SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended March 31, 1996
Commission File Number 33-20685
SEAWAY FINANCIAL CORPORATION
200 S. Riverside Avenue
St. Clair, Michigan 48079
Incorporated in the State of Michigan.
I.R.S. Employer I.D. Number 38-2785653
Registrant's Telephone Number, (including area code): (810) 329-2244
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
Number of shares of Registrant's Common Stock, $1.00 par value,
outstanding as of March 31, 1996 - 1,685,430.
1
<PAGE> 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets See Attached Schedules
Consolidated Statement of Income See Attached Schedules
Consolidated Statement of Cash Flow See Attached Schedules
Item 2. Management's discussion and analysis of financial
condition and results of operations.
Interim Financial Statement: The Interim Financial Statements
furnished include all adjustments which, in the opinion of
management, are necessary to reflect fair statements of the
results for the interim period presented and are recurring in
nature.
Earnings: Seaway reported net income of $1,094,000 in the first
three months of 1996 compared to $980,000 in the same period in
1995. Net income for the three months was $.65 per share as
compared to the first three months of 1995 at $.58 after
adjustment for stock dividend. On an annualized basis, return on
average stockholders' equity was 11.14% in the first three months
of 1996 versus 11.07% in the first three months of 1995. On an
annualized basis, return on average assets moved to 1.25% from
1.13% in the same period for 1995.
Net Interest Income: For the first three months of 1996, net
interest income was $3,620,000, an 7.0% increase from the first
three months of 1995 net interest income of $3,383,000.
A March 1996 to March 1995 comparison indicates an increase in
Commercial Loans, Real Estate Mortgages and Consumer Loans.
Total loans excluding Loans Held for Sale, increased by
$13,904,000 or 7.7% from March 31, 1995. We are continuing to
work on increasing our loan portfolio.
Other Income: Total other income in the first three months of
1996 increased to $945,000 from $925,000 in the first three
months of 1995, for a increase of 2.2%. The key factors were an
increase in Mutual Funds and Brokerage Fees totaling $17,000; an
increase of $15,000 in Service Charges on Deposit accounts; and a
decrease of $8,000 in Service Fees.
<PAGE> 2
All fixed rate mortgage loans for 1-4 residential units are
specifically originated for sale. Mortgages held for sale in
1996 was at $576 and in 1995 was at $0. With the constant
pressure on interest margins, management is very conscious that
Other income must be grown to offset the continuing increase in
2
cost of doing business.
LOANS HELD FOR SALE
(in thousands)
YTD YTD YTD
3/31/96 12/31/95 3/31/95
Loan originations sold for the
period ending $1,166 $ 6,959 $ 338
Gains on loan originations sold
for the period ending $ (7) $ 41 $ 1
At 3/31/96 12/31/95 3/31/95
Loans originated for sale -
not yet sold $ 576 $ 0 $ 0
Other Expenses: Total Other Expenses increased by 1.0% or
$31,000 in the first three months of 1996 compared to the first
three months of 1995. The major portion of this increase was in
salary and benefits expenses which increased by $90,000, or 5.2%,
above 1995 levels. Occupancy and Equipment expenses increased by
$46,000 above the first three months 1995. Marketing Expense
increased by $35,000. Software costs increased by $20,000 for
the first three months of 1996 as compared to the first three
months of 1995. Very significantly, FDIC Assessment Fees
decreased $158,000 and Michigan taxes decreased $14,000 in this
same period.
We continue to look at ways to reduce our operating costs.
Reserve/Provision for Loan Losses: Management at each subsidiary
Bank monitors the adequacy of the reserve on a quarterly basis
with an in-depth review of all non-accrual loans, other real
estate, loans 90 days past due and all other loans where the
financial statements of the Borrower reveal a deterioration in
financial strength. After each such review, specific sums in the
loan loss reserve are allocated to weak situations and the
remaining balance is tested for adequacy when measured by
historical loss experience and contemplated changes in the
economic environment. At all times during the past three years,
the reserve accounts were deemed to be fully adequate to cover
the credit risks in each of the bank portfolios. A specific loan
loss reserve does not exist for potential losses on loan
commitments. No losses from loan commitments have occurred in
1996, 1995 or 1994.
<PAGE> 3
Management is not aware of any loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention that
3
have not been disclosed under Item III of Industry Guide III that
(1) represent or result from trends or uncertainties which
management reasonably expects will materially impact future
operating results, liquidity or capital resources, or
(2) represent material credits about which management is aware of
any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan
repayment terms. We know of no trends, events or uncertainties
that presently exist that are reasonably likely to have a
material effect on our liquidity, capital resources or
operations. The regulatory authorities have not made any
recommendations that would impact our liquidity, capital
resources or operations.
At March 31, 1996 the allowance account was $2,341,000 which
represented 1.20% of total loans outstanding. Our current goal
is to maintain the reserve for loan losses at 1.20% of total
loans outstanding. At March 31, 1995 this reserve account was
$2,185,000 or 1.21% of total loans outstanding. At December 31,
1995 the reserve for loan losses was $2,294,000 which was 1.19%
of total loans outstanding. Loan losses net of recoveries were
$4,000 for the first three months of 1996.
ALLOWANCE FOR LOAN LOSSES
(in thousands)
Six Months Ended
03/31/96 12/31/95 03/31/95
Allowance for loan losses as a
percentage of nonperforming
loans 89.2% 145.6% 160.3%
Allowance for loan losses as a
percentage of nonperforming
assets 70.2% 135.3% 131.5%
Allowance for loan losses as a
percentage of loans outstanding
at three months end 1.20% 1.19% 1.21%
Seaway Financial Corporation adopted FAS 114 on January 1, 1995.
Based on the analysis of expected cash flows and collected
values, no additional allowance for possible loan losses was
deemed necessary for impaired loans at March 31, 1996.
Non-Performing Assets: Non-Performing Assets are defined as Non-
Accrual, Other Real Estate Owned and Restructured Loans.
Generally, the accrual of interest income on a loan is suspended
when the loan becomes 90 days past due unless the loan is fully
<PAGE> 4
collateralized and is in the process of collection. A
restructured loan is one that is accruing interest, but on which
4
concessions in the original terms of the loan have been made due
to a weakening in the financial strength of the borrower.
Management's policy for returning a non-performing loan to a
performing loan status is that the loan must be current (all
principal and interest payment made.) Any loan that is returned
to performing status is watched closely. It is not our practice
to loan split.
NON-PERFORMING ASSETS
(In Thousands)
Quarter Ended
03-31-96 12-31-95 03-31-95
Impaired loans under FAS 114 (1) $ 1,061 $ 1,236 $ 0
Non-accrual loans:
Restructured loans 0 0 0
Original terms 165 130 666
Accruing loans past due
90 Days or more 1,399 210 697
________ _________ ________
Total nonperforming loans $ 2,625 $ 1,576 $ 1,363
Other real estate owned 710 120 299
________ ________ ________
Total nonperforming assets $ 3,335 $ 1,696 $ 1,662
======== ======== ========
Nonperforming loans as a
percentage of total loans 1.35% .82% .75%
Nonperforming assets as a
percentage of total loans
plus other real estate owned 1.70% .88% .92%
Nonperforming assets as a
percentage of total assets .95% .49% .48%
Loan quality remained excellent as non-performing loans at March
31, 1996 were $2,625,000, or 1.35% of total loans. At March 31,
1995, non-performing loans were $1,363,000, or .75% of total
loans, which was an extremely low position in relation to the
peer group. Net loan chargeoffs for the first quarter of 1996
were $4,000, or .003% of average total loans.
<PAGE> 5
Investment Securities: Securities are recorded in accordance
with Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," which requires an investment in a security to be
classified based on the Corporation's intent with respect to
5
holding securities. The following summarizes the classification
of securities held at March 31, 1996 and 1995 as well as December
31, 1995.
Securities purchased, where the Corporation has both the positive
intent and ability to hold to maturity, are classified as held-
to-maturity and are recorded at cost adjusted for accumulated
amortization of premium and accretion of discount. Realized
gains and losses on sales of held-to-maturity securities, while
rare, are included in net securities gains based on the adjusted
cost of the specific item sold.
When securities are purchased and the Corporation intends to hold
the securities for an indefinite period of time but not
necessarily to maturity, they are classified as available-for-
sale and recorded at market value. Any decision to sell a
security available-for-sale would be based on various factors,
including significant movements in interest rates, changes in
maturity mix of the Corporation's assets and liabilities,
liquidity demands, regulatory capital considerations, and other
similar factors. Cost is adjusted for amortization of premiums
and accretion of discounts to maturity or, for mortgage-backed
securities, over the estimated life of the security. Unrealized
gains and losses on available-for-sale securities are excluded
from earnings and recorded as an amount, net of tax, in a
separate component of stockholders' equity.
<PAGE> 6
INVESTMENT SECURITIES
03/31/96 03/31/95
Amort Cost Amort Cost
U.S. Government agencies $38,513 $38,554 $48,862 $47,952
and obligations - A.F.S.
U.S. Government agencies 0 0 0 0
and obligations - H.T.M.
Municipal Bonds - H.T.M. 39,868 40,949 38,772 39,548
Municipal Bonds - A.F.S. 1,093 1,102 222 222
Other Securities - A.F.S. 1,863 1,900 1,863 1,944
Other Securities - H.T.M. 12,825 12,751 18,000 17,741
Mortgage Backed 36,468 36,379 32,979 32,202
Securities - A.F.S. _______ _______ _______ _______
Total Investments $130,630 $131,635 $140,698 $139,609
======== ======== ======== ========
6
Available for Sale
U.S. Government agencies $38,554 $47,952
and obligations
Municipal Bonds 1,102 222
Other Securities 1,900 1,944
Mortgage Backed Securities 36,379 32,202
_______ _______
Total $77,935 $82,320
======= =======
Held to Maturity:
U.S. Government agencies $ 0 $ 0
and obligations
Municipal Bonds 39,868 38,772
Other Securities 12,825 18,000
Mortgage Back Securities 0 0
_______ _______
Total $52,693 $56,772
======= =======
<PAGE> 7
INVESTMENT SECURITIES
03/31/96 12/31/95
Amort Cost Amort Cost
U.S. Government agencies $38,513 $38,554 $39,278 $39,316
and obligations - A.F.S.
U.S. Government agencies 0 0 0 0
and obligations - H.T.M.
Municipal Bonds - H.T.M. 39,868 40,949 38,136 39,462
Municipal Bonds - A.F.S. 1,093 1,102 1,097 1,114
Other Securities - A.F.S. 1,863 1,900 1,863 1,950
Other Securities - H.T.M. 12,825 12,751 8,643 8,537
Mortgage Backed 36,468 36,379 35,044 35,043
Securities - A.F.S. _______ _______ _______ _______
7
Total Investments $130,630 $131,635 $124,061 $125,422
======== ======== ======== ========
Available for Sale
U.S. Government agencies $38,554 $39,316
and obligations
Municipal Bonds 1,102 1,114
Other Securities 1,900 1,950
Mortgage Backed Securities 36,379 35,043
_______ _______
Total $77,935 $77,423
======= =======
Held to Maturity:
U.S. Government agencies $ 0 $ 0
and obligations
Municipal Bonds 39,868 38,136
Other 12,825 8,643
Mortgage Back Securities 0 0
_______ _______
Total $52,693 $46,779
======= =======
<PAGE> 8
Investment securities decreased in the first three months of 1996
as compared to the first three months of 1995.
Liquidity: At March 31, 1996, Seaway's net liquidity ratio was
4l.0%. At December 31, 1995, this ratio was 43.4% and at March
31, 1995, it was 32.2%. Net liquid assets are comprised of
investment securities that are not pledged, federal funds sold,
bankers acceptances, cash and due from banks and time deposits in
other banks, less any reserve requirements.
This strong liquidity position allows us to meet any increasing
loan demands of our customers or to absorb any short term decline
in deposits which might be experienced.
Captial Management: Seaway is dedicated to maintaining a capital
position in excess of eight percent equity capital to total
assets. In light of the current regulatory and banking
environment, this is more important today than it ever has been.
Depositor and investor confidence is necessary to continue to
8
operate profitably. This also places the Corporation in a
position to expand through new offices or acquisitions should
these opportunities arise. Seaway's primary capital ratio which
includes stockholders' equity plus loan reserves less market
valuation, at March 31, 1996 was 11.91% and 11.37% at March 31,
1995 and 11.85% at December 31, 1995. Return on equity capital
at March 31, 1996 was 11.09%. This same ratio was 10.79% at
March 31, 1995 and 10.40% at December 31, 1995.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the reqistrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SEAWAY FINANCIAL CORPORATION
Date: May 13, 1996 /s/Franklin H. Moore, Jr.
Franklin H. Moore, Jr.
Chairman of the Board of Directors
and Treasury as Principal Executive
Officer and Principal Financial and
Chief Accounting Officer of the
Registrant
<PAGE> 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
On April 11th, the Annual Stockholders' Meeting was
held with an attendance of more than 100 people. All
Directors were re-elected to a one year term.
Item 6. Exhibits and Reports on Form 8-K
9
None
<PAGE> 11
ATTACHED SCHEDULES
<PAGE> 12
SEAWAY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and March 31, 1995
1996 1995
(000's) (000's)
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 10,642 $ 10,658
Federal Funds Sold 3,450 6,650
_______ ______
10
Total cash and cash equivalents 14,092 17,308
TIME DEPOSITS WITH OTHER BANKS 0 0
MORTGAGES HELD FOR SALE 576 0
INVESTMENT SECURITIES HELD TO MATURITY 52.693 56,772
(At cost)
INVESTMENT SECURITIES AVAILABLE FOR SALE 77,935 82,320
(At market) _______ _______
Total Investment Securities 130,628 139,092
LOANS 195,137 181,233
LESS RESERVE FOR POSSIBLE LOAN LOSSES (2,341) (2,185)
_________ ________
Net Loans 192,796 179,048
BANK PREMISES AND EQUIPMENT 7,696 6,904
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS 5,431 5,777
_______ _______
Total Assets $351,219 $348,129
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Interest Bearing $276,519 $252,253
Non-interest Bearing 33,629 30,802
_______ _______
Total Deposits 310,148 283,055
SHORT-TERM BORROWINGS 180 24,633
ACCRUED INTEREST, TAXES AND OTHER LIABILITIES 1,441 4,116
_______ _______
Total Liabilities 311,769 311,804
STOCKHOLDERS' EQUITY
Common Stock 1,685 1,532
Capital Surplus 31,288 26,084
Undivided Profits 6,519 9,764
Unrealized gain/loss on sec- A-F-S (42) (1,055)
_______ ________
Total stockholders' equity 39,450 36,325
Total liabilities and stockholders' equity $351,219 $348,129
======= =======
<PAGE> 13
11
SEAWAY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
1996 1995
(000's) (000's)
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 10,642 $ 11,058
Federal Funds Sold 3,450 10,700
_______ ______
Total cash and cash equivalents 14,092 21,758
TIME DEPOSITS WITH OTHER BANKS 0 0
MORTGAGES HELD FOR SALE 576 0
INVESTMENT SECURITIES HELD TO MATURITY 52.693 46,779
(At cost)
INVESTMENT SECURITIES AVAILABLE FOR SALE 77,935 77,423
(At market) _______ _______
Total Investment Securities 130,628 124,202
LOANS 195,137 192,283
LESS RESERVE FOR POSSIBLE LOAN LOSSES (2,341) (2,294)
_________ ________
Net Loans 192,796 189,989
BANK PREMISES AND EQUIPMENT 7,696 7,626
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS 5,431 4,254
_______ _______
Total Assets $351,219 $347,829
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS
Interest Bearing $276,519 $269,640
Non-interest Bearing 33,629 36,736
_______ _______
Total Deposits 310,148 306,376
SHORT-TERM BORROWINGS 180 760
ACCRUED INTEREST, TAXES AND OTHER LIABILITIES 1,441 1,662
_______ _______
Total Liabilities 311,769 308,798
STOCKHOLDERS' EQUITY
12
Common Stock 1,685 1,685
Capital Surplus 31,288 31,288
Undivided Profits 6,519 5,965
Unrealized gain/loss on sec- A-F-S (42) (93)
_______ ________
Total stockholders' equity 39,450 39,031
Total liabilities and stockholders' equity $351,219 $347,829
======= =======
<PAGE> 14
SEAWAY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ending March 31, 1996 and 1995
1996 1995
(000's) (000's)
INTEREST INCOME
Interest and fees on loans $ 4,348 $ 3,929
Investment Securities
Taxable 1,276 1,427
Tax Exempt 543 548
Short-term investments 119 26
Mortgages held for sale 3 0
______ ______
Total interest income 6,289 5,930
______ ______
INTEREST EXPENSE
Deposits 2,662 2,237
Short-term borrowings 7 310
______ ______
Total interest expense 2,669 2,547
______ ______
NET INTEREST INCOME 3,620 3,383
PROVISION FOR LOAN LOSSES 51 18
______ ______
NET INTEREST INCOME AFTER PROVISION 3,569 3,365
______ _____
OTHER OPERATING INCOME
Service Charges on deposit accounts 266 251
Income from fiduciary activities 449 445
Gains(losses) on security transactions 0 0
13
Gain on sales of mortgage loans (7) 1
Bankcard processing fees 43 47
Other 194 181
______ ______
Total other operating income 945 925
______ ______
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,812 1,722
Net occupancy costs 502 456
Supplies 141 122
Processing fees 177 177
Professional fees 67 86
FDIC assessment 1 159
Marketing 79 44
Other 319 301
______ ______
Total other operating expense 3,098 3,067
INCOME BEFORE INCOME TAXES 1,416 1,223
PROVISION FOR INCOME TAXES 322 243
______ ______
NET INCOME $ 1,094 $ 980
====== ======
NET INCOME PER COMMON SHARE $ 0.65 $ 0.58
====== ======
CASH DIVIDENDS PER COMMON SHARE $ 0.32 $ 0.27
====== ======
AVG NUMBER OF COMMON SHARES OUTSTANDING 1,685,430 1,685,430
========= =========
<PAGE> 15
SEAWAY FINANCIAL CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
1996 1995
(000's) (000's)
CASH FLOWS FROM OPERATING ACTIVITIES: $ 1,094 $ 980
Net income
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of fixed assets 44 0
Depreciation and amortization 259 243
Provision for possible loan losses 51 18
14
Increase in accr. int. & other assets (996) (433)
Increase (decrease) in accrued expenses
and other liabilities (199) 2,398
Amortization and accretion on securities 171 530
Net increase in mortgages held for sale (576) 0
______ ______
Total adjustments (1,246) 2,756
______ ______
NET CASH PROVIDED BY OPERATING ACTIVITIES (152) 3,736
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities
Proceeds from maturities A-F-S 7,083 1,564
Proceeds from maturities H-T-M 8,842 1,733
Proceeds from sales A-F-S 0 1,001
Purchases A-F-S (7,954) (3,324)
Purchases H-T-M (14,773) (1,019)
Net increase in loans (2,858) (2,354)
Capital expenditures (506) (693)
______ ______
NET CASH USED IN INVESTING ACTIVITIES (10,166) (3,092)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, now and
savings deposits (8,144) (5,444)
Net increase in certificate of deposit 11,916 6,208
Dividends paid (540) (460)
Net (decrease) increase in short term
borrowing (580) 5,767
______ ______
NET CASH USED IN FINANCING ACTIVITIES 2,652 6,071
______ ______
Net increase (decrease) in cash
and cash equivalents (7,666) 6,715
CASH AND CASH EQUIVALENTS AT JANUARY 1 21,758 10,593
______ ______
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 14,092 $ 17,308
====== ======
<PAGE> 16
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
15
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,642
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,935
<INVESTMENTS-CARRYING> 52,693
<INVESTMENTS-MARKET> 53,700
<LOANS> 195,137
<ALLOWANCE> 2,341
<TOTAL-ASSETS> 351,219
<DEPOSITS> 310,148
<SHORT-TERM> 180
<LIABILITIES-OTHER> 1,441
<LONG-TERM> 0
<COMMON> 1,685
0
0
<OTHER-SE> 37,765
<TOTAL-LIABILITIES-AND-EQUITY> 351,219
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<INTEREST-TOTAL> 6,289
<INTEREST-DEPOSIT> 2,662
<INTEREST-EXPENSE> 2,669
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<NET-INCOME> 1,094
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 4.41
<LOANS-NON> 165
<LOANS-PAST> 1,399
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,294
<CHARGE-OFFS> 16
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 2,341
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<ALLOWANCE-UNALLOCATED> 998
16
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