þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
MICHIGAN | 38-2062816 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
130 SOUTH CEDAR STREET, MANISTIQUE, MI | 49854 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
ASSETS |
||||||||||||
Cash and due from banks |
$ | 21,394 | $ | 10,112 | $ | 6,849 | ||||||
Federal funds sold |
| | 1,568 | |||||||||
Cash and cash equivalents |
21,394 | 10,112 | 8,417 | |||||||||
Interest-bearing deposits in other financial institutions |
569 | 582 | 382 | |||||||||
Securities available for sale |
51,071 | 47,490 | 24,581 | |||||||||
Federal Home Loan Bank stock |
3,794 | 3,794 | 3,794 | |||||||||
Loans: |
||||||||||||
Commercial |
295,595 | 296,088 | 291,980 | |||||||||
Mortgage |
71,554 | 70,447 | 64,624 | |||||||||
Installment |
3,627 | 3,745 | 3,452 | |||||||||
Total Loans |
370,776 | 370,280 | 360,056 | |||||||||
Allowance for loan losses |
(4,793 | ) | (4,277 | ) | (3,924 | ) | ||||||
Net loans |
365,983 | 366,003 | 356,132 | |||||||||
Premises and equipment |
11,134 | 11,189 | 11,511 | |||||||||
Other real estate held for sale |
2,199 | 2,189 | 1,137 | |||||||||
Other assets |
10,231 | 10,072 | 11,221 | |||||||||
TOTAL ASSETS |
$ | 466,375 | $ | 451,431 | $ | 417,175 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
LIABILITIES: |
||||||||||||
Deposits: |
||||||||||||
Noninterest bearing deposits |
$ | 31,541 | $ | 30,099 | $ | 26,876 | ||||||
NOW, money market, checking |
75,026 | 70,584 | 81,952 | |||||||||
Savings |
19,585 | 20,730 | 11,530 | |||||||||
CDs<$100,000 |
70,708 | 73,752 | 83,087 | |||||||||
CDs>$100,000 |
26,886 | 25,044 | 22,010 | |||||||||
Brokered |
162,011 | 150,888 | 100,592 | |||||||||
Total deposits |
385,757 | 371,097 | 326,047 | |||||||||
Borrowings: |
||||||||||||
Federal funds purchased |
| | 10,410 | |||||||||
Short-term |
| | 2,159 | |||||||||
Long-term |
36,210 | 36,210 | 36,280 | |||||||||
Total borrowings |
36,210 | 36,210 | 48,849 | |||||||||
Other liabilities |
2,544 | 2,572 | 2,646 | |||||||||
Total liabilities |
424,511 | 409,879 | 377,542 | |||||||||
SHAREHOLDERS EQUITY: |
||||||||||||
Preferred stock No par value: |
||||||||||||
Authorized 500,000 shares, no shares outstanding |
||||||||||||
Common stock and additional paid in capital No par value
Authorized - 18,000,000 shares
Issued and outstanding 3,419,736; 3,419,736, and 3,428,695 respectively |
42,833 | 42,815 | 42,862 | |||||||||
Accumulated deficit |
(1,618 | ) | (1,708 | ) | (3,441 | ) | ||||||
Accumulated other comprehensive income |
649 | 445 | 212 | |||||||||
Total shareholders equity |
41,864 | 41,552 | 39,633 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 466,375 | $ | 451,431 | $ | 417,175 | ||||||
1.
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
INTEREST INCOME: |
||||||||
Interest and fees on loans: |
||||||||
Taxable |
$ | 5,002 | $ | 6,100 | ||||
Tax-exempt |
90 | 108 | ||||||
Interest on securities: |
||||||||
Taxable |
459 | 266 | ||||||
Tax-exempt |
1 | 1 | ||||||
Other interest income |
2 | 89 | ||||||
Total interest income |
5,554 | 6,564 | ||||||
INTEREST EXPENSE: |
||||||||
Deposits |
1,778 | 3,065 | ||||||
Borrowings |
281 | 454 | ||||||
Total interest expense |
2,059 | 3,519 | ||||||
Net interest income |
3,495 | 3,045 | ||||||
Provision for loan losses |
550 | | ||||||
Net interest income after provision for loan losses |
2,945 | 3,045 | ||||||
NONINTEREST INCOME: |
||||||||
Service fees |
243 | 174 | ||||||
Net security gains |
| 65 | ||||||
Net gains on sale of secondary market loans |
58 | 48 | ||||||
Other |
90 | 23 | ||||||
Total noninterest income |
391 | 310 | ||||||
NONINTEREST EXPENSE: |
||||||||
Salaries and employee benefits |
1,597 | 1,807 | ||||||
Occupancy |
378 | 355 | ||||||
Furniture and equipment |
189 | 178 | ||||||
Data processing |
220 | 221 | ||||||
Professional service fees |
153 | 153 | ||||||
Loan and deposit |
136 | 101 | ||||||
FDIC insurance assessment |
125 | 9 | ||||||
Telephone |
43 | 45 | ||||||
Advertising |
78 | 60 | ||||||
Other |
320 | 262 | ||||||
Total noninterest expense |
3,239 | 3,191 | ||||||
Income before provision for income taxes |
97 | 164 | ||||||
Provision for income taxes |
7 | 25 | ||||||
NET INCOME |
$ | 90 | $ | 139 | ||||
INCOME PER COMMON SHARE: |
||||||||
Basic |
$ | .03 | $ | .04 | ||||
Diluted |
$ | .03 | $ | .04 | ||||
2.
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Balance, beginning of period |
$ | 41,552 | $ | 39,321 | ||||
Net income for period |
90 | 139 | ||||||
Stock option compensation |
18 | 21 | ||||||
Net unrealized gain on securities available for sale |
204 | 152 | ||||||
Total comprehensive income |
312 | 312 | ||||||
Balance, end of period |
$ | 41,864 | $ | 39,633 | ||||
3.
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 90 | $ | 139 | ||||
Adjustments to reconcile net income to
net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
448 | 273 | ||||||
Provision for loan losses |
550 | | ||||||
Provision for (benefit of) deferred taxes |
7 | 25 | ||||||
(Gain) on sales/calls of securities available for sale |
| (65 | ) | |||||
(Gain) loss on sale of premises, equipment other real estate |
1 | (6 | ) | |||||
Writedown of other real estate |
| 72 | ||||||
Stock option compensation |
18 | 21 | ||||||
Change in other assets |
(292 | ) | 173 | |||||
Change in other liabilities |
(28 | ) | (136 | ) | ||||
Net cash provided by operating activities |
794 | 496 | ||||||
Cash Flows from Investing Activities: |
||||||||
Net (increase) in loans |
(541 | ) | (5,214 | ) | ||||
Net decrease in interest-bearing deposits in other financial institutions |
13 | 1,428 | ||||||
Purchase of securities available for sale |
(4,683 | ) | (25,429 | ) | ||||
Proceeds from sales, maturities or calls of securities available for sale |
1,253 | 22,761 | ||||||
Capital expenditures |
(251 | ) | (145 | ) | ||||
Proceeds from sale of premises, equipment, and other real estate |
37 | 38 | ||||||
Net cash (used in) investing activities |
(4,172 | ) | (6,561 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Net increase in deposits |
14,660 | 5,220 | ||||||
Net increase in federal funds purchased |
| 2,700 | ||||||
Net increase in line of credit |
| 200 | ||||||
Net cash provided by financing activities |
14,660 | 8,120 | ||||||
Net increase in cash and cash equivalents |
11,282 | 2,055 | ||||||
Cash and cash equivalents at beginning of period |
10,112 | 6,362 | ||||||
Cash and cash equivalents at end of period |
$ | 21,394 | $ | 8,417 | ||||
Supplemental Cash Flow Information: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 2,143 | $ | 2,073 | ||||
Income taxes |
30 | 15 | ||||||
Noncash Investing and Financing Activities: |
||||||||
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale (net of adjustments made through the allowance for loan losses) |
485 | 57 |
4.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | ||
The unaudited condensed consolidated financial statements of Mackinac Financial Corporation (the Corporation) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Corporations Annual Report on Form 10-K for the year ended December 31, 2008. | ||
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. | ||
In order to properly reflect some categories of other income and other expenses, reclassifications of expense and income items have been made to prior period numbers. The net other income and other expenses was not changed due to these reclassifications. | ||
Allowance for Loan Losses | ||
The allowance for loan losses includes specific allowances related to commercial loans, which have been judged to be impaired. A loan is impaired when, based on current information, it is probable that the Corporation will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loans initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. | ||
The Corporation continues to maintain a general allowance for loan losses for loans not considered impaired. The allowance for loan losses is maintained at a level which management believes is adequate to provide for possible loan losses. Management periodically evaluates the adequacy of the allowance using the Corporations past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other factors. The allowance does not include the effects of expected losses related to future events or future changes in economic conditions. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability. | ||
In managements opinion, the allowance for loan losses is adequate to cover probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio as of the balance sheet date. | ||
Stock Option Plans | ||
The Corporation sponsors three stock option plans. One plan was approved during 2000 and applies to officers, employees, and nonemployee directors. This plan was amended as a part of the December 2004 stock offering and recapitalization. The amendment, approved by shareholders, increased the shares available under this plan |
5.
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) | |
by 428,587 shares from the original 25,000 (adjusted for the 1:20 reverse stock split), to a total authorized share balance of 453,587. The other two plans, one for officers and employees and the other for nonemployee directors, were approved in 1997. A total of 30,000 shares (adjusted for the 1:20 reverse stock split), were made available for grant under these plans. These two 1997 plans expired early in 2007. Options under all of the plans are granted at the discretion of a committee of the Corporations Board of Directors. Options to purchase shares of the Corporations stock are granted at a price equal to the market price of the stock at the date of grant. The committee determines the vesting of the options when they are granted as established under the plan. | ||
The Corporation adopted SFAS No. 123 (Revised) Share Based Payments in the first quarter of 2006. This Statement supersedes APB Opinion No. 25 Accounting for Stock Issued to Employees and its related implementation guidance. Under Opinion No. 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This adoption resulted in the recognition of before tax compensation expense in the amount of $18,000 for the three months ended March 31, 2009 and $21,000 for the same period in 2008. The expense recorded recognizes the current period vesting of options outstanding. The per share impact of this accounting change was $.01 in the first quarter of 2009 and 2008. | ||
2. | RECENT ACCOUNTING PRONOUNCEMENTS | |
In April 2009, the FASB issued the following three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities: | ||
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have decreased significantly. FSP FAS 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of FSP FAS 157-4 are effective for the Corporations interim period ending on June 30, 2009. Management is currently evaluating the effect that the provisions of FSP FAS 157-4 may have on the Corporations statements of income and condition. | ||
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for the Corporations interim period ending on June 30, 2009. As FSP FAS 107-1 and APB 28-1 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of FSP FAS 107-1 and APB 28-1 is not expected to affect the Corporations statements of income and condition. | ||
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentations and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of FSP FAS 115-2 and FAS 124-2 are effective for the Corporations interim period ending on June 30, 2009. Management is currently evaluating the effect that the provisions FSP FAS 115-2 and FAS 124-2 may have on the Corporations statements of income and condition. |
6.
3. | EARNINGS PER SHARE | |
Earnings per share are based upon the weighted average number of shares outstanding. Additional shares issued as a result of option exercises would not be dilutive in either three month period. | ||
The following shows the computation of basic and diluted earnings per share for the three months ended March 31, 2009 and 2008 (dollars in thousands, except per share data): |
Three Months Ended | Weighted Average | Income | ||||||||||
March 31, | Net Income | Number of Shares | Per Share | |||||||||
2009 |
||||||||||||
Income per share Basic and diluted |
$ | 90 | 3,419,736 | $ | .03 | |||||||
2008 |
||||||||||||
Income per share Basic and diluted |
$ | 139 | 3,428,695 | $ | .04 | |||||||
4. | INVESTMENT SECURITIES | |
The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2009, December 31, 2008, and March 31, 2008 are as follows (dollars in thousands): |
March 31, 2009 | December 31, 2008 | March 31, 2008 | ||||||||||||||||||||||
Amortized | Estimated | Amortized | Estimated | Amortized | Estimated | |||||||||||||||||||
Cost | Fair Value | Cost | Fair Value | Cost | Fair Value | |||||||||||||||||||
US Agencies MBS |
$ | 44,904 | $ | 45,915 | $ | 46,316 | $ | 46,941 | $ | 23,704 | $ | 23,933 | ||||||||||||
Asset backed-government guaranteed |
4,684 | 4,610 | | | | | ||||||||||||||||||
Obligations of states and political
subdivisions |
498 | 546 | 498 | 549 | 555 | 648 | ||||||||||||||||||
Total securities available for sale |
$ | 50,086 | $ | 51,071 | $ | 46,814 | $ | 47,490 | $ | 24,259 | $ | 24,581 | ||||||||||||
The amortized cost and estimated fair value of investment securities pledged to secure FHLB borrowings and customer relationships were $19.057 million and $19.533 million respectively at March 31, 2009. |
7.
5. | LOANS | |
The composition of loans at March 31, 2009, December 31, 2008, and March 31, 2008 is as follows (dollars in thousands): |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Commercial real estate |
$ | 191,721 | $ | 185,241 | $ | 185,514 | ||||||
Commercial, financial and agricultural |
77,216 | 79,734 | 78,913 | |||||||||
One to four family residential real estate |
65,792 | 65,595 | 59,532 | |||||||||
Construction: |
||||||||||||
Commercial |
26,658 | 31,113 | 27,553 | |||||||||
Consumer |
5,762 | 4,852 | 5,092 | |||||||||
Consumer |
3,627 | 3,745 | 3,452 | |||||||||
Total loans |
$ | 370,776 | $ | 370,280 | $ | 360,056 | ||||||
LOANS Allowance for loan losses | ||
An analysis of the allowance for loan losses for the three months ended March 31, 2009, the year ended December 31, 2008, and the three months ended March 31, 2008 is as follows (dollars in thousands): |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Balance at beginning of period |
$ | 4,277 | $ | 4,146 | $ | 4,146 | ||||||
Recoveries on loans |
39 | 121 | 4 | |||||||||
Loans charged off |
(73 | ) | (2,290 | ) | (226 | ) | ||||||
Provision for loan losses |
550 | 2,300 | | |||||||||
Balance at end of period |
$ | 4,793 | $ | 4,277 | $ | 3,924 | ||||||
In the first quarter of 2009, net charge-off activity was $34,000, or .01% of average loans outstanding compared to net charge-offs of $222,000, or .06% of average loans, in the first quarter of 2008. In the first quarter of 2009, the Corporation recorded a provision for loan loss in the amount of $.550 million, which is discussed in more detail under Managements Discussion and Analysis. | ||
LOANS Impaired loans | ||
Nonperforming loans are those which are contractually past due 90 days or more as to interest or principal payments, on nonaccrual status, or loans, the terms of which have been renegotiated to provide a reduction or deferral on interest or principal. The interest income recorded and that which would have been recorded had nonaccrual and renegotiated loans been current or not troubled was not material to the consolidated financial statements for the three months ended March 31, 2009 and 2008. |
8.
5. | LOANS (Continued) | |
Information regarding impaired loans as of March 31, 2009, December 31, 2008, and March 31, 2008 is as follows (dollars in thousands): |
Valuation Reserve | ||||||||||||||||||||||||
March 31, | December 31, | March 31, | March 31, | December 31, | March 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2009 | 2008 | 2008 | |||||||||||||||||||
Balances, at period end
|
||||||||||||||||||||||||
Impaired loans with specific valuation reserve |
$ | 11,065 | $ | 3,730 | $ | 3,277 | $ | 2,162 | $ | 994 | $ | 1,139 | ||||||||||||
Impaired loans with no specific valuation reserve |
1,396 | 1,157 | 104 | | | | ||||||||||||||||||
Total impaired loans |
$ | 12,461 | $ | 4,887 | $ | 3,381 | $ | 2,162 | $ | 994 | $ | 1,139 | ||||||||||||
Impaired loans on nonaccrual basis |
$ | 12,461 | $ | 4,887 | $ | 3,381 | $ | 2,162 | $ | 994 | $ | 1,139 | ||||||||||||
Impaired loans on accrual basis |
| | | | | | ||||||||||||||||||
Total impaired loans |
$ | 12,461 | $ | 4,887 | $ | 3,381 | $ | 2,162 | $ | 994 | $ | 1,139 | ||||||||||||
Average investment in impaired loans |
$ | 8,323 | $ | 4,834 | $ | 3,915 | ||||||||||||||||||
Interest income recognized during impairment |
6 | 60 | 22 | |||||||||||||||||||||
Interest income that would have been recognized
on an accrual basis |
153 | 377 | 94 | |||||||||||||||||||||
Cash-basis interest income recognized |
6 | 60 | 22 |
The average investment in impaired loans was approximately $8.323 million for the three-months ended March 31, 2009, $4.834 million for the year ended December 31, 2008, and $3.915 million for the three months ended March 31, 2008, respectively. Additional discussion on impaired loans is presented in the Managements Discussion and Analysis section of this report. | ||
LOANS Related parties | ||
The Bank, in the ordinary course of business, grants loans to the Corporations executive officers and directors, including their families and firms in which they are principal owners. | ||
Activity in such loans is summarized below (dollars in thousands): |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Loans outstanding, beginning of period |
$ | 6,516 | $ | 1,720 | $ | 1,720 | ||||||
New loans |
| 372 | | |||||||||
Net activity on revolving lines of credit |
356 | 2,378 | | |||||||||
Repayment |
(104 | ) | (687 | ) | (14 | ) | ||||||
Change in related party interest |
| 2,733 | 2,733 | |||||||||
Loans outstanding, end of period |
$ | 6,768 | $ | 6,516 | $ | 4,439 | ||||||
There were no loans to related parties classified substandard at March 31, 2009, December 31, 2008, and March 31, 2008 respectively. In addition to the outstanding balances above, there were unused commitments of $.197 million to related parties at March 31, 2009. |
9.
6. | SHORT-TERM BORROWINGS | |
Short-term borrowings consist of the following at March 31, 2009, December 31, 2008, and March 31, 2008 (dollars in thousands): |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Fed funds purchased |
$ | | $ | | $ | 10,410 | ||||||
Advance outstanding on line of
credit with a correspondent
bank, interest payable
at the prime rate 3.25% as of
March 31, 2009, matured
November 30, 2008. |
| | 2,159 | |||||||||
$ | | $ | | $ | 12,569 | |||||||
7. | LONG-TERM BORROWINGS | |
Long-term borrowings consist of the following at March 31, 2009, December 31, 2008 and March 31, 2008 (dollars in thousands): |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Federal Home Loan Bank fixed
rate advances at rates ranging
from 4.98% to 5.16%
maturing in 2010 |
$ | 15,000 | $ | 15,000 | $ | 15,000 | ||||||
Federal Home Loan Bank variable
rate advances at rates ranging
from 1.25% to 1.37%
maturing in 2011 |
20,000 | 20,000 | 20,000 | |||||||||
Farmers Home Administration,
fixed-rate note payable,
maturing August 24, 2024
interest payable at 1% |
1,210 | 1,210 | 1,280 | |||||||||
$ | 36,210 | $ | 36,210 | $ | 36,280 | |||||||
The Federal Home Loan Bank borrowings are collateralized at March 31, 2009 by the following: a collateral agreement on the Corporations one to four family residential real estate loans with a book value of approximately $25.782 million; mortgage related and municipal securities with an amortized cost and estimated fair value of $18.870 million and $19.107 million, respectively; and Federal Home Loan Bank stock owned by the Bank totaling $3.794 million. Prepayment of the remaining advances is subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank of Indianapolis in effect as of March 31, 2009. | ||
The U.S.D.A. Rural Development borrowing is collateralized by loans totaling $.317 million originated and held by the Corporations wholly owned subsidiary, First Rural Relending; an assignment of a demand deposit account in the amount of $.996 million and guaranteed by the Corporation. |
10.
8. | STOCK OPTION PLANS | |
A summary of stock option transactions for the three months ended March 31, 2009 and 2008 and the year ended December 31, 2008, is as follows: |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Outstanding shares, at beginning of period |
446,237 | 446,417 | 446,417 | |||||||||
Granted during the period |
| | | |||||||||
Expired/forfeited during the period |
(35,000 | ) | (180 | ) | | |||||||
Outstanding shares at end of period |
411,237 | 446,237 | 446,417 | |||||||||
Weighted average exercise price per share
at end of period |
$ | 12.20 | $ | 12.14 | $ | 12.29 | ||||||
Shares available for grant, at end of period |
24,780 | 18,488 | 18,488 | |||||||||
There were no options granted or exercised in the first quarter of 2009 or 2008. | ||
Following is a summary of the options outstanding and exercisable at March 31, 2009: |
Weighted | ||||||||||||||||
Average | Weighted | |||||||||||||||
Remaining | Average | |||||||||||||||
Exercise | Number of Shares | Contractual | Exercise | |||||||||||||
Price Range | Outstanding | Exercisable | Life-Years | Price | ||||||||||||
$9.16 |
12,500 | 5,000 | 6.7 | $ | 9.16 | |||||||||||
$9.75 |
257,152 | 120,861 | 5.7 | 9.75 | ||||||||||||
$10.65 |
57,500 | 11,500 | 7.7 | 10.65 | ||||||||||||
$11.50 |
40,000 | 8,000 | 6.5 | 11.50 | ||||||||||||
$12.00 |
40,000 | 8,000 | 6.2 | 12.00 | ||||||||||||
$156.00 - $240.00 |
3,545 | 3,545 | 2.0 | 186.75 | ||||||||||||
$300.00 - $400.00 |
540 | 540 | .7 | 333.33 | ||||||||||||
411,237 | 157,446 | 6.1 | $ | 12.20 | ||||||||||||
9. | INCOME TAXES | |
A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. At March 31, 2009, the Corporation evaluated the valuation allowance against the net deferred tax asset which would require future taxable income in order to be utilized. The Corporation, as of March 31, 2009 had a net operating loss and tax credit carryforwards for tax purposes of approximately $32.1 million, and $2.1 million, respectively. | ||
The Corporation utilized NOL carryforwards to offset taxable income for the first nine months of 2007. In the third quarter of 2007, the Corporation reversed a portion of the valuation allowance, $7.500 million that pertained to the deferred tax benefit of NOL and tax credit carryforwards. This valuation adjustment was recorded as a current period income tax benefit. In 2006, the Corporation recorded a $500,000 tax benefit and utilized additional NOL carryforwards to offset current taxable income. The recognition of the deferred tax |
11.
9. | INCOME TAXES (Continued) | |
benefit in 2007 and 2006 was in accordance with generally accepted accounting principles, and considered among other things, the probability of utilizing the NOL and credit carryforwards. | ||
The Corporation recorded the future benefits from these carryforwards at such time as it became more likely than not that they would be utilized prior to expiration. Please refer to further discussion on income taxes contained in Managements Discussion and Analysis. The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will begin to expire in the year 2023. A portion of the NOL, approximately $22 million, and all of the credit carryforwards are subject to the limitations for utilization as set forth in Section 382 of the Internal Revenue Code. The annual limitation is $1.4 million for the NOL and the equivalent value of tax credits, which is approximately $.477 million. These limitations for use were established in conjunction with the recapitalization of the Corporation in December, 2004. | ||
10. | FAS 157 FAIR VALUE MEASUREMENTS | |
The following tables present information about the Corporations assets and liabilities measured at fair value on a recurring basis at March 31, 2009, and the valuation techniques used by the Corporation to determine those fair values. |
Level 1: | In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access. | |||
Level 2: | 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 and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. | |||
Level 3: | Level 3 inputs are unobservable inputs, including inputs available in situations where there is little, if any, market activity for the related asset or liability. |
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Corporations assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. | ||
Disclosures concerning assets and liabilities measured at fair value are as follows (dollars in thousands): |
Quoted Prices in Active | Significant Other | Significant | ||||||||||||||
Markets for Identical | Observable Inputs | Unobservable Inputs | Balance at | |||||||||||||
Assets (Level 1) | (Level 2) | (Level 3) | March 31, 2009 | |||||||||||||
Assets |
||||||||||||||||
Investment securities available for sale |
$ | 51,003 | $ | 68 | $ | | $ | 51,071 | ||||||||
Liabilities |
||||||||||||||||
None |
The Corporation had no Level 3 assets or liabilities on a recurring basis as of December 31, 2008 or March 31, 2009. |
12.
10. | FAS 157 FAIR VALUE MEASUREMENTS (Continued) | |
The Corporation also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections. |
Quoted Prices | Significant | Significant | ||||||||||||||||||
in Active Markets | Other Observable | Unobservable | Total Losses for | |||||||||||||||||
Balance at | for Identical Assets | Inputs | Inputs | the Period Ended | ||||||||||||||||
March 31, 2009 | (Level 1) | (Level 2) | (Level 3) | March 31, 2009 | ||||||||||||||||
Assets |
||||||||||||||||||||
Impaired loans
accounted for under
FAS 114 |
$ | | $ | | $ | | $ | 1,789 | $ | 37 | ||||||||||
$ | 37 | |||||||||||||||||||
The Corporation had no investments subject to fair value measurement on a nonrecurring basis. | ||
Impaired loans accounted for under FAS 114 categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Corporation estimates the fair value of the loans based on the present value of expected future cash flows using managements 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). | ||
11. | COMMITMENTS, CONTINGENCIES, AND CREDIT RISK | |
Financial Instruments with Off-Balance-Sheet Risk | ||
The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. | ||
The Corporations exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. These commitments are as follows (dollars in thousands): |
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Commitments to extend credit: |
||||||||||||
Variable rate |
$ | 34,801 | $ | 40,036 | $ | 40,993 | ||||||
Fixed rate |
9,059 | 4,487 | 10,773 | |||||||||
Standby letters of credit Variable rate |
1,589 | 1,838 | 6,089 | |||||||||
Credit card commitments Fixed rate |
2,477 | 2,438 | 2,463 | |||||||||
$ | 47,926 | $ | 48,799 | $ | 60,318 | |||||||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without |
13.
11. | COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Continued) | |
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on managements credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. | ||
Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The commitments are structured to allow for 100% collateralization on all standby letters of credit. | ||
Credit card commitments are commitments on credit cards issued by the Corporations subsidiary and serviced by other companies. These commitments are unsecured. | ||
Contingencies | ||
In the normal course of business, the Corporation is involved in various legal proceedings. For expanded discussion on the Corporations legal proceedings, see Part II, Item 1, Legal Proceedings in this report. | ||
Concentration of Credit Risk | ||
The Bank grants commercial, residential, agricultural, and consumer loans throughout Michigan. The Banks most prominent concentration in the loan portfolio relates to commercial real estate loans to operators of nonresidential buildings. This concentration at March 31, 2009 represents $40.457 million, or 13.69%, compared to $43.167 million, or 14.78%, of the commercial loan portfolio on March 31, 2008. The remainder of the commercial loan portfolio is diversified in such categories as hospitality and tourism, real estate agents and managers, new car dealers, gaming, petroleum, forestry, agriculture and construction. Due to the diversity of the Banks locations, the ability of debtors of residential and consumer loans to honor their obligations is not tied to any particular economic sector. | ||
12. | SUBSEQUENT EVENTS TARP | |
Participation in the TARP Capital Purchase Program | ||
As previously announced, on April 24, 2009, the Corporation entered into and closed a Letter Agreement, including the Securities Purchase Agreement-Standard Terms (collectively, the Securities Purchase Agreement), related to the CPP. Pursuant to the Securities Purchase Agreement, the Corporation issued and sold to the Treasury (i) 11,000 shares of the Corporations Series A Preferred Shares, and (ii) the Warrant to purchase 379,310 shares of the Corporations Common Shares, at an exercise price of $4.35 per share (subject to certain anti-dilution and other adjustments), for an aggregate purchase price of $11,000,000 in cash. The Warrant has a ten-year term. | ||
As a result of the CPP transaction, the Corporation is required to take certain actions, for so long as the Treasury holds any securities acquired from the Corporation pursuant to the CPP (excluding any period in which the Treasury holds only the Warrant to purchase Common Shares of the Corporation) (the CPP Period), to ensure that its executive compensation and benefit plans with respect to Senior Executive Officers (as defined in the relevant agreements) comply with Section 111(b) of Emergency Economic Stabilization Act of 2008 (EESA), as implemented by any guidance or regulations issued under Section 111(b) of EESA, and not adopt any benefit plans with respect to, or which cover, the Corporations Senior Executive Officers that do not comply with EESA, as amended by the American Recovery and Reinvestment Act of 2009 (the ARRA), which was passed |
14.
12. | SUBSEQUENT EVENTS TARP (Continued) | |
by Congress and signed by the President on February 17, 2009. The applicable executive compensation standards generally remain in effect during the CPP Period and apply to the Corporations Senior Executive Officers (which for purposes of the ARRA and the CPP agreements, includes the Corporations Chief Executive Officer, its Chief Financial Officer, and the next three most highly-compensated executive officers, even though the Corporations senior executive officers consist of a smaller group of executives for purposes of the other compensation disclosures in this proxy statement). | ||
The Corporation has the right to redeem the Series A Preferred Shares at any time after consulting with its primary regulator, in which case the executive compensation standards would no longer apply to the Corporation. | ||
This capital will be used to increase the strong capital position of the Bank. The Bank will use the capital to grow loans. In addition, the capital will allow the Corporation to consider acquisitions of deposit franchisees that would enhance our funding mix. |
15.
| The highly regulated environment in which the Corporation operates could adversely affect its ability to carry out its strategic plan due to restrictions on new products, funding opportunities or new market entrances; | ||
| General economic conditions, either nationally or in the state(s) in which the Corporation does business; | ||
| Legislation or regulatory changes which affect the business in which the Corporation is engaged; | ||
| Changes in the interest rate environment which increase or decrease interest rate margins; | ||
| Changes in securities markets with respect to the market value of financial assets and the level of volatility in certain markets such as foreign exchange; | ||
| Significant increases in competition in the banking and financial services industry resulting from industry consolidation, regulatory changes and other factors, as well as action taken by particular competitors; | ||
| The ability of borrowers to repay loans; | ||
| The effects on liquidity of unusual decreases in deposits; | ||
| Changes in consumer spending, borrowing, and saving habits; | ||
| Technological changes; | ||
| Acquisitions and unanticipated occurrences which delay or reduce the expected benefits of acquisitions; | ||
| Difficulties in hiring and retaining qualified management and banking personnel; | ||
| The Corporations ability to increase market share and control expenses; | ||
| The effect of compliance with legislation or regulatory changes; | ||
| The effect of changes in accounting policies and practices; | ||
| The costs and effects of existing and future litigation and of adverse outcomes in such litigation. |
16.
17.
March 31, | Percent of | December 31, | Percent of | March 31, | Percent of | |||||||||||||||||||
2009 | Total | 2008 | Total | 2008 | Total | |||||||||||||||||||
Commercial real estate |
$ | 191,721 | 51.71 | % | $ | 185,241 | 50.03 | % | $ | 185,514 | 51.52 | % | ||||||||||||
Commercial, financial, and agricultural |
77,216 | 20.83 | 79,734 | 21.53 | 78,913 | 21.92 | ||||||||||||||||||
1-4 family residential real estate |
65,792 | 17.74 | 65,595 | 17.71 | 59,532 | 16.53 | ||||||||||||||||||
Consumer |
3,627 | .98 | 4,852 | 1.31 | 3,452 | .96 | ||||||||||||||||||
Construction |
||||||||||||||||||||||||
Commercial |
26,658 | 7.19 | 31,113 | 8.40 | 27,553 | 7.66 | ||||||||||||||||||
Consumer |
5,762 | 1.55 | 3,745 | 1.01 | 5,092 | 1.41 | ||||||||||||||||||
Total loans |
$ | 370,776 | 100.00 | % | $ | 370,280 | 100.00 | % | $ | 360,056 | 100.00 | % | ||||||||||||
March 31, 2009 | December 31, 2008 | March 31, 2008 | ||||||||||||||||||||||||||||||||||
Percent of | Percent of | Percent of | Percent of | Percent of | Percent of | |||||||||||||||||||||||||||||||
Outstanding | Commerical | Shareholders | Outstanding | Commercial | Shareholders | Outstanding | Commerical | Shareholders | ||||||||||||||||||||||||||||
Balance | Loans | Equity | Balance | Loans | Equity | Balance | Loans | Equity | ||||||||||||||||||||||||||||
Real estate operators of nonres bldgs |
$ | 40,457 | 13.69 | % | 96.64 | % | $ | 41,299 | 13.95 | % | 99.39 | % | $ | 43,167 | 14.78 | % | 108.92 | % | ||||||||||||||||||
Hospitality and tourism |
35,224 | 11.91 | 84.14 | 35,086 | 11.85 | 84.44 | 35,760 | 12.25 | 90.23 | |||||||||||||||||||||||||||
Real estate agents and managers |
28,012 | 9.48 | 66.91 | 29,292 | 9.89 | 70.50 | 30,235 | 10.36 | 76.29 | |||||||||||||||||||||||||||
Commercial construction |
26,658 | 9.02 | 63.68 | 31,113 | 10.51 | 74.88 | 27,553 | 9.44 | 69.52 | |||||||||||||||||||||||||||
Other |
165,244 | 55.90 | 394.72 | 159,298 | 53.80 | 383.37 | 155,265 | 53.17 | 391.76 | |||||||||||||||||||||||||||
Total Commercial Loans |
$ | 295,595 | 100.00 | % | $ | 296,088 | 100.00 | % | $ | 291,980 | 100.00 | % | ||||||||||||||||||||||||
18.
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Nonperforming Assets: |
||||||||||||
Nonaccrual loans |
$ | 12,461 | $ | 4,887 | $ | 3,381 | ||||||
Loans past due 90 days or more |
| | | |||||||||
Restructured loans |
592 | | | |||||||||
Total nonperforming loans |
13,053 | 4,887 | 3,381 | |||||||||
Other real estate owned |
2,199 | 2,189 | 1,137 | |||||||||
Total nonperforming assets |
$ | 15,252 | $ | 7,076 | $ | 4,518 | ||||||
Nonperforming loans as a % of loans |
3.52 | % | 1.32 | % | .94 | % | ||||||
Nonperforming assets as a % of assets |
3.27 | % | 1.57 | % | 1.08 | % | ||||||
Reserve for Loan Losses: |
||||||||||||
At period end |
$ | 4,793 | $ | 4,277 | $ | 3,924 | ||||||
As a % average of loans |
1.29 | % | 1.16 | % | 1.09 | % | ||||||
As a % of nonperforming loans |
36.72 | % | 87.52 | % | 116.06 | % | ||||||
As a % of nonaccrual loans |
38.46 | % | 87.52 | % | 116.06 | % | ||||||
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Total loans, at period end |
$ | 370,776 | $ | 370,280 | $ | 360,056 | ||||||
Average loans for the year |
370,943 | 361,324 | 357,778 | |||||||||
Allowance for loan losses |
4,793 | 4,277 | 3,924 | |||||||||
Allowance to total loans at period end |
1.29 | % | 1.16 | % | 1.09 | % | ||||||
Net charge-offs during the period |
$ | 34 | $ | 2,169 | $ | 222 | ||||||
Net charge-offs to average loans |
.01 | % | .60 | % | .06 | % | ||||||
Net charge-offs to beginning allowance balance |
.79 | % | 52.32 | % | 5.35 | % | ||||||
19.
Most | ||||||||||||
Recent | Reserve | |||||||||||
Collateral Type |
Balance | Apprasial | Allocation | |||||||||
Nonaccrual Loans |
||||||||||||
Non-farm / non-residential (SEM) |
$ | 5,180 | $ | 5,705 | $ | 535 | ||||||
Land development (SEM) |
2,754 | 2,850 | 620 | |||||||||
Non-farm / non-residential (NLP) |
1,072 | 1,888 | 25 | |||||||||
Construction / development (SEM) |
1,000 | 460 | 400 | |||||||||
Construction / development (NLP) |
490 | 485 | 50 | |||||||||
Cabins / land (NLP) |
454 | 425 | | |||||||||
Land development (NLP) |
443 | N/A | 350 | |||||||||
Non-farm/non-residential (UP) |
344 | 575 | 31 | |||||||||
Conv 5+ residential properties (UP) |
296 | 413 | 100 | |||||||||
1-4 family (UP) |
159 | 217 | | |||||||||
Commercial general / unsecured (SEM) |
120 | N/A | | |||||||||
1-4 family (NLP) |
69 | 163 | | |||||||||
Business equipment (UP) |
46 | 25 | 29 | |||||||||
Land (NLP) |
34 | 130 | | |||||||||
Total nonaccrual loans |
12,461 | 13,336 | 2,140 | |||||||||
Restructured Loans |
||||||||||||
Non-farm / non-residential (UP) |
592 | 920 | 5 | |||||||||
Other Real Estate |
||||||||||||
Land development / condo (NLP) |
630 | 700 | | |||||||||
Land development (NLP) |
510 | 682 | | |||||||||
Non-farm / non-residential (SEM) |
508 | 620 | | |||||||||
1-4 family (UP) |
380 | 460 | 31 | |||||||||
Non-farm / non-residential (UP) |
94 | 118 | | |||||||||
Downtown store frontage / 2 / 1-4 family (UP) |
77 | 85 | | |||||||||
Total other real estate owned |
2,199 | 2,665 | 31 | |||||||||
Total nonperforming assets |
$ | 15,252 | $ | 16,921 | $ | 2,176 | ||||||
REGIONAL
BREAKOUT OF NONPERFORMING ASSETS |
||||||||||||
NLP NORTHERN LOWER PENINSULA |
$ | 3,702 | $ | 4,473 | $ | 425 | ||||||
UP UPPER PENINSULA |
1,988 | 2,813 | 196 | |||||||||
SEM SOUTHEAST MICHIGAN |
9,562 | 9,635 | 1,555 | |||||||||
TOTAL |
$ | 15,252 | $ | 16,921 | $ | 2,176 | ||||||
20.
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Commercial, financial, and agricultural loans |
$ | 4,315 | $ | 3,819 | $ | 3,615 | ||||||
One to four family residential real estate loans |
35 | 27 | 25 | |||||||||
Consumer loans |
13 | 40 | 9 | |||||||||
Unallocated and general reserves |
430 | 391 | 275 | |||||||||
Totals |
$ | 4,793 | $ | 4,277 | $ | 3,924 | ||||||
Three Months Ended | Year Ended | Three Months Ended | ||||||||||
March 31, 2009 | December 31, 2008 | March 31, 2008 | ||||||||||
Balance at beginning of period |
$ | 2,189 | $ | 1,226 | $ | 1,226 | ||||||
Other real estate transferred from loans due to foreclosure |
485 | 2,849 | 16 | |||||||||
Reclassification of redemption OREO |
(475 | ) | | | ||||||||
Other real estate sold/written down |
| (1,886 | ) | (105 | ) | |||||||
Balance at end of period |
$ | 2,199 | $ | 2,189 | $ | 1,137 | ||||||
21.
March 31, | December 31, | March 31, | ||||||||||||||||||||||
2009 | % of Total | 2008 | % of Total | 2008 | % of Total | |||||||||||||||||||
Noninterest bearing |
$ | 31,541 | 8.17 | % | $ | 30,099 | 8.11 | % | $ | 26,876 | 8.24 | % | ||||||||||||
NOW, money market, checking |
75,026 | 19.45 | 70,584 | 19.02 | 81,952 | 25.14 | ||||||||||||||||||
Savings |
19,585 | 5.08 | 20,730 | 5.59 | 11,530 | 3.54 | ||||||||||||||||||
Certificates of Deposit <$100,000 |
70,708 | 18.33 | 73,752 | 19.87 | 83,087 | 25.48 | ||||||||||||||||||
Total core deposits |
196,860 | 51.03 | 195,165 | 52.59 | 203,445 | 62.40 | ||||||||||||||||||
Certificates of Deposit >$100,000 |
26,886 | 6.97 | 25,044 | 6.75 | 22,010 | 6.75 | ||||||||||||||||||
Brokered CDs |
162,011 | 42.00 | 150,888 | 40.66 | 100,592 | 30.85 | ||||||||||||||||||
Total non-core deposits |
188,897 | 48.97 | 175,932 | 47.41 | 122,602 | 37.60 | ||||||||||||||||||
Total deposits |
$ | 385,757 | 100.00 | % | $ | 371,097 | 100.00 | % | $ | 326,047 | 100.00 | % | ||||||||||||
22.
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
2009-2008 | ||||||||||||||||||||||||||||||||||||||||||||
Average Balances | Average Rates | Interest | Income/ | Rate/ | ||||||||||||||||||||||||||||||||||||||||
March 31, | Increase/ | March 31, | March 31, | Expense | Volume | Rate | Volume | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2009 | 2008 | (Decrease) | 2009 | 2008 | 2009 | 2008 | Variance | Variance | Variance | Variance | |||||||||||||||||||||||||||||||||
Loans (1,2,3) |
$ | 370,943 | $ | 357,778 | $ | 13,165 | 5.62 | % | 7.04 | % | $ | 5,138 | $ | 6,264 | $ | (1,126 | ) | $ | 231 | $ | (1,270 | ) | $ | (87 | ) | |||||||||||||||||||
Taxable securities |
47,495 | 23,899 | 23,596 | 3.92 | 4.48 | 459 | 266 | 193 | 263 | (33 | ) | (37 | ) | |||||||||||||||||||||||||||||||
Nontaxable securities (2) |
68 | 73 | (5 | ) | 11.93 | 11.02 | 2 | 2 | | | | | ||||||||||||||||||||||||||||||||
Federal funds sold |
| 5,360 | (5,360 | ) | | 3.15 | | 42 | (42 | ) | (42 | ) | (42 | ) | 42 | |||||||||||||||||||||||||||||
Other interest-earning assets |
4,367 | 4,688 | (321 | ) | .19 | 4.03 | 2 | 47 | (45 | ) | (3 | ) | (45 | ) | 3 | |||||||||||||||||||||||||||||
Total earning assets |
422,873 | 391,798 | 31,075 | 5.37 | 6.80 | 5,601 | 6,621 | (1,020 | ) | 449 | (1,390 | ) | (79 | ) | ||||||||||||||||||||||||||||||
Reserve for loan losses |
(4,405 | ) | (4,079 | ) | (326 | ) | ||||||||||||||||||||||||||||||||||||||
Cash and due from banks |
13,345 | 6,201 | 7,144 | |||||||||||||||||||||||||||||||||||||||||
Intangible assets |
35 | 113 | (78 | ) | ||||||||||||||||||||||||||||||||||||||||
Other assets |
22,892 | 23,649 | (757 | ) | ||||||||||||||||||||||||||||||||||||||||
Total assets |
$ | 454,740 | $ | 417,682 | $ | 37,058 | ||||||||||||||||||||||||||||||||||||||
NOW and money market deposits |
$ | 68,252 | $ | 81,834 | $ | (13,582 | ) | .78 | 2.17 | 131 | 442 | (311 | ) | (74 | ) | (284 | ) | 47 | ||||||||||||||||||||||||||
Interest checking |
4,354 | | 4,354 | 1.96 | | 21 | | 21 | | | 21 | |||||||||||||||||||||||||||||||||
Savings deposits |
19,718 | 12,026 | 7,692 | .82 | .84 | 40 | 25 | 15 | 16 | | (1 | ) | ||||||||||||||||||||||||||||||||
CDs <$100,000 |
71,677 | 82,546 | (10,869 | ) | 3.13 | 4.30 | 553 | 951 | (398 | ) | (126 | ) | (310 | ) | 38 | |||||||||||||||||||||||||||||
CDs >$100,000 |
25,752 | 23,151 | 2,601 | 2.77 | 4.57 | 176 | 263 | (87 | ) | 30 | (104 | ) | (13 | ) | ||||||||||||||||||||||||||||||
Brokered deposits |
151,955 | 110,024 | 41,931 | 2.29 | 5.05 | 857 | 1,384 | (527 | ) | 529 | (760 | ) | (296 | ) | ||||||||||||||||||||||||||||||
Borrowings |
36,648 | 39,382 | (2,734 | ) | 3.11 | 4.64 | 281 | 454 | (173 | ) | (32 | ) | (150 | ) | 9 | |||||||||||||||||||||||||||||
Total interest-bearing liabilities |
378,356 | 348,963 | 29,393 | 2.21 | 4.06 | 2,059 | 3,519 | (1,460 | ) | 343 | (1,608 | ) | (195 | ) | ||||||||||||||||||||||||||||||
Demand deposits |
30,961 | 26,435 | 4,526 | |||||||||||||||||||||||||||||||||||||||||
Other liabilities |
3,610 | 2,793 | 817 | |||||||||||||||||||||||||||||||||||||||||
Shareholders equity |
41,813 | 39,491 | 2,322 | |||||||||||||||||||||||||||||||||||||||||
Total liabilities and
shareholders equity |
$ | 454,740 | $ | 417,682 | $ | 37,058 | ||||||||||||||||||||||||||||||||||||||
Rate spread |
3.16 | % | 2.74 | % | ||||||||||||||||||||||||||||||||||||||||
Net interest margin/revenue, tax equivalent basis |
3.40 | % | 3.18 | % | $ | 3,542 | $ | 3,102 | $ | 440 | $ | 106 | $ | 218 | $ | 116 | ||||||||||||||||||||||||||||
(1) | For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. | |
(2) | The amount of interest income on nontaxable securities and loans has been adjusted to a tax equivalent basis, using 34% tax rate. | |
(3) | Interest income on loans includes loan fees. |
23.
Three Months Ended | ||||||||||||||||
March 31, | ||||||||||||||||
Increase/(Decrease) | ||||||||||||||||
2009 | 2008 | Dollars | Percent | |||||||||||||
Service fees |
$ | 243 | $ | 174 | $ | 69 | 39.66 | % | ||||||||
Net gains on loan sales |
58 | 48 | 10 | 20.83 | ||||||||||||
Other |
90 | 23 | 67 | 291.30 | ||||||||||||
Subtotal |
391 | 245 | 146 | 59.59 | ||||||||||||
Net security gain (loss) |
| 65 | (65 | ) | 100.00 | |||||||||||
Total noninterest income |
$ | 391 | $ | 310 | $ | 81 | 26.13 | % | ||||||||
24.
Three Months Ended | ||||||||||||||||
March 31, | ||||||||||||||||
Increase/(Decrease) | ||||||||||||||||
2009 | 2008 | Dollars | Percent | |||||||||||||
Salaries and employee benefits |
$ | 1,597 | $ | 1,807 | $ | (210 | ) | (11.62 | )% | |||||||
Occupancy |
378 | 355 | 23 | 6.48 | ||||||||||||
Furniture and equipment |
189 | 178 | 11 | 6.18 | ||||||||||||
Data processing |
220 | 221 | (1 | ) | (0.45 | ) | ||||||||||
Professional service fees
|
||||||||||||||||
Accounting |
65 | 60 | 5 | 8.33 | ||||||||||||
Legal |
26 | 38 | (12 | ) | (31.58 | ) | ||||||||||
Consulting and other |
62 | 55 | 7 | 12.73 | ||||||||||||
Total professional service fees |
153 | 153 | | | ||||||||||||
Loan and deposit |
261 | 110 | 151 | 137.27 | ||||||||||||
Telephone |
43 | 45 | (2 | ) | (4.44 | ) | ||||||||||
Advertising |
78 | 60 | 18 | 30.00 | ||||||||||||
Other |
320 | 262 | 58 | 22.14 | ||||||||||||
Total other expense |
$ | 3,239 | $ | 3,191 | $ | 48 | 1.50 | % | ||||||||
25.
26.
As Reported | Proforma | |||||||
March 31, 2009 | March 31, 2009 | |||||||
Total capital to risk weighted assets
|
10.56 | % | 13.11 | % | ||||
Tier 1 leverage
|
7.86 | % | 10.28 | % | ||||
Tier 1 capital to risk weighted assets
|
9.31 | % | 11.99 | % | ||||
27.
March 31, | December 31, | March 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
Capital Structure |
||||||||||||
Shareholders equity |
$ | 41,864 | $ | 41,552 | $ | 39,633 | ||||||
Total capitalization |
$ | 41,864 | $ | 41,552 | $ | 39,633 | ||||||
Tangible capital |
$ | 41,838 | $ | 41,507 | $ | 39,529 | ||||||
Intangible Assets |
||||||||||||
Core deposit premium |
$ | 26 | $ | 46 | $ | 104 | ||||||
Other identifiable intangibles |
| | | |||||||||
Total intangibles |
$ | 26 | $ | 46 | $ | 104 | ||||||
Regulatory capital |
||||||||||||
Tier 1 capital: |
||||||||||||
Shareholders equity |
$ | 41,864 | $ | 41,552 | $ | 39,633 | ||||||
Net unrealized (gains) losses on
available for sale securities |
(650 | ) | (445 | ) | (212 | ) | ||||||
Less: disallowed deferred tax asset |
(6,000 | ) | (6,200 | ) | (7,106 | ) | ||||||
Less: intangibles |
(26 | ) | (46 | ) | (104 | ) | ||||||
Total Tier 1 capital |
$ | 35,188 | $ | 34,861 | $ | 32,211 | ||||||
Tier 2 Capital: |
||||||||||||
Allowable reserve for loan losses |
$ | 4,724 | $ | 4,277 | $ | 3,924 | ||||||
Qualifying long-term debt |
| | | |||||||||
Total Tier 2 capital |
4,724 | 4,277 | 3,924 | |||||||||
Total capital |
$ | 39,912 | $ | 39,138 | $ | 36,135 | ||||||
Risk-adjusted assets |
$ | 377,861 | $ | 376,986 | $ | 364,243 | ||||||
Capital ratios: |
||||||||||||
Tier 1 Capital to average assets |
7.86 | % | 8.01 | % | 7.85 | % | ||||||
Tier 1 Capital to risk weighted assets |
9.31 | % | 9.25 | % | 8.84 | % | ||||||
Total Capital to risk weighted assets |
10.56 | % | 10.38 | % | 9.92 | % |
28.
Tangible | Tier 1 | Tier 1 | Total | |||||||||||||||||
Equity to | Equity to | Capital to | Capital to | Capital to | ||||||||||||||||
Period-end | Period-end | Average | Risk Weighted | Risk Weighted | ||||||||||||||||
Assets | Assets | Assets | Assets | Assets | ||||||||||||||||
Regulatory minimum for capital adequacy purposes |
N/A | N/A | 4.00 | % | 4.00 | % | 8.00 | % | ||||||||||||
Regulatory defined well capitalized guideline |
N/A | N/A | 5.00 | % | 6.00 | % | 10.00 | % | ||||||||||||
The Corporation: |
||||||||||||||||||||
March 31, 2009 |
8.98 | % | 8.97 | % | 7.86 | % | 9.31 | % | 10.56 | % | ||||||||||
March 31, 2008 |
9.50 | % | 9.48 | % | 7.85 | % | 8.84 | % | 9.92 | % | ||||||||||
The Bank: |
||||||||||||||||||||
March 31, 2009 |
9.04 | % | 9.03 | % | 7.96 | % | 9.41 | % | 10.66 | % | ||||||||||
March 31, 2008 |
9.94 | % | 9.92 | % | 8.34 | % | 9.40 | % | 10.46 | % |
29.
30.
1-90 | 91 - 365 | >1-5 | Over 5 | |||||||||||||||||
Days | Days | Years | Years | Total | ||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||
Loans |
$ | 250,590 | $ | 11,227 | $ | 28,508 | $ | 80,451 | $ | 370,776 | ||||||||||
Securities |
5 | 29,936 | 16,006 | 5,124 | 51,071 | |||||||||||||||
Other (1) |
569 | | | 3,794 | 4,363 | |||||||||||||||
Total interest-earning assets |
251,164 | 41,163 | 44,514 | 89,369 | 426,210 | |||||||||||||||
Interest-bearing obligations: |
||||||||||||||||||||
NOW, money market, savings, and interest checking |
94,611 | | | | 94,611 | |||||||||||||||
Time deposits |
30,401 | 52,976 | 13,462 | 755 | 97,594 | |||||||||||||||
Brokered CDs |
60,143 | 94,730 | 7,138 | | 162,011 | |||||||||||||||
Borrowings |
20,000 | | 15,000 | 1,210 | 36,210 | |||||||||||||||
Total interest-bearing obligations |
205,155 | 147,706 | 35,600 | 1,965 | 390,426 | |||||||||||||||
Gap |
$ | 46,009 | $ | (106,543 | ) | $ | 8,914 | $ | 87,404 | $ | 35,784 | |||||||||
Cumulative gap |
$ | 46,009 | $ | (60,534 | ) | $ | (51,620 | ) | $ | 35,784 | ||||||||||
(1) | Includes Federal Home Loan Bank Stock |
31.
32.
33.
34.
Exhibit 3.1 | Articles of Incorporation and all amendments (most recent amendment filed December 14, 2004) incorporated herein by reference to exhibit 3.1 of the Corporations Annual Report on Form 10-K for the year ended December 31, 2008 | |||
Exhibit 3.2(a) | Amended and Restated Bylaws as revised June 27, 2001incorporated herein by reference to exhibit 3.2(a) of the Corporations Annual Report on Form 10-K for the year ended December 31, 2008 | |||
Exhibit 3.2(b) | Amendment to the Amended and Restated Bylaws adopted August 9, 2004 incorporated herein by reference to exhibit 3.2(b) of the Corporations Annual Report on Form 10-K for the year ended December 31, 2008 | |||
Exhibit 3.2(c) | Second Amendment to the Amended and Restated Bylaws adopted December 2007 incorporated herein by reference to exhibit 3.2(c) of the Corporations Annual Report on Form 10-K for the year ended December 31, 2008 | |||
Exhibit 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | |||
Exhibit 31.2 | Rule 13a-14(a) Certification of Chief Financial Officer | |||
Exhibit 32.1 | Section 1350 Certification of Chief Executive Officer | |||
Exhibit 32.2 | Section 1350 Certification of Chief Financial Officer |
35.
MACKINAC FINANCIAL CORPORATION (Registrant)
|
||||
Date: May 14, 2009 | By: | /s/ Paul D. Tobias | ||
PAUL D. TOBIAS, | ||||
CHAIRMAN AND CHIEF EXECUTIVE OFFICER (principal executive officer) |
||||
By: | /s/ Ernie R. Krueger | |||
ERNIE R. KRUEGER | ||||
EVP/CHIEF FINANCIAL OFFICER (principal accounting officer) |
||||
36.