[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 (State or other jurisdiction of incorporation or organization) |
38-2869722 (I.R.S. Employer 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. YesX_No___
The number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 3,156,546 shares of the Company’s Common Stock (no par value) were outstanding as of August 13, 2002.
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| Part I. | Financial Information (unaudited): |
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Item 1. Interim Financial Statements: Consolidated Balance Sheets as of June 30, 2002 and Dec. 31, 2001....................................... Consolidated Statements of Income, three months ended June 30, 2002 and 2001, and six months ended June 30, 2002 and 2001................................. Consolidated Statement of Stockholders' Equity and Comprehensive Income for three months ended June 30, 2002 and 2001.......................................................... Consolidated Statement of Stockholders' Equity and Comprehensive Income for six months ended June 30, 2002 and 2001.............................................................. Consolidated Statements of Cash Flows for six months ended June 30, 2002 and 2001............................................................................................................ Notes to Interim Consolidated Financial Statements................................................................ |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... |
10 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................... |
23 |
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| Part II. | Other Information |
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Item 4........................................................................................................................................ |
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Item 6........................................................................................................................................ |
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Signatures................................................................................................................................... |
25 | ||
2
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Unaudited interim consolidated financial statements follow.
3
Consolidated Balance Sheets (unaudited) June 30 December 31
2002 2001
Assets ---- ----
Cash and due from banks $17,203,037 $ 18,335,732
Short term investments 48,818 16,307,263
------ ----------
Total cash and cash equivalents 17,251,855 34,642,995
Certificates of deposit 5,626,000 5,917,000
Investment securities held to maturity, net (fair value of $17,720,000
at June 30, 2002 and $18,581,000 at Dec. 31, 2001) 16,808,013 17,978,980
Investment securities available for sale, at fair value 21,516,054 25,249,139
Mortgage-backed securities held to maturity, net (fair value of
$46,000 at June 30, 2002 and $78,000 at Dec. 31, 2001) 45,729 78,063
Mortgage-backed securities available for sale, at fair value 13,386,678 12,682,581
---------- ----------
Total investment securities 51,756,474 55,988,763
Loans:
Commercial 250,456,689 227,228,805
Consumer 32,559,905 32,346,942
Real estate mortgages 30,432,409 27,548,873
---------- ----------
Total loans 313,449,003 287,124,620
Less unearned income 927,462 845,014
Less allowance for loan losses 5,170,350 5,667,906
--------- ---------
Net loans 307,351,191 280,611,700
Premises and equipment - net 9,916,611 9,106,648
Land available for sale - net 1,530,290 1,530,290
Accrued interest and other assets 6,349,683 5,181,098
--------- ---------
Total assets $399,782,104 $392,978,494
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing demand $ 67,072,048 $ 62,938,059
NOW 37,600,567 39,566,687
Savings and money market 110,107,454 114,919,743
Time 125,955,509 134,244,261
Brokered CDs 4,037,000 0
--------- -----------
Total deposits 344,772,578 351,668,750
Short term borrowings 11,400,000 0
FHLB Advances 5,569,255 5,792,911
Accrued interest, taxes, and other liabilities 2,982,731 3,113,030
--------- ---------
Total liabilities 364,724,564 360,574,691
Stockholders' Equity
Common stock, no par value. Authorized 4,200,000 shares; 3,156,312
shares issued and outstanding at June 30, 2002 and 3,146,750 shares
issued and outstanding at Dec. 31, 2001 5,435,499 5,246,770
Retained earnings 29,620,051 27,361,215
Unearned management retention plan (300,374) (231,143)
Accumulated other comprehensive income, net 302,364 26,961
------- ------
Total stockholders' equity 35,057,540 32,403,803
---------- ----------
Total liabilities and stockholders' equity $399,782,104 $392,978,494
============ ============
See notes to interim consolidated financial statements
4
Consolidated Statements of Income Three Months Ended June Six Months Ended June
Unaudited 2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Interest and fees on loans $5,822,468 $6,100,402 $11,439,994 $12,296,295
Interest and dividends on investment securities:
U.S. Treasury and agency securities 312,293 249,185 656,265 505,767
Obligations of state and political subdivisions 208,604 227,610 427,325 458,933
Corporate bonds and other securities 121,221 16,563 262,020 32,117
Interest on certificates and other bank deposits 48,301 837 95,461 1,940
Interest on short term investments 5,707 198,220 34,910 468,959
----- ------- ------ -------
Total interest income 6,518,594 6,792,817 12,915,975 13,764,011
--------- --------- ---------- ----------
Interest expense:
Interest on deposits 1,827,796 2,685,892 3,843,410 5,483,342
Other interest expense 197,575 107,002 315,240 213,019
------- ------- ------- -------
Total interest expense 2,025,371 2,792,894 4,158,650 5,696,361
--------- --------- --------- ---------
Net interest income 4,493,223 3,999,923 8,757,325 8,067,650
Provision for loan losses 0 300,000 0 600,000
--------- ------- --------- -------
Net interest income after provision for loan 4,493,223 3,699,923 8,757,325 7,467,650
--------- --------- --------- ---------
losses
Non-interest income:
Service charges 740,641 671,974 1,384,444 1,272,100
Gain on sale of loans 47,527 60,713 154,888 104,543
Gain on sale/call of investments 3,488 0 6,269 0
Trust income 63,418 29,489 108,822 90,320
Other (3,010) 40,702 (7,009) 61,226
------- ------ ------- ------
Total non-interest income 852,064 802,878 1,647,414 1,528,189
------- ------- --------- ---------
Non-interest expense:
Salaries and employee benefits 1,700,741 1,476,023 3,265,828 2,971,903
Net occupancy 231,831 187,662 437,662 403,539
Equipment expense 212,564 208,887 423,053 422,134
Fees 153,483 179,984 288,504 355,637
Printing and supplies 87,238 66,774 159,293 125,156
Advertising 67,497 53,990 153,979 110,699
Other 593,702 585,325 1,118,837 1,039,907
------- ------- --------- ---------
Total non-interest expense 3,047,056 2,758,645 5,847,156 5,428,975
--------- --------- --------- ---------
Income before federal income taxes 2,298,231 1,744,156 4,557,583 3,566,864
Federal income taxes 709,100 512,400 1,392,900 1,043,400
------- ------- --------- ---------
Net income $1,589,131 $1,231,756 $3,164,683 $2,523,464
========== ========== ========== ==========
Per share statistics*
Basic EPS $.50 $.39 $1.01 $.80
Diluted EPS $.50 $.39 $1.01 $.80
Dividends $.163 $.10 $.288 $.20
*Based on 3,148,492 average shares outstanding during the period ended June 30, 2002 and 3,136,724 average shares
outstanding during the period ended June 30, 2001. Shares restated to give effect of a 2 for 1 stock split,
payable as a dividend of one share for each share of company stock held of record July 1, 2002, paid July 10,
2002.
See notes to interim consolidated financial statements.
5
FNBH BANCORP,INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
For the Three Months Ended June 30, 2002 and 2001 (Unaudited)
Unearned Accumulated
Management Other
Common Retained Retention Comprehensive
Stock Earnings Plan Income (loss) Total
----- -------- ---- ------------- -----
Balances at March 31, 2001 $5,068,423 25,005,317 (167,958) 107,098 30,012,880
Amortization of management retention plan 13,448 13,448
Issued 528 shares for employee purchase plan 9,628 9,628
Comprehensive income:
Net income 1,231,756 1,231,756
Change in unrealized loss on debt securities
available for sale, net of tax effect (2,638) (2,638)
-------
Total comprehensive income 1,229,118
=========
Cash dividends (10(cent)per share) (313,790) (313,790)
--------- ---------- --------- ------- ---------
Balances at June 30, 2001 $5,078,051 25,923,283 (154,510) 104,460 30,951,284
========== ========== ========= ======= ==========
Unearned Accumulated
Management Other
Common Retained Retention Comprehensive
Stock Earnings Plan Income (loss) Total
----- -------- ---- ------------- -----
Balances at March 31, 2002 $5,256,419 28,543,423 (209,801) (103,820) 33,486,221
Issued 5,246 shares for management retention plan 109,799 (109,799)
Amortization of management retention plan 19,226 19,226
Issued 2,448 shares for employee purchase plan 40,931 40,931
Issued 218 shares for current directors fees 4,741 4,741
Issued 1,128 shares for directors' variable fee plan 23,609 23,609
Comprehensive income:
Net income 1,589,131 1,589,131
Change in unrealized gain on debt
securities 406,184 406,184
-------
available for sale, net of tax effect
Total comprehensive income 1,995,315
=========
Cash dividends (16.25(cent)per share) (512,503) (512,503)
---------- ---------- --------- ------- ---------
Balances at June 30, 2002 $5,435,499 29,620,051 (300,374) 302,364 35,057,540
========== ========== ========= ======= ==========
See notes to interim consolidated financial statements
6
FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
For the Six Months Ended June 30, 2002 and 2001 (Unaudited)
Unearned Accumulated
Management Other
Common Retained Retention Comprehensive
Stock Earnings Plan Income (loss) Total
----- -------- ---- ------------- -----
Balances at December 31, 2000 $5,025,476 24,027,158 (183,188) 17,189 28,886,635
Amortization of management retention plan 28,678 28,678
Issued 2,934 shares for employee purchase plan 52,575 52,575
Comprehensive income:
Net income 2,523,464 2,523,464
Change in unrealized loss on debt securities
available for sale, net of tax effect 87,271 87,271
------
Total comprehensive income 2,610,735
=========
Cash dividends (20(cent)per share) (627,339) (627,339)
---------- ---------- --------- ------- ---------
Balances at June 30, 2001 $5,078,051 25,923,283 (154,510) 104,460 30,951,284
========== ========== ========= ======= ==========
Unearned Accumulated
Management Other
Common Retained Retention Comprehensive
Stock Earnings Plan Income (loss) Total
----- -------- ---- ------------- -----
Balances at December 31, 2001 $5,246,770 27,361,215 (231,143) 26,961 32,403,803
Issued 5,246 shares for management retention plan 109,799 (109,799)
Amortization of management retention plan 40,568 40,568
Issued 2,970 shares for employee purchase plan 50,580 50,580
Issued 218 shares for current stock directors fees 4,741 4,741
Issued 1,128 shares for directors' variable fee plan 23,609 23,609
Comprehensive income:
Net income 3,164,683 3,164,683
Change in unrealized loss on debt
securities 275,403 275,403
-------
available for sale, net of tax effect
Total comprehensive income 3,440,086
=========
Cash dividends (28.75(cent)per share) (905,847) (905,847)
---------- ---------- --------- ------- ---------
Balances at June 30, 2002 $5,435,499 29,620,051 (300,374) 302,364 35,057,540
========== ========== ========= ======= ==========
See notes to interim consolidated financial statements
7
Consolidated Statements of Cash Flows
Unaudited Six months ended June 30
2002 2001
---- ----
Cash flows from operating activities:
Net income $3,164,683 $ 2,523,464
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 0 600,000
Depreciation and amortization 440,262 450,445
Net amortization (accretion) on investment securities 132,304 (1,279)
Earned portion of management retention plan 40,568 28,678
Gain on sale of investments (6,269) 0
Gain on sale of loans (154,888) (104,543)
Proceeds from sale of loans 9,937,160 6,596,121
Origination of loans held for sale (10,450,208) (7,015,535)
(Increase) decrease in accrued interest income and other assets (1,168,585) 679,252
Decrease in accrued interest, taxes, and other liabilities (272,199) (301,032)
--------- ---------
Net cash provided by operating activities 1,662,828 3,455,571
--------- ---------
Cash flows from investing activities:
Purchases of available for sale securities (6,246,581) (7,522,894)
Proceeds from sales of available for sale securities 5,113,970 0
Proceeds from maturities and calls of available for sale securities 3,000,000 5,000,000
Proceeds from mortgage-backed securities paydowns-available for sale 1,454,972 39,675
Proceeds from maturities and calls of held to maturity securities 1,169,000 620,000
Proceeds from mortgage-backed securities paydowns-held to maturity 32,197 474,219
Maturity of brokered CDs 291,000 0
Purchase of loans (1,671,644) (142,540)
Net increase in loans (24,399,912) (14,013,604)
Capital expenditures (1,250,225) (534,763)
----------- ---------
Net cash used in investing activities (22,507,223) (16,079,907)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits (10,933,172) 8,370,781
Increase in brokered CDs 4,037,000 0
Increase in borrowings 11,400,000 0
Payments on FHLB note (223,656) (207,089)
Shares issued for employee purchase and directors compensation 78,930 52,575
Dividends paid (905,847) (627,339)
--------- ---------
Net cash provided by financing activities 3,453,255 7,588,928
--------- ---------
Net decrease in cash and cash equivalents (17,391,140) (5,035,408)
Cash and cash equivalents at beginning of year 34,642,995 43,244,665
---------- ----------
Cash and cash equivalents at end of period $17,251,855 $38,209,257
=========== ===========
Supplemental disclosures:
Interest paid $ 4,101,799 $ 5,744,774
Federal income taxes paid 1,265,000 1,172,000
Loans transferred to other real estate 1,285,018 0
Loans charged off 534,403 169,775
See notes to interim consolidated financial statements
8
Notes to Interim Consolidated Financial Statements(unaudited)
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) 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 GAAP for complete financial statements.
1. In the opinion of management of the Registrant, the unaudited consolidated financial statements filed with this Form 10-Q contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position of the Registrant as of June 30, 2002, and consolidated results of operations for the three months and six months ended June 30, 2002 and 2001 and consolidated cash flows for the six months ended June 30, 2002 and 2001.
2. The results of operations for the three months and six months ended June 30, 2002 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 2001 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 $1,600,000 at June 30, 2002, $1,697,000 at June 30, 2001, and $2,997,000 at December 31, 2001. (See Management's Discussion and Analysis of financial condition and results of operations).
6. Basic and dilutive earnings per share (EPS) are computed by dividing net income by the respective weighted average common shares outstanding.
| Second Quarter | Year to Date | |||
| 2002 | 2001 | 2002 | 2001 | |
| Net income | $1,589,131 | $1,231,756 | $3,164,683 | $2,523,464 |
| Shares outstanding (basic) | 3,150,209 | 3,137,914 | 3,148,492 | 3,136,724 |
| Dilutive shares | 0 | 0 | 0 | 0 |
| Shares outstanding (diluted) | 3,150,209 | 3,137,914 | 3,148,492 | 3,136,724 |
| Earnings per share: | ||||
| Basic EPS | $.50 | $.39 | $1.01 | $.80 |
| Diluted EPS | $.50 | $.39 | $1.01 | $.80 |
9
7. All references to share and per share data have been restated to give effect of a two for one stock split, payable as a dividend of one share for each share of company stock held of record July 1, 2002, paid July 10, 2002.
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Interim Financial Statements
This report includes certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in business areas in which FNBH Bancorp, Inc. (the Company) operates, prevailing interest rates, changes in government regulations and policies affecting financial service companies, credit quality and credit risk management, acquisitions and integration of acquired businesses.
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 and six months ended June 30, 2002 and 2001, and also provides information relating to the Company’s financial condition, focusing on its liquidity and capital resources.
Earnings (in thousands Second Quarter Year-to-Date
- --------
except per share data) 2002 2001 2002 2001
---- ---- ---- ----
Net income $1,589 $1,232 $3,165 $2,523
Net Income per Share $ .50 $ .39 $1.01 $ .80
Net income for the three months ended June 30, 2002 increased approximately $357,000 (29%) compared to the same period last year. In the second quarter of the current year net interest income increased $493,000 (12%), non-interest income grew $49,000 (6%), and the provision for loan losses decreased $300,000. Offsetting these favorable occurrences was an increase in non-interest expense of $288,000 (10%) and an increase of $197,000 (38%) in accrued federal income tax expense.
Net income for the first half of the year increased $642,000 (25%) from that reported last year. Contributing to 2002 earnings were an increase of $689,000 (9%) in net interest income, a $119,000 (8%) increase in non-interest income, and a decrease of $600,000 in the provision for loan losses. Partially offsetting these increases in income were increases of $418,000 (8%) in non-interest expense, and of $350,000 (34%) in the provision for federal income tax.
10
Net Interest Income Second Quarter Year-to-Date
- ------------------- 2002 2001 2002 2001
(in thousands) ---- ---- ---- ----
Interest Income $6,518 $6,793 $12,916 $13,764
Interest Expense 2,025 2,793 4,159 5,696
------ ----- ----- -----
Net Interest Income $4,493 $4,000 $8,757 $8,068
The following table illustrates some of the significant factors contributing to the increase in net interest income for the period and for the year to date.
TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
June 30, 2002 and 2001
----------------Second Quarter Averages----------------
2002 2001
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets:
Short term investments $ 7,054 $ 54.0 3.03% $ 19,285 $ 199.0 4.08%
Securities: Taxable 36,692 433.5 4.73% 17,174 265.8 6.19%
Tax-exempt(1) 17,064 296.5 6.95% 18,499 307.9 6.66%
Loans(2)(3) 309,101 5,862.3 7.52% 267,633 6,142.2 9.08%
-------- -------- -------- --------
Total earning assets/total
interest income 369,911 $6,646.3 7.13% 322,591 $6,914.9 8.49%
-------- --------
Cash & due from banks 13,942 13,375
All other assets 18,125 15,172
Allowance for loan loss (5,483) (5,512)
-------- --------
Total assets $396,495 $345,626
======== ========
Liabilities and
Stockholders' Equity
Interest bearing deposits:
Savings & NOW accounts $148,872 $ 557.6 1.50% $ 120,170 $ 768.0 2.56%
Time 126,998 1,270.2 4.01% 130,432 1,917.9 5.90%
Short term borrowings 18,563 94.8 2.02% 0 0
FHLB Advances 5,569 102.8 7.30% 5,793 107.0 7.31%
-------- -------- -------- --------
Total interest bearing
liabilities/total interest expense 300,002 $2,025.4 2.70% 256,395 $2,792.9 4.37%
-------- --------
Non-interest bearing deposits 58,633 55,564
All other liabilities 3,509 3,087
Stockholders' Equity 34,351 30,580
-------- --------
Total liabilities and
shareholders' equity $396,495 $345,626
======== --------
Interest spread 4.43% 4.12%
===== =====
Net interest income-FTE $ 4,620.9 $ 4,122.0
========= =========
Net interest margin 4.94% 5.02%
===== =====
(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 Accounting Standards No. 115.
(2) For purposes of the computation above, non-accruing loans are included in the average daily loan
balances.
(3) Interest on loans includes origination fees totaling $199,000 in 2002 and $207,000 in 2001.
11
----------------Year to Date Averages-----------------
2002 2001
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -- -------- ----
Assets:
Short term investments $ 9,424 $ 128.4 2.71% $ 19,909 $ 468.9 4.69%
Securities: Taxable 38,392 918.3 4.78% 17,611 539.8 6.13%
Tax-exempt(1) 17,459 605.9 6.94% 18,658 627.5 6.73%
Loans(2)(3) 301,737 11,518.3 7.61% 264,334 12,379.2 9.34%
-------- --------- -------- ---------
Total earning assets/total
interest income 367,012 $13,170.9 7.16% 320,512 $14,015.4 8.72%
--------- ---------
Cash & due from banks 14,163 12,961
All other assets 17,260 15,255
Allowance for loan loss (5,546) (5,400)
------- --------
Total assets $392,889 $343,328
======== ========
Liabilities and
Stockholders' Equity
Interest bearing deposits:
Savings & NOW accounts $151,132 $ 1,130.2 1.51% $123,360 $ 1,664.5 2.72%
Time 129,408 2,713.2 4.23% 126,859 3,818.9 6.07%
Purchased funds 10,979 110.4 2.00% 0 0
FHLB Notes 5,587 204.8 7.29% 5,810 213.0 7.29%
-------- --------- -------- ---------
Total interest bearing
liabilities/total interest expense 297,106 $ 4,158.6 2.82% 256,029 $ 5,696.4 4.48%
--------- ---------
Non-interest bearing deposits 58,606 53,744
All other liabilities 3,456 3,372
Stockholders' Equity 33,721 30,183
-------- --------
Total liabilities and
shareholders' equity $392,889 $343,328
======== ========
Interest spread 4.34% 4.24%
===== =====
Net interest income-FTE $9,012.3 $8,319.0
======== ========
Net interest margin 4.87% 5.14%
===== =====
(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 Accounting Standards No. 115.
(2) For purposes of the computations above, non-accruing loans are included in the average daily loan
balances.
(3) Interest on loans includes origination fees totaling $409,000 in 2002 and $394,000 in 2001.
12
Interest Earning Assets/Interest Income
On a tax equivalent basis,
interest income decreased approximately $269,000 in the second quarter of 2002
compared to that of 2001. The decrease was the result of a 136 basis point
reduction in the yield on earning assets. This negative trend was partially
offset by a $47,000,000 (15%) growth in average balances on earning assets.
Loan interest decreased approximately $280,000 due to a 156 basis point decrease in interest rates although average balances increased $41,000,000 (15%). The decline in loans rates was the result of overall lower interest rates this year compared to last. In particular, the prime interest rate was 4.75% throughout the second quarter of this year compared to an average rate of 7.34% in the second quarter of 2001. In the second quarter, tax equivalent income on short and long term investments increased approximately $11,000. The increase can be attributed to a $5,900,000 increase in average balances as well as the mix of investments. Last year the average balance in short term investments, which carry a lower yield, was more than $19,000,000 while the average balance was $7,000,000 in 2002. Partially offsetting these favorable trends was a 46 basis point decline in yields.
For the first half of the year, tax equivalent interest income decreased approximately $845,000. Loan interest income decreased approximately $861,000. The interest rate earned on loans decreased 173 basis points while average balances increased $37,000,000 (14%). Loan growth was concentrated in the commercial portfolio where balances increased $36,000,000 (18%) on average. Consumer loans had a slight decrease while mortgage loans increased $1,300,000 (5%). In addition to the growth in mortgage loans retained in the portfolio, the Bank sold approximately $9,700,000 residential mortgage loans, compared to $6,500,000 in the first half of 2001. The Bank’s resources in the loan department are primarily deployed making commercial loans. For the first six months of the year, income on short and long term investments increased $16,000 from that earned in the prior year due to a $9,100,000 increase in average balances and a change in mix as described above, although the yields earned decreased by 76 basis points.
Interest Bearing Liabilities/Interest Expense
In the second quarter of
2002, interest expense decreased $768,000 due to a decrease in the interest rate
paid of 167 basis points although average balances increased $43,600,000 (17%).
The make-up of interest bearing funds has seen some noticeable change this year.
Savings and NOW interest expense decreased approximately $210,000. The decrease
was due to the interest rate declining 106 basis points as the average balance
increased $28,700,000 (24%). Interest on time deposits decreased $648,000 in the
second quarter of 2002 over the prior year. The decrease was due to both a
decline in average balances of approximately $3,400,000 (3%) and a decrease of
189 basis points in rates paid. In the second quarter of 2002 the Company had
average short term borrowings of $18,600,000 while there were no short term
borrowings in the second quarter of 2001.
13
The interest rate averaged 2.02% for the quarter on these borrowings. Management has increased reliance on third-party funding sources as they have provided a favorable rate over other funding strategies. Included in the average balance for short term borrowings were Fed Funds Purchased, Federal Home Loan Bank of Indianapolis (FHLBI) short term borrowings, and repurchase agreements. Included in FHLB advances are two loans, entered into in 2000, from the FHLBI. One borrowing, originally for $3,000,000, was initiated to match the maturity of a fixed rate loan made to a local township. The other borrowing was intended to help with the Bank’s rate sensitivity position. It is reasonable to expect that part of future loan growth will continue to be funded with FHLBI borrowings.
In the first half of the year, interest expense decreased $1,500,000 from that of the previous year. Contributing to this decrease was a 166 basis point decrease in rates while average balances of interest bearing liabilities increased $41,100,000 (16%). Savings and NOW interest expense decreased approximately $534,000 because the interest rate decreased 121 basis points although average balances increased $27,800,000 (23%). Interest on time deposits decreased approximately $1,100,000 because the rate decreased 184 basis points although the average balance increased $2,500,000 (2%). In the first half of 2002, the Bank incurred interest expense of $110,000 to borrow short term money. There were no short term borrowings in 2001. The short term borrowings were necessary as loan growth outpaced deposit growth in 2002. The FHLBI advances are discussed above.
Liquidity
Liquidity is monitored by
the Bank’s Asset/Liability Management Committee (ALCO) which meets at least
monthly. The Board of Directors has approved a liquidity policy which requires
the Bank, while it is well capitalized as defined by the Federal Financial
Institutions Examination Council (FFIEC), to maintain a current ratio of no less
than 1:1 (core basic surplus liquidity equal to 0), representing that the
Bank’s contingency for unexpected funding outflows is being primarily met
by short-term investments and unencumbered treasury and agency securities.
Additional requirements of the policy are that when FHLBI available credit is
added to core basic surplus liquidity, the Bank must have liquidity totaling 5%
of assets and when brokered CDs and Fed Funds lines are added, the Bank must
have liquidity totaling 8% of assets. Should the Bank’s capital ratios fall
below the “well capitalized” level, additional liquidity totaling 5%
of assets will be required. As of June 30, 2002, the Company had a $9,000,000
deficit of core basic liquidity. Included in the calculation is a contingency
reserve covering $21,000,000 (10%) of DDA, NOW and savings accounts if they
unexpectedly left the Bank in a 30 day period. As there has already been a 1%
decrease in these balances in the first half of the year, it is not anticipated
that this will occur. Historically the Bank has experienced strong deposit
growth in the second half of the year. To bridge the gap in deposit growth, the
Company issued $4,000,000 in brokered certificates through a dealer in the
second quarter. Included in the issuance were $2,000,000 in three month
certificates maturing in September and $2,000,000 in six month certificates
maturing in December. Management is committed to rectifying the liquidity
deficiency and will take further action if necessary.
14
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 makeup of the Bank’s “Large Certificates”, which are generally considered to be more volatile and sensitive to changes in rates, consists principally of local depositors known to the Bank. As of June 30, 2002, the Bank had Large Certificates totaling approximately $37,600,000 compared to $44,600,000 at December 31, 2001.
It is the intention of the Bank’s management to handle unexpected liquidity needs through its Federal Funds position with a correspondent bank and by Federal Home Loan Bank borrowings. The Bank has a line of credit of approximately $22,000,000 available at the FHLBI. As of June 30, 2002 approximately $14,000,000 of the line had been used for overnight borrowings and for long term advances, previously described. The Bank has pledged certain mortgage loans as collateral for this borrowing. The Bank also has a repurchase agreement in place where it can borrow from a broker who will lend money against certain securities of the Bank. Finally, management may look to “available for sale” securities in the investment portfolio to meet additional liquidity needs.
Interest Rate Risk
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 asset and liability categories and an interest rate simulation
report. The Bank has no market risk sensitive instruments held for trading
purposes. The Bank has not entered 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.
In addition to liquidity and interest rate risk management 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, other balance sheet ratios, and profitability ratios.
15
Interest Rate Sensitivity
- -------------------------
(dollars in thousands) 0-3 4-12 1-5 5+
Months Months Years Years Total
------ ------ ----- ----- -----
Assets:
Loans................................... $58,093 $82,852 $162,857 $8,720 $312,522
Securities.............................. 2,619 3,939 36,794 8,404 51,756
Short term investments............... 49 49
------- ------- -------- ------- --------
Total rate sensitive assets....... $60,761 $86,791 $199,651 $17,124 $364,327
Liabilities & Stockholders' Equity:
Savings & NOW........................ $65,244 $82,464 $147,708
Time................................. 29,605 47,610 51,457 1,321 129,993
Other borrowings..................... 11,400 242 4,175 1,152 16,969
------- ------- -------- ------- --------
Total rate sensitive liabilities.. $106,249 $47,852 $55,632 $84,937 $294,670
Rate sensitivity gap and ratios:
Gap for period....................... ($45,488) $38,939 $144,019 $(67,813)
Cumulative gap....................... (45,488) (6,549) 137,470 69,657
Cumulative rate sensitive ratio......... .57 .96 1.66 1.24
Dec. 31, 2001 rate sensitive ratio...... 1.01 .87 1.63 1.24
The preceding table sets forth the time periods in which earning assets and interest bearing liabilities will mature or may re-price in accordance with their contractual terms. The entire balance of savings, MMDA, and NOW are not categorized as 0-3 months, although they are variable rate products. Some of these balances are core deposits and are not considered rate sensitive. Allocations are made to time periods based on the Bank’s historical experience and management’s analysis of industry trends.
In the gap table above, the short term (one year and less) cumulative interest rate sensitivity is 4% liability sensitive as of June 30, 2002. However, gap analysis is limited and may not provide an accurate indication of the impact of general interest rate movements on the net interest margin since repricing of various categories of assets and liabilities is subject to the Bank’s needs, competitive pressures, and the needs of the Bank’s customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within the period and at different rate indices. Additionally, simulation modeling, which measures the impact of upward and downward movements of interest rates on interest margin, provides meaningful insight into strategies management can take to help mitigate the negative impact of interest rates moving upward.
Provision for Loan Losses Second Quarter Year-to-Date
- ------------------------- 2002 2000 2002 2001
(in thousands) ---- ---- ---- ----
Total 0 $300 0 $600
= ==== = ====
16
The Company did not provide a loan loss provision in the second quarter of 2002 having provided $300,000 in the same period last year. Net charge offs for the second quarter of 2002 were $326,000 compared to $65,000 in the same period in 2001. Included in 2002 charge offs was a $254,000 charge off to a commercial customer where the collateral was insufficient to cover the debt. Collection is being pursued through the courts.
Year to date the provision is also zero compared to $600,000 last year. Although loans increased 9% in the first half of the year, management determined the allowance to be sufficient based on the level of risk in the portfolio. At June 30, 2002, the allowance for loan loss as a percent of loans was 1.65%, compared to 2.11% a year earlier and 1.97% at December 31, 2001. For the first six months of 2002, the Bank had net charge offs of $498,000, compared to $101,000 in the first half of 2001. The increase in net charge offs is largely due to the loan mentioned above and a $100,000 charge off related to a collateral deficiency in the property in other real estate which occurred in the first quarter. Non-accrual, past due 90 days, and renegotiated loans were .51% and .63% of total loans outstanding at June 30, 2002 and 2001, respectively, and 1.04% of total loans at December 31, 2001.
Impaired loans, as defined by Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, totaled approximately $8,200,000 at June 30, 2002, and included non-accrual, and past due 90 days other than homogenous residential and consumer loans, and $6,900,000 of commercial loans separately identified as impaired. Impaired loans totaled $8,700,000 at December 31, 2001. 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 uncollectable on a timely basis. The decline in impaired loans is primarily due to the foreclosure of a previously impaired loan and its transfer to other real estate.
Of the loans currently impaired, one of the loans, with a balance of $2,100,000, is current and making regular payments; however, the cash generated solely by the business is presently not adequate to cover debt service. Another loan, for $1,100,000, was made to purchase medical buildings in Lansing. The buildings are not fully leased and cash flow from the leases has not been sufficient to cover debt service. Both loans are secured with first mortgages on commercial real estate and the real estate is being actively marketed. Nonperforming loans are reviewed regularly for collectability. Any uncollectable balances are promptly charged off.
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. Management continues to refine its techniques in this analysis. Impaired loans had specific reserves calculated in accordance with SFAS No. 114 of $1,200,000 at June 30, 2002, compared to specific reserves of $2,800,000 at June 30, 2001.
17
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 $1,113,000 in other real estate at June 30, 2002 consists of property being developed for condominiums. There were twenty-eight condo units in various stages of construction when the borrower defaulted. Sale of the property is being pursued.
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. The following table describes nonperforming assets at June 30, 2002 compared to December 31, 2001.
Nonperforming Assets
- -------------------- June 30,2002 December 31, 2001
(in thousands) ------------ -----------------
Non-accrual loans $ 894 $2,636
90 days or more past due and still accruing 706 361
---- ---
Total nonperforming loans 1,600 2,997
Other real estate 1,113 0
----- -
Total nonperforming assets $2,713 $2,997
Nonperforming loans as a percent of total loans .51% 1.04%
Loan loss reserve as a percent of nonperforming loans 323% 189%
The following table sets forth loan balances and summarizes the changes in the allowance for loan losses for the first six months of 2002 and 2001.
Year to date Year to date
June 30, 2002 June 30, 2001
Loans: (dollars in thousands) ------------- -------------
Average daily balance of loans for the year to date 301,737 264,334
Amount of loans, net of unearned income, outstanding at
end of the quarter 312,522 269,992
Allowance for loan losses:
Balance at beginning of year 5,668 5,193
Loans charged off:
Real estate 0 0
Commercial 493 57
Consumer 42 112
-- ---
Total charge-offs 535 169
Recoveries of loans previously charged off:
Real estate 0 0
Commercial 8 46
Consumer 29 22
-- --
Total recoveries 37 68
Net loans charged off 498 101
Additions to allowance charged to operations 0 600
--- ---
Balance at end of quarter $5,170 $5,692
Ratios:
Net loans charged off (annualized) to average
loans outstanding .33% .08%
Allowance for loan losses to loans outstanding 1.65% 2.11%
18
Non-interest income Second Quarter Year-to-Date
- ------------------- 2002 2000 2002 2001
(in thousands) ---- ---- ---- ----
Total $852 $803 $1,647 $1,528
==== ==== ====== ======
Non-interest income, which includes service charges on deposit accounts, loan fees, trust fees, other operating income, and gain (loss) on sale of assets, increased by $49,000 (6%) in the second quarter of 2002 compared to the same period in the previous year. Service charge income increased approximately $69,000 (10%) primarily the result of growth in the Bank. Trust fees increased $34,000 (115%) as there was a correction in the second quarter of last year resulting in a decrease in fees and there were two lump sum payments in 2002 boosting income. Gain on the sale of loans decreased $13,000 (22%) due to decreased volume of residential mortgage sale. In the second quarter of 2002 the Company sold $2,700,000 in residential mortgage loans compared to $3,900,000 in the same period the previous year. Other income decreased $44,000. Last year’s other income was higher due to a $42,000 gain on the sale of other real estate.
For the year, non-interest income increased $119,000 (8%). Contributing to the increase was a $112,000 (9%) increase in service charge income primarily the result of increased business. Gains on the sale of loans increased approximately $50,000 (48%) due to increased volume for the year to date, $9,700,000 in the current year compared to $6,500,000 in the previous. Trust fees increased $19,000 (20%) due to the lump sum payments mentioned above. Other income decreased $68,000 because last year’s income included $58,000 in non-recurring gains due to the sale of property while this year the Company has lost $12,000 on the sale of repossessed vehicles and equipment.
Non-interest Expense Second Quarter Year-to-Date
- -------------------- 2002 2000 2002 2001
(in thousands) ---- ---- ---- ----
Total $3,047 $2,759 $5,847 $5,429
====== ====== ====== ======
Non-interest expense increased $288,000 (10%) in the second quarter of 2002 compared to the same period last year. There were increases in salaries and benefits expense of $225,000 (15%) principally due to a $78,000 (8%) increase in salary expense and a $115,000 (54%) increase in the profit share accrual.
19
The salary increase is the result of normal annual wage increases and increased staffing for the new branch and the trust department. The increase in the profit share accrual is the result of the higher salary base and an anticipated higher payout based on improved Return on Assets (ROA). Occupancy expense increased $44,000 (24%) primarily due to costs associated with the new branch which opened in April 2002. Printing and supplies increased $20,000 (31%) again due primarily to costs related to the new branch. Partly offsetting these increases was a $27,000 (15%) decrease in fees for services. Fees were high in 2001 due to hiring a consultant for strategic planning and staffing the trust department with contract help.
For the first half of the year, non-interest expense increased $418,000 (8%) compared to the prior year. There was a $294,000 (10%) increase in salaries and benefits, made up of a $177,000 (9%) increase in salary expense and a $149,000 (34%) increase in profit sharing accruals for the reasons previously mentioned. Occupancy expense was $34,000 (8%) higher due primarily to the new branch in Genoa Township which opened this year. Printing and supplies increased $34,000 (27%) also due to supplying the new branch. Advertising increased $43,000 (39%) due to promotional efforts for the new branch and deposit products. “Other” non-interest expense increased $79,000 (8%) primarily due to increases in directors’ fees as a result of the payout of a profit share payment approved by the shareholders in April and increased legal fees related to collecting loans and corporate matters. Partly offsetting these increases was a $67,000 (19%) decrease in fees as mentioned above.
Income Tax Expense Second Quarter Year-to-Date
- ------------------ 2002 2000 2002 2001
(in thousands) ---- ---- ---- ----
Total $709 $512 $1,393 $1,043
==== ==== ====== ======
Fluctuations in income taxes resulted primarily from changes in the level of profitability and in variations in the amount of tax-exempt income.
Capital (in thousands) June 30, 2002 December 31, 2002 - ------- ------------- ----------------- Stockholders' Equity* $34,755 $32,377 Ratio of Equity to Total Assets 8.69% 8.24% *Amounts exclude securities valuation adjustments recorded under Statement of Financial Accounting Standards No. 115 amounting to $302,000 at June 30, 2002 and $27,000 at December 31, 2001.
A financial institution’s capital ratio is looked upon by the regulators and the public as an indication of its soundness. Stockholders’ equity, excluding the securities valuation adjustment, increased $2,378,000 (8%) during the first half of the year. This increase was principally the result of net income earned by the company reduced by dividends paid of $906,000.
20
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 June 30, 2002 was 9.45%, and total risk-based capital was 10.71%. At June 30, 2001 these ratios were 9.77% and 11.02% 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 8.25% at June 30, 2002 and 8.26% in 2001. 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. During 2000 one parcel of the property was sold. The remaining property is held for sale. Improvements needed to enhance the salability of the property are not expected to exceed $200,000.
The Company opened a new branch on the east side of Howell in April 2002 and purchased a building for back office functions in May 2002. The Company also owns a building site in Hamburg valued at $330,000. Construction has begun on the Hamburg branch with an estimated completion date in the second quarter of 2003. Refurbishing will begin on the building acquired for back office space in the third quarter with occupancy anticipated in the fourth quarter of 2002. All building projects are expected to be financed from internally generated funds.
Critical Accounting Policies
The Company maintains
critical accounting policies for the allowance for loan losses and the
classification and evaluation of securities. Refer to notes 1c and 1e of the
Notes to Consolidated Financial Statements for additional information
incorporated by reference to the Annual Report to Shareholders for the year
ended December 31, 2001.
Accounting Standards
On June 29, 2001, the FASB approved for issuance SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets.
Under SFAS No. 141, all business combinations initiated after June 30, 2001, must be accounted for using the purchase method of accounting. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization, but instead must be reviewed for impairment. The amortization of goodwill ceases upon adoption of SFAS No. 142, which was effective for fiscal years beginning after December 15, 2001. Adoption of these Statements did not have an impact on the Bank’s results of operations.
21
On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, but retains many of the fundamental provisions of that Statement.
Statement No. 144 also supersedes the accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. By broadening the presentation of discontinued operations to include more disposal transactions, the FASB has enhanced management’s ability to provide information that helps financial statement users to assess the effects of a disposal transaction on the ongoing operations of an entity.
Statement No. 144 was effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Adoption of this Statement did not have an impact on the Bank's results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Statement No. 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers and amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions.
Statement No. 145 is effective for fiscal years beginning after May 15, 2002, with early adoption of the provisions related to the rescission of Statement 4 encouraged. Upon adoption, enterprises must reclassify prior period items that do not meet the extraordinary item classification criteria in APB 30. Adoption of this Statement is not expected to have a significant impact on the Bank’s results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between Statement No. 146 and Issue 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Under Issue 94-3 the liability was recognized at the date of an entity’s commitment to an exit plan.
22
Statement No. 146 is effective for exit or disposal activities (including restructuring) that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this Statement is not expected to have a significant impact on the Bank’s results of operations.
On March 13, 2002, the FASB Derivatives Implementation Group (DIG) approved for issuance DIG issue C13, When a Loan Commitment is Included in the Scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. DIG Issue C13 requires that loan commitments that relate to the origination or acquisition of mortgage loans that will be held for resale under SFAS No. 65, Accounting for Certain Mortgage Banking Activities, be accounted for as derivatives under SFAS No. 133; loan commitments that relate to the origination or acquisition of mortgage loans that will be held for investment will continue to be accounted for under Statement No. 65, and commitments that related to the origination of non-mortgage loans will continue to be accounted for under SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.
DIG Issue C13 is effective the first day of the first fiscal quarter beginning after April 10, 2002. If an entity had not accounted for a contract as a derivative in its entirety but is required to do so, the entity shall account for the effects of initially complying with the implementation guidance in this Issue prospectively for all existing contracts as of the effective date of this Issue and for all future transactions. Adoption of this Statement is not expected to have a significant impact on the Bank’s results of operations.
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, 2001 other
than previously discussed.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The registrant’s
annual meeting of stockholders was held on April 17, 2002. The stockholders
voted on the election of directors and the FNBH Bancorp, Inc. Amended and
Restated Compensation Plan for Nonemployee Directors.
Votes were cast as follows for the three nominees for the office of director.
23
Term expiring in 2005:
|
R.Michael Yost Dona Scott Laskey Athena Bacalis James R. McAuliffe |
Shares voted for 838,741 813,490 841,086 840,700 |
Shares voted against 2,839 28,090 494 880 |
Shares Abstained 76,536 76,536 76,536 76,536 |
Additionally, the following directors continue in office.
Term expiring in 2003:
|
Donald K. Burkel Harry E. Griffith Gary R. Boss |
Term expiring in 2004:
|
W. Rickard Scofield Randolph E. Rudisill Barbara Draper Martin |
Votes were cast as follows for Adoption of the FNBH Bancorp, Inc. Amended and Restated Compensation Plan for Nonemployee Directors:
|
For Against Abstain |
723,284 183,397 11,435 |
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:
|
99.1 Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
|
99.2 Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
(b) Reports on Form 8-K:
| There were no reports on Form 8-K filed during the second quarter of 2002. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 to be signed on its behalf by the undersigned hereunto duly authorized.
|
FNBH BANCORP, INC. /s/ Barbara D. Martin Barbara D. Martin President and Chief Executive Officer /s/ Barbara J. Nelson Barbara J. Nelson Treasurer |
DATE: August 13, 2002
25
EXHIBIT 99.1
Certificate of the
Chief Executive Officer of
FNBH BANCORP, INC.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):
I, Barbara D. Martin, Chief Executive Officer of FNBH Bancorp, Inc., certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:
(1) The quarterly report on Form 10-Q for the quarterly period ended June 30, 2002, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;
(2) The information contained in this quarterly report on Form 10-Q for the quarterly period ended June 30, 2002, fairly presents, in all material respects, the financial condition and results of operations of FNBH Bancorp, Inc.
| FNBH BANCORP, INC. |
||
| Date: August 13, 2002 | By: |
/s/ Barbara D. Martin
Barbara D. Martin |
| Its: | Chief Executive Officer | |
EXHIBIT 99.2
Certificate of the
Chief FINANCIAL Officer of
FNBH BANCORP, INC.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):
I, Barbara J. Nelson, Chief Financial Officer of FNBH Bancorp, Inc., certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:
(1) The quarterly report on Form 10-Q for the quarterly period ended June 30, 2002, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;
(2) The information contained in this quarterly report on Form 10-Q for the quarterly period ended June 30, 2002, fairly presents, in all material respects, the financial condition and results of operations of FNBH Bancorp, Inc.
| FNBH BANCORP, INC. |
||
| Date: August 13, 2002 | By: |
/s/ Barbara J. Nelson
Barbara J. Nelson |
| Its: | Chief Financial Officer | |