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, 1997
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: 1,575,000 shares of the Company's Common
Stock (no par value) were outstanding as of September 30, 1997.
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, 1997 and Dec. 31, 1996..............4
Consolidated Statements of Income, three months ended
Sept. 30, 1997 and 1996, and nine months ended Sept. 30, 1997 and 1996.........5
Consolidated Statement of Shareholders' Equity for nine months
ended September 30, 1997.......................................................6
Consolidated Statements of Cash Flows for nine months ended
September 30, 1997 and 1996....................................................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>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Balance Sheets September 30 December 31
1997 1996
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 8,363,236 $ 7,069,216
Federal funds sold 2,900,000 6,500,000
------------ ------------
Total cash and cash equivalents 11,263,236 13,569,216
Investment securities held to maturity, net (fair value of $31,732,000
at September 30, 1997 and $28,160,000 at Dec. 31, 1996) 31,424,733 27,821,614
Investment securities available for sale, at fair value 11,031,250 19,047,187
Mortgage-backed securities held to maturity, net (fair value of
$636,000 at September 30, 1997 and $353,000 at Dec. 31, 1996) 636,875 351,930
Mortgage-backed securities available for sale, at fair value 27,403 35,960
------------ ------------
Total investment securities 43,120,261 47,256,691
Loans:
Commercial 108,231,084 91,015,036
Consumer 25,889,782 22,122,885
Real estate mortgages 23,900,464 23,402,833
------------ ------------
Total loans 158,021,330 136,540,754
Less unearned income 595,569 473,311
Less allowance for loan losses 3,539,911 3,335,044
------------ ------------
Net loans 153,885,850 132,732,399
Bank premises and equipment - net 4,757,360 4,818,603
Accrued interest and other assets 2,900,446 2,909,324
Other real estate owned 0 723,011
------------ ------------
Total assets $215,927,153 $202,009,244
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing demand $ 40,947,578 $ 35,047,948
NOW 22,007,967 25,145,241
Savings and money market 55,869,559 54,979,331
Time 73,893,167 65,771,249
------------ ------------
Total deposits 192,718,271 180,943,769
Accrued interest, taxes, and other liabilities 1,622,601 1,468,367
------------ -----------
Total liabilities 194,340,872 182,412,136
Shareholders' Equity*
Common stock, no par value. Authorized 2,100,000 shares; 1,575,000
shares issued and outstanding at September 30, 1997 and Dec. 31, 1996 . 5,250,000 5,250,000
Retained earnings 16,309,422 14,308,934
Net unrealized gain on debt securities, available for sale, net of tax 26,859 38,174
------------ ------------
Total stockholders' equity 21,586,281 19,597,108
Total liabilities and stockholders' equity $215,927,153 $202,009,244
============ ============
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Income
Unaudited Three Months Ended Sept. Nine Months Ended Sept.
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,759,274 $ 3,246,187 $10,569,360 $ 9,627,282
Interest and dividends on investment securities:
U.S. Treasury securities 426,306 474,635 1,355,955 1,160,480
Obligations of other U.S. government agencies 26,216 59,806 104,002 210,618
Obligations of state and political subdivisions 175,115 154,608 521,579 442,651
Other securities 0 0 1,328 1,328
Interest on federal funds sold 19,603 82,248 77,248 213,222
--------- --------- ---------- ----------
Total interest income 4,406,514 4,017,484 12,629,472 11,655,581
========= ========= ========== ==========
Interest expense:
Interest on deposits 1,602,965 1,437,865 4,589,221 4,193,924
Other interest expense 13,417 0 34,909 168
--------- --------- --------- ---------
Total interest expense 1,616,382 1,437,865 4,624,130 4,194,092
========= ========= ========= =========
Net interest income 2,790,132 2,579,619 8,005,342 7,461,489
Provision for loan losses 112,125 112,125 336,375 336,375
--------- --------- --------- ---------
Net interest income after provision for loan losses 2,678,007 2,467,494 7,668,967 7,125,114
========= ========= ========= =========
Non-interest income:
Service charges 405,364 372,839 1,171,633 1,121,039
Gain on sale of loans 40,912 36,096 113,067 64,501
Other 89,474 10,857 110,274 92,971
------ ------ ------- ------
Total non-interest income 535,750 419,792 1,394,974 1,278,511
======= ======= ========= =========
Non-interest expense:
Salaries and employee benefits 1,036,621 824,221 2,848,854 2,468,959
Net occupancy 133,494 130,853 404,921 372,516
Equipment expense 118,063 115,875 335,943 319,845
Fees 69,244 93,373 259,174 153,093
Printing and supplies 53,662 52,483 175,376 167,357
Michigan Single Business Tax 54,000 49,000 142,100 126,000
Other 376,363 333,650 1,041,335 852,566
------- ------- --------- -------
Total non-interest expense 1,841,447 1,599,455 5,207,703 4,460,336
========= ========= ========= =========
Income before federal income taxes 1,372,310 1,287,831 3,856,238 3,943,289
Federal income taxes 409,500 394,500 1,147,000 1,209,500
--------- --------- ---------- ----------
Net income $ 962,810 $ 893,331 $ 2,709,238 $ 2,733,789
=========== =========== =========== ===========
Per share statistics*
Net income $ .61 $ .57 $ 1.72 $ 1.74
Dividends $ .15 $ .13 $ .45 $ .38
*Based on 1,575,000 shares outstanding in all time periods.
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Shareholders' Equity
Unaudited For the nine months ended September 30, 1997
Net Unrealized
Gain on
Securities
Available for
Common Retained Sale
Stock Earnings Net of tax Total
<S> <C> <C> <C> <C>
Balances at December 31, 1996 .............. $ 5,250,000 14,308,934 38,174 19,597,108
Net income ................................. 2,709,238 2,709,238
Change in unrealized gain on debt securities
available for sale, net of tax effect ... (11,315) (11,315)
Cash dividends (45 (cents) per share) ...... (708,750) (708,750)
Balances at September 30, 1997 ............. $ 5,250,000 16,309,422 26,859 21,586,281
=========== ========== ====== ==========
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
Unaudited Nine months ended Sept. 30
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,709,238 $ 2,733,789
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 336,375 336,375
Depreciation and amortization 322,468 287,938
Net amortization on investment securities 27,113 40,261
Loss on disposal of equipment 718 130
Gain on sale of loans (113,067) (67,395)
Gain on sale of securities (1,546) 0
Proceeds from sale of loans 7,490,568 7,857,402
Origination of loans held for sale (7,737,344) (7,844,971)
(Increase) decrease in accrued interest income and other assets 731,888 (189,055)
Increase (decrease) in accrued interest, taxes, and other liabilities 160,134 (69,261)
Net cash provided by operating activities 3,926,545 3,085,213
Cash flows from investing activities:
Purchases of available for sale securities (995,781) (9,979,017)
Proceeds from sales of available for sale securities 4,001,562 0
Proceeds from maturities and calls of available for sale securities 5,000,000 1,000,000
Proceeds from mortgage-backed securities paydowns-available for sale 8,702 15,299
Purchases of held to maturity securities (4,661,189) (14,728,606)
Proceeds from maturities and calls of held to maturity securities 500,000 10,120,000
Proceeds from mortgage-backed securities paydowns-held to maturity 240,355 103,561
Net increase in loans (21,129,983) (4,406,112)
Capital expenditures (261,943) (738,236)
Net cash used in investing activities (17,298,277) (18,613,111)
Cash flows from financing activities:
Net increase in deposits 11,774,502 12,327,183
Dividends paid (708,750) (603,750)
Net cash provided by financing activities 11,065,752 11,723,433
Net decrease in cash and cash equivalents (2,305,980) (3,804,465)
Cash and cash equivalents at beginning of year 13,569,216 16,455,641
Cash and cash equivalents at end of period $ 11,263,236 $ 12,651,176
Supplemental disclosures:
Interest paid $ 4,539,687 $ 4,211,763
Federal income taxes paid 1,140,000 1,265,000
Loans charged off 219,294 125,374
</TABLE>
See notes to interim consolidated financial statements
<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, 1997, and
consolidated results of operations for the three months and nine months ended
September 30, 1997 and 1996 and consolidated cash flows for the nine months
ended September 30, 1997 and 1996.
2. The results of operations for the three months and nine months ended
September 30, 1997 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 1996
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 $1,511,000 at September 30, 1997 and
$557,000 at December 31, 1996. (See Management's Discussion and Analysis of
financial condition and results of operations).
6. On January 16, 1997, the Board of Directors declared a three for one stock
split, payable as a dividend of two shares for each one share of company stock
held of record January 16, 1997. The dividend was paid February 16, 1997.
References to common stock and per share data have been restated for 1996 to
reflect the effect of the split.
<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, 1997 and 1996, 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) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income $963 $893 $2,709 $2,734
Net Income per Share $ .61 $ .57 $1.72 $1.74
</TABLE>
Net income for the three months ended September 30, 1997 increased approximately
$70,000 (8%) from the amount reported for the third quarter of the prior year.
For the quarter, net interest income increased $210,000 (8%) and non-interest
income increased $116,000 (28%). However, non-interest expense increased
$242,000 (15%) and federal tax accruals increased $15,000 (4%). Net income for
the first nine months of the year decreased $25,000 (1%) compared to the same
period last year. Contributing to thi decrease was an increase of $747,000 (17%)
in non-interest expense offset by an increase of $544,000 (7%) in net interest
income, an increase of $116,000 (9%) in non-interest income, and a decrease in
federal tax accruals of $63,000 (5%).
<TABLE>
Net Interest Income Third Quarter Year-to-Date
- -------------------
(in thousands) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest Income $4,406 $4,018 $12,629 $11,656
Interest Expense 1,616 1,438 4,624 4,194
------- ----- ----- -----
Net Interest Income $ 2,790 $2,580 $8,005 $7,462
</TABLE>
The Company's 1997 third quarter net interest income increased $210,000 (8%)
when compared with the same period in the prior year, while net interest income
for the year to date was $544,000 (7%) higher than that of 1996. 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 1
INTEREST YIELDS AND COSTS (in thousands)
September 30, 1997 and 1996
<TABLE>
---------------Third Quarter Averages----------------
1997 1996
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Fed funds sold $ 1,450 $ 19.6 5.29% $ 6,340 $ 82.2 5.07%
Securities: Taxable 30,368 452.5 5.96% 35,454 534.4 6.03%
Tax-exempt(1) 13,289 243.3 7.32% 11,415 216.3 7.58%
Loans(2)(3) 152,146 3,763.7 9.68% 129,975 3,250.8 9.79%
--------- -------- -------- --------
Total earning assets/total
interest income 197,253 $4,479.1 8.89% 183,184 $4,083.7 8.76%
-------- --------
Cash & due from banks 7,776 7,165
All other assets 7,747 7,391
Allowance for loan loss (3,585) (3,342)
----------- -----------
Total assets $209,191 $194,398
======== ========
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $ 77,202 $ 550.4 2.83% $ 76,794 $ 533.6 2.76%
Time 72,376 1,052.6 5.77% 64,249 904.3 5.60%
Fed funds purchased 922 13.4 5.69% 0 0
----------- -------------- ------------- ------------
Total interest bearing
liabilities/total interest expense 150,500 $ 1,616.4 4.26% 141,043 $1,437.9 4.06%
--------- --------
Non-interest bearing deposits 35,543 32,391
All other liabilities 1,815 1,640
Shareholders' Equity 21,333 19,324
---------- ----------
Total liabilities and
shareholders' equity $209,191 $194,398
======== --------
Interest spread 4.63% 4.70%
===== =====
Net interest income-FTE $ 2,862.7 $ 2,645.8
========= =========
Net interest margin 5.67% 5.64%
===== =====
</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) For purposes of the computation above, non-accruing loans are included
in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $106,500 in 1997
and $124,000 in 1996.
<PAGE>
<TABLE>
----------------Year to Date Averages-----------------
1997 1996
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
Assets:
<S> <C> <C> <C> <C> <C> <C>
Fed. funds sold $ 1,944 $ 77.2 5.24% $ 5,417 $ 213.2 5.17%
Securities: Taxable 32,693 1,461.3 5.96% 30,918 1,372.4 5.92%
Tax-exempt(1) 13,124 727.2 7.39% 10,741 619.8 7.69%
Loans(2)(3) 144,999 10,584.1 9.66% 129,459 9,639.3 9.78%
------- ------------ ----------- -----------
Total earning assets/total
interest income 192,760 $12,849.8 8.84% 176,535 $11,844.7 8.86%
--------- ---------
Cash & due from banks 7,437 7,132
All other assets 8,187 7,253
Allowance for loan loss (3,475) (3,248)
------- ------
Total assets $204,909 $ 187,672
======== ==========
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $ 78,703 $ 1,620.9 2.75% $ 75,225 $ 1,572.1 2.79%
Time 69,844 2,968.3 5.68% 62,313 2,621.8 5.62%
Fed Funds Purchased 809 34.9 5.69% 4 .2 5.50%
Total interest bearing
liabilities/total interest expense 149,356 $ 4,624.1 4.14% 137,542 $4,194.1 4.07%
----------- --------
Non-interest bearing deposits 33,226 29,907
All other liabilities 1,670 1,616
Shareholders' Equity 20,657 18,607
---------- -----------
Total liabilities and
shareholders' equity $204,909 $ 187,672
======== =========
Interest spread 4.70% 4.79%
===== =====
Net interest income-FTE $ 8,225.7 $7,650.6
========== ========
Net interest margin 5.63% 5.68%
===== =====
</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) For purposes of the computations above, non-accruing loans are
included in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $254,000 in 1997
and $362,000 in 1996
Interest Earning Assets/Interest Income
On a tax equivalent basis, interest income increased approximately $400,000 in
the third quarter of 1997 compared to that of 1996. In the third quarter of
1997, income on Fed Funds was $63,000 less than the same period in 1996, in
spite of an increase in rates of 22 basis points, because average balances were
$4,900,000 lower. For the year, income on Fed Funds was $136,000 less than 1996
because average balances were approximately $3,500,000 lower, although rates
were 7 basis points more in 1997 than th previous year.
In the third quarter, income on taxable securities decreased approximately
$82,000 both because the rate decreased 7 basis points and the average balance
decreased $5,100,000.
<PAGE>
Income from tax-exempt securities increased $27,000 even though the yield fell
26 basis points because the average balance increased by approximately
$1,900,000. For the first nine months of the year, income on taxable securities
increased $89,000 over the prior year both due to a 4 basis point increase in
rates and a $1,800,000 increase in average balances. Income on tax-exempt
securities was $107,000 higher than the first three quarters of 1996. Rates
declined 30 basis points while average balances increased $2,400,000.
In the third quarter of this year, tax equivalent loan interest was $513,000
higher than the same period in 1996 due to an increase in average balances
exceeding $22,000,000 while rates declined 11 basis points. The growth in loans
was principally in the commercial sector where the average balance was
$17,700,000 (21%) more than the previous year. Consumer loans increased
approximately $4,000,000 on average (20%) while consumer mortgage loans
increased $300,000 (1%). The lack in growth of consumer mortgages is largely due
to the Bank's policy of selling fixed rate mortgages 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 nine months of the year, loan interest
income increased $945,000, with average balances up $15,500,000 while yields
declined 12 basis points. The greater growth in loans compared to investments
was due to a concerted effort on the part of management to use the deposits
available where they would produce the best return.
Interest Bearing Liabilities/Interest Expense
In the third quarter of 1997, interest expense increased $179,000 both due to an
increase in rates of 20 basis points and an increase in average balances of
$9,500,000. Savings and NOW interest expense increased $17,000 because balances
increased $400,000 and rates increased 7 basis points. Interest on time deposits
increased $148,000 in the third quarter of 1997 over the prior year. Balances
increased $8,100,000 and the rate paid on time deposits increased 17 basis
points. The deposit growth was the result of the Bank's marketing efforts to
increase its share of Livingston County deposits. The increase in rates on
certificates reflects prevailing trends in the market. The average amount of Fed
Funds Purchased in the third quarter of 1997 was $922,000 while no Fed Funds
were purchased in the same period of 1996.
In the first three quarters of the year, interest expense was approximately
$430,000 higher than 1996 due to average balances of interest bearing
liabilities increasing $12,000,000 and the rate paid increasing 7 basis points.
Savings and NOW interest expense increased $49,000 because balances increased
$3,500,000 although the interest rate declined 4 basis points. Interest on time
deposits increased $346,000 because the balance increased $7,500,000 and the
rate increased 6 basis points. Fed Fund Purchased interest increased $35,000
because there was very little activity in Fed Funds Purchased in 1996.
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
<PAGE>
policy which requires a minimum 15% liquidity ratio. Throughout 1996 and the
first nine months of 1997 the Company's liquidity ratio exceeded 20%.
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 $12,700,000 at September 30, 1997, 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. In April of this year, the Bank sold $4,000,000 in
Treasury securities to meet liquidity needs. The Bank has also had to borrow
more this year as loan demand has exceeded deposit growth. During the first nine
months of the year, Fed Funds Purchased balances averaged $800,000 while Fed
Funds Sold balances averaged $1,900,000.
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 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.
<PAGE>
<TABLE>
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................................... $59,879 $29,666 $60,344 $ 6,049 $155,938
Securities.............................. 2,320 20,427 11,115 9,094 42,956
Fed funds............................... 2,900 2,900
Other assets............................ 14,133 14,133
------- ------- ------- ------ ------
Total assets......................... $65,099 $50,093 $71,459 $29,276 $215,927
Liabilities & Shareholders' Equity:
Demand, Savings & NOW................... $31,512 $13,705 $46,077 $27,555 $118,849
Time.................................... 21,633 29,802 22,445 13 73,893
Other liabilities and equity............ ______ ______ ______ 23,185 23,185
------ ------
Total liabilities and equity......... $53,145 $43,507 $68,522 $50,753 $215,927
Rate sensitivity gap and ratios:
Gap for period.......................... $11,954 $6,586 $2,937 $(21,477)
Cumulative gap.......................... 11,954 18,540 21,477
Cumulative rate sensitive ratio............ 1.22 1.19 1.13 1.00
Dec. 31, 1996 rate sensitive ratio......... 1.45 1.22 1.16 1.00
</TABLE>
Given the asset sensitive position of the Bank at September 30, 1997, if
interest rates decrease 200 basis points and management did not respond,
management estimates that annualized net interest income would decrease
approximately $300,000, 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 and
industry practice.
<TABLE>
Provision for Loan Losses Second Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<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 1997 as it was the prior year. Year to date the provision has also
remained the same at $336,000. In September of 1997, the allowance for loan loss
as a percent of loans was 2.24%, compared to 2.55% a year earlier. For the first
nine months of 1997, the Bank had net charge offs of $131,500, compared with net
charge offs of $68,600 last year. Non-accrual, past due 90 days, and
renegotiated loans were .95% and .91% of total loans outstanding at September
30, 1997 and 1996 respectively.
Impaired loans, as defined by Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, totaled approximately
$3,400,000 at September 30, 1997, compared to $820,000 at December 31, 1996 and
included non-accrual, and past due 90 days other than homogenous residential and
consumer loans, and, at September 30, 1997, an additional $2,000,000 of
commercial loans separately identified as impaired. The increase in impaired
loans is primarily due to problem loans wit two large borrowers. A loan is
considered impaired when it is probable that all or part of amounts due
according to the contractual terms of the loan agreement will be uncollectible.
<PAGE>
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 $3,000,000 had specific reserves calculated in
accordance with SFAS No. 114 of $400,000 at September 30, 1997.
Nonperforming assets are loans for which the accrual of interest has been
discontinued, accruing loans 90 days or more past due in payments, and other
real estate which has been acquired primarily through foreclosure and is waiting
disposition. The following table describes nonperforming assets at September 30,
1997 compared to December 31, 1996. The loans categorized as ninety days past
due are all well secured and in the process of collection.
<TABLE>
Nonperforming Assets
(in thousands) Sept. 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Non-accrual loans ............................. $1,421 $ 109
90 days or more past due and still accruing ... 90 448
------ ------
Total nonperforming loans ............ 1,511 557
Other real estate ............................. 0 723
------ ------
Total nonperforming assets ........... $1,511 $1,280
Nonperforming loans as a percent of total loans .95% .41%
Nonperforming assets as a percent of total loans .95% .94%
Nonperforming loans as a percent of the loan loss reserve 43% 17%
</TABLE>
<PAGE>
The following table sets forth loan balances and summarizes the changes in the
allowance for loan losses for the first nine months of 1997 and 1996.
<TABLE>
Year to date Year to date
Loans: (dollars in thousands) Sept. 30, 1997 Sept. 30, 1996
<S> <C> <C>
Average daily balance of loans for the year to date... 144,999 129,459
Amount of loans (gross) outstanding at end of the
Quarter .............................................. 158,021 132,291
Allowance for loan losses:
Balance at beginning of year ......................... 3,335 3,097
Loans charged off:
Real estate ....................................... 0 29
Commercial ........................................ 163 47
Consumer .......................................... 56 49
-------- --------
Total charge-offs .............................. 219 125
Recoveries of loans previously charged off:
Real estate ....................................... 33 0
Commercial ........................................ 33 19
Consumer .......................................... 22 38
-------- --------
Total recoveries ............................... 88 57
Net loans charged off ................................... 131 68
Additions to allowance charged to operations ............ 336 336
-------- --------
Balance at end of quarter ...................... $ 3,540 $ 3,365
Ratios:
Net loans charged off (annualized) to average
loans outstanding ................................... .12% .07%
Allowance for loan losses to loans outstanding ....... 2.24% 2.54%
</TABLE>
Although nonperforming and impaired loans have increased in 1997 compared to the
prior year, management believes it has been quite aggressive in recognizing
problem loans. Loans are generally placed on a nonaccrual basis when principal
or interest is past due 90 days or more and when, in the opinion of management,
full collection of principal and interest is unlikely. Any identifiable loss
related to impaired loans has previously been charged off. Management is
comfortable with the overall quality of th loan portfolio but continues to
monitor loan quality on an on-going basis. The above mentioned problem credits,
making up the greater part of impaired loans, are well collateralized and are
not expected to result in serious losses.
<TABLE>
Non-interest Income Third Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total $536 $420 $1,395 $1,279
==== ==== ====== ======
</TABLE>
Non-interest income, which includes service charges on deposit accounts, loan
and customer service fees, other operating income, and gain(loss) on sale of
assets and securities transactions, increased by $116,000 (28%) in the third
quarter of 1997 compared to the same period in the previous year. Making up the
increase in non-interest income is an increase in service fees of $32,500 (9%),
an increase in gain on loan sales of $5,000 (13%), and an increase in other
income of $78,500 (72%). The increase i service fees is the result of increased
business volume. Included in other income is gain on the sale of other real
estate of $86,000 that is not expected to recur.
<PAGE>
For the year, non-interest income increased $116,000. Service fees increased
approximately $50,000 (5%), the gain from loan sales increased $48,500 (75%),
and other income increased $17,000 (19%). Other income in 1996 included a gain
on the sale of other real estate of $70,000.
<TABLE>
Non-interest Expense Third Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total $1,841 $1,599 $5,208 $4,460
====== ======= ====== ======
</TABLE>
Non-interest expense increased $242,000 (15%) in the third quarter of 1997
compared to the same period last year. Contributing to this increase was an
increase of $210,000 in salaries and benefits expense and a $25,000 increase in
other expense. The increase in salaries and benefits was primarily due to the
profit sharing accrual, attributable to the Bank's performance, which was
$190,000 more in the third quarter of 1997 compared to the same period in 1996.
For the year non-interest expense was $747,000 (17%) higher than 1996. For the
year, salaries and benefits increased $380,000. In addition to the profit
sharing accrual mentioned above, salaries increased in 1997 due to staffing of
the Trust Department and as a result of an analysis of jobs in the Bank
completed late in 1996 which showed the need for adjustments to salaries for
certain positions. Fees for services increased $100,000 principally because the
Bank has hired consultants for selected specia projects. Other income increased
$190,000 due, in part, to legal fees and other real estate expense related to
the disposal of other real estate, and to charges related to technology. In
spite of the increase in non-interest expense, the Bank was able to achieve an
efficiency ratio of 54%.
The Bank anticipates that operating expenses will continue to grow this year,
and into 1998, as expenses related to the Bank's Strategic Plan are incurred.
Management drafted and the Board of Directors approved a Strategic Plan which
focuses on increasing market penetration in the eastern part of the county,
developing the Bank's trust and investment business, and increasing the Bank's
leadership in small business lending.
The Bank will also focus considerable energy on the Year 2000 issue in the
remainder of 1997 and 1998. The Bank is highly dependent on technology and
several applications are dependent on the software's ability to make the
transition to the year 2000. The Bank has hired a consultant who has recommended
actions related to year 2000 compliance. A committee is in the process of
implementing these steps at this time. Management does not believe that
compliance with Year 2000 will have a material effect o the Bank's financial
condition.
<PAGE>
<TABLE>
Income Tax Expense Third Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total $410 $395 $1,147 $1,210
==== ==== ====== ======
</TABLE>
Fluctuations in income taxes resulted primarily from changes in the level of
profitability and in variations in the amount of tax-exempt income.
<TABLE>
Capital (in thousands) September 30, 1997 December 31, 1996
- ------- ------------------ -----------------
<S> <C> <C>
Shareholders' Equity* $21,559 $19,559
Ratio of Equity to Total Assets 9.98% 9.68%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to $27,000 at September 30,
1997 and $38,000 at December 31, 1996.
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 $2,000,000 (10%) 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 $708,750.
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, 1997 was 14.32%, and total risk-based capital was 15.57%. At
September 30, 1996 these ratios were 15.36% and 16.61% 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 10.30% at September 30, 1997 and 10.06% in 1996. 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.
The Bank is committed to spending in excess of $1,000,000 on various technology
improvements. In addition, the Bank has received regulatory approval to
establish a new branch in the northwest part of Brighton and is currently
looking for a site. The projects mentioned above will be financed from
internally generated funds.
<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 1997.
<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 September 30, 1997 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
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,363,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 43,120,000
<INVESTMENTS-MARKET> 43,427,000
<LOANS> 157,426,000
<ALLOWANCE> 3,540,000
<TOTAL-ASSETS> 215,927,000
<DEPOSITS> 192,718,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,623,000
<LONG-TERM> 0
0
0
<COMMON> 5,250,000
<OTHER-SE> 15,583,000
<TOTAL-LIABILITIES-AND-EQUITY> 215,927,000
<INTEREST-LOAN> 10,569,000
<INTEREST-INVEST> 1,983,000
<INTEREST-OTHER> 77,000
<INTEREST-TOTAL> 12,629,000
<INTEREST-DEPOSIT> 4,589,000
<INTEREST-EXPENSE> 35,000
<INTEREST-INCOME-NET> 8,005,000
<LOAN-LOSSES> 336,000
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 5,208,000
<INCOME-PRETAX> 3,856,000
<INCOME-PRE-EXTRAORDINARY> 2,709,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,709,000
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
<YIELD-ACTUAL> 5.63
<LOANS-NON> 1,421,000
<LOANS-PAST> 90,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,335,000
<CHARGE-OFFS> 219,000
<RECOVERIES> 88,000
<ALLOWANCE-CLOSE> 3,540,000
<ALLOWANCE-DOMESTIC> 3,540,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
