10-K

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, 2006.
[_]	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: 000-14209

FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)

Michigan
(State of Incorporation) 38-2633910
(I.R.S. Employer Identification No.)

311 Woodworth Avenue
Alma, Michigan
(Address of principal executive offices) 48801
(Zip Code)

Registrant’s telephone number, including area code: (989) 463-3131

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ____   No     X  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes [_]    No [X]  interceptions or interference.

Indicate by check mark whether the registrant (1) has filed all reports 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]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12-b-2).  Large accelerated filer  ___   Accelerated filer     X     Non-accelerated filer  ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ___  No    X  

Aggregate Market Value as of June 30, 2006: $144,683,000

Common stock outstanding at March 2, 2007: 6,496,270 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s annual report to shareholders for the year ended December 31, 2006, 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, 2007 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 condition and results of operations and other sections of the Corporation’s Annual Report to Shareholders which are incorporated by reference in this report, contains forward looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation itself. Words such as “anticipate”, “believe”, “determine”, “estimate”, “expect”, “forecast”, “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 of 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.

Copies of the Corporation’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Corporation’s website (www.firstbankmi.com) as soon as reasonably practicable after the Corporation electronically files the material with, or furnishes it to, the Securities and Exchange Commission. The reference to our website address does not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

PART 1

ITEM 1.      Business.

        Firstbank Corporation (the “Corporation”) is a financial holding company. We own all of the outstanding stock of Firstbank – Alma, Firstbank (Mt. Pleasant), Firstbank – West Branch, Firstbank – Lakeview, Firstbank – St. Johns, Keystone Community Bank, Gladwin Land Company, Inc. (a real estate appraisal company), and FBMI Risk Management Services, Inc. (a captive insurance company).

        Our business is concentrated in a single industry segment – commercial banking. Each subsidiary bank is a full-service community bank. Our 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. Trust services are offered to customers through Citizens Bank Wealth Management in the Firstbank – Alma main office.

        Our principal sources of revenues are interest and fees on loans and non-interest revenue resulting from banking and non-bank subsidiary activity. On a consolidated basis, interest and fees on loans accounted for approximately 83% of total revenue in 2006, 80% in 2005, and 76% in 2004. Non-interest revenue accounted for approximately 13% of total revenue in 2006, 15% in 2005, and 19% in 2004. Interest on securities accounted for approximately 4% of total revenue 2006 and 5% in each of 2005, and 2004. We have no foreign assets and no income from foreign sources. The business of our subsidiary banks is not seasonal to any material extent. Beginning in 2001, each of our subsidiary banks established mortgage company subsidiaries. Each of our subsidiary banks also offers securities brokerage services at their main offices through arrangements with third party brokerage firms.

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        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, St. Charles, St. Louis and Vestaburg. Firstbank – Alma Mortgage Company, a subsidiary of the bank, was established in 2001.

        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 (Mount Pleasant) also has two full service branches in Union Township and one full service branch located in each of the following communities near Mount Pleasant: Clare, Shepherd, Cadillac and Winn. Firstbank (Mount Pleasant) Mortgage Company, a subsidiary of the bank, was established in 2001.

        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, Prescott, Rose City, St. Helen and West Branch Township. Firstbank – West Branch owns 1^st Armored, Incorporated (an armored car service provider), 1^st Title, Incorporated (a title insurance company), Firstbank — West Branch Mortgage Company (a subsidiary of the bank, established in 2001) and a 55% interest in C.A. Hanes Realty, Incorporated. 1^st Title, Incorporated owns a 52% interest in 1^st Investors Title, LLC (a title insurance company).

        Firstbank – Lakeview is a Michigan state chartered bank which was established in 1904. Its main office and one branch are located in Lakeview, Michigan. Firstbank – Lakeview also has one full service branch located in each of the following communities; Howard City, Morley, Remus and Canadian Lakes (Morton Township). Firstbank – Lakeview Mortgage Company, a subsidiary of the bank, was established in 2001.

        Firstbank – St. Johns is a Michigan state chartered bank which was established in 2000. Its main office and one branch are located in St. Johns, Michigan. Firstbank – St. Johns Mortgage Company, a subsidiary of the bank, was established in 2001.

        Keystone Community Bank is a Michigan state chartered bank which was established in 1997 and acquired by us on October 1, 2005. Its main office and two branches are located in Kalamazoo with two additional branches in Portage. Keystone Mortgage Services, LLC, is a 99% owned subsidiary of the bank. Keystone Premium Finance, LLC, is a 90% owned subsidiary of the bank. Keystone T.I. Sub, LLC is wholly owned by the bank, and KCB Title Insurance Agency, LLC is a 50% owned subsidiary of Keystone T.I. Sub, LLC.

        The following table shows comparative information concerning our subsidiary banks at December 31, 2006:

	Firstbank - Alma		Firstbank (Mt Pleasant)		Firstbank - West Branch		Firstbank - Lakeview		Firstbank - St. Johns		Keystone
	(In Thousands of Dollars)
Assets	$	246,522	$	200,713	$	232,782	$	123,812	$	69,321	$	207,989
Deposits		184,621		161,733		178,374		91,665		58,555		164,975
Loans		191,072		179,194		207,294		110,684		61,600		160,471

        As of December 31, 2006 we employed 405 persons on a full-time equivalent basis.

        Banking in our market areas and in the State of Michigan is highly competitive. In addition to competition from other commercial banks, we face significant competition from non-bank 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).

        Our subsidiary banks compete directly with other banks, thrift institutions, credit unions and other non-depository financial institutions in six geographic banking markets where their offices are located. Firstbank – Alma primarily competes in Gratiot, Bay, Montcalm, and Saginaw counties; Firstbank (Mount Pleasant) primarily in Isabella, Clare and Wexford counties; Firstbank – West Branch primarily in Iosco, Oscoda, Ogemaw, and Roscommon counties; Firstbank – Lakeview primarily in Mecosta and Montcalm counties; Firstbank – St. Johns primarily in Clinton County; and Keystone Community Bank primarily in Kalamazoo county.

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        Banks and bank holding companies are extensively regulated. We are a financial holding company that is regulated by the Federal Reserve System. Firstbank – Alma, Firstbank (Mount Pleasant), Firstbank – West Branch, Firstbank – Lakeview, Firstbank – St. Johns and Keystone Community Bank 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 us to acquire control of any additional banks or branches. Our business activities 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 its subsidiary banks are significantly restricted. In addition, bank regulations govern the ability of our subsidiary banks to pay dividends or make other distributions to the Corporation.

        In addition to laws that affect businesses in general, banks are subject to a number of federal and state laws and regulations which have a material impact on their business. These include, among others, state usury laws, state laws relating to 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, the Recovery and Enforcement Act, the FDIC Improvement Act of 1991 (the “FDIC Improvement Act”), the U.S.A. Patriot Act, electronic funds transfer laws, redlining laws, antitrust laws, environmental laws and privacy laws.

        Our common stock is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It is therefore, subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act provides for numerous changes to the reporting, accounting, corporate governance and business practices of companies as well as financial and other professionals who have involvement with the U.S. public markets. In 2004 section 404 of the Sarbanes-Oxley Act were implemented, which require us and our auditors to report on the Company’s system of internal controls. Extensive testing and monitoring of our internal control environment was performed by both our management and our external audit firm.

        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 1930‘s. 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 service organization to offer customers a more complete array of financial products and services. The GLB Act provided 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. We are also subject to certain state laws that deal with the use and distribution of non-public personal information.

        We believe that the GLB Act could significantly increase competition in our business. We applied for and were granted financial holding company status in the third quarter of 2006.

        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.

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        Under applicable laws, regulations and policies, we are 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 us 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 us.

        On March 31, 2006, the Federal Deposit Insurance Corporation (FDIC) merged the Bank Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF) to form the Deposit Insurance Fund (DIF) in accordance with the Federal Deposit Insurance Reform Act of 2005 (Reform Act). The FDIC will maintain the insurance reserves of the DIF by assessing depository institutions an insurance premium.

        On November 2, 2006, the FDIC adopted final regulations that implemented the Reform Act of 2005. The final regulations enable the FDIC to tie each depository institution’s DIF insurance premiums both to the balance of insured deposits, as well as to the degree of risk the institution poses to the DIF. In addition, the FDIC has new flexibility to manage the DIF’s reserve ratio within a range, which in turn will help prevent sharp swings in assessment rates that were possible under the design of the former system. Under the new risk-based assessment system, the FDIC will evaluate each depository institution’s risk based on three primary sources of information: supervisory ratings for all insured institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have them.

        Federal law allows financial 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 appropriated circumstances and with the approval of the Commissioner: (i) acquisition of Michigan banks by FDIC insured banks, savings banks, or savings and loan associations located in other states (ii) sale by a Michigan bank of branches to an FDIC insured bank, savings bank or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity; (iii) consolidation of Michigan banks and FDIC insured banks, savings banks or savings and loan associations located in other states having laws permitting such consolidation; (iv) establishment of branches in Michigan by FDIC insured banks located in other states, the District of Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction; and (v) establishment by foreign banks of branches located in Michigan.

        Risk-based capital and leverage standards apply to all banks under federal regulations. The risk-based capital ratio standards establish a systematic analytical framework that is intended to make regulatory capital requirements sensitive to differences in risk profiles among banking organizations, take off-balance sheet liability exposures into explicit account in assessing capital adequacy and minimize disincentives to hold liquid, low risk assets. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments into risk-weighting categories. Higher levels of capital are required for categories perceived as representing greater risk.

        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 premiums at the lowest available rate.

        Each of our 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.

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        The following table summarizes compliance with regulatory capital ratios by us and each of our subsidiary banks at December 31, 2006:

	Tier 1 Leverage Ratio			Tier 1 Risk-Based Capital Ratio			Total Risk-Based Capital Ratio
Minimum regulatory requirement		4	%		4	%		8	%
Well capitalized regulatory level		5	%		6	%		10	%
Firstbank Corporation - Consolidated		8.81	%		10.37	%		11.43	%
Firstbank - Alma		7.37	%		9.80	%		11.06	%
Firstbank (Mount Pleasant)		8.07	%		8.99	%		10.02	%
Firstbank - West Branch		7.59	%		9.38	%		10.40	%
Firstbank - Lakeview		7.80	%		9.09	%		10.34	%
Firstbank - St. Johns		8.48	%		9.70	%		10.71	%
Keystone Community Bank		9.07	%		9.44	%		10.36	%

        The following table shows the amounts by which our capital (on a consolidated basis) exceeds current regulatory requirements on a dollar amount basis:

	Tier 1 Leverage		Tier 1 Risk-Based Capital		Total Risk-Based Capital
	(In Thousands of Dollars)
Capital Balances at December 31, 2006	$	93,688	$	93,688	$	103,285
Required Regulatory Capital		42,540		36,134		72,269
Capital in Excess of Regulatory Minimums	$	51,148	$	57,554	$	31,016

        The nature of the business of our 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.

Investment Portfolio

        The carrying values of investment securities as of the date indicated are summarized as follows:

	December 31
	2006		2005		2004
	(In Thousands of Dollars)
Taxable
US Government Agencies	$	33,584	$	36,851	$	37,399
States and Political Subdivisions		1,629		3,655		5,526
Mortgage Backed Securities		4,143		3,544		3,021
Corporate and Other		3,210		2,879		1,474
Total Taxable		42,566		46,929		47,420
Tax-Exempt
States and Political Subdivisions		26,559		26,882		25,055
Total	$	69,125	$	73,811	$	72,475

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Analysis of Investment Securities Portfolio

        The following table shows, by class of maturities at December 31, 2006, the amounts and weighted average yields of such investment securities ⁽¹⁾:

	Carrying Value		Average Yield(2)
	(In Thousands of Dollars)
U.S. Agencies:
One Year or Less	$	22,084		3.58	%
Over One Through Five Years		8,503		3.79	%
Over Five Through Ten Years		2,997		5.65	%
Total		33,584		3.82	%
State and Political Subdivisions:
One Year or Less		4,437		4.51	%
Over One Through Five Years		13,453		4.45	%
Over Five Through Ten Years		6,677		4.37	%
Over Ten Years		3,621		5.23	%
Total		28,188		4.54	%
Mortgage Backed Securities
One Year or Less		3		6.50	%
Over One Through Five Years		3,045		4.64	%
Over Five Through Ten Years		122		6.00	%
Over Ten Years		973		4.91	%
Total		4,143		4.74	%
Corporate and Other:
One Year or Less		3,210		6.04	%
Total		3,210		6.04	%
TOTAL	$	69,125		4.27	%

(1)	Calculated on the basis of the carrying value 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 35% tax rate.

Loan Portfolio

        The following table presents the loans outstanding at December 31st for the years ended:

	2006		2005		2004		2003		2002
	(In Thousands of Dollars)
Loan Categories:
Commercial and Agricultural	$	194,810	$	183,473	$	110,261	$	112,384	$	97,951
Real Estate Mortgages		570,386		574,873		456,585		407,924		392,950
Real Estate Construction		81,218		61,067		47,920		55,160		47,103
Consumer		63,106		59,211		56,321		60,128		63,417
Total	$	909,520	$	878,624	$	671,887	$	635,596	$	601,421

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        The following table shows the maturity of commercial and agricultural and real estate construction loans outstanding at December 31, 2006. Also provided are the amounts due after one year, classified according to their sensitivity to changes in interest rates.

	One Year or Less		One Year to Five Years		After Five Years		Total
	(In Thousands of Dollars)
Commercial and Agricultural	$	72,830	$	101,994	$	19,986	$	194,810
Real Estate Construction		41,517		33,131		6,570		81,218
Total	$	114,347	$	135,125	$	26,556	$	276,028
Loans Due after One Year:
With Pre-determined Rate			$	72,757	$	21,862		94,619
With Adjustable Rates				62,368		4,694		67,062
Total			$	135,125	$	26,556	$	161,681

Nonperforming Loans and Assets

        The following table summarizes nonaccrual, troubled debt restructurings and past-due loans at December 31st for the years ended:

	2006		2005		2004		2003		2002
	(In Thousands of Dollars)
Nonperforming Loans:
Nonaccrual Loans:
Commercial and Agricultural	$	813	$	534	$	806	$	529	$	215
Real Estate Mortgages		847		4,079		633		269		355
Consumer		108		158		17		36		60
Total		1,768		4,771		1,456		834		630
Accruing Loans 90 Days or More Past Due:
Commercial and Agricultural		767		199		158		21		2,821
Real Estate Mortgages		1,597		2,054		186		543		290
Consumer		121		188		64		17		19
Total		2,485		2,441		408		581		3,130
Renegotiated Loans:
Commercial and Agricultural		0		0		0		0		53
Real Estate Mortgages		0		0		0		0		0
Total		0		0		0		0		53
Total Nonperforming Loans		4,253		7,212		1,864		1,415		3,813
Property from Defaulted Loans		1,700		1,020		950		364		578
Total Nonperforming Assets	$	5,953	$	7,352	$	2,814	$	1,779	$	4,391

        Nonperforming assets are defined as nonaccrual loans, loans 90 days or more past due, property from defaulted loans and renegotiated loans.

        The amount of interest income on the above loans that was included in net income for the period ended December 31, 2006, was $314,680. 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, an additional $97,514 in gross interest income would have been recorded.

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        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, 2006 we had $30,656,564 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.

        At December 31, 2006, there were no concentrations of loans exceeding 10 percent of total loans, which are not otherwise disclosed as a category of loans, in our consolidated balance sheets contained in our Annual Report to shareholders for the year ended December 31, 2006.

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 31st for the years ended:

	(In Thousands of Dollars)
	2006			2005			2004			2003			2002
Balance at Beginning of Period	$	11,559		$	10,581		$	11,627		$	11,536		$	11,038
Allowance of acquired banks		0			1,949			0			0			0
Charge-Offs:
Commercial and Agricultural		1,910			1,146			224			219			285
Real Estate Mortgages		157			84			221			50			242
Consumer		627			509			485			509			508
Total Charge-Offs		2,694			1,739			930			778			1,035
Recoveries:
Commercial and Agricultural		86			173			65			104			98
Real Estate Mortgages		21			57			77			32			64
Consumer		227			243			167			183			201
Total Recoveries		334			473			309			319			363
Net Charge-Offs		2,360			1,265			621			459			672
Provision for Loan Losses		767			295			(425	)		550			1,170
Balance at End of Period	$	9,966		$	11,559		$	10,581		$	11,627		$	11,536
Net Charge-Offs as a Percent of Average Loans		.26	%		.17	%		.09	%		.08	%		.11	%

        The allowance for loan losses is based on management’s evaluation of the portfolio, past loan loss experience, current economic conditions, volume, growth, 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 inherent losses within the following loan categories as of December 31st for the years ended:

	2006					2005					2004					2003					2002
	Allowance for loan losses		% of loans to total loans			Allowance for loan losses		% of loans to total loans			Allowance for loan losses		% of loans to total loans			Allowance for loan losses		% of loans to total loans			Allowance for loan losses		% of loans to total loans
Commercial and
Agricultural	$	7,944		21	%	$	10,379		21	%	$	9,012		16	%	$	9,130		18	%	$	8,527		16	%
Real Estate
Mortgages		627		72	%		620		72	%		419		75	%		1,250		73	%		1,493		73	%
Consumer		811		7	%		479		7	%		1,058		9	%		1,154		9	%		1,220		11	%
Unallocated*		584					81					92					93					296
Total	$	9,966		100	%	$	11,559		100	%	$	10,581		100	%	$	11,627		100	%	$	11,536		100	%

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We have developed and implemented a comprehensive quantitative and qualitative methodology for analyzing factors which impact the allowance for loan losses. This methodology is applied consistently across our six banking subsidiaries and considers exposures to industries potentially most affected by current risks in the economic and political environment and the review of potential risks in certain credits.

Average Deposits

        The daily average deposits and rates paid on such deposits for the years ending December 31st are as follows:

	2006					2005					2004
	Amount		Rate			Amount		Rate			Amount		Rate
	(In Thousands of Dollars)
Average Balance:
Non-interest-bearing Demand Deposits	$	124,740				$	112,088				$	104,515
Interest-bearing Demand Deposits		169,507		2.06	%		170,211		1.36	%		184,660		0.78	%
Other Savings Deposits		131,226		1.74	%		124,671		1.21	%		99,717		0.60	%
Other Time Deposits		383,424		4.47	%		257,626		3.32	%		202,378		2.67	%
Total Average Deposits	$	808,897		3.35	%	$	664,596		2.24	%	$	591,270		1.26	%

        The time remaining until maturity of time certificates of deposit and other time deposits of $100,000 or more at December 31, 2006, was as follows (In Thousands of Dollars):

Three Months or Less	$	47,355
Over Three Through Six Months		37,070
Over Six Through Twelve Months		54,011
Over Twelve Months		31,010
Total	$	169,446

Return on Equity and Assets

        The following table sets forth certain financial ratios for the years ended:

	2006			2005			2004
Financial Ratios:
Return on Average Total Assets		0.95	%		1.15	%		1.32	%
Return on Average Equity		10.72	%		12.77	%		13.06	%
Average Equity to Average Total Assets		8.89	%		9.02	%		10.07	%
Dividend Payout Ratio		54.72	%		47.35	%		42.56	%

-9-

Short Term Borrowed Funds

        Included in short term borrowed funds are repurchase agreements as described in Note 11 to the consolidated financial statements in our Annual Report to Shareholders for the year ended December 31, 2006, which consist of the following:

	2006			2005			2004
Amounts Outstanding at the End of the Year	$	32,079		$	31,011		$	28,850
Weighted Average Interest Rate at the End of the Year		4.17	%		2.88	%		1.10	%
Longest Maturity		1/01/07			1/01/06			1/01/05
Maximum Amount Outstanding at any Month End During Year	$	37,459		$	31,920		$	30,993
Approximate Average Amounts Outstanding During the Year	$	31,108		$	28,065		$	25,390
Approximate Weighted Average Interest Rate for the Year		3.89	%		2.18	%		0.87	%

The weighted average interest rates are derived by dividing the interest expense for the period by the daily average balance during the period.

ITEM 1A.      Risk Factors

You should carefully consider the following risk factors, together with the other information provided in this Annual Report on Form 10-K.

Changes in economic conditions or interest rates may negatively affect our earnings, capital and liquidity.

        The results of operations for financial institutions, including our banks, may be materially and adversely affected by changes in prevailing local and national economic conditions, including declines in real estate market values, rapid increases or decreases in interest rates and changes in the monetary and fiscal policies of the federal government. Our profitability is heavily influenced by the spread between the interest rates we earn on investments and loans and the interest rates we pay on deposits and other interest-bearing liabilities. Substantially all our loans are to businesses and individuals in Michigan and any decline in the economy of this area could adversely affect us. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors that influence market interest rates and our ability to respond to changes in such rates. At any given time, our assets and liabilities may be such that they are affected differently by a given change in interest rates.

Our credit losses could increase and our allowance for loan losses may not be adequate to cover actual loan losses.

        The risk of nonpayment of loans is inherent in all lending activities and nonpayment, if it occurs, may have a material adverse affect on our earnings and overall financial condition as well as the value of our common stock. We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for potential losses based on a number of factors. If our assumptions are wrong, our allowance for loan and lease losses may not be sufficient to cover our losses, thereby having an adverse affect on our operating results, and may cause us to increase the allowance in the future. The actual amount of future provisions for loan losses cannot now be determined and may exceed the amounts of past provisions. Additionally, federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for credit losses. These regulatory agencies may require us to increase our provision for credit losses or to recognize further loan or lease charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for credit losses could have a negative effect on our net income, financial condition and results of operations.

Our business is subject to various lending risks depending on the nature of the borrower’s business, its cash flow and our collateral.

-10-

        Repayment of our commercial loans is often dependent on cash flow of the borrower, which may be unpredictable, and collateral securing these loans may fluctuate in value. Our commercial loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral is accounts receivable, inventory, equipment or real estate. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Other collateral securing loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

        Our commercial real estate loans involve higher principal amounts than other loans, and repayment of these loans may be dependent on factors outside our control or the control of our borrowers. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Because payments on loans secured by commercial real estate often depend upon the successful operating and management of the properties, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation. If the cash flow from the project is reduced, the borrower’s ability to repay the loan and the value of the security for the loan may be impaired.

        Our construction loans are based upon estimates of costs to construct and value associated with the completed project. These estimates may be inaccurate. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. Delays in completing the project may arise from labor problems, material shortages and other unpredictable contingencies. If the estimate of the cost of construction is inaccurate, we may be required to advance additional funds to complete construction. If our appraisal of the value of the completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of the project.

        Our consumer loans generally have a higher risk of default than our other loans. Consumer loans may involve greater risk than our other loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy, all of which increase when the economy is weak. Furthermore, the application of various Federal and state laws, including Federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

We may experience difficulties in managing our growth.

        To sustain our continued growth, we require additional capital to fund our expanding lending activities and any bank or branch acquisitions. We may acquire banks and related businesses that we believe provide a strategic fit with our business. To the extent that we grow through acquisitions, we cannot assure you that we will be able to adequately or profitably manage such growth. Acquiring other banks and businesses involves risks commonly associated with acquisitions.

We rely heavily on our management and other key personnel, and the loss of any of them may adversely affect our operations.

        We are and will continue to be dependent upon the services of our management team, including our Chief Executive Officer, Chief Financial Officer, the Presidents of each of our banks, and our other senior managers and commercial lenders. Losing one or more key members of the management team could adversely affect our operations. We do not maintain key man life insurance on any of our officers or directors.

-11-

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

        We face substantial competition in all phases of our operations from a variety of different competitors. Our future growth and success will depend on our ability to compete effectively in this highly competitive environment. We compete for deposits, loans and other financial services with numerous Michigan-based and out-of-state banks, thrifts, credit unions and other financial institutions as well as other entities which provide financial services. Some of the financial institutions and financial services organizations with which we compete are not subject to the same degree of regulation as we are. Many of our competitors have been in business for many years, are larger and have higher lending limits than we do. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

We are subject to significant government regulation, and any regulatory changes may adversely affect us.

        The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect customers, not our creditors or shareholders. As a bank holding company, we are also subject to extensive regulation by the Federal Reserve, in addition to other regulatory and self-regulatory organizations. Our ability to establish new facilities or make acquisitions is conditioned upon the receipt of the required regulatory approvals from these organizations. Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of such changes, which could have a material adverse effect on our profitability or financial condition.

We continually encounter technological change, and we may have fewer resources than our competitors to continue to invest in technological improvements.

        The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. There can be no assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

Our articles of incorporation and by-laws and Michigan laws contain certain provisions that could make a takeover more difficult.

        Our articles of incorporation and by-laws, and the laws of Michigan, include provisions which are designed to provide our board of directors with time to consider whether a hostile takeover offer is in our best interest and the best interests of our shareholders. These provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control. The provisions also could diminish the opportunities for a holder of our common stock to participate in tender offers, including tender offers at a price above the then-current price for our common stock. These provisions could also prevent transactions in which our shareholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of our shareholders to approve transactions that they may deem to be in their best interests.

        The Michigan Business Corporation Act contains provisions intended to protect shareholders and prohibit or discourage certain types of hostile takeover activities. In addition to these provisions and the provisions of our articles of incorporation and by-laws, Federal law requires the Federal Reserve Board’s approval prior to acquisition of “control” of a bank holding company. All of these provisions may have the effect of delaying or preventing a change in control at the company level without action by our shareholders, and therefore, could adversely affect the price of our common stock.

-12-

Our ability to pay dividends is limited by law and contract.

        We are a holding company and substantially all of our assets are held by our banks. Our ability to continue to make dividend payments to our shareholders will depend primarily on available cash resources at the holding company and dividends from our banks. Dividend payments or extensions of credit from our banks are subject to regulatory limitations, generally based on capital levels and current and retained earnings, imposed by regulatory agencies with authority over our banks. The ability of our banks to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. We also are prohibited from paying dividends on our common stock if the required payments on our subordinated debentures have not been made. We cannot assure you that our banks will be able to pay dividends to us in the future.

Acquisitions may affect or results.

        Our financial results may be adversely affected if we are unable to successfully manage any financial institutions that we acquire.

The market price for our common stock fluctuates.

        The market price for our common stock has fluctuated, and the overall market and the price of our common stock may continue to fluctuate. There may be a significant impact on the market price for our common stock due to, among other things:

• Variations in our anticipated or actual operating results or the results of our competitors;

• Changes in investors

• or analysts

• perceptions of the risks and conditions of our business;

• The size of the public float of our common stock;

• Regulatory developments;

• Market conditions; and

• General economic conditions.

        Additionally, the average daily trading volume for our common stock as reported on the Nasdaq National Market is relatively low compared to larger companies whose shares trade on Nasdaq. There can be no assurance that a more active or consistent trading market in our common stock will develop. As a result, relatively small trades could have a significant impact on the price of our common stock.

ITEM 1B.      Unresolved Staff Comments

        There are no unresolved SEC comments with respect to reports filed by the Company under the Securities Exchange Act of 1934.

ITEM 2.      Properties

        Our headquarters is located in the main branch office in Alma, Michigan. Our subsidiary banks operate 42 branch offices throughout central Michigan, most of which are full service facilities. Our subsidiaries operate larger facilities as main offices in Alma, Mt. Pleasant, West Branch, Lakeview, St. Johns and Kalamazoo. The remaining branch facilities range in size from 1,200 to 3,200 square feet, based on the location and number of employees located at the facility. All but nine of the branch locations are owned by the company, with the remaining facilities rented under various operating lease agreements which have a range of remaining terms and renewal arrangements. In several instances, branch facilities contain more space than is required for current banking operations. This excess space, totaling approximately 17,000 square feet, is leased to unrelated businesses. We also maintain a separate facility for our central operations unit near our headquarters office in Alma, Michigan.

        We consider our properties and equipment of to be well maintained, in good operating condition and capable of accommodating current growth forecasts for their operations. However, we may chose to add additional branch locations to expand our presence in current or contiguous markets in the future to improve our opportunities for growth.

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ITEM 3.      Legal Proceedings.

        We 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 our 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 is given below. Except as otherwise indicated, all existing officers have had the same principal employment for over 5 years.

        William L. Benear (age 60) became President & CEO of Firstbank – Lakeview and Vice President of the Corporation in January 2000. Prior to his appointment as Lakeview’s President & CEO, Mr. Benear has served as Executive Vice President of Firstbank – Lakeview since 1994.

        David M. Brown (age 48) became President & CEO of Firstbank – St. Johns and Vice President of the Corporation in January 2005. Prior to his appointment as St. Johns’ President & CEO, Mr. Brown has worked for over 24 years at both regional and community banks. Positions held during his career include Community Bank President, Commercial Loan Regional Manager, Vice President of Commercial Banking and Branch Manager.

        David L. Miller (age 41) was named a Vice President of the Corporation in December 2000. Prior to this appointment Mr. Miller served as Senior Vice President of Firstbank — Lakeview, having been employed there since 1992. Mr. Miller serves in the Human Resources Department for the Corporation and its subsidiaries.

        Dale A. Peters (age 64) has been a Vice President of the Corporation, President, CEO, and a director of Firstbank – West Branch since 1987.

        Richard D. Rice (age 47) was named a Vice President of the Corporation in April 2005. Mr. Rice joined the Corporation in July 2003 and has served as the Corporation’s Controller since December 2003. From 1998 until his appointment to Firstbank Corporation, Mr. Rice served as Vice President – Accounting of National City Corporation (successor to First of America). Previous positions Mr. Rice held during his 13-year tenure with First of America include Vice President – Accounting and several staff accounting positions.

        Thomas O. Schlueter (age 49) became President & CEO of Keystone Community Bank and Vice President of the Corporation in October 2005. From November 1998 until his appointment to President of Keystone Community Bank, Mr. Schlueter served as Executive Vice President, in addition to being named Chief Operating Officer and a Director of Keystone Community Bank in December 1999. Prior to joining Keystone Community Bank, Mr. Schlueter was employed by First of America Bank/National City Bank for approximately 23 years, with his last position being that of Senior Vice President/Middle Market Lending Group Manager for Southwest Michigan.

        Samuel G. Stone (age 61) was appointed Executive Vice President, CFO, Secretary and Treasurer of the Corporation in December 2001. From November 2000 to the December 2001 appointment, Mr. Stone was Vice President, CFO, Secretary and Treasurer of the Corporation. 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.

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        Thomas R. Sullivan (age 56) was appointed President & CEO of the Corporation in January 2000 and has served as President, CEO, and Director of Firstbank (Mt. Pleasant) since 1991. Mr. Sullivan was Executive Vice President of the Corporation from 1996 to 2000 and served as Vice President of the Corporation from 1991 to 1996.

        James E. Wheeler, II (age 47) was appointed President & CEO of Firstbank – Alma in January 2000 and has served as Vice President of the Corporation since March 1989. Mr. Wheeler served as Executive Vice President of Firstbank – Alma from 1999 to 2000 and from 1989 to 1999 as Senior Vice President and Chief Loan Officer of Firstbank – Alma.

PART II

ITEM 5.      Market for Registrant’s Common Equity and Related Stockholder Matters.

        The information under the caption “Common Stock Data” on page 20 in the registrant’s annual report to shareholders for the year ended December 31, 2006, is here incorporated by reference.

ITEM 6.      Selected Financial Data.

        The information under the heading “Financial Highlights” on page 4 in the registrant’s annual report to shareholders for the year ended December 31, 2006, is here incorporated by reference.

ITEM 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 5 through 21 in the registrant’s annual report to shareholders for the year ended December 31, 2006, is here incorporated by reference.

ITEM 7A.      Quantitative and Qualitative Disclosures About Market Risk.

        Information under the headings “Liquidity and Interest Rate Sensitivity” on pages 12 and 13 and “Quantitative and Qualitative Disclosure About Market Risk” on pages 17 and 18 in the registrant’s annual report to shareholders for the year ended December 31, 2006, is here incorporated by reference.

ITEM 8.      Financial Statements and Supplementary Data.

        The reports of the independent registered public accounting firm, and the consolidated financial statements on pages 26 through 30, and the quarterly results of operations on page 51 in the registrant’s annual report to shareholders for the year ended December 31, 2006, are here incorporated by reference.

ITEM 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

         None.

ITEM 9A.      Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

                The Corporation’s management is responsible for the establishing and maintaining effective disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this Form 10-K Annual Report. The Corporation’s Chief Executive Officer and the Chief Financial Officer, after evaluating the effectiveness of the Corporation’s disclosure controls and procedures, have concluded that the Corporation’s disclosure controls and procedures as of December 31, 2006 were adequate and effective to ensure that information required to be disclosed in this Annual Report on Form 10-Kwas recorded, processed, summarized, and reported on a timely basis. Management’s responsibility relating to establishing and maintaining effective disclosure controls over financial reporting are designed to produce reliable financial statements in accordance with accounting principles generally accepted in the United States.

-15-

(b) Management’s Report on Internal Controls over Financial Reporting.

        As disclosed in the Report on Management’s Assessment of Internal Control Over Financial Reporting on page 18 of the registrant’s annual report to shareholders for the year ended December 31, 2006, (incorporated herein by reference to Exhibit 13 to this Form 10 K), management assessed the Corporation’s system of internal control over financial reporting. Based on this assessment, management believes that, as of December 31, 2006, its system of internal control over financial reporting was effective. Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, has been audited by Crowe Chizek and Company LLC, an independent registered certified public accounting firm, as stated in their report included in Exhibit 13 to this Annual Report on Form 10-K which is incorporated hereby by reference.

(c) Changes in Internal Controls.

        During the quarter ended December 31, 2006, there were no significant changes in the Corporation’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Corporation’s internal control over financial reporting. There were no significant changes in the Corporation’s system of internal controls or other factors that could significantly affect internal controls subsequent to December 31, 2006.

ITEM 9B.      Other Information.

         None.

PART III

ITEM 10.        Directors, Executive Officers and Corporate Governance.

        The information under the captions “Election of Directors,” “Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the registrant’s definitive proxy statement for its annual meeting of shareholders to be held April 23, 2007, is here incorporated by reference.

        The Board of Directors of the Corporation has determined that Edward B. Grant, a director and member of the Audit Committee, qualifies as an “Audit Committee Financial Expert” as defined in rules adopted by the Securities and Exchange Committee pursuant to the Sarbanes-Oxley Act of 2002.

        The Board of Directors of the Corporation has adopted a Code of Ethics which details principles and responsibilities governing ethical conduct for all Corporation directors and executive officers. The Code of Ethics is filed as an Exhibit to this Report on Form 10-K.

        Information relating to our Executive Officers is included in Part I of this Report on Form 10-K.

        We provide stock options to our full time employees that qualify for benefits under the Firstbank Corporation Stock Option Plans of 1993, 1997 and 2006, as amended. These plans provide for shares of stock, in either restricted form or under option. Grant of options may be either incentive stock options or nonqualified stock options.

        We provide an incentive based bonus program as a part of its overall compensation plan. All full time employees are eligible to receive payment under the plan, provided that our net income for the year is satisfactory. Annual bonuses are paid based on a discretionary evaluation of the performance of the employee and the employee’s individual achievements.

-16-

ITEM 11.      Executive Compensation.

        Information contained under the captions “Compensation Committee Interlocks and Insider Participation” and “Compensation Discussion and Analysis“ in the registrant’s definitive proxy statement for its annual meeting of shareholders to be held April 23, 2007, is here incorporated by reference.

ITEM 12.       Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

        The information under the caption “Voting Securities” in the registrant’s definitive proxy statement for our annual meeting of shareholders to be held April 23, 2007, is here incorporated by reference.

Securities Authorized for Issuance Under Equity Compensation Plans. We had the following equity compensation plans at December 31, 2006:

EQUITY COMPENSATION PLAN INFORMATION

Plan Category	Number of securities to be issued upon exercise of outstanding options (A)		Weighted-average exercise price of outstanding options (B)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A (C)
Equity compensation
plans approved by
security holders		481,616	$	19.96		295,608
Equity compensation
plans not approved by
security holders		0		0		0
Total		481,616	$	19.96		295,608

        These equity compensation plans are more fully described in Note 15 to the Consolidated Financial Statements.

ITEM 13.      Certain Relationships and Related Transactions, and Director Independence.

        The information under the captions “Compensation Committee Interlocks and Insider Participation,” “Certain Relationships and related Transactions”and “Director Independence” in the registrant’s definitive proxy statement for its annual meeting of shareholders to be held April 23, 2007, is hereby incorporated by reference.

ITEM 14.      Principal Accountant Fees and Services.

        The information set forth under the heading “Relationship with Independent Certified Public Accountants” on page 16 of the Corporation’s definitive proxy statement for its annual meeting of shareholders to be held April 23, 2007, is hereby incorporated by reference.

-17-

ITEM 15.      Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements.

        The following consolidated financial statements of the Corporation and its subsidiaries and report of independent auditors are incorporated by reference from the registrant’s annual report to shareholders for the year ended December 31, 2006, in Item 8:

Statement or Report	Page Number in Annual Report
Reports of Independent Registered Public Accounting Firm		23-25
Consolidated Balance Sheets as of December 31, 2006 and 2005		26
Consolidated Statements of Income and Comprehensive
Income for the years ended December 31, 2006, 2005, and 2004		27
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 2006, 2005, and 2004		28
Consolidated Statements of Cash Flows for the years ended
December 31, 2006, 2005, and 2004		29-30
Notes to Consolidated Financial Statements		30-51

        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, 2006.

(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.

-18-

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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 6, 2007.

/s/ Thomas R. Sullivan
——————————————
Thomas R. Sullivan
President & Chief Executive Officer
(Principal Executive Officer FIRSTBANK CORPORATION


/s/ Samuel G. Stone
——————————————
Samuel G. Stone
Executive Vice President & Chief Financial Officer
(Principal Executive 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 —————————————— Duane A. Carr	March 6, 2007
/s/ David W. Fultz —————————————— David W. Fultz	March 6, 2007
/s/ William E. Goggin —————————————— William E. Goggin	March 6, 2007
/s/ Edward B. Grant —————————————— Edward B. Grant	March 6, 2007
/s/ David D. Roslund —————————————— David D. Roslund	March 6, 2007
/s/ Samuel A. Smith —————————————— Samuel A. Smith	March 6, 2007
/s/ Jeff A. Gardner —————————————— Jeff A. Gardner	March 6, 2007

-19-

Number Exhibit

3(a) Articles of Incorporation. Previously filed as exhibit 3.1 to registrant's Registration Statement on Form S-4 filed on July 8, 2005. 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 Exhibit 10.1 to the registrant's Current Report on Form 8-K dated June 27, 2005. 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 held April 28, 1997. Here incorporated by reference.

10(f)* 2006 Stock Compensation Plan. Previously filed as Appendix A to registrant's proxy statement dated March 13, 2006. Here incorporated by reference.

10(g) 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(h)* 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.

10(i)* Form of Stock Option Agreement. Previously filed as Exhibit 10(h) to the registrant's annual report on Form 10-K for the year ended December 31, 2005. Here incorporated by reference.

10(j)* Form of Stock Option Agreement for 2006 Stock Compensation Plan. Filed as exhibit 10.1 to registrant's report on Form 10-Q for the quarter ended June 30, 2006. Here incorporated by reference.

10(k)* Form of Restricted Stock Agreement for 2006 Stock Compensation Plan. Previously filed as exhibit 10.2 to registrant's report on Form 10-Q for the quarter ended June 30, 2006. Here incorporated by reference.

13 2006 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 10, 2007, relating to the April 23, 2007 Annual Meeting of Shareholders which was delivered to the registrant's shareholders in compliance with Rule 14(a)-3 under the Securities Exchange Act of 1934.

14. Code of Ethics.

21 Subsidiaries of Registrant.

-20-

23 Consent of Crowe Chizek and Company LLC - Independent Registered Public Accounting Firm.

24 Powers of Attorney. Contained on the signature page of this report.

31.1 Certificate of Chief Executive Officer of Firstbank Corporation pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certificate of Chief Financial Officer of Firstbank Corporation pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certificate of Chief Executive Officer and Chief Financial Officer of Firstbank Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

-21-

EX-13 2 first10k_123106-ex13.htm

EXHIBIT 13

Rule 14a-3
Annual Report

Firstbank Corporation Board of Directors

William E. Goggin, Chairman
Chairman, Firstbank - Alma
Attorney, Goggin Law Offices

Duane A. Carr
Attorney, Miel & Carr PC

David W. Fultz
Owner, Fultz Insurance Agency &
Kirtland Insurance Agency

Jeff A. Gardner
Certified Property Manager &
Owner, Gardner Group

Edward B. Grant, Ph.D., CPA
Chairman, Firstbank (Mt. Pleasant)
General Manager, Public Broadcasting,
Central Michigan University


David D. Roslund, CPA
Administrator, Wilcox Health Care Center
Small Business Investor and Manager

Samuel A. Smith
Owner, Smith Family Funeral Homes

Thomas R. Sullivan
President & Chief Executive Officer,
Firstbank Corporation

Officers
Thomas R. Sullivan
President & Chief Executive Officer

Samuel G. Stone
Executive Vice President, Chief Financial
Officer, Secretary & Treasurer

William L. Benear
Vice President

David M. Brown
Vice President

David L. Miller
Vice President

Douglas J. Ouellette
Vice President

Dale A. Peters
Vice President

Richard D. Rice
Vice President & Controller

Thomas O. Schlueter
Vice President

James E. Wheeler, II
Vice President

Firstbank - Alma Board of Directors

William E. Goggin, Chairman
Martha A. Bamfield
Cindy M. Bosley
Edward J. DeGroat
Paul C. Lux
Donald L. Pavlik
David D. Roslund
Victor V. Rozas
Thomas R. Sullivan
Saundra J. Tracy
James E. Wheeler, II Firstbank (Mt. Pleasant) Board of Directors

Edward B. Grant, Chairman
Steven K. Anderson
Jack D. Benson
Ralph M. Berry
Glen D. Blystone
Kenneth C. Bovee
Robert E. List
William M. McClintic
J. Regan O'Neill
Phillip R. Seybert
Thomas R. Sullivan
Arlene A. Yost

Firstbank - West Branch Board of Directors

Joseph M. Clark, Chairman
Bryon A. Bernard
David W. Fultz
Robert T. Griffin
Charles A. Hanes
Christine R. Juarez
Norman J. Miller
Dale A. Peters
Jeffrey C. Schubert
Camila J. Steckling
Thomas R. Sullivan
Mark D. Weber

Firstbank - Lakeview Board of Directors

V. Dean Floria, Chairman
William L. Benear
Duane A. Carr
Chalmer G. Hixson
Kenneth A. Rader
Thomas R. Sullivan

Firstbank - St. Johns Board of Directors

Donald A. Rademacher, Chairman
David M. Brown
Sara Clark-Pierson
Ann M. Flermoen
William G. Jackson
Thomas C. Motz
Frank G. Pauli
Samuel A. Smith
Thomas R. Sullivan

Keystone Community Bank Board of Directors

Kenneth V. Miller, Chairman
Samuel T. Field
Jeff A. Gardner
John E. Hopkins
Ronald A. Molitor
John M. Novak
Thomas O. Schlueter
Thomas R. Sullivan
John R. Trittschuh

PRESIDENT’S MESSAGE

TO OUR SHAREHOLDERS:

The year of 2006 was a year filled with challenges for the banking industry, and particularly for Michigan banking companies. In the face of these challenges we were disappointed in failing to meet our earnings expectations, however, I am pleased to report that our company again earned over $10 million during the year.

Michigan’s stumbling economy and lack of growth, the inverted yield curve, and the fierce pricing competition for both loans and deposits, reduced the net interest margin which is the primary driver of our earnings. The effect of that margin squeeze, combined with the decline in mortgage activity due to soft real estate sales and values, has created a very difficult operating environment. Compounding these issues for our company, and all Michigan community banks, are the increasing levels of delinquencies and foreclosures, and higher levels of unemployment. These factors led to a reduction in the earnings of our company, lower returns on average assets and average equity, and a decline in our earnings per share. However, we believe our 2006 return on average assets of .95%, and our return on average equity of 10.7%, will be comparable to the averages of Michigan banking companies.

We have experienced the challenges of an inverted yield curve and the cyclicality of Michigan’s economy in the past, and believe that the environment for banks’ and bank earnings will improve when these two factors return to more normal conditions. During these difficult economic times, we are focusing on our core banking business. In 2006 we eliminated two of our non-banking subsidiaries through the closing of Keystone Premium Finance and the sale of Gladwin Land Company, and reduced our ownership in 1^st Title, Inc. None of these units were making a significant contribution to the earnings of the company in recent years, and given the current outlook for residential mortgage lending, we concluded that we would devote those energies within the banks. We continue to evaluate our ownership of 1^st Armored, Inc. and C.A. Hanes Realty, and to seek additional equity partners in 1^st Title, Inc.

The total return to Firstbank Corporation shareholders (including reinvestment of cash dividends) was flat during 2006, which brought the compound average annual return to 10.7% over the last five years. This return matched the compound average annual return of the NASDAQ Bank Index which is comprised of small and mid-size banking companies from across the country. During the past five years an investment in the S&P 500 has produced a compound average annual return of 6.2%. These comparatives reflect the volatility of both our earnings and the overall stock market during the past few years, but as the results indicate, our total return to shareholders measures up favorably to the benchmarks. Be assured that we are committed to increasing shareholder value, and our focus on growth, asset quality, earnings, and profitable franchise expansion should result in improved valuation of our stock over the long term.

We also remain committed to our community banking strategy of strong local boards and management teams, focused on growth and asset quality, believing that this strategy provides advantages versus regional and national competitors, to the benefit of our shareholders, customers, communities, and employees.

The recent announcement of our acquisition of ICNB Financial Corporation, the holding company of Ionia County National Bank, is an illustration of our long term view that Michigan community banking will rebound, and has a bright future. This merger, which is still subject to regulatory and ICNB shareholder approval, was negotiated at favorable terms versus the industry averages. We believe this is an opportunity for us to improve the earnings and efficiency of the combined organization, to connect our geographic footprint, and to provide another avenue for the future growth of our company. Paired with our 2005 acquisition of Keystone Community Bank in Kalamazoo, which is doing well and providing us with additional growth as expected, we will have added over $400 million of assets in markets with superior demographics within a two year period. We look forward to ICNB joining the Firstbank family of banks.

In conclusion, I would like to thank our dedicated and hard-working staff members, now over 500 strong. 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, and their efforts are sincerely appreciated.

Thank you for your investment in Firstbank Corporation. The support and encouragement of our shareholders is sincerely appreciated.

Respectfully submitted,

/s/ Thomas R. Sullivan
Thomas R. Sullivan
President & Chief Executive Officer

2

2006
Annual Report

This 2006 Annual Report contains audited financial statements and a detailed financial review. This is Firstbank Corporation’s 2006 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 2006 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 2006 Annual Report are invited to request our Annual Report on Form 10-K.

Firstbank Corporation’s Form 10-K Annual Report filed with 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. Firstbank Corporation’s Form 10-K Annual Report may also be accessed through our website www.firstbankmi.com

3

FINANCIAL HIGHLIGHTS
Firstbank Corporation

(In Thousands of Dollars, Except per Share Data)

For the year:	2006			2005			2004			2003			2002
Interest income	$	70,786		$	53,130		$	44,092		$	44,229		$	49,248
Net interest income		40,065			35,316			32,382			31,631			32,987
Provision for loan losses		767			295			(425	)		550			1,170
Non-interest income		10,133			9,732			10,051			15,878			12,133
Non-interest expense		34,821			29,940			28,361			28,895			26,237
Net income		10,208			10,110			10,358			12,056			11,826
At year end:
Total assets		1,095,092			1,061,118			806,135			776,500			767,520
Total earning assets		1,008,545			976,332			752,943			720,976			709,857
Loans		910,640			878,917			673,056			639,613			611,058
Deposits		835,426			811,105			603,267			567,554			576,909
Other borrowings		149,976			144,255			120,840			114,324			98,942
Shareholders' equity		96,073			93,577			72,864			85,744			80,181
Average balances:
Total assets		1,070,759			878,075			787,076			764,693			750,476
Total earning assets		987,232			816,108			735,730			716,636			700,823
Loans		904,196			728,508			653,878			602,733			601,306
Deposits		808,897			664,596			591,270			573,467			562,971
Other borrowings		152,409			122,348			107,207			97,541			99,939
Shareholders' equity		95,227			79,165			79,278			83,317			76,356
Per share: (1)
Basic earnings	$	1.56		$	1.67		$	1.67		$	1.84		$	1.81
Diluted earnings	$	1.55		$	1.64		$	1.63		$	1.79		$	1.76
Cash dividends	$	0.85		$	0.79		$	0.71		$	0.65		$	0.58
Shareholders' equity	$	14.82		$	14.20		$	12.42		$	13.13		$	12.29
Financial ratios:
Return on average assets		0.95	%		1.15	%		1.32	%		1.58	%		1.58	%
Return on average equity		10.72	%		12.77	%		13.06	%		14.47	%		15.50	%
Average equity to average assets		8.89	%		9.02	%		10.07	%		10.90	%		10.17	%
Dividend payout ratio		54.72	%		47.35	%		42.56	%		35.29	%		32.61	%

⁽¹⁾ All per share amounts are adjusted for stock dividends.

The Company’s Form 10-K Annual Report filed with 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 The Company’s Form 10-K may also be viewed through our web site at www.firstbankmi.com.

4

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.

SUBSEQUENT EVENTS

On February 2, 2007 we announced the signing of a definitive agreement to acquire ICNB Financial Corporation. ICNB Financial is the holding company for Ionia County National Bank which is based in Ionia, Michigan. As of December 31, 2006, ICNB Financial had total assets of $236 million, total deposits of $179 million, and total portfolio loans of $185 million. The transaction is subject to shareholder approval of ICNB Financial, as well as regulatory approvals. The merger is expected to be completed in the second quarter of 2007, at which time Ionia County National Bank will become a wholly owned subsidiary of Firstbank Corporation. Based on the number of shares of ICNB Financial Corporation common stock outstanding (1,243,412), the share price of Firstbank Corporation common stock at the time of the agreement, and subject to certain adjustments, the aggregate transaction value is approximately $38.4 million. The agreement provides for the merger of ICNB Financial Corporation with and into Firstbank Corporation. Under the terms of the agreement, shareholders of ICNB Financial Corporation will elect to convert their shares into 1.407 shares of Firstbank Corporation common stock or $31.50 in cash per share, or a combination of stock and cash. The agreement also provides that no more than 50% of the shares of ICNB will be converted into shares of Firstbank Corporation.

RESULTS OF OPERATIONS

Highlights

Firstbank Corporation (“the Company”) had net income of $10,208,000 for 2006 compared with $10,110,000 in 2005, an increase of $98,000, or 1.0%. These results reflect inclusion of a full year of Keystone Community Bank (“Keystone”) results in 2006 compared with three months in 2005. Core banking activities continued to provide a solid basis for earnings; however, a Michigan economy that ranks among the weakest in the nation and a slow housing market provided little opportunity in the mortgage banking area. A loan loss provision of $767,000 in 2006 was required, resulting in an increase in loan loss provision expense compared with $295,000 provided in 2005. Favorable developments relating to loans with allocated allowance resulted in a reduced provision expense in 2005.

Mortgage gains continued to be lower for a third straight year, falling $421,000 from 2005 and $1.4 million lower than 2004.

Management believes that standard performance indicators help evaluate performance. We posted a return on average assets of 0.95%, 1.15%, and 1.32% for 2006, 2005, and 2004, respectively. Total average assets increased $193 million in 2006, $91 million in 2005, and $22 million in 2004. Diluted earnings per share were $1.55, $1.64, and $1.63 for the same time periods. Return on equity was 10.72% in 2006, 12.77% in 2005, and 13.06% in 2004.

Net Interest Income

Our core business is earning interest on loans and securities while paying interest on deposits and borrowings. Short term interest rates rose steadily during the first half of 2006, as the Federal Reserve continued its campaign of increasing overnight borrowing rates by 25 basis points at each of its first four meetings of year. At the same time, longer term rates remained relatively stable resulting in a flattening of the yield curve. While the increase in short term rates allows us to increase the rates we charge on certain variable rate loans, it also increased the cost of funding those loans through higher rates on interest bearing deposits and borrowings. The net interest spread, the difference between the interest rates charged on earning assets and the rate paid on interest bearing liabilities, compressed throughout the year resulting in a decline in our net interest margin. The net interest margin for the year was 4.13% compared with 4.40% in 2005, and 4.47% in 2004. An additional cause of the lower net interest margin was increased interest cost incurred to fund the acquisition of Keystone. During 2006, our average loan to average deposit ratio was 112%, compared with 110% in 2005, and 110% in 2004.

5

Despite the lower net interest margin in 2006, net interest income increased during the year by $4.7 million. The higher level of interest income was primarily a result of a higher level of average interest earning assets, which increased $170.9 million from 2005 levels. The increase in interest earnings assets was largely a result of the inclusion of Keystone in our results for the full year in 2006. 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 while maintaining acceptable levels of risk. While interest rates on earning assets and interest bearing liabilities are subject to market forces, in general and in the short run, we can exert more control over deposit rates than earning asset rates. 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 2006, 2005, and 2004.

Summary of Consolidated Net Interest Income (dollars in thousands)

	Year Ended December 31, 2006								Year Ended December 31, 2005								Year Ended December 31, 2004
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Average Assets
Interest Earning Assets:
Taxable securities	$	52,016		$	2,140		4.11	%	$	56,170		$	1,952		3.48	%	$	49,656		$	1,655		3.33	%
Tax exempt securities(1)		25,875			1,503		5.81	%		25,303			1,466		5.74	%		21,413			1,418		6.62	%
Total Securities		77,891			3,643		4.68	%		81,473			3,418		4.20	%		71,069			3,073		4.32	%
Loans(1) (2)		899,574			67,328		7.49	%		728,508			50,101		6.88	%		653,878			41,395		6.33	%
Federal funds sold		8,767			400		4.56	%		5,035			161		3.20	%		8,304			106		1.28	%
Interest bearing deposits		1,000			47		4.70	%		1,092			31		2.84	%		2,479			34		1.37	%
Total Earning Assets		987,232			71,418		7.24	%		816,108			53,711		6.58	%		735,730			44,608		6.06	%
Nonaccrual loans		4,622								1,857								667
Less allowance for loan Loss		(11,411	)							(10,756	)							(11,259	)
Cash and due from banks		28,367								25,290								23,539
Other non-earning assets		61,949								45,576								38,399
Total Assets	$	1,070,759							$	878,075							$	787,076
Average Liabilities
Interest Bearing Liabilities:
Demand	$	169,507		$	3,494		2.06	%	$	170,211		$	2,311		1.36	%	$	184,660		$	1,441		0.78	%
Savings		131,226			2,283		1.74	%		124,671			1,509		1.21	%		99,717			602		0.60	%
Time		383,424			17,156		4.47	%		257,626			8,548		3.32	%		202,378			5,410		2.67	%
Total Deposits		684,157			22,933		3.35	%		552,508			12,368		2.24	%		486,755			7,453		1.53	%
Federal funds purchased
and repurchase agreements		40,151			1,662		4.14	%		35,016			861		2.46	%		30,983			289		0.93	%
FHLB advances and
notes payable		92,228			4,765		5.17	%		77,022			4,032		5.23	%		73,951			3,874		5.24	%
Subordinated Debentures		20,030			1,337		6.67	%		10,310			553		5.36	%		2,273			94		4.14	%
Total Interest Bearing
Liabilities		836,566			30,697		3.67	%		674,856			17,814		2.64	%		593,962			11,710		1.97	%
Demand Deposits		124,740								112,088								104,515
Total Funds		961,306								786,944								698,477
Other Non-Interest Bearing
Liabilities		14,226								11,966								9,321
Total Liabilities		975,532								798,910								707,798
Average Shareholders' Equity		95,227								79,165								79,278
Total Liabilities and
Shareholders' Equity	$	1,070,759							$	878,075							$	787,076
Net Interest Income(1)				$	40,721							$	35,897							$	32,898
Rate Spread(1)							3.57	%							3.94	%							4.09	%
Net Interest Margin (percent of
Average earning assets) (1)							4.13	%							4.40	%							4.47	%

(1)     Presented on a fully taxable equivalent basis using a federal income tax rate of 35% for all periods presented.
(2) Interest income includes amortization of loan fees of $1,637,000, $1,524,000, and $1,396,000 for 2006, 2005, and 2004, respectively. Interest on nonaccrual loans is not included.

6

The table below provides an analysis of the changes in interest income and interest expense due to volume and rate:

	2005/2006 Change in Interest Due to:								2004/2005 Change in Interest Due to:
	Average Volume			Average Rate			Net Change		Average Volume			Average Rate			Net Change
	(In Thousands of Dollars)
Interest Income:
Securities
Taxable Securities(2)	$	(152	)	$	340		$	188	$	224		$	73		$	297
Tax-exempt Securities		33			4			37		239			(191	)		48
Total Securities		(119	)		344			225		463			(118	)		345
Loans(2)		12,348			4,879			17,227		5,030			3,676			8,706
Federal Funds Sold		151			88			239		(55	)		110			55
Interest Bearing Deposits		(3	)		19			16		(26	)		23			(3	)
Total Interest Income on Earning Assets		12,377			5,330			17,707		5,412			3,691			9,103
Interest Expense:
Deposits
Interest Paying Demand		(10	)		1,193			1,183		(121	)		991			870
Savings		83			691			774		181			726			907
Time		5,023			3,585			8,608		1,666			1,472			3,138
Total Deposits		5,096			5,469			10,565		1,726			3,189			4,915
Federal Funds Purchased and Securities
Sold under Agreements to Repurchase		142			659			801		42			530			572
FHLB and Other Notes Payable		786			(53	)		733		161			(3	)		158
Subordinated Debentures		623			161			784		424			35			459
Total Interest Expense on Liabilities		6,647			6,236			12,883		2,353			3,751			6,104
Net Interest Income	$	5,730		$	(906	)	$	4,824	$	3,059		$	(60	)	$	2,999

(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 a fully taxable equivalent basis using a federal income tax rate of 35%.

In 2006, the average rate realized on earning assets was 7.24%, an increase of 66 basis points from the 2005 results of 6.58%, and 118 basis points higher than the 6.06% realized in 2004. In 2004, the prime rate was unchanged in the first and second quarters, and then moved up in five 25 basis points increments in the third and fourth quarters to its year end level of 5.25%. During 2005, the prime rate increase eight more times in 25 basis point increments, reaching 7.25% at the end of the year. The Federal Reserve continued its campaign of increasing rates four times in the first six months of 2006 bringing the Prime rate to 8.25%, where it remained through the end of the year.

Average loans outstanding increased $171 million in 2006 when compared with 2005. The full year effect of including Keystone Community Bank caused $123 million of that increase. As of December 31, 2006, approximately 31% of the loan portfolio was comprised of variable rate instruments compared with 37% at the end of 2005. Except for a relatively small portion of these loans that are affected under current interest rate conditions by interest rate floors or ceilings, these loans will re-price monthly or quarterly as rates change. The remaining 69% of the loan portfolio is made up of fixed rate loans that do not re-price until maturity. Of the fixed rate loans approximately $130 million, or 21% of the fixed rate loan portfolio, matures within twelve months and are subject to rate adjustments at maturity.

7

As short term interest rates increased in 2005 and 2006, maturing securities in the investment portfolio were replaced with securities of comparable quality bearing equal or higher yields. As a result, maturing securities ran off from the investment portfolio at lower rates than comparable current offerings, increasing the overall investment portfolio yield 48 basis points from 4.20% in 2005 to 4.68% in 2006. In the current rate environment, we expect to be able to replace maturing investments in the portfolio with securities of high quality, and equal or higher yields than those maturing.

Average total deposits for the year increased $144 million, with $126 million of the increase in time deposits. The Keystone acquisition added $146 million to’ the full year average deposits in 2006 compared with $35 million in 2005. Of those deposits Keystone added $89 million and $23 million to average time deposits in 2006 and 2005. The average rate paid on interest bearing liabilities was 3.67% in 2006, compared to 2.64% in 2005, and 1.97% in 2004. Deposit rates increased during 2005 and 2006 in response to the upward movement of short term interest rates, with the average rates paid on time deposits increasing 115 basis points, as new and renewing deposits priced to a higher rate in 2006. Rates on checking and savings deposits also increased in 2006 rising 70 basis points and 53 basis points, respectively. During 2004, maturing time deposits were re-priced to lower rates and average rates paid on checking and savings deposits were lower in response to the overnight borrowing rate reductions of the preceding years. We began using brokered CDs in the third quarter of 2004 to assist with increased funding needs. Brokered CDs carry an interest rate that is generally higher than the rate offered in local markets and are issued with original maturities ranging from three months to two years. The average balance of brokered CDs in 2006 was $42 million compared with $24 million in 2005, and carried an average interest rate of 4.99% in 2006, compared with an average rate of 3.31% in 2005.

We funded a portion of our loan growth with borrowings from the Federal Home Loan Bank (FHLB) and notes payable. During 2006, the average outstanding balance of FHLB advances and notes payable increased $15 million and the year end balance increased $4 million when compared with 2005 balances. Six million of the increase in average FHLB advances was due to the full year impact of the Keystone acquisition. While FHLB borrowings are one method of funding loans when core deposits are not available, the cost is typically higher than the Company’s core deposit costs. The average rate of Federal Home Loan Bank advances and notes payable funding decreased six basis points in 2006, to 5.17%, when compared with the 2005 rate of 5.23%. Borrowings from the Federal Home Loan Bank carry significant prepayment penalties that act as a deterrent to early payment. During 2005, the Company prepaid $10 million of advances that were scheduled to mature in December of 2005. We replaced this funding with new advances of $10 million with maturities of two to three years, incurring prepayment penalties of approximately $75,000, to extend the maturity of those balances, lock in the interest rates available at that time, and remove the risk that rates would be higher when the original advances matured.

In January of 2006, we issued $10.3 million in subordinated debentures that carry a fixed rate of 6.049% for five years, at which time they will convert to a variable interest rate of LIBOR plus 1.27%. In October of 2004, we issued $10.3 million in subordinated debentures, at a variable interest rate of LIBOR plus 1.99% which reprice on a quarterly basis. We utilize short term borrowing, made up of Federal Funds Purchased and Repurchase Agreements as a source of liquidity and to balance our daily cash needs. Average short term borrowed funds increased by $5 million when 2006 is compared with 2005. We also maintain a $25 million variable rate line of credit, which we use from time to time to provide temporary funding. At the end of 2006, there was no balance outstanding on this line of credit compared with $7.5 million outstanding at the end of 2005.

The 2006 rate spread of 3.57% is 37 basis points lower than the 2005 spread of 3.94%, and 52 basis points lower than the 2004 spread of 4.09%. Tax equivalent net interest income increased $4.8 million in 2006 as an increase in total average earning assets of $171 million more than offset the narrower net interest margin. The net interest margin of 4.13% for 2006 was 27 basis points below 2005 and 34 basis points lower than in 2004. The decrease in the rate spread in 2006 was the result of rates on average earning assets increasing 66 basis points while the average cost of interest bearing liabilities increased 103 basis points. The 27 basis point decrease in the net interest margin was a result of a lower percentage of earning assets being funded by non interest bearing liabilities and equity, and a higher cost for interest bearing liabilities. Average earning assets represented 92% of total average assets in 2006, compared with 93% in 2005 and 2004.

Provision for Loan Losses

In accordance with Statement of Financial Accounting Standard No. 114 Accounting by Creditor for the Impairment of a Loan, we allocate a portion of the allowance for loans that we determine to be impaired. We also analyze other loans for specific allocations in order to arrive at the appropriate allowance for loan losses. If a loan for which allocations had been established pays off, or the risk of loss is otherwise reduced, we reverse those specific allocations. The methodology described above resulted in a provision for loan losses in 2006 of $767,000 compared with $295,000 in 2005, and a negative provision of $425,000 in 2004.

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In 2006, we had recoveries of previously charged off loans totaling $334,000 and favorable outcomes on certain previously identified problem loans, reducing the amount of provision expense needed, while deterioration of certain loans to problem status and charge offs of $2.7 million increased the amount of provision expense needed. Charged off loans, for which allowance had been established in a previous year totaled $1 million reducing the amount we needed to provide in 2006 to maintain the allowance for loan losses at an adequate level.

During 2005, favorable events or pay downs occurred on loans for which $620,000 of specific allocations had been maintained prior to the beginning of 2005. This amount, plus the recovery of $473,000 of amounts previously charged off, combined to reduce the amount of 2005 provision required to keep the allowance at an appropriate level. During 2004, favorable events pertaining to a few loans for which specific loan loss reserves had been established caused us to reverse provision expense resulting in an expense recovery.

At December 31, 2006, the allowance for loan losses as a percent of total loans was 1.10% compared to 1.32% and 1.58% at December 31, 2005, and December 31, 2004, respectively. Total nonperforming loans were 0.47% of ending loans at December 31, 2006, compared to 0.82% and 0.28% at the two previous year ends. The increase in nonperforming loans ratio during 2005 was primarily the result of a single credit of $3.2 million which was placed on nonaccrual status in the fourth quarter of 2005 and a $1.9 million increase in 90 day past due real estate loans. The credit mentioned above had $1.0 million of specific allowance allocations set aside for probable losses at the end of 2005. In the third quarter of 2006, the collateral for this credit was taken and the loan balance charged down to its expected sale value of the collateral. The property was subsequently sold in the fourth quarter of 2006 without significant gain or loss.

Net charged off loans totaled $2,360,000 in 2006 compared to $1,266,000 in 2005, and $621,000 in 2004. Net charged off loans as a percent of average loans were 0.26% in 2006, 0.17% in 2005, and 0.09% in 2004. Although the ratios presented above show increasing net charge offs, the higher level of charge offs which occurred in 2006 and 2005 were anticipated in management’s assessment of its allowance for loan losses. Of the loans that were charged off in 2006 and 2005, $1,390,000 and $580,000 of specific allowance allocations had been set aside at the end of the prior year. Provision expense did not need to be increased to cover those previously identified losses.

Non-interest Income

Non-interest income increased $401,000 in 2006, primarily from a 22% improvement in deposit account fees and the inclusion of Keystone for a full year. Gains on the sale of mortgage loans continued to decline, falling 25% from the 2005 level.

Lower gains on the sale of mortgage loans in 2005 and 2006 are reflective of a higher interest rate environment and a soft housing market. Gain on sale of mortgage loans was $421,000, or 25% lower in 2006, compared with 2005. 2005 was $977,000, or 37% lower than 2004. When a mortgage is refinanced or pre-paid, capitalized mortgage servicing rights relating to that mortgage are written off. Refinance activity in 2006 and 2005 was significantly slower due to higher lending rates, resulting in fewer mortgage loans prepayments, and $340,000 lower amortization cost of serving rights. In 2006, mortgage servicing income (servicing income net of amortization of capitalized serving rights) produced income of $526,000 compared with income of $205,000 in 2005 and a negative $55,000 in 2004. During 2004, mortgage servicing income was affected by refinance activity, causing net servicing income to swing to a net expense position.

Deposit account service charges increased $3,828,000, or 22.0%, in 2006 when compared with $3,137,000 in 2005, and 36% when compared with $2,813,000 in 2004. Keystone added $168,000 of the increase in 2006. The remainder of the change was primarily due to an increase of $550,000 in overdraft fees. Courier and cash delivery services income decreased 2.6% to $1,009,000 in 2006 after having decreased 3.3% in 2005. This revenue is from the operations of 1^st Armored Incorporated, which operates an armored car and courier business, and does not include income from servicing Firstbank affiliates.

We exited our real estate appraisal business in July of 2006. The Michigan real estate market continues to be soft and it was determined that the business was not contributing to the Company’s goals. As such, fees from real estate appraisals contributed just $228,000 in 2006, compared with $553,000 in 2005 and $604,000 in 2004. The Company also reduced its stake in the title insurance business, through a reorganization of our 1^st Title Insurance Agency, whereby we now have a majority ownership of 52% in the business. Title insurance sales declined to $410,000 in 2006 compared with $551,000 and $618,000 in 2005 and 2004, respectively. Income from our real estate company decreased to $821,000 from $1,113,000 in 2005 and $945,000 in 2004 as Michigan’s housing market limited our opportunities in this area.

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Other non-interest income increased $621,000, and includes gains on the sale of a minority interest in our title insurance business of $274,000 and $43,000 on the sale of our real estate appraisal business.

Non-interest Expense

Salary and employee benefits expenses increased $2,491,000, or 15.5%, when 2006 is compared with 2005. The Keystone acquisition added $2,333,000 to expense in 2006 compared with just $545,000 in 2005. Also included in this year’s expense is the cost of expensing stock options of $246,000 which was required for the first time in 2006. Excluding the costs associated with Keystone and the new stock options expense, salary and employee benefits would have increased $457,000 or 2.8% in 2006. The increase was largely due to annual salary increments, merit raises and staffing requirements related to two additional offices. Employee benefit costs increased 23.3% when 2006 is compared with 2005, primarily from higher employee group insurance cost which increased 25.8% in 2006 reflecting the full year effects of Keystone, and higher health care costs. The Company employed 405 full time equivalent employees at the end of 2006 compared with 405 at the end of 2005, and 365 at year end 2004. Full time equivalent employees at Keystone added 37 to the total in 2005 and 40 at the end of 2006.

Expenses of occupancy and equipment increased $892,000 or 21.0% over 2005. The full year effect of the Keystone acquisition caused $564,000 of that increase over the prior year. Occupancy and equipment expense had increased $374,000, or 9.7%, over the 2004 level, of which $213,000 was attributable to costs added by the Keystone acquisition last year.

Amortization of intangible assets increased $270,000, or 68.4% in 2006, after increasing $93,000, 30.8%, during 2005. The increases in both years are entirely the result of amortized intangibles expense added for Keystone core deposits and other intangibles.

Included in other non interest expense for 2004 was a $415,000 charge relating to impairment of goodwill at our Gladwin Land Company and CA Hanes, Realty Inc. businesses. In the fourth quarter of 2004, we determined that goodwill at our Gladwin Land Company and CA Hanes Realty, Inc. subsidiaries was impaired. We use a discounted future cash flow model to evaluate the goodwill of our non banking subsidiaries. Under the provisions of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, the $314,000 of goodwill at Gladwin Land was determined to be fully impaired, and was written off in its entirety. The $376,000 of goodwill at CA Hanes Realty, Inc. was determined to be partially impaired and written down by $101,000 to a remaining value of $275,000. This balance was unchanged at the end of 2006.

Michigan single business tax expense decreased $105,000 in 2006 after decreasing $267,000 in 2005. Each year we evaluate our contingent tax liabilities and make adjustments as necessary through our Michigan single business tax expense. For 2006, this evaluation had little impact on 2006 expense. The current year decline resulted primarily from reduced earnings in our banking business. During the fourth quarter of 2004 our comprehensive review of our tax asset and liability accounts resulted in a $365,000 increase in our single business tax liability expense. Our analysis indicates that certain exposures will roll off in 2007 resulting in a further reduction of our Michigan single business tax liability and expense.

Expenses for outside professional services decreased $595,000 in 2006 after increasing $211,000 in 2005. The lower expense was primarily due to reduced costs in our real estate appraisal and real estate sales businesses, which were $306,000 lower in 2006.

Advertising and special promotion expense was $1,059,000, up $488,000, or 85.5%, in 2006 following an increase in 2005 to $571,000 from $497,000 in 2004. The increase from 2005 to 2006 was primarily related to costs associated with Keystone, which added $273,000 of the increase.

Other non-interest expense increased to $8,060,000 in 2006 from $6,620,000 in 2005 and $5,908,000 in 2004. Keystone added $1,063,000 in 2006 and $209,000 in 2005 of the expense in this area. The remainder of the increase was primarily due to costs associated with the formation of our captive insurance company and higher costs of technology. We invested in upgrades to many of our systems over the past two years to improve our delivery of products to our customers.

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Federal Income Tax

Our effective federal income tax rates were 30% for 2006, 32% for 2005 and 29% for 2004. During 2006, we lowered our estimate of contingent tax liabilities and recorded a reduction in our current tax expense of approximately $240,000. Excluding this adjustment, our federal income tax rate for 2006 would have been 32%. In 2004, we performed a comprehensive review of our tax asset and liability accounts in order to adjust previous estimates of contingent tax liabilities. As a result, we reduced our federal tax liability and the corresponding expense in the amount of $529,000. Excluding this adjustment, our federal income tax rate for 2004 would have been 32%. Our investment in securities and loans which provide income exempt from federal income tax and the items noted above are the principal causes of the difference between the effective tax rates noted above and the statutory tax rate of 35% for all three years.

FINANCIAL CONDITION

Total assets at December 31, 2006 were $1.095 billion, exceeding December 31, 2005 total assets of $1.061 billion by $34 million, or 3.2%. Total portfolio loans increased 3.5% at December 31, 2006 compared with the balance at the previous year end. This growth rate included the impact of the payoff of a $10.5 million group of loans late in December. Commercial loans increased $11.3 million, or 6.0%. Residential mortgage loans increased $11.7 million, or 4.3%, while commercial mortgage loans decreased $16.2 million, or 5.4%. Construction loans were $20.2 million higher at December 31, 2006, increasing 33.0%, from the previous year end. Consumer loans were $3.9 million, or 6.6% higher at the current year end.

	(In Thousands of Dollars)
	2006		2005		Change			% Change
Commercial	$	194,810	$	183,473	$	11,337			6	%
Commercial real estate		286,249		302,471		(16,222	)		(5	)%
Residential real estate		284,137		272,402		11,735			4	%
Construction		81,218		61,067		20,151			33	%
Consumer		63,106		59,211		3,895			7	%
Total	$	909,520	$	878,624	$	30,896			4	%
Mortgages serviced for others	$	471,600	$	473,000	$	(1,400	)		(3	)%

Total securities available for sale decreased $4.7 million, or 6.3%, as we allowed certain securities to run off without replacement during the year. Securities available for sale were 6.3% of total assets at year end 2006, compared with 7.0% at the end of 2005.

Premises and equipment increased by $755 thousand after recognized depreciation of $2,539,000. The increase in premise and equipment was mainly due to branch expansion in the Company’s West Branch and Keystone affiliates.

Total deposits increased at the end of 2006 to $835 million, an increase of 3.0%, compared to $811 million at year end 2005. At the end of 2006, we had $46.0 million of brokered CDs on the balance sheet, compared with $44.4 million at the end of 2005. Brokered CDs generally carry a higher interest rate than locally generated CDs of similar duration, but are available in large dollar pools which results in lower operational cost than smaller dollar local deposits. Including brokered CDs, total time deposits increased $55.4 million, or 15.4% compared with the end of 2005. Non-interest bearing demand deposit balances were basically unchanged from the end of 2005, increasing just $1.4 million to $131.9 million at year end 2006. Interest bearing demand deposits decreased by $26.2 million, or 14.0% and savings account balances decreased $6.3 million, or 4.7%. Securities sold under agreements to repurchase increased by $1.1 million and federal funds purchased decreased $9.2 million.

Federal Home Loan Bank advances and notes payable increased by $3.5 million at December 31, 2006 as compared with December 31, 2005. Federal Home Loan Bank advances increased $11.1 million, and we paid off our outstanding balance on our line of credit, reducing notes payable by $7.5 million. The line of credit was paid off in January 2006 with proceeds from the issuance of a $10 million subordinated debenture. Note 11 and Note 12 of the Notes to Consolidated Financial Statements have additional discussion of borrowings.

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Asset Quality

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 2006, net charged off loans were $2,360,000 compared to $1,266,000 in 2005. Net charged off loans as a percentage of average loans were 0.26% and 0.17% in 2006 and 2005. The increase in charged off loans in 2006 was largely the result of the write off of a single large commercial real estate credit that was charged off in the third quarter. That credit had previously been identified as a problem loan for which an allocated loan loss allowance had been established in prior years and did not result in additional provision expense in 2006.

Nonperforming loans are defined as nonaccrual loans, loans 90 days past due and any loans where the terms have been renegotiated. Total nonperforming loans were $4.2 million and $7.2 million at December 31, 2006 and 2005, respectively. Total nonaccrual loans were $1.8 million at December 31, 2006, compared to $4.8 million at the end of 2005. The decrease in non accrual loans was mainly due to the charged off loan relationship mentioned in the previous paragraph. Loans past due 90 days or more were basically unchanged increasing to $2.5 million at year end 2006 compared with $2.4 million at the end of 2005. Impaired loans are commercial loans for which we believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The average investment in impaired loans was $3.3 million during 2006 compared to $4.7 million during 2005. At year end, impaired loans were $2.9 million compared with $5.0 million at December 31, 2005.

The allowance for loan losses was decreased $1.6 million, or 13.8%, during 2006. This decrease was a result of charged off loans of $2.7 million during the year, which exceeded current year provision for loans of $767,000 and recoveries of prior charged off loans of $334,000. We record provision for loan loss expense when loans for which losses are likely, are identified. For loans which carry an allocated allowance, no expense is recognized at the time of charge off because it has been previously provided for. See the discussion of loan loss provision expense previously presented for additional information. The allowance for loan losses represents 1.10% of outstanding loans at the end of 2006 compared with 1.32% at December 31, 2005.

We maintain the allowance at a level which we 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. We focus on early identification of problem credits through ongoing reviews by management, loan personnel and an outside loan review specialist. Please refer to Note 6 of the Notes to Consolidated Financial Statements for more information on impaired loans.

LIQUIDITY AND INTEREST RATE SENSITIVITY

Asset liability management aids us 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 our customers. These customers may be either borrowers needing to meet their credit requirements or depositors wanting to withdraw funds. Management of interest rate sensitivity attempts to manage the level of varying net interest margins and to achieve consistent net interest income through periods of changing interest rates. The net interest margin was 4.13% in 2006 compared to 4.40% in 2005. Loan yields increased 61 basis points, from 6.88% in 2005, to 7.49% in 2006. Deposit costs increased 111 basis points from 2.24% in 2005 to 3.35% in 2006. Loan demand was modest through most of the year, and average loans outstanding increased by $171 million, with $123 million of that growth contributed by the Keystone acquisition. Average total earning assets increased $171 million as loans were funded, with Keystone adding $127 million of that total.

Full year average balances in time deposits increased $126 million compared with the prior year. The Keystone acquisition added $69 million of those deposits. Throughout the year, we experienced a shift from lower cost demand and savings products into higher rate time deposit products in all of our markets. We continued to maintain our short term funding needs through the use of overnight funding, and averaged $9.0 million of federal funds purchased in 2006, compared with $7 million in 2005. The use of Federal Home Loan Bank advances continued to be a significant source of longer term funding, with average advances increasing from the prior year end by $15 million, of which $6 million were added through the Keystone acquisition. We also maintain a $25 million variable rate line of credit which had an average balance of $1.7 million during 2005 compared with $0.5 million in 2006.

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A decision to increase 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 four times in 25 basis point increments during the first half of 2006, and then held at 8.25% through the end of the year. During the first three quarters of 2006, our net interest margin was relatively stable, ranging from 4.15% to 4.21% and averaging 4.18%. In the fourth quarter, the net interest margin fell to 3.98% as funding costs continued to rise while yields on loans remained basically unchanged.

The principal sources of liquidity for us are maturing securities, federal funds purchased or sold, loan payments by borrowers, investment securities, loans held for sale, deposit or deposit equivalent growth and Federal Home Loan Bank advances. Securities maturing or re-pricing within one year at December 31, 2006 were $27 million, compared to $24 million at December 31, 2005. Total investments available for sale were $69 million, a decrease of $5 million from the prior year end.

The table below shows the interest sensitivity gaps for five different intervals as of December 31, 2006. Deposits that do not have a fixed maturity date are shown as immediately re-pricing according to reporting conventions.

	Maturity or Re-Pricing Frequency
	(Dollars in Millions)
	1 Day			2 Days through 3 Months			4 Months through 12 Months			13 Months through 5 Years		More than 5 Years
Interest Earning Assets:
Loans	$	282.5		$	47.9		$	95.5		$	417.3	$	67.6
Securities		0.0			7.9			19.0			26.0		13.0
Other earning assets		24.9			0.0			0.0			0.0		9.1
Total		307.4			55.8			114.5			443.3		89.7
Interest Bearing Liabilities:
Deposits		288.7			96.1			226.5			92.1		0.1
Other interest bearing liabilities		38.2			56.7			7.6			40.6		6.8
Total		326.9			152.8			234.1			132.7		6.9
Interest Sensitivity Gap		(19.5	)		(97.0	)		(119.6	)		310.6		82.8
Cumulative Gap		(19.5	)		(116.5	)		(236.1	)		74.5		157.3

For the one day interval, maturities of interest bearing liabilities exceed those of interest earning assets by $19.5 million. Included in the one day maturity classification are $289 million in savings and checking accounts which are contractually available to our customers immediately, but in practice, function as core deposits with considerably longer maturities. In the two day through the five year time frame, interest sensitive assets exceed interest sensitive liabilities by $94 million, resulting in a cumulative position of interest sensitive assets exceeding interest sensitive liabilities by $75 million through five years. For the time period greater than five years, the analysis shows a switch to an asset sensitive position, such that cumulatively, interest sensitive assets exceed interest sensitive liabilities by $157.3 million.

Showing a negative cumulative gap through the twelve month period does not necessarily result in a corresponding decrease in net interest income during a rising rate environment. In practice, deposit rates do not change as rapidly as would be indicated by the contractual availability of deposit balances to customers. Also, changes in the steepness of the yield curve can cause differing effects on different products. Some of the cost associated with higher deposit rates is mitigated by rate increases on variable rate loans and by renewals of fixed rate loan to higher rates. Conversely, showing a negative cumulative gap through the twelve month period does not necessarily result in a corresponding increase in net interest income during a declining rate environment for similar reasons.

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 re-pricing intervals of interest earning assets to interest bearing liabilities is a measure of the interest sensitivity gap. Balancing interest rate sensitivity is a continual challenge in a changing rate environment. We use a sophisticated computer program to: perform analysis of interest rate risk, assist with our asset and liability management, and measure the expected impact of interest rate changes and our sensitivity to those changes.

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CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABLILITES, AND OFF-BALANCE SHEET ARRANGEMENTS

We have various financial obligations, including contractual obligations and commitments, that may require future cash payments.

The following table presents, as of December 31, 2006, significant fixed and determinable contractual obligations to third parties by payment date.

	(In Thousands of Dollars)
Contractual Obligation	One Year or less		1 - 3 Years		3 - 5 Years		More than 5 Years		Total
Time Deposits	$	324,349	$	63,824	$	26,714	$	68	$	414,955
Federal Funds Borrowed and
Repurchase Agreements		35,179								35,179
Long Term Debt		12,640		28,171		46,545		6,821		94,177
Subordinated Debt		0		0		0		20,620		20,620
Operating Leases		368		668		556		0		1,592

Further discussion of the nature of each obligation is included in Notes 7, 10, 11, 12, and 13 to the consolidated financial statements.

Our operating lease obligations represent short and long-term lease and rental payments, primarily for facilities, and to a lesser degree for certain software and data processing equipment.

The following table details the amounts and expected maturities of significant commitments as of December 31, 2006.

	(In Thousands of Dollars)
	One Year Or Less		One to Three Years		Three to Five Years		Over Five Years		Total
Credit:
Commercial real estate	$	24,104	$	5,982	$	7,627	$	2,268	$	39,981
Residential real estate		1,406		200		36		16,952		18,594
Construction loans		9,030		688		1,969		0		11,687
Revolving home equity and credit card lines		4,564		14,067		12,559		4,004		35,194
Other		58,576		12,823		2,276		13,904		87,579
Commercial standby letters of credit		9,224		2,540		5,762		2,250		19,776

Commitments to extend credit, including loan commitments, standby letters of credit and commercial letters of credit, do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon. Further discussion of these commitments is included in Note 17 to the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

Certain of our accounting policies are important to the portrayal of our financial condition since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, without limitation, changes in interest rates, in local and national economic conditions or the financial condition of borrowers. Our significant accounting policies are discussed in detail in Note 1 of the Notes to the Consolidated Financial Statements.

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We view critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. We believe that our critical accounting policies include determining the allowance for loan losses, determining the fair value of securities and other financial instruments, the valuation of mortgage servicing rights, determination of purchase accounting adjustments, and estimating state and federal contingent tax liabilities.

Allowance for Loan Losses The allowance for loan losses is a valuation allowance for probable incurred credit losses. We use a quantitative and qualitative methodology for analyzing factors which impact the allowance for loan losses consistently across its six banking subsidiaries. The process applies risk factors for historical charge-offs and delinquency experience, portfolio segment weightings and industry and regional factors and trends as they affect the banks’ portfolios. The consideration of exposures to industries potentially most affected by current risks in the economic and political environment, and the review of potential risks in certain credits that either are, or are not, considered part of the non-performing loan category contributed to the establishment of the allowance levels at each bank. Loan losses are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans are reviewed on an ongoing basis for impairment. A loan is impaired when it is probable that we 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, 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 expense. 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.

Smaller balance homogeneous loans such as residential first mortgage loans secured by one to four family residences, residential construction, 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 our 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 satisfactory grades, 5 being special attention or watch, 6 — substandard, 7 — doubtful, and 8 — loss. Loans graded 5, 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.

Fair Value of Securities and Other Financial Instruments Securities available for sale consist of bonds and notes which might be sold prior to maturity due to changes in interest rate, 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. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less than carrying value; (2) the financial condition and near term prospects of the issuer; and (3) the Company’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Market values for securities available for sale are obtained from outside sources and applied to individual securities within the portfolio. The difference between the amortized cost and the current market value of securities is recorded as a valuation adjustment and reported in other comprehensive income.

Valuation of Mortgage Servicing Rights Mortgage servicing rights are recognized as assets 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.

15

We utilize a discounted cash flow model to determine the value of its servicing rights. The valuation model utilizes mortgage prepayment speeds, the remaining life of the mortgage pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from serving each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value for the right to service those loans. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

Acquisition Intangibles Generally accepted accounting principles require us to determine the fair value of all of the assets and liabilities of an acquired entity, and record their fair value on the date of acquisition. We employ a variety of means in determination of the fair value, including the use of discounted cash flow analysis, market comparisons, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculation of the value. In other cases, where the value is not easily determined, we consult with outside parties to determine the fair value of the asset or liability. Once valuations have been adjusted, the net difference between the price paid for the acquired company and the value of its balance sheet is recorded as goodwill.

Contingent Tax Liabilities Contingent tax liabilities, primarily Michigan single business tax liabilities, are estimated based on the our exposures to interpretation of the applicable tax codes. We estimate our contingent tax liabilities by determining the amount of income that may be at risk of an adverse interpretation by taxing authorities on specific issues, multiplied by our effective tax rate, to determine our gross exposure. Once this exposure is determined, an estimate of the probability of an adverse adjustment being required is determined and applied to the gross liability to determine the contingent tax reserve.

Recent Accounting Pronouncements

In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), which is effective for fiscal years ending on or after November 15, 2006. SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement. SAB 108 requires public companies to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. Adjustments considered immaterial in prior years under the method previously used, but now considered material under the dual approach required by SAB 108, are to be recorded upon initial adoption of SAB 108. The adoption of SAB 108 at December 31, 2006 resulted in the recording of an increase to retained earnings of $293,000. This was an accumulation of prior year’s over accruals of Michigan single business tax and federal tax liabilities.

The Financial Accounting Standards Board (FASB) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment to FASB Statements No. 133 and 140. This Statement permits fair value re-measurement for any hybrid financial instruments, clarifies which instruments are subject to the requirements of Statement No. 133, and establishes a requirement to evaluate interests in securitized financial assets and other items. The new standard is effective for financial assets acquired or issued after the beginning of the entity’s first fiscal year that begins after September 15, 2006. We do not expect the adoption of this statement to have a material impact on our consolidated financial position or results of operations.

The FASB issued Statement No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. This Statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. This standard is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. We do not expect the adoption of this statement will have a material impact on our consolidated financial position or results of operations.

16

The FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. We have not completed our evaluation of the impact of the adoption of this standard.

The FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (FIN 48), which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We have determined that the adoption of FIN 48 will not have a material effect on our consolidated financial position or results of operations.

The FASB Emerging Issues Task Force finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue is effective for fiscal years beginning after December 15, 2007. We have determined that the adoption of EITF No. 06-4 will not have a material effect on our consolidated financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We face market risk to the extent that both earnings and the fair market values of our financial instruments are affected by changes in interest rates. We manage this risk with static GAP analysis and simulation modeling. During 2006 as the prime rate increased and fixed rate commercial mortgages replaced variable rate commercial loans in our portfolio, simulations showed a decreased sensitivity to changes in interest rates. However, we maintained an overall position which indicates a positive change in projected earnings related to increases in rates, and a negative change in projected earnings related to decreases in rates. As of the date of this annual report we do not know of nor expect there to be any material change in the general nature of our primary market risk exposure in the near term.

Our market risk exposure is mainly comprised of our vulnerability to interest rate risk. We do not accept significant interest rate risk in its mortgage banking operations. To manage our interest rate risk in mortgage banking we generally lock in our sale price to the purchaser of a loan at the same time we make a rate commitment to the borrower. Prevailing interest rates and interest rate relationships in the future will be primarily determined by market factors which are outside of our 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 our responsibility for such statements.

The following tables provide information about our financial instruments that are sensitive to changes in interest rates as of December 31, 2006 and 2005. They show expected maturity date values for loans and 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 re-pricing. We believes that re-pricing 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.

17

Principal/Notional Amounts Maturing or Repricing in:							(In Thousands of Dollars)
As of December 31, 2006	2007		2008		2009			2010		2011		Thereafter		Total		Fair Value 12/31/06
Rate Sensitive Assets:
Fixed interest rate loans	$	130,353	$	103,002	$	109,596		$	98,602	$	79,751	$	109,204	$	630,509	$	597,935
Average interest rate		6.74%		6.39%		6.50%			6.32%		6.97%		7.05%
Variable interest rate loans		112,942		71,569		41,878			19,782		13,654		20,306		280,131		282,494
Average interest rate		8.52%		7.75%		8.17%			8.29%		8.57%		7.97%
Fixed interest rate securities		26,524		12,684		5,176			4,674		2,467		16,627		68,152		68,152
Average interest rate		4.34%		4.44%		4.19%			4.34%		3.87%		4.60%
Variable interest rate													973		973		973
securities													4.36%
Average interest rate
Other interest bearing assets		24,853											5,924		30,777		30,777
Average interest rate		5.21%
Rate Sensitive Liabilities:
Savings and interest bearing
checking		288,529													288,529		288,424
Average interest rate		1.96%
Time deposits		324,349		45,054		18,770			15,350		11,365		67		414,955		418,125
Average interest rate		4.43%		4.19%		3.89%			4.63%		5.32%		3.50%
Fixed interest rate
borrowings		15,739		19,145		6,027			41,545		4,000		17,132		103,587		100,167
Average interest rate		4.67%		4.44%		4.73%			5.53%		5.27%		6.09%
Variable interest rate
borrowings		4,000											10,310		14,310		14,313
Average interest rate		5.40%											7.36%
Repurchase agreements		32,079													32,079		32,079
Average interest rate		4.18%
							(In Thousands of Dollars)
As of December 31, 2005	2006		2007		2008			2009		2010		Thereafter		Total		Fair Value 12/31/05
Rate Sensitive Assets:
Fixed interest rate loans	$	115,761	$	77,721	$	102,640		$	78,606	$	90,154	$	90,447	$	555,329	$	531,624
Average interest rate		6.58%		6.42%		6.33%			6.16%		6.31%		7.10%
Variable interest rate loans		114,206		43,169		61,059			51,185		27,906		25,770		323,295		323,884
Average interest rate		7.65%		7.36%		7.01%			7.22%		7.34%		7.21%
Fixed interest rate securities		24,163		15,847		8,707			5,818		2,561		15,187		72,283		72,283
Average interest rate		3.04%		3.80%		4.34%			4.36%		3.81%		3.44%
Variable interest rate
securities													1,528		1,528		1,528
Average interest rate													4.40%
Other interest bearing assets		17,295											6,309		23,604		23,603
Average interest rate		2.68%
Rate Sensitive Liabilities:
Savings and interest bearing
checking		320,982													320,982		319,768
Average interest rate		1.76%
Time deposits		230,359		81,183		18,974			15,692		13,274		85		359,567		359,557
Average interest rate		3.24%		4.11%		3.66%			3.39%		4.37%		4.35%
Fixed interest rate
borrowings		23,255		9,162		14,198			25		41,568		7,231		95,439		94,825
Average interest rate		3.91%		4.19%		4.20%			6.00%		5.53%		6.02%
Variable interest rate
borrowings		7,496											10,310		17,806		17,791
Average interest rate		6.27%											4.65%
Repurchase agreements		31,011													31,011		31,011
Average interest rate		2.88%

18

CAPITAL RESOURCES

The Company obtain funds for our 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, while maintaining appropriate capital at the banks. Capital is maintained at the subsidiary banks to support their current operations and projected future growth.

Bank regulators have established risk based capital guidelines for banks and bank holding companies. Minimum capital levels are established under these guidelines and 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, 2006, our total capital to risk weighted assets exceeded the minimum requirement for capital adequacy purposes of 8% by $31 million. Tier 1 capital to risk weighted assets exceeded the minimum of 4% by $57 million, and Tier 1 capital to average assets exceeded the minimum of 4% by $51 million. For a more complete discussion of capital requirements please refer to Note 21 of the Notes to 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 our affiliate banks has exceeded the regulatory criteria for a “well capitalized” financial institution and each bank pays the lowest assessment rate assigned by the FDIC.

A certain level of capital growth is desirable to maintain an appropriate ratio of equity to total assets. The compound annual growth rate for total average assets for the past five years was 7.7%. The compound annual growth rate for average equity over the same period was 6.9%.

We have 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:

	2006		2005		2004
Return on average equity	10	.72%	12	.77%	13	.06%
Multiplied by
Percentage of earnings retained	45	.28%	52	.65%	57	.44%
Equals
Internal capital growth	4	.85%	6	.72%	7	.50%

We have retained between 45% and 57% of its earnings from 2004 to 2006. To achieve the goal of acceptable internal capital growth, we intend to continue our efforts to increase our return on average equity while maintaining a reasonable cash dividend.

As an additional enhancement to capital growth we offer 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 2006, 1,068 owners holding 2,369,827 shares were participating in the Plan.

We are not aware of any recommendations by regulatory authorities at December 31, 2006, which are likely to have a material effect on our 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 our 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 Company 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 Company to locate and correct all data sensitive computer codes; and the vicissitudes of the national economy. The Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

19

COMMON STOCK DATA

Firstbank Corporation Common Stock was held by 1,669 shareholders of record as of December 31, 2006. Total shareholders number approximately 3,230, including those whose shares are held in nominee name through brokerage firms. Our shares are listed on the NASDAQ Global Select Market under the symbol FBMI and are traded by several brokers. The range of high and low sales prices for shares of common stock for each quarterly period during the past two years is as follows:

Quarter	High		Low
4th 2006	$	22.85	$	21.27
3rd 2006	$	22.24	$	21.14
2nd 2006	$	22.81	$	21.73
1st 2006	$	22.83	$	21.72
4th 2005	$	23.82	$	21.81
3rd 2005	$	24.49	$	23.04
2nd 2005	$	24.49	$	22.40
1st 2005	$	25.71	$	22.13

The prices quoted above were obtained from www.NASDAQ.com. 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 2006 and 2005.

	2006		2005
First Quarter	$	.2095	$	.1905
Second Quarter		.2143		.1995
Third Quarter		.2143		.1995
Fourth Quarter		.2143		.1995
Total	$	.8524	$	.7890

Our principal sources of funds to pay cash dividends are the earnings of, and dividends paid by, our 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 holding company (See Note 19 of the Notes to Consolidated Financial Statements). As of January 1, 2007, approximately $19.0 million of the subsidiaries’ retained earnings were available for transfer in the form of dividends to the holding company without prior regulatory approval. In addition, the subsidiaries’ 2007 earnings are expected to be available for distributions as dividends to the holding company.

20

STOCK PERFORMANCE

The following graph compares the cumulative total shareholder return on the common stock of the Corporation to the Standard & Poor’s 500 Stock Index and the NASDAQ Bank Index, assuming a $100 investment at the end of 2001. The Standard & Poor’s 500 Stock Index is a broad equity market index. The NASDAQ Bank Index is composed of 531 banks and savings institutions as well as companies performing functions closely related to banking, such as check cashing agencies, currency exchanges, safe deposit companies and corporations for banking abroad. Cumulative total return is measured by dividing (i) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (B) the difference between the share price at the end and the beginning of the measurement period; by (ii) the share price at the beginning of the measurement period.

The table below shows dollar values for cumulative total shareholder return plotted in the graph above.

	2001		2002		2003		2004		2005		2006
Firstbank Corporation	$	100.00	$	142.11	$	189.98	$	190.81	$	166.21	$	166.05
S & P 500	$	100.00	$	77.90	$	100.24	$	111.15	$	116.61	$	135.03
NASDAQ Bank	$	100.00	$	59.14	$	89.11	$	103.85	$	130.57	$	166.05

21

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Firstbank Corporation has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include amounts that are based on management’s best estimates and judgments. Management also prepared other information in the annual report and is responsible for its accuracy and consistency with the financial statements.

The Company’s 2006 consolidated financial statements have been audited by Crowe Chizek and Company LLC independent registered public accounting firm. Management has made available to Crowe Chizek and Company LLC all financial records and related data, as well as the minutes of Boards of Directors’ meetings. Management believes that all representations made to Crowe Chizek and Company LLC during the audit were valid and appropriate.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Firstbank Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the presentation of published financial statements. The system of internal control provides for division of responsibility and is documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process and updated as necessary. Management monitors the system of internal control for compliance.

The Company maintains an internal auditing program that independently assesses the effectiveness of the internal controls and recommends possible improvements thereto. However, all internal control systems, no matter how well designed, have inherent limitations.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, it used the criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”. Based on our assessment management concludes that, as of December 31, 2006, the Company’s internal control over financial reporting is effective based on those criteria.

Our assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by Crowe Chizek and Company LLC as stated in their report which appears herein.

FIRSTBANK CORPORATION


/s/ Thomas R. Sullivan
——————————————
Thomas R. Sullivan
President & Chief Executive Officer
(Principal Executive Officer)

/s/ Samuel G. Stone
——————————————
Samuel G. Stone
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)

Dated: March 6, 2007

22

Crowe Chizek and Company LLC
Member Horwath International

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Firstbank Corporation
Alma, Michigan

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Firstbank Corporation maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Firstbank Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

23

In our opinion, management’s assessment that Firstbank Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, Firstbank Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Firstbank Corporation as of December 31, 2006 and 2005 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, 2006 and our report dated March 6, 2007 expressed an unqualified opinion on those consolidated financial statements.

/s/ Crowe Chizek and Company LLC

Crowe Chizek and Company LLC

Grand Rapids, Michigan
February 28, 2007

24

Crowe Chizek and Company LLC
Member Horwath International

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Firstbank Corporation
Alma, Michigan

We have audited the consolidated balance sheets of Firstbank Corporation as of December 31, 2006 and 2005, 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, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with US generally accepted accounting principles.

As discussed in note 1, the Company adopted Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements in Current Year Financial Statements” and accordingly adjusted other liabilities at the beginning of 2006 with an offsetting adjustment to the opening balance of retained earnings.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Firstbank Corporation’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2007 expressed an unqualified opinion thereon.

/s/ Crowe Chizek and Company LLC

Crowe Chizek and Company LLC

February 28, 2007
Grand Rapids, Michigan

25

FIRSTBANK CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except for Share Data)

	December 31,
ASSETS	2006			2005
Cash and due from banks	$	32,084		$	36,037
Short term investments		24,853			17,295
Total cash and cash equivalents		56,937			53,332
Securities available for sale		69,125			73,811
Federal Home Loan Bank stock		5,924			6,309
Loans held for sale		1,120			293
Loans, net of allowance for loan losses of $9,966 in 2006 and
$11,559 in 2005		899,554			867,065
Premises and equipment, net		20,232			19,477
Goodwill		20,094			19,888
Core deposits and other intangibles		3,045			3,710
Accrued interest receivable and other assets		19,061			17,233
TOTAL ASSETS	$	1,095,092		$	1,061,118
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand accounts	$	131,942		$	130,556
Interest bearing accounts:
Demand		161,228			187,398
Savings		127,301			133,584
Time		414,955			359,567
Total Deposits		835,426			811,105
Securities sold under agreements to repurchase and overnight borrowings		35,179			43,311
Federal Home Loan Bank advances		94,104			83,044
Notes payable		73			7,590
Subordinated Debentures		20,620			10,310
Accrued interest payable and other liabilities		13,617			12,181
Total Liabilities		999,019			967,541
SHAREHOLDERS' EQUITY
Preferred stock; no par value, 300,000 shares authorized, none issued
Common stock, no par value, 20,000,000 shares authorized;
6,484,202 and 6,278,035 shares issued and outstanding in 2006 and 2005	$	91,652		$	87,634
Retained earnings		4,552			6,198
Accumulated other comprehensive loss		(131	)		(255	)
Total Shareholders' Equity		96,073			93,577
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,095,092		$	1,061,118

See notes to consolidated financial statements.

26

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except for Per Share Data)

	Year Ended December 31,
	2006		2005			2004
Interest Income:
Loans, including fees	$	67,200	$	50,030		$	41,350
Securities:
Taxable		2,139		1,952			1,655
Exempt from federal income tax		1,000		956			951
Short term investments		447		192			136
Total Interest Income		70,786		53,130			44,092
Interest Expense:
Deposits		22,942		12,368			7,453
FHLB Advances, notes payable and subordinated debentures		6,106		4,585			3,968
Other		1,673		861			289
Total Interest Expense		30,721		17,814			11,710
Net Interest Income		40,065		35,316			32,382
Provision for loan losses		767		295			(425	)
Net Interest Income after Provision for Loan Losses		39,298		35,021			32,808
Non-Interest Income:
Service charges on deposit accounts		3,828		3,137			2,813
Gain on sale of mortgage loans		1,265		1,686			2,663
Mortgage servicing, net of amortization		526		205			(55	)
Gain on sale of securities		7		33			54
Courier and cash delivery services		1,009		1,036			1,072
Real estate appraisal services		228		553			604
Commissions on real estate sales		821		1,113			945
Title insurance fees		410		551			618
Other		2,039		1,418			1,337
Total Non-Interest Income		10,133		9,732			10,051
Non-Interest Expense:
Salaries and employee benefits		18,591		16,100			15,718
Occupancy and equipment		5,132		4,240			3,866
Amortization of intangibles		665		395			302
Michigan single business tax		100		205			472
Outside professional services		1,214		1,809			1,598
Advertising and promotions		1,059		571			497
Other		8,060		6,620			5,908
Total Non-Interest Expense		34,821		29,940			28,361
Income Before Federal Income Taxes		14,610		14,813			14,497
Federal Income Taxes		4,402		4,703			4,139
NET INCOME	$	10,208	$	10,110		$	10,358
Other comprehensive income:
Change in unrealized gain (loss) on securities, net of tax
and reclassification effects		124		(590	)		(631	)
COMPREHENSIVE INCOME	$	10,332	$	9,520		$	9,727
Basic earnings per share	$	1.56	$	1.67		$	1.67
Diluted earnings per share	$	1.55	$	1.64		$	1.63

See notes to consolidated financial statements.

27

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
(In Thousands of Dollars, Except for Share and per Share Data)

	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2004	$	75,591		$	9,187		$	966		$	85,744
Net income for 2004					10,358						10,358
Cash dividends - $0.71 per share					(4,409	)					(4,409	)
5% stock dividend - 252,935 shares		7,320			(7,320	)					0
Issuance of 72,248 shares of common stock
through exercise of stock options (including $248 of
tax benefit)		1,291									1,291
Issuance of 41,104 shares of common stock
through the dividend reinvestment plan		1,140									1,140
Issuance of 5,967 shares of common stock
from supplemental shareholder investments		168									168
Purchase of 706,700 shares of stock		(21,195	)								(21,195	)
Issuance of 14,279 shares of common stock		398									398
Net change in unrealized gain/(loss) on
securities available for sale, net of tax of $348								(631	)		(631	)
BALANCES AT DECEMBER 31, 2004	$	64,713		$	7,816		$	335		$	72,864
Net income for 2005					10,110						10,110
Cash dividends - $0.79 per share					(4,787	)					(4,787	)
5% stock dividend - 298,927 shares		6,941			(6,941	)					0
Issuance of 35,140 shares of common stock
through exercise of stock options (including $90 of
tax benefit)		601									601
Issuance of 48,780 shares of common stock
through the dividend reinvestment plan		1,174									1,174
Issuance of 9,320 shares of common stock
from supplemental shareholder investments		243									243
Purchase of 37,200 shares of stock		(1,014	)								(1,014	)
Issuance of 14,465 shares of common stock		356									356
Issuance of 586,466 shares for acquisition		14,620									14,620
Net change in unrealized gain/(loss) on
securities available for sale, net of tax of $131								(590	)		(590	)
BALANCES AT DECEMBER 31, 2005	$	87,634		$	6,198		$	(255	)	$	93,577
Impact of adopting SEC Staff Accounting Bulletin 108					293						293
Net income for 2006					10,208						10,208
Cash dividends - $0.85 per share					(5,586	)					(5,586	)
5% stock dividend - 308,757 shares		6,561			(6,561	)					0
Issuance of 36,203 shares of common stock
through exercise of stock options (including $102 of
tax benefit)		589									589
Issuance of 58,666 shares of common stock
through the dividend reinvestment plan		1,316									1,316
Issuance of 6,998 shares of common stock
from supplemental shareholder investments		164									164
Purchase of 222,500 shares of stock		(5,254	)								(5,254	)
Issuance of 18,043 shares of common stock		396									396
Stock option and restricted stock expense		246									246
Net change in unrealized gain/(loss) on
securities available for sale, net of tax of $64								124			124
BALANCES AT DECEMBER 31, 2006	$	91,652		$	4,552		$	(131	)	$	96,073

See notes to consolidated financial statements.

28

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASHFLOWS
(In Thousands of Dollars)

	Year Ended December 31,
	2006			2005			2004
OPERATING ACTIVITIES
Net income	$	10,208		$	10,110		$	10,358
Adjustments to reconcile net income to net cash from
operating activities:
Provision for loan losses		767			295			(425	)
Depreciation of premises and equipment		2,539			2,342			1,954
Net amortization (accretion) of security premiums/discounts		(17	)		163			203
Gain on sale of securities		(7	)		(33	)		(54	)
Amortization and impairment of intangibles		665			395			718
Stock option and restricted stock grant compensation expense		246			6			0
Gain on sale of mortgage loans		(1,265	)		(1,686	)		(2,663	)
Proceeds from sales of mortgage loans		55,379			79,564			119,401
Loans originated for sale		(54,940	)		(76,202	)		(114,547	)
Deferred federal income tax benefit		210			185			384
Decrease (increase) in accrued interest receivable and other assets		2,084			(540	)		(1,548	)
Increase in accrued interest payable and other liabilities		1,788			1,501			286
NET CASH FROM OPERATING ACTIVITIES		17,657			16,088			14,067
INVESTING ACTIVITIES
Bank acquisition, net of cash assumed		0			(23,573	)		0
Proceeds from sales of securities available for sale		0			119			227
Proceeds from maturities and calls of securities available for sale		38,815			19,672			36,164
Purchase of securities available for sale		(33,917	)		(19,949	)		(39,263	)
Sale (Purchase) of Federal Home Loan Bank stock, net		385			(208	)		(426	)
Net increase in portfolio loans		(37,708	)		(61,935	)		(36,255	)
Net purchases of premises and equipment		(3,294	)		(2,095	)		(1,509	)
NET CASH FROM INVESTING ACTIVITIES		(35,719	)		(87,969	)		(41,062	)
FINANCING ACTIVITIES
Net increase in deposits		24,321			74,503			35,713
Net increase (decrease) in securities sold under agreements to
repurchase and overnight borrowings		(8,132	)		4,211			(7,969	)
Repayment of notes payable and other borrowings		(8,017	)		(21	)		(11,019	)
Repayment of Federal Home Loan Bank borrowings		(7,660	)		(13,392	)		(2,806	)
Proceeds from Federal Home Loan Bank borrowings		18,720			18,200			7,000
Proceeds from subordinated debentures and other borrowings		10,810			4,747			21,310
Cash dividends and cash paid in lieu of fractional shares on
stock dividend		(5,586	)		(4,787	)		(4,409	)
Repurchase of the Company's common stock		(5,254	)		(1,014	)		(21,195	)
Cash proceeds from issuance of common stock		2,465			16,994			2,997
NET CASH FROM FINANCING ACTIVITIES		21,667			99,441			19,622
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,605			27,560			(7,373	)
Cash and cash equivalents at beginning of year	$	53,332		$	25,772		$	33,145
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	56,937		$	53,332		$	25,772
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	29,680		$	17,244		$	13,412
Income taxes	$	4,818		$	3,725		$	3,975
Non cash transfer of loans to other real estate owned	$	4,452		$	745		$	1,194
Non cash transfer of liabilities for implementation of SAB 108 to
retained earnings	$	293		$	0		$	0

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASHFLOWS (continued)

Keystone Community Bank acquisition: (In Thousands of Dollars)	2006		2005			2004
Securities acquired (including FHLB stock)		0		2,943			0
Loans acquired, net of allowance for loan losses		0		144,919			0
Bank premises and equipment		0		2,085			0
Acquisition intangibles recorded		0		17,131			0
Other assets assumed		0		1,016			0
Deposits assumed		0		(133,335	)		0
Borrowings assumed		0		(9,670	)		0
Other liabilities assumed		0		(1,516	)		0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – 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. The consolidated assets of the Company, $1.095 billion as of December 31, 2006, primarily represent commercial and retail banking activity. Mortgage loans serviced for others of $472 million, as of December 31, 2006, 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 subsidiaries, Firstbank – Alma; Firstbank (Mt. Pleasant); Firstbank – West Branch; Firstbank – Lakeview; Firstbank – St. Johns; and Keystone Community Bank (the “Banks”); 1^st Armored, Incorporated; Gladwin Land Company, Incorporated; 1^st Title, Incorporated; 1^st Investors Title, LLC; C.A. Hanes Realty, Incorporated; and FBMI Risk Management Services, Inc., after elimination of inter-company accounts and transactions. These subsidiaries are wholly owned, except C.A. Hanes Realty, which has a 45% minority interest and 1^st Investors Title, LLC, which has a 48% minority interest. Each of the Company’s six banks operates its own Mortgage Company. Keystone Community Bank also owns Keystone Premium Finance, LLC, which has been in the business of financing large dollar insurance premiums and now is in the process of winding down its portfolio. The operating results of these companies are consolidated into each Bank’s financial statements. During 2004 the Company formed a special purpose trust, Firstbank Capital Trust I, and in 2006 formed Firstbank Capital Trust II, for the sole purpose of issuing trust preferred securities. Under generally accepted accounting principles, these trusts are not consolidated into the financial statements of the Company.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, the determination of the fair value of certain financial instruments, determination of state and federal tax liabilities, purchase accounting and core deposit intangible valuations, and the valuation of mortgage servicing rights.

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Current Vulnerability Due to Certain Concentrations: The Company’s business is concentrated in the mid-central and southwestern sections 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 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 and an increase in yields on certain assets. Conversely, periods of falling interest rates result in a decrease in yields on certain assets and costs of certain funds.

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 basis within its cash flow statement.

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 rate, 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 in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers: (1) the length of time and extent that fair value has been less than carrying value; (2) the financial condition and near term prospects of the issuer; and (3) the Company’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Mortgage Banking Activities: Servicing rights are recognized as assets 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. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage serving rights is netted against loan servicing fee income.

Mortgage Derivatives: From time to time, the Company enters into mortgage banking derivatives such as forward contracts and rate lock commitments in the ordinary course of business. The derivatives are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in gain on sale of loans.

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. The Company generally locks in its sale price to the purchaser of the loan at the same time it makes a rate commitment to the borrower.

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, unamortized premiums or discounts. Loan origination fees and certain origination costs are capitalized and recognized as an adjustment to yield of the related loan. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term without anticipating prepayments. Interest income on mortgage and commercial loans is discontinued at the time the loan becomes 90 days delinquent unless the credit is well secured and in process of collection. Consumer and unsecured consumer line of credit loans are typically charged off no later than 120 days past due. In all cases loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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All interest accrued, but not received, for loans placed on nonaccrual status, is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Management uses a quantitative and qualitative methodology for analyzing factors which impact the allowance for loan losses consistently across its six banking subsidiaries. The process applies risk factors for historical charge-offs and delinquency experience, portfolio segment weightings and industry and regional factors and trends as they affect the banks’ portfolios. The consideration of exposures to industries potentially most affected by current risks in the economic and political environment and the review of potential risks in certain credits that either are, or are not, considered part of the non-performing loan category contributed to the establishment of the allowance levels at each bank. Loan losses are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans are 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, 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. 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.

Smaller balance homogeneous loans such as residential first mortgage loans secured by one to four family residences, residential construction, 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 5, 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. Buildings and related components have useful lives ranging from 5 to 33 years. Furniture, fixtures and equipment have useful lives ranging from 3 to 10 years.

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 the fair value when acquired, establishing a new cost basis. These properties are evaluated periodically and if fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs after acquisition are expensed. Other real estate owned totaled $1.1 million and $1.7 million at December 31, 2006 and 2005.

Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified.

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Other intangible assets consist of core deposit, acquired customer relationship intangible assets arising from whole bank and branch acquisitions, and non-compete agreements. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives.

Long Term Assets: Premises and equipment, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, a charge is taken to earnings, and the assets are written down to fair value.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

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. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Stock Splits and Dividends: Dividends issued in stock are reported by transferring the market value of the stock issued from retained earnings to common stock. Fractional shares are issued or are paid in cash. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issue of the financial statements. A stock dividend of 5% was paid on December 29, 2006, to shareholders of record as of December 15, 2006. A stock dividend of 5% was paid on December 31, 2005, to shareholders of record as of December 14, 2005. A stock dividend of 5% was paid on December 31, 2004, to shareholders of record as of December 17, 2004.

Stock Based Compensation: Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-based Payment, using the modified prospective transition method. Accordingly, the Company has recorded stock-based employee compensation cost using the fair value method starting in 2006. For 2006, adopting this standard resulted in a reduction of income before income taxes of $239,912, a reduction in net income of $158,342 and a decrease in both basic and diluted earnings per share of $0.02.

Prior to January 1, 2006, employee compensation expense under stock options was reported using the intrinsic value method; therefore, no stock based compensation cost is reflected in net income for the years ending December 31, 2005 and 2004, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant.

The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock Based Compensation, for the years ending December 31, 2005 and 2004.

	2005		2004
(in thousands of dollars, except per share information)
Net income as reported	$	10,110	$	10,358
Deduct stock-based compensation expense determined
under fair value based method		152		183
Pro forma net income	$	9,958	$	10,175
Basic earnings per share as reported	$	1.67	$	1.67
Pro forma basic earnings per share	$	1.64	$	1.63
Diluted earnings per share as reported	$	1.64	$	1.63
Pro forma diluted earnings per share	$	1.62	$	1.60

Earnings Per Share: Basic earnings per share is based on weighted average common shares outstanding. Diluted earnings per share include the dilutive effect of additional common shares that may be issued under stock options. All per share amounts are restated for stock dividends and stock splits through the date of issuance of the financial statements.

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Comprehensive Income: Comprehensive income consists of net income and changes in unrealized gains and losses on securities available for sale, net of tax, which is 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.

Effect of Newly Issued Accounting Standards:

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-based Payment. See “Stock Compensation” above for further discussion of the effect of adopting this standard.

SAB 108:
In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), which is effective for fiscal years ending on or after November 15, 2006. SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement. SAB 108 requires public companies to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. Adjustments considered immaterial in prior years under the method previously used, but now considered material under the dual approach required by SAB 108, are to be recorded upon initial adoption of SAB 108. The adoption of SAB 108 at December 31, 2006 resulted in the recording of an increase to retained earnings of $293,000. This was an accumulation of prior years over accruals of Michigan single business tax and federal tax liabilities.

Effect of Newly Issued But not Yet Effective Accounting Standards:

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment to FASB Statements No. 133 and 140. This Statement permits fair value re-measurement for any hybrid financial instruments, clarifies which instruments are subject to the requirements of Statement No. 133, and establishes a requirement to evaluate interests in securitized financial assets and other items. The new standard is effective for financial assets acquired or issued after the beginning of the entity’s first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations.

In March 2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. This Statement provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. This standard is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings. The Company does not expect the adoption of this statement will have a material impact on its consolidated financial position or results of operations.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. The Company has not completed its evaluation of the impact of the adoption of this standard.

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In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (FIN 48), which prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has determined that the adoption of FIN 48 will not have a material effect on the financial statements.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This issue is effective for fiscal years beginning after December 15, 2007. The Company has determined that the adoption of EITF No. 06-4 will not have a material effect on the financial statements.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassification: Certain 2005 and 2004 amounts have been reclassified to conform to the 2006 presentation.

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

NOTE 2 – ACQUISITIONS

On February 2, 2007 the Company announced the signing of a definitive agreement to acquire ICNB Financial Corporation. ICNB Financial is the holding company for Ionia County National Bank which is based in Ionia, Michigan. As of December 31, 2006, ICNB Financial had total assets of $236 million, total deposits of $179 million, and total portfolio loans of $185 million. The transaction is subject to shareholder approval of ICNB Financial, as well as regulatory approvals. The merger is expected to be completed in the second quarter of 2007, at which time Ionia County National Bank will become a wholly owned subsidiary of Firstbank Corporation.

Based on the number of shares of ICNB Financial Corporation common stock outstanding (1,243,412), the share price of Firstbank Corporation common stock at the time of the agreement, and subject to certain adjustments, the aggregate transaction value is approximately $38.4 million. The agreement provides for the merger of ICNB Financial Corporation with and into Firstbank Corporation. Under the terms of the agreement, shareholders of ICNB Financial Corporation will elect to convert their shares into 1.407 shares of Firstbank Corporation common stock or $31.50 in cash per share, or a combination of stock and cash. The agreement also provides that no more than 50% of the shares of ICNB will be converted into shares of Firstbank Corporation.

On October 1, 2005 the Company acquired 100 percent of Keystone Community Bank. The results of Keystone’s operations have been included in the consolidated financial statements since that date. Keystone is a community bank located in Kalamazoo, Michigan and operates five branches in Kalamazoo County. As a result of the acquisition, the Company expects to be able to reduce the operating costs of Keystone through economies of scale.

35

The aggregate purchase price was $26.6 million, including $12.0 million of cash and common stock valued at $14.6 million. The 588,466 shares issued were valued at the closing price of the stock on the day the terms of the acquisition were agreed to and announced. The acquisition resulted in the creation of $17.3 million of intangible assets, of which $1.4 million and $271,000 were assigned to core deposit intangible and non-compete intangibles, respectively. The remaining $15.6 million was determined to be goodwill. At the time of acquisition, Keystone had total assets of $156 million, including $146 million of loans, net of allowance for loan losses.

NOTE 3 – RESTRICTIONS ON CASH AND DUE FROM BANKS

The Company’s subsidiary banks are required to maintain average reserve balances in the form of cash and non-interest bearing balances due from the Federal Reserve Bank. The average reserve balances required to be maintained during 2006 and 2005 were $4,355,000 and $4,764,000, respectively. These balances do not earn interest.

NOTE 4 – SECURITIES

The fair value of securities available for sale was as follows:

	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
	(In Thousands of Dollars)
Securities Available for Sale:
December 31, 2006:
U.S. governmental agency	$	33,584	$	0	$	(207	)
States and political subdivisions		28,188		161		(132	)
Collateralized Mortgage Obligations		4,143		7		(29	)
Equity		3,210		1		(0	)
Total	$	69,125	$	169	$	(368	)
December 31, 2005:
U.S. governmental agency	$	36,851	$	1	$	(484	)
States and political subdivisions		30,537		293		(143	)
Collateralized Mortgage Obligations		3,544		8		(63	)
Equity		2,879		1		(0	)
Total	$	73,811	$	303	$	(690	)

Securities with unrealized losses at year end 2006 and 2005 not recognized in income are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
December 31, 2006
US Government Agencies	$	16,893	$	(99	)	$	8,518	$	(108	)	$	25,411	$	(207	)
States and Political Subdivisions		623		(2	)		11,344		(130	)		11,967		(132	)
Collateralized Mortgage Obligations		0		0			2,223		(29	)		2,223		(29	)
Total Temporarily Impaired	$	17,516	$	(101	)	$	22,085	$	(267	)	$	39,601	$	(368	)
December 31, 2005
US Government Agencies	$	15,560	$	(188	)	$	16,334	$	(296	)	$	31,894	$	(484	)
States and Political Subdivisions		1,655		(19	)		10,988		(124	)		12,643		(143	)
Collateralized Mortgage Obligations		0		0			3,025		(63	)		3,025		(63	)
Total Temporarily Impaired	$	17,215	$	(207	)	$	30,347	$	(483	)	$	47,562	$	(690	)

Unrealized losses on securities shown in the previous tables have not been recognized into income because the issuers’ bonds are of high credit quality, management has the intent and ability to hold these bonds for the foreseeable future, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach their maturity, or interest rate reset dates.

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Gross realized gains (losses) on sales and calls of securities were:

	(In Thousands of Dollars)
	2006		2005		2004
Gross realized gains	$	7	$	33	$	54
Gross realized losses		0		0		0
Net realized gains (losses)	$	7	$	33	$	54

The fair value of securities at December 31, 2006, by stated maturity, is 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.

	Fair Value
	(In Thousands of Dollars)
Due in one year or less	$	26,524
Due after one year through five years		25,001
Due after five years through ten years		9,796
Due after ten years		4,594
Total		65,915
Equity securities		3,210
Total securities	$	69,125

At December 31, 2006 and 2005, securities with carrying values approximating $47,813,000 and $51,133,000 were pledged to secure public trust deposits, securities sold under agreements to repurchase, and for such other purposes as required or permitted by law.

NOTE 5 – LOAN SERVICING

Loans held for sale at year end are as follows:

	(In Thousands of Dollars)
	2006		2005
Loans held for sale	$	1,120	$	293
Less: Allowance to adjust to lower of cost or market		0		0
Loans held for sale, net	$	1,120	$	293

Mortgage loans serviced for others are not reported as assets. The principal balances of these loans at year end are as follows:

	(In Thousands of Dollars)
	2006		2005
Mortgage loan portfolios serviced for:
Federal Home Loan Mortgage Association	$	466,066	$	466,438
Federal National Mortgage Association	$	5,549	$	6,554

Custodial escrow balances maintained in connection with serviced loans were $591,300 and $667,000 at year end 2006 and 2005.

Activity for capitalized mortgage servicing rights was as follows:

	(In Thousands of Dollars)
	2006			2005			2004
Servicing rights:
Beginning of year	$	1,947		$	2,188		$	2,537
Additions		515			556			885
Amortized to expense		(607	)		(800	)		(1,232	)
Valuation (Impairment)/Recovery		1			3			(2	)
End of year	$	1,856		$	1,947		$	2,188

Management has determined that a valuation allowance of $2 thousand was necessary at December 31, 2006. A valuation allowance of $3 thousand and $6 thousand was required at December 31, 2005 and 2004.

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The fair value of mortgage servicing rights was $4,312,000 and $5,126,000 at year end 2006 and 2005. Fair value was determined using a discount rate of 9.25%, prepayment speeds ranging from 99% to 422%, depending on the stratification of the specific right, and a weighted average delinquency rate of 0.76%.

The weighted average amortization period is 4.0 years. Estimated amortization expense for each of the next five years is:

(In Thousands of Dollars)
2007	$       326
2008	271
2009	237
2010	212
2011	187

NOTE 6 – LOANS

Loans at year end were as follows:

	(In Thousands of Dollars)
	2006		2005
Commercial	$	194,810	$	183,473
Mortgage Loans on Real Estate:
Residential		284,137		272,402
Commercial		286,249		302,471
Construction		81,218		61,067
Consumer		58,766		57,404
Credit Card		4,340		1,807
Subtotal		909,520		878,624
Less:
Allowance for loan losses		9,966		11,559
Loans, net	$	899,554	$	867,065

Activity in the allowance for loan losses was as follows:

	(In Thousands of Dollars)
	2006			2005			2004
Beginning balance	$	11,559		$	10,581		$	11,627
Allowance of acquired bank		0			1,949			0
Provision for loan losses		767			295			(425	)
Loans charged off		(2,694	)		(1,739	)		(930	)
Recoveries		334			473			309
Ending balance	$	9,966		$	11,559		$	10,581

Impaired loans were as follows:

	(In Thousands of Dollars)
	2006		2005		2004
Year end loans with no allocated allowance for loan losses	$	2,500	$	1,305	$	170
Year end loans with allocated allowance for loan losses		394		3,651		1,262
Total	$	2,894	$	4,956	$	1,432
Amount of the allowance for loan losses allocated	$	204	$	1,209	$	610

	(In Thousands of Dollars)
	2006		2005		2004
Nonaccrual loans at year end	$	1,768	$	4,770	$	1,456
Loans past due over 90 days still on accrual at year end		2,485		2,440		408
Average of impaired loans during the year		3,315		4,736		1,605
Interest income recognized during impairment		183		187		31
Cash-basis interest income recognized		24		23		5

Approximately $31,732,000 and $36,823,000 of commercial loans were pledged to the Federal Reserve Bank of Chicago at December 31, 2006 and 2005 to secure potential overnight borrowings.

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NOTE 7 – PREMISES AND EQUIPMENT

Year end premises and equipment were as follows:

	(In Thousands of Dollars)
	2006			2005
Land	$	4,667		$	4,339
Buildings		19,127			18,357
Furniture, fixtures and equipment		15,245			14,653
Total		39,039			37,349
Less:
Accumulated depreciation		(18,807	)		(17,872	)
Total	$	20,232		$	19,477

Depreciation expense was $2,539,000, $2,342,000, and $1,954,000 for 2006, 2005, and 2004. Rent expense was $342,000 for 2006, $244,000 for 2005, and $252,000 for 2004. Rental commitments for the next five years under non-cancelable operating leases were as follows (before considering renewal options that generally are present):

(In Thousands of Dollars)
2007		$       368
2008		349
2009		320
2010		276
2011		281
Total	$	1,594

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

The change in the carrying amount of goodwill for the year is as follows:

	(In Thousands of Dollars)
	2006		2005
Balance at January 1	$	19,888	$	4,465
Impairment write down		0		0
Goodwill from acquisitions		206		15,423
Balance at December 31	$	20,094	$	19,888

The $206,000 Goodwill from acquisitions in 2006 above relates to an adjustment to goodwill associated with the acquisition of Keystone.

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Acquired Intangible Assets

Acquired intangible assets at year end were as follows:

	(In Thousands of Dollars)
	Gross Amount		Accumulated Amortization		Net Carrying Amount
2006
Amortized intangible assets:
Core deposit premium resulting from
bank and branch acquisitions	$	6,179	$	3,268	$	2,911
Other customer relationship intangibles		291		157		134
Total	$	6,470	$	3,425	$	3,045
2005
Amortized intangible assets:
Core deposit premium resulting from
branch acquisitions	$	6,179	$	2,715	$	3,464
Other customer relationship intangibles		291		45		246
Total	$	6,470	$	2,760	$	3,710

Aggregate amortization expense was $665,000, $395,000, and $302,000 for 2006, 2005, and 2004, respectively.

Estimated amortization expense for each of the next five years:

	(In Thousands of Dollars)
Year		Amount
2007		$	623
2008			539
2009			470
2010			400
2011			367

NOTE 9 – FEDERAL INCOME TAXES

Federal income taxes consist of the following:

	(In Thousands of Dollars)
	2006		2005			2004
Current expense	$	4,323	$	4,791		$	3,755
Deferred expense (benefit)		79		(88	)		384
Total	$	4,402	$	4,703		$	4,139

A reconciliation of the difference between federal income tax expense and the amount computed by applying the federal statutory tax rate of 35% in 2006, 2005 and 2004 is as follows:

	(In Thousands of Dollars)
	2006			2005			2004
Tax at statutory rate	$	5,114		$	5,185		$	5,074
Adjustment of federal tax contingent liability		(240	)		(529	)
			0
Effect of tax-exempt interest		(433	)		(384	)		(329	)
Other		(42	)		(98	)		(77	)
Federal income taxes	$	4,402		$	4,703		$	4,139
Effective tax rate		30	%		32	%		29	%

The federal tax accrual was reduced in 2006 and 2004 to reflect management’s current estimate of contingent tax liabilities.

40

The components of deferred tax assets and liabilities consist of the following at December 31^st year end:

	(In Thousands of Dollars)
	2006			2005
Deferred tax assets:
Allowance for loan losses	$	3,540		$	4,017
Deferred compensation		1,222			1,146
Other		333			374
Unrealized loss on securities available for sale		64			131
Total deferred tax assets		5,159			5,668
Deferred tax liabilities:
Fixed assets		(1,184	)		(1,397	)
Mortgage servicing rights		(650	)		(682	)
Purchase accounting adjustment		(519	)		(691	)
Other		(633	)		(579	)
Total deferred tax liabilities		(2,986	)		(3,349	)
Net deferred tax assets	$	2,173		$	2,319

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, 2006 or 2005.

Net deferred tax assets at December 31, 2006 and 2005 are included in other assets in the accompanying consolidated balance sheets.

NOTE 10 – DEPOSITS

Time deposits of $100,000 or more were $169,445,000 and $150,280,000 at year end 2006 and 2005. There were $46.0 million and $44.4 million of brokered CDs included in time deposits of $100,000 or more in 2006 and 2005 respectively.

Scheduled maturities of time deposits at December 31, 2006 were as follows:

(In Thousands of Dollars)
Year	Amount
2007	$	322,787
2008		45,900
2009		19,299
2010		15,449
2011		11,453
2012 and after		67
Total	$	414,955

NOTE 11 – BORROWINGS

Information relating to securities sold under agreements to repurchase is as follows:

	(In Thousands of Dollars)
	2006			2005
At December 31:
Outstanding Balance	$	32,079		$	31,011
Average Interest Rate		4.17	%		2.88	%
Daily Average for the Year:
Outstanding Balance	$	31,108		$	28,065
Average Interest Rate		3.89	%		2.18	%
Maximum Outstanding at any Month End	$	37,459		$	31,920

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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 overnight borrowings of $3,100,000 at December 31, 2006. There were $12,300,000 overnight borrowings at December 31, 2005.

The Company established a line of credit agreement with LaSalle Bank, Chicago, Illinois on June 30, 2003 at a variable interest rate chosen by the Company of either LaSalle Bank’s prime commercial borrowing rate, or LIBOR plus 1.75%. This agreement allows for a revolving line of credit up to an aggregate principal amount of $25,000,000. The collateral for this agreement consists of all outstanding capital stock of Firstbank – Alma, Firstbank (Mt. Pleasant) and Firstbank – West Branch. In September and October of 2005 the Company accessed $7.5 million of the LaSalle Bank line of credit to provide temporary funds for the acquisition of Keystone Community Bank. That balance was outstanding at the end of 2005 and had an interest rate at year end of 6.27%. The terms of the agreement require the Company to pay interest quarterly on the outstanding borrowing. The LaSalle Bank line of credit was paid in full on January 20, 2006. In November of 2006, the Company accessed $500,000 of the LaSalle Bank line of credit to provide temporary funds for operations. That balance was repaid in December 2006.

Firstbank – Alma has notes payable with a total balance of $73,000 and $95,000 at December 31, 2006 and 2005. These notes mature on January 1, 2010 and were part of the consideration paid for a subsidiary, which has since been sold.

NOTE 12 – FEDERAL HOME LOAN BANK ADVANCES

Long term borrowings have been secured from the Federal Home Loan Bank. At year end, advances from the Federal Home Loan Bank were as follows:

	(In Thousands of Dollars)
	2006		2005
Maturities January 2007 through March 2026 at
fixed rates ranging from 2.72% to 7.3%, averaging 5.13%	$	90,104	$	83,044
Maturities October 2008 through January 2011 with a variable rate of interest
tied to the 30 and 90 day LIBOR rate	$	4,000	$	0

Each Federal Home Loan Bank advance is payable at its maturity date without penalty, however, substantial penalties do exist if an advance is paid before its contractual maturity. Such penalties vary from advance to advance and are based on the size, interest rate, and remaining term of each specific advance. Advances of $41,900,000 maturing in 2010 may be converted from fixed to variable rate by the FHLB, but may be repaid, without penalty, if that option is exercised. The advances were collateralized by $213,903,000 and $139,045,000 of first mortgage loans under a blanket lien arrangement at year end 2006 and 2005. As of December 31, 2006, the Company had $41,846,000 of additional borrowing capacity with the Federal Home Loan Bank.

Maturities of FHLB advances are as follows:

	(In Thousands of Dollars)
2007	$	12,617
2008		22,121
2009		6,000
2010		41,545
2011		5,000
2012 and after		6,821
Total	$	94,104

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NOTE 13 – SUBORDINATED DEBENTURES

A trust formed by the Company issued $10,310,000 of LIBOR plus 1.99% variable rate trust preferred securities in 2004 as part of a pooled offering of such securities. The Company issued subordinated debentures to the trust in exchange for the proceeds of the offering; the debentures represent the sole assets of the trust. The Company may redeem the subordinated debentures, in whole or in part, any time on or after October 18, 2009 at 100% of the principal amount of the securities. The debentures are required to be paid in full on October 18, 2034.

On January 20, 2006, a trust formed by the Company issued $10,310,000 of trust preferred securities as part of a pooled offering of such securities. The securities carry an interest rate of 6.049% for five years, and then convert to a variable rate of LIBOR plus 1.27% for the remainder of their term. The Company issued subordinated debentures to the trust in exchange for the proceeds of the offering; the debentures represent the sole assets of the trust. The Company may redeem the subordinated debentures, in whole or in part, any time on or after April 7, 2011 at 100% of the principal amount of the securities. The debentures are required to be paid in full on April 7, 2036.

In accordance with FASB Interpretation 46R, the trusts are not consolidated with the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of the trust was $620,000 and is included in securities available for sale.

NOTE 14 – BENEFIT PLANS

The 401(k) plan, a defined contribution plan, is an IRS qualified 401(k) salary deferral plan, under which Firstbank Corporation stock is one of the investment options. Both employee and employer contributions may be made to the plan. The Company’s 2006, 2005 and 2004 matching 401(k) contributions charged to expense were $437,000, $368,000, and $410,000, respectively. The percent of the Company’s matching contribution to the 401(k) is determined annually by the Board of Directors.

Keystone Community Bank had a 401(k) plan that allowed both employee and employer contributions. Keystone’s plan was a defined contribution plan and an IRS qualified 401(k) Safe Harbor salary deferral plan. Keystone’s 2005 matching contributions charged to expense after acquisition was $14,000. The percent of the matching contribution to the 401(k) is determined annually by the IRS requirements of a Safe Harbor plan and the Board of Directors. Keystone’s plan was merged into the Firstbank 401(k) plan on January 1, 2006.

The Board of Directors had established the Firstbank Corporation Affiliate Deferred Compensation Plan (“Plan”). The American Jobs Creation Act of 2004, passed in October, had significant impact on the design and operation of non-qualified deferred compensation plans. As a result of those changes, future deferrals into the Plan were suspended effective December 31, 2004. Prior to December 31, 2004, Directors of the holding company and each affiliate bank were eligible to participate in the Plan. In addition, key management of the holding company and affiliate banks as designated by the Board of Directors were eligible to participate. The plan is a nonqualified plan as defined by the Internal Revenue Code, and as such, all contributions are invested at the recommendation of the participant and are assets of the Company. The Company recognizes a corresponding liability to each participant. The plan allowed Directors to defer their director fees and key management to defer a portion of their salaries into the Plan.

NOTE 15 – STOCK BASED COMPENSATION

The Company has stock based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $246,000, $6,000, and $0 for 2006, 2005 and 2004. The total income tax benefit was $86,000, $2,000 and $0.

The Firstbank Corporation Stock Compensation Plans of 1993, 1997 and 2006 (“Plans”), as amended, which were shareholder approved, provide for the grant of 395,986, 593,798 and 315,000 shares of stock, respectively, in either restricted form or under option. Options may be either incentive stock options or nonqualified stock options. As of December 31, 2006 only nonqualified stock options have been issued under the plans. The Plan of 1993 terminated April 26, 2003. The 1997 Plan will terminate April 28, 2007. The 2006 Plan will terminate February 27, 2016. The Board, at its discretion, may terminate any or all of the Plans prior to the Plans’ scheduled termination dates.

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Stock Option
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 may only be issued with exercise prices equal to, or greater than, the stock’s market value on the date of issuance. The length of time available for a stock option to be exercised is governed by each option agreement, but has not been more than ten years from the issuance date.

Statement of Financial Accounting Standards No. 123R requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This applies to outstanding awards vesting, granted or modified after January 1, 2006.

Beginning with the first quarter of 2006 stock-based compensation cost is reflected in net income using the fair value method, as required by Statement of Financial Accounting Standards No. 123R — Share based Payments. Prior to the first quarter of 2006, stock-based compensation cost was reflected as a footnote adjustment to net income, as allowed by FASB Statement No. 123, Accounting for Stock-Based Compensation. All options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The weighted average fair value of options granted was $5.53, $4.42 and $4.96 in 2006, 2005, and 2004, respectively.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of our common stock. We use historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

	2006			2005			2004
Risk-free interest rate		4.54	%		4.32	%		4.20	%
Expected option life		7 yea	rs		7 Yea	rs		7 Yea	rs
Expected stock price volatility		30.7	%		21.6	%		23.7	%
Dividend yield		3.9	%		3.5	%		3.6	%

Activity under the plans:

	Twelve months ended December 31, 2006 Total options outstanding
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (000)
Options outstanding, beginning of period		470,936	$	19.26
Granted		63,184	$	22.00
Exercised		36,594	$	13.32
Forfeited		15,910	$	22.80
Options outstanding, end of period		481,616	$	19.96		5.8	$	1,210
Options exercisable, end of period		324,741	$	18.50		4.3	$	1,193

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:

	Twelve months ended December 31,
(In Thousands of Dollars)
	2006		2005		2004
Proceeds of options exercised	$	487	$	511	$	1,043
Related tax benefit recognized	$	102	$	90	$	248
Intrinsic value of options exercised	$	330	$	446	$	1,082

44

As of December 31, 2006, there was $442,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.5 years.

Options outstanding at December 31, 2006 were as follows:

	Options outstanding						Exercisable
Range of exercise prices	Shares		Weighted Average Exercise Price		Weighted Average Contractual Life (years)		Shares		Weighted Average Exercise Price
$ 6.94 - $14.00		41,504	$	13.04		4.6		41,504	$	13.04
$14.01 - $18.00		107,801	$	14.43		2.6		107,801	$	14.43
$18.01 - $22.00		164,072	$	20.75		6.1		92,755	$	20.04
Total		481,616	$	19.96		5.8		324,741	$	18.50

Restricted Stock
Restricted shares may be issued under the Plans as described above. Compensation expense is recognized over the vesting period of the shares based on the market value of the shares on the issue date.

A summary of change in the Company’s nonvested shares for 2006 follows:

Nonvested Shares	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2006		2,318	$	25.90
Granted		1,313	$	23.05
Vested		-		-
Forfeited		-		-
Nonvested at December 31, 2006		3,631	$	24.87

As of December 31, 2006, there was $54,000 of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.1 years. The total fair value of shares vested during the years ended December 31, 2006, 2005 and 2004 was $0, $26,700, and $19,900.

NOTE 16 – RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates in 2006 were as follows:

	(In Thousands of Dollars)
Beginning balance		$	43,457
New loans			64,708
Repayments			(59,587	)
Addition/(Deletion) of Directors			(350	)
Ending balance		$	48,228

Deposits from principal officers, directors, and their affiliates at year end 2006 and 2005 were $23.8 million and $21.0 million respectively.

NOTE 17 – 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.

45

Financial instruments with off-balance sheet risk were as follows at year end:

	(In Thousands of Dollars)
	2006				2005
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	24,525	$	25,435	$	33,911	$	9,805
(at market rates)
Unused lines of credit and letters of
Credit	$	24,676	$	118,399	$	17,522	$	114,071
Standby Letters of Credit	$	9,225	$	10,551	$	1,575	$	13,085

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments have interest rates ranging from 6.75% to 10.25% and maturities ranging from 15 years to 30 years.

NOTE 18 – 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, 2006.

NOTE 19 – DIVIDEND LIMITATION OF SUBSIDIARIES

Capital guidelines adopted by Federal and State regulatory agencies and restrictions imposed by law limit the amount of cash dividends the banks can pay to the Company. At December 31, 2006, using the most restrictive of these conditions for each bank, the aggregate cash dividends that the banks can pay the Company without prior approval was $19,016,000. It is not the intent of management to have dividends paid in amounts which would reduce the capital of the banks to levels below those which are considered prudent by management and in accordance with guidelines of regulatory authorities.

NOTE 20 – STOCK REPURCHASE PROGRAM

On November 25, 2003, the Company announced a repurchase plan that authorized share repurchases of up to $10 million of Firstbank Corporation common stock. As of December 31, 2003, the Corporation had purchased 9,724 shares of its stock at an average price of $26.50 under the authorization.

During 2004 the Company repurchased 123,519 shares of its common stock for an average cost per share of $25.87 under the November 2003 repurchase plan.

During 2005, the Company repurchased 41,013 shares of its common stock for an average cost per share of $24.73.

During 2006, the Company repurchased 233,625 shares of its common stock for an average cost per share of $22.49.

The Corporation has remaining authority to repurchase up to $278,813 of common stock under the November 2003 repurchase plan.

46

NOTE 21 – 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.

At year end 2006 and 2005, the most recent regulatory notifications categorize the Company as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed that classification.

47

Actual and required capital amounts at year end (in Thousands of Dollars) and ratios are presented below:

	Actual					Minimum Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2006
Total Capital to Risk Weighted Assets
Consolidated		103,285		11.43	%		72,269		8.00	%		NA		NA
Firstbank - Alma		20,523		11.06			14,851		8.00		$	18,564		10.00	%
Firstbank - Mt. Pleasant		18,216		10.02			14,543		8.00			18,179		10.00
Firstbank - West Branch		19,371		10.40			14,907		8.00			18,634		10.00
Firstbank - Lakeview		11,062		10.34			8,560		8.00			10,700		10.00
Firstbank - St. Johns		6,440		10.71			4,812		8.00			6,015		10.00
Keystone Community Bank		17,606		10.36			13,601		8.00			17,002		10.00
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated		93,688		10.37	%		36,134		4.00	%		NA		NA
Firstbank - Alma		18,198		9.80			7,426		4.00		$	11,139		6.00	%
Firstbank - Mt. Pleasant		16,337		8.99			7,272		4.00			10,908		6.00
Firstbank - West Branch		17,484		9.38			7,453		4.00			11,180		6.00
Firstbank - Lakeview		9,724		9.09			4,280		4.00			6,420		6.00
Firstbank - St. Johns		5,833		9.70			2,406		4.00			3,609		6.00
Keystone Community Bank		16,045		9.44			6,801		4.00			10,201		6.00
Tier 1 (Core) Capital to Average Assets
Consolidated		93,688		8.81	%		42,540		4.00	%		NA		NA
Firstbank - Alma		18,198		7.37			9,883		4.00		$	12,353		5.00	%
Firstbank - Mt. Pleasant		16,337		8.07			8,101		4.00			10,126		5.00
Firstbank - West Branch		17,484		7.59			9,210		4.00			11,512		5.00
Firstbank - Lakeview		9,724		7.80			4,987		4.00			6,234		5.00
Firstbank - St. Johns		5,833		8.48			2,753		4.00			3,441		5.00
Keystone Community Bank		16,045		9.07			7,076		4.00			8,845		5.00
2005
Total Capital to Risk Weighted Assets
Consolidated		90,705		10.40	%		69,772		8.00	%		NA		NA
Firstbank - Alma		21,638		10.89			15,901		8.00		$	19,877		10.00	%
Firstbank - Mt. Pleasant		17,621		10.61			13,286		8.00			16,607		10.00
Firstbank - West Branch		19,099		10.48			14,573		8.00			18,217		10.00
Firstbank - Lakeview		10,798		10.38			8,318		8.00			10,398		10.00
Firstbank - St. Johns		5,631		10.72			4,202		8.00			5,252		10.00
Keystone Community Bank		15,976		10.10			12,654		8.00			15,817		10.00
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated		80,246		9.20	%		34,886		4.00	%		NA		NA
Firstbank - Alma		19,145		9.63			7,951		4.00		$	11,926		6.00	%
Firstbank - Mt. Pleasant		15,616		9.40			6,643		4.00			9,964		6.00
Firstbank - West Branch		16,978		9.32			7,287		4.00			10,930		6.00
Firstbank - Lakeview		9,495		9.13			4,159		4.00			6,239		6.00
Firstbank - St. Johns		4,972		9.47			2,101		4.00			3,151		6.00
Keystone Community Bank		14,097		8.91			6,327		4.00			9,490		6.00
Tier 1 (Core) Capital to Average Assets
Consolidated		80,246		7.89	%		40,663		4.00	%		NA		NA
Firstbank - Alma		19,145		7.72			9,919		4.00		$	12,399		5.00	%
Firstbank - Mt. Pleasant		15,616		8.24			7,577		4.00			9,471		5.00
Firstbank - West Branch		16,978		7.47			9,086		4.00			11,357		5.00
Firstbank - Lakeview		9,495		7.82			4,856		4.00			6,070		5.00
Firstbank - St. Johns		4,972		8.41			2,365		4.00			2,956		5.00
Keystone Community Bank		14,097		8.77			6,327		4.00			8,038		5.00

48

NOTE 22 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amount and estimated fair values of financial instruments were as follows at year end:

	(In Thousands of Dollars)
	2006						2005
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial Assets:
Cash and cash equivalents	$	56,937		$	56,937		$	53,332		$	53,332
Securities available for sale		69,125			69,125			73,811			73,811
Federal Home Loan Bank stock		5,924			5,924			6,309			6,309
Loans held for sale		1,120			1,127			293			293
Loans, net		899,554			869,336			867,065			843,949
Accrued interest receivable		4,733			4,733			4,093			4,093
Financial Liabilities:
Deposits		(835,426	)		(838,490	)		(811,105	)		(808,957	)
Securities sold under agreements to
repurchase and overnight borrowings		(35,179	)		(35,179	)		(43,311	)		(43,311	)
Federal Home Loan Bank advances		(94,104	)		(91,052	)		(83,044	)		(82,430	)
Notes payable and Subordinated Debentures		(20,693	)		(23,427	)		(17,900	)		(17,895	)
Accrued interest payable		(2,887	)		(2,887	)		(1,845	)		(1,845	)

The methods and assumptions used to estimate fair value are described as follows: The 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 re-price 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 re-pricing or re-pricing 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 was not material to the consolidated financial statements at December 31, 2006 and 2005.

NOTE 23 – BASIC AND DILUTED EARNINGS PER SHARE

(In Thousands, Except per Share Data)	Year Ended December 31
	2006		2005		2004
Basic Earnings per Share
Net income	$	10,208	$	10,110	$	10,358
Weighted average common shares outstanding		6,558		6,064		6,232
Basic earnings per share	$	1.56	$	1.67	$	1.67
Diluted Earnings per Share
Net income	$	10,208	$	10,110	$	10,358
Weighted average common shares outstanding		6,558		6,064		6,232
Add dilutive effects of assumed exercises of options		35		102		141
Weighted average common and dilutive potential
Common shares outstanding		6,593		6,166		6,372
Diluted earnings per share	$	1.55	$	1.64	$	1.63

Stock options for 174,929, 120,281, and 65,091 shares of common stock were not considered in computing diluted earnings per share for 2006, 2005, and 2004 because they were anti-dilutive.

49

NOTE 24 – FIRSTBANK CORPORATION (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
(In Thousands of Dollars)

CONDENSED BALANCE SHEETS

Years Ended December 31st	2006		2005
ASSETS
Cash and cash equivalents	$	853	$	1,061
Commercial loans		325		380
Investment in and advances to banking subsidiaries		103,481		99,928
Securities		1,923		1,613
Other assets		14,409		13,488
Total Assets	$	120,991	$	116,470
LIABILITIES AND EQUITY
Accrued expenses and other liabilities	$	4,298	$	5,087
Other Borrowed Funds		0		7,496
Subordinated Debentures		20,620		10,310
Shareholders' equity		96,073		93,577
Total Liabilities and Shareholders' Equity	$	120,991	$	116,470

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years Ended December 31st	2006			2005			2004
Dividends from banking subsidiaries	$	10,450		$	12,159		$	11,350
Other income		4,880			4,632			4,663
Other expense		(7,894	)		(6,853	)		(6,849	)
Income before income tax and undistributed subsidiary income		7,436			9,938			9,164
Income tax benefit		943			706			1,239
Equity in undistributed subsidiary income		1,829			(534	)		(45	)
Net income		10,208			10,110			10,358
Change in unrealized gain (loss) on securities, net of tax and
classification effects		124			(590	)		(631	)
Comprehensive income	$	10,332		$	9,520		$	9,727

CONDENSED STATEMENTS OF CASH FLOWS

Years Ended December 31st	2006			2005			2004
ASSETS
Cash flows from operating activities
Net income	$	10,208		$	10,110		$	10,358
Adjustments:
Equity in undistributed subsidiary income		(1,829	)		534			45
Stock Option and Restricted Stock Grant Compensation Expense		246			6			0
Change in other assets		(921	)		(1,346	)		(1,122	)
Change in other liabilities		(496	)		935			586
Net cash from operating activities		7,208			10,233			9,867
Cash flows from investing activities
Purchases of Securities AFS		(310	)		(1,303	)		(310	)
Net decrease in commercial loans		55			85			84
Payments for Investments in Subsidiaries		(1,600	)		(30,714	)		0
Net cash from investing activities		(1,855	)		(31,932	)		(226	)
Cash flows from financing activities
Proceeds from issuance of long-term debt		10,810			7,496			21,310
Payments of long-term debt		(7,996	)		(11,000	)		0
Proceeds from stock issuance		2,465			16,994			2,997
Purchase of common stock		(5,254	)		(1,014	)		(21,195	)
Dividends paid and cash paid in lieu of fractional shares
on stock dividend		(5,586	)		(4,787	)		(4,409	)
Net cash from financing activities		(5,561	)		18,689			(12,297	)
Net change in cash and cash equivalents		(208	)		(3,010	)		(2,656	)
Beginning cash and cash equivalents		1,061		$	4,071		$	6,727
Ending cash and cash equivalents	$	853		$	1,061		$	4,071

50

NOTE 25 – OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows (In Thousands of Dollars):

	2006		2005			2004
Change in unrealized holding gains and losses on available for sale securities	$	195	$	(861	)	$	(925	)
Less reclassification adjustments for gains and losses later recognized in income		7		33			54
Net unrealized gains and losses		188		(894	)		(979	)
Tax effect		64		304			348
Other comprehensive income (loss)	$	124	$	(590	)	$	(631	)

NOTE 26 – QUARTERLY FINANCIAL DATA (UNAUDITED)

(In Thousands of Dollars, Except per Share Data)			2006
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Year
Interest income	$	16,715	$	17,545	$	18,273	$	18,253	$	70,786
Net interest income		9,942		10,125		10,207		9,792		40,065
Income before federal income taxes		3,548		4,179		3,911		2,972		14,610
Net income		2,424		2,899		2,717		2,168		10,208
Basic earnings per share		0.38		0.44		0.42		0.33		1.56
Diluted earnings per share		0.37		0.44		0.41		0.33		1.55

	2005
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Year
Interest income	$	11,587	$	12,118	$	12,961	$	16,464	$	53,130
Net interest income		8,148		8,264		8,646		10,258		35,316
Income before federal income taxes		3,137		3,694		3,833		4,149		14,813
Net income		2,137		2,508		2,597		2,868		10,110
Basic earnings per share		0.36		0.43		0.44		0.44		1.67
Diluted earnings per share		0.35		0.42		0.43		0.44		1.64

All per share amounts have been adjusted for stock dividends and stock splits.

51

FIRSTBANK CORPORATION

BOARD OF DIRECTORS

William E. Goggin, Chairman
Chairman, Firstbank - Alma
Attorney, Goggin Law Offices

Duane A. Carr
Attorney, Miel and Carr PC

David W. Fultz
Owner, Fultz Insurance Agency &
Kirtland Insurance Agency

Jeff A. Gardner
Certified Property Manager &
Owner, Gardner Group

Edward B. Grant, Ph.D., CPA
Chairman, Firstbank (Mt. Pleasant)
General Manager, Public Broadcasting,
Central Michigan University

David D. Roslund, CPA
Administrator, Wilcox Health Care Center
Small Business Investor and Manager

Samuel A. Smith
Owner, Smith Family Funeral Homes

Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation OFFICERS

Thomas R. Sullivan
President & Chief Executive Officer

Samuel G. Stone
Executive Vice President, Chief Financial
Officer, Secretary & Treasurer

William L. Benear
Vice President

David M. Brown
Vice President

David L. Miller
Vice President

Douglas J. Ouellette
Vice President

Dale A. Peters
Vice President

Richard D. Rice
Vice President and Controller

Thomas O. Schlueter
Vice President

James E. Wheeler, II
Vice President

FIRSTBANK CORPORATION
311 Woodworth Avenue
P.O. Box 1029
Alma, Michigan 48801
(989) 463-3131 FIRSTBANK CORPORATION
OPERATIONS CENTER
308 Woodworth Avenue
Alma, Michigan 48801

52

FIRSTBANK – ALMA

BOARD OF DIRECTORS

William E. Goggin, Chairman
Chairman, Firstbank Corporation
Attorney, Goggin Law Offices

Martha A. Bamfield, D.D.S.
Dentist, Nester & Bamfield, DDS, PC

Cindy M. Bosley
Chief Administrative Officer, Masonic Pathways

Edward J. DeGroat, CCIM
Commercial Real Estate Operator

Paul C. Lux
Owner, Lux Funeral Homes, Inc.

Donald L. Pavlik
Superintendent, Alma Public Schools

David D. Roslund, CPA
Administrator, Wilcox Health Care Center
Small Business Investor and Manager

Victor V. Rozas
Physician

Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation

Saundra J. Tracy, Ph.D.
President, Alma College

James E. Wheeler, II
President & Chief Executive Officer, Firstbank - Alma
Vice President, Firstbank Corporation OFFICERS

James E. Wheeler, II
President & Chief Executive Officer

Richard A. Barratt
Executive Vice President

Laura A. Crocker
Vice President

Gregory A. Daniels
Vice President

Tammy L. Frisbey
Vice President

Marita A. Harkness
Vice President

Gerald E. Kench
Vice President

Timothy M. Lowe
Vice President

Joan S. Welke
Vice President

Pamela K. Winters
Vice President




SUBSIDIARY
Firstbank - Alma Mortgage Company

OFFICE LOCATIONS

Alma
     7455 N. Alger Road
     (989) 463-3134

     230 Woodworth Ave.
     (989) 463-3137
                       
     311 Woodworth Ave.
     (989) 463-3131 Ashley
     114 S. Sterling St.
     (989) 847-2394

Merrill
     125 W. Saginaw St.
     (989) 643-7253

Vestaburg
     9002 W. Howard City-Edmore Rd.
     (989) 268-5445 Auburn
     4710 S. Garfield Rd.
     (989) 662-4459

St. Charles
     102 Pine St.
     (989) 865-9918 Ithaca
     219 E. Center St.
     (989) 875-4107

St. Louis
     135 W. Washington Ave.
     (989) 681-5758

53

FIRSTBANK (MT. PLEASANT)

BOARD OF DIRECTORS

Edward B. Grant, Ph.D., CPA, Chairman
General Manager, Public Broadcasting, Central Michigan University

Steve K. Anderson
President & CEO, Cadillac Tire Center, Cadillac
President & CEO, Upper Lakes Tire, Gaylord

Jack D. Benson
Management Consultant
Formerly - President, Old Kent Bank of Cadillac

Ralph M. Berry
Owner, Berry Funeral Home

Glen D. Blystone, CPA
Blystone & Bailey, CPA's, PC

Kenneth C. Bovee
Partner, Keystone Property Management, Inc.

Robert E. List, CPA
Shareholder, Weinlander Fitzhugh, CPA's
Manager, Clare and Gladwin Offices

William M. McClintic
Attorney, W.M. McClintic, PC

J. Regan O'Neill
President and Co-Founder, Network Reporting Corporation
President and Co-Founder, NetMed Transcription Services, LLC

Douglas J. Ouellette
President & Chief Executive Officer

Phillip R. Seybert
President, P.S. Equities, Inc.

Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation

Arlene A. Yost
Secretary and Treasurer, Jay's Sporting Goods, Inc. OFFICERS

Douglas J. Ouellette
President & Chief Executive Officer

Clare R. Colwell
Community Bank President-Cadillac

Daniel J. Timmins
Community Bank President-Clare

Mark B. Perry
Senior Vice President

Robert L. Wheeler
Senior Vice President

Cheryl L. Gaudard
Vice President

Dianne M. Stilson
Vice President



















SUBSIDIARY

Firstbank - Mt. Pleasant Mortgage Company

OFFICE LOCATIONS

Mt. Pleasant
     102 S. Main St.
     (989) 773-2600

     4699 Pickard St.
     (989) 773-2335

     2013 S. Mission St.
     (989) 773-3959

     1925 E. Remus Rd.
     (989) 775-8528 Cadillac
     114 W. Pine St.
     (231) 775-9000

Clare
     806 N. McEwan Ave.
     (989) 386-7313 Shepherd
     258 W. Wright Ave.
     (989) 828-6625 Winn
     2783 Blanchard Rd.
     (989) 866-2210

54

FIRSTBANK - WEST BRANCH

BOARD OF DIRECTORS

Joseph M. Clark, Chairman
Owner, Morse Clark Furniture

Bryon A. Bernard
CEO, Bernard Building Center

David W. Fultz
Owner, Fultz Insurance Agency &
Kirtland Insurance Agency

Robert T. Griffin
Owner and President, Griffin Beverage Company,
Northern Beverage Co. and West Branch Tank & Trailer

Charles A. Hanes
President, C. A. Hanes, Inc.

Christine R. Juarez
Attorney, Juarez and Juarez, PLLC

Norman J. Miller
Owner, Miller Farms and Miller Dairy Equipment and Feed

Dale A. Peters
President & Chief Executive Officer, Firstbank - West Branch
Vice President, Firstbank Corporation

Jeffrey C. Schubert, D.D.S.
Dentist

Camila J. Steckling, CPA
Weinlander Fitzhugh, CPA's
Certified Public Accountants & Consultants

Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation

Mark D. Weber, MD
Orthopedic Surgeon OFFICERS

Dale A. Peters
President & Chief Executive Officer

Daniel H. Grenier
Executive Vice President

Lorri B. Burzlaff
Vice President

Pamela J. Crainer
Vice President

Danny J. Gallagher
Vice President

James L. Kloostra
Vice President

Eileen S. McGregor
Vice President

Mark D. Wait
Vice President

Marie A. Wilkins
Vice President











Subsidiaries
1st Armored, Incorporated
1st Title, Incorporated
C.A. Hanes Realty, Incorporated
Firstbank - West Branch Mortgage Company

OFFICE LOCATION

West Branch
     502 W. Houghton Ave.
     (989) 345-7900

     601 W. Houghton Ave.
     (989) 345-7900

     2087 S. M-76
     (989) 345-5050

     2375 M-30
     (989) 345-6210 Fairview
     1979 Miller Rd.
     (989) 848-2243

Prescott
     311 Harrison St.
     (989) 873-6201 Hale
     3281 M-65
     (989) 728-7566

Rose City
     505 S. Bennett St.
     (989) 685-3909 Higgins Lake
     4522 W. Higgins Lake Dr.
     (989) 821-9231

St. Helen
     1990 N. St. Helen Rd.
     (989) 389-1311

55

FIRSTBANK – LAKEVIEW

BOARD OF DIRECTORS

V. Dean Floria, Chairman
Director, Homeworks Tri County Electric Co.
Director, Michigan Electric Co-op Association

William L. Benear
President & Chief Executive Officer, Firstbank - Lakeview
Vice President, Firstbank Corporation

Duane A. Carr
Attorney, Miel and Carr PC

Chalmer Gale Hixson
Owner, Country Corner Supermarket
Owner, A Flair for Hair
Owner, Harry Chalmers, Inc.
Owner, Powderhorn Ranch

Kenneth A. Rader
Owner, Ken Rader Farms

Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation OFFICERS

William L. Benear
President & Chief Executive Officer

Kim D. vonKronenberger
Executive Vice President

Karen L. McKenzie
Vice President

Dianne M. Stilson
Vice President









SUBSIDIARY

Firstbank - Lakeview Mortgage Company

OFFICE LOCATION

Lakeview
     506 Lincoln Ave.
     (989) 352-7271

     9531 N. Greenville Rd.
     (989) 352-8180 Canadian Lakes
     10049 Buchanan Rd.
     Stanwood, MI
     (231) 972-4200

Moreley
     101 E. 4th St.
     (231) 856-7652 Howard City
     830 W. Shaw St.
     (231) 937-4383


Remus
     201 W Whetland Ave.
     (989) 967-3602

56

FIRSTBANK – ST. JOHNS

BOARD OF DIRECTORS

Donald A. Rademacher, Chairman
Owner, RSI Home Improvement, Inc.

David M. Brown
President & Chief Executive Officer, Firstbank - St. Johns
Vice President, Firstbank Corporation

Sara Clark-Pierson
Attorney, Certified Public Accountant, Clark Family Enterprises

Ann M. Flermoen, D.D.S.
Dentist

William G. Jackson
Attorney, William G. Jackson, PC

Thomas C. Motz
Owner, Motz Development

Frank G. Pauli
President, Pauli Ford-Mercury,Inc.

Samuel A. Smith
Owner, Smith Family Funeral Homes
..
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation OFFICERS

David M. Brown
President & Chief Executive Officer

Craig A. Bishop
Senior Vice President

Lawrence H. Kruger
Vice President

Janette Havlik
Vice President

Daniel Redman
Vice President















SUBSIDIARY

Firstbank - St. Johns Mortgage Company

OFFICE LOCATIONS

St. Johns
     201 N. Clinton Ave.
     (989) 227-8383

     1501 Glastonbury Dr.
     (989) 227-6995 DeWitt
    13070 US - 27
    (517) 668-8000

57

KEYSTONE COMMUNITY BANK

BOARD OF DIRECTORS

Kenneth V. Miller, Chairman
Partner, Havirco
Owner, Millennium Restaurant Group

Samuel T. Field
Attorney, Field & Field, P.C.

Jeff A. Gardner
Certified Property Manager &
Owner, Gardner Group

John E. Hopkins
President & Chief Executive Officer,
Kalamazoo Community Foundation

Ronald A. Molitor
President, Mol-Son, Inc.

John M. Novak
Member, Miller Johnson Attorneys and Counselors

Thomas O. Schlueter
President & Chief Executive Officer, Keystone Community Bank
Vice President, Firstbank Corporation

Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation

John R. Trittschuh, M.D.
President, EyeCare Physicians and Surgeons, P.C. OFFICERS

Thomas O. Schlueter
President & Chief Executive Officer

Diana K. Greene
Senior Vice President

John E. Laman
Senior Vice President

Sara S. Dana
Vice President

Rodney S. Dragicevich
Vice President

Allan T. Reiff
Vice President

OFFICE LOCATIONS

Kalamazoo
     107 West Michigan Ave.
     (269) 553-9100

     235 North Drake Road
     (269) 544-9100

     2925 Oakland Drive
     (269) 488-9200 Portage
    6405 South Westnedge Ave.
    (269) 321-9100

    3910 West Centre Street
    (269) 323-9100

58

BUSINESS OF THE COMPANY

Firstbank Corporation (the “Company”) is a bank holding company. As of December 31, 2006, the Company’s subsidiaries are Firstbank – Alma; Firstbank (Mt. Pleasant); Firstbank – West Branch; Firstbank – Lakeview; Firstbank – St. Johns; Keystone Community Bank; 1^st Armored, Incorporated; Gladwin Land Company; 1^st Title, Incorporated; FBMI Risk Management Services, Inc.; and C.A. Hanes Realty, Incorporated. As of December 31, 2006, the Company and its subsidiaries employed 405 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. Trust services are offered to customers through Citizens Bank Wealth Management in the Firstbank – Alma main office. 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, Kalamazoo, Iosco, Isabella, Mecosta, Midland, Montcalm, Ogemaw, Oscoda, Roscommon, Saginaw, and parts of Clinton and Wexford counties. 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), St. Charles, St. Louis, and Vestaburg, Michigan. Firstbank (Mt. Pleasant) has its main office and one branch located in Mt. Pleasant, Michigan, two branches located in Union Township (near Mt. Pleasant), and one branch located in each of the following areas: Cadillac, Clare, 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, Prescott, 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, Michigan. Firstbank – St. Johns has its main office and one branch located in St. Johns, Michigan and a third branch in DeWitt. Keystone Community bank has its main office and one branch located in Kalamazoo, Michigan and two additional branches in Portage, Michigan. The banks have no material foreign assets or income.

The principal sources of revenues for the Company and its subsidiaries are interest and fees on loans and non-interest revenue resulting from banking and non-bank subsidiary activity. On a consolidated basis, interest and fees on loans accounted for approximately 83% of total revenues in 2006, 80% in 2005, and 76% in 2004. Non-interest revenue accounted for approximately 13% of total revenue in 2006, 15% in 2005, and 19% in 2004. Interest on securities accounted for approximately 4% of total revenue in each of 2006, and 5% in each of 2005, and 2004.

59

CORPORATE INFORMATION

Annual Meeting:
The annual meeting of shareholders will be held on
Monday, April 23, 2007, 4:30 p.m., Heritage Center,
Alma College, Alma, Michigan.

Independent Auditors:
Crowe Chizek and Company LLC
Grand Rapids, Michigan

General Counsel:
Varnum Riddering Schmidt & Howlett, LLP
Grand Rapids, Michigan Stock Information:
Market participants in trading
Firstbank Corporation Common Stock
include:

Ameritrade, Inc.
Automated Trading Desk
Bear, Stearns and Company, Inc.
B-Trade Services LLC
Citadel Derivatives Group LLC
Citigroup Global Markets, Inc.
E*Trade Capital Markets LLC
Goldman, Sachs & Co.
Hill, Thompson, Magid and Co.
Howe Barnes Investments, Inc.
Keefe, Bruyette & Woods, Inc.
Knight Equity Markets, L.P.
Lehman Brothers, Inc.
Morgan Stanley & Co., Inc.
Nasdaq Execution Services LLC
Oppenheimer & Co., Inc.
Robert W. Baird & Co., Inc.
Ryan Beck & Co., Inc.
Sandler O'Neill & Partners
Stifel Nicholas & Co.
Susquehanna Capital Group
TD Ameritrade, Inc.
UBS Securities, LLC

For research information and/or investment
recommendations, contact:

Howe Barnes Hoefer & Arnett.
(800) 800-4693


Registrar and Transfer Company is
Firstbank Corporation's Transfer Agent.
You may contact the Investor Relations
Department at: (800) 368-5948

60

EX-13

Firstbank Corporation Form 10-K for year ended 12/31/06 Exhibit 13

EX-14

EXHIBIT 14

CODE OF ETHICS

FIRSTBANK CORPORATION
CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND
SENIOR FINANCIAL OFFICERS

In my role as the Chief Executive Officer or as a Senior Financial Officer of Firstbank Corporation (the “Company”), I certify to the Company and the Audit Committee of the Board of Directors of the Company, that I will adhere to and advocate the following principles and responsibilities governing my professional and ethical conduct to the best of my knowledge and ability:

1. I will act with honesty and integrity, avoiding actual or apparent conflicts of interest in all personal and professional relationships.

2. I will provide information that is accurate, complete, objective, relevant, timely and understandable.

3. I will comply with the rules and regulations of federal, state, and local governments and other appropriate private and public regulatory agencies.

4. I will act in good faith, responsibly, and with due care. I will not misrepresent material facts or allow my independent judgment to be subordinated or otherwise compromised.

5. I will respect and maintain the confidentiality of information reviewed or acquired in carrying out my duties except when authorized or otherwise legally obligated to disclose.

6. I will share knowledge and maintain skills important and relevant to the needs of the Company.

7. I will proactively practice and promote ethical behavior as a professional in my role with the Company.

8. I will comply with and adhere to all of the Company’s policies and practices, including those policies governing accounting and financial reporting practices and corporate governance.

9. I will promptly disclose to an appropriate person or persons any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest and/or violations of this Code.

EX-21

EXHIBIT 21

FIRSTBANK CORPORATION SUBSIDIARIES

NAME	STATE OF INCORPORATION	OWNERSHIP
Firstbank - Alma	Michigan	100%
Firstbank (Mt. Pleasant)	Michigan	100%
Firstbank - West Branch	Michigan	100%
Firstbank - Lakeview	Michigan	100%
Firstbank - St. Johns	Michigan	100%
Keystone Community Bank	Michigan	100%
Gladwin Land Company	Michigan	100%
1st Armored, 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
Firstbank - Alma Mortgage Company	Michigan	100% by Firstbank - Alma
Firstbank (Mt. Pleasant) Mortgage Company	Michigan	100% by Firstbank (Mt. Pleasant)
Firstbank - West Branch Mortgage Company	Michigan	100% by Firstbank - West Branch
Firstbank - Lakeview Mortgage Company	Michigan	100% by Firstbank - Lakeview
Firstbank - St. Johns Mortgage Company	Michigan	100% by Firstbank - St. Johns
Keystone Mortgage Services, LLC	Michigan	99% by Keystone Community Bank and 1% by Firstbank Corporation
Keystone Premium Finance	Michigan	90% by Keystone Community Bank and 10% by Keystone Mortgage Services, LLC
Keystone T.I. Sub, LLC	Michigan	100% owned by Keystone Community Bank
KCB Title Insurance Agency, LLC	Michigan	50% owned by Keystone T.I. Sub, LLC
1st Investors Title, LLC	Michigan	52% owned by 1st Title, Inc.
FBMI Risk Management Services, Inc.	Nevada	100%

EX-31

EXHIBIT 31.1

CERTIFICATIONS

I, Thomas R. Sullivan, certify that:

1. I have reviewed this Annual Report on Form 10-K of Firstbank Corporation.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 6, 2007


/s/ Thomas R. Sullivan
——————————————
Thomas R. Sullivan
Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATIONS

I, Samuel G. Stone, certify that:

1. I have reviewed this Annual Report on Form 10-K of Firstbank Corporation.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 6, 2007


/s/ Samuel G. Stone
——————————————
Samuel G. Stone
Chief Financial Officer

EX-32

Exhibit 32.1

        Each of Thomas R. Sullivan, Chief Executive Officer, and Samuel G. Stone, Chief Financial Officer, of Firstbank Corporation., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) the information contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2006, fairly presents, in all material respects, the financial condition and results of operations of Firstbank Corporation.

Dated: March 6, 2007

/s/ Thomas R. Sullivan
——————————————
Thomas R. Sullivan
Chief Executive Officer

/s/ Samuel G. Stone
——————————————
Samuel G. Stone
Chief Financial Officer

EX-99

EXHIBIT 99

Firstbank Corporation 401(k) Plan
Performance Table*

FUND	VALUE AS OF 12/31/2002			VALUE AS OF 12/31/2003			VALUE AS OF 12/31/2004			VALUE AS OF 12/31/2005			VALUE AS OF 12/31/2006
Vanguard Total Bond Market Index Fund		8.26	%		3.97	%		4.24	%		2.40	%		4.27	%
	$	1,082.60		$	1,125.58		$	1,173.30		$	1,201.46		$	1,252.77
Dodge & Cox International Fund		-13.11%			49.42	%		32.46	%		16.75	%		28.01	%
	$	868.90		$	1,298.31		$	1,719.74		$	2,007.80		$	2,570.18
Dodge & Cox Stock Fund		-10.54%			32.34	%		19.17	%		9.37	%		18.53	%
	$	894.60		$	1,183.91		$	1,410.87		$	1,543.07		$	1,829.00
Fidelity Capital Appreciation Fund		-21.27%			51.68	%		11.26	%		5.80	%		13.80	%
	$	787.30		$	1,000.37		$	1,107.81		$	1,160.66		$	1,342.18
Vanguard 500 Index Fund		-22.15%			28.50	%		10.74	%		4.77	%		15.64	%
	$	778.50		$	1,000.37		$	1,107.81		$	1,160.66		$	1,342.18
T. Rowe Price Personal Income Fund		-3.37%			18.58	%		9.95	%		5.19	%		9.64	%
	$	966.30		$	1,145.84		$	1,259.85		$	1,325.24		$	1,452.99
T. Rowe Price Retirement 2010		NA- Fund			23.75	%		11.11	%		6.25	%		12.84	%
		Inception date 9/30/02		$	1,237.50		$	1,374.99		$	1,460.92		$	1,648.51
T. Rowe Price Retirement 2015		NA- Fund									6.69	%		13.73	%
		Inception date 2/27/04								$	1,066.90		$	1,213.39
T. Rowe Price Retirement 2020		NA- Fund			27.41	%		12.82	%		7.17	%		14.66	%
		Inception date 9/30/02		$	1,274.10		$	1,437.44		$	1,540.50		$	1,766.34
T. Rowe Price Retirement 2030		NA- Fund			29.98	%		14.15	%		8.12	%		16.14	%
		Inception date 9/30/02		$	1,299.80		$	1,483.72		$	1,604.20		$	1,863.12
T. Rowe Price Retirement 2040		NA- Fund			29.99	%		14.11	%		8.14	%		16.24	%
		Inception date 9/30/02		$	1,299.90		$	1,483.32		$	1,604.06		$	1,864.56
T. Rowe Price Retirement Income		NA- Fund			16.26	%		7.66	%		4.87	%		9.98	%
		Inception date 9/30/02		$	1,162.60		$	1,251.66		$	1,312.61		$	1,443.61
Fidelity Value Fund		-9.25%			34.43	%		21.21	%		14.27	%		15.09	%
	$	907.50		$	1,219.95		$	1,478.70		$	1,689.72		$	1,944.69
Vanguard Mid Cap Index Fund		-14.61%			34.14	%		20.35	%		13.93	%		13.60	%
	$	853.90		$	1,145.42		$	1,378.51		$	1,570.54		$	1,784.14
Rainier Small/Mid Cap Fund		-20.02%			46.24	%		17.36	%		17.53	%		14.67	%
	$	799.80		$	1,169.63		$	1,372.67		$	1,613.30		$	1,849.98
Northern Diversified Assets Fund		1.67	%		0.93	%		1.08	%		2.96	%		4.79	%
	$	1,016.70		$	1,026.16		$	1,037.24		$	1,067.94		$	1,119.09
Columbia Acorn Fund Class Z		-13.31%			45.68	%		21.51	%		13.11	%		14.45	%
	$	866.90		$	1,262.90		$	1,534.55		$	1,735.73		$	1,986.54
Vanguard Small Cap Index Fund		-20.02%			45.63	%		19.90	%		7.36	%		15.66	%
	$	799.80		$	1,164.75		$	1,396.53		$	1,499.32		$	1,734.11
Pacific Small Cap Fund Y		-8.54%			56.02	%		23.71	%		8.38	%		17.78	%
	$	914.60		$	1,426.96		$	1,765.29		$	1,913.22		$	2,253.39
Firstbank Stock Fund		8.10	%		37.30	%		34.40	%		-23.30%			12.10	%
	$	1,081.00		$	1,484.21		$	1,994.78		$	1,530.00		$	1,715.13

*All assume an initial investment on 1/01/2002, or inception date of the fund, of $1,000.00.