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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996 Commission file number: 2-54663
FIRST MANISTIQUE CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2062816
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
130 S. CEDAR STREET, MANISTIQUE, MI 49854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (906) 341-8401
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 periods 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 April 23, 1996, there were outstanding 2,120,778 shares of the
registrant's common stock, no par value.
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996. (List all such items, financial
statements or other portions amended.)
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
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PART I - FINANCIAL INFORMATION (unaudited)
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Condensed Balance Sheets
(In thousands of dollars)
March 31, December 31,
1996 1995
---------------- ---------------
ASSETS
Cash and due from banks $8,837 $10,492
Federal funds sold 12,000 4,000
--------- ---------
Total cash and cash equivalents 20,837 14,492
Interest-bearing deposits with banks 1,698 1,678
Securities available for sale 27,317 26,220
Securities held to maturity (fair value of $711
at 3/31/96 and $837 at 12/31/95) 710 835
Loans 255,134 221,507
Allowance for loan losses (3,475) (3,137)
---------- ----------
Net Loans 251,659 218,370
Bank premises and equipment 13,168 11,787
Other assets 12,510 9,409
--------- ---------
TOTAL ASSETS $327,899 $282,791
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $26,083 $27,674
Interest-bearing 256,986 216,733
---------- ----------
283,069 244,407
Securities sold under agreement to repurchase 700 700
Other borrowings 15,351 10,088
Other liabilities 3,349 2,589
-------- --------
TOTAL LIABILITIES 302,469 257,784
Shareholders' equity
Preferred stock, no par value, 500,000 shares
authorized, no shares outstanding
Common stock, no par value, 6,000,000 shares
authorized; outstanding: 2,120,778 at 3/31/96 and
2,106,897 at 12/31/95 13,443 13,195
Retained earnings 12,507 11,832
Net unrealized loss on securities available for sale,
net of tax of $266 at 3/31/96 and $9 at 12/31/95 (520) (20)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 25,430 25,007
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $327,899 $282,791
========== ==========
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Consolidated Condensed Statements of Income (unaudited)
(In thousands of dollars)
Three Months Ended
March 31,
1996 1995
---------------- ---------------
Interest income
Loans, including fees $5,840 $4,430
Securities
Taxable 399 429
Exempt from federal taxation 24 52
Other 159 156
---------- ----------
Total interest income 6,422 5,067
Interest expense
Deposits 2,701 2,142
Borrowed Funds 142 63
--------- -----------
Total interest expense 2,843 2,205
-------- ---------
Net interest income 3,579 2,862
Provision for loan losses 107 69
---------- -----------
Net interest income after provision for loan losses 3,472 2,793
Noninterest income
Service charges on deposit accounts 163 140
Gains on sale of loans 18 6
Securities gains 27 3
Other 120 217
---------- ----------
Total noninterest income 328 366
Noninterest expense
Salaries and employee benefits 1,107 921
Furniture and equipment expense 198 198
Occupancy expense 236 151
Other 935 845
---------- ----------
Total noninterest expense 2,476 2,115
---------- ----------
Income before income tax 1,324 1,044
Provision for income tax 395 267
---------- ----------
Net income $929 $777
========== ==========
Weighted average common shares outstanding 2,109,363 2,097,072
========= =========
Earnings per common share $ .44 $0.37
========== ==========
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Consolidated Condensed Statement of Changes in Shareholders' Equity (unaudited)
(In thousands of dollars)
Three months Three months
ended ended
March 31, 1996 March 31, 1995
Shares Equity Total Shares Equity Total
--------------------------------- ---------------------------------
Balance-beginning of period 2,106,897 $25,007 2,097,072 $22,484
Net Income YTD 929 777
Cash dividends (254) (350)
Issuance of common stock 13,881 248
Net change in unrealized gain (loss)
on securities available for sale (500) 282
------------------------------- ------------------------------
2,120,778 $25,430 2,097,072 $23,193
=============================== ==============================
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Consolidated Statements of Cash Flows (unaudited)
(In thousands of dollars)
March 31, March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
-------------- -------------
Net income $929 $777
Adjustments to reconcile net income
to net cash from operating activities
Provision for loan losses 107 69
Deferred taxes (1) 68
Depreciation 201 190
Amortization 182 30
Proceeds from sale of mortgage loans 1,505 384
Origination of mortgage loans for sale (1,487) (378)
(Gains) losses on sale
Loans held for sale (18) (6)
Securities (27) (3)
Premises and equipment 21 (3)
Changes in assets and liabilities
Interest receivable and other assets (833) (253)
Interest payable and other liabilities 64 561
------------------ ---------------
Net cash from operating
activities 643 1,436
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
with banks 1,068 419
Purchase of securities available for sale (6,149) (974)
Purchase of securities held to maturity (1,511)
Proceeds from sales of securities
available for sale 3,043 599
Proceeds from maturities, calls, or
paydowns of securities available for sale 5,033 1,928
Proceeds from maturity and calls of securities
held to maturity 125 413
Net increase in loans (6,635) (8,206)
Proceeds from sale of premises and equipment 42 40
Purchase of premises and equipment (236) (668)
Net cash provided in acquisition of
South Range State Bank 724
---------------- -------------------
Net cash provided from investing activities (2,985) (7,960)
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Consolidated Statements of Cash Flows - continued (unaudited)
(In thousands of dollars)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,793 1,485
Proceeds from notes payable 2,900 1,221
Proceeds from issuance of common stock 248
Payment of dividends (254) (350)
---------------- --------------
Net cash from investing activities 8,687 2,356
---------------- --------------
Net increase (decrease) in cash and cash
equivalents 6,345 (4,168)
Cash and cash equivalents at beginning of period 14,492 14,319
--------------- --------------
Cash and cash equivalents at end of period $20,837 $10,151
=============== ==============
Supplemental disclosures of cash flow
information
Cash paid during the period for
Interest $2,913 $2,205
Income taxes 408 541
Supplemental disclosures of noncash activities
Issuance of notes payable to South Range
State Bank's former shareholders' 2,363
Assets and liabilities acquired in acquisition
(refer to Note 3)
Interest-bearing deposits 1,088
Premises and equipment 1,409
Acquisition intangibles 1,630
Other assets and accrued interest receivable 774
Loans, net 26,761
Securities available for sale 3,800
Deposits 32,869
Other liabilities and accrued interest payable 954
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of First Manistique
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, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. 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, 1995.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 122, Accounting for Mortgage Servicing Rights (SFAS
No. 122), adopted by the Registrant on January 1, 1996. This Statement changes
the accounting for mortgage servicing rights retained by the loan originator.
Under the Statement, if the originator sells or securitizes mortgage loans and
retains the related servicing rights, the total costs of the mortgage loan are
allocated between the loan (without the servicing rights) and the servicing
rights, based on their relative fair values. The costs allocated to mortgage
servicing rights will be recorded as a separate asset and amortized in
proportion to, and over the life of, the net servicing income. The carrying
value of the mortgage servicing rights will be periodically evaluated for
impairment. Impairment will be recognized using the fair value of individual
stratum of servicing rights based on the underlying risk characteristics of the
serviced loan portfolio, compared to an aggregate portfolio approach under
existing accounting guidance. The impact on the Registrant's financial
position and results of operation for the first quarter of 1996 was
insignificant. Based on the Registrant's historical level of mortgage
originations for sale in the secondary market, management believes that the
impact for the year will also be immaterial.
A resolution for a 3-for-1 stock split, for shareholder's of record on April
29, 1996, was approved by the Board of Directors on April 23, 1996. All share
and per share amounts in this filing have been adjusted to reflect the 3-for-1
stock split.
NOTE 3 - ACQUISITION OF SOUTH RANGE STATE BANK
The Registrant acquired 100% of the outstanding stock of South Range State Bank
(with assets of $36,503,000, liabilities of $33,823,000, total deposits of
$32,869,000, and net loans of $26,761,000) on January 31, 1996. The total
purchase price was $4,310,000 with $1,947,000 paid in cash and the remaining
$2,363,000 financed through the issuance of notes payable.
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NOTE 4 - SECURITIES
The amortized cost and fair value of securities at March 31, 1996 are shown
below: (In thousands of dollars)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
-------------------------------------------------------------------
Securities Available for Sale
- ---------------------------------
U.S. Treasury and federal agency $23,158 $4 $754 $22,408
State and political subdivisions 1,507 1 17 1,491
Other 3,438 1 21 3,418
------------------------------------------------------------------
Total $28,103 $6 $792 $27,317
==================================================================
Securities Held To Maturity
- -------------------------------
State and political subdivisions $710 $1 $711
===================================================================
The amortized cost and fair value of securities by contractual maturity at
March 31, 1996, are shown below, in thousands of dollars
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------ ------------------
Due in one year or less $10,399 $10,082 $710 $711
Due after one year through five years 4,743 4,730
Due after five years through ten years 9,790 9,543
Due after ten years 3,171 2,962
------------------- --------------------
$28,103 $27,317 $710 $711
=================== ====================
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NOTE 5 - LOANS
Loans presented in the consolidated condensed balance sheet are comprised of
the following classifications at March 31, 1996 and December 31, 1995: (In
thousands of dollars)
March 31, December 31,
1996 1995
--------------- ------------------
Loans:
Commercial, financial and agricultural $142,813 $130,921
1-4 family residential real estate 72,795 58,433
Consumer 36,389 29,954
Construction 3,162 2,235
------------- --------------
Total 255,159 221,543
Less: unearned income (25) (36)
------------- --------------
$255,134 $221,507
============= ==============
Included in the loan portfolio are loans made to certain executive officers,
directors, principal shareholders and companies in which they have an interest.
The following is a summary of such loans, in thousands of dollars:
Balance - January 1, 1996 $6,603
New Loans 457
Repayments (570)
Officer loans acquired with
purchase of South Range 916
-----------
Balance - March 31, 1996 $7,406
===========
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NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the three months ended March 31,
1996 and 1995, and the twelve months ended December 31, 1995, are summarized as
follows:
(In thousands of dollars)
March 31, December 31, March 31,
1996 1995 1995
--------------------- --------------------- --------------------
Balance at beginning of period $3,137 $2,350 $2,350
Charge offs (74) (440) (105)
Recoveries 20 456 41
Adjustment from loans put back to Newberry
State Bank (6)
Allowance transferred from purchase of
South Range State Bank 285
Provision for loan loss 107 771 69
------------------- -------------------- ------------------
Balance at end of period $3,475 $3,137 $2,349
=================== ==================== ==================
Information regarding impaired loans is as follows:
March 31 December 31,
1996 1995
--------------- ------------------
Average investment in impaired loans $687,055 $659,412
Interest income recognized on impaired loans
including interest income recognized on
cash basis 3,695 40,856
Interest income recognized on impaired loans on
cash basis 40,856
Balance of impaired loans 3,659,447 570,847
Less portion for which no allowance for loan
loss is allocated 3,160,735 22,548
------------ ------------
Portion of impaired loan balance for which
an allowance for credit losses is
allocated $498,712 $548,299
============ ============
Portion of allowance for loan losses
allocated to the impaired loan balance $200,000 $200,000
============ ============
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On April 1, 1996, the Registrant became aware that The Bennett Funding Group,
Inc. ("BFG") and certain of its affiliates had filed for Chapter 11 bankruptcy
protection in the Northern District of New York and had ceased payments to
hundreds of investors throughout the country, including approximately 250 banks
and thrifts. BFG and/or its affiliates were indebted to the Registrant in the
amount of $2,792,651 at December 31, 1995 and in the amount of $3,028,188 at
March 31, 1996, which indebtedness is collateralized by commercial equipment
leases assigned by BFG and/or its affiliates to the Registrant. BFG and its
affiliates serviced the assigned leases and, prior to the Chapter 11 filings,
collected the lease proceeds and remitted them to Registrant. Registrant
physically holds a lease document in connection with each lease. The BFG and
related Chapter 11 proceedings were apparently in response to threatened SEC
litigation alleging that at least some part of the BFG operations constituted a
"Ponzi" scheme. In response to a motion by the SEC, the Bankruptcy Court
appointed an independent trustee to operate BFG and its affiliates. Pursuant
to orders of the Bankruptcy Court, the trustee has been collecting the lease
payments and holding them in an escrow account. However, the trustee has not
been distributing the same pending completion of his investigation and further
orders of the Court. Registrant has joined with other financial institutions
to petition the Court to order the trustee to resume distribution to assignees
of leases. The Court has not finally ruled upon that request. Shortly after
the Chapter 11 filings, Registrant investigated the validity of many of the
assigned leases both through a New York state UCC search and through contacts
with equipment lessees. Based on those investigations, it appears to
Registrant that it holds valid equipment leases and that no other party claims
to be an assignee of those leases. However, other financial institutions have
discovered that leases assigned to them have been terminated or that some or
all of the equipment subject to a lease was returned. Registrant has
classified these leases as impaired. Based upon its investigation to date and
payment histories, Registrant is still accruing interest on leases with total
outstanding balances of $2,528,189. Due to the recent acquisition of certain
leases with a total balance of $499,999 and corresponding lack of payment
history, these leases were placed on nonaccrual on April 1, 1996. Should
payments not be received by Registrant for more than ninety (90) days, the
accrual of interest on these leases still accruing interest will be
discontinued.
NOTE 7 - DEPOSITS
The following is an analysis of interest-bearing deposits as of March 31, 1996
and December 31, 1995.
(In thousands of dollars)
March 31, December 31,
1996 1995
--------------- ---------------
Savings and interest-bearing checking $145,172 $118,957
Time: In denominations under $100,000 95,265 82,752
In denomination of $100,000 or more 16,549 15,024
--------------- ---------------
$256,986 $216,733
=============== ===============
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NOTE 8 - OTHER BORROWINGS
Other borrowings consists of the following at March 31, 1996 and December 31,
1995: (In thousands of dollars)
March 31, December 31,
1996 1995
------------- ----------------
Federal Home Loan bank advances (7), at
various rates with various maturities (see
annual financial statements). $8,088 $8,088
Farmer's Home Administration, $2,000,000
fixed rate line agreement maturing August 24, 2024:
interest payable at 1% 2,000 2,000
Associated Bank Green Bay, $4,000,000 variable
rate line agreement maturing February 1, 1999:
interest payable at Associated's prime rate - 8.25%
at March 31, 1996. 2,900
Notes Payable to South Range State Bank's former
stockholders, $2,362,852 maturing in three equal
annual installments beginning February 1, 1997:
interest payable at 5.20%. 2,363
-------------- -------------
$15,351 $10,088
============== =============
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 for
the first quarter of 1996. The discussion should be read in conjunction with
those statements, and with management's discussion and analysis accompanying
the 1995 annual financial statements, included herewith.
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
The Registrant acquired 100% of the outstanding stock of South Range State Bank
(with assets of $36,503,000, liabilities of $33,823,000, total deposits of
$32,869,000, and net loans of $26,761,000)
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on January 31, 1996. The total purchase price was $4,310,000 with $1,947,000
paid in cash and the remaining $2,363,000 financed through the issuance of
notes payable.
Year to date consolidated net income was $929,000 for the period ending March
31, 1996 compared to $777,000 for the same period in 1995. Improved interest
income, combined with acquisitions and careful control of operating expenses
have contributed to this improvement. Net income for the year is 20% above the
same period last year. Return on consolidated average assets for the quarter
was 1.13% compared to 1.22% for the first quarter period in 1995. Earnings per
share increased from $0.37 for the period ending March 31, 1995, to $0.44 for
the same period in 1996. The increase is due to increased earnings and no
significant change in outstanding shares.
FINANCIAL CONDITION
LOANS
During the first quarter of 1996, loan balances increased by $33.6 million. The
acquisition of South Range State Bank accounted for $26.8 million of this
increase and the remainder was due to loan growth. The loan to deposit ratio
has decreased from 90.6% at December 31, 1995, to 90.1% at March 31, 1996.
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.
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, 1996 the allowance for loan losses was equal to 1.36%
of total loans outstanding compared to 1.42% at December 31, 1995.
The majority of the increase in nonaccrual loans from December 31, 1995 to
March 31, 1996 consisted of credit extended to one used car dealer. The loan
loss reserve allocated to this loan is adequate to meet the estimated exposure
to loss.
Commercial real estate loans have increased by $2.5 million during the first
quarter of 1996 to $54,150,000 at March 31, 1996, mainly due to the acquisition
of South Range State Bank. During the first quarter of 1996, loans to general
commercial businesses increased $2.4 million to $57,803,000 due mainly to the
acquisition of South Range State Bank. Commercial leases increased $1.6
million to $7,395,000 at March 31, 1996 and governmental leases increased $5.4
million to $23,465,000. No leases were obtained with the purchase of South
Range State Bank. The increases are due to the Registrant's efforts to build
this area of the loan portfolio. Growth in the classification of 1-4 family
residential loans in the amount of $14.5 million has occurred mainly due to the
acquisition of South Range State Bank. Consumer loans have increased $6.4
million during the first quarter of 1996 due mainly to the acquisition of South
Range State Bank. Construction loans have increased $.9 million due mainly to
the purchase of South Range State Bank. The table below shows total portfolio
loans outstanding, in thousands of dollars, at March 31, 1996, and December 31,
1995, and their percentage of the total loan portfolio.
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March 31, December 31,
1996 % of total 1995 % of total
------------------------------------ --------------------------------
Loans:
Commercial real estate $54,150 21.23% $51,609 23.30%
Commercial, financial and agricultural 57,803 22.66% 55,445 25.03%
Leases
Commercial 7,395 2.90% 5,806 2.62%
Governmental 23,465 9.20% 18,061 8.15%
1-4 family residential real estate 72,795 28.53% 58,433 26.38%
Consumer 36,364 14.25% 29,918 13.51%
Construction 3,162 1.24% 2,235 1.01%
--------- ----------
Total $255,134 $221,507
========= ==========
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 the table presented in Note 6 to the first quarter financial
statements above. Chargeoffs for the period ending March 31, 1996 have
decreased $31,000 from the same period in 1995. The majority is a result of a
$23,000 decrease in commercial loan chargeoffs. The provision for loan loss
has increased from the period ending March 31, 1995 to the same period in 1996
as a result of the Registrant's increased loan portfolio. See Note 6 to the
first quarter financial statements for a discussion of certain lease
receivables.
The table presented below shows the balances of nonaccrual loans, loans 90 or
more days past due, and renegotiated loans as of March 31, 1996 and 1995, and
December 31, 1995. The majority of the increase in nonaccrual loans from
December 31, 1995 to March 31, 1996 consisted of credit extended to one used
car dealer. The loan loss reserve allocated to this loan is adequate to meet
the estimated exposure.
March 31, December 31, March 31,
1996 1995 1995
------------ ----------------- ------------
Nonaccrual loans $ 549 $ 579 $102
Loans 90 or more days past due 1,223 1,439 194
Renegotiated loans 0 0 0
Management is aware of the risk associated with an increase in average balances
of loans and feel that the current level in the allowance for loan losses is
adequate. At March 31, 1996 the allowance for loan losses was equal to 1.36%
of total loans outstanding compared to 1.42% at December 31, 1995.
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INVESTMENTS
Available for sale securities increased during the first quarter of 1996 while
hold to maturity securities decreased. The increase in available for sale
securities is due primarily to the acquisition of South Range State Bank. The
mix of the portfolio remained relatively unchanged from December 31, 1995. 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. The only securities now classified as held
to maturity are state and local political subdivision issues from small issuers
whose bonds have little liquidity.
DEPOSITS
Total deposits increased this quarter by $38.7 million. A substantial portion,
$32.9 million, of the increase came from the acquisition of South Range State
Bank. Interest bearing deposit balances increased during the first quarter of
1996, continuing a trend from last fiscal year. The bulk of the increase in
interest bearing deposits came from savings and interest-bearing checking with
time deposits less than $100,000 making up the remainder of the increase (refer
to the table presented in Note 7 to the first quarter financial statements
above). 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 has begun to use alternative
funding sources to provide funds for lending activities. Other borrowings
increased by $5.3 million during the first quarter (refer to the table
presented in Note 8 to the first quarter financial statements above for the
composition of the increase), the majority of which was used in the acquisition
of South Range State Bank. At March 31, 1996, $8.1 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.
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RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased by 25% compared to March 31, 1995. The net
interest margin at March 31, 1996 was 4.82%, compared to 4.92% for all of 1995.
The net yield on interest earning assets remained relatively constant. At year
ended December 31, 1995, the net yield on earning assets was 9.13% and at March
31, 1996 it was 9.06%. Interest income from loans represented 90.9% of total
interest income for the first quarter of 1996 compared to 90.4% for all of 1995
and 87.4% for the first quarter of 1995. In all cases, the total amount of
interest income and the yield on total earning assets is strongly influenced by
lending activities.
The increase in income from sales and servicing of loans reflects the growing
demand for residential real estate mortgages, following the unprecedented
origination volume throughout the country in 1993 and 1992. Management expects
continued growth in interest income due to continued expansion of the
Corporation.
NONINTEREST INCOME
Service charges on deposit accounts increase $23,000 during the first quarter
of 1996 vs. the first quarter of 1995 mainly due to the acquisition of South
Range State Bank. Gains on sales of loans has increased due to the larger
volume of loans being originated and sold in the first quarter of 1996 vs. the
first quarter of 1995. Securities gains has increased due to additional sale
activity in the investment portfolio, the proceeds of which were used to fund
the increase in loans. Other noninterest income decreased $97,000 during the
first quarter of 1996 vs. the first quarter of 1995 due mainly to a reduction
of Canadian discount income.
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 increase in the
provision for loan losses from $69,000 from March 31, 1995 to $107,000 for
quarter ended March 31, 1996 is due to loan growth, particularly in the
commercial real estate portfolio.
NONINTEREST EXPENSES
Noninterest expense showed an increase of 17% over the first quarter of 1995.
The increase is consistent with the Registrant's asset growth. The majority of
the increase is due to an increase in salary and occupancy expense. Salary
expense increased mainly due to an increase in full-time equivalent employees
at March 31, 1996 vs. March 31, 1995, due to the Registrant's purchase of the
Rudyard branch and South Range State Bank and the opening of additional
branches. Occupancy expense increased due to the purchases of the Rudyard
branch and South Range State Bank, as well
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as the opening of additional branches. While the growth was 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 29.8% of income before income tax at March
31, 1996 compared to 25.6% at March 31, 1995. The difference between these
rates and the federal corporate income tax rate of 34% is primarily due to
tax-exempt interest earned on loans 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 maturity periods of
securities purchased, selling securities available for sale, and borrowing
funds with targeted maturity periods.
The Registrant has experienced a slight shift in the cumulative net asset
(liability) funding gap for 1 - 365 days since December 31, 1995, to being
liability sensitive. The shift was mainly due to an increase in CD's less than
$100,000 maturing within one year and an increase in IMM accounts which are
placed entirely in the 1 - 90 days maturity category.
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18
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 ratio's at March 31, 1996 and 1995.
March 31, 1996
Required Actual
$ % $ %
------------- ------------ ------------- ------------
Tier 1 risk-adjusted capital ratio $9,622 4.00% $25,229 10.49%
Total risk-adjusted capital ratio $19,243 8.00% $28,162 11.71%
Tier 1 leverage ratio $12,680 4.00% $25,229 7.96%
Tier 1 capital $25,229
Tier 2 capital 2,933
Total risk-based capital 28,162
Total risk-weighted assets 240,542
Average total assets 316,999
March 31, 1995
Required Actual
$ % $ %
------------ ----------- ----------- -----------
Tier 1 risk-adjusted capital ratio $7,276 4.00% $19,359 10.64%
Total risk-adjusted capital ratio $14,552 8.00% $21,287 11.70%
Tier 1 leverage ratio $10,311 4.00% $19,359 7.51%
Tier 1 capital $19,359
Tier 2 capital 1,928
Total risk-based capital 21,287
Total risk-weighted assets 181,905
Average total assets 257,776
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' SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to Form 10-Q to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST MANISTIQUE CORPORATION
----------------------------
(Registrant)
June 11, 1996 /s/Ronald G. Ford
- ------------------------ -----------------------------
Date RONALD G. FORD, President & CEO
June 11, 1996 /s/Richard B. Demers
- ------------------------ -----------------------------
Date RICHARD B. DEMERS, Chief
Accounting Officer
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20
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule