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, 1998
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, 1998.
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Interim Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and Dec. 31, 1997.........4
Consolidated Statements of Income, three months ended
March 31, 1998 and 1997....................................................5
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for three months ended March 31, 1998 and 1997......................6
Consolidated Statements of Cash Flows for three months ended
March 31, 1998 and 1997....................................................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>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Balance Sheets
- ---------------------------
March 31 December 31
1998 1997
----
Assets (unaudited)
<S> <C> <C>
Cash and due from banks ............................... $ 10,636,642 $ 15,638,564
Federal funds sold .................................... 1,900,000 3,100,000
Total cash and cash equivalents .................... 12,536,642 18,738,564
Investment securities held to maturity, net
(fair value of $30,250,000 at
March 31, 1998 and $30,571,000 at Dec. 31, 1997) .... 29,671,683 30,065,021
Investment securities available for sale, at fair value 13,028,220 13,026,347
Mortgage-backed securities held to maturity,
net (fair value of $572,000 at
March 31, 1998 and $632,000 at Dec. 31, 1997) ...... 570,593 633,372
Total investment securities ..................... 43,270,496 43,724,740
Loans:
Commercial ......................................... 118,127,369 110,005,566
Consumer ........................................... 25,582,316 24,896,572
Real estate mortgages .............................. 23,914,913 24,108,647
Total loans ..................................... 167,624,598 159,010,785
Less unearned income ............................... 598,838 613,444
Less allowance for loan losses ..................... 3,572,370 3,423,847
Net loans ....................................... 163,453,390 154,973,494
Bank premises and equipment - net ..................... 5,736,212 4,974,412
Accrued interest and other assets ..................... 4,035,837 3,903,047
Other real estate owned ............................... 335,713 0
Total assets .................................... $229,368,290 $226,314,257
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing demand ........................ $ 39,432,588 $ 41,630,813
NOW ................................................ 22,833,984 23,699,151
Savings and money market ........................... 63,228,678 60,839,930
Time ............................................... 79,426,805 76,129,297
Total deposits ................................. 204,922,055 202,299,191
Accrued interest, taxes, and other liabilities ........ 2,053,864 2,283,041
Total liabilities ............................... 206,975,919 204,582,232
Stockholders' Equity
Common stock, no par value. Authorized
2,100,000 shares; 1,575,000 shares
issued and outstanding at March 31,
1998 and Dec. 31, 1997 ........................... 5,250,000 5,250,000
Retained earnings ..................................... 17,130,393 16,467,201
Accumulated other comprehensive income, net ........... 11,978 14,824
Total stockholders' equity ...................... 22,392,371 21,732,025
Total liabilities and stockholders' equity ..... $229,368,290 $226,314,257
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Income
Unaudited Three
months ended March 31
1998 1997
<S> <C> <C>
Interest income:
Interest and fees on loans ........................... $4,001,808 $3,299,903
Interest and dividends on investment securities:
U.S. Treasury securities .......................... 422,812 520,598
Obligations of state and political subdivisions ... 189,424 173,628
Interest on federal funds sold ....................... 65,500 51,951
Total interest income ............................. 4,679,544 4,046,080
Interest expense:
Interest on deposits ................................. 1,756,357 1,480,396
Other interest expense ............................... 666 0
Total interest expense ............................ 1,757,023 1,480,396
Net interest income ............................... 2,922,521 2,565,684
Provision for loan losses ............................... 150,000 112,125
Net interest income after provision for loan losses 2,772,521 2,453,559
Non-interest income:
Service charges ...................................... 372,061 380,200
Gain (loss) on sale of loans ........................ 59,430 37,839
Other ................................................ 16,401 10,308
Total non-interest income ......................... 447,892 428,347
Non-interest expense:
Salaries and employee benefits ....................... 1,041,832 916,551
Net occupancy ........................................ 132,905 141,849
Equipment expense .................................... 115,333 108,242
Fees ................................................. 51,695 46,909
Printing and supplies ................................ 65,721 53,781
Michigan Single Business Tax ......................... 52,000 49,000
Other ................................................ 409,235 282,868
Total non-interest expense ........................ 1,868,721 1,599,200
Income before federal income taxes ...................... 1,351,692 1,282,706
Federal income taxes .................................... 405,000 384,500
Net income ........................................ $ 946,692 $ 898,206
Per share statistics*
Net income ........................................... $.60 $.57
Dividends ............................................ $.18 $.15
Book Value ........................................... $14.22 $13.80
*Based on 1,575,000 shares outstanding March 31, 1998 and 1997 respectively
</TABLE>
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income 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 cents 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
<TABLE>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income Total
<S> <C> <C> <C> <C>
Balances at December 31, 1997 $5,250,000 16,467,201 14,824 21,732,025
Net income 946,692 946,692
Change in unrealized gain on debt securities
available for sale, net of tax effect (2,846) (2,846)
Cash dividends (18 cents per share) (283,500) (283,500)
Balances at March 31, 1998 $5,250,000 17,130,393 11,978 22,392,371
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
Three months ended March 31
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................. $ 946,692 $ 898,206
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses ........................................... 150,000 112,125
Depreciation and amortization ....................................... 110,767 102,191
Net amortization on investment securities ........................... 6,144 9,425
Loss on disposal of equipment ....................................... 725 0
Gain on sale of loans ............................................... (59,430) (37,839)
Proceeds from sale of loans ......................................... 3,160,461 3,222,628
Origination of loans held for sale .................................. (3,727,477) (3,262,950)
Increase in accrued interest income and other assets ................ (468,503) (75,314)
Increase (decrease) in accrued interest, taxes, and other liabilities (227,677) 124,687
Net cash provided by (used in) operating activities .............. (108,298) 1,093,159
Cash flows from investing activities:
Purchases of available for sale securities ............................. (2,006,021) (995,781)
Proceeds from maturities and calls of available for sale securities ... 2,000,000 3,000,000
Proceeds from mortgage-backed securities paydowns-available for sale ... 0 2,872
Purchases of held to maturity securities ............................... (1,612,814) (3,953,769)
Proceeds from maturities and calls of held to maturity securities ...... 2,000,000 0
Proceeds from mortgage-backed securities paydowns-held to maturity ..... 62,589 184,140
Net increase in loans .................................................. (8,003,450) (5,404,310)
Capital expenditures ................................................... (873,292) (75,833)
Net cash used in investing activities ............................ (8,432,988) (7,242,681)
Cash flows from financing activities:
Net increase in deposits ............................................... 2,622,864 2,984,296
Dividends paid ......................................................... (283,500) (236,250)
Net cash provided by financing activities ........................ 2,339,364 2,748,046
Net decrease in cash and cash equivalents ................................ (6,201,922) (3,401,476)
Cash and cash equivalents at beginning of year ............................ 18,738,564 13,569,216
Cash and cash equivalents at end of period ................................ $ 12,536,642 $ 10,167,740
Supplemental disclosures:
Interest paid .......................................................... $ 1,742,381 $ 1,480,372
Loans transferred to other real estate ................................. 335,713 --
Loans charged off ...................................................... 15,926 84,360
</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, 1998, and
consolidated results of operations for the three months ended March 31, 1998 and
1997 and consolidated cash flows for the three months ended March 31, 1998 and
1997.
2. The results of operations for the three months ended March 31, 1998 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 1997
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 $881,000 at March 31, 1998 and $1,058,000
at December 31, 1997. (See Management's Discussion and Analysis of financial
condition and results of operations).
<PAGE>
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Interim Financial Statements
FNBH Bancorp, Inc. (the Company), a Michigan business corporation, is a one bank
holding company, which owns all of the outstanding capital stock of First
National Bank in Howell (the Bank) and all of the outstanding stock of HB Realty
Co., a subsidiary which owns real estate. The following is a discussion of the
Company's results of operations for the three months ended March 31, 1998 and
1997, 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) 1998 1997
---- ----
<S> <C> <C>
Net income $ 947 $ 898
Net Income per Share 60 cents 57 cents
</TABLE>
Net income of $947,000 for the three months ended March 31, 1998 increased 5%
from the amount reported for the same period of the prior year. Contributing to
the improvement in earnings was an increase of $357,000 (14%) in net interest
income. This increase is the result of the Bank's growth in commercial loans as
well as an increase in the Bank's interest margin of 12 basis points.
Additionally, non-interest income increased approximately $20,000 in the first
quarter of 1998 compared to the same period last year. The increase in income
would have been greater if non-interest expense had not increased $270,000
(17%).
<TABLE>
Net Interest Income First Quarter
(in thousands) 1998 1997
<S> <C> <C>
Interest Income $4,680 $4,046
Interest Expense 1,757 1,480
Net Interest Income $ 2,923 $2,566
</TABLE>
The Company's 1998 first quarter net interest income increased $357,000. The
following table illustrates some of the factors contributing to the increase in
net interest income for the first quarter.
<PAGE>
TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
March 31, 1998 and 1997
<TABLE>
---------------First Quarter Averages----------------
1998 1997
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Fed funds sold $ 4,827 $ 65.5 5.43% $ 3,988 $ 51.9 5.21%
Securities: Taxable 28,599 422.8 6.03 35,043 520.7 5.94%
Tax-exempt(1) 14,600 262.7 7.20% 13,005 242.9 7.47%
Loans(2)(3) 163,176 4,006.1 9.84% 137,484 3,304.8 9.64%
Total earning assets/total
interest income 211,202 $4,757.1 9.04% 189,520 $4,120.3 8.71%
Cash & due from banks 8,333 7,071
All other assets 9,418 8,451
Allowance for loan loss (3,500) (3,366)
Total assets $225,453 $201,676
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $ 86,399 $ 636.4 2.99% $ 82,114 $ 554.7 2.74%
Time 78,277 1,119.9 5.80% 67,090 925.7 5.60%
Fed funds purchased 45 .7 0 0 -
Total interest bearing
liabilities/total interest expense 164,721 $ 1,757.0 4.33% 149,204 $1,480.4 4.02%
Non-interest bearing deposits 36,618 30,932
All other liabilities 1,955 1,611
Shareholders' Equity 22,159 19,929
Total liabilities and
shareholders' equity $225,453 $201,676
Interest spread 4.71% 4.69%
Net interest income-FTE $ 3,000.1 $2,639.9
Net interest margin 5.66% 5.54%
</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 $153,000 in 1998
and $75,000 in 1997.
Interest Earning Assets/Interest Income
On a tax equivalent basis, interest income increased approximately $637,000 in
the first quarter of 1998 compared to that of 1997. Income from the sale of Fed
Funds increased nearly $14,000 both because average balances were $839,000
higher than the prior year and because yields increased 22 basis points.
<PAGE>
In the first quarter, income on taxable securities decreased approximately
$98,000 because the average balance decreased $6,400,000 although the rate
earned increased 9 basis points. Income from tax-exempt securities increased
$20,000 even though the yield fell 27 basis points because the average balance
increased approximately $1,600,000.
For the first quarter of this year, tax equivalent loan interest was $701,000
higher than the same period in 1997 due to an increase in average balances of
nearly $26,000,000 and an increase in rates of 20 basis points. The increase in
rates was primarily due to the $78,000 increase in loan origination fees. The
growth in loans was primarily in commercial loans where average balances
increased approximately $22,000,000 (24%). Average consumer loans increased
nearly $3,000,000 (13%). A strong local economy and marketing efforts by the
Bank have contributed to loan growth in the commercial and consumer markets.
Average real estate mortgage loans increased $849,000 (4%). This moderate growth
is due to the Bank's policy of selling fixed rate mortgage loans with fifteen
year and longer maturities. The Bank sold more than $3,000,000 in mortgage loans
during the first quarter of 1998.
Interest Bearing Liabilities/Interest Expense
In the first quarter of 1998, interest expense increased approximately $277,000
due to an increase in average balances of approximately $15,500,000 and an
increase in rates of 21 basis points. Savings and NOW interest expense increased
$82,000 because average balances increased $4,200,000 and rates increased 25
basis points. Interest on time deposits increased $194,000 in 1998 over the
prior year. Balances increased $11,000,000 and the rate paid on time deposits
increased 20 basis points in the first quarter of 1998 from that of 1997. 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. The
Bank's average liquidity ratio was 22.3% in 1997 and averaged 19.4% for the
first three months of 1998.
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 approximately $16,000,000 at March 31, 1998 compared to $15,000,000 at
December 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. During the first three
months of the year, the Fed Funds Sold balances averaged approximately
$5,000,000 and the Fed Funds Purchased balance average $45,000. The Bank's
policy requires all purchases of Fed Funds to be approved by senior management
so that liquidity needs are known. The Bank has recently purchased stock in the
Federal Home Loan Bank of Indianapolis where it has a line of credit available
which offers increased liquidity to the Bank. The line available currently is
$13,000,000 and the Bank has pledged certain mortgage loans and investment
securities as collateral for this borrowing. In addition, management may look to
"available for sale" securities in the investment portfolio to meet additional
liquidity needs.
<PAGE>
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.
Interest Rate Sensitivity
<TABLE>
(dollars in thousands) 0-3 4-12 1-5 5+
Months Months Years Years Total
Assets:
<S> <C> <C> <C> <C> <C>
Loans................................... $63,900 $33,366 $61,905 $ 6,774 $165,945
Securities.............................. 7,290 17,401 7,192 11,387 43,270
Fed funds............................... 1,900 1,900
Other assets............................ ______ ______ ______ 18,253 18,253
Total assets......................... $73,090 $50,767 $69,097 $36,414 $229,368
Liabilities & Shareholders' Equity:
Demand, Savings & NOW................... $37,471 $13,620 $45,952 $28,452 $125,495
Time.................................... 19,570 34,157 25,647 53 79,427
Other liabilities and equity............ ______ ______ ______ 24,446 24,446
Total liabilities and equity......... $57,041 $47,777 $71,599 $52,951 $229,368
Rate sensitivity gap and ratios:
Gap for period.......................... $16,049 $2,990 $(2,502) $(16,537)
Cumulative gap.......................... 16,049 19,039 16,537
Cumulative rate sensitive ratio............ 1.28 1.18 1.09 1.00
Dec. 31, 1997 rate sensitive ratio......... 1.27 1.16 1.09 1.00
</TABLE>
Given the asset sensitive position of the Bank at March 31, 1998, 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. As noted above, the entire balance of savings, NOW
and MMDAs is 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.
<PAGE>
<TABLE>
Provision for Loan Losses First Quarter
(in thousands) 1998 1997
<S> <C> <C>
Total $150 $112
</TABLE>
The provision for loan losses increased $38,000 in the first quarter of 1998
compared to the prior year. In March of 1998, the allowance for loan loss as a
percent of loans was 2.13%, down from 2.39% a year earlier, and 2.15% at
December 31, 1997. For the first three months of 1998, the Bank had net charge
offs of $2,000, compared with net charge offs of $60,000 last year. Non-accrual,
past due 90 days, and renegotiated loans were .53% and 1.05% of total loans
outstanding at March 31, 1998 and 1997 respectively and .67% of total loans at
December 31, 1997.
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 March 31, 1998, compared to $3,100,000 at December 31, 1997, and
included non-accrual, and past due 90 days other than homogenous residential and
consumer loans, and an additional $2,800,000 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 not be collectable on a timely basis. The majority of the
impaired balance relates to one borrower whose loan is well collateralized. Any
loss that might occur from it is not expected to have a material impact on the
Company's financial condition or results of operation.
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 $3,300,000 had specific reserves calculated in
accordance with SFAS No. 114 of $400,000 at March 31, 1998.
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,
1998 compared to December 31, 1997. Loans categorized as ninety days past due
and still accruing are well secured and in the process of collection.
<TABLE>
Nonperforming Assets Quarter Ended Year Ended
(in thousands) March 31, 1998 December 31, 1997
<S> <C> <C>
Non-accrual loans $713 $809
90 days or more past due and still accruing 168 249
Total nonperforming loans 881 1,058
Other real estate 336 0
Total nonperforming assets $1,217 $1,058
Nonperforming loans as a percent of total loans .53% .67%
Nonperforming assets as a percent of total loans .73% .67%
Nonperforming loans as a percent of the loan loss reserve 25% 31%
</TABLE>
<PAGE>
The following table sets forth loan balances and summarizes the changes in the
allowance for loan losses for the first three months of 1998 and 1997.
<TABLE>
Year to date Year to date
Loans: March 31, 1998 March 31, 1997
(dollars in thousands)
<S> <C> <C>
Average daily balance of loans for the year to date 163,176 137,484
Amount of loans, net of unearned income,
outstanding at the end of the quarter ............. 167,026 141,490
Allowance for loan losses:
Balance at beginning of year ...................... 3,424 3,335
Loans charged off:
Real Estate Mortgage ........................... 0 0
Commercial ..................................... 11 39
Consumer ....................................... 5 45
Total charge-offs ........................... 16 84
Recoveries of loans previously charged off:
Real Estate Mortgage ........................... 0 1
Commercial ..................................... 6 13
Consumer ....................................... 8 10
Total recoveries ............................ 14 24
Net loans charged off ................................ 2 60
Additions to allowance charged to operations ......... 150 112
Balance at end of quarter ................... $ 3,572 $ 3,387
Ratios:
Net loans charged off (annualized) to average
loans outstanding .................................. .01% .17%
Allowance for loan losses to loans outstanding ..... 2.13% 2.39%
</TABLE>
Nonperforming loans have decreased in 1998 compared to the prior year, although
non-performing assets have increased due to the foreclosure of a piece of
commercial real estate. Management is pursuing sale of this property. 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.
<TABLE>
Non-interest Income First Quarter
(in thousands) 1998 1997
<S> <C> <C>
Total $448 $428
</TABLE>
<PAGE>
Non-interest income, which includes service charges on deposit accounts, loan
fees, other operating income, and gain(loss) on sale of assets, increased by
nearly $20,000 (5%) in the first quarter of 1998 compared to the same period in
the previous year. Service charge income declined slightly. Gains from loan
sales increased more than $20,000 (57%). The volume of loans sold was nearly
identical but the rate of return was better in the low interest rate environment
of this year.
<TABLE>
Non-interest Expense First Quarter
(in thousands) 1998 1997
<S> <C> <C>
Total $1,869 $1,599
</TABLE>
Non-interest expense increased $270,000 (17%) in the first quarter of 1998
compared to the same period last year. Contributing to this increase were
increases of $125,000 (14%) in salaries and benefits, and an approximately
$142,000 increase in other expense. There was a slight decrease in occupancy
expense and a slight increase in equipment expense which offset each other. Both
building and equipment expenses are expected to increase as the year progresses.
Building cost will increase as a new branch is constructed in Brighton.
Equipment cost will escalate as the Bank's core computer system is changed and
an extensive local and wide area network is engineered. Salaries increased due
to normal salary increases and because the Bank added a Trust Department. In
other expense, advertising expense is $35,000 higher than last year due to costs
related to producing television ads. Computer service fees increased $30,000
over last year due to costs related to implementing a new computer system.
<TABLE>
Income Tax Expense First Quarter
(in thousands) 1998 1997
<S> <C> <C>
Total $405 $385
</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, 1998 December 31, 1997
<S> <C> <C>
Shareholders' Equity* $22,380 $21,717
Ratio of Equity to Total Assets 9.76% 9.60%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to $12,000 at March 31, 1998
and $15,000 at December 31, 1997.
<PAGE>
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 $663,000 (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 $283,500.
The Federal Reserve Board provides guidelines for the measurement of capital
adequacy. The Bank's capital, as adjusted under these guidelines, is referred to
as risk-based capital. The Bank's Tier 1 risk-based capital ratio at March 31,
1998 was 12.73%, and total risk-based capital was 13.98%. At March 31, 1997
these ratios were 14.95% and 16.20% 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 Bank's leverage ratio
was 9.18% at March 31, 1998 and 10.01% in 1997. 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 first quarter, the Company has spent approximately $800,000 on hardware
and software and will likely spend an additional $500,000 on various technology
needs as the year progresses. In addition, the Bank is requesting regulatory
approval to establish a new branch in the northwest part of Brighton. Included
in other assets is approximately $1,000,000 paid for an option to purchase a
tract of land in northwest Brighton. In June the Company is expected to exercise
the option to purchase 18 acres of land on which the facility will be built.
Exercise of the option will cost the Company $3,000,000. The Company currently
has listed for sale a substantial portion of the acreage. These projects will be
financed from internally generated funds.
Year 2000 issues are an important focus of management's attention. 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. Software
that is Year 2000 sensitive has been identified. Testing is ongoing and will
continue into the second and third quarter of this year. Other than the
technology investments mentioned above, management does not believe that
compliance with Year 2000 will have a material effect on the Company's financial
condition. The Bank has analyzed significant vendors and customers Year 2000
readiness and has determined that any failures they may have will not have a
material effect on the Company.
Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130 Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components, including but not limited to unrealized gains or
losses on securities available for sale, in the financial statements. This
statement was effective for both interim and annual periods beginning after
December 15, 1997 with earlier application permitted. SFAS 130 requires
reclassification of all prior period amounts.
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 establishes standards for the way that public entities report
information about operating segments in financial statements. This statement is
effective for annual reporting for 1998 calendar year entities. Although this
statement applies to interim financial statements, interim reporting is not
required in the initial year of application.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132). SFAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. SFAS 132 standardizes the disclosure requirements
for pensions and other postretirement benefits, requires additional information
on changes in the benefit obligations and fair values of plan assets, and
eliminates certain disclosures. This Statement is effective for fiscal years
beginning after December 15, 1997, with earlier adoption encouraged. Restatement
of disclosures for earlier periods provided for comparative purposes is
required.
<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 1998.
<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 March 31, 1998 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
Secretary/Treasurer
DATE: May 8, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,637,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 43,270,000
<INVESTMENTS-MARKET> 43,849,000
<LOANS> 167,026,000
<ALLOWANCE> 3,572,000
<TOTAL-ASSETS> 229,368,000
<DEPOSITS> 204,922,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,054,000
<LONG-TERM> 0
0
0
<COMMON> 5,250,000
<OTHER-SE> 17,130,000
<TOTAL-LIABILITIES-AND-EQUITY> 229,368,000
<INTEREST-LOAN> 4,002,000
<INTEREST-INVEST> 612,000
<INTEREST-OTHER> 66,000
<INTEREST-TOTAL> 4,680,000
<INTEREST-DEPOSIT> 1,756,000
<INTEREST-EXPENSE> 1
<INTEREST-INCOME-NET> 2,923,000
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,869,000
<INCOME-PRETAX> 1,352,000
<INCOME-PRE-EXTRAORDINARY> 1,352,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 947,000
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
<YIELD-ACTUAL> 5.66
<LOANS-NON> 713,000
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</TABLE>
