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, 2000
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: 1,565,203 shares of the Company's Common
Stock (no par value) were outstanding as of March 31, 2000.
1
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Interim Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and Dec. 31, 1999.........4
Consolidated Statements of Income, three months ended
March 31, 2000 and 1999....................................................5
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for three months ended March 31, 2000 and 1999......................6
Consolidated Statements of Cash Flows for three months ended
March 31, 2000 and 1999....................................................7
Notes to Interim Consolidated Financial Statements.........................8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................9
Item 3
Quantitative and Qualitative Disclosures about Market Risk................17
Part II. Other Information
Item 6....................................................................18
Signatures................................................................18
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited interim consolidated financial statements follow.
3
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Balance Sheets March 31 December 31
- --------------------------- 2000 1999
Unaudited ---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 11,626,904 $ 12,113,652
Short term investments 111,100 12,300,630
------- ----------
Total cash and cash equivalents 11,738,004 24,414,282
Investment securities held to maturity, net (fair value of $18,081,000
at March 31, 2000 and $17,650,000 at Dec. 31, 1999) 18,248,921 17,709,401
Investment securities available for sale, at fair value 32,708,778 32,554,004
Mortgage-backed securities held to maturity, net (fair value of
$269,000 at March 31, 2000 and $330,000 at Dec. 31, 1999) 274,251 334,451
------- -------
Total investment securities 51,231,950 50,597,856
Loans:
Commercial 173,541,541 163,469,045
Consumer 26,829,263 24,826,156
Real estate mortgages 23,126,798 22,360,282
---------- ----------
Total loans 223,497,602 210,655,483
Less unearned income 703,117 703,849
Less allowance for loan losses 4,758,655 4,483,283
--------- ---------
Net loans 218,035,830 205,468,351
Bank premises and equipment - net 8,831,676 9,009,661
Land available for sale, net 2,835,290 2,835,290
Accrued interest and other assets 4,649,690 4,093,780
--------- ---------
Total assets $297,322,440 $296,419,220
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing demand $ 49,922,722 $ 47,980,695
NOW 26,340,210 34,645,921
Savings and money market 89,338,786 89,862,739
Time 98,464,636 96,701,098
---------- ----------
Total deposits 264,066,354 269,190,453
Short term borrowing 1,815,000 0
Notes payable 3,000,000 0
Accrued interest, taxes, and other liabilities 2,397,680 1,917,121
--------- ---------
Total liabilities 271,279,034 271,107,574
Stockholders' Equity
Common stock, no par value. Authorized 4,200,000 shares; 1,565,203
shares issued and outstanding at March 31, 2000 and December 31, 1999 4,919,280 4,919,280
Retained earnings 21,439,969 20,723,357
Unearned management retention plan (127,585) (139,597)
Accumulated other comprehensive income, net (188,258) (191,394)
--------- ---------
Total stockholders' equity 26,043,406 25,311,646
Total liabilities and stockholders' equity $297,322,440 $296,419,220
============ ============
</TABLE>
See notes to interim consolidated financial statements
4
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Income
- --------------------------------- Three months ended March 31
Unaudited 2000 1999
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 5,106,939 $ 4,332,872
Interest and dividends on investment securities:
U.S. Treasury and agency securities 455,319 327,917
Obligations of state and political subdivisions 220,787 207,743
Other securities 15,868 13,084
Interest on short term investments 54,802 204,811
------ -------
Total interest income 5,853,715 5,086,427
--------- ---------
Interest expense:
Interest on deposits 2,204,064 1,936,750
Other interest expense 46,192 701
------ ---
Total interest expense 2,250,256 1,937,451
--------- ---------
Net interest income 3,603,459 3,148,976
Provision for loan losses 300,000 210,000
------- -------
Net interest income after provision for loan losses 3,303,459 2,938,976
--------- ---------
Non-interest income:
Service charges 451,772 267,338
Gain on sale of loans 16,243 59,479
Trust fees 44,295 34,287
Other 4,347 (4,874)
----- -----
Total non-interest income 516,657 356,230
------- -------
Non-interest expense:
Salaries and employee benefits 1,348,627 1,159,442
Net occupancy 189,810 166,053
Equipment expense 232,499 115,079
Fees 62,963 148,105
Printing and supplies 62,224 63,600
Michigan Single Business Tax 60,200 51,600
Other 423,341 447,150
------- -------
Total non-interest expense 2,379,664 2,151,029
--------- ---------
Income before federal income taxes 1,440,452 1,144,177
Federal income taxes 410,800 317,000
------- -------
Net income $ 1,029,652 $ 827,177
============ ===========
Per share statistics*
Basic EPS $ .66 $ .53
Diluted EPS $ .66 $ .53
Dividends $ .20 $ .20
</TABLE>
*Based on 1,565,203 average shares outstanding during the period ended March 31,
2000 and 1,562,768 average shares outstanding during the period ended March 31,
1999
See notes to interim consolidated financial statements
5
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
Unearned Accumulated Other
Management Comprehensive
Common Retained Retention Income (loss)
Stock Earnings Plan Total
----- -------- ---- ------------- -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $4,821,775 18,728,787 (66,220) 12,191 23,496,533
Net income 827,177 827,177
Change in unrealized gain (loss) on debt securities
available for sale, net of tax effect (58,995) (58,995)
--------
Total comprehensive income 768,182
Cash dividends (20(cent)per share) (312,552) (312,552)
---------- --------- ------ ------ ---------
Balances at March 31, 1999 $4,821,775 19,243,412 (66,220) (46,804) 23,952,163
========== ========== ====== ====== ==========
See notes to interim consolidated financial statements
Unearned Accumulated
Management Other
Common Retained Retention Comprehensive
Stock Earnings Plan Income (loss) Total
----- -------- ---- ------------- -----
Balances at December 31, 1999 $4,919,280 20,723,357 (139,597) (191,394) 25,311,646
Net income 1,029,652 1,029,652
Change in unrealized gain (loss) on debt securities
available for sale, net of tax effect 3,136 3,136
-----
Total comprehensive income 1,032,788
Amortization of management retention plan 12,012 12,012
Cash dividends (20(cent)per share) (313,040) (313,040)
---------- ------- ------ ------- -------
Balances at March 31, 2000 $4,919,280 21,439,969 (127,585) (188,258) 26,043,406
========== ========== ======= ======= ==========
</TABLE>
See notes to interim consolidated financial statements
6
<PAGE>
FNBH BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
- -------------------------------------
Unaudited Three months ended March 31
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,029,652 $ 827,177
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 300,000 210,000
Depreciation and amortization 232,905 127,371
Net amortization on investment securities 18,011 20,284
Earned portion of management retention plan 12,012 0
Loss on disposal of equipment 0 18,359
Gain on sale of loans (16,243) (59,479)
Proceeds from sale of loans 1,742,099 3,916,581
Origination of loans held for sale (2,177,816) (4,787,150)
Increase in accrued interest income and other assets (555,910) (491,642)
Increase in accrued interest, taxes, and other liabilities 479,059 533,059
------- -------
Net cash provided by operating activities 1,063,769 314,560
--------- -------
Cash flows from investing activities:
Purchases of available for sale securities (4,981,923) (11,016,013)
Proceeds from maturities and calls of available for sale securities 5,000,000 1,000,000
Purchases of held to maturity securities (725,571) (710,071)
Proceeds from maturities and calls of held to maturity securities 0 3,075,000
Proceeds from mortgage-backed securities paydowns-held to maturity 60,025 179,151
Net increase in loans (12,415,519) (7,029,092)
Capital expenditures (54,920) (459,541)
-------- ---------
Net cash used in investing activities (13,117,908) (14,960,566)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits (5,124,099) 6,728,381
Net increase in borrowings 4,815,000 0
Dividends paid (313,040) (312,553)
--------- ---------
Net cash provided by (used in) financing activities (622,139) 6,415,828
--------- ---------
Net decrease in cash and cash equivalents (12,676,278) (8,230,178)
Cash and cash equivalents at beginning of year 24,414,282 31,238,662
---------- ----------
Cash and cash equivalents at end of period $11,738,004 $23,008,484
=========== ===========
Supplemental disclosures:
Interest paid $ 2,173,071 $ 1,892,247
Loans charged off 56,592 75,793
</TABLE>
See notes to interim consolidated financial statements
7
<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, 2000, and
consolidated results of operations for the three months ended March 31, 2000 and
1999 and consolidated cash flows for the three months ended March 31, 2000 and
1999.
2. The results of operations for the three months ended March 31, 2000 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 1999
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 $941,000 at March 31, 2000 and $177,000
at December 31, 1999. (See Management's Discussion and Analysis of financial
condition and results of operations).
6. Basic EPS is computed by dividing net income by the weighted average common
shares outstanding.
<TABLE>
First Quarter
2000 1999
---- ----
<S> <C> <C>
Net income 1,029,652 $827,177
Shares outstanding (basic) 1,565,203 1,562,768
Diluted shares 0 0
--------- ---------
Shares outstanding (diluted) 1,565,203 1,562,768
Earnings per share:
Basic EPS $.66 $.53
Diluted EPS $.66 $.53
</TABLE>
8
<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, 2000 and
1999, 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) 2000 1999
---- ----
<S> <C> <C>
Net income $1,030 $ 827
Net Income per Share 66(cents) 53(cents)
</TABLE>
The Company's earnings increased $203,000 (25%) for the three months ended March
31, 2000 compared to the same period of the prior year. Net income was $827,000
in 1999 and $947,000 in 1998. First quarter 1999 income was hampered by costs
related to converting to a new computer system and Year 2000 testing. In 2000
net interest income increased $455,000 as a result of growth in earning assets
the Company has experienced as well as a 21 basis point increase in the tax
equivalent interest margin. Additionally, non-interest income improved $161,000
in 2000. Non-interest expense increased $229,000 compared to the previous year.
<TABLE>
Net Interest Income First Quarter
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Interest Income $5,854 $5,086
Interest Expense 2,250 1,937
------ -----
Net Interest Income $ 3,604 $3,149
</TABLE>
The following table illustrates some of the factors contributing to the increase
in net interest income for the first quarter.
9
<PAGE>
TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
March 31, 2000 and 1999
<TABLE>
---------------First Quarter Averages----------------
2000 1999
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Short term investments $ 3,971 $ 54.8 5.46% $ 17,577 $ 204.8 4.66%
Securities: Taxable 35,960 304.8 5.26% 26,728 340.7 5.17%
Tax-exempt(1) 17,969 471.2 6.78% 16,465 288.8 7.02%
Loans(2)(3) 217,166 5,133.7 9.38% 186,250 4,283.6 9.22%
---------- -------- -------- --------
Total earning assets/total
interest income 275,066 $5,964.5 8.62% 247,020 $5,117.9 8.31%
-------- --------
Cash & due from banks 10,232 12,220
All other assets 16,529 14,364
Allowance for loan loss (4,589) (4,040)
---------- --------
Total assets $297,238 $269,564
========== ========
Liabilities and
Shareholders' Equity
Interest bearing deposits:
Savings & NOW accounts $121,957 $ 860.3 2.83% $106,485 $ 713.4 2.72%
Time 97,997 1,343.8 5.50% 91,347 1,223.4 5.43%
Fed funds purchased 739 8.6 4.63% 0 0
FHLB notes 2,076 37.6 7.15% 63 .7 4.43%
---------- -------- -------- --------
Total interest bearing
liabilities/total interest expense 222,769 $2,250.3 4.05% 197,895 $1,937.5 3.97%
-------- --------
Non-interest bearing deposits 45,572 46,444
All other liabilities 2,758 2,087
Shareholders' Equity 26,139 23,138
---------- --------
Total liabilities and
shareholders' equity $297,238 $269,564
========== ========
Interest spread 4.57% 4.34%
===== =====
Net interest income-FTE $ 3,714.2 $ 3,180.4
========= =========
Net interest margin 5.34% 5.13%
===== =====
</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 included
in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $148,000 in 2000
and $129,000 in 1999.
Interest Earning Assets/Interest Income
On a tax equivalent basis, interest income increased approximately $847,000 in
the first quarter of 2000 compared to that of 1999. The increase was due to both
growth in the Bank's earning assets and an increase of 31 basis points in the
rate earned on these assets.
10
<PAGE>
The first quarter average balance in loans increased 17% to $217,000,000. The
rate earned on loans increased 16 basis points primarily due to increases in the
Bank's prime lending rate. The growth in the loan portfolio was primarily in
commercial loans which increased 21% on average. Average consumer loans
increased 9% while mortgage loans declined 6%. The Bank's resources in the loan
department are primarily deployed making commercial loans. Contributing to the
lack of growth in the mortgage portfolio is the Bank's policy of selling fixed
rate mortgage loans. During the first quarter, the Bank sold nearly $1,000,000
mortgage loans to the secondary market.
In the first quarter, tax equivalent income on short and long term investments
decreased slightly because the average balance decreased $2,870,000 although the
rate earned increased 22 basis points. Deposits are down approximately
$5,000,000 from year end and loan demand has been strong, resulting in a decline
in short term investments. In 1999 the Company stayed more liquid anticipating
some first quarter deposit run off which did not materialize. The increase in
yield on investments is the result of fewer dollars in short term investments
which have a lower yield and because of a general increase in rates which has
enabled the Company to reinvest maturing government bonds at improved yields.
Interest Bearing Liabilities/Interest Expense
In the first quarter of 2000, interest expense increased approximately $313,000
due to an increase in average balances of approximately $25,000,000 and an
increase in rates of 8 basis points. Savings and NOW interest expense increased
$147,000 because average balances increased $15,000,000 (15%) and rates
increased 11 basis points. Interest on time deposits increased $120,000 in 2000
over the prior year. Balances increased $7,000,000 (7%) and the rate paid on
time deposits increased 7 basis points in the first quarter of 2000 compared to
that of 1999. The deposit growth, compared to the first quarter of 1999, 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 targets a 15% liquidity ratio. As of March
31, the Bank's liquidity ratio was 16.55%.
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 $21,500,000 at March 31, 2000 compared to $22,400,000 at
December 31, 1999, 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 Sold balance
11
<PAGE>
sufficient to cover required cash draws. From time to time the Bank will borrow
Fed Funds from a correspondent bank. In addition, the Bank has a $13,000,000
line available at the FHLB 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.
In addition to liquidity issues, ALCO discusses the Bank's performance and 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.
Interest rate risk is also addressed by ALCO. Interest rate risk is the
potential for economic losses due to future rate changes and can be reflected as
a loss of future net interest income and/or loss of current market values. The
objective is to measure the effect on net interest income and to adjust the
balance sheet to minimize the inherent risk while, at the same time, maximizing
income. Tools used by management include the standard GAP report which lays out
the repricing schedule for various asse and liability categories and an interest
rate shock simulation report. The Bank has no market risk sensitive instruments
held for trading purposes. The Bank does not enter into futures, forwards,
swaps, or options to manage interest rate risk. However, the Bank is party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers including commitments to
extend credit and letters of credit. A commitment or letter of credit is not
recorded as an asset until the instrument is exercised.
<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.............................. $70,029 $32,289 $108,705 $12,475 $223,498
Securities......................... 7,564 16,937 15,378 11,353 51,232
Short term investments............. 111 111
Other assets....................... 22,481 22,481
------- ------- -------- ------ ------
Total assets.................... $77,704 $49,226 $124,083 $46,309 $297,322
Liabilities & Shareholders' Equity:
Demand, Savings & NOW.............. $53,532 $16,489 $63,127 $32,454 $165,602
Time............................... 18,958 65,822 13,174 511 98,465
Other borrowings 1,815 3,000 4,815
Other liabilities and equity....... ______ ______ ______ 28,440 28,440
------ ------
Total liabilities and equity.... $74,306 $82,311 $76,301 $64,405 $297,322
Rate sensitivity gap and ratios:
Gap for period..................... $3,398 ($33,085) $47,782 $(18,096)
Cumulative gap..................... 3,398 (29,687) 18,096
Cumulative rate sensitive ratio....... 1.05 .81 1.08 1.00
Dec. 31, 1999 rate sensitive ratio.... 1.06 .94 1.08 1.00
</TABLE>
12
<PAGE>
Given the liability sensitive position of the Bank at March 31, 2000, if
interest rates increase 200 basis points and management did not respond,
management estimates that annualized net interest income would decrease
approximately $300,000, while a similar decrease 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.
<TABLE>
Provision for Loan Losses First Quarter
- ------------------------- 2000 1999
(in thousands) ---- ----
<S> <C> <C>
Total $300 $210
==== ====
</TABLE>
The provision for loan losses increased $90,000 in the first quarter of 2000
compared to the prior year. The increase was deemed appropriate principally due
to the large increase in commercial loans, a greater amount of large loans, and
an increase in new borrower relationships. As these factors could increase risk
in the loan portfolio, management determined that an increase in the provision
was prudent. In March of 2000, the allowance for loan loss as a percent of loans
was 2.14%, consistent with 2.13% a year earlier, and 2.13% at December 31, 1999.
For the first three months of 2000, the Bank had net charge offs of $24,000,
compared with net charge offs of $54,000 last year. Non-accrual, past due 90
days, and renegotiated loans totaled .42% and 1.35% of total loans outstanding
at March 31, 2000 and 1999 respectively and .08% of total loans at December 31,
1999.
Impaired loans, as defined by Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, totaled approximately
$4,700,000 at March 31, 2000, compared to $3,400,000 at December 31, 1999, and
included non-accrual, and past due 90 days other than homogenous residential and
consumer loans, and an additional $3,900,000 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. One of the loans, for
$2,400,000, is current and making regular payments, however the cash generated
solely by the business is currently not adequate to cover debt service.
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. Impaired loans
had specific reserves calculated in accordance with SFAS No. 114 of $1,200,000
at March 31, 2000.
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
13
<PAGE>
acquired primarily through foreclosure and is waiting disposition. The following
table describes nonperforming assets at March 31, 2000 compared to December 31,
1999. 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. 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, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Non-accrual loans $ 941 $ 173
90 days or more past due and still accruing 0 4
-------- -------
Total nonperforming loans 941 177
Other real estate 0 0
-------- -------
Total nonperforming assets $ 941 $ 177
Nonperforming loans as a percent of total loans .42% .08%
Nonperforming assets as a percent of total loans .42% .08%
Loan loss reserve as a percent of nonperforming loans 506% 2533%
</TABLE>
14
<PAGE>
The following table sets forth loan balances and summarizes the changes in the
allowance for loan losses for the first three months of 2000 and 1999.
<TABLE>
Year to date Year to date
Loans: March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
(dollars in thousands)
Average daily balance of loans for the year to date 217,011 187,697
Amount of loans, net of unearned income,
outstanding at the end of the quarter 222,794 192,924
Allowance for loan losses:
Balance at beginning of year 4,483 3,958
Loans charged off:
Real Estate Mortgage 0 0
Commercial 32 41
Consumer 24 35
-- --
Total charge-offs 56 76
Recoveries of loans previously charged off:
Real Estate Mortgage 0 0
Commercial 17 2
Consumer 15 20
-- --
Total recoveries 32 22
Net loans charged off 24 54
Additions to allowance charged to operations 300 210
--- ---
Balance at end of quarter $4,759 $4,114
Ratios:
Net loans charged off (annualized) to average
loans outstanding .04% .12%
Allowance for loan losses to loans outstanding 2.14% 2.13%
</TABLE>
<TABLE>
Non-interest Income First Quarter
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Total $517 $356
==== ====
</TABLE>
Non-interest income, which includes service charges on deposit and loan
accounts, trust fees, other operating income, and gain (loss) on sale of assets,
increased by approximately $161,000 (45%) in the first quarter of 2000 compared
to the same period in the previous year. In 1998 first quarter non-interest
income was $448,000. The increase in non-interest income was primarily due to a
$185,000 increase in service charge income. In the first quarter of 1999 service
charge income was uncharacteristicall low due to computer conversion related
problems. Conversion issues have been resolved and first quarter 2000 service
charge income has returned to normalized levels.
15
<PAGE>
<TABLE>
Non-interest Expense First Quarter
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Total $2,380 $2,151
====== ======
</TABLE>
Non-interest expense increased $229,000 (11%) in the first quarter of 2000
compared to the same period last year. Contributing to this increase were
increases of $189,000 (16%) in salaries and benefits, $24,000 (17%) in occupancy
expense, and $117,000 (100%) in equipment expense. There was an $88,000 (10%)
increase in salary expense due to normal increases, adjustments made to wage
bands in February 1999, and staffing of a new branch in Brighton. Benefits
increased $101,000 (35%) due to increases in th cost of health insurance and
profit sharing accruals. Occupancy expense increased due to costs related to the
new branch office. Equipment expense increased due to the increased cost of
depreciation on equipment purchased. Equipment purchases were necessary both for
the new branch and to improve efficiency.
<TABLE>
Income Tax Expense First Quarter
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Total $411 $317
==== ====
</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, 2000 December 31, 1999
- ------- ------------------ -----------------
<S> <C> <C>
Shareholders' Equity* $26,232 $25,503
Ratio of Equity to Total Assets 8.82% 8.60%
</TABLE>
*Amounts exclude securities valuation adjustments recorded under Statement of
Financial Accounting Standards No. 115 amounting to ($188,000) at March 31, 2000
and ($191,000) at December 31, 1999.
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 $729,000 (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 $313,000.
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.
16
<PAGE>
The Bank's Tier 1 risk-based capital ratio at March 31, 2000 was 9.84%, and
total risk-based capital was 11.08%. At March 31, 1999 these ratios were 9.11%
and 10.36% 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 7.78% at March 31, 2000 and 7.24% in 1999. 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 1998 the Company exercised an option to purchase an 18 acre tract of land in
northwest Brighton primarily to acquire a prime site for a new branch. The cost
of the property was approximately $4,000,000. In 1999 a new branch of the Bank
was built on land valued at approximately $800,000. The Company currently is
attempting to sell the remaining acreage which is not needed for the branch.
Improvements needed to enhance the salability of the property are not expected
to exceed $200,000.
The Company also owns two other branch sites, one in Howell which cost
approximately $250,000 and one in Hamburg which cost approximately $330,000.
Building of these branches is expected to be financed from internally generated
funds. The Company does not expect to develop the land this year.
Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).
SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires recognition of all derivatives
as either assets or liabilities in the statement of financial condition and
measurement of those instruments at fair value. The accounting for gains and
losses on derivatives depends on the intended us of the derivative. This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999, with earlier application encouraged. Retroactive application is
not permitted. SFAS 133 is not expected to have a significant impact on the
financial condition or operations of the Corporation.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB no.
133. Statement 137 extends the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk There has
been no material change in the market risk faced by the Company since December
31, 1999 other than previously discussed.
17
<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 2000.
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, 2000 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 11, 2000
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,627,000
<INT-BEARING-DEPOSITS> 111,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,709,000
<INVESTMENTS-CARRYING> 18,523,000
<INVESTMENTS-MARKET> 18,350,000
<LOANS> 222,794,000
<ALLOWANCE> 4,759,000
<TOTAL-ASSETS> 297,322,000
<DEPOSITS> 264,066,000
<SHORT-TERM> 1,815,000
<LIABILITIES-OTHER> 2,398,000
<LONG-TERM> 3,000,000
0
0
<COMMON> 4,919,000
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<INTEREST-INCOME-NET> 3,603,000
<LOAN-LOSSES> 300,000
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<EXPENSE-OTHER> 2,380,000
<INCOME-PRETAX> 1,440,000
<INCOME-PRE-EXTRAORDINARY> 1,440,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,030,000
<EPS-BASIC> .66
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<YIELD-ACTUAL> 5.34
<LOANS-NON> 941,000
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</TABLE>
