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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Dearborn Bancorp, Inc. (MM) | NASDAQ:DEAR | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.20 | 0 | 01:00:00 |
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Michigan | 38-3073622 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.) |
1360 Porter Street, Dearborn, MI | 48124 | |
(Address of principal executive office) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company þ | |||
(Do not check if a smaller reporting Company) |
Class | Shares Outstanding | |
Common Stock | 7,687,470 |
2
3
ITEM 1. | FINANCIAL STATEMENTS |
(Unaudited) | (Unaudited) | |||||||||||
(Dollars, in thousands) | 3/31/2010 | 12/31/2009 | 3/31/2009 | |||||||||
ASSETS
|
||||||||||||
Cash and cash equivalents
|
||||||||||||
Cash and due from banks
|
$ | 8,047 | $ | 7,803 | $ | 11,881 | ||||||
Federal funds sold
|
57 | 156 | 6,841 | |||||||||
Interest bearing deposits with banks
|
70,898 | 69,538 | 53,262 | |||||||||
|
||||||||||||
Total cash and cash equivalents
|
79,002 | 77,497 | 71,984 | |||||||||
|
||||||||||||
Mortgage loans held for sale
|
758 | 1,129 | 3,009 | |||||||||
Securities available for sale
|
45,931 | 45,964 | 45,368 | |||||||||
Securities held to maturity
|
336 | 336 | 0 | |||||||||
Federal Home Loan Bank stock
|
3,698 | 3,698 | 3,614 | |||||||||
Loans
|
||||||||||||
Loans
|
813,961 | 833,136 | 900,055 | |||||||||
Allowance for loan losses
|
(30,288 | ) | (35,125 | ) | (18,632 | ) | ||||||
|
||||||||||||
Net loans
|
783,673 | 798,011 | 881,423 | |||||||||
|
||||||||||||
Premises and equipment, net
|
19,973 | 20,194 | 21,001 | |||||||||
Real estate owned
|
24,467 | 23,435 | 14,624 | |||||||||
Other intangible assets
|
| | 4,394 | |||||||||
Accrued interest receivable
|
3,595 | 3,562 | 3,920 | |||||||||
Other assets
|
9,266 | 12,660 | 24,407 | |||||||||
|
||||||||||||
|
||||||||||||
Total assets
|
$ | 970,699 | $ | 986,486 | $ | 1,073,744 | ||||||
|
||||||||||||
|
||||||||||||
LIABILITIES
|
||||||||||||
Deposits
|
||||||||||||
Non-interest bearing deposits
|
$ | 86,407 | $ | 83,873 | $ | 80,624 | ||||||
Interest bearing deposits
|
765,610 | 784,082 | 826,955 | |||||||||
|
||||||||||||
Total deposits
|
852,017 | 867,955 | 907,579 | |||||||||
|
||||||||||||
Other liabilities
|
||||||||||||
Securities sold under agreements to repurchase
|
| | 2,268 | |||||||||
Federal Home Loan Bank advances
|
63,799 | 63,855 | 54,955 | |||||||||
Accrued interest payable
|
956 | 1,046 | 1,372 | |||||||||
Other liabilities
|
747 | 1,685 | 606 | |||||||||
Subordinated debentures
|
10,000 | 10,000 | 10,000 | |||||||||
|
||||||||||||
Total liabilities
|
927,519 | 944,541 | 976,780 | |||||||||
|
||||||||||||
COMMITMENT AND CONTINGENT LIABILITIES
|
| | | |||||||||
|
||||||||||||
STOCKHOLDERS EQUITY
|
||||||||||||
Common stock no par value 20,000,000 shares
authorized, 7,687,470 at 3/31/10, 7,687,470
shares at 12/31/09 and 7,696, 204 shares at 3/31/09
|
131,960 | 131,929 | 131,825 | |||||||||
Accumulated deficit
|
(88,721 | ) | (89,850 | ) | (34,923 | ) | ||||||
Accumulated other comprehensive income (loss)
|
(59 | ) | (134 | ) | 62 | |||||||
|
||||||||||||
Total stockholders equity
|
43,180 | 41,945 | 96,964 | |||||||||
|
||||||||||||
|
||||||||||||
Total liabilities and stockholders equity
|
$ | 970,699 | $ | 986,486 | $ | 1,073,744 | ||||||
|
4
Three Months Ended | Three Months Ended | |||||||
(In thousands, except share data) | 3/31/2010 | 3/31/2009 | ||||||
Interest income
|
||||||||
Interest on loans
|
$ | 11,778 | $ | 13,810 | ||||
Interest on securities, available for sale
|
168 | 256 | ||||||
Interest on deposits with banks
|
37 | 94 | ||||||
Interest on federal funds
|
1 | 6 | ||||||
|
||||||||
Total interest income
|
11,984 | 14,166 | ||||||
|
||||||||
Interest expense
|
||||||||
Interest on deposits
|
3,543 | 5,998 | ||||||
Interest on other liabilities
|
386 | 651 | ||||||
|
||||||||
Total interest expense
|
3,929 | 6,649 | ||||||
|
||||||||
Net interest income
|
8,055 | 7,517 | ||||||
Provision for loan losses
|
100 | 10,727 | ||||||
|
||||||||
|
||||||||
Net interest income (loss) after provision for loan losses
|
7,955 | (3,210 | ) | |||||
|
||||||||
|
||||||||
Non-interest income
|
||||||||
Service charges on deposit accounts
|
343 | 355 | ||||||
Fees for other services to customers
|
36 | 25 | ||||||
Gain on the sale of loans
|
58 | 56 | ||||||
Gain on the sale of securities
|
69 | 195 | ||||||
Other than temporary impairment on securities, held to maturity
|
||||||||
Portion of loss recognized in other comprehensive income before taxes
|
||||||||
Net impairment losses recognized in earnings
|
| | ||||||
Gain (loss) on the sale of real estate owned
|
(11 | ) | 29 | |||||
Loss on the write-down of real estate owned
|
(656 | ) | (354 | ) | ||||
Other income
|
102 | 22 | ||||||
|
||||||||
Total non-interest income (loss)
|
(59 | ) | 328 | |||||
|
||||||||
Non-interest expense
|
||||||||
Salaries and employee benefits
|
3,119 | 3,290 | ||||||
Occupancy and equipment expense
|
854 | 934 | ||||||
Amortization of intangible expense
|
| 198 | ||||||
FDIC assessment
|
950 | 348 | ||||||
Advertising and marketing
|
27 | 70 | ||||||
Stationery and supplies
|
72 | 111 | ||||||
Professional services
|
166 | 191 | ||||||
Data processing
|
186 | 228 | ||||||
Defaulted loan expense
|
1,035 | 761 | ||||||
Other operating expenses
|
359 | 380 | ||||||
|
||||||||
Total non-interest expense
|
6,768 | 6,511 | ||||||
|
||||||||
|
||||||||
Income (loss) before federal income tax expense
|
1,128 | (9,393 | ) | |||||
Income tax expense (benefit)
|
| (3,144 | ) | |||||
|
||||||||
|
||||||||
Net income (loss)
|
$ | 1,128 | ($6,249 | ) | ||||
|
||||||||
|
||||||||
Per share data:
|
||||||||
Net income (loss) basic
|
0.15 | (0.81 | ) | |||||
Net income (loss) diluted
|
0.15 | (0.81 | ) | |||||
|
||||||||
Weighted average number of shares outstanding basic
|
7,687,470 | 7,696,204 | ||||||
Weighted average number of shares outstanding diluted
|
7,687,470 | 7,696,204 |
5
Three Months Ended | Three Months Ended | |||||||
(In thousands) | 03/31/10 | 03/31/09 | ||||||
Net income (loss)
|
$ | 1,128 | ($6,249 | ) | ||||
Other comprehensive income , net of tax
|
||||||||
Unrealized gains on securities
|
||||||||
Unrealized holding gains (losses) arising during period
|
45 | (407 | ) | |||||
Less: reclassification adjustment for gains included
in net income
|
69 | 195 | ||||||
Tax effects
|
39 | 72 | ||||||
|
||||||||
Other comprehensive income (loss)
|
75 | (140 | ) | |||||
|
||||||||
|
||||||||
Comprehensive income (loss)
|
$ | 1,203 | ($6,389 | ) | ||||
|
6
Three Months Ended | ||||||||
(In thousands) | 3/31/2010 | 3/31/2009 | ||||||
Cash flows from operating activities
|
||||||||
Interest and fees received
|
$ | 11,951 | $ | 13,745 | ||||
Interest paid
|
(4,019 | ) | (6,972 | ) | ||||
Proceeds from sale of mortgages held for sale
|
4,654 | 6,990 | ||||||
Origination of mortgages held for sale
|
(4,225 | ) | (8,062 | ) | ||||
Taxes refunded
|
4,074 | | ||||||
Loss on sale of real estate owned
|
(11 | ) | 29 | |||||
Gain on sale of securities
|
(69 | ) | (195 | ) | ||||
Cash paid to suppliers and employees
|
(7,331 | ) | (5,090 | ) | ||||
|
||||||||
Net cash provided by operating activities
|
5,024 | 445 | ||||||
|
||||||||
Cash flows from investing activities
|
||||||||
Sale of securities available for sale
|
8,289 | 10,230 | ||||||
Proceeds from calls, maturities and repayments of securities available for sale
|
2,514 | 49,014 | ||||||
Purchases of securities available for sale
|
(10,689 | ) | (20,709 | ) | ||||
(Increase) decrease in loans, net of payments received
|
11,666 | 20,211 | ||||||
Proceeds from the sale of real estate owned
|
742 | 928 | ||||||
Purchases of property and equipment
|
(47 | ) | (64 | ) | ||||
|
||||||||
Net cash provided by investing activities
|
12,475 | 59,610 | ||||||
|
||||||||
Cash flows from financing activities
|
||||||||
Net decrease in non-interest bearing deposits
|
2,534 | (693 | ) | |||||
Net increase in interest bearing deposits
|
(18,472 | ) | (30,123 | ) | ||||
Increase (decrease) in repurchase agreements
|
| (193 | ) | |||||
Repayments on Federal Home Loan Bank advances
|
(56 | ) | (10,064 | ) | ||||
|
||||||||
Net cash used in financing activities
|
(15,994 | ) | (41,073 | ) | ||||
|
||||||||
Increase in cash and cash equivalents
|
1,505 | 18,982 | ||||||
Cash and cash equivalents at the beginning of period
|
77,497 | 53,002 | ||||||
|
||||||||
|
||||||||
Cash and cash equivalents at the end of period
|
$ | 79,002 | $ | 71,984 | ||||
|
7
Three Months Ended | ||||||||
(In thousands) | 3/31/2010 | 3/31/2009 | ||||||
Reconciliation of net income to net cash provided by operating activities
|
||||||||
Net income (loss)
|
$ | 1,128 | ($6,249 | ) | ||||
Adjustments to reconcile net income to net cash
|
||||||||
Provided by operating activities
|
||||||||
Provision for loan losses
|
100 | 10,727 | ||||||
Depreciation and amortization expense
|
268 | 335 | ||||||
Restricted stock award expense
|
16 | 22 | ||||||
Stock option expense
|
16 | 19 | ||||||
Accretion of discount on investment securities
|
(41 | ) | 33 | |||||
Amortization of premium on investment securities
|
105 | | ||||||
Write-down of real estate owned
|
798 | 561 | ||||||
Amortization of intangible assets
|
| 198 | ||||||
(Increase) decrease in mortgages held for sale
|
371 | (1,175 | ) | |||||
Increase in interest receivable
|
(33 | ) | (421 | ) | ||||
Decrease in interest payable
|
(90 | ) | (323 | ) | ||||
(Increase) decrease in other assets
|
3,324 | (2,851 | ) | |||||
Increase (decrease) in other liabilities
|
(938 | ) | (431 | ) | ||||
|
||||||||
|
||||||||
Net cash provided by operating activities
|
$ | 5,024 | $ | 445 | ||||
|
||||||||
|
||||||||
Supplemental noncash disclosures:
|
||||||||
Transfers from loans to real estate owned
|
$ | 2,572 | $ | 6,456 |
8
A. | Accounting and Reporting Policies | |
The condensed consolidated financial statements of Dearborn Bancorp, Inc. (the Corporation) include the consolidation of its only subsidiary, Fidelity Bank (the Bank). The accounting and reporting policies of the Corporation are in accordance with accounting principles generally accepted in the United States of America and conform to practice within the banking industry. | ||
The condensed consolidated financial statements of the Corporation as of March 31, 2010 and 2009, and December 31, 2009 and for the three month period ended March 31, 2010 and 2009 reflect all adjustments, consisting of normal recurring items which are in the opinion of management, necessary for a fair presentation of the results for the interim period. The condensed consolidated balance sheet of the Corporation as of December 31, 2009 has been derived from the audited consolidated balance sheet as of that date. The operating results for the three month periods ended March 31, 2010 are not necessarily indicative of results of operations for the entire year. | ||
The condensed consolidated financial statements as of March 31, 2010 and 2009, and for the three month period ended March 31, 2010 and 2009 included herein have been prepared by the Corporation, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in interim financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereon included in the Corporations 2009 Annual Report on Form 10-K. | ||
Certain of the Corporations accounting policies are important to the portrayal of the Corporations financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these material judgments include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and determining the fair value of securities and other financial instruments and assessing other than temporary impairments of securities. |
9
A. | Accounting and Reporting Policies (cont) | |
Income (Loss) Per Share | ||
Basic income (loss) per share is net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share includes the dilutive effect of additional potential common shares issuable under stock options. Income (loss) per share is restated for all stock splits and dividends through the date of issue of the financial statements. | ||
Factors in the basic and diluted income (loss) per share calculation follow (in thousands, except share and per share data): |
Three Months Ended | ||||||||
3/31/2010 | 3/31/2009 | |||||||
Basic
|
||||||||
Net income (loss)
|
$ | 1,128 | ($6,249 | ) | ||||
|
||||||||
Weighted average common shares
|
7,687,470 | 7,696,204 | ||||||
|
||||||||
Basic earnings per common share
|
$ | 0.15 | ($0.81 | ) | ||||
|
||||||||
Diluted
|
||||||||
Net income (loss)
|
$ | 1,128 | ($6,249 | ) | ||||
|
||||||||
Weighted average common shares outstanding
for basic earnings per common share
|
7,687,470 | 7,696,204 | ||||||
|
||||||||
Add: Dilutive effects of assumed exercise
of stock options
|
| | ||||||
|
||||||||
|
||||||||
Average shares and dilutive potential common shares
|
7,687,470 | 7,696,204 | ||||||
|
||||||||
|
||||||||
Dilutive earnings per common share
|
$ | 0.15 | ($0.81 | ) |
Stock options for 511,717 and 619,742 shares of common stock were not considered in computing diluted earnings per common share for the three months ended March 31, 2010 and 2009, respectively, because they were antidilutive. All share and per share amounts have been adjusted for stock dividends. |
10
A. | Accounting and Reporting Policies (cont) | |
Effect of Newly Issued Accounting Standards | ||
FASB ASC Topic 860-10, Accounting for Transfers of Financial Assets (SFAS 166), and No. 167, Amendments to FASB ASC 810-10 (SFAS 167). In June 2009, the Financial Accounting Standards Board (FASB) issued FASB ASC Topic 860-10 and FASB ASC 810-10, which change the way entities account for securitizations and special-purpose entities, and will have a material effect on how banking organizations account for off-balance sheet vehicles. The new standards amend Statement of FASB ASC 860-10, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FASB ASC 810-10, Consolidation of Variable Interest Entities. Both FASB ASC Topic 860-10 and FASB ASC Topic 810-10 were effective January 1, 2010 for companies reporting earnings on a calendar-year basis . | ||
On January 21, 2010, the Board of Governors of the Federal Reserve System issued final risk-based capital rules related to the adoption of these accounting standards by financial institutions. FAS 166 and FAS 167 make substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from their balance sheets. Banking organizations affected by FAS 166 and FAS 167 generally will be subject to higher risk-based regulatory capital requirements intended to better align risk-based capital requirements with the actual risks of certain exposures. | ||
The Corporation has adopted these standards, and takes into account in our internal capital planning processes the impact of these standards. We continue to assess whether additional capital may be necessary to support the risks associated with off-balance-sheet vehicles affected by the new accounting standards. The implementation of these standards did not have a material impact on the Corporations financial statements. | ||
FASB ASU 2010-09, Subsequent Event Amendments to Certain Recognition and Disclosure Requirements. On February 24, 2010, FASB issued Accounting Standards Update (ASU) 2010-09, Subsequent Event Amendments to Certain Recognition and Disclosure Requirements. The ASU establishes separate subsequent event recognition criteria and disclosure requirements for U.S. Securities and Exchange Commission (SEC) filers. Effective with the release date, the financial statements of SEC filers will no longer disclose either the date through which subsequent events were reviewed or that subsequent events were evaluated through the date financial statements were issued. The requirement to evaluate subsequent events through the date of issuance is still in place. Only the disclosure is affected. | ||
The ASU also removes the requirement to make those disclosures in financial statements revised for either a correction of an error or a retrospective application of an accounting change. SEC filers are defined in the update as entities required to file or to furnish their financial statements with either the SEC or another appropriate agency (such as the Federal Deposit Insurance Corporation or Office of Thrift Supervision) under Section 12(i) of the Securities and Exchange Act of 1934, as amended. |
11
B. | Securities |
March 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
US Government sponsored
agency securities
|
$ | 2,009 | $ | | ($6 | ) | $ | 2,003 | ||||||||
Corporate bonds
|
43,895 | 11 | (67 | ) | 43,839 | |||||||||||
Mortgage backed securities
|
86 | 3 | | 89 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Totals
|
$ | 45,990 | $ | 14 | ($73 | ) | $ | 45,931 | ||||||||
|
||||||||||||||||
|
December 31, 2009 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
US Government sponsored
agency securities
|
$ | 12,759 | $ | 20 | ($30 | ) | $ | 12,749 | ||||||||
Corporate bonds
|
33,308 | | (197 | ) | 33,111 | |||||||||||
Mortgage backed securities
|
101 | 3 | | 104 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Totals
|
$ | 46,168 | $ | 23 | ($227 | ) | $ | 45,964 | ||||||||
|
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year through five years
|
$ | 45,904 | $ | 45,842 | ||||
Mortgage backed securities
|
86 | 89 | ||||||
|
||||||||
|
||||||||
Totals
|
$ | 45,990 | $ | 45,931 | ||||
|
12
B. | Securities (cont) |
March 31, 2010 | ||||||||||||||||||||||||
Investment category | Less than one year | One year or more | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
US Government sponsored
entity securities
|
$ | 2,003 | ($6 | ) | $ | | $ | | $ | 2,003 | ($6 | ) | ||||||||||||
Corporate bonds
|
35,188 | (67 | ) | | | 35,188 | (67 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Total temporarily impaired
|
$ | 37,191 | ($73 | ) | $ | | $ | | $ | 37,191 | ($73 | ) | ||||||||||||
|
||||||||||||||||||||||||
|
December 31, 2009 | ||||||||||||||||||||||||
Investment category | Less than one year | One year or more | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
US Government sponsored
entity securities
|
$ | 6,657 | ($30 | ) | $ | | $ | | $ | 6,657 | ($30 | ) | ||||||||||||
Corporate bonds
|
33,111 | (197 | ) | | | 33,111 | (197 | ) | ||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Total temporarily impaired
|
$ | 39,768 | ($227 | ) | $ | | $ | | $ | 39,768 | ($227 | ) | ||||||||||||
|
For the three months ended | ||||||||
3/31/2010 | 3/31/2009 | |||||||
Gross Gains
|
$ | 69 | $ | 195 | ||||
Gross Losses
|
| |
13
B. | Securities (cont) |
March 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Trust preferred securities
|
$ | 336 | $ | 21 | $ | | $ | 357 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Totals
|
$ | 336 | $ | 21 | $ | | $ | 357 | ||||||||
|
||||||||||||||||
|
December 31, 2009 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Trust preferred securities
|
$ | 336 | $ | | $ | | $ | 336 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Totals
|
$ | 336 | $ | | $ | | $ | 336 | ||||||||
|
Credit losses on debt securities held | Amount | |||
Balance, January 1, 2010
|
$ | 414 | ||
|
||||
Additions related to other than temporary
|
||||
Losses not previously recognized
|
| |||
|
||||
|
||||
Balance, March 31, 2010
|
$ | 414 | ||
|
14
C. | Loans and Allowance for Loan Losses |
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Consumer loans
|
$ | 28,623 | $ | 29,386 | $ | 31,000 | ||||||
Commercial, financial, & other
|
141,338 | 144,630 | 161,138 | |||||||||
Land development loans residential property
|
36,089 | 38,472 | 50,028 | |||||||||
Land development loans non residential property
|
9,711 | 11,644 | 15,914 | |||||||||
Commercial real estate construction residential property
|
12,164 | 13,287 | 15,687 | |||||||||
Commercial real estate construction non residential
property
|
20,813 | 20,061 | 25,716 | |||||||||
Commercial real estate mortgages
|
521,701 | 531,156 | 548,692 | |||||||||
Residential real estate mortgages
|
43,522 | 44,500 | 51,880 | |||||||||
|
||||||||||||
|
||||||||||||
|
813,961 | 833,136 | 900,055 | |||||||||
Allowance for loan losses
|
(30,288 | ) | (35,125 | ) | (18,632 | ) | ||||||
|
||||||||||||
|
||||||||||||
|
$ | 783,673 | $ | 798,011 | $ | 881,423 | ||||||
|
3/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Troubled debt restructuring, accruing
|
$ | 31,737 | $ | 59,420 | $ | 19,506 | ||||||
Over 90 days past due and still accruing
|
1,127 | | | |||||||||
Non-accrual loans
|
81,163 | 49,341 | 55,148 | |||||||||
|
||||||||||||
Total non-performing loans
|
114,027 | 108,761 | 74,654 | |||||||||
|
||||||||||||
Real estate owned
|
24,467 | 23,435 | 14,624 | |||||||||
Other repossessed assets
|
| | | |||||||||
|
||||||||||||
Other non-performing assets
|
24,467 | 23,435 | 14,624 | |||||||||
|
||||||||||||
Total non-performing assets
|
$ | 138,494 | $ | 132,196 | $ | 89,278 | ||||||
|
15
C. | Loans and Allowance for Loan Losses (cont) |
Number of | ||||||||
Loans | Balance | |||||||
Consumer loans
|
16 | $ | 924 | |||||
Commercial, financial, & other
|
43 | 12,749 | ||||||
Land development loans residential property
|
21 | 23,260 | ||||||
Land development loans non residential property
|
2 | 1,558 | ||||||
Commercial real estate construction residential property
|
15 | 9,573 | ||||||
Commercial real estate construction non residential property
|
2 | 2,870 | ||||||
Commercial real estate mortgages
|
55 | 27,863 | ||||||
Residential real estate mortgages
|
14 | 2,366 | ||||||
|
||||||||
|
||||||||
Total non-accrual loans
|
168 | $ | 81,163 | |||||
|
The increase in non-accrual loans during the period was primarily due to the downgrading of 34 loans to non-accrual status for $32,315,000 and partially offset by net charge-offs of $4,937,000 and the transfer of 6 loans to other real estate for $2,572,000. This increase was primarily due to the migration of previously identified classified loans. Of this increase, all but approximately $2,600,000 were identified at December 31, 2009 as classified loans with reserves for losses established accordingly. | ||
The following is an analysis of the allowance for loan losses (in thousands): |
Three Months | Three Months | |||||||||||
Ended | Year Ended | Ended | ||||||||||
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Balance, beginning of year
|
$ | 35,125 | $ | 14,452 | $ | 14,452 | ||||||
|
||||||||||||
Charge-offs:
|
||||||||||||
Consumer loans
|
342 | 1,154 | 116 | |||||||||
Commercial, financial & other
|
1,521 | 4,878 | 1,108 | |||||||||
Land development loans residential property
|
1,292 | 9,441 | 2,881 | |||||||||
Land development loans non residential property
|
229 | 4,364 | 197 | |||||||||
Commercial real estate construction residential property
|
906 | 1,471 | 64 | |||||||||
Commercial real estate construction non residential
property
|
36 | 1,981 | 176 | |||||||||
Commercial real estate mortgages
|
558 | 6,919 | 2,113 | |||||||||
Residential real estate mortgages
|
109 | 701 | 25 | |||||||||
Recoveries:
|
||||||||||||
Consumer loans
|
23 | 176 | 3 | |||||||||
Commercial, financial & other
|
15 | 339 | 105 | |||||||||
Land development loans residential property
|
9 | 107 | | |||||||||
Commercial real estate construction residential property
|
1 | | | |||||||||
Commercial real estate mortgages
|
8 | 61 | 25 | |||||||||
Residential real estate mortgages
|
| 36 | | |||||||||
|
||||||||||||
|
||||||||||||
Net charge-offs (recoveries)
|
4,937 | 30,190 | 6,547 | |||||||||
|
||||||||||||
Provision for loan losses
|
100 | 50,863 | 10,727 | |||||||||
|
||||||||||||
|
||||||||||||
Balance, end of period
|
$ | 30,288 | $ | 35,125 | $ | 18,632 | ||||||
|
||||||||||||
|
||||||||||||
Allowance to total loans
|
3.72 | % | 4.22 | % | 2.07 | % | ||||||
|
||||||||||||
|
||||||||||||
Allowance to nonperforming assets
|
26.56 | % | 32.30 | % | 24.96 | % | ||||||
|
||||||||||||
|
||||||||||||
Net charge-offs to average loans
|
0.60 | % | 3.41 | % | 0.71 | % | ||||||
|
16
C. | Loans and Allowance for Loan Losses (cont) | |
The Bank recorded net charge-offs of $4,937,000 during the three months ended March 31, 2010. Specific allocations of $4,058,000 were recorded on these loans at December 31, 2009. These specific allocations were assigned because most of the charge-offs recorded during the first quarter of 2010 were based on information that was received in 2010 but where deterioration of the credit related to events that occurred in 2009. The remaining net charge-offs, which amount to $879,000 were on smaller balance loans that had a reserve for loan losses allocated to the loan based on their respective risk grading at December 31, 2009. As a result of these allocation recognized at December 31, 2009, it was determined no additional provision was needed related to these loans during the first quarter of 2010. The reserves established for classified loans are based on the information currently available to the Corporation. However, in these challenging economic conditions, information could become known in the future that could materially alter our estimate. | ||
A primary factor in the continued decline in the underlying value of our collateral and the decision to recognize these charge-offs was the continuing decline during the first three months of 2010 in the economic environment in Southeastern Michigan. This decline in economic conditions is heavily impacted by conditions and events that have recently impacted the automotive industry during 2009 and continue to impact the local economy. These conditions have had a negative impact on the residential real estate and commercial real estate markets in the Banks market area and these loans represent 79% of the Banks loan portfolio. These conditions have led to an increase in the Banks classified assets during 2010. Management has recognized this trend in our analysis of the allowance for loan losses at March 31, 2010. The allowance for loan losses was based upon managements assessment of relevant factors, including loan growth, types and amounts of non-performing loans, historical and anticipated loss experience on such types of loans, and current economic conditions. If collateral values continue to decline, additions to the allowance for loan losses will be required and will have an adverse effect on the Corporations earnings through increases to the provision for loan losses. | ||
The aggregate balance in impaired loans are as follows (in thousands): |
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Impaired loans with no allocated allowance for loan losses
|
$ | 88,079 | $ | 83,226 | $ | 95,499 | ||||||
Impaired loans with allocated allowance for loan losses
|
26,074 | 43,553 | 12,600 | |||||||||
|
||||||||||||
|
||||||||||||
Total
|
$ | 114,153 | $ | 126,779 | $ | 108,099 | ||||||
|
||||||||||||
|
||||||||||||
Amount of the allowance for loan loss allocated
|
$ | 6,827 | $ | 10,715 | $ | 4,915 |
17
D. | Incentive Stock Plans | |
Incentive stock awards have been granted to officers and employees under two Incentive Stock Plans. The first plan is the 1994 Stock Option Plan. Options to buy common stock have been granted to officers and employees under the 1994 Stock Option Plan, which provides for issue of up to 738,729 shares. Exercise price is the market price at date of grant. The maximum option term is ten years, and options vest fully after six months from the date of grant. | ||
There were 24,000 shares forfeited during the three months ended March 31, 2010. There were no options exercised during the three months ended March 31, 2010. For the options outstanding at March 31, 2010, the range of exercise prices was $4.28 to $14.65 per share with a weighted-average remaining contractual term of 1.9 years. At March 31, 2010, options for 336,398 shares were exercisable at weighted average exercise price of $8.89 per share. There was no intrinsic value at March 31, 2010. | ||
During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan, up to 347,248 shares may be granted to officers and employees of the Bank. This plan provides that stock awards may take the form of any combination of options, restricted shares, restricted share units or performance awards. | ||
The administration of the plan, including the granting of awards and the nature of those awards is determined by the Corporations Compensation Committee. The Corporations Board of Directors approved grants of stock options and restricted stock in 2005, 2006 and 2008. The awards have a term of ten years and typically vest fully three years from the grant date. In order for vesting to occur with some grants, the Corporation must meet certain performance criteria over the vesting period. The expected compensation cost of the 2005 plan is being calculated assuming the Corporations attainment of target performance goals over the vesting period of the awards. The actual cost of these awards could range from zero to 100% of the currently recorded compensation cost, depending on the Corporations actual performance. The awards granted in 2005 and 2006 did have such performance criteria. The awards granted in 2008 did not have performance criteria. | ||
Stock Options Granted Stock options were awarded to officers in 2005, 2006 and 2008. The incentive stock options were granted with exercise prices equal to market prices on the day of grant. At March 31, 2010, there were stock options outstanding for 190,846 shares with a weighted average exercise price of $5.33 per share. | ||
The Corporation recognized stock option compensation expense of $16,000 and $19,000 during the three months ended March 31, 2010 and 2009, respectively. Compensation cost of $62,000 and $26,000 is expected to be recognized during 2010 and 2011, respectively. | ||
Restricted Stock Grants Restricted stock was awarded to officers in 2005, 2006 and 2008. The restricted stock is eligible to vest three years from grant date. Upon full vesting, restricted shares are transferred to common shares. At March 31, 2010, there were 41,530 shares of restricted stock outstanding. |
18
D. | Incentive Stock Plans (cont) | |
The Corporation recognized restricted stock compensation expense of $16,000 and $22,000, respectively during the three months ended March 31, 2010 and 2009, respectively. Compensation cost of $62,000 and $26,000 is expected to be recognized during 2010 and 2011, respectively. | ||
E. | Fair Value of Assets and Liabilities | |
The Corporation has adopted fair value guidance which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. | ||
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was also established which requires an entity to maximize the use of observable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: |
Level 1 | Quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Observable inputs may include available credit information and bond terms and conditions of similar securities, market spreads, cash flow analysis and market concensus prepayment speeds. | ||
Level 2 securities include U.S. agency and U.S. government sponsored enterprise mortgage-backed securities. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed-income securities do not trade on a daily basis, apply available information through processes such as benchmark curves, benchmarking of like securities, sector grouping and matrix pricing. In addition, model processes, such as an option adjusted spread model is used to develop prepayment and interest rate scenarios for securities with prepayment features. | |||
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
19
E. | Fair Value of Assets and Liabilities ( cont) | |
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to our valuation hierarchy. | ||
Securities available for sale | ||
Fair values of securities, available for sale are estimated by a third party using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. | ||
The following table presents the fair value measurements of the Corporations assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at March 31, 2010, December 31, 2009 and March 31, 2009 (in thousands): |
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
At 3/31/2010 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
US Government sponsored agency
securities
|
$ | 2,003 | $ | | $ | 2,003 | $ | | ||||||||
Corporate bonds
|
43,839 | | 43,839 | | ||||||||||||
Mortgage backed securities
|
89 | | 89 | | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Total securities, available for sale
|
$ | 45,931 | $ | | $ | 45,931 | $ | | ||||||||
|
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
At 12/31/2009 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
US Government sponsored agency
securities
|
$ | 12,749 | $ | | $ | 12,749 | $ | | ||||||||
Corporate bonds
|
33,111 | | 33,111 | | ||||||||||||
Mortgage backed securities
|
104 | | 104 | | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Total securities, available for sale
|
$ | 45,964 | $ | | $ | 45,964 | $ | | ||||||||
|
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
At 3/31/2009 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
US Government sponsored agency
securities
|
$ | 28,657 | $ | | $ | 28,657 | $ | | ||||||||
Corporate bonds
|
15,205 | | 15,205 | | ||||||||||||
Municipal securities
|
1,335 | | 1,335 | | ||||||||||||
Mortgage backed securities
|
171 | | 171 | | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Total securities, available for sale
|
$ | 45,368 | $ | | $ | 45,368 | $ | | ||||||||
|
20
E. | Fair Value of Assets and Liabilities ( cont) | |
Impaired loans and other real estate owned | ||
Fair value adjustments for impaired and non-accrual loans typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. The Company measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property including equipment and inventory. The value of the collateral is determined based on internal estimates as well as third party appraisals or non-binding broker quotes. These measurements were classified as Level 3. The fair value of the Companys other real estate owned is determined using Level 3 inputs, which include current and prior appraisals and estimated costs to sell. | ||
The following table presents the fair value measurements of the Corporations assets and liabilities recognized in the accompanying balance sheet measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2010, December 31, 2009 and March 31, 2009 (in thousands): |
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
At 3/31/2010 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Loans
|
$ | 58,280 | $ | | $ | | $ | 58,280 | ||||||||
Other real estate
|
$ | 9,490 | $ | | $ | | $ | 9,490 |
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
At 12/31/2009 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Loans
|
$ | 60,905 | $ | | $ | | $ | 60,905 | ||||||||
Other real estate
|
$ | 7,601 | $ | | $ | | $ | 7,601 |
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
At 3/31/2009 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Loans
|
$ | 11,461 | $ | | $ | | $ | 11,461 | ||||||||
Other real estate
|
$ | 2,094 | $ | | $ | | $ | 2,094 |
21
E. | Fair Value of Assets and Liabilities ( cont) | |
The carrying amounts and estimated fair value of principal financial assets and liabilities were as follows: |
At March 31, 2010 | At December 31, 2009 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents
|
$ | 79,002 | $ | 79,002 | $ | 77,497 | $ | 77,497 | ||||||||
Mortgage loans held for sale
|
758 | 769 | 1,129 | 1,146 | ||||||||||||
Securities available for sale
|
45,931 | 45,931 | 45,964 | 45,964 | ||||||||||||
Federal Home Loan Bank Stock
|
3,698 | 3,698 | 3,698 | 3,698 | ||||||||||||
Loans, net
|
813,961 | 829,122 | 833,136 | 829,122 | ||||||||||||
Accrued interest receivable
|
3,595 | 3,595 | 3,562 | 3,562 | ||||||||||||
|
||||||||||||||||
Liabilities:
|
||||||||||||||||
Deposits
|
852,017 | 856,075 | 867,955 | 871,177 | ||||||||||||
Federal Home Loan Bank advances
|
63,799 | 64,291 | 63,855 | 64,275 | ||||||||||||
Subordinated debentures
|
10,000 | 4,081 | 10,000 | 4,081 | ||||||||||||
Accrued interest payable
|
956 | 956 | 1,046 | 1,046 |
Fair Value of Financial Instruments | ||
The following methods and assumptions were used by the Corporation in estimating its fair value disclosure for financial instruments: | ||
Cash and Cash Equivalents, Securities Sold Under Agreements to Repurchase, Interest-bearing Deposits and Federal Home Loan Bank Stock | ||
The carrying amount approximates fair value. | ||
Held-to-maturity Securities | ||
Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. | ||
Loans Held for Sale | ||
Fair value is based upon the quoted price for the sale of those loans. | ||
Loans | ||
The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value. |
22
E. | Fair Value of Assets and Liabilities ( cont) | |
Deposits | ||
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. | ||
Interest Receivable and Interest Payable | ||
The carrying amount approximates fair value. | ||
Federal Home Loan Bank Advances | ||
Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value. | ||
Subordinated Debentures | ||
Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. | ||
Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of Credit | ||
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of such arrangements are not considered material to this presentation. |
F. | Capital and Operating Matters | |
Stockholders equity at March 31, 3010 was $43,180,000 compared to $41,945,000 as of December 31, 2009, an increase of $1,235,000 or 3%. The increase was due to net income during the period. |
23
F. | Capital and Operating Matters (cont) | |
The Corporation has experienced large net losses during 2008 and 2009 due to the continued decline in economic conditions in Southeastern Michigan. The recent bankruptcy of two major automotive manufacturers and resulting shut down of production and layoffs of employees have negatively affected the operating results even though the Corporation does not have any direct exposure to the automotive industry. Additionally, economic conditions have continued to erode the value of residential real estate and commercial real estate in the Banks market area causing write-downs in the real estate owned portfolio further contributing to net losses. The impact of these net losses to the regulatory capital ratios is shown below. | ||
Based on the respective regulatory capital ratios, the Bank is considered to be undercapitalized at March 31, 2010 and December 31, 2009. | ||
The following is a presentation of the Corporations and Banks regulatory capital ratios (in thousands): |
Minimum | ||||||||||||||||||||||||
To Be Well Capitalized | ||||||||||||||||||||||||
Minimum for Capital | Under Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of March 31, 2010
|
||||||||||||||||||||||||
Total capital
(to risk weighted assets) |
||||||||||||||||||||||||
Consolidated
|
63,839 | 7.69 | % | 66,418 | 8.00 | % | N/A | N/A | ||||||||||||||||
Bank
|
62,120 | 7.50 | % | 66,262 | 8.00 | % | 82,828 | 10.00 | % | |||||||||||||||
Tier 1 capital
(to risk weighted assets) |
||||||||||||||||||||||||
Consolidated
|
53,239 | 6.41 | % | 33,209 | 4.00 | % | N/A | N/A | ||||||||||||||||
Bank
|
51,520 | 6.22 | % | 33,131 | 4.00 | % | 49,697 | 6.00 | % | |||||||||||||||
Tier 1 capital
(to average assets) |
||||||||||||||||||||||||
Consolidated
|
53,239 | 5.47 | % | 38,956 | 4.00 | % | N/A | N/A | ||||||||||||||||
Bank
|
51,520 | 5.30 | % | 38,878 | 4.00 | % | 48,598 | 5.00 | % | |||||||||||||||
|
||||||||||||||||||||||||
As of December 31, 2009
|
||||||||||||||||||||||||
Total capital
(to risk weighted assets) |
||||||||||||||||||||||||
Consolidated
|
63,043 | 7.39 | % | 68,264 | 8.00 | % | N/A | N/A | ||||||||||||||||
Bank
|
61,169 | 7.19 | % | 68,105 | 8.00 | % | 85,132 | 10.00 | % | |||||||||||||||
Tier 1 capital
(to risk weighted assets) |
||||||||||||||||||||||||
Consolidated
|
52,080 | 6.10 | % | 34,132 | 4.00 | % | N/A | N/A | ||||||||||||||||
Bank
|
50,225 | 5.90 | % | 34,053 | 4.00 | % | 51,079 | 6.00 | % | |||||||||||||||
Tier 1 capital
(to average assets) |
||||||||||||||||||||||||
Consolidated
|
52,080 | 4.98 | % | 41,838 | 4.00 | % | N/A | N/A | ||||||||||||||||
Bank
|
50,225 | 4.81 | % | 41,776 | 4.00 | % | 52,220 | 5.00 | % |
24
F. | Capital and Operating Matters (cont) | |
The capital ratios disclosed in the middle column of the table above are minimum requirements. Due to our financial condition, the Bank entered into a formal enforcement action (Consent Order) with the Federal Deposit Insurance Corporation (FDIC) and the Office of Financial and Insurance Regulation for the State of Michigan (OFIR) which conveys specific actions needed to address certain findings from their examination and to address our current financial condition. We entered into the Consent Order on February 12, 2010 that includes a capital directive, which requires the Bank to have and maintain its level of tier 1 capital as a percentage of total assets (capital ratio) at a minimum of 9% and its level of qualifying total capital as a percentage of risk-weighted assets (total risk-based capital ratio) at a minimum of 12%. These ratios are in excess of the statutory minimums to be well-capitalized. | ||
Applicable federal prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Based on its regulatory capital ratios, the Bank is undercapitalized at March 31, 2010. Undercapitalized institutions are subject to close monitoring by their federal bank regulator, restrictions on asset growth and expansion, and other significantly greater regulatory restrictions than apply to well-capitalized or adequately capitalized institutions. | ||
The Corporation needs to raise sufficient capital during 2010 to return the Bank to well-capitalized status. Management is considering various sources of capital and estimates the need to raise approximately $40 million to be in compliance with its Consent Order with the FDIC and OFIR. Given the current economic environment, there can be no assurance the Corporation will be able to raise the estimated capital needed. Additionally, if real estate values in the Corporations market area continue to decline, this will negatively impact the loan portfolio and values of other real estate owned. Additional declines in real estate values would result in the need for additional provision expense resulting in increased losses and further reducing the Corporations and the Banks capital. | ||
Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, action by the regulators that, if undertaken, could have a direct material effect on the Corporations financial statements and raise substantial doubt about the Corporations ability to continue as a going concern. |
25
G. | Consent Order | |
Due to our financial condition, the Federal Deposit Insurance Corporation (FDIC) and the Office of Financial and Insurance Regulation for the State of Michigan (OFIR) required that our Board of Directors sign a formal enforcement action (Consent Order) with the FDIC and OFIR which conveys specific actions needed to address certain findings from their examination and to address our current financial condition. We entered into the Consent Order on February 12, 2010, which contains a list of requirements that are to be met by specific dates. Certain requirements are listed below: |
| Completion of a senior management study by an independent consultant | |
| Plans for the reduction of delinquencies and classified assets | |
| Plans for lending and collection policies | |
| Plans for the reduction of loan concentrations | |
| The revision and implementation of a comprehensive strategic plan | |
| The revision of its Liquidity Plan and the submission of weekly liquidity reports to the FDIC and OFIR |
The Consent Order also includes a capital directive, which requires the Bank to have and maintain its level of tier 1 capital as a percentage of total assets (capital ratio) at a minimum of 9% and its level of qualifying total capital as a percentage of risk-weighted assets (total risk-based capital ratio) at a minimum of 12% . These ratios are in excess of the statutory minimums to be well-capitalized. At March 31, 2010, the Banks capital ratio was 5.30% and the Banks total risk-based capital ratio was 7.50%. | ||
Additionally, the Bank is prohibited from declaring or paying any cash dividends without prior written consent of the FDIC. | ||
The Bank submitted a Capital Restoration Plan (CRP) to the FDIC and OFIR on December 15, 2009, due to our undercapitalized status based on our September 30, 2009 regulatory report of condition and income. The CRP addresses, among other things, the steps management will take to cause our capital levels to return to the minimum level to be adequately capitalized. | ||
The Bank is currently undercapitalized. Failure to meet the minimum ratios set forth in the Consent Order could result in regulators taking additional enforcement action against us. |
26
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
27
Date Formed | Name | Services Offered | ||
August 1997
|
Community Bank Insurance Agency, Inc. | Limited insurance related activities | ||
|
||||
March 2002
|
Community Bank Audit Services, Inc. | Internal auditing and compliance services for financial institutions |
28
Date Opened | Location | Type of office | ||
February 1994
|
22290 Michigan Avenue | Full service retail branch with ATM | ||
|
Dearborn, Michigan 48123 | Regional lending center | ||
|
||||
December 1995
|
24935 West Warren Avenue | Full service retail branch | ||
|
Dearborn Heights, Michigan 48127 | |||
|
||||
August 1997
|
44623 Five Mile Road | Full service retail branch with ATM | ||
|
Plymouth, Michigan 48170 | |||
|
||||
May 2001
|
1325 North Canton Center Road | Full service retail branch with ATM | ||
|
Canton, Michigan 48187 | |||
|
||||
December 2001
|
45000 River Ridge Drive | Regional lending center | ||
|
Clinton Township, Michigan 48038 | |||
|
||||
November 2002
|
19100 Hall Road | Full service retail branch with ATM | ||
|
Clinton Township, Michigan 48038 | |||
|
||||
February 2003
|
12820 Fort Street | Full service retail branch with ATM | ||
|
Southgate, Michigan 48195 | |||
|
||||
May 2003
|
3201 University Drive, Suite 180 | Full service retail branch | ||
|
Auburn Hills, Michigan 48326 | |||
|
||||
October 2004
|
450 East Michigan Avenue | Full service retail branch with ATM | ||
|
Saline, Michigan 48176 | |||
|
||||
October 2004
|
250 West Eisenhower Parkway | Full service retail branch with ATM | ||
|
Ann Arbor, Michigan 48103 | Regional lending center | ||
|
||||
December 2004
|
1360 Porter Street | Loan production office | ||
|
Dearborn, Michigan 48123 | Regional lending center | ||
|
||||
January 2007
|
1040 E. Maple | Full service retail branch with ATM | ||
|
Birmingham, Michigan 48009 | Regional lending center | ||
|
||||
January 2007
|
3681 W. Maple | Full service retail branch with ATM | ||
|
Bloomfield Township, Michigan 48301 | |||
|
||||
January 2007
|
30700 Telegraph | Full service retail branch with ATM | ||
|
Bingham Farms, Michigan 48025 | |||
|
||||
January 2007
|
20000 Twelve Mile Road | Full service retail branch with ATM | ||
|
Southfield, Michigan 48076 | |||
|
||||
January 2007
|
200 Galleria Officenter | Full service retail branch with ATM | ||
|
Southfield, MI 48076 | |||
|
||||
April 2007
|
7755 23 Mile Road | Full service retail branch with ATM | ||
|
Shelby Township, Michigan 48075 |
29
30
31
Three months ended March 31, 2010 | Three months ended March 31, 2009 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
(In thousands) | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Interest bearing deposits with banks
|
$ | 65,286 | $ | 37 | 0.23 | % | $ | 45,249 | $ | 94 | 0.84 | % | ||||||||||||
Federal funds sold
|
119 | 1 | 3.41 | % | 6,643 | 6 | 0.37 | % | ||||||||||||||||
Securities, available for sale
|
49,835 | 168 | 1.37 | % | 67,465 | 256 | 1.54 | % | ||||||||||||||||
Loans
|
826,719 | 11,778 | 5.78 | % | 920,254 | 13,810 | 6.09 | % | ||||||||||||||||
|
||||||||||||||||||||||||
Sub-total earning assets
|
941,959 | 11,984 | 5.16 | % | 1,039,611 | 14,166 | 5.53 | % | ||||||||||||||||
Other assets
|
31,949 | 59,947 | ||||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Total assets
|
$ | 973,908 | $ | 1,099,558 | ||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Liabilities and stockholders equity
|
||||||||||||||||||||||||
Interest bearing deposits
|
$ | 769,744 | $ | 3,543 | 1.87 | % | $ | 842,023 | $ | 5,998 | 2.89 | % | ||||||||||||
Other borrowings
|
73,828 | 386 | 2.12 | % | 73,326 | 651 | 3.60 | % | ||||||||||||||||
|
||||||||||||||||||||||||
Sub-total interest bearing liabilities
|
843,572 | 3,929 | 1.89 | % | 915,349 | 6,649 | 2.95 | % | ||||||||||||||||
Non-interest bearing deposits
|
84,327 | 78,090 | ||||||||||||||||||||||
Other liabilities
|
2,442 | 1,821 | ||||||||||||||||||||||
Stockholders equity
|
43,567 | 104,298 | ||||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Total liabilities and stockholders
equity
|
$ | 973,908 | $ | 1,099,558 | ||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Net interest income
|
$ | 8,055 | $ | 7,517 | ||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Net interest rate spread
|
3.27 | % | 2.58 | % | ||||||||||||||||||||
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Net interest margin on earning assets
|
3.47 | % | 2.93 | % | ||||||||||||||||||||
|
32
For the Three Months Ended March 31, 2010/2009 | ||||||||||||
Change in Interest Due to: | ||||||||||||
Average | Average | Net | ||||||||||
(In thousands) | Balance | Rate | Change | |||||||||
Assets
|
||||||||||||
Interest bearing deposits with banks
|
$ | 12 | ($69 | ) | ($57 | ) | ||||||
Federal funds sold
|
(55 | ) | 50 | (5 | ) | |||||||
Investment securities, available for sale
|
(59 | ) | (29 | ) | (88 | ) | ||||||
Loans
|
(1,327 | ) | (705 | ) | (2,032 | ) | ||||||
|
||||||||||||
Total earning assets
|
($1,430 | ) | ($752 | ) | ($2,182 | ) | ||||||
|
||||||||||||
|
||||||||||||
Liabilities
|
||||||||||||
Interest bearing deposits
|
($315 | ) | ($2,140 | ) | ($2,455 | ) | ||||||
Other borrowings
|
5 | (270 | ) | (265 | ) | |||||||
|
||||||||||||
Total interest bearing liabilities
|
($310 | ) | ($2,410 | ) | ($2,720 | ) | ||||||
|
||||||||||||
|
||||||||||||
Net interest income
|
$ | 538 | ||||||||||
|
||||||||||||
|
||||||||||||
Net interest rate spread
|
0.69 | % | ||||||||||
|
||||||||||||
|
||||||||||||
Net interest margin on earning assets
|
0.54 | % | ||||||||||
|
33
34
35
36
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Consumer loans
|
$ | 28,623 | $ | 29,386 | $ | 31,000 | ||||||
Commercial, financial, & other
|
141,338 | 144,630 | 161,138 | |||||||||
Land development loans residential property
|
36,089 | 38,472 | 50,028 | |||||||||
Land development loans non residential property
|
9,711 | 11,644 | 15,914 | |||||||||
Commercial real estate construction residential property
|
12,164 | 13,287 | 15,687 | |||||||||
Commercial real estate construction non residential property
|
20,813 | 20,061 | 25,716 | |||||||||
Commercial real estate mortgages
|
521,701 | 531,156 | 548,692 | |||||||||
Residential real estate mortgages
|
43,522 | 44,500 | 51,880 | |||||||||
|
||||||||||||
|
||||||||||||
|
813,961 | 833,136 | 900,055 | |||||||||
Allowance for loan losses
|
(30,288 | ) | (35,125 | ) | (18,632 | ) | ||||||
|
||||||||||||
|
||||||||||||
|
$ | 783,673 | $ | 798,011 | $ | 881,423 | ||||||
|
3/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Troubled debt restructuring, accruing
|
$ | 31,737 | $ | 59,420 | $ | 19,506 | ||||||
Over 90 days past due and still accruing
|
1,127 | | | |||||||||
Non-accrual loans
|
81,163 | 49,341 | 55,148 | |||||||||
|
||||||||||||
Total non-performing loans
|
114,027 | 108,761 | 74,654 | |||||||||
|
||||||||||||
Real estate owned
|
24,467 | 23,435 | 14,624 | |||||||||
Other repossessed assets
|
| | | |||||||||
|
||||||||||||
Other non-performing assets
|
24,467 | 23,435 | 14,624 | |||||||||
|
||||||||||||
Total non-performing assets
|
$ | 138,494 | $ | 132,196 | $ | 89,278 | ||||||
|
Number of | ||||||||
Loans | Balance | |||||||
Consumer Loans
|
16 | $ | 924 | |||||
Commercial Loans
|
43 | 12,749 | ||||||
Land Development Residential
|
21 | 23,260 | ||||||
Land Development Non Residential
|
2 | 1,558 | ||||||
Commercial Construction Loans Residential
|
15 | 9,573 | ||||||
Commercial Construction Loans Non Residential
|
2 | 2,870 | ||||||
Commercial Mortgage Loans
|
55 | 27,863 | ||||||
Residential Mortgages Loans
|
14 | 2,366 | ||||||
|
||||||||
|
||||||||
Totals
|
168 | $ | 81,163 | |||||
|
37
Number of Loans | Balance | |||||||
Consumer Loans
|
1 | $ | 137 | |||||
Commercial Loans
|
8 | 3,381 | ||||||
Land Development Residential
|
8 | 14,239 | ||||||
Land Development Non Residential
|
1 | 240 | ||||||
Commercial Construction Loans Residential
|
1 | 3,875 | ||||||
Commercial Mortgage Loans
|
10 | 9,870 | ||||||
Residential Mortgages Loans
|
5 | 573 | ||||||
|
||||||||
|
||||||||
Totals
|
34 | $ | 32,314 | |||||
|
38
Three Months | Three Months | |||||||||||
Ended | Year Ended | Ended | ||||||||||
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Balance, beginning of year
|
$ | 35,125 | $ | 14,452 | $ | 14,452 | ||||||
|
||||||||||||
Charge-offs:
|
||||||||||||
Consumer loans
|
342 | 1,154 | 116 | |||||||||
Commercial, financial & other
|
1,521 | 4,878 | 1,108 | |||||||||
Land development loans residential property
|
1,292 | 9,441 | 2,881 | |||||||||
Land development loans non residential property
|
229 | 4,364 | 197 | |||||||||
Commercial real estate construction residential property
|
906 | 1,471 | 64 | |||||||||
Commercial real estate construction non residential
property
|
36 | 1,981 | 176 | |||||||||
Commercial real estate mortgages
|
558 | 6,919 | 2,113 | |||||||||
Residential real estate mortgages
|
109 | 701 | 25 | |||||||||
Recoveries:
|
||||||||||||
Consumer loans
|
23 | 176 | 3 | |||||||||
Commercial, financial & other
|
15 | 339 | 105 | |||||||||
Land development loans residential property
|
9 | 107 | | |||||||||
Commercial real estate construction residential property
|
1 | 0 | | |||||||||
Commercial real estate mortgages
|
8 | 61 | 25 | |||||||||
Residential real estate mortgages
|
| 36 | | |||||||||
|
||||||||||||
|
||||||||||||
Net charge-offs (recoveries)
|
4,937 | 30,190 | 6,547 | |||||||||
|
||||||||||||
Provision for loan losses
|
100 | 50,863 | 10,727 | |||||||||
|
||||||||||||
|
||||||||||||
Balance, end of period
|
$ | 30,288 | $ | 35,125 | $ | 18,632 | ||||||
|
||||||||||||
|
||||||||||||
Allowance to total loans
|
3.72 | % | 4.22 | % | 2.07 | % | ||||||
|
||||||||||||
|
||||||||||||
Allowance to nonperforming assets
|
26.56 | % | 32.30 | % | 24.96 | % | ||||||
|
||||||||||||
|
||||||||||||
Net charge-offs to average loans
|
0.60 | % | 3.40 | % | 0.71 | % | ||||||
|
39
Number of | ||||||||
Property Type | Properties | Amount | ||||||
Single Family Homes
|
33 | $ | 3,171 | |||||
Condominium
|
1 | 727 | ||||||
Vacant Land
|
19 | 10,837 | ||||||
Commercial
|
7 | 6,545 | ||||||
Office/Retail
|
6 | 3,187 | ||||||
|
||||||||
|
||||||||
Total
|
66 | $ | 24,467 | |||||
|
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Non-interest bearing:
|
||||||||||||
Demand
|
$ | 86,407 | $ | 83,873 | $ | 80,624 | ||||||
|
||||||||||||
|
||||||||||||
Interest bearing:
|
||||||||||||
Checking
|
$ | 79,566 | $ | 83,087 | $ | 96,491 | ||||||
Money market
|
57,864 | 52,412 | 171,426 | |||||||||
Savings
|
44,992 | 43,343 | 56,389 | |||||||||
Time, under $100,000
|
296,370 | 301,829 | 215,508 | |||||||||
Time, $100,000 and over
|
286,818 | 303,411 | 287,141 | |||||||||
|
||||||||||||
|
765,610 | 784,082 | 826,955 | |||||||||
|
||||||||||||
|
||||||||||||
Total deposits
|
$ | 852,017 | $ | 867,955 | $ | 907,579 | ||||||
|
40
03/31/10 | 12/31/09 | 03/31/09 | ||||||||||
Interest bearing checking
|
$ | 2,485 | $ | 2,715 | $ | 3,990 | ||||||
Time, $100,000 and over
|
4,368 | 4,366 | 25,015 | |||||||||
|
||||||||||||
|
||||||||||||
Total municipal deposits
|
$ | 6,853 | $ | 7,081 | $ | 29,005 | ||||||
|
41
42
43
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
44
Interest Rate Sensitivity Period | ||||||||||||||||||||
1-90 | 91-365 | 1-5 | Over | |||||||||||||||||
(In thousands) | Days | Days | Years | 5 Years | Total | |||||||||||||||
Earning assets
|
||||||||||||||||||||
Federal funds sold
|
$ | 57 | $ | | $ | | $ | | $ | 57 | ||||||||||
Interest bearing deposits with Banks
|
70,898 | | | | 70,898 | |||||||||||||||
Mortgage loans held for sale
|
758 | | | | 758 | |||||||||||||||
Securities available for sale
|
| | 46,267 | | 46,267 | |||||||||||||||
Federal Home Loan Bank stock
|
3,698 | | | | 3,698 | |||||||||||||||
Total loans, net of non-accrual
|
149,286 | 96,660 | 454,115 | 32,737 | 732,798 | |||||||||||||||
|
||||||||||||||||||||
Total earning assets
|
224,697 | 96,660 | 500,382 | 32,737 | 854,476 | |||||||||||||||
|
||||||||||||||||||||
Interest bearing liabilities
|
||||||||||||||||||||
Total interest bearing deposits
|
332,717 | 302,634 | 129,991 | 268 | 765,610 | |||||||||||||||
Federal Home Loan Bank advances
|
34,000 | 19,584 | 10,215 | | 63,799 | |||||||||||||||
Other Borrowings
|
| | | | | |||||||||||||||
Subordinated debentures
|
10,000 | | | | 10,000 | |||||||||||||||
|
||||||||||||||||||||
Total interest bearing liabilities
|
376,717 | 322,218 | 140,206 | 268 | 839,409 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Net asset (liability) funding gap
|
(152,020 | ) | (225,558 | ) | 360,176 | 32,469 | $ | 15,067 | ||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Cumulative net asset (liability) funding gap
|
($152,020 | ) | ($377,578 | ) | ($17,402 | ) | $ | 15,067 | ||||||||||||
|
45
46
Payments Due By Period | ||||||||||||||||||||
Less Than | 3-5 | Over 5 | ||||||||||||||||||
1 Year | 1-3 Years | Years | Years | Total | ||||||||||||||||
Certificates of deposit
|
$ | 452,930 | $ | 128,699 | $ | 1,291 | $ | 268 | $ | 583,188 | ||||||||||
Long-term borrowings
|
53,584 | 10,215 | | | 63,799 | |||||||||||||||
Lease commitments
|
702 | 706 | 334 | | 1,742 | |||||||||||||||
Subordinated debentures
|
| | | 10,000 | 10,000 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Totals
|
$ | 507,216 | $ | 139,620 | $ | 1,625 | $ | 10,268 | $ | 658,729 | ||||||||||
|
Amount Of Commitment Expiration Per Period | ||||||||||||||||||||
Less Than | 3-5 | Over 5 | ||||||||||||||||||
1 Year | 1-3 Years | Years | Years | Total | ||||||||||||||||
Unused loan commitments
|
$ | 39,279 | $ | 8,466 | $ | 7,120 | $ | 8,384 | $ | 63,249 | ||||||||||
Standby letters of credit
|
877 | 1,500 | | | 2,377 | |||||||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Totals
|
$ | 40,156 | $ | 9,966 | $ | 7,120 | $ | 8,384 | $ | 65,626 | ||||||||||
|
47
48
ITEM 6. | EXHIBITS |
Exhibit 31.1
|
CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
||
Exhibit 31.2
|
CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
||
Exhibit 32.1
|
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
||
Exhibit 32.2
|
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
49
Dearborn Bancorp, Inc.
(Registrant) |
||||
/s/ John E. Demmer | ||||
John E. Demmer | ||||
Chairman | ||||
/s/ Michael J. Ross | ||||
Michael J. Ross | ||||
President and Chief Executive Officer | ||||
/s/ Jeffrey L. Karafa | ||||
Jeffrey L. Karafa | ||||
Treasurer and Chief Financial Officer |
50
Exhibit | Description | |
31.1
|
CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
||
31.2
|
CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
||
32.1
|
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
||
32.2
|
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
51
1 Year Dearborn Bancorp Chart |
1 Month Dearborn Bancorp Chart |
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