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Section 1: 10-K (10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

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 0-20167

 

MACKINAC FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

MICHIGAN

    

38-2062816

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

130 South Cedar Street

Manistique, Michigan  49854

(888) 343-8147

(Address, including Zip Code, and telephone number,

including area code, of registrant’s principal executive offices)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

    

Name of Each Exchange on Which Registered

Common Stock, no par value

 

The NASDAQ Stock Market, LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐   No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐  No ☒

 

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  ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  ☒

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.  Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

    

Accelerated filer ☐

    

Non-accelerated filer ☐

    

 

 

 

 

 

(Do not check if a smaller

 

Smaller reporting company ☒

 

 

 

 

Reporting company)

 

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒

 

The aggregate market value of the common stock held by non-affiliates of the Registrant, based on a per share price of $13.99 as of June 30, 2017, was $56.785 million.  As of March 12, 2018, there were outstanding, 6,310,564 shares of the Corporation’s Common Stock (no par value).

 

Documents Incorporated by Reference:

 

 

Portions of the Corporation’s Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

 

 

 


 

Table of Contents

TABLE OF CONTENTS

 

PART I 

2

 

 

 

Item 1.

Business

2

 

Item 1B.

Unresolved Staff Comments

12

 

Item 2.

Properties

12

 

Item 3.

Legal Proceedings

13

 

Item 4.

Mine Safety Disclosures

13

 

 

PART II 

14

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

14

 

Item 6.

Selected Financial Data

16

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

36

 

Item 8.

Financial Statements and Supplementary Data

39

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

79

 

Item 9A.

Controls and Procedures

79

 

Item 9B.

Other Information

79

 

 

PART III 

80

 

 

 

Item 10.

Directors, Executive Officers, and Corporate Governance

80

 

Item 11.

Executive Compensation

80

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

80

 

Item 13.

Certain Relationships, Related Transactions and Director Independence

81

 

Item 14.

Principal Accountant Fees and Services

81

 

 

PART IV 

82

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

82

 

 

 

 

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PART I

 

Item 1.Business

 

Mackinac Financial Corporation (the “Corporation”) was incorporated under the laws of the state of Michigan on December 16, 1974.  The Corporation changed its name from “First Manistique Corporation” to “North Country Financial Corporation” on April 14, 1998.  On December 16, 2004, the Corporation changed its name from North Country Financial Corporation to Mackinac Financial Corporation.  The Corporation is headquartered and located in Manistique, Michigan.  The mailing address of the Corporation is P.O. Box 369, 130 South Cedar Street, Manistique, Michigan 49854.

 

In December of 2004, the Corporation was recapitalized with the net proceeds, approximately $26.2 million, from the issuance of $30 million of common stock in a private placement.  Commensurate with this recapitalization, the Corporation changed its name from North Country Financial Corporation to Mackinac Financial Corporation, and its subsidiary bank adopted the “mBank” identity early in 2005.

 

On December 5, 2014, the Corporation completed its acquisition of Peninsula Financial Corporation (“PFC”) and its wholly owned subsidiary, The Peninsula Bank.  PFC had six branch offices and $126 million in assets as of the acquisition date.  The results of operations due to the merger have been included in the Corporation’s results since the acquisition date.  The merger was effected by a combination of cash payments and the issuance of shares of the Corporation’s common stock to PFC shareholders.  Each share of PFC’s 288,000 shares of common stock was converted into the right to receive, at the shareholder’s election and subject to certain limitations (i) approximately 3.64 shares of the Corporation’s common stock, with cash paid in lieu of fractional shares, or (ii) cash at $46.13 per share of common stock.  The conversion of PFC’s shares resulted in the issuance of 695,361 shares of the Corporation’s common stock and payment of $4.484 million in cash to the former PFC shareholders.

 

On April 29, 2016, the Corporation completed its acquisition of The First National Bank of Eagle River (“Eagle River.”)  Eagle River had three branch offices and approximately $125 million in assets as of the acquisition date.  The results of operations due to the merger have been included in the Corporation’s results since the acquisition date.  The merger was effected by a cash payment of $12.5 million.

 

On August 31, 2016, the Corporation completed its acquisition of Niagara Bancorporation (“Niagara”) and its wholly owned subsidiary, First National Bank of Niagara.  Niagara had four branch offices and approximately $67 million in assets. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date.  The merger was effected by a cash payment of $7.325 million.

 

The Corporation owns all of the outstanding stock of its banking subsidiary, mBank (the “Bank”).  The Bank currently has 12 branch offices located in the Upper Peninsula of Michigan, 4 branch offices located in Michigan’s Lower Peninsula, one branch in Southeast Michigan, and 6 branches in Wisconsin.  The Bank maintains offices in the Michigan counties of: Chippewa, Grand Traverse, Luce, Manistee, Marquette, Menominee, Oakland, Otsego, and Schoolcraft.  The Bank maintains offices in the Wisconsin counties of: Florence, Marinette, Oneida and Vilas.  The Bank provides drive-in convenience at 19 branch locations and has 26 automated teller machines.  The Bank has no foreign offices.

 

The Corporation also owns three non-bank subsidiaries: First Manistique Agency, presently inactive; First Rural Relending Company, a relending company for nonprofit organizations; and North Country Capital Trust, a statutory business trust which was formed solely for the issuance of trust preferred securities (none of which remain outstanding).  The Bank represents the principal asset of the Corporation.  The Bank has one wholly owned subsidiary, mBank Title Insurance Agency, LLC, which provided title insurance services until 2014 and is currently inactive.  The Corporation and the Bank are engaged in a single industry segment, commercial banking, broadly defined to include commercial and retail banking activities, along with other permitted activities closely related to banking.

 

Operations

 

The principal business of the Corporation is the general commercial banking business, conducted through the Bank’s provision of a full range of loan and deposit products.  These banking services include customary retail and commercial banking services, including checking and savings accounts, time deposits, interest bearing transaction accounts, safe deposit facilities, real estate mortgage lending, commercial lending, commercial and governmental lease financing, and

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direct and indirect consumer financing.  Funds for the Bank’s operations are also provided by brokered deposits and through borrowings from the Federal Home Loan Bank (“FHLB”) system, proceeds from the sale of loans and mortgage-backed and other securities, funds from repayment of outstanding loans and earnings from operations.  Earnings depend primarily upon the difference between (i) revenues from loans, investments, and other interest-bearing assets and (ii) expenses incurred in payment of interest on deposit accounts and borrowings, an adequate allowance for loan losses, and general operating expenses.

 

Competition

 

Banking is a highly competitive business.  The Bank competes for loans and deposits with other banks, savings and loan associations, credit unions, mortgage bankers, and investment firms in the scope and type of services offered, pricing of loans, interest rates paid on deposits, and number and location of branches, among other things.  The Bank also faces competition for investors’ funds from mutual funds, marketable equity securities, and corporate and government securities.

 

The Bank competes for loans principally through interest rates and loan fees, the range and quality of the services it provides and the locations of its branches.  In addition, the Bank actively solicits deposit-related clients and competes for deposits by offering depositors a variety of savings accounts, checking accounts, and other services.

 

Employees

 

As of December 31, 2017, the Corporation and its subsidiaries employed, in the aggregate, 221 employees.  The Corporation provides its employees with comprehensive medical and dental benefit plans, a life insurance plan, and a 401(k) plan.  None of the Corporation’s employees are covered by a collective bargaining agreement with the Corporation.  Management believes its relationship with its employees to be good.

 

Business

 

The Bank makes mortgage, commercial, and installment loans to customers throughout Michigan and Northeastern Wisconsin.  Fees may be charged for these services.  The Bank’s most prominent concentration in the loan portfolio relates to commercial loans to entities within real estate — operators of nonresidential buildings industry.  This concentration represented $119.025 million, or 20.77%, of the commercial loan portfolio at December 31, 2017.  The Bank also supports the service industry, with its hospitality and related businesses, as well as gas stations and convenience stores, forestry, restaurants, farming, fishing, and many other activities important to growth in the regions we service.  The economy of the Bank’s market areas is affected by summer and winter tourism activities.

 

The Bank has become a premier SBA/USDA lender in our regions.  Many of these SBA/USDA guaranteed loans are sold at a premium on the secondary market, with the Bank retaining the servicing.  The Bank does not sell the loan guarantees on every credit, rather only those where acceptable market rates are above par.

 

The Bank also offers various consumer loan products including installment, mortgages and home equity loans.  In addition to making consumer portfolio loans, the Bank engages in the business of making residential mortgage loans for sale to the secondary market.

 

On December 5, 2014, upon the consummation of the merger of PFC with and into the Corporation, the Corporation consolidated Peninsula Bank with the Bank.  The acquisition nearly doubled the bank’s presence in the Upper Peninsula to 13 total branches and increased the total number of branches in Michigan from 11 to 17.

 

On April 29, 2016, the Corporation consummated the merger of Eagle River into the Bank.  On August 31, 2016, upon consummation of the purchase of all outstanding stock of Niagara Bancorporation, Inc., the Corporation consolidated First National Bank of Niagara with the Bank.  These acquisitions increased the Bank’s presence to 23 branches.

 

On January 16, 2018, the Corporation executed a merger agreement with First Federal of Northern Michigan Bancorp, Inc. in Alpena, Michigan (“FFNM”), the consummation of which requires regulatory and shareholder approval.  As of December 31, 2017,  FFNM had approximately $320 million in assets and $283 million in deposits, primarily core in nature. The Corporation expects to consummate the merger in the second quarter of 2018.

 

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The Bank’s primary source for lending, investments, and other general business purposes is deposits.  The Bank offers a wide range of interest bearing and non-interest bearing accounts, including commercial and retail checking accounts, negotiable order of withdrawal (“NOW”) accounts, money market accounts with limited transactions, individual retirement accounts, regular interest-bearing statement savings accounts, certificates of deposit with a range of maturity date options, and accessibility to a customer’s deposit relationship through online banking.  The sources of deposits are residents, businesses and employees of businesses within the Bank’s market areas, obtained through the personal solicitation of the Bank’s officers and directors, direct mail solicitation and limited advertisements published in the local media.  The Bank also utilizes the wholesale deposit market for any shortfalls in loan funding.  No material portions of the Bank’s deposits have been received from a single person, industry, group, or geographical location.

 

The Bank is a member of the FHLB of Indianapolis (“FHLB”).  The FHLB provides an additional source of liquidity and long-term funds.  Membership in the FHLB has provided access to attractive rate advances, as well as advantageous lending programs.  The Community Investment Program makes advances to be used for funding community-oriented mortgage lending, and the Affordable Housing Program grants advances to fund lending for long-term low and moderate income owner occupied and affordable rental housing at subsidized interest rates.

 

The Bank has secondary borrowing lines of credit available to respond to deposit fluctuations and temporary loan demands.  The unsecured lines totaled $64.0 million at December 31, 2017, with additional amounts available if collateralized.

 

As of December 31, 2017, the Bank had no material risks relative to foreign sources.  See the “Interest Rate Risk” and “Foreign Exchange Risk” sections in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 below, for details on the Corporation’s foreign account activity.

 

Compliance with federal, state, and local statutes and/or ordinances relating to the protection of the environment is not expected to have a material effect upon the Bank’s capital expenditures, earnings, or competitive position.

 

Supervision and Regulation

 

As a registered bank holding company, the Corporation is subject to regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) under the Bank Holding Company Act, as amended (the “BHCA”).  The Bank is subject to regulation and examination by the Michigan Department of Insurance and Financial Services (the “DIFS”) and the Federal Deposit Insurance Corporation (the “FDIC”).

 

Under the BHCA, the Corporation is subject to periodic examination by the Federal Reserve Board, and is required to file with the Federal Reserve Board periodic reports of its operations and such additional information as the Federal Reserve Board may require.  In accordance with Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Corporation might not do so absent such policy.  In addition, there are numerous federal and state laws and regulations which regulate the activities of the Corporation, the Bank and the non-bank subsidiaries, including requirements and limitations relating to capital and reserve requirements, permissible investments and lines of business, transactions with affiliates, loan limits, mergers and acquisitions, issuances of securities, dividend payments, inter-affiliate liabilities, extensions of credit and branch banking.

 

Federal banking regulatory agencies have established risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies.  The resulting capital ratios represent qualifying capital as a percentage of total risk-weighted assets and off-balance sheet items.  The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating expansion programs should not allow expansion to diminish their capital ratios and should maintain all ratios well in excess of the minimums.  The current ratios have recently been significantly adjusted as discussed under “Basel III” below.

 

The Federal Deposit Insurance Corporation Improvement Act contains “prompt corrective action” provisions pursuant to which banks are to be classified into one of five categories based upon capital adequacy, ranging from “well capitalized” to “critically undercapitalized” and which require (subject to certain exceptions) the appropriate federal banking agency to take prompt corrective action with respect to an institution which becomes “significantly undercapitalized” or “critically undercapitalized”.  The FDIC also, after an opportunity for a hearing, has authority to downgrade an institution from “well capitalized” to “adequately capitalized” or to subject an “adequately capitalized” or

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“undercapitalized” institution to the supervisory actions applicable to the next lower category, for supervisory concerns.  Information pertaining to the Corporation’s and the Bank’s capital is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below, as well as in Note 16 to the Corporation’s Consolidated Financial Statements in Item 8 below.

 

Current federal law provides that adequately capitalized and managed bank holding companies from any state may acquire banks and bank holding companies located in any other state, subject to certain conditions.

 

In 1999, Congress enacted the Gramm-Leach-Bliley Act (“GLBA”), which eliminated certain barriers to and restrictions on affiliations between banks and securities firms, insurance companies and other financial service organizations.  Among other things, GLBA repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the BHCA to permit bank holding companies that qualify as “financial holding companies” to engage in a broad list of “financial activities,” and any non-financial activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines is “complementary” to a financial activity and poses no substantial risk to the safety and soundness of depository institutions or the financial system.  GLBA treats lending, insurance underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities as financial in nature for this purpose.

 

Under GLBA, a bank holding company may become certified as a financial holding company by filing a notice with the Federal Reserve Board, together with a certification that the bank holding company meets certain criteria, including capital, management, and Community Reinvestment Act requirements.  The Corporation is not currently required to qualify as a financial holding company.

 

Privacy Restrictions

 

GLBA, in addition to the previously described changes in permissible non-banking activities permitted to banks, bank holding companies and financial holding companies, also requires financial institutions in the U.S. to provide certain privacy disclosures to customers and consumers, to comply with certain restrictions on sharing and usage of personally identifiable information, and to implement and maintain commercially reasonable customer information safeguarding standards.  The Corporation believes that it complies with all provisions of GLBA and all implementing regulations, and the Bank has developed appropriate policies and procedures to meet its responsibilities in connection with the privacy provisions of GLBA.

 

The USA PATRIOT Act

 

In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”).  The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to the United States financial system, and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.  The USA PATRIOT Act mandates financial services companies to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes.

 

Sarbanes-Oxley Act

 

On July 30, 2002, President Bush signed into law The Sarbanes-Oxley Act of 2002.  This legislation addresses accounting oversight and corporate governance matters, including:

 

·

The creation of a five-member oversight board that will set standards for accountants and have investigative and disciplinary powers;

·

The prohibition of accounting firms from providing various types of consulting services to public clients and requiring accounting firms to rotate partners among public client assignments every five years;

·

Increased penalties for financial crimes;

·

Expanded disclosure of corporate operations and internal controls and certification of financial statements;

·

Enhanced controls on, and reporting of, insider training; and

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·

Prohibition on lending to officers and directors of public companies, although the Bank may continue to make these loans within the constraints of existing banking regulations.

 

Among other provisions, Section 302(a) of the Sarbanes-Oxley Act requires that our Chief Executive Officer and Chief Financial Officer certify that our quarterly and annual reports do not contain any untrue statement or omission of a material fact.  Specific requirements of the certifications include having these officers confirm that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our disclosure controls and procedures; they have made certain disclosures to our auditors and Audit Committee about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

 

In addition, Section 404 of the Sarbanes-Oxley Act and the SEC’s rules and regulations thereunder require our management to evaluate, with the participation of our principal executive and principal financial officers, the effectiveness, as of the end of each fiscal year, of our internal control over financial reporting.  Our management must then provide a report of management on our internal over financial reporting that contains, among other things, a statement of their responsibility for establishing and maintaining adequate internal control over financial reporting, and a statement identifying the framework they used to evaluate the effectiveness of our internal control over financial reporting.

 

Dodd-Frank Wall Street Reform and Consumer Protection Act

 

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) into law.  The Dodd-Frank Act resulted in sweeping changes in the regulation of financial institutions aimed at strengthening safety and soundness for the financial services sector.  A summary of certain provisions of the Dodd-Frank Act is set forth below:

 

·

Increased Capital Standards and Enhanced Supervision.

 

The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies.  These new standards are described below.  The Dodd-Frank Act also increased regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency.

 

·

Federal Deposit Insurance.

 

The Dodd-Frank Act made permanent the $250,000 deposit insurance limit for insured deposits and provided unlimited federal deposit insurance on noninterest bearing transaction accounts at all insured depository institutions through December 31, 2012.  Subsequent to 2012, these amounts reverted from unlimited insurance to $250,000 coverage per separately insured depositor.  The Dodd-Frank Act also changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible equity, eliminated the ceiling on the size of the Deposit Insurance Fund (the “DIF”) and increased the floor on the size of the DIF.

 

·

The Consumer Financial Protection Bureau (“CFPB”).

 

The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the CFPB, responsible for implementing, examining and, for large financial institutions of $10 billion or more in total assets, enforcing compliance with federal consumer financial laws.  Because we have under $10 billion in total assets, however, the Federal Deposit Insurance Corporation will still continue to examine us at the federal level for compliance with such laws.

 

·

Interest on Demand Deposit Accounts.

 

The Dodd-Frank Act repealed the prohibition on the payment of interest on demand deposit accounts effective July 21, 2011, thereby permitting depository institutions to now pay interest on business checking and other accounts.

 

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·

Mortgage Reform.

 

The Dodd-Frank Act provided for mortgage reform addressing a customer’s ability to repay, restricted variable-rate lending by requiring the ability to repay to be determined for variable rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and made more loans subject to requirements for higher-cost loans, new disclosures and certain other restrictions.

 

·

Interstate Branching.

 

The Dodd-Frank Act allows banks to engage in de novo interstate branching, a practice that was previously significantly limited.

 

·

Interchange Fee Limitations.

 

The Dodd-Frank Act gave the Federal Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by a payment card issuer that, together with its affiliates, has assets of $10 billion or more and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.  The Federal Reserve Board has rules under this provision that limit the swipe fees that a debit card issuer can charge a merchant for a transaction to the sum of 21 cents and five basis points times the value of the transaction, plus up to one cent for fraud prevention costs.  While we are not directly subject to such regulations since our total assets do not exceed $10 billion, these regulations may impact our ability to compete with larger institutions who are subject to the restrictions.

 

The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States and requires the CFPB and other federal agencies to implement many new and significant rules and regulations in addition to those discussed above.  The CFPB has issued significant new regulations that impact consumer mortgage lending and servicing.  Those regulations became effective in January 2014.  In addition, the CFPB issued new regulations that changed the disclosure requirements and forms used under the Truth in Lending Act and Real Estate Settlement and Procedures Act effective October 3, 2015.  Compliance with these new laws and regulations and other regulations under consideration by the CFPB will likely result in additional costs, which could be significant and could adversely impact our results of operations, financial condition or liquidity.

 

Basel III

 

On July 2, 2013, the Federal Reserve and OCC approved a final rule to establish a new comprehensive regulatory capital framework for all US banking organizations, with an effective date of January 1, 2015.  The Regulatory Capital Framework (“Basel III”) implements several changes to the US regulatory capital framework required by the Dodd-Frank Act.  The new US capital framework imposed higher minimum capital requirements, additional capital buffers above those minimum requirements, a more restrictive definition of capital, and higher risk weights for various enumerated classifications of assets, the combined impact of which effectively results in substantially more demanding capital standards for US banking organizations.

 

The Basel III final rule established a common equity Tier 1 capital (“CET1”) requirement, a Tier 1 capital requirement of 6.0% and an 8.0% total capital requirement.  The new CET1 and minimum Tier 1 capital requirements became effective January 1, 2015.  In addition to these minimum risk-based capital ratios, the Basel III final rule required that all banking organizations maintain a “capital conservation buffer” consisting of CET1 in an amount equal to 2.5% of risk-weighted assets in order to avoid restrictions on their ability to make capital distributions and to pay certain discretionary bonus payments to executive officers.  In order to avoid those restrictions, the capital conservation buffer effectively increased the minimum CET1 capital, Tier 1 capital and total capital ratios for US banking organizations to 7.0%, 8.5% and 10.5%, respectively.  Banking organizations with capital levels that fall within the buffer will be required to limit dividends, shares repurchases or redemptions (unless replaced within the same calendar quarter by capital instruments of

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equal or higher quality), and discretionary bonus payments.  The capital conservation buffer is phased in over a 5-year period, beginning January 1, 2016.

 

 

 

 

 

 

 

 

 

 

    

Adequately

    

 

 

Well-Capitalized

 

 

 

Capitalized

 

Well-Capitalized

 

with Buffer, fully

 

 

 

Requirement

 

Requirement

 

phased in 2019

 

Leverage

 

4.0%

 

5.0%

 

5.0%

 

CET1

 

4.5%

 

6.5%

 

7.0%

 

Tier 1

 

6.0%

 

8.0%

 

8.5%

 

Total Capital

 

8.0%

 

10.0%

 

10.5%

 

 

As required by Dodd-Frank, the Basel III final rule requires that capital instruments such as trust preferred securities and cumulative preferred shares be phased out of Tier 1 capital by January 1, 2016, for banking organizations that had $15 billion or more in total consolidated assets as of December 31, 2009 and permanently grandfathers as Tier 1 capital such instruments issued by these smaller entities prior to May 19, 2010 (provided they do not exceed 25% of Tier 1 capital).

 

The Basel III final rule provides banking organizations under $250 billion in total consolidated assets or under $10 billion in foreign exposures with a one-time “opt-out” right to continue excluding Accumulated Other Comprehensive income from CET1 capital.  The election to opt-out must be made on the banking organization’s first Call Report filed after January 1, 2015.  The Corporation has elected to opt-out and continues to exclude Accumulated Other Comprehensive Income from its regulatory capital.

 

The Basel III final rule requires that goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities, be deducted from CET1 capital.  Additionally, deferred tax assets that arise from net operating loss and tax credit carryforwards, net of associated deferred tax liabilities and valuation allowances, are fully deducted from CET1 capital.  However, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks, along with mortgage servicing assets and “significant” (defined as greater than 10% of the issued and outstanding common stock of the unconsolidated financial institution) investments in the common stock of unconsolidated “financial institutions” are partially includible in CET1 capital, subject to deductions defined in the final rule.

 

Information regarding the Corporation and the Bank’s regulatory capital can be found in Note 16 – Regulatory Matters in the financial statements included herein.

 

Monetary Policy

 

The earnings and business of the Corporation and the Bank depends on interest rate differentials.  In general, the difference between the interest rates paid by the Bank to obtain its deposits and other borrowings, and the interest rates received by the Bank on loans extended to its customers and on securities held in the Bank’s portfolio, comprises the major portion of the Bank’s earnings.  These rates are highly sensitive to many factors that are beyond the control of the Bank, and accordingly, its earnings and growth will be subject to the influence of economic conditions, generally, both domestic and foreign, including inflation, recession, unemployment, and the monetary policies of the Federal Reserve Board.  The Federal Reserve Board implements national monetary policies designed to curb inflation, combat recession, and promote growth through, among other means, its open-market dealings in US government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements, through adjustments to the discount rate applicable to borrowings by banks that are members of the Federal Reserve System, and by adjusting the Federal Funds Rate, the rate charged in the interbank market for purchase of excess reserve balances.  In addition, legislative and economic factors can be expected to have an ongoing impact on the competitive environment within the financial services industry.  The nature and timing of any future changes in such policies and their impact on the Bank cannot be predicted with certainty.

 

8


 

Table of Contents

Selected Statistical Information

 

I.Distribution of Assets, Obligations, and Shareholders’ Equity; Interest Rates and Interest Differential

 

The key components of net interest income, the daily average balance sheet for each year — including the components of earning assets and supporting obligations — the related interest income on a fully tax equivalent basis and interest expense, as well as the average rates earned and paid on these assets and obligations is contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 below.

 

An analysis of the changes in net interest income from period-to-period and the relative effect of the changes in interest income and expense due to changes in the average balances of earning assets and interest-bearing obligations and changes in interest rates is contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 below.

 

II.Investment Portfolio

 

A.Investment Portfolio Composition

 

The following table presents the carrying value of investment securities available for sale as of December 31 of the years set forth below (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

US Treasuries

 

$

 —

 

$

 —

 

$

 —

 

Corporate

 

 

24,391

 

 

19,910

 

 

12,646

 

Equity

 

 

500

 

 

500

 

 

 —

 

US Agencies

 

 

16,846

 

 

23,952

 

 

27,377

 

US Agencies - MBS

 

 

12,716

 

 

16,833

 

 

3,759

 

State and political subdivisions

 

 

21,444

 

 

25,078

 

 

9,946

 

Total

 

$

75,897

 

$

86,273

 

$

53,728

 

 

B.Relative Maturities and Weighted Average Interest Rates

 

The following table presents the maturity schedule of securities held and the weighted average yield of those securities, as of December 31, 2017 (fully taxable equivalent, dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

In one

    

After one,

    

After five, 

    

 

    

 

    

Weighted 

 

 

 

year

 

but within

 

but within

 

Over

 

 

 

Average

 

 

 

or less

 

five years

 

ten years

 

ten years

 

Total

 

Yield (1)

 

US Treasuries

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 —

 

US Agencies

 

 

2,299

 

 

14,547

 

 

 —

 

 

 —

 

 

16,846

 

1.81%

 

US Agencies - MBS

 

 

2,342

 

 

1,219

 

 

2,968

 

 

6,187

 

 

12,716

 

2.22%

 

Corporate

 

 

5,250

 

 

17,626

 

 

1,515

 

 

 —

 

 

24,391

 

2.73%

 

Equity

 

 

 —

 

 

 —

 

 

 —

 

 

500

 

 

500

 

4.61%

 

State and political subdivisions

 

 

1,713

 

 

8,492

 

 

9,469

 

 

1,770

 

 

21,444

 

3.35%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

11,604

 

$

41,884

 

$

13,952

 

$

8,457

 

$

75,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average yield (1)

 

 

1.97%

 

 

2.29%

 

 

3.81%

 

 

4.07%

 

 

2.63%

 

 

 


(1)

Weighted average yield includes the effect of tax-equivalent adjustments using a 21% tax rate.

 

9


 

Table of Contents

III.Loan Portfolio

 

A.Type of Loans

 

The following table sets forth the major categories of loans outstanding for each category at December 31 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

Commercial real estate

 

$

406,742

 

$

389,420

 

$

312,805

 

$

315,387

 

$

268,809

 

Commercial, financial and agricultural

 

 

156,951

 

 

142,648

 

 

122,140

 

 

101,895

 

 

79,655

 

One to four family residential real estate

 

 

209,890

 

 

205,945

 

 

140,502

 

 

139,553

 

 

103,768

 

Construction

 

 

20,061

 

 

23,731

 

 

27,100

 

 

25,715

 

 

17,799

 

Consumer

 

 

17,434

 

 

20,113

 

 

15,847

 

 

18,385

 

 

13,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

811,078

 

$

781,857

 

$

618,394

 

$

600,935

 

$

483,832

 

 

B.Maturities and Sensitivities of Loans to Changes in Interest Rates

 

The following table presents the remaining maturity of total loans outstanding for the categories shown at December 31, 2017, based on scheduled principal repayments (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

Commercial,

    

    

    

    

    

    

    

    

 

 

 

 

 

Financial,

 

1-4 Family

 

 

 

 

 

 

 

 

 

Commercial

 

 and

 

Residential

 

 

 

 

 

 

 

 

 

Real Estate

 

Agricultural

 

Real Estate

 

Consumer

 

Construction

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In one year or less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable interest rates

 

$

24,191

 

$

46,614

 

$

761

 

$

22

 

$

661

 

$

72,249

 

Fixed interest rates

 

 

37,068

 

 

8,849

 

 

6,813

 

 

1,994

 

 

10,550

 

 

65,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After one year but within five years:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable interest rates

 

 

26,377

 

 

8,921

 

 

144,805

 

 

1,317

 

 

3,841

 

 

185,261

 

Fixed interest rates

 

 

28,122

 

 

16,795

 

 

24,023

 

 

2,331

 

 

166

 

 

71,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After five years:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable interest rates

 

 

78,147

 

 

23,424

 

 

2,981

 

 

42

 

 

1,638

 

 

106,232

 

Fixed interest rates

 

 

212,837

 

 

52,348

 

 

30,507

 

 

11,728

 

 

3,205

 

 

310,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

406,742

 

$

156,951

 

$

209,890

 

$

17,434

 

$

20,061

 

$

811,078

 

 

C.Risk Elements

 

The following table presents a summary of nonperforming assets and problem loans as of December 31 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$

2,388

 

$

3,959

 

$

2,353

 

$

3,939

 

$

1,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income recorded during period for nonaccrual loans

 

 

 —

 

 

437

 

 

795

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing loans past due 90 days or more

 

 

 —

 

 

 —

 

 

32

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructured loans on nonaccrual not included above

 

 

180

 

 

165

 

 

154

 

 

3,105

 

 

614

 

 

10


 

Table of Contents

IV.Summary of Loan Loss Experience

 

A.Analysis of the Allowance for Loan Losses

 

Changes in the allowance for loan losses arise from loans charged off, recoveries on loans previously charged off by loan category, and additions to the allowance for loan losses through provisions charged to expense.  Factors which influence management’s judgment in determining the provision for loan losses include establishing specified loss allowances for selected loans (including large loans, nonaccrual loans, and problem and delinquent loans) and consideration of historical loss information and local economic conditions.

 

The following table presents information relative to the allowance for loan losses for the years ended December 31, (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

    

2014

    

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance of allowance for loan losses at beginning of period

 

$

5,020

 

$

5,004

 

$

5,140

 

$

4,661

 

$

5,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans charged off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

419

 

 

477

 

 

1,801

 

 

682

 

 

2,171

 

One to four family residential real estate

 

 

155

 

 

133

 

 

142

 

 

290

 

 

141

 

Consumer

 

 

229

 

 

113

 

 

87

 

 

74

 

 

120

 

Total loans charged off

 

 

803

 

 

723

 

 

2,030

 

 

1,046

 

 

2,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries of loans previously charged off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

119

 

 

102

 

 

662

 

 

259

 

 

150

 

One to four family residential real estate

 

 

67

 

 

 5

 

 

 2

 

 

22

 

 

26

 

Consumer

 

 

51

 

 

32

 

 

26

 

 

44

 

 

24

 

Total recoveries

 

 

237

 

 

139

 

 

690

 

 

325

 

 

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loans charged off

 

 

566

 

 

584

 

 

1,340

 

 

721

 

 

2,232

 

Provisions charged to expense

 

 

625

 

 

600

 

 

1,204

 

 

1,200

 

 

1,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

 

$

5,079

 

$

5,020

 

$

5,004

 

$

5,140

 

$

4,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average loans outstanding

 

 

795,532

 

 

703,047

 

 

602,904

 

 

509,749

 

 

462,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs to average loans

 

 

.07%

 

 

.08%

 

 

.22%

 

 

.14%

 

 

.48%

 

 

11


 

Table of Contents

B.Allocation of Allowance for Loan Losses

 

The allocation of the allowance for loan losses for the years ended December 31, is shown on the following table.  The percentages shown represent the percent of each loan category to total loans (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

 

2014

 

2013

 

 

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

1,650

 

50.15%

 

$

1,345

 

49.81%

 

$

1,611

 

50.58%

 

$

2,813

 

52.48%

 

$

1,849

 

55.56%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial, and agricultural

 

 

576

 

19.35

 

 

614

 

18.25

 

 

645

 

19.75

 

 

1,539

 

16.96

 

 

1,378

 

16.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial construction

 

 

54

 

1.14

 

 

57

 

1.47

 

 

79

 

2.48

 

 

142

 

2.71

 

 

80

 

2.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential real estate

 

 

160

 

25.88

 

 

296

 

26.34

 

 

274

 

22.72

 

 

285

 

23.22

 

 

516

 

21.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer construction

 

 

 6

 

1.33

 

 

 6

 

1.56

 

 

 7

 

1.91

 

 

 6

 

1.57

 

 

25

 

1.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

10

 

2.15

 

 

90

 

2.57

 

 

64

 

2.56

 

 

13

 

3.06

 

 

148

 

2.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated general reserves

 

 

2,623

 

 —

 

 

2,612

 

 —

 

 

2,324

 

 —

 

 

342

 

 —

 

 

665

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

5,079

 

100.00%

 

$

5,020

 

100.00%

 

$

5,004

 

100.00%

 

$

5,140

 

100.00%

 

$

4,661

 

100.00%

 

 

V.Deposits

 

Deposit information is contained in Note 7 to the Corporation’s Consolidated Financial Statements in Item 8 of this Form 10-K below.

 

VI.Return on Equity and Assets

 

See Item 6 of this Form 10-K, “Selected Financial Data”

 

VII.Financial Instruments with Off-Balance Sheet Risk

 

Information relative to commitments, contingencies, and credit risk are discussed in Note 19 to the Corporation’s Consolidated Financial Statements contained in Item 8 of this Form 10-K.

 

Item 1B.Unresolved Staff Comments

 

None.

 

Item 2.Properties

 

The Corporation’s headquarters are located at 130 South Cedar Street, Manistique, Michigan 49854.  The headquarters location is owned by the Corporation and not subject to any mortgage.

 

12


 

Table of Contents

All of the branch locations are designed for use and operation as a bank, are well maintained, and are suitable for current operations.  Of the 23 branch locations, 16 are owned and 7 are leased.  The Corporation has additional office space to house administrative operational support.  Below is a comprehensive listing of our branch locations:

 

Aurora

    

W563 County Road N

    

Aurora, WI

    

Owned

Birmingham

    

260 E. Brown Street, Suite 300

    

Birmingham, MI

    

Leased

Eagle River

 

400 E. Wall Street

 

Eagle River, WI

 

Owned

Escanaba

 

2224 N. Lincoln Road

 

Escanaba, MI

 

Owned

Florence

 

845 Central Ave

 

Florence, WI

 

Owned

Gaylord

 

1955 S. Otsego Avenue

 

Gaylord, MI

 

Owned

Ishpeming - Downtown

 

100 S. Main Street

 

Ishpeming, MI

 

Owned

Ishpeming - Jubilee

 

900 US 41 West

 

Ishpeming, MI

 

Leased

Ishpeming - West

 

US West & 170 N. Daisy Street

 

Ishpeming, MI

 

Owned

Kaleva

 

14429 Wuoksi Avenue

 

Kaleva, MI

 

Owned

Manistique

 

130 South Cedar Street

 

Manistique, MI

 

Owned

Manistique - Jack’s

 

735 E. Lakeshore Drive

 

Manistique, MI

 

Leased

Marquette

 

857 W. Washington Street

 

Marquette, MI

 

Leased

Marquette - McClellan

 

175 S. McClellan Avenue

 

Marquette, MI

 

Owned

Negaunee

 

440 US 41 East

 

Negaunee, MI

 

Leased

Newberry

 

414 Newberry Avenue

 

Newberry, MI

 

Owned

Niagara

 

900 Roosevelt Road

 

Niagara, WI

 

Owned

Sault Ste. Marie

 

138 Ridge Street

 

Sault Ste. Marie, MI

 

Owned

Stephenson

 

S216 Menominee Street

 

Stephenson, MI

 

Owned

St. Germain

 

240 HWY 70 East

 

St. Germain, WI

 

Owned

Three Lakes

 

1811 Superior Street

 

Three Lakes, WI

 

Owned

Traverse City- Cass St

 

309 Cass Street

 

Traverse City, MI

 

Leased

Traverse City

 

3530 North Country Drive

 

Traverse City, MI

 

Owned

 

 

Item 3.Legal Proceedings

 

There are no pending material legal proceedings to which the Corporation is a party or to which any of its property was subject, except for proceedings which arise in the ordinary course of business.  In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial position or results of operations of the Corporation.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

13


 

Table of Contents

PART II

 

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

MARKET INFORMATION

(Unaudited)

 

The Corporation’s common stock is traded on the NASDAQ Capital Market under the symbol MFNC.  The following table sets forth the range of high and low trading prices of the Corporation’s common stock from January 1, 2016 through December 31, 2017, as reported by NASDAQ.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

 

    

March 31

    

June 30

    

September 30

    

December 31

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

$

13.88

 

$

13.99

 

$

15.52

 

$

16.10

 

Low

 

 

13.63

 

 

13.92

 

 

15.01

 

 

15.89

 

Close

 

 

13.72

 

 

13.99

 

 

15.38

 

 

15.90

 

Dividends declared per share

 

 

0.120

 

 

0.120

 

 

0.120

 

 

0.120

 

Book value

 

 

12.71

 

 

12.92

 

 

13.13

 

 

12.93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

$

11.69

 

$

11.97

 

$

11.98

 

$

14.07

 

Low

 

 

9.90

 

 

10.00

 

 

10.64

 

 

11.00

 

Close

 

 

10.25

 

 

11.01

 

 

11.49

 

 

13.47

 

Dividends declared per share

 

 

0.100

 

 

0.100

 

 

0.100

 

 

0.100

 

 

The Corporation had approximately 1600 shareholders of record as of March 8, 2018.  A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and other nominees.

 

Dividends

 

The holders of the Corporation’s common stock are entitled to dividends when, and if declared by the Board of Directors of the Corporation, out of funds legally available for that purpose.  In determining dividends, the Board of Directors considers the earnings, capital requirements and financial condition of the Corporation and its subsidiary bank, along with other relevant factors.  The Corporation’s principal source of funds for cash dividends is the dividends paid by the Bank.  The ability of the Corporation and the Bank to pay dividends is subject to regulatory restrictions and requirements.  In 2017, the Bank paid dividends to the Corporation totaling $7.0 million.

 

Issuer Purchases of Equity Securities

 

The Corporation currently has a share repurchase program.  The program is conducted under authorizations from time to time by the Board of Directors.  Shares repurchased to date are covered by Board authorizations made and publically announced for $600,000 on February 27, 2013, an additional $600,000 on December 17, 2013, and an additional $750,000 on April 28, 2015. None of these authorizations has an expiration date.  The Corporation purchased 14,000 shares for $.150 million in 2016, 102,455 shares for $1.122 million in 2015, 13,700 shares of its common stock for $.143 million in 2014, and $.509 million in 2013.  There were no repurchases made during 2017.  As of December 31, 2017 the Corporation had $25,000 remaining of the previously authorized buyback amount. 

 

For information regarding securities authorized for issuance under equity compensation plans, see Item 12 of this Form 10-K.

 

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Performance Graph

 

Shown below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on the Corporation’s common stock with that of the cumulative total return on the NASDAQ Bank Index and the NASDAQ Composite Index for the five-year period ended December 31, 2017. The following information is based on an investment of $100, on December 31, 2012 in the Corporation’s common stock, the NASDAQ Bank Index, and the NASDAQ Composite Index, with dividends reinvested.

 

This graph and other information contained in this section shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

Picture 1

 

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Item 6.Selected Financial Data

 

SELECTED FINANCIAL DATA

(Unaudited)

(Dollars in Thousands, Except Per Share Data)