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EX-13 - EX-13 - PSB GROUP INC | k49070exv13.htm |
EX-23 - EX-23 - PSB GROUP INC | k49070exv23.htm |
EX-32.1 - EX-32.1 - PSB GROUP INC | k49070exv32w1.htm |
EX-31.2 - EX-31.2 - PSB GROUP INC | k49070exv31w2.htm |
EX-21.1 - EX-21.1 - PSB GROUP INC | k49070exv21w1.htm |
EX-31.1 - EX-31.1 - PSB GROUP INC | k49070exv31w1.htm |
EX-32.2 - EX-32.2 - PSB GROUP INC | k49070exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2009
Commission File No. : 000-50301
PSB GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan | 42-1591104 | |
(State of Organization) | (IRS Employer Identification No.) |
1800 East Twelve Mile Road, Madison Heights, Michigan 48071
(Address of Principal Executive Offices) (Zip Code)
(Address of Principal Executive Offices) (Zip Code)
(248) 548-2900
(Registrants Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. YES o NO þ
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 þ NO o
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). YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of June 30, 2009, the last business day of the registrants most recently completed second
quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant,
computed by reference to the last per share sales price of which the registrant is aware ($1.45 per
share), was approximately $4,498,442 (for purposes of this calculation, directors and executive
officers are treated as affiliates).
As of March 1, 2010, there were issued and outstanding 3,521,910 shares of the registrants
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the Fiscal Year Ended December 31, 2009 (the
Annual Report) (Parts I and II).
2. Portions of Proxy Statement for the 2010 Annual Meeting of Shareholders (the Proxy Statement)
(Part III).
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EX-32.2 |
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Table of Contents
PART I
Item 1. Business
PSB Group, Inc. (the Company) was formed on February 28, 2003 as a bank holding company for
the purpose of owning Peoples State Bank (the Bank) pursuant to a plan of reorganization adopted
by the Bank and its stockholders. Pursuant to the reorganization, each share of Peoples State Bank
stock held by existing stockholders of the Bank was exchanged for three shares of common stock of
PSB Group, Inc. The reorganization had no consolidated financial statement impact. Share amounts
for all prior periods presented have been restated to reflect the reorganization. In October,
2004, the Company formed a new subsidiary, PSB Capital, Inc. Through December 31, 2009, there had
been no business conducted by PSB Capital, Inc.
The Bank was incorporated and chartered as Peoples State Bank under the laws of the state of
Michigan in 1909. In 1916, the Bank moved to the southeast corner of Jos. Campau and Holbrook in
Hamtramck, where the main office at 9252 Jos. Campau remains today. Following several name changes
and a merger with four small local banks in 1930, a plan of reorganization was accepted by the
shareholders, and the name was changed to Peoples State Bank in November 1934. In 1998, the Bank
acquired Madison National Bank, Madison Heights, Michigan (Madison). In 2000, the Bank acquired
100% of the common stock of Universal Mortgage Corporation, a southeast Michigan based mortgage
lender with 2 offices, one in Southfield, Michigan and one in Warren, Michigan. In 2005, Universal
Mortgage Corporation acquired the assets of Nations One, a southeast Michigan based mortgage
originator with two offices, one in Ann Arbor, Michigan and one in Howell, Michigan. In September
of 2008, Universal Mortgage Corporation was merged into Peoples State Bank.
The Bank operated as a unit bank until 1992, when it opened its first branch office at 3747
Fifteen Mile Road, Sterling Heights, Michigan. It then continued its Macomb County expansion by
opening the following branch offices: (1) 25901 Harper Avenue, St. Clair Shores, Michigan 1994;
(2) 14801 Twelve Mile Road, Warren, Michigan 1995; and, (3) 31130 Ryan Road, Warren, Michigan -
1995. Subsequently, the Sterling Heights office was closed in 1995 and consolidated into the new
facility on Ryan Road in Warren. During 1997, the Bank opened a supermarket branch at 40832 Ryan
Road in Sterling Heights. In 1998, the Bank acquired Madison pursuant to a Merger Agreement in
which Madison was merged with and into the Bank (the Merger). In connection with the Merger, the
Bank acquired the former offices of Madison which include Madisons former main office at 1800 E.
Twelve Mile Road in Madison Heights, Michigan, a branch office in Madison Heights, two branches in
Farmington Hills and one branch in each of Southfield and Fraser. In 2001, the Bank closed on a
branch sale and assumption agreement with a newly formed bank holding company. Pursuant to that
agreement, the Bank sold certain assets and transferred certain liabilities to the newly formed
holding company, effectively closing the Plymouth, Michigan branch. In 2001, the Bank closed one
of the Farmington Hills, Michigan branches. The cash, furniture, fixtures, equipment and deposits
were transferred to another branch. In 2002, the Bank opened a branch in Grosse Pointe Woods,
Michigan. In 2003, the Fraser branch was closed with the deposit relationships transferred to
another branch. During 2005, the Bank opened two new branches, one in Sterling Heights, Michigan
and the other in Fenton, Michigan. In 2007, the Bank opened two new branches, one in Troy,
Michigan and one in Grosse Pointe Woods, Michigan. With the opening of the new state-of-the-art
branch in Grosse Pointe Woods, two nearby branches, one in St. Clair Shores, Michigan and one in
Grosse Pointe Woods, Michigan were closed with most of the deposits transferred to the new branch.
Also in 2007, the Bank closed an underperforming branch in Madison Heights, Michigan and one
mortgage loan production office in Fenton, Michigan. As of December 31, 2009, the Bank operated 11
branch offices and two mortgage loan production offices.
We are under a Cease and Desist Order that, among other things, requires us to increase and
maintain our leverage and total risk-based capital ratios to at least 8% and 12%, respectively, by
November 27, 2009. Failure to increase our capital ratios or further declines in our capital ratios
exposes us to additional restrictions and regulatory actions, including potential regulatory
take-over. This uncertainty as to our ability to meet existing or future regulatory requirements
raises substantial doubt about our ability to continue as a going concern.
Management has been pursuing multiple alternatives to improve our financial condition,
including raising new capital. While we received indications of interest in investing in us from
private equity investors, our Board has determined that consummation of a transaction on the terms
and conditions proposed to date is not likely in the near-term. We will continue to explore a
capital raise concurrently with the implementation of a recovery plan. This recovery plan is
designed
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to improve the Companys financial health and capital ratios by downsizing the bank and
reducing our operating costs. Further details regarding this recovery plan can be found in Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operation and in
Note 2 of the Consolidated Financial Statements under Part II, Item 8. Financial Statements and
Supplementary Data.
As of December 31, 2009, the Company had approximately $462 million in total assets, $354
million in total loans, $443 million in total deposits and $17 million in total shareholders
equity.
Products and Services
The Company provides customary retail and commercial banking services to its customers,
including checking and savings accounts, time deposits, safe deposit facilities, commercial loans,
real estate mortgage loans, installment loans, IRAs and night depository facilities. The Banks
deposits are insured by the FDIC to applicable legal limits and the Bank is supervised and
regulated by the FDIC and Michigan Office of Financial and Insurance Regulation, Division of
Financial Institutions.
Lending Activities
The Company provides a full range of retail and commercial banking services designed to meet
the borrowing and depository needs of small and medium sized businesses and consumers in local
areas. Substantially all of the Companys loans are to customers located within its service area.
The Company has no foreign loans or highly leveraged transaction loans, as defined by the Federal
Reserve Board (FRB). The Company conducts its lending activities pursuant to the loan policies
adopted by its Board of Directors. These loan policies grant individual loan officers authority
to make secured and unsecured loans in specific dollar amounts; senior officers or various loan
committees must approve larger loans. The Companys management information systems and loan review
policies, as well as periodic audits by outside loan review specialists and our external auditors
are designed to monitor lending sufficiently to ensure adherence to the Companys loan policies.
The commercial loans offered by the Company include (i) commercial real estate loans, (ii)
operating lines of credit and other commercial term loans, (iii) construction loans, and (iv)
SBA-guaranteed loans. The Companys commercial real estate loans are used to provide permanent
financing for owner-occupied, retail and office buildings, multiple-family buildings and churches.
Commercial real estate secured loans are generally written on a three to five year term, with
amortizing periods ranging up to 25 years (the majority are between 15 20 years). Personal
guarantees are obtained on nearly all commercial loans. Credit analyses, loan review and an
effective collections process are also used to minimize any potential losses. The interest rates
charged on loans vary with the degree of risk and loan amount and are further subject to
competitive pressures, money market rates, the availability of funds and government regulations.
Approximately 32% of the Companys portfolio has interest rates that float with a reference rate.
Real estate loans include residential mortgages for which the Company holds first and second
collateral positions in real property. Real estate loans include adjustable and fixed-rate loans
secured by first priority liens on one-to four-family residential properties. Residential mortgage
products include fixed rate loans, fixed rate balloon loans and adjustable rate mortgages.
Adjustable rate loans are amortized for 30 years and have fixed rate periods of one to seven years,
after which the rates adjust annually. The longest term allowed on a fixed rate loan is 30 years.
Occasionally the Company will purchase loans. The Company purchased approximately $8 million in
residential mortgage loans in 2009. The Company is active in secondary market lending and is also
a member of the Federal Home Loan Bank of Indianapolis.
Construction loans are typically made to contractors to construct commercial buildings. These
loans generally have maturities of three to 18 months. These loans are variable rate and it is
typical for take out commitments to be in place as a part of the transaction. All construction
loans are funded at the lower of 80% of appraised value or 90% of cost of construction.
Consumer loans offered by the Company include (i) personal unsecured lines of credit, (ii)
personal installment loans, (iii) third party credit cards, and (iv) home equity loans (fixed-rate
term and open ended revolving lines of credits). Consumer loans are primarily automobile, home
equity or unsecured loans. Consumer loans generally have maturities of five years or less and have
fixed interest rates. Other loans consist of personal lines of credit and bank card advances.
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Personal lines of credit and home equity lines generally have maturities from one to ten years
and variable interest rates. Bank card payments are generally due monthly and bear interest rates
that vary from time-to-time. Personal unsecured loans are available to creditworthy bank customers
with limits determined on a loan by loan basis. Credit reports and industry standard
debt-to-income ratios are used to qualify borrowers. Home equity products include both a
fixed-rate term product and an open-end revolving line of credit.
Loan Approval
Individual loan authorities are established by the Companys Board of Directors upon
recommendation by the Companys senior lender and reviewed and approved monthly by the Board. In
establishing individual authority the experience of the lender is taken into consideration, as well
as the type of lending in which the officer is involved. The Officers Loan Committee consists of
the President of the Company, the senior lender, the chief credit officer and other lending
officers and credit officers as recommended by the senior lender and approved by the Directors Loan
Committee. The Officers Loan Committee has the authority to approve and consummate loans up to
$2,500,000. The Directors Loan Committee of the Board of Directors has the authority to approve
loans up to $5,000,000. These loans come to the Committee with a review, analysis and
recommendation by the lender and the Officers Loan Committee. Loans exceeding $5,000,000 come to
the full Board of Directors after review by the Directors Loan Committee with their recommendation
and that of the lender.
The Company generally requires that loans secured by first mortgages on residential real
estate have loan to value ratios within specified limits, up to 80% for improved property, or up to
90% if secured by private mortgage insurance. The Company also makes loans secured by second
mortgages on residential real estate with a maximum combined loan to value ratio of 75%.
Under applicable federal and state law, the Banks permissible loans to one borrower are also
limited. The Company utilizes internal limits that may be less than or equal to the prevailing
legal limits.
Asset Quality
Asset quality is an important factor in the successful operation of a financial institution.
The loss of interest income and principal that may result from non-performing assets has an adverse
affect on earnings, while the resolution of those assets requires the use of capital and managerial
resources. The Company maintains a conservative philosophy regarding its underwriting guidelines.
It also maintains loan monitoring policies and systems that require detailed monthly and quarterly
analysis of delinquencies, non-performing loans, non-accrual loans, repossessed and other assets.
Reports of such categories are prepared by management and reviewed monthly by the Board of
Directors.
Investment Portfolio and Activities
The Companys investment portfolio has several objectives. A key objective is to provide a
balance in the Companys asset mix of loans and investments consistent with its liability
structure, and to assist in management of interest rate risk. The investments augment the
Companys capital position in the risk based capital formula, providing necessary liquidity to meet
fluctuations in credit demands of the community and fluctuations in deposit levels. In addition,
the portfolio provides collateral for pledging against public funds, and a reasonable allowance for
control of tax liabilities. Finally, the investment portfolio is designed to provide income for
the Company. In view of the above objectives, the portfolio is treated conservatively by
management, and only securities that pass conservative investment criteria are purchased. The
Company does not engage in any derivatives trading. The portfolio will commonly fluctuate between
10% and 30% of the Companys assets. All of the Companys investment securities are classified as
available for sale.
Deposit Activities
The Company also offers a full range of deposit and personal banking services insured by the
Federal Deposit Insurance Corporation (FDIC), including (i) commercial checking and small
business checking products, (ii) retirement accounts such as Individual Retirement Accounts
(IRA), (iii) retail deposit services such as certificates of deposits, money market accounts,
savings accounts, checking account products and Automated Teller Machines (ATMs), Point of Sale
and other electronic services, and (iv) other personal miscellaneous services such as safe deposit
boxes, foreign drafts,
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foreign currency exchanges, night depository services, travelers checks, merchant credit
cards, direct deposit of payroll, U.S. savings bonds, official bank checks and money orders. The
Company also offers credit cards and internet banking. Investment advice, products and services
are offered through Primevest Financial Services, a non-affiliated Registered Broker/Dealer, Member
FINRA, SIPC.
The principal sources of funds for the Company are core deposits (demand deposits,
interest-bearing transaction accounts, money market accounts, savings deposits, and certificates of
deposit). The Company solicits these deposits from individuals, businesses, foundations and
governmental authorities. Substantially all of the Companys deposits are from local market areas
surrounding each of its offices. As of December 31, 2009, the Company has no brokered deposits.
Borrowings
From time to time, the Company obtains advances from the FHLB of Indianapolis. Each advance
is a loan with separate terms including an interest rate and maturity date. The Company can vary
these terms depending on the specific liquidity and rate mix objective that management is trying to
meet at the time of the borrowing. Objectives can change at various points in time depending on
market conditions and loan funding needs.
The Company also purchases federal funds from various other financial institutions in order to
satisfy overnight liquidity needs. Federal funds purchases are renewable on a daily basis and are
generally subject to interest rates established by the Federal Reserve Bank.
Additional Activities
The Company provides its commercial and public fund accounts with money market sweep accounts
through Federated Investments, a third party vendor. The Company provides investment services
through Primevest Financial Services. Full-time sales representatives work at various branch
offices and offer a full range of investment products.
Market Area and Competition
The primary service area of the Company consists of Oakland County, southern Macomb County,
those portions of Wayne County that include the city of Detroit and its eastern suburbs and a
portion of Genesee County, in particular, the cities of Fenton and Linden.
The Company operates in a highly competitive industry. The Companys main competition comes
from other commercial banks, savings and loan associations, credit unions, brokerage firms,
insurance companies, finance companies, mortgage companies and a host of other financial service
providers.
The Company generally competes with other financial institutions through the banking products
and services offered, the pricing of services, the level of service provided, the convenience and
availability of services, and the degree of expertise and personal manner in which these services
are delivered. The Company encounters strong competition from most of the financial institutions
in the Companys extended market area.
Supervision and Regulation
General
Financial institutions and their holding companies are extensively regulated under federal and
state law. As a result, the growth and earnings performance of the Company can be affected not
only by management decisions and general economic conditions, but also by the requirements of
applicable state and federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Michigan Office of Financial and Insurance Regulation (the
OFIR), the Board of Governors of the Federal Reserve System (the Federal Reserve), the Federal
Deposit Insurance Corporation (the FDIC), the Internal Revenue Service and state taxing
authorities and the Securities and Exchange Commission (the SEC). The effect of applicable
statutes, regulations and regulatory policies can be significant, and cannot be predicted with a
high degree of certainty.
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Federal and state laws and regulations generally applicable to financial institutions, such as
the Company and the Bank, regulate, among other things, the scope of business, investments,
reserves against deposits, capital levels relative to operations, the nature and amount of
collateral for loans, the establishment of branches, mergers, consolidations and dividends. The
system of supervision and regulation applicable to the Company and the Bank establishes a
comprehensive framework for their respective operations and is intended primarily for the
protection of the FDICs deposit insurance fund and the depositors, rather than the shareholders of
financial institutions.
The following is a summary of the material elements of the regulatory framework that applies
to the Company and the Bank. It does not describe all of the statutes, regulations and regulatory
policies that apply to the Company and the Bank, nor does it restate all of the requirements of the
statutes, regulations and regulatory policies that are described. As such, the following is
qualified in its entirety by reference to the applicable statutes, regulations and regulatory
policies. Any change in applicable law, regulations or regulatory policies may have a material
effect on the business of the Company and the Bank.
The Company
General. The Company, as the sole stockholder of the Bank, is a bank holding company. As a
bank holding company, the Company is registered with, and is subject to regulation by, the Federal
Reserve under the Bank Holding Company Act, as amended (the BHCA). In accordance with Federal
Reserve policy, the Company is expected to act as a source of financial strength to its bank
subsidiaries and to commit resources to support its bank subsidiaries in circumstances where the
Company might not do so absent such policy. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file with the Federal Reserve periodic
reports of its operations and such additional information as the Federal Reserve may require.
A bank holding company is a legal entity separate and distinct from its subsidiary banks.
Normally, the major source of a holding companys revenue is dividends it receives from its
subsidiary banks. The right of a bank holding company to participate as a stockholder in any
distribution of assets of its subsidiary banks upon their liquidation or reorganization or
otherwise is subject to the prior claims of creditors of such subsidiary banks. The subsidiary
banks are subject to claims by creditors for long-term and short-term debt obligations, including
obligations for Federal funds purchased and securities sold under repurchase agreements, as well as
deposit liabilities. Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989, in the event of a loss suffered by the FDIC in connection with a banking subsidiary of a bank
holding company (whether due to a default or the provision of FDIC assistance), other banking
subsidiaries of the holding company could be assessed for such loss.
Investments and Activities. Under the BHCA, a bank holding company must obtain Federal
Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting
shares of another bank or bank holding company if, after the acquisition, it would own or control
more than 5% of the shares of the other bank or bank holding company (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially all of the assets of
another bank; or (iii) merging or consolidating with another bank holding company. Subject to
certain conditions (including certain deposit concentration limits established by the BHCA), the
Federal Reserve may allow a bank holding company to acquire banks located in any state of the
United States without regard to whether the acquisition is prohibited by the law of the state in
which the target bank is located. In approving interstate acquisitions, however, the Federal
Reserve is required to give effect to applicable state law limitations on the aggregate amount of
deposits that may be held by the acquiring bank holding company and its insured depository
institution affiliates in the state in which the target bank is located (provided that those limits
do not discriminate against out-of-state depository institutions or their holding companies) and
state laws which require that the target bank has been in existence for a minimum period of time
(not to exceed five years) before being acquired by an out-of-state bank holding company.
The BHCA also generally prohibits the Company from acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank and from engaging
in any business other than that of banking, managing and controlling banks or furnishing services
to banks and their subsidiaries. This general prohibition is subject to a number of exceptions.
The principal exception allows bank holding companies to engage in, and to own shares of companies
engaged in, certain businesses found by the Federal Reserve to be so closely related to banking ... as to be a proper incident thereto. Under current regulations of the Federal Reserve, the
Company and its non-bank subsidiaries are permitted to engage in a variety of banking-related
businesses, including the operation of a thrift, consumer finance,
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equipment leasing, the operation of a computer service bureau (including software development), and
mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the
domestic activities of non-bank subsidiaries of bank holding companies.
In 1999, the Gramm-Leach-Bliley Act (GLB Act) was signed into law. Under the GLB Act, bank
holding companies that meet certain standards and elect to become financial holding companies are
permitted to engage in a wider range of activities than those permitted to bank holding companies,
including securities and insurance activities. Specifically, a bank holding company that elects to
become a financial holding company may engage in any activity that the Federal Reserve, in
consultation with the Secretary of the Treasury, determines is (i) financial in nature or
incidental thereto, or (ii) complementary to any such financial-in-nature activity, provided that
such complementary activity does not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. A bank holding company may elect to
become a financial holding company only if each of its depository institution subsidiaries is
well-capitalized, well-managed, and has a Community Reinvestment Act rating of satisfactory or
better at their most recent examination. The Company has not elected to be treated as a financial
holding company.
The GLB Act specifies many activities that are financial in nature, including lending,
exchanging, transferring, investing for others, or safeguarding money or securities; underwriting
and selling insurance; providing financial, investment or economic advisory services; underwriting,
dealing in, or making a market in securities; and those activities permitted for bank holding
companies that are so closely related to banking or managing or controlling banks, as to be a
proper incident thereto.
The GLB Act changed federal laws to facilitate affiliation between banks and entities engaged
in securities and insurance activities. The law also established a system of functional regulation
under which banking activities, securities activities, and insurance activities conducted by
financial holding companies and their subsidiaries and affiliates will be separately regulated by
banking, securities, and insurance regulators, respectively.
Federal law also prohibits any person or company from acquiring control of a bank or bank
holding company without prior notice to the appropriate federal bank regulator. Control is
defined in certain cases as the acquisition of 10% of the outstanding shares of a bank or bank
holding company.
Regulatory Capital Requirements. Bank holding companies are required to maintain minimum
levels of capital in accordance with Federal Reserve capital adequacy guidelines, which are
substantially similar to those of the FDIC for the Bank. See Supervision and Regulation The
Bank Regulatory Capital Requirements for a discussion of the risk-based framework for the
assessment of capital adequacy and components of Tier 1 and Tier 2 capital. If capital falls below
minimum guideline levels, a bank holding company, among other things, may be denied approval to
acquire or establish additional banks or non-bank businesses.
The Federal Reserves capital guidelines establish the following minimum regulatory capital
requirements for bank holding companies: a risk-based requirement expressed as a percentage of
total risk-weighted assets, and a leverage requirement expressed as a percentage of total assets.
The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage requirement consists
of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies,
with a minimum requirement of 4% for all others.
The risk-based and leverage standards described above are minimum requirements. Higher capital
levels will be required if warranted by the particular circumstances or risk profiles of individual
banking organizations. For example, the Federal Reserves capital guidelines contemplate that
additional capital may be required to take adequate account of, among other things, interest rate
risk, or the risks posed by concentrations of credit, nontraditional activities or securities
trading activities. Further, any banking organization experiencing or anticipating significant
growth would be expected to maintain capital ratios well above the minimum levels.
The Emergency Economic Stabilization Act of 2008 (EESA) was enacted on October 3, 2008.
Pursuant to EESA, the U.S. Department of the Treasury (the Treasury) has the authority to among
other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain
other financial instruments from financial institutions for the purpose of stabilizing and
providing liquidity to the U.S. financial markets. Pursuant to its authority under EESA, the
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Treasury created the Troubled Asset Relief Program Capital Purchase Program (the TARP CPP)
under which the Treasury was authorized to invest in non-voting, senior preferred stock of U.S.
banks and savings associations or their holding companies. The Company did not participate in the
TARP CPP.
Dividends. The Michigan Business Corporation Act prohibits the Company from paying dividends
or making other distributions to shareholders, if after giving effect to the dividend or other
distribution, the Company would not be able to pay its debts as they become due in the usual course
of business or if the Companys assets would be less than the sum of its total liabilities plus the
amount that would be needed upon dissolution of the Company to satisfy preferential rights of
shareholders whose preferential rights are superior to those receiving the dividend or other
distribution.
Additionally, the Federal Reserve has issued a policy statement with regard to the payment of
cash dividends by bank holding companies. The policy statement provides that a bank holding
company should not pay cash dividends which exceed its net income or which can only be funded in
ways that weaken the bank holding companys financial health, such as by borrowing. The Federal
Reserve also possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations
of applicable statutes and regulations. Among these powers is the ability to proscribe the payment
of dividends by banks and bank holding companies.
Federal Securities Regulation. The Companys common stock is registered with the SEC under
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the
Exchange Act). Consequently, the Company is subject to the information, proxy solicitation,
insider trading and other restrictions and requirements of the SEC under the Exchange Act.
Common stock held by persons who are affiliates (generally officers, directors and principal
stockholders) of the Company may not be resold without registration unless sold in accordance with
certain resale restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Sarbanes-Oxley Act. In 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley). The stated goals of Sarbanes-Oxley are to increase corporate responsibility, to
provide for enhanced penalties for accounting and auditing improprieties at publicly traded
companies and to protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws.
Sarbanes-Oxley is arguably the most significant U.S. securities legislation enacted since the
adoption of the Exchange Act and the Securities Act of 1933. Sarbanes-Oxley generally applies to
all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the
Securities and Exchange Commission under the Exchange Act.
Sarbanes-Oxley includes very specific additional disclosure requirements and corporate
governance rules, required the Securities and Exchange Commission and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules and mandated further
studies of certain issues by the Securities and Exchange Commission. Sarbanes-Oxley represents
significant federal involvement in matters traditionally left to state regulatory systems, such as
the regulation of the accounting profession, and to state corporate law, such as the relationship
between a board of directors and management and between a board of directors and its committees.
Sarbanes-Oxley addresses, among other matters:
| internal controls over financial reporting; | ||
| audit committees; | ||
| certification of financial statements by the chief executive officer and the chief financial officer; | ||
| the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuers securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; | ||
| a prohibition on insider trading during pension plan black out periods; | ||
| disclosure of off-balance sheet transactions; | ||
| expedited filing requirements for Form 4s; |
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| disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; | ||
| real time filing of periodic reports; | ||
| the formation of a public accounting oversight board; | ||
| auditor independence; and | ||
| various increased criminal penalties for violations of securities laws. |
The Bank
General. The Bank, as a Michigan chartered banking institution, is subject to primary
supervision, examination, and regulation by the OFIR and the FDIC. The Banks activities are
governed primarily by Michigans Banking Code of 1999 (the Banking Code) and the Federal Deposit
Insurance Act (FDI Act). The FDI Act, among other things, requires that federal banking
regulators intervene promptly when a depository institution experiences financial difficulties;
mandates the establishment of a risk-based deposit insurance assessment system; and requires
imposition of numerous additional safety and soundness operational standards and restrictions. The
FDI Act and other federal laws contain provisions affecting numerous aspects of the operation and
regulation of federally insured banks and empower the FDIC, among other agencies, to promulgate
regulations implementing their provisions.
The Bank participates in various community development programs in an effort to meet its
responsibilities under the Community Reinvestment Act (CRA). The Bank has most recently been
rated Satisfactory in meeting its obligations under the CRA.
Enforcement Action. On September 28, 2009, the Bank entered into a Stipulation and Consent to
the Issuance of an Order to Cease and Desist (the Order) with the FDIC and OFIR.
The Order required the Bank to take action in the following areas:
| The Bank must have and retain qualified management. | ||
| The Banks board of directors is required to assume full responsibility for the approval of sound policies and objectives and for the supervision of all of the Banks activities. | ||
| Increase the Banks level of Tier 1 capital as a percentage of total assets to at least 8 percent. | ||
| Charge off any loans classified as loss. | ||
| Prohibit the further extension of credit to borrowers that have had loans with the Bank that are classified substandard, doubtful or special mention unless the board of directors has specifically authorized the extension of credit. | ||
| Prohibit the further extension of credit to borrowers that have had loans with the Bank charged off or classified as loss. | ||
| Adopt, implement and adhere to written plan to reduce the Banks risk position in certain assets. | ||
| The Bank may not declare or pay any cash dividend without prior written consent of the FDIC and OFIR. | ||
| Prior to submission or publication of all Reports of Condition and Income, the board of directors must review the adequacy of the Banks Allowance for Loan and Lease Losses (ALLL). | ||
| Within 30 days of the effective date of the Order, the Bank was required to eliminate and/or correct all violations of law, rule, and regulations. | ||
| Within 60 days from the effective date of the Order, the Bank was required to correct all deficiencies in the loans listed for Special Mention. | ||
| Prepare and submit progress reports to the FDIC and OFIR. |
The Order is required to remain in effect until it is modified or terminated by the FDIC and
OFIR. As of December 31, 2009, the Bank was out of compliance with the Orders requirement that
the Bank increase its level of Tier 1 capital as a percentage of total assets to at least 8
percent. Non-compliance with the Order requirements may cause the Bank to become subject to
further enforcement actions by the FDIC and OFIR. Please refer to Note 16 to the financial
statements for additional information.
Branching. State chartered banks, such as the Bank, have the authority under Michigan law to
establish branches throughout Michigan and in any state, the District of Columbia, any U.S.
territory or protectorate, and foreign countries, subject to receipt of all regulatory approval.
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The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows the FDIC and
other federal bank regulators to approve applications for mergers of banks across state lines
without regard to whether such activity is contrary to state law. However, each state can
determine if it will permit out of state banks to acquire only branches of a bank in that state or
to establish de novo branches.
Loans to One Borrower. Under Michigan law, the Banks total loans and extensions of credit
and leases to one person is limited to 15% of the Banks capital and surplus, subject to several
exceptions. This limit may be increased to 25% of the Banks capital and surplus upon approval by
a 2/3 vote of its board of directors. Certain loans, including loans secured by bonds or other
instruments of the United States and fully guaranteed by the United States as to principal and
interest, are not subject to the limit just referenced. In addition, certain loans, including
loans arising from the discount of consumer paper which carries a full recourse endorsement or
unconditional guaranty of the person transferring the paper, are subject to a higher limit of 30%
of capital and surplus.
Enforcement. The OFIR and the FDIC each have enforcement authority with respect to the Bank.
The OFIR has the authority to issue cease and desist orders to address unsafe and unsound practices
and actual or immanent violations of law and to remove from office bank directors and officers who
engage in unsafe and unsound banking practices and who violate applicable laws, orders, or rules.
The OFIR also has authority in certain cases to take steps for the appointment of a receiver or
conservator of a bank.
The FDIC has similar broad authority, including authority to bring enforcement actions against
all institution-affiliated parties (including stockholders, directors, officers, employees,
attorneys, consultants, appraisers and accountants) who knowingly or recklessly participate in any
violation of law or regulation or any breach of fiduciary duty, or other unsafe or unsound practice
likely to cause financial loss to, or otherwise have an adverse effect on, an insured institution.
Civil penalties under federal law cover a wide range of violations and actions. Criminal penalties
for most financial institution crimes include monetary fines and imprisonment. In addition, the
FDIC has substantial discretion to impose enforcement action on banks that fail to comply with its
regulatory requirements, particularly with respect to capital levels. Possible enforcement actions
range from requiring the preparation of a capital plan or imposition of a capital directive, to
receivership, conservatorship, or the termination of deposit insurance.
Assessments and Fees. The Bank pays a supervisory fee to the OFIR of not less than $4,000 and
not more than 25 cents for each $1,000 of total assets. This fee is invoiced prior to July 1 each
year and is due no later than August 15. The OFIR imposes additional fees, in addition to those
charged for normal supervision, for applications, special evaluations and analyses, and
examinations.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank System,
which consists of 12 regional FHLBs. The FHLBs provide a credit reserve for their member
institutions. The Bank, as a member of the FHLB-Indianapolis, holds shares of capital stock in
that FHLB in an amount at least equal to 1% of the aggregate unpaid principal of its home mortgage
loans, home-purchase contracts, and similar obligations, based on the Banks calendar year-end
financial data.
Regulatory Capital Requirements. The Bank is required to comply with capital adequacy
standards set by the FDIC. The FDIC may establish higher minimum requirements if, for example, a
bank has previously received special attention or has a high susceptibility to interest rate risk.
Banks with capital ratios below the required minimum are subject to certain administrative actions.
More than one capital adequacy standard applies, and all applicable standards must be satisfied
for an institution to be considered to be in compliance. There are three basic measures of capital
adequacy: a total risk-based capital ratio, a Tier 1 risk-based capital ratio; and a leverage
ratio.
The risk-based framework was adopted to assist in the assessment of capital adequacy of
financial institutions by, (i) making regulatory capital requirements more sensitive to differences
in risk profiles among organizations; (ii) introducing off-balance-sheet items into the assessment
of capital adequacy; (iii) reducing the disincentive to holding liquid, low-risk assets; and (iv)
achieving greater consistency in evaluation of capital adequacy of major banking organizations
throughout the world. The risk-based guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning assets and off-balance sheet items to
different risk categories. An institutions risk-based capital ratios are calculated by dividing
its qualifying capital by its risk-weighted assets.
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Qualifying capital consists of two types of capital components: core capital elements (or
Tier 1 capital) and supplementary capital elements (or Tier 2 capital). Tier 1 capital is
generally defined as the sum of core capital elements less goodwill and certain other intangible
assets. Core capital elements consist of (i) common shareholders equity, (ii) noncumulative
perpetual preferred stock (subject to certain limitations), and (iii) minority interests in the
equity capital accounts of consolidated subsidiaries. Tier 2 capital consists of (i) allowance for
loan and lease losses (subject to certain limitations); (ii) perpetual preferred stock which does
not qualify as Tier 1 capital (subject to certain conditions); (iii) hybrid capital instruments and
mandatory convertible debt securities; (iv) term subordinated debt and intermediate term preferred
stock (subject to limitations); and (v) net unrealized holding gains on equity securities.
Under current capital adequacy standards, the Bank must meet a minimum ratio of qualifying
total capital to risk-weighted assets of 8%. Of that ratio, at least half, or 4%, must be in the
form of Tier 1 capital.
The Bank must also meet a leverage capital requirement. In general, the minimum leverage
capital requirement is not less than 3% Tier 1 capital to total assets if the bank has the highest
regulatory rating and is not anticipating or experiencing any significant growth. All other banks
should have a minimum leverage capital ratio of not less than 4%.
The capital requirements described above are minimum requirements. Higher capital levels will
be required if warranted by the particular circumstances or risk profiles of individual
institutions. For example, the regulations of the FDIC provide that additional capital may be
required to take adequate account of, among other things, interest rate risk or the risks posed by
concentrations of credit, nontraditional activities or securities trading activities.
Pursuant to the Order, the Bank is required to achieve and maintain its level of Tier 1
capital as a percentage of its total assets at a minimum of 8% while the Order is in force. As of
December 31, 2009, the Bank was out of compliance with this requirement of the Order.
The following table shows the capital totals and ratios for the Bank as of December 31, 2009
(000s omitted in dollar amounts):
Tier 1 capital |
$ | 17,254 | ||
Total capital |
$ | 21,755 | ||
Tier 1 capital to risk weighted assets |
4.86 | % | ||
Total capital to risk weighted assets |
6.13 | % | ||
Leverage ratio |
3.63 | % |
Prompt Corrective Regulatory Action. The FDIC is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the institutions degree
of undercapitalization. Generally, a bank is considered well capitalized if its risk-based
capital ratio is at least 10%, its Tier 1 risk-based capital ratio is at least 6%, its leverage
ratio is at least 5%, and the bank is not subject to any written agreement, order, or directive by
the FDIC.
A bank generally is considered adequately capitalized if it does not meet each of the
standards for well-capitalized institutions, and its risk-based capital ratio is at least 8%, its
Tier 1 risk-based capital ratio is at least 4%, and its leverage ratio is at least 4% (or 3% if the
institution receives the highest rating under the Uniform Financial Institution Rating System). A
bank that has a risk-based capital ratio less than 8%, or a Tier 1 risk-based capital ratio less
than 4%, or a leverage ratio less than 4% (3% or less for institutions with the highest rating
under the Uniform Financial Institution Rating System) is considered to be undercapitalized. A
bank that has a risk-based capital ratio less than 6%, or a Tier 1 capital ratio less than 3%, or a
leverage ratio less than 3% is considered to be significantly undercapitalized, and a bank is
considered critically undercapitalized if its ratio of tangible equity to total assets is equal
to or less than 2%.
Subject to a narrow exception, the FDIC is required to appoint a receiver or conservator for a
bank that is critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the FDIC within 45 days of the date a bank receives notice that
it is undercapitalized, significantly undercapitalized or critically undercapitalized.
Compliance with the plan must be guaranteed by each company that controls a bank that submits such
a plan, up to an amount
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equal to 5% of the banks assets at the time it was notified regarding its
deficient capital status. In addition, numerous mandatory supervisory actions become immediately
applicable to an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth, capital distributions, and
expansion. The FDIC could also take any one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior executive officers and
directors.
Deposit Insurance. The Banks deposits are insured up to applicable limits by a deposit
insurance fund administered by the FDIC. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the deposit insurance fund pursuant to a risk-based
assessment system. Deposit accounts are generally insured up to a maximum of $100,000 per
separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts.
Effective October 3, 2008, EESA raised the basic limit on federal deposit insurance coverage from
$100,000 to $250,000 per depositor. This increase is effective on a temporary basis until December
31, 2013.
Under the FDICs risk-based assessment regulations there are four risk categories, and each
insured institution is assigned to a risk category based on capital levels and supervisory ratings.
Well-capitalized institutions with CAMELS composite ratings of 1 or 2 are placed in Risk Category
I while other institutions are placed in Risk Categories II, III, or IV depending on capital levels
and CAMELS composite ratings. The assessment rates may be changed by the FDIC as necessary to
maintain the insurance fund at the reserve ratio designated by the FDIC. The FDIC may establish
the reserve ratio annually between 1.15% and 1.50% of insured deposits. Deposit insurance
assessments are collected for a quarter at the end of the next quarter. Assessments are based on
deposit balances at the end of the quarter, except for institutions with $1 billion or more in
assets and any institution that becomes insured on or after January 1, 2007 which will have their
assessment base determined using average daily balances of insured deposits.
Due to a decrease in the reserve ratio of the deposit insurance fund, on October 7, 2008, the
FDIC established a restoration plan to restore the reserve ratio to at least 1.15% within five
years (the FDIC has extended this time to eight years). On December 16, 2008, the FDIC adopted and
issued a final rule increasing the rates banks pay for deposit insurance uniformly by 7 basis
points (annualized) effective January 1, 2009. Under the final rule, risk-based rates for the
first quarter 2009 assessment ranged between 12 and 50 basis points depending on an institutions
risk category. On February 27, 2009, the FDIC adopted a final rule amending the way that the
assessment system differentiates for risk and setting new assessment rates beginning with the
second quarter of 2009. As of April 1, 2009, for the highest rated institutions, those in Risk
Category I, the initial base assessment rate was between 12 and 16 basis points and for the lowest
rated institutions, those in Risk Category IV, the initial base assessment rate was 45 basis
points. The final rule modified the means to determine a Risk Category I institutions initial
base assessment rate. It also provided for the following adjustments to an institutions
assessment rate: (1) a decrease for long-term unsecured debt, including most senior and
subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) an increase for
secured liabilities above a threshold amount; and (3) for institutions in risk categories other
than Risk Category I, an increase for brokered deposits above a threshold amount. After applying
these adjustments, for the highest rated institutions, those in Risk Category I, the total base
assessment rate is between 7 and 24 basis points and for the lowest rated institutions, those in
Risk Category IV, the total base assessment rate is between 40 and 77.5 basis points. On September
29, 2009, the FDIC increased annual assessment rates uniformly by three basis points beginning
January 1, 2011.
In 2009, the FDIC also imposed an emergency special assessment of five basis points on each
FDIC-insured depository institutions assets, minus its Tier 1 capital, as of June 30, 2009. This
special assessment was collected on September 30, 2009. The Bank paid a special assessment of
$231,000.
On November 12, 2009, the FDIC adopted a final rule that required insured institutions to
prepay on December 31, 2009, estimated quarterly risk-based assessments for the fourth quarter of
2009 and for all of 2010, 2011, and 2012. The FDIC has exempted the Bank from these prepayment
requirements.
On November 21, 2008, the FDIC adopted final regulations implementing the Temporary Liquidity
Guarantee Program (TLGP) pursuant to which depository institutions could elect to participate.
Pursuant to the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30,
2012, certain newly issued senior unsecured debt issued by participating institutions on or after
October 14, 2008 and before October 31, 2009 (the Debt Guarantee), and (ii) provide full FDIC
deposit insurance coverage for non-interest bearing deposit transaction accounts regardless of
dollar amount for an additional fee assessment by the FDIC (the Transaction Account Guarantee).
These accounts are mainly payment-
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processing accounts, such as business payroll accounts. The
Transaction Account Guarantee was to expire on December 31, 2009; however, has been extended to
June 30, 2010 for those participating institutions that do not opt out. Participating
institutions are assessed a surcharge on the portion of eligible accounts that exceeds the general
limit on deposit insurance coverage.
Coverage under the TLGP was available to any eligible institution that did not elect to opt
out of the TLGP on or before December 5, 2008. The Bank did not opt out of the original
Transaction Account Guarantee portion of the TLGP or the extended period. The Company and the Bank
did not opt out of the Debt Guarantee program, but did not issue any debt under the Debt Guarantee
Program.
FDIC-insured institutions also are subject to assessments to repay obligations issued by a
federally chartered corporation to provide financing for resolving the thrift crisis in the 1980s.
For the first quarter of 2010, the rate established by the FDIC for this purpose is 1.06 basis
points per dollar of insured deposits.
Payment of Dividends by the Bank. There are state and federal requirements limiting the
amount of dividends which the Bank may pay. Generally, a banks payment of cash dividends must be
consistent with its capital needs, asset quality, and overall financial condition. The FDIC has
the authority to prohibit the Bank from engaging in any business practice (including the payment of
dividends) which it considers to be unsafe or unsound.
Under Michigan law, the payment of dividends is subject to several restrictions. The Bank
cannot declare or pay a cash dividend or dividend in kind unless the Bank will have a surplus
amounting to not less than 20% of its capital after payment of the dividend. The Bank is required
to transfer 10% of net income to surplus until its surplus is equal to its capital before the
declaration of any cash dividend or dividend in kind. In addition, the Bank may pay dividends only
out of net income then on hand, after deducting its losses and bad debts. These limitations can
affect the Banks ability to pay dividends.
Under the terms of the Order, the Bank may not declare or pay dividends without prior written
approval of the FDIC and the OFIR.
Insider Transactions. Federal laws limit certain transactions between the Bank and its
affiliates, including the Company and any non-bank subsidiaries of the Company. Such transactions
include loans or extensions of credit by the Bank to the Company, the purchase of assets or
securities of the Company, the acceptance of the Companys securities as collateral for loans, and
the issuance of a guaranty, acceptance or letter of credit on behalf of the Company. Transactions
of this kind are limited to 10% of the Banks capital and surplus for transactions with one
affiliate, and 20% of the Banks capital and surplus for transactions with all affiliates. Such
transactions are also subject to certain collateral requirements. These transactions, as well as
other transactions between the Bank and the Company, must also be on terms substantially the same
as, or at least as favorable as, those prevailing at the time for comparable transactions with
nonaffiliated companies or, in the absence of comparable transactions, on terms, or under
circumstances, including credit standards, that would be offered to, or would apply to,
nonaffiliated companies.
Under FDIC regulations, the Banks authority to extend credit to executive officers,
directors, and principal shareholders of the Bank and the Company is subject to the same
restrictions set forth in Federal Reserve Regulation O. Among other things, Regulation O (i)
requires that any such loans be made on terms substantially similar to those offered to
nonaffiliated individuals, (ii) places limits on the amount of loans the Bank may make to such
persons based, in part, on the Banks capital position, and (iii) requires that certain approval
procedures be followed in connection with such loans.
Standards for Safety and Soundness. The FDIC has established safety and soundness standards
applicable to the Bank regarding such matters as internal controls, loan documentation, credit
underwriting, interest-rate risk exposure, asset growth, compensation and other benefits, and asset
quality and earnings. If the Bank were to fail to meet these standards, the FDIC could require it
to submit a written compliance plan describing the steps the Bank will take to correct the
situation and the time within which such steps will be taken. The FDIC has authority to issue
orders to secure adherence to the safety and soundness standards.
Financial Management Requirements. FDIC regulations require banks with $500 million or more
in total assets to undergo an annual independent audit and to establish an audit committee
comprised solely of outside directors. Banks with $1
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billion or more in total assets must also
hire outside auditors to evaluate the institutions internal control structure and procedures for
compliance with laws and regulations relating to safety and soundness. For banks that are
subsidiaries of holding companies, the independent audit requirement may be satisfied by an independent audit of
the consolidated holding company. The FDIC guidelines and interpretations regarding financial
management reiterate the FDICs belief that every depository institution, regardless of size,
should have an annual independent audit and an independent audit committee.
Reserve Requirement. Under a regulation promulgated by the Federal Reserve Board, depository
institutions, including the Bank, currently are required to maintain cash reserves against a stated
percentage of their transaction accounts. Effective October 9, 2008, the Federal Reserve Banks are
authorized to pay interest on such reserves. The current reserve requirements are as follows:
| for transaction accounts totaling $10.7 million or less, a reserve of 0%; and | ||
| for transaction accounts in excess of $10.7 million up to and including $55.2 million, a reserve of 3%; and | ||
| for transaction accounts totaling in excess of $55.2 million, a reserve requirement of $1.335 million plus 10% of that portion of the total transaction accounts greater than $55.2 million. |
The dollar amounts and percentages stated above are all subject to adjustment by the Federal
Reserve.
State Bank Activities. Under federal law and FDIC regulations, FDIC insured state banks are
prohibited, subject to certain exceptions, from making or retaining equity investments of a type,
or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations
also prohibit FDIC insured state banks and their subsidiaries, subject to certain exceptions, from
engaging as principal in any activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet, its minimum regulatory capital
requirements and the FDIC determines the activity would not pose a significant risk to the deposit
insurance fund.
The GLB Act also authorizes insured state banks to engage in financial activities, through
subsidiaries, similar to the activities permitted for financial holding companies. If a state bank
wants to establish a subsidiary engaged in financial activities, it must meet certain criteria,
including that it and all of its affiliated insured depository institutions are well-capitalized
and have a Community Reinvestment Act rating of at least satisfactory and that it is
well-managed. There are capital deduction and financial statement requirements and financial and
operational safeguards that apply to subsidiaries engaged in financial activities. Such a
subsidiary is considered to be an affiliate of the bank and there are limitations on certain
transactions between a bank and a subsidiary engaged in financial activities of the same type that
apply to transactions with a banks holding company and its subsidiaries.
Employees
As of December 31, 2009 the Company had 123 full-time employees and 11 part-time employees.
The Company provides a number of benefits for its full-time employees, including health and life
insurance, workers compensation, social security, paid vacations, numerous bank services and a
retirement plan.
Incorporation of Additional Information by Reference
The following information appearing in the 2009 Annual Report to Shareholders is also incorporated
into this Item 1:
Loan Portfolio Composition table discloses distribution of loans of the Bank.
Loan Maturity table discloses maturities of loans.
Non-Performing Assets table discloses the breakdown of non-performing assets by category.
Allowance for Loan Loss and Charge-off/Recovery tables disclose the allocation of loan loss
allowance by category and the breakdown of charge-offs and recoveries.
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Securities Portfolio table discloses the distribution of the securities portfolio including
book versus fair value comparison.
Securities Maturity table discloses maturities of securities.
Deposits and Time Deposits over $100,000 tables disclose the distribution of deposits of the
Bank and maturities of time deposits over $100,000.
Borrowings table discloses the distribution and maturities of borrowings.
Consolidated Average Balances/Interest Earned-Paid/Rates 2007-2009 table presents average
balance sheet amounts, interest earned or paid and related average yields earned and rates paid.
Rate/Volume Analysis table presents changes in the interest income and expense for each major
category of interest earning assets and interest bearing liabilities.
Note 1, Summary of Significant Accounting Policies of the Notes to Consolidated Financial
Statements discloses information on non-accrual and past-due loans, the Banks policy on placing
loans on non-accrual, and other important accounting policies.
Item 1A. Risk Factors
This is not required of smaller reporting companies.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
The Company owns and operates its main office at 9252 Jos. Campau Avenue, Hamtramck, Michigan
48212-3794. In addition, the Company operates the following branches, listed in the order in which
they were purchased or opened. Whether the branch is owned or leased is also noted.
Common Name of Office | Address | Owned or Leased | ||
Warren Office
|
14801 12 Mile Road at Gloede | Owned | ||
Warren, MI 48088 | ||||
Warren Office & Loan Center
|
31130 Ryan Road at 13 Mile Road | Owned | ||
Warren, MI 48092 | ||||
Sterling Heights/Ryan Road
|
40832 Ryan Road | Leased | ||
Sterling Heights, MI 48310 | ||||
Madison Hgts/12 Dequindre
|
1800 E. 12 Mile Road | Owned | ||
Madison Heights, MI 48071-0485 | ||||
Southfield/Evergreen
|
25250 Evergreen Road | Owned | ||
Southfield, MI 48075 | ||||
Farmington Hills/Halsted
|
37386 12 Mile Road | Owned | ||
Farmington Hills, MI 48331 | ||||
Sterling Heights/
|
3801 Metropolitan Parkway | Owned | ||
Metropolitan Parkway
|
Sterling Heights, MI 48310 | |||
Fenton
|
17197 Silver Parkway | Owned | ||
Fenton, MI 48430 | ||||
Troy
|
30 East Long Lake Rd. | Land Leased | ||
Troy, MI 48085 | Building Owned | |||
Grosse Pointe Woods
|
20276 Mack Avenue | Owned | ||
Grosse Pointe Woods, MI 48236 | ||||
Universal Mortgage Corporation operates the following offices: | ||||
Howell
|
110 N. Chestnut | Leased | ||
Howell, MI 48843 | ||||
Sterling Heights
|
40682 Ryan Road | Leased | ||
Sterling Heights, MI 48310 |
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Item 3. Legal Proceedings
The Company from time to time is a party to routine litigation incidental to its business. The
Company is not currently a party to any material litigation.
Item 4. Reserved
SUPPLEMENTAL INFORMATION EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the Company are listed below:
Principal Occupation | ||||
Name and Age | Position with the Company | During Past Five Years | ||
David L. Wood, 65
|
Interim President and Chief Executive Officer | Interim President and Chief Executive Officer since March 2010. Mr. Wood retired from Colonial Bushings, Inc. a manufacturer of precision tooling components, where he had been Manager since 1973. Mr. Wood has served as a director of the Company since 1985 and has served as its Chairman since 2000. | ||
Jeffrey Moore, 53
|
Executive Vice President and Chief Credit Officer | Executive Vice President and Chief Credit Officer since January of 2009. Senior Vice President and Chief Credit Officer since May of 2007; Senior Vice President Business Banking at Fifth Third Bank Eastern Michigan from Sept. 1997 Mar. 2007. | ||
Vincent J. Szymborski, 50
|
Executive Vice President Chief Operating Officer | Executive Vice President and Chief Operating Officer since March 2010; Senior Vice President Retail Banking since Mar. 2007; 1st Vice President and National Group Mgr. of Deposit, Credit and Service Related Products at Comerica for over 5 years. | ||
Michael J. Banks, 51
|
Senior Vice President Chief Lending Officer | Senior Vice President and Chief Lending Officer since March 2007; 1st Vice President in Commercial Lending at Comerica Bank from 2001 March 2007. | ||
David A. Wilson, 49
|
Senior Vice President and Chief Financial Officer | Senior Vice President and Chief Financial Officer since 1991. |
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PART II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Information relating to the market for registrants common equity, dividends paid and related
shareholder matters appears on page 56 of the registrants 2009 Annual Report to Shareholders and
is incorporated herein by reference. The performance graph required by Item 201(e) of Regulation
S-K is not applicable to smaller reporting companies.
The following table provides information about purchases of the Companys common stock by the
Company, including any affiliated purchasers, during the quarter ended December 31, 2009.
ISSUER PURCHASES OF EQUITY SECURITIES
Maximum Number (or | ||||||||||||||||
Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased as | Value) of Shares | |||||||||||||||
Part of Publicly | that May Yet Be | |||||||||||||||
Total Number of | Average Price Paid | Announced Plans or | Purchased Under the | |||||||||||||
Period | Shares Purchased | per Share | Programs | Plans or Programs | ||||||||||||
10/01/09 10/31/09 |
0 | 0 | 0 | 0 | ||||||||||||
11/01/09 11/30/09 |
0 | 0 | 0 | 0 | ||||||||||||
12/01/09 12/31/09 |
0 | 0 | 0 | 0 | ||||||||||||
Total |
0 | 0 | 0 | 0 | ||||||||||||
The Company does not currently have a stock repurchase plan in place.
Item 6. Selected Financial Data
This item is not required of smaller reporting companies.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The information required by this item is incorporated by reference from the section captioned
Managements Discussion and Analysis on pages 42 through 55 of the 2009 Annual Report to
Shareholders (with the exception of the information required by paragraphs (a)(3)(iv) and (a)(5)
of Item 303 of Regulation S-K which are not applicable to smaller reporting companies).
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
This item is not required of smaller reporting companies.
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Item 8. Financial Statements and Supplementary Data
The Audited Consolidated Financial Report contained on pages 1 through 40 of the 2009 Annual
Report to Shareholders, together with the related notes and independent auditors report of the
2009 Annual Report to Shareholders are incorporated herein by reference. The supplemental data
required by this item is not applicable to smaller reporting companies.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A(T). Controls and Procedures
Disclosure controls and procedures. We evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2009. Our disclosure
controls and procedures are the controls and other procedures that we designed to ensure that we
record, process, summarize and report in a timely manner, the information we must disclose in
reports that we file with, or submit to the SEC. David L. Wood, our Interim President and Chief
Executive Officer, and David A. Wilson, our Senior Vice President and Chief Financial Officer,
reviewed and participated in this evaluation. Based on this evaluation, Messrs. Wood and Wilson
concluded that, as of the date of their evaluation, our disclosure controls were effective.
Managements Annual Report on Internal Control over Financial Reporting.The
management of PSB Group, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting. PSB Group, Inc.s internal control over financial reporting is a
process designed under the supervision of the Companys Chief Executive Officer and Chief Financial
Officer to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Companys financial statements for external reporting purposes in accordance
with United States generally accepted accounting principles.
PSB Group, Inc.s management assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2009 based on criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on that assessment, management determined that, as of December 31, 2009, the
Companys internal control over financial reporting is effective, based on those criteria.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
managements report in this annual report.
Changes in internal controls. During the quarter ended December 31, 2009, there have
not been any significant changes in our internal accounting controls or in other factors that could
significantly affect those controls.
Item 9B. Other Information
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required under this item is incorporated by reference from the registrants
2010 Proxy Statement furnished to its shareholders in connection with an Annual Meeting of
Shareholders (the 2010 Proxy Statement), under the captions Election of Directors, Role and
Composition of the Board of Directors, Audit Committee Financial Expert, Code of Ethics, and
Compliance with Section 16, which Proxy Statement has been filed with the SEC. The information
required under this item relating to the executive officers is set forth in Part I, Supplemental
Information Executive Officers of the Registrant of this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information relating to directors and executive compensation is incorporated by reference
from the registrants 2010 Proxy Statement under the caption Director Compensation and in the
Executive Compensation Discussion section.
The information required by paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K is not
applicable to smaller reporting companies.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required under this item is incorporated by reference from the registrants
2010 Proxy Statement under the captions Security Ownership of Directors, Nominees for Director,
Most Highly Compensated Executive Officers and All Directors and Executive Officers as a Group and
Security Ownership of Shareholders Holding 5% or more.
The following table shows the Companys shareholder approved and non-shareholder approved
equity compensation plans as of December 31, 2009:
Equity Compensation Plan Information
Number of securities | ||||||||||||
remaining available for | ||||||||||||
Number of securities to be | Weighted-average | future issuance under | ||||||||||
issued upon exercise of | exercise price of | equity compensation | ||||||||||
outstanding options, | outstanding options, | plans (excluding | ||||||||||
Plan category | warrants and rights | warrants and rights | securities in column (a)) | |||||||||
Equity compensation plans approved by security holders |
131,293 | $ | 18.21 | 188,642 | ||||||||
Equity compensation plans not approved by security holders |
None | None | None | |||||||||
Total |
131,293 | $ | 18.21 | 188,642 | ||||||||
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information relating to certain relationships and related transactions is incorporated by
reference from the registrants 2010 Proxy Statement under the caption Transactions with Certain
Related Persons and under the caption Role and Composition of the Board of Directors.
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Item 14. Principal Accountant Fees and Services
The information in the 2010 Proxy Statement under the caption Item 3. Approval of Auditors
is incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statements
(a)(1) The following financial statements are included in the Annual Report to Shareholders
for the fiscal year ended December 31, 2009. The remaining information appearing in the Annual
Report is not deemed to be filed as part of this report, except as expressly provided herein.
1. | Independent Auditors Report | ||
2. | Consolidated Balance Sheets as of December 31, 2009 and 2008 | ||
3. | Consolidated Statements of Income for each of the years in the Three-Year Period Ended December 31, 2009 | ||
4. | Consolidated Statements of Stockholders Equity for each of the years in the Three-Year Period Ended December 31, 2009 | ||
5. | Consolidated Statements of Cash Flows for each of the years in the Three-Year Period Ended December 31, 2009 | ||
6. | Notes to Consolidated Financial Statements | ||
(a)(2) All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes. | |||
(a)(3)The following exhibits are either filed as part of this report or are incorporated herein by reference: |
No. | Description | |
3.1
|
Articles of Incorporation of PSB Group, Inc.* | |
3.2
|
Bylaws of PSB Group, Inc.* | |
4.1
|
Specimen Certificate of Common Stock.* | |
10.1
|
2004 Stock Compensation Plan.** | |
10.2
|
Form of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement (incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2005). | |
10.3
|
Deferred Compensation Plan, as amended and restated (incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2008). | |
10.4
|
Form of Restricted Stock Agreement (incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 31, 2007). | |
11
|
Computation of Earnings Per Share (filed herewith on page 3 of the 2009 Annual Report to Shareholders including Note 1 thereto). | |
13
|
Portions of 2009 Annual Report to Shareholders (filed herewith). |
* | Incorporated by reference from Exhibit 3.1 of the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. | |
** | Incorporated by reference from Registrants Proxy Statement for the 2004 annual meeting of shareholders. |
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No. | Description | |
14
|
Code of Ethics (incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2006). | |
21.1
|
Subsidiaries of Registrant (filed herewith). | |
23.
|
Consent of Plante & Moran, PLLC. | |
31.1
|
Certification of David L. Wood required by Rule 13a 14(a). | |
31.2
|
Certification of David A. Wilson required by Rule 13a 14(a). | |
32.1
|
Certification of David L. Wood required by Rule 13a 14(b) and Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350. | |
32.2
|
Certification of David A. Wilson required by Rule 13a 14(b) and Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350. | |
99.1
|
Order of Stipulation and Consent (incorporated by reference from current report on Form 8-K filed on October 30, 2009). |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PSB GROUP, INC. |
||||
Date: March 31, 2010 | By: | /s/ David L. Wood | ||
David L. Wood | ||||
Interim President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
|
/s/ David L. Wood
|
Date: March 31, 2010 | ||||
Interim President and Chief Executive Officer | ||||||
(Principal Executive Officer and Director) | ||||||
By:
|
/s/ David A. Wilson
|
Date: March 31, 2010 | ||||
Senior Vice President and Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) | ||||||
By:
|
/s/ Dr. James Jacobs
|
Date: March 31, 2010 | ||||
(Director) | ||||||
By:
|
/s/ Michael J. Kowalski
|
Date: March 31, 2010 | ||||
(Director) | ||||||
By:
|
/s/ Longine V. Morawski
|
Date: March 31, 2010 | ||||
(Director) | ||||||
By:
|
/s/ Sydney L. Ross
|
Date: March 31, 2010 | ||||
(Director) | ||||||
By:
|
/s/ Edward H. Turner
|
Date: March 31, 2010 | ||||
(Director) |
24