<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to ____________
Commission File Number 0-16023
NEWBERRY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-2929531
(State of incorporation) (IRS Employer Identification Number
209 East Portage Avenue,
Sault Ste. Marie, Michigan 49783
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (906) 635-9794
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
------- -------
Indicate the number of shares outstanding of each of the issue's
classes of common stock, as of the latest practicable date.
Common Stock, $0.010 par value Outstanding at November 9, 1995
1,172,718 shares
page 1 of 83 pages
Exhibit index on sequentially numbered page 34
<PAGE> 2
FORM 10-Q 2
TABLE OF CONTENTS
PART I - Financial Information
- -----------------------------------
Item 1. Financial Statements PAGE
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 7
Notes to the Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Summary 9
Recent Development 10
Results of Operations 11
Liquidity and Capital Resources 25
PART II - Other Information
- -----------------------------------
Item 1. Legal Proceedings 29
Item 5. Other Information
Parent Company Condensed
Financial Information 29
Item 6. Exhibits and Reports on Form 8-K 33
Signature 33
- ---------
Exhibit Index 34
Item 1. Financial Data Schedule 83
- ------------------
The information furnished in these interim statements reflects all
adjustments and accruals which are, in the opinion of management,
necessary for a fair statement of the results for such periods, and
reflect adjustments which are solely of a normal, recurring nature.
The results of operations in the interim statements are not necessarily
indicative of the results that may be expected for the full year.
<PAGE> 3
3
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
NEWBERRY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30,1995 and December 31,1994
(Unaudited)
<TABLE>
<CAPTION>
At At
September 30 December 31
1995 1994
ASSETS ---------- ----------
<S> <C> <C>
Cash and due from banks $ 1,861,216 $ 908,257
Federal funds sold 1,304,351 606,422
---------- ----------
Total cash and cash equivalents 3,165,567 1,514,679
Securities available for sale (Note 2) 14,576,906 18,658,332
Loans held for sale 5,914,586 4,129,321
Loans, net 7,177,780 4,220,633
Premises and equipment 1,117,085 373,877
Purchased mortgage servicing rights 2,029,431 1,625,889
Investment in Northern Michigan BIDCO 775,174 467,820
Other real estate owned 170,720 130,015
Other assets 988,182 706,018
---------- ----------
Total other assets 5,080,592 3,303,619
---------- ----------
TOTAL ASSETS $35,915,431 $31,826,584
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
4
NEWBERRY BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30,1995 and December 31,1994
(Unaudited)
<TABLE>
<CAPTION>
At At
September 30 December 31
1995 1994
LIABILITIES AND STOCKHOLDERS EQUITY ---------- ----------
<S> <C> <C>
Deposits:
Demand - non interest bearing $ 288,547 $ 1,638,101
Demand - interest bearing 1,701,332 3,026,925
Savings 820,721 587,370
Time 15,935,897 7,875,499
---------- ----------
Total deposits 18,746,497 13,127,895
FHLB advances 10,000,000 9,800,000
Other Bank Borrowings 0 -
Mortgage escrow 1,063,247 1,214,313
Note payable 1,000,000 1,000,000
Due to broker 0 1,288,169
Deferred Noncompete income 145,831 175,000
Other Liabilities 320,153 1,125,518
---------- ----------
Total Liabilities 31,275,728 27,730,895
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value;
Authorized - 500,000 shares;
issued 0 shares in both 1995 and 1994 - -
Common stock, $0.01 par value;
Authorized - 2,500,000 shares;
issued and outstanding
1,200,000 shares in 1995
and 1,200,000 shares in 1994 12,000 12,000
Treasury Stock - 16,746 shares at
September 30,1995 (50,423) -
Surplus 2,478,270 2,478,270
Retained earnings 2,116,245 2,131,207
Unrealized gain (loss) on securities
available for sale, net of tax
of $43,019 in 1995, and
$(270,860) in 1994. 83,611 (525,788)
---------- ----------
Total Stockholders' equity 4,639,703 4,095,689
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $35,915,431 $31,826,584
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
NEWBERRY BANCORP, INC. AND SUBSIDIARY 5
<TABLE>
<CAPTION>
Consolidated Statement of Operations For the Three-Month For the Nine-Month
(Unaudited) Periods Ended Periods Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 329,437 $ 649,113 $ 899,422 $ 2,242,022
Interest on securities:
U.S. Treasury Securities - 19,998 - 48,083
U.S. Government agencies 259,509 161,366 791,461 477,378
State and political subdivisions 452 4,563 4,056 13,689
Other securities 6,744 33,262 14,641 35,037
Interest on bank deposits 5,836 26,293 25,919 63,798
Interest on federal funds 15,099 33,389 42,662 75,850
------------ ----------- ------------ -----------
Total interest income 617,077 927,984 1,778,161 2,955,857
------------ ----------- ------------ -----------
Interest expense:
Interest on deposits:
Demand deposits 27,536 251,124 100,871 653,222
Savings deposits 19,843 73,244 59,652 181,735
Time certificates of deposit 232,518 120,144 577,954 374,236
Bank borrowings 155,459 85,833 441,461 213,217
Repurchase agreements 9,143 2,136 91,869 7,896
Interest expense on note payable 18,291 51,358 107,002 134,205
------------ ----------- ------------ -----------
Total interest expense 462,790 583,839 1,378,809 1,564,511
------------ ----------- ------------ -----------
Net interest income 154,287 344,145 399,352 1,391,346
Provision for loan losses 1,200 52,500 3,600 157,500
------------ ----------- ------------ -----------
Net interest income after
provision for loan losses 153,087 291,645 395,752 1,233,846
------------ ----------- ------------ -----------
Other income:
Security gains (losses) 19,550 55,351 51,647 35,179
Service charges on deposit accounts 7 22,061 112 68,577
Other service charges and fees 1,048 - 3,502 -
Foreign exchange income 21,879 46,447 54,322 139,623
Mortgage banking income 39,793 111,970 347,648 259,763
Profit from equity investment in
Northern Michigan BIDCO 33,372 39,026 103,854 175,526
Other 1,756 22,607 22,770 47,071
------------ ----------- ------------ -----------
Total other income 117,405 297,462 583,855 725,739
------------ ----------- ------------ -----------
</TABLE>
The acccompanying notes are an integral part of the financial statements.
<PAGE> 6
NEWBERRY BANCORP, INC. AND SUBSIDIARY 6
Consolidated Statement of Operations (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three-Month For the Nine-Month
Periods Ended Periods Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other expenses:
Salaries and wages $ 95,858 $ 192,301 $ 275,572 $ 635,471
Employee benefits 16,511 78,657 51,240 189,020
Occupancy, net 29,661 47,100 58,736 149,106
Taxes other than income (41,117) 12,403 (26,216) 46,227
Data processing and equip. exp. 21,299 93,430 66,410 292,495
Correspondent bank service charges 5,390 13,370 22,476 44,976
Advertising 9,207 22,583 15,401 84,934
Net expense of other real estate owned 5,380 5,775 12,897 11,011
FDIC insurance (3,430) 18,543 32,270 75,320
Mortgage banking expense 5,751 27,022 42,610 133,882
Legal and audit expense 56,995 73,912 268,176 182,314
Other operating expenses 57,925 65,268 228,626 149,046
Amortization expense - 3,184 - 9,553
Management fees - 15,000 - 45,000
------------ ----------- ----------- -----------
Total other expenses 259,430 668,548 1,048,198 2,048,355
------------ ----------- ----------- -----------
Income before income taxes 11,062 (79,441) (68,591) (88,770)
------------ ----------- ----------- -----------
Applicable income taxes (benefit) (4,175) (20,202) (53,630) (66,130)
------------ ----------- ----------- -----------
Net income $ 15,237 $ (59,239) $ (14,961) $ (22,640)
============ =========== =========== ===========
Earnings per common share (note 1) $0.013 ($0.049) ($0.013) ($0.019)
============ =========== =========== ===========
Weighted average shares outstanding 1,195,577 1,200,000 1,195,929 1,181,902
============ =========== =========== ===========
Dividends declared per share $ --- $ --- $ --- $ ---
============ =========== =========== ===========
</TABLE>
The acccompanying notes are an integral part of the financial statements.
<PAGE> 7
NEWBERRY BANCORP, INC. AND SUBSIDIARY 7
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine-Month
Periods Ended
September 30,
1995 1994
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (14,961) $ (22,637)
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 100,065 123,560
Equity in unconsolidated subsidiary (103,854) (175,526)
Provision for loan loss 3,600 157,500
Mortgage loans originated for sale (53,461,521) (16,828,793)
Sale of mortgage loans 51,676,291 26,858,932
Net amortization/accretion on securities (9,889) (46,219)
Loss/(Gain) on sale of securities (51,647) (73,067)
Proceeds from sales of trading account
securities - 14,031,695
Purchases of trading account securities - (12,087,630)
Change in:
Purchased mortgage servicing rights (468,002) 98,267
Other real estate (40,705) 74,743
Increase in other assets (596,079) (555,305)
Increase (decrease) in other liabilities (834,534) 266,831
------------ -----------
Net cash from (used in)
operating activities (3,801,236) 11,822,351
------------ -----------
Cash flow from investing activities:
Purchase of available for sale
securities (7,589,160) (9,176,780)
Proceeds from sales of available for
sale securities 10,709,820 80,000
Loans granted net of repayments (1,057,536) 779,396
Loans purchased for investment (1,903,211) -
Premises and equipment expenditures (778,813) (181,492)
Principal paydowns on available for
sale securities 1,742,080 1,242,926
------------ -----------
Net cash from (used in)
investing activities 1,123,180 (7,255,950)
------------ -----------
Cash flow from financing activities:
Net increase in repurchase agreements - (47,125)
Net increase in deposits 5,618,602 356,427
Increase in other bank borrowings 200,000 -
Net increase (decrease) in mortgage
escrow accounts (151,066) (2,230,342)
Amount due to Broker (1,288,169) -
Principal payment on notes payable - (152,000)
Issuance of common stock - 100,000
Purchase of treasury stock (50,423) -
------------ -----------
Net cash from
financing activities 4,328,944 (1,973,040)
------------ -----------
Net change in cash and
cash equivalents 1,650,888 2,593,361
Cash and cash equivalents:
Beginning of period 1,514,679 6,455,516
------------ -----------
End of period $ 3,165,567 $ 9,048,877
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 1,296,288 $ 1,440,831
Cash paid for income taxes 881,719 (3,849)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 8
8
NEWBERRY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) General
See note 1 of Notes to Financial Statements incorporated by reference
in the Company's 1994 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies.
The unaudited financial statements included herein were prepared from
the books of the Company in accordance with generally accepted accounting
principles and reflect all adjustments which are, in the opinion of management,
necessary to provide a fair statement of the results of operations and
financial position for the interim periods. Such financial statements generally
conform to the presentation reflected in the Company's 1994 Annual Report to
Stockholders, and reflect adjustments which are solely of a normal, recurring
nature. The current interim periods reported herein are included in the fiscal
year subject to independent audit at the end of the year.
Earnings per share are calculated based on the weighted average number
of common shares outstanding during each period as follows: 1,195,577 and
1,198,803 for the three and nine months ended September 30, 1995 and 1,195,929
and 1,181,902 for the three and nine months ended September 30, 1994,
respectively. Stock options are considered not dilutive and therefore, not
included in earnings per share calculations.
(2) Available-for-sale Securities
The Bank's available-for-sale securities portfolio at September 30,
1995 had a net unrealized gain of approximately $127,000, as compared with a
net unrealized gain of approximately $81,000 at June 30, 1995 and a net
unrealized loss of approximately $798,000 at December 31, 1994, an improvement
during the nine months beginning December 31, 1995 of $925,000 due to an
improvement in the current market value of adjustable-rate U.S. agency
guaranteed mortgage-backed securities.
Available-for-sale securities
<TABLE>
<CAPTION>
September 30, 1995
-------------------------------------------------------------
Gross Estimated
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. agency mortgage-backed 11,682 125 (94) 11,713
U.S. agency equity 842 14 - 856
Other mortgage securities 1,738 11 (2) 1,747
State and municipal - - - -
Other equity 188 73 - 261
__________________________________________________________________________________________
Total investment securities
available for sale $14,450 $223 $(96) $14,577
======= ==== ===== =======
</TABLE>
<PAGE> 9
9
Available-for-sale securities (continued)
<TABLE>
<CAPTION>
June 30, 1995
-------------------------------------------------------------
Gross Estimated
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. agency mortgage-backed 17,253 182 (149) 17,286
U.S. agency equity 812 8 - 820
State and municipal 101 - - 101
Other equity 161 40 - 201
__________________________________________________________________________________________
Total investment securities
available for sale $18,327 $230 $(149) $18,408
======= ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------
Gross
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. agency mortgage-backed $16,818 $10 $(864) $15,964
Other U.S. agency 1,740 3 - 1,743
U.S. agency equity 739 14 - 753
State and municipal 101 - - 101
Other equity 58 39 - 97
__________________________________________________________________________________________
Total investment securities
available for sale $19,456 $66 $(864) $18,658
======= === ====== =======
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SUMMARY
In the three months ended September 30, 1995, net income of $15,237 was
realized versus a net loss of $59,239 in the same period in 1994. Net interest
income decreased from $344,145 in the 1994 period to $154,287 in the 1995
period, and other income was $117,405 in the 1995 period versus $583,855 in the
1994 period. The increase in net income was primarily the result of the
decrease in expenses, which offset the decrease in net interest income in the
quarter. The reduction of net interest income was due principally to the sale
of the majority of the Bank's retail deposits and loan portfolio in December
1994, and also due to decreased spread income from the Bank's securities
portfolio. Earnings of the Bank during the three months ended September 30,
1995 were negatively impacted by the outsourcing of the Company's servicing
portfolio to Midwest Loan Services in anticipation of the acquisition of 80% of
Midwest Loan Services, Inc. later this year (as more fully described below).
Other operating expense decreased to $259,430 in the 1995 period from $668,548
in the 1994 period. During the three months ended September 30, 1995 there
<PAGE> 10
10
was an improvement of $30,095 in the FASB 115 value of the securities
available-for-sale.
For the nine months ended September 30, 1995, a net loss of $14,961 was
realized versus a net loss of $22,640 in the same period in 1994. The lack of
income for the nine months was principally the result of the decrease in net
interest income due principally to the sale of the majority of the Bank's
retail deposits and loan portfolio in December 1994, the decrease in securities
portfolio spread income, and unusual operating expenses of approximately
$200,000 (see below, "Other Expense"). During the nine months ended September
30, 1995 there was an improvement of $609,399 in the FASB 115 value of the
securities available-for-sale, as a result of an increase in the value of the
Bank's adjustable rate mortgage-backed securities portfolio.
Net income (loss) per share in the three months ended September 30,
1995 was $0.013, and in the three months ended September 30, 1994 was ($0.049)
per share. Net income (loss) per share in the nine months ended September 30,
1995 was ($0.013), and in the nine months ended September 30, 1994 was ($0.019)
per share.
The following table summarizes the pre-tax income (loss) of each profit
center of the Company for the nine months ended September 30, 1995:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995 PRE-TAX INCOME (LOSS) SUMMARY
<S> <C>
Banking & Mortgage Banking (156,712)
Equity in earnings of
Northern Michigan BIDCO 103,854
Corporate Office ( 15,733)
---------
Total $(68,591)
</TABLE>
The following table summarizes the pre-tax income of each profit center
of the Company for the nine months ended September 30, 1994:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994 PRE-TAX INCOME SUMMARY
<S> <C>
Community Banking:
Newberry Office: $120,610
Sault Office: ( 89,775)
Mortgage Banking ( 12,601)
Equity in earnings of
Northern Michigan BIDCO 175,526
Corporate Office (282,530)
---------
Total $(88,770)
</TABLE>
RECENT DEVELOPMENTS
The Bank has received approval from its banking regulators to establish
a new main office in Ann Arbor, Michigan, near the University of Michigan's
Medical Center.
In October 1995, the University of Michigan signed a three year lease
with the Bank covering 2/3 of its Ann Arbor office, which will generate
approximately $90,000 per year in rental income for the Bank.
<PAGE> 11
11
In early November 1995, the Bank signed a definitive agreement to
purchase 80% of the outstanding capital stock of Midwest Loan Services, Inc.
("Midwest"), of Houghton, Michigan, a mortgage subservicing company. The price
paid approximated book value. In connection with the acquisition, the Company
agreed to: issue 78,000 shares of common stock of the Company, pay $200,000
cash, and convey the title to certain non-income producing real estate held by
Midwest carried on Midwest's books for $313,000. The closing under the
agreement is expected to take place in the near future. As of the time of the
acquisition Midwest owned or serviced for others a total of 5,200 loans with a
principal balance of approximately $470,000,000, including $190,000,000
serviced for the Bank. The acquisition agreement also calls for the contingent
payment of up to $310,000 based on pre-tax profit above a specified threshold.
Michigan BIDCO, Inc. (see below, "Other Income"), an affiliate of the Company,
which is a 10% shareholder of Midwest, will receive 23,000 shares of the
Company as part to the acquisition.
During October 1995, the Bank established a wholly-owned subsidiary,
Varsity Funding Services, LLC, of Farmington Hills, Michigan. Varsity
originates for its own account and purchases from other mortgage brokers,
subprime residential mortgage loans, for resale to the secondary market.
Future net income from Varsity would be divided pursuant to an operating
agreement among the Bank and Varsity's Co-Managers.
The Company is contemplating the adoption as an incentive measure of a
stock option/award plan for executives and employees which would provide for
the grant of stock options or stock awards covering up to 300,000 shares.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income decreased from $344,145 for the three months ended
September 30, 1994 to $154,287 for the three months ended September 30, 1995.
Net interest income fell from the year ago period because of a decrease in both
loans and investment securities and an increase in the cost of interest bearing
liabilities. The yield on interest earning assets increased from 6.72% in the
1994 period to 8.26% in the 1995 period. The cost of interest bearing
liabilities increased from 4.51% in the 1994 period to 6.31% in the 1995
period, causing net interest income as a percentage of total earning assets to
decrease from 2.49% to 2.07%.
For the nine month period ended September 30, 1995, net interest income
decreased from $1,391,348 to $399,352 in the 1995 period. The yield on
interest earning assets increased from 7.08% in the 1994 period to 7.83% in the
1995 period. The cost of interest bearing liabilities increased to 6.41% in
the 1995 period from 4.03% in 1994 period, resulting in a decrease in net
interest income as a percent of total average earning assets to 1.76% from
3.33%.
<PAGE> 12
12
Interest income
Interest income decreased from $927,985 in the quarter ended September
30, 1994 to $617,077 in the quarter ended September 30, 1995. The average
volume of interest earning assets decreased from $55,255,003 in the 1994 period
to $29,868,266 in the 1995 period, a decrease of 45.9%. The decreased volume
of earning assets was due to the sale of loans in December 1994, partially
offset by new wholesale money market borrowings. Interest income decreased as
a result of a decrease in earning assets also as a result of the sale. The
overall yield on the loan portfolio increased from 7.96% to 9.99%. The yield
on the loans which the Bank retained was increased to compensate for their
somewhat higher risk profile.
Interest income decreased in the nine months ended September 30, 1995
to $1,778,161 from $2,955,858 in the nine months ended September 30, 1994. The
volume of interest earning assets decreased from $55,693,598 in the 1994 period
to $30,276,701 in the 1994 period, a decrease of 45.6%. The decrease in
interest income was primarily attributable to the decrease in the volume of
earning assets. The average yield on the loan portfolio increased as the yield
on the loans which the Bank retained was increased to compensate for their
somewhat higher risk profile.. As a result, the overall yield on the loan
portfolio increased to 10.04% from 8.46%.
The average volume of investments in the three months ended September
30, 1995 decreased 26.4% over the same period in 1994, as the Bank shrank its
balance sheet as a result of the sale, and redeployed funds to support mortgage
growth. In the nine month period, the average volume of investments decreased
9.9% over the same period in 1994, as the Bank decreased its portfolio in the
third quarter.
The yield increased from 4.93% in the three month period ended
September 30, 1994 to 6.90% in the 1995 period. The increase in yields was in
line with the general increase in interest rates between 1994 and 1995 and a
repricing of the Bank's adjustable rate securities. In the nine month periods,
the yield increased from 4.68% in the 1994 period to 6.39% in the 1995 period.
The increase in yields was in line with the general increase in interest rates
between 1994 and 1995 and a repricing of the Bank's adjustable rate securities.
Interest Expense
Interest expense decreased from $583,838 in the three months ended
September 30, 1994 to $462,790 in the 1995 period. The decrease was due to a
decrease in interest bearing liabilities as a result of the sale, only
partially offset by an increase in rates paid on deposits and borrowings. A
portion of the increase in rates was due to generally higher short term
interest rates. A shift to more heavy reliance on more expensive wholesale
funds was also a factor. The cost of funds increased from 4.51% in the 1994
period to 6.31% in the 1995 period. The average volume of interest bearing
liabilities decreased 43.3% in the 1995 period versus the 1994 period.
In the nine month periods ending September 30, 1995 and 1994,
<PAGE> 13
13
interest expense decreased from $1,564,510 in 1994 to $1,378,809 in the 1995
period. The decrease was due to the same factors as in the three months
periods discussed above. The cost of funds increased from 4.03% in the 1994
period to 6.41% in the 1995 period. The average volume of interest bearing
liabilities decreased 44.6% in the 1995 period versus the 1994 period.
MONTHLY AVERAGE BALANCE SHEET AND
INTEREST MARGIN ANALYSIS
The following tables summarize monthly average balances, revenues from earning
assets, expenses of interest bearing liabilities, their associated yield or
cost and the net return on earning assets for the three and nine month periods
ended September 30, 1995 and 1994.
<PAGE> 14
14
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------
1995 1994
----------------------------------- -------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Short term investments:
Interest bearing deposits $ 460,735 $ 5,836 5.07% $ 1,832,011 $ 26,293 5.74%
Federal funds sold 1,023,631 15,099 5.90% 2,918,461 33,389 4.58%
Investment Securities:
Non-taxable(1) 33,848 452 5.34% 269,275 4,563 6.78%
Taxable 15,157,841 266,253 7.03% 17,629,634 214,627 4.87%
---------- --------- ----- ---------- --------- -----
Total investment securities 16,676,055 287,640 6.90% 22,649,381 278,872 4.93%
Loans: ---------- --------- ----- ---------- --------- -----
Commercial 2,092,599 59,484 11.37% 6,821,445 158,043 9.27%
Real Estate 9,541,147 231,022 9.69% 15,904,533 240,571 6.05%
Installment/Consumer 1,558,465 38,931 9.99% 9,879,644 250,499 10.14%
---------- --------- ----- ---------- --------- -----
Total Loans 13,192,211 329,437 9.99% 32,605,622 649,113 7.96%
---------- --------- ----- ---------- --------- -----
Total earning assets 29,868,266 617,077 8.26% 55,255,003 927,985 6.72%
---------- --------- ----- ---------- --------- -----
Less allowance for possible
loan losses & deferred fees (307,206) (419,132)
---------- ----------
29,561,060 54,835,871
Mortgage servicing rights 2,010,774 1,626,902
Non earning assets 3,575,332 6,646,871
---------- ----------
Total assets $35,147,166 $63,109,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Deposit Accounts:
Now/S-Now $ 50,361 $ 317 2.52% $ 5,454,460 $ 33,628 2.47%
Savings 43,573 310 2.85% 4,894,841 31,335 2.56%
Canadian Dollar Savings 1,164,039 19,533 6.71% 2,648,259 41,908 6.33%
Time Under $100,000 14,408,888 232,518 6.45% 9,577,974 114,235 4.77%
Time Over $100,000 -- -- -- 500,000 5,909 4.73%
Borrowed Funds 11,166,311 171,289 6.14% 7,260,472 87,969 4.85%
Money Market 1,994,917 27,219 5.46% 19,032,522 217,496 4.57%
Holding company debt 515,120 11,604 9.01% 2,373,413 51,358 8.66%
---------- --------- ----- ---------- --------- -----
Total interest bearing
liabilities $29,343,209 462,790 6.31% $51,741,941 583,838 4.51%
=========== ---------- ----- ========== --------- ----
Net interest income $ 154,287 $ 344,147
========== ========
Weighted average rate spread 1.96% 2.20%
===== =====
Net yield on average earning
assets 2.07% 2.49%
</TABLE>
(1) Actual yields; not adjusted for Tax-equivalent yields.
(2) For purposes of computing average yields on the loan portfolio as presented
in the above analysis, loans on non-accrual status are included in the
average loan balances.
<PAGE> 15
15
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------------------
1995 1994
------------------------------------- ----------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Short term investments:
interest bearing deposits $ 674,312 $ 25,919 5.13% $ 1,727,346 $ 63,798 4.92%
Federal funds sold 938,118 42,662 6.06% 2,550,150 75,850 3.97%
Investment Securities:
Non-taxable(1) 78,263 4,056 6.91% 270,473 13,689 6.75%
Taxable 16,646,730 806,102 6.46% 15,806,980 560,499 4.73%
------------------------------------- ----------------------------------
Total investment securities 18,337,423 878,739 6.39% 20,354,949 713,836 4.68%
Loans: ------------------------------------- ----------------------------------
Commercial 1,946,112 175,866 12.05% 6,897,742 455,649 8.81%
Real Estate 8,360,980 596,233 9.51% 18,263,882 1,027,258 7.50%
Installment/Consumer 1,632,186 127,323 10.40% 10,177,025 759,115 9.95%
------------------------------------- ----------------------------------
Total Loans 11,939,278 899,422 10.04% 35,338,649 2,242,022 8.46%
------------------------------------- ----------------------------------
Total earning assets 30,276,701 1,778,161 7.83% 55,693,598 2,955,858 7.08%
------------------------------------- ----------------------------------
Less allowance for possible
loan losses & deferred fees (328,646) (374,091)
------------------ ------------------
29,948,055 55,319,507
Mortgage servicing rights 1,915,910 1,689,466
Non earning assets 3,174,555 6,594,425
------------------ ------------------
Total assets $ 35,038,520 $ 63,603,398
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Deposit Accounts: $ 61,430 $ 1,146 2.49% $ 5,408,166 $ 102,183 2.52%
Now/S-Now 71,463 1,490 2.78% 5,186,552 97,352 2.50%
Canadian Dollar Savings 1,154,096 58,162 6.72% 2,245,726 84,382 5.01%
Time Under $100,000 11,973,313 577,954 6.44% 9,878,305 353,183 4.77%
Time Over $100,000 -- -- -- 545,055 21,053 5.15%
Bowrrowed Funds 12,148,100 583,631 6.41% 7,274,409 221,113 4.05%
Money Market 2,444,730 99,725 5.44% 18,960,446 551,039 3.88%
Holding company debt 839,105 56,701 9.01% 2,273,538 134,205 7.87%
------------------------------------- ----------------------------------
Total interest bearing
liabilities $ 28,692,237 1,378,809 6.41% $ 51,772,197 1,564,510 4.03%
============= ------------ --------- ============= ------------ ------
Net interest income $ 399,352 $ 1,391,348
================ ===============
Weighted average rate spread 1.42% 3.05%
========= ========
Net yield on average earning
assets 1.76% 3.33%
</TABLE>
(1) Actual yields; not adjusted for Tax-equivalent yields.
(2) For purposes of computing average yields on the loan portfolio as presented
in the above analysis, loans on non-accrual status are included in the
average loan balances.
<PAGE> 16
16
Provision for Loan Losses
Management decreased the monthly loan loss provision to a rate of $400
in the three months ended September 30, 1995 from $17,500 in the prior-year
period. The reduction was made due to management's assessment of the adequacy
of the reserve and the low level of origination of non-guaranteed loans. The
actual loan losses were $10,782 in the three month period ended September 30,
1995 versus $18,823 in the three month period ended September 30, 1994.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1995 1994 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Provision for loan losses $ 1,200 $52,500 $ 3,600 $157,500
Loan charge-offs 10,782 18,823 53,654 71,475
Reclassification - - (19,736) -
Recoveries 2,023 1,576 12,921 46,221
------- ------- -------- --------
Net increase (decrease)
in provision $(7,559) $35,253 $(56,869) $132,246
At At At
Sept. 30 June 30, December 31,
1995 1995 1994
-----------------------------------------------------------
Total loans (1) $7,483,470 $7,662,769 $4,583,192
Reserve for loan losses 305,690 313,249 362,559
Reserve/Loans, % (1) 4.08% 4.09% 7.91%
</TABLE>
(1) Excludes loans held for sale.
In addition to the general loan loss reserve, the Company had deposits
on hand from the Michigan Strategic Fund of approximately $42,754 at September
30, 1995 and $45,000 at June 30, 1995 and December 31, 1994 to offset loan
losses on a group of commercial loans amounting to approximately $564,000 at
September 30 and June 30, 1995 and $534,893 at December 31, 1994. The Michigan
Strategic Fund (the "MSF") is a State of Michigan sponsored program. Under the
terms of the program, the Bank can assign, at the Bank's sole discretion,
business loans to be covered by MSF guarantees. The funds which are paid to the
Bank by the MSF are held at the Bank in a segregated account to offset such loan
losses. If there are no losses and the loans are all liquidated, the MSF would
retain ownership of the funds in the segregated account.
Financial Accounting Standards Board ("FASB") has issued statement
number 114, Accounting by Creditors for Impairment of a Loan, which must be
adopted for fiscal years beginning after December 14, 1994. The Company
believes that the impact of adopting this statement will not be material.
The following schedule summarizes the Company's nonperforming loans for
the periods indicated:
<PAGE> 17
17
<TABLE>
<CAPTION>
At At At
Sept. 30, June 30, December 31,
1995 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Past due 90 days and over
and still accruing:
Real estate 35,193 48,657 76,576
Installment 41,897 60,508 92,947
Commercial 35,826 304,477 112,219
------- ------- -------
Subtotal 112,916 413,642 281,742
Nonaccrual loans:
Real estate 111,290 111,290 108,056
Installment - - -
Commercial 170,535 97,771 4,893
------- ------- -------
Subtotal 281,825 209,061 112,949
Other real estate owned 170,720 225,552 130,015
------- ------- -------
Total 565,461 848,255 524,706
As % of loans (1) 7.56% 11.07% 11.45%
Ratio of reserve for loan
losses to all loans
90 days and over 54.1% 36.9% 91.9%
</TABLE>
(1) Excluding loans held for sale.
Economic conditions in the Bank's primary market area appear to have
been stable in the period. The growth in the Sault Ste. Marie area appears to
have ceased; however, the Newberry area appears to be growing because of the
construction of a major prison complex in the town by the State Department of
Corrections. The full impact of the prison complex on the local economy is
likely to be felt later in the year, when it is fully staffed. The sale of the
bulk of the Bank's loan portfolio leaves the Bank with a larger than average
loan loss reserve and a larger than average ratio of underperforming loans.
The $282,794 decrease in non-performing assets during the three months
ended September 30, 1995 was primarily the result of the following: a $227,000
commercial loan secured by a mini-warehouse was removed from loans 90 days late
and still accruing because the borrower made some payments. However, this loan
and two related loans totalling $315,000 were sent to counsel for foreclosure
subsequent to quarter end. The Bank does not anticipate a loss from the
resolution of these loans. Subsequent to quarter end, four REO properties with
a combined balance of $40,000 were sold at no loss, leaving the Bank with just
two REO properties which are residences on which no loss is expected from the
final disposition of the assets.
Management believes that the current reserve level and the ongoing loan
loss reserve for loan losses is adequate to absorb future losses
<PAGE> 18
18
inherent in the loan portfolio, although the ultimate adequacy of the reserve
is dependent upon future economic factors beyond the Company's control. A
downturn in the general nationwide economy will tend to aggravate, for example,
the problems of local loan customers currently facing some difficulties. A
general nationwide business expansion could conversely tend to diminish the
severity of any such difficulties.
Non-Interest Income
Total non-interest income decreased to $117,405 for the three months
ended September 30, 1995 from $297,462 for the three months ended September 30,
1994. The decrease was principally a result of a $72,177 decrease in the
Bank's mortgage banking income, a decrease in securities gains, and decreases
in foreign exchange income and other fee income related to the sale of three
branches in December 1994.
For the nine month periods, total non-interest income decreased from
$725,739 in the 1994 period to $583,855 in the 1995 period. Gains in mortgage
banking income and securities gains were offset by a decrease in the Company's
share of the profit from the equity investment in Northern Michigan BIDCO and
decreases in foreign exchange other fee income.
Securities. During the nine months ended June 30, 1995 realized gains
of $46,243 (including a gain of $30,913 in the three month period) were booked
by the holding company, with total proceeds of $167,690, on the sale of two
securities in the available for sale portfolio. At September 30, 1995, the
holding company had an unrealized gain on its securities portfolio of $126,683.
During the three months ended September 30, 1995, five securities
totalling $4,949,849 were sold from the Bank's available-for-sale securities
portfolio with gross realized gains of $64,893 and gross realized losses of
$76,256. During the nine months ended September 30, 1995, eleven securities
totalling $10,709,820 were sold from the Bank's available-for-sale securities
portfolio with gross realized gains of $157,915 and gross realized losses of
$152,511.
During the quarter, the Bank liquidated an additional portion of its
position in monthly adjusting agency backed CMOs indexed monthly to the 11th
District Cost-Of-Funds Index. In addition to the remaining $1,700,000 of these
COFI-indexed securities, the Bank retains a portfolio of agency backed CMOs
indexed to the one year CMT (together, the "ARM Securities Portfolio"). At
September 30, 1995, approximately $12,250,000 of the Bank's portfolio was
invested in variable-rate U.S. agency mortgage backed securities. The decrease
in the 1995 in short term interest rates has increased the market value of the
Bank's ARM Securities Portfolio from an unrealized loss of $851,000 at December
31, 1994 to an unrealized gain of $36,000 as of June 30, 1995 and $33,000 at
September 30, 1995, an increase in value of $884,000 during 1995.
Management made the decision in December 1994, at the time of the sale,
to hold onto the Bank's ARM Securities Portfolio, despite the fact that the
Bank's cost of funds to carry the portfolio at the time
<PAGE> 19
19
exceeded the yield on the portfolio. During the first half of 1995, the yield
on the Bank's taxable investment securities was 5.82%, versus the cost of
borrowed funds of 6.68% and CDs of 6.44%. This negative carry decreased and
then ended during the third quarter of 1995, with the yield on the Bank's
taxable investment securities being 6.90%, versus the cost of borrowed funds of
6.14% and CDs of 6.45%. As the rates on the ARM Securities Portfolio adjust
over the next several months, the positive yield spread should increase
further, and it is expected that the Bank's ARM Securities Portfolio should
ultimately yield between 1.0-2.0% over the Bank's cost of funds, unless short
term interest rates again increase sharply, as they did throughout 1994. The
negative net interest income on the ARM Securities Portfolio had a substantial
negative impact on profitability in the first nine months of 1995; however, a
portion of the return on these securities over the first six months of 1995 was
expected by management to be an increase in market value, which was $502,000 in
the first quarter of 1995, and $385,000 in the second quarter of 1995.
Foreign Exchange. Foreign exchange revenues decreased to $21,879 and
$54,322 for the three and nine months ended September 30, 1995 from $46,447 and
139,623 in the respective 1994 periods, as a result of the sale of the three
bank branches in December 1994.
Mortgage Banking. Mortgage banking income decreased to $39,793 in the
three months ended September 30, 1995 from $111,970 in the three months ended
September 30, 1994. Sharply decreased loan purchase and origination volumes
during the 1995 period (albeit increased from the volume in the first half of
1995), substantial costs associated with the outsourcing of the Bank's FHLMC
single family mortgage loans serviced for others to Midwest Loan Services, and
a decrease in the market value of the loans held for sale (net of hedging
costs) all negatively impacted results for the 1995 period.
For the nine months ended September 30, 1995, mortgage banking income
increased to $347,648 from $259,763 in the 1994 period. Decreased loan
purchase and origination volumes during the 1995 period, were more than offset
by increases in servicing income from the Bank's FHLMC single family mortgage
loans serviced for others, and an increase in the market value of the loans
held for sale.
Financial Accounting Standards Board ("FASB") has issued statement
number 122, Accounting for Originated Mortgage Servicing Rights, which must be
adopted for fiscal years beginning after December 14, 1995. The Company
believes that the adoption of this statement will positively impact the
Company's net income in the short term, although in the long term the
underlying economics of the cash flows from this activity will be unaffected.
At September 30, 1995, the Bank owned servicing rights on $188,673,976
of FHLMC and FNMA mortgages serviced for others which were subserviced by
Midwest Loan Services, versus $150,627,733 at December 31, 1994. Subsequent to
quarter end, the Company signed a definitive agreement to acquire 80% of
Midwest Loan Services (see Recent Developments, above). The following table
summarizes the portfolio by
<PAGE> 20
20
type and mortgage note rate:
<TABLE>
<CAPTION>
($ in 000s) FIXED RATE - BY MATURITY
-------------------------------------------------------------
MORTGAGE RATE (%) ARMs UNDER 10 10-25 OVER 25
<S> <C> <C> <C> <C>
9.00 and up 194 188 162 5,034
8.50 - 8.99 2,515 686 1,004 21,845
8.00 - 8.49 848 748 2,188 32,675
7.50 - 7.99 498 1,258 3,613 48,935
7.00 - 7.49 418 1,057 14,448 23,038
6.50 - 6.99 2,678 986 11,396 6,221
6.00 - 6.49 2,320 655 1,687 470
under 6.00 118 708 79 -
------ ------ ------ -------
9,590 6,289 34,577 138,218
Current market
interest rates 6.50% 7.00% 7.13% 7.75%
Average annual
servicing fee 0.50% 0.30% 0.29% 0.26%
</TABLE>
If interest rates continue their recent decline to levels briefly seen
during the Summer of 1993, the portfolio would experience significant
refinancings and payoffs, which would hurt income.
<TABLE>
<CAPTION>
Mortgage Payoffs
<S> <C>
First Quarter 1994 $5,347,079
Second Quarter 1994 3,358,617
Third Quarter 1994 1,539,680
Fourth Quarter 1994 1,544,922
First Quarter 1995 765,480
Second Quarter 1995 1,239,571
Third Quarter 1995 1,919,412
</TABLE>
If interest rates were to stay at current levels, refinancings and
payoffs would likely increase over recent experience since approximately 30% of
the fixed rate mortgages being serviced carry interest rates 0.5% or more over
the current market rate. A recent dip to lower rates, which then reversed, may
increase amortization in the third quarter of 1995 somewhat. Based on recent
comparable sales and indications of market value from industry brokers,
management believes that the current market value of the Bank's portfolio of
mortgage servicing rights exceeds cost by approximately $300,000 to $550,000.
Market interest rate conditions can quickly affect the value of mortgage
servicing rights in a positive or negative fashion, as long term interest rates
rise and fall. A portion of the Bank's ARM Securities Portfolio acts as a hedge
against repayments of mortgage servicing rights.
At September 30, 1995, the Bank had outstanding purchase commitments to
buy single family FHLMC qualifying mortgage loans of
<PAGE> 21
21
$1,715,000 and outstanding forward commitments to deliver FHLMC mortgage-backed
securities of $1,008,000, substantially all of which commitments were for
delivery within three months or less. The following tables summarize mortgage
banking activity for the three and nine months periods ending September 30,
1995 and 1994:
<TABLE>
<CAPTION>
(amounts in $000s) Three Months Ended Nine Months Ended
Sept. 31 Sept. 30
1995 1994 1995 1994
------------------------- ----------------------
<S> <C> <C> <C> <C>
Net servicing originated 3,683 1,519 8,050 6,457
Bulk servicing purchased - - 29,996 -
------ ------ ------ ------
Net increase in servicing 3,683 1,519 38,046 6,457
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
(amounts in $000s) Sept. 30 June 30, December 31,
1995 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C>
Total servicing (1) 188,674 184,991 150,628
Book value of servicing 2,029 1,995 1,626
Estimated market value
of servicing:
Management estimate (2) 2,528 2,542 2,162
Discounted cash flow (3) 2,364 2,210 1,910
Estimated excess of market
over book value (4) 335-499 215-547 536-284
</TABLE>
(1) Includes servicing related to FHLMC qualified loans held for delivery of
$5,914,586 at September 30, 1995, $2,630,729 at June 30, 1995, and
$4,129,321 at December 31, 1994.
(2) Assumes a price based upon market transactions using a multiple of the
annual servicing fee (ie. 5.6 x 0.25% = 1.40%):
<TABLE>
<CAPTION>
Sept. 30 June 30, December 31,
1995 1995 1994
--------------------------------------------------------
<S> <C> <C> <C>
30-year fixed servicing 5.6x 5.7x 5.8x
15-year fixed servicing 4.5x 4.7x 4.8x
Balloon servicing 3.0x 3.0x 3.1x
ARM servicing 2.9x 3.0x 3.2x
- -------------
</TABLE>
A discount of 1x was subtracted for servicing on California properties on
June 30, 1995 and December 31, 1994, and 0.7x on September 1995 (the
relative value of California servicing has improved).
(3) Uses net present value analysis of future cash flows, discounted back at
13.14% (the original rate used to price the initial bulk portfolio
purchased in 1993).
(4) Range based upon the two methods used in (2) and (3), above.
- -----------------------------------------------------------------
During 1994 and early 1995, market transactions for servicing rights
showed a trend to increased prices. A slight decline was noted in the second
quarter of 1995.
<PAGE> 22
22
In the first quarter, the Bank acquired a $30,000,000 portfolio of low
coupon 1993 servicing on properties located in California for 1.04% of the
unpaid principal balance.
Origination activity continues to climb slowly from earlier depressed
levels, and indications are that the new and existing programs will increase
origation activity in the fourth quarter of 1995 from the depressed levels of
early 1995.
During the third quarter, the Bank began selling B and C impaired
credit quality loans to correspondents originated through the Bank's own
correspondent network. During October 1995, the Bank established a
wholly-owned subsidiary, Varsity Funding Services, LLC, of Farmington Hills,
Michigan ("Varsity"). Varsity originates for its own account and purchases from
other mortgage brokers, subprime residential mortgage loans, for resale to the
secondary market. Future net income from Varsity would be divided pursuant to
an operating agreement among the Bank and Varsity's Co-Managers, Bill Cook and
Jess Monticello. Bill Cook was formerly the manager of Countrywide Funding
Corp.'s Michigan wholesale office, and Vice President of Retail and Wholesale
Operation for Wellington Mortgage of Madison Heights, Michigan. Jess
Monticello was previously Senior Vice President - Secondary Marketing, for
Republic Bancorp Mortgage, Inc. Both individuals also joined the Bank as Vice
Presidents in the Bank's Mortgage Banking Division. Management anticipates
that the establishment of Varsity will enable the wholesale division of the
Bank to expand its sales and marketing of the Bank's mortgage services to
mortgage bankers throughout southern Michigan. It is anticipated that start-up
expenses from Varsity could negatively impact fourth quarter 1995 earnings by
up to $50,000.
The Bank has recently added some new mortgage correspondents for the
Farmer Mac loan program. Farmer Mac, the AgFirst Farm Credit Bank and FNMA
began to pool Farmer Mac Guaranteed Rural Housing Loans beginning August 1,
1995, and the Bank was the first nationwide seller under the program. During
the 1995 third quarter, the Bank increased its ownership of Farmer Mac's class
C common stock (NASDAQ/FAMCK) to 3.29% of the outstanding shares.
Subsequent to quarter end, the Company and the Bank signed a definitive
agreement to acquire 80% of the outstanding shares of Midwest Loan Services.
The subservicing company is also based in the Upper Peninsula of Michigan.
While in the short run the acquisition has decreased net income, in the near
future it should result in cost savings. As a subsidiary of the bank, this
acquisition would also enhance the subservicing company's ability to market its
services, and also produce economies of scale in its own operation. Indications
are that the subservicing company will shortly receive an additional 1,000
loans for subservicing, increasing its total to 6,200 loans serviced for
others, including 1,900 loans serviced for the Bank, and 800 serviced for its
own portfolio.
In mid-March 1995, the Bank purchased a portfolio of sub-performing
home equity loans with approximately $6,600,000 in unpaid principal balance and
$1,000,000 of unpaid accrued interest from a private investor group for
approximately $1,903,000 (the "Loan Pool").
<PAGE> 23
23
The investor group had recently purchased the Loan Pool from the Resolution
Trust Corporation, which had not funded legal collection costs with respect to
the loans in the pool since 1990. The average stated interest rate on the
mortgage loans is over 19%. Approximately 70% of the loans in the pool are
currently making payments (up from 50% at the time of the Bank's acquisition),
and based on the collection experience to date, management expects to amortize
the purchase price together with a 12% return on the investment within two
years, leaving additional future income from the pool which will be split 50/50
with the subservicer of the loan pool. Based upon its investigation of the
loan pool, management believes that 70% of the loans in the pool are backed by
first or second mortgages where the combined loan to value ratio, after taking
into account these liens is less than 100%. The servicer of the loans has
provided additional security, guarantees and collateral to protect the Bank's
investment in the loan pool, including $250,000 in pledged deposits with the
Bank.
A recent appraisal by the servicing company's independent certified
public accountant as of August 31, 1995 indicates that the net present value of
the loans is $4,271,819, which exceeds cost by about $2,615,232. As of
September 30, 1995, the Bank's net investment in the loans was $1,599,156.
Michigan BIDCO. Michigan BIDCO (formerly Northern Michigan BIDCO) (the
"BIDCO") invests in businesses in Northern Michigan with the objective of
fostering job growth and economic development. As of September 30, 1995, the
BIDCO had made fourteen such investments, amounting to a total of $7,625,000 at
original cost. At September 30, 1995, the BIDCO had total assets of $6,779,203
(treating three companies of which the BIDCO maintains a controlling interest
on a non-consolidated basis). For the three and nine months ended September
30, 1995 and 1994, the Bank's 44.09% equity share in the earnings of the
BIDCO's reported net income was $33,372 and $39,026, and $103,854 and $175,526,
respectively.
The Bank owns 280 shares of common stock in the BIDCO, currently
representing a 44.09% equity interest. In January 1995, the Company purchased
$132,000 principal amount of the BIDCO's 9% convertible debentures at par
value, and in June the Company purchased an additional $65,000 principal amount
for $71,500, thereby increasing the Company's consolidated fully diluted
ownership in the BIDCO to 15.53% from 10.57%.
Michigan BIDCO makes its investments in the form of loans or direct
equity investments, or a combination thereof. The BIDCO's limit on its
investment in one borrower is currently $500,000, and the BIDCO arranges
participations for investments in excess of this amount. The Bank is
restricted from investing or lending to a business that the BIDCO finances.
The BIDCO typically receives warrants or participation rights in the companies
in which it invests. To date, investments (at original investment cost) have
been made in the following types of businesses:
<PAGE> 24
24
Michigan BIDCO's investments:
<TABLE>
<CAPTION>
Equity
Industry Amount Participation?
<S> <C> <C>
ABC-TV affiliate $ 300,000 yes
Adult foster care 40,000 no
Cable TV 350,000 yes
Children's clothing manufacturer 200,000 yes
Environmental engineering 100,000 no (paid-off)
Hotel 300,000 yes
Loan subservicing 450,000 yes
Mining equipment manufacturer 80,000 no
Paper converting plant 1,100,000 yes
Paper recycle pulp mill 780,000 yes
Plastic injection molding 2,000,000 no (paid-off)
Railroad boxcar leasing 1,300,000 no
Railcar equipment manufacturing 125,000 yes
Tissue paper mill 500,000 yes
---------
Total $7,625,000
==========
</TABLE>
At September 30, 1995, the BIDCO had the following outstanding conditional
commitments to lend:
<TABLE>
<S> <C>
Paper converting plant (add-on) $1,000,000
Cable TV (add-on) 150,000
-------
Total $1,150,000
=========
</TABLE>
An 80% loan guarantee on $1,600,000 of the BIDCO's investment in the
paper converting plant was recently received from an agency of the federal
government.
The BIDCO received federal government approval of an application for
$2,000,000 in funding in the form of a 1% 30-year loan to a non-profit
affiliate of the BIDCO, Northern Michigan Foundation (the "Foundation"). The
Foundation will be lent this money at 1% interest for 30 years. The Foundation
will relend this money to businesses in Northern Michigan to promote economic
development and to create jobs for low and moderate income individuals. It is
anticipated that an increasing portion of the BIDCO's normal annual operating
expenses will be absorbed by the Foundation.
In conjunction with the Bank's establishment of a new main office in
Ann Arbor, the BIDCO also plans to set up an office at this location. The
BIDCO plans to expand the area in which it seeks investment opportunity to the
rest of the Lower Peninsula of Michigan, hence, the recent change in its name.
Non-Interest Expense
Non-interest expense decreased from $668,548 in the three months ended
September 30, 1994 to $259,430 for the three months ended September 30, 1995.
Non-interest expense decreased from $2,048,355 in
<PAGE> 25
25
the nine months ended September 30, 1994 to $1,048,198 for the nine months
ended September 30, 1995. The decrease in both periods was primarily the
result of the sale of three branches of the Bank in December 1994.
Certain unusual expenses negatively impacted the 1995 first nine
months. Legal expenses of the Bank were $137,675 in the 1995 period and
$85,635 in the 1994 period, primarily because of expenses associated with a
particularly expensive lender liability countersuit related to one case, since
decided in the Bank's favor. Approximately $30,000 in extra temporary
personnel expenses were incurred in the 1995 period as a result of short term
personnel requirements following the sale. Unusual expenses directly related
to the sale of $18,132 were charged to earnings in the 1995 period.
Approximately $10,000 of expenses associated with the change of the Bank's
name, and $20,000 in expenses associated with the conversion of the Bank's core
software package and the outsourcing of the Bank's mortgage servicing were
incurred. Lastly, audit expenses are estimated to have been approximately
$25,000 higher as a result of the sale and the personnel turnover in the
treasury department of the Bank that resulted from it.
Non-interest operating expense for only the parent company decreased
from $55,976 for the three month 1994 period to $15,613 for the 1995 period.
For the nine month periods, non-interest operating expense decreased from
$190,663 in 1994 to $55,976 in 1995. Management fees and goodwill amortization
expense previously incurred at the holding company level were discontinued due
to the sale. Legal and audit expenses were also lower.
Liquidity and Capital Resources
Parent Company Liquidity:
At year-end 1994, Newberry Bancorp, Inc. held cash and marketable
equity securities of $151,922. This decreased by $4,326 to $147,596 at
September 30, 1995. The small decrease in cash and marketable equity
securities was due to a number of intercompany tax and dividend transfers which
offset a $50,423 repurchase of Company stock from the ESOP and other cash
flows. Dividends from the Company's bank subsidiary together with earnings
from the cash and marketable equity securities held by the parent company are
the principal sources of income used to fund the parent company's indebtedness.
The Company's bank debt currently calls for a $50,000 annual sinking fund
payments and a balloon maturity on September 30, 1996, renewable annually based
upon performance. The debt carries a restriction on payment of dividends by
the Bank in excess of prior year's net income of the Bank.
Capital Resources:
The following table sets forth the Bank's risk based assets, and the
capital ratios and risk based capital ratios of the Bank and Company as of
September 30, 1995.
<PAGE> 26
26
UNIVERSITY BANK
Risk Adjusted Assets & Risk Adjusted Capital Ratio at September 30, 1995
($ in 000's)
<TABLE>
<CAPTION>
Risk Adj.
Value Risk Asset
Asset (000's) Weight Value
- --------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Cash and Fed Funds 1,712 0% 0
U.S. and Canadian Treasuries 0 0% 0
U.S. Gov't Agency Securities 782 0% 0
Reserve for Loan Losses (306) 0% 0
U.S. Gov't Sponsored Agency Securities 12,678 20% 2,536
U.S. Gov't Guaranteed Loans 503 20% 101
Balances at Domestic and Canadian Banks 1,454 20% 291
General Obligation Municipal Securities 0 20% 0
1-4 Family Mortgage Loans 3,922 50% 1,961
Municipal Revenue Bonds 0 50% 0
All Other Loans 8,973 100% 8,973
All Other Securities 1,528 100% 1,528
Real Estate Owned 171 100% 171
Premises & Equipment 1,115 100% 1,115
Mortgage Servicing Rights 2,029 100% 2,029
Other Assets 679 100% 679
- --------------------------------------------- -------
TOTAL ASSETS 35,240
=======
Off Balance Sheet Items:
Letters of Credit and Committments 543 100.00% 543
Foreign Exchange Contracts 985 0.50%(1) 5
Interest Rate Contracts 3,002 0.00%(1) 5
FHLMC Loan Purchase Committments 1,715 50.00% 857.5
MBS FHLMC Forward Sell Committments 1,008 0.00%(1) 8
Agency Guaranteed Commercial Loans Sold 203 20.00% 41
------- --------- --------
TOTAL RISK-ADJUSTED ASSETS 20,842
======
CAPITAL RESOURCES
Shareholders Equity, GAAP 4,900 4,900
Unrealized Gain/(Loss) on AFS Securities 35 35
Investment in Unconsolidated Subsidiary 572 572
----- -----
Total Equity (Tier 1) 5,507 5,507
Qualifying Loan Loss Reserve (Tier 2) 261 261
----- -----
Regulatory Capital (Tier 1 & Tier 2) 5,768 5,768
===== =====
Primary and Total Capital Ratio (Leverage) 16.50%
=====
Risk-adjusted Capital Ratio (Tier 1) 26.42% 26.42%
===== =====
Risk-adjusted Capital Ratio (Tier 2) 27.67% 27.67%
===== =====
Newberry Bancorp Consolidated
Total Capital Ratio (Leverage Ratio) 12.92%
=====
</TABLE>
(1) Plus market value, or replacement cost valuation, as required.
<PAGE> 27
27
Bank Liquidity:
The Company's primary sources of liquidity are customer deposits,
scheduled amortization and prepayments of loan principal, cash flow from
operations, maturities of various investments, the sale of loans held for sale,
reverse repo credit lines secured by securities, and overnight fed funds credit
lines from correspondent banks. In addition, the Bank invests in overnight
Federal Funds. At September 30, 1995, the bank had cash and due from banks and
fed funds on hand of approximately $3,165,000. At September 30, 1995 the Bank
had available overnight fed funds lines of $1,800,000. In order to bolster
liquidity, the Bank has also sold brokered CDs from time to time.
Impact of Inflation
The primary impact of inflation on the Company's operations is
reflected in increased operating costs. Because the assets and liabilities of
the Company are primarily monetary in nature, changes in interest rates have a
more significant impact on the Company's performance than the general effects
of inflation. However, to the extent that inflation affects interest rates, it
also affects the net income of the Company.
Rising long term and short term interest rates tends to increase the
value of the Bank's investment in mortgage servicing rights and improve the
Bank's current return on such rights by lowering required amortization rates on
them. However, rising interest rates tends to decrease new mortgage origination
activity, negatively impacting current income from mortgage banking operations.
The table on the next page details the Bank's asset/liability sensitivity as of
September 30, 1995.
<PAGE> 28
28
UNIVERSITY BANK
Asset/Liability Position Analysis
($ in 000s)
<TABLE>
<CAPTION>
Maturing or Repricing in
----------------------------------------------------
Under 91 Days- 1-5 Over 5 All Total
3 Months 1 Year Years Years Others
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Fed Funds 1,287 1,287
Loans(1) 441 760 2,619 177 3,997
Canadian Inv. 17 17
Securities 3,469 9,934 12 656 863 14,934
Loans held for sale 5,915 5,915
Matured Loans 657 657
Variable Loans 2,223 2,223
Other Assets 3,974 3,974
Cash & Due 1,861 1,861
Overdrafts 39 39
Non Accrual Loans 282 282
Valuation Adjustment 54 54
------ ------ ------ ------ ------ ------
14,048 10,694 2,631 833 7,034 35,240
LIABILITIES
Jumbo CDs 200 200
Other CDs 2,111 3,035 10,590 15,736
MMDA 1,736 1,736
Now & S-Now 58 58
Demand & Escrows 1,356 1,356
Savings 26 26
Can$Savings 795 795
Other Liabilities 434 434
Repos & Borrowings 10,000 10,000
Equity 4,899 4,899
------ ------ ------ ------ ------ ------
14,726 3,035 10,790 -- 6,689 35,240
GAP (678) 7,659 (8,159) 833 345
CUMULATIVE GAP (678) 6,981 (1,178) (345)
-1.92% 19.81% -3.34% -0.98%
</TABLE>
NOTES:
(1) Net of bad debt reserve.
<PAGE> 29
29
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or
its subsidiary is party or to which any of their properties are subject.
Item 5. Other information
Parent Company Financial Information
Certain condensed financial information with respect to
Newberry Bancorp, Inc. follows:
<PAGE> 30
30
NEWBERRY BANCORP, INC. (The Parent)
Condensed Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 96,173 $ 54,151
---------- ------------
Investment in subsidiary 4,899,734 4,746,807
---------- ------------
Due from ESOP 1,000 1,000
Available for sale securities (Note 2) 161,002 97,771
Investment in Northern Michigan BIDCO 203,500 -
Federal income tax receivable 160,202 22,281
Furniture, fixtures & equipment 2,493 4,744
Deferred taxes 8,537 8,537
Prepaid expenses and other assets 138,926 973,212
---------- ------------
Total other assets 675,660 1,107,545
TOTAL ASSETS $ 5,671,567 $ 5,908,503
=========== ===========
<CAPTION>
September 30, December 31,
1995 1994
LIABILITIES AND SHAREHOLDERS EQUITY ------------- -----------
Note payable $1,000,000 $1,000,000
Accrued interest payable -- 78,798
Accounts payable 31,864 734,017
Due to subsidiary -- --
---------- ----------
Total Liabilities 1,031,864 1,812,815
Stockholders' equity:
Net unrealized gain (loss) on
available-for-sale securities 83,611 (525,788)
Capital stock and paid in capital 2,439,847 2,490,270
Retained earnings 2,116,245 2,131,206
---------- ----------
Total Stockholders' equity 4,639,703 4,095,688
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $5,671,567 $5,908,503
========== ==========
</TABLE>
<PAGE> 31
31
NEWBERRY BANCORP, INC. (The Parent)
<TABLE>
<CAPTION>
Condensed Statement of Operations For the Three-Month For the Nine-Month
(Unaudited) Periods Ended Periods Ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest on Securities $ 7,371 $ -- $ 12,851 $ --
Net income from bank subsidiary (10,203) 16,369 (4,578) 182,597
Gain (loss) on sale of investment 30,913 -- 46,243 --
Other income 27,198 39,299 37,570 42,349
------ ------ ------ ------
Total income 55,279 55,668 92,086 224,946
------ ------ ------ ------
Interest expense 11,604 51,358 56,701 134,205
Amortization expense 0 3,184 0 9,553
Management fees 0 15,000 0 45,000
Legal and Audit Expense 5,000 21,179 23,755 75,653
Public listing expense 1,000 2,478 3,000 7,505
Other expenses 9,613 29,570 29,221 52,952
------ ------ ------ ------
Total expenses 27,217 122,769 112,677 324,868
------ ------ ------ ------
Income before income taxes 28,062 (67,101) (20,591) (99,922)
------ ------ ------ ------
Income taxes (benefit) 12,825 (7,865) (5,630) (77,285)
------ ------ ------ ------
Net income 15,237 (59,236) (14,961) (22,637)
====== ====== ====== ======
Net income per common share $0.013 ($0.049) ($0.013) ($0.019)
====== ====== ====== ======
Dividends declared per share $ --- $ --- $ --- $ ---
====== ====== ====== ======
</TABLE>
<PAGE> 32
NEWBERRY BANCORP, INC. (The Parent) 32
Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine-Month
Periods Ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net income (loss)
to net cash used in
operating activities:
Net income (loss) $ (14,961) $ (22,637)
Depreciation 2,251 2,251
Amortization -- 9,553
Non-cash stock contribution to ESOP -- 25,015
Proceeds from sales of trading securities 167,690 --
Purchases of trading securities (366,284) --
Loss (gain) on sale of investments (46,243) --
Decrease (increase) in receivable
from affiliate 973,211 (26,907)
Decrease (increase) in Other Assets (138,925) (123,780)
Decrease (increase) in Income Tax Receivable (137,921) --
Increase (decrease) in interest payable (78,798) (16,402)
Increase (decrease) in Income Tax Payable (720,428) --
Increase (decrease) in Other Liabilities 18,275 205,574
Equity from undistributed earnings of subsidiary 4,578 (67,797)
--------- ---------
Net cash provided by (used in)
operating activities (337,555) (15,130)
--------- ---------
Cash flow from investing activities:
Subsidiary dividends received 1,350,000 --
Subsidiary Capital Infusion (920,000)
--------- ---------
Net cash provided by (used in)
investing activities: 430,000 --
--------- ---------
Cash flow from financing activities:
Principal payment on notes payable -- (152,000)
Proceeds from sale of common stock -- 100,000
Purchase of treasury stock (50,423)
--------- ---------
Net cash provided by (used in)
financing activities: (50,423) (52,000)
--------- ---------
Net changes in cash and cash equivalents 42,022 (67,130)
Cash and cash equivalents:
Beginning of year 54,151 105,967
--------- ---------
End of year $ 96,173 $ 38,837
========= =========
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 116,637 $ 69,982
Income tax $ (22,281) $ (3,849)
</TABLE>
<PAGE> 33
33
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.15 Promissory Note dated September 28, 1995
issued by Newberry Bancorp, Inc. to First Northern
Bank & Trust and Related Agreement.
10.16 Net Branch Agreement Establishing Varsity
Funding Services, LLC among University Bank, Jess
Monticello and William Cook, dated September 12,
1995.
10.17 Purchase and Sale Agreement Concerning Common
Stock of Midwest Loan Services dated August 1995
among its shareholders and University Bank and
Newberry Bancorp.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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.
NEWBERRY BANCORP INC.
Date: November 10, 1995 /s/ Thomas J. Vandermus
-------------------------------
Thomas J. Vandermus
Chief Financial Officer and
Treasurer, University Bank
<PAGE> 34
34
<TABLE>
<CAPTION>
Exhibit Index
------------- Sequentially
Numbered
Page
------------
<S> <C>
10.15 Promissory Note dated September 28, 1995
issued by Newberry Bancorp, Inc.
to First Northern Bank & Trust
and related Loan Agreement. 35
10.16 Net Branch Agreement Establishing Varsity
Funding Services, LLC among University
Bank, Jess Monticello and William Cook,
dated September 12, 1995. 59
10.17 Purchase and Sale Agreement Concerning Common
Stock of Midwest Loan Services dated
August 1995 among its shareholders
and University Bank and Newberry Bancorp. 65
27. Financial Data Schedule 83
</TABLE>
<PAGE> 1
EXHIBIT 10.15
PROMISSORY NOTE
$1,000,000.00 Sault Ste. Marie, Michigan
September 28, 1995
FOR VALUE RECEIVED, NEWBERRY BANCORP, INC., a Delaware corporation of
209 East Portage Avenue, Sault Ste. Marie, MI 49783 (the "Borrower"), promises
to pay to the order of FIRST NORTHERN BANK & TRUST, a Michigan banking
corporation (the "Lender"), at 130 South Cedar Street Manistique, MI 49854, or
at such other place as the holder may designate in writing the principal sum of
One Million Dollars ($1,000,000.00), together with interest in accordance with
the terms of this Note.
Interest Rate. The interest rate shall be the Prime Rate (as
hereinafter defined) plus one-half percent (1/2%). Interest shall be computed
on the basis of a 365-day year for the actual number of days outstanding.
"Prime Rate" shall mean that variable rate of interest per annum from time to
time publicly announced by Citibank N.A., New York, as its prime rate of
interest which may not be that bank's lowest rate of interest charged to its
most credit worthy customers. Any change in the interest rate occasioned by a
change in the Prime Rate shall be effective as of the date of such change,
Notwithstanding the foregoing, during all times that there exists an
event of default and after maturity, the interest rate shall be a per annum
rate which is two percent (2%) higher than the interest rate otherwise in
effect, but never less than the interest rate in effect immediately following
such default or maturity. In addition, a late payment charge to defray
administrative expenses in the amount of $.05 for each dollar overdue for more
than fifteen (15) days may be assessed by the holder.
Payment. Accrued interest and Twelve Thousand Five Hundred Dollars
($12,500) shall be paid on February 1, 1996, and on the 1st day of each of May
and August, 1996. A final payment of all outstanding principal and accrued
interest shall be due and payable on November 1, 1996. All payments shall
first be applied against accrued interest, costs and late payment charges, and
the balance shall be applied against the principal.
Prepayment. Borrower may prepay the principal, in whole or in part,
at any time without premium or penalty. Borrower may from time to time prepay
any principal, in whole of in part at any time, without premium of penalty.
All prepayments of principal shall include interest accrued to the date of
prepayment on the principal amount being prepaid. Amounts prepaid may not be
reborrowed. Any partial prepayments shall be applied to principal last coming
due.
Security. The indebtedness evidenced by this Note and any extensions,
renewals or modifications of such indebtedness is secured by shares of capital
stock of University Bank pursuant to a Pledge Agreement ("Pledge") of even date
executed by Borrower.
Events Of Default; Acceleration. This Note evidences indebtedness
incurred under a certain Loan Agreement dated as of September 28, 1995,
executed by and
<PAGE> 2
between the Borrower and the Lender (and if amended, restated or replaced, all
amendments, restatements and replacements thereto or therefore, if any,)(the
"Loan Agreement"), to which Loan Agreement reference is hereby made for a
statement of terms and provisions, including those under which this Note may be
considered in default and have its due date accelerated.
Upon the occurrence of an event of default, the holder of this Note
may, without notice or demand, declare the entire principal balance of this
Note, together with all accrued interest immediately due and payable.
General Provisions. Any failure by the holder to exercise any right
under this Note, including the right to accelerate Borrower's obligations upon
the occurrence of an event of default, shall not constitute a waiver of the
right to exercise such right while such default continues or upon another
default. No waiver or release shall be binding against the holder unless given
in writing by such holder.
In addition to all indebtedness and accrued interest, Borrower agrees
to pay all costs of collection and enforcement of this Note, the Pledge or any
related agreement including, without limitation, attorneys fees.
At no time shall the interest rate on this Note exceed the highest
interest rate permitted by law; to the extent amounts received by the holder
are attributable to an interest rate in excess of that permitted by law, such
amounts shall be deemed permitted prepayments of principal last coming due
and applied as such without premium or penalty.
Borrower waives presentment, demand, protest, notice of protest and
notice of dishonor of this Note, except as otherwise provided herein.
This Note shall be governed by and construed in accordance with the
laws of the state of Michigan.
NEWBERRY BANCORP, INC.
By: Stephen L. Ranzini
----------------------------
Its President
----------------------------
And By Joseph L. Ranzini
-------------------------
Its Chairman
----------------------------
-2-
<PAGE> 3
LOAN AGREEMENT
THIS AGREEMENT, dated as of September 28, 1995, is by and between
NEWBERRY BANCORP, INC., a corporation organized under the laws of the state of
Delaware (the "Borrower"), and FIRST NORTHERN BANK & TRUST, a Michigan banking
corporation (the "Lender").
The parties hereto agree as follows:
SECTION 1. LOAN
SECTION 1.1. LOAN. Subject to the terms and conditions of this
Agreement, the Lender agrees to loan to the Borrower ONE MILLION UNITED STATES
DOLLARS ($1,000,000) (the "Commitment").
SECTION 1.2. NOTE. The Loan shall be evidenced by a promissory note
(the promissory note and any renewal of the promissory note are referred to in
this Agreement as the "Note"), substantially in the form of Exhibit A, with
appropriate insertions, dated the date hereof, payable to the order of the
Lender, in the principal amount of the Commitment.
SECTION 2. INTEREST AND FEES
SECTION 2.1. INTEREST. The unpaid principal of the Loan from time to
time outstanding hereunder shall bear interest at the rates reflected in
Exhibit A.
SECTION 2.2. INTEREST PAYMENT DATES. Accrued interest shall be paid on
the dates reflected in Exhibit A.
SECTION 2.3. PAYMENT AND PREPAYMENT. Borrower may from time to time
prepay any principal, in whole or in part at any time, without premium of
penalty. All prepayment of principal shall include interest accrued to the date
of prepayment on the principal amount being prepaid. Amounts prepaid may not
be reborrowed. Any partial prepayments shall be applied to principal last
coming due.
SECTION 2.4. RENEWAL. Provided that all payments required under the
Note have been made and provided that the Borrower is in compliance with all
the terms and provisions set forth in this Agreement or in exhibits hereto on
Borrower's part to be observed and performed, and no Event of Default or
Unmatured Event of Default shall have occurred and be continuing or would
result from renewal of the Loan, Lender agrees that it will, at maturity of the
Note, renew the Loan for a one (1) year period on the same terms and subject to
the same conditions as the original Loan, less the principal required to be paid
from the date of the original Loan to the date of maturity of the Note. At the
time of any such renewal, Borrower shall execute and deliver a new note to
Lender reflecting the reduced principal and new maturity date.
<PAGE> 4
SECTION 3. PAYMENTS
Payments and prepayments of principal and interest shall be made in
immediately available funds to the Lender at its main banking office at 130
South Cedar Street, Manistique, Michigan 49854.
SECTlON 4. SECURITY
The indebtedness evidenced by the Note shall be secured by one hundred
percent (100%) of the issued and outstanding capital stock of University Bank
(formerly "The Newberry State Bank"), a Michigan banking corporation having its
principal office in Ann Arbor, Michigan ("Bank"), which stock shall be pledged
pursuant to the Pledge Agreement in the form of Exhibit B attached hereto
("Pledge Agreement").
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Loan, the Borrower represents and
warrants to the Lender that:
SECTION 5.1. ORGANIZATION. The Borrower is a corporation existing and
in good standing under the laws of the state of Delaware; each subsidiary
(specifically including but not limited to each subsidiary which is a bank
("Subsidiary Bank")) is a corporation duly existing and in good standing under
the laws of the jurisdiction of its incorporation; the Borrower and any
subsidiary (specifically including but not limited to each Subsidiary Bank) are
duly qualified, in good standing and authorized to do business in each
jurisdiction where, because of the nature of their activities or properties,
such qualification is required; and the Borrower and any subsidiary
(specifically including but not limited to each Subsidiary Bank) have the
corporate power and authority to own their properties and to carry on their
businesses as now being conducted.
SECTION 5.2. AUTHORIZATION; NO CONFLICT; BINDING OBLIGATIONS. The
borrowing hereunder, the execution and delivery of the Note, and the
performance by the Borrower of its obligations under this Agreement and the
Note are within the Borrower's corporate powers, have been authorized by all
necessary corporate action, have received all necessary governmental approval
(if any shall be required) and do not and will not contravene or conflict with
any provision of law or of the articles of incorporation or by-laws of the
Borrower or any subsidiary or of any agreement binding upon the Borrower or any
subsidiary. This agreement is, and the Note and Pledge Agreement upon their
execution and delivery will be, legal, valid and binding obligations of
Borrower which are enforceable against Borrower in accordance with their
respective terms,
SECTION 5.3. FINANCIAL STATEMENTS. The Borrower has supplied copies
of the following financial or other statements to the Lender:
(a) The Borrower's unaudited consolidated financial statements
as at June 30, 1995;
-2-
<PAGE> 5
(b) The Borrower's audited consolidated financial statements as
at December 31, 1994.
Such statements have been prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year and accurately present the condition of the Borrower and its
subsidiaries as at such dates and the results of their operations for the
respective periods then ended. Since the date of those statements, no material,
adverse change in the business, properties, assets, operations, conditions, or
prospects of the Borrower or any subsidiary has occurred of which the Lender
has not been advised in writing before this Agreement was signed. There is no
known contingent liability of the Borrower or any subsidiary which is known to
be in an amount in excess of S25,000 (excluding loan commitments, letters of
credit, and other contingent liabilities incurred in the ordinary course of the
banking business) that is not disclosed or reflected in such financial
statements or of which the Lender has not been advised in writing before this
Agreement was signed.
SECTlON 5.4. TAXES. The Borrower and each subsidiary have filed or
caused to be filed all federal, state, and local tax returns, if any, which, to
the knowledge of the Borrower or any subsidiary, are required to be filed, and
have paid or have caused to be paid all taxes, including those shown on such
returns or on any assessment received by them to the extent that such taxes
have become due (except for current taxes not delinquent and taxes being
contested in good faith and by appropriate proceedings for which adequate
reserves have been provided on the books of the Borrower or the appropriate
subsidiary, and as to which no foreclosure, distraint, sale, or similar
proceedings have been commenced).
SECTION 5.5. LIENS. None of the assets of the Borrower or any
subsidiary are subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance, or security interest, except for: (a) current taxes not
delinquent or taxes being contested in good faith and by appropriate
proceedings; (b) liens arising in the ordinary course of business for sums not
due or sums being contested in good faith and by appropriate proceedings, but
not involving any deposits or advances or borrowed money or the deferred
purchase price of property or services; (c) liens and security interests
securing deposits of public funds, repurchase agreements, Federal funds
purchased, trust assets, and similar liens granted in the ordinary course of
the banking business; and (d) to the extent reflected in the financial
statements referred to above.
SECTION 5.6. ADVERSE CONTRACTS. Neither the Borrower nor any
subsidiary is a party to any agreement or instrument or subject to any charter
or other corporate restriction, nor is it subject to any judgment, decree or
order of any court or governmental body, that may have a material and adverse
effect on the business, assets, liabilities, financial condition, operations,
or business prospects of the Borrower and its subsidiaries taken as a whole or
on the ability of the Borrower to perform its obligations under this Agreement,
the Note or the Pledge Agreement. Neither the Borrower nor any subsidiary has
knowledge of or notice that it is in default in the performance, observance or
fulfillment of any of the obligations, covenants, or conditions contained in
any such agreement, instrument,
-3-
<PAGE> 6
restriction, judgment, decree, or order except as the Borrower has notified the
Lender in writing before the date of this Agreement.
SECTION 5.7. REGULATION U. The Borrower is not engaged principally in,
nor is one of the Borrower's important activities, the business of extending
credit for the purpose of purchasing or carrying "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereinafter in effect.
SECTION 5.8. LlTlGATION AND CONTINGENT LIABILITIES. No litigation
(including derivative actions), arbitration proceedings or governmental
proceedings are pending or, to the knowledge of the Borrower or its officers,
overtly threatened, against the Borrower or any subsidiary that would (singly
or in the aggregate), if adversely determined, have a material and adverse
effect on the financial condition, continued operations, or prospects of the
Borrower and its subsidiaries taken as a whole, except as set forth (including
estimates of the dollar amounts involved) in a schedule furnished by the
Borrower to the Lender before this Agreement was signed.
SECTION 5.9. SUBSIDIARIES. Each Subsidiary Bank and all other
subsidiaries and affiliates are listed in Exhibit C to this Agreement.
SECTION 5.10. BANK HOLDING COMPANY. To the best of its knowledge, the
Borrower has complied with all federal, state and local laws pertaining to bank
holding companies, including without limitation the Bank Holding Company Act of
1956, as amended, and to the best of its knowledge there are no conditions
precedent or subsequent to its engaging in the business of being a registered
bank holding company.
SECTION 6. COVENANTS
Until all obligations of the Borrower hereunder and under the Note and
Pledge agreement are paid and fulfilled in full, the Borrower agrees that it
shall, and shall cause any subsidiary to, comply with the following covenants,
unless the Lender otherwise gives its prior written consent:
SECTION 6.1. CORPORATE EXISTENCE, MERGERS, ETC. The Borrower and each
subsidiary shall preserve and maintain its corporate existence, rights,
franchises, licenses, and privileges, and will not liquidate, dissolve, or
merge or consolidate with or into any other corporation, or sell, lease,
transfer, or otherwise dispose of all or a substantial part of its assets,
except that:
(a) Any subsidiary (other than the Bank) may merge or
consolidate with or into any one or more wholly-owned
subsidiaries of the Borrower; and
(b) Any subsidiary (other than the Bank) may sell, lease,
transfer, or otherwise dispose of any of its assets to the
Borrower or one or more wholly-owned subsidiaries.
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<PAGE> 7
SECTION 6.2. REPORTS, CERTIFICATES, AND OTHER INFORMATION. The
Borrower shall furnish to the Lender:
(a) Interim Reports. Within forty-five (45) days after the end of
each quarter (except the last quarter) of each fiscal
year of the Borrower, a copy of an unaudited consolidated
financial statement of the Borrower and its subsidiaries
prepared on a basis consistent with the audited
consolidated financial statements referred to in Section 5.3
of this Agreement (except that such reports do not need
footnotes or statements of changes as required for such
audited statements), signed by an authorized officer of the
Borrower and consisting of at least (i) a balance sheet as at
the close of such quarter and (ii) a statement of earnings
for such quarter and for the period from the beginning of
such fiscal year to the close of such quarter.
(b) Annual Report. Within ninety (90) days after the end of each
fiscal year of the Borrower, a copy of the annual report of
the Borrower and its subsidiaries prepared on a consolidated
basis and in conformity with generally accepted accounting
principles applied on a basis consistent with prior
consolidated financial statements of the Borrower and its
subsidiaries, which annual report shall be duly certified by
independent certified public accountants of recognized
standing satisfactory to the Lender, accompanied by an
opinion without significant qualification.
(c) Call Reports. Copies of the Bank's call reports at the same
time such reports are filed, or required to be filed, with
any regulatory agency.
(d) Certificates. Contemporaneously with the furnishing of a copy
of each annual report, and of each quarterly statement and of
each Call Report provided for in this Section a certificate
signed by either the President or the Chief Financial
Officer of the Borrower, to the effect that no Event of
Default or Unmatured Event of Default has occurred and is
continuing, or, if there is any such event, describing it and
the steps, if any, being taken to cure it, and containing a
computation of and showing compliance with all financial
ratios or restrictions contained in this Agreement.
(e) Reports to Shareholders. Copies of each communication from
the Borrower or any subsidiary to shareholders generally,
promptly upon the filing or making thereof.
(f) Reports to and Filings with the Securities and Exchange
Commission. Promptly upon the filing or making thereof,
copies of each filing and report made by the Borrower
or any subsidiary (including any Subsidiary Bank) with or
to the Securities and Exchange Commission.
(g) Schedule of Non-Performing Loans. If such information shall
not be stated at least quarterly on the reports and filings
described in subsections (a), (b)
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<PAGE> 8
and (c) of this Section 6.2, promptly after the end of each
quarter of each fiscal year of the Borrower, a schedule
signed by either the President or the Chief Financial Officer
of the Borrower, dated as of the last day of such quarter,
listing for the Borrower on a consolidated basis the amount
of all loans made by the Borrower or any Subsidiary Bank that
are ninety (90) days or more past due (either principal or
interest), in non-accrual status, or listed as "other
restructured" or "other real estate owned" in any reports to
regulatory authorities.
(h) Notice of Default, Litigation, and ERISA Matters. Immediately
upon learning of the occurrence of any of the following,
written notice describing the same and the steps being
taken by the Borrower or any subsidiary affected in respect
thereof: (i) the occurrence of an Event of Default or
Unmatured Event of Default; or (ii) the issuance of any cease
and desist order, memorandum of understanding,
cancellation of insurance, or proposed disciplinary action
from the Federal Deposit Insurance Corporation or other
regulatory entity or the institution of, or any adverse
determination in, any litigation, arbitration or governmental
proceeding which is material to the Borrower or any
subsidiary on a consolidated basis or to the Bank; or (iii)
the occurrence of a reportable event under, or the
institution of steps by the Borrower or any subsidiary to
withdraw from, or the institution of any steps to terminate,
any employee benefit plans as to which the Borrower or any of
its subsidiaries may have any liability.
(i) Other Information. From time to time such other information,
financial or otherwise, concerning the Borrower, any
subsidiary, or delinquent or non-performing loans as to the
Lender may reasonably request.
SECTlON 6.3. INSPECTION. The Borrower and any subsidiary shall permit
the Lender and its agents at any reasonable time during normal business hours
to inspect their properties and, to the full extent permitted by applicable law
and subject to applicable confidentiality laws, to inspect and make copies of
their books and records.
SECTION 6.4. FINANCIAL REQUIREMENTS. Borrower shall maintain a minimum
consolidated tangible net worth equal to at least twice the outstanding
principal balance of the Note. The Bank shall maintain Tier 1 capital in an
amount equal to at least twice the unpaid principal balance of the Note. For
purposes of this Section 6.4, the term "Tier 1 capital" shall have the meaning
attributed to it, and shall be determined in accordance with, the capital
formula currently used by the primary federal regulator of the Bank.
SECTlON 6.5. INDEBTEDNESS, LIENS AND TAXES. The Borrower and each
subsidiary shall:
(a) Indebtedness. Not incur, permit to remain outstanding, assume
or in any way become committed for indebtedness in respect of
borrowed money or the
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<PAGE> 9
deferred purchase price of property or services (specifically
including but not limited to indebtedness in respect of money
borrowed from financial institutions but excluding deposits),
except for: (i) indebtedness incurred hereunder; (ii)
indebtedness existing on the date of this Agreement shown on
the financial statements furnished to the Lender before this
Agreement was signed; (iii) indebtedness of the Subsidiary
Banks arising in the ordinary course of the banking business
of the Subsidiary Banks; and (iv) indebtedness in the
aggregate amount at any one time not to exceed $20,000,000.00
(b) Liens. Except for the pledge of Bank stock to Lender, not
create, suffer or permit to exist any lien, encumbrance, or
pledge of any kind or nature upon or of any of their assets
now or hereafter owned or acquired (specifically including but
not limited to the capital stock of any of the Subsidiary
Banks), or acquire or agree to acquire any property or assets
of any character under any conditional sale agreement or other
title retention agreement, but this Section shall not be
deemed to apply to: (i) liens existing on the date of this
Agreement which are reflected in the financial statements
referred to in Section 5.3 hereinabove; (ii) liens of
landlords, contractors, laborers or supplymen, tax liens, or
liens securing performance or appeal bonds or other similar
liens or charges arising out of the Borrower's business, but
not involving any deposits or advances or the deferred
purchase price of property or services, provided that tax liens
are removed before related taxes become delinquent and other
liens are promptly removed, in either case unless contested in
good faith and by appropriate proceedings, and as to which
adequate reserves shall have been established; (iii) liens
securing borrowings or advances from the Borrower by
wholly-owned subsidiaries; and (iv) liens on the assets of any
Subsidiary Bank arising in the ordinary course of the banking
business of such Subsidiary Bank.
(c) Taxes. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon them, upon their
income or profits or upon any properties belonging to them,
prior to the date on which penalties attach thereto, and all
lawful claims for labor, materials and supplies when due,
except that no such tax, assessment, charge, levy or claim
need be paid which is being contested in good faith by
appropriate proceedings and as to which adequate reserves
shall have been established, and as to which no foreclosure,
distraint, sale, or similar proceedings have commenced.
(d) Keep Well Agreements. Not assume, guarantee, endorse, or
otherwise become or be responsible in any manner (whether by
agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or
services, or otherwise) with respect to the obligation of any
other person or entity other than a wholly-owned subsidiary,
except (i) by the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business,
issuance of letters of credit or similar instruments
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<PAGE> 10
or documents in the ordinary course of business, and (ii) as
permitted by this Agreement.
SECTION 6.6. INVESTMENT AND LOANS. Neither the Borrower nor any
subsidiary shall make any loan, advance, extension of credit, or capital
contribution to, or purchase or otherwise acquire for a consideration, evidences
of indebtedness, capital stock or other securities of any person except that,
(a) the Borrower may invest, by way of purchase of securities or capital
contributions, in the Subsidiary Banks or any other bank or banks, and upon the
Borrower's purchase or other acquisition of fifty percent (50%) of the stock of
any bank, such bank shall thereupon become a "Subsidiary Bank" for all purposes
under this Agreement; (b) the Borrower may invest, by way of loan, advance,
extension of credit (whether in the form of lease, conditional sales agreement,
or otherwise), purchase of securities, capital contributions, or otherwise, in
subsidiaries other than banks or Subsidiary Banks; (c) the Borrower and any
subsidiary may purchase or otherwise acquire or own short-term money market
items (specifically including but not limited to preferred stock mutual funds);
and (d) the Subsidiary Banks may make any investment permitted by applicable
governmental laws and regulations. Nothing in this Section 6.6 shall prohibit
the Borrower or any Subsidiary Bank from making loans, advances, or other
extensions of credit in the ordinary course of banking upon substantially the
same terms as heretofore extended by them in such business or upon such terms
as may at the time be customary in the banking business.
SECTION 6.7. CAPITAL STRUCTURE AND DIVIDENDS. Neither the Borrower nor
any subsidiary shall declare or pay any dividend (other than dividends payable
in its own common stock or to the Borrower) or make any other distribution in
respect of such shares other than to the Borrower, except that the Borrower may
declare or pay cash dividends to holders of the stock of the Borrower in any
fiscal year in an amount not to exceed 50% of the Borrower's consolidated net
income for the immediately preceding fiscal year; provided that no Event of
Default or Unmatured Event of Default exists as of the date of such declaration
or payment or would result therefrom. The Borrower shall at all times own,
directly or indirectly, the same (or greater) percentage of the stock of each
subsidiary that it held on the date of this Agreement. No subsidiary shall
issue any additional voting shares of capital stock other than to the Borrower.
SECTION 6.8. MAINTENANCE OF PROPERTIES. The Borrower and any
subsidiary shall maintain, or cause to be maintained, in good repair, working
order and condition, all their properties (whether owned or held under lease),
and from time to time make or cause to be made all needed and appropriate
repairs, renewals, replacements, additions, betterments and improvements
thereto, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
SECTION 6.9 INSURANCE. The Borrower and any subsidiary shall maintain
with insurers of recognized responsibility insurance in such amounts and
against such risks as is required by law and such other insurance, in such
amount and against such hazards and liabilities, as is customarily maintained
by bank holding companies and banks similarly
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<PAGE> 11
situated. Each Subsidiary Bank shall have deposits insured by the Federal
Deposit Insurance Corporation.
SECTION 6.10. USE OF PROCEEDS.
(a) Regulation U. The Borrower and any subsidiary shall not use
or permit any proceeds of the Loans to be used, either
directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any
margin stock" within the meaning of Regulations U or X of the
Board of Governors of the Federal Reserve System, as amended
from time to time. If requested by the Lender, the Borrower
and any subsidiary will furnish to the Lender a statement in
conformity with the requirements of Federal Reserve Form U-1
to the foregoing effect. No part of the proceeds of the Loans
will be used for any purpose which violates or is
inconsistent with the provisions of Regulation U or X of the
Board of Governors.
(b) Tender Offers and Going Private. Without the Lender's prior
written consent, neither the Borrower nor any subsidiary
shall use (or permit to be used) any proceeds of the Loans to
acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as
amended, or any regulations or rulings thereunder.
(c) Use of Proceeds. The proceeds of the Loan shall be used by
the Borrower for working capital.
SECTION 7. CONDITIONS OF LENDING
SECTION 7.1. DOCUMENTATION: FIRST LOAN. In addition to the conditions
precedent set forth in Section 7.2, the obligation of the Lender to make the
Loan is subject to the conditions precedent that the Lender shall have received
all of the following, each duly executed and dated the date of the Note, in
form and substance satisfactory to the Lender and its counsel, at the expense
of the Borrower, and in such number of signed counterparts as the Lender may
request (except for the Note, of which only the original shall be signed):
(a) Note. The Note in the form of Exhibit A, with appropriate
insertions;
(b) Resolution. A copy of a resolution of the Board of Directors
of the Borrower authorizing or ratifying the execution,
delivery and performance, respectively, of this Agreement, the
Note, the Pledge Agreement and the other documents provided
for in the Agreement, certified by the Secretary of the
Borrower;
(c) Articles of Incorporation and By-laws. A copy of the articles
of incorporation and by-laws of the Borrower, certified by the
Secretary of the Borrower;
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<PAGE> 12
(d) Certificate of Incumbency. A certificate of the Secretary of
the Borrower certifying the names of the officer or officers
of the Borrower authorized to sign this Agreement, the Note,
the Pledge Agreement and the other documents provided for in
this Agreement, together with a sample of the true signature
of each such officer (the Lender may conclusively rely on such
certificate until formally advised by a like certificate of
any changes therein);
(e) Certificate of No Default. A certificate signed by the
President, the Chief Financial Officer or the Treasurer of the
Borrower to the effect that: (i) no Event of Default or
Unmatured Event of Default has occurred and is continuing or
will result from the making of the Loan; and (ii) the
representations and warranties of the Borrower contained
herein are true and correct as at the date of the Loan as
though made on that date; and
(f) Miscellaneous. Such other documents and certificates as the
Lender may reasonably request.
SECTION 7.2. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
(a) Representations and Warranties. At the date of the Note and
any renewal of the Loan the Borrower's representations and
warranties set forth herein shall be true and correct as at
such date with the same effect as though those representations
and warranties had been made on and as at such date.
(b) No Default. At the date of the Note and any renewal of the
Loan, and immediately after giving effect to each Loan, the
Borrower shall be in compliance with all the terms and
provisions set forth herein on its part to be observed or
performed, and no Event of Default or Unmatured Event of
Default shall have occurred and be continuing at the time of
any Loan, or would result from the making of such Loan.
SECTION 7.3. RENEWAL. The request by the Borrower for any renewal of
the Loan shall be deemed a representation and warranty by the Borrower that the
statements in Section 7.2 are true and correct on and as of the date of any
such renewal.
SECTION 8. DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following occurrences is
hereby defined as an "Event of Default":
(a) (i) Failure to pay, when and as due, any principal payable
under the Note; or (ii) (I) failure to pay, when and as due,
any interest or other amounts payable under the Note, or
failure to comply with or perform any agreement or covenant of
Borrower contained herein and (II) such failure shall continue
for a period of five (5) calendar days; or
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<PAGE> 13
(b) Any default, event of default, or similar event shall occur or
continue under the Pledge Agreement or any other instrument,
document, note, agreement, or guaranty delivered to Lender in
connection with this agreement, or guaranty shall not be, or
shall cease to be, enforceable in accordance with its terms;
or
(c) There shall occur any default or event of default, or any
event that might become such with notice or the passage of
time or both, or any similar event, or any event that requires
the prepayment of borrowed money or the acceleration of the
maturity thereof under the terms of any evidence of
indebtedness or other agreement issued or assumed or entered
into by Borrower, the Bank, any general partner or joint
venturer of Borrower, or any guarantor, or under the terms of
any indenture, agreement, or instrument under which any such
evidence of indebtedness or other agreement is issued,
assumed, secured, or guaranteed, and such event shall continue
beyond any applicable period of grace; or
(d) Any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on
behalf of Borrower, the Bank, any general partner or joint
venturer of Borrower, or any guarantor to Lender is false or
misleading in any material respect on the date as of which the
facts therein set forth are stated or certified; or
(e) Borrower or Bank shall fail to maintain their existence in
good standing in their state of formation or shall fall to be
duly qualified, in good standing and authorized to do business
in each jurisdiction where failure to do so might have a
material adverse impact on the consolidated assets, condition
or prospect of Borrower; or
(f) Borrower, Bank, any general partner or joint venturer of
Borrower, or any guarantor shall die, become incompetent,
dissolve, liquidate, merge, consolidate, or cease to be in
existence for any reason; or
(g) Any person or entity presently not in control of Borrower
shall obtain control directly or indirectly of Borrower,
whether by purchase or gift of stock or assets, by contract,
or otherwise; or
(h) Any proceeding (judicial or administrative) shall be commenced
against Borrower, Bank, any general partner or joint venturer
of Borrower, or any guarantor, or with respect to any assets
of Borrower, Bank, any general partner or joint venturer of
Borrower, or any guarantor which shall threaten to have a
material and adverse effect on the future operations or
financial condition of Borrower, Bank, any general partner or
joint venturer of Borrower, or any guarantor; or final
judgment(s) and/or settlement(s) in an aggregate amount in
excess of Fifty Thousand United States Dollars ($50,000) in
excess of insurance for which the insurer has confirmed
coverage in writing,
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<PAGE> 14
a copy of which writing has been furnished to Lender, shall be
entered or agreed to in any suit or action commenced against
Borrower, Bank, any general partner or joint venturer of
Borrower, or any guarantor; or
(i) The Federal Deposit Insurance Corporation or other regulatory
entity shall issue a cease and desist order against the
Borrower or Bank; or the Federal Deposit Insurance Corporation
or other regulatory entity shall issue an order against the
Borrower or Bank materially adverse to the business or
operation of the Borrower or Bank; or
(j) Any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding,
domestic or foreign, is instituted by or against Borrower,
Bank, any general partner or joint venturer of Borrower, or any
guarantor; or Borrower, Bank, any general partner or joint
venturer of Borrower, or any guarantor shall take any steps
toward, or to authorize, such a proceeding; or
(k) Borrower, Bank, any general partner or joint venturer of
Borrower, or any guarantor shall become insolvent, generally
shall fail or be unable to pay its(his)(her) debts as they
mature, shall admit in writing its(his)(her) inability to pay
its(his)(her) debts as they mature, shall make a general
assignment for the benefit of its(his)(her) creditors, shall
enter into any composition or similar agreement, or shall
suspend the transaction of all of a substantial portion of
its(his)(her) usual business.
SECTION 8.2. REMEDIES. Upon the occurrence of any Event of Default set
forth in subsections (a)-(i) of Section 8.1 and during the continuance thereof,
the Lender or any other holder of the Note may declare the Note and any other
amounts owed to the Lender to be immediately due and payable, whereupon the
Note and any other amounts payable hereunder shall forthwith become due and
payable. Upon the occurrence of any Event of Default set forth in subsections
(j)-(k) of Section 8.1, the Note and any other amounts owed to the Lender shall
be immediately and automatically due and payable without action of any kind on
the part of the Lender or any other holder of the Note. The Borrower expressly
waives presentment, demand, notice, or protest of any kind in connection
herewith. No delay or omission on the part of the Lender or any holder of the
Note in exercising any power or right hereunder or under the Note shall impair
such right or power or be construed to be a waiver of any Event of Default or
Unmatured Event of Default or any acquiescence therein, nor shall any single or
partial exercise of power or right hereunder preclude other of further exercise
thereof, or the exercise of any other power or right.
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<PAGE> 15
SECTION 9. DEFINITIONS
SECTION 9.1. GENERAL. As used herein:
(a) The term "affiliate" means any corporation of which the
Borrower owns directly or indirectly 20% or more, but less
than 50%, of the outstanding voting stock, or any partnership,
joint venture, trust or other legal entity of which the
Borrower has effective control, by contract or otherwise.
(b) The term "guarantor" means any person or entity, or any
persons or entities severally, now or hereafter guarantying
payment or collection of all or any part of the Loans.
(c) The term "subsidiary" means any corporation, partnership, joint
venture, trust, or other legal entity of which the Borrower
owns directly or indirectly 50% or more of the outstanding
voting stock or interest, or of which the Borrower has
effective control, by contract or otherwise, and shall include
all Subsidiary Banks.
(d) The term "Unmatured Event of Default" means an event or
condition which would become an Event of Default, with notice
or the passage of time or both.
(e) Except as and unless otherwise specifically provided herein,
all accounting terms in this Agreement shall have the
meanings given to them by generally accepted accounting
principles and shall be applied and all reports
required by this Agreement shall be prepared, in a manner
consistent with the most recent financial statements provided
to the Lender before this Agreement was signed.
SECTION 10. MISCELLANEOUS
SECTION 10.1. WAIVER OF DEFAULT. The Lender may, by written notice to
the Borrower, at any time and from time to time, waive any default in the
performance or observance of any condition, covenant or other term hereof,
which shall be for such period and subject to such conditions as shall be
specified in any such notice. In the case of any such waiver, the Lender and
the Borrower shall be restored to their former position and rights hereunder
and under the Note, respectively, and any Event of Default or Unmatured Event
of Default so waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to or impair any right consequent thereon or to any
subsequent or other Event of Default or Unmatured Event of Default.
SECTION 10.2 NOTICES. All notices and requests to or upon the
respective parties hereto shall be deemed to have been given or made when
deposited in the mail, postage prepaid and all demands shall be deemed to
have been made when deposited in the
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<PAGE> 16
mail, certified or registered with return receipt requested, addressed, in
each instance, as follows:
(a) if to the Lender to 130 South Cedar, Manistique, Michigan
49854 (Attention: President);
(b) if to the Borrower to 209 East Portage Avenue, Sault Ste.
Marie, Michigan 49783 (Attention: President)
or to such other address as may be hereafter designated in writing by the
respective parties hereto.
SECTION 10.3. NONWAIVER; CUMULATIVE REMEDIES. No failure to exercise,
and no delay in exercising, on the part of the Lender of any right, power or
privilege hereunder shall prelude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies of the
Lender herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 10.4. SURVIVAL OF AGREEMENTS. All agreements, representations
and warranties made herein shall survive the delivery of the Note and the
Pledge Agreement and the making of the Loan hereunder.
SECTION 10.5. SUCCESSORS. This Agreement shall, upon execution and
delivery by the Borrower, and acceptance by the Lender in Manistique, Michigan
become effective and shall be binding upon and inure to the benefit of the
Borrower, the Lender and their respective successors and assigns, except that
the Borrower may not transfer or assign any of its rights or interest hereunder
without the prior written consent of the Lender.
SECTION 10.6. CAPTIONS. Captions in this Agreement are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof. References herein to Sections or provisions without reference to the
document in which they are contained are references to this Agreement.
SECTION 10.7. SINGULAR AND PLURAL. Unless the context requires
otherwise, wherever used herein the singular shall include the plural and vice
versa, and the use of one gender shall also denote the others where appropriate.
SECTION 10.8. COUNTERPARTS. This Agreement may be executed by the
parties on any number of separate counterparts, and by each party on separate
counterparts; each counterpart shall be deemed an original instrument; and all
of the counterparts taken together shall be deemed to constitute one and the
same instrument.
SECTION 10.9. FEES. The Borrower agrees, upon written request of the
Lender, to pay or reimburse the Lender for all reasonable costs and expenses of
preparing, negotiating, amending or enforcing this Agreement, the Note or the
Pledge Agreement, or preserving its rights hereunder or under any document or
instrument executed in connection
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<PAGE> 17
herewith (including legal fees and reasonable time charges of attorneys who may
be employees of the Lender, whether in or out of court, in original or
appellate proceedings or in bankruptcy).
SECTION 10.10. CONSTRUCTION. This Agreement, the Note, the Pledge
Agreement and any document or instrument executed in connection herewith shall
be governed by, and construed and interpreted in accordance with, the internal
laws of the State of Michigan, and shall be deemed to have been executed in the
State of Michigan.
SECTION 10.11. SUBMISSION TO JURISDICTION; VENUE. To induce the Lender
to make the Loans, as evidenced by the Note and this Agreement, the Borrower
irrevocably agrees that, subject to the Lender's sole and absolute election,
all suits, actions other proceedings in any way, manner or respect, arising out
of or from or related to this Agreement, the Note, the Pledge Agreement or any
document executed in connection herewith, shall be subject to litigation in
courts having suits within Grand Rapids, Michigan. The Borrower hereby consents
and submits to the jurisdiction of any local, state or federal court located in
Grand Rapids, Michigan. The Borrower hereby waives any right it may have to
transfer or change the venue of any suit, action or other proceeding brought
against the Borrower by the Lender in accordance with this Section, or to claim
that any such proceeding has been brought in an inconvenient forum.
NEWBERRY BANCORP, INC.
By: /s/ Stephen Lange Ranzini
--------------------------------
Name: Stephen Lange Ranzini
Title: President
FIRST NORTHERN BANK & TRUST
By: /s/
--------------------------------
Name:
Title:
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<PAGE> 18
EXHIBIT A
PROMISSORY NOTE
$1,000,000.00 Sault Ste. Marie, Michigan
September 28, 1995
------------
FOR VALUE RECEIVED, NEWBERRY BANCORP, INC., a Delaware corporation, of
209 East Portage Avenue, Sault Ste. Marie, MI 49783 (the "Borrower"), promises
to pay to the order of FIRST NORTHERN BANK & TRUST, a Michigan banking
corporation (the "Lender"), at 130 South Cedar Street, Manistique, MI 49854, or
at such other place as the holder may designate in writing, the principal sum of
One Million Dollars ($1,000,000.00), together with interest in accordance with
the terms of this Note.
Interest Rate. The interest rate shall be the Prime Rate (as
hereinafter defined) plus one-half percent (1/2%). Interest shall be computed
on the basis of a 365-day year for the actual number of days outstanding.
"Prime Rate" shall mean that variable rate of interest per annum from time to
time publicly announced by Citibank N.A., New York, as its prime rate of
interest which may not be that bank's lowest rate of interest charged to its
most credit worthy customers. Any change in the interest rate occasioned by a
change in the Prime Rate shall be effective as of the date of such change.
Notwithstanding the foregoing, during all times that there exists an
event of default and after maturity, the interest rate shall be a per annum
rate which is two percent (2%) higher than the interest rate otherwise in
effect, but never less than the interest rate in effect immediately following
such default or maturity. In addition, a late payment charge to defray
administrative expenses in the amount of $.05 for each dollar overdue for more
than fifteen (15) days may be assessed by the holder.
Payment. Accrued interest and Twelve Thousand Five Hundred Dollars
($12,500) shall be paid on February 1, 1996, and on the 1st day of each of May
and August, 1996. A final payment of all outstanding principal and accrued
interest shall be due and payable on November 1, 1996. All payments shall
first be applied against accrued interest, costs and late payment charges, and
the balance shall be applied against the principal.
Prepayment. Borrower may prepay the principal, in whole or in part,
at any time without premium or penalty. Borrower may from time to time prepay
any principal, in whole of in part at any time, without premium of penalty.
All prepayments of principal shall include interest accrued to the date of
prepayment on the principal amount being prepaid. Amounts prepaid may not be
reborrowed. Any partial prepayments shall be applied to principal last coming
due.
Security. The indebtedness evidenced by this Note and any extensions,
renewals or modifications of such indebtedness is secured by shares of capital
stock of University Bank pursuant to a Pledge Agreement ("Pledge") of even date
executed by Borrower.
Events Of Default; Acceleration. This Note evidences indebtedness
incurred under a certain Loan Agreement dated as of September 28, 1995,
executed by and
<PAGE> 19
between the Borrower and the Lender (and, if amended, restated or replaced, all
amendments, restatements and replacements thereto or therefore, if any,)(the
"Loan Agreement"), to which Loan Agreement reference is hereby made for a
statement of terms and provisions, including those under which this Note may be
considered in default and have its due date accelerated.
Upon the occurrence of an event of default, the holder of this Note
may, without notice or demand, declare the entire principal balance of this
Note, together with all accrued interest, immediately due and payable.
General Provisions. Any failure by the holder to exercise any right
under this Note, including the right to accelerate Borrower's obligations upon
the occurrence of an event of default, shall not constitute a waiver of the
right to exercise such right while such default continues or upon another
default. No waiver or release shall be binding against the holder unless given
in writing by such holder.
In addition to all indebtedness and accrued interest, Borrower agrees
to pay all costs of collection and enforcement of this Note, the Pledge or any
related agreement including, without limitation, attorneys fees.
At no time shall the interest rate on this Note exceed the highest
interest rate permitted by law; to the extent amounts received by the holder
are attributable to an interest rate in excess of that permitted by law, such
amounts shall be deemed permitted prepayments of principal last coming due
and applied as such without premium or penalty.
Borrower waives presentment, demand, protest, notice of protest and
notice of dishonor of this Note, except as otherwise provided herein.
This Note shall be governed by and construed in accordance with the
laws of the state of Michigan.
NEWBERRY BANCORP, INC.
By: /s/ Stephen L. Ranzini
----------------------------
Its: President
----------------------------
And By: /s/ Joseph L. Ranzini
-------------------------
Its: Chairman
----------------------------
<PAGE> 20
EXHIBIT B
PLEDGE AGREEMENT
This is an agreement made as of the 28th day of September, 1995, by
and between NEWBERRY BANCORP, INC., 209 East Portage Avenue, Sault St. Marie,
MI 49783 (the "Pledgor") in favor of FIRST NORTHERN BANK & TRUST, a Michigan
banking corporation of 130 South Cedar, Manistique, MI 49854 (the "Lender").
RECITALS:
The Pledgor is proposing to borrow One Million Dollars ($1,000,000.00)
(the "Loan") from the Lender pursuant to a promissory note of even date (the
promissory note and any renewal promissory note are referred to in this
Agreement as the "Note"). The Lender has agreed to lend the funds to the
Pledgor but will not do so unless and until the Lender receives a pledge of all
the issued and outstanding capital stock of University Bank Ann Arbor, Michigan
("Bank") as provided in a certain Loan Agreement of even date ("Loan
Agreement"). In order to induce the Lender to make the loan to the Pledgor,
the Pledgor is willing to pledge all the capital stock of the Bank ("Pledged
Stock") to Lender to secure the obligations of the Pledgor under the Note.
NOW THEREFORE, the Pledgor agrees and engages with the Lender
as follows:
AGREEMENT
1. The Pledgor represents, warrants and agrees that all of the
certificates representing the Pledged Stock are genuine and all shares of the
Pledged Stock are duly and validly issued and outstanding and all shares of
Pledged Stock are free from any adverse claims or any other security interests
or restrictions on transfer, except as stated on the certificates representing
the shares, and all persons or entities executing this document have full
authority and capacity to do so and are fully bound by the terms and conditions
of this Agreement and the Pledged Stock constitutes one hundred percent (100%)
of the issued and outstanding capital stock of the Bank.
2. The Pledgor, in consideration of the Lender making the Loan to the
Pledgor and accepting Pledgor's Note, acknowledges and agrees that the Lender
shall have, and the Pledgor shall and does hereby grant to the Lender a
security interest in, and pledges to the Lender, the Pledged Stock, which is
more fully described on Exhibit I attached hereto and incorporated by
reference.
3. The Lender shall hold the Pledged Stock as security for payment of
the principal amount of the Note plus interest thereon. Pledgor hereby appoints
the Lender as attorney to transfer the Pledged Stock to the name of the Lender
on the books of the Bank. However, until an event of default by the Pledgor in
payment on the Note, the Lender shall hold the certificates in the Pledgor's
name in the form received, duly endorsed for transfer or accompanied by
separate stock powers. In the event of an event of default by Pledgor in
payment on the Note or if any event occurs which would be an event of default
as
<PAGE> 21
defined in the Loan Agreement, the Lender shall have the right to transfer the
Pledged Stock to its name on the books of the Bank for the purpose of
exercising its rights as a secured creditor. The Lender shall not encumber or
dispose of the Pledged Stock except in accordance with Paragraph 8 hereof.
4. All dividends paid with respect to the Pledged Stock shall belong
to the Pledgor so long as the Pledgor is not in default under this agreement or
under the Loan Agreement and so long as the Pledgor is not in default in
payment of the Note.
5. As long as there is not an event of default under this agreement
or under the Loan Agreement and as long as the Pledgor is not in default in
payment under the Note, Pledgor shall have the right to vote the Pledged Stock
on all matters submitted to stockholder vote.
6. In the event of any stock dividends, distribution,
reclassification or other adjustment in the capitalization of the Bank any
additional shares or other securities issued by reason thereof with respect to
the Pledged Stock shall be held by the Lender as collateral security as
aforesaid, subject to the terms of this Agreement,
7. The Pledgor also agrees: (a) to any extension of time for the
payment of the Note without limit as to the number or the aggregate period of
such extensions; (b) that the Lender may make or consent to any form of
adjustment, compromise or composition respecting any indebtedness of the
Pledgor or any collateral securing the same and may release any or all such
security; (c) to the granting of any other indulgences to the Pledgor; (d) that
any and all of the foregoing may be without notice to or the further consent of
the Pledgor; and (e) that none of the foregoing actions shall in any way
affect, reduce or extinguish the interest of the Lender in the Pledged Stock.
8. In the event an event of default shall be in effect under the
Agreement or under the Loan Agreement or in the event that the Pledgor defaults
in payment of principal or interest on the Note which default is not cured
within the time period provided under the note or the Loan Agreement and such
event of default remains in effect, the Lender may, upon fifteen (15) business
days prior written notice to the Pledgor at the address stated at the end of
this Agreement by certified mail or by facsimile transmission or by personal
delivery, sell the Pledged Stock at public or private sale in accordance with
the requirements of Michigan law. The Lender may purchase the Pledged Stock or
any part thereof at any such sale to the extent permitted by Michigan law. Out
of the proceeds of any sale, the Lender shall retain an amount equal to the
principal and interest then due on the Note plus the amount of the expenses of
the sale and shall pay any balance of the proceeds to the Pledgor.
9. Upon the Pledgor's payment of the entire principal of the Note,
together with all interest due thereon, the Pledged Stock shall be released
from the terms of this Agreement and shall be delivered by the Lender to the
Pledgor, duly endorsed for transfer or accompanied by a duly executed stock
power and this Agreement shall be cancelled and terminated.
-2-
<PAGE> 22
10. Agreement may be signed in multiple counterparts each of which
shall be deemed an original. This is the entire agreement of the Pledgor as to
the subject matter of this agreement. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Michigan.
IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of this
28th day of September, 1995.
PLEDGOR:
NEWBERRY BANCORP, INC,
BY: Stephen Lange Ranzini
-------------------------------
Its: President
-------------------------------
Address and Facsimile Number for Notice Purposes:
209 East Portage Avenue
Sault Ste. Marie, MI 49783
Facsimile No. (906) 635-5397
-3-
<PAGE> 23
EXHIBIT C
LIST OF SUBSIDIARIES
1. University Bank, a Michigan banking corporation, Ann Arbor, MI
2. Arbor Street, LLC, Sault Ste. Marie, MI (a wholly-owned subsidiary
of University Bank).
<PAGE> 24
EXHIBIT 1
TO PLEDGE AGREEMENT
The Pledged Stock consists of 20,000 shares of the common stock of University
Bank represented by the following certificates delivered by Pledgor to the
Lender:
<TABLE>
<CAPTION>
Certificate No. Registered Owner Number of Shares
- --------------- ---------------- ----------------
<S> <C> <C>
Newberry Bancorp, Inc. 20,000
</TABLE>
<PAGE> 1
EXHIBIT 10.16
NET BRANCH AGREEMENT
1.PREAMBLE
AGREEMENT made this 12th day of September, 1995, between University
Bank, a Michigan Banking Corporation, its main offices at 209 East
Portage Avenue, Sault Ste. Marie, Michigan, 49783 hereafter called the Bank or
Employer; Jess Monticello, of 6374 Odessa Drive, West Bloomfield, Michigan
48324, and William Cook, of 233 Woodlake Drive, Brighton, Michigan 48116,
hereafter called the Managers.
WHEREAS, The Bank shall engage in any lawful business of which Michigan
banking corporations are authorized to do in the State of Michigan; and
WHEREAS, Managers desire to be employed by the Bank and the Bank
desires to employ Managers on the following terms.
NOW, THEREFORE, it is mutually agreed as follows:
2. EMPLOYMENT DUTIES
The Bank hereby employs Managers, and Managers hereby accept employment
by the Bank as the co-managers of an independent mortgage division of the
Bank, hereinafter called the Net Branch. Employees shall report directly to
the Bank's President, Mr. Stephen Lange Ranzini, or the individual designated
by the board of directors of the Bank, who shall serve as the Net Branch Liason
Manager. The Managers shall operate the Net Branch on an autonomous basis as a
separate profit center of the Bank in accordance with banking and mortgage
banking laws and regulations, the requirements of investors, and industry
standards, subjet to the requirements and restrictions of paragraphs 3 and 4,
below.
3. OPERATION OF NET BRANCH
A) WORKING CAPITAL The Bank shall provide the Net Branch with $100,000.00
of initial working capital to start-up the operations of the Net Branch. Such
working capital will be funded by the Bank through a separate account held at
the Bank for the Net Branch, hereinafter called the Operating Account. If the
initial Working Capital is exhausted, the Bank may, at its sole discretion,
increase the initial working capital of the Net Branch. If the Bank chooses
not to do so then the Managers at their sole discretion may elect to contribute
additional funds to the Operating Account to maintain the operation. If
neither the Bank nor the Managers elects to contribute additional working
capital then the Net Branch shall be immediately terminated. If the Net Branch
is terminated, the Bank will be responsible for up to $50,000 of the
accumulated losses, and the Managers shall each be responsible for up to
$25,000 of the accumulated losses, such losses to be pro rated on a 50/25/25
basis, respectively. The Bank shall accept from each Manager, a two-year fully
amortizing note at its Commercial Prime Rate in lieu of cash for the amount of
the losses for which the Managers are responsible. The profit, if any, of the
Net Branch, shall be paid monthly after the Net Branch's accounts are finalized
in the following manner: 50% into a separate escrowed Reserve Account which
shall be controlled by the Bank, until the Reserve Account contains an amount
equal to 25% of the expected annual expenses of the Net Branch; and
<PAGE> 2
50% to be distributed to the Profit Sharing Account, and distributed according
to the terms of the Profit Sharing Account.
If the reserve account is fully funded, then the excess shall be
distributed to the Profit Sharing Account. Funds allocated to the Profit
Sharing Account shall be distributed as follows:
a) 50% of the Profit Sharing Account shall be available for cash
distribution at the sole discretion of the Managers.
b) 50% of the Profit Sharing Account shall be used by the Bank to
purchase shares of common stock of the Bank's holding company, or the Bank, if
the Bank is not owned by a holding company, on the stock market. If shares
are not available for purchase on the stock market, shares will be sold by the
bank holding company or the Bank on a negotiated basis. The allocation to
specific individuals of the shares which are purchased will be at the sole
discretion of the Managers.
If for any reason the Net Branch is terminated, the funds in the Reserve
Account shall be first distributed towards any losses or accounts payable of
the Net Branch with any excess then distributed to the Managers.
By providing the initial Working Capital of the Net Branch, the Bank
shall receive 10% of the Adjusted Gross Revenue of the Net Branch, payable
monthly. This amount shall be recorded as an expense on the profit and loss
statement of the Net Branch. Adjusted Gross Revenue is defined as all revenues
less cost of loan acquisition and a 10% reserve set aside on secondary market
premiums which may be subject to premium recapture. Cost of loan acquisition
shall include premiums and/or discounts paid to originating correspondents and
brokers. The Premium Reserve for premium recapture will initially be set at
10% of all premiums that are subject to recapture. The Premium Reserve balance
and factor for rate of reserve accumulation will be reviewed and updated
semi-annually by the Managers and the Net Branch Liason Manager. Any recapture
of premium that is assessed by any Investors shall be paid out of the Reserve.
The Reserve is to be reflected as an expense on the Net Branch's profit and
loss statement, with the Premium Reserve balance reflected on the Net Branch's
balance sheet. If at any time a portion of the Premium Reserve balance is taken
as income it will be distributed with the Bank receiving 10% and the Managers
receiving 90%, respectively.
The Operating Account held by the Bank shall be the only banking account
maintained by the Net Branch, and neither the Managers nor any other employee
of the Net Branch shall maintain any banking accounts through which revenues or
expenses of the Net Branch flow.
B) ACCOUNTING
The Bank will provide all of the accounting services
for the Net Branch. All checks collected for appraisal fees, credit reports,
origination points, marketing gains, or any other fees collected shall be
deposited per the instructions of the Bank. These checks collected for the
benefit of the Net Branch will be recorded as income on the Net Branch's profit
and loss statement. All bills to be paid shall be approved by a Manager
and forwarded to the Bank. The Bank shall be solely responsible for handling
the checking account of the Net Branch. These bills will be recorded as an
expense on the Net Branch's profit and loss statement.
The accounting department of the Bank will be responsible for
producing a profit and loss statement by the twentieth (20th) of the
following month. The Managers will be responsible for reviewing the
<PAGE> 3
profit and loss statement on a timely basis for errors and making sure that any
appropriate changes are made.
The Net Branch shall employ personnel including originators and
support staff. The Managers shall have the right to hire and fire employees
as they see fit in accordance with applicable law, and pay such employees as
they see fit, subject to the availability of Working Capital to the Net Branch.
The Managers shall each be employed at a salary of $7,500 per month, increasing
by $300 per month per year.
C) RENT
The Bank will rent space required by the Net Branch and sublet the
space to the Managers individually. The rent expense will be recorded as an
expense on the profit and loss statement of the Net Branch. The Managers
shall be individually financially responsible for the rent expense if the Net
Branch is terminated.
D) TERMINATION
Either party may, upon 180 days written notice, terminate the Net
Branch at its sole discretion.
4. SUPPORT SERVICES PROVIDED BY BANK TO NET BRANCH
A) PAYROLL
The Bank will provide payroll services for the Net Branch. All support
people are paid on the 15th and the last day of the month, based on their
annual or hourly salary, as applicable. Commissioned employees are paid on
closed production 15 days in arrears. Managers are required to submit a
commission (bonus) report to the Bank's payroll department for each pay period
or the commissioned employees will not be paid.
B) INSURANCE
All insurance benefits offered at the Bank will be made available to
the Net Branch. Any cost associated with the benefits will be charged directly
to the Net Branch. This cost will be reviewed and updated annually.
C) ADMINISTRATIVE SUPPORT
A $300.00 monthly charge will be recorded under expenses on the profit
and loss statement of the Net Branch for the administrative support provided by
the Bank. This cost will be reviewed and updated semi-annually to reflect the
actual estimated cost of providing this service.
D) UNDERWRITING
The Net Branch will be charged an Underwriting fee of $175.00 per loan
for each loan that is underwritten by the Bank's support staff and not
underwritten by the Net Branch. The Net Branch will be free to choose where
loans shall be underwritten.
E) CLOSING DOCUMENTS
The Net Branch will be charged a Closing fee of $100.00 per loan that
the closing package is prepared by the Bank's support staff. The Net Branch
will be free to choose where loan closing packages are prepared.
F) TAX SERVICE FEE
The required tax service fee set by the Investor will be recorded as an
expense on the profit and loss statement of the Net
<PAGE> 4
Branch, and the tax service fee collected per the Settlement Statement will be
recorded as income on the profit and loss statement.
G) FEES TO BANK
A $75.00 fee will be recorded as an expense on the profit and loss
statement of the Net Branch, for all loans sold to the Bank, where the Bank is
not also charging the Net Branch an Underwriting fee, and a $50.00 fee will be
recorded as an expense on the profit and loss statement of the Net Branch, for
all loans sold to the Bank, where the Bank is not also charging the Net Branch
a Closing fee. The Net Branch will receive loan pricing equal to the best
rates provided to a third-party correspondent of the wholesale mortgage
division of the Bank.
H) WAREHOUSE FEES
The Net Branch will be responsible for any expenses incurred when
funding a loan through the Bank. These fees will be recorded as an expense on
the profit and loss statement. The interest rate charged by the Bank on table
funded loans shall equal the interest rate on the mortgages being tabled
funded. This rate will be reviewed and updated semi-annually, so that the Bank
receives a rate no less favorable than that provided to other third-party
correspondents of the wholesale mortgage division of the Bank.
I) INVESTOR EXPENSES
The Net Branch will be responsible for any investor expenses charged
when an investor purchases a loan. These fees will be recorded as an expense
on the profit and loss statement of the Net Branch.
5. SUPPORT SERVICES PROVIDED TO THE BANK BY THE NET BRANCH
Any ancillary revenue generated for the Bank through the efforts of the
Net Branch will be compensated. For such ancillary revenue, the Net Branch
will receive 10% of the net interest income (on interest earning products and
services) or 10% of the gross fee income received by the Bank for other
products and services. Such amounts will be recorded as a separate line item
on the profit and loss statement of the Net Branch, but will not be included as
Adjusted Gross Revenue for purposes of calculating the Bank's 10% share of the
Net Branch's Adjusted Gross Revenues.
6. ASSIGNMENT
The rights and obligations of the Bank under this agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
Bank. This agreement shall not be assignable by the Managers.
7. ENTIRE AGREEMENT
This agreement and any employee manual of the Bank embodies the entire
agreement between the parties and may not be changed or terminated orally. No
change, termination, or attempted waiver of any of the provisions hereof shall
be binding unless contained within this document of employment.
8. ARBITRATION
<PAGE> 5
Any controversy or claim arising out of or related to this Agreement
shall be resolved by binding arbitration in Ann Arbor or Detroit, Michigan, at
the Bank's option, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon any award may be entered in
any court having jurisdiction thereof. The prevailing party shall be entitled
to recover reasonable attorney's fees and other costs incurred in any
arbitration proceeding. Notwithstanding the provisions of this paragraph, the
Bank shall have the right to apply to any court of competent jurisdiction to
enjoin any violation, threatened or actual, of this Agreement by the Managers
pending the final resolution of the Arbitration procedure of this paragraph.
9. NOTICES
Any notice required to be given under this agreement shall be deemed
sufficiently given if sent by regular mail to the party to be notified at the
address set forth above or to such other address or addresses as either party
may hereafter designate by notice given in the same manner.
10. WAIVER OF BREACH
In the event that any breach of this agreement by the Managers is
waived by the Bank, such waiver shall not constitute a waiver of any subsequent
breach by the Managers. No waiver shall be valid unless in writing and signed
by an authorized officer of the Bank.
11. SEVERABILITY
If one or more of the provisions of this agreement should be found
invalid or otherwise unenforceable, the validity, effectiveness and
enforceability of any and all other provisions hereof shall not be affected.
12. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding
between the Bank and the Managers and supersedes any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written instrument executed by the Bank
and the Managers each acting through its duly authorized agent.
13. LAW GOVERNING AGREEMENT
This Agreement shall be construed in accordance with and governed by
the laws of the state of Michigan.
14. CAPTIONS
The captions in this Agreement are for convenience only and shall not
be considered a part hereof or affect the construction or interpretation of any
provisions of this Agreement.
15. SIGNATURE, DATE, SEAL, ACKNOWLEDGMENTS
IN WITNESS WHEREOF, THE parties have executed this agreement the day
and year first above mentioned.
<PAGE> 6
<TABLE>
<CAPTION>
BANK:
<S> <C>
Witness: University Bank
___________________ By:/s/Stephen Lange Ranzini
------------------------
Stephen Lange Ranzini,
President
MANAGER:
Witness:
___________________ By:/s/Jess Monticello
------------------
Witness: Jess Monticello
MANAGER:
Witness:
___________________ By:/s/William Cook
---------------
Witness: William Cook
</TABLE>
<PAGE> 1
EXHIBIT 10.17
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT is made effective as of the ___th day of
August, 1995, by and among NEWBERRY BANCORP, INC., a Delaware corporation
("NEWBERRY") and UNIVERSITY BANK, a Michigan Banking Corporation ("BANK")
collectively, the "Purchasers"; and EDWARD BURGER, an individual residing in
Michigan ("BURGER"), BAY LOAN BROKERS, INC., a California corporation ("BAY"),
and NORTHERN MICHIGAN BIDCO, INC., a Michigan corporation ("BIDCO"),
collectively, the "Sellers").
WITNESSETH:
WHEREAS, Sellers own all of the Interests in the Midwest Loan
Services, Inc., a Michigan corporation, the "Company", which Sellers desire to
sell all or a part of to Purchasers as hereinafter provided (the "Interests");
and
WHEREAS, Purchasers desire to acquire the Interests for cash, shares
of common stock and certain other consideration in Purchasers, as hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed:
1. CONSIDERATION; EXCHANGE OF CONSIDERATION.
1.1 Interests. The "Interests" of the Sellers which are being sold
are: (a) for BURGER, 1,200 shares of Common Stock of the Company, (b) for BAY,
5,100 shares of Common Stock of the Company, and (c) for BIDCO, 900 shares of
Common Stock of the Company.
1.2 Consideration. The "Consideration" for the Interests shall consist
of (a) for BURGER, 25,000 shares of Common Stock of NEWBERRY, and a Contingent
Payment as defined in 1.3, below; (b) for BAY, $200,000 cash, the title to the
Company's ownership of improved land in Dallas, Texas (the "Texas Property"),
25,000 shares of Common Stock of NEWBERRY, and a Contingent Payment as defined
in 1.3, below; and (c) for BIDCO, 23,000 shares of Common Stock of NEWBERRY.
Burger, Bay and BIDCO, as part of the Consideration, shall be entitled to
require Newberry to repurchase all or a part of the shares of Common Stock of
Newberry paid to them as part of the Consideration at a price of $5.00 per
share on the first anniversary date following the Closing.
1.3 Contingent Payment. The following contingent payment shall be
paid in cash to each of BAY, BIDCO and BURGER in the event that the Company has
an audited pre-tax profit in any given calendar year until the year ending
December 31, 2000 in excess of $375,000: (a) to BAY, an amount equal to 100%
of the amount in excess of $375,000 by which the Company's audited financial
statements show an audited pre-tax profit in any given calendar year, up to a
cumulative sum of $250,000 in total Contingent Payments; and (b) to BURGER, an
amount equal to 24% of the amount in excess of $375,000 by which the Company's
audited financial statements show an audited pre-tax profit in any given
calendar year, up to a cumulative sum of $60,000 in total Contingent
<PAGE> 2
Payments. Such Contingent Payments, if any, shall be paid promptly within 60
days of the completion of the Company's audited financial statements by the
Company's auditors.
1.4 Deliveries at Closing. On the Closing Date, Sellers shall deliver
to Purchasers (a) Certificates of Transfer evidencing the transfer of the
Interests to Purchasers, duly executed by Sellers; and (b) the certificates and
other documents to be delivered by Sellers pursuant to this Agreement; and
Purchasers shall deliver to Sellers (a) the Consideration specified in section
1.2 above; and (b) the certificates and other documents to be delivered by
Purchasers pursuant to this Agreement.
2. CLOSING.
The exchange of documents, cash and shares referred to in Section 1 hereof,
hereinafter referred to as the "Closing," shall take place at 1 P.M. at the
offices of University Bank on October 1, 1995, or at such other time and date
as Purchasers and Sellers may in writing designate, such time and date are
herein referred to as the "Closing Date." Time is of the essence of this
Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS.
Purchasers do hereby expressly acknowledge that BAY has not been involved or
had any control over the day-to-day financial or management operations of the
Company, nor has BAY been involved or had control over the maintenance of
corporate or financial records of the Company. Subject to this express
acknowledgment of Purchasers, Sellers represent, warrant and covenant to
Purchasers as follows:
3.1 Interests. The authorized capital stock of the Company consists of
100,000 shares of Common Stock, of which 9,000 shares have been issued and are
outstanding, all of which have been duly authorized and validly issued and are
fully paid and nonassessable. All of the Common Stock of the Company are owned,
and at the Closing will be owned, by Sellers free and clear of all liens,
encumbrances, restrictions, claims, options, calls and commitments of every
kind; Sellers have full legal right, power and authority to enter into this
Agreement and to exchange, assign and transfer the Interests to Purchasers;
and, on the Closing Date, the delivery to Purchasers of the Interests pursuant
to the provisions of this Agreement will transfer valid title thereto, free and
clear of all liens, encumbrances, claims, options, calls and commitments of any
kind.
3.2 Existence and Good Standing. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Michigan, and is duly authorized, qualified, permitted and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
where the failure to do so would not have a material adverse effect on the
Company's business. True and complete copies of the organizational documents
and by-laws of the Company, as amended to the date hereof, certified as of a
recent date (x) in the case of the organizational documents of the Company, by
the Secretary of State of Michigan, and (y) in the case of the operating
agreement, by the Secretary of the Company, have been
- 2 -
<PAGE> 3
delivered to Purchasers. The books and records of the Company (containing the
records of meetings of the shareholders and the board of directors) are correct
and complete. The Company is not in default under or in violation of any
provision of its organizational documents or by-laws.
3.3 Subsidiaries. The Company does not have any subsidiaries nor own
any securities (i.e., stock, warrants, calls, options, limited liability company
interests, notes, bonds or other evidences of ownership or indebtedness) of any
other person, firm or corporation, or if any such securities do exist, they
shall be redeemed or sold by the Company for an amount equal to their carrying
value at June 30, 1995 prior to or at the Closing.
3.4 Financial Statements. Sellers have delivered to Purchasers true
and complete copies of the following statements of the Company (Schedule 3.4):
(a) Unaudited Balance Sheet as of June 30, 1995 (hereinafter referred
to as the "Balance Sheet Date") and applicable notes;
(b) Unaudited Statements of Income, Changes in Sellers' Equity, and
Cash Flow for the six months ended on the Balance Sheet Date, and applicable
notes; and
(c) Audited Balance Sheets, Statements of Income and Retained Earnings and
Statements of Changes in Financial Position, and applicable notes, for its most
recent fiscal year.
All such financial statements are in accordance with the books and records of
the Company; are complete and correct in all material respects; are correct and
complete and are consistent with the books and records of the Company (which
books and records are correct and complete); and have been prepared in
accordance with generally accepted accounting principles consistently applied.
3.5 Liabilities. Sellers have delivered to Purchasers an accurate
description (Schedule 3.5) as of the date hereof of all liabilities of the
Company not reflected on the Balance Sheet. The Company has no liabilities
other than as set forth on Schedule 3.5 and on the Balance Sheet, and there is
no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company giving
rise to any liability.
3.6 Receivables. Sellers have delivered to Purchasers an accurate list
(Schedule 3.6) as of the Balance Sheet Date of the accounts and notes
receivable of the Company.
3.7 Permits. Licenses. etc. Sellers have delivered to Purchasers an
accurate list (Schedule 3.7) as of the Balance Sheet Date of all permits,
licenses, franchises, certificates, trademarks, trade names, patents, patent
applications and copyrights (excluding only radio and usual motor vehicle
licenses) owned or held by the Company, all of which are now valid and in good
standing. Such permits, licenses, orders, approvals, variances, franchises,
etc., are adequate for the operation of the Company's business as presently
constituted, except
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where the failure to have such would not have a material adverse effect on the
Company's business.
3.8 Fixed Assets. Sellers have delivered to Purchasers an accurate
list of the book value of the major categories of all the fixed assets of the
Company as of the Balance Sheet Date (Schedule 3.8). Substantially all of the
machinery and equipment of the Company are in good working order and condition,
subject to normal life expectancy. Since the Balance Sheet Date the Company has
not acquired or sold or otherwise disposed of any fixed assets. Except as
described on Schedule 3.8, all fixed assets used by the Company in the
operation of its business are owned by the Company. Schedule 3.8 contains,
without limitation, copies of all title reports and title insurance policies
received or owned by the Company,
3.9 Other Assets. Sellers have delivered to Purchasers an accurate
list (Schedule 3.9) as of the Balance Sheet Date of all properties and assets
of the Company with values in excess of $1,000 other than those shown on
Schedules 3.6, 3.7, and 3.8. Except as indicated on Schedule 3.9, since the
Balance Sheet Date, the Company has not acquired or sold or otherwise disposed
of any of such properties or assets which would be considered material singly
or in the aggregate to the Company. The Company has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by them
located on their premises, or shown on the most recent Balance Sheet provided
pursuant hereto or acquired after the Balance Sheet Date, free and clear of all
liens and encumbrances, except for properties and assets disposed of in the
ordinary course of business since the Balance Sheet Date.
Management of the Company has not devoted any significant effort or
expenditure in the two year period prior to the execution hereof to any plans
or projects involving the opening of new operations or the acquisition of any
real property or existing business nor does management have any plans or
projects which, if pursued, would require any such significant effort or
expenditure.
3.10 Contracts and Agreements; Adverse Restrictions.
(a) Sellers have delivered to Purchasers an accurate list (Schedule
3.10, Part I) as of the date hereof of all contracts and agreements to which
the Company is a party or by which it or any of its property is bound
(including, but not limited to, joint venture or partnership agreements,
contracts with any labor organizations, loan agreements, bonds, mortgages,
liens, pledges or other security agreements) and have made available for
inspection by Purchasers all of said contracts and agreements. None of such
contracts or agreements unduly burdens or restricts the Company in the ordinary
course of its business. Except to the extent set forth on Schedule 3.10, Part
II, the Company has complied in all material respects with all commitments and
obligations under all such contracts and agreements.
(b) Except to the extent set forth on Schedule 3. 10, Part III, the
Company is not a party to any contract, agreement or other commitment or
instrument or subject to any charter or other corporate restriction or subject
to any restriction or condition contained in
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<PAGE> 5
any permit, site assignment, license, judgment, order, writ, injunction, decree
or award which materially adversely affects or in the future is expected to (so
far as Sellers now believe) materially adversely affect, the business,
operations, properties, assets or condition (financial or otherwise) of the
Company considered as a whole.
3.11 Insurance. Sellers have delivered to Purchasers an accurate list
(Schedule 3.11) as of the date hereof of all insurance policies carried by the
Company (including all policies issued within the last three years whether or
not currently in effect) specifying, in each case, the name of the insurer, a
summary description of the property or interest insured and the type of risks
insured, the deductible and limits of coverage, and the annual premium
therefor; and have made available for inspection by Purchasers copies of all of
such policies. The Company carries insurance which Sellers believe to be
adequate in character and amount, with reputable insurers in respect of its
properties, assets and business and such insurance policies are still in full
force and effect and shall remain in effect at least until the Closing Date.
3.12 No Pension Plan. The Company does not have, nor has it ever had,
any pension, profit sharing, deferred compensation, option, employee membership
interest purchase or other employee benefit plan or agreement.
3.13 Laws and Regulations; Litigation. The Company is not in violation
of or in default under any law or regulation, or under any order of any court
or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the Company
and, except to the extent set forth on Schedule 3.13, there are no claims,
actions, suits, proceedings, or responses to or rejections of any required or
voluntary filing or submission, pending, or threatened against or affecting the
Company, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission board, bureau, agency or
instrumentality having jurisdiction over the Company. The Company has
conducted and is conducting its business in compliance with, and is in
compliance with the requirements, standards, criteria and conditions set forth
in applicable federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing and has incurred no liability under the foregoing which
might materially adversely affect the business, operations, affairs, prospects,
properties, assets, profits or condition (financial or otherwise) of the
Company. Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor the compliance with
the terms and provisions hereof or thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Company or any Seller is subject, including but not limited to federal and
state securities laws, or any provision of the organizational documents or
operating agreement of the Company; or conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to
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<PAGE> 6
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any Seller or the Company is a party or by which any of them is bound or to
which any of any of their assets is subject.
3.14 Taxes. The Company has filed all federal, state, local and other
tax and information returns that it was required to file. All such tax returns
were correct and complete in all respects. All taxes owed by the Company
(whether or not shown on any tax return) have been paid. The Company is not
currently the beneficiary of any extension of time within which to file any tax
return. No claim has ever been made by an authority in a jurisdiction where
the Company does not file tax returns that it is or may be subject to taxation
by that jurisdiction. There are no security interests on any of the assets of
the Company that arose in connection with any failure or alleged failure to pay
any tax. The Company has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor or other third party. There are no claims
against the Company of which the Company has been notified or of which any
Seller is aware for federal, state, local or other taxes. The amounts shown as
provisions and reserves for taxes on the financial statements of the Company as
of the Balance Sheet Date and for the periods then ended delivered to
Purchasers as a part of Schedule 3.4 are sufficient for the payment of all
taxes of all kinds for all fiscal periods ended on or before that date.
3.15 Copies Complete; No Default. The certified copies of the
organizational documents and by-laws, both as amended to date, of the Company
and the copies of all leases, instruments, agreements, licenses, permits,
certificates or other documents, which have been examined by or delivered to
Purchasers in connection with the transactions contemplated hereby, are
complete and correct; except as disclosed on Schedule 3.5, Part I or Schedule
3.10, Part I hereto, to the best of the knowledge of Sellers no party thereto
is in default thereunder; the rights and benefits of the Company thereunder
will not be materially adversely affected by the transactions contemplated
hereby; and the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions thereof. Except as provided
herein, none of such leases, instruments, agreements, licenses, site
assignments, permits, certificates or other documents requires notice to, or
the consent or approval of, any governmental agency or other third party
regarding any of the transactions contemplated hereby; any consents or
approvals required shall be obtained by Sellers and the Company prior to
Closing.
3.16 No Governmental Contracts. The Company is not now nor has it ever
been a party to any governmental contracts subject to price redetermination or
renegotiation.
3.17 No Change. Since the Balance Sheet Date there has not been, other
than in the ordinary course of business:
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<PAGE> 7
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income, operations or business of the
Company;
(b) any material damage, destruction or loss (whether or not covered
by insurance) adversely affecting the properties or business of the Company;
(c) any change or agreement to change the ownership of any interests
in the Company;
(d) any declaration or payment of, or any agreement to declare or pay,
any dividend or distribution in respect of an equity interest or any direct or
indirect redemption, purchase or other acquisition of any interest in the
Company;
(e) any increase in the compensation payable or to become payable by
the Company to any of its directors, officers, employees or agents, or any
accrual or arrangement for or payment of a bonus or other special compensation
to any employee or any severance or termination pay paid to any present or
former officer or other key employee of the Company;
(f) any labor trouble affecting the business or future prospects of
the Company;
(g) (i) any sale or transfer, or any agreement to sell or transfer,
any assets, property or rights of the Company to any other person, including,
without limitation, any Seller and their affiliates (other than in the ordinary
course of business) or (ii) the cancellation, or agreement to cancel, any
indebtedness or other obligation of any Seller or any affiliate of its to the
Company, other than as contemplated by this Agreement;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights, other than as contemplated
by this Agreement;
(i) any purchase or acquisition, or agreement, plan or arrangement by
the Company to purchase or acquire, any property, rights or assets; any
incurrence of indebtedness by the Company or agreement, plan or arrangement by
the Company to incur any indebtedness;
(j) any waiver by the Company of any material rights or claims;
(k) any material amendment or termination of any contract, agreement,
license, permit or other right to which the Company is a party; or
(l) any material transaction or commitment to undertake any material
transaction by the Company not disclosed to Purchasers herein.
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<PAGE> 8
3.18 Binding Obligation. BURGER is an individual of legal age and
capacity to execute this contract. BIDCO is a corporation duly organized under
the laws of the state of Michigan, and BAY is a corporation duly organized
under the laws of the state of California, and are each validly existing and in
good standing under the law of said state. Each Seller has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement is a legal, valid and binding obligation of each
Seller and is enforceable against each Seller in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally. No Seller need give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
3.19 No Misleading Statements. The representations and warranties
contained in this Agreement, the exhibits and schedules hereto and all other
documents and information furnished to Purchasers and its representatives
pursuant hereto, when taken as a whole, do not and will not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made not misleading.
3.20 Foreign Corrupt Practices Act. The Company has not incurred any
liability under the Foreign Corrupt Practices Act of 1978 or Section 999 of the
Internal Revenue Code of 1954, as amended, and the Treasury Regulations and
Rules promulgated thereunder (whether temporary or final).
3.21 No Adverse Conditions. To the best of Sellers' knowledge, other
than general business and market conditions, no condition or conditions exist
or will exist on the Closing Date which may materially impair the operations of
the Company or may materially impair the future revenue or profitability of the
Company.
3.22 No Adverse Changes. Except as set forth on Schedule 3.15 or
Schedule 3.5, no material adverse change has occurred within the last three
years in the financial condition, assets, liabilities (contingent or
otherwise), income, operations or business of the Company.
3.23 Accurate and Complete Statements. The books, ledgers, financial
records and other records of the Company:
(a) have been fully, properly and accurately maintained, are in the
possession of the Company and contain true and accurate records of all matters
required to be entered therein by law;
(b) do not contain or reflect any material discrepancies, and;
(c) give and reflect a true and fair representation of the matters
which ought to appear therein.
3.24 No Registration. Sellers understand that the shares of Common
Stock of NEWBERRY have not been registered under the Securities Act or any
state securities law, by reason of their issuance in a private transaction
exempt from the registration requirements of the
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<PAGE> 9
Securities Act and such laws, and that they must be held indefinitely unless it
is subsequently registered under the Securities Act and such laws or a
subsequent disposition thereof is exempt from registration. Each Seller shall
have a one-time right to opt to have such shares registered under the
Securities Act in the event that NEWBERRY opts to register any such shares
whether newly issued or held by other third-parties for sale. NEWBERRY shall
notify each Seller no less than thirty days in advance of such opportunity to
register such shares, and each Seller shall notify NEWBERRY no less than ten
days after such notice is given of its intent to opt to register its shares for
sale.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Purchasers represent and warrants as follows:
4.1 Binding Obligation. NEWBERRY is a corporation duly organized under
the laws of the state of Delaware and BANK is a banking corporation duly
organized under the laws of the state of Michigan and both are validly existing
and in good standing under the law of said state. Purchasers have full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement is a legal, valid and binding obligation
of Purchasers and is enforceable against Purchasers in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally. Purchasers need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement, except as listed in Schedule 4.1. SELLERS AND
PURCHASERS EACH UNDERSTAND THAT IF ANY REGULATORY PERMISSIONS REQUIRED TO
CONSUMMATE THE CLOSING ARE NOT FORTHCOMING, THAT THIS AGREEMENT SHALL BE NULL
AND VOID AND NEITHER THE PURCHASERS NOR THE SELLERS SHALL HAVE ANY LIABILITY
WHATSOEVER THEREUNDER AS A RESULT.
4.2 No Default. Neither the execution and delivery of this Agreement,
the consummation of the transactions contemplated herein, nor the compliance
with the terms and provisions hereof or thereof will conflict with or result in
a breach of any of the terms, conditions or provisions of any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Purchaser is subject, including but not limited to federal and state securities
laws, or any provision of the charter or by-laws of Purchasers; or conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which Purchasers are a party or by
which Purchasers are bound or to which any of Purchasers' assets are subject.
4.3 Litigation. There is no litigation, administrative proceeding or
other action or proceeding pending or threatened against Purchasers which would
prevent or hinder performance by Purchasers of their obligations under this
Agreement.
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<PAGE> 10
4.4 Investment. Purchasers are acquiring the Interests for their own
account for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the same; and Purchasers have no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.5 No Registration. Purchasers understand that the Interests have not
been registered under the Securities Act or any state securities law, by reason
of their issuance in a transaction exempt from the registration requirements of
the Securities Act and such laws, and that they must be held indefinitely
unless it is subsequently registered under the Securities Act and such laws or
a subsequent disposition thereof is exempt from registration.
4.6 Access to Records. Purchasers agree that until January 1, 2001,
BAY shall be entitled to receive monthly financial statements of the Company,
and shall be entitled to full access to the financial books and records of the
Company (except confidential customer information) and auditor management
reports.
5. COVENANTS OF THE PARTIES PRIOR TO CLOSING
Between the date of this Agreement and the Closing Date:
5.1 Access; Confidential Information. Sellers will, in accordance with
the agreement of the Company which Sellers hereby represent that the Company
has made, afford to the officer and authorized representatives of Purchasers
access to the plants, properties, books and records of the Company and will
furnish Purchasers with such additional financial and operating data and other
information as to the business and properties of the Company as Purchasers may
from time to time request. Purchasers' investigations will not unreasonably
interfere with the Company's normal operations. Sellers will cooperate with
Purchasers, their representatives and counsel in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by any governmental agency. Purchasers will
cause all information obtained from Sellers or the Company in connection with
the negotiation and performance of this Agreement to be treated as confidential
(except such information as Purchasers may be required to disclose to any
governmental agency) and will not use, and will not knowingly permit others to
use, any such information other than in connection with the transaction
contemplated hereby.
5.2 Operations. Sellers will cause the Company to:
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method, or discontinue any existing
method, of management, operation or accounting;
(b) maintain its properties and facilities in as good working order
and condition as at present, ordinary wear and tear excepted;
(c) perform all its obligations under agreements relating to or
affecting its assets, properties and rights;
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<PAGE> 11
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its relationship
with suppliers, customers and others having business relations with it;
(f) advise Purchasers promptly in writing of any change in any
document, schedule or other information delivered pursuant to this Agreement;
and
(g) file on a timely basis all notices, reports or other filings
required to be filed with or reported to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or any
instrumentality of any of the foregoing wherever located necessary to maintain,
renew or extend any permit, license, variance or any other approval required by
any governmental authority or otherwise necessary and/or required for the
continuing operation of the Company.
5.3 No Change. Sellers will not allow the Company, without prior
written consent of Purchasers, to:
(a) make any change in its organizational documents or operating
agreement;
(b) authorize, issue, transfer or distribute any interests in the
Company;
(c) enter into any contract or commitment or incur or agree to incur
any debt or any other liability, except in the ordinary course of business;
make any capital expenditures; or enter into any arrangement with respect to
the accrual of bonuses to employees;
(d) create, assume or otherwise voluntarily permit the imposition of
any mortgage, pledge or other lien or encumbrance upon any assets or properties
whether now owned or hereafter acquired;
(e) sell, assign, lease or otherwise transfer or dispose of any
property or equipment other than in the ordinary course of business;
(f) merge or consolidate or agree to merge or consolidate with or into
any other Person, firm or entity;
(g) waive any material rights or claims;
(h) amend or terminate any contract, agreement, license or other right
to which the Company is a party; or
(i) enter into any transaction outside the ordinary course of its
business.
5.4 Required Certificates. A "Certificate of Good Standing" for the
Company issued by the Secretary of State of Michigan will be delivered to
Purchasers by Sellers not later than the Closing Date. Certificates showing
that all state franchise (and or income) taxes
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<PAGE> 12
for the Company for all periods prior to the Closing, issued by the appropriate
state agency in Michigan and in each state in which the Company is authorized
to do business, will be delivered to Purchasers by Sellers, no later than the
Closing Date.
5.5 Public Statements. Before the Company or any Seller shall release
any information concerning this Agreement or the transactions contemplated by
this Agreement which is intended for or may result in public dissemination
thereof, they shall cooperate with Purchasers, shall furnish drafts of all
documents or proposed oral statements to Purchasers for comments, and shall not
release any such information without the written consent of Purchasers, which
consent shall not be unreasonably withheld. Before Purchasers shall release any
information concerning this Agreement or the transactions contemplated by this
Agreement which is intended for or may result in public dissemination thereof,
it shall cooperate with Sellers, shall furnish drafts of all documents or
proposed oral statements to Sellers for comments, and shall not release any
such information without the written consent of Sellers, which consent shall
not be unreasonably withheld. Nothing contained herein shall prevent the
Company, Sellers or Purchasers from releasing any information to any
governmental authority if required to do so by law.
6. INDEMNIFICATION.
6.1 General. Subject to the other terms of this Section 6, Sellers,
jointly and severally, agree to defend, indemnify and hold harmless Purchasers
from against and in respect of:
(a) any federal, state or local tax liability with respect to the
Company arising out of any period ended on or before the Closing Date, but not
reflected on the most recent balance sheet in Schedule 3.4 or listed on
Schedule 3.5;
(b) any accrued or absolute liability of or claim against the Company
(other than for taxes) existing or contingent at the Closing Date that is in
excess of the actual aggregate liability of the Company for the sum of the
liabilities listed on Schedule 3.5 and those reflected in the most recent
balance sheet in Schedule 3.4;
(c) any and all damages, loss, deficiency, costs or expenses resulting
from any misrepresentation, breach of warranty, or nonfulfillment of any
agreement or covenant on the part of any Seller under this Agreement (other
than one included in (a) or (b) above) or any misrepresentation in or omission
from any list, schedule, certificate, or other instrument furnished or to be
furnished to Purchasers pursuant to the terms of this Agreement; and including
in each case all costs and expenses of all actions, suits, proceedings,
demands, assessments and adjustments (including specifically, but without
limitation, attorneys' fees and expenses of investigation) incident to any of
the foregoing.
6.2 Notice. Notice shall be given promptly to each Seller of any claim
or litigation the existence of which gives rise to the operation of the
foregoing indemnity. Sellers shall investigate and defend such claim at their
expense. Any settlement shall be with the consent of Purchasers. If Sellers
fail to defend the claim, Purchasers may
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<PAGE> 13
defend such claim with power to settle and Sellers shall pay the costs and
expenses thereof and the amount of any settlement or judgment.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASERS
Except as otherwise provided in this Section 7, the obligations of Purchasers
hereunder are, at its option, subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions.
7.1 Accuracy of Representations; Performance of Covenants. The
representations and warranties of Sellers contained in this Agreement shall be
true on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; each and
all of the agreements of Sellers to be performed on or before the Closing Date
pursuant to the terms hereof shall have been performed; and Sellers shall have
delivered to Purchasers a certificate dated the Closing Date and signed by
Sellers to all such effects.
7.2 Opinion of Counsel. Purchasers shall have received opinions from
the counsel to the Company, dated the Closing Date, in form and substance
satisfactory to Purchasers, to the effect that: (i) the Company has been duly
organized and is validly existing in good standing under the laws of the state
of Michigan, (ii) the Company is duly authorized, qualified and licensed under
all applicable laws, regulations, ordinances or orders of public authorities to
carry on its business in the places and in the manner as now conducted, except
where the failure to do so would not have a material adverse effect on the
Company's business; (iii) the stockholder interests in the Company are as
represented by Sellers in this Agreement and each such interest has been duly
and validly obtained and was not obtained in violation of the by-laws or the
rights of any stockholder; (iv) other than as set forth in this Agreement or on
a Schedule hereto, the Company does not have any outstanding options, calls or
other commitments of any kind to issue or sell any stockholder interest
(excluding the warrant of the Company to sell stock to BIDCO and the option
held by the BIDCO to buy stock from BURGER); (v) this Agreement has been duly
executed and delivered by Sellers and constitutes a valid and binding agreement
of Sellers in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally; (vi) upon
consummation of the purchase contemplated by this Agreement, Purchasers will
receive good title to the Interests, free and clear of all liens, encumbrances
and claims of every kind known to counsel; (vii) the Company is not in
violation of or default under any law or regulation, or under any order of any
court, commission, board, bureau, agency or instrumentality wherever located
and there are no claims, actions, suits or proceedings pending, or threatened
against or affecting the Company, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality wherever located; (viii) no notice to,
consent, authorization, approval or order of any court or governmental agency
or body or of any other third party is required in connection with the
execution, delivery or consummation of this Agreement by Sellers or for the
transfer to Purchasers of the Interests; (ix) the execution of this Agreement
and the performance of the obligations hereunder will not violate or result in
a breach or constitute a default under any of the terms or provisions of the
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<PAGE> 14
organizational documents or operating agreement of the Company or of any lease,
instrument, license, permit or any other agreement to which the Company is a
party or by which the Company or any Seller is bound; and (x) the offer and
sale of Interests pursuant to this Agreement are exempt from registration
pursuant to the Securities Act of 1933, as amended.
7.3 Governmental Contracts; No Litigation. All necessary consents of,
notices to, and filings with any governmental authority or agency, including
without limitation the Securities and Exchange Commission, relating to the
consummation of the transactions contemplated in this Agreement shall have been
obtained or accomplished and no action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the acquisition by Purchasers of the shares and no
governmental agency or body shall have taken any other action or made any
request of Purchasers in connection with this transaction as a result of which
the management of Purchasers reasonably deems it inadvisable to proceed with
the transactions hereunder.
7.4 No Adverse Change. No adverse change in the results of operations,
financial condition or business of the Company shall have occurred, and the
Company shall not have suffered any loss or damage to any of its properties or
assets, whether or not covered by insurance, since the Balance Sheet Date,
which change, loss or damage materially adversely affects or impairs the
ability of the Company to conduct its business and Purchasers shall have
received a certificate signed by Sellers dated the Closing Date to such effect.
7.5 Updates. Sellers shall have delivered to Purchasers accurate
updates to each of the schedules to this Agreement, as of the Closing Date,
showing all additions or changes to the items described in each of such
schedules arising since the date of such schedules.
7.6 Releases. Sellers shall have delivered to Purchasers an instrument
dated the Closing Date releasing the Company and Purchasers from any and all
claims of Sellers against the Company.
7.7 Approval by Counsel. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have met the reasonable satisfaction of
counsel to Purchasers and such counsel shall have been furnished with all such
documents and instruments as they shall have reasonably requested in connection
with the transactions contemplated herein.
7.8 Net Assets of Company. The Company's audited financial statements
shall evidence net assets (excluding goodwill) of the Company worth not less
than $1,100,000 at the Closing Date.
- 14 -
<PAGE> 15
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS.
The obligations of Sellers hereunder are, at their option, subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions.
8.1 Accuracy of Representations; Performance of Covenants. The
representations and warranties of Purchasers contained in Section 4 shall be
accurate as of the Closing Date as though such representations and warranties
had been made at and as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by Purchasers on
or before the Closing Date shall have been duly complied with and performed;
and a certificate to the foregoing effect dated the Closing Date and signed by
a duly authorized officer of Purchasers shall have been delivered to Sellers.
8.2 Board Seats. Purchasers shall have caused the appointment of one
nominee of BAY and one nominee of BURGER to the Board of Directors of the
Company.
9. TERMINATION.
9.1 By Purchasers. Purchasers may terminate this Agreement by giving
written notice to Sellers:
(a) on or before the 3Oth day following the date of this Agreement if
Purchasers is not satisfied with the results of its continuing business, legal
and accounting due diligence regarding the Company; or
(b) at any time prior to the Closing Date (i) in the event any of the
Sellers has breached any material representation, warranty or covenant
contained in this Agreement in any material respect, the Purchasers has
notified the Sellers of the breach, and the breach has continued without cure
for a period of thirty (30) days after notice of breach; or (ii) if the Closing
shall not have occurred on or before December 31, 1995 by reason of the failure
of any condition precedent set forth in Section 7 above (unless the failure
results primarily from Purchasers itself breaching any representation, warranty
or covenant contained in this Agreement).
10. SURVIVAL OF REPRESENTATIONS.
The representations, warranties, covenants and agreements of the parties
contained in this Agreement or in any writing delivered pursuant to the
provisions of this Agreement shall survive the consummation of the transactions
contemplated hereby and any examination on behalf of the parties.
11. GENERAL.
11.1 Additional Conveyances. Upon the execution of this Agreement,
Purchasers and Sellers mutually agree to promptly undertake, and to pursue,
cooperatively and diligently, the obtaining of all approvals, consents and
authorizations required to be given by third parties, governmental or private,
that are necessary or
- 15 -
<PAGE> 16
appropriate to effect the transactions contemplated in this Agreement in an
expeditious and prudent manner. In addition, Sellers shall deliver or cause to
be delivered on the Closing Date, and at such other times and places as shall
be reasonably agreed on, such additional instruments as Purchasers may
reasonably request for the purpose of carrying out this Agreement. Sellers
will cooperate and use their best efforts to have the present principals,
managers and employees of the Company cooperate with Purchasers on and after
the Closing Date in furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods prior
to the Closing Date.
11.2 Assignment. This Agreement and the rights of Sellers hereunder
may not be assigned (except by operation of law) and shall be binding upon and
shall inure to the benefit of the parties hereto, the successors and legal
representatives of Purchasers and the heirs, assigns and legal representatives
of Sellers. Purchasers may assign its rights and obligations hereunder.
11.3 Entire Agreement. This Agreement (including the schedules,
annexes and exhibits hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding between Sellers and
Purchasers and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by Sellers and Purchasers each acting
through its duly authorized agent.
11.4 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
11.5 Brokers. Each party represents and warrants that it employed no
broker or agent in connection with this transaction and agrees to indemnify the
other against all other loss, cost, damage or expense arising out of claims for
fees or commissions of brokers or agents employed or alleged to have been
employed by such party.
11.6 Fees and Expenses. Whether or not the transactions herein
contemplated shall be consummated, Purchasers will pay the fees, expenses and
disbursements of Purchasers and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and
any amendments thereto. Sellers will pay the fees, expenses and disbursements
of Sellers and their agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
hereto and all other costs and expenses incurred in the performance and
compliance with all conditions to be performed by Sellers under this Agreement.
11.7 Fair Dealing. Purchasers agree that until January 1, 2001 any
transactions or contractual relationship between Midwest Loan Services and any
affiliate (including BANK, NEWBERRY, BURGER, and any other entity controlled by
Joseph Ranzini, Stephen Ranzini, or BURGER, will be on a fair and arms length
basis.
- 16 -
<PAGE> 17
11.8 Arbitration. Any controversy or claim arising out of or related
to this Agreement shall be resolved by binding arbitration in Ann Arbor or
Detroit, Michigan, at BANK's option, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon any
award may be entered in any court having jurisdiction thereof. The prevailing
party shall be entitled to recover reasonable attorney's fees and other costs
incurred in any arbitration proceeding.
11.9 Notices. Any notice or communication required or permitted
hereunder shall be sufficiently given when sent by first class mail, postage
prepaid and simultaneously sent by facsimile:
(a) If to Purchasers, addressed to it at:
Stephen Lange Ranzini, President
Newberry Bancorp, Inc.
University Bank
209 East Portage Ave.
Sault Ste. Marie, MI 49783
Facsimile Number: (906) 635-5397
(b) If to Sellers, to them at:
Connie Grant and Jerry Kilare
Bay Loan Brokers, Inc.
9260 Alcosta Blvd. Building C
San Ramon, CA 94583
Facsimile Number: (510) 803-5750
Edward Burger, President
Midwest Loan Services
616 Sheldon Avenue, 3rd Floor
Houghton, MI 49931
Facsimile Number: (906) 487-5869
Joseph Ranzini, Chairman
Northern Michigan BIDCO, Inc.
209 East Portage Ave.
Sault Ste. Marie, MI 49783
Facsimile Number: (906) 635-5397
11.10 Applicable Law: This Agreement shall be construed in accordance
with and governed by the laws of the state of Michigan.
11.11 Captions. The captions in this Agreement are for convenience
only and shall not be considered a part hereof or affect the construction or
interpretation of any provisions of this Agreement.
- 17 -
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the day and year first above written.
<TABLE>
<CAPTION>
PURCHASERS:
<S> <C>
Witness: Newberry Bancorp, Inc.
___________________ By:/s/Stephen Lange Ranzini
------------------------
Stephen Lange Ranzini, President
Witness: University Bank
___________________ By:/s/Stephen Lange Ranzini
------------------------
Stephen Lange Ranzini, President
SELLERS:
Witness: Bay Loan Brokers, Inc.
___________________ By:/s/Connie Grant
---------------
Witness: Connie Grant
___________________
Witness: Bay Loan Brokers, Inc.
___________________ By:/s/Jerry Kilare
---------------
Jerry Kilare
Witness: Midwest Loan Services, Inc.
___________________ By:/s/Edward Burger
----------------
Edward Burger, President
Witness: Northern Michigan BIDCO, Inc.
___________________ By:/s/Joseph Ranzini
-----------------
Joseph Ranzini, Chairman
</TABLE>
- 18 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,436,307
<INT-BEARING-DEPOSITS> 424,909
<FED-FUNDS-SOLD> 1,304,351
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,576,906
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 13,398,056
<ALLOWANCE> (305,690)
<TOTAL-ASSETS> 35,915,431
<DEPOSITS> 19,809,744
<SHORT-TERM> 11,000,000
<LIABILITIES-OTHER> 465,984
<LONG-TERM> 0
<COMMON> 12,000
0
0
<OTHER-SE> 4,627,703
<TOTAL-LIABILITIES-AND-EQUITY> 35,915,431
<INTEREST-LOAN> 899,422
<INTEREST-INVEST> 878,739
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,778,161
<INTEREST-DEPOSIT> 738,477
<INTEREST-EXPENSE> 1,378,809
<INTEREST-INCOME-NET> 399,352
<LOAN-LOSSES> 3,600
<SECURITIES-GAINS> 51,647
<EXPENSE-OTHER> 1,048,198
<INCOME-PRETAX> (68,591)
<INCOME-PRE-EXTRAORDINARY> (14,961)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,961)
<EPS-PRIMARY> (0.013)
<EPS-DILUTED> (0.013)
<YIELD-ACTUAL> 8.26
<LOANS-NON> 281,825
<LOANS-PAST> 112,916
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 386,100
<ALLOWANCE-OPEN> 362,559
<CHARGE-OFFS> 73,654
<RECOVERIES> 12,052
<ALLOWANCE-CLOSE> 305,690
<ALLOWANCE-DOMESTIC> 305,690
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
