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, 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 June 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 June 30, 1997 and Dec. 31, 1996..........4
Consolidated Statements of Income, three months ended
June 30, 1997 and 1996, and six months ended June 30, 1997 and 1996......5
Consolidated Statement of Shareholders' Equity for six months
ended June 30, 1997.......................................................6
Consolidated Statements of Cash Flows for six months ended
June 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 4...................................................................18
Item 6...................................................................19
Signatures...............................................................19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited interim consolidated financial statements follow.
<PAGE>
<TABLE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets June 30 December 31
1997 1996
Assets (unaudited)
<S> <C> <C>
Cash and due from banks $ 9,823,025 $ 7,069,216
Federal funds sold 200,000 6,500,000
------- ---------
Total cash and cash equivalents 10,023,025 13,569,216
Investment securities held to maturity, net (fair value of $31,614,000
at June 30, 1997 and $28,160,000 at Dec. 31, 1996) 31,329,742 27,821,614
Investment securities available for sale, at fair value 12,019,687 19,047,187
Mortgage-backed securities held to maturity, net (fair value of
$666,000 at June 30, 1997 and $353,000 at Dec. 31, 1996) 670,162 351,930
Mortgage-backed securities available for sale, at fair value 29,587 35,960
------ ------
Total investment securities 44,049,178 47,256,691
Loans:
Commercial 100,698,073 91,015,036
Consumer 24,379,048 22,122,885
Real estate mortgages 22,993,923 23,402,833
---------- ----------
Total loans 148,071,044 136,540,754
Less unearned income 510,115 473,311
Less allowance for loan losses 3,538,221 3,335,044
--------- ---------
Net loans 144,022,708 132,732,399
Bank premises and equipment - net 4,775,804 4,818,603
Accrued interest and other assets 2,869,857 2,909,324
Other real estate owned 684,411 723,011
------- -------
Total assets $206,424,983 $202,009,244
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing demand $ 36,847,866 $ 35,047,948
NOW 21,955,397 25,145,241
Savings and money market 53,435,122 54,979,331
Time 71,768,731 65,771,249
---------- ----------
Total deposits 184,007,116 180,943,769
Accrued interest, taxes, and other liabilities 1,564,482 1,468,367
--------- ---------
Total liabilities 185,571,598 182,412,136
Shareholders' Equity*
Common stock, no par value. Authorized 2,100,000 shares; 1,575,000
shares issued and outstanding at June 30, 1997 and Dec. 31, 1996 5,250,000 5,250,000
Retained earnings 15,582,862 14,308,934
Net unrealized gain on debt securities, net of related tax effect 20,523 38,174
------ ------
Total stockholders' equity 20,853,385 19,597,108
Total liabilities and stockholders' equity $206,424,983 $202,009,244
============ ============
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
<TABLE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Unaudited Three Months Ended June Six Months Ended June
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,510,183 $3,194,928 $6,810,086 $6,381,095
Interest and dividends on investment securities:
U.S. Treasury securities 447,105 368,965 929,649 685,845
Obligations of other U.S. government agencies 39,732 75,037 77,786 150,812
Obligations of state and political subdivisions 172,836 147,077 346,464 288,043
Other securities 1,328 1,328 1,328 1,328
Interest on federal funds sold 5,694 60,405 57,645 130,974
----- ------ ------ -------
Total interest income 4,176,878 3,847,740 8,222,958 7,638,097
--------- --------- --------- ---------
Interest expense:
Interest on deposits 1,505,860 1,361,545 2,986,256 2,756,059
Other interest expense 21,492 168 21,492 168
------ --- ------ ---
Total interest expense 1,527,352 1,361,713 3,007,748 2,756,227
--------- --------- --------- ---------
Net interest income 2,649,526 2,486,027 5,215,210 4,881,870
Provision for loan losses 112,125 112,125 224,250 224,250
------- ------- ------- -------
Net interest income after provision for loan losses 2,537,401 2,373,902 4,990,960 4,657,620
--------- --------- --------- ---------
Non-interest income:
Service charges 386,069 385,986 766,269 748,200
Gain on sale of securities 1,546 0 1,546 0
Gain on sale of loans 34,316 33,979 72,155 28,405
Other 8,946 76,892 19,254 82,114
----- ------ ------ ------
Total non-interest income 430,877 496,857 859,224 858,719
------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits 895,682 823,204 1,812,233 1,644,738
Net occupancy 129,578 129,463 271,427 241,663
Equipment expense 109,638 105,703 217,880 203,970
Fees 143,021 59,720 189,930 59,720
Printing and supplies 67,933 41,619 121,714 97,018
Michigan Single Business Tax 39,100 34,500 88,100 77,000
Other 382,104 269,428 664,972 536,772
------- ------- ------- -------
Total non-interest expense 1,767,056 1,463,637 3,366,256 2,860,881
--------- --------- --------- ---------
Income before federal income taxes 1,201,222 1,407,122 2,483,928 2,655,458
Federal income taxes 353,000 428,000 737,500 815,000
------- ------- ------- -------
Net income $ 848,222 $ 979,122 $1,746,428 $1,840,458
========== ========== ========== ==========
Per share statistics*
Net income $ .54 $.62 $1.11 $1.17
Dividends $ .15 $.12 $.30 $ .25
Book Value $13.24 $12.00 $13.24 $12.00
</TABLE>
*Based on 1,575,000 shares outstanding in all time periods.
See notes to interim consolidated financial statements
<PAGE>
<TABLE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Unaudited
For the six months ended June 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 1,746,428 1,746,428
Change in unrealized gain on debt securities
available for sale, net of tax effect (17,651) (17,651)
Cash dividends (30(cent)per share) (472,500) (472,500)
Balances at June 30, 1997 $5,250,000 15,582,862 20,523 20,853,385
========== ========== ====== ==========
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
<TABLE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Unaudited Six months ended June 30
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,746,428 $ 1,840,458
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 224,250 224,250
Depreciation and amortization 208,695 183,928
Net amortization on investment securities 18,330 26,601
Loss on disposal of equipment 718 130
Gain on sale of loans (72,155) (28,405)
Gain on sale of securities (1,546) 0
Proceeds from sale of loans 4,825,189 6,039,804
Origination of loans held for sale (4,784,694) (6,162,244)
(Increase) decrease in accrued interest income and other assets 78,067 (74,329)
Increase (decrease) in accrued interest, taxes, and other liabilities 105,215 (120,692)
-------
Net cash provided by operating activities 2,348,497 1,929,501
--------- ---------
Cash flows from investing activities:
Purchases of available for sale securities (995,781) (4,972,305)
Proceeds from sales of available for sale securities 4,001,563 0
Proceeds from maturities and calls of available for sale securities 4,000,000 1,000,000
Proceeds from mortgage-backed securities paydowns-available for sale 6,372 6,372
Purchases of held to maturity securities (4,555,522) (7,719,546)
Proceeds from maturities and calls of held to maturity securities 500,000 3,970,000
Proceeds from mortgage-backed securities paydowns-held to maturity 207,347 69,788
Net increase in loans (11,482,899) (62,210)
Capital expenditures (166,615) (544,673)
--------- ---------
Net cash used in investing activities (8,485,535) (8,252,574)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 3,063,347 5,661,348
Dividends paid (472,500) (393,750)
--------- ---------
Net cash provided by financing activities 2,590,847 5,267,598
--------- ---------
Net decrease in cash and cash equivalents (3,546,191) (1,055,475)
Cash and cash equivalents at beginning of year 13,569,216 16,455,641
---------- ----------
Cash and cash equivalents at end of period $10,023,025 $15,400,166
=========== ===========
Supplemental disclosures:
Interest paid $ 2,949,393 $ 2,760,696
Federal income taxes paid 600,000 781,000
Loans transferred from other real estate 38,600 45,688
Loans charged off 95,899 48,916
</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 June 30, 1997, and
consolidated results of operations for the three months and six months ended
June 30, 1997 and 1996 and consolidated cash flows for the six months ended June
30, 1997 and 1996.
2. The results of operations for the three months and six months ended June 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 $2,091,000 at June 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 six months ended June
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 Second Quarter Year-to-Date
except per share data) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $848 $979 $1,746 $1,840
Net Income per Share $.54 $.62 $1.11 $1.17
</TABLE>
Net income for the three months ended June 30, 1997 decreased approximately
$130,000 (13%) from the amount reported for the second quarter of the prior
year. For the quarter, net interest income increased $164,000 (7%). However,
non-interest income decreased $66,000 (13%) and non-interest expense increased
$303,000 (21%), while federal tax accruals decreased $75,000 (18%). Net income
for the first half of the year decreased $94,000 (5%) compared to the same
period last year. Contributing to this decrease was an increase of $505,000 (8%)
in non-interest expense offset by an increase of $333,000 (7%) in net interest
income and a decrease in federal tax accruals of $77,000 (10%).
<TABLE>
Net Interest Income Second Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income $4,177 $3,848 $8,223 $7,638
Interest Expense 1,527 1,362 3,008 2,756
------ ----- ----- ----
Net Interest Income $ 2,650 $2,486 $5,215 $4,882
</TABLE>
The Company's 1997 second quarter net interest income increased $164,000 (7%)
when compared with the same period in the prior year, while net interest income
for the year to date was $333,000 (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>
TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
June 30, 1997 and 1996
---------------Second Quarter Averages----------------
1997 1996
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
Assets:
<S> <C> <C> <C> <C> <C> <C>
Fed funds sold $ 422 $ 5.7 5.35% $ 4,584 $ 60.4 5.27%
Securities: Taxable 32,724 488.1 5.97% 30,355 445.3 5.87%
Tax-exempt(1) 13,074 240.9 7.37% 10,716 206.2 7.70%
Loans(2)(3) 145,205 3,587.6 9.77% 128,943 3,198.3 9.92%
------- ------- ------- -------
Total earning assets/total
interest income 191,425 $4,322.3 8.95% 174,598 $3,910.2 8.96%
-------- --------
Cash & due from banks 7,458 7,268
All other assets 8,349 7,221
Allowance for loan loss (3,471) (3,254)
-------- --------
Total assets $203,761 $185,833
======== ========
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $ 76,848 $ 515.8 2.69% $ 73,529 $ 498.2 2.71%
Time 70,008 990.1 5.67% 62,164 863.3 5.55%
Fed funds purchased 1,493 21.5 5.69% 12 .2 5.56%
-------- --------- --------- -------
Total interest bearing
liabilities/total interest expense 148,349 $ 1,527.4 4.13% 135,705 $1,361.7 4.01%
--------- --------
Non-interest bearing deposits 33,239 29,908
All other liabilities 1,527 1,599
Shareholders' Equity 20,646 18,621
------- -------
Total liabilities and
shareholders' equity $203,761 $185,833
======== --------
Interest spread 4.82% 4.95%
===== =====
Net interest income-FTE $ 2,794.9 $ 2,548.5
========= =========
Net interest margin 5.75% 5.84%
===== =====
</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 $72,000 in 1997
and $126,000 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 $ 2,195 $ 57.6 5.22% $ 4,951 $ 131.0 5.23%
Securities: Taxable 33,874 1,008.8 5.96% 28,625 838.0 5.61%
Tax-exempt(1) 13,040 483.7 7.42% 10,399 403.5 7.76%
Loans(2)(3) 141,366 6,820.1 9.63% 129,199 6,388.5 9.80%
------- --------- -------- --------
Total earning assets/total
interest income 190,475 $ 8,370.2 8.77% 173,174 $7,761.0 8.90%
--------- --------
Cash & due from banks 7,266 7,115
All other assets 8,411 7,183
Allowance for loan loss (3,419) (3,200)
------- ------
Total assets $202,733 $ 184,272
======== ==========
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $ 79,466 $ 1,070.5 2.72% $ 74,432 $ 1,038.5 2.79%
Time 68,557 1,915.7 5.64% 61,334 1,717.5 5.60%
Fed Funds Purchased 751 21.5 5.69% 6 .2 5.56%
--------- --------- --------- --------
Total interest bearing
liabilities/total interest expense 148,774 $ 3,007.7 4.08% 135,772 $2,756.2 4.08%
--------- --------
Non-interest bearing deposits 32,092 28,604
All other liabilities 1,673 1,603
Shareholders' Equity 20,194 18,293
-------- ---------
Total liabilities and
shareholders' equity $202,733 $ 184,272
======== =========
Interest spread 4.69% 4.82%
===== =====
Net interest income-FTE $ 5,362.5 $5,004.8
========== ========
Net interest margin 5.59% 5.69%
===== =====
</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 $147,000 in 1997
and $238,000 in 1996
Interest Earning Assets/Interest Income
On a tax equivalent basis, interest income increased approximately $412,000 in
the second quarter of 1997 compared to that of 1996. In the second quarter of
the year, income on Fed Funds was $55,000 less than the same period in 1996, in
spite of an increase in rates of 8 basis points, because average balances were
$4,200,000 lower. For the year, income on Fed Funds was $73,000 less than 1996
because average balances were $2,800,000 lower. Rates were nearly identical.
In the second quarter, income on taxable securities increased approximately
$43,000 both because the rate increased 10 basis points and the average balance
increased $2,400,000. Income from tax-exempt securities increased $35,000 even
though the yield fell 33 basis
<PAGE>
points because the average balance increased by approximately $2,400,000. For
the first six months of the year, income on taxable securities increased
$171,000 over the prior year both due to a 35 basis point increase in rates and
a $5,200,000 increase in average balances. Income on tax-exempt securities was
$80,000 higher than the first half of 1996. Rates declined 34 basis points while
average balances increased $2,600,000.
In the second quarter of this year, tax equivalent loan interest was $398,000
higher than the same period in 1996 due to an increase in average balances
exceeding $16,000,000 while rates declined 15 basis points. The growth in loans
was principally in the commercial sector. 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 half of the year, loan interest
income increased $430,000, with average balances up $12,000,000 while yields
declined 17 basis points.
Interest Bearing Liabilities/Interest Expense
In the second quarter of 1997, interest expense increased $166,000 both due to
an increase in rates of 12 basis points and an increase in average balances of
$12,600,000. Savings and NOW interest expense increased $18,000 because balances
increased $3,300,000 although rates declined 2 basis points. Interest on time
deposits increased $127,000 in 1997 over the prior year. Balances increased
$7,800,000 and the rate paid on time deposits increased 12 basis points in the
second quarter of 1997 compared to that of 1996. 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. Average Fed Funds purchased in the second quarter of this
year exceeded last year by approximately $1,500,000.
In the first half of the year, interest expense was approximately $250,000
higher than 1996 due to average balances of interest bearing liabilities
increasing $13,000,000. The average rate paid in the first half of 1997 was the
same as 1996. Savings and NOW interest expense increased $32,000 because
balances increased $5,000,000 although the interest rate declined 7 basis
points. Interest on time deposits increased $198,000 because the balance
increased $7,200,000 and the rate increased 4 basis points. Fed Fund Purchased
interest increased $21,000 because the balance increased $745,000 and the rate
increased 13 basis points.
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 1996 and the first half 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
<PAGE>
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 $12,900,000 at June 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 half
of the year, Fed Funds Purchased balances averaged $751,000 while Fed Funds Sold
balances averaged $2,200,000.
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>
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..................................... $56,404 $29,688 $53,719 $ 5,909 $145,720
Securities................................ 1,000 13,648 20,250 8,989 43,887
Fed funds................................. 200 200
Other assets.............................. 16,618 16,618
Total assets........................... $57,604 $43,336 $73,969 $31,516 $206,425
Liabilities & Shareholders' Equity:
Demand, Savings & NOW..................... $29,483 $12,857 $42,521 $27,405 $112,266
Time...................................... 18,070 32,870 20,828 1 71,769
Other liabilities and equity.............. 22,390 22,390
Total liabilities and equity........... $47,553 $45,727 $63,349 $49,796 $206,425
Rate sensitivity gap and ratios:
Gap for period............................ $10,051 $ (2,391) $10,620 $ (18,280)
Cumulative gap............................ 10,051 7,660 18,280
Cumulative rate sensitive ratio.............. 1.21 1.08 1.12 1.00
Dec. 31, 1996 rate sensitive ratio........... 1.45 1.22 1.16 1.00
</TABLE>
<PAGE>
Given the asset sensitive position of the Bank at June 30, 1997, if interest
rates decrease 200 basis points and management did not respond, management
estimates that annualized net interest income would decrease approximately
$150,000, 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 $224 $224
==== ==== ==== ====
</TABLE>
The provision for loan losses of $112,000 remained the same for the second
quarter of 1997 as it was the prior year. Year to date the provision has also
remained the same at $224,000. In June of 1997, the allowance for loan loss as a
percent of loans was 2.39%, compared to 2.59% a year earlier. For the first six
months of 1997, the Bank had net charge offs of $21,000, compared with net
charge offs of $6,000 last year. Non-accrual, past due 90 days, and renegotiated
loans were 1.41% and .76% of total loans outstanding at June 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
$3,800,000 at June 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 June 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 with two large creditors. 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.
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 $3,700,000 had specific reserves calculated in
accordance with SFAS No. 114 of $600,000 at June 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 June 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.
<PAGE>
<TABLE>
Nonperforming Assets Quarter Ended Year Ended
(in thousands) June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Non-accrual loans $2,016 $109
90 days or more past due and still accruing 75 448
------- ----
Total nonperforming loans 2,091 557
Other real estate 684 723
------- -----
Total nonperforming assets $2,775 $1,280
Nonperforming loans as a percent of total loans 1.41% .41%
Nonperforming assets as a percent of total loans 1.87% .94%
Nonperforming loans as a percent of the loan loss reserve 59% 17%
</TABLE>
The reduction in Other Real Estate was the result of selling some of the assets
related to the property that had been foreclosed. Sale of the assets is
continuing and should conclude by the end of the third quarter.
The following table sets forth loan balances and summarizes the changes in the
allowance for loan losses for the first six months of 1997 and 1996.
<TABLE>
Year to date Year to date
Loans: (dollars in thousands) June 30, 1997 June 30, 1996
<S> <C> <C>
Average daily balance of loans for the year to date 141,366 128,943
Amount of loans (gross) outstanding at end of the
quarter 148,071 128,125
Allowance for loan losses:
Balance at beginning of year 3,335 3,097
Loans charged off:
Real estate 0 0
Commercial 44 32
Consumer 52 17
-- --
Total charge-offs 96 49
Recoveries of loans previously charged off:
Real estate 33 0
Commercial 24 11
Consumer 18 31
-- --
Total recoveries 75 42
Net loans charged off 21 7
Additions to allowance charged to operations 224 224
---- ---
Balance at end of quarter $3,538 $3,314
Ratios:
Net loans charged off (annualized) to average
loans outstanding .03% .01%
Allowance for loan losses to loans outstanding 2.39% 2.59%
</TABLE>
<PAGE>
Although nonperforming 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. In addition, net charge offs for the Bank
have been historically low.
<TABLE>
Non-interest Income Second Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total $431 $497 $859 $859
==== ==== ==== ====
</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, decreased by $66,000 (13%) in the second quarter of 1997 compared
to the same period in the previous year. The only category to show a significant
change in the second quarter was "Other Income" which declined $68,000 from the
previous year. In 1996 other income included a $70,000 gain from the sale of
other real estate.
For the year, non-interest income was unchanged. Service charge income was
approximately $20,000 higher than the previous year and the gain from loan sales
has increased $45,000 in 1997. Other income has declined $63,000 for the year as
noted above.
<TABLE>
Non-interest Expense Second Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total $1,767 $1,464 $3,366 $2,861
====== ====== ====== ======
</TABLE>
Non-interest expense increased $300,000 (21%) in the second quarter of 1997
compared to the same period last year. Contributing to this increase was an
increase of $70,000 in salaries and benefits expense and a $230,000 increase in
other expense. Salaries increased, in part, because an analysis of jobs in the
Bank completed late in 1996 showed that some salary adjustments needed to be
made. In addition, a Trust Officer was hired in April and the accrual for
medical benefits was $40,000 higher in the second quarter of 1997 compared to
last year. Legal fees increased $35,000 for the quarter due to costs of working
out some problem loans and disposing of Other Real Estate. Taxes associated with
the Other Real Estate boosted ORE expense by nearly $30,000 this quarter. Fees
for services were $80,000 higher in the second quarter of 1997 than the previous
year's second quarter principally because the Bank has hired consultants for
selected special projects. These costs or similar costs are expected to continue
throughout the year. Management is committed to investing resources in
initiatives that will keep the Bank competitive in the future.
<PAGE>
For the year non-interest expense was $505,000 (18%) higher than 1996. In spite
of the increase in non-interest expense, the Bank was able to achieve an
efficiency ratio of 54%.
The Bank anticipates additional expenses later this year, and into 1998, as some
additional start up costs for the trust department and expenses related to the
Bank's Year 2000 project are incurred. 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 to
recommend actions related to year 2000 compliance. A committee is implementing
these steps at this time. It is anticipated that the cost of the consultant will
be approximately $20,000. Other out of pocket expenses are not anticipated to be
significant unless the Bank needs to make software changes which could result in
major capital outlays.
<TABLE>
Income Tax Expense Second Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total $353 $428 $738 $815
==== ==== ==== ====
</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 decrease
of $75,000 in the second quarter tax accrual and $77,000 in the year to date tax
accrual was principally the result of declining income.
<TABLE>
Capital (in thousands) June 30, 1997 December 31, 1996
<S> <C> <C>
Shareholders' Equity* $20,833 $19,559
Ratio of Equity to Total Assets 10.09% 9.68%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to $21,000 at June 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 $1,270,000 (6.5%) during the first
half of the year. This increase was the result of net income earned by the
company reduced by dividends paid of $472,500.
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, 1997 was 14.56%, and total risk-based capital was 15.81%. At June 30, 1996
these ratios were 15.20% and 16.45% respectively. Minimum regulatory Tier 1
risk-based and total risk-based capital ratios under the Federal Reserve Board
guidelines are 4% and 8% respectively.
<PAGE>
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 10.20% at June 30, 1997 and 10.15% 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.
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 23, 1997. The
shareholders voted on the election of directors.
Votes were cast as follows for the five nominees for the office of director.
Term expiring in 1999:
Shares voted for Shares voted against
R. Michael Yost 1,120,762 2,475
Term expiring in 2000:
Gary R. Boss 1,121,914 1,323
Peter H. Burgher 1,122,097 1,140
Donald K. Burkel 1,122,190 1,047
Harry E. Griffith 1,122,442 795
Additionally, the following directors continue in office.
Term expiring in 1998:
Rebecca S. English
W. Rickard Scofield
Roy A. Westran
Barbara D. Martin
Term expiring in 1999:
S.W. Itsell
Dona Scott Laskey
Charles N. Holkins
<PAGE>
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 1997.
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, 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
DATE: August 7, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 9,823,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 44,049,000
<INVESTMENTS-MARKET> 44,329,000
<LOANS> 147,561,000
<ALLOWANCE> 3,538,000
<TOTAL-ASSETS> 206,425,000
<DEPOSITS> 184,007,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,564,000
<LONG-TERM> 0
0
0
<COMMON> 5,250,000
<OTHER-SE> 15,583,000
<TOTAL-LIABILITIES-AND-EQUITY> 206,425,000
<INTEREST-LOAN> 6,810,000
<INTEREST-INVEST> 1,355,000
<INTEREST-OTHER> 58,000
<INTEREST-TOTAL> 8,223,000
<INTEREST-DEPOSIT> 2,986,000
<INTEREST-EXPENSE> 22,000
<INTEREST-INCOME-NET> 5,215,000
<LOAN-LOSSES> 224,000
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 3,366,000
<INCOME-PRETAX> 2,484,000
<INCOME-PRE-EXTRAORDINARY> 1,746,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,746,000
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 5.59
<LOANS-NON> 2,016,000
<LOANS-PAST> 75,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,335,000
<CHARGE-OFFS> 96,000
<RECOVERIES> 75,000
<ALLOWANCE-CLOSE> 3,538,000
<ALLOWANCE-DOMESTIC> 3,538,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
