##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to
 Commission file number 0-25752
 FNBH BANCORP, INC.
  MICHIGAN
    
    38-2869722(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 101 East Grand River, Howell, Michigan
    
    48843(Address of principal executive offices)
    
    (Zip Code)
  
  þ o
  o þ o
 o þ




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##### 



TABLE OF CONTENTS
 PageNumberPart I. Financial Information (unaudited)Item 1. Financial Statements:Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    1Consolidated Statements of Income for the three months and six months ended June 30, 2006 and 2005
    
    
    2Consolidated Statements of Stockholders Equity and Comprehensive Income
for the three months ended June 30, 2006 and 2005
    
    
    3Consolidated Statements of Stockholders Equity and Comprehensive
Income for the six months ended June 30, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II. Other InformationItem 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    20Signatures
    
    
    21Certification of the Chief Executive Officer to Section 302Certification of the Chief Financial Officer to Section 302Certification of the Chief Executive Officer to Section 906Certification of the Chief Financial Officer to Section 906




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 FNBH BANCORP, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets (Unaudited)
 June 30
    
    
    December 312006
    
    
    2005AssetsCash and due from banks
    
    $
    12,960,614
    
    
    $
    19,281,982Short term investments
    
    
    51,585
    
    
    
    4,819,709Total cash and cash equivalents
    
    
    13,012,199
    
    
    
    24,101,691Certificates of deposit
    
    
    6,772,000
    
    
    
    7,166,000Investment Securities:Investment securities held to maturity, net (fair value of
$17,520,787
at June 30, 2006 and $16,763,204 at December 31, 2005)
    
    
    17,455,365
    
    
    
    16,425,674Investment securities available for sale, at fair value
    
    
    29,323,418
    
    
    
    32,388,356Mortgage-backed securities available for sale, at fair value
    
    
    12,861,377
    
    
    
    12,405,476FHLBI and FRB stock, at cost
    
    
    1,153,550
    
    
    
    1,153,550Total investment securities
    
    
    60,793,710
    
    
    
    62,373,056Loans:Commercial
    
    
    306,813,407
    
    
    
    305,387,518Consumer
    
    
    31,547,247
    
    
    
    36,161,235Real estate mortgage
    
    
    31,039,714
    
    
    
    31,306,493Total loans
    
    
    369,400,368
    
    
    
    372,855,246Less allowance for loan losses
    
    
    (7,468,830
    )
    
    
    (6,991,125
    )Net loans
    
    
    361,931,538
    
    
    
    365,864,121Premises and equipment, net
    
    
    10,126,477
    
    
    
    10,465,856Other real estate owned, held for sale
    
    
    1,674,000
    
    
    
    679,733Accrued interest and other assets
    
    
    6,519,101
    
    
    
    6,574,686Total assets
    
    $
    460,829,025
    
    
    $
    477,225,143Liabilities and Stockholders EquityLiabilitiesDeposits:Demand (non-interest bearing)
    
    $
    68,395,864
    
    
    $
    71,415,340NOW
    
    
    35,691,081
    
    
    
    40,739,655Savings and money market
    
    
    108,466,963
    
    
    
    133,865,335Time deposits
    
    
    157,108,961
    
    
    
    145,927,984Brokered certificates of deposit
    
    
    29,265,414
    
    
    
    30,137,273Total deposits
    
    
    398,928,283
    
    
    
    422,085,587Other borrowings
    
    
    8,076,084
    
    
    
    1,785,094Accrued interest, taxes, and other liabilities
    
    
    3,544,351
    
    
    
    3,908,137Total liabilities
    
    
    410,548,718
    
    
    
    427,778,818Stockholders EquityCommon stock, no par value. Authorized 4,200,000 shares;
3,161,690
shares issued and outstanding at June 30, 2006 and 3,187,374
shares
issued and outstanding at December 31, 2005
    
    
    6,143,636
    
    
    
    6,088,540Retained earnings
    
    
    44,286,479
    
    
    
    43,389,917Deferred directors compensation
    
    
    666,242
    
    
    
    575,045Accumulated other comprehensive loss, net
    
    
    (816,050
    )
    
    
    (607,177
    )Total stockholders equity
    
    
    50,280,307
    
    
    
    49,446,325Total liabilities and stockholders equity
    
    $
    460,829,025
    
    
    $
    477,225,143
  1




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
 Three months ended June 30
    
    
    Six months ended June 302006
    
    
    2005
    
    
    2006
    
    
    2005Interest and dividend income:Interest and fees on loans
    
    $
    7,235,288
    
    
    $
    6,492,546
    
    
    $
    14,319,851
    
    
    $
    12,509,403Interest and dividends on investment securities:U.S. Treasury and agency securities
    
    
    403,585
    
    
    
    426,642
    
    
    
    823,407
    
    
    
    853,029Obligations of states and political
subdivisions
    
    
    185,556
    
    
    
    184,982
    
    
    
    376,477
    
    
    
    370,645Corporate bonds
    
    
    2,372
    
    
    
    14,941
    
    
    
    17,560
    
    
    
    30,040Other securities
    
    
    15,004
    
    
    
    12,801
    
    
    
    28,285
    
    
    
    24,378Interest on short term investments
    
    
    25,390
    
    
    
    28,548
    
    
    
    107,600
    
    
    
    113,426Interest on certificates of deposit
    
    
    71,939
    
    
    
    50,700
    
    
    
    144,308
    
    
    
    73,935Total interest and dividend income
    
    
    7,939,134
    
    
    
    7,211,160
    
    
    
    15,817,488
    
    
    
    13,974,856Interest expense:Interest on deposits
    
    
    2,364,566
    
    
    
    1,602,686
    
    
    
    4,419,913
    
    
    
    2,973,484Interest on other borrowings
    
    
    38,796
    
    
    
    82,393
    
    
    
    75,825
    
    
    
    188,254Total interest expense
    
    
    2,403,362
    
    
    
    1,685,079
    
    
    
    4,495,738
    
    
    
    3,161,738Net interest income
    
    
    5,535,772
    
    
    
    5,526,081
    
    
    
    11,321,750
    
    
    
    10,813,118Provision for loan losses
    
    
    754,000
    
    
    
    1,178,000
    
    
    
    1,354,000
    
    
    
    1,544,000Net interest income after provision for loan
losses
    
    
    4,781,772
    
    
    
    4,348,081
    
    
    
    9,967,750
    
    
    
    9,269,118Noninterest income:Service charges and other fee income
    
    
    919,688
    
    
    
    817,372
    
    
    
    1,830,695
    
    
    
    1,651,620Trust income
    
    
    79,684
    
    
    
    64,946
    
    
    
    163,467
    
    
    
    129,617Gain on sale of loans
    
    
    15,891
    
    
    
    23,364
    
    
    
    27,192
    
    
    
    39,671Other
    
    
    
    
    
    
    
    
    
    
    667
    
    
    
    55,598Total noninterest income
    
    
    1,015,263
    
    
    
    905,682
    
    
    
    2,022,021
    
    
    
    1,876,506Noninterest expense:Salaries and employee benefits
    
    
    2,229,442
    
    
    
    1,844,871
    
    
    
    4,366,962
    
    
    
    3,813,680Net occupancy expense
    
    
    278,388
    
    
    
    279,373
    
    
    
    593,932
    
    
    
    603,058Equipment expense
    
    
    196,769
    
    
    
    219,779
    
    
    
    395,272
    
    
    
    424,225Professional and service fees
    
    
    473,650
    
    
    
    472,531
    
    
    
    959,943
    
    
    
    814,964Computer service fees
    
    
    82,356
    
    
    
    86,372
    
    
    
    163,527
    
    
    
    173,668Printing and supplies
    
    
    84,126
    
    
    
    90,608
    
    
    
    156,585
    
    
    
    179,594Advertising
    
    
    48,886
    
    
    
    84,894
    
    
    
    154,363
    
    
    
    139,992Other
    
    
    467,801
    
    
    
    549,765
    
    
    
    956,643
    
    
    
    974,827Total noninterest expense
    
    
    3,861,418
    
    
    
    3,628,193
    
    
    
    7,747,227
    
    
    
    7,124,008Income before federal income taxes
    
    
    1,935,617
    
    
    
    1,625,570
    
    
    
    4,242,544
    
    
    
    4,021,616Federal income taxes
    
    
    582,020
    
    
    
    466,900
    
    
    
    1,286,199
    
    
    
    1,201,996Net income
    
    $
    1,353,597
    
    
    $
    1,158,670
    
    
    $
    2,956,345
    
    
    $
    2,819,620Per share statistics:Basic EPS
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.92
    
    
    $
    0.88Diluted EPS
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.92
    
    
    $
    0.88Dividends
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.42
    
    
    $
    0.38Basic average shares outstanding
    
    
    3,201,281
    
    
    
    3,199,370
    
    
    
    3,201,714
    
    
    
    3,196,643Diluted average shares outstanding
    
    
    3,201,353
    
    
    
    3,200,184
    
    
    
    3,201,784
    
    
    
    3,197,492
  2




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity and Comprehensive Income
 For the Three Months Ended June 30, 2006 and 2005
 AccumulatedDeferred
    
    
    OtherCommon
    
    
    Retained
    
    
    Directors
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Compensation
    
    
    Loss
    
    
    TotalBalances at March 31, 2005
    
    $
    5,941,358
    
    
    $
    40,487,437
    
    
    $
    476,265
    
    
    $
    (517,806
    )
    
    $
    46,387,254Amortization of long term incentive plan
    
    
    13,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,013Issued 407 shares for employee stock purchase plan
    
    
    11,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,437Issued 196 shares for current directors fees
    
    
    5,798
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,798Issued 986 shares for variable directors fees
    
    
    29,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,787Deferred compensation (1,852 stock units)
    
    
    
    
    
    
    
    
    
    
    55,483
    
    
    
    
    
    
    
    55,483Comprehensive income:Net income
    
    
    
    
    
    
    1,158,670
    
    
    
    
    
    
    
    
    
    
    
    1,158,670Change in unrealized loss on debt securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    354,575
    
    
    
    354,575Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,513,245Cash dividends ($.19 per share)
    
    
    
    
    
    
    (605,253
    )
    
    
    
    
    
    
    
    
    
    
    (605,253
    )Balances at June 30, 2005
    
    $
    6,001,393
    
    
    $
    41,040,854
    
    
    $
    531,748
    
    
    $
    (163,231
    )
    
    $
    47,410,764Balances at March 31, 2006
    
    $
    6,106,215
    
    
    $
    44,157,837
    
    
    $
    600,088
    
    
    $
    (653,703
    )
    
    $
    50,210,437Amortization of long term incentive plan
    
    
    43,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,070Issued 262 shares for employee stock purchase plan
    
    
    6,502
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,502Issued 46 shares for current directors fees
    
    
    1,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,202Issued 1,244 shares for variable directors fees
    
    
    32,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,257Deferred compensation (2,543 stock units)
    
    
    
    
    
    
    
    
    
    
    66,154
    
    
    
    
    
    
    
    66,154Comprehensive income:Net income
    
    
    
    
    
    
    1,353,597
    
    
    
    
    
    
    
    
    
    
    
    1,353,597Change in unrealized loss on debt securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162,347
    )
    
    
    (162,347
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,191,250Repurchase of shares (23,000 shares)
    
    
    (45,610
    )
    
    
    (556,205
    )
    
    
    
    
    
    
    
    
    
    
    (601,815
    )Cash dividends ($.21 per share)
    
    
    
    
    
    
    (668,750
    )
    
    
    
    
    
    
    
    
    
    
    (668,750
    )Balances at June 30, 2006
    
    $
    6,143,636
    
    
    $
    44,286,479
    
    
    $
    666,242
    
    
    $
    (816,050
    )
    
    $
    50,280,307
  3




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Equity and Comprehensive Income
For the Six Months Ended June 30, 2006 and 2005
 AccumulatedDeferred
    
    
    OtherCommon
    
    
    Retained
    
    
    Directors
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Compensation
    
    
    Loss
    
    
    TotalBalances at December 31, 2004
    
    $
    5,858,133
    
    
    $
    39,430,621
    
    
    $
    455,481
    
    
    $
    (28,187
    )
    
    $
    45,716,048Amortization of long term incentive plan
    
    
    29,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,571Issued 2,809 shares for employee stock purchase
plan
    
    
    72,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,952Issued 367 shares for current directors fees
    
    
    10,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,950Issued 986 shares for variable directors fees
    
    
    29,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,787Deferred compensation (2,542 stock units)
    
    
    
    
    
    
    
    
    
    
    76,267
    
    
    
    
    
    
    
    76,267Comprehensive income:Net income
    
    
    
    
    
    
    2,819,620
    
    
    
    
    
    
    
    
    
    
    
    2,819,620Change in unrealized loss on debt securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,044
    )
    
    
    (135,044
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,684,576Cash dividends ($.38 per share)
    
    
    
    
    
    
    (1,209,387
    )
    
    
    
    
    
    
    
    
    
    
    (1,209,387
    )Balances at June 30, 2005
    
    $
    6,001,393
    
    
    $
    41,040,854
    
    
    $
    531,748
    
    
    $
    (163,231
    )
    
    $
    47,410,764Balances at December 31, 2005
    
    $
    6,088,540
    
    
    $
    43,389,917
    
    
    $
    575,045
    
    
    $
    (607,177
    )
    
    $
    49,446,325Amortization of long term incentive plan
    
    
    57,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,925Issued 696 shares for employee stock purchase plan
    
    
    17,175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,175Issued 270 shares for current directors fees
    
    
    6,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,999Issued 1,244 shares for variable directors fees
    
    
    32,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,257Deferred compensation (3,511 stock units)
    
    
    
    
    
    
    
    
    
    
    91,197
    
    
    
    
    
    
    
    91,197Comprehensive income:Net income
    
    
    
    
    
    
    2,956,345
    
    
    
    
    
    
    
    
    
    
    
    2,956,345Change in unrealized loss on debt securities
available for sale, net of tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208,873
    )
    
    
    (208,873
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,747,472Repurchase of shares (30,000 shares)
    
    
    (59,260
    )
    
    
    (723,155
    )
    
    
    
    
    
    
    
    
    
    
    (782,415
    )Cash dividends ($.42 per share)
    
    
    
    
    
    
    (1,336,628
    )
    
    
    
    
    
    
    
    
    
    
    (1,336,628
    )Balances at June 30, 2006
    
    $
    6,143,636
    
    
    $
    44,286,479
    
    
    $
    666,242
    
    
    $
    (816,050
    )
    
    $
    50,280,307
  4




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##### Table of Contents



FNBH BANCORP, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Six months ended June 302006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    2,956,345
    
    
    $
    2,819,620Adjustments to reconcile net income to net cash provided by operating
activities:Provision for loan losses
    
    
    1,354,000
    
    
    
    1,544,000Depreciation and amortization
    
    
    477,435
    
    
    
    497,262Deferred income tax benefit
    
    
    (30,724
    )
    
    
    (4,620
    )Net amortization on investment securities
    
    
    4,872
    
    
    
    11,487Earned portion of long term incentive plan
    
    
    57,925
    
    
    
    29,571Shares issued for current directors compensation
    
    
    39,256
    
    
    
    40,737Shares earned for deferred directors compensation
    
    
    91,197
    
    
    
    76,267Gain on sale of loans
    
    
    (27,192
    )
    
    
    (39,671
    )Proceeds from sale of loans
    
    
    2,606,556
    
    
    
    2,885,247Origination of loans held for sale
    
    
    (2,588,218
    )
    
    
    (2,859,924
    )(Gain) loss on the sale of other real estate owned, held for sale
    
    
    21,410
    
    
    
    (48,931
    )Proceeds from sale of other real estate owned, held for sale
    
    
    243,323
    
    
    
    448,931Loss on sale of land and facilities held for sale
    
    
    
    
    
    
    2,595Proceeds from sale of land and facilities held for sale
    
    
    
    
    
    
    93,085Increase in accrued interest income and other assets
    
    
    193,909
    
    
    
    (129,432
    )Increase in accrued interest, taxes, and other liabilities
    
    
    (387,786
    )
    
    
    (779,248
    )Net cash provided by operating activities
    
    
    5,012,308
    
    
    
    4,586,976Cash flows from investing activities:Purchases of available for sale securities
    
    
    (1,860,624
    )
    
    
    (2,235,190
    )Purchases of held to maturity securities
    
    
    (2,575,585
    )
    
    
    (564,998
    )Purchases/Stock dividend FHLBI stock
    
    
    
    
    
    
    (22,900
    )Proceeds from maturities and calls of available for sale securities
    
    
    3,205,826
    
    
    
    1,000,000Proceeds from mortgage-backed securities paydowns-available for sale
    
    
    953,384
    
    
    
    1,703,160Proceeds from maturities and calls of held to maturity securities
    
    
    1,535,000
    
    
    
    405,000Purchases of certificates of deposit
    
    
    (2,355,000
    )
    
    
    (5,201,000
    )Maturity of certificates of deposit
    
    
    2,749,000
    
    
    
    4,223,000Net (increase) decrease in loans
    
    
    1,352,437
    
    
    
    (14,243,257
    )Capital expenditures
    
    
    (138,056
    )
    
    
    (185,242
    )Net cash provided by (used in) investing activities
    
    
    2,866,382
    
    
    
    (15,121,427
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    (23,157,304
    )
    
    
    15,650,507Payments on FHLBI note
    
    
    (304,281
    )
    
    
    (3,281,742
    )Proceeds from issuance of short term debt
    
    
    6,595,271
    
    
    
    11,000,000Repayment of short term debt
    
    
    
    
    
    
    (8,000,000
    )Repurchase of common stock
    
    
    (782,415
    )
    
    
    Dividends paid
    
    
    (1,336,628
    )
    
    
    (1,209,387
    )Shares issued for employee stock purchase
    
    
    17,175
    
    
    
    72,952Net cash provided by (used in) financing activities
    
    
    (18,968,182
    )
    
    
    14,232,330Net increase (decrease) in cash and cash equivalents
    
    
    (11,089,492
    )
    
    
    3,697,879Cash and cash equivalents at beginning of year
    
    
    24,101,691
    
    
    
    17,838,343Cash and cash equivalents at end of period
    
    $
    13,012,199
    
    
    $
    21,536,222Supplemental disclosures:Interest paid
    
    $
    4,392,860
    
    
    $
    3,075,389Federal income taxes paid
    
    
    1,632,919
    
    
    
    1,691,682Loans transferred to other real estate
    
    
    1,259,000
    
    
    
    296,770Loans charged off
    
    
    1,045,672
    
    
    
    604,546
  5




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##### Table of Contents



Notes to Consolidated Financial Statements
       June 30, 2006
    
    
    December 31, 2005Unrealized
    
    
    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
    
    $
    17,455,365
    
    
    $
    197,517
    
    
    $
    (132,095
    )
    
    $
    17,520,787
    
    
    $
    16,425,674
    
    
    $
    365,562
    
    
    $
    (28,032
    )
    
    $
    16,763,204Total held to maturity
    
    
    17,455,365
    
    
    
    197,517
    
    
    
    (132,095
    )
    
    
    17,520,787
    
    
    
    16,425,674
    
    
    
    365,562
    
    
    
    (28,032
    )
    
    
    16,763,204Available for sale:U.S Treasury and agency
securities
    
    
    30,102,587
    
    
    
    
    
    
    
    (779,169
    )
    
    
    29,323,418
    
    
    
    32,095,107
    
    
    
    6,068
    
    
    
    (717,398
    )
    
    
    31,383,777Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,062
    
    
    
    4,517
    
    
    
    
    
    
    
    1,004,579Mortgage-backed securities
    
    
    13,318,647
    
    
    
    9,430
    
    
    
    (466,700
    )
    
    
    12,861,377
    
    
    
    12,618,628
    
    
    
    35,073
    
    
    
    (248,225
    )
    
    
    12,405,476Total available for sale
    
    
    43,421,234
    
    
    
    9,430
    
    
    
    (1,245,869
    )
    
    
    42,184,795
    
    
    
    45,713,797
    
    
    
    45,658
    
    
    
    (965,623
    )
    
    
    44,793,832Total securities
    
    $
    60,876,599
    
    
    $
    206,947
    
    
    $
    (1,377,964
    )
    
    $
    59,705,582
    
    
    $
    62,139,471
    
    
    $
    411,220
    
    
    $
    (993,655
    )
    
    $
    61,557,036
  6




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##### Table of Contents



June 30, 2006Less 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
    
    $
    (148,500
    )
    
    $
    5,737,440
    
    
    $
    (630,669
    )
    
    $
    23,585,978
    
    
    $
    (779,169
    )
    
    $
    29,323,418Mortgage-backed securities
    
    
    (207,389
    )
    
    
    7,510,466
    
    
    
    (259,311
    )
    
    
    4,823,787
    
    
    
    (466,700
    )
    
    
    12,334,253Total available for sale
    
    $
    (355,889
    )
    
    $
    13,247,906
    
    
    $
    (889,980
    )
    
    $
    28,409,765
    
    
    $
    (1,245,869
    )
    
    $
    41,657,671
     Second Quarter
    
    Year-to-Date2006
    
    2005
    
    2006
    
    2005Weighted average basic shares outstanding
    
    
    3,201,281
    
    
    
    3,199,370
    
    
    
    3,201,714
    
    
    
    3,196,643Effect of dilutive restricted stock
    
    
    72
    
    
    
    814
    
    
    
    70
    
    
    
    849Weighted average diluted shares outstanding
    
    
    3,201,353
    
    
    
    3,200,184
    
    
    
    3,201,784
    
    
    
    3,197,492Net income
    
    $
    1,353,597
    
    
    $
    1,158,670
    
    
    $
    2,956,345
    
    
    $
    2,819,620Basic net income per share
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.92
    
    
    $
    0.88Diluted net income per share
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.92
    
    
    $
    0.88
  7




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Earnings
    
    Second Quarter
    
    
    Year-to-Date(in thousands except per share data)
    
    2006
    
    2005
    
    2006
    
    2005Net income
    
    $
    1,354
    
    
    $
    1,159
    
    
    $
    2,956
    
    
    $
    2,820Basic and diluted net income per share
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.92
    
    
    $
    0.88
    Net Interest Income
    
    Second Quarter
    
    
    Year-to-Date(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Interest and dividends income
    
    $
    7,939
    
    
    $
    7,211
    
    
    $
    15,817
    
    
    $
    13,975Interest expense
    
    
    2,403
    
    
    
    1,685
    
    
    
    4,496
    
    
    
    3,162Net interest income
    
    $
    5,536
    
    
    $
    5,526
    
    
    $
    11,321
    
    
    $
    10,813
  8




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##### Table of Contents



INTEREST YIELDS AND COSTS (in thousands)
June 30, 2006 and 2005
 Second Quarter Averages2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssets:Interest earning assets:Short term investments
    
    $
    1,930
    
    
    $
    23.4
    
    
    
    4.79
    %
    
    $
    3,740
    
    
    $
    26.8
    
    
    
    2.83
    %Certificates of deposit
    
    
    6,771
    
    
    
    72.0
    
    
    
    4.26
    %
    
    
    7,258
    
    
    
    50.7
    
    
    
    2.76
    %Securities: Taxable
    
    
    44,386
    
    
    
    421.0
    
    
    
    3.79
    %
    
    
    48,280
    
    
    
    454.4
    
    
    
    3.76
    %Tax-exempt (1)
    
    
    17,019
    
    
    
    261.9
    
    
    
    6.16
    %
    
    
    16,208
    
    
    
    266.5
    
    
    
    6.58
    %Commercial loans (2)(3)
    
    
    308,022
    
    
    
    6,106.7
    
    
    
    7.84
    %
    
    
    297,772
    
    
    
    5,314.8
    
    
    
    7.06
    %Consumer loans (2)(3)
    
    
    32,525
    
    
    
    685.0
    
    
    
    8.45
    %
    
    
    35,727
    
    
    
    685.0
    
    
    
    7.69
    %Mortgage loans (2)(3)
    
    
    31,335
    
    
    
    473.9
    
    
    
    6.05
    %
    
    
    34,198
    
    
    
    528.0
    
    
    
    6.18
    %Total earning assets and total interest income
    
    
    441,988
    
    
    
    8,043.9
    
    
    
    7.22
    %
    
    
    443,183
    
    
    
    7,326.2
    
    
    
    6.56
    %Cash and due from banks
    
    
    10,353
    
    
    
    
    
    
    
    
    
    
    
    10,994All other assets
    
    
    16,659
    
    
    
    
    
    
    
    
    
    
    
    16,781Allowance for loan losses
    
    
    (7,363
    )
    
    
    
    
    
    
    
    
    
    
    (6,203
    )Total Assets
    
    $
    461,637
    
    
    
    
    
    
    
    
    
    
    $
    464,755Liabilities and Stockholders Equity:Interest bearing liabilities:NOW, Savings & MMDA
    
    $
    151,994
    
    
    
    441.7
    
    
    
    1.17
    %
    
    $
    174,889
    
    
    
    333.0
    
    
    
    0.76
    %Time
    
    
    186,370
    
    
    
    1,922.9
    
    
    
    4.14
    %
    
    
    158,827
    
    
    
    1,269.7
    
    
    
    3.21
    %Short term borrowings
    
    
    953
    
    
    
    11.5
    
    
    
    4.78
    %
    
    
    4,710
    
    
    
    38.7
    
    
    
    3.25
    %FHLBI advances
    
    
    1,481
    
    
    
    27.3
    
    
    
    7.29
    %
    
    
    2,346
    
    
    
    43.6
    
    
    
    7.36
    %Total interest bearing liabilities and
Total interest expense
    
    
    340,798
    
    
    
    2,403.4
    
    
    
    2.83
    %
    
    
    340,772
    
    
    
    1,685.0
    
    
    
    1.98
    %Non-interest bearing deposits
    
    
    66,582
    
    
    
    
    
    
    
    
    
    
    
    73,309All other liabilities
    
    
    3,748
    
    
    
    
    
    
    
    
    
    
    
    3,349Stockholders Equity
    
    
    50,509
    
    
    
    
    
    
    
    
    
    
    
    47,325Total Liabilities and Shareholders Equity
    
    $
    461,637
    
    
    
    
    
    
    
    
    
    
    $
    464,755Interest spread
    
    
    
    
    
    
    
    
    
    
    4.39
    %
    
    
    
    
    
    
    
    
    
    
    4.58
    %Net interest income-FTE
    
    
    
    
    
    $
    5,640.5
    
    
    
    
    
    
    
    
    
    
    $
    5,641.2Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.04
    %
    
    
    
    
    
    
    
    
    
    
    5.04
    %
 
 (1)
    
    Average yields on 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 are included in the average
daily loan balances.(3)
    
    Interest on loans includes origination fees totaling $123,000 in 2006 and $152,000 in
2005.
 9




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##### Table of Contents



INTEREST YIELDS AND COSTS (in thousands)
June 30, 2006 and 2005
 Year-to-Date Averages2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssets:Interest earning assets:Short term investments
    
    $
    4,665
    
    
    $
    103.6
    
    
    
    4.42
    %
    
    $
    8,772
    
    
    $
    110.5
    
    
    
    2.51
    %Certificates of deposit
    
    
    6,959
    
    
    
    144.3
    
    
    
    4.18
    %
    
    
    5,937
    
    
    
    73.9
    
    
    
    2.51
    %Securities: Taxable
    
    
    45,483
    
    
    
    869.2
    
    
    
    3.82
    %
    
    
    48,174
    
    
    
    907.4
    
    
    
    3.77
    %Tax-exempt (1)
    
    
    17,122
    
    
    
    534.0
    
    
    
    6.24
    %
    
    
    16,186
    
    
    
    535.2
    
    
    
    6.61
    %Commercial loans (2)(3)
    
    
    306,996
    
    
    
    12,068.2
    
    
    
    7.82
    %
    
    
    292,793
    
    
    
    10,230.5
    
    
    
    6.95
    %Consumer loans (2)(3)
    
    
    33,832
    
    
    
    1,383.0
    
    
    
    8.24
    %
    
    
    35,879
    
    
    
    1,343.5
    
    
    
    7.55
    %Mortgage loans (2)(3)
    
    
    31,301
    
    
    
    930.7
    
    
    
    5.95
    %
    
    
    34,232
    
    
    
    1,005.7
    
    
    
    5.88
    %Total earning assets and total interest income
    
    
    446,358
    
    
    
    16,033.0
    
    
    
    7.16
    %
    
    
    441,973
    
    
    
    14,206.7
    
    
    
    6.41
    %Cash and due from banks
    
    
    10,594
    
    
    
    
    
    
    
    
    
    
    
    11,091All other assets
    
    
    16,785
    
    
    
    
    
    
    
    
    
    
    
    17,159Allowance for loan losses
    
    
    (7,217
    )
    
    
    
    
    
    
    
    
    
    
    (6,310
    )Total Assets
    
    $
    466,520
    
    
    
    
    
    
    
    
    
    
    $
    463,913Liabilities and Stockholders Equity:Interest bearing liabilities:NOW, Savings & MMDA
    
    $
    160,299
    
    
    
    836.0
    
    
    
    1.05
    %
    
    $
    184,208
    
    
    
    657.4
    
    
    
    0.72
    %Time
    
    
    183,051
    
    
    
    3,583.9
    
    
    
    3.95
    %
    
    
    150,825
    
    
    
    2,316.1
    
    
    
    3.10
    %Short term borrowings
    
    
    887
    
    
    
    20.6
    
    
    
    4.61
    %
    
    
    3,772
    
    
    
    51.9
    
    
    
    2.74
    %FHLBI advances
    
    
    1,511
    
    
    
    55.2
    
    
    
    7.27
    %
    
    
    3,605
    
    
    
    136.3
    
    
    
    7.52
    %Total interest bearing liabilities and
Total interest expense
    
    
    345,748
    
    
    
    4,495.7
    
    
    
    2.62
    %
    
    
    342,410
    
    
    
    3,161.7
    
    
    
    1.86
    %Non-interest bearing deposits
    
    
    66,620
    
    
    
    
    
    
    
    
    
    
    
    71,388All other liabilities
    
    
    3,910
    
    
    
    
    
    
    
    
    
    
    
    3,345Stockholders Equity
    
    
    50,242
    
    
    
    
    
    
    
    
    
    
    
    46,770Total Liabilities and Shareholders Equity
    
    $
    466,520
    
    
    
    
    
    
    
    
    
    
    $
    463,913Interest spread
    
    
    
    
    
    
    
    
    
    
    4.54
    %
    
    
    
    
    
    
    
    
    
    
    4.55
    %Net interest income-FTE
    
    
    
    
    
    $
    11,537.3
    
    
    
    
    
    
    
    
    
    
    $
    11,045.0Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.13
    %
    
    
    
    
    
    
    
    
    
    
    4.97
    %
 
 (1)
    
    Average yields on 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 are included in the average
daily loan balances.(3)
    
    Interest on loans includes origination fees totaling $279,000 in 2006 and $280,000 in
2005.
 10




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##### Table of Contents



Interest Earning Assets/Interest Income
    Interest Bearing Liabilities/Interest Expense
    Liquidity
  11




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##### Table of Contents



Interest Rate Risk
   12




---



##### Table of Contents



Interest Rate Sensitivity as of June 30, 2006
  0-3
    
    
    4-12
    
    
    1-5
    
    
    5+Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssets:Loans
    
    $
    160,896
    
    
    $
    50,832
    
    
    $
    139,630
    
    
    $
    18,042
    
    
    $
    369,400Securities
    
    
    6,860
    
    
    
    11,916
    
    
    
    33,546
    
    
    
    8,472
    
    
    
    60,794Certificates of deposit
    
    
    1,373
    
    
    
    3,240
    
    
    
    2,159
    
    
    
    
    
    
    
    6,772Short term investments
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52Total rate sensitive assets
    
    $
    169,181
    
    
    $
    65,988
    
    
    $
    175,335
    
    
    $
    26,514
    
    
    $
    437,018Liabilities:NOW, savings & MMDA
    
    $
    64,979
    
    
    $
    
    
    
    $
    
    
    
    $
    79,179
    
    
    $
    144,158Time deposits
    
    
    48,518
    
    
    
    102,411
    
    
    
    30,544
    
    
    
    4,901
    
    
    
    186,374Other borrowings
    
    
    6,595
    
    
    
    329
    
    
    
    1,152
    
    
    
    
    
    
    
    8,076Total rate sensitive liabilities
    
    $
    120,092
    
    
    $
    102,740
    
    
    $
    31,696
    
    
    $
    84,080
    
    
    $
    338,608Rate sensitivity gap and ratios:Gap for period
    
    $
    49,089
    
    
    $
    (36,752
    )
    
    $
    143,639
    
    
    $
    (57,566
    )Cumulative gap
    
    
    49,089
    
    
    
    12,337
    
    
    
    155,976
    
    
    
    98,410Cumulative rate sensitive ratio
    
    
    1.41
    
    
    
    1.06
    
    
    
    1.61
    
    
    
    1.29
   Provision for Loan Losses
 Second Quarter
    
    Year-to-Date2006
    
    2005
    
    2006
    
    2005Total
    
    $
    754
    
    
    $
    1,178
    
    
    $
    1,354
    
    
    $
    1,544
   13




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##### Table of Contents



Accounting by Creditors for Impairment of a Loan,
    (in thousands)
 June 30, 2006
    
    
    March 31, 2006
    
    
    December 31, 2005Nonaccrual loans
    
    
    6,738
    
    
    $
    6,201
    
    
    $
    5,23490 days or more past due and still accruing
    
    
    263
    
    
    
    527
    
    
    
    391Total nonperforming loans
    
    
    7,001
    
    
    
    6,728
    
    
    
    5,625Other real estate owned
    
    
    1,674
    
    
    
    658
    
    
    
    680Total nonperforming assets
    
    $
    8,675
    
    
    $
    7,386
    
    
    $
    6,305Nonperforming loans as a percent of total loans
    
    
    1.90
    %
    
    
    1.81
    %
    
    
    1.51
    %Allowance for loan losses as a percent of
nonperforming loans
    
    
    107
    %
    
    
    108
    %
    
    
    124
    %Nonperforming assets as a percent of total loans
and other real estate owned
    
    
    2.34
    %
    
    
    1.98
    %
    
    
    1.69
    %
 14




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##### Table of Contents



2006
    
    
    2005Components:Allowance for loan lossesBalance, beginning of year
    
    $
    6,991
    
    
    $
    6,093Loans charged off:Real estate mortgage
    
    
    
    
    
    
    Commerical
    
    
    771
    
    
    
    345Consumer
    
    
    275
    
    
    
    260Total charge-offs
    
    
    1,046
    
    
    
    605Recoveries to loans previously charged off:Real estate mortgage
    
    
    
    
    
    
    Commerical
    
    
    99
    
    
    
    15Consumer
    
    
    95
    
    
    
    64Total recoveries
    
    
    194
    
    
    
    79Net loans charged off
    
    
    852
    
    
    
    526Additions to allowance charged to operations
    
    
    1,330
    
    
    
    1,546Balance, end of quarter
    
    
    7,469
    
    
    
    7,113Reserve for unfunded credit commitmentsBalance, beginning of year
    
    
    454
    
    
    
    307Additions (reductions) to reserve charged to operations
    
    
    24
    
    
    
    (2
    )Balance, end of quarter
    
    
    478
    
    
    
    305Total allowance for loan losses and reserve for
unfunded credit commitments
    
    $
    7,947
    
    
    $
    7,418Ratios:Net loans charged off (annualized) to average loans outstanding
    
    
    0.46
    %
    
    
    0.29
    %Allowance for loan losses to loans outstanding
    
    
    2.02
    %
    
    
    1.92
    %
 Noninterest Income
 Second Quarter
    
    Year-to-Date2006
    
    2005
    
    2006
    
    2005Total
    
    $
    1,015
    
    
    $
    906
    
    
    $
    2,022
    
    
    $
    1,877
   15




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##### Table of Contents



Noninterest Expense
 Second Quarter
    
    Year-to-Date2006
    
    2005
    
    2006
    
    2005Total
    
    $
    3,861
    
    
    $
    3,628
    
    
    $
    7,747
    
    
    $
    7,124
   Income Tax Expense
 Second Quarter
    
    Year-to-Date2006
    
    2005
    
    2006
    
    2005Total
    
    $
    582
    
    
    $
    467
    
    
    $
    1,286
    
    
    $
    1,202
  Capital
 June 30, 2006
    
    December 31, 2005Stockholders Equity
    
    $
    50,280
    
    
    $
    49,446Ratio of Equity to Total Assets
    
    
    10.91
    %
    
    
    10.36
    %
  16




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##### Table of Contents



Critical Accounting Policies
  Contractual Obligations
  Impact of New Accounting Standards
 Share-Based Payment
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes.
 17




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##### Table of Contents



Accounting for Servicing of Financial Assets,
 Accounting for Certain Hybrid Financial
Instruments,
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 (a)
    
    Evaluation of Disclosure Controls and Procedures.With the participation of management, the Corporations chief executive officer and
chief financial officer, after evaluating the effectiveness of the Corporations disclosure
controls and procedures (as defined in Exchange Act Rules 13a  15(e) and 15d  15(e)) for
the period ended June 30, 2006, have concluded that, as of such date, the Corporations
disclosure controls and procedures were effective.(b)
    
    Changes in Internal Control Over Financial Reporting.During the quarter ended June 30, 2006, there were no changes in the Corporations internal
control over financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
 
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  18




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##### Table of Contents



Total Number of Shares
    
    Maximum Number ThatTotal Number of
    
    Average Price
    
    Purchased as Part of a
    
    May Yet Be PurchasedPeriod
    
    Shares Purchased
    
    Paid Per Share
    
    Publicly Announced Program
    
    Under the Program (1)April 2006
    
    
    
    
    
    
    
    
    
    
    
    
    100,000May 2006
    
    
    
    
    
    
    
    
    
    
    
    
    100,000June 2006
    
    
    23,000
    
    
    
    26.17
    
    
    
    
    
    77,000Total
    
    
    30,000
    
    
    $
    26.08
    
    
    
    
    
    77,000
 
 (1)
    
    On March 16, 2006, the Corporations Board of Directors authorized a new share repurchase
program. The new repurchase program authorizes the repurchase of up to one hundred thousand
shares of the Corporations common stock and expires March 16, 2007.
 
 Item 4. Submission of Matters to a Vote of Security Holders
    Votes For
    
    Votes AgainstGary R Boss
    
    
    2,108,077
    
    
    
    23,641Herbert W. Bursch
    
    
    2,060,199
    
    
    
    71,519Richard F. Hopper
    
    
    2,090,555
    
    
    
    41,163
  
 
   19




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##### Table of Contents



Item 6. Exhibits
  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).
 20




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##### Table of Contents



FNBH BANCORP, INC./s/ Barbara DraperBarbara DraperPresident and Chief Executive Officer/s/ Janice B. TroubaJanice B. TroubaChief Financial Officer  21




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description31.1
    
    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).