<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
Commission file number 0-7818
------
INDEPENDENT BANK CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2032782
- ------------------------------------ ----------------------------------------
(State or jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
230 West Main Street, P.O. Box 491, Ionia, Michigan 48846
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(616) 527-9450
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
Former name, address and fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Sections 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 10, 1995
-------------------------- --------------------------------
<S> <C>
Common stock, par value $1 2,709,038
</TABLE>
<PAGE> 2
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
Number(s)
---------
<S> <C> <C>
PART I - Financial Information
---------------------
Item 1. Consolidated Statements of Financial Condition
September 30, 1995 and December 31, 1994 2
Consolidated Statements of Operations
Three- and nine-month periods ended September 30, 1995 and 1994 3
Consolidated Statements of Cash Flows
Nine-month periods ended September 30, 1995 and 1994 4
Consolidated Statements of Shareholders' Equity
Nine-month periods ended September 30, 1995 and 1994 5
Notes to Interim Consolidated Financial Statements
Three- and nine-month periods ended September 30, 1995
and 1994 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-13
PART II - Other Information
-----------------
Item 6. Exhibits & Reports on Form 8-K 14
</TABLE>
<PAGE> 3
Part I.
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- --------------
(unaudited)
------------- --------------
<S> <C> <C>
Assets
Cash and Cash Equivalents
Cash and due from banks $ 18,368,000 $ 22,869,000
Federal funds sold 850,000
------------- --------------
Total Cash and Cash Equivalents 18,368,000 23,719,000
------------- --------------
Interest bearing deposits 200,000 200,000
Securities available for sale 42,197,000 52,756,000
Securities held to maturity (Fair value of $82,923,000 at September
30, 1995; $80,683,000 at December 31, 1994) 80,537,000 80,954,000
Real estate mortgage loans held for sale 4,782,000 5,933,000
Loans
Commercial and agricultural 109,607,000 103,984,000
Real estate mortgage 220,960,000 166,794,000
Installment 81,710,000 65,947,000
------------- --------------
Total Loans 412,277,000 336,725,000
Allowance for loan losses (5,249,000) (5,054,000)
------------- --------------
Net Loans 407,028,000 331,671,000
Property and equipment, net 9,833,000 9,493,000
Accrued income 4,505,000 4,045,000
Other assets 7,538,000 7,440,000
------------- --------------
Total Assets $ 574,988,000 $ 516,211,000
============= ==============
Liabilities and Shareholders' Equity
Deposits
Non-interest bearing $ 46,958,000 $ 48,641,000
Savings and NOW 211,990,000 227,137,000
Time 149,578,000 133,693,000
------------- --------------
Total Deposits 408,526,000 409,471,000
Federal funds purchased 21,000,000 13,900,000
Other borrowings 93,304,000 47,741,000
Accrued expenses and other liabilities 7,252,000 4,788,000
------------- --------------
Total Liabilities 530,082,000 475,900,000
------------- --------------
Shareholders' Equity
Common stock, $1.00 par value-14,000,000 shares authorized;
issued and outstanding: 2,705,724 shares at September 30, 1995
and 2,589,163 shares at December 31, 1994 2,706,000 2,589,000
Capital surplus 19,998,000 16,932,000
Retained earnings 22,528,000 22,910,000
Net unrealized loss on securities available for sale, net of
related tax effect (326,000) (2,120,000)
------------- --------------
Total Shareholders' Equity 44,906,000 40,311,000
------------- --------------
Total Liabilities and Shareholders' Equity $ 574,988,000 $ 516,211,000
============= ==============
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 4
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
(unaudited) (unaudited)
------------------ ------------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 9,976,000 $ 7,399,000 $ 27,370,000 $ 21,148,000
Securities
Taxable 1,508,000 1,678,000 4,808,000 5,008,000
Tax-exempt 447,000 429,000 1,328,000 1,290,000
Federal funds sold 7,000 29,000 19,000 334,000
Other investments 3,000 5,000 9,000 11,000
------------- ------------ ------------ -------------
Total Interest Income 11,941,000 9,540,000 33,534,000 27,791,000
------------- ------------ ------------ -------------
Interest Expense
Deposits 3,169,000 2,645,000 9,193,000 8,397,000
Other borrowings 1,584,000 431,000 3,688,000 798,000
------------- ------------ ------------ -------------
Total Interest Expense 4,753,000 3,076,000 12,881,000 9,195,000
------------- ------------ ------------ -------------
Net Interest Income 7,188,000 6,464,000 20,653,000 18,596,000
Provision for loan losses 159,000 108,000 477,000 360,000
------------- ------------ ------------ -------------
Net Interest Income After
Provision for Loan Losses 7,029,000 6,356,000 20,176,000 18,236,000
------------- ------------ ------------ -------------
Non-interest Income
Service charges on deposit accounts 492,000 492,000 1,439,000 1,414,000
Net gains (losses) on asset sales
Real estate mortgage loans 301,000 71,000 405,000 319,000
Securities (24,000) (58,000) (110,000) 110,000
Other income 288,000 279,000 922,000 861,000
------------- ------------ ------------ -------------
Total Non-interest Income 1,057,000 784,000 2,656,000 2,704,000
------------- ------------ ------------ -------------
Non-interest Expense
Salaries and employee benefits 3,186,000 2,715,000 8,903,000 8,147,000
Occupancy, net 405,000 355,000 1,135,000 1,063,000
Furniture and fixtures 341,000 295,000 975,000 934,000
Other expenses 1,646,000 1,568,000 4,884,000 4,676,000
------------- ------------ ------------ -------------
Total Non-interest Expense 5,578,000 4,933,000 15,897,000 14,820,000
------------- ------------ ------------ -------------
Income Before Federal Income Tax 2,508,000 2,207,000 6,935,000 6,120,000
Federal income tax expense 713,000 630,000 1,948,000 1,699,000
------------- ------------ ------------ -------------
Net Income $ 1,795,000 $ 1,577,000 $ 4,987,000 $ 4,421,000
============= ============ ============ =============
Net Income Per Share $ .66 $ .57 $ 1.83 $ 1.60
Dividends Per Share
Declared $ .229 $ .190 $ .686 $ .571
Paid .229 .190 .648 .524
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 5
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
---- ----
(unaudited)
--------------------
<S> <C> <C>
Net Income $ 4,987,000 $ 4,421,000
Adjustments to Reconcile Net Income
to Net Cash from Operating Activities
Proceeds from sales of loans held for sale 33,439,000 32,779,000
Disbursements for loans held for sale (31,883,000) (32,475,000)
Provision for loan losses 477,000 360,000
Deferred loan fees 23,000 (204,000)
Depreciation, amortization of intangible assets
and premiums and accretion of discounts on
investment securities and loans 1,679,000 1,904,000
Net (gains) losses on sales of securities 110,000 (110,000)
Net gains on sales of real estate mortgage loans (405,000) (319,000)
Net gains on sales of property and equipment (8,000) (20,000)
(Increase) decrease in accrued income and other assets (743,000) 164,000
Increase in accrued expenses and other liabilities 1,993,000 1,298,000
------------ -------------
Total Adjustments 4,682,000 3,377,000
------------ -------------
Net Cash from Operating Activities 9,669,000 7,798,000
------------ -------------
Cash Flow from Investing Activities
Net decrease in interest bearing deposits 200,000
Proceeds from sales of securities available for sale 13,152,000 23,033,000
Proceeds from maturities of securities held to maturity 10,925,000 20,296,000
Principal payments received on securities available for sale 863,000 215,000
Principal payments received on securities held to maturity 3,867,000 7,424,000
Purchases of securities available for sale (30,400,000)
Purchases of securities held to maturity (15,715,000) (17,795,000)
Portfolio loans made to customers net of principle payments received (75,788,000) (26,958,000)
Acquisition of branch office 13,949,000
Capital expenditures (1,187,000) (959,000)
Proceeds from sales of property and equipment 54,000 30,000
------------ -------------
Net Cash from Investing Activities (49,880,000) (24,914,000)
------------ -------------
Cash Flow from Financing Activities
Net decrease in total deposits (15,371,000) (24,076,000)
Net increase in short-term borrowings 52,663,000 29,085,000
Retirement of debt (750,000)
Dividends paid (1,758,000) (1,400,000)
Proceeds from issuance of common stock 81,000
Repurchase of common stock (755,000) (457,000)
------------ -------------
Net Cash from Financing Activities 34,860,000 2,402,000
------------ -------------
Net Decrease in Cash and Cash Equivalents (5,351,000) (14,714,000)
Cash and Cash Equivalents at Beginning of Period 23,719,000 37,388,000
------------ -------------
Cash and Cash Equivalents at End of Period $ 18,368,000 $ 22,674,000
============ =============
Cash paid during the period for:
Interest 12,530,000 9,501,000
Income taxes 2,150,000 1,691,000
Loans transferred to other real estate 367,000 246,000
Transfer of investment securities to available for
sale classification 0 19,283,000
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE> 6
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
---- ----
(unaudited)
------------------
<S> <C> <C>
Balance at beginning of period $ 40,311,000 $ 39,049,000
Net income 4,987,000 4,421,000
Cash dividends declared (1,861,000) (1,571,000)
Issuance of common stock 430,000 347,000
Repurchase of common stock (755,000) (457,000)
Net change in unrealized loss on securities
available for sale, net of related tax effect 1,794,000 (1,659,000)
-------------- -------------
Balance at end of period
$ 44,906,000 $ 40,130,000
============== =============
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 7
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management of the Registrant, the accompanying unaudited
consolidated financial statements contain all the adjustments (consisting only
of normal recurring accruals) necessary to present fairly the consolidated
financial condition of the Registrant as of September 30, 1995 and December 31,
1994, and the results of operations for the three- and nine-month periods ended
September 30, 1995 and 1994.
2. Management's assessment of the allowance for loan losses is based on an
evaluation of the loan portfolio, recent loss experience, current economic
conditions and other pertinent factors. Loans on non-accrual status, past due
more than 90 days, or restructured amounted to $3,199,000 at September 30,
1995, and $2,834,000 at December 31, 1994. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations).
3. The provision for income taxes represents federal income tax expense
calculated using annualized rates on taxable income generated during the
respective periods.
4. The results of operations for the nine-month period ended September 30,
1995, are not necessarily indicative of the results to be expected for the full
year.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This section presents Management's discussion and analysis of
financial condition and results of operation for the Registrant and its bank
subsidiaries (the "Banks"). Its purpose is to provide additional information
that may be necessary to assess the consolidated financial statements contained
elsewhere in this report. This section should be read in conjunction with the
Registrant's 1994 Annual Report on Form 10- K.
FINANCIAL CONDITION
SUMMARY
Assets totaled $575.0 million at September 30, 1995, compared to
$516.2 million at December 31, 1994. The 11.4% increase in total assets is the
result of an increase in loans that reflects implementation of Management's
strategies to profitably deploy capital and enhance financial leverage. (See
"Liquidity and capital resources".)
Loans, excluding real estate mortgage loans held for sale, ("Portfolio
Loans") increased by 22.4% to $412.3 million during the nine months ended
September 30, 1995. Real estate mortgage loans increased by $54.2 million and
account for approximately 72% of the $75.6 million increase in Portfolio Loans.
The increase in real estate mortgage loans reflects the establishment of two
loan production offices during the first quarter of 1995. Installment loans
increased by $15.8 million and accounts for 21% of the increase in Portfolio
Loans. The increase in such loans partially reflects indirect automobile
financing by two of the Banks.
Notwithstanding the acquisition of a branch office (See
"Acquisitions"), total deposits at September 30, 1995, were largely unchanged
from December 31, 1994. In addition to industry-wide trends, the decline in
such deposits largely reflects the seasonal cash management needs of the
municipalities served by the Banks.
The Banks have utilized federal funds and other borrowings to fund the
increase in Portfolio Loans. The use of such non deposit funds compliments the
Banks' core deposits and is integral to Management's deposit pricing
strategies. Such non-deposit funds are also structured to compliment the
banks asset/liability needs and may further serve to reduce interest rate risk.
(See "Asset/Liability Management".)
ASSET QUALITY
The Registrant provides certain commercial and retail loan services to
the Banks, including credit analysis, underwriting and documentation services
as well as loan review and compliance administration. The centralization of
such administrative services provides the requisite controls required by the
Registrant's decentralized management structure and also provides certain
operating efficiencies.
7
<PAGE> 9
The Registrant also maintains a senior loan committee that consists of
commercial loan services personnel as well as the Banks' presidents and senior
lenders. This committee considers policy issues and reviews certain loan
proposals prior to presentation to the respective Bank's board of directors.
Although total non-performing assets declined during the nine-month
period, loans ninety days or more past due and still accruing interest
increased to $759,000 at September 30, 1995, from $254,000 at December 31,
1994. A portion of the $505,000 increase in such loans reflects certain
credits that have been renewed on substantially similar terms since September
30, 1995, and do not represent any unusual risk of loss.
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Non-accrual loans $2,180,000 $2,052,000
Loans 90 days or more past due and
still accruing interest 759,000 254,000
Restructured loans 260,000 528,000
------------ -----------
Total non-performing loans 3,199,000 2,834,000
Other real estate 895,000 1,381,000
------------ -----------
Total non-performing assets $4,094,000 $4,215,000
============ ===========
As a percent of total loans
Total non-performing loans 0.78% 0.84%
Total non-performing assets 0.99% 1.25%
Allowance for loan losses as a percent of
non-performing loans 164% 178%
</TABLE>
Impaired loans totaled approximately $2,200,000 at September 30, 1995.
In addition to certain non-performing loans contained in the table above, such
impaired loans include commercial and agricultural loans totaling $100,000 that
have been separately identified as impaired. The Banks' average investment in
impaired loans was approximately $2,000,000 during the nine-month period ended
September 30, 1995. Interest income recognized on impaired loans for the three
and nine-month periods ended September 30, 1995, totaled approximately $15,000
and $40,000, respectively.
The provision for loan losses totaled $477,000 during the nine months
ended September 30, 1995, compared to $360,000 during the comparable period of
1994. During those same periods, loans charged against the allowance, net of
recoveries, amounted to $282,000 and $361,000, respectively.
8
<PAGE> 10
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Balance at beginning of period $5,054,000 $5,053,000
Additions (deduction)
Provision charged to operating expense 477,000 360,000
Recoveries credited to allowance 245,000 333,000
Loans charged against the allowance (527,000) (694,000)
---------- ----------
Balance at end of period $5,249,000 $5,052,000
========== ==========
</TABLE>
Management's assessment of the allowance for loan losses is based on
the composition of the loan portfolio, an evaluation of specific credits,
historical loss experience, the level of non-performing loans and loans that
have been identified as loans of concern. Certain impaired loans with a
balance of approximately $500,000 had specific allocations, calculated in
accordance with SFAS #114, totaling approximately $100,000 at September 30,
1995. At September 30, 1995, approximately 44% of the allowance for loan losses
was allocated to specific loans or loan portfolios compared to 46% at December
31, 1994.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
--------------------------- ---------------------------
Percent of Percent of
Allowance Loans to Allowance Loans to
Amount Total Loans Amount Total Loans
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Commercial and
agricultural $1,570,000 26.6 % $1,655,000 30.9 %
Real estate mortgage 169,000 53.6 177,000 49.5
Installment 556,000 19.8 474,000 19.6
Unallocated 2,954,000 2,748,000
----------- --------- ---------- --------
Total $5,249,000 100.0 % $5,054,000 100.0 %
=========== ========= ========== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Management views its ability to profitably deploy capital or otherwise
maintain financial leverage as a prerequisite to the Registrant's continued
success. The Banks' ability to originate Portfolio Loans and access non
deposit funding sources has provided adequate means to maintain financial
leverage during 1995. (See "Asset/liability management.") The Registrant's
share repurchase plan, implemented during 1994, and its dividend policies,
however, remain integral components of Management's capital management
strategies.
9
<PAGE> 11
<TABLE>
<CAPTION>
CAPITAL RATIOS
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Equity capital 7.81% 7.81%
Tangible equity capital 7.42 7.40
Primary capital 8.67 8.70
Tangible primary capital 8.29 8.30
Risk-based capital 12.48 13.03
</TABLE>
Shareholders' equity totaled $44.9 million at September 30, 1995,
compared to $40.3 million at December 31, 1994. The $4.6 million increase
reflects the retention of earnings and a decrease in net unrealized losses on
securities available for sale.
Notwithstanding the $58.8 million increase in total assets,
shareholders' equity was equal to 7.81% of total assets at September 30, 1995,
unchanged from December 31, 1994. Excluding the impact of net unrealized
losses on securities available for sale, however, shareholders' equity declined
to 7.86% of total assets from 8.17%.
ASSET/LIABILITY MANAGEMENT
The Bank's competitive position within many of the markets served by
the branch networks limits the ability to materially increase deposits without
adversely impacting the weighted-average cost of core deposits. Accordingly,
the Banks continue to employ pricing tactics that are intended to enhance the
value of core deposits and rely on strategies that utilize federal funds and
other borrowings, principally advances from the Federal Home Loan Bank
("FHLBI"), to fund increases in Portfolio Loans. (See "Net interest income".)
The retention of fixed-rate real estate mortgage loans is not
consistent with the Banks' asset/liability needs and the majority of such loans
are sold to mitigate exposure to changes in interest rates. Adjustable-rate
and balloon real estate mortgage loans may, however, be profitably funded with
FHLBI advances and the retention of such loans is a principal focus of
Management's effort to maintain financial leverage. (See "Non interest
income".)
The Banks continue to maintain portfolios of U.S. Treasury notes that
are included in securities available for sale. During the nine months ended
September 30, 1995, the Banks sold such securities with an aggregate market
value of $13,152,000 compared to $23,033,000 during the comparable period of
1994. The decline in sales of securities available for sale reflects
Management's assessment of reinvestment opportunities and the Banks'
asset/liability management needs.
10
<PAGE> 12
RESULTS OF OPERATIONS
SUMMARY
Net income increased to $1,795,000 during the three months ended
September 30, 1995, from $1,577,000 during the comparable period of 1994. Net
income for the nine-month periods in 1995 and 1994 totaled $4,987,000 and
$4,421,000, respectively. The increases in net income during both the three-
and nine-month periods principally reflect increases in net interest income.
Key performance ratios for the three- and nine-month periods ended
September 30, 1995 and 1994, are set forth below.
<TABLE>
<CAPTION>
KEY PERFORMANCE RATIOS
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on
Average assets 1.28 % 1.31 % 1.26 % 1.23 %
Average equity 16.07 15.58 15.60 15.00
Earnings per common share $.66 $.57 $1.83 $1.60
</TABLE>
NET INTEREST INCOME
Increases in net interest income from the comparable periods in 1994
principally reflect increases in average earning assets. Although the
implementation of strategies to enhance financial leverage has diluted tax
equivalent net interest income as a percent of average earning assets,
Management estimates that such strategies have contributed approximately
$500,000 and $1,500,000 to net interest income during the three- and nine-month
periods, respectively.
NET INTEREST INCOME AND SELECTED RATIOS
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average earning assets (In thousands) $524,797 $443,261 $501,274 $443,156
As a percent of average earning assets
Tax equivalent interest income 9.20% 8.74% 9.13% 8.59%
Interest expense 3.59 2.75 3.44 2.77
Tax equivalent net interest income 5.61 5.98 5.69 5.81
Average earning assets as a
percent of average assets 94.51% 92.62% 94.34% 92.36%
Free-funds ratio 11.74% 11.91% 11.44% 11.46%
</TABLE>
11
<PAGE> 13
An increase in Portfolio Loans and loans held for sale as a percent of
average earning assets also had a positive impact on net interest income.
During the nine months ended September 30, 1995 and 1994, Portfolio Loans and
loans held for sale were equal to 74.4% and 67.2% of average earning assets,
respectively.
NON-INTEREST INCOME
Excluding the impact of gains and losses on the sale of real estate
mortgage loans and securities available for sale, non-interest income during
the three and nine months ended September 30, 1995, was largely unchanged from
the corresponding periods of 1994. Excluding such gains and losses,
non-interest income totaled $780,000 and $771,000, respectively, during the
three-month periods in 1995 and 1994. Excluding such gains and losses during
the nine-month periods of 1995 and 1994, non-interest income would have totaled
$2,361,000 and $2,275,000, respectively.
Net gains on the sale of real estate mortgage loans totaled $301,000
during the three months ended September 30, 1995, compared to $71,000 during
the comparable period of 1994. During the nine months ended September 30, 1995
and 1994, the Banks realized gains totaling $405,000 and $319,000,
respectively. Gains on the sale of such real estate mortgage loans during
future accounting periods will be largely dependent on the banks ability to
originate such loans, which may be dependent upon economic conditions, as well
as competitive factors and other considerations.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Mortgage loan originations 55,900,000 27,300,000 118,100,000 69,500,000
Mortgage loan sales 18,653,000 8,224,000 33,439,000 32,779,000
Gain on the sale of
mortgage loans 301,000 71,000 405,000 319,000
Percent of mortgage loan
gains to mortgage loan sales 1.61% .86% 1.21% .97%
</TABLE>
The Banks' realized net losses of $110,000 on the sale of securities
available for sale during the nine-month period in 1995, compared to net gains
of $110,000 during the comparable period of 1994. (See "Asset/liability
management".) Gross realized gains and losses during the nine month period
ending September 30, 1995, were $7,000 and $117,000 respectively. Future sales
of securities available for sale will be dependent upon the Banks'
asset/liability management needs and available reinvestment opportunities.
12
<PAGE> 14
NON-INTEREST EXPENSE
From the comparable periods in 1994, non-interest expense increased by
13.1% to $5,578,000 and by 7.3% to $15,897,000, during the three- and
nine-month periods, respectively. The banks recognized an approximate $240,000
decrease in FDIC deposit insurance premiums during the three-month period in
1995. This decrease was offset, however, by increases in salaries and benefits,
principally commissions and other salaries that relate to the origination of
real estate mortgage loans. These expenses account for more than 70% of the
increase in total non- interest expense during both periods. An increase in
incentive compensation accruals and a provision for environmental remediation
also contributed to the increase in non-interest expense.
Two properties, originally classified as other real estate, are in the
process of environmental remediation. These two properties were covered under
the Michigan Underground Storage Tank Financial Assurance fund, "MUSTFA".
MUSTFA announced that it would not fund claims filed after June 29, 1995.
Accordingly, the banks have provided for substantially all remaining costs to
remediate these properties, as estimated by environmental engineers retained by
the banks.
ACQUISITIONS
On August 28, 1995, one of the Banks purchased certain real and
personal property, and assumed deposit liabilities associated with a branch
facility located in Clio, Michigan. On the date of closing, the branch had
deposits of $14.4 million.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards, No. 122 ("SFAS 122"), "Accounting
for Mortgage Servicing Rights".
SFAS #122 will require the banks to prospectively recognize as
separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. This statement will also require the banks to
assess these mortgage servicing rights for impairment based on the fair value
of those rights.
Although earlier adoption is permitted, the banks will adopt the
standard in 1996 as required. Based upon the Bank's present volume of loan
sales, implementation will not have a material effect on the Registrants'
financial statements.
13
<PAGE> 15
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibit Number & Description
None.
(b) Reports on Form 8-K
During the quarter ended September 30, 1995, there were no
reports filed on Form 8-K
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date November 10, 1995 By /s/ William R. Kohls
-------------------------- --------------------------
William R. Kohls, Principal
Financial Officer
Date November 10, 1995 By /s/ James J. Twarozynski
-------------------------- --------------------------
James J. Twarozynski,
Principal Accounting
Officer
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------- ------------
<S> <C> <C>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 18,368
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,197
<INVESTMENTS-CARRYING> 80,537
<INVESTMENTS-MARKET> 82,923
<LOANS> 412,277
<ALLOWANCE> 5,249
<TOTAL-ASSETS> 574,988
<DEPOSITS> 408,526
<SHORT-TERM> 114,304
<LIABILITIES-OTHER> 7,252
<LONG-TERM> 0
<COMMON> 2,706
0
0
<OTHER-SE> 42,200
<TOTAL-LIABILITIES-AND-EQUITY> 574,988
<INTEREST-LOAN> 27,370
<INTEREST-INVEST> 6,136
<INTEREST-OTHER> 28
<INTEREST-TOTAL> 33,534
<INTEREST-DEPOSIT> 9,193
<INTEREST-EXPENSE> 12,881
<INTEREST-INCOME-NET> 20,653
<LOAN-LOSSES> 477
<SECURITIES-GAINS> (110)
<EXPENSE-OTHER> 15,897
<INCOME-PRETAX> 6,935
<INCOME-PRE-EXTRAORDINARY> 4,987
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,987
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
<YIELD-ACTUAL> 5.69
<LOANS-NON> 2,180
<LOANS-PAST> 759
<LOANS-TROUBLED> 260
<LOANS-PROBLEM> 2,240
<ALLOWANCE-OPEN> 5,054
<CHARGE-OFFS> 527
<RECOVERIES> 245
<ALLOWANCE-CLOSE> 5,249
<ALLOWANCE-DOMESTIC> 2,295
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,954
</TABLE>
