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



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

# For the fiscal year
ended December 31, 2003

# Commission file number
0-25752

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

|MICHIGAN
(State or other jurisdiction ofincorporation or
organization) | 38-2869722
(I.R.S. EmployerIdentification No.)
|---------------------------------------------------------------------- | ----------------------------------------------

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

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

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

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



Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [__]

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

Indicate by checkmark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes [X] No [__]
The aggregate market value of common stock held by nonaffiliates as of June 30, 2003, was
$78,325,013. As of March 1, 2004 there were outstanding 3,169,204 shares of the
Companys common stock (no par value).

Documents Incorporated by
Reference: Portions of the Companys Proxy Statement and appendix for the Annual
Meeting of Shareholders to be held April 21, 2004 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 1933, 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 Companys internet address is www.fnbsite.com.

The
Bank was originally organized in 1934 as a national banking association. As of March 1,
2004, the Bank had approximately 135 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 five communities, Howell,
Brighton, Green Oak Township, 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 $37,400,000, of which $32,100,000 is
available, and $5,300,000 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.

2

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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, 2003, the Banks certificates of deposit of $100,000 or more
constituted approximately 14% 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, 2003 and for the period ended December 31,
2002. Interest on investment securities, including short-term investments and federal
funds sold, constituted approximately 8% of total revenues in 2003 and 9% of total
revenues in 2002. 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, 2003, 33% of outstanding loans were for either commercial or residential
construction or development. Forty-six percent of the Banks loan portfolio is in
fixed rate loans. Most of these loans, approximately 97%, mature within five years of
issuance. Approximately $4,400,000 in loans (or about 3% of the Banks total loan
portfolio) have fixed rates with maturities exceeding five years. Fifty-seven percent of
the Banks interest-bearing deposits are in savings, NOW, and MMDAs, all of which are
variable rate products. Of the approximately $143,100,000 in certificates, $98,000,000
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 $500,000 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, 2003, was
34% asset sensitive, compared to 43% asset sensitive at December 31, 2002. See discussion
and table under Quantitative and Qualitative Disclosures about Market Risk in
Item 7a below.

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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
the Federal Home Loan Mortgage Corporation (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 are 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 nine offices within the five communities it serves, all of which are located in
Livingston County, Michigan. Four of the offices, including the main office, are located
in Howell. There are two facilities in Brighton, and one each in Green Oak Township,
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 Standard Federal. 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, 2003, the Bank holds
approximately 23.32% of local deposits, compared to approximately 15.57% held by Fifth
Third Bank, approximately 11.06% held by National City, approximately 10.18% held by
Republic Bank, and approximately 7.95% held by Standard Federal. 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 six branch offices, National City Bank operates seven branch offices, Republic
Bank has five branch offices, and Standard Federal 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. There has been increased
competition within the Banks market over the past few years as new branches are
built to meet the needs of the growing population in the county. Management continues to
evaluate the opportunities for the expansion of products and services.

Growth of Company

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

|                              | Balances as of December 31,
(in thousands)
|----------------------------- | ------------------------------------------
|                              |                                           
|                              |                                           
|Total Assets                  |                                           
|Loans, Net of Unearned Income |                                           
|Securities                    |                                           
|Noninterest-Bearing Deposits  |                                           
|Interest-Bearing Deposits     |                                           
|Total Deposits                |                                           
|Shareholders' Equity          |                                           

Through
2003, the Bank operated seven branch facilities: one in downtown Howell, one at Lake
Chemung (five miles east of downtown Howell), two in Brighton (one on the east side and
one on the west side), one in Hartland, one in the village of Fowlerville, and the sixth
is a grocery store branch, located west of downtown Howell. In December of 2003, the Bank
opened a new branch in Green Oak Township, which is 11 miles south west of downtown
Howell. As of December 31, 2003, this new branch had approximately $1,700,000 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.

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.

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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.

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.

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The
Companys common stock is registered with the Securities and Exchange Commission
(SEC) under the Securities Act of 1933, as amended (the Securities
Act), and the Securities Exchange Act of 1934, as amended (the Exchange
Act). As a result, the Company is subject to the information, proxy solicitation,
insider trading and other restrictions and requirements of the SEC under the Exchange Act.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act provides for numerous changes to the reporting, accounting, corporate
governance and business practices of companies as well as financial and other
professionals who have involvement with the U.S. public securities markets. The SEC
continues to issue new and proposed rules implementing various provisions of the
Sarbanes-Oxley Act. The Companys securities are not listed for trading on any
national or regional securities exchange.

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.

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FICO
Assessments.The Bank, as a member 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 0.02% 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        
Risk-Based   
Capital Ratio                                                                                                               | Tier 1
Risk-Based
Capital Ratio                             | Leverage Ratio                                             
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -----------------------------------------------------------
|                                                                                                                                                        |                                                             |                                                            
|Well capitalized              
Adequately capitalized        
Undercapitalized              
Significantly undercapitalized
Critically undercapitalized | 10% or above
 8% or above
Less than 8%
Less than 6%
     -- | 6% or above 
4% or above 
Less than 4%
Less than 3%
     --

As
of December 31, 2003, each of the Banks ratios exceeded minimum requirements for the
well capitalized category.

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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.

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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.

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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, 2003, 2002, and 2001.

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 9
basis points in 2003 as a result of a decrease of 69 basis points in yield on earning
assets, partially offset by a decrease of 72 basis points in the interest cost on
deposits. In 2002 the interest margin decreased 11 basis points due to an 121 basis point
decrease in yield on earning assets offset by a 141 basis point decrease in interest cost.

13

---



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

|                               |  | 2003 |   |         | 2002 |   |          | 2001 | 
|------------------------------ |  | ---- | - | ------- | ---- | - | -------- | ---- | 
|
|                               |  |      |   |         |      |   |          |      | 
|Assets:                        |  |      |   |         |      |   |          |      | 
|Interest earning assets:       |  |     
|Short term investments         |  |      | $ | 9,625   |      | $ | 103.4    |      | 
|Certificates of deposit        |  |      |   | 3,135   |      |   | 109.2    |      | 
|Securities:                    |  |     
|Taxable                        |  |      |   | 29,550  |      |   | 1,205.2  |      | 
|Tax-exempt                     |  |      |   | 15,845  |      |   | 1,109.0  |      | 
|Loans(1)(2)                    |  |      |   | 340,384 |      |   | 22,805.8 |      | 
|                               |  |      |   |         |      |   |          |      | 
|Total earning assets and total |  |     
|interest income                |  |      |   | 398,539 |      | $ | 25,332.7 |      | 
|                               |  |      |   |         |      |   |          |      | 
|Cash & due from banks          |  |      |   | 13,018  |      |   |          |      | 
|All other assets               |  |      |   | 6,591   |      |   |          |      | 
|Allowance for loan loss        |  |      |   | 5,871   |      |   |          |      | 
|                               |  |      |   |         |      |   |          |      | 
|Total assets                   |  |      | $ | 424,019 |      |   |          |      | 
|                               |  |      |   |         |      |   |          |      | 
|Liabilities and                |  |     
|Shareholders' Equity           |  |     
|Interest bearing deposits:     |  |     
|Savings, money market, NOW     |  |      | $ | 172,611 |      | $ | 1,468.5  |      | 
|Time                           |  |      |   | 135,842 |      |   | 4,288.9  |      | 
|Short term borrowings          |  |      |   | 1,300   |      |   | 17.7     |      | 
|FHLB advances                  |  |      |   | 5,337   |      |   | 391.7    |      | 
|                               |  |      |   |         |      |   |          |      | 
|Total interest bearing         |  |     
|liabilities and total interest |  |     
|expense                        |  |      | $ | 315,090 |      | $ | 6,166.9  |      | 
|                               |  |      |   |         |      |   |          |      | 
|Non-interest bearing deposits  |  |      |   | 65,719  |      |   |          |      | 
|All other liabilities          |  |      |   | 3,671   |      |   |          |      | 
|Shareholders' Equity           |  |      |   | 39,539  |      |   |          |      | 
|                               |  |      |   |         |      |   |          |      | 
|Total liabilities and          |  |     
|shareholders' equity           |  |      | $ | 424,019 |      |   |          |      | 
|                               |  |      |   |         |      |   |          |      | 
|Interest spread                |  |      |   |         |      |   |          |      | 
|                               |  |      |   |         |      |   |          |      | 
|Net interest income-FTE        |  |      |   |         | $    |   | 19,165.9 |      | 
|                               |  |      |   |         |      |   |          |      | 
|Net interest margin            |  |      |   |         |      |   |          |      | 
|                               |  |      |   |         |      |   |          |      | 

|(1) | Included
in average daily loan balances are non-accruing loans with average           balances of
$4,751,000 in 2003, $2,322,000 in 2002, and $1,612,000 in 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest
on loans includes origination fees totaling $720,000 in 2003, $750,000           in 2002,
and $790,000 in 2001.
|--- | ------------------------------------------------------------------------------------------------------------------------

14

---



(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
December 31, 2003 compared to Year ended December 31, 2002
Amount of Increase/(Decrease)due to change in | Year ended
December 31, 2002 compared to Year ended December 31, 2001
Amount of Increase/(Decrease)due to change in
|-------------------------- | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------
|
|Interest Income:           |                                                                                                                     |                                                                                                                    
|Short term investments     |                                                                                                                     |                                                                                                                    
|Certificates of deposit    |                                                                                                                     |                                                                                                                    
|Securities:                |                                                                                                                     |                                                                                                                    
|Taxable                    |                                                                                                                     |                                                                                                                    
|Tax Exempt                 |                                                                                                                     |                                                                                                                    
|Loans                      |                                                                                                                     |                                                                                                                    
|                           |                                                                                                                     |                                                                                                                    
|Total interest income      |                                                                                                                     |                                                                                                                    
|Interest Expense:          |                                                                                                                     |                                                                                                                    
|Interest bearing deposits: |                                                                                                                     |                                                                                                                    
|Savings/NOW accounts .     |                                                                                                                     |                                                                                                                    
|Time                       |                                                                                                                     |                                                                                                                    
|Short term borrowings      |                                                                                                                     |                                                                                                                    
|FHLB & other borrowings    |                                                                                                                     |                                                                                                                    
|                           |                                                                                                                     |                                                                                                                    
|Total interest expense     |                                                                                                                     |                                                                                                                    
|                          
|Net interest income (FTE)  |                                                                                                                     |                                                                                                                    

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.

15

---



II INVESTMENT PORTFOLIO

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

|                                  | (in thousands)
|--------------------------------- | --------------
|
|                                  |               
|Held to maturity:                 |               
|States and political subdivisions |               
|Mortgage-backed securities        |               
|                                  |               
|Total                             |               
|Available for sale:               |               
|U.S. Treasury                     |               
|U.S. Government agencies          |               
|Corporate securities              |               
|Mortgage-backed securities        |               
|FRB Stock                         |               
|FHLB Stock                        |               
|                                  |               
|Total                             |               

(B)     The following
table sets forth contractual maturities of securities at December 31, 2003 and the
weighted average yield of such securities:

|                          
|--------------------------
|
|                          
|                          
|Held to maturity          
|States and political      
|subdivisions              
|                          
|                          
|Tax equivalent adjustment 
|for calculations of yield 
|                          
|                          
|Available for sale        
|U.S. Agency               
|Corporate bonds           
|Mortgage backed securities
|FRB Stock                 
|FHLB Stock                
|                          
|Total                     
|                          

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:

16

---



|             | Tax-Exempt Rate | Adjustment | Rate on TaxEquivalent Basis
|------------ | --------------- | ---------- | ---------------------------
|Under 1 year |                 |            |                            
|1-5 years    |                 |            |                            
|5-10 years   |                 |            |                            

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, 2003 included in the Appendix to the Companys definitive proxy
statement, relating to the April 21, 2004, 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:

|                                          
|------------------------------------------
|
|                                          
|Secured by real estate:                   
|Residential first mortgage                
|Residential home equity/other junior liens
|Construction and land development         
|Commercial                                
|Consumer                                  
|Commercial                                
|Other                                     
|                                          
|Total Loans (Gross)                       

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 assist the Bank in evaluating 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, 2003 which, based on remaining scheduled repayments of
principal, are in the periods indicated.

|                                            | Maturing
(dollars in thousands)
|------------------------------------------- | -------------------------------
|
|Real estate construction & land development |                                
|Real estate other (secured by commercial &  |                                
|multi-family)                               |                                
|Commercial (secured by business assets or   |                                
|Unsecured)                                  |                                
|Other (loans to farmers, political          |                                
|Subdivisions, & overdrafts)                 |                                
|                                            |                                
|Totals                                      |                                

17

---



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

|                                    | Interest Sensitivity
(dollars in thousands)
|----------------------------------- | -------------------------------------------
|
|Due after one but within five years |                                            
|Due after five years                |                                            

(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)
|------------------------------ | ----------------------
|
|                               |                       
|Nonperforming Loans:           |                       
|Nonaccrual loans               |                       
|Loans past due 90 days or more |                       
|                               |                       
|Total nonperforming loans      |                       
|                               |                       
|Percent of total loans         |                       

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, 2003
included in the Appendix III to the Companys definitive proxy statement, relating to
the April 21, 2004, 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, 2003, that would be required to be
disclosed under Item III(C), if such assets were loans.

The
loan portfolio has no significant concentrations in any one industry. There were no
foreign loans outstanding at December 31, 2003.

18

---



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)
|-------------------------------------------- | ----------------------
|
|                                             |                       
|Loans:                                       |                       
|Average daily balance of loans for the year  |                       
|Amount of loans (gross) outstanding at end   |                       
|of the year                                  |                       
|Allowance for loan losses:                   |                       
|Balance at beginning of year                 |                       
|Loans charged off:                           |                       
|Real estate                                  |                       
|Commercial                                   |                       
|Consumer                                     |                       
|                                             |                       
|Total charge-offs                            |                       
|Recoveries of loans previously charged off:  |                       
|Real estate                                  |                       
|Commercial                                   |                       
|Consumer                                     |                       
|                                             |                       
|Total recoveries                             |                       
|                                             |                       
|Net loans charged off                        |                       
|Additions to allowance charged to operations |                       
|                                             |                       
|Balance at end of year                       |                       
|Ratios:                                      |                       
|Net loans charged off to average loans       |                       
|outstanding                                  |                       
|Allowance for loan losses to loans           |                       
|outstanding                                  |                       

(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)
|----------- | ----------------------
|
|
|            |                       
|Commercial  |                       
|Consumer    |                       
|Real Estate |                       
|            |                       
|Unallocated |                       
|            |                       
|Total       |                       
|            |                       

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)
|----------------------------- | ----------------------
|
|
|                              |                       
|Non-interest bearing demand   |                       
|Savings, money market and NOW |                       
|Time deposits                 |                       
|                              |                       
|Total                         |                       
|                              |                       

19

---



The
table for maturities of negotiated rate time deposits of $100,000 or more outstanding at
December 31, 2003 is incorporated by reference to Note 9 of the Companys
Consolidated Financial Statements for the year ended December 31, 2003 included in the
Appendix to the Companys definitive proxy statement, relating to the April 21, 2004,
Annual Meeting of Shareholders (as filed with the Commission as exhibit 13 to 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:

|                            |  |  |  | 2003  |   |  | 2002  |   |  | 2001  |   |  | 2000  |   |  | 1999  |  
|--------------------------- |  |  |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                            |  |  |  |       |   |  |       |   |  |      
|Net income as a percent of: |  | 
|Average common equity       |  |  |  | 14.90 | % |  | 17.97 | % |  | 16.80 | % |  | 18.76 | % |  | 15.05 | %
|Average total assets        |  |  |  | 1.39  | % |  | 1.58  | % |  | 1.46  | % |  | 1.63  | % |  | 1.33  | %

Additional
performance ratios are set forth in Selected Financial Data included in the
Appendix to the Companys definitive proxy statement, relating to the April 21, 2004,
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, relating to the April 21, 2004,
Annual Meeting of Shareholders (as filed with the Commission as exhibit 13 to 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 nine facilities, located in five 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 three branches in Howell at
5990 East Grand River, 4299 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, 10700 Highland Road,
Hartland, Michigan, and 9775 M-36, Whitmore Lake, 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 remaining life of the lease is $3,888 monthly.

20

---



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 2003.

# 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, 2003:

|Name (Age)                                                                                                   | Position with Company | First Selected as an Officer
of the Company                                                                                                                                                                                                                                                                                                                    
|------------------------------------------------------------------------------------------------------------ | --------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Barbara Draper  (57)  
Herbert W. Bursch (51)
Nancy Morgan (53)     
Janice B.Trouba (42)  
James Wibby (53) |                       | President,     Chief     Executive
Officer,   and   Director  of  the
Company and the Bank
Senior   Vice   President,   Chief
Operating Officer,  of the Company
and the Bank
Senior   Vice   President,   Human
Resources of the Bank
Senior   Vice   President,   Chief
Financial Officer, of the Bank
Senior  Vice   President,   Senior
Lender, of the Bank

21

---



# PART II

Item 5  Market
for Registrants Common Equity and Related Stockholder Matters

There
is not an established trading market for the Companys Common Stock. Information
regarding its market price can be obtained on the internet at nasdaq.com, symbol FNHM.
There is one market maker for the stock. 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, 2002, through December 31, 2003,
there were, so far as the Companys management knows, a total of 351,484 shares of
the Companys Common Stock sold. The price was reported to management in some of
these transactions; however there may have been other transactions involving the Company
stock at prices not reported to management. During 2003, the highest and lowest prices
known to management involving sales of more than 200 shares were $31.00 and $23.00 per
share, respectively. To the knowledge of management, the last sale of Common Stock
occurred on March 2, 2004 at a price of $27.00 per share.

As
of March 1, 2004, there were approximately 955 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 2002 and 2003, 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 exceeding 200 shares at higher or lower
prices, there may have been transactions at prices outside the ranges listed in the table.

Sales
price, for sales involving more than 200 shares, and dividend information for the years
2002 and 2003:

|               | Sales Prices | Cash Dividends Declared
|-------------- | ------------ | -----------------------
|
|First Quarter  |              |                        
|Second Quarter |              |                        
|Third Quarter  |              |                        
|Fourth Quarter |              |                        

|2003           | High | Low |  
|-------------- | ---- | --- | -
|First Quarter  |      |     | $
|Second Quarter |      |     | $
|Third Quarter  |      |     | $
|Fourth Quarter |      |     | $

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 statutory and regulatory restrictions and
requirements.

22

---



Item 6  Selected
Financial Data

The
information set forth under the caption Summary Financial Data on page 62 of
Appendix III to the Companys definitive proxy statement, as filed with the
Commission relating to the April 21, 2004 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 on pages 51 through 62 of Appendix III
to the Companys definitive proxy statement, as filed with the Commission and
relating to the April 21, 2004 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
on pages 20 through 50 of Appendix III to the Companys definitive Proxy Statement,
relating to the April 21, 2004 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, 2003 and
2002 are reported on page 48 of Appendix III

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

By
letter dated December 30, 2003, KPMG LLP (KPMG) declined to stand for
re-election as the Registrants independent auditors, following the completion by
KPMG of the audit of the Registrants financial statements as of and for the year
ended December 31, 2003, and the issuance of its report thereon. The Registrants
Audit Committee was informed of the decision, but the Audit Committee did not recommend or
approve that decision by KPMG. The Registrant has not yet engaged a new independent
auditor.

23

---



KPMGs
reports on the Registrants consolidated financial statements for the past two fiscal
years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope, or accounting principles. During the past two
fiscal years and through the date of Registrants receipt of the above-referenced
letter from KPMG (the Reporting Period), there were no disagreements with KPMG
on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to KPMGs satisfaction, would have
caused KPMG to make reference to the subject matter of the disagreement(s) in connection
with its reports on the Registrants consolidated financial statements. Also, during
the Reporting Period, there were no reportable events as described in Item 304(a)(1)(v) of
the Securities and Exchange Commissions Regulation S-K.

The
Company has provided a copy of the foregoing statements to KPMG. A copy of KPMGs
letter to the Securities and Exchange Commission stating its agreement with such
statements was filed as Exhibit 16 to the Registrants Current Report dated December
30, 2003, as amended.

Item 9A 
Controls and Procedures

With
the participation of management, the Companys Chief Executive Officer and Chief
Financial Officer, after evaluating the effectiveness of the Companys disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
December 31,2003, have concluded that, as of such date, the Companys disclosure
controls and procedures were adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiaries would be made known to them by
others within those entities in connection with the filing of the Companys Annual
Report on Form 10-K for the annual period ended December 31, 2003.

There
were no significant changes to the Companys internal controls over financial
reporting during the fiscal quarter ended December 31, 2003, that have materially
affected, or reasonably likely to materially affect, our internal controls over financial
reporting.

# PART III

Item 10 
Directors and Executive Officers of the Registrant

Directors

The
information with respect to Directors and Nominees of the Registrant, set forth under the
caption Election of Directors on pages 1 and 2 of the Companys
definitive proxy statement, as filed with the Commission relating to the April 21, 2004
Annual Meeting of Shareholders, is incorporated herein by reference.

24

---



Executive Officers

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

We have adopted a Code of Ethics for
our chief executive officer and senior financial officers. A copy of our Code of Ethics is
available upon request by writing to the Companys chief financial officer at 101
East Grand River, Howell, Michigan 48843.

Item 11 
Executive Compensation

The
information set forth under the caption Summary Compensation Table on pages 6
and 7 of the Companys definitive proxy statement, as filed with the Commission
relating to the April 21, 2004 Annual Meeting of Shareholders, is incorporated herein by
reference. Information under the caption Committee Report on Executive
Compensation on page 5 and 6 and Shareholder Return Performance Graph on
page 9 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 8
of the Companys definitive proxy statement, as filed with the Commission relating to
the April 21, 2004 Annual Meeting of Shareholders, is incorporated herein by reference.

The
following information is provided under Item 201(d):

|Plan Category                                                 | Number          of
securities  to  be
issued        upon
exercise        of
outstanding
options,
warrants,      and
rights | Weighted     -    average
exercise     price     of
outstanding      options,
warrants, and rights | Number  of  securities  remaining
available  for  future   issuance
under equity  compensation  plans
(excluding  securities reflected
in column (a))
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|                                                              | (a)                                                                                                                        | (b)                                                                                                | (c)                                                                                                                                                  
|Equity  compensation plans
approved    by    security
holders | 0                                                                                                                          | 0                                                                                                  | 295,225 (1)                                                                                                                                          

(1)       
          Includes 170,776 shares available under the Long Term Incentive Plan,          78,751shares available under the Compensation Plan for Nonemployee Directors and
          45,698 shares included under the Employee Stock Purchase Plan.

25

---



Item 13  Certain
Relationships and Related Transactions

The
information set forth under the caption Certain Transactions with Management
on page 7 and 8 of the Companys definitive proxy statement, as filed with the
Commission relating to the April 21, 2004 Annual Meeting of Shareholders, is incorporated
herein by reference.

Item 14 
Principal Accounting Fees and Services

The
information set forth under the caption Audit Matters and Our Relationship with Our
Independent Public Accountants on page 5 of the Companys definitive proxy
statement, as filed with the Commission relating to the April 21, 2004 Annual Meeting of
Shareholders, is incorporated herein by reference.

# PART IV

Item 15 
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, relating to the
April 21, 2004 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
|--- | -------------------

| | The
Company filed a report 8-K on October 3, 2003 under Item 9 regarding the retirement of
the Companys CEO, Barbara Draper. The Company also filed a report 8-K on October
20, 2003 under Item 12 regarding the Companys Third Quarter 2003 Earnings Press
Release.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

---



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 13, 2004.

FNBH BANCORP, INC.

/s/ Barbara Draper 

Barbara Draper,
President & Chief Executive Officer (Principal Executive Officer)

/s/ Janice B. Trouba

Janice B. Trouba,
Chief Financial Officer  (Principal Financial and Accounting Officer)

| | 
| | 

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 Draper and
Janice B. Trouba, 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.

/s/ W. Rickard Scofield

W. Rickard Scofield, Chairman of the Board

/s/ Donald K. Burkel

Donald K. Burkel, Vice Chairman of the Board

/s/ Athena Bacalis

Athena Bacalis, Director

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

/s/ Herbert W. Bursch

Herbert W. Bursch, Director

/s/ Barbara Draper

Barbara Draper, Director

/s/ Harry E. Griffith

Harry E. Griffith, Director

/s/ Richard F. Hopper

Richard F. Hopper, Director

/s/ Dona Scott Laskey

Dona Scott Laskey, Director

/s/ James R. McAuliffe

James R. McAuliffe, Director

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

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

27

---



EXHIBIT INDEX

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

|Exhibit Number | 
|-------------- | 

|(13) | Appendix III to the Company's
Proxy  Statement,  for the Annual Meeting
     of Shareholders to be held April 21, 2004, representing pages 19-62 of that
Appendix III to that Proxy Statement incorporated by reference in this report.  This Appendix will also be filed
with the Commission as part of the Company's  Proxy  Statement and will be delivered
to Company  shareholders  in  compliance  with Rule  14(a)-3  of the  Securities
Exchange Act of 1934, as amended
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(21) | Subsidiaries
of the
Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|(24) | Power
of Attorney (included in signature section)
|---- | -------------------------------------------------

|(31.1) | Certificate
of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to           Section 302 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(31.2) | Certificate
of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to           Section 302 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(32.1) | Certificate
of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to           Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(32.2) | Certificate
of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to           Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------

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 
3.1    
3.2    
3.3    
4      
10.1   
10.2   
10.3   
10.4 | Restated Articles of Incorporation of the  
Registrant                                 
Amendment to the Company's Articles of     
Incorporation to Increase Authorized Shares
Bylaws of the Registrant                   
Form of Registrant's Stock Certificate     
Material Contracts:
Howell Branch Lease Agreement              
Company's Long Term Incentive Plan*        
FNBH Bancorp Inc. Employees' Stock         
Purchase Plan                              
Amended and Restated Compensation          
Plan for Nonemployee Directors* |  | Original Filing Form and Date
Exhibit 3.1 of Form 10, effective
June 30, 1995 ("Form 10")
Appendix I of Proxy Statement
dated March 17, 1998
Exhibit 3.2 of Form 10
Exhibit 4 of Form 10
Exhibit 10.2 to Form 10
Appendix II of Proxy Statement
dated March 17, 1998
Exhibit 4 to Registration
Statement on Form S-8  (Reg. No. 333-46244)
Appendix II of Proxy Statement
dated March 15, 2002

*Represents a compensation plan

---



# Exhibit 13

# FNBH BANCORP, INC. AND
SUBSIDIARIES

Consolidated Financial Statements

Period Ended December 31, 2003

(With Independent
Auditors Report Thereon)

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

# Table of Contents

|                                                                         | Page
|------------------------------------------------------------------------ | ----
|                                                                        
|Independent Auditors' Report                                             |     
|                                                                        
|Consolidated Balance Sheets                                              |     
|                                                                        
|Consolidated Statements of Income                                        |     
|                                                                        
|Consolidated Statements of Stockholders' Equity and Comprehensive Income |     
|                                                                        
|Consolidated Statements of Cash Flows                                    |     
|                                                                        
|Notes to Consolidated Financial Statements                               |     
|                                                                        
|Management's Discussion and Analysis                                     |     
|                                                                        
|Summary Financial Data                                                   |     

---



KPMG LLP
Suite 1200150 West JeffersonDetroit, MI 48226-4429

# Independent Auditors Report

The Board of Directors and
StockholdersFNBH Bancorp, Inc.:

We have audited the consolidated
balance sheets of FNBH Bancorp, Inc. and subsidiaries (Corporation) as of
December 31, 2003 and 2002, 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, 2003. 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, 2003 and
2002, and the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.

| | /s/ KPMG LLP
| | ------------

January 16, 2004

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Consolidated Balance
Sheets

December 31, 2003 and
2002

|                                                             |  | 
|------------------------------------------------------------ |  | 
|
|                                                             |  | 
|Cash and cash equivalents:                                   |  | 
|Cash and due from banks                                      |  | 
|Short-term investments                                       |  | 
|                                                             |  | 
|Total cash and cash equivalents                              |  | 
|Certificates of deposit                                      |  | 
|Investment securities held to maturity, net (fair value of   |  | 
|$16,006,625 in 2003 and $18,010,672 in 2002)                 |  | 
|Investment securities available for sale, at fair value      |  | 
|Mortgage-backed securities held to maturity, net (fair value |  | 
|of $26,173 in 2002)                                          |  | 
|Mortgage-backed securities available for sale, at fair value |  | 
|FHLBI and FRB stock, at cost                                 |  | 
|                                                             |  | 
|Total investment and mortgage-backed securities              |  | 
|Loans:                                                       |  | 
|Commercial                                                   |  | 
|Consumer                                                     |  | 
|Real estate mortgage                                         |  | 
|                                                             |  | 
|Total loans                                                  |  | 
|Less unearned income                                         |  | 
|Less allowance for loan losses                               |  | 
|                                                             |  | 
|Net loans                                                    |  | 
|Bank premises and equipment, net                             |  | 
|Land held for sale, net                                      |  | 
|Other real estate owned, held for sale                       |  | 
|Accrued interest income and other assets                     |  | 
|                                                             |  | 
|Total assets                                                 |  | 
|                                                             |  | 

See accompanying notes to
consolidated financial statements.

2

---



|Liabilities and Stockholders' Equity                         | 2003 | 2002
|------------------------------------------------------------ | ---- | ----
|                                                             |      |     
|Deposits:                                                    |      |     
|Demand (non-interest bearing)                                |      |     
|NOW                                                          |      |     
|Savings and money market accounts                            |      |     
|Time                                                         |      |     
|Brokered certificates of deposit                             |      |     
|                                                             |      |     
|Total deposits                                               |      |     
|                                                             |      |     
|Other borrowings                                             |      |     
|Accrued interest, taxes, and other liabilities               |      |     
|                                                             |      |     
|Total liabilities                                            |      |     
|                                                             |      |     
|Commitments and contingencies                                |      |     
|                                                             |      |     
|Stockholders' equity:                                        |      |     
|Common stock, $0 par value. Authorized 4,200,000 shares;     |      |     
|issued and outstanding 3,168,931 shares and 3,157,798 shares |      |     
|at December 31, 2003 and 2002, respectively                  |      |     
|Retained earnings                                            |      |     
|Unearned long term incentive plan                            |      |     
|Accumulated other comprehensive income, net                  |      |     
|                                                             |      |     
|Total stockholders' equity                                   |      |     
|                                                             |      |     
|                                                             |      |     
|Total liabilities and stockholders' equity                   |      |     
|                                                             |      |     

3

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Consolidated Statements
of Income

Years ended December
31, 2003, 2002, and 2001

|                                                            | 2003 | 2002 | 2001
|----------------------------------------------------------- | ---- | ---- | ----
|Interest and dividend income:                               |      |      |     
|Interest and fees on loans                                  |      |      | $   
|Interest and dividends on investment and mortgage-backed    |      |     
|securities:                                                 |      |     
|U.S. Treasury and agency securities                         |      |      |     
|Obligations of state and political subdivisions             |      |      |     
|Corporate bonds                                             |      |      |     
|Other securities                                            |      |      |     
|Interest on certificates of deposit and other bank deposits |      |      |     
|Interest on short-term investments                          |      |      |     
|                                                            |      |      |     
|Total interest and dividend income                          |      |      |     
|                                                            |      |      |     
|Interest expense:                                           |      |     
|Interest on deposits                                        |      |      |     
|Interest on other borrowings                                |      |      |     
|                                                            |      |      |     
|Total interest expense                                      |      |      |     
|                                                            |      |      |     
|Net interest income                                         |      |      |     
|                                                            |      |     
|Provision for loan losses                                   |      |      |     
|                                                            |      |      |     
|Net interest income after provision                         |      |     
|for loan losses                                             |      |      |     
|                                                            |      |     
|Noninterest income:                                         |      |     
|Service charges and other fee income                        |      |      |     
|Trust income                                                |      |      |     
|Gain on sale of loans                                       |      |      |     
|Gain on sale/call of investments                            |      |      |     
|Other                                                       |      |      |     
|                                                            |      |      |     
|Total noninterest income                                    |      |      |     
|                                                            |      |      |     
|Noninterest expenses:                                       |      |     
|Salaries and employee benefits                              |      |      |     
|Net occupancy expense                                       |      |      |     
|Equipment expense                                           |      |      |     
|Professional and service fees                               |      |      |     
|Printing and supplies                                       |      |      |     
|Advertising                                                 |      |      |     
|Other                                                       |      |      |     
|                                                            |      |      |     
|Total noninterest expenses                                  |      |      |     
|                                                            |      |      |     
|Income before Federal income taxes                          |      |      |     
|                                                            |      |     
|Federal income taxes                                        |      |      |     
|                                                            |      |      |     
|Net income                                                  |      |      | $   
|                                                            |      |      |     
|Basic and diluted net income per share                      |      |      | $   
|                                                            |      |     
|Cash dividends per share                                    |      |      |     
|                                                            |      |     
|                                                            |      |     
|See accompanying notes to consolidated financial statements |      |     

4

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Consolidated Statements
of Stockholders' Equityand
Comprehensive Income

Years ended December 31,
2003, 2002, and 2001

|                                                     | Common
stock | Retained
earnings | Unearned
long term
incentive
plan | Accumulated
other
comprehensive
income (loss) | Total
|---------------------------------------------------- | ------------ | ----------------- | --------------------------------- | --------------------------------------------- | -----
|                                                     |              |                   |                                   |                                               |      
|Balances at December 31, 2000                        |              |                   | $                                 | 5,025,476                                     |      
|Issued 6,438 shares for long term incentive plan     |              |                   |                                   | 135,198                                       |      
|Retired 790 shares from long term incentive plan     |              |                   |                                   | (16,450                                       | )    
|Issued 5,606 shares for employee stock purchase plan |              |                   |                                   | 102,546                                       |      
|Amortization of long term incentive plan             |              |                   |                                   | --                                            |      
|Comprehensive income:                                |              |                  
|Net income                                           |              |                   |                                   | --                                            |      
|Changes in unrealized gain on securities             |              |                  
|available for sale, net of tax                       |              |                   |                                   | --                                            |      
|                                                     |              |                   |                                   |                                               |      
|Total comprehensive income                           |              |                   |                                   | 5,229,384                                     |      
|Cash dividends ($0.60 per share)                     |              |                   |                                   | --                                            |      
|                                                     |              |                   |                                   |                                               |      
|Balances at December 31, 2001                        |              |                   |                                   | 5,246,770                                     |      
|Issued 5,246 shares for long term incentive plan     |              |                   |                                   | 109,799                                       |      
|Issued 686 shares for current directors' fees        |              |                   |                                   | 14,483                                        |      
|Issued 3,988 shares for employee stock purchase plan |              |                   |                                   | 70,428                                        |      
|Issued 1,128 shares for directors' variable fee plan |              |                   |                                   | 23,609                                        |      
|Amortization of long term incentive plan             |              |                   |                                   | --                                            |      
|Comprehensive income:                                |              |                  
|Net income                                           |              |                   |                                   | --                                            |      
|Changes in unrealized gain on securities             |              |                  
|available for sale, net of tax                       |              |                   |                                   | --                                            |      
|                                                     |              |                   |                                   |                                               |      
|Total comprehensive income                           |              |                   |                                   | 6,952,828                                     |      
|Cash dividends ($0.628 per share)                    |              |                   |                                   | --                                            |      
|                                                     |              |                   |                                   |                                               |      
|Balances at December 31, 2002                        |              |                   |                                   | 5,465,089                                     |      
|Issued 4,482 shares for long term incentive plan     |              |                   |                                   | 110,137                                       |      
|Issued 907 shares for current directors' fees        |              |                   |                                   | 21,954                                        |      
|Issued 4,055 shares for employee stock purchase plan |              |                   |                                   | 88,722                                        |      
|Issued 1,689 shares for directors' variable fee plan |              |                   |                                   | 39,996                                        |      
|Amortization of long term incentive plan             |              |                   |                                   | --                                            |      
|Comprehensive income:                                |              |                  
|Net income                                           |              |                   |                                   | --                                            |      
|Changes in unrealized gain on securities             |              |                  
|available for sale, net of tax                       |              |                   |                                   | --                                            |      
|                                                     |              |                   |                                   |                                               |      
|Total comprehensive income                           |              |                   |                                   | 5,521,475                                     |      
|Cash dividends ($0.68 per share)                     |              |                   |                                   | --                                            |      
|                                                     |              |                   |                                   |                                               |      
|Balances at December 31, 2003                        |              |                   | $                                 | 5,725,898                                     |      
|                                                     |              |                   |                                   |                                               |      

See accompanying notes to
consolidated financial statements.

5

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Consolidated Statements
of Cash Flows

Years ended December
31, 2003, 2002, and 2001

|                                               | 2003 | 2002 | 2001
|---------------------------------------------- | ---- | ---- | ----
|                                               |      |      |     
|Cash flows from operating activities:          |      |      |     
|Net income                                     |      |      | $   
|Adjustments to reconcile net income to         |      |     
|net cash provided by operating activities:     |      |     
|Provision for loan losses                      |      |      |     
|Depreciation and amortization                  |      |      |     
|Deferred Federal income tax benefit            |      |      |     
|Net amortization on investment securities      |      |      |     
|Earned portion of long term incentive plan     |      |      |     
|Loss on disposal of equipment                  |      |      |     
|Gain on sale/call of investments               |      |      |     
|Gain on sale of other real estate owned        |      |      |     
|Gain on sale of loans                          |      |      |     
|Proceeds from sale of loans                    |      |      |     
|Origination of loans held for sale             |      |      |     
|Proceeds from sale of other real estate        |      |      |     
|(Increase) decrease in accrued interest        |      |     
|income and other assets                        |      |      |     
|Increase (decrease) in accrued interest,       |      |     
|taxes, and other liabilities                   |      |      |     
|                                               |      |      |     
|Net cash provided by operating                 |      |     
|activities                                     |      |      |     
|                                               |      |      |     
|Cash flows from investing activities:          |      |     
|Purchases of available-for-sale securities     |      |      |     
|Proceeds from sales of available-for-sale      |      |     
|securities                                     |      |      |     
|Proceeds from maturities of available-for-sale |      |     
|securities                                     |      |      |     
|Repayments from mortgage-backed securities     |      |     
|available for sale                             |      |      |     
|Purchases of held-to-maturity securities       |      |      |     
|Proceeds from maturities and calls of held-to- |      |     
|maturity securities                            |      |      |     
|Repayments from mortgage-backed securities     |      |     
|held to maturity                               |      |      |     
|Purchases of certificates of deposit           |      |      |     
|Maturity of certificates of deposit            |      |      |     
|Purchase of FHLBI stock                        |      |      |     
|Purchase of loans                              |      |      |     
|Net increase in loans                          |      |      |     
|Capital expenditures                           |      |      |     
|                                               |      |      |     
|Net cash used in investing activities          |      |      |     
|                                               |      |      |     

6

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Consolidated Statements
of Cash Flows

Years ended December
31, 2003, 2002, and 2001

|                                               | 2003 | 2002 | 2001
|---------------------------------------------- | ---- | ---- | ----
|                                               |      |      |     
|Cash flows from financing activities:          |      |      |     
|Net increase in deposits                       |      |      | $   
|Increase in brokered certificates of deposit   |      |      |     
|Payments on other borrowings                   |      |      |     
|Dividends paid                                 |      |      |     
|Shares issued for employee stock purchase      |      |     
|plan and directors' compensation               |      |      |     
|                                               |      |      |     
|Net cash provided by financing                 |      |     
|activities                                     |      |      |     
|                                               |      |      |     
|Net decrease in cash and                       |      |     
|cash equivalents                               |      |      |     
|                                              
|Cash and cash equivalents at beginning of year |      |      |     
|                                               |      |      |     
|Cash and cash equivalents at end of year       |      |      | $   
|                                               |      |      |     
|Supplemental disclosures:                      |      |     
|Interest paid                                  |      |      | $   
|Federal income taxes paid                      |      |      |     
|Supplemental schedule of noncash investing     |      |     
|and financing activities:                      |      |     
|Loans transferred to other real estate         |      |      |     
|Loans charged off                              |      |      |     

See accompanying notes to
consolidated financial statements.

7

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(1) | Summary
of Significant Accounting Policies
|--- | ------------------------------------------

| | Principles of
Consolidation
| | ---------------------------

| | The
consolidated financial statements include the accounts of FNBH Bancorp, Inc. and its
wholly owned subsidiaries, First National Bank in Howell (including its wholly owned
subsidiary FNBH Mortgage Company LLC) and H.B. Realty Co. All significant intercompany
balances and transactions have been eliminated.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | First
National Bank in Howell (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, collections, travelers checks, night depository, safe deposit box, U.S.
Savings Bonds, and trust services. The Bank serves primarily five communities  Howell,
Brighton, Green Oak Township, Hartland, and Fowlerville  all of which are located
in Livingston County, Michigan. The Bank is not dependent upon any single industry or
business for its banking opportunities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | H.B. Realty
Co. was established on November 26, 1997 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The accounting and reporting policies of FNBH Bancorp,
Inc. and subsidiaries (Corporation) conform to accounting principles generally accepted
in the United States of America and to general practice within the banking industry. The
following is a description of the more significant of these policies.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Cerrtificates
of Deposit
| | --- | ------------------------

| | Brokered
certificates of deposit are purchased periodically from other financial institutions in
denominations of less than $100,000. These investments are fully insured by the FDIC.
Brokered CDs are not marketable, and there is a penalty for early withdrawal.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Investment
and Mortgage-Backed Securities
| | --- | -----------------------------------------

| | Investment
securities held to maturity are those securities which management has the ability and
positive intent to hold to maturity. Investment securities held to maturity are stated at
cost, adjusted for amortization of premium and accretion of discount.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Investment
securities that fail to meet the ability and positive-intent criteria are accounted for
as securities available for sale and stated at fair value, with unrealized gains and
losses, net of income taxes, reported as a separate component of other comprehensive
income until realized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trading
account securities are carried at fair value. Realized and unrealized gains or losses on
trading securities are included in noninterest income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Gains
or losses on the sale of securities are computed based on the adjusted cost of the
specific security.
| | -----------------------------------------------------------------------------------------------------------

|8 | (Continued)
|- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | Management
reviews for other-than-temporary impairments and records identified impairments, if any,
as a component of noninterest income.
| | -----------------------------------------------------------------------------------------------------------------------------------------

| | (c) | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9 | (Continued)
|- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | 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 noninterest expense.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | (h) | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | Stock-Based
Compensation
| | --- | ------------------------

| | At
December 31, 2003 and 2002, the Bank has two stock-based compensation plans, which
are described more fully in notes 16 and 17.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | (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. The Bank reports comprehensive
income within the statement of stockholders equity. Comprehensive income includes
net income and any changes in equity from nonowner 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.
| | -------------------------------------------------------------------------------------------------------------------------

| | (m) | Stock
Split
| | --- | -----------

| | The
Corporation issued a 2-for-1 stock split, payable as a dividend of one share for each
share of its stock held of record July 1, 2002 paid July 10, 2002. The 2-for-1
split has been retroactively applied to all share and per-share information for 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (o) | Reclassification
| | --- | ----------------

| | Certain
reclassifications of 2002 and 2001 information have been made to conform to the current
year presentation.
| | ------------------------------------------------------------------------------------------------------------------

|(2) | Certificates
of Deposit
|--- | -----------------------

| | At
December 31, 2003, the scheduled maturities of brokered certificates were:
| | -----------------------------------------------------------------------------

|                 | 
|---------------- | 
|Maturing in 2004 | 
|                 | 
|                 | 
|                 | 

|11 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(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, 2003 follows:
| | -------------------------------------------------------------------------------------------------------------------------------------

|                           | Held to maturity | Available for sale
|-------------------------- | ---------------- | ------------------
|
|                           |                  |                   
|U.S. Treasury and agency   |                  |                   
|securities          $      |                  |                   
|Obligations of state and   |                  |                   
|political subdivisions     |                  |                   
|Corporate bonds            |                  |                   
|                           |                  |                   
|                           |                  |                   
|Mortgage-backed securities |                  |                   
|                           |                  |                   
|                           |                  |                   
|                           |                  |                   

| | A
summary of unrealized gains and losses on investment and mortgage-backed securities at
December 31, 2003 follows:
| | -------------------------------------------------------------------------------------------------------------------

|                           | Held to maturity | Available for sale
|-------------------------- | ---------------- | ------------------
|
|                           |                  |                   
|U.S. Treasury and agency   |                  |                   
|securities       $         |                  |                   
|Obligations of state and   |                  |                   
|political subdivisions     |                  |                   
|Corporate bonds            |                  |                   
|Mortgage-backed securities |                  |                   
|                           |                  |                   
|                           |                  |                   
|                           |                  |                   

| | As
of and for the year ended December 31, 2003, the Corporation had no
other-than-temporary impairments. The securities held by the Corporation at December 31,
2003 with unrealized losses were all collateralized by the U.S. Government and its
agencies. The unrealized loss has existed for less than 12 months and is caused by market
interest rate movements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | The
amortized cost and approximate fair value of investment and mortgage-backed securities at
December 31, 2003, 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
|---------------------------- | ---------------- | ------------------
|
|                             |                  |                   
|Due in one year or less      |                  |                   
|Due after one year through   |                  |                   
|five years                   |                  |                   
|Due after five years through |                  |                   
|ten years                    |                  |                   
|                             |                  |                   
|                             |                  |                   
|Mortgage-backed securities   |                  |                   
|                             |                  |                   
|                             |                  |                   
|                             |                  |                   

| | A
summary of the amortized cost and approximate fair value of investment and
mortgage-backed securities at December 31, 2002 follows:
| | -------------------------------------------------------------------------------------------------------------------------------------

|                           | Held to maturity | Available for sale
|-------------------------- | ---------------- | ------------------
|
|                           |                  |                   
|U.S. Treasury and agency   |                  |                   
|securities          $      |                  |                   
|Obligations of state and   |                  |                   
|political subdivisions     |                  |                   
|Corporate bonds            |                  |                   
|                           |                  |                   
|                           |                  |                   
|Mortgage-backed securities |                  |                   
|                           |                  |                   
|                           |                  |                   
|                           |                  |                   

|13 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | A
summary of unrealized gains and losses on investment and mortgage-backed securities at
December 31, 2002 follows:
| | -------------------------------------------------------------------------------------------------------------------

|                           | Held to maturity | Available for sale
|-------------------------- | ---------------- | ------------------
|
|                           |                  |                   
|U.S. Treasury and agency   |                  |                   
|securities                 |                  |                   
|Obligations of state and   |                  |                   
|political subdivisions     |                  |                   
|Corporate bonds            |                  |                   
|Mortgage-backed securities |                  |                   
|                           |                  |                   
|                           |                  |                   
|                           |                  |                   

| | The
amortized cost and approximate fair value of investment and mortgage-backed securities at
December 31, 2002, 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
|---------------------------- | ---------------- | ------------------
|
|                             |                  |                   
|Due in one year or less      |                  |                   
|Due after one year through   |                  |                   
|five years                   |                  |                   
|Due after five years through |                  |                   
|ten years                    |                  |                   
|                             |                  |                   
|                             |                  |                   
|Mortgage-backed securities   |                  |                   
|                             |                  |                   
|                             |                  |                   
|                             |                  |                   

| | Proceeds
on sale/calls of available-for-sale securities totaled approximately $3,500,000,
$7,789,000, and $0 during 2003, 2002, and 2001, respectively; gross realized gains of
$4,587, $38,000, and $0 and gross realized losses of $764, $6,000, and $0 were recorded
as a result of sales of available-for-sale securities during 2003, 2002, and 2001.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | 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, 2003 and 2002 are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  | 2003 | 2002
|----------------- | ---- | ----
|
|                  |      |     
|State of Michigan |      |     

| | Investment
securities, with an amortized cost of approximately $1,848,000 at December 31, 2003
and $1,803,000 at December 31, 2002, were pledged to secure public deposits and for
other purposes as required or permitted by law.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Bank owns stock in both the Federal Home Loan Bank of Indianapolis (FHLBI) and the
Federal Reserve Bank (FRB). The Bank is required to hold stock in the FHLBI equal to 5%
of the institutions borrowing capacity with the FHLBI. The Banks investment
in FHLBI stock amounted to $1,038,500 and $1,000,000 as of December 31, 2003 and
2002, respectively. The Banks investment in FRB stock, which totaled $44,250 at
December 31, 2003 and 2002, respectively, is a requirement for the Banks
membership in the Federal Reserve System.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Loans
|--- | -----

| | Loans
on nonaccrual amounted to $4,292,889, $3,288,000, and $2,636,000, at December 31,
2003, 2002, and 2001, respectively. If these loans had continued to accrue interest in
accordance with their original terms, approximately $320,000, $181,000, and $220,000 of
interest income would have been recognized in 2003, 2002, and 2001, respectively. The
Bank had no troubled-debt restructured loans at December 31, 2003 and 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                             | 90 days past due
and still accruing | Nonaccrual
|---------------------------- | ----------------------------------- | ----------
|
|                             |                                     |           
|Commercial and mortgage      |                                     |           
|loans secured by real estate |                                     |           
|Consumer loans               |                                     |           
|Commercial and other loans   |                                     |           
|                             |                                     |           
|                             |                                     |           
|                             |                                     |           

| | Impaired
loans totaled $9.6 million, $9.3 million, and $8.7 million at December 31,
2003, 2002, and 2001, respectively. Specific reserves relating to these loans were $1.6 million,
$2.0 million, and $1.6 million at December 31, 2003, 2002, and 2001,
respectively. These reserves were calculated in accordance with SFAS No. 114.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | Cash
receipts received and recognized as income on impaired loans approximated $308,000,
$409,000, and $550,000 for the years ended December 31, 2003, 2002, and 2001,
respectively. Average impaired loans for the years ended December 31, 2003, 2002,
and 2001 were approximately $9.6 million, $8.8 million, and $6.8 million,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
serviced for others were approximately $59.4 million, $64.5 million, and $58.3 million
at December 31, 2003, 2002, and 2001, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Bank capitalized $140,000, $171,000, and $92,000 in mortgage servicing rights and
incurred approximately $94,000, $70,000, and $52,000 in related amortization expense
during 2003, 2002, and 2001, respectively. At December 31, 2003 and 2002, these
mortgage servicing rights had a gross book value of $380,000 and $335,000 and fair value
of approximately $375,000 and $350,000, respectively. The weighted average amortization
period for mortgage servicing rights capitalized in 2003 is approximately 10 years.
Mortgage loans with mortgage servicing rights capitalized totaled approximately $43.2 million
at December 31, 2003 and $43.7 million at December 31, 2002. The valuation
allowance for capitalized mortgage servicing rights was $137,000 at December 31,
2003, and no valuation allowance was considered necessary as of December 31, 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Estimated
aggregate amortization expense relating to the Banks mortgage servicing rights as
of December 31, 2003 is as follows:
| | --------------------------------------------------------------------------------------------------------------------------------

|Year                |  |  |   |         | 
|------------------- |  |  | - | ------- | 
|2004                |  |  | $ | 90,000  | 
|2005                |  |  |   | 72,000  | 
|2006                |  |  |   | 56,000  | 
|2007                |  |  |   | 46,000  | 
|2008                |  |  |   | 38,000  | 
|2009 and thereafter |  |  |   | 78,000  | 
|                    |  | 
|                    |  |  | $ | 380,000 | 
|                    |  | 

| | Included
in real estate loans at December 31, 2003 and 2002 were approximately $0 and
$728,000, respectively, of fixed-rate mortgage loans held for sale. The Bank enters into
forward commitments to sell these loans into the secondary market prior to origination.
Additionally, the Bank had 45-day forward commitments to sell mortgages as of December 31,
2003, which had not yet been funded. These commitments approximated $200,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(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, 2003, 2002, and 2001:
| | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2002                           
| |  | ---- | -------------------------------
| |  |      |                                
| |  |      | Balance at beginning of year   
| |  |      | Provision charged to operations
| |  |      | Loans charged off              
| |  |      | Recoveries of loans charged off
| |  |      |                                
| |  |      | Balance at end of year         
| |  |      |                                

|(6) | Bank
Premises and Equipment
|--- | ---------------------------

| | A
summary of bank premises and equipment, and related accumulated depreciation and
amortization, at December 31, 2003 and 2002 follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2002                                          
| |  | ---- | ----------------------------------------------
| |  |      |                                               
| |  |      | Land and land improvements                    
| |  |      | Bank premises                                 
| |  |      | Furniture and equipment                       
| |  |      |                                               
| |  |      |                                               
| |  |      | Less accumulated depreciation and amortization
| |  |      |                                               
| |  |      |                                               
| |  |      |                                               

|(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 $130,000,
$0, and $0, during 2003, 2002, and 2001, respectively, to provide for estimated disposal
costs and/or decline in estimated market value. This charge was included as a component
of noninterest expense.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Other
Real Estate Owned
|--- | -----------------------

| | At
December 31, 2003, the Bank owned two foreclosed properties with a lower of cost or
market value of $65,000. Costs to maintain the properties are included as a component of
noninterest expense. A gain or loss will be recognized upon the sale of the properties,
which will be included as a component of noninterest income or expense.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | In
February 2002, the Bank foreclosed on real estate containing partially completed
condominiums, which the Bank held as collateral for a $1.4 million commercial loan.
At the time of foreclosure, approximately $100,000 was charged off against the allowance
for loan losses to bring the property to its estimated fair market value less estimated
disposal costs. During 2003 and 2002, the collateral was completely sold, and a gain of
$23,000 was included as a component of noninterest income in 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Time
Certificates of Deposit
|--- | ----------------------------

| | At
December 31, 2003, the scheduled maturities of time deposits with a remaining term
of more than one year were:
| | -----------------------------------------------------------------------------------------------------------------

|                    | 
|------------------- | 
|
|Year of maturity:   | 
|2005                | 
|2006                | 
|2007                | 
|2008                | 
|2009 and thereafter | 
|                    | 
|                    | 
|                    | 

| | Included
in time deposits are certificates of deposit in amounts of $100,000 or more. These
certificates and their remaining maturities at December 31, 2003, 2002, and 2001 are
as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2002                      | 2001
| |  | ---- | ------------------------- | ----
| |  |      |                           |     
| |  |      | Three months or less      |     
| |  |      | Three through six months  |     
| |  |      | Six through twelve months |     
| |  |      | Over twelve months        |     
| |  |      |                           |     
| |  |      |                           |     
| |  |      |                           |     

| | Interest
expense attributable to the above deposits amounted to approximately $1,472,000,
$1,436,000, and $2,209,000 in 2003, 2002, and 2001, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|18 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(10) | Other
Borrowings
|---- | ----------------

| | The
Bank has a borrowing capacity of approximately $32,100,000 with the FHLBI and had
advances outstanding of approximately $5,328,000 and $5,569,000 at December 31, 2003
and 2002, respectively. Variable- or fixed-rate advances are available with terms ranging
from one day to 10 years. An outstanding advance requires 125% collateral coverage by
one-to-four family whole-mortgage loans. A summary of outstanding advances at December 31,
2003 follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Maturity | Weightedaverageinterest rate | Amount         
| | -------- | ---------------------------- | ---------------
| |          |                              |                
| |          |                              | Fixed rate:    
| |          |                              | Within one year
| |          |                              | Two years      
| |          |                              | Three years    
| |          |                              | Four years     
| |          |                              | Five years     
| |          |                              | Thereafter     
| |          |                              |                
| |          |                              |                
| |          |                              |                

|(11) | Deferred
Gain on the Sale of Real Estate
|---- | ----------------------------------------

| | In
December 2003, the Bank sold a piece of real estate previously classified as
facilities held for sale on the balance sheet and provided financing to the buyer. In
accordance with SFAS No. 66, Accounting for Sales of Real Estate, the Bank deferred the
gain of $299,000 on the sale under the installment method. This liability is included in
other liabilities as of December 31, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Federal
Income Taxes
|---- | --------------------

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

| |  | 2003 | 2002     | 2001
| |  | ---- | -------- | ----
| |  |      |          |     
| |  |      | Current  |     
| |  |      | Deferred |     
| |  |      |          |     
| |  |      |          |     
| |  |      |          |     

|19 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | 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:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2003 | 2002                                        | 2001
| |  | ---- | ------------------------------------------- | ----
| |  |      |                                             |     
| |  |      | Computed "expected" tax expense             |     
| |  |      | Increase (reduction) in tax resulting from: |     
| |  |      | Tax-exempt interest and dividends, net      |     
| |  |      | Other, net                                  |     
| |  |      |                                             |     
| |  |      |                                             |     
| |  |      |                                             |     

| | The
tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2003 and 2002 are
presented below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                  | 2003 | 2002
| | ------------------------------------------------ | ---- | ----
| |                                                  |      |     
| | Deferred tax assets:                             |      |     
| | Allowance for loan losses                        |      |     
| | Other                                            |      |     
| |                                                  |      |     
| | Total gross deferred tax assets                  |      |     
| | Deferred tax liabilities:                        |      |     
| | Deferred loan fees                               |      |     
| | Unrealized gain on securities available for sale |      |     
| | Other                                            |      |     
| |                                                  |      |     
| | Total gross deferred tax liabilities             |      |     
| |                                                  |      |     
| | Net deferred tax asset                           |      |     
| |                                                  |      |     

| | The
deferred tax assets are subject to certain asset realization tests. Management believes
no valuation allowance is required at December 31, 2003, due to the combination of
potential recovery of tax previously paid and the reversal of certain deductible
temporary differences.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Related
Party Transactions
|---- | --------------------------

| | Certain
directors and executive officers, including their immediate families and companies in
which they are principal owners, were loan customers of the Bank during 2003 and 2002.
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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

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

| |                               | 2003 | 2002
| | ----------------------------- | ---- | ----
| |                               |      |     
| | Balance at beginning of year  |      |     
|
| | New loans and related parties |      |     
| | Loan repayments               |      |     
| |                               |      |     
| | Balance at end of year        |      |     
| |                               |      |     

|(14) | 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, 2003 are as
follows:
| | ---------------------------------------------------------------------------------------------------

|                         | 
|------------------------ | 
|
|Year ending December 31: | 
|2004                     | 
|2005                     | 
|2006                     | 
|2007                     | 
|                         | 
|                         | 
|                         | 

| | Rental
expense charged to operations in 2003, 2002, and 2001 amounted to approximately $60,000,
$47,000, and $40,000, respectively, including amounts paid under short-term, cancelable
leases.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | 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 2003, 2002, and 2001 was
approximately $344,000, $247,000, and $302,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Long
Term Incentive Plan
|---- | ------------------------

| | The
Corporation maintains a Long Term Incentive Plan under which stock options and restricted
stock may be granted to employees. To date, no stock options have been granted under the
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. Compensation costs related to restricted stock
awards included in salary expense in 2003, 2002, and 2001 amounted to $134,767, $93,660,
and $70,793, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(17) | Directors Stock
Fee Plan
|---- | -------------------------

| | Each
director of the Corporation who is not an officer or employee of any subsidiary of the
Corporation is eligible to participate in the Compensation Plan for Nonemployee
Directors. The plan fees consist of both a fixed and variable component. The fixed
component equals the per-meeting fee paid for attendance at board meetings of both the
Bank and the Corporation and any committees of their respective boards. The variable
component of the plan, which was added in 2002, is equal to the total fixed fees paid to
a specific director for services performed the preceding calendar year, multiplied by the
percentage of base compensation payable to officers of the Bank for the preceding
calendar year under the Banks Profit Sharing Plan. Expenses related to both fixed
and variable fees are recorded as noninterest expense in the year incurred regardless of
payment method. Compensation costs related to both fixed and variable stock directors fees
included in noninterest expense in 2003, 2002, and 2001 amounted to $80,584, $101,667,
and $59,817, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fixed
directors fees may be paid in cash, to a current stock purchase account, to a
deferred cash investment account, or to a deferred stock account according to each
eligible directors payment election. Current stock is issued quarterly based on the
fair market value of the stock for the preceding quarter. When deferred stock is elected,
payments are credited to a deferred stock account for each participating director, and
stock units are computed quarterly based on the fair market value of the stock for the
preceding quarter. When dividends are declared, they are computed based on the stock
units available in each directors deferred account and are reinvested in stock
units. The units will be converted to shares and will be issued to participating
directors upon retirement. As of December 31, 2003, there were approximately 14,300
shares earned and available for distribution in the fixed-fee deferred stock accounts.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Variable
directors fees may be paid to a current stock purchase account or to a deferred
stock account. Current stock is issued based on the average fair market value of the
stock for the preceding quarter. Deferred stock units are computed for directors electing
to use a deferred stock account, and dividends were reinvested throughout the year as
declared. As of December 31, 2003, there were approximately 2,300 shares earned and
available for distribution in the variable-fee deferred stock accounts.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | 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 for each share of
stock is 85% of fair market value of a share of stock on the purchase date.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(19) | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | Financial
instruments whose contract amounts represent credit risk at December 31, 2003 and
2002 are as follows:
| | ----------------------------------------------------------------------------------------------------------------

| |                          | 2003 | 2002
| | ------------------------ | ---- | ----
| |                          |      |     
| | Consumer                 |      |     
| | Commercial construction  |      |     
| | Commercial               |      |     
| |                          |      |     
| | Total credit commitments |      |     
| |                          |      |     

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2003 and 2002, the Bank has outstanding irrevocable standby letters
of credit, which carry a maximum potential commitment of approximately $2,551,000 and
$3,077,000, respectively. These letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party. The majority of
these letters of credit are short-term guarantees of one year or less, although some have
maturities which extend as long as two years. 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, 2003 and 2002, where there is collateral, is in excess of the committed
amount. A letter of credit is not recorded on the balance sheet until a customer fails to
perform.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(20) | 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 with regard to 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).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Banks actual capital amounts and ratios are also presented in the following table
as of December 31, 2003 and 2002:
| | ------------------------------------------------------------------------------------------------------------------------

| |                          | Actual | For capital adequacy
purposes | To be well capitalized
under prompt corrective
action provisions
| | ------------------------ | ------ | ----------------------------- | ----------------------------------------------------------------
| |                          |        |                               |                                                                 
| |                          |        |                               |                                                                 
| | As of December 31, 2003: |        |                               |                                                                 
| | Total capital (to risk-  |        |                              
| | weighted assets)         |        |                               | $                                                               
| | Tier 1 capital (to risk- |        |                              
| | weighted assets)         |        |                               |                                                                 
| | Tier 1 capital (to       |        |                              
| | average assets)          |        |                               |                                                                 
| |                          |        |                              
| | As of December 31, 2002: |        |                              
| | Total capital (to risk-  |        |                              
| | weighted assets)         |        |                               |                                                                 
| | Tier 1 capital (to risk- |        |                              
| | weighted assets)         |        |                               |                                                                 
| | Tier 1 capital (to       |        |                              
| | average assets)          |        |                               |                                                                 

|(21) | 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
| | -------------------------------------- | ----------------------
|
| |                                        |                       
| | Basic:                                 |                       
| | Average shares outstanding             |                       
|
| | Net income                             |                       
|
| | Net income applicable to common stock  |                       
|
| | Basic and diluted net income per share |                       

|24 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(22) | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(23) | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certificates
of deposit  The carrying amounts reported in the consolidated balance sheet for
certificates of deposit reasonably approximate those assets fair values.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Investment
and mortgage-backed securities  Fair values for investment and mortgage-backed
securities are based on quoted market prices.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | FHLBI
and FRB stock The carrying amounts reported in the consolidated balance sheet for
FHLBI and FRB stock reasonably approximate those assets fair values.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
 For variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are generally based on carrying values. The fair value of
fixed-rate loans is estimated by discounting future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
borrowings The fair value of other borrowings 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, is estimated to approximate their aggregate book
balance.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|25 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

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

| |                                           | 2003 |  | 2003
| | ----------------------------------------- | ---- |  | ----
| |                                           |     
| |                                           |      |  |     
| | Financial assets:                         |      |  |     
| | Cash and cash equivalents                 |      |  | $   
| | Certificates of deposit                   |      |  |     
| | Investment and mortgage-backed securities |      |  |     
| | FHLBI and FRB stock                       |      |  |     
| | Loans, net                                |      |  |     
| | Accrued interest income                   |      |  |     
| |                                           |      | 
| | Financial liabilities:                    |      | 
| | Deposits:                                 |      | 
| | Demand                                    |      |  |     
| | NOW                                       |      |  |     
| | Savings and money market accounts         |      |  |     
| | Time                                      |      |  |     
| | Brokered certificates                     |      |  |     
| | Other borrowings                          |      |  |     
| | Accrued interest                          |      |  |     

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(24) | 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 $12.1 million was available for dividends on December 31,
2003 without the approval of the OCC.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|26 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(25) | Condensed
Financial Information  Parent Company Only
|---- | -----------------------------------------------------

| | The
condensed balance sheets at December 31, 2003 and 2002, and the condensed statements
of income and cash flows for the years ended December 31, 2003, 2002, and 2001, of
FNBH Bancorp, Inc. follow:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Condensed Balance
Sheets

| |                                            | 2003 | 2002
| | ------------------------------------------ | ---- | ----
| |                                            |      |     
| | Assets:                                    |      |     
| | Cash                                       |      |     
| | Investment in subsidiaries:                |      |     
| | First National Bank in Howell              |      |     
| | H.B. Realty Co.                            |      |     
| | FNBH Mortgage Company, LLC                 |      |     
| | Other assets                               |      |     
| |                                            |      |     
| |                                            |      |     
| |                                            |      |     
| | Liabilities and stockholders' equity:      |      |     
| | Other liabilities                          |      |     
| | Stockholders' equity                       |      |     
| |                                            |      |     
| | Total liabilities and stockholders' equity |      |     
| |                                            |      |     

# Condensed Statements
of Income

| |                                                    | Year ended December 31
| | -------------------------------------------------- | ----------------------
|
| |                                                    |                       
| | Operating income:                                  |                       
| | Dividends from subsidiaries                        |                       
| |                                                    |                       
| | Total operating income                             |                       
| |                                                    |                       
| | Operating expenses:                                |                       
| | Administrative and other expenses                  |                       
| |                                                    |                       
| | Total operating expenses                           |                       
| |                                                    |                       
| | Income before equity in undistributed net income   |                       
| | of subsidiaries                                    |                       
| | Equity in undistributed net income of subsidiaries |                       
| |                                                    |                       
| | Net income                                         |                       
| |                                                    |                       

|27 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

# Condensed Statements
of Cash Flows

| |                                                    | Year ended December 31
| | -------------------------------------------------- | ----------------------
| |                                                   
| |                                                    |                       
| | Net income                                         |                       
| | Adjustments to reconcile net income to             |                       
| | net cash from operating activities:                |                       
| | Decrease (increase) in other assets                |                       
| | Increase in other liabilities                      |                       
| | Change in long term incentive plan                 |                       
| | Equity in undistributed net income of subsidiaries |                       
| |                                                    |                       
| | Total adjustments                                  |                       
| |                                                    |                       
| | Net cash provided by operating activities          |                       
| |                                                    |                       
| | Cash flow from investing activities:               |                       
| | Investments in and advancements to subsidiary, net |                       
| |                                                    |                       
| | Net cash used in investing activities              |                       
| |                                                    |                       
| | Cash flow from financing activities:               |                       
| | Dividends paid                                     |                       
| | Common stock issued                                |                       
| |                                                    |                       
| | Net cash used in financing activities              |                       
| |                                                    |                       
| | Net increase (decrease) in cash                    |                       
|
| | Cash at beginning of year                          |                       
| |                                                    |                       
| | Cash at end of year                                |                       
| |                                                    |                       

|28 | (Continued)
|-- | -----------

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

|(26) | Quarterly
Financial Data  Unaudited
|---- | ------------------------------------

| | The
following table presents summarized quarterly data for each of the two years ended
December 31:
| | ---------------------------------------------------------------------------------------------------

| |                              | Quarters ended in 2003
| | ---------------------------- | ----------------------
| |                              |                       
| |                              |                       
| | Selected operations data:    |                       
| | Interest income              |                       
| | Net interest income          |                       
| | Provision for loan losses    |                       
| | Income before income taxes   |                       
| | Net income                   |                       
| | Basic and diluted net income |                       
| | per share                    |                       
| | Cash dividends per share     |                       

| |                              | Quarters ended in 2002
| | ---------------------------- | ----------------------
| |                              |                       
| |                              |                       
| | Selected operations data:    |                       
| | Interest income              |                       
| | Net interest income          |                       
| | Provision for loan losses    |                       
| | Income before income taxes   |                       
| | Net income                   |                       
| | Basic and diluted net income |                       
| | per share                    |                       
| | Cash dividends per share     |                       

|(27) | Impact
of New Accounting Standards
|---- | ----------------------------------

| | In
April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS No. 145 rescinds FASB Statement No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and FASB Statement No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also
rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers,
and amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions and for
certain lease modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their applicability
under changed conditions. SFAS No. 145 is effective for fiscal years beginning after
May 15, 2002, with early adoption of the provisions related to the rescission of
FASB Statement No. 4 encouraged. Upon adoption, enterprises must reclassify
prior-period items that do not meet the extraordinary-item classification criteria in
Accounting Principles Bulletin (APB) 30. Adoption of this Statement did not have a
significant impact on the Banks results of operations or financial condition.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | In
July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring) (EITF
94-3). The principal difference between SFAS No. 146 and EITF 94-3 relates to their
requirements for recognition of a liability for a cost associated with an exit or
disposal activity. This Statement requires that a liability for a cost associated with an
exit or disposal activity be recognized and measured initially at fair value only when
the liability is incurred. Under EITF 94-3, the liability was recognized at the date of
an entitys commitment to an exit plan. SFAS No. 146 is effective for exit or
disposal activities (including restructuring) that are initiated after December 31,
2002, with early adoption encouraged. Adoption of this Statement did not have a
significant impact on the Banks results of operations or financial condition.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which amends SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 148 amends the disclosure requirements in
SFAS No. 123 for stock-based compensation for annual periods ending after December 15,
2002 and for interim periods beginning after December 15, 2002. These disclosure
requirements apply to all companies, including those that continue to recognize
stock-based compensation under APB Opinion No. 25, Accounting for Stock Issued to
Employees. Effective for financial statements for fiscal years ending after December 15,
2002, SFAS No. 148 also provides three alternative transition methods for companies
that choose to adopt the fair-value measurement provisions of SFAS No. 123. Earlier
application of those transition methods is permitted for entities with a fiscal year
ending prior to December 15, 2002 provided that financial statements for the 2002
fiscal year have not been issued as of December 31, 2002. Adoption of this Statement
did not have a significant impact on the Banks results of operations or financial
condition.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS No. 149 amends FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, to clarify the definition
of a derivative and expand the nature of exemptions from FASB Statement No. 133.
This Statement also clarifies the application of hedge accounting when using certain
instruments and the application of paragraph 13 of FASB Statement No. 133 to
embedded derivative instruments in which the underlying is an interest rate. Finally, the
Statement modifies the cash flow presentation of derivative instruments that contain
financing elements. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003, with early adoption encouraged. Adoption of this Statement did
not have a significant impact on the Banks results of operations or financial
condition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

---



# FNBH BANCORP, INC. AND
SUBSIDIARIES

Notes to Consolidated
Financial Statements

December 31, 2003,
2002, and 2001

| | In
May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. Statement No. 150 applies to three
categories of freestanding financial instruments: mandatorily redeemable instruments,
instruments with repurchase obligations, and instruments with obligations to issue a
variable number of shares. Instruments within the scope of SFAS No. 150 must be
classified as liabilities in the statement of financial position. SFAS No. 150 was
effective for all freestanding financial instruments entered into or modified after May 31,
2003 and was otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. On October 29, 2003, the FASB voted to defer, for an
indefinite period, the application of the guidance in SFAS No. 150 to noncontrolling
interests that are classified as equity in the financial statements of a subsidiary but
would be classified as a liability on the parents financial statements. The
adoption of the sections of this Statement that have not been deferred did not have a
significant impact on the Banks results of operations or financial condition. The
section noted above that has been deferred indefinitely is not expected to have a
significant impact on the Banks financial condition or results of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others (Interpretation), which addresses the disclosure to be made by a guarantor in
its interim and annual financial statements about its obligations under guarantees. The
initial recognition and initial measurement provisions of this Interpretation are
applicable on a prospective basis to guarantees issued or modified after December 31,
2002, regardless of the guarantors fiscal year-end. The guarantor may not revise or
restate its previous accounting for guarantees issued before the date of the
Interpretations initial application to reflect the effect of the recognition and
measurement provisions of the Interpretation. The disclosure requirements in this
Interpretation are effective for financial statements of interim or annual periods ending
after December 15, 2002. Adoption of the measurement requirements of this
Interpretation did not have a significant impact on the Banks results of operations
or financial condition.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31

---



# 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 2003 total assets were $449,818,000 representing a 6.9% increase from the prior
year when assets were $420,686,000. Investment securities increased $10.8 million (24.3%)
to $55,435,000 while gross loans increased $20.1 million (6.1%) to $348,017,000. Deposits
increased $25.0 million (6.7%) to $399,073,000. Stockholders equity increased $3.7
million (9.7%) to $41,235,000.

Securities

During
2003, securities increased as funds made available through the maturity of certificates of
deposit purchased in the prior years of $2,327,000, decreased short term investments of
$2,801,000, and the issuance of brokered certificates of deposit of $5,968,000 in 2003
were used to purchase additional agency securities. At year end the Company had
$16,848,000 in short term investments, a 14.3% decrease from the $19,649,000 reported the
previous year. Although this left the Company quite liquid at year end, approximately
$25,000,000 in deposits came in the last month of the year and approximately $9,000,000
were withdrawn by January 31, 2004.

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

|                                                            | 2003 | 2002
|----------------------------------------------------------- | ---- | ----
|                                                            |      |     
|U.S. Treasury & agency securities                           |      |     
|Agency mortgage backed securities                           |      |     
|Tax exempt obligations of states and political subdivisions |      |     
|Corporate bonds                                             |      |     
|Other                                                       |      |     
|                                                            |      |     
|Total securities                                            |      |     

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 $20,100,000 (6.1%)
in 2003.

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 2003 the Bank sold $23,200,000 in residential mortgages. As the refinancing market
slowed the Bank sold $900,000 less in mortgages in 2003 than in 2002 and expects to have
even fewer sales in 2004.

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 2003 the
Bank made approximately $12,389,000 in variable rate mortgage loans which it retained in
the mortgage portfolio.

32

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The
Bank continued to experience reasonable loan demand throughout 2003. Growth in Livingston
County resulted in a need for financing commercial projects including the development of
residential housing. Commercial loans ended the year at $278,638,000, a 5.9% increase for
the year. Additionally, the Bank originated $2,700,000 in commercial loans which it sold
in part or total to other banks due to legal lending limits. Consumer loans increased
$1,336,000, or about 4.0%, 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. Commercial real estate loans include
$161,908,000 in loans secured by commercial property, with the remaining $3,556,000
secured by multi-family units. The most significant loan growth was in commercial loans
secured by business property which increased $11,744,000, 7.6% compared to the prior year
and in residential first mortgage loans which increased $9,643,000, 25.9% compared to the
prior year. The most significant decrease was in commercial loans not secured by real
estate which decreased $9,329,000, 21.6% compared to the prior year. The shift from
commercial loans not secured by real estate to commercial loans secured by real estate
results from the continued growth of real estate development in Livingston County.

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

|                                           | (dollars in thousands)
|------------------------------------------ | ----------------------
|
|
|                                           |                       
|Secured by real estate:                    |                       
|Residential first mortgage                 |                       
|Residential home equity/other junior liens |                       
|Construction and land development          |                       
|Commercial                                 |                       
|Consumer                                   |                       
|Commercial                                 |                       
|Other, primarily to political subdivisions |                       
|                                           |                       
|Total Loans (Gross)                        |                       

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 to a borrower with aggregate
indebtedness in excess of $500,000 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)
|----------------------------------------------------- | ----------------------
|                                                      |                       
|                                                      |                       
|Nonperforming Loans:                                  |                       
|Nonaccrual loans                                      |                       
|Loans past due 90 days and still accruing             |                       
|                                                      |                       
|Total nonperforming loans                             |                       
|Other real estate                                     |                       
|                                                      |                       
|Total nonperforming assets                            |                       
|                                                      |                       
|                                                      |                       
|Nonperforming loans as a percent of total loans       |                       
|Loan loss reserve as a percent of nonperforming loans |                       

33

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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.

Impaired
 loans  totaled  $9,600,000  at December  31,  2003,  compared to  $9,300,000  at the
prior year end, and $8,700,000  at December 31,  2001.  Included in impaired  loans are
 nonperforming  loans from the above table,  except for homogenous  residential  mortgage
 and  consumer  loans,  and an  additional  $5,500,000  of  commercial  loans  separately
identified as impaired.  Nonperforming  loans are reviewed  regularly for
 collectability.  Any uncollectable  balances are promptly charged off.

During
2003 the Bank charged off loans totaling  $1,283,000 and recovered  $177,000 for a net
charge off amount of $1,106,000.  Charged  off loans  included  $439,000  of charge  offs
on two loans in the  fourth  quarter  of 2003.  In the previous year, the Bank had net
charge offs totaling $499,000 and $425,000 in 2001.

The
 allowance  for loan  losses  totaled  $5,958,000  at year end  which was 1.71% of total
 loans,  compared  to $5,794,000  (1.77%) in 2002,  and  $5,668,000  (1.97%) in 2001. 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,  and an
analysis of the following  environmental  factors:  delinquency trends,  delinquency
levels, loss trends,  concentrations of credit, economic  trends,  loan growth,  and
management  changes.  Management  continues to refine its techniques in this analysis.
Economic  factors  considered in arriving at the loan loss reserve  adequacy as of
December 31, 2003 included low levels of consumer  confidence,  historically  low
 interest  rates,  increased  bankruptcies  and the  unemployment  rate.  When all
environmental  factors were  considered,  management  determined  that the  $1,270,000
 provision and resulting  $5,958,000 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)
|---------------------------------------------- | ----------------------
|                                               |                       
|                                               |                       
|Balance at beginning of the year               |                       
|Additions (deduction):                         |                       
|Loans charged off                              |                       
|Recoveries of loans previously charged off     |                       
|Provision charged to operations                |                       
|                                               |                       
|Balance at end of the year                     |                       
|                                               |                       
|Allowance for loan losses to loans outstanding |                       

Deposits

Deposit
balances of $399,073,000 at December 31, 2003 were approximately $25.0 million (6.7%)
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 8.2% in 2003. Average demand deposits increased $4.5 million (7.3%)
while average savings and NOW balances increased $19.0 million (12.3%). Certificates of
deposit increased $4.8 million (3.7%). Management has generated deposits in 2003 with
various rate specials on selected certificates, a gift giveaway promotion that was started
in 2002 and completed in the first half of 2003, opening of branches, and the issuance of
brokered certificates of deposit. Deposits grew by similar percentages from 2001 to 2002,
with the exception of savings and NOW balances which grew 20% from 2001 to 2002, compared
to 12.3% from 2002 to 2003.

34

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

|                              | (dollars in thousands)
|----------------------------- | ----------------------
|                              |                       
|                              |                       
|Non-interest bearing demand   |                       
|Savings, NOW and money market |                       
|Time deposits                 |                       
|                              |                       
|Total average deposits        |                       

The
growth in savings, NOW and money market deposits was primarily in the money market deposit
account (MMDA) which increased 17.7% on average. This growth is attributable to consumers,
both retail and business consumers, preference for more liquidity in this low rate
environment. Average personal MMDAs increased 6.9% while business accounts decreased 5.3%
on average, and public MMDAs increased 62.5% on average. Average personal MMDA accounts
increased 43%, business accounts 25% and public accounts 18% from 2001 to 2002. Management
does not expect public fund money to continue this growth trend in 2004 due to changes by
the State of Michigan in how and when taxes are collected and disbursed.

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 9 of the
Consolidated Financial Statements for a maturity schedule of over $100,000 certificates.
The Bank does issue brokered certificates of deposit in the market to meet liquidity needs
with alternative funding sources and had an average balance of brokered certificates in
2003 of $1.8 million compared to $1.5 million in 2002.

Capital

The
Companys capital at year end totaled $41,235,000, a $3,656,000 (9.7%) increase
compared to capital of $37,580,000 at December 31, 2002 and $32,404,000 at December 31,
2001; an increase of 16.0%. Included in year end capital is $307,000 which is an
unrealized gain on debt securities available for sale.

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 8.95% at year end
2003. 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
10.47% at year end 2003. 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 11.73% 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:

|                          | 2003 | 2002 | 2001
|------------------------- | ---- | ---- | ----
|                          |      |      |     
|Equity to asset ratio     |      |      |     
|Tier 1 leverage ratio     |      |      |     
|Tier 1 risk-based capital |      |      |     
|Total risk-based capital  |      |      |     

35

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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 2003 the Company paid dividends totaling $2,151,000, or 36.5%
of earnings. Book value of the stock was $13.01 at year end.

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 $1.4 million.
Subsequent to year end, in February 2004, the Company did complete the sale of the
remaining parcels for the carrying value.

Liquidity and Funds
Management

Liquidity
is monitored by the Banks Asset/Liability Management Committee (ALCO) which meets at
least monthly. 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 credit
available from the Federal Home Loan Bank is added to core basic surplus liquidity, the
Bank must have liquidity totaling 5% of assets and when brokered CDs and Federal Funds
(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, 2003, the
Bank had excess liquidity of at least 5.5% 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 Fed Funds position with a correspondent bank and by FHLBI borrowings. The Bank
has a $32,100,000 line of credit available at the FHLBI and the Bank has pledged certain
mortgage loans as collateral for this borrowing. At December 31, 2003, the Company had
$5,300,000 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 averaged approximately $8,900,000. Periodically the
Bank borrowed money through the Fed Funds market and through short term advances from the
Federal Home Loan Bank (FHLB). Fed Funds Purchased balances averaged $39,000 for the year
and FHLB advances averaged $1,300,000 for 2003.

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 18 of the Consolidated Financial Statements).

36

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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, 2003:

|                                       | (dollars in thousands)
|-------------------------------------- | ----------------------
|                                       |                       
|                                       |                       
|Assets:                                |                       
|Loans, net                             |                       
|Securities                             |                       
|Certificates of Deposit                |                       
|Short-term investments                 |                       
|                                       |                       
|Total assets                           |                       
|                                       |                       
|Liabilities & Shareholders' Equity:    |                       
|MMDA, Savings & NOW                    |                       
|Time                                   |                       
|FHLB advances                          |                       
|                                       |                       
|Total liabilities and equity           |                       
|                                       |                       
|Rate sensitivity gap and ratios:       |                       
|Gap for period                         |                       
|Cumulative gap                         |                       
|                                       |                       
|Cumulative rate sensitive ratio        |                       
|December 31, 2002 rate sensitive ratio |                       

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 34% asset sensitive at year end, compared to 43% asset sensitive the
previous year. In the low rate environment of 2003 the following changes have occurred
which impact rate sensitivity. In the loan portfolio 61% of loans mature or reprice in one
year compared to 57% in 2002. Short term investments are 14% lower than last year, the
result of an $11,000,000 growth in securities in 2003. Saving and NOW deposits which are
classified in the 5+ year time frame, increased 10% over the balance reported in 2002.
Money market deposit accounts, which are classified in the 0-3 month time frame, decreased
3% over the 2002 balance. Finally, certificates maturing in one year made up 69% of 2003
year end CD balances compared with 42% the year before. Management believes that those
customers who have elected to keep their balances in certificates have chosen shorter
terms based on the anticipation of an increase in rates.

Because
of the Companys asset sensitive position, if market interest rates decrease, this
positive 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 a 100 basis point decrease in interest rates would reduce net
interest income by approximately 5% in the first year and a 100 basis point increase in
interest rates would increase net interest income by approximately 3% in the first year.

37

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|                        | (dollars in thousands)
|----------------------- | ----------------------
|
|Assets:                 |                       
|Loans,  net             |                       
|Securities              |                       
|Certificates of deposit |                       
|Short-term investments  |                       
|                        |                       
|Liabilities:            |                       
|Savings, NOW, MMDA      |                       
|Time                    |                       
|FHLB advances           |                       

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 short-term
investments. 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 was $5,900,000 in 2003 a $400,000 (6.5%) decrease compared to net income of
$6,304,000 in 2002 an increase of 20.8% from 2001 net income of $5,220,000. The
Companys earnings resulted in a return on average assets (ROA) of 1.39% and a return
on average stockholders equity (ROE) of 14.90%. Basic and diluted net income per
share was $1.86 in 2003 compared with $2.00 in 2002 and $1.66 in 2001. Per share data has
been restated for all years to reflect a two for one stock split payable as a dividend of
one share for each share of company stock held of record July 1, 2002, paid July 10, 2002.

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

|                                             | 2003 | 2002 | 2001
|-------------------------------------------- | ---- | ---- | ----
|                                             |      |      |     
|Net income to:                               |      |      |     
|Average stockholders' equity                 |      |      |     
|Average assets                               |      |      |     
|Basic and diluted earnings per common share: |      |      | $   

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%.

38

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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:

|                              | (dollars in thousands)
|----------------------------- | ----------------------
|
|
|                              |                       
|Interest earning assets:      |                       
|Short term investments        |                       
|Certificates of deposit       |                       
|Taxable securities            |                       
|Tax-exempt securities         |                       
|Loans                         |                       
|                              |                       
|Total earning assets          |                       
|Interest bearing funds:       |                       
|Savings/NOW accounts          |                       
|Time deposits                 |                       
|Short-term borrowings         |                       
|FHLB advances                 |                       
|                              |                       
|Total interest bearing funds: |                       
|                              |                       
|Interest spread               |                       
|Net interest margin           |                       

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 $720,000 in 2003,
$750,000 in 2002, and $790,000 in 2001.

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.

|                           | (dollars in thousands)
|-------------------------- | ----------------------
|
|
|
|Interest Income:           |                       
|Federal funds sold         |                       
|Certificates of deposit    |                       
|Securities:                |                       
|Taxable                    |                       
|Tax Exempt                 |                       
|Loans                      |                       
|                           |                       
|Total interest income      |                       
|                           |                       
|Interest Expense:          |                       
|Interest bearing deposits: |                       
|Savings/NOW accounts       |                       
|Time                       |                       
|Short-term borrowings      |                       
|FHLB advance               |                       
|                           |                       
|Total interest expense     |                       
|                           |                       
|Net interest income (FTE)  |                       

39

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Tax
equivalent net interest income increased $948,000 in 2003. The increase was the result of
a $1,850,000 decrease in interest expense partially offset by a $902,000 decrease in
interest income. The decrease in interest income is attributable to a decrease of 69 basis
points in the interest rate earned on assets while average earning assets increased
$26,600,000 during the year. Tax equivalent loan interest income was $392,000 less in 2003
than the previous year. The decrease was due to a decrease of 76 basis points in the rate
of interest earned on loans although average balances increased $29,300,000 in 2003. Loan
growth was fueled by general growth in Livingston County which created a demand for
consumer and commercial building projects. The low interest rate environment enabled new
borrowers to enter the housing market.

Income
on taxable securities decreased $409,000 in 2003 due to a $5,300,000 decrease in average
balances and a declined of 55 basis points in yield. With loan growth outpacing deposit
growth in 2003 and 2002, (excluding brokered certificates of deposit), there were limited
funds available for investment securities. Instead, funds were put to work in the higher
yielding loan portfolio. Tax equivalent income on tax-exempt bonds decreased $78,000 in
2003. The average balance of these securities decreased $1,300,000 while the rate
decreased 6 basis points. The decrease in balances with the subsequent decrease in yields
was the result of the maturity/ and or calls of bonds that were purchased at slightly
higher interest rates than that of the average portfolio. Interest income on short term
investments decreased $46,000 due to an increase in average balances of $6,100,000 offset
by a decline in interest rates of 56 basis points. The full impact of the falling short
term rates in the fourth quarter of 2002 was felt in 2003, as well as an additional 25
basis point drop in the second quarter of 2003. The average balance of purchased brokered
certificates decreased $2,300,000 while the interest yield increased 20 basis points,
primarily the result of the certificates purchased in 2001 and 2002 maturing in 2003.
Interest income on brokered certificates decreased $69,000

Interest
expense decreased $1,850,000 in 2003 because interest rates decreased 72 basis points
although average balances increased approximately $16,400,000. The interest cost for
savings and NOW accounts decreased $818,000 because the interest rate paid declined 64
basis points although average balances increased $19,000,000. Interest on time deposits
decreased $865,000 because average time deposits increased $4,800,000 while interest rates
decreased 77 basis points. Growth in savings and NOW deposits appears to be a preference
for liquidity on the part of depositors as they stayed away from certificates of deposit.
Fed Funds and short-term advances from the FHLB were not utilized in 2003 to the extent
they were needed in 2002; therefore the average balance in short-term borrowings decreased
$7,100,000 in 2003 and interest yield also decreased by 62 basis points. As a result, the
Company incurred $150,000 less of interest expense in 2003 compared to 2002 on these
borrowings. 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 $2,329,000
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 7.34%.

In
the previous year, net interest income had increased $1,480,000. The increase in net
interest income was the result of a decrease in interest income of $1,364,000 offset by a
decrease in interest expense of approximately $2,844,000. The decrease in interest income
in 2002 was the result of a $37,900,000 increase in earning assets while interest earned
on these balances declined 121 basis points during the year. The decrease in interest
expense was the result of average balances growing $33,100,000 although interest rates
decreased 141 basis points.

40

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In
the coming year, management expects growth to continue in both loans and deposits although
at a slower pace. Lack of an economic growth could, however, adversely affect loan and
deposit growth. The decline in the net interest margin is expected to stabilize as the
outlook for future rate cuts is minimal but the effect of last years rate drop will
continue to playout through 2004 adding pressure until interest rates begin to increase.

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

|                                        | 2003 | 2002 | 2001
|--------------------------------------- | ---- | ---- | ----
|                                        |      |      |     
|As a percent of average earning assets: |      |      |     
|Loans                                   |      |      |     
|Securities                              |      |      |     
|Certificates of Deposit                 |      |      |     
|Short term investments                  |      |      |     
|                                        |      |      |     
|Average earning assets                  |      |      |     
|                                       
|Savings and NOW                         |      |      |     
|Time deposits                           |      |      |     
|Short-term borrowing                    |      |      |     
|FHLB advances                           |      |      |     
|                                        |      |      |     
|Average interest bearing liabilities    |      |      |     
|                                       
|Earning asset ratio                     |      |      |     
|Free-funds ratio                        |      |      |     

Provision for Loan
Losses

The
provision for loan losses increased to $1,270,000 in 2003 compared to $625,000 in 2002 and
$900,000 in 2001. At year end the ratio of allowance for loan loss to loans was 1.72%,
compared to 1.77% in 2002 and 1.97% in 2001. The slight decrease in 2003 was deemed
appropriate considering the allowance adequacy analysis which showed that the balance in
the loan loss reserve was adequate to cover anticipated losses.

Noninterest 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 $254,000 (7.0%) in 2003 compared to 2002 and increased $501,000 (16.1%) in
2002 compared to 2001. Service charge income increased to $3,136,000 (5.5%) in 2003 and to
$2,974,000 (12.5%) in 2002, primarily due to growth in deposits and loans. Trust fees
increased $85,000 in 2003 and $26,000 in 2002. The addition of a second trust officer in
2002 helped increase trust assets through the addition of new accounts and a general
increase in the market value of trust assets. Trust income included non-recurring income
of approximately $42,000 that was recognized in 2003. The $374,000 gain realized on the
sale of real estate mortgage loans was $42,000 lower than the gains recognized in 2002,
which were $187,000 higher than the gains recognized in 2001. Sales volume was down
approximately $900,000 as mortgage rates began to rise in the latter part of 2003 and
refinancing activity decreased. Sales volume in 2002 was approximately $10,000,000 higher
than 2001. Management expects the volume of loans sold and the corresponding gain on sold
loans to continue to decline in 2004 as a result of lower refinancing activity. There were
no security sales in 2003; only a call which resulted in a small gain of $4,000. From time
to time securities were sold in 2002 to improve the Companys liquidity position.
Included in noninterest income were gains totaling $37,000 related to those sales.

41

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Noninterest Expense

Non-interest
expense totaled $12,800,000 in 2003, a 9.1% increase over expenses of $11,800,000 in 2002,
a 6.5% increase over expenses of $11,061,000 in 2001. The most significant component of
non-interest expense was salaries and benefits expense. In 2003, salaries and benefits
expense increased 9.4% to $7,000,000, due to salary increases, new positions and increased
benefit costs, primarily health care and pension. In 2002, salaries and benefits expense
increased 8.2% to $6,445,000 due to the combined effects of salary increases, increased
cost of medical insurance, and an increase in the employee profit sharing expense.
Occupancy expense increased $67,000 (7.5%) primarily due to the costs of an operations
center opened in January 2003 and a new branch opened in December 2003. In 2002, occupancy
expense increased 14.7% to $891,000 the result of costs associated with a branch opened in
2002, expansion of a grocery store branch and costs associated with snow removal.
Equipment expense also increased $142,000 (16.4%) in 2003 over 2002. The increase is
attributable to higher equipment maintenance costs and increased software amortization
charges. In 2002, equipment expense increased 4.3% to $866,000 the result of equipping the
new branch. Printing and supplies decreased $51,000 (15.7%) as efficiencies from imaging
and other process improvements took full effect in 2003. In 2002, printing and supplies
increased 27.9% to $327,000 the result of the new branch opening and converting to an
imaging system. Advertising expense also decreased $44,000 (12.6%) in 2003 due to fewer
loan and deposit marketing campaigns. In 2002, advertising expense increased 39.8% to
$349,000 due to efforts to generate deposit growth. Other expense increased $391,000
(24.1%) partially due to a $130,000 write down of the Challis road property held for sale
and increased loan and collection expenses in 2003. In 2002, other expenses were virtually
unchanged from 2001. As a result of the aforementioned new branch that opened late in
2003, management expects higher noninterest expenses in 2004, which will include increased
salaries, marketing initiatives, occupancy, and furniture and equipment costs.

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 decreased $74,000 to
$2,554,000 (2.8%) in 2003 and increased $455,000 to $2,629,000 (21.0%) in 2002. Although
income tax expense decreased, the rate remained increased slightly to 30% from 29% in
2002. For further information see Note 12 Federal Income Taxes in the
Companys Consolidated Financial Statements.

Critical Accounting
Policies

Our
accounting and reporting policies are in accordance with accounting principles generally
accepted within the United States of America and conform to general practices within the
banking industry. Accounting and reporting policies for the allowance for loan losses is
deemed critical since it involves the use of estimates and requires significant management
judgments. Application of assumptions different from those that we have used could result
in material changes in our financial position or results of operations.

Our
methodology for determining the allowance and related provision for loan losses is
described above in Financial Condition  Loans. In particular, this area
of accounting requires a significant amount of judgment because a multitude of factors can
influence the ultimate collection of a loan or other type of credit. It is extremely
difficult to precisely measure the amount of losses that may be inherent in our loan
portfolio. We attempt to accurately quantify the necessary allowance and related provision
for loan losses, but there can be no assurance that our modeling process will successfully
identify all of the losses inherent in our loan portfolio. As a result, we could record
future provisions for loan losses that may be significantly different from the levels that
we have recorded.

Impact of New
Accounting Standards

See
Note 27 Impact of New Accounting Standards in the Companys Consolidated
Financial Statements for discussion of new accounting standards and their impact.

42

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

|                          | 2003 | 2002 | 2001 | 2000      | 1999
|------------------------- | ---- | ---- | ---- | --------- | ----
|                          |      |      |      |           |     
|Income Statement Data:    |      |      |      |           |     
|Interest income           |      |      | $    | 24,856    |     
|Interest expense          |      |      |      | 6,166     |     
|Net interest income       |      |      |      | 18,689    |     
|Provision for loan losses |      |      |      | 1,270     |     
|Non-interest income       |      |      |      | 3,874     |     
|Non-interest expense      |      |      |      | 12,848    |     
|Income before tax         |      |      |      | 8,445     |     
|Net income                |      |      |      | 5,891     |     
|Basic Per Share Data(1):  |      |     
|Net income                |      |      | $    | 1.86      |     
|Dividends paid            |      |      |      | .68       |     
|Weighted average shares   |      |     
|outstanding               |      |      |      | 3,162,836 |     
|Balance Sheet Data:       |      |     
|Total assets              |      |      |      | 449,818   |     
|Loans, net                |      |      |      | 347,086   |     
|Allowance for loan losses |      |      |      | 5,958     |     
|Deposits                  |      |      |      | 399,073   |     
|Shareholders' equity      |      |      |      | 41,235    |     
|Ratios:                   |      |     
|Dividend payout ratio     |      |      |      | 36.51     | %   
|Equity to asset ratio     |      |      |      | 9.32      | %   

(1)    
          Per share data for all years has been restated to give effect of a two-for-one
          stock split, payable as a dividend of one share for each share of the company
          stock held of record July 1, 2002, paid July 10, 2002.

43

---



# EXHIBIT 21

# SUBSIDIARIES

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

---



# EXHIBIT 31.1

# CERTIFICATE OF THE
CHIEF EXECUTIVE OFFICER OFFNBH BANCORP, INC.

Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I, Barbara Draper,
certify that:

|1. | I
have reviewed this annual report on Form 10-K of FNBH Bancorp, Inc.;
|-- | ----------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
                    material fact or omit to state a material fact necessary to make the
statements                     made, in light of the circumstances under which such
statements were made, not                     misleading with respect to the period
covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
                    included in this report, fairly present in all material respects the
financial                     condition, results of operations and cash flows of the
registrant as of, and                     for, the periods presented in this report;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officer and I are responsible for
                    establishing and maintaining disclosure controls and procedures (as
defined in                     Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure
that                material information relating to the registrant, including its
consolidated                subsidiaries, is made known to us by others within those
entities, particularly                during the period in which this report is being
prepared;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and
               procedures and presented in this report our conclusions about the
effectiveness                of the disclosure controls and procedures, as of the end of
the period covered                by this report based on such evaluation; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | disclosed
in this report any change in the registrants internal control                over
financial reporting that occurred during the registrants most recent
               fiscal quarter (the registrants fourth fiscal quarter in the case of
an                annual report) that has materially affected, or is reasonably likely to
               materially affect, the registrants internal control over financial
               reporting; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officer and I have disclosed, based on
                    our most recent evaluation of internal control over financial
reporting, to the                     registrants auditors and the audit committee
of the registrants                     board of (or persons performing the
equivalent functions):
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies and material weaknesses in the design or operation
               of internal control over financial reporting which are reasonably likely
to                adversely affect the registrants ability to record, process,
summarize and                report financial information; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls
over                financial reporting.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 12, 2004

/s/ Barbara Draper

Barbara DraperChief
Executive Officer

---



# EXHIBIT 31.2

# CERTIFICATE OF THECHIEF
FINANCIAL OFFICER OFFNBH BANCORP, INC.

Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I, Janice B. Trouba, certify that:

|1. | I
have reviewed this annual report on Form 10-K of FNBH Bancorp, Inc.;
|-- | ----------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
                    material fact or omit to state a material fact necessary to make the
statements                     made, in light of the circumstances under which such
statements were made, not                     misleading with respect to the period
covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
                    included in this report, fairly present in all material respects the
financial                     condition, results of operations and cash flows of the
registrant as of, and                     for, the periods presented in this report;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officer and I are responsible for
                    establishing and maintaining disclosure controls and procedures (as
defined in                     Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures, or caused such disclosure
               controls and procedures to be designed under our supervision, to ensure
that                material information relating to the registrant, including its
consolidated                subsidiaries, is made known to us by others within those
entities, particularly                during the period in which this report is being
prepared;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and
               procedures and presented in this report our conclusions about the
effectiveness                of the disclosure controls and procedures, as of the end of
the period covered                by this report based on such evaluation; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | disclosed
in this report any change in the registrants internal control                over
financial reporting that occurred during the registrants most recent
               fiscal quarter (the registrants fourth fiscal quarter in the case of
an                annual report) that has materially affected, or is reasonably likely to
               materially affect, the registrants internal control over financial
               reporting; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officer and I have disclosed, based on
                    our most recent evaluation of internal control over financial
reporting, to the                     registrants auditors and the audit committee
of the registrants                     board of (or persons performing the
equivalent functions):
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all significant
deficiencies and material weaknesses in the design or operation           of internal
control over financial reporting which are reasonably likely to           adversely
affect the registrants ability to record, process, summarize and           report
financial information; and
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any fraud,
whether or not material, that involves management or other employees           who have a
significant role in the registrants internal controls over           financial
reporting
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 12, 2004

/s/ Janice B. Trouba

Janice B. TroubaChief
Financial Officer

---



# EXHIBIT 32.1

# CERTIFICATE OF THE
CHIEF EXECUTIVE OFFICER OF FNBH BANCORP, INC.

Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I,
Barbara Draper, Chief Executive Officer of FNBH Bancorp, Inc., certify, to the best of my
knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350) that:

(1)       
          The annual report on Form 10-K for the annual period ended December 31, 2003,
          which this statement accompanies, fully complies with requirements of Section
          13(a) or 15(d) of the Securities Exchange Act of 1934 and;

(2)       
          The information contained in this quarterly report on Form 10-K for the annual
          period ended December 31, 2003, fairly presents, in all material respects, the
          financial condition and results of operations of FNBH Bancorp, Inc.

|Date:  March 12, 2004 |  | FNBH BANCORP, INC.By: /s/ Barbara Draper
         Barbara DraperIts:   Chief Executive Officer
|--------------------- |  | ------------------------------------------------------------------------------------------------------------

The signed original of this written
statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version
of this written statement required by Section 906, has been provided to FNBH Bancorp, Inc.
and will be retained by FNBH Bancorp, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.

---



EXHIBIT 32.2

# CERTIFICATE OF THE
CHIEF FINANCIAL OFFICER OF FNBH BANCORP, INC.

Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I,
Janice B. Trouba, Chief Financial Officer of FNBH Bancorp, Inc., certify, to the best of
my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350) that:

(1)       
          The annual report on Form 10-K for the annual period ended December 31, 2003,
          which this statement accompanies, fully complies with requirements of Section
          13(a) or 15(d) of the Securities Exchange Act of 1934 and;

(2)       
          The information contained in this quarterly report on Form 10-K for the annualy
          period ended December 31, 2003, fairly presents, in all material respects, the
          financial condition and results of operations of FNBH Bancorp, Inc.

|Date:  March 12, 2004 |  | FNBH BANCORP, INC.By: /s/ Janice B. Trouba
         Janice B. TroubaIts:   Chief Financial Officer
|--------------------- |  | ----------------------------------------------------------------------------------------------------------------

The signed original of this written
statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version
of this written statement required by Section 906, has been provided to FNBH Bancorp, Inc.
and will be retained by FNBH Bancorp, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request

---