Firstbank (FBMI) 10-K 2010 FY Annual report

EXHIBIT 13

Rule 14a-3

Annual Report

PRESIDENT’S MESSAGE

To Our Shareholders:

Last year I began this letter with the statement: “We believe that the real test of a community banking company – its philosophy, its model, its culture, and its people – comes not when times are good, but rather when difficult and demanding times test our strength and commitment.”  The past three years have been among the most extraordinary and challenging in the history of Firstbank Corporation, the financial services industry, and the Michigan, national, and global economies.  We have endured a once-in-a-generation economic, political and social storm, the impact of which will continue to be felt for years or even decades to come.  I am pleased to report that we are not just persevering – we are making progress – and remain confident that we are returning our company to acceptable levels of earnings and performance.  We achieved improved profitability in 2010 and believe that better times are ahead.  I want to assure you that we are taking the right steps to maintain the strength and stability of the company while positioning ourselves for success as economic and market conditions improve.

In 2010, Firstbank Corporation earned net income of $3.8 million, or 27 cents per share, an improvement of 40% over 2009. Net income available to common shareholders improved from $1,151,000 in 2009 to $2,084,000 in 2010 or 81% year over year.  Net interest income increased 5.6% to $51.5 million. Average earning assets increased 4.0%. Average deposits increased 9.9%. Gains from the sale of mortgage loans totaled more than $5.9 million, as we helped our customers take advantage of the low interest rate environment to lock-in safe, low rate, long-term financing for their homes.

We achieved these results despite continued high unemployment levels in many of our communities and throughout our state; despite the unstable real estate environment in which both commercial and residential property values continue to fall; and despite a business environment in which a number of our commercial customers have simply exhausted their resources and are no longer able to continue servicing their debts.  All of these factors have contributed to high levels of loan losses, and a need to continue building reserves against potential future losses.  Our loan loss provision expense in 2010 was $13.4 million, down slightly from the 2009 expense of $14.7 million.  The provision covered the $11.0 million of net loan losses incurred in 2010, and further strengthened the reserve to 2.06% of total loans.

These results were also attributable to improved efficiency and effective cost control.  We completed the disposal of 1st Armored, Inc. during the first quarter of 2010 which produced a small gain, but was neutral to on-going earnings, allowing us to focus all of our energies on our core business of community banking. Staffing levels and benefit costs were challenged throughout the company, resulting in a reduction of more than 6% in that category; additionally, Occupancy and Equipment expense declined by more than 11% as we eliminated overhead wherever possible.  Unfortunately, the expenses related to the collection, protection, and disposal of loan collateral, including the falling value of real estate that the company had acquired in satisfaction of loans, offset most of those savings.  We believe that as the Michigan and local economies improve, and unemployment rates decline to more traditional levels, the credit related expenses should decline and as a result earnings will improve.

Additionally, we have continued to grow low cost core deposits throughout the branch network of the company.  We followed 2009’s deposit growth of $103 million, with further deposit growth of $34 million in 2010.  This  success in our local markets has allowed us to reduce higher cost wholesale funding, such as Internet and Brokered C.D’s and Federal Home Loan Bank advances by over $115 million during that two year period, helping to improve the net interest margin to 3.87%.  The improvement in the margin will be positive for future earnings especially if we are able to generate quality lending opportunities.

The maintenance of a strong and high quality level of capital has always been paramount to our company.  Likewise, we have long understood the balance sought by traditional community bank shareholders between cash dividends and the retention of capital to support growth initiatives.  The management of the capital of the company has become more challenging as we have gone through this economic crisis during which earnings have not sufficiently supported cash dividends, and banking regulators have required capital levels well in excess of amounts previously considered “well capitalized.”  As a result, during the year 2009 and into 2010 we reduced the cash dividend to reflect both the lower level of earnings and the growing uncertainty about the economic future.  In the second quarter of 2010 we cut the quarterly dividend to $0.01 – a drastic move premised on the need to be prepared for a prolonged and potentially worsening economy.  Some would argue that we should have made that reduction in late 2008 or 2009, however, at that time we remained mindful of the importance of the cash dividend to many of our shareholders, and had anticipated that the economic environment would improve.  We hope to be able to increase the dividend, however, to do so, we would like to see three specific things happen: several quarters of steadily improving earnings; a consistent and significant reduction of net loan charge-offs (which improves earnings and diminishes the need for additional loan loss reserves); and more certainty around the regulatory requirements for bank capital levels.

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The company, and all of its’ banks, comfortably meet and exceed not only the definitions to be considered “well capitalized”, but also the evolving regulatory requirements which are determined during the normal regulatory examinations to which all banks are subject.  In fact, our company and its subsidiary banks, have always met the well-capitalized definitions.  However, in late 2008 and early 2009, we sensed that economic and regulatory pressures were mounting, which would dictate that companies needed to maintain capital levels substantially higher than the defined “well-capitalized” amounts.  As a result, in early 2009 we determined to participate in the Capital Purchase Program as designed by the U.S. Treasury Department, and accepted $33 million of additional capital through issuance of Preferred Stock.  Our sense that capital requirements would increase has proven to be true.  As an example, while the definition of “well-capitalized” for the Total Risk-Based Capital Ratio has not changed from 10% - regulators today routinely treat that as the “minimum” to be considered well-capitalized, and have an expectation that all of the banks and the holding company will exceed 12% on that ratio.  Many companies, including a number of our peers here in Michigan, have had to significantly dilute the ownership of their existing shareholders by selling shares into the market at very low prices to achieve these new capital levels.  Our decision to issue the preferred shares strengthened the balance sheet with low cost capital, assured us the capital to continue servicing our customers and communities, and avoided diluting our current shareholders ownership of the company at below market value.  We closely monitor the capital markets and alternative sources of capital for the company, and will only issue new shares when we determine it is in the best interests of our shareholders to do so.

 Our performance during 2010, while not at our historical levels, underscores the value and benefits of our community banking model.  We have continued to serve our customers and communities with distinction.  Our loan quality, even though we are experiencing unprecedented losses – still compares favorably to most of our state wide peers. Our capital strength and liquidity have enabled us to continue to pursue quality lending opportunities.  We have conservatively grown our balance sheet, re-invested in the company where growth opportunities exist, and positioned ourselves so that as Michigan and the national economies recover, we are poised to take advantage of opportunities as they develop.

We emerged from 2010 stronger than we were in 2009, primarily because we adhered to the same principles that have proven successful for our company for many years. As we look forward to 2011 and beyond, we believe that our continued focus on community and customer will lead us to improved profitability; our practice of aggressively addressing credit issues as they arise will enable us to maintain asset quality superior to most of our peers; our dedication to developing our branch network’s core deposit gathering capability will build our net interest margin and liquidity; and our commitment to maintaining a strong level of capital, will all position us for future success.

We are very proud that as the financial crisis unfolded over the past few years, the people of Firstbank Corporation understood the vital role our firm needed to play, and felt a deep responsibility to our many stakeholders. It is this sense of responsibility that enables us to focus on what really matters: taking care of our customers, helping the communities in which we operate, and protecting our company for the benefit of our shareholders.  This is a testimony to the collective strength of our people, many of whom have worked tirelessly for months on end. Their dedication, commitment, professionalism and continued hard work have served our customers, our communities, and our company exceptionally well. We are fortunate to have great people in our company – and we thank each and every one of them for all of their efforts on behalf of Firstbank Corporation.

I would also like to acknowledge the contributions of a long time board member who is retiring following this shareholders meeting in conformance with our retirement policy.  Mr. David Roslund joined the board of Firstbank – Alma in March 1990, and was elected to the board of Firstbank Corporation in 1994.  Dave has served in numerous board roles including Chairman of the Firstbank–Alma Audit Committee and as a member of both the Audit and Compensation Committees of the Corporation. He has been an active member of the mid-Michigan business community with extensive business interests in a variety of service and manufacturing companies. Dave has been a valuable and contributing member of the boards of both the Alma bank and the Corporation, and on behalf of the staff, all of our directors, and our shareholders I want to express our gratitude to Dave for his commitment and service to our company, and to wish he and Marge all the best in the future.

Finally, I would like to thank our customers and our communities for entrusting us with their business and for allowing us to serve them. We stand strong and ready to serve their future needs. And I want to thank you, our owners, for your confidence and investment in Firstbank Corporation. Your support and encouragement are sincerely appreciated.

Sincerely,

/s/ Thomas R. Sullivan

Thomas R. Sullivan

President & Chief Executive Officer

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2010

Annual Report

This 2010 Annual Report contains audited financial statements and a detailed financial review.  This is Firstbank Corporation’s 2010 Annual Report to Shareholders.

The report presents information concerning the business and financial results of Firstbank Corporation in a format and level of detail that we believe shareholders will find useful and informative.  Shareholders who would like to receive even more detailed information than that contained in this 2010 Annual Report are invited to request our Annual Report on Form 10-K.

Firstbank Corporation’s Form 10-K Annual Report filed with the Securities and Exchange Commission will be provided to any shareholder, without charge, upon written request.  Requests should be addressed to Samuel G. Stone, Chief Financial Officer, Firstbank Corporation, 311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan 48801-6029.  Firstbank Corporation's Form 10-K Annual Report may also be accessed through our website www.firstbankmi.com

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FINANCIAL HIGHLIGHTS Firstbank Corporation
(In Thousands of Dollars, Except per Share Data)
For the year:	2010			2009			2008			2007			2006
Interest income	$	72,382		$	74,686		$	82,191		$	80,862		$	70,786
Net interest income		51,492			48,747			46,838			42,645			40,065
Provision for loan losses		13,344			14,671			8,256			2,014			767
Non-interest income		11,829			15,409			3,990			9,720			10,133
Non-interest expense		44,702			45,750			42,915			39,074			34,821
Net income		3,763			2,691			719			8,386			10,208
Net income available to common		2,084			1,151			719			8,386			10,208
At year end:
Total assets		1,458,343			1,482,356			1,425,340			1,365,739			1,095,092
Total earning assets		1,332,662			1,342,530			1,292,647			1,229,564			1,008,545
Loans		1,032,975			1,122,185			1,159,632			1,123,654			910,640
Deposits		1,183,783			1,149,063			1,046,914			1,011,392			835,426
Other borrowings		118,070			175,756			251,275			217,910			149,976
Common shareholders’ equity		115,665			114,173			114,983			118,611			96,073
Total shareholders’ equity		148,428			146,880			114,983			118,611			96,073
Average balances:
Total assets		1,488,673			1,433,555			1,396,357			1,223,470			1,070,759
Total earning assets		1,351,872			1,300,354			1,264,425			1,118,569			987,232
Loans		1,077,718			1,135,868			1,145,849			1,010,863			904,196
Deposits		1,170,195			1,064,567			1,024,305			915,077			808,897
Other borrowings		160,547			207,614			236,095			182,740			152,409
Common shareholders’ equity		114,207			114,424			118,494			107,537			95,227
Total shareholders’ equity		146,948			144,583			118,494			107,537			95,227
Per common share: (1)
Basic earnings	$	0.27		$	0.15		$	0.10		$	1.21		$	1.56
Diluted earnings	$	0.27		$	0.15		$	0.10		$	1.21		$	1.55
Cash dividends	$	0.08		$	0.40		$	0.90		$	0.90		$	0.85
Common shareholders’ equity	$	14.82		$	14.77		$	15.44		$	16.01		$	14.82
Financial ratios:
Return on average assets		0.25	%		0.19	%		0.05	%		0.69	%		0.95	%
Return on average common equity		2.56	%		1.86	%		0.61	%		7.80	%		10.72	%
Average equity to average assets		9.87	%		10.09	%		8.38	%		8.79	%		8.89	%
Average common equity
to average assets		7.67	%		7.98	%		8.38	%		8.79	%		8.89	%
Dividend payout ratio
on common stock		16.47	%		113.80	%		935.73	%		74.49	%		54.72	%

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

The Company’s Form 10-K Annual Report filed with the Securities and Exchange Commission will be provided to any shareholder, without charge, upon written request. Requests should be addressed to: Samuel G. Stone, Chief Financial Officer, Firstbank Corporation, 311 Woodworth Avenue, P.O. Box 1029, Alma, Michigan 48801-6029 The Company’s Form 10-K may also be viewed through our web site at www.firstbankmi.com.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this section of the annual report is to provide a narrative discussion about Firstbank Corporation’s financial condition and results of operations. Please refer to the consolidated financial statements and the selected financial data presented in this report in addition to the following discussion and analysis. We also encourage you to read our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

RESULTS OF OPERATIONS

Highlights

Firstbank Corporation (“”We” or the Company”) had net income of $3.8 million for 2010 compared with $2.7 million in 2009, an increase of $1.1 million, or 40%. After payment of dividends on preferred stock, net income available to common shareholders was $2.1 million for 2010 compared with $1.2 million in 2009, an increase of $962,000 or 79%. Core banking activities continued to provide a solid basis for earnings as net interest income increased $2.7 million from 2009. Our loan loss provision was decreased to $13.3 million in 2010, compared with $14.7 million provided in 2009. The lower provision, while elevated compared with historical levels, was possible as delinquencies and non performing loan levels stabilized during the year.

Mortgage gains decreased $1.6 million from the prior year as changes in regulations and higher rates slowed originations in the first half of the year. Mortgage rates, after increasing late in 2009, fell during the year and remained at historically low levels throughout the second half of 2010 allowing us the opportunity to re-finance many customers into more favorable loans, while also recording $5.9 million in gains on the sale of loans compared to the $7.6 million reported in 2009.

We achieved a return on average assets of 0.25%, 0.19%, and 0.05% for 2010, 2009, and 2008, respectively. Total average assets increased $55 million in 2010, $37 million in 2009, and $173 million in 2008. Basic and diluted earnings per share were $0.27, $0.15, and $.10 for the same time periods. Return on equity was 2.56% in 2010, 1.86% in 2009, and 0.61% in 2008. While these profitability measures do not meet our expectations, the industry as a whole and the Michigan banking industry in particular are experiencing similar and even more substantial impacts on their performance.

Net Interest Income

Our core business is earning interest on loans and securities while paying interest on deposits and borrowings. In response to economic recession in the United States, the Federal Reserve maintained overnight interest rates at historically low levels of 0.00% to 0.25% for a second consecutive year. While these low short term rates allowed us to lower the rates we pay on certain deposit products, it also reduces the rates we are able to earn on variable rate loan products and rates charged on renewing fixed rate loans. The net interest spread, the difference between the interest rates charged on earning assets and the rate paid on interest bearing liabilities, grew steadily in each quarter of the year. As a result, our net interest margin increased in each quarter, ending the year with a net interest margin of 3.87% compared with 3.82% in 2009, and 3.80% in 2008. During 2010, our average loan to average deposit ratio was 92%, lower than the 107% in 2009 and 112% in 2008. The decreasing ratio is a result of both our improvement in attracting core deposits and shrinking loan balances. We maintain capital and funding capacity and a desire to expand lending; however, demand for quality loans is in our local economies is very low at this time.

Net interest income increased in 2010 by $2.7 million as a combination of the higher net interest margin and a higher level of average earning assets improved earnings. Average interest earning assets increased $55 million from 2009 levels. The increase in interest earning assets was largely a result of higher balances in the investment portfolio, which rose by $82 million on average, more than offsetting a $69 million decrease in average loan balances. A critical task of management is to price assets and liabilities so that the spread between the interest earned on assets and the interest paid on liabilities is maximized while maintaining acceptable levels of risk. While interest rates on earning assets and interest bearing liabilities are subject to market forces, in general and in the short run, we can exert more control over deposit rates than earning asset rates. However, competitive forces and the need to maintain and grow deposits as a funding source place limitations on the degree of control over deposit rates. Interest bearing liabilities increased $42 million during the year, and the average rate paid on these liabilities fell by 52 basis points resulting in a decrease to interest expense of $5 million.

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The following table presents a summary of net interest income for 2010, 2009, and 2008.

Summary of Consolidated Net Interest Income

	Year Ended December 31, 2010								Year Ended December 31, 2009								Year Ended December 31, 2008
(In Thousands of Dollars)	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average  Balance			Interest		Average  Rate
Average Assets
Interest Earning Assets:
Taxable securities	$	190,114		$	3,647		1.92	%	$	98,413		$	2,743		2.79	%	$	82,858		$	4,055		4.90	%
Tax exempt securities(1)		30,249			1,751		5.79	%		31,700			2,010		6.34	%		33,904			2,167		6.40	%
Total Securities		220,363			5,398		2.45	%		130,113			4,753		3.66	%		116,762			6,222		5.33	%
Loans(1) (2)		1,047,149			67,545		6.45	%		1,112,810			70,696		6.35	%		1,130,188			76,793		6.80	%
Federal funds sold		451			1		0.23	%		134			0		0.25	%		11,998			240		2.00	%
Interest bearing deposits		83,909			205		0.25	%		57,297			136		0.24	%		5,477			60		1.10	%
Total Earning Assets		1,351,872			73,149		5.41	%		1,300,354			75,585		5.82	%		1,264,425			83,315		6.59	%
Nonaccrual loans		30,569								23,057								15,661
��    Less allowance for loan loss		(20,952	)							(15,481	)							(12,262	)
Cash and due from banks		26,342								25,060								31,846
Other non-earning assets		100,842								100,565								96,687
Total Assets	$	1,488,673							$	1,433,555							$	1,396,357
Average Liabilities
Interest Bearing Liabilities:
Demand	$	274,570		$	1,736		0.64	%	$	236,087			1,660		0.71	%	$	221,732		$	2,982		1.35	%
Savings		194,855			1,122		0.58	%		163,249			974		0.60	%		156,326			1,801		1.16	%
Time		529,947			12,877		2.43	%		511,269			16,208		3.17	%		498,443			20,685		4.15	%
Total Deposits		999,372			15,735		1.58	%		910,605			18,842		2.07	%		876,501			25,468		2.91	%
Federal funds purchased
and repurchase agreements		40,341			96		0.24	%		45,070			136		0.31	%		48,227			919		1.91	%
FHLB advances and
notes payable		84,122			3,562		4.24	%		126,460			5,350		4.23	%		151,784			6,811		4.49	%
Subordinated debentures		36,084			1,497		4.15	%		36,084			1,611		4.47	%		36,084			2,075		5.75	%
Total Interest Bearing
Liabilities		1,159,919			20,890		1.80	%		1,118,219			25,939		2.32	%		1,112,596			35,273		3.17	%
Demand Deposits		170,823								153,962								147,804
Total Funds		1,330,742								1,272,181								1,260,400
Other Non-Interest Bearing
Liabilities		10,983								16,791								17,463
Total Liabilities		1,341,725								1,288,972								1,277,863
Average Shareholders’ Equity		146,948								144,583								118,494
Total Liabilities and
Shareholders’ Equity	$	1,488,673							$	1,433,555							$	1,396,357
Net Interest Income(1)				$	52,259							$	49,646							$	48,042
Rate Spread(1)							3.61	%							3.50	%							3.42	%
Net Interest Margin (percent of
Average earning assets) (1)							3.87	%							3.82	%							3.80	%

(1)  Presented on a fully taxable equivalent basis using a federal income tax rate of 35% for all periods presented.

(2)  Interest income includes amortization of loan fees of $1.9 million, $1.8 million, and $2.0 million for 2010, 2009, and 2008, respectively. Uncollected interest on nonaccrual loans is not included.

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

	2009/2010									2008/2009
	Change in Interest Due to: (1)									Change in Interest Due to: (1)
	Average Volume			Average Rate			Net Change			Average Volume			Average Rate			Net Change
	(In Thousands of Dollars)
Interest Income:
Securities
Taxable Securities(2)	$	1,948		$	(1,014	)	$	934		$	661		$	(2,003	)	$	(1,342	)
Tax-exempt Securities		(62	)		507			445			(133	)		(728	)		(861	)
Total Securities		1,886			(507	)		1,379			528			(2,731	)		(2,203	)
Loans(2)		(4,218	)		1,233			(2,985	)		(1,166	)		(5,097	)		(6,263	)
Federal Funds Sold		1			0			1			(127	)		(113	)		(240	)
Interest Bearing Deposits		65			4			69			157			(81	)		76
Total Interest Income on Earning Assets		(2,266	)		730			(1,536	)		(608	)		(8,022	)		(8,630	)
Interest Expense:
Deposits
Interest Paying Demand		254			(178	)		76			182			(1,504	)		(1,322	)
Savings		183			(35	)		148			77			(904	)		(827	)
Time		573			(3,904	)		(3,331	)		2,720			(7,197	)		(4,477	)
Total Deposits		1,010			(4,117	)		(3,107	)		2,979			(9,605	)		(6,626	)
Federal Funds Purchased and Securities
Sold under Agreements to Repurchase		(13	)		(27	)		(40	)		(57	)		(726	)		(783	)
FHLB and Other Notes Payable		(1,793	)		5			(1,788	)		(1,088	)		(373	)		(1,461	)
Subordinated Debentures		0			(114	)		(114	)		0			(464	)		(464	)
Total Interest Expense on Liabilities		(796	)		(4,253	)		(5,049	)		1,834			(11,168	)		(9,334	)
Net Interest Income	$	(1,470	)	$	4,983		$	3,513		$	(2,442	)	$	3,146		$	704

(1) Changes in volume/rate have been allocated between the volume and rate variances on the basis of the ratio that the volume and rate variances bear to each other.

(2) Interest is presented on a fully taxable equivalent basis using a federal income tax rate of 35%.

In 2010, the average rate realized on earning assets was 5.41%, a decrease of 41 basis points from the 2009 results of 5.82%, and 118 basis points lower than the 6.59% realized in 2008. In 2008, in reaction to a weakening economy and a credit crisis in the financial markets, the Federal Reserve aggressively lowered rates by 2.25% between January and April bringing the prime rate down to 5.00%. After a six month pause in the rate reduction strategy, the Federal Reserve then lowered rates by another 1.75% in the fourth quarter with the prime rate settling in at 3.25% at year end 2008, where it remained for all of 2009 and 2010.

Average loans outstanding decreased $66 million in 2010 when compared with 2009. As of December 31, 2010, approximately 24% of the loan portfolio was comprised of variable rate instruments, the same mix as the end of 2009. The remaining 76% of the loan portfolio is made up of fixed rate loans that do not re-price until maturity. Of the fixed rate loans approximately $266 million, or 31% of the fixed rate loan portfolio, matures within twelve months and are subject to rate adjustments at maturity. During the year, as re-pricing opportunities occurred, we put interest rate floors in place to protect our margin from falling. At year end 2010, 85% of our variable rate commercial loan portfolio was protected by a floor compared with 71% at the end of 2009.

As short term interest rates decreased in 2009 and remained low in 2010, maturing securities in the investment portfolio were replaced with securities of comparable quality bearing generally lower yields. As a result, maturing securities ran off from the investment portfolio at higher rates than comparable current offerings, decreasing the overall investment portfolio yield from 5.33% in 2008 to 3.66% in 2009 and 2.45% in 2010.

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Average total interest bearing deposits for the year increased $88 million. The average rate paid on interest bearing liabilities was 1.80% in 2010, compared to 2.32% in 2009, and 3.17% in 2008. Deposit rates decreased during 2009 and 2010 with the faltering economy. Average rates paid on time deposits decreased 74 basis points in 2010 compared with 2009 and 172 basis points compared with 2008, as new and renewing deposits re-priced to lower rates. Rates on checking and savings deposits also decreased in 2010, falling seven basis points and two basis points, respectively. These same rates were 64 basis points and 56 basis points lower in 2009 than they had been in 2008.

Brokered CDs are more sensitive to changes in the interest rate than CDs offered in local markets and have been issued with original maturities ranging from three months to two years. The average balance of brokered CDs in 2010 was $11 million, compared with $19 million in 2009 and $30 million in 2008 as the need for funding from non-core sources diminished. These CDs carried an average interest rate of 1.05% in 2010 compared with 2.18% in 2009, and 4.36% in 2008.

We fund a portion of our loan portfolio with borrowings from the Federal Home Loan Bank (FHLB) and notes payable. During 2010, the average outstanding balance of FHLB advances and notes payable decreased $42 million and the year-end balance decreased $60 million when compared with 2009 balances. While FHLB borrowings are one method of funding loans when core deposits are not available, the cost is typically higher than our core deposit costs. As core deposit funding has increased and loan demand decreased, we have been able to reduce our reliance on this source of funding. The average rate paid for Federal Home Loan Bank advances and notes payable was unchanged from 2009’s rate of 4.23%. Borrowings from the Federal Home Loan Bank carry significant prepayment penalties that act as a deterrent to early payment.

In July of 2007, we issued $15.5 million in subordinated debentures to fund a portion of the ICNB acquisition. That issuance was split evenly between debentures that carry a fixed rate of 6.566% for five years, at which time they will convert to a variable interest rate of 90 day LIBOR plus 1.35%, and variable rate debentures that carry a rate of 90 day LIBOR plus 1.35%. The variable rate debentures re-price quarterly. In January of 2006, we issued $10.3 million in subordinated debentures that carry a fixed rate of 6.049% for five years, at which time they will convert to a variable interest rate of 90 day LIBOR plus 1.27%. In October of 2004, we issued $10.3 million in subordinated debentures, at a variable interest rate of 90 day LIBOR plus 1.99% which re-price on a quarterly basis. The average rate paid on all subordinated debentures during 2010 was 4.14% compared with 4.47% and 5.75% in 2009 and 2008, respectively.

We utilize short term borrowing, made up of Federal Funds Purchased and Repurchase Agreements as a source of liquidity and to balance our daily cash needs. Average short term borrowed funds decreased by $4.7 million when 2010 is compared with 2009. We also had maintained a variable rate line of credit in 2009 and 2008, which we used from time to time to provide temporary funding. There was $5.6 million outstanding at the end of 2008, which was paid off in January 2009. There were no balances outstanding on the line of credit at the end of 2009 and the line was terminated as we determined it no longer was necessary.

The 2010 interest rate spread of 3.61% is 11 basis points higher than the 2009 spread of 3.50%, and 19 basis points higher than the 2008 spread of 3.42%. Tax equivalent net interest income increased $2.6 million in 2010 as a decrease in total average earning assets of $10 million was more than offset by a five basis point improvement in the net interest margin. The net interest margin of 3.87% for 2010 was five basis points above 2009 and seven basis points better than in 2008. The increase in the rate spread in 2010 was the result of rates on average earning assets decreasing 40 basis points while the average cost of interest bearing liabilities decreased 52 basis points. The five basis point increase in the net interest margin was a result of a higher percentage of earning assets being funded by non interest bearing liabilities and equity as well as the management of rates on both loans and deposits during the year. Average earning assets represented 91% of total average assets in all three years 2008 through 2010.

Provision for Loan Losses

In accordance with accounting standards, we allocate a portion of the allowance for loans that we determine to be impaired. We analyze other loans on a pool basis in order to arrive at the appropriate allowance for loan losses. If a loan for which allocations had been established pays off, or the risk of loss is otherwise reduced, we reverse those specific allocations. The methodology described above resulted in a provision for loan losses in 2010 of $13.4 million, compared with $14.7 million in 2009, and $8.3 million in 2008. The higher provision charges in 2009 and 2010 were incurred as the struggling Michigan economy resulted in new problem loans for which either allocated reserves were established for probable losses, or loans were charged off during the year.

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During 2010, we had recoveries of previously charged off loans totaling $0.9 million, and favorable outcomes on certain previously identified problem loans, reducing the amount of provision expense needed, while deterioration of certain loans to problem status and charge offs of $12.0 million increased the amount of provision expense needed. In 2009, we had recoveries of previously charged off loans totaling $1.0 million and favorable outcomes on certain previously identified problem loans, reducing the amount of provision expense needed, while deterioration of certain loans to problem status and charge offs of $11.2 million increased the amount of provision expense needed.

At December 31, 2010, the allowance for loan losses as a percent of total loans was 2.06% compared to 1.70% and 1.26% at December 31, 2009, and December 31, 2008, respectively. Total nonperforming loans were 3.60% of ending loans at December 31, 2010, compared to 3.65% and 2.14% at the two previous year ends. The decrease in the ratio in 2010 was mainly due to a decrease of $4.3 in nonaccrual loans, an increase in restructured loans of $3.1 million and a decrease in 90 day past due loans of $2.6 million. The increase in nonperforming in 2009 was due to an increase in nonaccrual loans of $11.1 million, an increase in restructured loans of $6.8 million, net of a reduction in 90 day past due loans of $1.8 million.

Net charged off loans totaled $11.0 million in 2010 compared to $10.2 million in 2009, and $5.1 million in 2008. Net charged off loans as a percent of average loans were 1.02% in 2010, 0.90% in 2009, and 0.45% in 2008. Charge offs of $2.4 million in 2010 had specific reserves established in a prior year, while in 2009 and 2008, $2.9 million and $929,000, respectively, of specific allowance allocations had been set aside at the end of the prior year. Provision expense did not need to be increased to cover those previously identified losses.

Non-interest Income

Non-interest income decreased by $3.6 million when 2010 is compared with 2009. Affecting the results in 2010 were gains on the sale of mortgages down $1.6 million, lower securities gains down $1.3million, decreased revenue from our armored car business, down $577,000, (sold at the end of the first quarter of the year) and title insurance fees down $626,000 (no longer consolidated into earnings). The sale of our armored car and title insurance businesses had negligible impact on net income. Non-interest income increased $11.4 million when 2009 is compared with 2008, as gains on the sale of mortgage loans increased $5.0 million and we recorded $1.3 million of securities related gains compared with $5.9 million of losses in the previous year. The losses on securities in 2008 were due to impairments on money market preferred securities.

We recorded an additional $150,000 of other than temporary impairment associated with the valuation of one trust preferred security this year compared with $150,000 on two securities in 2009 and $5.4 million relating to money market preferred auction rate securities in 2008. In 2009, we sold most of the auction rate securities holding from the prior year, after the market recovered, netting $1.8 million in gains on these securities. We recognized $3,000 of losses on valuation changes in our trading account securities portfolio during 2010 following losses of $213,000 in 2009 and $454,000 in losses in 2008.

Gains on the sale of mortgage loans decreased $1.6 million during 2010 after peaking at $7.6 million in 2009.

The 2009 result was $5.0 million higher than the result from 2008. In 2010, rates began the year at a level that did not result if very much refinance or purchase activity, but by mid-year rates had fallen to a point where refinance activity picked up considerably. In 2009, a low rate environment spurred a mortgage re-finance boom that lasted most of the year, generating the higher gains, while allowing customers to reduce their monthly mortgage payments. Service charges on deposit accounts were basically unchanged from 2009 after decreasing $316,000 from 2008.

When a mortgage is refinanced or pre-paid, capitalized mortgage servicing rights relating to that mortgage are written off. Refinance activity in 2010 was somewhat lower than in 2009, resulting in fewer mortgage loan prepayments, and therefore $193,000 lower amortization cost of serving rights, couple with $182,000 higher income received for servicing, caused overall mortgage servicing income to be higher by $375,000. In 2010, mortgage servicing income (servicing income net of amortization of capitalized serving rights) was a negative $96,000 compared with negative $471,000 in 2009 and positive income of $258,000 in 2008.

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Deposit account service charges were $4.6 million in 2010 an increase of 1.5% from 2009, but 5.2% below the $4.8 million in 2008. Courier and cash delivery services income decreased $577,000 due to the sale of our armored car company at the end of the first quarter of the year. This revenue is from the operations of 1st Armored Incorporated, which operated an armored car and courier business, and does not include income from servicing Firstbank affiliates. The revenue from this unit had been declining for several years as pricing pressure from competition and a migration toward electronic transfer of bank transactions has reduced their volume of business.

Gains and losses from securities activities resulted in a pre-tax gain of $7,000 in 2010 compared with $1.3 million in 2009 and a loss of $5.9 million in 2008. Trading account securities had a gain of $3,000 in the year, compared with losses of $213,000 in 2009 and $454,000 in 2008. The available for sale portfolio had a gain of $3,000 in 2010 compared with a gain of $1.5 million in 2009 and a loss of $5.5 million in 2008. Market conditions resulted in our decision to record other than temporary impairment charges of $5.4 million during 2008. The original value of a portfolio of money market preferred securities was $9.4 million and was written down to a value of $4.0 million. The securities in this portfolio had made all quarterly dividend payments as required, with the exception of those secured by the preferred stock of the Federal Home Mortgage Association (FHMA). The value of the FHMA securities was written down from an original value of $1.7 million to a year end value of $34,000 in 2008. At year end 2010, all of the money market preferred securities mentioned above were sold, except for the 34,000 shares of FHMA.

We reduced our stake in the title insurance business, through a reorganization of our 100% owned 1st Title Insurance Agency, whereby we now have ownership of 48% in the business. As a result of the reduction to below 50% we no longer consolidate the results of this business into our financial statements beginning in November 2009. Title insurance sales increased $291,000 in 2009 compared with 2008, but are no longer reflected in our results in 2010. We also exited our courier and cash delivery services business through the sale of our 1st Armored subsidiary in March of 2010. This business had seen declining revenue in recent years due to increased market competition. As a result, revenue from this line item was reduced by $577,000 in 2010, but will have minimal effect on our bottom line.

Other non-interest income was $1.3 million, compared with $1.1 million in both 2009 and 2008. The increase in this line item from 2009 levels was largely due to a negative impact on revenue of our deferred compensation plan, which was a negative $133,000 in 2009, a negative $424,000 in 2008. Accounting rules required us to report the earnings or loss of the plan assets through non-interest income, with an offsetting entry to non-interest expense for the same amount. There is, therefore, no impact on net income. Also affecting the comparison were losses on the sale of Other Real Estate Owned of $354,000 in 2010, $336,000 in 2009, and $184,000 in 2008.

Non-interest Expense

Salary and employee benefits expenses decreased $1.4 million or 6.3% when 2010 compared with 2009. Cost cutting efforts in the company, a reduction of $526,000 associated with the sale of the armored car business and no longer consolidating the title insurance business, and $690,000 lower costs associated with employee benefits, primarily group insurance costs resulted in the lower overall cost. Salary and employee benefits decreased $60,000 in 2009 compared with 2008. We employed 435 full time equivalent employees at the end of 2010 compared with 466 at the end of 2009, and 483 at year end 2008.

Occupancy and equipment costs decreased $693,000 in 2010 compared with 2009 as several large assets reached full depreciation and were not replaced and a savings of $125,000 was realized from exiting the armored car and title insurance businesses. Costs had also decreased $683,000 in 2009 compared with 2008 as several large assets reached full depreciation late in 2008 and early 2009 and we sold one branch in April 2009.

FDIC expense decreased to $2.1 million, after increasing to $2.4 million in 2009 from $562,000 in 2008. The large increase in 2009 was due to a special assessment in the second quarter of the year totaling $642,000 and higher assessment fees as the FDIC rebuilds its fund after being depleted from bank failures. Costs going forward are expected to remain elevated as we were required to prepay $6.5 million for the next three years fees at the end of 2009.

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Amortization of intangibles was $796,000 in 2010, compared with $934,000 in 2009, a reduction of $138,000. Amortization expense in 2008 was $1.1 million. The year over year reductions in the costs are primarily due to the accelerated amortization method used to amortize core deposit premiums from recent acquisitions.

Expenses for outside professional services in 2010 increased $210,000 compared with 2009 after increasing $89,000 from 2008. A portion of this increase, $187,000, was due to the classification of armored car expense which was previously done in house. Advertising and special promotion expense was $1.7 million, up $96,000, or 6%, in 2010 following an increase in 2009 of $196,000 as we increased our marketing efforts.

Other real estate costs continued to increase, reaching $3.5 million in 2010 compared with $2.4 million in 2009 as the cost of carrying more properties for longer time frames and write downs due to decreasing property values drove the cost up. Other real estate costs were $1.2 million in 2008.

Other non-interest expense increased to $9.0 million from $8.9 in 2009 and $8.7 million in 2008. The most significant reason for the increase is higher loan collection costs. Absent cost cutting efforts within the company, the increase would have been more substantial.

Federal Income Tax

In 2010 we had federal tax expense of $1.5 million on pre-tax earnings of $5.3 million, resulting in an effective tax rate of 29%. Included in the 2010 federal tax expense was $485,000 relating to a non-cash charge associated with deferred taxes on security losses realized in prior years that we do not expect to be able to claim. Excluding the deferred tax charge, the effective tax rate for 2010 would have been 19%. In 2009 we had federal tax expense of $1.0 million based on pre-tax earnings of $3.7 million, resulting in an effective tax rate of 28%. At year end we determined that we were unlikely to be able to claim certain deferred tax benefits associated with capital losses on securities recorded in 2008. As a result, we recorded a non-cash charge of $659,000 to our federal income tax expense and established a valuation allowance against our deferred tax assets. Absent this charge, our effective tax rate for 2009 would have been 10%. This level of effective tax rate was lower than normal due to a low level of earnings before taxes in relation to non-taxable earnings. In 2008 we had a federal tax benefit of $1,062,000 based on a pre-tax loss of $343,000. The tax benefit was larger than our pre-tax income due to tax exempt earnings during the year. The 2008 tax rate was affected by the low level of earnings before taxes in relation to non-taxable earnings for the year.

Summary of significant costs relating to asset quality and deposit insurance

Management believes that understanding certain costs which it believes are elevated in the current business environment may benefit the readers of this report in evaluating potential changes to our future results. The following table illustrates certain costs which management believes are either currently at an elevated level, or are non-recurring and will return to historically lower levels once the economic environment improves.

(In Thousands of Dollars)
	2010			2009			2008
Provision for loan losses	$	13,344		$	14,671		$	8,256
Securities (gains)/losses		(7	)		(1,321	)		5,917
Loss on sale of OREO properties		354			336			184
FDIC expense		2,098			2,430			562
Legal fees		822			734			412
Other real estate operating costs		1,206			1,116			613
Other real estate valuation write-downs		2,307			1,275			615
Tax benefit on items listed at 34%		(6,842	)		(6,542	)		(5,630	)
Total of items net of tax benefit		13,282			12,699			10,929
Deferred tax write off		484			659			0
Total	$	13,766		$	13,358		$	10,929

FINANCIAL CONDITION

Total assets at December 31, 2010 were $1.458 billion, compared with December 31, 2009 total assets of $1.482 billion a decrease of $24 million, or 1.6%. A general lack of loan demand by qualified borrowers has resulted in an overall shrinking loan portfolio, while increases in core deposits have provided an opportunity to run off higher cost wholesale funds. Total portfolio loans decreased 8.0% at December 31, 2010 compared with the balance at the previous year end. Commercial loans decreased $28 million, or 14.4%. Residential mortgage loans decreased $24 million, or 6.4%, while commercial real estate loans decreased $24 million, or 6.0%. Construction loans were $4 million lower at December 31, 2010, decreasing 4.9%, from the previous year end. Mortgages serviced for others grew by $17 million, or 2.8%.

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(In Thousands of Dollars)
	2010		2009		Change			% Change
Commercial	$	164,413	$	192,096	$	(27,683	)		(14.4	)%
Commercial real estate		373,996		397,863		(23,867	)		(6.0	)%
Residential real estate		352,652		376,683		(24,031	)		(6.4	)%
Construction		81,016		85,229		( 4,213	)		(4.9	)%
Consumer		59,543		69,736		(10,193	)		(14.6	)%
Total	$	1,031,620	$	1,121,607	$	(89,987	)		(8.0	)%
Mortgages serviced for others	$	622,700	$	605,800	$	16,900			2.79	%

Total securities available for sale increased $106 million, or 71%. The increase was mainly due to investment of our excess available funds at better rates than is available in shorter term assets. Securities available for sale were 17.5% of total assets at year end 2010, compared with 10.6% at the end of 2009. As loan demand picks up in the future, it is expected that the securities portfolio will decline.

Premises and equipment was virtually unchanged after recognized depreciation of $2.6 million. New investments in facilities in our Dewitt and Mt Pleasant markets, along with routine updates in other facilities and equipment, offset depreciation in the year.

Total deposits increased at the end of 2010 to $1.184 billion, an increase of 3.0%, compared to $1.149 billion at year end 2009. Non-interest bearing demand deposit balances increased from the end of 2009, by $21 million to $185 million at year end 2010, an increase of 12.7%. Interest bearing demand deposits increased by $38 million, or 15.1%, and savings account balances increased $36 million, or 20.7%.

At the end of 2010, we had $8 million of wholesale CDs on the balance sheet, compared with $23 million at the end of 2009. Wholesale CDs, which contain both brokered CDs and internet CDs, typically carry a higher interest rate than locally generated CDs of similar duration but are available in large dollar pools which results in lower operational cost than smaller dollar local deposits. Including wholesale CDs, total time deposits decreased $61 million, or 10.9% compared with the end of 2009. Excluding the wholesale CDs, time deposits would have decreased from $532 million in 2009 to $487 million in 2010, a decrease of 8.6%. Time deposits were allowed to run off as we re-priced higher rate CD’s to the current low rate market because of reduced funding needs in the loan portfolio.

Securities sold under agreements to repurchase and federal funds purchased increased by $2 million. Over the past two years, management has focused its branch network on increasing core deposit growth. As a result of the growth in these core deposits and a reduction in the size of our loan portfolio, we have been able to reduce our reliance on Federal Home Loan Bank advance funding to support the loan portfolio. Federal Home Loan Bank advances decreased by $60 million at December 31, 2010 compared with December 31, 2009. The decrease in Federal Home Loan Bank advances was possible due to core deposit growth exceeding loan demand.

Asset Quality

The Michigan and national economies began to recover during 2010, albeit at a restrained pace after struggling throughout 2008 and 2009. Michigan remained as one of the worst unemployment rates in the nation throughout the year. Many banks in our state have shown significant losses associated with bad loans. We were not immune from the impact that the economy had on businesses and consumers. Our net charged off loans increased in each of the three years 2008 through 2010, as customers that had been able to sustain their payments in better times succumbed to the economic conditions. Lack of sales within development projects and severe declines in the value of those developments caused us to increase both our charge offs and our nonaccrual loan balances during the three year period. Our nonaccrual loan balances remained elevated at year end, but were down 14% from year end 2009. Total nonperforming loans, which includes nonaccrual, restructured, and 90 day past due lines decreased 9% from year end 2009. We remain vigilant at monitoring these loan relationships and working through issues with our customers.

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Loans are carried at an amount which management believes will be collected. A balance considered not collectible is charged against (reduction of) the allowance for loan losses. In 2010, net charged off loans were $11.0 million, compared with $10.2 million in 2009 and $5.1 million in 2008. Net charged off loans as a percentage of average loans were 1.05% in 2010 compared with 0.90% and 0.45% in 2009 and 2008. Charge offs continued to be a problem, most notably at our newest affiliate banks, however, charged off loans remain elevated in all six of our banks.

Nonperforming loans are defined as nonaccrual loans, loans 90 days past due and any troubled loans where borrowers are under financial stress and the terms have been renegotiated to below normal market terms. Total nonperforming loans were $37.1 million and $41.0 million at December 31, 2010 and 2009, respectively. Total nonaccrual loans were $26.4 million at December 31, 2010, compared to $30.7 million at the end of 2009. The elevated level in nonaccrual loans for both years was largely due to economic stresses being felt in Michigan and across the nation. Borrowers which had previously been able to meet their loan obligations during better times have become unable to do so in the current environment. Loans past due 90 days or more decreased to $0.6 million at year end 2010 compared with $3.2 million at the end of 2009, in part because of loans moving to nonaccrual status during the year. Impaired loans are commercial loans for which we believe it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The average investment in impaired loans was $33.2 million during 2010 compared to $29.0 million during 2009. At year end, impaired loans were $36.4 million compared with $37.8 million at December 31, 2009. In the current environment, we have deemed it necessary to work with some customers to restructure loans to reduce the probability of loss to the bank. At the end of the year, we had $10.2 million of restructured loans compared with $7.1 million at year end 2009.

The allowance for loan losses was $2.3 million, or 12%, higher at year end 2010 compared with 2009. This increase was a result of provision expense of $13.3 million exceeding charged off loans of $12.0 million during the year, and recoveries of prior charged off loans of $0.9 million. Through our analysis process, we determined that it was necessary to provide more for future probable losses than our net charge offs this year due to several factors. We record provision for loan loss expense when loans for which losses are likely, are identified. For loans which carry an allocated allowance, no expense is recognized at the time of charge off to the extent that allowance has been previously provided. See the discussion of loan loss provision expense previously presented for additional information. The allowance for loan losses represents 2.08% of outstanding loans at the end of 2010, compared with 1.70% at December 31, 2009.

We maintain the allowance at a level which we believe adequately provides for losses inherent in the loan portfolio. Such losses are estimated by a variety of factors, including specific examination of certain borrowing relationships and consideration of historical losses incurred on certain types of credits. We focus on early identification of problem credits through ongoing reviews by management, loan personnel and an outside loan review specialist. Please refer to Note 6 of the Notes to Consolidated Financial Statements for more information on impaired loans.

LIQUIDITY AND INTEREST RATE SENSITIVITY

Asset liability management aids us in achieving reasonable and predictable earnings and liquidity while maintaining a balance between interest earning assets and interest bearing liabilities. We maintain a complex interest rate risk modeling system which assists management in understanding the impact of changes in rates, both in the past, and forecasted. This information allows management to make adjustment as to its view toward certain products with regard to rate and term in order to minimize our interest rate risk in a changing rate environment.

Liquidity management involves the ability to meet the cash flow requirements of our customers. These customers may be either borrowers needing to meet their credit requirements or depositors wanting to withdraw funds. Management of interest rate sensitivity attempts to manage the level of varying net interest margins and to achieve consistent net interest income through periods of changing interest rates. The net interest margin was 3.87% in 2010 compared to 3.82% in 2009. The yield on the securities portfolio fell 121 basis points, from 3.09% in 2009 to 2.45% in 2010. Loan yields increased 10 basis points, to 6.45% in 2010, from 6.35% in 2009. Deposit costs decreased 84 basis points from 2.91% in 2008 to 2.07% in 2009. Loan demand was muted through the year as customers were cautious about the economy, resulting in a decrease of $66 million in average loan balances. Average total earning assets increased $52 million as average securities investment increased $90 million and average interest bearing deposits with banks increased $27 million. The interest bearing deposit balances at banks is primarily due to excess balances held at the Federal Reserve.

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Full year average balances in time deposits decreased $19 million compared with the prior year, while average demand and savings balances increased $70 million. The use of Federal Home Loan Bank advances continued to be a significant source of longer term funding; however, average advances decreased from the prior year by $42 million as we utilized increased core deposits to reduce these borrowings.

A decision to decrease deposit rates immediately affects most rates paid, other than time deposits, and has an immediate positive impact on net interest margin. With the exception of variable rate loans, an increase in loan rates does not affect the yield until a new loan is made or an existing loan is renewed. Likewise, an increase in deposit rates raises our cost of funds, and a decrease in loan rates only effects variable rate loans, until such time as a new fixed rate loan is generated, or re-finances. The prime rate is used to price virtually our entire variable rate loan portfolio. Therefore, reductions in the prime rate immediately have a negative effect on earnings, while an increase in prime rate has a positive effect on earnings.

The prime rate, was held constant at 3.25% throughout all of 2009 and 2010 as the Federal Reserve maintained its target fed funds rate at a range of 0 to 0.25% for both years in an effort to get the economy growing again. Prime rate began 2008 at 7.25%, was reduced seven times during the year, beginning with two decreases in January that cumulatively were 1.25%. That was followed by two more reductions in March and April of three quarters of a percent and one quarter of a percent, respectively. With the prime rate at 5.00%, the Federal Reserve went on hold until October. With the economy faltering and a financial credit crunch in process, the Federal Reserve lowered rates by one half a percent twice in October and by three quarters of a percent in December causing the prime rate to fall to its year-end level of 3.25%.

The principal sources of liquidity for us are maturing securities, federal funds purchased or sold, loan payments by borrowers, investment securities, loans held for sale, deposit or deposit equivalent growth and Federal Home Loan Bank advances. Securities maturing or re-pricing within one year at December 31, 2010 were $92 million, compared to $23 million at December 31, 2009. Total investments available for sale were $256 million at year end 2010, an increase of $109 million from the prior year end.

The table below shows the interest sensitivity gaps for five different intervals as of December 31, 2010. Deposits that do not have a fixed maturity date are shown as immediately re-pricing according to reporting conventions.

	Maturity or Re-Pricing Frequency
				(In Millions of Dollars)
	1 Day			2 Days through 3 Months			4 Months through 12 Months			13 Months through 5 Years		More than 5 Years
Interest Earning Assets:
Loans	$	251.9		$	61.0		$	126.1		$	513.8	$	80.1
Securities		0			20.9			71.4			92.1		71.3
Other earning assets		48.2			4.7			3.0			2.7		8.2
Total	$	300.1		$	86.6		$	200.5		$	608.6	$	159.6
Interest Bearing Liabilities:
Deposits		504.4			88.6			246.3			159.2		0
Other interest bearing liabilities		40.3			47.9			9.1			17.1		3.7
Total	$	544.7		$	136.5		$	255.4		$	176.3	$	3.7
Interest Sensitivity Gap	$	(244.6	)	$	(49.9	)	$	(54.9	)	$	432.3	$	155.9
Cumulative Gap	$	(244.6	)	$	(294.5	)	$	(349.4	)	$	82.9	$	238.8

For the one day interval, maturities of interest bearing liabilities exceed those of interest earning assets by $245 million. Included in the one day maturity classification are $430 million in savings and checking accounts which are contractually available to our customers immediately, but in practice, function as core deposits with considerably longer maturities. In the two day through the five year time frame, interest sensitive assets exceed interest sensitive liabilities by $328 million, resulting in a cumulative position of interest sensitive assets exceeding interest sensitive liabilities by $83 million through five years. For the time period greater than five years, the analysis shows an asset sensitive position, such that cumulatively, interest sensitive assets exceed interest sensitive liabilities by $156 million.

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

Interest rate sensitivity varies with different types of interest earning assets and interest bearing liabilities. Overnight investments, on which rates change daily, and loans tied to the prime rate differ considerably from long term investment securities and fixed rate loans. Time deposits over $100,000 and money market accounts are more interest sensitive than regular savings accounts. Comparison of the re-pricing intervals of interest earning assets to interest bearing liabilities is a measure of the interest sensitivity gap, not interest rate risk. Balancing interest rate sensitivity is a continual challenge in a changing rate environment. We use a sophisticated computer program to perform analysis of interest rate risk, assist with our asset and liability management, and measure the expected impact of interest rate changes and our sensitivity to those changes.

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

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

The following table presents, as of December 31, 2010, significant fixed and determinable contractual obligations to third parties by payment date.

(In Thousands of Dollars)
Contractual Obligation	One Year or less		1 - 3 Years		3 - 5 Years		More than 5 Years		Total
Time Deposits	$	333,745	$	123,778	$	35,651	$	76	$	493,250
Federal Funds Borrowed and
Repurchase Agreements		41,328								41,328
Long Term Debt		24,000		9,302		917		6,438		40,658
Subordinated Debt		0						36,084		36,084
Operating Leases		595		994		317		0		1,906

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

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

The following table details the amounts and expected maturities of significant commitments as of December 31, 2010.

(In Thousands of Dollars)
	One Year		One to		Three to		Over
	Or Less		Three Years		Five Years		Five Years		Total
Credit:
Commercial real estate	$	75,729	$	6,202	$	1,793	$	1,443	$	85,167
Residential real estate		1,296		47		10		21,755		23,108
Construction loans		3,586		741		252		23		4,602
Revolving home equity and credit card lines		4,592		13,556		17,614		3,005		38,767
Other		4,545		1,793		1,877		9,569		17,784
Commercial standby letters of credit		15,675		2,472		84		3,080		21,311

15

Commitments to extend credit, including loan commitments, standby letters of credit and commercial letters of credit, do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.  Further discussion of these commitments is included in Note 18 to the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

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

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

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

Loans are reviewed on an ongoing basis for impairment. A loan is impaired when it is probable that we will be unable to collect all amounts due substantially in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the fair value of collateral if the loan is collateral dependent. Loans considered to be impaired are reduced to the present value of expected future cash flow or to the fair value of collateral by allocating a portion of the allowance for loan losses to such loans. If these allocations cause an increase in the calculated allowance for loan losses, such increase is reported as provision for loan loss expense. Increases or decreases in carrying value due to changes in estimates of future payments or the passage of time are reported as reductions or increases in the provision for loan losses.

Smaller balance homogeneous loans such as residential first mortgage loans secured by one to four family residences, residential construction, automobile, home equity and second mortgage loans, are collectively evaluated for impairment. Commercial loans and first mortgage loans secured by other properties are evaluated individually for impairment. When credit analysis of the borrower’s operating results and financial condition indicates the underlying ability of the borrower’s business activity is not sufficient to generate adequate cash flow to service the business’ cash needs, including our loans to the borrower, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 90 days or less. Commercial loans are rated on a scale of 1 to 10, with grades 1 to 4 being satisfactory grades, 5 and 6 special attention or watch, 7 substandard, 8 impaired, 9 doubtful, and 10 loss. Loans graded 6 through 9 are considered for impairment. Loans are generally moved to nonaccrual status when 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

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

16

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

Valuation of Mortgage Servicing Rights Mortgage servicing rights are recognized as assets for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues.

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

Acquisition Intangibles  Generally accepted accounting principles require us to determine the fair value of all of the assets and liabilities of an acquired entity, and record their fair value on the date of acquisition. We employ a variety of means in determination of the fair value, including the use of discounted cash flow analysis, market comparisons, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculation of the value. In other cases, where the value is not easily determined, we consult with outside parties to determine the fair value of the asset or liability. Once valuations have been adjusted, the net difference between the price paid for the acquired company and the value of its balance sheet is recorded as goodwill. Due to the unique market conditions this year and our lower level of earnings, we contracted to have a goodwill impairment analysis completed in the third quarter. The results of that analysis indicated that no impairment existed at that time. See Note 8 to the financial statements for further information on the valuation results.

Uncertain Tax Liabilities Uncertain tax liabilities, primarily Michigan business tax liabilities, are estimated based on our exposures to interpretation of the applicable tax codes. We estimate our contingent tax liabilities by determining the amount of income that may be at risk of an adverse interpretation by taxing authorities on specific issues, multiplied by our effective tax rate, to determine our gross exposure. Once this exposure is determined, an estimate of the probability of an adverse adjustment being required is determined and applied to the gross liability to determine the contingent tax reserve. While changes to Michigan business taxes are likely, they are not expected to affect tax liabilities relating to prior periods.

Recent Accounting Pronouncements

In December 2010, FASB issued ASU No. 2010-28 “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts – a consensus of the FASB Emerging Issues Task Force”. The standard does not provide guidance on how to determine the carrying amount or measure the fair value of the reporting unit but rather modifies the Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. An entity is now required to perform a Step 2  of the goodwill impairment test if it is more likely than not that a goodwill impairment exists through consideration of adverse qualitative factors indicating an impairment may exist. The standard becomes effective for fiscal and interim periods beginning after December 15, 2010 with early adoption not permitted. This pronouncement will have no effect on our consolidated financial statements.

In July 2010, FASB issued ASU No. 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. The standard requires us to expand disclosures about the credit quality of our loans and the related reserves against them. The additional disclosures will include details on our past due loans and credit quality indicators. For public entities, ASU 2010-20 disclosures of period-end balances are effective for interim and annual reporting periods ending on or after December 15, 2010 and are included in Note 6 of the financial statements. Disclosures related to activity that occurs during the reporting period are required for interim and annual reporting periods beginning on or after December 15, 2010. We have adopted the disclosures related to the activity that occurs during the reporting period beginning with the consolidated financial statements contained within this report.

17

In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends the fair value disclosure guidance. The amendments include new disclosures and changes to clarify existing disclosure requirements. ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The impact of ASU 2010-06 on our disclosures is reflected in Note 23 of the consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We face market risk to the extent that both earnings and the fair market values of our financial instruments are affected by changes in interest rates and liquidity of markets. We manage this risk with static GAP analysis and simulation modeling.Our models indicate that we have maintained an overall liability sensitive position, whereby we should benefit as rates decline. These models do not fully incorporate customer preferences and changes in their behavior. As such, we believe we are somewhat less liability sensitive in a downward rate environment than the analysis indicates. In the short run, we expect our net interest margin to be stable to slightly rising as rates on our assets re-price downward at a slower pace than our liabilities. In the longer run as time deposits re-price to lower rates, we believe or net interest margin will be fairly stable, and maintain our overall profitability. As of the date of this annual report we do not know of nor expect there to be any material change in the general nature of our primary market risk exposure in the near term.

Our market risk exposure is mainly comprised of our vulnerability to interest rate risk. We do not accept significant interest rate risk in our mortgage banking operations. To manage our interest rate risk in mortgage banking we generally lock in our sale price to the secondary market at the same time we make a rate commitment to the borrower. Prevailing interest rates and interest rate relationships in the future will be primarily determined by market factors which are outside of our control. All information provided in response to this item consists of forward looking statements. Reference is made to the section captioned “Forward Looking Statements” in this annual report for a discussion of the limitations on our responsibility for such statements.

The following tables provide information about our financial instruments that are sensitive to changes in interest rates as of December 31, 2010 and 2009. They show expected maturity date values for loans and securities which were calculated without adjusting the instruments’ contractual maturity dates for expected prepayments. Maturity date values for interest bearing core deposits were not based on estimates of the period over which the deposits would be outstanding, but rather, the opportunity for re-pricing. We believes that re-pricing dates, as opposed to expected maturity dates, may be more relevant in analyzing the value of such instruments and are reported as such in the following tables. Fair value is computed as the present value of expected cash flows at rates in effect at the date indicated.

POLICY REGARDING THE CONFIDENTIALITY OF REGULATORY EXAMINATIONS

Firstbank Corporation and its affiliate banks are subject to regular examination by government regulators, as are all other banks and bank holding companies. By law we are prohibited from disclosing the ratings and other information contained in those examination reports. These confidentiality requirements are designed to promote the integrity of the examination process and to avoid the results being used as a rating or endorsement of a particular financial institution.

We sometimes receive inquiries about the contents and results of our regulatory examinations. Disclosing that information could violate the confidentiality requirements under federal law. In addition, even partial disclosure taken out of context could result in misunderstanding and misinterpretation. As a result, it is the policy of Firstbank Corporation and its affiliates not to comment on or disclose information regarding regulatory examination reports and related communications. Firstbank Corporation remains committed to disclosing detailed information through the United States Securities and Exchange Commission reporting process. In addition, the quarterly reports of condition reports for each of our banks are available at www.fdic.gov and information regarding our holding company is available at www.federalreserve.gov.

18

Principal/Notional Amounts Maturing or Re-pricing in:	(In Thousands of Dollars)
As of December 31, 2010	2011			2012			2013			2014			2015			Thereafter			Total		Fair Value 12/31/10
Rate Sensitive Assets:
Fixed interest rate loans	$	166,669		$	131,532		$	156,007		$	99,335		$	79,738		$	136,298		$	756,579	$	753,918
Average interest rate		6.72	%		7.00	%		6.65	%		6.80	%		6.30	%		7.47	%
Variable interest rate loans		126,244			34,318			32,116			23,026			15,819			31,873			263,396		255,791
Average interest rate		5.04	%		4.54	%		4.33	%		3.80	%		5.21	%		4.55	%
Fixed interest rate securities		36,589			15,619			35,803			16,500			14,262			122,156			240,929		240,929
Average interest rate		1.42	%		1.62	%		1.77	%		2.26	%		2.47	%		3.31	%
Variable interest rate
Securities																	14,787			14,787		14,787
Average interest rate																	2.60	%
Other interest bearing assets		55,947			1,485			991			198						8,203			66,824		66,824
Average interest rate		0.35	%		1.29	%		1.69	%		1.97	%
Rate Sensitive Liabilities:
Savings and interest bearing
checking		504,139																		504,139		504,157
Average interest rate		0.52	%
Time deposits		334,948			101,060			22,719			16,567			19,083			76			494,453		500,365
Average interest rate		2.20	%		2.12	%		3.40	%		3.12	%		3.08	%		3.50	%
Fixed interest rate
borrowings		24,000			7,802			1,500						917			24,480			58,700		61,628
Average interest rate		2.53	%		2.29	%		2.74	%					4.79	%		6.36	%
Variable interest rate
borrowings																	18,042			18,042		18,107
Average interest rate																	2.00	%
Repurchase agreements		41,328																		41,328		41,328
Average interest rate		0.24	%

As of December 31, 2009	2010			2011			2012			2013			2014			Thereafter			Total		Fair Value 12/31/09
Rate Sensitive Assets:
Fixed interest rate loans	$	192,558		$	125,167		$	136,509		$	138,548		$	104,048		$	135,919		$	832,769	$	835,121
Average interest rate		6.73	%		6.97	%		7.09	%		6.68	%		6.61	%		7.37	%
Variable interest rate loans		162,936			25,478			16,357			31,141			27,686			25,818			289,416		285,969
Average interest rate		4.47	%		4.54	%		4.39	%		3.82	%		5.08	%		4.91	%
Fixed interest rate securities		22,959			43,356			36,482			14,360			8,356			33,927			159,440		159,440
Average interest rate		2.02	%		2.08	%		2.02	%		2.74	%		3.66	%		3.68	%
Variable interest rate
Securities																	318			318		318
Average interest rate																	4.16	%
Other interest bearing assets		80,111															9,084			89,195		89,195
Average interest rate		0.24	%
Rate Sensitive Liabilities:
Savings and interest bearing
checking		429,528																		429,528		429,535
Average interest rate		0.66	%
Time deposits		360,318			151,253			18,019			13,521			8,492			3,598			555,202		560,505
Average interest rate		3.89	%		3.02	%		3.98	%		4.49	%		3.50	%		2.86	%
Fixed interest rate
borrowings		59,419			20,000			3,826			1,500						25,560			110,305		116,386
Average interest rate		5.28	%		2.87	%		3.16	%		2.74	%					6.09	%
Variable interest rate
borrowings		8,000															18,042			26,042		26,083
Average interest rate		0.40	%														2.00	%
Repurchase agreements		39,409																		39,409		39,409
Average interest rate		0.30	%

19

CAPITAL RESOURCES

We obtain funds for our operating expenses and dividends to shareholders through dividends from our subsidiary banks. In general, the subsidiary banks pay only those amounts required to meet holding company cash requirements, while maintaining appropriate capital at the banks. Capital is maintained at the subsidiary banks to support their current operations and projected future growth.

Bank regulators have established risk based capital guidelines for banks and bank holding companies. Minimum capital levels are established under these guidelines and each asset category is assigned a perceived risk weighting. Off balance sheet items, such as loan commitments and standby letters of credit, also require capital allocations.

As of December 31, 2010, our total capital to risk weighted assets exceeded the minimum requirement for capital adequacy purposes of 8% by $79 million. Tier 1 capital to risk weighted assets exceeded the minimum of 4% by $107 million, and Tier 1 capital to average assets exceeded the minimum of 4% by $88 million. In the current economic environment, regulatory agencies are encouraging banks to maintain capital well above this minimum requirement. At year end 2010, our total capital to risk weighted assets exceeded the well capitalized minimum requirement for capital adequacy purposes of 10% by $60 million. Tier 1 capital to risk weighted assets exceeded the well capitalized minimum of 6% by $87 million, and Tier 1 capital to average assets exceeded the well capitalized minimum of 5% by $73 million.

For a more complete discussion of capital requirements please refer to Note 22 of the Notes to Consolidated Financial Statements. The Federal Deposit Insurance Corporation insures specified customer deposits and assesses premium rates based on defined criteria. Insurance assessment rates may vary from bank to bank based on the factors that measure the perceived risk of a financial institution. One condition for maintaining the lowest risk assessment, and therefore, the lowest insurance rate, is the maintenance of capital at the “well capitalized” level. Each of our affiliate banks has exceededs the regulatory criteria for a “well capitalized” financial institution.

A certain level of capital growth is desirable to maintain an appropriate ratio of equity to total assets. The compound annual growth rate for total average assets for the past five years was 11.1%. The compound annual growth rate for average equity over the same period was 13.2%.

We have established an internal goal of maintaining our dividend payout ratio in the range of 20 – 60% of earnings, to generate internal capital growth to support growth in the balance sheet. In 2008 we maintained our dividend payment rate at higher levels and distributed more capital to our shareholders than was generated, resulting in a negative earnings retention percentage. As a result of our earnings in 2008 and the need to preserve capital, the Board of Directors’ reduced the dividend in 2009 to better align with these objectives. Earnings continued under pressure in 2009 and dividends again exceeded earnings, causing a negative retention rate, and resulting in the Board of Directors’ decision to further reduce the dividend in the first quarter and further yet in the second quarter of 2010. To achieve the goal of acceptable internal capital growth, we intend to continue our efforts to return to higher earnings levels, and will adjust our dividend payout rate as appropriate.

As an additional enhancement to capital growth we offer a dividend reinvestment program. The Firstbank Corporation Dividend Reinvestment Plan was first offered in 1988. At December 31, 1988, 123 owners holding 209,856 shares participated in the Plan. By the end of 2010, 1,272 owners holding 1,378,729 shares were participating in the Plan.

To further strengthen our capital position, we elected to participate in the United States Treasury’s Capital Purchase Plan, whereby we issued $33 million of preferred stock and warrants to purchase up to 578,947 shares of our common stock at a price of $8.55, to the United States Treasury on January 30, 2009. The preferred stock issued in this transaction requires a 5% dividend for five years and then converts to a 9% dividend rate.

We are not aware of any recommendations by regulatory authorities at December 31, 2010, which are likely to have a material effect on our liquidity, capital resources or operations.

20

FORWARD LOOKING STATEMENTS

This annual report including, without limitation, management’s discussion and analysis of financial condition and results of operations, and other sections of our Annual Report to Shareholders, contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Company itself. Words such as “anticipate”, “believe”, “determine”, “estimate”, “expect”, “forecast”, “intend”, “is likely”, “plan”, “project”, “opinion”, “should”, variations of such terms, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward looking statements. Internal and external factors that may cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior and customer ability to repay loans; software failure, errors or  miscalculations; the ability of the Company to locate and correct all data sensitive computer codes; and the vicissitudes of the national economy. The Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

COMMON STOCK DATA

Firstbank Corporation Common Stock was held by 1,826 shareholders of record as of December 31, 2010. Total shareholders number approximately 3,400, including those whose shares are held in nominee name through brokerage firms. Our shares are listed on the NASDAQ Global Select Market under the symbol FBMI and are traded by several brokers. The range of high and low sales prices for shares of common stock for each quarterly period during the past two years is as follows:

Quarter	High		Low
4th 2010	$	5.96	$	4.50
3rd 2010	$	5.09	$	4.00
2nd 2010	$	6.99	$	4.23
1st 2010	$	8.25	$	5.88
4th 2009	$	8.75	$	5.44
3rd 2009	$	8.39	$	5.50
2nd 2009	$	7.46	$	5.01
1st 2009	$	9.16	$	4.38

The prices quoted above were obtained from www.NASDAQ.com. Prices have been adjusted to reflect stock dividends.

The following table summarizes cash dividends paid per share (adjusted for stock dividends) of common stock during 2010 and 2009.

	2010		2009
First Quarter	$	0.05	$	0.10
Second Quarter		0.01		0.10
Third Quarter		0.01		0.10
Fourth Quarter		0.01		0.10
Total	$	0.08	$	0.40

Our principal sources of funds to pay cash dividends are the earnings of, and dividends paid by, our subsidiary banks. Under current regulations the subsidiary banks are restricted in their ability to transfer funds in the form of cash dividends, loans, and advances to the holding company (See Note 20 of the Notes to Consolidated Financial Statements). As of January 1, 2011, approximately $24.9 million of the subsidiaries’ retained earnings were available for transfer in the form of dividends to the holding company without prior regulatory approval. In addition, the subsidiaries’ 2011 earnings are expected to be available for distributions as dividends to the holding company. As a condition of our issuance of preferred stock in early 2009, we are prohibited from increasing our dividend above the $0.90 per year paid in 2008 for three years without approval from the United States Treasury Department.

21

STOCK PERFORMANCE

The following graph compares the cumulative total shareholder return on the common stock of the Corporation to the Standard & Poor’s 500 Stock Index and the NASDAQ Bank Index, assuming a $100 investment at the end of 2005. The Standard & Poor’s 500 Stock Index is a broad equity market index. The NASDAQ Bank Index is composed of 446 banks and savings institutions as well as companies performing functions closely related to banking, such as check cashing agencies, currency exchanges, safe deposit companies and corporations for banking abroad.  Cumulative total return is measured by dividing (i) the sum of (A) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (B) the difference between the share price at the end and the beginning of the measurement period; by (ii) the share price at the beginning of the measurement period.

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

	2005		2006		2007		2008		2009		2010
Firstbank Corporation	$	100.00	$	99.91	$	68.11	$	43.12	$	47.92	$	33.80
S & P 500	$	100.00	$	115.80	$	122.16	$	76.96	$	97.33	$	111.99
NASDAQ Bank	$	100.00	$	114.45	$	88.71	$	71.34	$	62.32	$	75.34

22

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

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

The Company's 2010 consolidated financial statements have been audited by Plante & Moran PLLC independent registered public accounting firm. Management has made available to Plante & Moran all financial records and related data, as well as the minutes of Boards of Directors' meetings. Management believes that all representations made to Plante & Moran during the audit were valid and appropriate.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2010. In making this assessment, it used the criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in "Internal Control-Integrated Framework". Based on our assessment management concludes that, as of December 31, 2010, the Company's internal control over financial reporting is effective based on those criteria.

 FIRSTBANK CORPORATION

/s/ Thomas R. Sullivan                                                      

Thomas R. Sullivan

President & Chief Executive Officer

(Principal Executive Officer)

/s/ Samuel G. Stone                                                                

Samuel G. Stone

Executive Vice President & Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: March 11, 2011

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Firstbank Corporation

We have audited the accompanying consolidated balance sheet of Firstbank Corporation as of December 31, 2010 and 2009, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the three years ended December 31, 2010. Our responsibility is to express an opinion on these financial statements and an opinion on the company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Firstbank Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

	/s/ Plante & Moran, PLLC
Grand Rapids, Michigan	Plante & Moran, PLLC

March 11, 2011

24

FIRSTBANK CORPORATION

CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except for Share Data)
	December 31,
ASSETS	2010		2009
Cash and due from banks	$	25,322	$	27,254
Short term investments		48,216		80,111
Total cash and cash equivalents		73,538		107,365
FDIC insured bank time certificates of deposit		10,405		10,250
Trading Account Securities		13		2,828
Securities available for sale		255,703		146,680
Federal Home Loan Bank stock		8,203		9,084
Loans held for sale		1,355		578
Loans, net of allowance for loan losses of $21,431 in 2010 and
$19,114 in 2009		1,010,189		1,102,493
Premises and equipment, net		25,431		25,437
Goodwill		35,513		35,513
Core deposits and other intangibles		2,145		2,940
Other real estate owned		8,316		7,425
Accrued interest receivable and other assets		27,532		31,763
TOTAL ASSETS	$	1,458,343	$	1,482,356
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand accounts	$	185,191	$	164,333
Interest bearing accounts:
Demand		293,900		255,414
Savings		210,239		174,114
Time		494,453		555,202
Total Deposits		1,183,783		1,149,063
Securities sold under agreements to repurchase and overnight borrowings		41,328		39,409
Federal Home Loan Bank advances		40,658		100,263
Subordinated Debentures		36,084		36,084
Accrued interest payable and other liabilities		8,062		10,657
Total Liabilities		1,309,915		1,335,476
SHAREHOLDERS’ EQUITY
Preferred stock; no par value, 300,000 shares authorized, 33,000 issued		32,763		32.734
Common stock, no par value, 20,000,000 shares authorized;
7,803,816 and 7,730,241 shares issued and outstanding in 2010 and 2009		115,224		114.746
Retained earnings/(accumulated deficit)		295		(1,198	)
Accumulated other comprehensive income		146		598
Total Shareholders’ Equity		148,428		146,880
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,458,343	$	1,482,356

See notes to consolidated financial statements.

25

FIRSTBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands of Dollars, Except for Per Share Data)
	Year Ended December 31,
	2010			2009			2008
Interest Income:
Loans, including fees	$	67,390		$	70,531		$	76,604
Securities:
Taxable		3,649			2,712			3,878
Exempt from federal income tax		1,138			1,306			1,408
Short term investments		205			137			301
Total Interest Income		72,382			74,686			82,191
Interest Expense:
Deposits		15,733			18,841			25,468
FHLB Advances and notes payable		3,564			5,350			6,892
Subordinated debentures		1,497			1,612			2,075
Other		96			136			918
Total Interest Expense		20,890			25,939			35,353
Net Interest Income		51,492			48,747			46,838
Provision for loan losses		13,344			14,671			8,256
Net Interest Income after Provision for Loan Losses		38,148			34,076			38,582
Non-Interest Income:
Service charges on deposit accounts		4,576			4,509			4,825
Gain on sale of mortgage loans		5,907			7,551			2,513
Mortgage servicing, net of amortization		(96	)		(471	)		258
Gain/(loss) on trading account securities		3			(213	)		(454	)
Gain/(loss) on securities transactions		4			1,534			(5,463	)
Courier and cash delivery services		174			751			868
Title insurance fees		0			626			335
Other		1,261			1,122			1,108
Total Non-Interest Income		11,829			15,409			3,990
Non-Interest Expense:
Salaries and employee benefits		20,889			22,291			22,231
Occupancy and equipment		5,555			6,248			6,931
FDIC Insurance Premium		2,098			2,430			562
Amortization of intangibles		796			934			1,071
Outside professional services		1,144			934			845
Advertising and promotions		1,684			1,588			1,392
OREO costs		3,513			2,391			1,228
Other		9,023			8,934			8,655
Total Non-Interest Expense		44,702			45,750			42,915
Income or loss before Federal Income Taxes		5,275			3,735			(343	)
Federal Income Taxes		1,512			1,044			(1,062	)
NET INCOME	$	3,763		$	2,691		$	719
Preferred Stock Dividends and Accretion of Discount on Preferred Stock		1,679			1,540			0
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	2,084		$	1,151		$	719
COMPREHENSIVE INCOME
Net Income	$	3,763		$	2,691		$	719
Change in unrealized gain on securities, net of tax
and reclassification effects		(452	)		(288	)		403
TOTAL COMPREHENSIVE INCOME	$	3,311		$	2,403		$	1,122
Basic earnings per common share	$	0.27		$	0.15		$	0.10
Diluted earnings per common share	$	0.27		$	0.15		$	0.10

See notes to consolidated financial statements.

26

FIRSTBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009, AND 2008

(In Thousands of Dollars, Except for Share and per Share Data)

	Common			Preferred Stock		Retained			Accumulated Other Comprehensive			Total
Balances at January 1, 2008	$	111,436				$	6,692		$	483		$	118,611
Net income for 2008							719						719
Cash dividends - $0.90 per share							(6,725	)					(6,725	)
Issuance of 122,469 shares of common stock
through the dividend reinvestment plan		1,284											1,284
Issuance of 8,422 shares of common stock
from supplemental shareholder investments		103											103
Issuance of 42,209 shares of common stock		379											379
Stock option and restricted stock expense		209											209
Net change in unrealized gain/(loss) on
securities available for sale, net of tax of $157	­­­­­					­­­­­				403			403
BALANCES AT DECEMBER 31, 2008	$	113,411				$	686		$	886		$	114,983
Net income for 2009							2,691						2,691
Cash dividends on common stock - $0.40
per share							(3,062	)					(3,062	)
Accrued dividends on preferred stock and
accretion of discount on preferred stock		(27	)		27		(1,513	)					(1,513	)
Issuance of 33,000 shares of preferred stock
and  578,948 warrants through the Treasury’s
Capital Purchase Program		293		$	32,707								33,000
Issuance of 93,730 shares of common stock
through the dividend reinvestment plan		591											591
Issuance of 7,375 shares of common stock
from supplemental shareholder investments		49											49
Issuance of 49,337 shares of common stock		269											269
Stock option and restricted stock expense		160											160
Net change in unrealized gain/(loss) on
securities available for sale, net of tax of $(148)	­­­­­			­­­­­		­­­­­				(288	)		(288	)
BALANCES AT DECEMBER 31, 2009	$	114,746		$	32,734	$	(1,198	)	$	598		$	146,880
Net income for 2010							3,763						3,763
Cash dividends on common stock - $0.08
per share							(620	)					(620	)
Accrued dividends on preferred stock and
accretion of discount on preferred stock		(29	)		29		(1,650	)					(1,650	)
Issuance of 21,933 shares of common stock
through the dividend reinvestment plan		121											121
Issuance of 6,555 shares of common stock
from supplemental shareholder investments		34											34
Issuance of 44,587 shares of common stock		237											237
Stock option and restricted stock expense		115											115
Net change in unrealized gain/(loss) on
securities available for sale, net of tax of $(233)	­­­­­			­­­­­		­­­­­				(452	)		(452	)
BALANCES AT DECEMBER 31, 2010	$	115,224		$	32,763	$	295		$	146		$	148,428

See notes to consolidated financial statements.

27

FIRSTBANK CORPORATION

CONSOLIDATED STATEMENTS OF CASHFLOWS
(In Thousands of Dollars)
	Year Ended December 31,
	2010			2009			2008
OPERATING ACTIVITIES
Net income	$	3,763		$	2,691		$	719
Adjustments to reconcile net income to net cash from
operating activities:
Provision for loan losses		13,344			14,671			8,256
Depreciation of premises and equipment		2,278			2,675			3,174
Net amortization (accretion) of security premiums/discounts		2,161			897			60
(Gain)/Loss on trading account securities		(3	)		213			454
(Gain)/Loss on securities transactions		(4	)		(1,534	)		5,463
Amortization and impairment of intangibles		796			934			1,071
Stock option and restricted stock grant compensation expense		115			160			209
Gain on sale of mortgage loans		(5,907	)		(7,551	)		(2,513	)
Proceeds from sales of mortgage loans		186,040			332,576			112,733
Loans originated for sale		(180,910	)		(324,195	)		(109,904	)
Deferred federal income tax expense/(benefit)		499			900			(3,513	)
Decrease/(increase) in accrued interest receivable and other assets		12,687			(93	)		7,532
(Decrease) in accrued interest payable and other liabilities		(2,595	)		(1,511	)		(5,659	)
NET CASH FROM OPERATING ACTIVITIES		32,264			20,833			18,082
INVESTING ACTIVITIES
Purchase of trading account securities		0			(2,819	)		0
Proceeds from sales of securities available for sale		7,420			10,222			6,435
Proceeds from maturities and calls of securities available for sale		112,836			90,896			124,109
Purchase of securities available for sale		(229,458	)		(144,975	)		(143,925	)
Redemption/(purchase) of Federal Home Loan Bank stock, net		881			0			(1,077	)
Net (increase)/decrease in portfolio loans		69,346			14,703			(46,811	)
Net purchases of premises and equipment		(2,272	)		(1,171	)		(2,559	)
NET CASH USED IN INVESTING ACTIVITIES		(41,247	)		(33,144	)		(63,828	)
FINANCING ACTIVITIES
Net increase in deposits		34,720			102,149			35,523
Net increase/(decrease) in securities sold under agreements to
repurchase and overnight borrowings		1,919			(13,508	)		10,126
Repayment of notes payable and other borrowings		0			(6,353	)		(189	)
Repayment of Federal Home Loan Bank borrowings		(68,605	)		(129,658	)		(82,248	)
Proceeds from Federal Home Loan Bank borrowings		9,000			74,000			100,000
Proceeds from subordinated debentures and other borrowings		0			0			5,676
Cash proceeds from issuance of Preferred Stock and Warrants		0			33,000			0
Cash proceeds from issuance of Common Stock		392			909			1,766
Cash dividends on Preferred Stock		(1,650	)		(1,513	)		0
Cash dividends on Common Stock		(620	)		(3,062	)		(6,725	)
NET CASH FROM/(USED IN) FINANCING ACTIVITIES		(24,844	)		55,964			63,929
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(33,827	)		43,653			18,183
Cash and cash equivalents at beginning of year		107,365			63,712			45,529
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	73,538		$	107,365		$	63,712
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	21,597		$	26,750		$	33,477
Income taxes	$	855		$	1,415		$	2,567
Non cash transfer of loans to other real estate owned	$	10,167		$	11,211		$	5,373

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations:  Firstbank Corporation (the “Company”) is a bank holding company. Each of our subsidiary banks is a full service community bank. The subsidiary banks offer all customary banking services, including the acceptance of checking, savings and time deposits, and the making of commercial, agricultural, real estate, personal, home improvement, automobile and other installment and consumer loans. Our consolidated assets were, $1.458 billion as of December 31, 2010, and primarily represent commercial and retail banking activity. Mortgage loans serviced for others of $617 million, as of December 31, 2010, are not included in the consolidated balance sheet.

Principles of Consolidation:  The consolidated financial statements include the accounts of the Company and its subsidiaries, Firstbank – Alma; Firstbank (Mt. Pleasant); Firstbank – West Branch; Firstbank – St. Johns; Keystone Community Bank and Firstbank – West Michigan (the “Banks”); 1st Armored, Incorporated (sold March 31, 2010); 1st Title, Incorporated; 1st Investors Title, LLC; Austin Mortgage Company; and FBMI Risk Management Services, Inc., after elimination of inter-company accounts and transactions. These subsidiaries are wholly owned, except 1st Investors Title, LLC, which we held a 48% share at December 31, 2010. We do not consolidate their results into the results of the Company as required by accounting principles. Firstbank – Lakeview was merged into Firstbank (Mt. Pleasant) in 2008. Each of our six banks operates its own Mortgage Company. Keystone Community Bank also owns Keystone Premium Finance, LLC, which has been in the business of financing large dollar insurance premiums and was closed during 2008. The operating results of these companies are consolidated into each Bank’s financial statements. During 2004 we formed a special purpose trust, Firstbank Capital Trust I, in 2006 we formed Firstbank Capital Trust II, and in 2007 we formed Firstbank Capital Trust III and Firstbank Capital Trust IV, for the sole purpose of issuing trust preferred securities. These trusts are not consolidated into our financial statements.

Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ from those estimates.

Certain Significant Estimates:  The primary estimates incorporated into our financial statements, which are susceptible to change in the near term, include the allowance for loan losses, the determination of the fair value of certain financial instruments, determination of state and federal tax assets and liabilities, goodwill, purchase accounting and core deposit intangible valuations, valuation of other real estate owned, and the valuation of mortgage servicing rights.

Current Vulnerability Due to Certain Concentrations:  Our business is concentrated in the mid-central and southwestern sections of the lower peninsula of Michigan. While the loan portfolio is diversified, the customers’ ability to honor their debts is partially dependent on the local economies. Our service area is primarily dependent on manufacturing (automotive and other), agricultural and recreational industries. Most commercial and agricultural loans are secured by business assets, including commercial and agricultural real estate and federal farm agency guarantees. Generally, consumer loans are secured by various items of personal property and mortgage loans are secured by residential real estate. Our funding sources include time deposits and other deposit products which bear interest. Periods of rising interest rates result in an increase in our cost of funds and an increase in the yields on certain assets. Conversely, periods of falling interest rates result in a decrease in yields on certain assets and costs of certain funds.

Cash and Cash Equivalents:  Cash and cash equivalents include cash on hand, amounts due from banks and short term investments with an original maturity of 90 days or less, which include interest bearing deposits with banks and the Federal Reserve, federal funds sold, and overnight money market fund investments. Generally, federal funds and overnight money market funds are purchased for a one day period. We report customer loan transactions, deposit transactions and repurchase agreements and overnight borrowings on a net basis within our cash flow statement.

Trading Account Securities: From time to time, we invest in the common stock of other companies. Trading account securities are adjusted to fair value through the income statement, with increases in value reflected as non-interest income and decreases in value reflected as a decrease to non-interest income.

29

Securities Available for Sale:  Securities available for sale consist of bonds and notes which might be sold prior to maturity due to changes in interest rate, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Securities classified as available for sale are reported at their fair value and the related unrealized holding gain or loss (the difference between the fair value and amortized cost of the securities so classified) is reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method.  Gains and losses on sales are recorded on the trade date and are determined using the specific identification method.

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

Mortgage Banking Activities:  Servicing rights are recognized as assets based on the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

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

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

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

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

Loans:  Loans receivable, for which management has the intent and ability to hold for the foreseeable future or payoff are reported at their outstanding unpaid principal balances, net of any deferred fees or costs on originated loans, unamortized premiums or discounts. Loan origination fees and certain origination costs are capitalized and recognized as an adjustment to yield of the related loan. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term without anticipating prepayments. Interest income on mortgage and commercial loans is discontinued at the time the loan becomes 90 days delinquent unless the credit is well secured and in process of collection. Consumer and unsecured consumer line of credit loans are typically charged off no later than 120 days past due. Loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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

Allowance for Loan Losses:  The allowance for loan losses is a valuation allowance for probable incurred credit losses. Management uses a quantitative and qualitative methodology for analyzing factors which impact the allowance for loan losses consistently across its six banking subsidiaries. The process applies risk factors for historical charge-offs and delinquency experience, portfolio segment weightings and industry and regional factors and trends as they affect the banks’ portfolios. Consideration of exposures to industries potentially most affected by risks in the current economic and political environment, and the review of potential risks in certain credits that are considered part of the non-performing loan category contributed to the establishment of the allowance levels at each bank. Loan losses are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

30

Loans are reviewed on an ongoing basis for impairment. A loan is impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the fair value of collateral, if the loan is collateral dependent. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral by allocating a portion of the allowance for loan losses to such loans. If these allocations cause an increase in the allowance for loan losses such increase is reported as provision for loan loss through the income statement. Increases or decreases in carrying value due to changes in estimates of future payments or the passage of time are reported as reductions or increases in the provision for loan losses.

Smaller balance homogeneous loans such as residential first mortgage loans secured by one to four family residences, residential construction, automobile, home equity and second mortgage loans, are collectively evaluated for impairment. Commercial loans and first mortgage loans secured by other properties are evaluated individually for impairment. When credit analysis of the borrower’s operating results and financial condition indicates the underlying ability of the borrower’s business activity is not sufficient to generate adequate cash flow to service the business’ cash needs, including our loans to the borrower, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 90 days or less. Commercial and commercial real estate loans are rated on a scale of 1 to 10, with grades 1 to 4 being pass grades, 5 watch, 6 special mention, 7 substandard, 8 impaired, 9 doubtful and 10 loss. Loans graded 6, 7, and 8 are reviewed for possible impairment at least quarterly. Loans are generally moved to nonaccrual status when 90 days or more past due and considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Premises and Equipment:  Premises and equipment are stated on the basis of cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the assets, primarily by accelerated methods for income tax purposes and by the straight line method for financial reporting purposes.  Buildings and related components are assigned useful lives ranging from 5 to 33 years. Furniture, fixtures and equipment are assigned useful lives ranging from 3 to 10 years.

Other Real Estate Owned:  Other real estate owned includes properties acquired through either a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and is initially recorded at the fair value less estimated carrying and selling costs when acquired, establishing a new cost basis. These properties are evaluated periodically and, if fair value is deemed to have declined subsequent to foreclosure, a valuation allowance is recorded through noninterest expense. Costs incurred for the property after foreclosure are expensed as incurred. Other real estate owned totaled $8.3 million and $7.4 million at December 31, 2010 and 2009. Gains and losses on the sale of other real estate owned are recorded on the income statement as other income.

The following table summarizes the activity associated with other real estate owned.

(In Thousands of Dollars)	2010			2009
Balance at beginning of year	$	7,425		$	5,382
Properties transferred into OREO		10,167			11,211
Valuation impairments recorded		(2,307	)		(1,271	)
Proceeds from sale of properties		(6,645	)		(7,561	)
Gain or (loss) on sale of properties		(324	)		(336	)
Balance at end of year	$	8,316		$	7,425

Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed if conditions in the market place or changes in the company’s organizational structure occur. We use a discounted income approach and a market valuation model, which compares the inherent value of our company to valuations of recent transactions in the market place to determine if our goodwill has been impaired.

31

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

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

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

Income Taxes:  We record income tax expense based on the amount of taxes due on our tax return plus the change in deferred taxes, computed based on the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is recorded, if needed, and reduces deferred tax assets to the amount expected to be realized.

Earnings Per Share:  Basic earnings per share is calculated by dividing net income available for common shareholders (net income less preferred stock dividends and accretion of the preferred stock discount) by the weighted average number of common shares outstanding.  Diluted earnings per share is calculated by dividing net income available for common shareholders by the weighted average common shares outstanding including the dilutive effect of additional common shares that may be issued under outstanding stock options and warrants.

Comprehensive Income:  Comprehensive income consists of net income and changes in unrealized gains and losses on securities available for sale, net of tax, which is recognized as a separate component of equity. Accumulated other comprehensive income consists of unrealized gains and losses on securities available for sale, net of tax.

Recent Accounting Pronouncements

In December 2010, FASB issued ASU No. 2010-28 “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts – a consensus of the FASB Emerging Issues Task Force”. The standard does not provide guidance on how to determine the carrying amount or measure the fair value of the reporting unit but rather modifies the Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. An entity is now required to perform a Step 2  of the goodwill impairment test if it is more likely than not that a goodwill impairment exists through consideration of adverse qualitative factors indicating an impairment may exist. The standard becomes effective for fiscal and interim periods beginning after December 15, 2010 with early adoption not permitted. This pronouncement will have no effect on our consolidated financial statements.

In July 2010, FASB issued ASU No. 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. The standard requires us to expand disclosures about the credit quality of our loans and the related reserves against them. The additional disclosures will include details on our past due loans and credit quality indicators. For public entities, ASU 2010-20 disclosures of period-end balances are effective for interim and annual reporting periods ending on or after December 15, 2010 and are included in Note 6 - Loans of the financial statements. Disclosures related to activity that occurs during the reporting period are required for interim and annual reporting periods beginning on or after December 15, 2010. We will adopt the disclosures related to the activity that occurs during the reporting period beginning with our March 31, 2011 consolidated financial statements.

Effect of Newly Issued Accounting Standards:

In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.”  ASU 2010-06 amends the fair value disclosure guidance. The amendments include new disclosures and changes to clarify existing disclosure requirements.  ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The impact of ASU 2010-06 on our disclosures is reflected in Note 23 -Fair Value of the consolidated financial statements.

32

Loss Contingencies:  Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements as of December 31, 2010.

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

Reclassification:  Certain 2008 and 2009 amounts may have been reclassified to conform to the 2010 presentation.

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

NOTE 2 – ACQUISITIONS AND DIVESTITURES

On March 31, 2010, we sold our 1st Armored, Inc. armored car company. No gain or loss was recorded on the transaction. Historical earnings from 1st Armored, Inc. are included in the financial statements presented through the date of its sale within this report. Financial results subsequent to March 31, 2010 are excluded for 1st Armored, Inc. as the sale transaction was completed on that date.

NOTE 3 – RESTRICTIONS ON CASH AND DUE FROM BANKS

Our subsidiary banks are required to maintain average reserve balances in the form of cash and non-interest bearing balances due from the Federal Reserve Bank. The average reserve balances required to be maintained during 2010 and 2009 were $9,471,000 and $8,189,000, respectively. These balances do not earn interest.

NOTE 4 – SECURITIES

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

(In Thousands of Dollars)	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
Securities Available for Sale:
December 31, 2010:
Treasury notes	$	12,530	$	17	$	0
U.S. governmental agency		82,897		632		(130	)
States and political subdivisions		48,087		255		(446	)
Collateralized Mortgage Obligations		110,542		591		(694	)
Equity		1,647		0		(3	)
Total	$	255,703	$	1,495	$	(1,273	)
December 31, 2009:
Treasury notes	$	1,002	$	4	$	0
U.S. governmental agency		98,183		431		(200	)
States and political subdivisions		33,818		510		(217	)
Collateralized Mortgage Obligations		10,339		338		(2	)
Equity		3,338		172		(130	)
Total	$	146,680	$	1,455	$	(549	)

Securities with unrealized losses at year end 2010 and 2009 not recognized in income are as follows:

33

(In Thousands of Dollars)	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair  Value		Unrealized Loss
December 31, 2010
US Government Agencies	$	12,750	$	(130	)	$	0	$	0		$	12,750	$	(130	)
States and Political Subdivisions		19,284		(245	)		4,883		(201	)		24,167		(446	)
Collateralized Mortgage Obligations		65,378		(694	)		0		0			65,378		(694	)
Equity		0		0			31		(3	)		31		(3	)
Total Temporarily Impaired	$	97,412	$	(1,069	)	$	4,914	$	(204	)	$	102,326	$	(1,273	)
December 31, 2009
US Government Agencies	$	29,394	$	(200	)	$	0	$	0		$	29,394	$	(200	)
States and Political Subdivisions		4,855		(182	)		2,618		(35	)		7,473		(217	)
Collateralized Mortgage Obligations		1,410		(2	)		0		0			1,410		(2	)
Equity		94		(56	)		126		(74	)		220		(130	)
Total Temporarily Impaired	$	35,753	$	(440	)	$	2,744	$	(109	)	$	38,497	$	(549	)

Unrealized losses on securities shown in the previous tables have not been recognized into income because management has the intent and ability to hold these securities for the foreseeable future. The decline in market value is due to changes in interest rates for debt securities and considered normal market fluctuations for equity securities. Management has also reviewed the issuers’ bond ratings, noting they are of high credit quality.

Trading account securities are marked to market with the change in value reported on the income statement. Gains and losses on available for sale securities are recognized if the security is either deemed to be other than temporarily impaired, or the security is sold. During 2008 as the credit markets seized up and the market for auction rate securities became illiquid, the value of those securities fell substantially. We determined that due to the uncertainty surrounding the recoverability of the value of these securities, an other than temporary impairment charge was appropriate. During 2009 we had two securities which were written down for other than temporary impairment by a total of $150,000. During 2010 we sold one of the two previously mentioned securities and recognized an additional $26,000 loss. Due to continuing problems within the other security, we recorded other than temporary impairment of $150,000 bringing the carrying value of that security to zero. These securities were trust preferred securities of Michigan banks that had a combined original book value of $500,000. The following table shows gross gains and losses on investment securities for the three year period:

(In Thousands of Dollars)	2010			2009			2008
Trading Account Securities Gains/Losses	$	3		$	(213	)	$	(454	)
Available for Sale Securities
Other than temporary impairment losses	$	(150	)	$	(150	)	$	(5,443	)
Gross realized gains		200			1,814		$	139
Gross realized losses		(46	)		(130	)		(159	)
Net realized gains (losses)	$	4		$	1,534		$	(5,463	)

The fair value of securities at December 31, 2010, by stated maturity, is shown below. Actual maturities may differ from stated maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands of Dollars)	Fair Value
Due in one year or less	$	36,589
Due after one year through five years		82,185
Due after five years through ten years		68,691
Due after ten years		66,591
Total		254,056
Equity securities		1,647
Total securities	$	255,703

At December 31, 2010 and 2009, securities with carrying values approximating $157,764,000 and $101,187,000 were pledged to secure public trust deposits, securities sold under agreements to repurchase, and for such other purposes as required or permitted by law.

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Federal Home Loan Bank stock is carried at cost, which approximates fair value.

NOTE 5 – LOAN SERVICING

Loans held for sale at year end are as follows:

(In Thousands of Dollars)
	2010			2009
Loans held for sale	$	1,358		$	578
Less: Allowance to adjust to lower of cost or market		(3	)		0
Loans held for sale, net	$	1,355		$	578

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

(In Thousands of Dollars)
	2010		2009
Mortgage loan portfolios serviced for:
Federal Home Loan Mortgage Association	$	617,558	$	599,624
Federal National Mortgage Association	$	1,942	$	2,535
Federal Home Loan Bank	$	3,188	$	3,617

Custodial escrow balances maintained in connection with serviced loans were $1,477,000 and $1,158,000 at year end 2010 and 2009.

Activity for capitalized mortgage servicing rights, included in other assets on the Consolidated Balance Sheet, was as follows:

(In Thousands of Dollars)
	2010			2009			2008
Servicing rights:
Beginning of year	$	3,705		$	2,370		$	2,284
Additions		2,428			3,056			1,038
Amortized to expense		(1,530	)		(1,721	)		(954	)
Valuation (Impairment)/Recovery		0			0			2
End of year	$	4,603		$	3,705		$	2,370

Management has determined that no valuation allowance was necessary at December 31, 2010, 2009, or 2008. A recovery of $2 thousand was recorded in 2008.

The fair value of mortgage servicing rights was $6,067,000 and $5,422,000 at year end 2010 and 2009. Fair value at the end of 2010 was determined using a discount rate of 7.97%, prepayment speeds ranging from 170% to 270%, depending on the stratification of the specific right, and a weighted average delinquency rate of 1.38%. At the end of 2009, fair value was determined using a discount rate of 8.41%, prepayment speeds ranging from 170% to 270%, depending on the stratification of the specific right, and a weighted average delinquency rate of 1.53%

The weighted average amortization period is 4.4 years.  Estimated amortization expense for each of the next five years is:

(In Thousands of Dollars)
2011	$	862
2012	$	714
2013	$	602
2014	$	502
2015	$	408

35

NOTE 6 – LOANS

Loans at year end were as follows:

(In Thousands of Dollars)	2010		2009
Commercial	$	164,413	$	192,096
Mortgage Loans on Real Estate:
Residential		352,652		376,683
Commercial		373,996		397,863
Construction		81,016		85,229
Consumer		54,759		63,403
Credit Card		4,784		6,333
Subtotal		1,031,620		1,121,607
Less:
Allowance for loan losses		21,431		19,114
Loans, net	$	1,010,189	$	1,102,493

Allowance for Loan Losses

The allowance for loan losses is determined based on management’s estimate of losses incurred within the loan portfolio. We rely on historical loss rates in conjunction with our judgment of the current environment to determine the appropriate level for the allowance at the end of each reporting period. The loan portfolio is segmented into five loan types: commercial and industrial loans, commercial real estate loans; consumer loans; residential mortgages – first liens; and residential mortgage – junior liens. These segments are further segment by credit quality classifications. For commercial and industrial loan and commercial real estate loans, these segments are based on our loan grading system described previously in Note 1. For consumer and residential mortgage loans, loans are segmented based on delinquency and nonaccrual categories. All loan segments also contain a separate category for restructured loan if they exist.

Commercial and industrial and commercial real loans graded as pass or watch, are assigned a unique pooled loss rate based on historical losses incurred over the prior three years. The losses are weighted for each year, with the most recent 12 month period receiving a higher weight and the oldest 12 month period receiving a lower weight in the calculation of the historical loss. We then adjust the calculated historical loss rate up or down based on current environmental factors. These adjustments include items such as current unemployment rates, changes in the value of underlying collateral, and other observable items that indicate trends in asset quality. The current outstanding balance for each of these grades is then multiplied by the adjusted historical loss factor to determine the amount of allowance for loan losses to reserve on that pool of loans.

Loans graded special mention or substandard use a shorter 12 month loss history to determine the loss rate. Losses over the preceding 12 month period are divided by the average balance outstanding of substandard and impaired loans to determine a historical loss rate. That calculated historical loss rate is multiplied by a migration rate (rate at which special mention loan move to a more sever risk category) to determine the loss rate for special mention loans. The calculated historical loss rate, without adjustment for migration, is used for substandard loans.

Loans graded as impaired or restructured are reviewed individually for reserves. A specific reserve is established within the allowance for the difference between the carrying value of the loan and its calculated value. To determine the value of the loan, the present value of expected cash flows, the collateral value, or some combination of the two is used. The specific reserve is established as the difference between the carrying value of the loan and the calculated value.

For consumer and residential loan segments, loans that are current, or less than 60 days past due are each assigned a historical loss factor as described above for commercial pass and watch loans. For loans that are more than 60 days or more past due, a loss factor is determined based on charge offs within the last 12 months, divided by the sum of the average balance of loans 60 days or more past due and nonaccrual loans. These loss factors are multiplied by the outstanding balances in each segment at the end of the reporting period to determine the amount of allowance for loan loss.

After each of the steps outlined above is completed, the results are aggregated and compared with the existing balance of the allowance for loan losses. If the resulting calculation is greater than the balance, the allowance for loan losses is increased through a charge to earnings on the provision for loan losses line. If the resulting balance is below the current balance of the allowance for loan losses, a reversal of the provision for loan losses is recorded.

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Activity in the allowance for loan losses was as follows:

In Thousands of Dollars)
	2010			2009			2008
Beginning balance	$	19,114		$	14,594		$	11,477
Provision for loan losses		13,344			14,671			8,256
Loans charged off		(11,963	)		(11,185	)		(5,815	)
Recoveries		936			1,034			676
Ending balance	$	21,431		$	19,114		$	14,594

Detailed analysis of the allowance for loan losses for the current year is as follows:

(In Thousands of Dollars)
2010	Beginning Balance		Charged off			Recoveries		Provision			Ending Balance
Commercial & Industrial
Pass loans	$	1,920						$	(528	)	$	1,392
Watch loans		309							(115	)		194
Special mention loans		662							(422	)		240
Substandard loans		590							(204	)		386
Impaired loans		159	$	(1,707	)	$	279		1,930			661
Doubtful loans		0							115			115
Restructured loans		0	_			_			36			36
Total Commercial & Industrial		3,640		(1,707	)		279		812			3,024
Commercial Real Estate
Pass loans		4,067							143			4,210
Watch loans		708							(8	)		700
Special mention loans		910							429			1,339
Substandard loans		1,519							(80	)		1,439
Impaired loans		3,269		(6,366	)		46		6,951			3,900
Doubtful loans		0							188			188
Restructured loans		0	_			_			599			599
Total Commercial Real Estate		10,473		(6,366	)		46		8,222			12,375
First lien residential mortgage loans
Performing loans		1,392							345			1,737
Loans > 60 days past due		648							(17	)		631
Nonaccrual loans		462		(2,602	)		216		3,447			1,523
Restructured loans		0	_				0		69			69
Total First lien residential mortgage loans		2,502		(2,602	)		216		3,844			3,960
Junior lien residential mortgage loans
Performing loans		558							5			563
Loans > 60 days past due		242							(198	)		44
Nonaccrual loans		167		(186	)				186			167
Total Junior lien residential mortgage loans		967		(186	)				(7	)		774
Consumer Loans
Performing loans		1,178							(276	)		902
Loans > 60 days past due		179							(20	)		159
Nonaccrual loans		168		(1,102	)		395		640			101
Total Consumer Loans		1,525		(1,102	)		395		344			1,162
Unallocated Allowance		7	_			_			128			136
Total	$	19,114	$	(11,963	)	$	936	$	13,344		$	21,431

37

Age Analysis of Past Due Loans

(In thousands of dollars)
At December 31, 2010	30-69 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Accruing Loans
Commercial and Industrial	$	916	$	400	$	0	$	1,316	$	159,532	$	160,848
Commercial Real Estate		3,514		981		18		4,513		352,615		357,128
Residential Mortgages 1st Liens		1,025		1,529		573		3,127		349,086		352,213
Residential Mortgages Junior Liens		628		148		0		776		74,934		75,710
Consumer		703		273		15		991		58,368		59,359
Total	$	6,786	$	3,331	$	606	$	10,723	$	994,535	$	1,005,258

At December 31, 2009
Commercial and Industrial	$	2,105	$	491	$	183	$	2,779	$	185,741	$	188,520
Commercial Real Estate		4,023		1,038		408		5,469		369,449		374,918
Residential Mortgages 1st Liens		1,427		3,063		2,473		6,963		365,587		372,550
Residential Mortgages Junior Liens		898		217		31		1,146		84,395		85,541
Consumer		1,196		230		126		1,552		67,849		69,401
Total	$	9,649	$	5,039	$	3,221	$	17,909	$	1,073,021	$	1,090,930

Impaired loans were as follows:

(In Thousands of Dollars)
	2010		2009		2008
Year end loans with no allocated allowance for loan losses
Commercial and Industrial	$	833	$	5,159	$	4,732
Commercial Real Estate		7,713		14,975		8,899
Residential Mortgages 1st Liens		8,789		5,011		3,054
Residential Mortgages Junior Liens		556		370		58
Consumer		184		335		231
Total	$	18,075	$	25,850	$	16,974
Year end loans with allocated allowance for loan losses
Commercial and Industrial	$	2,768	$	1,983	$	1,889
Commercial Real Estate		14,923		9,950		918
Residential Mortgages 1st Liens		652		0		39
Residential Mortgages Junior Liens		0		0		0
Consumer		0		0		37
Total	$	18,343	$	11,923	$	2,884
Amount of the allowance for loan losses allocated	$	5,529	$	3,428	$	2,885

(In Thousands of Dollars)	2010		2009		2008
Nonaccrual loans at year end
Commercial and Industrial	$	3,565	$	3,576	$	6,511
Commercial Real Estate		16,868		22,945		9,817
Residential Mortgages 1st Liens		5,189		3,451		2,928
Residential Mortgages Junior Liens		556		370		58
Consumer		184		335		268
Total nonaccrual loans	$	26,362	$	30,677	$	19,582
Restructured Loans
Commercial and Industrial	$	36	$	3,566	$	110
Commercial Real Estate		5,768		1,980		0
Residential Mortgages 1st Liens		4,252		1,560		165
Total restructured loans	$	10,056	$	7,106	$	275
Loans past due over 90 days still on accrual at year end
Commercial and Industrial	$	0	$	183	$	1,447
Commercial Real Estate		18		408		663
Residential Mortgages 1st Liens		573		2,473		2,638
Residential Mortgages Junior Liens		0		31		152
Consumer		15		126		82
Total loans past due 90 days and on accrual at year end	$	606	$	3,221	$	4,982
Average of impaired loans during the year
Commercial and Industrial	$	5,051	$	6,030	$	7,672
Commercial Real Estate		21,341		18,066		11,970
Residential Mortgages 1st Liens		256		472		320
Residential Mortgages Junior Liens		6,218		4.046		3,426
Consumer		312		433		14
Total	$	33,178	$	29,047	$	23,402
Interest income recognized during impairment		1,010		718		454
Cash-basis interest income recognized		157		58		52

38

Approximately $101.9 million and $25.8 million of commercial loans were pledged to the Federal Reserve Bank of Chicago discount window at December 31, 2010 and 2009, respectively, to secure potential overnight borrowings.

NOTE 7 – PREMISES AND EQUIPMENT

Year end premises and equipment were as follows:

(In Thousands of Dollars)	2010			2009
Land	$	6,213		$	5,692
Buildings		32,546			31,937
Furniture, fixtures and equipment		17,922			19,472
Total		56,681			57,101
Less:
Accumulated depreciation		(31,250	)		(31,664	)
Total	$	25,431		$	25,437

Depreciation expense was $2,261,000, $2,675,000, and $3,174,000 for 2010, 2009, and 2008. Facility rent expense was $403,000 in 2010 compared with $356,000 for 2009, and $410,000 for 2008. Equipment rent expense was $252,000 in 2010 compared with $279,000 for 2009, and $334,000 for 2008. Rental commitments for the next five years under non-cancelable operating leases were as follows (before considering renewal options that generally are present):

(In Thousands of Dollars)
	Facilities		Equipment		Total
2011	$	377	$	217	$	594
2012		384		211		595
2013		392		7		399
2014		201		3		204
2015		110		2		112
Total	$	1,464	$	440	$	1,904

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

During the third quarter of 2010 we commissioned a third party to complete an impairment analysis of our goodwill. The results of that test showed that no impairment existed at that time based on the assumptions used to value the company. We determined that the appropriate reporting level to evaluate the company was the total company. The standard for the valuation used was fair value defined as the price that would be received to sell the company as a whole in an orderly transaction between market participants at the measurement date. In addition, we assumed that synergies and other cost reductions of 15% would occur from a change of control in determination of the fair value.

The analysis included two approaches to determine the fair value; the income approach, where value was determined using a discounted cash flow of projected earnings capacity, including synergies, using a 12% discount rate; and the market approach, where value was determined using price-to-earnings, price-to-tangible book value and core deposit premiums of similar sized transactions. These measures were compiled and a composite value determined. This composite value was compared to the carrying value of common equity to determine if impairment existed. Since the calculated fair value exceeded the carrying value of equity by 3.3% no impairment was recorded. As of the date the testing was completed, management concurred with the result provided by the third party used for the analysis.

39

Assumptions for future earnings and synergies are inherently uncertain and actual results could differ from these assumptions. If future earnings do not achieve the estimates used in the modeling, or future valuations for transactions in the market change, the results of future testing could be different, possibly resulting in impairment of our goodwill at a future date.

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

(In Thousands of Dollars)
	2010		2009
Balance at January 1	$	35,513	$	35,603
Goodwill from acquisitions/(divestitures)		0		(90	)
Balance at December 31	$	35,513	$	35,513

Acquired Intangible Assets

Acquired intangible assets at year end were as follows:       

(In Thousands of Dollars)

2010	Gross  Amount		Accumulated Amortization		Net Carrying Amount
Amortized intangible assets:
Core deposit premium resulting from
bank and branch acquisitions	$	7,930	$	5,786	$	2,145
2009
Amortized intangible assets:
Core deposit premium resulting from
bank and branch acquisitions	$	7,930	$	4,990	$	2,940
Other customer relationship intangibles		271		271		0
Total	$	8,201	$	5,261	$	2,940

Aggregate amortization expense was $796,000, $934,000, and $1,071,000 for 2010, 2009, and 2008, respectively. The amount shown as core deposit premium at December 31, 2009 is net of a write off from sale of our Auburn branch in the second quarter of 2009 which had a gross amount of $99,000 and accumulated amortization of $92,000. Our estimated amortization expense for each of the next five years is:

 (In Thousands of Dollars)

Year	Amount
2011	$	697
2012	$	482
2013	$	370
2014	$	278
2015	$	185

NOTE 9 – FEDERAL INCOME TAXES

Federal income taxes consist of the following:

(In Thousands of Dollars)	2010		2009		2008
Current expense	$	1,013	$	144	$	2,451
Deferred expense (benefit)		14		241		(3,513	)
Change in deferred tax valuation allowance		485		659		0
Total	$	1,512	$	1,044	$	(1,062	)

40

A reconciliation of the difference between federal income tax expense and the amount computed by applying the federal statutory tax rate of 35% in 2010, 2009 and 2008 is as follows:

(In Thousands of Dollars)	2010			2009			2008
Tax at statutory rate	$	1,846		$	1,307		$	(120	)
Effect of tax-exempt interest		(489	)		(554	)		(604	)
Deferred tax valuation allowance		485			659			0
Other		(330	)		(368	)		(338	)
Federal income taxes	$	1,512		$	1,044		$	(1,062	)
Effective tax rate		29	%		28	%		322	%

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

(In Thousands of Dollars)
	2010			2009
Deferred tax assets:
Allowance for loan losses	$	5,215		$	5,850
Deferred compensation		0			1,318
Losses on capital investments		1,920			1,836
Other		675			745
Total deferred tax assets		7,810			9,749
Deferred tax liabilities:
Fixed assets		(982	)		(1,852	)
Mortgage servicing rights		(1,263	)		(1,019	)
Purchase accounting adjustments		(127	)		(785	)
Unrealized gain on securities available for sale		(75	)		(308	)
Other		(620	)		(726	)
Total deferred tax liabilities		(3,067	)		(4,690	)
Net deferred tax assets		4,743			5,059
Deferred tax valuation allowance		(1,143	)		(659	)
Net deferred tax assets	$	3,600		$	4,400

A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part of the benefits related to such assets will not be realized. In reviewing the company’s position relative to deferred tax assets associated with certain incurred capital losses, management determined that a valuation adjustment of $1,143,000 was necessary at year end 2010 compared with $659,000 at year end 2009. These valuation adjustments are recorded through the income statement on the Federal income tax line item. Based on this determination, a non-cash charge was made to record the valuation adjustment, reducing the deferred tax asset, and increasing income tax expense by $485,000 in 2010 and $659,000 in 2009. The establishment of a valuation allowance does not relinquish our rights to utilize the deferred asset, but rather recognizes that at the current time management does not believe the deferred asset will be able to be utilized prior to its expiration. The deferred assets for which the valuation allowance was established were related to capital losses for which we do not believe we will have capital gains to offset. These assets are: $70,000 to expire in 2012, and $589,000 to expire in 2015 and $485,000 for which there is not an expiration date, as we have not sold the underlying stock.

Losses on capital investments have a three year carry back and five year carry forward time period for offset. The timeframe begins with the sale of the investment. Certain tax planning strategies have been established, including the possible sale and leaseback of certain of our facilities that management believes could be executed if necessary to retain the benefits listed above.

Net deferred tax assets at December 31, 2010 and 2009 are included in other assets in the accompanying consolidated balance sheets.

NOTE 10 – DEPOSITS

Time deposits of $100,000 or more were $213 million and $243 million at year end 2010 and 2009. There were $6.7 million and $19.6 million of brokered CDs included in time deposits of $100,000 or more in 2010 and 2009 respectively.

41

Scheduled maturities of time deposits at December 31, 2010 were as follows:

(In Thousands of Dollars)
Year	Amount
2011	$	333,902
2012		101,541
2013		23,013
2014		16,787
2015		19,134
2016 and after		76
Total	$	494,453

NOTE 11 – BORROWINGS

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

(In Thousands of Dollars)
	2010			2009
At December 31:
Outstanding Balance	$	41,328		$	39,409
Average Interest Rate		0.19	%		0.29	%
Daily Average for the Year:
Outstanding Balance	$	40,338		$	44,933
Average Interest Rate		0.24	%		0.30	%
Maximum Outstanding at any Month End	$	46,477		$	50,148

Securities sold under agreements to repurchase (repurchase agreements) generally have original maturities of less than one year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of the Company and are primarily held in safekeeping by correspondent banks. Repurchase agreements are offered principally to certain large deposit customers as deposit equivalent investments.

We had no unsecured overnight borrowings, in the form of federal funds purchased at December 31, 2010. There were no overnight borrowings at December 31, 2009.

We had a variable rate line of credit agreement with Comerica Bank, which allowed for an aggregate principal amount of $30 million. In 2008 we accessed the line to provide working capital and had an outstanding balance of $5.6 million at year end. On January 30, 2009, we repaid the balance and cancelled the line. A new line of credit of $6.0 million was established with the PrivateBank in early 2009. That line was never utilized and we chose to cancel it at year-end 2009. We currently do not have a line of credit agreement.

NOTE 12 – FEDERAL HOME LOAN BANK ADVANCES

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

(In Thousands of Dollars)
	2010		2009
Borrowings with a fixed rates at year end	$	40,658	$	92,263
Borrowings with a variable rate of interest at year end	$	0	$	8,000

Fixed rate advances shown above ranged in the interest rate owed from 0.73% to 7.30% and averaged 3.06% at year end 2010 and maturity dates ranged from January 2011 to March 2026. At the end of 2009, rates ranged from 0.40% to 7.30% and averaged 4.65%, with maturities ranging from January 2010 to March 2026. Variable rate advances at year end 2009 carried a rate of 0.46%, with maturities ranging from January 2010 to March 2010.  Each Federal Home Loan Bank advance is payable at its maturity date without penalty, however, substantial penalties do exist if an advance is paid before its contractual maturity. Such penalties vary from advance to advance and are based on the size, interest rate, and remaining term of each specific advance. Advances of $13.5 million may be converted from fixed to variable rate by the FHLB, but may be repaid, without penalty, if that option is exercised. The advances were collateralized by $247.2 million and $270.6 million of first mortgage loans under a blanket lien arrangement and pledges of specific mortgages at year end 2010 and 2009. As of December 31, 2010, we had $108.8 million of additional borrowing capacity with the Federal Home Loan Bank. Federal Home Loan Bank borrowings have decreased substantially as increased core deposits and low loan demand have combined to reduce the need for this funding in the near term.

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Maturities of FHLB advances are as follows:

(In Thousands of Dollars)
2011	$	24,000
2012		7,802
2013		1,500
2014		0
2015		918
2016 and after		6,438
Total	$	40,658

NOTE 13 – SUBORDINATED DEBENTURES

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

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

On July 30, 2007, two trusts, formed by us, issued $15,464,000 of trust preferred securities as part of a pooled offering of such securities. One of the trusts issued $7,732,000 of variable rate securities at 90 day LIBOR plus 1.35% (6.71% on the date of issuance). The other trust issued $7,732,000 of fixed rate securities that carry an interest rate of 6.566% for five years, and then convert to a variable rate of 90 day LIBOR plus 1.35% for the remainder of their term. Firstbank then issued subordinated debentures to the trust in exchange for the proceeds of the offering; the debentures represent the sole assets of each of the trusts. We may redeem the subordinated debentures, in whole or in part, any time on or after July 30, 2012 at 100% of the principal amount of the securities. The debentures are required to be paid in full on July 30, 2037.

The trusts are not consolidated with the Company’s financial statements, but rather the subordinated debentures are shown as a liability.  Our investment in the stock of the trust was $1,084,000 and is included in equity securities available for sale. These investments are restricted from sale and are carried at historical cost, which approximates fair value.

NOTE 14 – SHAREHOLDERS’ EQUITY

We are subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums.  At year end 2010 and 2009 we extended all requirements to be classified as well as capitalized.

On January 30, 2009 we issued 33,000 shares of Series A, no par value $1,000 liquidation preference, fixed rate cumulative perpetual preferred stock (Preferred Stock) and warrants to purchase 578,947 shares of our common stock at an exercise price of $8.55 per share (Warrants), to the U.S. Department of Treasury in return for $33 million under the Capital Purchase Program (CPP). Of the proceeds, $32.7 million was allocated to the Preferred Stock and $0.3 million was allocated to the Warrants based on the relative fair value of each. The $0.3 million discount on the Preferred Stock is being accreted using an effective yield method over five years. The Preferred Stock and Warrants qualify as Tier 1 capital.

43

The Preferred Stock pays cumulative quarterly cash dividends at a rate of 5% per year on the $1,000 liquidation preference through February 15, 2014 and at a rate of 9% per year thereafter. We accrue dividends based on the rates, liquidation preference and time since last quarterly dividend payment. Under the CPP, the consent of the U.S. Treasury is required for any quarterly common stock dividend of more than $0.225 per share (subject to adjustment for stock splits, stock dividends and certain other transactions) and for any common share repurchases (other than common share repurchases in connection with any benefit plan in the ordinary course of business) in each case until January 30, 2012, unless the Preferred Stock has been fully redeemed or the U.S. Treasury has transferred all the Preferred Stock to third parties prior to that date.  In addition, all accrued and unpaid dividends on the Preferred Stock must be declared and the payment set aside for the benefit of the holders of Preferred Stock before any dividend may be declared on our common stock and before any shares of our common stock may be repurchased, subject to certain limited exceptions.

Holders of shares of the Preferred Stock have no right to exchange or convert such shares into any other security of Firstbank Corporation and have no right to require the redemption or repurchase of the Preferred Stock.  The Preferred Stock does not have any sinking fund.  The Preferred Stock is non-voting, other than class voting rights on certain matters that could adversely affect the Preferred Stock.

After January 30, 2012, we may redeem the Preferred Stock for the liquidation preference plus accrued and unpaid dividends.  Any such redemption is subject to U.S. Treasury’s prior consultation with the Federal Reserve Board.

The Warrants are immediately exercisable for 578,947 shares of our common stock at an initial exercise price of $8.55 per common share.  The Warrants are transferrable and may be exercised at any time on or before January 30, 2019.

NOTE 15 – BENEFIT PLANS

The Firstbank Corporation 401(k) plan, a defined contribution plan, is an IRS qualified 401(k) salary deferral plan, under which Firstbank Corporation stock is one of the investment options. The Board of Directors approved changing the plan to a Safe Harbor 401(k) plan for the 2008 plan year. A Safe Harbor plan relieves administrative testing in exchange for immediate vesting of the employee’s matching contributions. Both employee and employer contributions may be made to the plan. The Company’s 2010, 2009 and 2008 matching 401(k) contributions charged to expense were $537,000, $557,000 and $572,000 respectively.  The percent of the Company’s matching contribution to the 401(k), and the determination to offer a Safe Harbor plan, is determined annually by the Board of Directors.

Firstbank – West Michigan had a deferred compensation plan for its directors and executive officers. The plan was frozen before the ICNB acquisition and has a balance at the end of 2010 of $2.2 million.

The Board of Directors had established the Firstbank Corporation Affiliate Deferred Compensation Plan (“Plan”). The American Jobs Creation Act of 2004 had a significant impact on the design and operation of non-qualified deferred compensation plans. As a result of those changes, future deferrals into the Plan were suspended effective December 31, 2004. This nonqualified plan, as defined by the Internal Revenue Code, allowed Directors to defer their director fees and key management to defer a portion of their salaries into the Plan. The Plan was terminated in 2009 and the assets were distributed according to the Plan document. The distribution did not materially enhance an existing benefit or right, nor does it create a new benefit or right.

NOTE 16 – STOCK BASED COMPENSATION

The Company has stock based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $­­­­115,000, $160,000, and $209,000 for 2010, 2009 and 2008. The total income tax benefit was $39,000, $54,000 and $71,000, respectively.

The Firstbank Corporation Stock Compensation Plans of 1993, 1997 and 2006 (“Plans”), as amended,  which were shareholder approved, provide for the grant of 395,986, 593,798 and 315,000 shares of stock, respectively, in either restricted form or under option. Options may be either incentive stock options or nonqualified stock options. As of December 31, 2009 only nonqualified stock options and restricted stock shares have been issued under the plans. The Plan of 1993 terminated April 26, 2003. The 1997 Plan terminated April 28, 2007. The 2006 Plan will terminate February 27, 2016. The Board, at its discretion, may terminate any or all of the Plans prior to the Plans’ scheduled termination dates. At year end 2010, there were 80,557 shares available for grant under the 2006 Plan.

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Stock Option

Each option granted under the Plans may be exercised in whole or in part during such period as is specified in the option agreement governing that option. Options may only be issued with exercise prices equal to, or greater than, the stock’s market value on the date of issuance. The length of time available for a stock option to be exercised is governed by each option agreement, but has not been more than ten years from the issuance date.

All companies are required to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted. This cost is expensed over the employee service period, which is normally the vesting period of the options.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of our common stock. We use historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The weighted average fair value of options granted was $2.33, $2.18 and $0.39 in 2010, 2009, and 2008, respectively.

	2010			2009			2008
Risk-free interest rate		2.11	%		2.90	%		2.71	%
Expected option life	7 years			7 years			7 years
Expected stock price volatility		44.7	%		38.6	%		30.2	%
Dividend yield		0.7	%		4.7	%		12.4	%

Activity under the plans:

	Twelve months ended December 31, 2010 Total options outstanding
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value (000)
Options outstanding, beginning of period		496,431		$ 17.46
Granted		46,100		$ 5.19
Exercised		0		-
Forfeited		47,702		$ 17.08
Expired		40,084		$ 14.21
Options outstanding, end of period		454,745		$ 16.55		5.7	$	21,667
Options exercisable, end of period		312,052		$ 19.87		4.4	$	0

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

	Twelve months ended December 31,
(In Thousands of Dollars)
	2010		2009		2008
Proceeds of options exercised	$	0	$	0	$	0
Related tax benefit recognized	$	0	$	0	$	0
Intrinsic value of options exercised	$	0	$	0	$	0

As of December 31, 2010, there was $153,000 of total unrecognized compensation cost related to non-vested stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 2.2 years.

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Options outstanding at December 31, 2010 were as follows:

	Options outstanding						Exercisable
Range of exercise prices	Shares		Weighted Average Exercise Price		Weighted Average Contractual Life (years)		Shares		Weighted Average Exercise Price
$5.19 - $12.00		142,450	$	7.18		8.8		30,370	$	8.02
$12.01 - $16.00		86,038	$	15.09		4.7		64,198	$	14.78
$16.01 - $ 20.00		37,857	$	19.20		1.9		37,856	$	19.20
$20.01 - $ 26.18		188,400	$	23.76		4.4		179,628	$	23.84
Total		454,745	$	16.55		5.7		312,052	$	19.87

Restricted Stock

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

A summary of changes in the Company’s non-vested shares for 2010 follows:

Non-vested Shares	Shares		Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2010		16,228	$	11.87
Granted		4,000	$	4 .84
Vested		4,069	$	14.48
Forfeited		2,786	$	11.08
Non-vested at December 31, 2010		13,373	$	9.13

As of December 31, 2010, there was $80,000 of total unrecognized compensation cost related to non-vested shares granted under the Restricted Stock Plan. The cost is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of shares vested during the years ended December 31, 2010, 2009 and 2008 was $23,000, $22,900, and $31,700. Expense of $20,000 was recorded for restricted stock in 2010 compared with $48,000 in 2009 and $28,000 in 2008.

NOTE 17 – RELATED PARTY TRANSACTIONS

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

(In Thousands of Dollars)	2010			2009
Beginning balance	$	39,709		$	57,230
New loans		50,180			32,804
Repayments		(41,363	)		(47,442	)
Addition/(Deletion) of Directors		(16	)		(2,883	)
Ending balance	$	48,510		$	39,709

Deposits from principal officers, directors, and their affiliates at year end 2010 and 2009 were $24.9 million and $23.2 million respectively.

NOTE 18 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

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

(In Thousands of Dollars)	2010				2009
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	25,047	$	7,430	$	40,897	$	8,016
(at market rates)
Unused lines of credit and letters
of Credit	$	20,963	$	115,987	$	22.452	$	113,034
Standby Letters of Credit	$	4,987	$	16,324	$	6,541	$	18,879

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments have interest rates ranging from 2.65% to 5.99% and maturities ranging from 1 year to 6 years.

NOTE 19 – CONTINGENCIES

From time to time certain claims are made against the Company and its banking subsidiaries in the normal course of business. There were no outstanding claims considered by management to be material at December 31, 2010.

NOTE 20 – DIVIDEND LIMITATION OF SUBSIDIARIES

Capital guidelines adopted by Federal and State regulatory agencies and restrictions imposed by law limit the amount of cash dividends the banks can pay to the Company. At December 31, 2010, using the most restrictive of these conditions for each bank, the aggregate cash dividends that the banks can pay the Company without prior approval was $24,902,000. It is not the intent of management to have dividends paid in amounts which would reduce the capital of the banks to levels below those which are considered prudent by management and in accordance with guidelines of regulatory authorities.

NOTE 21 – STOCK REPURCHASE PROGRAM

On June 30, 2009, the Board of Directors unanimously approved rescinding the then current authorization to repurchase $3.2 million worth of our stock under a prior approved plan.  No stock was repurchased in 2009 or 2010.

NOTE 22 – CAPITAL ADEQUACY

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators.  Failure to meet capital requirements can initiate regulatory action.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited; as are asset growth and expansion, and capital restoration plans are required.

At year end 2010 and 2009, the most recent regulatory notifications categorize us as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed that classification.

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Actual and required capital amounts at year end and ratios are presented below:

(In thousands of dollars)	Actual					Minimum Required For Capital  Adequacy Purposes					To Be Well  Capitalized Under  Prompt Corrective  Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2010
Total Capital to Risk Weighted Assets
Consolidated	$	159,222		15.94	%	$	79,896		8.00	%	$	99,870		10.00	%
Firstbank – Alma		22,337		15.18	%		11,771		8.00	%		14,714		10.00	%
Firstbank – Mt. Pleasant		37,663		13.10	%		22,998		8.00	%		28,748		10.00	%
Firstbank – West Branch		23,582		13.56	%		13,917		8.00	%		17,396		10.00	%
Firstbank – St. Johns		8,706		12.67	%		5,496		8.00	%		6,870		10.00	%
Keystone Community Bank		25,136		12.38	%		16,249		8.00	%		20,311		10.00	%
Firstbank – West Michigan		18,338		15.36	%		9,552		8.00	%		11,940		10.00	%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated	$	146,619		14.68	%	$	39,948		4.00	%	$	59,922		6.00	%
Firstbank – Alma		20,492		13.93	%		5,886		4.00	%		8,828		6.00	%
Firstbank – Mt. Pleasant		34,059		11.85	%		11,499		4.00	%		17,249		6.00	%
Firstbank – West Branch		21,400		12.30	%		6,959		4.00	%		10,438		6.00	%
Firstbank – St. Johns		7,834		11.40	%		2,748		4.00	%		4,122		6.00	%
Keystone Community Bank		22,554		11.10	%		8,124		4.00	%		12,187		6.00	%
Firstbank – West Michigan		16,817		14.08	%		4,776		4.00	%		7,164		6.00	%
Tier 1 (Core) Capital to Average Assets
Consolidated	$	146,619		10.02	%	$	58,518		4.00	%	$	73,148		5.00	%
Firstbank – Alma		20,492		7.51	%		10,911		4.00	%		13,639		5.00	%
Firstbank – Mt. Pleasant		34,059		8.73	%		15,607		4.00	%		19,508		5.00	%
Firstbank – West Branch		21,400		8.64	%		9,910		4.00	%		12,388		5.00	%
Firstbank – St. Johns		7,834		8.25	%		3,800		4.00	%		4,750		5.00	%
Keystone Community Bank		22,554		9.18	%		9,828		4.00	%		12,285		5.00	%
Firstbank – West Michigan		16,817		8.76	%		7,683		4.00	%		9,604		5.00	%

	Amount		Ratio			Amount		Ratio			Amount		Ratio
2009
Total Capital to Risk Weighted Assets
Consolidated	$	156,898		14.21	%	$	88,355		8.00	%	$	110,443		10.00	%
Firstbank – Alma		21,728		12.66	%		13,727		8.00	%		17,159		10.00	%
Firstbank – Mt. Pleasant		36,680		12.01	%		24,431		8.00	%		30,538		10.00	%
Firstbank – West Branch		22,366		11.75	%		15,233		8.00	%		19,041		10.00	%
Firstbank – St. Johns		8,823		12.22	%		5,777		8.00	%		7,221		10.00	%
Keystone Community Bank		26,320		11.89	%		17,706		8.00	%		22,133		10.00	%
Firstbank – West Michigan		17,308		13.22	%		10,473		8.00	%		13,091		10.00	%
Tier 1 (Core) Capital to Risk Weighted Assets
Consolidated	$	143,538		13.00	%	$	44,177		4.00	%	$	66,266		6.00	%
Firstbank – Alma		19,576		11.41	%		6,864		4.00	%		10,295		6.00	%
Firstbank – Mt. Pleasant		32,861		10.76	%		12,215		4.00	%		18,323		6.00	%
Firstbank – West Branch		20,372		10.70	%		7,616		4.00	%		11,425		6.00	%
Firstbank – St. Johns		7,915		10.96	%		2,888		4.00	%		4,332		6.00	%
Keystone Community Bank		23,542		10.64	%		8,853		4.00	%		13,280		6.00	%
Firstbank – West Michigan		15,627		11.94	%		5,236		4.00	%		7,855		6.00	%
Tier 1 (Core) Capital to Average Assets
Consolidated	$	143,538		10.05	%	$	57,153		4.00	%	$	71,441		5.00	%
Firstbank – Alma		19,576		7.27	%		10,764		4.00	%		13,455		5.00	%
Firstbank – Mt. Pleasant		32,861		9.07	%		14,499		4.00	%		18,124		5.00	%
Firstbank – West Branch		20,372		8.15	%		9,995		4.00	%		12,493		5.00	%
Firstbank – St. Johns		7,915		8.64	%		3,666		4.00	%		4,583		5.00	%
Keystone Community Bank		23,542		9.97	%		9,446		4.00	%		11,808		5.00	%
Firstbank – West Michigan		15,627		8.05	%		7,769		4.00	%		9,711		5.00	%

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NOTE 23 – FAIR VALUE

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

	2010						2009
(In Thousands of Dollars)	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
Financial Assets:
Cash and cash equivalents	$	73,538		$	73,538		$	107,365		$	107,365
Certificate of Deposit		10,405			10,405			10,250			10,250
Trading Account Securities		13			13			2,828			2,828
Securities available for sale		255,703			255,703			146,680			146,680
Federal Home Loan Bank stock		8,203			8,203			9,084			9,084
Loans held for sale		1,355			1,355			578			578
Loans, net		1,010,189			987,800			1,102,493			1,101,500
Accrued interest receivable		4,689			4,689			4,421			4,421
Financial Liabilities:
Deposits		(1,183,783	)		(1,173,030	)		(1,149,063	)		(1,135,093	)
Securities sold under agreements to
repurchase and overnight borrowings		(41,328	)		(41,328	)		(39,409	)		(39,409	)
Federal Home Loan Bank advances		(40,658	)		(42,684	)		(100,263	)		(104,356	)
Accrued interest payable		(1,467	)		(1,467	)		(2,195	)		(2,195	)
Subordinated Debentures		(36,084	)		(37,051	)		(36,084	)		(38,114	)

The methods and assumptions used to estimate fair value are described as follows: The carrying amount is the estimated fair value for cash and cash equivalents, short term borrowings, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, short term debt, and variable rate loans or deposits that re-price frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes.  Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements. The fair value of off-balance sheet items was not material to the consolidated financial statements at December 31, 2010 or 2009.

The following tables present information about our assets measured at fair value on a recurring basis at December 31, 2010, and valuation techniques used by us to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that we have the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

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Assets Measured at Fair Value on a Recurring Basis

(In Thousands of Dollars)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31
2010
Securities available for sale
Treasury Notes	$	12,530	$	0	$	0	$	12,530
U.S. Government Agency Bonds		82,897		0		0		82,897
U.S. Government Agency CMOs		0		110,542		0		110,542
Municipal Securities		0		38,371		9,716		48,087
Other Securities		530		0		1,117		1,647
Total Securities available for sale	$	95,957	$	148,913	$	10,833	$	255,703
Trading securities	$	13	$	0	$	0	$	13
2009
Securities available for sale
Treasury Notes	$	1,002	$	0	$	0	$	1,002
U.S. Government Agency Bonds		98,183		0		0		98,183
U.S. Government Agency CMOs		0		10,339		0		10,339
Municipal Securities		0		28.080		5,738		33,818
Other Securities		1,517		0		1,821		3,338
Total Securities available for sale	$	100,702	$	38,419	$	7,559	$	146,680
Trading securities	$	2,828	$	0	$	0	$	2,828

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

(Dollars in Thousands)	2010			2009
Balance at beginning of year	$	7,559		$	7,880
Total realized losses included in income		(150	)		(100	)
Change in unrealized gains/(losses) included in other comprehensive income		56			(56	)
Purchases		5,127			990
Sales		(897	)		0
Calls and maturities		(862	)		(905	)
Net transfers in/out of Level 3		0			(250	)
Balance at end of year	$	10,833		$	7,559

The Level 3 assets that were held at each year end are carried at historical cost which approximates fair value. The $250,000, in 2009, of net transfers out of Level 3 related to a security for which open market pricing became available.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets. As a result, the unrealized gains and losses for these assets presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Available for sale investments securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities, and other like assets. We carry local municipal securities at cost, which approximates fair value, unless economic conditions for the municipalities changes to a degree requiring a valuation adjustment.

We also have assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets consist of impaired loans and other real estate owned. We have estimated the fair value of impaired loans using Level 3 inputs, specifically valuation of loans based on either a discounted cash flow projection, or a discount to the appraised value of the collateral underlying the loan. We use appraised values or broker’s price opinions to determine the fair value other real estate owned.

50

Assets Measured at Fair Value on a Nonrecurring Basis

(Dollars in Thousands)	Balance at December 31		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the period ended December 31
2010
Impaired loans	$	36,418	$	0	$	0	$	36,418	$	7,748
Other real estate owned	$	8,316	$	0	$	0	$	8,316	$	1,762
2009
Impaired loans	$	37,783	$	0	$	0	$	37,783	$	6,866
Other real estate owned	$	7,425	$	0	$	0	$	7,425	$	924

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. We estimate the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The $7.7 million in losses in 2010 and the $6.9 million in 2009 indicated in the table above were charged to the allowance for loan losses. The $1.8 million in OREO losses in 2010 and the $0.9 million in 2009 were charged to income on the OREO expenses line of the income statement.

NOTE 24 – BASIC AND DILUTED EARNINGS PER SHARE

(In Thousands, Except per Share Data)	Year Ended December 31
	2010		2009		2008
Basic earnings per common share
Net income available to common shareholders	$	2,084	$	1,151	$	719
Weighted average common shares outstanding		7,766		7,657		7,477
Basic earnings per common share	$	0.27	$	0.15	$	0.10
Diluted Earnings per Share
Net income available to common shareholders	$	2,084	$	1,151	$	719
Weighted average common shares outstanding		7,766		7,657		7,477
Add dilutive effects of assumed exercises of options		2		2		1
Weighted average common and dilutive potential
Common shares outstanding		7,768		7,659		7,478
Diluted earnings per common share	$	0.27	$	0.15	$	0.10

Stock options and warrants for 1,033,692, 1,065,629, and 419,290 shares of common stock were not considered in computing diluted earnings per share for 2010, 2009, and 2008, respectively, because they were anti-dilutive.

NOTE 25 – FIRSTBANK CORPORATION (PARENT COMPANY ONLY)

CONDENSED FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS
	Year Ended December 31,
(In Thousands of Dollars)	2010		2009
ASSETS
Cash and cash equivalents	$	15,563	$	10,152
Commercial loans		1,000		214
Investment in and advances to banking subsidiaries		164,611		163,071
Securities		1,097		3,912
Other assets		3,683		8,467
Total Assets	$	185,954	$	185,816
LIABILITIES AND EQUITY
Accrued expenses and other liabilities	$	1,442	$	2,852
Subordinated Debentures		36,084		36,084
Shareholders’ equity		148,428		146,880
Total Liabilities and Shareholders’ Equity	$	185,954	$	185,816

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CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31st	2010			2009			2008
Dividends from banking subsidiaries (net of capital infusions)	$	4,000		$	7,246		$	8,773
Other income		5,656			5,542			3,713
Other expense		(8,418	)		(8,800	)		(8,086	)
Income before income tax and undistributed subsidiary income		1,238			3,988			4,400
Income tax benefit		532			1,022			1,522
Equity in undistributed subsidiary income		1,993			(2,319	)		(5,203	)
Net income		3,763			2,691			719
Change in unrealized gain (loss) on securities, net of tax and
classification effects		(452	)		(288	)		403
Comprehensive income	$	3,311		$	2,403		$	1,122

CONDENSED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2010			2009			2008
Cash flows from operating activities
Net income	$	3,763		$	2,691		$	719
Adjustments:
Unrealized loss on trading account securities		(3	)		213			454
Equity in undistributed subsidiary income		(43	)		2,322			4,065
Stock Option and Restricted Stock Grant Compensation Expense		115			158			209
Change in other assets		4,784			1,204			3,764
Change in other liabilities		(1,410	)		(1,619	)		(582	)
Net cash from operating activities		7,206			4,969			8,629
Cash flows from investing activities
Sale/(Purchase) of Securities AFS		2,818			(2,819	)		0
Net decrease in commercial loans		(786	)		28			32
Payments for Investments in Subsidiaries		(1,950	)		(16,360	)		(12,838	)
Net cash from investing activities		82			(19,151	)		(12,806	)
Cash flows from financing activities
Proceeds from issuance of long-term debt and notes payable		0			0			6,100
Payments of long-term debt		0			(5,600	)		(500	)
Proceeds from issuance of preferred stock and common stock warrants		0			33,000			0
Proceeds from issuance of common stock		393			909			1,766
Dividends on preferred stock		(1,650	)		(1,513	)		0
Dividends on common stock		(620	)		(3,062	)		(6,725	)
Net cash from financing activities		(1,877	)		23,734			642
Net change in cash and cash equivalents		5,411			9,552			(3,535	)
Beginning cash and cash equivalents		10,152			600			4,135
Ending cash and cash equivalents	$	15,563		$	10,152		$	600

NOTE 26 – OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:

(In Thousands of Dollars)	2010			2009			2008
Change in unrealized holding gains and losses on available for sale securities	$	(535	)	$	(1,098	)	$	540
Less reclassification adjustments for gains and losses later recognized in income		(150	)		1,534			(20	)
Net unrealized gains and (losses)		(685	)		(436	)		560
Tax effect		233			148			157
Other comprehensive income (loss)	$	(452	)	$	(288	)	$	403

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NOTE 27 – QUARTERLY FINANCIAL DATA (UNAUDITED)

(In Thousands of Dollars, Except per Share Data)		2010
		1st  Quarter		2nd  Quarter		3rd  Quarter		4th  Quarter
Interest income	$	18,099	$	18,225	$	18,221	$	17,837	$	72,382
Net interest income		12,324		12,668		13,095		13,405		51,492
Income before federal income taxes		671		1,248		2,372		984		5,275
Net income		659		937		1,324		843		3,763
Preferred stock dividends		420		420		420		419		1,679
Net income available to common shareholders		239		517		904		424		2,084
Basic earnings per common share	$	0.03	$	0.07	$	0.12	$	0.05	$	0.27
Diluted earnings per common share	$	0.03	$	0.07	$	0.12	$	0.05	$	0.27

	2009
	1st  Quarter		2nd  Quarter			3rd  Quarter		4th  Quarter			Year
Interest income	$	18,732	$	18,496		$	18,763	$	18,695		$	74,686
Net interest income		11,601		11,856			12,596		12,694			48,747
Income before federal income taxes		1,983		(232	)		1,520		464			3,735
Net income		1,513		62			1,217		(101	)		2,691
Preferred stock dividends		280		420			420		420			1,540
Net income available to common shareholders		1,233		(358	)		797		(521	)		1,151
Basic earnings per common share	$	0.16	$	(0.04	)	$	0.10	$	(0.07	)	$	0.15
Diluted earnings per common share	$	0.16	$	(0.04	)	$	0.10	$	(0.07	)	$	0.15

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

53

FIRSTBANK CORPORATION

BOARD OF DIRECTORS	OFFICERS
William E. Goggin, Chairman	Thomas R. Sullivan
Chairman, Firstbank – Alma	President & Chief Executive Officer
Attorney, Goggin Law Offices
	Samuel G. Stone
Thomas D. Dickinson, CPA	Executive Vice President, Chief Financial
Certified Public Accountant	Officer, Secretary & Treasurer
Biggs, Hausserman, Thompson & Dickinson P.C.
	William L. Benear
David W. Fultz	Vice President
Owner, Fultz Insurance Agency &,
Kirtland Insurance Agency	Daniel  H. Grenier
	Vice President
Jeff A. Gardner
Certified Property Manager &	David L. Miller
Owner, Gardner Grou	Vice President
Edward B. Grant, Ph.D., CPA	Douglas J. Ouellette
Chairman, Firstbank (Mt. Pleasant)	Vice President
General Manager, Public Broadcasting,
Central Michigan University	Richard D. Rice
	Vice President and Controller
David D. Roslund, CPA
Administrator, Warwick Living Center	Thomas O. Schlueter
Small Business Investor and Manager	Vice President
Samuel A. Smith	James E. Wheeler, II
Owner, Smith Family Funeral Homes	Vice President
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation
	NON-BANK SUBSIDIARY Austin Mortgage Company, LLC

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

54

FIRSTBANK – ALMA

BOARD OF DIRECTORS	OFFICERS
William E. Goggin, Chairman	James E. Wheeler, II
Chairman, Firstbank Corporation	President & Chief Executive Officer
Attorney, Goggin Law Offices
	Richard A. Barratt
Mark J. Abernathy	Executive Vice President
President, Alma College
	Laura A. Crocker
Martha A. Bamfield, D.D.S.	Vice President
Dentist, Nester & Bamfield, DDS, PC
	Gregory A. Daniels
Cindy M. Bosley	Vice President
Chief Administrative Officer, Masonic Pathways
	Tammy L. Halfmann
Paul C. Lux	Vice President
Owner, Lux Funeral Homes, Inc.
	Marita A. Harkness
David D. Roslund	Vice President
Administrator, Warwick Living Center
Small Business Investor and Manager	Timothy M. Lowe
	Vice President
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation	Joan S. Welke
	Vice President
James E. Wheeler, II
President & Chief Executive Officer, Firstbank - Alma	Pamela K. Winter
Vice President, Firstbank Corporation	Vice President
	SUBSIDIARY Firstbank – Alma Mortgage Company

OFFICE LOCATIONS

Alma	Ashley	Ithaca	Merrill
7455 N. Alger Road	114 S. Sterling St.	219 E. Center St.	125 W. Saginaw St.
(989) 463-3134	(989) 847-2394	(989) 875-4107	(989) 643-7253
230 Woodworth Ave.	St. Charles	St. Louis
(989) 463-3137	102 Pine St.	135 W. Washington Ave.
	(989) 865-9918	(989) 681-5758
311 Woodworth Ave.
(989) 463-3131	Vestaburg
	9002 W. Howard City-Edmore Rd.
	(989) 268-5445

55

FIRSTBANK (MT. PLEASANT)

BOARD OF DIRECTORS	OFFICERS
Edward B. Grant, Ph.D., CPA, Chairman	Douglas J. Ouellette
General Manager, Public Broadcasting, Central Michigan University	President & Chief Executive Officer
Steven K. Anderson	Peter Stalker
President & CEO, Cadillac Tire Center, Cadillac	Community Bank President-Cadillac
President & CEO, Upper Lakes Tire, Gaylord
	Daniel J. Timmins
Ralph M. Berry	Community Bank President-Clare
Owner, Berry Funeral Homes
	Mark B. Perry
Glen D. Blystone, CPA	Senior Vice President
Blystone & Bailey, CPA’s PC
	Robert L. Wheeler
Kenneth C. Bovee	Senior Vice President
President & Chief Executive Officer, Keystone Management Group
	Cheryl L. Gaudard
Robert E. List, CPA	Vice President
Shareholder, Weinlander Fitzhugh, CPA’s
Manager, Clare and Gladwin Offices	Barbara J. Kain
	Vice President
Robert J. Long
Owner, Summit Petroleum Corporation	Karen L. McKenzie
	Vice President
Keith D. Merchant
President, B&P Manufacturing	Teresa L. Rupert
	Vice President
J. Regan O’Neill
President and Co-Founder, Network Reporting Corporation	Tracey L. Sallee
President and Co-Founder, NetMed Transcription Services, LLC	Vice President
Douglas J. Ouellette	Dianne Stilson
President & Chief Executive Officer, Firstbank (Mt. Pleasant)	Vice President
Vice President, Firstbank Corporation
E. Lynn Pohl, CPA
Partner, Boge, Wybenga & Bradley, PC
Kenneth A. Rader	SUBSIDIARY
Owner, Ken Rader Farms	Firstbank – Mt. Pleasant Mortgage Company
Phillip R. Seybert
President, P.S. Equities, Inc.
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation

OFFICE LOCATIONS

Mt. Pleasant	Cadillac	Howard City	Remus
102 S. Main St.	114 W. Pine St.	830 W. Shaw St.	201 W Whetland Ave.
(989) 773-2600	(231) 775-9000	(231) 937-4383	(989) 967-3602
4699 Pickard St.	Clare	Lakeview	Shepherd
(989) 773-2335	806 N. McEwan Ave.	506 Lincoln Ave.	258 W. Wright Ave.
	(989) 386-7313	(989) 352-7271	(989) 828-6625
2015 S. Mission St.
(989) 773-3959	Canadian Lakes	9531 N. Greenville Rd.	Winn
	10049 Buchanan Rd.	(989) 352-8180	2783 Blanchard Rd.
1925 E. Remus Rd.	Stanwood, MI		(989) 866-2210
(989) 775-8528	(231) 972-4200	Morley
		101 E. 4th St.
		(231) 856-7652

56

FIRSTBANK – WEST BRANCH

BOARD OF DIRECTORS	OFFICERS
Joseph M. Clark, Chairman	Daniel H. Grenier
Owner, Morse Clark Furniture	President & Chief Executive Officer
Bryon A. Bernard	Kim D. vonKronenberger
CEO, Bernard Building Center	Executive Vice President
Robert J. Carpenter, CPA	Lorri A. Burzlaff
Vice President, Robertson & Carpenter CPAs, P.C.	Vice President
David W. Fultz	Pamela J. Crainer
Owner, Fultz Insurance Agency &	Vice President
Kirtland Insurance Agency
	Danny J. Gallagher
Daniel H. Grenier	Vice President
President & Chief Executive Officer, Firstbank – West Branch
Vice President, Firstbank Corporation	James L. Kloostra
	Vice President
Robert T. Griffin	, Jr.
Owner and President, Griffin Beverage Company,	Eileen S. McGregor
Northern Beverage Co. and West Branch Tank & Trailer	Vice President
Christine R. Juarez	Mark D. Wait
Attorney, Juarez and Juarez, PLLC	Vice President
Norman J. Miller	Marie A. Wilkins
Owner, Miller Farms and Miller Dairy Equipment and Feed	Vice President
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation
Mark D. Weber, MD	Subsidiaries
Orthopedic Surgeon	Firstbank – West Branch Mortgage Company
Kimberly Zygiel
Accountant, Stephenson, Gracik & Company, PC

OFFICE LOCATIONS

West Branch	Fairview	Hale	Higgins Lake
502 W. Houghton Ave.	1979 Miller Rd.	3281 M-65	4522 W. Higgins Lake Dr.
(989) 345-7900	(989) 848-2243	(989) 728-7566	(989) 821-9231
601 W. Houghton Ave.	Prescott	Rose City	St. Helen
(989) 345-7900	311 Harrison St.	505 S. Bennett St.	1990 N. St. Helen Rd.
	(989) 873-6201	(989) 685-3909	(989) 389-1311
2087 S. M-76
(989) 345-5050
2375 M-30
(989) 345-6210

57

FIRSTBANK – ST. JOHNS

BOARD OF DIRECTORS	OFFICERS
Ann M. Flermoen, D.D.S., Chairman	Thomas R. Sullivan
Dentist, Ann M. Flermoen, DDS	Chief Executive Officer
Craig A. Bishop	Craig A. Bishop
President, Firstbank – St. Johns	President
Todd Deitrich	Janette Havlik
President, Olympian Tool, Inc.	Vice President
Frank G. Pauli	Jeffery A. Hicks
President, Pauli Ford-Mercury, Inc.	Vice President
Sara Clark-Pierson	Daniel Redman
Attorney, Certified Public Accountant, Clark Family Enterprises	Vice President
Donald A. Rademacher
Owner, RSI Home Improvement, Inc.
Samuel A. Smith
Owner, Smith Family Funeral Homes
.
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation
James E. Wheeler, II
President & Chief Executive Officer, Firstbank - Alma
Vice President, Firstbank Corporation
	SUBSIDIARY Firstbank – St. Johns Mortgage Company

OFFICE LOCATIONS

St. Johns	DeWitt
201 N. Clinton Ave.	13215 S. US – 27 B.R.
(989) 227-8383	(517) 668-8000
1065 Superior Dr.
(989)227-6995

58

KEYSTONE COMMUNITY BANK

BOARD OF DIRECTORS	OFFICERS
Kenneth V. Miller, Chairman	Thomas O. Schlueter
Partner, Havirco	President & Chief Executive Officer
Owner, Millennium Restaurant Group
	Thomas D. Lundquist
Michelle L. Eldridge	Senior Vice President
Principal, LVM Capital Management, LTD.
	Cynthia J. Carter
Samuel T. Field	Vice President
Attorney, Field & Field, P.C
	Sara S. Dana
Jeff A. Gardner	Vice President
Certified Property Manager &
Owner, Gardner Group	Kimberly A. Labadie
	Vice President
John E. Hopkins
Retired, former President & Chief Executive Officer,	Cynthia L. Mount
Kalamazoo Community Foundation	Vice President
Ronald A. Molitor
President, Mol-Son, Inc.
John M. Novak
Principal, Miller Canfield Attorneys & Counselors
Thomas O. Schlueter
President & Chief Executive Officer, Keystone Community Bank
Vice President, Firstbank Corporation
Thomas R. Sullivan
President & Chief Executive Officer, Firstbank Corporation
John R. Trittschuh, M.D.
President, EyeCare Physicians and Surgeons, P.C.
	SUBSIDIARY Keystone Mortgage Services, LLC

OFFICE LOCATIONS

Kalamazoo	Portage	Paw Paw
107 West Michigan Ave.6405	South Westnedge Ave.	900 East Michigan Avenue
(269) 553-9100	(269) 321-9100	(269) 655-1000
235 North Drake Road	3910 West Centre Street
(269) 544-9100	(269) 323-9100
2925 Oakland Drive
(269) 488-9200
5073 Gull Road
(269)488-4800

59

FIRSTBANK – WEST MICHIGAN

BOARD OF DIRECTORS	OFFICERS
Jerome I. Gregory, Chairman	William L. Benear
Chief Executive Officer, Carr Real Estate, Inc.	President & Chief Executive Officer
William L. Benear	Clare R. Colwell
President & Chief Executive Officer, Firstbank – West Michigan	Executive Vice President
Vice President, Firstbank Corporation
��	Debrann Hausserman
Janice K. DeYoung	Vice President
Former Business Owner
Community Volunteer	Blaine A. Kemme
	Vice President
Thomas D. Dickinson, CPA
Certified Public Accountant	Michele M. Krick
Biggs, Hausserman, Thompson & Dickinson P.C.	Vice President
David M. Laux	Kevin M. Meade
President, Industrial Engineering Services, Inc.	Vice President
James E. Reagan, D.D.S.	Daniel P. Mitchell
Dentist, James E. Reagan, DDS	Vice President
Thomas R. Sullivan	Jackeline Salerno Thebo
President & Chief Executive Officer, Firstbank Corporation	Vice President
	Subsidiary ICNB Mortgage Company

 

OFFICE LOCATIONS

Ionia	Belding	Lowell	Woodland
302 W. Main St.	105 S. Pearl St.	2601 W. Main St.	115 S. Main St.
(616) 527-0220	(616) 794-1195	(616) 897-6171	(269) 367-4911
202 N. Dexter St.	9344 W. Belding Rd.	Sunfield
(616) 527-1550	(616) 794-0890	145 Main St.
		(517) 566-8025
2600 S. State Rd.	Hastings
(616) 527-9250	1500 W. M-43 Hwy.
	(269) 948-2905

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BUSINESS OF THE COMPANY

Firstbank Corporation is a bank holding company.  As of December 31, 2010, our subsidiaries are Firstbank – Alma; Firstbank (Mt. Pleasant); Firstbank – West Branch; Firstbank – St. Johns; Keystone Community Bank; Firstbank – West Michigan; FBMI Risk Management Services, Inc.; and Austin Mortgage Company, LLC. As of December 31, 2010, Firstbank Corporation and its subsidiaries employed 435 people on a full-time equivalent basis.

We are in the business of banking. Each of our subsidiary banks is a full service community bank. The subsidiary banks offer all customary banking services, including the acceptance of checking, savings and time deposits and the making of commercial, agricultural, real estate, personal, home improvement, automobile and other installment and consumer loans. Trust services are offered to customers through Citizens Bank Wealth Management in the Firstbank – Alma main office.  Deposits of Citizens Bank Wealth Management are insured by the Federal Deposit Insurance Corporation.

The banks obtain most of their deposits and loans from residents and businesses in Barry, Bay, Clare, Gratiot, Kalamazoo, Ionia, Iosco, Isabella, Mecosta, Midland, Montcalm, Ogemaw, Oscoda, Roscommon, Saginaw, and parts of Clinton, Eaton, Kent and Wexford counties. Firstbank – Alma has its main office and one branch in Alma, Michigan, and one branch located in each of the following areas:  Ashley, Ithaca, Merrill, Pine River Township (near Alma), St. Charles, St. Louis, and Vestaburg, Michigan. Firstbank (Mt. Pleasant) has its main office and one branch located in Mt. Pleasant, Michigan, two branches located in Union Township (near Mt. Pleasant), two branches in Lakeview, and one branch located in each of the following areas: Cadillac, Canadian Lakes, Clare, Howard City, Morley, Remus, Shepherd, and Winn, Michigan. Firstbank – West Branch has its main office in West Branch, Michigan, and one branch located in each of the following areas: Fairview, Hale, Higgins Lake, Rose City, St. Helen, Prescott, and West Branch Township (near West Branch), Michigan. Firstbank – St. Johns has its main office and one branch located in St. Johns, Michigan and a third branch in DeWitt. Keystone Community bank has its main office and three branches located in Kalamazoo, Michigan, two additional branches in Portage, Michigan, and one branch in Paw Paw, Michigan. Firstbank – West Michigan has its main office and two additional branches in Ionia, Michigan, two branches in Belding, Michigan, and one branch each in Hastings, Lowell, Sunfield and Woodland, Michigan. The banks have no material foreign assets or income.

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 80% of total revenues in 2010, 78% in 2009, and 89% in 2008. Non-interest revenue accounted for approximately 14% of total revenue in 2010, 17% in 2009, and 5% in 2008. Interest on securities accounted for approximately 6% of total revenue in 2010, 5% in 2009, and 6% in 2008.

Annual Meeting

The annual meeting of shareholders will be held on Monday, April 25, 2011 at 4:30 p.m., Heritage Center, Alma College, Alma, Michigan.

Independent Auditors	General Counsel
Plante & Moran, PLLC	Varnum LLP
Grand Rapids, Michigan	Grand Rapids, Michigan

Stock Information

Firstbank Corporation common stock is traded on the NASDAQ National Market System under the symbol FBMI.  For research information and/or investment recommendations, contact:

Howe Barnes, Hoefer & Arnett          - or -	FIG Partners, LLC
800-800-4693	800-677-9654

Transfer Agent Information

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

61