-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GQC3ggaQQL+GFpC1GjdMjVXAbCPA6viqpp46xSbQWj3EQo4ef3RTuuCjdwZLyA78 ySncxULd9DHqdpP4QY8uXA== 0000926044-01-000060.txt : 20010328 0000926044-01-000060.hdr.sgml : 20010328 ACCESSION NUMBER: 0000926044-01-000060 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTBANK CORP CENTRAL INDEX KEY: 0000778972 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382633910 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14209 FILM NUMBER: 1579656 BUSINESS ADDRESS: STREET 1: 311 WOODWORTH AVE STREET 2: PO BOX 1029 CITY: ALMA STATE: MI ZIP: 48801 BUSINESS PHONE: 5174633131 MAIL ADDRESS: STREET 1: 311 WOODWORTH AVE CITY: ALMA STATE: MI ZIP: 48801 10-K 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ______________ to ______________ Commission File Number: 0-14209 FIRSTBANK CORPORATION (Exact name of registrant as specified in its charter) Michigan 38-2633910 (State of Incorporation) (I.R.S. Employer Identification No.) 311 Woodworth Avenue Alma, Michigan 48801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (517) 463-3131 Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate Market Value as of March 1, 2001: $79,959,576 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock outstanding at March 1, 2001: 4,773,706 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's annual report to shareholders for the year ended December 31, 2000, are incorporated by reference in Part II. Portions of the definitive proxy statement for the registrant's annual shareholders' meeting to be held April 23, 2001, are incorporated by reference in Part III. FORWARD LOOKING STATEMENTS This annual report on Form 10-K including, without limitation, management's discussion and analysis of financial conditions and results of operations and other sections of the Corporation's Annual Report to Shareholders which are incorporated by reference in this report contain forward looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation itself. Words such as "anticipate, " "believe," "determine," "estimate," "expect," "forecast," "intend," "is likely," "plan," "project," "opinion," variations of such terms, and similar expressions are intended to identify such forward looking statements. The presentations and discussions of the provision and allowance for loan losses, and determinations as to the need for other allowances presented or incorporated by reference in this report are inherently forward looking statements in that they involve judgments and statements of belief as to the outcome of future events. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward looking statements. Internal and external factors that may cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior and customer ability to repay loans; software failure; errors or miscalculations; changes in accounting principles, policies and guidelines; and the vicissitudes of the national economy. The Corporation undertakes no obligation to update, amend or clarify forward looking statements, whether as a result of new information, future events, or otherwise. PART I ITEM 1. Business. Firstbank Corporation (the "Corporation") is a bank holding company. The Corporation owns all of the outstanding stock of Firstbank - Alma, Firstbank (Mount Pleasant), Firstbank - West Branch, Firstbank - Lakeview, Firstbank - St. Johns, and Gladwin Land, Co. (a real estate appraisal company). The Corporation's business is concentrated in a single industry segment -- commercial banking. Each subsidiary bank of the Corporation is a full-service, community bank. The subsidiary banks offer all customary banking services, including the acceptance of checking, savings, and time deposits, and the making of commercial, mortgage (principally single family), home improvement, automobile, and other consumer loans. Firstbank - Alma also offers trust services. Firstbank - West Branch owns 1st Armored, Incorporated (an armored car service provider), 1st Collections, Incorporated (a collection service), 1st Title, Incorporated (a title insurance company), and 1st Real Estate, Incorporated (which became C.A. Hanes Realty, Incorporated as of January 2, 2001). Each of the subsidiary banks also offers securities brokerage services at their main offices through arrangements with third party brokerage firms. The principal sources of revenues for the Corporation and its subsidiaries are interest and fees on loans. On a consolidated basis, interest and fees on loans accounted for approximately 82 percent of total revenues in 2000, 78 percent of total revenues in 1999, and 76 percent of total revenues in 1998. In addition, interest income from investment securities accounted for approximately 8 percent of total revenues on a consolidated basis in 2000, 10 percent of total revenues on a consolidated basis in 1999, and 10.4 percent of total revenues on a consolidated basis in 1998. No other single source of revenue accounted for 15 percent or more of the Corporation's total revenues in any of the last three years. The Corporation has no foreign assets and no income from foreign sources. The business of the subsidiary banks of the Corporation is not seasonal to any material extent. Firstbank - Alma is a Michigan state chartered bank. It and its predecessors have operated continuously in Alma, Michigan, since 1880. Its main office and one branch are located in Alma. Firstbank - Alma also has one full service branch located in each of the following communities near Alma: Ashley, Auburn, Ithaca, Merrill, Pine River Township, Riverdale, St. Charles, St. Louis, and Vestaburg. -1- Firstbank (Mount Pleasant) is a Michigan state chartered bank which was incorporated in 1894. Its main office and one branch are located in Mount Pleasant, Michigan. Firstbank also has two full service offices in Union Township and one full service branch located in each of the following communities near Mount Pleasant: Clare, Shepherd and Winn. Firstbank - West Branch is a Michigan state chartered bank which was incorporated in 1980. Its main office and two branches are located in West Branch, Michigan. Firstbank - West Branch also has one full service branch located in each of the following communities near West Branch: Fairview, Hale, Higgins Lake, Rose City, St. Helen, and West Branch Township. Firstbank - Lakeview is a Michigan state chartered bank which was established in 1904. Its main office and one branch are located in Lakeview, and it has branches in Howard City, Morley, Remus, and Canadian Lakes (Morton Township). Firstbank - St. Johns is a Michigan state chartered bank which was established in 2000. Its main office is located in downtown St. Johns. It plans to establish its first branch office in the St. Johns area during the year 2001. The following table shows comparative information concerning the Corporation's subsidiary banks at December 31, 2000: Firstbank - Firstbank - Firstbank - Firstbank - Alma Firstbank West Branch Lakeview St. Johns ----------- --------- ----------- -------- --------- (In Thousands of Dollars) Assets $258,527 $163,961 $187,723 $125,670 $22,244 Deposits 177,947 125,325 152,746 82,987 17,721 Loans 174,094 145,248 159,690 105,076 16,658
As of December 31, 2000, the Corporation and its subsidiaries employed 267 persons on a full time equivalent basis. Banking in the Corporation's market areas and in the State of Michigan is highly competitive. In addition to competition from other commercial banks, banks face significant competition from nonbank financial institutions. Savings and loan associations are able to compete aggressively with commercial banks for deposits and loans. Credit unions and finance companies are also significant factors in the consumer loan market. Insurance companies, investment firms, and retailers are significant competitors for investment products. Banks compete for deposits with a broad spectrum of other types of investments such as mutual funds, debt securities of corporations, and debt securities of the federal government, state governments, and their respective agencies. The principal methods of competition for financial services are price (interest rates paid on deposits, interest rates charged on loans, and fees charged for services) and service (the convenience and quality of services rendered to customers). The Corporation's subsidiary banks compete directly with other banks, thrift institutions, credit unions and other nondepository financial institutions in four geographic banking markets where their offices are located. Firstbank - Alma primarily competes in Gratiot, Midland, Montcalm, and Saginaw Counties; Firstbank (Mount Pleasant) primarily in Isabella and Clare Counties; Firstbank - West Branch primarily in Iosco, Oscoda, Ogemaw, and Roscommon Counties; Firstbank - Lakeview primarily in Mecosta and Montcalm Counties, and Firstbank - St. Johns primarily in Clinton County. Banks and bank holding companies are extensively regulated. The Corporation is a bank holding company that is regulated by the Federal Reserve System. Firstbank - Alma, Firstbank (Mount Pleasant), Firstbank - West Branch, Firstbank - - Lakeview, and Firstbank - St. Johns are chartered under state law and are supervised, examined, and regulated by the Federal Deposit Insurance Corporation and the Division of Financial Institutions of the Michigan Office of Financial and Insurance Services. Laws that govern banks significantly limit their business activities in a number of respects. Prior approval of the Federal Reserve Board, and in some cases various other governing agencies, is required for the Corporation to acquire control of any additional banks or branches. The business activities of the Corporation and its subsidiaries are limited to banking and to other activities which are determined by the Federal Reserve Board to be closely related to banking. Transactions among the Corporation and the Corporation's subsidiary banks are significantly restricted. In addition, bank regulations govern the ability of the subsidiary banks to pay dividends or make other distributions to the Corporation. -2- In addition to laws that affect businesses in general, banks are subject to a number of federal and state laws and regulations which have a material impact on their business. These include, among others, state usury laws, state laws relating to fiduciaries, the Truth In Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Bank Secrecy Act, the Community Development and Regulatory Improvement Act, the Financial Institutions Reform, Recovery and Enforcement Act, the FDIC Improvement Act of 1991 (the "FDIC Improvement Act"), electronic funds transfer laws, redlining laws, antitrust laws, environmental laws, and privacy laws. The enactment of the Gramm-Leach-Bliley Act of 1999 (the "GLB Act") represents a pivotal point in the history of the financial services industry. The GLB Act sweeps away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for regulation through the "financial holding company," which will have as its umbrella regulator the Federal Reserve Board. Functional regulation of the financial holding company's separately regulated subsidiaries will be conducted by their primary functional regulator. In order to qualify as a financial holding company, a bank holding company must file an election to become a financial holding company and each of its banks must be "well capitalized" and "well managed." In addition, the GLB Act makes satisfactory or above Community Reinvestment Act compliance for insured depository institutions and their financial holding companies necessary in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy of non-public personal information of individual customers. The Corporation and its subsidiary banks are also subject to certain state laws that deal with the use and distribution of non-public personal information. The Corporation believes that the GLB Act could significantly increase competition in its business and is evaluating the desirability of electing to become a financial holding company. The Corporation believes that it is qualified to elect financial holding company status but has not yet decided to do so. The instruments of government monetary policy, as determined by the Federal Reserve Board, may influence the growth and distribution of bank loans, investments, and deposits, and may also affect interest rates on loans and deposits. These policies have a significant effect on the operating results of banks. Under applicable laws, regulations, and policies, the Corporation is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each subsidiary bank. Any insured depository institution owned by the Corporation may be assessed for losses incurred by the Federal Deposit Insurance Corporation (the "FDIC") in connection with assistance provided to, or the failure of, any other insured depository institution owned by the Corporation. The FDIC has authority to impose special assessments on insured depository institutions to repay FDIC borrowings from the United States Treasury or other sources and to establish periodic assessment rates on Bank Insurance Fund ("BIF") member banks so as to maintain the BIF at the designated reserve ratio defined in the FDIC Improvement Act. Firstbank - Alma and Firstbank (Mount Pleasant) also hold deposits that are insured by the Savings Association Insurance Fund ("SAIF") administered by the FDIC. Deposit insurance premiums on those deposits are paid to the SAIF at rates applicable to that fund. The FDIC has implemented a system of risk-based premiums for deposit insurance pursuant to which the premiums paid by a depository institution will be based on the perceived probability that the insurance funds will incur a loss in respect of that institution. Federal law allows bank holding companies to acquire banks located in any state in the United States without regard to geographic restrictions or reciprocity requirements imposed by state law and to establish interstate branch networks through acquisitions of other banks. Michigan and federal law permits both U.S. and non U.S. banks to establish branch offices in Michigan. The Michigan Banking Code permits, in appropriate circumstances and with the approval of the Commissioner: (i) acquisition of Michigan banks by FDIC insured banks, savings banks, or savings and loan associations located in other states; (ii) sale by a Michigan bank of branches to an FDIC insured bank, savings bank, or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity; (iii) consolidation of Michigan banks and FDIC insured banks, savings banks, or -3- savings and loan associations located in other states having laws permitting such consolidation; (iv) establishment of branches in Michigan by FDIC insured banks located in other states, the District of Columbia, or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction; and (v) establishment by foreign banks of branches located in Michigan. Risk based capital and leverage standards apply to all banks under federal regulations. The risk-based capital ratio standards establish a systematic analytical framework that is intended to make regulatory capital requirements sensitive to differences in risk profiles among banking organizations, take off balance sheet liability exposures into explicit account in assessing capital adequacy, and minimize disincentives to hold liquid, low risk assets. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments into risk-weighting categories. Higher levels of capital are required for categories perceived as representing greater risk. Failure to meet minimum capital ratio standards could subject a bank to a variety of enforcement remedies available to the federal regulatory authorities, including restrictions on certain kinds of activities, restrictions on asset growth, limitations on the ability to pay dividends, the issuance of a directive to increase capital, and the termination of deposit insurance by the FDIC. Maintaining capital at "well capitalized" levels is one condition to the assessment of federal deposit insurance premiums at the lowest available rate. Each of the Corporation's subsidiary banks, and the Corporation itself on a consolidated basis, maintains capital at levels which exceed both the minimum and well capitalized levels under currently applicable regulatory requirements. The following table summarizes compliance with regulatory capital ratios by the Corporation and each of its subsidiary banks at December 31, 2000. Tier 1 Tier 1 Total Leverage Capital Risk-based Ratio Ratio Capital ----- ----- ------- Minimum regulatory requirement 4% 4% 8% Well capitalized regulatory level 5% 6% 10% Firstbank Corporation-Consolidated 7.77% 10.03% 11.28% Firstbank - Alma 8.21% 11.08% 12.34% Firstbank (Mt. Pleasant) 8.17% 9.88% 11.10% Firstbank - West Branch 7.24% 9.54% 10.80% Firstbank - Lakeview 9.00% 12.42% 13.68% Firstbank - St. Johns 19.08% 24.46% 25.54%
The following table shows the amounts by which the Corporation's capital (on a consolidated basis) exceeds current regulatory requirements on a dollar amount basis: Total Tier 1 Tier 1 Risk-based Leverage Capital Capital Capital Balances at December 31, 2000 $54,820 $54,820 $61,691 Required regulatory capital 28,205 21,868 43,736 ------ ------ ------ Capital in excess of regulatory minimums $26,615 $32,952 $17,955 ====== ====== ======
-4- The nature of the business of the Corporation's subsidiaries is such that they hold title, on a temporary or permanent basis, to a number of parcels of real property. These include property owned for branch offices and other business purposes as well as properties taken in or in lieu of foreclosures to satisfy loans in default. Under current state and federal laws, present and past owners of real property may be exposed to liability for the cost of remediation of contamination on or originating from such properties, even though they are wholly innocent of the actions which caused the contamination. Such liabilities can be material and can exceed the value of the contaminated property. -5- The following tables provide information concerning the business of the registrant. Distribution of Assets, Liabilities, and Shareholders' Equity Year Ended Year Ended Year Ended December 31, 2000 December 31, 1999 December 31, 1998 ------------------------------------------------------------------------------- Average Average Average Average Average Average (In Thousands of Dollars) Balance Interest Rate Balance Interest Rate Balance Interest Rate Average Assets Interest earning assets: Taxable securities $ 52,590 $ 3,365 6.40% $ 60,033 $ 3,651 6.08% $ 55,861 $ 3,431 6.15% Tax exempt securities (1) 29,584 2,267 7.66 33,307 2,572 7.72 33,455 2,589 7.74 -------- ------- ------- ------- ------- ------- Total securities 82,174 5,632 6.85 93,340 6,223 6.67 89,316 6,020 6.74 Loans (1) (2) 551,357 49,237 8.93 462,516 40,467 8.75 412,884 38,768 9.39 Federal funds sold 3,290 209 6.35 4,190 208 4.96 13,446 728 5.41 Interest bearing deposits 496 26 5.24 999 55 5.50 809 42 5.20 ---------- --------- --------- --------- --------- --------- Total earning assets 637,317 55,104 8.65 561,045 46,953 8.37 516,455 45,558 8.82 Nonaccrual loans 1,844 2,034 1,432 Less allowance for loan loss (9,754) (9,213) (8,543) Cash and due from banks 20,160 18,877 19,173 Other non earning assets 37,623 34,700 32,421 -------- -------- -------- Total Average Assets $687,190 $607,443 $560,938 ======= ======= ======= Average Liabilities Interest bearing liabilities: Demand $131,998 $ 4,409 3.34% $143,828 $ 4,662 3.24% $126,030 $4,440 3.52% Savings 70,461 1,668 2.37 72,412 1,776 2.45 67,085 1,734 2.58 Time 231,367 13,044 5.64 204,417 10,485 5.13 211,243 11,718 5.55 Federal funds purchased and repurchase agreements 41,901 2,277 5.43 29,343 1,385 4.72 17,601 757 4.30 Notes payable 63,692 4,129 6.48 17,777 975 5.49 11,464 704 6.14 -------- ------- -------- -------- --------- ------- Total interest bearing liabilities 539,419 25,527 4.73 467,777 19,283 4.12 433,423 19,353 4.47 Demand deposits 76,368 70,711 63,257 -------- -------- -------- Total funds 615,787 538,488 496,680 Other non interest bearing liabilities 8,728 8,203 8,000 --------- --------- --------- Total liabilities 624,515 546,691 504,680 Average shareholders' equity 62,675 60,752 56,258 -------- -------- -------- Total liabilities and shareholders' equity $687,190 $607,443 $560,938 ======= ======= ======= Net interest income (1) $ 29,577 $27,670 $26,205 ======= ====== ====== Rate spread (1) 3.92% 4.25% 4.35% ==== ==== ==== Net interest margin (percent of average earning assets) (1) 4.63% 4.92% 5.06% ==== ==== ====
(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 $1,302,000, $1,312,400, and $1,726,000 respectively. Interest on nonaccrual loans is not included. -6- Volume/Rate Analysis(1) 2000/1999 1999/1998 --------- --------- Change in Interest Due to: Change in Interest Due to: ------------------------------------------------------------------------------- Average Average Net Average Average Net Volume Rate Change Volume Rate Change ------ ---------- ------ ------ ---------- ------ (Dollars in thousands) Interest Income: Securities Taxable securities $ (469) $183 $ (286) $ 253 $ (33) $ 220 Tax-exempt securities(2) (285) (20) (305) (11) (6) (17) ------ ---- ----- ------- --------- -------- Total securities (754) (163) (591) 242 (39) 203 Loans(2) 7,918 852 8,770 4,457 (2,758) 1,699 Federal funds Sold (50) 51 1 (464) (56) (520) Interest bearing deposits (26) (3) (29) 10 3 13 ------ ------- ------ ------- ---------- -------- Total interest income on earning assets 7,088 1,063 8,151 4,245 (2,850) 1,395 Interest Expense: Deposits Interest paying demand (392) 139 (253) 595 (373) 222 Savings (47) (61) (108) 133 (91) 42 Time 1,461 1,098 2,559 (370) (863) (1,233) ----- ----- ----- ------ ------- ------ Total deposits 1,022 1,176 2,198 358 (1,327) (969) Federal funds purchased and securities sold under agreements to repurchase 659 233 892 548 80 628 Notes payable 2,946 208 3,154 353 (82) 271 ----- ------ ----- ------ -------- ------- Total interest expense on liabilities 4,627 1,617 6,244 1,259 (1,329) (70) ----- ----- ----- ----- ------ ------- Net Interest Income $2,461 $ (554) $1,907 $2,986 $(1,521) $ 1,465 ===== ===== ===== ===== ====== ======
(1) Changes in volume/rate have been allocated between the volume and rate variances on the basis of the ratio that the volume and rate variances bear to each other. (2) Interest is presented on fully taxable equivalent basis using a federal income tax rate of 34%. -7- Investment Portfolio The carrying values of investment securities as of the dates indicated are summarized as follows: December 31, --------------------------------------- 2000 1999 1998 ---- ---- ---- (Dollars in thousands) Taxable US Treasury $ 4,032 $ 8,002 $ 9,250 US Government agencies 22,056 24,787 22,932 States and political subdivisions 5,616 5,654 4,839 Mortgage Backed Securities 1,001 2,175 3,614 Corporate and other 14,494 19,004 24,819 ------ ------ -------- Total taxable 47,199 59,622 65,454 Tax-exempt States and political subdivisions 28,976 30,644 36,257 ------ ------ -------- Total $76,175 $90,266 $101,711 ====== ====== =======
-8- Analysis of Investment Securities Portfolio The following table shows, by class of maturities at December 31, 2000, the amounts and weighted average yields of such investment securities (1): Carrying Average Value Yield(2) ----- -------- (In Thousands of Dollars) U.S. Treasuries: One year or less $ 2,517 6.1497% Over one through five years 1,515 6.3755 ------- Total $ 4,032 6.2346% U.S. Agencies: One year or less $ 1,715 5.8679% Over one through five years 10,075 5.4815 Over five through ten years 7,806 6.2047 Over ten years 2,460 6.0767 ------- Total $22,056 5.8339% States & Political subdivisions: One year or less $ 4,484 9.5817% Over one through five years 11,871 8.2814 Over five through ten years 16,732 8.3331 Over ten years 1,505 9.0982 ------- Total $34,592 8.5105% Corporate and Other: One year or less $10,966 8.7438% Over one through five years 3,528 6.3889 ------- Total $14,494 8.1706% Collateralized Mortgage Obligations Over five through ten years $ 102 5.7013% Over ten years 899 6.5567 ------- Total $ 1,001 6.4698% TOTAL $76,175 7.5235% ======
(1) Calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. (2) Weighted average yield has been computed on a fully taxable equivalent basis. The rates shown on securities issued by states and political subdivisions have been presented, assuming a 34% tax rate. The amount of the adjustment, due to the fully tax equivalent basis of presentation, is as follows: -9- Analysis of Investment Securities Portfolio (cont.) Rate on Taxable Tax-exempt Equivalent Rate Adjustment Basis ---------- ---------- ---------- One year or less 6.32% 3.25% 9.57% Over 1 through 5 years 5.21 2.68 7.89 Over 1 through 10 years 5.42 2.79 8.21 Over 10 years 6.00 3.09 9.09 Total 5.51% 2.84% 8.34%
The aggregate book value of the securities of no single issuer except the U.S. Government or agencies exceeded ten percent of the Corporation's consolidated shareholders' equity as of December 31, 2000. -10- Loan Portfolio The following table presents the loans outstanding at December 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In Thousands of Dollars) Loan categories: Lonas held for sale $ 1,018 $ 1,117 $ 5,455 $ 3,917 $ 6,756 Commercial and agricultural 279,060 227,855 192,212 158,219 122,934 Real estate mortgages 238,899 204,062 171,554 167,931 115,849 Consumer 81,790 75,204 71,807 74,741 69,081 Total $600,767 $508,238 $441,028 $404,808 $314,620 ======= ======= ======= ======= =======
The following table shows the maturity of commercial and agricultural and real estate construction loans outstanding at December 31, 2000. Also provided are the amounts due after one year classified according to their sensitivity to changes in interest rates. One year One year to After or less five years five years Total ------- ---------- ---------- ----- (In Thousands of Dollars) Commercial and agricultural $112,222 $143,129 $23,709 $279,060 Real Estate Construction 17,052 4,960 1,548 23,560 --------- -------- -------- --------- Total $129,274 $148,089 $25,257 $302,620 ======= ======= ====== ======= Loans due after one year: With pre-determined rate $121,772 $22,790 $144,562 With adjustable rates 26,317 2,467 28,784 -------- -------- --------- Total $148,089 $25,257 $173,346 ======= ====== =======
-11- Nonperforming Loans and Assets The following table summarizes nonaccrual, troubled debt restructurings, and past-due loans at December 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In Thousands of Dollars) Nonperforming loans: Nonaccrual loans: Commercial and agricultural $ 834 $ 701 $ 584 $ 447 $ 127 Real estate mortgages 876 1,454 186 800 79 Consumer 4 10 20 27 12 -------- ------- ------- ------- ------- Total 1,714 2,165 790 1,274 218 Accruing Loans 90 days or more past due: Commercial and agricultural 254 561 359 752 178 Real estate mortgages 91 74 241 426 475 Consumer 20 28 21 37 36 ------- ------- ------- ------- ------- Total 365 663 621 1,215 689 Renegotiated loans: Commercial and agricultural 53 55 86 121 150 Real estate mortgages 0 0 0 0 0 -------- -------- -------- -------- -------- Total 53 55 86 121 150 Total nonperforming loans 2,132 2,883 1,497 2,610 1,057 Property from defaulted loans 513 511 527 663 130 ------ ------ ------ ------ ------ Total nonperforming assets $2,645 $3,394 $2,024 $3,273 $1,187
Nonperforming assets are defined as nonaccrual loans, loans 90 days or more past due, property from defaulted loans, and renegotiated loans. The gross interest income that would have been recorded for the year ended December 31, 2000, if the nonaccrual and renegotiated loans had performed in accordance with their original terms and had been outstanding throughout the period, or since origination if held for part of the period, was $51,730. The amount of interest income on those loans that was included in net income for the period was $140,614. Loan performance is reviewed regularly by external loan review specialists, loan officers, and senior management. When reasonable doubt exists concerning collectibility of interest or principal, the loan is placed in nonaccrual status. Any interest previously accrued but not collected at that time is reversed and charged against current earnings. At December 31, 2000, the Corporation had $18,644,000 in commercial and mortgage loans for which payments are presently current although the borrowers are experiencing financial difficulties. Those loans are subject to special attention and their status is reviewed on a monthly basis. As of December 31, 2000, there were no concentrations of loans exceeding 10 percent of total loans which are not otherwise disclosed as a category of loans in the consolidated balance sheets of the Corporation contained in the Corporation's Annual Report to shareholders for the year ended December 31, 2000. -12- Analysis of the Allowance for Loan Losses The following table summarizes changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off by loan category and additions to the allowance which were charged to expense at December 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In Thousands of Dollars) Balance at beginning of period $9,317 $9,048 $8,114 $6,247 $4,876 Charge-offs: Commercial and agricultural 369 240 71 211 110 Real estate mortgages 25 67 60 79 45 Consumer 431 492 581 980 625 ------ ------ ----- ----- ----- Total charge-offs 825 799 712 1,270 780 Recoveries: Commercial and agricultural 355 234 97 97 83 Real estate mortgages 2 20 47 7 28 Consumer 272 300 325 309 202 ------ ------ ----- ----- ----- Total recoveries 629 554 469 413 313 Net charge-offs 196 245 243 857 467 ------ ------ ----- ----- ------ Additions to allowance for loan losses 736 514 1,177 2,724 (1) 1,838 ------ ------ ----- ----- ----- Balance at end of period $9,857 $9,317 $9,048 $8,114 $6,247 ===== ===== ===== ===== ===== Net charge-offs as a percent of average loans .03% .05% .06% .24% .16%
(1) Includes the allowance of Firstbank - Lakeview at date of acquisition of $1,326. The allowance for loan losses is based on management's evaluation of the portfolio, past loan loss experience, current economic conditions, volume, growth, and composition of the loan portfolio, and other relevant factors. The allowance is increased by provisions for loan losses that have been charged to expense and reduced by net charge-offs. Allocation of the Allowance for Loan Losses The allowance for loan losses was allocated to provide for possible losses within the following loan categories as of December 31, 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------------- Allowance %of Allowance %of Allowance %of Allowance %of Allowance %of for loans to for loans to for loans to for loans to for loans to loan total loan total loan total loan total loan total losses loans losses loans losses loans losses loans losses loans ------------------------------------------------------------------------------------------------------------------ Commercial & agricultural $5,749 44% $5,344 45% $4,758 44% $3,806 39% $2,763 39% Real estate mortgages 769 43% 539 40 476 40 516 42 364 39 Consumer 1,600 13% 1,521 15 1,690 16 1,621 19 1,576 22 Unallocated 1,739 1,913 2,124 2,171 1,544 ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- Total $9,857 100% $9,317 100% $9,048 100% $8,114 100% $6,247 100% ===== ==== ===== ==== ===== ==== ===== === ===== ===
-13- Average Deposits The daily average deposits and rates paid on such deposits for the years ending December 31, 2000 1999 1998 ---- ---- ---- Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (In Thousands of Dollars) Average Balance: Noninterest-bearing demand deposits $ 76,368 $ 70,711 $ 63,257 Interest-bearing demand deposits 131,998 3.34% 143,828 3.24% 126,030 3.52% Other savings deposits 70,461 2.37% 72,412 2.45% 67,085 2.58% Other time deposits 231,367 5.64% 204,417 5.13% 211,243 5.55% ------- ---- ------- ---- ------- ---- Total average deposits $510,194 3.75% $491,368 3.44% $467,615 3.83% ======= ==== ======= ==== ======= ====
The time remaining until maturity of time certificates of deposit and other time deposits of $100,000 or more at December 31, 2000, was as follows (In Thousands of Dollars): Three months or less $27,853 Over three through six months 9,086 Over six through twelve months 14,686 Over twelve months 5,871 ------- Total $57,496 ======
Return on Equity and Assets The following table sets forth certain financial ratios for the years ended: 2000 1999 1998 ---- ---- ---- Financial ratios: Return on average total assets 1.24% 1.32% 1.30% Return on average equity 13.63% 13.23% 12.98% Average equity to average total assets 9.12% 10.00% 10.03% Dividend payout ratio 36.73% 35.76% 34.16%
-14- Short Term Borrowed Funds Included in short term borrowed funds are repurchase agreements as described in Note J to the consolidated financial statements in the Corporation's Annual Report to shareholders for the year ended December 31, 2000, which consist of the following: 2000 1999 1998 ---- ---- ---- Amounts outstanding at the end of the year $21,657 $21,519 $18,678 Weighted average interest rate at the end of the year 4.88% 4.17% 3.88% Longest maturity 5-18-01 1-18-00 1-20-99 Maximum amount outstanding at any month end during year $26,374 $21,519 $18,678 Approximate average amounts outstanding during the year $23,649 $19,495 $15,618 Approximate weighted average interest rate for the year 4.62% 4.05% 4.15%
The weighted average interest rates are derived by dividing the interest expense for the period by the daily average balance during the period. -15- ITEM 2. Properties. The offices of the Corporation and the main office of Firstbank - Alma are located at 311 Woodworth Avenue, Alma, Michigan. Firstbank - Alma occupies approximately 24,000 square feet of this building owned by Firstbank - Alma. The Corporation's Operations Center is housed in a 14,800 square foot building located in Alma and owned by Firstbank - Alma. The main office of Firstbank (Mount Pleasant) is located at 102 South Main, Mount Pleasant, Michigan. The 5,600 square foot facility is leased. The lease will expire in 2006 . Firstbank has an option to extend the term for an additional five years. The main office of Firstbank - West Branch is located at 502 West Houghton Avenue, West Branch, Michigan in an approximately 3,600 square foot building owned by the Bank. The executive offices of Firstbank - West Branch and a full service branch are located in a 10,000 square foot building owned by the Bank and located at 601 West Houghton Avenue, West Branch, Michigan. The main office of Firstbank - Lakeview, which is owned by the Bank, is located in a brick and block frame building of approximately 16,000 square feet at 506 South Lincoln Avenue, Lakeview, Michigan. The main office of Firstbank - St. Johns, which is owned by the Bank, is located in a 3,400 square foot building at 201 North Clinton, St. Johns, Michigan. The subsidiary banks operate a total of 30 branch facilities, all but two of which are owned and most of which are full service facilities and which range in size from 1,200 to 3,200 square feet used for banking purposes. In several instances, branch facilities contain more space than required for current banking operations. This excess space, totaling approximately 17,000 square feet, is leased to unrelated businesses. Management considers the properties and equipment of the Corporation and its subsidiaries to be well maintained, in good operating condition, and adequate for their operations. -16- ITEM 3. Legal Proceedings. The Corporation and its subsidiaries are parties, as plaintiff or as defendant, to routine litigation arising in the normal course of their business. In the opinion of management, the liabilities arising from these proceedings, if any, will not be material to the Corporation's consolidated financial condition. ITEM 4. Submission of Matters to a Vote of Security Holders. Not applicable. Supplemental Item. Executive Officers of the Registrant. The following information concerning executive officers of the Corporation has been omitted from the registrant's proxy statement pursuant to Instruction 3 to Regulation S-K, Item 401(b). Officers of the Corporation are appointed annually by the Board of Directors of the Corporation and serve at the pleasure of the Board of Directors. Information concerning the executive officers of the Corporation to the Board of Directors of the Corporation is given below. Except as otherwise indicated, all existing officers have had the same principal employment for over 5 years. William L. Benear (age 54) became President & CEO of Firstbank - Lakeview on January 1, 2000. He was also appointed a Vice President of the Corporation. Prior to becoming Lakeview's President & CEO, Mr. Benear had been Executive Vice President of Firstbank - Lakeview since 1994. David L. Miller (age 35) was named a Vice President of the Corporation December 8, 2000. Prior to this appointment, Mr. Miller was a Senior Vice President of Firstbank - Lakeview, having been employed at Lakeview since 1992. Mr. Miller serves in the Human Resources Department for the Corporation and its subsidiaries. Dale A. Peters (age 58) has been Vice President of the Corporation and President, Chief Executive Officer, and a director of Firstbank - West Branch since 1987. He has been Chairman of the Board of Firstbank - West Branch since 1988. Samuel G. Stone (age 55) was appointed Vice President, CFO, Secretary and Treasurer of the Corporation in November 2000. From 1998 until his appointment to Firstbank Corporation, Mr. Stone served as Senior Vice President - Corporate Planning of National City Corporation (successor to First of America). Previous positions Mr. Stone held during his 28-year tenure with First of America included Senior Vice President and Treasurer, Vice President - Director of Corporate Planning, and Vice President - Trust Investments. Thomas R. Sullivan (age 50) was appointed President & CEO of the Corporation on January 1, 2000. He has also served as President, CEO, and 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. James M. Taylor (age 59), was appointed as the President & CEO of Firstbank - St. Johns in March 2000. Prior to that appointment, Mr. Taylor had been Senior Vice President at Firstbank (Mt. Pleasant) since 1989. James E. Wheeler, II (age 41), was appointed President & CEO of Firstbank - Alma on January 1, 2000. Mr. Wheeler had been Executive Vice President of Firstbank - Alma since 1999. From 1994 to 1999, Mr. Wheeler served as Senior Vice President and Chief Loan Officer of Firstbank - Alma. -17- PART II ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters. The information under the caption "Common Stock Data" on page 12 in the registrant's annual report to shareholders for the year ended December 31, 2000, is here incorporated by reference. ITEM 6. Selected Financial Data. The information under the heading "Financial Highlights" on page 3 in the registrant's annual report to shareholders for the year ended December 31, 2000, is here incorporated by reference. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 4 through 11 in the registrant's annual report to shareholders for the year ended December 31, 2000, is here incorporated by reference. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. Information under the headings "Liquidity and Interest Rate Sensitivity" on page 8 and "Quantitative and Qualitative Disclosure About Market Risk" on pages 9 and 10 in the registrant's annual report to shareholders for the year ended December 31, 2000, is here incorporated by reference. ITEM 8. Financial Statements and Supplementary Data. The report of independent auditors and the consolidated financial statements on pages 13 through 17 and the quarterly results of operations on page 30 in the registrant's annual report to shareholders for the year ended December 31, 2000, are here incorporated by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. -18- PART III ITEM 10. Directors and Executive Officers of the Registrant. The information under the captions "Board of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the registrant's definitive proxy statement for its annual meeting of shareholders to be held Apri1 23, 2001, is here incorporated by reference. ITEM 11. Executive Compensation. Information contained under the captions "Compensation of Directors and Executive Officers" and "Compensation Committee Interlocks and Insider Participation" in the registrant's definitive proxy statement for its annual meeting of shareholders to be held April 23, 2001, is here incorporated by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management. The information under the caption "Voting Securities" in the registrant's definitive proxy statement for its annual meeting of shareholders to be held Apri1 23, 2001, is here incorporated by reference. ITEM 13. Certain Relationships and Related Transactions. The information under the caption "Compensation Committee Interlocks and Insider Participation" in the registrant's definitive proxy statement for its annual meeting of shareholders to be held April 23, 2001, is here incorporated by reference. -19- PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(l) Financial Statements. The following consolidated financial statements of the Corporation and its subsidiaries and report of independent auditors are incorporated by reference from the registrant's annual report to shareholders for the year ended December 31, 2000, in Item 8: Page Number in Statement or Report Annual Report ------------------- -------------- Report of Independent Auditors 13 Consolidated Balance Sheets as of December 31, 2000 and 1999 14 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2000, 1999, and 1998 15 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999, and 1998 16 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 17 Notes to Consolidated Financial Statements 18 - 30
The consolidated financial statements, notes to consolidated financial statements, and report of independent auditors listed above are incorporated by reference in Item 8 of this report from the corresponding portions of the registrant's annual report to shareholders for the year ended December 31, 2000. (2) Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits (Numbered in accordance with Item 601 of Regulation S-K) The Exhibit Index is located on the final page of this report on Form 10-K. (b) Reports on Form 8-K. The registrant filed a Current Report on Form 8-K during the last quarter of the period covered by this report. The Form 8-K was dated November 22, 2000, and reported that Mr. Samuel G. Stone had been appointed as Vice President and Chief Financial Officer of the registrant. -20- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, dated March 26, 2001. FIRSTBANK CORPORATION /s/ Thomas R. Sullivan Thomas R. Sullivan President, Chief Executive Officer (Principal Executive Officer) /s/ Samuel G. Stone Samuel G. Stone Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Each director of the Registrant, whose signature appears below, hereby appoints Thomas R. Sullivan and Samuel G. Stone, and each of them severally, as his attorney-in-fact, to sign in his name and on his behalf, as a director of the Registrant, and to file with the Commission any and all Amendments to this Report on Form 10-K. Signature Date --------- ---- /s/ Duane A. Carr March 26, 2001 Duane A. Carr /s/ William E. Goggin March 26, 2001 William E. Goggin /s/ Edward B. Grant March 26, 2001 Edward B. Grant /s/ Charles W. Jennings March 26, 2001 Charles W. Jennings ________________________________ March 26, 2001 Benson S. Munger /s/ Phillip G. Peasley March 26, 2001 Phillip G. Peasley /s/ David D. Roslund March 26, 2001 David D. Roslund /s/ Thomas R. Sullivan March 26, 2001 Thomas R. Sullivan -21- Number Exhibit 3(a) Articles of Incorporation. Previously filed as an exhibit to registrant's Form 10-Q for the quarter ended March 31, 1997. Here incorporated by reference. 3(b) Bylaws. Previously filed as an exhibit to the registrant's Registration Statement on Form S-2 (Registration No. 33-68432) filed on September 3, 1993. Here incorporated by reference. 10(a)* Form of Indemnity Agreement with Directors and Officers. Previously filed as an exhibit to the registrant's Registration Statement on Form S-2 (Registration No. 33-68432) filed on September 3, 1993. Here incorporated by reference. 10(b)* Deferred Compensation Plan. Previously filed as an exhibit to the registrant's Form 10-K for the year ended December 31, 1995. Here incorporated by reference. 10(c)* Trust under Deferred Compensation Plan. Previously filed as an exhibit to the registrant's Form 10-K for the year ended December 31, 1995. Here incorporated by reference. 10(d)* Stock Option and Restricted Stock Plan of 1993. Previously filed as an appendix to the registrant's definitive proxy statement for its annual meeting of shareholders held April 26, 1993. Here incorporated by reference. 10(e)* Stock Option and Restricted Stock Plan of 1997. Previously filed as an appendix to the registrant's definitive proxy statement for its annual meeting of shareholders on April 28, 1997. Here incorporated by reference. 10(f) Employee Stock Purchase Plan of 1999. Previously filed as an exhibit to the registrant's Registration Statement on Form S-8 (Registration No. 333-89771) filed on October 27, 1999. Here incorporated by reference. 10(g)* Form of Change of Control Severance Agreement. Filed as exhibit 10 to registrant's report on Form 10-Q for the quarter ended September 30, 2000. Here incorporated by reference. 13 2000 Annual Report to Shareholders. (This report, except for those portions which are expressly incorporated by reference in this filing, is furnished for the information of the Securities and Exchange Commission and is not deemed "filed" as part of this filing.) This report was delivered to the registrant's shareholders as an appendix to the registrant's proxy statement dated March 27, 2001, relating to the April 23, 2001, annual meeting of shareholders, which was delivered to the registrant's shareho9lders in compliance with Rule 14(a)-3 under the Securities Exchange Act of 1934. 21 Subsidiaries of Registrant. 23 Consent of Crowe, Chizek and Company LLP. 24 Powers of Attorney. Contained on the signature page of this report. 99 Firstbank Corporation 401(k) Plan Performance Table. *Management contract or compensatory plan. The registrant will furnish a copy of any exhibit listed above to any shareholder of the registrant without charge upon written request to Samuel G. Stone, Secretary, Firstbank Corporation, 311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan 48801. -22- Exhibit 13 Rule 14a-3 Annual Report to Security Holders 2000 Annual Report This 2000 Annual Report contains audited financial statements and a detailed financial review. This is Firstbank Corporation's 2000 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 2000 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 2000 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 Samuel G. Stone, Chief Financial Officer, Firstbank Corporation, 311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan 48801-6029. PRESIDENT'S MESSAGE TO OUR SHAREHOLDERS: On behalf of the employees, officers, and directors of Firstbank Corporation, I am pleased to report that we enjoyed record profits and growth during 2000, which was a year marked by steadily rising interest rates, stock market volatility, and further consolidation within the financial services industry. We achieved these results by maintaining our focus on asset quality, balance sheet growth, and customer service, while continuing to position ourselves as the community banking alternative to regional and national providers. This report will highlight some of our achievements during 2000, and will introduce you to several of the individuals who serve as directors on the boards of our subsidiary banks. These individuals, along with all of their fellow directors, provide unique links to our communities and customers that give us a market advantage over our larger competitors. Their contributions to the growth and success of our banks, our Company, and the communities we serve, are sincerely appreciated. Earnings. Net income for 2000 was $8,543,000 which was the highest level of earnings ever achieved by our Company. These earnings represent $1.73 diluted earnings per share adjusted for the 5% stock dividend paid in December 2000, a 9.50% increase over the $1.58 diluted earnings per share in 1999. These record earnings improved our return on average equity to 13.63% from the 13.23% posted in 1999. Asset Quality. We maintained our focus on asset quality during 2000 realizing that an economic downturn may occur in the near future. Net charge offs during 2000 were very low, representing only .04% of average loans. The reserve for loan losses now exceeds $9,857,000 which represents 1.64% of total loans at year end. Our net charge off ratio continues to compare favorably with our peer banks. When coupled with our high quality loan portfolio, strong independent loan review program, and sustained history of low loan losses, we believe our reserves for potential loan losses appropriately reflect the inherent risks. Growth. Total assets and total loans reached record levels on December 31, 2000. Total assets increased 13% during the year to $733 million at year end. Total loans increased to $601 million, an 18.3% increase when compared with total loans of $508 million at year end 1999. In addition to strong growth within our current markets, growth was stimulated by two specific initiatives within the Company. Our newest bank subsidiary, Firstbank - St. Johns, opened in June 2000 and had over $22 million of total assets by year end, which was substantially ahead of our initial projections. Firstbank in Mt. Pleasant continued to emphasize the "Commercial Loan Participation" program, introduced in September 1999, through which other banks may service their large customer loan requests in cooperation with Firstbank. Over $25 million of loans were approved through this program during 2000. In addition to generating high quality earning assets for our Company, this program has helped to establish and improve our relationships with other Michigan community banks. Expansion. In addition to establishing Firstbank - St. Johns we entered several new lines of business during 2000 in an effort to enhance and expand our mortgage lending business. In March of 2000 we opened 1st Title, which is a title insurance agency providing service to customers of all five of our banks as well as to other real estate professionals. In June we acquired Gladwin Land Company, Inc. which provides real estate appraisal services throughout central and northeastern Michigan. In November we formed 1st Realty, Inc., in order to acquire a real estate agency in West Branch, and in January 2001 we merged 1st Realty with C.A. Hanes Real Estate Company, a leading real estate agency in that area of Michigan. These organizations all complement our core banking business, and provide us the tools to more quickly and economically serve the needs of customers involved in real estate transactions. We believe that our ability to be a "one stop" source of real estate services for both our customers, and the customers of other lenders doing business in our markets, will result in additional fee income in the future. Efficiency. During 2000 we continued to closely monitor all of our costs in an effort to operate as economically as possible. A centralized purchasing function was established, and the adoption of the "Firstbank" name and logo by each of our bank affiliates will reduce future costs while simultaneously improving our customer service and brand recognition. Management. We continue to have strong management teams at each of our subsidiaries, and the holding Company staff has been strengthened during the year to assure the highest level of service to all of our customers. Mr. Samuel G. Stone joined the Company in November 2000 as Vice President and Chief Financial Officer with substantial financial experience in a regional bank holding company. His particular knowledge in the areas of capital management, strategic planning, and mergers and acquisitions will serve us well in the future. Mr. David Miller, who had been serving as Senior Vice President of Firstbank - Lakeview, was appointed Vice President of the Company in December 2000 and is now responsible for human resources, training, sales, and marketing. Shareholder Return. During 2000 the total return to Firstbank Corporation shareholders (including reinvestment of cash dividends) was 5.1%, bringing the compound average annual return to 21.1% during the last five years. An investment in the S&P 500 for that same five year period has produced a compound average annual return of 18.3%, while the KBW 50 and NASDAQ Bank indexes (which are composites of large bank and smaller bank results) had five year returns of 21.0% and 19.2%, respectively. Our stock price has reflected the volatility of the stock market during the past few years, but as these returns indicate, our total return to shareholders compares favorably to the benchmarks. 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 over the long term. Strategy. Our Company's fundamental strategy is that community banks which have strong local boards and management teams, focused on growth and asset quality, will outperform regional and national competitors, to the benefit of shareholders, customers, communities, and employees. Continued consolidation within the industry will present us with additional opportunities for further expansion of our concept of community banking, and we look forward to a bright future. In conclusion, I would like to thank Chuck Jennings and Bob Smith for their 13 years of service as directors of our West Branch bank and Alan Stone for his eight years of service as a director of our Alma bank. The dedication of these individuals has been greatly appreciated. We would also like to thank Chuck Jennings for his services as a corporate board member for the past 12 years. We wish these gentlemen well in their retirement. I would like to thank our dedicated and hard-working staff members. Now over 400 strong, they have made our success possible. It is the quality of our people that allows us to provide the products and the services that retain and attract customers to our Company. Their efforts are sincerely appreciated. Thank you for your investment in Firstbank Corporation. We appreciate the support and encouragement of our shareholders, and always welcome your comments or suggestions. Respectfully submitted, /s/ Thomas R. Sullivan Thomas R. Sullivan President & Chief Executive Officer FINANCIAL HIGHLIGHTS Firstbank Corporation For the year: 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In Thousands of Dollars, except per share data) Interest income $54,332 $46,062 $44,484 $37,864 $31,016 Net interest income 28,805 26,779 25,131 21,334 17,735 Provision for loan losses 736 514 1,177 1,398 1,838 Noninterest income 5,431 5,369 5,868 3,697 3,297 Noninterest expense 21,052 20,068 19,402 15,825 12,790 Net income 8,543 8,036 7,303 5,558 4,643 At year end: Total assets 733,267 650,552 603,014 536,322 404,571 Total earning assets 679,322 598,915 555,254 486,949 372,777 Loans 600,767 508,238 441,028 404,808 314,620 Deposits 537,224 491,404 494,053 445,666 358,669 Other borrowings 122,259 90,203 40,894 28,823 9,072 Shareholders' equity 64,204 61,032 59,775 54,532 33,088 Average balances: Total assets 687,190 607,443 560,938 460,439 372,829 Total earning assets 637,317 561,045 516,455 427,640 350,500 Loans 553,201 464,550 414,316 353,061 290,181 Deposits 510,194 491,368 467,615 395,883 324,135 Other borrowings 105,593 47,120 29,065 17,948 14,145 Shareholders' equity 62,675 60,752 56,258 41,240 30,640 Per share:(1) Basic earnings 1.76 1.62 1.47 1.28 1.18 Diluted earnings 1.73 1.58 1.41 1.24 1.16 Cash dividends .65 .58 .50 .41 .32 Shareholders' equity 13.46 13.00 11.97 10.97 8.36 Financial ratios: Return on average assets 1.24% 1.32% 1.30% 1.21% 1.25% Return on average equity 13.63% 13.23% 12.98% 13.48% 15.15% Average equity to average assets 9.12% 10.00% 10.03% 8.96% 8.22% Dividend payout ratio 36.73% 35.76% 34.16% 33.51% 27.94%
Firstbank - Lakeview results are included from August 8, 1997, the date of acquisition Firstbank - St. Johns results are included from June 16, 2000, the date of inception Gladwin Land Company results are included from May 8, 2000, 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 Samuel G. Stone, Chief Financial Officer, Firstbank Corporation, 311 Woodworth Avenue, P. O. Box 1029, Alma, Michigan 48801-6029. 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 ninth consecutive year. Net income of $8,543,000 exceeded 1999 results of $8,036,000 by 6.3%. For the past five years, net income has increased at an annual compound growth rate of over 17%. 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 2000 was an $80 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 1.24%, 1.32% and 1.30% for 2000, 1999 and 1998, respectively. Total average assets increased $80 million in 2000, $47 million in 1999, and $100 million in 1998. Return on average equity was 13.63% in 2000 compared to 13.23% and 12.98% in 1999 and 1998. Average equity increased $2 million in 2000. Basic earnings per share were $1.76, $1.62 and $1.47 for 2000, 1999, and 1998. Diluted earnings per share were $1.73, $1.58, and $1.41 for the same time periods. In 1999 and 2000, the Company repurchased 180,150 and 258,319 shares of its common stock, completing the Board authorized repurchase program. The interest cost of funding the repurchase contributed to the decline in return on average assets in 2000. However, the repurchase helped to maintain capital at the appropriate level and allow growth in net income to result in increasing return on equity. 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 $2 million for 2000, for a 7.5% gain when compared to 1999. Net interest margin declined to 4.63% in 2000 compared to 4.92% in 1999 and 5.06% in 1998, but remains competitive among peer performance. During 2000, the Company's loan to deposit ratio was 104% compared to 93% in 1999 and 87% in 1998. Net end of period loans grew $92 million or 18% during 2000. 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. However, competitive forces and the need to maintain and grow deposits as a funding source place limitations on the degree of control over deposit rates. The following table presents a summary of net interest income for 2000, 1999, and 1998. In 2000, the average rate realized on earning assets was 8.65%, an increase of 28 basis points from the 1999 results of 8.37%, and a 17 basis point reduction from the rate of 8.82% realized in 1998. In 1998, the prime rate 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. During 2000, the prime rate increased 25 basis points twice in the first quarter, another 50 basis points in the second quarter, then was unchanged for the balance of the year. As the prime rate decreases, management expects the yield on earning assets to decrease. At December 31, 2000, slightly over 18% of the loan portfolio was comprised of variable rate instruments. Those loans will reprice monthly or quarterly as rates change. The remaining 82% of the loan portfolio is made up of fixed rate loans that do not reprice until maturity. Of the fixed rate loans, approximately $121 million or 23% of the loan portfolio mature within the next twelve months and are subject to rate adjustments at maturity. Summary of Consolidated Net Interest Income Year Ended Year Ended Year Ended December 31, 2000 December 31, 1999 December 31, 1998 ----------------- ----------------- ----------------- (In Thousands of Dollars) Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Average Assets Interest earning assets: Taxable securities $ 52,590 $ 3,365 6.40% $ 60,033 $ 3,651 6.08% $ 55,861 $ 3,431 6.15% Tax exempt securities (1) 29,584 2,267 7.66 33,307 2,572 7.72 33,455 2,589 7.74 -------- ------- ------- ------- ------- ------- Total securities 82,174 5,632 6.85 93,340 6,223 6.67 89,316 6,020 6.74 Loans (1) (2) 551,357 49,237 8.93 462,516 40,467 8.75 412,884 38,768 9.39 Federal funds sold 3,290 209 6.35 4,190 208 4.96 13,446 728 5.41 Interest bearing deposits 496 26 5.24 999 55 5.50 809 42 5.20 ---------- --------- --------- --------- --------- --------- Total earning assets 637,317 55,104 8.65 561,045 46,953 8.37 516,455 45,558 8.82 Nonaccrual loans 1,844 2,034 1,432 Less allowance for loan loss (9,754) (9,213) (8,543) Cash and due from banks 20,160 18,877 19,173 Other non earning assets 37,623 34,700 32,421 -------- -------- -------- Total assets $687,190 $607,443 $560,938 ======= ======= ======= Average Liabilities Interest bearing liabilities: Demand $131,998 $ 4,409 3.34% $143,828 $ 4,662 3.24% $126,030 $4,440 3.52% Savings 70,461 1,668 2.37 72,412 1,776 2.45 67,085 1,734 2.58 Time 231,367 13,044 5.64 204,417 10,485 5.13 211,243 11,718 5.55 Federal funds purchased and repurchase agreements 41,901 2,277 5.43 29,343 1,385 4.72 17,601 757 4.30 Notes payable 63,692 4,129 6.48 17,777 975 5.49 11,464 704 6.14 -------- ------- -------- -------- --------- ------- Total interest bearing liabilities 539,419 25,527 4.73 467,777 19,283 4.12 433,423 19,353 4.47 Demand deposits 76,368 70,711 63,257 -------- -------- -------- Total funds 615,787 538,488 496,680 Other non interest bearing liabilities 8,728 8,203 8,000 -------- --------- --------- Total liabilities 624,515 546,691 504,680 Average shareholders' equity 62,675 60,752 56,258 -------- -------- -------- Total liabilities and shareholders' equity $687,190 $607,443 $560,938 ======= ======= ======= Net interest income (1) $ 29,577 $27,670 $26,205 ======= ====== ====== Rate spread (1) 3.92% 4.25% 4.35% ==== ==== ==== Net interest margin (percent of average earning assets) (1) 4.63% 4.92% 5.06% ==== ==== ====
(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 $1,302,000, $1,312,400, and $1,726,000 respectively. Interest on nonaccrual loans is not included. As rates decline, maturing investment securities could not be replaced with comparable securities bearing higher yields than available a year ago, although yields would not necessarily be lower than the yields on maturing securities. Much of the current investment portfolio was purchased in rate environments similar to the current rate conditions. Although management expects to lose some yield when replacing investment securities, they do not believe that the decrease will equate to the basis point decline seen in the prime rate. The average rate paid on interest bearing liabilities was 4.73% in 2000 compared to 4.12% and 4.47% in 1999 and 1998 respectively. Deposit products have experienced increases in cost over the past year as interest rates paid grew in response to the rise in prime rate. As the prime rate increased in 2000, 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 $38 million in 2000. While these borrowings are an economical method of funding loans, the cost is higher than the Company's core deposit costs. The average rate of Federal Home Loan Bank funding increased 90 basis points in 2000 to 6.37% when compared to 1999 rates of 5.47%. However, Federal Home Loan Bank rates have begun to decrease along with decreases in the Federal Funds rates. The 2000 rate spread of 3.92% is 33 basis points lower than 1999 results of 4.25% and a 43 basis point reduction from 4.35% in 1998. Tax equivalent net interest income increased $1.9 million in 2000 as total average earning assets grew $76 million. Net interest margin of 4.63% for 2000 was 29 basis points less than the 1999 results. Although net interest margin decreased, the Company is performing competitively among peers in this critical measurement. Decreases in both net interest margin and rate spread are the result of rates on average earning assets increasing 28 basis points while the average cost of interest bearing liabilities increased 61 basis points. Average earning assets represented 93% and 92% of total average assets in 2000 and 1999. Provision for Loan Losses The provision for loan losses was $736,000 in 2000 compared to $514,000 in 1999 and $1.2 million in 1998. The increases in the provision for loan losses in 2000 reflect the growth in the loan portfolio, as net charge offs and nonperforming loans remained at very low levels. At December 31, 2000, the allowance for loan losses as a percent of total loans was 1.64% compared to 1.83% and 2.05% at December 31, 1999, and December 31, 1998, respectively. Net charged off loans totaled $196,000 in 2000 compared to $245,000 in 1999 and $243,000 in 1998. During 2000, over $628,000 of recoveries were realized contributing to the year's strong results. Recoveries in 1999 were $554,000 and in 1998 were $469,000. Net charged off loans as a percent of average loans were .04% in 2000 compared to .05% in 1999 and .06% in 1998. Total nonperforming assets were .46% of ending loans at December 31, 2000, compared to .67% and .46% 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 decrease of $499,000, or 8.5%, from 1998 to 1999, total noninterest income increased $62,000 in 2000. Service charges on deposit accounts increased $128,000, or 8.12%, from 1999 to 2000. Climbing interest rates in 1999 and the level of interest rates in 2000 steeply curtailed the mortgage refinancing market. Trust fees declined $3,000 in 2000, after having increased $53,000 in 1999, as market conditions and the distribution of certain trust assets offset growth of fees in 2000. Other noninterest income posted gains of $255,000, or 11%, when comparing 2000 to 1999. Of this increase over $137,000 was from the recognition of market gains and dividends on the investments underlying the balances in the deferred compensation accounts. A comparable entry is recorded in other noninterest expense creating no impact on total net income. Excluding these gains and dividends, other noninterest income increased $118,000, or 5%, in 2000. Noninterest Expense Salary and benefit expense increased $839,000, or 8.0%, during 2000. The increase is the result of normal salary increments and merit raises, and, in addition, the Company opened its new full service bank in St. Johns, Michigan, during 2000, requiring the addition of personnel. The company employed twenty-three more full time equivalent employees at the end of 2000 than at the same time in 1999, resulting in the additional increase in salary and employee benefit cost. Amortization of intangibles increased $127,000 or 21% in 2000 when compared to 1999. Additional intangible expense was incurred due to the acquisition of Gladwin Land, Inc., by Firstbank Corporation and a subsidiary's acquisition of a real estate brokerage company, and the assets of another real estate brokerage firm. Other noninterest expense decreased by 3%, or $146,000 in 2000. Management continues to search for more efficient means of delivering services. Federal Income Tax The company's effective tax rates were 31%, 31% and 30% for 2000, 1999 and 1998. 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, 2000, were $733 million, exceeding the December 31, 1999, assets of $651 million by $82 million or 13%. Loans grew $93 million or 18.2% during 2000 with commercial loans leading the advance by $51 million or 22.5%. Real estate mortgages grew by $35 million, or 16.9%, while consumer loans posted a moderate $7 million increase or 8.8%. The start up bank and acquisitions accounted for $22 million assets at Firstbank - St. Johns, $500,000 at Gladwin Land, and $620,000 at our real estate subsidiary, now known as C.A. Hanes Realty, Incorporated ("C.A. Hanes"). The following table provides information on the changes in loan balances and mortgages serviced for others during 2000: (In Thousands of Dollars) 2000 1999 Change % Change ---- ---- ------ -------- Loans Held for Sale $ 1,018 $ 1,117 $ (99) (8.9%) Commercial 279,060 227,855 51,205 22.5% Real Estate Mortgages 238,899 204,062 34,837 17.1% Consumer 81,790 75,204 6,586 8.8% --------- --------- ------- Total $600,767 $508,238 $92,529 18.2% Mortgages serviced for others $238,800 $233,660 $ 5,140 2.2%
A portion of the loan growth was funded by a $14 million or 15.6% reduction in the investment securities portfolio. Premises and equipment increased $753,000 after recognized depreciation of $1,394,000. Several projects contributed to this increase. During 2000, the Company opened a new affiliate bank and purchased Gladwin Land, Incorporated. One affiliate converted a previously purchased property into a new branch which opened in May, 2000, and one affiliate purchased 1st Realty, Incorporated (which later merged with C.A. Hanes). Total deposits increased at the end of 2000 to $537 million, an increase of $45.8 million, or 9%. While interest demand accounts declined a modest .5%, or $700,000, noninterest demand deposits increased $4.5 million or 6% for a net increase in demand deposit products of $3.8 million. Savings accounts declined $2 million, or 2.6%, while time deposits increased $44 million, or 21%. Securities sold under agreements to repurchase remained constant at $22 million. Notes payable increased $45.6 million at December 31, 2000, as compared to December 31, 1999. As loan growth has outstripped deposit growth, the Company used Federal Home Loan Bank borrowings and reductions in investments to fund the increase in loans. Overnight borrowings decreased $13.6 million from year end 1999 to 2000. Note J has a more complete discussion of borrowings. 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 2000, net charged off loans were $196,000 compared to $245,000 in 1999. Net charged off loans as a percentage of average loans were .04% and .05% in 2000 and 1999. 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 $2.2 million and $2.9 million at December 31, 2000 and 1999. The investment in impaired loans was $5.8 million at December 31, 2000, compared to $4.7 million at December 31, 1999. Please refer to Note F to the consolidated financial statements for more information on impaired loans. Total nonaccrual loans were $1.7 million at December 31, 2000, compared to $2.2 million at the end of 1999. The allowance for loan losses increased $540,000 or 5.8% during 2000. The allowance for loan losses represents 1.64% of outstanding loans at the end of 2000 as compared to 1.83% at December 31, 1999. 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 4.63% in 2000 compared to 4.92% in 1999. Loan yields were 8.93% in 2000 compared to 8.75% in 1999. Deposit costs increased 31 basis points from 4.10% in 1999 to 4.41% in 2000. Notes payable increased as a funding source, with average balances of $63,692,000 in 2000 compared to $17,777,000 in 1999. In 2000, the average cost of funds on notes payable was 6.48%, compared to 4.41% on deposits. 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 increased 25 basis points twice during the first quarter of 2000 and an additional 50 basis points during the second quarter and then remained unchanged for the last two quarters. In addition to the increased reliance on notes payable, competition for both loans and deposits caused margins to shrink in 2000. The principal sources of liquidity for the Company are maturing securities, federal funds purchased or 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, 2000, were $26.6 million compared to $26.8 million at December 31, 1999. The following table shows the interest sensitivity gaps for five different intervals as of December 31, 2000: 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. Interest earning assets: Loans $ 94.9 $ 67.1 $ 87.8 $291.7 $59.2 Investment securities 4.4 6.7 6.9 31.5 26.7 Other earning assets 0.8 ------- Total 100.1 73.8 94.7 323.2 85.9 Interest bearing liabilities: Deposits 284.9 72.6 130.5 49.2 Other bearing liabilities 16.7 21.4 5.9 22.8 55.5 ------ ---- ------- ------ ---- Total 301.6 94.0 136.4 72.0 55.5 Interest sensitivity gap (201.5) (20.2) (41.7) 251.2 30.4 Cumulative gap (201.5) (221.7) (263.4) (12.2) 18.2
For the one day interval, maturities of interest bearing liabilities exceed those of interest earning assets by $201.5 million. Included in the one day maturity classification are $284.9 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 effect of $12.2 million through five years. For the time period greater than five years, the positive trend continues so that interest sensitive assets exceed interest sensitive liabilities by $18.2 million. Showing a negative gap through the five year period in a rising rate scenario, as the Company experienced in 2000, 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 change 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 2000, the results of these measurement techniques were within the Company's policy guidelines. While the Company did begin relying more on Federal Home Loan Bank borrowings in 2000, 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 were managed in 2000 as compared to 1999. 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. The following tables provide information about the Company's financial instruments that are sensitive to changes in interest rates as of December 31, 2000 and 1999. 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. December 31, 2000 (In Thousands of Dollars) Fair Value - ----------------- 2001 2002 2003 2004 2005 Thereafter Total 12/31/00 ---- ---- ---- ---- ---- ---------- ----- -------- Rate sensitive assets: Fixed interest rate loans 120,718 83,055 96,225 62,427 56,460 72,315 491,200 489,710 Average interest rate 8.19% 8.46% 8.35% 8.06% 8.28% 8.32% Variable interest rate loans 53,178 7,642 10,645 7,503 17,166 13,433 109,567 109,836 Average interest rate 9.87% 10.31% 10.13% 10.29% 9.74% 9.51% Fixed interest rate securities 14,385 10,909 6,784 8,371 4,628 30,880 75,957 75,957 Average interest rate 6.31% 5.99% 7.29% 6.64% 6.76% 5.76% Variable interest rate securities 218 218 218 Average interest rate 7.51% Other interest bearing assets 2,380 2,380 2,380 Average interest rate 5.08% Rate sensitive liabilities: Savings & interest bearing checking 204,108 204,108 204,108 Average interest rate 2.94% Time deposits 203,394 28,218 11,130 5,212 4,028 839 252,821 254,987 Average interest rate 5.96% 6.09% 5.90% 5.65% 6.45% 5.91% Fixed interest rate borrowings 31,850 1,500 7,000 0 11,304 48,948 100,602 96,174 Average interest rate 7.10% 6.85% 6.04% 0% 5.70% 5.55% Variable interest rate borrowings (0) (0) 0 Average interest rate 0% Repurchase Agreements 21,657 21,657 19,194 Average interest rate 4.05%
December 31, 1999 (In Thousands of Dollars) Fair Value - ----------------- 2000 2001 2002 2003 2004 Thereafter Total 12/31/99 ---- ---- ---- ---- ---- ---------- ----- -------- Rate sensitive assets: Fixed interest rate loans $103,084 $67,718 $76,174 $57,290 $53,702 $62,682 $420,650 $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 $ 87,588 $ 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%
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, 2000, the Company's total capital to risk weighted assets exceeded the minimum requirement for capital adequacy purposes of 8% by 3.28%, or $18 million, Tier 1 capital to risk weighted assets exceeded the minimum of 4% by 6.03%, or $33 million, and Tier 1 capital to average assets exceeded the minimum of 4% by 3.77%, or $26 million. For a more complete discussion of capital requirements, please refer to Note R 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 15.8%. The compound annual growth rate for average equity over the same period was 17.9%. 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: 2000 1999 1998 ---- ---- ---- Return on Equity 13.63% 13.23% 12.98% multiplied by Percentage of Earnings Retained 63.27% 64.22% 65.84% equals Internal Capital Growth 8.63% 8.49% 8.55%
The Company has retained between 63% and 66% of its earnings from 1998 to 2000. To maintain sufficient capital, management has determined that the rate of internal capital growth should exceed 5% and keep pace with asset growth over time. 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. 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 2000, 1,225 owners holding 1,870,849 shares were participating in the Plan. The Company is not aware of any recommendations by regulatory authorities at December 31, 2000, which are likely to have a material effect on Firstbank Corporation's liquidity, capital resources or operations. 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 Company'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," "should," 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. COMMON STOCK DATA Firstbank Corporation Common Stock was held by 1,646 shareholders of record as of December 31, 2000. Total shareholders number approximately 2100 including those whose shares are held in nominee name through brokerage firms. The Company's shares are listed 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: Low and High Bid Quotations --------------------------- 2000 1999 ---- ---- First Quarter $18.33 - $19.29 $26.30 - $24.94 Second Quarter $18.57 - $18.93 $24.94 - $24.94 Third Quarter $18.81 - $19.40 $22.90 - $24.94 Fourth Quarter $19.00 - $20.24 $16.19 - $22.90
The prices quoted above were obtained from the Bloomberg System through the Company's market makers. The over the counter market quotations reflect interdealer prices without retail mark up, mark down, or commission, and may not necessarily represent actual transactions. Prices have been adjusted to reflect stock dividends. The following table summarizes cash dividends paid per share (adjusted for stock dividends) of common stock during 2000 and 1999. 2000 1999 ---- ---- First Quarter $.1619 $.1451 Second Quarter $.1619 $.1451 Third Quarter $.1619 $.1451 Fourth Quarter $.1619 $.1451 ----- ----- $.6476 $.5804 ===== =====
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, 2001, approximately $11,646,000 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' 2001 earnings will be available for distributions as dividends to the Company. 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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP February 1, 2001 Grand Rapids, Michigan FIRSTBANK CORPORATION CONSOLIDATED BALANCE SHEETS (000's) December 31 ----------- 2000 1999 ---- ---- ASSETS Cash and due from banks $ 25,716 $ 24,786 Short term investments 2,380 411 --------- ---------- Total cash and cash equivalents 28,096 25,197 Securities available for sale 76,175 90,266 Loans held for sale 1,018 1,117 Loans, net 589,892 497,804 Premises and equipment, net 15,682 14,929 Intangibles 8,974 8,917 Accrued interest receivable 4,623 3,489 Other assets 8,807 8,833 --------- --------- TOTAL ASSETS $733,267 $650,552 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Noninterest bearing demand accounts $ 80,295 $ 75,844 Interest bearing accounts: Demand 135,467 136,196 Savings 68,641 70,527 Time 252,821 208,837 ------- ------- Total deposits 537,224 491,404 Securities sold under agreements to repurchase and overnight borrowings 38,307 51,819 Notes payable 83,952 38,384 Accrued interest payable 1,977 1,255 Other liabilities 7,603 6,658 --------- --------- Total liabilities 669,063 589,520 SHAREHOLDERS' EQUITY Preferred stock; no par value, 300,000 shares authorized, none issued Common stock; 10,000,000 shares authorized; 4,767,877 and 4,693,765 shares issued and outstanding in 2000 and 1999 respectively 56,550 55,262 Retained earnings 7,286 6,434 Accumulated other comprehensive income (loss) 368 (664) ---------- --------- Total shareholders' equity 64,204 61,032 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $733,267 $650,552 ======= =======
See notes to consolidated financial statements. FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In Thousands of Dollars, except for per share data) Year Ended December 31 2000 1999 1998 ---- ---- ---- Interest income: Loans, including fees $49,237 $40,451 $38,498 Securities: Taxable 3,364 3,651 3,467 Exempt from federal income tax 1,496 1,697 1,791 Short term investments 235 263 728 -------- -------- -------- Total interest income 54,332 46,062 44,484 Interest expense: Deposits 19,121 16,923 17,892 Notes payable and other 6,406 2,360 1,461 ------- ------- ------- Total interest expense 25,527 19,283 19,353 ------ ------ ------ Net interest income 28,805 26,779 25,131 Provision for loan losses 736 514 1,177 -------- -------- ------- Net interest income after provision for loan losses 28,069 26,265 23,954 Noninterest income: Service charges on deposit accounts 1,705 1,577 1,499 Gain on sale of mortgage loans 466 883 2,100 Mortgage servicing, net of amortization 302 202 (15) Trust fees 378 381 328 Gain (loss) on sale of securities (2) (1) 3 Other 2,582 2,327 1,953 ------- ------- ------- Total noninterest income 5,431 5,369 5,868 Noninterest expense: Salaries and employee benefits 11,344 10,505 9,768 Occupancy 3,103 3,037 2,970 Amortization of intangibles 744 617 756 FDIC Insurance premium 100 76 72 Michigan Single Business tax 639 565 390 Other 5,122 5,268 5,446 ------- ------- -------- Total noninterest expense 21,052 20,068 19,402 ------ ------ ------- Income before federal income taxes 12,448 11,566 10,420 Federal income taxes 3,905 3,530 3,117 ------- ------- -------- NET INCOME $ 8,543 $ 8,036 $ 7,303 Other comprehensive income: Change in unrealized gain (loss) on securities, net of tax and reclassification effects 1,032 (1,767) 216 ------- ------ ------ COMPREHENSIVE INCOME $ 9,575 $ 6,269 $ 7,519 ======= ===== ===== Basic earnings per share $1.76 $1.62 $1.47 ==== ==== ==== Diluted earnings per share $1.73 $1.58 $1.41 ==== ==== ====
See notes to consolidated financial statements. FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (000's) FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 Accumulated Other Common Retained Comprehensive Stock Earnings Income(Loss) Total ----- -------- ------------ ----- Balances at January 1, 1998 $46,224 $7,421 $ 887 $54,532 Net income for 1998 7,303 7,303 Cash dividends-$.50 per share (2,495) (2,495) 5% stock dividend-226,157 shares 6,353 (6,354) (1) Issuance of 15,115 shares of common stock through exercise of stock options 252 252 Issuance of 23,097 shares of common stock through the dividend reinvestment plan 636 636 Issuance of 17,584 shares of common stock from supplemental shareholder investments 482 482 Net change in unrealized appreciation (depreciation) on securities available for sale, net of tax of $112,000 216 216 Purchase of 36,740 shares of stock (1,213) (1,213) Issuance of 1,584 shares of common stock 63 63 --------- --------- -------- --------- BALANCES AT DECEMBER 31, 1998 52,797 5,875 1,103 59,775 Net income for 1999 8,036 8,036 Cash dividends-$.58 per share (2,874) (2,874) 5% stock dividend-224,526 shares 4,602 (4,603) (1) Issuance of 50,310 shares of common stock through exercise of stock options 817 817 Issuance of 44,246 shares of common stock through the dividend reinvestment plan 1,098 1,098 Issuance of 19,807 shares of common stock from supplemental shareholder investments 527 527 Purchase of 180,150 shares of stock (4,793) (4,793) Issuance of 7,770 shares of common stock 214 214 Net change in unrealized appreciation (depreciation) on securities available for sale, net of tax of ($912,000) (1,767) (1,767) ----------- --------- ----- ------ BALANCES AT DECEMBER 31, 1999 55,262 6,434 (664) 61,032 Net income for 2000 8,543 8,543 Cash dividends-$.65 per share (3,138) (3,138) 5% stock dividend- 227,504 shares 4,550 (4,553) (3) Issuance of 14,002 shares of common stock through exercise of stock options 191 191 Issuance of 64,008 shares of common stock through the dividend reinvestment plan 1,244 1,244 Issuance of 15,164 shares of common stock from supplemental shareholder investments 301 301 Purchase of 258,319 shares of stock (5,227) (5,227) Issuance of 11,753 shares of common stock 229 229 Net change in unrealized appreciation on securities available for sale, net of tax of $532,000 1,032 1,032 -------- ------- ----- ------- BALANCES AT DECEMBER 31, 2000 $56,550 $7,286 $ 368 $64,204 ======== ======= ====== ======
See notes to consolidated financial statements. FIRSTBANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (000's) Year Ended December 31 ---------------------- 2000 1999 1998 ---- ---- ---- OPERATING ACTIVITIES Net income $ 8,543 $ 8,036 $ 7,303 Adjustments to reconcile net income to net cash from operating activities: Provision for loan losses 736 514 1,177 Depreciation of premises and equipment 1,394 1,342 1,481 Net amortization of security premiums/discounts 161 303 122 Loss (gain) on sale of securities 2 1 (3) Amortization of intangibles 744 617 756 Gain on sale of mortgage loans (466) (883) (2,100) Proceeds from sales of mortgage loans 43,859 57,566 152,674 Loans originated for sale (43,294) (52,345) (152,112) Deferred federal income tax benefit (790) (305) (356) Increase in accrued interest receivable and other assets (1,462) (866) (694) Increase (decrease) in accrued interest payable and other liabilities 1,478 (379) 916 --------- -------- ---------- NET CASH FROM OPERATING ACTIVITIES 10,905 13,601 9,164 INVESTING ACTIVITIES Proceeds from sale of securities available for sale 5,137 7,018 609 Proceeds from maturities of securities available for sale 38,413 29,481 28,935 Purchases of securities available for sale (28,057) (28,038) (48,468) Net increase in portfolio loans (92,825) (71,793) (34,925) Net purchases of premises and equipment (2,147) (2,213) (2,121) ---------- -------- ---------- NET CASH FROM INVESTING ACTIVITIES (79,479) (65,545) (55,970) FINANCING ACTIVITIES Net increase (decrease) in deposits 45,820 (2,649) 48,387 Net increase (decrease) in securities sold under agreements to repurchase and overnight borrowings (13,512) 25,242 5,345 Retirement of notes payable (14) (14) (13) Proceeds from Federal Home Loan Bank borrowings 115,794 31,720 14,750 Proceeds from notes payable 6,700 Retirement of Federal Home Loan Bank borrowings (76,912) (7,638) (8,011) Cash dividends and cash paid in lieu of fractional shares on stock dividend (3,141) (2,875) (2,495) Purchase of common stock (5,227) (4,793) (1,214) Net proceeds from issuance of common stock 1,965 2,656 1,433 --------- ------- --------- NET CASH FROM FINANCING ACTIVITIES 71,473 41,649 58,182 -------- ------ -------- INCREASE IN CASH AND CASH EQUIVALENTS 2,899 (10,295) 11,376 Cash and cash equivalents at beginning of year 25,197 35,492 24,116 -------- ------ -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,096 $25,197 $ 35,492 ======== ====== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 24,805 $19,340 $ 19,349 Income taxes 4,050 4,000 3,150
See notes to consolidated financial statements. 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 $733 million as of December 31, 2000, primarily represent commercial and retail banking activity. Mortgage loans serviced for others of $239 million and trust assets of $59 million as of December 31, 2000, 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: Firstbank - Alma; Firstbank (Mt. Pleasant); Firstbank - West Branch; Firstbank - Lakeview; and Firstbank - St. Johns (the "Banks"); 1st Armored, Incorporated; 1st Collections, Incorporated; Gladwin Land Company; 1st Title, Incorporated; and 1st Realty Incorporated; after elimination of intercompany accounts and transactions. (See Note B regarding 1st Realty Incorporated.) 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 Available for Sale: 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 net of any deferred fees or costs on originated loans, or unamortized premiums or discounts. Loan origination fees and certain origination costs are capitalized and recognized as an adjustment of the yield of the related loan. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. 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 provision for loan loss. 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 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 lives of the acquired relationships. 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 the provision for loan losses. 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. 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 issuance of the financial statements. Comprehensive Income: Comprehensive income consists of net income and unrealized gains and losses on securities available for sale, net of tax, 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, net of tax. Reclassification: Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 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. Adoption of this standard on January 1, 2001, did not have a material effect on the consolidated financial statements. 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 On October 20, 2000, Firstbank Corporation, through its affiliate Firstbank - West Branch, completed the acquisition of Real Estate One, which was re-named 1st Realty, Inc. On January 2, 2001, also through its Firstbank - West Branch affiliate, Firstbank Corporation completed the acquisition of C.A. Hanes Real Estate in a transaction that merged C.A. Hanes with 1st Realty, Inc. Firstbank - West Branch maintains a 55% ownership of the new company which will do business as C.A. Hanes Realty Inc. This real estate subsidiary complements the prior acquisitions of Gladwin Land Company and 1st Title, Inc., and these subsidiaries provide service to all five banks of Firstbank Corporation and position the banks to provide the full spectrum of services related to real estate transactions. This acquisition did not have a material effect on the Company's consolidated financial statements. On April 1, 1999, the Company's Firstbank - 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, 2000 and 1999, were $2,886,000 and $2,765,000 respectively. These balances do not earn interest. NOTE D - SECURITIES The carrying amounts of securities and their fair values were as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Securities available for sale: (In Thousands of Dollars) December 31, 2000: U.S. Treasury 4,021 13 (2) 4,032 U.S. governmental agency 21,997 163 (104) 22,056 States and political subdivisions 34,104 575 (87) 34,592 Collateralized mortgage obligations 1,004 0 (3) 1,001 Corporate 10,121 15 (13) 10,123 Equity 4,371 0 0 4,371 ------- ----- ------ ------- $75,618 $766 $ (209) $76,175 ====== ===== ====== ====== December 31, 1999: U.S. Treasury $ 8,028 $ 13 $ (39) $ 8,002 U.S. governmental agency 25,386 8 (607) 24,787 States and political subdivisions 36,538 247 (487) 36,298 Collateralized mortgage obligations 2,186 2 (13) 2,175 Corporate 16,828 2 (134) 16,696 Equity 2,308 0 0 2,308 ------- ----- ------- ------- $91,274 $272 $(1,280) $90,266 ====== ===== ===== ======
Gross realized gains (losses) on sales and calls of securities were: 2000 1999 1998 ---- ---- ---- (In Thousands of Dollars) Gross realized gains $ 21 $ 38 $ 5 Gross realized losses (23) (39) (2) -- - Net realized gains (losses) $(2) $( 1) $ 3 == === ==
The amortized cost and fair value of securities at December 31, 2000, 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. Securities Available for Sale ----------------------------- (In Thousands of Dollars) Amortized Fair Cost Value ---- ----- Due in one year or less $13,611 $13,610 Due after one year through five years 31,209 31,468 Due after five years through ten years 18,348 18,557 Due after ten years 8,079 8,169 ------- ------- Total 71,247 71,804 Equity securities 4,371 4,371 ------- ------- Total securities $75,618 $76,175 ====== ======
At December 31, 2000, securities with a carrying value approximating $48,344,000 were pledged to secure public and trust deposits, securities sold under agreements to repurchase, and for such other purposes as required or permitted by law. NOTE E - SECONDARY MORTGAGE MARKET ACTIVITIES Loans serviced for others, which are not reported as assets, total $238,800,000 and $233,660,000 at 2000 and 1999. Activity for capitalized mortgage servicing rights was as follows: 2000 1999 ---- ---- Servicing rights: (In Thousands of Dollars) Beginning of year $1,224 $ 997 Additions 251 599 Amortized to expense (310) (372) ----- ----- End of year $1,165 $1,224 ===== =====
Management has determined that a valuation allowance is not necessary at December 31, 2000 or 1999. NOTE F - LOANS Loans at year-end were as follows: 2000 1999 ---- ---- (In Thousands of Dollars) Commercial $157,418 $132,641 Mortgage loans on real estate: Residential 248,665 205,594 Commercial 158,118 131,324 Construction 31,773 25,918 Consumer 75,277 72,976 Credit Card 4,910 6,920 --------- --------- Subtotal 676,161 575,373 Less: Allowance for loan losses 9,857 9,317 Net deferred loan costs 183 53 Undisbursed loan funds 76,229 68,199 -------- -------- Loans, net $589,892 $497,804 ======= =======
Activity in the allowance for loan losses for the year was as follows: 2000 1999 1998 ---- ---- ---- (In Thousands of Dollars) Beginning balance $9,317 $9,048 $8,114 Provision for loan losses 736 514 1,177 Loans charged-off (825) (799) (712) Recoveries 629 554 469 ------ ------ ------ Ending balance $9,857 $9,317 $9,048 ===== ===== =====
Impaired loans were as follows: 2000 1999 ---- ---- (In Thousands of Dollars) Year-end loans with no allocated allowance for loan losses $4,716 $ 534 Year-end loans with allocated allowance for loan losses 1,062 4,139 ----- ----- Total $5,778 $4,673 ===== =====
2000 1999 1998 ---- ---- ---- (In Thousands of Dollars) Amount of the allowance for loan losses allocated $ 48 $ 329 $ 118 Loans past due over 90 days still on accrual at year end 462 663 621 Average of impaired loans during the year 5,939 5,133 1,879 Interest income recognized during impairment 488 284 128 Cash-basis interest income recognized 10 112 31
Approximately $71,205,000 of commercial loans were pledged to the Federal Reserve Bank of Chicago at December 31, 2000, to secure overnight borrowings. NOTE G - PREMISES AND EQUIPMENT Year end premises and equipment were as follows: 2000 1999 ---- ---- (In Thousands of Dollars) Land $ 3,464 $ 3,230 Buildings 13,314 12,306 Furniture, fixtures and equipment 10,100 9,195 ------- ------- 26,878 24,731 Less: Accumulated depreciation (11,196) (9,802) ------- ------ $ 15,682 $14,929 ======= ======
Rent expense for 2000 was $130,000 and for 1999 was $106,000. Rental commitments for the next five years under noncancellable operating leases were as follows, before considering renewal options that generally are present. 2001 $130,000 2002 131,000 2003 130,000 2004 127,000 2005 127,000 ------- Total $645,000 =======
NOTE H - FEDERAL INCOME TAXES Federal income taxes consist of the following: 2000 1999 1998 ---- ---- ---- (In Thousands of Dollars) Current expense $4,055 $3,835 $3,473 Deferred benefit (150) (305) (356) ----- ----- ----- Total $3,905 $3,530 $3,117 ===== ===== =====
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: 2000 1999 1998 ---- ---- ---- (In Thousands of Dollars) Tax at statutory rate $4,244 $3,932 $3,543 Effect of surtax exemption 24 16 4 Effect of tax-exempt interest (463) (544) (550) Other 100 126 120 ------ ------ ------ Federal income taxes $3,905 $3,530 $3,117 ===== ===== ===== Effective tax rate 31% 31% 30%
The components of deferred tax assets and liabilities consist of the following at December 31: 2000 1999 ---- ---- Deferred tax assets: (In Thousands of Dollars) Allowance for loan losses $3,141 $2,799 Unrealized loss on securities available for sale 0 342 Deferred compensation 896 951 Other 305 395 ------ ------ Total deferred tax assets 4,342 4,487 ----- ----- Deferred tax liabilities: Fixed assets (1,386) (1,417) Mortgage servicing rights (396) (416) Purchase accounting adjustment (517) (517) Unrealized gain on securities available for sale (190) 0 Other (192) (94) ------ ------- Total deferred tax liabilities (2,681) (2,444) ------ ------ Net deferred tax asset $1,661 $2,043 ===== =====
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, 2000 or 1999. Deferred tax assets at December 31, 2000 and 1999, are included in other assets in the accompanying consolidated balance sheets. NOTE I - DEPOSITS Time deposits of $100,000 or more were $57,496,000 and $41,996,000 at year-end 2000 and 1999. Scheduled maturities of time deposits were as follows: Year Amount ---- ------ (In Thousands of Dollars) 2001 $203,394 2002 28,218 2003 11,130 2004 5,212 2005 4,028 2006 and after 839 --------- Total $252,821
NOTE J - BORROWINGS Information relating to securities sold under agreements to repurchase follows: At December 31: 2000 1999 1998 ---- ---- ---- (In Thousands of Dollars) Outstanding balance $21,657 $21,519 $18,678 Average interest rate 4.88% 4.17% 3.88% Daily average for the year: Outstanding balance $23,649 $19,495 $15,618 Average interest rate 4.62% 4.05% 4.15% Maximum outstanding at any month end $26,374 $21,519 $18,678
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. The Company had $16,650,000 and $30,300,000 in overnight borrowings at December 31, 2000, and 1999. The Company established a line of credit agreement with Citizens Bank, Flint, Michigan, on May 24, 2000. This agreement allows for a revolving line of credit up to an aggregate principal amount of $20,000,000 and has a termination date of June 30, 2001. The collateral for this agreement consists of all outstanding capital stock of Firstbank - West Branch, Firstbank - Alma, and Firstbank (Mt. Pleasant). At December 31, 2000, the Company has drawn $6,700,000 against the line of credit at an interest rate of 8.45% which is fixed until March 1, 2001. This borrowing was made primarily to establish the new bank in St. Johns, Michigan, and to fund the stock repurchase program. NOTE K - FEDERAL HOME LOAN BANK ADVANCES Long term borrowings have been secured from the Federal Home Loan Bank to fund the Company's loan growth. At year-end, advances from the Federal Home Loan Bank were as follows: 2000 1999 ---- ---- Maturities January 2001 through December 2020 primarily (In Thousands of Dollars) fixed rate at rates from 4.98% to 7.3% averaging 5.87% $77,067 $38,185
Each Federal Home Loan Bank advance is payable at its maturity date, with a prepayment penalty. The advances were collateralized by $176,497,000 and $173,597,000 of first mortgage loans under a blanket lien arrangement at year-end 2000 and 1999. Maturities over the next five years are: (In Thousands of Dollars) 2001 $ 8,500 2002 1,500 2003 7,000 2004 0 2005 11,304 2006 and after 48,763 ------ $77,067
NOTE L - BENEFIT PLANS 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. At year-end 2000 and 1999, there were 191,655 and 220,315 ESOP shares outstanding with a market value of $3,665,404 and $4,241,067. The Company's 2000, 1999, and 1998 matching 401(k) contributions charged to expense were $274,000, $276,000, and $264,000 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 M - STOCK OPTIONS The Firstbank Corporation Stock Option Plans of 1993 and 1997 ("Plans") provide for the grant of 295,491 and 243,101 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 1998, 1999 and 2000: Number Weighted of Shares Average --------- --------- Outstanding - December 31, 1997 358,857 $12.30 Granted 98,804 $27.65 Exercised (15,871) $10.25 Canceled (11,492) $15.03 -------- Outstanding - December 31, 1998 430,298 $15.79 Granted 45,533 $20.64 Exercised (55,388) $ 9.80 Canceled (12,917) $19.90 -------- Outstanding - December 31, 1999 407,526 $17.01 Granted 54,600 $19.05 Exercised (14,702) $ 8.78 Canceled (21,845) $18.86 -------- Outstanding - December 31, 2000 425,579 $17.45 Available for exercise - December 31, 2000 230,067 $15.60 Available for grant - December 31, 2000 6,087
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 2000, 1999, or 1998. 2000 1999 1998 ---- ---- ---- Net income as reported $8,543,000 $8,036,000 $7,303,000 Pro forma net income $8,424,000 $7,923,000 $7,223,000 Basic earnings per share as reported $1.76 $1.62 $1.47 Pro forma basic earnings per share $1.73 $1.60 $1.45 Diluted earnings per share as reported $1.73 $1.58 $1.41 Pro forma diluted earnings per share $1.71 $1.56 $1.46
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 2000, 1999, and 1998, is estimated using the Black-Scholes model and the following weighted average information: risk free interest rate of 5.71%, 6.28%, and 5.06%; expected life of 7 years; expected volatility of stock price of 19.8%, 36.2%, and 33.9%; and expected dividends of 3% per year. The fair value of the options granted in 2000, 1999, and 1998, were $254,000, $235,000, and $207,000 respectively. For options outstanding at December 31, 2000, the range of exercise prices was $7.36 to $27.64 and the weighted average remaining contractual life was 6.9 years. NOTE N - RELATED PARTY TRANSACTIONS Loans to principal officers, directors, and their affiliates in 2000 were as follows: (In Thousands of Dollars) Beginning balance $20,684 New loans 21,923 Effect of changes in related parties (102) Repayments (17,769) ------ Ending balance $24,736 ======
Deposits from principal officers, directors, and their affiliates at year end 2000 and 1999 were $10,710,000 and $8,217,000. Directors have deferred some of their fees for future payment, including interest. Amounts deferred are expensed, and were $61,000, $63,000, and $62,000 for 2000, 1999, and 1998. NOTE O - 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: 2000 1999 ---- ---- (In Thousands of Dollars) Fixed Rate Variable Rate Fixed Rate Variable Rate Commitments to make loans (at market rates) $6,830 $5,057 $5,411 $3,764 Unused lines of credit and letters of credit $10,690 $53,652 $9,026 $49,998
Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments have interest rates ranging from 6.0% to 12.0% and maturities ranging from 15 years to 30 years. NOTE P - 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, 2000. NOTE Q - DIVIDEND LIMITATION OF SUBSIDIARIES The subsidiary banks are restricted in their ability to pay dividends to the Company by regulatory requirements. At December 31, 2000, approximately $11,646,000 of the subsidiaries' retained earnings is available for transfer in the form of dividends without prior regulatory approval. NOTE R - CAPITAL ADEQUACY Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, 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. Failure to meet capital requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications: 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 capital restoration plans are required. To Be Well Actual and required capital amounts at year end Minimum Required Capitalized Under (in thousands of dollars) and ratios are presented below: For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- 2000 Amount Ratio Amount Ratio Amount Ratio - ---- ------ ----- ------ ----- ------ ----- Total Capital to risk weighted assets Consolidated $61,691 11.28% $43,736 8.00% $54,669 10.00% Firstbank - Alma 21,387 12.34% 13,860 8.00% 17,324 10.00% Firstbank (Mt. Pleasant) 14,340 11.10% 10,337 8.00% 12,922 10.00% Firstbank - West Branch 15,361 10.80% 11,383 8.00% 14,229 10.00% Firstbank - Lakeview 12,158 13.68% 7,112 8.00% 8,890 10.00% Firstbank - St. Johns 3,940 25.54% 1,234 8.00% 1,542 10.00% Tier 1 (Core) Capital to risk weighted assets Consolidated $54,820 10.03% $21,868 4.00% $32,802 6.00% Firstbank - Alma 19,199 11.08% 6,930 4.00% 10,395 6.00% Firstbank (Mt. Pleasant) 12,761 9.88% 5,169 4.00% 7,753 6.00% Firstbank - West Branch 13,570 9.54% 5,692 4.00% 8,538 6.00% Firstbank - Lakeview 11,043 12.42% 3,556 4.00% 5,334 6.00% Firstbank - St. Johns 3,773 24.46% 617 4.00% 925 6.00% Tier 1 (Core) Capital to average assets Consolidated $54,820 7.77% $28,205 4.00% $35,257 5.00% Firstbank - Alma 19,199 8.21% 9,359 4.00% 11,698 5.00% Firstbank (Mt. Pleasant) 12,761 8.17% 6,244 4.00% 7,806 5.00% Firstbank - West Branch 13,570 7.24% 7,497 4.00% 9,371 5.00% Firstbank - Lakeview 11,043 9.00% 4,909 4.00% 6,136 5.00% Firstbank - St. Johns 3,773 19.08% 791 4.00% 989 5.00% To Be Well Minimum Required Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- 1999 Amount Ratio Amount Ratio Amount Ratio - ---- ------ ----- ------ ----- ------ ----- Total Capital to risk weighted assets Consolidated $58,780 12.24% $38,427 8.00% $48,034 10.00% Firstbank - Alma 20,428 12.63% 12,937 8.00% 16,171 10.00% Firstbank (Mt. Pleasant) 11,431 10.29% 8,885 8.00% 11,106 10.00% Firstbank - West Branch 14,328 11.23% 10,205 8.00% 12,756 10.00% Firstbank - Lakeview 12,031 15.17% 6,344 8.00% 7,930 10.00% Tier 1 (Core) Capital to risk weighted assets Consolidated $52,735 10.98% $19,213 4.00% $28,820 6.00% Firstbank - Alma 18,383 11.37% 6,468 4.00% 9,703 6.00% Firstbank (Mt. Pleasant) 10,042 9.04% 4,442 4.00% 6,664 6.00% Firstbank - West Branch 12,720 9.97% 5,102 4.00% 7,653 6.00% Firstbank - Lakeview 11,037 13.92% 3,172 4.00% 4,758 6.00% Tier 1 (Core) Capital to average assets Consolidated $52,735 8.49% $24,844 4.00% $31,056 5.00% Firstbank - Alma 18,383 8.72% 8,436 4.00% 10,545 5.00% Firstbank (Mt. Pleasant) 10,042 7.96% 5,046 4.00% 6,307 5.00% Firstbank - West Branch 12,720 7.47% 6,808 4.00% 8,510 5.00% Firstbank - Lakeview 11,037 9.98% 4,421 4.00% 5,527 5.00%
NOTE S - FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amount and estimated fair values of financial instruments were as follows at year-end: 2000 1999 ---- ---- Carrying Carrying (In Thousands of Dollars) or Notional Fair or Notional Fair Amount Value Amount Value ------ ----- ------ ----- Financial assets: Cash and cash equivalents $ 28,096 $ 28,096 $ 25,197 $ 25,197 Securities available for sale 76,175 76,175 90,266 90,266 Loans held for sale 1,018 1,018 1,117 1,117 Loans, net 589,892 588,671 497,804 488,684 Accrued interest receivable 4,623 4,623 3,489 3,489 Financial liabilities: Deposits $(537,224) $(539,347) $(491,404) $(490,272) Securities sold under agreements to repurchase and overnight borrowings (38,307) (38,307) (51,819) (51,819) Notes payable (83,952) (79,524) (38,384) (38,053) Accrued interest payable (1,977) (1,977) (1,255) (1,255)
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. The fair value of off balance sheet items were not material to the consolidated financial statements at December 31, 2000 and 1999. NOTE T - BASIC AND DILUTED EARNINGS PER SHARE (In Thousands of Dollars, except per share data) Year Ended December 31 2000 1999 1998 ---- ---- ---- Basic earnings per share Net income $8,543 $8,036 $7,303 Weighted average common shares outstanding 4,864 4,959 4,983 ----- ----- ----- Basic earnings per share $ 1.76 $ 1.62 $ 1.47 ====== ====== ------ Diluted earnings per share Net income $8,543 $8,036 $7,303 Weighted average common shares outstanding 4,864 4,959 4,983 Add dilutive effects of assumed exercises of options 74 121 190 ------- ------ ------ Weighted average common and dilutive potential common shares outstanding 4,939 5,081 5,173 ----- ----- ----- Diluted earnings per share $1.73 $1.58 $1.41 ==== ==== ====
Stock options for 261,014 and 93,941 shares of common stock were not considered in computing diluted earnings per share for 2000 and 1999 because they were antidulitive. NOTE U - FIRSTBANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL INFORMATION (000's) CONDENSED BALANCE SHEETS December 31 2000 1999 ---- ---- ASSETS Cash and cash equivalents $ 258 $ 365 Securities available for sale 26 17 Investment in and advances to banking subsidiaries 65,381 55,635 Other assets 7,948 7,941 ------- ------- Total assets $73,613 $63,958 ====== ====== LIABILITIES AND EQUITY Accrued expenses and other liabilities $ 2,709 $ 2,926 Notes Payable 6,700 Shareholders' equity 64,204 61,032 ------ ------ Total liabilities and shareholders' equity $73,613 $63,958 ====== ======
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Years ended December 31 2000 1999 1998 ---- ---- ---- Dividends from banking subsidiaries $6,323 $4,890 $3,138 Other income 137 330 191 Other expense (1,457) (1,052) (862) ----- ----- ----- Income before income tax and undistributed subsidiary income 5,003 4,168 2,467 Income tax benefit 342 139 121 Equity in undistributed subsidiary income 3,198 3,729 4,715 ----- ----- ----- Net income 8,543 8,036 7,303 Change in unrealized gain(loss) on securities, net of tax and classification effects 1,032 (1,767) 216 ----- ----- ------ Comprehensive income $9,575 $6,269 $7,519 ===== ----- ===== CONDENSED STATEMENTS OF CASH FLOWS Years ended December 31 2000 1999 1998 ---- ---- ---- Cash flows from operating activities Net income $8,543 $8,036 $7,303 Adjustments: Equity in undistributed subsidiary income (3,198) (3,729) (4,715) Change in other assets (7) (507) (509) Change in other liabilities (218) 315 868 ----- ------ ------ Net cash from operating activities 5,120 4,115 2,947 Cash flows from investing activities Purchases of securities available for sale (9) Payments for investments in subsidiaries (5,515) (2) (7) ----- ------- ------- Net cash from investing activities (5,524) (2) (7) Cash flows from financing activities Proceeds from issuance of long-term debt 6,700 Proceeds from stock issuance 1,965 2,656 1,433 Purchase of common stock (5,227) (4,793) (1,214) Dividends paid and cash paid in lieu of fractional shares on stock dividend (3,141) (2,874) (2,495) ----- ----- ----- Net cash from financing activities 297 (5,011) (2,276) ------ ----- ----- Net change in cash and cash equivalents (107) (898) 664 Beginning cash and cash equivalents 365 1,263 599 ------ ----- ------- Ending cash and cash equivalents $ 258 $ 365 $1,263 ====== ====== =====
NOTE V - OTHER COMPREHENSIVE INCOME Other comprehensive income components and related taxes were as follows: 2000 1999 1998 ---- ---- ---- Unrealized holding gains and losses on available-for-sale securities $1,562 $(2,680) $331 Less reclassification adjustments for gains and losses later recognized in income (2) (1) 3 -------- ------- ----- Net unrealized gains and losses 1,564 (2,679) 328 Tax effect (532) 912 (112) ------ ------ --- Other comprehensive income $1,032 $(1,767) $216 ===== ===== ===
NOTE W - QUARTERLY FINANCIAL DATA (UNAUDITED) (In Thousands of Dollars, except per share data) 2000 ---- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- Interest income $12,554 $13,232 $14,060 $14,486 $54,332 Net interest income 6,967 7,132 7,292 7,414 28,805 Income before federal income taxes 3,022 3,170 3,109 3,147 12,448 Net income 2,110 2,140 2,142 2,151 8,543 Basic earnings per share 0.43 0.44 0.44 0.45 1.76 Diluted earnings per share 0.42 0.44 0.43 0.44 1.73 1999 ---- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- Interest income $11,008 $11,314 $11,653 $12,087 $46,062 Net interest income 6,270 6,612 6,858 7,039 26,779 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 .39 .40 .41 .42 1.62 Diluted earnings per share .38 .38 .40 .42 1.58
All per share amounts have been adjusted for stock dividends and stock splits. FIRSTBANK CORPORATION BOARD OF DIRECTORS OFFICERS William E. Goggin, Chairman Thomas R. Sullivan Chairman, Firstbank - Alma President & Chief Executive Officer Attorney, Goggin & Baker William L. Benear Duane A. Carr Vice President Attorney, Carr & Mullendore, PC David L. Miller Edward B. Grant Vice President Chairman, Firstbank (Mt. Pleasant) Director, Public Broadcasting, Dale A. Peters Central Michigan University Vice President Charles W. Jennings Samuel G. Stone Attorney, Jennings, Engemann & Vice President, Chief Financial Benson PC Officer, Secretary & Treasurer Benson S. Munger, Ph.D. James M. Taylor Chairman, Firstbank - St. Johns Vice President Vice President, Data Harbor Inc. 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 Thomas R. Sullivan President & Chief Executive Officer, Firstbank Corporation President & Chief Executive Officer, Firstbank (Mt. Pleasant) NON-BANK SUBSIDIARY Gladwin Land Company - -------------------------------------------------------------------------------- FIRSTBANK CORPORATION Firstbank Corporation Operations Center 311 Woodworth Avenue 308 Woodworth Avenue P. O. Box 1029 Alma, Michigan 48801 Alma, Michigan 48801 (517) 463-3131 FIRSTBANK - ALMA BOARD OF DIRECTORS OFFICERS William E. Goggin, Chairman James E. Wheeler, II Chairman, Firstbank Corporation President & Chief Executive Officer Attorney, Goggin & Baker Gregory A. Daniels Bob M. Baker Vice President President and CEO, Gratiot Community Hospital Marita A. Harkness Vice President Sandra S. Brooks Chief Operating Officer, Powell Gerald E. Kench Fabrication & Manufacturing Vice President Donald W. Crumbaugh Timothy M. Lowe Agriculture Vice President Paul C. Lux Harmony L. Nowlin Owner, Lux Funeral Homes, Inc. Vice President John McCormack Joan S. Welke Former President & CEO, Vice President Firstbank Corporation Former President & CEO, Firstbank - Alma Phillip G. Peasley 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 Thomas R. Sullivan President & Chief Executive Officer, Firstbank Corporation President & Chief Executive Officer, Firstbank (Mt. Pleasant) James E. Wheeler, II President & Chief Executive Officer, Firstbank - Alma - ------------------------------------------------------------------------------------------------------------------------- OFFICE LOCATIONS Alma Ashley Auburn Ithaca 7455 N. Alger Rd. 114 S. Sterling St. 4710 S. Garfield Rd. 219 E. Center St. (517) 463-3134 (517) 847-2394 (517) 662-4459 (517) 875-4107 230 Woodworth Ave. Merrill Riverdale St. Charles (517) 463-3131 125 W. Saginaw St. 6716 N. Lumberjack Rd. 102 Pine St. (517) 643-7253 (517) 833-7331 (517) 865-9918 311 Woodworth Ave. (517) 463-3131 St. Louis Vestaburg 135 W. Washington Ave. 8846 Third St. (517) 681-5758 (517) 268-5445
FIRSTBANK BOARD OF DIRECTORS OFFICERS Edward B. Grant, Chairman Thomas R. Sullivan Director, Public Broadcasting, President and Chief Executive Officer Central Michigan University Mark B. Perry Ralph E. Baumgarth Senior Vice President Dentist Robert L. Wheeler Ralph M. Berry Senior Vice President Owner, Berry Funeral Home James L. Binder Kenneth C. Bovee, CPM Vice President Partner, Keystone Property Management, Inc. Brian M. Gooding Vice President Glen D. Blystone Certified Public Accountant, Douglas J. Ouellette Blystone & Bailey, CPAs, PC Vice President Sibyl M. Ellis Daniel J. Timmins President, Someplace Special, Inc. Vice President Keith A. Gaede Roger L. Trudell Pharmacist, Punches Pharmacy Vice President Douglas N. LaBelle Partner, LaBelle Management William M. McClintic Attorney, W.M. McClintic, P.C. Phillip R. Seybert President, P.S. Equities, Inc. Thomas R. Sullivan President & Chief Executive Officer, Firstbank Corporation President & Chief Executive Officer, Firstbank (Mt. Pleasant) Arlene A. Yost Secretary and Treasurer, Jay's Sporting Goods, Inc. - ------------------------------------------------------------------------------------------------------------------------------ OFFICE LOCATIONS Mt. Pleasant Clare Shepherd Winn 102 S. Main St. 806 N. McEwan Ave. 258 W. Wright Ave. 2783 Blanchard Rd. (517) 773-2600 (517) 386-7313 (517) 828-6625 (517) 866-2210 4699 E. Pickard St. (517) 773-2335 2013 S. Mission St. (517) 773-3959 1925 E. Remus Rd. (517) 775-8528
FIRSTBANK - WEST BRANCH BOARD OF DIRECTORS OFFICERS Dale A. Peters, Chairman Dale A. Peters President and Chief Executive President and Chief Executive Officer Officer, Firstbank - West Branch 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 W. John Powell Company, Northern Beverage Co., and Vice President West Branch Tank & Trailer Larry M. Schneider Charles W. Jennings Vice President Attorney, Jennings, Engemann & Benson PC Marie A. Wilkins Vice President Norman J. Miller Owner, Miller Farms, and Miller Dairy Equipment and Feed SUBSIDIARIES Jeffrey C. Schubert 1st Armored, Incorporated Dentist 1st Collections, Incorporated 1st Title, Incorporated Robert R. Smith 1st Real Estate (now C.A. Hanes Realty) Insurance Consultant Camila J. Steckling Weinlander, Fitzhugh Certified Public Accountants & Consultants Thomas R. Sullivan President & Chief Executive Officer, Firstbank Corporation President & Chief Executive Officer, Firstbank (Mt. Pleasant) - ------------------------------------------------------------------------------------------------------------------------------- OFFICE LOCATIONS West Branch Fairview Hale Higgins Lake 502 W. Houghton 1979 Miller 3281 M-65 4522 W. Higgins Lake (517) 345-7900 (517) 848-2243 (517) 728-7566 (517) 821-9231 601 W. Houghton Rose City St. Helen (517) 345-7900 505 S. Bennett 2040 N. St. Helen (517) 685-3909 (517) 389-1311 2087 S. M-76 (517) 345-5050 2375 M-30 (517) 345-6210
FIRSTBANK - LAKEVIEW BOARD OF DIRECTORS OFFICERS Gerald L. Nielsen, Chairman William L. Benear Owner, Nielsen's TV & Appliances President and Chief Executive Officer William L. Benear Kim D. vonKronenberger Vice President, Firstbank Corporation Vice President President and Chief Executive Officer, Firstbank - Lakeview Duane A. Carr Attorney, Carr & Mullendore John B. Crawford Agriculture, Crawford Farms V. Dean Floria Sheridan Township Supervisor Chalmer Gale Hixson Owner, Country Corner Supermarket Owner, A Flair for Hair Owner, Harry Chalmers, Inc. Owner, Powderhorn Ranch Thomas R. Sullivan President & Chief Executive Officer, Firstbank Corporation President & Chief Executive Officer, Firstbank - ----------------------------------------------------------------------------------------------------------------------------- OFFICE LOCATIONS 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
FIRSTBANK - ST. JOHNS BOARD OF DIRECTORS OFFICERS Benson S. Munger, Ph.D., Chairman James M. Taylor Vice President, Data Harbor, Inc. President and Chief Executive Officer Ann M. Flermoen Dentist William G. Jackson Attorney, William G. Jackson, P.C. Donald A. Rademacher Owner, RSI Home Improvement, Inc. John M. Sirrine Owner, John M. Sirrine & Associates, Inc., Accountants Samuel A. Smith Owner, Smith Funeral Homes, Inc. Thomas R. Sullivan President & Chief Executive Officer, Firstbank Corporation President & Chief Executive Officer, Firstbank (Mt. Pleasant) James M. Taylor President & Chief Executive Officer, Firstbank - St. Johns Robert E. Thompson Consultant - -------------------------------------------------------------------------------- OFFICE LOCATIONS St. Johns 201 N. Clinton Ave (517) 227-8383 BUSINESS OF THE COMPANY Firstbank Corporation (the "Company") is a bank holding company. As of December 31, 2000, the Company's wholly owned subsidiaries are Firstbank - Alma, Firstbank (Mt. Pleasant), Firstbank - West Branch, Firstbank - Lakeview, Firstbank - St. Johns, 1st Armored, Incorporated, 1st Collections, Incorporated, Gladwin Land Company, 1st Title, Incorporated, and 1st Real Estate. As of December 31, 2000, the Company and its subsidiaries employed 267 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. Firstbank - - 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. Firstbank - 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 (Mt. Pleasant) 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. Firstbank - West Branch 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. Firstbank -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 82% of total revenues in 2000, 78% in 1999, and 76%in 1998. Interest on investment securities accounted for approximately 8% of total revenues in 2000, 10% in 1999, and 12% in 1998. No other single source of revenue accounted for 8% of the Company's total revenues in any of the last 3 years. CORPORATE INFORMATION Annual Meeting Stock Information: The annual meeting of shareholders will be held on Monday, April 23, 2001, Firstbank Corporation shares are 5:00 p.m., at the Comfort Inn, Alma, listed Over the Counter Bulletin Michigan Board under the symbol FBMI. Independent Auditors McDonald Investments Crowe, Chizek & Company LLP Chris Turner Grand Rapids, Michigan 1-800-548-6011 General Counsel Morgan Stanley Dean Witter Varnum Riddering Schmidt & Howlett LLP Ted Vogt Grand Rapids, Michigan 1-800-788-9640 Transfer Agent Raymond James Financial Firstbank - Alma Shareholder Services Louis Parks Department (517) 466-7336 or 800-248-8863 toll free shareholder hotline: (888) 637-0590 Robert W. Baird & Company Mike Pniewski & Ken Bauman 1-800-888-6200 Stifel, Nicolaus & Company, Inc. Pete VanDer Schaaf 1-800-676-0477 Tucker Anthony Jack Korff 1-888-861-2200 EXHIBIT 21 FIRSTBANK CORPORATION SUBSIDIARIES NAME STATE OF INCORPORATION OWNERSHIP Firstbank -Alma Michigan 100% Firstbank Michigan 100% Firstbank - West Branch Michigan 100% Firstbank - Lakeview Michigan 100% Firstbank - St. Johns Michigan 100% Gladwin Land Company Michigan 100% 1st Armored, Inc. Michigan 100% by Firstbank - West Branch 1st Collections, Inc. Michigan 100% by Firstbank - West Branch 1st Title, Inc. Michigan 100% by Firstbank - West Branch C.A. Hanes Realty, Inc. Michigan 55% by Firstbank - West Branch EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Firstbank Corporation on Form S-8 (File Nos. 333-60190, 333-95427, 333-89771 and 333-53957) and Form S-3 (File No. 333-15131) of our report dated February 1, 2001 on the 2000 Consolidated Financial Statements of Firstbank Corporation, which report is included in the 2000 Annual Report on Form 10-K of Firstbank Corporation. [GRAPHIC OMITTED] /s/ CROWE, CHIZEK AND COMPANY LLP CROWE, CHIZEK AND COMPANY LLP Grand Rapids, Michigan March 9, 2001 EXHIBIT 99 Firstbank Corporation 401(k) Plan Performance Table INITIAL INVESTMENT VALUE VALUE VALUE VALUE ON AS OF AS OF AS OF AS OF FUND 12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/31/2000 - ---- ---------- ---------- ---------- ---------- ---------- Firstbank Corporation Common Stock $1,000.00 44.203% 26.495% -31.288% 5.37% $1,442.03 $1,824.10 $1,253.37 $1,320.68 Federated Money Market for U.S. Treasury Obligations $1,000.00 5.22% 5.11% 4.64% 5.33% $1,052.20 $1,105.97 $1,157.28 $1,218.96 Federated Capital Preservation Fund $1,000.00 5.86% 5.64% 5.57% 5.97% $1,058.60 $1,118.31 $1,180.59 $1,251.07 Vanguard Fixed Income Total Bond Fund $1,000.00 9.44% 8.60% -.70% 10.72% $1,094.40 $1,188.52 $1,180.20 $1,306.72 Vanguard Fixed Income Long Term Corporate Bond Fund $1,000.00 13.79% 9.20% -6.23% 11.08% $1,137.90 $1,242.59 $1,165.17 $1,294.27 Federated Stock $1,000.00 34.42% 17.26% 6.08% 2.82% $1,344.20 $1,576.21 $1,672.04 $1,719.19 Vanguard Index 500 Fund $1,000.00 33.21% 28.60% 21.07% -9.06% $1,332.10 $1,713.08 $2,074.03 $1,886.12 American Century 20th Century Ultra $1,000.00 23.13% 34.55% 41.46% -19.63% $1,231.30 $1,656.71 $2,343.59 $1,883.54 Warburg Pincus Emerging Growth Fund $1,000.00 21.27% 5.82% 41.81% -10.56% $1,212.70 $1,283.28 $1,819.82 $1,627.65 T. Rowe Price International Stock Fund $1,000.00 2.70% 16.14% 34.60% -16.57% $1,027.00 $1,192.76 $1,605.45 $1,339.43 Vanguard International Growth Fund $1,000.00 4.12% 16.93% 26.30% -8.57% $1,041.20 $1,217.48 $1,537.67 $1,405.89 Fidelity Overseas Fund $1,000.00 10.92% 12.84% 42.89% -18.44% $1,109.20 $1,251.62 $1,788.44 $1,458.65 American Century 20th Century International Discovery Fund $1,000.00 17.48% 17.86% 88.54% -14.29% $1,174.80 $1,384.62 $2,610.56 $2,237.51
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