SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FIRSTBANK CORPORATION
(Name of registrant as specified in its charter)
(Name of person(s) filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee Paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule, or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
FIRSTBANK CORPORATION
311 Woodworth Avenue
P.O. Box 1029
Alma, Michigan 48801
The annual meeting of the shareholders of Firstbank Corporation will be
held at the Comfort Inn Conference Center at 3130 West Monroe (M-46), Alma.
Michigan 48801 on April 24, 2000, at 5 p.m. (Alma time) to consider and vote
upon:
1. Election of directors.
2. Any other business that may properly come before the meeting
or any adjournment of the meeting.
Shareholders of record at the close of business on March 6, 2000, will be
entitled to vote at the annual meeting and any adjournment of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Mary D. Deci
Mary D. Deci, Vice President, Secretary
and Treasurer
Alma. Michigan
March 29, 2000
- --------------------------------------------------------------------------------
IMPORTANT
All shareholders are cordially invited to attend the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND IN PERSON, YOU ARE URGED TO DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE POSTAGE PAID ENVELOPE PROVIDED. This will assure
your representation and a quorum for the transaction of business at the meeting.
If you do attend the meeting in person and if you have submitted a proxy card,
it will not be necessary for you to vote in person at the meeting. However, if
you attend the meeting and wish to change your proxy vote, you will be given an
opportunity to do so.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT
FIRSTBANK CORPORATION
311 Woodworth Avenue
P.O. Box 1029
Alma, Michigan 48801
Telephone: (517) 463-3131
ANNUAL MEETING OF SHAREHOLDERS
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Firstbank Corporation (the "Corporation")
to be voted at the annual meeting of its shareholders to be held at the Comfort
Inn Conference Center at 3130 West Monroe (M-46), Alma, Michigan 48801, on
Monday, April 24, 2000, at 5:00 p.m., Alma time, and at any adjournment of the
meeting, for the purposes set forth in the accompanying Notice of Annual Meeting
of Shareholders. This proxy statement and form of proxy are first being sent to
shareholders on or about March 29, 2000.
If a proxy in the accompanying form is properly executed, duly returned to
the Corporation, and not revoked, the shares represented by the proxy will be
voted at the annual meeting of the Corporation's shareholders and at any
adjournment of that meeting. Where a shareholder specifies a choice, a proxy
will be voted as specified. If no choice is specified, the shares represented by
the proxy will be voted for election of all nominees of the Board of Directors.
The Corporation's management does not know of any other matters to be presented
at the annual meeting. If other matters are presented, the shares represented by
proxy will be voted at the discretion of the persons designated as proxies, who
will take into consideration the recommendations of the Corporation's
management.
Any shareholder executing a proxy in the enclosed form has the power to
revoke it by notifying the Secretary of the Corporation in writing at the
address indicated above at any time before it is exercised, or by appearing at
the meeting and voting in person.
Solicitation of proxies is being made by mail. Directors, officers, and
regular employees of the Corporation and its subsidiaries may also solicit
proxies in person or by telephone without additional compensation. In addition,
banks, brokerage firms, and other custodians, nominees, and fiduciaries may
solicit proxies from the beneficial owners of shares they hold and may be
reimbursed by the Corporation for reasonable expenses incurred in sending proxy
material to beneficial owners of the Corporation's stock. The Corporation will
pay all expenses of soliciting proxies.
<PAGE>
Election of Directors
The Board of Directors has nominated David D. Roslund and Thomas R.
Sullivan for reelection to the Board of Directors at the annual meeting to serve
three year terms that will expire in 2003.
The proposed nominees are willing to be elected and to serve. In the event
that any nominee is unable to serve or is otherwise unavailable for election,
which is not now contemplated, the incumbent Board of Directors may or may not
select a substitute nominee. If a substitute nominee is selected, all proxies
will be voted for the person so selected. If a substitute nominee is not so
selected, all proxies will be voted for the election of the remaining nominee.
Proxies will not be voted for a greater number of persons than the number of
nominees named.
A vote of shareholders holding a plurality of shares voting is required to
elect directors. For the purpose of counting votes on this proposal,
abstentions, broker non-votes, and other shares not voted will not be counted as
shares voted.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ELECTION OF ALL NOMINEES AS DIRECTORS
Voting Securities
At the close of business on March 6, 2000, the record date for
determination of the shareholders entitled to vote at the annual meeting, the
Corporation had issued and outstanding 4,677,413 shares of its Common Stock, the
only class of voting securities presently outstanding. Each share entitles its
holder to one vote on each matter to be voted upon at the meeting.
The following table shows certain information concerning the number of
shares of Common Stock held by the only shareholder who is known to management
of the Corporation to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock of the Corporation as of December 31, 1999.
<TABLE>
Amount and Nature of Beneficial Ownership(1)
-----------------------------------------
Sole Shared
Voting and Voting or Total
Name & Address of Investment Investment Beneficial Percent
Beneficial Owner Power Power (2) Ownership of Class
- --------------------------------- -------------- -------------- --------- --------
<S> <C> <C> <C> <C>
Firstbank Corporation
Employee Stock Ownership
Plan ("ESOP")
311 Woodworth Avenue
Alma, Michigan 48801 (3) 42,853 365,893 408,746 8.7%
</TABLE>
-2-
<PAGE>
The following table shows certain information concerning the shares of the
Corporation beneficially owned by each of the Corporation's directors and
nominees for director, by the executive officers named in the summary
compensation table below, and by all directors and executive officers as a group
as of December 31, 1999.
<TABLE>
Amount and Nature of Beneficial Ownership (1)
Sole Shared
Voting and Voting or
Name of Investment Investment Total Beneficial Percent of
Beneficial Owner Power Power(2) Ownership Class
---------------- --------- ---------- --------- -----
<S> <C> <C> <C> <C>
Duane A. Carr 15,399 15,399 *
Mary D. Deci 11,526 (4)(5) 310 11,836 (4)(5) *
William E. Goggin 10,137 4,792 14,929 *
Edward B. Grant 4,143 4,143 *
Charles W. Jennings 3,262 3,262 *
John McCormack 57,110 (4)(5) 14,330 71,440 (4)(5) 1.52%
Phillip G. Peasley 13,263 185 13,448 *
David D. Roslund 10,357 232 10,589 *
Richard J. Schurtz 34,906 (4)(5) 34,906 (4)(5) *
Thomas R. Sullivan 17,168 (4)(5) 17,168 (4)(5) *
James E. Wheeler II 10,907 (4)(5) 12,675 23,582 (4)(5) *
All directors and
executive officers 199,746 (4)(5) 58,767 256,513 (4)(5) 5.46%
</TABLE>
*Represents less than 1 percent of the outstanding shares.
(1) The numbers of shares stated are based on information furnished by each
person listed and include shares personally owned of record by that
person and shares which under applicable regulations are deemed to be
otherwise beneficially owned by that person. Under these regulations, a
beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares voting power or investment
power with respect to the security. Voting power includes the power to
vote or to direct the voting of the security. Investment power includes
the power to dispose or to direct the disposition of the security. A
person will also be considered the beneficial owner of a security if
the person has a right to acquire beneficial ownership of the security
within 60 days.
-3-
<PAGE>
(2) Includes shares as to which the indicated person is legally entitled to
share voting or investment power by reason of joint ownership, trust,
or other contract or property right, and shares held by spouses and
children over whom the indicated person may have substantial influence
by reason of the relationship.
(3) John McCormack, Dale A. Peters, Richard J. Schurtz and Thomas R.
Sullivan, all officers of the Corporation, and Nancy A. Stark, Human
Resources Officer for Bank of Alma, a wholly owned subsidiary of the
Corporation, are the members of the Pension Committee of the
Corporation. Bank of Alma is the trustee of the ESOP Trust, which holds
shares of the Corporation for the ESOP. The trustee has voting and
limited investment power over shares, if any, held by the ESOP Trust
which have not been allocated to individual accounts, and limited
investment power over shares which have been allocated to individual
accounts. The Pension Committee has the power to direct the trustee as
to the voting of the shares held by the ESOP Trust that have not been
allocated to an individual account, if any. Each of the members of the
Pension Committee disclaims beneficial ownership of shares held by the
ESOP (except shares allocated to the person's individual account under
the ESOP), and ESOP shares are not reported as beneficially owned by
the members of the Pension Committee as individuals unless the shares
have been allocated to the person's individual account under the ESOP.
(4) Includes shares allocated to individual accounts under the ESOP.
(5) Shares that may be acquired pursuant to stock options that are
exercisable within 60 days are included in the table. The number of
shares subject to such options for Mr. McCormack is 22,497 shares; Ms.
Deci is 6,698 shares; Mr. Sullivan is 8,561 shares; Mr. Wheeler is
8,034 shares; Mr. Schurtz is 2,756 shares; and officers as a group is
64,189 shares. No other listed person owns options.
Board of Directors
The Articles of Incorporation of the Corporation provide that the Board of
Directors will be divided into three classes, as nearly equal in number as
possible, with the term of office of one class expiring each year. The present
Board of Directors consists of seven persons who were elected to the Board of
Directors for terms of three years each by the Corporation's shareholders. The
term of office of one class of directors consisting of two directors expires in
2000.
Biographical information concerning the current directors and the nominees
who are nominated for election to the Board of Directors at the annual meeting
is presented below. Except as otherwise indicated, all directors and nominees
have had the same principal employment for over five years.
-4-
<PAGE>
Nominees for 3-Year Terms Expiring in 2003
David D. Roslund (age 59) has been a director of the Corporation since
1995 and has been a director of Bank of Alma since 1990. Mr. Roslund, a
certified public accountant, is the Administrator of Wilcox Health Care
Center, a nursing home located in Alma. He also is an investor in, and
manager of, several local small businesses.
Thomas R. Sullivan (age 49) was named President-Elect of the
Corporation in June 1999, and became President on January 1, 2000. He has
also served as President, Chief Executive Officer and a director of
Firstbank, Mt. Pleasant, since 1991. Mr. Sullivan had been Executive Vice
President of the Corporation since 1996 and served as Vice President of the
Corporation from 1991 to 1996. Mr. Sullivan was appointed to fill the
unexpired term of John McCormack on January 3, 2000.
Directors with Terms Expiring in 2002
Edward B. Grant (age 50) has been a director of Firstbank, Mt.
Pleasant, a wholly owned subsidiary of the Corporation, since 1988, and of
the Corporation since 1990. He has served as Chairman of the Board of
Firstbank since 1989. Mr. Grant is the Director of Public Broadcasting at
Central Michigan University.
Phillip G. Peasley (age 66) has been a director of Bank of Alma, a
wholly owned subsidiary of the Company, since 1973, and of the Corporation
since 1985. He is the Operations Manager of Peasley's Hardware & Carpeting
Inc., a retail hardware and floor coving store.
Directors with Terms Expiring 2001
Duane A. Carr (age 60) has been a Director of Bank of Lakeview since
1980 and of the Corporation since 1998. He is an attorney with the law firm
of Carr and Mullendore in Greenville, Michigan. He is an active farmer in
Carr Farms Partnership in Lakeview, Michigan.
William E. Goggin (age 54) has been a director of Bank of Alma since
1974, and of the Corporation since 1985. Mr. Goggin has served as Chairman
of the Board of the Corporation since 1986. He is an attorney with the law
firm of Goggin & Baker .
Charles W. Jennings (age 63) has been a director of 1st Bank, a wholly
owned subsidiary of the Corporation, since 1987, and a director of the
Corporation since 1989. Mr. Jennings is an attorney with the law firm of
Jennings & Ellias, P.C.
The Board of Directors of the Corporation has a standing audit committee.
It is the duty of the audit committee to cause a suitable examination of the
Corporation's financial records and operations, and those of its subsidiaries,
to be made by the internal auditor through a program of continuous internal
audits; to recommend to the Board of Directors the appointment of independent
auditors to audit the consolidated financial statements of the Corporation and
its subsidiaries and make such additional examinations as the committee deems
advisable; to review reports of examination of the Corporation and its
subsidiaries received from regulatory authorities; and to report to the Board of
Directors at least once each calendar year on the results of examinations made
and offer such conclusions and recommendations as the committee deems
appropriate. Messrs.
-5-
<PAGE>
Goggin, Grant, and Roslund serve on this committee. During 1999, the audit
committee held four meetings.
-6-
<PAGE>
The Board of Directors of the Corporation does not have standing nominating
or compensation committees. The entire Board of Directors performs the functions
of those committees. In making nominations for election to the Board of
Directors, the Board of Directors will consider recommendations of shareholders.
Shareholders who wish to recommend nominees should submit their recommendations
in writing, delivered or mailed to the Secretary of the Corporation.
The Board of Directors of the Corporation held 12 regularly scheduled and 1
special meeting during 1999. All incumbent directors attended at least 75
percent of all meetings of the Board of Directors and any committees on which
they served.
Report on Executive Compensation
All of the officers of the Corporation are also officers of one or more of
the Corporation's subsidiary banks. They serve as officers of the Corporation as
an incident to their primary service as an officer and employee of a subsidiary
bank and, except for certain directors' fees, receive no compensation directly
from the Corporation. Although there is a great deal of communication between
the Board of Directors of the Corporation and the Boards of Directors of the
banks, the Boards of Directors of the banks retain authority and responsibility
for setting compensation for their own officers, including those officers who
also serve as officers of the Corporation.
The entire Board of Directors of the Corporation serves as a compensation
committee, with Mr. McCormack excused from meetings where decisions with respect
to his own compensation are made. The entire Board of Directors of the
Corporation, except Mr. McCormack, serves as a committee to administer the Stock
Option and Restricted Stock Plan of 1993 (the "1993 Plan") and the Stock Option
and Restricted Stock Plan of 1997 (the "1997 Plan"). The Corporation's Board of
Directors has responsibility for establishing the formal employee benefit plans
which are available to the employees of all of the subsidiary banks. These plans
currently include a qualified employee stock ownership and 401(k) plan, a
non-qualified deferred compensation plan, the 1993 Plan, and the 1997 Plan. The
Board of Directors of the Corporation reviews the compensation to be paid to the
chief executive officers of the subsidiary banks, each of whom is also an
officer of the Corporation. Recommendation and formal authorization of the
compensation of the subsidiary bank chief executive officers is, however, the
role of the Boards of Directors of the subsidiary banks.
All officers receive a salary and, if net income is satisfactory, an annual
cash bonus. It is the policy of the Corporation and the banks to set salaries at
levels which will be competitive with other comparable financial institutions in
order to enable the Corporation and the banks to retain, and when needed
attract, qualified executive officers. Information on compensation levels of
other institutions is obtained from compensation surveys published by the
Michigan Bankers Association, the Bank Administration Institute and from other
similar sources. In setting salaries, the Corporation and the banks also seek to
assure relative fairness in the compensation of officers and to recognize the
value of the contribution that each makes to the Corporation's success. Annual
cash bonuses are based on a discretionary evaluation of the performance of the
Corporation and the bank served by the officer. Bonuses also take into account
recognition of specific personal achievements of the individual officers.
-7-
<PAGE>
During 1999, stock options were awarded under the 1993 Plan and 1997 Plan
to all full-time benefit eligible employees as of January 1, 2000. The number of
shares subject to each option was based on the position and a discretionary
assessment of the performance of each grantee. The options awarded in 1999 vest
over different periods of time depending on the employment classification of the
grantee. All options awarded to hourly employees become fully vested six months
after the grant date. Options awarded to salaried employees vest over a period
of nine years from the date of the grant with 10% vesting six months after the
grant date and an additional 10% vesting on each anniversary of the date of the
grant. Both the 1993 Plan and the 1997 Plan allow the Corporation to issue
restricted stock to officers and employees of the Corporation and its
subsidiaries. However, no shares of restricted stock were awarded in 1999.
The Corporation generally maintains a conservative level of perquisites and
personal benefits. The dollar value of perquisites and personal benefits
provided to executive officers does not exceed 10% of each executive officer's
respective annual salary and bonus.
Section 162(m) of the Internal Revenue Code provides that publicly held
corporations may not deduct compensation paid to certain executive officers in
excess of $1 million annually, with certain exemptions. The Corporation's Board
of Directors has examined its executive compensation policies in light of
Section 162(m) and the regulations issued by the Internal Revenue Service to
implement that section. It is not expected that any portion of the Corporation's
deduction for employee remuneration will be disallowed in 2000 or in future
years by reason of actions expected to be taken in 2000.
The salary and bonus of John McCormack, President and Chief Executive
Officer of the Corporation and Bank of Alma, was recommended by the Compensation
Committee of Bank of Alma and approved by the Boards of Directors of the
Corporation and Bank of Alma. In recommending and approving Mr. McCormack's
salary, the committee and the boards considered a survey of compensation paid to
executive officers by Michigan financial institutions of more or less comparable
size. Mr. McCormack's salary, bonus, and stock option awards were also based on
a discretionary evaluation of Mr. McCormack's personal performance and the
operating results of the Corporation and Bank of Alma. For this purpose, the
committee and the Boards of Directors focused on the earnings of the Corporation
and Bank of Alma in the year just completed, the quality and productivity of the
management team, reductions in administrative staffing, and continuing
improvements made in loan quality, loan and loan allowance management, and loan
documentation and procedure.
Respectfully submitted,
Duane A. Carr
William E. Goggin
Edward B. Grant
Charles W. Jennings
John McCormack
Phillip G. Peasley
David D. Roslund
-8-
<PAGE>
Stock Performance
The following graph compares the cumulative total shareholder return on the
common stock of the Corporation to the KBW 50 Index, published by Keefe,
Bruyette & Woods, Inc., and the Standard & Poor's 500 Stock Index assuming a
$100 investment at the end of 1994. The Standard & Poor's 500 Stock Index is a
broad equity market index. The KBW 50 Index is composed of 50 money center and
regional bank holding companies. Cumulative total return is measured by dividing
(i) the sum of (A) the cumulative amount of dividends for the measurement
period, assuming dividend reinvestment, and (B) the difference between the share
price at the end and the beginning of the measurement period; by (ii) the share
price at the beginning of the measurement period. The Standard & Poor's 500
Index and the KBW 50 Index assume dividend reinvestment.
(GRAPH OMITTED)
The table below shows dollar values for cumulative total shareholder return
plotted in the graph above.
<TABLE>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Firstbank 100.00 143.23 211.59 329.22 500.82 354.65
S& P 500 100.00 137.58 169.17 225.61 290.09 351.13
KBW 50 100.00 160.16 226.56 331.21 358.62 346.17
</TABLE>
-9-
<PAGE>
Compensation of Directors and Executive Officers
Executive officers of the Corporation are compensated by Bank of Alma,
Firstbank, 1st Bank, or Bank of Lakeview, in accordance with their employment
with the applicable banks. They do not receive any compensation directly from
the Corporation, except for directors' fees paid by the Corporation to Mr.
McCormack. Presented below is the remuneration paid for the three years ended
December 31, 1999, by Bank of Alma, Firstbank, 1st Bank, and Bank of Lakeview to
the five most highly compensated officers of the Corporation for the year ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation Long Term All Other
Name and Principal Position Year Salary(1) Bonus(1) Compensation Compensation(5)
- --------------------------- ---- -------- -------- ------------ --------------
Securities
Underlying
Options(2)
----------
<S> <C> <C> <C> <C> <C>
John McCormack
President, Chief Executive 1999 $209,543 $51,380 0 $6,532
Officer and director of the 1998 168,561 50,540 3,308 5,945
Corporation and 1997 157,605 37,677 3,473 6,013
Bank of Alma
Thomas R. Sullivan
Executive Vice President 1999 $129,644 $20,000 1,313 $5,370
of the Corporation and 1998 119,671 25,000 2,756 4,897
President, Chief Executive 1997 109,699 20,000 2,894 4,616
Officer and director of
Firstbank, Mt. Pleasant
Richard J. Schurtz
Vice President of the 1999 $108,984 $44,000 1,313 $4,108
Corporation and President 1998 106,048 15,139 2,756 4,008
and Chief Executive Officer 1997 (3) 40,788 0 28,742 (4) 1,542
of Bank of Lakeview
James E. Wheeler II
Vice President of the 1999 $92,845 $24,000 1,050 $2,925
Corporation and Executive 1998 89,255 23,750 2,205 2,624
Vice President and Chief 1997 85,266 20,275 2,315 2,793
Loan Officer of Bank of Alma
Mary D. Deci
Vice President of the 1999 $87,759 $23,640 1,050 $4,513
Corporation and Executive 1998 84,269 23,400 2,205 4,366
Vice President and Chief 1997 79,282 24,000 2,315 4,232
Financial Officer of
Bank of Alma
</TABLE>
- -----------------------------------------------------
-10-
<PAGE>
(1) Includes directors' fees and compensation voluntarily deferred under
the ESOP and under the Firstbank Corporation Nonqualified Deferred
Compensation Plan.
(2) The numbers of shares subject to stock options have been adjusted to
reflect stock dividends and a stock split.
(3) Partial year compensation.
(4) Mr. Schurtz received options to purchase 25,847 shares of Firstbank
Corporation stock pursuant to the 1997 acquisition of Bank of Lakeview.
(5) All other compensation for the year ended December 31, 1999, is
comprised of matching contributions under the ESOP as follows:
<TABLE>
<S> <C>
John McCormack $6,532
Thomas R. Sullivan 5,370
Richard J. Schurtz 4,108
James E. Wheeler II 2,925
Mary D. Deci 4,513
</TABLE>
Stock options are believed to help align the interests of employees with
the interests of shareholders by promoting stock ownership by employees and by
rewarding them for appreciation in the price of the Corporation's stock. Stock
options which were granted or outstanding during 1999 were granted under the
1993 and 1997 Plans.
The following tables set forth information concerning stock options granted
to and retained by the named executive officers of the Corporation during 1999.
Mr. Schurtz exercised options totally 28,742 shares during 1999.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------
Percent of
Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Shares Granted to Stock Price Appreciation
Underlying Employees for Option Term
Options In Fiscal Exercise Expiration -------------------------
Name Granted(2) Year Price(1) Date 0% 5% 10%
---- ---------- ---- -------- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
John McCormack 0 0% N/A N/A $0 $0 $0
Thomas R. Sullivan 1,313 3.0% 21.67 11/30/09 0 17,891 45,339
Richard J. Schurtz 1,313 3.0% 21.67 11/30/09 0 17,891 45,339
James E. Wheeler II 1,050 2.4% 21.67 11/30/09 0 14,307 36,258
Mary D. Deci 1,050 2.4% 21.67 11/30/09 0 14,307 36,258
</TABLE>
-11-
<PAGE>
<TABLE>
YEAR END OPTION VALUES
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Year End(2) Year End
----------- --------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
John McCormack 22,497 / 0 $145,798 / 0
Thomas R. Sullivan 8,561 / 9,488 70,005 / 30,021
Richard J. Schurtz 4,069 / 1,313 0 / 0
James E. Wheeler II 8,034 / 8,014 68,871 / 28,329
Mary D. Deci 6,698 / 7,675 54,341 / 24,715
</TABLE>
- ------------------------------------
(1) The per share exercise price of each option is equal to the market
value of the common stock on the date each option was granted. All
outstanding options were granted for a term of ten years. Options
terminate, subject to certain limited exercise provisions, in the event
of death, retirement, or other termination of employment. No option is
exercisable until six months after the date of grant. Except for
options granted in 1994 which became fully vested six months after the
date of grant, the right to exercise options vests over nine years with
10% becoming vested six months from the grant date and an additional
10% vesting on each anniversary of the date of grant.
(2) The numbers have been adjusted in accordance with the 1993 Plan and the
1997 Plan to reflect stock dividends and a stock split.
The Corporation pays its Chairman of the Board a retainer of $3,000 per
year and pays each of its directors who is not compensated as an officer of the
Corporation a fee of $500 for each regular Board of Directors meeting attended,
$700 for each full day and $500 for each half day special Board of Directors
meeting attended, and $200 for each conference call in which the director
participates. In addition, directors who serve on the Corporation's audit
committee are paid $150 for each committee meeting attended.
Each director or nominee of the Corporation is also a director of Bank of
Alma, Firstbank, 1st Bank, or Bank of Lakeview. Bank of Alma pays its Chairman
of the Board a retainer of $3,000 per year and pays each of its directors who is
not compensated as an officer of Bank of Alma a fee for each regular Board of
Directors meeting attended based on years served as a director. For each regular
meeting, directors that have served up to five years receive $300, six through
ten years receive $400, and over ten years receive $500. Each director attending
a special full day Board of Directors meeting receives $600, and for each half
day meeting, $350. In addition, directors of Bank of Alma who serve on
committees are paid $200 for each executive committee meeting attended and $100
for each other committee meeting attended.
-12-
<PAGE>
Bank of Alma, Firstbank, and Bank of Lakeview pay the Chairmen of their
Board of Directors a retainer of 200 shares of Firstbank Corporation common
stock per year. Bank of Alma, Firstbank, 1st Bank, and Bank of Lakeview pay each
of their other directors, who is not compensated as an officer of the bank, a
retainer of 100 shares of Firstbank Corporation common stock. In addition,
Firstbank, 1st Bank, and Bank of Lakeview pay each director a fee of $200 for
each regular Board of Directors meeting attended and $100 for each committee
meeting attended. Directors of all the banks have the option of receiving
meeting fees in cash or Firstbank Corporation common stock. Firstbank and 1st
Bank pay directors $300 for each special Board of Directors meeting attended.
Directors of the Corporation and each subsidiary bank may elect to defer
their director fees under the Firstbank Corporation Nonqualified Deferred
Compensation Plan. Deferrals are discretionary and each director is permitted to
select an investment option for the deferred fees under the Deferred
Compensation Plan.
Section 16(A) Beneficial Ownership Reporting Compliance
The Exchange Act requires the Corporation's directors, officers, and
persons who own more than 10% of the Corporation's common stock to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). SEC regulations require such reporting persons to
furnish the Corporation with copies of all such reports they file. Based solely
on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no filings were required for
those persons, the Corporation believes that, from January 1, 1999, through
December 31, 1999, its directors, officers, and greater than 10% shareholders
complied with all applicable filing requirements.
Compensation Committee Interlocks and Insider Participation
The entire Board of Directors of the Corporation serves as a compensation
committee. Mr. McCormack, the President and Chief Executive Officer of the
Corporation, has served on the Board of Directors and participated in
deliberations concerning compensation of other executive officers. Mr.
McCormack, however, has been excused from meetings at which decisions with
respect to his own compensation have been made. The entire Board of Directors,
except Mr. McCormack, serves as a committee to administer the 1993 and 1997
Plans.
Mr. Goggin is the owner of Goggin & Baker, a law firm which Bank of Alma
has retained in prior years and proposes to retain in the current fiscal year.
Fees paid by the Corporation and its subsidiaries represented less than 5% of
the gross revenues of the law firm during 1999. Mr. Jennings is the President
and Owner of Jennings & Ellias, P.C., a law firm which has performed services
for 1st Bank in prior years and which 1st Bank may continue to use for legal
matters in the future. Fees paid by the Corporation and its subsidiaries
represented less than 5% of the gross revenues of the law firm during 1999. Mr.
Carr is a partner and 50% owner of Carr and Mullendore, a law firm which has
performed services for Bank of Lakeview in prior years and which Bank of
Lakeview may continue to use for legal matters in the future. Fees paid by the
Corporation and its subsidiaries represented less than 5% of the gross revenues
of the law firm during 1999.
-13-
<PAGE>
Directors and officers of the Corporation and their associates were
customers of, and had transactions with, the Corporation's subsidiary banks in
the ordinary course of business between January 1, 1999, and December 31, 1999.
All loans and commitments included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility or present other
unfavorable features. All loans to directors, officers, and their associates
were current as of December 31, 1999.
Independent Auditors
The Board of Directors of the Corporation has appointed the firm of Crowe,
Chizek and Company LLP, certified public accountants, as independent auditors of
the Corporation for the 2000 fiscal year. Crowe, Chizek and Company LLP also
examined and reported on the Corporation's financial statements as of, and for
the year ended, December 31, 1999. A representative of Crowe, Chizek and Company
LLP is expected to be present at the annual shareholders' meeting and have an
opportunity to make a statement if the representative desires to do so. The
Crowe, Chizek and Company LLP representative is also expected to be available to
respond to appropriate questions.
Shareholder Proposals
Shareholder proposals intended to be presented at the next annual meeting
must be received by the Corporation for inclusion in its proxy statement and
form of proxy relating to that meeting by November 29, 2000. Shareholder
proposals should be made in accordance with Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended, and should be addressed to Mary D.
Deci, Secretary, Firstbank Corporation, 311 Woodworth Avenue, Alma, Michigan
48801. Proxies to be solicited by the Corporation to vote at the annual meeting
of shareholders to be held in 2000 may confer discretionary authority on the
persons named as proxies to vote on any matter if the Corporation did not have
notice of the matter by February 14, 2001.
-14-
<PAGE>
Firstbank Corporation
1999
Annual Report
This 1999 Annual Report contains audited financial statements and a detailed
financial review. This is Firstbank Corporation's 1999 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 1999 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 1999 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 Deci, Chief Financial Officer,
Firstbank Corporation, 311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan
48801-6029.
<PAGE>
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
TO OUR SHAREHOLDERS:
Building on Strength, the theme of this year's Annual Report, is a phrase which
aptly conveys both the accomplishments of 1999, and our outlook for the year
2000 and beyond. Firstbank Corporation has a strong foundation of financial
performance, asset quality, experienced and dedicated staff members, and a
spirit of innovation and entrepreneurship that will be the building blocks of
our future success.
This foundation was created through the leadership of John McCormack, who
retired as the President and Chief Executive Officer of Firstbank Corporation at
year end 1999, after almost 40 years of service. His many contributions to our
company are detailed on page three of this report, and I am sure I speak for all
of our shareholders, directors, officers and staff members when I wish John and
Betty many happy and healthy years of retirement. I am pleased to advise you
that John will remain involved with our company, and will continue to contribute
to our success as a member of the Board of Directors of Bank of Alma.
Our company's financial strength was once again demonstrated during 1999 as we
posted another record year of growth and earnings. Total assets at year end
exceeded $650 million for the first time in our history, and our loans increased
by over 15% to $508 million at December 31, 1999. We continued to stress lending
to the small and mid-size businesses in our local communities, as our larger
statewide and national competitors continued their migration away from the
smaller markets. Commercial lending increased by $36 million to over $228
million, an increase of 18.54%.
This balance sheet growth resulted in record net income for 1999 in excess of $8
million. We posted $8,036,000 of net earnings, or $1.70 basic earnings per share
adjusted for the 5% stock dividend paid in December 1999, an increase of over
10% from our 1998 earnings of $7,303,000, or $1.54 per share. These record
earnings improved our return on average assets and return on average equity to
1.31% and 13.37%, respectively, from the 1998 levels of 1.30% and 12.98%.
Shareholders' equity increased to over $61 million at year end 1999, a level
which substantially exceeds all regulatory requirements, and which provides us
the strong capital base needed to continue our growth. By virtually every
financial measure 1999 was an outstanding year for our company.
As shareholders, we all participated in this success through an increased cash
dividend and, for the eighth consecutive year, a 5% stock dividend. Cash
dividends, adjusted for the stock dividend, increased from $0.53 per share in
1998 to $0.61 per share in 1999, an increase of over 15%. The stock dividend was
paid on December 31, 1999 to shareholders of record on December 16, 1999.
This success did not translate positively to our stock price, however. With the
steady increase of interest rates throughout the second half of 1999, investors'
infatuation with high technology stocks, and computer processing concerns due to
the Year 2000 transition, bank stocks were out of favor during 1999. The decline
in our stock value was reflective of the general decline in the stock prices of
other banking companies. It has long been understood that stock investors, and
especially investors in bank stocks, should be evaluating their investment over
a long time horizon, and not a single year. Our stock performance compares
favorably with our peers, and even many of the popular indexes, when measured
over longer time frames. As a result of the price decline and the Company's
strong capital position, the Board of Directors authorized an extension of our
stock repurchase program. The 200,000 share repurchase program authorized in
1999 was substantially completed, and the Board authorized the repurchase of
another 250,000 shares in open market and privately negotiated transactions. Be
assured that we remain committed to increasing shareholder value, and that our
focus on growth, asset quality and earnings should result in improved valuation
of our stock.
During this period of high loan growth we have demonstrated our strong
commitment to asset quality. Net charge offs during 1999 were $246,000, which
represents only .05% of average loans. Our reserve for loan losses now exceeds
$9,000,000, and represents 1.83% of total loans. These ratios compare very
favorably with our peer banks. When coupled with our high quality portfolio,
strong independent loan review program, and history of low loan losses, our
reserves for potential loan losses are considered to be very strong.
<PAGE>
Perhaps the most important building blocks upon which our company is based are
the talents and dedication of our people. The following pages will profile the
banks and subsidiaries which comprise our company, and introduce you to a few of
the members of our staff who help to lead our various units. The year end
retirements of John McCormack and Richard Schurtz (who had been the President
and Chief Executive Officer of Bank of Lakeview), have necessitated a number of
appointments. Our ability to fill these positions from within our banks
illustrates the strength and depth of our staff. Jim Wheeler, who joined Bank of
Alma in 1989 and had most recently been serving as Executive Vice President and
Senior Lending Officer, was named President and Chief Executive Officer of Bank
of Alma. Bill Benear, who joined Bank of Lakeview in 1994 as Executive Vice
President with more than 20 years of banking experience, was named President and
Chief Executive Officer of Bank of Lakeview. My appointment as the President and
Chief Executive Officer of Firstbank Corporation became effective January 1,
2000. I will continue to also serve as the President of Firstbank, Mt. Pleasant,
which is the position I have held since December 1991.
This type of strength and depth of personnel is also illustrated through two
other initiatives. We have successfully used a "management team" concept in our
new Operations Center since its opening in late 1998. Seven individuals from the
various data processing, operations, and accounting areas have accepted the
responsibility for providing corporate services to all of our subsidiaries.
Their cooperation and teamwork had a positive impact on our operations, and will
continue to yield improved cost efficiencies and an orientation to "best
practices" throughout our company. Also, our creation of The Learning Center at
our Bank of Alma location provides the company with a fully equipped training
facility from which we will continue to emphasize that the development of our
human resources is critical to our success.
The members of our Boards of Directors are also important components of our
success. Our decentralized system of management, which delegates critical
customer service and loan decision making responsibility to the management teams
and Boards of Directors of each subsidiary, requires that our directors be
strong advocates on behalf of our communities, our customers, and our
shareholders. Their input and guidance are essential in helping to move our
company forward.
Innovation, and an entrepreneurial approach to the financial services that
Firstbank Corporation offers, have also become strengths. Since its formation in
1995, 1st Armored, our armored car company that provides service to over 50
businesses in central and northeastern Michigan, has been extremely successful.
We established 1st Collections in 1999, which is a collection agency serving our
banks and outside companies. Opening first quarter of 2000 will be 1st Title, a
title insurance agency providing services to our banks, local realtors and other
mortgage lenders. These new businesses will further diversify our company,
supplement the growth of our banks, and lead to additional sources of fee income
for us in the future. We have also made application to the regulatory agencies
to form a new community bank in St. Johns, Michigan. This de novo bank, to be
called Firstbank - St. Johns, will be a wholly-owned subsidiary of our company
with its own local board of directors and management team. We expect that this
new addition to our banking family will open during the second quarter of 2000.
We have established a strong foundation for our company. As the banking and
financial services industries expand, change, and present new opportunities, we
are prepared to meet those new challenges. We will continue to manage our
company by building on our strengths. We will continue focusing on customer
service, growth, earnings, and asset quality, while fostering an atmosphere
which encourages our staff members to perform at their highest level in a
creative and entrepreneurial style.
We are looking forward to a bright future, and truly appreciate the support and
encouragement that we receive from our shareholders and customers.
Sincerely,
/s/ Thomas R. Sullivan
Thomas R. Sullivan
President & Chief Executive Officer
<PAGE>
FINANCIAL HIGHLIGHTS
Firstbank Corporation
<TABLE>
For the year: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Interest income $46,062 $44,484 $37,864 $31,016 $27,394
Net interest income 26,779 25,131 21,334 17,735 15,593
Provision for loan losses 514 1,177 1,398 1,838 1,085
Noninterest income 5,837 5,868 3,697 3,297 2,471
Noninterest expense 20,536 19,402 15,825 12,790 11,813
Net income 8,036 7,303 5,558 4,643 3,865
At year end:
Total assets 650,552 603,014 536,322 404,571 352,943
Total earning assets 596,623 555,254 486,949 372,777 327,232
Loans 508,238 441,028 404,808 314,620 264,847
Deposits 491,404 494,053 445,666 358,669 307,007
Other borrowings 90,203 40,894 28,823 9,072 11,842
Shareholders' equity 61,032 59,775 54,532 33,088 29,853
Average balances:
Total assets 612,459 560,938 460,439 372,829 330,079
Total earning assets 566,061 516,455 427,640 350,500 308,797
Loans 464,581 414,322 353,061 290,181 243,806
Deposits 491,368 467,615 395,883 324,135 288,692
Other borrowings 47,120 29,065 17,948 14,145 10,401
Shareholders' equity 60,110 56,253 41,240 30,640 27,569
Per share:(1)
Basic earnings 1.70 1.54 1.34 1.24 1.04
Diluted earnings 1.66 1.48 1.30 1.22 1.03
Cash dividends .61 .53 .43 .34 .28
Shareholders' equity 13.00 12.57 11.52 8.78 7.92
Financial ratios:
Return on average assets 1.31% 1.30% 1.21% 1.25% 1.17%
Return on average equity 13.37% 12.98% 13.48% 15.15% 14.02%
Average equity to average assets 9.81% 10.03% 8.96% 8.22% 8.35%
Dividend payout ratio 35.78% 34.16% 33.51% 27.94% 26.23%
</TABLE>
Bank of Lakeview results are included from August 8, 1997, the date
of acquisition.
(1)All per share amounts adjusted for stock dividends and stock split
The Company's Form 10-K Annual Report to the Securities and Exchange Commission
will be provided to any shareholder without charge upon written request.
Requests should be addressed to Mary D. Deci, Chief Financial Officer, Firstbank
Corporation, 311 Woodworth Avenue, P. O. Box 1029, Alma, Michigan 48801-6029.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section of the annual report is to provide a narrative
discussion about Firstbank Corporation's financial condition and results of
operations. Please refer to the consolidated financial statements and the
selected financial data presented in this report in addition to the following
discussion and analysis.
RESULTS OF OPERATIONS
Highlights
The Company posted record net earnings for the eighth consecutive year. Net
income of $8,036,000 exceeded 1998 results of $7,303,000 by 10%. For the past
five years, net income has increased at an annual compound growth rate of over
20%. The Company's results reflect continued strength of core banking activities
as opposed to the effect of nonrecurring or unusual factors. Contributing to the
record results of 1999 was a $41 million increase in earning assets.
Management believes that standard performance indicators help evaluate the
Company's performance. The Company posted a return on average assets of 1.31%,
1.30% and 1.21% for 1999, 1998 and 1997 respectively. Total average assets
increased $52 million in 1999, $100 million in 1998 and $88 million in 1997.
Return on average equity was 13.37% in 1999 compared to 12.98% and 13.48% in
1998 and 1997. Average equity increased $4 million in 1999. Basic earnings per
share were $1.70, $1.54 and $1.34 for 1999, 1998 and 1997. Diluted earnings per
share were $1.66, $1.48 and $1.30 for the same time periods.
Net Interest Income
The core business of the Company is earning interest on loans and securities and
paying interest on deposits and borrowings. In successfully managing this
business, the Company has increased its net interest income by $1.5 million for
1999 for a 5.6% gain when compared to 1998. Net interest margin declined to
4.92% in 1999 compared to 5.06% in 1998 and 5.16% in 1997, but continues to
remain substantially above peer performance. During 1999, the Company's loan to
deposit ratio was 93% compared to 87% in both 1998 and 1997. Ending loans grew
$67 million or 15% during 1999.
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.
The following table presents a summary of net interest income for 1999, 1998 and
1997. In 1999, the average rate realized on earning assets was 8.37%, a decrease
of 45 basis points from the 1998 results of 8.82%, and a 65 basis point
reduction from the rate of 9.02% realized in 1997. During the first quarter of
1997, the prime rate decreased 25 basis points, and then remained unchanged for
the balance of the year. In 1998, prime was reduced 25 basis points three times
during the fourth quarter. Prime rate changes in 1999 reversed the 1998 actions
with three increases of 25 basis points each during the last half of 1999. If
the prime rate remains steady or increases, management expects the yield on
earning assets to increase. At December 31, 1999, slightly over 16% of the loan
portfolio was comprised of variable rate instruments. Those loans will reprice
monthly or quarterly as rates change. The remaining 84% of the loan portfolio is
made up of fixed rate loans that do not reprice until maturity. Of the fixed
rate loans, approximately $107 million or 21% of the loan portfolio mature
within the next twelve months and are subject to rate adjustments at maturity.
<PAGE>
Summary of Consolidated Net Interest Income
<TABLE>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
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 $ 60,033 $ 3,651 6.08% $ 55,861 $ 3,431 6.15% $ 40,255 $ 2,546 5.90%
Tax exempt securities (1) 33,307 2,572 7.72 33,455 2,589 7.74 29,123 2,352 8.07
------- ------- ------- ------- -------- -------
Total securities 93,340 6,223 6.67 89,316 6,020 6.74 69,378 4,898 7.05
Loans (1) (2) 462,516 40,467 8.75 412,884 38,768 9.39 352,539 33,412 9.46
Federal funds sold 4,190 208 4.96 13,446 728 5.41 5,414 289 5.37
Interest bearing deposits 999 55 5.50 809 42 5.20 309 22 7.17
--------- --------- --------- --------- --------- ---------
Total earning assets 561,045 46,953 8.37 516,455 45,558 8.82 427,640 38,621 9.02
Nonaccrual loans 2,034 1,432 519
Less allowance for loan loss (9,213) (8,543) (7,142)
Cash and due from banks 18,877 19,173 16,413
Other non earning assets 34,700 32,421 23,009
-------- -------- --------
Total assets $607,443 $560,938 $460,439
======= ======= =======
Average Liabilities
Interest bearing liabilities:
Demand $143,828 $ 4,662 3.24% $126,030 $4,440 3.52% $ 95,572 $ 3,393 3.55%
Savings 72,412 1,776 2.45 67,085 1,734 2.58 61,286 1,664 2.71
Time 204,417 10,485 5.13 211,243 11,718 5.55 188,378 10,571 5.61
Federal funds purchased and
repurchase agreements 29,343 1,385 4.72 17,601 757 4.30 13,468 624 4.62
Notes payable 17,777 975 5.49 11,464 704 6.14 4,480 278 6.08
-------- -------- --------- ------- --------- -------
Total interest bearing liabilities 467,777 19,283 4.12 433,423 19,353 4.47 363,184 16,530 4.49
Demand deposits 70,711 63,257 50,647
-------- -------- --------
Total funds 538,488 496,680 413,831
Other non interest bearing liabilities 8,203 8,000 5,368
-------- -------- ---------
Total liabilities 546,691 504,680 419,199
Average shareholders' equity 60,752 56,258 41,240
-------- -------- --------
Total liabilities and
shareholders' equity $607,443 $560,938 $460,439
======= ======= =======
Net interest income (1) $27,670 $26,205 $22,091
====== ====== ======
Rate spread (1) 4.25% 4.35% 4.53%
==== ==== ====
Net interest margin (percent of
average earning assets) (1) 4.92% 5.06% 5.16%
==== ==== ====
</TABLE>
(1) Presented on a fully taxable equivalent basis using a federal income tax
rate of 34%.
(2) Interest income includes amortization of loan fees of $1,312,400,
$1,726,000, and $1,387,300 respectively. Interest on nonaccrual loans is
not included.
<PAGE>
Maturing investment securities can be replaced with comparable securities
bearing a higher yield than available a year ago, but not necessarily with a
higher yield than the maturing security. Much of the current investment
portfolio was purchased in rate environments similar to the current rate
conditions. Although management hopes to gain some yield when replacing
investment securities, they do not believe that the increase will equate to the
75 basis point growth seen in the prime rate.
The average rate paid on interest bearing liabilities was 4.12% in 1999 compared
to 4.47% and 4.49% in 1998 and 1997 respectively. Deposit products have
experienced decreases in cost over the past year as interest rates paid were
reduced in 1998 and early 1999 in response to the drop in prime rate. As the
prime rate has increased in the third and fourth quarter of 1999, deposit rates
have also climbed, but not as fast or to the extent of the changes in the prime
rate. The company has funded a portion of its loan growth with borrowings from
the Federal Home Loan Bank. Average outstanding balances increased over $6
million in 1999. While these borrowings are an economical method of funding
loans, the cost is higher than the Company's core deposit costs. Average rate of
Federal Home Loan Bank funding decreased 67 basis points in 1999 to 5.47% when
compared to 1998 rates of 6.14%. However, Federal Home Loan Bank rates have
begun to increase along with increases in the Federal Funds rates.
The 1999 rate spread of 4.25% is 10 basis points lower than 1998 results of
4.35% and a 28 basis point reduction from 4.53% in 1997. Tax equivalent net
interest income increased $1.5 million in 1999 as total average earning assets
grew $45 million. Net interest margin of 4.92% for 1999 was 14 basis points less
than the 1998 results. Although net interest margin decreased, the Company is
still performing well above peer in this critical measurement. Decreases in both
net interest margin and rate spread are the result of rates on average earning
assets decreasing 45 basis points while the average cost of interest bearing
liabilities dropped only 35 basis points. Average earning assets represent 92%
of total average assets in both 1999 and 1998.
Provision for Loan Losses
The provision for loan losses was $514,000 in 1999 compared to $1.2 million in
1998 and $1.4 million in 1997. The decreases in the provision for loan losses in
1999 and 1998 reflect management's confidence in the quality of the loan
portfolio. At December 31, 1999, the allowance for loan losses as a percent of
total loans was 1.83% compared to 2.05% and 2.00% at December 31, 1998, and
December 31, 1997 respectively. Net charged off loans totaled $246,000 in 1999
compared to $243,000 in 1998 and $857,000 in 1997. During 1999, over $550,000 of
recoveries were realized contributing to the year's strong results. Recoveries
in 1998 were $470,000 and in 1997 were $413,000. Net charged off loans as a
percent of average loans were .05% in 1999 compared to .06% in 1998 and .24% in
1997. Total nonperforming assets were .67% of ending loans at December 31, 1999,
compared to .46% and .81% at the two previous year ends. Management maintains
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 portfolio, delinquencies and other relevant factors.
Noninterest Income
After a substantial 59% increase in noninterest income from 1997 to 1998, total
noninterest income decreased by 8.5% in 1999. The combination of mortgage
servicing and gain on sale of mortgage loans decreased $1 million from
$2,085,000 in 1998 to $1,085,000 in 1999. Climbing interest rates in 1999 all
but eliminated the mortgage refinancing market which was extremely robust in
1998. Mortgages originated for sale decreased nearly $100 million from 1998 to
1999.
Service charges on deposit accounts increased $78,000 or 5% from 1998 to 1999,
while trust fees grew 17% or $54,000 during the same period.
Other noninterest income posted gains of $374,000 or 19% when comparing 1998 to
1999. Of this increase over $100,000 was from the recognition of market gains in
the deferred compensation account. A comparable entry is recorded in other
noninterest expense creating no impact on total net income. An additional
$60,000 was recognized from the sale of a wholly owned insurance agency
subsidiary of one of the affiliate banks.
<PAGE>
Noninterest Expense
Salary and benefit expense increased $736,000 or 7.5% during 1999. Most of the
increase is the result of normal salary increments and merit raises. In
addition, the Company added one new full service branch during 1999, requiring
the addition of personnel. The company employed six more full time equivalent
employees at the end of 1999 than at the same time in 1998, resulting in the
additional increase in salary and employee benefit cost.
Amortization of intangibles decreased $139,000 or 18% in 1999 when compared to
1998. During the first quarter of 1999, a wholly owned subsidiary of one of the
affiliate banks was sold. The subsidiary included intangibles. Only three months
of intangible amortization was recognized in 1999, compared to a full year in
1998.
Other noninterest expense decreased 3% or $178,000 in 1999. Management continues
to search for more efficient means of delivering services.
Federal Income Tax
The company's effective tax rates were 31%, 30% and 29% for 1999, 1998 and 1997.
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, 1999, were $651 million, exceeding the December 31,
1998, assets of $603 million by $48 million or 8%. With no acquisitions in 1999,
all of this growth was generated from markets existing at December 1998. Loans
grew $67 million or 15.2% during 1999 with commercial loans leading the advance
by $36 million or 18.5%. Real estate mortgages grew by $28 million or 15.9%
while consumer loans posted a moderate $3 million increase or 4.7%.
The following table provides information on the changes in loan balances and
mortgages serviced for others during 1999:
<TABLE>
(Dollars in Thousands)
1999 1998 Change % Change
---- ---- ------ --------
<S> <C> <C> <C> <C>
Commercial $227,855 $192,212 $35,643 18.54%
Real Estate Mortgages 205,179 177,009 28,170 15.91%
Consumer 75,204 71,807 3,397 4.73%
-------- -------- --------
Total $508,238 $441,028 $67,210 15.24%
Mortgages serviced for others $233,660 $215,308 $18,352 8.52%
</TABLE>
A portion of the loan growth was funded by an $11 million or 11.25% reduction in
the investment securities portfolio.
Premises and equipment increased $871,000 after recognized depreciation of
$1,342,000. Several projects contributed to this increase. During 1999, one
affiliate bank built a new branch on land already owned. Another affiliate
purchased a parcel of land with a building which will be converted to a new
branch and opened in the Spring of 2000. The Company completed the acquisition
of furniture for its new operations center that opened in December of 1998. The
Learning Center, a training facility, was established in existing space at an
affiliate bank.
Total deposits fell at the end of 1999 to $491 million, a decrease of $2.6
million or 1%. While interest demand accounts declined 7% or $10.6 million,
noninterest demand deposits increased $7.0 million or 10% for a net reduction in
demand deposit products of $3.6 million. Savings accounts offset this decline by
growing $1 million or nearly 1.5% while time deposits remained stable.
Securities sold under agreements to repurchase rose 15% or $2.8 million. The
increase in this deposit equivalent line item offset the decrease in total
deposits.
Notes payable and overnight borrowings showed substantial increases at December
31, 1999, as compared to December 31, 1998. Overnight borrowings of $30 million
at December 31, 1999, were used to fund excess cash that all the banks had
available at the end of the year in addition to covering loans that were booked
at the end of the year. Longer term borrowings have been secured to fund these
loans. Notes payables jumped $24 million or 168% during 1999. As loan growth has
outstripped deposit growth, the Company used borrowings to fund the increase in
loans. Note J has a more complete discussion of borrowings.
<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 of) the allowance for loan losses. In
1999, net charged off loans were $246,000 compared to $243,000 in 1998. Net
charged off loans as a percentage of average loans were .05% and .06% in 1999
and 1998.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past
due, and any loans where the terms have been renegotiated. Total nonperforming
loans were $2.9 million and $1.5 million at December 31, 1999 and 1998. The
investment in impaired loans was $4.7 million at December 31, 1999, compared to
$1.6 million at December 31, 1998. Please refer to Note F to the consolidated
financial statements for more information on impaired loans. Total nonaccrual
loans were $2.2 million at December 31, 1999, compared to $800,000 at the end of
1998.
The allowance for loan losses increased $269,000 or 3% during 1999. The
allowance for loan losses represents 1.83% of outstanding loans at the end of
1999 as compared to 2.05% at December 31, 1998. 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 4.92% in 1999 compared to 5.06% in 1998. Loan yields were 8.70% in
1999 compared to 9.34% in 1998. Deposit costs decreased 38 basis points from
3.83% in 1998 to 3.44% in 1999.
An increase in deposit rates affects most rates currently paid and, therefore,
has an immediate negative impact on net interest margin. With the exception of
variable rate loans, an increase in loan rates does not affect the yield until a
new loan is made. The prime rate was stable for the first half of 1999. During
the last six months of 1999, the prime rate experienced three 25 basis point
increases. Competition for both loans and deposits caused margins to shrink in
1999.
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, 1999, were $27 million compared to $20 million
at December 31, 1998.
<PAGE>
The following table shows the interest sensitivity gaps for five different
intervals as of December 31, 1999:
<TABLE>
Maturity or repricing frequency
(Dollars in millions)
2 days 4 mos. 13 mos.
through through through
1 day 3 mos. 12 mos. 5 yrs. 5+ yrs.
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $86.3 $36.2 $71.5 $203.9 $110.5
Investment securities 1.5 6.9 18.4 47.7 15.7
Other earning assets 0.4
----- ----- ------ ------ ------
Total 88.2 43.1 89.9 251.6 126.2
Interest bearing liabilities:
Deposits 206.9 51.9 108.3 48.5
Other bearing liabilities 32.6 13.8 18.0 13.7 12.1
---- ---- ------ ------ ----
Total 239.5 65.7 126.3 62.2 12.1
Interest sensitivity gap $(151.3) $(22.6) $(36.4) $189.4 $114.1
===== ==== ==== ===== =====
Cumulative gap $(151.3) $(173.9) $(210.3) $(20.9) $93.2
===== ===== ===== ==== ====
</TABLE>
For the one day interval, maturities of interest bearing liabilities exceed
those of interest earning assets by $151.3 million. Included in the one day
maturity classification are $206.7 million savings and checking accounts which
are contractually available to the Company's customers immediately, but in
practice, function as core deposits with considerably longer maturities. The
pattern of interest sensitive liability maturities exceeding interest sensitive
assets changes through the five year time frame resulting in a cumulative excess
of $20.9 million through five years. For the time period of more than five
years, the trend reverses so that for the period greater than five years,
interest sensitive assets exceed interest sensitive liabilities by $114.1
million.
Showing a negative gap through the five year period in a rising rate scenario,
as the Company experienced in 1999, does not necessarily result in a
corresponding decline in net interest income. In practice, the affiliate banks
are able to ameliorate the adverse impact of rising prime rates by trailing the
prime rate increases with deposit rate increases, and adjusting interest paid
rates less than the total jump in the prime rate.
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
The Company 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 Company manages this risk with static GAP analysis and simulation modeling.
Throughout 1999, the results of these measurement techniques were within the
Company's policy guidelines. The Company does not believe that there has been a
material change in the nature of the Company's primary market risk exposures,
including the categories of market risk to which the Company is exposed and the
particular markets that present the primary risk of loss to the Company, or in
how those exposures are managed in 1999 as compared to 1998. As of the date of
this annual report, the Company 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 Company'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 Company's control. All information provided in response to this item
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 Company's responsibility for such statements.
<PAGE>
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999 and 1998. They show expected maturity date values for loans and investment
securities which 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>
December 31, 1999 (Dollars in thousands) Fair Value
- ----------------- 2000 2001 2002 2003 2004 Thereafter Total 12/31/99
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest rate loans $103,084 $67,718 $76,174 $57,290 $53,702 $62,629 $420,598 $413,094
Average interest rate 8.36% 8.56% 8.33% 8.29% 8.16% 8.46%
Variable interest rate loans $ 40,910 $ 8,642 $ 8,274 $ 8,791 $ 9,583 $11,388 $ 87,587 $ 86,024
Average interest rate 9.08% 9.28% 9.55% 9.38% 9.24% 9.17%
Fixed interest rate securities $ 19,163 $15,143 $10,583 $ 6,481 $ 7,891 $30,785 $ 90,046 $ 90,046
Average interest rate 6.76% 5.93% 6.08% 6.09% 5.82% 5.77%
Variable interest rate securities $ 220 $ 220 $ 220
Average interest rate 6.32%
Other interest bearing assets $ 411 $ 411 $ 411
Average interest rate 4.63%
Rate sensitive liabilities:
Savings & interest bearing checking $206,723 $206,723 $206,723
Average interest rate 2.99%
Time deposits $160,325 $26,067 $11,274 $ 6,647 $ 4,497 $ 27 $208,837 $207,705
Average interest rate 5.02% 5.45% 5.67% 5.43% 5.57% 6.23%
Fixed interest rate borrowings $ 48,550 $ 250 $ 7,000 $ 3,664 $ 59,464 $ 58,953
Average interest rate 5.70% 5.56% 5.08% 6.04%
Variable interest rate borrowings $ 9,220 $ 9,220 $ 9,142
Average interest rate 5.44%
Repurchase Agreements $ 21,519 $ 21,519 $ 21,519
Average interest rate 4.05%
December 31, 1998 (Dollars in thousands) Fair Value
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
---- ---- ---- ---- ---- ---------- ----- --------
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%
</TABLE>
<PAGE>
<TABLE>
December 31, 1998 (continued) (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 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>
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, 1999, the Company's total capital to risk weighted assets
exceeded the minimum requirement for capital adequacy purposes of 8% by 4.25% or
$20 million, Tier 1 capital to risk weighted assets exceeded the minimum of 4%
by 6.99% or $34 million, and Tier 1 capital to average assets exceeded the
minimum of 4% by 4.49% or $28 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 17.9%. The compound annual growth rate for average
equity over the same period was 19.4%. The compound annual growth rate for
equity includes the $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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on Equity 13.37% 12.98% 13.48%
multiplied by
Percentage of Earnings Retained 64.22% 65.84% 66.49%
equals
Internal Capital Growth 8.59% 8.55% 8.96%
</TABLE>
The decrease in internal capital growth from 1997 to 1998 is due to the increase
in capital resulting from the 1997 acquisition. The Company has paid out
increasingly larger proportions of its earnings from 1997 to 1999. To maintain
sufficient capital, management has determined that the rate of internal capital
growth should average at least 5%. To achieve the goal of acceptable internal
capital growth, management intends to continue its efforts to increase the
Company's return on average equity while maintaining a reasonable cash dividend.
<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 209,856 shares
participated in the Plan. By the end of 1999, 1,145 owners holding 1,804,582
shares were participating in the Plan.
The Company is not aware of any recommendations by regulatory authorities at
December 31, 1999, which are likely to have a material effect on Firstbank
Corporation's liquidity, capital resources or operations.
YEAR 2000 FOLLOW UP
The company began addressing the Year 2000 issue in 1997 by formulating a "Y2K"
Plan. The plan began with the performance of an inventory of software
applications, communicating with third party vendors and suppliers, and
obtaining certification of compliance from third party providers. The Company's
written plan was regularly updated and monitored by technical personnel. Plan
status was regularly reviewed by management of the Corporation.
The company spent approximately $320,000 during 1998 and 1999 to address Year
2000 issues. These costs were primarily personnel expenses for staff time
dedicated to assuring a smooth transition to the Year 2000. In addition to staff
time of approximately $270,000, actual hard costs of $50,000 were incurred.
These costs included minor upgrades to ancillary systems and software as well as
postage expense for communicating with customers. It is the Company's policy to
expense these costs as they are incurred.
As of February 15, 2000, the Company had experienced no problems related to the
Year 2000 issue.
FORWARD LOOKING STATEMENTS
This annual report including, without limitation, management's discussion and
analysis of financial condition and results of operations and other sections of
the Corporation's Annual Report to Shareholders 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. 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 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.
<PAGE>
FIRSTBANK CORPORATION AND SUBSIDIARIES
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
1999
----
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Interest income $11,008 $11,314 $11,653 $12,087 $46,062
Net interest income 6,270 6,611 6,858 7,040 26,779
Provision for loan losses 126 126 126 136 514
Income before federal income taxes 2,769 2,843 2,894 3,060 11,566
Net income 1,936 1,981 2,011 2,108 8,036
Basic earnings per share .41 .42 .42 .45 1.70
Diluted earnings per share .40 .41 .42 .43 1.66
1998
----
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
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 .37 .38 .39 .40 1.54
Diluted earnings per share .35 .37 .38 .38 1.48
</TABLE>
All per share amounts have been adjusted for stock dividends and stock splits.
- --------------------------------------------------------------------------------
COMMON STOCK DATA
Firstbank Corporation Common Stock was held by 1,580 shareholders of record as
of December 31, 1999. Total shareholders number approximately 2,000 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>
Low and High Bid Quotations
---------------------------
1999 1998
---- ----
<S> <C> <C>
First Quarter $27.62 - $27.86 $21.31 - $27.67
Second Quarter $26.19 - $27.86 $27.67 - $31.52
Third Quarter $24.05 - $26.19 $25.40 - $31.52
Fourth Quarter $17.00 - $24.05 $25.40 - $29.03
</TABLE>
The prices quoted above are obtained on a weekly basis from the NASD System. The
over the counter market quotations reflect interdealer prices without retail
mark up, mark down, or commission, and may not necessarily represent actual
transactions. Prices have been adjusted to reflect stock dividends. The
following table summarizes cash dividends paid per share (adjusted for stock
dividends and 2 for 1 stock split) of common stock during 1999 and 1998.
<TABLE>
1999 1998
---- ----
<S> <C> <C>
First Quarter $.1524 $.1315
Second Quarter $.1524 $.1315
Third Quarter $.1524 $.1315
Fourth Quarter $.1524 $.1315
------ ------
$.6096 $.5260
====== ======
</TABLE>
The Company's principal sources of funds to pay cash dividends are the earnings
of and dividends paid by the subsidiary banks. Under current regulations, the
subsidiary banks are restricted in their ability to transfer funds in the form
of cash dividends, loans and advances to the Company (See Note P). As of January
1, 2000, approximately $12,700,000 of the subsidiaries' retained earnings were
available for transfer in the form of dividends to the Company without prior
regulatory approval. In addition, the subsidiaries' 2000 earnings will be
available for distributions as dividends to the Company.
<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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
February 4, 2000
Grand Rapids, Michigan
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31
-----------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 24,786,354 $ 22,203,430
Short term investments 410,519 13,288,206
------------- ------------
Total cash and cash equivalents 25,196,873 35,491,636
Securities available for sale 90,266,217 101,711,023
Loans:
Loans held for sale 1,117,160 5,454,928
Portfolio loans
Commercial 227,854,617 192,212,168
Real estate mortgage 204,062,307 171,554,004
Consumer 75,204,334 71,806,822
------------ ------------
Total loans 508,238,418 441,027,922
Less allowance for loan losses (9,317,000) (9,048,000)
------------- -------------
Net loans 498,921,418 431,979,922
Premises and equipment, net 14,928,427 14,057,619
Intangibles 8,916,984 9,534,210
Accrued interest receivable 3,489,060 3,463,572
Other assets 8,833,070 6,775,852
------------- -------------
TOTAL ASSETS $650,552,049 $603,013,834
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing demand accounts $ 75,843,929 $ 68,887,968
Interest bearing accounts:
Demand 136,196,228 146,741,509
Savings 70,526,731 69,514,970
Time 208,836,832 208,908,518
----------- -----------
Total deposits 491,403,720 494,052,965
Securities sold under agreements to
repurchase and overnight borrowings 51,819,165 26,577,527
Notes payable 38,384,277 14,316,550
Accrued interest payable 1,255,070 1,311,406
Other liabilities 6,657,767 6,980,442
------------- -------------
Total liabilities 589,519,999 543,238,890
SHAREHOLDERS' EQUITY
Preferred stock; no par value,
300,000 shares authorized, none issued
Common stock; 10,000,000 shares authorized;
4,693,765 and 4,527,256 shares issued and
outstanding in 1999 and 1998 respectively 55,262,941 52,796,743
Retained earnings 6,433,294 5,874,601
Accumulated other comprehensive income (664,185) 1,103,600
------------- -------------
Total shareholders' equity 61,032,050 59,774,944
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $650,552,049 $603,013,834
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
Year Ended December 31
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans, including fees $40,450,730 $38,498,073 $33,385,960
Securities:
Taxable 3,651,268 3,466,878 2,546,186
Exempt from federal income tax 1,697,457 1,791,291 1,620,493
Short term investments 263,029 728,105 311,464
------------ ------------ ------------
Total interest income 46,062,484 44,484,347 37,864,103
Interest expense:
Deposits 16,923,239 17,891,968 15,628,237
Notes payable and other 2,360,089 1,461,240 901,502
----------- ----------- ------------
Total interest expense 19,283,328 19,353,208 16,529,739
---------- ---------- ----------
Net interest income 26,779,156 25,131,139 21,334,364
Provision for loan losses 514,000 1,177,000 1,398,000
------------ ----------- -----------
Net interest income after
provision for loan losses 26,265,156 23,954,139 19,936,364
Noninterest income:
Service charges on deposit accounts 1,577,526 1,499,200 1,227,700
Gain on sale of mortgage loans 882,704 2,099,619 759,378
Mortgage servicing, net of amortization 201,804 (14,591) 247,529
Trust fees 381,511 327,464 273,222
Gain (loss) on sale of securities (1,385) 3,329 (29,732)
Other 2,326,639 1,952,708 1,219,254
----------- ------------ -----------
Total noninterest income 5,368,799 5,867,729 3,697,351
Noninterest expense:
Salaries and employee benefits 10,504,581 9,768,488 8,032,608
Occupancy 3,037,218 2,970,065 2,128,511
Amortization of intangibles 617,226 756,430 826,924
FDIC Insurance premium 76,080 71,923 43,864
Michigan Single Business tax 564,600 389,800 359,567
Other 5,268,217 5,445,592 4,433,510
----------- ------------ -----------
Total noninterest expense 20,067,922 19,402,298 15,824,984
---------- ----------- ----------
Income before federal income taxes 11,566,033 10,419,570 7,808,731
Federal income taxes 3,530,000 3,117,000 2,251,000
----------- ------------ -----------
NET INCOME $ 8,036,033 $ 7,302,570 $ 5,557,731
Other comprehensive income:
Change in unrealized gain (loss) on
securities, net of tax and reclassification effects (1,767,785) 216,541 323,720
------------ ---------- ----------
COMPREHENSIVE INCOME $ 6,268,248 $ 7,519,111 $ 5,881,451
========= ========= =========
Basic earnings per share $1.70 $1.54 $1.34
==== ==== ====
Diluted earnings per share $1.66 $1.48 $1.30
==== ==== ====
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income Total
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $24,228,132 $8,296,590 $ 563,339 $ 33,088,061
Net income for 1997 5,557,731 5,557,731
Cash dividends-$.43 per share (1,862,378) (1,862,378)
5% stock dividend-224,727 shares 4,560,786 (4,571,057) (10,271)
Issuance of 12,847 shares of common
stock through exercise of stock options 163,566 163,566
Issuance of 28,214 shares of common stock
through the dividend reinvestment plan 479,436 479,436
Issuance of 22,860 shares of common stock from
supplemental shareholder investments 402,894 402,894
Issuance of 898,830 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 $166,765 323,720 323,720
---------- --------- ------- ----------
BALANCES AT DECEMBER 31, 1997 46,223,949 7,420,886 887,059 54,531,894
Net income for 1998 7,302,570 7,302,570
Cash dividends-$.53 per share (2,494,909) (2,494,909)
5% stock dividend-226,157 shares 6,353,282 (6,353,946) (664)
Issuance of 15,115 shares of common
stock through exercise of stock options 251,492 251,492
Issuance of 23,097 shares of common stock
through the dividend reinvestment plan 635,966 635,966
Issuance of 17,584 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 $111,551 216,541 216,541
Purchase of 36,740 shares of stock (1,213,670) (1,213,670)
Issuance of 1,584 shares of common stock 63,370 63,370
---------- --------- --------- ----------
BALANCES AT DECEMBER 31, 1998 52,796,743 5,874,601 1,103,600 59,774,944
Net income for 1999 8,036,033 8,036,033
Cash dividends-$.61 per share (2,874,108) (2,874,108)
5% stock dividend-224,526 shares 4,602,334 (4,602,783) (449)
Issuance of 50,310 shares of common
stock through exercise of stock options 816,769 816,769
Issuance of 44,246 shares of common stock
through the dividend reinvestment plan 1,098,099 1,098,099
Issuance of 19,807 shares of common stock from
supplemental shareholder investments 527,549 527,549
Purchase of 180,150 shares of stock (4,792,687) (4,792,687)
Issuance of 7,770 shares of common stock 213,685 213,685
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of tax of ($911,674) (1,767,785) (1,767,785)
----------- ---------- ------------ -----------
BALANCES AT DECEMBER 31, 1999 $55,262,492 $6,433,743 $ (664,185) $61,032,050
=========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,036,033 $ 7,302,570 $ 5,557,731
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses 514,000 1,177,000 1,398,000
Depreciation of premises and equipment 1,342,052 1,480,897 1,033,620
Net amortization of security premiums/discounts 303,260 122,223 131,273
Loss (gain) on sale of securities 1,385 (3,329) 29,732
Amortization of intangibles 617,226 756,430 826,924
Gain on sale of mortgage loans (882,704) (2,099,619) (759,378)
Proceeds from sales of mortgage loans 57,565,972 152,673,876 50,910,223
Loans originated for sale (52,345,500) (152,112,394) (47,311,773)
Deferred federal income tax benefit (305,000) (356,000) (285,000)
Increase in accrued interest receivable and other assets (866,031) (693,761) (4,049,673)
Increase (decrease) in accrued interest payable and other liabilities (379,011) 916,602 3,196,620
------------ -------------- -----------
NET CASH FROM OPERATING ACTIVITIES 13,601,682 9,164,495 10,678,299
INVESTING ACTIVITIES
Cash acquired from Lakeview Financial Corporation 1,724,418
Proceeds from sale of securities available for sale 7,017,959 609,415 1,560,907
Proceeds from maturities of securities available for sale 29,480,622 28,935,385 28,153,606
Purchases of securities available for sale (28,037,880) (48,468,741) (42,239,442)
Net increase in portfolio loans (71,793,264) (34,924,784) (23,427,147)
============
Net purchases of premises and equipment (2,212,860) (2,121,451) (2,074,625)
------------ -------------- ------------
NET CASH FROM INVESTING ACTIVITIES (65,545,423) (55,970,176) (36,302,283)
FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,649,245) 48,387,144 13,586,053
Net increase in securities sold under
agreements to repurchase and overnight borrowings 25,241,638 5,344,646 12,400,289
Retirement of notes payable (14,127) (13,327) (14,160)
Proceeds from Federal Home Loan Bank borrowings 31,720,000 14,750,000 5,364,000
Retirement of Federal Home Loan Bank borrowings (7,638,146) (8,010,588) (1,998,414)
Cash dividends and cash paid in lieu of fractional shares on stock dividend (2,874,557) (2,495,573) (1,872,649)
Purchase of common stock (4,792,687) (1,213,670)
Net proceeds from issuance of common stock 2,656,102 1,433,182 1,045,896
----------- ------------- -----------
NET CASH FROM FINANCING ACTIVITIES 41,648,978 58,181,814 28,511,015
---------- ------------ ----------
INCREASE IN CASH AND CASH EQUIVALENTS (10,294,763) 11,376,133 2,887,031
Cash and cash equivalents at beginning of year 35,491,636 24,115,503 21,228,472
---------- ------------ ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $25,196,873 $ 35,491,636 $24,115,503
========== ============ ==========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $19,339,664 $ 19,349,433 $14,944,446
Income taxes 4,000,000 3,150,000 2,135,000
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
</TABLE>
See notes to consolidated financial statements.
<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 $650 million as of December 31, 1999, primarily represent
commercial and retail banking activity. Mortgage loans serviced for others of
$234 million and trust assets of $74 million as of December 31, 1999, 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"), 1st Armored,
Incorporated, and 1st Collections, Incorporated, after elimination of
intercompany accounts and transactions.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Certain Significant Estimates: The primary estimates incorporated into the
Company's financial statements which are susceptible to change in the near term
include the allowance for loan losses and the determination and carrying value
of certain financial instruments.
Current Vulnerability Due to Certain Concentrations: The Company's business is
concentrated in the mid-central section of the lower peninsula of Michigan.
Management is of the opinion that no concentrations exist that make the Company
vulnerable to the risk of a near term severe impact. While the loan portfolio is
diversified, the customers' ability to honor their debts is partially dependent
on the local economies. The Company's service area is primarily dependent on the
manufacturing (automotive and other), agricultural and recreational industries.
Most commercial and agricultural loans are secured by business assets, including
commercial and agricultural real estate and federal farm agency guarantees.
Generally, consumer loans are secured by various items of personal property and
mortgage loans are secured by residential real estate. The Company's funding
sources include time deposits and other deposit products which bear interest.
Periods of rising interest rates result in an increase in the cost of funds to
the Company.
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 maturity.
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.
<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.
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. Accumulated other comprehensive income consists of
unrealized gains and losses on securities available for sale.
Supplemental Disclosure of Non-Cash Investing Activities: During 1997, the
Company transferred $2,886,318 from loans held for sale to portfolio loans.
<PAGE>
Reclassification: Certain 1998 and 1997 amounts have been reclassified to
conform to the 1999 presentation.
Future Accounting Changes: Beginning January 1, 2001, 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. This is not expected to have a
material effect; however, the actual effect will depend upon derivative holdings
when the standard becomes effective.
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/DIVESTURES
The Company did not consummate any acquisitions during 1999. 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. Over 98% of the
common stock shareholders of Lakeview Financial Corporation elected to receive
the Company's stock, resulting in the issuance of 898,830 shares. Cash of
$681,000 and options for 23,594 shares with exercise prices of $6.59 to $9.74
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. Bank of Lakeview
continues to operate as a community bank in the five communities (six locations)
of their offices.
On April 1, 1999, the Company's Bank of Alma subsidiary sold its insurance
agency, Niles Agency, Incorporated, to an unrelated third party. Operating
results of the Niles Agency are included in consolidated results until the date
of sale. A gain of $59,000 was recognized on the sale of the agency, and is
included in other income of the consolidated statements of income and
comprehensive income. The effect of the operation and sale of the Niles Agency
was not material to the consolidated financial statements of the Company.
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, 1999 and 1998, were $2,765,000 and $2,759,000 respectively. These reserves
do not earn interest.
<PAGE>
NOTE D--SECURITIES
The carrying amounts of securities and their fair values were as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available for sale:
December 31, 1999:
U.S. Treasury $ 8,027,823 $ 13,050 $ (38,842) $ 8,002,031
U.S. governmental agency 25,385,598 8,434 (606,608) 24,787,424
States and political subdivisions 36,537,652 247,607 (487,236) 36,298,023
Collateralized mortgage obligations 2,186,369 1,619 (13,100) 2,174,888
Corporate 16,827,876 1,512 (133,776) 16,695,612
Equity 2,308,239 0 0 2,308,239
----------- --------- ---------- -----------
$ 91,273,557 $ 272,222 $(1,279,562) $ 90,266,217
========== ========= ========== ===========
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
=========== ========= ========== ===========
</TABLE>
Gross realized gains (losses) on sales and calls of securities were:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Gross realized gains $ 38,373 $ 4,858 $ 1,050
Gross realized losses (39,758) ( 1,529) (30,782)
------ ------ ------
Net realized gains $( 1,385) $ 3,329 $(29,732)
====== ======= ======
</TABLE>
The amortized cost and fair value of securities at December 31, 1999, 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>
Securities Available for Sale
-----------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $19,535,614 $19,573,244
Due after one year through five years 40,109,099 39,726,547
Due after five years through ten years 21,108,184 20,544,434
Due after ten years 8,212,421 8,113,753
----------- -----------
Total 88,965,318 87,957,978
Equity securities 2,308,239 2,308,239
----------- -----------
Total securities $91,273,557 $90,266,217
========== ==========
</TABLE>
At December 31, 1999, securities with a carrying value approximating $59,108,000
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.
<PAGE>
NOTE E--SECONDARY MORTGAGE MARKET ACTIVITIES
Loans serviced for others, which are not reported as assets, total $233,660,000
and $215,308,000 at 1999 and 1998.
Activity for capitalized mortgage servicing rights was as follows:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Servicing rights:
Beginning of year $ 997,226 $ 503,370
Additions 598,983 969,416
Amortized to expense (372,012) (475,560)
---------- --------
End of year $1,224,197 $ 997,226
========= ========
</TABLE>
Management has determined that a valuation allowance is not necessary at
December 31, 1999 or 1998.
NOTE F-LOANS
Loans at year-end were as follows:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Commercial $132,640,574 $117,351,858
Mortgage loans on real estate:
Residential 205,593,791 173,420,825
Loans held for sale 1,117,160 5,454,928
Commercial 131,323,729 109,412,665
Construction 25,918,504 23,415,773
Consumer 72,976,468 70,136,552
Credit Card 6,919,651 6,519,740
------------ -------------
Subtotal 576,489,877 505,712,341
Less:
Allowance for loan losses 9,317,000 9,048,000
Net deferred loan fees 52,276 9,764
Undisbursed loan funds 68,199,183 64,674,655
------------ ------------
Loans, net $498,921,418 $431,979,922
=========== ===========
</TABLE>
Activity in the allowance for loan losses for the year was as follows:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Beginning balance $9,048,000 $8,114,000 $6,247,000
Lakeview allowance at acquisition 1,326,000
Provision for loan losses 514,000 1,177,000 1,398,000
Loans charged-off (799,000) (712,000) (1,270,000)
Recoveries 554,000 469,000 413,000
--------- ---------- ----------
Ending balance $9,317,000 $9,048,000 $8,114,000
========= ========= =========
</TABLE>
Impaired loans were as follows:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Year-end loans with no allocated allowance for loan losses $ 534,000 $ 504,000
Year-end loans with allocated allowance for loan losses 4,139,000 1,102,000
--------- ---------
Total $4,673,000 $1,606,000
========= =========
</TABLE>
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Amount of the allowance for loan losses allocated $ 329,000 $ 118,000 $ 48,000
Loans past due over 90 days still on accrual $ 663,000 $ 621,000 $ 1,215,158
Average of impaired loans during the year $ 5,133,000 $ 1,879,000 $ 972,000
Interest income recognized during impairment $ 284,000 $ 128,000 $ 87,000
Cash-basis interest income recognized $ 112,000 $ 31,000 $ 0
</TABLE>
Approximately $57,300,000 of commercial loans were pledged to the Federal
Reserve Bank of Chicago at December 31, 1999, to secure overnight borrowings.
<PAGE>
NOTE G--PREMISES AND EQUIPMENT
Year end premises and equipment were as follows:
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Land $ 3,230,319 $ 3,174,570
Buildings 12,306,250 11,594,443
Furniture, fixtures and equipment 9,194,568 8,206,337
----------- -----------
24,731,137 22,975,350
Less: Accumulated depreciation (9,802,710) (8,917,731)
----------- -----------
$14,928,427 $14,057,619
========== ==========
</TABLE>
Rent expense for 1999 was $105,620 and for 1998 was $115,801. Rent commitments
under noncancellable operating leases were as follows, before considering
renewal options that generally are present.
<TABLE>
<S> <C>
2000 $104,306
2001 102,365
2002 105,706
2003 107,234
2004 96,064
--------
Total $515,675
========
</TABLE>
NOTE H--FEDERAL INCOME TAXES
Federal income taxes consist of the following:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current expense $3,835,000 $3,473,000 $2,536,000
Deferred benefit (305,000) (356,000) (285,000)
--------- --------- ---------
Total $3,530,000 $3,117,000 $2,251,000
========= ========= =========
</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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate $3,932,000 $ 3,543,000 $2,655,000
Effect of surtax exemption 16,000 4,000
Effect of tax-exempt interest (544,000) (550,000) (619,000)
Other 126,000 120,000 215,000
---------- ----------- ---------
Federal income taxes $3,530,000 $ 3,117,000 $2,251,000
========= ========== =========
Effective tax rate 31% 30% 29%
</TABLE>
The components of deferred tax assets and liabilities consist of the following
at December 31:
<TABLE>
Deferred tax assets: 1999 1998
---- ----
<S> <C> <C>
Allowance for loan losses $2,799,000 $2,603,000
Unrealized loss on securities available for sale 342,000
Deferred compensation 951,000 708,000
Other 395,000 588,000
---------- -----------
Total deferred tax assets 4,487,000 3,899,000
--------- ----------
Deferred tax liabilities:
Fixed assets (1,417,000) (1,491,000)
Unrealized gain on securities available for sale (569,000)
Mortgage servicing rights (416,000) (380,000)
Purchase accounting adjustment (517,000) (559,000)
Other (94,000) (73,000)
----------- -----------
Total deferred tax liabilities (2,444,000) (3,072,000)
---------- ----------
Net deferred tax asset $ 2,043,000 $ 827,000
========== ===========
</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, 1999 or 1998.
<PAGE>
Deferred tax assets at December 31, 1999 and 1998, 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. The total amount subject to recapture is $1,548,000 and will be
recaptured as follows: $155,000 in 1998; $310,000 in 1999; $464,000 in 2000; and
$619,000 in 2001.
NOTE I--DEPOSITS
Time deposits of $100,000 or more were $41,996,000 and $39,798,000 at year-end
1999 and 1998.
Scheduled maturities of time deposits were as follows:
<TABLE>
Year Amount
---- ------
<S> <C>
2000 $160,324,534
2001 26,066,891
2002 11,274,229
2003 6,646,585
2004 4,496,756
2005 and after 27,837
------------
Total $208,836,832
</TABLE>
NOTE J--BORROWINGS
Information relating to securities sold under agreements to repurchase follows:
<TABLE>
At December 31: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding balance $21,519,000 $18,678,000 $12,932,000
Average interest rate 4.17% 3.88% 4.23%
Daily average for the year:
Outstanding balance $19,495,000 $15,618,000 $10,894,000
Average interest rate 4.05% 4.15% 4.36%
Maximum outstanding at any month end $21,519,000 $18,678,000 $13,911,000
</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>
1999 1998
---- ----
<S> <C> <C>
Maturities January 2000 through October 2017 primarily
fixed rate at rates from 4.64% to 7.30% averaging 5.73% $38,185,266 $14,103,412
</TABLE>
Each Federal Home Loan Bank advance is payable at its maturity date, with a
prepayment penalty. The advances were collateralized by at least $61,096,000 and
$22,565,000 of first mortgage loans under a blanket lien arrangement at year-end
1999 and 1998.
<TABLE>
Maturities over the next five years are:
<S> <C>
2000 $ 27,470,000
2001 250,000
2002 0
2003 7,000,000
2004 0
2005 and after 3,465,266
-----------
$38,185,266
===========
</TABLE>
<PAGE>
NOTE K--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 1999, 1998, and 1997 matching 401(k)
contributions charged to expense were $275,796, $264,441, and $204,165
respectively. The percent of the Company's matching contributions to the 401(k)
is determined annually by the Board of Directors.
The Board of Directors established the Firstbank Corporation Affiliated Deferred
Compensation Plan (Plan). Directors of the holding company and each affiliate
bank are eligible to participate in the Plan. In addition, key management of the
holding company and affiliate banks as designated by the Board of Directors, are
eligible to participate. The Plan is a nonqualified plan as defined by the
Internal Revenue Code. As such, all contributions are invested at the direction
of the participant and are assets of the Company. The Company recognizes a
corresponding liability to each participant. The Plan allows Directors to defer
their director fees and key management to defer a portion of their salaries into
the Plan.
NOTE L--STOCK OPTIONS
The Firstbank Corporation Stock Option Plans of 1993 and 1997 ("Plans") provide
for the grant of 281,420 and 231,525 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 1997,
1998 and 1999:
<TABLE>
Number Weighted
of Shares Average
--------- -------
<S> <C> <C>
Outstanding - December 31, 1996 219,904 $10.38
Granted 92,379 19.76
Granted pursuant to acquisition 47,301 9.71
Exercised (12,847) 8.44
Canceled (4,968) 12.70
--------
Outstanding - December 31, 1997 341,769 12.92
Granted 94,099 29.03
Exercised (15,115) 10.76
Canceled (10,945) 15.78
--------
Outstanding - December 31, 1998 409,808 16.58
Granted 43,365 21.67
Exercised (52,750) 10.29
Canceled (12,303) 20.90
--------
Outstanding - December 31, 1999 388,120 17.86
Available for exercise -- December 31, 1999 177,067 14.92
Available for grant -- December 31, 1999 38,966
</TABLE>
<PAGE>
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation
(SFAS 123) establishes a fair value based method of accounting for employee
stock options. Accordingly, the following pro forma information presents net
income and earnings per share information as if SFAS 123 had been adopted. No
compensation cost was actually recognized for stock options in 1999, 1998, or
1997.
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income as reported $8,036,033 $7,302,570 $5,557,731
Pro forma net income $7,922,573 $7,222,719 $5,507,459
Basic earnings per share as reported $1.70 $1.54 $1.34
Pro forma basic earnings per share $1.68 $1.52 $1.32
Diluted earnings per share as reported $1.66 $1.48 $1.30
Pro forma diluted earnings per share $1.64 $1.47 $1.29
</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 1999, 1998, and 1997 is estimated using
the Black-Scholes model and the following weighted average information: risk
free interest rate of 6.28%, 5.06% and 5.86%; expected life of 7 years; expected
volatility of stock price of 36.2%, 33.9% and 27.4%; and expected dividends of
3% per year. The fair value of the options granted in 1999, 1998, and 1997, were
$235,000, $207,000 and $227,000 respectively. For options outstanding at
December 31, 1999, the range of exercise prices was $7.73 to $29.03, and the
weighted average remaining contractual life was 12.4 years.
NOTE M--RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 1999 were as
follows:
<TABLE>
<S> <C>
Beginning balance $ 14,833,310
New loans 26,286,835
Effect of changes in related parties (314,356)
Repayments (20,122,206)
----------
Ending balance $ 20,683,583
===========
</TABLE>
Deposits from principal officers, directors, and their affiliates at year end
1999 and 1998 were $8,217,000 and $7,772,000.
Directors have deferred some of their fees for future payment, including
interest. Amounts deferred are expensed, and were $62,600 and $62,400 for 1999
and 1998.
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>
1999 1998
---- ----
Fixed Rate Variable Rate Fixed Rate Variable Rate
<S> <C> <C> <C> <C>
Commitments to make loans
(at market rates) $5,410,972 $3,763,841 $6,970,298 $ 0
Unused lines of credit and
letters of credit $9,026,298 $49,998,072 $4,534,424 $53,169,933
</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 5.9% to 12.0% and
maturities ranging from 15 years to 30 years.
<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, 1999.
NOTE P--DIVIDEND LIMITATION OF SUBSIDIARIES
The subsidiary banks are restricted in their ability to pay dividends to the
Company by regulatory requirements. For 2000, approximately $12,710,000 of the
subsidiaries' retained earnings (in addition to their 2000 net income) is
available for transfer in the form of dividends without prior regulatory
approval.
NOTE Q--CAPITAL ADEQUACY
The Company and its subsidiary banks 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:
<TABLE>
Capital to risk-weighted assets Tier 1 capital
Total Tier 1 to adjusted total assets
----- ------ ------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
At December 31, 1999, actual capital levels were:
<TABLE>
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
<S> <C> <C> <C>
Firstbank Corporation -- Consolidated 12.24% 10.98% 8.49%
Bank of Alma 12.63% 11.37% 8.72%
Firstbank 10.29% 9.04% 7.96%
1st Bank 11.23% 9.97% 7.47%
Lakeview 15.17% 13.92% 9.98%
</TABLE>
The following tables show the dollar amounts, in thousands, of the Company's
capital and the amounts that exceed current regulatory requirements:
<TABLE>
Total Tier 1
Risk-Based Risk-Based Tier 1
Capital Capital Leverage
---------- ---------- ---------
<S> <C> <C> <C>
Actual Capital balances at December 31, 1999
Firstbank Corporation -- Consolidated $58,780 $52,735 $52,735
Bank of Alma 20,428 18,383 18,383
Firstbank 11,431 10,042 10,042
1st Bank 14,328 12,720 12,720
Lakeview 12,031 11,037 11,037
</TABLE>
<PAGE>
<TABLE>
Total Tier 1
Risk-Based Risk-Based Tier 1
Capital Capital Leverage
---------- ---------- --------
<S> <C> <C> <C>
Adequate regulatory capital level
Firstbank Corporation -- Consolidated $38,427 $19,213 $24,844
Bank of Alma 12,937 6,468 8,436
Firstbank 8,885 4,442 5,046
1st Bank 10,205 5,102 6,808
Lakeview 6,344 3,172 4,421
Well capitalized regulatory capital level
Firstbank Corporation -- Consolidated $48,034 $28,820 $31,056
Bank of Alma 16,171 9,703 10,545
Firstbank 11,106 6,664 6,307
1st Bank 12,756 7,653 8,510
Lakeview 7,930 4,758 5,527
</TABLE>
At December 31, 1998, actual capital levels were:
<TABLE>
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>
The following tables show the dollar amounts, in thousands, of the Company's
capital and the amounts that exceed current regulatory requirements:
<TABLE>
Total Tier 1
Risk-Based Risk-Based Tier 1
Capital Capital Leverage
<S> <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 11,512
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
Well capitalized regulatory capital level
Firstbank Corporation -- Consolidated $43,719 $26,232 $29,418
Bank of Alma 16,677 10,006 10,604
Firstbank 8,910 5,346 5,428
1st Bank 10,764 6,459 7,879
Lakeview 7,403 4,442 5,114
</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>
1999 1998
---- ----
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 $ 25,197 $ 25,197 $ 35,492 $ 35,492
Securities available for sale 90,266 90,266 101,711 101,711
Loans, net 498,922 489,801 431,980 438,963
Accrued interest receivable 3,489 3,489 3,464 3,464
Financial liabilities:
Deposits $(491,404) $(490,272) $(494,053) $(494,685)
Securities sold under agreements to repurchase
and overnight borrowings (51,819) (51,560) (26,578) (26,996)
Notes payable (38,384) (38,053) (14,317) (15,049)
Accrued interest payable (1,225) (1,225) (1,311) (1,311)
Off-balance sheet credit-related items:
Loan commitments $ 68,199 ---- $ 64,675 ----
</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.
NOTE S-BASIC AND DILUTED EARNINGS PER SHARE
<TABLE>
Year Ended December 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Earnings per share
Net income $8,036,033 $7,302,570 $5,557,731
Weighted average common shares outstanding 4,723,081 4,745,845 4,155,724
========= ========= =========
Earnings per share $1.70 $1.54 $1.34
==== ---- ====
Earnings per share assuming dilution
Net income $8,036,033 $7,302,570 $5,557,731
========= ========= =========
Weighted average common shares outstanding 4,723,081 4,745,845 4,155,724
Add dilutive effects of assumed exercises of options 116,135 181,001 114,942
---------- ---------- ----------
Weighted average common and dilutive potential
common shares outstanding 4,839,216 4,926,846 4,270,666
========= ========= =========
Earnings per share
Assuming dilution $1.66 $1.48 $1.30
==== ==== ====
</TABLE>
Stock options for 89,468 and 92,436 shares of common stock were not considered
in computing diluted earnings per share for 1999 and 1997 because they were
antidulitive.
<PAGE>
NOTE T--FIRSTBANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
December 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 364,520 $ 1,262,996
Securities available for sale 17,247 15,349
Investment in and advances to banking subsidiaries 55,635,013 53,673,418
Other assets 7,940,804 7,433,588
----------- -----------
Total assets $63,957,584 $62,385,351
========== ==========
LIABILITIES AND EQUITY
Accrued expenses and other liabilities $ 2,925,534 $ 2,610,407
Shareholders' equity 61,032,050 59,774,944
---------- ----------
Total liabilities and shareholders' equity $63,957,584 $62,385,351
========== ==========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
Years ended December 31 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividends from banking subsidiaries $4,890,000 $3,138,000 $1,638,000
Other income 330,264 191,428 67,223
Other expense (1,052,615) (862,439) (497,248)
--------- --------- ---------
Income before income tax and undistributed subsidiary income 4,167,649 2,466,989 1,207,975
Income tax benefit 139,000 121,000 83,612
Equity in undistributed subsidiary income 3,729,384 4,714,581 4,266,144
--------- --------- ----------
Net income 8,036,033 7,302,570 5,557,731
Change in unrealized gain(loss) on securities,
net of tax and classification effects (1,767,785) 216,541 323,720
--------- --------- ---------
Comprehensive income $6,268,248 $7,519,111 $5,881,451
--------- ========= =========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
Years ended December 31 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $8,036,033 $7,302,570 $5,557,731
Adjustments:
Equity in undistributed subsidiary income (3,729,384) (4,714,581) (4,266,144)
Change in other assets (507,216) (509,086) (675,823)
Change in other liabilities 315,127 868,030 1,068,773
----------- ----------- ---------
Net cash from operating activities 4,114,560 2,946,933 1,684,537
Cash flows from investing activities
Purchases of securities available for sale (1,898) (7,101)
------------ ------------
Net cash from investing activities (1,898) (7,101)
Cash flows from financing activities
Cash used for acquisition (680,774)
Proceeds from stock issuance 2,656,106 1,433,182 1,045,896
Purchase of common stock (4,792,687) (1,213,670)
Dividends paid and cash paid in lieu of
fractional shares on stock dividend (2,874,557) (2,495,573) (1,872,649)
--------- --------- ---------
Net cash from financing activities (5,011,138) (2,276,061) (1,507,527)
--------- --------- ---------
Net change in cash and cash equivalents (898,476) 663,771 177,010
Beginning cash and cash equivalents 1,262,996 599,225 422,215
----------- ----------- -----------
Ending cash and cash equivalents $ 364,520 $ 1,262,996 $ 599,225
============ ========== ===========
</TABLE>
<PAGE>
NOTE U--OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Unrealized holding gains and losses on available-for-sale securities $(2,680,844) $ 331,418 $460,754
Less reclassification adjustments for gains and losses later recognized in income (1,385) 3,329 (29,732)
----------- --------- --------
Net unrealized gains and losses (2,679,459) 328,089 490,486
Tax effect 911,674 (111,548) (166,766)
----------- -------- --------
Other comprehensive income $(1,767,785) $ 216,541 $323,720
========= ======== ========
</TABLE>
NOTE V - SUBSEQUENT EVENTS
The Board of Directors of the Company has approved the formation of a new bank
subsidiary in St. Johns, Michigan. The bank will be known as Firstbank -- St.
Johns, and is expected to open during the second quarter of 2000. Applications
to regulatory agencies have been filed and a President and Chief Executive
Officer has been named. Negotiations are nearing conclusion for the purchase of
a facility to house the new bank.
On January 1, 2000, John McCormack retired as President and Chief Executive
Officer and member of the Board of Directors of Firstbank Corporation. Thomas R.
Sullivan has been appointed to fill these vacancies. Mr. Sullivan has been
President, Chief Executive Officer, and a director of Firstbank, Mt. Pleasant,
since 1991. He served as Vice President of the Corporation from 1991 to 1996,
and as Executive Vice President of the Corporation since 1996.
<PAGE>
FIRSTBANK CORPORATION
BOARD OF DIRECTORS OFFICERS
William E. Goggin, Chairman John McCormack 1
Chairman, Bank of Alma President and Chief Executive Officer
Attorney, Goggin & Baker
Thomas R. Sullivan
Duane A. Carr Executive Vice President and President
Attorney, Carr & Mullendore, PC Elect
Edward B. Grant Mary D. Deci
Chairman, Firstbank Vice President, Secretary, Treasurer
Director, Public Broadcasting, and Chief Financial Officer
Central Michigan University
Richard L. Jarvis
Charles W. Jennings Vice President
Attorney, Jennings & Ellias, PC
Dale A. Peters
John McCormack 1 Vice President
President and Chief Executive
Officer, Firstbank Corporation Richard J. Schurtz 2
President, Chief Executive Officer Vice President
and Trust Officer, Bank Of Alma
James E. Wheeler, II
Phillip G. Peasley Vice President
Operations Manager, Peasley's
Hardware & Carpeting Inc. (Retail)
David D. Roslund, CPA
Administrator, Wilcox Health Care
Center (Long-Term Care Facility)
Small Business Investor and Manager
- --------------------------------------------------------------------------------
FIRSTBANK CORPORATION
311 Woodworth Avenue Firstbank Corporation Operations Center
P. O. Box 1029 308 Woodworth Avenue
Alma, Michigan 48801 Alma, Michigan 48801
(517) 463-3131
1 Retired 1/1/00
2 Retired 1/7/00
<PAGE>
BANK OF ALMA
BOARD OF DIRECTORS OFFICERS
William E. Goggin, Chairman John McCormack 1
Chairman, Firstbank Corporation President, Chief Executive Officer
Attorney, Goggin & Baker and Trust Officer
Bob M. Baker James E. Wheeler, II
President and CEO, Gratiot Executive Vice President,
Community Hospital Loan Officer, and President Elect
Sally M. (Peggy) Bever 2 Mary D. Deci
Business Manager Executive Vice President,
Controller, Cashier and Chief
Sandra S. Brooks Financial Officer
Chief Operating Officer, Powell
Fabrication & Manufacturing Timothy P. Clark
Vice President and Senior Trust
Donald W. Crumbaugh Officer
Agriculture
Steven E. Canole
Paul C. Lux Vice President
Owner, Lux Funeral Homes, Inc.
Gregory A. Daniels
John McCormack Vice President
Retired
Former President and Chief Marita A. Harkness
Executive Officer, Firstbank Vice President
Corporation
Former President, Chief Executive Gerald E. Kench
Officer and Trust Officer, Bank Vice President
of Alma
Timothy M. Lowe
Phillip G. Peasley Vice President
Operations Manager, Peasley's
Hardware & Carpeting 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
<TABLE>
- ---------------------------------------------------------------------------------------------------------
OFFICE LOCATIONS
<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>
1 Retired 1/1/00
2 Deceased
<PAGE>
FIRSTBANK
BOARD OF DIRECTORS OFFICERS
Edward B. Grant, Chairman Thomas R. Sullivan
Director, Public Broadcasting, President and Chief Executive Officer
Central Michigan University
Richard L. Jarvis
Ralph E. Baumgarth Executive Vice President
Dentist
Mark B. Perry
Ralph M. Berry Senior Vice President
Owner, Berry Funeral Home
James M. Taylor
Kenneth C. Bovee, CPM Senior Vice President
Partner, Keystone Property
Management, Inc. Robert L. Wheeler
Senior Vice President
Glen D. Blystone
Certified Public Accountant, Daniel J. Timmins
Blystone & Bailey, CPAs, PC Vice President
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 McCormack 1
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 and President
Elect, Firstbank Corporation
Arlene A. Yost
Secretary and Treasurer, Jay's Sporting
Goods, Inc.
- --------------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<S> <C> <C> <C>
Mt. Pleasant Mt. Pleasant Mt. Pleasant Mt. Pleasant
102 S. Main St. 4699 E. Pickard St. 2013 S. Mission St. 1925 E. Remus Rd.
(517) 773-2600 (517) 773-2335 (517) 773-3959 (517) 775-8528
Clare Shepherd Winn
806 N. McEwan Ave. 258 W. Wright Ave. 2783 Blanchard Rd.
(517) 386-7313 (517) 828-6625 (517) 866-2210
</TABLE>
1 Retired 1/1/00
<PAGE>
1st BANK
BOARD OF DIRECTORS OFFICERS
Dale A. Peters, Chairman Dale A. Peters
President and Chief Executive President and Chief Executive Officer
Officer, 1st Bank
Vice President, Firstbank Corporation Daniel H. Grenier
Senior Vice President
Bryon A. Bernard
CEO, Bernard Building Center Michael F. Ehinger
Vice President
Joseph M. Clark
Owner, Morse Clark Furniture Danny J. Gallagher
Vice President
Timothy H. Eyth
Owner, West Branch Veterinary Services Rosalind A. Heideman
Vice President
David W. Fultz
Owner, Fultz Insurance Agency Eileen S. McGregor
Vice President
Robert T. Griffin
Owner and President, Griffin Beverage Richard L. Pfahl
Company, Vice President
Northern Beverage Co., and West Branch
Tank & Trailer W. John Powell
Vice President
Charles W. Jennings
Attorney, Jennings & Ellias, PC Larry M. Schneider
Vice President
John McCormack 1
President & CEO, Firstbank Corporation Marie A. Wilkins
President & CEO, Bank of Alma Vice President
Norman J. Miller
Owner, Miller Farms, and Miller Dairy
Equipment and Feed
Jeffrey C. Schubert
Dentist
Robert R. Smith SUBSIDIARIES
Insurance Consultant 1st Armored, Incorporated
1st Collections, Incorporated
Camila J. Steckling
Weinlander, Fitzhugh
Certified Public Accountants &
Consultants
- --------------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<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>
1 Retired 1/1/00
<PAGE>
BANK OF LAKEVIEW
BOARD OF DIRECTORS OFFICERS
V. Dean Floria, Chairman Richard J. Schurtz 2
Owner, Floria Parts Plus, Inc. President and Chief Executive Officer
Duane A. Carr William L. Benear
Attorney, Carr & Mullendore Executive Vice President and President
Elect
John B. Crawford
Agriculture, Crawford Farms David L. Miller
Senior Vice President
Chalmer Gale Hixson
Owner, Country Corner Supermarket Kim D. vonKronenberger
Owner, A Flair for Hair Vice President
Owner, Harry Chalmers, Inc.
John McCormack 1
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 2
President and Chief Executive Officer,
Bank of Lakeview
Vice President, Firstbank Corporation
- --------------------------------------------------------------------------------
OFFICE LOCATIONS
<TABLE>
<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 (231) 937-4383 (231) 856-7652
(231) 972-4200
9531 N Greenville Road Remus
(517) 352-8180 201 W Wheatland Avenue
(517) 967-3602
</TABLE>
1 Retired 1/1/00
2 Retired 1/7/00
<PAGE>
BUSINESS OF THE COMPANY
Firstbank Corporation (the "Company") is a bank holding company. As of December
31, 1999, the Company's wholly owned subsidiaries are Bank of Alma, Firstbank,
1st Bank, Bank of Lakeview, 1st Armored, Incorporated, and 1st Collections
Incorporated. As of December 31, 1999, the Company and its subsidiaries employed
300 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, two branches located in Union
Township (near Mt. Pleasant), and one branch located in each of the following
areas: Clare, Mt. Pleasant, Shepherd, 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 78% of total revenues in 1999, 76% in 1998, and 80%
in 1997. Interest on investment securities accounted for approximately 10% of
total revenues in 1999, 12% in 1998, and 11% in 1997. No other single source of
revenue accounted for 10% of the Company's total revenues in any of the last 3
years.
CORPORATE INFORMATION
Annual Meeting Stock Information
The annual meeting of shareholders Firstbank Corporation shares
will be held on Monday, April 24, 2000, are listed Over the Counter
5:00 p.m., at the Comfort Inn, Alma, Bulleting Board under the
Michigan. symbol FBMI.
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
Varnum Riddering Schmidt & Howlett LLP 1-800-548-6011
Grand Rapids, Michigan
- and - Morgan Stanley Dean Witter
Warner Norcross & Judd LLP Ted Vogt
Grand Rapids, Michigan 1-800-788-9640
Transfer Agent Raymond James Financial
Bank of Alma Shareholder Services Department Louis Parks
(517) 463-3131 extension 7336 800-248-8863
Toll free shareholder hotline: (888) 637-0590
Robert W. Baird & Company
Bill L. Ockerlund
1-888-202-5048
Stifel, Nicolaus & Company,
Inc.
Pete VanDer Schaaf
1-800-676-0477
Tucker Anthony
Jack Korff
1-888-861-2200
