SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
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 000-31957
ALPENA BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
UNITED STATES 38-3567362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 S. SECOND AVENUE, ALPENA, MICHIGAN 49707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (989) 356-9041
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Common Stock, Par Value $1.00 Outstanding at July 24, 2003
(Title of Class) 1,649,643 shares
Transitional Small Business Disclosure Format: Yes No X .
------ ------
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2003
INDEX
PART I -- FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-QSB as referenced below:
ITEM 1 - FINANCIAL STATEMENTS PAGE
----
Consolidated Balance Sheet at
June 30, 2003 and December 31, 2002........................................3
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 2003 and June 30, 2002......................................4
Consolidated Statement of Changes in Stockholders' Equity
for the Six months ended June 30, 2003.....................................5
Consolidated Statements of Cash Flow for the Six months ended
June 30, 2003 and June 30, 2002............................................6
Notes to Consolidated Financial Statements....................................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................11
ITEM 3 - CONTROLS AND PROCEDURES..........................................................18
PART II - OTHER INFORMATION
OTHER INFORMATION...........................................................................19
SIGNATURES..................................................................................20
When used in this Form 10-QSB or future filings by Alpena Bancshares, Inc. (the
"Company") with the Securities and Exchange Commission ("SEC"), in the Company's
press releases or other public or stockholder communications, or in oral
statements made with the approval of an authorized executive officer, the words
or phrases "would be," "will allow," "intends to," "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit and other risks
of lending and investment activities and competitive and regulatory factors,
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2003 December 31, 2002
------------- -----------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash on hand and due from banks .................................................. $ 4,401,050 $ 3,091,216
Overnight deposits with FHLB ..................................................... 2,822,119 12,007,645
------------ ------------
Total cash and cash equivalents .................................................. 7,223,169 15,098,861
Securities available-for-sale .................................................... 50,971,465 46,944,263
Loans held for sale .............................................................. 2,765,368 541,968
Loans receivable, net of allowance for loan losses of
$1,087,000 and $922,000 as of June 30, 2003 and December 31, 2002 respectively.. 152,859,838 151,341,463
Foreclosed real estate and other repossessed assets .............................. 96,052 127,800
Real estate held for investment .................................................. 274,920 490,086
Federal Home Loan Bank stock, at cost ............................................ 4,350,500 4,293,600
Premises and equipment ........................................................... 5,833,628 4,761,207
Accrued interest receivable ...................................................... 1,321,649 1,323,437
Intangible Assets ................................................................ 3,697,762 1,697,920
Other assets ..................................................................... 2,426,744 2,187,645
------------ ------------
Total assets ..................................................................... $231,821,095 $228,808,250
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ......................................................................... $157,323,090 $156,092,449
Advances from borrowers for taxes and insurance .................................. 345,624 3,872
Federal Home Loan Bank advances .................................................. 47,413,793 48,413,793
Accrued expenses and other liabilities ........................................... 4,085,576 1,889,057
Deferred income taxes ............................................................ 605,888 661,731
------------ ------------
Total liabilities ................................................................ 209,773,971 207,060,902
------------ ------------
Commitments and contingencies .................................................... - -
Stockholders' equity:
Common stock ($1.00 par value, 20,000,000 shares authorized, 1,649,643 and
1,645,248 shares issued and outstanding at
June 30, 2003 and December 31, 2002, respectively) ............................... 1,649,643 1,645,258
Additional paid-in capital ....................................................... 5,254,921 5,216,075
Retained earnings, restricted .................................................... 4,577,000 4,347,000
Retained earnings ................................................................ 9,570,720 9,471,394
Accumulated other comprehensive income ........................................... 994,840 1,067,621
------------ ------------
Total stockholders' equity ....................................................... 22,047,124 21,747,348
------------ ------------
Total liabilities and stockholders' equity ....................................... $231,821,095 $228,808,250
============ ============
3
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
----------- ----------- ------------ -----------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans ............................ $ 2,760,864 $ 3,272,250 $ 5,582,010 $ 6,489,237
Interest and dividends on investments ................. 485,489 548,645 986,900 $ 1,025,796
Interest on mortgage-backed securities ................ 64,561 48,980 142,285 $ 77,264
----------- ----------- ------------ -----------
Total interest income ................................. 3,310,914 3,869,875 6,711,195 7,592,297
----------- ----------- ------------ -----------
Interest expense:
Interest on deposits .................................. 958,119 1,429,176 1,988,011 2,995,327
Interest on borrowings ................................ 694,103 712,937 1,366,340 1,446,576
----------- ----------- ------------ -----------
Total interest expense ................................ 1,652,222 2,142,113 3,354,351 4,441,903
----------- ----------- ------------ -----------
Net interest income ................................... 1,658,695 1,650,013 3,356,844 3,150,394
Provision for loan losses ............................. 64,500 75,000 227,000 150,000
----------- ----------- ------------ -----------
Net interest income after provision for loan losses.... 1,594,195 1,575,013 3,129,844 3,000,394
----------- ----------- ------------ -----------
Non Interest income:
Service charges and other fees ........................ 173,802 188,551 334,170 371,034
Mortgage banking activities ........................... 511,436 173,638 887,551 495,007
Gain on sale of available-for-sale investments ........ 93,005 - 93,005 -
Net gain (loss) on sale of premises and equipment,
real estate owned and other repossessed assets....... 27,916 (9,660) 30,781 (16,928)
Other (See Note 5) .................................... 141,464 23,617 184,475 70,151
Insurance & Brokerage Commissions ..................... 994,977 - 994,977 -
----------- ----------- ------------ -----------
Total other income .................................... 1,942,600 376,146 2,524,959 919,264
----------- ----------- ------------ -----------
Non interest expenses:
Compensation and employee benefits .................... 1,543,848 1,007,538 2,720,016 1,953,208
Federal insurance premiums ............................ 6,682 7,254 13,364 14,817
Advertising ........................................... 55,207 47,496 98,942 94,992
Occupancy ............................................. 310,613 247,455 581,132 506,660
Amortization of intangible assets ..................... 85,797 51,253 137,049 102,505
Data processing ....................................... 71,680 64,634 149,736 134,832
Insurance & Brokerage Commission Expense .............. 429,845 - 429,845 -
Other (See Note 6) .................................... 392,049 375,212 759,598 741,410
----------- ----------- ------------ -----------
Other expenses ........................................ 2,895,721 1,800,842 4,889,682 3,548,424
----------- ----------- ------------ -----------
Income before income tax expense ...................... 641,074 228,066 765,121 371,234
Income tax expense .................................... 215,300 81,121 253,770 132,824
----------- ----------- ------------ -----------
Net income ............................................ $ 425,774 $ 146,945 $ 511,351 $ 238,410
=========== =========== ============ ===========
==================================================================================================================================
Per share data:
Basic earnings per share .............................. $ 0.26 $ 0.09 $ 0.31 $ 0.15
Weighted average number of shares outstanding ......... 1,646,453 1,644,378 1,646,400 1,643,088
Diluted earnings per share ............................ $ 0.26 $ 0.09 $ 0.31 $ 0.14
Weighted average number of shares outstanding,
including dilutive stock options ...................... 1,658,920 1,655,554 1,658,381 1,653,962
Dividends per common share ............................ $ 0.125 $ 0.125 $ 0.250 $ 0.250
==================================================================================================================================
See accompanying notes to consolidated financial statements.
4
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
---------- ---------- ------------ ----------- ------------
Balance at December 31, 2002 ....... $1,645,258 $5,216,075 $ 13,818,394 $ 1,067,621 21,747,348
Stock issued upon exercise of
stock options (4,185 shares) ....... 4,185 36,096 - - 40,281
RRP stock release (200 shares)...... 200 2,750 - - 2,950
Net income for the period .......... - - 511,351 - 511,351
Changes in unrealized gain
on available-for-sale securities... - - - (72,780) (72,780)
Total comprehensive income ......... - - - - 438,571
Dividends declared ................. - - (182,025) - (182,025)
---------- ---------- ------------ ----------- ------------
Balance at June 30, 2003 ........... $1,649,643 $5,254,921 $ 14,147,720 $ 994,840 $ 22,047,124
========== ========== ============ =========== ============
5
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
For the Six Months Ended
June 30,
------------------------------
2003 2002
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income ............................................................................... $ 511,351 $ 146,945
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and Amortization of Core Deposit Intangible ............................... 230,589 119,809
Amortization Intangible Assets ......................................................... 44,306 51,254
Provision for loan losses .............................................................. 227,000 75,000
Accretion of discounts, amortization of premiums,
and other deferred yield items, net .................................................. 152,512 (11,799)
(Gain) loss on sale of investment securities available for sale ........................ (93,005) -
Principal amount of loans sold ......................................................... 45,622,246 7,502,300
Originations of loans held for sale .................................................... (47,845,646) (5,947,268)
(Gain) loss on sale of real estate held for investment ................................. (31,031) 5,447
(Gain) loss on sale of premises and equipment,
real estate owned and other repossessed assets ....................................... (30,781) 4,213
Net Changes:
(Increase) decrease in accrued interest receivable and other assets .................... (237,311) (8,831)
Increase (decrease) in accrued interest and other liabilities .......................... 1,075,224 614,756
------------ ------------
Net cash provided by (used in) operating activities ...................................... (374,546) 2,551,826
------------ ------------
Cash flows from investing activities:
(Increase) decrease in net loans receivable ............................................. (1,745,375) 847,274
Proceeds from sales or maturity of:
Investment securities available-for-sale ............................................... 11,496,442 1,177,964
Real estate held for investment ........................................................ 399,415 (43,739)
Real estate owned, other repossessed assets and premises & equipment ................... 62,529 65,693
Purchases of:
Investment securities available-for-sale ............................................... (15,693,425) (14,665,019)
Premises and equipment ................................................................. (874,008) (65,921)
InsuranCenter of Alpena ................................................................ (1,028,453) -
FHLB Stock ............................................................................. (56,900) -
Real estate held for investment ........................................................ (153,218) 138,703
------------ ------------
Net cash provided by (used in) investing activities ...................................... (7,592,993) (12,545,045)
------------ ------------
Cash flows from financing activities:
Proceeds from Federal Home Loan Bank advances ........................................... - 2,600,000
Repayments of Federal Home Loan Bank advances ........................................... (1,000,000) -
Increase (decrease) in deposits ......................................................... 1,230,641 (5,442,130)
Dividend paid on common stock ........................................................... (182,025) (90,547)
Issuance of common stock ................................................................ 43,231 -
------------ ------------
Net cash provided by (used in) financing activities ..................................... 91,847 (2,932,677)
------------ ------------
Net increase (decrease) in cash and cash equivalents .................................... (7,875,692) (12,925,896)
Cash and cash equivalents at beginning of period ........................................ 15,098,861 19,482,213
------------ ------------
Cash and cash equivalents at end of period .............................................. $ 7,223,169 $ 6,556,317
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes ............................................. $ - $ 106,000
============ ============
Cash paid during the period for interest ................................................. $ 3,322,998 $ 2,115,786
============ ============
================================================================================
6
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The accompanying consolidated financial statements have been prepared on an
accrual basis of accounting and include the accounts of Alpena Bancshares, Inc.
(the "Company") and its wholly-owned subsidiary, First Federal of Northern
Michigan (the "Bank") and its wholly owned subsidiaries Financial Service and
Mortgage Corporation ("FSMC") and the InsuranCenter of Alpena ("ICA"). FSMC
invests in real estate that includes leasing, selling, developing, and
maintaining real estate properties. ICA is a licensed insurance agency engaged
in the business of property, casualty and health insurance. All significant
intercompany balances and transactions have been eliminated in the
consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments, which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at June 30, 2003, and
its results of operations and statement of cash flows for the periods presented.
All such adjustments are normal and recurring in nature. The accompanying
consolidated financial statements do not purport to contain all the necessary
financial disclosures required by generally accepted accounting principles that
might otherwise be necessary and should be read in conjunction with the
consolidated financial statements and notes thereto of the Company included in
the Annual Report for the year ended December 31, 2002. Results for the six
months ended June 30, 2003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2003.
On June 12, 2003, First Federal of Northern Michigan acquired 100% of the stock
of the InsuranCenter of Alpena (ICA). The effective date of the transaction was
February 28, 2003. As a result of this effective date, the financial data
reflected herein is based upon the financial activity of ICA starting at March
1, 2003 through June 30, 2003. ICA is a licensed insurance agency engaged in the
business of property, casualty and health insurance. The purchase price was
$2,566,400. There is a provision for an earn out payment for the former owners,
who remain with the organization, of up to $300,000 per year for three years if
specific net sales levels are achieved. The following table summarizes the
estimated fair value of the assets acquired:
At Feb 28, 2003
(000's)
Current Assets $ 151.8
Plant, Property and Equipment $ 438.8
Intangible Assets $ 1,687.0
Goodwill $ 357.1
Total Assets Acquired $ 2,634.7
Current Liabilities $ 68.3
Total Liabilities Assumed $ 68.3
Net Assets Acquired $ 2,566.4
Of the identifiable intangible assets acquired, $890,000 relates to the value of
the existing customer list and $597,000 relates to an exclusive health care
contract. Both of these will be amortized over a 20 year period. The monthly
amortization expense associated with these items will be $6,200. The value
placed on the non-compete agreement is $200,000 which will be amortized over a
10 year period. The monthly amortization for this equates to $1,700 per month.
These amortization expenses will be recorded in non interest expenses on a
monthly basis. The goodwill of $357,000 that was created in the transaction will
not be amortized but tested annually for impairment. Any payments made under the
earn out agreement will be added to goodwill.
7
The purchase was paid for with cash of $1,028,000 plus a note payable (debt) of
$1,357,000 and a non-compete liability (balance to be paid over next nine years)
of $180,000.
CRITICAL ACCOUNTING POLICY - The Company has determined that the only critical
accounting policy that they have relates to the allowance for losses on loans.
The Company has established a systematic method of periodically reviewing the
credit quality of the loan portfolio in order to establish an allowance for
losses on loans. The allowance for losses on loans is based on management's
current judgments about the credit quality of individual loans and segments of
the loan portfolio. The allowance for losses on loans is established through a
provision for loan losses based on management's evaluation of the risk inherent
in the loan portfolio, and considers all known internal and external factors
that affect loan collectability as of the reporting date. Such evaluation, which
includes a review of all loans on which full collectability may not be
reasonably assured, considers among other matters, the estimated net realizable
value or the fair value of the underlying collateral, economic conditions,
historical loan loss experience, management's knowledge of inherent risks in the
portfolio that are probable and reasonably estimable and other factors that
warrant recognition in providing an appropriate loan loss allowance. This
evaluation involves a high degree of complexity and requires management to make
subjective judgments that often require assumptions or estimates about uncertain
matters. The Company's critical accounting policies are periodically reviewed by
the Management.
REAL ESTATE HELD FOR SALE - FSMC is engaged in the development and sale of real
estate. Land held for sale or development is carried at cost, including
development costs, not in excess of fair value less costs to sell determined on
an individual project basis.
MORTGAGE BANKING ACTIVITIES - In 2000, the Bank began selling to investors a
portion of its originated residential mortgage loans. The mortgage loans
serviced for others are not included in the consolidated statements of financial
condition.
When the Bank acquires mortgage servicing rights through the origination of
mortgage loans and sells those loans with servicing rights retained, it
allocates the total cost of the mortgage loans to the mortgage servicing rights
based on their relative fair value. As of June 30, 2003 and December 31, 2002,
the Bank was servicing loans sold to others totaling $133.6 million and $119.7
million respectively. Capitalized mortgage servicing rights are amortized as a
reduction of servicing fee income in proportion to, and over the period of,
estimated net servicing income by use of a method that approximates the
level-yield method. Capitalized mortgage servicing rights are periodically
evaluated for impairment using a model that takes into account several
variables. If impairment is identified, the amount of impairment is charged to
earnings with the establishment of a valuation allowance against the capitalized
mortgage servicing rights asset. In general, the value of mortgage servicing
rights increases as interest rates rise and decreases as interest rates fall.
This is because the estimated life and estimated income from a loan increase as
interest rates rise and decrease as interest rates fall.
The evaluation was performed as of June 30, 2003. The key economic assumptions
made in determining the fair value of the mortgage servicing rights included the
following:
Annual Constant Prepayment Speed (CPR): 24.00%
Weighted Average Life Remaining (in months): 257.7
Discount Rate used: 7.36%
At the June 30, 2003 valuation, the mortgage servicing rights value was
calculated, based on the above factors, to be $928,763. The net book value as
June 30, 2003 was $957,835. This meant that the Bank had to set up a reserve
allowance against the asset and charged the difference of $29,072 against that
allowance bringing the net book value in line with the valuation.
OTHER COMPREHENSIVE INCOME - Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Certain changes in assets and liabilities, however, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component in
the equity section of the consolidated balance sheet. Such items along with net
income are components of comprehensive income.
8
INCOME TAXES - The provision for income taxes is based upon the effective tax
rate expected to be applicable for the entire year.
EARNINGS PER SHARE - Basic earnings per share is based on the weighted average
number of shares outstanding in each period. Fully diluted earnings per share is
based on weighted average shares outstanding assuming the exercise of the
dilutive stock options, which are the only potential stock of the Company as
defined in Statement of Financial Accounting Standard No. 128, Earnings per
Share. The Company uses the treasury stock method to compute fully diluted
earnings per share, which assumes proceeds from the assumed exercise of stock
options would be used to purchase common stock at the average market price
during the period.
NOTE 2--REORGANIZATION.
The Company was formed as the Bank's holding company on November 14, 2000
pursuant to a plan of reorganization adopted by the Bank and its stockholders.
Pursuant to the reorganization, each share of the Bank's stock held by existing
stockholders of the Bank was exchanged for a share of common stock of the
Company by operation of law. The reorganization had no financial statement
impact and is reflected for all prior periods presented. Approximately 56% of
the Company's capital stock is owned by Alpena Bancshares M.H.C. ("the M.H.C."),
a mutual holding company. The remaining 44% of the Company's stock is owned by
the general public. The activity of the M.H.C. is not included in these
financial statements.
NOTE 3--DIVIDENDS.
Payment of dividends on the common stock is subject to determination and
declaration by the Board of Directors and depends upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operations and financial condition, tax
considerations and general economic conditions. The M.H.C. (the majority
shareholder of the Company) filed a notice with the Office of Thrift Supervision
(the "OTS") requesting approval to waive receipt of cash dividends from the
Company for each quarterly dividend to be paid for the year ending December 31,
2003. In a letter dated February 5, 2003, the OTS did not object to the dividend
waiver request for the four quarters ending December 31, 2003.
On June 17, 2003, the Company declared a cash dividend on its common stock,
payable on, or about July 25, 2003, to shareholders of record as of June 30,
2003, equal to $0.125 per share. The dividend on all shares outstanding totaled
$206,000, of which $91,000 was paid to shareholders. Because the OTS has agreed
to allow the M.H.C. to waive receipt of its dividend (amounting to $115,000),
this dividend was not paid.
NOTE 4--1996 STOCK OPTION PLAN AND 1996 RECOGNITION AND RETENTION PLAN
At June 30, 2003 the Company had outstanding stock options for 36,848 shares
with a weighted exercise price of $10.43 compared to outstanding options for
41,033 shares at a weighted exercise price of $10.35 at December 31, 2002.
During the six months ended June 30, 2003, the Board of Directors granted no
options. During this same period, options for 4,185 shares were exercised. At
June 30, 2003, options had exercise prices ranging from $9.625 to $13.75 per
share and a weighted average remaining contractual life of 3.64 years.
During the six months ended June 30, 2003 the Company awarded 200 shares, which
were vested at the time of the award, under the Recognition and Retention Plan
("RRP"). Shares issued under the RRP and exercised pursuant to the exercise of
stock option plan may be either authorized but unissued shares or reacquired
shares held by the Company as treasury stock.
For the six months ended June 30, 2003, options for 1,000 shares were vested.
The expense associated with those vested options would have been $1,040 had the
company elected to adopt FAS 148.
9
NOTE 5 -- OTHER INCOME
At June 30, 2003, other income totaled $184,475. This is primarily comprised of
an insurance settlement received based on a claim filed by the Bank under an
Errors and Omissions policy. The insurance company settled the claim at the end
of the quarter for $100,000. This amount was recorded as other income. The
balance of other income is comprised of small immaterial issues.
NOTE 6 -- OTHER EXPENSES
At June 30, 2003 other expenses totaled $759,598. This is comprised of several
larger expenses including service bureau charges for the bank operating system
of $150,000, professional services including audit, legal, and regulatory fees
of $135,000, printing, computer and office supplies of $85,000, and
communication costs of $72,000. The balance of the total is comprised of
expenses lower than $50,000.
RECENT ACCOUNTING PRONOUNCEMENTS -- In July 2001, Statement of Financial
Accounting Standards No 142, Goodwill and Other Intangibles (FAS 142), was
issued. SFAS 142 changes the accounting treatment of goodwill effective January
1, 2002. The amount of intangible assets reported by the Company grew during the
quarter as a result of the purchase of the InsuranCenter of Alpena. For the
quarter ended June 30, 2003, the intangible assets grew by $2,102,347 to a total
of $3,697,762. Of that amount goodwill represents $357,148. This amount
represents the goodwill created in the purchase of ICA. The adoption of FAS 142
means that the Bank will need to test this asset for impairment annually. If
impairment is determined to exist, then the goodwill would be reduced to the
extent determined in impairment testing.
In November 2002, FASB issued Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires disclosures be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also requires the recognition of
a liability by a guarantor at the inception of certain guarantees that it has
issued and that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 does not have a material effect on the Company's
financial statements since the Company does not issue such guarantees.
In December 2002, the FASB issued Statement No. 148, Accounting for Stock-based
Compensation-transition and Disclosure, which amends FASB 123, Accounting for
Stock-Based Compensation. Statement No.148 is effective for fiscal years ending
after December 15, 2002. Statement No. 148 provides alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation. In addition, Statement No. 148 amends the
disclosure requirements of Statement No. 123. The Company has not adopted the
fair value-based method of accounting for stock-based compensation as of June
30, 2003; therefore, there is no impact to the Company's financial statements.
10
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of the Company
consolidated with its wholly owned direct and indirect subsidiaries at June 30,
2003 and December 31, 2002, and the results of operations for the three and six
month periods ended June 30, 2003 and 2002. This discussion should be read in
conjunction with the interim financial statements and footnotes included herein.
FINANCIAL CONDITION
ASSETS: Total assets grew $3.0 million, or 1.3%, to $231.8 million at June 30,
2003 from $228.8 million at December 31, 2002. Cash and cash and equivalents
decreased by $7.9 or 52.2%, to $7.2 million at June 30, 2003 from $15.1 million
at December 31, 2002. Investment securities available for sale increased $4.0
million, or 8.6% in the first six months as cash was invested into higher
yielding bonds. Net loans receivable increased $1.5 million, or 1.0%, to $152.9
million at June 30, 2003 from $151.3 million at December 31, 2002 primarily as a
result of the Bank's commercial lending activity. While borrower refinancing of
balloon mortgage loans into 15 and 30 year fixed rate loans, most of which were
subsequently sold by the Bank in the secondary market, was heavy in the first
six months, the amount of the sold portfolio loans were offset by growth in the
commercial loan portfolio. Sales of loans into the secondary market totaled
$47.8 million for the six months ended June 30, 2003.
LIABILITIES: Deposits increased $1.2 million or .7% to $157.3 million at June
30, 2003 from $156.1 million at December 31, 2002. This increase was primarily
attributable to new commercial business checking accounts that came to the Bank
as part of the new commercial loan relationships and CD specials that were
offered during the second quarter. Borrowings in the form of Federal Home Loan
Bank advances declined $1.0 million, or 2.1%, to $47.4 million at June 30, 2003
from $48.4 million at December 31, 2002.
EQUITY: Stockholders' equity increased by $300,000, or 1.4%, to $22.0 million at
June 30, 2003 from $21.7 million at December 31, 2002. The increase in
stockholders' equity was due to an increase in retained earnings of $329,300
which was partially offset by a decline in other comprehensive income of $73,000
resulting from slightly lower market values on certain available-for-sale
securities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002
GENERAL: Net income for the quarter grew by $279,000 or 190.0% to $426,000 for
the three months ended June 30, 2003 from $147,000 for the same quarter one year
earlier. The increase for the three month period was due to an increase in non
interest income. Within non interest income, increases in mortgage banking
activities and the inclusion of the InsuranCenter of Alpena insurance and
brokerage commissions accounted for the increase. Non interest income increased
to $1.9 million for the quarter ended June 30, 2003 compared to $376,000 for the
same period one year earlier. This represented an increase of 417%. While there
was a significant increase in non interest income, it was partially offset by an
increase in compensation and employee benefits expenses.
INTEREST INCOME: Interest income was $3.3 million for the three months ended
June 30, 2003, compared to $3.9 million for the comparable period in 2002. The
decrease in interest income for the three month period from the prior year was
primarily due to the sale of longer term fixed rate mortgage loans and the
subsequent reinvestment of these proceeds into lower yielding assets (investment
securities). The sale of these loans resulted in a decline in the average
balance of residential mortgage loans of $22.1 million, or 18.2%, for the three
month period ended June 30, 2003 from the prior year period. This decline was
partially offset by increases in the average balance of non-mortgage loans of
$6.7 million, or 15.4%, and the increase in the
11
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
average balance of various investments of $4.7 million, or 8.4%, for the three
month period ended June 30, 2003, compared to the same period in the prior year.
Overall, the composite yield of earning assets was 39 basis points lower than
the same period one year earlier. The overall yield was 6.29% for the quarter
ended June 30, 2003 compared to 6.68% June 30, 2002.
INTEREST EXPENSE: Interest expense was $1.7 million for the three month period
ended June 30, 2003 compared to $2.1 million for the same period in 2002. The
22.9% decline in interest expense was attributable to lower interest rates paid
on interest-bearing liabilities and to lower average balances on these
liabilities for the quarter ended June 30, 2003 compared to the same 2002
period. The average balance of deposits and FHLB borrowings declined in total
from $207.6 million to $195.3 million from the periods ended June 30, 2003 and
June 30, 2002 respectively. Of this $12.3 million reduction, $10.4 million was
related to interest-bearing deposits, which decreased from a $158.3 million
average balance for the quarter ended June 30, 2002 to $147.9 million average
balance for the period ended June 30, 2003.
NET INTEREST INCOME: Net interest income remained unchanged at $1.6 million for
the three month periods ended June 30, 2003 and June 30, 2002. For the three
months ended June 30, 2003, average interest-earning assets declined $10.6
million, or 4.7% when compared to the same period in 2002. Average
interest-bearing liabilities decreased $12.3 million, or 5.9% for the same
period. The yield on average interest-earning assets declined to 6.29% for the
three month period ended June 30, 2003 from 6.68% at June 30, 2002. The cost of
average interest-bearing liabilities declined 75 basis points to 3.37% from
4.12% for the three month periods ended June 30, 2003 and June 30, 2002,
respectively. As a result of the decrease in the overall cost of funds, the net
interest rate margin increased to 3.16% for the three month period ended June
30, 2003, from 2.81% for same period in 2002.
PROVISION FOR LOAN LOSSES: The allowance for loan losses is established through
a provision for loan losses charged to earnings. Loan losses are charged against
the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes available. The
provision for loan losses amounted to $64,500 for the three month period ended
June 30, 2003 and $75,000 for the comparable period in 2002.
NON INTEREST INCOME: Non interest income was $1.9 million for the three month
period ended June 30, 2003, compared to $376,000 for the same period in 2002.
This represented an increase of $1.6 million or 416.8% improvement. Mortgage
banking activities income for the quarter was higher by $338,000. This
represented an increase of 194.7% over the quarter ended June 30, 2002. This
increase related to the gain on sale of mortgages sold in the secondary market.
This was a function of the increased volume of refinance activity when compared
to the second quarter of 2002. Management has made the decision to sell most
fixed rate mortgage loans given the low interest rate environment. When these
loans are sold into the secondary market, the buyer is paying for the future
cash flows associated with the loan. The premium paid by the buyer for that cash
flow represents gain on sale income for the Bank. The other major explanation
for the increase in non interest income related to the inclusion of the
InsuranCenter of Alpena insurance and brokerage commissions. Since ICA was
purchased during the quarter ended June 30, 2003, this income was not included
in the Company statements during the same quarter last year. The insurance and
brokerage commissions amounted to $995,000 for the period ended June 30, 2003.
12
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
NON INTEREST EXPENSES: Non interest expenses were $2.9 million for the three
month period ended June 30, 2003, compared to $1.8 million for the same period
in 2002. The $1.1 million increase represented an increase of 61.1% for the
period. Much of this increase related to the inclusion of the various expenses
associated with the InsuranCenter of Alpena which totaled $822,000 for the
quarter ended June 30, 2003. Overall, the increases were broken down into a
couple of major categories including compensation and benefits which was $1.5
million for the quarter ended June 30, 2003 compared to $1.0 million for the
same period one year earlier. $300,000 of compensation and benefit expenses
related to the inclusion of the employees associated with ICA plus the
additional mortgage and commercial lending staff that have been hired by the
Bank since June 2002. The InsuranCenter costs associated with the brokerage and
commissions expenses was $430,000 during the quarter ended June 30, 2003. Since
ICA was purchased during the quarter ended June 30, 2003, these costs were not
included in the Company statements during the same quarter last year. This
represents the single biggest piece of the overall increase in non interest
expenses. There is also the amortization expense associated with the intangible
assets created in the acquisition of ICA which totaled $37,000 for the quarter
ended June 30, 2003.
INCOME TAXES: Federal income taxes increased to $215,000 for the three month
period ended June 30, 2003 compared to $81,000 for the same period in 2002. The
effective tax rate for the quarter ended June 30, 2003 was 33.5% compared to
35.6% for the same period one year earlier.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
GENERAL: Net income increased 115.0% to $511,000 for the six months ended June
30, 2003 from $238,000 for the same period ended June 30, 2002. The increase for
the six month period was due to an increase in the net interest income and
increases in non interest income. Within non interest income, increases in
mortgage banking activities and the inclusion of the InsuranCenter of Alpena
insurance and brokerage commissions accounted for most of the increase. Non
interest income increased to $2.5 million for the first six months of 2003
compared to $919,000 for the same period one year earlier. This represented an
increase of 175.0%. While there was a significant increase in other income, it
was partially offset by an increase in compensation and employee benefits
expenses.
INTEREST INCOME: Interest income was $6.7 million for the six months ended June
30, 2003, compared to $7.6 million for the comparable period in 2002. The
decrease in interest income for the six month period from the prior year was
primarily due to the sale of longer term fixed rate mortgage loans and the
subsequent reinvestment of these proceeds into lower yielding assets (investment
securities). The sale of these loans resulted in a decline in the average
balance of residential mortgage loans of $24.2 million, or 19.3%, for the six
month period ended June 30, 2003 from the prior year period. This decline was
partially offset by increases in the average balance of non-mortgage loans of
$6.9 million, or 16.3%, and the increase in the average balance of various
investments of $4.1 million, or 7.4%, for the six month period ended June 30,
2003, compared to the same period in the prior year. Overall, the composite
yield of earning assets was 24 basis points lower than the same period one year
earlier. The overall yield was 6.40% as of June 30, 2003 compared to 6.67% as of
June 30, 2002.
INTEREST EXPENSE: Interest expense was $3.4 million for the six month period
ended June 30, 2003 compared to $4.4 million for the same period in 2002. The
24.5% decline in interest expense was attributable to lower interest rates paid
on interest-bearing liabilities and to lower average balances on these
liabilities for the period ended June 30, 2003 compared to the same 2002 period.
The average balance of deposits and FHLB borrowings declined in total from
$210.1 million to $195.1 million from the period ended June 30, 2002 to June 30,
2003. Of this $15.0 million reduction, $12.3 million was related to
interest-bearing deposits, which decreased from a $160.0 million average balance
for the period ended June 30, 2002 to $147.7 million average balance for the
period ended June 30, 2003.
13
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
NET INTEREST INCOME: Net interest income increased to $3.1 million for the six
month period ended June 30, 2003 compared to $3.0 million for the same period in
2002. For the six months ended June 30, 2003, average interest-earning assets
declined $13.3 million, or 5.9% when compared to the same period in 2002.
Average interest-bearing liabilities decreased $15.0 million, or 7.1% for the
same period. The yield on average interest-earning assets declined to 6.40% for
the six month period ended June 30, 2003 from 6.67% for the six month period
ended June 30, 2002. The cost of average interest-bearing liabilities declined
80 basis points to 3.45% from 4.25% for the six month periods ended June 30,
2003 and June 30, 2002, respectively. As a result of the decrease in the overall
cost of funds, the net interest rate margin increased to 3.20% for the six month
period ended June 30, 2003, from 2.68% for same period in 2002.
NON INTEREST INCOME: Non interest income was $2.5 million for the six month
period ended June 30, 2003, compared to $919,000 for the same period in 2002.
This represented an increase of $1.6 million or 174.7% improvement. Comparing to
the first half of 2002, mortgage banking activities income was higher by
$392,000. This represented an increase of 79.2% over the period ended June 30,
2002. This increase related to the gain on sale of mortgages sold in the
secondary market which was $348,000 higher than the same period one year
earlier. The other major explanation for the increase in non interest income
related to the inclusion of the InsuranCenter of Alpena insurance and brokerage
commissions which are new to the Bank, thus not included in the period ended
June 30, 2002. The insurance and brokerage commissions amounted to $995,000 for
the period ended June 30, 2003.
NON INTEREST EXPENSES: Other expenses were $4.9 million for the six month period
ended June 30, 2003, compared to $3.5 million for the same period in 2002. The
$1.4 million increase represented an increase of 37.8% for the period. Much of
this increase related to the inclusion of the various expenses associated with
the InsuranCenter of Alpena which totaled $822,000 for the period ended June 30,
2003. Overall, the increases were broken down into a couple of major categories
including compensation and benefits which was $2.7 million for the period ended
June 30, 2003 compared to $2.0 million for the same period one year earlier.
$300,000 of the compensation and benefit expenses related to the inclusion of
the employees associated with ICA plus the additional mortgage and commercial
lending staff that have been hired by the Bank since June 2002. The
InsuranCenter costs associated with the brokerage and commission expenses were
$430,000 as of June 30, 2003. This represents the single biggest piece of the
overall increase in non interest expenses. There is also the amortization
expense associated with the intangible assets created in the acquisition of ICA
which totaled $37,000 for the period ended June 30, 2003.
INCOME TAXES: Federal income taxes increased to $254,000 for the six month
period ended June 30, 2003 compared to $133,000 for the same period in 2002. The
effective tax rate for the six months ended June 30, 2003 was 33.2% versus 35.8%
for the same period one year earlier.
DELINQUENT LOANS AND NONPERFORMING ASSETS. The following table sets forth
information regarding loans that are delinquent 90 days or more and Real Estate
Owned (REO)/Other Repossessed Assets (ORA) by the Bank at the dates indicated.
As of the dates indicated, the Bank did not have any material restructured loans
within the meaning of SFAS 15.
14
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
DECEMBER 31,
6/30/2003 2002 2001 2000
--------- ------ ------ ------
Total non-accrual loans delinquent 90 days or more (3) $1,714 $ 662 $ - $ -
Accrual loans delinquent 90 days or more:
One- to four-family residential ..................... 669 566 475 498
Other real estate loans ............................. - - - 39
Consumer/Commercial ................................. 191 241 201 168
------ ------ ----- -----
Total accrual loans delinquent 90 days or more ... $ 860 $ 807 $ 676 $ 705
------ ------ ----- -----
Total nonperforming loans (1) ......................... 2,574 1,469 676 705
Total real estate owned (2) ........................... 96 128 197 150
------ ------ ----- -----
Total nonperforming assets ............................ $2,670 $1,597 $ 873 $ 855
------ ------ ----- -----
Total nonperforming loans to net loans receivable ..... 1.68% 0.97% 0.38% 0.32%
Total nonperforming loans to total assets ............. 1.11% 0.64% 0.28% 0.26%
Total nonperforming assets to total assets ............ 1.15% 0.70% 0.36% 0.32%
(1) All the Bank's loans delinquent 90 days or more are classified as
nonperforming.
(2) Represents the net book value of property acquired by the Bank through
foreclosure or deed in lieu of foreclosure. Upon acquisition, this property
is recorded at the lower of its fair market value or the principal balance
of the related loan.
(3) For the six months ended June 30, 2003 and the twelve months ended December
31, 2002, the interest that would have been reported was $92,000 and
$27,000 respectively were these loans not in non-accrual status.
PROVISION FOR LOAN LOSSES: The provision for loan losses amounted to $227,000
for the six month period ended June 30, 2003 and $150,000 for the comparable
period in 2002. As of June 30, 2003, the balance of the loan loss reserve was
$1.1 million. The increase in the reserve allowance related to the increase in
the trend of delinquencies seen over the last twelve months along with increase
of commercial loans as a percent of the overall loan portfolio. At June 30,
2003, the percent of non performing loans increased to 168 basis points from 97
basis points at December 31, 2002. The significant increase in non performing
loans related to a single commercial relationship. Management believes that the
collateral position related to this relationship adequately supports the Bank's
position. As a percent of total assets, non performing loans increased to 111
basis points at June 30, 2003 from 64 basis points at December 31, 2002. Based
on the net charge-off history, the average quarterly charge-off going back eight
quarters was $43,000 per quarter total for all loan types. Based on this
history, management believes there are adequate reserves as of June 30, 2003.
LIQUIDITY
The Bank's primary sources of funds are deposits, FHLB advances, and proceeds
from principal and interest payments and prepayments on loans and
mortgage-backed and investment securities. While maturities and scheduled
amortization of loans and mortgage-backed securities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
Liquidity represents the amount of an institution's assets that can be quickly
and easily converted into cash without significant loss. The most liquid assets
are cash, short-term U.S. Government securities, U.S. Government agency
securities and certificates of deposit. The Bank is required to maintain
sufficient levels of liquidity as defined by the OTS regulations. This
requirement may be varied at the direction of the OTS. Regulations currently in
effect require that the Bank must maintain sufficient liquidity to ensure its
safe and sound operation. The Bank's objective for liquidity is to be above 6%.
Liquidity as of June 30, 2003 was $46.3 million, or 24.1%, compared to $47.0
million, or 24.4% at
15
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
December 31, 2002. The levels of these assets are dependent on the Bank's
operating, financing, lending and investing activities during any given period.
The Bank intends to retain for the portfolio certain originated residential
mortgage loans (primarily adjustable rate, balloon and shorter term fixed rate
mortgage loans) and to generally sell the remainder in the secondary market. The
Bank will from time to time participate in or originate commercial real estate
loans, including real estate development loans. During the six month period
ended June 30, 2003 the Bank originated $76.1 million in residential mortgage
loans, of which $26.2 million were retained in portfolio while the remainder
were sold in the secondary market or are being held for sale. This compares to
$33.5 million in originations during the first six months of 2002 of which $11.1
million were retained in portfolio. The Bank also originated $17.3 million of
commercial loans and $9.0 million of consumer loans in the first six months of
2003 compared to $11.6 million of commercial loans and $5.6 million of consumer
loans for the same period in 2002. Of total loans receivable, excluding loans
held for sale, mortgage loans comprised 65.0% and 68.8%, commercial loans 22.0%
and 18.3% and consumer loans 13.0 % and 12.9% at June 30, 2003 and December 31,
2002, respectively. At June 30, 2003, the Bank had outstanding loan commitments
of $69.4 million. These commitments included $31.1 million for permanent
one-to-four family dwellings, $24.5 million for non-residential loans, $2.3
million of undisbursed loan proceeds for construction of one-to-four family
dwellings, $5.1 million of undisbursed lines of credit on home equity loans,
$3.1 million of unused credit card lines, $2.3 million of unused commercial
lines of credit and $1.0 million in undisbursed commercial construction loans.
Deposits are a primary source of funds for use in lending and for other
general business purposes. At June 30, 2003 deposits funded 67.9% of the Bank's
total assets compared to 68.2% at December 31, 2002. Certificates of deposit
scheduled to mature in less than one year at June 30, 2003 totaled $44.3
million. Management believes that a significant portion of such deposits will
remain with the Bank. The Bank monitors the deposit rates offered by competition
in the area and sets rates that take into account the prevailing market
conditions along with the Bank's liquidity position. Moreover, management
believes that that the growth in assets is not expected to require significant
in-flows of liquidity. As such, the Bank does not expect to be a market leader
in rates paid for liabilities. Borrowings may be used to compensate for seasonal
or other reductions in normal sources of funds or for deposit outflows at more
than projected levels. Borrowings may also be used on a longer-term basis to
support increased lending or investment activities. At June 30, 2003 the Bank
had $47.4 million in FHLB advances. Total borrowings as a percentage of total
assets were 20.5% at June 30, 2003 as compared to 21.2% at December 31, 2002.
The Bank has sufficient available collateral to obtain additional advances from
the FHLB, and, based upon current FHLB stock ownership, could obtain up to a
total of approximately $85 million in such advances.
16
ALPENA BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (continued)
CAPITAL RESOURCES
The Company's stockholders' equity at June 30, 2003 was $22.0 million, or 9.51%
of total assets, compared to $21.7 million, or 9.48% of total assets, at
December 31, 2002 (See "Consolidated Statement of Changes in Stockholders'
Equity"). The Bank is subject to certain capital-to-assets levels in accordance
with the OTS regulations. The Bank exceeded all regulatory capital requirements
at June 30, 2003. The following table summarizes the Bank's actual capital with
the regulatory capital requirements and with requirements to be "Well
Capitalized" under prompt corrective action provisions, as of June 30, 2003:
Minimum
Regulatory To Be Well
Actual Minimum Capitalized
------------------ -------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Capital Requirements:
Tangible equity capital $16,566 7.34% $3,387 1.50% $4,517 2.00%
Tier 1 (Core) capital $16,566 7.34% $9,033 4.00% $11,292 5.00%
Total risk-based capital $17,594 12.04% $11,688 8.00% $14,610 10.00%
Tier 1 risk-based capital $16,566 11.34% $5,844 4.00% $8,766 6.00%
17
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2003
PART I - FINANCIAL INFORMATION
ITEM 3 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with participation of our management, including the
Company's Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934) as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective in
timely alerting them to the material information relating to the Company's (or
its consolidated subsidiaries) required to be included in its periodic SEC
filings.
(b) Changes in internal controls.
There has been no change made in the Company's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
18
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2003
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings:
Not applicable.
Item 2 - Changes in Securities:
Not applicable.
Item 3 - Defaults upon Senior Securities:
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders:
Not applicable
Item 5 - Other Information:
Not applicable
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 31 Certification by Chief Executive Officer and Chief
Financial Officer
Exhibit 32 Statement of Chief Executive Officer and Chief
Financial Officer furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On May 9, 2003, the Company amended the Stock Purchase
Agreement for the purchase of all of the shares of the
InsuranCenter of Alpena to extend the time for closing
from May 1, 2003 to June 1 2003.
On June 12, 2003, the Company amended the Stock Purchase
Agreement for the purchase of all of the shares of the
InsuranCenter of Alpena to extend the time for closing
from June 1, 2003 to June 13, 2003.
On June 23, 2003, the Company announced the Stock Purchase
Agreement for purchase of InsuranCenter of Alpena was
consummated on June 12, 2003.
19
ALPENA BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2003
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALPENA BANCSHARES, INC.
Registrant
Date: Aug 14, 2003 /s/ Martin A. Thomson
---------------------
Martin A. Thomson
Title: President and Chief Executive Officer
(Duly Authorized Officer)
Date: Aug 14, 2003 /s/ Michael W. Mahler
---------------------
Michael W. Mahler
Title: Chief Financial Officer
(Duly Authorized Officer)
20
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-31.1 Certification of Chief Executive Officer pursuant to Section 302
EX-31.2 Certification of Chief Financial Officer pursuant to Section 302
EX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002