SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
____________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 0-25752
FNBH BANCORP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2869722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 East Grand River, Howell, Michigan 48843
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517)546-3150
_______________________
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_X_ No___
The number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date: 525,000 shares of the Company's
Common Stock (no par value) were outstanding as of June 30, 1996.
Page 1 of a Total
of 20 Pages
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Interim Financial Statements:
Consolidated Balance Sheet as of June 30, 1996 and Dec. 31, 1995.......4
Consolidated Statements of Income, three months ended
June 30, 1996 and 1995, and six months ended June 30, 1996 and 1995...5
Consolidated Statements of Stockholders' Equity for six months
ended June 30, 1996....................................................6
Consolidated Statements of Cash Flows for six months ended
June 30, 1996 and 1995.................................................7
Notes to Interim Consolidated Financial Statements.....................8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................9
Part II. Other Information
Item 4................................................................19
Item 6................................................................19
Signatures............................................................20
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited interim consolidated financial statements follow.
<PAGE>
<TABLE>
Consolidated Balance Sheets Jun-30 Dec-31
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,900,166 $ 8,055,641
Federal funds sold 7,500,000 8,400,000
------------ ------------
Total cash and cash equivalents 15,400,166 16,455,641
Investment securities held to
maturity, net (fair value of
$25,169,000 at June 30, 1996
and $21,897,000 at Dec. 31,
1995) 25,186,499 21,465,669
Investment securities available
for sale, at fair value 16,964,620 13,115,000
Mortgage-backed securities held
to maturity, net (fair value of
$538,000 at June 30, 1996 and
$620,000 at Dec. 31, 1995) 544,363 614,118
Mortgage-backed securities
available for sale, at fair value 48,435 56,483
----------- -----------
Total investment securities 42,743,917 35,251,270
Loans:
Commercial 84,744,118 82,793,050
Consumer 19,982,450 20,164,158
Real estate mortgages 23,398,348 25,001,209
----------- -----------
Total loans 128,124,916 127,958,417
Less unearned income 455,360 495,463
Less allowance for loan losses 3,314,487 3,096,690
----------- -----------
Net loans 124,355,069 124,366,264
Bank premises and equipment - net 4,647,914 4,287,299
Accrued interest and other assets 2,671,360 2,551,343
Other real estate owned - 45,688
----------- -----------
Total assets $189,818,426 $182,957,505
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing demand $ 31,320,709 $ 30,815,052
NOW 21,102,198 22,318,050
Savings and money market 53,645,305 51,564,415
Time 63,467,768 59,177,115
----------- -----------
Total deposits 169,535,980 163,874,632
Accrued interest, taxes, and
other liabilities 1,389,413 1,553,105
----------- -----------
Total liabilities 170,925,393 165,427,737
Stockholders' Equity
Common stock, no par value.
Authorized 2,100,000 shares;
525,000 shares issued and
outstanding at June 30, 1996
and Dec. 31, 1995 5,250,000 5,250,000
Retained earnings 13,651,950 12,205,242
Net unrealized gain (loss) on
debt securities, net of related
tax effect (8,917) 74,526
----------- -----------
Total stockholders' equity 18,893,033 17,529,768
Total liabilities and
stockholders' equity $189,818,426 $182,957,505
=========== ===========
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
Unaudited Three Months Ended Six Months Ended
June June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,194,928 $3,071,760 $6,381,095 $5,925,438
Interest and dividends on
investment securities:
U.S. Treasury securities 368,965 272,012 685,845 552,541
Obligations of other U.S.
government agencies 75,037 64,122 150,812 127,455
Obligations of state and
political subdivisions 147,077 138,517 288,043 273,968
Other securities 1,328 1,328 1,328 1,328
Federal funds sold 60,405 30,334 130,974 88,224
--------- --------- ---------- ---------
Total interest income 3,847,740 3,578,073 7,638,097 6,968,954
--------- --------- ---------- ---------
Interest expense:
Interest on deposits 1,361,545 1,204,591 2,756,059 2,306,152
Other interest expense 168 6,151 168 6,151
--------- --------- --------- ---------
Total interest expense 1,361,713 1,210,742 2,756,227 2,312,303
--------- --------- --------- ---------
Net interest income 2,486,027 2,367,331 4,881,870 4,656,651
Provision for loan losses 112,125 112,125 224,250 224,250
--------- --------- --------- ---------
Net interest income
after provision for
loan losses 2,373,902 2,255,206 4,657,620 4,432,401
--------- --------- --------- ---------
Non-interest income:
Service charges 385,986 315,539 748,200 623,308
Gain on sale of loans 33,979 14,391 28,405 29,702
Other 76,892 16,824 82,114 34,931
--------- --------- --------- ---------
Total non-interest
income 496,857 346,754 858,719 687,941
--------- --------- --------- ---------
Non-interest expenses:
Salaries and employee
benefits 823,204 795,271 1,644,738 1,586,833
Net occupancy 129,463 122,808 241,663 242,424
Equipment expense 105,703 104,783 203,970 206,435
Printing & supplies 41,619 38,357 97,018 91,341
Michigan Single Business Tax 34,500 42,200 77,000 81,800
Other 329,148 409,963 596,492 748,407
--------- --------- ---------- ---------
Total non-interest
expenses 1,463,637 1,513,382 2,860,881 2,957,240
--------- --------- ---------- ---------
Income before federal
income taxes 1,407,122 1,088,578 2,655,458 2,163,102
Federal income taxes 428,000 335,000 815,000 656,500
--------- --------- ---------- ---------
Net income $ 979,122 $ 753,578 $1,840,458 $1,506,602
========= ========= ========== =========
Per share statistics*
Net income $ 1.86 $ 1.44 $ 3.51 $ 2.87
Dividends $ 0.40 $ 0.35 $ 0.75 $ 0.65
Book Value $ 35.99 $ 31.47 $ 35.99 $ 31.47
*Based on 525,000 shares outstanding in all time periods.
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
Unaudited For the six months ended June 30, 1996
Net Unrealized
Gain (Loss)
on Securities
Available
Common Retained for Sale
Stock Earnings Net of tax Total
<S> <C> <C> <C> <C>
Balances at December 31,
1995 $5,250,000 12,205,242 74,526 17,529,768
Net income - 1,840,458 - 1,840,458
Change in unrealized
gain (loss) on debt
securities
available for sale,
net of tax effect - - (83,443) (83,443)
Cash dividends ($.75
per share) - (393,750) - (393,750)
---------- ---------- -------- ----------
Balances at June 30,
1996" $5,250,000 13,651,950 (8,917) 18,893,033
========== ========== ======== ==========
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Unaudited Six months ended June 30
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,840,458 $ 1,506,602
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 224,250 224,250
Depreciation and amortization 183,928 180,258
Net amortization on investment securities 26,601 40,120
Loss on disposal of equipment 130 679
Gain on sale of loans (28,405) (29,702)
Proceeds from sale of loans 6,039,804 1,268,202
Origination of loans held for sale (6,162,244) (1,967,100)
(Increase) decrease in accrued interest
income and other assets (74,329) 131,437
Increase in accrued interest, taxes,
and other liabilities (120,692) (111,123)
----------- ----------
Net cash provided by operating
activities 1,929,501 1,243,623
----------- ----------
Cash flows from investing activities:
Purchases of available for sale securities (4,972,305) (1,000,746)
Proceeds from maturities and calls of
available for sale securities 1,000,000 -
Proceeds from mortgage-backed securities
paydowns-available for sale 6,372 7,229
Purchases of held to maturity securities (7,719,546) (1,573,427)
Proceeds from maturities and calls of
held to maturity securities 3,970,000 3,720,000
Proceeds from mortgage-backed securities
paydowns-held to maturity 69,788 60,004
Net increase in loans (62,210) (4,995,971)
Capital expenditures (544,673) (507,174)
----------- ----------
Net cash used in investing activities (8,252,574) (4,290,085)
----------- ----------
Cash flows from financing activities:
Net increase in deposits 5,661,348 2,862,688
Dividends paid (393,750) (341,250)
----------- ----------
Net cash provided by financing
activities 5,267,598 2,521,438
----------- ----------
Net decrease in cash and cash equivalents (1,055,475) (525,024)
Cash and cash equivalents at beginning of year 16,455,641 14,139,692
----------- ----------
Cash and cash equivalents at end of period $15,400,166 $13,614,668
=========== ==========
Supplemental disclosures:
Interest paid $ 2,760,696 $ 2,222,798
Federal income taxes paid 781,000 641,000
Loans transferred from other real estate (45,688) -
Loans charged off 48,916 27,600
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
Notes to Interim Consolidated Financial Statements (unaudited)
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
1. In the opinion of management of the Registrant, the unaudited consolidated
financial statements filed with this Form 10-Q contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the consolidated financial position of the Registrant as of June 30, 1996,
and December 31, 1995 and consolidated results of operations for the three
months and six months ended June 30, 1996 and 1995 and consolidated cash flows
for the six months ended June 30, 1996 and 1995.
2. The results of operations for the three months and six months ended
June 30, 1996 are not necessarily indicative of the results to be expected
for the full year.
3. The accompanying unaudited consolidated financial statements should be
read in conjunction with the Notes to Consolidated Financial Statements in
the 1995 Annual Report contained in the Registrant's report on Form 10-K
filing.
4. The provision for income taxes represents Federal income tax expense
calculated using annualized rates on taxable income generated during the
respective periods.
5. Management's assessment of the allowance for loan losses is based on an
evaluation of the loan portfolio, recent loss experience, current economic
conditions, and other pertinent factors. Loans on non-accrual status and
those past due more than 90 days amounted to $976,000 at June 30, 1996 and
$992,000 at December 31, 1995. (See Management's Discussion and Analysis of
financial condition and results of operations).
<PAGE>
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Interim Financial Statements
FNBH Bancorp, Inc. (the Company), a Michigan business corporation, is a one
bank holding company, which owns all of the outstanding capital stock of First
National Bank in Howell (the Bank). The following is a discussion of the
Company's results of operations for the three months and six months ended
June 30, 1996 and 1995, and also provides information relating to the
Company's financial condition, focusing on its liquidity and capital
resources.
<TABLE>
Earnings (in thousands Second Quarter Year-to-Date
except per share data) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $979 $754 $1,840 $1,507
Net Income per Share $1.86 $1.44 $3.51 $2.87
</TABLE>
Net income for the three months ended June 30, 1996 increased 30% from the
amount reported for the second quarter of the prior year. This increase was
attributable to an increase in net interest income of approximately $119,000
(5%), an increase in non-interest income of about $150,000 (43%), and a
decrease in non-interest expenses of $50,000 (3%) which was partially offset
by an increase in tax accruals of $93,000 (28%). Net income for the first
half of the year increased 22% compared to the same period last year.
Contributing to this increase was a $225,000 (5%) growth in net interest
income and a $171,000 (25%) increase in non-interest income, a decrease in
non-interest expense of $96,000 (3%), partially offset by an increase in tax
accruals of $158,000 (24%).
<TABLE>
Net Interest Income Second Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income $3,848 $3,578 $7,638 $6,969
Interest Expense 1,362 1,211 2,756 2,312
------ ------ ------ ------
Net Interest Income $2,486 $2,367 $4,882 $4,657
</TABLE>
The Company's 1996 second quarter net interest income increased $119,000 (5%)
when compared with the same period in the prior year, while net interest
income for the year to date was $225,000 (5%) higher than that of 1995. The
following table illustrates some of the factors contributing to the increase
in net interest income for the period and for the year to date.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
June 30, 1996 and 1995
---------------Second Quarter Averages----------------
1996 1995
Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Fed funds sold $ 4,584 $ 60.4 5.27% $ 2,025 $ 30.3 5.93%
Securities:
Taxable 30,355 445.3 5.87% 23,977 337.5 5.63%
Tax-exempt(1) 10,716 206.2 7.70% 9,278 195.9 8.45%
Loans(2)(3) 128,943 3,198.3 9.92% 121,841 3,076.2 9.99%
-------- -------- ----- -------- -------- -----
Total earning
assets/total
interest income 174,598 $3,910.2 8.96% 157,121 $3,639.9 9.18%
-------- --------
Cash & due from
banks 7,268 6,110
All other assets 7,221 6,343
Allowance for
loan loss (3,254) (2,876)
-------- --------
Total assets $185,833 $166,698
======== ========
Liabilities and
Shareholders'
Equity
Interest bearing
deposits:
Savings & NOW
accounts $ 73,529 $ 498.2 2.71% $ 67,813 $ 438.8 2.60%
Time 62,164 863.3 5.55% 55,167 765.8 5.57%
Fed funds
purchased 12 .2 5.56% 381 6.1 6.38%
-------- -------- ----- -------- -------- -----
Total interest
bearing
liabilities/
total interest
expense 135,705 $1,361.7 4.01% 123,361 $1,210.7 3.94%
-------- --------
Non-interest
bearing deposits 29,908 25,558
All other
liabilities 1,599 1,514
Shareholders'
Equity 18,621 16,265
-------- -------
Total
liabilities and
shareholders'
equity $185,833 $166,698
========= =========
Interest spread 4.95% 5.24%
===== =====
Net interest
income-FTE $ 2,548.5 $ 2,429.2
========= =========
Net interest
margin 5.84% 6.09%
===== =====
</TABLE>
(1) Average yields in the above table have been adjusted to a tax-
equivalent basis using a 34% tax rate and exclude the effect of any
market value adjustments recorded under Statement of Financial
Standards No. 115.
(2) Non-accruing loans are not significant during the periods reported
and, for purposes of the computation above, are included in the
average daily loan balances.
(3) Interest on loans includes origination fees totaling $126,000 in 1996
and $118,000 in 1995.
<PAGE>
<TABLE>
----------------Year to Date Averages-----------------
1996 1995
Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Fed. funds sold $ 4,951 $ 131.0 5.23% $ 3,055 $ 88.2 5.74%
Securities:
Taxable 28,625 838.0 5.86% 24,463 681.3 5.54%
Tax-exempt(1) 10,399 403.5 7.76% 9,126 387.8 8.50%
Loans(2)(3) 129,199 6,388.5 9.80% 120,030 5,934.7 9.83%
-------- -------- ----- -------- -------- -----
Total earning
assets/total
interest income 173,174 $7,761.0 8.90% 156,674 $7,092.0 9.02%
Cash & due
from banks 7,115 5,884
All other assets 7,183 6,243
Allowance for
loan loss (3,200) (2,808)
-------- --------
Total assets $184,272 $165,993
======== ========
Liabilities and
Shareholders'
Equity
Interest bearing
deposits:
Savings &
NOW accounts $ 74,432 $1,038.5 2.79% $ 70,120 $ 890.5 2.56%
Time 61,334 1,717.5 5.60% 53,102 1,415.6 5.38%
Fed Funds
Purchased 6 .2 5.56% 192 6.2 6.38%
-------- -------- ----- -------- -------- -----
Total interest
bearing
liabilities/total
interest expense 135,772 $2,756.2 4.08% 123,414 $2,312.3 3.78%
-------- --------
Non-interest
bearing deposits 28,604 25,184
All other
liabilities 1,603 1,428
Shareholders'
Equity 18,293 15,967
-------- --------
Total liabilities
and shareholders'
equity $184,272 $ 165,993
======== =========
Interest spread 4.82% 5.24%
===== =====
Net interest
income-FTE $5,004.8 $4,779.7
======== ========
Net interest
margin 5.69% 6.04%
===== =====
</TABLE>
(1) Average yields in the above table have been adjusted to a tax-
equivalent basis using a 34% tax rate and exclude the effect of any
market value adjustments recorded under Statement of Financial
Standards No. 115.
(2) Non-accruing loans are not significant during the periods reported
and, for purposes of the computations above, are included in the
average daily loan balances.
(3) Interest on loans includes origination fees totaling $238,000 in 1996
and $211,000 in 1995
Interest Earning Assets/Interest Income
On a tax equivalent basis, interest income increased more than $270,000 in the
second quarter of 1996 compared to that of 1995. In the second quarter of the
year, income on Fed Funds was $30,000 more than the same period in 1995 in
spite of a decline of 66 basis points in rates, because average balances were
$2,600,000 higher. For the year, income on Fed Funds was $43,000 more than
1995 because average balances increased $1,900,000 although rates were 51
basis points lower.
<PAGE>
In the second quarter, income on taxable securities increased approximately
$108,000 both because the rate increased 24 basis points and the average
balance increased $6,400,000. Income from tax-exempt securities increased
$10,000 even though the yield fell 75 basis points because the average balance
increased by more than $1,400,000. The increase in rates on taxable
securities was primarily due to U.S. Treasury bonds which are purchased with
two year maturities. Current two year bonds are yielding more than they were
two years ago. On the other hand, the Company generally purchases tax-exempt
bonds with ten year maturities. Rates are lower on bonds being purchased
today than those earned ten years ago on the tax-exempt bonds which they are
replacing. For the first six months of the year, income on taxable securities
increased approximately $157,000 over the prior year both due to a 32 basis
point increase in rates and a $4,000,000 increase in average balances. Income
on tax-exempt securities was $16,000 higher than the first half of 1995.
Rates declined 74 basis points while average balances increased $1,200,000.
In the second quarter of this year, loan interest income increased $122,000
when compared to the same period in 1995. This increase was primarily due to
the increase in commercial real estate lending that has occurred over the
past, offset in part by a 7 basis point decline in the average rate. Demand
for commercial and residential loans has increased as a result of a growing
local economy. For the first half of the year, loan interest income increased
$454,000, with average balances up $9,000,000 while yields declined 3 basis
points. Based on year to date average balances, the Bank's loan to asset
ratio for the first half of the year was 70% which was in the top 20% of its
peer group as designated by the Federal Financial Institutions Examination
Council in the Uniform Bank Performance Report. The higher rates earned on
loans enabled the Company to maintain a favorable interest margin resulting
in increased earnings. The Bank's 5.69% interest margin compared favorably
with the peer group average.
Interest Bearing Liabilities/Interest Expense
In the second quarter of 1996, interest expense increased approximately
$151,000 both due to an increase in rates of 7 basis points and an increase in
average balances of more than $12,000,000. Savings and NOW expense increased
$59,000 both because balances increased $5,700,000 and rates increased 11
basis points. Interest on time deposits increased $97,500 in 1996 over the
prior year. Balances increased $7,000,000 but the rate paid on time deposits
declined 2 basis points in the second quarter of 1996 from that of 1995. The
deposit growth was the result of the Bank's marketing efforts to increase its
share of Livingston County deposits. In the first half of the year, interest
expense was about $444,000 higher than 1995 due to rates increasing 30 basis
points and average balances increasing more than $12,000,000.
Liquidity
Liquidity is monitored by the Bank's Asset/Liability Management Committee
(ALCO) which meets at least monthly. ALCO developed, and the Board of
Directors approved, a liquidity policy which requires a minimum 15% liquidity
ratio. Throughout 1995 and the first half of 1996 the Company's liquidity
ratio exceeded 20%.
<PAGE>
Deposits are the principal source of funds for the Bank. Management monitors
rates at other financial institutions in the area to ascertain that its rates
are competitive in the market. Management also attempts to offer a wide
variety of products to meet the needs of its customers. The Bank does not
offer brokered deposits. Certificates of deposit over $100,000, which
amounted to $11,100,000 at June 30, 1996, are held by local depositors known
to the Bank.
It is the intention of the Bank's management to handle unexpected liquidity
needs through its Federal Funds position. The goal is to maintain a daily
Fed Funds balance sufficient to cover required cash draws. The Bank's policy
requires all purchases of Fed Funds to be approved by senior management so
that liquidity needs are known. In the event the Bank must borrow for an
extended period, management may look to "available for sale" securities in
the investment portfolio for liquidity. During the first half of the year,
the Fed Funds Sold balances averaged nearly $5,000,000.
In addition to liquidity issues, ALCO discusses the current economic outlook
and its impact on the Bank and current interest rate forecasts. Actual
results are compared to budget in terms of growth and income. A yield and
cost analysis is done to monitor interest margin. Various ratios are
discussed including capital ratios and liquidity. The quality of the loan
portfolio is reviewed in light of the current allowance. The rate sensitivity
report is analyzed and strategies are created to attempt to produce the
desired results. This report describes the repricing schedule for various
asset and liability categories.
<TABLE>
Interest Rate Sensitivity
(dollars in thousands)
0-3 4-12 1-5 5+
Months Months Years Years Total
<S> <C> <C> <C> <C> <C>
Assets:
Loans............ $44,486 $33,619 $43,808 $ 6,212 $128,125
Securities....... 6,152 10,986 18,551 7,055 42,744
Fed funds........ 7,500 7,500
Other assets..... ______ ______ ______ _______ _______
11,449 11,449
Total assets... $58,138 $44,605 $62,359 $24,716 $189,818
Liabilities &
Shareholders'
Equity:
Demand, Savings
& NOW........... $49,185 $56,883 $106,068
Time............. 18,593 23,443 21,432 63,468
Other liabilities
20,282 20,282
and equity...... ______ ______ ______ _______ ________
Total
liabilities
and equity... $67,778 $23,443 $21,432 $77,165 $189,818
Rate sensitivity
gap and ratios:
Gap for period... $(9,640) $21,162 $40,927 $(52,449)
Cumulative gap... (9,640) 11,522 52,449
Cumulative rate
sensitive ratio. .86 1.13 1.47 1.00
Dec. 31, 1995
rate sensitive
ratio........... .92 1.18 1.46 1.00
</TABLE>
<PAGE>
Given the asset sensitive position of the Bank at June 30, 1996, if interest
rates decrease 200 basis points and management did not respond, management
estimates that annualized pretax income would decrease approximately
$300,000, while a similar increase in rates would cause pretax income to
increase by a like amount. In the table above, the entire balance of savings,
NOW and MMDAs are not categorized as 0-3 months, although they are variable
rate products. Some of these balances are core deposits which are not
considered rate sensitive based on the Bank's historical experience.
<TABLE>
Provision for Loan Losses Second Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $112 $112 $224 $224
</TABLE>
The provision for loan losses of $112,000 remained the same for the second
quarter of 1996 as it was the prior year. Year to date the provision has
also remained the same at $224,000. In June of 1996, the allowance for loan
loss as a percent of loans was 2.59%, up from 2.39% a year earlier. The
allowance percentage increased even as loan balances increased because of the
low amount of net charge offs the Bank has experienced. For the first six
months of 1996, the Bank had net charge offs of $7,000, compared with net
recoveries of $45,000 last year. Non-accrual, past due 90 days, and
renegotiated loans were .76% and 1.01% of total loans outstanding at June 30,
1996 and 1995 respectively.
Impaired loans, as defined by Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan, totaled
approximately $1,000,000 at June 30, 1996, compared to $1,200,000 at June 30,
1995, and included non-accrual, and past due 90 days other than homogenous
residential and consumer loans, and an additional $200,000 of commercial loans
separately identified as impaired.
Management assessment of the allowance for loan losses is based on the
composition of the loan portfolio, an evaluation of specific credits,
historical loss experience, the level of nonperforming loans and loans that
have been identified as impaired. Externally, the local economy and events or
trends which might negatively impact the loan portfolio are also considered.
Certain impaired loans with a balance of $1,000,000 had specific reserves
calculated in accordance with SFAS No. 114 of $300,000 at June 30, 1996.
<PAGE>
<TABLE>
Nonperforming Assets
(in thousands) Quarter Ended Year Ended
June 30, 1996 December 31, 1995
<S> <C> <C>
Non-accrual loans $864 $926
90 days or more past
due and still accruing 112 66
----- -----
Total nonperforming loans 976 992
Other real estate 0 46
----- -----
Total nonperforming assets $976 $1,038
Nonperforming loans as a
percent of total loans .76% .80%
Nonperforming assets as a
percent of total loans .76% .84%
Nonperforming loans as a
percent of the loan loss reserve 29% 34%
</TABLE>
The decline in other real estate in 1996 was due to the sale of a parcel of
property which made up the December 31, 1995 balance.
The following table sets forth loan balances and summarizes the changes in
the allowance for loan losses for the first half of 1996 and 1995.
<TABLE>
Year to date Year to date
Loans: June 30, 1996 June 30, 1995
<S> <C> <C>
(dollars in thousands)
Average daily balance of loans
for the year to date 128,943 121,841
Amount of loans (gross)
outstanding at end of the quarter 128,125 123,274
Allowance for loan losses:
Balance at beginning of year 3,097 2,672
Loans charged off:
Real estate 0 0
Commercial 32 1
Consumer 17 26
-- --
Total charge-offs 49 27
Recoveries of loans
previously charged off:
Real estate 0 0
Commercial 11 28
Consumer 31 44
-- --
Total recoveries 42 72
Net loans charged off (recoveries) 7 (45)
Additions to allowance charged
to operations 224 224
--- ---
Balance at end of quarter $3,314 $2,941
Ratios:
Net loans charged off to average
loans outstanding .01% (.04%)
Allowance for loan losses to
loans outstanding 2.59% 2.39%
</TABLE>
<PAGE>
<TABLE>
Non-interest Income Second Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $497 $347 $859 $688
</TABLE>
Non-interest income, which includes service charges on deposit accounts, loan
fees, other operating income, and gain(loss) on sale of assets and securities
transactions, increased by $150,000 (43%) in the second quarter of 1996
compared to the same period in the previous year. The increase in service
charge income was primarily due to changes in the service charge schedule
implemented in the last half of 1995 as well as growth in the Bank. Gains on
loan sales increased because of income from mortgage servicing rights (see
discussion of accounting standard, page 18). Other operating income increased
$60,000. Included in other operating income is a non-reoccurring gain of
$70,000 on the sale of a piece of other real estate.
For the year, non-interest income was up $171,000 (25%) compared to the first
six months of 1995.
<TABLE>
Non-interest Expense Second Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $1,464 $1,513 $2,861 $2,957
</TABLE>
Non-interest expense decreased $49,000 (3%) in the second quarter of 1996
compared to the same period last year. The decline was due to a reduction
in other expenses including FDIC expense which was $82,000 in the second
quarter of 1995 based on a fee of 21 cents per $100 of deposits. This year,
because the Bank Insurance Fund has reached its mandated level and because
the Bank is a well managed, well capitalized institution, (as defined by the
FDIC), the fee for FDIC insurance is expected to be $500 per quarter. This
rate could increase if the fund balance declines sufficiently relative to
insured deposits and/or Congress passes certain proposed legislation. This
savings was partially offset by an increase of 4% in salaries and benefits,
5% in occupancy, and 1% in equipment expense.
For the year non-interest expense was $96,000 (3%) less than 1995. FDIC
expense was down $164,000 for the year, equipment expense was $2,500 lower in
1996, and Michigan Single Business tax was down $4,800 for the year. The
decline in Single Business tax in spite of the increase in earnings is due to
credits received for investments in buildings of nearly $560,000 for main
office renovations. The above reductions were partially offset by an increase
in salaries and benefits of $58,000 (4%) for the year. Further increases in
salary and other expense are anticipated later this year as a trust officer
will be hired and some start up costs for a trust department will be incurred.
<PAGE>
<TABLE>
Income Tax Expense Second Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $428 $335 $815 $657
</TABLE>
Fluctuations in income taxes resulted primarily from changes in the level of
profitability and in variations in the amount of tax-exempt income. The
increase of $93,000 in the second quarter tax accrual and $158,000 in the year
to date tax accrual was principally the result of increased profitability.
Year to date income before taxes was 23% higher in 1996 than in the previous
year while the Federal income tax accrual was 24% higher.
<TABLE>
Capital (in thousands) June 30, 1996 December 31, 1995
<S> <C> <C>
Shareholders' Equity* $18,902 $17,455
Ratio of Equity to Total Assets 9.96% 9.54%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to ($9,000) at June 30, 1996
and $75,000 at December 31, 1995.
A financial institution's capital ratio is looked upon by the regulators and
the public as an indication of its soundness. Shareholders' equity, excluding
the securities valuation adjustment, increased $1,450,000 (8%) during the
first six months of the year. This increase was the result of net income
earned by the company reduced by dividends paid of $394,000.
The Federal Reserve Board provides guidelines for the measurement of capital
adequacy. The Company's capital, as adjusted under these guidelines, is
referred to as risk-based capital. The Company's Tier 1 risk-based capital
ratio at June 30, 1996 was 15.20%, and total risk-based capital was 16.45%.
At June 30, 1995 these ratios were 14.11% and 15.36% respectively. Minimum
regulatory Tier 1 risk-based and total risk-based capital ratios under the
Federal Reserve Board guidelines are 4% and 8% respectively.
The capital guidelines also provide for a standard to measure risk-based
capital to total assets which is called the leverage ratio. The Company's
leverage ratio was 10.15% at June 30, 1996 and 9.9% in 1995. The minimum
standard leverage ratio is 3% but financial institutions are expected to
maintain a leverage ratio 1 to 2 percentage points above the 3% minimum.
Presently the Bank has a capital project ongoing involving making renovations
to the Brighton branch. The front face of the building has been expanded
about ten feet toward Grand River Avenue and will have a predominate arched
window rounded by a copper roof. The interior is being updated and an office
and conference room will be added. The project is expected to be completed
near the end of the third quarter. In addition, the <PAGE>Bank has received
regulatory approval to establish a new branch in the northwest part of
Brighton and the Bank is attempting to obtain a new branch site in this area.
The projects mentioned above will be financed from internally generated funds.
As of June 30, 1996, the Company had outstanding commitments of approximately
$400,000 for capital projects.
Accounting Standard
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65 (SFAS 122). This statement
requires a mortgage banking enterprise to recognize as separate assets rights
to service mortgage loans for others, however those servicing rights are
acquired. SFAS 122 also requires the mortgage banking enterprise to assess
its capitalized mortgage servicing rights for impairment based on the fair
value of those rights with impairment recognized through a valuation
allowance. This statement applies to financial statements for fiscal years
beginning after December 15, 1995, with earlier adoption permitted. The
Company adopted SFAS 122 in the first quarter of 1996. The impact on the
financial statements was creation of an asset of $41,000 for mortgage
servicing rights and a $41,000 increase in pretax income for the six months
ended June 30, 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The registrant's annual meeting of shareholders was held on April 17, 1996.
The shareholders voted on the election of directors.
Votes were cast as follows for the three nominees for the office of director
to serve until 1999.
Shares voted for Shares voted against
S.W. Itsell 396,001 5,665
Dona Scott Laskey 385,651 16,015
Charles N. Holkins 401,666 0
Additionally, the following directors continue in office.
Term expiring in 1997:
Donald K. Burkel
Harry E. Griffith
Peter B. VanWinkle
Gary R. Boss
Term expiring in 1998:
Rebecca S. English
W. Rickard Scofield
Roy A. Westran
Barbara D. Martin
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There are none applicable.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the second quarter of
1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 to be signed on its behalf by the undersigned hereunto
duly authorized.
FNBH BANCORP, INC.
/s/ Barbara D. Martin
Barbara D. Martin
President and Chief Executive Officer
/s/ Barbara J. Nelson
Barbara J. Nelson
Treasurer
DATE: August 8, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 7,900,00
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 25,731,000
<INVESTMENTS-MARKET> 17,013,000
<LOANS> 127,670,000
<ALLOWANCE> 3,314,000
<TOTAL-ASSETS> 189,818,000
<DEPOSITS> 169,536,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,389,000
<LONG-TERM> 0
0
0
<COMMON> 5,250,000
<OTHER-SE> 13,643,000
<TOTAL-LIABILITIES-AND-EQUITY> 189,818,000
<INTEREST-LOAN> 6,381,000
<INTEREST-INVEST> 1,126,000
<INTEREST-OTHER> 131,000
<INTEREST-TOTAL> 7,638,000
<INTEREST-DEPOSIT> 2,756,000
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 4,882,000
<LOAN-LOSSES> 224,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,861,000
<INCOME-PRETAX> 2,655,000
<INCOME-PRE-EXTRAORDINARY> 1,840,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,840,000
<EPS-PRIMARY> 3.51
<EPS-DILUTED> 3.51
<YIELD-ACTUAL> 5.69
<LOANS-NON> 864,000
<LOANS-PAST> 112,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,097,000
<CHARGE-OFFS> 49,000
<RECOVERIES> 42,000
<ALLOWANCE-CLOSE> 3,314,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
