FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
Commission file number: 0-20167
NORTH COUNTRY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2062816
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 South Cedar Street, Manistique, MI 49854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (906) 341-8401
FIRST MANISTIQUE CORPORATION
(Former name)
-----------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ____
As of May 12, 1998, there were outstanding 2,381,796 shares of the registrant's
common stock, no par value.
1
INDEX
Page
Number(s)
Part I. Financial Information (unaudited):
Item 1.
Consolidated Financial Statements 3-6
Notes to Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II. Other Information
Item 6.
Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I - FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
(In thousands of dollars)
March 31, December 31,
ASSETS 1998 1997
------ -----
Cash and due from banks $ 9,160 $ 9,338
Federal funds sold 7,890 1,805
------------ ------------
Total cash and cash equivalents 17,050 11,143
Securities available for sale - stated at fair value 9,351 10,103
Loans, net of unearned income 382,926 372,519
Allowance for loan losses (5,572) (5,600)
------------ ------------
Net loans 377,354 366,919
Premises and equipment 18,047 17,477
Other assets 12,241 15,792
------------ ------------
TOTAL ASSETS $ 434,043 $ 421,434
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing deposits $ 32,271 $ 33,354
Interest bearing deposits 339,891 327,195
------------ ------------
Total deposits 372,162 360,549
Federal funds purchased and securities sold under
agreement to repurchase 2,551 1,195
Other borrowings 18,840 19,628
Other liabilities 3,019 3,470
------------ ------------
TOTAL LIABILITIES 396,572 384,842
------------ ------------
Shareholders' Equity
Common stock - No par value
Authorized - 6,000,000 shares
Issued and outstanding - 2,380,166 and 2,379,490
shares at March 31, 1998 and December 31, 1997
respectively 19,958 19,916
Retained earnings 17,519 16,679
Unrealized loss on securities available for sale - net of tax (6) (3)
------------- -------------
Total shareholders's equity 37,471 36,592
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 434,043 $ 421,434
=========== ===========
3
Consolidated Condensed Statements of Income (unaudited)
(In thousands of dollars)
Three months ended
March 31
1998 1997
------ -----
Interest Income
Loans, including fees $ 8,861 $ 7,867
Securities
Taxable 219 275
Exempt from federal taxation 1 7
Other 102 69
---------------- ----------------
Total interest income 9,183 8,218
Interest expense
Deposits 3,977 3,330
Borrowed funds 276 331
---------------- ----------------
Total interest expense 4,253 3,661
---------------- ----------------
Net interest income 4,930 4,557
Provision for loan losses 250 106
---------------- ----------------
Net interest income after provision for loan losses 4,680 4,451
Noninterest income
Service charges on deposit accounts 309 238
Gains on sale of loans 23 9
Securities gains 44 0
Other 166 104
---------------- ----------------
Total noninterest income 542 351
Noninterest expense
Salaries and employee benefits 1,640 1,501
Furniture and equipment expense 325 334
Occupancy expense 243 260
Other 1,450 1,409
---------------- ----------------
Total noninterest expense 3,658 3,504
---------------- ----------------
Income before income tax 1,564 1,298
Provision for income tax 414 3 14
---------------- ----------------
Net income $ 1,150 $ 984
================ ================
Weighted average common shares outstanding 2,379,675 2,370,305
================ ================
March 31, 1998 March 31, 1997
Basic Diluted Basic Diluted
Earnings per common share $ 0.48 $ 0.48 $ 0.42 $ 0.42
====== ====== ====== ======
4
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
(In thousands of dollars)
March 31, December 31,
1998 1997
Balance - beginning of period $ 36,592 $ 32,386
Comprehensive income:
Net income for period 1,150 984
Net change in unrealized gain (loss) on
securities available for sale (3) (148)
----------- -----------
Total comprehensive income 1,147 836
Cash dividends (307) (285)
Issuance of common stock 152 1,282
Common stock retired -113 0
$ 37,471 $ 34,219
=========== ===========
5
Consolidated Statements of Cash Flows (unaudited)
(In thousands of dollars)
March 31, December 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES $ 5,907 $ 1,730
------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest bearing deposits with banks 0 438
Purchase of securities available for sale 0 (830)
Proceeds from sales of securities available for sale 752 4,847
Proceeds from maturities, calls, or payoffs of securities
available for sale 0 246
Net increase in loans (10,435) (12,192)
Purchase of premises and equipment (914) (1,484)
Net cash provided in acquisitions 0 32
- ---------------
Net cash used in investing activities (10,597) (8,943)
------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,613 14,068
Net decrease in federal funds purchased and securities
sold under agreement to repurchase 1,355 (4,100)
Proceeds from notes payable 0 8,250
Payment on notes payable (787) (1,788)
Proceeds from issuance of common stock 152 1,282
Retirement of common stock (113) 0
Payment of dividends (307) (285)
------------
Net cash from financing activities 11,913 17,427
------------ ---------------
Net increase (decrease) in cash and cash equivalents 7,223 10,214
Cash and cash equivalents at beginning of period 11,143 12,164
------------ ---------------
Cash and cash equivalents at end of period $ 17,050 $ 22,378
============ ===============
6
NORTH COUNTRY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The unaudited condensed consolidated financial statements of North Country
Financial Corporation (the "Registrant") 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 ending March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
Note 2 - Accounting Changes
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income in a full set of general-purpose financial statements. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement requires that an enterprise display an amount
representing total comprehensive income for the period in a financial statement,
but does not require a specific format for that financial statement. This
statement also requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. The statement is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. As of 1/1/1998,
management has adopted this standard. The net effect on the earnings of the
company is insignificant.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It also amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. The
statement is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. The statement is not expected to have an effect on the financial
position or operating results of the Registrant, but may require additional
disclosures in the financial statements. The Registrant will implement this
statement with the December 31, 1998 annual report.
7
Note 3 - Allowance for Loan Losses
Activity in the allowance for loan losses for the three months ended March 31,
1998 and 1997, are summarized as follows:
(In thousands of dollars)
March 31, March 31,
1998 1997
Balance at beginning of period $ 5,600 $ 4,591
Charge-offs (284) (93)
Recoveries 6 49
Balance transferred from purchase of U.P. Financial 0 298
Provision for loan loss 250 106
Total $ 5,572 $ 4,951
==========================================
Information regarding impaired loans follows:
(In thousands of dollars)
March 31, December 31,
1998 1997
Average investment in impaired loans $ 6,899 $ 6,710
Balance of impaired loans $ 7,089 $ 6,933
Note 4 - Other Borrowings
Other borrowings consists of the following at March 31, 1998 and December 31,
1997 (In thousands of dollars)
March 31, December 31,
1998 1997
Other Borrowings
Federal Home Loan bank advances (6) at various
rates with various maturities (see annual
financial statements) $ 16,115 $ 16,115
Farmers Home Administration, $2,000,000 fixed
rate line agreement maturing August 24, 2024,
interest payable at 1% 1,938 1,938
Notes payable to South Range State Bank's
former stockholders, maturing in three equal
annual installments beginning February 1,
1997. Interest payable at 5.2% 787 1,575
------------- ------------
Total Other Borrowings $ 18,840 $ 19,628
=========================================
The Federal Home Loan Bank borrowings are collateralized by a blanket collateral
agreement on the Registrant's residential mortgage loans. Prepayment of the
advances is subject to the provisions and conditions of the credit policy of the
Federal Home Loan Bank of Indianapolis in effect as of December 31, 1997 and
March 31, 1998. Borrowings other than Federal Home Loan Bank are not subject to
prepayment penalties.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of financial condition and results of
operations provides additional information to assess the consolidated condensed
financial statements of the Registrant and its wholly-owned subsidiaries through
the first quarter of 1998. The discussion should be read in conjunction with
those statements and their accompanying notes.
The Registrant is not aware of any market or institutional trends, events, or
circumstances that will have or are reasonably likely to have a material effect
on liquidity, capital resources, or results of operations except as discussed
herein. Also, the Registrant is not aware of any current recommendations by
regulatory authorities which will have such effect if implemented.
Highlights
Year to date consolidated net income was $1,150,000 through March 31, 1998
compared to $984,000 for the same period in 1997. Earnings per share increased
from $0.42 through the quarter ending March 31, 1997, to $0.48 for the same
period in 1998.
Financial Condition
Loans
Through the first quarter of 1998, loan balances increased by $10.4 million. The
loan to deposit ratio has decreased from 101.8% at December 31, 1997, to 101.4%
at March 31, 1998. Management believes loans provide the most attractive earning
asset yield available to the Registrant and that trained personnel and controls
are in place to successfully manage a growing portfolio. Accordingly, management
intends to continue to maintain loans at the highest level which is consistent
with maintaining adequate liquidity. As shown in the table below, the loan mix
remains relatively constant for the quarter ended March 31, 1998 compared to
December 31, 1997.
Management is aware of the risk associated with an increase in average balances
of loans but feels that the current level in the allowance for loan losses is
adequate. At March 31, 1998 the allowance for loan losses was equal to 1.46% of
total loans outstanding compared to 1.50% at December 31, 1997.
Commercial real estate loans have increased by $10.9 million through the first
quarter of 1998 to $97,029,000 at March 31, 1998. Through the first quarter of
1998, loans to general commercial businesses decreased by $3,098,000 to
$92,533,000. Commercial leases increased $6.7 million to $17,779,000 at March
31, 1998 and governmental leases decreased $0.1 million to $46,386,000.
Residential, 1-4 family mortgages increased by $1.8 million to $97,302,000.
Consumer loans have decreased $2.6 million through the first quarter of 1998 to
$24,335,000. Construction loans have decreased $3.4 million to $7,562,000 at
March 31, 1998.
March 31, December 31,
1998 % of Total 1997 % of Total
------ ---------- ------ ----------
Loans (in thousands)
Commercial real estate $ 97,029 25.3% $ 86,052 23.1%
Commercial, financial, and agricultural 92,533 24.2% 95,631 25.7%
Leases:
Commercial 17,779 4.6% 11,094 3.0%
Governmental 46,386 12.1% 46,464 12.5%
1-4 family residential real estate 97,302 25.4% 95,543 25.6%
Consumer 24,335 6.4% 26,795 7.2%
Construction 7,562 2.0% 10,940 2.9%
------------- -------- ------------ --------
Total $ 382,926 100.0% $ 372,519 100.0%
===================================================================
9
Credit Quality
Management analyzes the allowance for loan losses in detail on a monthly basis
to ensure that the losses inherent in the portfolio are properly recognized. The
Registrant's success in maintaining excellent credit quality is demonstrated in
its historical charge-off percentage. Charge-offs for the period ending March
31, 1998 have increased $162,000 from the same period in 1997. This is mainly
the result of an increase in commercial and industrial loan charge-offs to
$208,000 for the quarter. Accordingly, the provision for loan losses was
increased from $106,000 in the period ending March 31, 1997 to $250,000 for the
same period in 1998.
The table presented below shows the balances of nonaccrual loans, loans 90 or
more days past due, and renegotiated loans as of March 31, 1998, and December
31, 1997.
(In thousands of dollars)
March 31, December 31,
1998 1997
Nonaccrual loans $ 1,630 $ 1,956
Loans 90 days or more past due $ 408 $ 698
Renegotiated loans 0 0
Investments
Available for sale securities decreased $0.75 million through the first quarter
of 1998 due to the sale of securities. The mix of the portfolio remained
relatively unchanged from December 31, 1997. The primary use of the portfolio is
to provide a source of liquidity. Most of the portfolio is invested in U.S.
Treasury and agency securities which have little credit risk and are highly
liquid. There are no securities classified as held to maturity.
Deposits
Total deposits through the first quarter have increased $11.6 million. Interest
bearing deposit balances increased through March 31, 1998, continuing a trend
from 1997. The increase in interest bearing deposits came from an $11.9 million
increase in savings, money market and interest-bearing checking, a $2.3 million
increase in time deposits less than $100,000, and a $0.9 million increase in
time deposits greater than $100,000. The time deposits of $100,000 or more
consist of stable, government balances and balances from retail customers.
Borrowings
The Registrant's branching network is a relatively high cost network in
comparison to peers. Accordingly, the Registrant uses alternative funding
sources to provide funds for lending activities. Other borrowings decreased by
$.8 million through the first quarter (refer to the table presented in Note 4 to
the first quarter financial statements above for the composition of the
decrease). At March 31, 1998, $16.1 million of the total borrowings were from
the Federal Home Loan Bank of Indianapolis. Alternative sources of funding can
be obtained at interest rates which are competitive with, or lower than, retail
deposit rates and with inconsequential administrative costs.
Liquidity
The Registrant's sources of liquidity include principal payments on loans and
investments, sales of securities available for sale, deposits from customers,
borrowings from the Federal Home Loan Bank, other bank borrowings, and the
issuance of common stock. The Registrant has ready access to significant sources
of liquidity on an almost immediate basis. Management anticipates no difficulty
in maintaining liquidity at the levels necessary to conduct the Registrant's
day-to-day business activities.
10
Results of Operations
Net Interest Income
Net interest income through March 31, 1998 increased by 8.2%, compared to the
same period one year ago. The net interest margin, on a fully tax equivalent
basis at March 31, 1998 was 5.54%, compared to 5.64% for all of 1997. The
decrease in net yield on interest earning assets reflects the competitive nature
of the Registrant's market. Interest income from loans represented 96.5% of
total interest income through the first quarter of 1998 compared to 95.7% for
the same period of 1997. In all cases, the total amount of interest income and
the yield on total earning assets is strongly influenced by lending activities.
Provision for Loan Losses
The Registrant maintains the allowance for loan losses at a level adequate to
cover losses inherent in the portfolio. The Registrant records a provision for
loan losses necessary to maintain the allowance at that level after considering
factors such as loan charge-offs and recoveries, changes in the mix of loans in
the portfolio, loan growth, and other economic factors. The provision for loan
losses has increased $144,000 through March 31, 1998 compared to the same period
in 1997 as a result of the Registrant's desire to maintain an adequate
percentage of allowance to loans.
Noninterest Income
Service charges on deposit accounts increased $71,000 through the first quarter
of 1998 vs. the first quarter of 1997 due mainly to an increased focus on
non-interest sources of income. Gains on sales of loans has increased to $23,000
through the first quarter of 1998 vs. $9,000 through the first quarter of 1997
due to an increase in loan sale activity. Securities gains were $44,000 through
the first quarter of 1998. There were no security gains or losses in the same
period in 1997. The proceeds from the security sales were used to fund loans in
the Registrant's growing loan portfolio. Other noninterest income increased
$62,000 through the first quarter of 1998 vs. the first quarter of 1997 due
mainly to an increase in insurance commissions.
Noninterest Expenses
Noninterest expense showed an increase of 4.4% through March 31, 1998 compared
to the same period of 1997. The increase is consistent with the Registrant's
asset growth. Salary expense increased by $139,000 from March 31, 1997 to the
same period in 1998. Much of the increase in salaries was due to the
Registrant's staffing of branches that opened after March 31, 1998. Occupancy
expense decreased by $28,000 from March 31, 1997 to March 31, 1998. Other
noninterest expense increased by $41,000 for this same period. While the changes
in non-interest expense were expected, a primary objective of management is to
hold the rate of increase in this category below future asset growth. Management
believes that significant efficiencies can be obtained and is increasing the
level of management emphasis in this area.
Federal Income Tax
The provision for income taxes was 26.5% of income before income tax through
March 31, 1998 compared to 24.2% through March 31, 1997. The difference between
these rates and the federal corporate income tax rate of 34% is primarily due to
tax-exempt interest earned on loans, leases, and investments. The effective tax
rate has increased as tax-exempt income has become a smaller portion of total
interest income.
Interest Rate Risk
Management actively manages the Registrant's interest rate risk. In relatively
low interest rate environments which have been in place the last few years,
borrowers have generally tried to extend the maturities and repricing periods on
their loans and place deposits in demand or very short term accounts. Management
has taken various actions to offset the imbalance which those tendencies would
otherwise create. Management writes commercial and real estate loans at variable
rates or, if necessary, fixed rate loans for relatively short terms. Management
has also offered products that give customers an incentive to accept longer term
deposits. Management can also manage interest rate risk with the
11
maturity periods of securities purchased, selling securities available for sale,
and borrowing funds with targeted maturity periods. The Registrant has remained
slightly liability sensitive in the cumulative net asset (liability) funding gap
for 1 - 365 days since December 31, 1997.
Capital Resources
It is the policy of the Registrant to maintain capital at a level consistent
with both safe and sound operations and proper leverage to generate an
appropriate return on shareholders' equity. The capital ratios of the Registrant
exceed the regulatory guidelines for well capitalized institutions. The table
below shows the Registrant's capital, in thousands of dollars, and capital
ratios at March 31, 1998 and 1997.
March 31, 1998
Required Required Actual Actual
$ % $ %
Tier 1 risk adjusted capital ratio 13,064 4.00% 29,907 9.16%
Total risk adjusted capital ratio 26,128 8.00% 31,365 9.60%
Tier 1 leverage ratio 17,031 4.00% 29,907 7.02%
Tier 1 capital 29,907
Tier 2 capital 4,033
Total risk based capital 33,940
Total risk weighted assets 326,599
Average total assets 425,787
March 31, 1997
Required Required Actual Actual
$ % $ %
Tier 1 risk adjusted capital ratio 12,258 4.00% 27,521 8.98%
Total risk adjusted capital ratio 24,516 8.00% 31,365 10.23%
Tier 1 leverage ratio 15,451 4.00% 27,521 7.12%
Tier 1 capital 27,521
Tier 2 capital 3,844
Total risk based capital 31,365
Total risk weighted assets 306,449
Average total assets 386,276
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
At the date hereof, there were no material pending legal proceedings, other than
routine litigation incidental to the business of banking, to which the
Registrant or any of its subsidiaries is a party of or which any of its
properties is the subject.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
There have been no defaults upon senior securities relevant to the requirements
of this section.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Registrant's shareholders during the
first quarter of 1998.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
Number Exhibit
3 The Registrant's Restated Articles of Incorporation as amedned
to reflect change of the Registrant's name.
27 Financial Data Schedule. Filed herewith.
The following documents are filed as part of Part I, Item 1 of this report:
Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31,
1997 (Audited)
Consolidated Statements of Income - Three months ended March 31, 1998
and 1997 (Unaudited)
Consolidated Statement of Changes in Shareholders' Equity - Three
months ended March 31, 1998 and 1997 (Unaudited)
Consolidated Statement of Cash Flows - Three months ended March 31,
1998 and 1997 (Unaudited)
Notes to consolidated financial statements - March 31, 1998
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 to be signed on its behalf by the undersigned hereunto duly
authorized.
NORTH COUNTRY FINANCIAL CORPORATION
/s/ Ronald G. Ford
Ronald G. Ford
(Chief Executive Officer)
/s/ Michael L. Roarty
Michael L. Roarty
(Executive Vice President and Chief
Financial Officer)
Dated: May 14, 1998
14
Exhibit 3, Page 1
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended, the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is:
First Manistique Corporation
2. The identification number assigned by the Bureau is: 063 316
3. The location of the registered office is:
130 South Cedar
Manistique, MI 49854
4. The following amendments to the Articles of Incorporation were
duly adopted on the 14th day of April, 1998. The amendment was duly adopted
in accordance with Section 611(2) of the Act by the vote of the shareholders.
The necessary votes were cast in favor of the amendment.
Article I is hereby amended to read as follows:
ARTICLE I
The name of the Corporation is North Country Financial Corporation.
Signed this 18th day of April, 1998.
By: /s/Ronald G. Ford
Ronald G. Ford, President and
Chief Executive Officer
Return to:
Donald L. Johnson
Varnum, Riddering, Schmidt & Howlett LLP
P.O. Box 352
Grand Rapids, MI 49501-0352
Exhibit 3, Page 2
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended, the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is:
First Manistique Corporation
2. The identification number assigned by the Bureau is: 063 316
3. The location of the registered office is:
130 South Cedar
P.O. Box 369
Manistique, MI 49854
4. The following amendments to the Articles of Incorporation were
duly adopted on the 23rd day of April, 1996. The amendments were duly adopted
in accordance with Section 611(2) of the Act by the vote of the shareholders.
The necessary votes were cast in favor of the amendments.
Article III of the Corporation's Articles of Incorporation is
hereby amended to read as follows:
ARTICLE III
The total number of shares of all classes of stock which the
corporation shall have authority to issue is 6,500,000 shares, of
which 6,000,000 shares shall be of a single class of common stock and
500,000 shares shall be series preferred stock.
The authorized shares of common stock are all of one class with
equal voting power, and each such share shall be equal to every other
such share. The Board of Directors of the corporation may cause the
corporation to issue preferred shares in one or more series, each
series to bear a distinctive designation and to have such relative
rights and preferences as shall be prescribed by resolution of the
Board. Such resolutions, when filed, shall constitute amendments to
these Articles of Incorporation.
Exhibit 3, Page 3
A new Article VII is added to the Corporation's Articles of Incorporation
and reads as follows:
ARTICLE VII
BOARD OF DIRECTORS
Section 1. Authority and Size of Board. The business and affairs
of the corporation shall be managed by or under the direction of the
Board of Directors. The number of directors of the corporation that
shall constitute the Board of Directors shall be determined from time
to time by resolution adopted by the affirmative vote of:
A. At least eighty percent (80%) of the Board of Directors,
and
B. A majority of the Continuing Directors (as hereinafter
defined).
Section 2. Classification of Board and Filling of Vacancies.
Subject to applicable law, the directors shall be divided into three
(3) classes, each class to be as nearly equal in number as possible.
At each annual meeting of shareholders, the successors to the class of
directors whose term shall then expire shall be elected to hold office
for a term expiring at the third succeeding annual meeting and until
their successors shall be duly elected and qualified or their
resignation or removal. Any vacancies in the Board of Directors for
any reason, and any newly created directorships resulting from any
increase in the number of directors, may be filled only by the Board
of Directors, acting by an affirmative vote of a majority of the
Continuing Directors (as hereinafter defined) and an eighty percent
(80%) majority of all of the directors then in office, although less
than a quorum, and any director so chosen shall hold office until the
next election of the class for which the director was chosen and until
his successor shall be duly elected and qualified or his resignation
or removal. No decrease in the number of directors shall shorten the
term of any incumbent director.
Section 3. Removal of Directors. Notwithstanding any other
provisions of these Articles of Incorporation or the Bylaws of the
corporation (and notwithstanding the fact that some lesser percentage
may be specified by law or by these Articles of Incorporation or the
Bylaws of the corporation), any one or more directors of the
corporation may be removed at any time, with or without cause, but
only by either (i) the affirmative vote of a majority of the
2
Exhibit 3, Page 4
Continuing Directors and at least eighty percent (80%) of the Board of
Directors or (ii) the affirmative vote, at a meeting of the
shareholders called for that purpose, of the holders of at least eighty
percent (80%) of the voting power of the then outstanding shares of
capital stock of the corporation entitled to vote generally in the
election of directors (the "Voting Stock") voting together as a single
class.
Section 4. Certain Definitions. For the purposes of this Article
VII:
A. A "person" shall mean any individual, firm, corporation
or other entity.
B. "Interested Shareholder" shall mean any person, other
than the corporation or any Subsidiary, who or which:
(i) is the beneficial owner, directly or indirectly, of
ten percent (10%) or more of the voting power of the
outstand ing Voting Stock; or
(ii) is an Affiliate of the corporation and at any time
within the two (2) year period immediately prior to the date
in question was the beneficial owner, directly or
indirectly, of ten percent (10%) or more of the voting power
of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two (2) year period immediately prior to the date in
question beneficially owned by any Interested Shareholder,
if such assignment or succession shall have occurred in the
course of a transaction or series of transactions not
involving a public offering within the meaning of the
Securities Act of 1933.
C. A person shall be a "beneficial owner" of any Voting
Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right
is
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Exhibit 3, Page 5
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or in
directly, by any other person with which such person or any
of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
D. For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph B of this Section 4,
the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of
paragraph C of this Section 4 but shall not include any other
shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as in effect on the date this Article of the Articles of
Incorporation is filed with the Corporation Division of the
Michigan Department of Commerce.
F. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by
the corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph B of
this Section 4, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the corporation.
G. "Continuing Director" means any member of the Board of
Directors of the corporation (the "Board") who is unaffiliated
with the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an
Interested Shareholder, and any successor of a Continuing
Director who is unaffiliated with the Interested Shareholder and
is recommended to succeed a Continuing Director by a majority of
Continuing Directors then on the Board.
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Exhibit 3, Page 6
Section 5. Powers of Continuing Directors. A majority of the
Continuing Directors of the corporation shall have the power and duty
to determine, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance with
this Article VII, including without limitation (i) whether a person is
an Interested Shareholder, (ii) the number of shares of Voting Stock
beneficially owned by any person and (iii) whether a person is an
Affiliate or Associate of another; and the good faith determination of
a majority of the Continuing Directors on such matters shall be
conclusive and binding for all the purposes of this Article VII.
Section 6. Nominations for Board. Nominations for the election of
directors may be made by the Board of Directors or by a shareholder
entitled to vote in the election of directors. A shareholder entitled
to vote in the election of directors, however, may make such a
nomination only if written notice of such shareholder's intent to do
so has been given, either by personal delivery or by United States
mail, postage prepaid, and received by the corporation (a) with
respect to an election to be held at an annual meeting of
shareholders, not later than sixty (60) nor more than ninety (90) days
prior to the first anniversary of the preceding year's annual meeting
(or, if the date of the annual meeting is changed by more than twenty
(20) days from such anniversary date, within ten (10) days after the
date the corporation mails or otherwise gives notice of the date of
such meeting), and (b) with respect to an election to be held at a
special meeting of shareholders called for that purpose, not later
than the close of business on the tenth (10th) day following the date
on which notice of the special meeting was first mailed to the
shareholders by the corporation.
Each shareholder's notice of intent to make a nomination shall
set forth: (i) the name(s) and address(es) of the shareholder who
intends to make the nomination and of the person or persons to be
nominated; (ii) a representation that the shareholder (a) is a holder
of record of stock of the corporation entitled to vote at such
meeting, (b) will continue to hold such stock through the date on
which the meeting is held, and (c) intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in
the notice; (iii) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination is to be made by the shareholder; (iv) such other
information regarding each nominee proposed by such shareholder as
would be required to be included in a proxy statement filed pursuant
to Regulation 14A promulgated under Section 14 of the Securities
Exchange Act of 1934, as amended, as now in effect or hereafter
modified; and (v) the consent of each nominee to serve as a director
of the corporation if so
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Exhibit 3, Page 7
elected. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the
corporation to determine the qualifications of such proposed nominee
to serve as a director.
No person shall be eligible for election as a director unless
nominated (i) by a shareholder in accordance with the foregoing
procedure or (ii) by the Board of Directors.
A new Article VIII is added to the Corporation's Articles of Incorporation
and reads as follows:
ARTICLE VIII
NOTIFICATION OF SHAREHOLDER PROPOSALS
The Board of Directors of the corporation shall submit for
consideration and vote by the shareholders, at annual meetings of the
shareholders, only those proposals that are first brought before the
meeting by or at the direction of the Board of Directors, or by any
shareholder entitled to vote at such meeting (a) who submits to the
corporation a timely Notice of Proposal in accordance with the requirements
of this Article VIII and the proposal is a proper subject for action by
shareholders under Michigan law, or (b) whose proposal is included in the
corporation's proxy materials in compliance with all the requirements set
forth in the applicable rules and regulations in the Securities and
Exchange Commission.
Each shareholder's Notice of Proposal shall set forth:
(a) The name and address of the shareholder submitting the
proposal, as they appear on the corporation's books and records;
(b) A representation that the shareholder (i) is a holder of
record of stock of the corporation entitled to vote at such meeting,
(ii) will continue to hold such stock through the date on which the
meeting is held, and (iii) intends to appear in person or by proxy at
the meeting to submit the proposal for shareholder vote;
(c) A brief description of the proposal desired to be submitted
to the meeting for shareholder vote and the reasons for conducting
such business at the meeting; and
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Exhibit 3, Page 8
(d) A description of any financial or other interest of such
shareholder in the proposal.
A Notice of Proposal must be given, either by personal delivery or by
United States mail, postage prepaid, and received by the corporation not
less than thirty (30) days prior to the date of the originally scheduled
meeting, regardless of any adjournments thereof to a later date; provided
that, if less than forty (40) days' notice of the meeting of shareholders
is given by the corporation, the Notice of Proposal must be received by the
corporation not later than the close of business on the tenth (10th) day
following the date on which the notice of the scheduled meeting was first
mailed to the shareholders.
The secretary of the corporation shall notify a shareholder in writing
whether his or her Notice of Proposal has been made in accordance with all
the requirements of this Article VIII. The chairman of the meeting may
refuse to acknowledge the proposal of any shareholder not made in
compliance with all such requirements.
A new Article IX is added to the Corporation's Articles of Incorporation
and reads as follows:
ARTICLE IX
AMENDMENT OF ARTICLES VII, VIII OR IX
Notwithstanding anything contained in these Articles of Incorporation
to the contrary, the affirmative vote of at least 80% of the outstanding
shares of voting stock of the corporation, voting as a single class, shall
be required to amend or repeal Article VII, Article VIII or Article IX of
these Articles of Incorporation or to adopt any provision inconsistent
therewith, unless, such amendment or repeal or inconsistent provision has
been recommended for approval by at least 80% of all directors then holding
office and by a majority of the Continuing Directors. The term "Continuing
Directors" is defined in Article VII.
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Exhibit 3, Page 9
A new Article X is added to the Corporation's Articles of Incorporation and
reads as follows:
ARTICLE X
BOARD EVALUATION OF CERTAIN OFFERS
Section 1. Matters to be Evaluated. The Board of Directors of this
corporation shall not approve, adopt or recommend any offer of any person
or entity, other than the corporation, to make a tender or exchange offer
for any capital stock of the corporation, to merge or consolidate the
corporation with any other entity or to purchase or otherwise acquire all
or substantially all of the assets or business of the corporation unless
and until the Board of Directors shall have first evaluated the offer and
determined that the offer would be in compliance with all applicable laws
and that the offer is in the best interests of the corporation and its
shareholders. In connection with its evaluation as to compliance with laws,
the Board of Directors may seek and rely upon an opinion of legal counsel
independent from the offeror and it may test such compliance with laws in
any state or federal court or before any state or federal administrative
agency which may have appropriate jurisdiction. In connection with its
evaluation as to the best interests of the corporation and its share
holders, the Board of Directors shall consider all factors which it deems
relevant, including without limitation: (i) the adequacy and fairness of
the consideration to be received by the corporation and/or its shareholders
under the offer considering historical trading prices of the corporation's
stock, the price that might be achieved in a negotiated sale of the
corporation as a whole, premiums over trading prices which have been
proposed or offered with respect to the securities of other companies in
the past in connection with similar offers and the future prospects for
this corporation and its business; (ii) the potential social and economic
impact of the offer and its consummation on this corporation, and its
subsidiaries and their respective employees, depositors and other customers
and vendors; (iii) the potential social and economic impact of the offer
and its consummation on the communities in which the corporation and any
subsidiaries operate or are located; (iv) the business and financial
condition and earnings prospects of the proposed acquiror or acquirors; and
(v) the competence, experience and integrity of the proposed acquiror or
acquirors and its or their management.
Section 2. Amendment, Repeal, etc. Notwithstanding any other provision
of these Articles of Incorporation or the Bylaws of the corporation to the
contrary (and notwithstanding the fact that a lesser percentage may be
specified by law, these Articles of Incorporation or the Bylaws of the
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Exhibit 3, Page 10
corporation), the affirmative vote of the holders of eighty percent (80%)
or more of the outstanding shares of capital stock entitled to vote for the
election of directors, voting together as a single class, shall be required
to amend, repeal or adopt any provision inconsistent with this Article X;
provided, however, that this Section 2 of Article X shall be of no force or
effect if the proposed amendment, repeal or other action has been
recommended for approval by at least eighty percent (80%) of all directors
then holding office.
Signed this 25th day of April, 1996.
By: /s/Ronald G. Ford
Ronald G. Ford, President and
Chief Executive Officer
Return to:
Donald L. Johnson
Varnum, Riddering, Schmidt & Howlett
P.O. Box 352
Grand Rapids, MI 49501-0352
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Exhibit 3, Page 11
RESTATED ARTICLES OF INCORPORATION
OF
FIRST MANISTIQUE CORPORATION
The following Restated Articles of Incorporation are executed by the
undersigned corporation pursuant to the provisions of Sections 641-651, Act 284,
Public Acts of 1972, as amended.
1. The present name of the corporation, and its only name since its
incorporation is First Manistique Corporation.
2. The corporation identification number (CID) assigned by the bureau
is 063-316.
3. All of the former names of the corporation are: None
4. The date of filing the original Articles of Incorporation was
December 6, 1974.
5. The following Restated Articles of Incorporation supersede the
original Articles of Incorporation, as heretofore amended, and shall be the
Articles of Incorporation of the corporation.
ARTICLE I
The name of the corporation is First Manistique Corporation.
ARTICLE II
The purpose or purposes for which the corporation is organized is to engage
in any activity within the purposes for which corporations may be organized
under the Business Corporation Act of Michigan, as amended from time to time,
and including without limitation the power to act as a bank holding company as
permitted by the Federal Bank Holding Company Act of 1956, as amended, or
hereafter supplemented or amended.
ARTICLE III
The total authorized shares:
1. Common Shares 2,000,000
----------
Preferred Shares 25,000
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Exhibit 3, Page 12
2. A statement of all or any of the relative rights, preferences
and limitations of the shares of each class is as follows:
The Board of Directors may cause the Corporation to
issue Preferred Shares in one or more series, each
series to bear a distinctive designation and to have
such relative rights and preferences as shall be
prescribed by resolution of the Board. Such
resolutions, when filed, shall constitute amendments
to these Articles of Incorporation.
ARTICLE IV
1. The address of the current registered office is: 130 South
Cedar Street, P.O. Box 369, Manistique, Michigan 49854, which is also the
mailing address of the current registered office.
2. The name of the current resident agent is: Ronald G. Ford
ARTICLE V
When a compromise or arrangement or a plan of reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them, a
court of equity jurisdiction within the state, on application of this
corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 3/4 in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement, agree to a compromise or arrangement, or a reorganization of
this corporation as a consequence of the compromise or arrangement, the
compromise or arrangement and the reorganization, if sanctioned by the court to
which the application has been made, shall be binding on all the creditors or
class of creditors, or on all the shareholders or class of shareholders and also
on this corporation.
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for a breach of fiduciary
duty as a director, except for liability: (a) for any breach of the director's
duty of loyalty to the Corporation or its shareholders; (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (c) resulting from a violation ss.551(1) of the Michigan
Business Corporation Act; or (d) for any transaction from which the director
derived an improper personal benefit. In the event the Michigan Business
Corporation Act is amended, after approval by the shareholders of this Article
VII, to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Michigan
Business Corporation Act, as so amended. Any repeal, modification or adoption of
any provision in these Articles of Incorporation inconsistent with this Article
VI shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal, modification or adoption.
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Exhibit 3, Page 13
These Restated Articles of incorporation were duly adopted by the Board of
Directors without a vote of the shareholders in accordance with the provisions
of Section 642, Act 284, Public Acts of 1972, as amended. These Restated
Articles of Incorporation only restate and integrate and do not further amend
the provisions of the Articles of Incorporation as heretofore amended and there
is no material discrepancy between those provisions and the provisions of these
Restated Articles.
Signed this 28th day of December, 1995.
FIRST MANISTIQUE CORPORATION
By: /s/ Ronald G. Ford
(Name)
Its: President & CEO
3