SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K
                              --------------------

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                         Commission file number 0-25752

                               FNBH BANCORP, INC.
             (Exact name of registrant as specified in its charter)

               MICHIGAN                                    38-2869722
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)

                  101 East Grand River, Howell, Michigan 48843
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code: (517)546-3150

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value
                                (Title of Class)
                             -----------------------

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. _X_

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  based  on a per  share  price  of  $40 as of  March  1,  1999,  was
$62,510,720  (common  stock,  no par value).  As of December 31, 1998 there were
outstanding 1,562,765 shares of the Company's Common Stock (no par value).

Documents Incorporated by Reference:
Portions of the Company's  Proxy Statement and appendix dated March 19, 1999 for
the Annual Meeting of Shareholders to be held April 21, 1999 are incorporated by
reference into Parts I, II and III of this report.
<PAGE>
                                     PART I

     Included in this Form 10-K are certain  forward-looking  statements  within
the  meaning of Section  27A of the  Securities  Act of 1993,  as  amended,  and
Section  21 E  of  the  Securities  Exchange  Act  of  1934,  as  amended.  Such
forward-looking  statements are based on the beliefs of the Company's management
as well as on assumptions  made by and  information  currently  available to the
Company at the times such  statements  were made.  Actual  results  could differ
materially  from those included in such  forward-looking  statements as a result
of, among other things,  factors set forth below in this Report  generally,  and
certain economic and business  factors,  some of which may be beyond the control
of the Company.  Investors are  cautioned  that all  forward-looking  statements
involve risks and uncertainty.

Item 1 - Business

     FNBH Bancorp, Inc. (the Company), a Michigan business corporation, is a one
bank holding company,  which owns all of the outstanding  capital stock of First
National  Bank in Howell  (the  "Bank").  The Company was formed in 1988 for the
purpose  of  acquiring  all of the stock of the Bank in a  shareholder  approved
reorganization, which became effective May, 1989.

     The  Bank  was  originally   organized  in  1934  as  a  national   banking
association.  As of March 1, 1999, the Bank had  approximately 107 full-time and
part-time  employees.  None of the Bank's  employees  is  subject to  collective
bargaining agreements.  The Company does not directly employ any personnel.  The
Bank  serves  primarily  four  communities,   Howell,  Brighton,  Hartland,  and
Fowlerville,  all of which are  located  in  Livingston  County.  The county has
historically  been  rural  in  character  but  has a  growing  urban  population
especially in the southeast  quadrant of the county,  primarily  attributable to
growth around the City of Brighton.

     On November  26, 1997 H.B.  Realty Co., a subsidiary  of the  Company,  was
established  to purchase  land for a future  branch site of the Bank and to hold
title to other Bank real estate when it is considered prudent to do so.

Bank Services

     The Bank is a full service  bank  offering a wide range of  commercial  and
personal banking  services.  These services include checking  accounts,  savings
accounts,   certificates  of  deposit,  commercial  loans,  real  estate  loans,
installment  loans,  trust  and  investment  services,  collections,  traveler's
checks,  night  depository,  safe deposit box and U.S.  Savings Bonds.  The Bank
maintains correspondent  relationships with major banks in Detroit,  pursuant to
which the Bank  engages in federal  funds sale and  purchase  transactions,  the
clearance of checks and certain foreign currency transactions. The Bank also has
a relationship  with the Federal Home Loan Bank of  Indianapolis  where it makes
<PAGE>
short  term  investments  and  where  it has a line  of  credit  of  $13,000,000
available.  In addition, the Bank participates with other financial institutions
to fund certain large loans which would exceed the Bank's legal lending limit if
made solely by the Bank.

     The Bank's  deposits are generated in the normal course of business and the
loss of any one  depositor  would not have a  materially  adverse  effect on the
business of the Bank.  No material  portion of the Bank's loans is  concentrated
within a single  industry or group of related  industries.  As of  December  31,
1998,  t he Bank's  certificates  of deposit  of  $100,000  or more  constituted
approximately 8% of total deposit liabilities. The Bank's deposits are primarily
from its service  area and the Bank does not seek or  encourage  large  deposits
from outside the area.

     The Company's  cash revenues are derived  primarily  from dividends paid by
the Bank. The Bank's principal sources of revenue are interest and fees on loans
and interest on investment  securities.  Interest and fees on loans  constituted
approximately  80% and 76% of total  revenues for the periods ended December 31,
1998 and December 31, 1997,  respectively.  Interest on  investment  securities,
including   short-term   investments   and  federal   funds  sold,   constituted
approximately 12% and 14% of total revenues in 1998 and 1997. Revenues were also
generated from deposit service charges and other financial service fees.

     The Bank provides real estate,  consumer, and commercial loans to customers
in its  market.  Sixty  percent of the Bank's  loan  portfolio  is in fixed rate
loans.  Most of these  loans,  approximately  85%,  mature  within five years of
issuance.  Approximately $12,000,000 in loans (or about 6.5% of the Bank's total
loan  portfolio)  have  fixed  rates  with  maturities   exceeding  five  years.
Fifty-four percent of the Bank's interest-bearing  deposits are in savings, NOW,
and  MMDAs,  all of which  are  variable  rate  products.  Of the  approximately
$87,900,000 in certificates,  $70,400,000 mature within a year, with the balance
maturing within a five year period.

     Requests  to the Bank for  credit  are  considered  on the  basis of credit
worthiness of each applicant,  without  consideration to race, color,  religion,
national origin, sex, marital status,  physical handicap, age, or the receipt of
income  from  public  assistance  programs.  Consideration  is also given to the
applicant's capacity for repayment,  collateral, capital and alternative sources
of repayment.  Loan  applications are accepted at all the Bank's offices and are
approved  under each lending  officer's  authority.  Loan  requests in excess of
$400,000 are required to be presented to the Board of Directors or the Executive
Committee of the Board for its review and approval.

     As described in more detail below, the Bank's cumulative one year gap ratio
of rate  sensitive  assets to rate  sensitive  liabilities  for the period ended
December 31, 1998, was 8% liability  sensitive,  compared to 16% asset sensitive
at  December  31,  1997.  See  discussion  and  table  under  "Quantitative  and
Qualitative Disclosures about Market Risk" in Item 7 below.
<PAGE>
     The Bank  sells  participations  in  commercial  loans  to other  financial
institutions  approved  by the Bank,  for the purpose of meeting  legal  lending
limit  requirements  or loan  concentration  considerations.  The Bank regularly
sells fixed rate residential  mortgages to Freddie Mac while retaining servicing
on the sold loans.  Those residential real estate mortgage loan requests that do
not meet Freddie Mac  criteria  are  reviewed by the Bank for  approval  and, if
approved, are retained in the Bank's loan portfolio.  The Bank also may purchase
loans which meet its normal credit standards.

     The Bank's investment policy is considered to be generally conservative. It
provides for unlimited  investment in U.S.  government and agency bonds,  with a
maximum  maturity of five years.  Municipal  bonds may be  purchased  to provide
nontaxable  income,  with  the  maximum  life  of  municipal  bonds  limited  to
approximately  ten years with a double A rating or better. A single A rated bond
may be  purchased  if it matures in four years or less.  Non-rated  bonds may be
purchased from local  communities  that are familiar to the Bank, with a maximum
block size of a single purchase limited to $300,000. Investments in states other
than Michigan may not exceed 20% of the municipal portfolio,  and investments in
a  single  issuer  may  not  exceed  10%  of  equity  capital.  Mortgage  backed
securities,  which are fully  collateralized  by securities issued by government
sponsored agencies, may be purchased in block sizes of up to $500,000,  provided
the average life expectancy  does not exceed seven years.  In addition,  certain
collateralized  mortgage obligations may be purchased if their average life does
not exceed five years. In any case,  investments in mortgage  backed  securities
may not exceed 10% of the investment portfolio.

     In addition to the above referenced thresholds affecting the acquisition of
investment securities,  holdings of approved "non high-risk mortgage securities"
are required to be "stress  tested" at least  annually.  Any security that fails
this test is  required to be marked to market.  The  acquisition  of  "high-risk
mortgage securities" is prohibited.  In no case may the Bank participate in such
activities  as gains  trading,  "when-issued"  trading,  "pair offs",  corporate
settlement  of  government  and  agency  securities,   repositioning  repurchase
agreements,  and short sales. All securities  dealers effecting  transactions in
securities  held or  purchased  by the Bank  must be  approved  by the  Board of
Directors.

Bank Competition

The Bank has six offices within the four communities it serves, all of which are
located in Livingston County, Michigan. Three of the offices, including the main
office,  are  located in  Howell.  The other  three  facilities  are  located in
Brighton,  Hartland, and Fowlerville.  See "Properties" below for more detail on
these facilities.  Within these communities,  its principal  competitors are Old
Kent Bank,  National City Bank,  D&N Bank, and Michigan  National Bank.  Each of
these financial  institutions,  which are  headquartered in larger  metropolitan
areas,  have  significantly  greater  assets and  financial  resources  than the
Company.  Among the principal  competitors in the  communities in which the Bank
operates, the Bank is the only locally based financial institution. Based 
<PAGE>
on deposit  information as of June 30, 1998, the Bank holds approximately 19% of
local  deposits,   compared  to  approximately   20%  held  by  Old  Kent  Bank,
approximately  15% held by  National  City Bank,  approximately  11% held by D&N
Bank, and approximately  10% held by Michigan  National Bank.  Information as to
asset  size of  competitor  financial  institutions  is  derived  from  publicly
available  reports  filed by and with  regulatory  agencies.  Within  the Bank's
markets,  Old Kent  Bank  maintains  four  branch  offices,  National  City Bank
operates  six branch  offices,  D&N Bank has five branch  offices,  and Michigan
National Bank has three branch offices.  Management is not aware of any plans by
these financial institutions to expand their presence in the Bank's market.

     The  financial   services   industry   continues  to  become   increasingly
competitive.  Principal methods of competition include loan and deposit pricing,
advertising  and  marketing  programs,  and the types and  quality  of  services
provided.  The  deregulation  of the  financial  services  industry  has  led to
increased  competition  among  banks  and  other  financial  institutions  for a
significant  portion  of funds  which have  traditionally  been  deposited  with
commercial  banks.  Competition  within  the Bank's  market has been  relatively
stable within the past years. Management continues to evaluate the opportunities
for the  expansion of products  and  services,  such as offering  nonproprietary
mutual fund products,  telephone,  computer or on-line  banking,  and additional
branching opportunities. The Bank currently has an additional branch in Brighton
under  construction  which should be open for  business in the third  quarter of
1999.

Growth of Bank

     The following table sets forth certain information  regarding the growth of
the Bank: 
<TABLE>
                                                               Balances as of December 31, 
                                                               ---------------------------
                                                                     (in thousands)
                                            1998          1997           1996          1995           1994
                                            ----          ----           ----          ----           ----
<S>                                       <C>            <C>           <C>            <C>           <C>
Total Assets                              $264,894       $226,314      $202,009       $182,958      $168,438
Loans, Net of Unearned Income              185,018        158,397       136,067        127,463       117,008
Securities                                  38,646         43,725        47,257         35,251        33,891
Noninterest-Bearing Deposits                47,402         41,631        35,048         30,815        29,513
Interest-Bearing Deposits                  192,155        160,668       145,896        133,060       122,194
Total Deposits                             239,557        202,299       180,944        163,875       151,707
Shareholders' Equity                        23,497         21,732        19,597         17,530        15,305
</TABLE>

     During the five years presented,  the Bank operated six branch  facilities:
one in  downtown  Howell,  one at Lake  Chemung  (five  miles  east of  downtown
Howell), one on the east side of Brighton, one in a shopping center in Hartland,
one in the village of  Fowlerville,  and the sixth was a grocery  store  branch,
located west of downtown  Howell.  In July of 1995,  the Bank moved its Hartland
facility  from  the  shopping  center,  which  was a leased  building,  to a new
building,  built on property  purchased  by the Bank,  just east of the shopping
center site. In the time period  presented,  all of the Bank's branches grew due
to general growth in the county.
<PAGE>
Supervision and Regulation

     The following is a summary of certain  statutes and  regulations  affecting
the Company and the Bank. This summary is qualified in its entirety by reference
to the  particular  statutes and  regulations.  Changes in  applicable  laws and
regulations  may have a material  effect on the  Company  and the Bank and their
respective businesses.

     The  Company  operates  in a  highly  regulated  industry,  and thus may be
affected  by changes in state and  federal  legislation  and  regulations.  As a
registered  bank holding  company under the Bank Holding Company Act of 1956, as
amended (the "Act"),  the Company is subject to supervision  and  examination by
the Board of Governors of the Federal Reserve System  ("Federal  Reserve Board")
and is required to file,  with the Federal  Reserve  Board,  annual  reports and
information regarding its business operations and those of its subsidiaries.

     The Act  requires a bank  holding  company to obtain  the  approval  of the
Federal  Reserve Board before it may acquire more than 5% of the voting stock or
substantially  all of the  assets of any bank or merge or  consolidate  with any
other bank holding company. If the effect of a proposed  acquisition,  merger or
consolidation may substantially lessen competition or tend to create a monopoly,
the Federal  Reserve Board cannot approve the  acquisition  unless it finds that
the  anticompetitive  effects of the acquisition,  merger,  or consolidation are
clearly  outweighed by the  convenience and needs of the community to be served.
The Act also  provides  that the  consummation  of any  acquisition,  merger  or
consolidation  must be delayed at least 15 days  following  the  approval of the
Federal  Reserve Board and that any action  brought under the antitrust  laws of
the United States during the time will delay the  effectiveness  of its approval
during the pendency of the action unless otherwise ordered by the board.

     The Riegle-Neal  Interstate Banking and Branching Efficiency Act authorizes
adequately  capitalized and adequately managed bank holding companies to acquire
banks located outside their  respective home states,  irrespective of state law.
This legislation also authorizes,  effective June 1, 1997 (subject to individual
state's rights to accelerate this date or prohibit  interstate  branching within
their borders),  banking  organizations  to branch  nationwide by acquisition or
consolidation  of  existing  banks  in other  states.  Michigan  law  authorizes
out-of-state banks to acquire and establish  branches in Michigan,  provided the
laws of the  state of the  out-of-state  institution  permit  Michigan  banks to
acquire or establish branches in that state. Interstate acquisitions are subject
to the  approval  of various  federal  and state  agencies  and subject to other
conditions.

     Subject to certain  exceptions,  a bank holding  company is also prohibited
from  acquiring  direct or indirect  ownership or control of more than 5% of the
voting  shares of any company that is not a bank and from  engaging  directly or
indirectly in activities  unrelated to banking or managing or controlling banks.
One of the exceptions to this prohibition  permits  activities by a bank holding
company or its subsidiaries which the Federal Reserve Board has determined to be
so closely related to banking or managing or
<PAGE>
controlling banks as to be a proper incident thereto.  In determining  whether a
particular  activity is a proper  incident to banking or managing or controlling
banks, the Federal Reserve Board considers  whether  performance of the activity
by an affiliate of a bank holding  company can reasonably be expected to produce
benefits to the public, such as greater  convenience,  increased  competition or
gains in  efficiency  that  outweigh  possible  adverse  effects,  such as undue
concentration  of  resources,  decreased  or unfair  competition,  conflicts  of
interest or unsound  banking  practices.  The Federal  Reserve Board has adopted
regulations   prescribing   those  activities  which  it  presently  regards  as
permissible  for bank holding  companies and their  subsidiaries.  Some of these
activities  include:   performing  certain  data  processing  services;  certain
personal and real property leasing;  making,  acquiring,  or servicing loans and
other extensions of credit as would be made by a mortgage,  finance, credit card
or other factoring  company;  bank related courier services;  and, under certain
circumstances,  acting as any or all of the  following:  investment or financial
advisor,  insurance  agent or broker,  and underwriter for credit life insurance
and credit  accident  and health  insurance.  The Act does not place  geographic
restrictions  on the  activities  of the nonbank  subsidiary's  of bank  holding
companies.  The  enactment  of the  Economic  Growth  and  Regulatory  Paperwork
Reduction Act of 1996 streamlines the nonbanking activities  application process
for well capitalized and well managed bank holding companies.

     The Act, the Federal  Reserve Act, and the Federal  Deposit  Insurance  Act
also  subject  bank  holding   companies  and  their   subsidiaries  to  certain
restrictions on any extensions of credit by subsidiary banks to the bank holding
company  or any of its  subsidiaries,  or  investments  in the  stock  or  other
securities thereof,  and on the taking of such stock or securities as collateral
for loans to any borrower. Further, under the Act and regulations of the Federal
Reserve Board, a bank holding company and its  subsidiaries  are prohibited from
engaging in certain  tie-in  arrangements  in  connection  with any extension of
credit, sale or lease of any property or furnishing of service.

     The  Federal  Deposit  Insurance  Act  was  amended  in  1991  by the  FDIC
Improvement  Act of 1991.  The FDIC  Improvement  Act  provides  for  regulatory
intervention  should a bank's  capital  deteriorate,  limits certain real estate
lending and increases audit requirements. The FDIC has been granted authority to
impose special  assessments  on banks to repay  borrowings of the FDIC. The FDIC
Improvement Act defines a reserve ratio at which the Bank Insurance Fund ("BIF")
is to be maintained through FDIC semi-annual  assessment rates on the BIF member
banks.  The FDIC has also established a system of risk-based  deposit  insurance
premiums under the FDIC Improvement Act. This system  established four levels of
premium rates based on the risk classification of the institution. As a national
bank,  the Bank's  premiums  are paid to BIF.  Given the  designation  as a well
managed, well capitalized institution,  the Bank pays the lowest assessment rate
possible to BIF.

     As required by the Deposit  Insurance  Funds Act of 1996,  in 1997 the Bank
commenced making payments to the FDIC for the Financing Corporation (FICO) bonds
<PAGE>
that were issued previously.  The FICO rate for BIF members banks is 1.220 basis
points  annually  applied  to  assessable  deposits.  During  1998 the Bank paid
$24,000 to the FDIC.

     The Federal  Reserve  Board  provides  guidelines  for the  measurement  of
capital adequacy of bank holding companies.  The Company's capital,  as adjusted
under these guidelines, is referred to as risk-based capital. The Company's Tier
1  risk-based  capital  ratio,  at  December  31,  1998,  was  12.52%  and total
risk-based  capital was 13.79%.  At December 31, 1997,  these ratios were 14.32%
and  15.58%,  respectively.  Minimum  regulatory  Tier 1  risk-based  and  total
risk-based  capital ratios under the Federal Reserve Board guidelines are 4% and
8%, respectively. These same capital ratios are applied at the bank level by the
Federal Deposit Insurance  Corporation,  under which a well- capitalized bank is
defined as one with at least 10% risk-based  capital.  Capital  guidelines  also
provide for a standard to measure  risk-based  capital to total assets.  This is
referred to as the leverage ratio. The Company's  leverage ratio at December 31,
1998 was 9.14%,  while at December 31, 1997 it was 9.96%.  The minimum  standard
leverage ratio is 3%. See also "Capital" discussion in Item 7 below.

     The Bank is organized as a national  banking  association  and is therefore
regulated and  supervised by the Office of the  Comptroller of the Currency (the
"OCC").  The deposits of the Bank are insured by the Federal  Deposit  Insurance
Corporation ("FDIC").  Consequently,  the Bank is also subject to the provisions
of the Federal Deposit Insurance Act. As a bank holding company,  the Company is
subject to the direct  supervision of the Federal  Reserve Board. As a result of
such supervision and regulation, the Bank is subject to requirements to maintain
reserves against deposits,  restrictions on the nature and amount of loans which
may be made and the interest which may be charged thereon, restrictions relating
to investments and other  activities,  limitations based on capital and surplus,
and  limitations on the payment of dividends on its capital  stock.  The various
regulatory  and  legal  requirements  referenced  above  are  primarily  for the
protection of the Bank's  depositors and customers  rather than the shareholders
of the Company.

     As a Michigan business  corporation,  the Company may generally declare and
pay dividends, provided the Company is not insolvent and that the payment of the
dividend  would not render it  insolvent,  and,  after  giving the effect of the
distribution,  that the  Company's  total assets would equal or exceed its total
liabilities plus the dissolution  preference of any senior equity securities (of
which there currently are none). The payment of dividends to its shareholders is
limited  by the  Company's  ability  to  obtain  funds  from the Bank and by the
above-referenced regulatory capital guidelines. As a national bank, the Bank may
not pay a dividend  on its common  stock if the  dividend  would  exceed the net
undivided   profits  then  on  hand  after  deducting   losses  and  bad  debts.
Additionally,  the  prior  approval  of the  Office  of the  Comptroller  of the
Currency,  or its  designee,  is required  for any  dividend  to a bank  holding
company by an affiliated national bank if the total of all dividends,  including
any proposed  dividend  declared by such bank in any calendar year,  exceeds the
total of its net profits for that year  combined  with its  retained net profits
for the preceding two years, less any required transfers to surplus.
<PAGE>
     In 1996 the  Michigan  Legislature  adopted  the Credit  Reform  Act.  This
statute,  together with  amendments to other  related  laws,  permits  regulated
lenders,  indirectly including  Michigan-chartered  banks, to charge and collect
higher  rates  of  interest  and  increased  fees on  certain  types of loans to
individuals and businesses.  The laws prohibit "excessive fees and charges," and
authorize governmental authorities and borrowers to bring actions for injunctive
relief and statutory and actual damages for violations by lenders.  The statutes
specifically  authorize  class  actions,  and also civil  money  penalties,  for
knowing and willful or persistent violations.

     FDIC regulations which became effective April 1, 1996,  impose  limitations
(and in certain cases, prohibitions) on (i) certain "golden parachute" severance
payments  by  troubled  depository  institutions  and their  affiliated  holding
companies to  institution-affiliated  parties  (primarily  directors,  officers,
employees,  or  principal  shareholders  of the  institution),  and (ii) certain
indemnification  payments by a depository  institution or its affiliated holding
company,  regardless of financial condition, to institution-affiliated  parties.
The FDIC regulations impose limitations on indemnification  payments which could
restrict, in certain circumstances, payments by the Company or the Bank to their
respective directors or officers otherwise permitted under the Michigan Business
Corporation Act ("MBCA") or the National Bank Act, respectively.

     On  September  30,  1996,  the  Economic  Growth and  Regulatory  Paperwork
Reduction   Act   (EGRPRA)  was  signed  into  law,   which   provides  for  the
recapitalization  of  SAIF  and  includes  approximately  40  regulatory  relief
initiatives.  Among other  matters,  this  legislation  provides  for  expedited
application  procedures for nonbanking  activities by well  capitalized and well
managed bank holding  companies,  provides  reform to the Fair Credit  Reporting
Act, and provides  other forms of regulatory  relief to the  financial  services
industry.




I  SELECTED STATISTICAL INFORMATION
<PAGE>
(A) Distribution of Assets, Liabilities, and Shareholders' Equity: 
(B) Interest Rates and Interest Differential:

     The table on the following page shows the daily average  balances for major
categories of interest earning assets and interest bearing liabilities, interest
earned (on a taxable equivalent basis) or paid, and the effective rate or yield,
for the three years ended December 31, 1998, 1997, and 1996.

     Net interest  income is the difference  between  interest  earned on loans,
securities  and other earning  assets and interest paid on deposits and borrowed
funds. In the following tables,  the interest earned on investments and loans is
expressed on a fully  taxable  equivalent  (FTE) basis.  Tax exempt  interest is
increased to an amount comparable to interest subject to federal income taxes in
order to properly  evaluate the effective  yields earned on earning assets.  The
tax  equivalent  adjustment  is based on a federal  income tax rate of 34%.  The
following  Yield Analysis shows that the Bank's  interest  margin  increased one
basis point in 1998 as a result of an increase of twelve  basis  points in yield
on earning  assets,  partially  offset by an increase of ten basis points in the
interest  cost on deposits.  In 1997 the  interest  margin  decreased  two basis
points due to an increase in interest  cost on deposits  partially  offset by an
increase in yield on earning assets.
<PAGE>
<TABLE>
                           Yield Analysis of Consolidated Average Assets and Liabilities
                                              (dollars in thousands)


                                                 1998                             1997                               1996
                                                 ----                             ----                               ----
                                   Average                  Yield/     Average               Yield/    Average                Yield/
                                   Balance     Interest      Rate      Balance  Interest     Rate      Balance     Interest    Rate
                                   -------     --------     ------     -------  --------     -----    --------     --------   ------
<S>                                <C>         <C>          <C>       <C>       <C>          <C>      <C>          <C>         <C>
Assets:
Interest earning assets:
Federal funds sold                  $8,630       $449.1     5.31%      $2,754     $148.8     5.40%     $5,135       $269.2     5.24%
Securities:
    Taxable                         23,019      1,386.9     6.02%      31,873    1,906.0     5.98%     32,042      1,906.4     5.95%
   Tax-exempt                       15,221      1,085.1     7.13%      13,262      975.8     7.36%     11,172        853.4     7.64%
Loans(1)(2)                        175,873     17,317.6     9.85%     148,096   14,540.3     9.82%    130,648     12,946.8     9.91%
                                   -------     --------               -------   --------              -------     --------
Total earning assets and total
   interest income                 222,743    $20,238.7     9.09%     195,985  $17,570.9     8.97%    178,997    $15,975.8     8.93%
Cash & due from banks                9,836    ---------                 7,620  ---------                7,195    ---------
 All other assets                   11,335                              8,089                           7,341
Allowance for loan loss             (3,777)                            (3,499)                         (3,281)
                                  --------                           --------                        --------
   Total assets                   $240,137                           $208,195                        $190,252
                                  ========                           ========                        ========
Liabilities and
   Shareholders' Equity
Interest bearing deposits:
Savings/NOW accounts               $91,552     $2,772.5     3.03%     $79,104   $2,210.5     2.79%    $76,128     $2,129.9     2.80%
 Time                               81,119      4,617.2     5.69%      71,093    4,059.5     5.71%     62,577      3,514.5     5.62%
Federal funds purchased                179         10.7     5.98%         610       35.3     5.77%          4           .2     5.58%
                                   -------     --------               -------   --------              -------     --------
Total interest bearing
  liabilities and total interest
  expense                          172,850     $7,400.4     4.28%     150,807   $6,305.3     4.18%    138,709     $5,644.6     4.07%
Non-interest bearing deposits       43,619     --------                34,668   --------               31,005     --------  
All other liabilities                1,751                              1,792                           1,664
 Shareholders' Equity               21,917                             20,928                          18,874
Total liabilities and             --------                           --------                        --------
   shareholders' equity           $240,137                           $208,195                        $190,252
                                  ========                           ========                        ========
Interest spread                                             4.81%                            4.79%                             4.86%
                                                            =====                            =====                             =====
Net interest income-FTE                       $12,838.3                        $11,265.6                         $10,331.2
                                              =========                        =========                         =========
Net interest margin                                         5.76%                            5.75%                             5.77%
                                                            =====                            =====                             =====
</TABLE>

(1) Nonaccruing loans are not significant  during the three year period and, for
purposes of the computations above, are included in average daily loan balances.
(2)  Interest on loans  includes  origination  fees  totaling  $600,000 in 1998,
$380,000 in 1997, and $451,000 in 1996.
<PAGE>
(C) The following table sets forth the effects of volume and rate changes on net
interest  income  on a taxable  equivalent  basis.  All  figures  are  stated in
thousands of dollars.
<TABLE>
                                                   Year ended                            Year ended
                                          December 31, 1998 compared to        December 31, 1997 compared to
                                          Year ended December 31, 1997          Year ended December 31, 1996
                                          ----------------------------          ----------------------------
                                          Amount of Increase/(Decrease)        Amount of Increase/(Decrease)
                                              due to change in                       due to change in
                                              ----------------                       ----------------
                                                               Total                                Total
                                                               Amount                               Amount
                                                                 Of                                   of
                                                  Average     Increase/                Average     Increase/
                                     Volume        Rate      (Decrease)     Volume      Rate      (Decrease)
                                     ------        ----      ----------     ------      ----      ----------
<S>                                 <C>          <C>        <C>             <C>        <C>        <C>
Interest Income:
Short term investments....          $   317      $  (17)    $   300         $  (125)    $    4     $   (121)
Securities:                                              
  Taxable.................             (529)         11        (518)            (10)        10            0
  Tax Exempt..............              144         (35)        109             160        (37)         123
Loans.....................            2,727          50       2,777           1,729       (136)       1,593

  Total interest income...          $ 2,659      $    9     $ 2,668        $  1,754     $ (159)    $  1,595

Interest Expense:
Interest bearing deposits:
  Savings/NOW accounts....          $   348      $  214     $   562        $     83     $   (2)          81
  Time....................              572         (15)        557             478         67          545
Short-term borrowings.....             (25)           1         (24)             34          1           35

   Total interest expense.          $   895      $  200     $ 1,095        $    595     $   66     $    661

Net interest income (FTE).          $ 1,764      $ (191)    $ 1,573        $  1,159     $ (225)    $    934
</TABLE>

The  change  in  interest  due to  changes  in both  balance  and  rate has been
allocated to change due to balance and change due to rate in  proportion  to the
relationship of the absolute dollar amounts of change in each.
<PAGE>
II  SECURITIES PORTFOLIO

     (A)The  following table sets forth the book value of securities at December
31:
<TABLE>
                                                    (in thousands)
                                     1998               1997             1996
                                     ----               ----             ----
Held to maturity:
<S>                                 <C>              <C>              <C>
U.S. Treasury                       $ 1,999          $ 15,993         $ 13,996
U.S. Government agencies                  0                 0            1,017
States and political subdivisions    16,279            14,028           12,765
Mortgage-backed securities              602               633              352
                                        ---               ---              ---
   Total                           $ 18,880          $ 30,654         $ 28,130
Available for sale:
U.S. Treasury                      $ 12,092          $ 13,026         $ 18,046
U.S. Government agencies              6,982                 0            1,001
Mortgage-backed securities                0                 0               36
FRB Stock                                44                44               44
FHLB Stock                              648                 0                0
                                   --------          --------         --------
   Total                           $ 19,766          $ 13,070         $ 19,127
</TABLE>
     (B)The following table sets forth  contractual  maturities of securities at
December 31, 1998 and the weighted average yield of such securities:
<TABLE>
                                                              (Dollars in thousands)
                                                         Maturing After        Maturing After
                                     Maturing Within       One But Within    Five But Within       Maturing After
                                        One Year            Five Years          Ten Years            Ten Years
                                        --------            ----------          ---------            ---------
                                  Amount       Yield     Amount    Yield    Amount     Yield       Amount   Yield
                                  ------       -----     ------    -----    ------     -----       ------   -----
<S>                               <C>          <C>       <C>       <C>      <C>        <C>         <C>      <C>
Held to maturity
   U.S. Treasury                  $  1,999     6.09%
   States and political
      subdivisions                   1,095     7.95%     $3,726    5.82%    $11,458    6.73%
   Mortgage backed
      Securities                       251     5.20%        351    5.74%
                                       ---                  ---
      Total                       $  3,345     6.63%     $4,077    5.81%    $11,458    6.73%         $0
                                  ========               ======             =======                  ==

Tax equivalent adjustment
   for calculations of yield           $20                  $70                $214
                                       ===
Available for sale
   U.S. Treasury                  $  4,021     5.73%    $ 8,071    4.80%
   U.S. Agency                                            6,982    4.93%
   FRB Stock                                                                                     $   44     6.00%
   FHLB Stock                                                                                       648     7.98%
                                                                                                    ---
      Total                       $  4,021     5.73%    $15,053    4.86%         $0                $692     7.85%
                                  ========              =======                  ==
</TABLE>
<PAGE>
     The rates  set  forth in the  tables  above  for  obligations  of state and
political  subdivisions  have  been  restated  on a fully tax  equivalent  basis
assuming a 34% marginal tax rate. The amount of the adjustment is as follows:
<TABLE>
                                                                                         Rate on Tax
                                Tax-Exempt Rate                Adjustment              Equivalent Basis
                                ---------------                ----------              ----------------
<S>                                   <C>                        <C>                        <C>
Under 1 year                          6.11%                      1.84%                      7.95%
1-5 years                             5.29%                       .53%                      5.82%
5-10 years                            4.86%                      1.87%                      6.73%
</TABLE>

Additional statistical information concerning the Bank's securities portfolio is
incorporated  by reference  in Note 2 of the  Company's  Consolidated  Financial
Statements for the year ended December 31, 1998.

III LOAN PORTFOLIO

     (A)The table below shows loans outstanding at December 31:
<TABLE>
                                                                        (in thousands)
                                                     1998        1997        1996         1995        1994
                                                     ----        ----        ----         ----        ----
<S>                                                <C>         <C>          <C>         <C>         <C>
Secured by real estate:
   Residential first mortgage                      $ 38,051    $ 38,073     $ 36,148    $ 36,871    $ 33,842
   Residential home equity/other junior liens         9,106      13,665       12,883      10,566       8,819
   Construction and land development                 23,048      19,490       14,042       9,075       8,150
   Other                                             68,960      53,743       43,006      42,454      40,103
Consumer                                             16,653      14,011       12,272      11,233      10,730
Commercial                                           26,058      18,299       15,830      14,546      12,324
Other                                                 3,770       1,729        2,360       3,213       3,559
                                                   --------    --------     --------    --------    --------
   Total Loans (Gross)                             $185,646    $159,010     $136,541    $127,958    $117,527
</TABLE>

The loan portfolio is periodically reviewed and the results of these reviews are
reported to the Company's Board of Directors. The purpose of these reviews is to
verify proper loan  documentation,  to provide for the early  identification  of
potential  problem loans, and to evaluate the adequacy of the allowance for loan
losses.
<PAGE>
     (B)The  following  table  shows the amount of  commercial,  financial,  and
agricultural loans outstanding as of December 31, 1998 which, based on remaining
scheduled repayments of principal, are in the periods indicated.
<TABLE>
                                                                          Maturing
                                                                          --------
                                                                  (in thousands of dollars)
                                                                     After one
                                                     Within one      but within     After five
                                                       year          five years       years        Total
                                                       ----          ----------       -----        -----
<S>                                                  <C>            <C>             <C>          <C>
Real estate construction & land development...       $16,339        $ 6,709              0       $  23,048
 Real estate other (secured by commercial & 
   multi-family)..............................        13,440         51,305          4,215          68,960
Commercial (secured by business assets or
   Unsecured).................................         8,535         15,540          1,983          26,058
 Other (loans to farmers, political
   Subdivisions, & overdrafts) ...............            95          3,435            240           3,770
                                                     -------        -------         ------        --------
       Totals.................................       $38,409        $76,989         $6,438        $121,836
</TABLE>

Below is a schedule of amounts due after one year which are classified according
to their sensitivity to changes in interest rates.

<TABLE>
                                                                  Interest Sensitivity
                                                                 ----------------------
                                                                (in thousands of dollars)
                                                         Fixed Rate                  Variable Rate
                                                         ----------                  -------------
<S>                                                      <C>                         <C>
Due after one but within five years...............       $60,087                     $16,902
Due after five years..............................         4,377                       2,061
</TABLE>

     (C)  Nonperforming  loans  consist of loans  accounted  for on a nonaccrual
basis  and  loans  contractually  past  due 90 days or  more as to  interest  or
principal  payments (but not included in nonaccrual loans). The aggregate amount
of non-performing loans, as of December 31, is presented in the table below:
<TABLE>
                                                                   (Dollars in thousands)
                                              1998          1997           1996           1995           1994
                                              ----          ----           ----           ----           ----
<S>                                      <C>             <C>             <C>            <C>          <C>
Nonperforming Loans:
Nonaccrual loans                          $ 1,519        $   809         $  109         $  926       $   983
Loans past due 90 days or more                 25            249            448             66           295
                                               --            ---            ---             --           ---
   Total nonperforming loans              $ 1,544        $ 1,058         $  557         $  992       $ 1,278
                                          =======        =======         ======         ======       =======
Percent of total loans                       .83%           .67%           .41%           .78%         1.09%
</TABLE>

     Additional   information   concerning   nonperforming   loans,  the  Bank's
nonaccrual policy,  loan impairment,  and loan concentrations is incorporated by
reference to Note 3 of the Company's  Consolidated  Financial Statements for the
year ended December 31, 1998.

     There were no other interest  bearing  assets,  at December 31, 1998,  that
would be required to be disclosed under Item III(C), if such assets were loans.

     There were no foreign loans outstanding at December 31, 1998.
<PAGE>
IV SUMMARY OF LOAN LOSS EXPERIENCE

     (A)The  following table sets forth loan balances and summarizes the changes
in the allowance for loan losses for each of the years ended December 31:
<TABLE>
                                                                      (Dollars in thousands)
                                                      1998        1997        1996        1995        1994
                                                      ----        ----        ----        ----        ----
Loans:
<S>                                                  <C>         <C>         <C>         <C>        <C>
  Average daily balance of loans for the year....    $172,090    $148,097    $130,648    $122,500   $114,384
  Amount of loans (gross) outstanding at end
      of the year................................     185,646     159,011     136,541     127,958    117,527
Allowance for loan losses:
   Balance at beginning of year..................       3,424       3,335       3,097       2,672      2,205
   Loans charged off:
      Real estate................................         110           0          70           0         12
      Commercial.................................          63         375         129         118         37
      Consumer...................................         129         124          88          91         72
                                                          ---         ---          --          --         --
          Total charge-offs......................         302         499         287         209        121
   Recoveries of loans previously charged off:
       Real estate...............................          96          32           1           0          0
       Commercial................................          51          43          31          95         64
       Consumer..................................          49          27          45          91         76
                                                           --          --          --          --         --
           Total recoveries......................         196         102          77         186        140

Net loans charged off (recoveries)...............         106         397         210          23        (19)
Additions to allowance charged to operations.....         640         486         448         448        448
                                                         ----         ---         ---         ---        ---
           Balance at end of year................    $  3,958    $  3,424    $  3,335    $  3,097   $  2,672

Ratios:
   Net loans charged off to average loans
       outstanding                                       .06%        .27%        .16%        .02%      (.02%)
   Allowance for loan losses to loans
       outstanding                                      2.13%       2.15%       2.44%       2.42%      2.27%
</TABLE>

     The allowance for loan losses  reflected above is a valuation  allowance in
its entirety and the only allowance available to absorb future loan losses.

     (B)The  following  table  presents  the portion of the  allowance  for loan
losses  applicable  to each  loan  category  and the  percent  of  loans in each
category to total loans, as of December 31:
<TABLE>
   (Dollars in thousands)
                      1998                1997                1996              1995              1994
                      ----                ----                ----              ----              ----
                 Amount    Percent   Amount    Percent   Amount  Percent   Amount  Percent   Amount    Percent
                 ------    -------   ------    -------   ------  -------   ------  -------   ------    -------
<S>              <C>       <C>       <C>       <C>       <C>     <C>       <C>     <C>       <C>       <C>
Commercial.....  $2,437     91.0%    $ 1,810    90.1%    $ 830    66.7%   $  851    64.7%    $ 1,093    61.3%
Real estate....      53      2.0%         95     4.7%       70    17.1%       60    19.5%         45    23.1%
Consumer.......     189      7.0%        105     5.2%       90    16.2%       74    15.8%         95    15.6%
Unallocated....   1,279                1,414             2,345             2,112               1,439
                   ----                -----            ------            ------               -----
      Total....  $3,958      100%     $3,424     100%   $3,335     100%   $3,097     100%     $2,672     100%
                 ======      ====     ======     ====   ======     ====   ======     ====     ======    =====
</TABLE>
<PAGE>
 V  DEPOSITS

     The following  table sets forth average  deposit  balances and the weighted
average rates paid thereon for the years ended December 31:
<TABLE>
                                                                    (Dollars in thousands)
                                                    1998                     1997                    1996
                                                    ----                     ----                    ----
                                           Average                 Average                 Average
                                           Balance        Rate     Balance        Rate     Balance        Rate
                                           -------        ----     -------        ----     -------        ----
<S>                                       <C>             <C>     <C>             <C>     <C>             <C>
Non-interest bearing demand               $  43,619               $  34,668               $  31,005
Savings, NOW, and money market               91,552       3.03%      79,104       2.79%      76,128       2.80%
Time deposits                                81,119       5.69%      71,093       5.71%      62,577       5.62%
                                             ------                  ------                  ------
      Total                                $216,290       4.28%    $184,865       4.18%    $169,710       4.07%
                                           ========                ========                ========
</TABLE>

     The table for  maturities of  negotiated  rate time deposits of $100,000 or
more  outstanding at December 31, 1998 is incorporated by reference to note 7 of
the Company's  Consolidated Financial Statements for the year ended December 31,
1998.

VI  RETURN ON EQUITY AND ASSETS

         The ratio of net income to average  shareholders' equity and to average
total assets, and certain other ratios, for the years ended December 31 follow:
<TABLE>
                                             1998          1997           1996          1995           1994
                                             ----          ----           ----          ----           ----
<S>                                         <C>            <C>           <C>            <C>           <C>
Net income as a percent of:
   Average common equity                    17.83%         17.84%        19.12%         19.60%        16.63%
   Average total assets                      1.63%          1.79%         1.88%          1.88%         1.52%
</TABLE>

     Additional  performance ratios are set forth in Selected Financial Data, in
Item 6, Part II of this Report. Any significant  changes in the current trend of
the above  ratios are  reviewed  in  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations,  set forth in Item 7, Part II of
this Report.

VII  SHORT-TERM BORROWING

     The information required in this item is not applicable for this Company.

Item 2 - Properties

     The Bank  operates from six  facilities,  located in four  communities,  in
Livingston County, Michigan. The executive offices of the Company are located at
the  Bank's  main  office,  101 East Grand  River,  Howell,  Michigan.  The Bank
maintains  two  branches  in Howell at 5990 East Grand River and 2400 West Grand
River.  The Bank  also  maintains  branch  offices  at 9911  East  Grand  River,
Brighton,  Michigan,  760 South Grand Avenue,  Fowlerville,  Michigan, and 10700
Highland Road, Hartland,  Michigan. All of the offices have ATM machines and all
except the West Grand River branch,  which is in a grocery store,  have drive up
services.  All of the properties are owned by the Bank except for the
<PAGE>
West  Grand  River  branch  which is  leased.  The lease is for  fifteen  years,
expiring September 2007. The average lease payment over the life of the lease is
$3,167 monthly.

Item 3 - Legal Proceedings

     The Company is not involved in any material legal proceedings.  The Bank is
involved in ordinary routine litigation  incident to its business;  however,  no
such  proceedings  are expected to result in any material  adverse effect on the
operations or earnings of the Bank. Neither the Bank nor the Company is involved
in any proceedings to which any director,  principal officer, affiliate thereof,
or person who owns of record or beneficially  more than five percent (5%) of the
outstanding  stock of either the Company or the Bank,  or any  associate  of the
foregoing,  is a party or has a material  interest adverse to the Company or the
Bank.

Item 4 - Submission of Matters to a Vote of Security Holders

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 1998.

                       Additional Item--Executive Officers

     Executive  officers of the Company are  appointed  annually by the Board of
Directors.  There are no family  relationships  among these officers  and/or the
directors  of the  Company,  or any  arrangement  or  understanding  between any
officer and any other person pursuant to which the officer was elected.

     The  following  table sets forth  certain  information  with respect to the
Company's executive officers as of December 31, 1998:
<TABLE>

                                                                            First Selected as an Officer
         Name (Age)                        Position with Company                   of the Company
         ---------                         ---------------------                   --------------
<S>                                 <C>                                                 <C>
Barbara D. Martin (52)              President, Chief Executive Officer,                 1983
                                    and Director of the Company and the
                                    Bank
Barbara J. Nelson (51)              Secretary/Treasurer of the Company                  1985
                                    and Senior Vice President, Cashier,
                                    and Chief Financial Officer of the
                                    Bank
John D. Logan(49)                   Senior Vice President, Trust and                    1997
                                    Investments, of the Bank
James Wibby(48)                     Senior Vice President, Loans, of the                1997
                                    Bank
Jerry Armstong(39)                  Vice President, Operations                          1997
</TABLE>
<PAGE>
                                     PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters

     There is no active market for the Company's  Common Stock,  and there is no
published  information  with respect to its market price.  There are  occasional
direct sales by  shareholders  of which the  Company's  management  is generally
aware.  It is the  understanding  of the management of the Company that over the
last two years,  the Company's Common Stock has sold at a premium to book value.
From  January 1, 1997,  through  December 31,  1998,  there were,  so far as the
Company's  management  knows, 306 sales of shares of the Company's Common Stock,
involving a total of 129,223  shares.  The price was reported to  management  in
these transactions, however there may have been other transactions involving the
company  stock at prices not reported to  management.  During this  period,  the
highest  price  known to be paid was  $35.00  per share  during  the last  three
quarters of 1998 and the lowest price was $25.00 per share in the first  quarter
of 1997. To the knowledge of management,  the last sale of Common Stock occurred
on February 10, 1999. All per share information has been restated to give effect
to a three for one stock split, payable as a dividend of two shares for each one
share of company stock held of record January 16, 1997, paid February 16, 1997.

     As of March 1, 1999, there were  approximately 820 holders of record of the
Company's  Stock. The following table sets forth the range of high and low sales
prices of the Company's  Common Stock during 1997 and 1998, based on information
made  available to the  Company,  as well as per share cash  dividends  declared
during those periods.  Although  management is not aware of any  transactions at
higher or lower prices,  there may have been  transactions at prices outside the
ranges listed in the table.

     Sales price and dividend information for the years 1997 and 1998:
<TABLE>
                                              Sales Prices                     Cash Dividends Declared
                                              ------------                     -----------------------
            1997                       High                    Low
            ----                       ----                    ---
<S>                                   <C>                     <C>                         <C>
First Quarter                         $25.00                  $25.00                      $0.15
Second Quarter                        $27.50                  $25.00                      $0.15
Third Quarter                         $27.50                  $27.50                      $0.15
Fourth Quarter                        $30.00                  $27.50                      $0.55(1)

            1998                       High                    Low
            ----                       ----                    ---
First Quarter                         $30.00                  $30.00                      $0.18
Second Quarter                        $35.00                  $35.00                      $0.18
Third Quarter                         $35.00                  $35.00                      $0.20
Fourth Quarter                        $35.00                  $35.00                      $0.49(2)
</TABLE>
(1)  Includes a special dividend of $0.40 per share.
(2)  Includes a special dividend of $0.29 per share.


     The holders of the Company's  Common Stock are entitled to dividends  when,
as and if declared by the Board of Directors of the Company out of funds legally
available for that purpose.  Dividends have been paid on a quarterly  basis.  In
determining 
<PAGE>
dividends,  the Board of Directors considers the earnings,  capital requirements
and financial  condition of the Company and the Bank,  along with other relevant
factors.  The  Company's  principal  source of funds for cash  dividends  is the
dividends paid by the Bank. The ability of the Company and Bank to pay dividends
is subject to regulatory restrictions and requirements.

Item 6 - Selected Financial Data
<TABLE>
                                              SUMMARY FINANCIAL DATA
                                       (in thousands, except per share data)

                                             1998          1997           1996          1995          1994
                                             ----          ----           ----          ----          ----
<S>                                       <C>           <C>           <C>            <C>           <C>
Income Statement Data:
   Interest income                         $19,910        $17,276       $15,717        $14,394       $12,412
   Interest expense                          7,400          6,305         5,644          4,879         3,838
   Net interest income                      12,510         10,971        10,073          9,515         8,574

   Provision for loan losses                   640            486           448            448           448
   Non-interest income                       1,749          1,851         1,686          1,418         1,195
   Non-interest expense                      8,033          6,982         6,151          5,867         5,864
   Income before tax                         5,586          5,354         5,160          4,618         3,457
   Net income                                3,907          3,733         3,574          3,200         2,418
Basic Per Share Data(1):
   Net income                                $2.49           2.37          2.27           2.03          1.54
   Dividends paid                             1.05           1.00           .93            .68           .55
   Weighted average shares
      outstanding                        1,570,537      1,575,000     1,575,000      1,575,000     1,575,000
Balance Sheet Data:
   Total assets                            264,894        226,314       202,009        182,958       168,438
   Loans                                   185,018        158,397       136,067        127,463       117,008
   Allowance for loan losses                 3,958          3,424         3,335          3,097         2,672
   Deposits                                239,557        202,299       180,944        163,875       151,707
   Shareholders' equity                     23,497         21,732        19,597         17,530        15,305
Ratios:
   Dividend payout ratio                    42.11%         42.19%        41.13%         33.46%        35.82%
   Equity to asset ratio                     9.13%         10.05%         9.82%          9.61%         9.14%
</TABLE>
(1) Per  share  data for all  years  has been  restated  to give  effect  to the
three-for-one stock split, payable as a dividend paid in February 1997.
<PAGE>
Item 7  Management's Discussion and Analysis of Financial Condition and Results
        of Operations

     This  discussion  provides  information  about the  consolidated  financial
condition and results of operations of FNBH Bancorp,  Inc.  ("Company")  and its
subsidiaries,  First  National  Bank in Howell  ("Bank")  and HB Realty Co., and
should be read in conjunction with the Consolidated Financial Statements.

FINANCIAL CONDITION

     During 1998 total assets  increased 17% to  $264,894,000.  Contributing  to
this $39 million  increase was a $27 million (17%)  increase in loans.  Deposits
increased $37 million (18%) to $239,557,000. Stockholders' equity increased $1.8
million (8%) to $23,497,000.

Securities
     The security  portfolio is an important source of liquidity for the Bank to
meet unusual  deposit  fluctuations.  A primary concern of the management of the
Bank is to ensure  the safety of funds  entrusted  to it by its  depositors  and
shareholders. Approximately $22,000,000 of the security portfolio is invested in
US government and agency obligations. An additional $16,000,000 of the portfolio
consists of tax exempt  obligations  of states and political  subdivisions.  The
Company's   current  and   projected  tax  position   makes  these   investments
advantageous.  The Bank's  investment  policy  requires  purchases of tax exempt
issues to be of bonds with AA ratings or better if the maturity  exceeds 4 years
unless the bond is a local,  nonrated issue.  Other securities consist of equity
holdings in the Federal Reserve Bank and the Federal Home Loan Bank.

     The following table shows the percentage  makeup of the security  portfolio
as of December 31:
<TABLE>
                                                                                 1998          1997
                                                                                 ----          ----
<S>                                                                           <C>            <C>
U.S. Treasury & agency securities................................              54.5%          66.3%
Agency mortgage backed securities................................               1.6%           1.4%
Tax exempt obligations of states and political subdivisions......              42.1%          32.1%
Other                                                                           1.8%            .2%
                                                                              ------         ------
      Total securities...........................................             100.0%         100.0%
</TABLE>

Loans
         The loan  personnel of the Bank are  committed to making  quality loans
that produce a good rate of return for the Bank and also serve the  community by
providing funds for home purchases,  business purposes,  and consumer needs. The
overall loan portfolio grew $27,000,000 (17%) in 1998.
<PAGE>
     As a full service  lender,  the Bank offers a variety of home mortgage loan
products.  The Bank makes  fixed  rate,  long-term  mortgages  which  conform to
secondary market standards which it sells. This practice allows the Bank to meet
the housing credit needs of its service area, while at the same time maintaining
loan to deposit ratios and interest  sensitivity and liquidity  positions within
Bank policy. The Bank retains servicing on sold mortgages thereby furthering the
customer  relationship and adding to servicing income. During 1998 the Bank sold
$17,000,000 in residential mortgages.

     The Bank has also been able to service  customers  with loan needs which do
not conform to secondary market  requirements by offering variable rate products
which are  retained  in the  mortgage  portfolio.  These  loans  are  considered
nonconforming as they do not meet certain  requirements of the secondary market.
During 1998 the Bank made approximately  $7,000,000 in nonconforming loans which
it retained in the mortgage portfolio.

     During 1998,  the Bank  experienced  a  significant  amount of loan demand.
Growth in the county resulted in a need for financing commercial projects,  some
of which were for the  construction  of  commercial  buildings and some of which
were for the development of residential subdivisions. Commercial loans ended the
year at  $137,634,000,  a 25% increase  for the year.  Consumer  loans  declined
slightly.

     The  following  table  reflects the makeup 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.  In the  majority  of the loans to
commercial customers, the Bank is relying on the borrower's cash flow to service
the loans.  However,  these loans may be secured by personal or commercial  real
estate. A portion of the loans listed in residential  first mortgages  represent
commercial loans where the borrower has pledged his/her residence as collateral.
"Other" real estate loans  include  $65,000,000  in loans  secured by commercial
property with the remaining  $4,000,000 secured by multi-family  units. The most
significant  loan growth was in commercial  loans  secured by business  property
which increased  $15,200,000,  28% over the prior year, and in commercial  loans
not secured by real estate which increased $7,800,000, a 42% increase.
<PAGE>
     The following table shows the balance and percentage  makeup of loans as of
December 31:
<TABLE>
                                                                        (dollars in thousands)
                                                                1998                             1997
                                                                ----                             ---- 
                                                        Balances        Percentage     Balances       Percentage
Secured by real estate:
<S>                                                     <C>              <C>            <C>             <C>
   Residential first mortgage                           $ 38,051          20.5%         $ 38,073         23.9%
   Residential home equity/other junior
   liens                                                   9,106           4.9%           13,665          8.6%
   Construction and land development                      23,048          12.4%           19,490         12.3%
   Other                                                  68,960          37.1%           53,743         33.8%
 Consumer                                                 16,653           9.0%           14,011          8.8%
Commercial                                                26,058          14.1%           18,299         11.5%
Other                                                      3,770           2.0%            1,729          1.1%
                                                          ------         ------         --------        ------
   Total Loans (Gross)                                  $185,646         100.0%         $159,010        100.0%
</TABLE>

     The Bank's loan personnel have  endeavored to make high quality loans using
well  established  policies and procedures  and a thorough loan review  process.
Loans in excess of $400,000  are  approved  by a  committee  of the Board or the
Board.  The Bank has hired an  independent  person to review the  quality of the
loan portfolio on a regular basis. Loan quality is demonstrated by the ratios of
nonperforming  loans  and  assets  as a  percentage  of the  loan  portfolio  as
illustrated in the table below for December 31:
<TABLE>
                                                                       (Dollars in thousands)
                                                                   1998         1997        1996
                                                                   ----         ----        ----
Nonperforming Loans:
<S>                                                              <C>           <C>        <C>
Nonaccrual loans........................................         $  1,519      $  809       $109
Loans past due 90 days or more..........................               25         249        448
                                                                       --         ---        ---
   Total nonperforming loans............................            1,544       1,058        557
Other real estate.......................................                0           0        723
                                                                        -           -        ---
  Total nonperforming assets............................           $1,544      $1,058     $1,280
                                                                   ======      ======     ======

 Nonperforming loans as a percent of total loans........             .83%        .67%       .41%
Nonperforming assets as a percent of total loans........             .83%        .67%       .94%
Nonperforming loans as a percent of the loan loss
   reserve..............................................              27%         31%        17%
</TABLE>

     Nonperforming  assets  are  comprised  of loans for which  the  accrual  of
interest  has been  discontinued,  accruing  loans  90 days or more  past due in
payments,  and other  real  estate  which has been  acquired  primarily  through
foreclosure  and  is  waiting  disposition.  Loans  are  generally  placed  on a
nonaccrual  basis when  principal  or  interest  is past due 90 days or more and
when, in the opinion of management, full collection of principal and interest is
unlikely.
<PAGE>
     Nonperforming  loans increased $490,000 to $1,544,000 at December 31, 1998.
The  increase  in  nonperforming  loans is  primarily  due to the  addition of a
$700,000 loan to nonaccrual status.  The loan is well  collateralized and is not
expected  to result in losses that would have a material  adverse  impact on the
Company's financial condition or results of operation.

     Impaired  loans  totaled  $4,300,000  at  December  31,  1998,  compared to
$3,100,000 at the prior year end.  Included in impaired loans are  nonperforming
loans from the above  table,  except for  homogenous  residential  mortgage  and
consumer  loans,  and an additional  $3,200,000 of commercial  loans  separately
identified as impaired.  The increase in impaired  loans is primarily due to the
addition of the $700,000 loan to nonaccrual loans mentioned above.

     During 1998 the Bank  charged off loans  totaling  $302,000  and  recovered
$196,000 for a net charge off amount of $106,000. In the previous year, the Bank
had net  charge  offs  totaling  $397,000.  Because of the 25%  commercial  loan
growth,  management  increased the loan loss provision in the second half of the
year to $340,000 from the $300,000 provided for in the first half of the year.

     The  allowance  for loan losses  totaled  $3,958,000  at year end which was
2.13% of total loans,  compared to 2.15% of loans in 1997.  Management considers
this to be  adequate  to cover  any  anticipated  losses.  Management  regularly
evaluates  the allowance  for loan losses based on the  composition  of the loan
portfolio,  an evaluation of specific credits,  historical loss experience,  the
level of  nonperforming  loans and loans that have been  identified as impaired.
Externally, the local economy and events or trends which might negatively impact
the loan portfolio are also considered.

     The  following  table shows  changes in the loan loss reserve for the years
ended December 31:
<TABLE>
                                                                 (Dollars in thousands)
                                                            1998           1997         1996
                                                            ----           ----         ----
<S>                                                      <C>            <C>          <C>
Balance at beginning of the year..............            $3,424        $3,335       $3,097
Additions (deduction):
   Loans charged off..........................              (302)         (499)        (287)
   Recoveries of loans charged off............               196           102           77
   Provision charged to operations............               640           486          448
                                                            ----          ----         ----
Balance at end of the year....................            $3,958        $3,424       $3,335

Allowance for loan losses to loans outstanding             2.13%         2.15%        2.44%
</TABLE>

Deposits
     Deposit  balances of $239,557,000  at December 31, 1998 were  approximately
$37 million  (18%) higher than the previous  year end.  Because year end deposit
balances can
<PAGE>
fluctuate in unusual ways, it is more  meaningful to analyze  changes in average
balances.  Average  deposits  increased  $31.3 million  during 1998,  about 17%.
Non-interest  bearing  demand  deposits  increased  $8.9  million,  about 26% on
average.  Average  savings and NOW balances  increased $12.4 million (16%) while
average time deposits increased $10 million or about 14%.

     The following table sets forth average deposit balances for the years ended
December 31:
<TABLE>
                                                                 (in thousands)
                                                    1998            1997            1996
                                                    ----            ----            ----
<S>                                               <C>            <C>            <C>
Non-interest bearing demand                       $ 43,619        $ 34,668      $ 31,005
Savings, NOW and money market                       91,552          79,104        76,128
Time deposits                                       81,119          71,093        62,577
                                                    ------        --------      --------
      Total average deposits                      $216,290        $184,865      $169,710
</TABLE>

     The  increase in savings  deposits  was  primarily  due to a $15.6  million
increase in money market accounts. The growth in time deposits was the result of
maintaining  competitive  rates in the market and selectively  offering  special
rates on particular time products.

     The  majority of the Bank's  deposits are from core  customer  sources-long
term relationships with local personal,  business, and public customers. In some
financial  institutions,  the presence of interest bearing  certificates greater
than  $100,000  indicates  a  reliance  upon  purchased  funds.  However,  large
certificates in the Bank's portfolio consist primarily of core deposits of local
customers.  The Bank does not support growth through purchased funds or brokered
deposits.  See Note 7 of the  Consolidated  Financial  Statements for a maturity
schedule of over $100,000 certificates.

Capital
     The Company's  capital at year end totaled  $23,497,000,  a $1,800,000 (8%)
increase over the prior year.  Banking  regulators have set forth various ratios
of  capital  to assets to assess a  financial  institution's  soundness.  Tier 1
capital is equal to shareholders' equity while Tier 2 capital includes a portion
of the  allowance  for loan losses.  The  regulatory  agencies  have set capital
standards for "well capitalized" institutions. The leverage ratio, which divides
Tier 1 capital by three months average assets, must be 5% for a well capitalized
institution.  The  Bank's  leverage  ratio was  7.47% at year end  1998.  Tier 1
risk-based  capital,  which  includes some off balance sheet items in assets and
weights  assets  by risk,  must be 6% for a well  capitalized  institution.  The
Bank's was 10.17% at year end 1998.  Total  risk-based  capital,  which includes
Tier 1 and Tier 2 capital, must be 10% for a well capitalized  institution.  The
Bank's total risk based  capital ratio was 11.42% at year end. The Bank's strong
capital  ratios  put it in the best  classification  on which the FDIC bases its
assessment charge.
<PAGE>
     The following table lists various Bank capital ratios at December 31:
<TABLE>
                                                    1998                1997              1996
                                                    ----                ----              ----
<S>                                               <C>                <C>                 <C>
Equity to asset ratio                              7.14%              9.19%               9.67%
Tier 1 leverage ratio                              7.47%              9.50%               9.86%
Tier 1 risk-based capital                         10.17%             14.12%              14.71%
Total risk-based capital                          11.42%             15.37%              15.96%
</TABLE>


     The decline in the Bank's  capital ratio is the result of dividends paid to
the parent  company to enable a  subsidiary  company to purchase  land,  some of
which will be used for a branch site,  the remainder to be sold.  After the sale
is  completed  it is  anticipated  that  the  Bank's  capital  account  will  be
recredited for a substantial portion of the dividends related to the purchase.

     The  Company's  ability to pay  dividends is subject to various  regulatory
requirements.  Management  believes,  however,  that  earnings  will continue to
generate  adequate  capital to continue  the payment of  dividends.  In 1998 the
Company paid dividends totaling  $1,645,000,  or 42% of earnings.  Book value of
the stock was $15.04 at year end.

     The  Company  maintains  a five year plan  which was the result of a formal
strategic  planning  process.  Management and the Board continue to monitor long
term goals  which  include  expanded  services to achieve  growth and  retaining
earnings to fund growth, while providing return to shareholders.

     In the coming year, the Bank will spend  approximately  $1,800,000 to build
and furnish a new branch in the northwest part of Brighton.  Included in land is
approximately  $800,000 for the building  site.  Adjoining  the building site is
vacant land which the  corporation  intends to sell.  The vacant land,  totaling
approximately $3,100,000, is included in other assets.

Liquidity and Funds Management
     Liquidity is monitored by the Bank's  Asset/Liability  Management Committee
(ALCO) which meets at least monthly. ALCO developed,  and the Board of Directors
approved,  a liquidity  policy which requires a minimum 15% liquidity ratio. The
Bank's liquidity ratio averaged 18% in 1998.

     Deposits  are the  principal  source  of  funds  for the  Bank.  Management
monitors rates at other financial institutions in the area to ascertain that its
rates are  competitive in the market.  Management  also attempts to offer a wide
variety of products  to meet the needs of its  customers.  The Company  does not
deal in brokered funds and the makeup of its over $100,000 certificates consists
of local depositors known to the Bank.
<PAGE>
     It is the intention of the Bank's management to handle unexpected liquidity
needs  through its Federal Funds  position.  The goal is to maintain a daily Fed
Funds  balance  sufficient  to cover  required  cash  draws.  The Bank's  policy
requires all purchases of Fed Funds to be approved by senior  management so that
liquidity  needs are known.  In the event the Bank must  borrow for an  extended
period, management may look to "available for sale" securities in the investment
portfolio  for  liquidity  or borrow  from the  Federal  Home Loan Bank  where a
$13,000,000 line of credit is available.

     Throughout   the  past  year,   Fed  Funds  Sold   balances  have  averaged
approximately $5,600,000 compared to $3,000,000 the prior year. Periodically the
Bank borrowed money through the Fed Funds market.

Quantitative and Qualitative Disclosures about Market Risk

     The Bank's  Asset/Liability  Management  committee  (ALCO) meets monthly to
review the Bank's  performance.  The committee  discusses  the current  economic
outlook and its impact on the Bank and current  interest rate forecasts.  Actual
results are  compared to budget in terms of growth and income.  A yield and cost
analysis  is done to monitor  interest  margin.  Various  ratios  are  discussed
including  capital ratios and liquidity.  The Bank's  exposure to market risk is
reviewed.

     Interest rate risk is the  potential of 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  objective is to measure the effect on net
interest  income and to adjust the balance  sheet to minimize the inherent  risk
while at the same time maximizing  income.  Tools used by management include the
standard GAP report which lays out the repricing  schedule for various asset and
liability  categories and an interest rate shock simulation report. The Bank has
no market risk sensitive  instruments held for trading  purposes.  The Bank does
not enter into  futures,  forwards,  swaps,  or options to manage  interest rate
risk. However, the Bank is party to financial instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers  including  commitments  to extend  credit and  letters  of credit.  A
commitment or letter of credit is not recorded as an asset until the  instrument
is exercised (see Note 11 of the Consolidated Financial Statements).
<PAGE>
     The table below shows the  scheduled  maturity and  repricing of the Bank's
assets and liabilities as of December 31, 1998:
<TABLE>
                                                     0-3          4-12          1-5           5+
                                                  Months        Months        Years        Years        Total
                                                  ------        ------        -----        -----        -----
<S>                                              <C>           <C>          <C>           <C>         <C>
Assets:
   Loans................................         $57,080       $32,701      $83,838       $12,027     $185,646
   Securities...........................           4,150         3,215       19,131        12,150       38,646
   Short term investments...............          18,934                                                18,934
   Other assets.........................                                                   21,668       21,668
                                                 -------       -------     --------        ------     --------
      Total assets......................         $80,164       $35,916     $102,969       $45,845     $264,894

Liabilities & Shareholders' Equity:
   Demand, Savings & NOW................         $39,421       $16,678      $59,131       $36,388     $151,618
   Certificates of Deposit..............          23,278        46,876       17,785             0       87,939
   Other liabilities and equity.........                                                   25,337       25,337
                                                 -------       -------      -------        ------     --------
      Total liabilities and equity......         $62,699       $63,554      $76,916       $61,725     $264,894

Rate sensitivity gap and ratios:
   Gap for period.......................         $17,465     $(27,638)      $26,053      $(15,880)

   Cumulative gap.......................          17,465      (10,173)       15,880


Cumulative rate sensitive ratio.........            1.28          .92          1.08          1.00
December 31, 1997 rate sensitive
ratio...................................            1.27         1.16          1.09          1.00
</TABLE>


<TABLE>
                                                  Total               Average Interest Rate       Estimated Fair Value
                                                  -----               ---------------------       --------------------
<S>                                               <C>                         <C>                   <C>
Assets:
   Loans                                          $185,646                    9.85%                 $187,500
   Securities                                       38,646                    6.46%                   39,400
   Short term investments                           18,934                    5.20%                   18,900

Liabilities:
   Savings, NOW, MMDA                             $104,216                    3.03%                  104,200
  Certificates of Deposit                           87,939                    5.69%                   89,300
</TABLE>

     Estimated fair value for securities are based on quoted market prices.  For
variable rate loans that reprice  frequently and with no  significant  change in
credit risk, fair values are generally based on carrying values. The fair values
for fixed rate one-to-four family residential mortgage loans are based on quoted
market  prices  of  similar  loans  sold  in  conjunction  with   securitization
transactions, adjusted for differences in loan
<PAGE>
characteristics.  The  fair  value of other  types  of  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.  Because it has a one day maturity,  the carrying value is
used as fair value for Fed Funds sold. The fair value of deposits with no stated
maturity,  such as savings, NOW 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 deposits with similar remaining maturities.

     As noted  above,  the  entire  balance  of  savings,  NOW and  MMDAs is not
categorized  as 0-3 months,  although they are variable rate  products.  Some of
these balances are core deposits which are not considered  rate sensitive  based
on the Bank's historical experience.

     Given the liability sensitive position of the Bank at December 31, 1998, if
interest  rates  increase  200 basis  points  and  management  did not  respond,
management   estimates   that  pretax  net  interest   income   would   decrease
approximately  $500,000 while a similar decrease in rates would cause pretax net
interest income to increase by a like amount. See discussion under "Net Interest
Income" below.

RESULTS OF OPERATIONS

     The Company  achieved record earnings in 1998. Net income of $3,907,000 was
an increase of $173,000  (4.6%) over 1997  earnings.  The increase was due to an
increase in net interest income  partially offset by an increase in non-interest
expense.  The Company's  return on average  assets (ROA) was 1.63% in 1998, a 16
basis point decrease from the prior year.  The ROA declined  because income grew
at 4.6% while  average  assets grew at 15%. The return on average  stockholders'
equity  (ROE) was 17.83%,  a decrease of 1 basis point from the ROE  reported in
1997.

     The  following  table  contains  key  performance  ratios  for years  ended
December 31:
<TABLE>
                                                                    1998             1997           1996
                                                                    ----             ----           ----
<S>                                                                <C>              <C>            <C>
Net income to:
   Average stockholders' equity                                    17.83%           17.84%         19.12%
   Average assets                                                   1.63%            1.79%          1.88%
Basic earnings per common share:*                                  $2.49            $2.37          $2.27
</TABLE>
*restated to give effe ct to 3 for 1 stock  split,  payable as a dividend of two
shares for each one share of company stock held of record January 16, 1997, paid
February 16, 1997.

Net Interest Income

     Net interest  income is the difference  between  interest earned on earning
assets and interest paid on deposits.  It is the major component of earnings for
a  financial  institution.  For  analytical  purposes,  the  interest  earned on
investments  and loans is expressed on a fully taxable  equivalent  (FTE) basis.
Tax-exempt interest is increased to an amount
<PAGE>
comparable  to  interest  subject to federal  income  taxes in order to properly
evaluate the  effective  yields  earned on earning  assets.  The tax  equivalent
adjustment is based on a federal income tax rate of 34%.


     The following table shows the average balance and percentage earned or paid
on key  components of earning assets and paying  liabilities  for the year ended
December 31:
<TABLE>
                                                 1998                      1997                     1996
                                                 ----                      ----                     ----
                                         Average      Yield/      Average       Yield/      Average       Yield/
                                         Balance      Rate        Balance       Rate        Balance       Rate
                                         -------      ----        -------       ----        -------       ----
<S>                                     <C>           <C>         <C>           <C>         <C>           <C>
Interest earning assets:
Short term investments                  $   8,630     5.31%       $   2,754     5.40%       $   5,135     5.24%
Taxable securities                         23,019     6.02%          31,873     5.98%          32,042     5.95%
Tax-exempt securities                      15,221     7.13%          13,262     7.36%          11,172     7.64%
Loans                                     175,873     9.85%         148,096     9.82%         130,648     9.91%
                                          -------                   -------                   -------
   Total earning assets                  $222,743     9.09%        $195,985     8.97%        $178,997     8.93%
Interest bearing funds: 
Savings/NOW accounts                    $  91,552     3.03%       $  79,104     2.79%       $  76,128     2.80%
Time deposits                              81,119     5.69%          71,093     5.71%          62,577     5.62%
Federal funds purchased                       179     5.98%             610     5.77%               4     5.58%
                                          -------                 ---------                  --------
   Total interest bearing funds:         $172,850     4.28%        $150,807     4.18%        $138,709     4.07%

Interest spread                                       4.81%                     4.79%                     4.86%
Net interest margin                                   5.76%                     5.75%                     5.77%
</TABLE>

     Tax  equivalent  interest  income in each of the three years  includes loan
origination fees of $600,000 in 1998,  $380,000 in 1997, and $451,000 in 1996. A
substantial  portion of loan  origination  fees is deferred for  recognition  in
future periods or is considered in  determining  the gain or loss on the sale of
real estate mortgage loans.
<PAGE>
     The  following  table sets forth the effects of volume and rate  changes on
net interest  income on a taxable  equivalent  basis.  All figures are stated in
thousands of dollars.
<TABLE>
                                                 Year ended                              Year ended
                                       December 31, 1998 compared to            December 31, 1997 compared to
                                       Year ended December 31, 1997             Year ended December 31, 1996
                                       ----------------------------             ----------------------------
                                       Amount of Increase/(Decrease)            Amount of Increase/(Decrease)
                                            due to change in                         Due to change in
                                            ----------------                         ----------------
                                                                Total                                Total
                                                                Amount                               Amount
                                                                  Of                                   Of
                                                 Average       Increase/                Average     Increase/
                                   Volume         Rate        (Decrease)   Volume        Rate       (Decrease)
                                   ------         ----        ----------   ------        ----       ----------
<S>                                <C>           <C>          <C>         <C>          <C>          <C>
Interest Income:
Federal funds sold...........      $    317      $   (17)     $   300     $   (125)    $      4     $    (121)
Securities:
  Taxable....................          (529)          11         (518)         (10)          10             0
  Tax Exempt.................           144          (35)         109          160          (37)          123
Loans........................         2,727           50        2,777        1,729         (136)        1,593

  Total interest income......      $  2,659      $     9      $ 2,668     $  1,754     $   (159)     $  1,595

Interest Expense:
Interest bearing deposits:
  Savings/NOW accounts.......      $    348      $   214      $   562     $     83     $     (2)     $     81
  Time.......................           572          (15)         557          478           67           545
Short-term borrowings........           (25)           1          (24)          34            1            35

   Total interest expense....      $    895      $   200      $ 1,095     $    595     $     66      $    661

Net interest income (FTE)....      $  1,764      $  (191)     $ 1,573     $  1,159     $   (225)     $    934
</TABLE>

The  change  in  interest  due to  changes  in both  balance  and  rate has been
allocated to change due to balance and change due to rate in  proportion  to the
relationship of the absolute dollar amounts of change in each.

     Net interest income increased $1,571,000 in 1998 over the prior year due to
a  $2,667,000  increase in interest  income  partially  offset by  approximately
$1,096,000  increase  in  interest  expense.  The  increase  in  income  can  be
attributed  to an  increase  in average  earning  assets of  $27,000,000  and an
increase in the yield of 12 basis points.  Loan interest  income was  $2,777,000
higher in 1998 than the  previous  year.  The increase was due to an increase of
$27,800,000  in average  balances  and a 3 basis point  increase in rates.  Loan
demand  was strong in 1998 and  management  of the Bank  endeavored  to meet the
needs of the  community  by  allowing  the  investment  portfolio  to decline to
satisfy loan demand. Income on taxable securities declined in 1998 primarily due
to an $8,800,000 decrease in average balances.  Interest rates increased 4 basis
points.  Tax-exempt  bonds earned  $109,000 more in 1998 than the previous year.
The average balance of these
<PAGE>
securities  increased  $2,000,000  while  the rate  declined  23  basis  points.
Interest income on short term investments  increased $300,000 due to an increase
in average balances of $5,900,000,  partially offset by a decrease in rates of 9
basis points

     Interest  expense  increased  $1,096,000 in 1998 because  average  balances
increased  approximately  $22,000,000  and  interest  rates  increased  10 basis
points.  The  interest  cost for savings  and NOW  accounts  increased  $562,000
because  average  savings and NOW balances  increased  $12,400,000  and interest
rates increased 24 basis points.  Interest on certificates of deposit  increased
$558,000 because average time deposits increased  $10,000,000  although interest
rates declined 2 basis points. Savings balances increased as customers responded
favorably  to the  tiered  rate  structure  now being  offered  on money  market
accounts.  Growth in time  deposits was  encouraged by  competitive  pricing and
periodically offering special rates on specific products.

     In the previous year, net interest  income had increased  nearly  $934,000.
The  increase in net  interest  income was the result of an increase in interest
income of  $1,595,000,  partially  offset by an increase in interest  expense of
approximately  $661,000.  The increase in interest income in 1997 was the result
of a $17,000,000 increase in earning assets and an increase in yields on earning
assets of 4 basis  points.  The  increase in interest  expense was the result of
average balances  increasing  $12,000,000 and interest rates increasing 11 basis
points.

     In the coming year, management expects growth to continue in both loans and
deposits but at a more moderate pace than that  experienced in 1998. An economic
decline could adversely  affect growth.  The interest spread and interest margin
will  likely  decline  somewhat  due to the bank's high  concentration  of prime
related loans and the related reductions of prime in the fourth quarter of 1998.
The interest cost on deposits is expected to continue to rise as competition for
deposits intensifies among the bank and non-bank players.
<PAGE>
     The following  table shows the  composition  of average  earning assets and
interest paying liabilities for the years ended December 31:
<TABLE>
                                                              1998          1997          1996
                                                              ----          ----          ----
As a percent of average earning assets:
<S>                                                       <C>             <C>           <C>
   Loans                                                   78.95%          75.56%        72.99%
   Securities                                              17.18%          23.03%        24.14%
   Short term investments                                   3.87%           1.41%         2.87%
                                                            -----          ------        ------
      Average earning assets                              100.00%         100.00%       100.00%

   Savings and NOW                                         41.10%          40.36%        42.53%
   Time deposits                                           36.42%          36.27%        34.96%
   Short term borrowing                                      .08%            .31%             0
                                                            -----          ------        ------
      Average interest bearing liabilities                 77.60%          76.94%        77.49%

Earning asset ratio                                        92.76%          94.14%        94.08%
Free-funds ratio                                           22.40%          23.06%        22.51%
</TABLE>

Provision for Loan Losses
     The  provision  for loan losses  increased to $640,000 in 1998  compared to
$486,000 in 1997. This increase was deemed  appropriate due to the 25% inc rease
in  commercial  loans.  The  provision  was  sufficient  to  produce  a ratio of
allowance for loan loss to loans of 2.13% and a ratio of nonperforming  loans to
the  allowance  for loan loss of 27% at year  end.  Management  analysis  of the
adequacy  of the  allowance  considers  the  portfolio  mix as well as  economic
conditions within the Bank's market.

Non-interest Income
     Non-interest  income,  which includes service charges on deposit  accounts,
loan  fees,  other  operating  income,  and  gain(loss)  on sale of  assets  and
securities transactions, declined approximately $102,000 (5.5%) in 1998 compared
to the previous year. On the positive side,  trust income  increased  $76,000 in
1998, the first full year that the Trust Department was functional. Gain on loan
sales  increased  $109,000.  This number is very  volatile as the volume of loan
sales is  dependent  on the amount of  mortgage  demand and on the  movement  of
mortgage  rates.  In 1998 the Bank benefited from a low rate  environment  which
created good  mortgage  demand.  Service  charges on deposit  accounts  declined
slightly  as  depositors  took  advantage  of  service  free  options.   "Other"
non-interest  income  includes  a  $20,000  loss  on the  disposal  of  computer
equipment and a $200,000  provision  for estimated  selling costs related to the
previously  mentioned  land held for sale.  Included in 1997 other  non-interest
income is an $86,000 gain on the sale of other real estate.

Non-interest Expense
     Non-interest expense increased 15% in 1998. The most significant  component
of non-interest  expense is salaries and benefits expense.  In 1998 salaries and
benefits  expense  increased 14% to $4,300,000,  due to the combined  effects of
salary  increases,  staffing  of the trust  department,  and an  increase in the
employee profit sharing bonus.
<PAGE>
Equipment expense increased $244,000 due to the depreciation  expense related to
the more than $1,500,000  investment in technology  made in 1998.  Other expense
increased $255,000 (18%). The most notable factors  contributing to the increase
in other expense were increases in expense  related to upgrading  technology and
related costs of training employees.

Year 2000
     Year 2000  issues  have been a major  concern of the Bank's  management  in
1998. The Bank is highly  dependent on technology and several  applications  are
dependent on the  software's  ability to make the  transition  to the year 2000.
Preparation for the Year 2000 problem began two years ago when a technology plan
was drafted. Although the plan identified ten major technology initiatives to be
completed in two to three years,  the Year 2000 project was given first priority
and efforts began immediately. A national bank consulting firm was hired to help
prepare  an action  plan.  The  engagement  included  management  education,  an
inventory  of all  systems,  risk  assessment,  an  action  plan,  and a project
schedule.

     A steering  committee,  comprised  of ten key  employees  representing  all
departments  of the bank,  is working on the action plan.  The plan  consists of
five phases: awareness, assessment,  renovation, validation, and implementation.
The  awareness,  assessment,  and renovation  phases are complete.  All "mission
critical"  systems  have been  identified.  The  objective is to ensure that any
system used by the company that relies on dates will not be affected by the Year
2000 problem,  not only  computers but power systems,  vault timers,  elevators,
etc. The committee is in the process of completing  steps for the validation and
implementation  phases.  Applications  that have been  identified  as being date
sensitive are being tested.  The Company has spent  approximately  $1,500,000 on
hardware  and  software in 1998 and the  capital  expenditures  are  essentially
complete for this project.  The main frame  computer  system that  processes the
Bank's  business  has been  converted  to a client  server  system.  The  vendor
warrants that the software running on the system is Year 2000 compliant.  In the
coming  year,  the  Company  will  spend  approximately  $100,000  on testing to
determine  that all the  Bank's  systems  are  compliant.  However,  in spite of
thorough  testing,  the Company can give no guarantee  that the systems of other
service providers, on which the Company relies, will be fully compliant. Nor can
the Company  guarantee  that some non  "mission  critical"  software or hardware
program will not fail. The Company expects to have a contingency plan drafted by
the first quarter of 1999 in the unlikely event a failure were to occur.

     The  committee  also  recognizes  that the Company has  relationships  with
vendors and  customers  which are  important  to the smooth  functioning  of its
business.  As a  result,  the  Company  has  analyzed  significant  vendors  and
customers'  Year 2000  readiness and has  determined  that any failures they may
have are not expected to have a material effect on the Company.
<PAGE>
Federal Income Tax Expense
     Fluctuations  in income taxes resulted  primarily from changes in the level
of profitability  and in variations in the amount of tax-exempt  income.  Income
tax  expense  increased  $59,000  to  $1,679,500  (3.6%)  in 1998.  For  further
information  see Note 8 "Federal  Income  Taxes" in the  Company's  Consolidated
Financial Statements.

Prospective Accounting Changes

     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
No. 133,  Accounting for Derivative  Instruments  and Hedging  Activities  (SFAS
133).  SFAS 133  establishes  accounting and reporting  standards for derivative
instruments and hedging activities.  It requires  recognition of all derivatives
as either  assets or  liabilities  in the  statement of financial  condition and
measurement  of those  instruments  at fair value.  The accounting for gains and
losses on  derivatives  depends  on the  intended  use of the  derivative.  This
Statement is effective for all fiscal  quarters of fiscal years  beginning after
June 15, 1999, with earlier application  encouraged.  Retroactive application is
not  permitted.  SFAS 133 is not  expected to have a  significant  impact on the
financial condition or operations of the Corporation.

Item 7a - Quantitative and Qualititative Disclosures about Market Risk
     Included in Management's Discussion and Analysis set forth in Item 7

Item 8 - Financial Statements and Supplementary Data

     The following  consolidated  financial statements and supplementary data of
the Company  appear on pages 23 to 30 of Appendix I to the Company's  definitive
Proxy  Statement,  dated March 19,  1999,  relating to the April 21, 1999 Annual
Meeting  of  shareholders,  as  filed  with the  Commission.  This  Appendix  is
incorporated  herein by  reference  and included as Exhibit 13 to this report on
Form 10-K:

         Consolidated Balance Sheets
         Consolidated Statements of Income
         Consolidated Statements of Stockholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statement
         Independent Auditors' Report
         Quarterly  financial  data  relating to results of  operations  for the
years ended December 31, 1998 and 1997 are reported on page 50 of Appendix I.

Item 9 - Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure

None
<PAGE>
                                    PART III

Item 10 - Directors and Executive Officers of the Registrant

Directors
     The  information  with respect to Directors and Nominees of the Registrant,
set forth under the caption  "Election of Directors" on pages 1 through 3 of the
Company's  definitive  proxy  statement,  as filed with the Commission and dated
March 19, 1999,  relating to the April 21, 1999 Annual Meeting of  Shareholders,
is incorporated herein by reference.

Executive Officers
     The information called for by this item is contained in Part I of this Form
10-K Report.


Item 11 - Executive Compensation

     The information set forth under the caption "Summary Compensation Table" on
page 5 of the Company's definitive proxy statement, as filed with the Commission
and dated March 19,  1999,  relating  to the April 21,  1999  Annual  Meeting of
Shareholders, is incorporated herein by reference. Information under the caption
"Committee  Report on Executive  Compensation" on pages 3 and 4 and "Shareholder
Return  Performance  Graph" on page 8 of the definitive  proxy  statement is not
incorporated  by  reference  herein  and is not  deemed  to be  filed  with  the
Securities and Exchange Commission.

Item 12 - Security Ownership of Certain Beneficial Owners and Management

     The information set forth under the caption  "Ownership of Common Stock" on
page 7 of the Company's definitive proxy statement, as filed with the Commission
and dated March 19,  1999,  relating  to the April 21,  1999  Annual  Meeting of
Shareholders, is incorporated herein by reference.


Item 13 - Certain Relationships and Related Transactions

     The  information  set forth under the caption  "Certain  Transactions  with
Management" on page 6 of the Company's definitive proxy statement, as filed with
the Commission  and dated March 19, 1999,  relating to the April 21, 1999 Annual
Meeting of Shareholders, is incorporated herein by reference.
<PAGE>
                                     PART IV

Item 14 - Exhibits, Financial Statement Schedules and Report on Form 8-K

(a)  1.   Financial Statements
          All financial  statements of the Registrant are incorporated herein by
          reference  as set forth in Appendix I to the  Registrant's  Definitive
          Proxy Statement,  dated March 19, 1999, relating to the April 21, 1999
          Annual Meeting of Shareholders, a copy of which is filed as Exhibit 13
          to this Report on Form 10-K.

     2.   Financial Statement Schedules
          Not applicable.

     3.   Exhibits  (Numbered in accordance  with Item 601 of Regulation  S-K)
          The  Exhibit  Index is located  on the final page of this  report on
          Form 10-K.

(b)       Reports on Form 8-K
          No reports on Form 8-K were filed during the fourth quarter of the
          year ended December 31, 1998.



SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized, dated March 11, 1999.

FNBH BANCORP, INC.



/s/ Barbara D. Martin             Barbara D. Martin, President & Chief Executive
                                  Officer (Principal Executive Officer)

/s/ Barbara J. Nelson             Barbara J. Nelson, Secretary/Treasurer
                                  (Principal Accounting Officer)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the Registrant and in the
capacities and on the dates  indicated.  Each director of the Registrant,  who's
signature  appears  below,  hereby  appoints  Barbara D.  Martin and  Barbara J.
Nelson, and each of them severally,  as his or her attorney-in-fact,  to sign in
his or her name and on his or her behalf,  as a director of the Registrant,  and
to file with the Commission any and all Amendments to this Report on Form 10-K.


W. Rickard Scofield, Chairman of the Board              /s/ W. Rickard Scofield


Charles N. Holkins, Vice Chairman of the Board          /s/ Charles N. Holkins


Gary R. Boss, Director                                  /s/ Gary R. Boss


Donald K. Burkel, Director                              /s/ Donald K. Burkel


Harry E. Griffith, Director                             /s/ Harry E. Griffith


Dona Scott Laskey, Director                             /s/ Dona Scott Lakskey


Barbara D. Martin, Director                             /s/ Barbara D. Martin


James R. McAuliffe, Director                            /s/ James R. McAuliffe


Randolph E. Rudisill, Director                          /s/ Randolph E. Rudisill


R. Michael Yost, Director                               /s/ R. Michael Yost
<PAGE>
                                  EXHIBIT INDEX

The following  exhibits are filed herewith,  indexed according to the applicable
assigned number:

Exhibit
Number                                                                      Page
------                                                                      ----
*10.1  Form Restrictive Stock Agreement......................................

(13)   Pages 10-52 of Appendix I to the Company's Proxy Statement, dated
       March 19, 1999, for the Annual Meeting of Shareholders to be held
       April  21,  1999   representing  that  portion  of  the  Appendix
       incorporated by reference in Item 8 of this report. This Appendix
       was filed  with the  Commission  as part of the  Company's  Proxy
       Statement and was delivered to Company shareholders in compliance
       with Rule  14(a)-3 of the  Securities  Exchange  Act of 1934,  as
       amended................................................................38

(21)   Subsidiaries of the Registrant.........................................40

     The  following  exhibits,  indexed  according  to the  applicable  assigned
number,  were  previously  filed  by the  Registrant  and  are  incorporated  by
reference in this Form 10-K Annual Report.

Exhibit
Number                                         Original Filing Form and Date
------                                         -----------------------------
3.1   Restated Articles of Incorporation       Exhibit 3.1 of Form 10, effective
      of the Registrant                        June 30, 1995 ("Form 10")

3.2   Amendment to the Company's Articles      Appendix I of Proxy  Statement
      of Incorporation to Increase             dated March 17, 1998
      Authorized Shares

3.3   Bylaws of the Registrant                 Exhibit 3.2 of Form 10

4     Form of Registrant's Stock Certificate   Exhibit 4 of Form 10

      Material Contracts:


10.2   Howell Branch Lease Agreement            Exhibit 10.2 to Form 10

*10.3  Company's Long Term Incentive Plan       Appendix II of Proxy Statement
                                                dated March 17, 1998

*Represents a compensatory arrangement
<PAGE>
EXHIBIT 10.1

                        RESTRICTED SHARE GRANT AGREEMENT


     AGREEMENT  made as of the 1st day of July,  1998, by FNBH BANCORP,  INC., a
Michigan corporation (the "Company"), and Name of Employee (the "Employee").

                                    RECITALS

     The FNBH Bancorp,  Inc.  Long-Term  Incentive Plan  authorizes the award of
shares of  restricted  stock to  employees  of the  Company  upon such terms and
conditions as may be determined  by the  Compensation  Committee of the Board of
Directors.

     The  Committee  has approved a grant of  restricted  shares to the Employee
upon the terms and conditions set forth in this Agreement, including a condition
that all shares  will be  forfeited  if the  Employee  does not  continue  as an
employee of the Company or a  Subsidiary  for the five year period  specified in
this Agreement.

     The Company and the Employee desire to confirm in this Agreement the terms,
conditions and restrictions applicable to the grant of restricted stock.

     NOW, THEREFORE, the parties agree as follows:

1.   DEFINITIONS

     1.1 "Board" means the Board of Directors of the Company.

     1.2 "Committee" means the Compensation Committee of the Board.

     1.3 "Common Stock" means the common stock of the Company, no par value.

     1.4  "Company"  means  FNBH  Bancorp,  Inc.,  a Michigan  corporation,  its
successors and assigns.

     1.5 "Effective Date of this Agreement" means July 1, 1998.

     1.6 "Plan" means the FNBH Bancorp, Inc. Long-Term Incentive Plan.

     1.7 "Restricted Share" means a Share which is subject to the restriction on
sale,  pledge or other transfer imposed by Section 3.1. An "Unrestricted  Share"
is a Share which is no longer a Restricted Share.

     1.8  "Reverted  Shares"  means  Shares  which have  reverted to the Company
pursuant to Section 5.3.
<PAGE>
     1.9 "Shares" means the shares of Common Stock awarded, issued and delivered
to the Employee under this  Agreement.  If, as a result of a stock split,  stock
dividend,  combination of stock,  or any other change or exchange of securities,
by reclassification,  reorganization,  recapitalization or otherwise, the Shares
shall be increased or  decreased,  or changed into or exchanged  for a different
number or kind of shares of stock or other  securities of the Company or another
corporation,  the term  "Shares"  shall mean and  include the shares of stock or
other securities issued with respect to the Shares.

     1.10 "Vested Shares" shall have the meaning expressed in Section 5.1.

2.   GRANT AND ACCEPTANCE OF AWARD; TAX ELECTION

     2.1 Grant.  The  Company  confirms  the award to the  Employee of Number of
Shares  shares of Common Stock (the  "Shares")  as  restricted  stock,  upon the
terms,  restrictions and conditions of this Agreement and the Plan. The award of
Shares  shall be  effective  as of the  Effective  Date of this  Agreement.  The
Company  agrees to issue to the Employee a certificate  representing  the Shares
promptly after the Effective Date of this Agreement,  which shall be held by the
Company until all of the shares become Vested Shares.  Prior to that time,  upon
the request of Employee, the Company may issue a certificate  representing those
Shares that are Vested Shares.

     2.2  Acceptance.  The  Employee  accepts this award of Shares and agrees to
hold them subject to the terms, restrictions and conditions of this Agreement.

     2.3 Tax  Election.  The  Employee may elect to be taxed in 1998 on the fair
market  value of the Shares  awarded by signing an election to be so taxed under
Section 83(b) of the Internal  Revenue  Code,  and filing such election with the
Internal  Revenue  Service  within thirty (30) days after the Effective  Date of
this  Agreement.  If the  Employee  chooses  not to make such an  election,  the
Employee  will be taxed on the fair  market  value of the  Shares in the year in
which the restrictions lapse.

     2.4 Withholding.  The Employee  recognizes that in the year the Employee is
taxed on the grant of Shares (either at the time of vesting under Section 5.1 or
5.2, or if an election is made under Section 2.3),  the Company will be required
by federal  regulations  to deduct and  withhold  income  taxes  measured by the
market value of the Shares at the  withholding  rate  (currently  28 percent) in
effect  at that  time.  If the  Employee  elects to be taxed in 1998 on the fair
market  value of the Shares,  the Employee  shall  choose  either (a) to pay the
Company  in cash the  amount to be  withheld  or (b) to direct  the  Company  to
withhold 28 percent of the Shares (Tax Shares  shares) and itself pay the amount
to be withheld.  If the Employee chooses the latter, the Employee will receive a
certificate  for Net  Shares  shares.  In either  event,  the  Employee  will be
responsible  to pay when due all income  taxes on the fair  market  value of the
Shares in excess of the amount which is withheld.

                                       2
<PAGE>
3.   RESTRICTIONS ON TRANSFER OF SHARES; LAPSE OF RESTRICTIONS

     3.1 Transfer Prohibition.  The Employee shall not sell, pledge or otherwise
assign or transfer  any Share or any interest in any Share while such Share is a
Restricted Share.

     3.2 Restricted  Shares.  Every Share shall be a Restricted  Share until the
restrictions lapse as provided in Section 3.5.

     3.3 Securities Law Compliance.  The Employee shall not sell or transfer any
Share or any interest in any Share, whether such Share is or is not a Restricted
Share,  unless either (a) the Company shall consent in writing to such transfer,
or (b) the Company shall have received an opinion of counsel satisfactory to the
Company to the effect  that such  transfer  will not  violate  the  registration
requirements imposed by the Securities Act of 1933 or any other provision of law
which the Company shall desire such opinion to cover.

     3.4 Legend. Every certificate  representing a Share shall at all times bear
the following legend required under Section 7.2(b) of the Plan:

     3.5  Unrestricted  Shares.  The  restrictions  imposed by Section 3.1 shall
lapse at the time a Share  becomes a Vested  Share  pursuant  to Section  5.1 or
Section 5.2. At that time, the Share will be an Unrestricted Share.

     3.6  Rights of  Shareholder.  Except for the  restrictions  imposed in this
Article 3 and unless the Shares have reverted to the Company pursuant to Section
5.3, the Employee shall have all the rights of a shareholder with respect to the
Restricted  Shares,  including  the right to vote and to receive  the  dividends
declared and paid thereon.

4.   ACQUISITION WARRANTIES

     In order to induce the Company to issue and deliver the Shares on the terms
of this  Agreement,  the  Employee  warrants  to and agrees  with the Company as
follows:

     4.1 No Participating Interest. The Employee is acquiring the Shares for the
Employee's own account,  and has not made any arrangement to convey any interest
in the Shares to any  person,  other  than to  transfer  Reverted  Shares to the
Company pursuant to Section 5.4.

     4.2 Ability to Evaluate. Because of the Employee's knowledge and experience
in financial and business  matters,  the Employee is capable of  evaluating  the
merits and risks of acquiring  the Shares under the  arrangements  prescribed by
this Agreement.

     4.3 Familiarity  with Company.  The Employee is familiar with the business,
financial  condition,  earnings and prospects of the Company,  and confirms that
the Company has not made any  representation  regarding the foregoing matters or
the merits of this Agreement.

                                       3
<PAGE>
     4.4 All Questions  Answered.  The Employee  understands all of the terms of
this Agreement and the  consequences to the Employee of any actions which may be
taken  under  this  Agreement.  The  Employee  confirms  there are no  questions
relating to any such  matters  which have not been  answered  to the  Employee's
complete satisfaction.

5.   VESTING AND REVERSION

     5.1  Vesting  of  Shares.  The  Shares  issued  hereunder  which  have  not
previously  reverted to the Company  shall become  Vested Shares with respect to
the percentage of Shares set forth opposite the following dates:
<TABLE>
                                                                   Percent of Shares
                      Date                                          Vested to Date
                      ----                                          --------------
                 <S>                                                     <C>
                 January 1, 1999                                          20%
                 January 1, 2000                                          40%
                 January 1, 2001                                          60%
                 January 1, 2002                                          80%
                 January 1, 2003                                         100%
</TABLE>
     5.2 One Hundred Percent Vesting. All Shares issued hereunder which have not
previously reverted to the Company shall become Vested Shares

          (a) upon the Employee's death;

          (b) if the Employee's  employment by the Company or a Subsidiary  ends
     at a time when the Employee is  permanently  disabled,  as  determined by a
     physician approved by the Committee; or

          (c) if the  Employee's  employment by the Company or  Subsidiary  ends
     upon Employee's Retirement (as defined in the Plan),

whichever of the foregoing is first to occur.

     5.3 Reversion. Except as provided in Section 5.2, all Shares which have not
become Vested Shares shall  automatically  revert to the Company at any time the
Employee  shall no longer be  employed by the  Company or a  Subsidiary  for any
reason  whatsoever.  No compensation shall be payable to the Employee for shares
which revert to the Company.

     5.4  Effect  of  Reversion.  Upon  reversion  of any  Shares  (a)  absolute
ownership  thereof shall  automatically  revert to the Company at that time, (b)
such  Shares  shall be deemed  to be  "Reverted  Shares"  for  purposes  of this
Agreement,  (c) all the Employee's  rights and interests in the Reverted  Shares
shall cease at that time, and (d) the Employee shall be obligated immediately to
surrender to the Company the certificates  representing the Reverted Shares, but
the failure to do so shall not impair the  immediate  effect of clauses (a), (b)
and (c) above.

                                        5
<PAGE>
6.   GENERAL PROVISIONS

     6.1 No Right to Employment.  This Agreement is not an employment  contract.
Neither  the  Plan nor this  Agreement  or  anything  else  changes  the at will
employment status of the Employee.

     6.2 Severability. Whenever possible, each provision of this Agreement shall
be  interpreted  in such  manner  as to be  valid  and  enforceable,  but if any
provision of this  Agreement  shall be held to be  prohibited  or  unenforceable
under  applicable law (a) such  provision  shall be deemed amended to accomplish
the  objectives  of the provision as  originally  written to the fullest  extent
permitted by law, and (b) all other provisions of this Agreement shall remain in
full force and effect.

     6.3 Captions. The captions used in this Agreement are for convenience only,
do not  constitute a part of this  Agreement  and all of the  provisions of this
Agreement shall be enforced and construed as if no captions had been used.

     6.4 Complete  Agreement.  This  Agreement  contains the complete  agreement
between the parties  relating in any way to the subject matter of this Agreement
and supersedes any prior understandings,  agreements or representations, written
or oral, which may have related to such subject matter in any way.

     6.5 Notices.

          (a) Procedures  Required.  Each communication given or delivered under
     this Agreement must be in writing and may be given by personal  delivery or
     by  certified  mail. A written  communication  shall be deemed to have been
     given on the date it shall be  delivered  to the  address  required by this
     Agreement.

          (b) Communications to the Company. Communications to the Company shall
     be addressed to it at the principal  corporate  headquarters  and marked to
     the attention of the Company's president.

          (c)  Communications  to  the  Employee.  Every  communication  to  the
     Employee   shall  be  addressed  to  the  Employee  at  the  address  given
     immediately  below the Employee's  signature to this Agreement,  or to such
     other address as the Employee shall specify to the Company.

     6.6 Assignment. This Agreement is not assignable by the Employee during the
Employee's  lifetime.  This  Agreement  shall be  binding  upon and inure to the
benefit of (a) the successors and assigns of the Company,  and (b) any person to
whom the  Employee's  rights  under  this  Agreement  may pass by  reason of the
Employee's death.

                                       6
<PAGE>
     6.7  Amendment.  This  Agreement may be amended,  modified or terminated by
written agreement between the Company and the Employee.

     6.8 Waiver.  No delay or omission in exercising any right  hereunder  shall
operate as a waiver of such right or of any other right hereunder. A waiver upon
any one  occasion  shall  not be  construed  as a bar or  waiver of any right or
remedy on any other  occasion.  All of the rights and  remedies  of the  parties
hereto, whether evidenced hereby or granted by law, shall be cumulative.

     6.9 Choice of Law.  This  Agreement  shall be deemed to be a contract  made
under the laws of the State of Michigan and for all purposes  shall be construed
in accordance with and governed by the laws of the State of Michigan.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

Employee:                                  FNBH BANCORP, INC.



________________________                   By__________________________
Employee
                                              Its         

Address:

________________________

________________________


::ODMA\PCDOCS\GRR\163683\2

                                        7
<PAGE>
                                   EXHIBIT 21

                                  SUBSIDIARIES


            Name                                   Jurisdiction of Incorporation
            ----                                   -----------------------------
First National Bank in Howell                                Michigan

H.B. Realty Co...............................................Michigan