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 March 31, 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 March 31, 1997.
Page 1 of a Total
of 17 Pages
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Interim Financial Statements:
Consolidated Balance Sheet as of March 31, 1997 and Dec. 31, 1996...........4
Consolidated Statements of Income, three months ended
March 31, 1997 and 1996.....................................................5
Consolidated Statements of Stockholders' Equity for three months
ended March 31, 1997........................................................6
Consolidated Statements of Cash Flows for three months ended
March 31, 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.....................................................................17
Signatures.................................................................17
<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 March 31 December 31
1997 1996
Assets (unaudited)
<S> <C> <C>
Cash and due from banks $ 9,867,740 $ 7,069,216
Federal funds sold 300,000 6,500,000
------- ---------
Total cash and cash equivalents 10,167,740 13,569,216
Investment securities held to maturity, net (fair value of $31,304,000
at March 31, 1997 and $28,160,000 at Dec. 31, 1996) 31,238,120 27,821,614
Investment securities available for sale, at fair value 17,002,174 19,047,187
Mortgage-backed securities held to maturity, net (fair value of
$682,000 at March 31, 1997 and $353,000 at Dec. 31, 1996) 693,627 351,930
Mortgage-backed securities available for sale, at fair value 33,073 35,960
------ ------
Total investment securities 48,966,994 47,256,691
Loans:
Commercial 96,099,649 91,015,036
Consumer 22,905,598 22,122,885
Real estate mortgages 22,933,739 23,402,833
---------- ----------
Total loans 141,938,986 136,540,754
Less unearned income 448,955 473,311
Less allowance for loan losses 3,387,285 3,335,044
--------- ---------
Net loans 138,102,746 132,732,399
Bank premises and equipment - net 4,792,244 4,818,603
Accrued interest and other assets 2,987,038 2,909,324
Other real estate owned 720,611 723,011
------- -------
Total assets $205,737,373 $202,009,244
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing demand $ 35,786,835 $ 35,047,948
NOW 22,483,257 25,145,241
Savings and money market 57,480,358 54,979,331
Time 68,177,615 65,771,249
---------- ----------
Total deposits 183,928,065 180,943,769
Accrued interest, taxes, and other liabilities 1,578,474 1,468,367
--------- ---------
Total liabilities 185,506,539 182,412,136
Stockholders' Equity
Common stock, no par value. Authorized 2,100,000 shares; 1,575,000
shares issued and outstanding at March 31, 1997 and Dec. 31, 1996 5,250,000 5,250,000
Retained earnings 14,970,891 14,308,934
Net unrealized gain on debt securities, net of related tax effect 9,943 38,174
----- ------
Total stockholders' equity 20,230,834 19,597,108
Total liabilities and stockholders' equity $205,737,373 $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 March 31
1997 1996
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,299,903 $ 3,186,167
Interest and dividends on investment securities:
U.S. Treasury securities 482,544 316,880
Obligations of other U.S. government agencies 38,054 75,775
Obligations of state and political subdivisions 173,628 140,966
Interest on federal funds sold 51,951 70,569
------ ------
Total interest income 4,046,080 3,790,357
--------- ---------
Interest expense:
Interest on deposits 1,480,396 1,394,514
Other interest expense 0 0
Total interest expense 1,480,396 1,394,514
--------- ---------
Net interest income 2,565,684 2,395,843
Provision for loan losses 112,125 112,125
------- -------
Net interest income after provision for loan losses 2,453,559 2,283,718
--------- ---------
Non-interest income:
Service charges 380,200 362,214
Gain (loss) on sale of loans 37,839 (5,574)
Other 10,308 5,222
------ -----
Total non-interest income 428,347 361,862
------- -------
Non-interest expense:
Salaries and employee benefits 916,551 821,534
Net occupancy 141,849 112,200
Equipment expense 108,242 98,267
Fees 46,909 26,114
Printing and supplies 53,781 63,658
Michigan Single Business Tax 49,000 42,500
Other 282,868 232,971
------- -------
Total non-interest expense 1,599,200 1,397,244
--------- ---------
Income before federal income taxes 1,282,706 1,248,336
Federal income taxes 384,500 387,000
------- -------
Net income $ 898,206 $ 861,336
=========== ===========
Per share statistics*
Net income $ .57 $ .55
Dividends $ .15 $ .12
Book Value $12.84 $12.44
*Based on 1,575,000 shares outstanding March 31, 1997 and 1996 respectively
</TABLE>
<PAGE>
<TABLE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Unaudited For the three months ended March 31, 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 - 898,206 898,206
Change in unrealized gain on debt securities
available for sale, net of tax effect (28,231) (28,231)
Cash dividends (15(cent)per share) - (236,249) (236,249)
Balances at March 31, 1997 $5,250,000 14,970,891 9,943 20,230,834
========== ========== ===== ==========
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
<TABLE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Unaudited Three months ended March 31
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 898,206 $ 861,336
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 112,125 112,125
Depreciation and amortization 102,191 87,788
Net amortization on investment securities 9,425 12,778
Loss on disposal of equipment 0 130
(Gain) loss on sale of loans (37,839) 5,574
Proceeds from sale of loans 3,222,628 1,819,125
Origination of loans held for sale (3,262,950) (2,656,080)
Increase in accrued interest income and other assets (75,314) (131,984)
Increase in accrued interest, taxes, and other liabilities 124,687 63,115
------- ------
Net cash provided by operating activities 1,093,159 173,907
--------- -------
Cash flows from investing activities:
Purchases of available for sale securities (995,781) (2,000,016)
Proceeds from maturities and calls of available for sale securities 3,000,000 0
Proceeds from mortgage-backed securities paydowns-available for sale 2,872 3,426
Purchases of held to maturity securities (3,953,769) (4,839,705)
Proceeds from maturities and calls of held to maturity securities 0 1,600,000
Proceeds from mortgage-backed securities paydowns-held to maturity 184,140 40,584
Net increase in loans (5,404,310) (2,893,498)
Capital expenditures (75,833) (381,479)
-------- ---------
Net cash used in investing activities (7,242,681) (8,470,688)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 2,984,296 1,815,346
Dividends paid (236,250) (183,750)
--------- ---------
Net cash provided by financing activities 2,748,046 1,631,596
--------- ---------
Net decrease in cash and cash equivalents (3,401,476) (6,665,185)
Cash and cash equivalents at beginning of year 13,569,216 16,455,641
---------- ----------
Cash and cash equivalents at end of period $10,167,740 $ 9,790,456
=========== ===========
Supplemental disclosures:
Interest paid $ 1,480,372 $ 1,429,709
Loans charged off 84,360 8,231
</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 March 31, 1997, and
consolidated results of operations for the three months ended March 31, 1997 and
1996 and consolidated cash flows for the three months ended March 31, 1997 and
1996.
2. The results of operations for the three months ended March 31, 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 $1,492,000 at March 31, 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 ended March 31, 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 First Quarter
except per share data) 1997 1996
<S> <C> <C>
Net income $ 898 $ 861
Net Income per Share 57(cent) 55(cent)
</TABLE>
Net income of $898,000 for the three months ended March 31, 1997 increased 4%
from the amount reported for the same period of the prior year. Contributing to
the improvement in earnings was an increase of $170,000 (7%) in net interest
income. This increase is the result of growth the Bank has experienced as the
interest margin has declined in the last year from 5.62% in 1996 to 5.54% this
year. Additionally, non-interest income increased $66,000 in the first quarter
of 1997 compared to the same period last year. The increase in income would have
been greater if non-interest expense had not increased $200,000 (14%).
<TABLE>
Net Interest Income First Quarter
(in thousands) 1997 1996
<S> <C> <C>
Interest Income $4,046 $3,790
Interest Expense 1,480 1,394
------ -----
Net Interest Income $ 2,566 $2,396
</TABLE>
The Company's 1997 first quarter net interest income increased $170,000. The
following table illustrates some of the factors contributing to the increase in
net interest income for the first quarter.
<PAGE>
<TABLE>
TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
March 31, 1997 and 1996
---------------First Quarter Averages----------------
1997 1996
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Fed funds sold $ 3,988 $ 51.9 5.21% $ 5,318 $ 70.6 5.25%
Securities: Taxable 35,043 520.7 5.94% 26,894 392.6 5.84%
Tax-exempt(1) 13,005 242.9 7.47% 10,082 197.3 7.83%
Loans(2)(3) 137,484 3,304.8 9.64% 129,455 3,190.3 9.75%
--------- -------- -------- --------
Total earning assets/total
interest income 189,520 $4,120.3 8.71% 171,749 $3,850.8 8.88%
-------- --------
Cash & due from banks 7,071 6,962
All other assets 8,451 7,162
Allowance for loan loss (3,366) (3,147)
---------- --------
Total assets $201,676 $182,726
======== ========
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $ 82,114 $ 554.7 2.74% $ 75,335 $ 540.2 2.88%
Time 67,090 925.7 5.60% 60,504 854.3 5.68%
Fed funds purchased 0 0 0 0
Total interest bearing
liabilities/total interest
expense 149,204 $ 1,480.4 4.02% 135,839 $1,394.5 4.13%
--------- --------
expense
Non-interest bearing deposits 30,932 27,357
All other liabilities 1,611 1,623
Shareholders' Equity 19,929 17,907
--------- --------
Total liabilities and
shareholders' equity $201,676 $182,726
======== --------
Interest spread 4.69% 4.75%
===== =====
Net interest income-FTE $ 2,639.9 $ 2,456.3
========= =========
Net interest margin 5.54% 5.62%
===== =====
</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-accrual loans are not
included in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $75,000 in 1997
and $112,000 in 1996.
Interest Earning Assets/Interest Income
On a tax equivalent basis, interest income increased approximately $270,000 in
the first quarter of 1997 compared to that of 1996. Income from the sale of Fed
Funds declined nearly $20,000 both because average balances were $1,300,000 less
than the prior year and because yields were 4 basis points lower in 1997.
<PAGE>
In the first quarter, income on taxable securities increased approximately
$130,000 both because the rate increased 10 basis points and the average balance
increased $8,000,000. Income from tax-exempt securities increased $46,000 even
though the yield fell 36 basis points because the average balance increased
approximately $3,000,000. 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 quarter of this year, tax equivalent loan interest was $100,000
higher than the same period in 1996 due to an increase in average balances
exceeding $8,000,000 while rates declined 11 basis points. The growth in loans
was primarily in commercial loans where average balances increased approximately
$7,500,000 (9%). Average consumer loans also increased $2,300,000 (12%). A
strong local economy and marketing efforts by the Bank have contributed to loan
growth. Average real estate mortgage loans declined $1,800,000 (7%) due to 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.
Interest Bearing Liabilities/Interest Expense
In the first quarter of 1997, interest expense increased approximately $86,000
due to an increase in average balances of more than $13,400,000 partially offset
by a decrease in rates of 11 basis points. Savings and NOW interest expense
increased $15,000 because average balances increased $6,800,000 although rates
declined 14 basis points. Interest on time deposits increased $71,000 in 1997
over the prior year. Balances increased $6,600,000 but the rate paid on time
deposits declined 8 basis points in the first quarter of 1997 from that of 1996.
The deposit growth was principally the result of the Bank's marketing efforts to
increase its share of Livingston County deposits.
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 three 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
<PAGE>
$100,000 certificates, which amounted to approximately $12,000,000 at March 31,
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. During the first three months of the year, the Fed
Funds Sold balances averaged approximately $4,000,000.
In addition to liquidity issues, ALCO discusses the current economic outlook and
its impact on the Bank and current interest rate forecasts. Actual results are
compared to budget in terms of growth and income. A yield and cost analysis is
done to monitor interest margin. Various ratios are discussed including capital
ratios and liquidity. The quality of the loan portfolio is reviewed in light of
the current allowance. The rate sensitivity report is analyzed and strategies
are created to attempt to produce the desired results. 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
<S> <C> <C> <C> <C> <C>
Assets:
Loans ............................ $ 58,279 $ 29,866 $ 46,625 $ 6,720 $141,490
Securities ....................... 3,500 9,509 26,846 9,112 48,967
Fed funds ........................ 300 300
Other assets ..................... ______ ______ ______ 14,980 14,980
Total assets ................... $ 62,079 $ 39,375 $ 73,471 $ 30,812 $205,737
Liabilities & Shareholders' Equity:
Demand, Savings & NOW ............ $ 33,435 $ 12,669 $ 42,166 $ 27,524 $115,794
Time ............................. 17,257 29,891 21,023 7 68,178
Other liabilities and equity ..... ______ ______ ______ 21,765 21,765
Total liabilities and equity .. $ 50,692 $ 42,560 $ 63,189 $ 49,296 $205,737
Rate sensitivity gap and ratios:
Gap for period ................. $ 11,387 $ (3,185) $ 10,282 $(18,484)
Cumulative gap ................. 11,387 8,202 18,484
Cumulative rate sensitive ratio ... 1.22 1.09 1.12 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 March 31, 1997, if interest
rates decrease 200 basis points and management did not respond, management
estimates that annualized net interest income would decrease approximately
$160,000, while a similar increase in rates would cause net interest income to
increase by a like amount. December 31 ratios are restated to reflect the
results of management's analysis of
<PAGE>
the rate sensitivity of demand, savings and NOW balances. Although these
liabilities 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 First Quarter
(in thousands) 1997 1996
<S> <C> <C>
Total $112 $112
==== ====
</TABLE>
The provision for loan losses of $112,000 remained the same for the first
quarter of 1997 as it was the prior year. In March of 1997, the allowance for
loan loss as a percent of loans was 2.39%, down from 2.46% a year earlier. For
the first three months of 1997, the Bank had net charge offs of $60,000,
compared with net recoveries of $14,000 last year. Non-accrual, past due 90
days, and renegotiated loans were 1.05% and .73% of total loans outstanding at
March 31, 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
$3,900,000 at March 31, 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 an additional $2,500,000 of commercial loans separately
identified as impaired. 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 $3,800,000 had specific reserves calculated in
accordance with SFAS No. 114 of $600,000 at March 31, 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 March 31,
1997 compared to December 31, 1996. The loans categorized as ninety days past
due and still accruing are all well secured and in the process of collection.
<PAGE>
<TABLE>
Nonperforming Assets Quarter Ended Year Ended
(in thousands) March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Non-accrual loans $1,374 $109
90 days or more past due and still accruing 118 448
------ ---
Total nonperforming loans 1,492 557
Other real estate 721 723
------ -----
Total nonperforming assets $2,213 $1,280
Nonperforming loans as a percent of total loans 1.05% .41%
Nonperforming assets as a percent of total loans 1.56% .94%
Nonperforming loans as a percent of the loan loss reserve 44% 17%
</TABLE>
The following table sets forth loan balances and summarizes the changes in the
allowance for loan losses for the first three months of 1997 and 1996.
<TABLE>
Year to date Year to date
Loans: March 31, 1997 March 31, 1996
(dollars in thousands)
<S> <C> <C>
Average daily balance of loans for the year to date 137,484 129,455
Amount of loans (gross) outstanding at end of the
quarter 141,490 131,202
Allowance for loan losses:
Balance at beginning of year 3,335 3,097
Loans charged off:
Real Estate Mortgage 0 0
Commercial 39 0
Consumer 45 8
Total charge-offs 84 8
Recoveries of loans previously charged off:
Real Estate Mortgage 1 0
Commercial 13 0
Consumer 10 22
Total recoveries 24 22
Net loans charged off (recoveries) 60 (14)
Additions to allowance charged to operations 112 112
Balance at end of quarter $3,387 $3,223
Ratios:
Net loans charged off (annualized) to average
loans outstanding .17% (.04%)
Allowance for loan losses to loans outstanding 2.39% 2.46%
</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 First Quarter
(in thousands) 1997 1996
---- ----
<S> <C> <C>
Total $428 $362
==== ====
</TABLE>
Non-interest income, which includes service charges on deposit accounts, loan
fees, other operating income, and gain(loss) on sale of assets, increased by
$66,000 (18%) in the first quarter of 1997 compared to the same period in the
previous year. Service charge income increased $18,000 (5%) primarily because
service charges on loans increased. Gains from loan sales increased more than
$40,000 from the $5,500 loss realized in the first quarter of last year to a
nearly $38,000 gain in 1997. In the first quarter of 1996, $1,800,000 mortgages
were sold while $3,200,000 mortgages were sold in the first quarter of 1997.
<TABLE>
Non-interest Expense First Quarter
(in thousands) 1997 1996
<S> <C> <C>
Total $1,599 $1,397
====== ======
</TABLE>
Non-interest expense increased $200,000 (14%) in the first quarter of 1997
compared to the same period last year. Contributing to this increase were
increases of $95,000 (12%) in salaries, $30,000 (26%) in occupancy, $21,000
(80%) in fees, and $50,000 (21%) in other. Salaries increased, in part, because
some officer level positions were filled and also because an analysis of jobs in
the bank completed late in 1996 showed that some salary adjustments needed to be
made. Occupancy costs increased due to depreciation of building renovations done
at the Bank's main office and Brighton branch and due to increased cost of snow
removal. Fees for services increased principally because the Bank has hired
consultants for selected special projects. Other expense is higher than last
year partially because the commitment the Bank makes to contribute 2% of pretax
income to the communities it serves is being accrued throughout the year in 1997
rather than being expensed as incurred as it was in 1996. Further increases in
salary and other expense, related to starting a trust department, are
anticipated as the year progresses. The Bank has hired a trust officer and
expects to have trust powers before the end of the second quarter.
<PAGE>
<TABLE>
Income Tax Expense First Quarter
(in thousands) 1997 1996
<S> <C> <C>
Total $385 $387
==== ====
</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) March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Shareholders' Equity* $20,221 $19,559
Ratio of Equity to Total Assets 9.79% 9.82%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to $10,000 at March 31, 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 $660,000 (3%) during the first three
months of the year. This increase was the result of net income earned by the
company reduced by dividends paid of $236,000.
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 March
31, 1997 was 14.95%, and total risk-based capital was 16.20%. At March 31, 1996
these ratios were 14.35% and 15.60% 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 10.01% at March 31, 1997 and 9.78% 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.
In the coming year, the Bank will likely spend in excess of $1,000,000 on
various technology needs. 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. These projects 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 first 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 March 31, 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: May 12, 1997
<PAGE>
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