity to average total assets 10.03 8.96 8.22
Dividend payout ratio 34.16 33.51 27.94
</TABLE>
-22-
<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, 1998, which consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Amounts outstanding at the
end of the year $ 18,678 $ 12,932 $ 5,933
Weighted average interest rate
at the end of the year 3.88% 4.23% 4.40%
Longest maturity 01-20-99 02-20-98 05-22-97
Maximum amount outstanding at
any month-end during year $ 18,678 $ 13,911 $ 14,290
Approximate average amounts
outstanding during the year $ 15,618 $ 10,894 $ 10,527
Approximate weighted average
interest rate for the year 4.15% 4.36% 4.73%
<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>
-23-
<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 owns and operates the facility for the
St. Louis branch. This facility is approximately 900 square feet
consisting of wood frame construction.
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.
In December, 1998, Bank of Alma completed construction and
occupied a newly constructed 14,800 square foot operations center,
located in Alma.
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 other tenants for office purposes. The bank
-24-
<PAGE>
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 began construction of an 1,800 square
foot branch in late 1998 and expects to occupy the branch in the
second quarter of 1999.
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.
-25-
<PAGE>
1st Bank owns and operates branches located in Fairview,
Higgins Lake, and Rose City containing approximately 1,500 to 2,300
square feet. 1st Bank owns each of those branches. Each of those
branches occupies a wood frame building.
1st Bank also owns and operates branches located in St.
Helen and West Branch, Michigan. 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 acquired a building of approximately 4,700 square
feet adjacent to its main office. About 600 square feet of this
single story frame structure is used for 1st Bank's Investment Center
and proof operations. The remaining 4,100 square feet is leased to an
unrelated business.
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 Morton Township, Michigan. The facility is
approximately 2,000 square feet of wood construction. The lease
-26-
<PAGE>
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.
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 52) 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 61) has been Executive Vice President
of Firstbank since 1991 and has been Vice President of the
Corporation and an officer of Firstbank since 1987. Mr. Jarvis
served as a director of Firstbank from 1987 to 1991.
-27-
<PAGE>
DALE A. PETERS (age 56) 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 62) 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 and a director of Bank of Lakeview since 1994.
THOMAS R. SULLIVAN (age 48) has been Executive Vice
President of the Corporation since 1996 and has been President,
Chief Executive Officer and a director of Firstbank since 1991.
Mr. Sullivan served as Vice President of the Corporation from
1991 to 1996.
JAMES E. WHEELER, II (age 39), has been Vice President of
the Corporation and Senior Vice President and Chief Loan Officer
of Bank of Alma since 1989.
-28-
<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 14 in the registrant's annual report to shareholders for the year
ended December 31, 1998, is here incorporated by reference.
At various times in 1998, the Corporation issued
unregistered shares of its common stock totaling 5,147 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, 1998, 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 13 in the registrant's annual report to shareholders
for the year ended December 31, 1998, 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 11 in the
registrant's annual report to shareholders for the year ended December
31, 1998, is here incorporated by reference.
-29-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent auditors and the consolidated
financial statements on pages 15 through 32 and the quarterly results
of operations on page 14 in the registrant's annual report to
shareholders for the year ended December 31, 1998, are here
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
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 26, 1999, 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 26, 1999, 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 26, 1999, 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 26, 1999, is here incorporated by reference.
-30-
<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, 1998, in Item 8:
PAGE NUMBER IN
STATEMENT OR REPORT ANNUAL REPORT
Report of Independent Auditors 15
Consolidated Balance Sheets as of December 31, 1998, 16
and 1997
Consolidated Statements of Income and Comprehensive Income 17
for the years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Changes in Shareholders' 18
Equity for the years ended December 31, 1998, 1997,
and 1996
Consolidated Statements of Cash Flows for the years ended 19
December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements 20
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, 1998.
(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 Form 10-Q for the quarter ended
March 31, 1997. 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.
-31-
<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)<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(c)<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(d)<F*> STOCK OPTION AND RESTRICTED STOCK PLAN OF 1993. Previously
filed as an appendix to the registrant's definitive proxy
statement for its annual meeting of shareholders held
April 26, 1993. Here incorporated by reference.
10(e)<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.
13 1998 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, 1998.
99 FIRSTBANK CORPORATION 401(K) PLAN PERFORMANCE TABLE.
<F*>Management contract or compensatory plan.
-32-
<PAGE>
The registrant will furnish a copy of any exhibit listed
above to any shareholder of the registrant without charge upon written
request to Mary D. Deci, Secretary, Firstbank Corporation,
311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan 48801.
(b) REPORTS ON FORM 8-K.
The registrant filed no Current Reports on Form 8-K during
the last quarter of the period covered by this report.
-33-
<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 29, 1999 FIRSTBANK CORPORATION
By /S/ MARY D. DECI
Mary D. Deci
Vice President, Secretary, Treasurer
and Chief Financial Officer
-34-
<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 29, 1999 JOHN MCCORMACK *
John McCormack
President, Chief Executive
Officer, and Director
(Principal executive officer)
March 29, 1999 MARY D. DECI *
Mary D. Deci
Vice President, Secretary, and Treasurer
(Principal financial and accounting
officer)
March 29, 1999 DUANE A. CARR *
Duane A. Carr
Director
March 29, 1999 WILLIAM E. GOGGIN *
William E. Goggin
Director
March 29, 1999 EDWARD B. GRANT *
Edward B. Grant
Director
March 29, 1999 CHARLES W. JENNINGS *
Charles W. Jennings
Director
March 29, 1999 PHILLIP G. PEASLEY *
Phillip G. Peasley
Director
March 29, 1999 DAVID D. ROSLUND *
David D. Roslund
Director
*By /S/ MARY D. DECI
Mary D. Deci
(Attorney in Fact)
-35-
<PAGE>
INDEX TO EXHIBITS
NUMBER EXHIBIT PAGE
3(a) ARTICLES OF INCORPORATION. Previously filed as an
exhibit to registrant's Form 10-Q for the quarter ended
March 31, 1997. Here incorporated by reference.
3(b) BYLAWS. Previously filed as an exhibit to the
registrant's Registration Statement on Form S-2
(Registration No. 33-68432) filed on September 3, 1993.
Here incorporated by reference.
10(a)<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)<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(c)<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(d)<F*> STOCK OPTION AND RESTRICTED STOCK PLAN OF 1993. Previously
filed as an appendix to the registrant's definitive proxy
statement for its annual meeting of shareholders held
April 26, 1993. Here incorporated by reference.
10(e)<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.
13 1998 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.
-36-
<PAGE>
NUMBER EXHIBIT
27(a) FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 1998.
99 FIRSTBANK CORPORATION 401(K) PLAN PERFORMANCE TABLE.
<F*>Management contract or compensatory plan.
<PAGE>
EXHIBIT 13
FIRSTBANK CORPORATION
1998
Annual Report
This 1998 Annual Report contains audited financial statements and a
detailed financial review. This is Firstbank Corporation's 1998 annual
report to shareholders. Although attached to our proxy statement, this
report is not part of our proxy statement, is not deemed to be soliciting
material, and is not deemed to be filed with the Securities and Exchange
Commission (the "SEC") except to the extent that it is expressly
incorporated by reference in a document filed with the SEC.
The 1998 Report to Shareholders accompanies this proxy statement. That
report presents information concerning the business and financial results
of Firstbank Corporation in a format and level of detail that we believe
shareholders will find useful and informative. Shareholders who would like
to receive even more detailed information than that contained in this 1998
Annual Report are invited to request our Annual Report on Form 10-K.
FIRSTBANK CORPORATION'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.
<PAGE>
===========================================================================
PRESIDENT'S MESSAGE
COMMITMENT TO OUR SHAREHOLDERS:
By nearly every measurement, our commitment to our shareholders, customers,
employees, and the communities we serve resulted in 1998 being another very
successful year. The highlights of 1998 were record earnings, the highest
level of total assets, excellent asset quality, and strong market
performance by Firstbank Corporation stock.
Net income increased 31% to $7,303,000 when compared to $5,558,000 in 1997.
Our net income has increased an average of 24% per year over the past six
years. Another historical high was reached when total assets exceeded $600
million and ended the year at $603 million, a 12% increase over 1997.
We are pleased with the quality of our earning assets, and were able to
decrease our provision for loan losses once again this year. Total loans
increased 9% to $441 million as a result of the strong economies in the
markets we serve. The allowance for loan losses increased 12% to $9
million to accommodate the loan growth. The allowance now equals 2.05% of
total loans and 604% of non-performing loans. Non-performing loans were
only $1.5 million, a decrease from $2.6 million at the end of 1997.
Basic earnings per share were $1.62 for 1998, a 16% increase over $1.40 in
1997. These financial results assisted the market performance of Firstbank
Corporation stock. Market price increased 30% from a closing bid in 1997
of $22.38 to $29.00 at the end of 1998. Per share data has been adjusted
for a 5% stock dividend and a two for one stock split issued in 1998.
The financial results are highlighted throughout this report to
shareholders, and we encourage your review of the information.
Shareholders should also know of several new initiatives in 1998 and 1999
that we believe will have a positive impact on the future of Firstbank
Corporation.
The Board of Directors has approved a 16% increase in quarterly cash
dividends for the first quarter of 1999 by increasing the quarterly
dividend to $0.16 per share from $0.138 per share in 1998. This is the
sixth consecutive year the cash dividend has been raised. It has increased
an average of 18% during that period. Cash dividends have also increased
as a result of 5% stock dividends in each of those years.
<PAGE>
The Board of Directors has also approved a stock repurchase plan of up to
200,000 shares of the Corporation's stock during 1999. The Board approved
the plan based on its belief that the repurchase of shares is a prudent
investment of shareholder capital. Shares will be repurchased from time to
time in the open market or in privately negotiated transactions.
======================================================================== 1
<PAGE>
===========================================================================
An issue we have been hearing a lot about lately is commonly referred to as
the "millennium bug." Our staff has diligently examined our mission
critical systems to determine our ability to perform business as usual in
January 2000. By mid-year we are confident we will be able to announce
that all of our systems will be year 2000 compliant. We have a public
relations plan ready to communicate to our customers that their insured
deposits are safe and will be readily accessible.
Firstbank Corporation now has a presence on the world wide web that
provides information about our company and its subsidiary bank services.
Check us out at WWW.FIRSTBANK-ALMA.COM. You are encouraged to access the
web-site to review the latest press releases, our latest stock price and
trading activity, and other pertinent information. Shareholders may also
reach our Shareholder Services Department via a toll free number: 1-888-
637-0590. This "hotline" was established STRICTLY for shareholders to
receive stock information. Feel free to contact us with your questions
about cash and stock dividends, dividend reinvestment plan, supplemental
share purchase plan, stock repurchase plan, or any other Firstbank
Corporation shareholder matters.
A telephone banking center was opened in 1998 to serve customers from all
subsidiary banks. The center has an automated voice response unit that
allows customers access to account information, balance transfers, and the
amounts of recent deposits and checks, 24 hours every day of the year,
simply by following the voice commands given. Customer service agents are
also available from 8:00 a.m. to 5:00 p.m., Monday through Friday. We
expect to begin selling products and services through the center in the
very near future.
Brokerage services are also available to customers in most of the
communities we serve. This business has exceeded our forecasts and offers
our customers alternative investment opportunities. It has also allowed
our subsidiary banks to maintain current customer relationships rather than
lose customers to other financial service providers.
A new 14,800 square foot operations center was opened in December 1998.
The center accommodates accounting, audit, data processing, proof, call
center, and other services for all subsidiaries. The center was previously
located at Bank of Alma's main office in 6,500 square feet. The new
expanded facility will accommodate future growth and has improved
productivity.
1st Bank, West Branch, directors, employees, and customers were saddened by
the untimely death in January 1999 of a long-standing member of their
Board, Milford Scott. Mr. Scott was a great asset to the bank and his
guidance and counsel will be deeply missed.
<PAGE>
Firstbank Corporation has achieved many of our strategic goals over the
past 12 years which would not have been possible without dedicated and
competent personnel at all levels. Our successes have been achieved
because of our operating philosophy of placing decision makers in the
communities they serve and working toward a common goal to be the best.
Nearly all of our full-time employees are shareholders and they stay
focused on shareholder values.
We appreciate the support of our shareholders whose commitment to Firstbank
Corporation is vital to our success. We always welcome your comments and
suggestions.
Respectfully submitted,
/s/ John McCormack
John McCormack
President & Chief Executive Officer
2 ========================================================================
<PAGE>
===========================================================================
<TABLE>
FINANCIAL HIGHLIGHTS
FIRSTBANK CORPORATION
<CAPTION>
FOR THE YEAR: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income $44,484 $37,864 $31,016 $27,394 $20,496
Net interest income 25,131 21,334 17,735 15,593 12,941
Provision for loan losses 1,177 1,398 1,838 1,085 1,000
Noninterest income 5,868 3,697 3,297 2,471 2,547
Noninterest expense 19,402 15,825 12,790 11,813 10,328
Net income 7,303 5,558 4,643 3,865 3,221
AT YEAR END:
Total assets 603,014 536,322 404,571 352,943 309,722
Total earning assets 555,254 486,949 372,777 327,232 286,956
Loans 441,028 404,808 314,620 264,847 223,391
Deposits 494,053 445,666 358,669 307,007 266,894
Shareholders' equity 59,775 54,532 33,088 29,853 25,596
AVERAGE BALANCES:
Total assets 560,938 460,439 372,829 330,079 268,399
Total earning assets 516,455 427,640 350,500 308,797 250,984
Loans 414,322 353,061 290,181 243,806 191,682
Deposits 467,615 395,883 324,135 288,692 234,546
Shareholders' equity 56,253 41,240 30,640 27,569 24,787
PER SHARE:<F1>
Basic earnings 1.62 1.40 1.30 1.09 0.91
Diluted earnings 1.56 1.37 1.28 1.08 0.91
Cash dividends 0.55 0.45 0.36 0.29 0.23
Shareholders' equity 13.20 12.10 9.22 8.36 7.24
FINANCIAL RATIOS:
Return on average assets 1.30% 1.21% 1.25% 1.17% 1.20%
Return on average equity 12.98% 13.48% 15.15% 14.02% 12.99%
Average equity to average assets 10.03% 8.96% 8.22% 8.35% 9.24%
Dividend payout ratio 34.16% 33.51% 27.94% 26.23% 26.09%
<FN>
BANK OF LAKEVIEW RESULTS ARE INCLUDED FROM AUGUST 8, 1997,
THE DATE OF ACQUISITION.
<F1>All per share amounts adjusted for stock dividends and stock split
</FN>
</TABLE>
======================================================================== 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
Record earnings for 1998 once again headline the Company's performance.
net income of $7,303,000 for 1998 exceeded 1997 results of $5,558,000 by
31%. The Company has set record earnings levels for the last seven
consecutive years. Net income has increased an average of 21% annually for
the past five years. Contributing to these strong results were an
exceptionally active mortgage market and the inclusion of the results of
the Company's 1997 acquisition of Bank of Lakeview for the entire year. It
is important to note that the robust performance in 1998 was the
consequence of strength in the core banking sectors as opposed to the
effect of unusual or nonrecurring factors.
Standard performance indicators help management evaluate the Company's
performance. The Company's return on average assets was 1.30%, 1.21%, and
1.25% for 1998, 1997, and 1996 respectively. Total average assets
increased $101 million in 1998, $88 million in 1997, and $43 million in
1996. Return on average equity was 12.98% in 1998, 13.48% in 1997, and
15.15% in 1996. Average equity increased $15 million in 1998. The equity
of the affiliate acquired in August 1997 was included for the entire year,
representing about half of this increase. Basic earnings per share were
$1.62, $1.40, and $1.30 for 1998, 1997, and 1996. Diluted earnings per
share were $1.56, $1.37, and $1.28 for the same periods.
NET INTEREST INCOME
Strong net interest income is the heart of the Company's earnings.
Successful management of interest income and expense has produced an
increase in net interest income of $3.8 million or 18% in 1998 when
compared to the previous year. The Company's net interest margin of 5.06%
has declined from 5.16% in 1997 and 5.26% in 1996, but remains above peer
performance. In both 1998 and 1997 the Company's loan to deposit ratio,
using average balances, was 87%, compared to 88% in 1996. Ending loans
grew $36 million during 1998. This entire growth was generated from the
markets served by the Company.
<PAGE>
A critical task of management is to price assets and liabilities so that
the spread between the interest earned on assets and the interest paid on
liabilities is maximized without unacceptable risks. While interest rates
on earning assets and interest bearing liabilities are subject to market
forces, in general the Company can exert more control over deposit costs
than earning asset rates. Loan products carry either fixed rates of
interest or rates tied to market indices determined independently. The
Company sets its own rates on deposits, providing management with some
flexibility in determining the timing and proportion of rate changes for
the cost of its deposits.
4 ========================================================================
<PAGE>
===========================================================================
<TABLE>
SUMMARY OF CONSOLIDATED NET INTEREST INCOME
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
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 $ 55,861 $ 3,431 6.15% $ 40,255 $ 2,546 5.90% $ 30,687 $ 1,922 6.27%
Tax exempt securities <F1> 33,455 2,589 7.74 29,123 2,352 8.07 26,570 2,136 8.04
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total securities 89,316 6,020 6.74 69,378 4,898 7.05 57,257 4,058 7.09
Loans <F1><F2> 412,884 38,768 9.39 352,539 33,412 9.46 290,006 27,472 9.47
Federal funds sold 13,446 728 5.41 5,414 289 5.37 3,032 161 5.31
Interest bearing deposits 809 42 5.20 309 22 7.17 205 14 6.86
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total earning assets 516,455 45,558 8.82 427,640 38,621 9.02 350,500 31,705 9.04
Nonaccrual loans 1,432 519 141
Less allowance for loan loss (8,543) (7,142) (5,436)
Cash and due from banks 19,173 16,413 13,744
Other non earning assets 32,421 23,009 13,880
-------- -------- --------
Total assets $560,938 $460,439 $372,829
======== ======== ========
Average Liabilities
Interest bearing liabilities:
Demand $126,030 $4,440 3.52% $ 95,572 $ 3,393 3.55% $ 71,710 $ 2,476 3.45%
Savings 67,085 1,734 2.58 61,286 1,664 2.71 58,282 1,643 2.82
Time 211,243 11,718 5.55 188,378 10,571 5.61 151,622 8,463 5.58
Federal funds purchased and
repurchase agreements 17,601 757 4.30 13,468 624 4.62 13,279 650 4.90
Notes payable 11,464 704 6.14 4,480 278 6.08 866 49 5.70
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
liabilities 433,423 19,353 4.47 363,184 16,530 4.49 295,759 13,281 4.47
Demand deposits 63,257 50,647 42,521
-------- -------- --------
Total funds 496,680 413,831 338,280
<PAGE>
Other non interest bearing
liabilities 8,000 5,368 3,909
-------- -------- --------
Total liabilities 504,680 419,199 342,189
Average shareholders' equity 56,258 41,240 30,640
-------- -------- --------
Total liabilities and
shareholders' equity $560,938 $460,439 $372,829
======== ======== ========
Net interest income <F1> $26,205 $22,091 $18,424
======= ======= =======
Rate spread <F1> 4.35% 4.53% 4.57%
===== ===== =====
Net interest margin (percent of
average earning assets) <F1> 5.06% 5.16% 5.26%
===== ===== =====
<FN>
<F1> Presented on a fully taxable equivalent basis using a federal income tax rate of 34%.
<F2> Interest income includes loan fees of $1,726,000, $1,387,300, and $1,327,000 respectively.
Interest on nonaccrual loans is not included.
</FN>
</TABLE>
======================================================================== 5
<PAGE>
===========================================================================
The table on the preceding page presents a summary of net interest income
for 1998, 1997, and 1996. In 1998, the average rate realized on earning
assets was 8.82%, a decrease of 20 basis points from the 1997 results of
9.02%. The earnings rate for 1996 was 9.04%. In early 1996, the prime
rate underwent a decrease of 25 basis points, while in the first quarter of
1997 the prime increased 25 basis points and remained steady throughout the
remainder of the year. After two years of relative stability in the prime
rate, 1998 experienced three decreases in this indicator. Reductions of 25
basis points each three times during the fourth quarter led the prime rate
from 8.50% at the beginning of the year to 7.75% at year end 1998. With
22% of the Company's average loans in variable rate products, the decrease
in prime had an immediate effect on return of those assets. The lower rate
environment also affected the yield on investment securities. As higher
yielding securities matured, the Company replaced them with lower yielding
issues. The average rate earned on securities in 1998 was 6.74% compared
to 7.05% in 1997 and 7.09% in 1996.
The average rate paid on interest bearing liabilities was 4.47% in 1998,
4.49% in 1997, and 4.47% in 1996. All deposit and deposit equivalent
product yields have shown substantial decreases over the past year. A
portion of 1998's loan growth has been funded with increased borrowings
from the Federal Home Loan Bank. While an economical source of funding,
the cost of these dollars is higher than that of deposits, and has had the
effect of maintaining the rate paid on interest bearing liabilities near
the 1997 levels. In the past twelve months average deposit and deposit
equivalent balances have increased $72 million, and notes payable have
grown over $7 million.
In 1998, the rate spread decreased 18 basis points from 4.53% in 1997 to
4.35% in 1998. Tax equivalent net interest income increased $4 million in
1998 when compared to 1997 as total average earning assets grew $89
million. Net interest margin of 5.06% for 1998 was 10 basis points less
than the 1997 results of 5.16%. Decreases in both net interest margin and
rate spread are the result of average earning rates on assets decreasing 20
basis points while the average cost of interest bearing liabilities
dropping only two basis points. Average earning assets represent 92% of
total assets in 1998 compared to 93% in 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1.2 million in 1998, compared to $1.4
million in 1997 and $1.8 million in 1996. The decreases in the provision
for loan losses in 1997 and 1998 were the result of management's confidence
in the quality of the loan portfolio. At December 31, 1998, the allowance
for losses as a percent of total loans was 2.05% compared to 2.00% at
December 31, 1997, and 1.99% at December 31, 1996. Net charge off loans
<PAGE>
were $243,000 in 1998 compared to $857,000 in 1997 and $467,000 in 1996.
During 1998, nearly $500,000 of recoveries were realized contributing to
the year's auspicious result. Recoveries of this magnitude are not usual
for the Company. Net charge offs as a percent of average loans were .06%
in 1998 compared to .24% and .16% in 1997 and 1996. Total nonperforming
assets were .46% of total loans at December 31, 1998 compared to .81% and
.34% at the two previous year ends. Nonperforming assets were unusually
high at December 31, 1997, due in part to the August 1997 acquisition.
Management has worked the nonperforming credits diligently to bring them
more in line with pre-acquisition results. Management continues to
maintain the allowance for loan losses at a level considered appropriate to
absorb losses in the portfolio. The allowance balance is established after
considering past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, delinquencies and other
relevant factors.
NONINTEREST INCOME
Noninterest income saw a surge in 1998, growing 59% or $2,200,000 to
$5,900,000 compared to $3,700,000 in 1997 and $3,300,000 in 1996. Leading
the increase is the gain on sale of mortgage loans. With mortgage rates at
their recent lows, mortgage activity has been booming at all of the
affiliate banks. The gains on sale of mortgage loans increased $1,300,000
when compared to 1997, a 176% increase. Offsetting this gain is a
reduction of mortgage servicing income of $262,000 or 106%. Mortgage
servicing income actually posted a loss in 1998 of $15,000 compared to
1997 income of $248,000. The reduction is the result of a recapture of the
mortgage servicing assets created by active refinancing activity.
Service charges on deposit accounts grew $272,000 or 22% to a 1998 level of
$1,499,000 compared to $1,228,000 in 1997. Of the total increase, 94% or
$256,000 is the result of including the results of the affiliate acquired
in August 1997 for the entire year.
Other noninterest income increased $733,000 or 60% in 1998 when compared to
1997. Approximately half of this increase may be explained by the
inclusion of the affiliate acquired in 1997 for the entire 1998 year.
Brokerage income for 1998 exceeded the 1997 results by over $100,000. In
addition, an experience payment to the affiliate banks for credit life
insurance totaled nearly $80,000 more than 1997.
6 ========================================================================
<PAGE>
===========================================================================
NONINTEREST EXPENSE
During 1998, salary and employee benefits increased 22%, or $1,736,000, to
$9,768,000 compared to $8,033,000 in 1997. Several factors help explain
this change. Roughly one-third of this increase is the result of normal
increments and merit raises. Another $815,000 or nearly 50% of the growth
can be attributed to the difference in running the 1997 acquisition for a
full year instead of five months. Leased employees and upgrades of jobs
account for the remainder of the increase.
Occupancy and equipment costs rose $842,000 or 40% during 1998 to a total
of $2,971,000 compared to $2,129,000 in 1997. Over half of this increase
was generated from recognizing the full year expenses of the August 1997
acquisition. Additional depreciation expense of nearly $140,000 was
recognized as the mainframe computer and the phone system were upgraded
during 1998. The additional depreciation expense allowed the Company to
write off the remaining value of replaced assets.
Amortization of intangibles actually decreased $71,000 or 9% in 1998 to
$756,000 compared to $827,000 in 1997. In early 1997, the Company adjusted
the value of two assets to their fair values. No such adjustments were
recognized during 1998.
Other noninterest expense rose to $5,446,000, a 23% increase of $1,013,000
compared to the 1997 result of $4,434,000. The majority of this increase,
$788,000 or 78% of the growth is from operating the new affiliate the full
12 months in 1998 as opposed to the five months included in the 1997
results.
FEDERAL INCOME TAX
The Company's effective tax rates were 30%, 29%, and 27% for 1998, 1997,
and 1996. 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, 1998, were $603 million, exceeding the
December 31, 1997, footings of $536 million by $67 million or 12%. With no
acquisitions in 1998, all of this growth was generated from markets
existing at December 1997. Loans grew $36 million or 9% during 1998 with
commercial loans leading the advance by $34 million. Consumer loans showed
a decrease of $3 million or 4% during the same period.
<PAGE>
The following table provides information on the changes in loan balances
during 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1998 1997 CHANGE % CHANGE
---- ---- ------ --------
<S> <C> <C> <C> <C> <C>
Commercial $192,212 $158,219 $33,993 21.48 %
Real Estate Mortgages 177,009 171,848 5,161 3.00 %
Consumer 71,807 74,741 (2,934) (3.93)%
-------- -------- ------- -----
Total $441,028 $404,808 $36,220 8.95 %
Mortgages serviced for others $215,308 $167,295 $48,013 28.70 %
</TABLE>
Premises and equipment increased $641,000 after depreciation expense of
$1,481,000. A new mainframe computer and a new operations center represent
much of this change.
Core deposits categories all experienced a rise in their year end totals,
ending the year $52,974,000 above the 1997 year end results. Time deposit
accounts shrunk $4,587,000, for a net growth in deposits of $48,387,000.
Securities sold under agreement to repurchase and overnight borrowings rose
$5,344,000 since December 31, 1997. The net change of almost $54 million
was used to fund growth in investment securities and loans.
Notes payable grew $6.7 million during 1998. The proceeds from the
increase in notes payable were used to support loan and investment security
increases. For a more complete discussion on borrowings, 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 1998, net charged off loans were $243,000
compared to $857,000 in 1997. Net charged off loans as a percentage of
average loans were .06% and .24% in 1998 and 1997.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more
past due, and any loans where the terms have been renegotiated. Total
nonperforming loans were $1,497,000 and $2,610,000 at December 31, 1998 and
1997. The investment in impaired loans was $1,606,000 at December 31,
1998, compared to $933,000 at the same time in 1997. Please refer to Note
F to the consolidated financial statements for more information on impaired
loans. Total nonaccrual loans were $790,000 at December 31, 1998, compared
to $1,274,000 at the end of 1997.
The allowance for loan losses increased $934,000 or 12% during 1998. The
allowance for loan losses represents 2.05% of outstanding loans at the end
of 1998 as compared to 2.00% at December 31, 1997. 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 5.06% in
1998 compared to 5.16% in 1997. Loan yields were 9.34% in 1998 compared to
9.46% in 1997. Deposit costs decreased 12 basis points from 3.95% in 1997
to 3.83% in 1998.
<PAGE>
A decrease in deposit rates affects most rates currently paid and,
therefore, has an immediate positive impact on net interest margin. With
the exception of variable rate loans, a decrease in loan rates does not
affect the yield until a new loan is made. The prime rate was stable until
the fourth quarter of 1998 when it experienced three 25 basis point
decreases. Competition for both loans and deposits has caused margins to
shrink in 1998.
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, 1998, are $20 million compared to
$18 million at December 31, 1997.
8 ========================================================================
<PAGE>
===========================================================================
The following table shows the interest sensitivity gaps for five different
intervals as of December 31, 1998:
<TABLE>
<CAPTION>
MATURITY OR REPRICING FREQUENCY
-------------------------------
(Dollars in millions)
2 days 4 mos. 13 mos.
through through through
1 day 3 mos. 12 mos. 5 yrs. 5+ yrs.
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $88.6 $45.6 $67.6 $204.3 $34.9
Investment securities 0.2 8.7 11.4 39.6 41.8
Other earning assets 10.9 2.4 0.0 0.0 0.0
------- ------- ------- ------ -----
Total 99.7 56.7 79.0 243.9 76.7
Interest bearing liabilities:
Deposits 216.2 79.5 83.1 46.2 0.2
Other bearing liabilities 7.9 2.0 4.7 11.2 15.1
------- ------- ------- ------ -----
Total 224.1 81.5 87.8 57.4 15.3
------- ------- ------- ------ -----
Interest sensitivity gap $(124.4) $(24.8) $ (8.8) $186.5 $61.4
======= ======= ======= ====== =====
Cumulative gap $(124.4) $(149.2) $(158.0) $28.5 $89.9
======= ======= ======= ====== =====
</TABLE>
For the one day interval, maturities of interest bearing liabilities exceed
those of interest earning assets by $124 million. Included in the one day
maturity classification are $216 million of savings and checking accounts
which are contractually available to the Company's customers immediately,
but in fact function as core deposits with considerably longer maturities.
The pattern of interest sensitive liability maturities exceeding interest
sensitive assets continues through the one year time frame resulting in a
cumulative excess of $158 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
$29 million. Interest sensitive assets exceed interest sensitive
liabilities by $90 million for the time period exceeding five years.
<PAGE>
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. Overnight investments, on which
rates change daily, and loans tied to the prime rate, differ considerably
from long term investment securities and fixed rate loans. Time deposits
over $100,000 and money market accounts are more interest sensitive than
regular savings accounts. Comparison of the repricing intervals of
interest earning assets to interest bearing liabilities is a measure of the
interest sensitivity gap. Balancing this gap is a continual challenge in a
changing rate environment. The Company uses a sophisticated computer
program to perform analysis of interest rate risk, assist with its asset
liability management, and model and measure interest rate sensitivity.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Firstbank faces market risk to the extent that both earnings and the fair
values of its financial instruments are affected by changes in interest
rates. The Corporation manages this risk with static GAP analysis and
simulation modeling. Throughout 1998, the results of these measurement
techniques were within the Corporation's policy guidelines. The
Corporation does not believe that there has been a material change in the
nature of the Corporation's primary market risk exposures, including the
categories of market risk to which the Corporation is exposed and the
particular markets that present the primary risk of loss to the
Corporation, or in how those exposures are managed in 1998 as compared to
1997. As of the date of this annual report, the Corporation does not know
of or expect there to be any material change in the general nature of its
primary market risk exposure in the near term.
The Corporation's market risk exposure is mainly comprised of its
vulnerability to interest rate risk. Prevailing interest rates and
interest rate relationships in the future will be primarily determined by
market factors which are outside of the Corporation's control. All
information provided in this section consists of forward looking
statements. Reference is made to the section captioned "Forward Looking
Statements" in this annual report for a discussion of the limitations on
the Corporation's responsibility for such statements.
======================================================================== 9
<PAGE>
===========================================================================
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates as of December
31, 1998 and 1997. They show expected cash flows from market sensitive
instruments for each of the next five years and thereafter. 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 tables. Fair value is computed as the present
value of expected cash flows at rates in effect at the date indicated.
<TABLE>
<CAPTION>
REPRICING DATE
---------------------------------------------------------------
DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) FAIR VALUE
1999 2000 2001 2002 2003 THEREAFTER TOTAL 12/31/98
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest rate loans $ 84,243 $61,918 $67,912 $41,793 $50,546 $48,097 $354,509 $360,114
Average interest rate 8.12% 8.89% 8.59% 8.55% 8.34% 8.56%
Variable interest rate loans $ 40,012 $ 8,634 $11,970 $ 9,427 $ 9,070 $ 7,406 $ 86,519 $ 87,897
Average interest rate 8.46% 8.86% 8.57% 8.79% 8.81% 12.72%
Fixed interest rate securities $ 20,628 $14,982 $16,625 $ 6,057 $ 4,263 $38,793 $101,348 $101,348
Average interest rate 5.85% 6.04% 5.92% 5.96% 5.92% 6.08%
Variable interest rate securities $ 363 $ 363 $ 363
Average interest rate 7.47%
Other interest bearing assets $ 13,288 $ 13,288 $ 13,288
Average interest rate 4.63%
<PAGE>
Rate sensitive liabilities:
Savings & interest bearing checking $216,256 $216,256 $216,256
Average interest rate 3.09%
Time deposits $156,214 $29,031 $10,100 $ 7,535 $ 5,837 $ 192 $208,909 $209,540
Average interest rate 5.18% 5.43% 5.69% 5.74% 5.48% 4.17%
Fixed interest rate borrowings $ 7,900 $ 1,566 $ 9,466 $ 9,546
Average interest rate 5.75% 6.80%
Variable interest rate borrowings $ 12,750 $ 12,750 $ 13,403
Average interest rate 5.41%
Repurchase Agreements $ 18,678 $ 18,678 $ 19,096
Average interest rate 3.88%
</TABLE>
<TABLE>
<CAPTION>
REPRICING DATE
---------------------------------------------------------------
DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) 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% 9.42% 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%
<PAGE>
Other interest bearing assets $ 836 $ 836 $ 836
Average interest rate 5.25%
</TABLE>
10 ========================================================================
<PAGE>
===========================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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, 1998, the Company's total capital to risk weighted
assets exceeded the minimum requirement for capital adequacy purposes of
8% by 4.47% or $19.6 million, Tier 1 capital to risk weighted assets
exceeded the minimum of 4% by 7.21% or $31.5 million, and Tier 1 capital to
<PAGE>
average assets exceeded the minimum of 4% by 4.33% or $25.5 million. For a
more complete discussion of capital requirements, please refer to Note Q to
the consolidated financial statements.
The Federal Deposit Insurance Corporation insures specified customer
deposits and assesses premium rates based on defined criteria. Insurance
assessment rates may vary from bank to bank based on the factors that
measure the perceived risk of a financial institution. One condition for
maintaining the lowest risk assessment, and therefore the lowest insurance
rate, is the maintenance of capital at the "well capitalized" level. 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 17.8%. The compound annual growth rate
for average equity over the same period was 25.2%. 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Return on Equity 12.98% 13.48% 15.15%
MULTIPLIED BY
Percentage of Earnings Retained 65.84% 66.49% 72.06%
EQUALS
Internal Capital Growth 8.55% 8.96% 10.92%
</TABLE>
The rate of internal capital growth demonstrates the effective deployment
of the addition to capital from the 1993 stock offering. The decrease in
internal capital growth in 1997 and 1998 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
1998 and 1997 than in 1996. To maintain sufficient capital, management has
determined that the rate of internal capital growth should average at least
<PAGE>
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.
======================================================================== 11
<PAGE>
===========================================================================
As an additional enhancement to capital growth, the Company offers a
dividend reinvestment program. The Firstbank Corporation Dividend
Reinvestment Plan was first offered in 1988. At December 31, 1988, 123
owners holding 199,863 shares participated in the Plan. By the end of
1998, 1,036 owners holding 1,704,107 shares were participating in the
Plan.
The Company is not aware of any recommendations by regulatory authorities
at December 31, 1998, which are likely to have a material effect on
Firstbank Corporation's liquidity, capital resources or operations.
YEAR 2000 READINESS DISCLOSURE
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's business is also dependent upon the error free operation
of computer systems of its telecommunications providers, operators of
electronic payment systems, and vendors who provide a variety of products
and services needed by the Corporation and its subsidiaries to conduct
their businesses. Data processing system failures, errors or
miscalculations could affect the ability of some borrowers to make timely
payment of amounts due, and could affect the long term financial viability
of some borrowers.
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, 1998, it is estimated
that this plan is approximately 80% complete. The Corporation's
subsidiaries have also initiated a program of informing relevant customers
of the Year 2000 issue and encouraging them to address it in their own
businesses.
<PAGE>
The Corporation will continue to assess the impact of the Year 2000 issue
on the remainder of its computer based systems and applications. The
Corporation's goal is 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.
The Corporation estimates it will spend approximately $330,000 during 1998
and 1999 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. The Corporation has
identified its critical systems that are dependent on outside providers.
For each critical system, extensive testing has either been scheduled or
has been completed. To date, all tested systems have been able to
accommodate dates subsequent to January 1, 2000. The Corporation has
contracted with an offsite location to provide a backup site for its core
application processing in the event the Corporation's hardware or software
should not function. Testing of the Corporation's core processing hardware
and software indicates that both are Year 2000 compliant.
Based on currently available information, management does not presently
anticipate that the costs to address the Year 2000 issues will have a
materially 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.
<PAGE>
This Year 2000 Readiness Disclosure is based upon and partially repeats
information provided by the Corporation's outside consultants, vendors and
others regarding the Year 2000 readiness of the Corporation and its
customers, vendors, and other parties. Although the Corporation believes
this information to be accurate, it has not in each case independently
verified such information.
12 ========================================================================
<PAGE>
===========================================================================
FORWARD LOOKING STATEMENTS
This annual report including, without limitation, management's discussion
and analysis of financial condition and results of operations and other
sections contains 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 "anticipate," "believe," "determine," "estimate,"
"expect," "forecast," "indicate," "intend," "is likely," "plan,"
"project," "opinion," variations of such terms, and similar expressions
are intended to identify such forward-looking statements. The Year 2000
Readiness Disclosure, the presentations and discussions of the provision
and allowance for loan losses, and determinations as to the need for other
allowances presented in this report are inherently forward-looking
statements in that they involve judgements and statements of belief as to
the outcome of future events. These statements are not guarantees of
future performance and involve certain risks, uncertainties, and
assumptions 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. Internal and external factors that may
cause such differences include changes in interest rates and interest rate
relationships; demand for products and services; the degree of competition
by traditional and non-traditional competitors; changes in banking
regulations; changes in tax laws; changes in prices, levies, and
assessments; the impact of technological advances; governmental and
regulatory policy changes; the outcomes of pending and future litigation
and contingencies; trends in customer behavior and customer ability to
repay loans; software failure, errors or miscalculations; the ability of
other companies on which the Corporation relies to be Year 2000 compliant;
the ability of the Corporation to locate and correct all data sensitive
computer code; and the vicissitudes of the national economy. The
Corporation undertakes no obligation to update, amend or clarify forward-
looking statements, whether as a result of new information, future events,
or otherwise.
======================================================================== 13
<PAGE>
===========================================================================
FIRSTBANK CORPORATION AND SUBSIDIARIES
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
1998
----
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER YEAR
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $10,864 $10,896 $11,221 $11,503 $44,484
Net interest income 6,113 6,095 6,358 6,565 25,131
Provision for loan losses 370 205 240 362 1,177
Income before federal income taxes 2,490 2,614 2,645 2,671 10,420
Net income 1,748 1,830 1,853 1,872 7,303
Basic earnings per share .39 .40 .41 .42 1.62
Diluted earnings per share .37 .39 .40 .40 1.56
</TABLE>
<TABLE>
<CAPTION>
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 .34 .34 .36 .36 1.40
Diluted earnings per share .34 .33 .35 .35 1.37
</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.
- ---------------------------------------------------------------------------
<PAGE>
COMMON STOCK DATA
Firstbank Corporation Common Stock was held by 1,505 shareholders of record
as of December 31, 1998. Total shareholders number approximately 1,800
including those whose shares are held in nominee name through brokerage
firms. The Company's shares are listed on the Over the Counter Bulletin
Board under the symbol FBMI and are traded by several brokers. The range
of bid prices for shares of common stock for each quarterly period during
the past two years is as follows:
<TABLE>
<CAPTION>
LOW AND HIGH BID QUOTATIONS
---------------------------
1998 1997
---- ----
<S> <C> <C>
First Quarter $22.38-$29.05 $15.30-$16.67
Second Quarter $29.05-$33.10 $16.67-$18.14
Third Quarter $26.67-$33.10 $18.14-$18.82
Fourth Quarter $26.67-$30.48 $18.82-$22.38
</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 and a 2 for 1 stock split.
The following table summarizes cash dividends paid per share (adjusted for
stock dividends and 2 for 1 stock split) of common stock during 1998 and
1997.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
First Quarter $.1381 $.0998
Second Quarter $.1381 $.1180
Third Quarter $.1381 $.1180
Fourth Quarter $.1381 $.1180
------ ------
$.5524 $.4538
====== ======
</TABLE>
<PAGE>
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, 1999, approximately $12,453,000 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' 1999 earnings, such earnings
will be available for distributions as dividends to the Company.
14 ========================================================================
<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, 1998 and 1997, and the related consolidated statements of
income and comprehensive income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998.
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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
January 29, 1999
Grand Rapids, Michigan
======================================================================== 15
<PAGE>
===========================================================================
<TABLE>
<CAPTION>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31
-----------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 22,203,430 $ 23,279,923
Short term investments 13,288,206 835,580
------------ ------------
Total cash and cash equivalents 35,491,636 24,115,503
Securities available for sale 101,711,023 82,577,999
Loans:
Loans held for sale 5,454,928 3,916,791
Portfolio loans
Commercial 192,212,168 158,218,889
Real estate mortgage 171,554,004 167,930,825
Consumer 71,806,822 74,741,496
------------ ------------
Total loans 441,027,922 404,808,001
Less allowance for loan losses (9,048,000) (8,114,000)
------------ ------------
Net loans 431,979,922 396,694,001
Premises and equipment, net 14,057,619 13,417,065
Intangibles 9,534,210 10,290,640
Accrued interest receivable 3,463,572 3,458,655
Other assets 6,775,852 5,768,444
------------ ------------
TOTAL ASSETS $603,013,834 $536,322,307
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand accounts $ 68,887,968 $ 57,952,555
Interest bearing accounts:
Demand 146,741,509 110,363,898
Savings 69,514,970 63,853,842
Time 208,908,518 213,495,526
------------ ------------
Total deposits 494,052,965 445,665,821
<PAGE>
Securities sold under agreements to
repurchase and overnight borrowings 26,577,527 21,232,881
Notes payable 14,316,550 7,590,465
Accrued interest payable 1,311,406 1,307,629
Other liabilities 6,980,442 5,993,617
------------ ------------
Total liabilities 543,238,890 481,790,413
SHAREHOLDERS' EQUITY
Preferred stock; no par value,
300,000 shares authorized, none issued
Common stock; 10,000,000 shares authorized; 4,527,256 and 4,292,210
shares issued and outstanding in 1998 and 1997 respectively 52,796,743 46,223,949
Retained earnings 5,874,601 7,420,886
Net unrealized appreciation on securities available for sale,
net of deferred income tax of $568,521 in 1998, and $456,970 in 1997 1,103,600 887,059
------------ ------------
Total shareholders' equity 59,774,944 54,531,894
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $603,013,834 $536,322,307
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16 ========================================================================
<PAGE>
===========================================================================
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 38,498,073 $ 33,385,960 $ 27,446,750
Securities:
Available for sale - Taxable 3,466,878 2,546,186 1,922,393
Available for sale - Exempt from federal income tax 1,791,291 1,620,493 1,471,602
Short term investments 728,105 311,464 175,064
------------ ------------- --------------
Total interest income 44,484,347 37,864,103 31,015,809
Interest expense:
Deposits 17,891,968 15,628,237 12,581,008
Notes payable and other 1,461,240 901,502 699,718
------------ ------------- --------------
Total interest expense 19,353,208 16,529,739 13,280,726
------------ ------------- --------------
Net interest income 25,131,139 21,334,364 17,735,083
Provision for loan losses 1,177,000 1,398,000 1,838,000
------------ ------------- --------------
Net interest income after
provision for loan losses 23,954,139 19,936,364 15,897,083
Noninterest income:
Service charges on deposit accounts 1,499,200 1,227,700 1,009,895
Gain on sale of mortgage loans 2,099,619 759,378 620,990
Mortgage servicing, net of amortization (14,591) 247,529 386,494
Trust fees 327,464 273,222 234,951
Gain (loss) on sale of securities 3,329 (29,732) 11,773
Other 1,952,708 1,219,254 1,033,253
------------ ------------- --------------
Total noninterest income 5,867,729 3,697,351 3,297,356
Noninterest expense:
Salaries and employee benefits 9,768,488 8,032,608 6,613,365
Occupancy 2,970,065 2,128,511 1,883,193
Amortization of intangibles 756,430 826,924 271,449
FDIC Insurance premium 71,923 43,864 226,554
Michigan Single Business tax 389,800 359,567 355,800
Other 5,445,592 4,433,510 3,439,690
------------ ------------- --------------
Total noninterest expense 19,402,298 15,824,984 12,790,051
------------ ------------- --------------
<PAGE>
Income before federal income taxes 10,419,570 7,808,731 6,404,388
Federal income taxes 3,117,000 2,251,000 1,761,000
------------ ------------- --------------
NET INCOME $ 7,302,570 $ 5,557,731 $ 4,643,388
Other comprehensive income
Change in unrealized gain (loss) on
securities, net of tax and reclassification effects 216,541 323,720 (350,238)
------------ ------------- --------------
COMPREHENSIVE INCOME $ 7,519,111 $ 5,881,451 $ 4,293,150
============ ============= ==============
Basic earnings per share $1.62 $1.40 $1.30
===== ===== =====
Diluted earnings per share $1.56 $1.37 $1.28
===== ===== =====
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
======================================================================== 17
<PAGE>
===========================================================================
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
APPRECIATION
(DEPRECIATION)
ON SECURITIES
COMMON RETAINED AVAILABLE
STOCK EARNINGS FOR SALE TOTAL
------ -------- -------------- -----
<S> <C> <C> <C> <C>
Balances at January 1, 1996 $ 21,355,293 $ 7,583,783 $ 913,577 $ 29,852,653
Net income for 1996 4,643,388 4,643,388
Cash dividends--$.36 per share (1,297,400) (1,297,400)
5% stock dividend--169,917 shares 2,620,039 (2,633,181) (13,142)
Issuance of 4,692 shares of common
stock through exercise of stock options 46,947 46,947
Issuance of 10,739 shares of common stock
through the dividend reinvestment plan 144,063 144,063
Issuance of 4,038 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 $180,426 (350,238) (350,238)
------------- ------------ ---------- ------------
BALANCES AT DECEMBER 31, 1996 24,228,132 8,296,590 563,339 33,088,061
Net income for 1997 5,557,731 5,557,731
Cash dividends--$.45 per share (1,862,378) (1,862,378)
5% stock dividend--214,026 shares 4,560,786 (4,571,057) (10,271)
Issuance of 12,235 shares of common
stock through exercise of stock options 163,566 163,566
Issuance of 26,870 shares of common stock
through the dividend reinvestment plan 479,436 478,436
Issuance of 21,771 shares of common
stock from supplemental shareholder
investments 402,894 402,894
Issuance of 856,029 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 $166,765 323,720 323,720
------------- ------------ ---------- ------------
BALANCES AT DECEMBER 31, 1997 46,223,949 7,420,886 887,059 54,531,894
<PAGE>
Net income for 1998 7,302,570 7,302,570
Cash dividends--$.55 per share (2,494,909) (2,494,909)
5% stock dividend--215,388 shares 6,353,282 (6,353,946) (664)
Issuance of 14,395 shares of common
stock through exercise of stock options 251,492 251,492
Issuance of 21,997 shares of common stock
through the dividend reinvestment plan 635,966 635,966
Issuance of 16,747 shares of common
stock from supplemental shareholder
investments 482,354 482,354
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of $111,551 216,541 216,541
Purchase of 34,990 shares of stock (1,213,670) (1,213,670)
Issuance of 1,509 shares of common stock 63,370 63,370
------------- ------------ ---------- ------------
BALANCES AT DECEMBER 31, 1998 $ 52,796,743 $ 5,874,601 $1,103,600 $ 59,774,944
============= ============ ========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18 ========================================================================
<PAGE>
===========================================================================
FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,302,570 $ 5,557,731 $ 4,643,388
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 1,177,000 1,398,000 1,838,000
Depreciation of premises and equipment 1,480,897 1,033,620 749,790
Net amortization of security premiums/discounts 122,223 131,273 343,131
Loss (gain) on sale of securities (3,329) 29,732 (11,773)
Amortization of intangibles 756,430 826,924 271,449
Gain on sale of mortgage loans (2,099,619) (759,378) (620,990)
Proceeds from sales of mortgage loans 152,673,876 50,910,223 46,388,544
Loans originated for sale (152,112,394) (47,311,773) (49,917,204)
Deferred federal income tax benefit (356,000) (481,000) (661,000)
Decrease in accrued interest receivable and other assets (693,761) (4,049,673) (453,940)
Increase (decrease) in accrued interest payable and other liabilities 916,602 3,196,620 (499,416)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,164,495 10,678,299 2,069,979
INVESTING ACTIVITIES
Cash acquired from Lakeview Financial Corporation 1,724,418
Proceeds from sale of securities available for sale 609,415 1,560,907 3,534,165
Proceeds from maturities of securities available for sale 28,935,385 28,153,606 20,286,206
Purchases of securities available for sale (48,468,741) (42,239,442) (19,434,329)
Net increase in portfolio loans (34,924,784) (23,427,147) (46,090,330)
Net purchases of premises and equipment (2,121,451) (2,074,625) (1,962,736)
Net increase in intangibles from acquisitions (1,757,606)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (55,970,176) (36,302,283) (45,424,630)
FINANCING ACTIVITIES
Deposits from branch acquisitions 19,347,853
Net increase in deposits 48,387,144 13,586,053 32,314,920
Net increase (decrease) in securities sold under
agreements to repurchase and overnight borrowings 5,344,646 12,400,289 (5,009,687)
Proceeds from notes payable 6,726,085 3,351,426 2,239,039
Cash dividends and cash paid in lieu of fractional shares on stock
dividend (2,495,573) (1,872,649) (1,310,542)
Purchase of common stock (1,213,670)
Net proceeds from issuance of common stock 1,433,182 1,045,896 252,800
------------ ------------ ------------
<PAGE>
NET CASH PROVIDED BY FINANCING ACTIVITIES 58,181,814 28,511,015 47,834,383
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 11,376,133 2,887,031 4,479,732
Cash and cash equivalents at beginning of year 24,115,503 21,228,472 16,748,740
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,491,636 $ 24,115,503 $ 21,228,472
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 19,349,433 $ 14,944,446 $ 13,150,177
Income taxes 3,150,000 2,135,000 2,610,000
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.
======================================================================== 19
<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 $603 million
as of December 31, 1998, primarily represent commercial and retail banking
activity. Mortgage loans serviced for others of $215 million and trust
assets of $10 million as of December 31, 1998, 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, 1st Armored, Incorporated, and 1st Collections 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,
<PAGE>
consumer loans are secured by various items of personal property and
mortgage loans are secured by residential real estate.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
amounts due from banks, and short term investments which include 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: Servicing rights are recognized as assets for
purchased rights and for the allocated value of retained servicing rights
on loans sold. Servicing rights are expensed in proportion to, and over
the period of, estimated net servicing revenues. 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 reported as a
valuation allowance.
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.
20 ========================================================================
<PAGE>
===========================================================================
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.
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.
<PAGE>
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 lower of cost or 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 includes the
dilutive effect of additional common shares issuable under stock options.
All per share amounts are restated for stock dividends and stock splits
through the date of issue of the financial statements.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and
unrealized gains and losses on securities available for sale which is also
recognized as a separate component of equity. The accounting standard that
requires reporting comprehensive income first applies for 1998, with prior
information restated to be comparable.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: During 1997, the
Company transferred $2,886,318 from loans held for sale to portfolio loans.
======================================================================== 21
<PAGE>
===========================================================================
RECLASSIFICATION: Certain 1997 and 1996 amounts have been reclassified to
conform to the 1998 presentation.
FUTURE ACCOUNTING CHANGES: Beginning January 1, 2000, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be
recorded by offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not otherwise recorded.
Mortgage loans originated in mortgage banking are converted into securities
on occasion. A new accounting standard for 1999 will allow classifying
these securities as available for sale, trading, or held to maturity,
instead of the current requirement to classify as trading. Management does
not expect either of these changes to have a material effect upon the
Company.
SEGMENT INFORMATION: While the Company's chief decision makers monitor the
revenue streams of various products and services, operations are managed
and financial performance is evaluated on a company-wide basis.
Accordingly, all of the Company's banking operations are considered by
management to be aggregated in one reportable operating segment.
NOTE B-ACQUISITIONS
The Company did not consummate any acquisitions during 1998. 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 856,029 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 22,470 shares with exercise prices of $6.92 to
$10.23 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.
The surviving entity is Firstbank Corporation.
<PAGE>
Bank of Lakeview will continue to operate as a 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
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
SUMMARY OF INCOME 1997 1996
----------------- ---- ----
<S> <C> <C> <C>
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 $1.33 $1.22
</TABLE>
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.
22 ========================================================================
<PAGE>
===========================================================================
NOTE C--RESTRICTIONS ON VAULT CASH AND DUE FROM BANK ACCOUNTS
The Company's subsidiary banks are required to maintain average reserve
balances in the form of cash and noninterest bearing balances due from the
Federal Reserve Bank. The average reserve balances required to be
maintained at December 31, 1998 and 1997, were $2,759,000 and $2,302,000
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, 1998:
U.S. Treasury $ 9,028,443 $ 221,401 $ (51) $ 9,249,793
U.S. governmental agency 22,770,082 222,608 (60,658) 22,932,032
States and political subdivisions 40,016,678 1,214,073 (134,582) 41,096,169
Collateralized mortgage obligations 3,583,726 30,603 (529) 3,613,800
Corporate 22,824,634 226,073 (46,819) 23,003,888
Equity 1,815,341 0 0 1,815,341
------------ ---------- --------- ------------
$100,038,904 $1,914,758 $(242,639) $101,711,023
============ ========== ========= ============
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 0 0 1,779,941
------------ ---------- --------- ------------
$81,233,969 $1,367,258 $ (23,228) $82,577,999
============ ========== ========= ============
</TABLE>
<PAGE>
Gross realized gains (losses) on sales and calls of securities were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Gross realized gains $ 4,858 $ 1,050 $ 22,511
Gross realized losses (1,529) (30,782) (10,738)
-------- -------- --------
Net realized gains $ 3,329 $(29,732) $ 11,773
======== ======== ========
</TABLE>
The amortized cost and fair value of securities at December 31, 1998, 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 $ 19,850,074 $ 19,873,716
Due after one year through five years 41,674,222 42,681,886
Due after five years through ten years 24,623,852 25,000,243
Due after ten years 12,075,415 12,339,837
------------ ------------
Total 98,223,563 99,895,682
Equity securities 1,815,341 1,815,341
------------ ------------
Total securities $100,038,904 $101,711,023
============ ============
</TABLE>
At December 31, 1998, securities with a carrying value approximating
$49,424,000 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.
======================================================================== 23
<PAGE>
===========================================================================
NOTE E--SECONDARY MORTGAGE MARKET ACTIVITIES
Loans serviced for others, which are not reported as assets, total
$215,308,000 and $167,295,00 at 1998 and 1997.
Activity for capitalized mortgage servicing rights was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Servicing rights:
Beginning of year $503,370 $269,501
Additions 969,416 571,077
Amortized to expense 475,560 337,208
-------- --------
End of year $997,226 $503,370
======== ========
</TABLE>
Management has determined that a valuation allowance is not necessary at
December 31, 1998 or 1997.
NOTE F-LOANS
<PAGE>
Loans at year-end were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Commercial $117,351,858 $109,151,314
Mortgage loans on real estate:
Residential 173,420,825 164,468,490
Loans held for sale 5,454,928 3,916,791
Commercial 109,412,665 79,956,655
Construction 23,415,773 19,467,996
Consumer 70,136,552 69,953,725
Credit Card 6,519,740 6,606,615
------------ ------------
Subtotal 505,712,341 453,521,586
Less:
Allowance for loan losses 9,048,000 8,114,000
Net deferred loan fees 9,764 2,950
Undisbursed loan funds 64,674,655 48,710,635
------------ ------------
Loans, net $431,979,922 $396,694,001
============ ============
</TABLE>
Activity in the allowance for loan losses for the year was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $8,114,000 $6,247,000 $4,876,000
Lakeview allowance at acquisition 1,326,000
Provision for loan losses 1,177,000 1,398,000 1,838,000
Loans charged-off (712,000) (1,270,000) (780,000)
Recoveries 469,000 413,000 313,000
---------- ---------- ----------
Ending balance $9,048,000 $8,114,000 $6,247,000
========== ========== ==========
</TABLE>
<PAGE>
Impaired loans were as follows:
<TABLE>
1998 1997
---- ----
<S> <C> <C> <C>
Year-end loans with no allocated allowance for loan losses $ 504,000 $868,000
Year-end loans with allocated allowance for loan losses 1,102,000 65,000
---------- --------
Total $1,606,000 $933,000
========== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Amount of the allowance for loan losses allocated $ 118,000 $ 48,000
Loans past due over 90 days still on accrual $ 621,000 $1,215,158
Average of impaired loans during the year $1,879,000 $ 972,000 $ 368,000
Interest income recognized during impairment $ 128,000 $ 87,000 $ 26,000
Cash-basis interest income recognized $ 31,000 $ 0 $ 0
</TABLE>
24 ========================================================================
<PAGE>
===========================================================================
NOTE G--PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Year end premises and equipment were as follows: 1998 1997
---- ----
<S> <C> <C>
Land $ 3,174,570 $ 2,982,783
Buildings 11,594,443 10,358,212
Furniture, fixtures and equipment 8,206,337 7,596,195
----------- -----------
22,975,350 20,937,190
Less: Accumulated depreciation (8,917,731) (7,520,125)
----------- -----------
$14,057,619 $13,417,065
=========== ===========
</TABLE>
Rent expense for 1998 was $115,801 and for 1997 was $81,695. Rent
commitments under noncancellable operating leases were as follows, before
considering renewal options that generally are present.
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $182,424
2000 179,864
2001 181,319
2002 165,176
2003 166,705
--------
Total $875,488
========
</TABLE>
<PAGE>
NOTE H--FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
Federal income taxes consist of the following: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Current expense $3,473,000 $2,536,000 $2,422,000
Deferred benefit (356,000) (285,000) (661,000)
---------- ---------- ----------
Total $3,117,000 $2,251,000 $1,761,000
========== ========== ==========
</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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Tax at statutory rate $ 3,543,000 $2,655,000 $2,177,000
Effect of surtax exemption 4,000
Effect of tax-exempt interest (550,000) (619,000) (509,000)
Other 120,000 215,000 93,000
----------- ---------- ----------
Federal income taxes $ 3,117,000 $2,251,000 $1,761,000
=========== ========== ==========
Effective tax rate 30% 29% 27%
</TABLE>
<PAGE>
The components of deferred tax assets and liabilities consist of the
following at December 31:
<TABLE>
<CAPTION>
Deferred tax assets: 1998 1997
---- ----
<S> <C> <C>
Allowance for loan losses $2,543,000 $2,191,000
Deferred compensation 505,000 448,000
Other 460,000 531,000
---------- ----------
Total deferred tax assets 3,508,000 3,170,000
---------- ----------
Deferred tax liabilities:
Fixed assets (393,000) (508,000)
Unrealized gain on securities available for sale (569,000) (457,000)
Mortgage servicing rights (380,000) (196,000)
Purchase accounting adjustment (1,662,000) (1,760,000)
Other (42,000) (31,000)
---------- ----------
Total deferred tax liabilities (3,046,000) (2,952,000)
---------- ----------
Net deferred tax asset $ 462,000 $ 218,000
========== ==========
</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, 1998 or 1997.
======================================================================== 25
<PAGE>
===========================================================================
Deferred tax assets at December 31, 1998 and 1997, are included in other
assets in the accompanying consolidated balance sheets.
Federal income tax laws require recapture of the tax loan loss reserve when
average assets of the group exceed $500 million. The recapture occurs over
a four year period in amounts equal to 10%, 20%, 30% and 40% of the tax
loan loss reserve.
NOTE I--DEPOSITS
Time deposits of $100,000 or more were $39,798,000 and $35,670,000 at year
end 1998 and 1997.
Scheduled maturities of time deposits were as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C> <C>
1999 $156,214,182
2000 29,030,802
2001 10,100,172
2002 7,535,266
2003 5,836,531
2004 and after 191,565
------------
Total $208,908,518
============
</TABLE>
<PAGE>
NOTE J--BORROWINGS
Information relating to securities sold under agreements to repurchase
follows:
<TABLE>
<CAPTION>
At December 31: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding balance $18,678,000 $12,932,000 $ 5,933,000
Average interest rate 3.88% 4.23% 4.40%
Daily average for the year:
Outstanding balance $15,618,000 $10,894,000 $10,527,000
Average interest rate 4.15% 4.36% 4.73%
Maximum outstanding at any month end $18,678,000 $13,911,000 $14,290,000
</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 Company and are primarily held in
safekeeping by correspondent banks. Repurchase agreements are offered
principally to certain large deposit customers as deposit equivalent
investments.
At year-end, advances from the Federal Home Loan Bank were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Maturities August 1999 through October 2017 primarily
fixed rate at rates from 4.64% to 7.30% averaging 5.56% $14,103,412 $7,364,000
</TABLE>
Each advance is payable at its maturity date, with a prepayment penalty.
The advances were collateralized by $109,488,000 and $91,679,000 of first
mortgage loans under a blanket lien arrangement at year-end 1998 and 1997.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Maturities over the next five years are: 1999 $ 1,000,000
2000 2,250,000
2001 250,000
2002 0
2003 7,000,000
2004 and after 3,603,412
-----------
$14,103,412
===========
</TABLE>
26 ========================================================================
<PAGE>
===========================================================================
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 1998, 1997, and 1996,
matching 401(k) contributions charged to expense were $264,441, $204,165,
and $158,934, 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 310,800 shares of previously
unissued common stock of the Company at an estimated fair value of $4.44
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.
NOTE L--STOCK OPTIONS
The Firstbank Corporation Stock Option Plans of 1993 and 1997 ("Plans")
provide for the grant of 268,019 and 220,500 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
1996, 1997 and 1998:
<PAGE>
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF SHARES AVERAGE
--------- -------
<S> <C> <C> <C>
Outstanding - December 31, 1995 160,398 $ 9.08
Granted 61,122 15.33
Exercised (4,692) 8.45
Canceled (7,396) 9.24
------- ------
Outstanding - December 31, 1996 209,432 10.90
Granted 87,980 20.75
Granted pursuant to acquisition 45,049 10.20
Exercised (12,235) 8.86
Canceled (4,731) 13.34
------- ------
Outstanding December 31, 1997 325,495 13.57
Granted 89,723 30.48
Exercised (14,395) 11.30
Canceled (10,424) 16.59
------- ------
Outstanding - December 31, 1998 390,399 17.41
Available for exercise -- December 31, 1998 168,058 11.88
Available for grant -- December 31, 1998 66,588
</TABLE>
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION (SFAS 123), which became effective for 1996, establishes a
fair value based method of accounting for employee stock options. Although
the Statement encourages all companies to adopt a fair value based method
of accounting, companies may elect to continue their former method of
accounting and make pro forma disclosures of net income and earnings per
share as if the fair value method had been adopted. Accordingly, the
following pro forma information presents net income and earnings per share
information as if SFAS 123 had been adopted. No compensation cost was
======================================================================== 27
<PAGE>
===========================================================================
actually recognized for stock options in 1998, 1997, or 1996 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income as reported $7,302,570 $5,557,731 $4,643,388
Pro forma net income $7,222,719 $5,507,459 $4,625,685
Basic earnings per share as reported $1.62 $1.40 $1.30
Pro forma basic earnings per share $1.60 $1.39 $1.29
Diluted earnings per share as reported $1.56 $1.37 $1.28
Pro forma diluted earnings per share $1.54 $1.35 $1.27
</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 1998, 1997, and 1996 is estimated
using the Black-Scholes model and the following weighted average
information: risk free interest rate of 5.06%, 5.86%, and 6.42%, expected
life of 7 years, expected volatility of stock price of 33.9%, 27.4%, and
29.1% and expected dividends of 3% per year. The fair value of the options
granted in 1998, 1997, and 1996, were $207,000, $227,000, and $86,000
respectively. At December 31, 1998, the options granted in 1998 had a
remaining option life of 7 years, the options granted in 1997 had a
remaining option life of 6 years, and the options granted in 1996 had a
remaining option life of 5 years.
NOTE M--RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 1998 were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Beginning balance $14,173,540
New loans 19,816,980
Effect of changes in related parties (24,860)
Repayments (19,132,350)
-----------
Ending balance $14,833,310
===========
</TABLE>
<PAGE>
Deposits from principal officers, directors, and their affiliates at year-
end 1998 and 1997 were $7,772,000 and $6,902,000.
Directors have deferred some of their fees for future payment, including
interest. Amounts deferred are expensed, and were $62,400 and $52,200 for
1998 and 1997.
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Some financial instruments, such as loan commitments, credit lines, letters
of credit, and overdraft protection, are issued to meet customer financing
needs. These are agreements to provide credit or to support the credit of
others, as long as conditions established in the contract are met, and
usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of the commitment.
Financial instruments with off-balance-sheet risk were as follows at year
end:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Fixed Rate Variable Rate Fixed Rate Variable Rate
<S> <C> <C> <C> <C> <C>
Commitments to make loans
(at market rates) $6,970,298 $ 0 $6,917,124 $ 0
Unused lines of credit and
letters of credit $4,534,424 $53,169,933 $9,330,619 $32,462,892
</TABLE>
Commitments to make loans are generally made for periods of 60 days or
less. The fixed rate loan commitments have interest rates ranging from
6.375% to 7.375% and maturities ranging from 15 years to 30 years.
28 ========================================================================
<PAGE>
===========================================================================
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,
1998.
NOTE P--DIVIDEND LIMITATION OF SUBSIDIARIES
The subsidiary banks are restricted in their ability to pay dividends to
the Company by regulatory requirements. For 1999, approximately
$12,453,000 of the subsidiaries' retained earnings (in addition to their
1999 net income) is available for transfer in the form of dividends without
prior regulatory approval.
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 capital ratios of the Company and each of its affiliate banks exceed
the requirements to be considered well capitalized. The minimum
requirements are:
<PAGE>
<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, 1998, actual capital 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 12.47% 11.21% 8.33%
Bank of Alma 11.35% 10.09% 7.94%
Firstbank 11.91% 10.66% 8.75%
1st Bank 11.96% 10.69% 7.31%
Lakeview 15.09% 13.83% 10.01%
</TABLE>
======================================================================== 29
<PAGE>
===========================================================================
The following tables show the dollar amounts, in thousands, of the
Company's capital and the amounts that exceed current regulatory
requirements:
<TABLE>
<CAPTION>
TOTAL TIER 1
RISK-BASED RISK-BASED TIER 1
CAPITAL CAPITAL LEVERAGE
----------- ----------- --------
<S> <C> <C> <C>
Actual Capital balances at December 31, 1998
Firstbank Corporation -- Consolidated $ 54,534 $ 49,025 $ 49,025
Bank of Alma 18,936 16,832 16,832
Firstbank 10,614 9,498 9,498
1st Bank 12,875 11,512 11,612
Lakeview 11,171 10,240 10,240
Adequate regulatory capital level
Firstbank Corporation -- Consolidated $ 34,975 $ 17,487 $ 23,534
Bank of Alma 13,341 6,670 8,483
Firstbank 7,128 3,564 4,342
1st Bank 8,611 4,305 6,303
Lakeview 5,922 2,961 4,091
Excess
Firstbank Corporation -- Consolidated $ 19,559 $ 31,538 $ 25,491
Bank of Alma 5,595 10,162 8,349
Firstbank 3,486 5,934 5,156
1st Bank 4,264 7,207 5,209
Lakeview 5,249 7,279 6,149
</TABLE>
<PAGE>
NOTE R--FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were as
follows at year-end:
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING CARRYING
(Dollars in thousands) OR NOTIONAL FAIR OR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 35,492 $ 35,492 $ 24,116 $ 24,116
Securities available for sale 101,711 101,711 82,578 82,578
Loans, net 431,980 438,963 396,694 399,275
Accrued interest receivable 3,464 3,464 3,459 3,459
Financial liabilities:
Deposits $(494,053) $(494,685) $(445,666) $(445,723)
Securities sold under agreements to
repurchase and overnight borrowings (26,578) (26,996) (21,233) (21,288)
Notes payable (14,317) (15,049) (7,590) (7,536)
Accrued interest payable (1,311) (1,311) (1,308) (1,308)
Off-balance sheet credit-related items:
Loan commitments $ 64,675 -- $ 59,380 --
</TABLE>
The methods and assumptions used to estimate fair value are described as
follows.
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest
receivable and payable, demand deposits, short-term debt, and variable rate
loans or deposits that reprice frequently and fully. Security fair values
are based on market prices or dealer quotes, and if no such information is
available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, fair value is
based on discounted cash flows using current market rates applied to the
estimated life and credit risk. Fair values for impaired loans are
estimated using discounted cash flow analysis or underlying collateral
values. Fair value of loans held for sale is based on market quotes. Fair
value of debt is based on current rates for similar financing. The fair
value of off-balance-sheet items is based on the current fees or cost that
would be charged to enter into or terminate such arrangements.
30 ========================================================================
<PAGE>
===========================================================================
NOTE S-BASIC AND DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Earnings per share
Net income $7,302,570 $5,557,731 $4,643,388
Net income available to common shareholders $7,302,570 $5,557,731 $4,643,388
========== ========== ==========
Weighted average common shares outstanding 4,519,852 3,957,832 3,580,595
========== ========== ==========
Earnings per share $1.62 $1.40 $1.30
========== ========== ==========
Earnings per share assuming dilution
Net income available to common shareholders $7,302,570 $5,557,731 $4,643,388
========== ========== ==========
Weighted average common shares outstanding 4,519,852 3,957,832 3,580,595
Add dilutive effects of assumed exercises of options 172,382 109,469 51,209
---------- ---------- ----------
Weighted average common and dilutive potential
common shares outstanding 4,692,234 4,067,301 3,631,804
========== ========== ==========
Earnings per share
Assuming dilution $1.56 $1.37 $1.28
========== ========== ==========
</TABLE>
<PAGE>
NOTE T--FIRSTBANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS DECEMBER 31
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,262,996 $ 599,225
Securities available for sale 15,349 8,248
Investment in and advances to banking subsidiaries 53,673,418 48,742,296
Other assets 7,433,588 6,924,502
----------- -----------
Total assets $62,385,351 $56,274,271
=========== ===========
LIABILITIES AND EQUITY
Accrued expenses and other liabilities $ 2,610,407 $ 1,742,377
Shareholders' equity 59,774,944 54,531,894
----------- -----------
Total liabilities and shareholders' equity $62,385,351 $56,274,271
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividends from banking subsidiaries $3,138,000 $1,638,000 $1,335,656
Other income 191,428 67,223 29,847
Other expense 862,439 497,248 259,428
---------- ---------- ----------
Income before income tax and undistributed
subsidiary income 2,466,989 1,207,975 1,106,075
Income tax benefit 121,000 83,612 65,000
Equity in undistributed subsidiary income 4,714,581 4,266,144 3,472,313
---------- ---------- ----------
Net income 7,302,570 5,557,731 4,643,388
Change in unrealized gain(loss) on securities,
net of tax and classification effects 216,541 323,720 (350,238)
---------- ---------- ----------
Comprehensive income $7,519,111 $5,881,451 $4,293,150
========== ========== ==========
</TABLE>
======================================================================== 31
<PAGE>
===========================================================================
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $7,302,570 $5,557,731 $4,643,388
Adjustments:
Equity in undistributed subsidiary income (4,714,581) (4,266,144) (3,472,313)
Change in other assets (509,086) (675,823) (368,844)
Change in other liabilities 868,030 1,068,773 205,842
---------- ---------- ----------
Net cash from operating activities 2,946,933 1,684,537 1,008,073
Cash flows from investing activities
Investments in subsidiaries (7,101)
Purchase of securities (8,137)
---------- ---------- ----------
Net cash from investing activities (7,101) (8,137)
Cash flows from financing activities
Cash used for acquisition (680,774)
Proceeds from stock issue 1,433,182 1,045,896 252,800
Purchase of common stock (1,213,670)
Dividends paid and cash paid in lieu of
fractional shares on stock dividend (2,495,573) (1,872,649) (1,310,543)
---------- ---------- ----------
Net cash from financing activities (2,276,061) (1,507,527) (1,057,743)
---------- ---------- ----------
Net change in cash and cash equivalents 663,771 177,010 (57,807)
Beginning cash and cash equivalents 599,225 422,215 480,022
---------- ---------- ----------
Ending cash and cash equivalents $1,262,996 $ 599,225 $ 422,215
========== ========== ==========
</TABLE>
<PAGE>
NOTE U--OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Unrealized holding gains and losses on available-for-sale
securities $ 331,418 $460,754 $(518,892)
Less reclassification adjustments for gains and losses
later recognized in income 3,329 (29,732) 11,773
--------- -------- ---------
Net unrealized gains and losses 328,089 490,486 (530,665)
Tax effect (111,548) (166,766) 180,427
--------- -------- ---------
Other comprehensive income $ 216,541 $323,720 $(350,238)
========= ======== =========
</TABLE>
32 ========================================================================
<PAGE>
===========================================================================
FIRSTBANK CORPORATION
BOARD OF DIRECTORS
William E. Goggin, Chairman
CHAIRMAN, BANK OF ALMA
ATTORNEY, GOGGIN & BAKER
Duane A. Carr
ATTORNEY, CARR & MULLENDORE, PC
Edward B. Grant
CHAIRMAN, FIRSTBANK
CHAIRMAN, SCHOOL OF ACCOUNTING, CENTRAL MICHIGAN UNIVERSITY
PRESIDENT, LEARNET, INC. (VIDEO PRODUCTION SERVICE)
Charles W. Jennings
ATTORNEY, JENNINGS & ELLIAS, PC
John A. McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIRSTBANK CORPORATION
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUST OFFICER, BANK OF ALMA
Phillip G. Peasley
PRESIDENT, PEASLEY'S HARDWARE & FURNITURE, INC. (RETAIL)
David D. Roslund, CPA
ADMINISTRATOR, WILCOX HEALTH CARE CENTER (LONG-TERM CARE FACILITY)
SMALL BUSINESS INVESTOR AND MANAGER
OFFICERS
John A. McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thomas R. Sullivan
EXECUTIVE VICE PRESIDENT
Mary D. Deci
VICE PRESIDENT, SECRETARY, TREASURER
AND CHIEF FINANCIAL OFFICER
Richard L. Jarvis
VICE PRESIDENT
Dale A. Peters
VICE PRESIDENT
<PAGE>
Richard J. Schurtz
VICE PRESIDENT
James E. Wheeler, II
VICE PRESIDENT
- ---------------------------------------------------------------------------
FIRSTBANK CORPORATION
311 Woodworth Avenue
P. O. Box 1029
Alma, Michigan 48801-6029
(517) 463-3131
======================================================================== 33
<PAGE>
===========================================================================
BANK OF ALMA
BOARD OF DIRECTORS
William E. Goggin, Chairman
CHAIRMAN, FIRSTBANK CORPORATION
ATTORNEY, GOGGIN & BAKER
Bob M. Baker
PRESIDENT AND CEO, GRATIOT COMMUNITY HOSPITAL
Sally M. (Peggy) Bever
BUSINESS MANAGER
Donald W. Crumbaugh
AGRICULTURE
John A. McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIRSTBANK CORPORATION
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUST OFFICER, BANK OF ALMA
John P. Morgan
PARTNER, MORGAN-MEIJER COMMUNICATIONS
Phillip G. Peasley
PRESIDENT, PEASLEY'S HARDWARE & FURNITURE, INC.
David D. Roslund, CPA
ADMINISTRATOR, WILCOX HEALTH CARE CENTER
SMALL BUSINESS INVESTOR AND MANAGER
Victor V. Rozas, M.D.
PHYSICIAN
Alan J. Stone
PRESIDENT, ALMA COLLEGE
OFFICERS
John A. McCormack
PRESIDENT, CHIEF EXECUTIVE OFFICER AND TRUST OFFICER
Mary D. Deci
SENIOR VICE PRESIDENT, CONTROLLER, CASHIER AND
CHIEF FINANCIAL OFFICER
<PAGE>
James E. Wheeler, II
SENIOR VICE PRESIDENT AND CHIEF LOAN OFFICER
Timothy P. Clark
VICE PRESIDENT AND SENIOR TRUST OFFICER
Steven E. Canole
VICE PRESIDENT
Gregory A. Daniels
VICE PRESIDENT
Marita A. Harkness
VICE PRESIDENT
Gerald E. Kench
VICE PRESIDENT
Timothy M. Lowe
VICE PRESIDENT
Shannon J. Vasicek
VICE PRESIDENT
SUBSIDIARY
Niles Agency, Incorporated
315 Woodworth Ave.
Alma, MI 48801
(517) 463-1725
- ---------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) 463-3131 4710 S. Garfield Rd. 6716 N. Lumberjack Rd. 8846 Third St.
(517) 662-4459 (517) 833-7331 (517) 268-5445
311 Woodworth Ave.
(517) 463-3131 ITHACA ST. CHARLES
219 E. Center St. 102 Pine St.
(517) 875-4107 (517) 865-9918
</TABLE>
34 ========================================================================
<PAGE>
===========================================================================
FIRSTBANK
BOARD OF DIRECTORS
Edward B. Grant, Chairman
CHAIRMAN, SCHOOL OF ACCOUNTING, CENTRAL MICHIGAN UNIVERSITY
PRESIDENT, LEARNET, INC.
Ralph E. Baumgarth
DENTIST
Ralph M. Berry
OWNER, BERRY FUNERAL HOME
Kenneth C. Bovee, CPM
PARTNER, W.S. SMITH COMPANY
Glen D. Blystone
CERTIFIED PUBLIC ACCOUNTANT,
BLYSTONE & BAILEY, CPAS, PC
Sibyl M. Ellis
PRESIDENT, SOMEPLACE SPECIAL, INC.
Keith A. Gaede
PHARMACIST, PUNCHES PHARMACY
Douglas N. LaBelle
PARTNER, LABELLE MANAGEMENT
William M. McClintic
ATTORNEY, W.M. MCCLINTIC, P.C.
John A. 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 A. Yost
SECRETARY AND TREASURER, JAY'S SPORTING GOODS, INC.
<PAGE>
OFFICERS
Thomas R. Sullivan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Richard L. Jarvis
EXECUTIVE VICE PRESIDENT
Mark B. Perry
SENIOR VICE PRESIDENT
James M. Taylor
SENIOR VICE PRESIDENT
Robert L. Wheeler
SENIOR VICE PRESIDENT
Daniel J. Timmins
VICE PRESIDENT
OFFICE LOCATIONS
- ---------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
MT. PLEASANT CLARE WINN
102 S. Main St. 806 N. McEwan Ave. 2783 Blanchard Rd.
(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
</TABLE>
======================================================================== 35
<PAGE>
===========================================================================
1ST BANK
BOARD OF DIRECTORS
Dale A. Peters, Chairman
PRESIDENT AND CHIEF EXECUTIVE OFFICER, 1ST BANK
VICE PRESIDENT, FIRSTBANK CORPORATION
Bryon A. Bernard
CEO, BERNARD BUILDING CENTER
Joseph M. Clark
OWNER, MORSE CLARK FURNITURE
Timothy H. Eyth
OWNER, WEST BRANCH VETERINARY SERVICES
David W. Fultz
OWNER, FULTZ INSURANCE AGENCY
Robert T. Griffin
OWNER AND PRESIDENT, GRIFFIN BEVERAGE COMPANY,
NORTHERN BEVERAGE CO., AND WEST BRANCH TANK & TRAILER
Charles W. Jennings
ATTORNEY, JENNINGS & ELLIAS, PC
John A. McCormack
PRESIDENT & CEO, FIRSTBANK CORPORATION
PRESIDENT & CEO, BANK OF ALMA
Norman J. Miller
OWNER, MILLER FARMS, AND MILLER DAIRY EQUIPMENT AND FEED
Jeffrey C. Schubert
DENTIST
Milford J. Scott
OWNER, SCOTT'S TRUE VALUE HARDWARE
Robert R. Smith
OWNER, INDEPENDENT INSURANCE AGENT,
CRECINE INSURANCE AGENCY
<PAGE>
OFFICERS
Dale A. Peters
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Daniel H. Grenier
SENIOR VICE PRESIDENT
Michael F. Ehinger
VICE PRESIDENT
Danny J. Gallagher
VICE PRESIDENT
Rosalind A. Heideman
VICE PRESIDENT
Eileen S. McGregor
VICE PRESIDENT
Richard L. Pfahl
VICE PRESIDENT
W. John Powell
VICE PRESIDENT
Larry M. Schneider
VICE PRESIDENT
Marie A. Wilkins
VICE PRESIDENT
<PAGE>
SUBSIDIARIES
1st Armored, Incorporated
1st Collections, Incorporated
- ---------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 ROSCOMMON ROSCOMMON ROSE CITY
(517) 345-7900 Higgins Lake Branch Loan Production Office 505 S. Bennett
4522 W. Higgins Lake P.O. Box 401 (517) 685-3909
2087 S. M-76 Roscommon, MI Roscommon, MI
(517) 345-5050 (517) 821-9231 (517) 275-8970
</TABLE>
36 ========================================================================
<PAGE>
===========================================================================
BANK OF LAKEVIEW
BOARD OF DIRECTORS
V. Dean Floria, Chairman
OWNER, FLORIA FARM & HOME CENTER
Duane A. Carr
ATTORNEY, CARR & MULLENDORE
John B. Crawford
AGRICULTURE, CRAWFORD FARMS
Chalmer Gale Hixson
OWNER, COUNTRY CORNER SUPERMARKET
OWNER, A FLAIR FOR HAIR
OWNER, HARRY CHALMERS, INC.
John A. McCormack
PRESIDENT AND CHIEF EXECUTIVE OFFICER, FIRSTBANK CORPORATION
PRESIDENT, CHIEF EXECUTIVE OFFICER, & TRUST OFFICER, BANK OF ALMA
Gerald L. Nielsen
OWNER, NIELSEN'S TV & APPLIANCES
Richard J. Schurtz
PRESIDENT AND CHIEF EXECUTIVE OFFICER, BANK OF LAKEVIEW
VICE PRESIDENT, FIRSTBANK CORPORATION
OFFICERS
Richard J. Schurtz
PRESIDENT AND CHIEF EXECUTIVE OFFICER
William L. Benear
EXECUTIVE VICE PRESIDENT
David L. Miller
VICE PRESIDENT
Kim D. vonKronenberger
VICE PRESIDENT
<PAGE>
- ---------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LAKEVIEW CANADIAN LAKES HOWARD CITY MORLEY
506 Lincoln Avenue 10049 Buchanan Road 20020 Howard City/Edmore Road 101 E 4th Street
(517) 352-7271 Stanwood, MI (616) 937-4383 (616) 856-7652
(616) 972-4200
9531 N Greenville Road REMUS
(517) 352-8180 201 W Wheatland Avenue
(517) 967-3602
</TABLE>
======================================================================== 37
<PAGE>
===========================================================================
BUSINESS OF THE COMPANY
Firstbank Corporation (the "Company") is a bank holding company. As of
December 31, 1998, the Company's wholly owned subsidiaries are Bank of
Alma, Firstbank, 1st Bank, Bank of Lakeview, Niles Agency, Incorporated,
1st Armored, Incorporated, and 1st Collections Incorporated. As of
December 31, 1998, the Company and its subsidiaries employed 294 people on
a full-time equivalent basis.
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 76% of total revenues in 1998, and 80% in
1997 and 1996. Interest on investment securities accounted for
approximately 12% of total revenues in 1998, 11% in 1997, and 10% in 1996.
No other single source of revenue accounted for 10% of the Company's total
revenues in any of the last 3 years.
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING STOCK INFORMATION
The annual meeting of shareholders Firstbank Corporation shares are
will be held on Monday, April 26, listed Over the Counter Bulletin
1999, 5:00 p.m., at the Comfort Inn, Board under the symbol FBMI.
Alma, Michigan.
First of Michigan
INDEPENDENT AUDITORS Mike Young
Crowe Chizek and Company LLP 1-800-521-1197
Grand Rapids, Michigan
McDonald Investments
GENERAL COUNSEL Chris Turner
Warner Norcross & Judd LLP 1-800-548-6011
Grand Rapids, Michigan
Morgan Stanley Dean Witter
TRANSFER AGENT Ted Vogt
Bank of Alma Shareholder Services 1-800-788-9640
Department
(517) 463-3131 extension 7336 Robert W. Baird & Company
Toll free shareholder hotline: Bill L. Ockerlund
(888) 637-0590 1-888-202-5048
Roney & Company
Nikki Gregg
1-800-572-0786
Stifel, Nicolaus & Company, Inc.
Pete VanDer Schaaf
1-800-676-0477
Tucker Anthony
Jack Korff, 1-888-861-2200
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
Niles Agency, Incorporated Michigan
1st Armored, Incorporated Michigan
1st Collections, Incorporated Michigan
<PAGE>
EXHIBIT 23
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), Form S-8 (Registration
No. 333-20377), and Form S-8 (Registration No. 333-53957) of our
report dated January 29, 1999 on the 1998 consolidated financial
statements of Firstbank Corporation, which report is included in the
1998 Annual Report on Form 10-K of Firstbank Corporation.
Grand Rapids, Michigan Crowe, Chizek and Company LLP
March 29, 1999
<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, 1998, 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 22, 1999 /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, 1998, and any amendments to that report, and to file it
with the Securities and Exchange Commission. Each attorney shall have
power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the
premises as fully and to all intents and purposes as the undersigned
could do in person, and the undersigned hereby ratifies and approves
the acts of such attorneys.
DATE SIGNATURE
March 22, 1999 /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, 1998, 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 22, 1999 /S/ DUANE A. CARR
Duane A. Carr
<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, 1998, 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 22, 1999 /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, 1998, 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 22, 1999 /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, 1998, 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 22, 1999 /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, 1998, 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 22, 1999 /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, 1998, 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 22, 1999 /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,
1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,203
<INT-BEARING-DEPOSITS> 2,385
<FED-FUNDS-SOLD> 10,903
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,711
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 441,028
<ALLOWANCE> 9,048
<TOTAL-ASSETS> 603,014
<DEPOSITS> 494,053
<SHORT-TERM> 26,578
<LIABILITIES-OTHER> 8,292
<LONG-TERM> 14,317
<COMMON> 52,797
0
0
<OTHER-SE> 6,978
<TOTAL-LIABILITIES-AND-EQUITY> 59,775
<INTEREST-LOAN> 38,498
<INTEREST-INVEST> 5,258
<INTEREST-OTHER> 728
<INTEREST-TOTAL> 44,484
<INTEREST-DEPOSIT> 17,892
<INTEREST-EXPENSE> 19,353
<INTEREST-INCOME-NET> 25,131
<LOAN-LOSSES> 1,177
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 19,402
<INCOME-PRETAX> 10,420
<INCOME-PRE-EXTRAORDINARY> 10,420
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,303
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 5.06
<LOANS-NON> 790
<LOANS-PAST> 621
<LOANS-TROUBLED> 86
<LOANS-PROBLEM> 1,494
<ALLOWANCE-OPEN> 8,114
<CHARGE-OFFS> 712
<RECOVERIES> 469
<ALLOWANCE-CLOSE> 9,048
<ALLOWANCE-DOMESTIC> 6,924
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,124
</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, 1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,860
<INT-BEARING-DEPOSITS> 414
<FED-FUNDS-SOLD> 38,513
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,962
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 420,654
<ALLOWANCE> 8,734
<TOTAL-ASSETS> 592,949
<DEPOSITS> 494,097
<SHORT-TERM> 18,021
<LIABILITIES-OTHER> 22,654
<LONG-TERM> 0
<COMMON> 45,756
0
0
<OTHER-SE> 12,420
<TOTAL-LIABILITIES-AND-EQUITY> 592,949
<INTEREST-LOAN> 28,675
<INTEREST-INVEST> 3,831
<INTEREST-OTHER> 475
<INTEREST-TOTAL> 32,981
<INTEREST-DEPOSIT> 13,350
<INTEREST-EXPENSE> 14,415
<INTEREST-INCOME-NET> 18,566
<LOAN-LOSSES> 815
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 14,278
<INCOME-PRETAX> 7,749
<INCOME-PRE-EXTRAORDINARY> 7,749
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,431
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 5.12
<LOANS-NON> 306
<LOANS-PAST> 678
<LOANS-TROUBLED> 214
<LOANS-PROBLEM> 1,198
<ALLOWANCE-OPEN> 8,114
<CHARGE-OFFS> 522
<RECOVERIES> 327
<ALLOWANCE-CLOSE> 8,734
<ALLOWANCE-DOMESTIC> 6,488
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,246
</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, 1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,457
<INT-BEARING-DEPOSITS> 453
<FED-FUNDS-SOLD> 7,413
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,562
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 411,961
<ALLOWANCE> 8,555
<TOTAL-ASSETS> 558,484
<DEPOSITS> 465,611
<SHORT-TERM> 16,221
<LIABILITIES-OTHER> 19,262
<LONG-TERM> 0
<COMMON> 46,817
0
0
<OTHER-SE> 10,573
<TOTAL-LIABILITIES-AND-EQUITY> 558,484
<INTEREST-LOAN> 18,996
<INTEREST-INVEST> 2,535
<INTEREST-OTHER> 230
<INTEREST-TOTAL> 21,760
<INTEREST-DEPOSIT> 8,829
<INTEREST-EXPENSE> 9,552
<INTEREST-INCOME-NET> 12,208
<LOAN-LOSSES> 575
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 9,437
<INCOME-PRETAX> 5,104
<INCOME-PRE-EXTRAORDINARY> 5,104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,578
<EPS-PRIMARY> .83
<EPS-DILUTED> .80
<YIELD-ACTUAL> 5.16
<LOANS-NON> 1,157
<LOANS-PAST> 766
<LOANS-TROUBLED> 222
<LOANS-PROBLEM> 2,145
<ALLOWANCE-OPEN> 8,114
<CHARGE-OFFS> 343
<RECOVERIES> 209
<ALLOWANCE-CLOSE> 8,555
<ALLOWANCE-DOMESTIC> 6,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,405
</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, 1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,530
<INT-BEARING-DEPOSITS> 405
<FED-FUNDS-SOLD> 7,749
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90,856
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 403,591
<ALLOWANCE> 8,419
<TOTAL-ASSETS> 548,494
<DEPOSITS> 456,405
<SHORT-TERM> 27,258
<LIABILITIES-OTHER> 8,781
<LONG-TERM> 0
<COMMON> 46,720
0
0
<OTHER-SE> 9,330
<TOTAL-LIABILITIES-AND-EQUITY> 548,493
<INTEREST-LOAN> 9,492
<INTEREST-INVEST> 1,253
<INTEREST-OTHER> 120
<INTEREST-TOTAL> 10,864
<INTEREST-DEPOSIT> 4,411
<INTEREST-EXPENSE> 4,752
<INTEREST-INCOME-NET> 6,113
<LOAN-LOSSES> 370
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 4,538
<INCOME-PRETAX> 2,490
<INCOME-PRE-EXTRAORDINARY> 2,490
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,748
<EPS-PRIMARY> .41
<EPS-DILUTED> .39
<YIELD-ACTUAL> 5.13
<LOANS-NON> 862
<LOANS-PAST> 439
<LOANS-TROUBLED> 109
<LOANS-PROBLEM> 1,403
<ALLOWANCE-OPEN> 8,114
<CHARGE-OFFS> 160
<RECOVERIES> 95
<ALLOWANCE-CLOSE> 8,419
<ALLOWANCE-DOMESTIC> 6,831
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,588
</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,
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-31-1997
<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-31-1997
<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> 24,404
0
0
<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>
<PAGE>
EXHIBIT 99
Firstbank Corporation 401(k) Plan
Performance Table
<TABLE>
<CAPTION>
INITIAL
INVESTMENT VALUE VALUE VALUE
FUND ON 12/31/95 ON 12/31/96 ON 12/31/97 ON 12/31/98
<S> <C> <C> <C> <C>
Firstbank Corporation 32.123% 44.203% 26.495%
Common Stock $ 1,000.00 $1,321.23 $1,905.23 $ 2,410.05
Federated Money
Market for U.S. 5.06% 5.22% 5.11%
Treasury Obligation $ 1,000.00 $1,050.60 $1,105.44 $ 1,161.93
Federated Capital 5.70% 5.86% 5.64%
Preservation Fund $ 1,000.00 $1,057.00 $1,118.94 $ 1,182.05
Vanguard Fixed Income 3.58% 9.44% 8.60%
Total Bond Fund $ 1,000.00 $1,035.80 $1,133.58 $ 1,231.07
Vanguard Fixed Income
Long-Term Corporate 1.20% 13.79% 9.20%
Bond Fund $ 1,000.00 $1,012.00 $1,151.55 $ 1,257.50
21.17% 34.42% 17.26%
Federated Stock $ 1,000.00 $1,211.70 $1,628.77 $ 1,909.89
Vanguard Index 22.86% 33.21% 28.60%
500 Fund $ 1,000.00 $1,228.60 $1,636.62 $ 2,104.69
American Century 13.85% 23.13% 34.55%
20th Century Ultra $ 1,000.00 $1,138.50 $1,401.84 $ 1,886.17
Warburg Pincus
Emerging Growth 9.87% 21.27% 5.82%
Fund $ 1,000.00 $1,098.70 $1,332.39 $ 1,409.94
T. Rowe Price
International 15.99% 2.70% 16.14%
Stock Fund $ 1,000.00 $1,159.90 $1,191.22 $ 1,383.48
Vanguard
International 14.65% 4.12% 16.93%
Growth Fund $ 1,000.00 $1,146.50 $1,193.74 $ 1,395.84
Fidelity Overseas 13.10% 10.92% 12.84%
Fund $ 1,000.00 $1,131.00 $1,254.51 $ 1,415.58
<PAGE>
American Century - 20th
Century International 31.18% 17.48% 17.86%
Discovery Fund $ 1,000.00 $1,311.80 $1,541.10 $ 1,816.34
</TABLE>
