##### Table of Contents



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, 2006
 Commission file number 0-25752
 FNBH BANCORP, INC.
  MICHIGAN
    
    38-2869722(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 101 East Grand River, Howell, Michigan 48843
   Common Stock, no par value
 
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
   Documents Incorporated by Reference:




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##### 



TABLE OF CONTENTS
 PagePART IItem 1  Business
    
    
    3Item 1A  Risk Factors
    
    
    9Item 1B  Unresolved Staff Comments
    
    
    11Item 2  Properties
    
    
    11Item 3  Legal Proceedings
    
    
    11Item 4  Submission of Matters to a Vote of Security Holders
    
    
    11PART IIItem 5  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6  Selected Financial Data
    
    
    15Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7A  Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 8  Financial Statements and Supplementary Data
    
    
    30Item 9  Change in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    58Item 9A  Controls and Procedures
    
    
    58Item 9B  Other Information
    
    
    58PART IIIItem 10  Directors, Executive Officers and Corporate Governance
    
    
    59Item 11  Executive Compensation
    
    
    59Item 12  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    59Item 13  Certain Relationships, Related Transactions and Director Independence
    
    
    59Item 14  Principal Accountant Fees and Services
    
    
    59PART VIItem 15  Exhibits and Financial Statement Schedules
    
    
    60SIGNATURES
    
    
    61EXHIBIT INDEX
    
    
    62Subsidiaries of the Registrant
    
    
    63Consent of Independent Auditors
    
    
    64Sec 302 Certification of Chief Executive Officer
    
    
    65Sec 302
Certification of Chief Financial Officer
    
    
    66Sec 906 Certification of Chief Executive Officer
    
    
    67Sec 906 Certification of Chief Financial Officer
    
    
    68




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PART I
 
 Item 1. Business.
    Bank Services
      3




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Bank Competition
   4




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Growth of Corporation
  Balances as of December 31,(in thousands)2006
    
    2005
    
    2004
    
    2003
    
    2002Total Assets
    
    $
    473,896
    
    
    $
    477,225
    
    
    $
    456,910
    
    
    $
    450,342
    
    
    $
    420,686Loans
    
    
    384,581
    
    
    
    372,855
    
    
    
    357,377
    
    
    
    347,086
    
    
    
    327,117Securities
    
    
    54,214
    
    
    
    62,373
    
    
    
    64,348
    
    
    
    55,435
    
    
    
    44,611Noninterest-Bearing Deposits
    
    
    62,681
    
    
    
    71,415
    
    
    
    71,785
    
    
    
    69,234
    
    
    
    62,232Interest-Bearing Deposits
    
    
    342,863
    
    
    
    350,670
    
    
    
    327,478
    
    
    
    329,839
    
    
    
    311,840Total Deposits
    
    
    405,544
    
    
    
    422,086
    
    
    
    399,263
    
    
    
    399,073
    
    
    
    374,072Shareholders Equity
    
    
    49,992
    
    
    
    49,446
    
    
    
    45,716
    
    
    
    41,235
    
    
    
    37,580
  Supervision and Regulation
  General
   The Corporation
 General
  5




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Investments and Activities
  de novo
  Capital Requirements
  Dividends
 6




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The Bank
 General
 Deposit Insurance
 7




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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
   8




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Dividends
 Insider Transactions
 Safety and Soundness Standards
 Consumer Protection Laws
 
 Item 1A. Risk Factors.
 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.
  9




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Fluctuations in interest rates could reduce our profitability.
  We rely heavily on our management team, including our loan officers, and the unexpected loss of key
employees may adversely affect our operations.
  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.
  We operate in a highly regulated environment and may be adversely affected by changes in laws and
regulations.
  10




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We may face challenges in managing our operational risks as we grow.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  11




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Additional Item Executive Officers
       
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 
  12




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Sale Prices
    
    Cash Dividends Declared2005
    
    High
    
    LowFirst Quarter
    
    $
    31.75
    
    
    $
    28.05
    
    
    $
    0.19Second Quarter
    
    $
    31.00
    
    
    $
    27.95
    
    
    $
    0.19Third Quarter
    
    $
    31.00
    
    
    $
    27.85
    
    
    $
    0.21Fourth Quarter
    
    $
    27.95
    
    
    $
    25.00
    
    
    $
    0.21
 Sale Prices
    
    Cash Dividends Declared2006
    
    High
    
    LowFirst Quarter
    
    $
    26.25
    
    
    $
    25.25
    
    
    $
    0.21Second Quarter
    
    $
    26.80
    
    
    $
    25.75
    
    
    $
    0.21Third Quarter
    
    $
    26.55
    
    
    $
    25.30
    
    
    $
    0.21Fourth Quarter
    
    $
    27.00
    
    
    $
    26.45
    
    
    $
    0.21
   Total Number of Shares
    
    
    Maximum Number ThatTotal Number of
    
    
    Average Price
    
    
    Purchased as Part of a
    
    
    May Yet Be PurchasedPeriod
    
    Shares Purchased
    
    
    Paid Per Share
    
    
    Publicly Announced Program
    
    
    Under the Program (1)(2)October 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    138,000November 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138,000December 2006
    
    
    48,700
    
    
    
    26.78
    
    
    
    48,700
    
    
    
    89,300Total
    
    
    48,700
    
    
    $
    26.78
    
    
    
    48,700
    
    
    
    89,300
 
 (1)
    
    On March 16, 2006, the Corporations Board of Directors authorized a new share repurchase
program. The new repurchase program authorizes the repurchase of up to 100,000 shares of the
Corporations common stock and expires March 16, 2007.(2)
    
    On August 17, 2006, the Corporations Board of Directors authorized a second share repurchase
program. This repurchase program authorizes the repurchase of up to 100,000 additional shares
of the Corporations common stock and expires August 17, 2007. 13




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SHAREHOLDER RETURN PERFORMANCE GRAPH
  COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
 
 January 1
    
    December 312002
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006FNBH Bancorp, Inc.
    
    
    100
    
    
    
    115.88
    
    
    
    139.75
    
    
    
    168.28
    
    
    
    137.41
    
    
    
    144.68NASDAQ Stock Market Index
    
    
    100
    
    
    
    69.10
    
    
    
    103.40
    
    
    
    112.50
    
    
    
    114.90
    
    
    
    126.20NASDAQ Bank Stocks Index
    
    
    100
    
    
    
    102.40
    
    
    
    131.70
    
    
    
    150.70
    
    
    
    147.20
    
    
    
    165.20
 14




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Item 6. Selected Financial Data.
 SUMMARY FINANCIAL DATA
 2006
    
    2005
    
    2004
    
    2003
    
    2002Income Statement Data:Interest income
    
    $
    31,819
    
    
    $
    29,315
    
    
    $
    24,992
    
    
    $
    24,856
    
    
    $
    25,729Interest expense
    
    
    10,295
    
    
    
    7,054
    
    
    
    5,606
    
    
    
    6,167
    
    
    
    8,017Net interest income
    
    
    21,524
    
    
    
    22,261
    
    
    
    19,386
    
    
    
    18,689
    
    
    
    17,712Provision for loan losses
    
    
    2,639
    
    
    
    3,037
    
    
    
    1,190
    
    
    
    1,270
    
    
    
    625Noninterest income
    
    
    4,031
    
    
    
    3,820
    
    
    
    4,110
    
    
    
    3,874
    
    
    
    3,621Noninterest expense
    
    
    14,939
    
    
    
    13,653
    
    
    
    13,287
    
    
    
    12,848
    
    
    
    11,775Income before tax
    
    
    7,976
    
    
    
    9,391
    
    
    
    9,019
    
    
    
    8,445
    
    
    
    8,933Net income
    
    
    5,586
    
    
    
    6,507
    
    
    
    6,291
    
    
    
    5,891
    
    
    
    6,304Per Share Data(1):Basic net income per share
    
    $
    1.76
    
    
    $
    2.03
    
    
    $
    1.98
    
    
    $
    1.86
    
    
    $
    2.00Diluted net income per share
    
    
    1.76
    
    
    
    2.03
    
    
    
    1.97
    
    
    
    1.86
    
    
    
    2.00Dividends paid
    
    
    0.84
    
    
    
    0.80
    
    
    
    0.72
    
    
    
    0.68
    
    
    
    0.63Weighted average basic shares outstanding
    
    
    3,177,093
    
    
    
    3,200,146
    
    
    
    3,185,025
    
    
    
    3,162,836
    
    
    
    3,152,739Weighted average diluted shares outstanding
    
    
    3,177,146
    
    
    
    3,200,518
    
    
    
    3,186,142
    
    
    
    3,162,836
    
    
    
    3,152,739Balance Sheet Data:Total assets
    
    $
    473,896
    
    
    $
    477,225
    
    
    $
    456,910
    
    
    $
    450,342
    
    
    $
    420,686Loans, gross
    
    
    384,581
    
    
    
    372,855
    
    
    
    357,377
    
    
    
    347,086
    
    
    
    327,117Allowance for loan losses
    
    
    7,598
    
    
    
    6,991
    
    
    
    6,093
    
    
    
    5,434
    
    
    
    5,794Deposits
    
    
    405,544
    
    
    
    422,086
    
    
    
    399,263
    
    
    
    399,073
    
    
    
    374,072Shareholders equity
    
    
    49,992
    
    
    
    49,446
    
    
    
    45,716
    
    
    
    41,235
    
    
    
    37,580Ratios:Dividend payout ratio
    
    
    47.55
    %
    
    
    39.15
    %
    
    
    36.34
    %
    
    
    36.51
    %
    
    
    31.40
    %Average Equity to asset ratio
    
    
    10.86
    %
    
    
    10.18
    %
    
    
    9.71
    %
    
    
    9.32
    %
    
    
    8.80
    %
 
 (1)
    
    Per share data for 2002 has been restated to give effect to the two-for-one
stock split, payable as a dividend of one share for each share of the
Corporations stock held of record July 1, 2002, paid July 10, 2002. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   15




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FINANCIAL CONDITION
  Securities
   (in thousands)2006
    
    
    2005
    
    
    2004Held to maturity:States and political subdivisions
    
    $
    16,809
    
    
    $
    16,426
    
    
    $
    16,009Available for sale:U.S. Agencies
    
    $
    24,480
    
    
    $
    31,384
    
    
    $
    29,738Corporate securities
    
    
    
    
    
    
    1,005
    
    
    
    1,038Mortgage-backed securities
    
    
    11,931
    
    
    
    12,405
    
    
    
    16,432FRB Stock
    
    
    44
    
    
    
    44
    
    
    
    44FHLBI Stock
    
    
    951
    
    
    
    1,109
    
    
    
    1,087Total
    
    $
    37,406
    
    
    $
    45,947
    
    
    $
    48,339
  (dollars 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
    
    
    YieldHeld to maturityStates and political subdivisions
    
    $
    1,895
    
    
    
    6.48
    %
    
    $
    5,650
    
    
    
    6.26
    %
    
    $
    2,606
    
    
    
    5.85
    %
    
    $
    6,658
    
    
    
    6.24
    %Tax equivalent adjustment for
calculations of yield
    
    $
    34
    
    
    
    
    
    
    $
    102
    
    
    
    
    
    
    $
    47
    
    
    
    
    
    
    $
    121Available for saleU.S. Agencies
    
    $
    13,495
    
    
    
    3.18
    %
    
    $
    11,375
    
    
    
    3.57
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    Mortgage-backed securities
    
    
    33
    
    
    
    5.50
    %
    
    
    1,964
    
    
    
    4.83
    %
    
    
    1,262
    
    
    
    4.00
    %
    
    
    8,834
    
    
    
    5.65
    %FRB Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    6.00
    %FHLBI Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951
    
    
    
    5.42
    %Total
    
    $
    13,528
    
    
    
    3.19
    %
    
    $
    13,339
    
    
    
    3.76
    %
    
    $
    1,262
    
    
    
    4.00
    %
    
    $
    9,829
    
    
    
    5.63
    %
 16




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Rate on TaxTax-Exempt Rate
    
    Adjustment
    
    Equivalent BasisUnder 1 year
    
    
    4.67
    %
    
    
    1.81
    %
    
    
    6.48
    %1-5 years
    
    
    4.45
    %
    
    
    1.81
    %
    
    
    6.26
    %5-10 years
    
    
    4.04
    %
    
    
    1.81
    %
    
    
    5.85
    %10 years or more
    
    
    4.43
    %
    
    
    1.81
    %
    
    
    6.24
    %
  2006
    
    2005
    
    2004U.S. Treasury & agency securities
    
    
    45.2
    %
    
    
    50.3
    %
    
    
    46.2
    %Agency mortgage backed securities
    
    
    22.0
    %
    
    
    19.9
    %
    
    
    25.5
    %Tax exempt obligations of states and political subdivisions
    
    
    31.0
    %
    
    
    26.3
    %
    
    
    24.9
    %Corporate bonds
    
    
    0.0
    %
    
    
    1.6
    %
    
    
    1.6
    %Other
    
    
    1.8
    %
    
    
    1.9
    %
    
    
    1.8
    %Total securities
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Loans
     17




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(dollars in thousands)2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    PercentSecured by real estate:Residential first mortgage
    
    $
    39,768
    
    
    
    10.3
    %
    
    $
    46,391
    
    
    
    12.4
    %
    
    $
    53,059
    
    
    
    14.8
    %
    
    $
    46,845
    
    
    
    13.5
    %
    
    $
    37,202
    
    
    
    11.3
    %Residential home equity/other junior liens
    
    
    20,983
    
    
    
    5.4
    %
    
    
    19,750
    
    
    
    5.3
    %
    
    
    16,017
    
    
    
    4.5
    %
    
    
    13,999
    
    
    
    4.0
    %
    
    
    11,184
    
    
    
    3.4
    %Construction, land development and
farmland
    
    
    67,376
    
    
    
    17.5
    %
    
    
    72,572
    
    
    
    19.4
    %
    
    
    59,873
    
    
    
    16.7
    %
    
    
    54,554
    
    
    
    15.7
    %
    
    
    49,516
    
    
    
    15.1
    %Commercial
    
    
    203,219
    
    
    
    52.8
    %
    
    
    177,417
    
    
    
    47.5
    %
    
    
    163,706
    
    
    
    45.7
    %
    
    
    165,464
    
    
    
    47.5
    %
    
    
    153,720
    
    
    
    46.9
    %Consumer
    
    
    15,852
    
    
    
    4.1
    %
    
    
    22,247
    
    
    
    6.0
    %
    
    
    26,965
    
    
    
    7.5
    %
    
    
    25,842
    
    
    
    7.4
    %
    
    
    25,261
    
    
    
    7.7
    %Commercial
    
    
    31,710
    
    
    
    8.2
    %
    
    
    29,230
    
    
    
    7.8
    %
    
    
    31,772
    
    
    
    8.9
    %
    
    
    33,947
    
    
    
    9.8
    %
    
    
    43,276
    
    
    
    13.2
    %Other
    
    
    6,343
    
    
    
    1.7
    %
    
    
    6,104
    
    
    
    1.6
    %
    
    
    6,991
    
    
    
    1.9
    %
    
    
    7,366
    
    
    
    2.1
    %
    
    
    7,801
    
    
    
    2.4
    %Total gross loans
    
    
    385,251
    
    
    
    100.0
    %
    
    
    373,711
    
    
    
    100.0
    %
    
    
    358,383
    
    
    
    100.0
    %
    
    
    348,017
    
    
    
    100.0
    %
    
    
    327,960
    
    
    
    100.0
    %Net unearned fees
    
    
    (670
    )
    
    
    
    
    
    
    (856
    )
    
    
    
    
    
    
    (1,006
    )
    
    
    
    
    
    
    (931
    )
    
    
    
    
    
    
    (843
    )Total Loans
    
    $
    384,581
    
    
    
    
    
    
    $
    372,855
    
    
    
    
    
    
    $
    357,377
    
    
    
    
    
    
    $
    347,086
    
    
    
    
    
    
    $
    327,117
   Maturing(dollars in thousands)After oneWithin One
    
    
    but within
    
    
    After fiveYear
    
    
    five years
    
    
    years
    
    
    TotalReal estate construction and land development
    
    $
    38,078
    
    
    $
    27,614
    
    
    $
    1,153
    
    
    $
    66,845Real estate other (secured by commercial and multi-family)
    
    
    32,849
    
    
    
    151,171
    
    
    
    19,199
    
    
    
    203,219Commercial (secured by business assets or unsecured)
    
    
    15,041
    
    
    
    15,570
    
    
    
    1,099
    
    
    
    31,710Other (loans to farmers, political subdivisions, and overdrafts)
    
    
    1,819
    
    
    
    2,885
    
    
    
    1,639
    
    
    
    6,343Totals
    
    $
    87,787
    
    
    $
    197,240
    
    
    $
    23,090
    
    
    $
    308,117
  Interest Sensitivity(dollars in thousands)Fixed Rate
    
    Variable RateDue after one but within five years
    
    $
    154,635
    
    
    $
    42,605Due after five years
    
    
    22,139
    
    
    
    951
  18




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##### Table of Contents



(dollars in thousands)2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Nonperforming Loans and Assets:Nonaccrual loans
    
    $
    12,199
    
    
    $
    5,234
    
    
    $
    1,146
    
    
    $
    4,293
    
    
    $
    3,288Loans past due 90 days and still accruing
    
    
    288
    
    
    
    391
    
    
    
    288
    
    
    
    
    
    
    
    809Total nonperforming loans
    
    
    12,487
    
    
    
    5,625
    
    
    
    1,434
    
    
    
    4,293
    
    
    
    4,097Other real estate
    
    
    1,629
    
    
    
    680
    
    
    
    735
    
    
    
    65
    
    
    
    738Total nonperforming assets
    
    $
    14,116
    
    
    $
    6,305
    
    
    $
    2,169
    
    
    $
    4,358
    
    
    $
    4,835Nonperforming loans as a percent of total loans
    
    
    3.25
    %
    
    
    1.51
    %
    
    
    0.40
    %
    
    
    1.24
    %
    
    
    1.25
    %Allowance for loan losses as a percent of
nonperforming loans
    
    
    61
    %
    
    
    124
    %
    
    
    425
    %
    
    
    127
    %
    
    
    141
    %
     Accounting by Creditors for Impairment of Loan,
   19




---



##### Table of Contents



(dollars in thousands)2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Loans:Average daily balance of loans for the year
    
    $
    374,634
    
    
    $
    366,877
    
    
    $
    340,859
    
    
    $
    340,384
    
    
    $
    311,060Amount of loans outstanding at end of year
    
    
    384,581
    
    
    
    372,855
    
    
    
    357,377
    
    
    
    347,086
    
    
    
    327,117Components:Allowance for loan lossesBalance, beginning of year
    
    $
    6,991
    
    
    $
    6,093
    
    
    $
    5,434
    
    
    $
    5,794
    
    
    $
    5,668Loans charged off:Real estate mortgage
    
    
    260
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    1,785
    
    
    
    1,436
    
    
    
    379
    
    
    
    1,014
    
    
    
    598Consumer
    
    
    619
    
    
    
    792
    
    
    
    543
    
    
    
    269
    
    
    
    169Total charge offs
    
    
    2,664
    
    
    
    2,254
    
    
    
    922
    
    
    
    1,283
    
    
    
    767Recoveries to loans previously charged off:Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    283
    
    
    
    120
    
    
    
    70
    
    
    
    112
    
    
    
    177Consumer
    
    
    226
    
    
    
    142
    
    
    
    104
    
    
    
    65
    
    
    
    91Total recoveries
    
    
    509
    
    
    
    262
    
    
    
    174
    
    
    
    177
    
    
    
    268Net loans charged off
    
    
    2,155
    
    
    
    1,992
    
    
    
    748
    
    
    
    1,106
    
    
    
    499Additions to allowance charged to operations
    
    
    2,762
    
    
    
    2,890
    
    
    
    1,407
    
    
    
    746
    
    
    
    625Balance, end of year
    
    
    7,598
    
    
    
    6,991
    
    
    
    6,093
    
    
    
    5,434
    
    
    
    5,794Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    454
    
    
    
    307
    
    
    
    524
    
    
    
    
    
    
    
    Additions (reductions) to reserve
charged to operations
    
    
    (123
    )
    
    
    147
    
    
    
    (217
    )
    
    
    524
    
    
    
    Balance, end of year
    
    
    331
    
    
    
    454
    
    
    
    307
    
    
    
    524
    
    
    
    Total allowance for loan losses and
reserve for unfunded credit commitments
    
    $
    7,929
    
    
    $
    7,445
    
    
    $
    6,400
    
    
    $
    5,958
    
    
    $
    5,794Ratios:Net loans charged off to average loans outstanding
    
    
    0.58
    %
    
    
    0.54
    %
    
    
    0.22
    %
    
    
    0.32
    %
    
    
    0.16
    %Allowance for loan losses to loans outstanding
    
    
    1.98
    %
    
    
    1.88
    %
    
    
    1.70
    %
    
    
    1.57
    %
    
    
    1.77
    %
 20




---



##### Table of Contents



(dollars in thousands)2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    6,675
    
    
    
    85.5
    %
    
    $
    5,864
    
    
    
    81.9
    %
    
    $
    4,877
    
    
    
    80.3
    %
    
    $
    5,027
    
    
    
    80.1
    %
    
    $
    5,166
    
    
    
    80.2
    %Consumer
    
    
    442
    
    
    
    7.2
    %
    
    
    850
    
    
    
    9.7
    %
    
    
    825
    
    
    
    10.1
    %
    
    
    101
    
    
    
    10.1
    %
    
    
    406
    
    
    
    10.3
    %Real estate
    
    
    481
    
    
    
    7.3
    %
    
    
    277
    
    
    
    8.4
    %
    
    
    391
    
    
    
    9.6
    %
    
    
    306
    
    
    
    9.8
    %
    
    
    222
    
    
    
    9.5
    %Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    7,598
    
    
    
    100.0
    %
    
    $
    6,991
    
    
    
    100.0
    %
    
    $
    6,093
    
    
    
    100.0
    %
    
    $
    5,434
    
    
    
    100.0
    %
    
    $
    5,794
    
    
    
    100.0
    %
  (dollars in thousands)2006
    
    2005
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    207
    
    
    
    80.1
    %
    
    $
    199
    
    
    
    76.7
    %
    
    $
    148
    
    
    
    85.0
    %Consumer
    
    
    124
    
    
    
    19.9
    %
    
    
    255
    
    
    
    23.3
    %
    
    
    158
    
    
    
    15.0
    %Real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Total
    
    $
    331
    
    
    
    100.0
    %
    
    $
    454
    
    
    
    100.0
    %
    
    $
    307
    
    
    
    100.0
    %
 Deposits
   (dollars in thousands)2006
    
    2005
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNon-interest bearing demand
    
    $
    65,492
    
    
    
    0.00
    %
    
    $
    73,243
    
    
    
    0.00
    %
    
    $
    70,477
    
    
    
    0.00
    %NOW
    
    
    39,568
    
    
    
    0.38
    %
    
    
    44,266
    
    
    
    0.20
    %
    
    
    42,599
    
    
    
    0.20
    %Savings
    
    
    43,383
    
    
    
    0.40
    %
    
    
    50,018
    
    
    
    0.25
    %
    
    
    51,219
    
    
    
    0.26
    %MMDA
    
    
    68,739
    
    
    
    2.35
    %
    
    
    82,062
    
    
    
    1.44
    %
    
    
    90,974
    
    
    
    1.05
    %Time deposits
    
    
    186,192
    
    
    
    4.26
    %
    
    
    163,065
    
    
    
    3.30
    %
    
    
    138,463
    
    
    
    2.92
    %Total
    
    $
    403,374
    
    
    
    2.45
    %
    
    $
    412,654
    
    
    
    1.64
    %
    
    $
    393,732
    
    
    
    1.33
    %
   21




---



##### Table of Contents



Capital
     Minimum RegulatoryRatio for Well Capitalized
    
    2006
    
    2005
    
    2004Average equity to average asset ratio
    
    
    
    
    
    
    10.86
    %
    
    
    10.18
    %
    
    
    9.71
    %Tier 1 leverage ratio
    
    
    5.00
    %
    
    
    10.80
    %
    
    
    10.58
    %
    
    
    9.65
    %Tier 1 risk-based capital
    
    
    6.00
    %
    
    
    12.31
    %
    
    
    12.63
    %
    
    
    11.54
    %Total risk-based capital
    
    
    10.00
    %
    
    
    13.56
    %
    
    
    13.89
    %
    
    
    12.80
    %
  Liquidity and Funds Management
   22




---



##### Table of Contents



Contractual Obligations and Commitments
 Within
    
    One to
    
    Three to
    
    Over(in thousands)
    
    One Year
    
    Three Years
    
    Five Years
    
    Five Years
    
    TotalDeposits without a stated maturity(1)
    
    $
    217,885
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    217,885Consumer and brokered certificates of deposits(2)
    
    
    168,677
    
    
    
    16,867
    
    
    
    4,442
    
    
    
    18
    
    
    
    190,004Short term advances (3) (5)
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000Long term advances(4) (5)
    
    
    329
    
    
    
    738
    
    
    
    414
    
    
    
    
    
    
    
    1,481Operating leases(5)
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Purchase obligations(6)
    
    
    1,117
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,118
 
 (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, 2006. Future changes in market interest rates could
materially affect the contractual amounts to be paid for variable rate obligations.(3)
    
    Does not include interest on short-term (overnight) variable rate obligations.(4)
    
    Includes interest on fixed rates obligations.(5)
    
    See Note 10, Other Borrowings, in Notes to Consolidated Financial Statements.(6)
    
    See Note 14, Leases, in Notes to Consolidated Financial Statements.(7)
    
    Purchase obligations amounts relate to certain contractual payments for services provided for
information technology, data processing, advertising, and training consultants, as well as the
purchase of software and hardware related to the core system conversion. See Note 6,
Premises and Equipment, in Notes to the Consolidated Financial Statements.  Within
    
    One to
    
    Three to
    
    Over(in thousands)
    
    One Year
    
    Three Years
    
    Five Years
    
    Five Years
    
    TotalCommercial loans
    
    $
    42,911
    
    
    $
    5,804
    
    
    $
    691
    
    
    $
    
    
    
    $
    49,406Commercial construction loans
    
    
    5,762
    
    
    
    2,802
    
    
    
    
    
    
    
    
    
    
    
    8,564Consumer loans
    
    
    7,622
    
    
    
    3,603
    
    
    
    465
    
    
    
    
    
    
    
    11,690Standby letters of credit
    
    
    3,099
    
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    3,276
  Quantitative
and Qualitative Disclosures about Market Risk
  23




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##### Table of Contents



(dollars in thousands)0-3
    
    
    4-12
    
    
    1-5
    
    
    5+Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Loans
    
    $
    137,261
    
    
    $
    53,698
    
    
    $
    167,914
    
    
    $
    18,110
    
    
    $
    376,983Securities
    
    
    4,019
    
    
    
    15,410
    
    
    
    27,672
    
    
    
    7,113
    
    
    
    54,214Certificates of deposit
    
    
    1,080
    
    
    
    2,257
    
    
    
    1,374
    
    
    
    
    
    
    
    4,711Short term investments
    
    
    2,748
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,748Total assets
    
    $
    145,108
    
    
    $
    71,365
    
    
    $
    196,960
    
    
    $
    25,223
    
    
    $
    438,656Liabilities:NOW, savings, & MMDA
    
    $
    73,372
    
    
    $
    
    
    
    $
    
    
    
    $
    81,809
    
    
    $
    155,181Time deposits
    
    
    60,911
    
    
    
    106,094
    
    
    
    20,622
    
    
    
    55
    
    
    
    187,682FHLBI advances
    
    
    12,214
    
    
    
    667
    
    
    
    600
    
    
    
    
    
    
    
    13,481Total liabilities
    
    $
    146,497
    
    
    $
    106,761
    
    
    $
    21,222
    
    
    $
    81,864
    
    
    $
    356,344Rate sensitivity GAP:GAP for period
    
    $
    (1,389
    )
    
    $
    (35,396
    )
    
    $
    175,738
    
    
    $
    (56,641
    )Cumulative GAP
    
    
    (1,389
    )
    
    
    (36,785
    )
    
    
    138,953
    
    
    
    82,312December 31, 2006 cumulative rate sensitive ratio
    
    
    0.99
    
    
    
    0.85
    
    
    
    1.51
    
    
    
    1.23December 31, 2005 cumulative rate sensitive ratio
    
    
    1.33
    
    
    
    1.17
    
    
    
    1.62
    
    
    
    1.25
    24




---



##### Table of Contents



(dollars in thousands)Carrying Value
    
    Average Interest Rate
    
    Estimated Fair ValueAssets:Loans, net
    
    $
    376,983
    
    
    
    7.77
    %
    
    $
    376,688Securities
    
    
    54,214
    
    
    
    4.49
    %
    
    
    54,436Certificates of deposit
    
    
    4,711
    
    
    
    4.29
    %
    
    
    4,711Short term investments
    
    
    2,748
    
    
    
    4.66
    %
    
    
    2,748Liabilities:NOW, savings, & MMDA
    
    $
    155,181
    
    
    
    1.28
    %
    
    $
    155,181Time deposits
    
    
    187,682
    
    
    
    4.26
    %
    
    
    187,158FHLBI advances
    
    
    13,481
    
    
    
    5.89
    %
    
    
    13,506
  RESULTS OF OPERATIONS
   2006
    
    2005
    
    2004
    
    2003
    
    2002Net income as a percent of:Average common equity
    
    
    11.06
    %
    
    
    13.63
    %
    
    
    14.51
    %
    
    
    14.90
    %
    
    
    17.97
    %Average total assets
    
    
    1.20
    %
    
    
    1.39
    %
    
    
    1.41
    %
    
    
    1.39
    %
    
    
    1.58
    %
 Net
Interest Income
    25




---



##### Table of Contents



Yield Analysis of Consolidated Average Assets and Liabilities(dollars in thousands)2006
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest earning assets:Short term investments
    
    $
    3,253
    
    
    $
    151.7
    
    
    
    4.66
    %
    
    $
    9,930
    
    
    $
    309.5
    
    
    
    3.12
    %
    
    $
    14,587
    
    
    $
    166.0
    
    
    
    1.14
    %Certificates of deposit
    
    
    6,164
    
    
    
    264.4
    
    
    
    4.29
    %
    
    
    6,551
    
    
    
    201.1
    
    
    
    3.07
    %
    
    
    3,817
    
    
    
    95.8
    
    
    
    2.51
    %Securities: Taxable
    
    
    43,361
    
    
    
    1,665.7
    
    
    
    3.84
    %
    
    
    48,272
    
    
    
    1,821.4
    
    
    
    3.77
    %
    
    
    46,914
    
    
    
    1,843.6
    
    
    
    3.93
    %Tax-exempt (1)
    
    
    17,118
    
    
    
    1,048.3
    
    
    
    6.12
    %
    
    
    16,029
    
    
    
    1,048.3
    
    
    
    6.54
    %
    
    
    15,612
    
    
    
    1,083.4
    
    
    
    6.94
    %Commercial loans (2)(3)
    
    
    312,308
    
    
    
    24,572.5
    
    
    
    7.87
    %
    
    
    297,423
    
    
    
    21,673.2
    
    
    
    7.29
    %
    
    
    270,349
    
    
    
    17,666.2
    
    
    
    6.53
    %Consumer loans (2)(3)
    
    
    31,874
    
    
    
    2,699.8
    
    
    
    8.47
    %
    
    
    36,259
    
    
    
    2,760.9
    
    
    
    7.61
    %
    
    
    36,061
    
    
    
    2,703.5
    
    
    
    7.50
    %Mortgage loans (2)(3)
    
    
    30,452
    
    
    
    1,842.3
    
    
    
    6.05
    %
    
    
    33,195
    
    
    
    1,954.6
    
    
    
    5.89
    %
    
    
    34,449
    
    
    
    1,910.6
    
    
    
    5.55
    %Total earning assets and total
interest income
    
    
    444,530
    
    
    $
    32,244.7
    
    
    
    7.25
    %
    
    
    447,659
    
    
    $
    29,769.0
    
    
    
    6.65
    %
    
    
    421,789
    
    
    $
    25,469.1
    
    
    
    6.04
    %Cash and due from banks
    
    
    10,703
    
    
    
    
    
    
    
    
    
    
    
    11,352
    
    
    
    
    
    
    
    
    
    
    
    12,508All other assets
    
    
    17,196
    
    
    
    
    
    
    
    
    
    
    
    16,940
    
    
    
    
    
    
    
    
    
    
    
    18,202Allowance for loan losses
    
    
    (7,324
    )
    
    
    
    
    
    
    
    
    
    
    (6,743
    )
    
    
    
    
    
    
    
    
    
    
    (5,921
    )Total assets
    
    $
    465,105
    
    
    
    
    
    
    
    
    
    
    $
    469,208
    
    
    
    
    
    
    
    
    
    
    $
    446,578Liabilities and
Shareholders EquityInterest bearing deposits:NOW
    
    $
    39,568
    
    
    $
    148.4
    
    
    
    0.38
    %
    
    $
    44,266
    
    
    $
    88.8
    
    
    
    0.20
    %
    
    $
    42,599
    
    
    $
    86.3
    
    
    
    0.20
    %Savings
    
    
    43,383
    
    
    
    173.2
    
    
    
    0.40
    %
    
    
    50,018
    
    
    
    125.2
    
    
    
    0.25
    %
    
    
    51,219
    
    
    
    134.1
    
    
    
    0.26
    %MMDA
    
    
    68,739
    
    
    
    1,613.5
    
    
    
    2.35
    %
    
    
    82,062
    
    
    
    1,184.5
    
    
    
    1.44
    %
    
    
    90,974
    
    
    
    955.4
    
    
    
    1.05
    %Time deposits
    
    
    186,192
    
    
    
    7,936.0
    
    
    
    4.26
    %
    
    
    163,065
    
    
    
    5,374.4
    
    
    
    3.30
    %
    
    
    138,463
    
    
    
    4,041.8
    
    
    
    2.92
    %Short term borrowings
    
    
    5,696
    
    
    
    313.5
    
    
    
    5.50
    %
    
    
    2,611
    
    
    
    78.0
    
    
    
    2.98
    %
    
    
    626
    
    
    
    12.2
    
    
    
    1.95
    %FHLBI long term advances
    
    
    1,496
    
    
    
    110.4
    
    
    
    7.38
    %
    
    
    2,688
    
    
    
    203.1
    
    
    
    7.56
    %
    
    
    5,080
    
    
    
    376.1
    
    
    
    7.40
    %Total interest bearing
liabilities and total interest
expense
    
    
    345,074
    
    
    
    10,295.0
    
    
    
    2.98
    %
    
    
    344,710
    
    
    
    7,054.0
    
    
    
    2.05
    %
    
    
    328,961
    
    
    
    5,605.9
    
    
    
    1.70
    %Noninterest bearing deposits
    
    
    65,492
    
    
    
    
    
    
    
    
    
    
    
    73,243
    
    
    
    
    
    
    
    
    
    
    
    70,477All other liabilities
    
    
    4,011
    
    
    
    
    
    
    
    
    
    
    
    3,507
    
    
    
    
    
    
    
    
    
    
    
    3,784Shareholders Equity
    
    
    50,528
    
    
    
    
    
    
    
    
    
    
    
    47,748
    
    
    
    
    
    
    
    
    
    
    
    43,356Total liabilities and
shareholders equity
    
    $
    465,105
    
    
    
    
    
    
    
    
    
    
    $
    469,208
    
    
    
    
    
    
    
    
    
    
    $
    446,578Interest spread
    
    
    
    
    
    
    
    
    
    
    4.27
    %
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    
    
    
    
    
    
    
    
    4.34
    %Net interest income-FTE
    
    
    
    
    
    $
    21,949.7
    
    
    
    
    
    
    
    
    
    
    $
    22,715.0
    
    
    
    
    
    
    
    
    
    
    $
    19,863.2Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.94
    %
    
    
    
    
    
    
    
    
    
    
    5.07
    %
    
    
    
    
    
    
    
    
    
    
    4.71
    %
 
 (1)
    
    Average yields in the above table have been adjusted to a tax-equivalent basis using a 34% tax rate and
exclude the effect of any market value adjustments recorded under Statement of Financial Accounting Standards No.
115.(2)
    
    For purposes of the computation above, non-accruing loans of $7,539,000 in 2006, $3,359,000 in 2005 and
$2,462,000 in 2004 are included in the average daily loan balance.(3)
    
    Interest on loans includes origination fees totaling $507,000 in 2006, $644,000 in 2005 and $726,000 in 2004.  26




---



##### Table of Contents



(dollars in thousands)Year ended December 31, 2006
    
    
    Year ended December 31, 2005compared to
    
    
    compared toYear ended December 31, 2005
    
    
    Year ended December 31, 2004Amount of Increase (Decrease) Due to Change inTotal Amount
    
    
    
    
    
    
    
    
    
    
    Total AmountAverage
    
    
    of Increase/
    
    
    
    
    
    
    Average
    
    
    of Increase/Volume
    
    
    Rate
    
    
    Decrease
    
    
    Volume
    
    
    Rate
    
    
    DecreaseInterest Income:Short term investments
    
    $
    (208
    )
    
    $
    50
    
    
    $
    (158
    )
    
    $
    (53
    )
    
    $
    197
    
    
    $
    144Certificates of deposit
    
    
    (12
    )
    
    
    75
    
    
    $
    63
    
    
    
    69
    
    
    
    36
    
    
    
    105Securities:Taxable
    
    
    (185
    )
    
    
    29
    
    
    $
    (156
    )
    
    
    53
    
    
    
    (75
    )
    
    
    (22
    )Tax Exempt
    
    
    75
    
    
    
    (75
    )
    
    $
    
    
    
    
    29
    
    
    
    (64
    )
    
    
    (35
    )Loans
    
    
    558
    
    
    
    2,168
    
    
    $
    2,726
    
    
    
    1,701
    
    
    
    2,407
    
    
    
    4,108Total interest income
    
    $
    228
    
    
    $
    2,247
    
    
    $
    2,475
    
    
    $
    1,799
    
    
    $
    2,501
    
    
    $
    4,300Interest Expense:Interest bearing deposits:NOW, savings & MMDA
    
    $
    (196
    )
    
    $
    732
    
    
    $
    536
    
    
    $
    (54
    )
    
    $
    276
    
    
    $
    222Time deposits
    
    
    762
    
    
    
    1,800
    
    
    $
    2,562
    
    
    
    718
    
    
    
    615
    
    
    
    1,333Short term borrowings
    
    
    92
    
    
    
    144
    
    
    $
    236
    
    
    
    39
    
    
    
    27
    
    
    
    66FHLBI advances
    
    
    (90
    )
    
    
    (3
    )
    
    $
    (93
    )
    
    
    (177
    )
    
    
    4
    
    
    
    (173
    )Total interest expense
    
    $
    568
    
    
    $
    2,673
    
    
    $
    3,241
    
    
    $
    526
    
    
    $
    922
    
    
    $
    1,448Net interest income (FTE)
    
    $
    (340
    )
    
    $
    (426
    )
    
    $
    (766
    )
    
    $
    1,273
    
    
    $
    1,579
    
    
    $
    2,852
     27




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004As a percent of average earning assets:Loans
    
    
    84.28
    %
    
    
    81.96
    %
    
    
    80.82
    %Securities
    
    
    13.60
    %
    
    
    14.36
    %
    
    
    14.82
    %Certificates of deposit
    
    
    1.39
    %
    
    
    1.46
    %
    
    
    0.90
    %Short term investments
    
    
    0.73
    %
    
    
    2.22
    %
    
    
    3.46
    %Average earning assets
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %NOW, savings, & MMDA
    
    
    34.12
    %
    
    
    39.39
    %
    
    
    43.81
    %Time deposits
    
    
    41.89
    %
    
    
    36.43
    %
    
    
    32.83
    %Short term borrowing
    
    
    1.28
    %
    
    
    0.58
    %
    
    
    0.15
    %FHLBI advances
    
    
    0.34
    %
    
    
    0.60
    %
    
    
    1.20
    %Average interest bearing liabilities
    
    
    77.63
    %
    
    
    77.00
    %
    
    
    77.99
    %Earning asset ratio
    
    
    95.58
    %
    
    
    95.41
    %
    
    
    94.51
    %Free-funds ratio
    
    
    22.37
    %
    
    
    23.00
    %
    
    
    22.01
    %
 Provision
for Loan Losses
  Noninterest Income
  28




---



##### Table of Contents



Noninterest Expense
  Federal Income Tax Expense
  Critical Accounting Policies
   29




---



##### Table of Contents



Impact of New Accounting Standards
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
 Index to Consolidated Financial Statements:
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    31Consolidated Balance Sheets
    
    
    33Consolidated Statements of Income
    
    
    34Consolidated Statements of Stockholders Equity and Comprehensive Income
    
    
    35Consolidated Statements of Cash Flows
    
    
    36Notes to Consolidated Financial Statements
    
    
    37
 30




---



##### 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
 
    Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements.
 Internal Control  Integrated
Framework
 
 31




---



##### 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
      
 32




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 
 2006
    
    
    2005AssetsCash and due from banks
    
    $
    16,373,845
    
    
    $
    19,281,982Short term investments
    
    
    2,747,642
    
    
    
    4,819,709Total cash and cash equivalents
    
    
    19,121,487
    
    
    
    24,101,691Certificates of deposit
    
    
    4,711,000
    
    
    
    7,166,000Investment Securities:Investment securities held to maturity, net (fair value of $17,030,269at December 31, 2006 and $16,763,204 at December 31, 2005)
    
    
    16,808,685
    
    
    
    16,425,674Investment securities available for sale, at fair value
    
    
    24,480,256
    
    
    
    32,388,356Mortgage-backed securities available for sale, at fair value
    
    
    11,930,591
    
    
    
    12,405,476FHLBI and FRB stock, at cost
    
    
    994,950
    
    
    
    1,153,550Total investment securities
    
    
    54,214,482
    
    
    
    62,373,056Loans:Commercial
    
    
    328,665,048
    
    
    
    305,387,518Consumer
    
    
    27,720,360
    
    
    
    36,161,235Real estate mortgage
    
    
    28,195,754
    
    
    
    31,306,493Total loans
    
    
    384,581,162
    
    
    
    372,855,246Less allowance for loan losses
    
    
    (7,597,900
    )
    
    
    (6,991,125
    )Net loans
    
    
    376,983,262
    
    
    
    365,864,121Premises and equipment, net
    
    
    9,882,356
    
    
    
    10,465,856Other real estate owned, held for sale
    
    
    1,629,250
    
    
    
    679,733Accrued interest and other assets
    
    
    7,353,867
    
    
    
    6,574,686Total assets
    
    $
    473,895,704
    
    
    $
    477,225,143Liabilities and Stockholders EquityLiabilitiesDeposits:Demand (non-interest bearing)
    
    $
    62,681,088
    
    
    $
    71,415,340NOW
    
    
    41,275,379
    
    
    
    40,739,655Savings and money market
    
    
    113,906,147
    
    
    
    133,865,335Time deposits
    
    
    170,126,892
    
    
    
    145,927,984Brokered certificates of deposit
    
    
    17,554,785
    
    
    
    30,137,273Total deposits
    
    
    405,544,291
    
    
    
    422,085,587Other borrowings
    
    
    13,480,813
    
    
    
    1,785,094Accrued interest, taxes, and other liabilities
    
    
    4,878,126
    
    
    
    3,908,137Total liabilities
    
    
    423,903,230
    
    
    
    427,778,818Stockholders EquityCommon stock, no par value. Authorized 4,200,000 shares; 3,074,528shares issued and outstanding at December 31, 2006 and 3,187,374 sharesissued and outstanding at December 31, 2005
    
    
    6,005,835
    
    
    
    6,088,540Retained earnings
    
    
    43,625,997
    
    
    
    43,389,917Deferred directors compensation
    
    
    725,186
    
    
    
    575,045Accumulated other comprehensive loss, net
    
    
    (364,544
    )
    
    
    (607,177
    )Total stockholders equity
    
    
    49,992,474
    
    
    
    49,446,325Total liabilities and stockholders equity
    
    $
    473,895,704
    
    
    $
    477,225,143
  33




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 
 2006
    
    
    2005
    
    
    2004Interest and dividend income:Interest and fees on loans
    
    $
    28,986,420
    
    
    $
    26,247,716
    
    
    $
    22,137,252Interest and dividends on investment securities:U.S. Treasury and agency securities
    
    
    1,592,919
    
    
    
    1,711,402
    
    
    
    1,667,506Obligations of states and political subdivisions
    
    
    743,800
    
    
    
    729,222
    
    
    
    747,483Corporate bonds
    
    
    17,560
    
    
    
    59,959
    
    
    
    125,381Other securities
    
    
    54,202
    
    
    
    50,004
    
    
    
    51,278Interest on short term investments
    
    
    159,633
    
    
    
    315,528
    
    
    
    166,978Interest on certificates of deposit
    
    
    264,410
    
    
    
    201,076
    
    
    
    95,832Total interest and dividend income
    
    
    31,818,944
    
    
    
    29,314,907
    
    
    
    24,991,710
    
    
    
    
    
    
    
    Interest expense:Interest on deposits
    
    
    9,871,304
    
    
    
    6,772,924
    
    
    
    5,217,598Interest on other borrowings
    
    
    423,970
    
    
    
    281,073
    
    
    
    388,268Total interest expense
    
    
    10,295,274
    
    
    
    7,053,997
    
    
    
    5,605,866Net interest income
    
    
    21,523,670
    
    
    
    22,260,910
    
    
    
    19,385,844Provision for loan losses
    
    
    2,639,000
    
    
    
    3,037,000
    
    
    
    1,190,000Net interest income after provision for loan losses
    
    
    18,884,670
    
    
    
    19,223,910
    
    
    
    18,195,844Noninterest income:Service charges and other fee income
    
    
    3,636,856
    
    
    
    3,464,122
    
    
    
    3,318,666Trust income
    
    
    333,918
    
    
    
    284,394
    
    
    
    246,950Gain on sale of loans
    
    
    57,208
    
    
    
    62,512
    
    
    
    68,881Other
    
    
    2,986
    
    
    
    8,612
    
    
    
    475,560Total noninterest income
    
    
    4,030,968
    
    
    
    3,819,640
    
    
    
    4,110,057Noninterest expense:Salaries and employee benefits
    
    
    7,925,738
    
    
    
    7,230,103
    
    
    
    7,236,801Net occupancy expense
    
    
    1,169,337
    
    
    
    1,208,830
    
    
    
    1,115,030Equipment expense
    
    
    755,195
    
    
    
    831,299
    
    
    
    864,604Professional and service fees
    
    
    1,859,736
    
    
    
    1,680,037
    
    
    
    1,622,399Printing and supplies
    
    
    271,167
    
    
    
    318,091
    
    
    
    302,032Computer service fees
    
    
    364,333
    
    
    
    344,095
    
    
    
    299,114Advertising
    
    
    306,211
    
    
    
    238,323
    
    
    
    221,618Other
    
    
    2,287,503
    
    
    
    1,801,865
    
    
    
    1,625,052Total noninterest expense
    
    
    14,939,220
    
    
    
    13,652,643
    
    
    
    13,286,650Income before federal income taxes
    
    
    7,976,418
    
    
    
    9,390,907
    
    
    
    9,019,251Federal income taxes
    
    
    2,390,422
    
    
    
    2,883,921
    
    
    
    2,728,156Net income
    
    $
    5,585,996
    
    
    $
    6,506,986
    
    
    $
    6,291,095Per share statistics:Basic EPS
    
    $
    1.76
    
    
    $
    2.03
    
    
    $
    1.98Diluted EPS
    
    $
    1.76
    
    
    $
    2.03
    
    
    $
    1.97Dividends
    
    $
    0.84
    
    
    $
    0.80
    
    
    $
    0.72Basic average shares outstanding
    
    
    3,177,093
    
    
    
    3,200,146
    
    
    
    3,185,025Diluted average shares outstanding
    
    
    3,177,146
    
    
    
    3,200,518
    
    
    
    3,186,142
  34




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 
 AccumulatedDeferred
    
    
    OtherCommon
    
    
    
    
    
    
    Directors
    
    
    ComprehensiveStock
    
    
    Retained Earnings
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBalances at December 31, 2003
    
    $
    5,503,246
    
    
    $
    35,425,699
    
    
    $
    
    
    
    $
    306,536
    
    
    $
    41,235,481Amortization of long term incentive plan
    
    
    184,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,530Issued 4,352 shares for employee stock purchase plan
    
    
    109,521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,521Issued 794 shares for current directors fees
    
    
    22,791
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,791Issued 1,179 shares for directors variable fee plan
    
    
    32,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,092Issued 283 shares for deferred directors fees
    
    
    5,953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,953Directors deferred compensation (590 stock units)
    
    
    
    
    
    
    
    
    
    
    18,270
    
    
    
    
    
    
    
    18,270Reclassification of directors deferred
compensation (19,321 stock units)
    
    
    
    
    
    
    
    
    
    
    437,211
    
    
    
    
    
    
    
    437,211Comprehensive income:Net income
    
    
    
    
    
    
    6,291,095
    
    
    
    
    
    
    
    
    
    
    
    6,291,095Change in unrealized gain (loss) on investmentsecurities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334,723
    )
    
    
    (334,723
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,956,372Cash dividends ($0.72 per share)
    
    
    
    
    
    
    (2,286,173
    )
    
    
    
    
    
    
    
    
    
    
    (2,286,173
    )Balances at December 31, 2004
    
    
    5,858,133
    
    
    
    39,430,621
    
    
    
    455,481
    
    
    
    (28,187
    )
    
    
    45,716,048Amortization of long term incentive plan
    
    
    83,880
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,880Issued 3,687 shares for employee stock purchase plan
    
    
    95,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,975Issued 722 shares for current directors fees
    
    
    20,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,765Issued 986 shares for directors variable fee plan
    
    
    29,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,787Directors deferred compensation (4,105 stock units)
    
    
    
    
    
    
    
    
    
    
    119,564
    
    
    
    
    
    
    
    119,564Comprehensive income:Net income
    
    
    
    
    
    
    6,506,986
    
    
    
    
    
    
    
    
    
    
    
    6,506,986Change in unrealized loss on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578,990
    )
    
    
    (578,990
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,927,996Cash dividends ($0.80 per share)
    
    
    
    
    
    
    (2,547,690
    )
    
    
    
    
    
    
    
    
    
    
    (2,547,690
    )Balances at December 31, 2005
    
    
    6,088,540
    
    
    
    43,389,917
    
    
    
    575,045
    
    
    
    (607,177
    )
    
    
    49,446,325Cumulative effect adjustment  initial application of SEC
Staff Accounting Bulletin No. 108
    
    
    
    
    
    
    180,000
    
    
    
    
    
    
    
    
    
    
    
    180,000Balances at January 1, 2006
    
    
    6,088,540
    
    
    
    43,569,917
    
    
    
    575,045
    
    
    
    (607,177
    )
    
    
    49,626,325Amortization of long term incentive plan
    
    
    81,199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,199Issued 1,234 shares for employee stock purchase plan
    
    
    30,623
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,623Issued 270 shares for current directors fees
    
    
    6,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,999Issued 1,244 shares for directors variable fee plan
    
    
    32,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,257Directors deferred compensation (5,750 stock units)
    
    
    
    
    
    
    
    
    
    
    150,141
    
    
    
    
    
    
    
    150,141Comprehensive income:Net income
    
    
    
    
    
    
    5,585,996
    
    
    
    
    
    
    
    
    
    
    
    5,585,996Change in unrealized loss on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242,633
    
    
    
    242,633Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,828,629Repurchase of common stock (117,700 shares)
    
    
    (233,783
    )
    
    
    (2,873,512
    )
    
    
    
    
    
    
    
    
    
    
    (3,107,295
    )Cash dividends ($0.84 per share)
    
    
    
    
    
    
    (2,656,404
    )
    
    
    
    
    
    
    
    
    
    
    (2,656,404
    )Balances at December 31, 2006
    
    $
    6,005,835
    
    
    $
    43,625,997
    
    
    $
    725,186
    
    
    $
    (364,544
    )
    
    $
    49,992,474
  35




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    5,585,996
    
    
    $
    6,506,986
    
    
    $
    6,291,095Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    2,639,000
    
    
    
    3,037,000
    
    
    
    1,190,000Depreciation and amortization
    
    
    923,942
    
    
    
    984,021
    
    
    
    1,014,720Deferred income tax expense (benefit)
    
    
    (217,783
    )
    
    
    (503,802
    )
    
    
    159,167Net amortization (accretion) on investment securities
    
    
    8,830
    
    
    
    15,183
    
    
    
    (16,031
    )Earned portion of long term incentive plan
    
    
    81,199
    
    
    
    83,880
    
    
    
    184,530Shares issued for current directors compensation
    
    
    39,256
    
    
    
    50,552
    
    
    
    54,883Shares earned for deferred directors compensation
    
    
    150,141
    
    
    
    119,564
    
    
    
    24,223Gain on sale of loans
    
    
    (57,208
    )
    
    
    (62,512
    )
    
    
    (68,881
    )Proceeds from sale of loans
    
    
    5,050,710
    
    
    
    6,102,540
    
    
    
    11,285,139Origination of loans held for sale
    
    
    (5,005,968
    )
    
    
    (5,788,325
    )
    
    
    (10,541,000
    )(Gain) loss on the sale of other real estate owned, held for sale
    
    
    292,101
    
    
    
    (20,507
    )
    
    
    (98,850
    )(Gain) loss on sale of land and facilities held for sale
    
    
    
    
    
    
    2,595
    
    
    
    (42,716
    )Loss on disposal of equipment
    
    
    
    
    
    
    19,990
    
    
    
    Increase in accrued interest income and other assets
    
    
    (686,391
    )
    
    
    (338,394
    )
    
    
    (135,314
    )Increase (decrease) in accrued interest, taxes, and other liabilities
    
    
    1,272,989
    
    
    
    (103,130
    )
    
    
    (29,240
    )Net cash provided by operating activities
    
    
    10,076,814
    
    
    
    10,105,641
    
    
    
    9,271,725Cash flows from investing activities:Purchases of available for sale securities
    
    
    (1,860,624
    )
    
    
    (5,119,280
    )
    
    
    (36,556,566
    )Purchases of held to maturity securities
    
    
    (2,880,585
    )
    
    
    (2,091,712
    )
    
    
    (4,776,698
    )FHLBI (stock buybacks)/purchases/stock dividends
    
    
    158,600
    
    
    
    (22,900
    )
    
    
    (47,900
    )Proceeds from maturities and at-par calls of available for sale securities
    
    
    8,285,762
    
    
    
    3,000,000
    
    
    
    24,500,000Proceeds from mortgage-backed securities paydowns-available for sale
    
    
    2,339,217
    
    
    
    3,647,345
    
    
    
    3,660,069Proceeds from maturities and calls of held to maturity securities
    
    
    2,475,000
    
    
    
    1,666,000
    
    
    
    3,820,125Purchases of certificates of deposit
    
    
    (2,944,000
    )
    
    
    (10,600,000
    )
    
    
    (5,993,000
    )Maturity of certificates of deposit
    
    
    5,399,000
    
    
    
    9,525,000
    
    
    
    1,455,000Purchase of loans
    
    
    
    
    
    
    
    
    
    
    (6,279,807
    )Net increase in loans
    
    
    (15,851,925
    )
    
    
    (18,690,040
    )
    
    
    (6,996,938
    )Proceeds from sale of other real estate owned, held for sale
    
    
    741,632
    
    
    
    1,043,955
    
    
    
    990,652Proceeds from sale of land and facilities held for sale
    
    
    
    
    
    
    93,085
    
    
    
    1,503,016Capital expenditures
    
    
    (340,442
    )
    
    
    (382,966
    )
    
    
    (346,912
    )Net cash used in investing activities
    
    
    (4,478,365
    )
    
    
    (17,931,513
    )
    
    
    (25,068,959
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    (16,541,296
    )
    
    
    22,822,677
    
    
    
    189,609Payments on FHLBI note
    
    
    (304,281
    )
    
    
    (3,281,742
    )
    
    
    (260,872
    )Proceeds from issuance of short term debt
    
    
    42,500,000
    
    
    
    11,000,000
    
    
    
    3,000,000Repayment of short term debt
    
    
    (30,500,000
    )
    
    
    (14,000,000
    )
    
    
    Repurchase of common stock
    
    
    (3,107,295
    )
    
    
    
    
    
    
    Dividends paid
    
    
    (2,656,404
    )
    
    
    (2,547,690
    )
    
    
    (2,286,173
    )Shares issued for employee stock purchase plan
    
    
    30,623
    
    
    
    95,975
    
    
    
    109,521Net cash provided by (used in) financing activities
    
    
    (10,578,653
    )
    
    
    14,089,220
    
    
    
    752,085Net increase (decrease) in cash and cash equivalents
    
    
    (4,980,204
    )
    
    
    6,263,348
    
    
    
    (15,045,149
    )Cash and cash equivalents at beginning of year
    
    
    24,101,691
    
    
    
    17,838,343
    
    
    
    32,883,492Cash and cash equivalents at end of year
    
    $
    19,121,487
    
    
    $
    24,101,691
    
    
    $
    17,838,343Supplemental disclosures:Interest paid
    
    $
    10,009,063
    
    
    $
    6,813,756
    
    
    $
    5,642,097Federal income taxes paid
    
    
    2,097,919
    
    
    
    3,546,682
    
    
    
    2,609,881Loans transferred to other real estate
    
    
    1,983,249
    
    
    
    968,181
    
    
    
    1,561,802Properties transferred to land and facilities held for sale
    
    
    
    
    
    
    
    
    
    
    155,690Loans charged off
    
    
    2,664,596
    
    
    
    2,253,717
    
    
    
    922,078
  36




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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 Deposit
  (b) Investment and Mortgage-Backed Securities
       (c) Loans
  37




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##### Table of Contents



(d) Allowance for Loan Losses and Credit Commitments
   (e) Nonperforming Assets
     38




---



##### Table of Contents



(f) Real Estate
   (g) Premises and Equipment
   (h) Advertising Costs
  (i) Federal Income Taxes
  (j) Stock-Based Compensation
  (k) Common Stock Repurchases
  (l) Statements of Cash Flows
  39




---



##### Table of Contents



(m) Comprehensive Income
 Reporting Comprehensive Income,
 (n) Earnings Per Share
  (o) Reclassification
  (2) Certificates of Deposit
  Maturing in 2007
    
    $
    3,337,000Maturing in 2008
    
    
    981,000Maturing in 2009
    
    
    393,000Total
    
    $
    4,711,000
 40




---



##### Table of Contents



(3) Investment and Mortgage-Backed Securities
  December 31, 2006
    
    
    December 31, 2005Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    UnrealizedAmortized
    
    
    gross
    
    
    gross
    
    
    Fair
    
    
    Amortized
    
    
    gross
    
    
    gross
    
    
    Faircost
    
    
    gains
    
    
    losses
    
    
    value
    
    
    cost
    
    
    gains
    
    
    losses
    
    
    valueHeld to maturity:Obligations of state and
political subdivisions
    
    $
    16,808,685
    
    
    $
    256,662
    
    
    $
    (35,078
    )
    
    $
    17,030,269
    
    
    $
    16,425,674
    
    
    $
    365,562
    
    
    $
    (28,032
    )
    
    $
    16,763,204Total held to maturity
    
    
    16,808,685
    
    
    
    256,662
    
    
    
    (35,078
    )
    
    
    17,030,269
    
    
    
    16,425,674
    
    
    
    365,562
    
    
    
    (28,032
    )
    
    
    16,763,204Available for sale:U.S. Treasury and
agency securities
    
    
    24,870,214
    
    
    
    
    
    
    
    (389,958
    )
    
    
    24,480,256
    
    
    
    32,095,107
    
    
    
    6,068
    
    
    
    (717,398
    )
    
    
    31,383,777Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,062
    
    
    
    4,517
    
    
    
    
    
    
    
    1,004,579Mortgage-backed
securities
    
    
    12,092,973
    
    
    
    25,483
    
    
    
    (187,865
    )
    
    
    11,930,591
    
    
    
    12,618,628
    
    
    
    35,073
    
    
    
    (248,225
    )
    
    
    12,405,476Total available for sale
    
    
    36,963,187
    
    
    
    25,483
    
    
    
    (577,823
    )
    
    
    36,410,847
    
    
    
    45,713,797
    
    
    
    45,658
    
    
    
    (965,623
    )
    
    
    44,793,832Total securities
    
    $
    53,771,872
    
    
    $
    282,145
    
    
    $
    (612,901
    )
    
    $
    53,441,116
    
    
    $
    62,139,471
    
    
    $
    411,220
    
    
    $
    (993,655
    )
    
    $
    61,557,036
  41




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##### Table of Contents



December 31, 2006Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealizedgross
    
    
    Fair
    
    
    gross
    
    
    Fair
    
    
    gross
    
    
    Fairlosses
    
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    valueHeld to Maturity:Obligations of state and
political subdivisions
    
    $
    (15,379
    )
    
    $
    2,071,039
    
    
    $
    (19,699
    )
    
    $
    1,817,883
    
    
    $
    (35,078
    )
    
    $
    3,888,922Available for sale:U.S. Treasury and agency securities
    
    $
    
    
    
    $
    
    
    
    $
    (389,958
    )
    
    $
    24,480,256
    
    
    $
    (389,958
    )
    
    $
    24,480,256Mortgage-backed securities
    
    
    (2,137
    )
    
    
    651,764
    
    
    
    (185,728
    )
    
    
    8,307,957
    
    
    
    (187,865
    )
    
    
    8,959,721Total available
for sale
    
    $
    (2,137
    )
    
    $
    651,764
    
    
    $
    (575,686
    )
    
    $
    32,788,213
    
    
    $
    (577,823
    )
    
    $
    33,439,977
 December 31, 2005Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealizedgross
    
    
    Fair
    
    
    gross
    
    
    Fair
    
    
    gross
    
    
    Fanlosses
    
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    valueHeld to Maturity:Obligations
of state and
political subdivisions
    
    $
    (23,143
    )
    
    $
    2,366,880
    
    
    $
    (4,889
    )
    
    $
    226,728
    
    
    $
    (28,032
    )
    
    $
    2,593,608Available for sale:U.S. Treasury and agency securities
    
    $
    (188,952
    )
    
    $
    10,414,796
    
    
    $
    (528,446
    )
    
    $
    18,962,912
    
    
    $
    (717,398
    )
    
    $
    29,377,708Mortgage-backed securities
    
    
    (89,078
    )
    
    
    7,146,899
    
    
    
    (159,147
    )
    
    
    4,380,673
    
    
    
    (248,225
    )
    
    
    11,527,572$Total available for sale
    
    $
    (278,030
    )
    
    $
    17,561,695
    
    
    $
    (687,593
    )
    
    $
    23,343,585
    
    
    
    (965,623
    )
    
    $
    40,905,280
  December 31, 2006
    
    
    December 31, 2005Amortized
    
    
    Approximate
    
    
    Amortized
    
    
    Approximatecost
    
    
    fair value
    
    
    cost
    
    
    fair valueHeld to maturity:Due in one year or less
    
    $
    1,894,917
    
    
    $
    1,904,607
    
    
    $
    2,384,602
    
    
    $
    2,402,255Due after one year through
five years
    
    
    5,650,096
    
    
    
    5,729,168
    
    
    
    7,307,216
    
    
    
    7,495,656Due after five years through
ten years
    
    
    2,606,373
    
    
    
    2,617,116
    
    
    
    1,881,449
    
    
    
    1,871,800Due after ten years
    
    
    6,657,299
    
    
    
    6,779,378
    
    
    
    4,852,407
    
    
    
    4,993,493$
    16,808,685
    
    
    $
    17,030,269
    
    
    $
    16,425,674
    
    
    $
    16,763,204Available for sale:Due in one year or less
    
    $
    13,495,406
    
    
    $
    13,366,817
    
    
    $
    8,238,228
    
    
    $
    8,186,734Due after one year through
five years
    
    
    11,374,808
    
    
    
    11,113,439
    
    
    
    24,856,941
    
    
    
    24,201,622Due after five years through
ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,870,214
    
    
    
    24,480,256
    
    
    
    33,095,169
    
    
    
    32,388,356Mortgage-backed securities
    
    
    12,092,973
    
    
    
    11,930,591
    
    
    
    12,618,628
    
    
    
    12,405,476$
    36,963,187
    
    
    $
    36,410,847
    
    
    $
    45,713,797
    
    
    $
    44,793,832
 42




---



##### Table of Contents



2006
    
    
    2005Amortized
    
    
    Approximate
    
    
    Amortized
    
    
    Approximatecost
    
    
    fair value
    
    
    cost
    
    
    fair valueState of Michigan
    
    $
    11,035,793
    
    
    $
    11,164,560
    
    
    $
    11,673,789
    
    
    $
    11,877,846
   (4) Loans
   90 days past dueand still accruing interest
    
    
    Nonaccrual2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Commercial and mortgage
loans secured by real estate
    
    $
    287,716
    
    
    $
    384,842
    
    
    $
    285,771
    
    
    $
    10,267,753
    
    
    $
    4,124,339
    
    
    $
    243,374Consumer loans
    
    
    
    
    
    
    5,756
    
    
    
    2,541
    
    
    
    86,986
    
    
    
    91,599
    
    
    
    92,285Commercial and
other loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,844,076
    
    
    
    1,018,133
    
    
    
    810,175Total
    
    $
    287,716
    
    
    $
    390,598
    
    
    $
    288,312
    
    
    $
    12,198,815
    
    
    $
    5,234,071
    
    
    $
    1,145,834
     43




---



##### Table of Contents



Year:2007
    
    $
    58,0002008
    
    
    46,0002009
    
    
    32,0002010
    
    
    24,0002011
    
    
    11,0002012 and thereafter
    
    
    21,000Total
    
    $
    192,000
  44




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##### Table of Contents



(5) Allowance for Loan Losses and Reserve for Unfunded Credit Commitments
  2006
    
    
    2005
    
    
    2004Components:Allowance for loan lossesBalance, beginning of year
    
    $
    6,991,125
    
    
    $
    6,092,949
    
    
    $
    5,434,375Loans charged off:Real estate mortgage
    
    
    260,091
    
    
    
    25,771
    
    
    
    Commercial
    
    
    1,785,573
    
    
    
    1,436,463
    
    
    
    378,914Consumer
    
    
    618,932
    
    
    
    791,483
    
    
    
    543,164Total charge offs
    
    
    2,664,596
    
    
    
    2,253,717
    
    
    
    922,078Recoveries to loans previously charged off:Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    283,103
    
    
    
    120,012
    
    
    
    69,515Consumer
    
    
    226,268
    
    
    
    141,881
    
    
    
    104,137Total recoveries
    
    
    509,371
    
    
    
    261,893
    
    
    
    173,652Net loans charged off
    
    
    2,155,225
    
    
    
    1,991,824
    
    
    
    748,426Additions to allowance charged to operations
    
    
    2,762,000
    
    
    
    2,890,000
    
    
    
    1,407,000Balance, end of year
    
    
    7,597,900
    
    
    
    6,991,125
    
    
    
    6,092,949Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    454,000
    
    
    
    307,000
    
    
    
    524,000Additions (reductions) to reserve charged (credited) to
operations
    
    
    (123,000
    )
    
    
    147,000
    
    
    
    (217,000
    )Balance, end of year
    
    
    331,000
    
    
    
    454,000
    
    
    
    307,000Total allowance for loan losses and reserve for unfunded
credit commitments
    
    $
    7,928,900
    
    
    $
    7,445,125
    
    
    $
    6,399,949
 (6) Premises and Equipment
  2006
    
    
    2005Land and land improvements
    
    $
    2,931,820
    
    
    $
    2,921,480Premises
    
    
    10,051,340
    
    
    
    10,035,233Furniture and equipment
    
    
    5,699,571
    
    
    
    5,397,74218,682,731
    
    
    
    18,354,455Less accumulated depreciation and amortization
    
    
    (8,800,375
    )
    
    
    (7,888,599
    )Premises and equipment, net
    
    $
    9,882,356
    
    
    $
    10,465,856
  (7) Land and Facilities Held for Sale
  45




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##### Table of Contents



(8)
    
    Other Real Estate OwnedAt December 31, 2006, the Bank owned five foreclosed properties with a lower of cost or market
value of $1,629,250. As of December 31, 2005, the Bank owned three foreclosed properties with
a lower of cost or market value of $679,733. A gain or loss will be recognized upon the sale
of the properties, which will be included as a component of noninterest income or expense.(9)
    
    Time Certificates of DepositAt December 31, 2006, the scheduled maturities of time deposits, including brokered
certificates of deposit, with a remaining term of more than one year were:
 Year of maturity:2008
    
    $
    8,368,7032009
    
    
    7,911,3692010
    
    
    3,813,5802011
    
    
    597,2852012 and thereafter
    
    
    14,894Total
    
    $
    20,705,831
  2006
    
    
    2005Three months or less
    
    $
    30,307,369
    
    
    $
    29,599,143Three through six months
    
    
    22,630,989
    
    
    
    16,225,630Six through twelve months
    
    
    27,572,446
    
    
    
    24,527,040Over twelve months
    
    
    8,951,554
    
    
    
    20,803,079Total
    
    $
    89,462,358
    
    
    $
    91,154,892
  46




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##### Table of Contents



(10)
    
    Other BorrowingsThe Bank has a borrowing capacity of approximately $36,000,000 with the FHLBI and had an
advance outstanding balance of approximately $13,481,000 and $1,785,000 at December 31, 2006
and 2005, respectively. Variable-or fixed-rate advances are available with terms ranging from
one day to 10 years. An outstanding advance requires 125% collateral coverage by one-to-four
family whole-mortgage loans. A summary of outstanding advances at December 31, 2006, follows:
 WeightedaverageMaturity
    
    interest rate
    
    
    AmountShort term advances:Variable rate:Within 6 months
    
    
    (a
    )
    
    $
    12,000,000Long term advances:Fixed rate:Within one year
    
    
    7.29
    %
    
    
    328,623Two years
    
    
    7.29
    %
    
    
    354,913Three years
    
    
    7.29
    %
    
    
    383,307Four years
    
    
    7.29
    %
    
    
    413,970Total long term advance
    
    
    
    
    
    
    1,480,813$
    13,480,813
 
 (a)
    
    the rate on this advance at December 31, 2006 was 5.31% (11)
    
    Deferred Gain on the Sale of Real EstateIn December 2003, the Bank sold a piece of real estate previously classified as facilities
held for sale on the balance sheet and provided financing to the buyer. In accordance with
SFAS No. 66, Accounting for Sales of Real Estate,the Bank deferred the gain of $299,000 on
the sale under the installment method. In the first quarter of 2004, the Bank sold the loan
associated with this transaction with no recourse and accordingly recognized the deferred gain
as a component of noninterest income.(12)
    
    Federal Income TaxesFederal income tax expense (benefit) consists of:
 2006
    
    
    2005
    
    
    2004Current
    
    $
    2,608,205
    
    
    $
    3,387,723
    
    
    $
    2,568,989Deferred
    
    
    (217,783
    )
    
    
    (503,802
    )
    
    
    159,167Total federal income tax
    
    $
    2,390,422
    
    
    $
    2,883,921
    
    
    $
    2,728,156
  2006
    
    
    2005
    
    
    2004Computed expected tax expense
    
    $
    2,711,982
    
    
    $
    3,192,908
    
    
    $
    3,066,545Increase (reduction) in tax resulting from:Tax-exempt interest and dividends, net
    
    
    (318,109
    )
    
    
    (325,188
    )
    
    
    (331,745
    )Other, net
    
    
    (3,451
    )
    
    
    16,201
    
    
    
    (6,644
    )Total federal income tax
    
    $
    2,390,422
    
    
    $
    2,883,921
    
    
    $
    2,728,156
 47




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##### Table of Contents



2006
    
    
    2005Deferred tax assets:Allowance for loan losses
    
    $
    2,354,604
    
    
    $
    2,377,695Unrealized loss on securities available for sale
    
    
    187,795
    
    
    
    312,788Deferred directors fees
    
    
    246,579
    
    
    
    195,533Other
    
    
    482,152
    
    
    
    290,218Total gross deferred tax assets
    
    
    3,271,130
    
    
    
    3,176,234Deferred tax liabilities:Deferred loan fees
    
    
    181,259
    
    
    
    153,100Other
    
    
    177,361
    
    
    
    203,414Total gross deferred tax liabilities
    
    
    358,620
    
    
    
    356,514Net deferred tax asset
    
    $
    2,912,510
    
    
    $
    2,819,720
 The deferred tax assets are subject to certain asset realization tests. Management believes no
valuation allowance is required at December 31, 2006, due to the combination of potential
recovery of tax previously paid and the reversal of certain deductible temporary differences.Effective January 1, 2006, the Corporation recorded a $180,000 adjustment to beginning
retained earnings to correct misstatements recorded in prior years relating to federal income
taxes payable. The misstatements were made over a period of years and were immaterial to the
results of operations for each year. See Note 27, Impact of New Accounting Standards in
Notes to the Consolidated Financial Statements for further discussion of SEC Staff Accounting
Bulletin No. 108.(13)
    
    Related Party TransactionsCertain directors and executive officers, including their immediate families and companies in
which they are principal owners, were loan customers of the Bank during 2006 and 2005.
Deposits from such individuals and their related interests totaled approximately $1.3 million
at December 31, 2006 and $1.0 million at December 31, 2005. Loans were made to such individuals in the ordinary course of
business, in accordance with the Banks normal lending policies, including the interest rate
charged and collateralization, and do not represent more than a normal credit risk. Loans to
related parties are summarized below for the periods indicated:
 2006
    
    
    2005Balance at beginning of year
    
    $
    6,075,400
    
    
    $
    5,179,300New loans and related parties
    
    
    1,225,200
    
    
    
    2,167,800Loan repayments
    
    
    (2,701,800
    )
    
    
    (1,271,700
    )Balance at end of year
    
    $
    4,598,800
    
    
    $
    6,075,400
 (14)
    
    LeasesThe Bank has a noncancelable operating lease that provides for renewal options.Future minimum lease payments under the noncancelable lease as of December 31, 2006, all due
in 2007, total $34,995.Rental expense charged to operations in 2006, 2005, and 2004 amounted to approximately
$60,000, $59,000, and $60,000, respectively, including amounts paid under short term,
cancelable leases.(15)
    
    Retirement PlanThe Bank sponsors a defined contribution money purchase thrift plan covering all employees 21
years of age or older who have completed one year of service as defined in the plan agreement.
Contributions are equal to 5% of total employee earnings plus 50% of employee contributions
(limited to 10% of their earnings) or the maximum amount permitted by the Internal Revenue
Code. The plan expense of the Bank for 2006, 2005, and 2004 was approximately $374,000,
$370,000, and $376,000, respectively.
 48




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##### Table of Contents



(16)
    
    Long Term Incentive PlanUnder its Long-Term Incentive Plan (the Plan) the Corporation grants stock options and
restricted stock as compensation to key employees. The Corporation has not awarded any stock
options under the plan to date. The restricted stock awards have a five year vesting period.
The fair market value of the awards on the grant date are amortized into salary expense over
the vesting period. The number of shares available for issuance under the Plan cannot exceed
200,000. A summary of the activity under the Plan for the year ended December 31, 2006 is
presented below:
 Weighted-AverageRestricted Stock Awards
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2006
    
    
    5,061
    
    
    $
    27.15Granted
    
    
    2,244
    
    
    
    25.93Vested
    
    
    (3,067
    )
    
    
    26.48Forfeited
    
    
    (138
    )
    
    
    28.89Nonvested at December 31, 2006
    
    
    4,100
    
    
    $
    26.93
 The total fair value of awards granted during the years ended December 31, 2006 and 2005
was $58,200 and $70,200, respectively. The total fair value of the awards vested during the
years ended at December 31, 2006 and 2005 were $81,200 and $83,880, respectively. As of
December 31, 2006, there was $110,400 of total unrecognized compensation cost related to
non-vested stock awards under the Plan. That cost is expected to be recognized over a
weighted-average period of 3.13 years.(17)
    
    Directors Stock Fee PlanEach director of the Corporation who is not an officer or employee of any subsidiary of the
Corporation is eligible to participate in the Compensation Plan for Nonemployee Directors. The
plan fees consist of both a fixed and variable component. The fixed component equals the
per-meeting fee paid for attendance at board meetings of both the Bank and the Corporation and
any committees of their respective boards. The variable component of the plan is equal to the
total fixed fees paid to a specific director for services performed during the preceding
calendar year, multiplied by bonus amounts, (expressed as the percentage of base compensation
payable to officers of the Bank for the preceding calendar year under the Banks Incentive
Bonus Plan). Expenses related to both fixed and variable fees are recorded as noninterest
expense in the year incurred regardless of payment method. Compensation costs related to both
fixed and variable stock directors fees included in noninterest expense in 2006, 2005, and
2004 amounted to $150,000, $120,000, and $103,000, respectively.Fixed directors fees may be paid in cash, to a current stock purchase account, to a deferred
cash investment account, or to a deferred stock account according to each eligible directors
payment election. Current stock is issued quarterly based on the average fair market value of
the stock for the preceding quarter. When deferred stock is elected, payments are credited to
a deferred stock account for each participating director, and stock units are computed
quarterly based on the average fair market value of the stock for the preceding quarter. When
dividends are declared, they are computed based on the stock units available in each
directors deferred account, are reinvested in stock units and charged to expense. The units
are converted to shares and issued to participating directors upon retirement. As of December
31, 2006, there were approximately 23,800 shares earned and available for distribution in the
fixed-fee deferred stock accounts.Variable directors fees may be paid to a current stock purchase account or to a deferred
stock account. Current stock is issued based on the average fair market value of the stock for
the preceding quarter. Deferred stock units are computed for directors electing to use a
deferred stock account, and dividends are reinvested throughout the year as declared. As of
December 31, 2006, there were approximately 6,000 shares earned and available for distribution
in the variable-fee deferred stock accounts. In September 2004, the Corporation reclassified
Deferred Directors Compensation related to fixed and variable fees associated with deferred
stock accounts from a liability to a component of equity. Prior periods were not reclassified
as the impact of this change was determined not to be significant.
 49




---



##### Table of Contents



(18)
    
    Employees Stock Purchase PlanThe Employees Stock Purchase Plan allows eligible employees to purchase shares of common
stock, no par value, of FNBH Bancorp, Inc. at a price less than market price under Section 423
of the Internal Revenue Code of 1986 as amended. Eligible employees must have been
continuously employed for one year, must work at least 20 hours per week, and must work at
least five months in a calendar year. Since the adoption of the plan, the purchase price for
each share of stock was 85% of fair market value of a share of stock on the purchase date.
Effective April 1, 2005, the purchase price for each share of stock is 95% of fair market
value of a share of stock on the purchase date.(19)
    
    Financial Instruments with Off-Balance-Sheet RiskThe Bank is a party to financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of its customers. These financial instruments are loan
commitments to extend credit and letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amounts recognized in the consolidated
balance sheets.The Banks exposure to credit loss in the event of the nonperformance by the other party to
the financial instruments for loan commitments to extend credit and letters of credit is
represented by the contractual amounts of these instruments. The Bank uses the same credit
policies in making credit commitments as it does for on-balance-sheet loans.Financial instruments whose contract amounts represent credit risk at December 31, 2006 and
2005 are as follows:
 2006
    
    
    2005Consumer
    
    $
    11,690,317
    
    
    $
    16,258,000Commercial construction
    
    
    8,564,026
    
    
    
    9,372,000Commercial
    
    
    49,405,506
    
    
    
    41,398,000Total credit commitments
    
    $
    69,659,849
    
    
    $
    67,028,000
   50




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##### Table of Contents



(20)
    
    CapitalThe Corporation and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary, actions by regulators that,
if undertaken, could have a direct, material effect on the Corporations financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Corporations and the Banks capital classification are
also subject to qualitative judgments by regulators with regard to components, risk
weightings, and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Corporation and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as
defined) to average assets (as defined).The most recent notification from the Office of the Comptroller of the Currency categorized
the Bank as well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have changed the
institutions category.The Corporations and the Banks actual capital amounts and ratios are also presented in the
following table as of December 31, 2006 and 2005:
 To be well capitalizedMinimum for
    
    
    under prompt correctiveActual
    
    
    capital adequacy purposes
    
    
    action provisionAs of December 31, 2006
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Capital (to risk weighted assets)
Bank
    
    $
    55,200,000
    
    
    
    13.56
    %
    
    $
    32,558,000
    
    
    
    3 8
    %
    
    $
    40,697,000
    
    
    
    3 10
    %FNBH Bancorp
    
    
    55,479,000
    
    
    
    13.63
    %
    
    
    32,558,000
    
    
    
    3 8
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)
Bank
    
    
    50,078,000
    
    
    
    12.31
    %
    
    
    16,279,000
    
    
    
    3 4
    %
    
    
    24,418,000
    
    
    
    3 6
    %FNBH Bancorp
    
    
    50,357,000
    
    
    
    12.37
    %
    
    
    16,279,000
    
    
    
    3 4
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)
Bank
    
    
    50,078,000
    
    
    
    10.80
    %
    
    
    18,542,000
    
    
    
    3 4
    %
    
    
    23,177,000
    
    
    
    3 5
    %FNBH Bancorp
    
    
    50,357,000
    
    
    
    10.86
    %
    
    
    18,546,000
    
    
    
    3 4
    %
    
    
    N/A
    
    
    
    N/A
 As of December 31, 2005
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal Capital (to risk weighted assets)
Bank
    
    $
    54,723,000
    
    
    
    13.89
    %
    
    $
    31,520,000
    
    
    
    3 8
    %
    
    $
    39,400,000
    
    
    
    3 10
    %FNBH Bancorp
    
    
    55,009,000
    
    
    
    13.96
    %
    
    
    31,521,000
    
    
    
    3 8
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)
Bank
    
    
    49,767,000
    
    
    
    12.63
    %
    
    
    15,760,000
    
    
    
    3 4
    %
    
    
    23,640,000
    
    
    
    3 6
    %FNBH Bancorp
    
    
    50,053,000
    
    
    
    12.70
    %
    
    
    15,760,000
    
    
    
    3 4
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)
Bank
    
    
    49,767,000
    
    
    
    10.58
    %
    
    
    18,810,000
    
    
    
    3 4
    %
    
    
    23,512,000
    
    
    
    3 5
    %FNBH Bancorp
    
    
    50,053,000
    
    
    
    10.64
    %
    
    
    18,810,000
    
    
    
    3 4
    %
    
    
    N/A
    
    
    
    N/A
 51




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##### Table of Contents



(21)
    
    Net Income per Common ShareBasic net income per common share is computed by dividing net income applicable to common
stock by the weighted average number of shares of common stock and deferred director fee stock
units outstanding during the period. Diluted net income per common share is computed by
dividing net income applicable to common stock by the weighted average number of shares and
deferred director fee stock units outstanding and potential common stock outstanding, such as shares of unvested restricted stock outstanding during the period, of which there were 53
shares as of December 31, 2006, and 372 shares as of December 31, 2005, calculated under the
treasury stock method.
The following table presents basic and diluted net income per share:
 2006
    
    
    2005
    
    
    2004Weighted average basic shares outstanding
    
    
    3,177,093
    
    
    
    3,200,146
    
    
    
    3,185,025Effect of dilutive restricted stock
    
    
    53
    
    
    
    372
    
    
    
    1,117Weighted average diluted shares outstanding
    
    
    3,177,146
    
    
    
    3,200,518
    
    
    
    3,186,142Net income
    
    $
    5,585,996
    
    
    $
    6,506,986
    
    
    $
    6,291,095Basic net income per share
    
    $
    1.76
    
    
    $
    2.03
    
    
    $
    1.98Diluted net income per share
    
    $
    1.76
    
    
    $
    2.03
    
    
    $
    1.97
 (22)
    
    Contingent LiabilitiesThe Corporation is subject to various claims and legal proceedings arising out of the normal
course of business, none of which, in the opinion of management, based on the advice of legal
counsel, is expected to have a material effect on the Corporations financial position or
results of operations.(23)
    
    Fair Value of Financial InstrumentsSFAS No. 107, Disclosures About Fair Value of Financial Instruments,requires disclosure of
fair-value information about financial instruments for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair-value estimates cannot be substantiated by
comparison to independent markets and, in many cases, cannot be realized in immediate
settlement of the instrument.Fair-value methods and assumptions for the Corporations financial instruments are as follows:Cash and cash equivalents The carrying amounts reported in the consolidated balance sheet
for cash and short term investments reasonably approximate those assets fair values.Certificates of deposit The carrying amounts reported in the consolidated balance sheet for
certificates of deposit reasonably approximate those assets fair values.Investment and mortgage-backed securities Fair values for investment and mortgage-backed
securities are based on quoted market prices.FHLBI and FRB stock The carrying amounts reported in the consolidated balance sheet for
FHLBI and FRB stock reasonably approximate those assets fair values.Loans For variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are generally based on carrying values. The fair value of fixed-rate
loans is estimated by discounting future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining
maturities.Accrued interest income The carrying amount of accrued interest income is a reasonable
estimate of fair value.
 52




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##### Table of Contents



Deposit liabilities
 Other borrowings
 Accrued interest payable
 Off balance sheet instruments
  2006
    
    2005Carrying
    
    Fair
    
    Carrying
    
    Fairvalue
    
    value
    
    value
    
    valueFinancial assets:Cash and cash equivalents
    
    $
    19,121,000
    
    
    $
    19,121,000
    
    
    $
    24,102,000
    
    
    $
    24,102,000Certificates of deposit
    
    
    4,711,000
    
    
    
    4,711,000
    
    
    
    7,166,000
    
    
    
    7,129,000Investment and mortgage-backed securities
    
    
    53,219,000
    
    
    
    53,441,000
    
    
    
    61,220,000
    
    
    
    61,557,000FHLBI and FRB stock
    
    
    995,000
    
    
    
    995,000
    
    
    
    1,154,000
    
    
    
    1,154,000Loans, net
    
    
    376,983,000
    
    
    
    376,688,000
    
    
    
    365,864,000
    
    
    
    364,595,000Accrued interest income
    
    
    2,630,000
    
    
    
    2,630,000
    
    
    
    2,453,000
    
    
    
    2,453,000Financial liabilities:Deposits:Demand
    
    $
    62,681,000
    
    
    $
    62,681,000
    
    
    $
    71,415,000
    
    
    $
    71,415,000NOW
    
    
    41,275,000
    
    
    
    41,275,000
    
    
    
    40,740,000
    
    
    
    40,740,000Savings and money market accounts
    
    
    113,906,000
    
    
    
    113,906,000
    
    
    
    133,865,000
    
    
    
    133,865,000Time deposits
    
    
    170,127,000
    
    
    
    169,644,000
    
    
    
    145,928,000
    
    
    
    144,868,000Brokered certificates
    
    
    17,555,000
    
    
    
    17,514,000
    
    
    
    30,137,000
    
    
    
    29,985,000Other borrowings
    
    
    13,481,000
    
    
    
    13,506,000
    
    
    
    1,785,000
    
    
    
    1,877,000Accrued interest expense
    
    
    1,099,000
    
    
    
    1,099,000
    
    
    
    813,000
    
    
    
    813,000
 Limitations
  (24) Dividend Restrictions
  53




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##### Table of Contents



(25) Condensed Financial Information  Parent Company Only
  Condensed Balance Sheets
 2006
    
    
    2005Assets:Cash
    
    $
    22,216
    
    
    $
    52,955Investment in subsidiaries:First National Bank in Howell
    
    
    48,908,786
    
    
    
    48,354,429H.B. Realty Co.
    
    
    1,000
    
    
    
    1,000FNBH Mortgage Company, LLC
    
    
    805,000
    
    
    
    805,000Other assets
    
    
    255,472
    
    
    
    235,962Total assets
    
    $
    49,992,474
    
    
    $
    49,449,346Liabilities and Stockholders Equity:Other liabilities
    
    $
    
    
    
    $
    3,021Stockholders equity
    
    
    49,992,474
    
    
    
    49,446,325Total liabilities and stockholders equity
    
    $
    49,992,474
    
    
    $
    49,449,346
 Condensed Statements of Income
 Year ended December 312006
    
    
    2005
    
    
    2004Operating income:Dividends from subsidiaries
    
    $
    5,548,912
    
    
    $
    1,975,313
    
    
    $
    1,680,000Total operating income
    
    
    5,548,912
    
    
    
    1,975,313
    
    
    
    1,680,000Operating expenses:Administrative and other expenses
    
    
    94,640
    
    
    
    88,014
    
    
    
    97,032Total operating expenses
    
    
    94,640
    
    
    
    88,014
    
    
    
    97,032Income before equity in
undistributed net income
of subsidiaries
    
    
    5,454,272
    
    
    
    1,887,299
    
    
    
    1,582,968Equity in undistributed net income of
subsidiaries
    
    
    131,724
    
    
    
    4,619,687
    
    
    
    4,708,127Net income
    
    $
    5,585,996
    
    
    $
    6,506,986
    
    
    $
    6,291,095
 54




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##### Table of Contents



Condensed Statements of Cash Flows
 Year ended December 312006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    5,585,996
    
    
    $
    6,506,986
    
    
    $
    6,291,095Adjustments to reconcile net income to
net cash provided by operating activities:Decrease (increase) in other assets
    
    
    (19,510
    )
    
    
    23,145
    
    
    
    (1,256
    )Increase (decrease) in other liabilities
    
    
    (3,021
    )
    
    
    3,021
    
    
    
    (24,700
    )Change in long term incentive plan and
deferred compensation
    
    
    270,596
    
    
    
    253,996
    
    
    
    263,635Equity in undistributed net income of
subsidiaries
    
    
    (131,724
    )
    
    
    (4,619,687
    )
    
    
    (4,708,127
    )116,341
    
    
    
    (4,339,525
    )
    
    
    (4,470,448
    )Net cash provided by
operating activities
    
    
    5,702,337
    
    
    
    2,167,461
    
    
    
    1,820,647Cash flows from investing activities:Investments in and advancements to
subsidiary, net
    
    
    
    
    
    
    188,624
    
    
    
    (10,000
    )Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    188,624
    
    
    
    (10,000
    )Cash flows from financing activities:Dividends paid
    
    
    (2,656,404
    )
    
    
    (2,547,690
    )
    
    
    (2,286,173
    )Common stock issued
    
    
    30,623
    
    
    
    95,975
    
    
    
    109,521Repurchases of common stock
    
    
    (3,107,295
    )
    
    
    
    
    
    
    Transfer from subsidiary for directors
deferred compensation
    
    
    
    
    
    
    
    
    
    
    437,211Net cash used in financing
activities
    
    
    (5,733,076
    )
    
    
    (2,451,715
    )
    
    
    (1,739,441
    )Net increase (decrease) in cash
    
    
    (30,739
    )
    
    
    (95,630
    )
    
    
    71,206Cash at beginning of year
    
    
    52,955
    
    
    
    148,585
    
    
    
    77,379Cash at end of year
    
    $
    22,216
    
    
    $
    52,955
    
    
    $
    148,585
 55




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##### Table of Contents



26) Quarterly Financial Data  Unaudited
  Quarters ended in 2006March 31
    
    June 30
    
    September 30
    
    December 31Selected operations data:Interest and dividend income
    
    $
    7,878,354
    
    
    $
    7,939,134
    
    
    $
    8,005,475
    
    
    $
    7,995,981Net interest income
    
    
    5,785,978
    
    
    
    5,535,772
    
    
    
    5,213,490
    
    
    
    4,988,430Provision for loan losses
    
    
    600,000
    
    
    
    754,000
    
    
    
    785,000
    
    
    
    500,000Income before federal income taxes
    
    
    2,306,927
    
    
    
    1,935,617
    
    
    
    2,001,409
    
    
    
    1,732,465Net income
    
    
    1,602,748
    
    
    
    1,353,597
    
    
    
    1,398,688
    
    
    
    1,230,963Basic net income per share
    
    
    0.50
    
    
    
    0.42
    
    
    
    0.44
    
    
    
    0.40Diluted net income per share
    
    
    0.50
    
    
    
    0.42
    
    
    
    0.44
    
    
    
    0.40Cash dividends per share
    
    
    0.21
    
    
    
    0.21
    
    
    
    0.21
    
    
    
    0.21
 Quarters ended in 2005March 31
    
    June 30
    
    September 30
    
    December 31Selected operations data:Interest and dividend income
    
    $
    6,763,696
    
    
    $
    7,211,160
    
    
    $
    7,600,435
    
    
    $
    7,739,616Net interest income
    
    
    5,287,037
    
    
    
    5,526,081
    
    
    
    5,693,856
    
    
    
    5,753,936Provision for loan losses
    
    
    366,000
    
    
    
    1,178,000
    
    
    
    500,000
    
    
    
    993,000Income before federal income taxes
    
    
    2,396,046
    
    
    
    1,625,570
    
    
    
    2,810,160
    
    
    
    2,559,131Net income
    
    
    1,660,950
    
    
    
    1,158,670
    
    
    
    1,924,460
    
    
    
    1,762,906Basic net income per share
    
    
    0.52
    
    
    
    0.36
    
    
    
    0.60
    
    
    
    0.55Diluted net income per share
    
    
    0.52
    
    
    
    0.36
    
    
    
    0.60
    
    
    
    0.55Cash dividends per share
    
    
    0.19
    
    
    
    0.19
    
    
    
    0.21
    
    
    
    0.21
 (27) Impact of New Accounting Standards
 Share-Based Payment
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, Employers
Accounting for Pensions, Employers Accounting for Settlements and Curtailments
of Defined Benefit Pensions Plans and for Termination Benefits, Employers for
Accounting for Postretirement Benefits Other Than Pensions, Employers
Disclosures about Pensions and Other Postretirement Benefits.
 56




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##### Table of Contents



Quantifying Misstatements in Financial Statements.
 Fair Value Measurements
 Accounting for Uncertainty in Income
Taxes, Accounting for Income Taxes
 Accounting for Servicing of Financial Assets Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities
 Accounting for Certain Hybrid Financial
Instruments, Accounting for Derivatives and Hedging
Activities, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities
 The Fair value Option for Financial Assets and
Financial Liabilities.
 57




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##### Table of Contents



Item 9. Change 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.
  58




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
 Directors
  Executive Officers
   Corporate Governance
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
   Number of securities remainingNumber of securities to be
    
    Weighted  average
    
    available for future issuanceissued upon exercise of
    
    exercise price of
    
    under equity compensationoutstanding options,
    
    outstanding options,
    
    plans (excluding securitieswarrants, and rights
    
    warrants, and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    0
    
    
    
    0
    
    
    
    258,812
    (1)
 
 (1)
    
    Includes 162,062 shares available under the Long Term Incentive Plan, 60,346 shares available
under the Compensation Plan for Nonemployee Directors and 36,404 shares included under the Employee
Stock Purchase Plan. 
 Item 13. Certain Relationships, Related Transactions and Director Independence.
  
 Item 14. Principal Accountant Fees and Services
  59




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
  1.
    
    Financial Statements
  2.
    
    Financial Statement Schedule
  3.
    
    Exhibits (Numbered in accordance with Item 601 of Regulation S-K)
  60




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##### Table of Contents



SIGNATURES
   /s/ Barbara Draper
    
    Barbara Draper, President & Chief Executive Officer(Principal
Executive Officer)/s/ Janice B. Trouba
    
    Janice B. Trouba, Chief Financial Officer(Principal
Financial and Accounting Officer)
  Signature
    
    DateW. Rickard Scofield, Chairman of the Board
    
/s/ W. Rickard Scofield
    

March 5,
2007Randolph E. Rudisill, Vice Chairman of the Board
    
    /s/ Randolph E. Rudisill
    
    March 5, 2007Athena Bacalis, Director
    
    /s/ Athena Bacalis
    
    March 5, 2007Gary R. Boss, Director
    
    /s/ Gary R. Boss
    
    March 5, 2007Barbara Draper, Director
    
    /s/ Barbara Draper
    
    March 5, 2007Richard F. Hopper, Director
    
    /s/ Richard F. Hopper
    
    March 5, 2007Dona Scott Laskey, Director
    
    /s/ Dona Scott Laskey
    
    March 5, 2007James R. McAuliffe, Director
    
    /s/ James R. McAuliffe
    
    March 5, 2007John M. Pfeffer, Director
    
    /s/ John M. Pfeffer
    
    March 5, 2007R. Michael Yost, Director
    
    /s/ R. Michael Yost
    
    March 5, 2007
 61




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber(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)
    
    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)
    
    FNBH Bancorp Inc. Employees Stock
Purchase Plan
    
    Exhibit 4 to Registration
Statement on Form S-8 (Reg.
No. 333-46244)(10.4)
    
    Amended and Restated Compensation
Plan for Nonemployee Directors*
    
    Appendix II of Proxy Statement
dated March 15, 2002(10.5)
    
    FNBH Bancorp Inc Employees Stock
Purchase Plan as amended January 20, 2005
    
    Exhibit 10 to Form 10-K
dated March 7, 2006
 
 *
    
    Represents a compensation plan 62