XOTC:FNHM FNBH Bancorp Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES

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, 2012

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 incorporation or
organization)
  (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. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 454,327 shares of the Corporation’s Common Stock (no par value) were outstanding as of May 15, 2012.

 

 
 

 

TABLE OF CONTENTS

 

    Page
    Number
     
Part I  Financial Information (unaudited)  
Item 1. Financial Statements:  
  Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 1
  Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 2
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 3
  Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2012 and 2011 4
  Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 5
  Notes to Interim Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
Item 4. Controls and Procedures 31
     
Part II. Other Information  
Item 1A Risk Factors 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 6. Exhibits 33
     
Signatures 34

 

 
 

 

Discussions and statements in this report that are not statements of historical fact, including, without limitation, statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan,” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions and other statements that are not historical facts, are forward-looking statements. Forward-looking statements include, but are not limited to, descriptions of plans and objectives for future operations, products or services; projections of our future revenue, earnings or other measures of economic performance; forecasts of credit losses and other asset quality trends; predictions as to our Bank’s ability to achieve or maintain certain regulatory capital standards; our expectation that we will have or be able to maintain sufficient cash to meet expected obligations during 2012; and descriptions of steps we may take to improve our capital position. These forward-looking statements express our current expectations, forecasts of future events, or long-term goals and, by their nature, are subject to assumptions, risks, and uncertainties. Although we believe that the expectations, forecasts, and goals reflected in these forward-looking statements are reasonable, actual results could differ materially for a variety of reasons, including, among others:

 

·our ability to successfully raise new equity capital and/or our ability to implement our capital restoration and recovery plan;

·our ability to continue as a going concern in light of the uncertainty regarding the extent and timing of possible future regulatory enforcement action against the Bank;

·the failure of assumptions underlying the establishment of and provisions made to our allowance for loan losses;

·the timing and pace of an economic recovery in Michigan and the United States in general, including regional and local real estate markets;

·the ability of our Bank to attain and maintain certain regulatory capital standards;

·limitations on our ability to access and rely on wholesale funding sources;

·the continued services of our management team, particularly as we work through our asset quality issues and the implementation of our capital restoration plan; and

·implementation of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act or other new legislation, which may have significant effects on us and the financial services industry

 

This list provides examples of factors that could affect the results described by forward-looking statements contained in this report, but the list is not intended to be all inclusive. The risk factors disclosed in Part I – Item A of our Annual Report on Form 10-K for the year ended December 31, 2011, as updated by any new or modified risk factors disclosed in Part II – Item 1A of any subsequently filed Quarterly Report on Form 10-Q, include all known risk our management believes could materially affect the results described by forward-looking statements in this report. However, those risks may not be the only risks we face. Our results of operations, cash flows, financial position, and prospects could also be materially and adversely affected by additional factors that are not presently known to us, that we currently consider to be immaterial, or that develop after the date of this report. We cannot assure you that our future results will meet expectations. While we believe the forward-looking statements in this report are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. We do not undertake, and expressly disclaim, any obligation to update or alter any statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

 

 
 

 

Part I – Financial Information

Item 1. Financial Statement

 

FNBH BANCORP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

 

   March 31,   December 31, 
   2012   2011 
Assets          
Cash and due from banks  $30,266,639   $50,019,432 
Short term investments   196,880    196,767 
Total cash and cash equivalents   30,463,519    50,216,199 
           
Investment Securities:          
Investment securities available for sale, at fair value   50,158,423    32,324,872 
FHLBI and FRB stock, at cost   779,050    779,050 
Total investment securities   50,937,473    33,103,922 
           
Loans held for investment:          
Commercial   175,523,179    179,381,378 
Consumer   14,307,226    14,673,761 
Real estate mortgage   14,230,467    14,789,018 
Total loans held for investment   204,060,872    208,844,157 
Less allowance for loan losses   (12,001,897)   (12,689,859)
Net loans held for investment   192,058,975    196,154,298 
Premises and equipment, net   7,418,996    7,494,151 
Other real estate owned, held for sale   3,252,862    3,026,073 
Accrued interest and other assets   1,764,498    2,085,181 
Total assets  $285,896,323   $292,079,824 
           
Liabilities and Shareholders' Equity          
Liabilities          
Deposits:          
Demand (non-interest bearing)   80,955,705    83,505,909 
NOW   28,713,444    27,723,407 
Savings and money market   77,359,647    77,290,916 
Time deposits   89,323,929    91,756,139 
Brokered certificates of deposit   1,117,688    3,376,559 
Total deposits   277,470,413    283,652,930 
Other borrowings   80,000    59,813 
Accrued interest, taxes, and other liabilities   1,724,577    1,757,766 
Total liabilities   279,274,990    285,470,509 
           
Shareholders' Equity          
Preferred stock, no par value. Authorized 30,000 shares; no shares issued and outstanding   -    - 
Common stock, no par value. Authorized 7,000,000 shares at March 31, 2012 and December 31, 2011; 454,327 shares issued and outstanding at March 31, 2012 and 453,553 shares issued and outstanding at December 31, 2011   7,199,317    7,081,839 
Retained deficit   (779,220)   (825,142)
Deferred directors' compensation   460,939    577,110 
Accumulated other comprehensive loss   (259,703)   (224,492)
Total shareholders' equity   6,621,333    6,609,315 
Total liabilities and shareholders' equity  $285,896,323   $292,079,824 

 

See notes to interim consolidated financial statements (unaudited)

 

1
 

 

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Three Months Ended March 31, 2012 and 2011

(Unaudited)

 

   Three months ended March 31, 
   2012   2011 
Interest and dividend income:          
Interest and fees on loans  $2,686,766   $2,964,246 
Interest and dividends on investment securities:          
U.S. Treasury, agency securities and CMOs   207,118    193,445 
Obligations of states and political subdivisions   13,501    63,764 
Other securities   5,556    5,715 
Interest on short term investments   487    323 
Total interest and dividend income   2,913,428    3,227,493 
Interest expense   307,970    451,003 
Net interest income   2,605,458    2,776,490 
Provision for loan losses   450,000    799,998 
Net interest income after provision for loan losses   2,155,458    1,976,492 
Noninterest income:          
Service charges and other fee income   692,843    627,006 
Trust income   45,459    53,511 
Other   204    31,402 
Total noninterest income   738,506    711,919 
Noninterest expense:          
Salaries and employee benefits   1,241,794    1,212,190 
Net occupancy expense   230,748    270,973 
Equipment expense   93,370    78,922 
Professional and service fees   390,548    350,552 
Loan collection and foreclosed property expenses   119,366    152,524 
Computer service fees   113,104    112,641 
Computer software amortization expense   56,595    59,952 
FDIC assessment fees   250,924    325,167 
Insurance   146,510    147,440 
Printing and supplies   34,567    29,633 
Director fees   20,188    19,187 
Net loss on sale/writedown of OREO and repossessions   5,548    25,155 
Other   144,780    126,833 
Total noninterest expense   2,848,042    2,911,169 
Income (loss) before federal income taxes   45,922    (222,758)
Federal income tax expense (benefit)   -    - 
Net income (loss)  $45,922   $(222,758)
           
Per share statistics:          
Basic and diluted EPS  $0.10   $(0.49)
Basic and diluted average shares outstanding   464,318    457,279 

 

See notes to interim consolidated financial statements (unaudited)

 

2
 

 

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31, 2012 and 2011

(Unaudited)

 

   Three Months Ended March 31, 
   2012   2011 
Net income (loss)  $45,922   $(222,758)
Other comprehensive income (loss), net of tax:          
Net change in unrealized gains (losses) on securities available for sale during the period   (35,211)   77,920 
Less: reclassification adjustment for gain recognized in earnings, net of tax   -    - 
Comprehensive income (loss)  $10,711   $(144,838)

 

See notes to interim consolidated financial statements (unaudited)

 

3
 

 

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

Three Months Ended March 31, 2012 and 2011

(Unaudited)

 

   Common Stock   Retained
Earnings
(Deficit)
   Deferred
Directors'
Compensation
   Accumulated Other
Comprehensive
Income (Loss)
   Total 
Balances at January 1, 2011  $6,935,140   $2,747,615   $708,372   $(257,329)  $10,133,798 
Earned portion of long term incentive plan   3,780                   3,780 
Issued 878 shares for deferred directors' fees   131,261         (131,261)        - 
Net loss        (222,758)             (222,758)
Other comprehensive income                  77,920    77,920 
Balances at March 31, 2011  $7,070,181   $2,524,857   $577,111   $(179,409)  $9,992,740 
                          
Balances at January 1, 2012  $7,081,839   $(825,142)  $577,110   $(224,492)  $6,609,315 
Earned portion of long term incentive plan   1,307                   1,307 
Issued 774 shares for deferred directors' fees   116,171         (116,171)        - 
Net income        45,922              45,922 
Other comprehensive loss                  (35,211)   (35,211)
Balances at March 31, 2012  $7,199,317   $(779,220)  $460,939   $(259,703)  $6,621,333 

 

See notes to interim consolidated financial statements (unaudited)

 

4
 

 

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

   Three months ended March 31, 
   2012   2011 
Cash flows from operating activities:          
Net income (loss)  $45,922   $(222,758)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Provision for loan losses   450,000    799,998 
Depreciation and amortization   158,667    169,719 
Net amortization on investment securities   119,494    79,728 
Earned portion of long term incentive plan   1,307    3,780 
Net loss on the sale/writedown of OREO and repossessions   5,548    25,155 
Decrease in accrued interest income and other assets   265,623    226,454 
Increase (decrease) in accrued interest, taxes, and other liabilities   (33,189)   3,775 
Net cash provided by operating activities   1,013,372    1,085,851 
Cash flows from investing activities          
Purchases of available for sale securities   (25,289,324)   (16,085,664)
Proceeds from maturities and calls of available for sale securities   5,656,666    - 
Proceeds from mortgage-backed securities paydowns - available for sale   1,644,402    1,065,093 
Net decrease in loans   3,261,841    3,016,358 
Proceeds from sale of OREO and repossessions   151,145    750,390 
Capital expenditures   (28,452)   (123,150)
Net cash used in by investing activities   (14,603,722)   (11,376,973)
Cash flows from financing activites:          
Net decrease in deposits   (6,182,517)   (11,670,152)
Proceeds from borrowings   20,187    - 
Net cash used in financing activities   (6,162,330)   (11,670,152)
Net decrease in cash and cash equivalents   (19,752,680)   (21,961,274)
Cash and cash equivalents at beginning of year   50,216,199    40,572,426 
Cash and cash equivalents at end of period  $30,463,519   $18,611,152 
           
Supplemental disclosures:          
Interest paid  $327,403   $478,376 
Loans transferred to other real estate   383,482    - 
Loans charged off   1,567,817    1,328,949 

 

See notes to interim consolidated financial statements (unaudited)

 

5
 

 

Notes to Consolidated Financial Statements (unaudited)

 

1. Basis of Presentation

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, these financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management of FNBH Bancorp, Inc. (the Corporation), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three month period ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the 2011 Annual Report contained in the Corporation’s report on Form 10-K filing. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

 

The consolidated financial statements included in this Form 10-Q have been prepared assuming our wholly-owned subsidiary bank, First National Bank in Howell (the Bank), continues to operate in the normal course of business for the foreseeable future, and do not include any adjustments to recorded assets or liabilities should we be unable to continue as a going concern.

 

2. Financial Condition and Management’s Plan

In light of the Bank’s recent losses, insufficient capital position at March 31, 2012 and noncompliance with a regulatory capital directive stipulated under a Consent Order (as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), management believes that it is reasonable to anticipate continued and elevated regulatory oversight of the Bank. In addition, any continued weaknesses in the Michigan economy and local real estate market will likely continue to negatively impact the Bank’s near-term performance and profitability. In response to these difficult market conditions and regulatory standing, management has embarked on various initiatives to mitigate the impact of the economic and regulatory challenges facing the Bank. However, even if successful, implementation of all components of management’s plan is not expected to ensure profitable results in 2012 and may not be successful in maintaining the Bank or the Corporation as a going concern. Management’s recovery plan is detailed in Note 2 of the consolidated financial statements included in the 2011 Annual Report within the Corporation’s Form 10-K filing.

 

Integral to management’s plan is the restoration of the Bank’s capital to a level sufficient to comply with the Office of the Comptroller of the Currency’s (“OCC”) capital directive and provide sufficient capital resources and liquidity to meet commitments and business needs. To date, the Bank has not raised the capital necessary to satisfy requirements of the Consent Order. Management and the Board of Directors continue to work to try to raise the additional equity believed necessary to sufficiently recapitalize the Bank. Management and the Board of Directors are committed to pursuing all potential alternatives and sources of capital to restore the Bank’s capital levels. Such alternatives include raising capital from existing shareholders, individuals, institutional capital market investors and private equity funds and the identification of suitors for a sale or merger transaction. See also the “Capital” section within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-Q.

 

While the Company is hopeful that its ongoing efforts to raise additional capital will be successful, there are significant hurdles that remain in order for the Company to raise the amount of capital necessary for the Bank to comply with the requirements of the Consent Order. The Company makes no assurances that its plan or related efforts will improve the Bank’s financial condition and further deterioration of the Bank’s capital position is possible. The current economic environment in southeast Michigan and local real estate market conditions will continue to impose significant challenges on the Bank and are expected to adversely impact financial results. Any further declines in the Bank’s capital levels may likely result in more regulatory oversight or enforcement action by either the OCC or the Federal Deposit Insurance Corporation (the “FDIC”).

 

3. Investment Securities

Investment securities available for sale consist of the following:

 

   March 31, 2012 
       Unrealized     
   Amortized Cost   Gains   Losses   Fair Value 
Obligations of state and political subdivisions  $1,284,455   $27,767   $-   $1,312,222 
U.S. agency securities   4,333,333    151    (29,771)   4,303,713 
Mortgage-backed/CMO securities   44,751,538    162,190    (484,040)   44,429,688 
Preferred stock securities(1)   48,800    64,000    -    112,800 
Total available for sale  $50,418,126   $254,108   $(513,811)  $50,158,423 

 

   December 31, 2011 
       Unrealized     
   Amortized Cost   Gains   Losses   Fair Value 
Obligations of state and political subdivisions  $1,284,701   $27,070   $-   $1,311,771 
U.S. agency securities   6,990,000    19,990    (2,032)   7,007,958 
Mortgage-backed/CMO securities   24,225,863    143,733    (472,853)   23,896,743 
Preferred stock securities(1)   48,800    59,600    -    108,400 
Total available for sale  $32,549,364   $250,393   $(474,885)  $32,324,872 

 

(1)Represents preferred stocks issued by Freddie Mac and Fannie Mae

 

6
 

 

Investment securities are reviewed quarterly for possible other-than-temporary impairment (OTTI) based on guidance included in ASC Topic 320, Investments – Debt and Equity Instruments. This guidance requires an entity to assess whether it intends to sell, or whether it is more likely than not that it will be required to sell, a security in an unrealized loss position before the recovery of the security’s amortized cost basis. If either of these criteria is met, the entire difference between the amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.

 

Management’s review of the securities portfolio for the existence of OTTI considers various qualitative and quantitative factors regarding each investment category, including if the securities were U.S. Government issued, the credit rating of the securities, credit outlook, payment status and financial condition, the length of time a security has been in a loss position, the size of the loss position and other meaningful information.

 

At March 31, 2012 and December 31, 2011, the Corporation had one non-agency mortgage-backed security which has been impaired for more than twelve months. A summary of the par value, book value, carrying value (fair value) and unrealized loss for the security is presented below:

 

   March 31, 2012   December 31, 2011 
   Amount   % of Par   Amount   % of Par 
Par value  $2,696,277    100.00%  $2,791,139    100.00%
Book value   2,405,554    89.22%   2,500,416    89.61%
Carrying value   2,063,078    76.52%   2,063,514    73.95%
Unrealized loss   342,476    12.70%   436,902    15.66%

 

The Corporation makes a quarterly assessment of the OTTI on the non-agency mortgage-backed security primarily based on a quarterly cash flow analysis performed by an independent third-party specialist. The evaluation includes a comparison of the present value of expected cash flows to previous estimates to determine whether adverse changes in cash flows resulted during the period. The analysis considers attributes of the security, such as its super tranche position, and specific loan level collateral underlying the security. Certain key attributes of the underlying loans supporting the security included the following:

 

   March 31,   December 31, 
   2012   2011 
Weighted average remaining credit score (based on original FICO)   740    741 
Primary location of underlying loans:          
California   70%   70%
Florida   4%   3%
Arizona   3%   2%
Delinquency status of underlying loans:          
Past due 30-59 days   2.78%   2.29%
Past due 60-89 days   1.22%   1.69%
Past due 90 days or more   10.22%   9.45%
In process of foreclosure   6.88%   8.24%
Held as other real estate owned   2.67%   1.65%

 

The specialist calculates an estimate of the fair value of the security’s cash flows using an INTEX valuation model, subject to certain assumptions regarding collateral related cash flows such as expected prepayment rates, default rates, loss severity estimates, and discount rates as key valuation inputs. Certain key assumptions (unobservable inputs) used to estimate the fair value of the security include:

 

   March 31,
2012
   December
31, 2011
 
         
Voluntary repayment rate (CRR)   10.20%   10.30%
Default rates:          
Within next 12 months   10.60%   10.47%
Decreasing to (by month 37)   4.03%   4.29%
Decreasing to (by month 215)   0.00%   0.00%
Loss severity rates:          
Initial loss upon default (Year 1)   49.10%   49.94%
Per annum decrease (Years 2 - 11)   2.50%   2.50%
Floor (Year 12)   23.00%   23.00%
Discount rate (1):   11.00%   10.00%
Remaining credit support provided by other collateral          
pools of underlying loans within the security:   4.07%   4.79%

 

(1) Intended to reflect estimated uncertainity and liquidity premiums, after adjustment for estimated credit loss cash flows

 

7
 

 

The prepayment assumptions used with the model consider borrowers’ incentive to prepay based on market interest rates and borrowers’ ability to prepay based on underlying assumptions for borrowers’ ability to qualify for a new loan based on their credit and appraised property value, by location. As such, prepayment speeds decrease as credit quality and home prices deteriorate, reflecting a diminished ability to refinance.

 

In addition, collateral cash flow assumptions utilize a valuation technique under a “Liquidation Scenario” whereby loans are evaluated by delinquency and are assigned probability of default and loss factors deemed appropriate in the current economic environment. The liquidation scenarios assume that all loans 60 or more days past due migrate to default, are liquidated, and losses are realized over a period of between six and twenty four months based in part upon initial loan to value ratios and estimated changes in both historical and future property values since origination as obtained from financial data resources.

 

At March 31, 2012, based on a present value at a prospective yield of future cash flows for the investment as provided by the specialist and after management’s evaluation of the reasonableness of the specialist’s underlying assumptions regarding Level 2 and Level 3 inputs, the Corporation concluded that the security’s expected cash flows continue to support the amortized cost of the security and no additional other-than-temporary impairment had been incurred. Accordingly, the unrealized (non-credit) loss on the security was determined to approximate $342,000 using the valuation methodology and applicable inputs and assumptions described above.

 

The following is a summary of the gross unrealized losses and fair value of securities by length of time that individual securities have been in a continuous loss position:

 

   March 31, 2012 
   Less than 12 months   12 months or more   Total 
   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value 
U.S. agency securities  $(29,771)  $2,970,229   $-   $-   $(29,771)  $2,970,229 
Mortgage-backed/CMO securities   (141,564)   19,122,150    (342,476)   2,063,078    (484,040)   21,185,228 
Total available for sale  $(171,335)  $22,092,379   $(342,476)  $2,063,078   $(513,811)  $24,155,457 

 

   December 31, 2011 
   Less than 12 months   12 months or more   Total 
   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value 
U.S agency securites  $(2,032)  $1,997,968   $-   $-   $(2,032)  $1,997,968 
Mortgage-backed/CMO securities   (35,951)   6,889,954    (436,902)   2,063,514    (472,853)   8,953,468 
Total available for sale  $(37,983)  $8,887,922   $(436,902)  $2,063,514   $(474,885)  $10,951,436 

 

The following is a summary of the amortized cost and fair value of investment securities by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   March 31, 2012   December 31, 2011 
   Amortized Cost   Fair Value   Amortized Cost   Fair Value 
Due in one year or less  $-   $-   $-   $- 
Due after one year through five years   1,333,333    1,333,484    4,990,000    4,995,982 
Due after five years through ten years   305,000    312,546    2,305,000    2,327,053 
Due after ten years   4,028,255    4,082,705    1,028,501    1,105,094 
   $5,666,588   $5,728,735   $8,323,501   $8,428,129 
Mortgage-backed/CMO securities   44,751,538    44,429,688    24,225,863    23,896,743 
Totals  $50,418,126   $50,158,423   $32,549,364   $32,324,872 

 

Investment securities, with an amortized cost of approximately $45,440,000 at March 31, 2012 were pledged to secure public deposits and for other purposes required or permitted by law, including approximately $32,650,000 of securities pledged as collateral at the Federal Home Loan Bank of Indianapolis (FHLBI) to support potential liquidity needs of the Bank. At December 31, 2011, the amortized cost of pledged investment securities approximated $30,000,000, including $24,207,000 of securities pledged as collateral the FHLBI for contingent liquidity needs of the Bank.

 

The Bank owns stock in both the Federal Home Loan Bank of Indianapolis (FHLBI) and the Federal Reserve Bank (FRB), both of which are recorded at cost. The Bank is required to hold stock in the FHLBI equal to 5% of the institution’s borrowing capacity with the FHLBI. The Bank’s investment in FHLBI stock amounted to $734,800 at March 31, 2012 and December 31, 2011, respectively. The Bank’s investment in FRB stock, which totaled $44,250 at March 31, 2012 and December 31, 2011, is a requirement for the Bank’s membership in the Federal Reserve System. These investments can only be resold to, or redeemed by, the issuer.

 

8
 

 

4. Loans

The following is the recorded investment in portfolio loans:

 

   March 31,   December 31, 
   2012   2011 
Commercial  $15,701,085   $13,590,051 
Commercial real estate:          
Construction, land development, and other land   12,410,832    13,917,495 
Owner occupied   59,367,315    61,555,311 
Nonowner occupied   80,133,394    80,983,665 
Consumer real estate:          
Commercial purpose   8,027,642    9,080,098 
Mortgage - Residential   15,352,611    15,055,832 
Home equity and home equity lines of credit   8,776,889    9,865,021 
Consumer and Other   4,475,831    4,992,368 
Subtotal   204,245,599    209,039,841 
Unearned income   (184,727)   (195,684)
Total Loans  $204,060,872   $208,844,157 

 

Included in the consumer real estate loans above are residential first mortgages reported as “real estate mortgages” on the consolidated balance sheet. In addition, a portion of these consumer real estate loans include commercial purpose loans where the borrower has pledged a 1-4 family residential property as collateral. Loans also include the reclassification of demand deposit overdrafts, which amounted to $70,000 at March 31, 2012 and $99,000 at December 31, 2011, respectively.

 

Loans serviced for others, including commercial participations sold, are not reported as assets of the Bank and approximated $3,800,000 at March 31, 2012 and $4,000,000 at December 31, 2011.

 

5. Allowance for Loan Losses and Credit Quality of Loans

The Corporation separates its loan portfolio into segments to perform the calculation and analysis of the allowance for loan losses. The four segments analyzed are Commercial, Commercial Real Estate, Consumer Real Estate, and Consumer and Other. The Commercial segment includes loans to finance commercial and industrial businesses that are not secured by real estate. The Commercial Real Estate segment includes: i) construction real estate loans to finance construction and land development and/or loans secured by vacant land and ii) commercial real estate loans secured by non-farm, non-residential real estate which are further classified as either owner occupied or non-owner occupied based on the underlying collateral type. The Consumer Real Estate segment includes (commercial and non-commercial purpose) loans that are secured by 1 – 4 family residential real estate properties, including first mortgages on residential properties and home equity loans and lines of credit that are secured by first or second liens on residential properties. The Consumer and Other segment includes all loans not included in any other segment. These are primarily loans to consumers for household, family, and other personal expenditures, such as autos, boats, and recreational vehicles.

 

Activity in the allowance for loan losses by portfolio segment is a follows:

 

   For the Three Months Ended March 31, 2012 
   Commercial   Commercial
 Real Estate
   Consumer Real
Estate
   Consumer and
Other
   Total 
Allowance for loan losses:                         
Beginning balance  $636,207   $9,112,430   $2,680,330   $260,892   $12,689,859 
Charge offs   (216,328)   (1,105,583)   (217,103)   (28,803)   (1,567,817)
Recoveries   27,755    365,646    12,550    23,904    429,855 
Provision   117,202    187,146    169,065    (23,413)   450,000 
Ending balance  $564,836   $8,559,639   $2,644,842   $232,580   $12,001,897 

 

   For the Three Months Ended March 31, 2011 
   Commercial   Commercial
 Real Estate
   Consumer Real
Estate
   Consumer and
Other
   Total 
Allowance for loan losses:                         
Beginning balance  $1,049,233   $10,555,428   $2,212,618   $152,891   $13,970,170 
Charge offs   (224,352)   (551,253)   (506,105)   (47,239)   (1,328,949)
Recoveries   34,527    205,342    25,374    27,925    293,168 
Provision   284,637    153,080    312,740    49,541    799,998 
Ending balance  $1,144,045   $10,362,597   $2,044,627   $183,118   $13,734,387 

 

9
 

 

The following presents the balance in allowance for loan losses and loan balances by portfolio segment based on impairment method:

 

   March 31, 2012 
   Commercial   Commercial
Real Estate
   Consumer Real
Estate
   Consumer and
Other
   Total 
Allowance for loan losses:                         
Individually evaluated for impairment  $3,000   $1,908,000   $554,000   $-   $2,465,000 
Collectively evaluated for impairment   561,836    6,651,639    2,090,842    232,580    9,536,897 
Total allowance for loan losses  $564,836   $8,559,639   $2,644,842   $232,580   $12,001,897 
                          
Loan balances:                         
Individually evaluated for impairment  $818,602   $21,216,692   $2,704,617   $-   $24,739,911 
Collectively evaluated for impairment   14,882,483    130,694,849    29,452,525    4,475,831    179,505,688 
Total loans  $15,701,085   $151,911,541   $32,157,142   $4,475,831   $204,245,599 

 

   December 31, 2011 
   Commercial   Commercial
Real Estate
   Consumer Real
Estate
   Consumer and
Other
   Total 
Allowance for loan losses:                         
Individually evaluated for impairment  $174,000   $2,278,000   $432,000   $-   $2,884,000 
Collectively evaluated for impairment   462,207    6,834,430    2,248,330    260,892    9,805,859 
Total allowance for loan losses  $636,207   $9,112,430   $2,680,330   $260,892   $12,689,859 
                          
Loan balances:                         
Individually evaluated for impairment  $765,683   $21,482,740   $2,871,542   $-   $25,119,965 
Collectively evaluated for impairment   12,824,368    134,973,731    31,129,409    4,992,368    183,919,876 
Total loans  $13,590,051   $156,456,471   $34,000,951   $4,992,368   $209,039,841 

 

Management’s on-going monitoring of the credit quality of the portfolio relies on an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank’s customers, the payment performance of individual loans and pools of homogenous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific relationships.

 

Our internal loan grading system assigns a risk grade to all commercial loans. This grading system is similar to those employed by banking regulators. Grades 1 through 5 are considered “pass” credits and grade 6 are considered “watch” credits and are subject to greater scrutiny. Those loans graded 7 and higher are considered substandard and are individually evaluated for impairment if reported as nonaccrual and are greater than $100,000 or part of an aggregate relationship exceeding $100,000. All commercial loans are graded at inception and reviewed, and if appropriate, re-graded at various intervals thereafter. Additionally, our commercial loan portfolio and assigned risk grades are periodically subjected to review by external loan reviewers and banking regulators. Certain of the key factors considered in assigning loan grades include: cash flows, operating performance, financial condition, collateral, industry condition, management, and the strength, liquidity and willingness of guarantors’ support.

 

A description of the general characteristics of each risk grade follows:

 

·RATING 1 (Minimal) - Loans in this category are generally to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities on long-term debt by a substantial margin.

 

·RATING 2 (Modest) – These loans generally to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally-generated cash flow covers current maturities on long-term debt more than adequately.

 

·RATING 3 (Average) – These are loans generally with average cash flow and ratios compared to peers. Usually RMA comparisons show where companies fall in the performance spectrum. Companies have consistent performance for 3 or more years.

 

·RATING 4 (Acceptable) – These are loans generally to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Overall, these loans are basically sound.

 

·RATING 5 (Acceptable – Monitor) - These loans are characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information or weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where near term potential for improvement in financial capacity appears limited.

 

10
 

 

·RATING 6 (Special Mention - OAEM) - Loans in this class generally have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These potential weaknesses may result in a deterioration of the repayment of the loan and increase the credit risk. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Special mention credits may include a borrower that pays the Bank on a timely basis (occasional 30 day delinquent) and may be experiencing temporary cash flow deficiencies.

 

·RATING 7 (Substandard) - These loans are generally inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans. Substandard credits may include a borrower that pays consistently past due, has significant cash flow shortages and may have a collateral shortfall that requires a specific reserve.

 

·RATING 8 (Doubtful) - This risk rating class has all of the weaknesses inherent in the substandard rating but with the added characteristic that the weaknesses make collection in full or liquidation, on the basis of currently known existing facts, condition, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full within a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Bank’s loan. These loans are in a work-out status, must be non-accrual status and have a defined work-out strategy.

 

This is a transitional risk rating class while collateral value and other factors are assessed. Loans will remain in this class for the assessment period, but in no event for more than 1 year. If there is no improvement in the Bank’s position during that time, or if collateral value is determined sooner, a charge-off will be taken to best reflect known asset collateral value.

 

·RATING 9 (Loss) - Loans in this risk rating have a portion of the loan that is deemed to be uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification means the asset has absolutely no recovery or salvage value. The Bank will take the loss in the period in which the related loan becomes uncollectible.

 

The assessment of compensating factors may result in a rating plus or minus one grade from those listed above. These factors include, but are not limited to collateral, guarantors, environmental conditions, history, plan/projection reasonableness, quality of information, and payment delinquency.

 

The internal loan grading system is applied to the residential real estate portion of our consumer loan portfolio upon certain triggering events (e.g., delinquency, bankruptcy, restructuring, etc.). The primary risk element for the residential real estate portion of consumer loans is the timeliness of borrowers’ scheduled payments. We rely primarily on our internal reporting system to monitor past due loans and have internal policies and procedures to pursue collection and protect our collateral interests in order to mitigate losses.

 

Our monitoring of credit quality is further denoted by classification of loans as nonperforming, which reflects loans where the accrual of interest has been discontinued and loans that are past due 90 days or more and still accruing interest. In addition, nonperforming loans include troubled debt restructured loans (as discussed below) that are on nonaccrual status or past due 90 days or more. Troubled debt restructured loans that are accruing interest and not past due 90 days or more are excluded from nonperforming loans.

 

The following presents the recorded investment in loans by risk grade and a summary of nonperforming loans by class of loan:

 

   March 31, 2012 
   Not Rated   1   2   3   4   5   6   7   Total   Nonperforming 
Commercial    $50,000   $718,639   $39,882   $4,705,847   $3,971,740   $4,339,898   $722,704   $1,152,375   $15,701,085   $318,410 
Commercial Real Estate:                                                    
Construction, land development, and other land   -    -    -    -    511,468    5,557,666    264,335    6,077,363    12,410,832    5,779,810 
Owner occupied   48,947    -    493,220    3,349,428    17,929,685    26,889,592    3,942,871    6,713,572    59,367,315    4,612,361 
Nonowner occupied   -    -    -    799,527    25,147,848    35,371,741    6,356,693    12,457,585    80,133,394    7,084,227 
Consumer Real Estate:                                                    
Commercial purpose   -    -    -    278,946    1,042,422    3,113,816    348,855    3,243,603    8,027,642    2,703,891 
Mortgage - Residential   12,784,663    -    -    -    -    -    -    2,567,948    15,352,611    1,705,194 
Home equity and home equity lines of credit   8,196,234    -    -    -    -    -    -    580,655    8,776,889    560,492 
Consumer and Other     4,268,357    -    -    -    10,815    8,488    -    188,171    4,475,831    159,355 
Total  $25,348,201   $718,639   $533,102   $9,133,748   $48,613,978   $75,281,201   $11,635,458   $32,981,272   $204,245,599   $22,923,740 

    

11
 

 

   December 31, 2011 
   Not Rated   1   2   3   4   5   6   7   Total   Nonperforming 
Commercial  $32,582   $648,903   $243,036   $2,207,439   $3,875,357   $4,495,143   $759,912   $1,327,679   $13,590,051   $548,738 
Commercial Real Estate:                                                  
Construction, land development, and other land   89,145    14    -    -    533,788    5,862,741    254,730    7,177,077    13,917,495    6,709,959 
Owner occupied   51,132    -    507,335    3,425,574    18,211,903    27,325,525    4,189,300    7,844,542    61,555,311    5,713,669 
Nonowner occupied   -    -    -    808,934    25,322,302    36,134,755    6,831,452    11,886,222    80,983,665    5,152,855 
Consumer Real Estate:                                                  
Commercial purpose   -    -    -    309,403    1,718,601    3,026,981    795,907    3,229,206    9,080,098    2,643,185 
Mortgage - Residential   12,638,670    -    -    -    -    -    -    2,417,162    15,055,832    1,586,630 
Home equity and home equity lines of credit   9,201,424    -    -    -    -    -    -    663,597    9,865,021    571,406 
Consumer and Other   4,164,041    -    -    431,155    121,382    116,956    -    158,834    4,992,368    44,364 
Total  $26,176,994   $648,917   $750,371   $7,182,505   $49,783,333   $76,962,101   $12,831,301   $34,704,319   $209,039,841   $22,970,806 

 

Loans are considered past due when contractually required principal or interest has not been received. The amount classified as past due is the entire principal balance outstanding of the loan, not just the amount of payments that are past due.

 

An aging analysis of the recorded investment in past due loans, segregated by class of loans follows:

 

   March 31, 2012 
                           90+ Days 
   30-59 Days   60-89 Days   90+ Days   Total Past           Past Due 
   Past Due   Past Due   Past Due   Due   Current   Total   and Accruing 
Commercial  $81,371   $13,505   $111,002   $205,878   $15,495,207   $15,701,085   $22,635 
Commercial real estate:                                   
Construction, land development, and other land   251,185    51,165    2,158,612    2,460,962    9,949,870    12,410,832    - 
Owner occupied   261,750    301,102    1,349,136    1,911,988    57,455,327    59,367,315    - 
Nonowner occupied   261,021    1,496,148    1,575,321    3,332,490    76,800,904    80,133,394    - 
Consumer real estate:                                   
Commercial purpose   179,234    189,021    624,021    992,276    7,035,366    8,027,642    226,117 
Mortgage - Residential   271,005    149,382    169,696    590,083    14,762,528    15,352,611    - 
Home equity and home equity lines of credit   173,371    127,145    13,000    313,516    8,463,373    8,776,889    - 
Consumer and Other   92,103    38,836    2,676    133,615    4,342,216    4,475,831    - 
Total  $1,571,040   $2,366,304   $6,003,464   $9,940,808   $194,304,791   $204,245,599   $248,752 

 

   December 31, 2011 
                           90+ Days 
   30-59 Days   60-89 Days   90+ Days   Total Past           Past Due 
   Past Due   Past Due   Past Due   Due   Current   Total   and Accruing 
Commercial  $85,993   $-   $137,150   $223,143   $13,366,908   $13,590,051   $8,486 
Commercial real estate:                                   
Construction, land development, and other land   114,077    49,353    4,071,744    4,235,174    9,682,321    13,917,495    - 
Owner occupied   105,925    -    1,277,214    1,383,139    60,172,172    61,555,311    - 
Nonowner occupied   -    162,127    630,580    792,707    80,190,958    80,983,665    - 
Consumer real estate:                                   
Commercial purpose   213,923    -    455,647    669,570    8,410,528    9,080,098    - 
Mortgage - Residential   419,436    -    80,779    500,215    14,555,617    15,055,832    - 
Home equity and home equity  lines of credit   217,545    79,472    13,000    310,017    9,555,004    9,865,021    - 
Consumer and Other   50,149    1,431    2,925    54,505    4,937,863    4,992,368    - 
Total  $1,207,048   $292,383   $6,669,039   $8,168,470   $200,871,371   $209,039,841   $8,486 

 

Loans are placed on nonaccrual when, in the opinion of management, the collection of additional interest is doubtful. Loans are generally placed on nonaccrual upon becoming ninety days past due. However, loans may be placed on nonaccrual regardless of whether or not they are past due. All cash received on nonaccrual loans is applied to the principal balance. Loans are considered for return to accrual status on an individual basis when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

12
 

 

The following is a summary of the recorded investment in nonaccrual loans, by class of loan:

 

   March 31,
 2012
   December 31,
2011
 
Commercial  $295,775   $540,252 
Commercial real estate:          
Construction, land development, and other land   5,779,810    6,709,959 
Owner occupied   4,612,361    5,713,669 
Nonowner occupied   7,084,227    5,152,855 
Consumer real estate:          
Commercial purpose   2,477,774    2,643,185 
Mortgage - Residential   1,705,194    1,586,630 
Home equity and home equity lines of credit   560,492    571,406 
Consumer and Other   159,355    44,364 
Total  $22,674,988   $22,962,320 

 

The following presents information pertaining to impaired loans and related valuation allowance allocations by class of loan:

 

   March 31, 2012   December 31, 2011 
   Recorded
Investment
   Unpaid Principal
Balance
   Valuation
Allowance
   Recorded
Investment
   Unpaid Principal
Balance
   Valuation
Allowance
 
Impaired loans with a valuation allowance:                              
Commercial  $19,500   $131,952   $3,000   $321,682   $368,999   $174,000 
Commercial real estate:                              
Construction, land development, and other land   2,939,768    5,030,967    415,000    3,240,742    6,664,583    730,000 
Owner occupied   2,809,022    3,784,032    479,000    3,350,971    4,539,912    865,000 
Nonowner occupied   6,585,210    9,175,347    1,014,000    5,608,971    8,097,993    683,000 
Consumer real estate:                              
Commercial purpose   2,009,508    3,267,407    554,000    2,075,250    3,287,549    432,000 
Mortgage - Residential   -    -    -    -    -    - 
Home equity and home equity lines of credit   -    -    -    -    -    - 
Consumer and Other   -    -    -    -    -    - 
Total   14,363,008    21,389,705    2,465,000    14,597,616    22,959,036    2,884,000 
                               
Impaired loans without a valuation allowance:                              
Commercial   799,102    1,282,397    -    444,001    903,039    - 
Commercial real estate:                              
Construction, land development, and other land   3,106,177    5,691,145    -    3,363,392    4,656,090    - 
Owner occupied   3,266,547    4,517,370    -    3,467,223    4,560,418    - 
Nonowner occupied   2,509,968    3,116,012    -    2,451,441    2,747,156    - 
Consumer real estate:                              
Commercial purpose   695,109    1,035,857    -    796,292    1,039,156    - 
Mortgage - Residential   -    -    -    -    -    - 
Home equity and home equity lines of credit   -    -    -    -    -    - 
Consumer and Other   -    -    -    -    -    - 
Total   10,376,903    15,642,781    -    10,522,349    13,905,859    - 
                               
Total:                              
Commercial   818,602    1,414,349    3,000    765,683    1,272,038    174,000 
Commercial real estate:                              
Construction, land development, and other land   6,045,945    10,722,112    415,000    6,604,134    11,320,673    730,000 
Owner occupied   6,075,569    8,301,402    479,000    6,818,194    9,100,330    865,000 
Nonowner occupied   9,095,178    12,291,359    1,014,000    8,060,412    10,845,149    683,000 
Consumer real estate:                              
Commercial purpose   2,704,617    4,303,264    554,000    2,871,542    4,326,705    432,000 
Mortgage - Residential   -    -    -    -    -    - 
Home equity and home equity lines of credit   -    -    -    -    -    - 
Consumer and Other   -    -    -    -    -    - 
Total Impaired Loans  $24,739,911   $37,032,486   $2,465,000   $25,119,965   $36,864,895   $2,884,000 

 

13
 

 

The following presents information pertaining to the recorded investment in impaired loans:

 

   Three Months Ended   Three Months Ended 
   March 31, 2012   March 31, 2011 
   Average
Outstanding 
Balance
   Interest 
Income
Recognized
   Average
Outstanding 
Balance
   Interest 
Income
Recognized
 
Commercial  $917,971   $5,501   $1,209,773   $- 
Commercial real estate:                    
Construction, land development,  and other land   6,220,301    4,875    7,979,415    - 
Owner occupied   6,620,182    20,454    6,530,673    2,345 
Nonowner occupied   9,007,313    33,086    11,359,747    25,584 
Consumer real estate:                    
Commercial purpose   2,914,531    2,703    2,095,336    1,012 
Mortgage - Residential   -    -    -    - 
Home equity and home equity   -    -    -    - 
lines of credit   -    -    -    - 
Consumer and Other   -    -    -    - 
Total  $25,680,298   $66,619   $29,174,944   $28,941 

 

For loans where impairment is measured based on the present value of expected future cash flows, subsequent changes in present value and related allowance adjustments resulting from the passage of time are accounted for within the provision of loan losses rather than interest income.

 

Troubled Debt Restructurings

 

The Corporation may agree to modify the terms of a loan to improve its ability to collect amounts due. The modified terms are intended to enable customers to mitigate the risk of foreclosure by creating a payment structure that provides for continued loan payment requirements based on their current cash flow ability. Modifications, including renewals where concessions are made by the Bank and result from the debtor’s financial difficulties are considered troubled debt restructurings (TDRs).

 

Loan modifications are considered TDRs when the modification includes terms outside of normal lending practices (i.e., concessions) to a borrower who is experiencing financial difficulties.

 

Typical concessions granted include, but are not limited to:

 

1.Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics

2.Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics

3.Forbearance of principal

4.Forbearance of accrued interest

 

To determine if a borrower is experiencing financial difficulties, the Corporation considers if:

 

1.The borrower is currently in default on any other of their debt

2.It is likely that the borrower would default on any of their debt if the concession was not granted

3.The borrower’s cash flow was sufficient to service all of their debt if the concession was not granted

4.The borrower has declared, or is in the process of declaring bankruptcy

5.The borrower is a going concern (if the entity is a business)

 

The following summarizes troubled debt restructurings:

 

   March 31, 2012   December 31, 2011 
   Outstanding Recorded Investment   Outstanding Recorded Investment 
   Accruing   Nonaccrual   Total   Accruing   Nonaccrual   Total 
Commercial  $522,828   $205,126   $727,954   $238,518   $298,783   $537,301 
Commercial real estate:                              
Construction, land development,  and other land   266,134    3,510,888    3,777,022    20,093    4,564,389    4,584,482 
Owner occupied   1,463,207    2,849,775    4,312,982    1,104,525    3,306,354    4,410,879 
Nonowner occupied   2,010,951    3,398,479    5,409,430    2,360,989    2,498,049    4,859,038 
Consumer real estate:                              
Commercial purpose   226,843    1,787,632    2,014,475    228,356    2,024,973    2,253,329 
Mortgage - Residential   347,522    959,336    1,306,858    351,090    770,376    1,121,466 
Home equity and home equity  lines of credit   52,828    211,627    264,455    -    213,528    213,528 
Consumer and Other   -    96,277    96,277    88,500    10,673    99,173 
Total  $4,890,313   $13,019,140   $17,909,453   $4,392,071   $13,687,125   $18,079,196 

 

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Troubled debt restructured loans may qualify for return to accrual status if the borrower complies with the revised terms and conditions and has demonstrated sustained payment performance consistent with the modified terms for a minimum of six consecutive payment cycles after the restructuring date. In addition, the collection of future payments must be reasonably assured.

 

The following presents information regarding existing loans that were restructured, resulting in the loan being classified as a troubled debt restructuring:

 

   Loans Restructured in the Three Months 
Ended March 31, 2012
 
   Number 
of Loans
   Pre-Modification
Recorded
Investment
   Post-Modification
Recorded
Investment
 
Commercial   -   $-   $- 
Commercial real estate:               
Construction, land development, and other land   -    -    - 
Owner occupied   -    -    - 
Nonowner occupied   2    611,179    611,179 
Consumer real estate:               
Commercial purpose   -    -    - 
Mortgage - Residential   1    207,156    207,156 
Home equity and home equity lines of credit   1    53,215    53,215 
Consumer and Other   -    -    - 
Total   4   $871,550   $871,550 

 

Two commercial real estate loans with an aggregate recorded investment of $1,165,642 that were modified as TDRs in the last twelve months defaulted during the three months ended March 31, 2012. A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

 

The following summarizes the nature of concessions granted by the Corporation to borrowers experiencing financial difficulties which resulted in troubled debt restructurings:

 

   Loans Restructured in the Three Months Ended March 31, 2012 
   Non-Market Interest Rate   Non-Market Interest Rate and
Extension of Amortization Period
 
   Number of
Loans
   Pre-Modification
Recorded Investment
   Number of
Loans
   Pre-Modification
Recorded Investment
 
                 
Commercial   -   $-    -   $- 
Commercial real estate:                    
Construction, land development, and other land   -    -    -    - 
Owner occupied   -    -    -    - 
Nonowner occupied   1    143,039    1    468,140 
Consumer real estate:                    
Commercial purpose   -    -    -    - 
Mortgage - Residential   1    207,156    -    - 
Home equity and home equity  lines of credit   1    53,215    -    - 
Consumer and Other   -    -    -    - 
Total   3   $403,410    1   $468,140 

 

During the three month period ended March 31, 2012, non-market interest rate restructurings included pre-modification recorded investments of approximately $196,000 related to performing loans that were renewed at either their existing contractual rates or non-market interest rates.

 

6. Fair Value Measurements

 

The Corporation measures fair values based on ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value and establishes a consistent framework for measuring and expands disclosure requirements for fair value measurements. Fair value represents the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price”. The three levels of inputs that may be used to measure fair value are as follows:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

 

15
 

 

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The following is a description of the Corporation’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring basis:

 

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available (Level 1). If quoted prices are not available, fair values are measured using independent pricing models such as matrix pricing models (Level 2). Matrix pricing is a mathematical technique widely used in the financial industry to value debt securities without relying on quoted market prices for specific securities but rather by relying on securities’ relationships to other benchmark quoted prices. Level 2 securities include U.S. government and agency securities, other U.S. government and agency mortgage-backed securities, municipal bonds and preferred stock securities. Level 3 securities include private collateralized mortgage obligations. The fair value measurement of our only Level 3 security, a non-agency mortgage-backed security, and details regarding significant unobservable inputs and assumptions used in estimating its fair value, is detailed in Note 3, Investment Securities.

 

Fair value of assets measured on a recurring basis:

 

   Fair Value Measurements at March 31, 2012 
       Quoted Prices in 
Active Markets for 
Identical Assets
   Significant Other
Observable Inputs
   Significant
Unobservable 
Inputs
 
   Total   (Level 1)   (Level 2)   (Level 3) 
Obligations of state and political subdivisions  $1,312,222   $-   $1,312,222   $- 
U.S. agency securities   4,303,713    -    4,303,713    - 
Mortgage-backed/CMO securities   44,429,688    -    42,366,610    2,063,078 
Preferred stock securities   112,800    -    112,800    - 
Total investment securities available for sale  $50,158,423   $-   $48,095,345   $2,063,078 

 

   Fair Value Measurements at December 31, 2011 
       Quoted Prices in 
Active Markets for 
Identical Assets
   Significant Other
Observable Inputs
   Significant
Unobservable 
Inputs
 
   Total   (Level 1)   (Level 2)   (Level 3) 
Obligations of state and political subdivisions  $1,311,771   $-   $1,311,771   $- 
U.S. agency securities   7,007,958    -    7,007,958    - 
Mortgage-backed/CMO securities   23,896,743    -    21,833,229    2,063,514 
Preferred stock securities   108,400    -    108,400    - 
Total investment securities available for sale  $32,324,872   $-   $30,261,358   $2,063,514 

 

The reconciliation for the asset classified by the Corporation measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2012 is as follows:

 

Fair value of non-agency mortgage-backed security, beginning of period (1)  $2,063,514 
Total gains (losses) realized/unrealized:     
Included in earnings (2)   - 
Included in other comprehensive income (loss) (2)   94,426 
Purchases, issuances, and other settlements   (94,862)
Transfers into Level 3   - 
Fair value of non-agency mortgage-backed security, March 31, 2012  $2,063,078 
      
Total amount of losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at March 31, 2012  $- 

 

(1)Non-agency mortgage-backed security classified as available for sale is valued using internal valuation models and pricing information from third parties.

(2)Realized gain (losses), including unrealized losses deemed other-than-temporary, are reported in noninterest income. Unrealized gains (losses) are reported in accumulated other comprehensive income (loss).

 

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The following is a description of the Corporation’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a nonrecurring basis:

 

Loans. The Corporation does not record loans at fair value on a recurring basis. However, from time to time, the Corporation records nonrecurring fair value adjustments to impaired loans. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge off. A loan is considered impaired when it is probable that all of the principal and interest due under the original terms of the loan may not be collected. Impairment is typically measured based on the fair value of the underlying collateral which is determined, where possible, using observable market prices derived from appraisals or broker price opinions, which are considered to be Level 2. When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loan as nonrecurring Level 3. Fair value may also be measured using the present value of expected future cash flows discounted at the loan’s effective interest rate. Since certain assumptions and unobservable inputs are currently used in both techniques, impaired loans are recorded as Level 3 in the fair value hierarchy.

 

Other real estate owned. Real estate acquired through foreclosure or deed-in-lieu is adjusted to fair value less costs to sell upon transfer of the loan to other real estate owned, usually based on an appraisal of the property. Subsequently, other real estate owned is carried at the lower of carrying value or fair value less costs to sell. A valuation based on a current appraisal or by a broker’s opinion is considered a Level 2 fair value. If management determines the fair value of the property is further impaired below the appraised value and there is no observable market price, the Corporation records the property as nonrecurring Level 3.

 

Fair value on a nonrecurring basis is as follows:

 

   Fair Value Measurements at March 31, 2011 
       Quoted Prices in 
Active Markets for 
Identical Assets
   Significant Other
Observable Inputs
   Significant 
Unobservable
Inputs
 
   Total   (Level 1)   (Level 2)   (Level 3) 
Impaired loans (1)  $22,274,911    -    -    22,274,911 
Other real estate owned   3,252,862    -    -    3,252,862 

 

   Fair Value Measurements at December 31, 2011 
       Quoted Prices in 
Active Markets for 
Identical Assets
   Significant Other
Observable Inputs
   Significant 
Unobservable
Inputs
 
   Total   (Level 1)   (Level 2)   (Level 3) 
Impaired loans (1)  $22,235,965   $-   $-   $22,235,965 
Other real estate owned   3,026,073   -   -    3,026,073 

 

(1)Represents carrying value and related write-downs and specific reserves on loans for which fair value is measured using either the appraised value of the underlying collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate, and other unobservable inputs.

  

7. Fair Value of Financial Instruments 

Fair value disclosures require fair-value information about financial instruments for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair-value estimates cannot be substantiated by comparison to independent markets and, in many cases, cannot be realized in immediate settlement of the instrument.

 

Fair-value methods and assumptions for the Corporation’s financial instruments are as follows:

 

Cash and cash equivalents – The carrying amounts reported in the consolidated balance sheet for cash and due from banks and short term investments reasonably approximate those assets’ fair values.

 

Investment securities – Fair values for investment securities are determined as discussed above.

 

FHLBI and FRB stock – The carrying amount is the estimated fair value of FHLBI and FRB stock. Due to restrictions placed on transferability, these equity securities are not readily marketable and are recorded at cost (par value) and evaluated for impairment based on the ultimate recoverability of the par value.

 

Loans – For variable-rate loans that reprice frequently, fair values are generally based on carrying values, adjusted for credit risk. The fair value of fixed-rate loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

Loans are not recorded at fair value on a recurring basis. As noted above, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on an observable market price or a current estimate of collateral value. These loans are reported in the nonrecurring table above at initial recognition of impairment and on an ongoing basis until recovery or charge off,

 

Accrued interest income – The carrying amount of accrued interest income is a reasonable estimate of fair value.

 

Deposit liabilities – The fair value of deposits with no stated maturity, such as demand deposit, NOW, savings, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is estimated using rates currently offered for wholesale funds with similar remaining maturities.

 

Other borrowings – The carrying amount of other borrowings is a reasonable estimate of fair value.

 

Accrued interest expense – The carrying amount of accrued interest payable is a reasonable estimate of fair value.

 

17
 

 

Off-balance-sheet instruments – The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of commitments to extend credit, including letters of credit, is estimated to approximate their aggregate book balance and is not considered material and therefore not included in the following table.

 

The carrying amount, estimated fair value and level within the fair value hierarchy of the Corporation’s financial instruments are as follows:

 

   Level in   March 31, 2012   December 31, 2011 
   Fair Value
Hierarchy
  Carrying
Value
   Fair
Value
   Carrying
Value
   Fair
Value
 
Financial assets:                       
Cash and due from banks  Level 1  $30,267,000   $30,267,000   $50,019,000   $50,019,000 
Short term investments  Level 2   197,000    197,000    197,000    197,000 
Investment securities  Level 2   48,095,000    48,095,000    30,261,000    30,261,000 
Non-agency mortgage-backed security  Level 3   2,063,000    2,063,000    2,064,000    2,063,000 
FHLBI and FRB stock  Level 2   779,000    779,000    779,000    779,000 
Loans, net (a)  Level 3   192,059,000    193,401,000    196,154,000    197,088,000 
Accrued interest income  Level 2   722,000    722,000    739,000    739,000 
                        
Financial liabilities:                       
Deposits  Level 2  $277,470,000   $277,650,000   $283,653,000   $284,547,000 
Other borrowings  Level 2   80,000    80,000    60,000    60,000 
Accrued interest expense  Level 2   117,000    117,000    136,000    136,000 

   

(a) Included $22.3 million and $22.2 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2012 and December 31, 2011, respectively.

 

Limitations

Fair-value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discounts that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair-value estimates are based on judgments regarding future loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

8. Net Income (Loss) per Common Share

Basic earnings per common share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share is the same as basic earnings per share because any additional potential common shares issuable are included in the basic earnings per share calculation. The Corporation follows guidance included in ASC Topic 260, Earnings Per Share, related to determining whether instruments granted in a share-based payment transaction are participating securities. This guidance requires that unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (referred to as “participating securities”), be included in the number of shares outstanding for both basic and diluted earnings per share calculations. Our unvested restricted stock under the Long-Term Incentive Plan is considered a participating security and has been included in determining both basic and diluted earnings per share. In the event of a net loss, the participating securities are excluded from the calculation of both basic and diluted earnings per share, as the impact would be anti-dilutive.

 

   First Quarter 
   2012   2011(1) 
         
Weighted average shares outstanding   457,402    457,279 
Weighted average unvested restricted stock outstanding   6,916    - 
Weighted average basic and diluted shares outstanding   464,318    457,279 
           
Net income (loss) available to common shareholders  $45,922   $(222,758)
Basic and diluted net income (loss) per share  $0.10   $(0.49)

 

(1) Number of shares is adjusted to reflect the 1-for-7 reverse stock split effective October 3, 2011.

 

9. Long Term Incentive Plan  

Under the Long Term Incentive Plan (the “LTIP”), the Corporation had the authority to grant stock options and restricted stock as compensation to key employees. Such authority expired April 22, 2008. The Corporation did not award any stock options under the LTIP. The restricted shares granted under the LTIP have a five-year vesting period. The awards were recorded at fair value on the grant date and are amortized into salary expense over the vesting period.

 

18
 

 

A summary of the activity under the LTIP for the three months ended March 31, 2012 and 2011 is presented below:

 

   2012   2011 
       Weighted-Average
Grant Date
       Weighted-Average
Grant Date
 
Restricted Stock Awards (1)  Shares   Fair Value   Shares (1)   Fair Value 
Outstanding at January 1,   40   $98.88    173   $112.20 
Granted   -    -    -    - 
Vested   (11)   120.01    (28)   134.05 
Forfeited   -    -    -    - 
Outstanding at March 31,   29   $91.00    145   $107.96 

 

(1) Number of shares are adjusted to reflect the 1-for-7 reverse stock split effective October 3, 2011.

 

The total fair value of the awards vested during the three months ended March 31, 2012 and 2011 was $1,307 and $3,780, respectively. As of March 31, 2012, there was approximately $2,600 of total unrecognized compensation cost related to nonvested stock awards under the LTIP. That cost is expected to be recognized over a weighted-average period of less than one year.

 

10. Income Taxes

The provision for income taxes represents federal income tax expense calculated using estimated annualized rates on taxable income or loss generated during the respective periods adjusted, as necessary, to avoid recording tax benefits during loss periods in excess of amounts expected to be realized.

 

No income tax expense was recognized on the Corporation’s pre-tax income for the quarter ended March 31, 2012 due to the Corporation’s tax loss carry forward position. In the first quarter of 2011, the Corporation recorded a deferred tax valuation allowance against the tax benefit related to the respective pre-tax losses incurred during the period due to the uncertainty of future taxable income necessary to realize the recorded net deferred tax asset.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The Corporation, 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. The following is a discussion of the Corporation’s results of operations for the three months ended March 31, 2012 and 2011, and the Corporation’s financial condition, focusing on its liquidity and capital resources.

 

The Bank is currently “significantly undercapitalized” by regulatory standards. On September 24, 2009, the Bank became subject to the terms of a Consent Order agreement with the Office of the Comptroller of the Currency (“OCC”). The Consent Order requires management and the board of directors to take certain actions to improve the financial condition of the Bank, including achieving and maintaining minimum leverage and total risk-based capital ratios of at least 8.5% and 11%, respectively, by January 22, 2010. To date, the Bank has failed to meet these required minimum ratios and is currently out of compliance with these required minimum capital ratios as well as other requirements of the Consent Order. In light of the Bank’s noncompliance with the Consent Order, recent losses, deficient capital position and the uncertainty regarding the ability to raise additional equity capital, management believes it is reasonable to anticipate that further regulatory oversight or enforcement action may be taken by the OCC. See also the “Capital” and “Regulatory Enforcement Action” sections of this Management’s Discussion and Analysis for further details.

 

The success of the Corporation depends to a great extent upon the economic conditions in Livingston County and the surrounding area. The Corporation has in general experienced a slowing economy in Michigan since 2007. In particular, Michigan’s unemployment rate at March 2012, although improved from 2011 and 2010 levels, remains above the national average and among the worst for all states. Unlike larger banks that are more geographically diversified, we provide banking services to customers primarily in Livingston County. Our loan portfolio, the ability of the borrowers to repay these loans, and the value of the collateral securing these loans is impacted by local economic conditions. The continued economic difficulties in Michigan have had and may continue to have adverse consequences as described below in “Loans and Asset Quality”.

 

Dramatic declines in commercial real estate values in recent years, with elevated levels of foreclosures and unemployment have resulted in and may continue to result in significant write-downs of asset values by us and other financial institutions. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Additionally, capital and credit markets have continued to experience elevated levels of volatility and disruption in recent years. This market turmoil and tightening of credit have led to a lack of general consumer confidence and reduction in business activity.

 

Due to the conditions and events discussed above and elsewhere in this Form 10-Q, there is significant uncertainty regarding the impact of potential future regulatory action against the Bank. The extent of such regulatory action may threaten the Bank’s ability to continue operating as a going concern. Even if we do not become subject to more stringent regulatory requirements or restrictions, our current capital deficiencies and elevated levels of nonperforming assets may make it difficult to continue as a going concern. (At March 31, 2012, our nonperforming assets exceed the sum of the Bank’s capital and allowance for loan losses by approximately 36.9%). As described elsewhere in this Form 10-Q, we have established our allowance for loan losses at a level we currently believe, based on data available to us, is sufficient to absorb expected losses in our loan portfolio. However, this process involves a very significant degree of judgment, is based on numerous different assumptions that are difficult to make and, by its nature, is inherently uncertain. Moreover, the performance of our existing portfolio is, in many respects, dependent on external factors such as our borrowers’ ability to repay their loan obligations and the value of collateral securing those obligations, which in turn depend on macro and micro economic conditions including the pace of economic recovery in Southeast Michigan. If our loan portfolio performs worse that we currently expect, we may not have sufficient capital to absorb all of the losses, which could render us insolvent. Notwithstanding the above, the consolidated financial statements included in this Form 10-Q have been prepared assuming the Bank continues to operate in the normal course of business for the foreseeable future, and do not include any adjustments to recorded assets or liabilities should we be unable to continue as a going concern.

 

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As fully described in Note 2, “Regulatory Matters and Going Concern”, of the consolidated financial statements included in the 2011 Annual Report within the Corporation’s Form 10-K filing, management has undertaken various initiatives identified in its recovery plan to address the current challenges facing the Bank. The successful implementation of the various actions being undertaken by management will be difficult in the current economic environment. Even if such actions are successfully implemented, such strategy may not be sufficient to increase the Bank's capital levels to satisfactory levels, return the Bank to profitability, or otherwise avoid further regulatory oversight or enforcement action. Any further declines in the Bank’s capital levels may result in more severe regulatory oversight or enforcement action by either the OCC or FDIC, including the possibility of regulatory receivership.

 

It is against this backdrop that we discuss our financial condition and results of operations for the three months ended March 31, 2012 as compared to same three month period in 2011.

 

Earnings 

   (in thousands, except per share data) 
   First Quarter 
   2012   2011 
Net income (loss)  $46   $(223)
Basic and diluted net income (loss) per share  $0.10   $(0.49)

 

Net income for the three months ended March 31, 2012 increased by $269,000 compared to the same period last year. In the first quarter of 2012, the provision for loan losses decreased by $350,000, noninterest income increased by $27,000, and noninterest expense decreased by $63,000.

 

Net Interest Income

   (in thousands) 
   First Quarter 
   2012   2011 
Interest and dividend income  $2,913   $3,227 
Interest expense   308    451 
Net Interest Income  $2,605   $2,776 

 

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Interest Yields and Costs

 

The following shows an analysis of net interest margin for the three months ended March 31:

 

   (in thousands) 
   For the three months ended March 31, 
   2012   2011 
   Average
Balance
   Interest   Rate   Average
Balance
   Interest   Rate 
Assets:                              
Interest earning assets:                              
Short term investments  $197   $0.10    0.23%  $196   $0.20    0.44%
Securites:   Taxable   39,253    212.7    2.17%   25,293    199.2    3.15%
    Tax-exempt (1)   1,285    20.2    6.28%   6,303    94.4    5.99%
Commercial loans (2)(3)   178,762    2,372.3    5.24%   201,728    2,579.7    5.12%
Consumer loans (2)(3)   14,429    182.9    5.10%   16,161    219.3    5.50%
Real estate loans (2)(3)   14,651    143.2    3.91%   16,048    174.3    4.35%
Total earnings and total interest income   248,577    2,931.4    4.67%   265,729    3,267.1    4.92%
Cash and due from banks   40,470              35,791           
All other assets   12,242              13,819           
Allowance for loan losses   (12,866)             (14,099)          
Total Assets  $288,423             $301,240           
Liabilities and Shareholders' Equity:                              
Interest bearing liabilities:                              
NOW  $28,180   $1.7    0.02%  $29,430   $2.5    0.03%
Savings   40,745    2.5    0.02%   40,157    12.9    0.13%
MMDA   36,426    48.7    0.54%   36,868    58.6    0.64%
Time   92,573    255.1    1.11%   103,551    377.0    1.48%
Total interest bearing liabilities and total interest expense   197,924    308.0    0.63%   210,006    451.0    0.87%
Non-interest bearing deposits   81,829              78,921           
All other liabilities   1,975              2,128           
Shareholders' Equity   6,695              10,185           
Total Liabilities and Shareholders' Equity  $288,423             $301,240           
Interest spread             4.04%             4.05%
Net interest income - FTE       $2,623.4             $2,816.1      
Net interest margin             4.17%             4.23%

 

(1)Average yields in the above table have been adjusted to a tax-equivalent basis using a 34% tax rate.
(2)For purposes of the computation above, average non-accruing loans of $22,999,000 in 2012 and $30,818,000 in 2011 are included in the average daily loan balance.
(3)Interest on loans includes origination fees totaling $15,000 in 2012 and $27,000 in 2011.

 

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Interest Earning Assets/Interest Income

On a tax equivalent basis, interest income decreased $336,000 (10.3%) in the first quarter of 2012 compared to the first quarter of 2011. This was due to a decrease in average earning assets of $17,152,000 (6.5%) combined with a decrease in the yield on average earning assets of 25 basis points.

 

The average balance of securities increased $8,942,000 (28.3%) in the first quarter of 2012 compared to the same period in 2011. This increase was due to $37,940,000 of investment security purchases made from April 2011 through March 2012 which included re-investment of $14,311,000 of run-off experienced from securities being called, matured, or paid down and re-investment of approximately $15,000,000 of proceeds received from security sales in December 2011. In addition, during this same period, additional purchases were made to gradually invest a portion of the Bank’s excess on-balance liquidity into interest earning assets. The yield on average security balances decreased 142 basis points in the first quarter of 2012 compared to 2011. First quarter 2012 investment yields were impacted by the sales of higher yielding securities in December 2011 and the comparatively lower yields of new securities acquired in the current rate environment.

 

Loan average balances decreased $26,095,000 (11.2%) in the first quarter of 2012 compared to the same period last year and the average yield increased 5 basis points. The largest decline in terms of average balances was in commercial loans, the majority of our loan portfolio, which decreased $22,966,000 (11.4%) in the first quarter of 2012 compared to 2011 while the average yield increased 12 basis points. Commercial loans have continued to decrease due to receipt of scheduled payments, charge offs and decreased loan originations. It is expected that continued efforts to manage the Bank’s regulatory capital levels (i.e., shrinking the Bank’s size) will further decrease both average loan balances and net interest income in future periods. In addition, the renewal of maturing loans in the current lower rate environment will continue to exert downward pressure on average loan portfolio yields.

 

Loan yields in 2012 continue to be negatively impacted by the elevated level of nonperforming loans. Management expects the average balance of nonperforming loans to continue to decrease but remain elevated in 2012, adversely impacting net interest income. Moreover, competitive pressures as well as the weakened local economy have had, and are expected to continue to have, a negative impact on commercial loan balances and yields.

 

Interest Bearing Liabilities/Interest Expense

Interest expense on deposits for the first quarter of 2012 decreased $143,000 (31.7%) compared to the first quarter of 2011. This was the result of lower interest rates paid on deposits of 24 basis points combined with lower average deposit balances of $12,082,000 (5.8%).

 

Liquidity

Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Liquidity risk is the risk of the Corporation being unable to meet current and future financial obligations in a timely manner. To manage liquidity risk the Corporation relies primarily on a large, stable core deposit base and excess on-balance sheet cash positions. Additionally, the Corporation has access to certain wholesale funding sources (as discussed below) to manage unexpected liquidity needs.

 

The Corporation identifies, measures and monitors its liquidity profile. The profile is evaluated daily, weekly and monthly by analyzing the composition of all funding sources, reviewing projected liquidity commitments and identifying sources and uses of funds. A contingency funding plan is also prepared that details the potential erosion of funds in the event of systemic financial market crisis or institution-specific stress. In addition, the overall management of the Corporation’s liquidity position is integrated into retail deposit pricing policies to ensure a stable core deposit base.

 

Asset liquidity for financial institutions typically consists of cash and cash equivalents, certificates of deposit and investment securities available for sale. These categories totaled $80,600,000 at March 31, 2012 or about 28.2% of total assets. This compares to $82,500,000 or about 28.3% of total assets at year-end 2011. Liquidity is important for financial institutions because of the need to meet loan funding commitments and depositor withdrawal requests. Liquidity can vary significantly on a daily basis based on customer activity.

 

Of the Corporation’s liquid assets at March 31, 2012, investment securities with a fair value of approximately $45,470,000 were pledged for borrowing availability on a line of credit from the Federal Home Loan Bank of Indianapolis (“FHLBI”), to secure public deposits or for other purposes as required or permitted by law.

 

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, consist principally of local depositors known to the Bank. The Bank had Large Certificates totaling approximately $33,500,000 at March 31, 2012 and $34,700,000 at December 31, 2011, respectively. The Bank had $1.1 million of brokered deposits at March 31, 2012. Due to the Bank’s capital classification as “significantly undercapitalized” at March 31, 2012, these brokered deposits may not be renewed or additional brokered deposits issued without prior approval of the Federal Deposit Insurance Corporation (“FDIC”). See “Capital” section of this Management’s Discussion and Analysis for further details.

 

It is Bank management’s intention to handle unexpected liquidity needs through its cash and cash equivalents, FHLBI borrowings, or Federal Reserve discount borrowings. At March 31, 2012, the Bank had a $36,000,000 line of credit available at the FHLBI for which the Bank has pledged investment securities and certain commercial and consumer loans secured by residential real estate as collateral. The Bank also had a $12,000,000 line of credit available at the Federal Reserve for which the Bank has pledged certain commercial loans as collateral. At March 31, 2012, the Bank had no borrowings outstanding against these lines of credit.

 

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Although the Bank has established these lines of credit, because of its significantly undercapitalized status, any borrowing requests are subject to review (i.e., for purpose and repayment ability) and approval by the FHLBI and Federal Reserve, respectively. Consequently, full borrowing availability under these existing lines may be restricted at the respective lender’s discretion and terms may be limited or restricted. However, in the event the Bank would need additional funding and be unable to access either line of credit facility, management could act to remove the pledge of investment securities presently securing a portion of the FHLBI line of credit, thereby allowing such securities to be liquidated to provide further liquidity.

 

If necessary, the Bank could also satisfy unexpected liquidity needs through liquidation of unpledged securities.

 

Interest Rate Risk

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 a loss of current market values. The Corporation’s Asset/Liability Management Committee’s (ALCO) 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 reflects the repricing schedule for various asset and liability categories and an interest rate shock simulation report. The Bank has no market risk sensitive instruments held for trading purposes. 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.

 

The table below shows the scheduled maturity and repricing of the Corporation’s interest sensitive assets and liabilities as of March 31, 2012:

 

   (in thousands) 
   0-3   4-12   1-5   5+     
   Months   Months   Years   Years   Total 
Assets:                         
Loans  $88,675   $53,122   $61,563   $701   $204,061 
Securities   4,317    12,169    29,339    5,112    50,937 
Short term investments   197    -    -    -    197 
Total rate sensitive assets  $93,189   $65,291   $90,902   $5,813   $255,195 
                          
Liabilities:                         
NOW, Savings & MMDA  $36,179   $-   $-   $69,894   $106,073 
Time Deposits   14,386    49,908    26,122    26    90,442 
Total rate sensitive liabilities  $50,565   $49,908   $26,122   $69,920   $196,515 
                          
Rate sensitivity GAP and ratios:                         
GAP for period  $42,624   $15,383   $64,780   $(64,107)     
Cumulative GAP   42,624    58,007    122,787    58,680      
                          
Cumulative rate sensitive ratio   1.84    1.58    1.97    1.30      
December 31, 2011 rate sensitive ratio   1.59    1.43    1.80    1.21      

 

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 including 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 158% asset sensitive as of March 31, 2012.

 

Because of the Bank’s asset sensitive position, if market interest rates increase, this positive GAP position indicates that the interest margin would be positively affected. 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. Due to these inherent limitations in the GAP analysis, the Corporation also utilizes simulation modeling, which measures the impact of upward and downward movements of interest rates on interest margin. This modeling indicates that a 100 basis point gradual decrease in interest rates would decrease net interest income by approximately 0.9% in the first year, while a 200 basis point increase in interest rates would increase net interest income by approximately 5.1% in the first year. This is influenced by the assumptions regarding how quickly and to what extent liabilities will reprice with an increase in interest rates.

 

Loans

 

   (in thousands) 
   First Quarter 
   2012   2011 
Provision for loan losses  $450   $800 

 

The first quarter 2012 provision for loan loss expense of $450,000 decreased $350,000 from the same prior year period. The reduced current period provision reflects continued trends of decreases in current and newly identified nonperforming loans, a gradual stabilization in real estate values for certain problem credits and continued shrinkage in the overall loan portfolio, relative to conditions faced by the Bank one year ago. Although reduced from the prior year period, provision expense remains elevated due to continued economic stress in the Bank's market areas as well as the overall elevated levels of historical loan loss experienced by the Bank in recent years.

 

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Loan charge offs during the first quarter of 2012 totaled $1,568,000 and included approximately $539,000 of delinquent and current property tax payments (i.e., protective advances) made by the Bank to protect its interest in collateral scheduled for tax sale. Specific reserves were established in prior periods for these potential tax payments and carried against the related problem loans as estimates of potential loss, if the Bank was required to pay the taxes. A significant portion of the remaining charge offs recognized in the first quarter of 2012 continued to relate to certain existing impaired loans resulting from declines in the value of real estate collateral securing our loans and management’s determination of certain borrowers’ inability to support future cash flow projections. However, in more recent quarters, the general rate of decline in real estate values has slowed and may portend a decrease in future charge offs as the Bank’s higher risk commercial real estate portfolio continues to shrink.

 

In recent quarters we have also experienced a decline in the pace of commercial loans migrating to lower loan risk grades, which receive higher allocations in our allowance for loan loss analysis. We have also experienced an improvement in the quality of some credits resulting in improved loan grades and lower reserve allocations. Management considered these factors in conjunction with its quarterly analysis of the loan portfolio to identify and quantify the level of credit risk to estimate losses to determine the recorded provision expense of $450,000 for the first quarter of 2012 and the level of the allowance for loan losses of $12,001,897 at March 31, 2012.

 

Loans and Asset Quality 

The following table reflects the composition of the commercial and consumer loans in the Consolidated Financial Statements. Included in the residential first mortgage totals below are the “real estate mortgage” loans listed in the Consolidated Financial Statements and other loans to customers who pledge their homes as collateral for their borrowings. A portion of the loans listed in residential first mortgages represent commercial loans where the borrower has pledged a 1-4 family residential property as collateral. In the majority of the loans to commercial customers, the Bank is relying on the borrower’s cash flow to service the loans.

 

The following table shows the balance and percentage composition of loans as of:

 

   (in thousands) 
   March 31, 2012   December 31, 2011 
Secured by real estate:  Balances   Percent   Balances   Percent 
Residential first mortgage  $21,492    10.5%  $21,755    10.4%
Residential home equity/other junior liens   10,665    5.2%   12,246    5.9%
Construction, land development and other land loans   12,411    6.2%   13,917    6.7%
Commercial (nonfarm, nonresidential)   139,501    68.3%   142,539    68.2%
Commercial   15,701    7.4%   13,590    6.5%
Consumer and Other   4,476    2.4%   4,993    2.3%
Total gross loans   204,246    100.0%   209,040    100.0%
Net unearned fees   (185)        (196)     
Total loans  $204,061        $208,844      

 

The loan portfolio decreased $4,783,000 (2.3%) in the first three months of 2012. During the three months of 2012, construction, land development and other land loans decreased $1,506,000 (10.8%), loans secured by nonresidential properties (owner occupied and nonowner occupied) decreased $3,038,000 (2.1%), commercial loans increased $2,111,000 (15.5%), and loans secured by consumer real estate decreased $1,844,000 (5.4%).

 

The decrease in nearly all portfolio segments was primarily attributable to the receipt of scheduled payments. In addition, charge offs of approximately $1,029,000 (net of $539,000 of charge offs for protective advances discussed above), transfers to other real estate totaling $383,000, and approximately $1,350,000 of negotiated pay-downs and settlements received on problem loans contributed to the $4,783,000 net decrease in loans. The increase in commercial loans of $2,111,000 primarily related to typical seasonal draws on a line of credit by one borrower who has historically repaid the line in full during the subsequent (i.e., second) quarter.

 

The future size of the loan portfolio is dependent on a number of economic, competitive, and regulatory factors faced by the Bank. In light of the economic and regulatory challenges currently impacting the Bank, we anticipate continued and managed shrinkage of the loan portfolio in the first quarter of 2012. Further declines in loans, restrictions on the Bank’s ability to make new loans or competition that leads to lower relative pricing on new loans could adversely impact our operating results.

 

Nonperforming assets consist of loans accounted for on a nonaccrual basis, loans contractually past due 90 days or more as to interest or principal payments (but not included in nonaccrual loans), and other real estate which has been acquired through foreclosure and is actively managed through the time of disposition to minimize loss. In addition, nonperforming loans include troubled debt restructured loans (“TDRs”) that are on nonaccrual status or past due 90 days or more. At March 31, 2012, December 31, 2011 and March 31, 2011, there were approximately $13,019,000, $13,687,000 and $7,053,000 of TDRs included in nonperforming loans. TDRs that are not past due 90 days or more are excluded from nonperforming loan totals.

 

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The aggregate amount of nonperforming loans and other nonperforming assets are presented below:

 

   (in thousands) 
   March 31,   December 31,   March 31, 
   2012   2011   2011 
Nonaccrual loans  $22,675   $22,962   $31,805 
90 days or more past due and still accruing   249    8    - 
Total nonperforming loans   22,924    22,970    31,805 
Other real estate owned   3,253    3,026    3,519 
Total nonperforming assets  $26,177   $25,996   $35,324 
                
Nonperforming loans as a percent of total loans   11.23%   11.00%   13.72%
Allowance for loan losses as a percent of nonperforming loans   52.36%   55.25%   43.18%
Nonperforming assets as a percent of total loans and other real estate   12.63%   12.27%   15.01%

 

Nonperforming loans at March 31, 2012 decreased $46,000 from December 31, 2011 and $8,881,000 from March 31, 2011. The decrease from December 31, 2011 results from the combination of approximately $1,000,000 of charge offs recognized primarily on collateral dependent loans, the upgrade of approximately $92,000 of loans now demonstrating both improved cash flows and established payment history following the culmination of successful work-outs and/or restructurings, the transfer of approximately $383,000 of loans to other real estate owned, and approximately $1,656,000 of continued payments received from borrowers, which in aggregate, exceeded approximately $2,845,000 of newly identified nonperforming loans which were comprised principally of commercial real estate loans. Management continues to focus on reducing the level of nonperforming assets and making improvements in asset quality.

 

As of March 31, 2012, approximately $13,017,000 (56.8%) of nonperforming loans are making scheduled payments on their loans. Management closely monitors each of these loans to identify opportunities where workout efforts or restructuring may improve borrowers’ credit risk profiles to facilitate a return to accrual status for credits with sustained repayment histories. All nonperforming loans are reviewed regularly for collectability and uncollectible balances are promptly charged off.

 

Management regularly evaluates the condition of problem credits and when reduced cash flows coupled with collateral shortfalls are evident, the loans are placed on nonaccrual. In addition, loans are generally placed on nonaccrual when principal or interest is past due ninety days or more. If management believes there is significant risk of not collecting full principal and interest, we may elect to place the loan on nonaccrual even if the borrower is current. Based on the existing level of problem loans, we anticipate that other real estate owned may increase as the Bank manages through the problem loan portfolio and borrowers continue to face financial difficulties and tight credit markets.

 

Other real estate owned (“OREO”) is comprised primarily of commercial real estate properties totaling $3,253,000 at March 31, 2012 and $3,026,000 at December 31, 2011. Nonperforming loans move into OREO as the foreclosure process is completed and any redemption period expires and from the receipt of deeds in lieu of foreclosure.

 

At March 31, 2012, impaired loans totaled approximately $24,740,000, of which $14,363,000 were assigned specific reserves of $2,465,000. Impaired loans without specific reserve allocations totaled $10,377,000, indicating that the loans are well collateralized at this time. A loan is considered impaired when it is probable that that all or part of amounts due according to the contractual terms of the loan agreement will not be collected on a timely basis or the loan has been restructured and is classified as a troubled debt restructuring (“TDR”). Impairment is measured by comparing the Bank’s recorded investment in the loan to the present value of expected future cash flows at the loan’s effective interest rate, the fair value of the collateral, or the loan’s observable market price.

 

Of the impaired loans reported at March 31, 2012, $20,250,000 are on nonaccrual status, based on management’s assessment using criteria discussed above. All cash received on nonaccrual loans is applied to principal balance. Loans are considered for return to accrual status on an individual basis when all principal and interest amounts contractually due are brought current and future payments are reasonable assured. Interest income is recognized on TDRs pursuant to the criteria noted below.

 

The following table summarizes the troubled debt restructuring component of impaired loans at:

 

   (in thousands) 
   March 31, 2012   December 31, 2011 
   Accruing
Interest
   Nonaccrual   Total   Accruing
Interest
   Nonaccrual   Total 
Current  $4,569   $10,191   $14,760   $4,392   $11,059   $15,451 
Past due 30-89 days   321    554    875    -    376    376 
Past due 90 days or more   -    2,274    2,274    -    2,252    2,252 
Total troubled debt restructurings  $4,890   $13,019   $17,909   $4,392   $13,687   $18,079 

 

Troubled debt restructured loans accrue interest if the borrower complies with the revised terms and conditions and has demonstrated sustained payment performance consistent with the modified terms for a minimum of six consecutive payment cycles after the restructuring date and if collection of future payments is reasonably assured.

 

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Allowance for Loan Losses

 

The allowance for loan losses at March 31, 2012 was $12,002,000, a decrease of $688,000 from December 31, 2011. The allowance for loan losses represented 5.88% and 6.08% of gross loans at March 31, 2012 and December 31, 2011 and provided a coverage ratio to nonperforming loans of 52.4% and 55.3% at each respective period-end.

 

Management estimates the required allowance balance based on past loan loss experience, the nature and volume of the portfolio segments and concentrations, information about specific borrower situations, estimated collateral values, economic conditions and trends, and other factors. Allocations of the allowance are made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Management continually analyzes portfolio risk to refine the process of effective risk identification and measurement for determination of what it believes is an adequate allowance for loan losses. When all of these factors were considered, management determined that the $450,000 provision for the first quarter of 2012 and the $12,002,000 allowance as of March 31, 2012 were appropriate.

 

Given the significant portion of our loans that are secured by real estate, our portfolio continues to be sensitive to the weakened economic conditions in Southeast Michigan and the Bank’s market area, and is especially impacted by depressed real estate values. In response, each quarter our portfolio management practices continue to analyze and quantify risk within all segments of our portfolio to ensure effective problem loan identification procedures. Our practice is to obtain updated appraisals on criticized loans secured by real estate and apply appropriate discounting practices based on perceived declines in market value.

 

Although updated appraisals received during more recent quarters indicated that property values for collateral on our impaired loans continue to be depressed, the appraisals did not reflect the extent of value erosion relative to that experienced in prior quarters. However, at present, the weak Michigan economy and elevated unemployment levels continue to delay signs of economic recovery in our market area. Consequently, we have continued to allocate reserves for these risks and uncertainties, resulting in reserves above normal levels.

 

If the economy continues to weaken and/or real estate values decline further, nonperforming loans may increase in subsequent quarters. Due to the uncertainty of future economic conditions and the decline in real estate values, the provision for loan losses for the balance of 2012 may continue to be impacted by the Bank’s concentration in real estate secured loans. While we have considered these factors when determining the level of reserves, it is difficult to accurately predict future economic events, especially in the current environment.

 

The allowance consists of specific and general components. The specific component relates to loans that are classified as nonaccrual or to loans where borrowers are experiencing financial difficulty. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience, adjusted for qualitative factors used to reflect changes in the portfolio’s collectability not captured by historical loss data.

 

The methodology for measuring the appropriate level of allowance and related provision for loan losses relies on several key elements, which include specific allowances for loans considered impaired, general allowances for non-impaired commercial loans based on our internal loan grading system, and general allocations based on historical trends for homogeneous loan groups with similar risk characteristics.

 

The general allowance allocated to non-impaired commercial loans was based on the internal risk grade of such loans and their assigned portfolio segment, as primarily determined based on underlying collateral; and, if real estate secured, the type of real estate. Each risk grade within a portfolio is assigned a loss allocation factor. The higher a risk grade, the greater the assigned loss allocation percentage. Accordingly, changes in the risk grades of loans affect the amount of the allowance allocation.

 

Our loss factors are determined based on our actual loss history by loan grade and adjusted for significant qualitative factors that, in management’s judgment, affect the collectability of the portfolio at the analysis date. We use a rolling 24 month charge off history as the base for our computation which is weighted to give emphasis to more recent quarters.

 

Groups of homogeneous noncommercial loans, such as residential real estate loans, home equity and home equity lines of credit, and consumer loans receive allowance allocations based on loan type, primarily determined based on historical loss experience rather than by risk grade. These allocations are adjusted for consideration of general economic and business conditions, credit quality and delinquency trends, collateral values, and recent loss experience for these similar pools of loans.

 

Although management evaluates the adequacy of the allowance for loan losses based on information known at a given point in time, as facts and circumstances change, the provision and resulting allowance may also change. While we believe that our allowance for loan loss analysis has identified all probable losses inherent in the portfolio at March 31, 2012, there can be no assurance that all losses have been identified or that the amount of the allowance is sufficient.

 

Noninterest Income

Noninterest income increased in the first quarter of 2012 compared to same period in 2011.

 

   (in thousands) 
   First Quarter 
   2012   2011 
Service charges and fees on deposits  $375   $355 
Other fees   318    272 
Trust income   46    54 
Gain on sale of loans   -    31 
Total  $739   $712 

 

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The increase in both deposit service charges and other fee income correlates, in part, with our restructuring of the Bank’s suite of deposit products in late 2011 to provide more competitive services to our customers while creating greater potential for the Bank to realize additional fee income based on customer account utilization and activity levels. The increase in service charges and fees on deposits primarily related to rate adjustments applied to our customers’ recurring usage of the Bank’s overdraft protection service which resulted in higher NSF fee income. Other fees increased due to check printing fees charged to a greater number of customers, increased fees earned on ATM transactions and increased network volumes providing greater (inter-change) fee income. Trust income decreased due to continued run-off in customer accounts and balances and limited new business opportunities, relative to conditions experienced in the same prior year period. In 2011, the Bank recognized gains on the sale of two government guaranteed SBA loans.

 

Noninterest Expense

Noninterest expense decreased in the first quarter of 2012 compared to the same period in 2011. Due to the challenging economic environment, management continues to be focused on initiatives to better control and reduce noninterest expense.

 

   (in thousands) 
   First Quarter 
   2012   2011 
Salaries and employee benefits  $1,242   $1,212 
Occupany expense   231    271 
Equipment expense   93    79 
Professional and service fees   390    351 
Loan collection and foreclosed property expense   119    152 
Computer service fees   113    113 
Computer software amortization expense   57    60 
FDIC assessment fees   251    325 
Insurance expense   147    147 
Printing and supplies   35    30 
Director fees   20    19 
Net loss on sale/writedown of OREO and repossessions   5    25 
Other expenses   145    127 
Total  $2,848   $2,911 

 

The most significant component of our noninterest expense is salaries and employee benefits. The increase in salaries and employee benefits primarily resulted from the hiring of a marketing director and a chief credit officer in the second and fourth quarter of 2011, respectively. Partially offsetting these salary increases, the Bank received a credit in the first quarter of 2012 to adjust previously estimated group medical insurance premiums, effective to the contract renewal date in December 2011.

 

Occupancy expense decreased primarily due to the warmer weather experienced in the first quarter of 2012, which lowered snow removal expense and utility costs. Equipment expense increased in the first quarter of 2012 related to depreciation of computers purchased in the second quarter of 2011.

 

Professional and service fees increased primarily due to increased legal fees related to the continued efforts to recapitalize the Corporation and additional audit and consulting related fees.

 

FDIC assessments decreased as a result of changes in the assessment base implemented by the FDIC beginning April 1, 2011 and the Bank’s reduced asset size relative to same prior year period.

 

Loan collection and foreclosed property expenses include collection costs related to nonperforming and delinquent loans, including costs incurred to protect the Bank’s interest in collateral securing problem loans prior to taking title to the property, appraisal expenses and carrying costs related to other real estate. These expenses decreased due to fewer newly identified problem loans and a decrease in the level of other real estate properties owned by the Bank during the first quarter of 2012 relative to the same period in 2011.

 

Other expenses were elevated in the first quarter of 2012 relative to 2011 primarily due to losses incurred for fraudulent debit card activity.

 

Federal Income Tax Expense (Benefit)

We recorded no federal income tax expense for the quarter ended March 31, 2012 due to the Corporation’s tax loss carry forward position. Due to the uncertainty of generating future taxable income necessary to realize the recorded net deferred tax asset, the Corporation has recorded a valuation allowance against the tax benefit related to its cumulative pre-tax losses, including the pre-tax loss incurred during the three month period ended March 31, 2011.

 

Capital

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct, material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s and the Bank’s capital classification are also subject to qualitative judgments by regulators with regard to components, risk weightings, and other factors.

 

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The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required that the federal regulatory agencies adopt regulations defining five capital tiers for banks:

  Total  Tier 1   
  Risk-Based  Risk-Based   
  Capital Ratio  Capital Ratio  Leverage Ratio
Well capitalized  10% or above  6% or above  5% or above
Adequately capitalized  8% or above  4% or above  4% or above
Undercapitalized  Less than 8%  Less than 4%  Less than 4%
Significantly undercapitalized  Less than 6%  Less than 3%  Less than 3%
Critically undercapitalized  -  -   A ratio of tangible equity to
         total assets of 2% or less

 

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The Corporation’s and the Bank’s actual capital amounts and ratios are presented in the following table:

 

           Minimum for   To be Well Capitalized 
           Capital Adequacy   Under Prompt Corrective 
   Actual   Purposes   Action Provision 
As of March 31, 2012  Amount   Ratio   Amount   Ratio   Amount   Ratio 
Total Capital (to risk weighted assets)                             
Bank  $9,929,000    4.61%  $17,247,000    8.00%  $21,559,000    10.00%
FNBH Bancorp   9,695,000    4.50%   17,247,000    8.00%    N/A    N/A 
                               
Tier 1 Capital (to risk weighted assets)                              
Bank   7,116,000    3.30%   8,624,000    4.00%   12,936,000    6.00%
FNBH Bancorp   6,881,000    3.19%   8,624,000    4.00%    N/A    N/A 
                               
Tier 1 Capital (to average assets)                              
Bank   7,116,000    2.47%   11,537,000    4.00%   14,421,000    5.00%
FNBH Bancorp   6,881,000    2.39%   11,537,000    4.00%    N/A    N/A 

 

As of December 31, 2011  Amount   Ratio   Amount   Ratio   Amount   Ratio 
Total Capital (to risk weighted assets)                              
Bank  $9,987,000    4.49%  $17,811,000    8.00%  $22,264,000    10.00%
FNBH Bancorp   9,742,000    4.38%   17,811,000    8.00%    N/A    N/A 
                               
Tier 1 Capital (to risk weighted assets)                              
Bank   7,078,000    3.18%   8,906,000    4.00%   13,358,000    6.00%
FNBH Bancorp   6,833,000    3.07%   8,906,000    4.00%    N/A    N/A 
                               
Tier 1 Capital (to average assets)                              
Bank   7,078,000    2.44%   11,606,000    4.00%   14,507,000    5.00%
FNBH Bancorp   6,833,000    2.36%   11,606,000    4.00%    N/A    N/A 

 

The OCC has established the following minimum capital standards for national banks: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total average assets of 3% for the most highly-rated banks, with minimum requirements of 4% to 5% for all others, and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists principally of shareholders’ equity. These capital requirements are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions.

 

On September 24, 2009, the Bank consented to the issuance of a Consent Order (the “Consent Order”) with the OCC. Pursuant to the Consent Order, the Bank was required to achieve and maintain total capital equal to 11% of risk weighted assets and Tier 1 capital equal to at least 8.5% of adjusted total assets by January 22, 2010. At March 31, 2012 and through the current date, the Bank’s capital ratios are and continue to be significantly below the increased minimum requirements imposed by the OCC. In light of the Bank’s recent losses and capital position at March 31, 2012, it is reasonable to anticipate further regulatory enforcement action by either the OCC or FDIC, particularly if the Corporation is unsuccessful in raising additional capital.

 

In addition and as a result of noncompliance with certain terms of the Consent Order, the Bank is categorized as “significantly undercapitalized” for Prompt Corrective Action purposes, as described in Note 2 of the 2011 Annual Report contained in the Corporation’s report on Form 10-K filing. The Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions become increasingly more severe as an institution’s capital category declines from undercapitalized to significantly undercapitalized to critically undercapitalized.

 

Even if we do not become subject to more stringent regulatory requirements or restrictions, our current capital deficiencies and elevated levels of nonperforming assets may make it very difficult to continue as a going concern. As described elsewhere in this Form 10-Q, we have established our allowance for loan losses at a level we currently believe, based on the data available to us, is sufficient to absorb expected losses in our loan portfolio. However, this process involves a very significant degree of judgment, is based on numerous different assumptions that are difficult to make and, by its nature, is inherently uncertain. Moreover, the performance of our existing loan portfolio is, in many respects, dependent on external factors such as our borrowers' ability to repay their loan obligations and the value of collateral securing those obligations, which in turn depend on macro and micro economic conditions including the pace of economic recovery in Southeast Michigan. If our loan portfolio performs worse than we currently expect, we may not have sufficient capital to absorb all of the losses, which could render us insolvent.

 

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During 2011 and through the current date, we have worked with financial and legal advisors to pursue various transactions that would provide additional capital to the Bank. We continue to actively pursue these transactions.

 

However, the Corporation’s alternatives for additional capital are somewhat limited. The ongoing liquidity concerns in the broader market and the loss of confidence in financial institutions will likely serve to increase our cost of funding and further limit our access to capital. We may not be able to raise the necessary capital on favorable terms, or at all. While the Company is hopeful that its ongoing efforts to raise additional capital will be successful, there are significant hurdles that remain in order for the Company to raise the amount of capital necessary for the Bank to comply with the requirements of the Consent Order. An inability to raise capital would likely have a materially adverse effect on our business, financial condition and results of operations. Management’s future plans in response to the Bank’s “significantly undercapitalized” regulatory classification and the need to raise additional capital pursuant to the Consent Order are described more fully in Note 2 of the 2011 Annual Report contained in the Corporation’s report on Form 10-K filing.

 

The Corporation’s ability to pay dividends is subject to various regulatory and state law requirements. Due to the Bank’s financial condition, the Bank cannot pay a dividend to the Corporation without the prior approval of the OCC. The Corporation suspended, indefinitely, the payment of dividends in the third quarter of 2008 due to the Bank’s inability to pay dividends to the holding company and insufficient cash at the holding company to pay the dividends.

 

Pursuant to the results of recent examinations of the Corporation by the Federal Reserve, the Corporation is considered a troubled institution due to the critically deficient condition of its subsidiary Bank. As such, the Federal Reserve has required the Corporation to take action to support the Bank, which principally involves a capital infusion sufficient to satisfy minimum capital ratios imposed on the Bank. In addition, the Corporation must receive prior approval from the Federal Reserve before the payment of dividends, issuance of debt, or redemption of stock. Additional restrictions imposed on the Corporation by the Federal Reserve relate to changes in the composition of board members, the employment of senior executive officers or changes in the responsibilities of senior executive officers, and limitations on indemnification and severance payments.

 

As a result of the Bank's current inability to pay dividends to the Corporation, the Corporation has an insufficient level of resources and cash flows to meet operational liquidity needs. The Bank is prohibited from paying expenses on behalf of the Corporation. To resolve the Corporation's illiquidity and the deficient capital levels at the Corporation and the Bank, the Corporation's board of directors has provided certain interim funding to the Corporation. Depending on the extent of the future cash needs of the holding company, the timing and success of any capital raise, and the directors' willingness and ability to continue funding holding company expenses (through loans), the Corporation may be required to attempt to borrow funds from other sources to pay its expenses. Such additional borrowings may be at a price and on terms that are unfavorable to the Corporation. During the quarters ended March 31, 2012 and 2011, the holding company incurred pre-tax expenses totaling approximately $30,000 and $13,000, respectively.

 

Regulatory Enforcement Action

As discussed above, the Bank is subject to a Consent Order issued by the OCC on September 24, 2009 that requires the Bank to raise capital in order to achieve certain minimum capital ratios. See "Capital" above for more information regarding these capital requirements and the Bank's current failure to meet the capital requirements of the Consent Order.

 

In addition to the minimum capital ratios, the Consent Order imposes several other requirements on the Bank. The Bank has taken a number of actions to address such other requirements (many of which were underway well before the Consent Order was issued), including:

 

·the Board of Directors of the Bank appointed a Compliance Committee to ensure the Bank's compliance with the Consent Order and periodically report on such compliance efforts to the OCC;

 

·the Bank adopted a written strategic plan that intended, among other things, to address many of the requirements set forth in Consent Order, and the Bank has taken ongoing actions to monitor the Bank's performance relative to the strategic plan;

 

·the Bank enhanced its liquidity risk management program via improved procedures for cash flow forecasting, monitoring and reporting, development of a contingency funding plan and increased its borrowing availability under lines of credit secured by certain pledged loans and investments;

 

·the Bank has implemented numerous policies and procedures intended to improve asset quality levels within the loan portfolio, including: identifying, monitoring, and reporting of problem loans via application of a comprehensive risk grade assessment system; development of specific workout strategies on all significant impaired loans; attempted restructuring of certain problem credits to mitigate the extent of potential future loss by the Bank; and, overall improvements to underwriting policies and credit structuring practices;

 

·the Bank engaged an independent third-party loan review specialist to assess the Bank's ability to effectively assign appropriate risk grades and identify problem loans;

 

·the Bank engaged an independent third-party to validate the Bank's allowance for loan loss methodology to ensure it conforms with regulatory guidance and accounting principles generally accepted in the United States of America, including an evaluation of the key assumptions used in the loan loss analysis;

 

·the Bank enhanced its policies and procedures for obtaining and reviewing appraisals on property securing loans made by the Bank;

 

·the Bank implemented a practice of developing a written action plan for each parcel of other real estate owned;

 

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·the Bank has taken ongoing actions in an effort to reduce the Bank's concentration in commercial real estate (CRE) loans and construction and development (C&D) loans;

 

·the Bank has taken ongoing actions to improve many aspects of its credit and loan policies and programs; and

 

·the Bank enhanced its program designed to maintain an adequate allowance for loan and lease losses (ALLL).

 

While the Bank believes it has made significant progress in its efforts to comply with all requirements of the Consent Order other than the minimum capital requirements, the OCC continues to cite deficiencies and noncompliance with respect to each of the requirements of the Consent Order. As such, additional, ongoing actions by the Bank are required in order to be in compliance with the Consent Order as ultimately determined by the OCC. While the OCC could take further and immediate regulatory enforcement action against the Bank if the OCC believes the Bank is not in compliance with any requirement of the Consent Order, the Bank currently believes its failure to meet the minimum capital requirements established by the Consent Order is the primary risk factor in determining the likelihood and extent of any further, more severe regulatory enforcement action (such as receivership of the Bank).

 

Recent Developments

On September 22, 2011, at a special shareholder meeting, the shareholders of the Company approved a 1-for-7 reverse stock split of the Corporation's outstanding shares of common stock. This reverse stock split was implemented on October 3, 2011.  The primary purpose of the reverse stock split was to increase the number of the Corporation’s authorized common stock available for future issuance.  Please refer to the proxy statement the Corporation filed with the Securities and Exchange Commission (SEC) on August 10, 2011 for more details regarding the reverse stock split.

 

The Corporation's efforts to raise capital (as described in "Capital" above) may trigger an ownership change of the Corporation that would negatively affect the Corporation's ability to utilize its net operating loss carry forwards and other deferred tax assets in the future. If such an ownership change were to occur, the Corporation may incur higher than anticipated tax expense, which would reduce future net income. The Corporation is seeking to structure its capital raise in a manner that would avoid any such ownership change. In addition, on October 14, 2011, the Corporation entered into a Tax Benefits Preservation Plan as a further protection against an ownership change that would adversely affect the Corporation's future ability to use its deferred tax assets. The plan adopted by the Corporation is similar to tax benefit preservation plans adopted by other public companies with significant tax attributes that may be subject to limitations under the federal tax laws regarding a change in their ownership. In accordance with the plan, shares held by any person who acquires, without the approval of the Corporation's Board of Directors and excluding certain investors specified in the plan, beneficial ownership of 4.9% or more of the Corporation's outstanding common stock could be subject to significant dilution. There is no guarantee, however, that the plan will prevent the occurrence of an ownership change for purposes of the federal tax laws. Please refer to the Current Report on Form 8-K filed by the Corporation with the SEC on October 18, 2011 and the Registration Statement on Form 8-A filed on October 14, 2011 for more information regarding this plan.

 

Critical Accounting Policies

The Corporation maintains critical accounting policies for the valuation of investment securities, the allowance for loan losses, and income taxes. Refer to Notes 1c, 3, 1e, and 1k of the December 31, 2011 Consolidated Financial Statements as included in Form 10-K for additional information on critical accounting policies.

 

Contractual Obligations

The Bank had outstanding irrevocable standby letters of credit, which carry a maximum potential commitment of approximately $135,000 at March 31, 2012 and $132,000 at December 31, 2011, respectively. These letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these letters of credit are short-term guarantees of one year or less, although some have maturities which extend as long as two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank primarily holds real estate as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held on those commitments at March 31, 2012 and December 31, 2011, where there is collateral, was in excess of the committed amount. A letter of credit is not recorded on the balance sheet unless a customer fails to perform.

 

New Accounting Standards

The FASB has issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statement prepared in accordance with U.S. GAAP and IFRSs. The amendments to the Codification in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early adoption by public entities was not permitted. Disclosure of the fair value levels of our financial assets and liabilities was added to Note 3 and 7 upon adoption of this standard in the first quarter of 2012.

 

The FASB has issued ASU 2011-05, Comprehensive Income (Topic 220); Presentation of Comprehensive Income. This ASU amends accounting standards to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendments in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Presentation of comprehensive income in a separate statement was added upon adoption of this standard in the first quarter of 2012.

 

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Recent Legislative Developments

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.  Uncertainty remains as to the ultimate impact of the new law, which could have a material adverse impact either on the financial services industry as a whole or on the Corporation’s and Bank’s business, results of operations and financial condition. This new federal law contains a number of provisions that could affect the Corporation and the Bank. For example, the law:

 

·Makes national banks (such as the Bank) and their subsidiaries subject to a number of state laws that were previously preempted by federal laws;

 

·Imposes new restrictions on how mortgage brokers and loan originators may be compensated;

 

·Establishes a new federal consumer protection agency that will have broad authority to develop and implement rules regarding most consumer financial products;

 

·Creates new rules affecting corporate governance and executive compensation at all publicly traded companies (such as the Corporation);

 

·Broadens the base for FDIC insurance assessments and makes other changes to federal deposit insurance, including permanently increasing FDIC deposit insurance coverage to $250,000; and

 

·Allows depository institutions to pay interest on business checking accounts

 

Many of these provisions are not yet effective and are subject to implementation by various regulatory agencies. As a result, the actual impact this new law will have on the Bank's business is not yet known. However, this law and any other changes to laws applicable to the financial industry may impact the profitability of the Bank's business activities or change certain of its business practices and may expose the Corporation and the Bank to additional costs, including increased compliance costs, and require the investment of significant management attention and resources. As a result, this law may negatively affect the business and future financial performance of the Corporation and the Bank.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

There has been no material change in the market risk faced by the Corporation since December 31, 2011. For information regarding our risk factors, refer to the FNBH Bancorp, Inc. Form 10-K for the year ended December 31, 2011.

 

Item 4. Controls and Procedures

 

(a)Evaluation of Disclosure Controls and Procedures.

With the participation of management, the Corporation’s Chief Executive Officer and Chief Financial Officer completed an evaluation of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) for the period ended March 31, 2012. Based on that evaluation and the identification of a material weakness in the Corporation’s internal control over financial reporting in January 2012 (see below) the Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls were not effective at March 31, 2012 to ensure that information required to be disclosed in its reports that the Corporation files or submits to the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported on a timely basis.

 

In light of the existing material weakness, in preparing the Corporation’s interim consolidated financial statements included in this report, the Corporation performed a thorough review of the determination of completeness and accuracy of the allowance for loan losses and the provision for loan losses, as well as the timeliness of charge offs on impaired loans and identification of other real estate owned to ensure that the Corporation’s interim consolidated financial statements included in this report have been prepared in accordance with U.S. GAAP. The Corporation’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the Corporation’s interim consolidated financial statements included in this report fairly present in all material respects the Corporation’s financial condition, results of operations and cash flows for the periods presented in this report.

 

For complete information regarding management’s identification of a material weakness in January 2012, the determination that a material weakness existed at December 31, 2011, and management’s plan to remediate the material weakness, refer to Item 9A. Controls and Procedures of the FNBH Bancorp, Inc. Form 10-K for the year ended December 31, 2011.

 

Management began to execute remediation plans during the first quarter of 2012. These remedial actions are expected to strengthen the Corporation’s internal control over financial reporting and will, over time, address the material weakness identified in January 2012. Because some of these remedial actions will take place on a quarterly basis, their successful implementation will continue to be evaluated before management is able to conclude that the related material weakness has been remediated. The Corporation cannot provide any assurance that these remediation efforts will be successful or that the Corporation’s internal control over financial reporting will be effective as a result of these efforts.

 

(b)Changes in Internal Control Over Financial Reporting.

During the quarter ended March 31, 2012 there were no changes in the Corporation’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

31
 

 

PART II - OTHER INFORMATION

 

Item 1A. Risk Factors

 

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2011.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no sales or repurchases of stock by the Corporation for the three months ended March 31, 2012.

 

32
 

 

Item 6. Exhibits

 

The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:

 

31.1Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1Certificate 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).

 

32.2Certificate 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).

 

101.INSInstance Document

 

101.SCHXBRL Taxonomy Extension Schema Document

 

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEFXBRL Taxonomy Extension Definition Linkbase Document

 

101.LABXBRL Taxonomy Extension Label Linkbase Document

 

101.PREXBRL Taxonomy Extension Presentation Linkbase Document

 

33
 

 

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, 2012 to be signed on its behalf by the undersigned hereunto duly authorized.

 

  FNBH BANCORP, INC.  
     
  /s/Ronald L. Long  
  Ronald L. Long  
  President and Chief Executive Officer  
     
  /s/Mark J. Huber  
  Mark J. Huber  
  Chief Financial Officer  

 

Date: May 15, 2012

 

34

 

XOTC:FNHM FNBH Bancorp Inc Quarterly Report 10-Q Filling

FNBH Bancorp Inc XOTC:FNHM Stock - Get Quarterly Report SEC Filing of FNBH Bancorp Inc XOTC:FNHM stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:FNHM FNBH Bancorp Inc Quarterly Report 10-Q Filing - 3/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices Title |  Date |  Company |  Symbol |  Interest |  Popularity

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