##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___________to ___________
 Commission file number 0-25752
 FNBH BANCORP, INC.
  MICHIGAN
    
    No. 38-2869722(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)101 East Grand River, Howell, Michigan
    
    48843(Address of principal executive offices)
    
    (Zip Code)
   Common Stock, no par value  (Title of Class)
 Yes o No þ
 Yes o No þ
 þ o
 o o
 o
  Large accelerated filer o   
    Accelerated filer o
    Non-accelerated filer o
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   Documents Incorporated by Reference:




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##### 



TABLE OF CONTENTS
 PagePART IItem 1 Business
    
    
    4Item 1A Risk Factors
    
    
    11Item 1B Unresolved Staff Comments
    
    
    15Item 2 Properties
    
    
    15Item 3 Legal Proceedings
    
    
    15Item 4 Reserved
    
    
    16PART IIItem 5 Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities
    
    
    16Item 6 Selected Financial Data
    
    
    18Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 7A Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 8 Financial Statements and Supplementary Data
    
    
    36Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    66Item 9A Controls and Procedures
    
    
    66Item 9B Other Information
    
    
    67PART IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    67Item 11 Executive Compensation
    
    
    67Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
    
    
    67Item 13 Certain Relationships, Related Transactions and Director Independence
    
    
    67Item 14 Principal Accountant Fees and Services
    
    
    68PART VIItem 15 Exhibits and Financial Statement Schedules
    
    
    68SIGNATURES
    
    
    69EXHIBIT INDEX
    
    
    70EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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FORWARD-LOOKING STATEMENTS
 Discussions and statements in this Annual Report on Form 10-K that are not statements of historical
fact, including, without limitation, statements that include terms such as will, may, should,
believe, expect, forecast, anticipate, estimate, project, intend, likely,
optimistic and plan, and statements about future or projected financial and operating results,
plans, projections, objectives, expectations, and intentions and other statements that are not
historical facts, are forward-looking statements. Forward-looking statements include, but are not
limited to, descriptions of plans and objectives for future operations, products or services;
projections of our future revenue, earnings or other measures of economic performance; forecasts of
credit losses and other asset quality trends; predictions as to our Banks ability to maintain
certain regulatory capital standards; our expectation that we will have sufficient cash on hand to
meet expected obligations during 2011; and descriptions of steps we may take to improve our capital
position. These forward-looking statements express our current expectations, forecasts of future
events, or long-term goals and, by their nature, are subject to assumptions, risks, and
uncertainties. Although we believe that the expectations, forecasts, and goals reflected in these
forward-looking statements are reasonable, actual results could differ materially for a variety of
reasons, including, among others:
 
    
    our ability to successfully raise new equity capital and/or our ability to implement our
capital restoration and recovery plan;
    
    our ability to continue as a going concern in light of the uncertainty regarding the
extent and timing of possible future regulatory enforcement action against the Bank;
    
    the failure of assumptions underlying the establishment of and provisions made to our
allowance for loan losses;
    
    the timing and pace of an economic recovery in Michigan and the United States in
general, including regional and local real estate markets;
    
    the ability of our Bank to attain and maintain certain regulatory capital standards;
    
    limitations on our ability to access and rely on wholesale funding sources;
    
    the continued services of our management team, particularly as we work through our asset
quality issues and the implementation of our capital restoration plan; and
    
    implementation of the recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act or other new legislation, which may have significant effects on us and the
financial services industry
 This list provides examples of factors that could affect the results described by forward-looking
statements contained in this Annual Report on Form 10-K, but the list is not intended to be all
inclusive. The risk factors disclosed in Part I  Item 1A below include all known risks our
management believes could materially affect the results described by forward-looking statements in
this report. However, those risks may not be the only risks we face. Our results of operations,
cash flows, financial position, and prospects could also be materially and adversely affected by
additional factors that are not presently known to us, that we currently consider to be immaterial,
or that develop after the date of this report. We cannot assure you that our future results will
meet expectations. While we believe the forward-looking statements in this report are reasonable,
you should not place undue reliance on any forward-looking statement. In addition, these statements
speak only as of the date made. We do not undertake, and expressly disclaim, any obligation to
update or alter any statements, whether as a result of new information, future events, or
otherwise, except as required by applicable law.
 3




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PART I
 
 Item 1. Business.
    Bank Services
       4




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Bank Competition
   Condition of Corporation
  Balances as of December 31,(in thousands)2010
    
    2009
    
    2008
    
    2007
    
    2006Total Assets
    
    $
    305,341
    
    
    $
    332,390
    
    
    $
    388,783
    
    
    $
    432,894
    
    
    $
    473,896Loans
    
    
    235,938
    
    
    
    274,046
    
    
    
    315,817
    
    
    
    347,876
    
    
    
    384,581Securities
    
    
    28,171
    
    
    
    23,701
    
    
    
    42,516
    
    
    
    38,632
    
    
    
    54,214Noninterest-Bearing Deposits
    
    
    62,294
    
    
    
    65,644
    
    
    
    56,405
    
    
    
    56,506
    
    
    
    62,681Interest-Bearing Deposits
    
    
    230,986
    
    
    
    249,552
    
    
    
    293,122
    
    
    
    323,072
    
    
    
    342,863Total Deposits
    
    
    293,280
    
    
    
    315,196
    
    
    
    349,527
    
    
    
    379,578
    
    
    
    405,544Shareholders Equity
    
    
    10,134
    
    
    
    14,376
    
    
    
    27,525
    
    
    
    40,627
    
    
    
    49,992
  5




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Supervision and Regulation
  General
    Regulatory Developments
 Emergency Economic Stabilization Act of 2008.
 Troubled Assets Relief Program (TARP).
 Federal Deposit Insurance Coverage.
 Financial Stability Plan.
 American Recovery and Reinvestment Act of 2009.
 Homeowner Affordability and Stability Plan.
 6




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##### Table of Contents



Dodd-Frank Act.
 
    
    Creation of a new Consumer Financial Protection Bureau with power to promulgate and,
with respect to financial institutions with more than $10 billion in assets, enforce
consumer protection laws;
    
    Creation of a Financial Stability Oversight Council chaired by the Secretary of the
Treasury with authority to identify institutions and practices that might pose a systemic
risk to the U.S. economy;
    
    Provisions affecting corporate governance and executive compensation of all companies
whose securities are registered with the SEC;
    
    A provision that will broaden the base for FDIC insurance assessments and permanently
increase FDIC deposit insurance to $250,000;
    
    A provision under which interchange fees for debit cards of issuers with at least $10
billion in assets will be set by the Federal Reserve under a restrictive reasonable and
proportional cost per transaction standard;
    
    A provision that will require bank regulators to set minimum capital levels for bank
holding companies that are at least as strong as those required for their insured
depository subsidiaries, subject to a grandfather clause for financial institutions with
less than $15 billion in assets as of December 31, 2009; and
    
    New restrictions on how mortgage brokers and loan originators may be compensated.
  Future Legislation.
 The Corporation
 General.
     Investments and Activities .
  7




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de
novo
  Capital Requirements .
   Dividends.
  Federal Securities Regulation .
 8




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The Bank
 General.
 Deposit Insurance .
       FICO Assessments .
 9




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




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Safety and Soundness Standards .
 Consumer Protection Laws .
 
 Item 1A. Risk Factors.
 Significant uncertainty regarding the impact of possible further regulatory enforcement action
against the Bank threatens our ability to continue as a going concern
 The Corporation may not be able to meet federal regulatory requirements regarding the
restoration of capital at the Bank .
    11




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The Banks capital may not be sufficient to support the risk inherent in its loan
portfolio .
 There are other consequences of the Banks current financial condition that will present
additional challenges to the Bank and could, individually or collectively, result in material
adverse effects on the Corporations financial condition .
  We are in the business of lending, which involves substantial credit risk, and our allowance
for loan losses may not be sufficient to cover actual loan losses.
   As a community bank, our financial condition is dependent, in part, on the general economic
condition of the communities we serve .
   12




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Current market developments, particularly in real estate markets, may adversely affect our
industry, business and results of operations
   We are heavily weighted with loans secured by real estate and further declines in the real
estate market and the overall economy may result in higher loan losses.
 Fluctuations in interest rates could reduce our profitability .
  §
    
    Inflation or deflation rates;§
    
    Levels of business activity;§
    
    Recession;§
    
    Unemployment levels;§
    
    Money supply;§
    
    Domestic or foreign events; and§
    
    Instability in domestic and foreign financial markets
 Competition with other financial institutions and financial service providers could adversely
affect our profitability .
 We operate in a highly regulated environment and may be adversely affected by changes in laws
and regulations .
 We may face challenges in managing our operational risk .
 Difficult market conditions have adversely affected our industry .
 13




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Market volatility may adversely impact our business .
 There can be no assurance that recently enacted legislation will stabilize the U.S. financial
system .
  We have credit risk inherent in our securities portfolio
 Changes in accounting standards could impact our reported earnings .
 We may not pay dividends on our common stock .
 There have been numerous media reports about bank failures, which we expect will continue as
additional banks fail
 If successful, our efforts to raise additional capital as set forth in our Capital Plan will be
highly dilutive to our common shareholders
 The capital raise initiative we are pursuing could result in one or more private investors
owning a significant percentage of our stock and having the ability to exert significant influence
over our management and operations
 It is possible that a successful capital raise initiative as set forth in our Capital Plan
could trigger an ownership change that will negatively affect our ability to utilize net operating
loss carryforwards and other deferred tax assets in the future
 The trading price of our common stock may be subject to continued significant fluctuations and
volatility
 14




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§
    
    announcements regarding significant transactions in which we may engage, including the
capital raise initiative included in our Capital Plan;§
    
    market assessments regarding such transactions, including the timing, terms, and
likelihood of success of our capital raise initiative(s);§
    
    operating results that vary from the expectations of management, securities analysts,
and investors, including with respect to further loan losses we may incur;§
    
    changes or perceived changes in our operations or business prospects;§
    
    legislative or regulatory changes affecting our industry generally or our businesses and
operations;§
    
    the failure of general market and economic conditions to stabilize and recover,
particularly with respect to economic conditions in Michigan, and the pace of any such
stabilization and recovery;§
    
    the operating and share price performance of companies that investors consider to be
comparable to us; and§
    
    other changes in global financial markets, economies, and market conditions, such as
interest or foreign exchange rates, stock, commodity, credit or asset valuations or
volatility.
  We rely heavily on our management team, including our loan officers, and the unexpected loss of
key employees may adversely affect our operations .
 
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  
 Item 3. Legal Proceedings.
  15




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Item 4. Reserved.
 Additional Item Executive Officers of Registrant
       
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.
 
   Sale Prices2010
    
    High
    
    Low
    
    Cash Dividends DeclaredFirst Quarter
    
    $
    1.04
    
    
    $
    0.06
    
    
    $
    0.00Second Quarter
    
    $
    1.01
    
    
    $
    0.37
    
    
    $
    0.00Third Quarter
    
    $
    0.80
    
    
    $
    0.28
    
    
    $
    0.00Fourth Quarter
    
    $
    0.65
    
    
    $
    0.25
    
    
    $
    0.00
 Sale Prices2009
    
    High
    
    Low
    
    Cash Dividends DeclaredFirst Quarter
    
    $
    4.40
    
    
    $
    1.20
    
    
    $
    0.00Second Quarter
    
    $
    2.52
    
    
    $
    2.00
    
    
    $
    0.00Third Quarter
    
    $
    2.00
    
    
    $
    0.98
    
    
    $
    0.00Fourth Quarter
    
    $
    0.98
    
    
    $
    0.05
    
    
    $
    0.00
   16




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SHAREHOLDER RETURN PERFORMANCE GRAPH
  
 January 1
    
    
    December 312006
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010FNBH Bancorp, Inc.
    
    
    
    100
    
    
    
    
    108.37
    
    
    
    
    57.50
    
    
    
    
    19.00
    
    
    
    
    0.26
    
    
    
    
    1.08NASDAQ Stock Market Index
    
    
    
    100
    
    
    
    
    110.30
    
    
    
    
    122.10
    
    
    
    
    73.50
    
    
    
    
    106.60
    
    
    
    
    125.80NASDAQ Bank Stocks Index
    
    
    
    100
    
    
    
    
    113.60
    
    
    
    
    91.40
    
    
    
    
    72.00
    
    
    
    
    60.20
    
    
    
    
    68.60
 17




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Item 6. Selected Financial Data.
 SUMMARY FINANCIAL DATA
 2010
    
    2009
    
    2008
    
    2007
    
    2006Statement of Operations Data:Interest income
    
    $
    14,227
    
    
    $
    17,870
    
    
    $
    24,307
    
    
    $
    30,173
    
    
    $
    31,818Interest expense
    
    
    2,496
    
    
    
    4,632
    
    
    
    8,118
    
    
    
    11,884
    
    
    
    10,295Net interest income
    
    
    11,731
    
    
    
    13,238
    
    
    
    16,189
    
    
    
    18,289
    
    
    
    21,523Provision for loan losses
    
    
    5,975
    
    
    
    15,847
    
    
    
    14,855
    
    
    
    14,030
    
    
    
    2,639Noninterest income (1)
    
    
    3,225
    
    
    
    3,569
    
    
    
    3,341
    
    
    
    3,755
    
    
    
    4,031Gain (loss) on available for sale securities (1)
    
    
    329
    
    
    
    199
    
    
    
    (3,237
    )
    
    
    (548
    )
    
    
    Noninterest expense (2)
    
    
    13,146
    
    
    
    15,939
    
    
    
    14,979
    
    
    
    13,493
    
    
    
    14,939Loss on sale/writedown of commercial loans
held for sale (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,312
    
    
    
    Income (loss) before tax
    
    
    (3,836
    )
    
    
    (14,780
    )
    
    
    (13,541
    )
    
    
    (10,339
    )
    
    
    7,976Net income (loss)
    
    
    (3,893
    )
    
    
    (13,696
    )
    
    
    (13,414
    )
    
    
    (6,556
    )
    
    
    5,586Per Share Data:Basic net income (loss) per share
    
    $
    (1.22
    )
    
    $
    (4.32
    )
    
    $
    (4.33
    )
    
    $
    (2.13
    )
    
    $
    1.76Diluted net income (loss) per share
    
    
    (1.22
    )
    
    
    (4.32
    )
    
    
    (4.33
    )
    
    
    (2.13
    )
    
    
    1.76Dividends paid
    
    
    
    
    
    
    
    
    
    
    0.16
    
    
    
    0.84
    
    
    
    0.84Weighted average basic shares outstanding
    
    
    3,193,101
    
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,732
    
    
    
    3,177,093Weighted average diluted shares outstanding
    
    
    3,193,101
    
    
    
    3,167,918
    
    
    
    3,096,332
    
    
    
    3,074,732
    
    
    
    3,177,146Balance Sheet Data:Total assets
    
    $
    305,341
    
    
    $
    332,390
    
    
    $
    388,783
    
    
    $
    432,894
    
    
    $
    473,896Loans, gross
    
    
    235,938
    
    
    
    274,046
    
    
    
    315,817
    
    
    
    347,876
    
    
    
    384,581Allowance for loan losses
    
    
    13,970
    
    
    
    18,665
    
    
    
    14,122
    
    
    
    10,314
    
    
    
    7,598Deposits
    
    
    293,280
    
    
    
    315,196
    
    
    
    349,527
    
    
    
    379,578
    
    
    
    405,544Shareholders equity
    
    
    10,134
    
    
    
    14,376
    
    
    
    27,525
    
    
    
    40,627
    
    
    
    49,992Ratios:Dividend payout ratio
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    47.55
    %Average equity to average asset ratio
    
    
    4.31
    %
    
    
    5.80
    %
    
    
    9.24
    %
    
    
    10.47
    %
    
    
    10.86
    %
 
 (1)
    
    Included in noninterest income in the Consolidated Statements of Operations and
discussed under the caption
Noninterest Income under Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations.(2)
    
    Included in noninterest expense in the Consolidated Statements of Operations
and discussed under the caption Noninterest Expense under Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operations. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
     18




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
    
    On February 19, 2009, we held a special shareholders meeting at which our shareholders
approved an amendment to the Corporations Articles of Incorporation to authorize the Board
of Directors to issue up to 30,000 shares of preferred stock. Additionally, at the annual
meeting on May 28, 2009 our shareholders approved a 2,800,000 increase in the number of
authorized shares of common stock. We requested the authorization to
issue preferred shares and additional shares of common stock in order to be able to raise additional
capital required by our current capital position and the Consent Order imposed by the OCC.
    
    In September 2009, we prepared a Capital Plan followed by a Confidential Offering
Memorandum in November 2009 for the offering and sale of shares of our preferred stock.
Although the Capital Plan was deemed unacceptable by the OCC for purposes of its PCA
enforcement powers, we continue to work to raise the necessary capital. Throughout 2010,
we continued to work with financial and legal advisors to pursue various transactions that
would result in additional capital to the Bank, including ongoing negotiations with several
potential investors. To date, although we have not received any firm commitments for new
capital, we continue to negotiate the terms of an investment in the Corporation with
interested investors.
    
    The Bank has taken many steps to address other requirements of the Consent Order,
including making improvements to its liquidity risk management program and its loan
portfolio management.
    
    The Bank believes it has increased the strength of its executive management team through
new hires in 2008 and 2009, by including CEO Ron Long, CFO Mark Huber, and Sr. VP 
Commercial Loan Officer Gerald Moyer.
    
    Management continues to support the Banks regulatory capital levels and ratios via
strategic balance sheet reductions achieved primarily through non-renewal of high cost
certificates of deposits while managing normal loan runoff (i.e., scheduled payments) with
limited new money loan originations. The execution of this strategy is expected to sustain
the Banks net interest margin via lower deposit pricing in the current rate environment
coupled with greater reliance on lower cost core deposits. The strategy involves close
monitoring of the Banks liquidity position and attention to significant customer
relationships.
    
    Management continues to maintain significant borrowing availability as a source of
contingency funding at the Federal Home Loan Bank of Indianapolis (FHLBI) and Federal
Reserve which is secured by investment securities and/or eligible loans pledged as
collateral. At December 31, 2010, the Bank has approximately $30.7 million of unused
availability under established lines of credit at the FHLBI and Federal Reserve Discount
Window, the availability of which is subject to approval by the respective lender due to
the Banks current condition.
 19




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
    
    Asset quality improvements are critical to the Banks future financial results and
performance. The active management and targeted reduction in the current level of
criticized loans includes continued quarterly loan portfolio credit quality reviews
emphasizing timely monitoring of borrower relationships, timely identification of credit
weaknesses, and heightened accountability of loan officers.
    
    The Banks 2011 budget places continued emphasis on revenue enhancements, expense
reductions and operational efficiencies.
    
    Planned revenue enhancements include investment of excess on-balance cash into low-risk,
liquid securities; further market reductions to deposit interest rates; origination and
sale of commercial loans under the federal governments SBA loan guarantee program; and
affiliation with an established residential mortgage origination company to generate
additional income. Finally, the sale of certain non-essential assets and select Bank
branches are periodically evaluated to support capital levels.
    
    Planned expense reductions include adjustments to staffing and compensation levels
within select departments, controlled monitoring and reduction of costs related to
management of problem loans and other real estate, and further reduction of discretionary
costs.
    
    In considering alternatives to effect other cost savings and expense reductions,
management remains committed to ensuring that only reasonably priced and appropriate
resources are utilized to operate the Bank in a manner consistent with safe and sound
banking practices.
   FINANCIAL CONDITION
  Securities
   (in thousands)2010
    
    
    2009
    
    
    2008States and political subdivisions
    
    $
    6,286
    
    
    $
    7,156
    
    
    $
    14,704U.S. agencies
    
    
    
    
    
    
    1,527
    
    
    
    9,693Preferred stock
    
    
    48
    
    
    
    87
    
    
    
    49Mortgage-backed/CMO securities
    
    
    20,936
    
    
    
    13,936
    
    
    
    17,074Total available for sale
    
    $
    27,270
    
    
    $
    22,706
    
    
    $
    41,520Other securities:FRB stock
    
    $
    44
    
    
    $
    44
    
    
    $
    44FHLBI stock
    
    
    857
    
    
    
    951
    
    
    
    951Total other securities
    
    $
    901
    
    
    $
    995
    
    
    $
    995
 20




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(in thousands)Maturing After OneMaturing Within One
    
    
    but Within Five
    
    
    Maturing After Five
    
    
    Maturing After TenYear
    
    
    Years
    
    
    but Within Ten Years
    
    
    YearsAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldStates and
political
subdivisions
    
    $
    
    
    
    
    
    
    
    $
    735
    
    
    
    4.24
    %
    
    $
    2,701
    
    
    
    3.99
    %
    
    $
    2,850
    
    
    
    4.38
    %U.S. agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed/CMO
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,234
    
    
    
    4.00
    %
    
    
    18,702
    
    
    
    4.80
    %Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    0.00
    %FRB stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    6.00
    %FHLBI stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    857
    
    
    
    2.08
    %Total
    
    $
    
    
    
    
    
    
    
    $
    735
    
    
    
    4.24
    %
    
    $
    4,935
    
    
    
    3.99
    %
    
    $
    22,501
    
    
    
    4.64
    %Tax equivalent
adjustment for
calculations of
yield
    
    $
    
    
    
    
    
    
    
    $
    15
    
    
    
    
    
    
    $
    54
    
    
    
    
    
    
    $
    61
  Tax-Exempt
    
    
    
    
    
    EquivalentRate
    
    Adjustment
    
    BasisUnder 1 year1-5 years
    
    
    4.24
    %
    
    
    2.05
    %
    
    
    6.29
    %5-10 years
    
    
    3.99
    %
    
    
    2.05
    %
    
    
    6.04
    %10 years or more
    
    
    4.38
    %
    
    
    2.05
    %
    
    
    6.43
    %
  2010
    
    2009
    
    2008U.S. Treasury & agency securities
    
    
    
    
    
    
    6.4
    %
    
    
    22.8
    %Agency mortgage backed/CMO securities
    
    
    74.3
    %
    
    
    58.8
    %
    
    
    40.2
    %Tax exempt obligations of states and political subdivisions
    
    
    22.3
    %
    
    
    30.2
    %
    
    
    34.6
    %Preferred stock
    
    
    0.2
    %
    
    
    0.4
    %
    
    
    0.1
    %Other
    
    
    3.2
    %
    
    
    4.2
    %
    
    
    2.3
    %Total securities
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Loans
    21




---



##### Table of Contents



(in thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    PercentSecured by real estate:Residential first mortgage
    
    $
    24,546
    
    
    
    10.4
    %
    
    $
    29,719
    
    
    
    10.8
    %
    
    $
    31,332
    
    
    
    9.9
    %
    
    $
    35,545
    
    
    
    10.2
    %
    
    $
    39,768
    
    
    
    10.3
    %Residential home equity/other junior liens
    
    
    14,967
    
    
    
    6.3
    %
    
    
    17,606
    
    
    
    6.4
    %
    
    
    20,511
    
    
    
    6.5
    %
    
    
    19,353
    
    
    
    5.6
    %
    
    
    20,983
    
    
    
    5.4
    %Construction, land development and
other land
    
    
    19,641
    
    
    
    8.3
    %
    
    
    29,119
    
    
    
    10.6
    %
    
    
    42,712
    
    
    
    13.5
    %
    
    
    52,383
    
    
    
    15.0
    %
    
    
    67,376
    
    
    
    17.5
    %Commercial (nonfarm, nonresidential)
    
    
    155,006
    
    
    
    65.7
    %
    
    
    170,364
    
    
    
    62.2
    %
    
    
    179,674
    
    
    
    56.9
    %
    
    
    192,784
    
    
    
    55.3
    %
    
    
    203,219
    
    
    
    52.8
    %Commercial
    
    
    16,196
    
    
    
    6.9
    %
    
    
    20,015
    
    
    
    7.3
    %
    
    
    31,628
    
    
    
    10.0
    %
    
    
    33,677
    
    
    
    9.7
    %
    
    
    31,710
    
    
    
    8.2
    %Consumer and Other
    
    
    5,784
    
    
    
    2.4
    %
    
    
    7,467
    
    
    
    2.7
    %
    
    
    10,256
    
    
    
    3.2
    %
    
    
    14,623
    
    
    
    4.2
    %
    
    
    22,195
    
    
    
    5.8
    %Total gross loans
    
    
    236,140
    
    
    
    100.0
    %
    
    
    274,290
    
    
    
    100.0
    %
    
    
    316,113
    
    
    
    100.0
    %
    
    
    348,365
    
    
    
    100.0
    %
    
    
    385,251
    
    
    
    100.0
    %Net unearned fees
    
    
    (202
    )
    
    
    
    
    
    
    (244
    )
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    (489
    )
    
    
    
    
    
    
    (670
    )Total Loans
    
    $
    235,938
    
    
    
    
    
    
    $
    274,046
    
    
    
    
    
    
    $
    315,817
    
    
    
    
    
    
    $
    347,876
    
    
    
    
    
    
    $
    384,581
       Maturing(in thousands)After OneWithin One
    
    
    but Within
    
    
    After FiveYear
    
    
    Five Years
    
    
    Years
    
    
    TotalReal estate construction, land development and other land loans
    
    $
    12,170
    
    
    $
    7,315
    
    
    $
    156
    
    
    $
    19,641Real estate other (secured by commercial and multi-family)
    
    
    28,863
    
    
    
    118,033
    
    
    
    8,110
    
    
    
    155,006Commercial (secured by business assets or unsecured)
    
    
    10,639
    
    
    
    4,786
    
    
    
    771
    
    
    
    16,196Other (loans to farmers, political subdivisions, and overdrafts)
    
    
    431
    
    
    
    555
    
    
    
    299
    
    
    
    1,285Totals
    
    $
    52,103
    
    
    $
    130,689
    
    
    $
    9,336
    
    
    $
    192,128
 22




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##### Table of Contents



Interest Sensitivity(in thousands)Fixed Rate
    
    Variable RateDue after one but within five years
    
    $
    109,204
    
    
    $
    21,485Due after five years
    
    
    7,685
    
    
    
    1,651
    (in thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Nonperforming Loans and Assets:Nonaccrual loans
    
    $
    30,858
    
    
    $
    43,724
    
    
    $
    37,096
    
    
    $
    14,459
    
    
    $
    12,199Loans past due 90 days and still accruing
    
    
    
    
    
    
    
    
    
    
    1,560
    
    
    
    114
    
    
    
    288Total nonperforming loans
    
    
    30,858
    
    
    
    43,724
    
    
    
    38,656
    
    
    
    14,573
    
    
    
    12,487Other real estate
    
    
    4,294
    
    
    
    3,777
    
    
    
    2,678
    
    
    
    1,523
    
    
    
    1,629Total nonperforming assets
    
    $
    35,152
    
    
    $
    47,501
    
    
    $
    41,334
    
    
    $
    16,096
    
    
    $
    14,116Nonperforming loans as a percent of total loans
    
    
    13.08
    %
    
    
    15.95
    %
    
    
    12.24
    %
    
    
    4.19
    %
    
    
    3.25
    %Allowance for loan losses as a percent
of nonperforming loans
    
    
    45
    %
    
    
    43
    %
    
    
    37
    %
    
    
    71
    %
    
    
    61
    %
   (in thousands)Nonperforming Loans
    
    2010
    
    
    2009
    
    
    2008Secured by real estate:
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentResidential first mortgage
    
    $
    3,848
    
    
    
    12.5
    %
    
    $
    4,503
    
    
    
    10.3
    %
    
    $
    2,994
    
    
    
    7.7
    %Residential home equity/other junior liens
    
    
    747
    
    
    
    2.4
    %
    
    
    1,043
    
    
    
    2.4
    %
    
    
    2,486
    
    
    
    6.4
    %Construction and land development and farmland
    
    
    8,647
    
    
    
    28.0
    %
    
    
    15,737
    
    
    
    36.0
    %
    
    
    18,904
    
    
    
    48.9
    %Commercial real estate
    
    
    15,275
    
    
    
    49.5
    %
    
    
    19,802
    
    
    
    45.3
    %
    
    
    12,053
    
    
    
    31.2
    %Consumer
    
    
    43
    
    
    
    0.1
    %
    
    
    53
    
    
    
    0.1
    %
    
    
    22
    
    
    
    0.1
    %Commercial
    
    
    2,298
    
    
    
    7.5
    %
    
    
    2,586
    
    
    
    5.9
    %
    
    
    2,197
    
    
    
    5.7
    %Total nonperforming loans
    
    $
    30,858
    
    
    
    100.0
    %
    
    $
    43,724
    
    
    
    100.0
    %
    
    $
    38,656
    
    
    
    100.0
    %
    23




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##### Table of Contents



24




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##### Table of Contents



(in thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Loans:Average daily balance of loans for the year
    
    $
    252,314
    
    
    $
    297,609
    
    
    $
    336,637
    
    
    $
    375,037
    
    
    $
    374,634Amount of loans outstanding at end of year
    
    
    235,938
    
    
    
    274,046
    
    
    
    315,817
    
    
    
    347,876
    
    
    
    384,581Components:Allowance for loan lossesBalance, beginning of year
    
    $
    18,665
    
    
    $
    14,122
    
    
    $
    10,314
    
    
    $
    7,598
    
    
    $
    6,991Loans charged off:Real estate mortgage
    
    
    574
    
    
    
    619
    
    
    
    261
    
    
    
    243
    
    
    
    260Commercial (1)
    
    
    10,751
    
    
    
    10,730
    
    
    
    11,170
    
    
    
    5,519
    
    
    
    1,785Consumer
    
    
    558
    
    
    
    581
    
    
    
    674
    
    
    
    860
    
    
    
    619Subtotal
    
    
    11,883
    
    
    
    11,930
    
    
    
    12,105
    
    
    
    6,622
    
    
    
    2,664Charge offs on loans transferred to held for sale (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,669
    
    
    
    Total charge offs
    
    
    11,883
    
    
    
    11,930
    
    
    
    12,105
    
    
    
    11,291
    
    
    
    2,664Recoveries to loans previously charged off:Real estate mortgage
    
    
    6
    
    
    
    7
    
    
    
    14
    
    
    
    
    
    
    
    Commercial
    
    
    1,029
    
    
    
    462
    
    
    
    370
    
    
    
    146
    
    
    
    283Consumer
    
    
    178
    
    
    
    141
    
    
    
    251
    
    
    
    239
    
    
    
    226Total recoveries
    
    
    1,213
    
    
    
    610
    
    
    
    635
    
    
    
    385
    
    
    
    509Net loans charged off
    
    
    10,670
    
    
    
    11,320
    
    
    
    11,470
    
    
    
    10,906
    
    
    
    2,155Additions to allowance charged to operations
    
    
    5,975
    
    
    
    15,863
    
    
    
    15,278
    
    
    
    13,622
    
    
    
    2,762Balance, end of year
    
    
    13,970
    
    
    
    18,665
    
    
    
    14,122
    
    
    
    10,314
    
    
    
    7,598Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    300
    
    
    
    316
    
    
    
    739
    
    
    
    331
    
    
    
    454Additions (reductions) to reserve charged to operations
    
    
    
    
    
    
    (16
    )
    
    
    (423
    )
    
    
    408
    
    
    
    (123
    )Balance, end of year
    
    
    300
    
    
    
    300
    
    
    
    316
    
    
    
    739
    
    
    
    331Total allowance for loan losses and
reserve for unfunded credit commitments
    
    $
    14,270
    
    
    $
    18,965
    
    
    $
    14,438
    
    
    $
    11,053
    
    
    $
    7,929Ratios:Net loans charged off to average loans outstanding
    
    
    4.23
    %
    
    
    3.80
    %
    
    
    3.41
    %
    
    
    2.91
    %
    
    
    0.58
    %Allowance for loan losses to loans outstanding
    
    
    5.92
    %
    
    
    6.81
    %
    
    
    4.47
    %
    
    
    2.96
    %
    
    
    1.98
    %
 
 (1)
    
    Partial charge offs of $2,935 are included in commercial charge offs to reduce the loans
transferred to held for sale to their impaired value prior to consideration of bid amounts in 2007.(2)
    
    Represents charges to the allowance to reduce the investment in the loans to the estimated fair
values when the loans were transferred to held for sale in 2007.  (in thousands)2010
    
    
    2009
    
    
    2008Charge offs
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentSecured by real estateResidential first mortgage
    
    $
    868
    
    
    
    7.3
    %
    
    $
    1,145
    
    
    
    9.6
    %
    
    $
    775
    
    
    
    6.4
    %Residential home equity/other junior liens
    
    
    395
    
    
    
    3.3
    %
    
    
    1,280
    
    
    
    10.7
    %
    
    
    413
    
    
    
    3.4
    %Construction and land development and farmland
    
    
    4,547
    
    
    
    38.3
    %
    
    
    3,573
    
    
    
    30.0
    %
    
    
    7,647
    
    
    
    63.2
    %Commercial real estate
    
    
    5,376
    
    
    
    45.2
    %
    
    
    3,889
    
    
    
    32.6
    %
    
    
    1,357
    
    
    
    11.2
    %Consumer
    
    
    232
    
    
    
    2.0
    %
    
    
    444
    
    
    
    3.7
    %
    
    
    450
    
    
    
    3.7
    %Commercial
    
    
    465
    
    
    
    3.9
    %
    
    
    1,599
    
    
    
    13.4
    %
    
    
    1,463
    
    
    
    12.1
    %Total charge offs
    
    $
    11,883
    
    
    
    100.0
    %
    
    $
    11,930
    
    
    
    100.0
    %
    
    $
    12,105
    
    
    
    100.0
    %
 25




---



##### Table of Contents



(in thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    11,604
    
    
    
    86.0
    %
    
    $
    16,520
    
    
    
    86.1
    %
    
    $
    13,064
    
    
    
    86.4
    %
    
    $
    9,274
    
    
    
    86.5
    %
    
    $
    6,675
    
    
    
    85.5
    %Consumer
    
    
    1,032
    
    
    
    7.1
    %
    
    
    1,138
    
    
    
    6.9
    %
    
    
    613
    
    
    
    6.9
    %
    
    
    609
    
    
    
    6.3
    %
    
    
    442
    
    
    
    7.2
    %Real estate mortgage
    
    
    1,334
    
    
    
    6.9
    %
    
    
    1,007
    
    
    
    7.0
    %
    
    
    445
    
    
    
    6.7
    %
    
    
    431
    
    
    
    7.2
    %
    
    
    481
    
    
    
    7.3
    %Total
    
    $
    13,970
    
    
    
    100.0
    %
    
    $
    18,665
    
    
    
    100.0
    %
    
    $
    14,122
    
    
    
    100.0
    %
    
    $
    10,314
    
    
    
    100.0
    %
    
    $
    7,598
    
    
    
    100.0
    %
  (in thousands)2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    95
    
    
    
    57.1
    %
    
    $
    136
    
    
    
    58.8
    %
    
    $
    76
    
    
    
    62.5
    %
    
    $
    488
    
    
    
    79.6
    %
    
    $
    207
    
    
    
    80.1
    %Consumer
    
    
    205
    
    
    
    42.9
    %
    
    
    164
    
    
    
    41.2
    %
    
    
    240
    
    
    
    37.5
    %
    
    
    251
    
    
    
    20.4
    %
    
    
    124
    
    
    
    19.9
    %Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    300
    
    
    
    100.0
    %
    
    $
    300
    
    
    
    100.0
    %
    
    $
    316
    
    
    
    100.0
    %
    
    $
    739
    
    
    
    100.0
    %
    
    $
    331
    
    
    
    100.0
    %
     Deposits
   (in thousands)2010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNon-interest bearing demand
    
    $
    56,520
    
    
    
    0.00
    %
    
    $
    55,102
    
    
    
    0.00
    %
    
    $
    55,077
    
    
    
    0.00
    %NOW
    
    
    48,946
    
    
    
    0.16
    %
    
    
    47,497
    
    
    
    0.19
    %
    
    
    35,845
    
    
    
    0.24
    %Savings
    
    
    39,104
    
    
    
    0.20
    %
    
    
    41,211
    
    
    
    0.28
    %
    
    
    38,033
    
    
    
    0.49
    %MMDA
    
    
    32,291
    
    
    
    0.64
    %
    
    
    49,160
    
    
    
    0.95
    %
    
    
    72,762
    
    
    
    2.01
    %Time deposits
    
    
    116,587
    
    
    
    1.83
    %
    
    
    147,271
    
    
    
    2.64
    %
    
    
    163,211
    
    
    
    3.64
    %Total
    
    $
    293,448
    
    
    
    0.85
    %
    
    $
    340,241
    
    
    
    1.34
    %
    
    $
    364,928
    
    
    
    2.10
    %
 26




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##### Table of Contents



Capital
    Minimum
    
    MinimumRegulatory
    
    Regulatory RatioRatio for Well
    
    for Adequately
    
    Bank RatiosCapitalized
    
    Capitalized
    
    2010
    
    2009
    
    2008Average equity to average asset ratio
    
    
    
    
    
    
    
    
    
    
    4.31
    %
    
    
    5.80
    %
    
    
    9.24
    %Tier 1 leverage ratio
    
    
    5.00
    %
    
    
    4.00
    %
    
    
    3.50
    %
    
    
    4.25
    %
    
    
    6.89
    %Tier 1 risk-based capital
    
    
    6.00
    %
    
    
    4.00
    %
    
    
    4.28
    %
    
    
    5.15
    %
    
    
    8.27
    %Total risk-based capital
    
    
    10.00
    %
    
    
    8.00
    %
    
    
    5.58
    %
    
    
    6.46
    %
    
    
    9.56
    %
   Liquidity and Funds Management
    27




---



##### Table of Contents



Contractual Obligations and Commitments
  (in thousands)Within
    
    
    One to
    
    
    Three to
    
    
    OverOne Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years
    
    
    TotalDeposits without a stated maturity (1)
    
    $
    189,540
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    189,540Consumer and brokered certificates of deposits(2)
    
    
    74,517
    
    
    
    23,359
    
    
    
    7,587
    
    
    
    27
    
    
    
    105,490Operating leases (3)
    
    
    72
    
    
    
    91
    
    
    
    40
    
    
    
    
    
    
    
    203Purchase obligations (4)
    
    
    609
    
    
    
    659
    
    
    
    242
    
    
    
    
    
    
    
    1,510
 
 (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, 2010. Future changes in market interest rates could
materially affect the contractual amounts to be paid for variable rate obligations; there were no variable rate obligations outstanding at
December 31, 2010.(3)
    
    See Note 12, Leases, in Notes to Consolidated Financial Statements.(4)
    
    Purchase obligations relate to certain contractual payments for services provided
for information technology and data processing.  (in thousands)Within
    
    
    One to
    
    
    Three to
    
    
    OverOne Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial loans
    
    $
    9,309
    
    
    $
    97
    
    
    $
    500
    
    
    $
    
    
    
    $
    9,906Commercial construction loans
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479Consumer loans
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    7,647
    
    
    
    7,803Standby letters of credit
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92
  Quantitative and Qualitative Disclosures about Market Risk
   28




---



##### Table of Contents



(in thousands)0-3
    
    
    4-12
    
    
    1-5
    
    
    5+Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Loans
    
    $
    94,849
    
    
    $
    64,487
    
    
    $
    75,248
    
    
    $
    1,354
    
    
    $
    235,938Securities
    
    
    1,066
    
    
    
    3,969
    
    
    
    16,593
    
    
    
    6,543
    
    
    
    28,171Short term investments
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196Total assets
    
    $
    96,111
    
    
    $
    68,456
    
    
    $
    91,841
    
    
    $
    7,897
    
    
    $
    264,305Liabilities:NOW, savings, and MMDA
    
    $
    36,174
    
    
    $
    
    
    
    $
    
    
    
    $
    91,071
    
    
    $
    127,245Time deposits
    
    
    25,711
    
    
    
    47,787
    
    
    
    30,217
    
    
    
    26
    
    
    
    103,741Total liabilities
    
    $
    61,885
    
    
    $
    47,787
    
    
    $
    30,217
    
    
    $
    91,097
    
    
    $
    230,986Rate sensitivity GAP:GAP for period
    
    $
    34,226
    
    
    $
    20,669
    
    
    $
    61,624
    
    
    $
    (83,200
    )Cumulative GAP
    
    
    34,226
    
    
    
    54,895
    
    
    
    116,519
    
    
    
    33,319December 31, 2010 cumulative sensitive ratio
    
    
    1.55
    
    
    
    1.50
    
    
    
    1.83
    
    
    
    1.14December 31, 2009 cumulative sensitive ratio
    
    
    1.62
    
    
    
    1.51
    
    
    
    1.78
    
    
    
    1.19
    Fair Value of Financial Instruments
    29




---



##### Table of Contents



RESULTS OF OPERATIONS
   2010
    
    2009
    
    2008
    
    2007
    
    2006Net income (loss) as a percent of:Average common equity
    
    
    -29.26
    %
    
    
    -64.62
    %
    
    
    -34.92
    %
    
    
    -13.98
    %
    
    
    11.06
    %Average total assets
    
    
    -1.26
    %
    
    
    -3.78
    %
    
    
    -3.23
    %
    
    
    -1.46
    %
    
    
    1.20
    %
 Net Interest Income
    30




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##### Table of Contents



Yield Analysis of Consolidated Average Assets and Liabilities(in thousands)2010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest earning assets:Short term investments
    
    $
    124
    
    
    $
    0.1
    
    
    
    0.10
    %
    
    $
    4,566
    
    
    $
    11.4
    
    
    
    0.25
    %
    
    $
    18,186
    
    
    $
    382.3
    
    
    
    2.10
    %Certificates of deposit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,386
    
    
    
    162.8
    
    
    
    4.81
    %
    
    
    4,503
    
    
    
    219.5
    
    
    
    4.87
    %Securities: Taxable
    
    
    15,715
    
    
    
    791.0
    
    
    
    5.03
    %
    
    
    21,963
    
    
    
    1,235.9
    
    
    
    5.63
    %
    
    
    24,714
    
    
    
    1,397.0
    
    
    
    5.65
    %Tax-exempt(1)
    
    
    6,755
    
    
    
    411.9
    
    
    
    6.10
    %
    
    
    10,747
    
    
    
    646.9
    
    
    
    6.02
    %
    
    
    15,412
    
    
    
    912.7
    
    
    
    5.92
    %Commercial loans (2)(3)
    
    
    216,858
    
    
    
    11,364.9
    
    
    
    5.24
    %
    
    
    256,848
    
    
    
    13,710.3
    
    
    
    5.34
    %
    
    
    292,103
    
    
    
    18,632.6
    
    
    
    6.38
    %Consumer loans (2)(3)
    
    
    17,600
    
    
    
    996.3
    
    
    
    5.66
    %
    
    
    20,232
    
    
    
    1,217.3
    
    
    
    6.02
    %
    
    
    21,671
    
    
    
    1,620.3
    
    
    
    7.48
    %Mortgage loans (2)(3)
    
    
    17,856
    
    
    
    836.0
    
    
    
    4.68
    %
    
    
    20,354
    
    
    
    1,136.3
    
    
    
    5.58
    %
    
    
    22,863
    
    
    
    1,488.9
    
    
    
    6.51
    %Total earning assets and total
interest income
    
    
    274,908
    
    
    $
    14,400.2
    
    
    
    5.24
    %
    
    
    338,096
    
    
    $
    18,120.9
    
    
    
    5.36
    %
    
    
    399,452
    
    
    $
    24,653.3
    
    
    
    6.17
    %Cash and due from banks
    
    
    31,662
    
    
    
    
    
    
    
    
    
    
    
    27,798
    
    
    
    
    
    
    
    
    
    
    
    7,959All other assets
    
    
    17,734
    
    
    
    
    
    
    
    
    
    
    
    16,306
    
    
    
    
    
    
    
    
    
    
    
    20,869Allowance for loan losses
    
    
    (15,239
    )
    
    
    
    
    
    
    
    
    
    
    (16,897
    )
    
    
    
    
    
    
    
    
    
    
    (12,751
    )Total assets
    
    $
    309,065
    
    
    
    
    
    
    
    
    
    
    $
    365,303
    
    
    
    
    
    
    
    
    
    
    $
    415,529Liabilities and
Shareholders EquityInterest bearing deposits:NOW
    
    $
    48,946
    
    
    $
    77.7
    
    
    
    0.16
    %
    
    $
    47,496
    
    
    $
    91.7
    
    
    
    0.19
    %
    
    $
    35,845
    
    
    $
    87.7
    
    
    
    0.24
    %Savings
    
    
    39,104
    
    
    
    77.6
    
    
    
    0.20
    %
    
    
    41,211
    
    
    
    115.0
    
    
    
    0.28
    %
    
    
    38,033
    
    
    
    185.9
    
    
    
    0.49
    %MMDA
    
    
    32,291
    
    
    
    208.2
    
    
    
    0.64
    %
    
    
    49,160
    
    
    
    465.5
    
    
    
    0.95
    %
    
    
    72,762
    
    
    
    1,465.3
    
    
    
    2.01
    %Time deposits
    
    
    116,587
    
    
    
    2,131.4
    
    
    
    1.83
    %
    
    
    147,272
    
    
    
    3,894.7
    
    
    
    2.64
    %
    
    
    163,211
    
    
    
    5,941.2
    
    
    
    3.64
    %Short term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    1.3
    
    
    
    4.48
    %
    
    
    273
    
    
    
    13.8
    
    
    
    5.05
    %FHLBI long term advances
    
    
    16
    
    
    
    1.2
    
    
    
    7.39
    %
    
    
    1,212
    
    
    
    64.2
    
    
    
    5.30
    %
    
    
    8,812
    
    
    
    424.5
    
    
    
    4.82
    %Total interest bearing
liabilities and total interest
expense
    
    
    236,944
    
    
    
    2,496.1
    
    
    
    1.05
    %
    
    
    286,380
    
    
    
    4,632.4
    
    
    
    1.62
    %
    
    
    318,936
    
    
    
    8,118.4
    
    
    
    2.55
    %Noninterest bearing deposits
    
    
    56,520
    
    
    
    
    
    
    
    
    
    
    
    55,102
    
    
    
    
    
    
    
    
    
    
    
    55,077All other liabilities
    
    
    2,295
    
    
    
    
    
    
    
    
    
    
    
    2,625
    
    
    
    
    
    
    
    
    
    
    
    3,104Shareholders equity
    
    
    13,306
    
    
    
    
    
    
    
    
    
    
    
    21,196
    
    
    
    
    
    
    
    
    
    
    
    38,412Total liabilities and
shareholders equity
    
    $
    309,065
    
    
    
    
    
    
    
    
    
    
    $
    365,303
    
    
    
    
    
    
    
    
    
    
    $
    415,529Interest spread
    
    
    
    
    
    
    
    
    
    
    4.19
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.63
    %Net interest income-FTE
    
    
    
    
    
    $
    11,904.1
    
    
    
    
    
    
    
    
    
    
    $
    13,488.5
    
    
    
    
    
    
    
    
    
    
    $
    16,534.9Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.33
    %
    
    
    
    
    
    
    
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    4.14
    %
 
 (1)
    
    Average yields in the above table have been adjusted to a tax-equivalent basis
using a 34% tax rate and exclude the effect of any unrealized market value adjustments
included in other comprehensive income recorded under ASC Topic 320, Investments  Debt
and Equity Securities.(2)
    
    For purposes of the computation above, average non-accruing loans of $33,987,000
in 2010, $41,251,000 in 2009 and $27,823,000 in 2008 are included in the average daily
balance.(3)
    
    Interest on loans includes origination fees totaling $91,000 in 2010, $97,000 in
2009, and $243,000 in 2008.  31




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##### Table of Contents



(in thousands)Year ended December 31, 2010
    
    
    Year ended December 31, 2009compared to
    
    
    compared toYear ended December 31, 2009
    
    
    Year ended December 31, 2008Amount of Increase (Decrease) Due to Change inTotal Amount
    
    
    
    
    
    
    
    
    
    
    Total AmountAverage
    
    
    of Increase/
    
    
    
    
    
    
    Average
    
    
    of Increase/Volume
    
    
    Rate
    
    
    (Decrease)
    
    
    Volume
    
    
    Rate
    
    
    (Decrease)Interest Income:Short term investments
    
    $
    (11
    )
    
    $
    
    
    
    $
    (11
    )
    
    $
    (286
    )
    
    $
    (84
    )
    
    $
    (370
    )Certificates of deposit
    
    
    (163
    )
    
    
    
    
    
    
    (163
    )
    
    
    (54
    )
    
    
    (2
    )
    
    
    (56
    )Securities:Taxable
    
    
    (352
    )
    
    
    (93
    )
    
    
    (445
    )
    
    
    (156
    )
    
    
    (6
    )
    
    
    (162
    )Tax exempt
    
    
    (240
    )
    
    
    5
    
    
    
    (235
    )
    
    
    (276
    )
    
    
    10
    
    
    
    (266
    )Loans
    
    
    (2,433
    )
    
    
    (434
    )
    
    
    (2,867
    )
    
    
    (2,520
    )
    
    
    (3,158
    )
    
    
    (5,678
    )Total interest income
    
    $
    (3,199
    )
    
    $
    (522
    )
    
    $
    (3,721
    )
    
    $
    (3,292
    )
    
    $
    (3,240
    )
    
    $
    (6,532
    )Interest Expense:Interest bearing deposits:NOW, savings & MMDA
    
    $
    (85
    )
    
    $
    (223
    )
    
    $
    (308
    )
    
    $
    (104
    )
    
    $
    (963
    )
    
    $
    (1,067
    )Time deposits
    
    
    (812
    )
    
    
    (952
    )
    
    
    (1,764
    )
    
    
    (580
    )
    
    
    (1,466
    )
    
    
    (2,046
    )Short term borrowings
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )FHLBI advances
    
    
    (63
    )
    
    
    
    
    
    
    (63
    )
    
    
    (366
    )
    
    
    6
    
    
    
    (360
    )Total interest expense
    
    $
    (961
    )
    
    $
    (1,175
    )
    
    $
    (2,136
    )
    
    $
    (1,062
    )
    
    $
    (2,423
    )
    
    $
    (3,485
    )Net interest income (FTE)
    
    $
    (2,238
    )
    
    $
    653
    
    
    $
    (1,585
    )
    
    $
    (2,230
    )
    
    $
    (817
    )
    
    $
    (3,047
    )
       32




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##### Table of Contents



2010
    
    
    
    2009
    
    
    
    2008As a percent of average earning assets:Loans
    
    
    91.78
    %
    
    
    87.98
    %
    
    
    84.27
    %Securities
    
    
    8.18
    %
    
    
    9.67
    %
    
    
    10.05
    %Certificates of deposit
    
    
    
    
    
    
    1.00
    %
    
    
    1.13
    %Short term investments
    
    
    0.04
    %
    
    
    1.35
    %
    
    
    4.55
    %Average earning assets
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %NOW, savings, & MMDA
    
    
    43.78
    %
    
    
    40.78
    %
    
    
    36.71
    %Time deposits
    
    
    42.41
    %
    
    
    43.55
    %
    
    
    40.86
    %Short term borrowing
    
    
    
    
    
    
    0.01
    %
    
    
    0.07
    %FHLBI advances
    
    
    0.01
    %
    
    
    0.36
    %
    
    
    2.21
    %Average interest bearing liabilities
    
    
    86.20
    %
    
    
    84.70
    %
    
    
    79.85
    %Earning asset ratio
    
    
    88.95
    %
    
    
    92.55
    %
    
    
    96.13
    %Free-funds ratio
    
    
    13.80
    %
    
    
    15.30
    %
    
    
    20.15
    %
 Provision for Loan Losses
  Noninterest Income
     Noninterest Expense
    33




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##### Table of Contents



34




---



##### Table of Contents



Federal Income Tax Expense (Benefit)
  Critical Accounting Policies
  Valuation of Investment Securities
   Allowance for Loan Losses
  Accounting for Income Taxes
    35




---



##### 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
    
    
    37Consolidated Balance Sheets
    
    
    38Consolidated Statements of Operations
    
    
    39Consolidated Statements of Shareholders Equity and Comprehensive Income
    
    
    40Consolidated Statements of Cash Flows
    
    
    41Notes to Consolidated Financial Statements
    
    
    42
 36




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##### Table of Contents



(BDO)
    
    BDO USA, LLPAccountants and Consultants
    
    99 Monroe Avenue N.W., Suite 800Grand Rapids, Michigan 49503-2654Telephone: (616) 774-7000Fax: (616) 776-3680
 
 Report of Independent Registered Public Accounting Firm
 
      
 37




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
  December 31,2010
    
    
    2009AssetsCash and due from banks
    
    $
    40,376,267
    
    
    $
    36,942,636Short term investments
    
    
    196,159
    
    
    
    101,029Total cash and cash equivalents
    
    
    40,572,426
    
    
    
    37,043,665Investment securities:Investment securities available for sale, at fair value
    
    
    27,269,670
    
    
    
    22,705,612FHLBI and FRB stock, at cost
    
    
    901,350
    
    
    
    994,950Total investment securities
    
    
    28,171,020
    
    
    
    23,700,562Loans held for investment:Commercial
    
    
    203,025,518
    
    
    
    235,937,243Consumer
    
    
    16,641,544
    
    
    
    18,777,849Real estate mortgage
    
    
    16,271,284
    
    
    
    19,330,658Total loans held for investment
    
    
    235,938,346
    
    
    
    274,045,750Less allowance for loan losses
    
    
    (13,970,170
    )
    
    
    (18,665,173
    )Net loans held for investment
    
    
    221,968,176
    
    
    
    255,380,577Premises and equipment, net
    
    
    7,692,185
    
    
    
    8,091,463Other real estate owned, held for sale
    
    
    4,294,212
    
    
    
    3,777,119Facilities held for sale, net
    
    
    
    
    
    
    60,453Deferred tax assets, net
    
    
    
    
    
    
    Accrued interest and other assets
    
    
    2,642,511
    
    
    
    4,336,526Total assets
    
    $
    305,340,530
    
    
    $
    332,390,365Liabilities and Shareholders EquityLiabilitiesDeposits:Demand (non-interest bearing)
    
    $
    62,294,189
    
    
    $
    65,643,739NOW
    
    
    52,018,941
    
    
    
    50,642,881Savings and money market
    
    
    75,226,475
    
    
    
    72,297,919Time deposits
    
    
    100,382,011
    
    
    
    121,200,201Brokered certificates of deposit
    
    
    3,358,573
    
    
    
    5,410,951Total deposits
    
    
    293,280,189
    
    
    
    315,195,691Other borrowings
    
    
    
    
    
    
    413,970Accrued interest, taxes, and other liabilities
    
    
    1,926,543
    
    
    
    2,404,440Total liabilities
    
    
    295,206,732
    
    
    
    318,014,101Shareholders EquityPreferred stock, no par value. Authorized 30,000 shares; no shares
issued and outstanding at December 31, 2010 and 2009
    
    
    
    
    
    
    Common stock, no par value. Authorized 7,000,000 shares at December 31, 2010
and 2009; 3,165,392 shares issued and outstanding at December 31, 2010 and
3,149,850 shares issued and outstanding at December 31, 2009
    
    
    6,935,140
    
    
    
    6,738,128Retained earnings
    
    
    2,747,615
    
    
    
    6,641,060Deferred directors compensation
    
    
    708,372
    
    
    
    885,919Accumulated
other comprehensive income (loss), net
    
    
    (257,329
    )
    
    
    111,157Total shareholders equity
    
    
    10,133,798
    
    
    
    14,376,264Total liabilities and shareholders equity
    
    $
    305,340,530
    
    
    $
    332,390,365
  38




---



##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Interest and dividend income:Interest and fees on loans
    
    $
    13,153,069
    
    
    $
    16,009,172
    
    
    $
    21,662,130Interest and dividends on investment securities:U.S. Treasury, agency securities and CMOs
    
    
    770,493
    
    
    
    1,205,935
    
    
    
    1,276,017Obligations of states and political subdivisions
    
    
    282,384
    
    
    
    446,827
    
    
    
    644,588Other securities
    
    
    20,484
    
    
    
    29,984
    
    
    
    120,935Interest on certificates of deposit
    
    
    
    
    
    
    162,812
    
    
    
    219,489Interest on short term investments
    
    
    487
    
    
    
    14,813
    
    
    
    384,077Total interest and dividend income
    
    
    14,226,917
    
    
    
    17,869,543
    
    
    
    24,307,236Interest expense:Interest on deposits
    
    
    2,494,914
    
    
    
    4,566,956
    
    
    
    7,680,058Interest on other borrowings
    
    
    1,174
    
    
    
    65,399
    
    
    
    438,307Total interest expense
    
    
    2,496,088
    
    
    
    4,632,355
    
    
    
    8,118,365Net interest income
    
    
    11,730,829
    
    
    
    13,237,188
    
    
    
    16,188,871Provision for loan losses
    
    
    5,975,000
    
    
    
    15,846,853
    
    
    
    14,854,900Net interest income (deficiency) after provision for loan losses
    
    
    5,755,829
    
    
    
    (2,609,665
    )
    
    
    1,333,971Noninterest income:Service charges and other fee income
    
    
    2,954,457
    
    
    
    3,223,857
    
    
    
    2,957,150Trust income
    
    
    238,602
    
    
    
    336,258
    
    
    
    374,886Gain (loss) on securities
    
    
    329,110
    
    
    
    198,651
    
    
    
    (3,236,635
    )Other
    
    
    32,138
    
    
    
    9,129
    
    
    
    8,694Total noninterest income
    
    
    3,554,307
    
    
    
    3,767,895
    
    
    
    104,095Noninterest expense:Salaries and employee benefits
    
    
    5,100,377
    
    
    
    6,532,037
    
    
    
    6,788,477Net occupancy expense
    
    
    1,048,165
    
    
    
    1,138,208
    
    
    
    1,192,987Equipment expense
    
    
    338,412
    
    
    
    382,701
    
    
    
    471,309Professional and service fees
    
    
    1,826,368
    
    
    
    2,058,513
    
    
    
    2,264,882Loan collection and foreclosed property expenses
    
    
    689,826
    
    
    
    1,099,083
    
    
    
    1,104,654Computer service fees
    
    
    455,663
    
    
    
    464,224
    
    
    
    498,878Computer software amortization expense
    
    
    254,582
    
    
    
    267,852
    
    
    
    285,911FDIC assessment fees
    
    
    1,428,838
    
    
    
    1,639,183
    
    
    
    600,058Insurance
    
    
    681,299
    
    
    
    509,486
    
    
    
    74,273Printing and supplies
    
    
    147,437
    
    
    
    184,058
    
    
    
    275,840Director fees
    
    
    64,025
    
    
    
    73,742
    
    
    
    219,357Net loss on sale/writedown of OREO and repossessions
    
    
    378,893
    
    
    
    827,324
    
    
    
    271,166Other
    
    
    732,433
    
    
    
    762,270
    
    
    
    930,790Total noninterest expense
    
    
    13,146,318
    
    
    
    15,938,681
    
    
    
    14,978,582Loss before federal income tax
    
    
    (3,836,182
    )
    
    
    (14,780,451
    )
    
    
    (13,540,516
    )Federal income tax expense (benefit)
    
    
    57,263
    
    
    
    (1,084,568
    )
    
    
    (127,276
    )Net loss
    
    $
    (3,893,445
    )
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )Per share statistics:Basic and diluted EPS
    
    $
    (1.22
    )
    
    $
    (4.32
    )
    
    $
    (4.33
    )Dividends
    
    $
    
    
    
    $
    
    
    
    $
    0.16Basic and diluted average shares outstanding
    
    
    3,193,101
    
    
    
    3,167,918
    
    
    
    3,096,332
  39
    Table of Contents   FNBH BANCORP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Shareholders Equity and Comprehensive Income
  AccumulatedDeferred
    
    
    OtherCommon
    
    
    Retained
    
    
    Directors
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBalances at December 31, 2007
    
    $
    6,141,835
    
    
    $
    33,545,396
    
    
    $
    859,609
    
    
    $
    80,342
    
    
    $
    40,627,182Earned portion of long term
incentive plan, net
    
    
    139,652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,652Issued 1,356 shares for employee
stock purchase plan
    
    
    10,367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,367Issued 57,556 shares for a stock
subscription
    
    
    259,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259,000Issued 2,242 shares for current
directors fees
    
    
    17,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,196Issued 712 shares for deferred
directors fees
    
    
    15,108
    
    
    
    
    
    
    
    (15,108
    )
    
    
    
    
    
    
    Directors deferred compensation
(7,287 stock units)
    
    
    
    
    
    
    
    
    
    
    57,832
    
    
    
    
    
    
    
    57,832Comprehensive income:Net loss
    
    
    
    
    
    
    (13,413,240
    )
    
    
    
    
    
    
    
    
    
    
    (13,413,240
    )Change in unrealized gain on
investment securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,572,071
    )
    
    
    (2,572,071
    )Less reclassification adjustment for
other-than-temporary
impairment charge on securities
included in net loss,
net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,887,364
    
    
    
    2,887,364Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,097,947
    )Cash dividends ($0.16 per share)
    
    
    
    
    
    
    (488,180
    )
    
    
    
    
    
    
    
    
    
    
    (488,180
    )Balances at December 31, 2008
    
    
    6,583,158
    
    
    
    19,643,976
    
    
    
    902,333
    
    
    
    395,635
    
    
    
    27,525,102Cumulative effect of change in
accounting principle,
adoption of ASC Topic 320, net of tax
    
    
    
    
    
    
    692,967
    
    
    
    
    
    
    
    (692,967
    )
    
    
    Earned portion of long term
incentive plan, net
    
    
    88,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,155Issued 4,609 shares for employee
stock purchase plan
    
    
    4,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,992Issued 26,410 shares for current
directors fees
    
    
    45,409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,409Issued 823 shares for deferred
directors fees
    
    
    16,414
    
    
    
    
    
    
    
    (16,414
    )
    
    
    
    
    
    
    Comprehensive income:Net loss
    
    
    
    
    
    
    (13,695,883
    )
    
    
    
    
    
    
    
    
    
    
    (13,695,883
    )Change in unrealized gain on
investment securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    510,303
    
    
    
    510,303Less reclassification adjustment for
realized securities
net gain included in net loss, net
of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,814
    )
    
    
    (101,814
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,287,394
    )Balances at December 31, 2009
    
    
    6,738,128
    
    
    
    6,641,060
    
    
    
    885,919
    
    
    
    111,157
    
    
    
    14,376,264Earned portion of long term
incentive plan, net
    
    
    16,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,105Issued 7,454 shares for employee
stock purchase plan
    
    
    3,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,360Issued 8,088 shares for deferred
directors fees
    
    
    177,547
    
    
    
    
    
    
    
    (177,547
    )
    
    
    
    
    
    
    Comprehensive income:Net loss
    
    
    
    
    
    
    (3,893,445
    )
    
    
    
    
    
    
    
    
    
    
    (3,893,445
    )Change in unrealized gain on
investment securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,376
    )
    
    
    (39,376
    )Less reclassification adjustment for
realized securities
net gain included in net loss, net
of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (329,110
    )
    
    
    (329,110
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,261,931
    )Balances at December 31, 2010
    
    $
    6,935,140
    
    
    $
    2,747,615
    
    
    $
    708,372
    
    
    $
    (257,329
    )
    
    $
    10,133,798
 40
    Table of Contents   FNBH BANCORP, INC. AND SUBSIDIARIES
 
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (3,893,445
    )
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )Adjustments to reconcile net loss to net cash provided by operating activities:Provision for loan losses
    
    
    5,975,000
    
    
    
    15,846,853
    
    
    
    14,854,900Depreciation and amortization
    
    
    740,323
    
    
    
    842,194
    
    
    
    906,363Deferred income tax expense (benefit)
    
    
    57,263
    
    
    
    (966,107
    )
    
    
    (1,508,577
    )Net amortization on investment securities
    
    
    27,159
    
    
    
    13,749
    
    
    
    26,725Earned portion of long-term incentive plan, net
    
    
    16,105
    
    
    
    88,155
    
    
    
    139,652Shares issued for current and variable directors compensation
    
    
    
    
    
    
    45,409
    
    
    
    17,196Shares earned for deferred directors compensation
    
    
    
    
    
    
    
    
    
    
    57,832Proceeds from the sale of property held for sale
    
    
    120,712
    
    
    
    
    
    
    
    Gain on sale of property held for sale
    
    
    (60,259
    )
    
    
    
    
    
    
    (Gain) loss on sale/disposal of equipment
    
    
    30,236
    
    
    
    24,190
    
    
    
    (3,972
    )(Gain) loss on available for sale securities
    
    
    (329,110
    )
    
    
    (101,814
    )
    
    
    3,236,635Gain on sale of brokered certificates of deposit
    
    
    
    
    
    
    (96,837
    )
    
    
    Loss on the sale of other real estate owned, held for sale
    
    
    395,730
    
    
    
    843,412
    
    
    
    264,226Decrease (increase) in accrued interest income and other assets
    
    
    1,459,300
    
    
    
    3,067,500
    
    
    
    6,349,621Decrease in accrued interest, taxes, and other liabilities
    
    
    (477,897
    )
    
    
    (412,624
    )
    
    
    (280,536
    )Net cash provided by operating activities
    
    
    4,061,117
    
    
    
    5,498,197
    
    
    
    10,646,825Cash flows from investing activities:Purchases of available for sale securities
    
    
    (16,338,460
    )
    
    
    
    
    
    
    (16,507,770
    )Purchases of held to maturity securities
    
    
    
    
    
    
    
    
    
    
    (1,574,840
    )Proceeds from sales of available for sale securities
    
    
    4,850,055
    
    
    
    5,404,554
    
    
    
    Proceeds from maturities and at-par calls of available for sale securities
    
    
    2,275,000
    
    
    
    10,230,000
    
    
    
    7,890,000Proceeds from mortgage-backed securities paydowns-available for sale
    
    
    4,525,550
    
    
    
    3,887,393
    
    
    
    1,218,672Proceeds from maturities and calls of held to maturity securities
    
    
    
    
    
    
    
    
    
    
    2,305,000Proceeds from sale of brokered certificates of deposit
    
    
    
    
    
    
    3,432,837
    
    
    
    Proceeds from FHLBI repurchase of stock
    
    
    93,600
    
    
    
    
    
    
    
    Proceeds from sale of equipment
    
    
    
    
    
    
    
    
    
    
    15,000Purchases of certificates of deposit
    
    
    
    
    
    
    
    
    
    
    (1,373,000
    )Maturity of certificates of deposit
    
    
    
    
    
    
    983,000
    
    
    
    1,079,000Proceeds from sale of other real estate owned, held for sale
    
    
    4,641,815
    
    
    
    2,596,559
    
    
    
    2,100,236Net decrease in loans
    
    
    21,882,763
    
    
    
    25,912,626
    
    
    
    17,069,279Capital expenditures
    
    
    (136,567
    )
    
    
    (171,812
    )
    
    
    (173,872
    )Net cash provided by investing activities
    
    
    21,793,756
    
    
    
    52,275,157
    
    
    
    12,047,705Cash flows from financing activities:Net decrease in deposits
    
    
    (21,915,502
    )
    
    
    (34,331,392
    )
    
    
    (30,051,413
    )Repayment of FHLBI advances
    
    
    (413,970
    )
    
    
    (10,383,307
    )
    
    
    (354,913
    )Proceeds from FHLBI advances
    
    
    
    
    
    
    2,000,000
    
    
    
    Proceeds from issuance of short term debt
    
    
    
    
    
    
    
    
    
    
    1,445,000Repayment of short term debt
    
    
    
    
    
    
    (100,000
    )
    
    
    (1,345,000
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (488,180
    )Shares issued for stock subscription
    
    
    
    
    
    
    
    
    
    
    259,000Shares issued for employee stock purchase plan
    
    
    3,360
    
    
    
    4,992
    
    
    
    10,367Net cash used in financing activities
    
    
    (22,326,112
    )
    
    
    (42,809,707
    )
    
    
    (30,525,139
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,528,761
    
    
    
    14,963,647
    
    
    
    (7,830,609
    )Cash and cash equivalents at beginning of year
    
    
    37,043,665
    
    
    
    22,080,018
    
    
    
    29,910,627Cash and cash equivalents at end of year
    
    $
    40,572,426
    
    
    $
    37,043,665
    
    
    $
    22,080,018Supplemental disclosures:Interest paid
    
    $
    2,651,036
    
    
    $
    4,976,605
    
    
    $
    8,662,730Federal income taxes (refunded) paid
    
    
    (1,693,691
    )
    
    
    (2,119,770
    )
    
    
    (559,000
    )Transfer of held to maturity securities to available for sale securities, at amortized cost
    
    
    
    
    
    
    
    
    
    
    14,639,423Loans transferred to other real estate
    
    
    5,554,638
    
    
    
    4,538,646
    
    
    
    3,519,827Loans charged off
    
    
    11,882,572
    
    
    
    11,929,963
    
    
    
    12,105,101
  41




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##### Table of Contents



Notes to Consolidated Financial Statements
 (1) Summary of Significant Accounting Policies
  Principles of Consolidation
     (a)
    
    Cash and Cash Equivalents
 Cash and cash equivalents include cash on hand, demand deposits with other financial
institutions and short-term securities (securities with maturities equal to or less than 90
days and federal funds sold). Cash flows are reported net for customer loan and deposit
transactions, interest-bearing time deposits with other financial institutions and short-term
borrowings with maturities of 90 days or less.
 (b)
    
    Brokered Certificates of Deposit
 Brokered certificates of deposit are purchased periodically from other financial institutions
in denominations that are fully insured by the FDIC. These investments are carried at cost,
are not marketable, and are subject to penalty for early withdrawal.
 (c)
    
    Investment Securities
 The Bank classifies debt and equity investments as follows:
 Investment securities the Bank may not hold until maturity are accounted for as securities
available for sale and are stated at fair value, with unrealized gains and losses, net of
income taxes, reported as a separate component of other comprehensive income until realized.
Fair value measurement is based upon quoted prices, if available. If quoted prices are not
available, fair values are measured using independent pricing models or other model-based
valuation techniques such as present value of future cash flows, adjusted for the securitys
credit rating, prepayment assumptions and other factors such as credit loss assumptions.
 Investment securities are reviewed quarterly for possible other-than-temporary impairment
(OTTI). Managements evaluation considers various qualitative and quantitative factors
regarding each investment category, including if investment securities were U.S. Government
issued, the credit rating on the securities, credit outlook, payment status and financial
condition, the length of time a security has been in a loss position, the size of the loss
position and other meaningful information. In addition, with respect to the Corporations
non-government agency CMO security, management regularly completes a cash flow analysis with
the assistance of a third party specialist. The analysis considers assumptions regarding
voluntary prepayment speed, default rate, and loss severity using the CMOs original yield as
the discount rate.
 For debt securities, the Corporation distinguishes between the credit and noncredit components
of an OTTI event. The credit component of an OTTI charge is the difference between the
present value of the cash flows expected to be collected and the amortized cost basis of the
debt security. If the Corporation does not intend to sell the security and it is more likely
than not that the Corporation will not have to sell the security before the anticipated
recovery of the remaining amortized cost basis, the credit
component of the OTTI charge is recognized in earnings and the remaining portion in other
comprehensive income. If either of the above criteria is met, the entire difference between
the amortized cost and fair value is recognized in earnings.
 Gains or losses on the sale of securities are computed based on the adjusted cost of the
specific security.
 (d)
    
    Loans
 Loans are classified within loans held for investment when management has the intent and
ability to hold the loan for the foreseeable future, or until maturity or payoff. The
foreseeable future is a management judgment which is determined based upon the type of loan,
business strategies, current market conditions, balance sheet management and liquidity needs.
Managements view of the foreseeable future may change based on changes in these conditions.
When a decision is made to sell or securitize a loan that was not originated or initially
acquired with the intent to sell or securitize, the loan is reclassified from
 42




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##### Table of Contents



loans held for
investment into held for sale. Loans are classified as held for sale when management has the
intent and ability to sell or securitize. Due to changing market conditions or other
strategic initiatives, managements intent with respect to the disposition of the loan may
change, and accordingly, loans previously classified as held for sale may be reclassified into
loans held for investment. Loans transferred between loans held for sale and loans held for
investment classifications are recorded at the lower of cost or market at the date of
transfer.
 Loans held for investment are carried at the principal amount outstanding net of unearned
income, unamortized premiums or discounts, deferred loan origination fees and costs, the
allowance for loan losses, and fair value adjustments, if any.
 Interest on loans is accrued daily based on the outstanding principal balance. In general the
accrual of interest income is discontinued when a loan becomes 90 days past due and the
borrowers capacity to repay the loan and collateral values appear insufficient for each loan
class. However, loans may be placed on nonaccrual status regardless of whether or not such
loans are considered past due if, in managements opinion, the borrower is unable to meet
payment obligations as they become due or as required by regulatory provisions. All interest
accrued but not received for all loans placed on nonaccrual is reversed from interest income.
Payments on such loans are generally applied to the principal balance until qualifying to be
returned to accrual status. A nonaccrual loan may be restored to accrual status when interest
and principal payments are current and the loan appears otherwise collectible. Delinquency
status for all commercial and installment loans is based on the actual number of days past due
as required by the contractual terms of the loan agreement.
 Loan origination fees and certain direct loan origination costs are deferred and recognized as
an adjustment of yield generally over the contractual life of the related loan. Net
unamortized deferred loan fees amounted to $202,000 and $244,000 at December 31, 2010 and
2009, respectively.
 (e)
    
    Allowance for Loan Losses and Credit Commitments
 Some loans will not be repaid in full. Therefore, an allowance for loan losses is established
based on managements periodic evaluation of the loan portfolio and reflects an amount that,
in managements opinion, is adequate to absorb probable losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, nonperforming loan levels, the
composition of the loan portfolio, and managements evaluation of the collectability of
specific loans, which includes analysis of the value of the underlying collateral. This
overall evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available. In addition, although management
evaluates the adequacy of the allowance for loan losses based on information known to
management at a given time, various regulatory agencies, based on the timing of their normal
examination process, may require future additions to the allowance for loan losses.
 The allowance consists of specific and general components. The specific component relates to
loans that are classified as nonaccrual or renegotiated. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan are lower than the carrying
value of that loan. The general component covers non-classified loans and is based on
historical loss experience, adjusted for qualitative factors.
 The Bank also maintains a reserve for losses on unfunded credit commitments and letters of
credit to provide for the risk of loss inherent in these arrangements. The reserve is computed
using the same methodology as that used to determine the allowance for loan losses. This
reserve is reported as a liability on the balance sheet within accrued interest, taxes, and
other liabilities, while the corresponding provision for these losses is recorded as a
component of the provision for loan losses.
 (f)
    
    Nonperforming Assets
 The Bank charges off all or part of loans when amounts are deemed to be uncollectible,
although collection efforts may continue and future recoveries may occur.
 Nonperforming assets are comprised of loans for which the accrual of interest has been
discontinued, loans for which the terms have been renegotiated to less than market rates due
to a serious weakening of the borrowers financial condition, loans 90 days past due and still
accruing, and other real estate owned, which has been acquired primarily through foreclosure
and is awaiting disposition.
 Loans are generally placed on a nonaccrual status when principal or interest is past due 90
days or more and when, in the opinion of management, full collection of principal and interest
is unlikely. At the time a loan is placed on nonaccrual status, interest previously accrued
but not yet collected is charged against current interest income. Income on such loans is then
recognized only to the extent that cash is received and where future collection of principal
is probable.
 The Bank considers a loan to be impaired when it is probable that it will be unable to collect
all or part of amounts due according to the contractual terms of the loan agreement. Impaired
loans are measured based on the present value of expected cash flows discounted at the loans
effective interest rate or, as a practical expedient, at a loans observable market price, or
the fair value of
the collateral if the loan is collateral dependent. Interest income on impaired loans is
accrued based on the principal amounts outstanding. The accrual of interest is generally
discontinued when an impaired loan becomes 90 days past due.
 (g)
    
    Other Real Estate Owned
 Other real estate owned is recorded at the assets estimated fair value, net of estimated
disposal costs, at the time of foreclosure, establishing a new cost basis. Any write-downs at
the time of foreclosure are charged to the allowance for loan losses. Expenses incurred in
maintaining assets, adjustments to estimated disposal costs, and subsequent write-downs to
reflect declines in value are charged to noninterest expense.
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(h)
    
    Transfer of Financial Assets
 Transfers of financial assets are accounted for as sales when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Bank, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the transferred
assets, and (3) the Bank does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity. The Banks transfers of
financial assets are limited to commercial loan participations sold, which were insignificant
for 2010, 2009 and 2008.
 (i)
    
    Premises and Equipment
 Premises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization, computed on the straight-line method, are charged to operations
over the estimated useful lives of the assets. Estimated useful lives range up to 40 years for
buildings, up to 7 years for furniture and equipment and up to 15 years for land improvements.
Leasehold improvements are generally depreciated over the shorter of the respective lease
term or estimated useful life.
 Premises and equipment are evaluated periodically for impairment when events or changes in
circumstances indicate the carrying amount may not be recoverable. Impairment exists when the
expected undiscounted future cash flows of a long-lived asset are less than its carrying
value. In that event, the Bank recognizes a loss for the difference between the carrying
amount and the estimated fair value of the asset based on a quoted market price, if
applicable, or a discounted cash flow analysis. Impairment losses are recorded in other
noninterest expense on the income statement.
 (j)
    
    Advertising Costs
 Advertising costs are generally expensed as incurred and approximated $27,000, $53,000 and
$89,000 in 2010, 2009 and 2008, respectively.
 (k)
    
    Federal Income Taxes
 Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
 A valuation allowance, if needed, reduces deferred tax assets to the expected amount more
likely than not that is to be realized. Realization of the Corporations deferred tax assets
is primarily dependent upon the generation of a sufficient level of future taxable income. At
December 31, 2010 and 2009, management did not believe it was more likely than not that all of
the deferred tax assets would be realized and, accordingly, recorded valuation allowances of
$10,440,318 and $8,870,413, respectively.
 In preparation of income tax returns, tax positions are taken based on interpretation of
federal and state income tax laws for which the outcome is uncertain. Management reviews and
evaluates the status of tax positions. There were no unrecognized tax benefits during 2010 or
2009. Interest or penalties related to unrecognized tax benefits would be recorded in income
tax expense. The Corporation files U.S. federal income tax returns which are subject to final
examination for all years after 2006.
 (l)
    
    Stock-Based Compensation
 At December 31, 2010 and 2009, the Corporation had two stock-based compensation plans, which
are described more fully in Notes 13 and 14.
 (m)
    
    Common Stock Repurchases
 The Corporation records common stock repurchases at cost. A portion of the repurchase is
charged to common stock based on the average per share dollar amount of stock outstanding,
multiplied by the number of shares repurchased, with the remainder charged to retained
earnings. Shares repurchased are retired. No common stock repurchases were made by the
Corporation during 2010, 2009, or 2008.
 (n)
    
    Statements of Cash Flows
 For purposes of reporting cash flows, cash equivalents include amounts due from banks, federal
funds sold and other short term investments with original maturities of 90 days or less.
 (o)
    
    Comprehensive Income
 ASC Topic 220 Comprehensive Income,establishes standards for the reporting and display of
comprehensive income and its components (such as changes in unrealized gains and losses on
securities available for sale) in a financial statement that is displayed with the same
prominence as other financial statements. The Corporation reports comprehensive income within
the statement of shareholders equity and comprehensive income. Comprehensive income includes
net income and any changes in equity from nonowner sources that are not recorded in the income
statement.
 (p)
    
    Earnings Per Share
 Basic earnings per common share is calculated by dividing net income by the weighted average
number of common shares and participating securities outstanding during the period. Diluted
earnings per share are the same as basic earnings per share because any additional potential
common shares issuable are included in the basic earnings per share calculation. The
Corporations restricted stock awards, which provide non-forfeitable rights to dividends or
dividend equivalents, are considered a participating security and are included in the number
of shares outstanding for both basic and diluted earnings per share calculations.
 44




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##### Table of Contents



(q)
    
    ReclassificationsCertain reclassifications in the prior years financial statements have been made to conform to the current year presentation.(r)
    
    Operating Segment
 While the Corporation monitors revenue streams of the various products and services offered,
the Corporation manages its business on the basis of one operating segment, banking, in
accordance with the qualitative and quantitative criteria established by ASC Topic 280,
Segment Reporting.
 (2) Regulatory Matters and Going Concern
 Regulatory Action
      Going Concern
    45




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##### Table of Contents



Recovery Plan
     
    
    Aggressively managing the Banks existing loan portfolio to minimize further credit
losses and to maximize recoveries;
 
    
    Shrinking the Banks balance sheet through limited new loan originations; payoff and
restructuring of existing loans; and, runoff of non core deposits; and
 
    
    Lowering operating costs to align with a restructured and smaller banking operation.
  
    
    Reduced nonperforming assets to $35.2 at December 31, 2010 from $47.5 million at
December 31, 2009.
    
    Reduced loans to $235.9 million at December 31, 2010 from $274.0 million at December 31,
2009. Importantly, the Banks concentration in troubled commercial real estate and land
development loans decreased from $91.3 million at December 31, 2009 to $55.0 million at
December 31, 2010.
    
    Maintained an allowance for loan losses as a percentage of total loans of 5.92% at
December 31, 2010, compared to 6.81% at December 31, 2009, combined with an increased
coverage ratio for the allowance as a percentage of nonperforming loans of 45.27% at
December 31, 2010 compared to 42.69% at December 31, 2009.
    
    Improved the Banks on balance sheet liquidity position with cash and cash equivalents
totaling $40.6 million at December 31, 2010, compared to $37.0 million at December 31,
2009, or 13.3% compared to 11.1% of total assets at each respective year-end. Also,
increased the Banks investment portfolio by $4.5 million from year-end 2009 to 2010.
    
    Reduced the Banks loan-to-deposit ratio to 80.4% at December 31, 2010, compared to
86.9% at December 31, 2009.
    
    Achieved a 49 basis point reduction in the Banks average cost of funds through non
renewal of high cost certificates of deposit and competitive core deposit rates, without
experiencing core deposit runoff.
    
    Reduced the provision for loan loss expense to $6.0 million in 2010 from $15.8 million
in 2009 based on favorable results from loan work-out efforts initiated in 2009 and 2010,
continuation of diligent and robust loan review practices which reduced uncertainty in the
portfolio, a decreased velocity of new problem loans, and signs of stabilization in local
economic conditions, including less depreciation in local real estate values.
    
    Reduced compensation and benefits expense by $1.4 million from 2009 to 2010 through
staffing reductions effected in 2009 and continued in 2010 and salaried personnel wage
concessions.
    
    Recognized gain of $329,000 on sale of investments in December 2010 as a result of
portfolio restructuring and divesting from certain government agency securities.
    
    The Banks 2011 budget places continued emphasis on revenue enhancements, expense
reductions and operational efficiencies.
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##### Table of Contents



○
    
    Planned revenue enhancements include investment of excess on-balance cash
into low-risk, liquid securities; further market reductions to deposit interest
rates; origination and sale of commercial loans under the federal governments SBA
loan guarantee program; and affiliation with an established residential mortgage
origination company to generate additional income.○
    
    Planned expense reductions include adjustments to staffing and
compensation levels within select departments, controlled monitoring and reduction
of costs related to management of problem loans and other real estate, and further
reduction of other discretionary costs.
   (3) Investment Securities
  Unrealized2010
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueObligations of state and political subdivisions
    
    $
    6,309,076
    
    
    $
    94,982
    
    
    $
    (117,722
    )
    
    $
    6,286,336U.S. agency securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed/CMO securities
    
    
    21,169,123
    
    
    
    206,063
    
    
    
    (439,412
    )
    
    
    20,935,774Preferred stock securities
    
    
    48,800
    
    
    
    9,560
    
    
    
    (10,800
    )
    
    
    47,560Total
    
    $
    27,526,999
    
    
    $
    310,605
    
    
    $
    (567,934
    )
    
    $
    27,269,670Unrealized2009
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueObligations of state and political subdivisions
    
    $
    7,088,573
    
    
    $
    126,321
    
    
    $
    (59,093
    )
    
    $
    7,155,801U.S. agency securities
    
    
    1,504,100
    
    
    
    26,547
    
    
    
    (3,178
    )
    
    
    1,527,469Mortgage-backed/CMO securities
    
    
    13,895,720
    
    
    
    606,611
    
    
    
    (566,789
    )
    
    
    13,935,542Preferred stock securities
    
    
    48,800
    
    
    
    38,000
    
    
    
    
    
    
    
    86,800Total
    
    $
    22,537,193
    
    
    $
    797,479
    
    
    $
    (629,060
    )
    
    $
    22,705,612
 Investments  Debt and Equity Instruments
     47




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Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair2010
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    ValueObligations of state and
political subdivisions
    
    $
    (117,722
    )
    
    $
    2,692,003
    
    
    $
    
    
    
    $
    
    
    
    $
    (117,722
    )
    
    $
    2,692,003Mortgage-backed/CMO securities
    
    
    (59,401
    )
    
    
    6,955,344
    
    
    
    (380,011
    )
    
    
    2,591,514
    
    
    
    (439,412
    )
    
    
    9,546,858Preferred stock securities
    
    
    (10,800
    )
    
    
    22,400
    
    
    
    
    
    
    
    
    
    
    
    (10,800
    )
    
    
    22,400Total
    
    $
    (187,923
    )
    
    $
    9,669,747
    
    
    $
    (380,011
    )
    
    $
    2,591,514
    
    
    $
    (567,934
    )
    
    $
    12,261,261
 Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair2009
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    ValueObligations of state and
political subdivisions
    
    $
    (59,093
    )
    
    $
    2,885,936
    
    
    $
    
    
    
    $
    
    
    
    $
    (59,093
    )
    
    $
    2,885,936U.S. agency securities
    
    
    (3,178
    )
    
    
    495,650
    
    
    
    
    
    
    
    
    
    
    
    (3,178
    )
    
    
    495,650Mortgage-backed/CMO securities
    
    
    
    
    
    
    
    
    
    
    (566,789
    )
    
    
    2,734,709
    
    
    
    (566,789
    )
    
    
    2,734,709Total
    
    $
    (62,271
    )
    
    $
    3,381,586
    
    
    $
    (566,789
    )
    
    $
    2,734,709
    
    
    $
    (629,060
    )
    
    $
    6,116,295
  December 31, 2010
    
    
    December 31, 2009Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair ValueMature in one year or less
    
    $
    
    
    
    $
    
    
    
    $
    1,395,800
    
    
    $
    1,428,773Mature after one year through five years
    
    
    715,954
    
    
    
    735,290
    
    
    
    225,000
    
    
    
    239,281Mature after five years through ten years
    
    
    2,646,610
    
    
    
    2,701,070
    
    
    
    1,800,094
    
    
    
    1,843,489Mature after ten years
    
    
    2,995,312
    
    
    
    2,897,536
    
    
    
    5,220,579
    
    
    
    5,258,5276,357,876
    
    
    
    6,333,896
    
    
    
    8,641,473
    
    
    
    8,770,070Mortgage-backed serurites/CMO
    
    
    21,169,123
    
    
    
    20,935,774
    
    
    
    13,895,720
    
    
    
    13,935,542Totals
    
    $
    27,526,999
    
    
    $
    27,269,670
    
    
    $
    22,537,193
    
    
    $
    22,705,612
   2010
    
    
    2009Amortized
    
    
    
    
    
    
    AmortizedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueState of Michigan
    
    $
    4,733,899
    
    
    $
    4,707,610
    
    
    $
    4,742,851
    
    
    $
    4,791,474
   48




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(4) Loans
  December 31,2010
    
    
    2009Commercial
    
    $
    16,195,595
    
    
    $
    20,013,918Commercial real estate
    
    
    174,647,944
    
    
    
    199,482,887Consumer real estate
    
    
    39,513,107
    
    
    
    47,325,292Consumer and Other
    
    
    5,783,631
    
    
    
    7,467,887Subtotal
    
    
    236,140,277
    
    
    
    274,289,984Unearned income
    
    
    (201,931
    )
    
    
    (244,234
    )Total Loans
    
    $
    235,938,346
    
    
    $
    274,045,750
    (5) Allowance for Loan Losses and Credit Quality of Loans
  49




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##### Table of Contents



December 31,2010
    
    
    2009Allowance for loan losses:Balance, beginning of year
    
    $
    18,665,173
    
    
    $
    14,122,291Provision for loan losses
    
    
    5,975,000
    
    
    
    15,862,853Charge offs:Commercial
    
    
    465,031
    
    
    
    1,599,274Commercial real estate
    
    
    9,922,700
    
    
    
    7,461,447Consumer real estate
    
    
    1,263,213
    
    
    
    2,425,101Consumer and other
    
    
    231,628
    
    
    
    444,141Total charge offs
    
    
    11,882,572
    
    
    
    11,929,963Recoveries:Commercial
    
    
    128,949
    
    
    
    123,090Commercial real estate
    
    
    883,066
    
    
    
    297,025Consumer real estate
    
    
    28,865
    
    
    
    55,381Consumer and other
    
    
    171,689
    
    
    
    134,496Total recoveries
    
    
    1,212,569
    
    
    
    609,992Net charge offs
    
    
    10,670,003
    
    
    
    11,319,971Balance at December 31,
    
    
    13,970,170
    
    
    
    18,665,173Reserve for unfunded credit commitments:Balance, beginning of year
    
    
    300,000
    
    
    
    316,000Additions (reductions) to reserve charged
(credited) to operations
    
    
    
    
    
    
    (16,000
    )Balance at December 31,
    
    
    300,000
    
    
    
    300,000Total allowance for loan losses and reserve
for unfunded credit commitments
    
    $
    14,270,170
    
    
    $
    18,965,173
  Commercial Real
    
    
    Consumer Real
    
    
    ConsumerCommercial
    
    
    Estate
    
    
    Estate
    
    
    and Other
    
    
    TotalAllowance for loan losses:Individually evaluated for impairment
    
    $
    462,000
    
    
    $
    5,776,000
    
    
    $
    297,000
    
    
    $
    
    
    
    $
    6,535,000Collectively evaluated for impairment
    
    
    587,233
    
    
    
    4,779,428
    
    
    
    1,915,618
    
    
    
    152,891
    
    
    
    7,435,170Total allowance for loan losses
    
    $
    1,049,233
    
    
    $
    10,555,428
    
    
    $
    2,212,618
    
    
    $
    152,891
    
    
    $
    13,970,170Loan balances:Individually evaluated for impairment
    
    $
    1,379,512
    
    
    $
    27,427,229
    
    
    $
    1,396,122
    
    
    $
    403,632
    
    
    $
    30,606,495Collectively evaluated for impairment
    
    
    14,816,083
    
    
    
    147,220,715
    
    
    
    38,116,985
    
    
    
    5,379,999
    
    
    
    205,533,782Total loans
    
    $
    16,195,595
    
    
    $
    174,647,944
    
    
    $
    39,513,107
    
    
    $
    5,783,631
    
    
    $
    236,140,277
   50




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##### Table of Contents




    
    Rating 1 (Minimal) Loans in this category are generally to persons or entities of
unquestioned financial strength, a highly liquid financial position, with collateral that
is liquid and well margined. These borrowers have performed without question on past
obligations, and the Bank expects their performance to continue. Internally generated cash
flow covers current maturities of long-term debt by a substantial margin.
    
    Rating 2 (Modest) These are loans generally to persons or entities with strong
financial condition and above-average liquidity who have previously satisfactorily handled
their obligations with the Bank. Collateral securing the Banks debt is margined in
accordance with policy guidelines. Internally-generated cash flow covers current maturities
of long-term debt more than adequately.
    
    RATING 3 (Average) These are loans generally with average cash flow and ratios
compared to peers. Usually RMA comparisons show where companies fall in the performance
spectrum. Companies have consistent performance for 3 or more years.
    
    RATING 4 (Acceptable) These are loans generally to persons or entities with an
average financial condition, adequate collateral margins, adequate cash flow to service
long-term debt, and net worth comprised mainly of fixed assets are included in this
category. These entities are minimally profitable now, with projections indicating
continued profitability into the foreseeable future. Overall, these loans are basically
sound.
    
    RATING 5 (Acceptable  Monitor) These loans are characterized by borrowers who have
marginal cash flow, marginal profitability, or have experienced an unprofitable year and a
declining financial condition. The borrower has in the past satisfactorily handled debts
with the Bank, but in recent months has either been late, delinquent in making payments, or
made sporadic payments. While the Bank continues to be adequately secured, margins have
decreased or are decreasing, despite the borrowers continued satisfactory condition.
Other characteristics of borrowers in this class include inadequate credit information or
weakness of financial statement and repayment capacity, but with collateral that appears to
limit exposure. This classification includes loans to established borrowers that are
reasonably margined by collateral, but where near term potential for improvement in
financial capacity appears limited.
    
    RATING 6 (Special Mention - OAEM) Loans in this class generally have potential
weaknesses that deserve managements close attention. If left uncorrected, these potential
weaknesses may result in deterioration of the repayment prospects for the asset or in the
Banks credit position at some future date. These potential weaknesses may result in a
deterioration of the repayment of the loan and increase the credit risk. Special mention
assets are not adversely classified and do not expose the Bank to sufficient risk to
warrant adverse classification. Special mention credits may include a borrower that pays
the Bank on a timely basis (occasional 30 day delinquent) and may be experiencing temporary
cash flow deficiencies.
    
    RATING 7 (Substandard) These loans are generally inadequately protected by the current
sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans
so classified must have a well-defined weakness, or weaknesses, that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that the Bank
will sustain some loss if the deficiencies are not corrected. Loss potential, while
existing in the aggregate amount of substandard loans, does not have to exist in individual
loans. Substandard credits may include a borrower that pays consistently past due, has
significant cash flow shortages and may have a collateral shortfall that requires a
specific reserve.
    
    RATING 8 (Doubtful) This risk rating class has all of the weaknesses inherent in the
substandard rating but with the added characteristic that the weaknesses make collection in
full or liquidation, on the basis of currently known existing facts, condition, and values,
highly questionable and improbable. These are poor quality loans in which neither the
collateral, if any, nor the financial condition of the borrower presently ensure
collectability in full within a reasonable period of time; in fact, there is permanent
impairment in the collateral securing the Banks loan. These loans are in a work-out
status, must be non-accrual status and have a defined work-out strategy.This is a transitional risk rating class while collateral value and other factors are
assessed. Loans will remain in this class for the assessment period, but in no event for more
than 1 year. If there is no improvement in the Banks position during that time, or if
collateral value is determined sooner, a charge-off will be taken to best reflect known asset
collateral value.
    
    RATING 9 (Loss) Loans in this risk rating have a portion of the loan that is deemed to
be uncollectible and of such little value that their continuance as bankable assets is not
warranted. This classification means the asset has absolutely no recovery or salvage value.
The Bank will take the loss in the period in which the related loan becomes uncollectible.
    51




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##### Table of Contents



Commerical Real EstateConstruction, Land Development,Commercial
    
    
    Other Land
    
    
    Owner Occupied
    
    
    Non Owner OccupiedRisk Grade
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Not Rated
    
    $
    
    
    
    $
    447,338
    
    
    $
    90,962
    
    
    $
    197,127
    
    
    $
    59,510
    
    
    $
    67,363
    
    
    $
    
    
    
    $
    1
    
    
    915,371
    
    
    
    1,311,364
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    508,717
    
    
    
    223,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,370
    
    
    
    
    
    
    
    3
    
    
    2,515,293
    
    
    
    1,424,407
    
    
    
    1,470,334
    
    
    
    1,520,436
    
    
    
    2,135,613
    
    
    
    1,722,417
    
    
    
    843,228
    
    
    
    1,743,4044
    
    
    3,098,230
    
    
    
    5,842,226
    
    
    
    1,173,686
    
    
    
    3,492,315
    
    
    
    14,786,199
    
    
    
    16,655,110
    
    
    
    22,255,054
    
    
    
    27,184,0755
    
    
    4,627,881
    
    
    
    5,425,130
    
    
    
    5,317,013
    
    
    
    2,148,454
    
    
    
    30,193,755
    
    
    
    23,394,989
    
    
    
    41,308,900
    
    
    
    36,281,5326
    
    
    1,837,269
    
    
    
    474,184
    
    
    
    1,865,608
    
    
    
    4,211,605
    
    
    
    6,790,306
    
    
    
    6,056,623
    
    
    
    14,083,914
    
    
    
    17,407,0747
    
    
    2,692,834
    
    
    
    4,865,433
    
    
    
    9,724,302
    
    
    
    17,548,762
    
    
    
    9,349,673
    
    
    
    18,039,767
    
    
    
    13,199,887
    
    
    
    21,670,464Total
    
    $
    16,195,595
    
    
    $
    20,013,918
    
    
    $
    19,641,905
    
    
    $
    29,118,699
    
    
    $
    63,315,056
    
    
    $
    66,077,639
    
    
    $
    91,690,983
    
    
    $
    104,286,549Performing
    
    $
    13,897,127
    
    
    $
    17,427,626
    
    
    $
    10,994,656
    
    
    $
    13,381,875
    
    
    $
    57,069,363
    
    
    $
    58,282,820
    
    
    $
    82,662,548
    
    
    $
    92,279,340Nonperforming
    
    
    2,298,468
    
    
    
    2,586,292
    
    
    
    8,647,249
    
    
    
    15,736,824
    
    
    
    6,245,693
    
    
    
    7,794,819
    
    
    
    9,028,435
    
    
    
    12,007,209Total
    
    $
    16,195,595
    
    
    $
    20,013,918
    
    
    $
    19,641,905
    
    
    $
    29,118,699
    
    
    $
    63,315,056
    
    
    $
    66,077,639
    
    
    $
    91,690,983
    
    
    $
    104,286,549
  Consumer Real EstateHome Equity and Home EquityMortgage - Residential
    
    
    Lines of CreditRisk Grade
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Not Rated
    
    $
    13,922,512
    
    
    $
    17,789,127
    
    
    $
    11,100,114
    
    
    $
    12,869,5361
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    124,712
    
    
    
    
    
    
    
    229,224
    
    
    
    299,3334
    
    
    1,626,400
    
    
    
    1,761,544
    
    
    
    372,813
    
    
    
    1,068,0385
    
    
    2,020,913
    
    
    
    1,396,482
    
    
    
    1,490,532
    
    
    
    1,421,7046
    
    
    1,464,136
    
    
    
    1,181,662
    
    
    
    820,453
    
    
    
    891,0987
    
    
    5,387,222
    
    
    
    7,590,040
    
    
    
    954,076
    
    
    
    1,056,728Total
    
    $
    24,545,895
    
    
    $
    29,718,855
    
    
    $
    14,967,212
    
    
    $
    17,606,437Performing
    
    $
    20,698,059
    
    
    $
    25,216,321
    
    
    $
    14,219,988
    
    
    $
    16,563,395Nonperforming
    
    
    3,847,836
    
    
    
    4,502,534
    
    
    
    747,224
    
    
    
    1,043,042Total
    
    $
    24,545,895
    
    
    $
    29,718,855
    
    
    $
    14,967,212
    
    
    $
    17,606,437
  Consumer and OtherRisk Grade
    
    2010
    
    
    2009Not Rated
    
    $
    4,429,637
    
    
    $
    5,892,0681
    
    
    
    
    
    
    2
    
    
    
    
    
    
    3
    
    
    662,640
    
    
    
    1,006,3164
    
    
    282,613
    
    
    
    502,0955
    
    
    161,696
    
    
    
    38,5916
    
    
    
    
    
    
    7
    
    
    247,045
    
    
    
    28,817Total
    
    $
    5,783,631
    
    
    $
    7,467,887Performing
    
    $
    5,740,341
    
    
    $
    7,414,638Nonperforming
    
    
    43,290
    
    
    
    53,249Total
    
    $
    5,783,631
    
    
    $
    7,467,887
 52




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##### Table of Contents



Loans90+ daysLoans Past Due
    
    
    Loans not
    
    
    Total
    
    
    Past Due30-59 days
    
    
    60-89 days
    
    
    90+ days
    
    
    Total
    
    
    Past Due
    
    
    Loans
    
    
    and AccruingCommercial
    
    $
    572,949
    
    
    $
    
    
    
    $
    530,616
    
    
    $
    1,103,565
    
    
    $
    15,092,030
    
    
    $
    16,195,595
    
    
    $
    Commercial real estate:Construction, land development,
and other land
    
    
    
    
    
    
    
    
    
    
    6,091,118
    
    
    
    6,091,118
    
    
    
    13,550,787
    
    
    
    19,641,905
    
    
    
    Owner occupied
    
    
    181,565
    
    
    
    
    
    
    
    2,672,341
    
    
    
    2,853,906
    
    
    
    60,461,150
    
    
    
    63,315,056
    
    
    
    Nonowner occupied
    
    
    
    
    
    
    
    
    
    
    2,032,497
    
    
    
    2,032,497
    
    
    
    89,658,486
    
    
    
    91,690,983
    
    
    
    Consumer real estate:Mortgage  Residential
    
    
    139,271
    
    
    
    40,000
    
    
    
    1,271,004
    
    
    
    1,450,275
    
    
    
    23,095,620
    
    
    
    24,545,895Home equity and home equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    lines of credit
    
    
    256,360
    
    
    
    104,330
    
    
    
    506,813
    
    
    
    867,503
    
    
    
    14,099,709
    
    
    
    14,967,212
    
    
    
    Consumer and Other
    
    
    54,131
    
    
    
    
    
    
    
    1,631
    
    
    
    55,762
    
    
    
    5,727,869
    
    
    
    5,783,631
    
    
    
    Total
    
    $
    1,204,276
    
    
    $
    144,330
    
    
    $
    13,106,020
    
    
    $
    14,454,626
    
    
    $
    221,685,651
    
    
    $
    236,140,277
    
    
    $
    
   2010
    
    
    2009Commercial
    
    $
    2,298,468
    
    
    $
    2,586,292Commercial real estate:Construction, land development,
and other land
    
    
    8,647,249
    
    
    
    15,736,824Owner occupied
    
    
    6,245,693
    
    
    
    7,794,819Nonowner occupied
    
    
    9,028,435
    
    
    
    12,007,209Consumer real estate:Mortgage  Residential
    
    
    3,847,836
    
    
    
    4,502,534Home equity and home equity
lines of credit
    
    
    747,224
    
    
    
    1,043,042Consumer and Other
    
    
    43,290
    
    
    
    53,249Total
    
    $
    30,858,195
    
    
    $
    43,723,969
  2010
    
    
    2009Nonaccrual loans
    
    $
    30,858,195
    
    
    $
    43,723,969Loans 90 days or more past due and still accruing interest
    
    
    
    
    
    
    Total nonperforming loans
    
    $
    30,858,195
    
    
    $
    43,723,969
    53




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##### Table of Contents



Impaired loans and related allowance allocations by class of loans at December 31 were as follows:
 UnpaidRecorded
    
    
    Principal
    
    
    Related
    
    
    Average2010
    
    Investment
    
    
    Balance
    
    
    Allowance
    
    
    BalanceWith no related allowance recorded:Commercial
    
    $
    551,143
    
    
    $
    580,023
    
    
    $
    
    
    
    $
    693,352Commercial real estate:Construction, land development,
and other land
    
    
    1,487,350
    
    
    
    4,417,929
    
    
    
    
    
    
    
    2,376,456Owner occupied
    
    
    3,217,843
    
    
    
    3,438,668
    
    
    
    
    
    
    
    1,740,262Non owner occupied
    
    
    1,671,186
    
    
    
    1,698,476
    
    
    
    
    
    
    
    2,377,437Consumer real estate:Mortgage  Residential
    
    
    301,205
    
    
    
    304,251
    
    
    
    
    
    
    
    60,241Home equity and home equity
lines of credit
    
    
    403,632
    
    
    
    489,982
    
    
    
    
    
    
    
    80,726Consumer and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,632,359
    
    
    
    10,929,329
    
    
    
    
    
    
    
    7,328,474With an allowance recorded:Commercial
    
    
    828,369
    
    
    
    861,986
    
    
    
    462,000
    
    
    
    1,065,747Commercial real estate:Construction, land development,
and other land
    
    
    6,706,756
    
    
    
    8,262,532
    
    
    
    1,085,000
    
    
    
    9,269,626Owner occupied
    
    
    4,606,999
    
    
    
    5,070,441
    
    
    
    1,394,000
    
    
    
    4,954,620Non owner occupied
    
    
    9,737,095
    
    
    
    10,473,268
    
    
    
    3,297,000
    
    
    
    7,838,019Consumer real estate:Mortgage  Residential
    
    
    1,094,917
    
    
    
    1,100,483
    
    
    
    297,000
    
    
    
    218,983Home equity and home equity
lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,974,136
    
    
    
    25,768,710
    
    
    
    6,535,000
    
    
    
    23,346,995Total:Commercial
    
    
    1,379,512
    
    
    
    1,442,009
    
    
    
    462,000
    
    
    
    1,759,099Commercial real estate:Construction, land development,
and other land
    
    
    8,194,106
    
    
    
    12,680,461
    
    
    
    1,085,000
    
    
    
    11,646,082Owner occupied
    
    
    7,824,842
    
    
    
    8,509,109
    
    
    
    1,394,000
    
    
    
    6,694,882Non owner occupied
    
    
    11,408,281
    
    
    
    12,171,744
    
    
    
    3,297,000
    
    
    
    10,215,456Consumer real estate:Mortgage  Residential
    
    
    1,396,122
    
    
    
    1,404,734
    
    
    
    297,000
    
    
    
    279,224Home equity and home equity
lines of credit
    
    
    403,632
    
    
    
    489,982
    
    
    
    
    
    
    
    80,726Consumer and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    30,606,495
    
    
    $
    36,698,039
    
    
    $
    6,535,000
    
    
    $
    30,675,469
  2009
    
    
    2008Impaired loans with no allocated allowance
    
    $
    11,096,720
    
    
    $
    5,375,840Impaired loans with an allocated allowance
    
    
    30,351,906
    
    
    
    22,491,550Total impaired loans
    
    $
    41,448,626
    
    
    $
    27,867,390Amount of allowance for loan losses allocated
    
    $
    7,439,000
    
    
    $
    4,289,000Avergage investment in impaired loans
    
    $
    36,100,000
    
    
    $
    27,100,000
  54




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##### Table of Contents



(6) Premises and Equipment
  2010
    
    
    2009Land and land improvements
    
    $
    2,849,972
    
    
    $
    2,874,212Premises
    
    
    9,934,571
    
    
    
    9,894,218Furniture and equipment
    
    
    3,830,190
    
    
    
    4,032,87916,614,733
    
    
    
    16,801,309Less accumulated depreciation and amortization
    
    
    (8,922,548
    )
    
    
    (8,709,846
    )Premises and equipment, net
    
    $
    7,692,185
    
    
    $
    8,091,463
 (7) Other Real Estate Owned
  (8) Time Certificates of Deposit
  Year of maturity:2012
    
    $
    21,003,2542013
    
    
    1,736,5412014
    
    
    6,482,8092015
    
    
    994,5152016 and thereafter
    
    
    25,761Total
    
    $
    30,242,880
  2010
    
    
    2009Three months or less
    
    $
    9,161,055
    
    
    $
    18,484,354Three through six months
    
    
    5,754,819
    
    
    
    3,369,267Six through twelve months
    
    
    11,477,451
    
    
    
    14,052,837Over twelve months
    
    
    8,757,547
    
    
    
    10,024,712Total
    
    $
    35,150,872
    
    
    $
    45,931,170
  (9) Other Borrowings
      55




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##### Table of Contents



(10) Federal Income Taxes
  2010
    
    
    2009
    
    
    2008Current
    
    $
    
    
    
    $
    (2,050,675
    )
    
    $
    (1,635,853
    )Deferred
    
    
    57,263
    
    
    
    966,107
    
    
    
    1,508,577Total federal income tax expense (benefit)
    
    $
    57,263
    
    
    $
    (1,084,568
    )
    
    $
    (127,276
    )
  2010
    
    
    2009
    
    
    2008Computed expected tax expense (benefit)
    
    $
    (1,304,302
    )
    
    $
    (5,025,353
    )
    
    $
    (4,603,775
    )Increase (reduction) in tax resulting from:Tax-exempt interest and dividends, net
    
    
    (119,235
    )
    
    
    (179,149
    )
    
    
    (253,841
    )Change in valuation allowance
    
    
    1,482,413
    
    
    
    4,120,413
    
    
    
    4,750,000Other, net
    
    
    (1,613
    )
    
    
    (479
    )
    
    
    (19,660
    )Total
federal income tax expense (benefit)
    
    $
    57,263
    
    
    $
    (1,084,568
    )
    
    $
    (127,276
    )
  2010
    
    
    2009Deferred tax assets:Allowance for loan losses
    
    $
    2,243,706
    
    
    $
    3,888,065Net operating loss carryforward
    
    
    6,209,007
    
    
    
    3,183,570Other-than-temporary impairment on securities available for sale
    
    
    743,472
    
    
    
    743,472Premises and equipment
    
    
    350,880
    
    
    
    330,517Deferred directors fees
    
    
    240,846
    
    
    
    301,212Reserve for Other Real Estate Owned
    
    
    408,462
    
    
    
    300,863Supplemental retirement plan
    
    
    157,133
    
    
    
    208,870Unrealized loss on securites available for sale
    
    
    87,492
    
    
    
    Other
    
    
    110,247
    
    
    
    96,540Total gross deferred tax assets
    
    
    10,551,245
    
    
    
    9,053,109Deferred tax liabilities:Deferred loan fees
    
    
    (41,230
    )
    
    
    (57,815
    )Unrealized gain on securites available for sale
    
    
    
    
    
    
    (57,262
    )Other
    
    
    (69,697
    )
    
    
    (67,619
    )Total gross deferred tax liabilities
    
    
    (110,927
    )
    
    
    (182,696
    )Net deferred tax asset before valuation allowance
    
    
    10,440,318
    
    
    
    8,870,413Valuation allowance
    
    
    (10,440,318
    )
    
    
    (8,870,413
    )Net deferred tax asset
    
    $
    
    
    
    $
    
    (11) Related Party Transactions
  56




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##### Table of Contents



2010
    
    
    2009Balance at beginning of year
    
    $
    1,618,638
    
    
    $
    3,499,732New loans and related parties
    
    
    288,787
    
    
    
    477,339Loan repayments
    
    
    (301,933
    )
    
    
    (32,320
    )Loans no longer related-party
    
    
    (1,015,201
    )
    
    
    (2,326,113
    )Balance at end of year
    
    $
    590,291
    
    
    $
    1,618,638
 (12) Leases
  Year ending December 31:2011
    
    $
    71,8762012
    
    
    61,3762013
    
    
    29,8752014
    
    
    29,8762015
    
    
    9,959Total lease payments
    
    $
    202,962
  (13) Retirement Plan
  (14) Long Term Incentive Plan
   Weighted-Average GrantRestricted Stock Awards
    
    Shares
    
    
    Date Fair ValueOutstanding at January 1,
    
    
    2,033
    
    
    $
    17.47Granted
    
    
    
    
    
    
    Vested
    
    
    (823
    )
    
    
    19.57Forfeited
    
    
    
    
    
    
    Outstanding at December 31,
    
    
    1,210
    
    
    $
    16.03
  (15) Directors Stock Fee Plan
  57




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##### Table of Contents



(16) Employees Stock Purchase Plan
  (17) Financial Instruments with Off-Balance-Sheet Risk
    2010
    
    
    2009Consumer
    
    $
    7,802,257
    
    
    $
    8,749,623Commercial construction
    
    
    478,621
    
    
    
    321,507Commercial
    
    
    9,906,129
    
    
    
    12,080,918Total credit commitments
    
    $
    18,187,007
    
    
    $
    21,152,048
   (18) Capital
  58




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##### Table of Contents



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
   Minimum for
    
    To be Well CapitalizedCapital Adequacy
    
    Under Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionAs of December 31, 2010
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital (to risk weighted assets)Bank
    
    $
    13,632,000
    
    
    
    5.58
    %
    
    $
    19,530,000
    
    
    
    8
    %
    
    $
    24,412,000
    
    
    
    10
    %FNBH Bancorp
    
    
    13,580,000
    
    
    
    5.56
    %
    
    
    19,530,000
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)Bank
    
    
    10,442,000
    
    
    
    4.28
    %
    
    
    9,765,000
    
    
    
    4
    %
    
    
    14,647,000
    
    
    
    6
    %FNBH Bancorp
    
    
    10,390,000
    
    
    
    4.26
    %
    
    
    9,765,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)Bank
    
    
    10,442,000
    
    
    
    3.50
    %
    
    
    11,919,000
    
    
    
    4
    %
    
    
    14,898,000
    
    
    
    5
    %FNBH Bancorp
    
    
    10,390,000
    
    
    
    3.49
    %
    
    
    11,919,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/A
 As of December 31, 2009
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal Capital (to risk weighted assets)Bank
    
    $
    17,934,000
    
    
    
    6.46
    %
    
    $
    22,195,000
    
    
    
    8
    %
    
    $
    27,743,000
    
    
    
    10
    %FNBH Bancorp
    
    
    17,924,000
    
    
    
    6.46
    %
    
    
    22,195,000
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)Bank
    
    
    14,275,000
    
    
    
    5.15
    %
    
    
    11,097,000
    
    
    
    4
    %
    
    
    16,646,000
    
    
    
    6
    %FNBH Bancorp
    
    
    14,265,000
    
    
    
    5.14
    %
    
    
    11,097,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)Bank
    
    
    14,275,000
    
    
    
    4.25
    %
    
    
    13,435,000
    
    
    
    4
    %
    
    
    16,794,000
    
    
    
    5
    %FNBH Bancorp
    
    
    14,265,000
    
    
    
    4.25
    %
    
    
    13,435,000
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/A
   59




---



##### Table of Contents



(19) Net Income per Common Share
 Earnings Per Share
  2010
    
    
    2009
    
    
    2008Weighted average basic shares outstanding
    
    
    3,193,101
    
    
    
    3,167,918
    
    
    
    3,096,332Effect of dilutive restricted stock
    
    
    
    
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    3,193,101
    
    
    
    3,167,918
    
    
    
    3,096,332Net loss
    
    $
    (3,893,445
    )
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )Basic net loss per share
    
    $
    (1.22
    )
    
    $
    (4.32
    )
    
    $
    (4.33
    )Diluted net loss per share
    
    $
    (1.22
    )
    
    $
    (4.32
    )
    
    $
    (4.33
    )Participating securities excluded from diluted
calculation
    
    
    1,210
    
    
    
    2,033
    
    
    
    8,327
 (20) Contingent Liabilities
  (21) Fair Value Measurements
     60




---



##### Table of Contents



Securities available for sale
  Fair Value Measurement at December 31, 2010
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Securities available for sale
    
    $
    27,269,670
    
    
    $
    
    
    
    $
    24,678,156
    
    
    $
    2,591,514
 Fair Value Measurement at December 31, 2009
 Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Securities available for sale
    
    $
    22,705,612
    
    
    $
    
    
    
    $
    19,970,903
    
    
    $
    2,734,709
  2010
    
    
    2009Fair Value Measurement
    
    
    Fair Value MeasurementUsing Significant
    
    
    Using SignificantUnobservable Inputs
    
    
    Unobservable Inputs(Level 3)
    
    
    (Level 3)Fair value of CMO, beginning of year(1)
    
    $
    2,734,709
    
    
    $
    2,772,678Total gains (losses) realized/unrealized:Included in earnings(2)
    
    
    
    
    
    
    Included in other comprehensive income(2)
    
    
    186,778
    
    
    
    483,162Purchases, issuances, and other settlements
    
    
    (329,973
    )
    
    
    (521,131
    )Transfers into Level 3
    
    
    
    
    
    
    Fair value of CMO, end of year
    
    $
    2,591,514
    
    
    $
    2,734,709Total amount of losses for the year included
in earnings attributable to the change in
unrealized losses relating to assets still held
at end of year
    
    $
    
    
    
    $
    
 
 (1)
    
    Non-agency CMO classified as available for sale is valued using internal valuation
models and pricing information from third parties.(2)
    
    Realized gains (losses), including unrealized losses deemed other-than-temporary,
are reported in noninterest income. Unrealized gains (losses) are reported in accumulated
other comprehensive income (loss). Transition and Open Effective Date Information, Fair Value Measurements and Disclosures,
  Loans
 61




---



##### Table of Contents



Other real estate owned.
  Fair Value Measurements at December 31, 2010Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans (1)
    
    $
    24,071,495
    
    
    $
    
    
    
    $
    
    
    
    $
    24,071,495Other real estate owned
    
    $
    4,294,212
    
    
    $
    
    
    
    $
    
    
    
    $
    4,294,212
 Fair Value Measurements at December 31, 2009Quoted Prices in
    
    Significant Other
    
    SignificantActive Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans (1)
    
    $
    34,009,626
    
    
    $
    
    
    
    $
    
    
    
    $
    34,009,626Other real estate owned
    
    $
    3,777,119
    
    
    $
    
    
    
    $
    
    
    
    $
    3,777,119
 
 (1)
    
    Represents carrying value and related write-downs and specific reserves pertaining
to collateral dependent loans for which adjustments are based on the appraised value of the
collateral or by other unobservable inputs. (22) Fair Value of Financial Instruments
   Cash and cash equivalents
 Investment securities
 FHLBI and FRB stock
 Loans
 Accrued interest income
 Deposit liabilities
 Other borrowings
 Accrued interest payable
 Off balance sheet instruments
 62




---



##### Table of Contents



2010
    
    2009Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    40,572,000
    
    
    $
    40,572,000
    
    
    $
    37,044,000
    
    
    $
    37,044,000Investment and mortgage-backed securities
    
    
    27,270,000
    
    
    
    27,270,000
    
    
    
    22,706,000
    
    
    
    22,706,000FHLBI and FRB stock
    
    
    901,000
    
    
    
    901,000
    
    
    
    995,000
    
    
    
    995,000Loans, net
    
    
    221,968,000
    
    
    
    222,025,000
    
    
    
    255,381,000
    
    
    
    254,923,000Accrued interest income
    
    
    834,000
    
    
    
    834,000
    
    
    
    1,008,000
    
    
    
    1,008,000Financial liabilities:Deposits:Demand
    
    $
    62,294,000
    
    
    $
    62,294,000
    
    
    $
    65,644,000
    
    
    $
    65,644,000NOW
    
    
    52,019,000
    
    
    
    52,089,000
    
    
    
    50,643,000
    
    
    
    50,643,000Savings and money market accounts
    
    
    75,226,000
    
    
    
    75,276,000
    
    
    
    72,298,000
    
    
    
    72,298,000Time deposits
    
    
    100,382,000
    
    
    
    100,647,000
    
    
    
    121,200,000
    
    
    
    121,011,000Brokered certificates
    
    
    3,359,000
    
    
    
    3,463,000
    
    
    
    5,411,000
    
    
    
    5,516,000Other borrowings
    
    
    
    
    
    
    
    
    
    
    414,000
    
    
    
    414,000Accrued interest expense
    
    
    204,000
    
    
    
    204,000
    
    
    
    359,000
    
    
    
    359,000
 Limitations
  (23) Dividend Restrictions
  (24) Condensed Financial Information  Parent Company Only
  Condensed Balance Sheets
 December 312010
    
    
    2009Assets:Cash
    
    $
    1,000
    
    
    $
    1,000Investment in subsidiaries:First National Bank in Howell
    
    
    10,185,904
    
    
    
    14,385,904H.B. Realty Co.
    
    
    1,000
    
    
    
    1,000Total assets
    
    $
    10,187,904
    
    
    $
    14,387,904Liabilities and Shareholders Equity:Other liabilities
    
    $
    54,106
    
    
    $
    11,640Shareholders equity
    
    
    10,133,798
    
    
    
    14,376,264Total liabilities and
shareholders equity
    
    $
    10,187,904
    
    
    $
    14,387,904
 63




---



##### Table of Contents



Condensed Statements of Operations
 Year ended December 312010
    
    
    2009
    
    
    2008Operating income:Dividends from subsidiaries
    
    $
    
    
    
    $
    
    
    
    $
    Total operating income
    
    
    
    
    
    
    
    
    
    
    Operating expenses:Interest expense-other borrowings
    
    
    
    
    
    
    1,252
    
    
    
    13,771Administrative and other expenses
    
    
    61,931
    
    
    
    92,954
    
    
    
    119,874Total operating expenses
    
    
    61,931
    
    
    
    94,206
    
    
    
    133,645Income (loss) before equity in undistributed
net income (loss) of subsidiaries
    
    
    (61,931
    )
    
    
    (94,206
    )
    
    
    (133,645
    )Equity in undistributed net income of subsidiaries (net loss
of subsidiaries and dividends declared from subsidiaries)
    
    
    (3,831,514
    )
    
    
    (13,601,677
    )
    
    
    (13,279,595
    )Net loss
    
    $
    (3,893,445
    )
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )
 Condensed Statements of Cash Flows
 Year ended December 312010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (3,893,445
    )
    
    $
    (13,695,883
    )
    
    $
    (13,413,240
    )Adjustments to reconcile net loss to net
cash provided by (used by) operating activities:Decrease in other assets
    
    
    
    
    
    
    19,190
    
    
    
    10,809Increase in other liabilities
    
    
    42,466
    
    
    
    6,263
    
    
    
    4,595Change in long term incentive plan and
deferred compensation
    
    
    (177,547
    )
    
    
    97,118
    
    
    
    214,680Equity in undistributed net income of subsidiaries (net loss
of subsidiaries and dividends declared from subsidiaries)
    
    
    3,831,514
    
    
    
    13,601,677
    
    
    
    13,279,595Net cash provided by operating activities
    
    
    (197,012
    )
    
    
    28,365
    
    
    
    96,439Cash flows from investing activities
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activities:Common stock issued
    
    
    197,012
    
    
    
    41,438
    
    
    
    269,367Proceeds from issuance of short-term debt
    
    
    
    
    
    
    
    
    
    
    445,000Repayment of short-term debt
    
    
    
    
    
    
    (100,000
    )
    
    
    (345,000
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (488,180
    )Net cash used in financing activities
    
    
    197,012
    
    
    
    (58,562
    )
    
    
    (118,813
    )Net increase (decrease) in cash
    
    
    
    
    
    
    (30,197
    )
    
    
    (22,374
    )Cash at beginning of year
    
    
    1,000
    
    
    
    31,197
    
    
    
    53,571Cash at end of year
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    31,197
 64




---



##### Table of Contents



(25) Quarterly Financial Data  Unaudited
  Quarters ended in 2010March 31
    
    June 30
    
    September 30
    
    December 31Selected operations data:Interest and dividend income
    
    $
    3,733,788
    
    
    $
    3,562,865
    
    
    $
    3,475,686
    
    
    $
    3,454,578Net interest income
    
    
    3,023,800
    
    
    
    2,903,993
    
    
    
    2,861,674
    
    
    
    2,941,362Provision for loan losses
    
    
    1,200,000
    
    
    
    1,200,000
    
    
    
    1,200,000
    
    
    
    2,375,000Income (loss) before federal income taxes
    
    
    (681,460
    )
    
    
    (854,803
    )
    
    
    (751,118
    )
    
    
    (1,548,801
    )Net loss
    
    
    (620,144
    )
    
    
    (915,345
    )
    
    
    (681,759
    )
    
    
    (1,676,197
    )Basic and diluted net loss per share
    
    $
    (0.19
    )
    
    $
    (0.29
    )
    
    $
    (0.21
    )
    
    $
    (0.52
    )Cash dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Quarters ended in 2009March 31
    
    June 30
    
    September 30
    
    December 31Selected operations data:Interest and dividend income
    
    $
    4,930,887
    
    
    $
    4,637,143
    
    
    $
    4,349,342
    
    
    $
    3,952,171Net interest income
    
    
    3,560,957
    
    
    
    3,366,840
    
    
    
    3,245,764
    
    
    
    3,063,627Provision for loan losses
    
    
    1,200,000
    
    
    
    11,696,853
    
    
    
    1,750,000
    
    
    
    1,200,000Loss before federal income taxes
    
    
    (630,865
    )
    
    
    (11,608,527
    )
    
    
    (1,431,205
    )
    
    
    (1,109,854
    )Net income (loss)
    
    
    (630,865
    )
    
    
    (12,076,013
    )
    
    
    (1,431,205
    )
    
    
    442,200Basic and diluted net income (loss) per share
    
    $
    (0.20
    )
    
    $
    (3.82
    )
    
    $
    (0.45
    )
    
    $
    0.14Cash dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 (26) Impact of New Accounting Standards
 New Accounting Standards
 Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses Accounting for Transfers of Financial Assets
 Business Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations. Business
Combinations,
 Improving Disclosure about Fair Value Measurements
 65




---



##### Table of Contents



Intangibles  Goodwill and Other (Topic 350): When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
 Recent Legislative Developments
  
    
    Makes national banks (such as the Bank) and their subsidiaries subject to a number of
state laws that were previously preempted by federal laws;
    
    Imposes new restrictions on how mortgage brokers and loan originators may be
compensated;
    
    Establishes a new federal consumer protection agency that will have broad authority
to develop and implement rules regarding most consumer financial products;
    
    Creates new rules affecting corporate governance and executive compensation at all
publicly traded companies (such as the Corporation);
    
    Broadens the base for FDIC insurance assessments and makes other changes to federal
deposit insurance, including permanently increasing FDIC deposit insurance coverage to
$250,000; and
    
    Allows depository institutions to pay interest on business checking accounts
  
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A.
    
    Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
 Managements Annual Report on Internal Control Over Financial Reporting. Internal
Control  Integrated Framework
   66




---



##### Table of Contents



/s/Ronald L. Long

Ronald L. Long
    
    
    
    /s/Mark J. Huber

Mark J. HuberPresident & Chief Executive Officer
    
    
    
    Chief Financial Officer
 
 Item 9B.
    
    Other Information.
  
 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 Shareholder
Matters.
   Number of securities remainingNumber of securities to be
    
    Weighted - average
    
    available for future issuance underissued upon exercise of
    
    exercise price of
    
    equity compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securities reflected inPlan Category
    
    warrants, and rights
    
    warrants, and rights
    
    column (a))(a
    )
    
    
    (b
    )
    
    
    (c
    )Equity compensation
plans approved by
shareholders
    
    
    0
    
    
    
    0
    
    
    
    16,053
    (1)Equity compensation
plans not approved
by shareholders
    
    None
    
    None
    
    None
 
 (1)
    
    Available under the Compensation Plan for Nonemployee Directors 
 Item 13.
    
    Certain Relationships, Related Transactions and Director Independence.
  67




---



##### Table of Contents



Item 14.
    
    Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules.
  Financial Statements
  Financial Statement Schedules
  Exhibits
  68




---



##### Table of Contents



SIGNATURES
  FNBH BANCORP, INC.
 /s/Ronald L. Long
    
    Ronald L. Long, President and Chief Executive Officer(Principal Executive Officer)/s/Mark J. Huber
    
    Mark J. Huber, Chief Financial Officer(Principal Financial and Accounting Officer)
  Signature
    
    DatePhilip C. Utter, Chairman of the Board
    
    /s/Philip C. Utter
    
    April 15, 2011Stanley B. Dickson, Jr., Vice Chairman of the Board
    
    /s/Stanley B. Dickson, Jr.
    
    April 15, 2011Barbara Draper, Director
    
    /s/Barbara Draper
    
    April 15, 2011Ronald L. Long, Director
    
    /s/Ronald L. Long
    
    April 15 2011Timothy H. Corrigan, Director
    
    /s/Timothy H. Corrigan
    
    April 15, 2011R. Michael Yost, Director
    
    /s/ R. Michael Yost
    
    April 15, 2011
 69




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber(23.1)
    
    Consent of BDO USA, LLP(24)
    
    Power of Attorney (included in signature section)(31.1)
    
    Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.(31.2)
    
    Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.(32.1)
    
    Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).(32.2)
    
    Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 906 of
the Sarbanes Oxley Act of 2002 (18 U.S.C. 1350).
  ExhibitNumber
    
    
    
    Original Filing Form and Date(3.1)
    
    Restated Articles of Incorporation of the
Registrant
    
    Exhibit 3.1 of Form 10, effective
June 30, 1995 (Form 10)(3.2)
    
    Amendment to the Corporations Articles of
Incorporation to Increase Authorized Shares
    
    Appendix I of Proxy Statement
dated March 17, 1998(3.3)
    
    Amendment to the Corporations Articles of
Incorporation to Authorize the Issuance of
Preferred Shares
    
    Appendix A of Proxy Statement
dated December 31, 2008(3.4)
    
    Amendment to the Corporations Articles of
Incorporation to Increase Authorized Shares
    
    Exhibit 3.4 to Form 10-K
filed March 30, 2010(3.5)
    
    Bylaws of the Registrant
    
    Exhibit 3.2 of Form 10(4)
    
    Form of Registrants Stock Certificate
    
    Exhibit 4 of Form 10Material Contracts:(10.1)
    
    Howell Branch Lease Agreement
    
    Exhibit 10.2 to Form 10(10.2)
    
    Corporations Long Term Incentive Plan*
    
    Appendix II of Proxy Statement
dated March 17, 1998(10.3)
    
    Second Amended and Restated Compensation
Plan for Nonemployee Directors*
    
    Exhibit 10.2 to Form 8-K
dated October 16, 2008(10.4)
    
    FNBH Bancorp Inc. Employees Stock
Purchase Plan as amended January 20, 2005*
    
    Exhibit 10 to Form 10-K
dated March 7, 2006(10.5)
    
    Management Continuity Agreement
for Nancy Morgan *
    
    Exhibit 10.1 to Form 8-K
dated March 3, 2008(10.6)
    
    Management Continuity Agreement
for Ronald L. Long*
    
    Exhibit 10.1 to Form 8-K
dated May 6, 2008(10.7)
    
    Agreement by and between First National Bank
in Howell (Howell, Michigan) and The Comptroller
of the Currency, dated October 16, 2008
(superseded by Stipulation and Consent to the
Issuance of a Consent Order included
at Exhibit 10.10)
    
    Exhibit 10.1 to Form 8-K
dated October 16, 2008(10.8)
    
    Separation Agreement and Release of All Claims
between First National Bank in Howell and Janice
B. Trouba *
    
    Exhibit 10.1 to Form 10-Q filed August 14, 2009
 70




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##### Table of Contents



ExhibitNumber
    
    
    
    Original Filing Form and Date(10.8)
    
    Stipulation and Consent to the Issuance of a
Consent Order, dated September 24, 2009
    
    Exhibit 10.10 to Form 10-K filed March 30, 2010(21)
    
    Subsidiaries of the Registrant
    
    Exhibit 21 to From 10-K filed March 30, 2010
 
 *
    
    Represents a compensation plan 71