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

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

                  For the fiscal year ended December 31, 1997

                         Commission file number 0-25752

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes_X_No___

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  based  on a per  share  price  of  $30 as of  March  1,  1998,  was
$45,113,220  (common  stock,  no par value).  As of December 31, 1997 there were
outstanding 1,575,000 shares of the Company's Common Stock (no par value).

Documents Incorporated by Reference:

     Portions  of the  Company's  Proxy  Statement  for the  Annual  Meeting  of
Shareholders to be held April 22, 1998 are  incorporated by reference into Parts
II and III of this report.
<PAGE>
                                     PART I

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

Item 1 - Business

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

     The  Bank  was  originally   organized  in  1934  as  a  national   banking
association.  As of March 1, 1998, the Bank had  approximately 110 full-time and
part-time  employees.  None of the Bank's  employees  is  subject to  collective
bargaining agreements.  The Company does not directly employ any personnel.  The
Bank  serves  primarily  four  communities,   Howell,  Brighton,  Hartland,  and
Fowlerville,  all of which are  located  in  Livingston  County.  The county has
historically  been  rural  in  character  but  has a  growing  urban  population
especially in the southeast  quadrant of the county,  primarily  attributable to
growth around the City of Brighton.

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

Bank Services

     The Bank is a full service  bank  offering a wide range of  commercial  and
personal banking  services.  These services include checking  accounts,  savings
accounts,   certificates  of  deposit,  commercial  loans,  real  estate  loans,
installment  loans,  trust  and  investment  services,  collections,  traveler's
checks,  night  depository,  safe deposit box and U.S.  Savings Bonds.  The Bank
maintains correspondent  relationships with major banks in Detroit,  pursuant to
which the Bank  engages in federal  funds sale and  purchase  transactions,  the
clearance of checks and certain foreign currency transactions.  In

                                       2
<PAGE>
addition,  the Bank  participates  with  other  financial  institutions  to fund
certain  large loans which would exceed the Bank's legal  lending  limit if made
solely by the Bank.

     The Bank's  deposits are generated in the normal course of business and the
loss of any one  depositor  would not have a  materially  adverse  effect on the
business of the Bank.  No material  portion of the Bank's loans is  concentrated
within a single  industry or group of related  industries.  As of  December  31,
1997,  the  Bank's  certificates  of  deposit of  $100,000  or more  constituted
approximately 7% of total deposit liabilities. The Bank's deposits are primarily
from its service  area and the Bank does not seek or  encourage  large  deposits
from outside the area.

     The Company's  cash revenues are derived  primarily  from dividends paid by
the Bank. The Bank's principal sources of revenue are interest and fees on loans
and interest on investment  securities.  Interest and fees on loans  constituted
approximately  76% and 77% of total  revenues for the periods ended December 31,
1997 and December 31, 1996,  respectively.  Interest on  investment  securities,
including   short-term   investments   and  federal   funds  sold,   constituted
approximately 14% and 16% of total revenues in 1997 and 1996. Revenues were also
generated from deposit service charges and other financial service fees.

     The Bank provides real estate,  consumer, and commercial loans to customers
in its market.  Fifty-six  percent of the Bank's loan portfolio is in fixed rate
loans.  Most of these  loans,  approximately  87%,  mature  within five years of
issuance.  Approximately $11,800,000 in loans (or roughly 7% of the Bank's total
loan  portfolio)  have  fixed  rates  with  maturities   exceeding  five  years.
Fifty-three percent of the Bank's interest-bearing deposits are in savings, NOW,
and  MMDAs,  all of which  are  variable  rate  products.  Of the  approximately
$76,100,000 in certificates,  $52,400,000 mature within a year, with the balance
maturing within a five year period.

     Requests  to the Bank for  credit  are  considered  on the  basis of credit
worthiness of each applicant,  without  consideration to race, color,  religion,
national origin, sex, marital status,  physical handicap, age, or the receipt of
income  from  public  assistance  programs.  Consideration  is also given to the
applicant's capacity for repayment,  collateral, capital and alternative sources
of repayment.  Loan  applications are accepted at all the Bank's offices and are
approved  under each lending  officer's  authority.  Loan  requests in excess of
$200,000 are required to be presented to the Board of Directors or the Executive
Committee of the Board for its review and approval.

     As  described  in more detail  below,  the Bank's  ratio of rate  sensitive
assets to rate sensitive liabilities for the period ended December 31, 1997, was
16% asset  sensitive,  compared to 11% at December 31, 1996.  See discussion and
table under "Quantitative and Qualitative Disclosures about Market Risk" in Item
7 below.

     The Bank  sells  participations  in  commercial  loans  to other  financial
institutions  approved  by the Bank,  for the purpose of meeting  legal  lending
limit  requirements  or loan

                                       3
<PAGE>
concentration  considerations.  The Bank regularly sells fixed rate  residential
mortgages to Freddie Mac. Those  residential  real estate mortgage loan requests
that do not meet Freddie Mac criteria are reviewed by the Bank for approval and,
if  approved,  are  retained  in the Bank's  loan  portfolio.  The Bank also may
purchase loans which meet its normal credit standards.

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

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

Bank Competition

     The Bank has six  offices  within the four  communities  it serves,  all of
which  are  located  in  Livingston  County,  Michigan.  Three  of the  offices,
including the main office, are located in Howell. The other three facilities are
located in Brighton,  Hartland, and Fowlerville. See "Properties" below for more
detail on these facilities.  Within these communities, its principal competitors
are Old Kent Bank, First of America Bank, D&N Bank, and Michigan  National Bank.
Each  of  these  financial  institutions,  which  are  headquartered  in  larger
metropolitan  areas, have significantly  greater assets and financial  resources
than the Company.  Among the principal  competitors in the  communities in which
the Bank  operates,  the Bank is the only locally based  financial  institution.
Based on deposit  information as of June 30, 1997, the Bank holds  approximately
18% of local  deposits,  compared  to  approximately  21% held by Old Kent Bank,
approximately 16%

                                       4
<PAGE>
held by First of America,  approximately 12% held by D&N Bank, and approximately
9% held by Michigan  National  Bank.  Information as to asset size of competitor
financial  institutions is derived from publicly  available reports filed by and
with regulatory  agencies.  Within the Bank's  markets,  Old Kent Bank maintains
four branch offices, First of America Bank operates six branch offices, D&N Bank
has five branch  offices,  and Michigan  National Bank has three branch offices.
Management is not aware of any plans by these  financial  institutions to expand
their  presence  in the  Bank's  market,  although  sale of First of  America is
pending at this time which may have some impact on the local market.

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

Growth of Bank

         The following table sets forth certain information regarding the growth
of the Bank:
<TABLE>
                                            Balances as of December 31,
                                                  (in thousands)
                                   1997       1996       1995       1994      1993
<S>                             <C>        <C>        <C>        <C>        <C>
Total Assets ................   $226,314   $202,009   $182,958   $168,438   $155,556
Loans, Net of Unearned Income    158,397    136,067    127,463    117,008    112,820
Securities ..................     43,725     47,257     35,251     33,891     28,425
Noninterest-Bearing Deposits      41,631     35,048     30,815     29,513     22,000
Interest-Bearing Deposits ...    160,668    145,896    133,060    122,194    118,489
Total Deposits ..............    202,299    180,944    163,875    151,707    140,489
Shareholders' Equity ........     21,732     19,597     17,530     15,305     13,814
</TABLE>

     During the five years presented,  the Bank operated six branch  facilities:
one in  downtown  Howell,  one at Lake  Chemung  (five  miles  east of  downtown
Howell), one on the east side of Brighton, one in a shopping center in Hartland,
one in the village of Fowlerville,  and the sixth,  opened in September of 1992,
was a grocery store branch,  located west of downtown  Howell.  In July of 1995,
the Bank moved its  Hartland  facility  from the  shopping  center,  which was a
leased  building,  to a new building,  built on property  purchased by the Bank,
just east of the shopping center site. The 1994 growth is primarily attributable
to the growth at the Bank's Brighton and Fowlerville branch

                                       5
<PAGE>
facilities.  In 1995, all branches, except Brighton, and in 1996 and 1997 all of
the Bank's branches grew due to general growth in the county.

Supervision and Regulation

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

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

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

     The Riegle-Neal  Interstate Banking and Branching Efficiency Act authorizes
adequately  capitalized and adequately managed bank holding companies to acquire
banks located outside their  respective home states,  irrespective of state law.
This legislation also authorizes,  effective June 1, 1997 (subject to individual
state's rights to accelerate this date or prohibit  interstate  branching within
their borders),  banking  organizations  to branch  nationwide by acquisition or
consolidation of existing banks in other states.  Subject to the approval of the
Michigan Financial  Institutions  Bureau,  effective November 29, 1995, Michigan
law authorized out-of-state banks to acquire and establish branches in Michigan,
provided the laws of the state of the out-of-state  institution  permit Michigan
banks to acquire or establish  branches in that state.  Interstate  acquisitions
are

                                       6
<PAGE>
subject to the  approval of various  federal and state  agencies  and subject to
other conditions.

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

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

     The  Federal  Deposit  Insurance  Act  was  amended  in  1991  by the  FDIC
Improvement  Act of 1991.  The FDIC  Improvement  Act  provides  for  regulatory
intervention  should a bank's  capital  deteriorate,  limits certain real estate
lending and increases audit requirements. The FDIC has been granted authority to
impose special  assessments  on banks to repay  borrowings of the FDIC. The FDIC
Improvement Act defines a reserve ratio at which the Bank Insurance Fund ("BIF")
is to be maintained through FDIC semi-annual  assessment rates on the BIF member
banks.  The FDIC has

                                       7
<PAGE>
also  established a system of risk-based  deposit  insurance  premiums under the
FDIC Improvement Act. This system established four levels of premium rates based
on the risk  classification  of the institution.  As a national bank, the Bank's
premiums  are  paid  to BIF.  Given  the  designation  as a well  managed,  well
capitalized  institution,  the Bank pays the lowest  assessment rate possible to
BIF.

     As required by the Deposit  Insurance  Funds Act of 1996,  in 1997 the Bank
will commence making payments to the FDIC for the Financing  Corporation  (FICO)
bonds that were issued previously.  The FICO rate for BIF members banks is 1.296
basis points annually applied to assessable deposits.  During 1997 the Bank paid
$22,000 to the FDIC.

     The Federal  Reserve  Board  provides  guidelines  for the  measurement  of
capital adequacy of bank holding companies.  The Company's capital,  as adjusted
under these guidelines, is referred to as risk-based capital. The Company's Tier
1 risk-based  capital ratio at December 31, 1997 was 14.32% and total risk-based
capital was 15.58%.  At December 31, 1996,  these ratios were 14.71% and 15.96%,
respectively.  Minimum regulatory Tier 1 risk-based and total risk-based capital
ratios under the Federal Reserve Board  guidelines are 4% and 8%,  respectively.
These same capital  ratios are applied at the bank level by the Federal  Deposit
Insurance  Corporation,  under which a  well-capitalized  bank is defined as one
with at least 10%  risk-based  capital.  Capital  guidelines  also provide for a
standard to measure risk-based  capital to total assets.  This is referred to as
the leverage ratio. The Company's leverage ratio at December 31, 1997 was 9.96%,
while at December 31, 1996 it was 9.86%. The minimum standard  leverage ratio is
3%. See also "Capital" discussion in Item 7 below.

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

     As a Michigan business  corporation,  the Company may generally declare and
pay dividends, provided the Company is not insolvent and that the payment of the
dividend  would not render it  insolvent,  and,  after  giving the effect of the
distribution,  that the  Company's  total assets would equal or exceed its total
liabilities plus the dissolution  preference of any senior equity securities (of
which there currently are none). The payment of dividends to its shareholders is
limited  by the  Company's  ability  to  obtain  funds  from the Bank and by the
above-referenced regulatory capital guidelines. As a

                                       8
<PAGE>
national  bank,  the  Bank may not pay a  dividend  on its  common  stock if the
dividend  would exceed the net  undivided  profits then on hand after  deducting
losses  and bad debts.  Additionally,  the prior  approval  of the Office of the
Comptroller of the Currency,  or its designee, is required for any dividend to a
bank  holding  company  by an  affiliated  national  bank  if the  total  of all
dividends, including any proposed dividend declared by such bank in any calendar
year,  exceeds  the total of its net  profits  for that year  combined  with its
retained net profits for the preceding two years, less any required transfers to
surplus.

     The Michigan  Legislature  adopted,  effective  March 28, 1996,  the Credit
Reform Act.  This  statute,  together  with  amendments  to other  related laws,
permits regulated lenders,  indirectly  including  Michigan-chartered  banks, to
charge and collect  higher rates of interest and increased fees on certain types
of loans to individuals  and businesses.  The laws prohibit  "excessive fees and
charges," and authorize governmental  authorities and borrowers to bring actions
for  injunctive  relief and  statutory  and actual  damages  for  violations  by
lenders. The statutes specifically authorize class actions, and also civil money
penalties for knowing and willful, or persistent violations.

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

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

                                      9
<PAGE>
I SELECTED STATISTICAL INFORMATION

(A) Distribution of Assets, Liabilities, and Shareholders' Equity:

(B) Interest Rates and Interest Differential:

     The table on the following page shows the daily average  balances for major
categories of interest earning assets and interest bearing liabilities, interest
earned (on a taxable equivalent basis) or paid, and the effective rate or yield,
for the three years ended December 31, 1997, 1996, and 1995.

     Net interest  income is the difference  between  interest  earned on loans,
securities  and other earning  assets and interest paid on deposits and borrowed
funds. In the following tables,  the interest earned on investments and loans is
expressed on a fully  taxable  equivalent  (FTE) basis.  Tax exempt  interest is
increased to an amount comparable to interest subject to federal income taxes in
order to properly  evaluate the effective  yields earned on earning assets.  The
tax  equivalent  adjustment  is based on a federal  income tax rate of 34%.  The
following Yield Analysis shows that the Bank's interest margin decreased 2 basis
points in 1997 as a result of an increase of 11 basis points in interest cost on
deposits,  partially  offset by an  increase  of 4 basis  points in the yield on
earning  assets.  In 1996 the interest  margin  decreased 31 basis points due to
both a decrease in yield on earning  assets and an increase in interest  cost on
deposits.

                                      10
<PAGE>
<TABLE>
                                    Yield Analysis of Consolidated Average Assets and Liabilities
                                                                      (dollars in thousands)


                                              1997                                 1996                              1995

                               Average                   Yield/     Average                 Yield/    Average                 Yield
                               Balance      Interest      Rate      Balance     Interest     Rate     Balance     Interest     Rate
<S>                            <C>          <C>           <C>      <C>          <C>         <C>       <C>        <C>           <C>
Assets:
Interest earning assets:
Federal funds sold              $2,754        $148.8      5.40%     $5,135       $269.2     5.24%     $3,084      $177.7       5.76%
Securities:
Taxable                         31,873       1,906.0      5.98%     32,042      1,906.4     5.95%     25,591     1,444.5       5.64%
Tax-exempt                      13,262         975.8      7.36%     11,172        853.4     7.64%      9,413       779.5       8.28%
Loans(1)(2)                    148,096      14,540.3      9.82%    130,648     12,946.8     9.91%    122,500    12,237.8       9.99%
Total earning assets and
  total interest income        195,985     $17,570.9      8.97%    178,997    $15,975.8     8.93%    160,588   $14,639.5       9.12%
Cash & due from banks            7,620                               7,195                             6,432
All other assets                 8,089                               7,341                             6,443
Allowance for loan loss         (3,499)                             (3,281)                           (2,934)
Total assets                  $208,195                            $190,252                           170,529
Liabilities and
  Shareholders'Equity
Interest bearing deposits:
Savings/NOW accounts           $79,104     $2,210.5      2.79%     $76,128    $ 2,129.9    2.80%     $70,057     $1,826.6      2.61%
Time                            71,093      4,059.5      5.71%      62,577      3,514.5    5.62%      54,924      3,045.1      5.54%
Federal funds purchased            610         35.3      5.77%           4           .2    5.58%         105          6.8      6.43%
Total interest bearing
  liabilities and total
  interest expense             150,807     $6,305.3      4.18%     138,709    $ 5,644.6    4.07%      125,08     $4,878.5      3.90%
Non-interest bearing
  deposits                      34,668                              31,005                            27,348
All other liabilities            1,792                               1,664                             1,797
Shareholders' Equity            20,928                              18,874                            16,298
Total liabilities and
  shareholders' equity        $208,195                            $190,252                          $170,529
Interest spread                                          4.79%                            4.86%                                5.22%
Net interest income-FTE                   $11,265.6                           $10,331.2                          $9,761.0
Net interest margin                                      5.75%                            5.77%                                6.08%

(1) Nonaccruing loans are not significant  during the three year period and, for
purposes of the computations above, are included in average daily loan balances.
(2)  Interest on loans  includes  origination  fees  totaling  $380,000 in 1997,
$451,000 in 1996, and $440,000 in 1995.
</TABLE>
                                      11
<PAGE>
(C) The following table sets forth the effects of volume and rate changes on net
interest  income  on a taxable  equivalent  basis.  All  figures  are  stated in
thousands of dollars.

<TABLE>
                                          Year ended                         Year ended
                                December 31, 1997 compared to      December 31, 1996 compared to
                                Year ended December 31, 1996        Year ended December 31, 1995

                                Amount of Increase/(Decrease)      Amount of Increase (Decrease)
                                       due to change in                 due to change in


                                                       Total                          Total
                                                       Amount                         Amount
                                                         Of                             Of
                                          Average     Increase/            Average   Increase/
                               Volume       Rate      Decrease   Volume      Rate   (Decrease)

<S>                            <C>        <C>         <C>        <C>        <C>      <C>
Interest Income:
Federal funds sold .......      (125)         4       (121)       118        (27)        91
Securities:
Taxable ..................       (10)        10          0        364         98        462
Tax Exempt ...............       160        (37)       123        146        (72)        74
Loans ....................     1,729       (136)     1,593        814       (105)       709
Total interest income ....     1,754       (159)     1,595      1,442       (106)     1,336
Interest Expense:
Interest bearing deposits:
Savings/NOW accounts .....        83         (2)        81        159        145        304
Time .....................       478         67        545        424         45        469
Short-term borrowings ....        34          1         35         (7)         0         (7)
Total interest expense ...       595         66        661        576        190        766
Net interest income (FTE)    $ 1,159       (225)       934        866       (296)       570
</TABLE>
The  change  in  interest  due to  changes  in both  balance  and  rate has been
allocated to change due to balance and change due to rate in  proportion  to the
relationship of the absolute dollar amounts of change in each.

                                      12
<PAGE>

II SECURITIES PORTFOLIO

(A)The following table sets forth the book value of securities at December 31:
<TABLE>
                                                           (in thousands)
                                              1997             1996             1995
<S>                                        <C>              <C>              <C>
Held to maturity:
U.S. Treasury ...................          $15,993          $13,996          $ 9,511
U.S. Government agencies ........                0            1,017            2,033
States and political subdivisions           14,028           12,765            9,878
Mortgage-backed securities ......              633              352              614
FRB Stock .......................               44               44               44
 Total ..........................          $30,698          $28,174          $22,080
Available for sale:
U.S. Treasury ...................          $13,026          $18,046          $11,090
U.S. Government agencies ........                0            1,001            2,025
Mortgage-backed securities ......                0               36               56
Other securities ................                0                0                0
 Total ..........................          $13,026          $19,083          $13,171
</TABLE>
     (B)The following table sets forth  contractual  maturities of securities at
December 31, 1997 and the weighted average yield of such securities:
<TABLE>
                                                                  (Dollars in thousands)
                                                           Maturing After           Maturing After
                                 Maturing Within           One But Within           Five But Within        Maturing After
                                    One Year                 Five Years                Ten Years              Ten Years

                               Amount       Yield        Amount       Yield        Amount      Yield     Amount     Yield
<S>                           <C>           <C>          <C>          <C>          <C>         <C>       <C>        <C>
Held to maturity
U.S. Treasury                 $13,998       5.97%        $1,995       5.96%
States and politica
  subdivisions                    492       9.02%         3,559       8.46%         9,977       7.66%
Mortgage backed
  Securities                                                633       6.27%
FRB Stock                                                                                                    44     6.00%
                              -------                    ------                     -----                   ---
Total                         $14,490       6.07%        $6,187       7.43%        $9,977       7.66%       $44     6.00%
                              =======                    ======                    ======                   ===

Tax equivalent adjustment
  for calculations of yield       $10                       $70                       $195

Available for sale
U.S. Treasury                 $10,018       5.96%        $3,008       5.84%
  Total                       $10,018       5.96%        $3,008       5.84%             $0                   $0
                              =======                    ======                         ==                   ==
</TABLE>

     The rates  set  forth in the  tables  above  for  obligations  of state and
political  subdivisions  have  been  restated  on a fully tax  equivalent  basis
assuming a 34% marginal tax rate. The amount of the adjustment is as follows:

                                       13
<PAGE>
<TABLE>

                                                                        Rate on Tax
                         Tax-Exempt Rate        Adjustment           Equivalent Basis
<S>                      <C>                    <C>                  <C>
Under 1 year                  5.96%                3.06%                    9.02%
1-5 years                     5.58%                2.88%                    8.46%
5-10 years                    5.05%                2.61%                    7.66%
</TABLE>

     Additional   statistical   information  concerning  the  Bank's  securities
portfolio  is  incorporated  by  reference  in  Note 2,  Pages 9 and 10,  of the
Company's  Consolidated  Financial  Statements  for the year ended  December 31,
1997.

III LOAN PORTFOLIO

     (A)The table below shows loans outstanding at December 31:
<TABLE>
                                                                     (in thousands)
                                                    1997          1996          1995        1994          1993
<S>                                             <C>           <C>           <C>           <C>         <C>
Secured by real estate:
   Residential first mortgage                   $ 38,073      $ 36,148      $ 36,871      $3,842      $ 35,239
   Residential home equity/other junior liens    13,6651         2,883        10,566       8,819         9,142
   Construction and land development             19,4901         4,042         9,075       8,150         6,505
   Other                                         53,7434         3,006        42,454      40,103        36,873
Consumer                                         14,0111         2,272        11,233      10,730        10,739
Commercial                                        18,299        15,830        14,546      12,324        11,119
Other                                              1,729         2,360         3,213       3,559         3,746
                                                --------      --------      --------    --------      --------
   Total Loans (Gross)                          $159,010      $136,541      $127,958    $117,527      $113,363
</TABLE>
The loan portfolio is periodically reviewed and the results of these reviews are
reported to the Company's Board of Directors. The purpose of these reviews is to
verify proper loan  documentation,  to provide for the early  identification  of
potential  problem loans, and to evaluate the adequacy of the allowance for loan
losses.

     (B)The  following  table  shows the amount of  commercial,  financial,  and
agricultural loans outstanding as of December 31, 1997 which, based on remaining
scheduled repayments of principal, are in the periods indicated.
<TABLE>
                                                                               Maturing
                                                                     (in thousands of dollars)
                                                                      After one
                                                   Within one         but within       After Five
                                                      Year            five years         Years            Total
<S>                                                  <C>              <C>              <C>              <C>
Real estate construction & land development          $12,958          $ 5,321                0          $18,279
Real estate other (secured by commercial &
   multi-family) ..........................           10,574           40,366            2,577           53,517
Commercial (secured by business assets or
   Unsecured) .............................            6,378           11,699              219           18,296
Other (loans to farmers, political
   Subdivisions, & overdrafts) ............               46            1,621                0            1,667
                                                     -------          -------          -------          -------
   Totals .................................          $29,956          $59,007          $ 2,796          $91,759
</TABLE>
                                      14
<PAGE>


     Below is a  schedule  of amounts  due after one year  which are  classified
according to their sensitivity to changes in interest rates.
<TABLE>
                                                  Interest Sensitivity
                                               (in thousands of dollars)
                                            Fixed Rate      Variable Rate
<S>                                         <C>             <C>
Due after one but within five years          $46,053          $12,954
Due after five years ..............            1,039            1,757
</TABLE>

     (C)  Nonperforming  loans  consist of loans  accounted  for on a nonaccrual
basis  and  loans  contractually  past  due 90 days or  more as to  interest  or
principal  payments (but not included in nonaccrual loans). The aggregate amount
of non-performing loans, as of December 31, is presented in the table below:
<TABLE>
                                                        (Dollars in thousands)
                                        1997          1996            1995         1994             1993
<S>                                    <C>           <C>            <C>           <C>           <C>
Nonperforming  Loans:
Nonaccrual loans                       $ 809         $ 109          $  926         $983          $ 1,568
Loans  past  due 90  days  or  more      249           448              66          295               34
                                         ---           ---              --          ---               --
 Total nonperforming loans           $ 1,058         $ 557            $992       $1,278          $ 1,602
                                     =======         =====            ====       ======          =======
Percent of total loans                 .67%           .41%            .78%        1.09%            1.41%

</TABLE>
     Additional   information   concerning   nonperforming   loans,  the  Bank's
nonaccrual policy,  loan impairment,  and loan concentrations is incorporated by
reference  to  Note  3 on  Pages  10 of  the  Company's  Consolidated  Financial
Statements for the year ended December 31, 1997.

     There were no other interest bearing assets at December 31, 1997 that would
be required to be disclosed under Item III(C) , if such assets were loans.

     There were no foreign loans outstanding at December 31, 1997.

                                      15
<PAGE>
IV SUMMARY OF LOAN LOSS EXPERIENCE

     (A)The  following table sets forth loan balances and summarizes the changes
in the allowance for loan losses for each of the years ended December 31:
<TABLE>
                                                                     (Dollars in  thousands)
                                                  1997           1996         1995         1994          1993
<S>                                            <C>          <C>          <C>          <C>           <C>
Loans:
Average daily balance of loans for the year    $ 148,097    $ 130,648    $ 122,500    $ 114,384     $ 113,161
Amount of loans (gross) outstanding at end
  of the year ..............................     159,011      136,541      127,958      117,527       113,363
Allowance for loan losses:
Balance at beginning of year ...............       3,335        3,097        2,672        2,205         2,044
Loans charged off:
  Real estate ..............................           0           70            0           12             0
  Commercial ...............................         375          129          118           37           275
  Consumer .................................         124           88           91           72           122
                                                     ---           --           --           --           ---
    Total charge-offs ......................         499          287          209          121           397
Recoveries of loans previously charged off:
  Real estate ..............................          32            1            0            0             0
  Commercial ...............................          43           31           95           64            68
  Consumer .................................          27           45           91           76            41
                                                      --           --           --           --            --
    Total recoveries .......................         102           77          186          140           109

Net loans charged off (recoveries) .........         397          210           23          (19)          288
Additions to allowance charged to operations         486          448          448          448           449
                                                     ---          ---          ---          ---           ---
    Balance at end of year .................   $   3,424    $   3,335    $   3,097    $   2,672     $   2,205
Ratios:
Net loans charged off to average loans
  outstanding ..............................         .27%         .16%         .02%        (.02%)         .25%
Allowance for loan losses to loans
  outstanding ..............................        2.15%        2.44%        2.42%        2.27%         1.94%
</TABLE>

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

         (B)The  following  table presents the portion of the allowance for loan
losses  applicable  to each  loan  category  and the  percent  of  loans in each
category to total loans, as of December 31:
<TABLE>
                                                (Dollars in thousands)

                           1997                1996               1995             1994                1993
                      Amount  Percent     Amount Percent    Amount  Percent     Amount  Percent     Amount  Percent
<S>                   <C>                 <C>               <C>                 <C>                 <C>
Commercial            $1,810    90.1%     $  830   66.7%    $  851   64.7%      $1,093    61.3%     $1,206   57.7%
Real estate               95     4.7%         70   17.1%        60   19.5%          45    23.1%        113   26.3%
Consumer                 105     5.2%         90   16.2%        74   15.8%          95    15.6%        144   16.0%
Unallocated            1,414               2,345             2,112               1,439                 742
                       -----               -----             -----               -----                 ---
  Total               $3,424     100%     $3,335    100%    $3,097    100%      $2,672     100%     $2,205    100%
                      ======     ====     ======    ====    ======    ====      ======     ====     ======    ====
</TABLE>
                                      16
<PAGE>
V DEPOSITS

     The following  table sets forth average  deposit  balances and the weighted
average rates paid thereon for the years ended December 31:

<TABLE>
                                                                 (Dollars in thousands)

                                                  1997                   1996                  1995
                                           Average                Average               Average
                                           Balance     Rate       Balance     Rate      Balance    Rate
<S>                                       <C>          <C>        <C>         <C>       <C>        <C>
Non-interest  bearing demand              $ 34,707                $ 31,005              $ 27,348
Savings,  NOW, and money market             79,104     2.79%        76,128    2.80%       70,057   2.61%
Time deposits                               71,093     5.71%        62,577    5.62%       54,924   5.54%
                                            ------                  ------                ------
  Total                                   $184,904     4.17%      $169,710    4.07%     $152,329   3.20%
                                          ========                ========              ========
</TABLE>
     The table for  maturities of  negotiated  rate time deposits of $100,000 or
more  outstanding at December 31, 1997 is incorporated by reference to note 6 on
Page 11 of the Company's  Consolidated  Financial  Statements for the year ended
December 31, 1997.

VI RETURN ON EQUITY AND ASSETS

     The ratio of net  income to  average  shareholders'  equity  and to average
total assets, and certain other ratios, for the years ended December 31 follow:

<TABLE>
                                    1997         1996         1995           1994       1993
<S>                               <C>          <C>          <C>            <C>        <C>
Net income as a percent of:
 Average common equity            17.84%       19.12%       19.60%         16.63%     17.43%
 Average total assets              1.79%        1.88%        1.88%          1.52%      1.51%
</TABLE>

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


VII SHORT-TERM BORROWING

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

Item 2 - Properties

     The Bank  operates from six  facilities,  located in four  communities,  in
Livingston County, Michigan. The executive offices of the Company are located at
the  Bank's  main  office,  101 East Grand  River,  Howell,  Michigan.  The Bank
maintains  two  branches  in Howell at 5990 East Grand River and 2400 West Grand
River.  The Bank  also  maintains  branch  offices  at 9911  East  Grand  River,
Brighton,  Michigan,  760 South Grand Avenue,  Fowlerville,  Michigan, and 10700
Highland Road, Hartland, Michigan. All of the offices

                                      17
<PAGE>
have ATM  machines  and all except the West Grand  River  branch,  which is in a
grocery  store,  have drive up services.  All of the properties are owned by the
Bank except for the West Grand River  branch  which is leased.  The lease is for
fifteen years,  expiring September 2007. The average lease payment over the life
of the lease is $3,167 monthly.

Item 3 - Legal Proceedings

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

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 1997.

                       Additional Item--Executive Officers

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

     The  following  table sets forth  certain  information  with respect to the
Company's executive officers as of December 31, 1997:

<TABLE>
                                                                   First Selected as an Officer
             Name (Age)            Position with Company                  of the Company
<S>                             <C>                                <C>
Barbara D. Martin  (51)         President, Chief Executive                      1983
                                Officer, and Director of the
                                Company and the Bank
Barbara J. Nelson (50)          Secretary/Treasurer of the                      1985
                                Company and Senior Vice
                                President, Cashier, and Chief
                                Financial Officer of the Bank
John D. Logan (48)              Senior  Vice President, Trust and               1997
                                Investments, of the Bank
James  Wibby (47)               Senior  Vice President, Loans, of               1997
                                the  Bank
Jerry  Armstong (38)            Vice President, Operations                      1997
Donna Gehringer(45)             Manager of Branches                             1997
</TABLE>

                                      18
<PAGE>
                                    PART II

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

     There is no active market for the Company's  Common Stock,  and there is no
published  information  with respect to its market price.  There are  occasional
direct sales by  shareholders  of which the  Company's  management  is generally
aware.  It is the  understanding  of the management of the Company that over the
last two years,  the Company's Common Stock has sold at a premium to book value.
From  January 1, 1996,  through  December 31,  1997,  there were,  so far as the
Company's  management  knows, 162 sales of shares of the Company's Common Stock,
involving a total of 48,672  shares.  The price was  reported to  management  in
these transactions, however there may have been other transactions involving the
company  stock at prices not reported to  management.  During this  period,  the
highest  price known to be paid was $30.00 per share in the last quarter of 1997
and the  lowest  price was $20.00  per share  paid  during  all of 1996.  To the
knowledge of  management,  the last sale of Common Stock occurred on January 16,
1998. All per share  information has been restated to give effect to a three for
one stock  split,  payable  as a  dividend  of two  shares for each one share of
company stock held of record January 16, 1997, paid February 16, 1997.


     As of March 1, 1998, there were  approximately 620 holders of record of the
Company's  Stock. The following table sets forth the range of high and low sales
prices of the Company's  Common Stock during 1996 and 1997, based on information
made  available to the  Company,  as well as per share cash  dividends  declared
during those periods.  Although  management is not aware of any  transactions at
higher or lower prices,  there may have been  transactions at prices outside the
ranges listed in the table.

     Sales price and dividend information for the years 1996 and 1997:
<TABLE>


                                  Sales Prices               Cash Dividends Declared
                 1996           High            Low
<S>                           <C>               <C>                   <C>
First Quarter                 $20.00            $20.00                $0.12
Second Quarter                $20.00            $20.00                $0.13
Third Quarter                 $20.00            $20.00                $0.13
Fourth Quarter                $20.00            $20.00                $0.55(1)
                 1997           High            Low
First Quarter                 $25.00            $25.00                $0.15
Second Quarter                $27.50            $25.00                $0.15
Third Quarter                 $27.50            $27.50                $0.15
Fourth Quarter                $30.00            $27.50                $0.55(2)
</TABLE>
(1)   Includes a special dividend of $0.42 per share.
(2)   Includes a special dividend of $0.40 per share.

The holders of the Company's Common Stock are entitled to dividends when, as and
if  declared  by the Board of  Directors  of the  Company  out of funds  legally
available for that purpose.  Dividends have been paid on a quarterly  basis.  In
determining  dividends,  the

                                      19
<PAGE>

Board of Directors considers the earnings,  capital
requirements  and  financial  condition of the Company and the Bank,  along with
other  relevant  factors.  The  Company's  principal  source  of funds  for cash
dividends is the dividends paid by the Bank. The ability of the Company and Bank
to pay dividends is subject to regulatory restrictions and requirements.

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

                                  1997         1996         1995        1994        1993
<S>                            <C>          <C>          <C>         <C>         <C>
Income Statement Data:
Interest income                $17,276      $15,717      $14,394     $12,412     $11,948
Interest expense                 6,305        5,644        4,879       3,838       4,121
Net interest income             10,971       10,073        9,515       8,574       7,827
Provision for loan losses          486          448          448         448         449
Non-interest income              1,851        1,686        1,418       1,195       1,386
Non-interest expense             6,982        6,151        5,867       5,864       5,674
Income before tax and
 accounting change               5,354        5,160        4,618       3,457       3,090
Net income                       3,733        3,574        3,200       2,418       2,311
Basic Per Share Data(1):
 Income before accounting
 change                          $2.37         2.27         2.03        1.54        1.40
Income after cumulative effect
 of accounting change(2)          2.37         2.27         2.03        1.54        1.47
Dividends paid                    1.00          .93          .68         .55         .50
Weighted average shares
 outstanding                 1,575,000    1,575,000    1,575,000   1,575,000   1,575,000
Balance Sheet Data:
Total assets                   226,314      202,009      182,958     168,438     155,556
Loans                          158,397      136,067      127,463     117,008     112,820
Allowance for loan losses        3,424        3,335        3,097       2,672       2,205
Deposits                       202,299      180,944      163,875     151,707     140,489
Shareholders' equity            21,732       19,597       17,530      15,305      13,814
Ratios:
Dividend payout ratio           42.19%       41.13%       33.46%      35.82%      34.07%
Equity to asset ratio           10.05%        9.82%        9.61%       9.14%       8.45%
</TABLE>
(1) Per  share  data for all  years  has been  restated  to give  effect  to the
three-for-one stock split, payable as a dividend paid in February 1997.
(2) Reflects adjustment due to a change in accounting for income taxes in 1993.

                                      20
<PAGE>
Item 7 Management's  Discussion and Analysis of Financial  Condition and Results
of Operations

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

FINANCIAL CONDITION

     During 1997 total assets  increased 12% to  $226,314,000.  Contributing  to
this $24 million increase was a $22.5 million (17%) increase in loans.  Deposits
increased $21.4 million (12%) to  $202,299,000.  Stockholders'  equity increased
$2.1 million (11%) to $21,732,000.

Securities

     The security  portfolio is an important source of liquidity for the Bank to
meet unusual deposit fluctuations.  The primary concern of the management of the
Bank is to ensure  the safety of funds  entrusted  to it by its  depositors  and
shareholders. Approximately $29,000,000 of the security portfolio is invested in
US government  obligations.  An additional $14,000,000 of the portfolio consists
of tax exempt  obligations of states and political  subdivisions.  The Company's
current and projected tax position makes these  investments  advantageous to the
Bank. The Bank's investment policy requires purchases of tax exempt issues to be
of bonds with AA ratings or better if the  maturity  exceeds 4 years  unless the
bond is a local,  nonrated issue.  Except for a minor holding of Federal Reserve
Bank  stock  which the Bank is  required  to own,  the  remainder  of the Bank's
investment portfolio consists of government agency mortgage backed securities.

     The following table shows the percentage  makeup of the security  portfolio
as of December 31:
<TABLE>
                                                                      1997         1996
<S>                                                                  <C>          <C>
U.S. Treasury & agency securities .........................          66.3%        72.0%
Agency mortgage backed securities .........................           1.4%          .8%
Tax exempt obligations of states and political subdivisions          32.1%        27.1%
Other .....................................................           2%            .1%
    Total securities ......................................         100.0%       100.0%
</TABLE>
Loans

     The loan  personnel of the Bank are committed to making  quality loans that
produce a good  rate of return  for the Bank and also  serve  the  community  by
providing

                                      21
<PAGE>
funds for home purchases,  business  purposes,  and consumer needs.  The overall
loan portfolio grew $22,500,000 (17%) in 1997.

     As a full service  lender,  the Bank offers a variety of home mortgage loan
products.  The Bank makes  fixed  rate,  long-term  mortgages  which  conform to
secondary market standards which it sells. This practice allows the Bank to meet
the housing credit needs of its service area, while at the same time maintaining
loan to deposits ratios and interest  sensitivity and liquidity positions within
Bank policy. The Bank retains servicing on sold mortgages thereby furthering the
customer  relationship and adding to servicing income. During 1997 the Bank sold
$8,000,000 in residential mortgages.

     The Bank has also been able to service  customers  with loan needs which do
not conform to secondary market  requirements by offering variable rate products
which are  retained  in the  mortgage  portfolio.  These  loans  are  considered
nonconforming  as  they  do not  meet  certain  collateral  requirements  of the
secondary  market and not because of the credit quality of the borrower.  During
1997 the Bank made more than $6,000,000 in nonconforming loans which it retained
in the mortgage portfolio.

     During 1997,  the Bank  experienced  a  significant  amount of loan demand.
Growth in the county  resulted in a need for financing  commercial  and consumer
real estate. Commercial loans passed the $100,000,000 mark for the first time in
June and ended the year at $110,000,000,  a 21% increase for the year.  Consumer
loans increased $2,700,000 (13%).

     There was a modest 6% growth in home equity and junior lien loans. Consumer
loans,  which  consist of auto loans,  mobile home  loans,  or other  secured or
unsecured loans, grew at approximately 14%. The Bank does not offer credit cards
but consumer loan  balances  include  $1,500,000  in a revolving  line of credit
product accessible by check.

     The  following  table  reflects the makeup of the  commercial  and consumer
loans  in the  Consolidated  Financial  Statements  that are  collateralized  by
mortgages. Included in the residential first mortgage totals below are the "real
estate mortgage" loans listed in the Consolidated Financial Statements and other
loans to customers who pledge their homes as collateral for their borrowings. In
the majority of the loans to  commercial  customers,  the Bank is relying on the
borrower's cash flow to service the loans.  However,  these loans may be secured
by  personal  or  commercial  real  estate.  A portion  of the  loans  listed in
residential  first mortgages  represent  commercial loans where the borrower has
pledged  his/her  residence as  collateral.  "Other"  real estate loans  include
$50,000,000  in  loans  secured  by  commercial   property  with  the  remaining
$4,000,000  secured by multi-family  units.  Construction  and land  development
loans have increased $5,000,000 (39%) as the growth in the county has fueled the
demand for housing and commercial development.

                                      22
<PAGE>

     The following table shows the balance and percentage  makeup of loans as of
December 31:

<TABLE>
                                                                     (dollars  in   thousands)
                                                               1997                                  1996
                                                    Balances    Percentage               Balances        Percentage
<S>                                                <C>          <C>                     <C>              <C>
Secured  by real estate:
 Residential first mortgage                        $ 38,073          23.9%              $ 36,1482              6.5%
 Residential home  equity/other junior liens         13,665           8.6%                12,8839               .4%
 Construction and land development                  19,4901           2.3%               14,04210               .3%
 Other                                              53,7433           3.8%               43,00631               .5%
Consumer                                            14,0118            .8%                 12,272              9.0%
Commercial                                          18,2991           1.5%                 15,830             11.6%
Other                                                1,7291            .1%                  2,360              1.7%

 Total Loans (Gross)                               $159,010         100.0%               $136,541            100.0%
</TABLE>

     The Bank's loan personnel have  endeavored to make high quality loans using
well  established  policies and procedures  and a thorough loan review  process.
Loans in excess of $200,000  are  approved  by a  committee  of the Board or the
Board.  The Bank has hired an  independent  person to review the  quality of the
loan portfolio on a regular basis. Loan quality is demonstrated by the ratios of
nonperforming  loans  and  assets  as a  percentage  of the  loan  portfolio  as
illustrated in the table below for December 31:
<TABLE>
                                                                       (Dollars in thousands)
                                                            1997              1996              1995
<S>                                                       <C>                <C>                 <C>
Nonperforming Loans:
Nonaccrual loans                                           $  809            $  109                $926
Loans past due 90 days or more                                249               448                  66
 Total nonperforming loans                                  1,058               557                 992
Other real estate                                               0               723                  46

 Total nonperforming assets                                $1,058            $1,280              $1,038

Nonperforming loans as a percent of total loans                67%              .41%                .78%
Nonperforming assets as a percent of total loans               67%              .94%                .81%
Nonperforming loans as a percent of the loan loss reserve      31%               17%                 32%
</TABLE>

     Nonperforming  assets  are  comprised  of loans for which  the  accrual  of
interest  has been  discontinued,  accruing  loans  90 days or more  past due in
payments,  and other  real  estate  which has been  acquired  primarily  through
foreclosure  and  is  waiting  disposition.  Loans  are  generally  placed  on a
nonaccrual  basis when  principal  or  interest  is past due 90 days or more and
when, in the opinion of management, full collection of principal and interest is
unlikely.

     Nonperforming  loans increased $500,000 to $1,058,000 at December 31, 1997.
Total nonperforming assets decreased $222,000 during the year. The health of the
local economy, sound underwriting  standards,  and a concerted collection effort
on the part of the Bank have helped contribute to the low delinquency rate.

                                       23
<PAGE>
     As indicated in Notes 1 and 3 of the Consolidated Financial Statements, the
Bank adopted Statement of Financial  Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" in 1995.  Impaired loans totaled  $3,100,000
at December  31, 1997,  compared to $820,000 at the prior year end.  Included in
impaired  loans  are  nonperforming  loans  from the  above  table,  except  for
homogenous residential mortgage and consumer loans, and an additional $2,300,000
of commercial loans separately identified as impaired.  The increase in impaired
loans is primarily due to problem loans with two large borrowers. Both loans are
well  collateralized  and are not expected to result in losses that would have a
material  adverse  impact on the  Company's  financial  condition  or results of
operation.

     During 1997 the Bank  charged off loans  totaling  $499,000  and  recovered
$101,000 for a net charge off amount of $398,000. In the previous year, the Bank
had net charge  offs  totaling  $210,000.  The  increase  in net charge  offs is
largely due to one large loan that was written  down to the  estimated  value of
its collateral.  As a result,  management increased the fourth quarter loan loss
provision  to $150,000,  from the $112,125  provided for in each of the previous
three quarters.

     The  allowance  for loan losses  totaled  $3,424,000  at year end which was
2.15% of total  loans,  down from 2.44% of loans in 1996.  The decline is due to
the  increase  in loan  balances  and the large  charge  off taken in 1997.  The
allowance  for loan  losses  is more  than  three  times  non-performing  loans.
Management  considers  this to be  adequate  to cover  any  anticipated  losses.
Management  regularly  evaluates  the  allowance  for loan  losses  based on the
composition of the loan portfolio, an evaluation of specific credits, historical
loss  experience,  the level of  nonperforming  loans  and loans  that have been
identified as impaired. Externally, the local economy and events or trends which
might negatively impact the loan portfolio are also considered.

     The  following  table shows  changes in the loan loss reserve for the years
ended December 31:
<TABLE>
                                                               (Dollars in thousands)
                                                             1997       1996      1995
<S>                                                         <C>       <C>       <C>
Balance at beginning of the year.......................     $3,335    $3,097    $2,672
Additions (deduction):
Loans charged off......................................       (499)     (287)     (209)
Recoveries of loans previously charged off.............        102        77       186
Provision charged to operations........................        486       448       448
Balance at end of the year.............................     $3,424    $3,335    $3,097
Allowance for loan losses to loans outstanding.........      2.15%     2.44%     2.42%
</TABLE>

Deposits

     Deposit  balances of  $202,299,000  at December 31, 1997 were more than $21
million  (12%)  higher  than the  previous  year end.  Because  year end deposit
balances can fluctuate in unusual ways, it is more meaningful to analyze changes
in average balances.

                                       24
<PAGE>
Average  deposits  increased $15.2 million during 1997,  about 9%.  Non-interest
bearing demand deposits  increased $3.7 million,  about 12% on average.  Average
savings and NOW balances  increased $3 million (4%) while  average time deposits
increased $8.5 million or about 14%.

     The following table sets forth average deposit balances for the years ended
December 31:
<TABLE>
                                            (in thousands)
                                   1997        1996           1995
<S>                             <C>         <C>            <C>
Non-interest bearing demand      $ 34,707    $ 31,005       $ 27,348
Savings, NOW and money market      79,104      76,128         70,057
Time deposits                      71,093      62,577         54,924
     Total average deposits      $184,904    $169,710       $152,329
</TABLE>
     Contributing to the increase in non-interest  bearing demand deposits is an
increase in business deposits of 21% from year end 1996 to 1997. The increase in
savings  deposits was primarily  due to a $4.5 million  increase in money market
accounts.  The growth in certificates was the result of maintaining  competitive
rates in the market and  selectively  offering  special rates on particular time
products.

     The  majority of the Bank's  deposits are from core  customer  sources-long
term relationships with local personal,  business, and public customers. In some
financial  institutions,  the presence of interest bearing  certificates greater
than  $100,000  indicates  a  reliance  upon  purchased  funds.  However,  large
certificates in the Bank's portfolio consist primarily of core deposits of local
customers.  The Bank does not support growth through purchased funds or brokered
deposits.  See Note 6 of the  Consolidated  Financial  Statements for a maturity
schedule of over $100,000 certificates.

Capital
     The  Company's  capital  at  year  end  totaled  $21,732,000,  a more  than
$2,000,000 (11%) increase over the prior year. Banking regulators have set forth
various  ratios  of  capital  to  assets  to  assess a  financial  institution's
soundness.  Tier 1 capital is equal to shareholders' equity while Tier 2 capital
includes a portion of the allowance  for loan losses.  The  regulatory  agencies
have set capital  standards for "well  capitalized"  institutions.  The leverage
ratio,  which divides Tier 1 capital by three months average assets,  must be 5%
for a well capitalized institution.  The Bank's leverage ratio was 9.50% at year
end 1997. Tier 1 risk-based capital, which includes some off balance sheet items
in  assets  and  weights  assets  by  risk,  must  be 6% for a well  capitalized
institution.  The Bank's was 14.12% at year end 1997. Total risk-based  capital,
which  includes  Tier 1 and Tier 2 capital,  must be 10% for a well  capitalized
institution.  The Bank's total risk based  capital ratio was 15.37% at year end.
The Bank's strong capital ratios put it in the best  classification on which the
FDIC bases its assessment charge.

                                       25
<PAGE>
     The following table lists various Bank capital ratios at December 31:
<TABLE>
                              1997           1996        1995
<S>                           <C>           <C>        <C>
Equity to asset ratio          9.19%         9.67%      9.55%
Tier 1 leverage ratio          9.50%         9.86%      9.83%
Tier 1 risk-based capital     14.12%        14.71%     14.30%
Total risk-based capital      15.37%        15.96%     15.55%
</TABLE>
     The  Company's  ability to pay  dividends is subject to various  regulatory
requirements.  Management  believes,  however,  that  earnings  will continue to
generate  adequate  capital to continue  the payment of  dividends.  In 1997 the
Company paid dividends totaling  $1,575,000,  or 42% of earnings.  Book value of
the stock was $13.80 at year end.

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

     In the coming year,  the Bank will spend in excess of $1,000,000 on various
technology  improvements including a change to the Bank's core operating system.
In addition, the Bank has received regulatory approval to establish a new branch
in the northwest part of Brighton. Included in other assets is $875,000 paid for
an option to purchase a tract of land in northwest  Brighton for $3,000,000.  It
is expected  that the Bank will exercise the option and that a small part of the
site will be used for the  branch and the excess  land is  expected  to be sold.
Construction is expected to begin when all necessary  permits have been obtained
from governing agencies.

Liquidity and Funds Management
     Liquidity is monitored by the Bank's  Asset/Liability  Management Committee
(ALCO) which meets at least monthly. ALCO developed,  and the Board of Directors
approved,  a liquidity  policy which requires a minimum 15% liquidity ratio. The
Bank's liquidity ratio averaged 22% in 1997.

     Deposits  are the  principal  source  of  funds  for the  Bank.  Management
monitors rates at other financial institutions in the area to ascertain that its
rates are  competitive in the market.  Management  also attempts to offer a wide
variety of products  to meet the needs of its  customers.  The Company  does not
deal in brokered funds and the makeup of its over $100,000 certificates consists
of local depositors known to the Bank.

     It is the intention of the Bank's management to handle unexpected liquidity
needs  through its Federal Funds  position.  The goal is to maintain a daily Fed
Funds  balance  sufficient  to cover  required  cash  draws.  The Bank's  policy
requires all purchases of Fed Funds to be approved by senior  management so that
liquidity needs are known. In the

                                       26
<PAGE>
event  the Bank must  borrow  for an  extended  period,  management  may look to
"available for sale" securities in the investment portfolio for liquidity.

     Throughout  the past year,  Fed Funds Sold balances have averaged  slightly
more than $3,000,000  compared to $5,000,000 the prior year.  Management strives
to keep a Fed Funds balance of $3-4 million,  a target which will generally meet
liquidity  needs.  Periodically  the Bank  borrowed  money through the Fed Funds
market.  In the second  quarter  of the year,  the Bank sold  $4,000,000  of its
available for sale investment  securities to increase  liquidity  needed to fund
strong loan demand and seasonal deposit swings.

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

     Interest rate risk is the  potential of economic  losses due to future rate
changes and can be reflected as a loss of future net  interest  income  and/or a
loss of current  market  values.  The  objective is to measure the effect on net
interest  income and to adjust the balance  sheet to minimize the inherent  risk
while at the same time maximizing  income.  Tools used by management include the
standard GAP report which lays out the repricing  schedule for various asset and
liability  categories and an interest rate shock simulation report. The Bank has
no market risk sensitive  instruments held for trading  purposes.  The Bank does
not enter into  futures,  forwards,  swaps,  or options to manage  interest rate
risk. However, the Bank is party to financial instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers  including  commitments  to extend  credit and  letters  of credit.  A
commitment or letter of credit is not recorded as an asset until the  instrument
is exercised (see Note 9 of the Consolidated Financial  Statements).  It appears
that the Bank's market risk is reasonable at this time.

                                       27
<PAGE>
     The table  below  shows the  scheduled  maturity  of the Bank's  assets and
liabilities as of December 31, 1997:
<TABLE>
                                         0-3            4-12          1-5             5+
                                        Months         Months        Years           Years          Total
<S>                                     <C>            <C>            <C>            <C>            <C>
Assets:
Loans.................................  $53,949        $38,007        $60,312        $ 6,743        $159,011
Securities............................    4,050         20,544          9,147          9,984          43,725
Fed funds.............................    3,100                                                        3,100
Other assets..........................                                                20,478          20,478
Total assets..........................  $61,099        $58,551        $69,459        $37,205        $226,314
Liabilities & Shareholders' Equity:
Demand, Savings & NOW.................  $35,582        $14,124        $47,534        $28,930        $126,170
Certificates of Deposit...............   12,644         40,523         22,909             53          76,129
Other liabilities and equity..........                                                24,015          24,015
Total liabilities and equity..........  $48,226        $54,647        $70,443        $52,998        $226,314
Rate sensitivity gap and ratios:
Gap for period........................  $12,873         $3,904        $  (984)      $(15,793)
Cumulative gap........................   12,873         16,777         15,793
Cumulative rate sensitive ratio.......     1.27           1.16           1.09           1.00
December 31, 1996 rate sensitive ratio      .97           1.11           1.49           1.00
</TABLE>
<TABLE>
                              Total        Average Interest Rate    Estimated Fair Value
<S>                           <C>                 <C>                 <C>
Assets:
 Loans                        $159,011            9.82%               $158,700
 Securities                     43,725            6.38%                 44,200
 Fed funds                       3,100            5.40%                  3,100

Liabilities:
 Savings, NOW, MMDA            $84,539            2.79%                 84,540
 Certificates of Deposit        76,129            5.71%                 77,400
</TABLE>
     Estimated fair value for securities are based on quoted market prices.  For
variable rate loans that reprice  frequently and with no  significant  change in
credit risk, fair values are generally based on carrying values. The fair values
for fixed rate one-to-four family residential mortgage loans are based on quoted
market  prices  of  similar  loans  sold  in  conjunction  with   securitization
transactions,  adjusted for differences in loan characteristics.  The fair value
of other types of loans is estimated by discounting  future cash flows using the
current  rates at which  similar  loans would be made to borrowers  with similar
credit ratings and for the same remaining  maturities.  Because it has a one day
maturity,  the carrying value is used as fair value for fed funds sold. The fair
value of deposits with no stated maturity, such as savings, NOW and money market
accounts is

                                       28
<PAGE>
equal to the amount payable on demand. The fair value of certificates of deposit
is estimated using rates currently  offered for deposits with similar  remaining
maturities.

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

     Given the asset  sensitive  position of the Bank at December 31,  1997,  if
interest  rates  decrease  200 basis  points  and  management  did not  respond,
management   estimates   that  pretax  net  interest   income   would   decrease
approximately  $400,000 while a similar increase in rates would cause pretax net
interest income to increase by a like amount. See discussion under "Net Interest
Income" below.

RESULTS OF OPERATIONS

     The Company  achieved record earnings in 1997. Net income of $3,733,000 was
an increase of $160,000  (4.5%) over 1996  earnings.  The increase was due to an
increase in both net interest  income and  non-interest  income.  The  Company's
return on average  assets (ROA) was 1.79% in 1997, a 9 basis point decrease from
the prior year.  The ROA  declined  because  income  grew at 4.5% while  average
assets  grew at 9.4%.  The  return on  average  stockholders'  equity  (ROE) was
17.84%,  a decrease  of 110 basis  points  from the ROE  reported  in 1996.  The
decline in ROE occurred  because  average  equity grew 12% while  earnings  grew
4.5%.

     The  following  table  contains  key  performance  ratios  for years  ended
December 31:
<TABLE>
                                             1997           1996           1995
<S>                                          <C>            <C>            <C>
Net income to:
  Average stockholders' equity               17.84%         19.12%         19.60%
  Average assets                              1.79%          1.88%          1.88%
  Basic earnings per common share:*          $2.37          $2.27          $2.03
</TABLE>
* restated to give effect to 3 for 1 stock  split,  payable as a dividend on two
shares for each one share of company stock held of record January 16, 1997, paid
February 16, 1997.

Net Interest Income

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

                                       29
<PAGE>
     The following table shows the average balance and percentage earned or paid
on key  components of earning assets and paying  liabilities  for the year ended
December 31:
<TABLE>
                                        1997                     1996                1995
                                 Average    Yield/       Average     Yield/    Average   Yield/
                                 Balance     Rate        Balance      Rate     Balance    Rate
<S>                              <C>         <C>         <C>          <C>      <C>        <C>
Interest earning assets:
 Federal funds sold                $2,754    5.40%         $5,135     5.24%     $3,084    5.76%
 Taxable securities                31,873    5.98%         32,042     5.95%     25,591    5.64%
 Tax-exempt securities             13,262    7.36%         11,172     7.64%      9,413    8.28%
 Loans                            148,096    9.82%        130,648     9.91%    122,500    9.99%
 Total earning assets            $195,985    8.97%       $178,997     8.93%   $160,588    9.12%
Interest bearing funds:
Savings/NOW accounts              $79,104    2.79%        $76,128     2.80%    $70,057    2.61%
Time deposits                      71,093    5.71%         62,577     5.62%     54,924    5.54%
Federal funds purchased               610    5.77%              4     5.58%        105    6.43%
Total interest bearing funds:    $150,807    4.18%       $138,709     4.07%   $125,086    3.90%
Interest spread                              4.79%                    4.86%               5.22%
Net interest margin                          5.75%                    5.77%               6.08%
</TABLE>
     Tax  equivalent  interest  income in each of the three years  includes loan
origination fees. A substantial portion of such fees is deferred for recognition
in future periods or is considered in  determining  the gain or loss on the sale
of real estate mortgage loans. Tax equivalent interest income, however, includes
net loan  origination  fees  totaling  $380,000 in 1997,  $451,000 in 1996,  and
$440,000 in 1995.

                                       30
<PAGE>
     The  following  table sets forth the effects of volume and rate  changes on
net interest  income on a taxable  equivalent  basis.  All figures are stated in
thousands of dollars.
<TABLE>
                                                    Year ended                             Year ended
                                            December 31, 1997 compared to         December 31, 1996 compared to
                                            Year ended December 31, 1996          Year ended December 31, 1995

                                           Amount of Increase/(Decrease)          Amount of Increase/(Decrease)
                                                 due to change in                         Due to change in
                                                                      Total                            Total
                                                                      Amount                           Amount
                                                                         Of                               Of
                                                       Average        Increase/               Average  Increase/
                                           Volume       Rate          (Decrease)  Volume       Rate    (Decrease)
<S>                                        <C>          <C>           <C>         <C>         <C>      <C>
Interest Income:Federal funds sold........   $ (125)        $ 4       $ (121)        $ 118     $ (27)     $ 91
Securities: Taxable.......................      (10)         10            0           364        98       462
Tax Exempt................................      160         (37)         123           146       (72)       74
Loans.....................................    1,729        (136)       1,593           814      (105)      709
Total interest income.....................  $ 1,754      $ (159)      $1,595       $ 1,442    $ (106)  $ 1,336
Interest Expense:
Interest bearing deposits:
Savings/NOW accounts......................     $ 83        $ (2)        $ 81         $ 159     $ 145     $ 304
Time......................................      478          67          545           424        45       469
Short-term borrowings.....................       34           1           35            (7)        0        (7)
Total interest expense....................    $ 595        $ 66        $ 661         $ 576     $ 190      $766
Net interest income (FTE).................  $ 1,159      $ (225)       $ 934         $ 866    $ (296)    $ 570
</TABLE>
The  change  in  interest  due to  changes  in both  balance  and  rate has been
allocated to change due to balance and change due to rate in  proportion  to the
relationship of the absolute dollar amounts of change in each.

     Net interest income increased $934,000 in 1997 over the prior year due to a
$1,595,000  increase  in  interest  income  partially  offset  by  approximately
$661,000 increase in interest expense.  The increase in income can be attributed
to an increase in average earning assets of $17,000,000.  The increase in income
on earning  assets  would have been  greater had the yield not  declined 7 basis
points.  Interest income on Fed Funds Sold decreased $121,000 due to an decrease
in average  balances of $2,400,000,  partially offset by an increase in rates of
16 basis points.  Income on taxable  securities was essentially the same in both
1997 and 1996,  with a slight  decrease in average  balances being offset with a
slight increase in interest rates. Tax-exempt bonds earned $123,000 more in 1997
than the previous year. The average balance of these  securities  increased more
than  $2,000,000  while the rate declined 28 basis points.  Loan interest income
was $1,593,000 higher in 1997 than the previous year. The increase was due to an
increase of

                                       31
<PAGE>
nearly  $17,500,000  in average  balances,  partially  offset by a 9 basis point
decline in rates.  Loan  demand was  strong in 1997 and  management  of the Bank
endeavored  to meet the  needs  of the  community  by  allowing  the  investment
portfolio to decline to satisfy loan demand.  Average  commercial loans grew 17%
and average consumer loans grew 16%.

     Interest  expense  increased  $661,000  in 1997  because  average  balances
increased  approximately  $12,000,000  and  interest  rates  increased  11 basis
points. The interest cost for savings and NOW accounts increased $81,000 because
average  savings and NOW balances  increased  $3,000,000  while  interest  rates
declined one basis point. Interest on certificates of deposit increased $545,000
because average time deposits increased  $8,500,000 and interest rates increased
9 basis points.  Savings balances increased as customers  responded favorably to
the tiered rate structure now being offered on money market accounts.  Growth in
time deposits was encouraged by competitive  pricing and  periodically  offering
special  rates on  specific  products.  Fed funds  purchased  increased  $35,000
primarily because the average balance increased $606,000.

     In the previous year, net interest  income had increased  nearly  $570,000.
The  increase in net  interest  income was the result of an increase in interest
income of  $1,336,000,  partially  offset by an increase in interest  expense of
approximately  $766,000.  The increase in interest income in 1996 was the result
of an $18,400,000  increase in earning assets  partially offset by a decrease in
yields on earning  assets of 19 basis points.  The increase in interest  expense
was the result of average  balances  increasing  $13,600,000  and interest rates
increasing 17 basis points.

     In the coming year, management expects growth to continue in both loans and
deposits on the  assumption  that the economy  will remain  strong.  An economic
decline could adversely  affect growth.  The interest spread and interest margin
will likely  continue to decline  unless the Fed increases  rates.  The interest
cost on deposits is expected  to continue to rise as  competition  for  deposits
intensifies among the bank and non-bank players.

     The following  table shows the  composition  of average  earning assets and
interest paying liabilities for the years ended December 31:
<TABLE>
                               1997           1996           1995
<S>                          <C>            <C>            <C>
As a percent of average earning assets:
Loans                         75.56%         72.99%         76.28%
Securities                    23.03%         24.14%         21.80%
Fed funds sold                 1.41%          2.87%          1.92%
Average earning assets       100.00%        100.00%        100.00%
Savings and NOW               40.36%         42.53%         43.63%
Time deposits                 36.27%         34.96%         34.20%
Fed funds purchased             .31%             0            .07%
Average interest bearing
  liabilities                 76.94%         77.49%         77.90%
Earning asset ratio           94.14%         94.08%         94.17%
Free-funds ratio              23.06%         22.51%         22.10%
</TABLE>
                                       32
<PAGE>
Provision for Loan Losses
     The  provision  for loan losses  increased to $486,000 in 1997  compared to
$448,500 in 1996.  This provision was sufficient to produce a ratio of allowance
for  loan  loss to loans of  2.15%  and a ratio  of  nonperforming  loans to the
allowance  for loan  loss of 31% at year  end.  Partially  due to the  growth in
commercial  loans,  which  typically  carry  more  risk,  management  expects to
increase the provision in the coming year.  Management  analysis of the adequacy
of the allowance  considers  the  portfolio  mix as well as economic  conditions
within the Bank's market.

Non-interest Income
     Non-interest  income,  which includes service charges on deposit  accounts,
loan  fees,  other  operating  income,  and  gain(loss)  on sale of  assets  and
securities  transactions,  increased  by  approximately  $160,000  (10%) in 1997
compared to the previous year. Service charge income increased $70,000 (5%) over
the prior year,  due to loan and deposit  growth.  Gain on loan sales  increased
$60,000  (60%).  This  number is very  volatile  as the  volume of loan sales is
dependent  on the amount of  mortgage  demand and on the  movement  of  mortgage
rates. In 1997 the Bank benefited from good mortgage demand and falling mortgage
rates.  "Other" non-interest income increased $30,000 in 1997. Included in other
non-interest  income is a  nonrecurring  $86,000  gain on the sale of other real
estate. In 1996 there was a gain of $60,000 on the sale of other real estate.

Non-interest Expense
     Non-interest interest expense increased 13.5% in 1997. The most significant
component of  non-interest  expense is salaries and  benefits  expense.  In 1997
salaries and benefits expense  increased 15% to $3,800,000,  due to the combined
effects of salary increases,  staffing of the trust department,  and an increase
in the employee profit sharing bonus.

     Occupancy   expense  increased  $40,000  and  equipment  expense  increased
$35,000.  The increase in occupancy was primarily due to increased  depreciation
costs  as  the  main  office  and  Brighton  branch  buildings  both  had  major
renovations  that were completed during 1996 and had a full year of depreciation
expense in 1997.  Equipment  expense  increased  both  because  maintenance  and
depreciation  costs  increased.  In 1998 the Bank will change its core operating
system  which will require an estimated  $1,200,000  investment  in hardware and
software that will result in an increased  depreciation expense of approximately
$200,000 in the coming year.

     Other  expense   increased   $205,000  (17%).   The  most  notable  factors
contributing  to the increase in other expense were increases in expense related
to  upgrading  technology  and in legal  fees  related to the sale of other real
estate, problem loans, property negotiations, and compensation plans.

     The  Bank's  trust  department  officially  opened in August  but  incurred
expenses for about three  quarters of the year and lost  approximately  $190,000
for the year. It is

                                       33
<PAGE>
anticipated that next year the trust department will lose approximately  $30,000
more than it did in 1997.

     Year 2000 issues will be a focus of  management's  attention  in the coming
year. The Bank is highly  dependent on technology and several  applications  are
dependent on the software's ability to make the transition to the year 2000. The
Bank has hired a consultant  who has  recommended  actions  related to year 2000
compliance.  A committee is in the process of  implementing  these steps at this
time. Other than the 1998 increased technology investments previously mentioned,
management  does not believe that compliance with Year 2000 will have a material
effect on the Bank's financial condition.

Federal Income Tax Expense
     Fluctuations  in income taxes resulted  primarily from changes in the level
of profitability  and in variations in the amount of tax-exempt  income.  Income
tax  expense   increased  $35,000  to  $1,620,500  (2%)  in  1997.  For  further
information  see Note 7 "Federal  Income  Taxes" in the  Company's  Consolidated
Financial Statements.

Prospective Accounting Changes
     The Financial  Accounting  Standards  Board adopted  Statement of Financial
Accounting Standards,  No. 130, "Reporting Comprehensive Income" (SFAS #130) and
Statement  of  Financial  Accounting  Standards,  No.  131,  "Disclosures  about
Segments of an Enterprise and Related Information" (SFAS #131) in June of 1997.

     SFAS #130 establishes standards for reporting and displaying  comprehensive
income and its  components,  including  but not limited to  unrealized  gains or
losses on  securities  available for sale,  in the  financial  statements.  This
statement  is  effective  for both interim and annual  periods  beginning  after
December 15, 1997 with  earlier  application  permitted.  SFAS #130 will require
reclassification of all prior period amounts.

     SFAS #131  establishes  standards for the way that public  entities  report
information about operating segments in financial statements.  This statement is
effective for both interim and annual periods  beginning after December 31, 1997
with restatement of prior period information required.

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

Item 8 - Financial Statements and Supplementary Data

     The following  consolidated  financial statements and supplementary data of
the Company appear on pages 1 to 17 of Appendix III to the Company's  definitive
Proxy  Statement,  dated March 17,  1998,  relating to the April 22, 1998 Annual
Meeting of

                                       34
<PAGE>
shareholders, as filed with the Commission. This Appendix is incorporated herein
by reference and included as Exhibit 13 to this report on Form 10-K:

         Consolidated Balance Sheets
         Consolidated Statements of Income
         Consolidated Statements of Stockholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statement
         Independent Auditors' Report
         Quarterly  financial  data  relating to results of  operations  for the
years ended December 31, 1997 and 1996 are reported on page 17 of Appendix III.

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

None



                                    PART III

Item 10 - Directors and Executive Officers of the Registrant

Directors
     The  information  with respect to Directors and Nominees of the Registrant,
set forth under the caption  "Election of Directors" on pages 1 through 3 of the
Company's  definitive  proxy  statement,  as filed with the Commission and dated
March 17, 1998,  relating to the April 22, 1998 Annual Meeting of  Shareholders,
is incorporated herein by reference.


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


Item 11 - Executive Compensation

     The information set forth under the caption "Summary Compensation Table" on
page 7 of the Company's definitive proxy statement, as filed with the Commission
and dated March 17,  1998,  relating  to the April 22,  1998  Annual  Meeting of
Shareholders, is incorporated herein by reference. Information under the caption
"Committee Report on Executive  Compensation" on page 6 and "Shareholder  Return
Performance  Graph"  on  page  10 of  the  definitive  proxy  statement  is  not
incorporated  by  reference  herein  and is not  deemed  to be  filed  with  the
Securities  and  Exchange  Commission.

                                       35
<PAGE>
Item 12 - Security  Ownership of Certain Beneficial Owners and Management

     The information set forth under the caption  "Ownership of Common Stock" on
page 9 of the Company's definitive proxy statement, as filed with the Commission
and dated March 17,  1998,  relating  to the April 22,  1998  Annual  Meeting of
Shareholders, is incorporated herein by reference.


Item 13 - Certain Relationships and Related Transactions

     The  information  set forth under the caption  "Certain  Transactions  with
Management" on page 8 of the Company's definitive proxy statement, as filed with
the Commission  and dated March 17, 1998,  relating to the April 22, 1998 Annual
Meeting of Shareholders, is incorporated herein by reference.




                                    PART IV

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


(a)  1.  Financial Statements
           All financial statements of the Registrant are incorporated herein by
          reference as set forth in Appendix III to the Registrant's  Definitive
          Proxy Statement,  dated March 17, 1998, relating to the April 22, 1998
          Annual Meeting of Shareholders, a copy of which is filed as Exhibit 13
          to this Report on Form 10-K.

       2.  Financial Statement Schedules
            Not applicable.

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



(b)        Reports on Form 8-K
            No reports on Form 8-K were filed during the fourth quarter of the
            year ended December 31, 1997.

                                       36
<PAGE>
SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized, dated March 12, 1998.

FNBH BANCORP, INC.



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

/s/ Barbara J. Nelson         Barbara J. Nelson, Secretary/Treasurer
                              (Principal Accounting Officer)




                                       37
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the Registrant and in the
capacities and on the dates  indicated.  Each director of the Registrant,  who's
signature  appears  below,  hereby  appoints  Barbara D.  Martin and  Barbara J.
Nelson, and each of them severally,  as his or her attorney-in-fact,  to sign in
his or her name and on his or her behalf,  as a director of the Registrant,  and
to file with the Commission any and all Amendments to this Report on Form 10-K.


Roy A. Westran, Chairman of the Board                  /s/ Roy A. Westran


Harry E. Griffith, Vice Chairman of the Board          /s/ Harry E. Griffith


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


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


Rebecca S. English, Director                           /s/ Rebecca S. English


Charles N. Holkins, Director                           /s/ Charles N. Holkins


Dona Scott Laskey, Director                            /s/ Dona Scott Laskey


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


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


W. Rickard Scofield, Director                          /s/ W. Rickard Scofield


R. Michael Yost, Director                              /s/ R. Michael Yost


                                       38
<PAGE>
                                 EXHIBIT INDEX

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

Exhibit
Number                                                                      Page
(13)  Pages 1-17 of Appendix III to the Company's Proxy Statement for
      Annual Meeting of Shareholders to be held April 22, 1998 representing
      that  portion of the  Appendix incorporated by reference in Item 8 of
      this report. This Appendix was filed with the Commission as part of the
      Company's Proxy Statement and was delivered to Company shareholders in
      compliance with Rule 14(a)-3 of the Securities Exchange
      Act of 1934, as amended.................................................38

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

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

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

3.2  Bylaws of the Registrant                  Exhibit 3.2 of Form 10

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

     Material Contracts:

10.2  Howell Branch Lease Agreement            Exhibit 10.2 to Form 10


                                       39
<PAGE>
                                   EXHIBIT 21

                                  SUBSIDIARIES


              Name                                 Jurisdiction of Incorporation
First National Bank in Howell                                 Michigan

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





                                       40