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

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

# For the fiscal year ended December 31, 2001

# Commission file number 0-25752

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

|MICHIGAN
     (State or other jurisdiction of
      incorporation or organization) | 38-2806518
                               (IRS Employer
                             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)

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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. YesX 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.

The aggregate market value
of the voting stock held by non-affiliates of the registrant, based on a per
share price of $43 as of March 1, 2002, was $67,655,125 (common stock, no par
value). As of December 31, 2001 there were outstanding 1,573,375 shares of the
Companys Common Stock (no par value).

Documents Incorporated by Reference:
Portions of the Company's Proxy Statement and appendix dated March 15, 2002 for the Annual Meeting of
Shareholders to be held April 17, 2002 are incorporated by reference into Parts I, II and III of this
report.

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# PART I

Included or  incorporated  by reference 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, 2002, the
Bank had  approximately  138  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  suburban  population  especially  in the
southeast quadrant of the county, primarily attributable to growth around the City of Brighton.

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

## Bank Services

The Bank is a full  service  bank  offering a wide range of  commercial  and  personal  banking  services.
These services include  checking  accounts,  savings  accounts,  certificates of deposit,  commercial  loans,  real
estate loans, installment loans, trust and investment services,  collections,  traveler's checks, night depository,
safe  deposit box and U.S.  Savings  Bonds.  The Bank  maintains  correspondent  relationships  with major banks in
Detroit,  pursuant to which the Bank engages in federal  funds sale and  purchase  transactions,  the  clearance of
checks and certain  foreign  currency  transactions.  The Bank also has a  relationship  with the Federal Home Loan
Bank of Indianapolis  where it makes short term  investments  and where it has a line of credit of $18,000,000,  of
which  $12,200,000 is available,  and $5,800,000 is funded as of year end. In addition,  the Bank participates with
other  financial  institutions  to fund certain  large loans which would exceed the Bank's legal  lending  limit if
made solely by the Bank.

---

The Bank's  deposits  are  generated in the normal  course of business  and the loss of any one  depositor
would not have a  materially  adverse  effect on the  business of the Bank.  As of December  31,  2001,  the Bank's
certificates  of deposit of  $100,000 or more  constituted  approximately  13% 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  79% of total  revenues for the period  ended  December 31, 2001 and 81% of total
revenues  for the period  ended  December  31,  2000.  Interest  on  investment  securities,  including  short-term
investments  and  federal  funds  sold,  constituted  approximately  10% of  total  revenues  in 2001  and in 2000.
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.  As of
December  31,  2001,  30%  of  outstanding  loans  were  for  either  commercial  or  residential  construction  or
development.  Fifty-eight  percent of the  Bank's  loan  portfolio  is in fixed rate  loans.  Most of these  loans,
approximately  90%,  mature within five years of issuance.  Approximately  $17,000,000 in loans (or about 6% 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  $134,200,000 in  certificates,  $109,900,000  mature within a year, with the majority of the balance
maturing within a five year period.

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

As described in more detail below,  the Bank's  cumulative one year gap ratio of rate sensitive  assets to
rate sensitive  liabilities  for the period ended December 31, 2001, was 13% liability  sensitive,  compared to 16%
asset  sensitive at December 31, 2000. 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  concentration  considerations.  The Bank
regularly  sells fixed rate  residential  mortgages  to Freddie Mac while  retaining  servicing  on the sold loans.
Those  residential  real estate  mortgage  loan  requests that do not meet Freddie Mac criteria are reviewed by the
Bank for approval and, if approved,  are retained in the Bank's loan  portfolio.  The Bank also may purchase  loans
which meet its normal credit standards.

The Bank's  investment  policy is  designed  to provide a  framework  within  which the Bank may  maximize
earnings potential by acquiring assets designed to enhance  profitability,  absorb excess funds, provide liquidity,
maintain a high credit quality,  implement interest rate risk measures,  provide collateral for pledging,  generate
a favorable return on investments,  and provide tax-exempt income as appropriate.  Safety,  liquidity, and interest
rate risk  standards will not be compromised in favor of increased  return.  When making  investment  decisions the
Bank considers  investment type, credit quality  (including maximum credit exposure to one obligor at any one time)
and  maturity of  investments.  Consideration  is also given to each  investment's  risk-weight  as  determined  by
regulatory Risk-Based Capital Guidelines.

The portfolio must be coordinated  with the overall  asset/liability  management of the balance sheet. The
use of the  investment  portfolio  for market  oriented  trading  activities or  speculative  purposes is expressly
prohibited  unless  otherwise  approved by the Board of Directors.  Investments are acquired for which the Bank has
both the ability and intent to hold to maturity.  Specific limits determine the types,  maturities,  and amounts of
securities the Bank intends to hold.  Guidelines on liquidity  requirements,  as well as an  acknowledgement of the
Bank's credit  profile and capital  position may affect the Bank's  ability to hold  securities to maturity.  It is
not the  intention  of  management  to profit from short term  securities  price  movements.  Business  reasons for
securities  purchases and sales will be noted at the time of the  transaction.  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 seven 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.  There  are two
facilities  in Brighton,  and one each in Hartland,  and  Fowlerville.  See  "Properties"  below for more detail on
these facilities.  Within these communities,  its principal  competitors are Fifth Third Bank,  National City Bank,
Republic  Bank,  and  Bank  One.  Each  of  these  financial  institutions,   which  are  headquartered  in  larger
metropolitan  areas,  has  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 owned financial
institution.  Based on  deposit  information  as of June 30,  2001,  the Bank holds  approximately  21.75% of local
deposits,  compared to approximately  17.49% held by Fifth Third Bank,  approximately 10.77% held by Republic Bank,
approximately  10.70% held by National  City Bank,  and  approximately  7.52% held by Bank One.  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,  Fifth Third Bank maintains five branch  offices,  National City
Bank operates six branch  offices,  Republic Bank has five branch  offices,  and Bank One has three branch offices.
Management  is not aware of any plans by these  financial  institutions  to expand  their  presence  in the  Bank's
market.

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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 and the easing of restrictions on bank
and holding company  activities  have led to increased  competition  among banks and other financial  providers for
funds,  loans,  and a broad  array of other  financial  services.  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 and is anticipating opening a new branch in Howell in the first quarter of 2002.

## Growth of
Company

The following table sets forth certain information regarding the growth of the Company:

`Balances  as of  December 31,
                                                                    (in thousands)
                                             2001          2000          1999          1998          1997
Total Assets                             $392,978      $348,363      $296,419      $264,894      $226,314
Loans, Net of Unearned Income             286,280       255,414       209,952       185,018       158,397
Securities                                 55,989        39,311        50,598        38,646        43,725
Noninterest-Bearing Deposits               62,938        55,253        47,980        47,402        41,631
Interest-Bearing Deposits                 288,731       254,961       221,210       192,155       160,668
Total Deposits                            351,669       310,214       269,190       239,557       202,299
Shareholders' Equity                       32,404        28,887        25,312        23,497        21,732`

Through 1998, 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  Hartland,  one in the  village  of
Fowlerville,  and the sixth is a grocery  store branch,  located west of downtown  Howell.  In August of 1999,  the
Bank opened a new  regional  facility on the west side of Brighton.  As of December  31, 2001,  this new branch had
approximately  $35,000,000  in  deposits.  In the time period  presented,  all of the Bank's  branches  grew due to
general growth in the county.

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# 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  such  statutes  and  regulations.  A  change  in  applicable  laws or
regulations may have a material effect on the Company, the Bank and the business of the Company and the Bank.

## General

Financial  institutions  and their holding  companies are  extensively  regulated  under federal and state
law.  Consequently,  the growth and  earnings  performance  of the Company and the Bank can be affected not only by
management  decisions  and  general  economic  conditions,  but  also  by the  statutes  administered  by,  and the
regulations and policies of, various governmental  regulatory  authorities.  Those authorities include, but are not
limited to, the Board of Governors of the Federal  Reserve  System (the "Federal  Reserve  Board"),  the FDIC,  the
Office of the Comptroller of the Currency  ("OCC"),  the Internal  Revenue Service,  and state taxing  authorities.
The effect of such  statutes,  regulations  and policies can be  significant,  and cannot be predicted  with a high
degree of certainty.

Federal and state laws and regulations  generally  applicable to financial  institutions and their holding
companies  regulate,  among other things, the scope of business,  investments,  reserves against deposits,  capital
levels  relative to operations,  lending  activities and practices,  the nature and amount of collateral for loans,
the  establishment of branches,  mergers,  consolidations  and dividends.  The system of supervision and regulation
applicable to the Company and the Bank establishes a comprehensive  framework for their  respective  operations and
is intended  primarily for the protection of the FDIC's deposit  insurance  funds,  the depositors of the Bank, and
the public, rather than shareholders of the Bank or the Company.

Federal law and regulations  establish  supervisory  standards applicable to the lending activities of the
Bank,  including  internal controls,  credit  underwriting,  loan documentation and loan-to-value  ratios for loans
secured by real property.

## The Company

General.  The  Company is a bank  holding  company  and,  as such,  is  registered  with,  and  subject to
regulation  by, the Federal  Reserve Board under the Bank Holding  Company Act, as amended (the "BHCA").  Under the
BHCA,  the Company is subject to periodic  examination by the Federal  Reserve Board,  and is required to file with
the Federal  Reserve Board  periodic  reports of its  operations  and such  additional  information  as the Federal
Reserve Board may require.

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In accordance with Federal  Reserve Board policy,  the Company is expected to act as a source of financial
strength to the Bank and to commit  resources to support the Bank in  circumstances  where the Company might not do
so absent such  policy.  In  addition,  if the Bank's  capital  becomes  impaired,  the OCC may require the Bank to
restore its capital by a special  assessment upon the Company as the Bank's sole  shareholder.  If the Company were
to fail to pay any such  assessment,  the  directors of the Bank would be required,  under federal law, to sell the
shares of the Bank's  stock owned by the Company at public  auction and use the proceeds of the sale to restore the
Bank's capital.

Investments and Activities.  In general,  any direct or indirect  acquisition by the Company of any voting
shares of any bank which would result in the Company's  direct or indirect  ownership or control of more than 5% of
any class of voting  shares of such  bank,  and any  merger or  consolidation  of the  Company  with  another  bank
company, will require the prior written approval of the Federal Reserve Board under the BHCA.

The merger or  consolidation  of an existing  bank  subsidiary  of the Company with another  bank,  or the
acquisition  by such a subsidiary of assets of another  bank,  or the  assumption of liability by such a subsidiary
to pay any  deposits  in  another  bank,  will  require  the prior  written  approval  of the  responsible  Federal
depository  institution  regulatory  agency  under the Bank  Merger  Act.  In  addition,  in certain  such cases an
application  to, and the prior  approval  of, the  Federal  Reserve  Board  under the BHCA  and/or the OCC,  may be
required.

With certain  limited  exceptions,  the BHCA prohibits any bank company from engaging,  either directly or
indirectly  through a  subsidiary,  in any activity  other than  managing or  controlling  Bank unless the proposed
non-banking  activity is one that the Federal  Reserve Board has determined to be so closely  related to banking or
managing  or  controlling  Bank  as  to  be  a  proper  incident  thereto.  Under  current  Federal  Reserve  Board
regulations,  such permissible  non-banking activities include such things as mortgage banking,  equipment leasing,
securities  brokerage,  and consumer and commercial finance company operations.  Well-capitalized  and well-managed
bank holding  companies may engage de novo in certain types of non-banking  activities  without prior notice to, or
approval of, the Federal  Reserve  Board,  provided that written notice of the new activity is given to the Federal
Reserve  Board  within 10 business  days after the  activity is  commenced.  If a bank  holding  company  wishes to
engage in a  non-banking  activity by  acquiring a going  concern,  prior  notice  and/or  prior  approval  will be
required,  depending  upon the  activities in which the company to be acquired is engaged,  the size of the company
to be acquired and the financial and managerial condition of the acquiring bank holding company.

Eligible bank holding  companies  that elect to operate as financial  holding  companies may engage in, or
own shares in companies  engaged in, a wider range of nonbanking  activities,  including  securities  and insurance
activities  and any other  activity  that the Federal  Reserve  Board,  in  consultation  with the Secretary of the
Treasury,  determines by regulation or order is financial in nature,  incidental to any such financial  activity or
complementary  to any such  financial  activity and does not pose a substantial  risk to the safety or soundness of
depository  institutions or the financial system  generally.  The Bank Holding Company Act generally does not place
territorial  restrictions  on the  domestic  activities  of  non-bank  subsidiaries  of bank or  financial  holding
companies.  While the Company  believes it is eligible to elect to operate as a financial  holding  company,  as of
the date of this filing, it has not applied for approval to operate as a financial holding company.

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Capital  Requirements.  The Federal Reserve Board uses capital adequacy  guidelines in its examination and
regulation of bank holding companies.  If capital falls below minimum  guidelines,  a bank company may, among other
things, be denied approval to acquire or establish additional Bank or non-bank businesses.

The Federal  Reserve  Board's  capital  guidelines  establish the  following  minimum  regulatory  capital
requirements  for bank holding  companies:  (i) a leverage capital  requirement  expressed as a percentage of total
average assets,  and (ii) a risk-based  requirement  expressed as a percentage of total  risk-weighted  assets. The
leverage  capital  requirement  consists  of a  minimum  ratio of Tier 1 capital  (which  consists  principally  of
shareholders'  equity)  to  total  average  assets  of 3%  for  the  most  highly  rated  companies,  with  minimum
requirements of 4% to 5% for all others.  The risk-based  requirement  consists of a minimum ratio of total capital
to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital.

The  risk-based  and  leverage  standards  presently  used  by  the  Federal  Reserve  Board  are  minimum
requirements,  and higher  capital  levels may be required if warranted  by the  particular  circumstances  or risk
profiles  of  individual  banking  organizations.  The  Federal  Reserve  Board has not  advised the Company of any
specific minimum Tier 1 Capital leverage ratio applicable to it.

Dividends.  The Company is a  corporation  separate  and  distinct  from the Bank.  Most of the  Company's
revenues  are  received  by it in the form of  dividends  paid by the Bank.  Thus,  the  Company's  ability  to pay
dividends  to its  shareholders  is  indirectly  limited by  statutory  restrictions  on the Bank's  ability to pay
dividends described below.  Further,  in a policy statement,  the Federal Reserve Board has expressed its view that
a bank holding company  experiencing  earnings weaknesses should not pay cash dividends exceeding its net income or
which can only be funded in ways that weaken the bank holding  company's  financial  health,  such as by borrowing.
Additionally,  the Federal  Reserve  Board  possesses  enforcement  powers over bank  holding  companies  and their
non-bank  subsidiaries  to prevent or remedy  actions that represent  unsafe or unsound  practices or violations of
applicable  statutes and  regulations.  Among these powers is the ability to proscribe  the payment of dividends by
Bank and bank  holding  companies.  Similar  enforcement  powers  over the Bank  are  possessed  by the  FDIC.  The
"prompt  corrective  action"  provisions  of federal law and  regulation  authorizes  the Federal  Reserve Board to
restrict the payment of dividends by the Company for an insured bank which fails to meet specified capital levels.

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In addition to the restrictions on dividends  imposed by the Federal Reserve Board, the Michigan  Business
Corporation  Act  provides  that  dividends  may be  legally  declared  or paid  only if after the  distribution  a
corporation,  such as the  Company,  can pay its  debts as they come due in the usual  course of  business  and its
total  assets  equal or exceed  the sum of its  liabilities  plus the amount  that  would be needed to satisfy  the
preferential  rights upon dissolution of any holders of preferred stock whose  preferential  rights are superior to
those  receiving  the  distribution.  The  Company's  Articles of  Incorporation  do not  authorize the issuance of
preferred stock and there are no current plans to seek such authorization.

## The Bank

General.  The Bank is  organized  as a national  banking  association  and is,  therefore,  regulated  and
supervised  by the OCC.  The deposit  accounts of the Bank are  insured by the Bank  Insurance  Fund (the "BIF") of
the FDIC.  Consequently,  the Bank is also subject to the  provisions  of the Federal  Deposit  Insurance  Act. The
Bank is subject to the examination,  supervision,  reporting and enforcement requirements of the OCC as its primary
federal  regulator.  The OCC and the federal and state laws applicable to the Bank and its operations,  extensively
regulate various aspects of the banking business  including,  among other things,  permissible types and amounts of
loans,  investments and other  activities,  capital adequacy,  branching,  interest rates on loans and on deposits,
the  maintenance of  non-interest  bearing  reserves on deposit  accounts,  and the safety and soundness of banking
practices.

Deposit  Insurance.  As an  FDIC-insured  institution,  the  Bank is  required  to pay  deposit  insurance
premium  assessments  to the FDIC.  The FDIC has adopted a  risk-based  assessment  system  under which all insured
depository  institutions are placed into one of nine categories and assessed insurance  premiums,  based upon their
respective levels of capital and results of supervisory  evaluation.  Institutions  classified as  well-capitalized
(as  defined by the FDIC) and  considered  healthy pay the lowest  premium  while  institutions  that are less than
adequately  capitalized (as defined by the FDIC) and considered of substantial  supervisory concern pay the highest
premium.  Risk  classification  of all insured  institutions  is made by the FDIC for each  semi-annual  assessment
period.

The Federal  Deposit  Insurance  Act ("FDIA")  requires the FDIC to establish  assessment  rates at levels
which will  maintain the Deposit  Insurance  Fund at a mandated  reserve  ratio of not less than 1.25% of estimated
insured  deposits.  For  several  years,  the BIF  reserve  ratio  has  been at or above  the  mandated  ratio  and
assessments  have ranged from 0% of deposits for  institutions  in the lowest risk  category,  such as the Bank, to
..27% of deposits in the highest risk category.  However,  there is speculation  that the reserve may fall below the
mandated ratio resulting in increased assessments in the second half of 2002.

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FICO  Assessments.  The Bank,  as members of the BIF, is subject to  assessments  to cover the payments on
outstanding  obligations of the Financing  Corporation  ("FICO").  FICO was created to finance the recapitalization
of the  Federal  Savings  and Loan  Insurance  Corporation,  the  predecessor  to the  FDIC's  Savings  Association
Insurance  Fund (the  "SAIF")  which  insures the deposits of thrift  institutions.  From now until the maturity of
the outstanding  FICO  obligations in 2019, BIF members and SAIF members will share the cost of the interest on the
FICO bonds on a pro rata  basis.  It is  estimated  that FICO  assessments  during  this  period  will be less than
0.025% of deposits.

OCC  Assessments.  National Banks are required to pay  supervisory  fees to the OCC to fund the operations
of the OCC.  The amount of  supervisory  fees paid by a national  bank is based upon the bank's  total  assets,  as
reported to the OCC.

Capital Requirements.  The OCC has  established  the  following  minimum  capital  standards for national
banks:  a leverage  requirement  consisting of a minimum ratio of Tier 1 capital to total average  assets of 3% for
the most  highly-rated  Bank  with  minimum  requirements  of 4% to 5% for all  others,  and a  risk-based  capital
requirement  consisting of a minimum ratio of total capital to total risk-weighted  assets of 8%, at least one-half
of which must be Tier 1 capital.  Tier 1 capital  consists  principally  of  shareholders'  equity.  These  capital
requirements  are minimum  requirements.  Higher  capital  levels will be required if warranted  by the  particular
circumstances or risk profiles of individual institutions.

Federal law provides the federal banking  regulators with broad power to take prompt  corrective action to
resolve the problems of  undercapitalized  institutions.  The extent of the  regulators'  powers depends on whether
the institution in question is "well capitalized,"  "adequately  capitalized,"  "undercapitalized,"  "significantly
undercapitalized,"  or  "critically  undercapitalized."  Federal  regulations  define these  capital  categories as
follows:

`Total                Tier 1
                                         Risk-Based           Risk-Based
                                         Capital Ratio        Capital Ratio         Leverage Ratio

Well capitalized                         10% or above         6% or above           5% or above
Adequately capitalized                    8% or above         4% or above           4% or above
Undercapitalized                         Less than 8%         Less than 4%          Less than 4%
Significantly undercapitalized           Less than 6%         Less than 3%          Less than 3%
Critically undercapitalized                   --                   --               A ratio of tangible
                                                                                    equity to total assets
                                                                                    of 2% or less`

As of  December  31,  2001,  each  of the  Bank's  ratios  exceeded  minimum  requirements  for  the  well
capitalized category.

---

Depending  upon the capital  category to which an  institution  is assigned,  the  regulators'  corrective
powers  include:  requiring  the  submission  of a capital  restoration  plan;  placing  limits on asset growth and
restrictions  on activities;  requiring the institution to issue  additional  capital stock  (including  additional
voting  stock) or to be acquired;  restricting  transactions  with  affiliates;  restricting  the interest rate the
institution  may pay on deposits;  ordering a new election of directors of the  institution;  requiring that senior
executive  officers  or  directors  be  dismissed;   prohibiting  the  institution  from  accepting  deposits  from
correspondent  Bank;  requiring  the  institution  to divest  certain  subsidiaries;  prohibiting  the  payment  of
principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution.

In general,  a depository  institution  may be  reclassified  to a lower category than is indicated by its
capital levels if the appropriate  federal depository  institution  regulatory agency determines the institution to
be  otherwise  in an unsafe or unsound  condition  or to be engaged  in an unsafe or unsound  practice.  This could
include a failure by the  institution,  following  receipt of a  less-than-satisfactory  rating on its most  recent
examination report, to correct the deficiency.

Dividends.  Under  federal law, the Bank is  restricted  as to the maximum  amount of dividends it may pay
on its  common  stock.  The Bank may not pay  dividends  except out of  undivided  net  profits  then on hand after
deducting  its  losses  and bad  debts.  In  addition,  the Bank is  required  by  federal  law to obtain the prior
approval of the OCC for the  declaration  or payment of a dividend,  if the total of all dividends  declared by the
Bank's Board of  Directors in any year will exceed the total of (i) the Bank's  retained net income (as defined and
interpreted  by regulation)  for that year plus (ii) the retained net income for the preceding two years,  less any
required  transfers to surplus.  Federal law generally  prohibits a depository  institution from making any capital
distribution  (including  payment  of a  dividend)  or paying  any  management  fee to its  holding  company if the
depository  institution would thereafter be undercapitalized.  Further,  federal regulatory agencies can prohibit a
banking  institution  or bank holding  company from  engaging in unsafe and unsound  business  practices  and could
prohibit payment of dividends if such payment could be deemed an unsafe and unsound business practice.

Insider  Transactions.  The Bank is subject to certain  restrictions imposed by the Federal Reserve Act on
any extensions of credit to the Company or its  subsidiaries,  on  investments in the stock or other  securities of
the  Company  or its  subsidiaries  and the  acceptance  of the stock or other  securities  of the  Company  or its
subsidiaries  as  collateral  for  loans.  Certain  limitations  and  reporting  requirements  are also  placed  on
extensions of credit by the Bank to its  directors  and officers,  to directors and officers of the Company and its
subsidiaries,  to principal  shareholders of the Company,  and to "related  interests" of such directors,  officers
and principal  shareholders.  In addition,  federal law and  regulations may affect the terms upon which any person
becoming  a director  or  officer of the  Company or one of its  subsidiaries  or a  principal  shareholder  of the
Company may obtain credit from Bank with which the Bank maintains a correspondent relationship.

Safety and  Soundness  Standards.  The federal  banking  agencies  have adopted  guidelines to promote the
safety and  soundness of federally  insured  depository  institutions.  These  guidelines  establish  standards for
internal controls, information systems, internal audit systems, loan documentation,  credit underwriting,  interest
rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

---

Consumer  Protection  Laws.  The  Bank's  businesses  include  making  a  variety  of  types  of  loans to
individuals.  In making these loans,  the Bank is subject to State usury and regulatory laws and to various federal
statutes,  including the privacy of consumer financial  information  provisions of the  Gramm-Leach-Bliley  Act and
regulations promulgated  thereunder,  the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement  Procedures Act, and the Home Mortgage  Disclosure Act, and the regulations
promulgated  thereunder,  which prohibit  discrimination,  specify  disclosures  to be made to borrowers  regarding
credit and  settlement  costs,  and regulate the mortgage  loan  servicing  activities  of the Bank,  including the
maintenance and operation of escrow accounts and the transfer of mortgage loan  servicing.  In receiving  deposits,
the Bank is subject to extensive  regulation  under State and federal law and  regulations,  including the Truth in
Savings Act, the Expedited  Funds  Availability  Act, the Bank Secrecy Act, the Electronic  Funds Transfer Act, and
the Federal Deposit  Insurance Act.  Violation of these laws could result in the imposition of significant  damages
and fines upon the Bank and its directors and officers.

---

## 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, 2001, 2000, and 1999.

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 65 basis points in 2001 as a result
of a decrease of 85 basis points in yield on earning assets,  partially  offset by a decrease of 24 basis points in
the  interest  cost on  deposits.  In 2000 the  interest  margin  increased 18 basis points due to a 51 basis point
increase in yield on earning assets partially offset by a 43 basis point increase in interest cost.

---

# Yield Analysis of Consolidated Average Assets and Liabilities
(dollars in thousands)

`2001                                2000                                1999
                                       Average                 Yield/      Average                  Yield/     Average                  Yield/
                                       Balance     Interest    Rate        Balance     Interest     Rate       Balance     Interest     Rate
Assets: 
Interest earning assets:
Short term investments                 $19,924       $770.6     3.87%       $4,278       $271.7     6.35%      $10,384       $507.5     4.89%
Certificates of deposit                    929         26.9     2.90%
Securities:
   Taxable                              24,075      1,372.0     5.70%       29,283      1,607.9     5.49%       30,051      1,526.1     5.08%
   Tax-exempt                           18,415      1,246.4     6.77%       18,580      1,220.3     6.57%       16,896      1,165.6     6.90%
Loans(1)(2)                            270,776     24,182.3     8.93%      238,697     23,407.8     9.81%      198,448     18,790.8     9.47%
Total earning assets and total
   interest income                     334,119    $27,598.2     8.26%      290,838    $26,507.7     9.11%      255,779    $21,990.0     8.60%
Cash & due from banks                   13,634                              11,615                              11,680
All other assets                        15,320                              16,022                              15,955
Allowance for loan loss
                                        (5,614)                             (4,911)                             (4,219)
   Total assets                       $357,459                            $313,564                            $279,195
Liabilities and
   Shareholders' Equity 
Interest bearing deposits:
Savings, money market, NOW            $128,257     $3,007.8     2.35%     $120,770     $3,434.0     2.84%     $111,141     $2,991.6     2.69%
Time                                   131,527      7,427.4     5.65%      104,669      6,158.5     5.88%       92,802      4,970.0     5.36%
FLHB and other borrowings                5,801        425.9     7.23%        6,259        449.3     7.18%           98          5.3     5.40%
Total interest bearing
  liabilities and total interest
  expense                              265,585    $10,861.1     4.09%      231,698    $10,041.8     4.33%      204,041     $7,966.9     3.90%
Non-interest bearing deposits           57,166                              51,428                              48,240
All other liabilities                    3,641                               3,220                               2,232
Shareholders' Equity                    31,067                              27,218                              24,682
Total liabilities and
   shareholders' equity               $357,459                            $313,564                            $279,195
Interest spread                                                 4.17%                               4.78%                               4.70%
Net interest income-FTE                           $16,737.1                           $16,465.9                           $14,023.1
Net interest margin                                             5.01%                               5.66%                               5.48%`

(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 $790,000 in 2001, $700,000 in 2000, and $710,000 in
1999.

---

(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.

`Year ended                             Year ended
                                   December 31, 2001 compared to          December 31, 2000 compared to
                                   Year ended December 31, 2000           Year ended December 31, 1999

                                   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)
Interest Income:
Short term investments......      $  994     $  (495)      $  499        $(298)        $  62       $(236)
Certificates of deposit.....          27            0          27
Securities:
  Taxable...................       (286)           50       (236)          (39)          121           82
  Tax Exempt................        (11)           37          26           116         (61)           55
Loans.......................       3,145      (2,371)         774         3,811          806        4,617

  Total interest income.....      $3,869     $(2,779)      $1,090        $3,590        $ 928       $4,518

Interest Expense:
Interest bearing deposits:
  Savings/NOW accounts......      $  213     $  (639)      $(426)        $  259        $ 183       $  442
  Time......................       1,580        (311)       1,269           636          553        1,189
FHLB & other borrowings.....        (25)            1        (24)           426           18          444

   Total interest expense...      $1,768     $  (949)      $  819        $1,321        $ 754       $2,075

Net interest income (FTE)         $2,101     $(1,830)      $  271        $2,269        $ 174       $2,443`

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.

---

II  INVESTMENT PORTFOLIO

(A)The following table sets forth the book value of securities at December 31:

`(in thousands)
                                                        2001              2000             1999
Held to maturity: 
States and political subdivisions                     17,979            18,887           17,709
Mortgage-backed securities                                78               577              335
   Total                                             $18,057           $19,464          $18,044
Available for sale:
U.S. Treasury                                         $2,019           $13,028          $22,860
U.S. Government agencies                               9,569             5,986            8,861
Corporate securities                                  12,828                 0                0
Mortgage-backed securities                            12,683                 0                0
FRB Stock                                                 44                44               44
FHLB Stock                                               789               789              789
   Total                                             $37,932           $19,847          $32,554`

(B)The following table sets forth contractual maturities of securities at
December 31, 2001 and the weighted average yield of such securities:

`(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
Held to maturity
   States and political
      subdivisions                   $  867    6.88%    $ 9,539    7.00%     $7,574    6.52%          0
   Mortgage backed securities             0                  78    5.50%          0                   0
      Total                          $  867    6.88%    $ 9,617    6.99%     $7,574    6.52%     $    0

Tax equivalent adjustment
   for calculations of yield         $   16             $   182              $  144

Available for sale
   U.S. Treasury                     $2,019    6.54%
   U.S. Agency                        2,008    5.91%    $ 7,561    4.78%
   Corporate bonds                    2,161    4.27%     10,667    3.95%
   Mortgage backed securities                             3,330    5.13%     $2,960    5.25%     $6,393    6.41%
   FRB Stock                                                                                         44    6.00%
   FHLB Stock                                                                                       789    8.25%
      Total                          $6,144    5.54%    $21,517    4.42%     $2,990    5.25%     $7,240    6.52%`

---

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:

`Rate on Tax
                                  Tax-Exempt Rate              Adjustment              Equivalent Basis
Under 1 year                           4.98%                      1.90%                      6.88%
1-5 years                              5.10%                      1.90%                      7.00%
5-10 years                             4.62%                      1.90%                      6.52%`

Additional  statistical  information  concerning  the  Bank's  securities  portfolio  is  incorporated  by
reference  in Note 3 of the  Company's  Consolidated  Financial  Statements  for the year ended  December  31, 2001
included in the Appendix to the Company's  definitive proxy statement,  dated March 15, 2002, relating to the April
17, 2002, Annual Meeting of Shareholders (as filed with the Commission as exhibit 13 to the Report).

## III LOAN PORTFOLIO

(A) The table below shows loans outstanding at December 31:

`(in thousands)
                                                     2001        2000        1999        1998        1997
Secured by real estate:
   Residential first mortgage                    $ 27,456    $ 31,328    $ 29,904    $ 38,051    $ 38,073
   Residential home equity/other junior liens       8,066       9,999       7,822       9,106      13,665
   Construction and land development               42,221      35,020      23,375      23,048      19,490
   Other                                          118,191     105,041      89,809      68,960      53,743
Consumer                                           22,719      20,700      16,811      16,653      14,011
Commercial                                         59,602      45,239      38,891      26,058      18,299
Other                                               8,870       8,897       4,043       3,770       1,729
   Total Loans (Gross)                           $287,125    $256,224    $210,655    $185,646    $159,010`

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, 2001 which, based on remaining scheduled repayments of principal, are in the periods indicated.

---

`Maturing
                                                                        (in thousands)
                                                                   After one
                                                   Within one     but within     After five
                                                      year        five years        years          Total
Real estate construction & land development..         $25,917       $16,304             0        $ 42,221
Real estate other (secured by commercial &
   multi-family).............................          17,006        93,450         6,758         117,214
Commercial (secured by business assets or
   Unsecured)................................          21,284        36,795         1,523          59,602
Other (loans to farmers, political
   Subdivisions, & overdrafts)...............           2,143         2,169         4,558           8,870
      Totals.................................         $66,350      $148,718       $12,839        $227,907`

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

`Interest Sensitivity
                                                                    (in thousands)
                                                         Fixed Rate                Variable Rate
Due after one but within five years.........              $116,197                    $33,475
Due after five years........................                 8,088                      4,955`

(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:

`(dollars in thousands)
                                             2001          2000          1999          1998          1997
Nonperforming Loans:
Nonaccrual loans                           $2,636         $ 608         $ 173        $1,519        $  809
Loans past due 90 days or more                361           209             4            25           249
   Total nonperforming loans               $2,997         $ 817         $ 177        $1,544        $1,058
Percent of total loans                      1.04%          .32%          .08%          .83%          .67%`

Additional  information  concerning  nonperforming  loans, the Bank's nonaccrual policy,  loan impairment,
and loan concentrations is incorporated by reference to Note 4 of the Company's  Consolidated  Financial Statements
for the year ended December 31, 2001 included in the Appendix to the Company's  definitive proxy  statement,  dated
March 15, 2002,  relating to the April 17, 2002,  Annual Meeting of  Shareholders  (as filed with the Commission as
exhibit 13 to this Report).

There  were no other  interest  bearing  assets,  at  December  31,  2001,  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, 2001.

---

## IV SUMMARY OF LOAN LOSS EXPERIENCE

(A) The  following  table sets forth loan  balances and  summarizes  the changes in the  allowance for loan
losses, which is the Company's critical accounting policy, for each of the years ended December 31:

`(dollars in thousands)
                                                      2001        2000        1999        1998        1997
Loans:
  Average daily balance of loans for the year..   $270,776    $238,697    $198,448    $175,873    $148,096
year....
  Amount of loans (gross) outstanding at end
      of the year..............................    287,125     256,224     210,655     185,646     159,010
Allowance for loan losses:
   Balance at beginning of year................      5,193       4,483       3,958       3,424       3,335
   Loans charged off:
      Real estate..............................          0           0           0         110           0
      Commercial...............................        322         526         322          63         375
      Consumer.................................        195          83         164         129         124
          Total charge-offs....................        517         609         486         302         499
   Recoveries of loans previously charged off:
      Real estate..............................          0           0          35          96          32
      Commercial...............................         47          79          98          51          43
      Consumer.................................         45          40          38          49          27
          Total recoveries.....................         92         119         171         196         102

Net loans charged off..........................        425         490         315         106         397
Additions to allowance charged to operations...        900       1,200         840         640         486
          Balance at end of year...............     $5,668      $5,193      $4,483      $3,958      $3,424

Ratios:
   Net loans charged off to average loans
       outstanding                                    .16%        .21%        .16%        .06%        .27%
   Allowance for loan losses to loans
       outstanding                                   1.97%       2.03%       2.13%       2.13%       2.15%`

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:

`(dollars in thousands)
                             2001              2000              1999              1998              1997
                        Amount  Percent   Amount  Percent   Amount  Percent   Amount  Percent   Amount  Percent
Commercial.......       $2,244   79.1%    $4,725   77.0%    $3,803   77.6%    $3,384   74.1%    $2,785   69.2%
Consumer.........          160   11.3%       315   12.2%       441   11.8%       355   12.5%       332   15.6%
Real Estate......           26    9.6%       153   10.8%       239   10.6%       219   13.4%       307   15.2%
Unallocated......        3,238
     Total.......       $5,668    100%    $5,193    100%    $4,483    100%    $3,958    100%    $3,424    100%`

---

## V  DEPOSITS

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

`(dollars in thousands)
                                                 2001                   2000                   1999
                                         Average                Average                Average
                                         Balance      Rate      Balance      Rate      Balance      Rate
Non-interest bearing demand               $57,267                $51,428                $48,240
Savings, money market and NOW             128,256     2.35%      120,770     2.84%      111,141     2.69%
Time deposits                             131,527     5.65%      104,669     5.88%       92,802     5.36%
      Total                              $317,050     4.02%     $276,867     4.26%     $252,183     3.90%`

The table for  maturities of negotiated  rate time  deposits of $100,000 or more  outstanding  at December
31, 2001 is incorporated  by reference to Note 8 of the Company's  Consolidated  Financial  Statements for the year
ended  December 31, 2001  included in the Appendix to the Company's  definitive  proxy  statement,  dated March 15,
2002,  relating to the April 17, 2002,  Annual Meeting of Shareholders  and is incorporated by reference in Item 8,
PART II of this report.

## 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:

`2001          2000          1999          1998          1997
Net income as a percent of:
   Average common equity                   16.80%        18.76%        15.05%        17.83%        17.84%
   Average total assets                     1.46%         1.63%         1.33%         1.63%         1.79%`

Additional  performance ratios are set forth in "Selected  Financial Data" included in the Appendix to the
Company's  definitive  proxy  statement,  dated March 15, 2002,  relating to the April 17, 2002,  Annual Meeting of
Shareholders  and is incorporated  herein by reference.  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,
included in the Appendix to the Company's  definitive proxy statement,  dated March 15, 2002, relating to the April
17,  2002,  Annual  Meeting of  Shareholders  and is  incorporated  herein by  reference 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 seven 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,  8080 Challis Road,  Brighton
Michigan, 760 South Grand Avenue,  Fowlerville,  Michigan, and 10700 Highland Road, Hartland,  Michigan. All of the
offices have ATM machines and all except the West Grand River branch,  which is in a grocery  store,  have drive up
services.  All of the  properties  are owned by the Bank  except for the 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 2001.

# 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, 2001:

`First Selected as an Officer
             Name (Age)                     Position with Company                   of the Company
Barbara D. Martin (55)                President,     Chief     Executive                 1983
                                      Officer,   and   Director  of  the
                                      Company and the Bank
Barbara J. Nelson (54)                Secretary/Treasurer     of     the                 1985
                                      Company     and    Senior     Vice
                                      President,   Cashier,   and  Chief
                                      Financial Officer of the Bank
Herbert W. Bursch (49)                Senior  Vice   President,   Retail                 1999
                                      Services, of the Bank
James Wibby (51)                      Senior  Vice   President,   Senior                 1997
                                      Lender, of the Bank
Nancy Morgan (51)                     Vice  President,  Human  Resources                 1988
                                      of the Bank`

# 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, 2000,  through  December  31, 2001,
there  were,  so far as the  Company's  management  knows,  326  sales of  shares of the  Company's  Common  Stock,
involving a total of 48,603  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 2001,
the highest and lowest  prices known to be paid were $45.00 and $40.00 per share,  respectively.  To the  knowledge
of management, the last sale of Common Stock occurred on February 22, 2002 at a price of $43 per share.

As of March 1,  2002,  there  were  approximately  930  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 2000 and
2001,  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 2000 and 2001:

`Sales Prices                      Cash Dividends Declared
            2000                        High                    Low
First Quarter                          $42.00                  $42.00                      $0.20
Second Quarter                         $42.00                  $42.00                      $0.20
Third Quarter                          $42.00                  $42.00                      $0.20
Fourth Quarter                         $42.00                  $42.00                      $0.55(1)

            2000                        High                    Low
First Quarter                          $42.00                  $42.00                      $0.20
Second Quarter                         $45.00                  $42.00                      $0.20
Third Quarter                          $45.00                  $45.00                      $0.20
Fourth Quarter                         $45.00                  $40.00                      $0.60(2)
(1)  Includes a special dividend of $0.35 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 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

The  information  set forth under the caption  "Summary  Financial Data" of Appendix III to the
Company's  definitive  proxy  statement,  as filed with the  Commission  and dated March 15, 2002,  relating to the
April 17, 2002 Annual Meeting of Shareholders, is incorporated herein by reference.

Item 7  Management's Discussion and Analysis of Financial Condition and Results of Operations

The information set forth under the caption  "Management's  Discussion and Analysis of Financial Condition
and Results of Operations" of Appendix III to the Company's  definitive proxy statement,  as
filed  with the  Commission  and  dated  March  15,  2002,  relating  to the  April  17,  2002  Annual  Meeting  of
Shareholders, is incorporated herein by reference.

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 in Appendix III to the  Company's  definitive  Proxy  Statement,  dated March 15, 2002,  relating to the
April 17, 2002  Annual  Meeting of  shareholders,  as filed with the  Commission.  This  Appendix  is  incorporated
herein by reference and included as Exhibit 13 to this report on Form 10-K:

Consolidated Balance Sheets
        Consolidated Statements of Income
        Consolidated Statements of Stockholders' Equity and Comprehensive Income
        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, 2001 and
2000 are reported on page 48 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 2 through 4 of the  Company's  definitive  proxy  statement,  as filed with the
Commission  and dated  March 15,  2002,  relating  to the  April  17,  2002  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 pages 8 and 9 of the
Company's definitive proxy statement,  as filed with the Commission and dated March 15, 2002, relating to the April
17, 2002 Annual  Meeting of  Shareholders,  is  incorporated  herein by  reference.  Information  under the caption
"Committee Report on Executive  Compensation" on pages 7 and 8 and "Shareholder  Return  Performance Graph" on page
11 of the definitive  proxy statement is not  incorporated  by reference  herein and is not deemed to be filed with
the Securities and Exchange Commission.

---

Item 12 - Security Ownership of Certain Beneficial Owners and Management

The  information  set  forth  under the  caption  "Ownership  of  Common  Stock" on pages 10 and 11 of the
Company's definitive proxy statement,  as filed with the Commission and dated March 15, 2002, relating to the April
17, 2002 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 10 of the
Company's  definitive  proxy  statement,  as filed with the  Commission  and dated March 15, 2002,  relating to the
April 17, 2002 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 15, 2002, relating to the April
17, 2002 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, 2001.

---

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 14,
2002.

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)               

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

|W. Rickard Scofield, Chairman of the Board   | /s/ W. Rickard Scofield 
|-------------------------------------------- | ------------------------
|                                             |                         
|Donald K. Burkel, Vice Chairman of the Board | /s/ Donald K. Burkel    
|                                             |                         
|Athena Bacalis, Director                     | /s/ Athena Bacalis      
|                                             |                         
|Gary R. Boss, Director                       | /s/ Gary R. Boss        
|                                             |                         
|Harry E. Griffith, Director                  | /s/ Harry E. Griffith   
|                                             |                         
|Dona Scott Laskey, Director                  | /s/ Dona Scott Laskey   
|                                             |                         
|Barbara D. Martin, Director                  | /s/ Barbara D. Martin   
|                                             |                         
|James R. McAuliffe, Director                 | /s/ James R. McAuliffe  
|                                             |                         
|Randolph E. Rudisill, Director               | /s/ Randolph E. Rudisill
|                                             |                         
|R. Michael Yost, Director                    | /s/ R. Michael Yost     
|                                             |                         

---

EXHIBIT INDEX

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

|ExhibitNumber |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Page
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|(13)          | Appendix III to the Company's Proxy Statement, dated
March 15, 2002, for the Annual Meeting of Shareholders to be held April 17, 2002
representing that portion of the Proxy Statement incorporated by reference in
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  
|(24)          | Power of Attorney (included in signature section)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |     

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.

|ExhibitNumber                   |                                                                                    | Original Filing Form and Date                                       
|------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------------------
|3.1                             | Restated Articles of Incorporation of the Registrant                               | Exhibit 3.1 of Form 10, effective June 30, 1995("Form 10")          
|                                |                                                                                    |                                                                     
|3.2                             | Amendment to the Company's Articles of Incorporation to Increase Authorized Shares | Appendix I of Proxy Statement dated March 17, 1998                  
|                                |                                                                                    |                                                                     
|3.3                             | Bylaws of the Registrant                                                           | Exhibit 3.2 of Form 10                                              
|                                |                                                                                    |                                                                     
|4                               | Form of Registrant's Stock Certificate                                             | Exhibit 4 of Form 10                                                
|                                |                                                                                    |                                                                     
|                                | Material Contracts:                                                                |                                                                     
|                                |                                                                                    |                                                                     
|10.1                            | Howell Branch Lease Agreement                                                      | Exhibit 10.2 to Form 10                                             
|                                |                                                                                    |                                                                     
|10.2                            | Company's Long Term Incentive Plan*                                                | Appendix II of Proxy Statement dated March 17, 1998                 
|                                |                                                                                    |                                                                     
|10.3                            | FNBH Bancorp Inc. Employees' Stock Purchase Plan*                                  | Exhibit 4 to Registration Statement on Form S-8 (Reg. No. 333-46244)
|*Represents a compensation plan |                                                                                   

---

# EXHIBIT 13

FNBH Bancorp, Inc. is a one bank holding company, which owns all of the outstanding capital stock of
First National Bank in Howell (the "Bank).  The Corporation 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.  The Bank serves primarily four communities,
Howell, Brighton, Hartland, and Fowlerville, all of which are located in Livingston County, Michigan.

# FNBH BANCORP, INC. AND SUBSIDIARIES

|Consolidated
Financial Statements
|---------------------------------
|                                 

# December 31, 2001 and 2000

# FINANCIAL INFORMATION
FNBH BANCORP, INC., AND SUBSIDIARIES

|                                                                                                                                                   | Page
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Independent Auditor's Report.................................................................................................................      | 21  
|Consolidated Balance Sheets..................................................................................................................      | 22  
|Consolidated Statements of Income......................................................................................................            | 24  
|Consolidated Statements of Stockholders' Equity...............................................................................                     | 26  
|Consolidated Statements of Cash Flows................................................................................................              | 27  
|Notes to Consolidated Financial Statements.........................................................................................                | 29  
|Management's Discussion and Analysis..............................................................................................                 | 51  
|Summary Financial Data............................................................................................................................ | 62  
|Stock and Earnings Highlights................................................................................................................      | 63  

-20-

---

# Independent Auditors Report

The Board of Directors and Stockholders
FNBH Bancorp, Inc.:

We have audited the
consolidated balance sheets of FNBH Bancorp, Inc. and subsidiaries (Corporation)
as of December 31, 2001 and 2000, and the related consolidated statements
of income, stockholders equity and comprehensive income, and cash flows
for each of the years in the three-year period ended December 31, 2001.
These consolidated financial statements are the responsibility of the
Corporations management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of FNBH Bancorp, Inc. and subsidiaries
as of December 31, 2001 and 2000, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. 
January 11, 2002

-21-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Balance Sheets
         December 31, 2001 and 2000

`Assets                                                                                        2001                  2000    

Cash and cash equivalents:
    Cash and due from banks                                                       $        18,335,732            17,501,547
    Short-term investments                                                                 16,307,263            25,743,118 

               Total cash and cash equivalents                                             34,642,995            43,244,665

Certificates of deposit                                                                     5,917,000                    --
Investment securities held to maturity, net (fair value
    of $18,581,000 in 2001 and $19,218,000 in 2000)                                        17,978,980            18,886,677
Investment securities available for sale, at fair value                                    25,249,139            19,847,480
Mortgage-backed securities held to maturity, net (fair
    value of $78,000 in 2001 and $578,000 in 2000)                                             78,063               576,994
Mortgage-backed securities available for sale, at fair value                               12,682,581                    -- 

               Total investment and mortgage-backed securities                             55,988,763            39,311,151

Loans:
    Commercial                                                                            227,228,805           197,203,204
    Consumer                                                                               32,346,942            31,180,063
    Real estate mortgage                                                                   27,548,873            27,840,497 

               Total loans                                                                287,124,620           256,223,764

    Less unearned income                                                                     (845,014)             (809,746)
    Less allowance for loan losses                                                         (5,667,906)           (5,193,263)

               Net loans                                                                  280,611,700           250,220,755

Bank premises and equipment, net                                                            9,106,648             8,238,743
Land held for sale, net                                                                     1,530,290             1,530,290
Accrued interest income and other assets                                                    5,181,098             5,817,824 

               Total assets                                                       $       392,978,494           348,363,428 

See accompanying notes to consolidated financial statements.`

-22-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Balance Sheets
         December 31, 2001 and 2000

`Liabilities and Stockholders' Equity                                                          2001                  2000    

Deposits:
    Demand (non-interest bearing)                                                 $        62,938,059            55,252,490
    NOW                                                                                    39,566,687            34,637,247
    Savings and money market accounts                                                     114,919,743            98,887,217
    Time                                                                                  134,244,261           121,436,864 

               Total deposits                                                             351,668,750           310,213,818

Other borrowings                                                                            5,792,911             6,000,000
Accrued interest, taxes, and other liabilities                                              3,113,030             3,262,975 

               Total liabilities                                                          360,574,691           319,476,793

Commitments and contingencies

Stockholders' equity:
    Common stock, $0 par value. Authorized 4,200,000
       shares; 1,573,375 shares issued and outstanding
       at December 31, 2001 and 1,567,748 shares issued
       and outstanding at December 31, 2000                                                 5,246,770             5,025,476
    Retained earnings                                                                      27,361,215            24,027,158
    Unearned management retention plan                                                       (231,143)             (183,188)
    Accumulated other comprehensive income                                                     26,961                17,189 

               Total stockholders' equity                                                  32,403,803            28,886,635

               Total liabilities and stockholders' equity                         $       392,978,494           348,363,428`

-23-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Statements of Income
         Years Ended December 31, 2001, 2000 and 1999

`2001                2000                1999    

Interest and dividend income:
    Interest and fees on loans                                   $      24,018,140          23,254,289          18,725,205
    Interest and dividends on investment and
      mortgage-backed securities:
    U.S. Treasury securities                                               517,042           1,159,774             999,431
    Obligations of other U.S. Government agencies                          650,606             376,491             461,654
    Obligations of state and political subdivisions                        904,026             913,065             838,532
    Other securities                                                       204,340              67,717              64,975
    Interest on certificates of deposit and other bank deposits             30,300                  --                  --
    Interest on short-term investments                                     770,588             275,656             507,499 

    Total interest and dividend income                                  27,095,042          26,046,992          21,597,296 
Interest expense:
    Interest on deposits                                                10,435,255           9,592,538           7,961,603
    Interest on other borrowings                                           425,859             449,272               5,283 

    Total interest expense                                              10,861,114          10,041,810           7,966,886 

    Net interest income                                                 16,233,928          16,005,182          13,630,410
Provision for loan losses                                                  900,000           1,200,000             840,000 

    Net interest income after provision
      for loan losses                                                   15,333,928          14,805,182          12,790,410

Non-interest income:
    Service charges and other fee income                                 2,642,886           2,322,591           1,762,678
    Trust income                                                           176,729             192,568             143,707
    Gain on sale of loans                                                  228,111              74,354              43,262
    Other                                                                   71,989              14,377              65,456 

    Total non-interest income                                            3,119,715           2,603,890           2,015,103`

-24-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Statements of Income
         Years Ended December 31, 2001, 2000 and 1999

`2001                2000                1999    

Non-interest expenses:
    Salaries and employee benefits                               $       5,955,251           5,441,548           4,832,475
    Net occupancy expense                                                  776,503             773,865             689,777
    Equipment expense                                                      830,322             885,036             741,580
    Professional and service fees                                          846,548             456,723             460,742
    Printing and supplies                                                  255,892             239,059             335,574
    Michigan Single Business Tax                                           264,300             262,200             164,600
    Provision for real estate losses                                            --             155,000             300,000
    Other                                                                2,131,915           1,975,133           2,018,447 

              Total non-interest expenses                               11,060,731          10,188,564           9,543,195 

              Income before Federal income taxes                         7,392,912           7,220,508           5,262,318

Federal income taxes                                                     2,173,300           2,115,000           1,547,000 

              Net income                                         $       5,219,612           5,105,508           3,715,318 

Basic and diluted net income per share                           $            3.32                3.26                2.38 

Cash dividends per share                                         $            1.20                1.15                1.10 

See accompanying notes to consolidated financial statements.`

-25-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Statements of Stockholders' Equity and Comprehensive Income
         Years Ended December 31, 2001, 2000 and 1999

`Unearned        Accumulated
                                                                                 management          other
                                                     Common       Retained       retention       comprehensive
                                                     stock        earnings          plan         income (loss)     Total    

Balances at December 31, 1998                   $    4,821,775    18,728,787        (66,220)          12,191    23,496,533

Issued 2,435 shares for management
   retention plan                                       97,400            --        (97,400)              --            --
Issued 3 shares for employee awards                        105            --             --               --           105
Amortization of management retention plan                   --            --         24,023               --        24,023


Comprehensive income:
   Net income                                               --     3,715,318             --               --     3,715,318
   Changes in unrealized gain (loss) on securities
   available for sale, net of tax                           --            --             --         (203,585)     (203,585)

   Total comprehensive income                                                                            3,511,733

Cash dividends ($1.10 per share)                            --    (1,720,748)            --               --    (1,720,748)

Balances at December 31, 1999                        4,919,280    20,723,357       (139,597)        (191,394)   25,311,646

Issued 2,545 shares for management
   retention plan                                      106,890            --       (106,890)              --            --
Retired 337 shares from management
   retention plan                                      (12,725)           --         12,725               --            --
Issued 337 shares for employee stock
   purchase plan                                        12,031            --             --               --        12,031
Amortization of management retention
   plan                                                     --            --         50,574               --        50,574

Comprehensive income:
   Net income                                               --     5,105,508             --               --     5,105,508
   Changes in unrealized gain (loss) on securities
   available for sale, net of tax                           --            --             --          208,583       208,583

   Total comprehensive income                                                                                    5,314,091

Cash dividends ($1.15 per share)                            --    (1,801,707)            --               --    (1,801,707)

Balances at December 31, 2000                        5,025,476    24,027,158       (183,188)          17,189    28,886,635

Issued 3,219 shares for management
   retention plan                                      135,198            --       (135,198)              --            --
Retired 395 shares from management
   retention plan                                      (16,450)           --         16,450               --            --
Issued 2,803 shares for employee stock
   purchase plan                                       102,546            --             --               --       102,546
Amortization of management retention
   plan                                                     --            --         70,793               --        70,793

Comprehensive income:
   Net income                                               --     5,219,612             --               --     5,219,612
   Changes in unrealized gain on securities
   available for sale, net of tax                           --            --             --            9,772         9,772 

   Total comprehensive income                                                                                    5,229,384

Cash dividends ($1.20 per share)                            --    (1,885,555)            --               --    (1,885,555)

Balances at December 31, 2001                   $    5,246,770    27,361,215       (231,143)          26,961    32,403,803

See accompanying notes to consolidated financial statements.`

-26-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Statements of Cash Flows
         Years Ended December 31, 2001, 2000 and 1999

`2001                 2000                1999    

Cash flows from operating activities:
    Net income                                                $         5,219,612            5,105,508           3,715,318
    Adjustments to reconcile net income to net cash
       provided by operating activities:
         Provision for loan losses                                        900,000            1,200,000             840,000
         Depreciation and amortization                                    863,911              912,832             760,047
         Deferred Federal income tax benefit                              (89,400)            (337,000)           (235,600)
         Net amortization on investment securities                         68,024               20,635              88,233
         Earned portion of management retention
            plan                                                           70,793               50,574              24,023
         Loss on disposal of equipment                                        554               80,800              18,358
         Gain on sale of loans                                           (228,111)             (74,354)            (43,262)
         Proceeds from sale of loans                                   16,869,945            9,336,943          16,044,643
         Origination of loans held for sale                           (17,945,804)          (9,470,567)        (16,080,472)
         Provision for real estate losses                                      --              155,000             300,000
         (Increase) decrease in accrued interest income
            and other assets                                              726,126             (237,044)           (109,238)
         Increase (decrease) in accrued interest, taxes,
            and other liabilities                                        (155,045)           1,238,554             (30,241)

              Net cash provided by operating activities                 6,300,605            7,981,881           5,291,809 

Cash flows from investing activities:
    Purchases of available-for-sale securities                        (33,024,189)         (10,982,824)        (17,157,030)
    Proceeds from maturities of available-for-sale
       securities                                                      14,000,000           24,000,000           3,000,000
    Repayments from mortgage-backed securities
       available for sale                                                 901,553                   --                  --
    Purchases of held-to-maturity securities                                   --           (2,496,204)         (2,919,503)
    Proceeds from maturities and calls of held-to-
       maturity securities                                                892,000              605,000           4,268,000
    Repayments from mortgage-backed securities
       held to maturity                                                   499,872              455,981             460,169
    Purchases of certificates of deposit                               (5,917,000)                  --                  --
    Purchase of loans                                                  (1,192,540)          (2,325,000)                 --
    Net increase in loans                                             (28,794,435)         (43,419,426)        (25,181,161)
    Capital expenditures                                               (1,732,370)            (222,714)         (2,498,605)

              Net cash used in investing activities                   (54,367,109)         (34,385,187)        (40,028,130)`

-27-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
         Consolidated Statements of Cash Flows
         Years Ended December 31, 2001, 2000 and 1999

`2001                2000                1999    

Cash flows from financing activities:
    Net increase in deposits                                     $       41,454,932          41,023,365          29,633,689
    Increase in borrowings                                                       --           6,000,000                  --
    Payments on other borrowings                                           (207,089)                 --                  --
    Dividends paid                                                       (1,885,555)         (1,801,707)         (1,720,748)
    Shares issued for employee purchase plan                                102,546              12,031                  -- 

              Net cash provided by financing
              activities                                                 39,464,834          45,233,689          27,912,941
              Net increase (decrease) in cash and
              cash equivalents                                           (8,601,670)         18,830,383          (6,823,380)

Cash and cash equivalents at beginning of year                           43,244,665          24,414,282          31,238,662 

Cash and cash equivalents at end of year                         $       34,642,995          43,244,665          24,415,282 

Supplemental disclosures:
    Interest paid                                                $       11,064,961           9,703,333           7,904,981
    Federal income taxes paid                                             2,357,000           2,208,000           1,607,000

    Supplemental schedule of noncash investing
    and financing activities:
    Loans transferred to other real estate                                       --             649,203             900,000
    Loans charged off                                                       517,165             608,520             485,657


See accompanying notes to consolidated financial statements.`

-28-

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(1) | Summary of Significant Accounting Policies
|--- | ------------------------------------------
|    | (a)                                       
|    | (b)                                       
|    | (c)                                       

| | -29- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | (d) | Loans
Loans are stated at their principal amount outstanding, net of an allowance for loan
losses and unearned discount. Interest on loans is accrued daily based on the
outstanding principal balance. Loan origination fees and certain direct loan
origination costs are deferred and recognized over the lives of the related
loans as an adjustment of the yield. Mortgage loans held for sale are carried at
the lower of cost or market, determined on a net aggregate basis. Market is
determined on the basis of delivery prices in the secondary mortgage market.
When loans are sold, gains and losses are recognized based on the specific
identification method.
The Bank originates mortgage loans for sale to the secondary market and sells the
loans with servicing retained.
The total cost of mortgage loans originated with the intent to sell is allocated
between the loan servicing right and the mortgage loan without servicing, based
on their relative fair value at the date of origination. The capitalized cost of
loan servicing rights is amortized in proportion to, and over the period of,
estimated net future servicing revenue.
Mortgage servicing rights are periodically evaluated for impairment. For purposes of
measuring impairment, mortgage servicing rights are stratified based on
predominant risk characteristics of the underlying serviced loans. These risk
characteristics include loan type, term, year originated, and note rate.
Impairment represents the excess of cost of an individual mortgage servicing
rights stratum over its fair value and is recognized through a valuation
allowance.
Fair values for individual strata are based on quoted market prices for comparable
transactions, if available, or estimated fair value. Estimates of fair value
include assumptions about prepayment, default and interest rates, and other
factors which are subject to change over time. Changes in these underlying
assumptions could cause the fair value of mortgage servicing rights, and the
related valuation allowance, to change significantly in the future.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Allowance for Loan Losses
The allowance for loan losses is based on managements periodic evaluation of
the loan portfolio and reflects an amount that, in managements opinion, is
adequate to absorb probable losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, nonperforming loan
levels, the composition of the loan portfolio, and managements evaluation
of the collectibility of specific loans, which includes analysis of the value of
the underlying collateral. Although the Bank evaluates the adequacy of the
allowance for loan losses based on information known to management at a given
time, various regulatory agencies, as part of their normal examination process,
may require future additions to the allowance for loan losses.
Impaired loans have been identified in accordance with provisions of Statement of
Financial Accounting Standards (SFAS) No. 114. The Bank considers a loan to be
impaired when it is probable that it will be unable to collect all or part of
amounts due according to the contractual terms of the loan agreement. Impaired
loans are measured based on the present value of expected cash flows discounted
at the loans effective interest rate or, as a practical expedient, at a
loans observable market price, or the fair value of the collateral if the
loan is collateral dependent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | -30- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | (f) | Nonperforming Assets
The Bank charges off all or part of loans when amounts are deemed to be
uncollectible, although collection efforts may continue and future recoveries
may occur.
Nonperforming assets are comprised of loans for which the accrual of interest has been
discontinued, loans for which the terms have been renegotiated to less than
market rates due to a serious weakening of the borrowers financial
condition, loans 90 days past due and still accruing, and other real estate,
which has been acquired primarily through foreclosure and is awaiting
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. At the time a loan is placed on nonaccrual
status, interest previously accrued but not yet collected is charged against
current income. Income on such loans is then recognized only to the extent that
cash is received and where future collection of principal is probable.
Interest income on impaired loans is accrued based on the principal amounts outstanding.
The accrual of interest is discontinued when an impaired loan becomes 90 days
past due. The Bank utilized the fair value of collateral method to
measure impairment, as virtually all of the loans considered to be impaired are
commercial mortgage loans.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (g) | Real Estate
Other real estate owned at the time of foreclosure is recorded at the lower of the
Banks cost of acquisition or the assets fair market value, net of
disposal cost, which becomes the propertys new basis. Any write-downs at
date of acquisition are charged to the allowance for loan losses. Expenses
incurred in maintaining assets and subsequent write-downs to reflect declines in
value are charged to other expense.
Real estate held for sale is recorded at the lower of carrying amount or estimated
fair value less estimated disposal costs. Subsequent declines in estimated fair
value and/or disposal costs are recorded as a component of non-interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (h) | Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization, computed on the straight-line
method, are charged to operations over the estimated useful lives of the assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (i) | Federal Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | -31- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|    | (j)                                                                                                   | Statements of Cash Flows
For purposes of reporting cash flows, cash equivalents include amounts due from
banks and federal funds sold and other short-term investments.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | (k)                                                                                                   | Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income,established standards for the
reporting and display of comprehensive income and its components (such as
changes in unrealized gains and losses on securities available for sale) in a
financial statement that is displayed with the same prominence as other
financial statements. In accordance with the adoption of SFAS No. 130, the Bank
reports comprehensive income within the statement of stockholders equity.
Comprehensive income includes net income and any changes in equity from
non-owner sources that bypass the income statement.
|    | (l)                                                                                                   | Earnings Per Share
Earnings per share of common stock are based on the weighted average number of common
shares outstanding during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Certificates of Deposit
At December 31, 2001, the scheduled maturities of brokered certificates were:

`Maturing in 2002                                                        $         2,037,000
      Maturing in 2003                                                                  2,425,000
      Maturing in 2004                                                                  1,455,000   

                                                                              $         5,917,000`

| | -32- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(3) | Investment and Mortgage-backed Securities
A summary of the amortized cost and approximate fair value of investment and
mortgage-backed securities at December 31, 2001 follows:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Held to maturity                             Available for sale            
                                        Amortized           Approximate fair          Amortized          Approximate fair
                                           cost                  value                   cost                  value       

      U.S. Treasury and agency
          securities             $                --                     --             11,490,119            11,588,517
      Obligations of states
          and political
          subdivisions                    17,978,980             18,581,000                     --                    --
      Corporate bonds                             --                     --             12,839,663            12,827,872
      Federal Reserve Bank
          stock                                   --                     --                 44,250                44,250
      Federal Home Loan Bank
          stock                                   --                     --                788,500               788,500   
                                          17,978,980             18,581,000             25,162,532            25,249,139

      Mortgage-backed
          securities                          78,063                 78,000             12,728,327            12,682,581   
                                 $        18,057,043             18,659,000             37,890,859            37,931,720`

| | A summary of unrealized gains and losses on investment and mortgage-backed
securities at December 31, 2001 follows:
| | -------------------------------------------------------------------------------------------------------------------

`Held to maturity                        Available for sale          
                                                    Gross               Gross               Gross               Gross
                                                 unrealized          unrealized          unrealized           unrealized
                                                    gains              losses               gains               losses      

      U.S. Treasury and agency securities   $                --                  --             106,494               8,096
      Obligations of states and political
          subdivisions                                  622,664              20,644                  --                  --
      Corporate bonds                                        --                  --              62,290              74,081
      Mortgage-backed securities                             --                  63              27,437              73,183 
                                            $           622,664              20,707             196,221             155,360`

| | -33- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | The amortized cost and approximate fair value of investment and mortgage-backed
securities at December 31, 2001, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Held to maturity                             Available for sale             
                                        Amortized           Approximate fair          Amortized          Approximate fair
                                           cost                  value                   cost                  value        

      Due in one year or less    $           866,686                872,000              6,143,829             6,188,010
      Due after one year
          through five years               9,538,502              9,985,000             18,185,953            18,228,379
      Due after five years
          through ten years                7,573,792              7,724,000                     --                    --    
                                          17,978,980             18,581,000             24,329,782            24,416,389

      Federal Reserve Bank
          stock                                   --                     --                 44,250                44,250
      Federal Home Loan Bank
          stock                                   --                     --                788,500               788,500
      Mortgage-backed
          securities                          78,063                 78,000             12,728,327            12,682,581    
                                 $        18,057,043             18,659,000             37,890,859            37,931,720`

| | The amortized cost and approximate fair value of investment securities of states
(including all their political subdivisions) that individually exceeded 10% of
stockholders equity at December 31, 2001 and 2000 are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                                          2000                    
                                        Amortized           Approximate fair          Amortized          Approximate fair
                                           cost                  value                   cost                  value        
      State of Michigan          $        10,518,334             10,836,000             10,981,883            11,132,000`

| | Investment securities, with an amortized cost of approximately $1,798,000 at
December 31, 2001 and $1,800,600 at December 31, 2000, were pledged to
secure public deposits and for other purposes as required or permitted by law.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -34- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | A summary of the amortized cost and approximate fair value of investment and
mortgage-backed securities at December 31, 2000 follows:
| | -------------------------------------------------------------------------------------------------------------------------------------

`Held to maturity                             Available for sale             
                                        Amortized           Approximate fair          Amortized          Approximate fair
                                           cost                  value                   cost                  value        

      U.S. Treasury and agency
          securities             $                --                     --             18,988,741            19,014,730
      Obligations of states
          and political
          subdivisions                    18,886,677             19,218,000                     --                    --
      Federal Reserve Bank
          stock                                   --                     --                 44,250                44,250
      Federal Home Loan Bank
          stock                                   --                     --                788,500               788,500    
                                          18,886,677             19,218,000             19,821,491            19,847,480

      Mortgage-backed
          securities                         576,994                578,000                     --                    --    
                                 $        19,463,671             19,796,000             19,821,491            19,847,480`

| | A summary of unrealized gains and losses on investment and mortgage-backed
securities at December 31, 2000 follows:
| | -------------------------------------------------------------------------------------------------------------------

`Held to maturity                        Available for sale          
                                                    Gross               Gross               Gross               Gross
                                                 unrealized          unrealized          unrealized           unrealized
                                                    gains              losses               gains               losses      

      U.S. Treasury and agency securities   $                --                  --              59,585              33,596
      Obligations of states and political
          subdivisions                                  377,574              45,976                  --                  --
      Mortgage-backed securities                          1,232                 501                  --                  -- 
                                            $           378,806              46,477              59,585              33,596`

|(4) | Loans
Loans on nonaccrual amounted to $2,636,000, $608,000, and $173,000 at
December 31, 2001, 2000, and 1999, respectively. If these loans had
continued to accrue interest in accordance with their original terms,
approximately $220,000, $87,000, and $21,000 of interest income would have been
recognized in 2001, 2000, and 1999, respectively. The Bank had no troubled-debt
restructured loans at December 31, 2001 and 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -35- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | Details of past-due and nonperforming loans follow:
| | ---------------------------------------------------

`90 days past due
                                                       and still accruing                           Nonaccrual              
                                                    2001                2000                2001                 2000       

      Commercial and mortgage loans
          secured by real estate            $            73,000             164,000           2,212,000             387,000
      Consumer loans                                     31,000              22,000              60,000              28,000
      Commercial and other loans                        257,000              23,000             364,000             193,000 
                                            $           361,000             209,000           2,636,000             608,000`

| | Impaired loans totaled $8.7 million, $3.9 million, and $3.4 million at
December 31, 2001, 2000, and 1999, respectively. Specific reserves relating
to these loans were $1.6 million, $1.9 million, and $900,000 at
December 31, 2001, 2000, and 1999, respectively. These reserves were
calculated in accordance with SFAS No. 114.
Cash receipts received and recognized as income on impaired loans approximated
$550,000, $306,000, and $313,000 for the years ended December 31, 2001,
2000, and 1999, respectively. Average impaired loans for the years ended
December 31, 2001, 2000, and 1999 were approximately $6.8 million,
$5.2 million, and $4.6 million, respectively.
Loans serviced for others were approximately $58.3 million, $53.4 million,
and $49.5 million at December 31, 2001, 2000, and 1999, respectively.
The Bank capitalized $92,000, $27,000, and $79,000 in mortgage servicing rights and
incurred approximately $52,000, $44,000, and $52,000 in related amortization
expense during 2001, 2000, and 1999, respectively. At December 31, 2001 and
2000, these mortgage servicing rights had a book value of $234,000 and $195,000
and fair value of approximately $406,000 and $390,000, respectively. Mortgage
loans with mortgage servicing rights capitalized totaled approximately
$35.3 million at December 31, 2001 and $34 million at
December 31, 2000. No valuation allowance for capitalized mortgage
servicing rights was considered necessary as of December 31, 2001 and 2000.
Included in real estate loans at December 31, 2001 and 2000 were approximately
$1,212,000 and $181,000, respectively, of fixed-rate mortgage loans held for sale.
The Banks primary market area is considered to be Livingston County, Michigan.
The Bank is not dependent upon any single industry or business for its banking
opportunities.
Certain directors and executive officers, including their immediate families and
companies in which they are principal owners, were loan customers of the Bank
during 2001 and 2000. Such loans were made in the ordinary course of business in
accordance with the Banks normal lending policies, including the interest
rate charged and collateralization, and do not represent more than a normal
credit risk.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -36- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | Loans to related parties are summarized below for the periods indicated:
| | ------------------------------------------------------------------------

`2001                   2000         

      Balance at beginning of year                         $           496,000                798,000

      New loans and related parties                                  4,201,000                 24,000
      Loan repayments                                                  (39,000)              (326,000)   
      Balance at end of year                               $         4,658,000                496,000`

|(5) | Allowance for Loan Losses
The following represents a summary of the activity in the allowance for loan losses
for the years ended December 31, 2001, 2000, and 1999:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                   2000         

      Balance at beginning of year                         $         5,193,263              4,483,283

      Provision charged to operations                                  900,000              1,200,000
      Loans charged off                                               (517,165)              (608,520)
      Recoveries of loans charged off                                   91,808                118,500    
      Balance at end of year                               $         5,667,906              5,193,263`

|(6) | Bank Premises and Equipment
A summary of bank premises and equipment, and related accumulated depreciation and
amortization at December 31, 2001 and 2000 follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                   2000         

      Land and land improvements                           $         2,489,173              2,368,791
      Bank premises                                                  7,655,975              6,496,071
      Furniture and equipment                                        5,012,419              4,574,756    
                                                                    15,157,567             13,439,618

      Less accumulated depreciation and amortization                (6,050,919)            (5,200,875)   
                                                           $         9,106,648              8,238,743`

| | -37- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(7) | Land Held for Sale
In 1997, the Bank purchased an option for $900,000 and, in 1998, exercised that
option for approximately $3 million for a tract of land. Subsequent
improvements to the land were made amounting to approximately $200,000.
During 1998, the Bank allocated approximately $800,000 of the carrying value of the
property to land for a branch site. During 2000, one parcel of the property was
sold. The remaining property is held for sale.
The Bank also reduced the carrying cost of the land held for sale by approximately
$0, $155,000, and $300,000 during 2001, 2000, and 1999, respectively, to provide
for estimated disposal costs and/or decline in estimated market value. These
charges are included as a component of non-interest expense.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Time Certificates of Deposit
At December 31, 2001, the scheduled maturities of time deposits with a
remaining term of more than one year were:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

`Year of maturity:
           2003                                                       $        13,058,870
           2004                                                                 4,536,216
           2005                                                                 4,409,885
           2006                                                                 1,944,335
           2007 and beyond                                                        428,132    
                                                                      $        24,377,438`

| | Included in time deposits are certificates of deposit in amounts of $100,000 or more.
These certificates and their remaining maturities at December 31, 2001,
2000, and 1999 are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                  2000                   1999         

      Three months or less           $        21,009,465            12,583,794              5,436,960
      Three through six months                14,435,441             8,415,061              5,190,724
      Six through twelve months                5,355,211             4,954,522              6,731,297
      Over twelve months                       3,907,542             7,159,896              5,073,865    
                                     $        44,707,659            33,113,273             22,432,846`

| | Interest expense attributable to the above deposits amounted to approximately $2,209,000,
$1,516,000, and $1,167,000 in 2001, 2000, and 1999, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | -38- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(9) | Other Borrowings
The Bank has a borrowing capacity of approximately $18,000,000 with the Federal Home
Loan Bank of Indianapolis (FHLB) and had FHLB advances outstanding of
approximately $5,793,000 and $6,000,000 at December 31, 2001 and 2000,
respectively. Variable- or fixed-rate advances are available with terms ranging
from one day to ten years. An outstanding advance requires 125% collateral
coverage by one-to-four family whole-mortgage loans. A summary of outstanding
advances at December 31, 2001 follows:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Weighted average
                 Maturity                  interest rate              Amount       

      Fixed rate:
          Within one year                         7.29%      $           223,656
          Two years                               7.29                   241,547
          Three years                             7.29                   260,872
          Four years                              7.18                 3,281,742
          Five years                              7.29                   304,281
          Thereafter                              7.29                 1,480,813   

                                                             $         5,792,911`

|(10) | Federal Income Taxes
Federal income tax expense (benefit) consists of:
|---- | ----------------------------------------------------------------------

`2001                  2000                   1999         

      Current                                           $         2,262,700             2,452,000              1,782,600
      Deferred                                                      (89,400)             (337,000)              (235,600)   

                                                        $         2,173,300             2,115,000              1,547,000`

| | Federal income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to pretax income as a result of the following:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                  2000                   1999         

      Computed "expected" tax expense                   $         2,513,600             2,455,000              1,789,200
      Increase (reduction) in tax resulting from:
          Tax-exempt interest and dividends, net                   (380,800)             (379,300)              (294,600)
          Other, net                                                 40,500                39,300                 52,400    

                                                        $         2,173,300             2,115,000              1,547,000`

| | -39- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | The tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 2001
and 2000 are presented below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                   2000         

      Deferred tax assets:
          Allowance for loan losses                                           $         1,792,300              1,630,700
          Deferred loan fees                                                                   --                 11,700
          Other                                                                           556,600                499,800    

                    Total gross deferred tax assets                                     2,348,900              2,142,200

      Deferred tax liabilities:
          Deferred loan fees                                                              126,300                     --
          Unrealized gain on securities available for sale                                 13,900                  8,800
          Other                                                                           180,200                189,200    

                    Total gross deferred tax liabilities                                  320,400                198,000    

                    Net deferred tax asset                                    $         2,028,500              1,944,200`

| | The deferred tax assets are subject to certain asset realization tests. Management
believes no valuation allowance is required at December 31, 2001, due to
the combination of potential recovery of tax previously paid and the reversal of
certain deductible temporary differences.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Leases
The Bank has a noncancelable operating lease that provides for renewal options.
Future minimum lease payments under the noncancelable lease as of December 31,
2001 are as follows:
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year ending December 31:
          2002                                                  $            39,250
          2003                                                               43,000
          2004                                                               43,000
          2005                                                               43,000
          2006                                                               43,000
          2007                                                               32,250    

                                                                $           243,500`

| | Rental expense charged to operations in 2001, 2000, and 1999 amounted to approximately
$40,000, $41,000, and $42,000, respectively, including amounts paid under
short-term, cancelable leases.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -40- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(12) | Pension Plan
The Bank sponsors a defined contribution money purchase thrift plan covering all
employees 21 years of age or older who have completed one year of service as
defined in the plan agreement. Contributions are equal to 5% of total employee
earnings plus 50% of employee contributions (limited to 10% of their earnings),
or the maximum amount permitted by the Internal Revenue Code. The pension plan
expense of the Bank for 2001, 2000, and 1999 was approximately $302,000,
$245,000, and $236,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) | Management Retention Plan
Restricted stock was awarded to key employees, beginning in 1998, providing for the
immediate award of the Corporations stock, subject to a vesting period
which takes place over five years. The awards are recorded at fair market value
and amortized into salary expense over the vesting period. The amount of
compensation costs related to restricted stock awards included in salary expense
in 2001, 2000, and 1999 amounted to $70,793, $50,574, and $24,023, respectively.                                                                                                                                                                                                                                                                                                                                                                                                               
|(14) | Employees Stock Purchase Plan
The Employees Stock Purchase Plan allows eligible employees to purchase shares
of common stock, no par value, of FNBH Bancorp, Inc. at a price less than market
price under Section 423 of the Internal Revenue Code of 1986, as amended.
Eligible employees must have been continuously employed for one year, must work
at least 20 hours per week, and must work at least five months in a calendar
year. The purchase price from each share of stock is 85% of fair market value of
a share of stock on the purchase date.                                                                                                                                                                                                                                                                                                                                                                 
|(15) | Financial Instruments with Off-balance-sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments are loan commitments to extend credit and letters of
credit. These instruments involve, to varying degrees, elements of credit risk
in excess of the amounts recognized in the consolidated balance sheets.
The Banks exposure to credit loss in the event of the nonperformance by the
other party to the financial instruments for loan commitments to extend credit
and letters of credit is represented by the contractual amounts of these
instruments. The Bank uses the same credit policies in making credit commitments
as it does for on-balance-sheet loans.
Financial instruments whose contract amounts represent credit risk at December 31,
2001 and 2000 are as follows:

`2001                   2000         

      Fixed rate                                     $        12,400,000              6,600,000
      Variable rate                                           12,800,000             29,100,000    

                    Total credit commitments         $        25,200,000             35,700,000    

      Letters of credit                              $         2,380,000              2,030,000`

| | -41- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|     | Loan commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
managements credit evaluation of the counterparty. Collateral held varies,
but may include accounts receivable; inventory; property, plant, and equipment;
residential real estate; and income-producing commercial properties. Market risk
may arise if interest rates move adversely subsequent to the extension of
commitments.
Letters of credit written are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. All letters of credit are
short-term guarantees of one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers. The Bank primarily holds real estate as collateral supporting those
commitments for which collateral is deemed necessary. The extent of collateral
held on those commitments at December 31, 2001 and 2000 is in excess of the
committed amount.                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(16) | Capital
The Bank is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Banks financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Banks assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks capital classification is also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios of total and Tier 1 capital (as defined
in the regulations) to risk-weighted assets (as defined) and Tier 1 capital (as
defined) to average assets (as defined).
The most recent notification from the Office of the Comptroller of the Currency
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institutions
category.

| | -42- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | The Banks actual capital amounts and ratios are also presented in the
following table as of December 31, 2001 and 2000:
| | ------------------------------------------------------------------------------------------------------------------------

`To be well capitalized
                                                                    For capital adequacy          under prompt corrective
                                            Actual                        purposes                   action provisions      
                                    Amount          Ratio          Amount          Ratio           Amount          Ratio    

      As of December 31, 2001
          Total capital (to
            risk-weighted
            assets)            $  33,870,000       10.58%    $   25,597,000        =>8%      $   31,996,000       =>10%

          Tier 1 capital (to
            risk-weighted
            assets)               29,870,000        9.33%        12,798,000        =>4%          19,198,000        =>6%

          Tier 1 capital (to
            average assets)       29,870,000        7.90%        15,126,000        =>4%          18,907,500        =>5%

      As of December 31,
          2000:
          Total capital (to
            risk-weighted
            assets)               29,658,000       11.00%        21,572,000        =>8%          26,965,000       =>10%

          Tier 1 capital (to
            risk-weighted
            assets)               26,292,000        9.75%        10,786,000        =>4%          16,179,000        =>6%

          Tier 1 capital (to
            average assets)       26,292,000        8.02%        13,121,000        =>4%             16,401,000     =>5%`

|(17) | Net Income Per Common Share
Basic net income per common share is computed by dividing net income applicable to
common stock by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per common share is computed
by dividing net income applicable to common stock by the weighted average number
of shares and potential common stock, such as stock options outstanding during
the period, of which there were none.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year ended December 31                      
                                                                  2001                  2000                   1999         

      Basic:
          Average shares outstanding                              1,570,559             1,566,390              1,563,996    

      Net income                                        $         5,219,612             5,105,508              3,715,318    

      Net income applicable to common stock             $         5,219,612             5,105,508              3,715,318    

      Basic and diluted net income per share            $             3.32                  3.26                   2.38`

|(18) | Contingent Liabilities
The Bank is subject to various claims and legal proceedings arising out of the
normal course of business, none of which, in the opinion of management, based on
the advice of legal counsel, is expected to have a material effect on the
Banks financial position or results of operations.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -43- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(19) | Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair-value information about financial instruments for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair-value estimates cannot be substantiated
by comparison to independent markets and, in many cases, cannot be realized in
immediate settlement of the instrument.
Fair-value methods and assumptions for the Banks financial instruments are as
follows:Cash and Cash Equivalents  The carrying amounts reported in the
consolidated balance sheet for cash federal funds and short-term investments
sold reasonably approximate those assets fair values.Investment and Mortgage-backed Securities  Fair values for investment
and mortgage-backed securities are based on quoted market prices.Loans  For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are generally based on
carrying values. The fair value of fixed-rate loans is estimated by discounting
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.FHLB Advances  The fair value of FHLB advances is estimated
based on quoted market prices. Accrued Interest Income  The carrying amount of accrued interest
income is a reasonable estimate of fair value.Deposit Liabilities  The fair value of deposits with no stated
maturity, such as demand deposit, savings, NOW, and money market accounts, is
equal to the amount payable on demand. The fair value of certificates of deposit
is estimated using rates currently offered for deposits with similar remaining
maturities.Accrued Interest Payable  The carrying amount of accrued interest
payable is a reasonable estimate of fair value.Off-balance-sheet Instruments  The fair value of commitments to extend credit
is estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair
value also considers the difference between current levels of interest rates and
the committed rates. The fair value of commitments to extend credit, including
letters of credit, are estimated to approximate their aggregate book balance.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -44- | (Continued)
| | ---- | -----------

---

FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | The estimated fair values of the Banks financial instruments are as follows:
| | -----------------------------------------------------------------------------

`2001                                      2000                  
                                                Carrying                Fair              Carrying               Fair
              Financial Assets                    value                 value               value                value      

      Cash and cash equivalents          $      34,643,000            34,600,000          43,245,000           43,200,000
      Certificates of deposit                    5,917,000             5,900,000                  --                   --
      Investment and mortgage-backed
          securities                            55,989,000            56,600,000          39,311,000           39,600,000
      Loans, net                               280,612,000           287,100,000         250,221,000          248,400,000
      Accrued interest income                    2,136,000             2,100,000           2,408,000            2,400,000

            Financial Liabilities

      Deposits:
          Demand                         $      62,938,000            62,900,000          55,252,000           55,300,000
          NOW                                   39,567,000            39,600,000          34,637,000           34,600,000
          Savings and money market
            accounts                           114,920,000           114,900,000          98,887,000           98,900,000
          Time                                 134,244,000           134,500,000         121,437,000          122,300,000
          FHLB advances                          5,793,000             6,800,000           6,000,000            6,300,000
          Accrued interest payable                 832,000               800,000             993,000            1,000,000`

|     | Limitations
Fair-value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates do
not reflect any premium or discounts that could result from offering for sale at
one time the Corporations entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the
Corporations financial instruments, fair-value estimates are based on
judgments regarding future loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(20) | Dividend Restrictions
On a parent company-only basis, the Corporations only source of funds is
dividends paid by the Bank. The ability of the Bank to pay dividends is subject
to limitations under various laws and regulations and to prudent and sound
banking principles. The Bank may declare a dividend without the approval of the
Office of Comptroller of the Currency (OCC) unless the total dividend in a
calendar year exceeds the total of its net profits for the year combined with
its retained profits of the two preceding years. Under these provisions,
approximately $11.1 million was available for dividends on
December 31, 2001 without the approval of the OCC.                                                                                                                                                                      

| | -45- | (Continued)
| | ---- | -----------

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FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(21) | Condensed Financial Information  Parent Company Only
The condensed balance sheets at December 31, 2001 and 2000, and the condensed
statements of income and cash flows for the years ended December 31, 2001,
2000, and 1999, of FNBH Bancorp, Inc. follow:
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Condensed Balance Sheets

                                                                                        2001                   2000         

      Assets:
          Cash                                                                $            25,621                 31,920
          Investment in subsidiaries:
            First National Bank in Howell                                              29,897,166             26,309,256
            H.B. Realty Co.                                                             2,214,998              2,442,490
            Other assets                                                                  282,518                115,719    

                                                                              $        32,420,303             28,899,385    

      Liabilities and stockholders' equity:
          Other liabilities                                                   $            16,500                 12,750
          Stockholders' equity                                                         32,403,803             28,886,635    

                    Total liabilities and stockholders' equity                $        32,420,303             28,899,385    


                                                 Condensed Statements of Income

                                                                                Year ended December 31                      
                                                                  2001                  2000                   1999         

      Operating income:
          Dividends from subsidiaries                   $         1,920,050             1,835,500              1,720,748    

                    Total operating income                        1,920,050             1,835,500              1,720,748    

      Operating expenses:
          administrative and other expenses                          33,084                33,697                 37,223    

                    Total operating expenses                         33,084                33,697                 37,223    

      Income before equity in undistributed net
          income of subsidiaries                                  1,886,966             1,801,803              1,683,525

      Equity in undistributed net income of
          subsidiaries                                            3,332,646             3,303,705              2,031,793    

                    Net income                          $         5,219,612             5,105,508              3,715,318`

| | -46- | (Continued)
| | ---- | -----------

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FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

`Condensed Statements of Cash Flows

                                                                                Year ended December 31                      
                                                                  2001                  2000                   1999         

      Net income                                        $         5,219,612             5,105,508              3,715,318
      Adjustments to reconcile net income to net cash
          from operating activities:
            Increase in other assets                               (166,799)              (56,065)               (20,097)
            Increase in other liabilities                             3,750                 6,500                  6,250
            Equity in undistributed net income of
              subsidiaries                                       (3,332,646)           (3,303,705)            (2,031,793)   

                    Total adjustments                            (3,495,695)           (3,353,270)            (2,045,640)   

                    Net cash provided by operating
                      activities                                  1,723,917             1,752,238              1,669,678    

      Cash flow from investing activities:
          investments in and advancements to
            subsidiary, net                                         (18,000)                   --                     --    

                    Net cash used in investing
                      activities                                    (18,000)                   --                     --    

      Cash flow from financing activities:
          Dividends paid                                         (1,885,555)           (1,801,707)            (1,720,748)
          Common stock issued                                       221,294               106,196                 97,505
          Change in management retention plan                       (47,955)              (43,591)               (73,377)   

                    Net cash used in financing
                      activities                                 (1,712,216)           (1,739,102)            (1,696,620)   

                    Net increase (decrease) in cash                  (6,299)               13,136                (26,942)

      Cash at beginning of year                                      31,920                18,784                 45,726    

      Cash at end of year                               $            25,621                31,920                 18,784`

| | -47- | (Continued)
| | ---- | -----------

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FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(22) | Quarterly Financial Data  Unaudited
The following table presents summarized quarterly data for each of the two years
ended December 31:
|---- | ----------------------------------------------------------------------------------------------------------------------------------------

`Quarters ended in 2001                               
                                             March 31               June 30           September 30           December 31    

      Selected operations data:
          Interest income             $         6,971,194             6,792,817            6,776,549             6,554,482
          Net interest income                   4,067,727             3,999,923            4,031,538             4,134,740
          Provision for loan losses               300,000               300,000              290,000                10,000
          Income before income taxes            1,822,708             1,744,156            1,850,345             1,975,703
          Net income                            1,291,708             1,231,756            1,310,245             1,385,903

          Basic and diluted net
            income per share                        0.82                  0.79                 0.83                  0.88
          Cash dividends per share                  0.20                  0.20                 0.20                  0.60   

                                                                       Quarters ended in 2000                               
                                             March 31               June 30           September 30           December 31    

      Selected operations data:
          Interest income             $         5,853,715             6,302,364            6,797,141             7,093,772
          Net interest income                   3,603,459             3,925,697            4,189,862             4,286,164
          Provision for loan losses               300,000               300,000              300,000               300,000
          Income before income taxes            1,440,452             1,755,408            1,905,332             2,119,316
          Net income                            1,029,652             1,240,408            1,313,632             1,521,816

          Basic and diluted net
            income per share                        0.66                  0.79                 0.84                  0.97
          Cash dividends per share                  0.20                  0.20                 0.20                  0.55`

| | -48- | (Continued)
| | ---- | -----------

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FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

|(23) | Impact of New Accounting Standards
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, in
June 1998.
SFAS No. 133, which has been subsequently amended by SFAS No. 137 and SFAS No. 138,
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. The accounting for increases and decreases
in the value of derivatives will depend upon the use of derivatives and whether
the derivatives will qualify for hedge accounting. Management has evaluated the
impact of SFAS No. 133 at December 31, 2001 and has concluded that the
adoption of this Statement did not have a material effect on the Bank.
The FASB has adopted SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.
SFAS No. 140, which replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, revises the standards for accounting for the securitization and other
transfers of financial assets and collateral. SFAS No. 140 also requires certain disclosures, but carries
over most of the provisions of SFAS No. 125.
This Statement is effective for transactions occurring after March 31, 2001, with
earlier application not allowed, and is to be applied prospectively. The
adoption of this Statement did not have a material impact on the Banks
financial statements.
On June 29, 2001, the FASB approved for issuance SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets.
Under SFAS No. 141, all business combinations initiated after June 30, 2001 must
be accounted for using the purchase method of accounting. With the adoption of
SFAS No. 142, goodwill is no longer subject to amortization, but instead must be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
SFAS No. 142, which is effective for fiscal years beginning after
December 15, 2001. Management does not expect that these Statements will
have an impact on the Banks results of operations.
Emerging Issues Task Force (EITF) Issue 99-20, Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interest in Securitized
Financial Assets, was effective for the Banks quarter ended
June 30, 2001. The adoption of EITF 99-20 did not have a material impact on
the financial condition or operations of the Bank.
On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets. Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to Be Disposed Of, but retains many of the fundamental provisions of that
Statement.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -49- | (Continued)
| | ---- | -----------

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FNBH BANCORP, INC. AND SUBSIDIARIES
                                    Notes to Consolidated Financial Statements
                                         December 31, 2001, 2000, and 1999

| | Statement No. 144 also supersedes the accounting and reporting provisions of Accounting
Principles Board (APB) Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. However, it
retains the requirement in Opinion 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. By broadening the presentation of discontinued
operations to include more disposal transactions, the FASB has enhanced
managements ability to provide information that helps financial statement
users to assess the effects of a disposal transaction on the ongoing operations
of an entity.Statement No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Early application is encouraged.
Management does not expect that the adoption of this Statement will have a
significant impact on the Banks results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | -50- | 
| | ---- | 

---

# 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

At
year end 2001 total assets were $392,978,000 representing a 13% increase from
the prior year when assets were $348,363,000. Investment securities increased
$16.7 million (42%) to $55,989,000 while gross loans increased $30.9 million
(12%) to $287,125,000. Deposits increased $41.5 million (13%) to $351,669,000.
Stockholders equity increased $3.5 million (12%) to $32,404,000.

Securities
        During
2001, the composition of the securities portfolio changed as the Companys
Investment Policy was expanded to provide greater latitude in terms of
acceptable investments. The changes to the policy were recommended by a
consultant as part of an overall change to asset/liability management.

With
deposit growth outpacing loan growth throughout the year, and excess liquidity
in the form of a large balance in Fed Funds at the end of 2000, the Company
looked to improve the yield of the investment portfolio as it played a bigger
role in generating interest income. Consequently, the Company stopped investing
in U.S. Treasury securities instead buying some U.S. Agency bonds which produce
a slightly better yield. Additionally investments were made in government agency
mortgage backed pools, corporate bonds, and brokered certificates of deposit
from other insured financial institutions. Other securities consist
of equity holdings in the Federal Reserve Bank and the Federal Home Loan Bank.

The
following table shows the percentage makeup of the securities portfolio as of
December 31:

`2001            2000
U.S. Treasury & agency securities..............................             20.6%           48.4%
Agency mortgage backed securities..............................             22.9%            1.5%
Tax exempt obligations of states and political subdivisions....             32.1%           48.0%
Corporate bonds................................................             22.9%              0%
Other..........................................................              1.5%            2.1%
      Total securities.........................................            100.0%          100.0%`

Loans
        The
loan personnel of the Bank are committed to making quality loans that produce a
good rate of return for the Bank and also serve the community by providing funds
for home purchases, business purposes, and consumer needs. The overall loan
portfolio grew $30,900,000 (12%) in 2001.

As
a full service lender, the Bank offers a variety of home mortgage loan products.
The Bank makes, and subsequently sells, fixed rate, long-term mortgages which
conform to secondary market standards. This practice allows the Bank to meet the
housing credit needs of its service area, while at the same time maintaining
loan to deposit ratios and interest sensitivity and liquidity positions within
Bank policy. The Bank retains servicing on sold mortgages thereby furthering the
customer relationship and adding to servicing income. During 2001 the Bank sold
$13,700,000 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. While not meeting secondary market
requirements, these nonconforming mortgages do meet bank loan guidelines and
have a good payment record. During 2001 the Bank made approximately $7,200,000
in variable rate mortgage loans which it retained in the mortgage portfolio.

-51-

---

The
Bank experienced a significant amount of loan demand throughout 2001. Growth in
Livingston County resulted in a need for financing commercial projects, some of
which were for the construction of commercial buildings and some of which were
for the development of residential subdivisions. Commercial loans ended the year
at $227,229,000, a 15% increase for the year. Additionally, the Bank originated
$3,100,000 in commercial loans which it sold in part or total to other banks due
to legal lending limits. Consumer loans increased $1,200,000, or about 4%, from
the preceding year.

The
following table reflects the makeup of the commercial and consumer loans in the
Consolidated Financial Statements. Included in the residential first mortgage
totals below are the real estate mortgage loans listed in the
Consolidated Financial Statements and other loans to customers who pledge their
homes as collateral for their borrowings. A portion of the loans listed in
residential first mortgages represent commercial loans where the borrower has
pledged his/her residence as collateral. In the majority of the loans to
commercial customers, the Bank is relying on the borrowers cash flow to
service the loans. Other real estate loans include $116,800,000 in
loans secured by commercial property, with the remaining $1,400,000 secured by
multi-family units or farm property. The most significant loan growth was in
commercial loans secured by business property which increased $13,150,000, 12.5%
over the prior year, in construction and land development loans which increased
$7,200,000, a 20.5% increase, and other commercial loans which increased
$14,400,000, 31.7%.

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

`(dollars in thousands)
                                                           2001                            2000
                                                   Balances    Percentage          Balances    Percentage
Secured by real estate:
   Residential first mortgage                      $ 27,456          9.6%          $ 31,328         12.2%
   Residential home equity/other junior liens         8,066          2.8%             9,999          3.9%
   Construction and land development                 42,221         14.7%            35,020         13.7%
   Other                                            118,191         41.2%           105,041         41.0%
Consumer                                             22,719          7.9%            20,700          8.1%
Commercial                                           59,602         20.7%            45,239         17.6%
Other, primarily commercial                           8,870          3.1%             8,897          3.5%
   Total Loans (Gross)                             $287,125        100.0%          $256,224        100.0%`

The
Banks loan personnel have endeavored to make high quality loans using well
established policies and procedures and a thorough loan review process. Loans in
excess of $400,000 are approved by a committee of the Board or the Board. The
Bank has hired an independent contractor to review the quality of the loan
portfolio on a regular basis. The quality of the loan portfolio is illustrated
in the table below for December 31:

`(Dollars in thousands)
                                                                   2001          2000         1999
Nonperforming Loans:
Nonaccrual loans.........................................        $2,636        $  608         $173
Loans past due 90 days and still accruing................           361           209            4
   Total nonperforming loans.............................         2,997           817          177
Other real estate........................................             0           649            0
  Total nonperforming assets.............................        $2,997        $1,466         $177

Nonperforming loans as a percent of total loans..........         1.04%          .32%         .08%
Loan loss reserve as a percent of nonperforming
  loans..................................................          189%          636%        2533%`

-52-

---

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. The increase in the
nonaccrual balance is largely due to a loan relationship with one builder who
has $1,400,000 in debt. The loans are well collateralized and are not expected
to result in significant losses for the Company.

Impaired
loans totaled $8,700,000 at December 31, 2001, compared to $3,900,000 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 $6,200,000 of commercial loans separately identified as impaired.
Included in impaired loans is a loan for $2,200,000 which is current and making
regular payments; however the cash generated solely by the business is not
presently adequate to cover debt service. Another loan, for $1,200,000, was made
to purchase medical buildings in Lansing. The buildings are not fully leased and
cash flow has not been sufficient to cover debt service. Both loans are secured
with first mortgages on commercial real estate and the real estate is being
actively marketed. Nonperforming loans are reviewed regularly for
collectability. Any uncollectable balances are promptly charged off.

During
2001 the Bank charged off loans totaling $517,000 and recovered $92,000 for a
net charge off amount of $425,000. In the previous year, the Bank had net charge
offs totaling $490,000.

The
allowance for loan losses totaled $5,668,000 at year end which was 1.97% of
total loans, compared to $5,193,000 (2.03%) in 2000. The adequacy of the
allowance for loan losses is determined by managements assessment of the
composition of the loan portfolio, an evaluation of specific credits, an
analysis of the value of the underlying collateral for those loans, historical
loss experience, and the level of nonperforming loans and loans that have been
identified as impaired. Management continues to refine its techniques in this
analysis. Externally, the local economy and events or trends which might
negatively impact the loan portfolio are also considered. Economic factors
considered in arriving at the loan loss reserve adequacy as of December 31, 2001
included layoffs in the automotive industry, lower levels of consumer
confidence, and the current recession. Management also considered the increase
in nonperforming loans and the increased risk of the loan portfolio. In light of
these factors, management determined that the $900,000 provision and resulting
$5,668,000 allowance was appropriate. Although management evaluates the adequacy
of the allowance for loan losses based on information known at a given time, as
facts and circumstances change the provision and resulting allowance may also
change.

The
following table shows changes in the loan loss reserve for the years ended
December 31:

`(Dollars in thousands)
                                                              2001             2000              1999
Balance at beginning of the year...............             $5,193           $4,483            $3,958
Additions (deduction):
   Loans charged off...........................              (517)            (609)             (486)
   Recoveries of loans previously charged off..                 92              119               171
   Provision charged to operations.............                900            1,200               840
Balance at end of the year.....................             $5,668           $5,193            $4,483

Allowance for loan losses to loans outstanding               1.97%            2.03%             2.13%`

Deposits
        Deposit
balances of $351,669,000 at December 31, 2001 were approximately $41.5 million
(13%) 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. Average deposits increased 14.5% in 2001. Average demand deposits
increased $5.7 million (11%) while average savings and NOW balances increased
$7.5 million (6%). Certificates of deposit increased $26.9 million (26%).
Management strives to price deposits competitively and periodically offers
special rates on specific certificates to stimulate deposit growth.

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The following table sets
forth average deposit balances for the years ended December 31:

`(in thousands)
                                                       2001                2000                1999
Non-interest bearing demand                        $ 57,267            $ 51,528            $ 48,914
Savings, NOW and money market                       128,256             120,770             111,141
Time deposits                                       131,527             104,669              92,802
      Total average deposits                       $317,050            $276,967            $252,857`

The
growth in time deposits was primarily in over $100,000 certificates which
increased 63% on average. This growth was not the result of marketing efforts
for $100,000 certificates. 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. See Note 8 of the Consolidated
Financial Statements for a maturity schedule of over $100,000 certificates.

Capital
        The
Companys capital at year end totaled $32,404,000, a $3,500,000 (12%)
increase over the prior year. Banking regulators have established various ratios
of capital to assets to assess a financial institutions soundness. Tier 1
capital is equal to shareholders equity while Tier 2 capital includes a
portion of the allowance for loan losses. The regulatory agencies have set
capital standards for well capitalized institutions. The leverage
ratio, which divides Tier 1 capital by three months average assets, must be 5%
for a well capitalized institution. The Banks leverage ratio was 7.90% at
year end 2001. 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 9.33% at year end 2001. 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
10.58% at year end. The Banks strong capital ratios put it in the best
classification on which the FDIC bases its assessment charge.

The following table lists various Bank capital ratios at December 31:

`2001               2000                1999
Equity to asset ratio                              8.08%              7.59%               7.44%
Tier 1 leverage ratio                              7.90%              8.02%               7.74%
Tier 1 risk-based capital                          9.33%              9.75%               9.90%
Total risk-based capital                          10.58%             11.00%              11.15%`

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 2001 the
Company paid dividends totaling $1,886,000, or 36% of earnings. Book value of
the stock was $20.60 at year end.

In
2001 management updated the Companys five year plan which was the result
of a formal strategic planning process. Management and the Board monitor
progress toward the long term goals on an ongoing basis. The new plan focuses on
delivery of services and allocation of more resources in the southeast quadrant
of the county. It also calls for growth of the Trust and Investment Department
as well as in the areas of residential mortgage and consumer loans. These
strategies are designed to increase non-interest income, reducing the
Companys dependence on net interest income for profitability and to pursue
growth opportunities in the largest and fastest growing section of the county.

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In
1999, the Bank opened a new branch in the northwest part of Brighton. Adjoining
the building site are three parcels of vacant land. The Company has sold one
parcel, and intends to sell the remaining two pieces which are valued at
approximately $1.5 million.

Liquidity and Funds Management
        Liquidity
is monitored by the Banks Asset/Liability Management Committee (ALCO)
which meets at least monthly. With the availability of lines of credit from the
Federal Home Loan Bank of Indianapolis (FHLBI), the way liquidity is viewed and
the ratios to calculate it have changed recently. The Board of Directors has
approved a liquidity policy which requires the Bank, while it is well
capitalized as defined by the Federal Financial Institutions Examination Council
(FFIEC), to maintain a current ratio of no less than 1:1 (core basic surplus
liquidity equal to 0). Additional requirements of the policy are that when FHLBI
available credit is added to core basic surplus liquidity, the Bank must have
liquidity totaling 5% of assets and when brokered CDs and Fed Funds lines are
added, the Bank must have liquidity totaling 8% of assets. Should the
Banks capital ratios fall below the well capitalized level,
additional liquidity totaling 5% of assets will be required. As of December 31,
2001, the Bank had excess liquidity of at least 3.1% of assets under any of the
above standards.

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.

It
is the intention of the Banks management to handle unexpected liquidity
needs through its Federal Funds position with a correspondent bank and by FHLBI
borrowings. The Bank has an $18,000,000 line of credit available at the FHLBI
and the Bank has pledged certain mortgage loans as collateral for this
borrowing. At December 31, 2001, the Company had $5,800,000 in borrowings
against the line. The Bank also has a blanket repurchase agreement in place
where it can borrow from a broker pledging Treasury and Agency securities as
collateral. In the event the Bank must borrow for an extended period, management
may look to available for sale securities in the investment
portfolio for liquidity.

Throughout
the past year, Fed Funds Sold balances have averaged nearly $20,000,000 as
deposit growth outpaced loan growth. During 2001 management endeavored to put
these excess funds to use in the investment security portfolio to pick up yield
as interest rates fell.

Quantitative
and Qualitative Disclosures about Market Risk
        ALCO
reviews other areas of 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 for 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. However, the Company 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 15 of the
Consolidated Financial Statements).

-55-

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The table below shows the
scheduled maturity and repricing of the Banks interest sensitive assets
and liabilities as of December 31, 2001:

`0-3         4-12          1-5            5+
                                             Months       Months         Years        Years         Total
Assets:
   Loans, net..........................    $105,604      $28,630      $141,532      $11,359      $287,125
   Securities..........................       5,156        2,732        36,047       12,054        55,989
   Certificates of Deposit.............                    2,037         3,880                      5,917
   Short term investments..............      16,307                                                16,307
      Total assets.....................    $127,067      $33,399      $181,459      $23,413      $365,338

Liabilities & Shareholders' Equity:
   MMDA, Savings & NOW.............         $71,247                                 $83,240      $154,487
   Time................................      54,429       58,093        21,296          426       134,244
   FHLB advances.......................         224                      4,088        1,481         5,793
      Total liabilities and equity.....     125,900      $58,093       $25,384      $85,147      $294,524

Rate sensitivity gap and ratios:
   Gap for period......................      $1,167    $(24,694)      $156,075    $(61,734)
   Cumulative gap......................       1,167     (23,527)       132,548       70,814

Cumulative rate sensitive ratio........        1.01          .87          1.63         1.24
December 31, 2000 rate sensitive ratio         1.17         1.16          1.34         1.23`

The
preceding table sets forth the time periods in which earning assets and interest
bearing liabilities will mature or may re-price in accordance with their
contractual terms. The entire balance of savings, MMDA, and NOW are not
categorized as 0-3 months, although they are variable rate products. Some of
these balances are core deposits and are not considered rate sensitive.
Allocations are made to time periods based on the Banks historical
experience and managements analysis of industry trends.

In
the gap table above, the short term (one year and less) cumulative interest rate
sensitivity is 13% liability sensitive at year end. Accordingly, if market
interest rates increase, this negative gap position indicates that the interest
margin would be negatively affected. However, gap analysis is limited and may
not provide an accurate indication of the impact of general interest rate
movements on the net interest margin since repricing of various categories of
assets and liabilities is subject to the Banks needs, competitive
pressures, and the needs of the Banks customers. In addition, various
assets and liabilities indicated as repricing within the same period may in fact
reprice at different times within the period and at different rate indices.
Additionally, simulation modeling, which measures the impact of upward and
downward movements of interest rates on interest margin, indicates that an
upward movement of interest rates would not significantly reduce net interest
income.

`Total       Average Interest Rate     Estimated Fair Value
Assets:
   Loans,  net                              $280,612                       8.93%                 $288,700
   Securities                                 55,989                       5.36%                   56,600
   Certificates of deposit                     5,917                       2.90%                    5,900
   Short term investments                     16,307                       3.87%                   16,300

Liabilities:
   Savings, NOW, MMDA                       $154,487                       2.35%                  154,500
   Time                                      134,244                       5.65%                  134,500
   FHLB borrowings                             5,793                       7.23%                    6,800`

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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 value of other
loans is estimated by discounting future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities. Because it has a one day maturity, the
carrying value is used as fair value for fed funds sold. The fair value of
deposits with no stated maturity, such as savings, NOW and money market accounts
is equal to the amount payable on demand. The fair value of certificates of
deposit and FHLB borrowings is estimated using rates currently offered for
products with similar remaining maturities.

## RESULTS OF
OPERATIONS

Net
income of $5,200,000 was an increase of $100,000 (2%) over 2000 earnings. The
Companys earnings resulted in a return on average assets (ROA) of 1.46%
and a return on average stockholders equity (ROE) of 16.80%. Net income
per share was $3.32 in 2001 compared with $3.26 in 2000. Earnings in 1999 were
hampered by costs associated with conversion to a new computer system and
preparation for Y2K.

The
following table contains key performance ratios for years ended December 31:

`2001               2000             1999
Net income to:
   Average stockholders' equity                         16.80%             18.76%           15.05%
   Average assets                                        1.46%              1.63%            1.33%
Basic earnings per common share:                         $3.32              $3.26            $2.38`

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 the Companys
earnings. 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%.

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:

`2001                     2000                     1999
                                     Average      Yield/      Average      Yield/      Average      Yield/
                                     Balance       Rate       Balance       Rate       Balance       Rate
Interest earning assets:
Short term investments                 $19,924     3.87%        $ 4,278     6.35%        $10,384    4.89%
Certificates of deposit                    929     2.90%
Taxable securities                      24,075     5.70%         29,283     5.49%         30,051    5.08%
Tax-exempt securities                   18,415     6.77%         18,580     6.57%         16,896    6.90%
Loans                                  270,776     8.93%        238,697     9.81%        198,448    9.47%
   Total earning assets               $334,119     8.26%       $290,838     9.11%       $255,779    8.60%
Interest bearing funds:
Savings/NOW accounts                  $128,257     2.35%      $ 120,770     2.84%      $ 111,141    2.69%
Time deposits                          131,527     5.65%        104,669     5.88%         92,802    5.36%
Federal funds purchased                                                     6.67%             98    5.40%
                                                                  1,366
FHLB advances                            5,801     7.23%          4,893     7.23%               
   Total interest bearing funds:      $265,585     4.09%       $231,698     4.33%       $204,041    3.90%

Interest spread                                    4.17%                    4.78%                   4.70%
Net interest margin                                5.01%                    5.66%                   5.48%`

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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 includes net loan
origination fees totaling $790,000 in 2001, $700,000 in 2000, and $710,000 in
1999.

The
following table sets forth the effects of volume and rate changes on net
interest income on a taxable equivalent basis. 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.

`Year ended                             Year ended
                                 December 31, 2001 compared to Year     December 31, 2000 compared to Year
                                    Year ended December 31, 2000           Year ended December 31, 1999

                                    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)
Interest Income:
Federal funds sold............        $ 994      $ (495)        $ 499      $ (298)       $   62       $ (236)
Certificates of deposit.......           27            0           27
Securities:
  Taxable.....................        (286)           50        (236)         (39)
  Tax Exempt..................         (11)           37           26          116                         55
Loans.........................        3,145      (2,371)          774        3,811          806         4,617

  Total interest income.......       $3,869     $(2,779)      $ 1,090      $ 3,590       $  928       $ 4,518

Interest Expense:
Interest bearing deposits:
  Savings/NOW accounts..              $ 213      $ (639)      $ (426)       $  259        $ 183        $  442
Time..........................        1,580        (311)        1,269          636          553         1,189
Short-term borrowings.........         (91)            0         (91)           68           18            86
FHLB advance..................           66            1           67          358            0           358
   Total interest expense.....       $1,768      $ (949)       $  819      $ 1,321        $ 754        $2,075

Net interest income (FTE)           $ 2,101     $(1,830)        $ 271       $2,269        $ 174        $2,443`

Tax
equivalent net interest income increased $271,000 in 2001 over the prior year
due to a $1,090,000 increase in interest income partially offset by
approximately $819,000 increase in interest expense. The increase in interest
income is attributable to an increase in average earning assets of $43,300,000
although the interest earned on these balances declined 85 basis points during
the year. The year 2001 was unique in that the Federal Reserve Board (Fed) cut
interest rates an unprecedented 475 basis points. Because the Companys
assets repriced more quickly than liabilities, net interest income was
negatively affected. Loan interest income was $774,000 higher in 2001 than the
previous year. The increase was due to an increase of $32,000,000 in average
balances. While the balances grew, the rate of interest earned on loans declined
by 88 basis points during the year. Loan growth was fueled by general growth in
Livingston County which created a demand for consumer and commercial building
projects even

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as rates were driven down by the decline in the prime interest
rate from 9.5% at the beginning of the year to 4.75% by year end. Income on
taxable securities decreased $236,000 in 2001 due to a $5,200,000 decrease in
average balances although the interest yield improved 21 basis points. The
interest yield improved in spite of a declining rate environment because many of
the low yielding bonds acquired two years ago matured. Additionally management
diversified the investment portfolio by replacing lower yielding US Treasury
bonds with US Agency, Agency mortgage backed, and corporate bonds. Tax
equivalent income on tax-exempt bonds increased $26,000 in 2001. The average
balance of these securities decreased $165,000 while the rate increased 20 basis
points. Interest income on short term investments increased $499,000 due to an
increase in average balances of $15,600,000, partially offset by a decrease in
rates of 248 basis points. The unusually high balance in short term investments
was the result of deposit growth outpacing loan growth and the search for
acceptable investment products as interest rates fell throughout the year.

Interest
expense increased $819,000 in 2001 because average balances increased
approximately $33,900,000 although interest rates decreased 24 basis points. The
interest cost for savings and NOW accounts decreased $426,000 because the
interest rate paid declined 49 basis points although average balances increased
$7,500,000. Interest on time deposits increased $1,269,000 because average time
deposits increased $26,900,000 even as interest rates decreased 23 basis points.
Growth in time deposits was encouraged by competitive pricing and periodically
offering special rates on specific products. There was no Fed Funds borrowing
during 2001. The Company entered into two long term borrowings with the Federal
Home Loan Bank of Indianapolis in 2000. One of the loans amortizes and had a
balance of $2,793,000 at year end while the other loan, for $3,000,000 matures
in its entirety in April 2005. The loans have an average interest rate of 7.23%.

In
the previous year, net interest income had increased $2,443,000. The increase in
net interest income was the result of an increase in interest income of
$4,518,000, partially offset by an increase in interest expense of approximately
$2,075,000. The increase in interest income in 2000 was the result of a
$35,100,000 increase in earning assets and of a 51 basis point increase in
interest rates. The increase in interest expense was the result of average
balances growing $27,700,000 and interest rates increasing 43 basis points.

In
the coming year, management expects growth to continue in both loans and
deposits. An economic decline could, however, adversely affect growth. The
decline in the interest spread and interest margin which the Company experienced
in 2001 due to the steepness of Fed interest rate cuts is not expected to
continue in 2002 as the outlook for future rate cuts is minimal.

The
following table shows the composition of average earning assets and interest
paying liabilities for the years ended December 31:

`2001            2000          1999
As a percent of average earning assets:
   Loans                                                   81.04%          82.07%        77.59%
   Securities                                              12.72%          16.46%        18.35%
   Certificates of Deposit                                   .28%
   Short term investments                                   5.96%           1.47%         4.06%
      Average earning assets                              100.00%         100.00%       100.00%

   Savings and NOW                                         38.39%          41.52%        43.45%
   Time deposits                                           39.37%          35.99%        36.28%
   Short term borrowing                                                      .47%          .04%
   FHLB advances                                            1.74%           1.68%              
      Average interest bearing liabilities                 79.50%          79.66%        79.77%

Earning asset ratio                                        93.47%          92.75%        91.61%
Free-funds ratio                                           20.50%          20.34%        20.23%`

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Provision for Loan Losses
        The
provision for loan losses decreased to $900,000 in 2001 compared to $1,200,000
in 2000. At year end the ratio of allowance for loan loss to loans was 1.97%,
compared to 2.03% in 2000. Management analyzes the adequacy of the allowance
quarterly taking into consideration the portfolio mix, historical loss
experience, the level of nonperforming loans and loans that have been identified
as impaired, as well as economic conditions within the Banks market.
Despite the recorded increase in impaired loans, the decrease was deemed
appropriate based upon managements analysis of the balance in the loan
loss reserve and the collateral position held in the major problem loans.

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 approximately $516,000 (20%) in 2001 compared to the previous year.
Service charge income increased 14% to $2,643,000, primarily due to growth in
deposits and loans. Additionally, the Company had the full year effect of
service charge increases that had been implemented in the second quarter of
2000. Trust fees decreased $16,000 in 2001. The decline was the result of a lack
of growth of the business as the department was not fully staffed throughout the
year and a general decrease in the market value of trust assets. The $228,000
gain realized on the sale of real estate mortgage loans was a $154,000 increase
over 2000. Sales volume was up more than 300% as the low interest rate
environment was conducive to substantial mortgage refinancing and it also
allowed more buyers to enter the real estate market.

Non-interest Expense
        Non-interest
expense ended the year at $11,061,000, a 9% increase over other operating
expenses of $10,189,000 in 2000. The most significant component of non-interest
expense is salaries and benefits expense. In 2001 salaries and benefits expense
increased 9% to $5,955,000, due to the combined effects of salary increases,
increased cost of medical insurance, and an increase in the retirement plan
expense. Occupancy expense totaled $777,000 in 2001, a $3,000 increase over the
prior year. Equipment expense decreased $55,000, due to a decline in
depreciation expense as the personal computers purchased in 1998 were fully
depreciated in 2001. Overall other expenses increased 13% primarily due to an
85% increase in professional and service fees. Most of this increase was the
result of projects undertaken in 2001 which are not ongoing in future years such
as strategic planning, an employee opinion survey, an employee compensation
study, and architectural fees attributable to an abandoned project.

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 $58,000 to $2,173,000 (3%) in 2001. The effective income tax rate was
29% in both 2001 and 2000 as a result of tax exempt interest and dividends. For
further information see Note 10 Federal Income Taxes in the
Companys Consolidated Financial Statements.

Impact of New Accounting Standards
        The Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, in June 1998.

SFAS
No. 133, which has been subsequently amended by SFAS No. 137 and SFAS No. 138,
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. The accounting for increases and decreases
in the value of derivatives will depend upon the use of derivatives and whether
the derivatives will qualify for hedge accounting. Management has evaluated the
impact of SFAS No. 133 at December 31, 2001 and has concluded that the adoption
of this Statement did not have a material effect on the Company.

The FASB has adopted SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.

SFAS No. 140, which replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and  Extinguishments  of  Liabilities,  revises the  standards  for  accounting  for the  securitization  and other
transfers of financial  assets and collateral.  SFAS No. 140 also requires  certain  disclosures,  but carries over
most of the provisions of SFAS No. 125.

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This
Statement is effective for transactions occurring after March 31, 2001, with
earlier application not allowed and is to be applied prospectively. The adoption
of this Statement did not have a material impact on the Companys financial
statements.

On June 29, 2001, the FASB approved for issuance SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets.

Under
SFAS No. 141, all business combinations initiated after June 30, 2001, must be
accounted for using the purchase method of accounting. With the adoption of SFAS
No. 142, goodwill is no longer subject to amortization, but instead must be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
SFAS No. 142, which is effective for fiscal years beginning after December 15,
2001. Management does not expect that these Statements will have an impact on
the Banks results of operations.

Emerging
Issues Task Force (EITF) Issue 99-20, Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interest in Securitized
Financial Assets, was effective for the Companys quarter ended June
30, 2001. The adoption of EITF 99-20 did not have a material impact on the
financial condition or operations of the Company.

On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.  Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, but retains many of the fundamental provisions of
that Statement.

Statement
No. 144 also supersedes the accounting and reporting provisions of Accounting
Principles Board (APB) Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. However, it retains the requirement
in Opinion 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for sale.
By broadening the presentation of discontinued operations to include more
disposal transactions, the FASB has enhanced managements ability to
provide information that helps financial statement users to assess the effects
of a disposal transaction on the ongoing operations of an entity.

Statement
No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Early application is encouraged.
Management does not expect that the adoption of this Statement will have a
significant impact on the Banks results of operations.

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`SUMMARY FINANCIAL DATA
                                   (in thousands, except per share data)

                                              2001          2000         1999          1998          1997
Income Statement Data:
   Interest income                         $27,095       $26,047      $21,597       $19,910       $17,276
   Interest expense                         10,861        10,042        7,967         7,400         6,305
   Net interest income                      16,234        16,005       13,630        12,510        10,971
   Provision for loan losses                   900         1,200          840           640           486
   Non-interest income                       3,120         2,604        2,015         1,954         1,851
   Non-interest expense                     11,061        10,188        9,543         8,238         6,982
   Income before tax                         7,393         7,221        5,262         5,586         5,354
   Net income                                5,220         5,106        3,715         3,907         3,733
Basic Per Share Data(1):
   Net income                                $3.32         $3.26        $2.38         $2.49         $2.37
   Dividends paid                             1.20          1.15         1.10          1.05          1.00
   Weighted average shares
     outstanding                         1,570,559     1,566,390    1,563,996     1,570,537     1,575,000
Balance Sheet Data:
   Total assets                            392,978       348,363      296,419       264,894       226,314
   Loans, net                              286,280       255,414      209,952       185,018       158,397
   Allowance for loan losses                 5,668         5,193        4,483         3,958         3,424
   Deposits                                351,669       310,214      269,193       239,557       202,299
   Shareholders' equity                     32,404        28,887       25,312        23,497        21,732
Ratios:
   Dividend payout ratio                    36.12%        35.29%       46.31%        42.11%        42.19%
   Equity to asset ratio                     8.69%        8.68 %        8.84%         9.13%        10.05%

(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.`

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# STOCK AND EARNINGS HIGHLIGHTS

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, 2000, through December 31, 2001, there were, so far as
the Companys management knows, 326 sales of shares of the Companys
Common Stock, involving a total of 48,603 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 2001,
the highest and lowest prices known to be paid were $45.00 and $40.00 per share,
respectively. To the knowledge of management, the last sale of Common Stock
occurred on February 22, 2002.

As
of March 1,  2002,  there  were  approximately  930  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 2000 and
2001,  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 2000 and 2001:

`Sales Prices                      Cash Dividends Declared
            2000                        High                    Low
First Quarter                          $42.00                  $42.00                      $0.20
Second Quarter                         $42.00                  $42.00                      $0.20
Third Quarter                          $42.00                  $42.00                      $0.20
Fourth Quarter                         $42.00                  $42.00                      $0.55(1)

            2001                        High                    Low
First Quarter                          $42.00                  $42.00                      $0.20
Second Quarter                         $45.00                  $42.00                      $0.20
Third Quarter                          $45.00                  $45.00                      $0.20
Fourth Quarter                         $45.00                  $40.00                      $0.60(2)

(1)  Includes a special dividend of $0.35 per share.
(2)  Includes a special dividend of $0.40 per share.`

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EXHIBIT 21
                                                   SUBSIDIARIES

|Name                          | Jurisdiction of Incorporation
|----------------------------- | -----------------------------
|First National Bank in Howell | Michigan                     
|                              |                              
|H.B. Realty Co                | Michigan