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, 2008.
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[_]
|
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 __________.
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Commission File Number:
000-14209
FIRSTBANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan
(State of Incorporation)
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38-2633910
(I.R.S. Employer Identification No.)
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311 Woodworth Avenue
Alma, Michigan)
(Address of principal executive offices)
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48801
(Zip Code)
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Registrants
telephone number, including area code: (989) 463-3131
Securities registered
pursuant to Section 12(b) of the Exchange Act:
Title of Class
Common Stock
|
Name of each exchange on which registered
The Nasdaq Stock Market LLC
|
Securities registered
pursuant to Section 12(g) of the Exchange Act: none
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 registrants 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. [_]
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company (as defined in Exchange
Act Rule 12-b-2). Large accelerated filer
Accelerated filer
X
Non-accelerated filer
Smaller reporting company
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, 2008: $ 67,209,625
Common stock outstanding at February 28, 2009:
7,599,501 shares.
DOCUMENTS INCORPORATED
BY REFERENCE
Portions of the registrants
annual report to shareholders for the year ended December 31, 2008, are incorporated by
reference in Part II.
Portions of the definitive proxy
statement for the registrants annual shareholders meeting to be held April 27, 2009
are incorporated by reference in Part III.
FORWARD LOOKING STATEMENTS
This
annual report on Form 10-K including, without limitation, managements discussion and
analysis of financial condition and results of operations and other sections of the
Corporations Annual Report to Shareholders which are incorporated by reference in
this report, contains forward looking statements that are based on managements
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 Corporations
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
Corporations 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 St. Johns, Keystone Community Bank, Firstbank West
Michigan, 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 89% of total revenue in 2008, 83% in 2007,
and 83% in 2006. Non-interest revenue accounted for approximately 5% of total revenue in
2008, 11% in 2007, and 13% in 2006. Interest on securities accounted for approximately 6%
of total revenue 2008 and 6% in 2007, and 4% in 2006. 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.
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.
1
Firstbank
(Mount Pleasant) is a Michigan state chartered bank which was incorporated in 1894. Its
main office and one branch are located in Mount Pleasant, Michigan. Firstbank (Mount
Pleasant) also has two full service branches in each of Union Township and Lakeview, and
one full service branch located in each of the following communities near Mount Pleasant:
Clare, Shepherd, Cadillac, Howard City, Morley, Remus, Canadian Lakes, 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 1st Armored, Incorporated (an armored car
service provider), 1st Title, Incorporated (a title insurance company), and Firstbank
West Branch Mortgage Company (a subsidiary of the bank, established in 2001). 1st
Title, Incorporated owns a 52% interest in 1st Investors Title, LLC (a title insurance
company).
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
also owns one branch in Dewitt. 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 three branches are located in
Kalamazoo with two additional branches in Portage and one branch in Paw Paw. 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.
Firstbank
West Michigan (formerly Ionia County National Bank of Ionia) is a Michigan state
chartered bank which was established in 1934 and acquired by us on July 1, 2007. Its main
office and two branches are located in Ionia, with two additional branches in Belding, and
one branch each in Hastings, Lowell, Sunfield, and Woodland.
The
following table shows comparative information concerning our subsidiary banks at December
31, 2008:
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Firstbank -
Alma
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Firstbank
(Mt. Pleasant)
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|
Firstbank -
West Branch
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Firstbank -
St. Johns
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|
Keystone
|
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Firstbank -
West Michigan
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|
|
|
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|
|
|
|
|
|
|
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(In Thousands of Dollars)
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|
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|
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Assets
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$
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259,876
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$
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347,797
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$
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256,919
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$
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86,329
|
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$
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253,519
|
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$
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217,633
|
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Deposits
|
|
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$
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193,597
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$
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270,737
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$
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178,816
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$
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73,180
|
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$
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191,120
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$
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144,984
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Loans
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|
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$
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189,150
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$
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308,061
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$
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209,997
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$
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71,925
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$
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215,904
|
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$
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164,120
|
|
As
of December 31, 2008 we employed 468 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 seven 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,
Mecosta, Montcalm and Wexford counties; Firstbank West Branch primarily in Iosco,
Oscoda, Ogemaw, and Roscommon counties; Firstbank St. Johns primarily in Clinton
County; Keystone Community Bank primarily in Kalamazoo and Van Buren counties, and
Firstbank West Michigan primarily competes in Ionia, Kent, Montcalm, Barry, and
Eaton counties.
2
SUPERVISION AND REGULATION
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, Keystone Community Bank and Firstbank West Michigan 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.
Recent Regulatory
Developments
Emergency
Economic Stabilization Act of 2008
. On October 3, 2008, the Emergency Economic
Stabilization Act of 2008 (EESA) was enacted. EESA enables the federal government, under
terms and conditions to be developed by the Secretary of the Treasury, to insure troubled
assets, including mortgage-backed securities, and collect premiums from participating
financial institutions. EESA includes, among other provisions: (a) the $700 billion
Troubled Assets Relief Program (TARP), under which the Secretary of the Treasury is
authorized to purchase, insure, hold, and sell a wide variety of financial instruments,
and (b) an increase in the amount of deposit insurance provided by the Federal Deposit
Insurance Corporation (FDIC). Both of these specific provisions are discussed in the below
sections.
Under
the TARP, the Department of Treasury authorized a voluntary capital purchase program (CPP)
to purchase senior preferred shares of qualifying financial institutions that elected to
participate by November 14, 2008. Participating companies must adopt certain standards for
executive compensation, including (a) prohibiting golden parachute payments as
defined in EESA to senior Executive Officers; (b) requiring recovery of any compensation
paid to senior Executive Officers based on criteria that is later proven to be materially
inaccurate; and (c) prohibiting incentive compensation that encourages unnecessary and
excessive risks that threaten the value of the financial institution. The terms of the CPP
also limit certain uses of capital by the issuer, including repurchases of company stock,
and increases in dividends.
On
January 30, 2009, we participated in the CPP and issued $33 million in capital in the form
of non-voting cumulative preferred stock that pays cash dividends at the rate of 5% per
annum for the first five years, and then pays cash dividends at the rate of 9% per annum
thereafter. In addition, the Department of Treasury received warrants to purchase shares
of our common stock having an aggregate market price equal to 15% of the preferred stock
amount. The exercise price for the warrant of $8.55, and the market price for determining
the number of shares of common stock subject to the warrants, was determined on the date
of the preferred investment (calculated on a 20-trading day trailing average). The
warrants are immediately exercisable, in whole or in part, over a term of 10 years. Going
forward, the warrants will be included in our diluted average common shares outstanding in
periods when the effect of their inclusion is dilutive to earnings per share.
Federal
Deposit Insurance Corporation (FDIC). EESA temporarily raised the limit on federal deposit
insurance coverage from $100,000 to $250,000 per depositor. Separate from EESA, in October
2008, the FDIC also announced the Temporary Liquidity Guarantee Program. Under one
component of this program, the FDIC temporarily provides unlimited coverage for
noninterest bearing transaction deposit accounts through December 31, 2009. The limits are
scheduled to return to $100,000 on January 1, 2010.
Financial
Stability Plan
. On February 10, 2009, the Financial Stability Plan (FSP) was announced by
the U.S. Treasury Department. The FSP is a comprehensive set of measures intended to shore
up the financial system. The core elements of the plan include making bank capital
injections, creating a public-private investment fund to buy troubled assets, establishing
guidelines for loan modification programs and expanding the Federal Reserve lending
program. The U.S. Treasury Department has indicated more details regarding the FSP are to
be announced at a future date.
3
American
Recovery and Reinvestment Act of 2009
. On February 17, 2009, the American Recovery and
Reinvestment Act of 2009 (ARRA) was enacted. ARRA is intended to provide a stimulus to the
U.S. economy in the wake of the economic downturn brought about by the subprime mortgage
crisis and the resulting credit crunch. The bill includes federal tax cuts, expansion of
unemployment benefits and other social welfare provisions, and domestic spending in
education, healthcare, and infrastructure, including the energy structure. The new law
also includes numerous non-economic recovery related items, including a limitation on
executive compensation in federally aided banks.
Under
ARRA, an institution will be subject to the following restrictions and standards through
out the period in which any obligation arising from financial assistance provided under
TARP remains outstanding:
Limits
on compensation incentives for risk taking by senior executive officers.
Requirement
of recovery of any compensation paid based on inaccurate financial information.
Prohibition
on Golden Parachute Payments.
Prohibition
on compensation plans that would encourage manipulation of reported earnings to enhance
the compensation of employees.
Publicly
registered TARP recipients must establish a board compensation committee comprised
entirely of independent directors, for the purpose of reviewing employee compensation
plans.
Prohibition
on bonus, retention award, or incentive compensation, except for payments of long term
restricted stock.
Limitation
on luxury expenditures.
TARP
recipients are required to permit a separate shareholder vote to approve the compensation
of executives, as disclosed pursuant to the SECs compensation disclosure rules.
The
chief executive officer and chief financial officer of each TARP recipient will be
required to provide a written certification of compliance with these standards to the
SEC.
The
foregoing is a summary of requirements to be included in standards to be established by
the Secretary of the U.S. Treasury Department.
Homeowner
Affordability and Stability Plan
. On February 18, 2009, the Homeowner Affordability and
Stability Plan (HASP) was announced by the President of the United States. HASP is
intended to support a recovery in the housing market and ensure that workers can continue
to pay off their mortgages through the following elements:
Provide
access to low-cost refinancing for responsible homeowners suffering from falling home
prices.
A
$75 billion homeowner stability initiative to prevent foreclosure and help responsible
families stay in their homes.
Support
low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.
More details regarding HASP are to be
announced at a future date.
Regulations Generally
Applicable to Firstbank Corporation and its Subsidiary Banks
General
Financial
institutions and their holding companies are extensively regulated under federal and state
law. Consequently, our growth and earnings performance can be affected not only by
management decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Board of Governors of
the Federal Reserve System (the Federal Reserve Board), the Federal Deposit
Insurance Corporation (FDIC), the Commissioner of the Michigan Office of
Financial and Insurance Services (Commissioner), the Internal Revenue Service,
and state taxing authorities. The effect of such statutes, regulations and policies can be
significant, and cannot be predicted with a high degree of certainty.
4
Federal
and state laws and regulations generally applicable to financial institutions and their
holding companies regulate, among other things, the scope of business, investments,
reserves against deposits, capital levels relative to operations, lending activities and
practices, the nature and amount of collateral for loans, the establishment of branches,
mergers, consolidations and dividends. The system of supervision and regulation applicable
to us and our banks establishes a comprehensive framework for our respective operations
and is intended primarily for the protection of the FDICs deposit insurance funds,
our depositors, and the public, rather than our shareholders.
Federal
law and regulations establish supervisory standards applicable to the lending activities
of our bank, including internal controls, credit underwriting, loan documentation and
loan-to-value ratios for loans secured by real property.
Firstbank Corporation
General
.
Firstbank Corporation is registered with, and subject to regulation by, the
Federal Reserve Board under the Bank Holding Company Act, as amended (the
BHCA). Under the BHCA, we are subject to periodic examination by the
Federal Reserve Board, and are required to file with the Federal Reserve Board
periodic reports of our operations and such additional information as the
Federal Reserve Board may require.
In
accordance with Federal Reserve Board policy, we are expected to act as a source of
financial strength to Our subsidiary banks and to commit resources to support our
subsidiary banks in circumstances where we might not do so absent such policy. In
addition, if the Commissioner deems one ore more of our subsidiary banks capital to
be impaired, the Commissioner may require our subsidiary bank to restore its capital by a
special assessment upon us as the banks sole shareholder. If we were to fail to pay
any such assessment, the directors of the applicable bank would be required, under
Michigan law, to sell the shares of the banks stock owned by us to the highest
bidder at either a public or private auction and use the proceeds of the sale to restore
the banks capital.
Investments
and Activities
. In general, any direct or indirect acquisition by us of any voting shares
of any bank which would result in our direct or indirect ownership or control of more than
5% of any class of voting shares of such bank, and any merger or consolidation between us
and another financial holding company or bank holding company, will require the prior
written approval of the Federal Reserve Board under the BHCA. No Federal Reserve Board
approval is required for us to acquire a company, other than a bank holding company or
bank, engaged in activities that are financial in nature as determined by the Federal
Reserve Board.
The
merger or consolidation of an existing bank subsidiary of ours with another bank, or the
acquisition by such a subsidiary of assets of another bank, or the assumption of liability
by such a subsidiary to pay any deposits in another bank, will require the prior written
approval of the responsible Federal depository institution regulatory agency under the
Bank Merger Act. In addition, in certain such cases an application to, and the prior
approval of, the Federal Reserve Board under the BHCA and/or the Commissioner under the
Michigan Banking Code, may be required.
Capital
Requirements
. The Federal Reserve Board uses capital adequacy guidelines in its
examination and regulation of bank holding companies. If capital falls below minimum
guidelines, a bank holding company may, among other items, be denied approval to acquire
or establish additional banks or non-bank businesses.
The
Federal Reserve Boards capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: (i) a leverage capital requirement
expressed as a percentage of total average assets, and (ii) a risk-based requirement
expressed as a percentage of total risk-weighted assets. The leverage capital requirement
consists of a minimum ratio of Tier 1 capital (which consists principally of
shareholders equity) to total average assets of 3% for the most highly rated
companies, with minimum requirements of 4% to 5% for all others. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted assets of
8%, of which at least one-half must be Tier 1 capital.
5
Dividends
.
Firstbank Corporation is a corporation separate and distinct from our subsidiary
banks. Most of our revenues are dividends paid by our banks. Thus, our ability
to pay dividends to our shareholders is indirectly limited by statutory
restrictions on our banks ability to pay dividends described below.
Further, in a policy statement, the Federal Reserve Board has expressed its view
that a bank holding company experiencing earnings weaknesses should not pay cash
dividends exceeding its net income or which can only be funded in ways that
weaken the bank holding companys financial health, such as by borrowing.
Additionally, the Federal Reserve Board possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies. Similar enforcement powers over
our banks are possessed by the FDIC. The prompt corrective action
provisions of federal law and regulation authorizes the Federal Reserve Board to
restrict the payment of dividends by us for an insured bank which fails to meet
specified capital levels.
In
addition to the restrictions on dividends imposed by the Federal Reserve Board, the
Michigan Business Corporation Act provides that dividends may be legally declared or paid
only if after the distribution a corporation, like us, can pay its debts as they come due
in the usual course of business and its total assets equal or exceed the sum of its
liabilities plus the amount that would be needed to satisfy the preferential rights upon
dissolution of any holders of preferred stock whose preferential rights are superior to
those receiving the distribution.
Federal
Securities Regulation
. Our common stock is registered with the Securities and Exchange
Commission (SEC) under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. The Sarbanes-Oxley Act of 2002 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. The SEC continues to issue new and proposed rules implementing
various provisions of the Sarbanes-Oxley Act.
Our Subsidiary Banks
General
.
Each of our banks is a Michigan banking corporation, and its deposit accounts
are insured by the Deposit Insurance Fund (the DIF) of the FDIC. As
DIF insured Michigan chartered banks, our banks is subject to the examination,
supervision, reporting and enforcement requirements of various agencies. These
agencies and the federal and state laws applicable to our banks and their
operations, extensively regulate various aspects of the banking business
including, among other things, permissible types and amounts of loans,
investments and other activities, capital adequacy, branching, interest rates on
loans and on deposits, the maintenance of non-interest bearing reserves on
deposit accounts, and the safety and soundness of banking practices.
Deposit
Insurance
. As an FDIC-insured institution, we are required to pay deposit insurance
premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under
which all insured depository institutions are placed into one of four categories and
assessed insurance premiums, based upon their respective levels of capital and results of
supervisory evaluation. Institutions classified as well-capitalized (as defined by the
FDIC) and considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial supervisory
concern pay the highest premium. Risk classification of all insured institutions is made
by the FDIC for each semi-annual assessment period.
The
Federal Deposit Insurance Act (FDIA) required the FDIC to establish assessment
rates at levels which would maintain the Deposit Insurance Fund at a mandated reserve
ratio of not less than 1.25% of estimated insured deposits. On February 8, 2006 The
Federal Deposit Insurance Reform Act of 2005 (the Reform Act) was signed into law. The
Reform Act provides for the establishment of a range of 1.15% to 1.50% within which the
FDIC Board of Directors may set the Designated Reserve Ratio (DRR). The Reform Act allows
the FDIC to manage the pace at which the reserve ratio varies within this range. On
November 2, 2006, the FDIC adopted new premium rates, stating they were needed to offset
continued strong growth in insured deposits that is lowering the Deposit Insurance Fund
ratio. Banks that had been paying zero in deposit insurance premiums for the ten years
prior to 2007 were required to pay premiums of 5 to 7 basis points beginning in 2007.
Effective for the first quarter of 2009, a new interim rate schedule was approved with
minimum rates for most well-capitalized banks ranging from 12 to 14 basis points annually.
This interim rate increases to 50 basis points for banks that pose significant supervisory
concerns. Effective April 1, 2009, a new proposed rate schedule was approved with minimum
base rates for most well-capitalized banks ranging from 10 to 14 basis points annually.
This base rate increases to 45 basis points for banks that pose significant supervisory
concerns. This base rate may be adjusted based upon the level of unsecured debt, secured
liabilities or brokered deposits, as defined, resulting in adjusted rates ranging from 8
to 21 basis points annually for most well capitalized banks and 43 to 77.5 basis points
annually for banks that pose significant supervisory concerns.
6
Commissioner
Assessments
. Michigan banks are required to pay supervisory fees to the Commissioner to
fund the operations of the Commissioner. The amount of supervisory fees paid by a bank is
based upon the banks total assets, as reported to the Commissioner.
Capital
Requirements
. The FDIC has established the following minimum capital standards for
state-chartered, FDIC insured non-member banks, such as our banks. a leverage requirement
consisting of a minimum ratio of Tier 1 capital to total average assets of 3% for the most
highly-rated banks with minimum requirements of 4% to 5% for all others, and a risk-based
capital requirement consisting of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists
principally of shareholders equity. These capital requirements are minimum
requirements. Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions.
Federal
law provides the federal banking regulators with broad power to take prompt corrective
action to resolve the problems of undercapitalized institutions. The extent of the
regulators powers depends on whether the institution in question is well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized.
Federal regulations define these
capital categories as follows:
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Total Risk-Based Capital Ratio
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Tier 1 Risk-Based Capital Ratio
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Leverage Ratio
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Well capitalized
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10% or above
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6% or above
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5% or above
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Adequately capitalized
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8% or above
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4% or above
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4% or above
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Undercapitalized
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|
Less than 8%
|
|
|
Less than 4%
|
|
|
Less than 4%
|
|
|
Significantly undercapitalized
|
|
|
Less than 6%
|
|
|
Less than 3%
|
|
|
Less than 3%
|
|
|
Critically undercapitalized
|
|
|
--
|
|
|
--
|
|
|
A ratio of tangible equity
|
|
|
|
|
|
|
|
|
|
|
|
to total assets of 2% or
|
|
|
|
|
|
|
|
|
|
|
|
less
|
|
|
As of December 31, 2008, each of our
subsidiary banks ratios exceeded minimum requirements for the well capitalized
category.
Depending
upon the capital category to which an institution is assigned, the regulators
corrective powers include: requiring the submission of a capital restoration plan; placing
limits on asset growth and restrictions on activities; requiring the institution to issue
additional capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
In
general, a depository institution may be reclassified to a lower category than is
indicated by its capital levels if the appropriate federal depository institution
regulatory agency determines the institution to be otherwise in an unsafe or unsound
condition or to be engaged in an unsafe or unsound practice. This could include a failure
by the institution, following receipt of a less-than-satisfactory rating on its most
recent examination report, to correct the deficiency.
Dividends
.
Under Michigan law, our banks are restricted as to the maximum amount of
dividends it may pay on its common stock. Our banks may not pay dividends except
out of net income after deducting its losses and bad debts. A Michigan state
bank may not declare or pay a dividend unless the bank will have surplus
amounting to at least 20% of its capital after the payment of the dividend.
7
Federal
law generally prohibits a depository institution from making any capital distribution
(including payment of a dividend) or paying any management fee to its holding company if
the depository institution would thereafter be undercapitalized. The FDIC may prevent an
insured bank from paying dividends if the bank is in default of payment of any assessment
due to the FDIC. In addition, the FDIC may prohibit the payment of dividends by our bank,
if such payment is determined, by reason of the financial condition of our bank, to be an
unsafe and unsound banking practice.
Insider
Transactions
. Our banks are subject to certain restrictions imposed by the Federal Reserve
Act on any extensions of credit to us or our subsidiaries, on investments in the stock or
other securities of our or our subsidiaries and the acceptance of the stock or other
securities of us or our subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by our banks to their
respective directors and officers, to our directors and officers, the directors and
officers of our bank, to our principal shareholders and to related interests
of such directors, officers and principal shareholders. In addition, federal law and
regulations may affect the terms upon which any person becoming a director or officer of
our company or one of its subsidiaries or a principal shareholder in our company may
obtain credit from banks with which our banks maintain a correspondent relationship.
Safety
and Soundness Standards
. The federal banking agencies have adopted guidelines to promote
the safety and soundness of federally insured depository institutions. These guidelines
establish standards for internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings.
Investments
and Other Activities
. Under federal law and FDIC regulations, FDIC insured state banks are
prohibited, subject to certain exceptions, from making or retaining equity investments of
a type, or in an amount, that are not permissible for a national bank. Federal law, as
implemented by FDIC regulations, also prohibits FDIC insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as principal in any activity
that is not permitted for a national bank or its subsidiary, respectively, unless the bank
meets, and continues to meet, its minimum regulatory capital requirements and the FDIC
determines the activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC in accordance with federal law.
These restrictions are not currently expected to have a material impact on the operations
of our bank.
Consumer
Protection Laws
. Our banks business includes making a variety of types of loans to
individuals. In making these loans, we are is subject to State usury and regulatory laws
and to various federal statutes, including the privacy of consumer financial information
provisions of the Gramm-Leach-Bliley Act and regulations promulgated thereunder, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Real
Estate Settlement Procedures Act, and the Home Mortgage Disclosure Act, and the
regulations promulgated thereunder, which prohibit discrimination, specify disclosures to
be made to borrowers regarding credit and settlement costs, and regulate the mortgage loan
servicing activities of our bank, including the maintenance and operation of escrow
accounts and the transfer of mortgage loan servicing. In receiving deposits, our banks are
subject to extensive regulation under State and federal law and regulations, including the
Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy Act, the
Electronic Funds Transfer Act, and the Federal Deposit Insurance Act. Violation of these
laws could result in the imposition of significant damages and fines upon our banks and
their respective directors and officers.
Branching
Authority
. Michigan banks have the authority under Michigan law to establish branches
anywhere in the State of Michigan, subject to receipt of all required regulatory
approvals. Banks may establish interstate branch networks through acquisitions of other
banks. The establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an out-of-state bank
in its entirety) is allowed only if specifically authorized by state law.
Michigan
permits both U.S. and non-U.S. banks to establish branch offices in Michigan. The Michigan
Banking Code permits, in appropriate circumstances and with the approval of the Michigan
Office of Financial and Insurance Services, Division of Financial Institutions, (1)
acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan
associations located in other states, (2) 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, (3) consolidation
of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states having laws permitting such consolidation, (4) 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 (5) establishment by foreign banks of
branches located in Michigan.
8
The
following table summarizes compliance with regulatory capital ratios by us and each of our
subsidiary banks at December 31, 2008:
|
|
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
|
|
|
|
8.08
|
%
|
|
10.00
|
%
|
|
11.06
|
%
|
Firstbank - Alma
|
|
|
|
6.56
|
%
|
|
9.11
|
%
|
|
10.36
|
%
|
Firstbank (Mount Pleasant)
|
|
|
|
8.48
|
%
|
|
9.62
|
%
|
|
10.60
|
%
|
Firstbank - West Branch
|
|
|
|
6.86
|
%
|
|
9.51
|
%
|
|
10.60
|
%
|
Firstbank - St. Johns
|
|
|
|
7.80
|
%
|
|
9.28
|
%
|
|
10.46
|
%
|
Keystone Community Bank
|
|
|
|
8.95
|
%
|
|
9.41
|
%
|
|
10.27
|
%
|
Firstbank - West Michigan
|
|
|
|
8.11
|
%
|
|
11.09
|
%
|
|
12.37
|
%
|
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, 2008
|
|
|
$
|
123,200
|
|
$
|
111,396
|
|
$
|
111,396
|
|
Required Regulatory Capital
|
|
|
|
89,122
|
|
|
44,561
|
|
|
55,118
|
|
|
|
|
|
|
|
|
Capital in Excess of Regulatory Minimums
|
|
|
$
|
34,078
|
|
$
|
66,835
|
|
$
|
56,278
|
|
|
|
|
|
|
|
|
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:
(In Thousands of Dollars)
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
US Government Agencies
|
|
|
$
|
64,102
|
|
$
|
45,304
|
|
$
|
33,584
|
|
States and Political Subdivisions
|
|
|
|
1,622
|
|
|
2,232
|
|
|
1,629
|
|
Mortgage Backed Securities
|
|
|
|
9,446
|
|
|
12,726
|
|
|
4,143
|
|
Corporate and Other
|
|
|
|
6,047
|
|
|
10,127
|
|
|
3,210
|
|
|
|
|
|
|
|
|
|
|
|
Total Taxable
|
|
|
|
81,217
|
|
|
70,389
|
|
|
42,566
|
|
|
|
|
Tax-Exempt
|
|
|
States and Political Subdivisions
|
|
|
|
31,656
|
|
|
34,066
|
|
|
26,559
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
112,873
|
|
$
|
104,455
|
|
$
|
69,125
|
|
|
|
|
|
|
|
|
9
Analysis of Investment
Securities Portfolio
The
following table shows, by class of maturities at December 31, 2008, 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
|
|
|
$
|
22,126
|
|
|
2.78
|
%
|
Over One Through Five Years
|
|
|
|
39,942
|
|
|
4.13
|
%
|
Over Five Years Through Ten Years
|
|
|
|
2,034
|
|
|
5.25
|
%
|
|
|
|
|
|
Total
|
|
|
|
64,102
|
|
|
3.70
|
%
|
State and Political Subdivisions:
|
|
|
One Year or Less
|
|
|
|
2,470
|
|
|
4.31
|
%
|
Over One Through Five Years
|
|
|
|
14,733
|
|
|
4.08
|
%
|
Over Five Through Ten Years
|
|
|
|
10,200
|
|
|
4.43
|
%
|
Over Ten Years
|
|
|
|
5,875
|
|
|
4.58
|
%
|
|
|
|
|
|
Total
|
|
|
|
33,278
|
|
|
4.29
|
%
|
|
|
|
Mortgage Backed Securities
|
|
|
One Year or Less
|
|
|
|
3
|
|
|
6.00
|
%
|
Over One Through Five Years
|
|
|
|
3,759
|
|
|
5.23
|
%
|
Over Five Through Ten Years
|
|
|
|
4,363
|
|
|
5.42
|
%
|
Over Ten Years
|
|
|
|
1,321
|
|
|
5.23
|
%
|
|
|
|
|
|
Total
|
|
|
|
9,446
|
|
|
5.32
|
%
|
|
|
|
Corporate and Other:
|
|
|
One Year or Less
|
|
|
|
6,047
|
|
|
2.72
|
%
|
|
|
|
|
|
Total
|
|
|
|
6,047
|
|
|
2.72
|
%
|
|
|
|
TOTAL
|
|
|
$
|
112,873
|
|
|
3.96
|
%
|
|
|
|
|
|
(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:
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Categories:
|
|
|
Commercial and Agricultural
|
|
|
$
|
184,455
|
|
$
|
219,080
|
|
$
|
194,810
|
|
$
|
183,473
|
|
$
|
110,261
|
|
Commercial Real Estate
|
|
|
|
391,572
|
|
|
311,494
|
|
|
286,249
|
|
|
302,471
|
|
|
225,372
|
|
Real Estate Mortgages
|
|
|
|
403,695
|
|
|
387,222
|
|
|
284,137
|
|
|
272,402
|
|
|
231,213
|
|
Real Estate Construction
|
|
|
|
103,206
|
|
|
126,027
|
|
|
81,218
|
|
|
61,067
|
|
|
47,920
|
|
Consumer
|
|
|
|
75,296
|
|
|
78,107
|
|
|
63,106
|
|
|
59,211
|
|
|
56,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
1,158,224
|
|
$
|
1,121,930
|
|
$
|
909,520
|
|
$
|
878,624
|
|
$
|
671,887
|
|
|
|
|
|
|
|
|
|
|
|
|
10
The following
table shows the maturity of commercial and agricultural and real estate construction loans
outstanding at December 31, 2008. 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
|
|
|
$
|
85,448
|
|
$
|
90,598
|
|
$
|
8,409
|
|
$
|
184,455
|
|
Real Estate Construction
|
|
|
|
48,334
|
|
|
45,898
|
|
|
8,974
|
|
|
103,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
133,782
|
|
$
|
136,496
|
|
$
|
17,383
|
|
$
|
287,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Due after One Year:
|
|
|
With Pre-determined Rate
|
|
|
|
|
|
$
|
93,186
|
|
$
|
11,303
|
|
$
|
104,489
|
|
With Adjustable Rates
|
|
|
|
|
|
|
43,310
|
|
|
6,080
|
|
|
49,390
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
136,496
|
|
$
|
17,383
|
|
$
|
153,879
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans and
Assets
The
following table summarizes nonaccrual, troubled debt restructurings and past-due loans at
December 31st for the years ended:
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans:
|
|
|
Nonaccrual Loans:
|
|
|
Commercial and Agricultural
|
|
|
$
|
16,328
|
|
$
|
7,339
|
|
$
|
813
|
|
$
|
534
|
|
$
|
806
|
|
Real Estate Mortgages
|
|
|
|
2,986
|
|
|
3,032
|
|
|
847
|
|
|
4,079
|
|
|
633
|
|
Consumer
|
|
|
|
268
|
|
|
83
|
|
|
108
|
|
|
158
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
19,582
|
|
|
10,454
|
|
|
1,768
|
|
|
4,771
|
|
|
1,456
|
|
|
|
|
Accruing Loans 90 Days or More Past Due:
|
|
|
Commercial and Agricultural
|
|
|
|
2,109
|
|
|
732
|
|
|
767
|
|
|
199
|
|
|
158
|
|
Real Estate Mortgages
|
|
|
|
2,791
|
|
|
2,170
|
|
|
1,597
|
|
|
2,054
|
|
|
186
|
|
Consumer
|
|
|
|
82
|
|
|
259
|
|
|
121
|
|
|
188
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
4,982
|
|
|
3,161
|
|
|
2,485
|
|
|
2,441
|
|
|
408
|
|
|
|
|
Renegotiated Loans:
|
|
|
Consumer
|
|
|
|
0
|
|
|
4
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Commercial and Agricultural
|
|
|
|
113
|
|
|
374
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Real Estate Mortgages
|
|
|
|
162
|
|
|
165
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
275
|
|
|
543
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
Total Nonperforming Loans
|
|
|
|
24,839
|
|
|
14,158
|
|
|
4,253
|
|
|
7,212
|
|
|
1,864
|
|
|
|
|
Property from Defaulted Loans
|
|
|
|
5,382
|
|
|
3,153
|
|
|
1,700
|
|
|
1,020
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Assets
|
|
|
$
|
30,221
|
|
$
|
17,311
|
|
$
|
5,953
|
|
$
|
7,352
|
|
$
|
2,814
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008, was $505,431. 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 $1,177,480 in
gross interest income would have been recorded.
11
Loan
performance is reviewed regularly by external loan review specialists, loan officers and
senior management. When reasonable doubt exists concerning collectability 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, 2008 we had $58,908,456 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, 2008, 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, 2008.
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)
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
|
$
|
11,477
|
|
$
|
9,966
|
|
$
|
11,559
|
|
$
|
10,581
|
|
$
|
11,627
|
|
Allowance of acquired banks
|
|
|
|
0
|
|
|
2,346
|
|
|
0
|
|
|
1,949
|
|
|
0
|
|
Charge-Offs:
|
|
|
Commercial and Agricultural
|
|
|
|
3,451
|
|
|
2,231
|
|
|
1,910
|
|
|
1,146
|
|
|
224
|
|
Real Estate Mortgages
|
|
|
|
1,350
|
|
|
510
|
|
|
157
|
|
|
84
|
|
|
221
|
|
Consumer
|
|
|
|
1,014
|
|
|
682
|
|
|
627
|
|
|
509
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-Offs
|
|
|
|
5,815
|
|
|
3,423
|
|
|
2,694
|
|
|
1,739
|
|
|
930
|
|
Recoveries:
|
|
|
Commercial and Agricultural
|
|
|
|
252
|
|
|
157
|
|
|
86
|
|
|
173
|
|
|
65
|
|
Real Estate Mortgages
|
|
|
|
93
|
|
|
25
|
|
|
21
|
|
|
57
|
|
|
77
|
|
Consumer
|
|
|
|
331
|
|
|
393
|
|
|
227
|
|
|
243
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries
|
|
|
|
676
|
|
|
575
|
|
|
334
|
|
|
473
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-Offs
|
|
|
|
5,139
|
|
|
2,848
|
|
|
2,360
|
|
|
1,265
|
|
|
621
|
|
Provision for Loan Losses
|
|
|
|
8,256
|
|
|
2,013
|
|
|
767
|
|
|
295
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
|
$
|
14,594
|
|
$
|
11,477
|
|
$
|
9,966
|
|
$
|
11,559
|
|
$
|
10,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-Offs as a Percent of Average Loans
|
|
|
|
.45
|
%
|
|
.28
|
%
|
|
.26
|
%
|
|
.17
|
%
|
|
.09
|
%
|
The
allowance for loan losses is based on managements 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.
12
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:
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
10,621
|
|
|
16
|
%
|
$
|
8,696
|
|
|
20
|
%
|
$
|
7,944
|
|
|
21
|
%
|
$
|
10,379
|
|
|
21
|
%
|
$
|
9,012
|
|
|
16
|
%
|
Real Estate
|
|
|
Mortgages
|
|
|
|
2,644
|
|
|
77
|
%
|
|
833
|
|
|
73
|
%
|
|
627
|
|
|
72
|
%
|
|
620
|
|
|
72
|
%
|
|
419
|
|
|
75
|
%
|
Consumer
|
|
|
|
1,169
|
|
|
7
|
%
|
|
1,272
|
|
|
7
|
%
|
|
811
|
|
|
7
|
%
|
|
479
|
|
|
7
|
%
|
|
1,058
|
|
|
9
|
%
|
Unallocated*
|
|
|
|
160
|
|
|
|
|
|
676
|
|
|
|
|
|
584
|
|
|
|
|
|
81
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
14,594
|
|
|
100
|
%
|
$
|
11,477
|
|
|
100
|
%
|
$
|
9,966
|
|
|
100
|
%
|
$
|
11,559
|
|
|
100
|
%
|
$
|
10,581
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance:
|
|
|
Non-interest-bearing Demand Deposits
|
|
|
$
|
147,804
|
|
|
|
|
$
|
135,956
|
|
|
|
|
$
|
124,740
|
|
|
|
|
Interest-bearing Demand Deposits
|
|
|
|
221,732
|
|
|
1.35
|
%
|
|
189,989
|
|
|
2.26
|
%
|
|
169,507
|
|
|
2.06
|
%
|
Other Savings Deposits
|
|
|
|
156,326
|
|
|
1.16
|
%
|
|
142,996
|
|
|
1.85
|
%
|
|
131,226
|
|
|
1.74
|
%
|
Other Time Deposits
|
|
|
|
498,443
|
|
|
4.15
|
%
|
|
446,136
|
|
|
4.87
|
%
|
|
383,424
|
|
|
4.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Average Deposits
|
|
|
$
|
1,024,305
|
|
|
2.91
|
%
|
$
|
915,077
|
|
|
3.68
|
%
|
$
|
808,897
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
time remaining until maturity of time certificates of deposit and other time deposits of
$100,000 or more at December 31, 2008, was as follows (In Thousands of Dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months or Less
|
|
|
$
|
67,932
|
|
Over Three Through Six Months
|
|
|
|
37,266
|
|
Over Six Through Twelve Months
|
|
|
|
61,973
|
|
Over Twelve Months
|
|
|
|
60,816
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
227,987
|
|
|
|
|
Return on Equity and
Assets
The
following table sets forth certain financial ratios for the years ended:
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Ratios:
|
|
|
Return on Average Total Assets
|
|
|
|
0.05
|
%
|
|
0.69
|
%
|
|
0.95
|
%
|
Return on Average Equity
|
|
|
|
0.61
|
%
|
|
7.80
|
%
|
|
10.72
|
%
|
Average Equity to Average Total Assets
|
|
|
|
8.38
|
%
|
|
8.79
|
%
|
|
8.89
|
%
|
Dividend Payout Ratio
|
|
|
|
435.73
|
%
|
|
74.49
|
%
|
|
54.72
|
%
|
13
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, 2008, which consist of the following:
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Outstanding at the End of the Year
|
|
|
$
|
52,917
|
|
$
|
35,891
|
|
$
|
32,079
|
|
|
|
|
Weighted Average Interest Rate at the End of the Year
|
|
|
|
.34
|
%
|
|
3.25
|
%
|
|
4.17
|
%
|
|
|
|
Longest Maturity
|
|
|
|
1/1/09
|
|
|
1/1/08
|
|
|
1/01/07
|
|
|
|
|
Maximum Amount Outstanding at any Month End During Year
|
|
|
$
|
54,151
|
|
$
|
40,689
|
|
$
|
37,459
|
|
|
|
|
Approximate Average Amounts Outstanding During the Year
|
|
|
$
|
42,111
|
|
$
|
36,170
|
|
$
|
31,108
|
|
|
|
|
Approximate Weighted Average Interest Rate for the Year
|
|
|
|
1.78
|
%
|
|
3.87
|
%
|
|
3.89
|
%
|
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.
The value of certain securities in
our investment portfolio may be negatively affected by disruptions in the market for those
securities and future declines or other-than-temporary impairments could materially
adversely affect our future earnings and regulatory capital.
Continued
volatility in the market value for certain of our investment securities, whether caused by
changes in market perceptions of credit risk, as reflected in the expected market yield of
the security, or actual defaults in the portfolio could result in significant fluctuations
in the value of the securities. During the fourth quarter of 2008, the Corporation
recorded an impairment charge on certain securities in its portfolio. Further impairment
of these securities or other securities is possible. In addition, changes in accounting
resulting from changes in and interpretations of applicable accounting standards may
affect how we account for certain investment securities in our portfolio. The valuation
and accounting for our investment securities could have a material adverse impact on our
net income and shareholders equity depending on the direction of the fluctuations.
Furthermore, future downgrades or defaults in these securities could result in future
classifications as other than temporarily impaired. This could have a material impact on
our future earnings and financial condition.
14
The state of financial markets and
the economy may adversely affect our sources of liquidity and capital.
There
has been significant recent turmoil and volatility in worldwide financial markets which
is, at present, ongoing. These conditions have resulted in a disruption in the liquidity
of financial markets, and could directly impact us to the extent we need to access capital
markets to raise funds to support our business and overall liquidity position. This
situation could affect the cost of such funds or our ability to raise such funds. If we
were unable to access any of these funding sources when needed, it could adversely impact
our financial condition, results of operations, cash flows, and level of
regulatory-qualifying capital.
There Can Be No
Assurance that the Emergency Economic Stabilization Act of 2008 and the American Recovery
and Reinvestment Act Will Stabilize the U.S. Economy and Financial System
The
U.S. Congress enacted the EESA in response to the impact of the volatility and disruption
in the capital and credit markets on the financial sector. The U.S. Department of the
Treasury and the federal banking regulators are implementing a number of programs under
this legislation that are intended to address these conditions and the asset quality,
capital and liquidity issues they have caused for certain financial institutions and to
improve the general availability of credit for consumers and businesses. In addition, the
U.S. Congress recently enacted the American Recovery and Reinvestment Act
(ARRA) in an effort to save and create jobs, stimulate the U.S. economy and
promote long-term growth and stability. There can be no assurance that EESA, ARRA or the
programs that are implemented under them will achieve their intended purposes. The failure
of EESA, ARRA or the programs that are implemented under them to achieve their intended
purposes could result in a continuation or worsening of current economic and market
conditions, and this could adversely affect our financial condition, results of
operations, and/or the trading price of our common stock.
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 borrowers business, its
cash flow and our collateral.
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 borrowers 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 borrowers ability to repay the loan and the
value of the security for the loan may be impaired.
15
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 borrowers 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.
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.
16
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 Boards 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.
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 their 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 and preferred stock 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
our 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:
17
|
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;
|
|
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 Corporation 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 53 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, St. Johns, Kalamazoo and Ionia. 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 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. We may also
enter into sale/leaseback agreements in the future.
18
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 registrants 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 62) became President & CEO of Firstbank West Michigan in August
2008. Mr. Benear became executive vice president of Firstbank West Michigan in
February of 2008. Mr. Benear has been a Vice President of the Corporation since 2000.
Prior to joining the West Michigan staff, Mr. Benear was President & CEO of Firstbank
Lakeview since January of 2000.
David
M. Brown
(age 50) 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 43) 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.
Douglas
J. Ouellette
(age 42) became President & CEO of Firstbank (Mt. Pleasant) and Vice
President of the Corporation in February 2007. Mr. Ouellette joined Firstbank (Mt.
Pleasant) in 2000 and has served as Executive Vice President for Firstbank (Mt. Pleasant)
since 2005.
Dale
A. Peters
(age 66) has been a Vice President of the Corporation, President, CEO, and a
director of Firstbank West Branch since 1987.
Richard
D. Rice
(age 49) was named a Vice President of the Corporation in April 2004. Mr. Rice
joined the Corporation in July 2003 and has served as the Corporations 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 51) 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 63) 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.
19
Thomas
R. Sullivan
(age 58) was appointed President & CEO of the Corporation in January 2000
and also served as President, CEO, and Director of Firstbank (Mt. Pleasant) from 1991
through 2007. 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 49) 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
registrants annual report to shareholders for the year ended December 31, 2008, is
here incorporated by reference.
ITEM 6. Selected
Financial Data.
The
information under the heading Financial Highlights on page 3 in the
registrants annual report to shareholders for the year ended December 31, 2008, is
here incorporated by reference.
ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
The
information under the heading Managements Discussion and Analysis of Financial
Condition and Results of Operations on pages 4 through 21 in the registrants
annual report to shareholders for the year ended December 31, 2008, 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 13 and 14
and Quantitative and Qualitative Disclosure About Market Risk on pages 17 and
18 in the registrants annual report to shareholders for the year ended December 31,
2008, 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 23 through 29, and the quarterly results of operations on
page 51 in the registrants annual report to shareholders for the year ended December
31, 2008, are here incorporated by reference.
ITEM 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
20
ITEM 9A. Controls and
Procedures
|
(a)
|
Evaluation
of Disclosure Controls and Procedures
.
|
The
Corporations 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
Corporations Chief Executive Officer and the Chief Financial Officer, after
evaluating the effectiveness of the Corporations disclosure controls and procedures,
have concluded that the Corporations disclosure controls and procedures as of
December 31, 2008 were adequate and effective to ensure that information required to be
disclosed in this Annual Report on Form 10-K was recorded, processed, summarized, and
reported on a timely basis. Managements 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.
|
(b)
|
Managements
Report on Internal Controls over Financial Reporting
.
|
As
disclosed in the Report on Managements Assessment of Internal Control Over Financial
Reporting on page 22 of the registrants annual report to shareholders for the year
ended December 31, 2008, (incorporated herein by reference to Exhibit 13 to this Form 10
K), management assessed the Corporations system of internal control over financial
reporting. Based on this assessment, management believes that, as of December 31, 2008,
its system of internal control over financial reporting was effective.
|
(c)
|
Changes
in Internal Controls
.
|
During
the quarter ended December 31, 2008, there were no significant changes in the
Corporations internal control over financial reporting that have materially affected
or are reasonably likely to materially affect the Corporations internal control over
financial reporting. There were no significant changes in the Corporations system of
internal controls or other factors that could significantly affect internal controls
subsequent to December 31, 2008.
ITEM 9B. Other
Information.
None.
PART III
ITEM 10. Directors and
Executive Officers of the Registrant.
The
information under the captions Board of Directors and Section 16(a)
Beneficial Ownership Reporting Compliance in the registrants definitive proxy
statement for its annual meeting of shareholders to be held April 27, 2009, 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.
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 employees individual
achievements.
21
ITEM 11. Executive
Compensation.
Information
contained under the captions Compensation of Directors and Executive Officers
and Compensation Committee Interlocks and Insider Participation in the
registrants definitive proxy statement for its annual meeting of shareholders to be
held April 27, 2009, 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 registrants
definitive proxy statement for our annual meeting of shareholders to be held April 27,
2009, is here incorporated by reference.
Securities Authorized
for Issuance Under Equity Compensation Plans
. We had the following equity
compensation plans at December 31, 2008:
EQUITY COMPENSATION
PLAN INFORMATION
|
|
Number of securities to
be issued upon exercise of outstanding options
|
|
Weighted-average
exercise price of outstanding options
|
|
Number of securities remaining available
for future issuance under equity compensation plans (excluding
securities reflected in column A
|
|
|
|
Plan Category
|
|
(A)
|
|
(B)
|
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
|
|
|
plans approved by
|
|
|
security holders
|
|
|
|
486,242
|
|
$
|
19.90
|
|
|
222,413
|
|
|
|
|
|
|
Equity compensation
|
|
|
plans not approved by
|
|
|
security holders
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
Total
|
|
|
|
486,242
|
|
$
|
19.90
|
|
|
222,413
|
|
|
|
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 and Director Independence in the registrants
definitive proxy statement for its annual meeting of shareholders to be held April 27,
2009, is hereby incorporated by reference.
22
ITEM 14. Principal
Accountant Fees and Services.
The
information set forth under the heading Relationship with Independent Registered
Public Accounting Firm on page 21 of the Corporations definitive proxy
statement for its annual meeting of shareholders to be held April 27, 2009, is hereby
incorporated by reference.
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 registrants
annual report to shareholders for the year ended December 31, 2008, in Item 8:
Statement or Report
|
|
Page Number in Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
|
23-24
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007
|
|
|
|
25
|
|
Consolidated Statements of Income and Comprehensive
|
|
|
Income for the years ended December 31, 2008, 2007, and 2006
|
|
|
|
26
|
|
Consolidated Statements of Changes in Shareholders' Equity for
|
|
|
the years ended December 31, 2008, 2007, and 2006
|
|
|
|
27
|
|
Consolidated Statements of Cash Flows for the years ended
|
|
|
December 31, 2008, 2007, and 2006
|
|
|
|
28-29
|
|
Notes to Consolidated Financial Statements
|
|
|
|
29-51
|
|
|
|
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 registrants annual report to
shareholders for the year ended December 31, 2008.
(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 two pages of this report on Form 10-K.
|
23
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 February 23, 2009.
/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.
/s/ Thomas D. Dickinson
Thomas D. Dickinson
|
February 23, 2009
|
/s/ David W. Fultz
David W. Fultz
|
February 23, 2009
|
/s/ Jeff A. Gardner
Jeff A. Gardner
|
February 23, 2009
|
/s/ William E. Goggin
William E. Goggin
|
February 23, 2009
|
/s/ Edward B. Grant
Edward B. Grant
|
February 23, 2009
|
/s/ David D. Roslund
David D. Roslund
|
February 23, 2009
|
/s/ Samuel A. Smith
Samuel A. Smith
|
February 23, 2009
|
/s/ Thomas D. Dickinson
Thomas D. Dickinson
|
February 23, 2009
|
24
3(a)
|
Articles
of Incorporation of Firstbank Corporation
, incorporated by reference to
exhibit 3.1 to the Firstbank Corporation Registration Statement on
Form S-4 filed on July 8, 2005, and to Exhibit 3.1 to the Firstbank
Corporation Current Report on Form 8-k dated January 30. 2009.
|
3(b)
|
Bylaws
.
Previously filed as exhibit to the registrants Registration
Statement on Form S-2 (Registration Current Report on Form 8-k dated
January 30, 2009.
|
3(c)
|
Form
of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, incorporated by reference to Exhibit 4.1 to the Firstbank
Corporation Current Report on Form 8-K dated January 26, 2009.
|
10(a)*
|
Form
of Indemnity Agreement with Directors and Officers
. Previously filed as Exhibit 10.1 to
the registrants 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), as amended by the First Amendment dated May 26,
1998, the First Amendment dated March 26, 2001, the Second Amendment dated May 28, 2002,
and the Third Amendment dated November 29, 2004, each of which is filed herewith.
|
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),
as amended by the First Amendment dated May 28, 2002, and the Second Amendment dated
February 23, 2004, each of which is filed herewith.
|
10(d)*
|
Stock
Option and Restricted Stock Plan of 1993
. Previously filed as an appendix to the
registrants 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
registrants 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 registrants 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
registrants 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 registrants 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.
|
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 registrants report on Form 10-Q for the quarter ended June 30,
2006. Here incorporated by reference.
|
10(l)*
|
Employment
Agreement between Firstbank Corporation, Firstbank West Michigan and James D. Fast
dated February 1, 2007. Incorporated by reference to exhibit B to exhibit 2.1 to the
Firstbank Corporation Current Report on Form 8-K, filed with the Securities and Exchange
Commission on February 2, 2007.
|
10(m)*
|
Form
of waiver executed by the Corporation and each of Thomas R. Sullivan, Samuel G. Stone,
William L. Benear, Dale A. Peters, and James E. Wheeler II effective January 30, 2009,
incorporated by reference to Exhibit 10.3 to the Firstbank Corporation Current Report on
Form 8-K dated January 26, 2009.
|
25
10(n)
|
Warrant,
dated January 30, 2009, to purchase shares of Common Stock of Firstbank
Corporation, incorporated by reference to Exhibit 4.2 to the
Firstbank Corporation Current Report on Form 8-K dated January 26,
2009.
|
10(o)
|
Letter
Agreement, dated as of January 30, 2009, between Firstbank Corporation
and the United States Department of the Treasury, and the Securities
Purchase AgreementStandard Terms attached thereto, incorporated
by reference to Exhibit 10.1 to the Firstbank Corporation Current
Report on Form 8-K dated January 26, 2009.
|
13
|
2008
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 registrants shareholders along with
the registrants proxy statement relating to the April 27, 2009
Annual Meeting of Shareholders which was delivered to the registrants shareholders
in compliance with Rule 14(a)-3 under the Securities Exchange Act of 1934.
|
21
|
Subsidiaries
of Registrant
.
|
23.1
|
Consent
of Plante & Moran PLLC
- Independent Registered Public Accounting Firm.
|
23.2
|
Consent
of Crowe Horwath LLP - 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.
26
Firstbank Corp. (MM) (NASDAQ:FBMI)
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From Jun 2024 to Jul 2024
Firstbank Corp. (MM) (NASDAQ:FBMI)
Historical Stock Chart
From Jul 2023 to Jul 2024