##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 Commission file number 0-25752
 FNBH BANCORP, INC.
  MICHIGAN
    
    38-2869722(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 101 East Grand River, Howell, Michigan 48843
   Common Stock, no par value
 o þ
 o þ
 þ o
 o
 o þ o
 o þ
   Documents Incorporated by Reference:




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##### 



TABLE OF CONTENTS
 PagePART IItem 1   Business
    
    
    1Item 1A  Risk Factors
    
    
    7Item 1B  Unresolved Staff Comments - None
    
    
    9Item 2   Properties
    
    
    9Item 3   Legal Proceedings
    
    
    9Item 4   Submission of Matters to a Vote of Security Holders
    
    
    9PART IIItem 5  Market for Registrants Common Equity, Related to Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    10Item 6   Selected Financial Data
    
    
    11Item 7   Managements Discussion and Analysis of Financial Condition and Result of Operations
    
    
    11Item 7A  Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 8   Financial Statements and Supplementary Data
    
    
    26Item 9   Change in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    52Item 9A  Controls and Procedures
    
    
    52Item 9B  Other Information
    
    
    52PART IIIItem 10  Directors and Executive Officers of the Registrant
    
    
    53Item 11  Executive Compensation
    
    
    53Item 12  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    53Item 13  Certain Relationships and Related Transactions
    
    
    53Item 14  Principal Accountant Fees and Services
    
    
    53PART VIItem 15  Exhibits and Financial Statements Schedules
    
    
    54SIGNATURES
    
    
    55EXHIBIT INDEX
    
    
    56FNBH Bancorp, Inc. Employee Stock Purchase Plan
    
    
    58Subsidiaries of the Registrant
    
    
    62Consent of Independent Auditors
    
    
    63Consent of Independent Auditors
    
    
    64Sec 302 Certification of Chief Executive Officer
    
    
    65Sec 302 Certification of Chief Financial Officer
    
    
    66Sec 906 Certification of Chief Executive Officer
    
    
    67Sec 906 Certification of Chief Financial Officer
    
    
    68FNBH Bancorp, Inc. Employees' Stock Purchase Plan as Amended 1/20/05Subsidiaries of the RegistrantConsent of BDO Seidman, LLPConsent of KPMG, LLPCertification of the Chief Executive Officer pursuant to Section 302Certification of the Chief Financial Officer pursuant to Section 302Certification of the Chief Executive Officer pursuant to Section 906Certification of the Chief Financial Officer pursuant to Section 906




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##### Table of Contents



PART I
 
 Item 1.
    
    Business.
    Bank Services
     1




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Bank Competition
   2




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Growth of Corporation
  Balances as of December 31,(in thousands)2005
    
    2004
    
    2003
    
    2002
    
    2001Total Assets
    
    $
    477,225
    
    
    $
    456,910
    
    
    $
    450,342
    
    
    $
    420,686
    
    
    $
    392,978Loans
    
    
    372,855
    
    
    
    357,377
    
    
    
    347,086
    
    
    
    327,117
    
    
    
    286,280Securitites
    
    
    62,373
    
    
    
    64,348
    
    
    
    55,435
    
    
    
    44,611
    
    
    
    55,989Noninterest-Bearing Deposits
    
    
    71,415
    
    
    
    71,785
    
    
    
    69,234
    
    
    
    62,232
    
    
    
    62,938Interest-Bearing Deposits
    
    
    350,670
    
    
    
    327,478
    
    
    
    329,839
    
    
    
    311,840
    
    
    
    288,731Total Deposits
    
    
    422,086
    
    
    
    399,263
    
    
    
    399,073
    
    
    
    374,072
    
    
    
    351,669Shareholders Equity
    
    
    49,446
    
    
    
    45,716
    
    
    
    41,235
    
    
    
    37,580
    
    
    
    32,404
  Supervision and Regulation
  General
   The Corporation
 General
  3




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Investments and Activities
  de novo
  Capital Requirements
  Dividends
 4




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The Bank
 General
 Deposit Insurance
 5




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




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##### Table of Contents



Insider Transactions
 Safety and Soundness Standards
 Consumer Protection Laws
 
 Item 1A.
    
    Risk Factors.
 We are in the business of lending, which involves substantial credit risk, and our allowance for
loan losses may not be sufficient to cover actual loan losses.
   7




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Fluctuations in interest rates could reduce our profitability.
  We rely heavily on our management team, including our loan officers, and the unexpected loss of key
employees may adversely affect our operations.
  Competition with other financial institutions and financial service providers could adversely
affect our profitability.
  As a community bank, our financial condition is dependent, in part, on the general economic
condition of the communities we serve.
  We operate in a highly regulated environment and may be adversely affected by changes in laws and
regulations.
  8




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##### Table of Contents



We may face challenges in managing our operational risks as we grow.
  
 Item 1B. Unresolved Staff Comments.
 
 Item 2.
    
    Properties.
  
 Item 3.
    
    Legal Proceedings.
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  Additional Item Executive Officers
       9




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 
   Sale Prices
    
    Cash Dividends DeclaredHigh
    
    Low$29.98
    
    $
    26.00
    
    
    $
    0.17$31.50
    
    $
    27.00
    
    
    $
    0.17$31.25
    
    $
    27.55
    
    
    $
    0.19$32.00
    
    $
    28.50
    
    
    $
    0.19
 Sale Prices
    
    Cash Dividends DeclaredHigh
    
    Low$31.75
    
    $
    28.05
    
    
    $
    0.19$31.00
    
    $
    27.95
    
    
    $
    0.19$31.00
    
    $
    27.85
    
    
    $
    0.21$27.95
    
    $
    25.00
    
    
    $
    0.21
   10




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##### Table of Contents



Item 6.
    
    Selected Financial Data.
 SUMMARY FINANCIAL DATA(in thousands, except per share data)2005
    
    2004
    
    2003
    
    2002
    
    2001Income Statement Data:Interest income
    
    $
    29,315
    
    
    $
    24,992
    
    
    $
    24,856
    
    
    $
    25,729
    
    
    $
    27,095Interest expense
    
    
    7,054
    
    
    
    5,606
    
    
    
    6,167
    
    
    
    8,017
    
    
    
    10,861Net interest income
    
    
    22,261
    
    
    
    19,386
    
    
    
    18,689
    
    
    
    17,712
    
    
    
    16,234Provision for loan losses
    
    
    3,037
    
    
    
    1,190
    
    
    
    1,270
    
    
    
    625
    
    
    
    900Noninterest income
    
    
    3,820
    
    
    
    4,110
    
    
    
    3,874
    
    
    
    3,621
    
    
    
    3,120Noninterest expense
    
    
    13,653
    
    
    
    13,287
    
    
    
    12,848
    
    
    
    11,775
    
    
    
    11,061Income before tax
    
    
    9,391
    
    
    
    9,019
    
    
    
    8,445
    
    
    
    8,933
    
    
    
    7,393Net income
    
    
    6,507
    
    
    
    6,291
    
    
    
    5,891
    
    
    
    6,304
    
    
    
    5,220Per Share Data(1):Basic net income per share
    
    $
    2.03
    
    
    $
    1.98
    
    
    $
    1.86
    
    
    $
    2.00
    
    
    $
    1.66Diluted net income per share
    
    
    2.03
    
    
    
    1.97
    
    
    
    1.86
    
    
    
    2.00
    
    
    
    1.66Dividends paid
    
    
    0.80
    
    
    
    0.72
    
    
    
    0.68
    
    
    
    0.63
    
    
    
    0.60Weighted average basic shares outstanding
    
    
    3,200,146
    
    
    
    3,185,025
    
    
    
    3,162,836
    
    
    
    3,152,739
    
    
    
    3,141,118Weighted average diluted shares outstanding
    
    
    3,200,518
    
    
    
    3,186,142
    
    
    
    3,162,836
    
    
    
    3,152,739
    
    
    
    3,141,118Balance Sheet Data:Total assets
    
    $
    477,225
    
    
    $
    456,910
    
    
    $
    450,342
    
    
    $
    420,686
    
    
    $
    392,978Loans, net
    
    
    372,855
    
    
    
    357,377
    
    
    
    347,086
    
    
    
    327,117
    
    
    
    286,280Allowance for loan losses
    
    
    6,991
    
    
    
    6,093
    
    
    
    5,434
    
    
    
    5,794
    
    
    
    5,668Deposits
    
    
    422,086
    
    
    
    399,263
    
    
    
    399,073
    
    
    
    374,072
    
    
    
    351,669Shareholders equity
    
    
    49,446
    
    
    
    45,716
    
    
    
    41,235
    
    
    
    37,580
    
    
    
    32,404Ratios:Dividend payout ratio
    
    
    39.15
    %
    
    
    36.34
    %
    
    
    36.51
    %
    
    
    31.40
    %
    
    
    36.12
    %Equity to asset ratio
    
    
    10.18
    %
    
    
    9.71
    %
    
    
    9.32
    %
    
    
    8.80
    %
    
    
    8.69
    %
 
 (1)
    
    Per share data for 2001  2002 has been restated to give effect to the two-for-one stock split, payable as a dividend of one share for each
share of the Corporations stock held of record july 1, 2002,
paid July 10, 2002. 
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
   11




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FINANCIAL CONDITION
  Securities
   (in thousands)2005
    
    
    2004
    
    
    2003Held to maturity:States and political subdivisions
    
    $
    16,426
    
    
    $
    16,009
    
    
    $
    15,051Available for sale:U.S. Treasury and government agencies
    
    $
    31,384
    
    
    $
    29,738
    
    
    $
    22,151Corporate securities
    
    
    1,005
    
    
    
    1,038
    
    
    
    4,637Mortgage-backed securities
    
    
    12,405
    
    
    
    16,432
    
    
    
    12,513FRB Stock
    
    
    44
    
    
    
    44
    
    
    
    44FHLBI Stock
    
    
    1,109
    
    
    
    1,087
    
    
    
    1,039Total
    
    $
    45,947
    
    
    $
    48,339
    
    
    $
    40,384
  (dollars in thousands)Maturing After
    
    
    Maturing AfterMaturing Within
    
    
    One But Within
    
    
    Five But Within
    
    
    Maturing AfterOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten YearsAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldHeld to maturityStates and political subdivisions
    
    $
    2,385
    
    
    
    6.89
    %
    
    $
    7,307
    
    
    
    6.49
    %
    
    $
    1,882
    
    
    
    5.91
    %
    
    $
    4,852
    
    
    
    6.45
    %Tax equivalent adjustment for
calculations of yield
    
    $
    46
    
    
    
    
    
    
    $
    142
    
    
    
    
    
    
    $
    37
    
    
    
    
    
    
    $
    94Available for saleU.S. Agency
    
    $
    7,238
    
    
    
    3.43
    %
    
    $
    24,857
    
    
    
    3.37
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    Corporate bonds
    
    
    1,000
    
    
    
    6.10
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage backed securities
    
    
    170
    
    
    
    5.50
    %
    
    
    2,421
    
    
    
    5.00
    %
    
    
    1,591
    
    
    
    4.00
    %
    
    
    8,437
    
    
    
    5.65
    %FRB Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    6.00
    %FHLBI Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,109
    
    
    
    4.29
    %Total
    
    $
    8,408
    
    
    
    3.79
    %
    
    $
    27,278
    
    
    
    3.51
    %
    
    $
    1,591
    
    
    
    4.00
    %
    
    $
    9,590
    
    
    
    5.49
    %
 12




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Rate on TaxTax-Exempt Rate
    
    Adjustment
    
    Equivalent BasisUnder 1 year
    
    
    4.95
    %
    
    
    1.94
    %
    
    
    6.89
    %1-5 years
    
    
    4.55
    %
    
    
    1.94
    %
    
    
    6.49
    %5-10 years
    
    
    3.97
    %
    
    
    1.94
    %
    
    
    5.91
    %10 years or
more
    
    
    4.51
    %
    
    
    1.94
    %
    
    
    6.45
    %
  2005
    
    2004
    
    2003U.S. Treasury & agency securities
    
    
    50.3
    %
    
    
    46.2
    %
    
    
    39.9
    %Agency mortgage backed securities
    
    
    19.9
    %
    
    
    25.5
    %
    
    
    22.6
    %Tax exempt obligations of states and political subdivisions
    
    
    26.3
    %
    
    
    24.9
    %
    
    
    27.1
    %Corporate bonds
    
    
    1.6
    %
    
    
    1.6
    %
    
    
    8.4
    %Other
    
    
    1.9
    %
    
    
    1.8
    %
    
    
    2.0
    %Total securities
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Loans
     13




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(dollars in thousands)2005
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    2003
    
    
    
    
    
    

    2002
    
    
    
    
    
    
    2001Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    Percent
    
    
    Balances
    
    
    PercentSecured by real estate:Residential first mortgage
    
    $
    46,391
    
    
    
    12.4
    %
    
    $
    53,059
    
    
    
    14.8
    %
    
    $
    46,845
    
    
    
    13.5
    %
    
    $
    37,202
    
    
    
    11.3
    %
    
    $
    27,456
    
    
    
    9.6
    %Residential home equity/other
junior liens
    
    
    19,750
    
    
    
    5.3
    %
    
    
    16,017
    
    
    
    4.5
    %
    
    
    13,999
    
    
    
    4.0
    %
    
    
    11,184
    
    
    
    3.4
    %
    
    
    8,066
    
    
    
    2.8
    %Construction, land development and
farmland
    
    
    72,572
    
    
    
    19.4
    %
    
    
    59,873
    
    
    
    16.7
    %
    
    
    54,554
    
    
    
    15.7
    %
    
    
    49,516
    
    
    
    15.1
    %
    
    
    42,221
    
    
    
    14.7
    %Commercial
    
    
    177,417
    
    
    
    47.5
    %
    
    
    163,706
    
    
    
    45.7
    %
    
    
    165,464
    
    
    
    47.5
    %
    
    
    153,720
    
    
    
    46.9
    %
    
    
    118,191
    
    
    
    41.2
    %Consumer
    
    
    22,247
    
    
    
    6.0
    %
    
    
    26,965
    
    
    
    7.5
    %
    
    
    25,842
    
    
    
    7.4
    %
    
    
    25,261
    
    
    
    7.7
    %
    
    
    22,719
    
    
    
    7.9
    %Commercial
    
    
    29,230
    
    
    
    7.8
    %
    
    
    31,772
    
    
    
    8.9
    %
    
    
    33,947
    
    
    
    9.8
    %
    
    
    43,276
    
    
    
    13.2
    %
    
    
    59,602
    
    
    
    20.8
    %Other
    
    
    6,104
    
    
    
    1.6
    %
    
    
    6,991
    
    
    
    1.9
    %
    
    
    7,366
    
    
    
    2.1
    %
    
    
    7,801
    
    
    
    2.4
    %
    
    
    8,870
    
    
    
    3.0
    %Total gross loans
    
    
    373,711
    
    
    
    100.0
    %
    
    
    358,383
    
    
    
    100.0
    %
    
    
    348,017
    
    
    
    100.0
    %
    
    
    327,960
    
    
    
    100.0
    %
    
    
    287,125
    
    
    
    100.0
    %Net unearned fees
    
    
    (856
    )
    
    
    
    
    
    
    (1,006
    )
    
    
    
    
    
    
    (931
    )
    
    
    
    
    
    
    (843
    )
    
    
    
    
    
    
    (845
    )Total Loans
    
    $
    372,855
    
    
    
    
    
    
    $
    357,377
    
    
    
    
    
    
    $
    347,086
    
    
    
    
    
    
    $
    327,117
    
    
    
    
    
    
    $
    286,280
   Maturing(dollars in thousands)After oneWithin One
    
    
    but within
    
    
    After fiveYear
    
    
    five years
    
    
    years
    
    
    TotalReal estate construction and land development
    
    $
    45,707
    
    
    $
    26,297
    
    
    $
    
    
    
    $
    72,004Real estate other (secured by commercial and multi-family)
    
    
    38,749
    
    
    
    127,150
    
    
    
    11,518
    
    
    
    177,417Commerical (secured by business assets or unsecured)
    
    
    14,318
    
    
    
    14,256
    
    
    
    656
    
    
    
    29,230Other (loans to farmers, political subdivisions, and overdrafts)
    
    
    1,727
    
    
    
    2,797
    
    
    
    1,580
    
    
    
    6,104Totals
    
    $
    100,501
    
    
    $
    170,500
    
    
    $
    13,754
    
    
    $
    284,755
  Interest Sensitivity(dollars in thousands)Fixed Rate
    
    Variable RateDue after one but within five years
    
    $
    110,638
    
    
    $
    59,862Due after five years
    
    
    11,184
    
    
    
    2,570
  14




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(dollars in thousands)2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Nonperforming Loans and Assets:Nonaccrual loans
    
    $
    5,234
    
    
    $
    1,146
    
    
    $
    4,293
    
    
    $
    3,288
    
    
    $
    2,636Loans past due 90 days and still accruing
    
    
    391
    
    
    
    288
    
    
    
    
    
    
    
    809
    
    
    
    361Total nonperforming loans
    
    
    5,625
    
    
    
    1,434
    
    
    
    4,293
    
    
    
    4,097
    
    
    
    2,997Other real estate
    
    
    680
    
    
    
    735
    
    
    
    65
    
    
    
    738
    
    
    
    Total nonperforming assets
    
    $
    6,305
    
    
    $
    2,169
    
    
    $
    4,358
    
    
    $
    4,835
    
    
    $
    2,997Nonperforming loans as a percent of total loans
    
    
    1.51
    %
    
    
    0.40
    %
    
    
    1.24
    %
    
    
    1.25
    %
    
    
    1.04
    %Allowance for loan losses as a percent of
nonperforming loans
    
    
    124
    %
    
    
    425
    %
    
    
    127
    %
    
    
    141
    %
    
    
    189
    %
    Accounting by Creditors for Impairment of Loan,
   15




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##### Table of Contents



(dollars in thousands)2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Loans:Average daily balance of loans for the year
    
    $
    366,877
    
    
    $
    340,859
    
    
    $
    340,384
    
    
    $
    311,060
    
    
    $
    270,776Amount of loans outstanding at end of year
    
    
    372,855
    
    
    
    357,377
    
    
    
    347,086
    
    
    
    327,117
    
    
    
    286,280Components:Allowance for loan lossesBalance, beginning of year
    
    $
    6,093
    
    
    $
    5,434
    
    
    $
    5,794
    
    
    $
    5,668
    
    
    $
    5,193Loans charged off:Real estate mortgage
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    1,436
    
    
    
    379
    
    
    
    1,014
    
    
    
    598
    
    
    
    322Consumer
    
    
    792
    
    
    
    543
    
    
    
    269
    
    
    
    169
    
    
    
    195Total charge offs
    
    
    2,254
    
    
    
    922
    
    
    
    1,283
    
    
    
    767
    
    
    
    517Recoveries to loans previously charged off:Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    120
    
    
    
    70
    
    
    
    112
    
    
    
    177
    
    
    
    47Consumer
    
    
    142
    
    
    
    104
    
    
    
    65
    
    
    
    91
    
    
    
    45Total recoveries
    
    
    262
    
    
    
    174
    
    
    
    177
    
    
    
    268
    
    
    
    92Net loans charged off
    
    
    1,992
    
    
    
    748
    
    
    
    1,106
    
    
    
    499
    
    
    
    425Additions to allowance charged to operations
    
    
    2,890
    
    
    
    1,407
    
    
    
    746
    
    
    
    625
    
    
    
    900Balance, end of year
    
    
    6,991
    
    
    
    6,093
    
    
    
    5,434
    
    
    
    5,794
    
    
    
    5,668Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    307
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    Additions (reductions) to reserve
charged to operations
    
    
    147
    
    
    
    (217
    )
    
    
    524
    
    
    
    
    
    
    
    Balance, end of year
    
    
    454
    
    
    
    307
    
    
    
    524
    
    
    
    
    
    
    
    Total
allowance for loan losses and reserve for unfunded credit commitments
    
    $
    7,445
    
    
    $
    6,400
    
    
    $
    5,958
    
    
    $
    5,794
    
    
    $
    5,668Ratios:Net loans charged off to average loans outstanding
    
    
    0.54
    %
    
    
    0.22
    %
    
    
    0.32
    %
    
    
    0.16
    %
    
    
    0.16
    %Allowance for loan losses to outstanding
    
    
    1.88
    %
    
    
    1.70
    %
    
    
    1.57
    %
    
    
    1.77
    %
    
    
    1.97
    %
 16




---



##### Table of Contents



(dollars in thousands)2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    5,864
    
    
    
    81.9
    %
    
    $
    4,877
    
    
    
    80.3
    %
    
    $
    5,027
    
    
    
    80.1
    %
    
    $
    5,166
    
    
    
    80.2
    %
    
    $
    2,244
    
    
    
    79.1
    %Consumer
    
    
    850
    
    
    
    9.7
    %
    
    
    825
    
    
    
    10.1
    %
    
    
    101
    
    
    
    10.1
    %
    
    
    406
    
    
    
    10.3
    %
    
    
    160
    
    
    
    11.3
    %Real estate
    
    
    277
    
    
    
    8.4
    %
    
    
    391
    
    
    
    9.6
    %
    
    
    306
    
    
    
    9.8
    %
    
    
    222
    
    
    
    9.5
    %
    
    
    26
    
    
    
    9.6
    %Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,238Total
    
    $
    6,991
    
    
    
    100.0
    %
    
    $
    6,093
    
    
    
    100.0
    %
    
    $
    5,434
    
    
    
    100.0
    %
    
    $
    5,794
    
    
    
    100.0
    %
    
    $
    5,668
    
    
    
    100.0
    %
  (dollars in thousands)2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    199
    
    
    
    81.9
    %
    
    $
    148
    
    
    
    80.3
    %
    
    $
    493
    
    
    
    80.1
    %Consumer
    
    
    255
    
    
    
    9.7
    %
    
    
    158
    
    
    
    10.1
    %
    
    
    29
    
    
    
    10.1
    %Real estate
    
    
    
    
    
    
    8.4
    %
    
    
    1
    
    
    
    9.6
    %
    
    
    2
    
    
    
    9.8
    %Total
    
    $
    454
    
    
    
    100.0
    %
    
    $
    307
    
    
    
    100.0
    %
    
    $
    524
    
    
    
    100.0
    %
 Deposits
   (dollars in thousands)2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateNon-interest bearing demand
    
    $
    73,243
    
    
    
    0.00
    %
    
    $
    70,477
    
    
    
    0.00
    %
    
    $
    65,719
    
    
    
    0.00
    %NOW, savings & MMDA
    
    
    176,347
    
    
    
    0.79
    %
    
    
    184,792
    
    
    
    0.64
    %
    
    
    172,611
    
    
    
    0.85
    %Time deposits
    
    
    163,066
    
    
    
    3.30
    %
    
    
    138,463
    
    
    
    2.92
    %
    
    
    135,842
    
    
    
    3.16
    %Total
    
    $
    412,656
    
    
    
    2.00
    %
    
    $
    393,732
    
    
    
    1.33
    %
    
    $
    374,172
    
    
    
    1.54
    %
   17




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##### Table of Contents



Capital
    2005
    
    2004
    
    2003Average equity to average asset ratio
    
    
    10.18
    %
    
    
    9.71
    %
    
    
    9.32
    %Tier 1 leverage ratio
    
    
    10.58
    %
    
    
    9.65
    %
    
    
    8.95
    %Tier 1 risk-based capital
    
    
    12.63
    %
    
    
    11.54
    %
    
    
    10.47
    %Total risk-based capital
    
    
    13.89
    %
    
    
    12.80
    %
    
    
    11.73
    %
  Liquidity and Funds Management
    18




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##### Table of Contents



Contractual Obligations and Commitments
  Within
    
    
    One to
    
    
    Three to
    
    
    Over(in thousands)
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years
    
    
    TotalDeposits without a stated maturity(1)
    
    $
    246,020
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    246,020Consumer and brokered certificates of
deposits(2)
    
    
    131,147
    
    
    
    38,400
    
    
    
    12,474
    
    
    
    28
    
    
    
    182,049Long term advances(2) (3)
    
    
    412
    
    
    
    832
    
    
    
    836
    
    
    
    
    
    
    
    2,080Operating leases(4)
    
    
    47
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    82Purchase obligations(5)
    
    
    237
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    241
 
 (1)
    
    Excludes interest.(2)
    
    Includes interest on both fixed and variable rate obligations. The interest rate for variable rate obligations is
based upon interest rates in effect at December 31, 2005. Future changes in market interest rates could
materially affect the contractual amounts to be paid for variable rate obligations.(3)
    
    See Note 10, Other Borrowings, in Notes to Consolidated Financial Statements.(4)
    
    See Note 14, Leases, in Notes to Consolidated Financial Statements.(5)
    
    Purchase obligations amounts relate to certain contractual payments for services provided for
information technology, data processing and training consultants.  One toWithin
    
    
    Three
    
    
    Three to
    
    
    Over(in thousands)
    
    One Year
    
    
    Years
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommericial loans
    
    $
    31,003
    
    
    $
    9,472
    
    
    $
    923
    
    
    $
    
    
    
    $
    41,398Commercial construction loans
    
    
    6,679
    
    
    
    7
    
    
    
    2,686
    
    
    
    
    
    
    
    9,372Consumer loans
    
    
    9,708
    
    
    
    2,553
    
    
    
    3,997
    
    
    
    
    
    
    
    16,258Standby letters of credit
    
    
    2,789
    
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    3,200
  Quantitative and Qualitative Disclosures about Market Risk
   19




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##### Table of Contents



(dollars in thousands)0-3
    
    
    4-12
    
    
    1-5
    
    
    5+Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Loans
    
    $
    174,416
    
    
    $
    53,282
    
    
    $
    133,719
    
    
    $
    4,447
    
    
    $
    365,864Securities
    
    
    2,056
    
    
    
    12,931
    
    
    
    41,174
    
    
    
    6,212
    
    
    
    62,373Certificates of deposit
    
    
    1,571
    
    
    
    3,828
    
    
    
    1,767
    
    
    
    
    
    
    
    7,166Short term investments
    
    
    4,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,820Total assets
    
    $
    182,863
    
    
    $
    70,041
    
    
    $
    176,660
    
    
    $
    10,659
    
    
    $
    440,223Liabilities:NOW, savings, & MMDA
    
    $
    87,919
    
    
    $
    
    
    
    $
    
    
    
    $
    86,686
    
    
    $
    174,605Time deposits
    
    
    48,955
    
    
    
    78,290
    
    
    
    48,663
    
    
    
    157
    
    
    
    176,065FHLBI advances
    
    
    304
    
    
    
    
    
    
    
    1,481
    
    
    
    
    
    
    
    1,785Total liabilities
    
    $
    137,178
    
    
    $
    78,290
    
    
    $
    50,144
    
    
    $
    86,843
    
    
    $
    352,455Rate sensitivity GAP:GAP for period
    
    $
    45,685
    
    
    $
    (8,249
    )
    
    $
    126,516
    
    
    $
    (76,184
    )Cumulative GAP
    
    
    45,685
    
    
    
    37,436
    
    
    
    163,952
    
    
    
    87,768
    20




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##### Table of Contents



(dollars in thousands)Carrying Value
    
    Average Interest Rate
    
    Estimated Fair ValueAssets:Loans, net
    
    $
    365,864
    
    
    
    7.19
    %
    
    $
    364,595Securities
    
    
    62,373
    
    
    
    4.46
    %
    
    
    62,711Certificates of deposit
    
    
    7,166
    
    
    
    3.07
    %
    
    
    7,129Short term investments
    
    
    4,820
    
    
    
    3.12
    %
    
    
    4,811Liabilities:NOW, savings, & MMDA
    
    $
    174,605
    
    
    
    0.79
    %
    
    $
    174,605Time deposits
    
    
    176,065
    
    
    
    3.30
    %
    
    
    174,853FHLBI advances
    
    
    1,785
    
    
    
    7.56
    %
    
    
    1,877
  RESULTS OF OPERATIONS
   2005
    
    2004
    
    2003
    
    2002
    
    2001Net income as a percent of:Average common equity
    
    
    13.63
    %
    
    
    14.51
    %
    
    
    14.90
    %
    
    
    17.97
    %
    
    
    16.80
    %Average total assets
    
    
    1.39
    %
    
    
    1.41
    %
    
    
    1.39
    %
    
    
    1.58
    %
    
    
    1.46
    %
 Net Interest Income
  21




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##### Table of Contents



Yield Analysis of Consolidated Average Assets and Liabilities(dollars in thousands)2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest earning assets:Short term investments
    
    $
    9,930
    
    
    $
    309.5
    
    
    
    3.12
    %
    
    $
    14,587
    
    
    $
    166.0
    
    
    
    1.14
    %
    
    $
    9,625
    
    
    $
    103.4
    
    
    
    1.07
    %Certificates of deposit
    
    
    6,551
    
    
    
    201.1
    
    
    
    3.07
    %
    
    
    3,817
    
    
    
    95.8
    
    
    
    2.51
    %
    
    
    3,135
    
    
    
    109.2
    
    
    
    3.48
    %Securities: Taxable
    
    
    48,272
    
    
    
    1,821.4
    
    
    
    3.77
    %
    
    
    46,914
    
    
    
    1,843.6
    
    
    
    3.93
    %
    
    
    29,550
    
    
    
    1,205.3
    
    
    
    4.08
    %Tax-exempt (1)
    
    
    16,029
    
    
    
    1,048.3
    
    
    
    6.54
    %
    
    
    15,612
    
    
    
    1,083.4
    
    
    
    6.94
    %
    
    
    15,845
    
    
    
    1,109.0
    
    
    
    7.00
    %Commercial loans (2)(3)
    
    
    297,423
    
    
    
    21,673.2
    
    
    
    7.29
    %
    
    
    270,349
    
    
    
    17,666.2
    
    
    
    6.53
    %
    
    
    273,913
    
    
    
    18,168.7
    
    
    
    6.63
    %Consumer loans (2)(3)
    
    
    36,259
    
    
    
    2,760.9
    
    
    
    7.61
    %
    
    
    36,061
    
    
    
    2,703.5
    
    
    
    7.50
    %
    
    
    33,494
    
    
    
    2,673.0
    
    
    
    7.98
    %Mortgage loans (2)(3)
    
    
    33,195
    
    
    
    1,954.6
    
    
    
    5.89
    %
    
    
    34,449
    
    
    
    1,910.6
    
    
    
    5.55
    %
    
    
    32,977
    
    
    
    1,964.1
    
    
    
    5.96
    %Total earning assets and total
interest income
    
    
    447,659
    
    
    $
    29,769.0
    
    
    
    6.65
    %
    
    
    421,789
    
    
    $
    25,469.1
    
    
    
    6.04
    %
    
    
    398,539
    
    
    $
    25,332.7
    
    
    
    6.36
    %Cash and due from banks
    
    
    11,352
    
    
    
    
    
    
    
    
    
    
    
    12,508
    
    
    
    
    
    
    
    
    
    
    
    13,018All other assets
    
    
    16,940
    
    
    
    
    
    
    
    
    
    
    
    18,202
    
    
    
    
    
    
    
    
    
    
    
    18,333Allowance for loan losses
    
    
    (6,743
    )
    
    
    
    
    
    
    
    
    
    
    (5,921
    )
    
    
    
    
    
    
    
    
    
    
    (5,871
    )Total assets
    
    $
    469,208
    
    
    
    
    
    
    
    
    
    
    $
    446,578
    
    
    
    
    
    
    
    
    
    
    $
    424,019Liabilities and
Shareholders EquityInterest bearing deposits:NOW, savings & MMDA
    
    $
    176,346
    
    
    $
    1,398.5
    
    
    
    0.79
    %
    
    $
    184,792
    
    
    $
    1,175.8
    
    
    
    0.64
    %
    
    $
    172,611
    
    
    $
    1,468.5
    
    
    
    0.85
    %Time deposits
    
    
    163,065
    
    
    
    5,374.4
    
    
    
    3.30
    %
    
    
    138,463
    
    
    
    4,041.8
    
    
    
    2.92
    %
    
    
    135,842
    
    
    
    4,288.9
    
    
    
    3.16
    %Short term borrowings
    
    
    2,611
    
    
    
    78.0
    
    
    
    2.98
    %
    
    
    626
    
    
    
    12.2
    
    
    
    1.95
    %
    
    
    1,300
    
    
    
    17.7
    
    
    
    1.37
    %FHLBI advances
    
    
    2,688
    
    
    
    203.1
    
    
    
    7.56
    %
    
    
    5,080
    
    
    
    376.1
    
    
    
    7.40
    %
    
    
    5,337
    
    
    
    391.7
    
    
    
    7.34
    %Total interest bearing
liabilities and total interest
expense
    
    
    344,710
    
    
    
    7,054.0
    
    
    
    2.05
    %
    
    
    328,961
    
    
    
    5,605.9
    
    
    
    1.70
    %
    
    
    315,090
    
    
    
    6,166.8
    
    
    
    1.96
    %Noninterest bearing deposits
    
    
    73,243
    
    
    
    
    
    
    
    
    
    
    
    70,477
    
    
    
    
    
    
    
    
    
    
    
    65,719All other liabilities
    
    
    3,507
    
    
    
    
    
    
    
    
    
    
    
    3,784
    
    
    
    
    
    
    
    
    
    
    
    3,671Shareholders Equity
    
    
    47,748
    
    
    
    
    
    
    
    
    
    
    
    43,356
    
    
    
    
    
    
    
    
    
    
    
    39,539Total liabilities and
shareholders equity
    
    $
    469,208
    
    
    
    
    
    
    
    
    
    
    $
    446,578
    
    
    
    
    
    
    
    
    
    
    $
    424,019Interest spread
    
    
    
    
    
    
    
    
    
    
    4.60
    %
    
    
    
    
    
    
    
    
    
    
    4.34
    %
    
    
    
    
    
    
    
    
    
    
    4.40
    %Net interest income-FTE
    
    
    
    
    
    $
    22,715.0
    
    
    
    
    
    
    
    
    
    
    $
    19,863.2
    
    
    
    
    
    
    
    
    
    
    $
    19,165.9Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.07
    %
    
    
    
    
    
    
    
    
    
    
    4.71
    %
    
    
    
    
    
    
    
    
    
    
    4.81
    %
 
 (1)
    
    Average yields in the above table have been adjusted to a tax-equivalent basis using a 34% tax rate
and exclude the effect of any market value adjustments recorded under
Statement of Financial Accounting Standards No. 115.(2)
    
    For purposes of the computation above, non-accruing loans of $3,359,000 in 2005, $ 2,462,000 in 2004 and $4,751,000
in 2003 are included in the average daily loan balance.(3)
    
    Interest on loans includes origination fees totaling $644,000 in 2005, $726,000 in 2004 and $720,000 in 2003.  22




---



##### Table of Contents



(dollars in thousands)Year ended December 31, 2005
    
    
    Year ended December 31, 2004compared to
    
    
    compared toYear ended December 31, 2004
    
    
    Year ended December 31, 2003Amount of Increase (Decrease) Due to Change inTotal
    
    
    
    
    
    
    
    
    
    
    TotalAmount
    
    
    
    
    
    
    
    
    
    
    AmountAverage
    
    
    of Increase/
    
    
    
    
    
    
    Average
    
    
    of Increase/Volume
    
    
    Rate
    
    
    Decrease
    
    
    Volume
    
    
    Rate
    
    
    DecreaseInterest Income:Short term investments
    
    $
    (53
    )
    
    $
    197
    
    
    $
    144
    
    
    $
    53
    
    
    $
    9
    
    
    $
    62Certificates of deposit
    
    
    69
    
    
    
    36
    
    
    
    105
    
    
    
    24
    
    
    
    (37
    )
    
    
    (13
    )Securities:Taxable
    
    
    53
    
    
    
    (75
    )
    
    
    (22
    )
    
    
    708
    
    
    
    (70
    )
    
    
    638Tax Exempt
    
    
    29
    
    
    
    (64
    )
    
    
    (35
    )
    
    
    (16
    )
    
    
    (9
    )
    
    
    (25
    )Loans
    
    
    1,701
    
    
    
    2,407
    
    
    
    4,108
    
    
    
    32
    
    
    
    (557
    )
    
    
    (525
    )Total interest income
    
    $
    1,799
    
    
    $
    2,501
    
    
    $
    4,300
    
    
    $
    801
    
    
    $
    (664
    )
    
    $
    137Interest Expense:Interest bearing deposits:NOW, savings & MMDA
    
    $
    (54
    )
    
    $
    276
    
    
    $
    222
    
    
    $
    104
    
    
    $
    (396
    )
    
    $
    (292
    )Time deposits
    
    
    718
    
    
    
    615
    
    
    
    1,333
    
    
    
    83
    
    
    
    (330
    )
    
    
    (247
    )Short term borrowings
    
    
    39
    
    
    
    27
    
    
    
    66
    
    
    
    (9
    )
    
    
    4
    
    
    
    (5
    )FHLBI advances
    
    
    (177
    )
    
    
    4
    
    
    
    (173
    )
    
    
    (19
    )
    
    
    3
    
    
    
    (16
    )Total interest expense
    
    $
    526
    
    
    $
    922
    
    
    $
    1,448
    
    
    $
    159
    
    
    $
    (719
    )
    
    $
    (560
    )Net interest income (FTE)
    
    $
    1,273
    
    
    $
    1,579
    
    
    $
    2,852
    
    
    $
    642
    
    
    $
    55
    
    
    $
    697
    23




---



##### Table of Contents



2005
    
    2004
    
    2003As a percent of average earning assets:Loans
    
    
    81.96
    %
    
    
    80.82
    %
    
    
    85.41
    %Securities
    
    
    14.36
    %
    
    
    14.82
    %
    
    
    11.39
    %Certificates of deposit
    
    
    1.46
    %
    
    
    0.90
    %
    
    
    0.80
    %Short term investments
    
    
    2.22
    %
    
    
    3.46
    %
    
    
    2.40
    %Average earning assets
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %NOW, savings, & MMDA
    
    
    39.39
    %
    
    
    43.81
    %
    
    
    43.31
    %Time deposits
    
    
    36.43
    %
    
    
    32.83
    %
    
    
    34.08
    %Short term borrowing
    
    
    0.58
    %
    
    
    0.15
    %
    
    
    0.33
    %FHLBI advances
    
    
    0.60
    %
    
    
    1.20
    %
    
    
    1.34
    %Average interest bearing liabilities
    
    
    77.00
    %
    
    
    77.99
    %
    
    
    79.06
    %Earning asset ratio
    
    
    95.41
    %
    
    
    94.51
    %
    
    
    93.99
    %Free-funds ratio
    
    
    23.00
    %
    
    
    22.01
    %
    
    
    20.94
    %
 Provision for Loan Losses
  Noninterest Income
  24




---



##### Table of Contents



Noninterest Expense
  Federal Income Tax Expense
  Critical Accounting Policies
   25




---



##### Table of Contents



Impact of New Accounting Standards
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
 Index to Consolidated Financial Statements:
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    27Report of Independent Registered Public Accounting Firm
    
    
    28Report of Independent Registered Public Accounting Firm
    
    
    29Consolidated Balance Sheets
    
    
    30Consolidated Statements of Income
    
    
    31Consolidated Statements of Stockholders Equity and Comprehensive Income
    
    
    32Consolidated Statements of Cash Flows
    
    
    33Notes to Consolidated Financial Statements
    
    
    34
 26




---



##### Table of Contents



(BDO LOGO)
    
    BDO Seidman, LLP
Accountants and Consultants
    
    99 Monroe Avenue N.W., Suite 800
Grand Rapids, Michigan 49503-2654
Telephone: (616) 774-7000
Fax: (616) 776-3680
 Report of Independent Registered Public Accounting Firm
 
    Internal Control  Integrated
Framework
 (BDO SEIDMAN, LLP)Grand Rapids, MichiganFebruary 22, 2006
 27




---



##### Table of Contents



(BDO LOGO)
    
    BDO Seidman, LLP
Accountants and Consultants
    
    99 Monroe Avenue N.W., Suite 800
Grand Rapids, Michigan 49503-2654
Telephone: (616) 774-7000
Fax: (616) 776-3680
 Report of Independent Registered Public Accounting Firm
 
 Internal Control
 Integrated Framework
      (BDO SEIDMAN, LLP)Grand Rapids, MichiganFebruary 22, 2006
 28




---



##### Table of Contents



KPMG LLP
 Report of Independent Registered Public Accounting Firm
 
    (KPMG LLP)Detroit, MichiganJanuary 16, 2004
 
 29




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 2005
    
    
    2004AssetsCash and due from banks
    
    $
    19,281,982
    
    
    $
    12,157,948Short term investments
    
    
    4,819,709
    
    
    
    5,680,395Total cash and cash equivalents
    
    
    24,101,691
    
    
    
    17,838,343Certificates of deposit
    
    
    7,166,000
    
    
    
    6,091,000Investment securities held to maturity, net (fair value of $16,763,204
at December 31, 2005 and $16,705,640 at December 31, 2004)
    
    
    16,425,674
    
    
    
    16,009,337Investment securities available for sale, at fair value
    
    
    32,388,356
    
    
    
    30,775,695Mortgage-backed securities available for sale, at fair value
    
    
    12,405,476
    
    
    
    16,432,188FHLBI and FRB stock, at cost
    
    
    1,153,550
    
    
    
    1,130,650Total investment securities
    
    
    62,373,056
    
    
    
    64,347,870Loans:Commercial
    
    
    305,387,518
    
    
    
    286,940,773Consumer
    
    
    36,161,235
    
    
    
    36,077,528Real estate mortgage
    
    
    31,306,493
    
    
    
    34,358,613Total loans
    
    
    372,855,246
    
    
    
    357,376,914Less allowance for loan losses
    
    
    (6,991,125
    )
    
    
    (6,092,949
    )Net loans
    
    
    365,864,121
    
    
    
    351,283,965Premises and equipment, net
    
    
    10,465,856
    
    
    
    11,086,901Land and facilities held for sale, net
    
    
    
    
    
    
    95,680Other real estate owned, held for sale
    
    
    679,733
    
    
    
    735,000Accrued interest and other assets
    
    
    6,574,686
    
    
    
    5,431,302Total assets
    
    $
    477,225,143
    
    
    $
    456,910,061Liabilities and Stockholders EquityLiabilitiesDeposits:Demand (non-interest bearing)
    
    $
    71,415,340
    
    
    $
    71,785,184NOW
    
    
    40,739,655
    
    
    
    49,206,656Savings and money market
    
    
    133,865,335
    
    
    
    147,298,849Time deposits
    
    
    145,927,984
    
    
    
    122,981,856Brokered certificates of deposit
    
    
    30,137,273
    
    
    
    7,990,365Total deposits
    
    
    422,085,587
    
    
    
    399,262,910Other borrowings
    
    
    1,785,094
    
    
    
    8,066,836Accrued interest, taxes, and other liabilities
    
    
    3,908,137
    
    
    
    3,864,267Total liabilities
    
    
    427,778,818
    
    
    
    411,194,013Stockholders EquityCommon stock, no par value. Authorized 4,200,000 shares; 3,187,374
shares issued and outstanding at December 31, 2005 and 3,179,654 shares
issued and outstanding at December 31, 2004
    
    
    6,225,947
    
    
    
    6,009,181Retained earnings
    
    
    43,389,917
    
    
    
    39,430,621Deferred directors compensation
    
    
    575,045
    
    
    
    455,481Unearned long term incentive plan
    
    
    (137,407
    )
    
    
    (151,048
    )Accumulated other comprehensive loss, net
    
    
    (607,177
    )
    
    
    (28,187
    )Total stockholders equity
    
    
    49,446,325
    
    
    
    45,716,048Total liabilities and stockholders equity
    
    $
    477,225,143
    
    
    $
    456,910,061
  30




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 2005
    
    
    2004
    
    
    2003Interest and dividend income:Interest and fees on loans
    
    $
    26,247,716
    
    
    $
    22,137,252
    
    
    $
    22,666,583Interest and dividends on investment securities:U.S. Treasury and agency securities
    
    
    1,711,402
    
    
    
    1,667,506
    
    
    
    975,069Obligations of states and political subdivisions
    
    
    729,222
    
    
    
    747,483
    
    
    
    770,269Corporate bonds
    
    
    59,959
    
    
    
    125,381
    
    
    
    188,463Other securities
    
    
    50,004
    
    
    
    51,278
    
    
    
    41,759Interest on short term investments
    
    
    315,528
    
    
    
    166,978
    
    
    
    104,818Interest on certificates of deposit
    
    
    201,076
    
    
    
    95,832
    
    
    
    109,201Total interest and dividend income
    
    
    29,314,907
    
    
    
    24,991,710
    
    
    
    24,856,162Interest expense:Interest on deposits
    
    
    6,772,924
    
    
    
    5,217,598
    
    
    
    5,757,465Interest on other borrowings
    
    
    281,073
    
    
    
    388,268
    
    
    
    409,389Total interest expense
    
    
    7,053,997
    
    
    
    5,605,866
    
    
    
    6,166,854Net interest income
    
    
    22,260,910
    
    
    
    19,385,844
    
    
    
    18,689,308Provision for loan losses
    
    
    3,037,000
    
    
    
    1,190,000
    
    
    
    1,270,000Net interest income after provision for loan losses
    
    
    19,223,910
    
    
    
    18,195,844
    
    
    
    17,419,308Noninterest income:Service charges and other fee income
    
    
    3,464,122
    
    
    
    3,318,666
    
    
    
    3,136,077Trust income
    
    
    284,394
    
    
    
    246,950
    
    
    
    287,344Gain on sale of loans
    
    
    62,512
    
    
    
    68,881
    
    
    
    373,516Gain on sale/call of investments
    
    
    
    
    
    
    
    
    
    
    3,823Other
    
    
    8,612
    
    
    
    475,560
    
    
    
    73,376Total noninterest income
    
    
    3,819,640
    
    
    
    4,110,057
    
    
    
    3,874,136Noninterest expense:Salaries and employee benefits
    
    
    7,230,103
    
    
    
    7,236,801
    
    
    
    7,048,376Net occupancy expense
    
    
    1,208,830
    
    
    
    1,115,030
    
    
    
    957,710Equipment expense
    
    
    831,299
    
    
    
    864,604
    
    
    
    1,008,275Professional and service fees
    
    
    1,680,037
    
    
    
    1,622,399
    
    
    
    1,223,346Printing and supplies
    
    
    318,091
    
    
    
    302,032
    
    
    
    291,103Computer service fees
    
    
    344,095
    
    
    
    299,114
    
    
    
    184,996Advertising
    
    
    238,323
    
    
    
    221,618
    
    
    
    304,589Other
    
    
    1,801,865
    
    
    
    1,625,052
    
    
    
    1,829,715Total noninterest expense
    
    
    13,652,643
    
    
    
    13,286,650
    
    
    
    12,848,110Income before federal income taxes
    
    
    9,390,907
    
    
    
    9,019,251
    
    
    
    8,445,334Federal income taxes
    
    
    2,883,921
    
    
    
    2,728,156
    
    
    
    2,554,437Net income
    
    $
    6,506,986
    
    
    $
    6,291,095
    
    
    $
    5,890,897Per share statistics:Basic EPS
    
    $
    2.03
    
    
    $
    1.98
    
    
    $
    1.86Diluted EPS
    
    $
    2.03
    
    
    $
    1.97
    
    
    $
    1.86Dividends
    
    $
    0.80
    
    
    $
    0.72
    
    
    $
    0.68Basic average shares outstanding
    
    
    3,200,146
    
    
    
    3,185,025
    
    
    
    3,162,836Diluted average shares outstanding
    
    
    3,200,518
    
    
    
    3,186,142
    
    
    
    3,162,836
  31




---



##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 AccumulatedDeferred
    
    
    Unearned
    
    
    OtherCommon
    
    
    Retained
    
    
    Directors
    
    
    Long Term
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Compensation
    
    
    Incentive Plan
    
    
    Income (Loss)
    
    
    TotalBalances at December 31,2002
    
    $
    5,465,089
    
    
    $
    31,685,849
    
    
    $
    
    
    
    $
    (247,282
    )
    
    $
    675,958
    
    
    $
    37,579,614Issued 4,482 shares for long term incentive plan
    
    
    110,137
    
    
    
    
    
    
    
    
    
    
    
    (110,137
    )
    
    
    
    
    
    
    Amortization of long term incentive plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,767
    
    
    
    
    
    
    
    134,767Issued 4,055 shares for employee stock purchase plan
    
    
    88,722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,722Issued 907 shares for current directors fees
    
    
    21,954
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,954Issued 1,689 shares for directors variable fee plan
    
    
    39,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,996Comprehensive income:Net income
    
    
    
    
    
    
    5,890,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,890,897Change in unrealized gain (loss) on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (369,422
    )
    
    
    (369,422
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,521,475Cash dividends ($0.68 per share)
    
    
    
    
    
    
    (2,151,047
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,151,047
    )Balances at December 31, 2003
    
    
    5,725,898
    
    
    
    35,425,699
    
    
    
    
    
    
    
    (222,652
    )
    
    
    306,536
    
    
    
    41,235,481Issued 4,261 shares for long term incentive plan
    
    
    115,985
    
    
    
    
    
    
    
    
    
    
    
    (115,985
    )
    
    
    
    
    
    
    Amortization of long term incentive plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,530
    
    
    
    
    
    
    
    184,530146 shares from long term incentive plan forfeited
    
    
    (3,059
    )
    
    
    
    
    
    
    
    
    
    
    3,059
    
    
    
    
    
    
    
    Issued 4,352 shares for employee stock purchase plan
    
    
    109,521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,521Issued 794 shares for current directors fees
    
    
    22,791
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,791Issued 1,179 shares for directors variable fee plan
    
    
    32,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,092Issued 283 shares for deferred directors fees
    
    
    5,953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,953Directors deferred compensation (590 stock units)
    
    
    
    
    
    
    
    
    
    
    18,270
    
    
    
    
    
    
    
    
    
    
    
    18,270Reclassification of directors deferred
compensation (19,321 stock units)
    
    
    
    
    
    
    
    
    
    
    437,211
    
    
    
    
    
    
    
    
    
    
    
    437,211Comprehensive income:Net income
    
    
    
    
    
    
    6,291,095
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,291,095Change in unrealized gain (loss) on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334,723
    )
    
    
    (334,723
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,956,372Cash dividends ($0.72 per share)
    
    
    
    
    
    
    (2,286,173
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,286,173
    )Balances at December 31, 2004
    
    
    6,009,181
    
    
    
    39,430,621
    
    
    
    455,481
    
    
    
    (151,048
    )
    
    
    (28,187
    )
    
    
    45,716,048Issued 2,325 shares for long term incentive plan
    
    
    70,239
    
    
    
    
    
    
    
    
    
    
    
    (70,239
    )
    
    
    
    
    
    
    Amortization of long term incentive plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,880
    
    
    
    
    
    
    
    83,880Issued 3,687 shares for employee stock purchase plan
    
    
    95,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,975Issued 722 shares for current directors fees
    
    
    20,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,765Issued 986 shares for directors variable fee plan
    
    
    29,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,787Directors deferred compensation (4,105 stock units)
    
    
    
    
    
    
    
    
    
    
    119,564
    
    
    
    
    
    
    
    
    
    
    
    119,564Comprehensive income:Net income
    
    
    
    
    
    
    6,506,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,506,986Change in unrealized loss on investment
securities available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578,990
    )
    
    
    (578,990
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,927,996Cash dividends ($0.80 per share)
    
    
    
    
    
    
    (2,547,690
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,547,690
    )Balances at December 31, 2005
    
    $
    6,225,947
    
    
    $
    43,389,917
    
    
    $
    575,045
    
    
    $
    (137,407
    )
    
    $
    (607,177
    )
    
    $
    49,446,325
  32




---



##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    6,506,986
    
    
    $
    6,291,095
    
    
    $
    5,890,897Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    3,037,000
    
    
    
    1,190,000
    
    
    
    1,270,000Depreciation and amortization
    
    
    984,021
    
    
    
    1,014,720
    
    
    
    992,986Deferred income tax expense (benefit)
    
    
    (503,802
    )
    
    
    159,167
    
    
    
    (118,597
    )Net amortization (accretion) on investment securities
    
    
    15,183
    
    
    
    (16,031
    )
    
    
    126,508Earned portion of long term incentive plan
    
    
    83,880
    
    
    
    184,530
    
    
    
    134,767Shares issued for current directors compensation
    
    
    50,552
    
    
    
    54,883
    
    
    
    61,950Shares earned for deferred directors compensation
    
    
    119,564
    
    
    
    24,223
    
    
    
    Gain on sale/call of investments
    
    
    
    
    
    
    
    
    
    
    (3,823
    )Gain on sale of loans
    
    
    (62,512
    )
    
    
    (68,881
    )
    
    
    (373,516
    )Proceeds from sale of loans
    
    
    6,102,540
    
    
    
    11,285,139
    
    
    
    23,486,120Gain on the sale of other real estate owned, held for sale
    
    
    (20,507
    )
    
    
    (98,850
    )
    
    
    (22,710
    )(Gain) loss on sale of land and facilities held for sale
    
    
    2,595
    
    
    
    (42,716
    )
    
    
    Origination of loans held for sale
    
    
    (5,788,325
    )
    
    
    (10,541,000
    )
    
    
    (22,524,120
    )Loss on disposal of equipment
    
    
    19,990
    
    
    
    
    
    
    
    8,958(Increase) decrease in accrued interest income and other assets
    
    
    (338,394
    )
    
    
    (135,314
    )
    
    
    48,167Increase (decrease) in accrued interest, taxes, and other liabilities
    
    
    (103,130
    )
    
    
    (29,240
    )
    
    
    906,988Net cash provided by operating activities
    
    
    10,105,641
    
    
    
    9,271,725
    
    
    
    9,884,575Cash flows from investing activities:Purchases of available for sale securities
    
    
    (5,119,280
    )
    
    
    (36,556,566
    )
    
    
    (22,783,210
    )Purchases of held to maturity securities
    
    
    (2,091,712
    )
    
    
    (4,776,698
    )
    
    
    (234,270
    )Purchases/stock dividend FHLBI stock
    
    
    (22,900
    )
    
    
    (47,900
    )
    
    
    (38,500
    )Proceeds from maturities and calls of available for sale securities
    
    
    3,000,000
    
    
    
    24,500,000
    
    
    
    3,500,000Proceeds from mortgage-backed securities paydowns-available for sale
    
    
    3,647,345
    
    
    
    3,660,069
    
    
    
    5,977,649Proceeds from maturities and calls of held to maturity securities
    
    
    1,666,000
    
    
    
    3,820,125
    
    
    
    2,046,100Proceeds from mortgage-backed securities paydowns-held to maturity
    
    
    
    
    
    
    
    
    
    
    26,028Purchases of certificates of deposit
    
    
    (10,600,000
    )
    
    
    (5,993,000
    )
    
    
    (1,187,000
    )Maturity of certificates of deposit
    
    
    9,525,000
    
    
    
    1,455,000
    
    
    
    3,514,000Purchase of loans
    
    
    
    
    
    
    (6,279,807
    )
    
    
    (3,000,000
    )Net increase in loans
    
    
    (18,690,040
    )
    
    
    (6,996,938
    )
    
    
    (18,662,903
    )Proceeds from sale of other real estate owned, held for sale
    
    
    1,043,955
    
    
    
    990,652
    
    
    
    760,916Proceeds from sale of land and facilities held for sale
    
    
    93,085
    
    
    
    1,503,016
    
    
    
    Capital expenditures
    
    
    (382,966
    )
    
    
    (346,912
    )
    
    
    (2,655,515
    )Net cash used in investing activities
    
    
    (17,931,513
    )
    
    
    (25,068,959
    )
    
    
    (32,736,705
    )Cash flows from financing activities:Net increase in deposits
    
    
    22,822,677
    
    
    
    189,609
    
    
    
    25,001,090Payments on FHLBI note
    
    
    (3,281,742
    )
    
    
    (260,872
    )
    
    
    (241,547
    )Proceeds from issuance of short term debt
    
    
    11,000,000
    
    
    
    3,000,000
    
    
    
    Repayment of short term debt
    
    
    (14,000,000
    )
    
    
    
    
    
    
    Dividends paid
    
    
    (2,547,690
    )
    
    
    (2,286,173
    )
    
    
    (2,151,047
    )Shares issued for employee stock purchase plan
    
    
    95,975
    
    
    
    109,521
    
    
    
    88,722Net cash provided by financing activities
    
    
    14,089,220
    
    
    
    752,085
    
    
    
    22,697,218Net increase (decrease) in cash and cash equivalents
    
    
    6,263,348
    
    
    
    (15,045,149
    )
    
    
    (154,912
    )Cash and cash equivalents at beginning of year
    
    
    17,838,343
    
    
    
    32,883,492
    
    
    
    33,038,404Cash and cash equivalents at end of year
    
    $
    24,101,691
    
    
    $
    17,838,343
    
    
    $
    32,883,492Supplemental disclosures:Interest paid
    
    $
    6,813,756
    
    
    $
    5,642,097
    
    
    $
    6,168,253Federal income taxes paid
    
    
    3,546,682
    
    
    
    2,609,881
    
    
    
    2,460,000Loans transferred to other real estate
    
    
    968,181
    
    
    
    1,561,802
    
    
    
    95,000Properties transferred to land and facilities held for sale
    
    
    
    
    
    
    155,690
    
    
    
    Loans charged off
    
    
    2,253,717
    
    
    
    922,078
    
    
    
    1,282,563
  33




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##### Table of Contents



Notes to Consolidated Financial Statements
 (1)
    
    Summary of Significant Accounting Policies
 Principles of Consolidation
      (a)
    
    Brokered Certificates of DepositBrokered 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 SecuritiesThe Bank classifies debt and equity investments and mortgagebacked securities as follows: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 we may not hold until maturity are accounted for as securities
available for sale and are stated at fair value, with unrealized gains and losses, net of
income taxes, reported as a separate component of other comprehensive income until realized.Trading account securities are carried at fair value. Realized and unrealized gains or losses
on trading securities are included in noninterest income. The Bank holds no securities under
the trading classification.Gains or losses on the sale of securities are computed based on the adjusted cost of the
specific security.Management reviews all securities for impairment and records other-than-temporary impairments,
if any, as a component of noninterest income.(c)
    
    LoansLoans 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
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yield. Net unamortized deferred loan fees amounted to $856,000 and $1,006,000 at December 31,
2005 and 2004, respectively.The Bank originates real estate mortgage loans for sale to the secondary market and sells the
loans with servicing retained. 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 total cost of mortgage loans originated and sold is allocated between the loan servicing
right and the mortgage loan, based on their relative fair values 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. The Bank enters into interest rate lock
commitments to originate loans at a rate determined prior to funding. Interest rate lock
commitments on residential mortgage loans that are intended to be sold are considered to be
derivatives. Fair value is based on fees currently charged to enter into similar agreements.
At December 31, 2005 and 2004, the fair value of interest rate lock commitments was
insignificant.Mortgage servicing rights, which are included in other assets, 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 rights 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 and Credit CommitmentsThe 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.The Bank also maintains a reserve for losses on unfunded credit commitments and letters of
credit to provide for the risk of loss inherent in these arrangements. The reserve is computed
using the same methodology as that used to determine the allowance for loan losses. This
reserve is reported as a liability on the balance sheet within accrued interest, taxes, and
other liabilities, while the corresponding provision for these losses is recorded as a
component of the provision for loan losses.(e)
    
    Nonperforming AssetsThe 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 status when principal or interest is past due 90
days or more and when, in the opinion of management, full collection of principal and interest
is unlikely. At the time a loan is placed on nonaccrual status, interest previously accrued
but not yet collected is charged against current income. Income on
such loans is then recognized only to the extent that cash is received and where future
collection of principal is probable.
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##### Table of Contents



The Bank considers a loan to be impaired when it is probable that it will be unable to collect
all or part of amounts due according to the contractual terms of the loan agreement. Impaired
loans are measured based on the present value of expected cash flows discounted at the loans
effective interest rate or, as a practical expedient, at a loans observable market price, or
the fair value of the collateral if the loan is collateral dependent. Interest income on
impaired loans is accrued based on the principal amounts outstanding. The accrual of interest
is generally discontinued when an impaired loan becomes 90 days past due.(f)
    
    Real EstateOther 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. 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
noninterest 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)
    
    Premises and EquipmentPremises and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization, computed on the straight-line method, are charged to operations
over the estimated useful lives of the assets. Estimated useful lives range up to 40 years for
buildings, up to 7 years for furniture and equipment and up to 15 years for land improvements.
Leasehold improvements are generally depreciated over the shorter of the respective lease
term or estimated useful life.Premises and equipment are evaluated periodically for impairment when events or changes in
circumstances indicate the carrying amount may not be recoverable. Impairment exists when the
expected undiscounted future cash flows of a long-lived asset are less than its carrying
value. In that event, the Bank recognizes a loss for the difference between the carrying
amount and the estimated fair value of the asset based on a quoted market price, if
applicable, or a discounted cash flow analysis. Impairment losses are recorded in other
noninterest expense on the income statement.(h)
    
    Advertising CostsAdvertising costs are generally expensed as incurred.(i)
    
    Federal Income TaxesDeferred 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.(j)
    
    Stock-Based CompensationAt December 31, 2005 and 2004, the Corporation has two stock-based compensation plans, which
are described more fully in notes 16 and 17.(k)
    
    Statements of Cash FlowsFor purposes of reporting cash flows, cash equivalents include amounts due from banks, federal
funds sold and other short term investments with original maturities of 90 days or less.(l)
    
    Comprehensive IncomeSFAS 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
Corporation reports comprehensive income within the statement of stockholders equity and
comprehensive income. Comprehensive income includes net income and any changes in equity from
nonowner sources that are not recorded in the income statement.
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##### Table of Contents



(m)
    
    Earnings Per ShareBasic earnings per common share is calculated by dividing net income by the average number of
common shares and deferred director fee stock units outstanding during the year. Diluted
earnings per common share is calculated by dividing net income by the average number of common
shares and deferred director fee stock units outstanding during the year, plus the effect of
common stock equivalents (for example, restricted share rights) that are dilutive.(n)
    
    ReclassificationCertain reclassifications of 2004 and 2003 information have been made to conform to the
current year presentation.(2)
    
    Certificates of DepositAt December 31, 2005 the scheduled maturities of certificates of deposit were:
 Maturing in 2006
    
    $
    5,399,000Maturing in 2007
    
    
    1,571,000Maturing in 2008
    
    
    196,000Total
    
    $
    7,166,000
 (3)
    
    Investment and Mortgage-Backed SecuritiesA summary of the amortized cost and approximate fair value of investment and mortgage-backed
securities at December 31, 2005 and 2004 follows:
 December 31, 2005
    
    
    December 31, 2004Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    UnrealizedAmortized
    
    
    gross
    
    
    gross
    
    
    Fair
    
    
    Amortized
    
    
    gross
    
    
    gross
    
    
    Faircost
    
    
    gains
    
    
    losses
    
    
    value
    
    
    cost
    
    
    gains
    
    
    losses
    
    
    valueHeld to maturity:Obligations of state and
political subdivisions
    
    $
    16,425,674
    
    
    $
    365,562
    
    
    $
    (28,032
    )
    
    $
    16,763,204
    
    
    $
    16,009,337
    
    
    $
    696,303
    
    
    $
    
    
    
    $
    16,705,640Total held to maturity
    
    
    16,425,674
    
    
    
    365,562
    
    
    
    (28,032
    )
    
    
    16,763,204
    
    
    
    16,009,337
    
    
    
    696,303
    
    
    
    
    
    
    
    16,705,640Available for sale:U.S. Treasury and
agency securities
    
    
    32,095,107
    
    
    
    6,068
    
    
    
    (717,398
    )
    
    
    31,383,777
    
    
    
    29,975,734
    
    
    
    61,903
    
    
    
    (299,522
    )
    
    
    29,738,115Corporate bonds
    
    
    1,000,062
    
    
    
    4,517
    
    
    
    
    
    
    
    1,004,579
    
    
    
    1,001,104
    
    
    
    36,476
    
    
    
    
    
    
    
    1,037,580Mortgage-backed
securities
    
    
    12,618,628
    
    
    
    35,073
    
    
    
    (248,225
    )
    
    
    12,405,476
    
    
    
    16,270,832
    
    
    
    194,770
    
    
    
    (33,414
    )
    
    
    16,432,188Total available for sale
    
    
    45,713,797
    
    
    
    45,658
    
    
    
    (965,623
    )
    
    
    44,793,832
    
    
    
    47,247,670
    
    
    
    293,149
    
    
    
    (332,936
    )
    
    
    47,207,883Total securities
    
    $
    62,139,471
    
    
    $
    411,220
    
    
    $
    (993,655
    )
    
    $
    61,557,036
    
    
    $
    63,257,007
    
    
    $
    989,452
    
    
    $
    (332,936
    )
    
    $
    63,913,523
 There were 24 securities in a continuous loss position for 12 months or more at December
31, 2005, which consisted of six asset backed securities and 18 agency securities. Because the
declines in fair value were due to changes in market interest rates, not in estimated cash
flows, and the securities are bank qualified municipals, federal agencies, or mortgage-backed
securities issued by federal agencies, no other-than-temporary impairment was recorded at
December 31, 2005. The Corporation has both the intent and ability to hold these securities for
the time necessary to recover the amortized cost.
 37




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##### Table of Contents



The following is a summary of the unrealized losses and fair value of securities available for sale
portfolio at December 31, 2005 and 2004, by length of time that individual securities in each
category have been in a continuous loss position:
 December 31, 2005Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealizedgross
    
    
    Fair
    
    
    gross
    
    
    Fair
    
    
    gross
    
    
    Fairlosses
    
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    valueAvailable for sale:U.S. Treasury and agency securities
    
    $
    (188,952
    )
    
    $
    10,414,796
    
    
    $
    (528,446
    )
    
    $
    18,962,912
    
    
    $
    (717,398
    )
    
    $
    29,377,708Mortgage-backed securities
    
    
    (89,078
    )
    
    
    7,146,899
    
    
    
    (159,147
    )
    
    
    4,380,673
    
    
    
    (248,225
    )
    
    
    11,527,572Total available for sale
    
    $
    (278,030
    )
    
    $
    17,561,695
    
    
    $
    (687,593
    )
    
    $
    23,343,585
    
    
    $
    (965,623
    )
    
    $
    40,905,280
 December 31, 2004Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealizedgross
    
    
    Fair
    
    
    gross
    
    
    Fair
    
    
    gross
    
    
    Fairlosses
    
    
    value
    
    
    losses
    
    
    value
    
    
    losses
    
    
    valueAvailable for sale:U.S. Treasury and agency securities
    
    $
    (212,126
    )
    
    $
    21,264,600
    
    
    $
    (87,396
    )
    
    $
    2,912,605
    
    
    $
    (299,522
    )
    
    $
    24,177,205Mortgage-backed securities
    
    
    (24,430
    )
    
    
    4,771,822
    
    
    
    (8,984
    )
    
    
    1,064,810
    
    
    
    (33,414
    )
    
    
    5,836,632Total available for sale
    
    $
    (236,556
    )
    
    $
    26,036,422
    
    
    $
    (96,380
    )
    
    $
    3,977,415
    
    
    $
    (332,936
    )
    
    $
    30,013,837
  December 31, 2005
    
    
    December 31, 2004Amortized
    
    
    Approximate
    
    
    Amortized
    
    
    Approximatecost
    
    
    fair value
    
    
    cost
    
    
    fair valueHeld to maturity:Due in one year or less
    
    $
    2,384,602
    
    
    $
    2,402,255
    
    
    $
    1,279,805
    
    
    $
    1,308,479Due after one year through
five years
    
    
    7,307,216
    
    
    
    7,495,656
    
    
    
    8,926,155
    
    
    
    9,398,971Due after five years through
ten years
    
    
    1,881,449
    
    
    
    1,871,800
    
    
    
    1,953,582
    
    
    
    2,029,413Due after ten years
    
    
    4,852,407
    
    
    
    4,993,493
    
    
    
    3,849,795
    
    
    
    3,968,777$
    16,425,674
    
    
    $
    16,763,204
    
    
    $
    16,009,337
    
    
    $
    16,705,640Available for sale:Due in one year or less
    
    $
    8,238,228
    
    
    $
    8,186,734
    
    
    $
    3,005,150
    
    
    $
    2,986,680Due after one year through
five years
    
    
    24,856,941
    
    
    
    24,201,622
    
    
    
    26,992,032
    
    
    
    26,810,797Due after five years through
ten years
    
    
    
    
    
    
    
    
    
    
    979,656
    
    
    
    978,21833,095,169
    
    
    
    32,388,356
    
    
    
    30,976,838
    
    
    
    30,775,695Mortgage-backed securities
    
    
    12,618,628
    
    
    
    12,405,476
    
    
    
    16,270,832
    
    
    
    16,432,188$
    45,713,797
    
    
    $
    44,793,832
    
    
    $
    47,247,670
    
    
    $
    47,207,883
 Proceeds from sales/calls of available for sale securities totaled approximately $0,
$8,000,000, and $3,500,000 during 2005, 2004, and 2003, respectively; gross realized gains of
$4,587 and gross realized losses of $764 were recorded as a result of sales of
available-for-sale securities during 2003 (none in 2005 and 2004).
 38




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##### Table of Contents



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, 2005 and 2004 are as follows:
 2005
    
    2004Amortized
    
    Approximate
    
    Amortized
    
    Approximatecost
    
    fair value
    
    cost
    
    fair valueState of Michigan
    
    $
    11,673,789
    
    
    $
    11,877,846
    
    
    $
    10,545,620
    
    
    $
    10,971,396
 Investment securities, with an amortized cost of approximately $1,792,000 at December 31,
2005 and $1,865,000 at December 31, 2004, 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), both of which are recorded at cost. 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 $1,109,300 and $1,086,400 as of December 31, 2005 and
2004, respectively. The Banks investment in FRB stock, which totaled $44,250 at December 31,
2005 and 2004, respectively, is a requirement for the Banks membership in the Federal Reserve
System. These investments can only be resold to, or redeemed, by the issuer.
 (4)
    
    LoansLoans on nonaccrual status amounted to $5,234,000, $1,146,000 and $4,293,000, at December 31,
2005, 2004, and 2003, respectively. If these loans had continued to accrue interest in
accordance with their original terms, approximately $270,000, $98,000, and $320,000 of
interest income would have been recognized in 2005, 2004, and 2003 respectively. The Bank had
no troubled-debt restructured loans at December 31, 2005 and 2004.Details of past-due and nonperforming loans follow:
 90 days past dueand still accruing interest
    
    
    Nonaccrual2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Commercial and mortgage
loans secured by real estate
    
    $
    384,842
    
    
    $
    285,771
    
    
    $
    
    
    
    $
    4,124,339
    
    
    $
    243,374
    
    
    $
    4,253,075Consumer loans
    
    
    5,756
    
    
    
    2,541
    
    
    
    
    
    
    
    91,599
    
    
    
    92,285
    
    
    
    24,882Commercial and other loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018,133
    
    
    
    810,175
    
    
    
    14,932Total
    
    $
    390,598
    
    
    $
    288,312
    
    
    $
    
    
    
    $
    5,234,071
    
    
    $
    1,145,834
    
    
    $
    4,292,889
 Impaired loans totaled $10.1 million, $5.9 million, and $9.6 million at December 31,
2005, 2004, and 2003, respectively. Specific reserves relating to these loans were $2.1
million, $1.7 million, and $1.6 million at December 31, 2005, 2004, and 2003, respectively.Cash received and recognized as income on impaired loans approximated $655,000, $428,000, and
$308,000 for the years ended December 31, 2005, 2004, and 2003, respectively. Average impaired
loans for the years ended December 31, 2005, 2004, and 2003 were approximately $8.3 million,
$7.4 million, and $9.6 million, respectively.Loans serviced for others including commercial participations sold, were approximately $48.9
million, $52.6 million, and $59.4 million at December 31, 2005, 2004, and 2003, respectively.The Bank capitalized $22,000 $21,000, and $140,000, in mortgage servicing rights and incurred
approximately $82,000, $94,000, and $94,000, in related amortization expense during 2005,
2004, and 2003, respectively. At December 31, 2005 and 2004, these mortgage servicing rights
had a gross book value of $248,000 and $308,000, respectively, and fair value of approximately
$404,000 and $355,000, respectively. The weighted average amortization period for mortgage
servicing rights capitalized in 2005 is approximately 5 years. Mortgage loans with
mortgage servicing rights capitalized totaled approximately $38.2 million at December 31,
2005, $38.9 million at December 31, 2004, and $43.2 million at December 31, 2003. The
valuation allowance for capitalized mortgage servicing rights was $61,000 at December 31,
2005, and $103,000 at December 31, 2004.
 39




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##### Table of Contents



Estimated aggregate amortization expense relating to the Banks mortgage servicing rights as
of December 31, 2005 is as follows:
 Year:2006
    
    $
    67,0002007
    
    
    53,0002008
    
    
    43,0002009
    
    
    31,0002010
    
    
    22,0002011 and thereafter
    
    
    32,000Total
    
    $
    248,000
 Included in real estate loans at December 31, 2005 and 2004 were approximately $172,000 and
$274,000, 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,
2005, which had not yet been funded. These commitments approximated $166,000.(5)
    
    Allowance for Loan Losses and Reserve for Unfunded Credit CommitmentsThe following represents a summary of the activity in the allowance for loan losses and the
reserve for unfunded credit commitments for the years ended December 31, 2005, 2004, and 2003:
 2005
    
    
    2004
    
    
    2003Components:Allowance for loan lossesBalance, beginning of year
    
    $
    6,092,949
    
    
    $
    5,434,375
    
    
    $
    5,794,399Loans charged off:Real estate mortgage
    
    
    25,771
    
    
    
    
    
    
    
    Commercial
    
    
    1,436,463
    
    
    
    378,914
    
    
    
    1,013,792Consumer
    
    
    791,483
    
    
    
    543,164
    
    
    
    268,771Total charge offs
    
    
    2,253,717
    
    
    
    922,078
    
    
    
    1,282,563Recoveries to loans previously charged off:Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    120,012
    
    
    
    69,515
    
    
    
    111,652Consumer
    
    
    141,881
    
    
    
    104,137
    
    
    
    64,887Total recoveries
    
    
    261,893
    
    
    
    173,652
    
    
    
    176,539Net loans charged off
    
    
    1,991,824
    
    
    
    748,426
    
    
    
    1,106,024Additions to allowance charged to operations
    
    
    2,890,000
    
    
    
    1,407,000
    
    
    
    746,000Balance, end of year
    
    
    6,991,125
    
    
    
    6,092,949
    
    
    
    5,434,375Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    307,000
    
    
    
    524,000
    
    
    
    Additions (reductions) to reserve charged to operations
    
    
    147,000
    
    
    
    (217,000
    )
    
    
    524,000Balance, end of year
    
    
    454,000
    
    
    
    307,000
    
    
    
    524,000Total allowance for loan losses and reserve for
unfunded credit commitments
    
    $
    7,445,125
    
    
    $
    6,399,949
    
    
    $
    5,958,375
 40




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##### Table of Contents



(6)
    
    Premises and EquipmentA summary of premises and equipment, and related accumulated depreciation and amortization, at
December 31, 2005 and 2004 follows:
 2005
    
    
    2004Land and land improvements
    
    $
    2,921,480
    
    
    $
    2,897,502Premises
    
    
    10,035,233
    
    
    
    10,055,978Furniture and equipment
    
    
    5,397,742
    
    
    
    6,550,05618,354,455
    
    
    
    19,503,536Less accumulated depreciation and amortization
    
    
    (7,888,599
    )
    
    
    (8,416,635
    )Premises and equipment, net
    
    $
    10,465,856
    
    
    $
    11,086,901
 (7)
    
    Land and Facilities Held for SaleDuring the first quarter of 2004, the Bank transferred two pieces of property originally
acquired for future expansion, and previously recorded as premises and equipment, to land and
facilities held for sale. One of the properties was sold in the fourth quarter of 2004 and a
gain of approximately $43,000 was recognized as a component of noninterest income. The
remaining property was sold in the second quarter of 2005 and a loss of approximately $2,600
was recognized as a component of noninterest income.(8)
    
    Other Real Estate OwnedAt December 31, 2005, the Bank owned three foreclosed properties with a lower of cost or
market value of $679,733. As of December 31, 2004, the Bank owned four foreclosed properties
with a lower of cost or market value of $735,000. 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.(9)
    
    Time Certificates of DepositAt December 31, 2005, the scheduled maturities of time deposits including brokered
certificates of deposit including brokered certificates of deposit with a remaining term of
more than one year were:
 Year of maturity:2007
    
    $
    32,072,3212008
    
    
    4,570,9632009
    
    
    7,780,1422010
    
    
    4,296,1532011 and thereafter
    
    
    22,517Total
    
    $
    48,742,096
 Included in time deposits are certificates of deposit and brokered certificates of deposit in
amounts of $100,000 or more. These certificates and their remaining maturities at December 31,
2005 and 2004 are as follows:
 2005
    
    
    2004Three months or less
    
    $
    29,599,143
    
    
    $
    18,229,224Three through six months
    
    
    16,225,630
    
    
    
    6,204,213Six through twelve months
    
    
    24,527,040
    
    
    
    4,769,590Over twelve months
    
    
    20,803,079
    
    
    
    25,146,559Total
    
    $
    91,154,892
    
    
    $
    54,349,586
 Interest expense attributable to the above deposits amounted to approximately $2,810,000,
$1,472,000, and $1,472,000 in 2005, 2004, and 2003, respectively.
 41




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##### Table of Contents



(10)
    
    Other BorrowingsThe Bank has a borrowing capacity of approximately $37,700,000 with the FHLBI and had an
advance outstanding balance of approximately $1,785,000 and $8,067,000 at December 31, 2005
and 2004, 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 the outstanding advance at December 31, 2005,
follows:
 WeightedaverageMaturity
    
    interest rate
    
    
    AmountFixed rate:Within one year
    
    
    7.29
    %
    
    $
    304,281Two years
    
    
    7.29
    %
    
    
    328,623Three years
    
    
    7.29
    %
    
    
    354,913Four years
    
    
    7.29
    %
    
    
    383,307Five years
    
    
    7.29
    %
    
    
    413,970Total long term advance
    
    
    
    
    
    $
    1,785,094
 (11)
    
    Deferred Gain on the Sale of Real EstateIn December 2003, the Bank sold a piece of real estate previously classified as facilities
held for sale on the balance sheet and provided financing to the buyer. In accordance with
SFAS No. 66, Accounting for Sales of Real Estate,the Bank deferred the gain of $299,000 on
the sale under the installment method. In the first quarter of 2004, the Bank sold the loan
associated with this transaction with no recourse and accordingly recognized the deferred gain
as a component of noninterest income.(12)
    
    Federal Income TaxesFederal income tax expense (benefit) consists of:
 2005
    
    
    2004
    
    
    2003Current
    
    $
    3,387,723
    
    
    $
    2,568,989
    
    
    $
    2,673,034Deferred
    
    
    (503,802
    )
    
    
    159,167
    
    
    
    (118,597
    )Total federal income tax
    
    $
    2,883,921
    
    
    $
    2,728,156
    
    
    $
    2,554,437
  2005
    
    
    2004
    
    
    2003Computed expected tax expense
    
    $
    3,192,908
    
    
    $
    3,066,545
    
    
    $
    2,871,414Increase (reduction) in tax resulting from:Tax-exempt interest and dividends, net
    
    
    (325,188
    )
    
    
    (331,745
    )
    
    
    (336,850
    )Other, net
    
    
    16,201
    
    
    
    (6,644
    )
    
    
    19,873Total federal income tax
    
    $
    2,883,921
    
    
    $
    2,728,156
    
    
    $
    2,554,437
 42




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##### Table of Contents



The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2005 and 2004 are presented
below:
 2005
    
    
    2004Deferred tax assets:Allowance for loan losses
    
    $
    2,377,695
    
    
    $
    2,022,336Unrealized loss on securities available for sale
    
    
    312,788
    
    
    
    11,600Deferred directors fees
    
    
    195,533
    
    
    
    154,864Other
    
    
    290,218
    
    
    
    235,914Total gross deferred tax assets
    
    
    3,176,234
    
    
    
    2,424,714Deferred tax liabilities:Deferred loan fees
    
    
    153,100
    
    
    
    158,016Other
    
    
    203,414
    
    
    
    251,968Total gross deferred tax liabilities
    
    
    356,514
    
    
    
    409,984Net deferred tax asset
    
    $
    2,819,720
    
    
    $
    2,014,730
 The deferred tax assets are subject to certain asset realization tests. Management believes no
valuation allowance is required at December 31, 2005, due to the combination of potential
recovery of tax previously paid and the reversal of certain deductible temporary differences.(13)
    
    Related Party TransactionsCertain directors and executive officers, including their immediate families and companies in
which they are principal owners, were loan customers of the Bank during 2005 and 2004.
Deposits to such individuals and their related interests totaled approximately $1.0 million at
December 31, 2005 and $.9 million at December 31, 2004. 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.Loans to related parties are summarized below for the periods indicated:
 2005
    
    
    2004Balance at beginning of year
    
    $
    5,179,300
    
    
    $
    4,226,100New loans and related parties
    
    
    2,167,800
    
    
    
    1,500,000Loan repayments
    
    
    (1,271,700
    )
    
    
    (546,800
    )Balance at end of year
    
    $
    6,075,400
    
    
    $
    5,179,300
 (14)
    
    LeasesThe Bank has a noncancelable operating lease that provides for renewal options.Future minimum lease payments under the noncancelable lease as of December 31, 2005 are as
follows:
 Year ending December 31:2006
    
    $
    46,6602007
    
    
    34,995Total lease payments
    
    $
    81,655
 Rental expense charged to operations in 2005, 2004, and 2003 amounted to approximately
$59,000, $60,000, and $60,000 respectively, including amounts paid under short term,
cancelable leases.
 (15)
    
    Retirement PlanThe Bank sponsors a defined contribution money purchase thrift plan covering all employees 21
years of age or older who have completed one year of service as defined in the plan agreement.
Contributions are equal to 5% of total employee earnings plus 50% of employee contributions
(limited to 10% of their earnings) or the maximum
 43




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##### Table of Contents



amount permitted by the Internal Revenue
Code. The plan expense of the Bank for 2005, 2004, and 2003 was approximately $370,000,
$376,000, and $344,000, respectively.(16)
    
    Long Term Incentive PlanThe 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 awards have been made to key employees, providing for the immediate award of
the Corporations stock, subject to a five-year vesting period. The awards are recorded at
fair market value on the grant date and are amortized into salary expense over the vesting
period. Compensation costs related to restricted stock awards included in salary expense in
2005, 2004, and 2003, amounted to $84,000, $185,000, and $135,000, respectively.
 (17)
    
    Directors Stock Fee PlanEach director of the Corporation who is not an officer or employee of any subsidiary of the
Corporation is eligible to participate in the Compensation Plan for Nonemployee Directors. The
plan fees consist of both a fixed and variable component. The fixed component equals the
per-meeting fee paid for attendance at board meetings of both the Bank and the Corporation and
any committees of their respective boards. The variable component of the plan is equal to the
total fixed fees paid to a specific director for services performed during the preceding
calendar year, multiplied by bonus amounts, (expressed as the percentage of base compensation
payable to officers of the Bank for the preceding calendar year under the Banks Incentive
Bonus Plan). Expenses related to both fixed and variable fees are recorded as noninterest
expense in the year incurred regardless of payment method. Compensation costs related to both
fixed and variable stock directors fees included in noninterest expense in 2005, 2004, and
2003 amounted to $120,000, $103,000, and $84,000, respectively.Fixed directors fees may be paid in cash, to a current stock purchase account, to a deferred
cash investment account, or to a deferred stock account according to each eligible directors
payment election. Current stock is issued quarterly based on the average fair market value of
the stock for the preceding quarter. When deferred stock is elected, payments are credited to
a deferred stock account for each participating director, and stock units are computed
quarterly based on the average fair market value of the stock for the preceding quarter. When
dividends are declared, they are computed based on the stock units available in each
directors deferred account, are reinvested in stock units and charged to expense. The units
are converted to shares and issued to participating directors upon retirement. As of December
31, 2005, there were approximately 19,700 shares earned and available for distribution in the
fixed-fee deferred stock accounts.Variable directors fees may be paid to a current stock purchase account or to a deferred
stock account. Current stock is issued based on the average fair market value of the stock for
the preceding quarter. Deferred stock units are computed for directors electing to use a
deferred stock account, and dividends are reinvested throughout the year as declared. As of
December 31, 2005, there were approximately 4,400 shares earned and available for distribution
in the variable-fee deferred stock accounts. In September 2004, the Corporation reclassified
Deferred Directors Compensation related to fixed and variable fees associated with deferred
stock accounts from a liability to a component of equity. Prior periods were not reclassified
as the impact of this change was determined not to be significant.(18)
    
    Employees Stock Purchase PlanThe Employees Stock Purchase Plan allows eligible employees to purchase shares of common
stock, no par value, of FNBH Bancorp, Inc. at a price less than market price under Section 423
of the Internal Revenue Code of 1986 as amended. Eligible employees must have been
continuously employed for one year, must work at least 20 hours per week, and must work at
least five months in a calendar year. Since the adoption of the plan, the purchase price for
each share of stock was 85% of fair market value of a share of stock on the purchase date.
Effective April 1, 2005, the purchase price for each share of stock is 95% of fair market
value of a share of stock on the purchase date.
 44




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##### Table of Contents



(19)
    
    Financial Instruments with Off-Balance-Sheet RiskThe Bank is a party to financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of its customers. These financial instruments are loan
commitments to extend credit and letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amounts recognized in the consolidated
balance sheets.The Banks exposure to credit loss in the event of the nonperformance by the other party to
the financial instruments for loan commitments to extend credit and letters of credit is
represented by the contractual amounts of these instruments. The Bank uses the same credit
policies in making credit commitments as it does for on-balance-sheet loans.Financial instruments whose contract amounts represent credit risk at December 31, 2005 and
2004 are as follows:
 2005
    
    
    2004Consumer
    
    $
    16,258,000
    
    
    $
    12,625,000Commercial construction
    
    
    9,372,000
    
    
    
    14,200,000Commercial
    
    
    41,398,000
    
    
    
    51,027,000Total credit commitments
    
    $
    67,028,000
    
    
    $
    77,852,000
 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, 2005 and 2004, the Bank had outstanding irrevocable standby letters of
credit, which carry a maximum potential commitment of approximately $3,200,000 and $3,236,000,
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, 2005 and 2004,
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)
    
    CapitalThe Corporation and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary, actions by regulators that,
if undertaken, could have a direct, material effect on the Corporations financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Corporations and the Banks capital classification are
also subject to qualitative judgments by regulators with regard to components, risk
weightings, and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Corporation and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as
defined) to average assets (as defined).
 45




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##### Table of Contents



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 Corporations and the Banks actual capital amounts and ratios are also presented in the
following table as of December 31, 2005 and 2004:
 Minimum for
    
    
    To be well capitalizedcapital adequacy
    
    
    under prompt correctiveActual
    
    
    purposes
    
    
    action provisionAmount
    
    
    Ratio
    
    
    Amount
        
    Ratio
        
    Amount
        
    RatioAs of
December 31, 2005Total Capital (to risk weighted assets)Bank
    
    $
    54,723,000
    
    
    
    13.89
    %
    
    $
    31,520,000
    
    
    
    38
    %
    
    $
    39,400,000
    
    
    
    310
    %FNBH Bancorp
    
    
    55,009,000
    
    
    
    13.96
    %
    
    
    31,521,000
    
    
    
    38
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)Bank
    
    
    49,767,000
    
    
    
    12.63
    %
    
    
    15,760,000
    
    
    
    34
    %
    
    
    23,640,000
    
    
    
    36
    %FNBH Bancorp
    
    
    50,053,000
    
    
    
    12.70
    %
    
    
    15,760,000
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)Bank
    
    
    49,767,000
    
    
    
    10.58
    %
    
    
    18,810,000
    
    
    
    34
    %
    
    
    23,512,000
    
    
    
    35
    %FNBH Bancorp
    
    
    50,053,000
    
    
    
    10.64
    %
    
    
    18,810,000
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/AAs of December 31, 2004Total Capital (to risk weighted assets)Bank
    
    $
    47,813,000
    
    
    
    12.80
    %
    
    $
    29,893,000
    
    
    
    38
    %
    
    $
    37,367,000
    
    
    
    310
    %FNBH Bancorp
    
    
    48,423,000
    
    
    
    12.96
    %
    
    
    29,902,000
    
    
    
    38
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk weighted assets)Bank
    
    
    43,121,000
    
    
    
    11.54
    %
    
    
    14,947,000
    
    
    
    34
    %
    
    
    22,420,000
    
    
    
    36
    %FNBH Bancorp
    
    
    43,729,000
    
    
    
    11.70
    %
    
    
    14,951,000
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)Bank
    
    
    43,121,000
    
    
    
    9.65
    %
    
    
    17,870,000
    
    
    
    34
    %
    
    
    22,338,000
    
    
    
    35
    %FNBH Bancorp
    
    
    43,729,000
    
    
    
    9.78
    %
    
    
    17,877,000
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/A
 (21)
    
    Net Income per Common ShareBasic net income per common share is computed by dividing net income applicable to common
stock by the weighted average number of shares of common stock and deferred director fee stock
units outstanding during the period. Diluted net income per common share is computed by
dividing net income applicable to common stock by the weighted average number of shares and
deferred director fee stock units outstanding and potential common stock outstanding, such as
            shares of unvested restricted stock outstanding during the period, of which there were 372
shares as of December 31, 2005, and 1,117 shares as of December 31, 2004, calculated under the
treasury stock method.The following table presents basic and diluted net income per share:
 2005
    
    
    2004
    
    
    2003Weighted average basic shares outstanding
    
    
    3,200,146
    
    
    
    3,185,025
    
    
    
    3,162,836Effect of dilutive restricted stock
    
    
    372
    
    
    
    1,117
    
    
    
    Weighted average diluted shares outstanding
    
    
    3,200,518
    
    
    
    3,186,142
    
    
    
    3,162,836Net income
    
    $
    6,506,986
    
    
    $
    6,291,095
    
    
    $
    5,890,897Basic net income per share
    
    $
    2.03
    
    
    $
    1.98
    
    
    $
    1.86Diluted net income per share
    
    $
    2.03
    
    
    $
    1.97
    
    
    $
    1.86
 46




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##### Table of Contents



(22)
    
    Contingent LiabilitiesThe Corporation is subject to various claims and legal proceedings arising out of the normal
course of business, none of which, in the opinion of management, based on the advice of legal
counsel, is expected to have a material effect on the Corporations financial position or
results of operations.(23)
    
    Fair Value of Financial InstrumentsSFAS No. 107, Disclosures About Fair Value of Financial Instruments,requires disclosure of
fair-value information about financial instruments for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair-value estimates cannot be substantiated by
comparison to independent markets and, in many cases, cannot be realized in immediate
settlement of the instrument.Fair-value methods and assumptions for the Corporations financial instruments are as follows:Cash and cash equivalents The carrying amounts reported in the consolidated balance sheet
for cash and short term investments reasonably approximate those assets fair values.Certificates of deposit The carrying amounts reported in the consolidated balance sheet for
certificates of deposit reasonably approximate those assets fair values.Investment and mortgage-backed securities Fair values for investment and mortgage-backed
securities are based on quoted market prices.FHLBI and FRB stock The carrying amounts reported in the consolidated balance sheet for
FHLBI and FRB stock reasonably approximate those assets fair values.Loans For variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are generally based on carrying values. The fair value of fixed-rate
loans is estimated by discounting future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining
maturities.Accrued interest income The carrying amount of accrued interest income is a reasonable
estimate of fair value.Deposit liabilities The fair value of deposits with no stated maturity, such as demand
deposit, NOW, savings, 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
wholesale funds with similar remaining maturities.Other borrowings The fair value of other borrowings is estimated based on quoted market
prices.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 and is
not considered material and therefore not included in the following table.
 47




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##### Table of Contents



The estimated fair values of the Corporations financial instruments are as follows:
 2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    valueFinancial assets:Cash and cash equivalents
    
    $
    24,102,000
    
    
    $
    24,102,000
    
    
    $
    17,838,000
    
    
    $
    17,838,000Certificates of deposit
    
    
    7,166,000
    
    
    
    7,129,000
    
    
    
    6,091,000
    
    
    
    6,081,000Investment and mortgage-backed securities
    
    
    61,220,000
    
    
    
    61,557,000
    
    
    
    63,217,000
    
    
    
    63,914,000FHLBI and FRB stock
    
    
    1,154,000
    
    
    
    1,154,000
    
    
    
    1,131,000
    
    
    
    1,131,000Loans, net
    
    
    365,864,000
    
    
    
    364,595,000
    
    
    
    351,284,000
    
    
    
    355,584,000Accrued interest income
    
    
    2,453,000
    
    
    
    2,453,000
    
    
    
    2,080,000
    
    
    
    2,080,000Financial liabilities:Deposits:Demand
    
    $
    71,415,000
    
    
    $
    71,415,000
    
    
    $
    71,785,000
    
    
    $
    71,785,000NOW
    
    
    40,740,000
    
    
    
    40,740,000
    
    
    
    49,207,000
    
    
    
    49,207,000Savings and money market accounts
    
    
    133,865,000
    
    
    
    133,865,000
    
    
    
    147,299,000
    
    
    
    147,299,000Time deposits
    
    
    145,928,000
    
    
    
    144,868,000
    
    
    
    122,982,000
    
    
    
    122,973,000Brokered certificates
    
    
    30,137,000
    
    
    
    29,985,000
    
    
    
    7,990,000
    
    
    
    7,976,000Other borrowings
    
    
    1,785,000
    
    
    
    1,877,000
    
    
    
    8,067,000
    
    
    
    8,298,000Accrued interest expense
    
    
    813,000
    
    
    
    813,000
    
    
    
    573,000
    
    
    
    573,000
 LimitationsFair-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 RestrictionsOn 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 the Comptroller of the Currency (OCC) unless
the total dividends 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 $13.3 million was available for dividends on December 31, 2005, without the
approval of the OCC.
 48




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##### Table of Contents



(25)
    
    Condensed Financial Information  Parent Company OnlyThe condensed balance sheets at December 31, 2005 and 2004, and the condensed statements of
income and cash flows for the years ended December 31, 2005, 2004, and 2003, of FNBH Bancorp,
Inc. follow:
 Condensed Balance Sheets
 2005
    
    
    2004Assets:Cash
    
    $
    52,955
    
    
    $
    148,585Investment in subsidiaries:First National Bank in Howell
    
    
    48,354,429
    
    
    
    44,302,826H.B. Realty Co.
    
    
    1,000
    
    
    
    200,530FNBH Mortgage Company, LLC
    
    
    805,000
    
    
    
    805,000Other assets
    
    
    235,962
    
    
    
    259,107Total assets
    
    $
    49,449,346
    
    
    $
    45,716,048Liabilities and Stockholders Equity:Other liabilities
    
    $
    3,021
    
    
    $
    Stockholders equity
    
    
    49,446,325
    
    
    
    45,716,048Total liabilities and stockholders equity
    
    $
    49,449,346
    
    
    $
    45,716,048
 Condensed Statements of Income
 Year ended December 312005
    
    
    2004
    
    
    2003Operating income:Dividends from subsidiaries
    
    $
    1,975,313
    
    
    $
    1,680,000
    
    
    $
    2,014,688Total operating income
    
    
    1,975,313
    
    
    
    1,680,000
    
    
    
    2,014,688Operating expenses:Administrative and other expenses
    
    
    88,014
    
    
    
    97,032
    
    
    
    46,602Total operating expenses
    
    
    88,014
    
    
    
    97,032
    
    
    
    46,602Income before equity in
undistributed net income
of subsidiaries
    
    
    1,887,299
    
    
    
    1,582,968
    
    
    
    1,968,086Equity in undistributed net income of
subsidiaries
    
    
    4,619,687
    
    
    
    4,708,127
    
    
    
    3,922,811Net income
    
    $
    6,506,986
    
    
    $
    6,291,095
    
    
    $
    5,890,897
 49




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##### Table of Contents



Condensed Statements of Cash Flows
 Year ended December 312005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    6,506,986
    
    
    $
    6,291,095
    
    
    $
    5,890,897Adjustments to reconcile net income to
net cash provided by operating activities:Decrease (increase) in other assets
    
    
    23,145
    
    
    
    (1,256
    )
    
    
    8,305Increase (decrease) in other liabilities
    
    
    3,021
    
    
    
    (24,700
    )
    
    
    3,500Change in
long term incentive plan and deferred compensation
    
    
    253,996
    
    
    
    263,635
    
    
    
    24,630Equity in undistributed net income of
subsidiaries
    
    
    (4,619,687
    )
    
    
    (4,708,127
    )
    
    
    (3,922,811
    )(4,339,525
    )
    
    
    (4,470,448
    )
    
    
    (3,886,376
    )Net cash provided by
operating activities
    
    
    2,167,461
    
    
    
    1,820,647
    
    
    
    2,004,521Cash flows from investing activities:Investments in and advancements to
subsidiary, net
    
    
    188,624
    
    
    
    (10,000
    )
    
    
    (70,000
    )Net cash provided by (used in) investing
activities
    
    
    188,624
    
    
    
    (10,000
    )
    
    
    (70,000
    )Cash flows from financing activities:Dividends paid
    
    
    (2,547,690
    )
    
    
    (2,286,173
    )
    
    
    (2,151,047
    )Common stock issued
    
    
    95,975
    
    
    
    109,521
    
    
    
    260,809Transfer from subsidiary for directors
deferred compensation
    
    
    
    
    
    
    437,211
    
    
    
    Net cash used in financing
activities
    
    
    (2,451,715
    )
    
    
    (1,739,441
    )
    
    
    (1,890,238
    )Net increase (decrease) in cash
    
    
    (95,630
    )
    
    
    71,206
    
    
    
    44,283Cash at beginning of year
    
    
    148,585
    
    
    
    77,379
    
    
    
    33,096Cash at end of year
    
    $
    52,955
    
    
    $
    148,585
    
    
    $
    77,379
 50




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##### Table of Contents



(26)
    
    Quarterly Financial Data  Unaudited
  Quarters ended in 2005March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Selected operations data:Interest and dividend income
    
    $
    6,763,696
    
    
    $
    7,211,160
    
    
    $
    7,600,435
    
    
    $
    7,739,616Net interest income
    
    
    5,287,037
    
    
    
    5,526,081
    
    
    
    5,693,856
    
    
    
    5,753,936Provision for loan losses
    
    
    366,000
    
    
    
    1,178,000
    
    
    
    500,000
    
    
    
    993,000Income before federal income taxes
    
    
    2,396,046
    
    
    
    1,625,570
    
    
    
    2,810,160
    
    
    
    2,559,131Net income
    
    
    1,660,950
    
    
    
    1,158,670
    
    
    
    1,924,460
    
    
    
    1,762,906Basic net income per share
    
    
    0.52
    
    
    
    0.36
    
    
    
    0.60
    
    
    
    0.55Diluted net income per share
    
    
    0.52
    
    
    
    0.36
    
    
    
    0.60
    
    
    
    0.55Cash dividends per share
    
    
    0.19
    
    
    
    0.19
    
    
    
    0.21
    
    
    
    0.21
 Quarters ended in 2004March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Selected operations data:Interest and dividend income
    
    $
    6,109,186
    
    
    $
    5,984,536
    
    
    $
    6,256,913
    
    
    $
    6,641,075Net interest income
    
    
    4,677,850
    
    
    
    4,625,586
    
    
    
    4,902,904
    
    
    
    5,179,504Provision for loan losses
    
    
    495,000
    
    
    
    200,000
    
    
    
    300,000
    
    
    
    195,000Income before federal income taxes
    
    
    2,081,310
    
    
    
    1,863,320
    
    
    
    2,370,692
    
    
    
    2,703,929Net income
    
    
    1,455,804
    
    
    
    1,315,270
    
    
    
    1,647,092
    
    
    
    1,872,929Basic net income per share
    
    
    0.46
    
    
    
    0.41
    
    
    
    0.52
    
    
    
    0.59Diluted net income per share
    
    
    0.46
    
    
    
    0.41
    
    
    
    0.52
    
    
    
    0.58Cash dividends per share
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.19
    
    
    
    0.19
 (27)
    
    Impact of New Accounting Standards
 Share-Based Payment Accounting for Stock-Based
Compensation, Accounting for Stock Issued to Employees,
  51




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##### Table of Contents



The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments.
 
 Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
 Managements Annual Report on Internal Control Over Financial Reporting. Internal
Control  Integrated Framework
  Attestation Report of the Registered Independent Public Accounting Firm.
 Change in Internal Control Over Financial Reporting.
 
 Item 9B. Other Information.
  52




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
 Directors
 Executive Officers
 www.fnbsite.com
 
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
   Number of securities remainingNumber of securities to be
    
    Weighted - average
    
    available for future issuanceissued upon exercise of
    
    exercise price of
    
    under equity compensationoutstanding options,
    
    outstanding options,
    
    plans (excluding securitiesPlan Category
    
    warrants, and rights
    
    warrants, and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation plans approved by security holders
    
    0
    
    0
    
    273,522 (1)
 
  
 Item 13. Certain Relationships and Related Transactions.
  53




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##### Table of Contents



Item 14. Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    Documents files as part of this report on Form 10-K.1.
    
    Financial StatementsThe financial statements are set forth under Item 8 of this report of 10-K.2.
    
    Financial Statement ScheduleNot 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.
 54




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##### Table of Contents



SIGNATURES
   /s/ Herbert W. Bursch
    
    Herbert W. Bursch, President & Chief Executive Officer(Principal Executive Officer)/s/ Janice B. Trouba
    
    Janice B. Trouba, Chief Financial Officer(Principal Financial and Accounting Officer)
  Signature
    
    DateW. Rickard Scofield, Chairman of the Board
    
    /s/ W. Rickard Scofield
    
    3/6/2006Donald K. Burkel, Vice Chairman of the Board
    
    /s/ Donald K. Burkel
    
    3/6/2006Athena Bacalis, Director
    
    /s/ Athena Bacalis
    
    3/6/2006Gary R. Boss, Director
    
    /s/ Gary R. Boss
    
    3/6/2006Herbert W. Bursch, Director
    
    /s/ Herbert W. Bursch
    
    3/6/2006Barbara Draper, Director
    
    /s/ Barbara Draper
    
    3/6/2006Richard F. Hopper, Director
    
    /s/ Richard F. Hopper
    
    3/6/2006Dona Scott Laskey, Director
    
    /s/ Dona Scott Laskey
    
    3/6/2006James R. McAuliffe, Director
    
    /s/ James R. McAuliffe
    
    3/6/2006Randolph E. Rudisill, Director
    
    /s/ Randolph E. Rudisill
    
    3/6/2006R. Michael Yost, Director
    
    /s/ R. Michael Yost
    
    3/6/2006
 55




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##### Table of Contents



EXHIBIT INDEX
  Number
 (10)
    
    FNBH Bancorp, Inc. Employees Stock Purchase Plan as Amended January 20, 2005(21)
    
    Subsidiaries of the Registrant(23.1)
    
    Consent of BDO Seidman, LLP(23.2)
    
    Consent of KPMG, LLP(24)
    
    Power of Attorney (included in signature section)(31.1)
    
    Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.(31.2)
    
    Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.(32.1)
    
    Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).(32.2)
    
    Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 906 of
the Sarbanes Oxley Act of 2002 (18 U.S.C. 1350).
 56




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##### Table of Contents



ExhibitNumber
    
    
    
    Original Filing Form and Date(3.1)
    
    Restated Articles of Incorporation
of the Registrant
    
    Exhibit 3.1 of Form 10,
effective June 30, 1995 (Form 10)(3.2)
    
    Amendment to the Corporations
Articles of Incorporation to Increase Authorized Shares
    
    Appendix I of Proxy Statement dated March 17, 1998(3.3)
    
    Bylaws of the Registrant
    
    Exhibit 3.2 of Form 10(4)
    
    Form of Registrants Stock Certificate
    
    Exhibit 4 of Form 10Material Contracts:(10.1)
    
    Howell Branch Lease Agreement
    
    Exhibit 10.2 to Form 10(10.2)
    
    Corporations Long Term Incentive Plan*
    
    Appendix II of Proxy Statement dated March 17, 1998(10.3)
    
    FNBH Bancorp Inc. Employees
Stock Purchase Plan
    
    Exhibit 4 to Registration
Statement on Form S-8 (Reg. No. 333-46244)(10.4)
    
    Amended and Restated Compensation Plan for Nonemployee Directors*
    
    Appendix II of Proxy
Statement dated March 15, 2002
 
 *
    
    Represents a compensation plan 57