STOCKHOLDERS’ EQUITY Common stock - 20,000,000 shares authorized, 8,471,913 shares at 09/30/07, 8,975,085 shares at 12/31/06; and 5,617,565 shares at 09/30/06
Results of Operations The Corporation reported a net loss of ($855,000) and net income of $2,768,000 for the three and nine month periods ended September 30, 2007, compared to net income of $1,565,000 and $5,567,000 for the same periods in 2006. The net loss during the three months ended September 30, 2007 and decreased net income during the nine months ended September 30, 2007 were primarily due to higher provision for loan losses, the write-downs of foreclosed real estate properties and increased non-interest expenses during the period. The increase in provision for loan losses and the write-down of two real estate properties during the period were primarily due to the collapse of the residential real estate market in Southeastern Michigan, which has impacted our portfolio of land development and commercial construction loans and is the primary cause of the increase in non-performing loans. These loans were well-collateralized loans with well-established real estate developers and home builders. However, the demand for new residential construction in Southeastern Michigan has diminished dramatically. The increase in various non-interest expenses were primarily related to the acquisition of Fidelity. Net Interest Income 2007 Compared to 2006. As noted on the two charts on the following pages, net interest income for the three month and nine month periods ended September 30, 2007 was $8,501,000 and $25,745,000, compared to $6,846,000 and $20,658,000 for the same periods in 2006, an increase of $1,655,000 or 24% for the three month period and $5,087,000 of 25% for the nine month period. This increase was caused primarily by the volume of interest earning assets and interest bearing liabilities assumed as a result of the acquisition of Fidelity and partially offset by the declining net interest margin. The Corporation's interest rate spread was 2.72% and 2.80% for the three month period and nine month period ended September 30, 2007, compared to 2.94% and 3.17% for the same periods in 2006. The Corporation's net interest margin was 3.48% and 3.56% for the three and nine month periods ended September 30, 2007, compared to 3.65% and 3.84% for the same periods in 2006. Average Balances, Interest Rates and Yields. Net interest income is affected by the difference ("interest rate spread") between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities and the relative amounts of interest-bearing liabilities and interest-earning assets. When the total of interest-earning assets approximates or exceeds the total of interest-bearing liabilities, any positive interest rate spread will generate net interest income. Financial institutions have traditionally used interest rate spreads as a measure of net interest income. Another indication of an institution's net interest income is its "net yield on interest-earning assets" or "net interest margin," which is net interest income divided by average interest-earning assets.
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