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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the fiscal year ended December 31, 2009
 Commission file number 0-25752
 FNBH BANCORP, INC.
  MICHIGAN
(State or other jurisdiction of 
incorporation or organization)
    
    No. 38-2869722
(I.R.S. Employer Identification No.)
 101 East Grand River, Howell, Michigan 48843
   Common Stock, no par value  (Title of Class)
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 o þ
   Documents Incorporated by Reference:




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##### 



TABLE OF CONTENTS
 PagePART IItem 1  Business
    
    
    3Item 1A  Risk Factors
    
    
    10Item 1B  Unresolved Staff Comments
    
    
    15Item 2  Properties
    
    
    15Item 3  Legal Proceedings
    
    
    15Item 4  Reserved
    
    
    15PART IIItem 5  Market for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
    
    
    16Item 6  Selected Financial Data
    
    
    18Item 7  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    18Item 7A  Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 8  Financial Statements and Supplementary Data
    
    
    37Item 9  Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    65Item 9A  Controls and Procedures
    
    
    65Item 9B  Other Information
    
    
    65PART IIIItem 10  Directors, Executive Officers and Corporate Governance
    
    
    65Item 11  Executive Compensation
    
    
    66Item 12  Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
    
    
    66Item 13  Certain Relationships, Related Transactions and Director Independence
    
    
    66Item 14  Principal Accountant Fees and Services
    
    
    66PART VIItem 15  Exhibits and Financial Statement Schedules
    
    
    66SIGNATURES
    
    
    67EXHIBIT INDEX
    
    
    68Subsidiaries
of the Registrant
    
    
    70Consent
of Independent Registered Public Accounting Firm
    
    
    71Sec
302 Certification of Chief Executive Officer
    
    
    72Sec
302 Certification of Chief Financial Officer
    
    
    73Sec
906 Certification of Chief Executive Officer
    
    
    74Sec
906 Certification of Chief Financial Officer
    
    
    75EX-3.4EX-10.10EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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PART I
 
 Item 1. Business.
    Bank Services
      3




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Bank Competition
   4




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Condition of Corporation
  Balances as of December 31,(in thousands)2009
    
    2008
    
    2007
    
    2006
    
    2005Total Assets
    
    $
    332,390
    
    
    $
    388,783
    
    
    $
    432,894
    
    
    $
    473,896
    
    
    $
    477,225Loans
    
    
    274,046
    
    
    
    315,817
    
    
    
    347,876
    
    
    
    384,581
    
    
    
    372,855Securities
    
    
    23,701
    
    
    
    42,516
    
    
    
    38,632
    
    
    
    54,214
    
    
    
    62,373Noninterest-Bearing Deposits
    
    
    65,644
    
    
    
    56,405
    
    
    
    56,506
    
    
    
    62,681
    
    
    
    71,415Interest-Bearing Deposits
    
    
    249,552
    
    
    
    293,122
    
    
    
    323,072
    
    
    
    342,863
    
    
    
    350,670Total Deposits
    
    
    315,196
    
    
    
    349,527
    
    
    
    379,578
    
    
    
    405,544
    
    
    
    422,085Shareholders Equity
    
    
    14,376
    
    
    
    27,525
    
    
    
    40,627
    
    
    
    49,992
    
    
    
    49,446
  Supervision and Regulation
  General
    Regulatory Developments
 Emergency Economic Stabilization Act of 2008.
 Troubled Assets Relief Program (TARP).
 5




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Federal Deposit Insurance Coverage.
 Financial Stability Plan.
  American Recovery and Reinvestment Act of 2009.
 Homeowner Affordability and Stability Plan.
  The Corporation
 General.
    6




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Investments and Activities .
   de
novo
  Capital Requirements .
   Dividends.
 7




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Federal Securities Regulation .
 The Bank
 General.
 Deposit Insurance .
       8




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FICO Assessments . pro rata
 OCC Assessments .
 Capital Requirements .
  Total
    
    Tier 1Risk-Based
    
    Risk-BasedCapital Ratio
    
    Capital Ratio
    
    Leverage RatioWell capitalized
    
    10% or above
    
    6% or above
    
    5% or aboveAdequately capitalized
    
    8% or above
    
    4% or above
    
    4% or aboveUndercapitalized
    
    Less than 8%
    
    Less than 4%
    
    Less than 4%Significantly undercapitalized
    
    Less than 6%
    
    Less than 3%
    
    Less than 3%Critically undercapitalized
    
    
    
    
    
    A ratio of tangible equity to total assets of 2% or less
     Dividends .
 9




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Insider Transactions .
 Safety and Soundness Standards .
 Consumer Protection Laws .
 
 Item 1A. Risk Factors.
 Significant uncertainty
regarding the impact of possible further regulatory enforcement action against the Bank
threatens our ability to continue as a going concern Form
 The Corporation may not be able to meet federal regulatory requirements regarding the
restoration of capital at the Bank .
  10




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The Banks capital may not be sufficient to support the risk inherent in its loan
portfolio .
 There are other consequences of the Banks current financial condition that will present
additional challenges to the Bank and could, individually or collectively, result in material
adverse effects on the Corporations financial condition .
  We are in the business of lending, which involves substantial credit risk, and our allowance
for loan losses may not be sufficient to cover actual loan losses.
  11




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Current market developments, particularly in real estate markets, may adversely affect our
industry, business and results of operations
   We are heavily weighted with loans secured by real estate and further declines in the real
estate market and the overall economy may result in higher loan losses.
 Fluctuations in interest rates could reduce our profitability .
  
    
    Inflation or deflation rates;
    
    Levels of business activity;
    
    Recession;
    
    Unemployment levels;
    
    Money supply;
    
    Domestic or foreign events; and
    
    Instability in domestic and foreign financial markets
 Competition with other financial institutions and financial service providers could adversely
affect our profitability .
 As a community bank, our financial condition is dependent, in part, on the general economic
condition of the communities we serve .
 12




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We operate in a highly regulated environment and may be adversely affected by changes in laws
and regulations .
 We may face challenges in managing our operational risk .
 Difficult market conditions have adversely affected our industry .
 Current levels of market volatility are unprecedented .
 There can be no assurance that recently enacted legislation will stabilize the U.S. financial
system .
  The impact on us of recently enacted legislation, in particular the Emergency Economic
Stabilization Act of 2008 and its implementing regulations, and actions by the FDIC, cannot be
predicted at this time .
 13




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We have credit risk inherent in our securities portfolio
 Changes in accounting standards could impact our reported earnings .
 We may not pay dividends on our common stock .
 There have been numerous media reports about bank failures, which we expect will continue as
additional banks fail
 If successful, our efforts to raise additional capital as set forth in our Capital Plan will be
highly dilutive to our common shareholders
 The capital raise initiative we are pursuing could result in one or more private investors
owning a significant percentage of our stock and having the ability to exert significant influence
over our management and operations
 It is possible that a successful capital raise initiative as set forth in our Capital Plan
could trigger an ownership change that will negatively affect our ability to utilize net operating
loss carryforwards and other deferred tax assets in the future
 The trading price of our common stock may be subject to continued significant fluctuations and
volatility
 
    
    announcements regarding significant transactions in which we may engage, including the
capital raise initiative included in our Capital Plan;
    
    market assessments regarding such transactions, including the timing, terms, and
likelihood of success of our capital raise initiative(s);
    
    operating results that vary from the expectations of management, securities analysts,
and investors, including with respect to further loan losses we may incur;
    
    changes or perceived changes in our operations or business prospects;
    
    legislative or regulatory changes affecting our industry generally or our businesses and
operations;
 14




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
    
    the failure of general market and economic conditions to stabilize and recover,
particularly with respect to economic conditions in Michigan, and the pace of any such
stabilization and recovery;
    
    the operating and share price performance of companies that investors consider to be
comparable to us;
    
    other changes in global financial markets, economies, and market conditions, such as
interest or foreign exchange rates, stock, commodity, credit or asset valuations or
volatility.
  We rely heavily on our management team, including our loan officers, and the unexpected loss of
key employees may adversely affect our operations .
 
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  
 Item 3. Legal Proceedings.
  
 Item 4. Reserved.
 Additional Item Executive Officers of Registrant
       15




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.
 
   Sale Prices2008
    
    High
    
    Low
    
    Cash Dividends DeclaredFirst Quarter
    
    $
    13.60
    
    
    $
    12.00
    
    
    $
    0.08Second Quarter
    
    $
    13.40
    
    
    $
    9.07
    
    
    $
    0.08Third Quarter
    
    $
    9.07
    
    
    $
    4.50
    
    
    $
    0.00Fourth Quarter
    
    $
    4.85
    
    
    $
    4.00
    
    
    $
    0.00
 Sale Prices2009
    
    High
    
    Low
    
    Cash Dividends DeclaredFirst Quarter
    
    $
    4.40
    
    
    $
    1.20
    
    
    $
    0.00Second Quarter
    
    $
    2.52
    
    
    $
    2.00
    
    
    $
    0.00Third Quarter
    
    $
    2.00
    
    
    $
    0.98
    
    
    $
    0.00Fourth Quarter
    
    $
    0.98
    
    
    $
    0.05
    
    
    $
    0.00
   16




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SHAREHOLDER RETURN PERFORMANCE GRAPH
  COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
 
 January 1
    
    December 312005
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009FNBH Bancorp, Inc.
    
    
    100
    
    
    
    81.8
    
    
    
    88.65
    
    
    
    47.04
    
    
    
    15.54
    
    
    
    0.21NASDAQ Stock Market Index
    
    
    100
    
    
    
    101.37
    
    
    
    111.03
    
    
    
    121.92
    
    
    
    72.49
    
    
    
    104.31NASDAQ Bank Stocks Index
    
    
    100
    
    
    
    95.67
    
    
    
    106.20
    
    
    
    82.76
    
    
    
    62.96
    
    
    
    51.31
 17




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Item 6. Selected Financial Data.
 SUMMARY FINANCIAL DATA
 2009
    
    2008
    
    2007
    
    2006
    
    2005Statement of Operations Data:Interest income
    
    $
    17,870
    
    
    $
    24,307
    
    
    $
    30,173
    
    
    $
    31,818
    
    
    $
    29,315Interest expense
    
    
    4,632
    
    
    
    8,118
    
    
    
    11,884
    
    
    
    10,295
    
    
    
    7,054Net interest income
    
    
    13,238
    
    
    
    16,189
    
    
    
    18,289
    
    
    
    21,523
    
    
    
    22,261Provision for loan losses
    
    
    15,847
    
    
    
    14,855
    
    
    
    14,030
    
    
    
    2,639
    
    
    
    3,037Noninterest income (1)
    
    
    3,569
    
    
    
    3,341
    
    
    
    3,755
    
    
    
    4,031
    
    
    
    3,820Gain (loss) on available for sale securities (1)
    
    
    199
    
    
    
    (3,237
    )
    
    
    (548
    )
    
    
    
    
    
    
    Noninterest expense (2)
    
    
    15,939
    
    
    
    14,979
    
    
    
    13,493
    
    
    
    14,939
    
    
    
    13,653Loss on sale/writedown of commercial loans
held for sale (2)
    
    
    
    
    
    
    
    
    
    
    4,312
    
    
    
    
    
    
    
    Income (loss) before tax
    
    
    (14,780
    )
    
    
    (13,541
    )
    
    
    (10,339
    )
    
    
    7,976
    
    
    
    9,391Net income (loss)
    
    
    (13,696
    )
    
    
    (13,414
    )
    
    
    (6,556
    )
    
    
    5,586
    
    
    
    6,507Per Share Data:Basic net income (loss) per share
    
    $
    (4.32
    )
    
    $
    (4.33
    )
    
    $
    (2.13
    )
    
    $
    1.76
    
    
    $
    2.03Diluted net income (loss) per share
    
    
    (4.32
    )
    
    
    (4.33
    )
    
    
    (2.13
    )
    
    
    1.76
    
    
    
    2.03Dividends paid
    
    
    
    
    
    
    0.16
    
    
    
    0.84
    
    
    
    0.84
    
    
    
    0.80Weighted average basic shares outstanding
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,732
    
    
    
    3,177,093
    
    
    
    3,200,146Weighted average diluted shares outstanding
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,732
    
    
    
    3,177,146
    
    
    
    3,200,518Balance Sheet Data:Total assets
    
    $
    332,390
    
    
    $
    388,783
    
    
    $
    432,894
    
    
    $
    473,896
    
    
    $
    477,225Loans, gross
    
    
    274,046
    
    
    
    315,817
    
    
    
    347,876
    
    
    
    384,581
    
    
    
    372,855Allowance for loan losses
    
    
    18,665
    
    
    
    14,122
    
    
    
    10,314
    
    
    
    7,598
    
    
    
    6,991Deposits
    
    
    315,196
    
    
    
    349,527
    
    
    
    379,578
    
    
    
    405,544
    
    
    
    422,086Shareholders equity
    
    
    14,376
    
    
    
    27,525
    
    
    
    40,627
    
    
    
    49,992
    
    
    
    49,446Ratios:Dividend payout ratio
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    47.55
    %
    
    
    39.15
    %Average equity to average asset ratio
    
    
    5.80
    %
    
    
    9.24
    %
    
    
    10.47
    %
    
    
    10.86
    %
    
    
    10.18
    %
 
 (1)
    
    Included in noninterest income in the Consolidated Statements of Operations and
discussed under the caption
Noninterest Income under Item 7 Managements Discussion and Analysis of Financial
Condition and Results of
Operations.(2)
    
    Included in noninterest expense in the Consolidated Statements of Operations
and discussed under the caption
Noninterest Expense under Item 7 Managements Discussion and Analysis of Financial
Condition and Results
of Operations. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
     18




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
    
    On February 19, 2009, we held a special shareholders meeting at which our shareholders
approved an amendment to the Corporations Articles of Incorporation to authorize the Board
of Directors to issue up to 30,000 shares of preferred stock. Additionally, at the annual
meeting on May 28, 2009 our shareholders approved a 2,800,000 increase in the number of
authorized shares of common stock. We requested the authorization to issue preferred
 shares and additional shares of common stock in order to be able to raise additional
capital required by our current capital position and the Consent Order imposed by the OCC.
    
    In September 2009, we prepared a Capital Plan followed by a Confidential Offering
Memorandum in November 2009 for the offering and sale of shares of our preferred stock.
Although the Capital Plan was deemed unacceptable by the OCC for purposes of its PCA
enforcement powers, we continue to work to raise the necessary capital. To date, we have
not received any firm commitments for new capital, but we continue to hold negotiations
with potentially interested investors.
    
    The Bank has taken many steps to address other requirements of the Consent Order,
including making improvements to its liquidity risk management program and its loan
portfolio management.
    
    The Bank believes it has increased the strength of its executive management team through
new hires in 2008 and 2009, including CEO Ron Long, CFO Mark Huber, Chief Credit Officer
Paul Stark, and Sr. VP  Commercial Loan Officer Gerald Moyer.
    
    Management intends to support the Banks regulatory capital levels and ratios via
strategic balance sheet reductions in 2010 achieved primarily through non-renewal of high
cost certificates of deposits while managing normal loan runoff (i.e.,
 19




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scheduled payments)
with limited new money loan originations. The execution of this strategy is expected to
sustain the Banks net interest margin via lower deposit pricing in the current rate
environment coupled with greater reliance on lower cost core deposits. The strategy will
entail close monitoring of the Banks liquidity position and attention to significant
customer relationships.
 
    
    Management continues to maintain significant borrowing availability as a source of
contingency funding at the Federal Home Loan Bank and Federal Reserve as secured by
eligible loans pledged as collateral. At December 31, 2009, the Bank has approximately
$27.6 million of unused availability under established lines of credit at the FHLB and
Federal Reserve Discount Window. Management conducts on-going reviews of the Banks
portfolio loans to identify additional eligible collateral to further increase the Banks
borrowing capacity.
    
    Asset quality improvements are critical to the Banks future financial results and
performance. The active management and targeted reduction in the current level of
criticized loans will be pursued through continued quarterly loan portfolio credit
quality reviews emphasizing timely monitoring of borrower relationships, timely
identification of credit weaknesses, and heightened accountability of loan officers.
    
    The Banks 2010 budget includes plans for continued emphasis on expense reductions,
revenue enhancements, and operational efficiency enhancements.
    
    Plans for noninterest income revenue enhancements include partnering with a local
established residential mortgage origination company to enhance mortgage loan referral
income. Management also intends to originate and sell commercial loans under the federal
governments SBA loan guarantee program to generate additional noninterest income.
Finally, the sale of certain non-essential assets and select Bank branches are periodically
evaluated to support capital levels.
    
    Discretionary, noncritical capital expenditures for facility and technology improvements
not otherwise providing a net cost savings or net revenue enhancement have been deferred
indefinitely until the Banks financial condition improves.
    
    In considering alternatives to effect potential cost savings and cost reductions,
management remains committed to ensuring that all appropriate and necessary resources
available at reasonable costs are utilized to operate the Bank in a manner consistent with
safe and sound banking practices.
   FINANCIAL CONDITION
  Securities
  20




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(in thousands)2009
    
    
    2008
    
    
    2007Held to maturity:States and political subdivisions
    
    $
    
    
    
    $
    
    
    
    $
    15,394Available for sale:States and political subdivisions
    
    $
    7,156
    
    
    $
    14,704
    
    
    $
    U.S. agencies
    
    
    1,527
    
    
    
    9,693
    
    
    
    14,005Preferred stock
    
    
    87
    
    
    
    49
    
    
    
    Mortgage-backed/CMO securities
    
    
    13,936
    
    
    
    17,074
    
    
    
    8,238Total available for sale
    
    $
    22,706
    
    
    $
    41,520
    
    
    $
    22,243Other securities:FRB stock
    
    $
    44
    
    
    $
    44
    
    
    $
    44FHLBI stock
    
    
    951
    
    
    
    951
    
    
    
    951Total other securities
    
    $
    995
    
    
    $
    995
    
    
    $
    995
  (in thousands)Maturing After
    
    
    Maturing AfterMaturing Within
    
    
    One but Within
    
    
    Five but Within
    
    
    Maturing AfterOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten YearsAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldStates and political subdivisions
    
    $
    397
    
    
    
    5.88
    %
    
    $
    239
    
    
    
    3.85
    %
    
    $
    1,844
    
    
    
    4.04
    %
    
    $
    4,676
    
    
    
    4.28
    %U.S. agencies
    
    
    1,032
    
    
    
    3.88
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    5.25
    %Mortgage-backed/CMO securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,936
    
    
    
    5.74
    %Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    0.00
    %FRB stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    6.03
    %FHLBI stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951
    
    
    
    2.87
    %Total
    
    $
    1,429
    
    
    
    4.44
    %
    
    $
    239
    
    
    
    3.85
    %
    
    $
    1,844
    
    
    
    4.04
    %
    
    $
    20,189
    
    
    
    5.24
    %Tax equivalent adjustment for calculations of yield
    
    $
    11
    
    
    
    
    
    
    $
    6
    
    
    
    
    
    
    $
    51
    
    
    
    
    
    
    $
    132
  Tax-Exempt
    
    
    
    
    
    EquivalentRate
    
    Adjustment
    
    BasisUnder 1 year
    
    
    5.88
    %
    
    
    2.82
    %
    
    
    8.70
    %1-5 years
    
    
    3.85
    %
    
    
    2.82
    %
    
    
    6.67
    %5-10 years
    
    
    4.04
    %
    
    
    2.82
    %
    
    
    6.86
    %10 years or more
    
    
    4.28
    %
    
    
    2.82
    %
    
    
    7.10
    %
  2009
    
    
    2008
    
    
    2007U.S. Treasury & agency securities
    
    
    6.4
    %
    
    
    22.8
    %
    
    
    36.3
    %Agency mortgage backed/CMO securities
    
    
    58.8
    %
    
    
    40.2
    %
    
    
    21.3
    %Tax exempt obligations of states and political subdivisions
    
    
    30.2
    %
    
    
    34.6
    %
    
    
    39.8
    %Preferred stock
    
    
    0.4
    %
    
    
    0.1
    %
    
    
    0.0
    %Other
    
    
    4.2
    %
    
    
    2.3
    %
    
    
    2.6
    %Total securities
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Loans
  21




---



##### Table of Contents



(in thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    PercentSecured by real estate:Residential first mortgage
    
    $
    29,719
    
    
    
    10.8
    %
    
    $
    31,332
    
    
    
    9.9
    %
    
    $
    35,545
    
    
    
    10.2
    %
    
    $
    39,768
    
    
    
    10.3
    %
    
    $
    46,391
    
    
    
    12.4
    %Residential home equity/other junior liens
    
    
    17,606
    
    
    
    6.4
    %
    
    
    20,511
    
    
    
    6.5
    %
    
    
    19,353
    
    
    
    5.6
    %
    
    
    20,983
    
    
    
    5.4
    %
    
    
    19,750
    
    
    
    5.3
    %Construction, land development and
other land
    
    
    29,119
    
    
    
    10.6
    %
    
    
    42,712
    
    
    
    13.5
    %
    
    
    52,383
    
    
    
    15.0
    %
    
    
    67,376
    
    
    
    17.5
    %
    
    
    72,572
    
    
    
    19.4
    %Commercial (nonfarm, nonresidential)
    
    
    170,364
    
    
    
    62.2
    %
    
    
    179,674
    
    
    
    56.9
    %
    
    
    192,784
    
    
    
    55.3
    %
    
    
    203,219
    
    
    
    52.8
    %
    
    
    177,417
    
    
    
    47.5
    %Commercial
    
    
    20,015
    
    
    
    7.3
    %
    
    
    31,628
    
    
    
    10.0
    %
    
    
    33,677
    
    
    
    9.7
    %
    
    
    31,710
    
    
    
    8.2
    %
    
    
    29,230
    
    
    
    7.8
    %Consumer
    
    
    5,793
    
    
    
    2.1
    %
    
    
    7,627
    
    
    
    2.4
    %
    
    
    11,113
    
    
    
    3.2
    %
    
    
    15,852
    
    
    
    4.1
    %
    
    
    22,247
    
    
    
    6.0
    %Other
    
    
    1,674
    
    
    
    0.6
    %
    
    
    2,629
    
    
    
    0.8
    %
    
    
    3,510
    
    
    
    1.0
    %
    
    
    6,343
    
    
    
    1.7
    %
    
    
    6,104
    
    
    
    1.6
    %Total gross loans
    
    
    274,290
    
    
    
    100.0
    %
    
    
    316,113
    
    
    
    100.0
    %
    
    
    348,365
    
    
    
    100.0
    %
    
    
    385,251
    
    
    
    100.0
    %
    
    
    373,711
    
    
    
    100.0
    %Net unearned fees
    
    
    (244
    )
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    (489
    )
    
    
    
    
    
    
    (670
    )
    
    
    
    
    
    
    (856
    )Total Loans
    
    $
    274,046
    
    
    
    
    
    
    $
    315,817
    
    
    
    
    
    
    $
    347,876
    
    
    
    
    
    
    $
    384,581
    
    
    
    
    
    
    $
    372,855
       22




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##### Table of Contents



Maturing(in thousands)After OneWithin One
    
    
    but Within
    
    
    After FiveYear
    
    
    Five Years
    
    
    Years
    
    
    TotalReal estate construction, land development and other land loans
    
    $
    16,638
    
    
    $
    12,481
    
    
    $
    
    
    
    $
    29,119Real estate other (secured by commercial and multi-family)
    
    
    30,498
    
    
    
    125,486
    
    
    
    14,380
    
    
    
    170,364Commercial (secured by business assets or unsecured)
    
    
    12,051
    
    
    
    7,534
    
    
    
    430
    
    
    
    20,015Other (loans to farmers, political subdivisions, and overdrafts)
    
    
    308
    
    
    
    1,035
    
    
    
    331
    
    
    
    1,674Totals
    
    $
    59,495
    
    
    $
    146,536
    
    
    $
    15,141
    
    
    $
    221,172
  Interest Sensitivity(in thousands)Fixed Rate
    
    Variable RateDue after one but within five years
    
    $
    127,675
    
    
    $
    18,861Due after five years
    
    
    14,722
    
    
    
    419
    (in thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Nonperforming Loans and Assets:Nonaccrual loans
    
    $
    43,724
    
    
    $
    37,096
    
    
    $
    14,459
    
    
    $
    12,199
    
    
    $
    5,234Loans past due 90 days and still accruing
    
    
    
    
    
    
    1,560
    
    
    
    114
    
    
    
    288
    
    
    
    391Total nonperforming loans
    
    
    43,724
    
    
    
    38,656
    
    
    
    14,573
    
    
    
    12,487
    
    
    
    5,625Other real estate
    
    
    3,777
    
    
    
    2,678
    
    
    
    1,523
    
    
    
    1,629
    
    
    
    680Total nonperforming assets
    
    $
    47,501
    
    
    $
    41,334
    
    
    $
    16,096
    
    
    $
    14,116
    
    
    $
    6,305Nonperforming loans as a percent of total loans
    
    
    15.95
    %
    
    
    12.24
    %
    
    
    4.19
    %
    
    
    3.25
    %
    
    
    1.51
    %Allowance for loan losses as a percent of
nonperforming loans
    
    
    43
    %
    
    
    37
    %
    
    
    71
    %
    
    
    61
    %
    
    
    124
    %
  23




---



##### Table of Contents



(in thousands)2009
    
    
    2008
    
    
    2007Nonperforming Loans
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentSecured by real estate:Residential first mortgage
    
    $
    4,503
    
    
    
    10.3
    %
    
    $
    2,994
    
    
    
    7.7
    %
    
    $
    1,565
    
    
    
    10.8
    %Residential home equity/other junior liens
    
    
    1,043
    
    
    
    2.4
    %
    
    
    2,486
    
    
    
    6.4
    %
    
    
    736
    
    
    
    5.0
    %Construction and land development and farmland
    
    
    15,737
    
    
    
    36.0
    %
    
    
    18,904
    
    
    
    48.9
    %
    
    
    6,227
    
    
    
    42.7
    %Commercial real estate
    
    
    19,802
    
    
    
    45.3
    %
    
    
    12,053
    
    
    
    31.2
    %
    
    
    5,831
    
    
    
    40.0
    %Consumer
    
    
    53
    
    
    
    0.1
    %
    
    
    22
    
    
    
    0.1
    %
    
    
    38
    
    
    
    0.3
    %Commercial
    
    
    2,586
    
    
    
    5.9
    %
    
    
    2,197
    
    
    
    5.7
    %
    
    
    176
    
    
    
    1.2
    %Total nonperforming loans
    
    $
    43,724
    
    
    
    100.0
    %
    
    $
    38,656
    
    
    
    100.0
    %
    
    $
    14,573
    
    
    
    100.0
    %
         24




---



##### Table of Contents



(in thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Loans:Average daily balance of loans for the year
    
    $
    297,609
    
    
    $
    336,637
    
    
    $
    375,037
    
    
    $
    374,634
    
    
    $
    366,877Amount of loans outstanding at end of year
    
    
    274,046
    
    
    
    315,817
    
    
    
    347,876
    
    
    
    384,581
    
    
    
    372,855Components:Allowance for loan lossesBalance, beginning of year
    
    $
    14,122
    
    
    $
    10,314
    
    
    $
    7,598
    
    
    $
    6,991
    
    
    $
    6,093Loans charged off:Real estate mortgage
    
    
    619
    
    
    
    261
    
    
    
    243
    
    
    
    260
    
    
    
    26Commercial (1)
    
    
    10,730
    
    
    
    11,170
    
    
    
    5,519
    
    
    
    1,785
    
    
    
    1,436Consumer
    
    
    581
    
    
    
    674
    
    
    
    860
    
    
    
    619
    
    
    
    792Subtotal
    
    
    11,930
    
    
    
    12,105
    
    
    
    6,622
    
    
    
    2,664
    
    
    
    2,254Charge offs on loans transferred to held for sale (2)
    
    
    
    
    
    
    
    
    
    
    4,669
    
    
    
    
    
    
    
    Total charge offs
    
    
    11,930
    
    
    
    12,105
    
    
    
    11,291
    
    
    
    2,664
    
    
    
    2,254Recoveries to loans previously charged off:Real estate mortgage
    
    
    7
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    462
    
    
    
    370
    
    
    
    146
    
    
    
    283
    
    
    
    120Consumer
    
    
    141
    
    
    
    251
    
    
    
    239
    
    
    
    226
    
    
    
    142Total recoveries
    
    
    610
    
    
    
    635
    
    
    
    385
    
    
    
    509
    
    
    
    262Net loans charged off
    
    
    11,320
    
    
    
    11,470
    
    
    
    10,906
    
    
    
    2,155
    
    
    
    1,992Additions to allowance charged to operations
    
    
    15,863
    
    
    
    15,278
    
    
    
    13,622
    
    
    
    2,762
    
    
    
    2,890Balance, end of year
    
    
    18,665
    
    
    
    14,122
    
    
    
    10,314
    
    
    
    7,598
    
    
    
    6,991Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    316
    
    
    
    739
    
    
    
    331
    
    
    
    454
    
    
    
    307Additions (reductions) to reserve
charged to operations
    
    
    (16
    )
    
    
    (423
    )
    
    
    408
    
    
    
    (123
    )
    
    
    147Balance, end of year
    
    
    300
    
    
    
    316
    
    
    
    739
    
    
    
    331
    
    
    
    454Total allowance for loan losses and
reserve for unfunded credit commitments
    
    $
    18,965
    
    
    $
    14,438
    
    
    $
    11,053
    
    
    $
    7,929
    
    
    $
    7,445Ratios:Net loans charged off to average loans outstanding
    
    
    3.80
    %
    
    
    3.41
    %
    
    
    2.91
    %
    
    
    0.58
    %
    
    
    0.54
    %Allowance for loan losses to loans outstanding
    
    
    6.81
    %
    
    
    4.47
    %
    
    
    2.96
    %
    
    
    1.98
    %
    
    
    1.88
    %
 
 (1)
    
    Partial charge offs of $2,934,831 are included in commercial charge offs to reduce the loans transferred to held for sale to
their impaired value prior to consideration of bid amounts in 2007(2)
    
    Represents charges to the allowance to reduce the investment in the loans to the estimated fair values when the loans were
transferred to held for sale in 2007. 25




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##### Table of Contents



(in thousands)2009
    
    
    2008
    
    
    2007Charge offs
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentSecured by real estateResidential first mortgage
    
    $
    1,145
    
    
    
    9.6
    %
    
    $
    775
    
    
    
    6.4
    %
    
    $
    1,150
    
    
    
    10.2
    %Residential home equity/other junior liens
    
    
    1,280
    
    
    
    10.7
    %
    
    
    413
    
    
    
    3.4
    %
    
    
    338
    
    
    
    3.0
    %Construction and land development and farmland
    
    
    3,573
    
    
    
    30.0
    %
    
    
    7,647
    
    
    
    63.2
    %
    
    
    4,709
    
    
    
    41.7
    %Commercial real estate
    
    
    3,889
    
    
    
    32.6
    %
    
    
    1,357
    
    
    
    11.2
    %
    
    
    2,533
    
    
    
    22.4
    %Consumer
    
    
    444
    
    
    
    3.7
    %
    
    
    450
    
    
    
    3.7
    %
    
    
    881
    
    
    
    7.8
    %Commercial
    
    
    1,599
    
    
    
    13.4
    %
    
    
    1,463
    
    
    
    12.1
    %
    
    
    1,680
    
    
    
    14.9
    %Total charge offs
    
    $
    11,930
    
    
    
    100.0
    %
    
    $
    12,105
    
    
    
    100.0
    %
    
    $
    11,291
    
    
    
    100.0
    %
  (in thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    16,520
    
    
    
    86.1
    %
    
    $
    13,064
    
    
    
    86.4
    %
    
    $
    9,274
    
    
    
    86.5
    %
    
    $
    6,675
    
    
    
    85.5
    %
    
    $
    5,864
    
    
    
    81.9
    %Consumer
    
    
    1,138
    
    
    
    6.9
    %
    
    
    613
    
    
    
    6.9
    %
    
    
    609
    
    
    
    6.3
    %
    
    
    442
    
    
    
    7.2
    %
    
    
    850
    
    
    
    9.7
    %Real estate mortgage
    
    
    1,007
    
    
    
    7.0
    %
    
    
    445
    
    
    
    6.7
    %
    
    
    431
    
    
    
    7.2
    %
    
    
    481
    
    
    
    7.3
    %
    
    
    277
    
    
    
    8.4
    %Total
    
    $
    18,665
    
    
    
    100.0
    %
    
    $
    14,122
    
    
    
    100.0
    %
    
    $
    10,314
    
    
    
    100.0
    %
    
    $
    7,598
    
    
    
    100.0
    %
    
    $
    6,991
    
    
    
    100.0
    %
  (in thousands)2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    136
    
    
    
    58.8
    %
    
    $
    76
    
    
    
    62.5
    %
    
    $
    488
    
    
    
    79.6
    %
    
    $
    207
    
    
    
    80.1
    %
    
    $
    199
    
    
    
    81.9
    %Consumer
    
    
    164
    
    
    
    41.2
    %
    
    
    240
    
    
    
    37.5
    %
    
    
    251
    
    
    
    20.4
    %
    
    
    124
    
    
    
    19.9
    %
    
    
    255
    
    
    
    9.7
    %Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.4
    %Total
    
    $
    300
    
    
    
    100.0
    %
    
    $
    316
    
    
    
    100.0
    %
    
    $
    739
    
    
    
    100.0
    %
    
    $
    331
    
    
    
    100.0
    %
    
    $
    454
    
    
    
    100.0
    %
    Deposits
  26




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##### Table of Contents



(in thousands)2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNon-interest bearing demand
    
    $
    55,102
    
    
    
    0.00
    %
    
    $
    55,077
    
    
    
    0.00
    %
    
    $
    59,734
    
    
    
    0.00
    %NOW
    
    
    47,497
    
    
    
    0.19
    %
    
    
    35,845
    
    
    
    0.24
    %
    
    
    36,748
    
    
    
    0.49
    %Savings
    
    
    41,211
    
    
    
    0.28
    %
    
    
    38,033
    
    
    
    0.49
    %
    
    
    38,656
    
    
    
    0.50
    %MMDA
    
    
    49,160
    
    
    
    0.95
    %
    
    
    72,762
    
    
    
    2.01
    %
    
    
    67,473
    
    
    
    3.09
    %Time deposits
    
    
    147,271
    
    
    
    2.64
    %
    
    
    163,211
    
    
    
    3.64
    %
    
    
    184,938
    
    
    
    4.82
    %Total
    
    $
    340,241
    
    
    
    1.34
    %
    
    $
    364,928
    
    
    
    2.10
    %
    
    $
    387,549
    
    
    
    2.93
    %
    Capital
    Minimum
    
    MinimumRegulatory
    
    Regulatory RatioRatio for Well
    
    for Adequately
    
    Bank RatiosCapitalized
    
    Capitalized
    
    2009
    
    2008
    
    2007Average equity to average asset ratio
    
    
    
    
    
    
    
    
    
    
    5.80
    %
    
    
    9.24
    %
    
    
    10.42
    %Tier 1 leverage ratio
    
    
    5.00
    %
    
    
    4.00
    %
    
    
    4.25
    %
    
    
    6.89
    %
    
    
    9.60
    %Tier 1 risk-based capital
    
    
    6.00
    %
    
    
    4.00
    %
    
    
    5.15
    %
    
    
    8.27
    %
    
    
    10.61
    %Total risk-based capital
    
    
    10.00
    %
    
    
    8.00
    %
    
    
    6.46
    %
    
    
    9.56
    %
    
    
    11.88
    %
  27




---



##### Table of Contents



Liquidity and Funds Management
          28




---



##### Table of Contents



Contractual Obligations and Commitments
  (in thousands)Within
    
    One to
    
    Three to
    
    OverOne Year
    
    Three Years
    
    Five Years
    
    Five Years
    
    TotalDeposits without a stated maturity (1)
    
    $
    188,585
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    188,585Consumer and brokered certificates of deposits(2)
    
    
    96,911
    
    
    
    26,597
    
    
    
    5,606
    
    
    
    28
    
    
    
    129,142Long term advances(3) (4)
    
    
    415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    415Operating leases (5)
    
    
    42
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    116Purchase obligations (6)
    
    
    504
    
    
    
    722
    
    
    
    475
    
    
    
    36
    
    
    
    1,737
 
 (1)
    
    Excludes interest.(2)
    
    Includes interest on both fixed and variable rate obligations. The interest
rate for variable rate obligations is based upon interest rates in effect at December 31, 2009. Future changes in market interest rates could
materially affect the contractual amounts to be paid for variable rate obligations; there were no variable rate obligations outstanding at December 31, 2009.(3)
    
    Includes interest on fixed rate obligations.(4)
    
    See Note 9, Other Borrowings, in Notes to Consolidated Financial Statements.(5)
    
    See Note 12, Leases, in Notes to Consolidated Financial Statements.(6)
    
    Purchase obligations relate to certain contractual payments for services provided
for information technology and data processing.  (in thousands)Within
    
    One to
    
    Three to
    
    OverOne Year
    
    Three Years
    
    Five Years
    
    Five Years
    
    TotalCommercial loans
    
    $
    10,459
    
    
    $
    1,622
    
    
    $
    
    
    
    $
    
    
    
    $
    12,081Commercial construction loans
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    322Consumer loans
    
    
    118
    
    
    
    132
    
    
    
    48
    
    
    
    8,451
    
    
    
    8,749Standby letters of credit
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200
  Quantitative and Qualitative Disclosures about Market Risk
   29




---



##### Table of Contents



(in thousands)0-3
    
    
    4-12
    
    
    1-5
    
    
    5+Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Loans
    
    $
    118,686
    
    
    $
    69,355
    
    
    $
    79,864
    
    
    $
    6,141
    
    
    $
    274,046Securities
    
    
    1,538
    
    
    
    3,998
    
    
    
    10,648
    
    
    
    7,517
    
    
    
    23,701Short term investments
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101Total assets
    
    $
    120,325
    
    
    $
    73,353
    
    
    $
    90,512
    
    
    $
    13,658
    
    
    $
    297,848Liabilities:NOW, savings, and MMDA
    
    $
    32,585
    
    
    $
    
    
    
    $
    
    
    
    $
    90,356
    
    
    $
    122,941Time deposits
    
    
    41,175
    
    
    
    54,093
    
    
    
    31,317
    
    
    
    26
    
    
    
    126,611FHLBI advances & other borrowings
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414Total liabilities
    
    $
    74,174
    
    
    $
    54,093
    
    
    $
    31,317
    
    
    $
    90,382
    
    
    $
    249,966Rate sensitivity GAP:GAP for period
    
    $
    46,151
    
    
    $
    19,260
    
    
    $
    59,195
    
    
    $
    (76,724
    )Cumulative GAP
    
    
    46,151
    
    
    
    65,411
    
    
    
    124,606
    
    
    
    47,882December 31, 2009 cumulative sensitive ratio
    
    
    1.62
    
    
    
    1.51
    
    
    
    1.78
    
    
    
    1.19December 31, 2008 cumulative sensitive ratio
    
    
    0.98
    
    
    
    0.84
    
    
    
    1.40
    
    
    
    1.19
    Fair Value of Financial Instruments
     30




---



##### Table of Contents



RESULTS OF OPERATIONS
   2009
    
    2008
    
    2007
    
    2006
    
    2005Net income (loss) as a percent of:Average common equity
    
    
    -64.62
    %
    
    
    -34.92
    %
    
    
    -13.98
    %
    
    
    11.06
    %
    
    
    13.63
    %Average total assets
    
    
    -3.78
    %
    
    
    -3.23
    %
    
    
    -1.46
    %
    
    
    1.20
    %
    
    
    1.39
    %
 Net Interest Income
    31




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##### Table of Contents



Yield Analysis of Consolidated Average Assets and Liabilities
 (in thousands)2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest earning assets:Short term investments
    
    $
    4,566
    
    
    $
    11.4
    
    
    
    0.25
    %
    
    $
    18,186
    
    
    $
    382.3
    
    
    
    2.10
    %
    
    $
    3,091
    
    
    $
    150.6
    
    
    
    4.87
    %Certificates of deposit
    
    
    3,386
    
    
    
    162.8
    
    
    
    4.81
    %
    
    
    4,503
    
    
    
    219.5
    
    
    
    4.87
    %
    
    
    3,998
    
    
    
    189.2
    
    
    
    4.73
    %Securities: Taxable
    
    
    21,963
    
    
    
    1,235.9
    
    
    
    5.63
    %
    
    
    24,714
    
    
    
    1,397.0
    
    
    
    5.65
    %
    
    
    29,795
    
    
    
    1,324.8
    
    
    
    4.45
    %Tax-exempt(1)
    
    
    10,747
    
    
    
    646.9
    
    
    
    6.02
    %
    
    
    15,412
    
    
    
    912.7
    
    
    
    5.92
    %
    
    
    16,021
    
    
    
    941.5
    
    
    
    5.88
    %Commercial loans (2)(3)
    
    
    256,848
    
    
    
    13,710.3
    
    
    
    5.34
    %
    
    
    292,103
    
    
    
    18,632.6
    
    
    
    6.38
    %
    
    
    324,097
    
    
    
    23,988.5
    
    
    
    7.40
    %Consumer loans (2)(3)
    
    
    20,232
    
    
    
    1,217.3
    
    
    
    6.02
    %
    
    
    21,671
    
    
    
    1,620.3
    
    
    
    7.48
    %
    
    
    24,522
    
    
    
    2,160.4
    
    
    
    8.81
    %Mortgage loans (2)(3)
    
    
    20,354
    
    
    
    1,136.3
    
    
    
    5.58
    %
    
    
    22,863
    
    
    
    1,488.9
    
    
    
    6.51
    %
    
    
    26,418
    
    
    
    1,774.0
    
    
    
    6.72
    %Total earning assets and total
interest income
    
    
    338,096
    
    
    $
    18,120.9
    
    
    
    5.36
    %
    
    
    399,452
    
    
    $
    24,653.3
    
    
    
    6.17
    %
    
    
    427,942
    
    
    $
    30,529.0
    
    
    
    7.13
    %Cash and due from banks
    
    
    27,798
    
    
    
    
    
    
    
    
    
    
    
    7,959
    
    
    
    
    
    
    
    
    
    
    
    8,914All other assets
    
    
    16,306
    
    
    
    
    
    
    
    
    
    
    
    20,869
    
    
    
    
    
    
    
    
    
    
    
    19,845Allowance for loan losses
    
    
    (16,897
    )
    
    
    
    
    
    
    
    
    
    
    (12,751
    )
    
    
    
    
    
    
    
    
    
    
    (8,940
    )Total assets
    
    $
    365,303
    
    
    
    
    
    
    
    
    
    
    $
    415,529
    
    
    
    
    
    
    
    
    
    
    $
    447,761Liabilities and Shareholders EquityInterest bearing deposits:NOW
    
    $
    47,496
    
    
    $
    91.7
    
    
    
    0.19
    %
    
    $
    35,845
    
    
    $
    87.7
    
    
    
    0.24
    %
    
    $
    36,748
    
    
    $
    181.5
    
    
    
    0.49
    %Savings
    
    
    41,211
    
    
    
    115.0
    
    
    
    0.28
    %
    
    
    38,033
    
    
    
    185.9
    
    
    
    0.49
    %
    
    
    38,656
    
    
    
    192.7
    
    
    
    0.50
    %MMDA
    
    
    49,160
    
    
    
    465.5
    
    
    
    0.95
    %
    
    
    72,762
    
    
    
    1,465.3
    
    
    
    2.01
    %
    
    
    67,473
    
    
    
    2,081.7
    
    
    
    3.09
    %Time deposits
    
    
    147,272
    
    
    
    3,894.7
    
    
    
    2.64
    %
    
    
    163,211
    
    
    
    5,941.2
    
    
    
    3.64
    %
    
    
    184,938
    
    
    
    8,910.4
    
    
    
    4.82
    %Short term borrowings
    
    
    29
    
    
    
    1.3
    
    
    
    4.48
    %
    
    
    273
    
    
    
    13.8
    
    
    
    5.05
    %
    
    
    6,918
    
    
    
    371.3
    
    
    
    5.37
    %FHLBI long term advances
    
    
    1,212
    
    
    
    64.2
    
    
    
    5.30
    %
    
    
    8,812
    
    
    
    424.5
    
    
    
    4.82
    %
    
    
    2,504
    
    
    
    147.1
    
    
    
    5.87
    %Total interest bearing liabilities and total interest expense
    
    
    286,380
    
    
    
    4,632.4
    
    
    
    1.62
    %
    
    
    318,936
    
    
    
    8,118.4
    
    
    
    2.55
    %
    
    
    337,237
    
    
    
    11,884.7
    
    
    
    3.52
    %Noninterest bearing deposits
    
    
    55,102
    
    
    
    
    
    
    
    
    
    
    
    55,077
    
    
    
    
    
    
    
    
    
    
    
    59,734All other liabilities
    
    
    2,625
    
    
    
    
    
    
    
    
    
    
    
    3,104
    
    
    
    
    
    
    
    
    
    
    
    3,905Shareholders equity
    
    
    21,196
    
    
    
    
    
    
    
    
    
    
    
    38,412
    
    
    
    
    
    
    
    
    
    
    
    46,885Total
liabilities and shareholders equity
    
    $
    365,303
    
    
    
    
    
    
    
    
    
    
    $
    415,529
    
    
    
    
    
    
    
    
    
    
    $
    447,761Interest spread
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.63
    %
    
    
    
    
    
    
    
    
    
    
    3.61
    %Net interest income-FTE
    
    
    
    
    
    $
    13,488.5
    
    
    
    
    
    
    
    
    
    
    $
    16,534.9
    
    
    
    
    
    
    
    
    
    
    $
    18,644.3Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    4.14
    %
    
    
    
    
    
    
    
    
    
    
    4.36
    %
 
 (1)
    
    Average yields in the above table have been adjusted to a tax-equivalent basis
using a 34% tax rate and exclude the effect of any unrealized market value adjustments
included in other comprehensive income recorded under ASC Topic 320, Investments  Debt
and Equity Securities.(2)
    
    For purposes of the computation above, average non-accruing loans of $42,362,000
in 2009, $27,823,000 in 2008 and $13,691,000 in 2007 are included in the average daily
balance.(3)
    
    Interest on loans includes origination fees totaling $97,000 in 2009, $243,000 in
2008, and $328,000 in 2007.  32




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##### Table of Contents



(in thousands)Year ended December 31, 2009
    
    
    Year ended December 31, 2008compared to
    
    
    
    
    
    
    
    
    
    
    compared toYear ended December 31, 2008
    
    
    Year ended December 31, 2007Amount of Increase (Decrease) Due to Change inTotal
    
    
    
    
    
    
    
    
    
    
    TotalAmount
    
    
    
    
    
    
    
    
    
    
    AmountAverage
    
    
    of Increase/
    
    
    
    
    
    
    Average
    
    
    of Increase/Volume
    
    
    Rate
    
    
    (Decrease)
    
    
    Volume
    
    
    Rate
    
    
    (Decrease)Interest Income:Short term investments
    
    $
    (286
    )
    
    $
    (84
    )
    
    $
    (370
    )
    
    $
    736
    
    
    $
    (503
    )
    
    $
    233Certificates of deposit
    
    
    (54
    )
    
    
    (2
    )
    
    
    (56
    )
    
    
    24
    
    
    
    6
    
    
    
    30Securities:Taxable
    
    
    (156
    )
    
    
    (6
    )
    
    
    (162
    )
    
    
    (226
    )
    
    
    298
    
    
    
    72Tax exempt
    
    
    (276
    )
    
    
    10
    
    
    
    (266
    )
    
    
    (36
    )
    
    
    7
    
    
    
    (29
    )Loans
    
    
    (2,520
    )
    
    
    (3,158
    )
    
    
    (5,678
    )
    
    
    (2,859
    )
    
    
    (3,322
    )
    
    
    (6,181
    )Total interest income
    
    $
    (3,292
    )
    
    $
    (3,240
    )
    
    $
    (6,532
    )
    
    $
    (2,361
    )
    
    $
    (3,514
    )
    
    $
    (5,875
    )Interest Expense:Interest bearing deposits:NOW, savings & MMDA
    
    $
    (104
    )
    
    $
    (963
    )
    
    $
    (1,067
    )
    
    $
    65
    
    
    $
    (782
    )
    
    $
    (717
    )Time deposits
    
    
    (580
    )
    
    
    (1,466
    )
    
    
    (2,046
    )
    
    
    (1,047
    )
    
    
    (1,922
    )
    
    
    (2,969
    )Short term borrowings
    
    
    (12
    )
    
    
    0
    
    
    
    (12
    )
    
    
    (357
    )
    
    
    (1
    )
    
    
    (358
    )FHLBI advances
    
    
    (366
    )
    
    
    6
    
    
    
    (360
    )
    
    
    371
    
    
    
    (93
    )
    
    
    278Total interest expense
    
    $
    (1,062
    )
    
    $
    (2,423
    )
    
    $
    (3,485
    )
    
    $
    (968
    )
    
    $
    (2,798
    )
    
    $
    (3,766
    )Net interest income (FTE)
    
    $
    (2,230
    )
    
    $
    (817
    )
    
    $
    (3,047
    )
    
    $
    (1,393
    )
    
    $
    (716
    )
    
    $
    (2,109
    )
      33




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##### Table of Contents



2009
    
    
    2008
    
    
    2007As a percent of average earning assets:Loans
    
    
    87.98
    %
    
    
    84.27
    %
    
    
    87.64
    %Securities
    
    
    9.67
    %
    
    
    10.05
    %
    
    
    10.71
    %Certificates of deposit
    
    
    1.00
    %
    
    
    1.13
    %
    
    
    0.93
    %Short term investments
    
    
    1.35
    %
    
    
    4.55
    %
    
    
    0.72
    %Average earning assets
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %NOW, savings, & MMDA
    
    
    40.78
    %
    
    
    36.71
    %
    
    
    33.38
    %Time deposits
    
    
    43.55
    %
    
    
    40.86
    %
    
    
    43.21
    %Short term borrowing
    
    
    0.01
    %
    
    
    0.07
    %
    
    
    1.62
    %FHLBI advances
    
    
    0.36
    %
    
    
    2.21
    %
    
    
    0.59
    %Average interest bearing liabilities
    
    
    84.70
    %
    
    
    79.85
    %
    
    
    78.80
    %Earning asset ratio
    
    
    92.55
    %
    
    
    96.13
    %
    
    
    95.57
    %Free-funds ratio
    
    
    15.30
    %
    
    
    20.16
    %
    
    
    21.20
    %
 Provision for Loan Losses
  Noninterest Income
      Noninterest Expense
   34




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##### Table of Contents



35




---



##### Table of Contents



Federal Income Tax Expense (Benefit)
  Critical Accounting Policies
  Valuation of Investment Securities
   Allowance for Loan Losses
  Accounting for Income Taxes
  36




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##### Table of Contents



Impact of New Accounting Standards
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
 PageIndex to Consolidated Financial Statements:Reports of Independent Registered Public Accounting Firm
    
    
    38Consolidated Balance Sheets
    
    
    40Consolidated Statements of Operations
    
    
    41Consolidated Statements of Shareholders Equity and Comprehensive Income
    
    
    42Consolidated Statements of Cash Flows
    
    
    43Notes to Consolidated Financial Statements
    
    
    44
 37




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##### Table of Contents



(BDO LOGO)
    
    BDO Seidman, LLP
Accountants and Consultants
    
    99 Monroe Avenue N.W., Suite 800
Grand Rapids, Michigan 49503-2654
Telephone: (616) 774-7000
Fax: (616) 776-3680
 
 Report of Independent Registered Public Accounting Firm
 
     Internal Control  Integrated Framework
 
 
 38




---



##### Table of Contents



(BDO LOGO)
    
    BDO Seidman, LLP
Accountants and Consultants
    
    99 Monroe Avenue N.W., Suite 800
Grand Rapids, Michigan 49503-2654
Telephone: (616) 774-7000
Fax: (616) 776-3680
 Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
      
 
 39




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 
 2009
    
    
    2008AssetsCash and due from banks
    
    $
    36,942,636
    
    
    $
    10,175,999Short term investments
    
    
    101,029
    
    
    
    11,904,019Total cash and cash equivalents
    
    
    37,043,665
    
    
    
    22,080,018Certificates of deposit
    
    
    
    
    
    
    4,319,000Investment securities:Investment securities available for sale, at fair value
    
    
    22,705,612
    
    
    
    41,520,572FHLBI and FRB stock, at cost
    
    
    994,950
    
    
    
    994,950Total investment securities
    
    
    23,700,562
    
    
    
    42,515,522Loans held for investment:Commercial
    
    
    235,937,243
    
    
    
    272,945,793Consumer
    
    
    18,777,849
    
    
    
    21,711,696Real estate mortgage
    
    
    19,330,658
    
    
    
    21,159,504Total loans held for investment
    
    
    274,045,750
    
    
    
    315,816,993Less allowance for loan losses
    
    
    (18,665,173
    )
    
    
    (14,122,291
    )Net loans held for investment
    
    
    255,380,577
    
    
    
    301,694,702Premises and equipment, net
    
    
    8,091,463
    
    
    
    8,626,526Other real estate owned, held for sale
    
    
    3,777,119
    
    
    
    2,678,444Facilities held for sale, net
    
    
    60,453
    
    
    
    Deferred tax assets, net
    
    
    
    
    
    
    819,557Accrued interest and other assets
    
    
    4,336,526
    
    
    
    6,048,757Total assets
    
    $
    332,390,365
    
    
    $
    388,782,526Liabilities and Shareholders EquityLiabilitiesDeposits:Demand (non-interest bearing)
    
    $
    65,643,739
    
    
    $
    56,404,701NOW
    
    
    50,642,881
    
    
    
    35,539,239Savings and money market
    
    
    72,297,919
    
    
    
    101,422,737Time deposits
    
    
    121,200,201
    
    
    
    142,286,835Brokered certificates of deposit
    
    
    5,410,951
    
    
    
    13,873,571Total deposits
    
    
    315,195,691
    
    
    
    349,527,083Other borrowings
    
    
    413,970
    
    
    
    8,897,277Accrued interest, taxes, and other liabilities
    
    
    2,404,440
    
    
    
    2,833,064Total liabilities
    
    
    318,014,101
    
    
    
    361,257,424Shareholders EquityPreferred stock, no par value. Authorized 30,000 shares; no shares
issued and outstanding at December 31, 2009
    
    
    
    
    
    
    Common stock, no par value. Authorized 7,000,000 shares at December
31, 2009
and 4,200,000 at December 31, 2008; 3,149,850 shares issued and
outstanding
at December 31, 2009 and 3,119,620 shares issued and outstanding at
December 31, 2008
    
    
    6,738,128
    
    
    
    6,583,158Retained earnings
    
    
    6,641,060
    
    
    
    19,643,976Deferred directors compensation
    
    
    885,919
    
    
    
    902,333Accumulated other comprehensive income, net
    
    
    111,157
    
    
    
    395,635Total shareholders equity
    
    
    14,376,264
    
    
    
    27,525,102Total liabilities and shareholders equity
    
    $
    332,390,365
    
    
    $
    388,782,526
  40




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 
 2009
    
    
    2008
    
    
    2007Interest and dividend income:Interest and fees on loans
    
    $
    16,009,172
    
    
    $
    21,662,130
    
    
    $
    27,819,663Interest and dividends on investment securities:U.S. Treasury, agency securities and CMOs
    
    
    1,205,935
    
    
    
    1,276,017
    
    
    
    1,277,759Obligations of states and political subdivisions
    
    
    446,827
    
    
    
    644,588
    
    
    
    680,515Other securities
    
    
    29,984
    
    
    
    120,935
    
    
    
    47,070Interest on certificates of deposit
    
    
    162,812
    
    
    
    219,489
    
    
    
    189,233Interest on short term investments
    
    
    14,813
    
    
    
    384,077
    
    
    
    159,074Total interest and dividend income
    
    
    17,869,543
    
    
    
    24,307,236
    
    
    
    30,173,314Interest expense:Interest on deposits
    
    
    4,566,956
    
    
    
    7,680,058
    
    
    
    11,366,317Interest on other borrowings
    
    
    65,399
    
    
    
    438,307
    
    
    
    518,395Total interest expense
    
    
    4,632,355
    
    
    
    8,118,365
    
    
    
    11,884,712Net interest income
    
    
    13,237,188
    
    
    
    16,188,871
    
    
    
    18,288,602Provision for loan losses
    
    
    15,846,853
    
    
    
    14,854,900
    
    
    
    14,029,666Net interest income (deficiency) after provision for loan losses
    
    
    (2,609,665
    )
    
    
    1,333,971
    
    
    
    4,258,936Noninterest income:Service charges and other fee income
    
    
    3,223,857
    
    
    
    2,957,150
    
    
    
    3,308,113Trust income
    
    
    336,258
    
    
    
    374,886
    
    
    
    401,768Gain (loss) on securities
    
    
    198,651
    
    
    
    (3,236,635
    )
    
    
    (547,571
    )Other
    
    
    9,129
    
    
    
    8,694
    
    
    
    44,767Total noninterest income
    
    
    3,767,895
    
    
    
    104,095
    
    
    
    3,207,077Noninterest expense:Loss on sale/writedown of commercial loans held for sale
    
    
    
    
    
    
    
    
    
    
    4,311,528Salaries and employee benefits
    
    
    6,532,037
    
    
    
    6,788,477
    
    
    
    6,644,273Net occupancy expense
    
    
    1,138,208
    
    
    
    1,192,987
    
    
    
    1,218,720Equipment expense
    
    
    382,701
    
    
    
    471,309
    
    
    
    487,532Professional and service fees
    
    
    2,058,513
    
    
    
    2,264,882
    
    
    
    2,035,141Loan collection and foreclosed property expenses
    
    
    1,099,083
    
    
    
    1,104,654
    
    
    
    233,768Computer service fees
    
    
    464,224
    
    
    
    498,878
    
    
    
    575,452Computer software amortization expense
    
    
    267,852
    
    
    
    285,911
    
    
    
    265,343FDIC assessment fees
    
    
    1,639,183
    
    
    
    600,058
    
    
    
    47,197Printing and supplies
    
    
    184,058
    
    
    
    275,840
    
    
    
    312,256Director fees
    
    
    73,742
    
    
    
    219,357
    
    
    
    300,428Net loss on sale of OREO/repossessions
    
    
    827,324
    
    
    
    271,166
    
    
    
    227,557Other
    
    
    1,271,756
    
    
    
    1,005,063
    
    
    
    1,145,915Total noninterest expense
    
    
    15,938,681
    
    
    
    14,978,582
    
    
    
    17,805,110Loss before federal income tax
    
    
    (14,780,451
    )
    
    
    (13,540,516
    )
    
    
    (10,339,097
    )Federal income tax benefit
    
    
    (1,084,568
    )
    
    
    (127,276
    )
    
    
    (3,782,909
    )Net loss
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )
    
    $
    (6,556,188
    )Per share statistics:Basic and diluted EPS
    
    $
    (4.32
    )
    
    $
    (4.33
    )
    
    $
    (2.13
    )Dividends
    
    $
    
    
    
    $
    0.16
    
    
    $
    0.84Basic average shares outstanding
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,732Diluted average shares outstanding
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,732
  41




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 AccumulatedDeferred
    
    
    OtherDirectors
    
    
    ComprehensiveCommon Stock
    
    
    Retained Earnings
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBalances at December 31, 2006
    
    $
    6,005,835
    
    
    $
    43,625,997
    
    
    $
    725,186
    
    
    $
    (364,544
    )
    
    $
    49,992,474Earned portion of long term incentive plan, net
    
    
    130,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,832Issued 1,186 shares for employee stock purchase plan
    
    
    25,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,211Issued 653 shares for current directors fees
    
    
    12,998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,998Issued 1,141 shares for directors variable fee plan
    
    
    30,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,020Issued 685 shares for deferred directors fees
    
    
    14,549
    
    
    
    
    
    
    
    (14,549
    )
    
    
    
    
    
    
    Directors deferred compensation (6,560 stock units)
    
    
    
    
    
    
    
    
    
    
    148,972
    
    
    
    
    
    
    
    148,972Comprehensive income:Net loss
    
    
    
    
    
    
    (6,556,188
    )
    
    
    
    
    
    
    
    
    
    
    (6,556,188
    )Change in unrealized gain (loss) on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    

    

    

    
       83,489
    
    
    
    83,489Less reclassification adjustment for realized
securities net loss included in net loss, net of
tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361,397
    
    
    
    361,397Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,111,302
    )Repurchase of common stock (39,000 shares)
    
    
    (77,610
    )
    
    
    (960,995
    )
    
    
    
    
    
    
    
    
    
    
    (1,038,605
    )Cash dividends ($0.84 per share)
    
    
    
    
    
    
    (2,563,418
    )
    
    
    
    
    
    
    
    
    
    
    (2,563,418
    )Balances at December 31, 2007
    
    
    6,141,835
    
    
    
    33,545,396
    
    
    
    859,609
    
    
    
    80,342
    
    
    
    40,627,182Earned portion of long term incentive plan, net
    
    
    139,652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,652Issued 1,356 shares for employee stock purchase plan
    
    
    10,367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,367Issued 57,556 shares for a stock subscription
    
    
    259,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259,000Issued 2,242 shares for current directors fees
    
    
    17,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,196Issued 712 shares for deferred directors fees
    
    
    15,108
    
    
    
    
    
    
    
    (15,108
    )
    
    
    
    
    
    
    Directors deferred compensation (7,287 stock units)
    
    
    
    
    
    
    
    
    
    
    57,832
    
    
    
    
    
    
    
    57,832Comprehensive income:Net loss
    
    
    
    
    
    
    (13,413,240
    )
    
    
    
    
    
    
    
    
    
    
    (13,413,240
    )Change in unrealized gain on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
        (2,572,071
    )
    
    
    (2,572,071
    )Less reclassification adjustment for
other-than-temporary impairment charge on
securities included in net loss, net of tax
effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,887,364
    
    
    
    2,887,364Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,097,947
    )Cash dividends ($0.16 per share)
    
    
    
    
    
    
    (488,180
    )
    
    
    
    
    
    
    
    
    
    
    (488,180
    )Balances at December 31, 2008
    
    
    6,583,158
    
    
    
    19,643,976
    
    
    
    902,333
    
    
    
    395,635
    
    
    
    27,525,102Cumulative effect of change in accounting
principle, adoption of ASC Topic 320, net of tax
    
    
    
    
    
    




    692,967
    
    
    
    
    
    
    
    (692,967
    )
    
    
    Earned portion of long term incentive plan, net
    
    
    88,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,155Issued 4,609 shares for employee stock purchase plan
    
    
    4,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,992Issued 26,410 shares for current directors fees
    
    
    45,409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,409Issued 823 shares for deferred directors fees
    
    
    16,414
    
    
    
    
    
    
    
    (16,414
    )
    
    
    
    
    
    
    Comprehensive income:Net loss
    
    
    
    
    
    
    (13,695,883
    )
    
    
    
    
    
    
    
    
    
    
    (13,695,883
    )Change in unrealized gain on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    510,303
    
    
    
    510,303Less reclassification adjustment for realized
securities net gain included in net loss, net of
tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,814
    )
    
    
    (101,814
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,287,394
    )Balances at December 31, 2009
    
    $
    6,738,128
    
    
    $
    6,641,060
    
    
    $
    885,919
    
    
    $
    111,157
    
    
    $
    14,376,264
  42




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )
    
    $
    (6,556,188
    )Adjustments to reconcile net loss to net cash provided by operating activities:Provision for loan losses
    
    
    15,846,853
    
    
    
    14,854,900
    
    
    
    14,029,666Depreciation and amortization
    
    
    842,194
    
    
    
    906,363
    
    
    
    935,722Deferred income tax benefit
    
    
    (966,107
    )
    
    
    (1,508,577
    )
    
    
    (192,769
    )Net amortization on investment securities
    
    
    13,749
    
    
    
    26,725
    
    
    
    13,806Earned portion of long-term incentive plan, net
    
    
    88,155
    
    
    
    139,652
    
    
    
    130,832Shares issued for current and variable directors compensation
    
    
    45,409
    
    
    
    17,196
    
    
    
    43,018Shares earned for deferred directors compensation
    
    
    
    
    
    
    57,832
    
    
    
    148,972(Gain) loss on sale/disposal of equipment
    
    
    24,190
    
    
    
    (3,972
    )
    
    
    18,951(Gain) loss on available for sale securities
    
    
    (101,814
    )
    
    
    3,236,635
    
    
    
    547,571Gain on sale of brokered certificates of deposit
    
    
    (96,837
    )
    
    
    
    
    
    
    Gain on sale of loans originated for sale
    
    
    
    
    
    
    
    
    
    
    (39,345
    )Loss on sale/writedown of commercial loans held for sale
    
    
    
    
    
    
    
    
    
    
    4,311,528Proceeds from sale of loans originated for sale
    
    
    
    
    
    
    
    
    
    
    2,712,725Origination of loans held for sale
    
    
    
    
    
    
    
    
    
    
    (2,673,380
    )Loss on the sale of other real estate owned, held for sale
    
    
    843,412
    
    
    
    264,226
    
    
    
    201,390Decrease (increase) in accrued interest income and other assets
    
    
    3,067,500
    
    
    
    6,349,621
    
    
    
    (3,998,342
    )Decrease in accrued interest, taxes, and other liabilities
    
    
    (412,624
    )
    
    
    (280,536
    )
    
    
    (1,749,526
    )Net cash provided by operating activities
    
    
    5,498,197
    
    
    
    10,646,825
    
    
    
    7,884,631Cash flows from investing activities:Purchases of available for sale securities
    
    
    
    
    
    
    (16,507,770
    )
    
    
    (16,412,592
    )Purchases of held to maturity securities
    
    
    
    
    
    
    (1,574,840
    )
    
    
    (505,500
    )Proceeds from sales of available for sale securities
    
    
    5,404,554
    
    
    
    
    
    
    
    15,995,814Proceeds from maturities and at-par calls of available for sale securities
    
    
    10,230,000
    
    
    
    7,890,000
    
    
    
    13,532,844Proceeds from mortgage-backed securities paydowns-available for sale
    
    
    3,887,393
    
    
    
    1,218,672
    
    
    
    1,189,383Proceeds from maturities and calls of held to maturity securities
    
    
    
    
    
    
    2,305,000
    
    
    
    1,895,000Proceeds from sale of brokered certificates of deposit
    
    
    3,432,837
    
    
    
    
    
    
    
    Proceeds from sale of equipment
    
    
    
    
    
    
    15,000
    
    
    
    Proceeds from sale of loans originated for investment, held for sale
    
    
    
    
    
    
    
    
    
    
    8,763,632Purchases of certificates of deposit
    
    
    
    
    
    
    (1,373,000
    )
    
    
    (2,651,000
    )Maturity of certificates of deposit
    
    
    983,000
    
    
    
    1,079,000
    
    
    
    3,337,000Proceeds from sale of other real estate owned, held for sale
    
    
    2,596,559
    
    
    
    2,100,236
    
    
    
    2,107,838Net decrease in loans
    
    
    25,912,626
    
    
    
    17,069,279
    
    
    
    10,521,671Capital expenditures
    
    
    (171,812
    )
    
    
    (173,872
    )
    
    
    (998,351
    )Net cash provided by investing activities
    
    
    52,275,157
    
    
    
    12,047,705
    
    
    
    36,775,739Cash flows from financing activities:Net decrease in deposits
    
    
    (34,331,392
    )
    
    
    (30,051,413
    )
    
    
    (25,965,795
    )Repayment of FHLBI advances
    
    
    (10,383,307
    )
    
    
    (354,913
    )
    
    
    (328,623
    )Proceeds from FHLBI advances
    
    
    2,000,000
    
    
    
    
    
    
    
    8,000,000Proceeds from issuance of short term debt
    
    
    
    
    
    
    1,445,000
    
    
    
    53,000,000Repayment of short term debt
    
    
    (100,000
    )
    
    
    (1,345,000
    )
    
    
    (65,000,000
    )Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (1,038,605
    )Dividends paid
    
    
    
    
    
    
    (488,180
    )
    
    
    (2,563,418
    )Shares issued for stock subscription
    
    
    
    
    
    
    259,000
    
    
    
    Shares issued for employee stock purchase plan
    
    
    4,992
    
    
    
    10,367
    
    
    
    25,211Net cash used in financing activities
    
    
    (42,809,707
    )
    
    
    (30,525,139
    )
    
    
    (33,871,230
    )Net increase (decrease) in cash and cash equivalents
    
    
    14,963,647
    
    
    
    (7,830,609
    )
    
    
    10,789,140Cash and cash equivalents at beginning of year
    
    
    22,080,018
    
    
    
    29,910,627
    
    
    
    19,121,487Cash and cash equivalents at end of year
    
    $
    37,043,665
    
    
    $
    22,080,018
    
    
    $
    29,910,627Supplemental disclosures:Interest paid
    
    $
    4,976,605
    
    
    $
    8,662,730
    
    
    $
    11,736,225Federal income taxes (refunded) paid
    
    
    (2,119,770
    )
    
    
    (559,000
    )
    
    
    1,672,230Transfer of held to maturity securities to available for sale securities, at amortized cost
    
    
    
    
    
    
    14,639,423
    
    
    
    Loans transferred to other real estate
    
    
    4,538,646
    
    
    
    3,519,827
    
    
    
    2,203,057Loans charged off
    
    
    11,929,963
    
    
    
    12,105,101
    
    
    
    11,290,640Loans, net of reserves, transferred to held for investment from held for sale
    
    
    
    
    
    
    
    
    
    
    3,689,159Loans, net of reserves, transferred to held for sale
    
    
    
    
    
    
    
    
    
    
    17,194,017
  43




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##### Table of Contents



Notes to Consolidated Financial Statements
 (1) Summary of Significant Accounting Policies
 Principles of Consolidation
      (a)
    
    Brokered Certificates of DepositBrokered certificates of deposit are purchased periodically from other financial institutions
in denominations of less than $100,000 and carried at cost. These investments are fully
insured by the FDIC. Brokered CDs are not marketable, and there is a penalty for early
withdrawal. Management sold the Banks CD portfolio in 2009 to realize gains resulting from
the favorable interest rate environment.
 (b)
    
    Investment SecuritiesThe Bank classifies debt and equity investments as follows:Investment securities the Bank may not hold until maturity are accounted for as securities
available for sale and are stated at fair value, with unrealized gains and losses, net of
income taxes, reported as a separate component of other comprehensive income until realized.
Fair value measurement is based upon quoted prices, if available. If quoted prices are not
available, fair values are measured using independent pricing models or other model-based
valuation techniques such as present value of future cash flows, adjusted for the securitys
credit rating, prepayment assumptions and other factors such as credit loss assumptions.Investment securities are reviewed quarterly for possible other-than-temporary impairment
(OTTI). Managements evaluation considers various qualitative and quantitative factors
regarding each investment category, including if investment securities were U.S. Government
issued, the credit rating on the securities, credit outlook, payment status and financial
condition, the length of time a security has been in a loss position, the size of the loss
position and other meaningful information. In addition, with respect to the Corporations
non-government agency CMO security, management regularly completes a cash flow analysis with
the assistance of a third party specialist. The analysis considers assumptions regarding
voluntary prepayment speed, default rate, and loss severity using the CMOs original yield as
the discount rate.For debt securities, the Corporation distinguishes between the credit and noncredit components
of an OTTI event. The credit component of an OTTI charge is the difference between the
present value of the cash flows expected to be collected and the amortized cost basis of the
debt security. If the Corporation does not intend to sell the security and it is more likely
than not that the Corporation will not have to sell the security before the anticipated
recovery of the remaining amortized cost basis, the credit component of the OTTI charge is
recognized in earnings and the remaining portion in other comprehensive income. If either of
the above criteria is met, the entire difference between the amortized cost and fair value is
recognized in earnings.Gains or losses on the sale of securities are computed based on the adjusted cost of the
specific security.
 44




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##### Table of Contents



(c)
    
    LoansLoans are classified within loans held for investment when management has the intent and
ability to hold the loan for the foreseeable future, or until maturity or payoff. The
foreseeable future is a management judgment which is determined based upon the type of loan,
business strategies, current market conditions, balance sheet management and liquidity needs.
Managements view of the foreseeable future may change based on changes in these conditions.
When a decision is made to sell or securitize a loan that was not originated or initially
acquired with the intent to sell or securitize, the loan is reclassified from loans held for
investment into held for sale. Loans are classified as held for sale when management has the
intent and ability to sell or securitize. Due to changing market conditions or other
strategic initiatives, managements intent with respect to the disposition of the loan may
change, and accordingly, loans previously classified as held for sale may be reclassified into
loans held for investment. Loans transferred between loans held for sale and loans held for
investment classifications are recorded at the lower of cost or market at the date of
transfer.Loans held for investment are carried at the principal amount outstanding net of unearned
income, unamortized premiums or discounts, deferred loan origination fees and costs, the
allowance for loan losses, and fair value adjustments, if any.During the second quarter of 2007, the Bank reclassified certain nonperforming loans
originated for investment to the held for sale classification at their then estimated lower of
cost or fair value due to its intent, at the time, to package and sell the loans in the
secondary market. Certain of these loans were sold in the third quarter of 2007. Due to the
prevailing secondary market conditions, which worsened during the third quarter when the final
bids were received, the remaining balance of these loans, previously identified as held for
sale, were determined by management to no longer be offered for sale. Based on the intent and
ability of the Corporation to no longer sell these loans, they were transferred back to loans
held for investment at their then estimated fair values based on the bids received. For
purposes of reporting cash flows, the proceeds from the sale of the reclassified loans are
included in cash flows from investing activities in the consolidated statement of cash flows,
such that these cash inflows are categorized consistent with the initial cash outflows related
to these loans.Interest on loans is accrued daily based on the outstanding principal balance. Loan
origination fees and certain direct loan origination costs are deferred and recognized over
the lives of the related loans as an adjustment of the yield. Net unamortized deferred loan
fees amounted to $244,000 and $296,000 at December 31, 2009 and 2008, respectively.(d)
    
    Allowance for Loan Losses and Credit CommitmentsThe allowance for loan losses is based on managements periodic evaluation of the loan
portfolio and reflects an amount that, in managements opinion, is adequate to absorb probable
losses in the existing portfolio. In evaluating the portfolio, management takes into
consideration numerous factors, including current economic conditions, prior loan loss
experience, nonperforming loan levels, the composition of the loan portfolio, and managements
evaluation of the collectability of specific loans, which includes analysis of the value of
the underlying collateral. Although the Bank evaluates the adequacy of the allowance for loan
losses based on information known to management at a given time, various regulatory agencies,
based on the timing of their normal examination process, may require future additions to the
allowance for loan losses.The Bank also maintains a reserve for losses on unfunded credit commitments and letters of
credit to provide for the risk of loss inherent in these arrangements. The reserve is computed
using the same methodology as that used to determine the allowance for loan losses. This
reserve is reported as a liability on the balance sheet within accrued interest, taxes, and
other liabilities, while the corresponding provision for these losses is recorded as a
component of the provision for loan losses.(e)
    
    Nonperforming AssetsThe Bank charges off all or part of loans when amounts are deemed to be uncollectible,
although collection efforts may continue and future recoveries may occur.Nonperforming assets are comprised of loans for which the accrual of interest has been
discontinued, loans for which the terms have been renegotiated to less than market rates due
to a serious weakening of the borrowers financial condition, loans 90 days past due and still
accruing, and other real estate owned, which has been acquired primarily through foreclosure
and is awaiting disposition.Loans are generally placed on a nonaccrual status 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. At the time a loan is placed on nonaccrual status, interest previously accrued
but not yet collected is charged against current interest income. Income on such loans is then
recognized only to the extent that cash is received and where future collection of principal
is probable.The Bank considers a loan to be impaired when it is probable that it will be unable to collect
all or part of amounts due according to the contractual terms of the loan agreement. Impaired
loans are measured based on the present value of expected cash flows discounted at the loans
effective interest rate or, as a practical expedient, at a loans observable market price, or
the fair value of the collateral if the loan is collateral dependent. Interest income on
impaired loans is accrued based on the principal amounts outstanding. The accrual of interest
is generally discontinued when an impaired loan becomes 90 days past due.
 45




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##### Table of Contents



(f)
    
    Other Real Estate OwnedOther real estate owned is recorded at the assets estimated fair value, net of estimated
disposal costs, at the time of foreclosure, establishing a new cost basis. Any write-downs at
the time of foreclosure are charged to the allowance for loan losses. Expenses incurred in
maintaining assets, adjustments to estimated disposal costs, and subsequent write-downs to
reflect declines in value are charged to noninterest expense.(g)
    
    Transfer of Financial AssetsTransfers of financial assets are accounted for as sales when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Bank, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the transferred
assets, and (3) the Bank does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity. The Banks transfers of
financial assets are limited to (1) commercial loan participations sold, which were
insignificant for 2009, 2008 and 2007, (2) the 2007 sale of loans originated for investment
and (3) the 2007 sale of residential mortgage loans in the secondary market. Amounts for the
last two described transfers are disclosed in the consolidated statements of cash flows.(h)
    
    Premises and EquipmentPremises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization, computed on the straight-line method, are charged to operations
over the estimated useful lives of the assets. Estimated useful lives range up to 40 years for
buildings, up to 7 years for furniture and equipment and up to 15 years for land improvements.
Leasehold improvements are generally depreciated over the shorter of the respective lease
term or estimated useful life.Premises and equipment are evaluated periodically for impairment when events or changes in
circumstances indicate the carrying amount may not be recoverable. Impairment exists when the
expected undiscounted future cash flows of a long-lived asset are less than its carrying
value. In that event, the Bank recognizes a loss for the difference between the carrying
amount and the estimated fair value of the asset based on a quoted market price, if
applicable, or a discounted cash flow analysis. Impairment losses are recorded in other
noninterest expense on the income statement.(i)
    
    Advertising CostsAdvertising costs are generally expensed as incurred and approximated $53,000, $89,000 and
$161,000 in 2009, 2008 and 2007, respectively.(j)
    
    Federal Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.A valuation allowance, if needed, reduces deferred tax assets to the expected amount more
likely than not that is to be realized. Realization of the Corporations deferred tax assets
is primarily dependent upon the generation of a sufficient level of future taxable income. At
December 31, 2009 and 2008, management did not believe it was more likely than not that all of
the deferred tax assets would be realized and, accordingly, recorded valuation allowances of
$8,870,413 and $4,750,000, respectively.In preparation of income tax returns, tax positions are taken based on interpretation of
federal and state income tax laws for which the outcome is uncertain. Management reviews and
evaluates the status of tax positions. There were no unrecognized tax benefits during 2009 or
2008. Interest or penalties related to unrecognized tax benefits would be recorded in income
tax expense. The Corporation files U.S. federal income tax returns which are subject to final
examination for all years after 2005.(k)
    
    Stock-Based CompensationAt December 31, 2009 and 2008, the Corporation had two stock-based compensation plans, which
are described more fully in notes 14 and 15.(l)
    
    Common Stock RepurchasesThe Corporation records common stock repurchases at cost. A portion of the repurchase is
charged to common stock based on the average per share dollar amount of stock outstanding,
multiplied by the number of shares repurchased, with the remainder charged to retained
earnings. Shares repurchased are retired. During the year ended December 31, 2007, 39,000
shares were repurchased under share repurchase programs authorized by the Board of Directors.
The cost of the repurchased shares approximated $1,039,000 at monthly weighted average prices
ranging from $26.55 to $26.70 per share. No shares were repurchased in 2008 under the
authorized one-year program that expired on August 17, 2008 and there were no authorized
repurchase programs in 2009.
 46




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##### Table of Contents



(m)
    
    Statements of Cash FlowsFor purposes of reporting cash flows, cash equivalents include amounts due from banks, federal
funds sold and other short term investments with original maturities of 90 days or less.(n)
    
    Comprehensive IncomeASC Topic 220 Comprehensive Income,establishes standards for the reporting and display of
comprehensive income and its components (such as changes in unrealized gains and losses on
securities available for sale) in a financial statement that is displayed with the same
prominence as other financial statements. The Corporation reports comprehensive income within
the statement of shareholders equity and comprehensive income. Comprehensive income includes
net income and any changes in equity from nonowner sources that are not recorded in the income
statement.(o)
    
    Earnings Per ShareBasic earnings per common share is calculated by dividing net income by the weighted average
number of common shares and participating securities outstanding during the period. Diluted
earnings per share are the same as basic earnings per share because any additional potential
common shares issuable are included in the basic earnings per share calculation. The
Corporations restricted stock awards, which provide non-forfeitable rights to dividends or
dividend equivalents, are considered a participating security and are included in the number
of shares outstanding for both basic and diluted earnings per share calculations.(p)
    
    ReclassificationsCertain reclassifications in the prior years financial statements have been made to conform to the current year presentation.(q)
    
    Operating SegmentWhile the Corporation monitors revenue streams of the various products and services offered,
the Corporation manages its business on the basis of one operating segment, banking, in
accordance with the qualitative and quantitative criteria established by ASC Topic 280,
Segment Reporting.
 (2) Managements Plan
       47




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##### Table of Contents



(3) Investment Securities
  December 31, 2009
    
    
    December 31, 2008Unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Unrealized
    
    
    Gross
    
    
    
    
    
    
    Amortized
    
    
    Unrealized
    
    
    Gross
    
    
    FairCost
    
    
    Gross Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Cost
    
    
    Gross Gains
    
    
    Losses
    
    
    ValueObligations of state and
political subdivisions
    
    $
    7,088,573
    
    
    $
    126,321
    
    
    $
    (59,093
    )
    
    $
    7,155,801
    
    
    $
    14,639,423
    
    
    $
    233,833
    
    
    $
    (168,840
    )
    
    $
    14,704,416Agency securities
    
    
    1,504,100
    
    
    
    26,547
    
    
    
    (3,178
    )
    
    
    1,527,469
    
    
    
    9,510,468
    
    
    
    182,546
    
    
    
    
    
    
    
    9,693,014Mortgage-backed/CMO
securities
    
    
    13,895,720
    
    
    
    606,611
    
    
    
    (566,789
    )
    
    
    13,935,542
    
    
    
    16,722,434
    
    
    
    351,908
    
    
    
    
    
    
    
    17,074,342Preferred stock securities
    
    
    48,800
    
    
    
    38,000
    
    
    
    
    
    
    
    86,800
    
    
    
    48,800
    
    
    
    
    
    
    
    
    
    
    
    48,800Total securities
    
    $
    22,537,193
    
    
    $
    797,479
    
    
    $
    (629,060
    )
    
    $
    22,705,612
    
    
    $
    40,921,125
    
    
    $
    768,287
    
    
    $
    (168,840
    )
    
    $
    41,520,572
 48




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##### Table of Contents



Investments  Debt and Equity Instruments
    December 31, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedGross
    
    
    Fair
    
    
    Gross
    
    
    Fair
    
    
    Gross
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    ValueObligations of state and
political subdivisions
    
    $
    (59,093
    )
    
    $
    2,885,936
    
    
    $
    
    
    
    $
    
    
    
    $
    (59,093
    )
    
    $
    2,885,936Agency securities
    
    
    (3,178
    )
    
    
    495,650
    
    
    
    
    
    
    
    
    
    
    
    (3,178
    )
    
    
    495,650Mortgage-backed/CMO
securities
    
    
    
    
    
    
    
    
    
    
    (566,789
    )
    
    
    2,734,709
    
    
    
    (566,789
    )
    
    
    2,734,709Preferred stock securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities
    
    $
    (62,271
    )
    
    $
    3,381,586
    
    
    $
    (566,789
    )
    
    $
    2,734,709
    
    
    $
    (629,060
    )
    
    $
    6,116,295
 December 31, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedGross
    
    
    Fair
    
    
    Gross
    
    
    Fair
    
    
    Gross
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    ValueObligations of state and
political subdivisions
    
    $
    (168,840
    )
    
    $
    4,320,554
    
    
    $
    
    
    
    $
    
    
    
    $
    (168,840
    )
    
    $
    4,320,554Agency securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed/CMO
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities
    
    $
    (168,840
    )
    
    $
    4,320,554
    
    
    $
    
    
    
    $
    
    
    
    $
    (168,840
    )
    
    $
    4,320,554
 49




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2008Amortized
    
    
    Approximate
    
    
    Amortized
    
    
    ApproximateCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueDue in one year or less
    
    $
    1,395,800
    
    
    $
    1,428,773
    
    
    $
    2,054,745
    
    
    $
    2,074,256Due after one year through five years
    
    
    225,000
    
    
    
    239,281
    
    
    
    4,207,023
    
    
    
    4,301,499Due after
five years through ten years
    
    
    1,800,094
    
    
    
    1,843,489
    
    
    
    9,303,504
    
    
    
    9,469,427Due after ten years
    
    
    5,220,579
    
    
    
    5,258,527
    
    
    
    8,633,420
    
    
    
    8,601,0488,641,473
    
    
    
    8,770,070
    
    
    
    24,198,692
    
    
    
    24,446,230Mortgage-backed serurites/CMO
    
    
    13,895,720
    
    
    
    13,935,542
    
    
    
    16,722,433
    
    
    
    17,074,342Totals
    
    $
    22,537,193
    
    
    $
    22,705,612
    
    
    $
    40,921,125
    
    
    $
    41,520,572
   2009
    
    2008Amortized
    
    Approximate
    
    Amortized
    
    ApproximateCost
    
    Fair Value
    
    Cost
    
    Fair ValueState of Michigan
    
    $
    4,742,851
    
    
    $
    4,791,474
    
    
    $
    10,570,123
    
    
    $
    10,614,209
   (4) Loans
   90 days past dueand still accruing interest
    
    
    Nonaccrual2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007Commercial and mortgage
loans secured by real
estate
    
    $
    
    
    
    $
    1,343,647
    
    
    $
    86,484
    
    
    $
    41,084,429
    
    
    $
    35,093,010
    
    
    $
    14,271,517Consumer loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,248
    
    
    
    22,117
    
    
    
    38,389Commercial and other loans
    
    
    
    
    
    
    216,310
    
    
    
    27,451
    
    
    
    2,586,292
    
    
    
    1,980,890
    
    
    
    149,307Total
    
    $
    
    
    
    $
    1,559,957
    
    
    $
    113,935
    
    
    $
    43,723,969
    
    
    $
    37,096,017
    
    
    $
    14,459,213
  50




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##### Table of Contents



(5) Allowance for Loan Losses and Reserve for Unfunded Credit Commitments
  Components:
    
    2009
    
    
    2008
    
    
    2007Allowance for loan lossesBalance, beginning of year
    
    $
    14,122,291
    
    
    $
    10,314,161
    
    
    $
    7,597,900Loans charged off:Real estate mortgage
    
    
    619,008
    
    
    
    260,710
    
    
    
    242,727Commercial
    
    
    10,729,989
    
    
    
    11,170,028
    
    
    
    5,519,109
    (1)Consumer
    
    
    580,966
    
    
    
    674,363
    
    
    
    859,754Subtotal
    
    
    11,929,963
    
    
    
    12,105,101
    
    
    
    6,621,590Charge offs on loans transferred to held for sale
    
    
    
    
    
    
    
    
    
    
    4,669,050
    (2)Total charge offs
    
    
    11,929,963
    
    
    
    12,105,101
    
    
    
    11,290,640Recoveries to loans previously charged off:Real estate mortgage
    
    
    7,073
    
    
    
    14,545
    
    
    
    Commercial
    
    
    461,823
    
    
    
    369,863
    
    
    
    146,100Consumer
    
    
    141,096
    
    
    
    250,923
    
    
    
    239,135Total recoveries
    
    
    609,992
    
    
    
    635,331
    
    
    
    385,235Net loans charged off
    
    
    11,319,971
    
    
    
    11,469,770
    
    
    
    10,905,405Additions to allowance charged to operations
    
    
    15,862,853
    
    
    
    15,277,900
    
    
    
    13,621,666Balance, end of year
    
    
    18,665,173
    
    
    
    14,122,291
    
    
    
    10,314,161Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    316,000
    
    
    
    739,000
    
    
    
    331,000Additions (reductions) to reserve charged (credited)
to operations
    
    
    (16,000
    )
    
    
    (423,000
    )
    
    
    408,000Balance, end of year
    
    
    300,000
    
    
    
    316,000
    
    
    
    739,000Total allowance for loan losses and reserve
for unfunded credit commitments
    
    $
    18,965,173
    
    
    $
    14,438,291
    
    
    $
    11,053,161
 
 (1)
    
    Partial charge offs of $2,934,831 are included in commercial charge offs to
reduce the loans transferred to held for sale to their impaired value prior to
consideration of bid amounts in 2007.(2)
    
    Represents charges to the allowance to reduce the investment in the loans
to the estimated fair values when the loans were transferred to held for sale in 2007. 51




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##### Table of Contents



(6) Premises and Equipment
  2009
    
    
    2008Land and land improvements
    
    $
    2,874,212
    
    
    $
    2,937,115Premises
    
    
    9,894,218
    
    
    
    10,058,300Furniture and equipment
    
    
    4,032,879
    
    
    
    4,117,60716,801,309
    
    
    
    17,113,022Less accumulated depreciation and amortization
    
    
    (8,709,846
    )
    
    
    (8,486,496
    )Premises and equipment, net
    
    $
    8,091,463
    
    
    $
    8,626,526
 (7) Other Real Estate Owned
  (8) Time Certificates of Deposit
  Year of maturity:2011
    
    $
    21,480,3842012
    
    
    4,442,1832013
    
    
    893,7942014
    
    
    4,500,6082015 and thereafter
    
    
    26,381Total
    
    $
    31,343,350
  2009
    
    
    2008Three months or less
    
    $
    18,484,354
    
    
    $
    18,450,699Three through six months
    
    
    3,369,267
    
    
    
    14,859,648Six through twelve months
    
    
    14,052,837
    
    
    
    19,162,264Over twelve months
    
    
    10,024,712
    
    
    
    8,971,885Total
    
    $
    45,931,170
    
    
    $
    61,444,496
  (9) Other Borrowings
   52




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##### Table of Contents



(10) Federal Income Taxes
  2009
    
    
    2008
    
    
    2007Current
    
    $
    (2,050,675
    )
    
    $
    (1,635,853
    )
    
    $
    (3,975,678
    )Deferred
    
    
    966,107
    
    
    
    1,508,577
    
    
    
    192,769Total federal income tax (benefit)
    
    $
    (1,084,568
    )
    
    $
    (127,276
    )
    
    $
    (3,782,909
    )
  2009
    
    
    2008
    
    
    2007Computed expected tax expense (benefit)
    
    $
    (5,025,353
    )
    
    $
    (4,603,775
    )
    
    $
    (3,515,293
    )Increase (reduction) in tax resulting from:Tax-exempt interest and dividends, net
    
    
    (179,149
    )
    
    
    (253,841
    )
    
    
    (275,995
    )Change in valuation allowance
    
    
    4,120,413
    
    
    
    4,750,000
    
    
    
    Other, net
    
    
    (479
    )
    
    
    (19,660
    )
    
    
    8,379Total federal income tax
    
    $
    (1,084,568
    )
    
    $
    (127,276
    )
    
    $
    (3,782,909
    )
  2009
    
    
    2008Deferred tax assets:Allowance for loan losses
    
    $
    3,888,065
    
    
    $
    2,531,562Net operating loss carryforward
    
    
    3,183,570
    
    
    
    1,000,244Other-than-temporary impairment on securities available for sale
    
    
    743,472
    
    
    
    1,100,456Alternative minimum tax credit carryforward
    
    
    
    
    
    
    387,350Premises and equipment
    
    
    330,517
    
    
    
    281,624Deferred directors fees
    
    
    301,212
    
    
    
    306,813Reserve for Other Real Estate Owned
    
    
    300,863
    
    
    
    Supplemental retirement plan
    
    
    208,870
    
    
    
    257,769Other
    
    
    96,540
    
    
    
    80,358Total gross deferred tax assets
    
    
    9,053,109
    
    
    
    5,946,176Deferred tax liabilities:Deferred loan fees
    
    
    (57,815
    )
    
    
    (61,113
    )Unrealized gain on securites available for sale
    
    
    (57,262
    )
    
    
    (203,812
    )Other
    
    
    (67,619
    )
    
    
    (111,694
    )Total gross deferred tax liabilities
    
    
    (182,696
    )
    
    
    (376,619
    )Net deferred tax asset before valuation allowance
    
    
    8,870,413
    
    
    
    5,569,557Valuation allowance
    
    
    (8,870,413
    )
    
    
    (4,750,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    819,557
   Investments  Debt and
Equity Instruments
  53




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##### Table of Contents



(11) Related Party Transactions
  2009
    
    
    2008Balance at beginning of year
    
    $
    3,499,732
    
    
    $
    4,903,250New loans and related parties
    
    
    477,339
    
    
    
    222,900Loan repayments
    
    
    (32,320
    )
    
    
    (1,626,418
    )Loans no longer related-party
    
    
    (2,326,113
    )
    
    
    Balance at end of year
    
    $
    1,618,638
    
    
    $
    3,499,732
 (12) Leases
  Year ending December 31:2010
    
    $
    42,0002011
    
    
    42,0002012
    
    
    31,500Total lease payments
    
    $
    115,500
  (13) Retirement Plan
  (14) Long Term Incentive Plan
   2009Weighted-AverageGrant DateRestricted Stock Awards
    
    Shares
    
    
    Fair ValueOutstanding at January 1,
    
    
    8,327
    
    
    $
    17.90Granted
    
    
    
    
    
    
    Vested
    
    
    (4,684
    )
    
    
    18.82Forfeited
    
    
    (1,610
    )
    
    
    15.76Outstanding at December 31,
    
    
    2,033
    
    
    $
    17.47
  54




---



##### Table of Contents



(15) Directors Stock Fee Plan
    (16) Employees Stock Purchase Plan
  (17) Financial Instruments with Off-Balance-Sheet Risk
    2009
    
    
    2008Consumer
    
    $
    8,749,623
    
    
    $
    10,558,208Commercial construction
    
    
    321,507
    
    
    
    557,917Commercial
    
    
    12,080,918
    
    
    
    16,677,245Total credit commitments
    
    $
    21,152,048
    
    
    $
    27,793,370
  55




---



##### Table of Contents



(18) Capital
   Total
    
    Tier 1Risk-Based
    
    Risk-BasedCapital Ratio
    
    Capital Ratio
    
    Leverage RatioWell capitalized
    
    10% or above
    
    6% or above
    
    5% or aboveAdequately capitalized
    
    8% or above
    
    4% or above
    
    4% or aboveUndercapitalized
    
    Less than 8%
    
    Less than 4%
    
    Less than 4%Significantly undercapitalized
    
    Less than 6%
    
    Less than 3%
    
    Less than 3%Critically undercapitalized
    
    
    
    
    
    A ratio of tangible equity to total assets of 2% or less
  56




---



##### Table of Contents



Minimum for
    
    To be Well CapitalizedCapital Adequacy
    
    Under Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionAs of December 31, 2009
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital (to risk weighted assets)Bank
    
    $
    17,934,000
    
    
    
    6.46
    %
    
    $
    22,195,000
    
    
    
    8
    %
    
    $
    27,743,000
    
    
    
    10
    %FNBH Bancorp
    
    
    17,924,000
    
    
    
    6.46
    %
    
    
    22,195,000
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)Bank
    
    
    14,275,000
    
    
    
    5.15
    %
    
    
    11,097,000
    
    
    
    4
    %
    
    
    16,646,000
    
    
    
    6
    %FNBH Bancorp
    
    
    14,265,000
    
    
    
    5.14
    %
    
    
    11,097,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)Bank
    
    
    14,275,000
    
    
    
    4.25
    %
    
    
    13,435,000
    
    
    
    4
    %
    
    
    16,794,000
    
    
    
    5
    %FNBH Bancorp
    
    
    14,265,000
    
    
    
    4.25
    %
    
    
    13,435,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/A
 As of December 31, 2008
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital (to risk weighted assets)Bank
    
    $
    31,419,000
    
    
    
    9.56
    %
    
    $
    26,293,000
    
    
    
    8
    %
    
    $
    32,866,000
    
    
    
    10
    %FNBH Bancorp
    
    
    31,365,000
    
    
    
    9.54
    %
    
    
    26,293,000
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)Bank
    
    
    27,183,000
    
    
    
    8.27
    %
    
    
    13,146,000
    
    
    
    4
    %
    
    
    19,720,000
    
    
    
    6
    %FNBH Bancorp
    
    
    27,129,000
    
    
    
    8.25
    %
    
    
    13,146,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)Bank
    
    
    27,183,000
    
    
    
    6.89
    %
    
    
    15,774,000
    
    
    
    4
    %
    
    
    19,717,000
    
    
    
    5
    %FNBH Bancorp
    
    
    27,129,000
    
    
    
    6.88
    %
    
    
    15,774,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/A
      57




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##### Table of Contents



(19) Net Income per Common Share
 Earnings Per Share
  2009
    
    2008
    
    2007Weighted average basic shares outstanding
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,372Effect of dilutive restricted stock
    
    
    
    
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,372Net loss
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )
    
    $
    (6,556,188
    )Basic net loss per share
    
    $
    (4.32
    )
    
    $
    (4.33
    )
    
    $
    (2.13
    )Diluted net loss per share
    
    $
    (4.32
    )
    
    $
    (4.33
    )
    
    $
    (2.13
    )Participating securities excluded from diluted calculation
    
    
    2,033
    
    
    
    8,327
    
    
    
    5,107
 (20) Contingent Liabilities
  21) Fair Value Measurements
 Fair Value Measurements and
Disclosures.
 58




---



##### Table of Contents



Securities available for sale
  Fair Value Measurement at December 31, 2009Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Securities available for sale
    
    $
    22,705,612
    
    
    $
    
    
    
    $
    19,970,903
    
    
    $
    2,734,709
 Fair Value Measurement at December 31, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Securities available for sale
    
    $
    41,520,572
    
    
    $
    
    
    
    $
    38,747,894
    
    
    $
    2,772,678
  2009
    
    
    2008Fair Value Measurement
    
    
    Fair Value MeasurementUsing Significant
    
    
    Using SignificantUnobservable Inputs
    
    
    Unobservable Inputs(Level 3)
    
    
    (Level 3)Fair value of CMO, beginning of year(1)(2)
    
    $
    2,772,678
    
    
    $
    Total gains (losses) realized/unrealized:Included in earnings(3)
    
    
    
    
    
    
    (1,338,938
    )Included in other comprehensive income(3)
    
    
    483,162
    
    
    
    29,796Purchases, issuances, and other settlements
    
    
    (521,131
    )
    
    
    (265,174
    )Transfers into Level 3(4)
    
    
    
    
    
    
    4,346,994Fair value of CMO, end of year
    
    $
    2,734,709
    
    
    $
    2,772,678Total amount of losses for the year included
in earnings attributable to the change in
unrealized losses relating to assets still held
at end of year
    
    $
    
    
    
    $
    (1,338,938
    )
 59




---



##### Table of Contents



(1)
    
    Non-agency CMO classified as available for sale is valued using internal valuation
models and pricing information from third parties.(2)
    
    Management had anticipated that the non-agency security would be classified under
Level 2 of the valuation hierarchy. However, due to illiquidity in the markets, the fair value
of this security is now determined using an internal model based on pricing information from
third parties and therefore is classified within Level 3 of the valuation hierarchy.(3)
    
    Realized gains (losses), including unrealized losses deemed other-than-temporary,
are reported in noninterest income. Unrealized gains (losses) are reported in accumulated
other comprehensive income (loss).(4)
    
    Transfers in or out are based on the carrying amount of the security at the
beginning of the period. Transition and Open Effective Date Information, Fair Value Measurements and Disclosures,
  Loans
 Other real estate owned.
  Fair Value Measurements at December 31, 2009Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans (1)
    
    $
    41,448,626
    
    
    $
    
    
    
    $
    
    
    
    $
    41,448,626Other real estate owned
    
    $
    3,777,119
    
    
    $
    
    
    
    $
    
    
    
    $
    3,777,119
 Fair Value Measurements at December 31, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired loans (1)
    
    $
    23,578,000
    
    
    $
    
    
    
    $
    23,405,000
    
    
    $
    173,000
 
 (1)
    
    Represents carrying value and related write-downs and specific reserves pertaining
to collateral dependent loans for which adjustments are based on the appraised value of the
collateral or by other unobservable inputs. 22) Fair Value of Financial Instruments
  60




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##### Table of Contents



Cash and cash equivalents
 Certificates of deposit
 Investment securities
 FHLBI and FRB stock
 Loans
 Accrued interest income
 Deposit liabilities
 Other borrowings
 Accrued interest payable
 Off balance sheet instruments
 2009
    
    
    2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    37,044,000
    
    
    $
    37,044,000
    
    
    $
    22,080,000
    
    
    $
    22,080,000Certificates of deposit
    
    
    
    
    
    
    
    
    
    
    4,319,000
    
    
    
    4,319,000Investment and mortgage-backed securities
    
    
    22,706,000
    
    
    
    22,706,000
    
    
    
    41,521,000
    
    
    
    41,521,000FHLBI and FRB stock
    
    
    995,000
    
    
    
    995,000
    
    
    
    995,000
    
    
    
    995,000Loans, net
    
    
    255,381,000
    
    
    
    254,923,000
    
    
    
    301,695,000
    
    
    
    306,087,000Accrued interest income
    
    
    1,008,000
    
    
    
    1,008,000
    
    
    
    1,584,000
    
    
    
    1,584,000Financial liabilities:Deposits:Demand
    
    $
    65,644,000
    
    
    $
    65,644,000
    
    
    $
    56,405,000
    
    
    $
    56,405,000NOW
    
    
    50,643,000
    
    
    
    50,643,000
    
    
    
    35,539,000
    
    
    
    35,539,000Savings and money market accounts
    
    
    72,298,000
    
    
    
    72,298,000
    
    
    
    101,423,000
    
    
    
    101,423,000Time deposits
    
    
    121,200,000
    
    
    
    121,011,000
    
    
    
    142,287,000
    
    
    
    144,177,000Brokered certificates
    
    
    5,411,000
    
    
    
    5,516,000
    
    
    
    13,874,000
    
    
    
    14,087,000Other borrowings
    
    
    414,000
    
    
    
    414,000
    
    
    
    8,897,000
    
    
    
    8,958,000Accrued interest expense
    
    
    359,000
    
    
    
    359,000
    
    
    
    704,000
    
    
    
    704,000
 Limitations
  61




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##### Table of Contents



(23) Dividend Restrictions
  (24) Condensed
Financial Information  Parent Company Only
  Condensed Balance Sheets
 2009
    
    
    2008Assets:Cash
    
    $
    1,000
    
    
    $
    31,197Investment in subsidiaries:First National Bank in Howell
    
    
    14,385,904
    
    
    
    27,579,092H.B. Realty Co.
    
    
    1,000
    
    
    
    1,000Other assets
    
    
    
    
    
    
    19,190Total assets
    
    $
    14,387,904
    
    
    $
    27,630,479Liabilities and Shareholders Equity:Other borrowings
    
    $
    
    
    
    $
    100,000Other liabilities
    
    
    11,640
    
    
    
    5,377Shareholders equity
    
    
    14,376,264
    
    
    
    27,525,102Total liabilities and shareholders equity
    
    $
    14,387,904
    
    
    $
    27,630,479
 Condensed Statements of Operations
 Year ended December 312009
    
    
    2008
    
    
    2007Operating income:Dividends from subsidiaries
    
    $
    
    
    
    $
    
    
    
    $
    3,144,850Total operating income
    
    
    
    
    
    
    
    
    
    
    3,144,850Operating expenses:Interest expense-other borrowings
    
    
    1,252
    
    
    
    13,771
    
    
    
    Administrative and other expenses
    
    
    92,954
    
    
    
    119,874
    
    
    
    85,759Total operating expenses
    
    
    94,206
    
    
    
    133,645
    
    
    
    85,759Income (loss) before equity in
undistributed net income (loss)
of subsidiaries
    
    
    (94,206
    )
    
    
    (133,645
    )
    
    
    3,059,091Equity in undistributed net income of
subsidiaries (net loss of subsidiaries and
dividends declared from subsidiaries)
    
    
    (13,601,677
    )
    
    
    (13,279,595
    )
    
    
    (9,615,279
    )Net loss
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )
    
    $
    (6,556,188
    )
 62




---



##### Table of Contents



Condensed Statements of Cash Flows
 Year ended December 312009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )
    
    $
    (6,556,188
    )Adjustments
to reconcile net loss to net cash provided by (used by) operating activities:Decrease in other assets
    
    
    19,190
    
    
    
    10,809
    
    
    
    225,473Increase in other liabilities
    
    
    6,263
    
    
    
    4,595
    
    
    
    781Change in
long term incentive plan and deferred compensation
    
    
    97,118
    
    
    
    214,680
    
    
    
    322,822Equity in
undistributed net income of subsidiaries (net loss of subsidiaries
and dividends declared from subsidiaries)
    
    
    13,601,677
    
    
    
    13,279,595
    
    
    
    9,615,279Net cash provided by operating activities
    
    
    28,365
    
    
    
    96,439
    
    
    
    3,608,167Cash flows from investing activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activities:Common stock issued
    
    
    41,438
    
    
    
    269,367
    
    
    
    25,211Proceeds from issuance of short-term debt
    
    
    
    
    
    
    445,000
    
    
    
    Repayment of short-term debt
    
    
    (100,000
    )
    
    
    (345,000
    )
    
    
    Repurchases of common stock
    
    
    
    
    
    
    
    
    
    
    (1,038,605
    )Dividends paid
    
    
    
    
    
    
    (488,180
    )
    
    
    (2,563,418
    )Net cash used in financing activities
    
    
    (58,562
    )
    
    
    (118,813
    )
    
    
    (3,576,812
    )Net increase (decrease) in cash
    
    
    (30,197
    )
    
    
    (22,374
    )
    
    
    31,355Cash at beginning of year
    
    
    31,197
    
    
    
    53,571
    
    
    
    22,216Cash at end of year
    
    $
    1,000
    
    
    $
    31,197
    
    
    $
    53,571
 (25) Quarterly Financial Data  Unaudited
  Quarters ended in 2009March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Selected operations data:Interest and dividend income
    
    $
    4,930,887
    
    
    $
    4,637,143
    
    
    $
    4,349,342
    
    
    $
    3,952,171Net interest income
    
    
    3,560,957
    
    
    
    3,366,840
    
    
    
    3,245,764
    
    
    
    3,063,627Provision for loan losses
    
    
    1,200,000
    
    
    
    11,696,853
    
    
    
    1,750,000
    
    
    
    1,200,000Loss before federal income taxes
    
    
    (630,865
    )
    
    
    (11,608,527
    )
    
    
    (1,431,205
    )
    
    
    (1,109,854
    )Net income (loss)
    
    
    (630,865
    )
    
    
    (12,076,013
    )
    
    
    (1,431,205
    )
    
    
    442,200Basic and diluted net income (loss) per share
    
    $
    (0.20
    )
    
    $
    (3.82
    )
    
    $
    (0.45
    )
    
    $
    0.14Cash dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Quarters ended in 2008March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Selected operations data:Interest and dividend income
    
    $
    6,695,747
    
    
    $
    6,244,565
    
    
    $
    6,034,546
    
    
    $
    5,332,378Net interest income
    
    
    4,084,011
    
    
    
    4,230,175
    
    
    
    4,145,348
    
    
    
    3,729,337Provision for loan losses
    
    
    688,900
    
    
    
    8,211,000
    
    
    
    1,145,000
    
    
    
    4,810,000Income (loss) before federal income taxes
    
    
    773,493
    
    
    
    (7,116,624
    )
    
    
    (1,649,277
    )
    
    
    (5,548,108
    )Net income (loss)
    
    
    579,871
    
    
    
    (4,623,474
    )
    
    
    (1,624,795
    )
    
    
    (7,744,842
    )Basic and diluted net income (loss) per share
    
    $
    0.19
    
    
    $
    (1.50
    )
    
    $
    (0.53
    )
    
    $
    (2.47
    )Cash dividends per share
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    
    
    
    $
    
 63




---



##### Table of Contents



(26)
    
    Impact of New Accounting Standards Improving Disclosures about Fair Value Measurements
 Accounting for Transfers of Financial Assets Accounting for Transfers of Financial Assets, an amendment of FASB
Statement No. 140
  Subsequent Events
 Investments  Debt and Equity
Instruments
 Fair Value Measurements and
Disclosures
 Financial Instruments,
 Earnings Per Share
 64




---



##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
 Managements Annual Report on Internal Control Over Financial Reporting. Internal
Control  Integrated Framework
  Attestation Report of the Registered Independent Public Accounting Firm.
 Change in Internal Control Over Financial Reporting.
 
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   Executive Officers
  www.fnbh.com
 Corporate Governance
  65




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##### Table of Contents



Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters.
   Weighted  average
    
    Number of securitiesNumber of securities to be
    
    exercise price of
    
    remaining available for future issuanceissued upon exercise of
    
    outstanding
    
    under equity compensation plansoutstanding options, warrants,
    
    options, warrants,
    
    (excluding securities reflected inPlan Category
    
    and rights
    
    and rights
    
    column (a))(a
    )
    
    
    (b
    )
    
    (c)Equity compensation 
plans approved by 
shareholders
    
    
    0
    
    
    
    0
    
    
    194,173 (1)Equity compensation 
plans not approved 
by shareholders
    
    None
    
    None
    
    None
 
 (1)
    
    Includes 148,867 shares available under the Long Term Incentive Plan, 16,053 shares
available under the Compensation Plan for
Nonemployee Directors and 29,253 shares included under the Employee Stock Purchase Plan. 
 Item 13. Certain Relationships, Related Transactions and Director Independence.
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
  Financial Statements
  Financial Statement Schedules
  Exhibits
  66




---



##### Table of Contents



SIGNATURES
  FNBH BANCORP, INC.
 /s/
Ronald L. Long
    
    Ronald L. Long, President and Chief Executive Officer 
(Principal Executive Officer)/s/
Mark J. Huber
    
    Mark J. Huber, Chief Financial Officer 
(Principal Financial and Accounting Officer)
  Signature
    
    DateRandolph E. Rudisill, Chairman of the Board
    
    /s/ Randolph E. Rudisill
    
    March 30, 2010Barbara Draper, Vice Chairman of the Board
    
    /s/ Barbara Draper
    
    March 30, 2010Stanley B. Dickson, Jr., Director
    
    /s/ Stanley B. Dickson, Jr.
    
    March 30, 2010Ronald L. Long, Director
    
    /s/ Ronald L. Long
    
    March 30, 2010Philip C. Utter, Director
    
    /s/ Philip C. Utter
    
    March 30, 2010R. Michael Yost, Director
    
    /s/ R. Michael Yost
    
    March 30, 2010
 67




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber(3.4)
    
    Amendment to the Corporations Articles of Incorporation to Increase Authorized Shares,
effective June 3, 2009.(10.10)
    
    Stipulation and Consent to the Issuance of a Consent Order, dated September 24, 2009.(21)
    
    Subsidiaries of the Registrant(23)
    
    Consent of BDO Seidman, LLP(24)
    
    Power of Attorney (included in signature section)(31.1)
    
    Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.(31.2)
    
    Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.(32.1)
    
    Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).(32.2)
    
    Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 906 of
the Sarbanes Oxley Act of 2002 (18 U.S.C. 1350).
  ExhibitNumber
    
    
    
    Original Filing Form and Date(3.1)
    
    Restated Articles of Incorporation of the
Registrant
    
    Exhibit 3.1 of Form 10, effective
June 30, 1995 (Form 10)(3.2)
    
    Amendment to the Corporations Articles of
Incorporation to Increase Authorized Shares
    
    Appendix I of Proxy Statement
dated March 17, 1998(3.3)
    
    Amendment to the Corporations Articles of
Incorporation to Authorize the Issuance of
Preferred Shares
    
    Exhibit to Form 8-K dated
February 19, 2009(3.5)
    
    Bylaws of the Registrant
    
    Exhibit 3.2 of Form 10(4)
    
    Form of Registrants Stock Certificate
    
    Exhibit 4 of Form 10Material Contracts:(10.1)
    
    Howell Branch Lease Agreement
    
    Exhibit 10.2 to Form 10(10.2)
    
    Corporations Long Term Incentive Plan*
    
    Appendix II of Proxy Statement
dated March 17, 1998(10.3)
    
    Second Amended and Restated Compensation
Plan for Nonemployee Directors*
    
    Exhibit 10.2 to Form 8-K
dated October 16, 2008(10.4)
    
    FNBH Bancorp Inc Employees Stock
Purchase Plan as amended January 20, 2005*
    
    Exhibit 10 to Form 10-K
dated March 7, 2006(10.5)
    
    Management Continuity Agreement
for Nancy Morgan *
    
    Exhibit 10.1 to Form 8-K
dated March 3, 2008(10.6)
    
    Management Continuity Agreement
for Janice B. Trouba (Mrs. Trouba is no longer
employed by the Registrant)*
    
    Exhibit 10.2 to Form 8-K
dated March 3, 2008
 68




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##### Table of Contents



ExhibitNumber
    
    
    
    Original Filing Form and Date(10.7)
    
    Management Continuity Agreement
for Ronald L. Long*
    
    Exhibit 10.1 to Form 8-K
dated May 6, 2008(10.8)
    
    Agreement by and between First National Bank
in Howell (Howell, Michigan) and The Comptroller
of the Currency, dated October 16, 2008 (superseded by
Stipulation and Consent to the Issuance of a Consent
Order included at Exhibit 10.10)
    
    Exhibit 10.1 to Form 8-K
dated October 16, 2008(10.9)
    
    Separation Agreement and Release of All Claims
between First National Bank in Howell
and Janice B. Trouba *
    
    Exhibit 10.1 to Form 10-Q filed August 14, 2009
 
 *
    
    Represents a compensation plan 69