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 September 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 September 30, 1996.
Page 1 of a Total
of 19 Pages
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Interim Financial Statements:
Consolidated Balance Sheet as of Sept. 30, 1996 and Dec. 31, 1995........4
Consolidated Statements of Income, three months ended
Sept. 30, 1996 and 1995, and nine months ended Sept. 30, 1996 and 1995..5
Consolidated Statements of Stockholders' Equity for nine months
ended September 30, 1996.................................................6
Consolidated Statements of Cash Flows for nine months ended
September 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 6..................................................................19
Signatures..............................................................19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited interim consolidated financial statements follow.
<PAGE>
<TABLE>
<CAPTION>
FNBH Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
Sep-30 Dec-31
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks ..................... $ 9,351,176 $ 8,055,641
Federal funds sold .......................... 3,300,000 8,400,000
Total cash and cash equivalents .......... 12,651,176 16,455,641
Investment securities held to maturity, net
(fair value of $26,104,000 at September 30,
1996 and $21,897,000 at Dec. 31, 1995) .... 26,029,415 21,465,669
Investment securities available for sale,
at fair value ............................. 21,977,187 13,115,000
Mortgage-backed securities held to maturity,
net(fair value of $506,000 at September 30,
1996 and $620,000 at Dec. 31, 1995) ....... 510,609 614,118
Mortgage-backed securities available for
sale, at fair value ....................... 39,832 56,483
Total investment securities ............ 48,557,043 35,251,270
Loans:
Commercial ................................. 87,631,988 82,793,050
Consumer ................................... 21,815,978 20,164,158
Real estate mortgages ...................... 22,842,746 25,001,209
Total loans ............................. 132,290,712 127,958,417
Less unearned income ....................... 435,023 495,463
Less allowance for loan losses ............. 3,364,724 3,096,690
Net loans .............................. 128,490,965 124,366,264
Bank premises and equipment - net ........... 4,737,468 4,287,299
Accrued interest and other assets ........... 2,786,086 2,551,343
Other real estate owned ..................... -- 45,688
Total assets ........................... $ 197,222,738 $ 182,957,505
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing demand ................ $ 32,778,932 $ 30,815,052
NOW ........................................ 22,887,088 22,318,050
Savings and money market.................... 56,198,482 51,564,415
Time ....................................... 64,337,313 59,177,115
Total deposits ......................... 176,201,815 163,874,632
Accrued interest, taxes, and other
liabilities .............................. 1,442,094 1,553,105
Total liabilities ..................... 177,643,909 165,427,737
Stockholders' Equity
Common stock, no par value. Authorized
2,100,000 shares; 525,000 shares issued
and outstanding at Sept. 30, 1996 and
Dec. 31, 1995 .............................. 5,250,000 5,250,000
Retained earnings ........................... 14,335,282 12,205,242
Net unrealized gain (loss) on debt
securities, net of related tax effect ...... (6,453) 74,526
Total stockholders' equity ............... 19,578,829 17,529,768
Total liabilities and stockholders'
equity ............................... $ 197,222,738 $ 182,957,505
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
FNBH Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
Unaudited
Three Months Ended Nine Months Ended
September September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans .... $3,246,187 $3,119,483 $9,627,282 $9,044,921
Interest and dividends on investment securities:
U.S. Treasury securities ...... 474,635 301,064 1,160,480 853,605
Obligations of other
U.S. government agencies 59,806 70,175 210,618 197,630
Obligations of state and
political subdivisions . 154,608 140,516 442,651 414,484
Other securities .............. -- -- 1,328 1,328
Federal funds sold ............ 82,248 45,136 213,222 133,360
Total interest income ........ 4,017,484 3,676,374 11,655,581 10,645,328
Interest expense:
Interest on deposits .......... 1,437,865 1,260,772 4,193,924 3,566,924
Other interest expense ........ -- 615 168 6,766
Total interest expense ........ 1,437,865 1,261,387 4,194,092 3,573,690
Net interest income ........... 2,579,619 2,414,987 7,461,489 7,071,638
Provision for loan losses ..... 112,125 112,125 336,375 336,375
Net interest income after
provision for loan losses ... 2,467,494 2,302,862 7,125,114 6,735,263
Non-interest income:
Service charges ............... 372,839 323,152 1,121,039 946,460
Gain on sale of loans ......... 36,096 6,762 64,501 36,464
Other ......................... 10,857 21,412 92,971 56,343
Total non-interest income .... 419,792 351,326 1,278,511 1,039,267
Non-interest expenses:
Salaries and employee benefits 824,221 838,713 2,468,959 2,425,546
Net occupancy ................ 130,853 117,184 372,516 359,608
Equipment expense ............. 115,875 116,303 319,845 322,738
Printing & supplies ........... 52,483 58,241 167,357 165,451
Michigan Single Business Tax .. 49,000 28,500 126,000 110,300
Other ......................... 427,023 305,850 1,005,659 1,038,388
Total non-interest expenses . 1,599,455 1,464,791 4,460,336 4,422,031
Income before federal
income taxes ........... 1,287,831 1,189,397 3,943,289 3,352,499
Federal income taxes .......... 394,500 367,500 1,209,500 1,024,000
Net income .................... $893,331 $821,897 $2,733,789 $2,328,499
Per share statistics*
Net income .................... $ 1.70 $ 1.57 $ 5.21 $ 4.44
Dividends ..................... $ 0.40 $ 0.35 $ 1.15 $ 1.00
*Based on 525,000 shares outstanding in all time periods
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
FNBH Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Unaudited
For the nine months ended September 30, 1996
Net Unrealized
Gain (Loss) on
Securities
Available for
Common Retained 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 ........................ -- 2,733,789 -- 2,733,789
Change in unrealized gain (loss)
on debt securities available
for sale, net of tax effect ... -- -- (80,979) (80,979)
Cash dividends ($1.15 per share) .. -- (603,749) -- (603,749)
Balances at September 30, 1996 .... $5,250,000 14,335,282 (6,453) 19,578,829
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
FNBH Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Unaudited
Nine months ended September 30
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income ................................... $ 2,733,789 $ 2,328,499
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses .................... 336,375 336,375
Depreciation and amortization ................ 287,938 279,446
Net amortization on investment
securities ................. 40,261 63,986
Loss on disposal of equipment ................ 130 3,709
Gain on sale of loans ........................ (67,395) (36,464)
Proceeds from sale of loans .................. 7,857,402 2,641,923
Origination of loans held for sale ........... (7,844,971) (3,013,081)
(Increase) decrease in accrued
interest income and other assets ...... (189,055) 56,079
Increase in accrued interest, taxes,
and other liabilities ..................... (69,261) (16,846)
Net cash provided by
operating activities.............. 3,085,213 2,643,626
Cash flows from investing activities:
Purchases of available for sale securities ... (9,979,017) (5,006,993)
Proceeds from maturities and calls
of available for sale securities ......... 1,000,000 --
Proceeds from mortgage-backed securities
paydowns-available for sale.............. 15,299 11,179
Purchases of held to maturity securities ..... (14,728,606) (2,729,702)
Proceeds from maturities and calls of held
to maturity securities .................. 10,120,000 4,615,000
Proceeds from mortgage-backed securities
paydowns-held to maturity ............... 103,561 94,370
Net increase in loans ........................ (4,406,112) (7,295,382)
Capital expenditures ......................... (738,236) (881,458)
Net cash used in investing
activities ...................... (18,613,111) (11,192,986)
Cash flows from financing activities:
Net increase in deposits ..................... 12,327,183 5,788,530
Dividends paid ............................... (603,750) (525,000)
Net cash provided by financing
activities ............................ 11,723,433 5,263,530
Net decrease in cash and cash equivalents .... (3,804,465) (3,285,830)
Cash and cash equivalents at beginning of year 16,455,641 14,139,692
Cash and cash equivalents at end of period ... $ 12,651,176 $ 10,853,862
Supplemental disclosures:
Interest paid ................................ $ 4,211,763 $ 3,462,441
Federal income taxes paid .................... 1,265,000 1,011,000
Loans charged off ............................ 125,374 41,162
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 September 30, 1996, and
consolidated results of operations for the three months and nine months ended
September 30, 1996 and 1995 and consolidated cash flows for the nine months
ended September 30, 1996 and 1995.
2. The results of operations for the three months and nine months ended
September 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 $1,203,000 at September 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 nine months ended
September 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 Third Quarter Year-to-Date
except per share data) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $893 $822 $2,734 $2,328
Net Income per Share $1.70 $1.57 $5.21 $4.44
</TABLE>
Net income for the three months ended September 30, 1996 increased 9% from the
amount reported for the third quarter of the prior year. This increase was
attributable to an increase in net interest income of approximately $165,000
(7%), and an increase in non-interest income of $69,000 (19%). Partially
offsetting the increase in income were an increase of $134,000 in non-interest
expense and an increase in tax accruals of $27,000 (7%). Net income for the
first three quarters of the year increased 17% compared to the same period last
year. Contributing to this increase was a $390,000 (6%) growth in net interest
income and a $240,000 (23%) increase in non-interest income, partially offset by
an increase of $38,000 (1%) in non-interest expense and an increase in tax
accruals of $186,000 (18%).
<TABLE>
Net Interest Income Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income ... $4,018 $3,676 $11,655 $10,645
Interest Expense .. 1,438 1,261 4,194 3,574
Net Interest Income $2,580 $2,415 $ 7,461 $ 7,071
</TABLE>
The Company's 1996 third quarter net interest income increased $165,000 (7%)
when compared with the same period in the prior year, while net interest income
for the year to date was $390,000 (6%) 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)
September 30, 1996 and 1995
---------------Third Quarter Averages----------------
1996 1995
Average Average
Balance Interest Rate Balance Interest Rate
Assets:
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold ........ 6,340 82.2 5.07% 3,100 45.1 5.70%
Securities:
Taxable ............ 35,454 534.4 6.03% 26,060 371.2 5.70%
Tax-exempt(1) ...... 11,415 216.3 7.58% 9,674 198.0 8.19%
Loans(2)(3) ........... 129,975 3,250.8 9.79% 123,828 3,123.8 9.87%
Total earning
assets/total
interest income ..... 183,184 $ 4,083.7 8.76% 162,662 $3,738.1 9.02%
Cash & due from
banks ............... 7,165 -- -- 6,830 -- --
All other assets ...... 7,391 -- -- 6,529 -- --
Allowance for
loan loss ........... (3,342) -- -- (2,994) -- --
Total assets ....... $ 194,398 -- -- $ 173,027 -- --
Liabilities and
Shareholders'
Equity
Interest bearing
deposits:
Savings & NOW
accounts ............. 76,794 533.6 2.76% 69,868 460.4 2.61%
Time .................. 64,249 904.3 5.60% 55,774 800.4 5.69%
Fed funds
purchased ........... 0 0 -- 40 .6 5.98%
Total interest
bearing
liabilities/total
interest expense .... 141,043 1,437.9 4.06% 125,682 1,261.4 3.98%
Non-interest
bearing deposits .... 32,391 -- -- 28,959 -- --
All other liabilities . 1,640 -- -- 1,495 -- --
Shareholders' Equity .. 19,324 -- -- 16,891 -- --
Total liabilities and
shareholders' equity 194,398 -- -- 173,027 -- --
Interest spread ....... -- -- 4.70% -- -- 5.04%
Net interest
income-FTE ......... -- 2,645.8 -- -- 2,476.7 --
Net interest margin ... -- -- 5.64% -- -- 5.95%
</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 $124,000 in 1996 and
$112,000 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 .... 5,417 213.2 5.17% 3,070 133.4 5.73%
Securities:
Taxable .......... 30,918 1,372.4 5.92% 25,002 1,052.5 5.61%
Tax-exempt(1) .... 10,741 619.8 7.69% 9,310 585.7 8.39%
Loans(2)(3) ......... 129,459 9,639.3 9.78% 121,310 9,058.5 9.87%
Total earning
assets/total
interest income .... 176,535 11,844.7 8.86% 158,692 10,830.1 9.03%
Cash & due from
banks ............... 7,132 -- -- 6,203 -- --
All other assets ... 7,253 -- -- 6,339 -- --
Allowance for
loan loss ...... (3,248) -- -- (2,871) -- --
Total assets ..... $ 187,672 -- -- 168,363 -- --
Liabilities and
Shareholders'
Equity
Interest bearing
deposits:
Savings & NOW accounts 75,225 1,572.1 2.79% 70,035 1,350.9 2.58%
Time ............... 62,313 2,621.8 5.62% 54,002 2,216.0 5.49%
Fed Funds
Purchased ....... 4 .2 5.50% 141 6.8 6.34%
Total interest
bearing
liabilities/total
interest expense 137,542 4,194.1 4.07% 124,178 3,573.7 3.85%
Non-interest
bearing deposits ..... 29,907 -- -- 26,456 -- --
All other
liabilities ......... 1,616 -- -- 1,451 -- --
Shareholders'
Equity ............ 18,607 -- -- 16,278 -- --
Total liabilities
and shareholders'
equity .......... 187,672 -- -- 168,363 -- --
Interest spread .... -- -- 4.79% -- -- 5.18%
Net interest
income-FTE ...... -- 7,650.6 -- -- 7,256.4 --
Net interest
margin ............... -- -- 5.68% -- -- 6.02%
</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 $362,000 in 1996 and
$323,000 in 1995
INTEREST EARNING ASSETS/INTEREST
Income On a tax equivalent basis, interest income increased approximately
$346,000 in the third quarter of 1996 compared to that of 1995. In the third
quarter of the year, income on Fed Funds was $37,000 more than the same period
in 1995 in spite of a decline of 63 basis points in rates, because average
balances were $3,200,000 higher. For the year, income on Fed Funds was $80,000
more than 1995 because average balances increased $2,300,000 although rates were
56 basis points lower.
<PAGE>
In the third quarter, income on taxable securities increased approximately
$163,000 both because the rate increased 33 basis points and the average balance
increased $9,400,000. Income from tax-exempt securities increased $18,000 even
though the yield fell 61 basis points because the average balance increased by
more than $1,700,000. The increase in rates on taxable securities was primarily
due to U.S. Treasury bonds which are purchased with two year maturities. The
yields on the government bonds purchased this year have usually exceeded the
yields on maturing bonds. 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 nine months of the year, income on taxable
securities increased approximately $320,000 over the prior year both due to a 31
basis point increase in rates and a nearly $6,000,000 increase in average
balances. Income on tax-exempt securities was $34,000 higher than the first
three quarters of 1995. Rates declined 70 basis points while average balances
increased $1,400,000.
In the third quarter of this year, tax equivalent loan interest was $127,000
higher than the same period in 1995 due to an increase in average balances
exceeding $6,000,000 while rates declined 8 basis points. The growth in loans
was in the commercial sector. A strong local economy has contributed to demand
for land development loans both for residential and commercial use. The decline
in mortgage loan balances was the result of the Bank's policy of selling fixed
rate mortgage loans with fifteen year and longer maturities. The Bank retains
variable rate mortgages but there has not been sufficient demand for these
products to offset the run off of older mortgage loans paying down. For the
first three quarters of the year, loan interest income increased $580,000, with
average balances up $8,000,000 while yields declined 9 basis points.
INTEREST BEARING LIABILITIES/INTEREST EXPENSE
In the third quarter of 1996, interest expense increased approximately $179,000
both due to an increase in rates of 8 basis points and an increase in average
balances of more than $15,000,000. Savings and NOW interest expense increased
$73,000 both because balances increased $6,900,000 and rates increased 15 basis
points. Interest on time deposits increased $104,000 in 1996 over the prior
year. Balances increased $8,500,000 but the rate paid on time deposits declined
9 basis points in the third 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 three quarters of the year, interest
expense was about $620,000 higher than 1995 due to rates increasing 22 basis
points and average balances increasing more than $13,000,000.
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 nine months 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 deal in
brokered funds, and the makeup of its over $100,000 certificates, which amounted
to $11,300,000 at September 30, 1996, consists of 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 nine months of the year, the Fed Funds
Sold balances averaged $5,400,000.
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. The rate sensitivity
report describes the repricing schedule for various asset and liability
categories.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
(dollars in thousands)
0-3 4-12 1-5 5+
Months Months Years Years Total
Assets:
<S> <C> <C> <C> <C> <C>
Loans .............. 55,847 29,410 42,399 4,635 132,291
Securities ......... 4,198 9,718 26,580 8,061 48,557
Fed funds .......... 3,300 -- -- -- 3,300
Other assets ....... -- -- -- 13,075 13,075
Total assets ..... 63,345 39,128 68,979 25,771 197,223
Liabilities &
Shareholders' Equity:
Demand, Savings
& NOW ............. 52,528 -- -- 59,362 111,890
Time ............... 20,079 20,746 23,500 12 64,337
Other liabilities
and equity ........ -- -- -- 20,996 20,996
Total liabilities
and equity ........... $ 72,607 $ 20,746 $ 23,500 $ 80,370 $197,223
Rate sensitivity
gap and ratios:
Gap for period ........ $ (9,262) $ 18,382 $ 45,479 $(54,599) --
Cumulative gap ........ (9,262) 9,120 54,599 -- --
Cumulative rate
sensitive ratio....... .87 1.10 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 September 30, 1996, if
interest rates decrease 200 basis points and management did not respond,
management estimates that annualized net interest income would decrease
approximately $400,000, while a similar increase in rates would cause net
interest income to increase by a like amount. In the preceding table, the entire
balance of savings, MMDA, and NOW 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 Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $112 $112 $336 $336
</TABLE>
The provision for loan losses of $112,000 remained the same for the third
quarter of 1996 as it was the prior year. Year to date the provision has also
remained the same at $336,000. In September of 1996, the allowance for loan loss
as a percent of loans was 2.54%, up from 2.46% 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 nine months of 1996,
the Bank had net charge offs of $68,000, compared with net recoveries of $71,000
last year. Non-accrual, past due 90 days, and renegotiated loans were .91% and
.80% of total loans outstanding at September 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 September 30, 1996, compared to $900,000 at December 31, 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 September 30, 1996.
The following table describes nonperforming assets at September 30, 1996
compared to December 31, 1995. The loans categorized as ninety days past due are
all well secured and in the process of collection.
<PAGE>
<TABLE>
Nonperforming Assets Quarter Ended Year Ended
(in thousands) September 30, 1996 December 31, 1995
<S> <C> <C>
Non-accrual loans ............... $ 855 $ 926
90 days or more past due and
still accruing ............... 348 66
Total nonperforming loans .... 1,203 992
Other real estate ............... 0 46
Total nonperforming assets ... $1,203 $1,038
Nonperforming loans as a percent
of total loans .............. .91% .80%
Nonperforming assets as a percent
of total loans ............... .91% .84%
Nonperforming loans as a percent
of the loan loss reserve ....... 36% 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 nine months of 1996 and 1995.
<TABLE>
Loans: Year to date Year to date
Sept. 30, 1996 Sept. 30, 1995
(dollars in thousands)
<S> <C> <C>
Average daily balance of loans
for the year to date .................... 129,459 121,310
Amount of loans (gross) outstanding
at end of the quarter ................... 132,291 125,258
Allowance for loan losses:
Balance at beginning of year .............. 3,097 2,672
Loans charged off:
Real estate ......................... 29 0
Commercial .......................... 47 1
Consumer ............................ 49 40
Total charge-offs ................. 125 41
Recoveries of loans previously charged off:
Real estate .......................... 0 0
Commercial ........................... 19 38
Consumer ............................. 38 74
Total recoveries .................. 57 112
Net loans charged off (recoveries) ........ 68 (71)
Additions to allowance charged to
operations ....................... 336 336
Balance at end of quarter .......... $ 3,365 $ 3,079
Ratios:
Net loans charged off to average
loans outstanding ...................... .05% (.06%)
Allowance for loan losses to loans
outstanding .......................... 2.54% 2.46%
</TABLE>
<PAGE>
<TABLE>
Non-interest Income Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $420 $351 $1,279 $1,039
</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 $69,000 (19%) in the third quarter of 1996 compared
to the same period in the previous year. The $50,000 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 $29,000. The volume of loan sales in the third quarter of this year
was up $400,000 over last year and the interest rate environment produced a
better return. In addition, the Bank recorded, as an asset, more than $10,000 in
mortgage servicing rights (see discussion of accounting standard, page 18).
Other operating income decreased $10,000.
For the year, non-interest income was up $240,000 (23%) compared to the first
nine months of 1995. Included in 1996 other operating income is a
non-reoccurring gain of $70,000 on the sale of a piece of other real estate.
<TABLE>
Non-interest Expense Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $1,599 $1,465 $4,460 $4,422
</TABLE>
Non-interest expense increased $134,000 (9%) in the third quarter of 1996
compared to the same period last year. Contributing to this increase was an
increase of $14,000 in occupancy expense and a $121,000 increase in other
expense. Building depreciation costs rose due to the Hartland branch which was
completed in the third quarter of last year and the renovations to the main
office which were put in service earlier this year. Fees for services were
$71,000 higher in the third quarter of 1996 than the previous year's third
quarter principally because the Bank has hired consultants for selected special
projects. These costs or similar costs are expected to continue into the fourth
quarter. FDIC expense was $10,000 higher in the third quarter of this year
because in the third quarter of last year the Bank received a rebate for
payments made for the month of June and the third quarter of 1995, resulting in
negative expense for the quarter. Michigan Single Business tax was $20,500
higher this year than last because the Bank realized a tax benefit in the third
quarter of last year when the Hartland branch was put in service. This increase
was partially offset by a decrease of 2% in salaries and benefits, and .4% in
equipment expense.
For the year non-interest expense was $38,000 (1%) higher than 1995. Further
increases in salary and other expense are anticipated later this year, and into
1977, as a trust officer will be hired and some start up costs for a trust
department will be incurred.
<PAGE>
<TABLE>
Income Tax Expense Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total $395 $368 $1,210 $1,024
</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 $27,000 in the third quarter tax accrual and $186,000 in the year to date tax
accrual was principally the result of increased profitability. Both year to date
income before taxes and the Federal income tax accrual were 18% higher in 1996
than in the previous year.
<TABLE>
Capital (in thousands) September 30, 1996 December 31, 1995
<S> <C> <C>
Shareholders' Equity* $19,585 $17,455
Ratio of Equity to Total Assets 9.93% 9.54%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to ($6,000) at September 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 $2,130,000 (12%) during the first
nine months of the year. This increase was the result of net income earned by
the company reduced by dividends paid of $604,000.
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
September 30, 1996 was 15.36%, and total risk-based capital was 16.61%. At
September 30, 1995 these ratios were 14.37% and 15.62% 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 10.06% at September 30, 1996 and 9.87% 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 with a predominate arched window rounded by a
copper roof. The interior is being updated and an office and conference room are
<PAGE>
being be added. The project is expected to be completed early in the fourth
quarter. In addition, the Bank has received regulatory approval to establish a
new branch in the northwest part of Brighton.
The projects mentioned above will be financed from internally generated funds.
As of September 30, 1996, the Company had outstanding commitments of
approximately $200,000 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
approximately $60,000 for mortgage servicing rights and, after amortization of
approximately $10,000, a $50,000 increase in pretax income for the nine months
ended September 30, 1996.
<PAGE>
PART II - OTHER INFORMATION
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 third quarter of 1996.
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 September 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: , 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 9,351,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 26,540,000
<INVESTMENTS-MARKET> 22,017,000
<LOANS> 131,856,000
<ALLOWANCE> 3,365,000
<TOTAL-ASSETS> 197,223,000
<DEPOSITS> 176,202,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,442,000
<LONG-TERM> 0
0
0
<COMMON> 5,250,000
<OTHER-SE> 14,329,000
<TOTAL-LIABILITIES-AND-EQUITY> 197,223,000
<INTEREST-LOAN> 9,627,000
<INTEREST-INVEST> 1,815,000
<INTEREST-OTHER> 213,000
<INTEREST-TOTAL> 11,655,000
<INTEREST-DEPOSIT> 4,194,000
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 7,461,000
<LOAN-LOSSES> 336,000
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 4,460,000
<INCOME-PRETAX> 3,943,000
<INCOME-PRE-EXTRAORDINARY> 2,734,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,734,000
<EPS-PRIMARY> 5.21
<EPS-DILUTED> 5.21
<YIELD-ACTUAL> 5.68
<LOANS-NON> 855,000
<LOANS-PAST> 348,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,097,000
<CHARGE-OFFS> 125,000
<RECOVERIES> 57,000
<ALLOWANCE-CLOSE> 3,365,000
<ALLOWANCE-DOMESTIC> 3,365,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
